Power Lunch - Fed & PPI Reaction 6/13/24

Episode Date: June 13, 2024

CNBC’s Tyler Mathisen and Kelly Evans take you through the heart of the business day bringing you the latest developments and instant analysis on the stocks and stories driving the day’s agenda. “Power Lunch” delves into the economy, markets, politics, real estate, media, technology and more. The show sits at the intersection of power and money. “Power Lunch” gives viewers a full plate of CNBC’s award-winning business news coverage, plus a healthy dose of personality from the show’s anchors and the network’s top-notch roster of reporters and digital journalists. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, welcome to Power Launch, everybody, alongside Kelly Evans. I'm Tyler Matheson. Glad you can be with us. And we are waiting to hear from President Biden, who's holding a joint news conference shortly with Ukrainian President Zelensky. We're also waiting to hear official results of the shareholder vote on Elon Musk's pay package, Musk claiming victory. We will discuss that and the other issues surrounding Musk and Tesla coming up. But we begin with the check of the markets following the Fed meeting yesterday. And this morning, softer than expected data, including PPI and jobless claims.

The Dow in negative territory, but the S&P is back to positive by two in the NASDAX up 28. Ten-year yield is back to 425 as it digests all of this and the Fed's possible next moves. Loisens's April 1st. And more people seem to be saying the Fed is too slow to react. Inflation is slowing. The labor market could be softening and they're still holding steady. Let's talk to Ellen Zentner about that. She's the chief U.S. economist with Morgan Stanley.

Ellen, it's great to see you at a perfect day to have you on. I don't know if you think we're at an important juncture here or not. I do think we are at an important juncture. I think that, you know, Chair Powell said we're being cautious, we're being conservative, and that's fine, right? But the data is slowing, and he even confirmed that in yesterday's meeting. You could look at jobless claims today. We do think this is starting a pattern similar to last year where we started to see the data

weakening at this time, but it's weakening from already a lower level, right? So we think job gains will be weakening here. you can see the inflation data. I think the month-over-month sequential pace over the next couple of months is going to be very much in line with the Fed's goal. And so what does that mean?

We think that just rip the Band-Aid off. It's okay to cut, and it's okay to keep cutting. And Chair Pal is nimble. And if you're nimble, then just move around the data as it comes in if it turned out you started cutting too soon. Why don't we need a rate cut? Why do we need it if the economy is doing okay, if inflation is trending a little bit lower,

if employment is within a band of satisfactory? Well, so you're describing a great economy, right? I am. And everything is slowing satisfactorily. So if it is slowing, you don't need to keep rates at this restrictive level. You should be cutting rates in line with that slowing activity in line with that slowing inflation. rates are about balanced right now, as Chair Powell believes. Keep them balanced.

And to keep them balanced, you've got to cut rates as the economy is slowing. So let's talk a little bit about the labor market piece of this, Ellen. We spoke with Dean Mackey last hour, who's not convinced this is the start of a more significant slowdown for a couple of reasons, including kind of household balance sheets, not the excess savings piece, but more just kind of income to debt levels, things like that. They're in pretty good shape. Do you think we can weather, whether the headwinds, I guess I should say, and make this expansion continue for another year or two? Yeah, look, I think that those with good balance sheets, and look, Dean Mackie, amazing analysis.

I've known Dean for a long time, and he has really got his finger on the pulse of household balance sheets of financial wealth, housing wealth, and how that impacts consumers. And so he's absolutely right. That gives you a big cushion. But guess who it's cushioning, those with the balance. better balance sheets. Those without good balance sheets, those at the middle to lower and lower income levels of the spectrum are hurting. And now it doesn't look like a hurting consumer because the wealthy, those that have real estate assets, those that have financial assets, those that are

sitting on savings. Those are doing well and they are out there spending. So yes, can we withstand this for longer? Absolutely. But we're also hanging our hat on one segment of consumers that if they decide to stop spending, then you will really see economic damage. So your prediction is, as I read it, three cuts this year. That would take the Fed funds rate down what, to about four? It would take it to about, no, we're at five and a quarter to five and a half now. So it would take it to around four and three quarters by the end of this year. But we do expect them then to continue cutting through the middle of next year.

