Bloomberg Surveillance 10/28/2026

>> THEY DO NOT WANT TO MAKE A MISTAKE WHERE THEY HYPED TOO FAR TOO FAST. >> THEY LAID THE GROUNDWORK FOR MORE PATIENT PATHWAYS. >> THEY FEEL THEY CAN SKIP A MEETING AND THEN CONTINUE HIKING. >> THIS IS BLOOMBERG SURVEILLANCE WITH JONATHAN FERRO, LISA ABRAMOWICZ, AND ANNMARIE HORDERN. JONATHAN: GOOD MORNING. BLOOMBERG SURVEILLANCE STARTS RIGHT NOW. HELPING TO SEND STOCKS HIGHER, AND FED CHAIR KEVIN WARSH IS PREPARING TO TAKE CENTER STAGE COMING UP. >> THE FIRST ACT IS GOING TO BE CHAIR WARSH COMING UP WITH AN EIGHT MINUTE PRESS CONFERENCE. WE HEAR NOTHING ABOUT WHY EVEN AS THE DATA SETS TO HIKE AND WE GET EARNINGS AND PLANS. TO JUSTIFY THESE MONSTER CAPEX PLANS WHEN MARKETS ARE STARTING TO PUSH BACK. JONATHAN: OVER IN SOUTH KOREA, KNOCKING OUT OF THE PARK WITH A $45 BILLION PAYOUT AND A SHORTAGE INTO 2030. GET THE STOCK UP BY 8%. LISA: IT IS NOT JUST A MATTER OF A SEVENFOLD INCREASE IN PROFITABILITY. IT IS ALSO THE IDEA THAT THEY SEE A PIPELINE FOR THIS INTO THE FUTURE. WHAT IS THE METRIC FOR HYPERSCALERS? IS IT FREE CASH FLOW? OR IS IT JUST REVENUE COMING IN SO HIGH THAT IT OFFSETS THE DECREASE IN TOKEN PRICES? JONATHAN: WE WILL HEAR FROM GOOGLE AND AMAZON AND A FEW MORE. THIS TAKES PLACE THIS AFTERNOON. A FED RATE DECISION AND A FED CHAIR WITH SOME QUESTIONS THAT WE ALL WANT ANSWERED. JUST FORWARD GUIDANCE MATTER ANYMORE? THIS DATA SAYS THE MARKET SAYS NO. BECAUSE OF THE GUIDANCE WE HAVE FROM TWO KEY FED OFFICIALS, IS HE WILLING TO REINFORCE THAT BY DOING NOTHING LATER OR IS HE WILLING TO BLOW THE WHOLE THING UP? ANNMARIE: ARE THEY STILL IN THE BUSINESS OF FORWARD GUIDANCE EVEN IF THE CHAIR HIMSELF DOES NOT WANT TO SOCIALIZE IT? IS HE GOING TO OUTSOURCE IT TO OTHER INDIVIDUALS? HOW DO THEY TALK ABOUT A HOLD OF CPI AND PPI BOTH COME IN HOT? IS IT POLITICAL OR DO THEY NEED MORE TIME? LISA: NEW ZEALAND IS A FABULOUS FORWARD LEANING INDICATOR BECAUSE IT WOULD BE UNPRECEDENTED FOR THE FEDERAL RESERVE TO HIKE RATES GIVEN THAT THE MARKET IS PRICING IN A HOLD. NEW ZEALAND DID THAT. THERE WAS A 95% CHANCE THEY WERE GOING TO HIKE RATES AND UP INTO THE CURRENCY BUT HIGHLIGHTING HOW MUCH THEY WANT TO CALIBRATE THEIR RESPONSE. IS NEW ZEALAND THE LEADER HERE? YOU DO NOT HAVE TO DO WITH THE MARKET IS TELLING YOU TO DO. JONATHAN: I'M NOT GOING TO NOT POLICY IN NEW ZEALAND BECAUSE THEY HAVE HELPED LEAD ACROSS A RANGE OF ISSUES BUT WE ARE NOT TALKING ABOUT A TIER ONE, TIER TWO CENTRAL BANK. THEY CAN DO THINGS THE FED CANNOT DO, WHICH IS WHY SOME FORMER FED OFFICIALS MIGHT SUGGEST BECAUSE THE MARKET HAS CHANGED SO MUCH AND THE ERA IS SO DIFFERENT COMPARED TO GREENSPAN, THE FED CANNOT DO THE SAME THING. THE MOTHER OF ALL OPPORTUNITIES IS SITTING THERE BEFORE FED CHAIR KEVIN WARSH. IF YOU WANT A NEW ERA WITH THE FEDERAL RESERVE, LEAD THEM TOWARD A HIKE THIS AFTERNOON. >> IF HE SAYS WE DO NOT BELIEVE IN FORWARD GUIDANCE, THEN WE CAN MAKE A MOVE THAT OFFSETS WHEN MARKETS ARE EXPECTING AN NEW ZEALAND DID SET THE 2% TARGET, WHICH SOME PEOPLE SAY IS ONE PART OF THAT. THEY MAY NOT BE A TIER ONE, TIER TWO, TIER THREE BANK. NEW ZEALAND IS A LOVELY COUNTRY AND THEY MIGHT BE SETTING A FEELING FOR WHAT IS AHEAD. JONATHAN: COMING UP, WE CATCH UP WITH ACADEMY SECURITIES. STEPHEN COOK OF THE COUNCIL FOREIGN RELATIONS WITH NO CLEAR WINNER IN THE ELECTION IN ISRAEL. AND MAKING THE CASE FOR A RATE HIKE. WE BEGIN WITH STOCKS LOOKING TO BUILD ON BACK-TO-BACK GAINS GOING INTO ANOTHER ROUND OF RESULTS FOR BIG TECH AND ACADEMY SECURITIES WRITING BIG TECH EARNINGS SEEMED TO SOOTHE AND THEN THE SHEER VOLUME OF MONEY THAT NEEDS TO BE RAISED BECAUSE HIS DOUBTS. WE THINK THIS PATTERN REMAINS IN PLACE. WELCOME TO THE PROGRAM. IS THAT WHAT YOU EXPECT TO SEE IN THE COMING WEEKS WHEN WE SEE MORE CAPITAL THAT HAS TO BE RAISED? >> SK HYNIX HAS GREAT EARNINGS. I WOULD EXPECT THE ANNOUNCEMENTS TO BE PRETTY GOOD. I THINK THEY DID CHANGE THE SCALE A LITTLE BIT. THE FACT THEY WERE WILLING TO RAISE SO MUCH EQUITY AND GO TO THE CONVERT MARKET SHOWS THEY TOOK PRESSURE OFF OF THE FIXED INCOME MARKETS FOR A LITTLE WHILE, WHICH IS GOOD, AND THEIR STOCKS RESPONDED WELL. IT IS DOWN A TINY BIT SINCE THE ANNOUNCEMENT BUT GIVEN THE SCALE WHAT THEY ARE ISSUING I LIKE THAT SO I THINK THIS PUSHES IT OFF A LITTLE BIT. THEN EVERYONE SITS THERE AND SCRATCHES THEIR HEAD AGAIN. IS THE SPEND TOO MUCH? ARE WE GETTING THE BENEFIT FOR THAT? IT IS HARD TO FIND DURING EARNINGS LIKE THIS SO WE HAVE BEEN CAUTIOUS FROM A TECHNICAL STANDPOINT. SO A LITTLE BIT POSITIVE NOW BUT I THINK THE DOUBTS CREEP BACK IN LATER THIS MONTH. JONATHAN: IS THAT A GREEN LIGHT TO LEAN BACK INTO CREDIT? >> I THINK IT IS A GOOD TIME TO. THANKS PRICE BACK QUICKLY AND YOU HAVE TO TRADE CREDIT NOW. CREDIT IS MOVING SO VOLATILE. EVERYONE IS SAYING THE SAME THING. THINGS SEEM TO BE AWFUL. THEN TIGHTER. YOU HAVE TO TRADE THIS MARKET SO I THINK YOU DO GET CALMNESS. THE FACT THAT META SETS THAT STANDARD AND TAKES PRESSURE OF THE CREDIT MARKETS IS GOOD. IT HAS BEEN A SLOW PERIOD IN DECEMBER SO IF YOU ARE MANAGING YOUR PORTFOLIO AND LEAN INTO CREDIT AND TAKE SOME RISK -- IT IS A LITTLE BIT CHOPPY AND THE ONE THING THAT HAS NOT HIT YET AND I DO NOT KNOW IF IT WILL HIT IS IF WE DO YOU ANY MATERIAL SLOWDOWN AND SPENDING ON AI AND COMPUTE, IT WILL HURT THE ECONOMY SO THAT IS SOMETHING WE WANT TO AVOID. THAT IS THE RISK. LISA: THERE'S A LOT OF DEBT BEING SOLD. THERE IS PRIVATE MARKET DEBT AND OFF-BALANCE-SHEET VEHICLES GETTING CREATED THAT ARE BACKSTOPPED WITH COMPLICATED SHENANIGANS. THERE IS BANK DEBT. WHAT PART OF THE DATA DO YOU SEE AS THE SAFEST? DOES IT MAKE YOU WORRIED AT ALL? PETER: I MIGHT HAVE TO REVISE THE CREDIT BUBBLE AND ONE THING THAT GETS YOU NEAR THE TOP IS COMPLEXITY AND WE ARE STARTING TO SEE THE COMPLEXITY BUT AS YOU GET THAT COMPLEXITY IT SUCKS MORE MONEY IN SO IT IS NOT NECESSARILY THE END BUT IS GETTING -- THERE ARE RISKS. YOU GET A LITTLE CONCERNED THAT NOT EVERYONE IS INVESTING IN THESE MORE COMPLEX PRODUCTS AND FULLY UNDERSTANDS THEM. AS THAT MOVES DOWN SCALE QUINN DO YOU SEE THAT? I LIKE THE VANILLA INVESTMENT GRADE CORPORATE DEBT. YOU'RE RELYING ON THE FULL FAITH AND BACKING OF THE COMPANIES TO DO YOUR CREDIT WORK THAT WAY. AS YOU MOVE INTO MORE STRUCTURED PRODUCTS, YOU CAN DO IT BUT YOU HAVE TO MAKE SURE YOU HAVE REAL VIEWS ON WHAT RESIDUAL VALUES OF CHIPS ARE, HOW GOOD THE CONTRACTS ARE CUT WITH A MAC YOU'LL GET THE ELECTRICITY SUPPLY YOU NEED, SO MY PREFERENCE IS YOU HAVE THE FULL FAITH AND BACKING OF THESE COMPANIES AND I THINK THE COMPANIES ARE STILL IN GREAT SHAPE, ESPECIALLY INVESTMENT GRADE ONES. LISA: HOW INDEPENDENT ARE THESE STORIES? >> TREASURIES AND AI ARE VERY LINKED TO I DO BELIEVE ONE OF THE REASONS WE ARE FEELING PRESSURE IN TREASURY YIELDS WAS THE AMOUNT OF AI COMPUTER DEBT BEING ISSUED. I DO NOT THINK IT IS A COINCIDENCE. YOU SAW SPREADS WIDENED AND CONCERN KEEP UP. ALL OF A SUDDEN, TREASURIES RALLIED SO I THINK THERE IS COMPETITION FOR MONEY AND THAT SIGNAL ABOUT THE STATE OF THE ECONOMY SO THAT IS TIED TOGETHER. CREDIT IS LESS DEPENDENT ON THE FED. IF WE GET A HIKE TODAY, THAT WITH HER A LOT OF WRENCHES IN THIS. I DO NOT THINK WE'LL EVER GET THE THREE HIKES CURRENTLY PRICED IN. I THINK WE GET RELIEF IN OIL AND ENERGY AND WATCH THIS GO ON AND TO SOME EXTENT I DO NOT KNOW IF YOU WILL SAY IT BUT HE MIGHT POINT OUT SOME OF THE SPREAD WIDENING MIGHT HELP ON DEFLATION. IT MIGHT HELP TAKE INFLATIONARY PRESSURE AWAY. THERE WAS A TIGHTENING IN CREDIT SPREADS THAT HAS DONE MORE WORK FOR THE FED. JONATHAN: THAT WILL BE SOMETHING TO WATCH IN THE NEWS CONFERENCE. HE HAS DONE THAT BEFORE. DO YOU THINK YOU WILL GO THERE THIS AFTERNOON? PETER: I THINK HE WILL TAKE -- I DO NOT KNOW IF VICTORY LAP AS THE RIGHT WORD. HE MIGHT BE ABLE TO SAY, MARKETS LIKE OUR POLICY. YIELDS ARE COMING AT THE LONG END UNDER CONTROL. CREDIT SPREADS AND COMPUTE SPEND HAVE WIDENED AND AT THE SAME TIME IF YOU WANT TO SPLIT ONE RECENT TO HOLD, HOUSING DATA CONTINUES TO LOOK WEAK. YOU ARE GETTING SENTIMENT DATA LOOKS WEAK. ACTUAL TRANSACTIONS LOOK WEAK SO THAT COULD BE -- JONATHAN: IT HAS BEEN UGLY FOR A WHILE AND I WONDER IF THEY LOOK AT THE BACKDROP FOR THE LAST THREE DAYS. WE HAVE JUST HAD A CAPITAL RACE FROM META AND THE SAME STILL TO COME FROM ANTHROPIC AND BIG DATA DEALS FROM SPACEX AND BROADCOM. THEY MIGHT SAY THAT IS THE PIPELINE FOR DEMAND AND THAT MONEY STILL NEEDS TO BE SPENT. WE STILL HAVE WORK TO DO. >> THEY STILL HAVE WORK TO DO, BUT I DO NOT KNOW HOW MUCH IS IT GOING TO SLOW? IF YOU HIKE, IS IT GOING TO SLOW COMPUTE SPEND? I THINK COMPUTE SPEND AS AN EQUITY STORY. SO I THINK THERE IS LIMITED TO WHAT THEY CAN DO. WE ARE COMING TO THE TABLE A LITTLE BIT. THERE IS THIS TALK ABOUT AFTER THE ELECTIONS A MUCH MORE CREDIBLE THREAT TO GO AFTER AND PUSH IRAN. AT THIS POINT ECONOMIC SANCTIONS ARE TAKING A BITE OUT OF IRAN'S ECONOMY. THEY HAVE VERY LITTLE FLOATING OIL SO KIND OF PRESSURING IRAN AND IT LOOKS SO FAR LIKE NETANYAHU MIGHT WIN AGAIN. IN WHICH CASE I THINK YOU WILL SEE MORE DECISIVE ACTION AGAINST IRAN SO I THINK YOU ARE RIGHT TO HOLD NOW. THAT IS HOW I WOULD PLAY IT. ANNMARIE: FUTURE CONTRACTS ARE SHOWING US PRICES ARE GOING TO BE HIGHER FOR LONGER. PETER: I FOCUS ON DIESEL RIGHT NOW. I THINK IT IS MORE IMPORTANT THAN BRENT OR ANYTHING ELSE. THEY ARE ELEVATED. I THINK THERE IS A LOT OF TALK ABOUT HOW MUCH OIL IS GETTING IN OR OUT OF THE MIDDLE EAST. THE PROBLEM IS WHAT IS COMING OUT IS MORE EXPENSIVE BECAUSE IF THE SHIP AT A LONGER WAY. MOST OF THE STATS IGNORE THE IRANIAN OIL SO ELEVATED PRESSURES THERE BUT LESS THAN 50% OF THE DIESEL IS COMING OUT. THAT WILL TAKE LONGER TO RECTIFY SO WE ARE LOOKING HIGHER DIESEL PRICES BY DO NOT THINK THE FED IS SUPPOSED TO LOOK TO SEE WHAT THE TREND IS. SEE IF THE WAR PLAYS OUT AND IF THERE'S ANY HOPE THAT THERE IS SETTLEMENT THAT GIVES YOU A LONGER TERM OUTLOOK TO SAY THIS WILL COME DOWN IN THE COMING MONTHS. JONATHAN: WE WILL SEE WHAT HAPPENS. THANK YOU. SOMETHING TO CHEW ON FOR THE NEXT HOUR OR SO. IF THE CHAIR SAYS THAT LATER, THAT WOULD BE QUITE SOMETHING. LISA: LOOK, I THINK THERE IS A FEELING, THE FED STRUGGLES WITH STRUCTURAL CHANGE. THEIR CYCLICAL CHANGE THAT IS MORE NORMAL FOR THE FED TO DEAL WITH. HOW TO THEY DECIDE? THERE'S ONLY SO LONG THAT FED CHAIR WARSH CAN KEEP SAYING TASK FORCE BECAUSE THE DATA IS WITH THE DATA IS. JONATHAN: THE SPREAD IS ABOUT 75 BASIS POINTS. WE ARE LOOKING AT 475 ON THE TWO YEAR. HE'S MAKING THE CALL THAT ULTIMATELY YOU ARE NOT GOING TO SEE THE THREE PEOPLE ARE TALKING ABOUT. >> HOW MANY PEOPLE ARE BAKING THAT INTO EQUITY? HE'S EXPECTING SOME SORT OF EASING FROM THE FED. JONATHAN: FUTURES THIS MORNING ON THE S&P POSITIVE BY ABOUT A 10TH OF 1%. LET'S GET YOU AN UPDATE ON NEWS WORLDWIDE WITH YOUR BLOOMBERG BRIEF. >> THE U.S. TELLING GULF ARAB NATIONS TO PREPARE FOR A SHORT, INTENSE CAMPAIGN AGAINST IRAN. THEY ARE MOVING TOWARD AFTER NEXT WEEK'S MIDTERM ELECTIONS. SK HYNIX RISING IN THE PREMARKET. UNVEILING PLANS TO RETURN ABOUT $45 BILLION MORE TO SHAREHOLDERS FOLLOWING SURGING PROFITS. THE THIRD QUARTER PROFIT BEAT ANALYST ESTIMATES BY MORE THAN 7%. U.S. SENATOR ELIZABETH WARREN DEMANDING ANSWERS FROM ANTHROPIC ON EXISTENTIAL RISKS. THE WALL STREET JOURNAL REPORTS WARREN IS TROUBLED BY RISKS LAID OUT IN THE IPO FILING. AND AMENDED ANSWERS TO A LONG LIST OF QUESTIONS BY ELECTION DAY. THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: NEXT, ISRAEL BRACING FOR GRIDLOCK. >> TO WIN THIS ELECTION, NETANYAHU HAS ONLY NOT TO LOSE. THEY GO TO ANOTHER ROUND OF ELECTIONS, WHICH MEANS THAT NETANYAHU REMAINS PRIME MINISTER MINISTER. JONATHAN: LIVE FROM NEW YORK THIS MORNING, GOOD MORNING. ♪ LATER THIS AFTERNOON A FED DECISION. 2 PM EASTERN TIME. 30 MINUTES AFTER THAT NEWS CONFERENCE WITH FED CHAIR KEVIN WARSH, EXPECTED TO BE SHORT LIKE LAST TIME. A VERY TIGHT Q&A. IF YOU ASK HIM THE WRONG WAY, HE WILL DECIDE HE WANTS TO ANSWER. ANNMARIE: YOU CANNOT ASK A YES OR NO. THAT IS QUICK AND THEY MOVE ON. JONATHAN: THANKS FOR THE ADVICE. DO YOU THINK THEY WILL SEE. AFTER THAT, WE WILL GET EARNINGS AND HEAR FROM ALPHABET AND MICROSOFT AFTER THE CLOSE. THEN YOU WILL HEAR FROM AMAZON TOMORROW AFTERNOON. EQUITY FUTURES ON THE S&P SLIGHTLY POSITIVE AFTER TWO DAYS OF GAINS. ON THE NASDAQ WE HAVE BEEN FLYING OVER .4% ON THE NASDAQ 100. IN THE BOND MARKET, YIELDS CREEPING A LITTLE HIGHER, UP A BASIS POINT ON TENDS CANNOT RECLAIM THE FIVE HANDLE PEERING UNDER SURVEILLANCE, LET'S TALK ABOUT POLITICS IN THE MIDDLE EAST. ISRAEL BRACING FOR GRIDLOCK. >> TO WIN THIS ELECTION, NETANYAHU HAS ONLY NOT TO LOSE. IF YOU CAN'T FORM A GOVERNMENT -- HE IS ALMOST 10 SEATS SHORT OF A GOVERNMENT. WE GO TO ANOTHER ROUND, WHICH MEANS THAT NETANYAHU REMAINS PRIME MINISTER. BENJAMIN NETANYAHU PULLING AHEAD OF GADI EISENKOT. WELCOME TO THE PROGRAM. HOW DIFFICULT IS THE PATH GOING TO BE TOWARD FINDING A GOVERNMENT HERE? >> THE PATH IS UNCLEAR BUT THE EXIT POLLS SUGGESTED WAS NECK AND NECK, PRIME MINISTER NETANYAHU FORMED A HEALTHY MAJORITY. HE NEEDS TO GET OVER 60 AND THE OPPOSITION IS BELOW 50 SO WITH THREE QUARTERS OF THE VOTE COUNTED HE LOOKS LIKELY TO BE ABLE TO FORM A GOVERNMENT SO WELL LAST NIGHT EVER OWNER SAYING IT IS GOING TO GO TO GADI EISENKOT, MY INSTINCT IS IF THINGS STAY ON THIS PATH NEXT WEEK PRESIDENT ISAAC HERZOG WILL ASK PRIME MINISTER NETANYAHU TO FORM A GOVERNMENT FIRST AND THEN THE QUESTION IS HOW CAN THEY DO IT? PROBABLY BY TRYING TO PULL SOME MEMBERS FROM THE OPPOSITION BLOC WHO ARE CLOSER TO HIM IDEOLOGICALLY TO PEEL AWAY AND JOIN IN A NEW BLOC. IF THAT DOES NOT WORK, GADI EISENKOT WILL BE GIVEN A CHANCE AND WE COULD SEE ANOTHER ELECTION IN THREE MONTHS. FROM THE OPPOSITION PERSPECTIVE, THAT IS NOT A GOOD LOOK. IT IS UNLIKELY THAT TENS OF THOUSANDS WILL FLY IN AN UNLIKELY THAT THE ARABS WILL SHOW UP IN THE SAME NUMBERS AND NETANYAHU WOULD BE LIKELIER TO WIN MORE VOTES AT A SECOND ELECTION. JONATHAN: IT HAS BEEN A BUSY 24 HOURS FOR YOU AND THE TEAM. STEPHEN COOK WITH THE COUNCIL FOREIGN RELATIONS RIGHTS, THERE MAY BE ANOTHER ROUND OF ELECTIONS BUT NETANYAHU WOULD GO INTO THEM IN A STRONGER POSITION. WHAT IS THE RELATIONSHIP BETWEEN THIS ELECTION AND THE NEXT STEPS THE U.S. ADMINISTRATION WILL TAKE IN IRAN? >> REGARDLESS OF WHAT THE OUTCOME WAS, THE UNITED STATES AND ISRAEL ARE PLANNING SOME SORT OF MILITARY OPERATION AGAINST IRAN. THE SECRETARY OF DEFENSE WAS IN ISRAEL A WEEK OR SO AGO DISCUSSING PLANS WITH SENIOR OFFICIALS. IT SEEMS TO ME THE PRESIDENT'S TIMELINE WAS -- IS THE MIDTERM ELECTIONS IN UNITED STATES, NOT THE OUTCOME OF THE ISRAELI ELECTION, WHICH WE MAY NOT KNOW FOR WEEKS. PRIME MINISTER NETANYAHU IS IN A BETTER POSITION TO FORM A GOVERNMENT BUT MAY NOT BE ABLE TO DO SO. HE WOULD GO INTO THOSE ELECTIONS WITH AN ADVANTAGE BUT WE MAY NOT KNOW WHAT THE CONVERSATION IS FOR SOME TIME. ANNMARIE: WOULD HE GO IN WITH AN ADVANTAGE OF THE U.S. RE-ENGAGES IN STRIKES ON IRAN? STEVEN: I THINK IT HAS LITTLE TO DO WITH HIS FOREIGN POLICY. IT HAS TO DO WITH DOMESTIC POLITICS AND RESISTANCE TO STATE INQUIRY INTO THE MEN'S OF OCTOBER 7 AND JUDICIAL REFORM AND THINGS THAT ARE AFFECTING THE