US Inflation Surprise Curbs Fed Hike Bets

24:39It will tighten at some point. It will change the game substantially. And usually that ends a bubble. But bringing it back to the labs, I would say that it isn't so much, when you look at Claude, how they monetize. I would say that no one knows how they will, and they're acting as if they do. I'm open to the idea that on the other side of this, I went back and I did everything I could. And I was in my early stages of my adult professional life investing capital in the 90s. And everyone said the internet was going to be huge. And everybody was right. And not a single person made money because they were wrong on how it would make money.

25:16You could have traded it. But my point being, I'm not saying that in 1997, people said Amazon would be big and it was. and I'm not even punishing people for what happened in 2000. I'm saying the high level macro read of the monetization was wrong. And there's nothing wrong with that. It was early and the model evolved, but what they got right was that the internet was gonna be huge and world transformative and enhanced productivity and be a big commercial success. That all happened, but it didn't happen in the way anyone could have known or did know in 94, 95, 96, 97. By 98, 99, nobody cared. They were just buying stupid companies and everything blew up.

25:53I don't know why people think this will be different. Now, when they go, NVIDIA is not pets.com. No one's saying that. The comparison would be more NVIDIA with a Cisco. But even then, maybe NVIDIA is not Cisco from the 90s. History rhymes, doesn't repeat. I get all that. I'm more saying not internet. Every CapEx intensive boom in history that did work out went through a period where a whole lot of capital got set on fire before it worked out. We have not yet got to that stage. Let me call an audible here. So we see these tech executives at the White House yesterday, the second time they've been at the White House in a week's time.

26:27And I'm curious how that conversation is clouding investors' ability to think clearly about the future prospects of these companies. They're getting effectively the imprimatur of the White House, of the federal government. How does that complicate our ability to kind of see clearly at what they are and indeed what they could be here when they go public and beyond? You know, that's a fair question. I don't know if people take those things seriously. I view them more as a photo op. I think that there are very serious meetings happening that we don't see on camera. I don't think that there are ones with a presence in the room.

26:56But I think that with Treasury, with Commerce, with some other elements, there's backdoor situations, backroom situations playing out. But I think that the public right now is largely of a mindset that they don't understand it and therefore don't like it. And there's just different camps as to why they don't like it. And I don't know that you could really make up worse PR people than these guys that are themselves the heads of the company. But when you see someone like Bill getting into that, he's not referring to the doomerism and not even making accusations of regulatory capture and things like that, which I'm sensitive to that argument.

27:31But I would just say his point that there's questions on the business model. And look, some companies that you have questions on the business model and they end up surprising you and being very rewarding. In this case, though, have you ever seen such substantial questions be accompanied by such euphoria, a$2 trillion valuation on a company that does about the same revenue that the McDonald's on Third Avenue does? I just, I don't know. And now those revenues are growing huge, but the losses are growing more than the revenues. So that's different than the early social media companies, you know, where they were just massive scale enterprises.

28:11This is a tough thing to be able to price. I'm more favorable to Bill's approach. We're dividend growth investors. We like to have an outlook on where business is going. I can't have it. But when I make the comment that I think it's AI bubble, I don't think that blows up in people's faces in a week or a month or even a year. I think that I'm making a comment on history. There's never been a point ever where something like this did not at least run into the need to purge malinvestment before it then got a cleaner slate to kind of, in a more Darwinian way, play out the way it's going to play out.

28:42There are five revenues going up at the AI companies, maybe not at the McDonald's on third. I'm not sure. I don't know. If they bring the McRib back for the holidays. There you go. We're going to talk about that off camera. We were at the Qatar Economic Forum, and we were talking to one of our guests about this exact thing, and he said, look, we're not at the point of irrational exuberance yet. This was Howard Marks. I said, why not? The inputs haven't changed. So, in your mind, And if we are, you know, in this kind of irrational exuberance, use the B word, bubble, you said at some point markets are going to stop cooperating.

29:17What do you see as that point? Where is the breaking point? Well, and so it's very difficult if Howard Marks is on the other side of this because, you know, Howard famously wrote in December of 1999 about that we were in that moment of the Internet. And then by March of 2000, he had been vindicated. And for him to say it may not be there now, you know, but I would argue this. when i say markets cooperating i do not mean stock prices p e ratios i mean the ability to fund these things the ability for the oracles for for uh by the way open ai itself one and a half trillion dollars of purchase orders and they don't have any money all right so that does this become a too big to fail situation in worst case scenarios there's a lot of governmental geopolitical risks but on to howard's point on the bubble all i could say is i think they're isolating that to a discussion of hyperscalers.

