Speaker 1: This is Bloomberg Business Wait inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
Speaker 2: Tim, I don't know about you, but I feel like
Speaker 2: disaster has been.
Speaker 3: Everywhere apocalyptic the past couple of years. Right, Yeah, No,
Speaker 3: it really.
Speaker 2: Has global pandemic, wildfire's, Russian invasion of Ukraine. It's all
Speaker 2: over the place. And our next guest wants to help
Speaker 2: us prepare for that. He's the founder of an AI
Speaker 2: nonprofit that's focused on disaster preparedness, and he joins us
Speaker 2: now to discuss the product and of course the AI space,
Speaker 2: because we've got to talk about that.
Speaker 4: Phil.
Speaker 2: Great to speak with you. Phil Siebele joining us on
Speaker 2: zoom here. Seagull rather the founder of Captor Center for
Speaker 2: Advanced Preparedness and Threat Response Simulation. Phil, thanks again for
Speaker 2: coming on. Start by just telling us a little bit
Speaker 2: about what you're I does.
Speaker 5: So what we are is the intersection of artificial intelligence
Speaker 5: and gaming war gaming. The basic idea is to better prepare,
Speaker 5: we need to create a set of threats that are
Speaker 5: plausible that we some of which we've experienced, some of
Speaker 5: which we haven't experienced, and then run them through simulation
Speaker 5: games to train our our crisis management personnel UH and
Speaker 5: our politicians and decision makers to make better decisions.
Speaker 6: And I think, you.
Speaker 5: Know, we could say, you know, with a lot of
Speaker 5: the types of crises we've had over the last several years,
Speaker 5: you know, maybe we have a fair amount of room
Speaker 5: for improvement. We use artificial intelligence both to generate these
Speaker 5: scenarios UH and also to help the quote unquote players
Speaker 5: in the game make better decisions.
Speaker 3: What are some of the games that you've simulated?
Speaker 5: Yeah, so we've done. We created a new virus and
Speaker 5: ran a game with the Rockefeller Foundation, like a.
Speaker 3: Real virus, like a I mean, like a not a
Speaker 3: computer virus. We're talking like an actual you know, COVID
Speaker 3: like virus.
Speaker 5: Yes, yes, it wasn't COVID like. It had a very
Speaker 5: different characteristic. It came from livestock in the US, which
Speaker 5: is actually quite common, but it had very different characteristics.
Speaker 5: And we ask scientists to figure out what was going
Speaker 5: on and whether or not it was going to be
Speaker 5: a high, medium, or low threat to a regional population.
Speaker 5: We've created a game actually for City of Austin emergency
Speaker 5: management personnel to see how well the different departments that
Speaker 5: are supposed to respond to a threat like this would respond.
Speaker 5: And we're building games right now for scientists who are
Speaker 5: members of a group at the New York Academy of Sciences.
Speaker 5: So we're building a lot of games. We're using artificial
Speaker 5: intelligence to you know, really come up with some creative scenarios,
Speaker 5: but plausible scenarios. And that's you know, what we're seeing
Speaker 5: is that with more practice, just like pilots with a
Speaker 5: flight simulator, people do a better job when they practice.
Speaker 2: All right, So obviously you are part of the AI
Speaker 2: bucket that we have become obsessed with in the first
Speaker 2: half of this year. So I do want to get
Speaker 2: your take on the space while we have you, because
Speaker 2: it's seen so much attention, and I have to wonder
Speaker 2: if the fundamentals back up some of the prices that
Speaker 2: we've seen for these big names like the end videos
Speaker 2: of the world. What is your calculation and your thinking
Speaker 2: when it comes to the AI rally that we've seen,
Speaker 2: and which of these names are going to continue to
Speaker 2: make it?
Speaker 6: Yeah, So in my day job.
Speaker 5: I'm a private equity manager, so I think that, you know,
Speaker 5: the old adage of picks and shovels kind of win
Speaker 5: in the early days is probably fairly true here. I
Speaker 5: think that I don't know whether you would say in
Speaker 5: Nvidia is over Christ, but I would say that having
Speaker 5: it run up given it to the by far leader
Speaker 5: in the chip space, which is the ultimate pick and
Speaker 5: shovel here makes a lot of sense. There's other you know,
Speaker 5: products like that, or there's other pieces like their supply chain.
Speaker 5: You've seen a lot of run up in those stocks
Speaker 5: as well, and you know those seem we know those
Speaker 5: are going to benefit from what we're doing. Once you
Speaker 5: get past that, it gets a little murkier. I don't
Speaker 5: think we yet know whether the producers of the large
Speaker 5: language models, the the you know, the the ones that
Speaker 5: have made the big splash, are going to have viable
Speaker 5: business models. Yet we we haven't seen that. In fact,
Speaker 5: it's not clear to me whether the large language model
Speaker 5: makers are going to be the winners or people who
Speaker 5: are experts at helping companies do small language models are
Speaker 5: going to be the winners in the space. So there's
Speaker 5: still a lot of uncertainty and cloudiness, I think for
Speaker 5: the next several years.
Speaker 3: Well, Phil, as you mentioned your JAY job is in
Speaker 3: private equity. You've been an investor in private companies, venture
Speaker 3: backed companies, You've been a professor, you were a BCG
Speaker 3: as a managing director and partner for many years. Where
Speaker 3: does your passion for AI come from and for trying
Speaker 3: to create an organization that helps with disaster preparedness?
