00:00When we think about the sort of litany of challenges that investors have to face right
00:04now, that corporate executives have to face right now, what's the number one thing that's
00:09concerning them? I think it's a trifecta, right? It's not number one. It is the economy, it is the
00:14war, and it is AI. So these three things are coming together. You know, equity markets react
00:19on a daily basis to what's going on in the war. That's not how corporate strategy works. Like,
00:23you can't be making these daily things. So, you know, what we're looking out for is what I call
00:27the three Ds when it comes to the war. It's duration, devastation, and disruption. So
00:31duration matters. The shorter the war ends, the more, you know, corporate strategy is not affected.
00:36Devastation, you know, are energy assets actually devastated by what's going on, or can they open
00:39back up quite quickly? And how much disruption is there to global trade? Even if the war ends next
00:44week, if there's devastation, disruption, it will be months, if not next year, before we see some of
00:49these gas prices normalize. So that's a trifecta that's going on right now. But of course, these
00:53three things really do relate to each other. I keep thinking about, we keep thinking about,
00:57and it's something that came up in Milken Conversations, supply chains, right? I mean,
01:01everybody's doing this data center build. They're talking about they need energy,
01:05but they also need components to build all this stuff. And that's true. Pick your industry.
01:09Everybody, I think, is more domestically looking at what they can do to protect those supply chains
01:14and just tell you they're having multiple outlets. That, to me, whether the build out or having
01:19redundancy, is going to cost the world more. And just to me says, we live in a higher
01:24inflationary environment. I can't if I say this enough, like, chaos has a cost, right? And the
01:28more chaotic the environment is, the more of a cost corporate leaders and CEOs have to pay.
01:33Now, the great leaders are actively on a day-to-day basis saying, how can I not pay this cost?
01:38But chaos has a cost in stall decision-making and analysis by paralysis, and in all the redundancy
01:42you have to put into the system, especially the supply chain. Look, even if we wanted to bring
01:47all of this domestic manufacturing back to make the data centers, it would be years. We're not even
01:51close to that. So our global supply chains have had a COVID shock. They've had a tariff shock.
01:56Now we've got what's going on with, you know, different things closed. So it's quite a lot
01:59right now. And again, this chaos has a cost. What do you need to actively manage down on a day
02:03-to-day
02:03basis? What does that cost? There's a tangible cost, right? Because slow decision-making or paralysis,
02:09you know, paralysis has a real cost for organizations, and the hidden one is actually the scariest.
02:13So when organizations keep delaying and delaying, we always give ourselves these artificial
02:17deadlines. You know, we'll just wait until after the war to make this decision. We'll just wait
02:21until after the Supreme Court decision. Every time, Carol and Tim, you keep punting a decision,
02:26you actually, as an organization, lose a growth and performance muscle. You know, growing and
02:31executing in the market is a muscle. And the more you put your teams on hold, you actually lose that
02:35muscle. So the mid- to long-term cost of chaos is much higher for organizations. They're actually
02:40losing this discipline and this execution muscle, which is why when we have these chaotic times,
02:45we see such a separation of the great performing companies and the average and the many who just
02:49don't fare very well. And then there's also the cost of people. And, you know, there's a story that
02:53we've been talking about. Executives across retail, restaurants, packaged goods are increasingly
02:57worried about U.S. shoppers with tighter budgets amid surging gas prices caused by the conflict in the
03:02Middle East. And Tim, you talked about this. The Kraft Heinz CEO saying they're literally running,
03:08excuse me, out of money at the end of the month. We're seeing negative cash flows in the lower
03:12income brackets where they're dipping into savings. We have a lot of folks around this table who talk
03:17about market highs and wealth creation. I get it. That's all good. But it's not trickling down.
03:22And I feel like there is a cost to society and economic growth and just, you know, our quality
03:28of life here. So the K is here to stay. And some folks who want to argue against it will
03:32find these
03:33micro data points. But the K is here to stay. The K-shaped economy is here to stay. And we
03:38continue
03:39to have more and more data reinforcing it. Now, it's not accelerating as much as it was at this time
03:43last year. But the data is still showing that our equity markets are being propped up by a very small
03:47number of consumers. Consumer spending is led by a very small, and 50%, still that 10%, that figure
03:52last year still holds. And if you dig into retail sales data, we had a slight bump in March with
03:58almost
03:58completely correlated to the tax refunds. And I caution CEOs, this is like an insulin shock. Like, you got a
04:04little bit of it from those tax refunds, but that's going away.
04:06If the K is here to stay, does it get more pronounced? And the reason I ask is because if
04:11wealth concentrates with a smaller group, but they get more and more of it, and then a larger group
04:16gets less and less, then that's a recipe for political unrest.
04:19It's a recipe for political unrest. I have the very annoying, it depends answer on to whether or
04:23not it accelerates. And it comes down to those three Ds. If duration is long, if devastation is
04:28there and disruption happens, then the K will definitely exasperate because that's what's going to
04:32happen. You know, energy is a small percentage daily spend for an American consumer.
04:36But energy as an input is a large percent of that monthly wallet. And wages are relatively
04:41stagnant in the U.S., especially at the lower part of that K. So we are getting very distracted
04:46by headlines that say, hey, the U.S. GDP is growing, equity markets at an all-time high. Those
04:50headlines are all true, but it disguises a very nuanced storyline that matters to the majority of
04:55companies in the U.S. who have to serve both parts of the K.
04:58Okay, layer on top of that artificial intelligence.
05:01Yes.
05:01Coming up also, our conversations came up at Milken. I can't remember who it was, but
05:06I think it was one of the big PE giants, but just saying that blue-collar jobs, it's going to
05:11be
05:11great for all the building, but you know, you're not going to be building forever. So at some point
05:15that goes away. But I just, when you layer A on top of it, what are you hearing from executives
05:20and
05:20heads of organizations? Are they like, I don't know the cost? Or yeah, it's making it so that I don't
05:26need as many people in the office.
05:27The headlines about replacing jobs with AI are incredibly overstated. There are only a handful
05:33of companies who have actually replaced jobs with AI. There's other R's that we're seeing. It's
05:38reallocation, right, and restructuring. So a lot of spend is being reallocated. I've got X billion
05:44dollars in free cash flow. I need to now fund the data centers. I'm reallocating from hiring new teams,
05:49or I have to lay off teams to do that. We're also seeing restructuring. A lot of companies were not
05:54fit for growth, right? They have been over bloated, too much hiring since COVID. We see that very
05:59empirically. There's a restructuring going on, and frankly, a rectification for some past lack of
06:03discipline. So those are the R's that you're seeing. Now, Carol, the data is showing that on
06:07entry-level jobs, there are less job openings at the entry level, and that is where we're seeing a bit
06:12of it. So right now, as far as the empirical data, it's case studies, and it's the younger worker
06:17entry-level job.
06:18I will say we're going to hear from Block after the program today. They're reporting. I mean, I feel like
06:23you
06:23were talking about that. That was the criticism when they announced those big layoffs that there
06:27was all this blow.
06:28But Block also built a dual business model for several years with two companies that they put
06:31together, which led to a lot of this as well. And I think this is the issue. Every single company,
06:35and there are very few who are doing these amount of layoffs, there's a real organizational reason
06:39behind it. Now, I'm not saying it won't happen, but where AI is in most organizations now,
06:44it's still what I call dabbling. There's a small percentage who are being deliberate,
06:48an even smaller percentage who are directly linking it to value creation outcomes.
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