Show notes
Brad Stone, Bloomberg News Senior Executive Editor for Global Tech, shares his AI insights from the World Economic Forum in Davos. Wedbush's Dan Ives details his takeaways from the CES conference. Dana Telsey of the Telsey Advisory Group discusses the strength of the US consumer in the wake of retail sales data. Charles Schwab's Liz Ann Sonders ties in Led Zepplein with her markets outlook. Hosted by Tom Keene and Damian Sassower. Get the Bloomberg Surveillance newsletter, delivered every weekday. Sign up now: https://www.bloomberg.com/account/newsletters/surveillance Full Transcript: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along with Jonathan Farrell and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. He is definitive on Amazon of course, the Trophy book right now Amazon Unbound. Jeff Bezos The Invention of a Global Empire. He joins us from Davos, the meetings of the World Economic Forum at brad Thrilled to have you with Bloomberg Surveillance this morning. Let me cut to the chase. I see AI at Microsoft is countable, revenue, co pilot, azore all the rest of it. And I see a lot of other AI is smoking mirrors. How do you parse between legitimate artificial intelligence future and the makeup, the fantasy, the comedy of it. How do you parse? Oh? Boy, well, thanks Tom for having me. Hi Damien. Look, I've been covering Silicon Valley long enough that I've seen this story play out before. We're at the beginning of a hype cycle. There will be disappointment a lot of you know, the visions of Agi computers that reason that change our world, they seem far fetched, you know. There there we talk about a trough of dissolutionment that will happen. But you're right that there you know that there are real revenues, real benefits. Yesterday, Microsoft announced that it was bringing its open AI powered co pilot to the office seat, so you know at twenty dollars a month, making it available small business as an individual users. That's real. Yeah, brtt I signed up last night. I was going to be reack. Can you see me, Damien? Can you see me do an artificial Intelli get out of the way. Fred. If I look at this, can you say that the Magnificent seven they seem to be away from the hype. How is the Magnificent seven going to create revenue and cash flow out of AI? Yeah? I mean they're the best position because they're they're they're selling the picks and shovels to all the miners. You know, this is Alphabet and Amazon and Microsoft running the world's most powerful cloud services and making basically AI available as a service to every university and startup in consumer goods company that you know wants to use these tools for a variety. It's it could be R and D could be customer service. So you know, even even though that'll be a work in progress there, the revenues will be real. My question for Santia Tom by the way yesterday was you know, do you control any of this. You're you're investors in open AI. You don't even have a board seat. You're like in the back of the bus with a seatbelt, and it's got such peculiar governance. And he said, you know, it's fine, we just want stability. So I don't know if I quite believe it. I think they're outsourcing a key competency. But they're in the cappards seat, the driver's seat because they did make that investment. I'm sure the Amazons and the Googles of the world wish that they hadn't passed up the open AI opportunity when they had the chance. Well, Brad, I appreciate you answering those two questions from that artificial personification of Tom Keen that wasn't really Tom Keen answering those questions, And my question for you is talk to me about deep fake videos X these platforms. What's to stop open AI and chat, GPT and all this artificial nonsense from mudding the waters ahead of the election? Yeah? Well, what it's funny because it is really the talk of the conference that you've got national elections in some seventy seven countries around the world. Half the world's population could head to the polls at the same time as this enormously powerful technology is made available to people, and what's to stop it from being missus? I know this is going to carry a lot of water with our listeners, but you know they are raising their right hand and putting their left hand over their hearts and saying, we're not going to allow our technology to be abusing. They really understand the risks. I mean, I mean do they? I think they do? They? I think they do because we've all seen this movie before and meta its reputation went through the meat grinder because social media was perverted. You know, yesterday, it's no surprise that Sam Altman's here. He spent time with us at the Bloomberg House, and before our interview, they posted a statement on their blog on their election policy and said that chat GPT cannot be used for any political campaign. And they said that images generated by DOLI, their their image maker, will carry a cryptographic watermark to show the providence. And but you know, and my question for Sam was like, these are great intentions. You've got the weight of all the black cat developers trying to break this stuff. How to enforce it where Meta and Google and