Speaker 1: Welcome to Bloomberg Opinion. I'm Valley Quinn. This week, everyone's
Speaker 1: kind of sitting around the houndcare US now and that's
Speaker 1: the next big question from users. Now, what have you
Speaker 1: do with a reminding cat? Tim colban On Massa Yoshi Son,
Speaker 1: founder of SoftBank Group. SoftBank's Vision fund losses have adopted
Speaker 1: five billion dollars now as the start of investors strategy
Speaker 1: comes a cropper in markets, looking for profitable companies is
Speaker 1: a preview of what's to come for the greater aventure
Speaker 1: capital universe and later. Many lawmakers are focused on this
Speaker 1: and trying to figure out different ways to help parents
Speaker 1: with these costs. There are all different ways, Um that
Speaker 1: it's clear that there's like this patchwork system you know
Speaker 1: in a in a city like Washington, see that it
Speaker 1: is the most expensive city in the US for childcare.
Speaker 1: The average annual costs for infant care is twenty four thousand,
Speaker 1: two hundred forty three dollars, and that is just for
Speaker 1: one child. As childcare colls increase, associated relief in the
Speaker 1: tax code stay stagnant, exces Leando's explains first though, to
Speaker 1: the capital markets directly. This week, we saw a massive
Speaker 1: repricing in the treasury curve. We also heard FED officials
Speaker 1: begin to voice considering a fifty basis point interest rate increase. Again,
Speaker 1: here's St. Louis FED President Jim Bullard. I think we
Speaker 1: can lock in this disinflationary trend by continuing to have
Speaker 1: policy rate increases during even though the real economies looks
Speaker 1: like it's going to continue to grow and the labor
Speaker 1: market broadly across the country looks like it remains strong.
Speaker 1: And here's Cleveland FED President Lurettemester. But this juncture, the
Speaker 1: incoming data have not changed my view that we will
Speaker 1: need to bring the FED funds rate above five and
Speaker 1: hold it there for some time. Indeed, at our meeting
Speaker 1: two weeks ago, setting aside what financial market participation participants
Speaker 1: expected us to do, I saw a compelling economic case
Speaker 1: for a fifty basis point increase, which should have brought
Speaker 1: the top of the target range to five. I spoke
Speaker 1: with Bloomberg CHEF rates correspondent Garfield Reynolds to gauge bond
Speaker 1: market reaction to the daily drip of new data and
Speaker 1: Fed speak. So Garfield, since the last FED meeting, the
Speaker 1: two year bond yields up about sixty basis points, and
Speaker 1: Marko Kolanovitch pointed out that it's the bond market moving
Speaker 1: towards the FED, but the prevailing sentiment is of exuberance
Speaker 1: and greed. Do you think that's fair, Well, I think
Speaker 1: it's it's a little bit. I mean, as so as
Speaker 1: the bond market goes, it's definitely received a big shock,
Speaker 1: both from from the data itself, you know, they've been
Speaker 1: upside surprises, and also from the feds willingness to actually
Speaker 1: deliver on higher rates and the idea that they would
Speaker 1: hold them there for longer. Now, that's something that was
Speaker 1: flagged by the Fed last year, even as it was
Speaker 1: starting to slow the pace of rate hikes. But the
Speaker 1: bond market was looking past that and assuming that the
Speaker 1: impact of last years it stream rate hikes would be
Speaker 1: such that the FED would be able to soon stop
Speaker 1: hiking rates and in fact would have to turn towards
Speaker 1: considering rate cuts, I mean on the greed side. If
Speaker 1: that's talking about what's going on in the equities market,
Speaker 1: where we're seeing some perhaps surprising resilience, especially the NASDAK
Speaker 1: is shrugging off like a sixty basis point jump in
Speaker 1: the two year yield has not done much damage to
Speaker 1: the NASDAK at all, despite texts famously supposedly being yield sensitive. Now,
Speaker 1: perhaps part of the reason for that is that the
Speaker 1: economic data have been so resilient in the face of
Speaker 1: last year's rate hikes. So we're kind of in a
Speaker 1: scenario where perhaps equity markets are judging that good news
Speaker 1: for the economy is good news for equities, even as
Speaker 1: bonds are deciding more traditional set up, good news for
Speaker 1: the economy is bad news for bonds. Yeah, the whole
Speaker 1: thing is a little bit harder, feels like there's something
Speaker 1: that we're missing out on. Anyway, Marco says the market
Speaker 1: not just fighting the FED, but it's taunting the FED
Speaker 1: with crypto and meme stocks and on profit companies responding
Speaker 1: best to FED communications. So I guess he sees it
Speaker 1: slightly differently, that this is some kind of fake out
Speaker 1: or something on the part of those that are putting
Speaker 1: money into these particular stocks. Well, I think there is
Speaker 1: here ultimately a disconnecting the way the bond market is
Speaker 1: positioning very deeply inverted yield curve and persistently inverted yield curve,
Speaker 1: signaling a lot of concerns about the potential for a
Speaker 1: major economic slowdown. You've also got even that the bond
Speaker 1: market has pushed back it's expectations for when the FED
Speaker 1: will peak and pushed up the expectations for where it
Speaker 1: will call a whole to rate hikes. It still sees
Speaker 1: next year now rather than this year, But next year
Speaker 1: it sees one and a half percentage points of rate cuts.