And that's informed by two things. It's informed by our forecast for inflation that we're going to continue to hold these lower month-over-month sequential rates of inflation, so more in line with the Fed's goal, and that the economy is going to continue to soften. So it still takes us to a 3.5% by the middle of next year. That's still, by that time, a restrictive policy rate

or around where we think is neutral. And there we think the Fed pauses. And then we have to think about what happens next. The Fed could be hiking as a next move. after that. Wow. We've had on in the past couple of days, Don Peebles, who is obviously a very astute real estate investor and an astute observer of the economy and of the culture and society as well. He argues that there is a major lurking banking crisis attributable at least in attributable to struggles in commercial real estate, which are attributable at least in part

to the fact that interest rates have stayed too high for too long. Do you see a similar risk of a mid-sized or small bank crisis on the horizon? Well, look, I think that those segments of commercial real estate, of households, of small businesses, anyone that is more exposed, with more balance sheet exposed and is in a riskier situation with high interest rates for longer are going to suffer the effects of the longer interest rates are high. The question is, is that a segment of the economy that is large enough to drag down the whole economy and is it enough to create systemic risk? And I think from a CRE perspective, I would say no. And I would say I've seen the Fed do a good job of segregating that area of CRE, of wrapping their arms around that

part of the economy and trying to cushion the rest of the economy from those. troubles. But these are the things that keep policy makers up at night, right? That where, where are we? Is policy balance? Do we need to ease it just a bit? And this is why I think that the Fed should get started. And Chair Powell prides himself on being nimble, that he can move around the data. Put aside concerns that you don't want to make past mistakes and start to ease policy too soon. Inflation expectations are anchored. Go ahead and cut rates. And if you've done it too soon. If financial conditions get so easy that you start to see upside risk to inflation again, then just start hiking again. I don't think there's a real risk factor here that the Fed

should be so concerned about going ahead and getting rate cuts started. Love the clarity of your viewpoint, Ellen. Thank you very much for being with us today. Really good conversation. Thank you. All right, we mentioned yields falling to multi-month lows. Let's get a little bit more on that. From Rick Santelli in Chicago. Hey, Rick. Hey, Tyler. Let's go to the whiteboard, shall we? You know, we saw the market. Yields dropped rather dramatically, has been pointed out. Claims popped.

We've talked about that, especially popping over $1.8 million on continuing claims. Treasury yields dropped two-year on pace for the lowest yield close since April 4th. Tens and 30s are both on pace for lowest yield close since the end of March. And both these had A's and as in Apple on auctions yesterday for the tens. today for the 30-year bonds. That's important to keep in mind because it gives you an idea that investors are buying into lower yields because they bought into the auction. And PPI, big month-over-month drops.

But, but let's quickly go through this. Yes, down two-tenths on headline. Hey, we're up half 1%. That's a really big drop. But, okay, in October and March of last year, we had bigger drops. And if we look at core, X food energy from zero, previous point five, another big drop. But in March and December, we had zero in both categories, been there, done that. And when you take X food energy and trade, 0.5 last look, it was 0.4, there was a revision.

All the revisions, by the way, were up in the rearview mirror. In May of last year, we were at zero. Okay, now here's where it really gets tricky. year over year. 2.2 was 2.3. Look at where we were in January, February, March. 1%, 1.6, 1.9. Let's look at core in January, 2%. 2.2 in February, 2.2 in March. We went up to 2.5 last month, now back down to 2.3. Still higher in the first three months of the year. And this one in particular, X Food Energy and Trade, from 3.2, 3.2 last look, 2.7, 2.8, and 2.5. point nine in the rear view mirror. What does this mean? I'm just saying that it's been a bumpy ride

nonlinear and if we're forecasting where inflation may be to cut rates, well, I'm sorry, but none of this really was forecast as it was happening on the fly, especially before the revisions. Kelly, back to you. It's a double whammy, low PPI the day after the lower CPI. Rick, thank you very much, Rick Santelli. Coming up, some Musk CTV. Tesla shareholder vote taking place this afternoon. Will Musk get his massive pay package? We will find out next. All right, welcome back everybody to power lunch. Shares of Tesla are jumping as CEO Elon Musk says shareholders are set to approve his controversial $56 billion pay package at the company's annual meeting. The official results are expected at about 4.30 Eastern Time.

