Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: Ridge Borky covers all the steel in speculating a little
Speaker 1: bit here. You were just speculating, you know, just spitballing here. Boy,
Speaker 1: I never thought we'd see a deal in there. I
Speaker 1: just I guess I wasn't expecting the deal in the
Speaker 1: steel industry. I don't know why, but it was an
Speaker 1: interesting transaction. What is Cleveland Cliffs really looking to do here?
Speaker 1: Why are they doing this steal? Why would they like
Speaker 1: to do this deal?
Speaker 3: I think they'd like to do this deal again. Like
Speaker 3: you touched on, it's back to nineteen twenties. Steel is
Speaker 3: cool again, right, let's make steel cool. Fortunately, Cleveland Cliffs
Speaker 3: most of their plants are from the nineteen twenties.
Speaker 4: Okay, so what.
Speaker 3: They're looking for is, obviously they're looking to get exposure
Speaker 3: Big River Steel, which is the EAF to US Steel.
Speaker 1: Is building what's what's e AF. EAF is electric arc furnace,
Speaker 1: electric arc furnace.
Speaker 3: Rather than the blast ferns.
Speaker 5: So this is newer technology to make steel.
Speaker 3: Newer technology, more flexible technology usually also non union technology,
Speaker 3: non union run. So if you look at kind of
Speaker 3: the math they're paying, they offer thirty five dollars this year,
Speaker 3: half cash, half stock. The cash portion comes to a
Speaker 3: little under four billion dollars. US Steel has three point
Speaker 3: one billion dollars of cash on the balance sheet in
Speaker 3: order to finish big River steel they bought. They bought
Speaker 3: Bigger River Steel when it was half built three lower
Speaker 3: three million tons of year. They're expanding to another three
Speaker 3: million tons of year to bought. To get three million
Speaker 3: tons a year of EAF capacity is around three to
Speaker 3: four billion dollars. So if you look at this way,
Speaker 3: we just offer stock and four billion dollars of cash
Speaker 3: to get six over six million tons of y capacity.
Speaker 3: That probably cost US seventy eight billion to go bill.
Speaker 6: And that's basically what they're what they're bidding, right.
Speaker 3: That's basically what they're bidding.
Speaker 4: Right on the EQUI.
Speaker 2: But US Steel apparently thinks they're worth more than that,
Speaker 2: although they were trading for twenty two dollars a share
Speaker 2: on Friday. Why do they Why do they fight this?
Speaker 2: It's a it's a decent premium. Can they get more elsewhere?
Speaker 3: I think you take the deal. You have forty three
Speaker 3: percent premium today you have out They US Steel House
Speaker 3: outlining is what they call their best for all plant.
Speaker 3: So part of it one one part of it is
Speaker 3: finished billion out Big Steel. Other parts are to upgrade
Speaker 3: our finishing capabilities. The other part is they're looking to
Speaker 3: expand in elect sure because electrical steals which flowing to evs,
Speaker 3: which you're gentlemen, we're talking a little about prior. So
Speaker 3: they've outlined this plan, but it's a multi year capital
Speaker 3: spend program and we don't see the success. You know,
Speaker 3: whether it would be successful doesn't play out for a
Speaker 3: few years now.
Speaker 2: Paul, we've been, uh, you know, we've been invited out
Speaker 2: to see Big River. I'd love to go see because
Speaker 2: David Stickler came in here. He sat right in that
Speaker 2: chair where you're sitting, and he said, you guys should
Speaker 2: come out and check out our new plant.
Speaker 1: So I guess the issue is, I mean, I'm looking
Speaker 1: at the capex I mean, for you a steal. They
Speaker 1: spend you know, a couple of billion dollars a year,
Speaker 1: two and a half billion dollars a year in capex.
Speaker 5: Is that money going just for the.
Speaker 1: New technology or are they still putting money into somebody's
Speaker 1: plants in Pittsburgh and Garyan Dan and Allentown, Allentown.
Speaker 3: Right, it's about two thirds one thirds, two thirds for
Speaker 3: the new technology, one third for old technology.
Speaker 5: And the old technology used to kind of keep it running.
Speaker 3: Try and keep it running.
Speaker 4: Wow.
Speaker 3: Correct, So the the thing here is you you have
Speaker 3: this plan to you know, both US Steel and Cliffs
Speaker 3: have been shining down, rationalizing capacity, you know, closing the
Speaker 3: old blastwarenesses and things like that.
Speaker 2: That's why environmental purposes are just because it costs too
Speaker 2: much to run.
Speaker 6: They're not getting enough.
Speaker 3: A product out of it really costs too much to run, right,
Speaker 3: and the technology in order to reinvest in the technology
Speaker 3: is just too expensive.
Speaker 2: Well, well, this is what Cleveland Cliffs is looking to
Speaker 2: do essentially, right, this is what US deal is doing
Speaker 2: at Big River, and Cleveland Cliffs wants to buy that
Speaker 2: from them.
Speaker 3: Right, if you look at this will take the pro
Speaker 3: former company clean cliffs probably is ninety three percent blast
Speaker 3: furnesses today seven percent eafs. The new technology this would
Speaker 3: take them to eighty twenty beyond that. You say, well, gee,
Speaker 3: that seems not that big of a deal, But it
Speaker 3: gives them a lot of flexibility because one of the
Speaker 3: other things about eafs is you can shut them off,
Speaker 3: turn them up, and turn them down a lot easier
Speaker 3: than you can't wait blastphemers.
Speaker 2: By the way, who who are there competitors? Who else
Speaker 2: in this market could make a bid?
Speaker 6: If you know US steel could be worth more.
Speaker 3: Well, you would have Newcorn Steel Dynamics, which are two
Speaker 3: other big players in the US. They're one hundred percent
Speaker 3: technology there, so they probably don't care for the blast
Speaker 3: furnace route.
Speaker 4: Right.
Speaker 3: You know you mentioned that David Stickler built inviting you
Speaker 3: guys out to see bigger or steel. He built bigger steel.
Speaker 3: Now he's moved on to another project, high Bar, which
Speaker 3: a rebar plant. But David Steckler also built some steel
Speaker 3: dynamics first plant or was it part of a group
Speaker 3: that built the first eas for steel dynamics.
Speaker 5: So are new steel mills in the United States being
Speaker 5: built today?
Speaker 3: Well, what's happened is Section two thirty two has really
Speaker 3: helped these guys.
Speaker 5: If you look at the US steel what a second two.
Speaker 3: Section two thirty two was the the Trump laws to
Speaker 3: prevent imports, putting a twenty five percent tariff.
Speaker 6: On steel import to the US.
Speaker 3: If you look at the US steel industry, US steel
Speaker 3: industry historically is about one hundred million tons of steel
Speaker 3: a year. Eighty percent is produced in the US, twenty
Speaker 3: percent is historically imported. With these tariffs, that's made the
Speaker 3: imports a little less competitive. What's happened is we've seen
Speaker 3: over the last few years capacity being added in the
Speaker 3: US to displace the tariffs once they finally to displace
Speaker 3: the import steel once the tariffs finally go away.
Speaker 5: So that so the enshoing is actually happening in the
Speaker 5: steel business.
Speaker 4: Okay, great, So.
Speaker 1: Are you put these If you were to put these
Speaker 1: two companies together, Cleveland Cliffs in the US steal, how
Speaker 1: big would they be kind of relative to the world
Speaker 1: order of steel makers.
Speaker 3: It wouldn't make it would make them a top ten
Speaker 3: in the world. Okay, I don't think scale helps you
Speaker 3: at all, But.
Speaker 1: That's why I thought manufacturing scale helps. I learned that
Speaker 1: I know you went to shout to go business school.
Speaker 1: You guys are good with the numbers, but.
Speaker 3: It's just the industry that's you know historic. You know,
Speaker 3: it costs a lot of ship So why would you
Speaker 3: why would it be cheaper to build a ton steal
Speaker 3: in the US put a boat to somewhere else?
Speaker 7: All Right?
Speaker 5: So what what's what's this steel call?
Speaker 7: Today?
Speaker 1: You talk to institutional investors in the the three guys
Speaker 1: in Pittsburgh that still invest in this stuff. What's the
Speaker 1: call here? Do I do I buy a new Core?
Speaker 1: Do I buy a US steal? What's what's the investment
Speaker 1: call for this group?
Speaker 3: I mean if you kind of look at New Core,
Speaker 3: Newcore and Steel Dynamics, that I'll perform these these two
Speaker 3: guys by wide margin.
