WEBVTT - Stocks Fall as US Services Flash Warning Signals 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, Podcasts, radio News. 0:00:08.920 --> 0:00:13.240 This is Bloomberg Business Week Daily reporting from the magazine 0:00:13.240 --> 0:00:17.880 that helps global leaders stay ahead with insight on the people, companies, 0:00:17.920 --> 0:00:22.800 and trends shaping today's complex economy. Plus global business, finance 0:00:22.840 --> 0:00:26.520 and tech news as it happens. The Bloomberg Business Weekdaily 0:00:26.680 --> 0:00:31.760 Podcast with Carol Masser and Tim Steneveek on Bloomberg. 0:00:31.280 --> 0:00:33.880 Radio, I want to get to our Drive to the Close. 0:00:33.960 --> 0:00:36.320 Guest back with us is Joyce Swang. She's senior client 0:00:36.600 --> 0:00:39.919 portfolio manager for American Century Investments. 0:00:39.960 --> 0:00:41.080 They have about two. 0:00:41.000 --> 0:00:43.600 Hundred and eighty two billion in assets under management, and 0:00:43.640 --> 0:00:47.279 she's back here in our Bloomberg Interactive Brokers studio. When 0:00:47.280 --> 0:00:50.040 you're back at American Century and you're surrounded by your 0:00:50.040 --> 0:00:52.120 team and your colleagues, what is it that you talk 0:00:52.200 --> 0:00:52.720 most about? 0:00:52.920 --> 0:00:54.920 I mean, right now, there's actually a lot of things 0:00:54.960 --> 0:00:57.720 going on. So as a fixed income person, you usually 0:00:57.720 --> 0:01:01.040 we're in the boring part of the market, there's a 0:01:01.080 --> 0:01:04.080 lot to talk about. So recently it's obviously been the 0:01:04.200 --> 0:01:08.440 job's number, you know, inflation, looking at the underlying data there, 0:01:08.920 --> 0:01:12.440 thinking about how to understand the three percent GDP number 0:01:12.520 --> 0:01:15.360 we saw and we're really talking about tariffs, right, So 0:01:15.400 --> 0:01:18.480 it's everything of the above, just given how rates have 0:01:18.560 --> 0:01:22.240 been relatively calm despite a lot of this news coming out. 0:01:22.360 --> 0:01:24.920 So when you look at i mean, the tenure yield 0:01:24.959 --> 0:01:26.360 at four to twenty, we've been talking about a lot 0:01:26.360 --> 0:01:29.840 of the last couple of days, especially considering the structural 0:01:32.400 --> 0:01:34.639 measures that should be pushing yields higher. 0:01:34.760 --> 0:01:34.920 Right. 0:01:34.959 --> 0:01:37.600 We were just talking about with Stuart Paul from Bloomberg Economics, 0:01:37.760 --> 0:01:40.279 what's holding us down this low for now? 0:01:40.560 --> 0:01:41.880 And does that yield bounce? 0:01:42.520 --> 0:01:45.120 Yeah, I mean, we think the tenures likely to be 0:01:45.319 --> 0:01:49.120 range bound for the rest of this year. The issues 0:01:49.200 --> 0:01:52.480 that are keeping it down would be the data, right, 0:01:52.560 --> 0:01:55.440 So the hard data is finally starting to soften. At 0:01:55.480 --> 0:01:58.800 American Century, we've been thinking that the slowdown is the 0:01:58.840 --> 0:02:02.200 most likely scenario for the economy in the US this year. 0:02:02.560 --> 0:02:06.200 It's finally showing up, right, Jobs un berbs first, So 0:02:06.600 --> 0:02:10.320 that fear, even if it's a small risk of recession, 0:02:10.560 --> 0:02:13.200 is going to keep the tenure below five. 0:02:13.600 --> 0:02:15.680 We think likely the range is four to four. 0:02:15.600 --> 0:02:17.560 Or five longer term though, you think you know, we 0:02:17.560 --> 0:02:22.600 talked with our Stuart Paul about demographics, baby boomers, the debt, 0:02:22.800 --> 0:02:25.280 the US debt that longer term what did he say 0:02:25.360 --> 0:02:26.000 up above ten? 0:02:26.440 --> 0:02:29.120 Six percent of the six percent is the long term 0:02:29.280 --> 0:02:31.840 natural rate, which, yeah, that's. 0:02:31.639 --> 0:02:33.959 Shockingly high for the ten year yield, right, that would 0:02:34.000 --> 0:02:35.600 be extremely high. 0:02:35.680 --> 0:02:36.960 Again, I think fact. 0:02:36.760 --> 0:02:40.239 They ever interior discussions when you when you look longer term. 0:02:40.240 --> 0:02:41.040 Longer term yees. 0:02:41.080 --> 0:02:43.920 So the most frequently asked question I get is the 0:02:44.000 --> 0:02:48.240 deficit in terms of longer term things. That is obviously 0:02:48.240 --> 0:02:49.960 going to be a problem that needs to be resolved. 