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U.S Consumer Sentiment Falls, Bank Earnings · Bloomberg Intelligence

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Speaker 2: Let's get more on those you Mish numbers hitting an
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Speaker 2: eight month low. Joanne Shu is the University of Michigan
0:32
Speaker 2: Surveys of Consumer and Director, and she joins us. Now, hey, Joanne,
0:35
Speaker 2: what led this lower?
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Speaker 3: Still are just vociferously frustrated with the pain of high prices.
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Speaker 3: This stands, of course, in contrast with the fact that
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Speaker 3: we know inflation has slowed and consumer expectations for inflation
0:51
Speaker 3: have also slowed. Both of those things are trending in
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Speaker 3: a favorable direction for consumers. But at the same time,
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Speaker 3: forty nine percent of consumers tell us that high prices
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Speaker 3: are eroding their personal finances. That's pretty much the same
1:02
Speaker 3: as what we were seeing two years ago when inflation
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Speaker 3: was hitting that peak.
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Speaker 4: They seem to conflict with each other. We're less confident,
1:11
Speaker 4: but we're more confident that inflation is hidden in the
1:14
Speaker 4: right direction.
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Speaker 3: I think they're not really in conflict because they do
1:20
Speaker 3: believe that inflation is moving in the right direction, but
1:23
Speaker 3: prices remain high, and so they are telling us how
1:28
Speaker 3: painful it is to continue having their budgets eroded or
1:31
Speaker 3: eaten away by these by these continued high prices. So,
1:35
Speaker 3: you know, I think consumers are in a way separating
1:38
Speaker 3: their feelings and their frustration with high prices with an
1:42
Speaker 3: acknowledgment that inflation is moving in the right direction.
1:46
Speaker 2: What about CPI from last week, last week, this week?
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Speaker 2: It all blends last week? Does that fact? Do we
1:53
Speaker 2: factor that in? How do you think that's going to
1:55
Speaker 2: affect the reading when you do the second read?
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Speaker 3: It's unlikely to affect the future reading because consumers aren't
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Speaker 3: really paying attention to the CPI print. You know, the
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Speaker 3: CPI print comes with a lag from real time data,
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Speaker 3: and consumers are really responding to what they're actually seeing
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Speaker 3: in the marketplace around them. So I don't expect a
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Speaker 3: jolt from the CPI print, the most recent CPI print.
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Speaker 3: But if inflation, if consumers continue to perceive inflation as
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Speaker 3: slowing down, we could continue to see that trending.
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Speaker 2: I should just point out that CPI was yesterday yes,
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Speaker 2: so clearly, clearly, my timeline is really tight.
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Speaker 4: Now all right, we moved to the intersection of economic
2:37
Speaker 4: data and politics based on your reading maybe in the past.
2:43
Speaker 4: What does this mean for the political setup? Can you
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Speaker 4: delve into.
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Speaker 2: That any Absolutely, so, consumers.
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Speaker 3: We ask consumers a lot of questions about where they
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Speaker 3: think the economy is going over the next year and
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Speaker 3: over the next five years, and we have a lot
2:57
Speaker 3: of consumers who are responding with I'm I'm assuming I
3:00
Speaker 3: answered all these questions assuming such and such candidate is
3:04
Speaker 3: going to be winning the presidency. But if the other
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Speaker 3: candidate wins, all of my answers will change. And we're
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Speaker 3: seeing that for both presidential candidates, with views on both
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Speaker 3: positively and negatively based on either of those candidates. So
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Speaker 3: consumers are really acknowledging how much uncertainty surrounds their expectations
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Speaker 3: right now. So I think we can really expect a
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Speaker 3: bumpy right ahead.
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Speaker 2: Joanne, we really appreciate it. We always love getting this
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Speaker 2: incident analysis. Joan Shue, University of Michigan Survey as a
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Speaker 2: consumer director joining us there, you meash sentiment hitting an
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Speaker 2: eight month low.
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3:56
Speaker 2: So we do want to go to the banks and
3:57
Speaker 2: take a look at JP Morgan City and we'll Spargo.
4:00
Speaker 2: Will Spargo also the worst performing stock right now within
4:02
Speaker 2: the S and P. Allison Williams is Bloomberg Intelligence Senior
4:05
Speaker 2: banks analyst and she joins us. Now this is when
4:07
Speaker 2: I get to spend a lot of time with Allison,
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Speaker 2: like this week, two weeks of the year. It's a
4:11
Speaker 2: good time for me. Allison. Let's just start with will
4:13
Speaker 2: Spargo for a second.
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Speaker 5: What happened? So their net interest income is light and
4:19
Speaker 5: they're guiding to the higher end of a seven to
4:21
Speaker 5: nine percent drop in net interest income, so still a
4:24
Speaker 5: lot of uncertainty, but you know, the loans are what
4:27
Speaker 5: looks light there. So they're still talking about deposits and
4:29
Speaker 5: the pressure there. But the deposits actually the costs arising
4:34
Speaker 5: at a slower pace, so we think that's positive for
4:36
Speaker 5: the industry. But it's the net interestingcom And then the
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Speaker 5: other thing is the costs. So they're operating expenses are
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Speaker 5: going to be are their overall expenses are gonna be
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Speaker 5: a lot higher. They have this line called operating losses,
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Speaker 5: which includes remediation and some of the regulatory related costs.
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Speaker 5: So that is also disappointing that those costs still continue
4:56
Speaker 5: to weigh. The positive thing we're staying across all the
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Speaker 5: banks better fee This is something we were looking for though.
5:02
Speaker 5: Equity markets are strong, that's no secret. Equity trading really good,
5:06
Speaker 5: equity fees picking up, you know, Fick trading also doing well,
5:11
Speaker 5: and so that's all great. We are going to see
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Speaker 5: I think higher expenses across the board because of that
5:15
Speaker 5: City Group got it to higher end of expenses. But
5:18
Speaker 5: that's okay with investors, right as long as you're getting
5:21
Speaker 5: higher revenue. It's those sort of lingering regulatory costs. I
5:24
Speaker 5: think that we're disappointing at Wells.
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Speaker 4: These banks are all very different businesses, aren't they, Wells Fargo.
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Speaker 4: To what extent are they into commercial real estate? And
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Speaker 4: what does that mean for this bank?
