Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday, keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. on Apple, Spotify, YouTube, or wherever you get your podcasts. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Department of Justice has dropped its investigation into J-PAL and the Federal Reserve regarding its building cost overrun. Let's bring in Michael McKee, our chief international economics and policy correspondent. Mike, this is something that should smooth the path for Kevin Warsh, President Trump's nominee for the Federal Reserve chair, to become Fed chair, doesn't it? It smooths the path, but whether the path gets taken or not, we don't know yet, because we don't know whether the agreement to have the inspector general continue a probe into the buildings. And we don't know whether that includes Powell, which Pirro had included. But we don't know whether that's enough for Tom Tillis to say, OK, let's have a vote. He has not commented and everybody's madly watching his Twitter feed and et cetera to see what he thinks. That would be step one. And then step two is getting the nomination to a vote in committee and getting it out to the floor. There isn't a lot of legislative days left, but they can make things happen if they want to. So it is odds are a little better. Yep. Shall we say we're talking in the studio to Elliot Stein. He's a litigation analyst for Bloomberg Intelligence. He's a lawyer. He said if he were advising Chairman Jay Powell, he would say you need to get an immunity agreement. Yeah. I mean, that's that's that's a big move. That's been my thought all along, because Inspector General's reports and they were talking about also the Banking Committee may be doing an investigation. Congressional investigations, both of those can lead to criminal referrals to the Justice Department. So the question is, obviously they could find that Jay Powell had his hand in the cookie jar, which I very, very much doubt. But there could be just some pretext in the IG's report that Jeanine Pirro would seize on again once Kevin Warsh is in as chair and then go after Powell because Trump wants revenge. Yep. So I think that it's not going to satisfy the Fed chair unless he has some kind of immunity agreement. Mike, dumb question. How does this change the FOMC meeting, the deliberations next week? They begin on Tuesday and they come out with their decision Wednesday at 2 p.m. You will be, of course, announcing it for us here on Bloomberg Television, Bloomberg Radio. And then Jay Powell takes the lectern at 2.30 p.m. to hold his news conference. I don't think it changes much at all. It's not going to be a factor in the decision making in terms of interest rates. In terms of the Fed's, there is no new economic outlook or dot plot at this meeting. So it was going to be pretty much a quiet meeting. And that leaves the vacuum to be filled by questions about and to Jay Powell, which I think is what we still get. But it doesn't change the way the markets are going to react to this because it's not going to really involve interest rate policy. It'll start to as we move forward. Once Kevin Warsh gets finally confirmed, then we'll maybe see some reaction to what people think he might do. But in this press conference next Wednesday, which you'll be attending in Washington, don't you think Mr. Powell will have to have a definitive statement one way or the other, as opposed to kind of we'll see how it develops? I'm not sure he has to. He's getting close to the time when he's not chair anymore, and that would be, in theory, when you would make a resignation announcement. That's mid-May or end of May? May 15th. Okay. And so maybe he says something. But again, as we were talking about the idea of an immunity grant, he may be waiting for something like that. It's just not at all clear. He also may want to stay on because he wants to see how things develop. But that's not the norm, right? That doesn't usually happen. It's not the way it's been done in the past. There's only been one Fed chair who stayed on as a governor. And that was in the late 1940s, early 1950s. And so that's not likely to happen again. I would think that Jay Powell would end up leaving. But he could end up staying for a couple of months. Stuart Paul from Bloomberg Economics was saying, you know, his hands are kind of tied to Kevin Warsh. He can go out there and start just slashing short rates because that going to really stoke inflation and you see rates go up on the back end of the curve and all that I mean he not much he can really do can he No, and I think it's going to take a while for people really to internalize that because the markets are all hoping so much for rate cuts. But when you look at what's happening with the war, with the oil prices, with the economy in general, the fact that we've seen inflation rising, he can't come in the door and start cutting rates. So it'll take a while before anybody's going to be able to point to the Fed and say, well, that was Kevin Warsh pushing them to do that because they're not going to do that right away. And there won't be any kind of decision about other reforms immediately, but he could work on things like communications. He doesn't like the dot plot. Maybe they get rid of that. Those things might even come before any rate. Stay with us. More from Bloomberg Intelligence coming up after this. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing and subject to risk, Vanguard Marketing Corporation Distributor. On April 4th, 2023, around 2 in the morning, A man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, The Killing of Bob Lee, beginning April 16. What separates good leaders from transformational ones? I'm Jessica Chen, and in Season 2 of Leading by Example, we'll sit down with executives like Grace Chen of Birdie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact, on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube want to talk tech to talk to dan ives global head of technology research at wedbus securities dan i'm guessing the conversations you're having with your clients over the last several weeks are a lot different than what they were kind of late last year as it relates to tech. How do you frame it out for us? Look, Paul, I think right now it's really about, okay, CapEx, but where's the monetization? Are you starting to see it? Is it starting to actually spread out beyond just big tech? And I think you're starting to see that obviously with Intel, Cisco and others. Look, and obviously it's been a huge debate, right? Relative