So let's get to our mini panel to discuss what's at stake. Tim Higgins is a business columnist at the Wall Street Journal and a CNBC contributor. He's also author of PowerPlay, Tesla, Elon Musk and the Bet of the Century, and George Genericus. He covers Tesla for Canacore Genuity. He has a buy rating on Tesla and a $22 price target. Let me start with you, Tim. How crucial is Elon Musk to Tesla's future? In other words, if this pay package does not get approved and he goes off in a huff, what would it mean for Tesla?

Well, it's hard to imagine Tesla without him, and I think that is why for the last few months you've seen the stock kind of perform the way it's been doing, this concern that he, even if he stayed there as CEO, that maybe he was going to take his biggest and best ideas for AI elsewhere to maybe his startup XAI. This company, in a lot of people's minds, is a robot company, is a driverless car company, and they want him to enact that vision. That's the gamble. That's the bed of the century.

How about you, George? What do you think? How critical is Elon Musk's presence to this company? Incredibly critical. I mean, he is Tesla. And like Tim said, AI, as it manifests itself through full self-driving or FSD, in our opinion, is the future of the company. And what it does is it changes Tesla from just another auto OEM into a paradigm changing company by enhancing. the gross margin structure of the firm, creating recurring revenue, and really setting it apart from its competitors. And he really was the visionary behind full self-driving at Tesla. So he is incredibly critical to the company today and going forward. I think, Tim, it's an interesting question now if the company moves to Texas. Do you think others would follow suit?

And has Delaware kind of overstayed its welcome as the hub of corporate America? Elon, in his fight, has definitely put attention on. kind of Delaware's role there, but it doesn't seem to be, you don't seem to see a stampede of companies follow him. In a lot of ways, Elon's fight is personal against the court there. There's been several instances that made them unhappy, and this seems to be the final straw. It is also not exactly clear that being in Texas is going to stop the lawsuits. We're seeing several file in the last few weeks about kind of corporate governance issues at Tesla. So even if they do move there, we're expecting to continue to see these kind of fights going going forward, including over this

pay issue. George, on that note, there's an interesting wrinkle in all this that the Wall Street Journal was talking about this morning, which is that if for some reason Tesla had to reissue the options now, it could set the company back like $25 billion. How big a risk do you think that would really be? I mean, look, that would result in more dilution, and nobody wants that. So we think the best path forward for everyone is just to approve this pay package, the pre-existing pay package, which it appears that they'll do. And hopefully it passes

through the courts, you know, not a lawyer, but it appears that there's probably an easier path eventually through Texas here. And we think that's the best outcome for everyone. It's obviously the best outcome for Elon Musk, and it's the best outcome for Tesla shareholders. Because like we said, you know, this company without Elon Musk is not the same. Let's try and put numbers on that, George, if we might. Just play the hypothetical game. with me. I think people generally expect that this pay package is going to get approved, but who knows, you never know. What is the company worth if Elon Musk is a part of it? What is the company worth if he's not? And look, so if we were to venture to guess the day

he leaves, if he does, we don't know if these are just idle threats. We would expect the stock to be down significantly. And look, he said things in the past around he wants to take AI efforts outside of Tesla. Maybe he thinks he can recreate that value at another one of his companies. We'll see. But unfortunately for him, he still owns, regardless of this pay package, last time we checked 12% of the company. And like I said, without that FSD trajectory hitting earnings in late this decade, it's just not the same kind of company. There's not the same earnings power from our perspective. So what we said in our note, it feels like mutually assured destruction here. If he leaves, 12% of Tesla goes down quite a bit, not good for him. And also,

