Speaker 1: This is Bloomberg business Week inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Manser and Tim Stinebec from Bloomberg Radio.
Speaker 1: The first fo EB Scene meeting of the year kicks
Speaker 1: off tomorrow. The decision comes on Wednesday. We'll also hear
Speaker 1: from J. Powell that afternoon. Ahead of that, our own
Speaker 1: Steve Matthews notes that FED Chief J. Powell and Wall
Speaker 1: Street are headed for another face off this week. This
Speaker 1: is the US Central Bank seeks to slow its inflation
Speaker 1: fighting campaign without signaling a readiness to stop f O
Speaker 1: m C policy and reading the Fed tea leaves both
Speaker 1: and are not easy. With more on his most read
Speaker 1: We've got Bloomberg News Economics reporter Steve Matthews. He's in
Speaker 1: our Atlanta Bureau. Steve, financial conditions very important thing for
Speaker 1: the Federal Reserve, obviously with the Fed raising rates so
Speaker 1: much and FED policy started to make its way throughout
Speaker 1: this system off I conditions are just really tight right now,
Speaker 1: right not at all surprisingly, the financial conditions if you
Speaker 1: look at the Bloomberg Financial Conditions index. They are the
Speaker 1: easiest since last February. They're easier than before the Fed
Speaker 1: started raising rates. And the Fed is not gonna be
Speaker 1: happy about this. Uh. Monetary policy works through financial conditions,
Speaker 1: meaning you know what's happening to mortgage rates, what's happening
Speaker 1: to corporate lending rates, what's happening stock and bond prices,
Speaker 1: that what's happening with the dollar. And when you have
Speaker 1: easier conditions, that supports growth. The FED is trying to
Speaker 1: achieve below trend growth, which is going to ease, in
Speaker 1: their view, ease pressures on the labor market and therefore
Speaker 1: ease and inflationary pressures. They are not getting it. And
Speaker 1: so while they have pretty well signaled that you're gonna
Speaker 1: get a twenty five basis point hike on Wednesday, UH,
Speaker 1: the tone of Chair Palell's comments and potentially of the
Speaker 1: statement are going to be hawkish. Yeah, it ain't tricky,
Speaker 1: or it isn't easy being the Fed. We know that,
Speaker 1: or maybe it is because you're saying the same thing
Speaker 1: over and over again. It's not easy being an investor
Speaker 1: who thinks that you know financial conditions, you know, markets
Speaker 1: doing what the FED wants It to do. No, it's
Speaker 1: a good point. And I do wonder though, right Steve,
Speaker 1: if the FED is going to have to be harder
Speaker 1: either in the press conference J Powell to kind of
Speaker 1: really make sure investors don't get to ahead of themselves.
Speaker 1: This is the managing it has to do. Right. It
Speaker 1: doesn't want too much enthusiasm to come back um and
Speaker 1: think about you know, financial conditions staying easy because they
Speaker 1: want things to slow down. They don't want them to
Speaker 1: pick up again. That is exactly right. And and in fact,
Speaker 1: you know, if you go back and look at the
Speaker 1: last several meetings, this will be the first basis point hike,
Speaker 1: and I think you know after six six hikes of
Speaker 1: of larger than that. And what they're afraid of is
Speaker 1: if you go back to meetings, we had seventy basis
Speaker 1: points last meeting, we had fifty basis points. This meeting,
Speaker 1: we're gonna have a quarter point. And you know, if
Speaker 1: you just kind of do a straight line, that would
Speaker 1: suggest to the next meeting we pause. And that is
Speaker 1: not the message they want to send. They want to
Speaker 1: send the message that they're going to be continuing to
Speaker 1: raise rates and that they're going to be more important
Speaker 1: than that that they're going to keep rights high for longer.
Speaker 1: And so you know that will be the message. You know,
Speaker 1: they go into all these press conferences with talking points,
Speaker 1: and you can be sure that that's going to be
Speaker 1: one of the talking points that chere Paw comes out with.
Speaker 1: Why is this so unclear to Wall Street? Well, Street's like,
Speaker 1: we got it, Jake, Joe, you know, I mean, well,
Speaker 1: the tricky thing is that Wall Street is reacting to
Speaker 1: legitimately good news. We have had good news on inflation,
Speaker 1: and you know, Chair Powell is going to have to
Speaker 1: acknowledge there has been some good news, as much as
Speaker 1: he may not want to highlight it. Uh So, you
Speaker 1: know they're gonna have to hit the right balance that, yes, inflation,
Speaker 1: the outlook looks better than they thought, you know, the
Speaker 1: last meeting which is in December, but still it's not
Speaker 1: headed to two percent and the goal is to get
Speaker 1: inflation down to two percent, and they believe there's not
Speaker 1: enough tightness and Wall Street legitimately just has trouble understanding
Speaker 1: what the Fed is saying. I mean, you saw this
Speaker 1: in July when Powell made some comments and everybody said, pivot,
Speaker 1: We're on a pivot. Well, there was no pivot, and
Speaker 1: uh so, you know, the Fed can be a little
Speaker 1: bit mysterious to understand, and Wall Street sometimes gets it wrong.
