Shutdown, Fed, Amazon, and Real Estate

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 moven news.

Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. And let's get figure out what's happening now in Washington, DC, because they have no idea what's going on down there. They're not even back like in session. I mean they're coming back tomorrow. I mean, the government's about the shutdown and they're still on some holiday.

I think it's very popular in Washington, d C. To not do your job, right. I think that's what the constituency wants.

You think, So it seems like it all right. Nathan Dean, I'm gonna blame him for all this. Nathan Dean is our senior US policy analyst for Bloomberg Intelligence. His job is to make sure this government works. He's not getting it done here. Nathan, talk to us about where we are with this possible shutdown. What's the feeling in Washington, DC these days?

Yeah?

You know, over the weekend, you know, Speaker of the House Kevin McCarthy talked about trying to pass for appropriation bills. You know, there's been talk about some Republicans bypassing the Speaker and working with Democrats to do something called a discharge petition. But if you're sitting in New York City, all you need to know is is that nothing really has changed. I mean, we're heading towards the shutdown Saturday night.

Have a shutdown next week.

So Nathan is the choice for the speaker. I'm assuming, you know, Speaker McCarthy's is kind of driving the bus. Here is this choice, I do a deal with these radical Republicans, these small group Republicans, or I reach across the aisle to Democrats and deal with the political backlash. There is that his choice.

At this point, there's no deal to be done with the radical Republicans. They want to shut down the government, right, Isn't that yes what they want?

It's so much more of like, do I actually ask to the radical Republicans and then shut down the government and then get to a point where the Democrats just say, look, we're not going to deal. I mean, the odds of what the Republicans, some of those conservative Republicans are wanting, are less than a two percent chance of ever going to become law.

And that's being grateful.

So Speaker McCarthy's choice here is essentially saying, look, do I go through the motions of a government shutdown and then do I deal with the Democrats? Or do I deal with the Democrats now and get it over with? Ultimately, this is ending with a deal with the Democrats. And so I think from the Speaker's perspective, really what he has to do here is he has to do this deal, but he has to do it in a way that

By the way, is it do we call them conservatives because they don't really act like that?

Do we that the Freedom Club people? Nathan?

I mean, they're not exactly acting like Ronald Reagan or George H. W.

Bush. It's more like, I don't know what word you use.

How do you describe that other than you know, radical populists.

Well, you know, I could say somebody is a conservative Washington, and I'll get one hundred different answers what that means. But you know, ultimately what's going to happen here is it's the House Freedom Caucus. There's about fifteen or so members, maybe as much as twenty. But I would also point out that there's also another caucus called the House Problem Solvers Caucus. And one of the things that they're trying to do, and we've heard whispers on this is that

I'm ready to do it just yet.

So unfortunately, you know, it's the people that are going to be stuck at you know, the American people are going to suffer a little bit because of this.

I mean, this seems from like, I don't know anything about politics and political calculus, but this seems like a disaster for the Republican Party. How does the leadership allow A? Is it a disaster? And B? How would the leadership at the Republican Party allow this to happen?

Well, you know, it's not like they can come out and just wave their wand and say do as I say. I mean that, you know, the speaker McCarthy's.

But we have whips and majority leaders and things like that.

You know, if the party has fallen apart, you know, if they've lost their minds, then all right, But I'll.

Say, but then you can't control them, right, I mean.

But if they also make a deal within the next two weeks or so, we won't be talking about this come January. We'll be talking about you know, the presidential election cycle.

And so forth.

So there are people out there that say, look, shutdowns will be negative for the party that cause it, in this case would be the Republicans. But the independent voter's mindset is sort of short term, and per your inflation talk prior to this segment, you know, inflation may be around in January, and that may be the big ticket so there are some saying, look, shutdowns are bad, but you know how much of a political price we're gonna have to pay? Maybe not so much.

It's a good point.

It's a good point by but Nathan, let me get your takes of inflation on the UAW and President Biden, Oh yeah, going there, which I think is I mean, such an exciting story because I love the car makers and now you've got these one hundred and fifty thousand workers that are potentially going to make a lot more money.

It's inflationary.

President Biden says he's pro union, but he's also super pro green transition and EVS, which the union feels is in some ways is like their enemy.

How do you look at that whole situation?

Can he does he have the vitality to go and stand on a picket line.

I'm just for me.