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Speaker 5: So they're all in the same businesses but to a
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Speaker 5: different degree. And to your point, Wells Fargo is much
5:41
Speaker 5: smaller in these capital markets businesses where we're seeing a
5:45
Speaker 5: lot of the strength versus JP Morgan and City Investing,
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Speaker 5: but still smaller. And commercial real estate, they are the
5:53
Speaker 5: biggest lender in office. JP Morgan's actually now the biggest
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Speaker 5: commercial real estate lender overall after FRC. But you know,
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Speaker 5: I did the office I think was not a big
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Speaker 5: factor for Wells' this quarter. They did increase their provision
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Speaker 5: a little bit. We are seeing losses. JP Morgan sort
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Speaker 5: of alluded to some losses. I think where we're seeing
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Speaker 5: the issues or Wells has said the issues are really
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Speaker 5: in the institutional space. So they do have an eleven
6:19
Speaker 5: percent or so reserve there, I believe, I didn't I
6:24
Speaker 5: didn't check this quarter, but the overall reserve is eight percent,
6:27
Speaker 5: and so that was about the same this quarter. But
6:32
Speaker 5: that's something that's going to be a long story. We're
6:34
Speaker 5: going to continue to see that play out. But it's
6:36
Speaker 5: it's really I think the revenue side that's that's weighing
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Speaker 5: on Wells. They are more lever towards net interest income
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Speaker 5: and unfortunately seeing some of the pressure there.
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Speaker 2: So asking for a friend who may or may not
6:48
Speaker 2: be interviewing the Wells Fargo CFO later at three pm.
6:52
Speaker 2: What would be some good questions to ask, like, what
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Speaker 2: like after getting through this these numbers and seeing achieving
6:57
Speaker 2: now it's not it is efficient because there are also
7:00
Speaker 2: is going to bugger later? What would be some questions
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Speaker 2: you'd ask, I.
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Speaker 5: Mean, what you know in terms of the loan jaman
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Speaker 5: they've they've said they're cautious. Is there a reason why
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Speaker 5: they would have more caution than others or is it
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Speaker 5: just a mixed issue? But really commercial, you know, commercial
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Speaker 5: and industrial. We saw a big pickup in some of
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Speaker 5: the industry data. Why aren't we seeing that at Wells?
7:23
Speaker 5: And what are they seeing?
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Speaker 6: Right?
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Speaker 5: And so we've gotten some news over the past couple
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Speaker 5: of days with regards to change potential changes in the
7:30
Speaker 5: industry outlook, how does that impact their views going forward?
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Speaker 4: Yeah, we're supposed to get a rate cut. Everybody thinks September,
7:38
Speaker 4: So how does that affect everybody?
7:40
Speaker 5: Right? And the hope for banks would be that it
7:42
Speaker 5: would spur some long growth.
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Speaker 2: But it like happened over twenty four hours, right, so
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Speaker 2: it's like they haven't had enough time to really.
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Speaker 5: Act None of their views, you know, everything that they've
7:50
Speaker 5: prepared and they're talking about today, right, that would be
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Speaker 5: you know, baked in as of the quarter end, and
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Speaker 5: they did say there's a lot of uncertainty, right, so
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Speaker 5: we we didn't see much movement. We saw one rate
8:02
Speaker 5: hike I think got taken off the table in the
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Speaker 5: last three months. Entering the year, there's been a much
8:08
Speaker 5: bigger change, right, So we saw three rate hikes get
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Speaker 5: taken off the table in one queue. So we're people
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Speaker 5: are feeling a little bit better today about prospects for
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Speaker 5: the FED. But my guess as well as is going
8:21
Speaker 5: to continue to be conservative, and I think investors are
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Speaker 5: going to want to try to feel out on the call.
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Speaker 5: Is it conservatism or are there more reasons to be worried?
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Speaker 5: And I would tell your friend to ask the CFO
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Speaker 5: about that. Thank you.
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Speaker 4: I understand why Wells Fargo's shares are lower. I don't
8:38
Speaker 4: understand why JP Morgan and City Group shares are lower
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Speaker 4: because those results were better than expected.
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Speaker 5: They were, but you know, JP Morgan, I think it's
8:48
Speaker 5: a matter of the expectations, right, So it's always about
8:51
Speaker 5: what are the expectations versus the delivery?
8:54
Speaker 4: Okay, what was the big takeaway from the biggest US bank.
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Speaker 5: I thought so, I thought solid quarter. I mean, twenty
9:00
Speaker 5: percent return on tangible equity. That's that's pretty that's that's
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Speaker 5: pretty amazing, you know, And they keep warning investors that
9:07
Speaker 5: we're you know, we're over earning seventeen percent. Is they're
9:09
Speaker 5: through the cycle target.
9:12
Speaker 4: But you know what's the secret sauce for JP Morgan
9:16
Speaker 4: and Jamie Diamond.
9:17
Speaker 5: I think what they've done over the very long term
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Speaker 5: is invest and they just are enjoying a virtuous cycle
9:23
Speaker 5: of those leading market positions. Right. So they've invested in
9:27
Speaker 5: their trading business, they've invested in deposits, They've made some
9:32
Speaker 5: good purchases.
9:34
Speaker 7: You know.
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Speaker 5: The one other key difference Wells Bargo versus JP Morgan
9:38
Speaker 5: and Bank of America is you know, they had this
9:41
Speaker 5: asset cap during the pandemic and that really limited for
9:44
Speaker 5: them the opportunity to pick up a lot of customers.
9:46
Speaker 5: And so while there's a lot of talk tracking those balances,
9:50
Speaker 5: right so we're moving down the balances all the fiscal stimulus,
9:53
Speaker 5: et cetera. But if JP Morgan and Bank of America
9:56
Speaker 5: are holding onto those customers, that's a structural benefit that
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Speaker 5: that well is missed out on a little bit again
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Speaker 5: because of their regulatory issues.
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Speaker 2: So city is going through that five year restructuring stuff.
10:06
Speaker 2: Where are they in that? What did you learn?
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Speaker 5: I mean they're getting closer, right, but it's still it's
10:12
Speaker 5: going to take time, I think, to get through the numbers.
10:14
Speaker 5: But they did a lot of heavy lifting last year. Jane,
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Speaker 5: I think is really you know, making some tough decisions
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Speaker 5: and you know, made significant cuts and I think that
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Speaker 5: that is really helping. But it's going to take a
10:28
Speaker 5: little while to flow through.
10:29
Speaker 4: It's Jane Fraser's report card. Do you what do you
10:32
Speaker 4: give her this semester?
10:34
Speaker 5: So I don't know, is that Adam am I allowed
10:36
Speaker 5: to give grades? I mean I will say, like I said,
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Speaker 5: she's getting it done. So I think that she's doing
10:43
Speaker 5: a great job.
10:45
Speaker 2: Allison, thank you so much. See this this avoids me
10:47
Speaker 2: bugging her later. So now she can go and write
10:49
Speaker 2: her reports, look through slides. I can tell my friend, like,
10:51
Speaker 2: we're good. Alison Williams, the amazing, wonderful senior bank analyst
10:57
Speaker 2: for Bloomberg Intelligence. Great stuff going on there.
