This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com,
the Bloomberg Terminal, and the Bloomberg Business App. Francis Dautle joins us right now, this is an important brief, really good at the minutia that adds up to our gross domestic product. Francis, if we don't get a recession, but we get sort of kind of like a muddle one point five percent, one point one percent, zero point seven percent GDP not under zero, what does that feel like?
Well, it depends how the central banks respond to it.
But Tom, I'm more concerned about that very slow but assistant weakness than I am about a garden variety recession. We know what to do in garden variety recessions, and we know that central banks historically pivot. But what we're witnessing is, yes, a COVID distorted economy where we're seeing desynchronized elements. We're seeing a consumer that hang or hung on much longer than they would have in other cycles.
Housing is already starting to reaccelerate. I'm not sure we're going to get the same sort of response in things like GDP data to the traditional shocks that we've seen, and therefore the risk is that we continue to hear while there's no recession.
Therefore you can go along.
But it's the FED says, well, no recession means we hold that's a very different investment playbook.
Francis, you got a colored dot chart. It looks like the new Louis Vutant purses that everybody's buying right now. Don't ask me, folks while I know about that. But the chart you mentioned is one of your great concerns is what Lisa mentioned earlier, which is M two growth. I'm surprised if Francis Donald is monitor astonis discuss that.
Well, Actually, I'm not just a monitorist.
We look at all elements that potentially lead to economy at doing poorly. And that's the problem here, Tom, is that no matter what way you assess where growth is going, basically every traditional leading indicator of recessions is flashing red. And some of these are flashing red not consistent with garden variety or small recessions. But some of the big problems that we had, like in two thousand and eight, Now is.
That necessarily where you're going. No, But what I say to my team is.
Even if we cut in half our concern about downsides in growth, we're still looking at a very difficult economic environment. And to ignore the breadth of the challenges that exist and the breadth of the weakness we see in leading indicators, I think it is going to be problematic.
And what's interesting your release is liz An Sanders really underscoring this out on Twitter yesterday where you were on M.
Two growth well, and John was mentioning earlier as well, this idea of what happened when suddenly the restriction by central banks starts to play out in markets. Francis you say that an economic muddle might not be so great. It's very difficult to read because we don't understand what the different inputs are and where we are in the economic cycle. But if you just take it at face value, why isn't it the Max Kuttner view of things, we're
basically if it's not too hot, not too cold. The Fed's kind of stuck in the middle, and things can grind forward at least for a few more months.
Because we're at extremely high levels of interest rates for this level of the economy and we're heading towards a sizeable credit crunch.
And this is why data.
Like the Senior Loan Officer Survey that we should be getting by May eight is going to be just so incredibly important, because even if GDP numbers are not negative, this is still an economy that's going to struggle to produce revenue.
It's going to struggle to produce jobs. We're going to have to move away. Just like we've moved away from the concept of.
The unemployment rate giving us a good sense of the health of the labor market, we're going to have to move away from GDP as giving us a good sense of general economic activity that exists. And if the subtle reserve is still going to be focused on these traditional indicators like GDP and unemployment and even the PCE inflation rate, then we're not going to get relief from them. And this is a market that has already priced in some relief. So the problem with slow growth that isn't a full
blown recession. Is that we likely don't get relief on the rate size, and this is going to produce a challenging risk environment.
So Francis, when you start talking about some of the challenge profits and things at corporations, this has been one of the most surprising aspects of this earning season. I was looking yesterday at Procter and Gamble at Kimberly Clark, and their profit margins expanded. They were able to raise
prices on consumers more than their underlying inflationary inputs. What does this say about just how much weakness or not there is, how much tolerance there still is in consumers to absorb all of those price increases.
Well, it speaks to the desynchronized nature of this environment. But as we move forward and we see credit pulled back even more sharply, and we see some of the challenges that flow through primarily to small businesses. I mean, let's remember that small businesses are heavily credit dependent, and
they've created the majority of jobs since twenty twenty. So as companies start to feel the pinch through the credit channels, they're going to have to be cutting costs in some way and I think that's going to flow through into the labor market. So again we have a consumer that held on longer than it would have historically, but all evidence suggests xs savings are coming down.