This is all about Michigan. I mean, he needs Michigan to win reelection, and going to that picket line is just way to say that. Look, Michigan is one of those five or six states that I need. Going there is just to make sure that President Trump doesn't steal the press cycle by him going there. So you know the actions of President Biden actually walking the picket line and so forth like that. This was a political call.

But this was an easy call for him.

To make because if he doesn't go there, President Trump was going to go there. Other Republican candidates would go there in one of your key states would be you know, you wouldn't actually be in one of those key states that you need.

It'll be tough, though, if some of the workers on the picket line say, hey, Joe, what's with the billions of dollars in subsidies for electric vehicle transitions.

Absolutely, I mean, you know, he's going to have a tough time talking to this. But you know, President Biden also claims to be the most pro union president ever Scranton, Pennsylvania, and this is something so I wouldn't put it past him to be able to rely on some of the institutional knowledge he's had over those seven years, seventy years to try and go forth and you know, at least get some talking points out of there. So I don't think it's going to be that much impactful in the

So is it expectation in DC? We're getting off topic a little bit. It's going to be Biden for the Democratic Party. Is or any credible discussion otherwise?

No.

I mean, look, we're three months away from a primary process, and if President Biden were to stand up and say, look, I'm not going to run for president, you know who would take his place? Obviously have Vice President Kamala Harris. But you know Vice President Harris was the first one to bow out in the twenty you know, in the prior election. That person doesn't automatically get the party's mantle.

I think he's in this for the long bow.

All right, Nathan, thanks so much for joining us. We can go a million ways with you. You've always got everything on topic. Nathan Deane, Senior Polo Saneles for the US government for Bloomberg Intelligence. He's based down in Washington, d C. And he is our go to guy. So there's a lot of balls in the air down in DC. Most notably, is this government gonna shut down? And it looks like appears at this stage at least that the answer is probably yes.

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You know, Matt, you might remember two or three months ago, I took that whole recession talk off the table for me. But you know what, this federal reserve higher for longer, I don't know. I think they might run the risk of pushing us into something that we don't really need. So I'm going to talk to and ask a professional about this. Lydia Bussor senior economists at e Y Parthenon. So, Lydia was I a little bit early in taking the

Hi, thanks for having me. I mean the higher for longer interest rate paradigm that the Federal Reserve strongly signaled after the meeting, and with this new dot plot showing interest rates remaining above five percent throughout next year, means that you know, we're going to see we're going to be in that higher interest rate environment for longer, higher cost of capital, and that's going to be waiting on spending decisions for consumers and businesses. I think this is

Well, first of all, Lydia, we just got a red hot sticky headline crossing the terminal and on China and the property issue there. So Evergrand Unit missed payment on four billion you on Onshore bond. We've all been watching the Chinese property sector again lately. Right, it looks worse than feared previously, and the short lived boost it got from the Chinese sort of stimulus activities is gone.

Now.

Is it possible that this.

Spreads around the world or is it contained to the Chinese economy?

You think?

I mean, we believe that the China, the China, the China's economic explow down has emerged as a top risk for the global economy. When we look at the US in particular, when you purely looked at the trailing and financial linkages, they're fairly limited in terms of the US

Not the US, right Lydia.

When you say economies that are more exposed, I guess you're talking more about Europe than America.

Europe is more exposed, but as I mentioned, the US, the exposure is really through more through financial conditions and a potential deeper global slowdown as some of the other trade partners for the US get impacted as well.

Leading you back here in the US. One of the real points of resilience in this iconomy has been the labor market. And a lot of folks are kind of confused about why this labor market is so strong, given you know, the inflation editors are given the higher rates. How do you view and how do you explain the labor market to every one?

Yeah, I mean, we've seen some persistent tightness in the label market and those lingering labor shortages in some sectors. So a lot of that tightness that we have seen is really tied to some of these post pandemic label market dynamics. We've seen a lot of these locations during the pandemic, and so what we're seeing today's companies essentially holding on to the workforce, their talent that they really had a hard time attracting and retaining over the past

In terms of the you know, the path to a soft landing, you know, with all the risks that you mentioned Lydia, and we've been you know, we've been listing them here on Bloomberg Radio as well, from increased credit card debt to delinquencies on those cards and on auto loans, the return of student loan payments, higher oil and higher gas prices at the pump.

What am I missing, Paul, No, those are all good.

