00:00There was obviously a feeling, and you can see where oil, how fast it moved this morning versus yesterday,
00:05because even yesterday it was up a little bit, but it wasn't moving as much.
00:08I think that this does, you add this to the AI story, and all of a sudden I think you
00:13have a more stormy summer
00:14than we were looking at even a week and a half ago.
00:16So I think it does, it makes a difference, because all of these things play into how portfolios are going
00:21to roll out,
00:22and the expectation was the Fed now had some cover to say, we can wait and see,
00:26and now with this moving around, that might change that math as well.
00:29So how are we thinking about, I guess, the AI trade in general here?
00:33I mean, you own the chips, okay, I get that.
00:36What else are you doing here with your AI trade these days?
00:40Well, it's going to be interesting to see how this plays out, and this was part of a discussion the
00:44other day as well,
00:44which is now that you have some of these chip stocks and some of the questions about what's going on,
00:50is there a rotation back to some of the lag seven this year, because you've seen some potential movement there,
00:56but you look at the bond sale yesterday, and you think, hmm, maybe not.
00:59I mean, it's going to be a question about what happens with CapEx.
01:02Meta may be a one-off, it may not be.
01:04I don't know.
01:04We're going to have to see how that plays, too.
01:06About software, I mean, you know, we saw that sell-off in a lot of the software names,
01:11including such bellwethers as Microsoft, down 25% year-to-date.
01:15I mean, how are you guys thinking about some of those big bellwether software names
01:20that have been so good and so beloved by the marketplace because of the recurring revenue,
01:24the high free cash flow and the great margins?
01:26How do you think about some of those names these days?
01:28Well, you guys had an excellent guest on earlier this morning who was talking about that specifically
01:32and about how some of the larger software names are going to end up getting more,
01:35there's more work to be done as you start to tie this all in together.
01:38Fatima Bulani was excellent.
01:40Yes.
01:40Cy, should we have her back?
01:42I guess we'll have Fatima back.
01:43Continue.
01:45So that was a, you kind of think that's the way you kind of pick some winners and losers?
01:49Well, you know, it depends a lot on the model because I think part of the biggest issue with
01:53software that started was if you're growing your headcount and everyone, and you're growing
01:57your user base and that starts to shrink, that's a problem for the cash flow.
02:02For the other things, do we really think that you're going to disintermediate Microsoft?
02:05And I don't think that we do.
02:06I think the question is going to be how does it all work together?
02:09And you're going to still be using it.
02:10So it's really, it's on the margins.
02:12Is the growth going to slow down in some places?
02:15Probably in some places, maybe not.
02:16But now it's a wait and see and people were willing to shoot first and ask questions later.
02:20It's maybe outside your remit, but I'm going to go here.
02:22We saw the Xbox rationalization.
02:24The woman running Xbox, I thought was a breath of fresh air just saying like, this is where
02:28we are.
02:29I would assume given, you know, there's new words, organizational words for all this AI
02:37ballet, we're going to see a lot of right sizing.
02:40We're going to see a lot of do we need this division or not or spinning it off.
02:46I just think we're going to see a lot of restructuring, aren't we?
02:49I think we're going to see a lot of changes.
02:51I think we're going to see a lot of restructuring.
02:52You've already seen some companies go back on, we got rid of a bunch of people and now
02:57actually we're going to have to bring some people back because what we realized when
02:59they were gone was that we weren't in the space that we thought we were with the ability
03:04for AI to solve all these problems.
03:05There's a lot of questions about how when AI writes its own stuff, who's checking to
03:09see what the redundancies are and how that works.
03:11So I think it's going to be a lot of change.
03:13This is, I love having you in Microsoft, 228,000 employees.
03:17Then I typed up Oracle.
03:18You can do this, folks, on the Bloomberg professional servers.
03:21Paul taught me the DES screen.
03:23Oracle down 39%, 12 months trailing.
03:27They have 141,000 employees.
03:30I never would have guessed that.
03:31Yeah, these monster companies.
03:33You pop off 14,000 people, you're 10% down.
03:36Yeah, exactly right.
03:38Sarah, how are we thinking about just earnings?