0:02:50.280 --> 0:02:54.720 As investors, we're thinking more tactically, so let's say six months, 0:02:54.760 --> 0:02:58.240 a year, two years, it's more short term trends rather 0:02:58.280 --> 0:03:01.280 than these burgeoning long term trends. But yes, that is 0:03:01.360 --> 0:03:03.560 something that weighs on our minds. And you do get 0:03:03.600 --> 0:03:07.320 these bouts of volatility by scaresth. 0:03:06.560 --> 0:03:09.480 So you buy what in terms of the US treasury market. 0:03:09.440 --> 0:03:11.760 So we're actually liking the short end of the curve 0:03:11.840 --> 0:03:15.800 right now, so not treasuries, though. We are looking at 0:03:16.200 --> 0:03:20.800 income opportunities because while spreads are pretty tight across corporates, 0:03:20.840 --> 0:03:24.520 across securitized markets are at pms, and analysts are looking 0:03:24.600 --> 0:03:27.680 for areas of the market that are less trafficked. So 0:03:27.840 --> 0:03:32.120 looking at, you know, smaller deal secondaries on the corporate side, 0:03:32.240 --> 0:03:35.600 looking at potentially high yield names that are going to 0:03:35.640 --> 0:03:40.000 be upgraded rather than downgraded, looking at non traditional asset 0:03:40.000 --> 0:03:42.280 backed securities, stuff that's not in the index. 0:03:42.320 --> 0:03:43.680 By the way, is there a cool name for that? 0:03:43.760 --> 0:03:46.080 Because I know, if you're like in the BS and 0:03:46.120 --> 0:03:48.080 you fall down, you're a fallen angel. 0:03:48.240 --> 0:03:48.480 Right. 0:03:48.680 --> 0:03:51.880 Is there a cool name for junk that becomes investment grade. 0:03:52.000 --> 0:03:53.000 It's rising stars. 0:03:53.120 --> 0:03:55.160 Oh, that's pretty that's pretty clear. 0:03:55.320 --> 0:03:58.480 Look, spreads are so tight, right, and we just saw 0:03:58.680 --> 0:04:03.560 I thought the Wall Street Banker bonus story was amazing 0:04:03.600 --> 0:04:09.440 because equity underwriters are not getting paid and debt underwriters are. 0:04:09.560 --> 0:04:12.200 It tells me that, you know, IPOs just aren't there 0:04:12.360 --> 0:04:14.120 and everybody wants to sell bonds. 0:04:14.960 --> 0:04:16.360 Is that market going to stay open like that? 0:04:16.800 --> 0:04:17.240 I hope so. 0:04:17.320 --> 0:04:19.640 And I hope that, you know, asset management bonuses for 0:04:19.720 --> 0:04:20.760 fixed income people. 0:04:20.520 --> 0:04:23.280 Are up to I hope so for you also. 0:04:24.360 --> 0:04:27.279 But yes, I mean, one of the biggest changes that 0:04:27.320 --> 0:04:29.800 we've seen since rates have gone up in twenty twenty 0:04:29.880 --> 0:04:34.640 two is that things that were booming from the global 0:04:34.640 --> 0:04:39.480 financial crisis until then aren't quite so attractive. Things like IPOs, 0:04:40.520 --> 0:04:44.440 private equity, private credit. Stuff that worked when rates were 0:04:44.480 --> 0:04:47.680 at zero suddenly don't when rates are at four. 0:04:47.760 --> 0:04:51.159 But why is everybody buying why buy corporate debt when 0:04:51.200 --> 0:04:54.440 spreads are this type? Is it just they're so happy 0:04:54.480 --> 0:04:56.040 to be getting some yield? 0:04:56.160 --> 0:04:58.039 And I mean, you have to look back to the 0:04:58.040 --> 0:05:01.040 global financial crisis to get anything close to where we 0:05:01.080 --> 0:05:03.040 are today. You were there, I was there at least 0:05:03.040 --> 0:05:06.440 were right. Yeah, So I was there the last time 0:05:06.440 --> 0:05:09.000 we saw yield this attractive. And I think when you 0:05:09.040 --> 0:05:14.440 look at institutional investors and retail investors advisors, most people 0:05:14.440 --> 0:05:18.000 are trying to get let's say, seven percent on their portfolio. 