1 00:00:02,480 --> 00:00:07,600 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:22,760 --> 00:00:26,200 Speaker 2: This is Waltree Week. I'm David Weston bringing you stories 3 00:00:26,239 --> 00:00:30,200 Speaker 2: of capitalism. The data center frenzy is in full bloom, 4 00:00:30,360 --> 00:00:33,199 Speaker 2: but the neighbors are restless. Is there a way for 5 00:00:33,240 --> 00:00:35,320 Speaker 2: the rest of us to get the benefits from AI 6 00:00:35,560 --> 00:00:38,080 Speaker 2: without compromising the interests of those who will be living 7 00:00:38,280 --> 00:00:42,000 Speaker 2: next door? Plus Earlier we brought you the story of 8 00:00:42,040 --> 00:00:44,960 Speaker 2: the brain drain from New Zealand. People and talent are 9 00:00:45,000 --> 00:00:47,760 Speaker 2: flowing the other way. For Poland, it's one of the 10 00:00:47,800 --> 00:00:51,440 Speaker 2: fastest growing economies around, driven in part by the best 11 00:00:51,440 --> 00:00:55,760 Speaker 2: and brightest returning home, and we use it for everything 12 00:00:55,800 --> 00:01:00,400 Speaker 2: from military equipment to package goods. Aluminum is ubiquitous, and 13 00:01:00,440 --> 00:01:03,440 Speaker 2: now it's caught in between Trump tariffs and a war 14 00:01:03,520 --> 00:01:07,760 Speaker 2: in Iran. But we start with the drama that is 15 00:01:07,840 --> 00:01:10,800 Speaker 2: politics in the United Kingdom, as the fifth Prime minister 16 00:01:10,880 --> 00:01:13,800 Speaker 2: in eight years is finding to avoid yet another turnover 17 00:01:14,000 --> 00:01:17,600 Speaker 2: at number ten and the markets are keeping score. How 18 00:01:17,680 --> 00:01:20,080 Speaker 2: much say does the guilt market have in who gets 19 00:01:20,080 --> 00:01:23,559 Speaker 2: to run the country? John Authors is Bloomberg's senior editor 20 00:01:23,720 --> 00:01:28,679 Speaker 2: for Markets. So John did a lot of political upheaval 21 00:01:28,800 --> 00:01:31,680 Speaker 2: drama playing out in the United Kingdom right now, at 22 00:01:31,680 --> 00:01:35,240 Speaker 2: the same time bonds are selling off guilts. Yes, the 23 00:01:35,319 --> 00:01:37,920 Speaker 2: yields are gone up. Is there a connection between the 24 00:01:37,959 --> 00:01:38,399 Speaker 2: two and if. 25 00:01:38,319 --> 00:01:41,800 Speaker 3: So, what, Yes, there's certainly a connection, which is that 26 00:01:42,800 --> 00:01:45,600 Speaker 3: Britain has even more than where we are here in 27 00:01:45,640 --> 00:01:47,640 Speaker 3: the US the rest of the Western world, it has 28 00:01:47,680 --> 00:01:51,880 Speaker 3: a fiscal problem. We don't have much headroom left to 29 00:01:51,920 --> 00:01:57,480 Speaker 3: spend money in the UK. Any sign of concern about 30 00:01:57,480 --> 00:02:01,800 Speaker 3: political instability will in its own right worry bond markets, 31 00:02:02,320 --> 00:02:05,120 Speaker 3: and specifically at the moment, because Kirstarma is in a 32 00:02:05,160 --> 00:02:08,520 Speaker 3: lot of political trouble, any challenger, even those who you 33 00:02:08,560 --> 00:02:12,440 Speaker 3: could argue are to his political right, will want to 34 00:02:12,520 --> 00:02:15,639 Speaker 3: do something to show they've made a difference once they 35 00:02:15,639 --> 00:02:17,920 Speaker 3: take over from him, and that's going to involve spending 36 00:02:17,960 --> 00:02:20,399 Speaker 3: some more money on something that's going to involve being 37 00:02:20,440 --> 00:02:24,560 Speaker 3: more lenient on fiscal policy than labor has been so far. 38 00:02:25,200 --> 00:02:30,920 Speaker 3: So plainly the risks are towards more fiscal spending. That's 39 00:02:31,000 --> 00:02:35,760 Speaker 3: plainly something the guilt's market dislikes. There's a long history 40 00:02:36,000 --> 00:02:43,760 Speaker 3: of friction between a labor government that has its origins 41 00:02:43,520 --> 00:02:47,480 Speaker 3: in socialism and the unions and bond markets. 42 00:02:47,680 --> 00:02:50,640 Speaker 2: Naturally, there is also a more recent history between the 43 00:02:50,680 --> 00:02:54,520 Speaker 2: Conservative government the bar market. Yes read Rittler's Trust. We 44 00:02:54,639 --> 00:02:56,280 Speaker 2: remember that. But one of the things you pointed out 45 00:02:56,280 --> 00:02:58,560 Speaker 2: on all of your columns is actually the yields and 46 00:02:58,680 --> 00:03:01,519 Speaker 2: guilt right now are aba where they got to under 47 00:03:01,560 --> 00:03:02,440 Speaker 2: these trust exactly. 48 00:03:02,480 --> 00:03:04,960 Speaker 3: I mean that there are to be fair to the 49 00:03:04,960 --> 00:03:07,320 Speaker 3: current labor government. There are reasons for that in the 50 00:03:07,360 --> 00:03:10,280 Speaker 3: interest rates have risen across the world since then. And 51 00:03:10,840 --> 00:03:14,800 Speaker 3: what really can endanger a financial accent is when yields 52 00:03:15,000 --> 00:03:19,160 Speaker 3: rise very fast, which is absolutely what happened under under 53 00:03:19,160 --> 00:03:24,040 Speaker 3: Liz Trust. She took the market by surprise and thereby 54 00:03:24,080 --> 00:03:26,000 Speaker 3: slipped on a banana skin, whereas what we've got at 55 00:03:26,000 --> 00:03:29,400 Speaker 3: the moment is more of a slow motion car wreck 56 00:03:29,600 --> 00:03:32,679 Speaker 3: with labor. But yes, the ultimate fact is true that 57 00:03:33,040 --> 00:03:36,880 Speaker 3: the higher the yields go, and they are now even 58 00:03:36,960 --> 00:03:42,640 Speaker 3: higher than when they toppled Liz trusts, the less room 59 00:03:42,680 --> 00:03:47,440 Speaker 3: for maneuver any government has. And to some extent this 60 00:03:47,600 --> 00:03:49,920 Speaker 3: is a This is a systemic problem for the UK 61 00:03:50,040 --> 00:03:53,680 Speaker 3: because as we've just said that Liz Trust was and 62 00:03:53,880 --> 00:03:57,400 Speaker 3: is Conservative. This is universal across the party is a 63 00:03:57,400 --> 00:04:02,720 Speaker 3: certain lack of trust and the British two party system 64 00:04:02,760 --> 00:04:07,440 Speaker 3: is breaking down at present, and both Greens, who are 65 00:04:07,480 --> 00:04:10,520 Speaker 3: basically a British woman to the the AOC Bernie Sanders 66 00:04:10,560 --> 00:04:14,040 Speaker 3: left and the Reform Party of the Niel Farasha were 67 00:04:14,040 --> 00:04:18,840 Speaker 3: obviously very similar to the Donald Trump margat Wright. Both 68 00:04:18,880 --> 00:04:21,080 Speaker 3: of those are on the face of it, more inclined 69 00:04:21,080 --> 00:04:23,520 Speaker 3: to splash money around and do things that the bond 70 00:04:23,560 --> 00:04:28,200 Speaker 3: market really dislikes than the incumbents. There's a very worrying 71 00:04:28,600 --> 00:04:32,760 Speaker 3: dynamic about the entire British political situation, or at least 72 00:04:32,800 --> 00:04:35,279 Speaker 3: it's very worrying if you're a guilt investor. 73 00:04:36,120 --> 00:04:39,920 Speaker 2: We know from your calm that you are a student 74 00:04:40,000 --> 00:04:43,039 Speaker 2: of popular music. And I don't remember the Ritha Franklin 75 00:04:43,080 --> 00:04:44,159 Speaker 2: song Who's Zoom and Who? 76 00:04:44,360 --> 00:04:44,560 Speaker 4: Yes? 77 00:04:44,760 --> 00:04:47,880 Speaker 3: So that the nineteen eighty five I remember that that 78 00:04:47,920 --> 00:04:50,040 Speaker 3: was actually my first time in America. But anyway, carry on. 79 00:04:50,279 --> 00:04:52,280 Speaker 2: But if you take the bond market, the guilt market 80 00:04:52,360 --> 00:04:54,440 Speaker 2: the one hand, and the political system on the other, 81 00:04:54,520 --> 00:04:57,320 Speaker 2: Who's zoom and Who? I mean you've explained how the 82 00:04:57,320 --> 00:05:00,280 Speaker 2: political turmol can affect the guilt market. Is the guilt 83 00:05:00,279 --> 00:05:02,440 Speaker 2: affecting what's going on in politics as well. 84 00:05:02,760 --> 00:05:06,280 Speaker 3: At the moment? I mean, certainly in the liz Trust incident. Yes, 85 00:05:06,520 --> 00:05:08,880 Speaker 3: that was very much the case that it was the 86 00:05:08,880 --> 00:05:11,360 Speaker 3: bond market that basically said no, you can't do this 87 00:05:11,680 --> 00:05:15,160 Speaker 3: and force the expulsion of first the Chancellor and then 88 00:05:15,200 --> 00:05:20,920 Speaker 3: the Prime Minister itself. This time around, that's less clear. 