Speaker 5: Yeah, so I volunteered during the pandemic to work with
Speaker 5: BCG on helping some of their government clients respond to
Speaker 5: the COVID emergency and saw through that work that we
Speaker 5: have a lot of opportunity to practice. You know, again,
Speaker 5: I kind of thought about the analogy of when you
Speaker 5: get on an airplane, if you heard that your pilot
Speaker 5: hadn't been in a flight simulator, you'd be pretty alarmed. Yet,
Speaker 5: you know, with a lot of our disaster preparedness and
Speaker 5: crisis management, we aren't doing that type of work every
Speaker 5: year we do. You know, obviously, this group of people
Speaker 5: is highly educated and hard working, but I would like
Speaker 5: to see them every year spending time honing their skills
Speaker 5: so that they're more ready and better. And that was
Speaker 5: that was really what caused me to want to co
Speaker 5: found this, uh this this ng O if you will,
Speaker 5: or nonprofit.
Speaker 3: Well, where does the where does the AI come from?
Speaker 3: And and are you at all concerned about AI in
Speaker 3: the sense of it being a threat to humanity?
Speaker 1: Yeah?
Speaker 5: I I uh, well, that's two very different questions, so
Speaker 5: I'll focus on the second. I'm I'm less worried about,
Speaker 5: you know, the scenarios we see in the movies like
Speaker 5: I Robot or Terminator to where the AI becomes sentient
Speaker 5: and on its own decides it's going to destroy humanity.
Speaker 5: I am very worried that bad actors are going to
Speaker 5: use these technologies and are already using these technologies to
Speaker 5: do bad acts, and that's what we need to be
Speaker 5: protecting against in the short term.
Speaker 2: Thirty seconds, Phil, who are some of the companies and
Speaker 2: names that should not be jumping on AI and investing
Speaker 2: heavily into the AI space.
Speaker 5: Yeah, it's a good question, and I'm not one hundred
Speaker 5: percent sure how to answer it other than to say
Speaker 5: I think there are some sectors where they really need
Speaker 5: to be thinking about, especially capital intensive sectors, where if
Speaker 5: they change the basic business model through investing in AI,
Speaker 5: they can lower the barriers to entry, they might have
Speaker 5: new entrants come in, whether it's the mining and exploration
Speaker 5: industry and so forth. You don't want to bring in
Speaker 5: new entrants that you don't have to. But on the
Speaker 5: other hand, you need to lower your operating costs, and
Speaker 5: so it's a race.
Speaker 2: Yeah, and it's all about capital allocation. At the end
Speaker 2: of the day, Phil, thank you so much for joining us.
Speaker 2: We're going to have to bring you back on. Phil Siegel,
Speaker 2: founder of CAPTORS. That's the Center for Advanced Preparedness and
Speaker 2: Threat respond Simulation, among many other resume lines.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 2: First, we're going to put our economist hats on Tim
Speaker 2: not Broadline today.
Speaker 3: Did you I did?
Speaker 2: Yeah, took it on the train with you, on the
Speaker 2: train with me. Here's the thing, a simple economics rule
Speaker 2: that helps us suss out whether the US is in
Speaker 2: a recession. It's getting called into question by its own creator.
Speaker 2: It's called the Psalm rule, and it's architects the architect
Speaker 2: rather is worried that her creation has become a monster.
Speaker 2: That's the headline of the Business Week story we're focusing
Speaker 2: on today, which you can find on the terminal, of course,
Speaker 2: at Bloomberg dot com. Here to discuss the breakdown with
Speaker 2: us is Bloomberg BusinessWeek editor Joel Weber and the reporter
Speaker 2: on this story and occurr in Joel.
Speaker 7: It's all in the Did you describe this as a
Speaker 7: simple economic rule?
Speaker 4: Is there such a thing? I just want to clarify it.
Speaker 4: Is there such a thing?
Speaker 6: I won't pretend it's simple. I won't pretend I even
Speaker 6: fully understand the mechanics of it. So that's a brave call.
Speaker 4: Okay, all right?
Speaker 3: So what does does he feel better? And that makes
Speaker 3: me feel better?
Speaker 7: I honestly I had never heard of the some rule.
Speaker 7: So break it down for us? And what uh, you
Speaker 7: know what everybody's talking about here?
Speaker 6: So the clods. First of all, she's a very accomplished economist.
Speaker 6: She had a long career at the FED. She had
Speaker 6: a stint in the White House as well, and at
Speaker 6: her time at FED. In twenty nineteen she published this
Speaker 6: this rule or this measure, which essentially looks for increases
Speaker 6: in unemployment in a real time way and looks for
Speaker 6: how it looks for the increased relatives to the average,
Speaker 6: the three month average compared to the low point of
Speaker 6: the year before. Point being, it's a real time weight
Speaker 6: to gauge. Oh, look, the job market might be turning.
Speaker 6: Jobs are being lost. And the second part of it
Speaker 6: is that that's a warning sign to governments, or the
Speaker 6: US government in particular, that we're in a recession and
Speaker 6: so it's time to start getting money out to those
Speaker 6: who need it fast. So that's the key point about it.
Speaker 6: It's a real time gauge. It looks at the labor market,
Speaker 6: and that's much faster than the current system of gauging
Speaker 6: when there's a recession, which is an eight member committee
Speaker 6: that come together and often don't diagnose it until a
Speaker 6: year after the event.
Speaker 4: So how did she create a monster? Because that's the
Speaker 4: fun part exactly. Yeah.
