Finding a Winner in the AI Race, and Has the Bitcoin Rally Only Just Begun? 11/20/23

23:54But first, top economist David Rosenberg joins us to lay out how the Fed could impact the markets. Big run, where he sees stocks heading when Fast Money returns. Missed a moment of fast? Catch us anytime on the go. Follow the Fast Money podcast. We're back right after this.

24:18A reminder, stay tuned to Fast Money for a first on CNBC interview with Satya Nadella. He'll be joining John Fort in just about 15 minutes time. So stay tuned for that. Meantime, our next guest says the market is heading for a resolution in the new year, but it might not be the kind that investors are hoping for. Rosenberg Research founder and president David Rosenberg joins us now. David, always good to see you. Thanks, Melissa. Thanks for having me on. So you say that for economists and people, investors who are celebrating a soft landing, don't celebrate too soon because you say soft landings don't necessarily end well.

24:54Well, because, you know, the debate, it's a bit of a false debate about the soft landing because soft landings do exist. They're part of the business cycle. But what they are is they're the bridge or the transition phase from the expansion to the contraction. So the debate is, are we going to have a soft landing? But the answer is that we've been in a soft landing all year long. The question becomes, what happens next? And traditionally, the soft landing is the appetizer for the inevitable recession. So that's really what the story is. I think that the theme for 2024 will be that this recession that was delayed is going to be proven next year that it was never derailed.

25:40So even though inflation has abated, you think that we are still, the soft landing will still be followed by a recession? What can get us off that path, if anything? Or is it a foregone conclusion in your mind that this is where the cycle is going? I think that it's as much a foregone conclusion as anything can be. I mean, I don't deal in zeros or hundreds. We're always playing the probabilities. But inflation typically comes down. I mean, you could have a situation where supply factors help, but principally they come down also because of a weakness in demand. And so keep that in the back of your mind as you're looking at, oh, inflation's been coming down so dramatically, 9 % down to almost 3%.

26:24But at the same time, what it's telling you is that that big boom in corporate pricing power that we had over the past few years, that's come to an end. So the inflation numbers are a double-edged sword. We're getting lower interest rates out of it. That is true. That's beneficial. But I think what's going to be at stake is, you know, the 10 % consensus earnings growth estimate for next year. So I think we'd have to sit down and do the math. How do we get disinflation and at the same time get 10 % profit growth unless we have dramatic of cost cutting because you're not going to be getting 10 % profits next year from the revenue side if inflation continues to go down.

27:04So, you know, when you talked about the divergences or resolutions that has to be resolved in 2024, one of them will be the double-digit earnings growth that's embedded in the stock market at a time when everybody is praying for lower inflation. Well, lower inflation brings you lower interest rates, that much is true, but it's going to be commensurate with earnings that are going to be disappointing. Hey, David, it's him. Thanks for joining us as always. And I'm looking at your notes and you're pointing out that tomorrow kind of crowns the end of the quarter and that the Magnificent Seven have reported that they've carried the market, but that we will then have the focus on the consumer and Black Friday.

27:39Talk about that. Talk about where you see the consumer is and is it time to start now feeling like they're crumbling? Well, I think that, look, the consumer has been breathing fumes for the last 12 to 18 months. And we know the story with excess savings, and we know that either they've been fully exhausted or close to being fully exhausted. So that's been a big help. I mean, the amount of fiscal stimulus this year was a major source of support for the economy at large. That's not going to be repeated next year. So look, it's really the same old story. I think it's because today's investor or today's market pundit, we're all basically just living day by day.

28:20Nobody can see or willing to see past the tip of their nose. There are built-in lags from what the Fed does in both directions. We get recoveries because of the lags of much lower rates, and then we get the recession because of the lags of much higher rates. And those lags haven't fully kicked in yet. So I think that we are going to be having a consumer recession. We're starting to see, by the way, cracks emerge in the labor market. And that's going to play a role, especially as unemployment rises. that's going to cut into wage growth. And at the same time, we know that, you know, the mantra is that the household sector has got such great balance sheets because everybody points to the debt-to-income ratio and how much lower it is today compared to 06 and 07.

