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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordert. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. Then that's that one hundred,
as you all know. On Trackford's third straight weekly last, Tom forty of Maxim Group covers Apple and Amazon with a by rating on both. Tom joins us now for more. Tom, The anxiety is overwhelming this week in the tech sector. I don't even know if it's reached the main street just yet, but on Wall Street the faar is skyheigh in two names that you cover, Apple, Amazon. Let's start with Amazon. Lisa mentioned this eight day run of declients
eighteen percent lower on Amazon. What has made that stop fall out of bed over the last week.
Yeah, So when you think about the weakness in Amazon. I think it's entirely related to the two hundred billion dollar capex guidance by the company, and if you look historically, without downplaying the significance of a two hundred million dollar capex number for Amazon, but Amazon has a track record of ramping investing when necessary to take advantage of opportunities, and I do think that Amazon can take advantage or
capitalize in AI in ways other megacaps can't. They have one point five sorry, one point five million employees, many at the large fulfillment center level. To the extent that they roll out robotics add automation, they can have greater efficiency. Now you've been talking a lot about AI displacing jobs, so I think that if you do the math equation for Amazon, it would be to the extent that automation
reduced the headcount at the warehouse level. But at the same time, you have to think about the new jobs that automation would create, to the extent that someone has to make the robots service the robots, things of that nature. So, yes, I'm concerned about job loss from artificial intelligence, but I think it's going to be an offset of job loss, but also some job gains.
You know.
Tom John opened the show asking about this conflict that I think really is the conflict. Either this capex that all of these big tech companies are spending is not worth it and ultimately is going to backfire on them for a becoming asset heavy and not as profit heavy, or people are just totally mispricing the story and the disruption is actually yes significant on the other side, but is going to benefit these companies in a significant way.
Which is it?
Well, okay for Amazon again of the belief that it'll be worthwhile. And I think what's interesting is a student of you know, having started covering the Internet in the elite nineties, I remember the build out of dark fiber and things of that nature. So I worry that we're going to have this, you know, ghost data centers in
the future and things of that nature. But the good news I think for Amazon and for other megacap tech companies that are ramping their cap x is that presumably if they don't see their returns, they can scale back the numbers. It isn't that Amazon Amazon spending two hundred billion in one day. So if you look at Amazon again, they've scaled back some of their leasing commitments when they determined that they didn't need as much fulfillment center square
footage because there wasn't a demand. So I do think that as it pertains to Amazon, if they're not seeing the positive performance, that they're expecting greater efficiency at the warehouse level, a greater efficiency also at the software engineering level, better sales from e commerce, things of that nature. It's not like they can't stop the spending. They can, they can turn it off.
Tom, is a tech really that good?
Is the air really that good to disrupt all of these potential industries? Is the sort of heat seeking missile that Joe A Motto of newberg Erman was talking about? Is it truly that in terms of its effect efficacy?
So you're asking me, so today we'll call it, you know, a day before Valentine's Day twenty twenty six. Is the technology that good to the extent that I have, you know, spent a lot of time with Alexa and Siri as an example of you know, AI and things of that nature. The answer is absolutely not. The question is in the future will it be that good? And it remains to
be seen. But I would say, Lisa, I would say today I'm convinced that tech is not that good, But that doesn't mean directly we're not heading to a point where it will be much better than this today. And I think that's, you know, very much possible.
Tom. I'm not going to ask you if you're spending Valot time's with Alexa and Siri. I'm not going to ask that question. It is you basically asked it yourself taking.
My wife to dinner. But thanks Jonathan for worrying.
About otherwise you could have joined us. I was consented. I'm going to follow up on Apple. I want to talk about Apple very quickly. Five percent move. Is this the thread of a margin squeeze from memory or is it about falling behind with AI? What's the move about?
It has to be the margin squeeze on memory. So, Jonathan, I was sticking back to last year being on your show and wondering if we had a supercycle for AI for Apple, twenty percent growth in iPhones in the December quarter would make us think yes, But they absolutely they are nowhere with AI. So I think that the five percent move is concerned on memory. Apple historically does very well when they have a product selling as well as iPhone seventeen and improving the margin over time, they could
take price managing supply chains Tim Cook's forte. So I'm not worried about memory, maybe as much as the market is right now.