if he leaves and shareholders don't approve the package, it's not good for shareholders. So we feel like we've kind of met here in the middle and mutually assured destruction, like in the Cold War, it's probably going to work. Tim, last word. It's been a big game of chicken to his point there. I mean, if Tesla shares collapse, then a big portion of his wealth collapse, and that gives him other problems. So in a lot of ways, Tesla needs him, but Elon Musk needs Tesla. Or to put it to him differently, Elon Musk needs himself to be leading Tesla. Absolutely. Interesting. Gentlemen, thank you both. We appreciate it. Tim Higgins and George Janericus. Meanwhile, Stalantis is setting some ambitious targets for the long term, but can it

meet them with growing competition out of China? We will speak to the CEO about that next. Welcome back. Let's get to our Bertha Coombs now for the CNBC News Update. Bertha. Hey, Kelly. The head of the FAA admitted this afternoon on Capitol Hill that his agency was two hands-off in its oversight of Boeing. Mike Whitaker says the agency was more focused on paperwork than inspections ahead of the January 5th mid-flight disaster where a door plug blew out of a Boeing plane. He says the agency has permanently boosted in-person inspections in response. The DOJ issued a damning report on the Phoenix Police Department. today accusing the department of using unjustified deadly and excessive force, unlawfully detaining and arresting the homeless and protesters and of discriminating against people of

color. The DOJ launched that probe in 2021. The department has not issued a response yet. And the NFL find the Atlanta Falcons and strip the team of its five each round draft, fifth round draft pick next year for violating anti-tampering rules. The league says the Falcons reached out to prospective free agents before the contact window opened. That includes quarterback Kirk Cousins, who the league says had discussions with the team's medical staff ahead of his return this season from a torn right Achilles. Back over to you guys. So many rules. All right.

Thank you very much, Bertha. All right. Let's get a check on the markets right now. Earlier this week, shares of General Motors rose to a two-year high after announcing a $6 billion share buyback. Today, as part of its investor day, Stalantis also committing to return money to shareholders, though through buybacks and dividends. The stock, however, falling 3%, as you see right there. And the market, down about 87 points right now on the Dow, down a quarter of a point. Joining us now is Stalanta's CEO. Carlos Tavares, along with our own Phil LeBoe. Phil, take it away. Thank you, Tyler. Carlos, thanks for joining us after you guys had your capital markets day in Auburn Hills, Michigan. I saw the presentation you guys did today. You're confirming your guidance for this year that you gave just a couple of months ago. But this second half is going to be challenging, especially here in North America, given your inventory levels. And I think a number of people are looking at this and saying, are you going to have to increase your incentives and discounting in order to clear out what are really high inventory levels?

Yes, you are right to say that we will have a very unbalanced year. 2024 is a transition year as we are now ramping up our electrification offensive in the U.S. market. So we have many new products coming in the second half, starting with the Waggonier S. but then the charger, the new Dodge Charger, the Jeep Reck and all of this is going to come in the second half. So we have a very unbalanced year so far. And you are right to say that there are plenty of opportunities for our consumers to grasp in our dealerships right now on all of our brands. And we are going to manage that on a progressive and thoughtful manner up to the end of the year. Carlos, you guys are targeting, generally speaking, 40% cost cuts in order to make EVs profitable

around the world. And there are some places where in Europe you're successful with EVs, but overall, you're going to have to bring those cost cuts down substantially. How quickly can you make that happen? 40% is a very high target. Well, 40% is just the evaluation of the additional cost of an electric. vehicle against an internal combustion engine vehicle. That is what the experts are calculating is 40% cost up.