I mean, it seems like the strike, the UAW strike lasting a long time and expanding is a risk. I don't know if the government shutdown is a financial risk, or if it's just an amazing annoyance. But all of these things are bad, right, So where do you see a soft landing coming out of that?

Yeah, I mean we all these headwinds, the headwinds you mentioned are really combining and will combine to slow down the economy. So we do expect to see a downshift in economic activity as we head into twenty twenty four.

So Lydia, we've seen inflation come down from the peak of eighteen month to go roughly, But now maybe the hard work starts. As a lot of economers are suggesting, how do you see inflation moving over the next six or twelve months.

Yeah, we are in the camp that maybe the last inflation mile won't be as strainerous as some people think. There is a lot of ground to cover in terms of bringing inflation back to target, but we still think that there is there is this inflationary environment that remains in place.

When you look further.

Ahead at the next few months and going into twenty twenty four, when you look at core inflation, we are expecting to see modes inflation on the core side, with housing inflation having turned the corner, with the label market loosening as well, and also with the fact that you know we're going to see a slow down in demand and in economic activity and that will put further downwald

Lady health concerned. Are you about the European economies over there? I mean again, we talked about it earlier, but boy, their exposure to China and just compounds some some problems over there. What's about your forecast for just Europe in the UK going forward.

Yeah, we are seeing more weakness for the deer and the European economy, and we are seeing more headwinds as well from the China slowdown. When we look at economic activity, we are seeing some economic indicators pointing to a further down shift. And now the outlook is, you know, not the same for each individual country within the Eurozone. We are seeing localized weakness in Germany with this this recession recessionary conditions in Germany. The UK is also showing most

Lydia, thank you so much for joining us. Always appreciate getting your comments. Lydia bussor senior economists at e Y Partha that you're.

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Jess Larsen joins and sees the CEO and founder of Briarcliff Credit Partners. He joins us live here in our Bloomberg Interactive Broker studio. Just you guys, just focus on this exclusively. Matt and I. We know private credit as like direct lending. Well you're telling us it's more than that, right.

That is, that's a good question, right, and private credit means a lot of things to a lot of people. And there's a little bit of a misunderstanding that directlenning is all rage of private credit. Dorek Lanny is a great sub strategy with in private credit, but private credit is really a lot more so. What we have identified is fall pillars of private credit. You got corporate credit, structure credit, real asset, and sparcusally finance underneath that twenty six different strategy way.

It doesn't matter where in.

The economic economic cycle we are there's always strategies for you to make money, and that's exciting about private credit.

Right, and private credit seems to me to come out of nowhere over the last four or five.

Well yeah, I mean I've been going to the super Turn conference for the past I don't know, seven or eight years in Berlin, which is which was a private equity conference, right, But more and more of the people there are just talking about private credit. And a lot of the big shops that you think of as PE shops are actually the majority of their investments are on the credit side now absolutely.

I mean the big firms are pivoting from PE to private credit.

Right.

What we're seeing right now is we on the golden age of private credit. What we will see in ten years, if I can be so bold, is in ten years private credit it's gonna be bigger than private equity. Wow, this is our age, right. And I have to say, Matt, Berlin is great, But next year come to our summit. We had it last week. Over one hundred lpiece came to hear just about private credit.

This is really a sou Where is it?

Because the city is important to me.

We did it here in the metropolitan club. We made it easy for you.

Ah, I thought you're gonna say I could go to Copenhagen, which I would like to do, that's where I'm from.

But you're more than welcome. We can do that as well.

It's easier for us to take a subway to that's that's true. We can walk to the Metropologic Club. We can do that as well. We can do just talk to us about how this industry came about. Is it just simply the regular the regulators put the traditional big banks out of this business?

That is?

It is a really good question, right, because if we think about private credit, this is not a new thing. People have been lending to each other since the start of humankind, right, So we go back to Plato and those times the Medici family, it was all about lending.

Now we call the usury. At the time, it was all.

About lending, right, So lending a private credit has been around since the early times. Now, you're right, during the GFC, we've got the regulatory environment really supporting getting the credit out of the banks because he's not the right place for lending to mid market companies and get it into the private credit space. So that was really the catalyst of what I would call the golden nature.

I mean, the Germans would have a problem with that, right because that's their bread and butter.

Of German banking.

And I think, uh, you know, there's no sort of middelstand credit here the way there there is on the other side of the Atlantic.

But we would call that shadow banking. Is that a bad Is that a dirty term?

I think private credit sounds a lot better than shadow banking.

