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Speaker 2: This is Bloomberg business Week inside from the reporters and
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Speaker 2: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 1: We know this is a market environment that moves from
Speaker 1: economic data point to economic data point, and we also
Speaker 1: know that not all economic data point or data is
Speaker 1: treated equally by investors, nor economists, nor the Fed for
Speaker 1: that matter.
Speaker 3: Tim Well, this week though we do have a few
Speaker 3: that are watched by all, as we get two reads
Speaker 3: on inflation just over the next two days. Also a
Speaker 3: read on retail sales on Friday, throwing some jobless claims, Carol,
Speaker 3: the Fed is watching the US labor market closely. All
Speaker 3: this could make for an interesting week. And then Michael
Speaker 3: McKee next week goes off to Jackson Hole. Right, so
Speaker 3: hear from VET chair J.
Speaker 2: Powell.
Speaker 1: We'll see what he has to say. How that shapes
Speaker 1: the narrative? All right, So let's get to it with
Speaker 1: us our round table Bloomberg News Economics editor of Molly Smith,
Speaker 1: along with Bloomberg economics US economist Stuart Paul Stewart here
Speaker 1: in studio Molly on Zoom here in New York City,
Speaker 1: and so let's get to it. So we do, first
Speaker 1: of all, Molly lay it out for us and what matters,
Speaker 1: and it's actually forgive me, I think there's three inflation reports,
Speaker 1: although I'm not quite sure the New York Fed one
Speaker 1: year inflation expectations it already came out. There's two more
Speaker 1: that come in aware over the next couple of days.
Speaker 1: What matters, Yeah, I.
Speaker 4: Mean, it's really just going to be CPI, the Consumer
Speaker 4: Price Index and full focus that comes out on Wednesday
Speaker 4: this week, and we also get a look at producer prices,
Speaker 4: so this is a level of wholesale inflation that comes
Speaker 4: out on Tuesday. Obviously, the CPI is one of, if
Speaker 4: not the biggest margaret moving events in any given month,
Speaker 4: and I don't think that this will necessarily be too
Speaker 4: much different from that. But hopefully we won't see nearly
Speaker 4: the same reaction that we did to the jobs report
Speaker 4: that you guys mentioned just two weeks ago, pretty fast
Speaker 4: and furious moves and stocks and treasuries on that front.
Speaker 4: And I think this one is I think people are
Speaker 4: maybe just looking for Okay, let's just get through this.
Speaker 4: Hopefully it's a fairly as expected reading. Maybe inflation is
Speaker 4: going to pick up a little bit relative to June,
Speaker 4: but the broader trend of disinflation is still going to
Speaker 4: be intact. And I think something like that will just
Speaker 4: bring hopefully a reassuring colm to the market. But that said,
Speaker 4: it doesn't take that much to tip the scales these days,
Speaker 4: Like everybody is just very jittery about the data right now.
Speaker 3: Well, Stuart, come on in here. Let's talk CPI before
Speaker 3: we talk PPI here, because you and the team over
Speaker 3: at Bloomberg Economics argue that July CPI will likely be soft,
Speaker 3: with the year over year changing core CPI edging further down,
Speaker 3: take us into your thinking and what you're modeling.
Speaker 5: So we have a few factors that are going on. First,
Speaker 5: is that the most inter sensitive categories, things like used autos,
Speaker 5: are exerting meaningful drag on both core and headline inflation.
Speaker 5: We have some pretty came numbers for gasoline, so it's
Speaker 5: not really boosting the headline all that much. And then
Speaker 5: if we look at some of the more discretionary services categories,
Speaker 5: things like airfares, things like hotels. We're expecting to see
Speaker 5: some pretty meaningful drag on the core.
Speaker 1: The thing that's going to come that from the earnings front,
Speaker 1: the earnings picture where there was airlines, where it was
Speaker 1: airbnbat mean Expedia. Nonetheless, there's stock rally because there was
Speaker 1: a beat. But there everybody's talking about softness in the
Speaker 1: travel sector.
Speaker 5: That's right, it's really some of those more discretionary services
Speaker 5: categories where consumers are tightening their belt. We expect to
Speaker 5: see the same thing in the retail sales number this week.
Speaker 5: We expect to see folks really looking for discounts and
Speaker 5: doing some online bargain hunting as opposed to splurging on
Speaker 5: food services and some more of the intro sensitive items
Speaker 5: like appliances and autos, even though we will get some
Speaker 5: auto spending after last months the June cyber attack on
Speaker 5: auto dealers. But on the inflation front, it's interesting this
Speaker 5: is one of those peculiar months where we get PPI
Speaker 5: ahead of CPI and we're expecting see more softness in
Speaker 5: the headline PPI number than in CPI. So to Mally's
Speaker 5: points about folks wanting to take a deep breath, it's
Speaker 5: possible that when they see the monthly pace of producer
Speaker 5: prices ticking down. So when we see producer price inflation
Speaker 5: which is zero point two percent on the month instead
Speaker 5: of zero point four as they saw last month, folks
Speaker 5: might breathe that sigh of relief. It might be a
Speaker 5: little bit too early when they then see the headline
Speaker 5: pace of CPI increase on the month. So this is
Speaker 5: one of those peculiar months where the timing of the
Speaker 5: data has the opportunity to both lull people into a
Speaker 5: sense of complacency and then give a little bit of
Speaker 5: a whipsaw just the next day.
Speaker 1: Well, molly, what matters in terms of like help me
Speaker 1: through the supply chain right PPI or the endpoint input prices?
Speaker 2: Right?
Speaker 1: So is that something then will show up in next
Speaker 1: month CPI report? Like how do you kind of distinguish
Speaker 1: those two pieces of data?
Speaker 4: So generally, when the reason why you would, as a
Speaker 4: typical person care about the PPI is because what's happening
Speaker 4: at the doucer price level tends to filter through to
Speaker 4: consumers over time. Overtime doesn't necessarily mean one month, though,
Speaker 4: these are trends that can take more than that to
Speaker 4: more time than that to develop, and of course movements
Speaker 4: through the supply chain are not always that quick. But
Speaker 4: it's of course, like really important to look at for
Speaker 4: the overall inflation trend, especially you know, when you're looking
Speaker 4: at what's happening with commodity prices, and so many of
Speaker 4: those have been really wild over the summer. With looking
Speaker 4: at what prices are for coffee and chocolate and other
Speaker 4: kinds of metals and like things like that that just
Speaker 4: you know, maybe you as a consumer aren't purchasing that
Speaker 4: as a raw good, but when you purchase it as
Speaker 4: a final product, then you start to notice how inspects
Speaker 4: how expensive those goods can be.
Speaker 3: Stuart, come on in, because I don't know about you guys,
Speaker 3: but I was gone last week, and I even though
Speaker 3: I wasn't you know, glued to.
Speaker 1: My phone, we weren't here.
Speaker 3: I could still hear people screaming about a fifty basis
Speaker 3: point rate cut.
Speaker 1: Oh wait, no, you mean the emergency rate. The emergency
Speaker 1: is seventy five basis points. I forget who was it
Speaker 1: that Jeremy Siegel was calling for us?
Speaker 3: So a lot has changed in just a few days.
Speaker 3: I don't hear those echoes right now pretty quickly. Actually,
Speaker 3: we didn't see one of those emergency rate cuts come
Speaker 3: from the FED, but could we get a not necessarily
Speaker 3: a reaction, but could we get calls for some sort
Speaker 3: of movement from the Fed based on the data moving
Speaker 3: one way or the other this week's store.
