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DOJ Drops Powell Probe, Smoothing Path for Warsh to Lead Fed · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
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  Speaker 2: Through Department of Justice has dropped its investigation into JPL
• 0:28
  Speaker 2: and the Federal Reserve regarding its building cost overrun.
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  Speaker 3: Let's bring in Michael.
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  Speaker 2: McKee, our chief International Economics and Policy correspondent, Mike, this
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  Speaker 2: is something that should smooth the path for Kevin Walsh,
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  Speaker 2: President Trump's nominee for the Federal Reserve chair to become
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  Speaker 2: FED chair, doesn't it.
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  Speaker 3: It smooths the path.
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  Speaker 4: But whether the path gets taken or not, we don't
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  Speaker 4: know yet, because we don't know whether the agreement to
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  Speaker 4: have the Inspector General continue a probe to the buildings,
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  Speaker 4: and we don't know whether that includes Powell, which Piro
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  Speaker 4: had included. Well, we don't know whether that's enough for
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  Speaker 4: Tom Tillis to say, okay, let's have a vote.
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  Speaker 3: He has not commented.
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  Speaker 4: And everybody's madly watching his Twitter feed and et cetera
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  Speaker 4: to see what he thinks that would be step one,
• 1:21
  Speaker 4: and then step two is getting the nomination to a
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  Speaker 4: vote in committee and getting it out to the floor.
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  Speaker 3: There isn't a lot of legislative days left, but they
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  Speaker 3: can make things happen if they want to. So it
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  Speaker 3: is odds are a little better now.
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  Speaker 5: Yep.
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  Speaker 3: Shall we say we're.
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  Speaker 6: Talking in the studio to Elliott Stein. He's a litigation
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  Speaker 6: analyst for Bloomberg Intelligence, he's a lawyer. He said, if
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  Speaker 6: you were advising Chairman j Powell, he would say, you
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  Speaker 6: need to get an immunity your agreement. Yeah, I mean,
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  Speaker 6: that's well, that's a big move.
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  Speaker 4: That's been my thought all along because Inspector General's reports
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  Speaker 4: and they were talking about also the Banking Committee maybe
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  Speaker 4: doing an investigational congressional investigations. Both of those can lead
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  Speaker 4: to criminal referrals to the Justice Department. So the question
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  Speaker 4: is a obviously, they could find that Jay Powell had
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  Speaker 4: his hand in the cookie jar, which I very very
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  Speaker 4: much doubt, but there could be just some pretext in
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  Speaker 4: the IG's report that Janine Piro would seize on again
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  Speaker 4: once j once Kevin Warsh is in as chair, and
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  Speaker 4: then go after Powell because Trump wants revenge. So I
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  Speaker 4: think that it's not going to satisfy the FED chair
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  Speaker 4: unless he has some kind of immunity agreement.
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  Speaker 2: Mike Dumb question, how does this change the FMC meeting?
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  Speaker 2: The deliberations next week, They begin on Tuesday, and they
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  Speaker 2: come out with their decision Wednesday two pm. You will
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  Speaker 2: be of course announcing it for us here on Bloomberg
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  Speaker 2: Television and Bloomberg Radio, and then J Powell takes the
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  Speaker 2: lectern at two thirty pm to hold his news conference.
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  Speaker 3: I don't think it changes much at all.
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  Speaker 4: It's not going to be a factor in the decision
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  Speaker 4: making in terms of interest rates, in terms of the
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  Speaker 4: there is no new economic outlook or dot plot at
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  Speaker 4: this meeting, so it was going to be pretty much
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  Speaker 4: a quiet meeting, and that leaves the vacuum to be
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  Speaker 4: filled by questions about and to J Powell, which I
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  Speaker 4: think is what we still get.
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  Speaker 3: But it doesn't change the way.
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  Speaker 4: The markets are going to react to this because it's
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  Speaker 4: not going to really involve interest rate policy. It'll start
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  Speaker 4: to as we move forward, once Kevin Warsh gets finally confirmed,
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  Speaker 4: then we'll maybe see some reaction to what people think
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  Speaker 4: he might do.
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  Speaker 6: But in this press conference, next Wednesday, which you'll be
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  Speaker 6: attending in Washington.