Credit is not going.
To be available, and as you know, Lisa, there are already some signs that the labor market is going to weaken. So right now there's some ability to absorb those price increases, but six months from now, not so much. And this is when the story is going to change. And it comes back to our job is not to tell us what's happening right now. Right now we're okay, it's to
look forward six months. This is why it's so key to disaggregate between coincident indicators, leading indicators and lagging indicators. And when you do that, sure coincident data is just fine, but the leading indicators is where the challenges and confusing those two I think.
Muddels the story.
Francis. The Bank of England has a message for us all we need to accept that we're poorer. Apparently, in one of the most insensitive remarks we've seen from a central banker since Governor Bailey told us all to stop
asking for a pay rise. This is what Hugh Bill has got to say, what we're facing now is the reluctance to accept that, yes, we're all worse off and we all have to take our share, to try and pass that cost onto one of our compatriots and say we'll be all right, but they will have to take our share too. This is bizarre. He's effectively saying, Francis, we need to accept that inflation is high and that wage growth won't be enough, and we shouldn't push for
higher wages. Francis, what do you make of those comments from Hugh pil of the Bank of England.
Well, it's concerning in the sense that we.
Know the bulk of these challenges have hit low income households across the world who have seen their share of spending on food and energy rise. You know, I do interviews where the person prior to me is talking about you know, record lines and food banks. So telling somebody that is struggling to some food on the table that they have to accept higher inflation is going to go
down a little bit more problematically. However, the bigger investment concern here is that again we are used to in an environment where central banks provide relief a central bank put and comments like this keep me up at night because they say, you know, some of the difficulty we're seeing in you know, banks, some of the difficulty we're seeing.
For household is a feature, not a bug.
Of current central bank policy, and it suggests we have to reassess that decision making function for all central banks globally, and if we do that, we may not be getting the standard relief rally that comes when you see lower growth. It's effectively a stagflation response function and it is much more challenging for almost all asset classes than you know two quarter dip of FED cut or a Bank of
England cut a reacceleration. I'm not sure the market is fully grasped on to the risk of a recession with no rate cuts.
Comments like this worse than my concern.
Francis, thank you, Francis Donald of Manual Life Investment Management.
Peter sheer he gave the name Meta to Facebook. He's the when he called up Zuckerberg and said, you know, I think Meta has as a direct and name to I still don't know what Meta means joining us now. Peter Sheheer had a macro strategy Academy Securities pull together these narratives. I mean, you and I have never seen this before. Let's start with that, but pull together the narratives that are making radio and TV listeners and viewers headspin.
I think we are on a slow bleed into the recession. It's going to it is coming. It's starting at the white collar level. I think almost go back to the simplest thing. It's someone's expense is someone else's income. And everything I read is about people cutting expenses, which is going to hit someone's income, which is going to cause them in turn to cut their expenses. And I don't see anything switching that trajectory. I think the China reopening
was a headfake. It was never really a big reopening. And to me, when opek Plus really cut production, they were seeing what we were already seeing. Freight was down, we're seeing shipping down. There is an economic slowdown occurring just below the surface, and it's slowly taking effect. It's going to be a grind. It's not going to be
like a great financial crisis or anything. And the fact that the banks are in struggling with how to keep deposits is going to hurt lending and that's going to hurt the small business, which has been a huge driver of success in the past, so much.
To unpack their peat. So let's go with China. It's a pretty emphatic thing to say the reopening was a head fake. Why was it a head fake?
First they were already partly open, so it wasn't like going from zero to one hundred. They were going from sixty to eighty, seventy to ninety whatever that was. But also they are focusing more and more on their own economy, right we don't First we already have this inventory I hesitate to say glut, but I think we have an inventory glut. We have overbuilt, we have supply chains that have stacked up, so we don't really need China's production
right now. And more and more, or how I see this world shaping as you have China Again we've said before, aligning with the autocratic, resource rich nations, and what we're seeing we're talking about the shift from maid in China to made by China, and by that I mean China used to take US products manufacturer give them back to the US companies who sold them. Globally, I think you're going to start see China trying to sell Chinese products globally a little bit more and be a true competitor.