Speaker 5: I think that this week is going to be one
Speaker 5: of those odd weeks where you feel a little bit
Speaker 5: more stagflation risk as opposed to just outright recession risk.
Speaker 5: So and I think that because equity markets ever covered,
Speaker 5: because the feed through into credit mark into credit markets,
Speaker 5: you know, when it comes to interest rate spreads, when
Speaker 5: it comes to default risk, we haven't seen any sort
Speaker 5: of material move there. So I think that when it
Speaker 5: comes to what we're going to see this week and
Speaker 5: how it shapes the narrative, it's going to be more
Speaker 5: so around the idea of stagflation. We're going to see
Speaker 5: in that isn't as inflation data that aren't as good
Speaker 5: as they've been in the last three months. We're going
Speaker 5: to see retail sales data that when you look deeper
Speaker 5: in the core, it's going to be pretty dismal. I
Speaker 5: think that looking at the control group for retail sales
Speaker 5: it's going to be pretty rough, and we're going to
Speaker 5: see zero point two percent decline in the month and
Speaker 5: manufacturing data to round out the week. I also expect
Speaker 5: that we're going to see a decline about zero point
Speaker 5: three percent month on month decline in manufacturing output. So
Speaker 5: we're not going to have as good inflation data, and
Speaker 5: some of the other fundamental concepts are going to show
Speaker 5: some weakness, and that could be enough to just keep
Speaker 5: folks on edge having this fifty basis point twenty five
Speaker 5: bases point debate for another month.
Speaker 1: Which makes me want to jump to it. And I want
Speaker 1: to ask both of you, and let me Molly, let
Speaker 1: me start with you. So are more people starting to
Speaker 1: talk about a recession and that if we get a recession,
Speaker 1: that you know, if the FED possibly is behind the
Speaker 1: curve in terms of maybe sparking some growth or catching
Speaker 1: that we're slowing down maybe faster than we anticipated, could
Speaker 1: it be a deeper recession.
Speaker 4: More people definitely are talking about recession. And since that
Speaker 4: Job's report came out two weeks ago, we've seen JP
Speaker 4: Morgan and Golden Economists both boost their likelihood of a
Speaker 4: recession in the next twelve months. So I'm pretty sure
Speaker 4: both of them are still below fifty percent, so still
Speaker 4: fairly low odds. And I think those are the only
Speaker 4: two that I'm really aware of who have come out
Speaker 4: and boosted those odds in recent weeks. But I'm not
Speaker 4: really hearing that it would be that would make a
Speaker 4: recession any deeper. I think it's just now looking at
Speaker 4: is the FED behind the curve? Like you said that
Speaker 4: people are wondering that, And of course if you get
Speaker 4: more inflation data that comes in softer than expected, that's
Speaker 4: only just going to add fuel to that argument.
Speaker 1: Stuart remind us where you guys are the team on
Speaker 1: when it comes to recession.
Speaker 5: So we've been noting that there's been a material slow
Speaker 5: down in some of the underlying factors driving growth for
Speaker 5: a long time. We've also been noting that again, even
Speaker 5: if you just look at the Q two GDP data,
Speaker 5: about a quarter of the growth that we saw was
Speaker 5: from inventory accumulation. That folks and firms aren't trying to
Speaker 5: accumulate inventories, it's just that they're accidentally producing more on
Speaker 5: the expectation of zealing consumer demand that just isn't there.
Speaker 5: And so we think that the FED is behind the curve,
Speaker 5: and we do think that some of the recession, some
Speaker 5: of the recession probabilities that have been assigned are probably
Speaker 5: a smidge too low, but we've always been a little
Speaker 5: bit more bearish expected and a half percent unemployment rate
Speaker 5: by year end, and if we continue along this trajectory
Speaker 5: that we saw in the last month, we'll hit it
Speaker 5: or exceed it.
Speaker 1: It's interesting because you guys have been for a long
Speaker 1: time and at a time when it almost felt like, really,
Speaker 1: can you still be calling this? And now it starts
Speaker 1: to feel like things are falling into place. Guys, perfect
Speaker 1: setup for us. On this Monday, Bloomberg News Economics Center
Speaker 1: Molly Smith along with Bloomberg Economics US economist right here
Speaker 1: in studio.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern. Listen
Speaker 2: on Apple car Play and then Brout Auto with a
Speaker 2: Bloomberg Business app, or watch us live on YouTube.
Speaker 1: Now we got to talk take all of this together,
Speaker 1: Tim and talk about the treasury and rates market trades.
Speaker 6: Yeah.
Speaker 3: Among our most read stories on the Bloomberg on this
Speaker 3: Monday in August, how bonds are back as a hedge
Speaker 3: after failing investors for years, finally contribute to the story.
Speaker 3: Bloomberg News rates reporter Michael McKenzie. He ended last week
Speaker 3: with us and now he kicks off Carol the week for.
Speaker 1: Us, welcome back. You can't get away from us.
Speaker 3: He tries, he works from home to try to get
Speaker 3: away from us, and we still make him turn on
Speaker 3: the camera and come hang out with us.
Speaker 1: So Tim was away and he did read it.
Speaker 3: Oh yeah, but so well up, he missed nothing right.
Speaker 7: Yeah, we're violently unchanged.
Speaker 3: Violently unchanged. That's a good way to describe.
Speaker 1: How are you thinking about things on this Monday here?
Speaker 3: Well, pretty much.
Speaker 7: It's interesting too. So we've got a two year yeeld
Speaker 7: right there on four percent, ten years at what three ninety.
Speaker 7: So if you think last week we got as low,
Speaker 7: we got below three eighty on tens, and we bounced
Speaker 7: back to four to just shire four percent on Thursday
Speaker 7: after that very week tenure auction. So we're back in
Speaker 7: the middle of the range, and I think market's just
Speaker 7: parked here waiting for what will be I think the
Speaker 7: most important week for data until we get the payrolls report.
Speaker 7: First week of September, we've got PPI, tomorrow's CPI and
Speaker 7: then retail sales and jobbers claims. So we're going to
Speaker 7: see whether or not inflation is trending down or whether
Speaker 7: it's actually going to be proved to be sticky than
Speaker 7: people are expecting the bob market. That will put pressure
Speaker 7: on that front end. You should see high yields if
Speaker 7: inflation is stickier when people anticipate that said, if inflation
Speaker 7: comes in online bang in line with expectations, then I
Speaker 7: think that the focus will turn to Okay, how is
Speaker 7: the consumer looking for retail sales and are we seeing
Speaker 7: any signs of weakness in those initial weekly choppers claims
Speaker 7: on Thursday.
Speaker 3: Of the data points that you just mentioned, of all
Speaker 3: the economic data that we're getting this week, Michael, which
Speaker 3: one do you think has the biggest implications for the
Speaker 3: rates curve?
Speaker 7: I'd say CPI. If CPI is trending in the right direction,
Speaker 7: that means the bomb market and go right, this is
Speaker 7: yesterday's story and let's just focus on the consumer and
Speaker 7: the labor market. You get that all clear on CPI
Speaker 7: this month. I actually loved the last month and it's
Speaker 7: coming out this month. That means to focus on the
Speaker 7: Fed's dual mandate. The labor side of things becomes really
Speaker 7: really important now for the bomb market, and they will
Speaker 7: continue then to really watch carefully for any scigns of
Speaker 7: sort of labor deterioration.
Speaker 1: You know, we mentioned in the Leader and to you, Michael,
Speaker 1: about this story that's among the most read on the
Speaker 1: Bloomberg about bonds or back as a hedge after failing
Speaker 1: investors for years. We mentioned on Friday in our conversation
Speaker 1: with you how you had caught up with Dan iverson
Speaker 1: the world's biggest active bond fund manager, who says he's
Speaker 1: just about ready to start adding to his treasury positions. Again.