TikTok have all kind of let failed it with the genie out of the bottle, right And he said, you know, they're aware of the risks. So I do think it's going to be a rocky year with some of these elections, and we're going to see this technology abuse, right, brand I'm sure that no one can forge those crypto water marks. I have one last question. I mean, my colleague Tim Craig had from BI is actually in Davos listening to Altman, and he said, I mean, you know, Paulman obviously spoke and he was talking about how AI will make people more productive. Talk to us a little bit about that narrative. The great worry is that when this technology is fully implemented, that there will be a great dislocation of workers at low level level programmers, customer service agents, you know, in en mass replacement along with productivity, and it will worsen the digital divide, and you'll have countries that are particularly hard hit, and it could lead to further political alienation and you know, maybe more or autocratic government's or real nightmare scenario. So you know, that's the worry. And I think the stewards of this technology, you know, Davos is the land of performative optimism, I kind of like to joke, And so of course they're saying that it's going to increase productivity and we're all going to lead better lives working less. You know, maybe Tom will get to sleep in one one morning when AI kind of takes over. But I don't know. I mean, you know, the I think it will make people more productive, but I think it might replace some jobs as well. More question, I think it's what everyone knows. With your your ownership of Amazon and all you've done with the Amazon unbound, They've gone round trip massive post pandemic collapse. The come back is the next Amazon, Josie's Amazon. Is it going to make total return like we've known over the last decade. Excuse me, so you're asking me about the stock price. I mean it's it's yeah. I mean, look, if I could predict it, I'd probably be in a different line of work. I mean, I do think. You know, Andy Jassey is now a couple of years into his tenure. He is and by the way he's here at Davos, he has pared back some of the excesses of the late stage Bezos that we just saw another round of Laos. This is becoming a very lead and efficient company as he bets on the core competencies, which is AWS and the Amazon marketplace, empowering third party sellers. They've got their work cut out for them. But I do think there's a bit of momentum there. Brad Stone from the meetings of the World Economic Forum, I can't say enough about his new book, Amazon and Bound. Jeff Bezos, The Invention of a Global Empire, Joining us now the Tech Pignata of two twenty four. Daniel Heize joins us in Webbush. He's been traveling ces Las Vegas, joining us today from Warsaw Poland. And what you learn at Las Vegas at cees don't give me the mumbo jumble. What was the backstory in Las Vegas? I thought it's about Ai just how mainstream the technology is getting. I mean, tom My opinion, the biggest cees in the last twenty five years. It shows this AI revolution it's not hype, it's real. It's on the doorstep. I want you to talk Dan Ives, and this is what you don't see folks, as Dan Ives is doing the media blah blah blah by this apple. The gloom crew hates them, but beneath it is careful financial work. Can you quantify what the new announcement of AI over to Microsoft three sixty five, like, can you add up the impact of that to a giant company like Microsoft. It's when you put it together, this is going to be eight hundred billion to a trillion of incremental value to the Microsoft story. I mean they are leading the AI revenlue with the Della and Redman, along with the godfather of AI jents and the video Tom I think the monzation that's happening in Microsoft is still so underappreciated in terms of what we're seeing in the field. Dan they're asking for more money, I mean they're asking for more computing power, more hardware, more technology. They say, this is not just big, it is massive. It is huge. Do you agree with that. I think it's the biggest transformational tech we've seen since Star of the Internet. And that's why enterprises they're lining up. Conversion could be sixty seventy percent. And that's why as Tom's talking about the doomsayers again, you know, obviously negative untech, I think this earning season turns that around because the real monization of AI is here. It starts from the Della and Microsoft and Dan. I mean the real I mean you just said it right there. Don't you need access to data, to unique data sets in order to basically make the AI go. And so when I think of Amazon, okay, find they've got access to consumer data, I think of Microsoft. It's everything else. You know, people on their computer and talk to us about these companies and the data they have access to and how that's going to differentiate them in the environment you're talking about. I mean, it's a new age. And that's why when you look at the cloud, the big hyperscale players, Microsoft, of course, Amazon, Google and others, they've had the data sets, but they haven't had the tools that they can monetize and make intelligence. That that's why