Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
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Speaker 2: Fast Bloomberg Intelligence with Alex Steele and Paul Sweeney.
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Speaker 6: On Today's Bloomberg Intelligent Show, We're going to dig inside
Speaker 6: the big business stories impacting Wall Street and the global markets.
Speaker 6: Each week we provide in depth research and data on
Speaker 6: some of the two thousand companies and one hundred and
Speaker 6: thirty industries our analysts cover worldwide. Today, we're going to
Speaker 6: discuss how Chinese AI startup Deep Seek challenge Silicon Valley's
Speaker 6: assumptions about the cost of artificial intelligence, plus why shares
Speaker 6: of jeff Blue Airways took a hit last week. But first,
Speaker 6: a look into corporate earnings from one of the largest
Speaker 6: wireless carriers in the US. TEA Mobile reported fourth quarter
Speaker 6: results that beat analyst projections, and the results were driven
Speaker 6: by growth and wireless subscriptions and home internet customers. For more,
Speaker 6: guest host John Tucker and Paul Sweeney were joined by
Speaker 6: t Mobile CEO Mike Sievert, and they first asked Mike
Speaker 6: for his take on the company's most recent earnings.
Speaker 7: We're just consistently outperforming expectations, and that's what the market
Speaker 7: looks for in a business like ours. We're taking share,
Speaker 7: we're growing, and then across the board we beat expectations.
Speaker 7: We just finished the strongest growth here ever in our history.
Speaker 7: And that's saying something because we have a story to
Speaker 7: growth history in this company and a lot of people
Speaker 7: wonder is the big growth run behind us, and we
Speaker 7: just demonstrated yet again, No, it's not.
Speaker 8: It's hard for me to get really excited about my
Speaker 8: mobile service provider. But your customers, it's like they were
Speaker 8: in a cult. What's the secret sauce? That's my softball question.
Speaker 7: You know, our value, our corporate values start with this
Speaker 7: basic idea. Love our customers, you know, give them more,
Speaker 7: ask less of them.
Speaker 5: And they notice. That's it's just a huge part.
Speaker 7: Of our brand, and we have this thing we do
Speaker 7: called T Mobile Tuesdays where every week customers come to
Speaker 7: our Tea Life app, which has fifty million users, and
Speaker 7: they engage to find out how are we rewarding them
Speaker 7: this week?
Speaker 5: Do you know what this week's was?
Speaker 7: We gave away a shack Burger like the world's best
Speaker 7: burger for free to every single teams Reflix.
Speaker 3: Absolutely so, Mike, this is you're in a competitive business.
Speaker 3: I think about the wireless business, the barriers to change
Speaker 3: are pretty minimal. Churn is always an issue. Your competitors
Speaker 3: are depocketed, they're good competitors. Is it just you guys
Speaker 3: switching customers all the time just for deals. Talk to
Speaker 3: us about the churn for your company.
Speaker 7: Your business well churns at historic lows across the industry,
Speaker 7: not just T Mobile. We just had our best churn
Speaker 7: year ever, So people aren't switching a lot when they
Speaker 7: are switching the net share takers tea Mobiles.
Speaker 5: This is a great trend. You know.
Speaker 7: I don't need for others to fail in order for
Speaker 7: us to succeed in our business. This is a great neighborhood.
Speaker 7: We just happen to be the best house in the neighborhood,
Speaker 7: and so we're out growing everyone. But this is a healthy,
Speaker 7: vibrant sector. Everyone's you know, growing and making money. I
Speaker 7: think that's great. Part of it is people can't get
Speaker 7: enough of the service that we all offer at T Mobile.
Speaker 7: You know, we just guide it again to a big
Speaker 7: year of revenue gains per customer. And that's not because
Speaker 7: of pricing. It's because customers are self selecting up our
Speaker 7: rate card to our higher priced offers because they see
Speaker 7: the superior value and they want what we have to sell.
Speaker 7: That's a great dynamic, not just for T Mobile, but
Speaker 7: for the industry.
Speaker 8: The growth strategy is organic or M and A or what.
Speaker 5: It's organic principally.
Speaker 7: I mean, we do have a number of M and
Speaker 7: A deals in the pipeline that we're intending to close
Speaker 7: this year, centered around fiber, centered around you know, other
Speaker 7: add ons. We're also in, you know, acquiring a cellular company,
Speaker 7: US Cellular.
Speaker 5: So but by far, the.
Speaker 7: Growth is an organic growth story focused on taking share,
Speaker 7: adding revenues, deepening relationships with the existing customers that now
Speaker 7: number well past one hundred million.
Speaker 8: I don't understand like outdoor advertising, what does that have
Speaker 8: to do with your business.
Speaker 7: Yeah, we just announced the acquisition of a company called Vistar,
Speaker 7: and you know we are in We're a billion dollar
Speaker 7: advertising support company already, so it's a significant business for us.
Speaker 7: We call it marketing services for marketers buy marketers. T
Speaker 7: Mobile is a very famous marketer, and marketers want services
Speaker 7: from us, so we provide that already. But our Tea
Speaker 7: Life app part of what it does is it asks
Speaker 7: customers buy the millions whether they would like to opt in.
Speaker 7: Opt in to make their digital life better and their
Speaker 7: advertising more relevant.
Speaker 5: And then we can use.
