week, next friday is a 138th annual groundhog day. if it were up to peta it would be the last in a ball rights group arguing that it's being exploited for publicity. peta is sending a letter to the groundhogs club president offering to send the organization a giant coin if they agree to send phil to an animal sanctuary, they say a 50/50 coin toss would be more accurate way predicting the weather since the groundhog is estimated to only have a 40% rate of accuracy. peta has previously suggested using an electronic groundhog were a human standard. no word from the groundhog club, odds are they're not going to budge. that is going to do it for us, thank you for watching, we will see you next time. ♪ >> "barron's roundtable" sponsored by global x etf ♪

♪. jack: welcome to "barron's roundtable" where we get behind the headlines and prepare you for the week ahead, i am jack otter. the fed's favorite inflation gauge below 3% as the economy flew away fourth-quarter expectations. kkr henry mcvey will get his insight on the opportunities in small-cap and a.i. it's a big tech battle as microsoft microsoft to be the world's most valuable company in the a.i. revolution could be a game changer. later we will take a look at the resilience of big oil in america. we begin as always with three things investors are to be taken about right now, stocks rallied in response to a strong economic data and expectation for march are fading but the market seems unfazed. netflix shares are soaring after a stellar fourth-quarter earnings and a major boost to subscribers, will take a look at

the streaming services prospects. finally the boat we backlash mounting, travelers are fearful of flying on 737 max, united, and faa is blocking boeing from increasing production. investors will watch earnings closely next week. on the "barron's roundtable" ben levisohn, elizabeth o'brien and jack hough. the s&p just missed closing at a record high. there was another winning week for the market, why does this rally keep on writing? >> it's the economy stupid. >> he already called somebody stupid, were seconds and. >> i have more. >> is about the economy gdp was fantastic, the other economic coming in. i was looking at citigroup, they were riding on the s&p 500 is moving with their surprise index which shows how much data is beating estimates when that is going on, the s&p is to, this is a real change from last year when it really meant that the stronger economy sold off good

news was bad news now good news is good news. jack: the surprise index is really cool the late great tobias created that is really interesting. if the bullishness is no longer based on what the fed is going to do but based on actual economic strength, does that mean we can get a broader rally in the market? >> we see that broadening out if you look at the top sectors, his comedic agent services to meta and alphabet but it was also energy and financials, you're getting that small caps doing well, this is great, using the broadening and it's what investors want they want strength and a lot of places not just seven stocks. >> next week what are you watching. >> next week the fed meeting, that is a big deal, payroll that's also a big deal but i think the biggest deal is going to be earnings from four of the big six are negative: big seven, tesla does not belong to the group, we get microsoft, apple, amazon, alphabet a huge chunk of market cap, they got up they have to do well if they fall the market will go down

with them. jack: it's always interesting but the job number will be pretty cool. netflix urged on what you might want to call blockbuster earnings report. i see what you did, 13 million over 13 million net ads during the third quarter that's a number the people are signed up minus the number of people that left, it's the best fourth-quarter ever and it compares with the washer expectation of 9 million. way ahead of expectation, this is really flip the script with the rest of hollywood we used to say that the legacy companies with streaming services will collect all the cash from the legacy television and they would invest in streaming and have a real advantage over netflix. now what we see is the decline in cable subscription has accelerated, some of these cavities like disney have not met their targets for streaming subscribers, screaming might be more like it because investors are screaming for them to do something they want to cut cost,

netflix is in a position to invest billions of dollars more than disney into the streaming service and that ultimately is bringing in the subscribers and cutting down on the password sharing. jack: one of this the pockets of strength has been sports, netflix seems to be getting into sports or should we say sports. >> wwe raw, tv wrestling i would know you wanted me to wear my unitard, it's at the drycleaners, the tenure deal with netflix, $5 billion they can cancel after five years, they can extend for another ten, this is a way to get into live events, right now skyhigh prices for football and basketball, they have to put up all that money but they can forget their foot in the door and younger audience, good for ad sales and netflix has a growing add business. >> i would get to elizabeth but never kind hundred $50 issue 30 times casual, are you a buyer? >> is ambitiously priced, let's put it that way but if you squint and look at the future

you see a free cash yield of 5%, is not crazy the price is not crazy. >> elizabeth at boeing, the wheels are coming off literally. >> the bad news keeps coming we saw united which is a big customer of the boat we max nine jets saying is considering looking elsewhere, the faa as you mentioned blocked increase production of the jets and if that were not enough, we saw the front wheels fall off of a boeing playing in atlanta that was ready to take off. >> that's never a good sign you should ask to change planes and be duly. >> luckily nobody was hurt but it's a bad look for the company and despite the problems, there aren't many alternatives, boeing has a lot on the business and a huge backlog, for customers who are looking to diversify their fleet there are not many other options. >> passengers are looking to diversify their planes, they look to see what airline is flying. >> they are researching the exact model, the planes are taking i'm a nervous flyer i can

relate. >> one thing to keep in mind, flying there is a lot fewer incidents today even from ten years ago, despite all these headlines it is still pretty safe. >> that is true. analysts will be looking for answers this wednesday as but when reported earnings. >> i will be watching carefully, but we needs and engineer in the ceo seat not a financial guide. my next guest says he is a glass half-full when it comes to the 2024 outlook, henry mcvey will your best defense against erosion and cavities is strong enamel. nothing beats it.

