1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg P and L 6 00:00:20,840 --> 00:00:33,880 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. But Cardi, 7 00:00:33,920 --> 00:00:37,959 Speaker 1: they have acquired the shares of Patron Tequila that they 8 00:00:38,000 --> 00:00:40,879 Speaker 1: already didn't own. But this is a deal that values 9 00:00:40,920 --> 00:00:44,240 Speaker 1: Patron at about five billion dollars. It's expected to close 10 00:00:44,240 --> 00:00:46,440 Speaker 1: in the first half of the year. Joining us now 11 00:00:46,479 --> 00:00:49,440 Speaker 1: in a studio is a co founder and chairman of 12 00:00:49,440 --> 00:00:52,760 Speaker 1: the board of John Paul Mitchell Systems and co founder 13 00:00:52,840 --> 00:00:56,600 Speaker 1: of Patron Tequila. John Paul Or thanks very much for 14 00:00:56,640 --> 00:00:59,120 Speaker 1: being in the studio. Oh, my friend, always always a 15 00:00:59,200 --> 00:01:01,520 Speaker 1: joy interviewing with. All Right, let's just I want to 16 00:01:01,560 --> 00:01:04,839 Speaker 1: get to set this stage because let's go back to nine. 17 00:01:05,480 --> 00:01:08,640 Speaker 1: You are interested in having a friend of yours bring 18 00:01:08,640 --> 00:01:12,840 Speaker 1: back a bottle of tequila from Mexico and he brings 19 00:01:12,880 --> 00:01:18,000 Speaker 1: back a hand blown bottle and you and Martin Crowley, Yes, 20 00:01:18,080 --> 00:01:21,400 Speaker 1: that's correct. You guys decide, oh, we'll make twelve thousand 21 00:01:21,480 --> 00:01:24,600 Speaker 1: bottles and priced him at thirty seven bucks a bottle, 22 00:01:25,480 --> 00:01:27,640 Speaker 1: very very close. He came back with a couple of 23 00:01:27,680 --> 00:01:29,920 Speaker 1: bottles of what I said, Martin, when you go down there, 24 00:01:30,040 --> 00:01:33,680 Speaker 1: bring back whatever the aristocrats drink. So he found these bottles, 25 00:01:33,760 --> 00:01:36,200 Speaker 1: very slim, good bottles, and it was the smoothest I 26 00:01:36,240 --> 00:01:38,720 Speaker 1: ever drink. He said, But JP, I met this guy 27 00:01:38,800 --> 00:01:42,120 Speaker 1: named Francisco Alcarez and he could make it even smoother. 28 00:01:42,360 --> 00:01:44,000 Speaker 1: And then he had this bottle he showed me that 29 00:01:44,120 --> 00:01:46,160 Speaker 1: was out of blown glass he got in some uh 30 00:01:46,600 --> 00:01:48,960 Speaker 1: uh you know, gift shop. He says, we could do this, 31 00:01:49,080 --> 00:01:51,040 Speaker 1: and I said, can we do it out of recycled glass? 32 00:01:51,040 --> 00:01:53,160 Speaker 1: He goes yeah. I said, well what that, Let's make 33 00:01:53,160 --> 00:01:55,680 Speaker 1: twelve tho bottles and uh, you know it's gonna be 34 00:01:55,840 --> 00:01:58,280 Speaker 1: very expensive. Well, it was very expensive. We had to 35 00:01:58,280 --> 00:02:02,160 Speaker 1: sell it for thirty seven ninety five in nine when 36 00:02:02,160 --> 00:02:04,360 Speaker 1: the average tequila I think was four or five dollars 37 00:02:04,360 --> 00:02:07,120 Speaker 1: and the best one around was fourteen. So we actually 38 00:02:07,160 --> 00:02:10,680 Speaker 1: started in the United States altar premium tequila. But we thought, 39 00:02:10,680 --> 00:02:12,679 Speaker 1: you know what a great thing like tequila you could 40 00:02:12,720 --> 00:02:15,840 Speaker 1: sip and not have to put into Margarita of that quality, 41 00:02:15,919 --> 00:02:18,960 Speaker 1: you don't get that big hangover the next day. Not bad. 42 00:02:19,400 --> 00:02:21,120 Speaker 1: So we want to come out with quality. We be 43 00:02:21,160 --> 00:02:24,520 Speaker 1: in reorder business. It started out very slowly, by the way, 44 00:02:24,600 --> 00:02:27,320 Speaker 1: but then people realized, wow, I want to treat myself. 45 00:02:27,360 --> 00:02:29,760 Speaker 1: This is really good. And with a lot of friends 46 00:02:29,800 --> 00:02:31,720 Speaker 1: that kind of pitched in to lend a helping hand, 47 00:02:32,120 --> 00:02:33,880 Speaker 1: is started to take off and off and off, and 48 00:02:33,919 --> 00:02:37,919 Speaker 1: then zoom. And then unfortunately, uh oh beckon about two 49 00:02:37,960 --> 00:02:40,680 Speaker 1: thousand and three, my partner had a little bout at 50 00:02:40,720 --> 00:02:43,799 Speaker 1: heart attack. Uh and Ed Brown took over as our president. 51 00:02:43,880 --> 00:02:45,680 Speaker 1: He was in sales at the time. It should have 52 00:02:45,680 --> 00:02:48,280 Speaker 1: been the president. Great guy, and it went just straight 53 00:02:48,360 --> 00:02:50,120 Speaker 1: up in the air. It's really a phenomena. But it 54 00:02:50,200 --> 00:02:52,760 Speaker 1: shows you that America still works. And if you go 55 00:02:52,880 --> 00:02:55,640 Speaker 1: for a high quality in any product and you don't 56 00:02:55,720 --> 00:02:58,920 Speaker 1: lessen that quality and give people what they really would like, 57 00:02:59,320 --> 00:03:01,239 Speaker 1: you've got one of a chance of making it well 58 00:03:01,280 --> 00:03:03,600 Speaker 1: and you keep that quality going. And that's gonna happen, 59 00:03:03,639 --> 00:03:06,440 Speaker 1: by the way, even with the sale to Bacardi. Uh 60 00:03:06,480 --> 00:03:09,000 Speaker 1: that's it's gonna happen because they've agreed to keep everything 61 00:03:09,040 --> 00:03:11,240 Speaker 1: exactly the way it is keep our staff in place 62 00:03:11,560 --> 00:03:14,720 Speaker 1: and work with me on philanthropy and the good conditions 63 00:03:14,800 --> 00:03:16,760 Speaker 1: and the high quality that we have and not step 64 00:03:16,800 --> 00:03:19,960 Speaker 1: away from it. And you self funded, patron, Yeah, self 65 00:03:19,960 --> 00:03:24,280 Speaker 1: fund it, totally self funded. So why did you decide 66 00:03:24,280 --> 00:03:28,320 Speaker 1: to sell now? A couple of reasons. One, we've taken 67 00:03:28,320 --> 00:03:31,120 Speaker 1: it where no one's ever gone before with any tequila, 68 00:03:31,200 --> 00:03:34,160 Speaker 1: let alone Altar Premium tequila were there and it was 69 00:03:34,200 --> 00:03:36,360 Speaker 1: a lot of fun. Well, I'd like to take it 70 00:03:36,400 --> 00:03:39,160 Speaker 1: to the next stage right now. And someone