Speaker 1: You talk to a lot of investors, big bond investors,
Speaker 1: are you increasingly seeing that among them that they're getting
Speaker 1: ready to buy or are already buying.
Speaker 7: They're already long. I mean, if you look at all
Speaker 7: the positioning surveys, and in Himko's defense, when two year
Speaker 7: was back above five percent briefly late April, they were buying.
Speaker 7: So they all they've done is they've moderate their duration,
Speaker 7: They've pulled it back a bit. They're waiting for a backup.
Speaker 7: So if you get sticky inflation, I think they're going
Speaker 7: to people come in and I'll cap the rise and yields,
Speaker 7: but longer term, I mean himko take tend to take
Speaker 7: a three to five year viewpoint of things. So Dan
Speaker 7: Iverson's point to me was, if you're a long term investor,
Speaker 7: you step back, four percent on a ten year is
Speaker 7: very attractive. You know, you've got to go back to
Speaker 7: the middle of the first decade of this century when
Speaker 7: you had a consistent ten year around that four percent level.
Speaker 7: So these are attractive yields for longer term investors. And
Speaker 7: it means when you do get a wobble in the
Speaker 7: equity market, we do get something happening in credit, then
Speaker 7: that the trophy market, you know, reclaims its status as
Speaker 7: being the defensive asset to hold, and it will rally.
Speaker 7: And I think one of the problems the market's got
Speaker 7: at the moment is that we had a very extensive
Speaker 7: have and rally last a week ago Monday, when the
Speaker 7: carry trade was being carried out to some extent, and
Speaker 7: that's why yields fell so quickly and so sharply, and
Speaker 7: you're now having to come back and sort of fired
Speaker 7: an equilibrium. And it seems to me four percent on
Speaker 7: twos and three nineties, maybe four percent on ten seemed
Speaker 7: to be the right levels here.
Speaker 3: Hey Michael, before we let you go, as we mentioned
Speaker 3: at the top, you contributed to a story that is
Speaker 3: among the most read on the Bloomberg terminal about how
Speaker 3: bonds are back and increasingly money managers are hearing from
Speaker 3: clients about investing in bonds. You talked to professional bond
Speaker 3: investors each and every day, but talk a little bit
Speaker 3: about how that's sort of going back to the everyday
Speaker 3: investor who has their money managed by professionals.
Speaker 7: Well, I mean the important thing form invest I think
Speaker 7: a lot of people have liked the idea of putting
Speaker 7: their money in tea bills.
Speaker 8: You know what was it?
Speaker 7: We had t bill and chill. That was the Jeff
Speaker 7: Gunlack expression last year. But a lot of big bond
Speaker 7: investors were telling me back in November December, Look, you've
Speaker 7: got to take advantage of these treasure yields at five
Speaker 7: percent because it won't cash rates won't stay at five
Speaker 7: percent once the fair starts to cut again. And I
Speaker 7: think they've been born out here, that thesis has been validated.
Speaker 7: It's taken longer than people thought it would. Don't forget
Speaker 7: everyone at the beginning of the year thought the SAT
Speaker 7: would be cutting in March, and to a certain extent,
Speaker 7: Chairpale did kind of hint that was coming. But that said,
Speaker 7: you've now got treasure yields with four you know, four percent,
Speaker 7: two s and below four percent and tens and fives.
Speaker 7: So if you're still stuck in cash you're now sitting
Speaker 7: on you know, you've got an opportunity loss here because
Speaker 7: you could have rolled into a five percent two year
Speaker 7: back in April, right, three four seventy five on tens
Speaker 7: back in April. Okay, and again these bond managers saying,
Speaker 7: you've got to start thinking about moving out. So I
Speaker 7: think it now is time. So we had a record high.
Speaker 1: And Michael, we got to run. Michael McKenzie, forgive me.
Speaker 6: This is.
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Speaker 1: Check your calendars. It was one week ago that we
Speaker 1: had the market sell off, But it was also one
Speaker 1: week ago that US District Court Judge am At Meta
Speaker 1: ruled that Google had illegally monopolized the online search market.
Speaker 1: The decision has serious ramifications for Alphabet's flagship business and
Speaker 1: tremendous connotations for Apple as well. It's something we've been
Speaker 1: talking about tim over the past week or so.
Speaker 3: Yeah, much of the focus has been on what this
Speaker 3: outcome means for Google's multi billion dollar payments to Apple
Speaker 3: that ensure Google is the default search engine across iPhones
Speaker 3: and iPads. But more pressing question may be what the
Speaker 3: case itself signals for the US Department of Justices separate
Speaker 3: anti trust lawsuit against Apple.
Speaker 1: Bottom line, there's always a lot going on when it
Speaker 1: comes to Apple and writing about Apple and it's cash prospects.
Speaker 1: A new research that is out by him is Bloomberg
Speaker 1: Intelligence Senior technology analyst to Ana Agrana. He joins us
Speaker 1: from Chicago. Happy Monday, an A, rag you were busy
Speaker 1: got some research out over the weekend. Help us make
Speaker 1: some sense. First of all, in terms of if Alphabet
Speaker 1: isn't making these payments to Apple, what does it mean
Speaker 1: in terms of their cash flow and their cash because
Speaker 1: you guys seem or you seem pretty upbeat about it
Speaker 1: or at least their prospects.
Speaker 9: Yeah, so if you were to, you know, wait and
Speaker 9: see what happens with this particular case. When you look
Speaker 9: at Apple's score business, it's doing very well, even though
Speaker 9: the top line is not growing in double digits like
Speaker 9: it's used to a few years ago. But even with
Speaker 9: five to seven percent growth type cost control, you know,
Speaker 9: this company is generating enough free cash. I think the
Speaker 9: biggest thing what we are trying to point out is
Speaker 9: when you look at the other large tech companies. You know,
Speaker 9: somebody like a Microsoft or an AWS, they are going
Speaker 9: to spend billions of dollars over the next few week
Speaker 9: years in order to expand their cloud data centers, invest
Speaker 9: in AI. But in the case of Apple, I think
Speaker 9: they're the ones they're going to stand out over the
Speaker 9: next twelve to twenty four months because they are not
Speaker 9: doing that same level of spending because they.
Speaker 3: Don't have that kind of business.
Speaker 1: Now.
Speaker 9: The Google case you brought up is an important point,
Speaker 9: and that's a big risk for Apple, But we're still
Speaker 9: far away to figure out what the remedies are going
Speaker 9: to be as long as there is no binding. If
Speaker 9: Google and Apple can renegotiate and figure out if people
Speaker 9: get choices, I think there is chances that they can
Speaker 9: salvage some of that particular twenty billion dollar revenue that
Speaker 9: comes in now if they are able to. If the
Speaker 9: judge comes out and say, well, you cannot pay them anything,
Speaker 9: then that's a problem. But even in that case, I
Speaker 9: think it will be a few years before Apple can
Speaker 9: make up for that revenue loss.
Speaker 3: I want to go back to this idea of Apple
Speaker 3: not having to make those huge CAPEX investments in AI
Speaker 3: like Microsoft and Amazon have to do when it comes
Speaker 3: to infrastructure and actually building out these facilities on a rock.
Speaker 3: Is it a risk for Apple that they're partnering instead
Speaker 3: with other companies that are making these investments and not
Speaker 3: doing them themselves. Is there a chance that they could
Speaker 3: run into an issue with a platform taking off that's
Speaker 3: not their own platform.
