Stocks, Bonds Rise as Soft CPI Curbs Hike Bets | The Close 7/14/2026

ANNOUNCER: THE COUNTDOWN IS ON. EVERYTHING YOU NEED TO GET THE EDGE AT THE END OF THE MARKET DAY. THIS IS "THE CLOSE." ROMAINE: A SURPRISE ON C.P.I., A BLOW FROM I.B.M. AND SCRUTINY OF THE BIG U.S. BANKS. LIVE FROM STUDIO 2 HERE AT BLOOMBERG HEADQUARTERS IN NEW YORK, I’M ROMAINE BOSTICK. KATIE: AND I’M KATIE GREIFELD. WE’RE KICKING YOU OFF TO THE CLOSING BELL HERE IN THE U.S. AND TAKE A LOOK AT THIS SETUP RIGHT NOW. IT’S THE EXACT OPPOSITE OF YESTERDAY WHEN WE WERE DOWN AND IT WAS BIG TECH LEADING US. TODAY YOU THE HAVE S&P 500 HIGHER BY .4%. A LOT OF THAT STRENGTH COMING THROUGH IN THE NASDAQ 100. HIGHER BY ABOUT 1.2%. A LOT OF ACTION ONCE AGAIN WHEN IT COMES TO THE BOND MARKET. THIS TIME TO THE DOWN SIDE WHEN IT COMES TO YIELDS. I HAVE THAT TWO-YEAR TREASURY YIELD UP RIGHT NOW. DOWN BY NINE BASIS POINTS AFTER THAT PLEASANT SURPRISE ON C.P.I. WE WERE DOWN ABOUT 14 BY A SPOINTSES EARLIER IN THE DAY. BUT STILL, A BIG RALLY. AND OF COURSE KEEPING AN EYE ON BRENT. RISING ONCE AGAIN, TRADING AROUND $85 A BARREL. AS WE WATCH DEVELOPMENTS IN THE MIDDLE EAST. ROMAINE: ABSOLUTELY. THAT BUMP IN EQUITY PRICES, THAT DROP IN YIELDS INITIATED THIS MORNING BY THE LATEST CONSUMER PRICE NUMBERS. WHILE CORE C.P.I. STILL ABOVE THE FED’S 2% TARGET FOR FIVE YEARS AND RUNNING NOW. THE MONTHLY GAUGE DID ACTUALLY DECLINE YEAR OVER YEAR FOR FIRST TIME IN 2026. THAT TOOK SOME PRESSURE OFF THE FED AND OFF KEVIN WARSH WHO WAS PEPPERED WITH QUESTIONS BY CONGRESS ON HOW COMMITTED HE WOULD BE TO THE INFLATION FIGHT. >> IF WE GET POLICY RIGHT, AND I CAN ASSURE YOU WE WILL, THE INFLATION SURGE OF THE LAST FIVE YEARS WILL BE A THING OF THE PAST. THE MEMBERS OF OUR COMMITTEE HAVE NO TOLERANCE FOR PERSISTENTLY ELEVATED INFLATION. AND WE SHARE A RESOLUTE COMMITMENT TO ENSURE PRICE STABILITY. ROMAINE: OF COURSE THAT MEANS MAKING SURE THE INFLATIONARY EFFECTS OF A.I. DON’T ACTUALLY SPREAD TOO FAR AND WIDE. I.B.M. C.E.O. JOLTING INVESTORS EARLIER TODAY BY SAYING SEVERAL OF HIS CUSTOMERS ARE ACTUALLY HOLDING BACK ON SOFTWARE SPENDING BECAUSE THEY’RE BEING FORCED TO SHIFT MORE CAPITAL TO INCREASINGLY EXPENSIVE SERVER STORAGE AND MEMORY. I.B.M.’S PROFIT WARNING ASIDE, THE BIG BANKS PROVIDED A DECENT START TO THE EARNINGS SEASON. FOUR OF CITI’S FIVE UNITS SURPASSED ANALYSTS’ ESTIMATES. GOLDMAN POSTED A THIRD STRAIGHT QUARTER OF RECORD STOCK TRADING, BANK OF AMERICA, IT TELEGRAPHED BETTER OPERATING LEVERAGE THAN PREVIOUSLY PROJECTED. AND JPMORGAN REPORTED ITS HIGHEST QUARTERLY PROFIT EVER. BUT THE RESULTS CAME WITH THE JUMP IN COST AND A WARNING FROM JAMIE DIMON OF RISK, SHIFTING BELOW THE SURFACE LIKE TECTONIC PLATE, INCLUDING INFLATION, FISCAL DEFICITS AND ELEVATED ASSET PRICES. KATIE: WELLS FARGO, ONE OF THE BIG BANKS REPORTING TODAY. TAKING A LOOK AT THEIR SHARES, ACTUALLY DOWN SLIGHTLY TODAY. EVEN THOUGH WHEN YOU TAKE A LOOK AT NONINTEREST INCOME, A BIG RECOVERY THERE, WE’VE BEEN FOLLOWING THAT STORY, THAT MEASURE HITTING 10.3 BILLION DOLLARS IN THE MOST RECENT QUARTER REPORTED. THAT IS A FOUR-YEAR HIGH. IT’S AHEAD OF ANALYSTS’ EXPECTATIONS. BUT NOT GIVING MUCH OF A LIFT TO THE STOCK TODAY. BECAUSE THE FOCUS REALLY SEEMS TO BE AROUND MARGIN. THAT MEASURE WHICH IS COMING UNDER SOME PRESSURE. ROMAINE: LET’S TALK ABOUT THAT PRESSURE. MIKE JOINS US NOW, THE C.F.O. OVER AT WELLS FARGO. AND OBVIOUSLY ON THE SURFACE, MIKE, OBVIOUSLY A LOT OF PROGRESS IN THE QUARTER, A LOT OF PROGRESS OVER THE LAST COUPLE OF YEARS. BUT WHEN WE TALK ABOUT AVERAGE LOAN GROWTH, GROWING IN THAT 12% RANGE YEAR OVER YEAR, BUT NET INTEREST INCOME ONLY UP 5%. I KNOW YOU’VE SAID IN THE PAST THAT THIS IS TEMPORARY, BUT HOW LONG SHOULD INVESTORS EXPECT THAT DISPARITY? >> THANKS FOR HAVING ME, ROMAINE, AND, YOU KNOW, WHEN YOU LOOK AT LIKE THE BACK DROP OF THE QUARTER IT WAS ACTUALLY A REALLY GOOD QUARTER AND BROAD-BASED REVENUE GROWTH ACROSS EVERY SINGLE BUSINESS. AND WE CAN SORT OF DIG INTO ASPECTS OF IT. BUT REALLY GOOD PERFORMANCE ACROSS EVERY ONE OF THEM. AND ON NET INTEREST INCOME, YOU KNOW, IT’S PROGRESSING EXACTLY AS WE THOUGHT IT WOULD. RIGHT? SO OUR FULL-YEAR NET INTEREST INCOME GUIDANCE IS STILL $50 BILLION. THAT’S WHERE WE SET AT THE BEGINNING OF THE YEAR. YOU’RE SEEING LOAN GROWTH BE A LITTLE BIT HIGHER THAN WHAT WE HAD PROJECTED IN THE YEAR. WE’RE ALSO SEEING HIGHER INTEREST BEARING DEPOSIT GROWTH, WHICH IS ACTUALLY A GOOD THING FOR THE LONG RUN. SO WE’RE DEEPENING OUR CLIENT RELATIONSHIPS IN THE COMMERCIAL SIDE OF THE HOUSE IN PARTICULAR. WE’RE EXPECTING, YOU KNOW, NONINTEREST BEARING DEPOSITS TO BE MORE STABLE AND WE WERE THINKING THEY WOULD GROW A LITTLE BIT MORE EARLIER IN THE YEAR. AND PART OF THAT’S THE RATE ENVIRONMENT AS RATES STAY A LITTLE BIT HIGHER FOR LONGER. AND SO WE’LL SEE HOW THAT PROGRESSES. AND THEN WE’RE SEEING REALLY GOOD GROWTH ACROSS THE MARKETS BUSINESS WHERE YOU SEE, YOU KNOW, CONTRIBUTIONS COMING THROUGH A LOT OF THE FINANCING WE DO THERE. SO OVERALL ACTUALLY QUITE GOOD. YOU DID SEE NET INTEREST MARGINS DECLINE AS EXPECTED. THREE OR FOUR BASIS POINTS THIS QUARTER. WE EXPECT THAT TO HAPPEN JUST A LITTLE BIT MORE IN THE THIRD QUARTER AND THEN STABILIZE FROM THERE. BUT ALL OF THE UNDERLYING INPUTS AND TRENDS WE’RE SEEING ACROSS THE BUSINESS ARE ACTUALLY QUITE GOOD AND REALLY WHAT WE EXPECTED TO SEE, YOU KNOW, NOW THAT WE’RE ABOUT A YEAR OFF OF COMING OUT OF THE ASSET CAP. ROMAINE: LET’S TALK A LITTLE BIT ABOUT THAT BECAUSE THAT’S OBVIOUSLY OPENED UP A LOT OF GROWTH OPPORTUNITIES FOR YOU BEYOND JUST THE BASIC LOAN BOOK HERE. LET’S TALK ABOUT THE WEALTH MANAGEMENT SIDE OF THIS BUSINESS. THE GROWTH THERE. BUT ALSO THE EXPENSES THAT COME ALONG WITH IT IN ORDER TO BUILD IT OUT. >> THE WEALTH BUSINESS AS WE’VE TALKED ABOUT A NUMBER OF TIMES IS ACTUALLY SEEING REALLY GOOD MOMENTUM NOW. IF YOU GO BACK OVER THE YEARS WE WERE SEEING HIGH LEVELS OF ATTRITION OF ADVISORS. THAT’S COMPLETELY TURNED AROUND. WE’VE HAD OUR THREE BEST QUARTERS MAYBE EVER IN TERMS OF RECRUITING THAT WE PUT ON THE PLATFORM THE LAST THREE QUARTERS. WE ARE SEEING NET FLOWS AS WELL THE LAST COUPLE OF QUARTERS, JUST BROADLY ACROSS THAT BUSINESS. AND THE MARKETS HAVE REALLY HELPED IN TERMS OF EQUITY VALUES AND SO YOU SEE WEALTH MANAGEMENT REVENUES UP IN 13%, 14% YEAR ON YEAR. SO QUITE GOOD THERE. IN TERMS OF THE OVERALL TRENDS. THAT DOES BRING EXPENSES TOO, RIGHT? SO YOU GOT COMMISSIONS YOU PAY ADVISORS, AND OTHER VOLUME-BASED FEES THAT ARE THERE. BUT REVENUE MORE THAN OFFSETS THAT AND SO -- THAT’S YOU WHAT SAW IN THE QUARTER WHICH WAS REALLY GOOD PERFORMANCE AND THEN LASTLY ON WEALTH IS YOU’RE STARTING TO SEE REALLY GOOD GROWTH IN DEPOSITS AND LENDING AS WELL. WE’VE TALKED ABOUT THAT FOR A WHILE AS SOMETHING WE WANT TO DO TO BROADEN WHAT WE DO WITH OUR CLIENTS AND WE’RE REALLY STARTING TO SEE THAT COME THROUGH THE RESULTS SO A LOT OF THE EFFORTS THE TEAMS HAD THERE THE LAST COUPLE OF YEARS IS REALLY COMING THROUGH. KATIE: I WANT TO TALK ABOUT M & A WHEN IT COMES TO WELLS FARGO BECAUSE YOU THINK ABOUT THAT ASSET CAP THAT HAS NOW BEEN REMOVED FROM THE FED. HOW BIG WOULD YOU SAY THAT M&SARVETION FOR YOU AT THIS MOMENT? -- M & A IS FOR YOU AT THIS MOMENT? >> WE’RE MOSTLY FOCUSED ON ORGANIC GROWTH. I THINK THE OPPORTUNITY WE HAVE ACROSS EACH OF THE ONE IS JUST, YOU KNOW, BIG TO GROW ORGANICALLY. AND THAT’S WHAT YOU’VE SEEN US REALLY DO NOW THE LAST NUMBER OF QUARTERS. AND I THINK WHEN YOU THINK ABOUT OPPORTUNITIES FOR M&A, THERE COULD BE SOME PRODUCT CAPABILITIES OR OTHER PAYMENTS-RELATED STUFF THAT COULD BE INTERESTING. BUT IT WOULD BE VERY MUCH JUST ADDING CAPABILITIES TO OUR -- WHAT WE DO. OUR MAIN FOCUS IS REALLY GROWING SORT OF ORGANICALLY ACROSS EACH OF THE BUSINESSES. KATIE: UNDERSTOOD THERE, THE FOCUS ON ORGANIC GROWTH BUT I WANT TO TALK A LITTLE BIT ABOUT THE PIPELINE BECAUSE DID YOU SAY WHEN IT TO THE M & A PIPELINE FOR WELLS FARGO IT LOOKS ROBUST HERE. I’D LOVE TO DIG INTO THAT A LITTLE BIT MORE. ARE THERE ANY INDUSTRIES WHICH PARTICULARLY STAND OUT TO WELLS FARGO AT THIS METROPOLITAN OR THAT YOU’RE -- AT THIS MOMENT OR THAT YOU’RE PURSUING MORE AGGRESSIVELY THAN OTHERS? WELL,, YOU KNOW, ACROSS THE INVESTMENT BANKING SPACE, WE’VE BEEN ADDING PEOPLE IN EQUITY AND DEBT CAPITAL MARKETS, OUR M&A PRACTICE, AND ALL THE COVERAGE GROUPS JUST SECTOR BY SECTOR OVER THE LAST FEW YEARS. AND THE PIPELINES ARE QUITE HEALTHY NOW. THEY’VE BEEN THAT WAY FOR A WHILE. ACROSS REALLY ALL OF THE PRODUCTS SET THERE, INCLUDING M&A AND YOU’RE SEEING ACROSS A NUMBER DIFFERENT INDUSTRIES SORT OF DEALS THAT MAY NOT HAVE BEEN, YOU KNOW, TOTALLY POSSIBLE, YOU KNOW, A COUPLE OF YEARS AGO. AND SO I THINK THAT IDEA OF PURSUING THOSE STRATEGIC GOALS ACROSS REALLY, YOU KNOW, IN A PRETTY BROADWAY IS DEFINITELY A ALIVE AND THE CONVERSATIONS THE TEAM’S HAVING, IT REALLY SPANS EVERYTHING FROM HEALTH CARE TO TECH TO MEDIA TO A WHOLE DIFFERENT -- ALL INDUSTRIAL SECTORS AS WELL AND SO I THINK YOU’RE SEEING IT IN A PRETTY BROAD-BASED WAY. WE’LL HAVE TO SEE HOW IT HAPPENS IN TERMS OF DEALS GETTING DONE BUT I THINK THE ACTIVITY LEVEL IS QUITE HIGH AND PEOPLE SEE THIS AS AN OPPORTUNITY TO THINK BROADLY ABOUT THEIR STRATEGIC GOALS AND M & A’S DEFINITELY PART OF IT. ROMAINE: OVERALL, LOOKING THAT THE BUSINESS, THAT ASSET CAP BEING LIFTED, WITH LOAN GROWTH GOING WELL, THE M &A, IS THERE A PART OF THE BUSINESS THAT YOU AND THE C.E.O. ARE REALLY LOOKING TO OR MAYBE YOU DON’T THINK WELLS FARGO AT LEAST RIGHT NOW PUNCHES UP TO THE WEIGHT OF ITS COMPETITORS? >> WELL, I THINK THERE’S OPPORTUNITY TO GROW AND IMPROVE THE RETURNS EVERYWHERE STILL. THAT DOESN’T TAKE AWAY FROM THE PROGRESS WE’VE MADE BECAUSE WE’VE MADE A LOT PR PROGRESS. IN OUR CORPORATE INVESTMENT BANK YOU’VE SEEN THAT PROGRESS IN OUR INVESTMENT BANKING BUSINESS. WE HAD A RECORD KEY QUARTER ACROSS THE FIRM. WE’VE GROWN OUR BALANCE SHEET IN THE MARKS BUSINESS BY ALMOST $200 BILLION SINCE THE END OF 2024. AND YOU’RE SEEING A REVENUE IN A BUSINESS GROW 24% IN THE QUARTER. YOU’VE SEEN OUR WEALTH MANAGEMENT BUSINESS AS WE TALKEDS