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  Speaker 3: Don't you think mister powellill have to have.
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  Speaker 6: A definitive statement one way or the other, as opposed
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  Speaker 6: to kind of we'll see how it develops.
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  Speaker 3: I'm not sure he has to. He's getting close to
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  Speaker 3: the time.
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  Speaker 4: When he's not chaired anymore, and that would be in
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  Speaker 4: theory when you would make a resignation announcement.
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  Speaker 3: That's mid May or end of May May fifteenth, OK.
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  Speaker 3: And so maybe he says something.
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  Speaker 4: But again, as we were talking about the idea of
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  Speaker 4: a immunity grant, he may be waiting for something like that.
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  Speaker 3: It's just not at all clear.
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  Speaker 4: He also may want to stay on because he wants
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  Speaker 4: to see how things develop.
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  Speaker 3: But that's not the worm, right.
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  Speaker 2: That doesn't usually happen.
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  Speaker 4: It's not the way it's been done in the past.
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  Speaker 4: There's only been one FED chair who stayed on as
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  Speaker 4: a governor, and that was in the late nineteen forties,
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  Speaker 4: early nineteen fifties, and so that's not likely to happen again.
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  Speaker 4: I would think that Jay Powell would end up leaving,
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  Speaker 4: but he could end up staying for a couple of months.
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  Speaker 6: And Stewart Paul from Bloomerick Economics are saying, you know,
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  Speaker 6: his hands are kind of tied me Kevin Wah. She
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  Speaker 6: can't go out there and start just slashing short term
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  Speaker 6: rates because that's going to really stoke inflation and you'd
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  Speaker 6: see rates go up on the back end of the
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  Speaker 6: curve and all that. I mean, he's not much he
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  Speaker 6: can really do, Kenny.
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  Speaker 4: No, And I think it's going to take a while
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  Speaker 4: for people really to internalize that because the markets are
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  Speaker 4: all hoping so much for rate cuts, but when you
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  Speaker 4: look at what's happening with the war, with the oil prices,
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  Speaker 4: with the economy in general, the fact that we've seen
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  Speaker 4: inflation rising, he can't come in the door and start
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  Speaker 4: cutting rates. So it'll take a while before anybody's going
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  Speaker 4: to be able to point to the Fed and say, well,
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  Speaker 4: that was Kevin Warsh pushing them to do that, because
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  Speaker 4: they're not going to do that right away, and there
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  Speaker 4: won't be any kind of decision about other reforms immediately.
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  Speaker 4: But he could work on things like communications. He doesn't
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  Speaker 4: like the dot plot. Maybe they get rid of that.
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  Speaker 4: Those things might even come before any rate stay with us.
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  Speaker 3: More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 6:03
  Speaker 6: You want to talk to tech, you talk to Dan
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  Speaker 6: I's globalhead of Technology Research at web Bush Securities. Dan,
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  Speaker 6: I'm guessing the conversations you're having with your clients over
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  Speaker 6: the last several weeks are a lot different than what
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  Speaker 6: they were kind of late last year as it relates
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  Speaker 6: to tech. How do you frame it out for us?
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  Speaker 5: Look, Paul, I think right now it's really about okay,
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  Speaker 5: cap backs, but where's the monetization? Are you starting to
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  Speaker 5: see it? Is it starting to actually spread out beyond
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  Speaker 5: just big tech? And I think you're starting to see
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  Speaker 5: that obviously with Intel, Cisco and others look at it.
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  Speaker 5: And obviously it's been a huge debate right relatively anthropic
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  Speaker 5: software goes trade. We saw what happened this week in
• 6:45
  Speaker 5: terms of Service Now and others, So I think I
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  Speaker 5: would call it a huge debat, and that's why it
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  Speaker 5: all leads to next week really being like huge pieces
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  Speaker 5: to the puzzle. Of the tech trade.
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  Speaker 2: What is the market sentiment like right now when it
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  Speaker 2: comes to CAPEX, Because for a while, if companies reported
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  Speaker 2: ended up saying that CAPEX would be more than they
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  Speaker 2: had forecast, it was seen as okay, and then it
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  Speaker 2: was seen as negative. How are investors feeling right now?