Stay with us. More Bloomberg surveillance coming up after this. Tiffany want to get Pincock joins usnaps talk about the days. Tiffany, welcome to the program. How much weight can we put on this week's data? Halted, un expected payrolls soft that expected CPI.
Well, I think this morning's inflation print, even though it was in line with the Bloomberg consensus expectations, was actually pretty encouraging under the surface. You know, I think there's two things that we would highlight in that regard. You know, one is just that shelter inflation, which had been stubbornly, you know, just persistent since the pandemic. You know, it's finally really decelerating, and we saw that in today's report.
You know, rental dynamics for new tenant rents actually suggests that that you're seeing a pretty stagnant rental market and that will ultimately feed into OERE with a lag. So that's good news for the FED. I think the other good news in this report, you know, is that the
terrorf related effects are largely fading. You know, so we probably did get a little bit of a bounce back in core goods prices retail goods prices from the discounting that happened over the holiday season, you know, but ultimate looks like terriff effects of kind of they're behind us at this point. They were passed through to the extent
that companies were going to do it. So as that fades, you know, you you should have a federal reserve that that feels more comfortable, you know, cutting interest rates, you know, it does look like they are a little bit restrictive relative to the media and long term estimate of the long run neutral interest rate. You know, so getting a couple of more cuts in this year seems very reasonable to us.
It's if we not, all right, cuts now created equally. Do you see then a federal reserve that's cutting interest rights because inflation gives them the space, or because the labor market gives them a reason, you.
Know, so I think so for us, the outlook for you know, for the labor market is pretty stable here. You know, ultimately, we think growth is going to be Okay, this year, you know, we're looking for two percent, you know, that should support the labor market, but nevertheless, you do have this AI related adjustment that's happening, you know, under the surface, so you know, those those factors are sort
of offsetting. We're looking for the unemployment rate to kind of stay where it is, and then outside of that, we're looking for inflation to moderate, you know, moderate back to target this year, so that in our view, would be consistent with the Fed that that's easing somewhat.
You know.
Of course, if the unemployment rate were to rise much more, you know, than that, that would that would warrant more easing from the Fed.
Tiffany, do you think.
That this actually opens the door to three rate cuts this year, as the market seems to be implying right now.
Yeah, I mean, we'll we'll definitely have to see. I mean, it's certainly possible that they could get in three.
You know.
Again, I think as kind of a rough estimate, we're looking at the mid the midpoint of the long run neutral estimate, which is which is right around three percent. You know, they're at three and a half now, so that implies two more cuts. You know, I think getting another one in would you know, be the result of more disinvationary pressure potentially target below target inflation or the unemployment rate moving up.
I understand the idea of celebrating disinflation.
We're still at two point four percent year over year for CPI.
And people are saying this is winning.
I mean, how strong is the disinflationary force coming from the housing sector that gives you confidence that we're actually going to get down to two percent even with FED rate cuts, given that we've been above two.
Percent for five years.
Yeah, well so in the housing sector has certainly been one of the reasons why that we've had stickier inflation. So the housing, oh we are and rents, rental inflation have been incredibly sticky, you know. You know that's in part because of it just takes them longer to adjust, you know, so they didn't accelerate as much as as home prices did during the pandemic. But but now they're
decelerating at a slower pace. That's finally over. It looks like that ketchup has happened in the rental market, you know, and you can and you're now seeing more more stagnant rental trends so that is import ortant.
You know.
But again, the other thing is is that the thing that's held up overall inflation over the last year is some pass through of the additional costs that companies have to pay as a result of tariffs. But that's a one time price level adjustment, and when we look at core goods price behavior, you know, it looks like that adjustments largely happen. So now that it's happened, you should see core goods uh, you know, price inflation also starting
to decelerate. So again, all that is is good news for the Fed.
Definitely.
Just one final comment if we can on the committee that Kevin Walsh will ultimately at some point this year be taken over. How contentious will things be? How divided is that committee currently?
Well, I mean, you know, again, I think you I think you want to look at where everybody is as you know, where everybody's sort of writing down where they think the long run neutral interest rate is, because because that's going to be the debate this year, we think, you know, and of course that the AI you know, and the technology related diffusion will have implications for that our star debate.
But there's a good.
