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Shutdown, Fed, Amazon, and Real Estate · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller.
0:05
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moven news.
0:14
Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
0:20
Speaker 1: And let's get figure out what's happening now in Washington, DC,
0:22
Speaker 1: because they have no idea what's going on down there.
0:25
Speaker 1: They're not even back like in session. I mean they're
0:27
Speaker 1: coming back tomorrow. I mean, the government's about the shutdown
0:29
Speaker 1: and they're still on some holiday.
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Speaker 2: I think it's very popular in Washington, d C. To
0:36
Speaker 2: not do your job, right. I think that's what the
0:39
Speaker 2: constituency wants.
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Speaker 1: You think, So it seems like it all right. Nathan Dean,
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Speaker 1: I'm gonna blame him for all this. Nathan Dean is
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Speaker 1: our senior US policy analyst for Bloomberg Intelligence. His job
0:49
Speaker 1: is to make sure this government works. He's not getting
0:51
Speaker 1: it done here. Nathan, talk to us about where we
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Speaker 1: are with this possible shutdown. What's the feeling in Washington,
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Speaker 1: DC these days?
0:59
Speaker 3: Yeah?
1:00
Speaker 4: You know, over the weekend, you know, Speaker of the
1:01
Speaker 4: House Kevin McCarthy talked about trying to pass for appropriation bills.
1:05
Speaker 4: You know, there's been talk about some Republicans bypassing the
1:08
Speaker 4: Speaker and working with Democrats to do something called a
1:11
Speaker 4: discharge petition. But if you're sitting in New York City,
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Speaker 4: all you need to know is is that nothing really
1:16
Speaker 4: has changed. I mean, we're heading towards the shutdown Saturday night.
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Speaker 4: You know, there's a lot of political fireworks that have
1:22
Speaker 4: to happen this week, but we just aren't seeing any
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Speaker 4: movement at this point that the Speaker wants to actually
1:29
Speaker 4: do a deal with the Democrats and try and avoid
1:31
Speaker 4: this type of situation. So I think we're probably around
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Speaker 4: seventy eighty percent chance and we're gonna.
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Speaker 5: Have a shutdown next week.
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Speaker 1: So Nathan is the choice for the speaker. I'm assuming,
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Speaker 1: you know, Speaker McCarthy's is kind of driving the bus.
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Speaker 1: Here is this choice, I do a deal with these
1:47
Speaker 1: radical Republicans, these small group Republicans, or I reach across
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Speaker 1: the aisle to Democrats and deal with the political backlash.
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Speaker 1: There is that his choice.
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Speaker 2: At this point, there's no deal to be done with
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Speaker 2: the radical Republicans. They want to shut down the government, right,
2:00
Speaker 2: Isn't that yes what they want?
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Speaker 4: It's so much more of like, do I actually ask
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Speaker 4: to the radical Republicans and then shut down the government
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Speaker 4: and then get to a point where the Democrats just say, look,
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Speaker 4: we're not going to deal. I mean, the odds of
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Speaker 4: what the Republicans, some of those conservative Republicans are wanting,
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Speaker 4: are less than a two percent chance of ever going
2:19
Speaker 4: to become law.
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Speaker 5: And that's being grateful.
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Speaker 4: So Speaker McCarthy's choice here is essentially saying, look, do
2:25
Speaker 4: I go through the motions of a government shutdown and
2:28
Speaker 4: then do I deal with the Democrats? Or do I
2:30
Speaker 4: deal with the Democrats now and get it over with? Ultimately,
2:33
Speaker 4: this is ending with a deal with the Democrats. And
2:36
Speaker 4: so I think from the Speaker's perspective, really what he
2:38
Speaker 4: has to do here is he has to do this deal,
2:41
Speaker 4: but he has to do it in a way that
2:42
Speaker 4: saves him face. Look, he's got to be showing that
2:44
Speaker 4: he's fighting for his ideals and so forth like that,
2:47
Speaker 4: And that's why I think he's going to accept the
2:49
Speaker 4: government shutdown if he makes a deal before then I
2:52
Speaker 4: think there are those people that are seeking to oust
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Speaker 4: him get a little bit more ammunition, saying, look, he
2:57
Speaker 4: didn't even fight, so let's just kick him out. So
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Speaker 4: I think speaker, I think the speaker's just playing a
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Speaker 4: little bit of what if scenario NELS is here, But
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Speaker 4: I think he's just going to say, look, we got
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Speaker 4: to do this after sometime next week, after the shutdown.
3:10
Speaker 2: By the way, is it do we call them conservatives
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Speaker 2: because they don't really act like that?
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Speaker 6: Do we that the Freedom Club people? Nathan?
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Speaker 2: I mean, they're not exactly acting like Ronald Reagan or
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Speaker 2: George H. W.
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Speaker 6: Bush. It's more like, I don't know what word you use.
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Speaker 2: How do you describe that other than you know, radical populists.
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Speaker 4: Well, you know, I could say somebody is a conservative Washington,
3:36
Speaker 4: and I'll get one hundred different answers what that means.
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Speaker 4: But you know, ultimately what's going to happen here is
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Speaker 4: it's the House Freedom Caucus. There's about fifteen or so members,
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Speaker 4: maybe as much as twenty. But I would also point
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Speaker 4: out that there's also another caucus called the House Problem
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Speaker 4: Solvers Caucus. And one of the things that they're trying
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Speaker 4: to do, and we've heard whispers on this is that
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Speaker 4: there's about six of them. It would take six of
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Speaker 4: them to say, look, I'm going to bypass Speaker. I'm
4:01
Speaker 4: going to work with the Democrats on something called the
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Speaker 4: discharge petition, where I can actually overrule the Speaker. We'll
4:09
Speaker 4: have the Democrats have control of the floor. They'll make
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Speaker 4: the deal. Now, I don't think Speaker McCarthy would be
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Speaker 4: all that upset with it. Look, I mean, look, you
4:16
Speaker 4: could say, look, this is horrible that they're taking me
4:18
Speaker 4: my power, you know, so forth like that, but also
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Speaker 4: as a get out of jail card free for you know,
4:23
Speaker 4: free get out of jail free card for him. So
4:26
Speaker 4: you know, I think what the Speaker is doing at
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Speaker 4: this moment is just saying, look, I've got these people
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Speaker 4: over here that want this. This is never going to happen.
4:33
Speaker 4: I got over here this idea of working with the Democrats,
4:36
Speaker 4: which I know eventually will happen, But I just can't
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Speaker 4: go out there and say.
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Speaker 6: I'm ready to do it just yet.
4:42
Speaker 4: So unfortunately, you know, it's the people that are going
4:45
Speaker 4: to be stuck at you know, the American people are
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Speaker 4: going to suffer a little bit because of this.
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Speaker 1: I mean, this seems from like, I don't know anything
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Speaker 1: about politics and political calculus, but this seems like a
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Speaker 1: disaster for the Republican Party. How does the leadership allow A?
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Speaker 1: Is it a disaster? And B? How would the leadership
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Speaker 1: at the Republican Party allow this to happen?
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Speaker 4: Well, you know, it's not like they can come out
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Speaker 4: and just wave their wand and say do as I say.
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Speaker 4: I mean that, you know, the speaker McCarthy's.
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Speaker 1: But we have whips and majority leaders and things like that.
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Speaker 2: You know, if the party has fallen apart, you know,
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Speaker 2: if they've lost their minds, then all right, But I'll.
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Speaker 6: Say, but then you can't control them, right, I mean.
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Speaker 4: But if they also make a deal within the next
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Speaker 4: two weeks or so, we won't be talking about this
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Speaker 4: come January. We'll be talking about you know, the presidential
5:31
Speaker 4: election cycle.
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Speaker 7: And so forth.
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Speaker 4: So there are people out there that say, look, shutdowns
5:35
Speaker 4: will be negative for the party that cause it, in
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Speaker 4: this case would be the Republicans. But the independent voter's
5:41
Speaker 4: mindset is sort of short term, and per your inflation
5:44
Speaker 4: talk prior to this segment, you know, inflation may be
5:47
Speaker 4: around in January, and that may be the big ticket
5:49
Speaker 4: so there are some saying, look, shutdowns are bad, but
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Speaker 4: you know how much of a political price we're gonna
5:54
Speaker 4: have to pay? Maybe not so much.
5:56
Speaker 5: It's a good point.
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Speaker 2: It's a good point by but Nathan, let me get
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Speaker 2: your takes of inflation on the UAW and President Biden,
6:04
Speaker 2: Oh yeah, going there, which I think is I mean,
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Speaker 2: such an exciting story because I love the car makers
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Speaker 2: and now you've got these one hundred and fifty thousand
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Speaker 2: workers that are potentially going to make a lot more money.
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Speaker 6: It's inflationary.
6:18
Speaker 2: President Biden says he's pro union, but he's also super
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Speaker 2: pro green transition and EVS, which the union feels is
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Speaker 2: in some ways is like their enemy.