Speaker 6: So the issue here is that it's got it's got
Speaker 6: two things. First of all, people are kind of talking
Speaker 6: about it in the sense of forecasting that much of
Speaker 6: anted the US recession. Will it won't it? And our
Speaker 6: point is it's not a tool for forecasting recessions. It's
Speaker 6: an indicator to say when we're in a recession. And
Speaker 6: second point of it is, it's just got tied up
Speaker 6: in this whole broader tug of war of will the
Speaker 6: US fall inter session, will it not? What's the s rule,
Speaker 6: sam Room rule telling us when her point is that
Speaker 6: this was meant to be an indicator that look, people
Speaker 6: are losing their jobs and the governments need to get
Speaker 6: money out straight away because that mitigates offsets whatever damage
Speaker 6: your session might be coming. So she she just feels
Speaker 6: that it's getting caught up in the maelstream of this
Speaker 6: whole seft landing debate.
Speaker 3: Well, she said to you, the whole point of it was, Okay,
Speaker 3: we need to get people help, because if you can
Speaker 3: get in at the beginning of a recession, you can
Speaker 3: do so much to soften the blow. The issue is
Speaker 3: the consumer has been so resilient, The American consumer has
Speaker 3: been so resilient. So yeah, this has been pretty humbling,
Speaker 3: not just for her but for for so many economists.
Speaker 6: Yeah. So in terms of you know, the rule itself,
Speaker 6: you know this policy advice that she was giving, say
Speaker 6: pre pandemic. Ultimately, it's what the Trumpet administration did is
Speaker 6: that when people are losing their jobs, they put money
Speaker 6: into people's households, upset the worst of their session. So
Speaker 6: it kind of did follow the policy prognosis. But you're right,
Speaker 6: the real crux of this is where we are now.
Speaker 6: You know, the job market is softening somewhat. There's a
Speaker 6: lot of talk that the economy will soften with Claudia
Speaker 6: Aslam is making the point that, look, if unemployment was
Speaker 6: to go up somewhat and you know, mechanically trigger her rule,
Speaker 6: that suggests it's passing a threshold that the economy might
Speaker 6: be going into her session. So the jobless rate was
Speaker 6: to go up, but the actual economy doesn't go into
Speaker 6: her session, she'll be fine with that. She doesn't mind
Speaker 6: if her rule is proven, is tested, so to speak,
Speaker 6: are even proven to be inaccurate in this occasion, as
Speaker 6: long as it means the US pulls off of self lanning.
Speaker 6: And she's in the camp that the there doesn't need
Speaker 6: to be your session to bring down inflation. At the moment,
Speaker 6: she thinks inflation is on a glide path lower. You
Speaker 6: don't need to blow up the job's market. She said,
Speaker 6: it's still possible that happens, but she thinks it's a
Speaker 6: path for self lanning, and that's her whole that's her
Speaker 6: whole point about it. If her rule is proven wrong
Speaker 6: this time jobbles raid goes up a touch, but there
Speaker 6: is no recession, She'll be fine with that.
Speaker 2: She also just sounds funny to me. She said that
Speaker 2: she created a monster. She said she never she was
Speaker 2: surprised she ended up at the FED, even though she's
Speaker 2: obviously a genius and created this rule. She would love
Speaker 2: to see this break. What were your impressions of her.
Speaker 6: Clothly's very accomplished the columns, like you just mentioned, a
Speaker 6: long career in the public sector, a lot of academic research,
Speaker 6: PhD from Michigan. She's proved. She has a proven track
Speaker 6: record behind her. Clodly also was on the front line
Speaker 6: of pushing for the diversity debate at the FED when
Speaker 6: she was there. We spoke a lot about that. She
Speaker 6: said the institution has come a long way compared to
Speaker 6: the time she was there. And of course we got
Speaker 6: into the world of social media, because that's also a
Speaker 6: big part of the story that the economic debate has
Speaker 6: moved from say the wholes of universities and maybe the
Speaker 6: opinion pages of newspapers into this real time back and
Speaker 6: forward sort of punch bowl on Twitter, et cetera.
Speaker 7: And Clonia herself like thinks he knows he's talking about
Speaker 7: I know. That's when you know we've got a problem.
Speaker 3: Just wait till the Stenevec rule. Just wait until that happens.
Speaker 4: Rules called Friday five and I'm out of the area
Speaker 4: six six.
Speaker 3: But En, you bring up a really good point, because
Speaker 3: she is, she's huge on Twitter, and she she does
Speaker 3: such spent she's I mean, I haven't I must confess
Speaker 3: I have taken a break from Twitter lately. But X
Speaker 3: whatever it's called. She she's and she writes for Bloomberg Opinion.
Speaker 3: I mean, she's out there.
Speaker 6: He used to be very out there as well, very vocal.
Speaker 6: I mean, she wrote a blog post in twenty twenty
Speaker 6: that was highly critical of some very senior peers in
Speaker 6: the Eglamus field and she named them. So that caused a
Speaker 6: big stary at time. And you know, she was on
Speaker 6: the front edge of a lot of sharp exchanges on
Speaker 6: Twitter as well. But you know, Claudia has pulled back
Speaker 6: from Twitter. She made that point. She took a couple
Speaker 6: of breaks, a couple of months.
Speaker 4: Off of it.
Speaker 6: She's back on it now just to publish her research.
Speaker 6: She's not interested in getting involved in the back and
Speaker 6: forth the hot take debates. In fact, she said she
Speaker 6: stays off Twitter and the hot take days, the hot
Speaker 6: take the will obviously be the Jobs Day on Friday.
Speaker 6: She's hearing well clear of that.
Speaker 4: She's got all these rules.
Speaker 7: I wouldn't know the rest of the rules actually, Okay,
Speaker 7: So you right that if she get it get it right.
Speaker 7: In economics, textbooks will be rewritten, get it wrong, and
Speaker 7: the credibility of central bank will be damaged in the
Speaker 7: US economy, doomed to stagflation.