89 00:05:21,320 --> 00:05:23,679 Speaker 3: You could certainly say that at this point the bond 90 00:05:23,720 --> 00:05:27,760 Speaker 3: market has become a kind of a sheet anchor or 91 00:05:27,800 --> 00:05:31,240 Speaker 3: a straight jacket for whoever is in charge. But it 92 00:05:31,279 --> 00:05:34,440 Speaker 3: will be more uncomfortable for you know, a party of 93 00:05:34,440 --> 00:05:37,200 Speaker 3: the left that actually has fewer hang ups about spending 94 00:05:37,520 --> 00:05:43,359 Speaker 3: taxpayers money. But you know, the overall position is is 95 00:05:43,480 --> 00:05:47,479 Speaker 3: difficult either way. And the other thing that's quite interesting 96 00:05:47,560 --> 00:05:50,760 Speaker 3: compared to history is that it used to be the 97 00:05:50,960 --> 00:05:56,880 Speaker 3: currency market. So Harold Wilson have being forced to devalue 98 00:05:56,920 --> 00:05:59,640 Speaker 3: in the pound and then going on television to say 99 00:05:59,640 --> 00:06:02,640 Speaker 3: that there the pound in your pocket, of course isn't 100 00:06:02,640 --> 00:06:06,679 Speaker 3: worth any less, which absolutely wasn't true, and then Labor 101 00:06:06,720 --> 00:06:09,159 Speaker 3: government of the seventies being forced by a run on 102 00:06:09,200 --> 00:06:13,240 Speaker 3: the pound to go to borrow from the IMF, and 103 00:06:13,760 --> 00:06:17,600 Speaker 3: John Major's government basically never recovered from the Black Wednesday 104 00:06:17,640 --> 00:06:20,960 Speaker 3: attack on Sterling by George Soros and others, So it 105 00:06:21,200 --> 00:06:25,880 Speaker 3: used to be the currency market that really inflicted pain, 106 00:06:27,000 --> 00:06:32,160 Speaker 3: and now that currencies do tends to float more gradually, 107 00:06:32,400 --> 00:06:35,880 Speaker 3: more easily, And now that we've had many years of 108 00:06:35,880 --> 00:06:40,000 Speaker 3: being used to extremely low bond yields, that cheap money 109 00:06:40,040 --> 00:06:42,440 Speaker 3: is being treated as a fact of light or a 110 00:06:42,480 --> 00:06:45,839 Speaker 3: birthright almost it's the bond market that has now taken 111 00:06:45,920 --> 00:06:47,839 Speaker 3: over as the anchor the great limitation. 112 00:06:48,440 --> 00:06:51,960 Speaker 2: The High Kingdom has a historically high ratio of debt 113 00:06:51,960 --> 00:06:54,800 Speaker 2: to judyps, but they're not alone in that. There may 114 00:06:54,839 --> 00:06:56,000 Speaker 2: be a little bit more than some of the rest 115 00:06:56,000 --> 00:06:57,600 Speaker 2: of us, maybe a little less than some as well. 116 00:06:58,760 --> 00:07:01,880 Speaker 2: Is what we're seeing in the simply what's going to 117 00:07:01,880 --> 00:07:04,080 Speaker 2: happen in other parts of the world, including the United States, 118 00:07:04,160 --> 00:07:04,880 Speaker 2: just sooner. 119 00:07:05,240 --> 00:07:07,640 Speaker 3: Yes, there's a reason that the UK has more of 120 00:07:07,680 --> 00:07:11,120 Speaker 3: a problem, or more of an instant problem, which you 121 00:07:11,160 --> 00:07:14,840 Speaker 3: can explain easily enough from geography and history. The UK 122 00:07:15,280 --> 00:07:18,080 Speaker 3: is an island which got rich by trading with other people. 123 00:07:18,280 --> 00:07:21,160 Speaker 3: The US is basically a continent that got rich by 124 00:07:21,200 --> 00:07:25,160 Speaker 3: trading with itself. So exports have always been a much 125 00:07:25,280 --> 00:07:29,560 Speaker 3: more important part of the UK equation. When you have 126 00:07:30,000 --> 00:07:33,840 Speaker 3: pressure on the currency, when you have inflation elsewhere, it 127 00:07:33,880 --> 00:07:37,840 Speaker 3: will affect the UK much more swiftly, much more dramatically. 128 00:07:38,120 --> 00:07:42,400 Speaker 3: It is much more dependent on the generosity of others 129 00:07:42,960 --> 00:07:50,600 Speaker 3: than the states. That said, America's share of GDP public 130 00:07:50,640 --> 00:07:53,600 Speaker 3: debt as a share of GDP was in around numbers 131 00:07:53,920 --> 00:07:57,280 Speaker 3: twenty years ago, before the global financial crisis, sixty percent 132 00:07:59,560 --> 00:08:03,040 Speaker 3: called are occasioning great alarm the Simpson bowls if you 133 00:08:03,080 --> 00:08:05,680 Speaker 3: remember that attempts to cut the deficit. It's now one 134 00:08:05,760 --> 00:08:12,679 Speaker 3: hundred and twenty. And whatever you think of the relative 135 00:08:12,720 --> 00:08:16,320 Speaker 3: merits of Joe Biden and Donald Trump, both of them 136 00:08:16,680 --> 00:08:23,120 Speaker 3: spent money, whether through tax cuts or fiscal larges or both, 137 00:08:24,400 --> 00:08:27,200 Speaker 3: in a way that suggested that this just wasn't an issue. 138 00:08:28,080 --> 00:08:31,160 Speaker 3: It will become an issue at a time. The US 139 00:08:31,240 --> 00:08:36,760 Speaker 3: is a bigger, more closed economy than the UK, and 140 00:08:36,800 --> 00:08:40,480 Speaker 3: it has the exorbitant privilege of the dollar. It doesn't 141 00:08:40,559 --> 00:08:45,680 Speaker 3: it's it's not disciplined by potential runs on the currency 142 00:08:45,760 --> 00:08:51,320 Speaker 3: like the UK is. But ultimately, if you're borrowing more 143 00:08:51,360 --> 00:08:57,720 Speaker 3: than you have and can't generate the money to repay it, 144 00:08:57,800 --> 00:09:00,280 Speaker 3: you're either going to get very bad inflation. You're going 145 00:09:00,320 --> 00:09:02,000 Speaker 3: to go bust. You're not going to go bust. You're 146 00:09:02,000 --> 00:09:05,000 Speaker 3: going to get very bad, implish, and that is ultimately 147 00:09:05,679 --> 00:09:07,560 Speaker 3: the risk that afflicts this country. 148 00:09:07,600 --> 00:09:12,080 Speaker 2: To you were a young lad, a young boy during 149 00:09:12,120 --> 00:09:15,760 Speaker 2: the Wilson time and the crisis, when there was really 150 00:09:15,840 --> 00:09:18,520 Speaker 2: high inflation in the UK, and as you say, the 151 00:09:18,559 --> 00:09:22,719 Speaker 2: power was devaluing, and I think some would say that 152 00:09:22,840 --> 00:09:26,439 Speaker 2: was a predicate for what happened with Margaret Thatder and 153 00:09:26,520 --> 00:09:29,680 Speaker 2: a fundamental revision of the economy. Is there any prospect 154 00:09:29,720 --> 00:09:32,760 Speaker 2: that could happen again in the UK? Could we have 155 00:09:32,760 --> 00:09:33,560 Speaker 2: a new Thatderer? 156 00:09:35,040 --> 00:09:37,719 Speaker 3: We certainly can't see her yet. Although that being said, 157 00:09:38,280 --> 00:09:41,000 Speaker 3: if you think back to seventy five seventy six, Margaret 158 00:09:41,000 --> 00:09:44,120 Speaker 3: Thatcher wins the leadership of the Conservative Party in seventy five, 159 00:09:44,600 --> 00:09:48,160 Speaker 3: doesn't actually get the general election which becomes prime minister. 160 00:09:48,280 --> 00:09:53,240 Speaker 3: Until seventy nine. She certainly didn't seem to be quite 161 00:09:53,440 --> 00:09:55,840 Speaker 3: the radical departure that she would turn out to be 162 00:09:56,640 --> 00:09:59,280 Speaker 3: in seventy five. So maybe there is somebody out there 163 00:10:00,040 --> 00:10:03,080 Speaker 3: who is hiding in plain sight already. I think the 164 00:10:03,120 --> 00:10:07,599 Speaker 3: points I would make about the Thatcher regime, I was 165 00:10:07,640 --> 00:10:09,800 Speaker 3: twelve when she got in twenty four when she left. 166 00:10:10,280 --> 00:10:13,520 Speaker 3: My generation of Brits still basically think she's running the world. 167 00:10:13,800 --> 00:10:16,160 Speaker 3: And you could also argue there's an analogue to that 168 00:10:16,280 --> 00:10:18,640 Speaker 3: in the States, which didn't get into anything like as 169 00:10:18,679 --> 00:10:21,319 Speaker 3: much trouble in the seventies as Britain did, but did 170 00:10:21,360 --> 00:10:23,760 Speaker 3: get into a lot of trouble. Paul Volka is the 171 00:10:23,880 --> 00:10:27,640 Speaker 3: key figure who changes America around. He is appointed by 172 00:10:27,679 --> 00:10:28,520 Speaker 3: Jimmy Carter. 173 00:10:28,960 --> 00:10:31,240 Speaker 2: As was Alfred Kahan. A deregulation. 174 00:10:32,000 --> 00:10:37,200 Speaker 3: Yes, and would the American economy have boom the way 175 00:10:37,240 --> 00:10:39,120 Speaker 3: it did in the eighties if you hadn't then had 176 00:10:39,240 --> 00:10:41,640 Speaker 3: Ronald Reagan, who really believed this stuff, who was a 177 00:10:41,679 --> 00:10:46,480 Speaker 3: really enthusiastic advocate for almost certainly not. But it was 178 00:10:46,600 --> 00:10:49,120 Speaker 3: much easier for him to do what he did because 179 00:10:49,120 --> 00:10:52,040 Speaker 3: he actually had the building blocks in place. Again, the 180 00:10:53,040 --> 00:10:56,920 Speaker 3: ancien regime had accepted that the game was up and 181 00:10:57,040 --> 00:11:03,920 Speaker 3: shifted before. You then had the really exciting free market 182 00:11:04,400 --> 00:11:08,880 Speaker 3: politician factor o Reagan to take things forward. So I 183 00:11:08,920 --> 00:11:12,680 Speaker 3: think the key moment is when is the game up? 184 00:11:12,920 --> 00:11:18,240 Speaker 3: When does the market? Does the economy force a change? 185 00:11:18,400 --> 00:11:24,559 Speaker 3: It's conceivable it could happen here that Donald Trump grasps 186 00:11:24,679 --> 00:11:29,319 Speaker 3: that you just need to actually start cutting entitlements and 187 00:11:29,400 --> 00:11:33,559 Speaker 3: cutting back on defense budgets or whatever. But I think 188 00:11:33,760 --> 00:11:38,640 Speaker 3: it's more likely that circumstances force a change from the 189 00:11:38,679 --> 00:11:42,840 Speaker 3: ancien regime and that's the critical change, rather than that 190 00:11:43,200 --> 00:11:46,160 Speaker 3: voters elect in the person who will make the. 191 00:11:46,160 --> 00:11:51,400 Speaker 2: Change coming up. The money is pouring in, the construction 192 00:11:51,520 --> 00:11:54,600 Speaker 2: is underway. Data centers are paving the way for our 193 00:11:54,679 --> 00:11:57,880 Speaker 2: AI future. But some communities want to know why they 194 00:11:57,960 --> 00:12:13,520 Speaker 2: have to be in their backyard. This is a story 195 00:12:13,559 --> 00:12:17,880 Speaker 2: about good fences making good neighbors. The promise of artificial 196 00:12:17,920 --> 00:12:21,040 Speaker 2: intelligence has brought a wave of data center building across 197 00:12:21,080 --> 00:12:24,319 Speaker 2: the country, and in success, we hope that AI will 198 00:12:24,360 --> 00:12:28,520 Speaker 2: benefit the economy, investors, and the vast majority of Americans. 