0:05:18.320 --> 0:05:21.840 If you can get five to six on high quality 0:05:21.880 --> 0:05:24.840 fixed income, that looks pretty attractive. 0:05:24.839 --> 0:05:27.440 But high quality, especially if you think growth is slowing 0:05:27.440 --> 0:05:29.000 down right at this point, you want to be pretty 0:05:29.080 --> 0:05:29.920 quickly and pretty chuck. 0:05:30.080 --> 0:05:32.719 Highield spreads are tight too, they are they are, so 0:05:32.760 --> 0:05:34.039 we are selective in high yield. 0:05:34.080 --> 0:05:36.440 It's again those rising. 0:05:36.200 --> 0:05:41.400 Star stories, very select idiosyncratic names. Not beta definitely. I 0:05:41.400 --> 0:05:43.440 don't suggest going passive in this environment. 0:05:43.600 --> 0:05:47.479 Joyce. What's the implications or impact of tariffs that have 0:05:47.640 --> 0:05:51.360 an effective rate of fifteen to sixteen percent, the highest 0:05:51.360 --> 0:05:54.200 since nineteen forty six, very different than the world that 0:05:54.240 --> 0:05:57.120 we've been living in. What is though, ultimately the impact 0:05:57.120 --> 0:06:00.640 on companies, You know, as we look longer term and 0:06:00.680 --> 0:06:03.400 I think about whether it's their debt positions or their 0:06:03.440 --> 0:06:06.320 equity positions, whether I look at you across the balance 0:06:06.320 --> 0:06:09.880 sheet in terms of margins, profit growth, like, what's the impact. 0:06:10.040 --> 0:06:12.520 It's a different environment, right it is. 0:06:12.560 --> 0:06:14.920 And that's what we've been really paying attention to during 0:06:14.960 --> 0:06:19.800 earnings calls, because while the tariff situation is just getting finalized, 0:06:20.160 --> 0:06:23.000 I think companies are still deciding how much they have 0:06:23.080 --> 0:06:25.840 to absorb, how much in concessions they can get from 0:06:25.880 --> 0:06:29.360 their suppliers, and how much they can pass through to consumers. 0:06:29.600 --> 0:06:32.080 And that's where I think the active management piece comes in, 0:06:32.440 --> 0:06:35.919 because it's going to impact companies in different sectors and 0:06:35.960 --> 0:06:37.880 in different leadership positions differently. 0:06:38.240 --> 0:06:38.400 Right. 0:06:38.440 --> 0:06:40.839 So, if you have pricing power, you can pass through 0:06:41.240 --> 0:06:44.480 your price increases to the consumer, and if people love 0:06:44.520 --> 0:06:46.240 your brand, they're going to be willing to buy it. 0:06:47.200 --> 0:06:50.960 But in terms of corporations, the debt coverage ratio is 0:06:51.080 --> 0:06:54.360 very strong, so despite tight credit spreads, corporations are in 0:06:54.400 --> 0:06:57.600 a great spot. There's no risk of like big defaults 0:06:57.680 --> 0:07:01.159 happening even in high yield, so we're not terribly concerned 0:07:01.160 --> 0:07:02.240 about that aspect of it. 0:07:02.360 --> 0:07:04.760 Crazy considering like if I had told you at the 0:07:04.839 --> 0:07:07.080 end of last year, Joyce, we're going to have you know, 0:07:07.240 --> 0:07:10.640 tariffs at sixteen percent on the rest of the world, 0:07:10.680 --> 0:07:12.239 what would you forecast? 0:07:12.520 --> 0:07:14.560 Yeah, well, I mean we were definitely thinking at the 0:07:14.680 --> 0:07:15.360 end of the year. 0:07:15.560 --> 0:07:16.880 When President Trump. 0:07:16.600 --> 0:07:19.560 Was elected and he started, you know, during the campaign, 0:07:19.680 --> 0:07:22.960 he was targeting stuff and released tariffs up to forty 0:07:22.960 --> 0:07:26.120 fifty percent on Liberation Day, we were thinking recession was 0:07:26.160 --> 0:07:29.760 going to be the most likely massive inflation. 