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  Speaker 5: Yeah, it sort of. That's been a hot and cold
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  Speaker 5: situation right relative to the cap backs. I think now
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  Speaker 5: there's almost a consensus view where it's like, Okay, cap
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  Speaker 5: BAX is going to be reiterated by big tech. No
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  Speaker 5: big tech company is going to go down cappacs go
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  Speaker 5: into next week. If they did, stock would be down
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  Speaker 5: because that would ultimately be a negative in this arms race.
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  Speaker 5: I think the big question is going to be with
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  Speaker 5: the hyper scale or especifically Microsoft, Google, Amazon. Do you
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  Speaker 5: see accelerations beats when it comes to cloud growth? That's
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  Speaker 5: important in terms of capacity. What it really means is
• 7:51
  Speaker 5: the cap BAX is now starting to bear fruit. The
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  Speaker 5: miztions happening. You're seeing it on the software on the
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  Speaker 5: hyper scale outside and look, that's that's the big piece,
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  Speaker 5: that's really the de beat. Do you start to seeing monization?
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  Speaker 5: I think we start to see it next week and
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  Speaker 5: I think med is another one. We'll see it on
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  Speaker 5: the advertising side.
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  Speaker 6: Dan, I know you initiated coverage of Oracle. Talk to
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  Speaker 6: us about that company. How you see it participating in
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  Speaker 6: this in this tech stack here going forward?
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  Speaker 5: Yeah, and Paul I covered it for many years. And
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  Speaker 5: the reason I like re initiate on and here just
• 8:26
  Speaker 5: because I believe the street is way miscalculating this name.
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  Speaker 5: I mean, look, I get the worries about the debt
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  Speaker 5: and what they're taking on given to open AI and
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  Speaker 5: what they're going for in terms of the six seven
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  Speaker 5: hundred billion that they're going after the fifty billion a debt.
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  Speaker 5: I think Oracle is going to be a tremendously bigger
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  Speaker 5: company the next two three, four years and is today.
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  Speaker 5: I think investments are way discounting their ability to monetize
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  Speaker 5: what's going to be this backlog. And really, you know,
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  Speaker 5: more and more companies move to the AI revolution with
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  Speaker 5: the Oracle and that's a whole colt. I mean two
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  Speaker 5: twenty values price target, but this stock ultimately that could
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  Speaker 5: double as they monetize AI over the coming years and
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  Speaker 5: think way way over sold.
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  Speaker 2: I mean, the thing with Oracle is that it needs
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  Speaker 2: to borrow so much money that it's got to tap
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  Speaker 2: the public markets and the private markets kind of everywhere
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  Speaker 2: in order to be able to fund this build out.
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  Speaker 2: And we've heard from Moody's warning that private credit funds
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  Speaker 2: with a lot of exposure to software and tech face
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  Speaker 2: a lot of refinancing risks because there's a bunch of
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  Speaker 2: debt that matures starting in twenty twenty eight. How do
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  Speaker 2: you think about that in terms of what that means
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  Speaker 2: for these big tech companies needs to borrow.
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  Speaker 5: Yeah, I think it's a great point. Obviously a huge debate.
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  Speaker 5: When you get things like Toma, Bravo Medallion, some other thing,
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  Speaker 5: you can paint them all with the same brush. Right
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  Speaker 5: when you look at Oracle, you're talking about a company
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  Speaker 5: that the amount of debt that don't take on is
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  Speaker 5: still pretty small relative to their cash flow generation and
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  Speaker 5: the overall what I believe structured the business. I think
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  Speaker 5: they'll be able to raise and they've already sort of
• 10:12
  Speaker 5: laid out to forty five to fifty billion. How they're
• 10:14
  Speaker 5: going to do that now? Is it ideal? Because companies
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  Speaker 5: obviously free cast flow. You don't want to see software
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  Speaker 5: companies take on debt, But Scott. My view is to
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  Speaker 5: take on fifty billion of debt to go after seven
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  Speaker 5: eight hundred billion, that that, to me is a bet
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  Speaker 5: that I want to see them take.