Speaker 9: Yeah. See, they're on the device business in all honesty.
Speaker 9: When you look at the iPhone, they're really not into
Speaker 9: cloud computing or giving people infrastructure to build their application.
Speaker 9: So that's a completely different equation in my view. It's
Speaker 9: like you know, getting electricity you really don't need to
Speaker 9: own your own generators in order to get electricity. So
Speaker 9: when you look at Apple, they're basically saying in the
Speaker 9: same case what they have with Google, they don't want
Speaker 9: to be in that search business.
Speaker 6: They're going to go.
Speaker 9: Try to get a partnership with anybody who has the
Speaker 9: best search business right now, and they will put that
Speaker 9: on their phones.
Speaker 3: That would open Ai.
Speaker 9: They went out and talked to a bunch of people
Speaker 9: and says, who has the best large language model that
Speaker 9: would work well on their iPhone and they chose up to,
Speaker 9: you know, open Ai to be one of their partners.
Speaker 9: So that's part of their business model, and that's part
Speaker 9: the reasons why they don't need to spend that much
Speaker 9: in Capex.
Speaker 1: You know, it's interesting. We talked with David Weston, who
Speaker 1: is a lawyer and spent a lot of time doing
Speaker 1: anti trust work specifically, and I do wonder about some
Speaker 1: of these big technology companies ana rog that they are
Speaker 1: successful at what they do and is that a crime
Speaker 1: that just because you're good at what you do. And
Speaker 1: I was actually having a conversation with one of my
Speaker 1: sisters this week and we were talking about Google, and
Speaker 1: I'm like, but do you use you know, do you
Speaker 1: try any other kind of search engines? Like Nope, because
Speaker 1: Google like just works so well. So like when is
Speaker 1: it a crime that you are really good at what
Speaker 1: you do and you just become big because of that?
Speaker 1: Like how do we figure out, you know, when it
Speaker 1: is an anti trust issue and when it's not.
Speaker 9: Yeah, I think see, all these companies are generating billions
Speaker 9: and billions and dollars of free cash flow, which really
Speaker 9: will attract a lot of lawyers. As you can imagine. Now,
Speaker 9: let's say the case of iPhone. If tomorrow when I
Speaker 9: turn on my iOS or I install a brand new system,
Speaker 9: it'll ask me which search indind do you want to use.
Speaker 9: It's going to give me six choices more like most
Speaker 9: likely or not. I'm going to pick Google, and that
Speaker 9: is going to help Google. I think the bigger question
Speaker 9: in this all equation is you know what happens to
Speaker 9: that payment that's happening.
Speaker 3: Well, that's why you know, I think sort of counterintuitively,
Speaker 3: couldn't this actually be a great thing for Google if
Speaker 3: people end up using Google and choosing Google because they're
Speaker 3: not choosing a competitor. But then Google doesn't have to
Speaker 3: make these payments to Apple that's just like icing on
Speaker 3: the cake. Is this could be a big win for
Speaker 3: alphabet right, yeah, yeah, exactly.
Speaker 9: I mean that's what I'm saying that in this entire case,
Speaker 9: it's Apple who's going to lose. But here's my counter argument.
Speaker 9: Is my counter argument to that, Apple is a company with,
Speaker 9: as I said, over one hundred billion in free calf flow.
Speaker 9: If they really wanted to fight Google and Search, they
Speaker 9: can do it. They can go and acquire a small
Speaker 9: vendor and use that in their pipeline. Remember, they ConTroll
Speaker 9: distribution of two point two billion devices. Google's going to
Speaker 9: lose a lot of market share if it doesn't play
Speaker 9: nice with Apple, and so, you know, I get it
Speaker 9: that in the short term they will be you could say,
Speaker 9: benefit from it, But I don't think they would want
Speaker 9: to pick a fight with Apple on this one.
Speaker 1: Interesting the anti trust case case though against Apple by
Speaker 1: the Department of Justice, they say to classify Apple as
Speaker 1: a monopolis. The government attorney's carved out its relevant product
Speaker 1: market is only including premium smartphones, a segment apparently distinc
Speaker 1: from entry level and less expensive gadgets. I mean, it's
Speaker 1: kind of like you're dicing and slicing the market here.
Speaker 9: Right, yeah, yeah, yeah, So when you look at Apple's
Speaker 9: entire so there are roughly about five plus billion smartphones
Speaker 9: in the world, and Apple's market chair is roughly about
Speaker 9: twenty percent or one billion. But yeah, you could make
Speaker 9: the argument if if it was only the expensive category.
Speaker 9: You know, they have over fifty percent of the market share.
Speaker 9: But there are only two players out there. Either it's
Speaker 9: Samsung or it's Apple. There you know, there isn't really
Speaker 9: a big third player in the premium market that anybody
Speaker 9: wants to deal with. But you know, we think twenty
Speaker 9: percent of the market share in the global smartphone market.
Speaker 9: That really is the big case for Apple, which is
Speaker 9: as people become more affluent, they will go out and
Speaker 9: get Apple Basicus. It's an aspirational brand for people in
Speaker 9: emerging markets. It's really the place you want to be.
Speaker 9: But in most cases you don't even qualify to buy
Speaker 9: that product because it's so expensive.
Speaker 1: Well, and the thing about you know, Apple, with these
Speaker 1: large language models and all of the AI that's being done,
Speaker 1: I guess do they not care? Go ahead and everybody else,
Speaker 1: you spend money, you develop it, and then we'll give
Speaker 1: you the device that people can play with it on.
Speaker 1: Is that what it's all about.
Speaker 9: Yeah, But in the you know, if I was to
Speaker 9: take the other argument of it is, if they started
Speaker 9: doing everything else, then people will say, well, they're using
Speaker 9: their distribution to unfairly you know, push their own product. Right.
Speaker 9: They're basically saying, if you build the best product out there,
Speaker 9: we will use it, and we will use it on
Speaker 9: the merit of the product. In this particular case, they
Speaker 9: didn't go out and picked you know, Google's Gemini on
Speaker 9: round one. I think it's there's down the road. I
Speaker 9: think it may happen. But they chose open Ai because
Speaker 9: they have at this point the best large language model
Speaker 9: out there.
Speaker 3: Okay, speaking of the Apple being a device company, it's
Speaker 3: the iPhone company. No question, the iPhone sixteen likely will
Speaker 3: see it unveiled in just a few weeks.
Speaker 1: I was getting ready and thinking really hard, so was
Speaker 1: Paul Sweeney, like replacing my phone come later this year,
Speaker 1: And now I'm thinking maybe I shouldn't.
Speaker 3: Well, that's the big question. Because Mark German out with
Speaker 3: his Power on newsletter over the weekend on it rog
Speaker 3: talking about how this is perhaps one of those stopgap
Speaker 3: models that gives people a bridge. The next one perhaps
Speaker 3: doesn't get people to do an upgrade super cycle. How
Speaker 3: are you thinking about it at Bloomberg Intelligence, Yeah.
Speaker 9: In a similar way. We don't think it's going to
Speaker 9: have a massive layout in year one. Over a three
Speaker 9: year period, I think it's going to help, but at
Speaker 9: this point we don't have We are looking at maybe
Speaker 9: a five percent bump in total unit ship and sold
Speaker 9: next to the at FI twenty five over Fi twenty four,
Speaker 9: and that's because the last two has been kind of weak.
