Speaker 1: This is Bloomberg Business Wait inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Just looking at our most read on the Bloomberg We
Speaker 2: are doing a daily update, if you will, on the
Speaker 2: Israel Hamas conflict.
Speaker 3: That's always at the top of the most read it always.
Speaker 2: Is, right and Israel's defense minister telling the US to
Speaker 2: brace for a quote long war against Hamas. A Secretary
Speaker 2: of State Anthony Blinken returned to Israel for further talks
Speaker 2: amid a global push to prevent the conflict from spreading.
Speaker 2: President Joe Biden is also considering a visit. So we
Speaker 2: keep hearing all of this from our news team as well,
Speaker 2: but that seems to be among the latest.
Speaker 3: I think it's really notable what Mike Reagan said a
Speaker 3: few moments ago about all of the diplomacy going on
Speaker 3: behind the scenes, and you know, not just behind the scenes,
Speaker 3: but in front of everyone right now with Lincoln back
Speaker 3: there trying to prevent this from spreading into something bigger.
Speaker 2: All right, so let's talk about that, because that's something
Speaker 2: Tim and I have talked about a lot since this
Speaker 2: conflict broke out with US, and so appreciative. Back with US.
Speaker 2: Major General Maston Robinson Geopolitical Intelligence Robson excuse me, Geopolitical
Speaker 2: Intelligence Advisor to the Academy Securities Advisory Board. He's on
Speaker 2: Zoom from Greenville, South Carolina. The general served about thirty
Speaker 2: four years on active duty in the US Marine Corps.
Speaker 2: He served in more than sixty countries and that includes Liberia,
Speaker 2: Desert Storm, Iraq, Afghanistan, and he did command at every
Speaker 2: operational level in the Marine Corps. Major General, thank you
Speaker 2: so much for being with us. How does what comes
Speaker 2: next determine so much longer term here?
Speaker 4: Thanks Carol, Tim, great to be with you. Without a doubt,
Speaker 4: there's got to be an assault. Without a doubt, Israel
Speaker 4: is going to go out to Moss with every antenna
Speaker 4: of destroying them. That's not going to be easy because
Speaker 4: although they have a pretty good intelligence space, what it's
Speaker 4: in as where the tunnels are, where the buildings are,
Speaker 4: Getting that thing without significantly later or damage is going
Speaker 4: to be really brutal. I think what we're going to
Speaker 4: see is they are trying right now their best to
Speaker 4: set up their options, make sure that they have as
Speaker 4: many partners and as much latitude as they can. But
Speaker 4: the end of the day, this part would be how
Speaker 4: much lows the home bown, how much Iran or hes
Speaker 4: will to come in to help them.
Speaker 3: Well, talk to us about what you believe is happening
Speaker 3: behind the scenes right now from a diplomatic standpoint, because
Speaker 3: it seems like the US is doing everything it can
Speaker 3: to prevent this conflict from spiraling out of control.
Speaker 4: I think the US is doing anything they can to
Speaker 4: ensure I don't think US has any illusions the conflict
Speaker 4: isn't going to happen, So what they're trying to do
Speaker 4: is mitigate side effects. And whether it spins right or less,
Speaker 4: how does this influence our opportunity or our relationship with Russia,
Speaker 4: with Turkey, how Middle East relationship? Or does Saudi standard
Speaker 4: disk Is Egypt willing to come on board with the
Speaker 4: Abraham Cords and be supportive, or does the Brotherhood start
Speaker 4: to influence to take a little more empathetic position towards
Speaker 4: a monsk So there's certainly a lot of dynamics here
Speaker 4: that we're trying to shore those up. Nobody knows what theis,
Speaker 4: what Elebanon's will to do, what Ron's going to do,
Speaker 4: what Egypt's going to do, But we do know what
Speaker 4: Israel some do. So it's how do we shore up
Speaker 4: the unknowns, how to create as stability as possible while
Speaker 4: you still can general shooting starts. It's really hard to
Speaker 4: negotiate the.
Speaker 2: Thing though, I mean, does does Israel have a choice
Speaker 2: to not attack?
Speaker 5: Not?
Speaker 4: Really?
Speaker 5: No?
Speaker 6: And why?
Speaker 2: I mean I understand, I understand in terms of the
Speaker 2: severity of what has happened, but why do they not?
Speaker 2: For those who might be asking that question.
Speaker 4: I think if you consider that AMOSC was established in
Speaker 4: nineteen eighty seven and grew out of you know, that
Speaker 4: last rebellion it was unsuccessful. They've been in control of
Speaker 4: gods since two thousand and seven, whether that was by
Speaker 4: Forrester or by democratic process, it arcroized and empowered them.
Speaker 4: And the fact that they have taken fifty percent of
Speaker 4: the ground force of their trained goddist and put them
Speaker 4: into the fight. They've never shot through five hundred rocks
Speaker 4: in a single day before, and without a doubt, planning
Speaker 4: for this had to have had some outside influence. We
Speaker 4: just can't confirm yet exactly who that was. If this
Speaker 4: doesn't take a step here, Moss will see this as
Speaker 4: a sign of weakness, and all it will do is
Speaker 4: embolden them to do more. There's no way Hamas steps
Speaker 4: back from this at this point.
Speaker 3: Unfortunately, we've seen many civilians on the Israel Israeli side
Speaker 3: as well as in Gaza killed already. Major General, how
Speaker 3: does how do we prevent more deaths? How does Israel?
Speaker 3: What does Israel need to do to prevent more deaths?
Speaker 4: I guess we'll try to be as surgical as they
Speaker 4: possibly can be, but it can be.
Speaker 3: That's hard in Gaza, where it's, you know, one of
Speaker 3: the most densely populated places in the world.
Speaker 4: It is, it's particularly hard when you don't have bunker
Speaker 4: busting bombs, which which you know they're hoping we're going
Speaker 4: to give them. That's that's a deep dive down to
Speaker 4: a whole lot of suments to be able to get
Speaker 4: to it.
Speaker 2: You know, when you said that Israel, excuse me, Hamas
Speaker 2: had to have had some kind of outside assistance. Do
Speaker 2: you not yet rule out that Iran had a role
Speaker 2: in this, even though intelligence so far I believe even
Speaker 2: heard that from the President. I think on sixty minutes
Speaker 2: last night that so far that there's no signs that
Speaker 2: Iran has had a hand in assisting Hamas. Do you
Speaker 2: think the jury's still out on that?
Speaker 4: Yes, enough, I think for diplomatic reasons, the President being
Speaker 4: very wise not to make the accusations becamet proved. But
Speaker 4: I think anybody sitting on the sidelines with any kind
Speaker 4: of history in this absolutely sees Iron's fingerprints on this,
Speaker 4: and that they are all over the money they've been
Speaker 4: flowing into Hamas for the last five years, and you
Speaker 4: consider nothing's really happened five to seven years, that really
Speaker 4: is the time that Hamas longed Israel to sleep, thinking
Speaker 4: maybe they are legitimately going to put more instance on
Speaker 4: their political influence than on their rebellions and on their
Speaker 4: desire to destroy Israel. Well, that proved to be untrue,
Speaker 4: and it was as addition, Will fell into that's the
Speaker 4: reason that they can't afford with this kind of build up. Jesus,
Speaker 4: let it go.
Speaker 3: What do you think when when the world does understand
Speaker 3: forces that perhaps help Tomas, what should the reaction be
Speaker 3: Because we've seen war prolonged war in the region before,
Speaker 3: and it never ends.