Speaker 1: You know, that says the bond market. The recession stocks
Speaker 1: seemingly don't see what yeah, I mean. I guess it's
Speaker 1: the Eisman call of we don't like to change our
Speaker 1: market narratives, or people get very attached to their market narratives.
Speaker 1: And perhaps the bond market maybe has a little bit
Speaker 1: better of an ability to not be in denial about
Speaker 1: certain things. But that seems a little bit too deep.
Speaker 1: Why should the bond market be so much more nuanced
Speaker 1: and so much more sovestigated than the stock market in
Speaker 1: some ways? Well, I think it's more they look at
Speaker 1: different calculations, and especially now you know, one of the
Speaker 1: things that's feeding this is bonds again have yields. So
Speaker 1: because they have yields, you can buy a bond and
Speaker 1: still do okay, even if those yields thin rise e.
Speaker 1: The price of bonds go down. That's a reverse or
Speaker 1: the situation for much of the past decade when yields
Speaker 1: went down so low that bonds are almost like stocks.
Speaker 1: You have to buy them on the basis of price appreciation,
Speaker 1: not on the basis of carrie. But now they've got
Speaker 1: yields again. So the calculation for quite a few bond
Speaker 1: investors is hey, three percent, four and a half percent,
Speaker 1: depending on the instrument. I can buy that, hang onto it,
Speaker 1: and I'll do it okay. Whereas equity investors mostly don't
Speaker 1: look so much at dividends. They're looking for capital appreciation.
Speaker 1: So they're looking for the idea that earnings are going
Speaker 1: to improve. And we're seem to be having mostly a
Speaker 1: fairly decent earning season, and although there are plenty of
Speaker 1: dire warnings that are slow down is coming and that
Speaker 1: will cause and earnings recession. For now, to some extent,
Speaker 1: they're almost drawing confidence from the FEDS willness to keep
Speaker 1: raising rates at a slower pace, because that says to them, well,
Speaker 1: the Fed doesn't think the economy is about the collapse,
Speaker 1: because at the FEDS thought the economy was about the collapse,
Speaker 1: they'll be saying we're going to stop hiking rates. Yes, exactly,
Speaker 1: moved the whole portion of their agenda, assuming that's still
Speaker 1: on fat expectations up to five point four percent now
Speaker 1: for the terminal rates, and they're even places where you
Speaker 1: see the market looking at the propular we have a
Speaker 1: high Q two six point one, and the chances of
Speaker 1: a hike to six percent now is so that's a
Speaker 1: one in two or something. Yeah exactly. Yeah, so not huge,
Speaker 1: but nevertheless it's starting to be there. And when anything
Speaker 1: kind of appears in the market, you really have to
Speaker 1: take notice. I mean, how quickly can this change again
Speaker 1: if we get more communication, which is really just constant
Speaker 1: at this point, Yeah, I mean, obviously it can change rapidly.
Speaker 1: Less than a month ago, the market was mostly expecting
Speaker 1: that the FED was going to pick under five percent,
Speaker 1: and that was despite plenty of commentary from the FED
Speaker 1: that five percent was about the minimum where they thought
Speaker 1: they would go to. And you know, it would only
Speaker 1: take a couple of data points here. If inflation had
Speaker 1: come in weaker than expected just this week, then you
Speaker 1: would have had a fairly rapid cooling down in great
Speaker 1: expectations at least in two until unless you then had
Speaker 1: Fair officials pushing back saying, yeah, this is not we
Speaker 1: don't really believe this, so it's all it's all on
Speaker 1: the table. And like I said, that that constant expectation
Speaker 1: that next year will bring very steep rate cuts that
Speaker 1: underscores the idea that the bond market is worried about
Speaker 1: what's going to go on with the economy. They're worried
Speaker 1: that the Fed, or they're pricing for the possibility that
Speaker 1: the FED has to go high enough with its rate
Speaker 1: in order to cool inflation that it will cause very
Speaker 1: strong damage to the economy, and that then it will
Speaker 1: have to rapidly reverse those moves, if not this year,
Speaker 1: the next year. Now, Garfield, I know you give a
Speaker 1: lovely explanation just a moment ago about why bonds are
Speaker 1: repricing at a different paste to equities and how the
Speaker 1: repricing differently. But is there anything special about this market
Speaker 1: that we can see such large moves in the bond
Speaker 1: market and really relatively not so large moves in the
Speaker 1: equity market. Is there something awaiting us, let's put it
Speaker 1: that way. Well, I think it's more that we're in
Speaker 1: a situation where the outlook of FED policy is very fluid,
Speaker 1: and bonds are your bonds are very focused on how
Speaker 1: high does the FED going? When does the FED stop?