0:07:30.640 --> 0:07:30.840 Yeah. 0:07:31.160 --> 0:07:34.160 Is this just companies really focusing on their balance sheet? 0:07:34.240 --> 0:07:36.480 I just think about this since the Great Financial Crisis 0:07:36.560 --> 0:07:39.040 and then you know, layer on top of that the pandemic. 0:07:39.080 --> 0:07:42.880 I mean, CFOs working with their CEOs making sure that 0:07:42.960 --> 0:07:46.000 they've got maybe not fortress balance sheets, but pretty close. 0:07:46.120 --> 0:07:46.360 Yes. 0:07:46.400 --> 0:07:49.920 Absolutely, And that's where our corporate team is actually partnering 0:07:50.000 --> 0:07:53.360 with CFOs and the finance teams at companies to approach 0:07:53.400 --> 0:07:55.880 them when they see debt coming due in the next 0:07:55.960 --> 0:07:56.840 one or two years. 0:07:57.120 --> 0:07:58.840 They'll go to them and be like, we know you. 0:07:58.760 --> 0:08:01.080 Don't want this to get to the level of attention 0:08:01.160 --> 0:08:04.280 of your CEO asking how you're going to refinance this debt. Right, 0:08:04.600 --> 0:08:07.560 Let's work together and come up with a way to 0:08:07.960 --> 0:08:09.760 refinance your upcoming maturities. 0:08:09.800 --> 0:08:12.240 So that group really busy, because that's what's happening. 0:08:12.320 --> 0:08:15.200 Yes, exactly. So we're looking for those opportunities. Again, we're 0:08:15.240 --> 0:08:18.680 not just buying the broad index, but we're looking for 0:08:18.720 --> 0:08:21.840 these unique opportunities to generate some alf on a security 0:08:21.840 --> 0:08:22.800 selection basis. 0:08:22.920 --> 0:08:25.120 Great to have you here, Thank you, Thank you, so 0:08:25.160 --> 0:08:26.440 appreciate joy the rest of the summer. 0:08:26.480 --> 0:08:27.040 Joyce Wang. 0:08:27.320 --> 0:08:30.520 She is senior client portfolio manager at American Century Investments. 0:08:30.600 --> 0:08:32.880 We mentioned two hundred and eighty billion two hundred eighty 0:08:32.920 --> 0:08:34.520 two billion in assets. 0:08:34.200 --> 0:08:36.480 Under management right here in our interactive broker studio. 0:08:36.600 --> 0:08:40.800 Be Well, you're listening to the Bloomberg Business Weekdaily podcast. 0:08:41.000 --> 0:08:44.160 Catch us live weekday afternoons from two to five pm 0:08:44.200 --> 0:08:47.760 Eastern Listen on Applecarplay and Android Auto with the Bloomberg 0:08:47.840 --> 0:08:50.480 Business app, or watch us live on YouTube. 0:08:51.480 --> 0:08:51.640 Well. 0:08:51.640 --> 0:08:54.920 India's government is scrambling to contain the economic fallout from 0:08:54.920 --> 0:08:58.200 President Trump's threatned tariff action, which has left some officials 0:08:58.240 --> 0:09:02.240 in New Delhi reeling meantime time in terms of what 0:09:02.280 --> 0:09:06.040 we got from the President earlier this morning on CNBC, 0:09:06.559 --> 0:09:09.679 you talked about maybe US tariffs and semiconductors and pharmaceutical 0:09:09.720 --> 0:09:13.040 imports which would be announced quote within the next week 0:09:13.120 --> 0:09:15.760 or so. This as the administration really gets ready to 0:09:15.840 --> 0:09:19.199 target key economics sectors in its effort to remake global trade. 0:09:19.240 --> 0:09:20.559 Heres what the President said. 0:09:20.400 --> 0:09:24.280 We'll go into pharmaceuticals. They make a fortune with pharmaceuticals, 0:09:24.320 --> 0:09:27.199 and they make our pharmaceuticals in China and Ireland and 0:09:27.280 --> 0:09:31.720 everything else. And pharmaceuticals will be putting a initially small 0:09:31.800 --> 0:09:35.040 tariff on pharmaceuticals, but in one year, one and a 0:09:35.120 --> 0:09:38.760 half year's maximum, it's going to go to one hundred 0:09:38.800 --> 0:09:40.600 and fifty percent, and then it's going to go to 0:09:40.600 --> 0:09:44.719 two hundred and fifty percent because we want pharmaceuticals made 0:09:44.760 --> 0:09:45.480 in our country. 