ABOUT A MINUTE AGO -- AS WE TALKED ABOUT A MINUTE AGO GROW. OUR COMMERCIAL BANK WAS UP 6% IN THE QUARTER YEAR ON YEAR. OUR CONSUMER BUSINESSES WERE UP. WE SAW REALLY GOOD GROWTH IN CREDIT CARD ACQUISITION, IN AUTO LOANS, REALLY ACROSS THE BOARD. AND SO I THINK WE’RE EXCITED TO KIND OF SEE, YOU KNOW, RESULTS OF ALL THE INVESTMENTS WE’VE BEEN MAKING NOW FOR A WHILE. ACROSS EACH ONE OF THE BUSINESSES. AND I THINK EACH OF THEM HAVE A LOT OF OPPORTUNITY TO CONTINUE TO DEEPEN THE RELATIONSHIP -- DEEPEN WHAT WE DO WITH A LOT OF THE RELATIONSHIPS WE HAVE AND REALLY GROW BEYOND THAT OVER THE COMING QUARTERS AND YEARS. SO IT IS AN EXCITING TIME TO BE HERE. KATIE: JUST QUICKLY BEFORE WE LET YOU GO. I WANT TALK TO ABOUT A.I. BECAUSE WE HEARD FROM JPMORGAN’S C.F.O. ACTUALLY TALKING ABOUT HOW THE BANK IS BEING MORE STRATEGIC WHEN IT COMES TO USING SOME OF THESE A.I. MODELS. HE SAID EXACTLY THAT YOU REALLY DON’T NEED THE LATEST CUTTING EDGE INCREDIBLY EXPENSIVE MODEL TO SUMMARIZE AN ANALYST REPORT. I WONDER HOW YOU’RE THINKING THROUGH SOME OF THESE TOKEN EXPENSES AND A.I. COSTS WHEN IT COMES TO WELLS FARGO. >> THAT JUST COMES WITH ANY INVESTMENT I THINK REALLY IS BEING SMART ABOUT SORT OF HOW YOU DEPLOY THE CAPABILITIES AND A.I. IS NO DIFFERENT, RIGHT? THERE’S A WIDE RANGE OF MODEL, CAPABILITIES, USE CASES YEUB FOR A.I. AND --, YOU KNOW, FOR A.I. AND YOU NEED TO BE REALLY THOUGHTFUL, SMART, FOCUSED ON SORT OF USING THE RIGHT SOLUTION FOR THE RIGHT PROBLEM AND WE’RE CERTAINLY DOING THAT. AND I THINK YOU NEED TO LOOK AT TOKEN COSTS AND SORT OF THE COST OF BROADER A.I. VERY CLOSELY. BUT IT’S CLEAR THAT THE BENEFIT YOU’RE GOING TO GET FROM A.I. IN TERMS OF IMPROVING WHAT WE DO FOR CUSTOMERS, DRIVING MORE EFFICIENCY ACROSS THE FIRM, IS REAL. AND IT REALLY HAS JUST -- JUST IS GETTING STARTED IN TERMS OF THOSE CAPABILITIES BEING ROLLED OUT ACROSS, YOU KNOW, DIFFERENT BUSINESS GROUPS. AND SO I THINK IT’S GOING TO BE VERY EXCITING TO SEE THAT COME TO FRUITION OVER THE NEXT 12 OR 18 MONTHS OR THEREABOUTS AND SO -- AND I DO THINK IT’S GOING TO BE QUITE SIGNIFICANT IN TERMS OF THE IMPACT IT WILL HAVE JUST MORE BROADLY AT OUR COMPANY AND JUST LOTS OF DIFFERENT COMPANIES THERE. BUT LIKE ANY INVESTMENT, YOU GOT TO BE REALLY THOUGHTFUL AND SMART ABOUT HOW YOU PRIORITIZE THE RESOURCES YOU PUT AGAINST IT AND CERTAINLY ACROSS THESE DIFFERENT LARGE LANGUAGE MODEL THERE’S A RANGE OF OUTCOMES AND A RANGE OF COSTS THAT YOU GOT TO BE REALLY CAREFUL ABOUT AS YOU LOOK FORWARD AND I THINK OUR TEAMS HAVE DONE A REALLY, REALLY GOOD JOB ON THAT, MAKING SURE THAT OUR TECH PEOPLE ARE USING THE RIGHT TOOLS FOR THE RIGHT SOLUTIONS AND THEN JUST BROADLY ACROSS THE BUSINESSES, DOING THE SAME THING. SO THAT’S SOMETHING WE’VE BEEN DOING FOR A WHILE NOW. ROMAINE: ALL RIGHT, MIKE, ALWAYS A PLEASURE. ALWAYS APPRECIATE YOU TAKING TIME FOR US. WELLS FARGO C.E.O. THERE. DON’T MISS OUR COVERAGE NEXT WEEK -- CONVERSATION NEXT WEEK WITH THE C.E.O. OF WELLS FARGO WHO WILL BE JOINING US. MEANWHILE HEREIN THIS TUESDAY AFTERNOON, WE’RE GOING TO CATCH UP WITH THE C.E.O. OF STRATEGY, PHONG LE WHO WILL DISCUSS THE CRYPTO SWINGS AND WHAT LIES AHEAD FOR THE COMPANY’S FINANCIAL POSITION. THAT COMING UP IN A SECOND HERE ON BLOOMBERG. ♪ ROMAINE: WE CONTINUE OUR ANALYSIS OF THE EARNINGS OF FIVE OF THE SIX BIGGEST BANKS IN THE U.S., INCLUDING J.P. MORGAN, BANK OF AMERICA, AND CITIGROUP. JOINING US TO DISCUSS IS THE EQUITY RESEARCH ANALYST OVER AT JEFFERIES. DAVID, I WANT TO START WITH CITIGROUP. IT SEEMS TO BE HAVING THE WORST DAY AMONGST THE BUNCH. IT SEEMS TO BE TIED TO THIS IDEA OF COST, EXPENSES RELATED TO WHAT IS GOING ON INTERNALLY. I'M CURIOUS IF THERE WAS ANY SORT OF CONCERN ABOUT WHAT JANE FRASER AND THE OTHER FOLKS WERE TALKING ABOUT WITH REGARDS TO THOSE EXPENSES, DESPITE WHAT WAS OTHERWISE A RECORD QUARTER? >> YOU NAILED IT. A VERY STRONG QUARTER OVERALL, BUT REALLY THE OUTLOOK, INVESTORS BY SURPRISE. IT RELATES TO THE EXPENSE OUTLOOK AND WHAT IS EMBEDDED IN THEIR ROXY OUTLOOK. WHAT WE ANTICIPATED FOR THIS YEAR -- BUT THE FIRST HALF OF THIS YEAR WAS 13%. WHEN YOU DO THE MATH, IT EQUATES TO 8% TO 9% IN THE SECOND HALF, WHERE AS WERE THINKING IT COULD BE -- RAISE THAT GUIDE FOR THE YEAR. WHAT THEY ATTRIBUTED IT TO WAS $5 BILLION OF INVESTMENT SPENDING THAT COULD BE PULLED FORWARD INTO 2026 FROM 2027 AND 2028. IT RELATES TO THE CARD BUSINESS, MARKETING SPEND, AI, TALENT ACQUISITION. REALLY ACROSS MULTIPLE BUSINESSES. IT IS REALLY THE $5 BILLION THAT IS CATCHING PEOPLE OFF GUARD. KATIE: WHEN IT COMES TO HIGHER COSTS, IT IS NOT JUST A CITIGROUP STORY, WE HEARD FROM J.P. MORGAN TALKING ABOUT HIGHER COMPENSATION COSTS, HIGHER FROM GOLDMAN SACHS AS WELL TALKING ABOUT HOW OPERATING EXPENSES WERE UP 26% FROM A YEAR EARLIER. I WONDER IF ZOOMING OUT, WHAT DO YOU MAKE OF THAT? ACROSS THE BOARD IT SEEMS LIKE THE COSTS ARE GOING HIGHER. >> THE NICE THING ABOUT -- YOU MENTIONED J.P. MORGAN, THEY HAD 4 BILLION DOLLARS OF REVENUE UPSIDE IN THE QUARTER. WHEN THEY RAISED THEIR EXPENSE OUTLOOK BY 2.5 BILLION DOLLARS, IT MORE THAN OFFSET ON THE REVENUE SIDE. I'M NOT AS CONCERNED ABOUT SEEING EXPENSES GO UP WHEN IT IS REVENUE DRIVEN TYPE OF EXPENSE GROWTH. WHEN YOU HAVE INVESTMENTS YOU WERE NOT NECESSARILY EXPECTING IN THE MODEL COMING THROUGH, THAT IS WHAT IS CATCHING US OFF GUARD RELATED TO CITIGROUP. LONG-TERM, WE THINK THEY WILL BE ON TRACK OF HITTING THEIR MEDIUM-TERM OUTLOOK, AND GETTING TO 11 TO 13% THE NEXT COUPLE OF YEARS, 14% TO 15% A COUPLE YEARS AFTER. J.P. MORGAN ARE OVER EARNING ON THEIRS. THEY ARE ABOUT 29 PERCENT WHEN YOU INCLUDE SOME NONRECURRING ITEMS. EVEN IN THE LOW 20'S, WHEN YOU ADJUST FOR THOSE, THAT IS WELL ABOVE THROUGH THE CYCLE DIED OF 17%. THEY ARE IN A POSITION OF STRENGTH TO PUT FORTH ALL OF THESE EXTRA INVESTMENTS ON THE EXPENSE SIDE. ROMAINE: I HAVE TO GET YOUR THOUGHTS ON BANK OF AMERICA, SIMILAR STORY WITH A DIFFERENT COMPLEXION. TALK ABOUT THESE COMPANIES BEING BOOSTED NOT ONLY BY TRADING REVENUE, BUT THE CAPITAL MARKETS BUSINESS, IS IT REPEATABLE, SPECIFICALLY ASKING ABOUT WHAT BRIAN MOYNIHAN IS DOING AT BANK OF AMERICA? >> BANK OF AMERICA HAVE THE CLEANEST QUARTER OF THE BIG FOUR IN THE CAPITAL MARKET SIDE OF THINGS, IT IS A NICE CONTRIBUTED TO THAT. YEAR-OVER-YEAR, 30%, 40% TYPE OF YEAR-OVER-YEAR GROWTH. REALLY STRONG THERE. WHAT I THINK IS RESONATING WITH INVESTORS FOR BANK OF AMERICA IS ON THE NII SIDE AND THE DURABILITY OF THE OUTLOOK. EVEN THOUGH THEY REITERATED OF THE UPPER END OF THE 6% TO 8% GUIDE LOOKING OUT, THEY ARE CALLING FOR 5% TO 7% OVER MULTIPLE YEARS. TO YOUR EARLIER POINT ABOUT EXPENSES, POSITIVE OPERATING LEVERAGE FOR B OF A, THEY PREVIOUSLY WERE GUIDING GREATER THAN 200 BASIS POINTS. THEY RAISED IT TO 400 BASIS POINTS ON POSITIVE OPERATING LEVERAGE. THIS QUARTER WAS OVER 600 BASIS POINTS OF POSITIVE OPERATING LEVERAGE. THEY REALLY AREN'T GETTING THE TORQUE IN THE BUSINESS AS THEY SEE THAT NII MOVE FORWARD. KATIE: REALLY APPRECIATE YOUR TIME ON A BUSY DAY. DAVID CHIAVERINI, EQUITY RESEARCH ANALYST OVER AT JEFFREY'S. SMALL BUSINESS OPTIMISM CLIMBING BY THE MOST IN OVER A YEAR. RESEARCH CENTER EXECUTIVE DIRECTOR HOLLY WADE JOINS US TO BREAK IT DOWN. THIS IS THE CLOSE ON BLOOMBERG. >> IN THE NFIB SMALL BUSINESS OPTIMISM INDEX RISING BY THE MOST IN MORE THAN A YEAR, FUELED BY SOME RELIEF IN OIL PRICES. JOINING US IS HOLLY WADE, EXECUTIVE DIRECTOR OF THE NFIB RESEARCH CENTER. GREAT TO HAVE YOU WITH US. FROM MAY TO JUNE, YOU SAW THE INDEX RISE BY 2.1 POINTS. TALK TO US ABOUT WHAT CHANGED FOR THESE SMALL BUSINESS OWNERS. IS IT AS SIMPLE AS OIL PRICES? >> IT DOESN'T SEEM TO BE A HEAVY CONTRIBUTOR TO THE RISE IN OPTIMISM. SMALL BUSINESS OWNERS SEE THE NEXT MONTHS OF BUSINESS CONDITIONS MORE FAVORABLY. AND SALES EXPECTATION. THEY MIGHT BE THINKING THAT CONSUMERS HAVE A BIT MORE DISCRETIONARY INCOME, OR EVEN BUSINESS-TO-BUSINESS. HAVING SOME MORE MONEY IN THEIR POCKET TO SPEND. SO THERE AREN'T THOSE CONSTRAINTS THAT THEY PREVIOUSLY FEARED AS FAR AS THE DEALING WITH GAS PRICES AND FUEL PRICES, ENERGY PRICES IN GENERAL, THAT HAS BEEN SUCH A CHALLENGE FOR MANY OF THEM. BUT ON THE FLIPSIDE FROM OUR INDEX, WHILE WE SAW EXPECTATIONS FOR SALES IMPROVE, BETTER BUSINESS CONDITIONS IMPROVE, WE SAW SOME DETERIORATION IN EARNINGS TRENDS. WHILE SMALL BUSINESS OWNERS ARE HAVING TO ABSORB THOSE HIGHER COSTS, INFLATION IS STILL A PROBLEM ON MAIN STREET FOR MANY OF THEM. THE DISCONNECT BETWEEN HAVING TO ABSORB THOSE HIGHER PRICES AND PASS ALONG THOSE COSTS TO CUSTOMERS, THAT IS ERODING A LOT OF SMALL BUSINESS OWNERS EARNINGS AND IT IS A CHALLENGE THEY ARE HAVING TO DEAL WITH. ROMAINE: IT IS A SENSE THEY DON'T NECESSARILY HAVE THE PRICING TO BE ABLE TO RAISE THOSE PRICES TO ABSORB THOSE COSTS? IF THAT IS THE CASE, ARE WE POTENTIALLY IN A SITUATION WHERE THERE ARE GOING TO BE A LOSS OF CUSTOMERS AS THEY GET FRUSTRATED WITH WHERE THINGS ARE? >> THAT IS CERTAINLY THE CHALLENGE THAT THEY FACE AND THE CONCERN THEY ARE DEALING WITH, HOW OFTEN AND HOW MUCH THEY CAN ABSORB THOSE COSTS THROUGH HIGHER PRICES AND STILL BE COMPETITIVE. WHILE THEY DID HAVE A BIT OF REPRIEVE FROM HIGHER GASOLINE FUEL COSTS OVER THE PAST MONTH, THAT HAS REVERSED. IF THE HIGHER OPTIMISM INDEXES BASICALLY ALL PREDICATED ON LOWER FUEL COSTS, WE MIGHT SEE THIS AS JUST A TEMPORARY BOOST IN OPTIMISM AS WE HAVE SEEN GAS PRICES SIR TWO INCH HIGHER OVER THE LAST FEW DAYS. SMALL BUSINESS OWNERS, UNCERTAINTY IS STILL A PROBLEM THEY ARE FACING. TRYING TO FIGURE OUT HOW TO STAY COMPETITIVE IN THIS ENVIRONMENT OF STILL FAIRLY HIGH INFLATION THEY ARE HAVING TO ABSORB. >> LET'S TALK ABOUT LABOR COSTS AS WELL. WE HAVE BEEN IN THIS LOW HIGHER, LOW FIRE ENVIRONMENT FOR A WHILE NOW. HOW IS IT PLAYING OUT AT THE SMALL BUSINESS LEVEL WHEN YOU THINK ABOUT THE LABOR COSTS? >> WE ARE SEEING THE SAME DYNAMICS AND SMALL BUSINESS SECTOR FOR A LOT OF SMALL BUSINESS OWNERS, THEY STILL HAVE OPEN POSITIONS THAT THEY ARE TRYING TO FILL. IT IS STILL VERY DIFFICULT TO FIND APPLICANTS THAT HAVE THOSE SKILLS THEY ARE LOOKING FOR. BUT FOR OTHERS, THEY