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Speaker 2: This is Bloomberg business Week Inside from the reporters and
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Speaker 2: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 1: Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast.
Speaker 1: A deluge of US economic reports this past week, including
Speaker 1: durable goods orders falling more than forecast, consumer confidence decreasing
Speaker 1: for the first time in four months, the US economy
Speaker 1: expanding at a slower rate at the end of last year,
Speaker 1: as consumer spending grew at a faster pace that initially estimated,
Speaker 1: and inflation was revised higher.
Speaker 3: And then we got the big report of the week.
Speaker 3: The Fed's favored inflation gauge rose in January at the
Speaker 3: fastest pace in nearly a year, although it did come
Speaker 3: in exactly this forecast. Inflation adjusted consumer spending dropped for
Speaker 3: the first time in five months after a robust holiday
Speaker 3: shopping season, and real disposable income, the main supporter of spending,
Speaker 3: was little changed. More on that latest inflation print and
Speaker 3: the US economic backdrop in just a moment, Carol, you
Speaker 3: were not joking when you said at deluge with economic data.
Speaker 1: It was hard to keep up, all right. Also this hour,
Speaker 1: we got another check on the US economy and really
Speaker 1: US consumers thanks to Whirlpool CEO Mark Bitzer, who continues
Speaker 1: to see consumers changing their shopping ways post pandemic.
Speaker 3: Plus, as US home buying demand nears its worst level
Speaker 3: since nineteen ninety five, as mortgage rates hold above seven percent,
Speaker 3: we got a check at the housing market with Kate Kaminski,
Speaker 3: COO at the real estate investment company Walton Global, and.
Speaker 1: Folks, yes we may be a couple of months in,
Speaker 1: but there are still those who are making calls for
Speaker 1: the new year. We have the ten outrageous predictions for
Speaker 1: private equity in twenty twenty four.
Speaker 3: And speaking of that, we check out the Peback studio
Speaker 3: behind everything from a tour driven oscar bait such as
Speaker 3: uncut Gems to Theman Award winning hit Beef. It's the
Speaker 3: BusinessWeek cover story.
Speaker 1: All of that to come. We begin with the NonStop
Speaker 1: US economic data this week, and in particular the report
Speaker 1: that was the big one and the latest read on
Speaker 1: US inflation, which also happens to be the Fed's preferred
Speaker 1: inflation gauge. We're talking about the core Personal Conception Expenditures
Speaker 1: gauge or CORE PCE, which increased by the most in
Speaker 1: a year.
Speaker 3: For more, we checked in with Bloomberg News International Economics
Speaker 3: and Policy correspondent Michael McKee.
Speaker 4: The sigh of relief was it wasn't worse. The numbers
Speaker 4: came in on a month over month basis higher than
Speaker 4: they had in previous months. The core rate was up
Speaker 4: on a month over month basis four tenths, which was
Speaker 4: the highest in a year. And it sounds terrible, but
Speaker 4: because of base effects in the progress they've made on
Speaker 4: disinflation on the year over year basis, we continued to
Speaker 4: see the PCE and the CORE go down, and that's
Speaker 4: what people want to see, because that's what the Fed
Speaker 4: wants to see. We're still a ways from two percent
Speaker 4: if you're using CORE as sort of your measuring stick,
Speaker 4: at two point eight percent, but there was progress and
Speaker 4: the economy is not doing badly.
Speaker 2: People.
Speaker 4: What personal income went up one percent and wages still
Speaker 4: went up four tents on a percent, which is healthy.
Speaker 4: Spending was a little weak, but remember there was a
Speaker 4: lot of storms in January, people didn't go out. We
Speaker 4: know they didn't buy cars and things like that. So overall,
Speaker 4: this is the Goldilocks soft landing story continues.
Speaker 1: So break up in the Champagne.
Speaker 5: In other words, I knew you'd get around it.
Speaker 3: So Mike remind us why this is the Fed's preferred
Speaker 3: measure of inflation. Why do we care so much about
Speaker 3: pc and over CPI.
Speaker 4: For well, basically, the PCE is a bit broader, but
Speaker 4: it also is a little bit more reflective of what
Speaker 4: people are spending on. It includes a lot of imputed data,
Speaker 4: which is data that they try to figure out by
Speaker 4: measuring parts of the economy rather than just prices, because
Speaker 4: they don't have prices on things like financial portfolio management
Speaker 4: was one of the biggest movers, up five percent of
Speaker 4: the month because the markets are doing so well. So
Speaker 4: they're looking at the markets and they're looking at the
Speaker 4: gain in the markets, and they're guessing sort of what
Speaker 4: the commissions would be, etc. And the fees, and they
Speaker 4: impute a number from that, but that's not counted in
Speaker 4: the CPI. And for example, the CPI will measure what
Speaker 4: you pay for your monthly car insurance, whereas the pc
Speaker 4: will measure what you pay, and it also measures what
Speaker 4: value you get, In other words, how much will your
Speaker 4: policy pay if you're in an accident. And of course
Speaker 4: that has to keep likely going up because cars keep
Speaker 4: getting more expensive.
Speaker 5: So that's the kind.
Speaker 4: Of thing that's the difference between them, and so the
Speaker 4: FED just prefers it. They normally don't run very far apart,
Speaker 4: but they have been running far apart over the last year.
Speaker 6: Well.