I think that's going to be the scary shift over the next few years.
We can build on that later in the conversation if we have time. If the reopening of China is a head fake, what's Europe? With the cat forty up by almost twenty percent, that tacks up by seventeen percent, what would you call that?
You know?
Europe to me has become a bit of a mess. They're trying to figure out I think where they fit in right macrons approach, g they're figuring out how they want to deal with Ukraine. So I'm not But the nice part is I think some of their companies were undervalue. They're mostly big global entities, so some of that catch up because they've been behind made sense. I'm kind of very neutral to burish on Europe. I think they've got
their own set of problems. On the other hand, I'm fairly berrish to neutral globe right now.
Well, that's where I was going to That's what I was going to say, is it really so much better in the US. One of the issues that you raised was smaller banks, regional banks, and the sort of ongoing grind that we see there. We've been talking about First Republic all morning. Is this a specific story or does it indicate something broader that is just going to grind out throughout the year.
So I think there's two things going on. One is it's really been this shift away from this concern about losing your deposits or bankruptcy to much more what yield am I getting on those deposits? And is that yield still functional for these banks? And then I think they've also said on Wall Street on stay time, my boss is this. You know your assets walk out the door at five pm or six pm, whatever time your assets leave, it's your people. And if you start losing your people,
that becomes very problematic. How do you retain those people in an environment where you're struggling?
So is that really the key issue here that we're going to see that more broadly throughout regional banks as bigger banks try to basically parachute in take the best talent, and then they'll just be this drip, drip drip that will carry out and tighten credit throughout the year.
Yeah.
I think it's going to make people have to come up with solutions fairly quickly, whether it's mergers acquisitions, and they have some phenomenal relationships, some great business models at these places. Everyone I have talked to who ever banked with First Republics as they are phenomenal the treatment they got, So there's value to that, and I think someone's got to capture that before those acids do walk out the door.
Let me digress. We don't need a history lesson on Milton Friedman one oh one. Does M two matter? Tell us what M two is and why people like you pay attention.
I have not been paying close attention to it lately again it's been dropping off. But I think there's so many others.
It was a rage thirty years ago.
It was all the rage, you know, back when we had to figure out when Alan Greenspan was carrying his briefcase in the left or right hand. They didn't tell us what they were doing. Actually thought it was easier sometimes when the FED wasn't trying to do this forward guidance. They've gotten themselves in so much trouble, which is why I think they had to hike last time for twenty five BIPs when they should have already been stopping before that.
So I'm watching all these things, but I do think the economy is slowing down and it's showing up in some of the M two declines.
Are we super restrictive right now when you add in the interest rate dynamics and the greater economy dynamics, the balance sheet dynamics. Are we beyond restrictive?
I think so, And part of this it doesn't show up. But again, people don't have car leases coming do every year. But over a year, two years, three years, everyone's going to have to reset. Corporations at a phenomenal job during COVID issuing long day to debts at very low interest rates. But some of that starts rolling off, and it's going to take time for the five percent rates to hit the consumer. I think we're at the early stages of that, and it only gets worse. It's not like anyone's rolling
their five percent to five percent right now. We're still having people rolling three percent to six percent, and that's going to add weigh on this.
So part of this conversation is about vulnerable parts of the market. And I promised you a pocket of time to come back to the point you made about the Chinese consumer and Chinese companies. Let's finish there. Who's vulnerable? Is it the Tesla's of this world? Is it the mvmh's of this world? Can they really go about creating something like a luxury brands compete with the European players and ev operator we know lots of names over in China. What's the competition going to be most fast?
I think it's going to be for everyday items, So whether it's cars, dishwashers, it's not going to be our quality, but they are going to try and sell their brands. They've taken a lot of the IP, they've got the manufacturing know how. Now it's not as good as what we produce or they produce for us, but it will be cheaper and they will aggressively market that. One of the things that really struck me on this was they just struck a deal with Brazil where they're going to
make their BYD cars in Brazil. Now, part of that's for tax reasons and stuff, but that to me is just the signal that China wants to sell their things, that we're really only consumed by Chinese broadly.