Speaker 1: And on the idea that you've had the steepest rate
Speaker 1: hikes in a generation. What's that going to do to
Speaker 1: the economy. For equity markets there, they're looking at it
Speaker 1: as okay, so we had all these big, great hikes.
Speaker 1: The economy seems to be okay with that, and most importantly, okay,
Speaker 1: even if there's not stopping, it's slowed down. It's very
Speaker 1: unlikely it's going to do more than twenty five basis
Speaker 1: points of time. So the disruptive phase is done and dusted.
Speaker 1: And for equities who who price you know sort of
Speaker 1: second third order impacts from FED moves, whereas bonds of
Speaker 1: pricing of first order or zero order impact that that
Speaker 1: means they can be a bit more relaxed about you know,
Speaker 1: how are we going to get to basis point hikes
Speaker 1: or three basis point hikes? Whereas for bonds that that's
Speaker 1: a more disruptive scenario. Chief Rate's correspondent Garfield reynalds there
Speaker 1: he stays with us, So stay tuned for more of that.
Speaker 1: Conversation and later. The thing is he's kind of exhausted
Speaker 1: most of the pretty much invested all of the money
Speaker 1: that he has in time, and so all investors and
Speaker 1: Massa himself and there is just sider out to wait
Speaker 1: for somebody to come to fruition. And right now a
Speaker 1: lot of these companies are not going to IPR. It's
Speaker 1: not a very good market right maybe a year now
Speaker 1: will be. So everyone's kind of still sitting around twiddling
Speaker 1: their homes going now. And that's the next big question.
Speaker 1: Tim Colpen on Massa Song's dilemma. This is Bloomberg Opinion.
Speaker 1: You're listening to Bloomberg Opinion. I'm Vonnie Quinn. Let's return
Speaker 1: to Garfield Reynolds now Bloomberg Chief Free correspondent, and some
Speaker 1: of the prevailing questions raised by market moves and FED
Speaker 1: speakers this week. Monetary hawks, Laretta Mester, Cleveland FED President
Speaker 1: see is common appreciational way in bringing policy from a
Speaker 1: varier committive stance to a restrictive one. But I do
Speaker 1: believe we have more work to do. Indeed, at our
Speaker 1: meeting two weeks ago, setting aside which financial market participation
Speaker 1: participants expected us to do I saw a compelling economic
Speaker 1: case for a fifty basis point increase, which should have
Speaker 1: brought the top of the target range to five. And
Speaker 1: Jim Bullard St. Louis Fed President, we're out towards the
Speaker 1: end of the week with words of caution for markets,
Speaker 1: assuming the FED won't return to larger rate ekes if necessary.
Speaker 1: The benefits of getting inflation under control quickly are vast,
Speaker 1: and uh, we do want to achieve that. But if
Speaker 1: we don't, we risk this replace. So I think that's
Speaker 1: the thing to watch out for. Heres that we uh
Speaker 1: don't do enough on inflation and we get a rep eight.
Speaker 1: This all after a slew of hard data from retail
Speaker 1: sales to producer prizes which showed inflation clear and present
Speaker 1: and raised questions about market expectations for disinflation over the
Speaker 1: coming months. Let's get back to our conversation. Cameron Christ
Speaker 1: brought up something interesting on M Live when it comes
Speaker 1: to the so called lag that's long and variable. He
Speaker 1: was asking the question, how long and variable is the
Speaker 1: delay with which rates work in a world of forward
Speaker 1: guidance and literally stream of consciousness communication. Do you have
Speaker 1: any impressions that this long and variable lag has changed
Speaker 1: at all in the minds of FED watchers or FED
Speaker 1: governors or you know, anyone at touched to the FED
Speaker 1: in the last year or so. Well, it's a very
Speaker 1: is a very interesting point. I mean, I think in
Speaker 1: financial markets, uh, the lag is is much less. If
Speaker 1: you could, you could even argue that they are almost
Speaker 1: reverse lag. You know, we had a financial markets moving
Speaker 1: by getting ahead of themselves, perhaps moving to price in
Speaker 1: the pivot, before the FED had even seriously started to
Speaker 1: consider it. Um But the question for the FED, and
Speaker 1: this of course is one of the things the FED
Speaker 1: that's there. It's run by economists who are looking at
Speaker 1: what is this going to do to Main Street? And
Speaker 1: Wall Street usually only matters much to them from the
Speaker 1: point of view of what's the impact on Main Street
Speaker 1: that Wall Street is transmitting. Now, there's been a very
Speaker 1: large run up in mortgage rates and in borrowing costs
Speaker 1: for the rest of the economy, and even if those
Speaker 1: costs have come down, they're still much much higher than
Speaker 1: they were six months ago, a year ago, so that
Speaker 1: takes it's time to feed through. You could even argue
Speaker 1: there's the potential that the lag is going to be
Speaker 1: longer than usual. The reason for that being, and this
Speaker 1: something central bankers have pointed to. It's a lot of
Speaker 1: households out there to build up some very strong buffers
Speaker 1: during the pandemic when there's a lot of money being
Speaker 1: pumped into the economy. So if you've got those savings buffers,
Speaker 1: then the impact of monetary policy increasing your costs via
Speaker 1: the interest rate mechanism. So you know, if you're a business,
Speaker 1: you're paying you're having to pay more to get funding.