Speaker 5: And that's the function of the technology.
Speaker 3: That I think one function of technology. And two you've
Speaker 3: also New Core and Steel Dynamics have over the last
Speaker 3: few years been more aggressive in moving further downstream.
Speaker 5: Part of this deal.
Speaker 1: And I could go to Jenrey because she's the expert
Speaker 1: in anti trust. What is generally telling you about any
Speaker 1: tit trust here?
Speaker 3: There's going to be I think there's gonna be an
Speaker 3: anti trust review here talking with Jen too. She was
Speaker 3: also so that's another element of YO, another reason whether
Speaker 3: the deal goes up.
Speaker 2: Yeah, I mean I look at the five year performance
Speaker 2: of as we mentioned earlier. You know, US steel has
Speaker 2: returned nothing negative one percent, but new core is has
Speaker 2: tripled over the last five years, and and Steel Dynamics
Speaker 2: is almost there. I mean they're up one hundred and
Speaker 2: seventy percent.
Speaker 5: Money and steel companies.
Speaker 2: Yeah, what are the contracts that you look at for
Speaker 2: the underlying and get ten seconds?
Speaker 6: What are the what are the steel contracts that.
Speaker 3: You look at for the price, the price if you
Speaker 3: look at S T A, N H HC.
Speaker 5: All right, all right, we'll get into the steel business.
Speaker 6: That's w is this hot rold steel? I got rolled
Speaker 6: steel steel?
Speaker 4: All right?
Speaker 5: Rich Richard Borg, thanks so much for joining us.
Speaker 1: Rich Board covers all the steel companies and all that
Speaker 1: good stuff for Bloomberg Intelligence.
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Speaker 8: Markets weekdays at ten am Eastern on Bloomberg dot com,
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Speaker 1: Matt, we like talking to Dan Ees equity als what
Speaker 1: Bush Security is.
Speaker 5: Pretty smart guy.
Speaker 1: We usually learn a thing or two when we talk
Speaker 1: to him, but I don't feel the need to interrupt
Speaker 1: his vacation, particularly when his vacation is increte.
Speaker 5: He's not down at the Jersey Shore.
Speaker 1: He's in crete, and we get a video zoom thing
Speaker 1: going of him right here. Because Bloomberg Markets is simulcast
Speaker 1: on YouTube, you can go to YouTube and search Bloomberg
Speaker 1: Global News. Dan, I hope you're having a great time
Speaker 1: and create it looks beautiful behind you. Give us a
Speaker 1: good sense of what you've kind of just observed just
Speaker 1: in your time over there.
Speaker 4: Yeah.
Speaker 9: No, it's great to be great to be with you, Matt.
Speaker 10: I am look, I mean to me, it's it's it's
Speaker 10: it's always great food, great music. You see some you
Speaker 10: know some obviously some maybe electric vehicles here and there,
Speaker 10: but it's it's been a great it's been great and uh,
Speaker 10: you know, I think it's just a good uh.
Speaker 9: Sort of rest going into what's gonna be an exciting fall.
Speaker 1: All right, Dan, So I'm just looking at the bring
Speaker 1: you back into reality here, the NASTAQ one hundred stock
Speaker 1: index Real Tech heavy here up thirty eight percent year
Speaker 1: to date. Put that stock price performance in context of
Speaker 1: what we've seen from these tech companies for the first
Speaker 1: you know, we just got through their second quarter earnings
Speaker 1: and kind of the outlook for the remainder of the year.
Speaker 5: Put that into into context.
Speaker 10: For US, I Mett, I view this as just a
Speaker 10: little sell off, a pause to what's going to be
Speaker 10: a rally second half of the year for tech. I
Speaker 10: think if you look at numbers overall, from cloud to
Speaker 10: digital media to what we're seeing across enterprise, I.
Speaker 9: Think we're actually it's stronger than expected.
Speaker 10: Now, granted the stocks have run significant, you've seen sell
Speaker 10: offs posed to Apple, Microsoft, Tessa.
Speaker 9: I think it's short lived because I think.
Speaker 10: Second half numbers were conservative and we're seeing upticks across
Speaker 10: the board.
Speaker 9: That's sort of our view going into the year end.
Speaker 2: Dan, where do you think they look most conservative? When
Speaker 2: you when you were going over these earnings reports before
Speaker 2: you jumped on the private jet decrete, where did you
Speaker 2: where did you think, Ah, this is these guys are
Speaker 2: sandbagging US.
Speaker 9: I think Microsoft is extremely conservative.
Speaker 10: I think that's probably the one that sticks out the
Speaker 10: most relative to what we've seen post quarters, especially what
Speaker 10: we see from a from a channel perspective, I think
Speaker 10: cloud actually see an acceleration.
Speaker 9: We saw that with AWS, we see I think as
Speaker 9: with Google as well.
Speaker 10: I think overall cybersecurity, that's probably the sub sector that
Speaker 10: I think sandbag i'll call it the most relative to estimates,
Speaker 10: you know, and that's one where we actually see strength
Speaker 10: going the second half of the year. And I look
Speaker 10: at Apple, I think that's one where everything we see
Speaker 10: from a supply chain perspective is going to be strength
Speaker 10: from this iPhone fifteen, not just into September, but in
Speaker 10: the year end. So that's where I really am looking.
Speaker 10: And I continue to think AI, and we're seeing that
Speaker 10: the mind isetion is gonna be a lot sooner than expected.
Speaker 1: All Right, That's kind of where I wanted to go
Speaker 1: dan AI, because that's been one of the if not
Speaker 1: the driving force behind some of the performers we've seen
Speaker 1: out of these the NASDAQ one hundred and big tech names.
Speaker 1: When you talk to the institutional investor clients, what's kind
Speaker 1: of the key question regarding AI that you get from them.
Speaker 10: I think the big question is within Nvidia's guidance heard
Speaker 10: around the world last quarter, the four billion dollaries. Okay,
Speaker 10: well we're not going to We're not seeing that ramp
Speaker 10: as quick across software. That's maybe the knee jerk disappointment
Speaker 10: from Microsoft to maybe some of the chip names.
Speaker 9: I think that's that's misplaced.
Speaker 10: I think this is really just the start of what
Speaker 10: I've used sort of fourth Industrial Revolution, almost AI goal rush,
Speaker 10: playing out a trillion dollars of incremental spend.
Speaker 9: And I just hit back of clients.
Speaker 10: You know, from everything we see next year it's eight
Speaker 10: to ten percent of budgets in terms of AI versus
Speaker 10: less than one percent today. That iView is really going
Speaker 10: to be the catalyst for this tech. What I view
Speaker 10: is really the new tech bull market that's already begun
Speaker 10: to continue well into twenty twenty four.
Speaker 2: We're where have markets or what have markets missed? Because
Speaker 2: in video we have all seen and everyone's impressed, and
Speaker 2: I think everyone even Paul has bought some.
Speaker 6: What what have we overlooked?
Speaker 9: Well?
Speaker 10: I think I think what's markets maybe missing the near
Speaker 10: term is just what a catalyst this is going to
Speaker 10: be for software.
Speaker 9: I think really it's the software when I look at.
Speaker 10: Names like Salesforce, Mango, dB, you look at AI names
Speaker 10: like Pou and Teer. I think it's the second, third,
Speaker 10: fourth derivatives that maybe market's missing out here and just
Speaker 10: maybe underestimating it because I believe this is a nineteen
Speaker 10: ninety five moment Star of the Internet nine nineteen ninety nine,
Speaker 10: two thousand moment. I think that dynamic is why we
Speaker 10: see tech stocks of fifteen percent second half of the year.
Speaker 1: Dan, you mentioned Palenteer, and I know you recently initiated
Speaker 1: coverage there. Not a lot of people know what Palenteer is.
Speaker 1: Give us just a quick description what Palenteer is, uh,
Speaker 1: and why you like this name?
Speaker 10: Yeah, and that's one you know, car create Palenteer really
Speaker 10: coming out of the government.
Speaker 9: You know, if you look at where their success has been.
Speaker 10: Really machine learning is who's who they are, and now
Speaker 10: it's happening from a use case perspective, they probably have
Speaker 10: the most robust pure play AI platform and use cases
Speaker 10: out there, so you're seeing across enterprise, across government. I
Speaker 10: look at it as a pure PLAYAI play of course
Speaker 10: in Nvidia, Microsoft, Google, Mango dB among others, but this
Speaker 10: is really front and center.
Speaker 9: I think it's a it's an.
Speaker 10: Undiscovered gem in my opinion relative to the broader.