QUALITY OF ISRAEL'S DEMOCRACY. OPPOSITION MEMBERS TRY TO OUTFLANK NETANYAHU ON IRAN AND SAYS HE HAS LEFT ISRAEL VULNERABLE TO HAMAS AND THEIR PATRONS. >> THIS WAS A MASSIVE UNDERTAKING IN TERMS OF HOW MANY PEOPLE ACTUALLY GOT OUT AND VOTED IN ISRAEL. WHAT DOES THAT SAY ABOUT HOW INDIVIDUALS FEEL NOW ABOUT THE STATUS QUO? STEVEN: WHEN I WAS IN ISRAEL A WEEK OR SO AGO, OPPOSITION MEMBERS WERE TELLING ME HIGH TURNOUT WAS TO THEIR ADVANTAGE. I THINK WOULD HAPPEN ONCE THERE WAS MASSIVE TURNOUT IN STRONGHOLDS FOR THE OPPOSITION AND ARAB TOWNS AND CITIES AND THAT MOTIVATED OTHER RIGHT OF CENTER VOTERS TO COME OUT AND VOTE. THE EXIT POLLS INDICATED THAT GADI EISENKOT AND HIS PARTY WOULD HAVE THE ADVANTAGE BUT DID NOT INCLUDE THE LAST COUPLE HOURS OF VOTING. THERE WAS CLEARLY A SURGE OF THE END THAT GIVES SIGNIFICANT ADVANTAGE TO PRIME MINISTER NETANYAHU. LISA: FROM AN INTERNATIONAL POLICY PERSPECTIVE, HOW DIFFERENT ARE GADI EISENKOT AND BENJAMIN NETANYAHU? STEVEN: NOT DIFFERENT AT ALL. ON ISSUES MOST AMERICAN POLICYMAKERS CARE ABOUT, GAZA, THE WEST BANK, THE QUESTION OF IRAN, THEY ARE PRETTY CLOSE. GADI EISENKOT IS NOT GOING TO UPROOT SETTLEMENTS ON THE WEST BANK. HE MAY CRACKDOWN ON VIOLENCE IN WAYS THAT NETANYAHU HAS BEEN UNABLE TO DO BUT OTHERWISE THERE IS VERY LITTLE DIFFERENCE IN WHAT POLICYMAKERS CARE ABOUT. LISA: WHY IS THERE THIS PERCEPTION IN MARKETS WITH EXPECTATIONS THAT WAR IS MORE LIKELY IN IRAN ONCE MORE IF BENJAMIN NETANYAHU DOES GET THE MAJORITY VERSUS GADI EISENKOT? STEVEN: BECAUSE THERE IS A CLOSE WORKING RELATIONSHIP BETWEEN PRESIDENT TRUMP AND NETANYAHU. PRESIDENT TRUMP HAS ENDORSED PRIME MINISTER NETANYAHU AND SAID ISRAEL SHOULD REELECT HIS COALITION TO GET THE JOB DONE SO I THINK THAT IS PROBABLY THE SIGNAL THE MARKET IS PICKING UP ON BUT I DO NOT THINK THAT GADI EISENKOT, WHO WAS THE CHIEF OF THE GENERAL STAFF OF THE ISRAEL DEFENSE FORCES WHO CAME UP WITH TOUGH MEASURES AGAINST HAMAS DURING HIS TENURE, WOULD BE MUCH DIFFERENT ON IRAN THAN NETANYAHU. JONATHAN: WHAT IS YOUR BASE CASE? WE HAVE MIDTERMS TUESDAY. WE HAVE SEEN REPORT AFTER REPORT SUGGESTING AS SOON AS THIS IS OVER STRIKES COMMENCE AND RESUME. DO YOU SEE IT >> THE SAME WAY? I THINK THERE IS A STRONGER POSSIBILITY THERE WILL BE STRIKES. THIS STRATEGIC ENDGAME REMAINS AN OPEN QUESTION BUT I THINK SIGNALS ARE STRONG ENOUGH OF THE THINGS I WAS PICKING UP ON WHICH SUGGEST THAT EARLY NOVEMBER IS A WINDOW FOR WHICH THE UNITED STATES ISRAEL MAY STRIKE. JONATHAN: STEPHEN COOK OF THE COUNCIL ON FOREIGN RELATIONS, GETTING CLOSER TO WHAT MANY BELIEVE WILL BE THE NEXT MOVE FROM THE U.S. AND OTHERS. LISA: A QUESTION OF WHAT FURTHER IS LEFT FOR THEM TO HIT BY AIR. THERE WAS A DISCUSSION AROUND TARGETS THAT COULD BE HIT IN AIRSTRIKES HAD BEEN SO WHAT EXACTLY DOES ANOTHER ROUND OF INCURSIONS LOOK LIKE? ANNMARIE: WALL STREET JOURNAL HAS REPORTED POTENTIALLY GOING AFTER INFRASTRUCTURE AND NUCLEAR SITES BUT THE PRESIDENT SAID YESTERDAY AT HIS RALLY IT WOULD BE QUICK BUT WE HAVE TO HAVE AN END PROPERLY WITH A TOTAL STATEMENT THAT IRAN WOULD NEVER HAVE A NUCLEAR WEAPON. JONATHAN: BRENT CRUDE UP BY 1%, ANTICIPATING POTENTIAL ACTION IN THE NOT-TOO-DISTANT FUTURE. NEXT, THE FORMER CHAIR OF THE COUNCIL OF ECONOMIC ADVISERS ON WHY HE WOULD CHOOSE AI OVER HUMANS, LIGHTING UP ECON TWITTER OVER THE LAST COUPLE DAYS. HE IS GOING TO BREAK IT DOWN FOR US IN A MOMENT. LISA: HE SAID HE WAS GOING TO RUN THE COUNCIL OF ECONOMIC ADVISERS HE WOULD RATHER HAVE AI RATHER THAN EQUALLY QUALIFIED OR HIGHLY QUALIFIED ECONOMISTS. A LOT PEOPLE PUSHED BACK. LET'S HEAR WHAT HE HAS TO SAY. >> SOME PEOPLE SAID THE SAME THING ABOUT CONGRESS THIS MORNING. NEXT, WE WILL CATCH UP WITH YOUR MORNING MOVERS. SK HYNIX IS FLYING AFTER REPORTING A PROFIT SURGE. YOU ARE WATCHING BLOOMBERG TV. ♪ JONATHAN: TWO DAY WINNING STREAK ON THE S&P 500. A BOUNCE BACK IN TECH CONTINUES THIS MORNING, HIGHER BY 0.4%. SOUTH KOREA SETTING THE TONE FOR U.S. CAPITAL MARKETS. SK HYNIX KNOCKED IT OUT OF THE PARK. WE WILL BREAK THAT DOWN FOR YOU IN A MOMENT. LET'S TURN TO THE BOND MARKET. IT IS WORTH DOING AGAIN. THE LAST TIME THE FED MET AT THE END OF THAT DAY, TWOS CLOSED AT 473. 4.74 RIGHT NOW. A LITTLE NORTH OF 5% THIS MORNING. WE HAVE HAD LOTS OF CHOP AND VOLATILITY. FROM START POINT TO IN POINT, EXACTLY WHERE WE WERE A NUMBER OF WEEKS AGO. LISA: THE KEY QUESTION IS WHY? IS IT BECAUSE PEOPLE HAVE A STABLE SENSE OF WHAT IS GOING TO HAPPEN? VOLATILITY HAS BEEN ALL OVER THE PLACE. THE REAL ISSUE HAS BEEN FORWARD GUIDANCE FROM THE FEDERAL RESERVE AND JITTERS. BOTH CAN BE TAKEN OUT TODAY. IF YOU GET THIS SENSE FROM THE AI PLAYERS THAT THEY WILL CONTINUE TO SPEND AT THE SAME PACE, WHICH WE HAVE ALREADY GOTTEN WITH OTHER BIG TECH NAMES, DOES THAT OFFSET THE DECLINES YOU SAW IN YIELDS BECAUSE THERE WAS NOT GOING TO BE AS MUCH COMPETITION FOR CAPITAL? JONATHAN: IT HAS SUCH A MASSIVE OPPORTUNITY JUST TO BLOW IT UP THIS AFTERNOON AND IF THEY DO NOT HIKE, JUST REINFORCE THE GUIDANCE. THE OLD FED IS THE NEW FED. REINFORCE THAT FOR MONTHS TO COME AND BEYOND. >> WE ARE NOT IN THE BUSINESS OF FORWARD GUIDANCE ANYMORE. WHAT DOES THAT MEAN IF WE GOT FORWARD GUIDANCE AND THE MARKET TRADED ON IT AND WE WERE RIGHT? ARE THEY GOING TO PULL A NEW ZEALAND? JONATHAN: THREE HOURS AWAY FROM THE CASH OPEN. ISABELLE LEE HAS MORE. >> I WILL SAY THAT SK HYNIX IS KNOCKING IT OUT OF THE PARK WITH HIGH BAND WITH MEMORY, ERASING CONCERNS ABOUT THE DURABILITY OF THE AI TRADE WITH THE STOCK HIGHER IN PREMARKET TRADE BY AROUND 8% SO THE SECOND LARGEST MEMORY CHIP MAKER REPORTED PROFIT THAT GREW SEVENFOLD AND SAID IT HAS MEMORY CHIPS THAT ARE SOLD OUT THROUGH 2029 SO THAT IS IMPRESSIVE. IT PLANS TO RETURN ABOUT $45 BILLION MORE TO SHAREHOLDERS SO YOU SEE OPTIMISM THERE REALLY LIFTING THE STOCK BUT THAT IS INTO SEAGATE BECAUSE SHARES ARE IN THE RED AFTER THE COMPANY REVEALED EARNINGS THAT BEAT EXPECTATIONS OUT AN OUTLOOK THAT BE A CONSENSUS FORECAST SO SOME ANALYSTS POINTED TO THIS QUARTER FOR THE DISAPPOINTMENT. THAT IS A TALL ORDER ESPECIALLY WITH MORE THAN 140% THIS YEAR ON THE BACK OF AI DEMAND. WE ARE LOOKING AT HOLDINGS IN THE SHOWS THE AI BUILDOUT AND INFRASTRUCTURE BEHIND THE CHIPS. THE STOCK IS JUMPING BY NEARLY 16% SO THERE COULD BE A 61 PERCENT JUMP IN SALES AND ORGANIC GROWTH MORE THAN DOUBLED. JONATHAN: SOME OF OUR TOP STORIES, OPENAI IN TALKS TO BUY CHIPS FROM GOOGLE. THE COMPANY IS EMERGING AS AN ALTERNATIVE TO NVIDIA WITH A PUSH TO SCALE COMPUTING POWER WHILE DEVELOPING ITS OWN ENHANCED CHIPS. ELSEWHERE, META DEMANDING ABOUT FIVE TIMES THE AVAILABLE SHARES, THE COMPANY SEEKING TO RAISE FOR AI SPENDING AND WHAT WOULD BE ONE OF THE BIGGEST EQUITY FINANCING PLANS EVER. ANTHROPIC TAPPING JP MORGAN TO LEAD U.S. RETAIL OFFERINGS FOR ITS IPO. PEOPLE FAMILIAR WITH THE MATTER TELL US THE COMPANY SETTING ASIDE 50% TO 20% OF >> SHARES TO INDIVIDUAL INVESTORS. THEY ARE SAYING CAN YOU REPRISE WHAT YOU DID WITH SPACEX? LET'S DO IT AGAIN. IF THEY CAN GET RETAIL INVESTORS TO COME IN, A KEY QUESTION ABOUT WHETHER THAT IS A SIGN OF SUPPORT OR TRYING TO FIND THE GREATER FOOL AND THAT IS PART OF THE ISSUE AS PEOPLE LOOK FOR PRICING. I'M NOT SAYING WHOEVER BUYS IS THE GREATER FOOL BUT THAT IS THE FEAR, THAT THERE IS A BACK HOLDER THAT WILL BE LEFT AND THAT IS THE FEAR IN MARKETS. IF YOU DID A CLEARING LEVEL AND IPO THAT HAS THE PRICE GO UP AFTERWARD, WE PUT THIS TO BED AND THE RETAIL INVESTOR HAS BEEN THE GREATER WISE ONE NOT THE GREATER FOOL. ANNMARIE: WE HAVE LEARNED JAMIE DIMON IS GOING TO BE PART OF THE INITIATIVE. WHEN WE TALKED ABOUT THIS WHEN THEY TOOK ON THE ROLE FOR SPACEX, IT ALMOST FELT LIKE JP MORGAN WAS LEADING THE SPACEX IPO. ELON MUSK WAS THERE. THEY HAD HUGE FANFARE AROUND IT. IT WAS LIKE THEY ARE GOING TO DO THAT AGAIN WITH ANTHROPIC. JONATHAN: WHEN WE SAW IT, IT FELT LIKE JP MORGAN WAS LEFT ON THE SPACEX IPO. BECAUSE THE BRANDING WAS SO GOOD FOR THEM, TO HAVE THE ROCKETS EVERYWHERE AND HAVE A ELON MUSK ON THE VIDEO CALL. LISA: IT MAKES THEM LOOK GOOD BECAUSE THEY CAN SAY THEY ARE ON THE FRONT FOOT WHEN IT COMES TO THE PROMISE OF AI AND THAT WE HAVE YOUR BACK. THIS IS NOT A GUY IN A BASEMENT TRADING ON ROBINHOOD. THIS IS HIGH NET WORTH INDIVIDUALS. JONATHAN: THE GUY IN THE BASEMENT -- WHAT IS GOING ON WITH YOU THIS MORNING? LISA: I AM SAYING RETAIL HAS BEEN SMARTER BUT THERE IS A CONCERN THAT THERE WILL BE A BACK HOLDER. THAT IS THE FEAR. IN MY BASEMENT TRADING ON ROBINHOOD THIS MORNING. JONATHAN: YOU NOT ALONE. ABSOLUTELY. LET'S TALK ABOUT AI AND ECONOMICS. SHOULD THE ECONOMISTS AT JP MORGAN BE WORRIED ABOUT THE RAPID ADOPTION OF AI RESHAPING THE WORKFORCE? FIRMS LOOK AT THE TREND. THE FORMER CHAIR OF THE COUNCIL OF ECONOMIC ADVISORS TELLING AXIOS IF I WERE RUNNING THE CEA TODAY AND HAD A CHOICE BETWEEN 20 STAFF MEMBERS VERSUS THE AI SYSTEMS WE HAVE AVAILABLE, I WOULD REGRETFULLY AND SADLY CHOOSE THE SYSTEMS. JASON JOINS US FOR MORE. YOU LIT UP ECON TWITTER OF THE LAST COUPLE DAYS WITH THIS ONE. HOW MUCH PUSHBACK HAVE YOU RECEIVED? JASON: I LAUNCHED A NEW WEBSITE. AND THAT WAS PART OF WHERE THIS QUOTE CAME FROM. I'M TRYING TO GIVE EVERYONE ACCESS TO ECONOMIC INFORMATION. IT IS NOT AS HIGH-GRADE AS WHAT YOU PAY FOR IF YOU ARE A HEDGE FUND. YOU CAN PAY MORE FOR IT. BUT I WANT MORE PEOPLE TO GET INFORMATION AND WHAT I DID WAS BASICALLY JUST ME AND ACCOUNTS. I HAVE WRITTEN PAPERS WITH THEM AS AN EXPERIMENT. I DO NOT PUT THEM UNDER MY OWN NAME. I HAVE WRITTEN BLOG POSTS AS AN EXPERIMENT. I DO NOT PUT THEM UNDER MY OWN NAME. AND THE CAPABILITY OF ALL OF THIS IS JUST STUNNING IN SOMETHING WE NEED TO RECKON WITH IN ECONOMICS AS WE DO THROUGH THE ECONOMY. JONATHAN: AS A TEACHER AND PROFESSOR OF ECONOMICS, DO YOU THINK THIS WILL LEAD TO FEWER ECONOMISTS OR MORE? HOW DO YOU SEE THIS PLAYING OUT? JASON: I DO NOT KNOW. MATHEMATICIANS ARE TERRIFIED. IN SOME WAYS, ECONOMICS IS MORE COMPLICATED. YOU NEED TO GET DATA FROM ONE SOURCE AND COMBINE IT WITH JUDGMENT ABOUT A QUESTION. IF YOU ARE IN THE WHITE HOUSE, I HAD TWO STENTS AT THE COUNCIL OF ECONOMIC ADVISERS, ONCE AS A JUNIOR ECONOMIST. EVERYTHING I DID AS A JUNIOR ECONOMIST CAN BE DONE BY AI NOW. EVERYTHING CAN BE DONE BETTER AND FASTER. I RETURNED AS CHAIR. I WAS NOT A SMARTER OR BETTER PERSON BUT MY JOB WAS DIFFERENT. IT WAS FACE-TO-FACE, INTERACTIVE, BEING AT MEETINGS AND ON TV. AI CANNOT DO ALL OF THOSE SORTS OF ACTIVITIES SO IT DEPENDS WHERE YOU ARE ON THE SPECTRUM WHAT IT CAN AND CANNOT REPLACE. LISA: ONE OF THE FEARS REPRESENTED THAT WAS ACTIVELY DISCUSSING YOUR COMMENTS OVER THE WEEKEND WAS HOW DO YOU TRAIN JUNIOR ECONOMIST TO BECOME SENIOR ONES THAT CAN THEN GO IN FRONT OF A TELEVISION AND MAKE JUDGMENTS IF THEY DON'T HAVE ON THE GROUND EXPERIENCE? JASON: CLAUDIA, WHO I THINK YOU ARE HAVING ON SHORTLY, MADE THIS POINT AND I AGREE WITH HER. ONE OF MY JOBS IS A PROFESSOR IS BEING A MENTOR AND SO MOST OF MY COLLEAGUES HAVE LESS NEED FOR RESEARCH ASSISTANCE RIGHT NOW. SOME HAVE NO NEED FOR RESEARCH ASSISTANCE. I HOPE PEOPLE CONTINUE TO TAKE ON RESEARCH ASSISTANCE AS A FORM OF MENTORSHIP AND TRAINING. I TRIED TO PUT EFFORT INTO THAT WITH THE TEAM THAT WORKED WITH ME AND THE CHOICE GOING FORWARD IS NOT BETWEEN PEOPLE AND COMPUTERS. IT IS PEOPLE WITH COMPUTERS, WITH AI, CAN BE EVEN BETTER. BUT I ALSO DO THINK WE NEED TO BE HONEST. IF IT CAN PROVE THE THEOREM, IT CAN DO A DECENT AMOUNT OF DATA ANALYSIS AND CODING THAT MANY JUNIOR ENTRY-LEVEL POSITIONS DO AND NOT EVERY ORGANIZATION IS GOING TO BE WILLING OR SHOULD PAY THE EXTRA COST JUST FOR THE EXTERNAL BENEFIT AND TRAINING SO I THINK WE NEED TO BE HONEST WITH OURSELVES AND NOT UNREALISTIC. LISA: WE ARE HEARING A LOT OF HONESTY FROM THE C-SUITE AND BIG BANKS TALKING ABOUT A CHANGE IN WORKFORCE AND HOW THEY ARE INCREASING TOTAL VOLUME OF BUSINESS WITHOUT INCREASING HEADCOUNT OR CHANGING HAD MORE TO ADAPT TO A NEW ERA. HOW CONCERNED ARE YOU THE GOVERNMENT IS NOT? THE IDEA THAT IT IS A RELIC OF THE PAST AND IS NOT SHIFTING AS QUICKLY EVEN IF THERE COULD BE THE SAME JOB DONE WITH FEWER PEOPLE IN THESE GOVERNMENT SEATS? JASON: WHEN YOU'RE RUNNING A GOVERNMENT AGENCY QUIT YOUR JOB IS TO BE A FIDUCIARY OF TAXPAYER MONEY AND IF YOU CAN DO MORE WITH LESS, YOU SHOULD DO THAT. I HOPE THE NEXT GOVERNMENT LOOKS PART OF THIS TECHNOLOGY. A LOT OF AGENCIES DO NOT HAVE ANY AI AT ALL THAT THEY ARE USING ON THEIR COMPUTERS. I TALKED TO PEOPLE IN GOVERNMENT WHO HAVE A PERSONAL PHONE AND TYPE INTO CHATGPT ON THEIR PERSONAL PHONE AND THEN TYPE ONTO THE WORK COMPUTER. THAT IS A TERRIBLE WAY TO EXIST IN THIS DAY AND AGE. OF COURSE THERE ARE LEGITIMATE SECURITY CONCERNS THAT PRIVATE SECTORS ARE FIGURING OUT SO THE GOVERNMENT NEEDS TO FIGURE THIS OUT. IN SOME PLACES, IT WILL AUGMENT PEOPLE BUT IN SOME PLACES THE GOVERNMENT WILL BE ABLE TO DO MORE WITH LESS AND WE HAVE SEEN THAT FOR DECADES. THE SOCIAL SECURITY ADMINISTRATION SENT CHECKS TO MORE PEOPLE APPEAR IN FEWER PEOPLE WORKING THERE. IF WE CONTINUE TO MAKE PROGRESS ON GOVERNMENT EFFICIENCY, THAT WOULD BE WONDERFUL. ANNMARIE: HOW OUR ELECTED OFFICIALS WANT TO DO THAT WHEN THERE IS PUSHBACK FROM THE ELECTORATE ON AI? JASON: I'M NOT SURE THERE'S PUSHBACK FROM THE ELECTORATE AS A WHOLE ON HOW MAY PEOPLE WORK IN THE GOVERNMENT. PEOPLE THAT WORK IN THE GOVERNMENT ARE AMAZING. I HAVE LOVED WORKING WITH PEOPLE IN THE GOVERNMENT. I THINK THE GOVERNMENT WAS UNDERSTAFFED RELATIVE TO THE AMOUNT OF WORK AND THINGS WE HAD TO DO RATHER THAN OVERSTAFFED. THAT WAS TRUE AT THE COUNCIL OF ECONOMIC ADVISORS. IT WAS LIKE A SCRAPPY BAND TRYING TO WORRY ABOUT EVERYTHING IN THE ECONOMY. BUT GOING FORWARD, I HOPE THE GOVERNMENT BECOMES MORE EFFICIENT. THE GOVERNMENT IS NOT A JOBS PROGRAM. IT WAS ASSIGNED CERTAIN MISSIONS AND SHOULD BE ABLE TO ACCOMPLISH THOSE AS CHEAPLY AND EFFECTIVELY AS POSSIBLE AND I EXPECT IT WILL BE ABLE TO ACCOMPLISH SOME OF THOSE MORE CHEAPLY AND EFFECTIVELY IF IT USES AI IN THE FUTURE. JONATHAN: I WORRY THAT FOR CERTAIN PRESIDENTS AND INDIVIDUALS, THEY HAVE THEIR BIAS AND THEY ARE LOOKING FOR CONFIRMATION AND I WONDER IF THAT IS HOW WE ARE GOING TO USE THOSE TOOLS AND WHETHER WE END UP WITH MORE, NOT LESS, AND WHETHER WE START PURSUING TRUTH AND START DOING THINGS THAT DON'T MAKE ECONOMIC SENSE. >> SO FAR I THINK WE ARE LUCKY. MOST OF OUR INFORMATION SOURCES -- I THINK BLOOMBERG IS AN EXCEPTION TO WHAT I'M ABOUT TO SAY BUT MOST OF OUR INFORMATION SOURCES ARE DIVIDED ECO-CHAMBERS. THEY REINFORCE WHAT WE THINK. THEY DO NOT CHALLENGE US. THEY MAKE US STUPIDER AND MORE PARTISAN AND LESS EFFECTIVE. AI NOW IS PRETTY GOOD. THERE IS DIFFERENTIATION BETWEEN MODELS. YOU WILL GET MORE CONSIDERATE ANSWERS FROM GROK THAN CHATGPT. I THINK ANTHROPIC IS IN THE MIDDLE. BUT ALL OF THEM ARE MORE MODERATE THAN MOST OF THE OTHER SOURCES. THEY CHALLENGE ME ALL THE TIME AND YOU CAN ASK THEM TO CHALLENGE YOU. SO I THINK RIGHT NOW THEY ARE MAKING US SLIGHTLY BETTER, MORE MODERATE, MORE REASONABLE, AND MORE INFORMED. WILL IT ALWAYS BE THAT WAY? I AM NOT SURE. JONATHAN: LET'S HOPE IT DOES REMAIN THAT WAY. JASON FURMAN ON THE SITUATION IN HIS PROFESSION. LISA: I THINK WHAT HE WAS SAYING WAS AN IMPORTANT CONVERSATION. IT SPEAKS MORE TO THE FEAR PEOPLE HAVE THAT THEY ARE IRRELEVANT IN THEIR JOB -- RATHER THAN THE WORLD IS CHANGING AND THE NATURE OF JOBS IS CHANGING. LET'S FIGURE OUT HOW TO USE THE TOOL. THERE COULD BE BIG CHANGES AND IT MAKES A LOT OF PEOPLE NERVOUS ABOUT ALL SORTS OF EXISTENTIAL THINGS. YOU HAVE TO EMBRACE IT AND WORK WITH IT AND I THOUGHT THAT WAS GREAT. ANNMARIE: HE SAID ALL THE WORK HE DID, PART OF IT WAS GOING ON TV. AI CANNOT DO THAT. JONATHAN: I REMEMBER WHEN HE HAD SOME SOFT JOB NUMBERS TO DEFEND AND DID A DECENT JOB. LISA: CAN CLAUDE DO THAT? JONATHAN: I IMAGINE THEY CAN. ANNMARIE: CONVINCINGLY? JONATHAN: I DO NOT KNOW. LET'S GET YOU AN UPDATE ON NEWS WORLDWIDE WITH YOUR BLOOMBERG BRIEF. >> FLAVIO BOLSONARO ARRIVING FROM BRAZIL. HE AND HIS FAMILY FACED MULTIPLE CRIMINAL INVESTIGATIONS OVER ALLEGED MONEY LAUNDERING. THE BANK RECORDING THIRD-QUARTER PROFIT UP MORE THAN 8% FROM A YEAR AGO BUT COMING IN BELOW ANALYST ESTIMATES. SPEAKING ON THE COMPANY'S EARNINGS, THE CEO SAYS THE BANK MAY RELOCATE OVER GOVERNMENT PLANS TO MAKE IT HOLD EXTRA CAPITAL. A LUXURY CRUISE SHIP IS SUSPENDING HIS VOYAGE OVER HIGH FUEL COSTS, LEAVING PASSENGERS STRANDED IN CAMBODIA. THE U.S.