Come on, so it is, though, because you're pushing it out of the regulated banking sector into more of a I don't don't want to say wild West, because we talked to private credit men and women here all the time, who are obviously very responsible, learned individuals used to dealing with sophisticated investors.

But you do have less regulation.

You do have less regulations. I would be contrarian and say, we're pushing it out to where it belongs. Mid market lending does not necessarily belong in a bank. We saw the actual the risk you're taking on if you're a mid market company and you want to borrow some money, doing it with a bank adds a whole other layer of risk, right. We saw that, we see a compative bank. We saw that with credit and Signature Bank and so forth.

Right, mid market lending? Do you envision the day when you characterize your industry is something more than mid market lending? Not that that's not a great business, great returns, but bigger deals, bigger tickets. Is that where we're going.

That's also where we're going. I think you're one hundred percent of right, poll Mark. The terms of private credit is going to go from mid market to upper market to where we need to be right simply because it makes sense for the borers. If not, we wouldn't have it.

What about the lenders, I mean right now or previously it was big institutional money, as I said, sophisticated investors, so people who you know, could afford to take losses. We've had people on the program that are looking to start platforms that allow retail money in is everybody going to get involved.

It's coming, right.

We all need to be careful when there's retail money, right, there is a high level of scrutiny, the high level of regulatory environment when it comes to retail money. I think we started the right place with the big institutional money or cabs are coming from the pension funds and dominance foundations, the big family jobs. We started with that money. We're slowly moving into the retail but it does require a little bit more of a regulatory overview.

So what's a typical deal that Briarcliffe invests in.

So we actually don't invest.

What we really do is we take the smart funds and actually bring them out to the institutional investors their placement firm basically gotcha, okay, And the only one in private credit, believe.

It or not.

So you're the only one with the only place maiden in the world that is completely He wants.

To hear the numbers. All Paul cares about in life is making money.

I love it.

So there's three thousand place maidens globally, there's only one that is dedicated to private credit.

It happens to be in your studio right now.

So are the what are the deals look like. I mean, especially as in this rising rate environment. On the one hand, I think it's going to get juicy. On the other hand, I may be worried about companies that have to refinance or companies that you know have been lent to at much lower levels.

Yeah, yeah, I think it is a worry or it's an opportunity, whether which way you want to look at it. Because as we mentioned earlier, private credit is more than just direct lending, right, So there are special sits that distress managers out there. There are all sorts of strategies that can capitalize if the default rate starts to spike.

Let's see if it happens.

But if we are going to get more losses, there are credit funds out there that can actually capitalize, go in and save these companies. And that's what we need where the banks would shy away.

Right right, because private lenders work more closely with management.

It's other portfolio companies. And thank you for the pitch.

Well, I think we need to be skeptical as well.

That's our job, right And I wonder what you do when regulation does come knocking, because there's going to be a day, you know when some senator gets a craw in her bonnet or whatever and decides you're the problem.

Yeah, Well the question is whether it's a problem. But I don't think regulation is necessarily a bad thing, right What we're doing right now is moving it out of the banking system to the private cretic system where.

It is better placed. That's the first step.

The next step is probably be getting a little bit more oversight, and we're already see in the regulatory environment starting to looking at valuation reporting and so forth. So it's coming and it's a good thing because it gives everybody a little bit more comfort.

All right, Jess, thanks so much for joining us. Jess Larson, CEO and founder Briar Cliff Credit Partners.

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A little bit of news out of Amazon today, they are going to invest up to four billion dollars in an AI firm by the name of Anthropic. It's a big number to me, four billion, but I guess if you're Amazon and you got a market cap at one point three to five trillion, maybe not that big a deal, but.

Let's get it at it is though, because they don't typically go out and buy businesses exactly.

And I think this is big because it's AI. So I pay attention on a Rock Ronick he also pays attention. He's a tech analyst at Bloomberg Intelligence. He joined us via Zoom from his happy place Bloomberg Chicago office. Loves that Honor Rock talk to us about this deal here, Anthropic. What's Amazon doing here? What does Anthropic do? And why is Amazon investing up the four billion?

Yeah, I think it's a little bit of catching up to do because for the last twelve months, all we have heard is Microsoft and open ai investments in how OpenAI has the large language models and the foundation models that people can use, but they only run on Microsoft's cloud. So Amazon does not have that relationship with open Ai. So they're looking at other AI companies that have similar products, investing money in them, trying to offer that service. And

In terms of Claude, which is that name of their Claude, that's the name of the bot, the chatbot that Anthropy or whatever it's called runs right, what's it called anthropy anthropic anthropotropic.