30:07And they're saying, look at the free cash flow in the past that Microsoft, Google, Amazon have created. This is simply not the same thing. I'm not talking about them. AI can go away tomorrow. We can just pretend it never existed. Amazon, Microsoft, and Google have a very good business. We're talking about the frontier labs that are counterparties to trillions of dollars of commitments. We're talking about the back end of that that is priced into the multiple of a micron that's about to announce that NVIDIA has been in it for three, four years now. assuming that there's going to continue to be this massive revenue growth.

30:40Cisco went down 90 % and their revenues never went down. Okay. They continued to grow 13 % a year, but they, the stock dropped 90 and it didn't make a new high for 26 years. Valuation does matter.

30:58Stay with us more from Bloomberg Businessweek Daily coming up after this.

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32:30Plus, receive four one-time guest passes each medallion year so you can bring a colleague along. That's 15 Sky Club visits plus four guest passes for an annual value of up to$950. Value estimate based on$50 per visit rate to purchase additional visits or bring a guest to the Delta Sky Club. Apply today at www.delta.com slash podcast. Offer ends 11-426. Minimum spending requirements and terms apply. This is Alexis Christophorus for Bloomberg Surveillance. AI is everywhere. Outcomes are not. Not because AI doesn't work, but because AI hasn't reached the workflows yet, the campaigns, the launches, the quarterly planning, those workflows are still run by humans alone.

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33:49Asana, where humans and agents workflow together. Try it at asana.com. That's A-S-A-N-A dot com. Now it is time to talk about energy. David, a few things we're tracking today. We've got several Wall Street analysts and traders saying oil flows through the Strait of Hormuz are closing in on pre-war levels. That's, of course, adding a much-needed supply to a global market, where crude continues to be around$100 a barrel. We've been talking about how Saudi has wrapped up shipments through that east-west pipeline that exports out through the Red Sea. There's a lot of other factors going in here, and here to break them all down for us is Mike McGlone.

34:26He's Senior Commodities Strategist with Bloomberg Intelligence. Hi, Mike. All right, you wrote that surging energy prices might be their own worst enemy. What do you mean by that? It's the high price cure. So Charlie just mentioned the price of Brent right now. The front contract is$103 or so a barrel. When you wake up tomorrow morning, it's going to be$98 guaranteed because it switches to the next contract, the December contract. That's called backwardation. The prices are going lower because the market expects this. It's called necessity invention. You mentioned it. Yes, this isn't gone away the Mr.

35:01Trump wanted in the first place to maybe have some unconditional surrender. But the offensive capabilities of Iran are being completely repressed. And you're seeing it every day that goes by. We've seen there's more and more energy getting out of the Gulf. Not so much distillates and maybe not so much natural gas, but it's happening. And the key thing I want to point out is stuff just doesn't get much worse than it is now. And one good measure to that, if you look at the Bloomberg heating oil total return index, which is the same as diesel. On a one-year basis and a 12-month basis, it's up 170%.

35:32That's the most in this history. Fully expect some demand destruction, some supply to come out of that, and everything to revert back lower. It's just a question of how it goes before it goes back down. I want to linger on this. Come back to you in just a sec here, Mike. But I think it's really important what he just said because I think a lot of people haven't fully captured the fact that we're getting close to winter, especially in states in the Northeast. This is going to be a huge issue, being able to afford all of that heating oil. And I think some people are making very hard choices about how much they order now, how much they're going to wait to see if that price comes down.

36:00But to his very good point here that it's kind of almost analogous to diesel, really those prices suffering here in recent weeks as a cause of this conflict. Absolutely. You also have another conflict that's also impacting prices. And it's going to get really cold in Eastern Europe and Ukraine very soon. And when you look at heating oil and things like that, those costs are going to spike. Mike, what are you seeing when you look at diesel? And just we've talked on our show with you about the refining crunch. Has that improved at all? Well, it has. The U.S. produces about five million barrels of diesel a year.

36:37We only use about three-fifths of that. The rest is export. So we have a surplus. You're hearing about the potential for a bit of an export curtailment, which could happen to some extent. But, David, I'm glad you went to the Northeast. I spent my last three decades out there paying for those heating bills, and I checked on Ask B, our AI term. And it shows that the average heating bill this winter for the average person is probably going to be closer to$4 ,000 versus last year around$2 ,500. So that's going to be a big hit. But what are people going to do? They're going to turn down their temperatures.