• 10:36
  Speaker 6: Hey, Dan, let's switch gears to Tesla. They made some
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  Speaker 6: news just yesterday kind of talking about capex and they're
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  Speaker 6: boosting their CAPEX to twenty five billion dollars for AI
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  Speaker 6: and for their robot business. Put that in context for us,
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  Speaker 6: how do you think that? Is that a good move
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  Speaker 6: for this company?
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  Speaker 5: I think it's exactly what they need to do. I mean,
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  Speaker 5: we've always talked about a lot. It's like the future
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  Speaker 5: is about autonomous robotics optimal. I mean, this is a
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  Speaker 5: company from a physical aid perspective. I viewed Nvidia and
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  Speaker 5: Tesla to best physical AI plays in the market. I
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  Speaker 5: want to see them do this step by step, build it,
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  Speaker 5: because that's really the next five ten years. That's what Tesla.
• 11:20
  Speaker 5: Tesla is an AI company going forward. This is not
• 11:23
  Speaker 5: an auto company.
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  Speaker 2: Yeah, that's that's been made very clear. I mean, certainly
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  Speaker 2: Elon Musk has been pushing that narrative for a long time.
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  Speaker 5: Now.
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  Speaker 2: I'm curious, and this is a might be a really
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  Speaker 2: basic question, but how does the warrant iron and the
• 11:37
  Speaker 2: uncertainty there affect these big tech companies as they report.
• 11:41
  Speaker 2: I mean, do we expect any kind of mention of
• 11:44
  Speaker 2: the uncertainty, the fog of war affecting their decision making
• 11:47
  Speaker 2: their planning in any way.
• 11:49
  Speaker 5: I mean, like Service now hit it a bit writ
• 11:52
  Speaker 5: in terms of the Middle East deals. Look, I think
• 11:54
  Speaker 5: when you think in terms of a lot of the
• 11:56
  Speaker 5: buildouts outside the US, some of the big data center,
• 12:01
  Speaker 5: big AI buildouts are in UAE, Saudi. But I don't
• 12:05
  Speaker 5: really think that that's something that's going to be a
• 12:07
  Speaker 5: huge thing on the conference call. I think that's much
• 12:11
  Speaker 5: more year and a half from now, two years from now. Now,
• 12:15
  Speaker 5: I think the big question is supply helium, especially through
• 12:20
  Speaker 5: the street. We were just an easier for two weeks.
• 12:23
  Speaker 5: I continue to think unless this stale me last past
• 12:28
  Speaker 5: Memorial Day into June July. Like for now, I think
• 12:32
  Speaker 5: it's pretty contained. But look, I think I think investors
• 12:36
  Speaker 5: want to understand what the demand environment looks like, and
• 12:39
  Speaker 5: these companies they're not slowing things down in any way
• 12:43
  Speaker 5: right because of the geoput.
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  Speaker 3: Stay with us.
• 12:46
  Speaker 6: More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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• 13:02
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 13:06
  Speaker 6: We often talked about the restaurant industry because we think
• 13:09
  Speaker 6: it's a really good way to get a sense of
• 13:11
  Speaker 6: how the consumer is faring out there. Because there's so
• 13:13
  Speaker 6: many different strata within the or so many tiers within
• 13:17
  Speaker 6: the restaurant industry, gives you a good view of the consumer.
• 13:19
  Speaker 6: One of the key cost issues for the restaurant industry
• 13:23
  Speaker 6: is labor. It's usually can I get enough labor at
• 13:26
  Speaker 6: the right price. So we want to delve into that
• 13:27
  Speaker 6: a little bit. Chad Moutraye, chief economists for the National
• 13:30
  Speaker 6: Restaurant Association, Chad talk to us about the labor component
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  Speaker 6: of the restaurant industry in this country. We've got labor
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  Speaker 6: participation pretty low levels, I think the lowest in the
• 13:41
  Speaker 6: last four or five years. We've got immigration reform, which
• 13:43
  Speaker 6: is choked off a source of labor here. How's that
• 13:47
  Speaker 6: impacting the restaurant industry.
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  Speaker 7: Well, the good news is that only twenty two percent
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  Speaker 7: of restaurants told US last year that they were understaff,
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  Speaker 7: so that was the lowest we've seen since the pandemic.