ARE ON PAUSE. THEY HAVE LESS MONEY TO INVEST IN THEIR BUSINESS, WHETHER IT IS CAPITAL INVESTMENTS, FILLING POSITIONS, HIRING MORE PEOPLE, THEY ARE HOLDING ONTO THOSE DOLLARS BECAUSE OF THOSE INFLATION PRESSURES. ALSO ON THE COMPENSATION FRONT. WE SEE IN COMPENSATION PRESSURES EASE A BIT. BUT SMALL BUSINESS OWNERS ARE HAVING TO COMPETE FOR TALENT, AND IF THEY ARE OFFERING BENEFITS, FOR INSTANCE, HEALTH INSURANCE, THOSE COSTS CONTINUE TO GO UP. THEY ARE HIT BY A LOT OF DIFFERENT FRONTS ON THE COST AND INCREASE OF INPUT COSTS FOR BUSINESS AND THAT IS A CHALLENGE FOR THEM. ROMAINE: THE EXECUTIVE DIRECTOR FOR THE NFIB RESEARCH CENTER AS WE CONTINUE TO GO DOWN TO THE CLOSING BELLS. WE ARE GOING TO TALK ABOUT STRATEGY, BOOSTING ITS CASH RESERVES, BUT REFRAINING FROM BUYING OR SELLING BITCOIN, A SHIFT IN STRATEGY. A CONVERSATION WITH THE CEO OF STRATEGY, PHONG LE, AFTER THE BREAK. ROMAINE: 3:30 P.M. HERE IN NEW YORK. THIS IS THE COUNTDOWN TO "THE CLOSE." I’M ROMAINE BOSTICK. KATIE: AND I’M KATIE GREIFELD. QUEERPING AN EYE ON EQUITIES BUT LET’S CHECK IN ON THE WORLD OF DIGITAL CURRENCIES. STRATEGY BEACHING UP ITS RESERVES TO 3DZ BILLION FOLLOWING ITS RECENT STOCK SALE. NOT BUYING OR SELLING ANY BITCOIN BETWEEN JULY 6 AND JULY 12. JOINING US LIVE I’M PLEASED TO SAY IS STRATEGY C.E.O. PHONG LE. FANTASTIC TO HAVE YOU WITH US. THIS WEEK YOU ISSUED THAT STOCK SALE, YOUR CASH RESERVES ARE UP AT $3 BILLION. MY UNDERSTANDING IS THIS ALLOWS TO YOU PAUSE BITCOIN SALES FOR THE TIME BEING. BUT TALK US THROUGH WHAT THE NEXT SEVERAL MONTH IT’S LOOK LIKE. DO YOU -- MONTHS LOOK LIKE. DO YOU PLANT TO SELL MORE -- PLAN TO SELL MORE BITCOIN AND IF SO, HOW MUCH? >> THANKS FOR HAVING ME. WE HAVE REALLY EVOLVED FROM BEING A BITCOIN TREASURY COMPANY TO A FULL DIGITAL CAPITAL PLATFORM. WE’RE THE WORLD’S LARGEST IDENTIFIED HOLDER OF BITCOIN. WE HAVE OVER 804,000 BITCOIN. DIGITAL CREDIT HAS BEEN LAUNCHED IN THE LAST YEAR, $10.5 BILLION. SO WE HAVE A RESPONSIBILITY TO OUR COMMON SHAREHOLDERS, OUR PREFERRED SHAREHOLDERS, AND TO BITCOIN, OF COURSE. WE ISSUED NOW OR WE’VE ACCUMULATED $3 BILLION IN CASH BECAUSE WE LISTENED TO OUR PREFERRED SHAREHOLDERS AND THEY SAID HAVING LIQUID CASH IN OUR BALANCE SHEET IN THE SHORT-TERM IS IMPORTANT. AND WE ALSO SOLD BITCOIN TO BE ABLE TO SHOW LIQUIDITY WITH OUR BITCOIN. YES, WE WILL CONTINUE TO ISSUE CAPITAL. COULD BE IN THE FORM OF BITCOIN AND WE’RE GOING MAKE THE DECISIONS THAT ARE BEST FOR OUR SHARE SHOULDERS OVER TIME -- SHSHAREHOLDERS OVER TIME. KATIE: COULD IT ALSO BE IN THE FORM OF S.T.R. -- STRC, PREFERRED SHARES, THEY’RE KNOWN AS STRETCH. MY UNDERSTAND SOMETHING THAT YOU LAST ISSUED STRETCH IN MIDMAY, OF COURSE IT’S BEEN TRADING AT A DISCOUNT HERE. DO YOU PLAN TO ISSUE STRETCH AGAIN IN THE NEAR FUTURE? >> YEAH, OUR PLAN IS TO GET STRETCH BACK TO PAR. UNSURE HOW LONG THAT WILL TAKE. BUILDING UP THE U.S. DOLLAR RESERVE WAS A BIG PART OF THAT. AND WE’LL CONTINUE TO BUILD THAT. AND YEAH, WHEN STRETCH GETS BACK TO PAR, WE’LL ISSUE MORE. WE’LL BUY BITCOIN AND WE MAY CONTINUE TO BEEF UP OUR U.S. DOLLAR RESERVE. THAT’S A BIG PART OF OUR CAPITAL PLAN IS TO ISSUED MORE PREFERRED OVER TIME. ROMAINE: I AM CURIOUS JUST ABOUT JUST KIND OF THE STRUCTURE GOING FORWARD. TO GET BACK TO PAR. IS THERE A SENSE HERE THAT YOU CAN DO THAT, WHETHER IT’S WITH SELLING MORE BITCOIN OR ISSUING MORE EQUITY, YOU HAVE DETERMINED WHAT MIGHT ACTUALLY BE THE BEST PATH TO GET THERE OR THE MOST EFFICIENT PATH TO GET THERE? >> THE FIRST THING IS THE U.S. DOLLAR RESERVE. I THINK WE’VE LEARNED OVER THE COURSE OF THE LAST COUPLE OF MONTHS THAT HAVING THAT LIQUID ACCESS TO U.S. DOLLAR CAPITAL, WHETHER IT BE ONE, TWO, THREE YEARS, IS QUITE IMPORTANT. AND WE SAW WHEN WE INCREASED THE LAST COUPLE OF WEEKS, WE GOT A STRETCH UP FROM THE LOW IN THE 57 RANGE TO CLOSE COULD -- 75 RANGE CLOSE TO 90 SO WE’LL CONTINUE TO BUILD THAT. I DON’T THINK THE DIVIDEND IS AS MUCH OF A FACTOR AND I THINK A TRACK RECORD OF SUCCESS AND A TRACK RECORD OF EXECUTION. AND THEN OF COURSE EDUCATION. WE’RE A YEAR INTO THE PRODUCT. A LOT OF FINANCIAL PRODUCTS TAKE TWO, THREE YEARS TO MATURE. SO WE’RE EARLY. WE’RE LEARNING. WE’RE LISTENING TO THE MARKET. AND THE GREAT THING IS THERE ARE BUILT-IN MECHANISMS WITH THE MARKET, FOR EXAMPLE, GOING TO PAR AND STAYING AT PAR. THAT’S A MECHANISM THAT LETS US KNOW WHAT WE’RE DOING RIGHT AND WHAT WE’RE NOT DOING RIGHT AND WHAT WE CAN IMPROVE UPON. ROMAINE: WHAT’S THE COMMUNICATION WITH SHAREHOLDERS OVERALL? THERE’S BEEN A LOT OF FOCUS ON THE PREFERRED SHARES BUT YOU GUYS ISSUED A TON OF COMMON EQUITY IN THE PROCEEDING YEARS AND I AM CURIOUS IF THERE’S ANY SENSE IN TRYING TO RECONCILE SOME OF THOSE FOLKS WHO BOUGHT A LOT HIGHER THAN WHERE THAT 9673 PRICE STANDS RIGHT NOW. >> OUR SHAREHOLDERS UNDERSTAND OUR PRIMARY GOAL IS OVER TIME TO OUTPERFORMANCE BITCOIN. WHICH IS AN EXTREMELY VOLATILE ASSET. THEY UNDERSTAND THAT SMTR IS MADE TO OUTPERFORMANCE BITCOIN. WHEN BITCOIN GOES THROUGH A BEAR CYCLE LIKE IT IS RIGHT NOW, MSTR CAN PERFORM A LITTLE BIT WORSE. AS LONG AS WE’RE -- AS LONG AS MSTR IS PRICED AT GREATER THAN THE NET ASSET VALUE OF OUR BITCOIN IT, MEANS THAT OUR SHAREHOLDERS ARE GIVING US CREDIT FOR THE PERFORMANCE ABOVE BITCOIN AND WHEN WE DO THAT, WE CAN ISSUE MORE EQUITY. FOR THE MOST PART. WE TALK TO OUR SHAREHOLDERS ALL THE TIME, THERE’S QUITE A FEW CONSTITUENTS. ONE OF THE MOST LIQUID STOCKS IN THE WORLD, AND WHEN WE AT THAT TO OUR SHAREHOLDERS, INSTITUTIONAL RETAIL, WE LOOK AT WHAT PEOPLE SAY ON SOCIAL MEDIA, WE TAKE A LOT OF COMMENTS, WE BRING THAT ALL IN. AND IT’S GREAT TO HAVE THE FEEDBACK. KATIE: JUST LOOKING FORWARD AGAIN, I MENTIONED THAT YOUR CASH RESERVES, THERE ARE $3 BILLION RIGHT NOW, IT SEEMS LIKE YOU HAVE SEVERAL YEARS OF BEING ABLE TO COVER YOUR INTEREST EXPENSES. BUT WHEN YOU GAME PLAN OUT IN THE FUTURE THREE YEARS, FIVE YEARS, IT JUST FEELS LIKE BITCOIN HAS BEEN STUCK IN THIS RUT FOR A WHILE NOW. TRADING AROUND $60,000 PER COIN. DO YOU HAVE A BREAK-GLASS SORT OF PLAN IF WE GO DOWN TO $30,000 OR $20,000 OR EVEN BELOW? >> YEAH WHEN BITCOIN GETS DOWN CLOSER TO $8,000 TO $10,000 IS WHEN WE’RE GOING TO HAVE, YOU KNOW, WE HAVE TO CONSIDER SOME OF THE RISK ASSOCIATED WITH OUR DEBT. UNTIL THAT POINT IN TIME, WE FEEL VERY SECURE ABOUT THE BALANCE SHEET. LOOK, TO YOUR POINT, BITCOIN HAS QUITE A BIT OF VOLATILITY. IT GOES UP AND DOWN. AND EVERY TIME IT’S IN A BEAR CYCLE LIKE IT IS, PEOPLE ASK, OK, WILL IT GO TO ZERO? AND IT HASN’T YET IN ITS 18-YEAR HISTORY. IT JUST ACHIEVES ALL-TIME HIGHS BUT WHAT WE NEED TO DO IS BUILD A CAPITAL STRUCTURE THAT CAN WITHSTAND BEAR MARKETS AND OF COURSE BENEFIT FROM BULL CYCLES AND THAT’S WHAT WE’VE DONE SO FAR. WE’VE BEEN THROUGH THIS IN 2022. WE’RE GOING THROUGH IT IN 2026. AND I’M PRETTY EXCITED ABOUT THE NEXT BULL MARKET OF BITCOIN. ROMAINE: FOR THOSE FOLKS WHO ARE CONCERNED THAT SORT OF MICRO STRATEGISTS WHO USE STRATEGY AS BEING THE DOMINANT BUYER OR PERPETUAL BUYER OF BITCOIN, THERE’S SOME REASSURANCE YOU CAN GIVE THEM THAT YOU ARE NOT GONE FROM THAT MARKET AS A BUYER? >> WE’RE NOT GOING ANYWHERE. WE’RE AT THE LARGEST IDENTIFIED HOLDER OF BITCOIN. MY OBJECTIVE WOULD BE THE LARGEST BUYER OF BITCOIN FOR THE FORESEEABLE FUTURE. WE’RE NOT GOING ANYWHERE, ANYBODY THAT’S WORRIED ABOUT STRATEGY SHOULDN’T BE. THAT SAID, BITCOIN’S A LOT BIGGER THAN US, RIGHT? WE ARE 4% HOLDER OF BITCOIN. BITCOIN TRADES $30 BILLION TO $40 BILLION A DAY. YOU SAW A COUPLE OF WEEKS AGO WE SOLD ABOUT $200 MILLION OF BITCOIN, THE MARKET MOVED UP DURING THAT PERIOD OF TIME. SO -- BUT WE’RE NOT GOING ANYWHERE. WE’RE GOING TO -- WE’RE STICKING WITH BITCOIN FOR THE LONG-TERM. WE’LL BE BUYERS OF BITCOIN FOR THE LONG-TERM. KATIE: SO YOU’RE NOT GOING ANYWHERE. I DO WANT TO GO BACK A LITTLE BIT TO THE PREFERRED SHARES BECAUSE BLOOMBERG NEWS DID REPORT LAST WEEK THAT DISTRESSED FUNDS, THEY’RE IN TALKS TO SWAP THEIR PREFERRED SHARES FOR OTHER SECURITIES. OF COURSE THAT WOULD BE A NEGOTIATION AND WITH THAT IN MIND, CAN YOU GIVE US AN UPDATE ON WHAT THOSE CONVERSATIONS SOUND LIKE? WHAT IS ACTUALLY DEVELOPING THERE? >> YEAH, THERE MAY BE FUNDS TALKING TO EACH OTHER ABOUT SWAPS. WE HAVEN’T BEEN IN THOSE MATERIAL CONVERSATIONS. WAIT WE’RE GOING TO MAKE STRETCH WORK IS WE’RE GOING TO CONTINUE TO INCREASE THE U.S. DOLLAR RESERVE, WE’RE GOING TO LISTEN TO THE MARKET, WE’VE PUT OUT, YOU KNOW, THE OPPORTUNITY, THE OPTION TO BUY BACK STRETCH IF IT MAKES SENSE BUT WE’RE NOT IN ANY MATERIAL CONVERSATIONS OTHERWISE. KATIE: AND BEFORE WE LET YOU GO, YOU KNOW, I WANT TO REFLECT ON STRATEGY A LITTLE BIT. BECAUSE YOU’RE THE C.E.O. OF STRATEGY. YOU’RE BEST KNOWN, OF COURSE, FOR BEING A BITCOIN TREASURY COMPANY, REALLY THE O.G. BUT YOU ALSO HAVE A SOFTWARE BUSINESS AND AS OF THE END OF MARCH, YOU HAD MORE THAN 1500 EMPLOYEES. I’M WONDERING, SITTING IN THE C.E.O. CHAIR, HOW MUCH OF YOUR TIME DO YOU DIVIDE BETWEEN THIS ECOSYSTEM OF FINANCING THAT YOU’VE BUILT UP TO ACCUMULATE MORE BITCOIN, AND THE ACTUAL UNDERLYING SOFTWARE BUSINESS? >> I’LL START WITH I’M AN ENGINEER BY EDUCATION. I’M A TECHNOLOGY AT HEART. I’M A FINANCIER AS MY DAY JOB, I’LL CALL IT. SO I LOVE SOFTWARE. I LOVE A.I. I LOVE BITCOIN. THEY’RE THE CONVERGENCE OF ALL THE THINGS THAT I REALLY ENJOY DOING. 