Speaker 1: I mean, the tricky point is if the Fed continues
Speaker 1: steve to stick to getting inflation down to two percent,
Speaker 1: then it's got to ways to go. Folks wake up
Speaker 1: and smell the coffee, right. But if the Street and
Speaker 1: everybody says NAT's more like four or five percent and
Speaker 1: we're just gonna settle there, then the Feed is done.
Speaker 1: So that's a big part of the disconnect. Yeah, I
Speaker 1: think that's that is a big part of the disconnect.
Speaker 1: But also part of it is that the FED believes
Speaker 1: that the economy is resilient. I mean, we had three
Speaker 1: percent growth in the fourth quarter. Uh, you know, we're
Speaker 1: likely to have some significant growth in the first quarter.
Speaker 1: The much of Wall Street, two thirds of Wall Street
Speaker 1: maybe more than that, is predicting a recession this year.
Speaker 1: The Feed is not predicting a recession this year. If
Speaker 1: the economy holds up better than expected, that implies that
Speaker 1: rates are going to be higher than the Wall Street expects.
Speaker 1: So it's like, if your forecast is we're headed to
Speaker 1: recession sometime soon, you know that's not how the Fed
Speaker 1: is looking at the world. Hey, one thing I want
Speaker 1: to ask you. We've got some new Fed mint members
Speaker 1: right actually voting this year. Does that potentially change how
Speaker 1: it all plays out? Yeah, it is a slightly more
Speaker 1: dubbish Fed this year. You'll you'll have googlesby the new
Speaker 1: Chicago Fed president voting. Bullard was voting last year, who's
Speaker 1: kind of a notable hawk and he's gone. Esther George,
Speaker 1: who's largely regarded as being hawkish, is gone. You had
Speaker 1: a couple of new appointees from the Biden administration who
Speaker 1: are who are viewed to be kind of centrist. So
Speaker 1: you know, incrementally you're going to have a slightly more
Speaker 1: dovish voting rotation. Although the interesting thing is, if you
Speaker 1: go back to the December dot plot, seventeen of the
Speaker 1: nineteen f o MC participants, we're predicting rates over five percent,
Speaker 1: which is more than what Wall Street is predicting right now.
Speaker 1: Fifteen of the seventeen seven, I think, seventeen of nineteen. Okay,
Speaker 1: that's pretty hawkish, right, that is hawkish. That is not
Speaker 1: where Wall Street is. Okay, Steve, give us your best
Speaker 1: prediction for a we hear from j Powell on Wednesday. Uh,
Speaker 1: I think we're going to hear that rights are going
Speaker 1: to be higher for longer. That he said in December
Speaker 1: that there would be no cuts this year. I think
Speaker 1: he will repeat that in the statement. I think the
Speaker 1: key question is ongoing. They've been saying, we're in the
Speaker 1: statement we're going to see ongoing increases, And there's a
Speaker 1: big debate on Wall Street. Does that change to say
Speaker 1: further tightening, which would at least open the door for
Speaker 1: the possibility of a pause and you know, later this
Speaker 1: spring and if they keep on going, that says they're
Speaker 1: going to do at least two more hikes. I love
Speaker 1: when we obsess about one word ongoing, hashtag ongoing. Steve Matthews,
Speaker 1: we will be looking for your coverage. I know you'll
Speaker 1: be part of our our live blog and looking forward
Speaker 1: to your analysis after Steve Matthews, Economics reporter at Bloomberg News.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekdays from two to five pm East here on
Speaker 1: Bloomberg Radio, the Bloomberg Business Avan. You do. You can
Speaker 1: also listen live to our flagship New York station Just
Speaker 1: say Alexa Play Bloomberg E Love and Dirty with three
Speaker 1: D seventy five billion dollars give or take a little
Speaker 1: bit in assets. It is the biggest exchange traded fund
Speaker 1: on the planet. We are talking about State Streets, Spider
Speaker 1: s and P five fund that has changed the game
Speaker 1: of investing. And you know what, now it's facing a
Speaker 1: lot of competition. It's not the only game in town.
Speaker 1: This story in the upcoming new issue of Bloomberg Business Week.
