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All right, let's get to some geopolitical headlines that have definitely been moving the equity market. Ukraine firing UK Stormshadow missiles into Russia. That's according to an official Hesblah also saying that they are going to stay on the battlefield no matter what. And we do see the Nasdaq around down by one percent. We're now around the loads of the session when it comes to the equity market. Roz Mathison,
Bloomberg News director for Your Middle East and Africa, joins us. Now, Roz, this doesn't tell me or push me towards some kind of negotiating table that we're all expecting to happen in the first quarter of next year.
Well, in a way, I think escalating between Russia and Ukraine. Got the news that they use UK made storm Shadow missiles. It seems to strike just over the border inside Russia. That's after the use of the US attacking missiles to strike just over the border into Russia, so in the conflict zone in a way, a couple of one hundred miles at most across the border. But this all is in the realm of the idea of them both positioning.
Russia trying to advance as much as possible inside Ukraine, Ukraine trying to hold on to as much land inside Russia that it's got as a negotiating tool, because we are, it seems, heading towards some kind of negotiating negotiating at
some point early potentially in the next year. The incoming US President Donald Trump has made it clear that he wants this war to come to an end or he wants some kind of ceasefire to be negotiated, and he doesn't want to continue to send military and financial aid to Ukraine's there's a front running of a lot of aid to Ukraine that we're seeing at the moment, and again both Ukraine and Russia trying to position themselves the best they can for getting to the table.
Ros We had a guest on earlier this morning who characterized the war in Ukraine is one in which Ukraine is losing slowly every single day, is that of you held by folks, you know, in the business of really thinking about these things.
Well, it's definitely a concern. You can hear it in some of Ukraine's strongest allies that what they're were saying privately to themselves and each other, they're now saying more publicly, which is that, you know, the grinding war that's been going on for years now, and it's not just about you know, whether they've got access to long range missiles and sort of high tech kit, but it's also the reality that Ukraine is suffering very badly from a shortage
of manpower. I mean, Russia has lost a lot of soldiers on the battlefield, but so is Ukraine, and with fewer met with less manpower to hand, and so a real concern is that Ukraine is slowly, slowly losing the fight and Russia is slowly, slowly increasing its hold on territory. And so, you know, bit by bit is Ukraine weakening its position to negotiate again. That's why there seems to be this push suddenly to get it into a stronger position to do so.
I was reading a Bloomberg opinion piece by James Ravitas earlier today. He's an opinion columnist, but also retired you as maybe admiral and former Supreme Allied Commander of NIDO. And he's like, look, the solution is you just drop where you are right now and create a demilitarized zone like North Korea and South Korea have and that you just have what you have, and then there's this area that's going to be neutral. Is that something that could be palatable on negotiating table.
Well, in a way, it's an extension of what we've got already or had already in Ukraine, because of course we have this area in Danesque in so the south and east of Ukraine. That's been a version of a line of control between Russia and Ukraine since twenty fourteen, and certainly with the addexation of Crimea as part of that, and it's been a low level conflict for years since twenty fourteen, and obviously a full blown invasion since twenty
twenty two. And so do we revert to a version of that, but with Russia controlling more territory And it's clear that in any settlement Russia would want to control a lot more territory than it already did. Essentially inside Ukraine, and so really how much of that is palatable for Ukraine or how much choice does Ukraine end up having in that? And so you freeze the conflict. You don't
end it, but you freeze it. And so obviously the question is just Russia then go back, regroup, re and come back again for something more exactly.
All right, Ros, thank you so much for joining us. Russ Mathison news director for you in the Middle East and Africa for Bloomberg News. She is based in London, joining us vias IM getting the latest on the conflict in Ukraine.
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Well, Alex, you al alongside pause. We need this a Boomberg Intelligence Radio. We're broadcasting to live from our Inductor Broker studio right here in Midtown Manhattan. Also check us out on YouTube. So the big event today obviously is going to be in Vidia reporting after the Bell for twenty. It's going to be a moment and as that one
hundred dropping over one percent ahead of that. But what's making a lot of headlines is the option implied move, particularly if you look at potentially an eight percent move to the upper the downside, which we've been reporting can translate into three hundred billion dollars worth of market cap to the upper downside. That's pretty tremendous. So let's get some take here with Shelby McFadden investment analyst and Motley
Fool asset Management. So, Shelby, how do you play in video, whether that's in Vidia specifically or is it going to be an offshoot? How do you play the next twenty four hours?
Well, when we think about the long term and active management, the way we play it is we kind of sit tight, We wait for things to roll out, and then we go ahead and adjust based off of what we get from there, because really we're not in the business of trading per se. We're really in this sort of long term investing, So you have to sort of wait and see not just how the performance was for the last quarter,
but get a read on the outlook. I think that's going to be what a lot of investors are looking for, and then we sort of take that back to the models, we take that back to the allocation meetings, and we decide what effect, if any, it has on our current allocations and how we're thinking about the macro environment. So I think it's unfortunately that non answer of there's really not a way to play it that's not speculation.