Majority of the Committee that still thinks that the current policy rate is above their estimate of our star, which means policy is slightly restrictive, you know. And if you have employment that is consistent with maximum levels, and you have inflation that's running at target, you should be at neutral policy. And so again the real debate this year on the FED is where neutral policy is going to be,
you know. And again we're kind of looking at the midpoint of their estimated range of three percent.
Stay with US mult Bloomberg Surveillance coming up after this Global lead is gathering at the Munich Security Conference, the US Secretary of Saint Marco Rubio leading a delegation as the Trump administration pushes Transatlantic ties potentially to their limits. The Republican Senator Tom Tillis is on the ground in Munich and he joins US now for more. Senator, welcome back to the program. Forgive me for doing this life in the moment. But the news just crossed. This is
on Ali Baba reporting from Reuters. So the Trump administration is expected to add Ali Baba to a list of firms that allegedly help China's military. This according to reports just moments ago. Senator clearly the US administration and Congress for that matter, is looking to put a bit of a squeeze on China landing in Europe and Munich, Germany. Do you believe that you have the Europeans on site in this effort.
I think we do.
But let's go back to Ali, Bob and honestly, any business that's domiciled in China, does anybody really believe that there's separation between the CCCP and the state owned enterprises and other supposedly independent businesses.
I think the President is on.
The right track to make sure that we're starting to hold China accountable. We need a good relationship with them, but it needs to be one that's founded on trust. And quite honestly, there are moves in China that I don't trust.
So Senator, with that in mind, should US based investors be able to have access to investing in these companies?
Well, look, I've got a real problem with We had.
A Banking Committee com meeting yesterday with Adkins before from the SEC, and I've got a real problem with the US getting into a trend of buying into some of our companies. I feel like we should let the free market really drive innovation and also back to the segment before I watched your prior segment, we've also got.
On leiche I. We can't be afraid of it.
We have to embrace it, we have to leverage it, and we have to be the leader in innovating it.
Well, Senator, let's talk about that. Creative destruction is a feature of the US economy and American dynamism is something Lisa was talking about earlier on this morning. Senator, I feel like there's an aversion to that these days, and a fear associated with some of the headlines we've all seen over the past suite, the prospect of white collar
jobs being wiped down. How do we prepare for a moment that and ensure that what globalization did to manufacturing doesn't happen to services with AI A sure, well, we.
Have to be ever watchful, but the bell has been wrong.
We can either decide to be the innovation leader and work with our partners and allies, the nations that we have military alliances with, to make sure that the Western.
World is still in the front of it.
But I'm reminded of books that I read about the Industrial Revolution and anytime that we've had a major leap in technology.
We can't pretend like it didn't happen.
We have to figure out how to master it and be the best practice and executing it and dealing with all the potential negative consequences and job displacement. I think the jury is still out on what the job displacement's going to be. Does it mean that we've got to put more money in education and retooling expertise around the needs of the AI future, Probably almost certainly, But we should resist it.
We should make sure.
Sure that we get rid of the patchwork of laws that are being implemented at the state level that are impediments to our own indigenous innovation and AI, come up with rules of the road at a federal level, and just unleashed the power of the US innovation economy to lead the world to get into right.
Senator, do you feel like internationally there's the same skepticism you're in Europe, it's known for regulating their experts in it, and it seems like a growing number of people feel like that is hampering some of the progress.
I mean, is there the same kind of enthusiasm.
What's the mood like around some of the AI story that's causing a lot of a lot of volatility, certainly here in the United States.
For years, I've been trying to remind everyone of how critical we were of the GDPR data privacy, data breach policies of the EU implement it.
They made mistakes, they corrected.
Some of them, but then states started gold plating some of those policies California and other ones that are again to our tech sector. What we need are national rule. This is clearly interstate commerce. We need to preempt these laws, make them better if we find the best practice, be instructed by that at some state level. But we need to set that platform right or the maligne users of AI are going to outpace our ability to stay up with them.
That's why I.
Think it's so important. I was the one, the.
Only one, actually nine to nine members voted against that. There was an amendment last year to try and preempt the AI laws at the state level come up with a national standard. I think that we need to do that very quickly, and we should throw data privacy data breach out there so that we get it right and maybe we have a gold plated state or that Europe can be instructed by.