So in terms of Clauds usage, it's going.

To be all on now AWS servers, and it's going to use Amazon chips, which I didn't even know that they were, you know, building this much of their own silicon.

They have one chip for training it's called like trainium, and one chip for read in on this.

Well, what's the other one is for like inference, It's called inferyon or something like that.

How big of a business is that for them?

So these are all emerging businesses. I mean, you know, financially, there's a probably negligible compared to the size of the business right now. But this is one thing that I think that really stood out to us was Amazon's not talking about using in video chips for this, but their

So Anrak, I'm probably like most investors out there, Like over the last twelve months, I've been trying to run around like crazy trying to figure out how I get exposure to this thing called AI, which I don't even really know what it is, but I know I got to own it. So you know, in Nvidia, the chip stocks, maybe a Microsoft something like that we kind of fell into.

Yeah, I think this is this investment is basically they're telling that you know, they are also serious and they're gonna partner with other people. Oracle, for example, is partnering

Where do they get by the way their data sets because a lot of these companies, you know, Microsoft has a ton of our data. Obviously Apple has a ton of our data. But Amazon might have more of our data than anybody else.

Right, Yeah, but Matt, they're not using your or my consumer data to run any of these things. What Amazon Web Services is selling is going to you know, let's say JP Morgan or Bank of America and saying, if you want to train your models, we are giving you the raw material for it. We are giving you the computing power, We're giving you the algorithms. You bring your own data, keep it in a contained environment, and test it out. Whatever the results you get, you get the

Is this a good deal for Amazon? And do they need to do more here?

Oh, they need to do a lot more. They need to do a lot more and actually showcase a lot of the enterprise use cases, Paul, What we have seen so far is a lot of use cases when it comes to consumer consumers. So when it you know, when we see what's happening with chat GPT because it has all the Internet data behind it, We're seeing some of the stuff that Microsoft is doing because it has some of the user data around it, you know, Excel and Word.

So what I mean, it's it's when I think about Amazon, I mean the cloud is there's such a leader in cloud. Can I not say that that's a way to play this whole AI thing.

This is the way, yeah, for software, that is the only way to play it and argue because Amazon has over a forty percent market share in cloud infrastructure. The problem was they didn't have a relationship with OPENINGI. Today they are, you know, So it's it's that's so the companies that are selling the algorithms or these big foundation

Who has the best product?

Have you?

Have you been playing with all of the with claud and chat GBT and.

It's it all depends on who has the underlying data. If you're going to ask me, who can summarize a picture for me or a write poem, that doesn't really move the needle for what I do for B to B. It really needs to be able to get into enterprise data and figure out whether I have the who's my best customer over the next twelve months for that I really need to tap into enterprise data warehouses and that's not an easy thing to do right now.

All right, So what's what do you think is next here for Amazon in terms of their cloud and maybe in terms of AI specifically, because they have no shortage of capital to invest here, so.

They're going to make investments like this. They're going to invest in ships, they're going to invest in large language model. You know, margin is not going to be a problem. We are coming to a point that the tough comparisons

All right, Donnroroq, thanks so much for joining us.

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We want to welcome our Bloomberg television and radio audiences worldwide joining us now. Amazon Web Services CEO Adam Selipsky, and Adam Welcome to Bloomberg Technology. I want to start with some of the mechanics of this deal. Does Anthropic still pay Amazon to use AWS Cloud or is it structured such that the investment that you make in Anthropic is in the form of cash and credits for AWS Cloud?

No, good morning, Thanks for having me.

We're very excited for this expanded relationship with Anthropic, and the investment is a financial investment, as you say. And in addition, Anthropic will be training future versions of its models and running its models on AWS using our.

Training chips and Inferentia chips.

Those models will be guaranteed to be available for years to come in our Amazon Bedrock Managed service for llms, which provides the very wide choice of models, and AWS customers will actually receive early access to key features in Anthropics models in the future, such as fine tuning and customization of models. In addition, Anthropics on very talented technical teams, and we anticipate working closely with them to actually improve

Adam, there's a lot of emphasis on moving a maker of foundation models at that scale onto your proprietary silicon. How quickly will Anthropics start running AI workloads on Trainium and Inferentia.