50-50, 40-60, A LOT OF THE DISCIPLINE IS THE SAME. AND KEEP IN MIND OF THE 1500 EMPLOYEES, WE HAVE FOLKS WHO ARE IN FINANCE AND MARKETING, AND ENGINEERING IN LEGAL, AND ACCOUNTING THAT ARE ABLE TO BRING A MATURITY AND 25 YEARS OF PUBLIC COMPANY EXPERIENCE TO OUR BITCOIN BUSINESS THAT I THINK A LOT OF OTHER COMPANIES THAT ARE IN THE BITCOIN WORLD ARE ABLE TO BRING. IT’S PART OF WHAT I THINK MAKES US SUCCESSFUL. ROMAINE: ALL RIGHT, PHONG, REALLY APPRECIATE YOU TAKING TIME FOR US. PHONG LE, C.E.O. AT STRATEGY. WE WANT TO BRING YOU QUICK BREAKING NEWS. THIS FROM THE U.S. MILITARY, CONFIRMING THAT IT HAS BEGUN YET ANOTHER DAY OF MILITARY STRIKES AGAINST IRANIAN TARGETS. APPARENTLY THAT STARTED AT 3:00 P.M. EASTERN TIME. CENTCOM IS ALSO REITERATING THAT THE BLOCKADE THAT THE PRESIDENT HAD ANNOUNCED THAT WOULD GO INTO EFFECT TODAY WILL DINED GO INTO EFFECT -- LYNN DEED GO INTO -- WILL INDEED GO INTO EFFECT AT THE TOP OF THE HOUR. WE’LL KEEP AN EYE ON THAT AND THE PRICE OF OIL AS WE COUNT YOU DOWN TO THE CLOSING BELLS WITH MOST OF THE MAJOR INDICES STILL? THE GREEN. THIS IS "THE CLOSE" ON BLOOMBERG. ♪ ROMAINE: TIME NOW FOR OUR STOCK OF THE HOUR, I.B.M. DOWN MORE THAN 20%, ITS BIGGEST ONE-DAY DROP IN 58 YEARS. THE COMPANY’S C.E.O. WARNING THAT IT’S ACTUALLY FLOSSED OUT ON CLOSING SOME DEALS BECAUSE SOME OF ITS CUSTOMERS, THEY’RE PULLING BACK ON SOME OF THEIR SOFTWARE SUSPENDING. BLOOMBERG INTELLIGENCE JOINS US RIGHT NOW TALK TO MORE ABOUT WHAT’S GOING ON. A BIT OF A SURPRISE CERTAINLY TO MARKETS HERE. BUT OVERALL, WE’VE BEEN TALKING A LOT ON THIS NETWORK ABOUT HOW MUCH COMPANIES HAVE BEEN HAVING TO SPEND ON SERVERS AND MEMORY CHIPS AND OTHER THINGS LIKE THAT. I GUESS WE’RE NOW LEARNING AT LEAST FOR I.B.M. THAT’S AT THE EXPENSE OF SOFTWARE, IS THIS AN I.B.M. PROBLEM OR SOFTWARE ACROSS THE BOARD? >> I THINK NOT JUST SOFTWARE BUT SOFTWARE AND CONSULTING PROBLEM ACROSS THE BOARD BECAUSE, YOU KNOW, WHAT’S HAPPENING IS THAT MEMORY PRICES ARE GOING UP. IF YOU ARE A BIG COMPANY, YOU’RE THINKING, DO I BUY MY SERVICE TODAY OR TOMORROW WHEN THEY’RE GOING TO GET MORE EXPENSIVE? I THINK YOU CAN PERHAPS EXTEND THAT SAME ARGUMENT TO THE PHONES BECAUSE RIGHT NOW IPHONES HAVE NOT GONE UP BUT WILL YOU EXPECT THEM TO GO UP OVER THE NEXT COUPLE OF MONTHS. SO THAT’S WHAT’S HAPPENING. YOU’RE PULLING FORWARD THE BUYING OF HARDWARE, BUT IT’S GOING TO COME AT THE EXPENSE OF SOMETHING ELSE. THAT’S WHAT WE SAW IN THIS QUARTER FOR I.B. AND I THINK THAT’S GOING TO BE A RECURRING THEME OF WHEN OTHER SOFTWARE VENDORS ANNOUNCE RESULTS OVER THE NEXT 30 TO 60 DAYS IS PEOPLE ARE PULLING BACK ON SOME OF THE PLACES WHERE THEY CAN CUT BACK. KATIE: CERTAINLY YOU’RE SEEING THAT SAME REACTION WORK THROUGH THE STOCKS OF SERVICE NOW, OF WORK DAY, FOR EXAMPLE. SO THAT PULL FORWARD THAT WE’RE SEEING AMONG TECH COMPANIES, IS THERE ANYTHING FOR I.B.M. AND ITS PEERS TO DO OTHER THAN WAIT IT OUT, GIVEN THAT, YOU KNOW, THEY DON’T HAVE ANY ABILITY TO BRING DOWN THE COST OF SERVERS OR CHIPS? -- >> IN THE CASE OF IBM, THE CEO MENTIONED A SOFTWARE DIVISION CALLED TRANSACTION PROCESSING. WHEN YOU BUY A MAINFRAME, YOU HAVE TO BUY THE SOFTWARE ALONG WITH IT. IT USUALLY TAKES A FEW QUARTERS BECAUSE YOU BUY THE PRODUCT AND YOU ARE INSTALLING IT, AFTER THAT YOU CAN UPGRADE THE SOFTWARE. HE WILL NOT BE ABLE TO USE THE PRODUCT UNLESS YOU BUY THE SOFTWARE. IT GETS PUSHED THE NEXT QUARTER, PERHAPS A QUARTER AFTER THAT. EVENTUALLY IT COMES BACK. IT IS NOT THAT IT IS REVENUE LOSS, IT JUST GETS EXTENDED INTO ANOTHER QUARTER. WHAT WE DON'T KNOW IS HOW LONG THE IRAN-U.S. SITUATION IS GOING TO LAST. WE DON'T KNOW WHEN MEMORY PRICES ARE GOING TO STABILIZE AND START TO COME DOWN. WITH ALL THESE THINGS, IT IS DIFFICULT FOR A LEADER, NOT JUST FOR IBM, BUT EVERYBODY ELSE TO TAKE IT OUT, WHEN DO I GO OUT AND RAISE MY GUIDANCE? KATIE: IBM SHARES DOWN 20%. I APPRECIATE THE BREAKDOWN. THAT IS -- OF BLOOMBERG INTELLIGENCE. COMING UP NEXT, THE CLOSING BELL AS WE TAKE YOU THERE WITH THE HEAD OF U.S. EQUITY STRATEGY OVER AT RBC. THIS IS THE CLOSE ON BLOOMBERG. ♪ ROMAINE: WELCOME BACK TO THE CLOSE. I'M ROMAINE BOSTICK. KATIE: I'M KATIE GREIFELD. THE S&P 500 HIGHER ON THE DAY. A LOT OF STRENGTH WHEN IT COMES TO BIG TECH. IT IS INTERESTING IT FEELS LIKE BIG TECH IS LEADING THE MARKET TO THE UPSIDE AND THE DOWNSIDE. THAT HAS BEEN THE DYNAMIC THE PAST FEW WEEKS. ROMAINE: ALSO THIS SWIVEL, IF YOU WILL. WE HAD THE BIG PLUNGE WHEN IT COMES TO SOME OF THE CHIP STOCKS, AND THEN EVERYONE COMES AND BUYS A DIP, AND THEY GET SCARED OF SOMETHING ELSE, THEN THEY SCURRY BACK IN, RINSE AND REPEAT. KATIE: A CASE STUDY IN PSYCHOLOGY. ALSO THE DEAD OF SUMMER, MAYBE THAT IS ALSO CONTRIBUTING TO THINGS. ROMAINE: COUNTING DOWN TO THE CLOSING BELL, THE HEAD OF U.S. EQUITY STRATEGY OVER AT RBC CAPITAL MARKETS. I DO WANT TO START ON TECH. YOU ARE RELATIVELY OPTIMISTIC ABOUT TECH GOING FORWARD. YOU HAVE GONE TO OVERWEIGHT. IT IS ALL TECH, CHIPS, SOFTWARE? OR IS IT A POCKET OF TECH? >> WE MAKE RECOMMENDATIONS ON THE BROADER SECTOR. I TRY AND LEAVE IT TO MY ANALYST INDUSTRY CALLS. IN THE LATEST ANALYSTS SURVEY WE DID, AND WE DO IT ONCE A QUARTER, WE SAW BULLISHNESS FROM THE U.S. TECH ANALYSTS. WE SAW THAT FOR A NUMBER OF OTHER SECTORS. WHAT WE DID NOT SEE IT FOR WAS THE COMMUNICATIONS SERVICES SECTOR, A LOT OF TECH WITHIN IT. ON THE BASIS OF THE FUNDAMENTAL BOTTOM OF THE VIEWS FROM MY ANALYST WAS TO FADE COMMUNICATION SERVICE HAS, WHICH HAD PREVIOUSLY BEEN MY FAVORITE GROWTH ORIENTED SECTOR AND TO MOVE BACK INTO TECH. THE OTHER THING WE HAVE NOTICED, YOU FRANKLY HAVE BETTER VALUATIONS IN THE COMMUNICATIONS SERVICES SECTOR. WHEN YOU LOOK AT TECH, IT HAS IMPROVED BACK TO NEUTRAL. JUST GIVEN SOME OF THE CARNAGE WE HAVE SEEN. A BIT OF AN UNWIND IN SEMI-VALUATIONS. THEY ARE NOT SUPERCHEAP, THEY MAY STILL HAVE MORE TO GO. BUT WE'VE DONE ENOUGH IMPROVEMENT TO ALLOW THE SECTOR FROTH TO COME OUT. ROMAINE: IT LOOKS LIKE VALUATIONS ARE STARTING TO GET SOMEWHAT ATTRACTIVE IN THE SOFTWARE SPACE. CERTAINLY IF YOU BELIEVE IN THE LONG-TERM STORY OF THESE COMPANIES. WE GOT A LITTLE BIT OF A JOLT WITH THE COMMON SIDE OF THE IBM CEO, SEEMINGLY THIS IDEA PEOPLE ARE DIVERTING CASH TO HARDWARE AND OTHER THINGS RATHER THAN SOFTWARE AND CONSULTING SERVICES. ARE YOU WORRIED ABOUT THAT SECTOR? >> IT IS INTERESTING, LOOK AT THE SOFTWARE SPACE, PEOPLE ASK IF YOU HAVE TECH VIOLATIONS OR SEMI-VALUATIONS, BACK TO TECH BUBBLE PEAKS, ACTUALLY KNOW. IF YOU GO BACK AND LOOK AT THE SOFTWARE SPACE, IT DID THAT AROUND COVID. THE RUSSELL 3000 SOFTWARE GROUP ON MEDIAN PE. WE HAVE SEEN A COMPRESSION IN THAT PE MULTIPLE EVER SINCE. WE TALK ABOUT THIS IN ALMOST EVERY MEETING, THOSE VALUATIONS ARE BASICALLY HOVERING AROUND FINANCIAL CRISIS LOWS. WHEN I TALK TO INVESTORS I WILL SAY PRIOR TO TODAY, I WOULD NOT SAY PEOPLE WERE WARMING UP, THAT IS TOO EXTREME, BUT MAY BE THE TONE HAD IMPROVED A BIT AT THE MARGIN. WE HAVE BEEN SHOWING PEOPLE SOFTWARE VALUATION CHART. AS ONE PERSON PUT IT TO ME ABOUT A MONTH AGO, MAYBE WE WILL LOOK BACK IN AT THREE AND FIVE YEARS AND SAY WE SHOULD HAVE BOUGHT THE SPACE. BUT WE NEED A REASON. I'VE HAD CLIENTS SAY I WANT TO SEE THE PERFORMANCE IMPROVED. AROUND THE RUSSELL RECONSTITUTION, THERE WAS CHATTER ABOUT SOFTWARE WEIGHTS GOING UP. NORMALLY THAT IS THE KIND OF THING THAT WILL GET PEOPLE EXCITED ABOUT BUYING A DEEP VALUE GROUP. I DID NOT SEE ANY BITERS ON THAT. KATIE: TALKING ABOUT YOUR UPGRADE OF THE TECH SECTOR. I WANT TO TALK ABOUT THE OTHER SIDE. YOU RECENTLY DOWNGRADED UTILITIES TO UNDERWEIGHT. INDUSTRIALS WAS ALSO A CANDIDATE FOR A DOWNGRADE. THAT IS INTERESTING BECAUSE THOSE ARE TWO SECTORS YOU HAVE SEEN SOME OF THE AI HALO EFFECT, THE BUILDOUT EXTEND TO THOSE SECTORS. HAS THAT STORY RUN ITS COURSE? >> IF YOU LOOK AT MY SECTOR VALUATION MODEL, IT IS VERY SIMPLE, LIKE A Z-SCORE ON A MEDIAN PE FOR THE S&P SECTORS POINT AND TIME CONSTITUENTS GOING BACK TO 1989. IF YOU ARE IN THE RED ON THE GRID AND FAR RIGHT ON THE GRID, YOU ARE EXPENSIVE ON BOTH AN ABSOLUTE AND RELATIVE PE. VERSUS ITS OWN HISTORY AND THE RATIO OF THE BOND MARKET VERSUS AT HISTORY. GUESS WHAT SECTOR IS THE MOST EXTREME IN THE RIGHT OF THE GRADE? INDUSTRIALS. GUESS WHAT IS CLOSE TO IT? UTILITIES. IT IS NOT TECH ANYMORE, NOT CONSUMER DISCRETIONARY, ANOTHER SECTOR WE UPGRADED. WE ARE CONCERNED ABOUT THE VALUATION ISSUE BECAUSE IF I LOOK BACK OVER THE COURSE OF THE LAST YEAR, THE MARKET DOES NOT TOLERATE VALUATION FROTH FOR VERY LONG. YOU LOOK AT THE TOP 10 MARKET CAP NAMES IN THE S&P 500, THE HARBINGER OF THE MEGA CAP GROWTH TRADE, ANY TIME WE GET ABOVE 30 TIMES, WE WOBBLE. WE HIT 31 TIMES RECENTLY, BUT WE HAVE DONE IT IN THE PAST YEAR. THAT IS WHEN THE TRADE TENDS TO UNWIND AND WE HAVE THE BIG BROADENING MOVE. JANUARY AND FEBRUARY, METALS AND MINING GOT EXPENSIVE. WE SAW THAT ONE GOLD PRICES WENT DOWN AND GEOPOLITICS WERE FLARING UP AND EVERYONE WAS CONFUSED WHY. WE'VE GOT AN A STUPIDLY UNDERVALUED SITUATION. IF YOU LOOK AT THE CAPITAL MARKETS GROUP AND THE PRIVATE MARKET FEARS PERCOLATED, THE INVESTMENT BANKS, THE ASSET MANAGERS, THAT HAD GOTTEN RIDICULOUSLY OVERVALUED. THAT IS WHEN THE FEARS CAME IN. NOW PEOPLE ARE LIKE WHAT IS NEXT? WE JUST SHOT SAMMY'S. IT IS NOT COMPLETELY DOWN AND OUT ON THE VALUATIONS. BUT IT HAD STARTED TO GO PARABOLIC IN THE MARKET WAS LIKE YOU ARE GOING DOWN. SO WHAT IS LEFT? UTILITIES AND INDUSTRIALS. INDUSTRIALS, YOU HAVE STRONG FUNDAMENTALS, UTILITIES, WE GO BACK TO THE ANALYST SURVEY LAST WEEK. MY ANALYST WAS NEUTRAL. IF YOU ARE NEUTRAL WHEN MOST EVERYONE ELSE IS POSITIVE, IT PUTS YOU AT THE BOTTOM OF THE PILE. KATIE: WHAT MADE INDUSTRIALS ESCAPE EVEN THOUGH THEY ARE BOTH FLASHING RED ON THAT VERY COMPELLING PICTURE THAT YOU PAINT? >> I WOULD SAY A STRONGER ENDORSEMENT FROM A ANALYSTS. I WOULD ASKED TO RATE THEIR INDUSTRY OUTLOOK AND WE AGGREGATED BY THE SECTOR. THAT SENSE OF FUNDAMENTALS WAS STRONG. I HEAR IT FROM CLIENTS. WHEN I BRING UP THE VALUATION ISSUE, I GET EMOTIONAL PUSHBACK ON THAT. I'M NOT ONE TO GO WITH WHAT EVERYBODY SAYS, EVERYONE WHO KNOWS ME, I'M NOT AFRAID TO BUCK THAT TREND. WE LOOK AT THE EARNINGS REVISION INDICATORS. ONE OF THE TIEBREAKERS HERE WAS IF YOU LOOK AT INDUSTRIAL, THE RATE OF UPWARD REVISIONS ON SALES AND EARNINGS, VERY STRONG. I UNDERSTAND WHY PEOPLE SAY MAYBE THAT HE IS TOO LOW, WE HAD ALL THE STIMULUS SUPPORTING THAT. THERE IS CLARITY IT MIGHT GO HIGHER. IF I LOOK AT UTILITIES, IT'S GOT UPWARD REVISIONS, BUT IT IS WEAK. MUCH WEAKER THAN OTHER SECTORS AND MOST ARE IN POSITIVE TERRITORY. ROMAINE: ABOUT 30 SECONDS, ON THE EARNINGS SEASON WHEN IT COMES TO CONSUMER DISCRETIONARY STOCKS, IS IT AN ECONOMIC STORY, VALUATION STORY, ARE YOU HOPEFUL? >> WITH CONSUMER DISCRETIONARY, THE UNIVERSITY OF MICHIGAN SURVEY LAST MONTH INFECTED ACROSS THE BOARD ACROSS EVERY DATA POINT. EQUITIES WITH A RANGE OF CHANGE, NOT LEVEL. ESPECIALLY COMING