29:06And I say that that will knock yourself out if that's the benchmark you want to use, which is the most acute credit bubble in modern times. When you actually go back historically, household balance sheets, when you're looking just at debt-to-income ratios, are higher than they were at any other cyclical peak outside of 06 and 07. And you're starting to see that in terms of delinquency rates are going up, right? Like delinquency rates in the latest New York Fed report going up, auto loans, credit cards, but now even residential mortgages from a low level is starting to hook higher, actually the highest they've been since early 2020.

29:46So you're starting to see, interestingly enough, even with the unemployment below 4%, you're starting to see erosion in credit quality. And so what that means is that the banks are going to continue to tighten up their credit scoring at a time when you're going to be seeing rollovers in the higher rates, the reset of the economy ongoingly in the higher rates. I mean, think about how far the Fed has to go to cut interest rates. The Fed could cut interest rates 300 basis points, and it just takes us to the average of the past 5 or 10 years. So I think that's one other theme we're going to be talking about next year when it comes to reviving the consumer with industry cuts.

30:22We're going to go back to talking about the famous refrain called pushing on a string. David, thank you very much. Appreciate it. David Rosenberg, Rosenberg Research. Karen, do you think a recession is a foregone conclusion or as much as one can be? I don't really necessarily. No, I do think, I mean, I don't want to, you know, fight with the S, but I do think a soft landing is possible. And I do think that productivity enhancements are probable. So that could get you there. Coming up, Bitcoin's rally. Drums on. Can the cryptocurrency go another leg higher? We'll have a very special guest on set to make the case.

31:05You will not want to miss this. Fast Money is back in two.

31:13Welcome back to Fast Money. Bitcoin getting a bid in today's session, surging more than 2 % at its highs and crossing back above the$37 ,000 mark. The move coinciding with the election of pro-Bitcoin presidential candidate Javier Miele in Argentina and coming amid reports that the Department of Justice may be near a resolution in its criminal case against Binance, reportedly seeking a settlement of more than$4 billion with the crypto exchange. Bitcoin prices now more than double where they began the year. And our next guest says we are just in the early innings of a new crypto bull market. Let's welcome a very special friend, Brian Kelly.

31:51It's great to be here. Great to be back. What's new, BK? I mean, I mean, the audience. But you've been you've been operating your Bitcoin fund still. Yeah. Yep. Yep. Still still involved in Bitcoin every day, 24 hours a day, seven days a week, never stops. But it's been it's been an interesting year. You know, I mean, in the last year, we've had gone from everything from FTX to now all of a sudden Argentina. Potentially, you know, they've elected a pro Bitcoin president. So the momentum and sentiment has changed dramatically in that part. And then not to mention all the potential Bitcoin ETF filings that are still in the wings here.

32:25Right. So where do you see that? You know, you don't have a price target necessarily on Bitcoin. Yeah. But what are you thinking in terms of where you are now? So there's a couple of things. We know in the past that Bitcoin has had these two-year cycles that are generally centered around the happening. And so we have another happening coming up in April. And I'm not one of those people that thinks the happening is the actual catalyst, but it's one of those sentiment things that all of a sudden now you have a reduction in supply. Couple that with the fact that we have the Federal Reserve that is likely done for some time being of raising rates.

32:54If not, we don't think they're going to go to 10 percent. Maybe they go to five and a half. Right. And then the second part of that is we now have these ETF filings. So for the first time ever, just like the gold ETF, you're going to have retail investors, not that they couldn't buy it before, but now registered investment advisors. Your Morgan Stanley wealth manager can allocate to this. And so that's what's got the market excited about this new ETF. All right, Beeks, you just named a bunch of catalysts for the Bitcoin to keep going higher. What do you think the core is? You know, is it just digital gold, you know, versus like we often hear lots of folks come on and just say they should be allocated to that.

33:26You know, we've had the dollar come in and obviously Bitcoin has been trading pretty well with that. What's the core thesis right now? If you've missed out this run over the last year, and sentiment was really bad a year ago at this time, and now it's up, what, 200 % or so? Why should people be allocating low single-digit percentage of their investable capital to Bitcoin right now? So I think the easiest way to think about it is digital gold. If you have a portfolio and you've got some of it that you want allocated to gold, and let's call that for inflation reasons, you're worried about the dollar or whatever your currency is going lower, you want to have some kind of hedge against that.