like Baccardi 71 00:03:39,320 --> 00:03:41,040 Speaker 1: that has their own and they've been our distributed in 72 00:03:41,040 --> 00:03:43,120 Speaker 1: many parts of the world, but now that they have 73 00:03:43,160 --> 00:03:45,520 Speaker 1: a piece of it, they could double what we're doing 74 00:03:45,600 --> 00:03:47,520 Speaker 1: right now. And I know that because the product is 75 00:03:47,640 --> 00:03:50,560 Speaker 1: that good. So I'm excited to see this product that 76 00:03:50,600 --> 00:03:53,280 Speaker 1: I was the father of continue to grow and grow 77 00:03:53,320 --> 00:03:55,840 Speaker 1: and grow. Uh. And it's just the ideal time to 78 00:03:55,880 --> 00:03:58,400 Speaker 1: do it. I get more involved in my philanthropic work, 79 00:03:58,600 --> 00:04:01,560 Speaker 1: which I love. And I'm also working on another major, 80 00:04:01,640 --> 00:04:03,760 Speaker 1: major thing, which will announce with you guys another two 81 00:04:03,840 --> 00:04:06,400 Speaker 1: or three months through through rock r Okay Mobile that 82 00:04:06,520 --> 00:04:08,640 Speaker 1: is going to change the whole world for the better 83 00:04:08,680 --> 00:04:12,040 Speaker 1: for all people. So involvement. So I'm just wondering, do 84 00:04:12,080 --> 00:04:15,320 Speaker 1: you think that it would be harder for an entrepreneur 85 00:04:15,560 --> 00:04:19,960 Speaker 1: to start a business today than it was back in No, 86 00:04:20,160 --> 00:04:22,760 Speaker 1: not at all. I think it's so much easier today 87 00:04:22,800 --> 00:04:27,040 Speaker 1: because when I started Paul Mitchell in night seven, inflation 88 00:04:27,080 --> 00:04:29,040 Speaker 1: in the United States was twelve and a half percent, 89 00:04:29,400 --> 00:04:32,479 Speaker 1: unemployment ten and a half percent. If you could get alone, 90 00:04:32,600 --> 00:04:35,120 Speaker 1: if you could get a loan, prime rate in one 91 00:04:35,160 --> 00:04:38,359 Speaker 1: was seventeen percent. I mean, it was very difficult, and 92 00:04:38,360 --> 00:04:40,800 Speaker 1: we have computers. In those days, we were to set 93 00:04:40,839 --> 00:04:43,440 Speaker 1: time to make a business card. So today you can 94 00:04:43,480 --> 00:04:45,160 Speaker 1: make it, I believe a lot easier. But the two 95 00:04:45,240 --> 00:04:47,200 Speaker 1: things you've got to do if you start a business 96 00:04:47,720 --> 00:04:51,000 Speaker 1: is make sure that your product or your service is 97 00:04:51,040 --> 00:04:54,080 Speaker 1: so darn good. You're not in the selling business. During 98 00:04:54,120 --> 00:04:56,680 Speaker 1: the reorder business. When they get it, they would like 99 00:04:56,720 --> 00:04:58,880 Speaker 1: it so much they want to reorder it. Make sure 100 00:04:58,920 --> 00:05:01,479 Speaker 1: that quality is the and at the same time, be 101 00:05:01,560 --> 00:05:03,760 Speaker 1: sure that you could overcome rejection. You're gonna get a 102 00:05:03,800 --> 00:05:06,000 Speaker 1: lot of rejection, and if you know you're gonna get it, 103 00:05:06,000 --> 00:05:08,039 Speaker 1: it's not gonna hurt you so much. You're not gonna 104 00:05:08,040 --> 00:05:10,239 Speaker 1: give up after a hundred doors are slamming your face 105 00:05:10,560 --> 00:05:13,159 Speaker 1: like I did when I sold Encyclomphedias door to door. 106 00:05:13,320 --> 00:05:15,560 Speaker 1: You just keep on going to vet. You're gonna get it. 107 00:05:16,279 --> 00:05:18,599 Speaker 1: One of the things you do have, though, is competition. 108 00:05:18,760 --> 00:05:22,920 Speaker 1: I note that just acquired George Clooney's a high end 109 00:05:22,960 --> 00:05:26,120 Speaker 1: Casa Amigos tequila brand. I guess that deal was reported 110 00:05:26,160 --> 00:05:30,840 Speaker 1: to be worth about a billion dollars. Valuing Patron at 111 00:05:30,839 --> 00:05:33,760 Speaker 1: five point one billion, that's pretty high. Well, if you 112 00:05:33,960 --> 00:05:37,279 Speaker 1: valued Patron the same way, uh, the group with their 113 00:05:37,560 --> 00:05:39,520 Speaker 1: one of them, a couple of friends find that they 114 00:05:39,520 --> 00:05:41,880 Speaker 1: were part of the owners with them. If I did 115 00:05:41,880 --> 00:05:45,480 Speaker 1: it that way, Patron would be twenty four billion dollars 116 00:05:45,560 --> 00:05:47,880 Speaker 1: right now. So if you go on what you do 117 00:05:47,920 --> 00:05:50,640 Speaker 1: the abada and how many cases you sell. But that's 118 00:05:50,680 --> 00:05:53,200 Speaker 1: just crazy, you know. But because Clooney was involved, and 119 00:05:53,360 --> 00:05:54,599 Speaker 1: I'm sure they could use it for a lot of 120 00:05:54,600 --> 00:05:57,640 Speaker 1: publicity to them, it made sense. I would love to 121 00:05:57,680 --> 00:06:00,360 Speaker 1: get that, but you know, and but you know, no 122 00:06:00,360 --> 00:06:02,800 Speaker 1: one's gonna pay that kind of big money. However, I 123 00:06:02,880 --> 00:06:06,560 Speaker 1: think at five billion, one million, we did extremely well. 124 00:06:06,800 --> 00:06:08,960 Speaker 1: I'm very very happy and as you know and have 125 00:06:09,000 --> 00:06:11,800 Speaker 1: said many times, for seventy of a cumpany top that's 126 00:06:11,800 --> 00:06:14,840 Speaker 1: a home run. Congratulations. Think I could do a whole 127 00:06:14,880 --> 00:06:17,320 Speaker 1: lot more to help change your world with us. Thank 128 00:06:17,320 --> 00:06:19,760 Speaker 1: you so much for being with us. It really is fascinating, 129 00:06:19,760 --> 00:06:22,359 Speaker 1: and I want to care about selling Encyclopedia's door to 130 00:06:22,440 --> 00:06:27,080 Speaker 1: door and we'll start sometime because you're fascinating and maybe 131 00:06:27,080 --> 00:06:30,880 Speaker 1: perhaps can be an inspiration for my two little sons. First, 132 00:06:30,920 --> 00:06:33,080 Speaker 1: you have to first have to explain to them what 133 00:06:33,120 --> 00:06:37,240 Speaker 1: our encyclopedias, Yeah, they don't actually true. It is that 134 00:06:37,279 --> 00:06:39,840 Speaker 1: we are not around anymore. And tell them to watch 135 00:06:39,920 --> 00:06:42,600 Speaker 1: Good Fortune the movie. It was just reallyas you get 136 00:06:42,640 --> 