199 00:12:29,559 --> 00:12:33,320 Speaker 5: A trillion dollars is an enormous amount of infrastructure. You 200 00:12:33,480 --> 00:12:36,520 Speaker 5: have to have complete confidence that the trillion dollars you're 201 00:12:36,559 --> 00:12:39,480 Speaker 5: putting down would be performant for as long as you 202 00:12:39,520 --> 00:12:40,160 Speaker 5: could see. 203 00:12:40,240 --> 00:12:42,880 Speaker 6: If you're building a multi billion dollar data center in 204 00:12:42,920 --> 00:12:45,160 Speaker 6: the US or around the world, and you have a 205 00:12:45,240 --> 00:12:48,480 Speaker 6: fifteen plus year contract with a company with a three 206 00:12:48,559 --> 00:12:51,280 Speaker 6: trillion dollar market cap, that feels pretty good. 207 00:12:51,320 --> 00:12:53,000 Speaker 7: If we knew how to get a trillion dollars right now. 208 00:12:53,000 --> 00:12:56,120 Speaker 7: If we don't, would we be able to deploy that 209 00:12:56,160 --> 00:12:59,679 Speaker 7: profitably in the next few years. And I'm not sure 210 00:12:59,679 --> 00:13:01,920 Speaker 7: about that, but I feel confident we can make five 211 00:13:02,000 --> 00:13:03,080 Speaker 7: hundred billion of value back. 212 00:13:03,880 --> 00:13:06,360 Speaker 2: But while we all wait for the full benefits of 213 00:13:06,400 --> 00:13:09,600 Speaker 2: AI to be realized, what does construction of these massive 214 00:13:09,640 --> 00:13:12,640 Speaker 2: AI data centers mean for the people living around them? 215 00:13:13,080 --> 00:13:15,200 Speaker 2: And how much of us, say, do residents have and 216 00:13:15,240 --> 00:13:18,440 Speaker 2: the type of fences keeping things in or out? 217 00:13:21,480 --> 00:13:26,960 Speaker 8: Pushback today to a proposed AI data center. Amazon comes 218 00:13:27,000 --> 00:13:32,160 Speaker 8: to town, starts emailing our town manager and wants to 219 00:13:32,320 --> 00:13:35,760 Speaker 8: build an enormous data center and the citizens did not 220 00:13:36,200 --> 00:13:38,559 Speaker 8: know about this, even though it was going to be 221 00:13:38,600 --> 00:13:40,679 Speaker 8: a five hundred million dollar investment. 222 00:13:41,840 --> 00:13:44,720 Speaker 2: That sort of massive capital investment brings with it the 223 00:13:44,760 --> 00:13:47,720 Speaker 2: prospect for the data centers being built today will be 224 00:13:47,800 --> 00:13:49,679 Speaker 2: with us for a long time to come. 225 00:13:50,200 --> 00:13:53,320 Speaker 9: Ultimately to be paid for the risk that we're taking. 226 00:13:53,920 --> 00:13:55,719 Speaker 9: We're looking to get a lease that's somewhere in the 227 00:13:55,760 --> 00:13:58,719 Speaker 9: neighborhood David between thirteen years and seventeen years. 228 00:13:59,240 --> 00:14:02,880 Speaker 2: Mark Genzie is the CEO of Digital Bridge, an alternative 229 00:14:02,920 --> 00:14:07,360 Speaker 2: asset investment firm specializing in data infrastructure. He's among the 230 00:14:07,400 --> 00:14:11,440 Speaker 2: major players making long term bets for AI massive bets 231 00:14:11,520 --> 00:14:14,880 Speaker 2: that are being distributed across a wide array of investors. 232 00:14:15,360 --> 00:14:18,320 Speaker 9: So on the equity side, you're seeing the traditional players, 233 00:14:18,360 --> 00:14:20,880 Speaker 9: the big infrastructure players, and so we're seeing today as 234 00:14:20,880 --> 00:14:24,680 Speaker 9: we're seeing the large megafunds, these big, big infrastructure players 235 00:14:24,840 --> 00:14:28,360 Speaker 9: really lean into the AI thematic, and as a part 236 00:14:28,400 --> 00:14:31,000 Speaker 9: of that thematic, when they think about infrastructure, they think 237 00:14:31,000 --> 00:14:34,320 Speaker 9: about putting billions of dollars of equity to work behind 238 00:14:34,320 --> 00:14:37,920 Speaker 9: these large data center platforms and projects. On the debt side, 239 00:14:38,200 --> 00:14:41,560 Speaker 9: it's actually really interesting today. Of course, we see bank syndicates, 240 00:14:41,560 --> 00:14:45,120 Speaker 9: we see construction financing club deals on the bank side, 241 00:14:45,280 --> 00:14:47,400 Speaker 9: and now, David, you're beginning to see the emergence of 242 00:14:47,440 --> 00:14:51,600 Speaker 9: private debt capital. So private debt capital financing projects that 243 00:14:51,600 --> 00:14:55,160 Speaker 9: are a little tougher, perhaps less investment, great exposure, or 244 00:14:55,240 --> 00:14:56,200 Speaker 9: perhaps even more risk. 245 00:14:56,280 --> 00:14:59,880 Speaker 2: On the power side, projected investments in data centers have climbed. 246 00:15:00,120 --> 00:15:03,920 Speaker 2: Has three trillion dollars. That's a three trillion dollar long 247 00:15:04,040 --> 00:15:06,920 Speaker 2: term bet on the future, which requires a business plan 248 00:15:07,080 --> 00:15:09,400 Speaker 2: with some pretty attractive returns. 249 00:15:09,800 --> 00:15:13,000 Speaker 9: That is the long term nature of the cashlows, so 250 00:15:13,040 --> 00:15:15,400 Speaker 9: that we go to build that facility, we're getting an 251 00:15:15,400 --> 00:15:19,240 Speaker 9: imputed yield, and today most data center yields are somewhere 252 00:15:19,280 --> 00:15:22,360 Speaker 9: between David on a cash on cash return basis somewhere 253 00:15:22,400 --> 00:15:25,720 Speaker 9: between eight and twelve percent. It just depends on who 254 00:15:25,760 --> 00:15:27,720 Speaker 9: the credit is. So if you're dealing with an investment 255 00:15:27,720 --> 00:15:29,840 Speaker 9: grade tenant like Amazon, you're going to be at the 256 00:15:29,880 --> 00:15:32,040 Speaker 9: low end of that guidance. If you're dealing with a 257 00:15:32,080 --> 00:15:34,720 Speaker 9: brand new startup, or perhaps you're dealing with a quantum 258 00:15:34,760 --> 00:15:37,880 Speaker 9: compute player that's non investment grade, you're looking at something 259 00:15:37,920 --> 00:15:40,280 Speaker 9: more like an eleven to twelve cap rate. But you 260 00:15:40,360 --> 00:15:42,360 Speaker 9: do need to be paid for the risk that you're taking, 261 00:15:42,760 --> 00:15:45,960 Speaker 9: and that risk is measured in long drated cashlows with 262 00:15:46,040 --> 00:15:47,320 Speaker 9: some form of an escalator. 263 00:15:47,920 --> 00:15:51,600 Speaker 2: But while investors anticipate that future payout over fifteen or 264 00:15:51,640 --> 00:15:54,720 Speaker 2: twenty years, in the communities where data centers are going 265 00:15:54,840 --> 00:15:58,280 Speaker 2: up right now, there are immediate potential effects on the 266 00:15:58,320 --> 00:15:59,800 Speaker 2: people who live near them. 267 00:16:00,600 --> 00:16:03,320 Speaker 10: To say that I have significant concerns as sort of 268 00:16:03,360 --> 00:16:04,440 Speaker 10: an understatement. 269 00:16:05,080 --> 00:16:08,760 Speaker 2: Dana Nessel is the Michigan Attorney General, whose job includes 270 00:16:08,840 --> 00:16:12,080 Speaker 2: looking out for the interests of Michigan taxpayers, rate payers, 271 00:16:12,080 --> 00:16:16,080 Speaker 2: and citizens. She is appealing the state's expedited approval of 272 00:16:16,080 --> 00:16:18,640 Speaker 2: a very large data center set to be built in 273 00:16:18,680 --> 00:16:21,280 Speaker 2: Saline Township, just south of ann Arbor. 274 00:16:21,720 --> 00:16:22,160 Speaker 4: Well. 275 00:16:22,240 --> 00:16:26,040 Speaker 10: It appears as though the project is underway. The first 276 00:16:26,040 --> 00:16:30,880 Speaker 10: that I learned about it was really on Halloween of 277 00:16:31,440 --> 00:16:34,760 Speaker 10: last year, that this was going to be an enormous project, 278 00:16:34,760 --> 00:16:37,120 Speaker 10: a project bigger than any of its kind we've seen. 279 00:16:38,200 --> 00:16:41,400 Speaker 2: It's not that Attorney General Nestle denies the potential upside 280 00:16:41,440 --> 00:16:44,000 Speaker 2: of data centers in Michigan, but she wants to test 281 00:16:44,040 --> 00:16:47,800 Speaker 2: the projections and promises, weighing both the benefits and the 282 00:16:47,840 --> 00:16:51,760 Speaker 2: burdens of things like changing electricity rates, land values, and 283 00:16:51,840 --> 00:16:54,640 Speaker 2: water needs, that her citizens will face the sorts of 284 00:16:54,680 --> 00:16:57,320 Speaker 2: things that may require some pretty good fences. 285 00:16:57,840 --> 00:17:01,160 Speaker 10: If you talk to Michigan residents, they don't want these 286 00:17:01,200 --> 00:17:04,720 Speaker 10: in their backyard. Nobody knows yet what it's going to 287 00:17:04,760 --> 00:17:06,879 Speaker 10: mean for that community. They don't know what it's going 288 00:17:06,920 --> 00:17:09,639 Speaker 10: to mean for their water. They don't know what it's 289 00:17:09,680 --> 00:17:13,400 Speaker 10: going to mean in regard to noise pollution or other 290 00:17:13,440 --> 00:17:16,720 Speaker 10: types of pollutants. Until we have some of those questions 291 00:17:16,760 --> 00:17:19,920 Speaker 10: that can be more fully answered and better policies put 292 00:17:19,960 --> 00:17:23,240 Speaker 10: in place at the state level. Most people don't want 293 00:17:23,280 --> 00:17:29,000 Speaker 10: to see these massive data centers continue to be erected. 