Speaker 1: As an economist, I mean, what do you trust as
Speaker 1: really kind of telling the true picture of of inflation,
Speaker 1: Because I do feel like there's a bit of a
Speaker 1: debate when it comes to some of the economic statistics
Speaker 1: that are out there about whether they not, you know,
Speaker 1: accurately reflect what's going on in the US economy. How
Speaker 1: do you see because I feel like, Mike, you're so
Speaker 1: good at kind of pulling in yes, government statistics, real words,
Speaker 1: real world statistics.
Speaker 4: There are so many different measures, and even though there's
Speaker 4: a wedge between the PCE and CPI, it's about one
Speaker 4: hundred basis points now, it's normally somewhere between thirty five
Speaker 4: and fifty, so it's not very wide. And really we
Speaker 4: can't say, given all the different measures, exactly what inflation
Speaker 4: is so the CPI has the most categories, it's the
Speaker 4: most up to date. The PPI and the CPI feed
Speaker 4: into PCE, so PCE depends on CPI. So I guess
Speaker 4: I would go with the CPI. That doesn't mean I
Speaker 4: think that three point nine percent is where we should be.
Speaker 4: There's a lot of talk of the FED maybe changing
Speaker 4: its inflation target to maybe three percent or something like that,
Speaker 4: but overall maybe the CPI.
Speaker 5: You know, that's just talk.
Speaker 3: The FED has denied that they're going to do that
Speaker 3: many many times over the last year.
Speaker 4: Well, they're denying it now because if you do it
Speaker 4: now when you have you're moving the euation, You're moving
Speaker 4: the goalposts.
Speaker 1: Right.
Speaker 4: They do now have a procedure so that every five
Speaker 4: years they look at their monetary policy framework, and that's
Speaker 4: coming up in twenty twenty five.
Speaker 3: So do you think that given what we've had we've
Speaker 3: seen over the last eighteen months with the data MIC,
Speaker 3: that they would consider actually changing it when there is
Speaker 3: a time to do that.
Speaker 4: I think they would. Two percent was never a number
Speaker 4: written in stone. It was what the New Zealand Central
Speaker 4: Bank adopted number of years ago, and it sort of
Speaker 4: became a de facto standard, and the idea was basically,
Speaker 4: what's not too high and not too low, because if
Speaker 4: you're too number, you have no way to lower rates
Speaker 4: if you're at zero, and if you're too high, then
Speaker 4: people get mad because you have inflation. So they picked
Speaker 4: two percent they could eat usually pick three percent, and
Speaker 4: people have been urging that on them for years, so
Speaker 4: it's something I'm sure they'll talk about, all right.
Speaker 1: So the data this week, we all were kind of
Speaker 1: leading up, I feel like in a big way to
Speaker 1: this Thursday report of pc core and the read on
Speaker 1: inflation that the Fed follows the narrative if you put
Speaker 1: it all together, including some of the other data points,
Speaker 1: is there one clear narrative or a bit of a
Speaker 1: mixed narrative.
Speaker 4: It's a mostly clear narrative that the economy is doing well.
Speaker 4: Interesting number we haven't mentioned and didn't get a lot
Speaker 4: of attention because of the PCEE was pending home sales
Speaker 4: really tanked in the last month, and that's maybe a
Speaker 4: sign that we're seeing the higher mortgage rates bite, which
Speaker 4: is despite Elizabeth Warm's desires, that's what the FED wants
Speaker 4: to see. So we seem to be doing and getting
Speaker 4: what the FED is looking for.
Speaker 3: That was Bloomberg News International Economics and Policy correspondent Michael McKee,
Speaker 3: and staying with the US economy data great for reading
Speaker 3: the temperature on how the economy and consumers are doing.
Speaker 3: So too, is going straight to the CEOs of companies
Speaker 3: that sell directly to US shoppers.
Speaker 1: Yeah, we get great reads right and what's going on?
Speaker 1: One such company as Whirlpool, which saw explosive demand as
Speaker 1: you know, during the pandemic when we were all stuck
Speaker 1: at home, and has really been going through a reset
Speaker 1: like so many other consumer facing companies as the world
Speaker 1: has moved back to pre pandemic levels of activity and
Speaker 1: wanting to kind of get out and do things.
Speaker 3: Mark Bitzer is the chairman, president, CEO and COO of Whirlpool.
Speaker 3: We asked him how the consumer is doing following this
Speaker 3: week's US consumer confidence which decreased for the first time
Speaker 3: in four months, as Americans used deteriorated about the outlook
Speaker 3: for the economy, the job market, and financial conditions.
Speaker 7: I mean, obviously, our purchase, like endurable appliance, is heavily
Speaker 7: driven by consumer confidence and housing general. So what we
Speaker 7: did see already the last here is that actually our
Speaker 7: replacement side of a business where people just replace a
Speaker 7: product under the rest. But it has been very strong
Speaker 7: even up. But the discretionary side we actually already lost
Speaker 7: year saw coming back coming down large as a result
Speaker 7: of if interest rates rising, housing kind of being very
Speaker 7: slow and slowing down throughout the year. That ultimately depressed
Speaker 7: the discretionary side.
Speaker 8: So what you're.
Speaker 7: Describing we saw already last year, and we probably I
Speaker 7: mean in our earnings call also we said it's probably
Speaker 7: going to be around us, certainly for Q one and
Speaker 7: Q two, and then we need to see what happens
Speaker 7: if interest and mortgage rates and everything else. But I
Speaker 7: think where we need to be a catalyst from wet
Speaker 7: side to really lift consumer seentering.
Speaker 3: Well, what would that catalyst be, Mark, Like, what are
Speaker 3: you looking for at the perch of worldpool?