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Speaker 6: How do you look at that whole situation?
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Speaker 2: Can he does he have the vitality to go and
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Speaker 2: stand on a picket line.
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Speaker 6: I'm just for me.
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Speaker 4: This is all about Michigan. I mean, he needs Michigan
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Speaker 4: to win reelection, and going to that picket line is
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Speaker 4: just way to say that. Look, Michigan is one of
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Speaker 4: those five or six states that I need. Going there
6:48
Speaker 4: is just to make sure that President Trump doesn't steal
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Speaker 4: the press cycle by him going there. So you know
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Speaker 4: the actions of President Biden actually walking the picket line
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Speaker 4: and so forth like that. This was a political call.
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Speaker 4: I'm not sure how much impact. You know, I haven't
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Speaker 4: looked at the impact of how it would impact the
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Speaker 4: UAW negotiations.
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Speaker 7: But this was an easy call for him.
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Speaker 4: To make because if he doesn't go there, President Trump
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Speaker 4: was going to go there. Other Republican candidates would go
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Speaker 4: there in one of your key states would be you know,
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Speaker 4: you wouldn't actually be in one of those key states
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Speaker 4: that you need.
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Speaker 2: It'll be tough, though, if some of the workers on
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Speaker 2: the picket line say, hey, Joe, what's with the billions
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Speaker 2: of dollars in subsidies for electric vehicle transitions.
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Speaker 4: Absolutely, I mean, you know, he's going to have a
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Speaker 4: tough time talking to this. But you know, President Biden
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Speaker 4: also claims to be the most pro union president ever Scranton, Pennsylvania,
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Speaker 4: and this is something so I wouldn't put it past
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Speaker 4: him to be able to rely on some of the
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Speaker 4: institutional knowledge he's had over those seven years, seventy years
7:43
Speaker 4: to try and go forth and you know, at least
7:45
Speaker 4: get some talking points out of there. So I don't
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Speaker 4: think it's going to be that much impactful in the
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Speaker 4: way of the negotiations. But again it's a symbolic gesture
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Speaker 4: that he needs to ensure that he wins the rust
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Speaker 4: belts come twenty twenty four, because that in Arizona and
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Speaker 4: Nevada are going to be pretty much all the states
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Speaker 4: that matter going into this election.
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Speaker 1: So is it expectation in DC? We're getting off topic
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Speaker 1: a little bit. It's going to be Biden for the
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Speaker 1: Democratic Party. Is or any credible discussion otherwise?
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Speaker 8: No.
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Speaker 4: I mean, look, we're three months away from a primary process,
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Speaker 4: and if President Biden were to stand up and say, look,
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Speaker 4: I'm not going to run for president, you know who
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Speaker 4: would take his place? Obviously have Vice President Kamala Harris.
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Speaker 4: But you know Vice President Harris was the first one
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Speaker 4: to bow out in the twenty you know, in the
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Speaker 4: prior election. That person doesn't automatically get the party's mantle.
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Speaker 4: So if President Biden were to say today I'm not running,
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Speaker 4: you would kick off a chaotic process in which the
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Speaker 4: Democrats would be completely on you know, disjointed, and there'd
8:44
Speaker 4: be a really fast paced fight to try and see
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Speaker 4: who can win. Governor Newsom, probably Governor Pritzker from Illinois,
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Speaker 4: for example. It would just be very chaotic. So I
8:53
Speaker 4: really don't see President Biden saying that he's done.
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Speaker 5: I think he's in this for the long bow.
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Speaker 1: All right, Nathan, thanks so much for joining us. We
9:00
Speaker 1: can go a million ways with you. You've always got
9:02
Speaker 1: everything on topic. Nathan Deane, Senior Polo Saneles for the
9:05
Speaker 1: US government for Bloomberg Intelligence. He's based down in Washington,
9:09
Speaker 1: d C. And he is our go to guy. So
9:10
Speaker 1: there's a lot of balls in the air down in DC.
9:14
Speaker 1: Most notably, is this government gonna shut down? And it
9:17
Speaker 1: looks like appears at this stage at least that the
9:21
Speaker 1: answer is probably yes.
9:23
Speaker 9: You're listening to the Team Ken's are Live program Bloomberg
9:27
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9:38
Speaker 1: You know, Matt, you might remember two or three months ago,
9:40
Speaker 1: I took that whole recession talk off the table for me.
9:43
Speaker 1: But you know what, this federal reserve higher for longer,
9:47
Speaker 1: I don't know. I think they might run the risk
9:49
Speaker 1: of pushing us into something that we don't really need.
9:52
Speaker 1: So I'm going to talk to and ask a professional
9:55
Speaker 1: about this. Lydia Bussor senior economists at e Y Parthenon. So,
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Speaker 1: Lydia was I a little bit early in taking the
10:01
Speaker 1: recession talk off the table. Is this Federal Reserve with
10:04
Speaker 1: its news or not new but continued effort to keep
10:08
Speaker 1: rates higher for longer? Are they bringing that recession talk
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Speaker 1: back to the forefront?
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Speaker 8: Hi, thanks for having me. I mean the higher for
10:17
Speaker 8: longer interest rate paradigm that the Federal Reserve strongly signaled
10:21
Speaker 8: after the meeting, and with this new dot plot showing
10:24
Speaker 8: interest rates remaining above five percent throughout next year, means
10:29
Speaker 8: that you know, we're going to see we're going to
10:31
Speaker 8: be in that higher interest rate environment for longer, higher
10:34
Speaker 8: cost of capital, and that's going to be waiting on
10:37
Speaker 8: spending decisions for consumers and businesses. I think this is
10:42
Speaker 8: going to be an additional headwind for the economy. This
10:44
Speaker 8: has already been impacting the economy, but we do believe
10:48
Speaker 8: that there remains a pathway for a soft lending. I
10:51
Speaker 8: think it's important to keep in mind that these higher
10:54
Speaker 8: for longer interest rates are also reflection of a more
10:58
Speaker 8: resilient and stronger economy and also expectations for that trend
11:02
Speaker 8: to continue moving forward.
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Speaker 2: Well, first of all, Lydia, we just got a red
11:08
Speaker 2: hot sticky headline crossing the terminal and on China and
11:14
Speaker 2: the property issue there. So Evergrand Unit missed payment on
11:19
Speaker 2: four billion you on Onshore bond. We've all been watching
11:24
Speaker 2: the Chinese property sector again lately. Right, it looks worse
11:28
Speaker 2: than feared previously, and the short lived boost it got
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Speaker 2: from the Chinese sort of stimulus activities is gone.
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Speaker 1: Now.
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Speaker 6: Is it possible that this.
11:42
Speaker 2: Spreads around the world or is it contained to the
11:44
Speaker 2: Chinese economy?
11:45
Speaker 3: You think?
11:47
Speaker 8: I mean, we believe that the China, the China, the
11:50
Speaker 8: China's economic explow down has emerged as a top risk
11:53
Speaker 8: for the global economy. When we look at the US
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Speaker 8: in particular, when you purely looked at the trailing and
12:00
Speaker 8: financial linkages, they're fairly limited in terms of the US
12:05
Speaker 8: exposure and looking at US exports to China. But when
12:09
Speaker 8: you think about the impact on financial conditions and how
12:13
Speaker 8: that could potentially lead to China growth care the way
12:16
Speaker 8: we saw back in twenty fifteen twenty sixteen, that could
12:20
Speaker 8: have an impact on confidence, and that could have an
12:23
Speaker 8: impact on a more significant impact on the US economy. Now,
12:26
Speaker 8: looking at the broader global economy, this is going to
12:29
Speaker 8: have some ramification for economies that are more exposed, and
12:33
Speaker 8: this is potentially leading also to a sharper economy slow
12:37
Speaker 8: down globally, So.
12:37
Speaker 6: Not the US, right Lydia.
12:39
Speaker 2: When you say economies that are more exposed, I guess
12:41
Speaker 2: you're talking more about Europe than America.
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Speaker 8: Europe is more exposed, but as I mentioned, the US,
12:48
Speaker 8: the exposure is really through more through financial conditions and
12:52
Speaker 8: a potential deeper global slowdown as some of the other
12:56
Speaker 8: trade partners for the US get impacted as well.
12:59
Speaker 1: Leading you back here in the US. One of the
13:02
Speaker 1: real points of resilience in this iconomy has been the
13:05
Speaker 1: labor market. And a lot of folks are kind of
13:07
Speaker 1: confused about why this labor market is so strong, given
13:11
Speaker 1: you know, the inflation editors are given the higher rates.
13:14
Speaker 1: How do you view and how do you explain the
13:16
Speaker 1: labor market to every one?
13:19
Speaker 8: Yeah, I mean, we've seen some persistent tightness in the
13:22
Speaker 8: label market and those lingering labor shortages in some sectors.