-BASED OPERATOR SAYS IT IS WORKING WITH PASSENGERS ON TEMPORARY LIVING ARRANGEMENTS. THE TRIP WAS EXPECTED TO LAST OVER THREE YEARS AND SPEND NEARLY 150 COUNTRIES. THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: THANK YOU. A LONG LIST OF REASONS WHY. LISA: THIS CANNOT BE A REASON YOU DO NOT WANT TO GO ON A CRUISE. JONATHAN: YOU MIGHT GET STRANDED SOMEWHERE YOU DO NOT WANT TO GET STRANDED. ANNMARIE: IMAGINE CALLING YOUR BOSS AND SAYING I'M STRANDED BECAUSE HE RAN OUT OF FUEL. LISA: YOU'RE WORRIED ABOUT AI CONFIRMING INHERENT BIASES. I THINK THIS IS CONFERRING BIASES. JONATHAN: I AM PURSUING TRUTH. THIS IS THE PURSUIT OF TRUTH. ANOTHER REASON WHY I'M NOT GOING ON A CRUISE. NEXT ON THE PROGRAM, SEEKING CLARITY FROM THE FEDERAL RESERVE. >> WHAT THEY DO NOT WANT TO DO IS MAKE A MISTAKE WHERE THEY HIKED TOO FAR, TOO FAST. JONATHAN: WE WILL CATCH UP WITH CLAUDIA SAHM. YOU ARE WATCHING BLOOMBERG SURVEILLANCE. ♪ JONATHAN: CHECK IT OUT. WE HAVE A RALLY IN BRITISH BANKS, BARCLAYS AND WEST LLOYD'S UP OFF THE BACK OF REPORTING ON THE CHANCELLOR'S BUDGET. THE CHANCELLOR OF THE EXCHEQUER ON THE TAX ON BANKS AND THE BANK SURCHARGE, WHICH IS CURRENTLY AT 3%. WHATEVER THE NUMBER MIGHT BE, IT WILL BE TEMPORARY. LISA: THIS IS NOT AS BAD AS PEOPLE EXPECTED, WHICH IS THE REASON YOU ARE SEEING THIS RESPONSE IN MARKETS AFTER THE CHANCELLOR OF THE EXCHEQUER WAS TALKING ABOUT HOW BANKS ARE THE CROWN JEWEL OF THE U.K. ECONOMY SO WHAT THIS SEEMS TO BE ACCORDING TO PEOPLE WHO HAVE SPOKEN WITH BLOOMBERG IS A CONCESSION TO THE WORST-CASE SCENARIO OF WHAT AN 8% LEVY ON A PERMANENT LEVEL ON TOP OF 25% TAX FOR BANKS WOULD DO TO THE ECONOMY AND DECISIONS ABOUT WHERE. JONATHAN: HE IS LOOKING TO BUILD AN OFFICE IN THE U.K.. SOME THOUGHTS ON SOME TAXES. WENT DID THEY FIND THE RIGHT MIDDLE GROUND FOR THAT PLAN TO GO FORWARD? WE WILL SEE IF THAT IS THE CASE. LISA: BARCLAYS HAS COME OUT AGGRESSIVELY AGAINST THIS. THEY HAVE A CHOICE ABOUT WHERE THEY WANT TO GO. HOW MUCH IS THIS A RECOGNITION THAT THE U.K. DOES NOT WANT TO JONATHAN: PUSH OUT MORE? THE TEAM IN LONDON WILL RUN YOU THROUGH THE BUDGET THIS MORNING IN ABOUT AN HOUR. THEY WILL START COVERAGE FOR THE U.K.. EQUITY FUTURES LOOK LIKE THIS, A BIG DAY STATESIDE, UP .1% ON THE S&P 500. LATER, A FEDERAL RESERVE DECISION. WE ARE SEEKING CLARITY FROM THE FED. >> THERE IS A MORE MIXED ECONOMY THEN HEADLINES SUGGEST. THEY WANT TO MAKE SURE THEY UNDERSTAND CROSS CURRENTS. I THINK THEY HAVE THE LUXURY OF WAITING. WHAT THEY DO NOT WANT TO DO IS MAKE A MISTAKE WHERE THEY HIKED TOO FAR, TOO FAST. JONATHAN: WALL STREET EXPECTS FED CHAIR KEVIN WARSH TO DELIVER A HAWKISH HOLD AS INVESTORS HOPE FOR THE CENTRAL BANK POLICY PATH. CONFUSION IS THE BEST WORD FOR THE FED COMMUNICATION. WE HAS LOST HIS MEETING AT THE FED AND THAT IS A PROBLEM FOR MARKETS TRYING TO DISCERN WHAT COMES NEXT. CLAUDIA JOINS US FOR MORE. WHEN THE FED CHAIR SAYS WE ARE NOT IN THE BUSINESS OF THAT ANYMORE, WHAT DOES HE MEAN? CLAUDIA: I THINK AT THE PRESS CONFERENCE HE SHOULD BE ASKED. WHAT WAS JOHN WILLIAMS DOING? WHAT WAS PHIL JEFFERSON DOING IF THEY WERE NOT GIVING FORWARD GUIDANCE IN TERMS OF THE PATIENT, DON'T NEED TO HIKE. THAT IS WHERE THE COMMUNICATION HAS GOTTEN CONFUSING. WE HAVE A CHAIR, THE ONE PERSON WHO IS ALLOWED TO SPEAK FOR THE COMMITTEE IS NOT DOING THAT. AND HE IS TELLING US WE ARE NOT DOING GUIDANCE AND THEN YOU HAVE OTHER OFFICIALS DOING GUIDANCE AND IT IS HARD TO PUT THE PIECES TOGETHER AS TO WHAT THEY ARE TRYING TO ACCOMPLISH WITH THIS NEW COMMUNICATION STRATEGY. LISA: HAVE YOU HEARD ANYONE SUPPORT THE IDEA OF LESS EXPLANATION FROM THE FED CHAIR WHEN IT COMES TO REACTION FUNCTION? CLAUDIA: THERE IS SOME DEBATE ABOUT REACTION FUNCTION. I HAVE REALLY FALLEN BACK TO I WANT TO THE COMMITTEE TO EXPLAIN THE DECISION. WHY DID YOU DO WHAT YOU DID? I THINK IT SHOULD COME IN A STATEMENT. THE STATEMENT COMES AND THEN AT THE PRESS CONFERENCE THE CHAIR SHOULD GIVE US THE REASON THE COMMITTEE HAD FIRST DECISION. THREE MEETINGS WE HAVE HAD TO WAIT UNTIL THE MINUTES TO GET THE ANSWER TO THAT QUESTION. IT IS CONFUSING FOR MARKETS BUT IT FLIES IN THE FACE OF DEMOCRATIC ACCOUNTABILITY OUT OF THE FED. WE SHOULD UNDERSTAND THE DECISION. WE ARE NOT EVEN GETTING THAT RIGHT NOW ON DECISION DAY SO THEN WE CAN HAVE A DISCUSSION ABOUT REACTION FUNCTIONS AND FORWARD GUIDANCE BUT WE ARE GETTING VERY LITTLE INFORMATION ON DECISION DAY. LISA: WITH RESPECT TO WHAT THEY SHOULD DO, HOW IMPORTANT WOULD IT BE TO HIKE RATES IN RESPONSE TO DATA NOT WHAT COMES TO COMMUNICATION STRATEGIES BUT TO CURTAIL THE INCREASE WE HAVE SEEN OF LATE IN BASE PRICES? CLAUDIA: I THINK THERE IS STRONG ECONOMIC ARGUMENT FOR RAISING RATES BY A QUARTER POINT. I USE A RISK-MANAGEMENT LENS TO THIS. I DO NOT THINK THEY SHOULD BE FIGHTING ENERGY PRICES BUT THEY SHOULD BE FIGHTING POTENTIAL SECOND ROUND EFFECTS AND UPSIDE RISK FROM ENERGY PRICES BLEEDING THROUGH TO OTHER GOODS AND SERVICES. WE HAVE SEEN A LOT OF THAT AND SAY THAT RISK MANAGEMENT LENS IN THE MINUTES FROM THE SEPTEMBER MEETING WAS THE MOST COMMON REASON MEMBERS GAVE IN FAVOR OF THE HIKE IN SEPTEMBER SO I THINK USING THEIR LENS OF RISK MANAGEMENT, LOOKING AT WHAT HAS HAPPENED SINCE THE FED MET AT LAST TIME AND PUTTING'S KEVIN WARSH'S CONFIDENCE TEST, ARE YOU CONFIDENT INFLATION IS GETTING BACK TO TARGET? IF YOU ARE NOT, YOU SHOULD DO SOMETHING SO I THINK USING THE FED TEST ON ITSELF -- THERE IS A CASE TO RAISE RATES TODAY, NOT WAIT UNTIL DECEMBER. ANNMARIE: WITH THE FED WAS CUTTING INTEREST RATES, CORE CPE WAS HIGHER. CLAUDIA: I THINK ABOUT THAT EPISODE PARTICULARLY LAST YEAR AS AN EXAMPLE. TWO YEARS AGO WAS A LITTLE DIFFERENT BECAUSE OF WHERE THE FUN RATE WAS BUT THE FED USED A RISK MANAGEMENT APPROACH. THERE WERE DOWNSIDE RISKS TO EMPLOYMENT. THEY DID NOT SEE THE LABOR MARKET DETERIORATING BUT WE WERE WORRYING ABOUT HOW QUICKLY IT WAS SLOWING. SO MODEST ADJUSTMENT JUST TO TAKE OUT RISK. USING THAT SAME LOGIC, THAT REALLY SPEAKS TOWARD DOING A SERIOUS OF MODEST ADJUSTMENTS OF RATE INCREASES NOW TO GO AT SOME OF THOSE UPSIDE RISKS TO INFLATION SO I SEE A LOT OF BALANCE BETWEEN THESE, RISK MANAGEMENT AS OPPOSED TO LINING UP WHAT DATA POINTS ACROSS JONATHAN: THE TWO CYCLES. JONATHAN:IT IS NOT JUST ABOUT THE FED THIS MORNING. HOW ARE WE GOING TO STRAIGHTEN OUT JASON FURMAN? CLAUDIA: I HAVE A CONFLICT OF INTEREST THERE BECAUSE WHAT JASON SAID -- I WOULD CHOOSE CURRENT AI OVER MY STAFF UNDER OBAMA -- I WAS ONE OF THE STAFF. THAT KIND OF HIT PRETTY HARD. I THINK HE IS WRONG. I THINK THE MODELS ARE NOT AS GOOD AND WE DO HAVE A BIG CONVERSATION ABOUT TRAINING AND A CONVERSATION ABOUT WORK. THERE IS CREATIVITY THAT PEOPLE BRING TO WORK, EVEN WORK LIKE THIS, TALKING ABOUT THE FED AND MACRO. IT DOES TAKE A PERSON TO ASK THE QUESTIONS THAT MATTER. SO I'M NOT WITH HIM BUT I THINK AUGMENTING -- WE CAN USE TOOLS BUT WE SHOULD HAVE A CONVERSATION ABOUT USING TOOLS RESPONSIBLY. JONATHAN: GOOD TO SEE YOU. CLAUDIA SAHM, THANK YOU VERY MUCH. LISA: A LOT OF PEOPLE HAVE SKIN IN THE GAME, CONCEIVABLY. SO THE IDEA THAT AI COULD DO YOUR JOB JONATHAN: BETTER IS ALARMING. NOT A CHANCE. LISA: YOU THINK SO? JONATHAN: NO WAY. LISA: RANDOM WORD GENERATOR MIGHT BE BETTER? JONATHAN: AT TIMES I FEEL THAT WAY. I HOPE THAT IS NOT THE CASE THIS AFTERNOON. ANNMARIE: I CANNOT WAIT TO WATCH. JONATHAN: NEXT, LISA OF MORGAN STANLEY. YOU ARE WATCHING BLOOMBERG TV. ♪ >> ALL OF US ON THE AI TRAIN >> ALL OF US ON THE AI TRAIN, WE WANT TO BE. >>YOU WILL SEE MORE AND MORE BENEFITS REALIZED OVER THE NEXT YEAR. >> LONGER, THESE COMPANIES WILL BE THE LEADERS OF OUR ECONOMY. >> FOR THE AI TRADE TO BE REAL, IT WILL HAVE TO BROADEN OUT. >> A BAD ENVIRONMENT TO BE LOOKING AT THE RISK. >> THIS IS BLOOMBERG SURVEILLANCE WITH JONATHAN FERRO, LISA ABRAMOWICZ, AND ANNMARIE HORDERN. JONATHAN: FOR AUDIENCE WORLDWIDE, THE SECOND HOUR OF BLOOMBERG SURVEILLANCE STARTS NOW. YOUR PRICE ACTION LOOKS LIKE THIS. FOLLOWING TWO DAYS OF GAINS ON THE S&P, UP BY .1%. BUILDING ON A NICE RALLY THROUGH THE WEEK SO FAR, THE MASTEC HIGHER BY MORE THAN 2%. IN THE BOND MARKET, TWOS AND TENS ALMOST EXACTLY WHERE THEY WERE HEADING INTO THE AFTERNOON FED DECISION. THE NEWS CONFERENCE AT 2:30 AND AFTER THE CLOSING BELL THE EARNINGS DROP. ALPHABET AND MICROSOFT. >> SO FAR EARNINGS HAVE BEEN BETTER THAN GOOD. THE MARKET RIGHT NOW IS DOING BETTER IN THE U.S. BECAUSE OF TWO SOUTH KOREAN COMPANIES, IN PARTICULAR SK HYNIX. THEY CAME OUT WITH EARNINGS THAT WERE SO GOOD IT DEFIED EXPECTATIONS NOT JUST IN THE SHORT RUN BUT ALSO LONGER-TERM THAT THEY COULD LOCK IN CONTRACTS. IN BOND YIELDS, ARE WE GOING TO ROUND-TRIP IT BACK WHEN WE REALIZE THE CAPEX CYCLE WILL NOT CHANGE ANY TIME SOON AND BOND SALES ARE STILL COMING TO MARKET? ANNMARIE: ON TOP OF THAT, YOU HAVE BRENT OIL HIGHER. AND ALSO YOU HAVE HOT CPI AND PPI, WHICH IS WHY EVERYONE WANTS TO UNDERSTAND FROM THE FED CHAIR, WHEN THEY HOLD, WHY? THEY HAVE TO EXPLAIN WHY THEY DID IT. >> THEY SUGGESTED MAYBE THE FED CHAIR COULD GIVE A NOT TO THE MARKET DOING WORK FOR THEM. THE RESPONSE WOULD BE WHICH PART OF THE MARKET? HIGH YIELD SPREADS ARE WIDER BUT LOOK WHAT HAS HAPPENED IN CAPITAL MARKETS THIS WEEK. META HAS COME UP WITH A MASSIVE EQUITY RAISE. ANTHROPIC IS ABOUT TO DELIVER RECORD-BREAKING IPO. THAT MONEY WILL BE SPENT. THAT IS THE PIPELINE FOR SPENDING IN THE FUTURE. LISA: IF HE SIGNALS THE MARKET IS DOING WORK FOR THEM, THE MARKET WILL CALL BS ON THAT AND SAY THIS IS NOT A FEDERAL RESERVE THAT MUST PUSH BACK AGAINST CAPEX FINANCING OR AI BOOM. THIS IS A FED THAT IS GOING TO LET INFLATION RUN HOT TO ALLOW AI TO TAKE HOLD, WHICH MAY BE THE RIGHT BET OR MAY BE THE WRONG BET WHAT MEANS THE RHETORIC IS NOT PORTRAYING THE TRUTH OF GETTING DOWN IN A TIMELY MANNER INFLATION. JONATHAN: A LITTLE LONG NASDAQ FUTURES. ULTIMATELY, A BIG OPPORTUNITY IN FRONT OF THEM. WE TALKED ABOUT IT REPEATEDLY. I'M NOT SUGGESTING HE SHOULD. I'M SUGGESTING HE COULD AND THESE WOULD BE THE CONSEQUENCES. LISA: HE WILL NOT. IT WOULD BE UNPRECEDENTED AND TAKING A PAGE FROM NEW ZEALAND. I'M NOT SURE THAT THE FED WILL TAKE A PAGE FROM NEW ZEALAND OVERNIGHT. NONETHELESS, THERE IS LESS THAN A 10% CHANCE OF A FED RATE HIKE. IF THAT IS THE CASE, IT WOULD BE UNPRECEDENTED. ANNMARIE: IF HE DOES, HE WOULD KILL FORWARD GUIDANCE AND BE TRUE TO HIS WORD THAT THEY MAY NO LONGER BE IN THE JONATHAN: BUSINESS OF DOING THAT. JONATHAN:WE WOULD ENTER A NEW ERA WHERE INFLATION WAS NOT TOP RATED AND GUIDANCE WAS NOT WORTH ANYTHING AND MOVE ON. LISA: PRIDE GOETH BEFORE THE FALL AT A CERTAIN POINT. IF YOU WANT TO VOLATILITY IN MARKETS, GO FOR IT. DOES HE JUST GIVE UP ON THE IDEA THAT HE IS NOT GOING TO TALK AND SAY WE ARE GOING TO DO AND BACK AWAY FROM THE SITUATION OF I'M NOT GOING TO SAY ANYTHING JONATHAN:? BOX OFFICE, NO CHANGE EXPECTED. INCLUDING BANK OF AMERICA. I THINK I COUNTED FOUR OR FIVE ESTIMATES. THE MAJORITY SAY UNCHANGED. COMING UP, MORGAN STANLEY PREVIEWING A BLOCKBUSTER DAY FOR BIG TECH EARNINGS WITH FIERCE COMPETITION FOR CAPITAL IN THE FORMER PHILADELPHIA FED PRESIDENT ON WHY HE WOULD HIKE AT THE MEETING. WE BEGIN WITH STOCKS INCHING HIGHER HEADING INTO A CRITICAL DAY FOR FINANCIAL MARKETS. LISA SHALETT WRITING FORECASTS ARE AMBITIOUS AND THE APERTURE FOR UPSIDE SURPRISE IS NARROW AND MARKETS ARE BRITTLE IN THE FACE OF SHOCKS. LISA JOINS US FOR MORE. GOOD MORNING. HOW DO YOU SEE THINGS LATER THIS AFTERNOON DEVELOPING FROM THE BIG TECH PLAYERS? LISA: I THINK WE ARE GOING TO GET LOWER EARNINGS. THINGS WILL BE CONSISTENT WITH WHERE WE ARE, WHICH IS A MIDCYCLE BOOM. THESE GUYS ARE GOING TO COMPLETE THIS YEAR WHERE CAPEX YEAR OVER YEAR IS UP OVER 100%. THEY ARE GOING INTO NEXT YEAR WITH GUIDANCE SUGGESTING IT WILL BE UP OVER 50%, ANOTHER 50%, AND I THINK THE NARRATIVE IS GOING TO CONTINUE TO STICK AND HOLD. WHAT IS INTERESTING IS AS WE THINK ABOUT THE CONTINUING PERPETUATION OF FINANCE WHERE THEY ARE ALL OWNING PIECES OF EACH OTHER'S STORY, WE ARE ALMOST GETTING INTO THE PRISONERS DILEMMA OF WHO WOULD BE SKEPTICAL OF THE STORY OR CHANGE THEIR GUIDANCE. SO I DO NOT THINK WE ARE THERE. WHAT WE ARE SAYING IS WE LOOK AT THE TECH CYCLE AND WHERE THE BOTTLENECKS ARE SHIFTING. SO I THINK WHAT IS GOING ON WITH SEMI CONDUCTORS IS AS LONG AS YOU HAVE A DOLLAR BEING SPENT YOU ABSOLUTELY WILL HAVE THE PIX AND TROUBLES BUT THE BOTTLENECKS ARE MOVING TO POWER. TO ELECTRICITY GENERATION. THAT IS WHERE WE ARE GOING TO HAVE QUESTIONS. WE KNOW ABOUT BOTTLENECKS COMING FROM POLITICS AND WHETHER ALL OF THE CAPEX THAT IS PLANNED WILL BE ABLE TO ACTUALLY BE PLANTED AND LIT. AND SO I THINK THAT WILL BE THE STORY OF THE NEXT 24 MONTHS, HOW MUCH OF THIS ACTUALLY LIGHTS UP BUT I THINK IF THINGS ARE SLOWER THAN EXPECTED THAT COULD POTENTIALLY PLAY INTO THIS THEME OF SCARCITY WHERE THE PRICING POWER THAT WE HAVE SEEN, THE SEMI CONDUCTOR MAKERS HAVE, THAT PRICING POWER STARTS TO PERPETUATE THROUGHOUT THE SUPPLY CHAIN. AND COULD INTENSIFY. WHICH MAKES, TO YOUR POINT, THE FED'S QUEST EVER MORE COMPLICATED. JONATHAN: A POTENTIAL BOTTLENECK YOU DID NOT MENTION, FINANCIAL MARKETS. LISA: I THINK INCREASINGLY INVESTORS ARE BEING DISCRIMINATING. I THINK THAT IS WHAT YOU'RE SEEING WITH THE BROADENING OF TECH OPTIONS AND ADJUSTED SPREADS AND CREDIT WIDENING. THERE IS STILL LIQUIDITY IN THE SYSTEM, STILL MONEY IN MOTION. AND WHERE THERE ARE A GOOD BALANCE SHEETS THERE WILL BE LENDING. AND WE STILL HAVE A HANDFUL OF GOOD BALANCE SHEETS. THERE ARE A COUPLE OF FOLKS STARTING TO LOOK SHAKY, WHO HAVE RE-LEVERED BUT THEY BY OUR ESTIMATION LAST WEEK WE PUBLISH SOMETHING ON IF THE NEO-CLOUD SUDDENLY COULD NOT GET ANYMORE FINANCING, IT IS MAY BE 10% OF CAP EXPEND. IT IS NOT BIG ENOUGH TO CHANGE THE NARRATIVE. LISA: WE WERE TALKING EARLIER THIS MORNING AND HE WAS SAYING THE TYPES OF OFF-BALANCE-SHEET STRUCTURES COMING UP TO FINANCE THESE PLAYERS IS THE MIDCYCLE OF SOME SORT OF BUBBLE AND THAT IS HOW HE SEES FINANCING