Speaker 9: The Apple's installed by Base moves at a setic certain rate,
Speaker 9: and you refresh your phone when to be honest, when
Speaker 9: the battery runs out. That number you to be three
Speaker 9: point six years for a few years, but it's been
Speaker 9: extended closer to four years at this point. So at
Speaker 9: an average globally out of that one billion phones I
Speaker 9: talked about, people refresh at every four year. So I
Speaker 9: think that is what we're going to see. We're not
Speaker 9: going to see a massive bump because of AI.
Speaker 1: All right, just to wrap up here, as you know,
Speaker 1: we're over the hump, if you will, in terms of
Speaker 1: half of twenty twenty four already over. How are you
Speaker 1: thinking about the rest of the year when it comes
Speaker 1: to technology in terms of some of the big major themes,
Speaker 1: whether it's AI, CAPEX expending. Are we going to see
Speaker 1: more kind of worrisome notes or worrisome updates or do
Speaker 1: you feel pretty confident about the rest of the year.
Speaker 9: See, I think from a fundamental point of view, this
Speaker 9: is going to be fine. I mean, I don't see
Speaker 9: any reason why the big tech companies, whether it's Microsoft
Speaker 9: or whether it's you know, Amazon Web Services, their core
Speaker 9: business is strong and NOO will remain. The stock reaction
Speaker 9: is a very different game because that depends on interest
Speaker 9: rates and so many other factors, and that's really you know,
Speaker 9: we'll see what happens with that. But at the same time,
Speaker 9: they will spend that a lot of money in order
Speaker 9: to beef up their capacity so that they can grow
Speaker 9: over the next three to five years. I think that
Speaker 9: is really, in our view, a good long term play,
Speaker 9: but in the short term it may have its ups
Speaker 9: and downs.
Speaker 1: All right, got it? Listen Anerrog, thank you so much,
Speaker 1: really appreciate it. Ana ro Grana, he's our Bloomberg Intelligence
Speaker 1: senior technology analyst joining us from Chicago.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern. Listen
Speaker 2: on Apple car Play and then Brout Auto with a
Speaker 2: Bloomberg Business app or watch us live on YouTube.
Speaker 3: Carol, I don't know if you caught this article from
Speaker 3: Sagel Kashan a few weeks ago. It was about the
Speaker 3: changing view of ESG. We've talked about this a lot
Speaker 3: over the last eighteen minds two years or so, he
Speaker 3: wrote that quote. The red carpet is being formally rolled
Speaker 3: up for the three letters ESG, at least over at II.
Speaker 3: The fifty seven year old organization has dropped the label
Speaker 3: short for Environmental, Social and Governance from its annual analyst rankings.
Speaker 1: Yeah, there's been such pushback against the kind of labeling.
Speaker 1: In its place, it's sustainability, a cineym many banks and
Speaker 1: money managers are using instead, amid the increasingly politicized debate
Speaker 1: over climate change and corporate diversity in the United States.
Speaker 1: What a change if you go back, I feel like
Speaker 1: ten fifteen years where there's been so much emphasis and
Speaker 1: a movement towards this ESG labeling.
Speaker 3: Yeah. Curious what Bud Sturmac has to say about all this.
Speaker 3: He's partner and head of Impact Investing over at Paragon
Speaker 3: Wealth Management. He joins us here in the Bloomberg Interactive
Speaker 3: Brokers studio. Paragon has about eight billion dollars in assets
Speaker 3: under management. Bud, how are you?
Speaker 8: I'm good? Thanks so much for having me.
Speaker 3: So you guys are kind of leaning into ESG when
Speaker 3: others are pulling back a little bit. Talk a little
Speaker 3: bit about why that is.
Speaker 8: Yeah, I think we're in an era of personalization and
Speaker 8: whether it's how we consume television or music, or where
Speaker 8: we buy groceries or what kind of car we drive.
Speaker 8: I think you're seeing that at start to evolve investing.
Speaker 8: And so what Paragon stands for is empowering our clients
Speaker 8: with choice. And we think it's important to include in
Speaker 8: our client onboarding process questions about understanding what values our
Speaker 8: clients bring to the table.
Speaker 3: These are values that clients bring to the table. Yes,
Speaker 3: what do you mean by that?
Speaker 8: So you know, as well as understanding client goals, financial planning,
Speaker 8: and understanding their investments, what do they care about most?
Speaker 8: Is it climate change? Is it gender equality? Is it
Speaker 8: racial equality?
Speaker 3: If those things are what if they only care about returns,
Speaker 3: that's fine, Yeah, they don't care about any of the
Speaker 3: other stuff.
Speaker 8: That's totally okay, But we think it's important in this
Speaker 8: day and age that we ask the question because it
Speaker 8: brings a whole other layer of the ability for clients
Speaker 8: to connect with their portfolio if that's something that they
Speaker 8: believe passionately about.
Speaker 1: But you know, if you build it, they will come
Speaker 1: that kind of thinking. So I guess my question is,
Speaker 1: are your clients still saying, Hey, we like this SG thing,
Speaker 1: we get it, we understand, we want to commit money
Speaker 1: to it.
Speaker 8: The answer is yes. But I also think that you
Speaker 8: hit on something before, which is people are moving away
Speaker 8: from the term ESG, so sustainable investing values based investing.
Speaker 8: We're not like regularly using the term ESG. Again, I
Speaker 8: think it comes back to client values. What do they
Speaker 8: care about most?
Speaker 4: What?
Speaker 1: So where did ESG get it wrong? Like? What is
Speaker 1: it that? It's just kind of mind blowing how much
Speaker 1: time and energy and money we spent talking about it
Speaker 1: and then now it's kind of getting Although things evolve
Speaker 1: and sometimes things come out better on the other side,
Speaker 1: But so what happened?
Speaker 8: It's funny because ESG really is research, it's data. Yeah,
Speaker 8: and the term sort of got turned into investing which
Speaker 8: it's really not. It's a tool, right, So I think.
Speaker 1: It's vulnerabilities, isn't it, like, yeah, climate exposure? Right exactly.
Speaker 8: Yeah. I think where it sort of went awry is
Speaker 8: maybe two things on the investing Within the investing landscape,
Speaker 8: you have mutual funds and ETFs that label themselves ESG
Speaker 8: or sustainable, and when a client is buying into that fund,
Speaker 8: they're sort of having to adopt whatever the fund manager's
Speaker 8: view on sustainability is. The client may agree with that view,
Speaker 8: it may not. And so then you have the ESG
Speaker 8: data companies, Right, they're taking very complex E S and
Speaker 8: G data and they're trying to wrap that up into
Speaker 8: a nice score that everybody can say, oh, this is
Speaker 8: a very sustainable company. This is not the problem with
Speaker 8: that is is that the es and the G data,
Speaker 8: those data points might actually be very accurate and succinct,
Speaker 8: but wrapping them into a nice need score invites subjectivity
Speaker 8: and so well.
Speaker 1: Governance might be easier than environment, like some of it
Speaker 1: might be easier to measure than others.
Speaker 8: Right, Also, I think that's true, but trying to wrap
Speaker 8: it up into a nice need score what you're and
Speaker 8: the criticism that was invited from that was that, oh,
Speaker 8: this ESG data company rates Tesla very high, while this
Speaker 8: ESG data company rates it low, and that you know this,
Speaker 8: and it basically brought in criticism of ESG in general.
Speaker 3: Well, maybe the E is a positive for some for
Speaker 3: some of these and when it comes to data, but
Speaker 3: the G when it comes to governance and who's on
Speaker 3: Tesla's board, for example, doesn't necessarily pass muster for this
Speaker 3: other organization, just for example. I mean, the ES and
Speaker 3: G are three completely different things.
Speaker 8: That's exactly right. And I think that.