13:26
Speaker 8: So a lot of that tightness that we have seen
13:29
Speaker 8: is really tied to some of these post pandemic label
13:31
Speaker 8: market dynamics. We've seen a lot of these locations during
13:34
Speaker 8: the pandemic, and so what we're seeing today's companies essentially
13:38
Speaker 8: holding on to the workforce, their talent that they really
13:42
Speaker 8: had a hard time attracting and retaining over the past
13:46
Speaker 8: two years. So we are seeing some labor hoarding. And
13:50
Speaker 8: that is, you know, one of the reasons why even
13:52
Speaker 8: though you're saying that rebalancing, even though you're saying labor
13:55
Speaker 8: dement coming down, we haven't seen that a significant rising
13:59
Speaker 8: layoff that you would expect in this environment of higher
14:02
Speaker 8: interest rates.
14:04
Speaker 2: In terms of the you know, the path to a
14:07
Speaker 2: soft landing, you know, with all the risks that you
14:09
Speaker 2: mentioned Lydia, and we've been you know, we've been listing
14:15
Speaker 2: them here on Bloomberg Radio as well, from increased credit
14:19
Speaker 2: card debt to delinquencies on those cards and on auto loans,
14:24
Speaker 2: the return of student loan payments, higher oil and higher
14:28
Speaker 2: gas prices at the pump.
14:31
Speaker 6: What am I missing, Paul, No, those are all good.
14:34
Speaker 2: I mean, it seems like the strike, the UAW strike
14:38
Speaker 2: lasting a long time and expanding is a risk. I
14:41
Speaker 2: don't know if the government shutdown is a financial risk,
14:44
Speaker 2: or if it's just an amazing annoyance. But all of
14:47
Speaker 2: these things are bad, right, So where do you see
14:52
Speaker 2: a soft landing coming out of that?
14:54
Speaker 8: Yeah, I mean we all these headwinds, the headwinds you
14:57
Speaker 8: mentioned are really combining and will combine to slow down
15:01
Speaker 8: the economy. So we do expect to see a downshift
15:04
Speaker 8: in economic activity as we head into twenty twenty four.
15:08
Speaker 8: We think that growth will fall below potential, and then
15:11
Speaker 8: we're expecting a number of quarters where growth is going
15:15
Speaker 8: to be fairly modest as a result of some of
15:19
Speaker 8: the old headwinds higher interest rates, tighter credit conditions, and
15:23
Speaker 8: still high inflation and some of these new headwinds that
15:27
Speaker 8: you mentioned that are going to be waiting on growth
15:29
Speaker 8: in the fourth quarter. What's important to keep in mind
15:32
Speaker 8: with the strike, with the potential government shutdown is some
15:36
Speaker 8: of the impact is going to be reversed in the
15:39
Speaker 8: first quarter of next year. So this is also something
15:42
Speaker 8: that I think is important to keep in mind when
15:44
Speaker 8: you think about the outlook. But certainly a nuanced outlook
15:48
Speaker 8: with resilient economy, but some headwinds that are going to
15:52
Speaker 8: be waiting on private sector activity.
15:55
Speaker 1: So Lydia, we've seen inflation come down from the peak
15:59
Speaker 1: of eighteen month to go roughly, But now maybe the
16:03
Speaker 1: hard work starts. As a lot of economers are suggesting,
16:06
Speaker 1: how do you see inflation moving over the next six
16:08
Speaker 1: or twelve months.
16:11
Speaker 8: Yeah, we are in the camp that maybe the last
16:13
Speaker 8: inflation mile won't be as strainerous as some people think.
16:17
Speaker 8: There is a lot of ground to cover in terms
16:19
Speaker 8: of bringing inflation back to target, but we still think
16:22
Speaker 8: that there is there is this inflationary environment that remains
16:27
Speaker 8: in place.
16:27
Speaker 7: When you look further.
16:28
Speaker 8: Ahead at the next few months and going into twenty
16:32
Speaker 8: twenty four, when you look at core inflation, we are
16:35
Speaker 8: expecting to see modes inflation on the core side, with
16:39
Speaker 8: housing inflation having turned the corner, with the label market
16:43
Speaker 8: loosening as well, and also with the fact that you
16:47
Speaker 8: know we're going to see a slow down in demand
16:50
Speaker 8: and in economic activity and that will put further downwald
16:53
Speaker 8: pressure on inflation. So we think that we're going to
16:56
Speaker 8: see continue this inflation and looking at poor and headline inflation,
17:00
Speaker 8: it will still take some time, but by the end
17:02
Speaker 8: of next year we may have gotten closer to the
17:05
Speaker 8: two person target on both headline and poor.
17:08
Speaker 1: Lady health concerned. Are you about the European economies over there?
17:12
Speaker 1: I mean again, we talked about it earlier, but boy,
17:15
Speaker 1: their exposure to China and just compounds some some problems
17:18
Speaker 1: over there. What's about your forecast for just Europe in
17:21
Speaker 1: the UK going forward.
17:24
Speaker 8: Yeah, we are seeing more weakness for the deer and
17:27
Speaker 8: the European economy, and we are seeing more headwinds as
17:30
Speaker 8: well from the China slowdown. When we look at economic activity,
17:35
Speaker 8: we are seeing some economic indicators pointing to a further
17:38
Speaker 8: down shift. And now the outlook is, you know, not
17:42
Speaker 8: the same for each individual country within the Eurozone. We
17:45
Speaker 8: are seeing localized weakness in Germany with this this recession
17:49
Speaker 8: recessionary conditions in Germany. The UK is also showing most
17:53
Speaker 8: signs of weakness. But overall, this is a region where
17:56
Speaker 8: we are expecting to see more weakness this year and
18:00
Speaker 8: this is going to be a soft spot for the
18:02
Speaker 8: global economy along with the Chinese economy.
18:05
Speaker 1: Lydia, thank you so much for joining us. Always appreciate
18:07
Speaker 1: getting your comments. Lydia bussor senior economists at e Y
18:11
Speaker 1: Partha that you're.
18:12
Speaker 9: Listening to the tape Cat's Are Live program Bloomberg Markets
18:16
Speaker 9: weekdays at ten am Eastern on Bloomberg Radio, the tune
18:19
Speaker 9: in app, Bloomberg dot Com.
18:21
Speaker 3: And the Bloomberg Business App.
18:22
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18:25
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18:31
Speaker 1: Jess Larsen joins and sees the CEO and founder of
18:33
Speaker 1: Briarcliff Credit Partners. He joins us live here in our
18:36
Speaker 1: Bloomberg Interactive Broker studio. Just you guys, just focus on
18:40
Speaker 1: this exclusively. Matt and I. We know private credit as
18:43
Speaker 1: like direct lending. Well you're telling us it's more than that, right.
18:48
Speaker 10: That is, that's a good question, right, and private credit
18:51
Speaker 10: means a lot of things to a lot of people.
18:53
Speaker 10: And there's a little bit of a misunderstanding that directlenning
18:56
Speaker 10: is all rage of private credit. Dorek Lanny is a
18:58
Speaker 10: great sub strategy with in private credit, but private credit
19:01
Speaker 10: is really a lot more so. What we have identified
19:05
Speaker 10: is fall pillars of private credit. You got corporate credit,
19:07
Speaker 10: structure credit, real asset, and sparcusally finance underneath that twenty
19:11
Speaker 10: six different strategy way.
19:13
Speaker 5: It doesn't matter where in.
19:14
Speaker 10: The economic economic cycle we are there's always strategies for
19:17
Speaker 10: you to make money, and that's exciting about private credit.
19:20
Speaker 1: Right, and private credit seems to me to come out
19:23
Speaker 1: of nowhere over the last four or five.
19:24
Speaker 2: Well yeah, I mean I've been going to the super
19:26
Speaker 2: Turn conference for the past I don't know, seven or
19:29
Speaker 2: eight years in Berlin, which is which was a private
19:33
Speaker 2: equity conference, right, But more and more of the people
19:37
Speaker 2: there are just talking about private credit. And a lot
19:39
Speaker 2: of the big shops that you think of as PE
19:42
Speaker 2: shops are actually the majority of their investments are on
19:46
Speaker 2: the credit side now absolutely.
19:48
Speaker 10: I mean the big firms are pivoting from PE to
19:50
Speaker 10: private credit.
19:51
Speaker 6: Right.
19:52
Speaker 10: What we're seeing right now is we on the golden
19:54
Speaker 10: age of private credit. What we will see in ten years,
19:57
Speaker 10: if I can be so bold, is in ten years
19:59
Speaker 10: private credit it's gonna be bigger than private equity. Wow,
20:02
Speaker 10: this is our age, right. And I have to say, Matt,
20:04
Speaker 10: Berlin is great, But next year come to our summit.
20:07
Speaker 10: We had it last week. Over one hundred lpiece came
20:10
Speaker 10: to hear just about private credit.
20:12
Speaker 5: This is really a sou Where is it?
20:13
Speaker 6: Because the city is important to me.