Speaker 7: Yeah, I mean in particularly our North American business, which
Speaker 7: you know, there's a strong correlation with existing home sales
Speaker 7: and housing market in general.
Speaker 8: We always we shouldn't forget that.
Speaker 7: You know, the average mortgage rates which are right now
Speaker 7: locked in with homeowners is three point seven percent. So
Speaker 7: I think to really bring supply on the market and
Speaker 7: get people ready to sell their existing homes. I think
Speaker 7: you need to see mortgage rates, you know, a certain
Speaker 7: those six percent, probably more like five and a half
Speaker 7: percent to really kind of unfreeze the market again, because
Speaker 7: you know what we saw the last two years is
Speaker 7: the market pretty much dropped from six point four million
Speaker 7: existing home sales to three point eight That's a dramatic drop.
Speaker 8: We call it a shot freeze. And it takes that momentum.
Speaker 7: Of a catalyst on the interest rates side to kind
Speaker 7: of unfreeze a fall the market. And that's what we
Speaker 7: I mean, we don't see it short term. I mean,
Speaker 7: and of course, well everybody's got to watch what the
Speaker 7: FED will do, but I think over time it will
Speaker 7: kind of be a key catalyst for growth.
Speaker 3: So make that connection for our investor audience about that
Speaker 3: key catalyst here and why a person who is sitting
Speaker 3: at a three point five US three point seventy five
Speaker 3: percent mortgage won't necessarily go out and buy a new
Speaker 3: appliance from Whirlpool. But if they were to sell that
Speaker 3: home to somebody at a favorable mortgage rate, that person
Speaker 3: moving in would then buy a new appliance from Whirlpool.
Speaker 3: Why would't the person who lives there now end up
Speaker 3: buying it if it actually need if they actually need
Speaker 3: a new washer dryer.
Speaker 7: Yeah, so so again I mean if it just needs
Speaker 7: a new wash and dryer, we would see a better
Speaker 7: a replacement market. And you know it's again if you
Speaker 7: break down and let me zoom out a little bit,
Speaker 7: break down our fundamental demand. Our demand has, replacement has
Speaker 7: discretionary and new homes. These are basically our fundamental free demand.
Speaker 7: Driver replacement is very strong because of what we've seen
Speaker 7: in post COVID and of certainly during COVID, people spend
Speaker 7: more time at home, so the appliant's usage is higher.
Speaker 7: High usage rates drive early replacements. So that side of
Speaker 7: business is very strong we see by today. But what
Speaker 7: is right now soft is the discretionary side, which particularly
Speaker 7: comes with existing home scenes and over many decades, what
Speaker 7: we typically saw kind of the month before and the
Speaker 7: month after people buying a new home or existing home.
Speaker 8: That's when you have.
Speaker 7: Increased purchase and appliance and everything. So because of what
Speaker 7: we typically see were people moving in, one of the
Speaker 7: first things we might do is replace the kitchen or
Speaker 7: at least replace the appliances, so that part of the
Speaker 7: demand is today missing And again it's think about yourself.
Speaker 7: If you're a homeowner, you're locked in at three point
Speaker 7: seven rate. I mean, it's are you willing to kind
Speaker 7: of refine and buy a new home mortgage rate right
Speaker 7: now on six point eight or six point nine percent?
Speaker 7: The chances I know, okayts right now what we see
Speaker 7: in the market, and you can't blame a consumer for
Speaker 7: that mark.
Speaker 1: I feel like you're describing me. You know, we bought
Speaker 1: a new hot water heater because we had to. We
Speaker 1: didn't have a choice, right that was replacement. We thought
Speaker 1: about maybe purchasing something else new that we didn't need
Speaker 1: to end discretion, and we said, you know, we're going
Speaker 1: to not do it right now. So like, I totally
Speaker 1: get what you say is going on. Having said that,
Speaker 1: then let's talk a little bit about your investor day
Speaker 1: and some of what you're doing. Our team writing up
Speaker 1: how you guys are going to focus or are focusing
Speaker 1: on smaller appliances. It seems to be maybe what consumers
Speaker 1: are willing to spend money on the margins are better.
Speaker 1: Talk to us little bit about that strategy and how
Speaker 1: it can move the needle, especially when it comes to
Speaker 1: top line growth and margin growth.
Speaker 7: Yeah, so so Carol, what we what we spoke about is,
Speaker 7: you know, as a company, we've been in a multi
Speaker 7: year what we call portfolio transformation and what base you
Speaker 7: men do is over past decades we've had a fairly
Speaker 7: dispersed global business. We were from China to Chile, in
Speaker 7: all places of the world. And what we've decided on
Speaker 7: the major's business, but we want to focus on the
Speaker 7: markets where we have an undeniable strong position, which offer
Speaker 7: us the America's North America, South America. We have good
Speaker 7: business in India and that's what we'll focus on. So
Speaker 7: we over the years, we sold off the majority of
Speaker 7: our China business, we sold off Russia, and right now
Speaker 7: we're just in the kind of final weeks before we
Speaker 7: can close our European transaction where we would only have
Speaker 7: a smaller portion of a business. So with that we
Speaker 7: have a fundamentally different business portfolio. One essentially of it's
Speaker 7: the major business in America's in India and we have
Speaker 7: our small domestic appliance business that was in some ways
Speaker 7: we could describe it as a hidden gem from the
Speaker 7: past because it was hidden in a segmentaryport results of
Speaker 7: all the different regions, but if you look at that,
Speaker 7: that is probably it's our strongest brands. It has passion
Speaker 7: across all demographics and age groups, and we feel we
Speaker 7: have a license of robot business certainly from a consumer perspective,
Speaker 7: and a lot of our resources going forward will go
Speaker 7: into our small domestic appliance business because it's certain one
Speaker 7: which we love, strong margins and an exceptionally strong consumer precision.