Speaker 7: Data to provide marketers with an ability to put advertising
Speaker 7: in front of customers that they will actually appreciate.
Speaker 5: And our dream with place.
Speaker 7: Based marketing, outdoor marketing, that's the Vistaar acquisition is to
Speaker 7: do that for the first time ever in outdoor advertising,
Speaker 7: so that for the first time outdoor advertising, place based
Speaker 7: advertising can become an addressable market.
Speaker 5: Yeah, it's interesting. I love the outdoor business. You can't
Speaker 5: switch channels on that.
Speaker 3: I took all those companies public back in the day. Apple,
Speaker 3: Mark German Bloomberg News. Apple has been working with SpaceX.
Speaker 5: And T Mobile on starlink. What is starlink?
Speaker 7: Okay, So this is the ability to connect your mobile
Speaker 7: phone directly to satellite service. This is a huge breakthrough.
Speaker 7: We announced our intention to partner with SpaceX over two
Speaker 7: years ago, and now finally it's coming to market. With
Speaker 7: opening of our beta a couple of weeks ago. We're
Speaker 7: bringing on thousands of users and soon way more than that.
Speaker 7: We're going to throw the doors open on this thing.
Speaker 7: If you can see the sky, you're connected.
Speaker 8: That's our visual the iPhone app.
Speaker 5: That's correct.
Speaker 7: These are lower th orbit satellites, easier for your phone
Speaker 7: to find and vice versa. But this country, you guys,
Speaker 7: has five hundred thousand square miles uncovered by any cellular network,
Speaker 7: and it's a massive part of our land mass, and
Speaker 7: we're about to close that coverage.
Speaker 8: Okay, So if I uh on my bucket list is
Speaker 8: a trip to the South Pole, I don't need cellular
Speaker 8: service down there. I could just use a T mobile
Speaker 8: iPhone Starling.
Speaker 7: Well, I'm gonna have to check on how good the
Speaker 7: l EO coverage is. But one of the things you
Speaker 7: point out and very quickly to follow our terrestrial coverage
Speaker 7: across the continental US and big parts of Alaska is
Speaker 7: the world's oceans that. That's a big piece of this
Speaker 7: because you know now you'll be able to not right away,
Speaker 7: but as soon as we are able to turn it on,
Speaker 7: you'll be able to get your service across the US
Speaker 7: and as you travel around the oceans outside the reach
Speaker 7: of any cellular See.
Speaker 8: It's in beta testing right now. It's just confined to messaging.
Speaker 7: Hundreds of satellites are in the air where we have
Speaker 7: a free beta service going on. We're starting to let
Speaker 7: people into it. Right now it's text messaging only, but
Speaker 7: fast to follow will be light data services and eventually voice.
Speaker 8: So I can get rid of my satellite phone. We
Speaker 8: don't need that anymore.
Speaker 5: I think the time will come when that's the case.
Speaker 3: Top line growth four to five percent for you guys,
Speaker 3: that's how I think about the wireless business. Is that
Speaker 3: all pricing? If so, how do you think about the
Speaker 3: pricing environment out there?
Speaker 7: It's sharetaking and self selecting up our rate card, you know,
Speaker 7: very little pricing. And so those are the big dynamics.
Speaker 7: Postpaid service revenue growth eight percent, more than double the
Speaker 7: rate of our peers. And so this is you know,
Speaker 7: a dynamic that makes t mobiles so different in this
Speaker 7: space because we're not only growing the top line, but
Speaker 7: we're translating it into financial growth on the bottom line.
Speaker 7: Twenty five percent year over year growth and cash flows
Speaker 7: seventeen billion dollars are highest ever.
Speaker 8: Now, how do you raise prices? You sort of touched
Speaker 8: on this just briefly before, but how do you raise
Speaker 8: prices without scaring away your cult members?
Speaker 7: Cult members? Well, one thing is people. You know, we
Speaker 7: have a rate card with a variety of options, and
Speaker 7: people choose at an increasing rate the prices that are
Speaker 7: higher up because they want what we have to sell.
Speaker 7: Do you know that sixty percent of our new customers
Speaker 7: coming in the front door choose one of our two
Speaker 7: most premium plans because those are the ones that are
Speaker 7: most packed with value. And they you know, they're here
Speaker 7: for a reason. They want more data, they want the
Speaker 7: experience that T Mobile can provide with the world's best
Speaker 7: five G network.
Speaker 3: Subscriber acquisition costs have how are they trending for you
Speaker 3: guys these days?
Speaker 7: They're pretty flat, and that's good. We're very comfortable with
Speaker 7: this business model. It's a high CLV, you know, value exchange.
Speaker 7: One of the things about this business it's reliable, it's predictable.
Speaker 7: We do what we say, we try to exceed what
Speaker 7: we say, and it's growing and that's one of the
Speaker 7: things that really distinguishes us in a group of peers,
Speaker 7: not just in the US, but around the world.
Speaker 8: There is a fed meat today. Can you tell me
Speaker 8: how if it all rates affect your business?
Speaker 7: Well, we're a big debt issuer, so obviously it's relevant
Speaker 7: in the long haul.
Speaker 8: What's the debt right now?