20:15
Speaker 5: We did it here in the metropolitan club. We made
20:17
Speaker 5: it easy for you.
20:17
Speaker 2: Ah, I thought you're gonna say I could go to Copenhagen,
20:20
Speaker 2: which I would like to do, that's where I'm from.
20:21
Speaker 5: But you're more than welcome. We can do that as well.
20:23
Speaker 1: It's easier for us to take a subway to that's
20:25
Speaker 1: that's true. We can walk to the Metropologic Club. We
20:28
Speaker 1: can do that as well. We can do just talk
20:30
Speaker 1: to us about how this industry came about. Is it
20:33
Speaker 1: just simply the regular the regulators put the traditional big
20:37
Speaker 1: banks out of this business?
20:39
Speaker 3: That is?
20:40
Speaker 10: It is a really good question, right, because if we
20:42
Speaker 10: think about private credit, this is not a new thing.
20:46
Speaker 10: People have been lending to each other since the start
20:49
Speaker 10: of humankind, right, So we go back to Plato and
20:53
Speaker 10: those times the Medici family, it was all about lending.
20:56
Speaker 5: Now we call the usury. At the time, it was all.
20:59
Speaker 10: About lending, right, So lending a private credit has been
21:02
Speaker 10: around since the early times. Now, you're right, during the GFC,
21:08
Speaker 10: we've got the regulatory environment really supporting getting the credit
21:11
Speaker 10: out of the banks because he's not the right place
21:14
Speaker 10: for lending to mid market companies and get it into
21:16
Speaker 10: the private credit space. So that was really the catalyst
21:19
Speaker 10: of what I would call the golden nature.
21:21
Speaker 2: I mean, the Germans would have a problem with that,
21:24
Speaker 2: right because that's their bread and butter.
21:26
Speaker 6: Of German banking.
21:28
Speaker 2: And I think, uh, you know, there's no sort of
21:32
Speaker 2: middelstand credit here the way there there is on the
21:35
Speaker 2: other side of the Atlantic.
21:37
Speaker 6: But we would call that shadow banking. Is that a
21:39
Speaker 6: bad Is that a dirty term?
21:41
Speaker 5: I think private credit sounds a lot better than shadow banking.
21:44
Speaker 2: Come on, so it is, though, because you're pushing it
21:48
Speaker 2: out of the regulated banking sector into more of a
21:53
Speaker 2: I don't don't want to say wild West, because we
21:54
Speaker 2: talked to private credit men and women here all the time,
21:58
Speaker 2: who are obviously very responsible, learned individuals used to dealing
22:03
Speaker 2: with sophisticated investors.
22:04
Speaker 6: But you do have less regulation.
22:06
Speaker 10: You do have less regulations. I would be contrarian and say,
22:10
Speaker 10: we're pushing it out to where it belongs. Mid market
22:13
Speaker 10: lending does not necessarily belong in a bank. We saw
22:16
Speaker 10: the actual the risk you're taking on if you're a
22:18
Speaker 10: mid market company and you want to borrow some money,
22:21
Speaker 10: doing it with a bank adds a whole other layer
22:23
Speaker 10: of risk, right. We saw that, we see a compative bank.
22:25
Speaker 10: We saw that with credit and Signature Bank and so forth.
22:28
Speaker 10: Now that private credit funds are set up and have
22:31
Speaker 10: a much better asset liability match, so this is a
22:34
Speaker 10: much better place for our mid market. The economy needs it, right.
22:37
Speaker 10: The economy cannot survive without mid market lending, so we
22:41
Speaker 10: need it. But we just need to having a better place,
22:43
Speaker 10: and that's where we're going, all.
22:44
Speaker 1: Right, mid market lending? Do you envision the day when
22:47
Speaker 1: you characterize your industry is something more than mid market lending?
22:50
Speaker 1: Not that that's not a great business, great returns, but
22:53
Speaker 1: bigger deals, bigger tickets. Is that where we're going.
22:56
Speaker 10: That's also where we're going. I think you're one hundred
22:58
Speaker 10: percent of right, poll Mark. The terms of private credit
23:01
Speaker 10: is going to go from mid market to upper market
23:03
Speaker 10: to where we need to be right simply because it
23:05
Speaker 10: makes sense for the borers. If not, we wouldn't have it.
23:08
Speaker 2: What about the lenders, I mean right now or previously
23:11
Speaker 2: it was big institutional money, as I said, sophisticated investors,
23:14
Speaker 2: so people who you know, could afford to take losses.
23:17
Speaker 2: We've had people on the program that are looking to
23:20
Speaker 2: start platforms that allow retail money in is everybody going
23:23
Speaker 2: to get involved.
23:25
Speaker 5: It's coming, right.
23:26
Speaker 10: We all need to be careful when there's retail money, right,
23:28
Speaker 10: there is a high level of scrutiny, the high level
23:31
Speaker 10: of regulatory environment when it comes to retail money. I
23:34
Speaker 10: think we started the right place with the big institutional
23:36
Speaker 10: money or cabs are coming from the pension funds and
23:39
Speaker 10: dominance foundations, the big family jobs. We started with that money.
23:42
Speaker 10: We're slowly moving into the retail but it does require
23:45
Speaker 10: a little bit more of a regulatory overview.
23:47
Speaker 1: So what's a typical deal that Briarcliffe invests in.
23:51
Speaker 5: So we actually don't invest.
23:52
Speaker 10: What we really do is we take the smart funds
23:55
Speaker 10: and actually bring them out to the institutional investors their
23:57
Speaker 10: placement firm basically gotcha, okay, And the only one in
24:00
Speaker 10: private credit, believe.
24:01
Speaker 3: It or not.
24:02
Speaker 10: So you're the only one with the only place maiden
24:05
Speaker 10: in the world that is completely He wants.
24:06
Speaker 6: To hear the numbers. All Paul cares about in life
24:09
Speaker 6: is making money.
24:11
Speaker 3: I love it.
24:11
Speaker 10: So there's three thousand place maidens globally, there's only one
24:14
Speaker 10: that is dedicated to private credit.
24:16
Speaker 5: It happens to be in your studio right now.
24:18
Speaker 2: So are the what are the deals look like. I mean,
24:21
Speaker 2: especially as in this rising rate environment. On the one hand,
24:24
Speaker 2: I think it's going to get juicy. On the other hand,
24:28
Speaker 2: I may be worried about companies that have to refinance
24:31
Speaker 2: or companies that you know have been lent to at
24:34
Speaker 2: much lower levels.
24:35
Speaker 10: Yeah, yeah, I think it is a worry or it's
24:38
Speaker 10: an opportunity, whether which way you want to look at it.
24:40
Speaker 10: Because as we mentioned earlier, private credit is more than
24:43
Speaker 10: just direct lending, right, So there are special sits that
24:46
Speaker 10: distress managers out there. There are all sorts of strategies
24:50
Speaker 10: that can capitalize if the default rate starts to spike.
24:54
Speaker 5: Let's see if it happens.
24:54
Speaker 10: But if we are going to get more losses, there
24:57
Speaker 10: are credit funds out there that can actually capitalize, go
24:59
Speaker 10: in and save these companies. And that's what we need
25:01
Speaker 10: where the banks would shy away.
25:03
Speaker 2: Right right, because private lenders work more closely with management.
25:08
Speaker 5: It's other portfolio companies. And thank you for the pitch.
25:12
Speaker 6: Well, I think we need to be skeptical as well.
25:15
Speaker 2: That's our job, right And I wonder what you do
25:18
Speaker 2: when regulation does come knocking, because there's going to be
25:22
Speaker 2: a day, you know when some senator gets a craw
25:27
Speaker 2: in her bonnet or whatever and decides you're the problem.
25:30
Speaker 10: Yeah, Well the question is whether it's a problem. But
25:33
Speaker 10: I don't think regulation is necessarily a bad thing, right
25:37
Speaker 10: What we're doing right now is moving it out of
25:39
Speaker 10: the banking system to the private cretic system where.
25:42
Speaker 5: It is better placed. That's the first step.
25:45
Speaker 10: The next step is probably be getting a little bit
25:48
Speaker 10: more oversight, and we're already see in the regulatory environment
25:51
Speaker 10: starting to looking at valuation reporting and so forth. So
25:54
Speaker 10: it's coming and it's a good thing because it gives
25:57
Speaker 10: everybody a little bit more comfort.
26:00
Speaker 1: All right, Jess, thanks so much for joining us. Jess Larson,
26:02
Speaker 1: CEO and founder Briar Cliff Credit Partners.
26:06
Speaker 9: You're listening to the team Ken's Are Live program Bloomberg
26:10
Speaker 9: Markets weekdays at ten am Eastern on Bloomberg dot com,
26:13
Speaker 9: the iHeartRadio app, and the Bloomberg Business App, or listen
26:16
Speaker 9: on demand wherever you get your podcasts.