And we know that the middle classes want to buy BVs at the price of ICEs. So we need to bring down the cost of electric vehicles to the same amount as the cost of an internal combustion engine vehicle because the middle class people and middle class consumers, they want to buy the EVs at the same price as ICEs, which of course we totally understand and that makes sense, which means that it is on us to make significant productivity and find ways to break paradigms and to innovate in the way we are, of course, designing and manufacturing our vehicles. That's on our side to make sure that we bring to our consumers what they would like to have,

which is electric vehicles at the same price as internal combustion engines, vehicles. Well, let's talk about the topic that gets a lot of attention, because you've been outspoken about this. The issue of tariffs on Chinese-made EVs. You know it's 100% here in the U.S. Europe is now increasing its EV tariffs for those EVs coming out of China. But you are, along with others in the auto industry,

are saying, we got to be careful about this. And I say we, overall, the Western and European countries need to be careful about this because this goes down a slippery slope. Explain your thought process there. Absolutely. Look, this is a very open competition in the worldwide automotive market. We are competing in a very dynamic way against all the other brands, all the other carmakers. We see that the Chinese are coming with a 30% cost competitive edge against, let's say, the Western brands.

And we need to be able to compete with them. Anyway, even if we would be protected in some parts of the world, we still have to compete everywhere else in the world against those very harsh competitors. So what we say is that it is better to compete and make sure that we use this harsh competition to progress faster to bring our costs, our quality, our competitiveness to the best level in the world. If we find ourselves protected in a bubble, our capability to compete everywhere else in the world is going to be damaged because we will not be facing the harshest competition. as a consequence of being protected. So on the mid and long run, being protected is not what is going to make our companies more competitive.

And we need to think not only short-term, but mid-long-term. On mid-long-term basis, it's better to be confronted with the harshest competition that you can find on the worldwide market, and being protected on short-term could to a certain extent make us become more complacent with ourselves and eventually not do the right things now

to make sure that in mid-and-term, that in mid- and long-term basis, our companies will continue to be sustainable and competitive against the most difficult competition that we may find. That's why we are not so much supporters of tariffs. Tariffs are here to correct something. They are here to compensate for something. That something looks like a lack of competitiveness, and we need to fix it. This is what the Western carmakers should be doing, and this is what I'm advocating for Stentis. let me ask you a couple of quick questions, sort of compound questions. Are you comfortable with the fleet mileage standards and deadlines proposed by the Biden administration most recently? That's question one. And question two is, do you think the recent slowdown in EVs is something more chronic and long-lived than just a temporary slowdown? In other words, is it a permanent turn away from EVs on the part of many consumers? Two great questions. First of all, Stellantistan is very simple. We are here to serve. We are here to support and serve what the society in which we are operating is expecting from us. So we feel very comfortable with everything that has been requested by the US administration. Very simply put, our company, Stellantis, will be a carbon neutral corporation by 2038. So we believe that there is no other solution than to,

to bring zero emission mobility to our communities. This is what we believe we should be doing to serve our communities. So we are fine with the roadmap and the objectives that have been set by the US administration. Now, once we say this, we need to listen to the consumers. And the consumers are telling us two things. They are telling us, point number one,

I want convenience of charge. So I want to bump in my daily journey on charging units that come to me, naturally. I don't want to be looking for the charging unit. I want to find charging units in my office parking, in my shopping mall parking, in my restaurant parking, in my gym parking. I want to find those charging units. And right now, it is fair to say that the density of the charging unit, the charging network is not as it should be to make the consumers confident on that point. And the second thing they are telling us is we need affordability. And most importantly,

the middle classes are telling us we want EVs at the price of ICEs. And this is a significant challenge for our industry to come down on that point, reducing the costs at the speed that is consistent with the expectation. So are we facing something which is just a transient bump on the road or something which is more permanent? I think that if we fix those two dimensions, the charging network density for the convenience and the affordability, this is just a bit of a bit of. a bump and it's going to ramp up and our kids and our grandkids will thank us for doing something

about the global warming. If we don't fix those two dimensions, then of course things may be more serious. And then we can question a certain number of investments that have been made, which, of course, it's not the right time to do that. But at Stellanties, we will bring a huge EV offensive from this year, starting with the Wagoner S. But this is the first one. We have the Dutch charger, as I already mentioned, and then the Jeep Reckon. All of this is coming, and we will make sure that those products have a high range, which is one of our clear differentiators. We are bringing high-range vehicles when it is related to EVs. And in the meanwhile, we need to help people, not only to buy those vehicles, but we need to do our fair share of cost reduction to make

sure that we can meet the expectations of those customers, but also compete with the Chinese, because the Chinese will always be there. I don't want to prolong this conversation for Phil's sake, among others, but I thought your answer was very interesting there, because what I hear you say is that the resistance, quote, to electric vehicles has nothing to do with electric vehicles per se. It has to do with symptoms of the situation that's surrounding. grounds electric vehicles. In other words, the scarcity of charging stations, and you need to get from scarcity to ubiquity, and number two, the price. And once you solve those two symptoms of