0:09:46.040 --> 0:09:48.440 All right, That, of course was President Trump earlier on CNBC. 0:09:48.559 --> 0:09:50.040 One thing that I want to add to that, the 0:09:50.120 --> 0:09:53.559 US is looking at ways to equip chips with better 0:09:53.760 --> 0:09:55.920 location trucking capabilities. 0:09:55.360 --> 0:09:57.920 So chips, microchips, microchips. 0:09:58.280 --> 0:09:59.760 Look, they want to put an air tag on those 0:09:59.760 --> 0:10:02.840 times incy Ween Sea, itsy bitsy little microchips. 0:10:02.880 --> 0:10:04.880 Yeah, like you know that look like that Apple tag. 0:10:06.040 --> 0:10:08.400 This is the creutail, the flow of semis made by 0:10:08.400 --> 0:10:11.320 the likes of Nvidia to China. All right, tracking all 0:10:11.360 --> 0:10:13.160 of it. There's a lot coming at us. Is Bloomberg 0:10:13.160 --> 0:10:17.400 News Senior editor for Technology and Strategic Industries. He's Michael Shepherd. 0:10:17.440 --> 0:10:19.480 He's out there in our DC bureau. 0:10:20.080 --> 0:10:21.840 Mike. A lot going on here. 0:10:21.960 --> 0:10:23.679 Get us up to speed on what we are hearing 0:10:23.679 --> 0:10:26.600 from the President when it comes to various sectors and 0:10:26.640 --> 0:10:29.040 what we are getting in terms of still waiting for 0:10:29.360 --> 0:10:31.240 terms with some big trading partners. 0:10:31.640 --> 0:10:33.719 Well in the tariffs front, one of the most significant 0:10:33.720 --> 0:10:36.360 things that we heard from Donald Trump today was a 0:10:36.520 --> 0:10:40.120 timeline for both the pharma tariffs and the levees that 0:10:40.160 --> 0:10:43.560 we have long been expecting to come on semiconductors. He 0:10:43.600 --> 0:10:46.600 has been going sector bisector, as we've already seen, in 0:10:46.640 --> 0:10:50.440 addition to his country by country reciprocal tariffs, but he 0:10:50.480 --> 0:10:53.360 has already targeted the auto industry, the steel and aluminum 0:10:53.400 --> 0:10:57.560 industries with levees aimed at trying to boost more output 0:10:57.600 --> 0:11:00.840 and production here at home, and next moving onto the 0:11:00.880 --> 0:11:04.160 drug industry and chip makers and the idea is again 0:11:04.240 --> 0:11:06.520 to try to get them to build more plants here 0:11:06.520 --> 0:11:10.400 in the US, spur domestic investment in plants and production, 0:11:10.679 --> 0:11:13.520 and maybe try to boost hiring as well, and perhaps 0:11:13.600 --> 0:11:16.079 also goose some exports in those areas. 0:11:16.280 --> 0:11:17.720 It's going to be a long road though. 0:11:17.840 --> 0:11:20.680 Even if he announces those tariffs in the next week 0:11:20.760 --> 0:11:23.200 or so, it will take years for those plants to 0:11:23.240 --> 0:11:26.360 actually be built for companies to migrate, and in the meantime, 0:11:26.440 --> 0:11:31.079 a number of companies, businesses, consumers will face the prospect 0:11:31.120 --> 0:11:36.480 of potentially higher costs based on the increases in those inputs. Remember, 0:11:36.800 --> 0:11:39.520 chips are in everything. It is not just the AI 0:11:39.600 --> 0:11:43.439 accelerators that we heard so much about from the likes 0:11:43.480 --> 0:11:46.040 of Meta Platforms and Microsoft Corp. When it comes to 0:11:46.160 --> 0:11:49.920 their AI businesses. It goes down to all the way 0:11:49.960 --> 0:11:52.680 down to things like those light up sneakers that small 0:11:52.800 --> 0:11:56.000 children wear. They're in cars, they're in everything. So businesses 0:11:56.000 --> 0:11:58.320 have been bracing for this and they're going to have 0:11:58.360 --> 0:12:00.600 to really read the fine print when those tariffs come 0:12:00.600 --> 0:12:03.520 out to see if there are any exemptions whatsoever. We're 0:12:03.520 --> 0:12:06.720 not expecting any, but some companies are still holding out hope. 0:12:07.120 --> 0:12:09.640 You know, we just report the news. 0:12:09.880 --> 0:12:12.680 We don't editorialize or give our opinions, but you got 0:12:12.720 --> 0:12:15.439 