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Speaker 2: street are going to be viewing this and how they're
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Speaker 2: investing their money. Phil Orlando, Okay, so John Tucker just
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Speaker 2: literally ran over and sat and sitting next to me
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Speaker 2: now and now he readjusting at the moment he did
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Speaker 2: And he is standing by all right, philm looking at
12:02
Speaker 2: the Russell. It's up one point seven percent. The glory
12:05
Speaker 2: day is of small caps. Are they here and will
12:08
Speaker 2: it be sustainable.
12:11
Speaker 8: Small caps? Yes, And that is an important distinction that
12:16
Speaker 8: we had federated Hermes reiterated with an exclamation mark. At
12:20
Speaker 8: the beginning of this week. We had gone to a
12:24
Speaker 8: five percent equity overweight at the bottom of the market
12:27
Speaker 8: last October, and the S and P five hundred over
12:31
Speaker 8: that last eight or nine months up thirty five percent.
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Speaker 8: The MAG seven over that same period of time is
12:38
Speaker 8: up like I don't know, one hundred and thirty percent
12:41
Speaker 8: or some ridiculous number, But the small caps and the
12:45
Speaker 8: value stocks and the international stocks have really lacked. We
12:50
Speaker 8: think we're starting to see a reversion of the mean
12:53
Speaker 8: that's starting to happen with small caps. We think are
12:57
Speaker 8: going to be one of the beneficiaries of that, along
13:00
Speaker 8: with value names and along with em names. So our
13:04
Speaker 8: best guess is that this nascent move that we've seen
13:09
Speaker 8: with the small caps has legs, and we think this
13:13
Speaker 8: trend is going to continue.
13:15
Speaker 4: Continue for how long And what happens to the mega
13:19
Speaker 4: cap stocks at this point.
13:22
Speaker 8: Well, our again, our best guess is that the valuation
13:27
Speaker 8: of the MAG seven names is ahead of themselves. Our
13:31
Speaker 8: full year target for next year. The S and P
13:34
Speaker 8: five twenty twenty five is six thousand. We broke fifty
13:38
Speaker 8: six hundred a couple of days ago. The market, in
13:42
Speaker 8: our view, the broad market is well ahead of itself,
13:45
Speaker 8: largely driven by the significant outperformance of the MAG seven names.
13:51
Speaker 8: So what we expect to see happening now through the
13:54
Speaker 8: balance of this year, maybe into next year, we'll see
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Speaker 8: is some profit taking with a lot of these MAG
14:01
Speaker 8: seven names, because we think the valuations are extended, and
14:04
Speaker 8: a rotation in broadening out of this rally into the
14:09
Speaker 8: small cap names and the domestic large cap value names
14:12
Speaker 8: and the small cap names.
14:15
Speaker 4: So you would characterize this as healthy for the overall market,
14:18
Speaker 4: would you know?
14:19
Speaker 8: We think it's incredibly healthy, because the market the performance
14:22
Speaker 8: over the last eighteen months between the MAG seven and
14:25
Speaker 8: the Forgotten four ninety three was about north of one
14:30
Speaker 8: hundred percentage points. I mean, that's not sustainable. The valuation
14:34
Speaker 8: on this very select group of growth and technology names
14:39
Speaker 8: in our view, had just simply gotten ahead of itself.
14:41
Speaker 8: And so what is happening now, I'll use your words,
14:44
Speaker 8: it is very healthy. We think some of this fraud
14:46
Speaker 8: that's come off the top and a rotation into these
14:50
Speaker 8: areas that frankly have been left for dad over the
14:53
Speaker 8: last eighteen months is a very rational move by the market.
14:58
Speaker 2: Here's my question, it's why is this time different. I
15:01
Speaker 2: feel like small caps have made a bid for it
15:04
Speaker 2: over the last few years and it's never been sustainable.
15:07
Speaker 2: We may get those fed cuts, but where are we
15:09
Speaker 2: going to get the actual earning support.
15:12
Speaker 8: Well, the earning support is coming that you look at,
15:16
Speaker 8: for example, the current quarter, which just started today, the
15:19
Speaker 8: second quarter earnings, it's going to be a pretty good quarter,
15:22
Speaker 8: right Revenues are going to be up about four and
15:24
Speaker 8: a half percent year on year, earnings will be up
15:26
Speaker 8: about nine percent year of the year. It's going to
15:29
Speaker 8: be another terrific quarter. And as you look at the
15:32
Speaker 8: trajectory of the improvement in earnings, most of this over
15:36
Speaker 8: the last year, including the current quarter, has come from
15:40
Speaker 8: the very strong underlying fundamental prospects of these very select
15:44
Speaker 8: group of growth and technology names. But as we look
15:47
Speaker 8: at this trajectory of the balance of the year, the
15:50
Speaker 8: second quarter, even though it's going to be a good quarter,
15:53
Speaker 8: is going to be significantly slower than the first. The
15:56
Speaker 8: third quarter is going to be significantly slower than the second,
15:59
Speaker 8: fourth quarter slower than the third. The areas that we
16:03
Speaker 8: like are are showing in improvement in revenues and earnings
16:08
Speaker 8: from the end of last year, beginning of this year,
16:10
Speaker 8: into the end of this year. So there's going to
16:13
Speaker 8: be sort of two ships passing in the night, if
16:15
Speaker 8: you will. The underlying fundamentals, as measured by things like
16:19
Speaker 8: revenues and earnings will get better for small caps and
16:23
Speaker 8: value and ems, and will deteriorate for these mag seven names.
16:30
Speaker 8: The stock market, ultimately, as a forward looking discounting mechanism,
16:34
Speaker 8: will attempt to begin to price in these sorts of
16:38
Speaker 8: developments six to nine months before they happen. Now, if
16:43
Speaker 8: we think we're seeing this over the course of the
16:45
Speaker 8: balance of this year, let's say the fourth quarter is
16:47
Speaker 8: when this truly manifests itself. The now is exactly the
16:51
Speaker 8: time when the market should begin to recognize this trend,
16:54
Speaker 8: as we're getting into the second quarter earning season and
16:58
Speaker 8: digesting the earnings and the guidance, and then begin to
17:01
Speaker 8: recognize that that valuations need to move in different directions
17:05
Speaker 8: for these different asset clasts.
17:07
Speaker 4: Some stocks are more forward looking than others, with a
17:11
Speaker 4: lower interest rate regime. If that's where we're reheaded, what's
17:15
Speaker 4: your outlook for particular sectors.