the use cases are excluding. That's why this AI revolution right now, I believe it fuels is new tech bull market. I a February second, We're going to get Apple earnings. It's a ballet. I actually sit down with the beverage of my choice folks at the home computer after the surveillance n APP and what's a joy here? Is they release like other firms, a press release that's clear and in English? Dan ies, what are we going to see in the treatment of the four accounting statements from Apple? Four pm, February second. Yeah, look, that's the drum roll, right, And I think when Cooper Tino comes out, the big thing is going to be services. We are looking at team type of growth for services and that's key that could really be incrementally we need that as a one point five to one point six trillion services the margins double out of hardware obviously all focus on iPhone units. Despite obviously many yelling fire in a crowd theater, I actually think it was a pretty strong iPhone unit number. Okay, wait, well, want to get upside of the track now, Dan knows a drill, Damian pick it up here. Okay, But I'm sitting there with the beverage in my left hand, looking at the accounting statement, and the media is not readjusting the currency iPhone sales as mister Ive says, we're pretty darn good. And then you had to figure in dollar currency adjustments. Whoa doom and gloom? I mean, Ives is one hundred percent right about the iPhone of the global market, Tom. I mean, it just passed Samsung as the world's top phone in the full year twenty twenty three. But I mean, Dan, here's my question. What companies are best position to profit from what you're talking about here? I mean, is it the chip makers? I mean what sort of hardware companies? Is it software? I mean, what are you seeing? I think it's software and chips. When you look at names like Microsoft, the Magnificent seven, you can Microsoft, Google, Amazon. Then you look at some of these names like Mango, dB, Salesforce, dot Com and of course a MD with Lisa Sue and chips. This is the start of this tidal wave, A trillion dollars of incremental spend next decade. That's how this is all going to play out. Software and chips leading it. You know, I got one more for you. I mean, if you're a new company with you know, and you're in the AI boom, and you know you've got the talent, and you know you're competing. Where do you want to be located? Do you want to be on the West Coast? Do you still want to be in Palo Alto. I want to be based in a five one two area. Oh. Really, that's new look and that's what that's that's that's a silicon value two dot of you're seeing that boom more and more for AI engineers, and I think that's really started the new age that we're seeing from an AI perspective. Well, we'll help our international audience. What is Michael Dell and Venna down in Austin to the two of you, Damien? When you think five to one two South Congress, I think of South Congress. I think of barbecue. I mean I think of Austin, Texas. I mean that is the Los Angeles. I think of Joe Wisenthal's band myself. I think they're you know, outstanding dan Ees. What's special about Austin, Texas. I Mean, there's a lot of things special about Austin, Texas, but the engineering talent that that's been created there, obviously outside University of Texas, is really unprecedented. It's one of the you know, more and more tech companies from Google to of course Tessa to Meadow moving down there, and it's really becoming a really go to destination for tech leaving the four one five, going to the five one two worldwide on Bloomberg surveillance. And it's time now to make some news. You got a two hundred and fifty dollars price target on Apple. Can we lift that up to day? Miss Graves? I mean, look Tom, I mean you talk the bolt case. This will be a four trillion dollar mark ab we believe by the end of this year. I remember AI. There's zero dollars given for AI in Apple's valuation. That's why this is it. Get that popcorn ready in the key in household when they come out with that AI and au June from Warsaw poland a trooper to be with us in his travels. Dana is a Webush of course, outstanding work by him. It's he's with Webbush Security is optimistic on Apple and computers. Right now, we're going to talk about the pulse of the Christmas holiday this season that we saw. There's just no one better to do with this than Dana at Telsea with all of our heritage at the corner in Fifth Avenue in fifty seventh Street, her family's heritage, and she's done it in securities analysis per year at Dana, you were right, the gloom crew was wrong. What did the people of caution get wrong about retail America into the end of the year. I think overall, and Tom, thank you so much for having me. I think overall. One of the key things that was the difference is we had Christmas that was later this year, so people had more time in order to procrastinate, and so really everything was driven around the event days, whether it was the Black Friday weekend or then that week leading up to Christmas. It's what made the difference. It's not that holiday sales were so great, but goods sold at full price inventory levels only, and sales came in