Speaker 4: Which way is it trending so far? And when will
Speaker 4: we know?
Speaker 7: We've got to you know, textbooks require some you know,
Speaker 7: forward planning.
Speaker 6: Right here, right now, there's this window that the US
Speaker 6: can pull this off, that they can get inflation down,
Speaker 6: that data has been heading in the right direction, inflation
Speaker 6: is coming off, and maybe they can navigate some sort
Speaker 6: of a soft landing without the kind of massiver session
Speaker 6: that some people were warning about. Now, if that happens,
Speaker 6: that puts your own Powell in the whole of legends
Speaker 6: up there with Vulkar in terms of global central bankers
Speaker 6: who pulled off the impossible. But there are a lot
Speaker 6: of people who push back and say it's too soon
Speaker 6: to say mission accomplished. We don't yet know what the
Speaker 6: full impact of these rate hikes will be. We don't
Speaker 6: yet know if inflation is going to come all the
Speaker 6: way back down the word it should be in people
Speaker 6: on the street. They're feeling the impact of these price
Speaker 6: rises over the past few years. So there's another camp
Speaker 6: out there saying, hang tight for another six months or
Speaker 6: so and see where we are.
Speaker 4: Then you just didn't vote to Volker.
Speaker 7: I'm actually curious if pulls this off, who becomes.
Speaker 4: More of a legend, Volker or pal.
Speaker 6: It's an interesting question. I think if Powell pulled this off,
Speaker 6: it would be seen to be quite a feat because
Speaker 6: there's a backstory. You could say, hang on, central banks
Speaker 6: missed how all this inflation was building up anyway, But
Speaker 6: when they went they went very hard to federally doing
Speaker 6: all those massive rate hikes seventy five base of points
Speaker 6: at a time. A lot of people being very critical,
Speaker 6: you're going to blow up the economy. Don't need to
Speaker 6: do this. And if they do pull this off and
Speaker 6: get inflation, then on a glide path. It looks like,
Speaker 6: you know, would put the US in pretty good order
Speaker 6: compared to some of its peers around the world. Part
Speaker 6: of what's going on Europe, for example, And I think, well,
Speaker 6: then would maybe take something up a victory lot.
Speaker 4: But I just retire just like I'm done.
Speaker 3: I think Joel brings up a good point end. I mean,
Speaker 3: because you know, Vulcar had to raise rates to what
Speaker 3: close to twenty percent in the early nineteen eighties, and
Speaker 3: if Powell pulls this off with rates around five percent.
Speaker 6: An unemployment went to eleven percent. Yeah, the Vulgar I mean.
Speaker 6: And you know, under Powell, unemployment fell to three point
Speaker 6: four percent in February, which was the lowes since nineteen
Speaker 6: sixty nine. So the fairly different circumstances. Maybe we're seeing
Speaker 6: the birth of the Powell rule here.
Speaker 4: We don't yet know. Did you just coin that? That's good?
Speaker 4: So original? I fear that I just jinxed everything.
Speaker 3: Oh yeah, great, Joel crash Landing, Oh Weber.
Speaker 2: I would love for you to be the leading indicator
Speaker 2: of our economy, Joel.
Speaker 7: Just you know, there are some people on Twitter x
Speaker 7: who have written how the Business Week covers are we are?
Speaker 2: You know, that's really I don't know about this. Can
Speaker 2: you explain once.
Speaker 7: We talk about it, it means it's late and and everything.
Speaker 3: Like once on the cover I brought down the dollar.
Speaker 7: The dollar was very strong, and then we did the
Speaker 7: cover story and it was less strong.
Speaker 3: I will push back on that. I think it's like,
Speaker 3: there's no perfect record here, but there's like, you know,
Speaker 3: there's a couple prominent ones.
Speaker 4: Get we get you know, every once in a while, we.
Speaker 3: Hold you is like an oracle.
Speaker 7: Okay, speaking of oracles, can we talk about into some more?
Speaker 4: Because he was busy this week and he wrote about Barbie.
Speaker 7: I was hoping, Yeah, you know, let's just stay with
Speaker 7: cool things, like, I mean, some world pretty cool. You
Speaker 7: didn't know about that, but maybe you knew about Barbie
Speaker 7: with tell us about what you wrote for today's newsletter.
Speaker 4: End up. Yeah.
Speaker 6: So the toy industry has been in a bit of
Speaker 6: a slowdown this year because you know, it's coming off
Speaker 6: to the highs of the pandemic when people are buying
Speaker 6: so much of that stuff. This year, stores have been
Speaker 6: running down to inventory less buying of toys, especially from Asia.
Speaker 6: Of course, so I touched base with a couple of
Speaker 6: manufacturers and said, hire are things looking and one of
Speaker 6: those I spoke to you. He's one of the biggest
Speaker 6: makers of toy dinosaurs in the world, and he said
Speaker 6: he can't wait for this year to be over. So
Speaker 6: the thinking is that the Barbie effect, the Barbie effect,
Speaker 6: might give it all boats a lift. I mean, Mattel
Speaker 6: themselves are talking about they're expecting a lift from the
Speaker 6: Barbie chain of products. And of course there's a thinking
Speaker 6: that might get people back in the toy stores and
Speaker 6: spending money on other products too, And that's what it's
Speaker 6: time maker I spoke to he's making the point that
Speaker 6: he's hoping for a lift towards the end of the
Speaker 6: year because certainly buying toys hasn't been an everyone shopping
Speaker 6: list so far in twenty twenty three.