Speaker 4: Well, it will be divisive. I think that those who
Speaker 4: believe that what Amasu did was unconsistable will side with Israel,
Speaker 4: and those who believe that the state of the Palestinian
Speaker 4: nation is it's also reprehensible what what they have suffered
Speaker 4: through support them. So there'll be a division, without a doubt.
Speaker 4: The question is where does Saudi land, Where's Egypt land?
Speaker 4: Where does land? Where does Ue land? In that debate,
Speaker 4: if they are willing to go wait a minute, this
Speaker 4: is the Jie Hottest type movement. This is not the
Speaker 4: Palestinian people. And we're going to in essence either stay
Speaker 4: neutral or to give at least tastily support to the
Speaker 4: Abraham Accords theory. Then I think that's a little different
Speaker 4: set of circumstances. And if everybody unifies behind Hamas, I
Speaker 4: don't really see Saudi in Egypt rallying behind Hamas in this.
Speaker 4: Keep in mind Sally his parents. Saudi is as paranoid
Speaker 4: and afraid of Iran as anybody else is. So the
Speaker 4: last thing that I see them doing is creating some
Speaker 4: kind of partnership with the Ran.
Speaker 2: Long term, do you ultimately see a ceasefire at some
Speaker 2: point in the near future. And I'm just curious if
Speaker 2: you think about this in terms if you have a
Speaker 2: specific time frame where you think Israel does what Israel
Speaker 2: has to do, and then things calm down and then
Speaker 2: people try to figure out the way forward.
Speaker 1: Yeah.
Speaker 4: There. We generally think of decision cycles in this. Is
Speaker 4: it effects based or time based. This is definitely an
Speaker 4: effects based decision cycle where Israel will say I'm only
Speaker 4: going to pause and I think that I've had the
Speaker 4: initial effects that I want to have, You'll have to
Speaker 4: do it time.
Speaker 7: Well.
Speaker 2: We always so appreciate your insight and your time. Once again,
Speaker 2: so thank you so much for joining US. Major General
Speaker 2: Maston Robison. Robinson excuse me, Geopolitical Intelligence advisor to the
Speaker 2: Academy Securities Advisory Board, understands battles, having served over thirty
Speaker 2: four years active duty in the US Marine Corps. But
Speaker 2: you know, I was struck by something that our Lisa
Speaker 2: Bayer writes Tim, and she says, quote, the struggle between
Speaker 2: Arabs and Jews of our ownership of the Holy Land
Speaker 2: dates back more than a century and has given rise
Speaker 2: to seven major wars. Of course, the latest broke out
Speaker 2: October seventh, which is what we are talking about now.
Speaker 2: So my question is how do we get this struggle
Speaker 2: to stop ultimately?
Speaker 3: I mean, this has been a defining characteristic of the
Speaker 3: Middle East during our lifetimes. And the sad part is
Speaker 3: is I don't see how it ends anytime soon.
Speaker 2: Yeah, and we appreciate though the Major General wing, and
Speaker 2: we're gonna have another voice with an interesting and unique
Speaker 2: perspective a little bit later on on this conflict.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 2: Hey, we have talked earlier about the latest on the
Speaker 2: Israeli Halmus conflict and really the way forward, trying to
Speaker 2: figure it out and kind of what happens next and
Speaker 2: how much wider maybe it expands. We have another voice
Speaker 2: on this, tim who comes in comes at it from
Speaker 2: a few different angles.
Speaker 3: Yeah, very please to have with us this afternoon. Lee
Speaker 3: or Susan a former special forces agent for the Israeli military,
Speaker 3: also the founder and managing partner of Eclipse Ventures. It's
Speaker 3: a VC firm that invests in as they know it
Speaker 3: on their website quote entrepreneurs rebuilding the world's physical industries.
Speaker 3: Leo joins us this afternoon on Zoom from Palo Alto, California. Lee,
Speaker 3: are good to have you with us this afternoon. Just
Speaker 3: give us your view over the last week as somebody
Speaker 3: who served as a special forces agent in the Israeli
Speaker 3: military and how you're watching what's going on in Israel
Speaker 3: and Gaza.
Speaker 8: Thank you, folks, thanks for having me and first of all,
Speaker 8: sending my prayers to all of the families that lost
Speaker 8: the lot of ones on both sides. I was started
Speaker 8: by saying people are talking about the Israeli Palestine and conflict,
Speaker 8: they must zoom out. This is not an Israeli Palestinian conflict.
Speaker 8: We are talking about the Western world fighting against it all.
Speaker 8: It's not a coincident that the Hamas opened that terrible
Speaker 8: terror attacks on Israel exactly ten days ago when the
Speaker 8: Saudis was ready to sign historical peace process with Israel
Speaker 8: that will change the Middle East. Look what opening in
Speaker 8: the Middle list with the golf countries, with Ue, with Egypt,
Speaker 8: with Jordan. There is a prosperity, there is a new
Speaker 8: way of living next to each other's focusing on building companies,
Speaker 8: focusing on innovation, focusing on technology. The reason that this
Speaker 8: war start is someone is feeling uncomfortable having peace in
Speaker 8: the Middle List and it's connect to China, and it's
Speaker 8: connect to Russia, and of course it's connect to Iran.
Speaker 2: So it's complicated. As we talked earlier with someone who
Speaker 2: fought for the US Marine Corps, has done several duties
Speaker 2: at a very very high level. It's complicated because there
Speaker 2: are so many moving parts. If you will ultimately, do
Speaker 2: you see a way forward that though ultimately where I
Speaker 2: don't want to say capitalism, but a better economic way
Speaker 2: for more actually wins out.
Speaker 8: There or any other way around. Israel is not going anywhere.
Speaker 8: On the Palestinian is not going anywhere. We must find
Speaker 8: a way to live in peace next to each other,
Speaker 8: and there is zero chance that that's will happening. While
Speaker 8: a radical toe organizations like comas controlling Gaza because they
Speaker 8: say actually on their foundation that their mission in the
Speaker 8: world is to wipe Jews and israel Is from the map.
Speaker 8: That's the only thing they believe. In death, you cannot
Speaker 8: do business with people that wants you to die. But
Speaker 8: from a fundamental point of view, I love the Palestinians
Speaker 8: and have a lot of Palestinians friends, and we want
Speaker 8: to live next to each other in peace, focusing on
Speaker 8: building the next technology that will kill cancer. As someone
Speaker 8: that served and so the pain of war, there is
Speaker 8: nobody more incentive than I to go and fight against
Speaker 8: those tail organizations to make sure that we can go
Speaker 8: and focusing on prosperity rather than fight.
Speaker 3: I think you served in the special forces for the
Speaker 3: Israeli military. We see many many people going back to
Speaker 3: Israel to serve once again, as hundreds of thousands have
Speaker 3: been called up. Have you been called up? Are you
Speaker 3: going back?
Speaker 8: Unfortunately, I don't have the clearance that it's required anymore
Speaker 8: to serve for my country because I live in the
Speaker 8: United States for more than a decade. All of my
Speaker 8: friends wants me to be here right now to focusing
Speaker 8: and explaining the world that this is not a word
Speaker 8: between the Israeli and the Palestinian This is a war
Speaker 8: between democracy and a radical world, a radical that don't
Speaker 8: believe a freedom of speech, that don't believe a freedom
Speaker 8: of religion, and don't believe in prosperity in building businesses.
Speaker 8: So unfortunately, I need to serve my country from palalto
Speaker 8: right now, So talk to us.