Amazing conversation, Peipe, we can have for a long long time. Pitch their academic security is a head fake. The reopening in China, it's on a head fake.
Christopher Marinac has not been a stranger. We really thank him for his participation. Seems like day after day. Director of Research, Jenny Montgomery Scott Christopher. What was out there yesterday?
Article to article?
Research note to research note was a guestimate of the haircut needed. Let's review. They have garbage loans, jumbo mortgages taken out of two percent. Whatever you can do the math. Is there a way for you to ascertain the required haircut for their management to find stability?
I think there is.
I mean, they have a lot of government securities and loans that are simply underwater because.
Of interest rate. It's important that it's not a credit issue. It's more interest rates.
And they've got fixed rate mortgages that were done to three three and a half percent. In the world's easily two points higher, if not three. So that is the reason for the haircut. And of course it's the uncertainty about the ability to raise capital. That's always where the challenge is for these banks, going back many many.
Years in cycles.
So I think that the lack of knowledge and of course the lack of questions Monday night didn't.
Help matters, and so here we are.
I think that the company needs a solution. There's three ways out of this. They can raise capital, they can sell, or they can fail.
Well, what's interesting here, Christopher, is the optionality this morning for Secretary Yellen and other government institutions. Do you suggest it'll be a clean haircut, whether without government intrusion, or will they be able to negotiate some form of more full balance sheet takeout that includes some form of equity option.
So the Treasury has a program in place for Community development Banks CDFIs where the Treasury actually invested preferred last year at a zero percent rate for two years and then it was two percent after that. They would have to make a special dispensation to make first republic of CDFI.
But it's not a crazy solution.
It would actually give them capital from the government a la tarp like we did in two thousand and eight. But that would be a one company solution. I'm not necessarily sure they're going to do that, but it is an option that our secretary has at her disposal if she wishes to.
Chris, you said three options race capital, sell assets, or fail. Let's assume for good reason they don't want option three. Can you tell me what option one actually looks like? What would that look like? Raising capital?
Sure, so they would have to do a combination of I think equity and preferred equity is the best alternative. It would most likely be done, of course below last night's price, but maybe not necessarily a lot below. It would allow the tangible capital to recover, take losses, move down the road, live to fight another day. I think the question is will the company dilute their shareholders existing
shareholders by such a massive amount. I mean, we saw this happen in two thousand and eight, nine and ten, so it's not the first time we've been through this exercise.
But I think it's a question of where.
The board and the management team are willing to dilute their existing team. I think they're going to have to unless they can find a bid that's more reasonable.
Christopher, we're talking about this particular company, which we're now debating whether it's idiosyncratic or whether it's representative of perhaps larger ills in the regional banking sector. A'll be it a more concentrated version of it. How do you look at this in terms of what it exposed about the broader sector.
So overall, credit quality is still really good. You know, banks give out way better information today than they did fifteen years ago. So if we looked at substandard rated credits, special mentioned rated credits, anything that's not a pass you typically have two to two and a half percent today.
That's problematic at a bank.
That's you know, a long way away from where we were at eight, nine, ten percent back in the Great Financial Crisis. So we have a long way to go for credit quality to match the last cycle. So I feel like the credit's not the issue. This is an interest rate risk problem. And of course many banks have held in maturity securities available for sales, securities that are below water, and even though rates are down, there's still
below water easily ten to twelve percent. So we have to either raise capital to create confidence around those losses, or we simply have to wait. In the case of Republic, it's impossible to wait. They need a solution, and they need one very quickly.
We also have to think about what the implication is for lending and just loan creation. UBS analysts put this out. They say that bank commercial and industrial loan growth looks to drop about five percent in the last three months of the year and then ten percent in the first quarter of twenty twenty four, which is associated with recession like conditions. Do you agree, Are you starting to see that type of necessary response to the lack of deposits, to the concern around the balance sheet?