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♪ limu emu & doug ♪ ( bell ringing) customize and save with libberty bibberty. liberty bushumal. libtreally blubatoo. mark that one. that was nice! i think you're supposed to stand over there. oh am i? thank you. so, a couple more? we'll just...we'll rip. we'll go quick. libu smeebo. libu bribu. limu bibu...and me. doug: he's an emu! only pay for what you need. jingle: ♪ liberty. liberty. liberty. liberty. ♪ >> this week we saw the federal reserve preferred measure of inflation cooling in december, pce fallen below 3% to the slowest annual rate in three years and the economy slowed

less than expected in the fourth quarter growing up 3.3% versus a 2% forecast, all of this data aligns with what my next guest predicted last fall, joining the kkr balance sheet cio henry mcvey, great to have you back. >> thank you for having me, great to see you. >> you have been saying that consensus was wrong on inflation and it will come down faster than expected but growth would stay stronger, that was right what made you think that in are those forces still enforce. >> two things going on one of the private sector the unemployment will stay lower so that help to drive growth a little bit better. the second i think people are underestimating the impact of the fiscal spending under the biden administration. we think about one third of gdp growth in 2024 will come from the physical impulse, government spending, will it continue? we have slower growth coming into 24 but still 2% which is pretty healthy, inflation will come down sickle willie this

year but overall we ascribe to as higher heart rate, the cycle will be different. jack: that could affect stock valuations, if you look at the s&p as a whole elevated about 20 times, you are looking deeper and you find values, where are you finding those. >> a couple of things coming up to separate the magnificent seven the trading 30 times a growing almost at best, 30% if you look at the rest of the market, it's trading 16 times and you look at small-cap or mid-cap, it's really attractive, we do private equity were taking companies out of the public markets into the private markets to make them better, last year was the most active year on public to private across the infrastructure private equity, i think for your viewers issued signal that there is value out there because were clearly finding. >> with higher rates you think that would be tougher but you're finding those. small caps have looked cheap for a long time, what is the catalyst that will get the investors to think those are deals. >> i think we've been a record

crease interest rates and small-cap flag, couple of things that will happen, as reits come back down that will provide to the small-cap arena, the second is highly unnatural for the market to be concentrated in the mega cap stocks, i think there will be a broadening driven by flows it if it will lead you to more mid-cap stocks and international areas as well. jack: i want to ask you about that but with inflation there are assets that will do better under the scenario such as real estate, give thoughts there. >> we as a firm have been bullish towards real assets, we benefit sizing infrastructure it is a huge business for us, a lot of people think about toll roads were airports, think about data centers and transportation logistics. as a world decoupled from asia and the u.s., you need more of the transportation logistics, that's a huge area of focus for kkr and its investors.

jack: you have an interesting idea, everyone thanks owned nvidia is a pricey stock, nvidia gets literally hot, data centers get hot you looking at the cooling system for data systems. >> we had a recall cool it and were focused on really thinking about the energy that is necessary to drive a.i. everybody watches the one stock nvidia there are many other ways to player and there's a shortage of the ability to get energy to the companies that needed to perform a.i. we view the bottleneck as an opportunity. >> looking for values overseas, 20 years ago a friend of mine was a hedge fund guy and he said don't buy japanese stocks until inflation comes it took a long time and inflation is still there. >> we've been very constructive as a firm on japan, going to asia since 1995, japan is exiting inflation there is a big theme there for your viewers you

can buy small and mid-cap stocks as well as a big cap stocks, the big cap are becoming much more efficient in shedding assets, the doing things a private equity like kkr where there becoming more efficient in the government is pushing dead and small-cap in japan to become more efficient in their corporate performance, that you can access the etf are more institutional investors aligning with things that we do. jack: thank you so much we appreciated. microsoft and apple are battling out to become the most valuable so... - we're engaged! - we're engaged! congrats carol! your youngest finally popped the question. but now, you're really going to have to get those new dentures. after all, you need a smile that matches the moment. so this might be a good time to mention that aspen dental can create natural looking dentures in no time. just for you! and that comes with $0 down plus 0% interest if paid in full in 18 months.