Speaker 1: If you're household, depending on you know, if you're not
Speaker 1: on a variable rate mortgage, it doesn't matter so much
Speaker 1: other than the indirect impact that people who take out
Speaker 1: new mortgages face higher costs, and there might be you're
Speaker 1: less wanting to pay the sort of prices you want
Speaker 1: for your home. But all of those effects are going
Speaker 1: to take longer. Potential to feed through the economy presidesly
Speaker 1: because the FED and others, looking at globally fat and
Speaker 1: others and the governments that they were acting a concert with,
Speaker 1: they pumped an enormous amount of money into the economy
Speaker 1: during the pandemic. They wanted to make sure the economy
Speaker 1: kept working. They almost certainly, to a man and woman,
Speaker 1: over stimulated during the pandemic left too much money out
Speaker 1: there on the table. Now they're trying to scoop that up,
Speaker 1: it might take them longer than in previous cycles. Speaking
Speaker 1: of which, the layer Brainer departure, will it have an
Speaker 1: impact on the SEP the dot plot? Well, a lot
Speaker 1: depends on who I think sort of assumes it's going
Speaker 1: to have an impact on the dot plot. But we
Speaker 1: really don't know, do we No, No, we're there. I mean,
Speaker 1: I suppose the judgment, rightly or wrongly, is that she
Speaker 1: was pretty close to the doublish side. So it's it's
Speaker 1: unlikely to lead to a lower dot plot because she
Speaker 1: would be unlikely to find somebody who would outdove brainard Um.
Speaker 1: You know. Then again, I don't see I haven't seen
Speaker 1: anybody saying that the administration is going to be looking
Speaker 1: to appoint somebody who's significantly more hawkish, uh, given that
Speaker 1: they need to do plenty of borrowing, so it might
Speaker 1: really not have a huge impact. Garfield weakness in the
Speaker 1: dollar that we have had a recent bounces back near
Speaker 1: one oh four again, the d x Y how is
Speaker 1: it impacting or being impacted by rates these days, which
Speaker 1: as the House is impacting the other well, yeah, I
Speaker 1: mean the ramping up in radar expectations and what that's
Speaker 1: done to treasury yields has definitely revived the US dollars level,
Speaker 1: return some strength to the dollar at a time when
Speaker 1: the general expectation was this year that the dollar would weaken. UM.
Speaker 1: So far, that's not having too much of an impact
Speaker 1: on broader markets because it's simply sort of recovered some
Speaker 1: of the ground that it had lost. If it does
Speaker 1: continue to rise and continues to push beyond its previous highs,
Speaker 1: then you might start to see that have a bit
Speaker 1: of an impact, especially in emerging markets who are actually
Speaker 1: starting to look a bit more vulnerable, both because of
Speaker 1: that factor and also because of some idiosyncratic concerns in
Speaker 1: places like India and Brazil. UM that that that that
Speaker 1: they might not be the outperformers this year, that some
Speaker 1: people at the beginning of this year had said that
Speaker 1: they would be relative to more developed markets. Marco Kolanovitch
Speaker 1: again to bring him up as warning of volmged and
Speaker 1: two point oh. Thanks to the explosive rise of short
Speaker 1: data options and Goldman SAX has found that such options
Speaker 1: actually make up more than of the SMB five total
Speaker 1: trading volume these days, which is almost double what it
Speaker 1: was six months ago. Is it something that you have
Speaker 1: seen much focus on or that you are concerned about
Speaker 1: when you look at the market moves. No, I haven't
Speaker 1: seen a huge amount of focus on it. I mean,
Speaker 1: you know, there's certainly plenty of concerns at times that
Speaker 1: you get some very sudden moves at particular times of
Speaker 1: the day, and that that may well be linked to
Speaker 1: you two options trades or settlements. But so far, there's
Speaker 1: not a huge amount of anxiousness that options in and
Speaker 1: of themselves are going to cause major difficulties. That's mostly
Speaker 1: seen as being noise rather than rather than signal. Right,
Speaker 1: He points out that what would happen is the big
Speaker 1: move might force options dealers to unwind a large amount
Speaker 1: of their positions. But I guess in that instance it
Speaker 1: might be contained. But anyway, if it happens, we have
Speaker 1: more time to talk about it. Bloomberg Chief Rates correspondent
Speaker 1: Garfield rentals there. Next up, we'll take a look at
Speaker 1: one example of what might be becoming a broader trend.