294 00:17:29,480 --> 00:17:33,159 Speaker 2: Michigan residents aren't the only ones with concerns. Pew Research 295 00:17:33,200 --> 00:17:36,320 Speaker 2: Center found that an overwhelming share of Americans think data 296 00:17:36,320 --> 00:17:40,200 Speaker 2: centers are mostly bad for the environment, home energy costs, 297 00:17:40,240 --> 00:17:43,760 Speaker 2: and their overall quality of life. But Ganzhi says he's 298 00:17:43,800 --> 00:17:46,560 Speaker 2: seen a version of this play before and that it 299 00:17:46,600 --> 00:17:48,800 Speaker 2: can be handled in a way that satisfies the need 300 00:17:48,840 --> 00:17:52,480 Speaker 2: for growth and the concerns of citizens. Do you need 301 00:17:52,520 --> 00:17:54,960 Speaker 2: to take into account the reaction of the community. 302 00:17:54,640 --> 00:17:56,840 Speaker 9: One hundred percent as a factor. I've been doing this 303 00:17:56,880 --> 00:18:00,600 Speaker 9: for thirty two years, building digital infrastructure, and where I 304 00:18:00,640 --> 00:18:02,919 Speaker 9: got my sort of humble start was building cell towers 305 00:18:02,960 --> 00:18:07,320 Speaker 9: David in nineteen ninety four. And at that point in time, 306 00:18:07,359 --> 00:18:09,879 Speaker 9: nobody wanted a cell tower in their backyard, and that 307 00:18:10,000 --> 00:18:12,680 Speaker 9: was the rise of nimbiism, not in my backyard. Well, 308 00:18:12,800 --> 00:18:16,080 Speaker 9: the sector got organized, we navigated through it, we explained 309 00:18:16,080 --> 00:18:21,399 Speaker 9: the benefits of mobile communications, emergency services, and ultimately the 310 00:18:21,400 --> 00:18:25,480 Speaker 9: fact that most Americans wanted ubiquitous mobile coverage. And so 311 00:18:25,600 --> 00:18:28,320 Speaker 9: that carried through the early two thousands into twenty ten, 312 00:18:28,359 --> 00:18:31,000 Speaker 9: twenty twenty, and today you don't hear a lot of 313 00:18:31,000 --> 00:18:34,720 Speaker 9: skirmishes around cell towers because largely the industry has made 314 00:18:34,800 --> 00:18:36,119 Speaker 9: peace with the local community. 315 00:18:36,680 --> 00:18:39,600 Speaker 2: State leaders like Nessel don't deny that things might work 316 00:18:39,640 --> 00:18:42,240 Speaker 2: out for all concerned, but for that to happen, she 317 00:18:42,359 --> 00:18:45,159 Speaker 2: believes we all need to know in advance the scope 318 00:18:45,200 --> 00:18:48,359 Speaker 2: of data center construction, the effects it's likely to have 319 00:18:48,440 --> 00:18:51,879 Speaker 2: on the community, and what commitments the developers and owners 320 00:18:51,920 --> 00:18:55,080 Speaker 2: are making to address the possible local downsides. 321 00:18:55,800 --> 00:19:01,320 Speaker 10: The request was made before our utility regulator, the Michigan 322 00:19:01,359 --> 00:19:06,800 Speaker 10: Public Service Commission, for this contract that was filed for 323 00:19:06,920 --> 00:19:12,600 Speaker 10: an exparte hearing, meaning a hearing that would take place 324 00:19:12,680 --> 00:19:15,080 Speaker 10: behind closed doors that we wouldn't be allowed to be 325 00:19:15,200 --> 00:19:19,159 Speaker 10: part of. So the contract that was posted publicly was 326 00:19:19,359 --> 00:19:26,440 Speaker 10: heavily redacted, and that included reactions to some incredibly important information, 327 00:19:26,800 --> 00:19:30,639 Speaker 10: you know, involving things like exit fees, what would happen 328 00:19:30,720 --> 00:19:34,879 Speaker 10: upon the termination of the contract, Even you know, basic 329 00:19:35,000 --> 00:19:40,639 Speaker 10: terms and definitions had been redacted, Customer credits, even the 330 00:19:40,800 --> 00:19:45,600 Speaker 10: signatories to the contract had been redacted, so that we 331 00:19:45,680 --> 00:19:49,400 Speaker 10: can't even know who signed this contract or what company 332 00:19:49,400 --> 00:19:53,080 Speaker 10: they're affiliated with, which is pretty insane when you think 333 00:19:53,080 --> 00:19:56,199 Speaker 10: about it. How are we supposed to know whether or 334 00:19:56,320 --> 00:19:59,199 Speaker 10: not rate payers are getting a fair deal if we're 335 00:19:59,240 --> 00:20:01,160 Speaker 10: not even allowed to see the contract itself. 336 00:20:02,160 --> 00:20:04,600 Speaker 2: All of this comes against the backdrop of a rapidly 337 00:20:04,640 --> 00:20:07,640 Speaker 2: evolving technology that is growing at a rate we've never 338 00:20:07,840 --> 00:20:12,000 Speaker 2: seen before, raising questions about what happens if things evolve 339 00:20:12,040 --> 00:20:15,000 Speaker 2: in ways that fall short of the best case. As 340 00:20:15,040 --> 00:20:19,040 Speaker 2: an infrastructure investor, Ganzhi says, they're ready for that. How 341 00:20:19,040 --> 00:20:22,879 Speaker 2: do you anticipate the further growth as well as the 342 00:20:23,080 --> 00:20:25,200 Speaker 2: obsolescence of some of the technology you're putting in? 343 00:20:26,520 --> 00:20:28,520 Speaker 9: Well, I think the great part about being the owner 344 00:20:28,560 --> 00:20:31,919 Speaker 9: of the railroad is you don't know the actual cars 345 00:20:31,960 --> 00:20:34,840 Speaker 9: that run on the tracks. We own the land. We 346 00:20:34,880 --> 00:20:38,200 Speaker 9: build the power plant. Sometimes actually we're building power adjacent 347 00:20:38,240 --> 00:20:41,920 Speaker 9: to the data center. We build the physical real estate structure. 348 00:20:41,480 --> 00:20:42,520 Speaker 4: Inside the four walls. 349 00:20:43,040 --> 00:20:45,239 Speaker 9: We bring the fiber connectivity, we bring the cooling, we 350 00:20:45,280 --> 00:20:48,000 Speaker 9: bring the back of power. We create the data hall 351 00:20:48,080 --> 00:20:51,439 Speaker 9: conditions where the UPC units are in and the cooling 352 00:20:51,520 --> 00:20:54,480 Speaker 9: is in and the cable trays. But eventually, David, our 353 00:20:54,480 --> 00:20:58,120 Speaker 9: customers put in the technology. So what makes our business 354 00:20:58,119 --> 00:21:02,840 Speaker 9: great is we are candily we're GPU and TPU agnostic, 355 00:21:02,920 --> 00:21:05,080 Speaker 9: and what I mean by that is we're not involved 356 00:21:05,119 --> 00:21:07,560 Speaker 9: in the active compute. That is a bet that we 357 00:21:07,600 --> 00:21:09,760 Speaker 9: don't make at Digital Bridge. What we are in the 358 00:21:09,800 --> 00:21:12,320 Speaker 9: business of doing is providing that mission critical real estate 359 00:21:12,359 --> 00:21:15,840 Speaker 9: and infrastructure to the top technology providers in the world, 360 00:21:16,359 --> 00:21:18,240 Speaker 9: and we let them make the decision what kind of 361 00:21:18,240 --> 00:21:19,120 Speaker 9: server they're going to buy. 362 00:21:19,600 --> 00:21:22,080 Speaker 2: That may take care of the investor risk, but what 363 00:21:22,200 --> 00:21:26,840 Speaker 2: about community risk. In Michigan, abandoned auto plants still dot 364 00:21:26,840 --> 00:21:30,359 Speaker 2: the landscape, a constant reminder of an earlier era of 365 00:21:30,400 --> 00:21:34,400 Speaker 2: technological promise and the costs that followed. Who will bear 366 00:21:34,440 --> 00:21:36,920 Speaker 2: the cost this time remains uncertain. 367 00:21:38,119 --> 00:21:41,440 Speaker 10: In the event that the bubble bursts and something happens 368 00:21:41,480 --> 00:21:46,280 Speaker 10: and this hyperscale center in Saline Township is no longer needed, 369 00:21:46,680 --> 00:21:49,919 Speaker 10: somebody is going to have to pay all of the 370 00:21:50,320 --> 00:21:55,399 Speaker 10: extra costs of this new infrastructure. And who's going to 371 00:21:55,440 --> 00:21:58,360 Speaker 10: pay it. Well, it's either going to be borne by 372 00:21:58,440 --> 00:22:01,720 Speaker 10: the rate payers in this state, and we already are 373 00:22:01,760 --> 00:22:04,439 Speaker 10: subject to some of the highest rates and the worst 374 00:22:04,440 --> 00:22:09,240 Speaker 10: reliability anywhere in the country, or it'll be the taxpayers 375 00:22:09,240 --> 00:22:12,239 Speaker 10: they'll have to bail out the utility companies who are 376 00:22:12,280 --> 00:22:15,440 Speaker 10: making these In some instance, is you know terrible bets 377 00:22:15,920 --> 00:22:18,160 Speaker 10: that AI is going to be around for a long time. 378 00:22:18,200 --> 00:22:22,560 Speaker 10: If you look at these contracts, it's clear that the 379 00:22:22,640 --> 00:22:25,000 Speaker 10: cost is supposed to be born out not over the 380 00:22:25,600 --> 00:22:28,119 Speaker 10: course of a few years, but over the course of 381 00:22:29,000 --> 00:22:31,159 Speaker 10: really a few decades, you know, up to something like 382 00:22:31,200 --> 00:22:35,919 Speaker 10: eighteen years. But we can't even see the exit fees 383 00:22:35,960 --> 00:22:39,320 Speaker 10: in the next few years. Those that have encouraged these 384 00:22:39,400 --> 00:22:43,920 Speaker 10: data centers to come here without any sort of guardrails 385 00:22:44,040 --> 00:22:48,000 Speaker 10: at all, I think they've set us up for a 386 00:22:48,119 --> 00:22:49,640 Speaker 10: very difficult future here. 387 00:22:50,400 --> 00:22:54,159 Speaker 2: Which brings us back to those fences neighbors need. Ganzy 388 00:22:54,240 --> 00:22:56,120 Speaker 2: sees a way to build what's needed in a way 389 00:22:56,119 --> 00:23:00,400 Speaker 2: that accommodates everyone and doesn't stand in the way of progures. 