line with expectations for the most part. And as a Dana Telsea Microeconomics Damien sasaw or what she just said there goods sold at full price was to me my observation on it. You know, I'm curious, Dan, I'm curious to here we got some China date overnight, right, I know, I just I'm pivoting away here, but I mean, wow, that economy is sluggish, and I think a lot of the big luxury goods LVMH carrying her mad I mean, they were a pretty big overnight in Europe. Talk to us a little bit about what that GDP figure means to you, what it means to me, especially for luxury and I spoke last week to the CEOs of Neiman, Marcus and Sacks, and they all talked about the slowing and more challenging luxury goods environment. Look at Berbery's numbers, which we were just released at the end of the week last week, it talked about the slowdown and in Europe, the local slowdown spending and you're still not seeing the Chinese come over and spend, whether in Europe or in the US, anywhere near what we had pre pandemic. We're gonna get next week LVMH. And I think all eyes are going to be on what they say about the deceleration globally. Is there Tiffany experiment working out for those of you internationally? We have two blocks away from us, really across the street from where Dana grew up, Tiffany's with one hundred million dollars or so investment by the Arnoul family. Has that experiment been successful for LVMH. It has. Not only has it been successful, but also they garnered profitability much quicker, frankly than when it was a public company. And the way they've done it, they modernized the store, they've modernized the products. They've brought in influencers, celebrities that appeal to younger consumer. Think about it. You're talking about engagement jewelry. When do people get engaged twenties and thirties want to have a store to cater to that demographic. She's just joining us on Bloomberg surveinglist. Dana Telsey, the Telsey Advisory Group. She and Joe Feldman with great work across all of retail. And I know Damien Missus Sassa are called me up. She said, you got to ask about the ani there leathern Red Soul Christian labby Tom Boots one thousand and five hundred ninety five dollars. It's a way to get through the snow drifts. Yeah, no, I'm not in New York City. I'm not worried about demand with Missus Sasa right there. But what I will say and Dana, And this is my question for you. You know, El Nino, right, input costs, margins, you know, talk to me about the impact of El Nino on cotton prices on some of these things. I mean, do you see that kind of trickling through to the bottom line? It does? I mean one of the things keep in mind all the freight expenses and the tailwinds that companies got from lower freight costs in twenty twenty three. Apparel, it's going to benefit with lower cotton costs in twenty twenty four, but maybe not to the same magnitude. We're still going to need some level of sales leverage. And there are two drivers in twenty twenty four. It's about innovation and it's about value. You have those two elements and you'll have a formula to drive sales growth. So talk to us also. I mean on the input side, I mean, what are you thinking here? I mean, gas prices are now ticking up. Obviously we didn't see much evidence of that in the retail sales print. But you know, how does this really impact some of these you know, these large luxury goods companies. I mean, do you see any pack there? I don't for certainly for raw materials, cost increases, luxury goods. Companies have the power frankly of being able to raise price. You're certainly seeing Chanelle do it trying to reach what Ourmez is doing. But all the others you're not seeing price increases like you had, and they're managing their inventory much more carefully. I gotta go get your away from March data. Telsey, tell me about your single best buy when you and Joe Felman get to work. Where's the value? Is it in big box? Is it in middle of the road or is it in lux I think overall, definitely. I think when the weakness and luxury, like any weakness in LVMH, I think that's an opportunity. But really it continues to be about off price and discount. Given what you've seen in the moderation consumer spend a low TJX I mean air Mez, I mean, I guess leading Away is being least affected. Why are they trading at a multiple of forty seven times earnings? Because, frank when you think about something like Ramez, there is so far there is no level of supply where the demand doesn't exceed the supply. Miss yeah, perfect, I mean to interrupt Missus Sassar's on the phone. What's the question? She only shots at the Ponsovecchio in Florence. Tom Now, I mean, you know, I was just in Europe and I have to say, I mean there was a lot of foot track in some traffic in some of these places. And you know you talk about Hugo Boss, you know who had disappointing operating profits. I mean Berber you mentioned them. I think you know, the things seem to be turning around here in Europe. That's good to hear. I think that would help all a luxury. Lisa Mateo's here as well. She wants to ask the question. Lisa Matteo, question here for Dana Telsea to get your retail days started. Ooh, all