Speaker 1: It's out on news stands later this week on the
Speaker 1: Bloomberg and online at Bloomberg dot com. Let's get to
Speaker 1: it with Katie Greifeld, Bloomberg New Senior Market supporter here
Speaker 1: in our Bloomberg Interactive Broker Studio, along with the editor
Speaker 1: of Business Week, Joel Weber. Joel, Happy birthday. Why yeah,
Speaker 1: thirty years old. It's the biggest E t F I
Speaker 1: know more about this than I, uh is probably would
Speaker 1: make sense, But because I co pilot the podcast Trillions,
Speaker 1: which is all about E t f s, and I've
Speaker 1: gotten a long on the history of et F so
Speaker 1: I know I know a lot um But but Kate
Speaker 1: Raifeld wrote this story, and um, Katie, what I really
Speaker 1: want to know is how many birthdays can one em
Speaker 1: because yes, we're talking about it right now, but lots
Speaker 1: of people we are talking about it on the twenty second,
Speaker 1: So like, how many birthdays can spy half? It's a
Speaker 1: great question. Actually, Bloomberg Intelligence wrote about this recently in
Speaker 1: a research piece that you're probably not going to see
Speaker 1: many other thirtieth birthdays for E t F. Spy in
Speaker 1: so many ways stands alone. Obviously, it is the oldest
Speaker 1: E t F out there. This is a much more
Speaker 1: saturated market. The boom and bus cycles of new products
Speaker 1: has shortened a lot, but Spy obviously has stood the
Speaker 1: test of time. So this industry that it helped create
Speaker 1: um is coming for it also, right so why could
Speaker 1: it potentially lose this lead that it's had since it
Speaker 1: since the very beginning. So that's the thing I mean
Speaker 1: when you're talking about Spy, it has so many accolades
Speaker 1: that you need to mention. But you also have to
Speaker 1: mention the fact that what we have three hundred eight
Speaker 1: billion dollars in assets that's currently the biggest. But if
Speaker 1: you look at products from I shares, you look at Vanguard,
Speaker 1: and those are the industry leaders in terms of overall assets,
Speaker 1: their SMP five hundred funds are within a hundred billion
Speaker 1: dollars of spy, and that, honestly in the scheme of
Speaker 1: E T F S is not and the other thing
Speaker 1: that they have going for it if you look at
Speaker 1: the cheaper yes, exactly, so spy it costs what ten
Speaker 1: basis points. If you round up I, V V and
Speaker 1: VOO they cost three basis points and talk initials to me,
Speaker 1: you know, if there's a lot of leathers. But it's
Speaker 1: not just all about the expense ratio. It's not just
Speaker 1: about fees, which I was surprised to learn in this story, Katie.
Speaker 1: It's it's also you know, that might be what long
Speaker 1: term buy and hold investors care about and that's why
Speaker 1: they might choose one over another. But if you're looking
Speaker 1: to get it in out quickly, spy is what you do.
Speaker 1: That's right. So I mean, if you are a buy
Speaker 1: and hold investor, you know, someone investing their retirement money,
Speaker 1: you're going to be there for a few decades. Do
Speaker 1: you really care about six spaces points that six basis
Speaker 1: points difference. But the big advantage that SPY has is
Speaker 1: for institutions because it has such this liquid market built
Speaker 1: up around it. You think about the lending, you think
Speaker 1: about the options market built up around Spy. They don't
Speaker 1: care about the annual expense ratio. They don't ever touch that.
Speaker 1: What they care about is how easy it is to
Speaker 1: trade this thing, how cheap it is. That obviously feeds
Speaker 1: in upon itself. So the fact that Spy is liquid
Speaker 1: means that Spy is going to continue to be liquid.
Speaker 1: So why can't Spy match its competitors with in press.
Speaker 1: It's it's like one of those things that from the
Speaker 1: outside you're like, well, just lower the basis points, make
Speaker 1: it cheaper. State Street like, why can't they do that?
Speaker 1: So I don't think they want to, is the thing.
Speaker 1: They're not the correct answer, but they don't mean they
Speaker 1: don't need to because they're earning a ton of money
Speaker 1: charging ten basis points versus three basis points from investor
Speaker 1: is that don't super care. And again the Wall Street
Speaker 1: traders who have really it's become this existentially important product,
Speaker 1: they don't need it to be cheaper. So there's not
Speaker 1: really a lot of fee pressure on State Street here.