OFF OF BOTTOMS. I HAVE BEEN GETTING PUSHBACK -- PUT BACK ON THE VALUATIONS BACK TO NEUTRAL, SPECIALTY RETAIL MOVEMENT TO THE GREEN ON THE INDUSTRY GRID WHICH MEANS VALUATIONS LOOK GOOD AND YOU HAVE POSITIVE REVISIONS. WE DID NOT GO OVERWEIGHT, BUT WE FELT IT WAS NOT SOMEWHERE WHERE WE WANTED TO BE UNDEREXPOSED ANYMORE. ROMAINE: ALWAYS A PLEASURE, LORI CAL MESSINA, U.S. EQUITY STRATEGY AT RBC CAPITAL MARKETS COUNTING US DOWN TO THE CLOSING BELLS. THE S&P 500 UP ABOUT HALF A PERCENT ON THE DAY, THE NASDAQ AS EXPECTED OUT FRONT WITH A BIG BUMP IN SOME OF THE TECH STOCKS. >> NOT EXACTLY GREEN ON THE WEEK. IT IS ONLY TUESDAY. THINK ABOUT THE DRAWDOWN YESTERDAY, .80 PERCENT. NOT QUITE OUT OF THE HOLE YET. AND CERTAINLY SOME PROGRESS. >> COUNTING YOU DOWN TO THE CLOSING BELLS ON THIS TUESDAY AFTERNOON. THE S&P 500 AND THE GREEN, THE EQUAL WEIGHT IN THE RED. THE>> THE CLOSING BELL, BLOOMBERG'S COMPREHENSIVE CROSS-PLATFORM COVERAGE OF THE U.S. MARKET CLOSE, STARTS RIGHT NOW. ROMAINE: AND RIGHT NOW WE ARE TWO MINUTES AWAY FROM THE END OF THE TRADING DAY. ROMAINE BOSTICK HERE WITH KATIE GREIFELD TAKING YOU THROUGH TO THE CLOSING BELL. CAROL MASSAR AND TIM STENOVEC JOIN US NOW. WELCOME TO OUR AUDIENCES ACROSS ALL OF OUR BLOOMBERG PLATFORMS. A REBOUND FROM YESTERDAY HERE WITH A BIG BUMP FROM NVIDIA, APPLE, QUITE A FEW OTHERS, BUT A BIG DRAG DOWN BY IBM, MICROSOFT, SOME OF THE SOFTWARE COMPANIES. CAROL: ABSOLUTELY. THE TURN OF SOME OF THE WELL-KNOWN NAMES. YOU ARE STILL SEEING OUTPERFORMANCE WHEN IT COMES TO TECH NAMES. YOU HAVE THE NASDAQ 100 UP 1.2%. TIM: I THINK PEOPLE ARE STILL CONCERNED ABOUT WHAT IS HAPPENING OUT OF THE STRAIT OF HORMUZ. IT IS LEADING HIGHER OIL PRICES. JUST IN THE LAST HALF HOUR, WE HEARD THE U.S. MILITARY SAYS IT STARTED MORE MILITARY STRIKES TODAY AT 3:00 P.M. EASTERN TIME. ONCE AGAIN, SEEING OIL PRICES HIGHER. KATIE: ABSOLUTELY. BRENT AROUND $85 A BARREL. IT DOES KINDA MAKE THE CASE THAT MAYBE THE INFLATION FIGURES WE GOT THIS MORNING THAT ARE LEADING TO A BUMP WHEN IT COMES TO THE EQUITY MARKET THAT DROPPED DOWN IN YIELDS, MAYBE IT ALREADY LOOKS STALE WHEN YOU THINK ABOUT WHAT WE ARE SEEING ON THE GEOPOLITICAL FRONT, BUT CERTAINLY FEELING QUITE A RALLY IN THE BOND MARKET. ROMAINE: WE TALK ABOUT THAT RALLY IN THE BOND MARKET PUSHING YIELDS ON THE TWO-YEAR DOWN ABOUT 10 BASIS POINTS IF YOU CAN BELIEVE IT. A LOT OF PEOPLE NOT BUYING INTO THE IDEA AT LEAST TODAY THAT THE FED WILL HIKE RATES ANYTIME SOON. I DON'T KNOW IF THIS ENDS UP BEING A GOLDILOCKS SITUATION FOR KEVIN WARSH, WHO WE SAW ON THE HILL TODAY. YOU CAN BE AS HAWKISH AS HE WANTS IN TERMS OF HIS COMMENTARY, BUT IN TERMS OF MOVING RATES, LOOKS LIKE THEY WILL BE PINNED WHERE THEY ARE FOR A MILE. THE CLOSING BELLS IN NEW YORK ACROSS THE SCREEN FOR THE MAJOR U.S. INDICES. THE DOW JONES ONLY UP ABOUT 30 POINTS, JUST A LITTLE LESS THAN 0.06%. THE NASDAQ COMPOSITE ZERO POINT PERCENT. THE NASDAQ 100 UP 1.1%. THE RUSSELL 2000 ADDING 12 POINTS. CAROL: YOU FINISH WITH SMALL CAPS. I GO BACK TO THE BIG CAP NAMES. THE S&P 500, 204 NAMES IN THE S&P 500 HIGHER TODAY. 296 TO THE DOWNSIDE. YOU HAVE ABOUT THREE UNCHANGED. KATIE: A LOOK AT THE CIRCLE WHICH MEASURES OUR SECTOR PERFORMANCE. SIX SECTORS IN THE GREEN. IT IS INFORMATION-TECHNOLOGY LEADING THE WAY. LOOK AT THE BRIGHT GREEN SLICE HIGHER BY 1.3%. ALSO A GOOD DAY FOR COMMUNICATION SERVICES, HIGHER BY 1.1%. IN TERMS OF WHAT DID NOT PERFORM TODAY, IT IS INTERESTING. HEALTH CARE DOWN 1.9% AS A SECTOR. THAT IS HER BIGGEST DROP TO THE DOWNSIDE. CONSUMER STAPLES OFF BY 1.4%. CAROL: LET'S GET TO SOME INDIVIDUAL GAINERS. I WILL START WITH A BUNCH OF FINANCIAL NAMES BECAUSE WE SAW FIVE BIG BANKS REPORTING EARNINGS. THREE OF THEM RALLYING IN TODAY'S SESSION. LET'S TAKE A LOOK AT J.P. MORGAN. IT WAS UP 2.5%. GOLDMAN SACHS SOARING TODAY, UP 9%. BANK OF AMERICA UP JUST SHY OF 2% TODAY. BANKS REPORTED RECORD RESULTS FROM THEIR EQUITIES DIVISIONS. J.P. MORGAN CHASE AND GOLDMAN ACHIEVING PERSONAL BESTS IN NEW INDUSTRY HIGHS. WE SEE THE AI BLOOM AND CONSTANT POSITIONING BY CLIENTS. DESPITE CONCERNS ABOUT WAR AND INFLATION. AGAIN, J.P. MORGAN BAGGING ITS HIGHEST QUARTERLY PROFIT EVER. GOLDMAN SOARING. ALSO LOOKING TO RAISE $8 BILLION FROM A BOND SALE. BANK OF AMERICA BOND SALES BENEFITING FROM THE MARKET VOLATILITY. ITS INVESTMENT BANKERS CAPITALIZING ON DEALMAKING RESURGENCE. AND THEN I WILL GO OVER TO THE CHIPMAKERS. THEY GIVE AND TAKE AWAY AND GIVE AGAIN. IT IS OUR NEW FAVORITE PARLOR GAME, WATCHING SEMICONDUCTORS. AS A WHOLE, UP 2.5%. ALL 30 DOWN YESTERDAY. I THINK WE HAVE 26 TO THE UPSIDE TODAY IN THE INDEX. I JUST WANT TO MENTION AMD BECAUSE SOME OUTPERFORMANCE THERE. UP ABOUT 2.5%. SOME STREET CALLS. KEYBANK CAPITAL RAISING THEIR TARGET ON AMD TO 725 FROM 530. STAR CLOSING AT 548 AND CHANGE, MAINTAINING AN OVERWEIGHT. STRONG AI DATA CENTER DEMAND IS DRIVING CHIP MOMENTUM. KEYBANK EXPECTS AMD CAPACITY NEXT YEAR TO SUPPORT UNIT GROWTH OF MORE THAN 50%. BANK OF AMERICA RAISING THE FIRM'S PRICE TARGET TO 620 AND KEEPING A BUY RATING ON THE SHARE. THE GOOD STUFF CONTINUES. THERE IS BLOOMBERG INTELLIGENCE OUT AND BEING UPBEAT ABOUT A LOT OF NAMES IN THE CHIP SPACE. ROMAINE: JUST MENTIONED SK HYNIX TOO. UP 27% AT THE CLOSE. CAROL: HOW DID I MISS THAT ONE? ROMAINE: I DON'T KNOW. CAROL: THAT WAS MY GIFT TO YOU. ROMAINE: DON'T MISS ANYTHING. TIM: MY GIFT TO YOU ARE SOME STOCKS THAT MOVED LOWER. LUCID GROUP, THE EV MAKER, ONLY SELLS A FEW THOUSAND CARS A YEAR AS ED LUDLOW REMINDED US EARLIER, DOWN 16%. WORKING WITH STRUCTURE ADVISORS TO TURNAROUND THE STRUGGLING BUSINESS. IT CONFIRMED IT IS WORKING WITH ALEX PARTNERS. THE COMPANY DISMISSED RUMORS IT IS CONSIDERING BANKRUPTCY AS COMPLETELY FALSE AND SAID IT HAS SUFFICIENT LIQUIDITY TO CARRY OPERATIONS WELL INTO NEXT YEAR. WATCH THAT CHART ON TV. YOU CAN SEE SALES FELL SHARPLY BEFORE 2:00 TODAY, DOWN AS MUCH AS 57% BEFORE PAIRING DECLINES TO 16% LOWER. CAROL: LIKE CLIFF DIVING. TIM: YEAH, IMAGES THAT THAT SHOWS. KATIE: IT IS EVOCATIVE. TIM: ONCE AGAIN, LUCID GROUP DOWN 16%. ANOTHER COMPANY, YOU MENTIONED THIS, SHARES OF SOFTWARE MAKERS. IBM FALLING BY THE MOST SINCE AT LEAST 1968. SHARES DOWN 25% THROUGHOUT THE DAY AND STAYING THERE. THE COMPANY CAME OUT WITH PRELIMINARY SECOND QUARTER SALES. CONSUMERS SHIFTING TO TRIPS AND SERVERS AMID THE AI FUEL SHORTAGES. THE CEO SAYS THE COMPANY FAILED TO PREDICT CUSTOMERS WHICH SHIFT THEIR SPENDING FROM IBM'S PRODUCTS TO SERVER STORAGE AND MEMORY. ROMAINE: THAT IS BASICALLY AS FAR BACK AS THE DATA GOES. AFTER 1968, THE BLOOMBERG TERMINAL BREAKS DOWN. IT WAS PROBABLY 1915 OR SOMETHING. CAROL: IS THAT WHEN YOU WERE BORN? ROMAINE: THANK YOU, CAROL MASSAR. CAROL: YOU ARE WELCOME. ROMAINE: FUN FACT, TIM STENOVEC, WHO I WAS SPEAKING TO. TIM: VERY BRIEFLY, CITI SHARES FELL. THE COMPANY PLANS TO SPEND MORE ON TECH AND AI. SHARES FELL BY 5.3%. JUST ONE OF THE FIVE BIG BANKS TO REPORT TODAY. CAROL MENTIONED SOME OF THE OTHERS. FINALLY, I WANT TO END WITH YUM! BRANDS. SHARES FELL AFTER AN INVESTIGATION OF WHETHER TALK ABOUT RESTAURANTS -- WHETHER TACO BELL RESTAURANTS PLAYED A ROLE IN THE GASTROINTESTINAL PARASITE. THAT REMOVED SOME SELECT INGREDIENTS OUT OF PERCUSSION. SHARES OF YUM! BRANDS DOWN MORE THAN 2% TODAY. ROMAINE: LET'S TAKE A QUICK LOOK AT YIELDS. WE TALK ABOUT THE VOLATILITY IN EQUITY MARKETS AND CONTINUE TO SEE THE VOLATILITY IN THE TREASURY SPACE AS WELL. WE SAW THE YIELD ON THE TWO-YEAR GO DOWN ABOUT NINE BASIS POINTS HERE ON THE DAY. BUYING BACK INTO THE SHORT END OF THE CURVE LARGELY BASED ON THE RELATIVELY COOL CPI REPORT. CAROL: ALL RIGHT, GUYS. LET'S GET YOU SOME STORIES ON OUR RADAR. THIS ONE DEFINITELY CAUGHT OUR ATTENTION. PASSENGER FALLING ASLEEP, SPILLING DRINKS, DROPPING FOOD, VOMITING. TIM: WOW. CAROL: SELF DRIVING TAXIS, COMPLICATING THE ROLL OUT OF ROBOTAXI. I LOVE THIS PART. PEOPLE ARE SO DRUNK, THEY ARE FORGETTING TO CLOSE THE DOOR. SO THE OPERATORS HAVE TO GET NEARBY GIG WORKERS TO CLOSE THE DOOR. THIS IS CRAZY. KATIE: THIS IS WRITTEN FOR YOU, CAROL. I LOVE HOW MUCH YOU LOVE IT. TIM: I TOOK A FLIGHT ON SUNDAY, AND WE WERE GETTING OFF THE PLANE. I WALKED BY A GUY WHO WAS STILL IN HIS SEAT COMPLETELY ASLEEP. I WAS THINKING TO MYSELF, WHEN ARE THEY GOING TO TAP THIS GUY AND TELL HIM WE HAVE ARRIVED? IT HAD BEEN ABOUT 15 MINUTES. I CAN ONLY IMAGINE WHAT IS HAPPENING IN THE ROBOTAXIS. KATIE: TO THAT POINT, I FEEL LIKE THIS IS JUST PUBLIC TRANSPORTATION PROBLEMS. YOU HAVE TO IMAGINE PASSENGERS ACROSS EVERY MODE OF TRANSIT ARE FALLING ASLEEP AND SPILLING DRINKS AND VOMITING. ROMAINE: BUT IT BECOMES AN ISSUE FOR FIRST RESPONDERS WHEN PEOPLE WALK BY AND THEY SEE SOMEONE PASSED OUT AND CALL 911 OR SOMETHING LIKE THAT. THE FIRST RESPONDERS COME AND SAY, NO, IT IS JUST SOMEBODY TAKING A NAP. KATIE: WE HAVE A STAT ON THAT IN THE STORY. ONLY 3% OF SUCH CALLS REQUIRE TRANSPORTING OF A PASSENGER TO A HOSPITAL. YEAH, THOSE CALLS ARE DEFINITELY HAPPENING. ROMAINE: HAVE YOU BEEN IN ONE OF THESE, CAROL? TIM: ARE YOU GETTING? CAROL: ARE YOU KIDDING? I AM IN LOVE WITH WAYMOS. ROMAINE: HOW MONEY TIMES HAVE YOU PASSED OUT DRUNK IN ONE? CAROL: [LAUGHTER] TIM: WHEN YOU WANT TO RELAX IN YOU CHAUFFEURED SUV ON THE WAY HOME, WHAT DO YOU HAVE YOUR DRIVER PUT ON? ROMAINE: MY DRIVER? BLOOMBERG RADIO. DEPENDS IF IT IS THE MORNING SHOW. CAROL: IT FEELS LIKE A SPA, A WAYMO. IT IS NICE AND QUIET. NOBODY TALKS TO YOU. TIM: DO THEY HAVE THESE IN NEW JERSEY? ROMAINE: THE LOVELIEST TIME IS WHEN MY SENIOR PRODUCER GOT INTO ONE OF THEM IN FRONT OF A HOTEL AND COULD NOT FIGURE OUT HOW TO GET OUT OF A HOTEL DRIVEWAY BECAUSE OF SOMEBODY PEDESTRIANS. SHE WAS BASICALLY STUCK THERE FOR 20 MINUTES. SHE WAS LATE FOR DINNER. KATIE: CONGREGATING ON A SPECIFIC CUL-DE-SAC AND GETTING IN A DOOM LOOP AND GOING IN CIRCLES. TIM: LOOKS LIKE WE ARE SAFER NOW. CAROL: CAN I SAY THIS IS THE FIRST HAPPENED AT CLOSING BELL WHERE WE SAID BOTH VOMIT AND DIARRHEA? KATIE: THERE IS ALWAYS TOMORROW. CAROL: SOMETHING TO LOOK FORWARD TO. KATIE: CAROL GOT THE GIGGLES. CAROL: THAT IS A WRAP. WE DO CALL