We've been working with Anthropic, they've been a customers of ours since I think they're founding over a couple of years ago, and so they use a variety of different technologies for a variety of different workloads on AWS that they'll be using GPUs on AWS and will also be using large quantities of Trainium and Inferentia. So I think everything's going to move very quickly and it'll all be a mix of technologies depending on their needs at the time.

Adam, what's the mood like within Amazon and AWS this morning. There are lots of talented engineers that have been working on large language models generative tools internally, and now you're turning to a third party who's highly regarded as a leader in building foundation models.

The mood here is great.

We are a company of inventors who we love to build, and there's never been a better time to be a builder at AWS than right now.

And as I mentioned.

Before, a big part of our strategy in AI and generative AI specifically, it is all about customer choice and there's not going to be any one solution that works for all customers for all use cases. And Thropic has done an amazing job. They're clearly a leader in this space, and it's really important for customers that we continue to

About choice, and I just want to re welcome our TV and radio audiances with Adam Sleipski. What's so notable is that, well, Anthropic took a chunk of change one hundred million dollars worth from Google already, and I'm interested as to how you feel that is perhaps a concern for you or not the relationship that Anthropic already has with a previous cloud provider.

Now, we feel great about the relationship with Anthropic. It's been a good relationship and I think today's announcement just makes it a deeper and longer term. Anthropic will use AWS as its primary cloud provider for mission critical workloads, including building foundational foundation models and doing AI safety research, and will run the majority of its workloads on AWS.

I'm interested in drilling down sort of on why ed was going about the feeling internally right now, because I look at some of the analyst reaction to this Adam and Webbush, for example, they say this signals a new found urgency in Amazon's strategy to further integrate generative AI among your AWS suite of services. That urgency was there a lack of understanding or indeed a reality that Amazon was behind the curve here a little bit when it

We've been saying for many, many months, Carolyn, that we are fully urgent. We have a strategy that we really love. It is different than some other cloud provider strategies.

It's true.

We have a strategy of providing absolutely uncompromising security, which I don't think is true for all cloud providers. We have a strategy of providing customers the choices to use whatever is best for their job at hand. So Andthropic is going to be an amazing set of models for many many use cases. And Amazon is fully invested in building its own Titan models, which I think will be really useful for other customers and other circumstances, and of

Adam, what does this mean for the kind of ramp up or path forward for Trainium and Inferentia. You put a lot of emphasis that anthropic brings you a maker or creator foundation models at scale. Well, you now need to ramp up I guess your third party manufacturing relationships to say, okay, let's get more Trainium on more inferential online to support the workloads.

Well, it's absolutely true that there is a huge demand for all of the different ships with which people do a generative AI workloads, and so We absolutely have already been ramping up our training and inferential supply chain and ramping up the apply that we can.

Create as quickly as possible.

And yes, Anthropic will have access to very significant quantities of compute which we'll have trainum and inferentia in them. So yes, that's one of many reasons why we continue to ramp up and to provide a very robust AWS controlled supply chain for AI chips.

And is that where the revenue boost comes, Adam, because we're looking at the share price reaction is higher on the day. When does this all start to really drive adoption, money and the bottom line for Amazon?

Well, I think that AI in general.

Look, AWS has had machine learning services since at least twenty seventeen when we released our sage Maker machine learning service, which has over one hundred thousand AWS customers on it. So we've been doing machine learning for a long time inside of AWS and obviously more recently have had a significant number of generative AI customers, and we will certainly

I've still a whole lot of.

Storage and compute and database workloads ramping on our AWS, so we have many sources of growth I anticipate, but there's absolutely no doubt that generative AI looks like it's going to be an explosive additional source of growth in the years ahead.

Adam, we put a lot of emphasis on the up to four billion dollars, and you know, I understand and thank you for explaining how the relationship will work in practice.

Sure.

Well, the I think the really big news today is the new expanded relationship between Anthropic and Amazon, in which they will have access to really large quantities of training and in FRENTI at Chips, customers will have access to those models, including early access to critical features through Amazon Bedrock and Amazon will get to AWS, We'll get to work with Anthropic to ensure that, you know, we optimize our training and Inferentia technology going forward.

That's the benefit for customers. And yes, as part of this.