Speaker 2: Though, I thought le Or what was interesting, because I
Speaker 2: do think that many think it is a war between
Speaker 2: it is between Israel and Hamas. But I think there's
Speaker 2: a feeling too of conflict between Israel and Palestine or Palestinians.
Speaker 2: You say you work with them, talk to us about
Speaker 2: in your in your role as a founder of Eclipse Ventures,
Speaker 2: I'm assuming you're investing in all kinds of businesses. Talk
Speaker 2: to us a little bit about that relationship that you
Speaker 2: are having with Palestinians.
Speaker 8: Yeah, let me give you a sad story of a
Speaker 8: close friend. His name is Al Waldman, and he was
Speaker 8: the founder of a company called Melanox that sold in
Speaker 8: a couple of billions of dollars to Nvidia. Eyal was
Speaker 8: the first one to establish an RND centers in the
Speaker 8: West Bank as well in Gaza software engineers to support Melanox.
Speaker 8: And trust me, he didn't receive a lot of love
Speaker 8: from the right wings in Israel by doing that, and
Speaker 8: he employeed thousands of people in the West Bank and
Speaker 8: Gaza that will do software developed and for him because
Speaker 8: like me, he believed that the only way to fight
Speaker 8: still all is true business and true friendship. Ayal's daughter
Speaker 8: was one of those kids being slaughter in that music
Speaker 8: festival ten days ago. So how ironic is that that
Speaker 8: his daughter that was twenty three years old dance and
Speaker 8: music festival got slaughtered by Ramastel, while Ayal is the
Speaker 8: one that employeed thousands of people on the Palestine inside.
Speaker 2: There's no words, There's absolutely no words. And I guess
Speaker 2: what I wonder too, is you know we think about
Speaker 2: this a lotly, or that we think finding an economic
Speaker 2: way out of things or capitalism ultimately will prevail and
Speaker 2: lead it to a better way for everyone. Is I
Speaker 2: guess what? We're just trying to figure out that there's
Speaker 2: been conflict in this region, in this area in particular,
Speaker 2: for such a long time time. So I hear what
Speaker 2: you say, So how do we get the way forward,
Speaker 2: especially when you still do have terrorists who are out
Speaker 2: there like Amas.
Speaker 8: I think it's a great example of me traveling to
Speaker 8: the UE ten times this year and doing amazing business
Speaker 8: and watching the highness leadership. It's a great example of
Speaker 8: how you winterval But which prosperity there is in Lebanon's
Speaker 8: physimalized there to free the Lebanese. Is Hamasi is there
Speaker 8: to free the Palestinians, is Isis is there to free
Speaker 8: the Surian people. Is Al Qaeda was there to free Afghanistan.
Speaker 8: We all in the Western world needs to fight Telo
Speaker 8: so we can our kids can have a future. And
Speaker 8: I want my kids to have a future next to
Speaker 8: my Palestinians neighbors. There is no any other way around,
Speaker 8: and I will never stop fighting for it.
Speaker 3: Are you worried about a potential ground invasion of Gaza?
Speaker 3: After all, it's been days since Israel warned people in
Speaker 3: northern Gaza to move to southern Gaza.
Speaker 2: And do you think it's wrong considering what you just
Speaker 2: said about Palestinians.
Speaker 8: I'm sorry and sad about the situation that is happening there,
Speaker 8: but you need to understand that Israel is not going
Speaker 8: to sit aside and let the whole west of the country.
Speaker 8: Having thirteen hundred kids and womens that've been slaughter in
Speaker 8: one day and more than one hundred and fifty people kidnapped,
Speaker 8: most of them civilians, some of them babies. On the
Speaker 8: age of three months. Israel cannot continue to have the
Speaker 8: Hamas sitting in the south part of Israel shooting rockets
Speaker 8: when they feel comfortable with Which prosperity happened in Gaza.
Speaker 8: Israel is out of Gaza on two thousand and five.
Speaker 8: Which prosperity, which start that is being built, which infrastructure,
Speaker 8: which a great innovation is happening. Nothing can be born
Speaker 8: when there is a radical to organization control the old country.
Speaker 8: And unfortunately, unfortunately more people are going to lose their
Speaker 8: life both sides because of that organization.
Speaker 2: Lee Or, we have to leave it there, but I
Speaker 2: hope we can come back to you, and I hope
Speaker 2: we can come back to you at a time that's
Speaker 2: more peaceful, certainly in the Middle East at this point
Speaker 2: in Israel and Gaza specifically, Lee Or susan former special
Speaker 2: forces agent for the Israeli military, founder managing partner of
Speaker 2: Eclipse Ventures. They're an investor and they are investing in
Speaker 2: entrepreneurs who are rebuilding specifically the world's physical industries. So
Speaker 2: you can find more information at their website. But just
Speaker 2: great to get his perspective, A very unique one and
Speaker 2: I think a really important one, joining us from Palo Alto, California.
Speaker 9: This is Bloomberg.
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Speaker 3: All right, Carol, check this out. According to the US
Speaker 3: Census Bureau, the number of people here in the US
Speaker 3: who spoke a language at home other than English almost
Speaker 3: tripled between the years nineteen eighty and twenty nineteen. So
Speaker 3: in terms of numbers, it's nearly seventy million people here
Speaker 3: in the US.
Speaker 2: That's like a lot.
Speaker 3: But that's a lot. But I'm not one of them.
Speaker 3: But what if you're like, you know, I want to
Speaker 3: learn a new language. Maybe brush up on that spanishlingual
Speaker 3: little not bilingual? Okay, yeah, maybe brush up on that Spanish.
Speaker 3: From the semester of broad did you study abroad?
Speaker 2: I did not?
Speaker 3: You speak another language?
Speaker 2: No, but I took I don't know, eight years, ten
Speaker 2: years of Spanish. So if you throw me into a
Speaker 2: Spanish speaking country, I can I can get along oh cool.
Speaker 3: Well, maybe you can also brush up on some of
Speaker 3: the online services that are available. There are many out there.
Speaker 3: Among them are the language learning platform Babel. We've got
Speaker 3: with us Julie Hansen. She's US CEO of Babel. It's
Speaker 3: avidly held company and it's a role that she's had
Speaker 3: since twenty seventeen. Julie also we should notice the former
Speaker 3: COO and president at Business Insider. She was there when
Speaker 3: Actual Springer bought BI in a deal that valued the
Speaker 3: company for four hundred and fifty million dollars back in
Speaker 3: twenty fifteen. Julie joins us on Zoom from New York. Julie,
Speaker 3: good to have you with us this afternoon. How are
Speaker 3: you good.
Speaker 9: Thanks Tim, Thanks Carol, thanks for having me.
Speaker 3: Yeah, it's good to have you with us. Talk to
Speaker 3: us a little bit about the growth that you've seen
Speaker 3: on the platform, because I got to tell you there
Speaker 3: is no shortage of places where you can go online
Speaker 3: to learn languages.
Speaker 10: True, but we've seen I mean, Babbel was the originator
Speaker 10: of the category of online language learning some seventeen years
Speaker 10: ago when it was founded in Germany, and we've seen
Speaker 10: double digit growth. Growth really boomed during the pandemic, but
Speaker 10: then it stayed at very elevated double digit rates ever since,
Speaker 10: and we've been able to sustain that growth. And part
Speaker 10: of what drives it is what you said at the
Speaker 10: top of the program that you know, multi language family
Speaker 10: are growing in this country, but it's also just become
Speaker 10: something that's somehow.