Speaker 1: I feel like it's a trust right, so that the
Speaker 1: structure that created the E T F. This trust thing,
Speaker 1: uh was basically cast aside at some point, and the
Speaker 1: trust structure is not predominant anymore in e t s,
Speaker 1: but it was basically as a proof of concept that
Speaker 1: was what was used. But that's also what inhibits its
Speaker 1: ability to get any lower. So the Vanguard product, the
Speaker 1: black Rock products, those aren't trusts right, so there they
Speaker 1: can shave away a couple of basis points that that
Speaker 1: spy can't get any lower. I do want to put
Speaker 1: something on your calendar right now. You're talking about trust.
Speaker 1: Reminded me that if you look at the queues, that's
Speaker 1: a trust as well that was born in So I
Speaker 1: guess we're going to have to gear up for that
Speaker 1: profile best go QQQ. Yeah, it's I mean it's also
Speaker 1: huge also has a really deep market built around it
Speaker 1: as well. Do we have to be worried as we
Speaker 1: talk increasingly about actively managed DTF versus the passive form
Speaker 1: of investing such as this one, I don't feel worried.
Speaker 1: I think that if you are a new entrant to
Speaker 1: the e t F market, a new issuer, and you're
Speaker 1: trying to launch a product, you're maybe a little bit
Speaker 1: worried because you look at the sort of passive index
Speaker 1: part of the market, and there's no white space. I mean,
Speaker 1: at this point, thirty years into the game, everything under
Speaker 1: the sun exists. So that might force you to become
Speaker 1: a little bit more active if you're talking about a
Speaker 1: market structure perspective. I mean sometimes Eric Felt hates this,
Speaker 1: but people will say that, you know, e t f
Speaker 1: s are distorting the market. They're all buying the same thing,
Speaker 1: the rise of passes and investor. Isn't he right when
Speaker 1: you think about these massive ones don't ever as a
Speaker 1: component of the trade. Well, I think, Look, I think
Speaker 1: the thing that when we've written this as Bloomberg News
Speaker 1: a lot is you know what is passive? What is active?
Speaker 1: At this point? I mean you put five hundred stocks
Speaker 1: in an index, that's a choice that's been made. That's
Speaker 1: an active decision. Like sure it's five hundred, but like
Speaker 1: it's still it was an active decision about how to
Speaker 1: Why Tesla wasn't included in that for a long time, right,
Speaker 1: Like so that there is inherent decision making that goes
Speaker 1: into this. And didn't we interview David Blitzer together? He
Speaker 1: was he was part of that committee. But I will
Speaker 1: also say he did. It was on trillions. I would add, though,
Speaker 1: that a lot of these passive ETFs are being used
Speaker 1: for very active purposes. People will use them as building
Speaker 1: blocks in their actively managed portfolios, just as a way
Speaker 1: to get exposure in a cheap, tax efficient way. So Trivia,
Speaker 1: uh the other birthday that I would excited, I just
Speaker 1: know more than his normal I think. So we're talking
Speaker 1: about the thirtieth anniversary. There was an event that preceded
Speaker 1: the birth of the E t F. Anybody, anybody, anybody know?
Speaker 1: It was an event. You're going, okay, black Monday. Black
Speaker 1: Monday happened, and that in response to that, the SEC
Speaker 1: did this white paper and effectively there's a paragraph tucked
Speaker 1: inside that paper. In this paper is like massive phone book,
Speaker 1: multiple phone books, and they basically said, black Monday may
Speaker 1: not have happened if we if we had a product
Speaker 1: that could do X, Y and Z. And the people
Speaker 1: who created Spy basically read that passage and reverse engineered it.
Speaker 1: It took them a while to get approved. But yeah,
Speaker 1: you can listen more on trillions. We re redropped. Do
Speaker 1: you know a lot about it? We we re dropped
Speaker 1: the et F story, which is six episodes about the
Speaker 1: history of the ETF. That's right. Be sure to check
Speaker 1: out the Trillions podcast hosted by Joel and Eric Bautunist.
Speaker 1: The latest episode the e t F Story six part
Speaker 1: series Very cool Stuff, Very cool stuff. As always from
Speaker 1: Katie gray Felt. This story is going to be in
Speaker 1: the upcoming new issue or thanks to Joel as well.
Speaker 1: You're listening to the bloom Bird Business Week podcast. Catch
Speaker 1: us live week days from two to five pm Eastern
Speaker 1: on Bloomberg Radio the Bloomberg Business Band you Doo. You
Speaker 1: can also listen live to our flagship New York station,
Speaker 1: Just Say Alexa Play Bloomberg E Love and Dirty. Something
Speaker 1: else that we've been talking about as of late, and
Speaker 1: that is the world increasingly pushing back stronger if you will,
Speaker 1: against China. That includes uh, the Japanese, that includes the
Speaker 1: United States, I mean a lot of them are pushing
Speaker 1: back at this point, banning advanced chip technology exports to China.