So where do you have high conviction areas? And or what are sectors that where you have high conviction areas today?
Yeah, you know, we sort of being a bottom up team, we don't necessarily pick anyone sector or vertical. But something that's surprisingly been more exciting and doing a little bit well is advertising and advertising related type of companies, despite how related they are to the consumer space. So that's something that's been thriving in the portfolio, as well as
payment networks. And then we're actually sort of reinvigorating some interest in medtech and biotech, not just because of the election, but because small cap med and biotech has been something that's been pretty interesting to a lot of our pms, and we've had some decent success across the portfolio there.
What do you do with retail?
Right?
You got Walmart yesterday, Target just getting wiped out today and then you have Williams Sonoma up like twenty five percent.
Yeah, retail is an interesting story, and I think it actually makes a pitch for active management because that example that you just made is how are all three of these so different. You've got three very different stores, but at the same time, you've got Target almost sitting in the middle of the two of them. So you've got Williams Sonoma where it's this place where you get a premium customer and they tend to face a lot less
income elasticity, so they're a little bit sticky. Then you've got Walmart that is capturing not only their main customer base, but some of those Williams and Nooma customers who might be purchasing their actual bake weares from one place and getting ingredients other small things from Walmart. And then you've got Target kind of sitting in the middle where they're
trying to figure out their value proposition. And so the bottom up process helps us figure out who's going to be able to serve whom and over what parts of the cycle they're going to be able to do it. So you play retail by finding the value proposition that's really going to suit not just customers, but the shareholders as well.
United Parcel Service talk to us about that name.
Yeah.
Ups has been really interesting. So when they had the Team Starves negotiation, the stock got absolutely whacked, but we stayed put. We really trusted Carol Tomey and her team, and they've shown us the value of going ahead and sticking with quality over volume, and they have been able to claw back allow of the lost volume from the concerns about that contract. They are now lapping their greatest costs in those negotiations, and they are still feeling pretty
good about Peaks. So that's another great story of sort of riding through, playing the long game, adding up when the market is over punishing something and realizing that the greater macro environment does not necessarily determine exactly how well someone is going to do, and they can outperform their peers if they're better prepared.
Right, And that's why you're a bottom up investor. Like that makes sense. But when we have something that feels somewhat binary in terms of taxes and tariffs incoming Trump administration, how do you layer that onto your bottom up models?
I think what we do is we don't change our universe. So we continue to search for companies that are going to meet our thresholds for quality. Where that sort of macro comes in is when we're doing our allocations. So we will definitely consider the environment in the same way that we've considered this extended high rate environment and say, you know what, this is something that we want to
have at a lower allocation in the portfolio. It's a very high quality company, it's likely to beat out its peers, but we need to kind of change these allocations because
of who's going to get affected. So it's the same thing where if we were to actually see some tariffs come through, especially thinking for example Walmart with a lot of Chinese import exposure, that's something that we would consider, probably not completely getting rid of it because we also have it for the purpose of dividend yielding, but absolutely considering those allocations and also looking at our discount rates in our models and making those changes.
How do you typically view dividends? How important are they in your stock selection?
Overall?
It's not something that we necessarily consider when we're looking at our large cap dividend product. It's something that is at the top of the list. So when we have companies that are three plus percent positions. We're definitely looking core over quarter or at least on a half year basis, how safe that dividend is. Looking we're looking at the yield in and of itself, and not just the dividend yield,
but the total shareholder return there. So they tend to also be the companies that are kicking back a lot more capital to cash to shareholders. So it's very important in that regard when we start to get into our more aggressive growth products, traditional growth, especially when we're looking
at small that's not really something we consider. If we do see a small company that is cash generative, they're positive earnings and they're cranking out a dividend, and that's definitely going to boost their economics score, But overall, the dividend is not something that we consider top of the list for our entire universe.
What else do you like?
You mentioned like biotech and medical space. What kind of stocks you guys like there?
Well, unfortunately, for compliance reasons, there's a couple of small names that are a little bit too low market cap to discuss. But we have looked at a couple of names that have some specific heart surgical sort of medical devices that we've looked at in the past.
We did own and this.
Is I think more of a small mid We had some shockwave and so that was really exciting to see that get acquired. So that's sort of one of the
success stories. We tend to be in that sort of niche space where you do have to sit and wait through those Phase one, phase two, phase three, those FDA approvals, but we have had some success in that space, and it really just tends to be in those products where they actually are innovating for professionals, and yes it may be expensive, but if it is solving one particular issue and they're the first to do it, that's where we've found most success.