Speaker 9: More appealing to do in our culture, and we're benefiting
Speaker 9: from that.
Speaker 2: So Jilly, wait, help me out here. You said obviously
Speaker 2: makes sense. Right, a boom during the pandemic, right, people
Speaker 2: are at home. They wanted to learn to knit, learn
Speaker 2: to make sour dough bread, and learn to speak another language.
Speaker 2: Like that's what it was about and stay healthy, no
Speaker 2: doubt about that during the pandemic. But you've held on
Speaker 2: to those levels of growth as well as subscribers give us.
Speaker 2: Are you saying that you've maintained those levels in the gains.
Speaker 10: Yeah, I mean, not quite at the pandemic levels, but
Speaker 10: we've grown double digit ever since the pandemic, so very
Speaker 10: strong growth. I mean, Babel is the most sold language
Speaker 10: learning platform ever. We've sold more than sixteen million subscriptions
Speaker 10: over time. So yeah, I can't tell you all the
Speaker 10: reasons why, but it just seems like something about the
Speaker 10: language learning boom during the pandemic validated that as an
Speaker 10: activity people have stayed with it.
Speaker 2: I'm curious, like, how does it work if you become
Speaker 2: you know, you sign on and you become a customer
Speaker 2: of your services, do you become a repeat customer? Is
Speaker 2: that what often? Or is it all about new customer acquisition?
Speaker 9: That so interesting? Actually, in Europe, especially in Germany, we
Speaker 9: do see quite.
Speaker 10: A bit of repeat purchases, whether people are coming back
Speaker 10: to a language after a pause or often there like
Speaker 10: learning the next language, which of course is very impressive.
Speaker 3: Who are these people languages?
Speaker 10: Over Here in the US we tend to see that
Speaker 10: people take a pause and then come back.
Speaker 9: But language learning is, you know, a long term activity.
Speaker 10: You can make progress in a short time period, but
Speaker 10: you don't become fluent without you know, a considerable long
Speaker 10: term effort. So people know that, and there's actually one
Speaker 10: of the reasons why lifetime subscription is a very popular option.
Speaker 3: Talk to me about the strategy here with Babel in
Speaker 3: terms of learning and how Babel teaches in a way
Speaker 3: that's different from other platforms, and compare with dual lingo.
Speaker 3: I know, dual Lingos a company. It's publicly traded. It's
Speaker 3: got a market cap of about six point nine billion dollars.
Speaker 3: It went public just a couple of years ago, and
Speaker 3: that one certainly gets a lot of mind share with
Speaker 3: especially millennials and gen z yep.
Speaker 10: Definitely different learning approaches at Babel. We use a lot
Speaker 10: of learning science and frankly a lot of AI embedded
Speaker 10: in the product, but we.
Speaker 9: Do believe that human led teaching.
Speaker 10: We have something like one hundred and fifty didactics experts
Speaker 10: on staff who've created.
Speaker 9: Our courses that we need.
Speaker 10: To marry their knowledge with technologies basically the essence of
Speaker 10: what we do. We also believe that you're not going
Speaker 10: to become perfectly fluent from any app, so that's why
Speaker 10: we've created other products to support and round out the
Speaker 10: languagelearning experience.
Speaker 6: So it might.
Speaker 10: Be a bunch of podcasts. I think we're up to
Speaker 10: twenty three different podcasts, but we also have live teacher
Speaker 10: led you know, virtual classes, and those are an important
Speaker 10: part of you know, really we care about learner success,
Speaker 10: so we believe that to get learners to succeed, you
Speaker 10: have to combine learning methods.
Speaker 9: I mean, there's scientific research behind that's not just our belief.
Speaker 10: So it's that combination of human and technology, especially AI,
Speaker 10: but other technologies too, and the idea of creating a
Speaker 10: whole surround sound of learning experiences.
Speaker 2: It's really interesting how much of your business is B
Speaker 2: to B business to business I'm always curious about or
Speaker 2: is a lot of it just individuals who want to
Speaker 2: learn a language.
Speaker 10: Well, the B to B is the fastest growing segment
Speaker 10: of our business by far. It's the newest compared to
Speaker 10: the consumer though, so it's not nearly as big, but
Speaker 10: growing fast. And those are very interesting use cases. We
Speaker 10: started that business in Europe, we found, you know, international companies,
Speaker 10: multinational companies needed help. And then we came to the
Speaker 10: US and it took a while to sort for the
Speaker 10: use case to become clear here. But we believe the
Speaker 10: growth opportunity is massive in the US based on just
Speaker 10: migration patterns, because often babble is brought in for language
Speaker 10: teaching in situations where there's workplace safety at risk.
Speaker 9: Yeah, we have a.
Speaker 10: Very diverse group of clients here from a bunch of
Speaker 10: MLB teams. Maybe safety isn't quite the thing there, it's excellence.
Speaker 10: But you know, down to meat packers, landscapers. I mean
Speaker 10: places where that where language barriers create safety issues and
Speaker 10: there's a big opportunity in that.
Speaker 3: Talk to me about mobile versus desktop right now? What's
Speaker 3: the share on mobile?
Speaker 10: You know, when I started here, if you can imagine people,
Speaker 10: actually there was a lot of desktop usage that was
Speaker 10: just six years ago, and I.
Speaker 9: Thought it was really peculiar, frankly from the US. But
Speaker 9: now it's We're a mobile app. There are still some.
Speaker 10: People who use the product on their desktop or maybe
Speaker 10: their iPad, but it's a mobile world.
Speaker 5: What does it.
Speaker 2: Typically cost for somebody who wants to subscribe or learn
Speaker 2: a language?
Speaker 10: I mean, you can start in the US if you
Speaker 10: want to just try a one month subscription for about
Speaker 10: fifteen bucks. If you want to subscribe for the year,
Speaker 10: more like ninety dollars. You can pick up a lifetime
Speaker 10: subscription for call it three hundred bucks.
Speaker 2: So in that range, and your biggest market or biggest
Speaker 2: or fastest growing market, is it the US just got
Speaker 2: about thirty seconds left here.
Speaker 9: Yes to both.
Speaker 10: The US was late the last one that we were
Speaker 10: found success in and it took a very dedicated approach,
Speaker 10: but it's now the biggest market the fastest growing. You know,
Speaker 10: it's all about learning Mexican Spanish in the US market.
Speaker 9: But we teach, we teach all of our fourteen languages.
Speaker 9: But that's the popular language here.
Speaker 2: Really interesting. Thanks for the site, Really fascinating. Julie Hansen,
Speaker 2: US CEO Babbel and joining us of course on zoom
Speaker 2: in New York City. If you have to pick a language,
Speaker 2: finish yeah, yeah, yeah, yeah, me too, Absolutely.
Speaker 9: Love it, keep learning it.
Speaker 2: Or you are listening and watching Bloomberg Business Week. This
Speaker 2: is Bloomberg Radio.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Easter on Bloomberg Radio,
Speaker 1: the Bloomberg Business app and YouTube. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station
Speaker 1: just say Alexa playing Bloomberg eleven thirty.
Speaker 2: Well, there's a common refrain that if an app is free,
Speaker 2: tim you are the product.
Speaker 3: It's certainly been true for years when it comes to
Speaker 3: meta platforms. It's the company formerly known as Facebook. After all,
Speaker 3: Think about this list of apps. They've got Facebook, Instagram, WhatsApp,
Speaker 3: Messenger threads. They've also got the VR app Horizon Worlds, Carol,
Speaker 3: I don't thank you you spent any time there, even
Speaker 3: though it also sells gaming headsets, smart sunglasses, and business
Speaker 3: productivity software at until accounts for more than ninety eight percent
Speaker 3: of the company's revenue ninety eight percent.