In the meantime, as people are concerned about this leave and market transition and the pain that could come alongside it. It's one reason why there's been so much focus on the FED to reserve. It's one reason why people are saying it might behoove the FED to cut rates more aggressively in order to ease the pain for a number
of individuals that otherwise might be losing their job. I mean, how much are you feeling satisfied in the process that you could get a hearing for the nominee Kevin worsh in the.
Not so distant future. Do you think that that's feasible.
Well, we could have a hearing all we want, but until the investigation is done. I still believe that the initial inquiry and the investigation was a flex to try and get the current chair to step aside. Chair Powell has a term as chair that expires in May. He also has a term that could extend for two more years. I have no intention allowing any FED Board nominee to move forward out of committee and to be confirmed until
this matter is subtled. Well, this is foundational to FED independence, and I for one, I'm going to stand on the side of certainty and FED independence.
Is what delivers certainty in our markets.
So Senator is intriguing because we heard from the Treasury Secretary earlier on this morning speaking to the American press, and he said the following that I spoke with Republican senators early this week, and I think we have agreement to go ahead with the Wash hearing. Do you have an understanding of where he's getting that impression from.
Well, you know, I've said that if they shouldn't confuse or conflate two issues, the suggestion that we should have an oversight hearing to see how well this building project with the FED has gone, It's fine with me. In fact, I think we should have that kind of oversight for the East Wing construction, the upfit of the air Force one that's kind of a mini air Force one because it can't fly out of US barners.
All of that is just good governance oversight.
None of that has anything to do with an investigation that I believe was dead on arrival. We are talking about two minutes of testimony that seven members of the Banking Committee, Republican members including the chair.
Have all said did not constitute a crime.
We've got a prosecutor who's not listening to the eye witnesses and continuing that's not productive, and I'm not going to I'm not going to allow it.
Maybe they can commit.
It's Democrats to vote with them, but as long as I'm the.
Deciding vote, we can have mister Warsh, who I would love to be the next FED chair, but I'm not going to confirm the next FED chair until I can be absolutely certain that these sorts of flexes do not always have members of the Federal.
Reserve Board or the Chair looking over.
Their shoulder wondering when they get the call from some US attorney with a dream.
The Senator, if you had the call from Treasury or from the White House about this, when was the last time you had the conversation on the issue.
Well, I've had a conversation with the American people in c SPAN yesterday on the floor, and I don't think I was mincing words.
I'm not really known for that.
But if I need to make it very clear this is about an end for our resolution, I'll get the prosecutor the benefit of the doubt.
Provide me with evidence beyond the two.
Minutes of testimony and the committing that seven Republican members said it was not criminal, it was not misleading the there was no criminal intent. It's like an indictment looking for a crime, and to me, it just it's at the edge.
Of absurdity that I can't accept. And the only thing I know that I can do is.
Exercise my right as an individual Senator to hold up future nominations until this investigation is done. But to the Assistant US Attorney bring me evidence beyond the two minutes has been rejected out of hand by members, by the majority of Republican members on the committee, or proved to me that there's been an instance where a referral. What's really odd about this? And I spoke about this on the Senate for yesterday.
This is the first time that I can find where a.
Prosecutor moves forward with an investigation without a referral from the chair or a member of the committee. Maybe somebody can prove me wrong, But if that prosecutor has compelling information, either the way they read that two minutes or something else that no one's aware of, let me see.
It, Senator, before you go, time for one final question. You're in Munich. Let's finish when we starts it. Chancellor Marze just spoke moments ago and said the Transatlantic partnership is no longer self evident. Senatetor how received, how well received was your delegation in Munich?
Well, you know we're going to have I think we're going to have a lively discussion here.
I had someone ask me about JD.
Vansa's vice president of Vance's speech last year. I said that I wouldn't have given that speech, but I would not have missed the opportunity to let my family of nations in NATO know that one of the reasons we're here is because of the two trillion dollar deficit over
twenty years. Johnathan, can you imagine how much more ready we could be if all the demand signals that would have come from two trillion dollars in weapons and our mutual defense had actually been purchased by the countries of NATO who had failed even meet their minimum requirement.
So I think there's frustration there that we.
Need to get passed.
But I am speaking I believe for the majority of Congress who who knows that the Natal Alliance is the most profound and impactful alliance and the history of mankind, and we stand behind it, and we will as we go through this discussion to get things back to normal.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.