Speaker 7: With two point five leverage against debit, so it's you know,
Speaker 7: it's very significant eve as in the thirty one, you know,
Speaker 7: very significant debt, but it's also a stack that's you know,
Speaker 7: investment grade, it's long term, it's you know, spread out,
Speaker 7: so it doesn't affect us in an immediate way, but
Speaker 7: in the long taul of course, as a debt.
Speaker 5: It what would you like that leverage ratio to be
Speaker 5: right where it is?
Speaker 8: Okay?
Speaker 3: Market structure in the wireless business three main players? Okay,
Speaker 3: is there room for fourth? And I think about my
Speaker 3: old friend Charlie Oregon. I have for the last fifteen years,
Speaker 3: I had no idea what he's doing with a spectrum,
Speaker 3: and I don't think the market knows either.
Speaker 7: Well, he's operating you know, a major brand and Boost Mobile.
Speaker 7: And the other thing is the cable companies, Charter and
Speaker 7: Comcasts taken together, who don't overlap, kind of constant to
Speaker 7: an additional carrier ass going well, and you know, they
Speaker 7: are really growing their mobile service at a significant pace,
Speaker 7: not as significant as us. We're the growth leaders, but
Speaker 7: it's you know, it shows that this is a vibrant market.
Speaker 5: Yeah, with a lot of competition in the smaller market.
Speaker 8: So that's a big deal for you too, right.
Speaker 7: Yeah, forty percent of the country everything that's not the
Speaker 7: top one hundred markets we call smaller markets in rural areas.
Speaker 5: It's a huge source of our growth right.
Speaker 6: Now, thanks to Tea Mobile CEO Mike Sivert. We move
Speaker 6: next to the auto sector. This week General Motors gave
Speaker 6: a better than expected outlook for profit in twenty twenty five,
Speaker 6: but President Trump's recent tear of threats have raised uncertainty
Speaker 6: about the automaker's business. As a result, GM shares dropped
Speaker 6: as much as ten percent on Tuesday, and for more.
Speaker 6: We were joined by Steve Mann, Bloomberg Intelligence, Global Autos
Speaker 6: and Industrials research analyst.
Speaker 9: Yeah, I think the you know, Scott had a nice
Speaker 9: run up last year. You know, the management team has
Speaker 9: done a great job and actually managing and investors and
Speaker 9: managing the challenges that's in the US market that the
Speaker 9: other company, Ford and stilentas have been facing. I think
Speaker 9: the expectation has actually ran up through last year, and
Speaker 9: you know, we got some negative news, mixed news in
Speaker 9: terms of the outlook. You know, the tone has changed.
Speaker 9: You know, this is the first time that GM actually
Speaker 9: is a little bit worried about the end market since COVID.
Speaker 10: Well, what have we learned.
Speaker 6: About GM and its actual EV units? Like, we're sales
Speaker 6: better than expected, Like is the trough passed?
Speaker 9: Yeah, it sales, especially in the fourth quarter, it did
Speaker 9: run up. Some of that may be some channel inventory
Speaker 9: stock building anticipation of better sales than twenty twenty five,
Speaker 9: and that's one of the key issues. I think the
Speaker 9: investors are concerned. There's a you know, there's going to
Speaker 9: be a mixed change. They think that EV sales increase
Speaker 9: EV sales will offset some of the more profitable truck
Speaker 9: sales in twenty twenty five. So, you know, based on
Speaker 9: our estimates, like it seems like even their adjusted EBIT
Speaker 9: margin of eight to ten percent, maybe a little bit
Speaker 9: too high, and they may fall actually at the low
Speaker 9: end of that range or maybe even below our.
Speaker 6: Thanks to Steve Mann, Bloomberg Intelligence Global Autos and Industrials
Speaker 6: Research channelist. Coming up, we're going to break down some
Speaker 6: key corporate earnings in the aerospace industry. You're listening to
Speaker 6: Bloomberg Intelligence on Bloomberg Radio, providing in depth research and
Speaker 6: data on two thousand companies and one hundred and thirty industries.
Speaker 6: You can access Bloomberg Intelligence through Bigo. I'm the Terminal,
Speaker 6: I'm Alex Steele, and this is Bloomberg.
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 2: weekdays at ten am Easter what Apple CarPlay and the
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Speaker 2: wherever you get your podcasts, or watch us live on YouTube.
Speaker 6: We move next to the aerospace industry. This week, Boeing
Speaker 6: report or did a four billion dollar operating loss in
Speaker 6: the fourth quarter. Boeing CEO Kelly Ordberg said he will
Speaker 6: realign the company around key business lines and cleave off
Speaker 6: fringe assets. Separately, Jet Blue shares had a record plunge
Speaker 6: after the carrier forecasted weaker than expected revenue and higher
Speaker 6: costs for twenty twenty five. For more, we were joined
Speaker 6: by George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst.
Speaker 6: We began by asking George about Boeing and one of
Speaker 6: the worst was over for the company.
Speaker 11: Look, it seems like it's always hard to say the
Speaker 11: worst is over. It seems like the trend is definitely
Speaker 11: going the right direction. It seems like twenty twenty five
Speaker 11: could be the year they thought twenty twenty four was
Speaker 11: going to be. Look, you know, I heard a lot
Speaker 11: of positive things about the manufacturing process in the call.