Speaker 2: But that model, maybe it could be about to change.
Speaker 2: Could people start paying for ad free versions of all
Speaker 2: of that. We're going to get into that because in
Speaker 2: the forthcoming issue of Bloomberg BusinessWeek magazine, which will be
Speaker 2: on newstands later this week, already online at Blomberg dot com,
Speaker 2: slash BusinessWeek and on the Bloomberg is a story that
Speaker 2: gets into this. Columnist Max Chafkin wrote it about Meta's
Speaker 2: flirtation with ad free services. He joins us here in
Speaker 2: our interactive broker studio along with the editor of BusinessWeek,
Speaker 2: Joel Weber, So Joel, lots of things.
Speaker 6: Going on, not just advertising.
Speaker 11: That ninety eight point four percent figure, personalized, personalized.
Speaker 3: Personalized, those ads that follow you around.
Speaker 11: Yeah, and so that creepy ad tracking is a hallmark
Speaker 11: of Max Chafkins reporting it's not just Meta. He's also
Speaker 11: pointed out, you know, Google in the past has had
Speaker 11: some big numbers like this.
Speaker 12: Facebook would not say it was creepy. They would say,
Speaker 12: it's very useful. Mark Zuckerberg has said repeatedly that there's
Speaker 12: that that they like, person that people like personalized advertising.
Speaker 12: You'd be a huge loss if this, if this one away.
Speaker 2: But raise your hand in the studio if you like
Speaker 2: personalized advertising.
Speaker 1: You know.
Speaker 12: Sometimes sometimes nobody raised their hand.
Speaker 6: Sometimes it's so much halfway, you know, your halfway.
Speaker 3: My favorite is.
Speaker 11: You know on Amazon, when you buy something and then
Speaker 11: it's like an ad for the thing that you bought already.
Speaker 12: It's like, come on, you want to remember the pair
Speaker 12: of shoes that you had in your cart the day before.
Speaker 11: But but Max walk us through what this experiment looks
Speaker 11: like and how and what it really means.
Speaker 6: For a man.
Speaker 11: Right.
Speaker 12: So, basically, in twenty eighteen, the EU passed the thing
Speaker 12: called GDPR. It's a big, complicated set of privacy rules
Speaker 12: that essentially require companies to ask for consent before showing
Speaker 12: personalized ads.
Speaker 6: And Facebook has been in this kind of.
Speaker 12: Long running battle with European regulators, which kind of reached
Speaker 12: a culmination this summer with a court ruling that essentially
Speaker 12: is forcing them to finally go ahead and do this.
Speaker 12: And the way they want to do it is by
Speaker 12: offering a paid version of the service with no advertising
Speaker 12: in Europe. So so the EU is sort of asking, hey,
Speaker 12: if you're gonna if you're going to personalized ads, you
Speaker 12: got to offer people a way out. Facebook is saying, well,
Speaker 12: our way out is no ads at all, and we're
Speaker 12: going to charge you for it. And the amount of
Speaker 12: money they're they're talking about charging is relatively high. It's
Speaker 12: around twenty dollars a month, nineteen euros a month, twenty
Speaker 12: dollars a month, which is, you know, probably more than
Speaker 12: most people are willing to pay. You know, it's it's more,
Speaker 12: as we point out the story, it's more than a
Speaker 12: lot of gym memberships and mobile phone plans and so on,
Speaker 12: and certainly more than many other subscriptions like you know,
Speaker 12: Disney Plus and Netflix that people get a lot of
Speaker 12: value out of.
Speaker 3: I kind of think that, you know, people will not
Speaker 3: opt to pay for the services.
Speaker 12: I think that's that's exactly the plan. And that's like
Speaker 12: would you pay for you?
Speaker 3: I would pay. I would like pay to not use it.
Speaker 3: I really, how much do I have to pay in
Speaker 3: order to keep me off Instagram?
Speaker 12: They should consider they should said, interesting, revenue stream for
Speaker 12: for meta platforms. The so I think the intent basically
Speaker 12: is that most people will not pay for it. If
Speaker 12: you if you look at the statement that they've put
Speaker 12: out there, which is in our story, which essentially says,
Speaker 12: you know, we still believe in personalized advertising.
Speaker 6: We just want to work with regulators.
Speaker 12: You read between the lines, are basically saying the regulators
Speaker 12: are making us do this, we don't expect anyone to
Speaker 12: take them up on it.
Speaker 5: You know.
Speaker 12: On the other hand, a lot of companies are playing
Speaker 12: around with this U. You know, we've seen obviously Elon
Speaker 12: Musk and Twitter and kind of very loud fashion offer
Speaker 12: his own subscriptions.
Speaker 3: You pay you tweet a lot or post a lot?
Speaker 3: Do you pay for it? I have not yet paid
Speaker 3: for X Premium either have I? And I feel like
Speaker 3: my tweets are getting lost as a result. Well yeah,
Speaker 3: and sorry, this is like a totally different time.
Speaker 12: Well so, and that's where it gets a little bit
Speaker 12: complicated because, among other things, uh, Elon Musk has talked
Speaker 12: about this as a way to see fewer ads, but
Speaker 12: he's also created all these other enticements, including you know,
Speaker 12: basically pay to play and even so X Premium is
Speaker 12: not doing very well despite the much price points about
Speaker 12: half of that proposed figure that Mark Zuckerberg is which
Speaker 12: I love Facebook.
Speaker 11: You're talking about if you can't have a cage fight,
Speaker 11: you just have a cage fight and you know in
Speaker 11: the marketplace and go, you know, have half price or
Speaker 11: double the price.
Speaker 12: Yeah, the app store is basically the cage fight of
Speaker 12: social media. Snap is also playing around is, as we
Speaker 12: report in the story, is testing an ad free version.
Speaker 6: TikTok has done this.
Speaker 12: You know, I think part of it is that we
Speaker 12: don't actually know what the market is. I think there
Speaker 12: are a lot of people who do not like seeing
Speaker 12: advertising obviously, I mean, it's it's coming to play with
Speaker 12: cable television and other markets. Absolutely. On the other hand,
Speaker 12: and this is where the real problem is, it is
Speaker 12: such a good business, you know, as Joel's intro pointed out,
Speaker 12: it's it's not just as a percentage. It's just like
Speaker 12: the raw numbers we're talking about, you know, more than
Speaker 12: one hundred billion dollars a year for Facebook when you
Speaker 12: do it, when you break down a per user basis,
Speaker 12: if they wanted to do this in the US, you know,
Speaker 12: they would need to reclaim about two hundred twenty dollars
Speaker 12: per person per year who opts out of this, So
Speaker 12: you know that that works out to almost twenty dollars
Speaker 12: a month. And when you when you consider the fact
Speaker 12: that not everyone would pay, that you'd lose some users,
Speaker 12: the real price probably have to be actually a bit higher.
Speaker 12: So it's it's a you know, it's a problem that
Speaker 12: a lot of big established businesses have had when they
Speaker 12: try to like look at different models. Not all that
Speaker 12: different from the cord cutting conversation with cable television.
Speaker 6: So if this worked, how lucrative could it be?
Speaker 11: Like, like, what's the math have to kind of work
Speaker 11: out to where you're obviously going to probably not get.