Speaker 1: This is China continues to move ahead with it's Made
Speaker 1: in China program to dominate key technology such as semiconductors
Speaker 1: and AI and more with US now and back with
Speaker 1: us is Bloomberg New Economy Editorial Director Eric Shatzker here
Speaker 1: in our Bloomberg Interactive Broker's studio. Eric, good to have
Speaker 1: you with us. Welcome back to back. So it's not
Speaker 1: just the U. S And China anymore, It's not the
Speaker 1: US versus China anymore. This is starting to broaden out,
Speaker 1: oh very much so. And I want to say first
Speaker 1: off that there is Carol just for you at chat
Speaker 1: GBT angle to this story. As you may recall, back
Speaker 1: in October, the United States the Commerce Department moved to
Speaker 1: ban exports of advanced chip making technology to China. Why
Speaker 1: ostensibly to slow the development of Chinese military capabilities, especially
Speaker 1: in artificial intelligence, which is now the vanguard of modern warfare.
Speaker 1: And of course this is true. The United States does
Speaker 1: want to constrain the Chinese military. But now, as of Friday,
Speaker 1: the United States has an agreement with the Dutch and
Speaker 1: the Japanese to join this coalition if you will, and
Speaker 1: so the Netherlands and Japan also will ban the export
Speaker 1: of advanced chipmaking technology to China. It's important to mention
Speaker 1: that three of the world's most important chip making equipment
Speaker 1: suppliers are one Dutch a s mL and to Nikon
Speaker 1: and Tokyo electron, both of which are Japanese. People tend
Speaker 1: to think that this is an industry dominated by American companies.
Speaker 1: Into a large degree, it is, but no one would
Speaker 1: be able to make the world's most powerful chips without
Speaker 1: the photo lithography equipment that comes from those three companies
Speaker 1: that I just mentioned. So yes, on the surface, this
Speaker 1: is about a military battleground. Quite possibly, and I know
Speaker 1: that this is hard to process given what's going on
Speaker 1: in Ukraine, but quite possibly the most important military battleground
Speaker 1: in the world. But practically speaking, this coalition of the
Speaker 1: United States, the Netherlands, and Japan banning the export of
Speaker 1: advanced ship making technology to China is going to accomplish
Speaker 1: three others. One, it's going to preserve the West's dominance
Speaker 1: of this critical enabling technology it underpins almost every aspect
Speaker 1: of modern life, to keep certain sectors of Chinese industry
Speaker 1: from posing a competitive threat to the West. And three,
Speaker 1: by forcing the Chinese to enter this arms race and
Speaker 1: try to match Western capabilities, it will divert important human
Speaker 1: and financial resources to that endeavor that might otherwise be
Speaker 1: employed in competing with the West. So it's a multi
Speaker 1: pronged strategy. All you'll hear from the White House and
Speaker 1: from other authorities that this is all about national security,
Speaker 1: and again, to a large degree, it is, but it
Speaker 1: is very much economic and commercial. At the same time,
Speaker 1: I wrote some notes to myself making chips equals arms race.
Speaker 1: It's the new arms race, right in terms of you know,
Speaker 1: we look at the world, chips are in everything. Right,
Speaker 1: this is so important that hard, right, it's hard to
Speaker 1: persuade the Dutch and hard to persuade the JAB and
Speaker 1: needs to join the Americans in this effort. Why because
Speaker 1: they sell so much of this stuff to China. It's
Speaker 1: an it's an immensely important market and you know the
Speaker 1: kind of it's like cutting off your arm, right, so
Speaker 1: much potential revenue is being sacrificed in this effort. But
Speaker 1: if we which is to say, the West, don't do this,
Speaker 1: it threatens dominance in smartphones. It's threatens dominance in the
Speaker 1: ability to predict things like climate change, for example, it
Speaker 1: threatens our dominance in self driving cars, and it threatens
Speaker 1: our dominance in artificial intelligence like chat, GBT. There it is, Carol,
Speaker 1: I know you're waiting for that angle. Well, if we
Speaker 1: continue this idea that it's it's an arms race. And
Speaker 1: if we continue with that sort of historical parallel here, Eric,
Speaker 1: is it fair to say that, given what the stakes are,
Speaker 1: we could have some sort of I don't know, way
Speaker 1: to keep everyone safe from war, given that it could
Speaker 1: be mutually assured destruction if the supply chains get taken out,
Speaker 1: taken out in which way, if there is some sort
Speaker 1: of skirmish, if there is some sort of conflict. Let's
Speaker 1: hope there's no skirmish in the short run, because if
Speaker 1: there were, and what we're really talking about here, I
Speaker 1: think is an invasion of Taiwan. If the Chinese were
Speaker 1: to invade Taiwan, that doesn't mean that they all of
Speaker 1: a sudden get this stuff. These are chip making at
Speaker 1: this level is the single most complicated, demanding engineering undertaking
Speaker 1: in human history. Nothing more complicated. And there's only one company,
Speaker 1: t SMC Taiwan Semi Conductor Manufacturing Corporation, that has perfected
Speaker 1: the process, and the perfection of that process has taken
Speaker 1: place only in Taiwan. So all of the world's most
Speaker 1: advanced simic conductors are made in Taiwan. And yes, if
Speaker 1: the Chinese were to invade Taiwan, the world would lose
Speaker 1: access to those chips and that technology for the time being,
Speaker 1: but so would the Chinese. They don't have the engineers
Speaker 1: to run these factories. One can assume, I mean, what
Speaker 1: is an undred ten miles from mainland China to Taiwan
Speaker 1: that there would be some warning and that the engineers
Speaker 1: would be able to escape. The question is to where
Speaker 1: if they make it to say the United States or Europe,
Speaker 1: are there fabs ready to employ them? No, they're underway.