IT THE CLOSING BELL. ROMAINE AND KATIE FINISHING UP ON "THE CLOSE" ON TV AND TIM AND I ARE BACK ON RADIO ON BLOOMBERG BUSINESSWEEK DAILY. WE WILL SEE YOU SAME TIME, SAME PLACE TOMORROW. ROMAINE: SOME BREAKING CROSSING THE BLOOMBERG TERMINAL. THE U.S. MILITARY IS CONFIRMING THAT IT HAS RESUMED ITS NAVAL BLOCKADE OF IRANIAN PORTS AND THE IRANIAN COAST, EFFECTIVELY THE STRAIT OF HORMUZ. THIS WE LEARNED ABOUT ONE HOUR AGO THAT THE U.S. MILITARY RESUME STRIKES FOR YET ANOTHER DAY IN IRAN. IT IS HAVING UPWARD PRESSURE ON OIL PRICES. WE WILL HAVE THAT CONVERSATION WHEN WE COME BACK AFTER THE BREAK ON "THE CLOSE" RIGHT HERE ON BLOOMBERG. ♪ >> LEE COUNTY IS ON. -- THE COUNTDOWN IS ON, EVERYTHING YOU NEED TO GET THE EDGE AT THE MARKET DAY. THIS IS "THE CLOSE." KATIE: WELCOME BACK TO "THE CLOSE." ROMAINE: BRINGING ACROSS -- GREEN ACROSS THE SCREEN FOR THE MOST PART IN THE U.S. THE MAJOR INDICES CLOSING OUT HIGHER. THE NASDAQ ADDING ABOUT 1% ON THE DAY, BUT THERE WAS A LOT OF FLUCTUATION UNDERNEATH THE SURFACE AND A LOT OF DISPARITIES AS WELL. SOFTWARE AS A SECTOR DOWN ABOUT 1.6% LARGELY BASED ON THE BIG DROP WE SAW IN IBM. BANK STOCKS UP ON THE DAY IN THE GREEN, BUT WE SHOULD POINT OUT NOT ALL THE SHIPS ROSE ON THE DAY DESPITE PRETTY MUCH RECORD REVENUES ALL ACROSS THE BOARD. KEEP AN EYE ON GOLD AND THE COMMODITIES SPACE HERE. A TALE OF TWO CITIES WITH THE INFLATION REPORT THIS MORNING AND LATE IN THE DAY NOW. AN UPTICK IN OIL PRICES THAT MAY BE COULD ERASE THAT. KATIE: WANT TO GO BACK TO THE SECOND LINE ON THAT BOARD AND TALK A LITTLE MORE ABOUT SOFTWARE, A LITTLE MORE ABOUT IBM FALLING 25% ON THE DAY. ITS BIGGEST DROP SINCE 1968. OF COURSE, ALSO SENDING A CHILL THROUGH OTHER SOFTWARE NAMES. LUCID AS WE WERE TALKING ABOUT, CONFIRMING IT IS WORKING WITH ALEX PARTNERS. LUCID SHARES DOWN 16%. KEEP AN EYE ON SPACEX DROPPING FOR ANOTHER DAY, DOWN ABOUT 2.2%, CLOSING AT 136. REMEMBER, THE IPO PRICE IS 135. SO SOMETHING TO KEEP AN EYE ON. LET'S GET TO OUR TOP STORY THIS HOUR, AND THAT IS THE U.S. SAYING IT RESUMED ITS NAVAL BLOCKADE OF IRANIAN PORTS AND COASTAL AREAS. OIL SOARING IN RECENT DAYS WITH THE U.S.-IRAN TRUCE ABSOLUTELY COLLAPSING OIL SOARING IN RECENT DAYS WITH THE U.S.-IRAN TRUCE ABSOLUTELY COLLAPSING. WITHIN THE LAST HOUR, THE U.S. LAUNCHING A FRESH WAVE OF STRIKES ON IRAN. ROMAINE: REBECCA JOINS US NOW FROM CIBC PRIVATE WEALTH. REBECCA, THIS GETS TO THE IDEA RIGHT NOW OF EXACTLY WHERE THE HEADROOM IS WHEN IT COMES TO OIL PRICES. I KNOW THERE IS A LOT THAT WE DON'T KNOW, BUT WE HAVE BEEN HERE BEFORE WITH THIS BACK-AND-FORTH BETWEEN IRAN AND THE U.S. WHEN YOU LOOK AT WHERE WE ARE RIGHT NOW IN THE MID-80'S RANGE AT LEAST ON BRENT CRUDE HERE, IS THIS SOMETHING WE LIVE WITH AT THIS PRICE, OR DO TRADERS START TO MAYBE EYE SOMETHING HIGHER? REBECCA: I THINK TRADERS ARE RELUCTANT TO FIRST, PRIOR TO THE MOU BEING SIGNED IN MID JUNE, THE U.S. WAS ACTIVELY ASSISTING SHIPS THROUGH HORMUZ, DURING THE TIME THEY HAD THE BLOCKADE, VENTING A RAINY AND EXPORTS FROM GETTING OUT. THERE IS SOMEWHAT OF AN ASSUMPTION THAT THAT MAY RESUME AS THE BLOCKADE GOES IN PLACE, AND THEN WE WILL CONTINUE TO SEE AT LEAST SOME FLOWS MOVE THROUGH HORMUZ. NOW IS IT GOING TO BE THE FULL 20 MILLION BARRELS OF PRUDENT PRODUCT WE ARE USE TO? NO. BUT THERE IS CONFIDENCE THAT ALTHOUGH WE ARE IN A VERY UNIQUE AND CHALLENGING SITUATION FOR SUPPLY, WE'VE COME UP WITH SOME CREATIVE WAYS TO KEEP FLOWS GOING. SAUDI ARABIA STILL REROUTING FLOWS THROUGH THE EAST-WISE -- EAST-WEST PIPELINE. IF WE CAN KEEP SOME SHIPS MOVING THROUGH, THE PRICE ACTION INDICATES WE DON'T HAVE THAT KIND OF EXPLOSIVE UPSIDE IN THE SHORT-TERM. IF THIS CONTINUES FOR MONTHS AND NOT WEEKS, I THINK THAT'S VERY DIFFERENT CONVERSATION. ROMAINE: I'M CURIOUS ABOUT THE KNOCK ON EFFECTS DOWNSTREAM, IF YOU WILL. WE LOOK AT THE PULLBACK WE SAW IN CRUDE PRICES, OVERALL CRUDE FUTURES, IF YOU WILL. BUT WE NEVER REALLY SAW A COMMENSURATE DROP IN SOME OF THOSE FINISHED PRODUCTS, WHETHER IT'S DIESEL, GASOLINE, AND EVERYTHING ELSE THAT GOES INTO JET FUEL. IS THERE A SENSE HERE THAT WE COULD CONTINUE TO SEE MORE INFLATIONARY PRESSURES ON THOSE FINISHED PRODUCTS RELATIVE TO WHATEVER WE ARE SEEING ON THE HEADLINE NUMBERS? >> I THINK THAT'S MOST IMPORTANT QUESTION IN THE MARKET RIGHT NOW. IF YOU LOOK AT THE TRANSIT HAVE WORKED, IT'S BEEN IN THE PRODUCT SIDE. THE HEDGE FUND COMMITTEE HAS BEEN VERY MUCH LONG DIESEL AND GASOLINE VERSUS SHORT CRUDE OIL WHICH HAS BEEN THE TRADE THAT IT HAS WORKED. WHITE HAS WORKED IS THAT THERE'S FAR LESS BUFFERS IN THE REFINING SYSTEM THEN CRUDE OIL PRODUCTION. WE DON'T HAVE A LOT OF REFINING SPARE CAPACITY GLOBALLY. THE U.S. IS RUNNING FLAT OUT RIGHT NOW -- RIGHT NOW AT 96% UTILIZATION. CHINA HAS SOME SPARE CAPACITY FOR REFINING, BUT THEY ARE NOT USING IT BECAUSE THEY DON'T WANT TO BUY CRUDE AT INFLATED PRICES. THEY WANT DISCOUNTED IRANIAN CRUDE. SO WE HAVE A SHORTAGE OF PRODUCTS AND WE DON'T HAVE A WAY TO FILL IN THE GAPS LIKE WE DO WITH CRUDE OIL. THAT'S REASON WE HAVEN'T SEEN PRODUCTS COME IN THE WAY CRUDE HAS. THIS IS THE WAY I THINK WE WILL PERSIST OVER THE NEXT COMING MONTHS BECAUSE WE ALSO HAVE RUSSIA NO LONGER EXPORTING DIESEL INTO THE MARKET. THEY JUST ANNOUNCED THEY WILL INSTILL A BAN BECAUSE THEIR REFINERS ARE BEING TARGETED BY UKRAINE. SO WE HAVE A SHORTAGE OF SUPPLY AND NOT AS ME BUFFERS. THAT WILL KEEP PRICES ELEVATED MUCH LONGER THEN WE SEE FOR CRUDE OIL. KATIE: WHAT IS THE READTHROUGH INTO THE REAL ECONOMY FROM THAT? YOU CAN MAKE THE CASE THAT YOUR AVERAGE CONSUMER IS NOT GOING TO BUY A BARREL OF CRUDE OIL, BUT WHEN IT COMES TO SOME OF THESE PRODUCTS, THAT MIGHT MUCH MORE DIRECTLY TOUCH THEM. >> ABSOLUTELY. THAT'S WHY I THINK YOU SEE KIND OF THE CONVERSATIONS FROM THE ADMINISTRATION TURNING TOWARD PRODUCTS AWAY FROM CRUDE IN TERMS OF RETAILERS NEEDING TO BRING PRICES DOWN MORE QUICKLY. WE PUMP GASOLINE INTO OUR CARS. UNFORTUNATELY, THERE JUST ISN'T A QUICK FIX FOR PRODUCTS. WE DON'T HAVE AS BIG OF AN SPR FOR PRODUCTS AND GASOLINE PRICES RIGHT NOW, THE NATIONAL AVERAGES AROUND $3.85. THAT WILL LIKELY TAKE BACK UP INTO THE MID-FOURS IF WE DON'T SEE UTILIZATION COME BACK ON FOR CHINA OR RUSSIA BEGIN TO REPAIR SOME OF THEIR REFINERIES. THAT IS THE CONVERSATION THAT I THINK WILL DRIVE THE POLITICAL RHETORIC AS WE GET CLOSER TO THE MIDTERMS. THE ISSUE WE HAVE IS THAT THERE IS A LIMITED -- LIMITED LEVERS YOU CAN PULL TO TRY TO REIGNITE REFINERIES. IT JUST DOESN'T HAPPEN OVERNIGHT. THAT IS A YEARS LONG PROCESS. KATIE: I WANT TO RETURN TO THE SUPPLY CONVERSATION BECAUSE I'M TAKING A LOOK AT YOUR NOTES, AND YOU POINT OUT THAT THE CURVE STILL EXPECTS TO RETURN TO A SURPLUS. THERE WAS INTERESTING REPORTING OUT TODAY THAT THE U.S. GOVERNMENT IS ADVANCING TALKS FOR A PIPELINE TO CARRY OIL FROM IRAQ TO SYRIA. THE IDEAS THAT YOU WOULD AVOID THE STRAIT OF HORMUZ ALL TOGETHER. THERE'S PLENTY OF THESE CONCEPTS OUT THERE. HOW LONG WOULD IT TAKE FOR SOME OF THESE DISCUSSIONS TO ACTUALLY BEAR FRUIT AND MAKE THAT SUPPLY, THAT SURPLUS DYNAMIC COME BACK INTO THE OIL MARKETS? >> ROMAINE HAS BEEN ASKING ME THIS QUESTION SINCE THIS CONFLICT BROKE OUT, HOW QUICKLY CAN VARIOUS COUNTRIES REROUTE AWAY FROM HORMUZ? THEY ARE TAKING AGGRESSIVE ACTION. THE MOST AGGRESSIVE IS THE UAE, SAYING THEY COULD POTENTIALLY DOUBLE THE EXPORT CAPACITY BY THE END OF 2027. THAT FEELS LIKE 100 YEARS AWAY, ALTHOUGH IT'S ONLY A YEAR AND A HALF AWAY, BASED ON THE HEADLINE LOWS WE ARE DEALING WITH RIGHT NOW. SAUDI ARABIA ALSO WANTS TO INCREASE THEIR EXPORTS, THAT TAKES ABOUT A YEAR. SO WE ARE TALKING ABOUT A YEAR TO A YEAR AND A HALF BEFORE WE BEAR FRUIT THERE. WHETHER THAT IS FAST ENOUGH TO PREVENT THE NEXT SPIKE IN PRICES IS QUESTIONABLE. WHAT IT DOES TELL ME THAT THIS SPHERE THAT WE ARE EXPERIENCING IS REAL AND THERE WILL BE A LOT OF WORK AROUND THAT WILL HAPPEN OVER THE COMING YEARS. THAT JUST INCREASES THE PRICE OF A BARREL BECAUSE THOSE THINGS COME AT A COST. THEY ARE NOT FREE, AND THEY ARE PASSED ALONG INTO THE PRICE OF A BARREL. KATIE: IT WILL BE FASCINATING TO SEE HOW IT PLAYS OUT. COMING UP. MORGAN STANLEY IS SET TO WRAP UP BIG BANK EARNINGS. WE WILL DISCUSS WHAT TO EXPECT,. THIS IS "THE CLOSE" ON BLOOMBERG. ♪ KATIE: MORGAN STANLEY SET TO ROUND OUT BIG BANK EARNINGS FOLLOWING TODAY'S BLOCKBUSTER RESULTS FROM RIVALS. A RESEARCH ANALYST OF LARGE-CAP OVER AT UBS JOINS US NOW, GREAT TO HAVE YOU WITH US. THE STORY FROM THE FIVE BANKS ARE REPORTED TODAY WAS REALLY ALL ABOUT TRADE. YOU SAW WALL STREET TRADERS REALLY COME OUT IN FORCE. ARE YOU EXPECTING TO SEE MORE OF THE SAME MORGAN STANLEY? HOW DOES THIS RAISE THE STAKES FOR THEM? ERIKA: I THINK JUST TO DOUBLE CLICK ON YOUR POINT, IT WAS NOT JUST ABOUT TRADING, BUT IT WAS SPECIFICALLY ABOUT EQUITIES TRADING. TO DOUBLE DOWN ON THAT, IT WAS VERY SPECIFICALLY ABOUT EQUITIES TRADING IN ASIA. SO IF WE THINK ABOUT MORGAN STANLEY'S HISTORICAL STRENGTHS, THEY HAVE BEEN A TOP PLAYER IN EQUITIES FOR A LONG TIME NOW. THEY'VE HAD A VERY ESTABLISHED ASIAN FOOTPRINT. SO WE EXPECT MORE OF THE SAME TOMORROW. KEEP IN MIND THAT EQUITIES, REVENUES, AND WE HEARD FROM FIVE BANKS TODAY, ARE UP 70% YEAR-OVER-YEAR. SO I DO THINK THAT MORGAN STANLEY IS GOING TO PRODUCE SOME PRETTY MAGNIFICENT NUMBERS TOMORROW. KATIE: TO THAT POINT, IT WAS ALL ABOUT EQUITY TRADING. YOU SAW CITI KIND OF PUNISHED ON THAT POINT, YOU SAW THERE REVENUE FROM EQUITIES TRADING SURGE 45%, BUT STILL THAT WASN'T ENOUGH TO MEET SOME VERY HIGH EXPECTATIONS. I WONDER HOW YOU ARE THINKING ABOUT THAT AS WE DIGEST SOME OF THESE RESULTS? ERIKA: I THINK THAT THE MARKET WAS VERY MUCH WILLING TO ACCEPT THAT CITIGROUP IS MUCH MORE HEAVY THAN EQUITIES HEAVY. THEY WERE ESSENTIALLY RETURNING 13% ON EQUITY FOR THE FIRST HALF OF THE YEAR. EVERYONE THOUGHT THEY WOULD OUTPERFORM THEIR 10%-11% TARGET FOR 2026. AND THEY SAID NO, WE ARE GOING TO STAY IN THAT RANGE AND WE ARE GOING TO REINVEST, AND GIVEN THE RUN THE STOCK HAS HAD, I THINK SOME OF THE WEAKER HANDS CAME OUT OF THE STOCK, GIVEN THAT IMPLIES A PRETTY SIGNIFICANT STEP DOWN IN R.O.E. FOR THE SECOND