17:18
Speaker 8: Well, you're exactly right. We do expect interest rates to
17:21
Speaker 8: move lower. We're not quite as sanguine or optimistic as
17:25
Speaker 8: the consensus, which I guess believes that we're going to
17:29
Speaker 8: see the first rate cut this cycle in September. We're
17:32
Speaker 8: still in the camp that we do believe that there
17:35
Speaker 8: will be two one or two rate cuts this year,
17:38
Speaker 8: but we think that both of them, one of them
17:40
Speaker 8: or both of them is going to come after the election,
17:42
Speaker 8: So that would suggest the November seventh or the December
17:46
Speaker 8: eighteenth FOMC meetings. We think that trend continues over the
17:49
Speaker 8: course of next year, with another one hundred basis points
17:53
Speaker 8: of cuts in the funds rate coming probably on in
17:57
Speaker 8: every other meeting base. So if you give me the
18:01
Speaker 8: luxury of looking out eighteen months, you've probably got the
18:05
Speaker 8: funds rate down one hundred and fifty basis points. That
18:08
Speaker 8: should be a very constructive tailwind for small cap companies
18:14
Speaker 8: that historically do well when interest rates come down.
18:18
Speaker 2: What do you do with bonds then?
18:19
Speaker 8: In that environment, So our view on bonds is that
18:24
Speaker 8: we should be lengthening out or looking for an opportunity
18:27
Speaker 8: to lengthen out duration, that if the funds rate is
18:30
Speaker 8: one hundred and fifty basis points lower eighteen months from now,
18:35
Speaker 8: then treasury yields are probably going to be lower as well,
18:38
Speaker 8: which means that if I had the opportunity to start
18:41
Speaker 8: to lengthen out duration at you know, five percent of
18:43
Speaker 8: four and three quarters or even four and a half percent,
18:46
Speaker 8: I think that's a reasonable bet. So if we're going
18:49
Speaker 8: to again look out eighteen months, could we see benchmark
18:53
Speaker 8: ten year treasury yields, you know, down below four percent,
18:57
Speaker 8: three and a half percent something like that. If the
18:58
Speaker 8: answer is yes, and and that's the direction we think
19:01
Speaker 8: we're going, then extending that duration here, you know, in
19:05
Speaker 8: the four to four and a half percent neighborhood, in
19:08
Speaker 8: our view makes sense.
19:10
Speaker 4: Do you expect a September swoon? It is coming up
19:14
Speaker 4: on that time of year.
19:16
Speaker 8: You do, Which is why we took two points out
19:18
Speaker 8: of our five percent equity overweight at the beginning of
19:22
Speaker 8: this week. The stock market, in our view, is ahead
19:25
Speaker 8: of itself. Stocks are overbought. We could absolutely anticipate, you know,
19:31
Speaker 8: at a minimum of five to ten percent correction, which
19:35
Speaker 8: we think would be very healthy. Looking out, say between
19:39
Speaker 8: now and the election. So stocks have done really well,
19:44
Speaker 8: we would expect to see sort of a rotation here,
19:47
Speaker 8: a reversion of the mean, if you will, in which
19:49
Speaker 8: disproportionately more money comes out from a profit. Taking standpoint
19:54
Speaker 8: on the stocks that have just gone vertical, and see
19:58
Speaker 8: this rotation into a lot of the same actors, like
20:01
Speaker 8: the value, like the small caps, like the em names
20:05
Speaker 8: that haven't performed anywhere near as well as the MEGS
20:10
Speaker 8: seven names have.
20:11
Speaker 2: Wow, Okay, I better get that money another my money
20:14
Speaker 2: market fun Now, if we're going below four for the tenure, which.
20:19
Speaker 4: Is also Ira Jersey's call before the end of the year.
20:23
Speaker 2: I'm gonna be one of those people. All right, Hey Phil,
20:25
Speaker 2: thanks lot, We really appreciate it. How Every weekend, Fill Orlando,
20:27
Speaker 2: chief equity market strategist and head of client portfolio Management
20:30
Speaker 2: over at Federated Hermes.
20:34
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
20:38
Speaker 1: weekdays at ten am Eastern on fo cardplay and Android
20:41
Speaker 1: auto with the Bloomberg Business App. Listen on demand wherever
20:44
Speaker 1: you get your podcasts, or watch us live on YouTube.
20:49
Speaker 2: Let's get to the story that is really upsetting John Tucker,
20:51
Speaker 2: and it's this AT and T story. AT and T
20:54
Speaker 2: stock obviously falling disclosing some hack of calls and texts
20:58
Speaker 2: that affected its custom I'm John Butler is Bloomberg Intelligence
21:01
Speaker 2: senior telecom analyst, and he joins us. Now John Tucker's
21:04
Speaker 2: not getting on'sages.
21:08
Speaker 5: Okay, John?
21:09
Speaker 2: Should Should John Tucker be nervous right now?
21:11
Speaker 5: What's happening?
21:13
Speaker 9: No? John Tucker should not be nervous right now?
21:17
Speaker 4: What was stolen was interview was Let's move on.
21:23
Speaker 9: I recently had my ID stolen. I think it's become
21:26
Speaker 9: quite common. And what happened at AT and T is
21:30
Speaker 9: they had their call logs breached. So you know, when
21:33
Speaker 9: you make a call, AT and T logs the originating
21:37
Speaker 9: number and the call number, and they generate billions of
21:40
Speaker 9: those data points, and so they need to store that
21:43
Speaker 9: data off site with a third party provider. Bloomberg reported
21:48
Speaker 9: that it was Snowflake that was actually breached. It was
21:51
Speaker 9: housing the AT and T data. This all occurred back
21:54
Speaker 9: in twenty twenty two. So John, if you were not
21:57
Speaker 9: a subscriber, then I think you're really But the risk
22:01
Speaker 9: is where the fear is that hackers could use that
22:04
Speaker 9: data to potentially blackmail politicians or other vulnerable parties who
22:11
Speaker 9: may not want that call information released.
22:15
Speaker 4: We're like somebody like, hey, why was John texting Alex
22:19
Speaker 4: at two a m. I mean, that's godn't happen. I'm
22:21
Speaker 4: just saying, I.
22:22
Speaker 2: Mean, I know, I don't know if that rises to
22:24
Speaker 2: the to the moment, but you know it's fair.
22:26
Speaker 4: I pay good money to conceal that that data.
22:30
Speaker 9: I don't understand the hackers are counting on that, John.
22:34
Speaker 4: So so it came out you're saying in a regulatory
22:38
Speaker 4: filing that we saw this morning. Why now? Why did
22:43
Speaker 4: it come out? Now? Why did they tell us about
22:45
Speaker 4: this earlier?