We're pleased to be making an adial an initial investment of one point twenty five billion dollars into Anthropic's financial investment, and that could go up as high as four billions, as you said, over time. But it's really driven around customer value and what this is going to mean to customers who are very, very determined as they should be, to figure out generative AI strategies. We already are working in depth with customers, as is Anthropic on forming those

Amazon Web Services CEO Adam Selipski, thank you.

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Last month, existing US home sales the United States fell by zero point seven percent from the prior month. That's a seven month low. So higher interest rates and a lack of supply contributing to those declinents. Let's see kind of where we go from here. We can check in with Lisa's start Event, chief economists at Bright Mls. She joins us via zoom. Lisa again, it's nobody's putting. There's no there's really no supply out there. So the net result,

Of course, have made it more difficult for buyers, but those higher rates have also caused a lot of existing homeowners to stay put when they might have thought about listing their home for sale. I think mortgage rates are going to stay elevated throughout the fall and into the winter, so I think inventory is going to still be very very low for the last part of the of the year. I think we're I do think though, we're going to

Is there a rate, Lisa, that you think would entice people to come back into this market. I mean we're now looking at the UH, you know, the thirty year fixed like seven point sixty four percent. Here. Is there a level, whether it's six percent, five percent, four percent, where people start coming back into the market.

Yeah, I don't think.

We're going to see four percent UH in an eight in any short order, for sure. You know, I think it's I think it's not only about the level, but also about the timing. Last year, we saw rates go over seven percent, like right around the beginning of November, and we saw the market just sort of shut down.

So, I mean, I guess the key issue here for most people is just affordability. I mean, you know, the given the mortgage rates and given where housing prices are, just the affordability is just the key issue here for a lot of potential buyers.

I think that's right. You know, we've been talking about inventory as the main constraint on the market, but affordability is going to be more and more of what we're talking about. You know, rates over the last fifty years. Mortgage rates have averaged about seven point seventy five percent over the last four decades, So the rates we're seeing now aren't particularly high by historic standards.

But what's very.

Different is that home prices have been rising much much faster than incomes over the last decade or two. And we're seeing now that affordability, when you compare household incomes to the price of buying a home, affordability is worse than it's been in history and is really the main driver of people having to leave the market, particularly first

So where are first time home buyers going? I mean, do they just continue to rent? What do they do?

Yeah, So there's a couple of things we've been seeing.

You know.

We're seeing that first time buyers are getting a little bit more creative. We're seeing more first time buyers who might be you know, looking to buy a home with their parents, for example, or looking to buy with buy a home where they could rent out part of the home to have that income be able to make the month payment a little more doable. We're also seeing that maybe first time buyers are more willing to take on a fixer upper when that might not have been the

You know, when you listen to the home builders, they talk about building these larger homes than McMansions, if you will, because that's simply where the profit margin is, but arguably where the demand is, or where the need is is for some of those first time buyers as smaller homes. But do are we seeing the homebuilders kind of move that way? Are they sticking with where the margin is?

Yeah, you know, that's a great question. And you know, we have seeing that the size of new build homes has come down, and I do think that is in response to the demand from first time home buyers. The biggest constraint that home builders have really is the local zoning RD relations on the ground that limit the amount of homes that they can buy. So you talk about profit margins, if builders were able to build more homes on a given lot, they could build them smaller and

Is the tightness in the real estate market, the lack of liquiditying in the real estate market. Is that a are we seeing that across the country or the regional variances.

Of note, Yeah, you know, I think we could characterize it as a tight inventory situation across the country for sure, But there are places where the market is loosening up a little bit. For example, we're seeing in markets that have been traditionally second home and vacation home markets. We're seeing those are places where inventory is increasing, perhaps as people who had per just a second home or a vacation home, or maybe a home to use as a

Of next year.

If I want to get a mortgage, can I get a mortgage?

Yeah?

You know, you still can get a mortgage. It still pays to shop around, for sure. We talked about what the average rate was on a thirty year fixed, but it obviously varies depending on the borrower. And I think the most important thing for a perspective home buyer right now is to make sure you're out there shopping around to find a lender who can provide you with the rate and the terms that make sense for your situation.

All right, Lisa, thank you so much for joining us. I really appreciate gatting your thoughts there. Lisa Sturtevant, Chief Economists at Bright MLS. Again, it is a tight real estate market out there, folks. US existing home sales fell to seventh month low on rates and supply. That was in the month of August, down zero point seven percent from the prior month. So not a lot getting transacted out of there, not a lot for sale, and then if you do find something, we've got to pay a

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