Speaker 11: I think that's why Boeing pre announced. They wanted to
Speaker 11: get some of the you know, the forward chargers out
Speaker 11: of the way so people could focus on the message.
Speaker 11: And I think the message was the factory, especially for
Speaker 11: the seven thirty seven, has restarted in the new year.
Speaker 11: It's building in the mid twenties range going to thirty eight.
Speaker 11: It sounded like somewhere near midyear, which is probably before
Speaker 11: where most of consensus thought it would get. I'm gonna
Speaker 11: and the year close to forty two is what I
Speaker 11: think I heard. I mean, management kept trying to solve
Speaker 11: pedal it to a degree, and what I heard is
Speaker 11: quality as spirit aerosystems improving. They're happy with it. They
Speaker 11: don't think it's a liminar. I mean, all that's positive
Speaker 11: for profitability and cash flow. Boeing should make this year
Speaker 11: a lot better than last year if it all comes true.
Speaker 3: Where should that seven three seven build number be in
Speaker 3: a perfect world, Georgia, I'm trying to gauge the thirty
Speaker 3: eight number, the forty number, the forty two number, versus
Speaker 3: where it should be, maybe versus where Airbus is with
Speaker 3: their product.
Speaker 11: Well, I guess I would say if you were at
Speaker 11: the Boeing board level, would you not say it should
Speaker 11: be in the sixties, somewhere well above Airbus. Look Boeing
Speaker 11: ended the last decade before the pandemic sort of driving
Speaker 11: closer to sixty builds a month. They have plenty of
Speaker 11: back laws. I don't think it should be at sixty
Speaker 11: a month now, but I would expect they should be
Speaker 11: driving hard towards sixty a month as we go into
Speaker 11: the middle of the back half of this decade. That's
Speaker 11: a little complex, Sorry about that, but you know the
Speaker 11: twenty seven's twenty eighths. I think that sixties ought to
Speaker 11: be a number they'd be looking at given the backlog,
Speaker 11: And look, where should they be right now? Maybe they
Speaker 11: should be, you know, close to fifty. So they're I mean,
Speaker 11: they're what, they're halfway to that level they probably should
Speaker 11: be at right now. This is the money maker, this
Speaker 11: is the one they want to really optimize.
Speaker 6: And no, no, I was going to say, I mean,
Speaker 6: it's always like at least it could be worse. I
Speaker 6: guess right, because it has been worse, So there's something there.
Speaker 6: I do want to switch and talk about Jet Blue
Speaker 6: for a second, because Paul and I are just really
Speaker 6: confused to the extent to which Jet Blue is getting
Speaker 6: beaten down. We know the costs will higher than estimated,
Speaker 6: but what do you make of that price action?
Speaker 11: Yeah, so, I mean I think they're Look, the big
Speaker 11: service carriers, I think showed slightly better results than we
Speaker 11: had expected, right, And so I think if you were
Speaker 11: looking at the entire airline space, you could be confused
Speaker 11: that those better numbers would carry through to the economy carriers,
Speaker 11: to the more basic economy carriers. And I think what
Speaker 11: Jet Blue told us it didn't right. Jet Blue lives
Speaker 11: in a really difficult part.
Speaker 10: Of the market.
Speaker 11: They are you know, they're low cost plus they have
Speaker 11: some premium seating and I say low costs, but they're not.
Speaker 11: Their costs are not as low as like a Frontier,
Speaker 11: a spirit an Allegiance. And so we think at the
Speaker 11: bottom of that market and the basic economy world, your
Speaker 11: best advantage is to be able to deliver seat miles
Speaker 11: as cheap as possible because you're getting customers on price,
Speaker 11: where if you're up in the United American right delta
Speaker 11: world you get people on loyalty programs and premium seating
Speaker 11: and things like that. We know the back end of
Speaker 11: this business is really competitive, and it's hard for like
Speaker 11: the Jet Blues in Southwest to survive in a world
Speaker 11: where you've got to just deliver the really cheapest seat price.
Speaker 11: And they're having a hard time doing that given the upstarts.
Speaker 11: And when they show us an eight percent increase in
Speaker 11: cost per available seat mile in one queue, no operating
Speaker 11: profit that gets concerning that the worst isn't behind us
Speaker 11: on excess budget seats in the marketplace.
Speaker 3: Can we get some consolidation in that lower end of
Speaker 3: the market now with this new administration, George.
Speaker 11: Look, we could. I think the bigger ones could. I
Speaker 11: think Jet Blue could consolidate somebody underneath them or somebody
Speaker 11: about the same size. I don't think they'd allow Southwest
Speaker 11: to go out and buy somebody, but I think you
Speaker 11: could at the bottom end. Plus, you have some that
Speaker 11: are hurting, right, you have Spirit airlines. Question is can
Speaker 11: they survive. That could take some capacity out of the marketplace.
Speaker 11: The challenges the planes don't go away. They're built, they're aluminum,
Speaker 11: they last third years. Someone gets the airplanes. Where do
Speaker 11: those airplanes go? Do they go out of market? They
Speaker 11: go in market. But you could get some consolidation too.
Speaker 6: Thirty seconds RTX you cover some of the defense guys.
Speaker 10: RTX doing well.