Speaker 1: Japanese startup investor Masayoshi Son, isting on billions of dollars
Speaker 1: of losses as market sentiment turns away from initial public
Speaker 1: offerings and from gross companies not currently profitable. Venture capitalists well,
Speaker 1: it's just not their time right now. But can they
Speaker 1: sit out the current malaise for their industry now? The
Speaker 1: global markets going up and down, the private market, the
Speaker 1: startups and bcs is going up and down, but it's
Speaker 1: very opaque, so we don't know alway know what the
Speaker 1: valuation of an unmisted company is. But with soft Bank,
Speaker 1: we can look very very closely at how they're doing.
Speaker 1: And people believe in soft Bank, they believe in mass
Speaker 1: If they believe in that, you really have to be
Speaker 1: ready for a white knucle right if you you want
Speaker 1: to have to ride these dips and troughs, which are
Speaker 1: the company has been going for over the last year
Speaker 1: or so. We'll chat with bloombergs Tim Colburn about what
Speaker 1: one VC investor is doing to mollify his investor base.
Speaker 1: And don't forget We're available as a podcast on Apple,
Speaker 1: Spotify or your favorite podcast platform. Stay tuned. This is
Speaker 1: Bloomberg Opinion. You're listening to Bloomberg Opinion. I'm Vonnie Quinn,
Speaker 1: Japanese billionaire Massa Yoshi Son's soft Bank Group said this
Speaker 1: month It's a vision fund posted an investment loss of
Speaker 1: five and a half billion dollars and total startup investing
Speaker 1: was down nine year over year. The tech investment company
Speaker 1: has invested in more than four hundred and fifty companies
Speaker 1: since the launch of its first of two Vision funds
Speaker 1: in twenty seventeen, companies such as TikTok, Owner by Dance,
Speaker 1: We Work, FDx, Ali Baba Well. In total, it's spent
Speaker 1: more than a hundred and forty billion dollars over the
Speaker 1: five years. These days, Son himself says he's focused on
Speaker 1: taking UK chip maker ARM public and a stepping back
Speaker 1: from SoftBank's day to day operations. I got up with
Speaker 1: Bloomberg opinion columnist Tim Colpan in Taipei to see what
Speaker 1: Masso she Son could do to boost flagging returns. So, Tim,
Speaker 1: before we get into the nitty gritty of Massa's options,
Speaker 1: first tell us a little bit about soft Bank and
Speaker 1: why it's fortunes are so captivating. Well, one thing about
Speaker 1: soft Bank is, about seven years ago added the company
Speaker 1: ass or software company selling software that is, and then
Speaker 1: became my telco. And now he's become essentially the world's
Speaker 1: largest VC, and he has a couple of funds which
Speaker 1: all combined to have close to hundreds minnie dollars of
Speaker 1: capital available. And so the company that is is in
Speaker 1: Japan Bank Group called essentially rises and falls based on
Speaker 1: the value of his investments in other companies. And some
Speaker 1: of those famous examples include uber we Work, or the
Speaker 1: Weed Company, and even side Dance, which is payments for TikTok.
Speaker 1: Massias's son's big early BET's really gone very well off
Speaker 1: for him is Huddy Barber and they still hold but
Speaker 1: if a stake in Huddi Barber, so it's a fassionating
Speaker 1: company because right now we can see the global markets
Speaker 1: going up and down. The private market, you know, the
Speaker 1: startups in bcs is going up and down, but it's
Speaker 1: very opak, so we don't always know what the valuation
Speaker 1: of an unlisted company is. But with soft Bank, we
Speaker 1: can look very very closely at how they're doing. And
Speaker 1: the last year or so we've not been doing very well.