00:06:44,840 Speaker 1: it on you know, Amazon iTunes. What a good Fortunately 137 00:06:44,839 --> 00:06:46,680 Speaker 1: the movie. Let your kids watch it shows you how 138 00:06:46,680 --> 00:06:49,159 Speaker 1: to go from homeless and no money, no influence, being 139 00:06:49,160 --> 00:06:51,800 Speaker 1: fired many times, and make it in America and you 140 00:06:51,800 --> 00:06:54,680 Speaker 1: can still do in other countries too. John Paul Gagoria, 141 00:06:54,760 --> 00:06:56,760 Speaker 1: thank you so much for being with us. John Paul 142 00:06:56,760 --> 00:07:00,280 Speaker 1: Gagoria as billionaire, co founder and chief executive officer Pau 143 00:07:00,400 --> 00:07:03,839 Speaker 1: Mitcher and the owner of Patron Spirits, which was just 144 00:07:03,880 --> 00:07:22,960 Speaker 1: sold to stocks. Gold and oil are up, bonds in 145 00:07:23,000 --> 00:07:26,320 Speaker 1: the US dollar are down. Jim Bianco is the president 146 00:07:26,360 --> 00:07:30,000 Speaker 1: and founder of Bianco Research. He joins us from Chicago. Jim, 147 00:07:30,000 --> 00:07:33,000 Speaker 1: always a pleasure. Do you think that the dollar weakness 148 00:07:33,000 --> 00:07:36,920 Speaker 1: will continue? I think over the very short term it 149 00:07:36,920 --> 00:07:40,960 Speaker 1: will continue because it's got momentum, it's got the Treasury Secretary, 150 00:07:41,760 --> 00:07:44,480 Speaker 1: it's got a lot of that going. But I do 151 00:07:44,560 --> 00:07:46,880 Speaker 1: think we're in the late stages of this move. The 152 00:07:46,960 --> 00:07:51,160 Speaker 1: dollars at uh significant highs. Speculation, you know, what we 153 00:07:51,240 --> 00:07:54,560 Speaker 1: call the crowded trade is getting pretty frothy right now. 154 00:07:55,200 --> 00:07:57,840 Speaker 1: Everybody's in this trade. There's not a lot of people 155 00:07:57,840 --> 00:08:00,320 Speaker 1: that are actually still long the dollar, and among the 156 00:08:00,360 --> 00:08:03,840 Speaker 1: speculative categories in words, they're they're long. There's a crowded 157 00:08:03,840 --> 00:08:07,200 Speaker 1: trade to short sell the dollar, correct, right the crowded 158 00:08:07,200 --> 00:08:10,040 Speaker 1: trade is there short to dollar or long currencies? Right now? 159 00:08:10,120 --> 00:08:14,240 Speaker 1: If you dial up your favorite billionaire at Davos or 160 00:08:14,400 --> 00:08:16,680 Speaker 1: your favorite hedge fund manager, they're all going to sound 161 00:08:16,680 --> 00:08:18,240 Speaker 1: the same when it comes to the dollar. It's just 162 00:08:18,240 --> 00:08:20,560 Speaker 1: gonna keep going down. That's why I think it's at 163 00:08:20,560 --> 00:08:23,640 Speaker 1: the late stages. Doesn't mean that today or tomorrow, this 164 00:08:23,680 --> 00:08:26,240 Speaker 1: week is the high, because it's got the momentum going, 165 00:08:26,280 --> 00:08:30,200 Speaker 1: but it is getting old. This rally speak currency rally 166 00:08:30,240 --> 00:08:33,840 Speaker 1: dollar weakness, what's gonna make it strengthen? What's the catalyst 167 00:08:34,360 --> 00:08:36,640 Speaker 1: and when strengthened against which currency? And which is an 168 00:08:36,679 --> 00:08:39,280 Speaker 1: important sort of cross to look at. Isn't the US 169 00:08:39,360 --> 00:08:46,120 Speaker 1: euro the dollar euro? Or is it dollar again? Dollar? Bitcoin? Yeah, 170 00:08:46,200 --> 00:08:48,000 Speaker 1: it's all our bitcoin, the key indicator that you watch 171 00:08:48,040 --> 00:08:51,400 Speaker 1: every morning. I watch it, but it's not yet to 172 00:08:51,480 --> 00:08:55,679 Speaker 1: a key indicator yet. Uh No. But I think one 173 00:08:55,679 --> 00:08:58,480 Speaker 1: of the things is to your question, you're right that 174 00:08:58,720 --> 00:09:02,400 Speaker 1: what what crush you'll be looking at right now? Because 175 00:09:02,880 --> 00:09:05,520 Speaker 1: the currency should have their own cycles. Some of them 176 00:09:05,559 --> 00:09:07,480 Speaker 1: should be going up against the dollars, some of them 177 00:09:07,520 --> 00:09:10,120 Speaker 1: should be sideways, some of them should be down. But 178 00:09:10,400 --> 00:09:12,680 Speaker 1: right now, as a sign of the speculative frost, the 179 00:09:12,720 --> 00:09:16,400 Speaker 1: dollar is going down against pretty much everything. Um for 180 00:09:16,520 --> 00:09:19,360 Speaker 1: now you can so I look at the d X, Y, 181 00:09:19,480 --> 00:09:22,920 Speaker 1: the the index or the euro understanding that this is 182 00:09:22,960 --> 00:09:25,640 Speaker 1: a dollar trade. What's gonna change it? I think when 183 00:09:25,640 --> 00:09:28,120 Speaker 1: we get off of focusing on the dollar, remember with 184 00:09:28,200 --> 00:09:31,640 Speaker 1: the currency, there's two sides of the trade. There's what 185 00:09:31,840 --> 00:09:34,600 Speaker 1: is U s policy? What are US rates? Oh? Yeah, 186 00:09:34,640 --> 00:09:37,280 Speaker 1: but then there's also what are European policies? What are 187 00:09:37,360 --> 00:09:42,360 Speaker 1: European rates, and that those are being largely ignored and 188 00:09:42,440 --> 00:09:45,160 Speaker 1: everything has been focused to US centric. When I think 189 00:09:45,200 --> 00:09:48,240 Speaker 1: we start focusing on what our Japanese policies and rates, 190 00:09:48,240 --> 00:09:50,200 Speaker 1: and what are European policies of rates, and what are 191 00:09:50,200 --> 00:09:53,000 Speaker 1: British policies and rates, I then think that this dollar 192 00:09:53,040 --> 00:09:55,240 Speaker 1: weakness will start to peter out. But we're not doing 193 00:09:55,280 --> 00:09:58,120 Speaker 1: that right now. Well, the rally in stocks peter out. 194 00:09:59,720 --> 00:10:03,640 Speaker 1: The only in stocks is a little different animal altogether. UM. 195 00:10:03,800 --> 00:10:07,760 Speaker 1: Following the tax hike or excuse me, following the tax cut, 196 00:10:08,520 --> 00:10:13,160 Speaker 1: analysts have aggressively hiked their earnings forecast. So for all 197 00:10:13,200 --> 00:10:17,640 Speaker 1: of seventeen, they're expecting about twelve to fourteen percent gained 198 00:10:17,760 --> 00:10:20,760 Speaker 1: year over year in earnings. For all of eighteen, they're 199 00:10:20,760 --> 00:10:23,760 Speaker 1: expecting another eighteen percent. If you had to two together, 200 00:10:23,800 --> 00:10:26,360 Speaker 1: that's thirty six percent between last year and this year, 201 00:10:27,040 --> 00:10:30,520 Speaker 1: justin earnings. The stock markets up twenty eight percent. Maybe 202 00:10:31,400 --> 00:10:35,360 Speaker 1: with today's rally, UM, it hasn't even caught up to earnings. 