DEVELOPING. DO YOU SEE IT THE SAME WAY? LISA: ABSOLUTELY. EVERYONE SAYS ARE WE IN THE BUBBLE? MY ANSWER IS OF COURSE WE ARE AND THE QUESTION IS HOW CLOSE ARE WE TO IT POPPING? AND THAT IS WHERE THE DEBATE IS. I THINK WE STILL HAVE A WAYS TO RUN BECAUSE I DO THINK THERE IS MONEY TO BE SPENT AND THESE GUYS ARE GOING TO PUT IT IN THE GROUND. LISA A.: THERE WAS A SENSE MAYBE WE WOULD GET LESS CAPEX AT LEAST FINANCED BY DEBT MARKETS OVER THE PAST THREE WEEKS, WHICH SOME PEOPLE ARE SPECULATING IS PART OF THE REASON FOR THE BID INTO TREASURIES, THERE WAS NOT THE SAME DEGREE OR POSSIBLY IN THE FUTURE OF COMPETITION FOR CAPITAL. WHY HAVE WE NOT SEEN A REVERSE? IT BECOMES EVIDENT THERE IS JUST AS MUCH COMPETITION FOR CAPITAL WITH DEBT SALES AND AI. LISA S.: THAT IS AN INTERESTING QUESTION. JONATHAN MADE A FANTASTIC POINT WHICH IS PART OF WHAT WE ARE DOING IS REALLY HOVERING THE WHOLE BALANCE SHEET SO AS THE FIRE STARTED TO HEAT UP ON DEBT, YOU SAW META DECIDE TO DO EQUITY ISSUANCE AND IT GOT EATEN UP. SO THEY ARE TESTING MARKETS AND THERE'S LIQUIDITY THERE. SO WE ARE GOING TO PLAY THIS TWO STEP AND BETWEEN THE EQUITY AND DEBT MARKETS TO FUND THIS NOW. ANNMARIE: YOU TALK ABOUT HOW IT IS A FEVER PITCH WHEN IT COMES TO THE MIDTERM ELECTIONS AND POLICY AND POTENTIALLY IT IS NOT JUST THAT THINGS COULD GO WRONG. WHAT YOU MEAN BY THAT? LISA S.: I WOULD SAY THERE'S A HUGE AMOUNT OF COMPLACENCY IN MARKETS. WE WERE VERY HEARTENED TO SEE A LITTLE PROFIT TAKING IN THE PRIOR THREE WEEKS BECAUSE WE SAW THAT AS HEALTHY, AS BUILDING SOME SKEPTICISM INTO VALUATIONS. BUT COMPLACENCY IS NEVER GOOD AND THIS IDEA THAT AS LONG AS THE MUSIC IS PLAYING EVERYONE IS GOING TO DANCE -- I JUST THINK IT IS HUMAN NATURE. WE HAVE SEEN THIS MOVIE BEFORE. AND I DIDN'T KNOW THAT THIS TIME IS GOING TO BE THAT DIFFERENT BECAUSE I DO NOT SEE ANYONE PLAYER RAISING THEIR HAND AND SAYING GAME OVER. THESE THINGS USUALLY END IN PAIN, WHERE THE WHITE FLAG IS FLOWN WHEN THE BATTLE HAS BEEN LOST. JONATHAN: YOU SOUNDED LIKELY LISA THIS MORNING. LISA A.: GOING BACK TO THE BASEMENT AND SOME OF THE COMMENTARY. IT FEELS LIKE THERE'S NOT A LOT OF HOPE FOR PEOPLE WHO WANT TO HAVE JOBS IN THE FUTURE UNLESS THEY ARE GOING TO GUARD THE AI MODELS. THERE IS A QUESTION OF WHAT ARE WE GOING TOWARD? WHAT IS THE END POINT? WITH RAILROADS IT WAS MOVING PEOPLE FROM ONE PLACE TO ANOTHER. WITH ELECTRICITY IT WAS KEEPING THE LIGHTS ON SO YOU COULD DO MORE WORK AND BE MORE EFFECTIVE AND GO PLACES FASTER. WHAT IS IT WITH AI? WHAT IS THE END GOAL? IS IT OMNISCIENT INTELLIGENCE TO PUT US IN A ZOO? JONATHAN: WE TALKED ABOUT MODELS REPLACING PEOPLE WITH A PROFESSOR OF ECONOMICS AT HARVARD. FOR A STUDENT IN THE CLASS, WHAT ARE YOU THINKING RIGHT NOW? DROPPING OUT OF AND DOING SOMETHING ELSE? >> OR GO TO MANAGE CLASSES TO INTERFACE WITH HUMANS WE HEARD YESTERDAY. OR WRITE IN EMAIL BUT WHICH MAY NOT BE THE WORST THING IN WORLD. JONATHAN: THANK YOU. GOOD TO SEE YOU. KEEP OUT OF TROUBLE. YOU ANTICIPATED THIS. THESE GUYS ARE NOT GIVING UP ON RAISING CAPITAL AND YOU SAID ONCE WE SEE THE SPREAD WIDENING THAT WILL BE ON THE EQUITY SIDE OF THAT IS WHAT WE HAVE SEEN. LISA A.: THIS IS A CHOICE THEY HAVE MADE TO KEEP CAPITAL STRUCTURE EQUAL SO WHO IS GOING TO BLINK FIRST? WILL BE EQUITY BUYERS OR DEBT BUYERS? IF THEY HAVE BALANCE SHEETS TO DO THIS, THEY WILL KEEP GOING. IF THEY DON'T, THAT COULD CAUSE PRESSURE TO GO UP FASTER BECAUSE DEMAND IS STILL THERE. JONATHAN: LET'S GET YOU AN UPDATE ON NEWS WORLDWIDE WITH YOUR BLOOMBERG BRIEF. >> ISRAELI PRIME MINISTER BENJAMIN NETANYAHU EDGING PAST GADI EISENKOT IN A TIGHT ELECTION PIER AND WAS ABOUT 70% OF VOTES COUNTED, THERE IS NO CLEAR PATH TOWARD FORMING A GOVERNMENT. THE MAKEUP OF NEW GOVERNMENT WILL TAKE DAYS OR WEEKS TO FINALIZE AND NETANYAHU REMAINS PRIME MINISTER IN THE MEANTIME. SOURCES TELL US BY BLOOMBERG MORE THAN HALF THE SHARES WERE ALLOCATED TO EXISTING INVESTORS. THE SALE IS PART OF META'S FINANCING PUSH TO FUND AI INFRASTRUCTURE AND DEVELOPMENT. JP MORGAN'S PARK AVENUE SKYSCRAPER COMING IN WITH A HEFTY PRICE TAG, ESTIMATED TO HAVE COST AROUND 6 BILLION DOLLARS, INCLUDING CONSTRUCTION COSTS AND INTANGIBLE ASSETS, NEARLY DOUBLE EARLIER ESTIMATES. THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: IT IS QUITE A BUILDING. ANNMARIE: IT EXCEEDED ALL EXPECTATIONS OF THE ART INSIDE IS INCREDIBLE. THE VIEWS ARE INCREDIBLE. JONATHAN: THE FOOD. THE RESTAURANTS. ANNMARIE: THE COFFEE STATIONS. THERE IS EVEN A JP MORGAN GIFT SHOP TO BUY THE JP MORGAN SET, WHICH IS LOVELY. >> I WANT ANSWER THAT. JONATHAN: GOOD MORNING, TED. PROBABLY WATCHING. NEXT, REACHING ACROSS THE AISLE. >> I HOPE THAT WILL NOT BE THE CASE BUT IF IT IS IT HAS HAPPENED BEFORE WITH MANY PRESIDENTS AND YOU HAVE STRONG VETO AND WORK OUT DEALS. >> WILL YOU RESPECT THE RESULT? >> IF THEY ARE HONEST ELECTIONS. JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING. ♪ JONATHAN: FED DECISION AFTER THE CLOSING BELL, EARNINGS FROM ALPHABET AND MICROSOFT. EQUITY FUTURES FELL BY ABOUT .1% OF THE S&P 500. UNDER SURVEILLANCE THIS MORNING, REACHING ACROSS THE AISLE. >> HOW DO YOU INTEND TO WORK WITH DEMOCRATS IF THEY HAVE CONTROL OF THE HOUSE? >> WE WILL FIGURE A WAY. I HAVE STRONG VETO. I HOPE THAT WILL NOT BE THE CASE BUT IF IT IS IT HAS HAPPENED BEFORE WITH MANY PRESIDENTS AND YOU HAVE STRONG VETO AND YOU END UP >> WORKING OUT DEALS. >>WILL YOU RESPECT THE RESULTS? >> IF THEY ARE HONEST ELECTIONS. JONATHAN: PRESIDENT DONALD TRUMP PREPARING FOR THE POSSIBILITY OF A DEMOCRATIC SWEEP WITH SIX DAYS UNTIL THE MIDTERM SCOTT REPORT OF THE MAKING AT LEAST 20 STOPS IN RED STATES SINCE SEPTEMBER 9. TYLER KENDALL HAS THE LATEST. >> PRESIDENT TRUMP SEEMING TO INDICATE HE KNOWS REPUBLICANS ARE ON THE DEFENSE AS DEMOCRATS ONLY NEED A NET GAIN OF FOUR SEATS TO RETAKE THE SENATE. HE WENT ON TO DECLINE TO ACCEPT THE MIDTERM RESULT UNCONDITIONALLY AS THE TRUMP ADMINISTRATION HAS BEEN LAYING THE LEGAL GROUNDWORK IN PLACES TO CHALLENGE THE ELECTION RESULTS, THOUGH OUR ANALYSTS SAY THEY EXPECT THE MIDTERMS TO BE ORDERLY AND THE ELECTION RESULTS TO BE CERTIFIED. YESTERDAY AN ELECTION FORECASTER OUT OF THE UNIVERSITY OF VIRGINIA SHIFTED THE ODDS IN 21 RACES IN FAVOR OF DEMOCRATS, INCLUDING DOWNGRADING THE ODDS OF TWO SENATE REPUBLICAN CANDIDATES IN FLORIDA AND SOUTH CAROLINA, TWO RACES THAT WERE NOT CONSIDERED COMPETITIVE. IT IS INDICATIVE OF THE NATIONAL MOOD WHERE VOTERS ARE GROWING DISCONTENT WITH HIGHER COSTS AS A NEW POLL FROM THE ASSOCIATED PRESS FINDS EIGHT IN 10 REGISTERED VOTERS SAY THAT LOWERING THE COST OF LIVING NEEDS TO BE THE HIGHEST PRIORITY OF THE NEXT CONGRESS. PRESIDENT TRUMP CONTINUES TO PUSH ACROSS THE COUNTRY. YESTERDAY HE WAS IN TEXAS WHERE HE ASKED VOTERS FOR PATIENTS WHEN IT COMES TO HIGHER GAS PRICES AND TODAY HE WILL MAKE HIS THIRD VISIT TO OHIO THIS MONTH. REPUBLICANS ARE DEFENDING A SENATE SEAT THAT USED TO BE HELD BY VICE PRESIDENT JD VANCE AND IS NOW CONSIDERED A TOSSUP. JONATHAN: THANK YOU. VOTER ANXIETY OF THE ECONOMY AND PRICES ARE MAKING THE POSSIBILITY OF A DEMOCRATIC SWEEP MORE LIKELY. WE BELIEVE REPUBLICANS HAVE A SLIGHT ADVANTAGE TO RETAIN THE SENATE. BRIAN JOINS US FOR MORE HERE IN NEW YORK. HOW MUCH CAN WE READ INTO WHERE THE PRESIDENT IS CAMPAIGNING OVER THE LAST MONTH? >> A LOT. THE WHITE HOUSE AND THE POLITICAL TEAM WILL TAKE HIS TIME AND ENERGY AND RESOURCES IT TAKES TO GET HIM THERE -- THESE ARE ALL FACTORS SO THEY DO NOT JUST SEND HIM ANYWHERE. IT DOES SIGNAL CONCERNED BY THE WHITE HOUSE ON SOME RACES THAT SHOULD HAVE BEEN SAFE FOR REPUBLICANS AND PUT AWAY IN THE WIN COLUMN A LONG TIME AGO. ANNMARIE: BACK TO BACK RALLIES YESTERDAY IN TEXAS. HE WAS IN SOUTH CAROLINA AND MISSISSIPPI. THIS MUST SIGNAL TO YOU THEY ARE CONCERNED. YOU STILL THINK REPUBLICANS RETAIN CONTROL OF THE SENATE. BRIAN: I THINK MISSISSIPPI AND SOUTH CAROLINA IS JUST BEING CAUTIOUS TO MAKE SURE. I THINK IT IS A REACTION. THEY DO NOT DO IT BY ACCIDENT. TEXAS IS A BIGGER PROBLEM. IT HAS BEEN FOR REPUBLICANS FROM THE GET-GO, AS SOON AS PAXTON WON THE RUNOFF AGAINST JOHN CORNYN AND THERE WAS AN OPEN SEAT I THINK MOST PEOPLE KNEW THIS WOULD BE A COMPETITIVE RACE AND IF DEMOCRATS CAN WIN TEXAS, IT GIVES THEM BRAGGING RIGHTS. THEY HAVE IN LOOKING AT TEXAS FOR A LONG TIME AND HAVE COME UP SHORT. IT IS LUCY WITH THE FOOTBALL FOR DEMOCRATS IN TEXAS. IF THEY WIN THIS TIME, IT IS BIG. IF REPUBLICANS CAN DENY THEM THAT BIG WIN, THAT IS BIG FOR REPUBLICANS. ANNMARIE: WHAT DRIVES THIS NON-CONSENSUS VIEW YOU HAVE AS OPPOSED TO EVERYONE ELSE SAYING THEY THINK DEMOCRATS COULD WIN THE SENATE? >> I DO THINK THEY CAN WIN, I'M JUST NOT AS OPTIMISTIC OR AS BULLISH IS A BETTER WORD ON DEMOCRAT CHANCES THAN OTHERS ARE. IF YOU LOOK AT PREDICTION MARKETS, THEY ARE IN THE 65% RANGE. I AM AT 40 TO 40 FIVE. I'M NOT SAYING I DO NOT SEE A PATHWAY. I DO. WHEN YOU LOOK AT KEY STATES, TEXAS, KANSAS, THESE ARE STATES THAT TRUMP WON BY DOUBLE DIGITS IN 2024. IT IS A HIGH HURDLE AND ON THE FLIPSIDE DEMOCRATS WANT TO PICK UP MAINE. I THINK THEY WILL HAVE A TOUGH TIME THERE. TOUGH TO SEE THE PICKING OF THE SENATE WITHOUT MAINE. AND COULD THEY LOSE MICHIGAN? THEY CAN. WILL THEY? WE WILL NOT KNOW UNTIL NEXT WEEK BUT I THINK THAT IS A PROBLEM. IF DEMOCRATS WERE TO LOSE MAIN AND MICHIGAN, THE PATHWAY FOR THEM BECOMES DIFFICULT. ANNMARIE: BUT IF THEY DO CLEARANCE, HOW ARE YOU THINKING ABOUT SOMETHING LIKE THE SENATE BANKING COMMITTEE? DOES SHERROD BROWN COME BACK? BRIAN: IN THE SCENARIO, YOU ASSUME THAT SHERROD BROWN HAS WON IN OHIO. THE RUMOR IS HE HAS SOME KIND OF DEAL WITH LEADER SCHUMER ON SENIORITY. I DO NOT THINK HE WOULD GO TO THE BANKING COMMITTEE. I THINK HE WOULD GO ELSEWHERE, PROBABLY AGRICULTURE. THAT MEANS ELIZABETH WARREN IN BANKING QUIT WHICH IS SOMETHING THE INDUSTRY DOES NOT WANT. THE HEARINGS WILL BE CONTENTIOUS. THE LETTERS TO THE REGULATORS, THE INQUIRIES, THE PANELS OF BANK CEOS LINED UP AT THE WITNESS TABLE, WE ALL KNOW WHAT IT IS GOING TO LOOK LIKE BUT AT THE END OF THE DAY, JUST TALKING BUT REGULATORS, THERE WILL BE A LOT OF ANGRY LETTERS AND THE COMPTROLLER AND FDIC CHAIR AND VICE CHAIR WILL SAY THANK YOU, WE WILL TAKE YOUR LETTER UNDER CONSIDERATION AND GO ON THEIR WAY BECAUSE WHAT WE NOW SEE IS THAT ADMINISTRATIONS DO NOT CARE WHAT CONGRESS SAYS UNLESS CONGRESS CAN ACT AND DO SOMETHING TO BLOCK THE REGULATORS. WHAT WE ARE SEEING GOING INTO THE NEXT CONGRESS IS DEMOCRATS EVEN IN A SWEEPER NOT GOING TO HAVE THAT LEVERAGE. LISA: WE WERE TALKING WITH A SWISS INVESTOR YESTERDAY WHO SAID THE COOKING ALWAYS COOLS ON THE PLATE ON THE WAY FROM THE KITCHEN TO THE TABLE. SO THIS IDEA THAT I PRACTICED IT ALL NIGHT. THE FOOD COOLS. LISA: THE COOKING CAN BE A SYNONYM WITH THE FOOD. YOU GET THE POINT. BRIAN: I HEAR THE SIZZLE. LISA: IS THAT THE TRUTH ABOUT SOME OF THE PUSHBACK WITH RESPECT TO AI AND DATA CENTER BUILDOUT AND REGULATORY PUSH IN TERMS OF WHAT WILL ACTUALLY TRANSLATE INTO POLICY? >> YES. WHEN CONGRESS GETS BACK THEY WILL HAVE A HOST OF ISSUES TO CONFRONT. THERE WILL BE MUST DO AND LIKE TO DO. MUST DO IS PASS A BUDGET, IT GET A DEBT CEILING DEAL, AND HAVE TO GET NATIONAL DEFENSE AUTHORIZATION ACT. BECAUSE THERE ARE SO MANY COMPETING ITEMS -- I FORGOT TO MENTION NOMINATIONS REPUBLICANS WANT TO GET THROUGH A PEER THAT WILL CROWD OUT A LOT OF OTHER ITEMS SO I THINK AI, DATA CENTERS, IT IS GOING TO BE PUNTED PROBABLY. MAYBE YOU GET A DEAL ON DATA CENTERS. THE HOUSE HAS PASSED A BILL, BUT I THINK THAT IS A GOOD PLACE TO PIVOT BECAUSE THAT IS A LIGHT TOUCH DEAL. WHAT WE ARE GOING TO SEE COMING OUT OF WASHINGTON IS EVEN IN A SLEEP ENVIRONMENT THERE IS NOT HEAVY-HANDED REGULATION OF AI AND DATA CENTERS. IT IS A LIGHT TOUCH, SYMBOLIC IN WAYS, AND WILL BE LEFT TO ADMINISTRATION'S AND THE STATES LIKE WE HAVE SEEN ON DATA CENTERS TO FILL IN THAT VACUUM AND REGULATE. LISA: IF I WERE LOOKING AT POLLING RESULTS AND I THOUGHT THEY WERE TRUE, MY TAKE AWAY WOULD BE THIS COUNTRY IS MORE MODERATE THAN THE PRIMARY SYSTEM WOULD SUGGEST. DO YOU THINK THERE IS ANY READTHROUGH INTO THE 2028 ELECTION OR DO YOU THINK THERE IS NO CHANGE BECAUSE OF THE STRUCTURE WE HAVE? BRIAN: I DO NOT THINK THERE IS A READTHROUGH BECAUSE WE HAVE A HISTORY OF WAVES AND TSUNAMIS THAT WE ARE GOING TO SEE NEXT WEEK IN WHICH THE ONE PARTY DID NOT FOLLOW THROUGH IN THE PRESIDENTIAL RACE. WE DO HAVE A PRIMARY PROBLEM HERE AND THERE IS DATA TO SHOW ONLY ABOUT 25% TO 30% OF VOTERS NATIONALLY VOTE IN PRIMARIES. 75%, 80% OF VOTERS ARE OUTSOURCING THEIR VOTES IN THE MOST IMPORTANT ELECTION, WHICH IS THE PRIMARY BECAUSE WE ONLY HAVE A HANDFUL OF TRULY CONTESTED SEATS. THEY ARE OUTSOURCING THEIR VOTES TO THE TWO WINGS OF THE TWO PARTIES, WHICH LEADS TO EXTREME CANDIDATES SO NOT TO EDITORIALIZE BUT IF PEOPLE WANT MORE CENTRISM AND MODERATION, VOTE IN THE ELECTION THAT COUNTS, THE PRIMARY. TUESDAY IS IMPORTANT, TOO, BUT THE ELECTIONS IN APRIL, MAY, AND JUNE ARE EQUALLY, IF NOT MORE IMPORTANT. JONATHAN: IT IS GOOD TO SEE YOU. THE PRIMARY SEASON BEGINS THE DAY AFTER THE MIDTERMS. BRIAN: IT IS ALREADY STARTED. JONATHAN: THE COMPETITION FOR CAPITAL IN THE AI BUILDOUT WILL REMAIN FIERCE, PLUS MORNING MOVERS. COREWEAVE EXTENDING GAINS ON A BULLISH CALL, THAT STOCK UP BY 3%. YOU ARE WATCHING BLOOMBERG TV. JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING. THAT NASDAQ HIGHER BY A THIRD OF 1%. OVER THE NEXT 24 HOURS, 10 TRILLION DOLLARS PLUS OF EARNINGS COMING ACROSS A HANDFUL OF TECH NAMES. NOT EVEN A HANDFUL. YOU WILL HEAR FROM AMAZON, MICROSOFT, AND GOOGLE OVER THE NEXT FEW DAYS. LISA: WITH RESPECT TO CAPEX, THE LIKES OF A 100% INCREASE IN TOTAL SPENDING FOR FULL YEAR 2027 JUST BASED ON THE FACT THAT THEY ARE TRYING TO KEEP UP. IT IS ABOUT 50% OR 60% FOR GOOGLE. A QUESTION HERE ABOUT HOW IT WILL BE FINANCED, HOW MUCH IS COMING FROM DEBT, HOW MUCH WILL COME FROM EQUITY. THEY WILL NOT ANSWER ANY OF THAT. THE KEY QUESTION IS, HOW QUICKLY ARE THEY GROWING REVENUE TO MEET THE INCREASE IN SPEND? JONATHAN: THAT IS WHAT WE HEARD FROM LISA. YOU HEARD ABOUT THE SAME DYNAMIC. SPREADS STARTING TO WIDEN. ANY POCKET OF LIQUIDITY AVAILABLE TO THESE GUYS TO HAVE CAPITAL, THEY WILL TAKE ADVANTAGE OF IT. LISA: YOU HAVE A BIGGER CUSHION OF RISK IF THERE IS A REAL PROBLEM, A DOWNTURN, EQUITY WILL GET TAKEN OUT FIRST, YOU ARE PROTECTED, AND THEY KEEP PLAYING WITH THAT DANCE. RIGHT NOW, THE MARKET IS NOT PUSHING BACK ANY MATERIAL WAY. THE FACT THAT THEY WERE SUBSCRIBED FOR THE $98 BILLION OF EQUITY, AT LEAST ONE PIECE OF IT. A REAL QUESTION OF HOW MUCH META STANDS ALONE VERSUS A FORETELLER OF WHAT WE WILL SEE. JONATHAN: I THINK WE WILL SEE MORE OF THE SAME THE NEXT 12 MONTHS. LISA: TALKING ABOUT A RECORD IPO OF ANTHROPIC OF 00 MILLION AND THEN META THROWS IN $98 MILLION SHOWS YOU WHAT WE ARE DEALING WITH. JONATHAN: COULD BE A RECORD EQUITY CAPITAL RAISE. REMEMBER WHAT WE SAW IN JUNE RIGHT BEFORE THE SPACEX IPO. HERE WE ARE. WHAT DO YOU DO FOR OPENAI? THINK ABOUT THEM HEADING INTO 2027. THANK GOODNESS THEY DELAYED. IMAGINE WHAT THAT WOULD HAVE LOOKED LIKE. LISA: IS THERE ROOM EARLY NEXT YEAR FOR THEM TO IPO? WHAT DO THEY HAVE TO SHOW GIVEN HOW QUICKLY THIS IS