37:08They're going to use less. There's plenty more incentive supply. And what you mentioned with two wars, the key question you have to ask yourself is does it get much worse than this? And then I also look at some key indicators. U.S. natural gas, that January natural gas future. It's been melting. It's down almost 20 % on the year now. It was up a lot in January for the heat. And it just shows you where things are going in the number one measure of heat, electricity, and fertilizer. It's a good indication. It's just a question of how much longer it can take can go down. And then, of course, it's very political.

37:40Can the party in power do something about it before the midterms? Because if they don't, after the midterms, there'll be plenty incentive to do something about it. Mike, pull back the curtain a little bit. I think a lot of people caught by surprise as they read these reports this morning, including that one from J.P. Morgan, about the quantity of oil making its way out of the Middle East. Where do you look? I know that there's been some disagreement here in recent weeks about how vibrant that flow of oil has been throughout the Middle East. We've heard one thing from the energy secretary, something else from practitioners and folks on the street.

38:07Where are you looking and how good is the information that we have about how much oil indeed is transiting out of the Strait of Hormuz? Well, that's a good question. And I go to some of the big professionals. I love Ask B. I use that a lot. I see a lot of the other ones. I check a lot of them every place I can. There's data in the terminal. But the thing is, it's so under the radar now. A lot of them turn off their transponders. But the key facts are, number one, it's just necessity and invention. There's a lot of profits. And the U.S. Navy's there. And I keep reading about the advanced technology they're using to help repress the offensive capabilities of Iran.

38:38And to me, that's just like, I've been writing and using the term, the battle of the bullets for a while. And it looks like it's really happening now. Iran is just showing less and less ability to curtail those exports. Except their own. They're being shut down. And then I look at all the other data, what's happening with their currency and stuff. So this is just one of those things that took a lot longer than most have expected. Guilty. I didn't think we'd be able to take this long to impress their offensive capabilities. But it's clearly happening. And to ask where, I look everywhere I can. And they also look at that price.

39:06The key thing is look at that forward price. If you look out a year from now, prices are much lower. Natural gas is lower. And even heating oil. Heating oil right now, the front contract is around$5. hours. If you look at it for next year's time, it's closer to 354.

39:24Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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41:22This is Alexis Christopoulos for Bloomberg Surveillance. AI is everywhere. Outcomes are not. Not because AI doesn't work, but because AI hasn't reached the workflows yet. The campaigns, the launches, the quarterly planning. Those workflows are still run by humans alone. AI is making individuals faster, but it's not making businesses more productive. That's the gap Asana is built to close. Asana is the operating system for human agent teams, your easy button for AI productivity across every team. Ready-to-go AI teammates pre-built for marketing, ops, and IT. No prompt engineering, no setup. They show up where the work is happening, already onboarded in your workflows, ready to deliver.

42:05And the more they work with your team, the smarter they get. With Asana, your whole company can work on the same plan towards the same goal, whether you're a team of 10 or 10 ,000. Asana, where humans and agents workflow together. Try it at asana.com. That's A-S-A-N-A dot com. We're going to talk now about non-bank lending, that landscape here with Jennifer Palmer. She's the founder and CEO of Jay Palmer Collective here with us in our studios in Newark. Great to have you with us. And maybe I could start with a basic question. Were we in an elevator, bar, restaurant? here in a studio, I might say, what is the Jay Palmer?

42:40A farmer's market, if you would. How do you define the company? What's the work that you do? Well, first of all, David and Christina, thank you so much for having me. I'm so excited to be here. So what we do is we're an asset-based lender. Now, most people have never heard of that before. I certainly hadn't, right? So asset-based lending is a form of debt financing. So what we do is we look to our clients' balance sheets. We look at the assets on their balance sheets and we leverage those. A lot of times there's a gap in the sales cycle. There's a cashflow gap between the buy and the sale. So we look to fill that with our leverage and that creates working capital, which allows our companies to accelerate their growth with our money.

43:15So it's all debt. It's non-dilutive and it helps our clients grow. Who are those clients? Who do you work with most? Great question. I always say, just imagine you're walking the aisles of Whole Foods or Trader Joe's or just like your local health and wellness shop. Those are our clients. So for example, hippies. You might know them. I actually, I don't know if I'm allowed to say this. I'm a big fan of those. They are amazing, right? My kids are obsessed with them. I think we have them upstairs in the pantry actually. Good, good decision. And we're also very committed to financing female owned, female led businesses.

43:47And we're so excited to share here today for the first time ever that we just financed Shakira. You may have heard of her. Yes. Shakira Shakira. I'm Shakira Shakira. Yes, that's right. So she has the most amazing hair care line, Isma, and she needed working capital to help accelerate its growth. And so we financed her company. That's really interesting. Do you find women-led businesses have a harder time securing capital? Absolutely. We have found that. I found that in my 20-year career, but the statistics show that absolutely. It is much more difficult. If a man and a woman walk into the room to get financing, a woman will receive 32 % less than her male counterpart.