Speaker 3: Maybe some people would have problem with the social part
Speaker 3: of it.
Speaker 8: Yes, And so when we're talking about bringing it back
Speaker 8: to what the client cares about, then you have an
Speaker 8: opportunity to say, Okay, this client cares about the environment,
Speaker 8: so maybe Tesla would be in the in the portfolio,
Speaker 8: or this client cares mostly about gender equality. So you know,
Speaker 8: you're applying a different lens. It's what the client cares about,
Speaker 8: and it's building the portfolio stock by stock around exactly
Speaker 8: that client.
Speaker 1: So it's a true customization.
Speaker 8: Yes, so here's what you like.
Speaker 1: I'm going to go find companies that meet those metrics.
Speaker 1: If those companies don't perform, don't put them in my portfolio.
Speaker 1: Is it as simple as that, Well, it's really like
Speaker 1: what's the balance, and it's.
Speaker 8: Trying to It is trying to mirror the index performance. So,
Speaker 8: whether you're talking about an S and P five hundred
Speaker 8: or a Russell one thousand or whatever your underlying index is,
Speaker 8: you're still mostly owning the industries and the industry waitings,
Speaker 8: but you're tilting away from the worst companies that the
Speaker 8: client would disagree with. Yeah, and you're recreating the index,
Speaker 8: so it does. Yes, you're inviting tracking error. If a
Speaker 8: client really is like Adamant, I don't want several different
Speaker 8: industries or exposures to you could increase the tracking air
Speaker 8: a little bit, but most of what we've seen has
Speaker 8: been that the underlying portfolios do closely track the performance
Speaker 8: of the index.
Speaker 3: Does it make it so oil companies are just not
Speaker 3: in there because they don't have the E part of ESG.
Speaker 8: If it was a climate change focus for a client,
Speaker 8: or the E was the most important factor, then most
Speaker 8: likely those would not be included in the portfolio.
Speaker 1: But an automaker, that's still it's a lot of you know,
Speaker 1: traditional still gas burning cars, but they're increasingly moving into
Speaker 1: ev like do you have a conversation with an investor
Speaker 1: or yeah? Like how does something like that?
Speaker 8: Yeah, so we're not making the investment decisions necessarily. We're
Speaker 8: hiring outside managers to do that, and they have very
Speaker 8: finite data that can bring more to light in that conversation,
Speaker 8: and we can have that conversation with a client. But
Speaker 8: the data really is quite good, and we can show clients,
Speaker 8: you know, here's the companies that would fall into the portfolio,
Speaker 8: and here's what would be cut out. How do you
Speaker 8: feel about that?
Speaker 1: So it's that specific and you can kind of pick
Speaker 1: and choose.
Speaker 3: Yes, is the the objective you said is to match
Speaker 3: the major indices rather than beat them.
Speaker 8: Yeah, it's really the track this is, this is it's
Speaker 8: really a passive approach.
Speaker 3: There are neta fees.
Speaker 8: Uh so that's gross. Okay, yeah, the underlying indexes. I'm sorry,
Speaker 8: i just lost my train of thought.
Speaker 10: No, that's okay.
Speaker 3: I'm just wondering about the sales pitch when you're making
Speaker 3: it to clients. So it's like, okay, we're gonna in
Speaker 3: your portfolio, We're going to have your your portfolio is
Speaker 3: going to match the index. But it's going to not
Speaker 3: include the companies that don't necessarily align with your.
Speaker 8: Own value, right, I was gonna I was gonna mention that.
Speaker 1: Yeah, it's a Monday in August, you are giving you
Speaker 1: should have stated us earlier.
Speaker 3: Is absolutely correct.
Speaker 8: I was just gonna mention that in some cases, like
Speaker 8: in that direct indexing portfolio, you can tilt towards companies
Speaker 8: that maybe are the leaders on various ESG factors. Again,
Speaker 8: that would be specific to that client, but you maybe
Speaker 8: your portfolio'll be more tilted towards clean energy or different
Speaker 8: things like that.
Speaker 1: So basically an evolution of ESG.
Speaker 8: Yeah, I think it's this. This has been a huge
Speaker 8: evolution in the field in the last like ten or
Speaker 8: fifteen years, especially the last five. Right, Yeah, and a pushback.
Speaker 1: It's kind of fascinating to see. But thank you so much,
Speaker 1: really appreciate it. Budster Macky is partner and head of
Speaker 1: Impact Investing at Paragone Wealth and Management. Joining us right
Speaker 1: here in our interactive broker studio.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern Listen
Speaker 2: on Apple car Play, and then brout Auto with a
Speaker 2: Bloomberg Business app or watch us live on YouTube.
Speaker 3: You and I've been doing this together for quite a while.
Speaker 3: We have, including Wow four years.
Speaker 1: Yeah, if you think about it, it was the depth or
Speaker 1: I mean of the pandemic.
Speaker 3: Yeah, it was. Yeah, it really was. Think about back
Speaker 3: to that environment, if you will, and the pandemic was raging.
Speaker 3: Tensions in cities were high. People took to the streets
Speaker 3: to protest the murder of George Floyd around that time.
Speaker 3: We wrote a lot about this at Bloomberg News and
Speaker 3: at Bloomberg BusinessWeek. A lot of companies and stories about
Speaker 3: companies big and small joining the conversation making commitments of
Speaker 3: different types. Wells Fargo one of those companies. Four years ago,
Speaker 3: it committed more than four hundred million dollars to nonprofits.
Speaker 3: The idea was to help local businesses that were hit
Speaker 3: by the pandemic, so the nonprofits would deploy the cash
Speaker 3: to local businesses, and according to the Bank, the vast
Speaker 3: majority of those businesses they identified as racially and ethnically diverse.
Speaker 1: Darlene Goins is head of Philanthropy and Community Impact at
Speaker 1: Wells Fargo. Here to talk a little bit more about
Speaker 1: what they are up to and how it is going.
Speaker 1: She joins us from San Francisco. Darlene, nice to have
Speaker 1: you here. How are you?
Speaker 10: I'm great, Thanks for having me.
Speaker 1: Yeah, it's great to check in with you. Tell us
Speaker 1: how things are going. And you know, four years ago,
Speaker 1: you guys committed this big chunk of change formed million
Speaker 1: to those nonprofits that really helped out local businesses hit
Speaker 1: by the pandemic. Where are you in that and what's
Speaker 1: been the impact of it?
Speaker 10: Sure, so let me start by giving some context. So
Speaker 10: back in twenty twenty, the pandemic hit and immediately millions
Speaker 10: of small businesses, often those small businesses that help make
Speaker 10: communities feel like home, they immediately struggled. And so we
Speaker 10: really wanted to create a national inclusive small business recovery effort,
Speaker 10: and so we started by listening. We talked with our
Speaker 10: nonprofit partners that were in communities and asked them what
Speaker 10: they needed, and they said they needed flexible capital, flexible
Speaker 10: capital that could enable them to pivot to meet whatever
Speaker 10: the local community's needs were. And so our CEO, Charlie Sharf,
Speaker 10: decided to donate all of the gross processing fees that
Speaker 10: Wells Fargo earned from the government for administer during the
Speaker 10: Paycheck Protection program in twenty twenty and we created the
Speaker 10: Open for Business Fund, roughly four hundred and twenty million
Speaker 10: dollars that we deployed through flexible grants back into communities
Speaker 10: to serve small businesses. And if you fast forward then
Speaker 10: four years now, those more than two hundred nonprofits and
Speaker 10: community development financial institutions are telling us they were able
Speaker 10: to serve over three hundred and thirty six thousand small
Speaker 10: businesses and help create and preserve more than four hundred
Speaker 10: and sixty one thousand jobs in our local communities.