33:59So you could do gold or you can do Bitcoin. And I would argue that Bitcoin is a better use case than gold because I can't use gold on the Internet. I can use Bitcoin on the Internet. So simply look at it. Bitcoin's a$700 billion market cap right now. All the gold that's ever mined is worth somewhere around$7,$8 trillion. So if Bitcoin can take some market share from gold, which I think it's doing, then the multiple return from there, why couldn't it be 5x from here? Why couldn't it be 10x from here? Those are crazy big numbers. But if it starts to make market share just like any other kind of business would out there, that is what starts driving up the market cap.

34:36If inflation reaccelerates, does that throw a monkey wrench into the Bitcoin story? I don't think so. It depends on how if inflation expectations reaccelerate. So what we saw, everybody says, hey, BK, Bitcoin wasn't a great hedge against inflation. And my response to that is, well, you only bought Bitcoin when you needed it. As soon as the Fed said, hey, we're on it and we're going to raise interest rates, I don't need an inflation hedge anymore. So if you start to see inflation picking up and then I would expect Bitcoin to pick up as your hedge, just like I would expect gold. And then we've got this period of time where the Fed's behind the curve and all that.

35:11And that's your bull market. So let me ask you, I'm playing devil's advocate because I am on Bitcoin. That's what I do. So the use case part of Bitcoin never really came to be. And do you dismiss that, that it won't ever come to be? I mean, people don't use it to pay for, you know, the idea that, you know, people that it would be on companies' balance sheets, for example, and people would use it to pay for all kinds of things. That hasn't happened. That's because people want to spend their filthy fiat and they keep their good money. But the truth is, is that it hasn't happened yet because it hasn't had that adoption yet.

35:44We're still early in this, but that's why I think Argentina is kind of really interesting. Earlier, we saw El Salvador switch to kind of a Bitcoin standard, if you will. If Argentina picks that up, they're a bellwether in South America. They could be that bellwether for the global south, and that really could pick it up. That's what we need, and I would agree with you. It would be great if we could have that. The rally's been going just on an investment thesis, but if we actually used it in countries like Argentina, I think that would really help. Is there proof that the reason why people are not more allocated to Bitcoin is that there is no Bitcoin ETF?

36:19when there are other Bitcoin futures, there's Bitcoin ETFs, ETNs, I should say, ETPs built on futures, other products, basically. How do we know that there's going to be incremental money going into Bitcoin because of Bitcoin ETF as opposed to money being reallocated within Bitcoin? Yeah, so it's a great question. Most of the products that are out there now are difficult for a registered investment advisor to buy or aren't approved by compliance. Where an ETF is a more traditional product, if that, I think, will help. All right, BK, wonderful to see you. Great to be here. Hope you'll come back soon.

36:52Come on, clap them in. Clap them out. BK, Brian Kelly. All right, we've got some breaking news here that we want to get to. Our own John Ford is sitting down with Microsoft CEO Satya Nadella. John, over to you. Melissa, thank you. Satya Nadella, thank you for joining us live here, first on CNBC. It's been quite a few days since I was with you in Seattle with OpenAI's leadership in turmoil. So first I got to ask, is Sam Altman going to be a Microsoft employee? Yeah, I mean, we are on Friday morning, John, I got up and I was very committed to our, you know, customers and confident in our technology roadmap and really partnered with OpenAI and really partnered with Sam.

37:42And here, as we speak on Monday, I guess it is today, it's exactly the same place I am, which is I feel that we have all the technology and capability to keep innovating on the products you saw at our Ignite conference last week, up and down the stack from silicon to co-pilots and committed to OpenAI and SAM. And that's, you know, with respect to what configuration, you know, obviously we want Sam and Greg to have a fantastic home if they're not going to be in OpenAI and all the colleagues at Microsoft. But, you know, I am exactly where I was on Friday morning. Well, you're about the only one.

38:20So let me maybe ask it this way. How clear is it to you whether Sam is going back to OpenAI and whether the 700 employees there who seem to be loyal to him are staying at OpenAI or coming to Microsoft? Look, I mean, that is for, you know, OpenAI board and management and the employees to choose. I think at this point, for me, I just want, John, in this moment, right, what is it that I care about? I care about just making sure that we can continue to innovate. And as I said, I feel very, very confident. Quite But frankly, Microsoft has all the capability to just do that on our own. But we chose to explicitly partner with OpenAI, and we want to continue to do so.