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  Speaker 7: Yet you still continue to see, you know, restaurants struggling
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  Speaker 7: with managers, chefs, really highly skilled workers. You've seen even
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  Speaker 7: stories about dishwashers being a challenge. I think the immigration
• 14:11
  Speaker 7: story certainly is also very challenging for a lot of
• 14:14
  Speaker 7: restaurants in terms of their ability to retain workers, to
• 14:17
  Speaker 7: get workers to show up right. Certainly, that affects sales
• 14:21
  Speaker 7: as well. In general, I think it's easier to hire
• 14:24
  Speaker 7: today than it was, say two or three years ago,
• 14:28
  Speaker 7: but it's still a challenge. There's a lot of turnover
• 14:30
  Speaker 7: in the sector, and the ability to fill those jobs
• 14:33
  Speaker 7: can be pretty challenging.
• 14:34
  Speaker 2: And I imagine the ability to fill those jobs in
• 14:36
  Speaker 2: certain markets is harder than in other markets as well.
• 14:40
  Speaker 2: How does that change the landscape of the restaurant industry
• 14:43
  Speaker 2: in this country?
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  Speaker 7: Well, I think, you know, certainly, I think restaurants have
• 14:48
  Speaker 7: had to look at ways that they can fill those
• 14:50
  Speaker 7: jobs quicker.
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  Speaker 3: Right.
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  Speaker 7: So technology is certainly one of those enablers that really
• 14:54
  Speaker 7: gets you to speed up that hiring process. The last
• 14:57
  Speaker 7: thing you want if you're a restaurant. Keep in mind
• 14:59
  Speaker 7: we're in the hospitalality business is to be understaffed, that
• 15:02
  Speaker 7: can affect sales, that could affect overall employee morale. And
• 15:05
  Speaker 7: so we've seen, through a lot of investments in technology,
• 15:09
  Speaker 7: the ability to speed that up from weeks to days.
• 15:12
  Speaker 7: So I think we've seen a lot of restaurants certainly
• 15:14
  Speaker 7: adopt that overall model, maybe doing some multi training of
• 15:18
  Speaker 7: their staff so they can perform other roles. But as
• 15:23
  Speaker 7: we said earlier, well, overall wage growth is up at
• 15:26
  Speaker 7: least thirty five percent since the pandemic, and when I
• 15:29
  Speaker 7: talk to operators, labor costs even more than food costs,
• 15:32
  Speaker 7: are really one of the bigger challenges that they're facing
• 15:35
  Speaker 7: right now.
• 15:36
  Speaker 6: Well, usually for a lot of people, including myself, the
• 15:39
  Speaker 6: restaurant industry is kind of an entry level into the workforce.
• 15:44
  Speaker 6: Is that how those trends changing? If at all, that's
• 15:48
  Speaker 6: still very true, Paul. You know, the reality is half
• 15:51
  Speaker 6: of all Americans got their first job in a restaurant,
• 15:53
  Speaker 6: including me, and if you include everyone who's had any
• 15:58
  Speaker 6: experience in a restaurant, that's two thirds of all Americans, right,
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  Speaker 6: And so we are often that training ground for people,
• 16:04
  Speaker 6: even if you don't stay in the restaurant sector. You're
• 16:06
  Speaker 6: that training ground to learn some of those key skills
• 16:09
  Speaker 6: of how you work with people, how you continue to
• 16:11
  Speaker 6: get things done and work with under pressure. And I
• 16:14
  Speaker 6: think one of the challenges is that given where the
• 16:17
  Speaker 6: participation rate is now, you're seeing a lot of young men,
• 16:20
  Speaker 6: a lot of younger folks who are not getting some
• 16:22
  Speaker 6: of those early skills before they go out of the
• 16:25
  Speaker 6: workforce that they would have gotten in a restaurant sector,
• 16:28
  Speaker 6: a restaurant setting had they taken some of those jobs
• 16:30
  Speaker 6: in their team years.
• 16:32
  Speaker 2: Although certain policies might make the jobs more attractive now
• 16:35
  Speaker 2: to people, including the no tax on tips right. So
• 16:40
  Speaker 2: I'm wondering how that is showing up in hiring for restaurants.