Shelby.
Two weeks ago today, the world woke up to a new US president elect and a Republican controlled both houses of Congress. That changed the way you guys think about asset allocation investing themes.
Yeah, we actually we call the portfolio meeting right away, and it's something that right now we're sort of in the waiting period, right it's the lane duck. So it's the same for us where we're sitting here and we are waiting for the administration to actually come in for a lot of these different positions to be filled and confirmed and then to start to see the policy rolling out.
So something that we think about when it comes to, for example, the potential extension of the tax plan where there's the lower corporate taxes, the immediate expensing of R and D. We do know that that's something that can benefit the bottom line. However, we also have tried to make sure we're not choosing companies that are holding out on reinvesting in their business just for you know, how the earnings look. We want to find operators that are
able to do that profitably. So we think that there'll be a little bit of a boost in that regard from R and D, but not necessarily saying let's absolutely pile into smalls or let's absolutely pile into these not so profitable businesses because regulation and taxes are going down. But it is something that we're aware of in terms of how it's going to affect performance, and any businesses that are very R and D heavy, we you know, we might increase.
Our allocation a bit.
All right, Shelby, thank you so much for joining us. As always, Shelby McFadden investment analyst A Motley full asset management down there in Alexandria, Virginia.
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All R.
Let's get back to the market here. So we may have some geopolitical risk shaking in the market, but if you take a look at some of the equities like a Walmart still holding up fairly well. That' stock now are on the highs of the session up almost five percent. Joining us how to discuss as Emily Cohne and Bloomberg Consumer team leader. I mean she heads all the stuff of consumer stocks. She joins us now in studio, Emily, wonderful to see.
You, Thanks AlCH.
What do we make about the reaction to Walmart stock? Because consensus was already high, the stock had already moved like we kind of knew it was going to be good.
So when you think about Walmart, Walmart is a bellweather of the American economy, of the American con sumer.
What does Walmart earnings tell us about that?
Walmart beat expectations today sent a really strong signal that the holiday season is off to a solid start, and the market was excited about that.
The growth in the.
Number of transactions or checkouts slowed, the growth rate slowed a little bit ticket the average ticket, the amount people were paying in each checkout, was up, and a lot of that growth was coming from higher income shoppers, people in households making more than one hundred thousand dollars a year. That cohort made up roughly seventy five percent of the share gains.
So this was good.
It was a solid start to the holiday season, and the stock is up a lot.
Four and a half percent is up a lot for a company that.
Big stopstocks at all time high of sixty seven percent year today, which I had no idea their e commerce business. Talk to us about their e commerce business. I know it's big, but Amazon's pretty big too, So how did they talk about their e commerce business?
When they talk about e commerce, they just talk about the potential to grow. It is big, but there is still so much room to grow. So just in the last couple of months, we saw them branching into categories that you wouldn't find in a typical Walmart store. Pre owned watches, collectible sneakers, stuff you would typically go to another retailer for, but now you can buy at Walmart online. Also, they're adding benefits to their services, like Walmart Plus.
You can now get discounts of Burger King if you're a.
Walmart Plus member. So they're really expanding their offering there. Deliveries can get faster, and they see just endless potential there.
It's always growing.
My question I had before the break was those people that make over one hundred thousand dollars or more, are they sticky as in once the economy save recovers or once they feel better about inflation or et cetera. Do they flee then to go to Target or somewhere else, or go to the fancy drug store, or.
Do they stay at Walmart.
I think that's a really good question and something we're definitely watching for. You know, spending across the board at Walmart was consistent. The growth, as you said, was coming from these wealthier households. Maybe it's a shopper who typically shops at Whole Foods but is feeling particularly pinched right now and is going to Walmart for value. Do those people stick around when they get a raise in their next paycheck or their paycheck.
In the next couple of quarters.
That's something we're definitely watching for. I think it does have limits.
So are they still opening stores? Isn't there a Walmart pretty much in every town USA these days?
It's a good question. I think.
Like when they talk about growth now, they're talking about e commerce growth. I think that's where they see the highest potential for growth and they needed to get profitable. That's something we heard the CEO talk about today. Not that they're racing to it, but it's a long term game they want their e commerce division into.
So they feel pretty okay about a holiday shopping season because.
Yeah holiday, right, Yeah, holiday shopping is off to a strong start. So the interesting thing about the holiday season this year is that it's shorter than in most years. Thanksgiving is following later in the month of November, So the answer to that is that they triggered the deals even earlier than than the usual.
Coming in to Paul knows that I I shop on the sales, Let's go to Low's because that is interesting as well. That stock is off the loads of the session, but still down over three percent. What did low say?
So?
Lowe's years fell before the bell and quarterly comps were better than expected.
But still declining.