Speaker 6: Everybody to do it.
Speaker 11: It could actually just be a very small percentage of
Speaker 11: people who opt into it, but like you could have
Speaker 11: a pretty loyal group of people here who are willing
Speaker 11: to you know, pay that annual.
Speaker 12: Again, I think people, I think, I mean, well, it's
Speaker 12: not coming to the US at least, Facebook is meta
Speaker 12: is signaling that it won't. That this is a this
Speaker 12: is a europe only thing, This is you know, a
Speaker 12: thing they're gonna you know, this has to do with regulation,
Speaker 12: not not with what they think the market wants, and
Speaker 12: I do think I mean, I'm sure they would like
Speaker 12: to have more revenue. There is a problem though, if
Speaker 12: you start eating into this network of personalized advertisements.
Speaker 6: You know, one of the.
Speaker 12: Source I talked to you for this story was saying
Speaker 12: that essentially that you know, this is a network business.
Speaker 12: Part of what makes this network valuable is all the people.
Speaker 12: Right now, Facebook has all this data about you that
Speaker 12: collects across the Internet, and it essentially rents it out
Speaker 12: to advertisers. If you start pulling people out of that
Speaker 12: data set, that data set arguably.
Speaker 6: Becomes less valuable.
Speaker 12: And you could imagine a situation where advertisers stop feeling
Speaker 12: like Facebook is a must stop destination and you know
Speaker 12: that is there. The dynamics are a little bit different.
Speaker 12: But that's what's happened to Twitter. You know, as Elon
Speaker 12: Musk has offered this new revenue stream, he's had huge
Speaker 12: difficulties with advertisers. And so I think the challenge what
Speaker 12: Facebook really like is to create new revenue streams while
Speaker 12: also continuing to show personalized advertisements to you know, three
Speaker 12: billion people a year.
Speaker 3: I also think so you're saying you get the cake and.
Speaker 6: Eat it too, that's the goal.
Speaker 11: Yeah, but maybe things go exceptionally well in Europe and
Speaker 11: you have, you know, a three year experiment and you
Speaker 11: take all those learnings and roll it into a US
Speaker 11: that's more favorable.
Speaker 6: By this, I do think. And you know, there's another
Speaker 6: point you're making.
Speaker 12: The story if you look at all that's wrong with
Speaker 12: social media, things that people actually don't like about it,
Speaker 12: the fact that it kind of makes us feel enraged
Speaker 12: that it throws all this information at us to try
Speaker 12: to get us to stay engaged. Which, like a lot
Speaker 12: of these things have to do with this advert with
Speaker 12: the way they make money, and if they made money
Speaker 12: in a different way, you know, maybe social media could
Speaker 12: be a little different. They wouldn't necessarily have to have
Speaker 12: such a you know, sort of difficult relationship with news publishers.
Speaker 12: Right Like at the moment, Facebook and other social networks
Speaker 12: are at pains to keep you from reading content off site,
Speaker 12: which creates all sorts of issues with misinformation, and it
Speaker 12: makes publishers mad and so on. If you're just paying
Speaker 12: them monthly fee, right they could just refer you to
Speaker 12: the best content. If you're paying them a monthly fee,
Speaker 12: maybe they wouldn't have to, you know, cause you to
Speaker 12: argue with your aunt, you know, for for like several
Speaker 12: months over like.
Speaker 3: It sounds like you have familiarity with us.
Speaker 9: Why don't they just.
Speaker 2: I mean, they can't give away the tracking, let the
Speaker 2: ads come through, but get rid of the true So.
Speaker 12: Yeah, privacy ad everybody would yeah, right that there's like
Speaker 12: a middle ground and that's and they don't want to
Speaker 12: do this, which is where they could just change their
Speaker 12: advertising and make it less personalized, or or make it
Speaker 12: not personalized at all and just show you contextual ads,
Speaker 12: which is kind of like how Google works.
Speaker 6: Google does a lot of personalization now at this point too.
Speaker 12: But anyways, just change the advertising and and continue to
Speaker 12: show you ads, and then maybe there would be a
Speaker 12: less expensive sort of middle tier payment like five dollars
Speaker 12: a month, which might.
Speaker 6: Be more within reach.
Speaker 12: Again, this the main business that they have is really good,
Speaker 12: and so it's really a question of are they going
Speaker 12: to be forced to do this or is there some
Speaker 12: way where demand is much greater than we expect and
Speaker 12: as a result, it's more economical than it would seem
Speaker 12: at first.
Speaker 11: Clients in a you know, if you're a product manager,
Speaker 11: I think one way you would describe this is that
Speaker 11: you're gonna ab test in real time and you're going
Speaker 11: to have this europe experiment while the rest of the
Speaker 11: world does its other way. I'm curious, do we have
Speaker 11: any indications if this is going to change how the
Speaker 11: algorithms implement and kind of like work your feeds, right,
Speaker 11: because in theory, like a mainstay of what appears in
Speaker 11: your feed are ads, and if you're suddenly changing that,
Speaker 11: it would just leads you believe that maybe the rest
Speaker 11: of the algorithm might change too.
Speaker 6: Well. Sure, Yeah, and one of the arguments.
Speaker 11: Incentivizing a different kind of engagement.
Speaker 12: Over the years, people have asked Mark Sarker b about
Speaker 12: this a lot, and what he says, I sort of
Speaker 12: lose to this. The beginning is that you know, at Facebook,
Speaker 12: at Meta, they see ads as part of the content,
Speaker 12: just as valuable as as as your aunts or your
Speaker 12: you know, your friends engagement photos or whatever, which I
Speaker 12: think maybe strains a little bit of credulity. Of course,
Speaker 12: it's something you might say if you're an advertiser. But yeah,
Speaker 12: I mean, the the experience is going to be really different.
Speaker 12: We don't know how it's gonna look and One of
Speaker 12: the reasons we don't know how it's going to look
Speaker 12: is because right now Meta is negotiating with European regulators
Speaker 12: on this, and so they're not really saying much because
Speaker 12: Europe has not given it, you know, the seal of
Speaker 12: approval basically again those little notifications that you.
Speaker 6: See when you go on websites sometimes let's.
Speaker 12: Say like, you know, do you consent to whatever. Meta
Speaker 12: has resisted that because I think they're worried that people
Speaker 12: are gonna say no, I don't consent, it's gonna mess
Speaker 12: up their business. So this is their latest basic basically
Speaker 12: effort to get around that. If if if you're offered
Speaker 12: a paid version that you opt out, then then you're
Speaker 12: effe effectively opting in by it by not paying.
Speaker 2: We talk so often about the tech and I feel
Speaker 2: like the world in general on different in different areas
Speaker 2: that we follow kind of what the EU is doing
Speaker 2: or the Europeans are doing when it comes to oversight,
Speaker 2: especially with technology or California, like if you get into
Speaker 2: climentators of it right right.
Speaker 3: Same with tech though with child privacy laws.
Speaker 2: So should we assume that this is coming this way
Speaker 2: at some point? Or I mean, like Washington, kank she
Speaker 2: was a speaker or anything. Get things done.
Speaker 6: You know, it's possible.
Speaker 12: But over the last decade or so, efforts to to
Speaker 12: really reign in tech have have not gone super well.