Speaker 9: AI try.
Speaker 6: Let's get to Tesla.
Speaker 2: I want to ask you about the price cuts in China.
Speaker 2: Paul brought this up already. Weren't they supposed to stop
Speaker 2: doing that?
Speaker 9: Yeah, look we've said that here and there you could
Speaker 9: see some price cuts, but this only impacts what fifteen
Speaker 9: percent of when you look at model wise impacted, it's
Speaker 9: really around the edges. I mean mostly you're really not
Speaker 9: seeing price cuts across in China.
Speaker 4: Now.
Speaker 10: Of course, headline it's gonna look negative, but if I
Speaker 10: look from a demand perspective, China continues to be strong.
Speaker 10: I think on track from one point e potentially higher
Speaker 10: in terms of million units for the year. And right
Speaker 10: now they are just I view, this is almost halftime
Speaker 10: of the super Bowl. But does this they're just gearing up.
Speaker 2: But does this kick off? Does this kick off another
Speaker 2: price war Dan in China?
Speaker 10: I don't think so, because Matt we've talked to, I mean,
Speaker 10: all the work that we've done the last two three weeks,
Speaker 10: we think ninety five percent of the price cuts are
Speaker 10: basically done in China. In terms of that price I
Speaker 10: don't see this igniting the next stage to the price war,
Speaker 10: which is why we're buyers here on weakness. I think
Speaker 10: this is Barkwurson bite.
Speaker 1: Hey, danis just looking at the PGeo function on the
Speaker 1: Bloomberg terminal, which gives you a breakdown of the company's
Speaker 1: businesses by measured by geography, by segment. And I'm looking
Speaker 1: at the bi geography and China is now up to
Speaker 1: you more than twenty percent of revenue for Tesla. How
Speaker 1: does Elon musk How does Tesla manage its relationship with
Speaker 1: such an important market like China?
Speaker 5: How do they manage it?
Speaker 10: I mean they take a page out of the playbook
Speaker 10: from Cook and Apple because it's ten percent political ninety
Speaker 10: percent business. But ultimately, I mean if you look at
Speaker 10: you President g and in China, they look at having
Speaker 10: Tesla in terms of Giga Shanghai potentially second.
Speaker 9: Factory as well.
Speaker 10: That's a that's a trophy case in terms of having
Speaker 10: Tesla as well as Apple there. It's a major part
Speaker 10: of production, a major part of the mand It's the
Speaker 10: hearts and lungs of the story.
Speaker 9: And that's been that tight groupe, that balancing act.
Speaker 10: It's been one of the key successes that has been
Speaker 10: able to navigate despite many worrying about the geopolitical and
Speaker 10: I think they continue to gain and share there along
Speaker 10: with Apple, and I think that's a story that's going
Speaker 10: to continue to play out.
Speaker 5: But to what.
Speaker 1: Extent do investors or do you view their exposure to
Speaker 1: China as a meaningful risk.
Speaker 10: I view it as a background noise, headline risk.
Speaker 9: I think they've been able to navigate that well.
Speaker 10: I think maybe some of the risks, the most of
Speaker 10: that was probably in the rear view mirror. It's still
Speaker 10: gonna you know, for here and there, just given the
Speaker 10: geopolitical but you know, we view a more as an
Speaker 10: opportunity than a risk for the likes of test on
Speaker 10: an Apple, and that that continues to be our view
Speaker 10: of China in terms of those stories.
Speaker 2: I just want to ask about the competition you see
Speaker 2: from GM and Ford. I was over looking at Cadillacs
Speaker 2: new Escalade IQ, which is awesome but expensive, so it's
Speaker 2: not going to compete really with anything Tesla makes other
Speaker 2: than I guess the X.
Speaker 6: I don't think that would be a fair fight.
Speaker 2: But are they gonna are the are the incumbent automakers
Speaker 2: going to really bring it Tesla in terms of affordable
Speaker 2: electric vehicles?
Speaker 9: Well, that's the key.
Speaker 10: I mean, if you what's come out of three win
Speaker 10: three area code more affordable evs.
Speaker 9: I think what Farley's doing to Ford or Mary's doing it,
Speaker 9: you know GM. I think it's the right strategy, and
Speaker 9: it's not a zero some game.
Speaker 10: I think they are going to really transform those companies
Speaker 10: in terms of four and GM, but Tesla in terms
Speaker 10: of electric vehicles, it's still Tesla's world. Everyone else is
Speaker 10: paying rent. And I think this is just start of
Speaker 10: this green tidle wave five trillion dour green tyway that's
Speaker 10: really going to transform autos across the board, from Tesla.
Speaker 9: To three win three area code Europe and of course China.
Speaker 1: Hey Dan, thanks so much for joining us. Well appreciate
Speaker 1: you taking a few minutes out of your holiday. Dan
Speaker 1: ives from Crete. He's a managing director senior equity analyst
Speaker 1: at web Busch Securities. I don't know that water behind
Speaker 1: is at the gen C or the Mediterranean.
Speaker 5: I mean there's both of there.
Speaker 2: I mean, what's what, I guess that's the med Yeah,
Speaker 2: both of them are. It's a completely random gas and
Speaker 2: I have no way.
Speaker 5: I'm looking at my Google maps here. It could be either.
Speaker 5: I don't know where one starts the other one begins.
Speaker 5: Don't see at the tree right off, right off?
Speaker 1: I guess the southern coast there of Greece, part of
Speaker 1: Greece's largest island and vacation spot in Greece.
Speaker 5: How about that? So Dan I was over there getting
Speaker 5: a little R and R. Good for him.
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Speaker 8: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
Speaker 1: Lots going on today, Matt in kind of just geopolitics
Speaker 1: around the world. Argentina, they had a primary vote. I
Speaker 1: guess a populist leaning person, not just any populous. He
Speaker 1: looks like a cross between Elvis Presley and Johnny Cash. Nice.
Speaker 2: Maybe throw a little James Spader in there. U.
Speaker 6: He has I think five.
Speaker 2: Or six giant dogs, each one named after a different
Speaker 2: Austrian economist or I mean like liberal free market economists.
Speaker 2: One of them is called Milton Friedman. I know from
Speaker 2: the Bloomberg story, and I mean there's such a great
Speaker 2: story on the terminal that if you haven't read it,
Speaker 2: I highly recommend going to uh Bloomberg dot com on
Speaker 2: the on the computer or on your or on your
Speaker 2: terminal checking it out because it's really good.
Speaker 1: And we've got big moves in the currencies and the
Speaker 1: bonds and the treasure treasure of the government bonds there
Speaker 1: in Argentina as well. So let's get the latest reporting there.
Speaker 1: Manuela Tobias she joined us. She's the economy and government
Speaker 1: reporter for Bloomberg News. Menuel it's just let's just start
Speaker 1: off by just reframing what happened in this primary and
Speaker 1: and what has been the reaction in Argentina.
Speaker 5: Menuela is in Buenos As today.
Speaker 11: Hey, yeah, so yesterday it was just a complete upset.
Speaker 11: The economists you guys have been talking about. Outsider presidential
Speaker 11: bid was not expected to get more than twenty percent
Speaker 11: in this three way race. There was the incumbent, the
Speaker 11: main opposition block that everyone saw as winning, and the
Speaker 11: question mark was around you know what kind of margin
Speaker 11: they would be the incumbent buy and then Relay just
Speaker 11: completely surprised everyone and got thirty percent of the vote,
Speaker 11: becoming the most voted candidates as well as the most
Speaker 11: voted block, and that just sent everyone into panic mode.
Speaker 11: No one was expecting this on the political side, and
Speaker 11: much less on the market side. This was the least
Speaker 11: likely scenario and definitely the one that was going to
Speaker 11: see the most panic, and that's exactly what we're seeing today.
Speaker 11: The central Bank just raised its key rate from the
Speaker 11: already very high ninety seven percent to one hundred and eighteen,
Speaker 11: and he valued the bissal, which was treating to it's
Speaker 11: it's an officially set rate, from eighty seven to three
Speaker 11: point fifty today.
Speaker 6: I love the quote from your story, Manuela.
Speaker 2: He says, remember, a different Argentina is impossible with the
Speaker 2: same people as always, with the same people that have
Speaker 2: always failed. Uh, you got to get rid of all
Speaker 2: that old blood, right, I mean, does he really want
Speaker 2: to throw out everybody who's been there?
Speaker 6: Well?
Speaker 2: Does he really want to start a revolution here?