Speaker 7: Wait a second, did you say the world's biggest manufacturer
Speaker 7: of dinosaurs, one of the biggest.
Speaker 6: Yeah, and he also makes chat him out of the
Speaker 6: talking Hamster.
Speaker 4: He's got a rank product.
Speaker 7: We've got questions about that, but let's stay with dinosaurs.
Speaker 7: So the dinosaur business is difficult right now.
Speaker 6: Well, so he sells, he makes and sells for some
Speaker 6: of the biggest brands in the US, and his point
Speaker 6: was that they a lot of these stores have built
Speaker 6: up inventory. They bought so much back during the pandemic
Speaker 6: because they wanted to get ahead of supply chain problems
Speaker 6: and everything else. They needed to just get the stuck in.
Speaker 6: But now, of course I have to run down through
Speaker 6: all of that stock. So his order book hasn't been
Speaker 6: good this year, that was the point he was making,
Speaker 6: But he's hoping that it will turn now towards the
Speaker 6: end of the year with store report that inventory are
Speaker 6: being run down, and of course the US consumer is
Speaker 6: holding up stronger and expected. Throw a bit of Barbie magic,
Speaker 6: a bit of Barbie sprinkle on top of that, and
Speaker 6: maybe people might start splashing splashing the plask again on
Speaker 6: toys this year.
Speaker 4: Okay, what was the hamster thing?
Speaker 6: And he also he also has a tucking hamster, which
Speaker 6: he makes all of this. He makes all of this
Speaker 6: out of me as it's an old conduct of mind,
Speaker 6: but he sells it to Europe and the US and
Speaker 6: one of his products is a tucking hamster.
Speaker 3: Is this what does this remember? Tickle me ono?
Speaker 8: Like?
Speaker 4: Is this that's a throw hamster? Is this like?
Speaker 3: Is this going to be?
Speaker 6: Like?
Speaker 3: What everyone wants for the holiday.
Speaker 7: I love the arbitrage. Make this in Asia, sell you're
Speaker 7: talking himster Europe.
Speaker 4: Don't do it in the US. Don't. You're being the
Speaker 4: big market though.
Speaker 3: So the idea here is that people are going to say, Okay, well,
Speaker 3: Barbie's still hot right now, we're gonna add Barbie to
Speaker 3: our shopping list for the holidays. And while we're at
Speaker 3: the toy store while we're on I don't know why
Speaker 3: even say toy store, while we're online, we're going to
Speaker 3: add some other toys, some g I Joe's, some talking hamsters,
Speaker 3: and some dinosaurs.
Speaker 6: That's certainly dinosaurs and Barbie seamless. But that's certainly the
Speaker 6: hope among a couple of manufacturers that I spoke to.
Speaker 4: Well, I wonderful.
Speaker 2: Materializes Mattel's biggest product sales as you know, and is
Speaker 2: it's hot wheels. It's not Barbie, right.
Speaker 6: Yeah, but they were saying in their earnings report last
Speaker 6: week that they are hoping for pick up from Barbie increasing.
Speaker 4: By the Barbie, by the hot wheel to go with it.
Speaker 7: Also, it's really I p and that was, you know,
Speaker 7: exactly what the Barbie cover story in Bloomberg Business was
Speaker 7: Week was about perhaps the leading indicator of the toy economy.
Speaker 4: We'll find out more. Yeah, and the weeks and.
Speaker 2: Months ahead, and when we get the Super Mario Brothers
Speaker 2: movie expected in twenty twenty five, it'll it'll.
Speaker 7: Get moved forward because it's everybody wants more. Mario shout
Speaker 7: out to two stories in one episode right now, that.
Speaker 4: One segment that we've talked about.
Speaker 7: Amazingly, he has more content in the magazine, like he's
Speaker 7: a busy guy.
Speaker 4: But we're not even going to talk about that one.
Speaker 4: Maybe we'll do another segment.
Speaker 3: Yeah, all right, well it's only Tuesday, so and you
Speaker 3: got to come back. It's good to have you business
Speaker 3: guys this afternoon. And also Joel, always great to have
Speaker 3: you that voice you're hearing Bloomberg Business We get her
Speaker 3: Joel Weber and also Bloomberg Global Economy Reporter and a
Speaker 3: current talking about the soam rule in Barbie only we
Speaker 3: can marry you know, Barbie in an economic That was
Speaker 3: a really good transition, Joel.
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Speaker 3: For the past three years, something has happened in my
Speaker 3: home state of California that has never happened before. It's
Speaker 3: lost population. More than five hundred thousand residents have fled,
Speaker 3: relocating to cheaper locales like Texas and Arizona. But despite
Speaker 3: what you may have heard from some high profile venture capitalists,
Speaker 3: it's not the wealthy who are leaving. It's not the
Speaker 3: wealthy who are struggling. In fact, the wealthy are doing
Speaker 3: really well. They're flourishing in California. This year through July,
Speaker 3: California's billionaires aut a two hundred seventy billion dollars in
Speaker 3: wealth that's acquorated to the Bloomberg Billionaires Index, attracts more
Speaker 3: billionaires in the state than in any country except for China.
Speaker 3: Bis Carson is Bloomberg News Wealth reporter. She wrote that story.
Speaker 3: She joins us this afternoon from San Francisco from our
Speaker 3: bureau in San Francisco. BIZ, good to have you with us.
Speaker 3: You've lived in California for a while, haven't you.
Speaker 8: Yeah, it's ten years now in California, so that's quite
Speaker 8: some time.
Speaker 3: So how is the narrative where you've been in Silicon Valley?
Speaker 3: How has it shifted? What made you want to explore
Speaker 3: this story?