39:07And obviously, that depends on the people of OpenAI and staying there or coming to Microsoft. So, I'm open to both options. But one thing I will not do is stop innovating. And so, therefore, that's kind of what I will optimize on into making sure that we keep going forward on the roadmap we talked about. And there was so much excitement around. Okay. Customers seem to want confidence. I'm sure Microsoft employees do too. What needs to happen for OpenAI to be stable enough for you and Microsoft's customers to trust it? Can members of the current board stay? Does Microsoft need a seat on the board?

39:47Yeah, I mean, I think at this point, I think it's very, very clear that something has to change around the governance. And if that's sort of, you know, and we'll have a good dialogue with their board on that. and we'll walk through that as time evolves. But the most important thing for me, for customers to know is today, we have all the capability. And this is where I know we love to talk about, you know, here's a way to think the thought experiment. Sam Altman once chose Microsoft, and he chose Microsoft again. Why do you think that is? It is because of the capability of our company to be able to innovate with OpenAI.

40:24And so that should speak volumes to why customers can have confidence that come what may, Microsoft will be there, will continue to have the products and lead in AI. That's, I think, the core message for our customers. OK, well, one of the things we know is coming is competition. Next week, AWS is going to have reInvent. I suspect they're going to say, hey, look, we're stable. You can trust us to have all our employees who are working on AI still here. You've already got Mark Benioff, CEO of Salesforce, trying to hire away OpenAI employees in this turmoil. So how long do you have to get this kind of stabilization that at least your competitors seem to think has you in a vulnerable position?

41:11Yeah, you know, I think there are these charts that float around. And if you think about the AI papers, AI innovations, AI researchers, AI people, I think people should just go refresh their memories on what that capability chart looks like. If you're not number one or number two, I would be surprised. And that should speak volumes. And, you know, look, we welcome competition. And these are all credible competitors. But, you know, it's not like we just learned about AI because of OpenAI. We had a lot of OpenAI capability before with OpenAI and after. Even at Ignite, think about this. with OpenAI, we have the leading LLM or the large model, and we have the leading small model with FI, which we announced the 2.0.

41:57So, it just speaks to, I think, the breadth. And by the way, we have all the open source models on Azure as well, from Mistral to Llama, and we love it. And we have the best tooling, the best data architecture around AI, and then the best products with Copilot and GitHub Copilot. So, I don't feel that, you know, if anything, we are much more resolute in our sort of roadmap and pushing forward on the innovation. And I feel like, hey, look, there's a lot of talk. There are very few people with real products, at scale, innovating on behalf of our customers. You mentioned governance before. It seems to me that it's likely that you come out of this situation as Microsoft with more leverage in the open AI relationship one way or another than you had Friday morning, okay?

42:49Because your relationship with Sam Altman remains close, and it seems like Sam is either going back there with more control or coming to Microsoft, and that gives you an amount of leverage. Am I reading that wrong? Look, John, I don't think of this as leverage. I mean, the reality, I think, is the world is recognizing how deeply partnered we were with OpenAI and SAM and all of the dependency OpenAI has on Microsoft to do our world-class work around it, right? We do the kernel optimizations underneath. We do the infrastructure. We build tools around it. We build products around it. So, I feel like, hey, look, we had a fantastic partnership on Friday, and we have a fantastic partnership today.

43:33And if things change in the open AI side in terms of who is there or who is not there, as I said, we will have a fantastic home for the people who want to continue to do the same work with the same mission at Microsoft. Well, Satya, I'm not sure what this initial rift between Sam and the board was about. Maybe you know better than I do. Feel free to tell us and the viewers if you want to expound on that. But either way, it seems like there is a segment of people who were concerned about the development of AI being driven by profit. And that's the reason why OpenAI and its board were structured the way they were to begin with.

44:09If the governance changes and Microsoft continues to have this relationship, what assurance can you give people who are concerned about this that the development of AI won't purely be driven by profit? Yeah, I mean, look, I think about this. This is an interesting question, John. I've always sort of subscribed to, you know, that, you know, the idea that the social contract of a corporation is to drive profitable solutions to the challenges of people and planet. To what I think about, the license to operate for Microsoft, yes, of course, we have to generate profit, but at the end of the day, we have to create solutions that are useful and are real solutions to challenges of people and planet.