to point out when something makes no sense at all. 0:12:15.480 --> 0:12:18.480 Ship and the President on Sunday said he was going 0:12:18.559 --> 0:12:22.920 to lower drug prices for American consumers by fourteen hundred 0:12:23.240 --> 0:12:28.120 to fifteen hundred percent, which is mathematically impossible unless drug 0:12:28.120 --> 0:12:31.400 producers are paying customers. At the same time, he wants 0:12:31.400 --> 0:12:34.280 to have tariffs at two hundred and fifty percent on 0:12:34.480 --> 0:12:38.920 imported pharmaceuticals, which is almost all of them. So how 0:12:38.960 --> 0:12:41.319 do you, I mean, how does any of that make 0:12:41.360 --> 0:12:43.559 any sense at all? 0:12:43.720 --> 0:12:46.920 Well, the math really is not working when you lay 0:12:46.960 --> 0:12:50.280 it out just on paper. He even talked today about 0:12:50.320 --> 0:12:53.920 increasing the drug tariffs, starting small and then after a 0:12:54.000 --> 0:12:57.559 year increasing very significantly to one hundred and fifty or 0:12:57.559 --> 0:12:58.520 two hundred percent. 0:12:58.880 --> 0:12:59.200 Matt. 0:12:59.320 --> 0:13:02.320 If you think think about trying to build a drug plant, 0:13:02.440 --> 0:13:04.760 it takes years for that to happen. Let's think on 0:13:04.840 --> 0:13:07.040 a four or five year timeline, and he is not 0:13:07.160 --> 0:13:09.760 talking about that. He has a sense of urgency and 0:13:09.800 --> 0:13:14.720 he wants to see these results immediately. In his mind, 0:13:14.840 --> 0:13:18.040 these plants should already be underway, and he is expecting 0:13:18.200 --> 0:13:22.400 investment from US trading partners, including the European Union, from 0:13:22.480 --> 0:13:25.880 Japan and others, to really start plowing that money into 0:13:25.920 --> 0:13:28.520 the ground and start getting those factories underway. 0:13:29.200 --> 0:13:30.080 Mike, what do we know though? 0:13:30.080 --> 0:13:32.680 I mean already we've talked about Puerto Rico right, certainly 0:13:32.679 --> 0:13:36.719 in the past being a big home to big pharma. 0:13:37.480 --> 0:13:39.720 There's some back and forth there, but I mean, we 0:13:39.760 --> 0:13:42.240 already do it. Is it that we've maxed out what 0:13:42.280 --> 0:13:42.840 we can. 0:13:42.760 --> 0:13:43.520 Do or what? 0:13:45.080 --> 0:13:45.280 Well. 0:13:45.320 --> 0:13:47.320 Part of the problem is that a lot of other 0:13:47.400 --> 0:13:51.160 jurisdictions outside the US have for years been lower cost 0:13:51.280 --> 0:13:54.920 and they have offered themselves as a venue to produce 0:13:55.040 --> 0:14:00.400 these medicines and even medical equipment at a far lower cost. 0:14:00.520 --> 0:14:03.840 And that actually has benefited consumers here in the US 0:14:03.960 --> 0:14:06.360 over the years, even though it doesn't look like it. 0:14:07.000 --> 0:14:10.200 Producing a lot of that material here in the United 0:14:10.240 --> 0:14:14.600 States would be more expensive based on labor costs, land costs, 0:14:14.679 --> 0:14:17.600 regulatory hurdles, and other things. Some of these the President 0:14:18.280 --> 0:14:21.600 has promised to sweep aside, especially in the land use 0:14:21.640 --> 0:14:25.560 some permitting and rules bayside. But there are other structural 0:14:25.600 --> 0:14:28.520 issues too, and that includes the labor supply and whether 0:14:28.560 --> 0:14:30.920 there is a workforce. And this is especially true for 0:14:31.000 --> 0:14:35.200 semiconductors and other advanced technology, having enough people who can 0:14:35.240 --> 0:14:39.560 move into the precision tooling, the advanced engineering jobs in 0:14:39.600 --> 0:14:43.000 the factories that could step in and take those jobs 0:14:43.080 --> 0:14:46.120 right away. And Matt, when you were asking about the 0:14:46.160 --> 0:14:48.960 math question, when it comes to chip making, one of 0:14:49.000 --> 0:14:51.440 the biggest inputs in a new plant, and