44:26So as a woman in finance, I feel it's my responsibility, my duty to do the part and just make financing a little bit more inclusive, not at the expense of men, but just make sure that we're finding those amazing rock star female entrepreneurs and make sure that they have their fair shot as well. How do you find clients, companies with whom you work? How do they find you? A lot of times it's client referrals, which is obviously the greatest referral that you can get when a client's like, I love working with JPC, let's refer them over. Those are the best. But, you know, unfortunately, fortunately, we're one of very few shops really focused on making financing more inclusive.

45:01So, you know, when there's a woman out there that's looking for financing, a lot of people are like, hey, you know, call Jen Palmer, you know, she's committed to this. This is her passion. She spent her entire career doing this. It's authentic. And so we get those calls, which is incredible. But why is that? Why at this point is this a battle we're still having? Is it just that the default, I mean, the threshold for a woman walking into the room, the sell is just harder, the level of trust. I mean, we talk about 25-year-olds being given billions of dollars in capital to invest, and all these young entrepreneurs are almost always men.

45:34Very rarely have they been women. Why is that? I know. It's so frustrating, right? Like, how are we still having this conversation? I've been in the industry for 20 years. The statistics have not changed. It's so difficult. And I think, unfortunately, there's just not enough female check writers. And without those women at the table making those decisions, we're just missing opportunity. There's a lot of products out there that cater towards women that, unfortunately, the check writers that are men, they just don't understand what service that product can fulfill. And, unfortunately, there is still discrimination.

46:09There is still bias. And a lot of times women are not taking seriously. You know, and maybe it's a hobby or they think it's, you know, you know, they perceive a higher risk with a female. They do. And statistically, women are a much safer bet. So for every dollar invested, a woman will outperform her male counterpart two to one. So and in my experience, women are much lower risk as well. So I always say doing right and doing good business go hand in hand. I think I'm the riskier component here, but, you know, we'll be the exception that proves the rule. Talk about asset based lending. So if I'm running a company looking for financing, what are you competing with?

46:47Who comes to you for asset-based lending versus other forms of financing? In this market, it feels like I'm competing with everyone. There's a lot of money out there, that's for sure. You guys know better than anyone else. But oftentimes, we can compete with perhaps banks that are being a little bit more aggressive and shouldn't be going into this space. And we used to compete a lot with VCs as well. So it was for a period of time that, you know, business owners would say debt is too expensive. I grew up thinking that debt is bad. It's almost like a four letter word, right? So they bet I'm just going to go and raise money.

47:19But fortunately, the market is changing and entrepreneurs now understand that equity is actually your most expensive form of financing. And so I would say like debt is like dating. Equity is like marriage. And so, you know, you want to want to unwind it. Great. Like debt, you can unwind at any time. But there is a lot of competition out there. Excuse me. We all know that private credit has expanded and grown over the last 10 years. So there's a lot of money out there. So there's a lot of competition out there. But what we are looking for is clients who really want a relationship, who really want to grow with someone who sees their vision.

47:54And there's not a lot of lenders out there that focus on the relationship like we do. So fortunately, we're unique in that stance. When you look at the public versus private markets, do you have any insight into where IPOs are right now, what the markets are for that? I mean, all over the place, that's for sure, right? It is such a crazy market out there. And so we have a lot of clients that are thinking about that and then they backtrack because there's just a lot of uncertainty out there. So we always tell our clients, just stay the course. What is your vision? And even if it's not the right time for your company, it will be.

48:27Just continue to do what you're doing. And do they need to know why their IPI? Don't just do it because all the other kids are doing it. Exactly. The worst thing that a business owner can do is just take capital when it's available. You really have to think about what is the purpose behind capital? Because if you take capital at the wrong stage of your journey, it's just expensive money, even if it's public. We have about 30 seconds left, but I just want to get your kind of general take about the atmosphere, the feeling in the markets right now. Is there a lot of anxiety? The vibe, if you will.

48:57A vibe check to close. I feel like anxiety is like a buzzword right now, right? Like everybody's got it. So yes, there's a lot of anxiety out there, but there's also a lot of great options out there. So we always encourage our clients and any potential clients out there that we talk to, there's a lot of options. Just do your homework, make sure you do your due diligence and stay true to your purpose and find a good partner that will be there with you for the long haul. This is the Bloomberg Business Week Daily Podcast. available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m.

49:35Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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