• 16:45
  Speaker 2: Is that something that has marked a sea change.
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  Speaker 7: Well, when I talk to operators, many of them are
• 16:51
  Speaker 7: saying that that is a huge selling point, the fact
• 16:53
  Speaker 7: that you know the first twenty five thousand dollars of
• 16:55
  Speaker 7: your tips are not taxed, right. You also have no
• 16:58
  Speaker 7: tax on overtime, and both of those those kind of
• 17:01
  Speaker 7: working in tandem, I think can help that overall recruitment
• 17:04
  Speaker 7: and retention story. Again, not everyone in the restaurant is
• 17:08
  Speaker 7: getting tips, but you know, to the extent that folks
• 17:10
  Speaker 7: are being those tips are being shared, I think it
• 17:13
  Speaker 7: certainly can be a huge recruitment tool for getting some
• 17:16
  Speaker 7: of those workers in the door.
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  Speaker 6: So chat on the policy front, are there other policies
• 17:22
  Speaker 6: that would be helpful to the restaurant industry here, particularly
• 17:25
  Speaker 6: on the labor front.
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  Speaker 7: Well, I think one of the things that we need
• 17:29
  Speaker 7: to keep in mind is that overall restaurant the restaurant
• 17:31
  Speaker 7: business is very challenging. We know that the typical profit
• 17:34
  Speaker 7: margin for a restaurant is just two point eight percent.
• 17:37
  Speaker 7: That's for full time for a full service restaurant. That's
• 17:42
  Speaker 7: well below where it would have been before the pandemic.
• 17:44
  Speaker 7: We've seen those overall profits be continued to be squeezed,
• 17:48
  Speaker 7: and I think one of the stats that came out
• 17:49
  Speaker 7: in our State of the Industry report in February that
• 17:52
  Speaker 7: really was the most telling was that forty two percent
• 17:54
  Speaker 7: of restaurants were not profitable last year. Right, So profitability
• 17:58
  Speaker 7: is a real challenge, and I think it's incumbent, I think,
• 18:01
  Speaker 7: really on policy makers to recognize just how difficult the
• 18:04
  Speaker 7: math is for restaurants that try not to add additional
• 18:08
  Speaker 7: burdens to them in terms of regulatory burdens, et cetera.
• 18:11
  Speaker 7: And I think that's really I think one of the
• 18:13
  Speaker 7: more eye opening numbers that I look at for a
• 18:15
  Speaker 7: limited service restaurant, the typical profit margin is four percent. Again,
• 18:19
  Speaker 7: that would have been six percent before the pandemic, and
• 18:21
  Speaker 7: so that profit squeeze really really hits home the fact
• 18:26
  Speaker 7: that the math is just so challenging right now for
• 18:28
  Speaker 7: restaurant operators, and yet we still have people getting into
• 18:31
  Speaker 7: this business right so there's certainly I think a desire
• 18:34
  Speaker 7: and a churn. I think that is helpful and vibrant
• 18:38
  Speaker 7: for the sector, but it is challenging for many.
• 18:41
  Speaker 2: Operators that struggle to achieve profitability. How does that change
• 18:44
  Speaker 2: who actually owns and operates restaurants? Do we then have
• 18:47
  Speaker 2: more big companies owning restaurants and operating restaurants rather than
• 18:51
  Speaker 2: individuals or mom and pops.
• 18:54
  Speaker 7: Well, I think you see the diversity there. I mean,
• 18:56
  Speaker 7: the reality is, I mean, yes, we talk a lot
• 18:57
  Speaker 7: about closures, but there's a lot of flks getting into
• 19:00
  Speaker 7: this business too. And I think independent operators when you
• 19:04
  Speaker 7: know those mom and pop restaurants down the street, I
• 19:06
  Speaker 7: think there's certainly a desire to get out there to
• 19:09
  Speaker 7: cater to some of those new tastes. We are in
• 19:11
  Speaker 7: the hospitality business, and I think making sure that that
• 19:14
  Speaker 7: restaurants really are stressing some of those basics in terms
• 19:17
  Speaker 7: of delivering value, delivering on that overall experience, I think
• 19:21
  Speaker 7: there's certainly a lot of new opportunities to do that.
• 19:23
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