390 00:23:01,080 --> 00:23:03,479 Speaker 9: You're seeing Red states and blue states both look at 391 00:23:03,480 --> 00:23:06,480 Speaker 9: the data center opportunity and quandary in the same way, 392 00:23:06,880 --> 00:23:10,520 Speaker 9: which is, it can't hurt consumers. So the industry has 393 00:23:10,600 --> 00:23:13,960 Speaker 9: to get organized and has to explain ultimately the benefits 394 00:23:14,000 --> 00:23:17,480 Speaker 9: of why these data centers exist, Why are they creating 395 00:23:17,640 --> 00:23:20,320 Speaker 9: jobs not losing jobs, Why is it going to be 396 00:23:20,359 --> 00:23:22,840 Speaker 9: good for them long term from a property value perspective, 397 00:23:23,280 --> 00:23:25,840 Speaker 9: and why it ultimately isn't going to rise their utility 398 00:23:25,880 --> 00:23:28,440 Speaker 9: bill and take away all their water. We got a 399 00:23:28,440 --> 00:23:29,840 Speaker 9: pretty big uphill challenge. 400 00:23:30,400 --> 00:23:33,480 Speaker 2: We need data centers to build the technology of tomorrow. 401 00:23:33,600 --> 00:23:36,800 Speaker 2: The long term promises are big, but so are short 402 00:23:36,880 --> 00:23:40,080 Speaker 2: term costs that may fall on the shoulders of local communities. 403 00:23:40,960 --> 00:23:44,239 Speaker 2: That's why we need to construct some fences carefully to 404 00:23:44,280 --> 00:23:47,280 Speaker 2: protect our neighbors. And to do that, we need to 405 00:23:47,320 --> 00:23:53,000 Speaker 2: bring everyone to the table up next. Poland has gone 406 00:23:53,040 --> 00:23:56,720 Speaker 2: from a laggard to a European economic leader, in large 407 00:23:56,760 --> 00:24:00,800 Speaker 2: part by attracting back all those talented polls working abroad. 408 00:24:08,920 --> 00:24:12,320 Speaker 2: This is a story about going home again. The narrative 409 00:24:12,359 --> 00:24:14,840 Speaker 2: of Europe in recent years has too often been about 410 00:24:14,920 --> 00:24:18,240 Speaker 2: lack of growth, but there are exceptions. It turns out 411 00:24:18,240 --> 00:24:21,359 Speaker 2: that Poland is one of the world's fastest growing economies, 412 00:24:21,680 --> 00:24:24,040 Speaker 2: and although it's now attracting its best and brightest to 413 00:24:24,080 --> 00:24:28,440 Speaker 2: come home to build their businesses, tough challenges still lie ahead. 414 00:24:34,520 --> 00:24:38,560 Speaker 2: Born and raised in Warsaw, Alexandra Pedroshevska followed a well 415 00:24:38,560 --> 00:24:42,640 Speaker 2: trodden path for young, ambitious Poles and went abroad. 416 00:24:42,920 --> 00:24:45,560 Speaker 1: I wanted to study abroad, and I started looking around, 417 00:24:45,600 --> 00:24:48,959 Speaker 1: and my objective was getting the best education that I 418 00:24:49,000 --> 00:24:53,320 Speaker 1: can get so I left in twenty thirteen to study 419 00:24:53,320 --> 00:24:56,000 Speaker 1: at Cambridge. I didn't really make a choice after his 420 00:24:56,040 --> 00:24:59,560 Speaker 1: studies about which country I want to live, and it 421 00:24:59,640 --> 00:25:04,439 Speaker 1: was very driven by the opportunities what kudit are in 422 00:25:04,480 --> 00:25:07,120 Speaker 1: different countries, and for me it was natural to stay 423 00:25:07,160 --> 00:25:07,560 Speaker 1: in the UK. 424 00:25:10,560 --> 00:25:13,760 Speaker 2: But that was then. Now that well trodden path is 425 00:25:13,800 --> 00:25:17,680 Speaker 2: heading in the other direction. Poland is booming. It's economy 426 00:25:17,720 --> 00:25:20,840 Speaker 2: top one trillion dollars last year and this year it 427 00:25:20,920 --> 00:25:23,560 Speaker 2: will be invited to the G twenty summit, and it's 428 00:25:23,680 --> 00:25:27,160 Speaker 2: kind of citizens living abroad, a figure that was steadily 429 00:25:27,200 --> 00:25:29,480 Speaker 2: climbing after it joined the EU in two thousand and four, 430 00:25:30,160 --> 00:25:33,280 Speaker 2: peaked in twenty seventeen and has been dropping ever since, 431 00:25:33,480 --> 00:25:38,119 Speaker 2: although Poland's National Statistics Agency adjusted its methodology in twenty 432 00:25:38,160 --> 00:25:41,520 Speaker 2: twenty two. Among those returning is Pedroshevska. 433 00:25:41,920 --> 00:25:44,920 Speaker 1: I think a lot has changed, and especially for people 434 00:25:45,560 --> 00:25:48,600 Speaker 1: like me with the backgrounds like I had, I wanted 435 00:25:48,640 --> 00:25:53,480 Speaker 1: to work on the edge of new technologies. I really 436 00:25:53,480 --> 00:25:55,760 Speaker 1: wanted to be exposed to the best R and D, 437 00:25:56,359 --> 00:25:59,879 Speaker 1: the best teams that are building effectively the future of 438 00:26:00,040 --> 00:26:02,680 Speaker 1: what the technology sector is. I don't think that these 439 00:26:02,720 --> 00:26:07,040 Speaker 1: opportunities were as obvious ten years ago and as available 440 00:26:07,320 --> 00:26:08,200 Speaker 1: as they are now. 441 00:26:08,720 --> 00:26:13,480 Speaker 11: Actually, our performance started in nineteen eighty nine. 442 00:26:13,680 --> 00:26:18,080 Speaker 2: Andre Domanski is Poland's Minister of Finance and Economy. 443 00:26:17,800 --> 00:26:22,879 Speaker 11: And nineteen eighty nine we had GDP of sixty seven 444 00:26:23,960 --> 00:26:31,200 Speaker 11: billion US dollars. Last year of Poland reached one trillion. 445 00:26:31,600 --> 00:26:35,720 Speaker 11: There was only one country in that period that had 446 00:26:36,160 --> 00:26:39,840 Speaker 11: a higher pace of growth, and it was China. 447 00:26:40,160 --> 00:26:42,960 Speaker 2: What were the things that drove that performance over that 448 00:26:43,000 --> 00:26:43,880 Speaker 2: long period of time. 449 00:26:44,200 --> 00:26:48,400 Speaker 11: Well, first of all the reforms of the early nineties, 450 00:26:49,040 --> 00:26:55,840 Speaker 11: strong institutions that were established here at the time. Of course, 451 00:26:56,280 --> 00:27:01,840 Speaker 11: the entrepreneurship spirit of Polish people who who helped in 452 00:27:01,880 --> 00:27:06,400 Speaker 11: this process, and of course, with no doubt joining European 453 00:27:06,480 --> 00:27:10,160 Speaker 11: Union in two thousand and four. And frankly, we are 454 00:27:10,200 --> 00:27:14,880 Speaker 11: often asked what is the most important sector or most 455 00:27:14,880 --> 00:27:18,320 Speaker 11: important company of Polish economy And it's very difficult to say. 456 00:27:18,960 --> 00:27:23,760 Speaker 11: And I perceive it as a strength of Poland because 457 00:27:23,760 --> 00:27:29,080 Speaker 11: we are really well diversified. Polish economy is well integrated 458 00:27:29,160 --> 00:27:34,960 Speaker 11: with other European Union economies, we are well integrated with 459 00:27:35,560 --> 00:27:39,920 Speaker 11: global value chains. At the same time, we are quite 460 00:27:40,040 --> 00:27:43,560 Speaker 11: important market of thirty seven million people. So we have 461 00:27:43,600 --> 00:27:48,160 Speaker 11: strong domestic markets, so there are many engines of Polish 462 00:27:48,680 --> 00:27:49,479 Speaker 11: GDP growth. 463 00:27:51,680 --> 00:27:55,120 Speaker 2: Drivers of Poland's economic growth include a range of services 464 00:27:55,160 --> 00:27:58,760 Speaker 2: as well as manufacturing. More recently, the Russian invasion of 465 00:27:58,880 --> 00:28:01,800 Speaker 2: Ukraine has led to a sharp uptick in defense spending, 466 00:28:02,119 --> 00:28:05,000 Speaker 2: projected to account for almost five percent of GDP and 467 00:28:05,040 --> 00:28:08,880 Speaker 2: twenty twenty five, the highest in the EU. Its digital 468 00:28:08,880 --> 00:28:12,760 Speaker 2: industry is also growing fast. McKinsey estimates the current forty 469 00:28:12,760 --> 00:28:15,720 Speaker 2: four billion dollar sector will grow to one hundred twenty 470 00:28:15,760 --> 00:28:19,800 Speaker 2: three billion dollars in twenty thirty, accounting for nine percent 471 00:28:20,000 --> 00:28:24,560 Speaker 2: of GDP. That's Petroshevska's domain. She co founded vivid Q, 472 00:28:24,920 --> 00:28:28,880 Speaker 2: a British company developing holographic display technology, in twenty seventeen, 473 00:28:29,520 --> 00:28:32,400 Speaker 2: but on her return to Poland she started vast Point, 474 00:28:32,720 --> 00:28:36,240 Speaker 2: a venture capital firm focused on tech startups in Central 475 00:28:36,280 --> 00:28:37,280 Speaker 2: and Eastern Europe. 476 00:28:37,400 --> 00:28:40,400 Speaker 1: The startup seeing is very vibrant, and I think about 477 00:28:40,400 --> 00:28:43,200 Speaker 1: this word, I think it really represents what's currently going on. 478 00:28:43,360 --> 00:28:48,640 Speaker 1: I think that's this ambition and this certainty that whatever 479 00:28:48,760 --> 00:28:52,120 Speaker 1: is being built from here or by Polish teams has 480 00:28:52,160 --> 00:28:54,280 Speaker 1: this potential of becoming a global solution. 481 00:28:54,720 --> 00:28:57,680 Speaker 2: Yet for all the optimism around Poland, there are some 482 00:28:57,800 --> 00:29:02,160 Speaker 2: warning signs ahead. Machiovski is an economist at the Institute 483 00:29:02,160 --> 00:29:04,000 Speaker 2: for Structural Research in Warsaw. 