Speaker 1: I mean Brown has been broken in Phoenix, and America
Speaker 1: and Europe are fast trying to catch up. But this
Speaker 1: is a very important point that you raised. There is
Speaker 1: this period between now and whenever again. America Europe very
Speaker 1: badly want to replicate, duplicate, uh, you know, not make redundant,
Speaker 1: but at least create some redundancy in the supply chain system,
Speaker 1: so that if there were even an earthquake in Taiwan
Speaker 1: and those fabs were to be taken out, there would
Speaker 1: be something to replace them. Because without those chips, all
Speaker 1: those things that I talked about before, they just don't happen.
Speaker 1: So I think about, you know, coming off of you know,
Speaker 1: in Singapore, the Bloomberg New Economy, I mean, when you guys,
Speaker 1: you obviously touched on a lot of big issues, global issues.
Speaker 1: How much or how often did people think about what's
Speaker 1: going on between kind of the tech race, semiconductors and
Speaker 1: the role that's not enough, not enough, not enough. Again,
Speaker 1: I'll go back to this idea that you know, take
Speaker 1: Ukraine off the table for a moment, because it has
Speaker 1: our attention, and it obviously is a very hot military conflict,
Speaker 1: and as it has the potential to get hotter and
Speaker 1: and possibly even go nuclear, and heaven forbid that ever happens.
Speaker 1: That aside, this is the single most important battle ground
Speaker 1: in the world. This is going to decide the dominance
Speaker 1: of the one and twenty second centuries period. Right, It's
Speaker 1: the key to artificial intelligence, it's the key to virtual reality.
Speaker 1: It's ultimately the key not just a supercomputing but quantum computing.
Speaker 1: Whoever gets there first owns it. Right. It is a
Speaker 1: zero sum game, period and China has made it very clear, right,
Speaker 1: they're made to pursue kind of higher technology and no
Speaker 1: more you know, manufacturing to the rest of the world.
Speaker 1: They want to play on this higher plane, if you will,
Speaker 1: and with access to the equipment from s mL Tookyo Electron, Nicon,
Speaker 1: Applied Materials, LAMB Research, etcetera. Those are some of the
Speaker 1: American companies. They might have been able to get there,
Speaker 1: but without them they have to build this stuff from scratch.
Speaker 1: It has taken decades, decades to perfect the photo lithography
Speaker 1: process to manufacture semiconductors at two nanometers. Go to the
Speaker 1: INSCL contact with Pedia Britannica and look up how small
Speaker 1: an anometer is. In a sense, Eric, certainly the Chips
Speaker 1: Act and the billions that are is going towards chips
Speaker 1: here in the US is a big deal. But at
Speaker 1: the same time, would you imagine, given how important this
Speaker 1: this is, perhaps governments would want to do even more
Speaker 1: and it would be a bipartisan issue. Well, it was
Speaker 1: bipartisan inasmuch as the Chips Act was passed. Could it
Speaker 1: become more of a bipartisan issue? You're like describing it
Speaker 1: as like an all hands on deck situation. Almost. The
Speaker 1: sense I get is that many, not all, of our
Speaker 1: elected representatives in Washington do feel very passionately that it
Speaker 1: is an important issue, and yes, we may see more
Speaker 1: action on that front. But let's not forget that government subsidies.