22:47
Speaker 9: So that is a good question and one that I
22:50
Speaker 9: don't have an answer for, but I believe it probably
22:54
Speaker 9: has to do with, you know, understanding fully what the
23:00
Speaker 9: breach encompassed. I mean, it's one thing to discover a breach,
23:03
Speaker 9: and it's another thing to understand the details around it
23:08
Speaker 9: and work with the FBI to really understand the scope
23:11
Speaker 9: of the breach, you know, when they actually were able
23:15
Speaker 9: to truly lock it down. So I can't speak to
23:18
Speaker 9: the specific timing here, but that's my guess is they
23:22
Speaker 9: had to do a lot with getting all their ducks
23:24
Speaker 9: in a row, so to speak.
23:25
Speaker 4: Okay, but there's a lawyer out there where there are
23:28
Speaker 4: lawyers out there listening to this program saying, Wow, this
23:31
Speaker 4: is going to make a great class action lawsuit where
23:33
Speaker 4: I get lots of fees. How vulnerable that is AT
23:37
Speaker 4: and T to some sort of legal action in the
23:40
Speaker 4: money that would flow from that or just.
23:42
Speaker 2: Like brand damage.
23:45
Speaker 9: Yeah, well, I'm more worried about the latter. I think
23:48
Speaker 9: they're vulnerable on both fronts. So, John, as you suggested,
23:52
Speaker 9: I think the lawyers are sharpening their teeth here. I
23:54
Speaker 9: mean they are vulnerable to consumer lawsuits for breach of data.
23:59
Speaker 9: I think all companies are when something like this happens.
24:02
Speaker 9: What I worry about is this is the second breach
24:06
Speaker 9: this year. So they announced a separate breach back in
24:09
Speaker 9: March of equal scope, and here we are again now
24:14
Speaker 9: in July, and it's a rerun of everything. And so
24:18
Speaker 9: my concern is that the AT and T brand gets tarnished,
24:22
Speaker 9: at least in the near term. When one thing I
24:24
Speaker 9: have noticed with the telecoms in other companies is people
24:29
Speaker 9: have a short memory on this, you know, fast forward
24:32
Speaker 9: a year from now. I don't think people are going
24:34
Speaker 9: to remember this, but in the near term they may.
24:38
Speaker 9: People who were thinking of switching to AT and T
24:40
Speaker 9: may in fact think twice.
24:43
Speaker 7: Well.
24:43
Speaker 2: Also, switching phone provider stinks. It's like really highigh fraction.
24:48
Speaker 9: It's high friction. And so my concern is not higher
24:53
Speaker 9: churn or losing subscribers on the news. I think it's
24:56
Speaker 9: more getting those gross ads going as the they call it,
25:00
Speaker 9: people coming into the brand, and I think the risk is,
25:04
Speaker 9: at least for the next three months or so, people
25:06
Speaker 9: may think twice about it while the headlines are fresh.
25:10
Speaker 2: John, we have earnings coming out at the end of July,
25:12
Speaker 2: so they're gonna before the market on July twenty fourth.
25:16
Speaker 2: What can we expect to What should we be paying
25:18
Speaker 2: attention to? I mean, they have a nice gross given
25:21
Speaker 2: and yield almost six percent.
25:23
Speaker 5: What are you looking for?
25:25
Speaker 6: Yeah, so two things for AT and T.
25:27
Speaker 9: Number One, everyone focuses on their free cash flow because
25:31
Speaker 9: they're a bit over levered in the wake of that
25:34
Speaker 9: Time Warner acquisition and the underwinding of all that, and
25:37
Speaker 9: so they're trying to manage down to a debt leverage
25:40
Speaker 9: ratio of two point five times by I believe it's
25:43
Speaker 9: the end of next year, and they're getting there through
25:47
Speaker 9: free cash flow growth, and so for the investment community,
25:52
Speaker 9: that's a real focus. The other lightning rod for all
25:56
Speaker 9: of the telecoms is postpaid net subscriber editions, and so
26:02
Speaker 9: that's the contract business, not the prepaid business. People like
26:07
Speaker 9: you and me that pay a bill on a monthly basis,
26:10
Speaker 9: but we're sort of on a contract. We don't have
26:12
Speaker 9: to prepay in front of the month, and those are
26:16
Speaker 9: higher price subscribers and the ability to drive net growth
26:21
Speaker 9: there through what are called net ads. So that's gross
26:25
Speaker 9: additions people you bring in, minus those that you lose.
26:29
Speaker 9: If that's a net positive and it's getting bigger every quarter,
26:32
Speaker 9: that's good. If it's moving lower, which it is for
26:35
Speaker 9: all the carriers right now, that can be seen as
26:39
Speaker 9: a net negative. So there'll be a lot of focus
26:42
Speaker 9: on that number going into the quarter for all the carriers.
26:45
Speaker 9: AT and T included.
26:47
Speaker 4: This one's kind of out of left field. I remember
26:49
Speaker 4: when the promise of the switch to five G. I
26:53
Speaker 4: didn't notice anything.
26:55
Speaker 7: I did.
26:57
Speaker 4: I went from like one G to five G. I
27:00
Speaker 4: didn't notice anything.
27:01
Speaker 6: Yeah, really, yeah, It's funny.
27:03
Speaker 9: Four G was much much more impactful for the consumer
27:07
Speaker 9: because it puts streaming video into our Palm tops, and
27:12
Speaker 9: five G will increase download speeds for sure, But it's
27:17
Speaker 9: much more impactful on the business to business side because
27:21
Speaker 9: it's a software defined upgrade. Without going into detail, that
27:25
Speaker 9: really gives a lot more flexibility for the carriers to
27:28
Speaker 9: create very interesting news services. On the business side, I
27:33
Speaker 9: think I have to say I think five G has
27:35
Speaker 9: disappointed in that regard because even though the carriers are
27:39
Speaker 9: ready to deploy these services, I don't think the appetite
27:44
Speaker 9: on the business side has quite been there as originally expected.
27:49
Speaker 4: Outlook for Telecom midyear outlook in how much time we
27:53
Speaker 4: got a minute left?
27:56
Speaker 9: I think it's steady as she goes, John, You know,
27:59
Speaker 9: there's a lot as I said, there's slowing subscriber growth
28:02
Speaker 9: now post pandemic. All of the carriers, like every company
28:06
Speaker 9: on the planet, has been sort of edging up their prices,
28:10
Speaker 9: and so that actually is providing a bit of a
28:13
Speaker 9: floor to revenue growth. So as much as you're losing subscribers,
28:18
Speaker 9: price increases have a much broader impact across the whole
28:21
Speaker 9: subscriber base and the revenue line. So I think revenue
28:25
Speaker 9: growth will be a tad lower from last year, but
28:29
Speaker 9: still I would again characterize it as steady as she goes.