HALF OF THE YEAR. ROMAINE: IN LIGHT OF WHAT SEEMS TO BE INCREASING COMPETITION, NOT ONLY FROM ITS BIG BANK PEERS BUT PRETTY MUCH ALL THE PERIPHERY, YOU HAVE ALL THESE NEW BUSINESSES OR EXPANSIONS OF BUSINESSES, AND I WONDER HOW YOU THINK THEY WILL HOLD UP IN THE FACE OF THAT COMPETITION. ERIKA: I THINK MORGAN STANLEY WILL REMAIN SORT OF APART FROM ITS COMPETITION. NUMBER ONE, THE SECOND QUARTER MAY NOT LOOK AS PRETTY. THE BIG WATERSHED TARGET THAT PEOPLE LIKE TO LOOK AT IS PRETAX, AND THE BRIGHT LIGHT FOR MORGAN STANLEY'S 30%. IS LIKELY IT WILL BE SLIGHTLY UNDER THAT BECAUSE THE SECOND QUARTER IS SEASONALLY WEAKER. YOU HAVE TAX PAYMENTS AND IN TERMS OF NEW ASSET FLOWS, ADDITIONALLY THERE IS A ONE MONTH PRICING LAG, SO MARCH, APRIL, AND MAY IS THE NOT SO GREAT PART THE MARKET FOR THIS YOUR. THAT BEING SAID, AS WE LOOK AHEAD, THERE'S A COUPLE OF THINGS. NUMBER ONE, MORGAN STANLEY CONTINUES TO REINVEST. IT CONTINUES TO DISRUPT ITSELF IN TERMS OF AI INVESTMENTS. ADDITIONALLY, THEY BANK NINE OUT OF 10 UNICORNS AS POROUS ASSETS. MORGAN STANLEY WILL REMAIN HEAD AND SHOULDERS ABOVE ITS PEERS IN TERMS OF WEALTH. ROMAINE: WE HAVE TO LEAVE IT THERE, ERIKA. WITH FIVE OF THE SIX BIGGEST BANKS REPORTING TODAY, ALL EYES TOMORROW WILL BE ON MORGAN STANLEY AND WHETHER THEY KEEP PACE WITH REGARDS TO WHAT WE SAW TODAY. IT WAS PRETTY IMPRESSIVE ACROSS THE BOARD DESPITE SOME OF THE MIXED BAG WITH REGARD TO EQUITY PERFORMANCE. KATIE: THE BIG QUESTION THERE, WILL THERE EQUITY TRADERS BE ABLE TO KEEP UP? WE CERTAINLY SAWCITI PUNISHED FOR THAT IN TERMS OF STOCK PERFORMANCE. JUST ONE MORE TO GO. ROMAINE: A BIG FOCUS ON THAT WEALTH BUSINESS. SPEAKING OF WEALTH, NOT JUST THE BANKS ARE HAVING A GOOD TIME. SO THE BEAST JUST RELEASED THEIR FIRST HALF RESULTS -- SOTHEBY'S JUST RELEASED THEIR FIRST HALF RESULTS. CHARLES STUART WILL TALK ABOUT WHAT EXACTLY PEOPLE WERE BUYING IN THE FIRST HALF AND WHETHER THERE IS MOMENTUM FOR THE SECOND. THAT CONVERSATION IS COMING UP NEXT, RIGHT HERE ON BLOOMBERG. ROMAINE: SOMEBODY'S AUCTION HOUSE PERSON A RECORD FIRST HALF. TOTAL SALES SITTING AT ALL-TIME HIGH OF $4.4 BILLION, UP 60% FROM LAST YEAR. CHARLES STEWART JOINS US NOW, THE CEO AT SOTHEBY'S COME TO TALK ABOUT A GREAT FIRST HALF, WHETHER THAT CONTINUES INTO THE SECOND HALF. I KNOW YOU DON'T BREAK OUT THE ACTUAL EARNINGS THEMSELVES, BUT WERE YOU COMFORTABLE WITH WHAT YOU MADE ON THOSE SALES? CHARLES: MORE THAN COMFORTABLE, VERY STRONG ACROSS THE PERFORMANCE. WE ARE A PRIVATE COMPANY SO WE ONLY DISCLOSE THE PUBLIC TOP LINE. VERY STRONG PERFORMING THE BUSINESS. ROMAINE: THE CONVERSATION TODAY MAY BE A LOT BRIGHTER THAN A FEW YEARS AGO WHEN WE WERE TALKING ABOUT DOWNGRADES AND RESTRUCTURING. IT IS ALL OF THAT BEHIND YOU NOW WITH REGARD TO THE CHANGES YOU WANT TO MAKE MY GETTING SOTHEBY'S BACK ON TRACK? CHARLES: ABSOLUTELY. THE MARKETS HAVE CHANGED DRAMATICALLY. THAT STARTED ABOUT A YEAR AGO. IN ADDITION, WE RAISED A BILLION DOLLARS IN PRIMARY CAPITAL. THAT IS GOING BACK ABOUT 18 MONTHS PRIMARILY FROM ONE OF THE ABU DHABI SOVEREIGN WEALTH FUNDS. IT'S BEEN A GAME CHANGER ON OUR BALANCE SHEET, FROM A COUPLE OF PERSPECTIVE, COUPLED WITH HIS INCREDIBLE PERFORMANCE, AND EXCITING LAST 12 MONTHS. KATIE: I WANT TO BREAK DOWN THAT FIRST I FIGURE THAT YOU HAVE HERE. WHERE ARE YOU SEEING THE MOST STRENGTH WHEN YOU THINK ABOUT THE AREAS YOU ARE SEEING DEMAND BOTH IN WHAT YOU ARE SELLING AND A TYPE OF SALES BEING EXECUTED? CHARLES: ONE OF THE THINGS THAT'S BEEN INTERESTING TO OBSERVE IS JUST HOW BROAD-BASED THE RESULTS ARE. I WOULD SAY FINE ART, OUR LARGEST CATEGORY OVER ALL, IS WHERE THE MOST GROWTH HAS BEEN YEAR-OVER-YEAR, BUT IF YOU LOOK AT IT GEOGRAPHICALLY, WE HAVE BIDDING FROM 120 COUNTRIES IN THE FIRST HALF OF THE YEAR, ASIA RETURNED TO STRONG PERFORMANCE, THE MIDDLE EAST NOT WITHSTANDING CONFLICT IN THE REGION, PERFORMING WELL. OF COURSE, THE U.S. VERY STRONG WITH ALL THE WEALTH FORMATION HERE. IT IS IN FINE ART BUT ALSO WHAT WE CALL LUXURY WHICH INCLUDES EVERYTHING FROM CARS TO JEWELRY TO WATCHES. I DON'T KNOW IF YOU'LL ASK ME ABOUT IT, BUT WE SOLD A SPECIAL FRIEND THIS MORNING. KATIE: WHAT SORT OF BUG AND YOU CATEGORIZE THEM AS? CHARLES: EVERYTHING OLD IS NEW AGAIN, AS THEY SAY. IN THIS TWO HUNDRED 50 ANNIVERSARY YEAR OF THE UNITED STATES, IT ONLY SEEMED APPROPRIATE TO SELL ONE OF THE ORIGINAL AMERICANS PERHAPS, 67 MILLION YEARS OLD FROM SOUTH DAKOTA. HE SOLD FOR 50 POINT ONE MILLION DOLLARS THIS MORNING. ROMAINE: CONGRATULATIONS. I DON'T KNOW WHERE GUS WILL GO UP A CONGRATULATION THE WINNER. I DO WANT TO TALK ABOUT THE FINANCE SIDE BEFORE WE GET TO THE OTHER INTERESTING AUCTIONS THAT YOU HAD. THIS HAS TO DO WITH THE SECURITIZATION SIDE OF THE BUSINESS, SO THAT THESE FINANCIAL, EXACTLY WHAT YOU WANT THAT TO BE. WILL THAT BECOME A BIGGER PART OF THE BUSINESS, ANTICIPATED BECOMING BIGGER THAN THE AUCTION HOUSE ITSELF? CHARLES: WE HAVE FOUR DIVISIONS WITHIN THE SO THE BEES. ONE IS FOCUSED ON FINE ART, ONE FOCUSED ON LUXURY, SERVICES, WHERE WE DID THE SECURITIZATION TRANSACTION, AND THEN PARTNERS WHERE WE HAVE ALL OF OUR EXPERIENCES AND PARTNERSHIPS WHICH IS A GROWING PART OF OUR BUSINESS. FINANCIAL SERVICES, WE ARE THE LARGEST NON-BANK LENDER IN THE ART WORLD. IT MAKES A LOT OF SENSE GIVEN HOW MUCH KNOWLEDGE WE HAVE ABOUT THE VALUE OF FINE ART AND OTHER HIGH-VALUE COLLECTIBLES. IT HAS BEEN A SIGNIFICANTLY GROWING PART OF THE BUSINESS OVER THE LAST 6, 7 YEARS, DRAMATICALLY SO. THE SECURITIZATION WHICH WAS $900 MILLION, WAS A WAY TO GET THE WHOLESALE FUNDING SIDE OF THAT BUSINESS TO BE MARKET BASED THE ON BANK SYNDICATE WE HAVE THAT PROVIDE THE OTHER PART OF WHOLESALE FUNDING. ROMAINE: WITH REGARD TO THE AUCTION HOUSE, I'M CURIOUS ABOUT THE STRUCTURE OF SOME OF THE DEALS, THE IDEA, ARE YOU SEEING BUYERS ASK FOR MORE ON THE CONCESSION SIDE, WHETHER OFF THE TOP ON THE COMMISSION, WHATEVER CONCIERGE MIGHT BE INVOLVED WITH REGARD TO SOME OF THOSE SALES? CHARLES: WE DON'T GIVE ANY DISCOUNTS PER SE ON THE COMMISSIONS TO BUYERS. WE HAVE A FIXED BUYER COMMISSION. THAT IS ONE OF THE THING THAT IS AN IMPORTANT PRINCIPLE OF AUCTIONS, BEING A LEVEL PLAYING FIELD, I GUESS YOU MIGHT SAY. ACTUALLY OUR DEMAND LEVELS ARE AT ALL-TIME HIGHS, WHETHER THAT IS OUR SELLTHROUGH RATE, OUR HAMMER PRICE VERSUS A LOW ESTIMATE RATIO, OR THE NUMBER OF BIDDERS PER LOT, WHICH IS CLOSE TO FIVE ON AVERAGE RIGHT NOW. ALL THREE OF THOSE ARE AT OR VERY CLOSE TO ALL-TIME HIGHS FOR US. THE BUYER DEMAND -- THE EFFECT THAT HAS HAD ON OUR MARKET, IT HAS BROUGHT OUT HIGHER-QUALITY THINGS FROM SELLERS. PEOPLE CHOOSING TO SELL IN THIS VERY STRONG BUYER DEMAND MARKET. THAT IS WHAT HAS DRIVEN THE PERFORMANCE. KATIE: I WANT TO TALK MORE ABOUT GEOGRAPHY. YOU MENTIONED YOU ARE SEEING THOSE MIDDLE EASTERN BUYERS PRESENT DESPITE WHAT IS GOING ON GEOPOLITICALLY, YOU ALSO SEE ASIAN BUYERS COME BACK, WHICH IS INTERESTING. YOU THINK OF THE ASIAN MARKET AND IT'S BEEN SOFT FOR QUITE SOME TIME THERE. I WONDER IF YOU COULD EXPAND ON THAT A LITTLE BIT. WHEN YOU SAY THAT ASIA IS COMING BACK, TO WHAT DEGREE? CHARLES: ASIA HAS BEEN A SIGNIFICANT PERCENTAGE OF OUR NEW BIDDERS THIS YEAR. THAT'S BEEN A TREND FOR A LONG TIME IN OUR BUSINESS JUST BECAUSE IT IS SUCH A LARGE REGION, GROWING REGION. OF COURSE, YOU CAN TALK ABOUT GREATER CHINA AS A KEY PLAYER IN THAT, AND WE ARE DEFINITELY SEEING MORE BIDDING COMING FROM CHINA, MORE PARTICIPATION. JUST AN EXAMPLE, WE HAVE THE LARGEST WATCH SALE THAT WE HAD HELD ANYWHERE IN HONG KONG A FEW MONTHS AGO. THAT WAS AN ENCOURAGING SIGN. GLOBAL BIDDERS OF COURSE BUT A LOT FROM ASIA. ESPECIALLY IF YOU INCLUDE IN SOUTH ASIA, INDIA, SOUTHEAST ASIA, WHETHER THAT IS THAILAND OR SINGAPORE, MALAYSIA, OTHER COUNTRIES IN THAT REGION, KOREA, JAPAN, IT IS PRETTY BROAD-BASED THE UPTICK IN LEVEL OF ENGAGEMENT RIGHT NOW. KATIE: BROAD-BASED STRENGTH IN ASIA. LET'S TALK A LITTLE BIT ABOUT DEMOGRAPHICS. SOMETHING WE TALKED ABOUT ALL THE TIME IS THIS INCOME AND WEALTH TRANSFER. YOU THINK ABOUT A LOT OF HIS WEALTH CHANGING HAND FROM OLDER GENERATIONS TO YOUNGER INVESTORS AND YOUNGER CONSUMERS OF ART. I WONDER HOW YOU ARE APPROACHING THAT AT SOTHEBY'S, WHAT TRENDS YOU'RE SEEING EMERGE AMONG THAT YOUNGER SUBSET. CHARLES: NEEDLESS TO SAY, IT IS A TRUISM, TASTE IS CONSTANTLY CHANGING AND EVOLVING. IT WILL ALL BE DIFFERENT A YEAR FROM NOW FROM WHERE IT IS TODAY. THE KEY IS TO BRING TO MARKET THE RIGHT THINGS AT THE RIGHT TIME TO MEET THAT DEMAND CAN'T MEET THAT TASTE. THE GENERATIONAL WEALTH TRANSFER YOU REFERRED IS VERY EVIDENT IN OUR BUSINESS. WE SEE IT IN THE NUMBER OF SINGLE OWNER COLLECTIONS COMING TO MARKET THAT ARE WELL OVER $300 MILLION. THESE ARE COLLECTIONS THAT NOTHING OF THIS SIZE HAD COME TO MARKET LESS THAN 10 YEARS AGO. WE ARE SEEING THAT WEEK IN, WEEK OUT. WHAT YOUNGER PEOPLE ARE LOOKING FOR, THE RISE OF CATEGORIES LIKE NATURAL SCIENCE AND HISTORY, THE RISE OF GAME-WORN SPORTS COLLECTIBLES. WE SOLD BRUNSON'S JERSEY LAST WEEK FOR A MILLION DOLLARS. PELE'S JERSEY. ROMAINE: I AM CURIOUS ABOUT THE BALANCE BETWEEN SOMETHING LIKE THIS IN TERMS OF THE SPORTS MEMORABILIA VERSUS TRADITIONAL ART. THERE WERE SOME MEGA ART SALES. A COUPLE OTHERS THAT I'M FORGETTING. NOT TO BE GLIB ABOUT IT, BUT WHEN YOU SEE THOSE MORE TRADITIONAL COLLECTIONS COME TO MARKET, IS THERE CONFLICT BETWEEN WHAT TO YOUNGER PEOPLE ARE LOOKING FOR WHEN IT COMES TO A WATCH OR SPORTS MEMORABILIA, THINGS LIKE THAT? CHARLES: ONE OF THE INTERESTING THINGS IN THE ART MARKET EVEN, THERE IS A TREND TOWARD BLUE-CHIP FINE ART, LESS SPECULATIVE THINGS, MORE ESTABLISHED, LET'S SAY. THAT PUSHES YOU FURTHER BACK IN THE PAST. THAT MAY LEAD YOU INTO THE IMPRESSIONISTS, PREWAR, MAYBE WARHOL, 1980'S WITH BASQ UIAT, MAYBE OTHERS, BUT WE ARE SEEING LESS HEAT IN THE RECENTLY PRODUCED THINGS. IT IS ALSO TRUE IN LUXURY CATEGORIES, WHETHER THAT IS WATCHES OR CARS OR JEWELRY. WHETHER YOU WANT TO CALL IT A FLIGHT TO QUALITY -- ROMAINE: ITEMS THAT HAVE STOOD THE TEST OF TIME DESPITE PERCEPTION. CHARLES: WE ARE SEEING THAT ACROSS CATEGORIES. ROMAINE: HOW DO YOU KNOW WHEN TO MAKE