Speaker 1: How small what percentages? Is the smaller appliance business mark
Speaker 1: right now in terms of revenues and how big do
Speaker 1: you think it could become if we look at the
Speaker 1: kind of revenue pie?
Speaker 7: Yeah, so today it is quote unquote only a one
Speaker 7: billion dollar business, but it has fifty and ebit margins,
Speaker 7: so it's a very marg attractive business. But you know,
Speaker 7: our presence in if you look at the categories of
Speaker 7: small domestic clianes, it's largely small. It's large stamp mixers
Speaker 7: and associated products. But we have so much opportunity to
Speaker 7: grow in coffee and we just announced that day also
Speaker 7: we will bring a fully automatic expresso maker in maybe
Speaker 7: this year. In other parts of business, so we strongly
Speaker 7: believers ample opportunity to grow at business.
Speaker 3: Hey, I want to talk a little bit about the
Speaker 3: cost cutting that you're targeting right now across the different
Speaker 3: business lines. After incurring significant increases back in twenty twenty
Speaker 3: two and in twenty twenty one, mark where within the
Speaker 3: business are you finding these savings.
Speaker 7: Yeah, So, first of all, to put it in context
Speaker 7: is you know, in the COVID years, we basically had
Speaker 7: more two and a half billion of additional costs. That
Speaker 7: was a big inflation with not only raw materials in
Speaker 7: all parts of a business. Last year we clawed back
Speaker 7: eight hundred million of that and we see we're targeting
Speaker 7: number five hundred million, so we're not even fully back
Speaker 7: to pre COVID cost levels. The opportunities which we see
Speaker 7: this year, and that's a little bit different from last year.
Speaker 7: We don't see a lot of tailwinds from raw materials,
Speaker 7: so we pretty much expect steel and oil and everything
Speaker 7: else to remain rather stable for us. But we do
Speaker 7: see opportunity on cost takeout on products. We do see
Speaker 7: further opportunities to reduce logistic costs because it's it's a
Speaker 7: massive cost element for us because we're shipping big, bulky
Speaker 7: products and just drive a lot of cost and logistics side,
Speaker 7: but we're also looking at our overall overhead and infrastructure.
Speaker 7: And what I mean with that is, you know, global
Speaker 7: business required a fairly complex global organization. If we're more
Speaker 7: focus on our Americas, we have an opportunity to radically
Speaker 7: also simplify how we organize and that also drive some
Speaker 7: cost savings.
Speaker 1: I do wonder too, looking at your balance sheet. We
Speaker 1: have this really great story at Bloomberg Exclusive today. It's
Speaker 1: among our most read about how companies who have been
Speaker 1: so addicted to debt are now seeking equity, so thinking
Speaker 1: about selling shares rather than tapping the debt markets if
Speaker 1: they need money. You, guys, what's your plan to do
Speaker 1: you leverage your balance sheet specifically, which has grown as
Speaker 1: you've done some acquisitions. And I do wonder if investors
Speaker 1: can kind of still count on the dividend going forward,
Speaker 1: the sustainability of the dividend market. And just got about
Speaker 1: a minute or so left.
Speaker 8: Yes, so let me first start start straight away from dividend.
Speaker 7: We paid our dividend for sixty nine years sixty nine
Speaker 7: and in none of the sixty nine years we ever
Speaker 7: had a dividend reduction, actually out of the last of
Speaker 7: the last ten years, and eight years we had a
Speaker 7: dividend increase.
Speaker 8: So we we are.
Speaker 7: So that's yes, that is well, of course that every
Speaker 7: single dividend payment requires a board approval, but I would
Speaker 7: I would say this statement publicly if I don't feel
Speaker 7: the board feels very strong about it.
Speaker 8: So we are. We strong believe in dividend. We have
Speaker 8: a funds to pay the dividend, and.
Speaker 7: More importantly, we have a basic guideline internal where we
Speaker 7: say over the last three years, we look at the
Speaker 7: average EPs and we took pay out thirty thirty five
Speaker 7: percent of at the EPs over the last three years
Speaker 7: and we're pretty much on track on this one. So
Speaker 7: so more to a balance sheet is first of all,
Speaker 7: keeping our in mind, we have one point six billion
Speaker 7: dollars for cash on hand, that's public number. So what
Speaker 7: we do want to do, and you know, we knew
Speaker 7: exactly when we acquired the insincorator business in Wisconsin, which
Speaker 7: is usually margin attractive of a strong position. We knew
Speaker 7: of course it's it's a heavily ODN boundar sheet. And
Speaker 7: with two or three years to kind of digest that
Speaker 7: acquisition related that we paid last year down five on
Speaker 7: ared million, we'll pay down this year five on a million.
Speaker 7: So what we guided today in midmester today is kind
Speaker 7: of yeah, by twenty six we want to be roughly
Speaker 7: in a two times that leverage. We feel I'm a
Speaker 7: right path and on the risk if you want to
Speaker 7: say so, and us with boundary to whatever.
Speaker 8: It's what we want to have it.
Speaker 1: So appreciate it covered so much ground, as you always do.
Speaker 1: Mark bitzer Be well, look forward to always our next conversation,
Speaker 1: Chief executive Officer.
