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Speaker 1: This is Bloomberg business Week inside from the reporters and

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Speaker 1: editors who bring you America's most trusted business magazine, plus

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Speaker 1: global business, finance and tech news. The Bloomberg Business Week

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Speaker 1: Podcast with Carol Manser and Tim Stinebec from Bloomberg Radio.

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Speaker 1: The first fo EB Scene meeting of the year kicks

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Speaker 1: off tomorrow. The decision comes on Wednesday. We'll also hear

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Speaker 1: from J. Powell that afternoon. Ahead of that, our own

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Speaker 1: Steve Matthews notes that FED Chief J. Powell and Wall

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Speaker 1: Street are headed for another face off this week. This

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Speaker 1: is the US Central Bank seeks to slow its inflation

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Speaker 1: fighting campaign without signaling a readiness to stop f O

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Speaker 1: m C policy and reading the Fed tea leaves both

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Speaker 1: and are not easy. With more on his most read

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Speaker 1: We've got Bloomberg News Economics reporter Steve Matthews. He's in

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Speaker 1: our Atlanta Bureau. Steve, financial conditions very important thing for

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Speaker 1: the Federal Reserve, obviously with the Fed raising rates so

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Speaker 1: much and FED policy started to make its way throughout

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Speaker 1: this system off I conditions are just really tight right now,

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Speaker 1: right not at all surprisingly, the financial conditions if you

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Speaker 1: look at the Bloomberg Financial Conditions index. They are the

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Speaker 1: easiest since last February. They're easier than before the Fed

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Speaker 1: started raising rates. And the Fed is not gonna be

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Speaker 1: happy about this. Uh. Monetary policy works through financial conditions,

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Speaker 1: meaning you know what's happening to mortgage rates, what's happening

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Speaker 1: to corporate lending rates, what's happening stock and bond prices,

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Speaker 1: that what's happening with the dollar. And when you have

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Speaker 1: easier conditions, that supports growth. The FED is trying to

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Speaker 1: achieve below trend growth, which is going to ease, in

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Speaker 1: their view, ease pressures on the labor market and therefore

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Speaker 1: ease and inflationary pressures. They are not getting it. And

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Speaker 1: so while they have pretty well signaled that you're gonna

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Speaker 1: get a twenty five basis point hike on Wednesday, UH,

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Speaker 1: the tone of Chair Palell's comments and potentially of the

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Speaker 1: statement are going to be hawkish. Yeah, it ain't tricky,

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Speaker 1: or it isn't easy being the Fed. We know that,

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Speaker 1: or maybe it is because you're saying the same thing

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Speaker 1: over and over again. It's not easy being an investor

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Speaker 1: who thinks that you know financial conditions, you know, markets

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Speaker 1: doing what the FED wants It to do. No, it's

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Speaker 1: a good point. And I do wonder though, right Steve,

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Speaker 1: if the FED is going to have to be harder

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Speaker 1: either in the press conference J Powell to kind of

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Speaker 1: really make sure investors don't get to ahead of themselves.

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Speaker 1: This is the managing it has to do. Right. It

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Speaker 1: doesn't want too much enthusiasm to come back um and

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Speaker 1: think about you know, financial conditions staying easy because they

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Speaker 1: want things to slow down. They don't want them to

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Speaker 1: pick up again. That is exactly right. And and in fact,

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Speaker 1: you know, if you go back and look at the

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Speaker 1: last several meetings, this will be the first basis point hike,

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Speaker 1: and I think you know after six six hikes of

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Speaker 1: of larger than that. And what they're afraid of is

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Speaker 1: if you go back to meetings, we had seventy basis

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Speaker 1: points last meeting, we had fifty basis points. This meeting,

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Speaker 1: we're gonna have a quarter point. And you know, if

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Speaker 1: you just kind of do a straight line, that would

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Speaker 1: suggest to the next meeting we pause. And that is

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Speaker 1: not the message they want to send. They want to

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Speaker 1: send the message that they're going to be continuing to

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Speaker 1: raise rates and that they're going to be more important

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Speaker 1: than that that they're going to keep rights high for longer.

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Speaker 1: And so you know that will be the message. You know,

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Speaker 1: they go into all these press conferences with talking points,

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Speaker 1: and you can be sure that that's going to be

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Speaker 1: one of the talking points that chere Paw comes out with.

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Speaker 1: Why is this so unclear to Wall Street? Well, Street's like,

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Speaker 1: we got it, Jake, Joe, you know, I mean, well,

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Speaker 1: the tricky thing is that Wall Street is reacting to

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Speaker 1: legitimately good news. We have had good news on inflation,

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Speaker 1: and you know, Chair Powell is going to have to

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Speaker 1: acknowledge there has been some good news, as much as

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Speaker 1: he may not want to highlight it. Uh So, you

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Speaker 1: know they're gonna have to hit the right balance that, yes, inflation,

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Speaker 1: the outlook looks better than they thought, you know, the

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Speaker 1: last meeting which is in December, but still it's not

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Speaker 1: headed to two percent and the goal is to get

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Speaker 1: inflation down to two percent, and they believe there's not

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Speaker 1: enough tightness and Wall Street legitimately just has trouble understanding

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Speaker 1: what the Fed is saying. I mean, you saw this

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Speaker 1: in July when Powell made some comments and everybody said, pivot,

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Speaker 1: We're on a pivot. Well, there was no pivot, and

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Speaker 1: uh so, you know, the Fed can be a little

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Speaker 1: bit mysterious to understand, and Wall Street sometimes gets it wrong.

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Speaker 1: I mean, the tricky point is if the Fed continues

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Speaker 1: steve to stick to getting inflation down to two percent,

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Speaker 1: then it's got to ways to go. Folks wake up

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Speaker 1: and smell the coffee, right. But if the Street and

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Speaker 1: everybody says NAT's more like four or five percent and

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Speaker 1: we're just gonna settle there, then the Feed is done.