Speaker 1: You know, are a double edged sword. Right. Everybody who's
Speaker 1: been covering these issues for long enough remembers the cylinder
Speaker 1: debacle with solar manufacturing and the government loan million dollars
Speaker 1: that had to be written off. That is a situation
Speaker 1: that this administration and no subsequent administration wants to find
Speaker 1: itself in just quickly ten seconds when we look back
Speaker 1: at this time and say, Okay, this was a smart division,
Speaker 1: you know, decision and really change the game when it
Speaker 1: came to China going forward, at least in terms of
Speaker 1: business and semis. There are many people who describe this
Speaker 1: just like the race to develop and perfect the Adam
Speaker 1: bomb right in World War Two. It is the stake
Speaker 1: sport that high Eric sask, thank you so much. Good
Speaker 1: to have you back in studio, Editorial director of Bloomberg
Speaker 1: New Economy. Here in our interactive Broker studio, you're listening
Speaker 1: and watching Bloomberg Business Week. You're listening to the Bloomberg
Speaker 1: Business Week podcast. Catch us live weekdays from two to
Speaker 1: five pm Easter on Bloomberg Radio, the Bloomberg Business app
Speaker 1: band you too. You can also listen live to our
Speaker 1: flagship New York station, Just say Alexa Play Bloomberg e
Speaker 1: Love and Verdi. I'm broom a journal now. But you
Speaker 1: let me drive? Oh no, no, no, no, honey, please,
Speaker 1: I'll do the riding gravels. I want to drive. It's
Speaker 1: good question. This is the drive to the Clothes music
Speaker 1: on Bloomberg Radio. All right, got about seventeen minutes left
Speaker 1: in today's trading session. It's going to be a big week.
Speaker 1: We know, lots on our mind. The fo MC meeting
Speaker 1: they kick off, kick off that two day meeting tomorrow,
Speaker 1: the decision on Wednesday. You've got to be a fly
Speaker 1: on the wall, as you say all the time, Can
Speaker 1: I just like bring in like the treats you know
Speaker 1: they just here. What do you guys think of you know,
Speaker 1: higher for longer exactly ongoing, Gonna use it anyway. There's
Speaker 1: that there's some big earnings Amazon Alphabet, Apple Meta D
Speaker 1: no am D snapped tomorrow. So a lot of stuff
Speaker 1: going on and then the jobs are put on Friday. Yeah,
Speaker 1: really eager to get through. Our next guest. You know
Speaker 1: his voice, you know his name because he's been on
Speaker 1: with us quite a bit. Abbe Dish Ponde as the
Speaker 1: founder and chief investment officer at the registered investment advisor
Speaker 1: Centerstone Investors joining us via zoom in New York City.
Speaker 1: I'll be good to have you with us. Global value
Speaker 1: is what you've been talking about for a long time. Um,
Speaker 1: before we get to your picks, I want to get
Speaker 1: a look at from where you're standing, what you see
Speaker 1: in well three starting off thankful a little different than two.
Speaker 1: So far. We were talking about this the other day,
Speaker 1: like little do we know it was about to get
Speaker 1: unleashed all us for the full year last year, last January.
Speaker 1: But so far this year it's it's a it's almost
Speaker 1: on your opposite. Uh you have, I mean going region
Speaker 1: by region. Um, you know, Europe has luck maybe fortuitously
Speaker 1: avoided the worst case scenario with the winter. Their energy
Speaker 1: usage has been weighed below what they were fearing. The
Speaker 1: economies can are sort of able to maybe absorb that
Speaker 1: a little bit. Um, that that hit, that hike cost
Speaker 1: hit a little bit easier this year. China's of course
Speaker 1: opening up. Um, the dollar has at least stabilized for now,
Speaker 1: which is good for emerging markets. So a lot of
Speaker 1: you know, if a lot of positive takeaways to start
Speaker 1: the year. Um, you know, so so far, so good. Granted,
Speaker 1: it's you know, January. Yeah, it's still going. But you know,
Speaker 1: for someone, one of the reasons I love talking with
Speaker 1: you is, you know, the global perspective, right, and we
Speaker 1: need to think about that, certainly for all investors, and
Speaker 1: you know what different monetary policies might mean, global risk
Speaker 1: factors might mean for different parts of the world. Having
Speaker 1: said that, I wonder what you mean, what you think
Speaker 1: about and something we talked with our Eric Shatzker about
Speaker 1: the increasing tensions with China, and there was a headline
Speaker 1: just a few minutes ago about how the Body administration
Speaker 1: is considering cutting off Huahwei Technologies from all of its
Speaker 1: American suppliers, including Intel and Qualcom, as the US government
Speaker 1: intensifies a crackdown on the Chinese technology UH sector. And
Speaker 1: then we just had Bloomberg a few days ago talking
Speaker 1: about how specifically the Dutch in Japanese are joining the
Speaker 1: US and banning advanced chip technology exports to China. Are
Speaker 1: we seeing that dividing up of the world happening that
Speaker 1: kind of tech great wall? Yeah, I mean we have
Speaker 1: been kind of getting people heads up on this, uh,
Speaker 1: you know, like five six years ago. UM, and I
Speaker 1: think that that that path still lays in front of us.