EVOLVING? WE ARE TALKING ABOUT SAFETY AND SECURITY BUT HOW DO YOU STAY AHEAD IN A RACE THAT IS A RACE BETWEEN ANTHROPIC AND OPENAI IF YOU DON'T PUT THE PEDAL TO THE METAL AND EXPLORE ALL OPTIONS? HOW DO YOU PUT THINGS IN A SANDBOX THAT ARE EACH ITCHING TO GET OUT AND YOU WANT TO GET AHEAD? THESE ARE QUESTIONS THAT WILL HAVE PERVERSE INCENTIVES FOR SOME PLAYERS OUT THERE. JONATHAN: LET'S GET YOU SOME SINGLE NAMES, SOME MORNING MOVERS. ISABELLE LEE HAS MORE. ISABELLE: LET'S START WITH COREWEAVE. YOU SEE THE STOCK EXTENDING TUESDAY'S GAINS, HIGHER BY 3.5% IN PREMARKET TRADING. OPPENHEIMER DISPELLING CONCERNS RUN COREWEAVE, SAYING THE BOND SELLOFF IS PUTTING UNNECESSARY PRESSURE ON THE STOCK. OPPENHEIMER SAYS COREWEAVE HAS ENOUGH ASSETS TO COVER ITS DEBT EVEN IN THE WORST-CASE SCENARIO AND CONCERNS ABOUT ITS BORROWING AND SPENDING ARE OVERBLOWN. TURNING TO SOLAR, YOU SEE THIS STOCK DOWN BY NEARLY 20% IN PREMARKET. SHARES ARE TUMBLING AFTER THE COMPANY GAVE A WEEK FORECAST AND ANALYSTS ARE SEEING THE RECOVERY WILL BE PUSHED BACK INTO 2027. THAT IS AS HIGHER INTEREST RATES AND UNCERTAINTY AROUND FEDERAL TAX INCENTIVES WEIGH ON DEMAND. CHEESECAKE FACTORY DOWN 2.3% AFTER AND SERVED AND EARNINGS BEAT IN THIS QUARTER. WE HAVE PRESIDENT BARACK OBAMA SAYING PRESIDENT TRUMP'S WHITE HOUSE RENOVATIONS RESEMBLES SOMETHING LIKE A CHEESECAKE FACTORY. SCOTT BESSENT DINING IN THE RESTAURANT CHAIN AND PRAISING IT IN MANHATTAN. JONATHAN: THANK YOU. APPRECIATE IT. LOVE BESSENT BUT DO NOT BUY HIM AS A CHEESECAKE FACTORY GUY, DO YOU? ANNMARIE: HE SAID I HAD A GREAT MEAL AND WOULD TELL HIM THAT MARTHA'S VINEYARD SAID TO GIVE IT A TRY. LISA: HOLD ON A SECOND. WHY IS THIS A TALKING POINT? FORMER PRESIDENT BARACK OBAMA SAID THE WHITE HOUSE IS INCREASINGLY LOOKING LIKE SADDAM HUSSEIN CREATED A CHEESECAKE FACTORY. AND THEN THE TONE COMING OUT OF CERTAIN TALK PLACES WAS, WHAT IS WRONG WITH CHEESECAKE FACTORY? WHY ARE YOU INSULTING CHEESECAKE FACTORY? THAT IS THE DISCUSSION. HE IS OUT OF TOUCH WITH THE FOCUS. JONATHAN: THE FORMER PRESIDENT IS PROBABLY OUT OF TOUCH TO SOME EXTENT. ANNMARIE: TO BE FAIR TO THE FORMER PRESIDENT, HAVE YOU SEEN -- BUT TO BE FAIR, EVERY TIME I GO INTO THE OVAL OFFICE, THERE IS MORE GOLD ADDED TO THE WALLS. IT IS LOOKING VERY EXTRAVAGANT. JONATHAN: TURNING THE VOLUME UP ON THE GOLD. I AGREE WITH YOU. ANNMARIE: A LOT OF GOLD. JONATHAN: A LOT. ANNMARIE: A LOT. JONATHAN: TOO MUCH GOLD. ANTHROPIC. SOURCES TELLING US AT UBER, ANTHROPIC IS CONSIDERING SETTING ASIDE 15% TO 20% OF AVAILABLE SHARES FOR INDIVIDUAL INVESTORS. SK HYNIX PLANNING TO UNVEIL A SHAREHOLDER PAYOUT, REFLECTING STRONG DEMAND FOR AI INFRASTRUCTURE. THE MEMORY SHORTAGE IS EXPECTED TO CONTINUE UNTIL 2030. 21 BILLION DOLLARS OF HIGH-GRADE BONDS AS PART OF BROADCOM'S $63 BILLION DEAL WITH ANTHROPIC. MORE FIRMS EXPECTED TO COME IN IN THE COMING DAYS. LISA: I LOST THE THREAD, BUT THIS IS A COMPLICATED OFFERING. KEY ISSUE FOR THE $21 BILLION, WHAT IS THE CLEARING PRICE? IF IT IS PUBLIC HE DISTRIBUTED, WE WILL GET A SENSE OF HOW MUCH HIGHER THE SPREADS ARE TO GET THIS THROUGH. IT IS DIFFICULT TO GET YOUR HAND AROUND WHAT IS BACKING ALL OF THESE. THESE ARE SECURED BY CERTAIN FINANCING AGREEMENTS THAT ARE OFF-BALANCE-SHEET TRANSACTION. THINGS ARE GETTING INCREASINGLY COMPLICATED BUT STILL ENTICING BUYERS. JONATHAN: IT IS THE RACE TO RAISE CAPITAL RIGHT NOW. AN EFFORT TO FUND THE AI BUILDOUT WITH INVESTMENT-GRADE BOND ISSUANCE CLIMBING PAST A RECORD ONE POINT $7 TRILLION THIS YEAR HEAD BY MEGADEAL FROM HYPERSCALERS LIKE AMAZON AND ALPHABET. TROY GAYESKI WRITING, WE HAVE GONE FROM A GLUT OF EXCESS SAVINGS TO A PERIOD OF VORACIOUS DEMAND FOR CAPITAL TO BUILD OUT AI. COMPETITION TO CAPITAL WILL REMAIN FIERCE. TROY JOINS US NOW. GOOD MORNING. WHAT IS THE RUSH? WHY THE RUSH? TROY: WHY THE RUSH? JONATHAN: TO RAISE CAPITAL. TROY: TO RAISE CAPITAL BECAUSE THERE IS SUCH COMPETITION TO FRONTIER THE MODELS AND BACKFILLED MODELS THAT ARE NOT AS SOPHISTICATED. WHEN YOU STEP BACK, IT WAS ALL GAME THEORY NOW, BUT YOU CANNOT LOSE. YOU CANNOT BE LOSERS. ORIGINALLY, OPENAI GOT STARTED AND THEN ANTHROPIC. THEN THE HYPERSCALERS WOKE UP TO THE THREAT AND WERE LIKE WE WILL JUST OUTSPEND THEM AND BURY THEM. EVERYONE IS GOING THROUGH THIS PROCESS OF IF WE DO NOT SPEND THE MONEY, WE LOSE. IF WE LOSE, WE MIGHT NOT HAVE A BUSINESS. WE MAY LOOK BACK IN FIVE YEARS LIKE TIM COOK IS EVEN MORE BRILLIANT THAN WE THOUGHT HE WAS. HE WAVED THE WHITE FLAG EARLY. WE CAN OUTSPEND THESE GUYS. WE ARE THE NUMBER ONE CONSUMER ELECTRONICS BRAND IN THE WORLD. WE WILL FIGURE OUT HOW TO USE AI TO SERVE OUR CUSTOMERS. IT IS A REALLY INTERESTING DYNAMIC THAT CREATES A LOT OF UNCERTAINTY IN INVESTORS. FOR US, WE ARE TRYING TO FIGURE OUT THE BEST RISK-ADJUSTED RETURNS AND BEST ALPHA OPPORTUNITIES TO PLAY THIS BIG CAPEX SPENDING. JONATHAN: CAN YOU JUST EXPLAIN THAT A LITTLE BIT? TROY: THAT WAS EARLIER IN THE YEAR TO BE FAIR. EARLY IN THE YEAR, THE FED WAS BUYING BONDS. WE WERE IN A STRONG UPTREND. WE HAVE NOT YET EXPERIENCED THE FLIP FROM SIGNIFICANT NEGATIVE NET SUPPLY OF EQUITIES LIKE WE HAD AS RECENTLY AS LAST YEAR AND 2022 IN PARTICULAR TO A POSITIVE NET SUPPLY PERIOD. IN GENERAL, YOU WANT TO BE MORE CAUTIOUS NOW. AS AN ALTERNATIVE FIRM, WE ARGUE YOU CAN INVEST IN ALTERNATIVES THAT CAN GIVE YOU BETTER RETURNS WITH RISK BUT MEANINGFUL LEVELS OF MUCH LESS RISK THAN EQUITIES OR BONDS AS OPPOSED TO CASH. IN GENERAL, YOU PROBABLY WANT MORE CASH NOW THAN COMING INTO THE YEAR. LISA: BECAUSE YOU ARE CONCERNED ABOUT THE POTENTIAL RISK BUILDING IN THIS COMPETITION FOR CAPITAL DYNAMIC? OR IS IT JUST THAT IT IS NOT BURNING A HOLE IN YOUR POCKET BECAUSE YOU DON'T HAVE A RETURN ON IT? TROY: WHAT HAS CHANGED OVER THE LAST SIX MONTHS IS THE WILLINGNESS AND ABILITY FOR CAPITAL MARKETS TO FINANCE IT. MORE CLARITY OVER THE FACT THAT THERE IS LESS CLARITY OVER WHETHER THERE WILL BE AN ROIC. YOU STEP BACK AND THINK ABOUT BIG PICTURE MACRO FOR EQUITY MARKETS. YOU HAVE FAR MORE NET NEW SUPPLY. FROM 1.5% EQUITY VOLUME OR MARKET CAP DISAPPEARING IN 2022 TO NOW 80 BASIS POINTS IN NEW NET SUPPLY INTO Q2. YOU WOULD FROM THE BEST FLOW OF STOCK TO THE WORST. THE FED IS NOT PRINTING MONEY ANYMORE. THAT MAKES A MORE CAUTIOUS MACRO ENVIRONMENT. THERE ARE REAL OPEN QUESTIONS ON WHETHER THEY WILL BE ENOUGH OF AN ROIC ON THE AI SPENDING, AND THIS IS IMPORTANT, THAT ACCRUES TO THOSE SPENDING IT. IF THE BENEFIT FROM AI ACCRUES TO SOCIETY AND NOT TO THOSE SPENDING IT, EVENTUALLY THE GAME THEORY RUNS OUT AND THE SPIGOT GETS TURNED OFF. THERE IS MUCH MORE RISK TO ANY TANGENTIAL AI INFRASTRUCTURE INVESTMENT TODAY THAN SIX MONTHS AGO AND THE BROADER MACRO PICTURE IN TERMS OF BEING SUPPORTIVE FOR EQUITY MARKETS HAS DETERIORATED SUBSTANTIALLY. LISA: RIGHT NOW YOU SEE A LOT OF BIG TECH COMPANIES TURNING TO THE EQUITY MARKET FOR FINANCING TO OFFSET SOME OF THE DEBT. FROM A PRIVATE MARKET STANDPOINT, WOULD THAT MAKE YOU MORE CONFIDENT TO LEAN INTO THE DEBT SIDE AS OPPOSED TO PRIVATE EQUITY OR EVEN PUBLIC EQUITY JUST BECAUSE THERE IS MORE BACKING IT? TROY: YEAH, SO IT IS REALLY FASCINATING RIGHT NOW BECAUSE ALL OF OUR INVESTMENT TEAMS ARE TRYING TO FIGURE OUT THE BEST RISK-ADJUSTED WAYS TO PLAY. OUR TEAM HAS BEEN DEBT FOCUSED AS OPPOSED TO PREFERRED. THEY HAVE ALWAYS HAD PRETTY CLEAR RULES. ONLY DEAL WITH HYPERSCALERS. DON'T DEAL WITH NEO-CLOUDS. MAKE SURE THERE IS POWER ATTACHED TO THE GOOD ALREADY BECAUSE YOU CAN ALWAYS BUILD BACKUP POWER. AND TRY TO FIND AREAS, IT IS HARD, WHERE THERE IS LESS POLITICAL RISK. AS TIME HAS GONE ON, THOSE RULES OF THE ROAD ARE BECOMING MORE OBVIOUS TO EVERYONE PARTICIPATING IN IT. AND I THINK ONE OF THE KEYS THERE IS ONE OF THE CHALLENGES IN PRIVATE MARKETS IS YOU CAN NEVER RAISE MORE MONEY THAN YOU CAN PUT TO WORK. RIGHT? IF YOU ARE FOCUSED ON ALPHA AND SLOWLY GRADUALLY BUILDING ASSETS, YOU CAN DO THAT THOUGHTFULLY. IN OTHER STRATEGIES LIKE OUR LIQUID MULTI-STRAT, WE ARE FOCUSED ON DIGITAL BONDS. MOST OF THE DIGITAL BONDS ARE FOR CLOUD COMPUTING, HAVE NOTHING TO DO WITH AI, BUT STILL TIED TO DATA CENTERS. BECAUSE THERE IS SO MUCH ISSUANCE TAKING PLACE, THOSE SPREADS HAVE BEEN MUCH REALLY WIDER THAN OTHER MARKETS. WHEN YOU ARE AT THE TOP OF THE CAPITAL STRUCTURE, YOU HAVE LESS DOWNSIDE IN THE EVENT THAT SOMETHING GOES WRONG. OBVIOUSLY, WE HAVE MORE THINGS WE ARE FOCUSED ON BUT THOSE WILL GIVE YOU TWO FLAVORS OF HOW OUR TEAMS ARE TRYING TO NAVIGATE THIS PERIOD OF MASSIVE CAPEX SPENDING WHILE STILL FOCUSING ON ATTRACTIVE RISK ADJUSTED RETURNS WITHOUT LOSING THE FOCUS ON ALPHA. RIGHT? BECAUSE ONCE YOU LOSE ALPHA -- ANNMARIE: HOW HEART HAS IT BEEN TO NAVIGATE THE POLITICAL RISK WHEN YOU SEE THE RED STATES AND BLUE STATES PUTTING UP WALLS? TROY: THAT IS SOMETHING THAT HAS GONE UP THE RISK SPECTRUM SUBSTANTIALLY THE LAST SIX MONTHS. THERE IS CONSENSUS I THINK THAT IS A RATIONAL CONSENSUS. SOMETIMES, CONSENSUS ARE NOT RATIONAL. AS WE GET PAST THE MIDTERM ELECTIONS -- ANNMARIE: 2028. TROY: ISSUE WILL DISSIPATE. AT FIRST, THERE WAS A TREMENDOUS AMOUNT OF POLITICAL OPPOSITION AND OVER TIME PEOPLE REALIZED FRACKING DOES NOT PUT GAS IN THEIR WATER WHEN IT IS COMING OUT OF THE SINK. SO OVER TIME PEOPLE WEIGH THE BENEFITS VERSUS THE DOWNSIDE. AS LONG AS THE BOND IS MANAGE MORE, IT SHOULD DISSIPATE IN MOST REGIONS OF THE COUNTRY. IN SOME COUNTRIES, IT WON'T, BUT IN OTHERS IT WILL BE MORE PRAGMATIC. JONATHAN: A LITTLE MORE POSITIVE ON CASH INTO YEAR-END. TROY: IT IS, YEAH. LISA: INTERESTING TO ME GIVEN THE INCREASE IN PUSHBACK AND WIDENING OUT IN SPREADS. PEOPLE GET NERVOUS. I DON'T BLAME THEM. THERE IS ONE TRILLION DOLLARS OF FINANCING NECESSARY IN THE NEXT YEAR FOR AI. JONATHAN: MAYBE MORE. LISA: MAYBE MORE. TROY: CREDIT MARKETS TEND TO STEP OUT RISK FASTER THAN EQUITY MARKETS AND YOU KNOW WHAT HAPPENED TO CDS SPREADS, THEY HAVE BLOWN OUT SUBSTANTIALLY. YOU HAVE TO BE WERE LASER FOCUSED THAN EVER UNDERSCORE TRENDS AS OPPOSED TO TOTAL RETURN. JONATHAN: GOOD TO SEE YOU. TROY GAYESKI THERE. LET'S GET YOU AN UPDATE ON YOUR NEWS WORLDWIDE. VONNIE QUINN HAS MORE. VONNIE: THANK YOU. AT LEAST 10 PEOPLE ARE DEAD AFTER TWO HIGH-SPEED TRAINS COLLIDED SOUTH OF MADRID. ACCORDING TO A SPOKESPERSON FOR THE REGIONAL GOVERNMENT, THE NUMBER OF FATALITIES IS LIKELY TO RISE AS EMERGENCY SERVICES WORK AT THE CRASH SITE. THE CRASH MARCH THE SECOND MAJOR ACCIDENT ON SPAIN'S HIGH-SPEED RAIL NETWORK THIS YEAR. GM IS POINTING TO BUILD HYBRID SUVS IN A MICHIGAN PLANT IN THE FUTURE AS PART OF A PUSH TO OFFER MORE GAS-ELECTRIC MODELS. IT IS SPENDING MORE THAN $2 BILLION ON OPERATIONS NEAR THE DETROIT AREA OVER THE NEXT SEVERAL YEARS. REAL MADRID ISSUING AN OFFICIAL APOLOGY TO THE PEOPLE OF CHINA FOR THE CONTROVERSIAL WORDS OF MBAPPE. HE APOLOGIZED TUESDAY FOR HIS PERCEIVED INSULT, WHICH PROMPTED A BOYCOTT IN CHINA. JONATHAN: THE MORE THEY APOLOGIZED, THE WORSE IT SEEMS TO GET. LISA: AT A CERTAIN POINT IT IS LIKE, PLEASE. JONATHAN: HOW DO YOU DO THIS WHEN YOU HAVE TWO RADICALLY DIFFERENT CULTURES AND TWO VERY DIFFERENT PERSPECTIVES? CHINA IS A VERY PROUD COUNTRY. WHO DO NOT DROWN THE SINS OF THEIR PAST. THEY LOOK AT MAO AS A FOUNDER OF MODERN CHINA, SOMEONE YOU SHOULD NOT QUESTION OR POINT OUT. OBVIOUS PROBLEMS WITH LEADERSHIP THAT LED TO THE DEATHS OF MILLIONS OF PEOPLE, THAT IS THE WESTERN PERSPECTIVE. CHINA DOES NOT WANT TO ENGAGE IN THAT AT ALL. SO YOU HAVE THIS DANCE. AS SOMEONE WHO IS AN AMBASSADOR TO CERTAIN BRANDS, TRYING TO KEEP CHINA HAPPY, AND NOW HE FINDS HIMSELF IN THIS RIDICULOUS SITUATION. WHAT ARE YOU APOLOGIZING FOR? LISA: I LOVE THE VIEW THAT WE HAVE HIM LOOKING DISMAYED IN A MILLION DIFFERENT WAYS FROM PLAYING THE SPORT RATHER THAN SIMPLY THE IDEA HE SAID A SUGGESTION THAT SOMETHING WAS A DICTATOR, A CHINESE DICTATOR. ANNMARIE: THE STATEMENTS AS REAL MADRID REAFFIRMS ITS COMMITMENT TO THE VALUES OF RESPECT AND COEXISTENCE, UNDERSTANDING AMONG CULTURES, AND EXPRESSES ITS DESIRE TO STRENGTHENING THE BONDS OF FRIENDSHIP AND AFFECTION. WHAT ABOUT FREE SPEECH? DOES REAL MADRID CARE ABOUT THAT? JONATHAN: THE PROBLEM THEY HAVE AND WHY THEY ARE TRAPPED, YOU ARE TRYING TO SIMULTANEOUSLY PLEASE A PROGRESSIVE BASE IN THE WEST AND AN AUTHORITARIAN REGIME ABROAD. YOU WILL ALWAYS FIND YOURSELF STUCK IN A DOUBLE STANDARD. AND THIS IS WHY THESE GUYS ALWAYS GET THEMSELVES INTO THIS MESS REPEATEDLY. IF ANYTHING HAPPENED IN SPAIN THAT UNDERMINED FREE SPEECH, WHATEVER IT MIGHT BE, TO EMBRACE A PROGRESSIVE CAUSE, THEY WOULD EMBRACE IT. IN CHINA, A DIFFERENT SET OF RULES. ANNMARIE: AT THE MOMENT, THE FOREIGN MINISTRY IN CHINA SAYS THEY TAKE HIS APOLOGY SERIOUSLY BUT IT IS UNCLEAR IF THEY WILL HELP HIM GET BACK THOSE ENDORSEMENTS. JONATHAN: I WHICH A LOT OF THESE GUYS WOULD STAY OUT OF POLITICS ANYWAYS BECAUSE THEY SOUND LIKE HYPOCRITES. FOR MBAPPE, HE DID NOT SAY ANYTHING AT ALL. ANNMARIE: DID NOT SAY THE NAME. JONATHAN: PERCEIVED. LISA IS TRYING NOT TO OFFEND ANYBODY. LISA: [LAUGHTER] I DO NOT KNOW WHAT TO SAY BECAUSE ULTIMATELY PEOPLE ARE DANCING AROUND, THE YOU TAKE A STAND AND GET PENALIZED FOR IT? IS IT WORTH IT? THE ANSWER IS NO. HOW REVERSE TIME? THEY ARE TRYING. JONATHAN: THE LATEST FROM REAL MADRID. THE FEDERAL RESERVE TEEING UP ANOTHER FIGHT. >> AT THE FEDERAL RESERVE, WE MADE VERY CLEAR WE WOULD DELIVER PRICE STABILITY. >> RATES OUGHT TO BE GOING UP FURTHER. >> THERE IS NO FLEXIBILITY ABOUT WHEN THOSE HIKES WILL RETURN. JONATHAN: UP NEXT, WE WILL CATCH UP WITH PATRICK HARKER FROM FORMER PHILADELPHIA. YOU ARE WATCHING BLOOMBERG TV. JONATHAN: BIG AFTERNOON COMING UP. INTO THAT, EQUITIES POSITIVE. UNDER SURVEILLANCE, TEEING UP ANOTHER FIGHT. >> AT THE FEDERAL RESERVE, WE MADE VERY CLEAR WE WOULD DELIVER PRICE STABILITY. >> WE WILL DO WHAT WE NEED TO DO TO GET INFLATION BACK DOWN TO OUR TARGET. >> RATES OUGHT TO BE GOING UP FURTHER. >> THERE IS SOME FLEXIBILITY ABOUT WHEN THOSE HIKES WILL OCCUR. >> I DON'T FEEL ANY URGENCY TOWARD TAKING FURTHER ACTION. JONATHAN: SO HERE IS THE LATEST THIS MORNING. THE FEDERAL RESERVE EXPECTED TO KEEP RATES STEADY TODAY. SOME POLICYMAKERS INDICATING A LACK OF URGENCY TO HIKE RATES THIS MONTH. PATRICK HARKER SIX ANOTHER MOVE IS WARRANTED. HE WRITES, I WOULD RAISE NOW. POLICY IS NOT RESTRICTIVE. PATRICK JOINS US FOR MORE. WELCOME. DO YOU THINK THEY WILL MAKE A MOVE THIS AFTERNOON? PATRICK: NO. [LAUGHTER] PATRICK: I THINK THAT HAS BEEN VERY CLEAR. IF YOU LOOK AT VICE CHAIR WILLIAMS AND VICE CHAIR JEFFERSON, THEY HAVE MADE IT CLEAR, AND I THINK THEY ARE THE VOICES TO REALLY LISTEN TO HEAR THAT THEY WILL NOT MAKE A MOVE TODAY. I DON'T THINK THAT IS CORRECT DECISION IN MY MIND. JONATHAN: SHOULD THOSE VOICES MATTER AS MUCH AS THEY SEEM TO MATTER THIS TIME AROUND, AND DO YOU THINK THERE IS AN OPPORTUNITY AVAILABLE TO KEVIN WARSH TO DO SOMETHING ABOUT IT? PATRICK: SURE. NATURE ABHORS A VACUUM. MEDIA ABHORS A VACUUM. INVESTORS, SAME THING. SO IF WARSH IS NOT GOING TO SPEAK, PEOPLE WILL LOOK FOR OTHER EVIDENCE. RIGHT? OTHER VOICES. I UNDERSTAND WHY HE IS TRYING TO GET AWAY FROM FORWARD GUIDANCE BUT THE REALITY IS PEOPLE WILL LISTEN TO THESE OTHER PEOPLE TO TRY TO FIGURE OUT WHAT IS GOING TO HAPPEN. WILLIAMS