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Speaker 1: So that's a big part of the disconnect. Yeah, I

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Speaker 1: think that's that is a big part of the disconnect.

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Speaker 1: But also part of it is that the FED believes

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Speaker 1: that the economy is resilient. I mean, we had three

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Speaker 1: percent growth in the fourth quarter. Uh, you know, we're

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Speaker 1: likely to have some significant growth in the first quarter.

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Speaker 1: The much of Wall Street, two thirds of Wall Street

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Speaker 1: maybe more than that, is predicting a recession this year.

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Speaker 1: The Feed is not predicting a recession this year. If

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Speaker 1: the economy holds up better than expected, that implies that

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Speaker 1: rates are going to be higher than the Wall Street expects.

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Speaker 1: So it's like, if your forecast is we're headed to

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Speaker 1: recession sometime soon, you know that's not how the Fed

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Speaker 1: is looking at the world. Hey, one thing I want

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Speaker 1: to ask you. We've got some new Fed mint members

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Speaker 1: right actually voting this year. Does that potentially change how

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Speaker 1: it all plays out? Yeah, it is a slightly more

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Speaker 1: dubbish Fed this year. You'll you'll have googlesby the new

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Speaker 1: Chicago Fed president voting. Bullard was voting last year, who's

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Speaker 1: kind of a notable hawk and he's gone. Esther George,

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Speaker 1: who's largely regarded as being hawkish, is gone. You had

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Speaker 1: a couple of new appointees from the Biden administration who

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Speaker 1: are who are viewed to be kind of centrist. So

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Speaker 1: you know, incrementally you're going to have a slightly more

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Speaker 1: dovish voting rotation. Although the interesting thing is, if you

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Speaker 1: go back to the December dot plot, seventeen of the

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Speaker 1: nineteen f o MC participants, we're predicting rates over five percent,

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Speaker 1: which is more than what Wall Street is predicting right now.

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Speaker 1: Fifteen of the seventeen seven, I think, seventeen of nineteen. Okay,

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Speaker 1: that's pretty hawkish, right, that is hawkish. That is not

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Speaker 1: where Wall Street is. Okay, Steve, give us your best

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Speaker 1: prediction for a we hear from j Powell on Wednesday. Uh,

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Speaker 1: I think we're going to hear that rights are going

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Speaker 1: to be higher for longer. That he said in December

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Speaker 1: that there would be no cuts this year. I think

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Speaker 1: he will repeat that in the statement. I think the

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Speaker 1: key question is ongoing. They've been saying, we're in the

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Speaker 1: statement we're going to see ongoing increases, And there's a

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Speaker 1: big debate on Wall Street. Does that change to say

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Speaker 1: further tightening, which would at least open the door for

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Speaker 1: the possibility of a pause and you know, later this

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Speaker 1: spring and if they keep on going, that says they're

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Speaker 1: going to do at least two more hikes. I love

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Speaker 1: when we obsess about one word ongoing, hashtag ongoing. Steve Matthews,

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Speaker 1: we will be looking for your coverage. I know you'll

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Speaker 1: be part of our our live blog and looking forward

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Speaker 1: to your analysis after Steve Matthews, Economics reporter at Bloomberg News.

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Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us

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Speaker 1: live weekdays from two to five pm East here on

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Speaker 1: Bloomberg Radio, the Bloomberg Business Avan. You do. You can

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Speaker 1: also listen live to our flagship New York station Just

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Speaker 1: say Alexa Play Bloomberg E Love and Dirty with three

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Speaker 1: D seventy five billion dollars give or take a little

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Speaker 1: bit in assets. It is the biggest exchange traded fund

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Speaker 1: on the planet. We are talking about State Streets, Spider

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Speaker 1: s and P five fund that has changed the game

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Speaker 1: of investing. And you know what, now it's facing a

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Speaker 1: lot of competition. It's not the only game in town.

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Speaker 1: This story in the upcoming new issue of Bloomberg Business Week.

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Speaker 1: It's out on news stands later this week on the

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Speaker 1: Bloomberg and online at Bloomberg dot com. Let's get to

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Speaker 1: it with Katie Greifeld, Bloomberg New Senior Market supporter here

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Speaker 1: in our Bloomberg Interactive Broker Studio, along with the editor

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Speaker 1: of Business Week, Joel Weber. Joel, Happy birthday. Why yeah,

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Speaker 1: thirty years old. It's the biggest E t F I

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Speaker 1: know more about this than I, uh is probably would

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Speaker 1: make sense, But because I co pilot the podcast Trillions,

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Speaker 1: which is all about E t f s, and I've

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Speaker 1: gotten a long on the history of et F so

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Speaker 1: I know I know a lot um But but Kate

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Speaker 1: Raifeld wrote this story, and um, Katie, what I really

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Speaker 1: want to know is how many birthdays can one em

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Speaker 1: because yes, we're talking about it right now, but lots

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Speaker 1: of people we are talking about it on the twenty second,

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Speaker 1: So like, how many birthdays can spy half? It's a

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Speaker 1: great question. Actually, Bloomberg Intelligence wrote about this recently in

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Speaker 1: a research piece that you're probably not going to see

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Speaker 1: many other thirtieth birthdays for E t F. Spy in

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Speaker 1: so many ways stands alone. Obviously, it is the oldest

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Speaker 1: E t F out there. This is a much more

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Speaker 1: saturated market. The boom and bus cycles of new products

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Speaker 1: has shortened a lot, but Spy obviously has stood the

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Speaker 1: test of time. So this industry that it helped create

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Speaker 1: um is coming for it also, right so why could

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Speaker 1: it potentially lose this lead that it's had since it

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Speaker 1: since the very beginning. So that's the thing I mean

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Speaker 1: when you're talking about Spy, it has so many accolades