to the anthropic software, ghost trade. We saw what happened this week in terms of service now and others. So I think I would call it a huge debate. And that's why it all leads to next week really being like huge pieces to the puzzle of the tech trade. What is the market sentiment like right now when it comes to CapEx? Because for a while, if companies reported ended up saying that CapEx would be more than they had forecast, it was seen as OK and then it was seen as negative. How are investors feeling right now? Yeah, that's been a hot and cold situation relative to the CapEx. I think now there's almost a consensus view where it's like, okay, CapEx is going to be reiterated by big tech. No big tech company is going to slow down CapEx going to next week. If they did, stock would be down because that would ultimately be a negative in this arms race. I think the big question is going to be with the hyperscaler, specifically Microsoft, Google, Amazon. on, do you see acceleration beats when it comes to cloud growth? That's important in terms of capacity. Look, what it really means is the CapEx is now starting to bear fruit. The monetization's happening. You're seeing it on the software and the hyperscaler side. And look, that's the big piece. That's really the beat. Do you start to see monetization? I think we start to see it next week. And I think that is another one we'll see on the advertising side. Dan, I know you initiated coverage of Oracle. Talk to us about that company, how you see it participating in this tech stack here going forward. Yeah. And Paul, I covered it for many years. And the reason I like reinitiate on it here is just because I believe the street is way miscalculating this name. I mean, look, I get the worries about the debt and what they're taking on given OpenAI and what they're going for in terms of the $600, $700 billion that they're going after and the $50 billion of debt. I think Oracle is going to be a tremendously bigger company the next two, three, four years than it is today. I think investors are way discounting their ability to monetize what going to be this backlog and really you know as more and more companies move to the AI revolution with Oracle And that our whole call I mean is the price target but this stock ultimately that could double as they monetize AI over the coming years, I think way, way oversold. I mean, the thing with Oracle is that it needs to borrow so much money that it's got to tap the public markets and the private markets kind of everywhere in order to be able to fund this build out. And we've heard from Moody's warning that private credit funds with a lot of exposure to software and tech face a lot of refinancing risks because there's a bunch of debt that matures starting in 2028. How do you think about that in terms of what that means for these big tech companies needs to borrow? Yeah, I think it's a great point. Obviously, huge debate. When you get things like Tama Bravo and Medallion and some other things, You can paint them all with the same brush, right? When you look at Oracle, you're talking about a company that the amount of debt that they'll take on is still pretty small relative to their cash flow generation and the overall, what I believe, structure of the business. I think they'll be able to raise, and they've already sort of laid out the $45 to $50 billion, how they're going to do that. Now, look, is it ideal? Because companies, obviously, free cash flow, you don't want to see software companies take on debt. But, Scott, my view is to take on $50 billion of debt to go after $700, $800 billion, that to me is a bet that I want to see them take. Hey, Dan, this is Switch Gears to Tesla. They made some news just yesterday kind of talking about CapEx, and they're boosting their CapEx to $25 billion for AI and for their robot business. Put that in context for us. How do you think that – is that a good move for this company? I think it's exactly what they need to do. I mean, we've always talked about a lot. It's like the future is about autonomous robotics. I mean, this is a company from a physical AI perspective. I view NVIDIA and Tesla as physical AI plays in the market. I want to see them do this step by step, build it, because that's really the next five, 10 years. That's what Tesla, Tesla is an AI company going forward. This is not an auto company. Yeah, that's been made very clear. I mean, certainly Elon Musk has been pushing that narrative for a long time now. I'm curious, and this might be a really basic question, but how does the war in Iran and the uncertainty there affect these big tech companies as they report? I mean, do we expect any kind of mention of the uncertainty, the fog of war affecting their decision making, their planning in any way? I mean, like ServiceNow hit it a bit, right, in terms of some of the Middle East deals. Look, I think when you think in terms of a lot of the build-outs outside U.S., some of the bigger data center, big AI build-outs are in UAE, Saudi. But I don't really think that that's something that's going to be a huge thing on the conference call. I think that's much more year and a half from now, two years from now. Now, I think the big question is supply, helium, especially through the street. We were just in Asia for two weeks. I continue to think unless this stalemate last past Memorial Day into June, July, for now, I think it's pretty contained. But look, I think investors want to understand what the demand environment looks like. And these companies, they're not slowing things down in any way because of the geopolitical. Stay with us. More from Bloomberg Intelligence coming up after this. I'm Francine Lacroix, an award-winning journalist, and I've got a new podcast, Leaders with Francine Lacroix from Bloomberg Podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment. But I've always been curious, who are these people as leaders? I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow Leaders with Francine Lacroix wherever you get your podcasts. What separates good leaders from transformational ones? I'm Jessica Chen, and in Season 2 of Leading by Example, we'll sit down with executives like Grace Chen of Birdie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. We often talked about the restaurant industry because we think it's a really good way to get a sense of how the consumer is faring out there because there's so many different strata within the or so many tiers within the restaurant industry. It gives you a good view of the consumer. One of the key cost