28:33
Speaker 9: And as you mentioned before, we have very good yields
28:36
Speaker 9: at AT and T and Verizon, and so that will
28:39
Speaker 9: be a focus bring into the calls as well.
28:42
Speaker 2: Yeah, particularly if the FED cuts and you get lower
28:43
Speaker 2: rates in the tenure.
28:45
Speaker 5: Very interesting.
28:45
Speaker 2: All right, hey, JOm, I really appreciate I think you
28:47
Speaker 2: made John Tucker feel better. I was John Butler Bloomberg
28:50
Speaker 2: Intelligence and your telecom analyst. You're still worried, fair enough.
28:53
Speaker 2: You know what I have to do every day now?
28:55
Speaker 2: I have to turn my phone on and off because
28:56
Speaker 2: there else it doesn't work properly. What does that mean?
28:59
Speaker 4: Means you need a new phone?
29:01
Speaker 2: Like I just gets the iPhone fourteen. I don't understand.
29:04
Speaker 4: I don't know what I have.
29:05
Speaker 2: Oh he's a flip phone. No, I'm kidding, he doesn't.
29:08
Speaker 2: It's not that bad.
29:10
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
29:14
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29:18
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29:21
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29:24
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
29:28
Speaker 2: So Paul Sweenie is out today. I'm Alex Steel and
29:30
Speaker 2: John Tucker is subbing. He's also himself and he's subbing
29:32
Speaker 2: for Paul Sweeney. This is Bloomberg Intelligence. We bring you
29:36
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29:38
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29:41
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29:43
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29:46
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29:49
Speaker 2: So let's get to that news conference last night with
29:51
Speaker 2: President Biden. Nathan Dean, Bloomberg Intelligence senior policy analyst, is
29:55
Speaker 2: joining us on that. So here's the media narrative, right,
29:59
Speaker 2: the Democrat of Democrats seemed to be now calling for
30:01
Speaker 2: Biden to step aside. The headlines continue to not look good.
30:06
Speaker 2: That's the media side. Is any of that true on
30:08
Speaker 2: the polling side, Well, you know.
30:11
Speaker 10: We watched the prediction markets very closely, which we can
30:14
Speaker 10: find it on the terminal at WSL Election and going
30:17
Speaker 10: into the press conference, Kamala Harris had quite a sizable
30:20
Speaker 10: lead in terms of who was going to be the
30:22
Speaker 10: nominee fifty to thirty seven.
30:24
Speaker 6: Now, at the end of the.
30:25
Speaker 10: Press conference, President Biden had actually changed the narrative and
30:28
Speaker 10: was up forty four to forty one. And I just
30:31
Speaker 10: checked about twenty seconds ago President Biden is up forty
30:34
Speaker 10: six to forty one. So in the eyes of the
30:36
Speaker 10: predictive markets, President Biden had a very good night. Now,
30:40
Speaker 10: you mentioned the Washington angle, though that has not stopped
30:43
Speaker 10: the calls from Democrats for President Biden to step aside.
30:46
Speaker 10: In fact, we saw one just a few minutes ago. Now,
30:49
Speaker 10: I think what will happen here is with the Republican
30:51
Speaker 10: Convention starting next week, some of the news cycle is
30:54
Speaker 10: going to break away from whether President Biden should run
30:56
Speaker 10: or not and move over to Milwaukee and what President
30:59
Speaker 10: Trump will do. But for the Democrats, last night was
31:02
Speaker 10: a good night for Biden, but overall he doesn't change
31:04
Speaker 10: the narrative. They're sort of stuck in the status quo
31:07
Speaker 10: should he run or should he not?
31:08
Speaker 4: Okay, in his response to some of the great questions
31:11
Speaker 4: that he received from some of the Bloomberg reporters at
31:13
Speaker 4: that did he sound a little more malleable is the
31:18
Speaker 4: word maybe to change.
31:21
Speaker 6: Well, you know, I.
31:23
Speaker 10: Would say that he was pretty stuck in. I mean
31:25
Speaker 10: when he was when Josh Wingrove gave that great question
31:29
Speaker 10: on should he stay or should he run? You know,
31:31
Speaker 10: he sort of just said, look, the polling suggests that
31:34
Speaker 10: I should stay. Now that's not some of the polling
31:36
Speaker 10: that we've seen across the news narrative. So the question
31:39
Speaker 10: here is for President Biden is it's an ultimate gamble.
31:43
Speaker 10: If he honestly believes that he is the best person
31:45
Speaker 10: to defeat Donald Trump, he's gonna stay.
31:48
Speaker 6: But you know, we.
31:49
Speaker 10: Saw House Minority leader had King Jefferies just say that
31:53
Speaker 10: he spent some time with the president last night talking
31:56
Speaker 10: about what should happen here. So I think there's going
31:59
Speaker 10: to be a lot of serious conversations in the Democratic
32:01
Speaker 10: Party that will take place over the next week, and
32:04
Speaker 10: eventually President Biden is going to have to make a
32:06
Speaker 10: decision before you know, they get him onto the ballot,
32:10
Speaker 10: you know, and so forth.
32:11
Speaker 6: Is he going to stay as you get it go?
32:12
Speaker 10: But as of right now, I think if you were
32:14
Speaker 10: to give President Biden trutstrom, he's going to say, I'm.
32:16
Speaker 6: Going to stay.
32:17
Speaker 2: But do we trust any of the polls. I mean,
32:19
Speaker 2: when have poles been reliable last?
32:21
Speaker 10: You know, I tell clients all the time I don't
32:23
Speaker 10: trust polls until two weeks before then, and even then
32:26
Speaker 10: I still suspect. So you know what we should think
32:29
Speaker 10: about here is process. Now the Democrats have time because
32:33
Speaker 10: next week is the Republican convention.
32:34
Speaker 6: Obviously the new cycle is going to turn to that.
32:37
Speaker 10: But because of the way the Ohio state loss is,
32:41
Speaker 10: President Biden has to be nominated by August seventh to
32:44
Speaker 10: be on the Ohio ballot. This is before their convention
32:47
Speaker 10: in late August. Now, the Democrats have been talking about
32:50
Speaker 10: holding a virtual roll call. They're dusting off that COVID playbook.
32:53
Speaker 10: They have a virtual nomination per se for President Biden
32:57
Speaker 10: for the state of Ohio around July twenty first. That
33:00
Speaker 10: date is not set in stone, so up until that
33:02
Speaker 10: point they can have these conversations. Once they nominate President
33:06
Speaker 10: Biden to the Ohio ballot, however, it's going to be
33:09
Speaker 10: extremely more difficult for him to say I'm not going
33:11
Speaker 10: to run, because then you would get into a situation
33:13
Speaker 10: where President Biden's on the ballot in Ohio, but he
33:16
Speaker 10: may actually be running for president who are.