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Speaker 1: that you need to mention. But you also have to

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Speaker 1: mention the fact that what we have three hundred eight

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Speaker 1: billion dollars in assets that's currently the biggest. But if

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Speaker 1: you look at products from I shares, you look at Vanguard,

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Speaker 1: and those are the industry leaders in terms of overall assets,

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Speaker 1: their SMP five hundred funds are within a hundred billion

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Speaker 1: dollars of spy, and that, honestly in the scheme of

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Speaker 1: E T F S is not and the other thing

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Speaker 1: that they have going for it if you look at

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Speaker 1: the cheaper yes, exactly, so spy it costs what ten

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Speaker 1: basis points. If you round up I, V V and

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Speaker 1: VOO they cost three basis points and talk initials to me,

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Speaker 1: you know, if there's a lot of leathers. But it's

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Speaker 1: not just all about the expense ratio. It's not just

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Speaker 1: about fees, which I was surprised to learn in this story, Katie.

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Speaker 1: It's it's also you know, that might be what long

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Speaker 1: term buy and hold investors care about and that's why

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Speaker 1: they might choose one over another. But if you're looking

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Speaker 1: to get it in out quickly, spy is what you do.

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Speaker 1: That's right. So I mean, if you are a buy

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Speaker 1: and hold investor, you know, someone investing their retirement money,

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Speaker 1: you're going to be there for a few decades. Do

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Speaker 1: you really care about six spaces points that six basis

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Speaker 1: points difference. But the big advantage that SPY has is

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Speaker 1: for institutions because it has such this liquid market built

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Speaker 1: up around it. You think about the lending, you think

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Speaker 1: about the options market built up around Spy. They don't

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Speaker 1: care about the annual expense ratio. They don't ever touch that.

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Speaker 1: What they care about is how easy it is to

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Speaker 1: trade this thing, how cheap it is. That obviously feeds

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Speaker 1: in upon itself. So the fact that Spy is liquid

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Speaker 1: means that Spy is going to continue to be liquid.

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Speaker 1: So why can't Spy match its competitors with in press.

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Speaker 1: It's it's like one of those things that from the

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Speaker 1: outside you're like, well, just lower the basis points, make

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Speaker 1: it cheaper. State Street like, why can't they do that?

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Speaker 1: So I don't think they want to, is the thing.

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Speaker 1: They're not the correct answer, but they don't mean they

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Speaker 1: don't need to because they're earning a ton of money

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Speaker 1: charging ten basis points versus three basis points from investor

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Speaker 1: is that don't super care. And again the Wall Street

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Speaker 1: traders who have really it's become this existentially important product,

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Speaker 1: they don't need it to be cheaper. So there's not

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Speaker 1: really a lot of fee pressure on State Street here.

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Speaker 1: I feel like it's a trust right, so that the

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Speaker 1: structure that created the E T F. This trust thing,

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Speaker 1: uh was basically cast aside at some point, and the

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Speaker 1: trust structure is not predominant anymore in e t s,

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Speaker 1: but it was basically as a proof of concept that

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Speaker 1: was what was used. But that's also what inhibits its

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Speaker 1: ability to get any lower. So the Vanguard product, the

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Speaker 1: black Rock products, those aren't trusts right, so there they

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Speaker 1: can shave away a couple of basis points that that

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Speaker 1: spy can't get any lower. I do want to put

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Speaker 1: something on your calendar right now. You're talking about trust.

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Speaker 1: Reminded me that if you look at the queues, that's

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Speaker 1: a trust as well that was born in So I

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Speaker 1: guess we're going to have to gear up for that

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Speaker 1: profile best go QQQ. Yeah, it's I mean it's also

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Speaker 1: huge also has a really deep market built around it

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Speaker 1: as well. Do we have to be worried as we

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Speaker 1: talk increasingly about actively managed DTF versus the passive form

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Speaker 1: of investing such as this one, I don't feel worried.

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Speaker 1: I think that if you are a new entrant to

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Speaker 1: the e t F market, a new issuer, and you're

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Speaker 1: trying to launch a product, you're maybe a little bit

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Speaker 1: worried because you look at the sort of passive index

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Speaker 1: part of the market, and there's no white space. I mean,

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Speaker 1: at this point, thirty years into the game, everything under

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Speaker 1: the sun exists. So that might force you to become

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Speaker 1: a little bit more active if you're talking about a

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Speaker 1: market structure perspective. I mean sometimes Eric Felt hates this,

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Speaker 1: but people will say that, you know, e t f

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Speaker 1: s are distorting the market. They're all buying the same thing,

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Speaker 1: the rise of passes and investor. Isn't he right when

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Speaker 1: you think about these massive ones don't ever as a

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Speaker 1: component of the trade. Well, I think, Look, I think

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Speaker 1: the thing that when we've written this as Bloomberg News

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Speaker 1: a lot is you know what is passive? What is active?

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Speaker 1: At this point? I mean you put five hundred stocks

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Speaker 1: in an index, that's a choice that's been made. That's

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Speaker 1: an active decision. Like sure it's five hundred, but like

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Speaker 1: it's still it was an active decision about how to

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Speaker 1: Why Tesla wasn't included in that for a long time, right,

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Speaker 1: Like so that there is inherent decision making that goes

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Speaker 1: into this. And didn't we interview David Blitzer together? He

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Speaker 1: was he was part of that committee. But I will

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Speaker 1: also say he did. It was on trillions. I would add, though,

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Speaker 1: that a lot of these passive ETFs are being used

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Speaker 1: for very active purposes. People will use them as building

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Speaker 1: blocks in their actively managed portfolios, just as a way

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Speaker 1: to get exposure in a cheap, tax efficient way. So Trivia,

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Speaker 1: uh the other birthday that I would excited, I just

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Speaker 1: know more than his normal I think. So we're talking

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Speaker 1: about the thirtieth anniversary. There was an event that preceded

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Speaker 1: the birth of the E t F. Anybody, anybody, anybody know?