Speaker 8: Well, I think there's been a big shift in California.
Speaker 8: I don't think you can deny. You know, there has
Speaker 8: been a historic population loss in the state, but the
Speaker 8: last ten years have been a huge time of wealth generation,
Speaker 8: particularly in Silicon Valley. You've seen it in Hollywood. The
Speaker 8: state is richer than ever and so when we got
Speaker 8: our hands on some tax data from the state of California,
Speaker 8: we realized it was something new to me, just the
Speaker 8: record number of millionaires that had been created in over
Speaker 8: the pandemic time period. And it's a wealth creation that
Speaker 8: we haven't seen before in the state.
Speaker 2: And I wonder too, why we're not seeing more of
Speaker 2: the Ken Griffin movement. I guess why aren't we seeing
Speaker 2: some of the wealthiest people say I don't want to
Speaker 2: pay the taxes to be here anymore.
Speaker 8: We've seen a few people like Elon Musk and Larry Elson,
Speaker 8: I think are the two biggest names to say we're leaving,
Speaker 8: but a lot of people are staying. But it's not
Speaker 8: necessarily something that they're bragging about, like, oh, I love
Speaker 8: paying my higher taxes. I'm so excited to stay in
Speaker 8: California these days. Like it's just not part of the conversation.
Speaker 8: It's a more part of the conversation when you're looking
Speaker 8: at the weather and it's beautiful, seventy degrees compared to
Speaker 8: the rest of the country.
Speaker 3: Way to rub it in, Yeah, it's always very it's beautiful.
Speaker 8: I'd wear a jacket to day it was very cold.
Speaker 8: And so you're not seeing kind of this, you know,
Speaker 8: you're seeing it from a handful of people who are
Speaker 8: beating the drums saying California is time to go. But
Speaker 8: the people who are staying here, the people who are
Speaker 8: getting even richer, you know, don't have as load of
Speaker 8: a voice. And I think that was kind of the
Speaker 8: counter narrative we found in this data, is to say, wait,
Speaker 8: there's more millionaires here than ever. Even if you think
Speaker 8: that everyone's up and left.
Speaker 3: It's wild this data that you got your hands on, biz,
Speaker 3: I'm going to read right from your story.
Speaker 4: Okay.
Speaker 3: In total, more than two hundred and eighty eight thousand Californians,
Speaker 3: or seven tenths of one percent of residence, So that's
Speaker 3: close to one percent of residents reported over a million
Speaker 3: dollars in income in twenty twenty one, So you almost
Speaker 3: have one every one hundred people in twenty twenty one
Speaker 3: getting a million dollars in income.
Speaker 8: The thing that's said that's income, Ye, income, So I
Speaker 8: own a house that's a million dollars or we're talking
Speaker 8: income that they're reporting on their taxes and the caveat, Yeah,
Speaker 8: it's the caveat hoarding. Yeah, it's typically where we think
Speaker 8: it's an underestimation of the millionaires because a lot of people,
Speaker 8: when they get to a certain level of wealth, you know,
Speaker 8: they're reducing their personal income tax burden and shifting around,
Speaker 8: taking out debt, other things. So we think it's likely higher.
Speaker 8: But this is the bare minimum of what we know
Speaker 8: who's reporting a million dollars or more in income.
Speaker 3: The flip side of this, though, is the affordability crisis
Speaker 3: in California, And what you do not in your story
Speaker 3: is that the people who have left have have left
Speaker 3: for places that are less expensive because they found affordability challenging.
Speaker 3: In California. It's really hard to afford a house there
Speaker 3: there are no starter homes in California. What's going on?
Speaker 8: Absolutely? I think these go hand in hand. Right We
Speaker 8: saw this record number of millionaires being created, but California
Speaker 8: also became a more inequal state. It moved up in
Speaker 8: the Ginny coefficient, which is a measure of inequality in
Speaker 8: the state. And so we've seen the state become more inequal,
Speaker 8: you know, partially as a result of this wealth. And
Speaker 8: only one in five people in California right now can
Speaker 8: afford the median home price of eight hundred thousand dollars,
Speaker 8: so you can't. You know, this data shows an exorbitant
Speaker 8: amount of wealth, but with that you are creating an equality.
Speaker 8: It does become harder to live here. You know, the
Speaker 8: rich can buy up the houses, leaving everyone else struggling.
Speaker 8: And we see that now playing out in some of
Speaker 8: these labor strikes in Hollywood. You know, fast forwarding to
Speaker 8: twenty twenty three, labor is a huge issue. Inflation's been hard.
Speaker 8: So this wealth is truth, it's created a ton, but
Speaker 8: it kind of exacerbates the problems in the state as well.
Speaker 2: That's really interesting because that makes me wonder whether that
Speaker 2: is going to be the headwind for California, or if
Speaker 2: it's going to be something else, What do you think
Speaker 2: is the single biggest thing that could change this dynamic
Speaker 2: that we're seeing of the ultra wealthy continuing to stay there.
Speaker 8: That's a great question. It's not necessarily taxes. That was
Speaker 8: something that was surprising to us. And you know, as
Speaker 8: we reported this story, taxing the rich doesn't necessarily have
Speaker 8: any effect in California, specifically on them moving out of
Speaker 8: the state. So we can't just say, well, we'll tax
Speaker 8: them and you know, decrease their wealth and everything will
Speaker 8: be fixed. That's not going to happen. What could fix California?