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Speaker 1: We did get a batch of economic news earlier, but
Speaker 1: one report that we wanted to check out was what
Speaker 1: happened with sales that previously owned US homes rising in
Speaker 1: January by the most and nearly a year. Buyer's taking
Speaker 1: advantage of lower mortgage rates at the start of the
Speaker 1: new year of twenty twenty four.
Speaker 3: Okay, at the start of the year, because just yesterday
Speaker 3: we reported how US mortgage rates jumped above seven percent
Speaker 3: for the first time since early December that delta blow
Speaker 3: to the housing markets and recovery. So the rates issue
Speaker 3: is certainly sticking with us.
Speaker 1: Yeah, So let's get to it and what it all means.
Speaker 1: Ka Kaminski is chief operating officer of the privately owned
Speaker 1: and asset and real estate investment company. It is Walton Global.
Speaker 1: They've got about three point six billion in assets and
Speaker 1: over ninety four thousand acres under management here in the
Speaker 1: United States. She joins us. Kate does from Scottsdale, Arizona. Kate,
Speaker 1: Welcome to Bloomberg Business Week. Nice to have you here
Speaker 1: with Tim and me. How are you and talk to
Speaker 1: us about your world, because you guys do commercial, industrial,
Speaker 1: residential real estate. Give us kind of an overview of
Speaker 1: how things are going better than the last year, better
Speaker 1: than the last six months. What can you tell us?
Speaker 9: Yeah, we're pretty excited about twenty twenty four. Here at Walton.
Speaker 9: We really focus on the land space, where we're buying
Speaker 9: land in the path of growth, predominantly to sell to
Speaker 9: public new homebuilders. But we also, as you noted, have industrial, commercial,
Speaker 9: and retail holdings. So the numbers that came out today,
Speaker 9: you know, really important in terms of what we're seeing
Speaker 9: in the resale market, which has a direct impact on
Speaker 9: the new home building space, which is where we focus
Speaker 9: with with the resale figures. Seeing you know, the slowest
Speaker 9: year for the last three decades in twenty twenty three,
Speaker 9: we're excited that January was finally an uptick in terms
Speaker 9: of the resale market, and you know that continued increase
Speaker 9: in value. I think we were at about five percent
Speaker 9: and in increase in existing home sale value year over years,
Speaker 9: So strong numbers on the resale market, but you know,
Speaker 9: still seeing a continued push for buyers to that that
Speaker 9: new home market because of a lot of the lock
Speaker 9: in effect that we're seeing from those mortgage rates, which,
Speaker 9: as you noted, are creeping up a bit.
Speaker 3: He Ky, how would you characterize demand from the home
Speaker 3: builders right now? Because you guys have property all over
Speaker 3: the United States. You've got a lot in Colorado, a
Speaker 3: lot in California, Oklahoma, Texas, Florida, Georgia. How would you
Speaker 3: characterize the demand that you're seeing from home builders who
Speaker 3: want to buy that land and then build homes on it.
Speaker 9: I mean, home builder sentiment is up. I think it
Speaker 9: was at forty four percent. We're seeing more transactions go
Speaker 9: under contract right now than we did is certainly a
Speaker 9: year ago, which twenty twenty three was a good year.
Speaker 9: Here at Walton, we've got around two point eight billion
Speaker 9: in deal volume that's at various stages, hoping to move
Speaker 9: that towards closing. So we're still seeing a lot of demand,
Speaker 9: but certainly builders are looking to take positions right now.
Speaker 1: Permits are up just across the board.
Speaker 9: We've seen a year of month over month increases. I
Speaker 9: think right now we're sitting at just over a million
Speaker 9: units at an annualized rate, which is up thirty five
Speaker 9: percent year over year. So you know, permits showing us
Speaker 9: what we can expect for the future, what our forecasts
Speaker 9: are looking like.
Speaker 1: What's land prices look like right now, so you.
Speaker 9: Know, like everything else, we continue to see that increase,
Speaker 9: but it's remaining somewhat consistent and where we're really seeing
Speaker 9: a lot of our negotiations take places working with builders
Speaker 9: on understanding what development costs are going to be, timelines
Speaker 9: and working to ensure that everyone's margins are really remaining
Speaker 9: consistent and hitting those targets.
Speaker 10: That they're looking for.
Speaker 1: But for you, for the acquisition costs, our land price
Speaker 1: is going up, and I'm curious if there's I'm assuming
Speaker 1: there are geographical differences. I mean, I know, I've got
Speaker 1: a lot of family down south, and it's kind of
Speaker 1: on fire right now. So if you can give us
Speaker 1: some context as you look across the United States where
Speaker 1: you're seeing land values go up a lot, because that's
Speaker 1: that's your bread and butter.
Speaker 9: Right Yeah, you know, our assets are really focused in
Speaker 9: the southern half of the United States. Uh. If if
Speaker 9: I were to pull our acquisitions team or or talk
Speaker 9: to any of the builders, I mean, land prices are
Speaker 9: going up right across the board, and it's it's getting
Speaker 9: more and more difficult to find to find any deals.
Speaker 9: I would say they're they're few and far between right now.
Speaker 9: The markets that we're really focusing on continue to be Florida, Texas, Georgia,
Speaker 9: and the Carolinas and and then you know, of course
Speaker 9: in in the Southwest and West as well. But but
Speaker 9: definitely seeing increases and land values, and a lot of
Speaker 9: that has to do with the lack of supply of
Speaker 9: development ready land. We continue to see significant challengees right
Speaker 9: across the country as it retains to land getting approved
Speaker 9: for development. This is a challenge that that builders and
Speaker 9: landowners are basing across the board as we have more
Speaker 9: municipalities really restricting especially that that identity residential.
