00:00Joining us is Philip Richter, president and co-CIO at Hollowbrook Wealth Management.
00:04And, Philip, this is interesting because I think a lot of people get confused or distracted by the sort of
00:11high-tech mumbo-jumbo.
00:13And, of course, you've got the war in Iran and everything else.
00:16But, meanwhile, we're seeing massive investment here.
00:19I mean, massive is an understatement.
00:21I mean, the near-term, Matt, is always cloudy.
00:24It always has been and always will be.
00:25That's why I think it pays to – we think at Hollowbrook it pays to look longer down the road.
00:31So there's a lot of confusion right now in the near term.
00:34There's a lot of spending.
00:36It's hard to see who the winners are going to be.
00:38Is AI just going to be utility or is there going to be definite leaders?
00:42And that's the tough question in the near term.
00:45That's why looking down the long road is helpful.
00:48There's a lot of companies that are going to be long-term beneficiaries of AI.
00:53And they may not even be tech companies, per se.
00:57How do you even evaluate that?
00:59Because it feels like the tail risks are so huge on either end.
01:02Like, on the one end, AI lives up to its promise.
01:05And then, like, maybe none of us are working and white-colored jobs are decimated.
01:09Or on the other side, maybe there is a lot of hype right now.
01:12And it is a bubble.
01:12Like, how do you think about where we are in year six and beyond just given how much uncertainty there
01:18is?
01:18Yeah.
01:18I mean, I think there's a lot of doom and gloom about AI and job loss and so forth.
01:21But I think, you know, Bezos was interviewed, and I think he made a very good comment about digging that
01:25basement.
01:25Do you want a caterpillar or a shovel?
01:27And we're seeing in all of our businesses we own across the board that companies are actually leveraging AI in
01:34very, very creative ways, even if it's just simple data.
01:37But beyond that, I mean, healthcare, you're really seeing it.
01:40Healthcare has always been using AI for 20 years.
01:42But now it's really accelerating.
01:44So we're really positive, actually, on the benefits to a lot of the downstream companies that are not necessarily tech
01:53companies.
01:54There is, I mean, obviously the energy space, Matt, we've talked about that before.
01:58But, you know, in automation, manufacturing automation and all these areas are going to be huge beneficiaries of AI.
02:05And the job losses, I think we've seen this before in industrial revolutions and all the different past innovations.
02:15Maybe it's more severe here, but consequentially the upside of more jobs is possible as well.
02:21Look at all the people that were developing apps 10 years ago that didn't have jobs in those spaces.
02:26There are so many new jobs that could come out of this.
02:29For sure.
02:29I think, you know, every time there's a technological revolution, we freak out about job losses.
02:35And you do have, you know, a bridge period where certain jobs disappear, but other jobs are always created from
02:41the printing press and the cotton gin.
02:43Yeah, Gutenberg, all of it.
02:44Exactly.
02:45Is there a risk, though, that America loses its advantage to a country like China where they can stomach those
02:53kind of job losses?
02:54They continue to subsidize these industries, especially where you point out, like automated factories, right?
02:59They're in some ways running ahead of us here because there aren't really factories here.
03:04That's right.
03:05But I still think, though, that the downstream beneficiaries of AI, whether it comes from China or from us, you
03:13know, humans are innovative.
03:14Businesses are innovative.
03:15They have capital discipline.
03:17And they're going to use these technologies to do greater and better things for humankind.
03:21I mean, we really believe that.
03:23It's going to be rough and bumpy for sure.
03:25But if you take a 10-year view and don't get stuck in the noise of the short term of
03:30tariffs and AI and all these different things in the war and focus on businesses that are well-run, that
03:37are innovating, that are showing the ability to adapt, which businesses today are really good at that.
03:42Look at the growth and the earnings growth of all these companies.
03:45No, absolutely.
03:46And it's unparalleled what we're seeing right now here in terms of earnings growth.
03:51But you and I both read the Bloomberg Big Take story that Albertina Torsoli wrote on last Friday about Chinese
03:59competitors coming to Europe.
04:01And this morning, Michael Dean from Bloomberg Intelligence put out a slide about European companies losing ground in China that
04:09I thought was so fascinating.
04:10If we can pull that up, we're both big fans of BMW and Mercedes.
04:15Well, they just announced some tough news.
04:17Products, exactly, exactly.
04:19And that's to this very point, right?
04:21This is a little confusing because it shows VW, Mercedes-Benz, and BMW over a number of years and forecast
04:27out into the future.
04:28But the main point that Danny pulled out of this slide earlier is for years, Volkswagen was getting 45%
04:36of its pre-tax profit from China.
04:37And now it's forecast to be 7%.
04:40I mean, the losses are amazing.
04:43The European automakers have definitely underestimated China, and I think there are a lot of other businesses here in America
04:48that are doing the same.
04:49But the reality is these companies are at a structural disadvantage.
04:54This is not a cyclical change, Matt.
04:56This is structural, right?
04:57These companies now have to be both things.
05:00Porsche needs to build a 911 that's an ICE because that's what the consumer wants.
05:05But they also have to be innovative in software technology, battery technology, electric drive.
05:13And they're not set up for that in the same way the Chinese are.
05:15They seem to be failing on a lot of fronts.
05:17I mean, number one, they're pulling the stage wagon version of the Taycan, which disappoints me.
05:20That wasn't a good selling point.
05:21And number two, they're trying to introduce fake shifting following the Hyundai Ioniq 5.
05:28I mean, they should be leading the charge, right?
05:30Yeah, they should be, but put yourself in their shoes.
05:34I mean, you know, in Germany, there's the Forgestan.
05:36There's a lot of things that slow it down, the process.
05:40So change is very hard in these companies, in their architecture.
05:44In Europe in general, forget about the auto industry.
05:47So underestimating China is a huge mistake, but then making the changes that are necessary to keep up with China
05:53is very hard.
05:54It's not dissimilar to what happened in telephony in China.
05:57They didn't have a public switch telephone network with telephone lines.
06:01They just put up cell towers, and they went right ahead of us, right?
06:05And so when you go to China, the cell service is great everywhere.
06:08When you go to New York, you can't make a call in Westchester, right?
06:12So that's a, you know, we cannot underestimate China.
06:16But at the same time, we remain bullish that these technologies are going to become part of our everyday utility.
06:23Philip, I would love just before you go, just to get your take on last week and the FOMC, because
06:28it's a market that interpreted what we got as quite hawkish.
06:31And you could look at the dots.
06:32You could look at Kevin Warsh's insistence that we were going to bring inflation to 2% as hawkish.
06:37But then we also got task force, which could also be interpreted as can kicking until we can cut.
06:43What was your overall view of where this FOMC stands?
06:46I actually, I'm very excited about what, how the timing of Warsh, his experience, his acumen, you know, he is,
06:55he clearly understands the government balance sheet problems, and he's addressing it.
06:59Look at the dollar strength today.
07:00That's really a function of his messaging.
07:03You know, he does not, he is very focused on inflation.
07:07He's being measured.
07:08He's changing.
07:09It's really, you know, a new leader at the Fed, a new sheriff in town as far as sharing information
07:15in the way of forecasting.
07:17He's much more of a data-driven individual.
07:19And I think given what happened in 2008 and then COVID and all the monetary expansion, he's actually just what
07:27the market needs at this point in time to bring this back, because inflation is running much higher than indicated.
07:34Yeah, I mean, the dollar is now at its strongest point in year to date as gold falls.
07:4220% off.
07:43Yeah.
07:43So this is, that's Warsh, I believe.
07:45That's Warsh.
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