484 00:29:04,240 --> 00:29:07,640 Speaker 12: The main short term challenge for Poland is to consolidate 485 00:29:07,720 --> 00:29:12,480 Speaker 12: public finances. Although public debt is still at moderate level 486 00:29:12,800 --> 00:29:16,720 Speaker 12: of around sixty percent of GDP and public debt is 487 00:29:16,760 --> 00:29:21,560 Speaker 12: safe in Poland, we are running large deficits. Last year 488 00:29:21,680 --> 00:29:26,080 Speaker 12: it was around seven percent of GDP, so it is 489 00:29:26,160 --> 00:29:30,040 Speaker 12: clearly not sustainable over the longer term, and we need 490 00:29:30,080 --> 00:29:33,720 Speaker 12: to come up with a way to rationalize public spending, 491 00:29:34,760 --> 00:29:40,400 Speaker 12: probably raise some taxes, and probably we need to face 492 00:29:40,760 --> 00:29:46,200 Speaker 12: the fact that elevated military spending requires some tax hikes. 493 00:29:46,320 --> 00:29:51,400 Speaker 12: We don't want to start consolidating our public finances when 494 00:29:51,400 --> 00:29:55,520 Speaker 12: we are under external pressure, because then it's more painful. 495 00:29:55,760 --> 00:30:00,760 Speaker 11: We spend close to five percent of our GDP on defense. 496 00:30:01,200 --> 00:30:05,800 Speaker 11: This is close to fifty billion euro per year, so 497 00:30:05,920 --> 00:30:12,120 Speaker 11: of course we run high deficit. We take some steps 498 00:30:12,280 --> 00:30:16,560 Speaker 11: to lower it gradually, we believe that we are not 499 00:30:16,640 --> 00:30:21,480 Speaker 11: in the position to cut spending on defense. 500 00:30:22,360 --> 00:30:26,160 Speaker 2: Another challenge lies in demographics. For Poland, as in much 501 00:30:26,240 --> 00:30:27,280 Speaker 2: of the Western. 502 00:30:26,920 --> 00:30:31,479 Speaker 12: World, by fifty our labor force will shrink by about 503 00:30:31,640 --> 00:30:36,920 Speaker 12: twenty percent, so this is one large factor. Secondly, the 504 00:30:36,960 --> 00:30:41,040 Speaker 12: average age of an employee is increasing and it also 505 00:30:41,440 --> 00:30:46,600 Speaker 12: matters for the productivity. While older workers can certainly work 506 00:30:46,640 --> 00:30:51,000 Speaker 12: with modern technologies, they may need some more support than 507 00:30:51,360 --> 00:30:55,080 Speaker 12: younger workers. So we need to invest more in policies 508 00:30:55,160 --> 00:31:02,520 Speaker 12: that allow upskilling, cres skilling, adjusting skills to these new technologies. 509 00:31:03,000 --> 00:31:07,840 Speaker 12: And currently we are not doing much in this direction. 510 00:31:08,720 --> 00:31:10,520 Speaker 2: How do you address that economically? 511 00:31:10,840 --> 00:31:14,880 Speaker 11: So we are running many programs that are supporting Polish 512 00:31:15,320 --> 00:31:20,880 Speaker 11: families with some additional income. We've also started in Vitro program. 513 00:31:21,720 --> 00:31:28,800 Speaker 11: Already thirteen thousand children were born thanks to this program 514 00:31:29,280 --> 00:31:32,720 Speaker 11: in Poland, and I want to say personally that we 515 00:31:32,760 --> 00:31:37,680 Speaker 11: are really proud that after eight years of very right 516 00:31:37,720 --> 00:31:42,720 Speaker 11: wing government that stopped this program, our government reintroduced it 517 00:31:43,560 --> 00:31:47,320 Speaker 11: and we already have, as I said, thirteen thousand young 518 00:31:47,400 --> 00:31:52,520 Speaker 11: Polish people because of that. But it's not enough. We 519 00:31:52,600 --> 00:31:56,920 Speaker 11: need to create new incentives for people to be more 520 00:31:56,960 --> 00:32:00,240 Speaker 11: willing to work, and our government is doing that. 521 00:32:00,720 --> 00:32:04,320 Speaker 2: Foreign investment is both an opportunity and a challenge for Poland. 522 00:32:04,880 --> 00:32:08,440 Speaker 2: Many foreign investors have become more confident in the sustainability 523 00:32:08,440 --> 00:32:11,440 Speaker 2: of the Poland story. But Damonsky says the war in 524 00:32:11,560 --> 00:32:13,479 Speaker 2: Ukraine has made some wearing. 525 00:32:14,040 --> 00:32:18,880 Speaker 11: We see that some investors, especially from non European investors, 526 00:32:18,920 --> 00:32:23,200 Speaker 11: are a little more reluctant to invest in especially eastern 527 00:32:23,240 --> 00:32:28,120 Speaker 11: parts of Poland recently. That being said, Poland will be 528 00:32:28,640 --> 00:32:32,719 Speaker 11: the biggest, of course, apart from Ukraine, beneficiary of peace 529 00:32:33,000 --> 00:32:37,960 Speaker 11: in Ukraine. So we want just and lasting peace for 530 00:32:38,440 --> 00:32:42,760 Speaker 11: Ukraine first of all. Of course too, we need to 531 00:32:42,920 --> 00:32:48,560 Speaker 11: end this brutal Russian aggression. It would be also very 532 00:32:48,560 --> 00:32:53,800 Speaker 11: good for Polish economy. Foreign direct investments were absolutely crucial 533 00:32:54,480 --> 00:32:58,000 Speaker 11: in building strength of Polish economy, and this is not 534 00:32:58,520 --> 00:33:01,880 Speaker 11: it's a matter of fact and opinion because of the 535 00:33:01,920 --> 00:33:10,440 Speaker 11: investments from other European countries. Of course US investors. Right 536 00:33:10,480 --> 00:33:13,960 Speaker 11: now we see more and more interests from Asian investors 537 00:33:14,440 --> 00:33:16,680 Speaker 11: investing in Poland. 538 00:33:16,800 --> 00:33:21,000 Speaker 12: We certainly need to invest more in research and development. 539 00:33:21,120 --> 00:33:24,760 Speaker 12: We need to invest in our academic sector. We also 540 00:33:24,920 --> 00:33:30,760 Speaker 12: need to refining our educational policies, both aimed at children 541 00:33:30,920 --> 00:33:35,720 Speaker 12: and at adults, because this is what more successful Western 542 00:33:35,800 --> 00:33:41,440 Speaker 12: economists are doing. And in Poland so far we reliate 543 00:33:42,040 --> 00:33:47,520 Speaker 12: much on competitive labor supply on cheap labor costs. But 544 00:33:48,000 --> 00:33:51,600 Speaker 12: if we want to reach higher level of wages, if 545 00:33:51,600 --> 00:33:55,800 Speaker 12: you want to converge to not to fifty percent of 546 00:33:55,960 --> 00:33:59,800 Speaker 12: German wages, but to eighty or ninety percent, we certainly 547 00:33:59,840 --> 00:34:05,400 Speaker 12: need to invest more in education, in research and development, 548 00:34:06,240 --> 00:34:10,560 Speaker 12: and in other pro growth policies. We are quite satisfied 549 00:34:10,640 --> 00:34:15,120 Speaker 12: with our present growth trajectory, so we may not be 550 00:34:15,360 --> 00:34:20,080 Speaker 12: well motivated to invest in research and development, to invest 551 00:34:20,200 --> 00:34:25,319 Speaker 12: in new educational policies because so far is good, but 552 00:34:25,840 --> 00:34:29,759 Speaker 12: in future current growth model of Polish economy may not 553 00:34:29,840 --> 00:34:30,480 Speaker 12: be sufficient. 554 00:34:31,160 --> 00:34:33,560 Speaker 2: As they say, getting to the tap is one thing, 555 00:34:34,000 --> 00:34:38,040 Speaker 2: staying there is another. Poland's growth is a success story, 556 00:34:38,080 --> 00:34:40,239 Speaker 2: but its next test will be sustaining it. 557 00:34:40,480 --> 00:34:43,759 Speaker 1: A lot of the success of Poland's so far has 558 00:34:43,840 --> 00:34:47,880 Speaker 1: been unfortunately playing catch up. I think once you join 559 00:34:48,760 --> 00:34:53,480 Speaker 1: twenty biggest economies in the world, or twenty economies with 560 00:34:54,239 --> 00:35:00,680 Speaker 1: the biggest GDP per capita, it really becomes about is 561 00:35:00,840 --> 00:35:04,880 Speaker 1: the limit of your growth and where do you need 562 00:35:04,960 --> 00:35:07,279 Speaker 1: to see kids? If playing catchup is not going to 563 00:35:07,360 --> 00:35:09,320 Speaker 1: workouts that well anymore. 564 00:35:09,640 --> 00:35:12,400 Speaker 2: But in the end, for Poland, as it is for 565 00:35:12,600 --> 00:35:15,480 Speaker 2: many countries, the key is making sure that the best, 566 00:35:15,600 --> 00:35:18,959 Speaker 2: the brightest can go home again and stay there. 567 00:35:19,040 --> 00:35:21,480 Speaker 1: I could have stayed in London, raise a fund there. 568 00:35:21,760 --> 00:35:24,560 Speaker 1: I could have thought about maybe moving to the US 569 00:35:24,600 --> 00:35:29,200 Speaker 1: and effectively starting over. But I decided to take a 570 00:35:29,280 --> 00:35:31,759 Speaker 1: step which I don't think is a step back, but 571 00:35:32,239 --> 00:35:35,000 Speaker 1: step into something entirely new, but just in the place 572 00:35:35,000 --> 00:35:37,160 Speaker 1: which I used to call home as a child. So 573 00:35:37,200 --> 00:35:39,080 Speaker 1: it feels really special to be able to do that. 574 00:35:39,440 --> 00:35:41,680 Speaker 1: It feels also really special because I don't feel like 575 00:35:41,719 --> 00:35:43,400 Speaker 1: I have to give up on anything. 576 00:35:45,120 --> 00:35:49,000 Speaker 2: Coming up. It's not just oil and fertilizer. Aluminum is 577 00:35:49,000 --> 00:35:52,160 Speaker 2: another victim of the around War, which is making President 578 00:35:52,200 --> 00:35:55,720 Speaker 2: Trump's plans to strengthen the US industry that much harder. 579 00:36:05,640 --> 00:36:08,680 Speaker 2: This is a story about trying to have it both ways. 580 00:36:08,719 --> 00:36:11,560 Speaker 2: Since he first became president, Donald Trump has sought to 581 00:36:11,560 --> 00:36:15,000 Speaker 2: protect the US aluminum industry through tariffs, but the war 582 00:36:15,040 --> 00:36:18,080 Speaker 2: in Iran may be taking us in a very different direction. 583 00:36:18,600 --> 00:36:21,279 Speaker 2: Our colleague Christian Friedland tells us a story of a 584 00:36:21,360 --> 00:36:23,440 Speaker 2: key metal that is caught in the middle. 