these are 0:14:51.440 --> 0:14:53.640 the kinds of factories that the President and his team 0:14:53.720 --> 0:14:56.960 want to see built across. You know, in certain locations 0:14:56.960 --> 0:14:59.480 in the US, one of the biggest inputs is the 0:14:59.520 --> 0:15:03.720 semikin doctor manufacturing equipment itself, the deep ultra violet lithography 0:15:03.880 --> 0:15:06.400 machines made by one company in the world, and that's 0:15:06.440 --> 0:15:11.240 ASML in the Netherlands. Now, chips tariffs could increase the 0:15:11.280 --> 0:15:13.840 cost of those machines, which run about four hundred million 0:15:13.880 --> 0:15:17.760 dollars apiece, by another as much as one hundred million dollars, 0:15:17.800 --> 0:15:20.520 and for companies that are planning those plants, it is 0:15:20.560 --> 0:15:22.920 a big cost that have to absorb all of a sudden. 0:15:23.040 --> 0:15:26.000 Well, maybe that's why when President Trump was talking about 0:15:26.040 --> 0:15:31.480 the TSMC investment in its Arizona chip making plants, which 0:15:31.520 --> 0:15:34.680 has previously been stated at one hundred and sixty five billion, dollars. 0:15:34.680 --> 0:15:38.160 The President said, now it's a three hundred billion dollar investment. 0:15:38.200 --> 0:15:41.360 He just doubled that number, you know, also for fun. 0:15:41.560 --> 0:15:44.840 So I want to ask about chips ship because the 0:15:44.920 --> 0:15:49.560 idea of putting a tracking device on our you know, 0:15:49.840 --> 0:15:55.480 teenc weensy, it'sy bitsy most advanced AI semiconductors, I mean, 0:15:55.480 --> 0:16:00.040 the space constraints, the thermal budget, the power consumption, this 0:16:00.040 --> 0:16:01.600 signal interference. 0:16:01.160 --> 0:16:04.440 Seems like it would be difficult. It's a great question. 0:16:04.520 --> 0:16:06.760 And I've asked folks in the chip industry whether this 0:16:06.920 --> 0:16:10.200 capability is theoretically possible, and they have said yes, but 0:16:10.280 --> 0:16:12.600 they are wary of doing it for a number of reasons. 0:16:12.680 --> 0:16:15.840 One is that they don't want to create the appearance 0:16:15.880 --> 0:16:18.520 of their possibly being some sort of a back door 0:16:18.560 --> 0:16:22.360 to the US government that other buyers outside the United 0:16:22.400 --> 0:16:26.840 States might be able to see that, Oh wait, the 0:16:26.960 --> 0:16:29.640 US government has some means of following us, tracking us, 0:16:29.680 --> 0:16:32.920 finding us, knowing where we are, and maybe knowing what 0:16:33.000 --> 0:16:36.720 we are using these chips. For Invidia Corp, for instance, 0:16:36.760 --> 0:16:41.160 the maker of the most advanced AI chips, has insisted 0:16:41.200 --> 0:16:43.400 that there is no such back door, but it is 0:16:43.480 --> 0:16:46.640 theoretically possible. Matt and it is something that's key to 0:16:46.680 --> 0:16:51.680 the administration's strategy of exporting more chips, more AI compute globally. 0:16:51.840 --> 0:16:53.640 Not to sound like a crazy enough, but Mike, couldn't 0:16:53.640 --> 0:16:55.280 it already be there trying device? 0:16:57.720 --> 0:17:01.240 Well, it is theoretically, yeah, theoretically possible that they're already 0:17:01.280 --> 0:17:01.680 in there. 0:17:02.200 --> 0:17:03.680 I feel like it's terribly unlikely. 0:17:04.000 --> 0:17:06.160 You a very small piece of real estate and you're 0:17:06.160 --> 0:17:08.240 trying to put as much of the tiniest circuitry in 0:17:08.280 --> 0:17:08.600 the world. 0:17:08.720 --> 0:17:10.440 I understand, but do you know what they already put 0:17:10.480 --> 0:17:14.280 on that tiny, tiny little star no idea amazing capabilities? 0:17:14.400 --> 0:17:16.240 So tracking would that be such a big deal? 0:17:16.480 --> 0:17:17.919 I mean, look, how big an AirTag is? 0:17:18.000 --> 0:17:19.879 All Right, this is a little debate that Matt and 0:17:19.920 --> 0:17:23.080 I are having, all right, Mike Shepherd so appreciated. Bloomberg News, 0:17:23.119 --> 0:17:25.919 Senior editor for Technology and Strategic Industries out there in 0:17:25.920 --> 0:17:26.960 our DC bureau works. 