203 00:10:35,360 --> 00:10:39,240 Speaker 1: There has been no multiple expansion at this point. That 204 00:10:39,280 --> 00:10:41,520 Speaker 1: will come once we get beyond the thirty six percent 205 00:10:41,600 --> 00:10:44,160 Speaker 1: rally from the beginning of last year. We're up twenty 206 00:10:44,240 --> 00:10:47,120 Speaker 1: nine right now, if and this is a critical list, 207 00:10:47,360 --> 00:10:50,240 Speaker 1: the analysts expectations are right. But I think what's got 208 00:10:50,240 --> 00:10:54,840 Speaker 1: the market going right now is these aggressive um increases 209 00:10:54,840 --> 00:10:57,760 Speaker 1: in earnings estimates. All of the companies that have been 210 00:10:57,760 --> 00:11:01,520 Speaker 1: giving very positive guidance. Right now, you could actually make 211 00:11:01,559 --> 00:11:05,760 Speaker 1: the case that after rally that we've had, evaluations are 212 00:11:05,800 --> 00:11:09,360 Speaker 1: really not much different than they were eighteen months ago 213 00:11:09,960 --> 00:11:14,120 Speaker 1: because there's been such an aggressive uptick in earnings. It's 214 00:11:14,160 --> 00:11:17,280 Speaker 1: all about that right now. The earning story seems to 215 00:11:17,320 --> 00:11:19,440 Speaker 1: be working, So I think the stock market is going 216 00:11:19,480 --> 00:11:21,719 Speaker 1: to continue to work for a while. All right, So 217 00:11:21,880 --> 00:11:25,280 Speaker 1: let's turn to bonds. Uh. There is a lot of 218 00:11:25,320 --> 00:11:31,080 Speaker 1: talk that yields are heading higher, potentially much higher. And uh. 219 00:11:31,200 --> 00:11:35,160 Speaker 1: We saw Ray Dalio, the founder and the head of Bridgewater, 220 00:11:35,559 --> 00:11:39,400 Speaker 1: come out and say that if the tenure treasury yield 221 00:11:39,480 --> 00:11:41,640 Speaker 1: moves up by another hundred basis points, by another one 222 00:11:41,640 --> 00:11:45,280 Speaker 1: percentage point, Uh, this will be the biggest bond bear 223 00:11:45,400 --> 00:11:49,040 Speaker 1: market since the early eighties, and it will sort of 224 00:11:49,040 --> 00:11:54,000 Speaker 1: affect markets accordingly. What's your take on this? Um. What 225 00:11:54,080 --> 00:11:56,920 Speaker 1: he's explaining there is the simple math of the bond market, 226 00:11:57,960 --> 00:12:00,360 Speaker 1: a phrase that will make everybody fall asleep as positive 227 00:12:00,360 --> 00:12:04,760 Speaker 1: convexity that as yields get very very low, the sensitivity 228 00:12:04,800 --> 00:12:07,880 Speaker 1: that a bond has to interest rate movements sensitivey bond 229 00:12:07,880 --> 00:12:10,560 Speaker 1: price has to interestrate movements. Is that a record high. 230 00:12:10,640 --> 00:12:13,800 Speaker 1: So when you get a one percent move in bonds 231 00:12:13,920 --> 00:12:17,080 Speaker 1: right now, you get an enormous move in price. Different 232 00:12:17,080 --> 00:12:18,880 Speaker 1: than when you had a one percent move in interest 233 00:12:18,960 --> 00:12:21,199 Speaker 1: rates when we were at ten percent thirty years ago, 234 00:12:21,400 --> 00:12:25,320 Speaker 1: you got a very smaller price. Uh. He's mechanically correct 235 00:12:25,600 --> 00:12:28,960 Speaker 1: on that. But now that that said, there's only one 236 00:12:29,120 --> 00:12:32,680 Speaker 1: reason that we would have a hundred basis point rise 237 00:12:32,760 --> 00:12:35,000 Speaker 1: on the long end of the yield curve. And I 238 00:12:35,040 --> 00:12:39,400 Speaker 1: think that that's if we had solid evidence of inflation returning. Now. 239 00:12:39,400 --> 00:12:43,080 Speaker 1: The problem with that is everybody's got models and indicators 240 00:12:43,120 --> 00:12:46,360 Speaker 1: and they all say inflation is gonna return. They also 241 00:12:46,400 --> 00:12:48,720 Speaker 1: said that last year. They also said that three years ago, 242 00:12:48,720 --> 00:12:50,199 Speaker 1: they said that five years ago, and they said that 243 00:12:50,320 --> 00:12:54,480 Speaker 1: seven years ago. Uh. The models that inflation should have 244 00:12:54,640 --> 00:12:58,559 Speaker 1: returned five years ago, it has not. The Federal Reserve 245 00:12:58,720 --> 00:13:01,640 Speaker 1: Janet Yelling herself has even thrown her hands in the 246 00:13:01,640 --> 00:13:04,600 Speaker 1: air and said they're not sure why inflation has it returned, 247 00:13:04,800 --> 00:13:07,240 Speaker 1: and the data dependent FET is now using words like 248 00:13:07,559 --> 00:13:10,280 Speaker 1: guess when it comes to where inflation is going to 249 00:13:10,360 --> 00:13:13,280 Speaker 1: go next, because their models don't work anymore on this. 250 00:13:13,840 --> 00:13:17,160 Speaker 1: If we get inflation, then yes, we could see a 251 00:13:17,200 --> 00:13:20,560 Speaker 1: bond route. I'm fully in that camp. The problem is 252 00:13:21,000 --> 00:13:24,160 Speaker 1: the indicators that say that it will return are there, 253 00:13:24,600 --> 00:13:27,440 Speaker 1: but they've been there for five years and it's still 254 00:13:27,480 --> 00:13:30,360 Speaker 1: has it returned, So maybe this is the year it's right, 255 00:13:30,480 --> 00:13:33,360 Speaker 1: or maybe this isn't just yet another false start, So 256 00:13:33,640 --> 00:13:36,480 Speaker 1: we're all back to guessing on inflation, and I don't 257 00:13:36,520 --> 00:13:40,000 Speaker 1: like guessing. I'll stick. If I had to push your pull, 258 00:13:40,160 --> 00:13:42,920 Speaker 1: I think, yeah, you're gonna probably see yields creep up 259 00:13:42,920 --> 00:13:44,880 Speaker 1: a little bit more in the next month or two 260 00:13:45,240 --> 00:13:47,200 Speaker 1: on the fear of inflation. But I think by the 261 00:13:47,240 --> 00:13:51,000 Speaker 1: time you get into the later half of this will 262 00:13:51,040 --> 00:13:54,719 Speaker 1: probably be another false start. Maybe those inflation measures are 263 00:13:54,800 --> 00:13:57,560 Speaker 1: just playing wrong. Maybe they need a new inflation measure. 