Speaker 1: More and more of a private investments have been getting
Speaker 1: written down by a certain amount and public investments mostly
Speaker 1: coming down. So if you're an investor in soft Bank,
Speaker 1: really be kind of investor in massive kind of neutral funds,
Speaker 1: private equity fund a mix of different investments. And people
Speaker 1: believe in soft Bank, they believe in must if they
Speaker 1: believe in the vision. But you really have to be
Speaker 1: ready for a white knuckle ride if you if you
Speaker 1: want to have to ride these dips and troughs which
Speaker 1: are the company has been going through over the last
Speaker 1: year or so. Does Japanese monetary policy have much of
Speaker 1: an impact on the vision funds? Or is it more
Speaker 1: what the Federal Reserve does? In other words, are we
Speaker 1: witnessing the same thing as we are in the U
Speaker 1: s where investors have suddenly remembered that they prefer it
Speaker 1: when a company actually turns a profit. Yeah, that's a
Speaker 1: really good point. Now, So if you are an investor
Speaker 1: in soft Bank Group up it is a Japanese traded company,
Speaker 1: then if you're sitting around with you know, a few
Speaker 1: hundred thousand in the end to invest or a few
Speaker 1: hundred millions the end to invest in, thinking that where
Speaker 1: I'm going to buy money for the next year, you
Speaker 1: might not be wanting to put it in soft Bank
Speaker 1: because a lot of what they're invested in is stuff
Speaker 1: that is going to be impacted from a tighter monetary policy.
Speaker 1: They do have, for example, a telecom company called SoftBank Corps,
Speaker 1: which gets very confusing. So soft Bank Group owned soft
Speaker 1: Bank Corps and they own for example Yahoo Japan. They
Speaker 1: own the outline and the install very much consumer focused brands,
Speaker 1: and these are the kinds of businesses that don't do
Speaker 1: well in type monetary policy. So instead, if you've got
Speaker 1: money sitting around, you more likely to put it into
Speaker 1: say defensive stock, food or MCG those kind of things
Speaker 1: that do well in a downturn. You go, well, why
Speaker 1: would I put my money in a risky stock like
Speaker 1: soft Bank in a downturn when monetary policy is typed.
Speaker 1: And that's a bit of the problem that soft Bank
Speaker 1: stock bass right now is there's probably better places for
Speaker 1: a lot of people to put their money in this
Speaker 1: kind of whiskier time. So give us an idea of
Speaker 1: who actually invests in soft Bank. You did mention some
Speaker 1: known quantities there and in the Vision funds more specifically,
Speaker 1: well the Vision Fund. Very there's actually now two Vision funds.
Speaker 1: So the first Vision Fund got a lot of Middle
Speaker 1: Eastern like soft and well fund money. And what's interesting
Speaker 1: about that is a lot of that money came in
Speaker 1: as preferred shares, which essentially worked like a bond where
Speaker 1: they have to pay out every year. They have to
Speaker 1: pay out a minimum amount of money, so there are
Speaker 1: not three or four billion dollars of pay ups every
Speaker 1: year to those early investors. The rest of it is
Speaker 1: that it was pods Com, for example, is one of
Speaker 1: the investors in the Vision Fund, and just kind of
Speaker 1: a hodge podge of other investors. What's interesting is they
Speaker 1: then opened up a second Vision and they really couldn't
Speaker 1: get much interest globally from anybody else. So the second
Speaker 1: Vision Fund is almost entirely soft Bank owned money and
Speaker 1: the management team who has seems to have a bit
Speaker 1: of a pass aboutable. So you've got in the order
Speaker 1: of a few dozen billions of dollars from soft Bank
Speaker 1: itself into its own second Vision and that's a huge
Speaker 1: bet on itself. And that's really the issue going forward
Speaker 1: is that I'm all their own money to their own
Speaker 1: ability to be a BBC, which is a jury manturment
Speaker 1: very well. As you say, the two Vision funds are
Speaker 1: down a combined something like five billion dollars. The first
Speaker 1: Vision Fund expires in six years, the second does have
Speaker 1: an extra three years, so Massa does have a little
Speaker 1: bit of time. How does he deliver for investors? Does
Speaker 1: he need the I p O market to revive? What
Speaker 1: happens if the end continues to weaken, Well, this is
Speaker 1: a fascinating problem. You know, he has limited ability to
Speaker 1: change the I p O market. The one company they
Speaker 1: have in the portfolio that's really waiting to be a
Speaker 1: British chip maker. They were at one point going to
Speaker 1: sell it to any Video. That didn't happen for a
Speaker 1: trust reason. So they're actually really committed to getting it
Speaker 1: done this year. So they really would hope for the
Speaker 1: ip OF market to turn around. Beyond that, they're sitting
Speaker 1: on cash, and my estimate is they're going to use
Speaker 1: that cash to buy back or shares because the easiest,
Speaker 1: easiest way to prop up the stock is to just
Speaker 1: buy the stock, and they've been doing that over the
Speaker 1: last year and it's actually worked. It's it's had an
Speaker 1: effect that's helped looster stock. I think that they will
Speaker 1: take some of the remaining cash they've got left and
Speaker 1: if they can go out to borrow more cash, I
Speaker 1: think they will then go back and buy soft Bank
Speaker 1: Group shares. To prop it up, two tie investors over
Speaker 1: until the market happens and they can start to reap