26:21
Speaker 1: A little bit of news out of Amazon today, they
26:24
Speaker 1: are going to invest up to four billion dollars in
26:27
Speaker 1: an AI firm by the name of Anthropic. It's a
26:30
Speaker 1: big number to me, four billion, but I guess if
26:31
Speaker 1: you're Amazon and you got a market cap at one
26:34
Speaker 1: point three to five trillion, maybe not that big a deal, but.
26:37
Speaker 2: Let's get it at it is though, because they don't
26:39
Speaker 2: typically go out and buy businesses exactly.
26:42
Speaker 1: And I think this is big because it's AI. So
26:45
Speaker 1: I pay attention on a Rock Ronick he also pays attention.
26:47
Speaker 1: He's a tech analyst at Bloomberg Intelligence. He joined us
26:50
Speaker 1: via Zoom from his happy place Bloomberg Chicago office. Loves
26:55
Speaker 1: that Honor Rock talk to us about this deal here, Anthropic.
26:58
Speaker 1: What's Amazon doing here? What does Anthropic do? And why
27:01
Speaker 1: is Amazon investing up the four billion?
27:04
Speaker 11: Yeah, I think it's a little bit of catching up
27:05
Speaker 11: to do because for the last twelve months, all we
27:08
Speaker 11: have heard is Microsoft and open ai investments in how
27:11
Speaker 11: OpenAI has the large language models and the foundation models
27:15
Speaker 11: that people can use, but they only run on Microsoft's cloud.
27:19
Speaker 11: So Amazon does not have that relationship with open Ai.
27:22
Speaker 11: So they're looking at other AI companies that have similar products,
27:26
Speaker 11: investing money in them, trying to offer that service. And
27:30
Speaker 11: that's really what's happening here for AWS. Remember one thing,
27:33
Speaker 11: AWS is a much bigger player in cloud infrastructure then
27:37
Speaker 11: Microsoft and I think it's for the first time they've
27:39
Speaker 11: been caught on the wrong floort.
27:42
Speaker 2: In terms of Claude, which is that name of their Claude,
27:48
Speaker 2: that's the name of the bot, the chatbot that Anthropy
27:53
Speaker 2: or whatever it's called runs right, what's it called anthropy
27:56
Speaker 2: anthropic anthropotropic.
27:58
Speaker 6: So in terms of Clauds usage, it's going.
28:03
Speaker 2: To be all on now AWS servers, and it's going
28:07
Speaker 2: to use Amazon chips, which I didn't even know that
28:11
Speaker 2: they were, you know, building this much of their own silicon.
28:14
Speaker 6: They have one chip for training it's called like trainium,
28:17
Speaker 6: and one chip for read in on this.
28:20
Speaker 2: Well, what's the other one is for like inference, It's
28:22
Speaker 2: called inferyon or something like that.
28:25
Speaker 6: How big of a business is that for them?
28:28
Speaker 11: So these are all emerging businesses. I mean, you know, financially,
28:31
Speaker 11: there's a probably negligible compared to the size of the
28:33
Speaker 11: business right now. But this is one thing that I
28:36
Speaker 11: think that really stood out to us was Amazon's not
28:39
Speaker 11: talking about using in video chips for this, but their
28:41
Speaker 11: own internal one. Now, it's going to be a while
28:43
Speaker 11: before we really figured out if it works, but you know,
28:46
Speaker 11: if AWS is making a big splash around it They're
28:49
Speaker 11: basically saying that we can run some of these foundation
28:52
Speaker 11: models or the large language models without the need of
28:55
Speaker 11: Nvidio GPUs, which to me is a big deal. A
28:58
Speaker 11: most large cloud companies eventually will design their own chips
29:02
Speaker 11: and get them made only because they want to, you know,
29:05
Speaker 11: have much higher performance than what they get from let's say,
29:08
Speaker 11: an Intel and an AMD or or anybody else out there.
29:12
Speaker 1: So Anrak, I'm probably like most investors out there, Like
29:15
Speaker 1: over the last twelve months, I've been trying to run
29:16
Speaker 1: around like crazy trying to figure out how I get
29:18
Speaker 1: exposure to this thing called AI, which I don't even
29:21
Speaker 1: really know what it is, but I know I got
29:23
Speaker 1: to own it. So you know, in Nvidia, the chip stocks,
29:27
Speaker 1: maybe a Microsoft something like that we kind of fell into.
29:31
Speaker 1: But I did not think about Amazon. And is that
29:35
Speaker 1: a problem for Amazon that it's not doesn't really it's
29:38
Speaker 1: not proceived to have a real AI angle.
29:40
Speaker 11: Yeah, I think this is this investment is basically they're
29:43
Speaker 11: telling that you know, they are also serious and they're
29:45
Speaker 11: gonna partner with other people. Oracle, for example, is partnering
29:48
Speaker 11: with another company called cohere in a similar way. You know,
29:52
Speaker 11: for us, when you get rid of or when you
29:54
Speaker 11: when you are over the hype of the the chip makers,
29:58
Speaker 11: when you move onto the software side, then the clear
30:01
Speaker 11: winners actually are the cloud infrastructure companies, which is Awos, Microsoft, Google,
30:05
Speaker 11: and to some extent, Oracle, because that's where you will
30:08
Speaker 11: host some of these models and do your work on it.
30:11
Speaker 11: And then on the downstream you have companies like you know,
30:14
Speaker 11: Ccenture and Captaremini and so forth that will implement some
30:17
Speaker 11: of that stuff. So on the software side, cloud infrastructure
30:20
Speaker 11: is one of the biggest beneficiaries in our view.
30:22
Speaker 2: Where do they get by the way their data sets
30:25
Speaker 2: because a lot of these companies, you know, Microsoft has
30:29
Speaker 2: a ton of our data. Obviously Apple has a ton
30:31
Speaker 2: of our data. But Amazon might have more of our
30:34
Speaker 2: data than anybody else.
30:35
Speaker 11: Right, Yeah, but Matt, they're not using your or my
30:38
Speaker 11: consumer data to run any of these things. What Amazon
30:41
Speaker 11: Web Services is selling is going to you know, let's
30:44
Speaker 11: say JP Morgan or Bank of America and saying, if
30:46
Speaker 11: you want to train your models, we are giving you
30:49
Speaker 11: the raw material for it. We are giving you the
30:50
Speaker 11: computing power, We're giving you the algorithms. You bring your
30:54
Speaker 11: own data, keep it in a contained environment, and test
30:57
Speaker 11: it out. Whatever the results you get, you get the
31:00
Speaker 11: benefit of it. They're basically just you know, selling compute
31:03
Speaker 11: power and storage. They're not really you know, selling their
31:06
Speaker 11: own or you're in my customer data to these companies.
31:09
Speaker 1: Is this a good deal for Amazon? And do they
31:13
Speaker 1: need to do more here?
31:14
Speaker 11: Oh, they need to do a lot more. They need
31:16
Speaker 11: to do a lot more and actually showcase a lot
31:18
Speaker 11: of the enterprise use cases, Paul, What we have seen
31:21
Speaker 11: so far is a lot of use cases when it
31:23
Speaker 11: comes to consumer consumers. So when it you know, when
31:26
Speaker 11: we see what's happening with chat GPT because it has
31:29
Speaker 11: all the Internet data behind it, We're seeing some of
31:32
Speaker 11: the stuff that Microsoft is doing because it has some
31:35
Speaker 11: of the user data around it, you know, Excel and Word.
31:38
Speaker 11: But the real use case in the long run is
31:40
Speaker 11: enterprises B to B. In the case of B to B,
31:43
Speaker 11: the data is diseggregated and it's in a lot of
31:46
Speaker 11: different systems, and it's people like Amazon, Microsoft and Google
31:50
Speaker 11: that are going to sell the infrastructure and say, you
31:52
Speaker 11: create your own bots, you create your own large language
31:55
Speaker 11: model trained on your own data, but we're going to
31:58
Speaker 11: sell you all the services that allow you to do that.
32:02
Speaker 1: So what I mean, it's it's when I think about Amazon,
32:05
Speaker 1: I mean the cloud is there's such a leader in cloud.
32:10
Speaker 1: Can I not say that that's a way to play
32:12
Speaker 1: this whole AI thing.
32:13
Speaker 11: This is the way, yeah, for software, that is the
32:15
Speaker 11: only way to play it and argue because Amazon has
32:18
Speaker 11: over a forty percent market share in cloud infrastructure. The
32:21
Speaker 11: problem was they didn't have a relationship with OPENINGI. Today
32:25
Speaker 11: they are, you know, So it's it's that's so the
32:27
Speaker 11: companies that are selling the algorithms or these big foundation
32:32
Speaker 11: models that are called or large language models. There are
32:35
Speaker 11: multiple companies out there, and you you should expect to
32:38
Speaker 11: see multiple deals like this with everybody down the road.
32:42
Speaker 6: Who has the best product?
32:44
Speaker 3: Have you?