33:18
Speaker 4: The key people in all this who talk to the president.
33:22
Speaker 4: When does it happen this weekend?
33:25
Speaker 10: You know, I think this weekend is actually going to
33:28
Speaker 10: be a good, you know, reset moment for President Biden.
33:30
Speaker 10: He may go I don't know, I can't recall a schedule.
33:33
Speaker 10: He may go back to Delaware or not. But he
33:34
Speaker 10: obviously has his inner circle of allies. But then you
33:38
Speaker 10: also have heard through the news cycle that, you know,
33:40
Speaker 10: President Obama is beginning to opine on this.
33:43
Speaker 6: You know, it was.
33:43
Speaker 10: Reported that he spoke with je spoke with George Clooney
33:46
Speaker 10: before George Clooney put that opt ed calling for President
33:49
Speaker 10: Biden to step aside. So I think there's just a
33:51
Speaker 10: lot of people that are going to be talking to
33:54
Speaker 10: the president. I think the problem here is is that
33:57
Speaker 10: you get a difference of opinion depending on.
33:58
Speaker 6: Who you are.
33:59
Speaker 10: In the Democratic part. Most of the people that are
34:01
Speaker 10: calling for President Biden to step aside represent Democrats in
34:05
Speaker 10: either bipartist Purple states or red states. You see a
34:08
Speaker 10: lot of Midwestern Democrats calling for President Biden to resign, sorry,
34:12
Speaker 10: to step aside. It's those Democrats that are in more
34:15
Speaker 10: safer seats I think in you know, think New York
34:17
Speaker 10: City if you will, that are saying no, President Biden,
34:20
Speaker 10: Biden should stick it out. So I'm not exactly sure
34:23
Speaker 10: who's going to have the president's ear this weekend, but
34:26
Speaker 10: I know a lot of people are going to be
34:27
Speaker 10: trying to get that get that voice.
34:29
Speaker 11: Time.
34:30
Speaker 2: For investors, what should they care about because you just
34:34
Speaker 2: you cannot hedge or price in political strike. I mean
34:38
Speaker 2: since Brexit and even that was like what six or
34:40
Speaker 2: eight weeks that you could price that in. What do
34:42
Speaker 2: investors do with all of this?
34:44
Speaker 10: Yeah, so you have here the micro view and the
34:46
Speaker 10: macro view. So if you're thinking micro, like what's the
34:49
Speaker 10: individual impact on a company whether you get President Bien
34:52
Speaker 10: or let's say Vice President Kamala Harris, I'd say about
34:55
Speaker 10: ninety five percent of the policies that we cover BI
34:58
Speaker 10: would be the same outcome whether you have President Harris
35:00
Speaker 10: or President Biden. So on the company specifically specific impact,
35:05
Speaker 10: I don't think there's much uncertainty there.
35:07
Speaker 6: Now.
35:07
Speaker 10: The question then comes from what's the uncertainty on the
35:10
Speaker 10: macro level? And obviously this is the more important at
35:13
Speaker 10: the market perspective. Now, if President Biden were to say that,
35:16
Speaker 10: I think the worst case scenario for the markets would
35:19
Speaker 10: be if President Biden says I'm going to stick in,
35:21
Speaker 10: I'm going to stay, and then after the Ohio date
35:24
Speaker 10: or after the convention he announces he's going to resign.
35:27
Speaker 10: Then you have an election where essentially people will have
35:30
Speaker 10: to go to the ballot to vote for Joe Biden,
35:32
Speaker 10: but knowing that he's not going to be the president,
35:34
Speaker 10: and then it would be in the hands of the
35:36
Speaker 10: DNC to figure that out. That's a lot of uncertainty there.
35:39
Speaker 10: An open convention in Chicago may not be a good
35:41
Speaker 10: thing for markets, but ultimately, you know, when you look
35:44
Speaker 10: at the differences between President Trump and whoever the Democratic
35:47
Speaker 10: convention or the Democratic nominee will be, you know, you
35:50
Speaker 10: get a prestarty start contrast there, and you'll be able
35:53
Speaker 10: to at least pick and play scenario analysis with either
35:56
Speaker 10: of those.
35:56
Speaker 4: Does Vice President Harris have a role in talking to
36:00
Speaker 4: the president at this point or just be self certain?
36:03
Speaker 2: That would be so dicey, like, hey, can you step
36:05
Speaker 2: aside so I can run?
36:06
Speaker 10: Thanks God, I wish we knew the answer to that one,
36:09
Speaker 10: but I will say that, you know, the Vice President
36:11
Speaker 10: Harris has been on the road lately, she was in
36:13
Speaker 10: Texas just recently, you know, saying the same message, and
36:17
Speaker 10: you know, we've heard behind the scenes that you know,
36:19
Speaker 10: President Biden is the nominee, we need to get behind him.
36:22
Speaker 10: I would just say that, you know, this is one
36:24
Speaker 10: of those situations where I think she is more likely
36:26
Speaker 10: just to say I'm supportive of the president, but let's
36:29
Speaker 10: let the process play out. But again, it's just really
36:32
Speaker 10: hard to tell.
36:34
Speaker 2: Before I let you go. Rnc's next week, we haven't
36:36
Speaker 2: even really talked about that. What's the number one thing
36:38
Speaker 2: you're looking at?
36:40
Speaker 10: The number one thing I'm looking for is the vice
36:42
Speaker 10: presidential candidate. You know, is it going to be you know,
36:44
Speaker 10: Senator Vance from Ohio, Governor Bergham from North Dakota. Does
36:47
Speaker 10: Nicky Haley even have a chance. There's a couple of
36:50
Speaker 10: people spring around Washington that she could be a surprise pick.
36:53
Speaker 6: I'm not sure about that.
36:54
Speaker 10: But what I'll say is the vice presidential pick is
36:57
Speaker 10: important because it may show how presid Trump is going
37:00
Speaker 10: to try and appeal to moderate voters Going.
37:03
Speaker 6: Into the election.
37:04
Speaker 10: He pulled strong abortion reproductive right language from the RNC platform,
37:09
Speaker 10: and maybe his vice presidential pick could be an additional
37:11
Speaker 10: playoff of that.
37:12
Speaker 4: Yeah, but that that all makes sense. But you know,
37:15
Speaker 4: in the world of Donald trumality, do you want somebody
37:18
Speaker 4: who's gonna maybe upstage you and look better than you?
37:22
Speaker 10: Oh, Johnny, we got to bring it down to DC
37:26
Speaker 10: because that is the conversation every single one of us
37:28
Speaker 10: has been having. You know, if he picks Senator Vance
37:31
Speaker 10: in two years, you have your you know your replacement.