Speaker 8: That is a question way above my pay grade, and
Speaker 8: I have no idea. It's a challenging state. There's a
Speaker 8: lot of people here, a lot of economic inequality, and
Speaker 8: we'll see, you know what kind of the pressure of
Speaker 8: these labor strikes, you know, how the government responds things
Speaker 8: like that will well, that will do to the state.
Speaker 8: So that's kind of an open question.
Speaker 3: I'm wondering too about the politics there, and this isn't
Speaker 3: this isn't a politics story per se, but it's everything
Speaker 3: as political as they say, So so I wonder to
Speaker 3: what extent you know, these wealthy people are controlled or
Speaker 3: trying to control the politics in the state. We saw
Speaker 3: some high profile recalls in San Francisco, We've seen a
Speaker 3: mayoral race that's backed by some very wealthy people in
Speaker 3: the city. What can you tell us about their role
Speaker 3: in politics.
Speaker 8: I think the wealthy you have always had an outsized
Speaker 8: role in politics, just do to be able to bankrolling it.
Speaker 8: You know, that's not unique to California necessarily. I think,
Speaker 8: you know, given we have more wealth in the state,
Speaker 8: will we see something happening in the election coming up.
Speaker 8: I don't know. I think that's going to be an
Speaker 8: interesting question. You know, will this shift any part of
Speaker 8: the voter base? I don't know. The one interesting part
Speaker 8: of the statea is California's reliance on personal income tax
Speaker 8: and this one percent bracket. Because because the tax system,
Speaker 8: it relies on the top one percent of earners roughly
Speaker 8: fifty percent of the personal income tax revenue. So anything
Speaker 8: that does happen to the incomes of these top earners
Speaker 8: has real effects on the state budget. And so I
Speaker 8: think that is kind of almost a bigger political question
Speaker 8: of if these top earners start losing money, if the
Speaker 8: economy swings in a bad direction. Yeah, that's going to
Speaker 8: have bigger political ramifications I think for the state than
Speaker 8: necessarily you know, wealthy millionaires donating to local political campaigns.
Speaker 3: Because I want to end with your lead on this story.
Speaker 3: It sets the scene with a party for the Core Club.
Speaker 3: It's members only club. It opens next year for Californians
Speaker 3: who are ready to shell out fifteen thousand to one
Speaker 3: hundred thousand dollars in initiation fees. Just describe to me
Speaker 3: the vibe there or in Silicon Valley right now, at
Speaker 3: a time when you know, people have said that California
Speaker 3: and Silicon Valley just feel different.
Speaker 8: They do feel different, but there's still, you know, still
Speaker 8: some great times here. AI Boom is centered in California
Speaker 8: right now. This party happened at the Trans America Pyramid,
Speaker 8: which is going this billion dollar renovation and a New
Speaker 8: York developer bought the building and is renovating it and
Speaker 8: it's going to be this big billion dollar project. So
Speaker 8: there's still investment, there's still excitement in California, but it's
Speaker 8: been tempered a little bit. I think the last few
Speaker 8: years been hard, particularly in the San Francisco downtown. We've
Speaker 8: seen it with office spaces, so there's a bit of
Speaker 8: a vibe shift. But people are still you know, able
Speaker 8: to sip cocktails and champagne and pass appetizers on the
Speaker 8: thirty sixth floor and you know, be happy with their lives.
Speaker 3: Does it still seem like more? Does it still seem
Speaker 3: like San Francisco is as empty as it was during
Speaker 3: the pandemic or are people actually going back to work
Speaker 3: and they're taking the shuttles south.
Speaker 8: The downtown core, i'd say is still somewhat empty, you
Speaker 8: know when you're talking Union Square civic centers. But the
Speaker 8: neighborhoods are flourishing. I took the F train today down
Speaker 8: Market Street to the Bloomberg office and it was packed
Speaker 8: with people and tourists. So there is a liveliness to
Speaker 8: the city. It's just not quite the same energy of
Speaker 8: you know, all the tech workers that they're matching backpacks,
Speaker 8: you know, flooding Montgomery Street that has gone. The lines
Speaker 8: for lunch are a little shorter than they used to be,
Speaker 8: so I may not complain about that, but you know,
Speaker 8: there is a bit of a vibe shift.
Speaker 3: Baz Carson, it is good to have you on the
Speaker 3: program today, and you know, I gotta say, Maddie may
Speaker 3: be biased here, but I'm certainly rooting for California, and
Speaker 3: of course every state here in the US, but California
Speaker 3: is a special place. We're not buying my heart, We're
Speaker 3: not biased.
Speaker 2: I have no opinions or thoughts on states.
Speaker 3: Carson is Blimberg News Wealth reporter joining us from our
Speaker 3: San Francisco bureau. Thanks so much, Bez appreciate it.
Speaker 4: I'm brother my journal.
Speaker 8: How about you let me drive?
Speaker 6: Oh no, no, no, no, please, I'll do.
Speaker 4: I want to drive.
Speaker 8: It's a good question.
Speaker 1: This is the drive to the globe done for me?
Speaker 1: Well on Bloomberg Radio.
Speaker 3: This is Bloomberg Business Week, And you know, let's get
Speaker 3: a quick check of the markets. We haven't checked in
Speaker 3: on those in a while. The Dow up what one
Speaker 3: tenth of one percent? The S and P five hundred
Speaker 3: down three tenths of one percent, the Nasdaq down four
Speaker 3: tenths of one percent. Well, Maddie, the stock rally that's
Speaker 3: taken a little bit of a breather has you know what,
Speaker 3: it's lost a little bit of steam in the last
Speaker 3: couple of days. I got to tell you. The S
Speaker 3: and P five hundred up nineteen percent this year in August,
Speaker 3: it's nothing to shake a stick at. We do you
Speaker 3: get a mixed bag of corporate earnings and economic data
Speaker 3: that's leaving markets a little bit Yeah, yeah today, but
Speaker 3: we got a great guest to hear to make sense
Speaker 3: of it all.