Speaker 11: That is that's his proposal, and that's exactly why people
Speaker 11: support him, you know, talking to his voters, this was,
Speaker 11: you know, very much a question mark collection. No one
Speaker 11: knew what was coming, and all the Post has described
Speaker 11: it as one with high levels of apathy among voters.
Speaker 11: I mean, you know, we have inflation running at one
Speaker 11: hundred and sixteen percent, nearly forty percent of the population
Speaker 11: is below the poverty line. Things are pretty desperate here,
Speaker 11: and you know you need the thinking among his voters,
Speaker 11: which you know who turned out and droves, is you
Speaker 11: need someone just as crazy as a situation that that
Speaker 11: we're experiencing to get us out of this mess. And
Speaker 11: you know that was his campaign message. He said, I'm
Speaker 11: gonna blow it all up. In fact, during his the
Speaker 11: campaign closing event to get you know, his his fans
Speaker 11: riled up. Before coming on stage, he had a of
Speaker 11: videos of buildings blowing up h literally and people you know,
Speaker 11: going crazy in the crowd, you know, before he came
Speaker 11: on and just started singing his theme song and you
Speaker 11: know his his his big bontra is you know uh uh.
Speaker 6: So yeah, wait, what what is that? What's the translation
Speaker 6: of that?
Speaker 11: It basically means, uh sorry, I'm trying to translate in
Speaker 11: my head now we have it at the on the
Speaker 11: lead of the story. It's well, let's go liberty.
Speaker 2: Dam I see long lived freedom damn it exactly the translation.
Speaker 1: All right, So Menmuel, what's the next steps out here
Speaker 1: in Argentina on this political process?
Speaker 8: Uh?
Speaker 11: So, okay, So this was a primary election, very different
Speaker 11: from from the primaries you guys are probably used to,
Speaker 11: where you know, there's different different parties have their own votes.
Speaker 11: This is kind of like a general because everyone, all
Speaker 11: the candidates are on the ballot and so and polls,
Speaker 11: as we just went over, are completely unreliable, and so
Speaker 11: this was kind of a thermometer of what's to come
Speaker 11: in the general. This knocked out one of the two
Speaker 11: candidates in the pro market business coalition. Uh, and you know,
Speaker 11: left the incumbent party pretty knocked down. It's a historically
Speaker 11: poor election for the parentist left wing party. So what
Speaker 11: this means is we have an October election coming up
Speaker 11: that's a general. In order to win that election, the
Speaker 11: winning candidate needs to get forty five percent of the
Speaker 11: vote or forty percent with a ten percentage point ten
Speaker 11: ten points above you know, the runner up. If we
Speaker 11: don't get to that, which is looking increasingly likely. With
Speaker 11: you know this this free literally divided in three, we
Speaker 11: could go to a runoff, which would come in November.
Speaker 11: So uncertainty is is certainly the.
Speaker 2: So just just to circle back to Javier Malai here
Speaker 2: he I mean, in the story we say that he's
Speaker 2: kind of radical with some far out ideas, and I
Speaker 2: think the term crazy was was thrown in there.
Speaker 6: But his dog's name Milton Friedman.
Speaker 2: So for those of us in this country, Manuela Milton
Speaker 2: Friedman is a pretty sound thinking free market capitalist economists, Like, uh,
Speaker 2: what's the crazy part of Milly's propositions here, because it
Speaker 2: seems like I don't see anything that that far out
Speaker 2: there for us.
Speaker 11: Yeah, of course, okay, So that you know, I think
Speaker 11: that's part of the nuance here is that his his reforms,
Speaker 11: you know, the policy ideas that he has, which is,
Speaker 11: you know, cutting public spending. In fact, he says, you know,
Speaker 11: bringing a chain saw to public spending. These are you know,
Speaker 11: the kind of ideas that that could support that the
Speaker 11: Pro Business Coalition is proposing. But he has a certain
Speaker 11: in you know, eccentricity to him. We're talking about his dog.
Speaker 11: This uh, this dog, he refers to him as his son.
Speaker 11: And then the four the four kids that this dog
Speaker 11: had are his grandkids. That that that oldest dog died
Speaker 11: and he actually had it cloned. He had another another
Speaker 11: dog and was you know, talking about him again.
Speaker 6: I'm again, I'm totally understanding all of this.
Speaker 1: All right, Matt Manuel. You've got a lot going on
Speaker 1: down there. We're gonna look forward to some more reporting
Speaker 1: down there, but a big, big surprise in the primary
Speaker 1: election down there, which is royling the financial markets down
Speaker 1: in Argentina.
Speaker 8: You're listening to the team Ken's our live program, Bloomberg
Speaker 8: Markets weekdays at ten am eastering on Bloomberg dot com,
Speaker 8: the iHeartRadio app and the Bloomberg Business App, or listen
Speaker 8: on demand wherever you get your podcasts.
Speaker 5: A hotspot to another, that being China.
Speaker 1: We got a lot of economic data coming out of
Speaker 1: China which was we're not economic but more just some
Speaker 1: financial data going on about the economy and some of
Speaker 1: the businesses there. Tom Orlock joins his chief economists and
Speaker 1: chief ASA economists for Bloomberg Economics. Tom, you lived and
Speaker 1: worked in Beijing four years. You know what's going on there.
Speaker 1: You know, I think twenty twenty three people went into
Speaker 1: saying this is gonna be a good year for China.
Speaker 1: The economy's reopening, We're gonna be a good year for China.
Speaker 5: It's not turning out to be that way.
Speaker 1: What are some of the key headwinds that we've been
Speaker 1: reading in the last couple of days.
Speaker 12: So the really big challenge for China's economy this year, Paul,
Speaker 12: is what's happening in real estate. Real estate is a
Speaker 12: critically important driver of China's economic growth. It's also where
Speaker 12: households have most of their wealth. Chinese households, they haven't
Speaker 12: got a lot in stocks, they haven't got a lot
Speaker 12: in bonds. It's all in their houses. And what's happening
Speaker 12: right now is there's just been massive overbuilding in the
Speaker 12: real estate sector, and there as a consequence of that,
Speaker 12: we're now seeing property sales falling, property investment falling, and
Speaker 12: property prices, especially in some smaller cities falling. Now, that
Speaker 12: was already part of the narrative in twenty twenty two,
Speaker 12: what's happening in twenty twenty three is getting worse. We've
Speaker 12: now got news that Country Garden, one of China's biggest
Speaker 12: property developers, is struggling to repair its debt, and we've
Speaker 12: got some alarming signs that this is now tipping over
Speaker 12: into the financial sector. One of China's biggest trust companies
Speaker 12: struggling to make its investors whole.
Speaker 2: So what happens here, I mean, if one of their
Speaker 2: biggest trust companies starts defaulting on payments, doesn't the government
Speaker 2: just come in take it over and make those payments
Speaker 2: in lieu of the failed company.
Speaker 12: So the strength that China still has is that the
Speaker 12: savings rate within China is really high. It's hard to
Speaker 12: take money out of the country. And if you look
Speaker 12: at not the shadow banking system, not the shadow banks
Speaker 12: like the trusts, but the banking system proper, it's all
Speaker 12: owned by the government. And what that means is that
Speaker 12: China's government has a lot of tools they can use
Speaker 12: to prevent real estate stress, even extreme real estate stress,
Speaker 12: tipping over into a financial crisis. The question is where
Speaker 12: do they draw the light right, A trust company, even
Speaker 12: a really big trust company, is not what you would
Speaker 12: consider a core part of China's financial system. If a
Speaker 12: trust company goes down, some rich investors are going to
Speaker 12: lose some money. It's going to be a bit painful
Speaker 12: for a sort of that group, but it's not going
Speaker 12: to be a trigger for a systemic crisis. The question
Speaker 12: for Beijing in the days and weeks ahead is are
Speaker 12: they okay with big trust companies going down. If big
Speaker 12: trust companies go down, are they okay with small banks
Speaker 12: going down? If small banks go down? Are they okay
Speaker 12: with city banks going down? Where do they draw the line?
Speaker 12: My instinct is the trusts, the shadow banks, they might
Speaker 12: have to get through this on their own. When we
Speaker 12: start to see problems trickling into the banking system, even
Speaker 12: the smaller city level banks, that's where Beijing steps in.
Speaker 1: So Tom, how much of a political headwind is this
Speaker 1: for President Xi, who just recently secured another I don't
Speaker 1: think it's five year term, if not more of an
Speaker 1: issues is for him politically.
Speaker 12: So China does not have elections, but China does have politics.