264 00:13:58,440 --> 00:14:01,320 Speaker 1: I think they need. I think they need a new understanding. 265 00:14:01,360 --> 00:14:04,000 Speaker 1: I think the effect of Amazon and the Internet on 266 00:14:04,160 --> 00:14:07,920 Speaker 1: inflation is profound. The problem is the FED wants to 267 00:14:07,960 --> 00:14:10,319 Speaker 1: know when it's going to go up forty basis points. 268 00:14:10,320 --> 00:14:12,720 Speaker 1: We know that that the internet in Amazon is holding 269 00:14:12,760 --> 00:14:15,080 Speaker 1: it down. We just don't know by how much and 270 00:14:15,120 --> 00:14:17,240 Speaker 1: how to model that yet. Maybe they need to include 271 00:14:17,240 --> 00:14:21,000 Speaker 1: food and energy in their inflation estimates. But let me 272 00:14:21,000 --> 00:14:23,360 Speaker 1: ask you about the tenure treasury right where at two 273 00:14:23,440 --> 00:14:27,400 Speaker 1: six how much uh further does the yield have to 274 00:14:27,480 --> 00:14:30,480 Speaker 1: move in order for Jim Bianco to say I'm done 275 00:14:30,520 --> 00:14:33,080 Speaker 1: with stocks. I'm buying ten years, Thank you very much. 276 00:14:33,120 --> 00:14:38,000 Speaker 1: I'll take my two point uh. I think that you know, 277 00:14:38,840 --> 00:14:42,760 Speaker 1: it actually doesn't one of two things. Either, it moves 278 00:14:42,800 --> 00:14:46,480 Speaker 1: to near three percent thirty the ten year. Excuse me. 279 00:14:46,640 --> 00:14:49,080 Speaker 1: If we get a three percent yield on that, I 280 00:14:49,120 --> 00:14:52,480 Speaker 1: think that that could be damaging for the stock market 281 00:14:52,520 --> 00:14:54,520 Speaker 1: in the economy if we were to get that. But 282 00:14:54,640 --> 00:14:57,600 Speaker 1: I think to get that we would need inflation. If 283 00:14:57,600 --> 00:15:01,640 Speaker 1: we don't get inflation, then I think what happens is 284 00:15:01,680 --> 00:15:05,320 Speaker 1: we're gonna be at Defet's going to raise rates. The 285 00:15:05,480 --> 00:15:08,920 Speaker 1: yield curve is going to flatten quite a bit. Uh. 286 00:15:09,040 --> 00:15:15,280 Speaker 1: The yield curve has forecasted correctly every recession since nineteen sixty. 287 00:15:15,800 --> 00:15:18,840 Speaker 1: We get that flatten yield curve, it's gonna freak everybody 288 00:15:18,840 --> 00:15:21,240 Speaker 1: out that a recession is coming. That could be damaging 289 00:15:21,320 --> 00:15:23,360 Speaker 1: for the market. To Jim Bianco, thank you so much 290 00:15:23,360 --> 00:15:26,120 Speaker 1: for joining us, President and founder of Bianco Research, also 291 00:15:26,400 --> 00:15:43,520 Speaker 1: a Bloomberg profit. The shares are General Electric are down 292 00:15:43,520 --> 00:15:46,280 Speaker 1: three tenths of a percent right now, and the company 293 00:15:46,360 --> 00:15:49,880 Speaker 1: has revealed that the Securities and Exchange Commission is looking 294 00:15:49,920 --> 00:15:51,720 Speaker 1: into the way that it has accounted for some of 295 00:15:51,760 --> 00:15:57,080 Speaker 1: its past insurance businesses as well as its revenue recognition program. 296 00:15:57,080 --> 00:15:59,200 Speaker 1: Here to tell us more, Brooks Sutherland our m and 297 00:15:59,280 --> 00:16:02,000 Speaker 1: a columnist and Bloomberg gad fly when it comes to 298 00:16:02,040 --> 00:16:05,120 Speaker 1: all things g E and Brooke can be followed on 299 00:16:05,120 --> 00:16:10,360 Speaker 1: Twitter at b L Seth s U t h Alright, 300 00:16:10,480 --> 00:16:15,720 Speaker 1: b L Suth, g E and the SEC. What does 301 00:16:15,720 --> 00:16:19,480 Speaker 1: the SEC want to know about? So they're reviewing two 302 00:16:19,520 --> 00:16:21,720 Speaker 1: things is what we learned today. So they're looking into 303 00:16:21,760 --> 00:16:25,600 Speaker 1: the process leading up to UM. You know gees announcement 304 00:16:26,000 --> 00:16:28,200 Speaker 1: last week that it's taking a six point two billion 305 00:16:28,240 --> 00:16:31,120 Speaker 1: after tax charger and its insurance business is paying fifteen 306 00:16:31,120 --> 00:16:34,200 Speaker 1: billion over seven years to shore up reserves there. Now, 307 00:16:34,240 --> 00:16:37,000 Speaker 1: that is a business that you know, g E largely 308 00:16:37,120 --> 00:16:39,640 Speaker 1: divested between two thousand and four and two thousand and six, 309 00:16:39,960 --> 00:16:42,480 Speaker 1: so it's been in runoff, they haven't been issuing new businesses, 310 00:16:42,520 --> 00:16:46,080 Speaker 1: and they've done this review annually ever since. So then 311 00:16:46,080 --> 00:16:48,560 Speaker 1: to all of a sudden see this need to you know, 312 00:16:48,640 --> 00:16:51,040 Speaker 1: put fifteen billion to shore up their reserves. I think 313 00:16:51,160 --> 00:16:53,840 Speaker 1: obviously raises a lot of questions. So to me, it 314 00:16:53,840 --> 00:16:56,720 Speaker 1: would be more surprising if the SEC wasn't looking into this. 315 00:16:56,840 --> 00:16:58,920 Speaker 1: But the interesting thing is the second part of this 316 00:16:58,960 --> 00:17:01,960 Speaker 1: that they're also looking at gees revenue recognition practice and 317 00:17:02,000 --> 00:17:05,359 Speaker 1: its controls around its long term service agreements. Now this 318 00:17:05,400 --> 00:17:07,879 Speaker 1: has been it's a little complicated, but it's been a 319 00:17:07,920 --> 00:17:11,480 Speaker 1: big sort of watch item for analysts because gees contract 320 00:17:11,520 --> 00:17:14,919 Speaker 1: assets have searched over the past couple of years. And 321 00:17:14,960 --> 00:17:17,760 Speaker 1: what those are are, you know, agreements that ge signs 322 00:17:17,760 --> 00:17:20,200 Speaker 1: with clients and it goes ahead and books the earnings 323 00:17:20,520 --> 00:17:22,920 Speaker 1: but not the cash, which then you know is delivered 324 00:17:22,920 --> 00:17:25,840 Speaker 1: when these service agreements are sort of completed. Now, the 325 00:17:25,920 --> 00:17:30,480 Speaker 1: concern is that when those agreements were signed, the underlying 326 00:17:30,560 --> 00:17:34,720 Speaker 1: sort of profitability assumptions may not have been conservative enough. 