Speaker 2: You're listening to the Bloomberg Business podcast Country listening live
Speaker 2: each week starting at two pm Eastern. Yeah, we could listen.
Speaker 2: You can also listen live on Amazon Alexa from our
Speaker 2: flagship New York State and.
Speaker 3: Bloomberg as sort of a middle person in this market
Speaker 3: because perhaps some of them are asking themselves, well, why
Speaker 3: why doesn't the landowner go directly to the developer h
Speaker 3: and actually make more money when they sell that. What
Speaker 3: is the what's the value that you bring to the
Speaker 3: transaction by holding onto the land from the landowner to
Speaker 3: the developer.
Speaker 9: Well, that's a great question, and our entire business is
Speaker 9: really focused right now on feeding builders. You know, demand
Speaker 9: for just in time inventory. Just in time inventory is
Speaker 9: as simple as you know builders post Great Recession where
Speaker 9: we're penalized significantly for holding long term land assets that
Speaker 9: were not income generating that they weren't going to turn
Speaker 9: in call it a two year timeframe. So Walton comes in,
Speaker 9: We buy these land assets and we sell them to
Speaker 9: builders typically you know, on a phase by phase basis
Speaker 9: over time as they're ready to take it down and
Speaker 9: start development and ultimately build a home.
Speaker 11: And so we're we're.
Speaker 9: Kind of in that land banking space for those of
Speaker 9: you familiar with the term, which is something that we're
Speaker 9: seeing right across the board. Every builder is really being
Speaker 9: forced to utilize that tool in their toolbox, right.
Speaker 1: So it's not kind of stuck on their balance sheet,
Speaker 1: especially if there's any kind of downturn. Kate got thirty
Speaker 1: seconds left here in terms of what you are seeing.
Speaker 1: Are you setting up for a US economy that's recovering,
Speaker 1: that's growing, that might have a recession, And just real
Speaker 1: quickly twenty five seconds if you.
Speaker 9: Could definitely looking at growth. I mean, if you just
Speaker 9: look at the population numbers from last year alone, I
Speaker 9: think it was the largest one year population increase in history.
Speaker 9: That plus you know, the builders continuing to buy down
Speaker 9: rates for new home buyers. I think we're going to
Speaker 9: see really strong figures in the balance of this year
Speaker 9: and in the economy in general.
Speaker 1: All Right, going to leave it on that note, Kate,
Speaker 1: thank you so much, really appreciate it. Kai Kaminski, Chief
Speaker 1: operating officer of the privately owned asset and real estate
Speaker 1: investment company Walton Global joining us from Scottsdale Arizona Homebuilders.
Speaker 1: As a group, they're up about one and a half
Speaker 1: percent here in twenty twenty four, and we're seeing yeah,
Speaker 1: them up a little bit higher as well. Today this
Speaker 1: is Bloomberg.
Speaker 2: You're listening to the Bloomberg Business Week podcast live weekday
Speaker 2: afternoons from two to five pm Eastern Listen on Apple
Speaker 2: car Play and then brout Auto with a Bloomberg Business
Speaker 2: act or want us live on YouTube.
Speaker 1: Well, this past week we learned that Leon Black sold
Speaker 1: Apollo Global Management stock for the first time, making the
Speaker 1: move almost three years after he exited the giant that
Speaker 1: made him one of Wall Street's richest billionaires.
Speaker 3: Black unloaded nearly one hundred and seventy three million dollars
Speaker 3: of stock in the New York based firm last week.
Speaker 3: That's according to a regulatory filing. It's almost two percent
Speaker 3: of his stake in the alternative asset manager, which has
Speaker 3: seen it shares rise about four hundred and eighty percent
Speaker 3: since going public thirteen years ago.
Speaker 1: So Timmy might recall, after a tumultuous period, Leon Black
Speaker 1: retired as Apollo's chief executive officer. That was in March
Speaker 1: of twenty twenty one, after three decades a top one
Speaker 1: of the world's most powerful investment firms, which is now
Speaker 1: run by fellow co founder Mark Rowan.
Speaker 3: Private equity it's a huge part of how money moves
Speaker 3: around today, which is why it was a lot of
Speaker 3: fun to catch up with Anton Dream, founder and chairman
Speaker 3: of Triago. It's a placement agent that's best known for
Speaker 3: assisting private equity firms with fundraising. Since nineteen ninety two,
Speaker 3: the company has raised and advised clients on more than
Speaker 3: fifty billion dollars in capital. That's a going to its website.
Speaker 3: Antwan joined us from our New York studios to talk
Speaker 3: about the private equity backdrop, and here's some of its
Speaker 3: outrageous predictions for PE in twenty twenty four.
Speaker 10: We are going back to reality right after qees, zero
Speaker 10: interest rates, etcetera, etcetera. We're going back to flight to quality. Mostly,
Speaker 10: it's obviously tougher out there. It's tougher for exits, as
Speaker 10: you've been saying. It's also tougher on the investment side
Speaker 10: because credit is lacking. So we are I think going
Speaker 10: to what I was what private equity was in the
Speaker 10: early nineties, right, adding value to businesses and being smart
Speaker 10: about investing.
Speaker 3: So does private equity thrive in an environment like that?
Speaker 10: Not all of it. Some of it was just you know,
Speaker 10: riding the wave, I guess, And these guys are in
Speaker 10: trouble because things are now tougher for these who know
Speaker 10: their way within the difficult environments. It's obviously great times.