Speaker 3: Wow, what does a flexible grant mean?
Speaker 10: So, it means that the nonprofits can use the money
Speaker 10: in the best way that they need to use it. So,
Speaker 10: for example, they may use it to shore up loan
Speaker 10: loss reserves so that they can expand their credit box.
Speaker 10: They may use it to create new products such as
Speaker 10: no and low cost rants or loans that don't require
Speaker 10: collateral or loan modification products. So they really could use
Speaker 10: it very flexibly. And I would say the what we
Speaker 10: found successful was in addition to making that capital affordable
Speaker 10: for small businesses, where we had caps interest rates of
Speaker 10: three percent, they paired it with technical assistance. Those nonprofits
Speaker 10: in CDFI's delivered one point one million hours of technical assistance,
Speaker 10: more than half of that in a one on one
Speaker 10: format to those small businesses, many of whom were having
Speaker 10: to learn how to pivot from providing in person services
Speaker 10: to something virtual, and so it really was instrumental in
Speaker 10: being able to help these small businesses through these turbula.
Speaker 3: I'm wondering, you know, we're Bloomberg. We care about metrics.
Speaker 3: We follow the money and how it's doing, even when
Speaker 3: it comes to especially when it comes to philanthropy. If
Speaker 3: you could, I mean, is it fair to call this philanthropy?
Speaker 3: Is that how you would describe it?
Speaker 10: Yes, okay's philanthropy.
Speaker 3: So but but sorry, I just we'd only have a
Speaker 3: little bit of time, and I want to make sure
Speaker 3: we get to this. I want to know about the
Speaker 3: metrics when you follow it over the last four years,
Speaker 3: how it's been deployed, and how it's helped these businesses.
Speaker 3: Has it been effective?
Speaker 10: It absolutely has been effective. The great thing was because
Speaker 10: the nonprofits had this flexible capital and they could shore
Speaker 10: up their balance sheets, they were able to leverage our
Speaker 10: funding to attract other public and private investment to the
Speaker 10: tune of two point one billion dollars. And the other
Speaker 10: great thing is we saw from the data that the
Speaker 10: most in need small businesses were able to stay open.
Speaker 10: So seventy nine percent of the small business owners identified
Speaker 10: as racially or ethnically di verse, seventy two percent identified
Speaker 10: as low and moderate income, and fifty three percent were
Speaker 10: women owned small businesses.
Speaker 1: You know, one of the things I wanted to ask you,
Speaker 1: and like a lot of financial institutions or a lot
Speaker 1: of companies, like they go through cycles and they have
Speaker 1: their ups and downs, and certainly Wells Fargo's has been
Speaker 1: well documented over the past years and prior to Charlie
Speaker 1: Sharf taking over. But one of the things he said
Speaker 1: is that he wanted to, you know, clean up the
Speaker 1: banks many messes. Having said that, what have you guys
Speaker 1: learned as an institution, how have you evolved in terms
Speaker 1: of reaching out to, you know, those who need to
Speaker 1: be banked and are underbanked.
Speaker 10: Well, I think the Open for Business Fund is a
Speaker 10: perfect example of how we are investing in the entire ecosystem.
Speaker 10: So when we think about different small businesses, it's important
Speaker 10: to meet them where they are. And some may need
Speaker 10: a micro loan, Some may need a loan from a
Speaker 10: community development financial Institution or CDFI. Others may be ready
Speaker 10: to engage with a more traditional bank. But our investment
Speaker 10: spans all of those dimensions so that we can best
Speaker 10: meet small businesses where they are.
Speaker 1: How do you make sure you reach enough? Like, what's
Speaker 1: the metrics for measuring that?
Speaker 10: Well, we actually exceeded our expectations and going into this significantly.
Speaker 10: So we knew that we wanted it to be national,
Speaker 10: We wanted to be able to touch small businesses in
Speaker 10: every state. We knew that we wanted to be able
Speaker 10: to reach over one hundred and fifty thousand businesses, but
Speaker 10: we exceeded those expectations and being able to reach over
Speaker 10: three hundred and thirty six thousand. So we are definitely
Speaker 10: looking at ways that philanthropy can be a catalyst for
Speaker 10: attracting other investment as well as creating and preserving jobs
Speaker 10: in the local economy.
Speaker 3: Does it make you think about out making this an
Speaker 3: ongoing program rather than a one off program.
Speaker 10: Definitely, we are focused on what's next right now. In fact,
Speaker 10: Round three of the Open for Business Fund is still
Speaker 10: ongoing and it's about asset ownership. We recognize that as
Speaker 10: small businesses are really trying to scale to grow, asset
Speaker 10: acquisition is going to be really important, whether that is
Speaker 10: commercial property or equipment or technological infrastructure for their businesses.
Speaker 10: And so that piece is ongoing and it will continue
Speaker 10: through mid next year, and then hopefully soon we will
Speaker 10: have some new news to share about what's next in
Speaker 10: following the Open for Business Fund.
Speaker 1: Well, we look forward to that and checking in with
Speaker 1: you because it's certainly programs like this that help out
Speaker 1: communities and those that, like we say, that are unbanked
Speaker 1: or underbanked. I always important to have Darline. Thank you
Speaker 1: so much, really appreciate you checking in with us on
Speaker 1: this Monday. Darling Goyn's head of philanthropy and community impact
Speaker 1: over at Wells Fargo, joining us from San Francisco.
Speaker 2: Bromack a journal.
Speaker 1: How about you let me drive?
Speaker 3: Oh no, no, no, no, honey, please, I'll do the riding gravels.
Speaker 1: Let's wat, I want to drive. It's a good question.
Speaker 5: Good, this is good.
Speaker 2: Drive to the globe. Do for me? Well, Young Don
Speaker 2: on Bloomberg Radio.
Speaker 1: All right, everybody, just about eighteen minutes to go until
Speaker 1: we wrap up the trading day, the first trading day
Speaker 1: of the week, and because things have kind of it's
Speaker 1: not like a week ago last Monday, when everybody was
Speaker 1: using the word panic and concerned about what was going
Speaker 1: on in the financial markets. It's a much calmer day
Speaker 1: and so we wanted to do something a little bit differently.
Speaker 3: Yeah, we're joined by the CEO of a firm that
Speaker 3: says it's building AI to help make traders faster. Toggle
Speaker 3: AI is the company. It's backed by v Ease as
Speaker 3: well as Stint Drunken Miller and Thomas Petterfee. We should
Speaker 3: remind you that Thomas Petterfee is the chairman of Interactive Brokers,
Speaker 3: the sponsor of the Interactive Brokers studio. We got with us.
Speaker 3: Yon Silodgi, CEO of toggle AI, He joins us here
Speaker 3: in the studio. Yon, good to have you with us.
Speaker 3: How are you very well?
Speaker 6: Thank you, thanks for having me.
Speaker 3: So you're doing something pretty cool over at toggle you're
Speaker 3: a apart from you know, doing your doing other Among
Speaker 3: the things that you're doing is you're working with Microsoft
Speaker 3: to build out this chat GPT like LM for traders
Speaker 3: to use. What's the vision here.
Speaker 6: The vision for the team that really comes from the
Speaker 6: hedgefront background is to create a better platform to take
Speaker 6: advantage of all the data that we have available to
Speaker 6: make investing decisions.
Speaker 1: Right.