Speaker 11: Yeah, they showed some nice numbers. The guidance for next
Speaker 11: year was nice as well. Look, they have a lower
Speaker 11: I think view on how much original equipment deliveries they'll
Speaker 11: make next year. That I think is probably practical, especially
Speaker 11: given what Boeing said. So they kind of looked for
Speaker 11: mid single digits growth in that original equipment deliveries. I
Speaker 11: think Boeing and Airbus alone with narrow body deliveries are
Speaker 11: going to be twelve ish percent. It'll be interesting to
Speaker 11: see how that plays out, because the more that original
Speaker 11: equipment they deliver, the more PRESSUREUS margins.
Speaker 6: All right, thanks to George ferguson Bloomberg Intelligence and your Aerospace,
Speaker 6: Defense and Airlines analyst. This week we focus on a
Speaker 6: Bloomberg Big Take story titled deep Seek Challenges Silicon Valley's
Speaker 6: assumptions about AI costs. You can find it on Bloomberg
Speaker 6: dot Com and the Terminal. The story looks at how
Speaker 6: Chinese AI startup called deep Seek released a new open
Speaker 6: source AI model called r one that can mimic human reasoning,
Speaker 6: and the release sent shock waves to the US tech industry,
Speaker 6: with tech companies analyzing how deep Seek built its chatbot
Speaker 6: and whether it did as cheaply as it claimed. For more,
Speaker 6: we were joined by Rachel Metz, Bloomberry AI reporter, and
Speaker 6: we first asked Rachel what the feeling is in Silicon
Speaker 6: Valley after the latest news.
Speaker 10: We're hearing a bunch of different things.
Speaker 1: I mean, I think some people are a little alarmed,
Speaker 1: a little bit surprised, but I think there's also a
Speaker 1: lot of excitement. Frankly, I mean some of it may
Speaker 1: boil down to sort of what your goals are what
Speaker 1: your job is. I think you're seeing a lot of
Speaker 1: interest and excitement, such as from companies that sell these
Speaker 1: AI models to other people, like sell the usage of them,
Speaker 1: a company like Data Bricks or cohere. I think they're
Speaker 1: really interested in seeing where this goes. Data Bricks CEO
Speaker 1: told me that they have a ton of customer interest
Speaker 1: in us Deep seeks, so that's really interesting to them
Speaker 1: from a customer perspective. But you could also see how
Speaker 1: companies that are making these models might be like wait
Speaker 1: a minute, yeah.
Speaker 6: Well, and I guess the question is how soon can
Speaker 6: can Silicon Valley replicate the model that Deep Seek created.
Speaker 1: Well hugging face, which does a wide variety of things
Speaker 1: including deploying their own models, hosting other people's models, stuff
Speaker 1: like that. They're doing it right now, actually, so they
Speaker 1: were replicating it and making it available to people, and
Speaker 1: I think they're going along at a pretty good clip.
Speaker 1: So other people could be doing that as well. And
Speaker 1: that's the sense that I get that they that they
Speaker 1: are starting to you know.
Speaker 3: We've obviously Nvidia and other chip names took just a
Speaker 3: huge hit, and I guess that kind of calls into question.
Speaker 3: Investors are questioning do we need this much spending. If
Speaker 3: somebody can come in here and do it as such
Speaker 3: a discount, how is that argument kind of festering in
Speaker 3: your backyard.
Speaker 1: Yeah, I mean I think that people rightfully were a
Speaker 1: little bit concerned, right and you saw.
Speaker 5: The stocks really drop.
Speaker 1: But on the other hand, you're still going to be
Speaker 1: needing chips for all kinds of things, including AI processes.
Speaker 1: And it's important to keep in mind that these AI
Speaker 1: models that are mimicking the ways that humans reason, they're
Speaker 1: still very new. There aren't that many of them at
Speaker 1: this point. They're just not very far along, so it's
Speaker 1: not clear yet how much compute. The compute in these
Speaker 1: cases is often you're using a lot more of it
Speaker 1: at the end of the process than you would have
Speaker 1: with different types of models, so it'll be interesting to see.
Speaker 1: It would be. One thing that's important to keep in mind, though,
Speaker 1: I think, is that a number of companies have been
Speaker 1: trying to make their models more efficient for a while.
Speaker 1: I mean, efficiency could be great, it could be great
Speaker 1: for the environment, it could be great for these companies
Speaker 1: in terms of keeping costs down. So I think that's
Speaker 1: why you see a lot of people excited about this.
Speaker 6: Well, Also, I thought it was interesting in Vidia's statement
Speaker 6: on deep Sea it was twofold. It was like, Hey,
Speaker 6: they totally have complied with any restrictions on chips from
Speaker 6: the government and they still were able to accomplish it,
Speaker 6: and we're super pumped about it. That feels like it's like,
Speaker 6: please don't put more tearffs on chips learning from the US.
Speaker 10: Is that in the zeitgeist at all in Silicon Valley,
Speaker 10: Not that I've heard, to be honest.
Speaker 1: I mean, there may be people talking about that, but
Speaker 1: I feel like most people are concentrating more on the
Speaker 1: idea that this company has done something that appears to
Speaker 1: be quite interesting, and they've made some really smart decisions
Speaker 1: and they're a really smart team, and I think a
Speaker 1: lot of people just find that really fascinating and they
Speaker 1: want to know how they can do it too.