Speaker 1: Where the you know, different countries have different diverging interests,
Speaker 1: and one of the main diverging interests is is this
Speaker 1: idea of intellectual property, and um, the Chinese you know,
Speaker 1: very local use of it to to try to create
Speaker 1: some sort of a technological military advantage for themselves. Um.
Speaker 1: At the end of the day, though I don't believe that. Um,
Speaker 1: it's really uh, I don't think. I don't spend much
Speaker 1: time worrying about like a war or anything like that.
Speaker 1: There's just it's nobody's interests right now. I think where
Speaker 1: Peak possibly Peak kind of worry about about China versus
Speaker 1: the United States, And just the other days in general
Speaker 1: came out of the Air Force general came out and said,
Speaker 1: you know, hey, we're gonna go to war with these
Speaker 1: guys in It just doesn't seem why that to me
Speaker 1: just seems like maybe a little bit more worried than
Speaker 1: that than is warranted by reality. The reality is Chinese
Speaker 1: are kind of boxed in a little bit Chinese government,
Speaker 1: as I should say, um, by the multiple policy failures
Speaker 1: and and you know this very chaotic COVID reopening, COVID reopening,
Speaker 1: but it behooves no one to just box them into
Speaker 1: a quarner and try to you know, punish them like
Speaker 1: like you know it has been done with Russia. China's
Speaker 1: is the largest exporter in the world. I mean, it's
Speaker 1: a huge manufacturing center for the entire world. Without it,
Speaker 1: a lot of the world's you know, the globalized supply chains,
Speaker 1: they exist, they just don't exist. So I don't I
Speaker 1: don't think that there's a reason to expect a major conflict.
Speaker 1: We only have about ninety seconds left, and I want
Speaker 1: to get to some of the picks that you have,
Speaker 1: because there are a couple in here that sort of
Speaker 1: seement opposite ed into the spectrum. I'm gonna ask you
Speaker 1: about both of these companies at once. We got on
Speaker 1: one hand, Ross Stores and on the other hand, Porsche. Yeah,
Speaker 1: two different kinds of concepts. They what happened last year
Speaker 1: We had a fairly you know, dramatic sell off in
Speaker 1: all kinds of companies, good and poor quality in terms
Speaker 1: of the franchises. And when that happens, you know, value investors,
Speaker 1: it's great for us at Center. So we're value investors.
Speaker 1: That's great for us because we're then able to just
Speaker 1: sort of migrate interra higher quality names, things that have
Speaker 1: franchise values UM and represent you know, a good long
Speaker 1: term investment for our our clients. It's unusual that we
Speaker 1: get to do that in you know, a a you know,
Speaker 1: a very general way, which we're able to do last year,
Speaker 1: so that if you look at our portfolio you bought
Speaker 1: like overtend new names last year. The common element with
Speaker 1: whether it's a Ross or Porsche or some of the
Speaker 1: other companies we bought is that their franchises are run
Speaker 1: by good management teams UM, and they have good balance sheets.
Speaker 1: Like essentially the companies are on autopid they run themselves.
Speaker 1: And beyond all of that, of course, is that they
Speaker 1: traded you know, very attractive prices compared to their intrinsic values.
Speaker 1: So we get every thing in one one right one
Speaker 1: going alright, We're gonna have to leave it on that note, UM,
Speaker 1: and we love talking names with you. Rush Stores, by
Speaker 1: the way, is up about fift since a low in
Speaker 1: last August, so we've certainly seen a bump up in
Speaker 1: that one. Um Bonde, thank you so much, Founder, Chief
Speaker 1: investment officer at center Stone Investors, the registered investment advisor
Speaker 1: joining us via zoom in New York City. This is
Speaker 1: the Bloomberg Business Week podcast, available on Apple, Spotify, and
Speaker 1: anywhere else you get your podcast. Listen live each weekday
Speaker 1: is starting at two pm Eastern pont Bloomberg dot Com,
Speaker 1: the I Heart Radio app, tune In, and the Bloomberg
Speaker 1: Business App. You can also watch us live every weekday
Speaker 1: on YouTube and always on the Bloomberg Term level