327 00:17:34,760 --> 00:17:37,040 Speaker 1: When you look specifically at the power market and how 328 00:17:37,119 --> 00:17:40,919 Speaker 1: significantly that's deteriorated. I think you have to wonder, you 329 00:17:40,960 --> 00:17:44,360 Speaker 1: know what we're sort of the baseline assumptions when those 330 00:17:44,359 --> 00:17:46,639 Speaker 1: agreements were made and those earnings were booked, and so 331 00:17:46,680 --> 00:17:49,760 Speaker 1: I think that was something analysts were very concerned about. 332 00:17:49,760 --> 00:17:53,400 Speaker 1: Now the SEC is looking into it again, not totally surprising, 333 00:17:53,400 --> 00:17:55,520 Speaker 1: but I think, you know, that's certainly going to be 334 00:17:55,640 --> 00:17:59,199 Speaker 1: important to watch. So frankly, it's sort of shocking that 335 00:17:59,240 --> 00:18:02,160 Speaker 1: the shares aren't own more because if you start talking 336 00:18:02,240 --> 00:18:07,159 Speaker 1: about potential accounting I don't want to say fraud, but 337 00:18:07,240 --> 00:18:10,200 Speaker 1: malfeasance over years or at least, you know, some kind 338 00:18:10,200 --> 00:18:13,720 Speaker 1: of fudging of the numbers over years and years that 339 00:18:13,760 --> 00:18:17,280 Speaker 1: calls into question a lot of things about this company. Sure, 340 00:18:17,280 --> 00:18:18,520 Speaker 1: and I want to be clear, I mean, I don't 341 00:18:18,600 --> 00:18:21,200 Speaker 1: think we're talking necessarily about fraud here, but if the 342 00:18:21,200 --> 00:18:24,960 Speaker 1: baseline assumptions were too optimistic, then they have to be rethought. 343 00:18:25,000 --> 00:18:26,920 Speaker 1: I mean it, we still have a lot to learn 344 00:18:26,920 --> 00:18:29,960 Speaker 1: about this, the SEC investigators in still very early days. 345 00:18:30,280 --> 00:18:32,240 Speaker 1: But yes, I mean it certainly does raise a lot 346 00:18:32,240 --> 00:18:34,439 Speaker 1: of questions. I think the reason why the stock is 347 00:18:34,480 --> 00:18:37,600 Speaker 1: not down more is that people have been worried about 348 00:18:37,640 --> 00:18:40,040 Speaker 1: this for a while, that this issue, you know, is 349 00:18:40,040 --> 00:18:42,600 Speaker 1: now sort of playing out because we have this sec headline, 350 00:18:42,680 --> 00:18:45,080 Speaker 1: but the contract bassets have been something that have been, 351 00:18:45,440 --> 00:18:47,280 Speaker 1: you know, sort of on analyst radar for a very 352 00:18:47,280 --> 00:18:49,320 Speaker 1: long time, and it's a big reason why g had 353 00:18:49,320 --> 00:18:52,479 Speaker 1: the cash shortfall that it did because again it's you know, 354 00:18:52,680 --> 00:18:55,320 Speaker 1: it's sort of booking these as earnings but not getting 355 00:18:55,320 --> 00:18:57,320 Speaker 1: the cash, and that's why you've seen the divergence and 356 00:18:57,359 --> 00:18:59,960 Speaker 1: its actual earnings and free cash flow. So one thing 357 00:19:00,000 --> 00:19:02,960 Speaker 1: I'm struggling with, so General Electric has a hundred and 358 00:19:02,960 --> 00:19:07,200 Speaker 1: twenty six billion dollars of debt outstanding. They're at investment 359 00:19:07,200 --> 00:19:13,040 Speaker 1: grade rated company in the A rating sphere. I'm trying 360 00:19:13,040 --> 00:19:15,199 Speaker 1: to understand at what point do they get downgraded and 361 00:19:15,200 --> 00:19:18,040 Speaker 1: all of a sudden, those borrowing costs just surge, piling 362 00:19:18,080 --> 00:19:21,640 Speaker 1: on yet another concern, another big worry for investors right now. 363 00:19:21,640 --> 00:19:23,520 Speaker 1: And the rating agencies came out and they did affirm 364 00:19:23,640 --> 00:19:26,439 Speaker 1: ges credit ratings after it took that charge and insurance. Now, 365 00:19:26,480 --> 00:19:28,479 Speaker 1: I don't know if they're going to be reevaluating that 366 00:19:28,840 --> 00:19:31,359 Speaker 1: as we get more information, but that is certainly something 367 00:19:31,400 --> 00:19:34,720 Speaker 1: that investors and analysts are worried about, and you know, 368 00:19:34,760 --> 00:19:37,119 Speaker 1: I think they're concerned because a lot of times when 369 00:19:37,160 --> 00:19:40,000 Speaker 1: you see companies take these charges to to shore a preserve. 370 00:19:40,520 --> 00:19:43,159 Speaker 1: Usually the first number is not the last number. And 371 00:19:43,200 --> 00:19:45,879 Speaker 1: if you start talking about maybe g E Capital needing 372 00:19:45,880 --> 00:19:48,920 Speaker 1: more reserves for the insurance business as well as other 373 00:19:49,000 --> 00:19:51,919 Speaker 1: liabilities that they have. They have this subprime mortgage business 374 00:19:52,040 --> 00:19:55,080 Speaker 1: that's still laying around and some other potential issues, then 375 00:19:55,119 --> 00:19:57,920 Speaker 1: you start to get into a question of cane Capital 376 00:19:57,920 --> 00:19:59,920 Speaker 1: pay all those bills on its own, does it start 377 00:20:00,000 --> 00:20:02,760 Speaker 1: eating money from the parent company, and then that becomes 378 00:20:02,760 --> 00:20:05,359 Speaker 1: a really serious concern for the credit rating. You also 379 00:20:05,400 --> 00:20:08,000 Speaker 1: have to worry about, you know, goodwill on the Alston 380 00:20:08,040 --> 00:20:11,320 Speaker 1: acquisition that they did in fifteen is very high. That 381 00:20:11,359 --> 00:20:15,440 Speaker 1: acquisition is obviously disappointed. Could there be a good will impairment, 382 00:20:15,480 --> 00:20:17,240 Speaker 1: which you know that's a non cash charge, but that 383 00:20:17,240 --> 00:20:21,040 Speaker 1: would play into credit rating concerns. Alright, Just to go 384 00:20:21,160 --> 00:20:22,959 Speaker 1: back for a second, because I want to understand this 385 00:20:23,000 --> 00:20:27,159 Speaker 1: in detail. G E Power signed a recently signed a 386 00:20:27,200 --> 00:20:31,080 Speaker 1: twenty five year, three and thirty million dollar maintenance service 387 00:20:31,200 --> 00:20:35,800 Speaker 1: contract with the owners of a new power plant in Mexico. 