32:45
Speaker 6: Have you been playing with all of the with claud
32:47
Speaker 6: and chat GBT and.
32:49
Speaker 11: It's it all depends on who has the underlying data.
32:51
Speaker 11: If you're going to ask me, who can summarize a
32:53
Speaker 11: picture for me or a write poem, that doesn't really
32:56
Speaker 11: move the needle for what I do for B to B.
32:59
Speaker 11: It really needs to be able to get into enterprise
33:01
Speaker 11: data and figure out whether I have the who's my
33:04
Speaker 11: best customer over the next twelve months for that I
33:08
Speaker 11: really need to tap into enterprise data warehouses and that's
33:11
Speaker 11: not an easy thing to do right now.
33:14
Speaker 1: All right, So what's what do you think is next
33:16
Speaker 1: here for Amazon in terms of their cloud and maybe
33:19
Speaker 1: in terms of AI specifically, because they have no shortage
33:23
Speaker 1: of capital to invest here, so.
33:25
Speaker 11: They're going to make investments like this. They're going to
33:27
Speaker 11: invest in ships, they're going to invest in large language model.
33:30
Speaker 11: You know, margin is not going to be a problem.
33:32
Speaker 11: We are coming to a point that the tough comparisons
33:35
Speaker 11: for cloud decline is almost over. We are expecting a
33:39
Speaker 11: bounce back either the end of this quarter or perhaps
33:42
Speaker 11: next quarter, and then we should see a rebound next year,
33:45
Speaker 11: just because we have seen a fair amount of shrinkage
33:48
Speaker 11: or the usage of cloud over the last twelve to
33:51
Speaker 11: fourteen months, and we are coming to a point where
33:53
Speaker 11: we should start to see a rebound. Now that's irrespective
33:56
Speaker 11: of what happens to the AI. But once we see
33:59
Speaker 11: more AI investments, hopefully next year, you know, that only
34:02
Speaker 11: adds to the fuel of the cloud rebound that we
34:04
Speaker 11: really believe in.
34:06
Speaker 1: All right, Donnroroq, thanks so much for joining us.
34:08
Speaker 9: You're listening to the tape, can to our live program
34:11
Speaker 9: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
34:15
Speaker 9: the tune in app, Bloomberg dot Com, and the.
34:17
Speaker 3: Bloomberg Business App.
34:18
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34:21
Speaker 9: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
34:28
Speaker 12: We want to welcome our Bloomberg television and radio audiences
34:31
Speaker 12: worldwide joining us now. Amazon Web Services CEO Adam Selipsky,
34:36
Speaker 12: and Adam Welcome to Bloomberg Technology. I want to start
34:38
Speaker 12: with some of the mechanics of this deal. Does Anthropic
34:42
Speaker 12: still pay Amazon to use AWS Cloud or is it
34:46
Speaker 12: structured such that the investment that you make in Anthropic
34:50
Speaker 12: is in the form of cash and credits for AWS Cloud?
34:55
Speaker 7: No, good morning, Thanks for having me.
34:57
Speaker 13: We're very excited for this expanded relationship with Anthropic, and
35:04
Speaker 13: the investment is a financial investment, as you say. And
35:08
Speaker 13: in addition, Anthropic will be training future versions of its
35:14
Speaker 13: models and running its models on AWS using our.
35:19
Speaker 7: Training chips and Inferentia chips.
35:22
Speaker 13: Those models will be guaranteed to be available for years
35:25
Speaker 13: to come in our Amazon Bedrock Managed service for llms,
35:30
Speaker 13: which provides the very wide choice of models, and AWS
35:34
Speaker 13: customers will actually receive early access to key features in
35:38
Speaker 13: Anthropics models in the future, such as fine tuning and
35:42
Speaker 13: customization of models. In addition, Anthropics on very talented technical teams,
35:48
Speaker 13: and we anticipate working closely with them to actually improve
35:52
Speaker 13: future versions of our training and inferential chips. So there
35:57
Speaker 13: are a lot of different benefits for our joint end
35:59
Speaker 13: customers from this relationship and we're very excited to be
36:02
Speaker 13: leaders in this together.
36:04
Speaker 12: Adam, there's a lot of emphasis on moving a maker
36:07
Speaker 12: of foundation models at that scale onto your proprietary silicon.
36:11
Speaker 12: How quickly will Anthropics start running AI workloads on Trainium
36:16
Speaker 12: and Inferentia.
36:18
Speaker 13: We've been working with Anthropic, they've been a customers of
36:21
Speaker 13: ours since I think they're founding over a couple of
36:24
Speaker 13: years ago, and so they use a variety of different
36:28
Speaker 13: technologies for a variety of different workloads on AWS that
36:35
Speaker 13: they'll be using GPUs on AWS and will also be
36:39
Speaker 13: using large quantities of Trainium and Inferentia. So I think
36:43
Speaker 13: everything's going to move very quickly and it'll all be
36:46
Speaker 13: a mix of technologies depending on their needs at the time.
36:50
Speaker 12: Adam, what's the mood like within Amazon and AWS this morning.
36:54
Speaker 12: There are lots of talented engineers that have been working
36:57
Speaker 12: on large language models generative tools internally, and now you're
37:02
Speaker 12: turning to a third party who's highly regarded as a
37:05
Speaker 12: leader in building foundation models.
37:09
Speaker 7: The mood here is great.
37:11
Speaker 13: We are a company of inventors who we love to build,
37:14
Speaker 13: and there's never been a better time to be a
37:16
Speaker 13: builder at AWS than right now.
37:19
Speaker 7: And as I mentioned.
37:21
Speaker 13: Before, a big part of our strategy in AI and
37:24
Speaker 13: generative AI specifically, it is all about customer choice and
37:28
Speaker 13: there's not going to be any one solution that works
37:32
Speaker 13: for all customers for all use cases. And Thropic has
37:35
Speaker 13: done an amazing job. They're clearly a leader in this space,
37:39
Speaker 13: and it's really important for customers that we continue to
37:42
Speaker 13: generate new capabilities together at the same time. Really, one
37:47
Speaker 13: of the hallmarks of our Amazon Bedrock managed service for
37:51
Speaker 13: generative AI is choice, and so Amazon is going to
37:54
Speaker 13: continue to build its own Titan models, which are going
37:57
Speaker 13: to be available later this year. Obviously, Anthropics models are
38:02
Speaker 13: prominent in Bedrock, and we will have models from other
38:05
Speaker 13: leading providers as well as we have today. So it's
38:09
Speaker 13: still an amazing time to build here at Amazon. We
38:12
Speaker 13: think our models are going to be great as well,
38:14
Speaker 13: and it's about customers choosing the right tool for the job, talking.
38:18
Speaker 14: About choice, and I just want to re welcome our
38:20
Speaker 14: TV and radio audiances with Adam Sleipski. What's so notable
38:25
Speaker 14: is that, well, Anthropic took a chunk of change one
38:28
Speaker 14: hundred million dollars worth from Google already, and I'm interested
38:32
Speaker 14: as to how you feel that is perhaps a concern
38:35
Speaker 14: for you or not the relationship that Anthropic already has
38:39
Speaker 14: with a previous cloud provider.
38:42
Speaker 13: Now, we feel great about the relationship with Anthropic. It's
38:45
Speaker 13: been a good relationship and I think today's announcement just
38:48
Speaker 13: makes it a deeper and longer term. Anthropic will use
38:55
Speaker 13: AWS as its primary cloud provider for mission critical workloads,
38:59
Speaker 13: including building foundational foundation models and doing AI safety research,
39:05
Speaker 13: and will run the majority of its workloads on AWS.
39:09
Speaker 13: So we feel great about being able to provide the
39:12
Speaker 13: capacity and the expertise and of course the security, the
39:15
Speaker 13: enterprise grade security that is so important to AWS customers.
39:19
Speaker 13: And we also feel great about working with Anthropic to
39:21
Speaker 13: make sure that our trainingum and inferential technology our chips
39:26
Speaker 13: are as cutting edge as possible going forward for years
39:30
Speaker 13: to come.
39:31
Speaker 14: I'm interested in drilling down sort of on why ed
39:33
Speaker 14: was going about the feeling internally right now, because I
39:36
Speaker 14: look at some of the analyst reaction to this Adam
39:38
Speaker 14: and Webbush, for example, they say this signals a new
39:41
Speaker 14: found urgency in Amazon's strategy to further integrate generative AI
39:45
Speaker 14: among your AWS suite of services. That urgency was there
39:49
Speaker 14: a lack of understanding or indeed a reality that Amazon
39:53
Speaker 14: was behind the curve here a little bit when it
39:55
Speaker 14: came to the integration of generative AI. Because we've been
39:59
Speaker 14: looking at open Ai Microsoft for a while now.
40:02
Speaker 13: We've been saying for many, many months, Carolyn, that we
40:05
Speaker 13: are fully urgent. We have a strategy that we really love.
40:08
Speaker 13: It is different than some other cloud provider strategies.