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Speaker 1: It was an event. You're going, okay, black Monday. Black

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Speaker 1: Monday happened, and that in response to that, the SEC

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Speaker 1: did this white paper and effectively there's a paragraph tucked

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Speaker 1: inside that paper. In this paper is like massive phone book,

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Speaker 1: multiple phone books, and they basically said, black Monday may

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Speaker 1: not have happened if we if we had a product

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Speaker 1: that could do X, Y and Z. And the people

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Speaker 1: who created Spy basically read that passage and reverse engineered it.

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Speaker 1: It took them a while to get approved. But yeah,

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Speaker 1: you can listen more on trillions. We re redropped. Do

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Speaker 1: you know a lot about it? We we re dropped

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Speaker 1: the et F story, which is six episodes about the

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Speaker 1: history of the ETF. That's right. Be sure to check

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Speaker 1: out the Trillions podcast hosted by Joel and Eric Bautunist.

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Speaker 1: The latest episode the e t F Story six part

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Speaker 1: series Very cool Stuff, Very cool stuff. As always from

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Speaker 1: Katie gray Felt. This story is going to be in

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Speaker 1: the upcoming new issue or thanks to Joel as well.

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Speaker 1: You're listening to the bloom Bird Business Week podcast. Catch

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Speaker 1: us live week days from two to five pm Eastern

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Speaker 1: on Bloomberg Radio the Bloomberg Business Band you Doo. You

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Speaker 1: can also listen live to our flagship New York station,

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Speaker 1: Just Say Alexa Play Bloomberg E Love and Dirty. Something

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Speaker 1: else that we've been talking about as of late, and

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Speaker 1: that is the world increasingly pushing back stronger if you will,

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Speaker 1: against China. That includes uh, the Japanese, that includes the

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Speaker 1: United States, I mean a lot of them are pushing

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Speaker 1: back at this point, banning advanced chip technology exports to China.

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Speaker 1: This is China continues to move ahead with it's Made

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Speaker 1: in China program to dominate key technology such as semiconductors

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Speaker 1: and AI and more with US now and back with

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Speaker 1: us is Bloomberg New Economy Editorial Director Eric Shatzker here

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Speaker 1: in our Bloomberg Interactive Broker's studio. Eric, good to have

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Speaker 1: you with us. Welcome back to back. So it's not

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Speaker 1: just the U. S And China anymore, It's not the

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Speaker 1: US versus China anymore. This is starting to broaden out,

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Speaker 1: oh very much so. And I want to say first

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Speaker 1: off that there is Carol just for you at chat

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Speaker 1: GBT angle to this story. As you may recall, back

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Speaker 1: in October, the United States the Commerce Department moved to

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Speaker 1: ban exports of advanced chip making technology to China. Why

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Speaker 1: ostensibly to slow the development of Chinese military capabilities, especially

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Speaker 1: in artificial intelligence, which is now the vanguard of modern warfare.

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Speaker 1: And of course this is true. The United States does

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Speaker 1: want to constrain the Chinese military. But now, as of Friday,

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Speaker 1: the United States has an agreement with the Dutch and

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Speaker 1: the Japanese to join this coalition if you will, and

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Speaker 1: so the Netherlands and Japan also will ban the export

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Speaker 1: of advanced chipmaking technology to China. It's important to mention

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Speaker 1: that three of the world's most important chip making equipment

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Speaker 1: suppliers are one Dutch a s mL and to Nikon

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Speaker 1: and Tokyo electron, both of which are Japanese. People tend

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Speaker 1: to think that this is an industry dominated by American companies.

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Speaker 1: Into a large degree, it is, but no one would

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Speaker 1: be able to make the world's most powerful chips without

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Speaker 1: the photo lithography equipment that comes from those three companies

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Speaker 1: that I just mentioned. So yes, on the surface, this

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Speaker 1: is about a military battleground. Quite possibly, and I know

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Speaker 1: that this is hard to process given what's going on

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Speaker 1: in Ukraine, but quite possibly the most important military battleground

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Speaker 1: in the world. But practically speaking, this coalition of the

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Speaker 1: United States, the Netherlands, and Japan banning the export of

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Speaker 1: advanced ship making technology to China is going to accomplish

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Speaker 1: three others. One, it's going to preserve the West's dominance

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Speaker 1: of this critical enabling technology it underpins almost every aspect

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Speaker 1: of modern life, to keep certain sectors of Chinese industry

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Speaker 1: from posing a competitive threat to the West. And three,

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Speaker 1: by forcing the Chinese to enter this arms race and

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Speaker 1: try to match Western capabilities, it will divert important human

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Speaker 1: and financial resources to that endeavor that might otherwise be

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Speaker 1: employed in competing with the West. So it's a multi

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Speaker 1: pronged strategy. All you'll hear from the White House and

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Speaker 1: from other authorities that this is all about national security,

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Speaker 1: and again, to a large degree, it is, but it

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Speaker 1: is very much economic and commercial. At the same time,

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Speaker 1: I wrote some notes to myself making chips equals arms race.