388 00:20:35,920 --> 00:20:40,760 Speaker 1: It's just south of El Paso at Cirez. How would 389 00:20:40,840 --> 00:20:46,280 Speaker 1: this contract relate to this investigation if indeed that was 390 00:20:46,359 --> 00:20:48,120 Speaker 1: part of it. What would be an example of how 391 00:20:48,160 --> 00:20:50,920 Speaker 1: that would work. Well, if it's a new contract, that's 392 00:20:50,960 --> 00:20:54,199 Speaker 1: probably less of a concern because the underlying assumptions for 393 00:20:54,240 --> 00:20:57,399 Speaker 1: that probably stuck a better relative to the current dynamics 394 00:20:57,400 --> 00:20:59,240 Speaker 1: in the market. I think the concern is some of 395 00:20:59,280 --> 00:21:02,679 Speaker 1: these contracts. But all right, so a legacy contracts. So 396 00:21:02,720 --> 00:21:05,280 Speaker 1: let's say you had a legacy contract and you're in 397 00:21:05,400 --> 00:21:09,240 Speaker 1: year ten of a twenty five year contract. You then 398 00:21:09,280 --> 00:21:11,919 Speaker 1: you made certain assumptions about how much that was worth, 399 00:21:12,560 --> 00:21:14,760 Speaker 1: and now it turns out that contract is not worth 400 00:21:14,800 --> 00:21:19,439 Speaker 1: that much because power markets have deteriorated. What is deteriorated, 401 00:21:19,600 --> 00:21:24,479 Speaker 1: so the demand for the products that GE produces has 402 00:21:24,560 --> 00:21:27,000 Speaker 1: significantly dropped off. And that's you know, been seeing not 403 00:21:27,080 --> 00:21:29,000 Speaker 1: just a GE but at Semens. But what we're also 404 00:21:29,080 --> 00:21:32,600 Speaker 1: seeing is very increased competition in the service markets. And 405 00:21:32,600 --> 00:21:35,360 Speaker 1: now that is a concern because service is where companies 406 00:21:35,400 --> 00:21:38,280 Speaker 1: like GE, Siemens, you know, really make all of their profits. 407 00:21:38,320 --> 00:21:41,760 Speaker 1: I mean, this is the lucrative revenue stream. It's more predictable. 408 00:21:42,000 --> 00:21:44,399 Speaker 1: But when you start having a lot of competition and 409 00:21:44,520 --> 00:21:47,000 Speaker 1: low demand, then you get into a question of what 410 00:21:47,200 --> 00:21:51,840 Speaker 1: prices can you really charge for those services and customers 411 00:21:51,840 --> 00:21:54,400 Speaker 1: are pushing back on price and ge. You know, having 412 00:21:54,440 --> 00:21:56,560 Speaker 1: the most market share has the most to lose and 413 00:21:56,600 --> 00:22:00,399 Speaker 1: that Brooke Sutherland, thank you so much. This is a 414 00:22:00,440 --> 00:22:03,879 Speaker 1: fascinating issue. Really laid it out tremendously well. Brooks Sutherland, 415 00:22:03,920 --> 00:22:07,919 Speaker 1: Bloomberg gad Fly columnist, UH covering the industrial space, UH, 416 00:22:08,080 --> 00:22:10,920 Speaker 1: talking about general electric and a lot of questions to 417 00:22:10,960 --> 00:22:14,200 Speaker 1: be answered. The SEC is looking for some answers as well. 418 00:22:29,240 --> 00:22:33,280 Speaker 1: There's growing interest and investing in cryptocurrencies as well as 419 00:22:33,320 --> 00:22:38,399 Speaker 1: the technology underpinning cryptocurrencies like bitcoin, and that is blockchain. 420 00:22:38,480 --> 00:22:40,240 Speaker 1: And here to talk to us about that is Dr 421 00:22:40,359 --> 00:22:44,840 Speaker 1: Steve Waterhouse, CEO and co founder of orchids Labs in 422 00:22:44,880 --> 00:22:49,960 Speaker 1: San Francisco. He comes to us from Davos, Switzerland. Uh. Steve, 423 00:22:50,240 --> 00:22:53,320 Speaker 1: thank you so much for being with us. First, I 424 00:22:53,359 --> 00:22:54,840 Speaker 1: just want you to tell us a little bit about 425 00:22:54,880 --> 00:23:02,240 Speaker 1: what orchid Labs is. Is a new blockchain based approach 426 00:23:02,359 --> 00:23:07,080 Speaker 1: to UM anti surveillance, anti censorship on the Internet UM. 427 00:23:07,119 --> 00:23:10,600 Speaker 1: It's an incentivized network where participants are paid to provide 428 00:23:10,600 --> 00:23:13,840 Speaker 1: bandwidth to other users UM and people pay a small 429 00:23:13,880 --> 00:23:18,080 Speaker 1: amount to access the Internet in the fashion. It's funded 430 00:23:18,119 --> 00:23:20,880 Speaker 1: by a number of the top French of Apple firms 431 00:23:20,880 --> 00:23:24,080 Speaker 1: in San Francisco and around the world. UM, and we 432 00:23:24,119 --> 00:23:28,840 Speaker 1: have a star team of open source experts from the 433 00:23:28,880 --> 00:23:35,680 Speaker 1: blockchain world and also other areas early units and SDA. 434 00:23:35,720 --> 00:23:38,199 Speaker 1: Which is the job. I can see iPhone, but can 435 00:23:38,240 --> 00:23:41,040 Speaker 1: you just tell us a little bit exactly what it 436 00:23:41,160 --> 00:23:44,359 Speaker 1: does it do? Is this just a conduit for investors 437 00:23:44,440 --> 00:23:52,280 Speaker 1: in these new technologies or is it itself participating UM? Well, 438 00:23:52,280 --> 00:23:55,680 Speaker 1: it's it's certainly a way to invest in the space. 439 00:23:56,040 --> 00:24:01,359 Speaker 1: But the purpose of the system is to sit above 440 00:24:01,440 --> 00:24:06,159 Speaker 1: the regular Internet and below applications such as WhatsApp and 441 00:24:06,240 --> 00:24:12,000 Speaker 1: provide a new UM mechanism to access the Internet in 442 00:24:12,000 --> 00:24:15,880 Speaker 1: which are not being tracked by your carrier or by 443 00:24:15,920 --> 00:24:18,840 Speaker 1: corporations or by the government. So the idea here is 444 00:24:18,880 --> 00:24:23,040 Speaker 1: basically that if somebody doesn't want to be tracked, they 445 00:24:23,080 --> 00:24:27,760 Speaker 1: could buy bandwidth from somebody else, use their bandwidth and 446 00:24:27,840 --> 00:24:32,679 Speaker 1: thus not be seen as themselves, but rather sort of 447 00:24:32,720 --> 00:24:38,680 Speaker 1: be viewed as the other person or the other bandwidth user. Correct, UM, 448 00:24:38,800 --> 00:24:41,320 Speaker 1: it's not so much for that purpose. Is actually more 449 00:24:41,359 --> 00:24:47,280 Speaker 1: an anonymization technology UM in the