585 00:36:25,640 --> 00:36:30,080 Speaker 10: Aluminum foil keeps foods from drying out while ceiling in 586 00:36:30,280 --> 00:36:32,000 Speaker 10: all their natural flavor. 587 00:36:33,840 --> 00:36:36,280 Speaker 13: When you think about aluminum, the first thing that comes 588 00:36:36,280 --> 00:36:39,520 Speaker 13: to mind might be tinfoil or soda cants, but it's 589 00:36:39,560 --> 00:36:43,759 Speaker 13: also an essential component of cars, planes and machinery. It's 590 00:36:43,800 --> 00:36:47,160 Speaker 13: the world's most abundant metal, but even that hasn't kept 591 00:36:47,200 --> 00:36:49,520 Speaker 13: aluminum safe from the vallive of war. 592 00:36:50,120 --> 00:36:54,759 Speaker 14: The supply is now depleted by about half of the 593 00:36:54,800 --> 00:36:57,600 Speaker 14: metal that used to be shipped from the Middle East 594 00:36:57,680 --> 00:37:01,240 Speaker 14: because there's been some damage and there's and some curtailments 595 00:37:01,280 --> 00:37:03,080 Speaker 14: to avoid further damage. 596 00:37:03,600 --> 00:37:06,840 Speaker 13: Jean Cimaut is the President and CEO of the Aluminum 597 00:37:06,880 --> 00:37:08,280 Speaker 13: Association of Canada. 598 00:37:08,840 --> 00:37:13,839 Speaker 14: It's a very significant situation for the aluminum sector worldwide 599 00:37:13,880 --> 00:37:17,480 Speaker 14: because the Middle East produces twenty percent of all the 600 00:37:17,520 --> 00:37:22,240 Speaker 14: aluminum outside China, and it ships to Asia, but mostly 601 00:37:22,560 --> 00:37:24,320 Speaker 14: to the US and to Europe. 602 00:37:25,280 --> 00:37:28,360 Speaker 13: Of the top aluminum producing countries in the world, two 603 00:37:28,480 --> 00:37:31,440 Speaker 13: or in the Middle East, and Sima says the impact 604 00:37:31,520 --> 00:37:34,200 Speaker 13: of the war in Iran could be long lasting. 605 00:37:35,040 --> 00:37:38,960 Speaker 14: Starting at the beginning of the crisis, the first curtailment 606 00:37:39,080 --> 00:37:43,359 Speaker 14: happened in Qatar because of an energy supply situation, and 607 00:37:43,400 --> 00:37:47,960 Speaker 14: then damage was done in Baryn and then to the 608 00:37:48,000 --> 00:37:53,279 Speaker 14: Alta wheel of smelters in the Emerits. This is very 609 00:37:53,320 --> 00:37:57,880 Speaker 14: significant because it will take a long time to bring 610 00:37:57,920 --> 00:38:05,440 Speaker 14: it back. Smelters are very highly impacted by energy, and 611 00:38:05,800 --> 00:38:09,000 Speaker 14: to restart a smelter you have to do like if 612 00:38:09,040 --> 00:38:12,919 Speaker 14: there is a supply problem with electricity for your house, 613 00:38:12,960 --> 00:38:16,000 Speaker 14: you have to unplug everything and then replug one at 614 00:38:16,040 --> 00:38:19,280 Speaker 14: a time, so they can only start back two cells 615 00:38:19,320 --> 00:38:22,120 Speaker 14: a day out of hundreds and hundreds of cells. 616 00:38:22,640 --> 00:38:25,520 Speaker 13: Production is just one part of the aluminum supply chain, 617 00:38:25,560 --> 00:38:29,520 Speaker 13: facing disruption distribution is another. Like so many of the 618 00:38:29,560 --> 00:38:33,439 Speaker 13: world's exports, aluminum needs to be shipped, often a long way, 619 00:38:33,600 --> 00:38:36,400 Speaker 13: and shipments are snarled by the blockade of the Strait 620 00:38:36,400 --> 00:38:37,000 Speaker 13: of Hormonies. 621 00:38:37,680 --> 00:38:41,440 Speaker 14: The problem is what's in front of us. The last 622 00:38:41,440 --> 00:38:45,520 Speaker 14: ship to leave the Middle East just before the beginning 623 00:38:45,560 --> 00:38:48,680 Speaker 14: of the crisis has made it to the US. There's 624 00:38:48,719 --> 00:38:51,200 Speaker 14: no other ship on its way. It took sixty days 625 00:38:51,200 --> 00:38:54,600 Speaker 14: to get there, so the full shock is ahead of us. 626 00:38:55,160 --> 00:38:59,719 Speaker 14: I'm not too sure that all downstream transformers, processors, mom 627 00:38:59,719 --> 00:39:03,799 Speaker 14: and shops that use aluminum are fully aware of what's 628 00:39:03,840 --> 00:39:04,480 Speaker 14: ahead of them. 629 00:39:05,000 --> 00:39:06,800 Speaker 13: In the first two weeks of the war, the price 630 00:39:06,840 --> 00:39:10,520 Speaker 13: of aluminum on the London Metal Exchange saw double digit gains, 631 00:39:10,760 --> 00:39:14,000 Speaker 13: shooting to record highs but while the war added to 632 00:39:14,080 --> 00:39:16,960 Speaker 13: rising prices around the world, some of the fallout in 633 00:39:17,000 --> 00:39:21,240 Speaker 13: the US is self inflicted. Last year, President Trump hiked 634 00:39:21,280 --> 00:39:24,839 Speaker 13: tariffs on imports of aluminum to fifty percent with the 635 00:39:24,840 --> 00:39:28,480 Speaker 13: intention of stimulating domestic production. As of twenty twenty five, 636 00:39:28,719 --> 00:39:32,040 Speaker 13: the US was dependent on imports to meet some sixty 637 00:39:32,080 --> 00:39:36,080 Speaker 13: percent of internal aluminum consumption, and that was something that 638 00:39:36,120 --> 00:39:37,880 Speaker 13: the Trump administration didn't like. 639 00:39:38,520 --> 00:39:41,719 Speaker 15: The US is a short market on primary aluminium, so 640 00:39:41,760 --> 00:39:44,560 Speaker 15: the US need to import a lot of primary aluminium 641 00:39:44,880 --> 00:39:51,600 Speaker 15: to fill demand. So to attract that metal, then US 642 00:39:51,880 --> 00:39:56,680 Speaker 15: consumers or manufacturing using aluminium in effect, how to pay 643 00:39:57,120 --> 00:40:00,200 Speaker 15: the dues day on aluminum into the US market. 644 00:40:00,000 --> 00:40:03,239 Speaker 13: And Olaf Kristofferson is the CFO of Norris Kyedro, a 645 00:40:03,280 --> 00:40:06,680 Speaker 13: publicly traded aluminum producer based in Norway. The company is 646 00:40:06,680 --> 00:40:09,239 Speaker 13: also in the unique position of having a production facility 647 00:40:09,320 --> 00:40:09,719 Speaker 13: in cutter. 648 00:40:10,719 --> 00:40:15,560 Speaker 15: Our joint venture in Katar Catalom has been impacted by 649 00:40:15,600 --> 00:40:19,600 Speaker 15: the war and is currently operating around sixty percent production 650 00:40:19,800 --> 00:40:25,480 Speaker 15: capacity because of the situation, and we continue to operate 651 00:40:25,520 --> 00:40:29,360 Speaker 15: around that level. It is a challenging situation with the 652 00:40:29,440 --> 00:40:33,239 Speaker 15: raw material access and also to get metal out from 653 00:40:33,239 --> 00:40:36,879 Speaker 15: the region, but we are continuing to operate at that. 654 00:40:36,840 --> 00:40:41,200 Speaker 13: Production level, and so is the US now facing more 655 00:40:41,440 --> 00:40:44,160 Speaker 13: of an aluminum crisis than other parts of the world. 656 00:40:44,560 --> 00:40:47,920 Speaker 15: Well, the supply situation, I think is of the situation 657 00:40:47,960 --> 00:40:54,759 Speaker 15: in midlest impacts the supply situation in all markets physically. 658 00:40:54,760 --> 00:40:57,200 Speaker 15: When it comes to supply, I think the Asian market 659 00:40:57,760 --> 00:41:01,240 Speaker 15: is worse impacted because quite a lot of the metal 660 00:41:01,239 --> 00:41:03,919 Speaker 15: from them at least is normally sold in Asia round 661 00:41:03,960 --> 00:41:07,280 Speaker 15: two and a half million tons, But the price impact 662 00:41:07,440 --> 00:41:08,240 Speaker 15: is se global. 663 00:41:08,960 --> 00:41:11,640 Speaker 13: This isn't the first time the United States has imposed 664 00:41:11,680 --> 00:41:15,080 Speaker 13: tariffs on Canadian aluminum. In twenty eighteen, when I was 665 00:41:15,120 --> 00:41:18,680 Speaker 13: Foreign Minister, the trade spat between our two countries ended 666 00:41:18,800 --> 00:41:22,040 Speaker 13: with the US backing down. And although the US is 667 00:41:22,120 --> 00:41:26,120 Speaker 13: facing higher aluminum prices today, SamArt says that's not a 668 00:41:26,200 --> 00:41:30,080 Speaker 13: direct effect of the warrant around. That's because the vast 669 00:41:30,120 --> 00:41:33,760 Speaker 13: majority of aluminum the United States imports comes from Canada. 670 00:41:34,080 --> 00:41:39,200 Speaker 14: When the tariffs, the fifty percent tariff were implemented, it 671 00:41:39,320 --> 00:41:44,360 Speaker 14: created a price shock in the market for exporters into 672 00:41:44,360 --> 00:41:48,320 Speaker 14: the US, as Canada is one of them, and basically 673 00:41:48,360 --> 00:41:53,000 Speaker 14: the reaction was to divert shipments to another market which 674 00:41:53,760 --> 00:41:58,319 Speaker 14: covered the full logistical costs and the whole netback that 675 00:41:58,440 --> 00:42:01,919 Speaker 14: would differentiate this this nation from the US. One thing 676 00:42:01,960 --> 00:42:04,560 Speaker 14: is sure, if you want to get all the available 677 00:42:04,600 --> 00:42:08,560 Speaker 14: supply from Canada, you have as a policymaker in the 678 00:42:08,719 --> 00:42:13,120 Speaker 14: US to do a carve out for Canada within the 679 00:42:13,160 --> 00:42:18,560 Speaker 14: global tariff situation right now. If that doesn't happen, Canada 680 00:42:18,719 --> 00:42:21,600 Speaker 14: will go where the market is. 681 00:42:22,480 --> 00:42:25,400 Speaker 13: Among the industries that are most affected by higher aluminum 682 00:42:25,440 --> 00:42:29,799 Speaker 13: prices are packaging and transportation from trains and trucks to 683 00:42:29,920 --> 00:42:33,160 Speaker 13: mopeds and bikes, and that's where Brentan Moore comes in. 684 00:42:33,600 --> 00:42:36,680 Speaker 16: Fundamentally, aluminum is one of the primary materials used on 685 00:42:36,680 --> 00:42:40,960 Speaker 16: a bicycle. The reason is it's very light, very strong, 686 00:42:42,480 --> 00:42:45,200 Speaker 16: reasonably priced. You know, it's not a super exotic metal. 