EVs, people will not have a resistance to them. Am I characterizing your answer correctly? Your understanding is perfect, and I would like to add to what you say and what you absolutely understand the fact that each time anybody drives an EV. For instance, if you go to your dealership and because you want to fix something and the dealer kindly gives you a courtesy car, we'll make sure that the courtesy car is an EV and if you test drive the courtesy car as an EV you come back saying well this car is fantastic this car is much better in terms of vibrations in terms of acoustics silent and this car has a much better take-off acceleration that than my usual car and when I go

back to my internal combustion engine car, I feel strange that it vibrates so much, and I feel strange that there is so much noise. So it's obvious that each time somebody makes an EV test drive, that person comes back saying, this is a better car. And this is for a guy that has been working in this industry for 43 years, that for me is obvious. It is a better car, but we cannot ask the consumer to disregard the convenience for the everyday life, and we cannot as the consumer to pay above his own personal budget. He has to pay what he pays usually for an ICE, and he is able to pay the same amount for a BV.

So if we fix those issues, the car, as a better car, will bring naturally the dynamics that we are all looking for to contribute to fixing the global warming issue. Carlos, it's Phil. One last question. Hybrids outselling EVs here in this country. You're having success with your plug-in, hybrid electric vehicles. How long do you expect that to continue? Is this a two or three year phenomenon?

Or do you sit here and say, I think hybrids are going to outsell EVs as an industry for longer, for five, six, seven years? Well, you know, on the PHEV sales, we feel very comfortable because we are by far the leader. On the top five sales in the U.S. market, we have four of our cars in the top five sales of the U.S. market in the top five sales of the U.S. market in PHVs, and we are by far the leader. I think PHEVs will last as long as the customers would like it to last. We have no problem with that. The PHEV problem is that inside you have both an electric power train and an ICE power train. So you have two power trains in one simple car, which means at the end of the day it's more expensive. But pHVs are a perfect transient solution.

How do we characterize the transient? It may be a few years or one decade. nobody knows, actually, but we will keep on engineering and manufacturing and selling those successful pH TVs as long as the consumer will ask for them. No problem for on our side. Carlos Tavares, the CEO of Stalantis, joining us from the company's U.S. headquarters in Farmington Hills, Michigan. Carlos, thank you very much. Tyler, I will send it back to you. Phil, thank you for the very interesting conversation. Mr. Tavaris, thank you as well. Before we had to break, let's get a quick power check on the positive.

side Broadcom, beating estimates and announcing a stock split on the negative side. You got your Paramount. Reports that talks have stopped with Skydance there. That story out a couple of days ago, but you can see the reaction in the stock as you watch it today, down 6%. We'll be right back. Welcome back. We are awaiting remarks from President Biden, who is expected to speak shortly, although it was supposed to begin an hour ago, appearing alongside the president of Ukraine, Volodymyr-Zalensky, at the G7 summit in Italy. They are supposed to potentially discuss an aid package for Ukraine, although the details of that have been somewhat fraught between the U.S. and EU.

Meantime, the Dow is looking at a drop of 90 points, well off session lows when we were down 305 points at the lows earlier on today. Coming up from a new Apple partnership to booming revenue growth, Open AI is on a hot streak, but how much of that success is thanks to Microsoft will discuss that the tech giant is falling behind in the AI arms race when Power Lunge returns. Well, Apple may have shaken up the AI arms race after unveiling its AI system, Apple Intelligence, get it, AI, this week and announcing a partnership with Open AI to integrate its technology into Apple devices.