So I would disagree with the percentage change. I think that the tightening is clearly on. Banks are going to be very careful about the standards that they make and the way that they allocate credit. However, the flip side is going to be that they're going to charge a lot more for that, and I think the earning asset repricing in the banks is actually better than folks realize, which could actually be a positive for Nenaitraist margins beyond this quarter.
This quarter will be a challenge, but I think in third.
And fourth quarter we could see not only stabilization but actually increases in margins.
Chris, I get that this was only really kicked off in the middle of March March eighth with SVB, but we've understood the right story for a long time now. It's a pretty aggressive hiking cycle last year. I'm already getting messages from people saying what took so long to consider assets, sales, dis launch, what have management been doing right?
Well, it's a great point.
I think that a lot of companies thought that they could simply use their liquidity from the homelan banks and other sources to work through the issue. And I think that was a false, false narrative for sure. I think the reality is of banks would have been more likely to hold money at the FED all along instead of buying treasuries.
It would have been an easier solution. They wouldn't have had the marked to market issue.
I think the marked to market accounting is what has been harmful here. No different than two thousand and eight and nine, but it is what it is. We have to account for this every quarter, and of course, I think the lack of understanding about when banks would see either sales of their securities or simply just the natural amortization.
I think it's been one of the challenges.
We're getting better transparency, but I still think the issue is to raise incremental capital to create confidence around the issues that we still have these marked markets.
Hey, Chris, just wonderful to get continued input from you on this stories that evolves. Thanks for bamdist Christopher Marnach of Genny Montgomery Scott on the latest from First Republic.
What we know for certain is perhaps any president of the United States, even of the Democratic persuasion, maybe would like to talk to a banker in our legislative branch this morning. He would of course pick the Republican from Arkansas, french Hill. He have dealta trust years ago in Arkansas. The banker french Hill joins us this morning, French I think you, more than anyone in Congress, are qualified to talk about the contagion effect of what happened with these
marketing exercises on the West Coast. There are seventy four banks in Arkansas. How are they affected by SVB and the alphabet soup that gets you to f.
Well, Tom, it's good to be with you this morning, you know, and staying in touch with my bank commissioner in Arkansas and touching base with the industry there. Our bankers have done well. They've been able to maintain and grow deposits. They had excellent earnings reports for the companies
that are public, so the business seems solid there. And that's why I feel like the contagion and challenges that we've had since the first week of March have been connected to these banks with unusual business strategies.
Long ago and far away. Will you Isaac, Robert McTeer and others had to deal with a multiple bank national crisis, what action would you like to see from the executive branch to assist the troubled bank?
You know, I think the Fed's taken quick action. I think they had the tools that they need to resolve the situations that we face right now, both in their temporary loan facilities, in their thirteen Section thirteen power that they have, and then the use of Dodd Frank's powers in deposit insurance coverage if they feel like it's a systemic risk.
Congressman, we have to shift. Here is a little bit to the debt ceialing debate, which a lot of people in markets aren't as focused on, but will be probably in a couple months time or possibly sooner. Kevin McCarthy, the Leader of the House for Republicans, is trying to put together this Republican plan and push it through getting votes to have this be the unified agreement at time when a lot of people are pushing back in the
Republican Party. Do you support this build you think it has what it means to cross the line.
Lisa, I do. I think Kevin McCarthy has listened to his conference over the past sixty days and has created a consensus program where it meets his two standards. One that we would not support a clean debt seialing we just don't have the support for that in our conference, and we wouldn't support a tax increase. And so he's crafted a plan that has savings of four point eight trillion dollars over ten years and raises the debt ceiling
until next year. I think it will pass. It could pass today, and I think he's done a good job listening to our conference. And what we need, Lisa, is for President Biden to answer Speaker McCarthy's call from February first, let's meet and discuss this on a bipartisan basis.
Well, a lot of people would argue and push back, saying that basically this is a grab bag of Republican talking points sort of underneath the bill that Kevin McCarthy has put together. I mean, is it the right starting point? Do you feel like both sides, including the Republicans, are debating and arguing in good faith.