Speaker 12: And if you're in charge of an economy with a
Speaker 12: youth unemployment rate of twenty percent and with prices for housing,
Speaker 12: which is where most Chinese people have stored their wealth
Speaker 12: either flat or falling, then you've got a political problem.
Speaker 12: How does that play out in a single party state. Well,
Speaker 12: the first thing to say is it plays out behind
Speaker 12: the scenes.
Speaker 4: Right.
Speaker 12: If She's hand is weakened, that's going to be something
Speaker 12: which is evident to people in the backroom deals in Beijing.
Speaker 12: It's not going to be so evident to us here
Speaker 12: in the United States. Still, that additional political stress is
Speaker 12: an additional constraint on policy makers room for maneuver.
Speaker 1: Thomas Sir, I know there's not an easy fix here,
Speaker 1: But is there is there a solution that a lot
Speaker 1: of economists like yourself see there is, or is this
Speaker 1: just something that the Chinese ecindress can have to deal
Speaker 1: with for a long time let a play out.
Speaker 12: So there's a big structural problem here right. China has
Speaker 12: massively overbuilt its real estate sector, and that means there
Speaker 12: isn't an easy fix. There just has to be a
Speaker 12: period where real estate construction, real estate prices come down
Speaker 12: in order to realign supply and demand. There's no getting
Speaker 12: away from that. Now, what does a kind of a
Speaker 12: big fix, a kind of grand solution look like. Well, firstly,
Speaker 12: it's a grand solution which doesn't make things better. It's
Speaker 12: a grand solution which stops things tipping over into catastrophe.
Speaker 12: What are the moving parts of it? Well, I think
Speaker 12: it has to combine an element of reform, an element
Speaker 12: of increased transparency, an element of increased market control. So
Speaker 12: investors think that the underlying problems here aren't going to
Speaker 12: repeat and an l of stimulus, more significant stimulus than
Speaker 12: the government has so far been willing to put on
Speaker 12: the table.
Speaker 2: And that's we still expect that base case that China's
Speaker 2: going to stimulate the economy, so they're.
Speaker 12: Drip feeding the stimulus.
Speaker 4: Right.
Speaker 12: We've had a mini rate cut by the PBAC. We've
Speaker 12: had the PBAC guiding banks to move mortgage rates lower.
Speaker 12: We've had Lee Chang the premiere saying to China cities, Okay,
Speaker 12: we want you to reignite the property sector. We want
Speaker 12: you to stoke the healthy development of the property sector.
Speaker 12: They need to do more.
Speaker 1: All right, Tom, thank you very much for taking a
Speaker 1: few minutes. Tom Orlick. He's a chief economist for Bloomberg Economics.
Speaker 1: He's also author of the book Understanding China's Economic Indicators
Speaker 1: and China The Bubble That Never Pops.
Speaker 8: You're listening to the tape Cancher our live program, Bloomberg
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 8: tune in app, Bloomberg dot Com, and.
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Speaker 8: You can also listen live on Amazon Alexi from our
Speaker 8: flagship New York station. Just Say Alexa playing Bloomberg eleven.
Speaker 1: Matt much to bring on a next quest and hopefully
Speaker 1: we'll get the sunit back on that track.
Speaker 4: All right.
Speaker 2: So my old producer, Matt Siegel is here. For a
Speaker 2: few ill fated years.
Speaker 6: He worked at Bloomberg, but then he moved.
Speaker 2: On and is now covering crypto, running crypto coverage for
Speaker 2: Van Eck. And we're glad to have him here in
Speaker 2: the studio to talk about all things bitcoin ETF. Really,
Speaker 2: because on Friday, the twenty one shares and arc ETF
Speaker 2: proposal was punted by the SEC. They were due to
Speaker 2: decide I think by today was the deadline, and they
Speaker 2: pushed that off. Now they've got even more bitcoin proposals
Speaker 2: to decide on. One of them is black Rock. So
Speaker 2: everybody is paying attention on the street, and Matt Siegel
Speaker 2: is the man to ask what's going on at the SEC.
Speaker 13: What's going on is there's it seems to be a
Speaker 13: political objection to a bitcoin ETF, which is coming from
Speaker 13: the very top. President Biden, if you recall January twenty
Speaker 13: twenty two, put out an executive order instructing all agencies
Speaker 13: to use kind of maximum levels of enforcement to bring
Speaker 13: this market to heal, and the arguments against a bitcoin
Speaker 13: ETF have become increasingly haphazard and incoherent, and now there
Speaker 13: are there's a gray scale lawsuit against the SEC. We're
Speaker 13: expecting a decision any day on that which could kind
Speaker 13: of reveal the illogical the illogical nature of the SEC's objections.
Speaker 13: So now it's a delay. No bitcoin ETF for now.
Speaker 6: So what you know.
Speaker 2: Proponents of the SEC will say the concerns are around
Speaker 2: fraud and manipulation, and certainly there's no shortage of that
Speaker 2: in the crypto world, not that there's any shortage of
Speaker 2: that in the plain vanilla Wall Street world, but you've
Speaker 2: seen some firms make moves to try and alleviate those concerns, right,
Speaker 2: including with surveillance sharing agreements.
Speaker 6: Is that not far enough?
Speaker 7: Has it?
Speaker 14: Not?
Speaker 5: One far?
Speaker 13: Let's start with the original objection, as you note, fraud
Speaker 13: and manipulation and the underlying market. Well, there are plenty
Speaker 13: of commodities like gold and silver and oil where the
Speaker 13: underlying commodity trading is not regulated. But once you wrap
Speaker 13: that commodity in a vehicle like an ETF, then that
Speaker 13: vehicle needs to trade on a regulated exchange. So we
Speaker 13: don't think SEC's being consistent in how they're applying that logic.
Speaker 1: Why what's the basis from your understanding of this decision
Speaker 1: coming now from the top from President Biden about crypto?
Speaker 1: What's the what is their size's fundamental issue?
Speaker 13: I think it's an issue of control right now, which
Speaker 13: is playing out across the political spectrum on a range
Speaker 13: of issues, not just crypto. But it plays into the
Speaker 13: potential threat against the dollar as a reserve currency. You know,
Speaker 13: the IMF had a blog just last month they say
Speaker 13: that the way to protect against the substitution of sovereign
Speaker 13: currencies is by having legitimate institutions, and frankly, there's just
Speaker 13: an increasing number of people around the world who are
Speaker 13: doubting the legitimacy of those institutions.
Speaker 1: If Blackrock comes and says they want an ETF, aren't
Speaker 1: they going to get an ETF it's Blackrock?
Speaker 13: Well maybe eventually, but the final decision on the Blackrock
Speaker 13: ETF isn't DOE until next March. And before then, there's
Speaker 13: a lot of phone calls that are going around which
Speaker 13: are not being done in a transparent manner, And you
Speaker 13: have all these ETF issuers like Vanak and I think
Speaker 13: we have some authority to speak on this matter because
Speaker 13: we were the first TRADFY managers to first file for
Speaker 13: a physically backed ETF in twenty seventeen, and we spent
Speaker 13: the last six years trying to figure out what exactly
Speaker 13: are the conditions that the regulator is looking for that
Speaker 13: will allow for the approval of such a product. Those
Speaker 13: conditions have not been laid out in any systematic way,
Speaker 13: and we're going to see the result of this lawsuit
Speaker 13: Gray Scale versus the SEC, which we think will reveal
Speaker 13: that the SEC has been acting in an arbitrary and
Speaker 13: capricious manner in denying Whether or not that leads to
Speaker 13: an immediate approval, we'll have to see. But we have
Speaker 13: until next March to get the answer to your question.
Speaker 6: All right, So, I guess.
Speaker 2: You're putting this at President Biden's on President Biden's desk,
Speaker 2: But if we take it a level lower, right, Gary
Speaker 2: Gensler seems to be the one that's holding things back,
Speaker 2: at least from our perspective.
Speaker 6: Is that wrong?
Speaker 2: No, at the SEC because he has recently or the
Speaker 2: SEC has recently I'm going to say, lost a case
Speaker 2: in the Ripple trial. Although I think they might claim
Speaker 2: that they partially won right because the judge declared Ripple
Speaker 2: to be a security when it was marketed to a
Speaker 2: bunch of institutions, but not a security when it was
Speaker 2: sold to I guess retail investors on an exchange. Is
Speaker 2: that maybe the first crack in the SEC's you know,
Speaker 2: wall against crypto.