Speaker 2: Yeah, I'm very excited about getting someone to help me
Speaker 2: make sense of all of the movement that we're seeing.
Speaker 2: Here for our drive to the close, we've got Christopher
Speaker 2: cy On, President and CEO at Side Capital. Christopher, it's
Speaker 2: so great to speak with you, and thanks for coming
Speaker 2: in here. We're talking about the trade here today. What
Speaker 2: would you say is the single biggest thing kind of
Speaker 2: driving this trade? Is it investors sort of taking on
Speaker 2: some profits and that's why we're seeing a little bit
Speaker 2: less green on the screen here, or is it kind
Speaker 2: of just a mixed reaction to the eco data.
Speaker 9: I mean, we've had a credible run this year in
Speaker 9: all the major indexes. But what we try to do
Speaker 9: really at Side Capital is focused on the long term,
Speaker 9: so we really don't pay much attention to the everyday
Speaker 9: noise that is circling the markets.
Speaker 3: Well, what would you consider everyday noise versus what you
Speaker 3: do pay attention.
Speaker 9: To Well, we have now a twenty three year track record,
Speaker 9: and we've gone through so many different environments with noise
Speaker 9: such as inflation concerns, recession concerns. We've navigated through the
Speaker 9: Asian financial crisis, the dot com bubble, et cetera, et cetera,
Speaker 9: and there's never been really that much of great news
Speaker 9: to look at. So what we try to do is
Speaker 9: focus on the long term and focus on the individual
Speaker 9: fundamentals of the companies that we're investing in. And it's
Speaker 9: just to us nonsensical to forego investing in a business
Speaker 9: that has a predictable long term future because of short
Speaker 9: term concerns about the market or the economy that are
Speaker 9: inherently unpredictable.
Speaker 2: So what does that calculation look like when it comes
Speaker 2: to the fundamentals, Well.
Speaker 9: We think that the fundamentals for many companies are actually
Speaker 9: quite strong, and our focus is really to look at
Speaker 9: the strongest of the strong, to focus on the high
Speaker 9: quality businesses that we think have great futures that are
Speaker 9: growing rapidly, and to take advantage of market weakness. Your
Speaker 9: previous guest spoke about coming out of this environment playing offense,
Speaker 9: and we think about that kind of strategy as well.
Speaker 9: So in other words, when we have a bear market
Speaker 9: like we recently had, we've played a little offense. We
Speaker 9: added a number of companies to the portfolios that we
Speaker 9: think have great futures, that have asymmetry in the potential returns.
Speaker 9: So that's what we're trying to do, provide diversification for investors,
Speaker 9: but also to provide some offense coming out of a recession.
Speaker 3: What are some of those companies that you've recently added to.
Speaker 9: Yes, we added to a company called MSCI, which is
Speaker 9: a leader in data analytics. It's a company that is
Speaker 9: really integral to many money management firms and financial service organizations.
Speaker 9: We also bought a company called Zoetis, which is a
Speaker 9: leading manufacturer of pharmaceuticals for the livestock and poultry industries.
Speaker 2: I'm going to totally switch gears here, you guys. I
Speaker 2: hope that's okay. I'm realizing in your guest note that
Speaker 2: you talk about your grandmother Ruth's side was the first
Speaker 2: woman to trade shares on the floor of the Shanehaist Exchange.
Speaker 2: That is so cool. Do you have any investment lessons
Speaker 2: that have been passed down to you both from her?
Speaker 2: And from your father of course as well.
Speaker 9: Yeah, that's a great question. I appreciate that question because
Speaker 9: my late father has been in the press so many times.
Speaker 9: But my grandmother, Ruth was really a pioneer for women
Speaker 9: in China at her time. So, as you've mentioned, she
Speaker 9: was the first woman to trade on the floor of
Speaker 9: the Shanghai Stock Exchange from around nineteen thirty nine to
Speaker 9: nineteen forty one, and she passed on so many wonderful
Speaker 9: lessons to my father, and my father passed on so
Speaker 9: many wonderful lessons to me, So I'm really a third
Speaker 9: generation investor. My grandmother Ruth had us saying, when the
Speaker 9: tide goes out ten feet, a large ship in a
Speaker 9: small boat both go out ten feet. I think that
Speaker 9: was her way really thinking about bear markets and how
Speaker 9: to deal with bear markets.
Speaker 3: I love that, Hey, just in the last thirty seconds
Speaker 3: that we have with you, he brings new money to
Speaker 3: you right now, and they have a long term horizon.
Speaker 3: How are you deploying it?
Speaker 9: That's also an amazing question because we always find that
Speaker 9: deploying capital is a lot harder than learning how to
Speaker 9: sell a company. So what we try to do is
Speaker 9: we try to scale into our scale in new capital,
Speaker 9: so we typically vest around two thirds upfront and then
Speaker 9: we try to deploy the rest of the third in
Speaker 9: a relatively short period of time. But we're trying to
Speaker 9: get away from is timing the market. Clients come with
Speaker 9: us with a long term philosophy, so we're not trying
Speaker 9: to time one month or two months, but we do
Speaker 9: like to scale into a degree.
Speaker 3: Christopher cy, president and CIO at PSI Capital, joining us
Speaker 3: this afternoon on zoom really appreciate you've taken the time
Speaker 3: to join us right here on a Bloomberg Business Week
Speaker 3: and this is Bloomberg.
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