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Speaker 1: It's the new arms race, right in terms of you know,

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Speaker 1: we look at the world, chips are in everything. Right,

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Speaker 1: this is so important that hard, right, it's hard to

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Speaker 1: persuade the Dutch and hard to persuade the JAB and

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Speaker 1: needs to join the Americans in this effort. Why because

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Speaker 1: they sell so much of this stuff to China. It's

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Speaker 1: an it's an immensely important market and you know the

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Speaker 1: kind of it's like cutting off your arm, right, so

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Speaker 1: much potential revenue is being sacrificed in this effort. But

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Speaker 1: if we which is to say, the West, don't do this,

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Speaker 1: it threatens dominance in smartphones. It's threatens dominance in the

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Speaker 1: ability to predict things like climate change, for example, it

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Speaker 1: threatens our dominance in self driving cars, and it threatens

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Speaker 1: our dominance in artificial intelligence like chat, GBT. There it is, Carol,

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Speaker 1: I know you're waiting for that angle. Well, if we

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Speaker 1: continue this idea that it's it's an arms race. And

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Speaker 1: if we continue with that sort of historical parallel here, Eric,

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Speaker 1: is it fair to say that, given what the stakes are,

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Speaker 1: we could have some sort of I don't know, way

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Speaker 1: to keep everyone safe from war, given that it could

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Speaker 1: be mutually assured destruction if the supply chains get taken out,

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Speaker 1: taken out in which way, if there is some sort

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Speaker 1: of skirmish, if there is some sort of conflict. Let's

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Speaker 1: hope there's no skirmish in the short run, because if

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Speaker 1: there were, and what we're really talking about here, I

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Speaker 1: think is an invasion of Taiwan. If the Chinese were

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Speaker 1: to invade Taiwan, that doesn't mean that they all of

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Speaker 1: a sudden get this stuff. These are chip making at

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Speaker 1: this level is the single most complicated, demanding engineering undertaking

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Speaker 1: in human history. Nothing more complicated. And there's only one company,

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Speaker 1: t SMC Taiwan Semi Conductor Manufacturing Corporation, that has perfected

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Speaker 1: the process, and the perfection of that process has taken

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Speaker 1: place only in Taiwan. So all of the world's most

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Speaker 1: advanced simic conductors are made in Taiwan. And yes, if

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Speaker 1: the Chinese were to invade Taiwan, the world would lose

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Speaker 1: access to those chips and that technology for the time being,

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Speaker 1: but so would the Chinese. They don't have the engineers

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Speaker 1: to run these factories. One can assume, I mean, what

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Speaker 1: is an undred ten miles from mainland China to Taiwan

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Speaker 1: that there would be some warning and that the engineers

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Speaker 1: would be able to escape. The question is to where

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Speaker 1: if they make it to say the United States or Europe,

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Speaker 1: are there fabs ready to employ them? No, they're underway.

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Speaker 1: I mean Brown has been broken in Phoenix, and America

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Speaker 1: and Europe are fast trying to catch up. But this

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Speaker 1: is a very important point that you raised. There is

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Speaker 1: this period between now and whenever again. America Europe very

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Speaker 1: badly want to replicate, duplicate, uh, you know, not make redundant,

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Speaker 1: but at least create some redundancy in the supply chain system,

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Speaker 1: so that if there were even an earthquake in Taiwan

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Speaker 1: and those fabs were to be taken out, there would

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Speaker 1: be something to replace them. Because without those chips, all

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Speaker 1: those things that I talked about before, they just don't happen.

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Speaker 1: So I think about, you know, coming off of you know,

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Speaker 1: in Singapore, the Bloomberg New Economy, I mean, when you guys,

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Speaker 1: you obviously touched on a lot of big issues, global issues.

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Speaker 1: How much or how often did people think about what's

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Speaker 1: going on between kind of the tech race, semiconductors and

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Speaker 1: the role that's not enough, not enough, not enough. Again,

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Speaker 1: I'll go back to this idea that you know, take

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Speaker 1: Ukraine off the table for a moment, because it has

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Speaker 1: our attention, and it obviously is a very hot military conflict,

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Speaker 1: and as it has the potential to get hotter and

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Speaker 1: and possibly even go nuclear, and heaven forbid that ever happens.

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Speaker 1: That aside, this is the single most important battle ground

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Speaker 1: in the world. This is going to decide the dominance

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Speaker 1: of the one and twenty second centuries period. Right, It's

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Speaker 1: the key to artificial intelligence, it's the key to virtual reality.

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Speaker 1: It's ultimately the key not just a supercomputing but quantum computing.

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Speaker 1: Whoever gets there first owns it. Right. It is a

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Speaker 1: zero sum game, period and China has made it very clear, right,

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Speaker 1: they're made to pursue kind of higher technology and no

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Speaker 1: more you know, manufacturing to the rest of the world.

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Speaker 1: They want to play on this higher plane, if you will,

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Speaker 1: and with access to the equipment from s mL Tookyo Electron, Nicon,

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Speaker 1: Applied Materials, LAMB Research, etcetera. Those are some of the

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Speaker 1: American companies. They might have been able to get there,

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Speaker 1: but without them they have to build this stuff from scratch.

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Speaker 1: It has taken decades, decades to perfect the photo lithography

428
00:24:29,920 --> 00:24:35,119
Speaker 1: process to manufacture semiconductors at two nanometers. Go to the

429
00:24:35,160 --> 00:24:38,160
Speaker 1: INSCL contact with Pedia Britannica and look up how small

430
00:24:38,200 --> 00:24:42,280
Speaker 1: an anometer is. In a sense, Eric, certainly the Chips

431
00:24:42,320 --> 00:24:45,280
Speaker 1: Act and the billions that are is going towards chips

432
00:24:45,320 --> 00:24:47,239
Speaker 1: here in the US is a big deal. But at

433
00:24:47,280 --> 00:24:50,040
Speaker 1: the same time, would you imagine, given how important this

434
00:24:50,400 --> 00:24:53,120
Speaker 1: this is, perhaps governments would want to do even more

435
00:24:53,280 --> 00:24:56,320
Speaker 1: and it would be a bipartisan issue. Well, it was

436
00:24:56,400 --> 00:25:00,520
Speaker 1: bipartisan inasmuch as the Chips Act was passed. Could it

437
00:25:00,560 --> 00:25:06,240
Speaker 1: become more of a bipartisan issue? You're like describing it

438
00:25:06,280 --> 00:25:09,320
Speaker 1: as like an all hands on deck situation. Almost. The

439
00:25:09,440 --> 00:25:14,560
Speaker 1: sense I get is that many, not all, of our

440
00:25:14,640 --> 00:25:18,320
Speaker 1: elected representatives in Washington do feel very passionately that it

441
00:25:18,520 --> 00:25:21,560
Speaker 1: is an important issue, and yes, we may see more

442
00:25:21,640 --> 00:25:25,959
Speaker 1: action on that front. But let's not forget that government subsidies.