Well, look, the Senate Democrats, led by Chuck Schumer can't pass a clean debt ceiling, and so it's to the House to lead by offering to increase the debt ceiling. But go back to some of the things we've been talking about now for two years, which is, let's stop the pandemic level of spending. Let's go back to controlling spending. We propose a spending cap on discretionary spending, and we propose things that will help the economy grow, get people
back to work, and save time payers money. I think it's a good list. I understand your point about what's in it, but I think it's a very good starting point, and it unifies Republicans to pass a debt ceiling.
In French, we've aged done this the late great Pete Peterson. Paul Song has lost way too early. Sam Nunn of Georgia, I've heard it all before. When are we going to get our act together, such as a commission that we'll get this done, where a commission will like you know, Simpson Bulls, where we'll get a commission that we'll do the job. Republicans and Democrats refuse to do.
Boy, Tom, it's such a good point, and I do agree with you, particularly on mandatory spending in our programs like Social Security, medicare, the big programs that grow at six percent a year, sometimes three times the rate of growth in the economy. President Obama had that opportunity with Speaker Bayner, with Simpson Bowles, and no action took place.
But when President Johnson started the Great Society programs and spent trillions, you had mandatory spending all a third of the budget then and obviously not a big interest cost. Now we have two thirds of the budget is mandatory spending, and we're facing ten trillion dollars in interest only over the next ten years. So I think a bipartisan commission we tackle up or down mandatory spending is critical and I would support that.
Away from your remed Olivia Blanchard does the economics and says we got lucky. We got a set of low interest rates, a low sluggish regime where growth could stay above interestates. I don't want to go into the economics right now, but basically he's suggesting the government had a gift handed to them that allowed for this debt extension over the last ten years. Do you feel now that things have changed now the mathematics is different at the Congressional Budget Office.
I think so, Tom. I mean you're facing interest costs that will exceed the annual expenditures on national defense in the coming year, and as I say, ten trillion dollars of interest over the next ten years the President's forecast. So we're talking about interest now truly crowding out spending priorities for Congress. I think that's a wake up call for the Congress, and a wake up call to go back to debating how do we have zero deficits and how do we reform mandatory spending programs.
A congressman, I'm confused, maybe because it's because I'm a foreigner and have only lived here seven or eight years. So help me. I thought you had to raise the debt ceiling because of spending already approved by Congress. Is that not the case?
Oh, Jonathan, you're very good this morning. Yes, of course, you're raising the debt ceiling to cover spending that's already taken place. But it gives us an opportunity to have this two way conversation between the executive branch and the legislative branch, and we've seen this all the time. This is why I think Joe Biden's a hypocrite on this issue, because he was the lead negotiator when he was Vice president on increasing the debt ceiling with budget reforms. Nancy
Pelosi in twenty nineteen did the same thing to Donald Trump. Sorry, we can't raise the clean debt ceiling. We need budget reforms. So it's an opportunity for the two sides to have a conversation. That's why the debt sealing vote is important.
I think I'd go one step further. It's a game that Congress seems to play, the misleads the public. I'm not here to advocate to say that we should have massive deficits and that the debt should carry on piling up to forty to fifty trillion. Congressman, I just think it's disingenuous to sit here and say we've got a debt problem, but at the same time, we can't raise the debt limit because ultimately, as you know, it's Congress, which you're a part of, that's alread approved this spending.
It doesn't matter who's in charge of Congress, you keep approving this spending. We can at the same time. Can't we say that you need to raise the debt limit, but also we need to get debt under control. Can't you say both those same things simultaneously.
Well, I think I have in this interview by answering Tom's question about a commission to get the long term drivers of debt and deficit down and also to your point about bringing the two parties together to work on a bipartisan basis. So I take your point technically, but politicians need deadlines. They work on deadlines, and the dead sailing is a hard deadline, and the budget ten year forecast can be a more amorphous deadline.
Congressman, is a conversation we'll continue having notedown French show. Thank you, sir, Thank you very much.
Timothy Horn is senior analyst at OpCo Oppenheimer and joins us this morning with a real gift here on Microsoft as well. Tim Let's go back to the time of Rick Sherland and an old Microsoft of old. Let's begin with a new Microsoft. How is this Microsoft different than the Microsoft Rick Sherlind covered years ago at Gold and Sachs. How's a new Microsoft different than our stereotype?