So high interest rates and a week housing market means people are moving less than they were before. It means they're spending less on big ticket home renovations. But despite blooming gloomy sales, Lowe's actually raised its forecast for the year, seeing positive growth in its professional business so selling goods to contractors and builders, also in e commerce, and spending on smaller ticket outdoor projects. Last week we saw Home Depot similarly say that the weather was actually a bright
spot for its sales. So hurricane led to higher sales for home depot. Warm weather meant that people were spending more on grills because the Great Grilling Season was getting longer.
So in general, for these Los home depot.
Sales are down, but the outlook got a little bit better this quarter.
Where do we see the weakness in the consumers like in the dollar stores? Because I mean I can I see a strong number from Walmart. To me, that is America.
So where is the American consumer hurting?
Is it?
I guess it's even at a lower.
End than wal Yeah, the end is definitely suffering. The dollar stores are suffering. They don't offer the variety that Walmart offers. Walmart sixty percent of Walmart's business today is in groceries and you can go, wow, uh, you know some pretty good stuff at Walmart these days, gluten free items and organic produce and stuff that like you're not
going to necessarily find out your dollar store. And that's really really helping them, especially when it comes to growing an e commerce business where people are looking for a one stop shop for everything.
So before I let you, I have a gluten free friend. And it's a good job.
It's a thing.
It is a thing.
I have multiple friends.
I didn't know it was a thing. Oh, I've been educated.
You've been educated for that one friend before we let you go. We get a lot of retailers out this week as well. What are you going to be focusing on the consumer trends land?
Definitely the holiday season? What are people seeing that's the big question this year. Are people spending as much as they usually spend? Are they buying as many gifts as they usually buy? Also Thanksgiving? For the grocers, I think a lot of people are just worn out from paying really high prices for food. They're also worn out from cooking a lot more than they have been since they're eating out less. So how is that showing up in
consumer sales? Definitely trying to get a sense of how the consumer is feeling about what is the most significant shopping season of the year.
I know my husband's getting a little burnt by all the cooking he's doing.
I'm really good at ordering takeout. He's the chef in the family.
All right, thanks so much, it's really I really appreciate it. It was wonderful to have you at Emily con joining us. She heads consumer trends coverage for Bloomberg News.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Play and Android Auto with a Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven.
I'm Alex you alongside Paul Sweeney. This is Bloomberg Intelligence Radio. We bring you all the top news and business, economics and finance through our lens of our Bloomberg Intelligence folks. Now, luckily Paul Sweeney was the guy who started Bloomberg Intelligence. But now he says right next to me. So when some of my Comcast breaks, I'm like, Paul, what's your take what's your question?
Paul, what's your takeaway?
What's your bust? It's interesting.
I think Comcast is just acknowledging that the cable network business is a tough business out there. Maybe it's a better to be standalone and not part of the bigger Comcast. But this is a pretty big move for the company. Let's break it down. Let's go to an expert. I know an expert on all this stuff.
Terry Kawajing.
He's a founder, he's the CEO of Luma Partners, Luma Partners is an investment bank in New York City that really works with digital advertising companies. Think about the companies that kind of make all the plumbing for Facebook, Google, Amazon, all that kind of stuff. Before that, Terry was an m and a banker on Wall Street for many decades, covering these big media companies, including a Comcast.
He's the author of a lot of.
The big media deals over the last twenty five thirty years.
Terry, what do you make a Comcast here?
What's kind of the strategy behind spinning out their cable networks?
So, yeah, you're right, I mean it feels like there's a bit of a round trip. Having advised Comcast in the build up of their cable systems and their cable networks in the early nineties, so that was like a long time ago last I checked.
This.
I think is a natural evolution of acknowledgment of a sector in structural change.
It's the linear TV.
Business doesn't come as a surprise to anyone who's in structural decline, and essentially you know, we've got Comcasts here. In fact, the whole media industry tends to be fairly strategically savvy and financially savvy. So we have seen other media companies like Liberty, like IAC do spin offs when a business will have a different growth trajectory or perhaps have a different financial viability than the core. So we've seen it written large across the media industry, and Comcast
is particularly strategically savvy and financially savvy. Here, this is an acknowledgment that probably these are assets that are not as necessary to the future of the digitally delivered peacock, and yet they probably would do best on their own to sort of viy for their future as a content company purely content without the distribution.
How do they buy as a content company without that distribution? Like, what does it need to do? And if I'm an investor, why would I buy that stock?
So, I mean, look, historically, right media has has gone back and forth from vertical integration of pure content versus distribution, and then sometimes they get together and combine content and distribution. This is simply an acknowledgment that these assets may best live on their own. Now, some I have noticed have described this transaction as a good bank bad bank type of scenario, or you hive off the assets.
I don't believe that.