THAT SWITCH? AT SOME POINT, THE STOP BEING PRODUCED IN THE TO THOUSANDS AT SOME POINT -- CHARLES: BY THE WAY, THESE ARE GREAT BUYING OPPORTUNITIES. TO THE EXTENT OF THESE THINGS WERE OVERHEATED, THESE TEND TO GO IN CYCLES AND THEY CAN BE INTERESTING ENTRY POINTS FOR COLLECTORS THAT HAVE AN INTEREST BUT FEEL PRICED OUT. YOU SEE THINGS RECALIBRATE AND THAT IS AN EXCITING ENTRY POINT. WE WILL SEE SOME OF THAT. IT IS ONE OF THE THINGS THAT KEEPS OUR BUSINESS CONSTANTLY INTERESTING. AUCTIONS, WE ARE IN BUSINESS FOR 282 YEARS. AUCTIONS I BAROMETER FOR TASTE, VALUE, THINGS THAT CAN BE HARD TO VALUE. IT IS CONSTANTLY EVOLVING. CHARLES: GREAT CONVERSATION -- KATIE: GREAT CONVERSATION, APPRECIATE YOU COMING BY THE SET. THAT IS CHARLES STEWART, CEO OF SOTHEBY'S. SOME BREAKING NEWS. OPENAI PLANNING TO RELEASE A HOME SPEAKER AS ITS FIRST HARDWARE PRODUCT. THIS IS ACCORDING TO PEOPLE FAMILIAR WITH THE MATTER. THE PRODUCT STILL UNDER DEVELOPMENT, BUT THE IDEA IS IT IS MEANT TO SERVE AS A HUMAN LIKE AI COMPANION THAT LIVES IN YOUR HOME. WE WILL BRING YOU MORE DETAILS. THIS IS "THE CLOSE" ON BLOOMBERG. KATIE: 281 PARK AVENUE SOUTH HAS A BUYER. THE ICONIC BUILDING MADE FAMOUS, FEATURED HEAVILY ON NETFLIX SELLING FOR $81.5 MILLION TO NONE OTHER THAN AIRBNB. WE ARE JOINED BY ONE OF THE KEY PLAYERS BEHIND THE SALE. BERNADETTE BRENNAN IS EXECUTIVE DIRECTOR OF COMMERCIAL OVER AT SERHANT. GREAT TO SEE YOU. A BIG CONVERSATION TO HAVE ABOUT COMMERCIAL REAL ESTATE AND OFFICES IN NEW YORK CITY. FIRST, TALK TO US A LITTLE BIT ABOUT THIS SALE THAT WE JUST SAW FOR 281 PARK AVENUE SOUTH. WHAT GOES INTO PULLING SOMETHING LIKE THIS ALL, THIS SORT OF PRICE TAG? BERNADETTE: IT WAS A BIG UNDERTAKING, WHICH WE COMMIT TO. THEY SPEARHEADED THE MARKETING PROCESS HERE. I HAVE HAVE BEEN INCREDIBLE TO WORK FOR. WE STARTED BY WHAT MANY WOULD CONSIDER UNTRADITIONAL, WE LAUNCHED ON NETFLIX. THAT BECAME A BIG TALKING POINT, THE IT WAS A BIG PART OF MARKETING IT, BRAINY, AND ACTIVATING IT. THROUGH THE COURSE WE WOULD DO CONVENTIONS THERE, WE WOULD DO RUNWAY SHOWS, WE DID SOMETHING FOR PRODUCT FOR FASHION WEEK, THAT WAS A BIG BUZZWORTHY MOMENT. LOTS OF ATTENTION AND INTEREST FROM TRYING TO RE-CREATE SOMETHING LIKE THAT, EARNING THROUGH BUYERS FOR MUSEUMS, NONPROFITS, FASHION HOUSES, LOTS OF AI AND WELLNESS AND WE LANDED A BUYER. KATIE: YOU HAVE THE MARKETING COMING THROUGH WITH THE TV SHOW AS WELL. I CAN IMAGINE THAT EVERY OFFICE BUILDING HAS THAT LUXURY, BUT YOU THINK ABOUT THIS, WHAT DOES IT SAY ABOUT THE STATE OF COMMERCIAL REAL ESTATE IN NYC, GIVEN THAT IT IS A UNIQUE SITUATION? ARE YOU ABLE TO EXTRAPOLATE FROM THAT? BERNADETTE: WE HAVE LOTS OF SELLERS AROUND MANHATTAN THAT OF HAD THEIR FINGER ON THE PULSE WAITING FOR THIS TO TRANSACT. IT TRIGGERS A BIG EFFECT WITH BUYERS IN THE MARKET AND SOME OF THE OTHER BIG SALES HAVE HELPED THIS RESURGENCE OF THIS BIG ASSET, THESE TROPHY LISTINGS THAT ARE REALLY SELLING AT ICONIC AND BIG PRICE POINTS. ROMAINE: NOT TO MAKE LIGHT OF IT, BUT IT PROBABLY DREW SOME ATTENTION TO IT, EVERY TIME I WALK BY THEIR THERE ARE PEOPLE OUT THERE TAKING PICTURES IN FRONT OF IT. BUT I'M CURIOUS ABOUT THE AGENCY, THAT A LOT OF PEOPLE ASSOCIATE PRIMARILY WITH HOMES, AND YOU ARE COMMERCIAL. THIS IS A BIG COMMERCIAL DEAL. I DO WONDER, THERE'S A BIG PUSH TO BE A BIGGER PLAYER ON THE COMMERCIAL SIDE? BERNADETTE: I OPENED THE COMMERCIAL DIVISION WITH RYAN ABOUT FIVE YEARS AGO AND WE HAVE ANOTHER BIG BUILDING IN THE PLAZA DISTRICT $450 MILLION. THAT WAS MY FIRST LISTING ARE BROUGHT TO THE COMPANY. HE WAS LIKE, ARE WE DOING COMMERCIAL? AND I WAS LIKE, I THINK WE ARE. WE KIND OF PLANNED IF WE GOT A COUPLE OF KEY DEALS UNDER OUR BELT WE WOULD CONTINUE TO EXPAND AND EARN THE RIGHT TO CONTINUE, AND I'VE TRANSACTED ON OVER A BILLION DOLLARS WORTH OF COMMERCIAL REAL ESTATE IN THE LAST FEW YEARS. WE ARE GROWING. ROMAINE: I'M CURIOUS ABOUT THE DIFFERENCE IN MARKETING A SINGLE FAMILY PROPERTY, WHETHER IT'S A CONDO OR AN ACTUAL HOUSE, RELATIVE TO A COMMERCIAL BUILDING AND THE TYPES OF PEOPLE YOU HAVE TO DEAL WITH. MORE IMPORTANTLY, THE DIFFERENT TYPES OF NEEDS. DRAW THAT LINE BETWEEN WHAT WE TRADITIONALLY THINK OF LUXURY RESIDENTIAL REAL ESTATE AND NOW LUXURY COMMERCIAL? BERNADETTE: I WOULD SAID THE BIGGEST DIFFERENCE IS THAT IN A HOME IT IS MORE EMOTIONAL. IN A COMMERCIAL PROPERTY, EVEN IF SOMEONE IS ATTACHED TO IT AND IT'S EMOTIONAL, AT THE END OF THE DAY IT HAS TO MAKE FISCAL AND BUSINESS SENSE. THERE HAS TO BE AN UNDERWRITING PROCESS AND USUALLY AND IN USER LIKE AIRBNB OR SOMETHING THAT'S GOING TO TIE IN ON THIS PURCHASE IS ATTAINABLE AND MAKES SENSE. THAT'S ONE OF THE BIGGEST THINGS, DEALING WITH PEOPLE ON A LESS EMOTIONAL TRIGGER SPACE. KATIE: MAYBE A LITTLE MORE TRANSACTIONAL, LIKE YOU SAY A MAN HAS TO MAKE FINANCIAL SENSE. WHEN YOU TALK ABOUT COMMERCIAL REAL ESTATE IN THE CONTEXT OF A CITY SUCH AS NEW YORK, A LOT OF PEOPLE'S MINDS GO TO OFFICE. WHAT ARE YOU SEEING OUTSIDE OF OFFICE WHEN YOU THINK ABOUT DIFFERENT TYPES OF COMMERCIAL PROPERTIES? BERNADETTE: THERE'S A BIG MOVE IN THE EXPERIENTIAL SPACE AND THE POP-UPS. WE JUST LISTED JOHN LENNON TOWNHOUSE, WE ARE ACTIVATING THAT FOR FASHION HOUSES, AI CONCEPTS, SOME CAR COMPANIES HAVE COME IN THERE, JUST KIND OF CREATING THIS MORE ONE ON ONE EXPERIENCE WITH A LOT OF TENANTS AND BUYERS AND RETAILERS SEEING A LOT OF THAT. WE JUST LISTED 11 FRANKLIN WHICH IS A BIG DEVELOPMENT SITE. WE HAVE BEGUN LEASING THAT TO A REALLY BIG, PUBLICLY TRADED COMPANY IN THE ENTERTAINMENT SPACE. THERE'S LOTS OF ALTERNATIVE USES COMING INTO THESE TRADITIONAL COMMERCIAL SPACES THAT YOU MAY NOT ACTUALLY THINK OF THAT ARE STARTING TO TAKE OFF RIGHT NOW. ROMAINE: DOES IT HELP ON THE COMMERCIAL SIDE THE WAY IT DOES RESIDENTIAL? BERNADETTE: IT CAN'T HURT. I TELL PEOPLE WE ARE AND 26 COUNTRIES, WE COULD POTENTIALLY JOIN A REALITY SHOW. IT BECOMES EASIER FOR PEOPLE TO WANT THAT BRANDING AND VISIBILITY. SO IT ALL COMES INTO PLAY. I'VE ADOPTED RYAN'S MARKETING FOR RESIDENTIAL WITH OUR BRANDING FOR COMMERCIAL AND JUST BEEN A REALLY INTERESTING, BEAUTIFUL PROCESS WE HAVE BEEN BUILDING ON. ROMAINE: IT'S REALLY GREAT TO HAVE YOU HERE, BERNADETTE BRENNAN, JUST SELLING THAT TO 81 PARK AVENUE SOUTH BUILDING HERE IN MANHATTAN. WHEN WE COME BACK, WE WILL LOOK AT THE POWER GRID AND THE LATEST OPTION AND THE UPTICK BECAUSE OF THE BOOM IN DATA CENTERS. THAT CONVERSATION COMING UP AFTER THE BREAK, RIGHT HERE ON BLOOMBERG. ♪ ROMAINE: SOME BREAKING NEWS JUST A LITTLE WHILE AGO, INVOLVING THE U.S. BIGGEST GRID OPERATOR, FALLING SUPPORT OF THE KEY -- FALLING SHORT OF THE KEY OUR GOAL WITH ALL THE AI BUILDOUT. TO PUT THIS IN CONTEXT, HAVE THESE AUCTIONS, THE LATEST ONE IS FOR BASICALLY 2028 DELIVERY HERE, GOING FORWARD. THOSE PRICES, EFFECTIVELY WHOLESALE PRICES MORE OR LESS, HAVE BEEN GOING UP BECAUSE OF EVERYTHING THAT'S BEEN GOING ON. >> BECAUSE EVERYBODY NEEDS ELECTRICITY. ROMAINE: THEY HAD ANOTHER OPTION AND WAS CAPPED AT WHAT? >> THE MEGAWATT DAILY, THAT'S A TECHNICAL THING. IT WOULD'VE BEEN MORE THAN $500. ROMAINE: THIS HAS BEEN THE TREND WE'VE SEEN FOR BASICALLY THE LAST THREE AUCTIONS. >> THEY DIDN'T MEET THEIR TARGET, THEY DIDN'T PROCURE ENOUGH ELECTRICITY TO MEET ALL THE DEMAND THEY THINK THEY ARE GOING TO NEED. ROMAINE: DID THEY SAY WHAT THEY ARE GOING TO DO IN ORDER TO DO THAT? CAN THEY DO IT? >> THEY ARE WORKING ON DIFFERENT PLANS. THE REGULATORS ARE HAVING A MEETING NEXT WEEK TO FIGURE OUT HOW TO ADJUST THE RULES HERE. WHAT THE NUMBERS ARE TELLING US IS THAT THE REGULATORS ARE SAYING WE'RE NOT GOING TO LET YOU CHARGE MORE THAN 325 DOLLARS, AND THE PEOPLE THAT DELIVER POWER THAT WANT TO BUILD MORE POWER PLANTS THAT WE NEED $500 TO MAKE IT WORTH OUR TIME. KATIE: SO GIVE US A CONTEXT IN TERMS OF THE STAKES. THE GRID WE ARE SPECIFICALLY TALKING ABOUT AS I UNDERSTAND IT IS HOME TO VIRGINIA STATE, WE ARE TALKING ABOUT A KEY CORRIDOR. >> IT'S NOT JUST DATA CENTER AL, BUT THAT’'S THE BIGGEST CLUSTER OF DATA CENTERS IN THE WORLD, SUCKING UP TONS OF POWER. IT STRETCHES FROM CHICAGO TO WASHINGTON, IT'S 13 STATES. ONE IN FIVE PEOPLE IN AMERICA GET POWER FROM PJM. KATIE: AS YOU SAID, THERE IS MEETING LATER THIS WEEK. MY BIG QUESTION IS WHAT HAPPENS NOW? WHAT ARE WE EXPECTING TO HAPPEN AT THAT MEETING NEXT WEEK? HOW DOES THIS GET RESOLVED BECAUSE IT SEEMS LIKE THERE IS A LOT OF DAYLIGHT HERE. >> WE ARE NOT IN IMMINENT DANGER OF A BLACKOUT. WE WILL NOT RUN OUT OF ELECTRICITY, PROBABLY. WHAT PGM TOLD US TODAY IS THAT WE AREN'T SLIGHTLY ELEVATED RISK. THE GRID NEED SOME HELP, BUT IT'S NOT ABOUT TO FALL APART. THIS IS ABOUT LINING UP ENOUGH ELECTRICITY OR WHAT PEOPLE THINK WE WILL NEED IN THE NEXT COMING YEARS. KATIE: WE APPRECIATE YOUR REPORTING ON THIS ISSUE. ROMAINE: WE WILL SET YOU UP FOR WHAT TO WATCH OVER THE NEXT 24 HOURS. THE MARKETS OF COURSE CONTINUE TO HAVE AN EYE ON EARNINGS. WE GOT FIVE BIG BANKS THIS MORNING, WE NEED ANOTHER BIG ONE TOMORROW. KATIE: ONE MORE TO GO. MORGAN STANLEY ROUNDED OUT WHEN IT COMES TO THE BIG BANKS. WE WILL ALSO HEAR FROM J&J AND ASML AS WELL. ROMAINE: AS A MALE BE ANSWER STING -- ASML COULD BE INTERESTING WITH ALL THE FOCUS ON DATA CENTERS. WE HEARD FROM DELTA ON FRIDAY AND THEY WERE PRETTY BULLISH ABOUT HOW THINGS WERE SHAPING UP. WE WILL SEE IF UNITED CAN MATCH THAT. KATIE: COMING OFF THAT CPI PRINT THAT WE GOT THIS MORNING, 830 A.M. TOMORROW WE WILL GET AN UPDATE ON U.S. PPI. WE WILL SEE IF IT MATCHES THE COOLER THAN EXPECTED TONE WE GOT IN THE CPI PRINT THIS MORNING. ROMAINE: KEVIN WARSH, THE FED CHAIR, HIS BACK ON THE HILL AROUND TWO OF HIS TESTIMONY, THIS TIME BEFORE THE SENATE BANKING COMMITTEE. AND THE FED BEIGE BOOK AT 2:00 P.M., SOMETIMES IT DOES PROVIDE SOME COLOR, IF YOU WILL, SOMETHING A LITTLE DEEPER THAN BEIJING TO THE STATE OF THE CONSUMER AND EVERYTHING GOING ON. KATIE: WHEN YOU PUT BEIGE IN A NAME, IT SAYS DON'T LOOK HERE. ROMAINE: WE WILL HAVE THAT RIGHT HERE ON "THE CLOSE." THERE IS A LOT GOING ON AND POLITICAL COVERAGE. STICK AROUND. BALANCE OF POWER IS UP NEXT, RIGHT HERE AT THE TOP OF THE HOUR, ON BLOOMBERG. ♪