issues for the restaurant industry is labor. It's usually, can I get enough labor at the right price? So we want to delve into that a little bit. Chad Moutre, chief economist for the National Restaurant Association. Chad, talk to us about the labor component of the restaurant industry in this country. We've got labor participation, pretty low levels. I think the lowest in the last four or five years. We've got immigration reform, which has choked off a source of labor here. How that impacting the restaurant industry Well the good news is that only 22 of restaurants told us last year that they were understaffed So that was the lowest we seen since the pandemic Yet you still continue to see, you know, restaurants struggling with managers, chefs, really highly skilled workers. You've seen even stories about dishwashers being a challenge. I think the immigration story certainly is also very challenging for a lot of restaurants in terms of their ability to retain workers to get workers to show up, right? Certainly that affects sales as well. In general, I think it's easier to hire today than it was, say, two or three years ago, but it's still a challenge. There's a lot of turnover in the sector and the ability to fill those jobs can be pretty challenging. And I imagine the ability to fill those jobs in certain markets is harder than in other markets as well. How does that change the landscape of the restaurant industry in this country? Well, I think, you know, certainly I think restaurants have had to look at ways that they can fill those jobs quicker, right? So technology is certainly one of those enablers that really gets you to speed up that hiring process. The last thing you want, if you're a restaurant, keep in mind we're in the hospitality business, is to be understaffed. That can affect sales, that can affect overall employee morale. And so we've seen through a lot of investments in technology, the ability to speed that up from weeks to days. And so I think you've seen a A lot of restaurants certainly adopt that overall model, maybe doing some multi-training of their staff so they can perform other roles. But as we said earlier, overall wage growth is up at least 35 percent since the pandemic. And when I talk to operators, labor costs, even more than food costs, are really one of the bigger challenges that they're facing right now. Well, usually for a lot of people, including myself, the restaurant industry is kind of an entry level into the workforce. Um, is that how those trends changing, if at all? That's still very true, Paul. You know, the reality is half of all Americans got their first job in a restaurant, including me. And if you include everyone who's had any experience in a restaurant, that's two thirds of all Americans, right? And so we are often that training ground for people, even if you don't stay in the restaurant sector, you're that training ground to learn some of those key skills of how you work with people, how you continue to get things done and work under pressure. And I think one of the challenges is that given where the participation rate is now, you're seeing a lot of young men, a lot of younger folks who are not getting some of those early skills before they go out of the workforce that they would have gotten in a restaurant sector, a restaurant setting, had they taken some of those jobs in their team years. Although certain policies might make the jobs more attractive now to people, including the no tax on tips, right? So I'm wondering how that is showing up in hiring for restaurants. Is that something that has marked a sea change? Well, when I talk to operators, many of them are saying that that is a huge selling point, the fact that the first $25,000 of your tips are not taxed, right? You also have no tax on overtime. And both of those kind of working in tandem, I think, can help that overall recruitment and retention story. Again, not everyone in the restaurant is getting tips, but to the extent that those tips are being shared, I think it certainly can be a huge recruitment tool for getting some of those workers in the door. So, Chad, on the policy front, are there other policies that would be helpful to the restaurant industry here, particularly on the labor front? Well, I think one of the things that we need to keep in mind is that overall restaurant, the restaurant business is very challenging. We know that the typical profit margin for a restaurant is just 2.8%. That's for full-time, for a full-service restaurant. That's well below where it would have been before the pandemic. We've seen those overall profits continue to be squeezed. And I think one of the stats that came out in our State of the Industry report in February that really was the most telling was that 42% of restaurants were not profitable last year, right? So profitability is a real challenge. And I think it's incumbent, I think, really on policymakers to recognize just how difficult the math is for restaurants that try not to add additional burdens to them in terms of regulatory burdens, et cetera. And I think that's really, I think, one of the more eye-opening numbers that I look at. For a limited service restaurant, the typical profit margin is 4%. Again, that would have been 6% before the pandemic. And so that profit squeeze really, really hits home the fact that the math is just so challenging right now for restaurant operators. And yet we still have people getting into this business. So there's certainly, I think, a desire and a churn, I think, that is helpful and vibrant for the sector. But it is challenging for many operators. That struggle to achieve profitability, how does that change who actually owns and operates restaurants? Do we then have more big companies owning restaurants and operating restaurants rather than individuals or mom and pops? Well, I think you see the diversity there. I mean, the reality is, I mean, yes, we talk a lot about closures, but there's a lot of folks who are getting into this business, too. And I think independent operators, when, you know, those mom and pop restaurants down the street, I think there's certainly a desire to get out there to cater to some of those new tastes. We are in the hospitality business, and I think making sure that restaurants really are stressing some of those basics in terms of delivering value, delivering on that overall experience, I think there's certainly a lot of new opportunities to do that. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern, 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.