40:11
Speaker 7: It's true.
40:12
Speaker 13: We have a strategy of providing absolutely uncompromising security, which
40:18
Speaker 13: I don't think is true for all cloud providers. We
40:20
Speaker 13: have a strategy of providing customers the choices to use
40:24
Speaker 13: whatever is best for their job at hand. So Andthropic
40:28
Speaker 13: is going to be an amazing set of models for
40:30
Speaker 13: many many use cases. And Amazon is fully invested in
40:35
Speaker 13: building its own Titan models, which I think will be
40:38
Speaker 13: really useful for other customers and other circumstances, and of
40:41
Speaker 13: course our other model provider partners through Bedrock. So I
40:47
Speaker 13: really think it's an ill founded premise that there's been
40:49
Speaker 13: some change in urgency. We're fully urgent here on generative
40:52
Speaker 13: AI for one reason or one reason alone. It's because
40:55
Speaker 13: our customers need us to have great generative AI capabilities.
40:59
Speaker 13: So many of them have their data platforms on AWS,
41:02
Speaker 13: and if you got your data here, you really want
41:06
Speaker 13: to have your generative AI and all the powerful capabilities
41:09
Speaker 13: that you need from those capabilities are in the same place.
41:12
Speaker 13: And so we have been, are and will continue to
41:15
Speaker 13: be very motivated to deliver for customers.
41:18
Speaker 12: Adam, what does this mean for the kind of ramp
41:20
Speaker 12: up or path forward for Trainium and Inferentia. You put
41:23
Speaker 12: a lot of emphasis that anthropic brings you a maker
41:27
Speaker 12: or creator foundation models at scale. Well, you now need
41:30
Speaker 12: to ramp up I guess your third party manufacturing relationships
41:35
Speaker 12: to say, okay, let's get more Trainium on more inferential
41:38
Speaker 12: online to support the workloads.
41:41
Speaker 13: Well, it's absolutely true that there is a huge demand
41:45
Speaker 13: for all of the different ships with which people do
41:49
Speaker 13: a generative AI workloads, and so We absolutely have already
41:54
Speaker 13: been ramping up our training and inferential supply chain and
41:58
Speaker 13: ramping up the apply that we can.
42:00
Speaker 7: Create as quickly as possible.
42:02
Speaker 13: And yes, Anthropic will have access to very significant quantities
42:07
Speaker 13: of compute which we'll have trainum and inferentia in them.
42:11
Speaker 13: So yes, that's one of many reasons why we continue
42:15
Speaker 13: to ramp up and to provide a very robust AWS
42:18
Speaker 13: controlled supply chain for AI chips.
42:21
Speaker 14: And is that where the revenue boost comes, Adam, because
42:25
Speaker 14: we're looking at the share price reaction is higher on
42:27
Speaker 14: the day. When does this all start to really drive adoption,
42:31
Speaker 14: money and the bottom line for Amazon?
42:35
Speaker 7: Well, I think that AI in general.
42:37
Speaker 13: Look, AWS has had machine learning services since at least
42:41
Speaker 13: twenty seventeen when we released our sage Maker machine learning service,
42:45
Speaker 13: which has over one hundred thousand AWS customers on it.
42:48
Speaker 13: So we've been doing machine learning for a long time
42:51
Speaker 13: inside of AWS and obviously more recently have had a
42:55
Speaker 13: significant number of generative AI customers, and we will certainly
43:00
Speaker 13: continue to ramp up anticipate, you know, quite steeply. We
43:03
Speaker 13: have many sources of growth inside of AWS where a
43:07
Speaker 13: scaled and relatively sizable business at this point, and customers
43:12
Speaker 13: are running their data platforms on AWS. They are building
43:17
Speaker 13: out more and more applications for things like supply chain
43:20
Speaker 13: and contact center management on AWS.
43:23
Speaker 7: I've still a whole lot of.
43:24
Speaker 13: Storage and compute and database workloads ramping on our AWS,
43:28
Speaker 13: so we have many sources of growth I anticipate, but
43:31
Speaker 13: there's absolutely no doubt that generative AI looks like it's
43:34
Speaker 13: going to be an explosive additional source of growth in
43:38
Speaker 13: the years ahead.
43:40
Speaker 12: Adam, we put a lot of emphasis on the up
43:42
Speaker 12: to four billion dollars, and you know, I understand and
43:46
Speaker 12: thank you for explaining how the relationship will work in practice.
43:50
Speaker 12: If I put to you this is an example of
43:52
Speaker 12: Amazon or AWS basically paying a leader in the field
43:56
Speaker 12: of AI, handing over cash to allow to make them
44:00
Speaker 12: use trainum and inferentia, how would you respond to that
44:03
Speaker 12: and explain to me how you bring new customers on
44:05
Speaker 12: board who are really interested in the AI accelerators that
44:09
Speaker 12: you have built without having to invest in them as
44:13
Speaker 12: a sort of backup.
44:15
Speaker 7: Sure.
44:15
Speaker 13: Well, the I think the really big news today is
44:20
Speaker 13: the new expanded relationship between Anthropic and Amazon, in which
44:28
Speaker 13: they will have access to really large quantities of training
44:31
Speaker 13: and in FRENTI at Chips, customers will have access to
44:35
Speaker 13: those models, including early access to critical features through Amazon
44:39
Speaker 13: Bedrock and Amazon will get to AWS, We'll get to
44:43
Speaker 13: work with Anthropic to ensure that, you know, we optimize
44:47
Speaker 13: our training and Inferentia technology going forward.
44:49
Speaker 7: That's the benefit for customers. And yes, as part of this.
44:53
Speaker 13: We're pleased to be making an adial an initial investment
44:56
Speaker 13: of one point twenty five billion dollars into Anthropic's financial investment,
45:01
Speaker 13: and that could go up as high as four billions,
45:04
Speaker 13: as you said, over time. But it's really driven around
45:07
Speaker 13: customer value and what this is going to mean to
45:09
Speaker 13: customers who are very, very determined as they should be,
45:14
Speaker 13: to figure out generative AI strategies. We already are working
45:18
Speaker 13: in depth with customers, as is Anthropic on forming those
45:22
Speaker 13: strategies and actually moving to execution. We have a lot
45:25
Speaker 13: of great customers from Lonely Planet to Nexus, Lexus and
45:29
Speaker 13: a number of others who are actually moving to production
45:33
Speaker 13: with generative AI on AWS and Anthropic, And in addition,
45:37
Speaker 13: as you alluded to, we'll be working with all of
45:40
Speaker 13: the partners that our customers want to do business with.
45:44
Speaker 13: If it's an important partner to our customers. It's going
45:46
Speaker 13: to be an important partner to us as well.
45:50
Speaker 12: Amazon Web Services CEO Adam Selipski, thank you.
45:54
Speaker 5: You're listening to the tape.
45:55
Speaker 9: Catch our live program Bloomberg Markets weekdays at ten am
45:59
Speaker 9: Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and.
46:03
Speaker 3: The Bloomberg Business App.
46:04
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46:07
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46:13
Speaker 1: Last month, existing US home sales the United States fell
46:17
Speaker 1: by zero point seven percent from the prior month. That's
46:21
Speaker 1: a seven month low. So higher interest rates and a
46:24
Speaker 1: lack of supply contributing to those declinents. Let's see kind
46:28
Speaker 1: of where we go from here. We can check in
46:29
Speaker 1: with Lisa's start Event, chief economists at Bright Mls. She
46:33
Speaker 1: joins us via zoom. Lisa again, it's nobody's putting. There's
46:36
Speaker 1: no there's really no supply out there. So the net result,
46:39
Speaker 1: there's not a lot of transactions. What do you see
46:42
Speaker 1: going forward?
46:46
Speaker 15: Of course, have made it more difficult for buyers, but
46:49
Speaker 15: those higher rates have also caused a lot of existing
46:52
Speaker 15: homeowners to stay put when they might have thought about
46:55
Speaker 15: listing their home for sale. I think mortgage rates are
46:58
Speaker 15: going to stay elevated throughout the fall and into the winter,
47:02
Speaker 15: so I think inventory is going to still be very
47:05
Speaker 15: very low for the last part of the of the year.
47:08
Speaker 15: I think we're I do think though, we're going to
47:10
Speaker 15: start to see buyer demand pull back even further. You
47:13
Speaker 15: mentioned August numbers were the lowest we've seen in several months,
47:17
Speaker 15: and I think we're going to see an even further
47:18
Speaker 15: contraction of buyer activity in the market simply because those
47:22
Speaker 15: rates are so high.
47:24
Speaker 1: Is there a rate, Lisa, that you think would entice
47:28
Speaker 1: people to come back into this market. I mean we're
47:29
Speaker 1: now looking at the UH, you know, the thirty year
47:33
Speaker 1: fixed like seven point sixty four percent. Here. Is there
47:38
Speaker 1: a level, whether it's six percent, five percent, four percent,
47:40
Speaker 1: where people start coming back into the market.