443
00:25:26,720 --> 00:25:29,840
Speaker 1: You know, are a double edged sword. Right. Everybody who's

444
00:25:30,000 --> 00:25:33,439
Speaker 1: been covering these issues for long enough remembers the cylinder

445
00:25:33,560 --> 00:25:38,359
Speaker 1: debacle with solar manufacturing and the government loan million dollars

446
00:25:38,440 --> 00:25:40,040
Speaker 1: that had to be written off. That is a situation

447
00:25:40,119 --> 00:25:43,480
Speaker 1: that this administration and no subsequent administration wants to find

448
00:25:43,520 --> 00:25:46,000
Speaker 1: itself in just quickly ten seconds when we look back

449
00:25:46,000 --> 00:25:48,119
Speaker 1: at this time and say, Okay, this was a smart division,

450
00:25:48,280 --> 00:25:50,920
Speaker 1: you know, decision and really change the game when it

451
00:25:50,960 --> 00:25:53,480
Speaker 1: came to China going forward, at least in terms of

452
00:25:53,560 --> 00:25:56,520
Speaker 1: business and semis. There are many people who describe this

453
00:25:56,720 --> 00:25:59,320
Speaker 1: just like the race to develop and perfect the Adam

454
00:25:59,400 --> 00:26:02,080
Speaker 1: bomb right in World War Two. It is the stake

455
00:26:02,119 --> 00:26:04,520
Speaker 1: sport that high Eric sask, thank you so much. Good

456
00:26:04,520 --> 00:26:06,640
Speaker 1: to have you back in studio, Editorial director of Bloomberg

457
00:26:06,720 --> 00:26:09,880
Speaker 1: New Economy. Here in our interactive Broker studio, you're listening

458
00:26:09,920 --> 00:26:13,679
Speaker 1: and watching Bloomberg Business Week. You're listening to the Bloomberg

459
00:26:13,720 --> 00:26:17,119
Speaker 1: Business Week podcast. Catch us live weekdays from two to

460
00:26:17,240 --> 00:26:20,920
Speaker 1: five pm Easter on Bloomberg Radio, the Bloomberg Business app

461
00:26:20,960 --> 00:26:23,639
Speaker 1: band you too. You can also listen live to our

462
00:26:23,680 --> 00:26:27,720
Speaker 1: flagship New York station, Just say Alexa Play Bloomberg e

463
00:26:27,800 --> 00:26:37,680
Speaker 1: Love and Verdi. I'm broom a journal now. But you

464
00:26:37,800 --> 00:26:42,440
Speaker 1: let me drive? Oh no, no, no, no, honey, please,

465
00:26:42,560 --> 00:26:48,280
Speaker 1: I'll do the riding gravels. I want to drive. It's

466
00:26:48,359 --> 00:26:55,960
Speaker 1: good question. This is the drive to the Clothes music

467
00:26:58,000 --> 00:27:01,760
Speaker 1: on Bloomberg Radio. All right, got about seventeen minutes left

468
00:27:01,800 --> 00:27:03,920
Speaker 1: in today's trading session. It's going to be a big week.

469
00:27:03,960 --> 00:27:06,359
Speaker 1: We know, lots on our mind. The fo MC meeting

470
00:27:06,440 --> 00:27:08,840
Speaker 1: they kick off, kick off that two day meeting tomorrow,

471
00:27:08,960 --> 00:27:11,080
Speaker 1: the decision on Wednesday. You've got to be a fly

472
00:27:11,160 --> 00:27:13,439
Speaker 1: on the wall, as you say all the time, Can

473
00:27:13,480 --> 00:27:15,119
Speaker 1: I just like bring in like the treats you know

474
00:27:15,200 --> 00:27:18,320
Speaker 1: they just here. What do you guys think of you know,

475
00:27:18,840 --> 00:27:24,560
Speaker 1: higher for longer exactly ongoing, Gonna use it anyway. There's

476
00:27:24,640 --> 00:27:30,359
Speaker 1: that there's some big earnings Amazon Alphabet, Apple Meta D

477
00:27:30,840 --> 00:27:34,600
Speaker 1: no am D snapped tomorrow. So a lot of stuff

478
00:27:34,600 --> 00:27:36,480
Speaker 1: going on and then the jobs are put on Friday. Yeah,

479
00:27:36,520 --> 00:27:38,440
Speaker 1: really eager to get through. Our next guest. You know

480
00:27:38,560 --> 00:27:40,320
Speaker 1: his voice, you know his name because he's been on

481
00:27:40,760 --> 00:27:42,560
Speaker 1: with us quite a bit. Abbe Dish Ponde as the

482
00:27:42,560 --> 00:27:45,800
Speaker 1: founder and chief investment officer at the registered investment advisor

483
00:27:45,880 --> 00:27:49,080
Speaker 1: Centerstone Investors joining us via zoom in New York City.

484
00:27:49,640 --> 00:27:51,919
Speaker 1: I'll be good to have you with us. Global value

485
00:27:52,480 --> 00:27:55,320
Speaker 1: is what you've been talking about for a long time. Um,

486
00:27:55,600 --> 00:27:58,120
Speaker 1: before we get to your picks, I want to get

487
00:27:58,440 --> 00:28:00,920
Speaker 1: a look at from where you're standing, what you see

488
00:28:00,960 --> 00:28:07,800
Speaker 1: in well three starting off thankful a little different than two.