Speaker 3: What do you expect to hear from some of the
Speaker 3: big tech companies that report over the next couple of
Speaker 3: weeks their earnings as it relates to AI and kind
Speaker 3: of maybe how the ball field maybe changing.
Speaker 1: Ooh ah, that's a good question. I mean, I'm sure
Speaker 1: they're thinking about this and looking at this. I mean,
Speaker 1: what it would probably make sense to hear more remarks
Speaker 1: about efficiency. Frankly, I mean that seems to be what
Speaker 1: this company has done in a few different areas, and
Speaker 1: I would be curious to see if other companies are
Speaker 1: thinking about how they can do that. I mean, I
Speaker 1: would assume investors would like that if they're being more
Speaker 1: efficient with how they're spending money and using resources.
Speaker 6: Thanks to Rachel Mattz, Bloomberg AI reporter, coming up in
Speaker 6: the program, a look at why HSBC will wind down
Speaker 6: it's investment banking operations in Europe, the UK and the Americas.
Speaker 12: If you don't have the operations, say on Wall Street
Speaker 12: in the City of London, continental Europe, how meaningful can
Speaker 12: you be to those types of clients in Asia and
Speaker 12: the Middle East when they want to do stuff around
Speaker 12: the world. You know, it's all very well obviously saying
Speaker 12: you know, we're very big in Middle East and Asia,
Speaker 12: will service use there. But when it comes to being
Speaker 12: able to offer some kind of global perspective, maybe being
Speaker 12: somewhat lacking then and I think that's going to be
Speaker 12: the area that's going to be interesting to watch.
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Speaker 6: Moved next to the municipal bond market. It's looking like
Speaker 6: a big year for unis in twenty twenty five, with
Speaker 6: investors looking at high yield municipals to generate strong demand.
Speaker 6: For more on this, we were joined by Nora Whitstruck,
Speaker 6: chief Municipal Analytical Officer at SMP Global Ratings. We spoke
Speaker 6: to Nora live from BAM Mutual offices in New York City.
Speaker 13: Generally in twenty twenty five, I like to say that
Speaker 13: the municipal sector is cautiously stable. A lot of state
Speaker 13: and local governments are coming into twenty twenty five still
Speaker 13: sort of writing some high liquidity and reserve levels based
Speaker 13: on the COVID relief based still oh yeah, you know,
Speaker 13: they had to commit it all by the end of
Speaker 13: last year, but they had to they have to spend
Speaker 13: it all by the end of twenty twenty six, so
Speaker 13: they still have some in their coffers generally, and I
Speaker 13: think also the economy has been pretty good and that
Speaker 13: helps state in local governments and other entities that we
Speaker 13: rate in terms of the demand that they see for
Speaker 13: their services.
Speaker 6: When it comes to something we've been talking about the
Speaker 6: last hour and a half or so, are the impact
Speaker 6: of natural disasters and the LA wildfires, Like how do
Speaker 6: you deal with ratings and natural disasters like that?
Speaker 13: So we bake risk into our ratings, as you might
Speaker 13: imagine as credit analysts.
Speaker 6: And but that probably wasn't on anyone's BINGO card.
Speaker 13: So we In California, the state has inverse condemnation, which
Speaker 13: means utilities, even if they are not negligent, can be.
Speaker 10: Liable for sparking a wildfire if any of their equipment
Speaker 10: is involved.
Speaker 13: That's right, closet yep, absolutely so. Actually, LADWP, we lowered
Speaker 13: from double A to double A minus a few years
Speaker 13: ago because they choose as a decision not to de
Speaker 13: energize their lines relative to wildfires, and that's fine for
Speaker 13: them to do that. It's different than some of their
Speaker 13: peers in California who do do that. But because of that,
Speaker 13: they decide that because they're based in an urban area,
Speaker 13: they don't want to shut off their traffic lights. They
Speaker 13: think that the risk trade off between the wildfire and
Speaker 13: human costs are are not equal. So we lowered their ratings,
Speaker 13: and I think part of that is the inverse condemnation,
Speaker 13: but also it's just the fact that utilities are particularly
Speaker 13: susceptible to infrastructure damage during a severe weather event, whether
Speaker 13: it be a wildfire, a hurricane, flooding. So it's all
Speaker 13: been baked into our ratings. The actions that we took
Speaker 13: on LADWP, we're partly reflecting a recalibration of that risk
Speaker 13: as wildfires have come into more urban areas versus where
Speaker 13: they historically have a cur and rural communities.
Speaker 3: I guess in response to the LA fires, President Trump
Speaker 3: I think is voiced some displeasure with FEMA and even
Speaker 3: suggesting maybe some of the disaster relief responsibilities at the
Speaker 3: federal level FEMA be put down at the state and
Speaker 3: local level. Can states and local municipalties afford that kind
Speaker 3: of stuff?
Speaker 13: Well, we've historically said that FEMA is an important credit
Speaker 13: support for state and local governments. These disasters are increasing
Speaker 13: in frequency and increasing in cost, and absent federal aid,
Speaker 13: you know, that would be a significant pressure for them,
Speaker 13: and absorbing all of the costs is just probably a
Speaker 13: little unsustainable at the current reading levels. I think what
Speaker 13: we are watching for is what he actually decides to do.