0:17:28.119 --> 0:17:32.000 This is the Bloomberg Business Week Daily podcast. Listen live 0:17:32.080 --> 0:17:34.960 each weekday starting at two pm Eastern up on applecar 0:17:35.080 --> 0:17:37.880 Play and the Android Auto with the Bloomberg Business app. 0:17:37.960 --> 0:17:40.760 You can also listen live on Amazon Alexa from our 0:17:40.760 --> 0:17:44.919 flagship New York station. Just say Alexa played Bloomberg eleven thirty. 0:17:46.640 --> 0:17:47.080 I feel like you. 0:17:47.040 --> 0:17:49.399 Should go like this because there is something happening in 0:17:49.440 --> 0:17:52.800 the startup community, a twist, if you will, and this 0:17:52.840 --> 0:17:55.600 is according to a story out from our Bloomberg BusinessWeek team. 0:17:55.720 --> 0:17:57.640 You can find it on the Bloomberg and at Bloomberg 0:17:57.720 --> 0:18:00.640 dot com slash BusinessWeek. The twist is that a big 0:18:00.680 --> 0:18:04.119 tech company pays to hire a startups top talent and 0:18:04.200 --> 0:18:07.719 licenses technology, but does not actually acquire the company itself, 0:18:07.760 --> 0:18:10.200 and the remaining crew is left to pick up the pieces. 0:18:10.200 --> 0:18:13.480 Not a great way to be, no, but I guess 0:18:14.800 --> 0:18:18.760 it's kind of like silly season, especially in AI, so 0:18:19.640 --> 0:18:22.720 they're willing to pay anything to get not as much 0:18:22.800 --> 0:18:24.720 as previously you would. 0:18:24.520 --> 0:18:26.040 Have, and they kind of want the people in a 0:18:26.040 --> 0:18:26.440 big way. 0:18:26.960 --> 0:18:29.000 Let's get into it because it is a Bloomberg BusinessWeek 0:18:29.040 --> 0:18:32.320 story and it's caught our attention and fascination if you will. 0:18:32.320 --> 0:18:35.159 Bloomberg News Tech and venture capital reporter Kate Clark is 0:18:35.160 --> 0:18:37.760 in our Bloomberg Interactive Brokers story to tell us more, 0:18:38.000 --> 0:18:39.560 and as we mentioned, you can find your story at 0:18:39.560 --> 0:18:43.520 Bloomberg dot com slash BusinessWeek. All right, welcome, welcome, thank you. 0:18:43.720 --> 0:18:45.080 Tell us about an aqua hier. 0:18:45.280 --> 0:18:47.320 What is it? And what's a reverse aqua hier? 0:18:47.640 --> 0:18:49.960 So an AQUHIRER in startup land is just when a 0:18:50.040 --> 0:18:53.000 company comes in and buys another company, usually a small one, 0:18:53.080 --> 0:18:55.040 because they want the employees. They don't really care about 0:18:55.040 --> 0:18:57.120 the tech or anything else. They just want the smart 0:18:57.119 --> 0:19:00.440 people that are there. Now what's happening, And honestly the 0:19:00.520 --> 0:19:03.119 name doesn't fully fit, but no one can think of 0:19:03.160 --> 0:19:05.600 a better name, so we're going with reverse acu hire 0:19:05.680 --> 0:19:08.880 for now. You have a bigger company come in, take 0:19:09.000 --> 0:19:13.280 some of the people, maybe like five or ten or twenty, 0:19:13.320 --> 0:19:17.199 and license the technology and then leave the existing company. 0:19:17.240 --> 0:19:19.800 So they're not actually buying the company, they're just taking 0:19:19.800 --> 0:19:23.800 the good people and leaving the company behind. So, as 0:19:23.800 --> 0:19:26.439 you can imagine, not everybody is super thrilled with this 0:19:26.520 --> 0:19:27.920 new deal type. 0:19:28.119 --> 0:19:31.639 What are the biggest examples of this and I'm thinking 0:19:31.800 --> 0:19:33.879 of I'm not sure if they all fit, but you 0:19:33.920 --> 0:19:37.000 know Microsoft with open Ai and then open Ai with 0:19:37.080 --> 0:19:39.640 that Apple spinoff hardware company. 0:19:39.840 --> 0:19:42.160 Yeah, those are actually not examples, but they are similar. 0:19:42.520 --> 0:19:44.960