687 00:42:45,960 --> 00:42:49,440 Speaker 13: Or's company, Wolf Tooth Components, makes premium bike parts that 688 00:42:49,480 --> 00:42:52,920 Speaker 13: are shipped all over the world. His manufacturing plant in 689 00:42:52,960 --> 00:42:56,040 Speaker 13: the suburbs of Minneapolis is about seven thousand miles from 690 00:42:56,080 --> 00:42:59,280 Speaker 13: the Strait of Hormones. But he's still feeling the consequences 691 00:42:59,400 --> 00:42:59,759 Speaker 13: of the war. 692 00:42:59,800 --> 00:43:02,160 Speaker 4: And we're a small company like us. 693 00:43:02,360 --> 00:43:04,680 Speaker 16: We're not Boeing, so we don't get to say Kaiser 694 00:43:04,760 --> 00:43:06,600 Speaker 16: send us ten truckloads of aluminum. 695 00:43:07,200 --> 00:43:08,640 Speaker 4: We buy our aluminum. 696 00:43:08,160 --> 00:43:13,319 Speaker 16: Through suppliers locally, and those suppliers will source that from 697 00:43:13,440 --> 00:43:16,279 Speaker 16: various suppliers around the world. We don't get a lot 698 00:43:16,320 --> 00:43:18,480 Speaker 16: of choice and where our aluminum comes from, but I 699 00:43:18,520 --> 00:43:20,880 Speaker 16: can tell you that it's shifted, and we do have 700 00:43:20,880 --> 00:43:23,200 Speaker 16: a preference for US aluminum. 701 00:43:23,239 --> 00:43:26,759 Speaker 13: Eventually, the only solution for a manufacturer like More might 702 00:43:26,800 --> 00:43:29,600 Speaker 13: be to raise prices, but he says it's not so. 703 00:43:29,640 --> 00:43:31,560 Speaker 4: Simple in consumer goods. 704 00:43:31,760 --> 00:43:33,360 Speaker 16: I would say, it's not like when you go to 705 00:43:33,360 --> 00:43:36,319 Speaker 16: the restaurant and there's like lobster pricing and it's like 706 00:43:36,400 --> 00:43:36,960 Speaker 16: market rate. 707 00:43:37,360 --> 00:43:38,879 Speaker 4: That's not how consumer goods work. 708 00:43:40,000 --> 00:43:43,200 Speaker 16: And when prices of aluminum raw material go in, we 709 00:43:43,280 --> 00:43:47,760 Speaker 16: can't necessarily just like raise our prices right away. Raising 710 00:43:47,760 --> 00:43:51,160 Speaker 16: prices remember us three really bad things. One it upsets 711 00:43:51,160 --> 00:43:57,080 Speaker 16: your customers. Two, it puts you at a disadvantage to 712 00:43:57,120 --> 00:43:59,879 Speaker 16: your competition, and three it's actually a lot of work. 713 00:44:00,280 --> 00:44:04,319 Speaker 16: And so when the aluminum goes up, effectively initially we 714 00:44:04,480 --> 00:44:07,160 Speaker 16: just eat it just comes right out of our bottom line. 715 00:44:07,480 --> 00:44:10,160 Speaker 13: More has seen peaks and valleys in the price of 716 00:44:10,200 --> 00:44:13,800 Speaker 13: aluminum before, but he says this time is different. 717 00:44:13,960 --> 00:44:17,440 Speaker 16: If you look, there was COVID, which aluminum prices started 718 00:44:17,480 --> 00:44:20,080 Speaker 16: going up, but then actually the biggest peak was right 719 00:44:20,120 --> 00:44:24,400 Speaker 16: when the Russian War started, just went crazy high, and 720 00:44:24,440 --> 00:44:28,560 Speaker 16: then tariffs came in and then the straight of horror 721 00:44:28,560 --> 00:44:31,560 Speaker 16: moves was closed. But the biggest thing people aren't talking about, 722 00:44:31,560 --> 00:44:34,240 Speaker 16: and you're seeing this broadly across commodities, is the AI 723 00:44:34,320 --> 00:44:37,520 Speaker 16: buildout is actually one of the big impacts for aluminum 724 00:44:37,600 --> 00:44:40,040 Speaker 16: prices going up. Right now, those data centers that we 725 00:44:40,080 --> 00:44:41,920 Speaker 16: all hear so much about, they use a ton of 726 00:44:42,000 --> 00:44:44,920 Speaker 16: raw material and a lot of it's aluminum, and so 727 00:44:45,600 --> 00:44:47,520 Speaker 16: kind of we're seeing like a triple whammy. 728 00:44:47,600 --> 00:44:51,600 Speaker 13: Now, if you will, smaller manufacturers like wolf Tooth components 729 00:44:51,800 --> 00:44:54,400 Speaker 13: not only have to contend with higher prices for the 730 00:44:54,440 --> 00:44:57,680 Speaker 13: metal they need, but also have to compete against bigger, 731 00:44:57,920 --> 00:45:01,439 Speaker 13: more powerful players that also use aluminum. The squeeze could 732 00:45:01,440 --> 00:45:05,880 Speaker 13: eventually raise prices across the board for consumers, triggering another 733 00:45:06,239 --> 00:45:06,840 Speaker 13: of inflation. 734 00:45:07,280 --> 00:45:11,520 Speaker 16: There's really no viable alternative to aluminum in our case, 735 00:45:12,760 --> 00:45:14,400 Speaker 16: and you'd hear the same thing if you ask blowing 736 00:45:14,480 --> 00:45:17,200 Speaker 16: like they're still going to use tons of aluminium in 737 00:45:17,200 --> 00:45:19,959 Speaker 16: airplanes no matter what the price is. And the price 738 00:45:19,960 --> 00:45:21,680 Speaker 16: of those airplanes will just go up, same with our 739 00:45:21,680 --> 00:45:22,799 Speaker 16: bicycle parts. 740 00:45:23,040 --> 00:45:25,480 Speaker 13: As the war drags on. So did the timeline for 741 00:45:25,600 --> 00:45:29,880 Speaker 13: prices to stabilize back in Norway. Christofferson says the outlook 742 00:45:30,040 --> 00:45:31,200 Speaker 13: is far from certain. 743 00:45:31,760 --> 00:45:33,680 Speaker 15: So in the aluminum market, I think we see a 744 00:45:33,719 --> 00:45:37,160 Speaker 15: bit the same situation as you see in the energy markets, 745 00:45:37,160 --> 00:45:40,399 Speaker 15: where you have quite high prices in the front ten 746 00:45:40,800 --> 00:45:44,600 Speaker 15: meaning methods to be delivered in the coming month, but 747 00:45:44,680 --> 00:45:47,799 Speaker 15: then you have a declining price of backwardation situation in 748 00:45:47,800 --> 00:45:52,600 Speaker 15: the market with lower prices folding down to three thousand dollars. 749 00:45:52,680 --> 00:45:55,279 Speaker 15: But on a couple of years out in time. 750 00:45:55,480 --> 00:45:59,680 Speaker 14: So it will take anywhere between twelve to eighteen months 751 00:45:59,760 --> 00:46:03,359 Speaker 14: for the middle et supply has been affected to come 752 00:46:03,400 --> 00:46:07,160 Speaker 14: back into the market, and then you need sixty days 753 00:46:07,560 --> 00:46:10,279 Speaker 14: to ship to North America that you add to this. 754 00:46:10,880 --> 00:46:15,600 Speaker 14: So we're heading for a supply shock as we move 755 00:46:15,719 --> 00:46:19,640 Speaker 14: through the summer period, and this will last most likely 756 00:46:19,719 --> 00:46:22,760 Speaker 14: for about a year a year and a half until 757 00:46:22,800 --> 00:46:27,280 Speaker 14: this supply starts to make its way back into the market. 758 00:46:27,760 --> 00:46:31,080 Speaker 13: For business owners like Brendan Moore, the effects of domestic 759 00:46:31,120 --> 00:46:34,959 Speaker 13: and foreign policy have become an unavoidable hazard of the job. 760 00:46:35,280 --> 00:46:38,120 Speaker 16: We control the processing, we control our efficiency, we control 761 00:46:38,160 --> 00:46:40,640 Speaker 16: our yields, So we have to just focus on those. 762 00:46:40,719 --> 00:46:42,640 Speaker 16: I think near term we're going to be able to 763 00:46:42,680 --> 00:46:45,360 Speaker 16: mitigate most of the aluminum prices. Longer term, if it 764 00:46:45,400 --> 00:46:49,520 Speaker 16: stays this high, there has to be some sort of increase. 765 00:46:49,719 --> 00:46:53,160 Speaker 16: But a consumer, if aluminum goes up twenty percent again 766 00:46:53,200 --> 00:46:55,680 Speaker 16: this year, our prices of our products aren't going to 767 00:46:55,680 --> 00:46:56,319 Speaker 16: go twenty percent. 768 00:46:56,360 --> 00:46:58,960 Speaker 4: They're going to go up like three or five percent. 769 00:46:59,640 --> 00:47:01,600 Speaker 16: I like, I mean, I'm trying to poop poo with 770 00:47:01,640 --> 00:47:03,520 Speaker 16: them at all, but like, we don't have the negotiating 771 00:47:03,560 --> 00:47:07,239 Speaker 16: power that say they have or automaker has, And when 772 00:47:07,239 --> 00:47:11,880 Speaker 16: these prices change or tariffs change, I see that almost 773 00:47:11,920 --> 00:47:14,520 Speaker 16: the same day. I mean not joking sometimes, Well, I 774 00:47:14,560 --> 00:47:17,440 Speaker 16: didn't start this small business because I wanted to learn 775 00:47:17,440 --> 00:47:21,759 Speaker 16: about tariffs or deal with massive supply chain issues, or 776 00:47:21,800 --> 00:47:26,040 Speaker 16: deal with geopolitics. Those are, in fact some of my 777 00:47:26,120 --> 00:47:29,280 Speaker 16: least favorite things. Bicycles are way more fun than that stuff. 778 00:47:29,800 --> 00:47:31,880 Speaker 13: With all the back and forth of tariffs and wars, 779 00:47:32,239 --> 00:47:35,280 Speaker 13: it's hard to see how US policy at the moment 780 00:47:35,680 --> 00:47:40,319 Speaker 13: is helping American manufacturers or American consumers. And this is 781 00:47:40,400 --> 00:47:43,600 Speaker 13: one problem that the marketplace can't fix on its own