Speaker 10: They can buy great assets at cheaper prices, they can
Speaker 10: have less competition, and they can think about, you know,
Speaker 10: great growth bands.
Speaker 3: How are you thinking about using leverage when it comes
Speaker 3: to buyouts right now, just because interest rates are so
Speaker 3: much higher.
Speaker 10: I think it's it's obviously part of the game, you know, leverage.
Speaker 10: It can leverage and can make people rich. It can
Speaker 10: also hurt or kill. I think you have to use
Speaker 10: it with a lot of you know, skill, and that's
Speaker 10: what most of these guys are doing right now.
Speaker 1: What do you make of though, kind of it's all
Speaker 1: about private credit right now? Do we continue to see
Speaker 1: I feel like you know, traditional Wall Street is saying, wait,
Speaker 1: I increasingly want a piece of that. How does that
Speaker 1: impact the market, How does that, you know, impact some
Speaker 1: of the conversations that you're having with the clients.
Speaker 5: You deal with.
Speaker 10: Most LPs are indeed interested in credit, then I mean
Speaker 10: you go to them, they don't really want to know
Speaker 10: about private equity, nor VC growth, et cetera. They're all
Speaker 10: interested in credit. I guess up to a point. At
Speaker 10: some point there will be probably too much available.
Speaker 1: And when you've tracing too many things.
Speaker 10: Of course, unlike everything, you know, it's supply and demand.
Speaker 10: And when there's a you know, too much supply and
Speaker 10: not enough demand, you're in.
Speaker 2: You're in.
Speaker 10: You're in. You're in trouble.
Speaker 1: When you say trouble, though, does it mean that it
Speaker 1: results in that we see assets being build up in
Speaker 1: terms of valuations, and so there's going to be fallout.
Speaker 10: Yeah, and it's going to mean less less. I mean,
Speaker 10: performance is probably going to be hit. I think it's
Speaker 10: not there yet, right, There's going to be a few
Speaker 10: years where the asset class is going to thrive. But
Speaker 10: at some point, I mean, things will go back to
Speaker 10: the mean.
Speaker 3: Hey, we should know for everybody who has not necessarily
Speaker 3: been keeping up. Hulhan Loki is acquiring Triogra. The deal
Speaker 3: is expected to close in the first half of the year.
Speaker 3: What does this look like for for your life. What
Speaker 3: does it look like for the business? I mean, this
Speaker 3: is a big deal.
Speaker 1: Do you go on vacation.
Speaker 10: I'm not yet dealing close. I'm not yet going on vacation.
Speaker 10: The deal is not closed yet. Are we have signed
Speaker 10: an agreement. We are basically done, except that we're waiting
Speaker 10: for regulatory approvals. So we're now much much stronger. I mean,
Speaker 10: we will be much much stronger.
Speaker 1: But there is something to write being bigger, like I
Speaker 1: think at some point, because there is so much competition
Speaker 1: that when you can be a house that offers a lot,
Speaker 1: there's power in that. And there's there's something about increasing
Speaker 1: your presence physically that makes it easier.
Speaker 10: Absolutely, absolutely, I think is this There's going to be
Speaker 10: more consolidiation in this space for that same reason. You
Speaker 10: want to be a giant or nothing.
Speaker 1: Right, And I'm asuming clients come to you they want
Speaker 1: a lot of things that they can play with or
Speaker 1: work with. Hey, you have shared with us your ten
Speaker 1: outrageous predictions for private equity in twenty and twenty four.
Speaker 1: What's your most outrageous?
Speaker 10: So I've seen that some of them, you know, in
Speaker 10: the past, some of them did happen.
Speaker 1: So maybe not so outrageous.
Speaker 10: You know, I guess the most outrageous is probably Karla
Speaker 10: i Can and Nelson Pels buying all the distressed funds
Speaker 10: out there. I think I put the forty billion number
Speaker 10: in there. There will be lots of fallout from funds.
Speaker 10: There has to be some some cleanup, and there aren't
Speaker 10: many players doing that already, So these guys or similar
Speaker 10: entities could probably do a lot in that space.
Speaker 3: Hey, one thing I was really surprised to see on
Speaker 3: your predictions for twenty twenty four was Amazon creating an
Speaker 3: online private equity exchange, this so called category killer.
Speaker 2: Carol and I've.
Speaker 3: Spoken about the past couple of years the idea of
Speaker 3: private equity. You know, private equity providers want to access
Speaker 3: to people's farrow one case, they want to make this thing,
Speaker 3: you know that just not just high net worth individuals
Speaker 3: have access to. What do you mean by Amazon doing this?
Speaker 10: I think the asset class needs fluidity. A few a
Speaker 10: few years ago, it wasn't really needed because the retail
Speaker 10: investors were not playing in that game. Today it's a
Speaker 10: complete different story and they I think these people especially
Speaker 10: need to know that there is a way out right.
Speaker 3: But that's one of the reasons why returns have been
Speaker 3: good is because you get that high return in exchange
Speaker 3: for locking up your money for you know, ten twelve years.
Speaker 10: Yeah, but you can still get a very decent return
Speaker 10: even if you leave the show, you know, in the
Speaker 10: in the in between, right, And that's that's an option,
Speaker 10: it's not. I guess that most people stay where they are,
Speaker 10: and ninety nine percent of the paper, the private equity paper,
Speaker 10: stays where it is. Trades account for roughly one percent.
Speaker 10: My bet is that, especially if such tool exists, you know,
Speaker 10: we may go to five percent.
Speaker 5: I love this one.