Speaker 12: And there are reasons for that, some of which have
Speaker 12: to do with the fact that, you know, Facebook is
Speaker 12: seen by many lawmakers and and and Facebook has sort
Speaker 12: of made an effort to present itself this way as
Speaker 12: an America, as a national champion, and and that you know,
Speaker 12: whenever efforts to kind of reign in meta come up,
Speaker 12: you know, the counter argument from Mark Zuckerberg is, you know,
Speaker 12: other social networks, primarily TikTok, this Chinese social network is
Speaker 12: not going.
Speaker 6: To follow these rules.
Speaker 12: And like, you know, we as a country have to
Speaker 12: protect our national champions, and that has to some extent worked.
Speaker 12: I also think, you know, meta has been very effective
Speaker 12: at just like parrying regulation and confusing things. And and
Speaker 12: the truth is, the last point I'll make is like, yeah,
Speaker 12: we can all sort of say we don't like Facebook
Speaker 12: or we don't like seeing ads on Facebook, but a
Speaker 12: lot of people love this thing, and and you know,
Speaker 12: hundreds of millions of people use it. And if you said, hey,
Speaker 12: we're gonna we're gonna pass this new law and make
Speaker 12: your social media this this thing that you use to
Speaker 12: to talk to your friends, and sure you make fun
Speaker 12: of it a lot. We're gonna make that now cost
Speaker 12: twenty dollars a month, or now cost ten dollars a month,
Speaker 12: or now you have to pay any amount of money.
Speaker 6: People are gonna be mad about that.
Speaker 12: That's not you know, that's not necessarily gonna be popular.
Speaker 12: And yet and yeah, and so you know, the tech companies,
Speaker 12: the big tech companies and and Meta in particular, have
Speaker 12: been really really good at kind of you know, resisting
Speaker 12: efforts even even during the Trump presidency where he was
Speaker 12: very hostile to to Silicon Valley in certain ways to
Speaker 12: rain them in.
Speaker 6: And I'd expect that to continue.
Speaker 3: Well, Max, oh well, I'll just go ahead, Joe.
Speaker 6: One more thing. What's the timeline for all of this?
Speaker 11: Because the EU decision was out over the summer, right,
Speaker 11: So what's how does this unfold?
Speaker 12: We think it's it's a matter of months, maybe even sooner.
Speaker 6: So I would expect to happen.
Speaker 12: Before the end of the year, although if regulators didn't
Speaker 12: go along with it, I don't know. I suppose it
Speaker 12: could drag out further because basically, like the regulators have
Speaker 12: to say that this is, you know, an acceptable way
Speaker 12: to address the court's ruling, and if they said it wasn't,
Speaker 12: then you know, Meta would have to come back and
Speaker 12: think of something else.
Speaker 3: Hey, Max, very briefly, just in the last minute that
Speaker 3: we have, you make the point that Meta also sells
Speaker 3: some hardware, and after all, it's called meta platforms. Would
Speaker 3: they like to sell enough Oculus Quest or Meta Quest
Speaker 3: threes to offset significantly the portion of revenue they got
Speaker 3: from advertising.
Speaker 6: I don't think. I don't think that's the business model.
Speaker 12: I think the business model is to sell these headsets,
Speaker 12: probably you know, at break even or maybe even a loss.
Speaker 12: I mean the division Reality Labs, which the main thing
Speaker 12: they do is make this these headsets, has lost something
Speaker 12: like forty billion dollars over the last couple of.
Speaker 3: Years, a lot of money for face.
Speaker 12: So yeah, I don't think this is like necessarily a
Speaker 12: money making thing. And when you listen to how Mark
Speaker 12: Zuckerberg talks about it, it's more about creating a new
Speaker 12: platform to kind of apply the old business model to
Speaker 12: and I think in certain ways, right that's the genius
Speaker 12: of this, of this metaverse thing, if you really squint
Speaker 12: and look for it, is that maybe they could take
Speaker 12: the personalized advertising business, the amazing dominance that Facebook has
Speaker 12: over certain parts of the smartphone and bring it to
Speaker 12: a new computing platform. And if they did that, of
Speaker 12: course it'd be an even more valuable company.
Speaker 2: Yeah, where's the decimal brain? Another in their favor, great story, Bloomberg.
Speaker 2: Bloomberg's a Maxchaffkin of course, with Jill Weber and this story.
Speaker 2: It will be in the new issue of BusinessWeek magazine
Speaker 2: out on Thursdays, on newsstands, already online and on the
Speaker 2: bloom Burg.
Speaker 1: Mark Journal.
Speaker 2: How about you let me drive?
Speaker 6: Oh no, no, no, no, who's going to drive?
Speaker 1: Hory please?
Speaker 2: I want to drive.
Speaker 9: It's a good question.
Speaker 1: This is the Drive to the Clothes Well by Don
Speaker 1: on Bluebirg Radio.
Speaker 2: All right, everybody, just hap about about eighteen minutes left
Speaker 2: in today's trading session, getting ready to wrap up the
Speaker 2: Monday Trey. We've got stocks, they're up for the day.
Speaker 2: It's really interesting to see. I don't know, right, uh,
Speaker 2: And just some calm, if you will in the markets
Speaker 2: despite all the geopolitical stuff.
Speaker 3: I can't explain it, but maybe maybe we know someone
Speaker 3: who can. Col Smeade's CEO and portfolio manager at Smeedy
Speaker 3: Capital Management. He joins us on Zoom from Phoenix, Arizona.
Speaker 3: We should know, Carol. The Smeat Value Funds got about
Speaker 3: four point five billion dollars in assets under management. It's
Speaker 3: outperformed it's peers over the past five years, returning an
Speaker 3: average annually more than eleven percent. This year the fund
Speaker 3: those up just about two percent.
Speaker 2: Hey, Cole, good to have you back with us. It's
Speaker 2: an interesting world. First macro and then we love to
Speaker 2: talk names with you, but the macro environment, it does
Speaker 2: feel like there's some comm certainly on the US equity trade,
Speaker 2: despite you know, our focus on what's going on in
Speaker 2: Israel and elsewhere in the world. There's a lot of
Speaker 2: questions out there on so many different levels. How do
Speaker 2: you see the macro environment?
Speaker 5: Yeah, Carol, I was.
Speaker 7: I was rewatching for probably the ten time of my life,
Speaker 7: gone with the wind yesterday. It was just kind of
Speaker 7: one of those things I did on a Sunday. And
Speaker 7: I actually think mister Market's a lot like scarlettle Haare
Speaker 7: you know she said fiddle d d You know, all
Speaker 7: this talk of wars ruining my spring party. That's what
Speaker 7: equity investors are treating as it's not that big of
Speaker 7: a deal. They also are treating what's going on in
Speaker 7: the bond mark with the rise in the ten year
Speaker 7: yield and the thirty year yield as though it's really
Speaker 7: not that big of a deal to them, much like
Speaker 7: Scarlett did prior to the Civil War breaking out, And
Speaker 7: that's a lot of danger. It just shows you how
Speaker 7: the psychology really hasn't woken up to the new world.
Speaker 7: We're in the post pandemic world where obviously things are
Speaker 7: not given and cheap money is gone. And so the question,
Speaker 7: to your point is when will people rectify those things
Speaker 7: in their mind. We're just not there yet.
Speaker 3: So what do you think of where we are in
Speaker 3: the S and P fift Are you saying the S
Speaker 3: and P five hundred inequity investors today are not taking
Speaker 3: into account how many headwinds we face.
Speaker 7: It's a great question, Tim, and since we're since we're
Speaker 7: of the same kind of cohort millennial wise, I think
Speaker 7: about it like this. You know, in our lifetimes, are
Speaker 7: we going to see as cheap and super easy of
Speaker 7: money as we had?