IS THE VICE CHAIR OF THE FOMC, SO HE IS AN IMPORTANT VOICE TO LISTEN TO. LISA: IF THERE IS A HOLD TODAY AS WIDELY EXPECTED TO BE THE CASE, DO YOU THINK SOME OF THE RISK PREMIUM IN BOND YIELDS WILL COME OUT OF MARKET? BECAUSE IT SEEMS LIKE THERE IS FORWARD GUIDANCE ONCE AGAIN AND THERE IS SOME SORT OF REACTION FUNCTION BEING COMMUNICATED EVEN IF NOT COMING FROM THE CHAIR HIMSELF. PATRICK: YEAH. YOU WILL GET THE DISSENTS AGAIN. LET'S BE CLEAR, IF THEY ARE HOLDING, WHICH THEY MOST LIKELY WILL, YOU WILL GET THE SAME PEOPLE, MAYBE OTHERS, WHO WILL DISSENT. BECAUSE THEY HAVE BEEN VERY PUBLIC. YOU PLAYED THOSE CLIPS. THEY HAVE BEEN VERY PUBLIC ABOUT WANTING TO RAISE. LISA: GIVEN THAT WE ARE PROBABLY GOING TO GET THOSE DISSENTS, WHAT IS YOUR SENSE OF WHETHER THIS WILL BE A FED THAT TRIES TO PUSH BACK AGAINST THE 75 BASIS POINTS OF RATE HIKES CURRENTLY BAKED INTO TWO-YEAR YIELDS OR ONE THAT ACTUALLY LEANS INTO THAT AND SAYS RIGHT NOW WE EXPECT MORE TIGHTENING TO BE WARRANTED? PATRICK: THEY ARE GOING TO HAVE TO SEE THAT MORE TIGHTENING IS PROBABLY WARRANTED. WE ARE NOW FIVE AND A HALF YEARS INTO THIS WITH INFLATION ABOVE TARGET AND CORE ABOVE TARGET. ANNMARIE: DO YOU THINK THIS WILL BE POLITICALLY MOTIVATED AT ALL IF THEY HOLD? PATRICK: NO, I DON'T. IT MAY BE IN THE BACK OF MEMBERS'S MINDS BUT IT WAS NEVER IN MY MIND WHEN I WAS ON THE COMMITTEE. NO. ANNMARIE: BUT THE DATA DOES NOT LINE UP SO HOW ELSE DO THEY EXPLAIN IT? PATRICK: THERE IS THIS ATTITUDE STILL AMONG ECONOMISTS THAT THIS IS A SUPPLY SHOCK. I DON'T KNOW WHAT YOU CALL SUPPLY SHOCKS WHEN THEY KEEP COMING AT YOU. AFTER A WHILE, IT BECOMES THE NEW NORMAL ALMOST. SO THE IDEA IS YOU LOOK THROUGH A SUPPLY SHOCK. RIGHT? I DON'T THINK THEY CAN DO THAT ANYMORE. THEY HAVE BEEN SAYING THIS FOR QUITE A WHILE. GO BACK AND LOOK AT THE STATEMENTS. THEY HAVE BEEN TALKING ABOUT THE SUPPLY SHOCKS AND ISSUES OVER AND OVER AGAIN. THEY DROPPED THAT LANGUAGE THE LAST TIME AROUND, BUT THEY CAN'T JUST KEEP LOOKING THROUGH THIS. INFLATION IS ELEVATED. YOU HEAR THE CHAIR. SOMETHING HAS TO BE DONE ABOUT IT. SO I THINK DECEMBER IS CLEARLY GOING TO BE AN INCREASE. A 25 BASIS POINT INCREASE. JONATHAN: THE FED SHARES THAT INFLATION IS A CHOICE, AS YOU KNOW. PATRICK, CAN YOU GIVE US THE NUMBER OF WHAT INFLATION WOULD HAVE LOOKED LIKE IF WE HIT 2% SINCE 2021 AND NOT ALLOWED THIS TO RUN TO THE EXTENT IT HAS? PATRICK: TODAY, PRICES ARE 11% HIGHER THAN THEY WOULD HAVE BEEN ON TREND. THE AFFORDABILITY ISSUE IS VERY REAL. I UNDERSTAND WHAT HE IS SAYING ABOUT THE INFLATION IS A CHOICE. BUT IT IS NOT JUST A CHOICE OF THE FED. BECAUSE THE INFLATION WE ARE EXPERIENCING OBVIOUSLY IS DUE TO THE WAR, DUE TO TARIFFS THAT ARE STILL FILTERING THROUGH THE ECONOMY, AND SO ON. THESE ARE CHOICES BUT NOT CHOICES JUST OF THE FED. JONATHAN: A LOT OF POLICY DECISIONS. PATRICK, WE APPRECIATE THE TIME. THANK YOU FOR THE NUMBER. AN IMPORTANT NUMBER. WE DID NOT HIT THAT 2% TARGET. 11% HIGHER SINCE 2021. LISA: THE SUBSET OF THAT IS WHAT WOULD HAVE HAPPENED TO THE ECONOMY IF THEY TRIED TO GET TO 2%. THAT IS SOMETHING PEOPLE WERE NOT WILLING TO DO IN PART BECAUSE THEY WERE STILL SCARRED BY THE 2008 RECESSION AND HOW MUCH WAS TAKEN OUT OF THE ECONOMY. IS THAT SCARRING GIVING A RESPONSE? JONATHAN: THERE ARE REASONS TO HIKE LATER THIS AFTERNOON AND MANY PEOPLE ANTICIPATE THEY WILL NOT EXECUTE. WE WILL SEE IF THEY DO OR NOT BUT I SEE AN OPENING. A LITTLE BIT OF TWO-WAY RISK. LISA: YOU ARE NOT ALONE. MAKE OF AMERICA SAYING THE SAME THING. THEY COULD KILL FORWARD GUIDANCE. OVER TO YOU, CHAIR WARSH. JONATHAN: A HUGE OPPORTUNITY. UP NEXT, ALEX, STEFAN, GITA, AND MARK AS WE COUNT DOWN TO A BIG RATE DECISION. EARNINGS AFTER THE CLOSING BELL FROM ALPHABET, GOOGLE, THE LIKES OF MICROSOFT. TOMORROW, YOU WILL HEAR FROM AMAZON. LIVE FROM NEW YORK CITY WITH FUTURES POSITIVE BY 0.1%, YOU ARE WATCHING "BLOOMBERG SURVEILLANCE." ♪ >> THEY DON'T WANT TO MAKE A MISTAKE WHERE THEY HIKE TOO FAR, TOO FAST. >> THEY VERY CLEARLY LAID THE GROUNDWORK FOR THAT. >> THEY FEEL LIKE THEY WILL CONTINUE HIKING IN DECEMBER AND BEYOND. >> TWO OR THREE TIMES MORE. >> THIS IS "BLOOMBERG SURVEILLANCE" WITH JONATHAN FERRO, LISA ABRAMOWICZ, AND ANNMARIE HORDERN. JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING, GOOD MORNING. THE THIRD HOUR OF "BLOOMBERG SURVEILLANCE" STARTS RIGHT NOW, AND YOUR SCORES OF PRICE ACTION LOOK LIKE THIS. EQUITY FUTURES ON THE S&P 500 ADVANCING, LOOKING TO BUILD ON TWO DAYS OF GAINS, UP ZERO PUT 1%. UP A THIRD ON THE NASDAQ, BUILDING ON A BIG TECH BOUNCE SO FAR THIS WEEK. IN THE BOND MARKET, TWOS AND TENS HOLDING STEADY INTO THE FED DECISION. AROUND 5% ON TENS. 4.75% ON TWOS. A NEWS CONFERENCE AT 2:30 AND EARNINGS FROM GOOGLE AND MICROSOFT. LISA: IT IS INTERESTING, AND YOU WERE TALKING ABOUT THIS EARLIER. THE BOND MARKET HAS STAYED FLAT IF YOU JUST LOOKED AT THE DAY THE FED LAST MET AND GAVE A RATE DECISION ON SEPTEMBER 16 TO TODAY. IT IS A SENSE OF, WHERE ARE WE HEADING WITH THE AI TRADE? INTERESTING MOMENT OF HOW MUCH HAS CHANGED. WE WILL GET THAT FROM THE AI PLAYERS WITH RESPECT TO THEIR CAPEX AMBITIONS AND HOW MUCH THE COMPETITION FOR CAPITAL IS CHANGING THE FED TO TRY TO RAMP UP JUICE TO GET PEOPLE TO THE TREASURY MARKET AND NOT JUST AI. JONATHAN: SO MUCH ANGST AND A TON OF CHURN BENEATH THE SURFACE WE COVERED ON THIS PROGRAM. THE DATA SAYING THE FEDERAL RESERVE NEEDS TO HIKE. CORE WAS HOTTER THAN EXPECTED. THE BOND MARKET DID NOT TRADE ON IT. NOT JUST BECAUSE OF THE GUIDANCE FROM FED OFFICIALS BUT THINGS STARTING TO CRACK IN HIGHLY YIELD. COREWEAVE. AND THEN RATES STARTED TO MOVE IN THE LONG END OVER THE CURVE. THAT RELATIONSHIP BETWEEN TECH AND THE YIELD CURVE HAS BEEN A STORY IN BETWEEN THE TWO FED MEETINGS. BOOK ENDED BY THE LAST MEETING AND WHAT WE ARE ABOUT TO GET. LISA: THERE HAS BEEN A SENSE THIS MARKET WILL NOT FINANCE ANYONE. IF YOU ARE A NEO-CLOUD, GOOD LUCK. IF YOU ARE A IPO SCALER, YOU CAN GET MORE DEBT FINANCING BUT WILL HAVE MORE DISCERNING INVESTORS. IF THAT IS THE CASE, THE COMPETITION FOR CAPITAL WILL BE MORE SELECT. IT WILL NOT JUST BE A FIRE HOSE. THAT SAID, THE NUMBERS WE ARE LOOKING AT ARE ASTRONOMICAL. WE ARE LOOKING AT TRILLION FROM A HANDFUL OF HYPERSCALERS IN TERMS OF FINANCING NEEDS FROM THIS YEAR ALONE, LET ALONE 2027. SO AT WHAT POINT DOES THE STORY OF COMPETITION FOR CAPITAL REASSERT ITSELF IN THE RACE MARKET A LITTLE BIT? ANNMARIE: JUST THIS WEEK, ANTHROPIC, META, SPACEX. NOW WE WILL GET MORE POTENTIALLY WHEN IT COMES TO THE EARNINGS THIS EVENING. AT THE SAME TIME, THE FEDERAL RESERVE IS DEALING WITH HOTTER INFLATION. SO WHEN THEY DECIDE TO COME OUT, IF THEY DECIDE TO DO THIS AND HOLD, HOW DO THEY DESCRIBE THIS HOLD? THAT IS GOING TO BE FASCINATING. JONATHAN: YEAH AND IF YOU START SAYING THINGS LIKE THE MARKET IS DOING THE WORK FOR US, SOME STRUGGLING NEO-CLOUD IPO'S GET IT DONE. THAT IS THE PIPELINE FOR FUTURE INFLATION POTENTIALLY. LISA: IF WHAT WE SAW IN TERMS OF CREDIT DEFAULT SWAPS BLOWING OUT IS ENOUGH TO KEEP THE FED ON HOLD, TO YOUR POINT YOU MIGHT AS WELL GO LONG STOCKS. JONATHAN: IT IS NOT THE NEW FED. IT IS THE OLD FED. HOW DIFFERENT IS THIS FED? WE ACTUALLY DO GET AN ANSWER TO THAT LATER THIS AFTERNOON. YOU CHOOSE TO HIKE, YOU BLOW UP THE OLD FED. YOU CHOOSE TO HOLD, A LOT OF PEOPLE PUT MORE WEIGHT ON THE SPEECHES OF WILLIAMS AND JEFFERSON. LISA: FOR PEOPLE TO TUNE IN AT 1:30 P.M. TODAY, WE WILL BE GOING THROUGH THAT. JONATHAN: SPECIAL COVERAGE. LISA: MOMENTOUS PRESS CONFERENCE. ANNMARIE: I KNOW THIS IS HIGHLY CORRELATED TO WHAT IS GOING ON IN AI, BUT THE LAST FED MEETING. ANNMARIE: I WILL WATCH. I CAN'T WAIT. JONATHAN: CONTINUE. ANNMARIE: THE LAST FED MEETING, BRENT WAS AT 08 A BARREL. WE ARE AT 15 NOW. THAT STORY IS ADDING A LOT MORE PRESSURE NOW. JONATHAN: 1:30. ANNMARIE: I WILL BE WATCHING. CAN'T WAIT. JONATHAN: DO YOU WANT TO PHONE IN? NO. 2:30. COMING UP, A BEARISH VIEW ON AI, LOOKING AHEAD TO HYPERSCALER RESULTS, AND THE FORMER IMF DEPUTY MANAGING DIRECTOR. WE BEGIN THIS HOUR WITH TECH LEADING STOCKS HIGHER. ALEX WRITING, THE TEAM FEELS BULLISH ON QUALITY IN MAY AND WE CONTINUE TO FAVOR THIS THROUGH THE YEAR ALONGSIDE OUR BEARISH VIEW ON AI SINCE LATE AUGUST. ALEX JOINS US NOW FROM WORKING GOOD MORNING. LET'S GET TO THE LAST PIECE, THE MOVE IN AUGUST, THE BEARISH MOVE ON AI, WHY ARE YOU STICKING WITH IT? ALEX: WE DO A LOT OF THIS WORK AS A TEAM. WE CAN SEE REAL RATES WERE GOING UP SO THAT WAS A FOUNDATIONAL BACKBONE, THE CAUTIOUSNESS. END OF AUGUST, WE PIVOTED ON THE REVENUE SIDE. AI, WE ARE SPENDING AN INORDINATE AMOUNT OF MONEY. AND IT IS A CLASSIC CASE OF SHOW ME THE MONEY. WE ARE THREE YEARS INTO THIS EXPERIMENT NOW. IF YOU LOOK AT THE COLLECTIVE FRONTIER LABS, HYPERSCALER REVENUE, THE ECOSYSTEMS GENERATING ABOUT $250 BILLION OF REVENUE BUT YOUR BREAKEVEN FROM A MAINTENANCE CAPEX PERSPECTIVE AT THE TERMINAL POINT OF CONSTRUCTION ASSUMING ALL OF THIS STUFF GETS BUILT IS GOING TO NEED TO BE AROUND $900 BILLION. RIGHT? WE BASICALLY COULD NOT FIGURE OUT WHERE ALL THE MONEY WAS GOING TO COME FROM FROM THE REVENUE PERSPECTIVE. AND THAT WE HAVE THE FINANCING ELEMENT AS WELL, WHICH WAS A CONCERN FOR US BACK THEN. FUNNY YOU MENTION COREWEAVE, BUT ACTUALLY THE REAL CATALYST WAS NOT EVEN COREWEAVE. IT WAS ACTUALLY SEIFER. THEY TRIED TO NUKE THE SHARE PRICE AND OTHER PEOPLE PEELING THE LAYER ON NEO-CLOUDS SAYING, WHAT IS GOING ON HERE AND WHY ARE THE SPREADS WIDENING? DATA CENTER BONDS ARE TRADING 220 BASIS POINTS OVER. THE FINANCING ELEMENT IS ALSO A KNOWN. WE NEED 1.1 TRILLION DOLLARS OF NET IG ISSUANCE THIS YEAR. THAT NUMBER WILL GO UP AGAIN NEXT YEAR AND THAT IS COMPETING WITH THE TREASURY ISSUANCE AS WELL AS THE EQUITY ISSUANCE, WHICH BY THE WAY WILL BE A NET POSITIVE FOR THE FIRST TIME WE THINK IN 2026 EVER. JONATHAN: THIS DOES NOT SOUND LIKE A TACTICAL CALL. SOUNDS LIKE A FUNDAMENTAL QUESTION OF THIS MASSIVE ECOSYSTEM. ALEX: I THINK THE CHALLENGE HERE IS THAT EVERY YEAR SINCE AI BURST ONTO THE SCENE IN 2023, WE HAD A SUMMER AND A WINTER. CERTAINLY THE FIRST HALF OF THIS YEAR WAS AN AI SUMMER. THROUGH ANY THEMATIC CYCLE, THERE WILL BE EBBS AND FLOWS AND WE ARE IN THE PERIOD OF WAITING AS THE MARKET EFFECTIVELY GRABS THE THEME BY THE HORN AND ACTUALLY STARTS TO THINK ABOUT WHO ARE THE WINNERS AND LOSERS GOING TO BE. REMEMBER, BEGINNING OF THIS YEAR WE WERE TALKING ABOUT WINNERS AND LOSERS IN TERMS OF CAPEX SPENDERS VERSUS SOFTWARE COMPANIES. MEANWHILE, SOFTWARE IS TRADING CLOSE TO 12 MONTH HIGHS RIGHT NOW. THE POINT IS THAT THEMATIC WILL ALWAYS EVOLVE AND THAT IS WHAT WE ARE TRYING TO PLAY. LISA: YOU MAKE IT SOUND BIBLICAL, THERE IS A SUMMER AND A WINTER AND WE ARE HEADING TO THE WINTER. ALEX: THINKING MORE "GAME OF THRONES." LISA: YES. ANNMARIE: WINTER IS COMING. LISA: THINKING WHAT IS THE QUALITY COMING IN WINTER WITH EVERY SINGLE ASSET CLASS AND COMPANY TO THE AI TRADE? ALEX: YOU MAKE A REALLY GOOD POINT BECAUSE I GET ASKED THIS QUESTION ALL THE TIME. WHEN BUILDING A PORTFOLIO AND LOOKING AT FACTOR NEUTRALIZATION ACROSS ALL OF THESE FACTORS, BUT THE AI FACTOR IS SOMETHING THAT NO ONE HAS SUCCESSFULLY MAPPED YET BECAUSE THE BEATERS KEEP CHANGING. DEFENSES ARE IN THREE MONTHS, THEY WILL BE INCORRECT AGAIN. ARE YOU LONG AI OR ARE YOU SURE AI? DEFINITIVELY, YOU ARE NOT MEANT TO BE SHORT AI. THAT WILL BE A WIDOW MAKER TRADE. SO CONSEQUENTLY IT MEANS THE VAST MAJORITY OF PORTFOLIOS CURRENTLY ARE LONG AI. RIGHT? IT IS INESCAPABLE THAT YOU ARE GOING TO HAVE A BIAS ONE WAY OR THE OTHER. BY THE WAY, THE LONG AI BIAS IS ONE OF THE REASONS WHY FOR CERTAIN FLUSHES WE SEE IN THE MARKET OUR TEAM IS EVIDENCING THAT. BY DEFINITION IF YOU BUILD SOMETHING UP OVER THE PAST THREE OR FOUR YEARS, IT WILL NOT GET UNWOUND OVER THREE MONTHS. LISA: WHAT WOULD A CATHARTIC FLESH LOOK LIKE RIGHT NOW? ALEX: AT THE VERY LEAST, A CORRELATED MOVE. WE HAVE HAD THESE PERIODS OF CONSTANT ROTATION. WE HAVE SEEN MICROCOSMS OF THAT. THE NASDAQ IS UP, THE DOW IS DOWN. THAT CONTINUES PORTFOLIO FIGHTING. AS I CALL IT, IT IS A BUNCH OF FUNDS HAVING A KNIFE FIGHT IN A PHONE BOOTH. BUT IN REALITY, WHAT YOU NEED TO SEE IS THE MORE CATHARTIC CORRELATED MOVE IN OUR VIEW LOWER. SOMETHING LIKE THE 200 DAY MOVING AVERAGE IN THE S&P HAS NOT BEEN TESTED IN A LONG TIME. THAT WOULD BE ASSOCIATED IN MY MIND WITH A REASON. JONATHAN: DO YOU SEE A CATALYST FOR THAT ON THE HORIZON? ALEX: LOOK, WE GOT MICRO SOFT AND GOOGLE AND AMAZON THIS WEEK. WE STILL HAVE A LARGE IPO IN THE PIPELINE AND THAT WILL BE A WEATHERVANE FOR THE BROADER AI SENTIMENT AND OF COURSE WE HAVE THE FED AS WELL. I PERSONALLY HARK BACK TO THE 2018 ANALOG. YOU HAD A NEW FED CHAIR THEN. HE MANAGED TO SEND THE WRONG MESSAGE TO THE MARKET. JONATHAN: A LONG WAY FROM NEUTRAL, I THINK THE LINE WAS AT THE TIME. ALEX: YEAH. I THINK WE HAVE A LOT OF CONFLUENCE OF EVENTS WE NEED TO GET THROUGH THAT COULD SPARK THE VALIDATION OF THIS CAUTIOUS VIEW OR ACTUALLY MAY COMPLETELY NULLIFY IT AND WE ARE OFF TO THE RACES IN 2027. JONATHAN: SNOOZE ON THE FED THIS AFTERNOON? ALEX: I THINK WE SHOULD BE ASKING OURSELVES THE QUESTION, IF IT WAS NOT THE MIDTERMS, WHAT WOULD THEY BE DOING? WHAT WILL BE THE NARRATIVE ATTACHED TO THE HOLD? IF IT WILL BE A SUPER HAWKISH HOLD, THAT MAY NOT BE A SNOOZE AT ALL. AS ONE OF MY COLLEAGUES PUSHED BACK TO ME YESTERDAY, HE SAID THEY SHOULD NOT SAY ANYTHING IN THIS MEETING FOR THE SAME REASON THEY ARE NOT GOING TO HIKE IN THIS MEETING. AND I THOUGHT THAT WAS A VERY VALID POINT. SO REALLY IF THEY ARE GOING TO PLAY THEIR POLITICAL CARDS AT THIS JUNCTURE, IT SHOULD BE A SNOOZER, BUT YOU NEVER KNOW. NEW FED CHAIR'S ARE PRONE TO GET TESTED BY MARKETS. JONATHAN: WHAT IS WORTH WATCHING? YOU WANT A TIGHT NEWS CONFERENCE, HE WANTS NO NEWS CONFERENCE AT ALL HE WANTS A LIMITED Q&A WITH THE PRESS. LISA: HE HAS BEEN PANNED BY A LOT A PEOPLE FOR NOT BEING MORE VOCAL ABOUT EXPLAINING WHY THEY ARE DOING WHAT THEY ARE DOING AND THAT WAS CRITICISM EARLY ON IN HIS TENURE. DOES HE RECTIFY THAT? DOES HE GIVE A SENSE OF WHY THEY MADE A DECISION TO HOLD GIVEN THE FACT THAT DATA POINTS TO A CERTAIN DIRECTION? IF HE DOESN'T, IS HE GOING TO BE VIEWED AS AN UNRELIABLE NARRATOR? ULTIMATELY, SOMEONE WHO IS MORE POLITICAL THAN HE WOULD LIKE TO BE CONSIDERED. JONATHAN: HE DOES NOT WANT TO BE OFFERED GUIDANCE, SO HE OFFERS IT TO EVERYONE ELSE INCLUDING THE VICE CHAIR AND NEW YORK FED PRESIDENT. IF THEY CHOOSE NOT TO HIKE, HE REINFORCES THE GUIDANCE GOING FORWARD FROM HERE. THERE IS A LOT TO PLAY FOR, WHICH IS WHY WE WILL BE RIGHT HERE, ROUNDTABLE TABLE, 2:00 P.M. EASTERN TIME. GET THE PROMO UP. WHERE IS THE GRAPHIC? ANNMARIE: THIS WILL BE IMPORTANT. JONATHAN: BOX OFFICE. LISA: TO ALEX'S POINT, IT IS COMING AT A TENUOUS TIME AND THERE IS CONCERN THEY COULD TORPEDO THE TRAIN THAT ALREADY IS FEELING A LITTLE VULNERABLE. JONATHAN: THERE YOU GO. 1:30 EASTERN TIME, SPECIAL COVERAGE. LISA: 1:32. JONATHAN: I AM ALWAYS CONFUSED. WHY DOES IT START AT 1:32. LET'S GET YOU AN UPDATE ON NEWS WORLDWIDE. VONNIE QUINN HAS MORE. VONNIE: THANK YOU. THE U.S. HAS REPORTEDLY TOLD GULF NATIONS TO PREPARE. ANTHROPIC HAS REPORTEDLY TAPPED J.P. MORGAN FOR WHAT COULD