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jack: a big week for microsoft as a couple to hit $3 trillion in market value for the first time only the second company to ever do so right behind apple, the tech giants are in a head-to-head race to become the

most valuable company in artificial intelligence is playing a big role, it's a weeks cover story in barron's editor at large and he joins the panel, think of for coming by. >> were to talk about the prospects for the stock, first of all give us an overview of how the company got where it is you were in the almost where the co was the toast of the town. >> you had to call me out. >> we didn't get to go we were here. >> i did see him there a couple of times once with sam altman the ceo of openai which is a hot a.i. startup that has a partnership with microsoft and the biggest body act in business right now, why not, openai has an evaluation looking at a hundred billion of microsoft as you said 3 trillion in a market cap, the stock has been killing one year, three year, five years, ten years outperform the market. if you put $5000 into the ipo in 86 it would be worth $20 billion. jack: a funny thing about

microsoft even if you were just an index microsoft would be 7% of your portfolio 7% of the s&p 500. let's look back at history back in 1999 microsoft was flying high but it took more than a decade before you made your money back, could we be worried about history repeating itself. >> there was a dark period from 1999 to 2016 the stock went nowhere essentially it underperformed and some people say this is another time where the stock is really up will history repeat itself, there are key differences. number one the stock had about 65 it is only 32 today, that's pretty rich but not 65. number two bill gates was the ceo and he stepped down and the ceo says he's not going anywhere the company was not well-positioned in 1999 it was not going to get into the mobile phone business and did not do a very good job of that where as here might be in the catbird

seat when it comes to a.i. >> the promise of a.i. is enormous but understand microsoft is not making any money is there any sense when they will see meaningful revenue? >> it is interesting, they're looking to have it both ways, their touting a.i. a.i. everything everything this is the future but when you try to ask executives there, exactly how much money they're making you can't really get that out of them. they don't know when you talk to analysts, same thing they'll tell you it's the minimus they're not making any money. it's early days they are starting out, that is the big question, how much, how is this going to play out. >> what about the club business can i take market share from the competitors? >> it's really interesting, you don't hear the sentence very much, they're beating up on amazon how many companies can say that. the name of the club business has been taking market share away from aws web services which is the club business, amazon is

a platform that has a lot of retailing, microsoft is a hard core software company, the way that the getting market shares if you use the cloud it can help you with the servers and the software of enterprise and application software as a business it ties in that way. jack: you mentioned microsoft in the '90s, i'm way too young to remember that but i understand the company used to be in the regulatory, today i hear about big tech from regulators but microsoft how do they pull that off and cannot continue in a 1999 the antitrust investigation with bill gates in front and center in washington, d.c. it was basically a standoff microsoft word of one it was a tricky kind of thing microsoft learned how to play the

washington game and they beefed up their lobbying efforts and way before google and meta and amazon and apple did. they had deep experience brad smith for president and chairman of vice president of the company really works that very well and their fingers in the pile all over the place of washington, d.c. and the government has been investigating google and apple with regard to antitrust there. apple store and with regard to search microsoft regarding to your point that starting to not be the case and with an eye relationship and with a bunch of other companies and they've done a good job of managing washington, d.c. which is important. >> in the pc commercial, microsoft look like the fuddy-duddy, whose get a pick on the fuddy-duddy, they're going to fly under the radar and being a backwater and not a place that attracted talent in the stock to

perform i want to hear more and can i buy it here. what about the stock people who own the stock of people who might want to own the stock a lot of us onus is the screaming hold, and a leg up it may not and the bigger question that gets back to the question about a.i., how big do you lose it we heard about meta and crypto and fts, some of that is around the corner, looks to be the real thing, there will be plenty of time if it's a big trend, you

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jack: as you may know the u.s. is the largest producer of oil and gas in your bullish on the biggest company. >> you know that about me, exxon mobil upgraded this past week by td. the case is counter intuitive. it says is good to go from the high 70s to the low 70s per barrel, texas crude over the next several years it's a bit more bearish and it could go down to the mid 60s area, they

say to bring down its cost and unlock new cash flow, they like the resilience, the company can keep paying the dividend 3.7% yield and they say it looks cheap relative to free cash flow and a higher price. >> oil majors are happy right where they are but here's some you don't hear every day, private equity may be the man on the streets best friend. >> if you want lower gasoline prices may be, everybody is trained to restrain production right now to keep the cash flow robust but the wildcat were the people out there with a handful of rigs many backed by private equity, they're not looking for restraint they're looking to prove to their investors to pull oil out of the gate ground in the looking to meet the timeline for private equity exit and that's with increase in production is coming from. >> elizabeth you have an interesting idea in the sector. >> continuing on energy and look at chesapeake energy to merge with southwest energy despite

the push for clean energy, solar and wind the demand remains for natural gas as the u.s. looks to help its allies, reduce the reliance on russian gas and russian energy, bottom line natural gas is here to stay with a 4.7% dividend yield, chesapeake looks like a good bet. >> very nature going back to the well. >> i kicked paddock killer and it outperformed the s&p 500 but the stock is going nowhere since august, we now have talk of chinese stimulus caterpillar does a lot of business in china that could be the next catalyst for the stock and looks like it's way to break out in albion interesting time to buy more. jack: great ideas, to read more check out this edition of barron's.com and don't