Speaker 13: I think it very well could be. And there have
Speaker 13: been multiple examples in the last two decades of SEC
Speaker 13: chairs who have had to step down after an embarrassing loss,
Speaker 13: like you know, Bloomberg's former board member Arthur Levitt comes
Speaker 13: to mind. So there's also a great history of a
Speaker 13: change in leadership at these agencies ahead of an election,
Speaker 13: which we have next year as well. So my personal
Speaker 13: call is that Gensler will be gone before the next
Speaker 13: election and that will facilitate a change in policy here.
Speaker 13: But there's a lot of steps between here and there.
Speaker 1: Is there a physically traded ETF bitcoin ETF in Canada.
Speaker 13: Yes, Canada, Europe, multiple jurisdictions on Canada.
Speaker 1: What have we learned, what have we observed about the
Speaker 1: pros and cons of that that maybe the SEC could
Speaker 1: learn from.
Speaker 13: Maybe there have been no comms because ETFs are a
Speaker 13: time tested, well regulated, liquid and cost effective.
Speaker 5: Whether they treated US whole security in Canada? Yes, okay?
Speaker 5: And here the.
Speaker 13: ETF is not the bitcoin underlying.
Speaker 1: Okay, Right, So the ETF is not the bitcoin can
Speaker 1: that structure and that's the structure that the SEC is
Speaker 1: not comfortable with here?
Speaker 13: Correct? They object to the well, they have a number
Speaker 13: of objections and as I said, each one of them
Speaker 13: has kind of been proven to be logically incoherent. But
Speaker 13: we're stuck in this mandate, whether it's coming from the President,
Speaker 13: whether it's coming from Genzler.
Speaker 1: All right, So what does this all mean for innovation
Speaker 1: in crypto in the US. My concern, if if I
Speaker 1: were in senior political levels, it would be I want
Speaker 1: to make sure that whatever this crypto thing evolves into,
Speaker 1: I want the.
Speaker 6: US to be a leader.
Speaker 1: And now I feel like, just knowing what I know,
Speaker 1: that perhaps we're not going to take a leadership position
Speaker 1: because we don't have a well defined regulatory framework. Whether
Speaker 1: you like it or not, it doesn't seem like we
Speaker 1: have a one. Is there a risk that the US
Speaker 1: maybe is not a leader in this business?
Speaker 13: That's definitely the path of direction. So we can track
Speaker 13: the number of developers who are working on these open
Speaker 13: source blockchains, and we can track them by country, and
Speaker 13: what we can see is that the US is losing
Speaker 13: market share of crypto developers, so the innovators are looking
Speaker 13: to work elsewhere. The other thing that we can see
Speaker 13: is that stable coins like USDC, which is the coinbas
Speaker 13: Circle JV, are losing market share to Tether, which is
Speaker 13: an offshore, less regulated model on the same on the
Speaker 13: same Now.
Speaker 1: I feel like asking a political question, should Americans care?
Speaker 13: And if so, why Americans should care? Because every currency
Speaker 13: has there's been no currency that has been the global
Speaker 13: store of value for multiple centuries, and at some point
Speaker 13: the world is looking for an alternative. And here you
Speaker 13: have a decentralized money where the creation schedule is transparent,
Speaker 13: and that's very different from what's happening with the Federal Reserve.
Speaker 13: So what's going on in our concern?
Speaker 5: I don't want a dollar to be at risk if
Speaker 5: I'm President Biden or anything.
Speaker 2: I think what Matt's saying is that the dollars at risk.
Speaker 2: So even though you don't like it, we need to
Speaker 2: prepare for the reality that that turns around. We're still
Speaker 2: a long way off from that, right I want to
Speaker 2: wanted to ask you about other tokens because other than Bitcoin,
Speaker 2: you know, people may know Ether, but beyond that they
Speaker 2: don't really I mean dogecoin, right, what else is serious?
Speaker 2: And you think really important in crypto that we should
Speaker 2: be paying attention to.
Speaker 13: Yeah, So, there are a number of smart contract protocols.
Speaker 13: These are blockchain software that enable more complex transactions than
Speaker 13: Bitcoin can enable. So with Bitcoin, it's just very difficult
Speaker 13: to program in a bunch of if then conditions and
Speaker 13: make your bitcoin move around programmatically. With ethereum, because of
Speaker 13: the architecture of the blockchain, that is possible. And there
Speaker 13: are you know, a handful of similar layer one smart
Speaker 13: contract platforms to Ethereum. We're thinking of like a Solana,
Speaker 13: which make different trade offs on decentralization and speed. The
Speaker 13: history of these digital platforms is that they tend to
Speaker 13: be winner take all businesses. We're seeing that in Web two, Amazon, Google,
Speaker 13: et cetera. So one of the big challenges for digital
Speaker 13: investors right now is balancing those winner take all characteristics
Speaker 13: of these digital platforms with the extreme price disparity year
Speaker 13: to date, because year to date Bitcoin and Ether are outperforming.
Speaker 13: Part of the reason why they're out performing because the
Speaker 13: regulator is coming down on all these other innovative platforms.
Speaker 13: The more that the regulator cracks down, the greater these winner.
Speaker 6: Take all characteristics will be, the faster they will be.
Speaker 13: In a way, it's government picking winners. We don't want that.
Speaker 13: We want innovation to win out.
Speaker 1: Sounds reasonable to me. Matt Siegel, thanks so much for
Speaker 1: joining us here. A Matt Siegel, He's head of digital
Speaker 1: asset research for at van Neck. He's joins us live
Speaker 1: here in a Bloomberg Interactor broker's studio. Just looking at
Speaker 1: bitcoin because it's on my monitor for whatever reason. It's
Speaker 1: up six tens of one percent here twenty ninth, thousand
Speaker 1: and five eighty one for bitcoin.
Speaker 8: You're listening to the tape Cat's are Live program Bloomberg
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 8: tune in app, Bloomberg dot Com, and.
Speaker 4: The Bloomberg Business app.
Speaker 8: You can also listen live on Amazon Alexa from our
Speaker 8: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: Joining us here in our Bloomberg Interactive workers studio. Matthew Palosola.
Speaker 1: He's a senior insurance analyst with Bloomberg Intelligence.
Speaker 2: But whenever I see this guy, I know that a
Speaker 2: disaster has happened.
Speaker 1: Is exactly ifa things have happened. So we call on
Speaker 1: Matthew Palazola. So, Matthew, we seen the destruction in Bermuda,
Speaker 1: the loss of life. It's just horrific as some of
Speaker 1: the images that we saw. From the insurance perspective, What
Speaker 1: are you hearing from the companies as to perhaps exposure
Speaker 1: and all that type of thing.
Speaker 15: Right, So, nothing from the company specifically. We're looking at
Speaker 15: industry data data from the ground. In these cases, you'll
Speaker 15: hear about economic losses first, So we're hearing numbers like
Speaker 15: five six it can I just saw one for eight
Speaker 15: billion dollars economic damages?
Speaker 5: What's that actually?
Speaker 4: So that could be.
Speaker 15: Lost wages that it encompasses insured values, but insured values
Speaker 15: would be much less, so they could be even half
Speaker 15: of that. So the work that I'm doing now is
Speaker 15: kind of coming around low single digit billions for the
Speaker 15: insurance companies, which is a pretty manageable.
Speaker 4: Number, right.
Speaker 2: So but the thing is, these payouts are probably going
Speaker 2: to get bigger and bigger every year, right, not just
Speaker 2: what's happening in Hawaii. Not just you know what the
Speaker 2: Anino's brought, but every year did natural disaster payouts climb
Speaker 2: higher and higher.
Speaker 4: That has been happening, right.
Speaker 15: So it was thought of years ago that one hundred
Speaker 15: billion dollars and insured losses was something we'd never see,
Speaker 15: and now we've seen it for several years. So this
Speaker 15: this year so far is running above average catastrophe losses.
Speaker 15: It's climate change is kind of the big boogeyman in
Speaker 15: the whole thing. No one's saying it's not happening, but
Speaker 15: the insurance companies will tell you that a lot of
Speaker 15: this is driven by density of population building in catastrophe
Speaker 15: prone areas. It's kind of moral hazard where we keep building,
Speaker 15: we keep rebuilding, and you know it did. The cycle
Speaker 15: goes on and on. So it's not all climate change.
Speaker 15: I wrote down the stat I did want to tell
Speaker 15: you though. This is according to a catastree modeling company.
Speaker 15: They said, over the past century Hawaii, the average burning
Speaker 15: there has increased four hundred percent due to man made factors.
Speaker 15: So obviously something's happening there's I also thought this was interesting.