489
00:28:08,119 --> 00:28:11,080
Speaker 1: So far. We were talking about this the other day,

490
00:28:11,160 --> 00:28:13,240
Speaker 1: like little do we know it was about to get

491
00:28:13,320 --> 00:28:15,760
Speaker 1: unleashed all us for the full year last year, last January.

492
00:28:15,880 --> 00:28:18,760
Speaker 1: But so far this year it's it's a it's almost

493
00:28:18,760 --> 00:28:22,119
Speaker 1: on your opposite. Uh you have, I mean going region

494
00:28:22,160 --> 00:28:26,320
Speaker 1: by region. Um, you know, Europe has luck maybe fortuitously

495
00:28:27,560 --> 00:28:30,400
Speaker 1: avoided the worst case scenario with the winter. Their energy

496
00:28:30,480 --> 00:28:34,680
Speaker 1: usage has been weighed below what they were fearing. The

497
00:28:34,760 --> 00:28:37,680
Speaker 1: economies can are sort of able to maybe absorb that

498
00:28:37,720 --> 00:28:40,600
Speaker 1: a little bit. Um, that that hit, that hike cost

499
00:28:40,720 --> 00:28:43,400
Speaker 1: hit a little bit easier this year. China's of course

500
00:28:43,480 --> 00:28:48,080
Speaker 1: opening up. Um, the dollar has at least stabilized for now,

501
00:28:48,160 --> 00:28:50,400
Speaker 1: which is good for emerging markets. So a lot of

502
00:28:50,800 --> 00:28:54,160
Speaker 1: you know, if a lot of positive takeaways to start

503
00:28:54,240 --> 00:28:57,680
Speaker 1: the year. Um, you know, so so far, so good. Granted,

504
00:28:57,720 --> 00:29:00,800
Speaker 1: it's you know, January. Yeah, it's still going. But you know,

505
00:29:00,880 --> 00:29:02,680
Speaker 1: for someone, one of the reasons I love talking with

506
00:29:02,760 --> 00:29:05,560
Speaker 1: you is, you know, the global perspective, right, and we

507
00:29:05,640 --> 00:29:08,280
Speaker 1: need to think about that, certainly for all investors, and

508
00:29:09,000 --> 00:29:12,920
Speaker 1: you know what different monetary policies might mean, global risk

509
00:29:13,000 --> 00:29:15,680
Speaker 1: factors might mean for different parts of the world. Having

510
00:29:15,720 --> 00:29:18,280
Speaker 1: said that, I wonder what you mean, what you think

511
00:29:18,360 --> 00:29:20,920
Speaker 1: about and something we talked with our Eric Shatzker about

512
00:29:20,960 --> 00:29:24,560
Speaker 1: the increasing tensions with China, and there was a headline

513
00:29:24,640 --> 00:29:27,520
Speaker 1: just a few minutes ago about how the Body administration

514
00:29:27,600 --> 00:29:30,360
Speaker 1: is considering cutting off Huahwei Technologies from all of its

515
00:29:30,360 --> 00:29:34,040
Speaker 1: American suppliers, including Intel and Qualcom, as the US government

516
00:29:34,080 --> 00:29:37,760
Speaker 1: intensifies a crackdown on the Chinese technology UH sector. And

517
00:29:37,840 --> 00:29:40,800
Speaker 1: then we just had Bloomberg a few days ago talking

518
00:29:40,880 --> 00:29:44,320
Speaker 1: about how specifically the Dutch in Japanese are joining the

519
00:29:44,440 --> 00:29:48,000
Speaker 1: US and banning advanced chip technology exports to China. Are

520
00:29:48,080 --> 00:29:51,520
Speaker 1: we seeing that dividing up of the world happening that

521
00:29:51,680 --> 00:29:57,320
Speaker 1: kind of tech great wall? Yeah, I mean we have

522
00:29:57,400 --> 00:30:01,400
Speaker 1: been kind of getting people heads up on this, uh,

523
00:30:01,640 --> 00:30:05,360
Speaker 1: you know, like five six years ago. UM, and I

524
00:30:05,480 --> 00:30:08,000
Speaker 1: think that that that path still lays in front of us.

525
00:30:08,560 --> 00:30:13,000
Speaker 1: Where the you know, different countries have different diverging interests,

526
00:30:13,400 --> 00:30:17,960
Speaker 1: and one of the main diverging interests is is this

527
00:30:18,120 --> 00:30:21,800
Speaker 1: idea of intellectual property, and um, the Chinese you know,

528
00:30:22,040 --> 00:30:26,160
Speaker 1: very local use of it to to try to create

529
00:30:26,280 --> 00:30:29,800
Speaker 1: some sort of a technological military advantage for themselves. Um.

530
00:30:30,680 --> 00:30:33,840
Speaker 1: At the end of the day, though I don't believe that. Um,

531
00:30:35,120 --> 00:30:38,560
Speaker 1: it's really uh, I don't think. I don't spend much

532
00:30:38,600 --> 00:30:40,360
Speaker 1: time worrying about like a war or anything like that.