Well, for one, it's not a monopoly anymore.
So they've learned how to compete and create new products, and they totally position to the cloud where they were really.
Far behind Amazon and as a result to be I think a lot more innovative.
So you've seen them take the lead on AI and they kind of optimize their infrastructure, the whole business model.
Right now around AI, which is very different.
What is their use of cash picture? We saw a share a buyback from Google that was stunning. We see it frankly from others outside the sector. But do you look in the forward here with this good news, with margin, resiliency, with a defensiveness, a constructive tone, do you look for a new use of cash and share buyback and dividend.
They're going to be pretty steady.
They have a steady dividend, you know that's going to grow in line with earnings. They steady buybacks and the throwing in line with earnings. They say they're going to spend a lot more money on Capex.
You know for AI.
These new Nvidio chips are very expensive and they're buying an awful lot of them.
Do you buy the promise of open aye tim.
Totally completely and totally. I buy into it.
I think it's going to be the most profound thing we've seen in ten, you know, maybe twenty years longer.
I kind of think back when I first got on.
The internet thirty years ago, you know, you know how much of a revolution that was and how much it changed my life, And I think we're going to look at the same thing.
So then if that's the case, is it a reliability for alphabet that they kind of downplayed it, perhaps to get a competitive edge with respect to Microsoft, perhaps to downplay fears that they're going to lose some sort of pre eminence with their Google search engine to Microsoft. But do you think that they're going to be left behind because they're not emphasizing it to the same degree.
It's going to be the critical six to nine months ahead of us because open ai gets better and better the more people they have using it. But we know that Google and Amazon are throwing billions of.
Dollars at AI. We know they have very very good large language models.
The key is I got to get them rolled out and get people using them, or else Microsoft will once again become the operative system, likely with the PC for one of the most important technologies for the next twenty years.
I understand the promise of this purely from a technological point of view, and the promise of in terms of efficiency as well as productivity tim but what is the timeframe for this being actually profitable for the likes of Microsoft.
For open Ai.
For them, they have a problem of product called GitHub Copilot, which is helping people write software, and it's improved the amount of software any programer can break by fifty percent. They charged ten dollars a month for that, and they have ten thousand companies using that product. They're going to charge similar kind of add on for Office three sixty five, and that will probably be in.
The next six to twelve months.
They'll start really adding on prices on these different applications. But importantly, they're just bundling together a whole set of new products. They're getting a whole set of new customers they never would have gotten before new startups sort of gone to Amazon. Now they're going to Microsoft.
Tim, you've been doing this for ages. Can you extrapolate what you witnessed yesterday with Microsoft pre market seven maybe even eight percent? Can you extrapolate that over to all the other texts, over to Apple, over to Nvidia over to Broadcom, et cetera.
That's a great question.
I think Microsoft's gaining share, so it's going to be a little difficult. I mean, Amazon's quarter is going to be very important. But I think this is company by company. You know, talking to the math of the call, they're not trying to say they're a leading indicator on Macro. You know, they don't really know where Macro's going. It's probably is slowing down if you listen to mister drug and Millery's calling as you were referencing before, for a
hard landing. But they think they're gaining share on like six or seven different products.
And they're probably right.
So I'm not entirely sure what it means for the whole tech center sector at.
This point, Tim, As you talk about this arms race and artificial intelligence, where are the ethical concerns, especially as a lot of tech giants have been talking about perhaps pumping the brakes a little bit and understanding it a little bit better before it gets rolled out in some sort of mass.
It's a great question.
I'm no expert on it, but you know, automobiles skill a lot of people, firearms skill a lot of people go on and on a lot of medicine kills a lot of people. You know, it doesn't mean that be kind of self developing medicines and I think the genie's out of the box here and AI we're moving forward. You know, whatever happens, we're just going to meet some regulatory I think guardrails around it.
Hi, Tim, thanks for the like syst on Microsoft, Let's stuck us out by close to wit percent. That's the name. Will be focused on gotting to the opening bounty.
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