Speaker 15: There's a non native grass species that was introduced to Hawaii,
Speaker 15: which actually is feeding a lot of this because it's
Speaker 15: fire prone.
Speaker 1: Right, So, I mean there's all kinds of drivers here
Speaker 1: go into that issue of the kind of the moral hazard.
Speaker 1: I mean, a hurricane comes along, hits take your place, Florida,
Speaker 1: North Carolina said, you know where reverer it hits wipes.
Speaker 2: Out a part of the coast, The insurance guys pay
Speaker 2: up and people build houses right back there.
Speaker 1: Again, I forget about that. I'll take that to my
Speaker 1: Jersey Shore super sore Sandy. You get down a man
Speaker 1: looking which have some of the nicest homes on a
Speaker 1: Jersey Shore, they have rebuilt monster homes. And then the
Speaker 1: next lot, for whatever reason, completely blank, nothing's been rebuilt.
Speaker 1: So I don't know if there's a money's held up
Speaker 1: with the.
Speaker 5: Family or whatever. But is that person who rebuilt the
Speaker 5: monster house again, is he or she getting insured?
Speaker 15: Look, depending on the monstrosity of the house, may you
Speaker 15: might not be insured.
Speaker 2: And yeah, my experience with Chubb is after you take
Speaker 2: a big hit, they don't come back.
Speaker 4: Yeah.
Speaker 15: So I mean, if you have enough money where you
Speaker 15: built that house on your own, you don't have a mortgage,
Speaker 15: you don't have anything. I guess theoretically you could not
Speaker 15: have insurance. What's happening though in these states is a
Speaker 15: lot of it's falling on the state. So when you
Speaker 15: can't get insurance in Florida, in California, there's a state
Speaker 15: fund that you get insurance from. So ultimately it comes
Speaker 15: back to the taxpayer. So it's not the insurance companies
Speaker 15: have wised up.
Speaker 4: They don't just keep paying out.
Speaker 15: They will step back and drop these people. But what
Speaker 15: happens is or charge higher rates. They'll definitely charge higher rates,
Speaker 15: so they'll they'll charge you such a high rate that
Speaker 15: you'll go to the state fund.
Speaker 6: Does the state fund lose money?
Speaker 4: Hand over fists?
Speaker 6: I see?
Speaker 1: And funds that we do you okay, okay, yeah, you
Speaker 1: gut did. And but that's again at some point. Again,
Speaker 1: my good friends at the Jersey Shore, I'm just picking
Speaker 1: on them because that that that's where I crip these days.
Speaker 5: I mean, I don't feel like they should be insured.
Speaker 1: I mean, if it's given what's happened, But I guess
Speaker 1: it's up to the companies and if maybe they can
Speaker 1: decline to have insurance.
Speaker 2: Right And this question may be beyond the scope of
Speaker 2: Matthew Powis no, no.
Speaker 15: No, I don't know if we can get the situation
Speaker 15: in here from Jersey. But no, I mean, like I said,
Speaker 15: you if you have a mortgage on your property, you
Speaker 15: need you have to have insurance.
Speaker 5: Yes, and that's it right.
Speaker 15: The state is not going to let people be completely
Speaker 15: unhappy and not have insurance and it'd be too expensive.
Speaker 15: So that's where this kind of comes in, and people
Speaker 15: don't realize that the taxpayers are ending up funding that.
Speaker 2: It's also it's not the Jersey shore that takes the
Speaker 2: big losses, right, it's Florida's Florida.
Speaker 15: Yeah, it's Florida, and it's California. It's Texas to some degree.
Speaker 15: I mean, we had Sandy that was kind of an
Speaker 15: odd off event, but I mean we also had last
Speaker 15: was I don't remember if it was last year where
Speaker 15: we had these significant rain events repeatedly and it was
Speaker 15: the most rain ever. And then the next week it
Speaker 15: was the most rain ever again in you know, the
Speaker 15: tri state area.
Speaker 7: So it is happening, all right.
Speaker 1: So we're August fourteenth here, what's the hurricane call this year?
Speaker 1: I mean, so far, I don't recall nothing big as
Speaker 1: hit here has it?
Speaker 4: So it hasn't been.
Speaker 15: It started off quick and hot, right, and I was
Speaker 15: pretty worried that it was going to be above average season.
Speaker 15: So you've got to countervailing forces. You've got the Onino
Speaker 15: effect which you brought up before, that actually suppresses hurricane
Speaker 15: activity in the Atlantic.
Speaker 5: That just and it's blowing somewhere.
Speaker 6: It's a hot current, right.
Speaker 15: Essentially, I'm just an amateur meteor I'll just so you know,
Speaker 15: I'll have to take a step back and say, yes,
Speaker 15: it's basically just winds moving right that usually suppresses hurricane
Speaker 15: activity here. But then you have these record sea surface
Speaker 15: temperatures which feed hurricane activity. So this has netted itself
Speaker 15: out to be from the forecasts. Forecast is to be
Speaker 15: in above average season, but we haven't seen that much yet.
Speaker 15: The peak is about mid September.
Speaker 2: By the way, hell Nino is it is a warm
Speaker 2: current of water, ocean water that develops in the central
Speaker 2: and east central Equatorial Pacific.
Speaker 15: And do you know the opposite La Nina.
Speaker 2: La Nina, the girl sorr Helinos, the boys.
Speaker 15: We've been in La Nina for a while, which is
Speaker 15: actually fed hurricane activity.
Speaker 4: All right.
Speaker 1: The S and P five hundred property and casually insurance
Speaker 1: sub index down five percent this year.
Speaker 15: Yes, so insurance is gonna be suffered from. I think
Speaker 15: that the risk on environment in the beginning of the year,
Speaker 15: the defensive stocks they can sell off with that rotation.
Speaker 15: I think unfairly they suffered with the bank turmoil, they
Speaker 15: weren't really exposed. Another concern is commercial real.
Speaker 2: Li I mean, the concern there is that they hold
Speaker 2: a lot of long term for example, treasuries, you know,
Speaker 2: and maybe they haven't marked to market either.
Speaker 15: So they did that last year. That was a big impact,
Speaker 15: so they still do. It's it's kind of reversing this year.
Speaker 15: They have They hold a lot of commercial real estate,
Speaker 15: more specifically maybe the life insurance companies.
Speaker 4: We did analysis on that.
Speaker 15: It seemed to be very magicable exposure for them in
Speaker 15: a bad case. It hasn't really reared its head, but
Speaker 15: I think those things were dragging them down.
Speaker 2: And otherwise, how are they doing making returns because that's
Speaker 2: the idea, right we all put in our premiums and
Speaker 2: then they take that money and they go invest it
Speaker 2: and hopefully they make more than they lose on these
Speaker 2: natural disasters exactly.
Speaker 4: So fundamentals are good.
Speaker 15: They've been you know, earning that we're at it could
Speaker 15: be peak roes for this pricing cycle, could be this
Speaker 15: year or next year. Typically valuations peak before the rois,
Speaker 15: So if it's this year, then maybe they peaked already,
Speaker 15: but it could be next year.
Speaker 6: Are there any hot you know?
Speaker 2: We're the best managed insurance companies that you cover.
Speaker 15: I love Chubb, right, It's it's the biggest and it's
Speaker 15: still growing a lot. Evan Greenberg's CEO, I mean, of
Speaker 15: this giant company, and he kind of knows all the
Speaker 15: ins and out details.
Speaker 4: You know. They they have the best.
Speaker 15: Commercial underwriting of their peer group and they're the biggest ones.
Speaker 15: So I mean, I love Chubb's management and strategy.
Speaker 6: It will take me. It will take me as a client.
Speaker 5: They wouldn't take you, of course they did once.
Speaker 2: But I guess too many losses, too many claims.
Speaker 1: You have like motorcycle, there's no way may have been
Speaker 1: a part of that.
Speaker 15: Do you have your Picasso in the basement when flood.
Speaker 2: No, I didn't have any really big problems, just I
Speaker 2: think there was a small issue with a Portia nine
Speaker 2: to eleven and and the motorcycle accsent.
Speaker 1: Motorcycle acts and in the jump out of planes and
Speaker 1: all that kind of stuff. What's the area of insurance
Speaker 1: that you just are staying away from it right right
Speaker 1: now in your.
Speaker 15: Space, staying away from so you know what's interesting. Cyber insurance,
Speaker 15: right Cyber insurance is a big growing line of business.
Speaker 15: A lot of companies are getting into it. They've been
Speaker 15: very cautious on it. But you don't know what you're underwriting.