Speaker 13: Does he still decide to maintain the federal aid and
Speaker 13: shift it to a block grant for states and then
Speaker 13: states are responsible for allocating it, or you know, does
Speaker 13: disaster relief go away entirely? Those are two very different
Speaker 13: dyna that we have to monitor in terms of how
Speaker 13: I relate.
Speaker 10: What are the different options.
Speaker 6: Then for those two scenarios, how would that impact How
Speaker 6: would each impact the mini market?
Speaker 13: So I think if even a lower level of disaster
Speaker 13: relief for state and local governments, right now, they typically
Speaker 13: get somewhere between seventy and ninety percent of the costs
Speaker 13: reimbursed from the federal government. If that goes to twenty percent,
Speaker 13: that's something that we'd have to consider. If that goes
Speaker 13: to zero, that's a whole nother decision on our part
Speaker 13: to determine what the liquidity and reserves of state and
Speaker 13: local governments and entities that we rate need to maintain
Speaker 13: as a buffer against these types of disasters. Now, if
Speaker 13: it just shifts from FEMA being the allocator and the
Speaker 13: distributor of funds to states in terms of a block grant,
Speaker 13: that probably could be even like a non concern.
Speaker 3: For us, if you will, all right, as a credit
Speaker 3: rating agency, you get paid to worry.
Speaker 10: We get paid to work.
Speaker 3: Aside from natural disasters, which can be an overwhelming topic,
Speaker 3: what are more of some pedestrian things that concern you?
Speaker 13: Well, you know, I think generally we look at long
Speaker 13: term liabilities, right, so pensions and how is state and
Speaker 13: local governments and other entities that we rate manage their
Speaker 13: pension systems. Typically it's managed at the state level.
Speaker 10: What does that mean?
Speaker 13: We are increasingly seeing more people retire, so how do
Speaker 13: those costs get baked into the budget? States in particular
Speaker 13: are a safety net for Medicaid, and that's something that
Speaker 13: President Trump has also spoken about in terms of modifying
Speaker 13: that plan. States get a lot of money to support
Speaker 13: people that are vulnerable and need to be in those programs.
Speaker 13: How could that change the way states function and what
Speaker 13: they need to allocate resources to. I think we also
Speaker 13: watch labor productivity and labor workforce dynamics. I think, you know,
Speaker 13: one of the things that we noted after the election
Speaker 13: is that immigration has been good for our workforce in
Speaker 13: the It has really lowered the cost and the tightness
Speaker 13: of the labor market. That has turned into high increases
Speaker 13: in salaries and personal costs for state and local governments
Speaker 13: and entities that we rate. So a major change in
Speaker 13: border security could tighten that labor market right back up,
Speaker 13: and that could put additional cost pressures back onto these
Speaker 13: entities that we rate.
Speaker 6: I mean, on the flip side, does it actually take
Speaker 6: away some of the state aid though?
Speaker 13: Also so it could definitely be a bit of a boost.
Speaker 13: Right So, New York City in particular, with asylum seekers,
Speaker 13: had to absorb a significant billions of dollars in additional
Speaker 13: costs to help those individuals as they come come into
Speaker 13: the city. That could definitely be a bit of a
Speaker 13: relief valve for them if that were to change. I
Speaker 13: think too, you know, there could be some cost savings
Speaker 13: relative to medicaid, relative to other social services that they
Speaker 13: need to participate in to you know, come survive once
Speaker 13: they get to in the US. So that definitely there
Speaker 13: could be some offsetting improvements in cost savings relative to
Speaker 13: credit quality.
Speaker 3: Maybe you can explain to me how life works in Florida. Yeah, okay, Texas,
Speaker 3: no state taxes. How do they build schools and roads
Speaker 3: and things like that? Because my stated my property taxes
Speaker 3: are really high. Yeah, you know New Jersey.
Speaker 13: I mean I own a five hundred and fifty square
Speaker 13: foot condo and my property taxes are ten thousand dollars
Speaker 13: in New York City.
Speaker 5: So I hear you on that.
Speaker 13: What happens in states that don't have an income tax,
Speaker 13: typically they securitize other forms of revenue. So they securitize
Speaker 13: gas taxes, they securitize sales taxes, they securitize property taxes,
Speaker 13: which is typically the way most state and local governments
Speaker 13: secure the debt obligations that they have outstanding is through
Speaker 13: property taxes. So, yeah, you're right, those taxes are high,
Speaker 13: and some of it will go to paying off debt
Speaker 13: obligations for the entities that we rate.
Speaker 10: You don't feel good about that?
Speaker 3: Yeah, why do I have to pay these high taxes.
Speaker 3: Everybody's moving to Florida to escape taxes.
Speaker 10: It's true. No one likes paying the taxes exactly.
Speaker 6: Yes, Well, what are some other key things that are,
Speaker 6: uh that you guys are talking about right now, like
Speaker 6: on the desk.
Speaker 13: Yeah, so I think, you know, we're definitely watching federal policy.
Speaker 13: We're definitely watching how aspects of affordability cut across all
Speaker 13: of our sectors.
Speaker 10: So, you know, I was the housing.
Speaker 13: Sector lead before I was the chief analytical officer, and
Speaker 13: we were watching, you know, the lack of housing inventory
Speaker 13: and how that was affecting the entities that we rate,
Speaker 13: like state housing finance agencies and social housing providers, public
Speaker 13: housing authorities, how they're navigating that particular aspect. But it's
Speaker 13: playing out everywhere. So water utilities and public power utilities,
Speaker 13: some of which operate in La County.