44:51This is not about profit for profit's sake, but it's about driving profit by doing work that the society needs. That's how I think we have a license to operate in every community and country that we operate in. That's what we will continue to pursue. And then, of course, the OpenAI, it's a different structure with the nonprofit. And we respect that. The other thing that they really care about is safety. That was very clear even the day when Sam and I got together originally with the OpenAI partnership. We care about it. When we talk about trust in technology, we want to make sure that we are dealing with not only the benefits of technology, but the unintended consequences of the technology from day one, as opposed to waiting for things to happen.

45:32And so that's some AI safety research for the long term and even here and now guardrails, whether it's on bias or disinformation or what have you, is something that we are putting a lot of energy into and we'll continue to do so. Well, I know you're taking a lot of Teams calls today. So Satya, I appreciate you taking the time to make this your first media appearance here with me on CNBC. Satya Nadella, CEO of Microsoft. Thank you so much, John. Melissa, back to you. John, thank you. John Fort, an extraordinary interview with Satya Nadella. Do not miss a CNBC special report with John tonight, 8 p.m.

46:08Eastern Time, right here on CNBC. You'll hear a lot more from Satya Nadella and his thoughts about AI, as well as the interview that we just listened to. Microsoft had an extraordinary amount of market cap added to it today. What you heard from Satya Nadella? Are you convinced that that market cap sticks, Guy? Not necessarily, no. I mean, we can do it without him. We've been doing great before. We can do it without him. We'd love to have him on the team. I mean, that's not necessarily a ringing endorsement. But in terms of the stock, it got itself very expensive very quickly. Now they have to—it's very hard to continue to build on the momentum they have, in my opinion.

46:45Yeah, great interview. And it just seems like it's still a very fluid situation, right? So as far as the stock's concerned, I think the stock would have been up 1.5 % today anyway, or whatever the heck it is. I mean, it just seems like there is just a bid for that. I give you two credit on the other side of the desk. You thought this was going to happen into the holiday season or whatever. It just seems like to be a bit of a melt up and it's more of the same. And so, you know, Microsoft seems to have a lot of optionality in this whole situation, though. You know, I heard Sajid say we're committed to open AI and SAM, kind of no matter what happens.

47:14Right. You know, again, there's so much fluidity to the situation. and Microsoft views that they have been here before AI or before open AI, and they'll be here after. So, I mean, I hear arguably the or one of the most powerful companies in the world being very confident on their position now, irregardless. And I should say, you know, a case where I think you've got regardless, by the way, I hated that. Whether or not anything changes structurally to move in-house or not, Clearly, Microsoft has done a very deft job of staying close to Sam and his team and letting them know that he supports them no matter what.

47:55So I think if Sam goes back to AI and it was as if none of this happened, I think it's probably a little bit worse for Microsoft in that you had a lot of customers fleeing AI to go to Anthropik or wherever because they're unclear of what AI will be. And so I got to think that those customers who are fleeing will go through with that. And so AI is there, therefore, weaker to the extent that Microsoft has some ownership stake in that. I would think that that would be less valuable. The information is reported that more than 100 customers have contacted Anthropic. They've contacted Cohere to bring their business to those startups as opposed to OpenAI.

48:33And then, of course, there's the underlying threat of talent that is going to hit the bed when it comes to offers. Because, you know what, we don't know what's going on here at OpenAI. I'm going to go to Salesforce because he's going to match my salary and stock compensation guy. Bidding war for talent. Karen started the show talking about that. It's fascinating. It's now it seems as though we were in a position last year where the only panic we saw was to the upside. It feels as if the panic we're seeing now in terms of a lot of these stocks is to the upside. People are tripping over themselves to get in.

49:03The question is, you know, what's going to be the catalyst to stop that? And maybe this is sort of the bell ringing that we've been waiting for. Yeah, so, you know, another really important point, and you just made it, is enterprises like certainty, right? And this is what Karen is kind of saying. So the idea of all the uncertainty, listen, the large language models, this chat, GBT, not important. That's consumer. The enterprise stuff is what's most important. All right. Again, 8 p.m. Eastern time for a special report with John Fort, Satya Nadella. Meantime, thanks for watching Fast Mad Money with Jim Cramer starts right now.

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