Speaker 1: the rewards of these big investors have done over the years,
Speaker 1: and two private startups. Well, speaking of buying back oceans
Speaker 1: of stock, could you do something very bold and this
Speaker 1: has been in the either, but something like what Michael
Speaker 1: Dell did and takes off bank back private you know
Speaker 1: what that is to be. There's a lot of rumor
Speaker 1: about this would happen to management buy out. You know,
Speaker 1: Michael Dell's approach all those years ago is the executed
Speaker 1: of the controversial but you've managed it and it's exactly
Speaker 1: what Dell the company needed to take it out of
Speaker 1: kind of public view and do what you need to
Speaker 1: do behind the needs. There is thought that one of
Speaker 1: the reasons why Marcia his son is using banks own
Speaker 1: cash to buy back shares is you can then counsel
Speaker 1: them so every remaining shareholder has a higher concentration of shares,
Speaker 1: and if it keeps doing that, it's kind of like
Speaker 1: a creeping buyout because Mussa's own holdings in the company
Speaker 1: then increase without him have to spending money as all
Speaker 1: of your own money and so there is a feeling
Speaker 1: that there is a chance that sometime in the next
Speaker 1: year or two, Mussa himself might get together it's so
Speaker 1: private equity or banks or other people and just launch
Speaker 1: a buy out the company himself. Well, one place it
Speaker 1: doesn't look like he can call upon as Eliots. Elliott
Speaker 1: dumped it stake and self Bank, which may not be
Speaker 1: a good sign. Elliott seems to do pretty well usually
Speaker 1: the activist investor. Obviously, Yeah, I think it would be
Speaker 1: a wonderful irony if you jumped into bed with Elliott
Speaker 1: decided to do a management buyer. I don't think that
Speaker 1: would happen. Um, you'd have to pick the partner very well.
Speaker 1: It is a Japanese company, so you would just start
Speaker 1: knocking other doors of Japanese finatural Spurst, maybe Japanese private equity,
Speaker 1: maybe of cool thanks. You know, there's no discounting the
Speaker 1: fact that they could try and get a big overseas
Speaker 1: private equities come in and help them out. But I
Speaker 1: think they would look globally first. Is soft Bank too
Speaker 1: big to fail? Would it have some kind of a
Speaker 1: contagious effect on the Japanese economy or on the market
Speaker 1: if it were to If it's stockward to plummet. Let's say,
Speaker 1: which is not happening. We put that out there. It
Speaker 1: is interesting enough. It is huge, but only a small
Speaker 1: portion of its holdings our own Japanese company. And even
Speaker 1: though it's just somewhat large company, it's not it's not
Speaker 1: the largest Japanese company out there. So you know, I
Speaker 1: don't think the stock will go to zero. There is value,
Speaker 1: There is actually a net asset value. We actually go
Speaker 1: to stock lanks by out website every day and they
Speaker 1: track it time. You know, they aren't big chunk of
Speaker 1: Ali Baba. They own which has evaluation. Even though it's private,
Speaker 1: you can somewhat valuate. They own a big chunk of
Speaker 1: listed companies. Because some of their portfolio companies have I
Speaker 1: p O. They own a tail coat. They definitely have
Speaker 1: an asset value. The company's stock created a huge discounts
Speaker 1: and an asset value. But I don't see it going
Speaker 1: to zero, and so that's something. There is a floor
Speaker 1: to how low something could go. But beyond that, it's
Speaker 1: not so huge that you know, it's collapsed. Would cause
Speaker 1: the systemic problem in Japan. Therefore, banks the government had
Speaker 1: to come and bail about on the flip side what
Speaker 1: they best in model live share that is actually Japaning
Speaker 1: startups and so forth. Mostly you don't do a Opean
Speaker 1: Asian startup, So there's no systemic problem for sotoftmake and
Speaker 1: I think that's one of the reasons why there is
Speaker 1: a floor on how low that the stuff could go.
Speaker 1: Bloomberg Opinions, Tim Colbyn. Anyone with kids or anyone who
Speaker 1: knows anyone with kids will tell you they're getting more expensive.
Speaker 1: It's not really their faults. Inflation is hitting everything, including
Speaker 1: childcare costs. The thing is the associated relief, and the
Speaker 1: tax code has stayed stagnant. Bloomerg Opinions. Alexis Leander's explains.
Speaker 1: So Alexis explained to was what's happened over the last
Speaker 1: number of the years with childcare credits. Sure, so as
Speaker 1: almost anyone who has children knows, the cost of childcare
Speaker 1: feels astronomical right now, and if you look back at
Speaker 1: the data, it now takes up almost twenty percent of
Speaker 1: the median family income per child in major cities. The
Speaker 1: problem is that there's a tax benefit that some workers
Speaker 1: used to offset either daycare or nanny expenses, called the
Speaker 1: Dependent Care Flexible Spending Account. And the cap on how
Speaker 1: much you can contribute to that account every year has
Speaker 1: stayed the same since nineteen since correct, yep, almost forty
Speaker 1: years that we've seen this five thousand dollar cap, which
Speaker 1: perhaps back in the nineteen eighties was an appropriate amount
Speaker 1: of money and could cover the annual cost of childcare,
Speaker 1: you know, when it was about stay hundred dollars. But
Speaker 1: now you know in major cities the annual cost for
Speaker 1: an infant in daycare is more than seventeen thousand dollars,
Speaker 1: and for a toddler it's more than twelve thousand, three hundred.