Speaker 10: We've been watching how.
Speaker 13: They're raising rates to not only pay for deferred maintenance,
Speaker 13: but also for investment for adaptation into wildfires and other
Speaker 13: severe weather events.
Speaker 10: Some have been a little.
Speaker 13: Bit lax in doing that because it's been expensive to
Speaker 13: live in America right We've had an inflationary environment, We've
Speaker 13: had higher costs associated with food. We've had a higher
Speaker 13: cost associated with utilities. Insurance premiums are going up for
Speaker 13: property and casualty insurance. So all of those things are
Speaker 13: weighing on management teams and they're looking at how they
Speaker 13: can dampen those costs as much as possible.
Speaker 6: Our thanks to Norah Woodstruck, chief Municipal Analytics Officer at
Speaker 6: SMP Global Ratings, and to BAM Mutual for hosting us
Speaker 6: at their offices. We turn out as some news in
Speaker 6: the banking sector. This week, we heard that HSBC will
Speaker 6: wind down its investment banking operations in Europe, the UK,
Speaker 6: and the Americas. The firm roll instead focus on its
Speaker 6: operations in Asia and the Middle East.
Speaker 10: For more.
Speaker 6: We are dorned by Harry Wilson, Bloomberg Finance reporter, and
Speaker 6: we asked Harry if this news was actually a surprise.
Speaker 12: It's something that we've probably expected that could happen over
Speaker 12: the years. The truth is that HSBC has really been
Speaker 12: nowhere on Wall Street and in the city for some
Speaker 12: years now. It struggled to even get into the top
Speaker 12: ten when you look at sort of major league tables
Speaker 12: like equity underwriting or em and A. So the idea
Speaker 12: that they're just now kind of giving up on this thing,
Speaker 12: realizing that they can't compete with the likes of Gold
Speaker 12: and Sacks, JP Morgan, and that actually they'll just be
Speaker 12: better off focusing their resources on markets where they do
Speaker 12: have some scales, such as Middle Eastern Asia. Makes a
Speaker 12: lot of sense. So I guess short answer, timing wise, surprise.
Speaker 12: Longer term, no, I don't think it's particularly surprising that
Speaker 12: they're taking these actions.
Speaker 3: So, I mean this kind of goes to me, Harry
Speaker 3: kind of a bigger question, which is these European banks,
Speaker 3: can any of them be global investment banks? I mean,
Speaker 3: twenty years ago, I don't think we would have seen
Speaker 3: this happen.
Speaker 12: I think it's very difficult. European banks have faced these
Speaker 12: type of problems going decades now. Many have tried to
Speaker 12: make some kind of impact on Wall Street, and many
Speaker 12: of them have come back having spent hundreds of millions
Speaker 12: and got really nothing for their investment. The simple fact
Speaker 12: is that Wall Street is something of a lockout by
Speaker 12: the US major firms. And even when you get the
Speaker 12: likes to say Barklings, which was able to buy off
Speaker 12: the PEG the Leman operations in two thousand and eight
Speaker 12: even they've struggled to make much of it. And I
Speaker 12: guess the issue is that if even a bank like HSBC,
Speaker 12: the largest bank in Europe, can't really make this thing work,
Speaker 12: then it makes a question about how anyone else, without
Speaker 12: their type of scale, without their type of profitability, could
Speaker 12: expect to make much of an inroad.
Speaker 6: What's the opportunity, said, if you flip it to for
Speaker 6: Asia and Middle East for HSBC.
Speaker 12: Obviously these are fast growing regions, so you've got a
Speaker 12: lot more economic activity, a lot of growth coming in Asia.
Speaker 12: You've got a lot of money in the Middle East.
Speaker 12: You know, every day we see headlines about a Middle
Speaker 12: East hedge fund being involved in some deal or another.
Speaker 12: So these are good places to be a big bank.
Speaker 12: The question really is is if you don't have the operations,
Speaker 12: say on Wall Street in the City of London, continental Europe,
Speaker 12: how meaningful can you be to those types of clients
Speaker 12: in Asia and the Middle East when they want to
Speaker 12: do stuff around the world. You know, it's all very
Speaker 12: well obviously saying you know, we're very big in Middle
Speaker 12: East and Asian will service you there. But when it
Speaker 12: comes to being able to offer some kind of global
Speaker 12: perspective maybe being somewhat lacking there, and I think that's
Speaker 12: going to be the area that's going to be interesting
Speaker 12: to watch here is whether HSBC, if it doesn't have
Speaker 12: the stuff around the world and is purely focused on
Speaker 12: Asian and Middle East, whether that is still a good
Speaker 12: proposition to its clients in those regions that maybe want
Speaker 12: a more worldwide global network offering.
Speaker 6: All right, thanks to Harry Wilson, Bloomberg Finance Reporter. That's
Speaker 6: this week's edition of Bloomberg Intelligence on Bloomberg Radio, providing
Speaker 6: in depth research and data on two thousand companies in
Speaker 6: one hundred and thirty industries. And remember you can access
Speaker 6: Bloomberg Intelligence through Bigo. I'm a terminal, I'm Alex Steel.
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