To be necessarily true here because it is a little bit different. This isn't pure member. They did not put Bravo into this asset group. They kept that with NBCU to support Peacock.
What they did was they've set this on their own.
They didn't over or at least they're announcing they're not going to overleverage it. They're putting the same leverage ratio that exists with comcasts, and that means that this is going to be a viable business and in other words, is not going to be overburdened by debt and just operated purely for its cash flows. In fact, I would suggest that it would be a mistake to think that this is going to be an entity the spin co that's going to go quietly into the night.
Would fully expect that they will make their.
Own strategic and capital allocation decisions, and invariably they will be making investments in digital to help, you know, grow the business, because once it's independent, it's going to make banking its own decisions. And I would fully expect, for example, this spin co to launch fast channels right to take advantage in a digital distribution delivery of the IP that they now have wholly owned.
Well Alex.
This morning at seven am, I came on the air and an answer to a question from Tom Keene, I in fact said, this looks like a good bank bad bank scenario to me. So, but I've learned it long ago not to argue with Terry Kawaja because you'd rarely come out on the on the good side of those arguments. Terry, how are you guys thinking about just bigger picture for these media companies. They've got these cable networks where you know,
the subscribers are declining, advertisings deepdeclining. It's a declining business, but the streaming businesses are showing growth. How do you think think about how these companies are managing that transition.
I think they're actually managing it quite well.
If you look at Comcast's third quarter narrative, Mike Cavanaugh talks all about I mean you would you would, you would swear if you didn't know the name of his company, that he was at Telco, because he's talking about delivery, he's talking about speeds, he's talking about products that enhance
a broadband. So all related to that as opposed to the video business, the video business, the media business, whether that be the broadcast or the streaming or the cable networks, you know, is now a secondary business for those companies, and I think you're going to see them do just
fine as a broadband delivery business. And I think there's ample growth opportunities for them in that realm, which you know, arguably is a bit of a reversal of that you know, vertical integration strategy they essentially pursued in nineties with cable networks and in twenty twelve with their NBCU acquisition.
So based on that, how long do you think it has before we start talking about private equity getting in etc. Or do you think that their runway to prove itself is a bit longer?
Yeah, we'll see.
I mean, every private equity firm has looked at all the major media companies from a variety of angles. Right Recall twenty to twenty five years ago, all the big telcos and some media companies hived off their Yellow Pages business Why because and most of them one was to spin off. Most of them were private sales to private equity firms. Why is because those were businesses in structural decline.
Let me know when it starts sounding familiar, and essentially the private equity firms made the bet that that decline curve would not be as severe as what the market was pegging, and sure enough, that in fact was the case all the private equity firms that paid billions of dollars for those that's yes, those assets did decline. You know, we don't use yellow pages because we have the Internet now, but that declined curve made for a positive equity investment for them.
Here, I think there's a few more degrees of freedom.
Remember, they've announced the intention to spin this under the same super voting structure that Comcast has.
So Brian Roberts Mike Cavana.
Will be in control of this entity and we'll see whether it logically makes sense for it to become a consolidation vehicle for maybe other like assets owned by Paramount or water Rock.
All Right, Terry has always great stuff. Terry Quajer Folks, founder and CEO of Luma Partners. He as the investment banker to the media business, and we want to get his thoughts there on Comcast spinning off their cable networks here and so we'll see how that plays out here. But there's a lot of movement in the media space as we talk about all the time, Alex. People trying to figure out how to manage that transition from you know, the cable TV bundles that we always.
Paid for now to streamers. We're all streaming. We don't know what we're streaming and what we're paying for, but to look at our credit card.
Statements, Oh yeah, we have to go through that and be like, okay, what what And now you can bundle some of those together or they offer some bundles together. So I guarantee you I'm probably paying three times and YouTube for like Hulu, But nonetheless.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty.
Alex Steele, I'm Paul Sweeney. We're live here in our Bloomberg Interactive Brokers studio. We're streaming live on that YouTube things at overd YouTube dot com search Bloomberg Podcast. All right, Nvidia after the close, it's AI.
I'm actually hosting a couple of panels on AI conference. Today, I don't know.
And this is after or before the numbers come out, And I was at four right at Oh, that's not stressful.
People going to be coming out.
So you know, I'm not even sure what my how I feel about this whole thing. Anyway, Our next guest has some thoughts there. Philipenera joints us. He's the founder, former CEO the Boston Consulting Group. You're just up there at a BCG event last year.
Last year you're giving me last year. I don't remember yesterday.
We were up there.
It was fun af there will we I can't remember, all right, Philip, thanks so much for joining us here in our studio. When you talk to your C suite clients, how do you talk to them about AI?
How does a conversation typically go?