Speaker 1: So it really feels like they've come atribution has not
Speaker 1: kept pace with the cost for daycare. Who are the
Speaker 1: lobby and groups that are trying to change this and
Speaker 1: is there any possibility that it might get changed. It's
Speaker 1: part of this larger problem where you do have various
Speaker 1: credits and deductions in the tax code that are not
Speaker 1: adjusted for inflation. Many are, but there's some very very
Speaker 1: significant ones like this contribution cap for the dependent care
Speaker 1: f s A that hasn't changed. Likewise with the tax
Speaker 1: credits that families get for dependent or child care, same
Speaker 1: sort of things. So I think what really has to
Speaker 1: happen is you have to see across the board all
Speaker 1: these credits, deductions, everything has to take inflation into account,
Speaker 1: especially when we see environments when inflation is higher but
Speaker 1: hits taxpayers more absolutely. Now, does it also depend on
Speaker 1: how much the parents make and whether it's a two
Speaker 1: salary home or a one salary home, right, that's a
Speaker 1: great question. In order to qualify or be eligible for
Speaker 1: this dependent care f s A, you have to have
Speaker 1: two working parents, and unlike other credits and deductions, with
Speaker 1: the Dependent care f s A, there's no income limits.
Speaker 1: So really anyone can qualify to be able to take
Speaker 1: advantage and put money into this account. And the way
Speaker 1: it works basically is an employee elects to have a
Speaker 1: certain amount withheld a maximum five thousand dollars from their
Speaker 1: paychecks that gets put into the account, so that pre
Speaker 1: tax income that's going in there. The parent will pay
Speaker 1: the child's care expenses out of pocket, and then we'll
Speaker 1: get reimbursed by the employer from that account. Now, do
Speaker 1: you have any data on how many employers offer this
Speaker 1: or how many people take advantage of it? So it's
Speaker 1: about six of employers according to you. The most recent
Speaker 1: surveys we've seen. The things that a taxpayer has to
Speaker 1: be careful of is you have dependent care FFAs, But
Speaker 1: then in addition, you also have what's called the tax
Speaker 1: credit or child's care as well, but that's a little
Speaker 1: bit more complicated. There's an income cap on that gets
Speaker 1: based out completely once parents make more than four d
Speaker 1: thirty eight thousand dollars, and it helps with expenses up
Speaker 1: to three thousand per families with one child, or six
Speaker 1: thousand for two or more children. But there's no double dipping.
Speaker 1: So if you're taking advantage of this tax credit, if
Speaker 1: you're eligible for it, you hands also try to get
Speaker 1: reimbursed for expenses that you were using the credit for.
Speaker 1: Now use that it takes more than twelve thousand dollars
Speaker 1: a year to have an infant in daycare. On the
Speaker 1: one hand, you can understand how it would cost that
Speaker 1: to have an infant in your care for that amount
Speaker 1: of time for a whole year. On the other hand,
Speaker 1: how is somebody is supposed to afford that out of pocket,
Speaker 1: especially knowing that that's just going to go up with inflation, right,
Speaker 1: I mean, that's the problem, and many lawmakers are focused
Speaker 1: on this and trying to figure out different ways to
Speaker 1: help parents with these costs, you know, and whether it's
Speaker 1: having a longer leave or if it's coming into like
Speaker 1: having universal preschool for three year olds and four year olds.
Speaker 1: There are all different ways, but it's clear that there's
Speaker 1: this patchwork system. Some stuff is through the federal government,
Speaker 1: some is through states individually. Some states will give subsidies
Speaker 1: to help shoulder some of the burden. But at the
Speaker 1: end of the day, when you have these costs and
Speaker 1: they're only getting worse because of the recent shortage and
Speaker 1: staffing at daycares, and then turn the costs are going
Speaker 1: up and up. In a city like Washington, we see
Speaker 1: that it's the most expensive city in the US for childcare.
Speaker 1: The average annual cost for infant care is twenty four thousand,
Speaker 1: two d forty three dollars, and that is just for
Speaker 1: one child. Bloomberg Opinions Alexis lean us. That does it
Speaker 1: for this week's opinion. Don't forget. We're available as a
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Speaker 1: as always, do send us your thoughts. Email me at
Speaker 1: Quinn at Bloomberg dot net. We're produced by Eric mollow
Speaker 1: I'm Vonnie Quinn This is Bloomberg Opinion