03:40We're coming into next week, we'll start another earnings cycle.
03:43Boy, the first quarter was so, so strong in terms of earnings growth.
03:47How do you think about this second quarter coming up here?
03:49I think you're going to see continued strength.
03:51I mean, I think that the issues, we were all hoping that the oil situation would start to
03:56back down and it looked like it did for a while and only went right back down to 70.
03:59The problem for that is going to be, for some people, it's going to be an issue, higher
04:03energy prices.
04:04But I think you're going to see already in the second quarter, as people report, everyone's
04:08going to be looking forward to the second half of the year because they're going to say,
04:11oh, great, we already knew the second quarter was good because everything was looking
04:13pretty good except for energy prices.
04:16So what are we thinking here?
04:18We've got, I'm going to switch over to the Fed here because we've got a new chairman.
04:22We've heard from him a couple of times now.
04:26What's your view of the Fed and kind of interest rates and is that going to be a friend or
04:30a
04:30foe for this market?
04:31Well, in the last two weeks, it's been both, right?
04:33So you saw the original speeches on the 2% target and the market started to think that
04:39that was very hawkish.
04:40Oil prices back down, came out and said that oil prices are down.
04:43That's somewhat helpful.
04:44I think the question is going to be the cadence of communication and how much time or how much
04:49information we're going to get and what information they're going to be using.
04:52And I think that there's some room in there for that to see what happens over the summer,
04:55even with the elevated oil prices.
04:57But I think that the market is knee-jerked back into putting rate hikes on the table towards
05:02the end of the year, whereas even yesterday, that wasn't necessarily looking to be such
05:06a strong percentage.
05:07I think that's going to continue to move around.
05:09Boy, in the bond market, I can sit there in a two-year piece of U.S. government paper,
05:13which I think is pretty safe.
05:14I think they're going to pay me back in two years and clip a 4.2% coupon.
05:19Is that my fixed income strategy?
05:20Well, I think that people have been looking at, and we continue to look at the short end of
05:24the curve for that reason, because you've had some very good opportunities to get in
05:28at good short-term rates, and you think that those are in pretty good shape.
05:32You start talking about raising rates again, that gets a little dicier, but not on the very
05:36short end.
05:37So I think that there is a cluster towards that, because it makes sense, and it's also
05:40easy to have some visibility.
05:42Are we away from where the top 10 holdings of funds are 30 or 40 or, dare I say, 55
05:49%
05:49of their portfolio?
05:51Are we diversifying away from that 2023-24 reality?
05:56Well, it's been tough, right?
05:58Because the S&P is market cap weighted, and most people are benching against the S&P.
06:02And even if they're using a different benchmark, people look at the S&P and think of that as
06:05the market.
06:06So it becomes something where it's hard to see how you get around that.
06:10On the other hand, you've had some big laggards in the S&P this year, too.
06:14So I think that people have branched out.
06:16I think that people continue to branch out.
06:18And it's really a question of talking to people about what a good portfolio really looks like
06:21and saying, this is what the index looks like.
06:24Would you really want your portfolio to look that?
06:25And people are getting better educated about that, but that is definitely a change.
06:29This is, again, I don't want to catch you unawares, but this was in the zeitgeist yesterday.
06:34Bank of America, I believe, hit a record high, probably because they're sponsoring the World
06:38Cup, you know, whatever.
06:40You should see where Savita sits.
06:42Is that right?
06:42It's just unbelievable.
06:43Game after game.
06:44She's killing it.
06:46I look at Bank of America, which means I look at Warren Buffet and the following on from
06:51Berkshire Hathaway as well.
06:53Berkshire Hathaway, is that an opportunity as a diversified, like old school conglomerate?
06:59I think that there's also, there's a transition there, right?
07:02So people are looking to see how that is going to go because that's a lot of history and a
07:06lot of shoes to fill.
07:07And so I think that there is, it's certainly possibly, and the holdings that they have
07:12are starting to look in those areas where people are looking at what's going on here,
07:16the insurance areas, the financial areas, and some of those places.
07:18I think that there is a desire for investors to have a broader portfolio than just technology,
07:25because you can see when there is wobbles in technology, you need them both.
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