So from an AI perspective, it seems as though, you know, only the hyper scale is truly understanding, which is why Navidia has forty percent in a revenue. You know, with Mata, Microsoft, Amazon and so on. It doesn't seem like it's fully penetrated the four hundred and ninety five other corporate Fortune five hundreds. And I always say this saying, you know,
it's like a beautiful Chinese poem. If you don't understand Chinese, you don't know how beautiful the poem is, which means they don't really understand the value of AI and the type of productivity it actually can provide you.
So based on that, when we take a look at whatever cycle AI chips may live in, how do we know what that cycle looks like? Is it going to be super fast? Is it super long? How do you think about that?
Yeah, so I think we're barely in the first inning. Okay, as you can see, if forty percent of the earnings are with four or five companies, that leaves a lot of room for growth. The problem is people don't understand the use cases for AI and how that would actually make things better. So I think a good benefit for today is to actually talk about how you really could apply AI. So when you talk about Nvidia, there's like
three drivers. There's the AI. There's also what people don't talk about is the transition from Web two to Web three and what that means in English is right now, Web two is CPU driven. Web three is GPU driven, which is three D. It's a more immersive technology. The only way you drive that is through GPU chips, which
is what Nvidia has. And I'm not sure if you're aware, but Morgan Stanley's, City Bank, Goldman Sachs have all given an estimate of Web three being worth eight to twelve trillion dollars and right now we're spending less than a trillion. So my point is there's a massive growth, but there's something also new that's come up, and I'm going to
talk about specific use cases for this. The Department of Government Efficiency has just been put together by Musk and Vivek, and what that will be is looking at how you cut costs in the government. So if you want the simplest way to cut costs, you actually digitize assets. What does that mean in English? You basically create digital twins of the buildings. The federal government has over three hundred
thousand buildings. You can digitize the building and by digitizing it, you can actually run the building from your phone, and that's how you drive AI. And once you create that AI shell, you actually can start to drive the workflows in it. So you can reinvent how the government manages buildings, infrastructure, and also corporations.
I can't I can't depend upon my government to do something like that, I mean, can they deliver the mail on that?
Yeah, so with AI?
Maybe?
With AI maybe.
So if you think about in World War two they had the Manhattan Project where Einstein pend message to Roosevelt saying that the ways wars will be fought will be different with atomic energy. Well, the way government will be managed and the services provided will be with AI. And so if they really want to say that's why the Trump said that this is going to be Manhattan Project too. If you really want to see how AI impacts the government cut services as opposed to all the stupid redundant programs,
you can drive it through AI and Musk. You know, he's the author of autonomous cars. So essentially, what does that mean from a government perspective? You can have autonomous buildings, you can have autonomous infrastructure, and eventually, as you already know, the AI is already spreading to the military.
So what's autonomous building and infrastructure? What does that mean?
So?
Autonomous building is a cognitive building, which is a learning building, which is basically it sees the patterns of what goes on and as the resulted at it cuts the energy, the waste, the air. In other words, it learns it learns patterns. But in order to do that, you have to create it from a digital perspective first, a digital twin. So for your audience, a digital twin is nothing more
than a digital representation of the physical building. But what you do is you put scanners on all the h facts, the air, the waste, and you actually run the building from the digital twin. And that's how all infrastructure should be managed going forward. I've already had discussions. I don't
know if you're aware of this. The Biden administration appointed AI heads for each of the major agencies and HUD has you know whatever, three hundred thousand buildings, and I had a discussion with the head of AI and the CFO for that, and we discussed how we'd actually digitize the assets and that if you want to talk about how you actually drive costs down and run things more efficiently, that's the way you do it. And guess who powers all of that?
Who in video and video?
So my point is people keep on looking at like the numbers and wondering these too expensive. What they don't realize is right now the spending on Web three and AI is less than a trillion, and it's scheduled to go to ten ten trillion. So all the infrastructure in the economy is going to move from Web two to Web three. So what does that mean? There's nine trillion dollars the left to spend and how do you power it through? Nvidia?
Some investors really over the last several quarters or maybe the last year, saying okay, I kind of have an idea about the dollars that are being spent a billion, maybe going to a trillion, maybe going to ten trillion. I need to hear more about the return on investment, and I think that's what some of the companies are starting to get.
Questions a little bit more these days. How do you answer that question.
Or how do you so I'm actually a practitioner. I know most of the people come in here, they make speeches and they write papers. I actually do the technology. One thing that I actually did was actually built the market surveillance system for the NASDAK. It reduced investigations from four months to a minute. So if you want to
talk about how technology impacts productivity, there's your example. They used to have around one thousand people in regulation when they had less than they did only a couple of hundred million in the mass there now they're doing billions. They actually have less people now. So when you're talking about an improvement from four months to a minute, that's the impact of.