form of UM allowing 450 00:24:47,320 --> 00:24:51,800 Speaker 1: people to access this UH, not necessarily as someone else, 451 00:24:51,920 --> 00:24:54,960 Speaker 1: But in our system there's no real way of tracing 452 00:24:55,560 --> 00:25:00,360 Speaker 1: UM the information back to the originating requester UM by 453 00:25:00,359 --> 00:25:03,000 Speaker 1: the website or the other resource on the Internet which 454 00:25:03,000 --> 00:25:07,720 Speaker 1: they're accessing. Thus also go ahead. I was just gonna say, 455 00:25:07,760 --> 00:25:11,919 Speaker 1: who would be the main user of this, Well, I 456 00:25:11,920 --> 00:25:15,240 Speaker 1: think obviously there's countries like China which have very strong 457 00:25:16,040 --> 00:25:21,000 Speaker 1: markets for this, where there's heavy surveillance of the population. UM. 458 00:25:21,160 --> 00:25:23,879 Speaker 1: The Middle East, where we have you know, very significant 459 00:25:23,920 --> 00:25:27,679 Speaker 1: human rights issues now is also a very strong market 460 00:25:27,720 --> 00:25:30,680 Speaker 1: for this. But increasingly, with things like net New Charity 461 00:25:30,720 --> 00:25:35,240 Speaker 1: being over termed, the US is becoming a major opportunity 462 00:25:35,240 --> 00:25:39,920 Speaker 1: area too. And who would be the provider of the bandwidth? Well, 463 00:25:39,920 --> 00:25:41,679 Speaker 1: it could be you. Um, you could set up your 464 00:25:41,720 --> 00:25:45,360 Speaker 1: computer and run one of our clients and I provide 465 00:25:45,359 --> 00:25:48,000 Speaker 1: that you could potentially do it with your iPhone in 466 00:25:48,040 --> 00:25:52,159 Speaker 1: a smaller capacity, or people could use server farms to 467 00:25:52,440 --> 00:25:55,280 Speaker 1: provide this kind of capability and contry such as Cleanland, 468 00:25:55,320 --> 00:25:59,359 Speaker 1: which have incredibly strong data privacy laws. Our targets for 469 00:25:59,480 --> 00:26:01,639 Speaker 1: data centers like this, and we're in talks with a 470 00:26:01,720 --> 00:26:05,000 Speaker 1: number of people, including VPN providers, who want to partner 471 00:26:05,040 --> 00:26:08,160 Speaker 1: with us to provide this enhanced capability to their customers. 472 00:26:08,280 --> 00:26:12,719 Speaker 1: And how do you make money? So our systems actually 473 00:26:13,440 --> 00:26:17,760 Speaker 1: free UM from us. In other words, people pay other 474 00:26:17,760 --> 00:26:20,720 Speaker 1: people in the network to get that band red allocation. 475 00:26:21,800 --> 00:26:24,480 Speaker 1: Our approaches a little bit like the creators of bitcoin, 476 00:26:25,080 --> 00:26:27,919 Speaker 1: who we still don't know or ethereum in that we 477 00:26:28,000 --> 00:26:33,760 Speaker 1: create a new currency UM, which we believe, as the 478 00:26:33,840 --> 00:26:37,840 Speaker 1: network increases in usage, might drive in value. I can't 479 00:26:37,920 --> 00:26:42,159 Speaker 1: obviously provide investment advice here, but that is the belief 480 00:26:42,359 --> 00:26:44,960 Speaker 1: of our system. Just like currencies, when they increase in 481 00:26:44,960 --> 00:26:52,480 Speaker 1: the utility become valuable. What backs the currency We'll walk 482 00:26:52,520 --> 00:26:56,359 Speaker 1: back to the full faith and credit of the US 483 00:26:56,440 --> 00:27:01,280 Speaker 1: government and its ability to tax its citizens. Very good 484 00:27:01,800 --> 00:27:05,240 Speaker 1: UM economics mondel one, Right, UM. I mean we could 485 00:27:05,280 --> 00:27:07,840 Speaker 1: argue for a while about what does intrinsic value you mean? 486 00:27:07,880 --> 00:27:12,600 Speaker 1: And if anything really does UM? But you know, I 487 00:27:12,600 --> 00:27:16,320 Speaker 1: think since we moved back past the gold standard UM, 488 00:27:16,359 --> 00:27:18,600 Speaker 1: and I'm not an economist, I'm more of a computer scientist, 489 00:27:19,240 --> 00:27:23,200 Speaker 1: then gold, which really doesn't have that much intrinsic value either, 490 00:27:23,960 --> 00:27:28,440 Speaker 1: UM was the capability to back things. What backs our 491 00:27:28,480 --> 00:27:31,480 Speaker 1: network is utility, just like the backing of the cloin 492 00:27:31,720 --> 00:27:37,639 Speaker 1: or etherium. In using these new types of occurrencies, would 493 00:27:37,720 --> 00:27:40,760 Speaker 1: you have to register with a government if indeed a 494 00:27:40,840 --> 00:27:48,560 Speaker 1: transaction took place outside the jurisdiction of let's say Greenland. Um. No, 495 00:27:48,840 --> 00:27:51,480 Speaker 1: in our system, there's no way to trace who's using 496 00:27:51,520 --> 00:27:55,600 Speaker 1: the network at all. We don't keep records. We can't 497 00:27:55,600 --> 00:27:58,040 Speaker 1: be subpoena to release those records on like BP and 498 00:27:58,119 --> 00:28:03,199 Speaker 1: companies UM. And that's basically the whole idea of the 499 00:28:03,200 --> 00:28:05,880 Speaker 1: system is, maybe we should have a system in which, 500 00:28:06,160 --> 00:28:09,080 Speaker 1: in a world in which information is free to accessible 501 00:28:09,160 --> 00:28:13,080 Speaker 1: and in which it's not, there's no capability to track people. 502 00:28:13,160 --> 00:28:16,359 Speaker 1: Maybe that should read the default. All right, well, interesting stuff. 503 00:28:16,400 --> 00:28:19,360 Speaker 1: Thanks very much for joining us. Steve Waterhouse, co founder 504 00:28:19,440 --> 00:28:23,879 Speaker 1: of Orchid Labs, on the future perhaps of blockchain technology 505 00:28:23,880 --> 00:28:31,560 Speaker 1: and cryptocurrencies, joining us from Davos, Switzerland. Thanks for listening 506 00:28:31,560 --> 00:28:34,480 Speaker 1: to the Bloomberg P and L podcast. You can subscribe 507 00:28:34,480 --> 00:28:38,080 Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud or whatever 508 00:28:38,120 --> 00:28:41,560 Speaker 1: podcast platform you prefer. I'm Pim Fox. I'm on Twitter 509 00:28:41,880 --> 00:28:45,440 Speaker 1: at pim Fox, I'm on Twitter at Lisa Abramo. It's 510 00:28:45,480 --> 00:28:48,480 Speaker 1: one before the podcast. You can always catch us worldwide 511 00:28:48,520 --> 00:28:49,440 Speaker 1: on Bloomberg Radio