37:34
Speaker 6: They're right for you.
37:35
Speaker 2: Hey, Nathan, we appreciate it. Thanks a lot, Nathan Dean,
37:37
Speaker 2: Bloomberg Intelligence Senior policy analyst. Joining us there.
37:43
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
37:47
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
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Speaker 2: Let's get to some of the news here, and that
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Speaker 2: is NATO. Over the last few days. President Biden of course,
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Speaker 2: had that news conference yesterday. We had yng Stoltenberg, out
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Speaker 2: going NATO head speaking to Bloomberg earlier talking about how
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Speaker 2: he expects the US will remain a strong NATO ally.
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Speaker 2: Of course, who wins the presidential election will have a
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Speaker 2: lot to do with that. So we want to check
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Speaker 2: in with doctor Ariel Cohen, senior fellow at the Atlantic Council.
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Speaker 2: He joins us. Now, Doctor Cohen, what is my NATO
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Speaker 2: takeaway right now over the last few days.
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Speaker 7: First of all, this was a celebratory meeting of the
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Speaker 7: seventy fifth anniversary, and I think NATA is getting a
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Speaker 7: little bit long in the tooth.
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Speaker 6: It is not facing the real challenges. I would like
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Speaker 6: to see.
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Speaker 11: Much more vigorous leadership there that you and I may
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Speaker 11: agree or disagree whether President Biden provided it. But more importantly,
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Speaker 11: we see a lot of redundancies in NATO procurement.
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Speaker 6: We see shortages of equipment of.
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Speaker 11: Material, we see shortages of soldiers or grunts on the
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Speaker 11: ground in Europe. But on the other hand, we also
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Speaker 11: saw for the first time NATO expressing grave concerns about
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Speaker 11: China supporting Russia. So NATA is increasingly a global alliance
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Speaker 11: led by the United States, and President Biden, if elected,
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Speaker 11: will be ill advised to discard NATA. We all are
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Speaker 11: aware of his pessimism about NATA, his rhetoric about me.
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Speaker 4: You mean Donald Trump, right, I'm.
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Speaker 11: Sorry Donald Donald Trump, of course, so Trump will be
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Speaker 11: ill advised to discard NATO. In the era of confrontation
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Speaker 11: with Russia and serious friction was China.
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Speaker 6: We need our ally.
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Speaker 11: Coalitions and industrial potential win wars.
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Speaker 6: We saw it in the twentieth century World War One,
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Speaker 6: World War Two.
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Speaker 11: The Allies had a bigger and stronger coalition an industrial
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Speaker 11: base in World War One and World War Two.
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Speaker 4: Has NATO been able to trump proof itself?
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Speaker 11: NATO is not sufficiently trump proofing. If by trump proofing
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Speaker 11: we mean the US that disconnects from Europe or focuses
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Speaker 11: on China. As some experts in Washington suggested, just forget Europe,
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Speaker 11: let's put in Ukraine. Let's all focus on the Pacific.
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Speaker 11: This is not the way to go. But Europe has
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Speaker 11: multiple models of fighter aircraft.
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Speaker 6: They don't have strategy bombers. They have multiple models.
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Speaker 11: Of main battle tanks and insufficient production of hundred and
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Speaker 11: fifty five millimeter shells, not enough missiles. Although they're capable
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Speaker 11: of producing the missiles and the drones we need in
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Speaker 11: today's world, the production is shifting. It's no longer these single,
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Speaker 11: very over engineered, very expensive platforms that I think f
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Speaker 11: thirty fives F twenty two's think the sentinel ICBMs. We
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Speaker 11: need mass production of cheap drones, and this is something
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Speaker 11: China may excel in. The warfare is shifting. We need
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Speaker 11: a balance between the sophisticated and expensive systems and mass
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Speaker 11: produced drones.
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Speaker 4: I mean, and that's a fascinating point that the cheaper drones.
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Speaker 4: But even in that area, you have some of the
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Speaker 4: big technic technology companies in the US, because of political pressures,
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Speaker 4: refusing to go down that route, and certainly the US
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Speaker 4: defense industry may not have the wherewithal in terms of
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Speaker 4: spending to develop the drones that could potentially be a big,
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Speaker 4: big threat to the structure that we now have in place.
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Speaker 11: Well, think about the current naval structure twelve tabletops, aircraft
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Speaker 11: carriers flattops.
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Speaker 12: Each one costs billions and billions of dollars and many
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Speaker 12: more billions to protect and can be taken out by
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Speaker 12: swarm of drones even you know, to go into sci
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Speaker 12: fi area that ceases to be.
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Speaker 11: Sci fi an AI control swarm of drones taking out
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Speaker 11: an aircraft carrier. Think about the consequences six thousand plus
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Speaker 11: sailors and soldiers on that aircraft carrier and massive.
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Speaker 6: Escalation of the Pacific. For example, think about.
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Speaker 11: These two thousand dollars drone taking out a two million
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Speaker 11: dollar tank in Europe. Ukrainians are planning to produce one
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Speaker 11: million drones, the Russians.
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Speaker 6: Are planning to produce two million drones.
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Speaker 11: And now Russians are getting technology from unexpected sources like
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Speaker 11: Iran and North Korea and China. By the way, this
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Speaker 11: is the reason for NATA mentioning China so sturdily and
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Speaker 11: severely in the NATO document. So the shift of warfare
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Speaker 11: and production is moving very fast.
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Speaker 6: And I'm not convinced that.
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Speaker 11: The Pentagon has the procurement procedures that are broken.
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Speaker 6: I'm in Washington, d C. I'm doing it for a living.
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Speaker 11: I talk to people who know the Pentagon procurement in
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Speaker 11: and out, inside out, and they are complaining that the
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Speaker 11: procurement system is broken. And because of the revolving doors
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Speaker 11: with the military industrial complex, the generals are not ordering
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Speaker 11: the cheap systems the military industrial complex doesn't want because
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Speaker 11: they're not making as much money on cheaper drones visa
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Speaker 11: v F thirty fives.
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Speaker 4: Yeah, it's interesting. I just want to add that Peter Thiel,
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Speaker 4: no matter what you think of the investor. He's kind
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Speaker 4: of taken up the slack in terms of investing in
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Speaker 4: small startups that specialize in these advanced drones. So there's
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Speaker 4: a lot of tension being paid to that because it's
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Speaker 4: just not coming from other avenues, and that seems to
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Speaker 4: be as a doctor Conor just mentioned, one of the
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Speaker 4: big threats we're facing, especially in the Pacific, with the fleets,
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Speaker 4: the carrier fleets, So take that for what it's worth.
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