AI from an Nvidia story specifically, And I know you say it's all powered by Nvidia. They also come out with new chips a lot. So if I'm a customer, why don't I just wait for the really good chip that's going to come out in six months rather than keep buying all the chips at the same time. Does that make sense? It's like they're going so fast. They're moving so fast, and they sort of trump themselves so much. Do they eat their own lunch? Like, at what point does that happen?
No?
I actually like exactly what they're doing. They've actually taken.
The Apple model, you.
Know, where Apple keeps on putting out a new phone and it keeps on getting better and better. But not to say anything against Apple, their improvements are way greater than the iterations in the Apple phone. So if you take and let's take an example, they have Hopper chip that's the number one chip right now and it's being replaced by Blackwell. If you look at the productivity of a Blackwell chip, compared to HAPPA. It's four times the
amount for slightly more cost. So my point is they're going to keep on producing things better and better and for the hyper scale is frying them, Yeah, because I mean, I'm sure you know about Sam Ultimately he made this crazy statement he needed six trillion to build all these data centers. There's actually some truth in that because all the data centers are going to have to be built to drive and run this. I know this thing came up with the Nvidia Blackwell chip. You know they had
a cooling issue. That's because this is important for you guys.
Know that CPU.
We were in a CPU dominate environment, which is a central processing unit, which is a single processing In order to run AI, you need GPU. The data centers in the US were set up for CPU because that was the dominant thing. Now that we're going to have a GPU dominated future, you're going to have to restructure those data centers. But just so you're aware, it's not that complicated. If you liquid cool the data center, which is what Meta did, then those ships work fine.
Applications.
Are there certain industries, certain types of companies you think will be at the forefront of really employing AI in their business models, and if so, kind of.
Who do you think those might be?
Yeah, I mean I want to stick to the government example, only because of the fact that that's in the news and people want to know what the OGE is going to be doing. I mean again, I go back to the buildings. That's as simple as business case. A building has energy costs, that has people who maintain it. Once you build that digital twin of the building, you can drive down the energy costs up to fifty percent and reduce your manpower by fifty percent. But let's take another example.
Once you actually digitize that building, you can start producing AI workflows. And I'll give you an example. Some embassies have already started moving to this. I'm sure you've gone to embassies. We have to physically stand the line and give them all the information and it's a real pain. In the future, there's already embass that are doing as one Caribbean island, Barbados, has already started it. You can actually go into the embassy through the metaverse and actually
do all your activities and services digitally. So my point is all the government services are going to be moved from physical to digital.
How long is that going to take. How long is this transition?
The problem is this, and I want to be very very straightforward with you. The reason why forty percent of revenues are with those hypo scalers is they understand AI. It's amazing, amazing. I talk to the top people at the top firms. Consultants, the heads of technology don't even understand AI. The CEOs of those other four hundred and ninety firms don't understand AI. And the simplest example I give them to the benefit is how we reduced inside of trading from four months to a minute. And that's
the type of benefit they get. So they're very skeptical. And just so you know, the US is in last place, believe it or not, if you look at AI adoption. We'll just take the simple building example. China already has a lot of their stores that have been made digital twins and they run them off their phone. I'm sure you know China already has some autonomous cars, which your driverless cars. So basically Asia is first an AI adoption.
Middle East the second, because Malisee wants to leap forward SORDI raiders, particularly with the Neon project that you aware. Europe is third, US is actually last interesting.
We could go on for this. Actually you can host my panels.
There you go. Did you learn Sey write down?
Yeah?
I got speed.
Phil Pernaro, thanks so much for joining us. Fil Penaro as a founder at former CEO of Boss Consulting Group.
Talking a little Technology, Talking a little AI.
Here you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with 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.
This is Bloomberg Intelligence Radio. We bring you all the top news, business and I can and finance and politics. There are lens of our Bloomberg Intelligence folks think over two thousand companies in one hundred and thirty industries all around the world. We also tap our vast network of Bloomberg reporters as well, and for that we're going to go to Washington. Bloomberg Washington Senior correspondent Seleiah Molsen joins us. Now, as we know, as time ticks towards President Trump picking
his Treasury secretary, who's on the list. Now do we know the ranking? What's the state of play on the list?
Now? Alex are Scott Bessant, he's a hedge fund manager. We have Mark Rowan of Apollo. We have Kevin worsh the former Federal Reserve governor in the mix. And Bill Haggerty, a senator. His name has also been mentioned. It's really hard to know who's number one on that list, who's a top contender. We know that the president wants someone with Wall Street pedigree, like he did during his first term when he had former Goldman Sachs banker Stephen Mnushan
as his Treasury secretary. And we also know that he wants someone who is sort of full bore, is supportive of Trump's tariff plans.
So is it a problem in and of itself, Selia that Trump has not yet made a decision on the Treasury secretary. Does that suggest that maybe there's some real difference of opinion.