533
00:30:41,160 --> 00:30:45,280
Speaker 1: There's just it's nobody's interests right now. I think where

534
00:30:45,520 --> 00:30:51,640
Speaker 1: Peak possibly Peak kind of worry about about China versus

535
00:30:51,680 --> 00:30:53,640
Speaker 1: the United States, And just the other days in general

536
00:30:53,720 --> 00:30:55,600
Speaker 1: came out of the Air Force general came out and said,

537
00:30:55,600 --> 00:30:56,760
Speaker 1: you know, hey, we're gonna go to war with these

538
00:30:56,800 --> 00:31:01,040
Speaker 1: guys in It just doesn't seem why that to me

539
00:31:01,160 --> 00:31:03,640
Speaker 1: just seems like maybe a little bit more worried than

540
00:31:03,840 --> 00:31:06,600
Speaker 1: that than is warranted by reality. The reality is Chinese

541
00:31:06,640 --> 00:31:09,000
Speaker 1: are kind of boxed in a little bit Chinese government,

542
00:31:09,040 --> 00:31:13,280
Speaker 1: as I should say, um, by the multiple policy failures

543
00:31:13,400 --> 00:31:17,360
Speaker 1: and and you know this very chaotic COVID reopening, COVID reopening,

544
00:31:17,960 --> 00:31:21,360
Speaker 1: but it behooves no one to just box them into

545
00:31:21,360 --> 00:31:23,360
Speaker 1: a quarner and try to you know, punish them like

546
00:31:23,600 --> 00:31:26,320
Speaker 1: like you know it has been done with Russia. China's

547
00:31:26,800 --> 00:31:29,880
Speaker 1: is the largest exporter in the world. I mean, it's

548
00:31:29,880 --> 00:31:32,960
Speaker 1: a huge manufacturing center for the entire world. Without it,

549
00:31:33,600 --> 00:31:37,040
Speaker 1: a lot of the world's you know, the globalized supply chains,

550
00:31:37,200 --> 00:31:39,280
Speaker 1: they exist, they just don't exist. So I don't I

551
00:31:39,320 --> 00:31:42,600
Speaker 1: don't think that there's a reason to expect a major conflict.

552
00:31:42,680 --> 00:31:44,280
Speaker 1: We only have about ninety seconds left, and I want

553
00:31:44,280 --> 00:31:45,520
Speaker 1: to get to some of the picks that you have,

554
00:31:45,600 --> 00:31:46,960
Speaker 1: because there are a couple in here that sort of

555
00:31:47,000 --> 00:31:49,000
Speaker 1: seement opposite ed into the spectrum. I'm gonna ask you

556
00:31:49,040 --> 00:31:51,600
Speaker 1: about both of these companies at once. We got on

557
00:31:51,800 --> 00:31:56,840
Speaker 1: one hand, Ross Stores and on the other hand, Porsche. Yeah,

558
00:31:57,400 --> 00:32:01,719
Speaker 1: two different kinds of concepts. They what happened last year

559
00:32:01,760 --> 00:32:05,280
Speaker 1: We had a fairly you know, dramatic sell off in

560
00:32:05,440 --> 00:32:09,680
Speaker 1: all kinds of companies, good and poor quality in terms

561
00:32:09,720 --> 00:32:14,280
Speaker 1: of the franchises. And when that happens, you know, value investors,

562
00:32:14,360 --> 00:32:16,320
Speaker 1: it's great for us at Center. So we're value investors.

563
00:32:16,360 --> 00:32:18,240
Speaker 1: That's great for us because we're then able to just

564
00:32:18,320 --> 00:32:21,120
Speaker 1: sort of migrate interra higher quality names, things that have

565
00:32:21,280 --> 00:32:26,440
Speaker 1: franchise values UM and represent you know, a good long

566
00:32:26,560 --> 00:32:30,120
Speaker 1: term investment for our our clients. It's unusual that we

567
00:32:30,200 --> 00:32:33,520
Speaker 1: get to do that in you know, a a you know,

568
00:32:33,520 --> 00:32:36,280
Speaker 1: a very general way, which we're able to do last year,

569
00:32:36,360 --> 00:32:38,240
Speaker 1: so that if you look at our portfolio you bought

570
00:32:38,280 --> 00:32:41,200
Speaker 1: like overtend new names last year. The common element with

571
00:32:41,560 --> 00:32:43,560
Speaker 1: whether it's a Ross or Porsche or some of the

572
00:32:43,600 --> 00:32:45,880
Speaker 1: other companies we bought is that their franchises are run

573
00:32:45,960 --> 00:32:49,240
Speaker 1: by good management teams UM, and they have good balance sheets.

574
00:32:49,280 --> 00:32:52,760
Speaker 1: Like essentially the companies are on autopid they run themselves.

575
00:32:52,920 --> 00:32:55,200
Speaker 1: And beyond all of that, of course, is that they

576
00:32:55,280 --> 00:32:58,760
Speaker 1: traded you know, very attractive prices compared to their intrinsic values.

577
00:32:59,320 --> 00:33:02,240
Speaker 1: So we get every thing in one one right one

578
00:33:02,320 --> 00:33:05,400
Speaker 1: going alright, We're gonna have to leave it on that note, UM,

579
00:33:05,520 --> 00:33:07,480
Speaker 1: and we love talking names with you. Rush Stores, by

580
00:33:07,520 --> 00:33:12,040
Speaker 1: the way, is up about fift since a low in

581
00:33:12,200 --> 00:33:14,600
Speaker 1: last August, so we've certainly seen a bump up in

582
00:33:14,720 --> 00:33:17,960
Speaker 1: that one. Um Bonde, thank you so much, Founder, Chief

583
00:33:18,000 --> 00:33:22,640
Speaker 1: investment officer at center Stone Investors, the registered investment advisor

584
00:33:22,720 --> 00:33:26,440
Speaker 1: joining us via zoom in New York City. This is

585
00:33:26,520 --> 00:33:30,840
Speaker 1: the Bloomberg Business Week podcast, available on Apple, Spotify, and

586
00:33:31,000 --> 00:33:34,760
Speaker 1: anywhere else you get your podcast. Listen live each weekday

587
00:33:34,800 --> 00:33:37,480
Speaker 1: is starting at two pm Eastern pont Bloomberg dot Com,

588
00:33:37,720 --> 00:33:40,320
Speaker 1: the I Heart Radio app, tune In, and the Bloomberg

589
00:33:40,400 --> 00:33:43,320
Speaker 1: Business App. You can also watch us live every weekday

590
00:33:43,360 --> 00:33:46,440
Speaker 1: on YouTube and always on the Bloomberg Term level