BE THE LARGEST IPO IN HISTORY. IT IS ALLOCATING 15% TO 20% OF SHARES TO INVESTORS. JAMIE DIMON PERSONALLY EXPECTED TO TAKE PART IN THE CAMPAIGN. OPENAI IS IN TALKS TO BUY AI CHIPS FROM GOOGLE, WHOSE TPUS HAVE EMERGED AS ONE OF THE FEW ALTERNATIVES TO NVIDIA'S GPUS. IT SIMULTANEOUSLY DEVELOPS ITS OWN IN-HOUSE CHIPS. AS YOUR BLOOMBERG BRIEF. JONATHAN: THANK YOU VERY MUCH. UP NEXT, YOUR MORNING CALLS. WE WILL CATCH UP WITH OUR GUEST FROM BNP PARIBAS. WE WILL HEAR FROM MICROSOFT AND GOOGLE AFTER THE CLOSE. LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING. ♪ >> FROM THE BIG TECH PLAYERS, I THINK WE WILL GET BLOWOUT EARNINGS. THINGS WILL BE CONSISTENT WITH WHERE WE ARE, WHICH IS WE ARE IN A MIDCYCLE CAPEX BOOM. EVERYONE SAYS, ARE WE IN THE BUBBLE? MY ANSWER IS ALWAYS, OF COURSE WE ARE. THE QUESTION IS, HOW CLOSE ARE WE TO IT POPPING? JONATHAN: THAT IS THE QUESTION. THAT IS LISA OF MORGAN STANLEY. JUST THIS WEEK ALONE, EQUITY FUTURES AT THE MOMENT ON THE S&P 500 HIGHER BY 0.2%. ON THE NASDAQ, HIGHER BY 0.4%. THE RUSSELL JUST ABOUT UNCHANGED. YIELDS CREEPING HIGHER. YIELDS UP ON TENS BY NOT EVEN A BASIS POINT. BACK TO 5% ON TENS. LISA, YOU SAID IT EARLIER THIS WEEK. TWOS ALMOST WHERE THEY WERE LAST TIME THE FED MET. LISA: THE CHURN REALLY NOTABLE AND WHAT IS DRIVING YIELDS HIGHER. THE CORRELATION WE HAVE BEEN TALKING ABOUT A LOT, WHICH IS THE TECH TRADE AND YIELDS HAS BEEN CORRELATED INVERSELY, SO WHEN TECH SELLS OPTIMA BONDS GAIN AND THE YIELDS GO DOWN. ONE THING THAT HAS NOT PLAYED IS OIL AND THE FACT THAT OIL PRICES AND OIL EXCITATIONS CONTINUE TO GO UP. WE HAVE NOT SEEN THAT BLEED OUT IN YIELDS THE WAY IT HAS IN THE PAST. JONATHAN: DATA DID NOT GO THE FED'S WAY, CORE UGLY AS DESCRIBED BY A LOT OF ECONOMIST ACROSS WALL STREET. THE AMOUNT OF MONEY WE RAISED THIS WEEK WILL GO INTO THE ECONOMY. AND YOU MENTIONED OIL. THREE. OIL STILL HIGHER. A RE-ENGAGEMENT OF THE CONFLICT IN A WEEK POTENTIALLY. HOW DO YOU THEN SIGNAL YOU WILL HIKE IN DECEMBER WITH THE ELECTION A FEW DAYS AWAY? LISA: IN TERMS OF AIRLINE TICKETS OR PRICES OF SPECIFIC GOODS, YOU ARE SEEING THE DISSEMINATION OF THAT AND FORWARD CONTRACTS FOR OIL ARE ONLY GOING UP BECAUSE OF THE EXPECTATION THIS IS THE NEW NORMAL. A DIFFICULT SCENE ESPECIALLY GIVEN THE BOX THE FED CHAIR FINDS HIMSELF IN NOT SPEAKING TOO MUCH. JONATHAN: BRENT CRUDE, 15. LET'S GET YOU SOME MORNING CALLS. OUR FIRST CALL FROM WELLS FARGO SAYING HIGH INTEREST RATES ARE OVERSHADOWING GROWTH DRIVERS FOR ENPHASE. FINALLY, BANK OF AMERICA RAISE AGAINST PRICE TARGET ON VISA, CITING STRONG FOOTING GOING INTO YEAR-END. SOME GOOD NUMBERS FROM THEM IN TERMS OF TRANSACTION VOLUME. THAT STOCK IS DOWN IN THE PREMARKET THIS MORNING BY 1.5%. BACK TO THE BIG ONE THIS AFTERNOON. ALPHABET AND MICROSOFT REPORTING THIS AFTERNOON. STEFAN SLOWINSKI OF BNP PARIBAS WRITING, WITH ACCELERATING REVENUE GROWTH IN THE CLEAR AI MONETIZATION, AND A NEAR-TERM COMMITMENT TO REMAINING FREE CASH FLOW POSITIVE DRIVING FUNDING SELF-SUFFICIENCY, WE SEE MICROSOFT AS AN ATTRACTIVE AI ENABLER. STEFAN SLOWINSKI JOINS US NOW FOR MORE. WELCOME. GOOD TO SEE YOU. HAVE YOU NOTICED THAT IN THE PRICE ACTION THAT MICROSOFT DOES NOT LOOK LIKE SOME OF THE OTHERS? STEFAN: YEAH. GOOD MORNING, JONATHAN. WE HAVE SEEN A BIG BOUNCE IN MICROSOFT THIS MORNING. BEGINNING OF THE YEAR, THERE WERE CONCERNS AROUND THEIR AZURE BUSINESS NOT BECAUSE OF DEMAND BUT BECAUSE THEY WOULD ALLOCATE MORE TO THEIR INTERNAL PURPOSES AND ALSO CONCERNS ABOUT THE CORE MICROSOFT 365 COMMERCIAL CLOUD, THE OFFICE BUSINESS IF YOU WILL, THAT THAT WOULD BE COMPUTED AWAY BY SOME OF THE AI LABS. WE HAVE SEEN A REVERSAL. BOTH OF THOSE ARE ACCELERATING. THAT HAS DRIVEN THE STOCK, AND THEIR COMMITMENT THAT DIFFERENTIATES THEM. JONATHAN: SOMETHING TO INCREASE REVENUE. STEFAN: BY OUR CALCULATIONS AT BNP PARIBAS, THEY ARE TAKING 30% OF THE CAPACITY TAKING ONLINE AND ALLOCATING IT TO INTERNAL PURPOSES. THAT IS MICROSOFT 365 COMMERCIAL CLOUD. WE ARE SEEING EVIDENCE. MICROSOFT COPILOT HAS JUMPED FROM 15 MILLION USERS AT THE BEGINNING OF THE YEAR TO 30 MILLION IN JUNE. WE ARE SEEING EVIDENCE THAT IS WORKING. THEY ARE INTRODUCING CONSUMPTION BASED PRICING FOR COPILOT. SO WE ARE STARTING TO SEE SOFTWARE COMPANIES NOT ONLY CHARGE BUT MONETIZE ON A CONCEPTION BASIS SO IT IS POSITIVE FOR SOFTWARE. THE OTHER THING MICRO SOFT IS DOING IS ALLOCATING SPEND FOR THEIR OWN MODEL DEVELOPMENT. THIS IS WHERE THE MARKET IS MORE SUSPICIOUS BECAUSE OF THE CONCERNS ABOUT WHAT RETURNS THEY WILL GET THERE, BUT AGAIN, OUR CALCULATIONS, WE DO NOT THINK THEY HAVE BEEN INCREASING BEYOND THAT 30% AMOUNT OF CAPACITY THEY ARE ALLOCATING FOR THE INTERNAL PURPOSES. LISA: THERE WAS A BLUE QUESTION AFTER THE ANTHROPIC S-1 CAME OUT ABOUT HOW MUCH OF THEIR BUSINESS WAS BEING SUPPORTED BY THE LIKES OF MICROSOFT AND THE OTHER HYPERSCALERS THAT HAD CONTRACTS WITH THEM FOR A SIGNIFICANT SWATH OF THEIR SPENDING. WHAT IS YOUR SENSE OF HOW SOME OF THE COMMENTARY WILL COME OUT ABOUT WHETHER TO BUILD IT ON THEIR OWN OR WHETHER TO CONTAIN A LIEN ON THE LIKES OF ANTHROPIC AND OPENAI? STEFAN: WHEN YOU LOOK AT THE HYPERSCALERS, MICROSOFT, AMAZON, GOOGLE, YOU ARE TALKING ABOUT $440 BILLION OF REVENUE RUN RATES IN THEIR CLOUD BUSINESSES GROWING AT 50%, 55%. SO INCREDIBLE GROWTH, INCREDIBLE SCALE. WE CONTINUE TO SEE THAT BOOM. A LOT OF THE INCREMENT REVENUE GROWTH HAS BEEN COMING FROM AI LABS, AS WE KNOW. THAT IS SOMETHING THE MARKET WANTS TO CONTINUE TO SEE, THAT THEY ARE ABLE TO DIVERSIFY THAT TO THEIR CORE SORT OF ENTERPRISE BASE. BUT I THINK WHAT YOU ARE SEEING IN THE MARKET IS EVERYONE DIVERSIFYING, EVERYONE PARTNERING WITH EVERYONE. ALL AI LABS WANT TO PARTNER WITH THE HYPERSCALERS. ALL THE HYPERSCALERS WANT TO PARTNER WITH THE AI LABS. EVERYONE WANTS TO USE EVERYONE'S CHIPS. WE SAW THAT THIS MORNING WITH GOOGLE AND OPENAI. THAT RISK AND STRATEGIC RISK AS WELL. LISA: DO YOU HAVE A SENSE OF HOW THE MARKET WILL RESPOND TO A REPORT THAT MY ON ITS FACE LOOK GOOD? TALKING ABOUT THAT WITH META, THAT THEY CAME OUT WITH EARNINGS THAT LOOKED REALLY GOOD ON A LOT OF DIFFERENT METRICS AND YET HE SHARES TANKED AS A RESULT OF POTENTIALLY MORE EQUITY SALES. HOW DOES THIS CREATE A SENSE OF ARBITRARYNESS IN TERMS OF THE MARKET RESPONSE TO EARNINGS? STEFAN: I THINK YOU HAVE TWO THINGS. ONE IS EXPECTATIONS GOING INTO EARNINGS. AZURE WITH A GROSS OF 44%, 45%. THE SAME THING FOR GOOGLE CLOUD. CONSENSUS IS 90% GROWTH WITH EXPECTATIONS WELL ABOVE 100%. THERE IS ALWAYS THE EXPECTATIONS GAME. I THINK SECONDLY, IT IS AROUND THE CAPEX AND THE CASH SO THAT IS WHERE MICROSOFT IS A BIT DIFFERENTIATED. THEY ALREADY GUIDED CAPEX FOR THIS YEAR. WE DO NOTHING THEY WILL GUIDE OUT FOR THE FULL FISCAL YEAR YET. IF THEY MAINTAIN THE COMMITMENT FOR FREE CASH FLOW POSITIVE, THAT IS ANOTHER POSITIVE RELATIVE TO SOME OTHERS. WE KNOW WHERE THE MONEY IS COMING FROM FOR MICROSOFT. IT IS AZURE, MICROSOFT 365 CLOUD. THEY HAVE THE WAYS TO MONETIZE THIS VERSUS SOME OTHERS WHERE THE MONETIZATION, EVEN IF PRODUCTS ARE STARTING TO EMERGE AND EVOLVE, THE MONETIZATION IS QUITE EARLY. THE COMPETITIVE SITUATION WILL CONTINUE TO EVOLVE. MICROSOFT WE KNOW WHERE THE MONEY IS COMING FROM. ANNMARIE: WHO ARE THOSE OTHERS YOU ARE TALKING ABOUT? AND POTENTIALLY, COULD THEY BE BIG COMPETITORS FOR MICROSOFT? STEFAN: REFERRING TO META'S NUMBERS LAST WEEK, THEY HAVE BEEN SUCCESSFUL WITH THE MUSE LAUNCH AND THAT IS WERE A LOT OF INVESTMENTS WILL BE GOING FOR THEM IN TERMS OF CAPACITY. BUT THERE IS STILL UNCERTAINTY AROUND THE PRICING MECHANISMS THERE, THE ABILITY TO SUCCEED WITH OTHERS ENTERING THE MARKET, INCLUDING THE AI LABS. LIKE I SAID WITH MICROSOFT, WE HAVE MORE ESTABLISHED PRODUCTS THAT ARE INCREMENTALLY LEVERAGING AI AND DRIVING GROWTH SO WE HAVE MORE VISIBILITY ON THE AI MONETIZATION. AND OF COURSE YOU HAVE A COMPANY WHO IS ALSO COMMITTED TO MAINTAINING FREE CASH FLOW POSITIVE STANCE AT LEAST IN THE NEAR TERM. JONATHAN: WE HAVE TO LEAVE IT THERE BUT IT IS GOOD TO SEE YOU. STEFAN SLOWINSKI OF BNP PARIBAS ON MICROSOFT. THAT STOCK IS UP 10% SO FAR YEAR TO DATE. GOOGLE ALSO REPORTING LATER THIS AFTERNOON, JUST ABOUT UNCHANGED. META NEGATIVE ON THE YEAR SO FAR. LISA: WHAT DOES GOOD LOOK LIKE? EARNINGS WERE GREAT AND THEY SHOWED DEMAND WAS SOLID AND BOOKED OUT TO 2028. CAN THEY BE THE SAME DEMONSTRATION COMING FROM MICROSOFT AND GOOGLE? THAT IT IS NOT JUST A NEAR-TERM THING BUT IT IS SUSTAINABLE IN TERMS OF THE EXPANSION OF REVENUES CONTINUING TO INCREASE. JONATHAN: UP SEVENFOLD AT SK HYNIX. LISA: YEAH. JONATHAN: NOT EXCITING THAT AT MICROSOFT AND GOOGLE LATER? LISA: NOT SO MUCH GOOD AT THE SAME TIME, THEY SHOW THEY ARE IN A PLACE WHERE REVENUES CAN CONTINUE TO INCREASE IN THE PROFIT MARGINS ARE WIDE. JONATHAN: NASDAQ FUTURES HIGHER BY 0.4%. FANTASTIC NUMBERS AS LISA INDICATED OUT OF SK HYNIX. THE KOSPI FLYING. FUTURES IMPROVING AFTER DECENT GAINS OVER THE LAST TWO DAYS. UP NEXT ON THE PROGRAM, ONE OF OUR FAVORITES, GITA COMING DOWN TO TODAY'S FED DECISION. ISABELLE LEE HAS YOUR MORNING MOVERS. LIVE FROM NEW YORK CITY, YOU ARE WATCHING BLOOMBERG TV. ♪ JONATHAN: 60 MINUTES OUT FROM THE CASH OPEN. FUTURES FIRMER BY LET’S CALL IT TWO-TENTHS OF ONE PERCENT. ADDING TO TWO DAYS OF GAINS ON THE NASDAQ, THE NASDAQ HIGHER BY 0.4%. OVER THE PREVIOUS TO DATE, ADDING TO THE RALLY ON THE BACK OF POWERFUL PROFITS OUT OF SK HYNIX. SOUTH KOREAN EQUITIES FLYING TODAY. SK HYNIX BETTER THAN GOOD. IN THE BOND MARKET, YIELDS HAVE SETTLED DOWN. SINCE OUR LAST MEETING, WE ARE EXACTLY WHERE WE WERE AT THE END OF THE BUSINESS DAY OF THE LAST FED MEETING. TWOS AROUND 4.74%. TENS AROUND 5%. A LOT OF SHARP AND BIG MOVES. AND WE HAD A HARDER THAN EXPECTED CORE CPI AND PEOPLE BELIEVE THIS FED WILL NOT MAKE A MOVE. THERE ARE A COUPLE REASONS FOR THAT WITH GUIDANCE THAT PREDATED THE ACTUAL DATA THAT SUGGESTED YOU CAN SKIP OCTOBER. FED CHAIR IS NOT IN THE BUSINESS OF GUIDANCE SO THAT FED CHAIR DID NOT PUSH BACK SO HERE WE ARE. THERE WAS SOME PUSHBACK IN THE CREDIT MARKETS BUILDING THE LAST SEVERAL WEEKS OR SO. LISA: THERE WAS A SINCE THE CAPEX PLANS ARE CERTAIN AI COMPANIES WILL BE CHALLENGED MORE SIGNIFICANTLY AND THAT WOULD LEAD TO SOME SLOWDOWN IN GROWTH POTENTIALLY BUT CERTAINLY A SLOWDOWN IN ISSUANCE OF SOME OF THIS DEBT. ONE THING THAT IS NOTABLE IS ON SEPTEMBER 16, THE DAY OF THE LAST FED MEETING, THE FED PRESS CONFERENCE, THE CHANCES OF OCTOBER FED RATE HIKE WERE GREATER THAN 50%. NOW WE ARE TALKING ABOUT LESS THAN 10%. IS IT BECAUSE OF SOME OF THE VOLATILITY WE HAVE SEEN IN THE MEANTIME THAT SAYS THERE IS MORE DISCRETION IN THE AI TRADE? ARE WE JUST PUTTING IT OFF TO LATER IN THE YEAR? THAT IS WHY AM MATTERS SO MUCH TO MARKETS HOW HAWKISH THE TONE IS OUT OF THE PRESS CONFERENCE EVEN IF HE GOES WITH CONSENSUS AND REMAINS ON HOLD. JONATHAN: LATER THIS AFTERNOON WITH SOME TIGHT Q&A FROM SELECT JOURNALISTS. LISA: IF THAT IS THE CASE, THE RISK PREMIUM AND UNCERTAINTY PRESUMABLE WIDENED BECAUSE IT INCREASES THE SENSE FOR WE DO NOT HAVE A BALANCE FOR WHAT THE FED REACTION FUNCTION IS. YOU STILL HAVE A LOT OF AI-RELATED DEBT BEING ISSUED. JONATHAN: FED DECISION AT 2:00 P.M. EASTERN TIME. THE SHOW BEGINS AT 1:32. LET'S GET YOU SOME SINGLE NAMES, SOME MORNING MOVERS. ISABELLE: MORE EARNINGS TO DIGEST. LOOKING AT SHARES IN THE RED NOW FOR GE VERNOVA, DOWN BY 2%. THAT FLUCTUATED BETWEEN GAINS AND LOSSES. IT REPORTED FULL YEAR REVENUE AND RAISED THE OUTLOOK FOR THE YEAR. THEY ALSO ANNOUNCED PLANS TO BUY A TRENCH GROUP, A SUPPLIER TO EXPAND THE ELECTRICITY FOOTPRINT. UP NEXT, LOOK AT ALPHABET SHARES HIGHER BY MORE THAN 1% AFTER A BLOOMBERG REPORT THAT OPENAI PLANS TO BY ITS AI CHIPS. IT SHOWS YOU OPENAI'S PLAN TO REALLY EXPAND ITS COMPUTING CAPACITY. FINAL DETAILS OF THE DEAL ARE NOT YET KNOWN. ALPHABET REPORTS AFTER THE MARKET CLOSED, AND THEY ARE EXPECTED TO POST HEALTHY PERCENTAGE GAINS IN TERMS OF REVENUE. FINALLY, LET'S TAKE A LOOK AT ETSY. THE STOCK HIGHER BY MORE THAN 5%. RETURNING TO GROWTH FOR THE FIRST TIME IN TWO YEARS. JONATHAN: THANK YOU. THANK YOU VERY MUCH FOR THE UPDATE. HEADING INTO THE OPENING BELL ABOUT 57 MINUTES FROM NOW. LATER THIS AFTERNOON IS FED DECISION DAY FOR CHAIR WARSH. >> THE FED WILL CONTINUE TO REMOVE ACCOMMODATIONS BUT NOT AT THIS MEETING. >> I DON'T THINK THAT IS THE CORRECT DECISION IN MY MIND BUT THAT IS WHAT YOU ARE GOING TO GET. >> IF YOU HAVE THE LUXURY OF WAITING, WHAT THEY DON'T WANT TO DO IS MAKE A MISTAKE WHERE THEY HIKE TOO FAR, TOO FAST. >> THEY STILL HAVE CONVICTION AROUND THE IDEA THAT A LOT OF INFLATION WILL NATURALLY DISSIPATE. JONATHAN: THE FED DECISION IN JUST OVER FIVE HOURS. MICHAEL MCKEE IS DOWN IN WASHINGTON AND JOINS US FOR MORE. GOOD MORNING, MIKE. MICHAEL: GOOD MORNING. IT IS CONVENTIONAL WISDOM RIGHT NOW THE FED WILL BE ON HOLD AND NOT RAISE RATES TODAY. THEY MIGHT DO IT DECEMBER 9. THAT IS AT LEAST THE WAY THE FUTURES ARE PRICING NOW, WHICH LEAVES US WITH THE QUESTION OF WHAT HAPPENS NEXT, WHAT ARE THEY SAYING ABOUT ALL OF THIS? THE EXPECTATION IS WE WILL GET SOME DISSENTS. DEFINITELY HAMMOCK AND LOGAN. THEY HAVE SUGGESTED AS MUCH. NEIL IS THE THIRD WHO HAS DISSENTED IN THE PAST YEAR. WE WILL SEE IF HE JOINS THEM IN THAT. WE GO TO THE NEWS CONFERENCE AND THE FOCUS WILL BE ON WHITE. YOU WERE TALKING ABOUT IT. INFLATION GOING THE WRONG DIRECTION AFTER WE GOT THE FORWARD GUIDANCE FROM WILLIAMS AND FROM JEFFERSON. SO HOW DOES KEVIN WARSH EXPLAIN THE FACT THAT THEY STAYED ON HOLD? THERE ARE SOME PEOPLE WHO ARE GOING AGAINST THE CONVENTIONAL WISDOM. THERE ARE FIVE BANKS THAT ARE OUT THERE SAYING THE FED WILL RAISE RATES TODAY, LED BY BANK OF AMERICA. HIGH-FREQUENCY ECONOMICS, MUFG," AT TD BANK AND RBC IN CANADA ALL ARE CALLING FOR A QUARTER PERCENTAGE POINT MOVE UP IN THE RANGE TODAY. IF THAT HAPPENS, THAT WILL RAISE QUESTIONS ABOUT THE FORWARD GUIDANCE THING AND THE SO-CALLED TROIKA OF THE FED CHAIR, THE FED VICE CHAIR, AND THE VICE CHAIR OF THE OPEN MARKET COMMITTEE, JOHN WILLIAMS, WHO IS THE HEAD OF THE NEW YORK FED. IT HAS BEEN TRADITION THAT NEITHER OF THOSE VICE CHAIRS DISSENTS FROM WHAT THE CHAIR IS DOING, SO THE FEELING ON WALL STREET HAS ALWAYS BEEN IF YOU KNOW WHAT THOSE TWO THINK, YOU KNOW WHAT THE CHAIR THINKS, SO GIVEN THE FACT THAT WALL STREET IS HEAVILY BETTING ON THE IDEA OF NO MOVE TODAY, ANY KIND OF CHANGE, ANY DIFFERENCE IN THAT WOULD CERTAINLY UPSET THE WAY PEOPLE THINK ABOUT THIS AND LEAVE OPEN THE QUESTION AS YOU SAID A MINUTE AGO OF WHAT THE FED'S REACTION FUNCTION IS, AND HOW THEY THINK ABOUT INFLATION GOING FORWARD. JONATHAN: IT IS WHATEVER WILLIAMS AND JEFFERSON SAY IT IS. LOOKING FORWARD TO MIKE'S QUESTIONING IN THE NEWS CONFERENCE A LITTLE LATER. THAT IS WHAT IT COMES DOWN TO. EITHER WE HAVE THE OLD FED OR A NEW FED. EITHER THE GUIDANCE FROM THEM MATTERS OR IT DOESN'T. LISA: IF THIS IS A NEW FED, THINK OF HOW DISRUPTIVE IT WOULD BE TO THE MARKET WITH THE CHANCE OF SOME SORT OF FED RATE HIKE TODAY. JONATHAN: THE FORMER IMF DEPUTY MANAGING DIRECTOR AND GLOBAL ECONOMICS LAB FOUNDING DIRECTOR GITA GOPINATH JOINS US FOR MORE. WE HAVE BEEN LOOKING FORWARD TO CATCHING UP WITH YOU. DOES THIS FED HAVE THE