right, what is the hottest? What should I be looking for? As far as you hear these talks about selling back those fashionable high end pocket books, if I just happened to have one at home, what's the remarket value of something like that? It depends if it's an ermez bag, whatever market value you walked it out of the store of or tried to bring it to someone to sell, it's higher. And for some I've heard it's at least ten percent higher. Even the day it walks out the door, it holds its value. What's the greatest brand destructure into Lisa Matteo's brilliant question, which is the bag Lisa wants to unload this morning? Do you want a higher price? A Birken or a Kelly? Is your bag that you're going to get a higher price? Dana Telsey, thank you. So it's give me a single best buy, please, I need a name here. Give me a single best bike. Go to TJX. Believe me, it's the winner for twenty four and they have the Kelly bag as well. Dana Telsey, thank you, thank you, thank you so much. On the real retail of America now joining us to piece it Together's liz Ane Saunders, chief investment strategist to Charles Schwab, She's in charge their led Zeppelin division or thrilled that you could join today. I look at the market and I need a whole lot of love here, and to me, the whole lot of love is going to come from six trillion dollars in money market funds. How much of that is going to go? At Schwab over to the equity market. I wouldn't necessarily count on a lot of it. I don't think that that should be seen as money that is poised to jump into the equity market. I think a lot of that is stickier money that might have been in other places, including traditional deposits, or in riskier places in order to pick up income that now can be in the safety. And also, yes, six trillion dollars is a record, but we're nowhere near a record as a share of total stock market capitalization. All you have to do is look to the nineteen nineties to see a period where you consistently saw increases in the amount of money and money market funds commensurate with the increase in the stock market, the drivers being different. So I don't view that as some sort of moment in time source of additional funds that would flow into equities. Right now, I'm confused because I get a stream of thought that people are cautious, nervous, and I get another stream of thought that everybody, including damiens ors O Pair, is in the market. Which is it at Schwab, is there an enthusiasm by your clients for equities? I think there's cautious optimism I wouldn't consider it over enthusiasm. In fact, if you look at attitudinal measures of investor sentiment more broadly than Josh Schwab, although at seven trillion dollars we're a pretty big slice of the retail investing universe. But if you look at attitudinal measures like AAII, those are purely attitudinal. It's survey base, and that's jumped around quite a bit, and it's just there tends to be more of a knee jerk reaction to what's going on in the market moment in time. But even within that survey you get the equity exposure, and at times where you've seen bearishness really pick up fairly quickly, it's not met with a similar move down in equity exposure. So I think when looking at sentiment, you've got to look at the marriage between the attitudinal side and the behavioral side. Interesting and of course, in the nine o'clock are here Wall Street time, Damien Sassar has been medicated to tang mimosas have clicked in Damien. No questions to lizan on Indonesia. Okay, I'm not going to channel Robert Planting led Zippelin led Zeppelin now Lizan, but I am going to channel Pink Floyd. I'm gonna channel Roger Waters. Here are the markets comfortably numb to the concept of a FED cut in March? I mean, let's be clear, I mean like, this is unbelievable that you know the markets are priced that way, yet you know it seems to becoming fast becoming consensus. What are your thoughts on that? So we have seen a bit of a shift, particularly with with today's retail sales report. So a week ago, if you look at probabilities in terms of FOED funds future market of what's going to happen at the March FOMC meeting, you were up at around sixty five percent probability. I think that's down to I don't know, fifty seven or fifty eight percent now, and it's been kind of a moving target. So I think the market may slowly be adjusting to what. Frankly, most FED speakers have been trying. The message they've been trying to impart is you know whoa all l squel. It's given what we know now, it is probably not a backdrop supportive of not just starting as soon as March, but the FED providing you know, six rate cuts this year. I think that disconnect still exists, it's just not as wide as it was even a week ago. So then lusanna backuping yields means, I guess from the equity perspective, you want to get a little bit more defensive. What areas of the market would you go to to protect to protect in this type of environment. I mean you would think classic defensive sectors like you know, utilities. I mean, I mean, look at where valuations are there, I mean, what works in your portfolio. Well, so there are the classic defensive sectors like utilities. Then there's