47:43
Speaker 6: Yeah, I don't think.
47:44
Speaker 15: We're going to see four percent UH in an eight
47:46
Speaker 15: in any short order, for sure. You know, I think
47:48
Speaker 15: it's I think it's not only about the level, but
47:51
Speaker 15: also about the timing. Last year, we saw rates go
47:54
Speaker 15: over seven percent, like right around the beginning of November,
47:58
Speaker 15: and we saw the market just sort of shut down.
48:00
Speaker 15: People were reacting to the higher rates, but they were
48:04
Speaker 15: also reacting to the fact that, you know, the holidays
48:06
Speaker 15: were coming and people were sort of just going to
48:07
Speaker 15: take a break before they returned to the market in
48:10
Speaker 15: the first of the year. So I think, you know,
48:12
Speaker 15: if we see mortgage rates come down to you know,
48:15
Speaker 15: six six and a half percent, which I don't think
48:17
Speaker 15: we're going to see until next year, Frankly, I do
48:20
Speaker 15: think that'll be the level that will change the landscape
48:24
Speaker 15: for a lot of buyers and sellers, importantly bringing more
48:27
Speaker 15: of those listings onto the market.
48:28
Speaker 1: So, I mean, I guess the key issue here for
48:31
Speaker 1: most people is just affordability. I mean, you know, the
48:34
Speaker 1: given the mortgage rates and given where housing prices are,
48:37
Speaker 1: just the affordability is just the key issue here for
48:40
Speaker 1: a lot of potential buyers.
48:42
Speaker 15: I think that's right. You know, we've been talking about
48:43
Speaker 15: inventory as the main constraint on the market, but affordability
48:46
Speaker 15: is going to be more and more of what we're
48:48
Speaker 15: talking about. You know, rates over the last fifty years.
48:51
Speaker 15: Mortgage rates have averaged about seven point seventy five percent
48:55
Speaker 15: over the last four decades, So the rates we're seeing
48:58
Speaker 15: now aren't particularly high by historic standards.
49:02
Speaker 6: But what's very.
49:02
Speaker 15: Different is that home prices have been rising much much
49:05
Speaker 15: faster than incomes over the last decade or two. And
49:09
Speaker 15: we're seeing now that affordability, when you compare household incomes
49:13
Speaker 15: to the price of buying a home, affordability is worse
49:17
Speaker 15: than it's been in history and is really the main
49:22
Speaker 15: driver of people having to leave the market, particularly first
49:25
Speaker 15: time home buyers. And that's a real problem as the
49:28
Speaker 15: ability to accumulate well through home ownership is you know,
49:31
Speaker 15: being is there's an obstacle to that for many first
49:33
Speaker 15: time buyers right now.
49:34
Speaker 1: So where are first time home buyers going? I mean,
49:39
Speaker 1: do they just continue to rent? What do they do?
49:42
Speaker 15: Yeah, So there's a couple of things we've been seeing.
49:43
Speaker 3: You know.
49:44
Speaker 15: We're seeing that first time buyers are getting a little
49:45
Speaker 15: bit more creative. We're seeing more first time buyers who
49:49
Speaker 15: might be you know, looking to buy a home with
49:51
Speaker 15: their parents, for example, or looking to buy with buy
49:56
Speaker 15: a home where they could rent out part of the
49:57
Speaker 15: home to have that income be able to make the
49:59
Speaker 15: month payment a little more doable. We're also seeing that
50:02
Speaker 15: maybe first time buyers are more willing to take on
50:05
Speaker 15: a fixer upper when that might not have been the
50:07
Speaker 15: case a couple of years ago. But frankly, we're seeing
50:09
Speaker 15: that folks in that first time home buying age actually
50:12
Speaker 15: maybe deciding that renting makes the most sense. As more
50:16
Speaker 15: apartment construction has come online, rents are actually falling in
50:19
Speaker 15: some markets across the country, and renting might be a
50:22
Speaker 15: better financial decision than buying at this point for those folks.
50:25
Speaker 1: You know, when you listen to the home builders, they
50:27
Speaker 1: talk about building these larger homes than McMansions, if you will,
50:31
Speaker 1: because that's simply where the profit margin is, but arguably
50:34
Speaker 1: where the demand is, or where the need is is
50:37
Speaker 1: for some of those first time buyers as smaller homes.
50:39
Speaker 1: But do are we seeing the homebuilders kind of move
50:42
Speaker 1: that way? Are they sticking with where the margin is?
50:45
Speaker 15: Yeah, you know, that's a great question. And you know,
50:47
Speaker 15: we have seeing that the size of new build homes
50:50
Speaker 15: has come down, and I do think that is in
50:52
Speaker 15: response to the demand from first time home buyers. The
50:56
Speaker 15: biggest constraint that home builders have really is the local
50:59
Speaker 15: zoning RD relations on the ground that limit the amount
51:03
Speaker 15: of homes that they can buy. So you talk about
51:05
Speaker 15: profit margins, if builders were able to build more homes
51:09
Speaker 15: on a given lot, they could build them smaller and
51:11
Speaker 15: still make the numbers pencil out. And that really is,
51:14
Speaker 15: you know, where the constraint is. Builders see that first
51:18
Speaker 15: time home buyer demand and if they could make it
51:20
Speaker 15: work in order to make a profit, they certainly would
51:24
Speaker 15: be building there. But there's still demand all along the
51:27
Speaker 15: price ranges, and so they're still seeing folks coming in
51:30
Speaker 15: for those larger homes.
51:32
Speaker 1: Is the tightness in the real estate market, the lack
51:34
Speaker 1: of liquiditying in the real estate market. Is that a
51:37
Speaker 1: are we seeing that across the country or the regional variances.
51:40
Speaker 15: Of note, Yeah, you know, I think we could characterize
51:43
Speaker 15: it as a tight inventory situation across the country for sure,
51:46
Speaker 15: But there are places where the market is loosening up
51:48
Speaker 15: a little bit. For example, we're seeing in markets that
51:52
Speaker 15: have been traditionally second home and vacation home markets. We're
51:55
Speaker 15: seeing those are places where inventory is increasing, perhaps as
51:59
Speaker 15: people who had per just a second home or a
52:01
Speaker 15: vacation home, or maybe a home to use as a
52:03
Speaker 15: short term rental are listing those homes for sale. So
52:07
Speaker 15: we are starting to see supply growing in some markets
52:10
Speaker 15: and I expect we'll see an uptick in inventory in
52:13
Speaker 15: other markets as we head into the end of the
52:15
Speaker 15: year and into the first part.
52:16
Speaker 3: Of next year.
52:17
Speaker 1: If I want to get a mortgage, can I get
52:19
Speaker 1: a mortgage?
52:21
Speaker 14: Yeah?
52:21
Speaker 15: You know, you still can get a mortgage. It still
52:23
Speaker 15: pays to shop around, for sure. We talked about what
52:25
Speaker 15: the average rate was on a thirty year fixed, but
52:29
Speaker 15: it obviously varies depending on the borrower. And I think
52:31
Speaker 15: the most important thing for a perspective home buyer right
52:34
Speaker 15: now is to make sure you're out there shopping around
52:37
Speaker 15: to find a lender who can provide you with the
52:40
Speaker 15: rate and the terms that make sense for your situation.
52:43
Speaker 15: More folks are looking at adjustable rate mortgages. We've seen
52:47
Speaker 15: in some markets where there are a lot of VA loans,
52:50
Speaker 15: for example, we're actually hearing more talk about assumable mortgages,
52:53
Speaker 15: which of course is limited to the VA product and
52:56
Speaker 15: to some other products. But I think you do need
52:58
Speaker 15: to cast your net a little bit why to make
53:00
Speaker 15: sure you're getting all of the options that are available
53:02
Speaker 15: to you.
53:03
Speaker 1: All right, Lisa, thank you so much for joining us.
53:05
Speaker 1: I really appreciate gatting your thoughts there. Lisa Sturtevant, Chief
53:08
Speaker 1: Economists at Bright MLS. Again, it is a tight real
53:12
Speaker 1: estate market out there, folks. US existing home sales fell
53:15
Speaker 1: to seventh month low on rates and supply. That was
53:18
Speaker 1: in the month of August, down zero point seven percent
53:20
Speaker 1: from the prior month. So not a lot getting transacted
53:24
Speaker 1: out of there, not a lot for sale, and then
53:25
Speaker 1: if you do find something, we've got to pay a
53:27
Speaker 1: pretty steep mortgagery. We'll keep on top of that.
53:30
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53:34
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53:37
Speaker 2: podcast platform you prefer.
53:39
Speaker 6: I'm Matt Miller.
53:40
Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three and
53:44
Speaker 2: on Fall.
53:44
Speaker 1: Sweeney I'm on Twitter at pt Sweeney Before the podcast.
53:47
Speaker 1: You can always catch us worldwide at Bloomberg Radio