LUXURY OF SKIPPING THIS MEETING? GITA: I THINK IT DOES. I THINK THERE IS STILL TREMENDOUS UNCERTAINTY ABOUT THE OUTLOOK. THEY COULD HAVE DONE A HIKE. BUT GIVEN WHERE WE ARE RIGHT NOW IN TERMS OF MARKET EXPECTATIONS, I DON'T EXPECT THEY WILL HAVE A HUGE DISRUPTIVE ANNOUNCEMENT TODAY. SO THERE IS DECEMBER. DECEMBER IS WHERE EVERYBODY EXPECT THERE WILL BE A 25 BASIS POINT HIKE. IT DOES NOT MAKE THAT BIG OF A DIFFERENCE TO FINANCING CONDITIONS OR TO TIGHTENING MONETARY CONDITIONS. SO I THINK IT IS OK. LISA: DO YOU THINK THE UNCERTAINTY PREMIUM THAT HAS BEEN INJECTED INTO THE MARKET OVER THE LACK OF AN UNDERSTANDING OF THE REACTION FUNCTION HAS BEEN A VERY EXTENSIVE POLICY AT THE VERY LEAST A MISTAKE AT WORST, GIVEN THE FACT THAT THE MARKET DOES NOT HAVE A SENSE OF WHERE KEVIN WARSH'S BALLAST REALLY IS, WHAT HIS NORTHSTAR IS TO DECIDE WHETHER TO HIKE OR TO HOLD? GITA: WHAT WARSH IS TRYING TO DO IS MOVE AWAY FROM A FORWARD GUIDANCE APPROACH WHICH PUTS ALL OF THEM IN A STRAITJACKET. THAT WAS THE CASE FOR A FEW YEARS, A FEW YEARS AGO. HE WANTS TO MOVE AWAY FROM THAT SO ANY TRANSITION IS GOING TO GENERATE SOME INCREASE IN UNCERTAINTY SO WE CAN GIVE HIM THAT. I DON'T THINK IT IS A HUGE INCREASE IN PREMIUM ASSOCIATED . IT WILL GO AWAY WITH MORE AND MORE OF THESE CONFERENCES AND CONVERSATIONS THAT I HAD. I THINK THE BOTTOM-LINE IS THE FED IS WORKING UNDER A LOT OF UNCERTAINTY. WHAT WILL HAPPEN TO ENERGY PRICES? IT IS STILL TROUBLING AT THIS MOMENT. IT COULD GO DOWN RELATIVELY RAPIDLY. FINANCIAL CONDITIONS ARE STILL ACTUALLY HIGHLY ACCOMMODATIVE. MAYBE SOME OF THE HIGH YIELDS HAVE GONE UP BUT MOSTLY GENERALLY ACCOMMODATIVE FINANCIAL CONDITIONS. WE ARE HEARING QUESTIONS ABOUT, COULD WE HAVE THIS AI BUBBLE BURST? COULD WE HAVE A BIG CHANGE? I THINK THERE IS TOO MUCH UNCERTAINTY TO PROVIDE CLEAR FORWARD GUIDANCE AT THIS MOMENT. LISA: YOU HAVE TALKED ABOUT THIS BUBBLE IN FINANCING FOR AI, AND YOU DID WORRY IT WAS A BUBBLE, AND IF IT DID BLOW UP THAT IT WOULD END UP CREATING A REAL FINANCIAL CRISIS OF SORTS. SHOULD THE FED BE TIGHTENING FINANCIAL CONDITIONS TO RESTRICT SOME OF THE FINANCING THAT IS BEING DONE RIGHT NOW? GITA: WHEN I WROTE THAT PIECE, I GUESS IT WAS A YEAR AGO, MY ESTIMATE WAS THAT THE HIT WOULD BE ABOUT $35 TRILLION TO GLOBAL WEALTH IF THERE WAS A CORRECTION. RIGHT NOW, THE NUMBER IS $41 TRILLION SO IT IS GOING UP. THERE CONTINUES TO BE A LOT OF ENTHUSIASM IN PUTTING MONEY IN U.S. EQUITY MARKETS EVEN THOUGH THERE IS CAUTION BUILDING UP AROUND THAT. IN TERMS OF WHAT THE FED SHOULD DO, NOT SPECIFICALLY TO BURST A BUBBLE, THAT WOULD BE A TERRIBLE IDEA. THEY HAVE TO LOOK AT CONDITIONS FOR INFLATION, WHETHER THEY ARE ACTUALLY SEEING THAT THERE INFLATION TARGET IS MOVING, THAT THE INFLATION STAYING IN FRONT OF THE TARGET FOR TOO LONG. THAT WOULD BE A CONCERN. YOU DON'T WANT TO SPOOK THE MARKETS AND BURST THE BUBBLE. JONATHAN: WHAT IS YOUR REACTION TO THE SEQUENCING OF THINGS THE FED CHAIR HAS ARTICULATED THAT THE FIRST MOVE IS A DEMAND SHOCK AND THE SECOND MOVE MIGHT BE SOME SUPPLY RELIEF? HOW ARE YOU THINKING ABOUT THAT? GITA: IT CERTAINLY IS THE CASE THAT WHAT WE ARE SEEING NOW IS A DEMAND SHOCK FROM AI. THE SUPPLY RELIEF, WE ARE NOT SEEING ANYTHING RIGHT NOW. THE EXPECTATION IS IT WILL SHOW UP OVER TIME. BUT IF YOU JUST LOOK BETWEEN NOW AND THE NEXT TWO OR THREE YEARS, THE AMOUNT OF BUILDOUT IN AI INFRASTRUCTURE IS JUST HUGE. SO JUST COMPARE IT TO FOR EXAMPLE WHAT THE U.S. GOVERNMENT IS PUTTING OUT IN TERMS OF ITS BORROWING NEEDS, ABOUT $2 TRILLION A YEAR. THE AMOUNT OF BUILDOUT WE ARE EXPECTING OVER THE NEXT YEAR IS OVER .5 TRILLION. SO THESE TWO ARE LOUSY NUMBERS WHICH IS WHY INTEREST RATES ARE MOVING UP. IF THIS CONTINUES THE WAY IT DOES, AND THERE IS A FAIR BIT OF UNCERTAINTY. THERE ARE TWO SCENARIOS TO PREPARE FOR. ONE IS THE BASELINE, WHICH IS WE CONTINUE THIS WAY. WE HAVE PRESSURE FROM DEMAND, THE INFLATIONARY EFFECTS OF THE AI BUILDOUT, ENERGY, AND SO ON. BUT THERE IS ALSO A POSSIBILITY THAT YOU COULD HAVE A SERIOUS MARKET CORRECTION IN WHICH CASE IT WOULD BE IN THE BOLD OF CUTTING INTEREST RATES VERY RAPIDLY. THAT IS THE LESSER LIKELY SCENARIO, BUT THAT IS ABSOLUTELY NOT TRIVIAL AT THIS POINT I THINK TO KEEP ON THE TABLE. JONATHAN: LET'S STICK WITH THE BASELINE. DO YOU SEE A PATH TO 2% WITHOUT CONTENDING THE BUILDOUT HAPPENING RIGHT NOW FROM MAJOR TECH COMPANIES? GITA: IF YOU REALLY WANT TO PUSH THE INFLATION RATE, WE WOULD BE MUCH MORE THAN AT THIS MOMENT. I DON'T THINK THAT IS THE RIGHT THING TO DO. INFLATION IS HOVERING AROUND 3%. IT IS NOT DRIFTING FURTHER UP. THAT IS IMPORTANT AND SHOULD GIVE SOME CONFIDENCE. YOU TAKE THE TIME TO BRING IT DOWN TO 2%, BUT I DON'T THINK THERE IS A BIG RUSH TO MAKE THAT HAPPEN. IT WILL BE SLOW. MY SENSE IS THAT INFLECTION SETTLES AT 2.5%, IT IS OK. IT IS NOT 2%. IT IS THE 2% TARGET, BUT IF IT HOVERS AROUND 2.5%, YOU TAKE THAT. LISA: IF THERE WAS A SERIOUS CORRECTION, HOW MUCH ROOM DOES THE FED HAVE TO CUT RATES AND HOW MUCH MORE DEBT WILL BE ISSUED TO HELP THE ECONOMY GIVEN WHAT WE HAVE SEEN IN PLACES LIKE FRANCE GIVEN HOW MUCH U.S. ECONOMIC GROWTH SEEMS TO BE HINGED TO THE AI TRADE? GITA: GET CUT INTEREST RATES VERY QUICKLY. THEY ABSOLUTELY CAN DO THAT. SO THAT BRINGS THE SHORT END DOWN. THE QUESTION IS, WHAT HAPPENS AT THE LONG END OF THE YIELD CURVE? MY PERSONAL VIEW IS IT IS STILL THE CASE WE WOULD SEE LONG-TERM YIELDS GO DOWN. MAYBE NOT SO MUCH AS WHAT HAS HAPPENED IN THE PAST BECAUSE OF THE DEMAND FOR CAPITAL INCLUDING FROM THE GOVERNMENT AND A LARGE FISCAL SITUATION AND THE POTENTIAL RISK OF INFLATION, WHICH IS MUCH MORE SALIENT THESE DAYS THAN IT WAS IN THE PAST. I EXPECT THE LONG YIELD WILL COME DOWN. THE TWO THINGS THAT CHANGED SINCE THE LAST CRISIS WE HAD, THE TRANSITION IS A LITTLE MORE IMPAIRED GIVEN THE FISCAL ENVIRONMENT WE HAVE RIGHT NOW. AND FISCAL POLICY DOES NOT HAVE ANY SPACE LEFT. IT SHOULD NOT HAVE THAT MUCH MORE SPACE LEFT. DEBTS AROUND THE WORLD ARE VERY HIGH. THE U.S. IS IN SOMEWHAT OF A PRIVILEGED POSITION THE WAY MARKETS ARE TREATING IT. STILL, WE ARE NOT IN A SITUATION -- REMEMBER DEBT TO GDP IN THE U.S. WAS 60% AND NOW WE ARE AT 100%. IT IS A COMPLETELY DIFFERENT PLACE. THE ABILITY TO COME AND FIX THINGS FOR THE ECONOMY I THINK ARE MORE IMPAIRED NOW THAN IT WAS IN THE PAST. JONATHAN: BEFORE YOU GO, HAVE YOU SEEN JASON IN BOSTON? AND IF YOU HAVE, HAVE YOU TOLD HIM OFF ABOUT GETTING RID OF THE PROFESSIONALS AND REPLACING US ALL WITH BOTS? GITA: I'M SORRY, I DID NOT HEAR. WHAT DID YOU SAY? JONATHAN: HE SEEMS TO BELIEVE HE CAN REPLACE ECONOMISTS WITH AI NOW. REGRETFULLY, HE SEEMS TO THINK WE CAN DO THAT. GITA: I THINK WHAT HE IS POINTING OUT THAT YOU SHOULD ASK JASON THAT, BUT WHAT HE IS PUTTING OUT IS THERE IS MORE ANALYSIS TO DO THAN SITTING AT YOUR DESKTOP AND HAVING THE AI AGENTS GIVE YOU INFORMATION BUT YOU NEED TO AT LEAST THINK OF JASON WHICH IS WHAT YOU CARE ABOUT, WHO SAYS WHAT MATTERS. WHEN YOU READ AN IMF REPORT, I HAVE USED AI TO TRANSLATE AND IT DOES A BAD JOB BECAUSE THERE IS SO MUCH BETWEEN THE LINES. YOU NEED TO KNOW WHAT IS ACTUALLY BEING SAID. I THINK THERE IS STILL TIME. THERE IS A LOT OF NEED FOR HUMANS TO FIGURE THESE THINGS OUT. JONATHAN: THANK YOU. WE APPRECIATE IT. LET'S DO IT AGAIN SOON IN NEW YORK. LISA: I LOVE THAT, READING BETWEEN THE LINES. THAT IS THE REAL ANALYSIS THAT IS IMPORTANT. I GUESS IT DEPENDS WHAT THE REPORT IS, BUT THAT IS TRUE. TO HER POINT, IT IS IMPORTANT THIS QUESTION THAT THE FED IS STRUGGLING WITH, WHICH IS THE AI BUILDOUT, WHAT THAT COULD LEAVE THE U.S. ECONOMY AS, WHAT THEIR ROLE IS IN THAT, WHAT THE SEQUENCING IS. IT IS A COMPLICATED MOMENT. JONATHAN: CAN YOU SET POLICY TODAY FOR THE RELIEF YOU THINK YOU WILL GET IN THE FUTURE? CAN YOU SEE HERE AND SAY I HAVE THE LUXURY OF TARGETS? SUPPLY RELIEF COME DOWN THE ROAD. YOU RUN THE RISK OF BEING FURTHER BEHIND THE CURVE AND NEEDING TO DO MORE THAN YOU NEEDED TO. THESE GUYS ARE IN THE RISK MANAGEMENT BUSINESS. DO YOU HAVE THE LUXURY OF SKIPPING A MEETING? OF COURSE. BUT DO YOU HAVE MUCH TIME BEYOND THAT? THAT IS THE QUESTION. LISA: DO YOU HAVE THE LUXURY OF SKIPPING A MEETING AND HAVING DOVISH COMMENTARY? THE ANSWER IS NO AT THE LONG END OF THE YIELD CURVE. THEY EXPECT A HAWKISH TONE. THERE WILL BE HIKING RATES, JUST NOT IN OCTOBER. JONATHAN: WITH YOUR BLOOMBERG BRIEF, VONNIE QUINN HAS MORE. VONNIE: THANK YOU. THE U.K. CHANCELLOR DELIVERING HIS BUDGET SPEECH RIGHT NOW. RAISING OUTLOOKS FOR BORROWING UP TO 4.2% OF GDP FROM 3.6% OF GDP THIS YEAR. HE GAVE FISCAL HEADROOM VERSUS SPENDING COMING IN AT 15 BILLION POUNDS WITH 15.2 BILLION EXPECTED. U.S. SENATOR ELIZABETH WARREN DEMANDING ANSWERS FROM ANTHROPIC ON "EXISTENTIAL RISKS." THE WALL STREET JOURNAL REPORTING ELIZABETH WARREN IS DEEPLY TROUBLED BY THE RISKS IN THE IPO FILING AND SENT A LETTER TO DARIO AMODEI DEMANDING ANSWERS IN A LONG LIST OF QUESTIONS BY ELECTION DAY. IN SPORTS, THE TAMPA BAY RAYS DEFEATED THE BREWERS IN EXTRA INNINGS TO WIN GAME FOUR OF THE WORLD SERIES. A WALKOFF SINGLE KEPT THE RAYS SEASON ALIVE. JONATHAN: THANK YOU. THANK YOU VERY MUCH FOR THIS MORNING. UP NEXT ON THE PROGRAM, WE ARE SETTING YOU UP FOR THE DAY AHEAD AND CATCHING UP WITH A GUEST ON THE AI TRADE. FROM NEW YORK CITY, YOU ARE WATCHING "BLOOMBERG SURVEILLANCE ." ♪ >> EVERY YEAR SINCE AI SORT OF BURST ONTO THE SCENE IN 2023, WE HAVE HAD A SUMMER AND A WINTER. RIGHT? FIRST OFF THIS YEAR WAS AN AI SUMMER. I THINK WE ARE IN THAT PERIOD OF WEANING AS THE MARKET EFFECTIVELY GRABS THE THING BY THE HORN AND STARTS TO THINK ABOUT WHO THE WINNERS AND LOSERS ARE GOING TO BE. JONATHAN: THAT WAS ALEX A LITTLE EARLIER THIS MORNING. SOUNDING BEARISH HEADING INTO YEAR-END. LISA: YEAH, SAYING HE HAS BEEN BEARISH ON THE AI TRAIT SINCE MARCH. YOU ASKED A GREAT QUESTION. THIS SOUNDS STRUCTURAL, NOT A TECHNICAL TRADE. JONATHAN: A FUNDAMENTAL QUESTION ABOUT THE MATH NOT MATHING. LISA: AND ULTIMATELY, HOW DO YOU AVOID SOME CORRELATION TO THAT? JONATHAN: EQUITY FUTURES AT THE MOMENT UP BY 0.2% ON THE S&P. ON THE NASDAQ, HIGHER BY 0.3. HEADING INTO THIS MASSIVE AFTERNOON COMING UP, FED RATE DECISION TODAY FOLLOWED BY THE NEWS CONFERENCE WITH CHAIR WARSH AND RESULTS FROM ALPHABET AND MICROSOFT , MORE EARNINGS FROM AMAZON AND INTEL, SQUEEZING IN THE BANK OF JAPAN INTO THE WEEKEND. MARK LEHRMAN WRITING, AI IS AN UNSTOPPABLE FORCE FOR INVESTORS. THE REAL QUESTION IS HOW TO PLAY IT. MARK JOINS US NOW FOR MORE. WELCOME. HOW DO YOU PLAY IT, AND HAS IT CHANGED A BIT? MARK: I THINK YOU ARE SEEING EXPOSURE GO UP AND DOWN ALMOST DAILY FOR FUNDS AND INVESTORS. THAT IS THE TUG-OF-WAR WE HAVE SEEN YEAR TO DATE AND PROBABLY GOES INTO 2027. I THINK IT IS ALL ABOUT EXPOSURE AND THE BIG ISSUE FOR INVESTORS IS IF YOU THINK YOU ARE EXPOSED, YOU ARE UNDER OR OVERREPRESENTED THAT BECAUSE THERE ARE SO MANY ANCILLARY PLAYS. AGAIN, THAT IS THE ISSUE WE WILL FACE THIS AFTERNOON WITH THE EARNINGS GOING INTO 2027. LISA: WE HEARD A LOT OF PESSIMISM FROM WALL STREET AND NEW YORK. I WONDER IF THERE IS A SIMILAR FEELING IN SAN FRANCISCO OR IF IT IS A COMPLETELY DIFFERENT VIBE? MARK: THE VIBE OUT HERE IS OPTIMISM, OBVIOUSLY. THERE ARE A LOT OF PEOPLE WHO WORKED IN THE TRADE, AND THIS IS THE HUB OF INNOVATION FOR THE AI TRADE. I WOULD SAY THERE ARE SOME PEOPLE WHO ARE LEERY OF THE SCALE OF WHAT WE ARE ABOUT TO MONETIZE. I THINK THERE ARE SOME RAMIFICATIONS FOR THAT THAT ARE EQUALLY AS IMPORTANT. BUT REMEMBER, SAN FRANCISCO HAS 800,000 PEOPLE. THERE IS NOT ONLY ECONOMIC REALIZATIONS WE HAVE TO FIGURE OUT BUT THERE ARE SOCIAL IMPLICATIONS THAT WE ARE AT THE CENTER OF THAT AS WELL. LISA: THAT IS THE REASON WHY I WAS ASKING BECAUSE THERE HAS BEEN A BIFURCATION FOR A WHILE THE SKEPTICISM FROM WALL STREET, CONCERN ABOUT THE FINANCING, AND THE HOPES OF DREAMS OF WHAT AI CAN REAP. COMING FROM SAN FRANCISCO, IT IS PRETTY OPTIMISTIC. I WONDER IF THERE IS SKEPTICISM ON WHAT THE RETURN ON INVESTMENT LOOKS LIKE FOR SOME OF THESE COMPANIES AND WHETHER THE BUYERS OF SOME OF THESE AI SERVICES FEEL LIKE THEY ARE MAKING ENOUGH ON THE OTHER SIDE TO JUSTIFY THE EXPENDITURES. MARK: THAT IS A PERFECT QUESTION. I THINK THE ISSUE IS IT AN ISSUE FOR CITIZENS. IT IS DEEP EMOTION AND WE ARE SEEING THE RETURNS OF THE EARLY SIDE. WHAT IS THE INVESTMENT FOR THE LONG-TERM? HOW THIS BUY AND WE WILL GET IT BACK IN THE END IS A QUESTION MARK. THERE IS NO STOPPING THIS FREIGHT TRAIN AND THE RAMIFICATIONS OF IT FOR ANCILLARY INDUSTRIES IN DIFFERENT PARTS OF THE ECONOMY, BUT I DO THINK THERE IS A REALIZATION, AND I THINK THE GREAT TEST AHEAD IS ANTHROPIC'S IPO. EARLY ON IN MY CAREER, SOMETHING SAID IF YOU ARE PRIVATE, YOU CAN TELL ANYBODY WHAT YOU ARE WORTH AND AT 9:30 IN THE MORNING, A COMPANY TELLS THE WORLD WHAT IT IS WORTH. ANNMARIE: IT WILL BE A LITMUS TEST. WHAT DOES THIS MEAN FOR OPENAI? MARK: IT MEANS A LOT. IT SHOWS WHAT KIND OF UMBRELLA MARKET CAP YOU WILL SEE FOR ANTHROPIC. OPENAI HAS BEEN RELATIVELY QUIET AS OF LATE, AND THAT IS A POSITIVE. THERE WAS SO MUCH NOISE THIS SUMMER COMING OUT OF OPENAI AND ALL THE THINGS WE HEARD ABOUT AND WRITE ABOUT. IT HAS BEEN RELATIVELY QUIET AND I THINK THEY ARE DOING QUITE WELL KEEPING WHAT IS MOST IMPORTANT, WHICH IS THEIR PRODUCT MOVING FORWARD. I THINK THAT CALM ACTUALLY IS A GOOD THING FOR THEM. JONATHAN: WHY DO YOU THINK IT IS A GOOD THING AS OPPOSED TO GOING PUBLIC AT A TIME WHEN MANY OF THESE GUYS ARE ASKING TO BE REGULATED AND AN INCREASE IN TRANSPARENCY? MARK: A COUPLE OF THINGS. ASKING TO BE REGULATED AND BEING REGULATED ARE TWO DIFFERENT THINGS. WE TALKED ABOUT IT ON THIS PROGRAM. FACEBOOK GOT IN FRONT OF CONGRESS AND BEGGED TO BE REGULATED. WHAT WOULD HAPPEN? BASICALLY NOTHING. ASKING TO BE REGULATED AND BEING REGULATED IS TWO DIFFERENT THINGS. SECONDLY, THE TWO OF THEM GOING PUBLIC AT THE SAME TIME WAS NEVER GOING TO HAPPEN. I THINK ANTHROPIC WISELY WENT FORWARD AND TOLD THE STREET WHAT THEIR NUMBERS ARE AND TOLD THE STREET WHAT THEY ARE LOOKING FOR. THE UMBRELLA OF WHAT OPENAI GARNERED IS EQUALLY AS IMPORTANT. JONATHAN: THANK YOU, SIR. GOOD TO SEE YOU. HEADING INTO RESULTS FROM GOOGLE AND MICROSOFT AFTER THE CLOSING BELL. WHAT A LINEUP WE HAVE FOR YOU LATER ON THIS AFTERNOON. KICKING OFF OUR COVERAGE AROUND 1:30 EASTERN TIME, THE FED DECIDES. TORSTEN, MATTHEW, PRIYA, JEFFREY, AND A LOT MORE. LISA: AT A MOMENT WHEN THIS WILL BE A DECISIVE PRESS CONFERENCE GIVEN THE LACK OF RHETORIC FROM CHAIR WARSH AND ALSO GIVEN THAT A LOT HAS CHANGED ON THE PERCEPTION OF FINANCING OF AI. TO YOUR POINT, THE SEQUENCING. DO WE GET THE POTENTIAL EFFICIENCIES IN TIME FOR THIS BED TO BE A BIT MORE PATIENT JUST A BIT LONGER WITH INFLATION? ANNMARIE: I CAN'T WAIT TO WATCH. [LAUGHTER] JONATHAN: NICE. ANNMARIE: IT IS GOING TO BE GREAT, GUYS. JONATHAN: NICE. GOING TO DROP BY? ANNMARIE: NO. JONATHAN: WE HAVE A SEAT ON THE TABLE FOR YOU. ANNMARIE: IF IT GETS POLITICAL. JONATHAN: WE WILL SEE WHAT THE PRESIDENT SAYS IF THEY DECIDE TO HIKE. ANNMARIE: TRUTH SOCIAL IS GOING TO BE WILD. JONATHAN: LIVE FROM NEW YORK CITY, LOOKING FORWARD TO COVERING THE EVENT LATER ON. THANK YOU FOR CHOOSING BLOOMBERG TV. THIS WAS "BLOOMBERG SURVEILLANCE ." ♪