Speaker 15: And I think the world is not getting anymore any
Speaker 15: It's not gonna getting less risky, right, and it's getting
Speaker 15: more risky.
Speaker 4: And these are things that companies don't know about.
Speaker 15: So be a little wary of someone who's talking about
Speaker 15: growing a lot in cyber insurance right now, all.
Speaker 1: Right, Matt, good to have you in our Bloomberg Interactive
Speaker 1: Broker studio. Matthew Palosola. He's a senior al is covering
Speaker 1: all the property and casualty insurance for Bloomberg Intelligence.
Speaker 8: You're listening to the tape cans Are Live program Bloomberg
Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 8: tune in app, Bloomberg dot Com, and.
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Speaker 5: Javia Giant.
Speaker 1: He is the founder and CEO of Techian and he
Speaker 1: was the former chief information officer at Tesla. So let's
Speaker 1: talk a little bit what's happening in the EV space. Jay,
Speaker 1: Thanks so much for joining us here. First, let's just
Speaker 1: start off real quick. Tell us what you guys are
Speaker 1: doing at Techian.
Speaker 14: Hi, Paul, Thanks thanks for having me here. You're looking
Speaker 14: forward to to our conversation. Yeah, at Techian, as you know,
Speaker 14: the automotive industry is going through some major fans everything
Speaker 14: from EV to autonomous vehicles, from selling models.
Speaker 7: Tekan is right in the center.
Speaker 14: So we've created a platform to bring together the major
Speaker 14: stakeholders in one seamless and technology platform. Manufacturers, the retailers,
Speaker 14: the ecosystem players being soft where are be functional industry
Speaker 14: players like insurance providers, lenders and others.
Speaker 7: And then of course the beneficiary is the consumer.
Speaker 14: So the end of the day, the consumer really needs
Speaker 14: to get what they're looking for in terms of their
Speaker 14: automotive buying experience. We are delivering that through the technology
Speaker 14: as an operating platform for retailers, manufacturers, and then the
Speaker 14: participants are the industry software ecosystem players.
Speaker 1: So it gives a sense Jay, I mean if I'm
Speaker 1: a I mean, Tesla has obviously a different distribution model,
Speaker 1: does not rely on dealerships, kind of goes direct to consumer.
Speaker 5: How do you think.
Speaker 1: The the original OEMs, the Fords, the Gms of the world,
Speaker 1: the Volkswagens of the world, how do you think or
Speaker 1: how do you think they should make this evolution to
Speaker 1: selling these electric vehicles?
Speaker 14: Great question, you know it's a I don't know if
Speaker 14: I should say it's a trillion dollar question, right. So
Speaker 14: the way we see it, we are deep into the industry.
Speaker 14: Techon works with you know, many of the retailers. In fact,
Speaker 14: the world's largest automountive retailer runs on Techion, and we
Speaker 14: work with multiple manufacturers as well. So the bottom line is,
Speaker 14: as you know, trends go through different phases, and they
Speaker 14: go through a big hype face where everything is like, oh,
Speaker 14: for example, I can give you a simple example. Before COVID,
Speaker 14: everyone said the car ownership is going away, and after
Speaker 14: COVID we all realize it hasn't gone away.
Speaker 7: People are still buying cars now.
Speaker 14: The other trend is people are thinking about everything will
Speaker 14: go online, people will buy cars online. I don't ever
Speaker 14: see that happening for the same reason why you know
Speaker 14: Tesla is still opening retail stores. Apple is still opening
Speaker 14: retail stores. What consumers are looking for again, putting myself
Speaker 14: in consumer shoes, the way I shop versus the way
Speaker 14: my twenty year old daughter shops for cars versus my
Speaker 14: wife shops for cars would be different. What consumers are
Speaker 14: looking for is give me the choice, give me the experience.
Speaker 14: Seamless experience doesn't matter how I choose to shop. If
Speaker 14: I want to do an online, majority of the tasks
Speaker 14: which I don't like, which is signing documents or negotiating price.
Speaker 14: But there are specific tasks I want to do it in,
Speaker 14: like experiencing the product itself, test driving, Like I walk
Speaker 14: into an Apple store and touch and feel my iPhone
Speaker 14: or a Mac.
Speaker 7: I think that is the fundamental.
Speaker 14: So what I see the industry evolving as the retail
Speaker 14: model not going away, but the business will evolve to
Speaker 14: provide the seamless experience for consumers, be if they start
Speaker 14: at a manufacturer website or they start shopping at a
Speaker 14: retailer website.
Speaker 7: Today, the experience is disconnected.
Speaker 14: That's exactly what we are solving from Technion perspective. Why
Speaker 14: not use that as an advantage because consumers need to
Speaker 14: go into a retail location to shop.
Speaker 4: Or whatever.
Speaker 1: Yeah, what are you finding from some of these existing OEMs?
Speaker 1: Do they have that mindset to be flexible about using technology?
Speaker 1: Maybe in ways they haven't done it before. Number one,
Speaker 1: Are they flexible?
Speaker 5: Number two? Are they willing to make whatever investment is required?
Speaker 7: Yeah, you see a full spectrum.
Speaker 14: Some of them are quite flexible, want to do it,
Speaker 14: and they didn't have a very clear path to do it.
Speaker 14: And I think fortunately, I think Techion is helping because
Speaker 14: as you know, we are a new generation company started
Speaker 14: in twenty sixteen, so most modern tech platform from a
Speaker 14: cloud native versus also using machine learning and AI inherently
Speaker 14: part of the platform. So it was not an afterthought
Speaker 14: where we went ahead and built something like that.
Speaker 7: So now we are helping that.
Speaker 14: And you see there are another spectrum where not a
Speaker 14: lot of flexibility is there. There's willingness from the you know,
Speaker 14: senior management at the working level, there is not enough incentive.
Speaker 7: Or push to go change.
Speaker 14: So we see a full spectrum of automotive manufacturers willing
Speaker 14: to change again. We all know the answer is anyone
Speaker 14: who's truly changing will continue to be in the middle
Speaker 14: or be in the front in some cases, and anyone
Speaker 14: who's not changing will be left behind over a.
Speaker 7: Period of time.
Speaker 1: So Jay, just give us a sense of what product
Speaker 1: or what service that you guys are tech on provide,
Speaker 1: say a dealer or the OEM dealer relationship that's proving
Speaker 1: I guess the most popular at the moment.
Speaker 14: Absolutely there are you know two, so three we have
Speaker 14: a three offerings. Retail cloud all interconnected. Retail cloud is
Speaker 14: for retailers. Runs the entire retail operations of retailer everything
Speaker 14: you know if you look at from selling cars online,
Speaker 14: shopping experience, selling cars online, customer engagement, selling cars in store,
Speaker 14: and the complete back office if you would call it
Speaker 14: as a ERP like General Ledger ap AR running their
Speaker 14: entire business and payments because it needs to come together
Speaker 14: to give the best experience. So that's automotive retail cloud
Speaker 14: seamlessly connected to the manufacturer's back end system so to
Speaker 14: track vehicle inventory, to order parts and receive it seamlessly,
Speaker 14: have with civility. And then we have enterprise cloud, which
Speaker 14: is focused as an e commerce engine for manufacturers but
Speaker 14: having a seamless connection to its dealers. So we have
Speaker 14: some of the largest manufacturers in the world using Techion,
Speaker 14: like for example, General Motors is our customer, so we
Speaker 14: have a white liveled platform for them to sell their evs,
Speaker 14: but seamlessly really connecting to their dealers as well.
Speaker 7: So that's retail cloud.
Speaker 14: The last one is we need to bring the ecosystem
Speaker 14: together partner cloud where we have technology APIs and you
Speaker 14: have like insurance providers lenders. So if you sell a car,
Speaker 14: you need to sell an insurance So how do you
Speaker 14: make that process simple and easy? See how do you
Speaker 14: bring the providers through technology seamlessly exchanging data and securely?
Speaker 5: All right, fascinating stuff.
Speaker 1: I mean, it's an industry that is evolving with the
Speaker 1: times and with the technology, and you kind of think
Speaker 1: about the whole stack there. Jay Vagian is the founder
Speaker 1: and CEO of tech Young, joining us here to talk
Speaker 1: to us about evs and how you kind of bring
Speaker 1: it all together from the OEM manufacturer right down through
Speaker 1: the dealer and to the consumer.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 5: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
Speaker 1: Before the podcast, you can always catch us worldwide at
Speaker 1: Bloomberg Radio