Speaker 5: And in just a cute, little.
Speaker 7: Adorable bear market in thoughts of twenty two percent, and
Speaker 7: that's how you clean up major euphorias in capital markets. No,
Speaker 7: but it never ends like it always ends in having
Speaker 7: to really take the psychology to dire straits where people
Speaker 7: question whether they want to own stocks again. So, you know,
Speaker 7: we look at this is this is kind of like
Speaker 7: this was just the next part of the bear market.
Speaker 7: People got really excited about a few companies again and
Speaker 7: took the S and P higher while most stocks are
Speaker 7: doing poorly. And our best guests again, you know, this
Speaker 7: is not where we make our money, but our best
Speaker 7: guess is you know, in the end, you know, peak
Speaker 7: to trough, the SMP will probably have to lose at
Speaker 7: least thirty, if not thirty five percent of its market
Speaker 7: value before you clean up the psychology.
Speaker 3: When over what time period?
Speaker 5: We just got to do it?
Speaker 7: Others, we're to your point, dam We're we're a little
Speaker 7: over a year into the bear market and a twenty
Speaker 7: two percent decline didn't cause people to change their mind.
Speaker 5: You know, ask the question, are we in a new era?
Speaker 7: Whether we're talking you know, the geopolitical risks that have
Speaker 7: now woken up I mean to invert that. You know,
Speaker 7: we know that this as you guys do that this
Speaker 7: benefit that the S ANDP is getting is a very.
Speaker 5: You know, very narrow group of stocks.
Speaker 7: In comparison, the businesses that benefit from what's going on
Speaker 7: in Israel in the last week is a lot of
Speaker 7: oil companies, and yet those are a tiny part of
Speaker 7: the SMP.
Speaker 5: So you kind of have to.
Speaker 7: Ask the question who wins who loses in this new regime,
Speaker 7: and our investors really pricing in the winners and losers correctly,
Speaker 7: We don't think so at all.
Speaker 2: So you're basically saying, and you expect equities will fall
Speaker 2: substantially from here or they need to fall to kind
Speaker 2: of fully reflect maybe the macro.
Speaker 7: Well, I would say, when I say equities, I'm talking
Speaker 7: about the S and P five hundred, So to your point, Carol,
Speaker 7: I'm talking about the composition of what it owns.
Speaker 5: Does that mean all stocks have to do poorly? No,
Speaker 5: not at all.
Speaker 7: Just like if you look at the equal way data
Speaker 7: of the russele too, they're doing much worse than the
Speaker 7: S and P five hundred is from a total return perspective.
Speaker 7: So it just shows you, you know, the exciting stocks
Speaker 7: the big market caps out there that has to struggle
Speaker 7: for the SMP to do poorly, and so it's you know,
Speaker 7: you go out to shoot five or ten stocks out back,
Speaker 7: and you're going to change the SMP for a long time.
Speaker 2: All right, So let's talk about what's in your portfolio.
Speaker 2: You do have a bunch of energy names. As of
Speaker 2: the end of August, I was looking at the whole
Speaker 2: things that we saw. Occidental was in their Knaco, Phillips
Speaker 2: was in there. I don't see Shell in that list,
Speaker 2: and we had that stock hitting an inter day high
Speaker 2: over in London today. Of course, they just bought Pioneer,
Speaker 2: massive sixty billion dollar bet on Shelle. It's a big
Speaker 2: reminder that fossil fuels, at least from the big integrated
Speaker 2: oil companies, they're still betting on it that it's going
Speaker 2: to be around for a while. But why not Shell.
Speaker 7: Well, so Shell chill has been coming out of what
Speaker 7: I call the European major problem, which is.
Speaker 5: That you wanted to have a lot of fun at the.
Speaker 7: Parisian cocktail parties and you know parties in Europe and
Speaker 7: selling oil and gas stories is not what the European
Speaker 7: majors have been interested in in comparison, you know, we're
Speaker 7: starting to see like the the the Exxon.
Speaker 5: Mobiles out there wanting to do their Pioneer deal.
Speaker 7: So if the majors wake up wanting to do deals,
Speaker 7: I think we have a very different world and the energy,
Speaker 7: you know space, because there's a lot of producers that
Speaker 7: could be acquired for attracted multiples on an all stock
Speaker 7: deal like is going on with the Exon Pioneer deal.
Speaker 7: So if Shell wants to become a US company like
Speaker 7: they flirted with in the Financial Times a few months ago,
Speaker 7: they could be a deal maker. At this time, it
Speaker 7: looks like VP and Total are the less likely one
Speaker 7: to do that. But again, I think you have to
Speaker 7: compare to the return on equity. If you look at Shell,
Speaker 7: it's a mid teens returning equity story. It's trading cheaper
Speaker 7: than some of the other names among the American majors,
Speaker 7: but that's because they're also wasting a good amount of
Speaker 7: money and they're renewables. That's why their returns are not
Speaker 7: twenty percent return in equity.
Speaker 2: Now, and forgive me, as you said, it was Exxon
Speaker 2: buying Pioneer, which is what I meant to say. Interesting, Hey, Cole, Let's.
Speaker 3: Go from oil to retail, because you're a big you guys,
Speaker 3: I got a big position in Target, down twenty five
Speaker 3: percent so far this year. You have a market value
Speaker 3: of one hundreds of millions of dollars invested in Target.
Speaker 3: Give me your thoughts on Target, especially in the wake
Speaker 3: of what they did with closing stores what they said
Speaker 3: was due to shrink.
Speaker 7: Yeah, some of that is just what's gone on in society.
Speaker 7: To your point about you know, the I'll call it,
Speaker 7: I'll call it vandalism, I'll call it, you know, crime,
Speaker 7: et cetera. But I think another thing that has to
Speaker 7: be said is this got here not by accident, but
Speaker 7: by also leadership. So, for example, I know with what
Speaker 7: the culture wars has gone on at Target, there's been
Speaker 7: talk of, you know what, what certain groups felt they
Speaker 7: were hurt by and whatnot.
Speaker 5: I think you also have to look at the employees though, too.
Speaker 7: So you have all this crime going on in you know,
Speaker 7: particularly urban Target centers, and then you add the culture
Speaker 7: war into where these employees are getting harassed by things
Speaker 7: that they have no control over. I think it's a
Speaker 7: big mark against the current management. I'd say Brian Cornell's
Speaker 7: made a lot of missteps. If you look at some
Speaker 7: of the culture war stuff that I'm commenting on, you
Speaker 7: just don't see that talked about with Walmart. So I
Speaker 7: think they've taken unique risks that have disadvantaged them in
Speaker 7: this season. At the same time they benefited so much
Speaker 7: from COVID that I think some of this is also
Speaker 7: just you know, reacting to a more normal environment. They're
Speaker 7: not selling as many TVs as they did a year
Speaker 7: or two years ago, and those are just big ticket
Speaker 7: price items for Target. So we look at Target, you know,
Speaker 7: it's a twenty five to thirty percent returning equity story
Speaker 7: that Tim they were earning as much as forty to
Speaker 7: fifty percent returning equity, which just wasn't sustainable.
Speaker 5: They were over earning in a lot of respects.
Speaker 2: All right, Can I leave it on that note, Hey,
Speaker 2: I Cale, thank you so much for joining us. Kill
Speaker 2: Smed CEO and portfolio manager Smeed Capital Management joining us
Speaker 2: on zoom from Phoenix, Arizona.
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