this era's defense sectors, which incorporates what I call the growth trio of tech communication service as a consumer discretionary of course, housing all of the Magnificent seven and really all the way back to the early part of the pandemic. That's been this era's defensive type names. And that's because of strength the balance sheet. They don't have to rely on funding in the traditional banking system or even in the capital markets. So defensive is just a descriptor. It's not some well determined type, and it is quality and you know, it's specific to the beginning of your question with this direct relationship in yields, I mean the peak and yields. It gave us the big move up from late July, I mean from late October until the end of the year. But then we saw that bottom end yields, and that meant we saw the market rollover, particularly small caps. And one of the things we've been saying, especially with small caps, do you know there's money that's once to find ideas down the cap spectrum, but do not sacrifice quality, particularly when you go down the cap spectrum. So you want to still have that strength of balance sheet, interest coverage very importantly, especially as yields tick back up again, strong return on equity, have an actual earnings profile, don't be a zombie company or a non profitable company. And I think that's a lesson being taught in the last few weeks. Well, Lazan, I do have one last question there, what about this low volatility factor. I see a lot of investors moving into low VALL as sort of a defensive way of approaching the equity market. Here, how did those sectors screen from a low VALL perspective? So it's a factor that has done well when the other quality factors have been doing well, when you get these moves shifts in expectations for either FED policy or the economy, and you see it reflect and yields. You can go through short periods where you get higher volatility, higher variability as factors that do well. I think those you probably want to fade those lower quality factors, And I think low volatility maybe not as important as it was last twoar but I still think it's in the basket of quality oriented factors. Lisanzi, your iconic work. How for our listeners are viewers on YouTube? How do you avoid a Boeing? How do you avoid a Disney? How do you avoid blue chip stocks that blow up? Well, don't have a heck of a lot of your portfolio invest in any one name or even group of names. So I think that that's one of the messages that come from things like the mag seven. There's nothing wrong. There's a reason why those stocks have done well because they check the boxes on so many of those quality factors. But be mindful of volatility and portfolio based rebalancing. You know a lot of investors do the rebalancing based on the calendar. They might do it once a year, at best once a quarter. But our message has been let your portfolio tell you when it's time to rebalance, even at the individual stock level, where the moves in your portfolio are going to dictate when you add low and trim high. Maybe don't focus so much on doing it at the calendar. Okay, trigger, stop the show. This is the single most important insight of the day for all of you listening and watching. I can't say enough the importance of moving to a Sander's percentage ownership rebail versus a calendar gimmick invented by marketing people that have never owned a share of Anaconda Copper in their life. Liz Anna, what percentage is a vanilla statement? Do you rebail? Is it when something gets the five percent of portfolio? Or is there a Sander's magic number. I don't know that there's a magic number for individual investors. Keeping mind though, that part of the issue with the mag seven and how big they've become as a share of the SMP recently hitting thirty percent, is that even institutional managers, whether it's mutual funds or even ETFs, have perhaps on how much they can own if the S and P. If someone just said, hey, let's create this index and here's what's going to look like. It wouldn't actually pass muster or securities regulations, not to mention the fact that many fund managers can't hold such a large share of those names. So you can use that as maybe not an exact guide for what percent becomes too much, but this notion that there are going to be a lot of institutions that simply have to trim because of their own guidelines on how much they can own of the stock. Just in many cases it's fibers. We've got to interrupt with. And just in from led Zeppelin News, Robert Plant will tour the United Kingdom with Saving Grace. Look for that two thousand and twenty four. I want to see him tour with Jimmy Page and John Paul Jones and Jason Bottoms. So that's what I'm waiting for. That's what she's waiting for, and she will be there in the arena when they do that. So well, Lizzie Siders, thank you so much. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern. I'm Bloomberg dot com the iHeartRadio app tune In, and the Bloomberg Business App. You can watch us live on Bloomberg Television and always I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and this is BloombergSee omnystudio.com/listener for privacy information.