I think generally we you know, when we have a change of power in the White House, we get a pick before Thanksgiving, so we're kind of on track. Even when Obama came in during in the midst of the global financial crisis. Tim Geitner at the time was announced
mid to late November of that year. I think what we're seeing is that the long term consequences here are one it really will is showing how serious Trump is about tariffs as a key tool of his trade policy, and tariffs are one thing that have foreign allies, adversaries, investors, everyone kind of wondering how is that going to play out.
So in terms of timing, we're we're on the same wavelength. What do we think Elona Musk's role is in picking.
A Treasury secretary.
The only thing that we've heard from him on Treasury was Saturday with his tweet. It was kind of a big deal. He tweeted out and coming out in support of Howard Lutnik, who has now been tapped as Commerce Secretary. Lutnik was not a clear favorite among the Trump camp, and he came out in support of Lutnik by saying that while sanctions are going to be so important important, that means you need a Treasure secretary who was willing to blow things up, be a bit of a disruptor,
and that's Howard Lutnick. Since then, we have not heard Musk talking or tweeting about it, and so I guess you can read into that what you want to.
Sally, what's the thinking in DC about Senate confirmations of some of the more I guess questionable or contested candidates that President Trump has. I'm thinking Matt Gates and some others. What's the Is there a feeling kind of growing down there about how that will proceed?
Yeah, Paul, that's such a great question because I keep thinking to myself that once Trump has chosen a Treasure secretary, this person not only had to go through the last ten days of rigmarole to get the job, possibly, but also the real vetting work starts when you go through the Senate confirmation process, which is your you know, all
your financial disclosures are made public. People are coming through your information and your background, your family and your history, and then you have a very public two hour long grilling that anyone around the world can watch as you interview with the Senate Finance Committee for this job. Yeah, and everyone's talking about Matt Gates, whether that's really going
to be able to make it to the Senate. We haven't heard a lot from John Thune, who is the Republican senator who will be the Republican majority leader once that session in Congress starts. I think that's where the cues are going to come from. So far, he said that a president should get to choose his own cabinet office, but he does want a thorough vetting process.
And this goes to what Nathan dena Bloomberg Intelligence was talking to us yesterday on radio in terms of the populist versus Wall Street pick, And for most of the candidates, it seems like it's going to be the populist pick except when it comes to the money, and then maybe it's more of a Wall Street type. Is that a feel done in Washington?
You know?
I think one thing that we've realized here is that economic populism is the policy of choice for both parties here in Washington. Republicans and Democrats both favorite protectionism over globalization right now, and so that shouldn't come as a
huge surprise. But I think kind of back to what we've been talking about the reason that this fight maybe has played out for so long is that there are dueling forces here that if you are swearing an oath to march forward with a plan to use terrace as a strong tool of trade policy, that is somewhat at odds with the way Wall Street minds tend to work.
So lay in addition to the Treasury Secretary, is what else are we kind of waiting for of importance?
I mean, we've had a lot of the picks so far. We have we don't have much of the Economic policy team at all. We have Commerce Secretary, and that was interesting. What Trump did was he made it so that Howard Lutnik is Commerce Secretary and the US Trade Representative's office reports to the Commerce Secretary, which is interesting because usually the USTRH official is a member of the president's cabinet.
Now presidents do have sway, some say all to say over which specific rule, which agency head is on a member officially of his cabinet. We also are still waiting for a pretty powerful, powerful position from the within the White House. That's the National Economic Council Director. I mean, I think people are they're such a big fight over Treasury right now, we're forgetting how powerful that post can be, and also OMB director and a couple of other jobs.
When we look at the transition, do we expect the transition from January sixth to January twentieth to be smooth?
I think so, because right now Trump has a full mandate, he won the electoral College, he won Republicans have all of Congress, and he also won the popular vote. So I don't know what would be the disruptive power there.
All right, Sally, thank you so much. We appreciate it. SLAYH.
Molsen, she's Washington senior correspondent for Bloomberg News from Washington. T But I guess you have to ask that question after what happened four years ago.
About well, well also just in terms of like will the first lady meet with the first lady? Like will the VP? You mean with the VP? Like will Advance meet with Harris? Like is that happening? I don't know, I mean, or does it matter in it as long as well I.
Should expect it.
Yeah, yeah, I guess what we've seen so far is President Biden did it welcome President elect Trump to the White House right after the election.
So that did happen per protocol or per tradition.
I guess I don't believe Millennia Trump came on that visits.
Yeah, that's also is bidenpen Interestingly enough, you had Bridgewater saying say that Trump's policies actually may push you as inflation above that two percent target, which, if you game that out in terms of who might lead the FED, that I'll have to nominate a future FED chair who might accommodate higher inflation and allow for rate cut. So that's sort of their take on the longer term economic policies from there.
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