Speaker 6: You have research reports, you have time series data. There's
Speaker 6: just a lot going on every day. For example, just
Speaker 6: on Bloomberg, you have eighteen headlines per second. It's impossible
Speaker 6: for humans to absorb all of that and processant. So
Speaker 6: we've built a platform that allows a hedge fund investor
Speaker 6: to connect the dots faster, understand how things that are
Speaker 6: moving are impacting different assets they care about.
Speaker 1: Based on what data. What's the data that goes into
Speaker 1: this model.
Speaker 6: So we have a range of different data sources. We
Speaker 6: have data that come from company fundamentals. We get data
Speaker 6: from the Federal Reserve. We get data from example, from
Speaker 6: various research reports, company filings, company presentations, and so on.
Speaker 6: It's extremely wide ranging, and that's partly the point, because
Speaker 6: we think that with the help of AI, you're now
Speaker 6: able to look across all of these different types of
Speaker 6: data points.
Speaker 3: So you would essentially create or the firms that you
Speaker 3: sell the tool too, would create their own custom llms
Speaker 3: for whatever trades they're working on, right, because they wouldn't
Speaker 3: have the same inputs, because then it just becomes a
Speaker 3: commodity whereas everybody has where everybody has the same analysis
Speaker 3: of the information.
Speaker 6: Actually, maybe the way I would explain this is that
Speaker 6: you don't have to your own custom LLM. We use
Speaker 6: llms primarily as a way to help you navigate our system,
Speaker 6: so that instead of you having to press a button,
Speaker 6: you can say, I would like to know whether or
Speaker 6: not fast food restaurants do poorly when gasoline prices rise
Speaker 6: ten percent. It's the kind of instruction that you might
Speaker 6: give to an analyst, and then you rely on the
Speaker 6: system to go and do the analysis, fetch the data,
Speaker 6: and then give you the answer, and then you can
Speaker 6: have a little bit of a back and forth that way.
Speaker 6: But it relies on our proprietary knowledge graph to be
Speaker 6: able to connect these dots and say like, oh, actually,
Speaker 6: for gasoline prices, I'll use the first future and for
Speaker 6: fast food restaurants, I know which set of tickers I require.
Speaker 1: Yeah, And what would you have done though? During the
Speaker 1: pandemic when of the meme stocks which most would argue
Speaker 1: weren't necessarily trading on fundamentals, and it was the retail
Speaker 1: investor out in a big way. Like, how would you
Speaker 1: what data would you look at, how would you anticipate
Speaker 1: or how would you analyze something like that?
Speaker 6: That's a very different phenomenon to analyze because it obviously
Speaker 6: is something that hadn't really happened before, not in that
Speaker 6: kind of way. Right, the retail investor was really seen
Speaker 6: to have a lot more power than I think people
Speaker 6: had anticipated. So I would say that in that case,
Speaker 6: a system like ours would have relied a lot more
Speaker 6: on some of the sentiment data and some of the
Speaker 6: news as opposed to, for example, price data from ten
Speaker 6: years ago in so on. So if there's an event
Speaker 6: that doesn't have a lot of repeated occurrences, you need
Speaker 6: to be much more focused on things that are happening now,
Speaker 6: on what people are talking about in.
Speaker 1: Song, so like social momentum, social velocity for example.
Speaker 6: Yeah, those would be the types of analysis that you'd
Speaker 6: be looking at now that obviously can be a lot
Speaker 6: more wrong because again you don't have a lot of
Speaker 6: prior experiences to say like, oh, I can see what
Speaker 6: the connection is.
Speaker 3: Here, what is the LLM product different from other products
Speaker 3: that you're building as a company.
Speaker 6: So really we use foundational large language models, including the
Speaker 6: ones from open AI and others in order to do
Speaker 6: two things. We use them to extract information from a
Speaker 6: variety of different articles, and then we use them as
Speaker 6: a way for you to be able to use the
Speaker 6: analytics engines that are available to all of our users.
Speaker 6: The llms themselves are not different from what others might
Speaker 6: be using, but how we're using them is very different.
Speaker 3: How do you you mentioned, as an example, giving an
Speaker 3: LM a prompt that you would in the past maybe
Speaker 3: ask an analyst to do. Who are the winners and
Speaker 3: losers when it comes to jobs here? What's the adjustment here?
Speaker 3: Does the hedge fund not need that analyst anymore because
Speaker 3: it has this tool?
Speaker 6: So in this sort of we're currently only opening this
Speaker 6: up to a small number of hedgephons to kind of
Speaker 6: test the constant. But what we have seen immediately is
Speaker 6: that actually the analysts benefit because this is the sort
Speaker 6: of thing that they would have had to do. But
Speaker 6: where they really shine is trying to be forward thinking.
Speaker 6: So yes, you have to do the analysis to understand
Speaker 6: what has happened in the past and have some understanding
Speaker 6: of the sensitivities. But building a spreadsheet would have taken
Speaker 6: two or three hours of your time during which maybe
Speaker 6: you would have been able to do other things. So
Speaker 6: I think of this as us giving the superpowers to
Speaker 6: these users rather than replacing.
Speaker 3: Them, so augmenting their work one percent.
Speaker 1: But you know, I who's think about headphone guys, men
Speaker 1: or women or whomever are looking at things differently and
Speaker 1: have their own special algorithms that lets them find pockets
Speaker 1: of opportunity. In financial markets, if you're creating I'm just
Speaker 1: curious if that ultimately you're going to be creating data
Speaker 1: for more people to find those opportunities. Do those opportunities
Speaker 1: kind of go away? You know what I'm saying that
Speaker 1: if a lot of people are chasing and getting access,
Speaker 1: yay democratization of really sophisticated investing strategies, But the more
Speaker 1: they do it and get that advantage, does that advantage
Speaker 1: kind of go away?
Speaker 6: I think this is a great question and one that
Speaker 6: we have to think through very carefully. But I would
Speaker 6: give you a comparison, for example, with the Bloomberg terminal.
Speaker 6: By now, everybody in investing industry has one right and
Speaker 6: yet there are still opportunities that exist, and you would think, okay,
Speaker 6: but if everybody has access to the same data. Why
Speaker 6: do we still find these dislocations? Why do people still
Speaker 6: disagree similarly with the Togo terminal. We are looking specifically
Speaker 6: at how questions are being asked, and not everybody has
Speaker 6: the same risk capitite, Not everybody has the same investment
Speaker 6: horizon not asked the same questions, so the conclusions they
Speaker 6: arrive at could be very different.
Speaker 1: All right, got to ask you all and got about
Speaker 1: thirty seconds. You hold the record for the fastest Harvard
Speaker 1: Economics PhD. How quickly did you get it? Two and
Speaker 1: a half two and a half years? What does it
Speaker 1: normally take?
Speaker 6: I think it's about five.
Speaker 1: How'd you do that? Did you use chat EPT?
Speaker 6: I wish I had it, probably could have cut that
Speaker 6: down even more to the.
Speaker 1: Thesis or I believe it's chat PhD for very very
Speaker 1: cool stuff. Fun let us know how things go, I
Speaker 1: mean performance wise. I mean you guys have back tested it.
Speaker 1: You did doing the strategy, doesn't we tested.
Speaker 6: We back tested every day basically for all the insights
Speaker 6: and so on, and so there's a lot of curation
Speaker 6: that goes into that very.
Speaker 9: Very cool stuff.
Speaker 1: Yeah, thank you so much. Look forward to continuing this conversation.
Speaker 1: Jan Solgi He is chief executive officer of Toggle Ai.
Speaker 1: Joining us right here in our Bloomberg Interactive Broker Studio.
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Speaker 2: and oh my is on the Bloomberg terminal.
Speaker 8: Mm hmm