But where does that leave other mega-caps like Microsoft? Deirdre Bose has been looking into that and keeping score in today's tech check. D. Tyler, this is a leaderboard that can turn on a dime. Apple is a perfect example of that. Going from AI Lager to potentially a leader in less than a week. interesting in particular where that puts Microsoft, once seen as the early winner in Gen AI. Bloomberg reports that Apple is not going to pay OpenAI to use ChatGBT, GBT, and instead believes that pushing it out to its hundreds of millions of devices is of equal or greater value. So Apple essentially, getting for free what Microsoft spent some $13 billion on in Open A.I.

Investments in diluting that Open AI advantage for Microsoft. Now, as a major Open AI investor, though, Microsoft could, of course, share in some of the gains that open up from this partnership, but it also raises questions about Microsoft's access to OpenAI's technology and the future of its consumer AI ambitions. Microsoft declined to comment, but Open AI, meanwhile, is starting to look more like competition. The information reports that the startup has more than doubled its annualized revenue to $3.4 billion since late 2023. Most of that coming from OpenAI subscriptions and API access. Only a small portion they report coming from a cut of Microsoft Azure revenue, in part because Open AI is winning more enterprise deals.

A few weeks ago, it's signed its largest such deal with PWC, the accounting firm. Just a year earlier, PWC put out a press release saying that it signed a $1 billion AI deal with Microsoft. Microsoft wasn't even mentioned in the latest one, but of course does benefit in a way. The same time, guys, Microsoft is not just sitting back, it's diversifying. CEO Satya Nadella has been amassing new AI talent, tools and technology. Remember, it recruited Sam Allman's longtime rival Mustafa Sullyman to lead their AI efforts. It's also signed deals with other AI darlings like Mistral and Koch here.

Many people here in the Bay Area like to say, guys, it is still early days. And this new leg, though, it is shaping up to be a fascinating web and entanglement of mega caps and generative AI startup darlings. It was interesting. I don't know, Deirdre, if you caught our discussion with Sam and Steve last hour, but they basically talked about how Apple has kind of done an end run around OpenAI by making it kind of the back office technology to Siri, and OpenAI is not paying for even that privilege.

So to the extent that Open AI is a proxy for Microsoft, did Apple just kind of go one up on Microsoft here? You know, it kind of did because this is a very usable AI. It's not abstract. And by kind of just relegating ChatGBT to a feature, it made it look like a feature, not a standalone product. And then Apple even once so far is to say, we'll have other models available. It's kind of agnostic.

And it's what a lot of folks here talk about the commoditization of these LLMs that costs hundreds of millions of dollars to develop. But in the end, if you're a consumer, they all kind of look the same, do the same thing as accessible as the next one. When am I going to start to see the dividends of this AI infrastructure in Apple products? Well, if there's a huge upgrade cycle, right, Tyler? I don't know which model of iPhone you have, but to begin with, it's only going to happen, it's only going to work on iPhone 15 pros, and then they're going to present us, give us a new model in September.

And if the AI, Apple Intelligence, works as well as it's opposed to. The hope is that this is going to restart a new Apple iPhone upgrades cycle, and that's how they're going to monetize it. I see. Give away these things for free. You know, I'm embarrassed to say, it's my secondary phone. I don't even know what Apple iPhone I have. I don't know either. I mean, it's something.

If you didn't buy it in the last year, then you probably can't use that for AI. I love that. That'll get you. Yeah, yeah, this charger won't work with this phone. I get it, though. I love it. Okay. Thanks, Dee.

Thanks, guys. Let's get out to Aymond Javers, who is following the developments at the G7 summit, where President Biden was supposed to speak an hour ago, Amon, but appears to be held up. Yeah, you know, these things are complicated, and the logistics are complicated in scheduling all these folks. But yeah, we do believe we will see President Biden here and President Zelensky, and we do see them now on stage in Italy there, both of them taking to their respective roster in Italy. We expect to hear the announcement now in a signing of an agreement between the United States and Ukraine for $50 billion in financing for the Ukrainian war effort. Let's listen to the president here as we

dip in.