Speaker 1: They're about Michael Jordan, Serena Williams and Blue Owl consolidate
Speaker 1: private equity sports investments, I mean sports private equity.
Speaker 5: Man, it's a love affair.
Speaker 11: Prediction.
Speaker 10: Prediction like this one could happen. I don't know about
Speaker 10: the names, I don't know about the people, but but
Speaker 10: there's private equity and sports, as you said, is a
Speaker 10: love affair, and there's a lot to be done in
Speaker 10: the space. And it's still pretty you know, it's it's
Speaker 10: I mean, there's much more to be done.
Speaker 1: Thanks to Antoine, founder and chairman at Triago.
Speaker 3: Okay, so Antwan just now talking about private equities involvement.
Speaker 3: They're so called love affair with sports. Private equity also
Speaker 3: well known when it comes to content and Hollywood at
Speaker 3: least now. That brings us to the Bloomberg BusinessWeek cover story.
Speaker 3: It's about the masters of hipster cringe that now have
Speaker 3: hardware and some Wall Street cash.
Speaker 1: Love the story and in fact it is available in
Speaker 1: the new issue of Bloomberg Business Week, which is available
Speaker 1: on newstands, now online and on the Bloomberg terminal. It
Speaker 1: gets inside A twenty four, the indie film company behind
Speaker 1: the film's uncut Gems and Ladybird and the award winning
Speaker 1: TV hits Euphoria and Beef. In twenty twenty two, A
Speaker 1: twenty four rays two hundred and twenty five million dollars
Speaker 1: from a group of investors, including private equity firm Stripes,
Speaker 1: that value the company at two and a half billion dollars,
Speaker 1: a staggering amount in the indie film world.
Speaker 3: Felix Gillette wrote the story. He's Media, Entertainment and Telecom
Speaker 3: editor for Bloomberg BusinessWeek. He's also the author of It's
Speaker 3: Not TV, The Spectacular Rise Revolution in Future of HBO.
Speaker 3: Felix began by talking about a twenty four bolstered now
Speaker 3: by Wall Street riches as it's making a run, it's
Speaker 3: scaling up its indianess.
Speaker 12: Yeah, it's kind of a fascinating time for the company.
Speaker 12: They've had this amazing run over the past year. They
Speaker 12: started as an indie film distributor, which is a very
Speaker 12: unglamorous role, and just by having good taste and picking
Speaker 12: good movies and doing a really good job of hyping movies,
Speaker 12: you know, small budget movies that they picked up at festivals,
Speaker 12: they've grown into this force somewhat of an outsider in Hollywood.
Speaker 12: And yet this year, if you look at the Academy
Speaker 12: Award nominations, they again have two nominations for Best Picture,
Speaker 12: Zone of Interest and Past Lives. They've kind of mastered
Speaker 12: the art of these small, you know, five to ten
Speaker 12: million dollars budget movie, you know, original voices, aw tar
Speaker 12: driven and the problem with that is.
Speaker 8: Those movies don't make a ton of money.
Speaker 12: And so, you know, they raised all this money, they
Speaker 12: have this high valuation and the next step in their
Speaker 12: evolution is really to grow into you know, what you
Speaker 12: might call a mini major in Hollywood and try and
Speaker 12: basically start making bigger movies. Maybe not like you know,
Speaker 12: Marvel sized movies, but in that range of you know,
Speaker 12: thirty forty fifty sixty seventy million dollar budget movies.
Speaker 5: And to do that, you know, you have to take
Speaker 5: bigger risks.
Speaker 8: It's not as easy. You have to move into.
Speaker 12: New genres, which they're really trying right now a lot
Speaker 12: of different things. I mean, it's kind of fascinating to
Speaker 12: see all the different intellectual property they're buying up. They're
Speaker 12: working with bigger stars, they have their first movie with
Speaker 12: the Rock is in development.
Speaker 1: Felix companies like this, I'm always like, I mean, who
Speaker 1: are the people behind it? Like, how did you know?
Speaker 1: Tell us a little bit about kind of their origins
Speaker 1: and how it all came up on your radar.
Speaker 12: I think the one thing that really distinguishes them from
Speaker 12: a lot of the indie film companies we've seen rise
Speaker 12: and fall over years is that they do have very
Speaker 12: strong roots on Wall Street. So Daniel Katz, who's the
Speaker 12: CEO of the company, before he started A twenty four,
Speaker 12: he did a stint at Guggenheim and he was running
Speaker 12: their entertainment investment division. And also but just like not
Speaker 12: talking about their business very often and letting this kind
Speaker 12: of mystery void and filling it with you know, they
Speaker 12: have these, they have a peril that sells for a
Speaker 12: lot of money online. They can do these like sneaker
Speaker 12: drops for like a twenty four hats and a twenty
Speaker 12: four Totacs, which is.
Speaker 3: It's all right, So I kind of want to go
Speaker 3: a couple of different directions with this. You mentioned the
Speaker 3: New York angle here, Felix, and I'm wondering how geography
Speaker 3: plays a part in this, because when we think of Hollywood,
Speaker 3: we think of literally Hollywood. Does that geographical distinction matter.
Speaker 11: I think it does.
Speaker 12: I mean, I think they play up their outsider status
Speaker 12: and they have a lot They've had a lot of
Speaker 12: success with that. I mean, in some ways, the business
Speaker 12: model is very similar to what Mirrormax did in the eighties.
Speaker 1: It reminds me of yeah.
Speaker 12: Yeah, it's very similar, and I think they did, you know,
Speaker 12: consciously model themselves after that. You know, if you look
Speaker 12: at their mix of movies, it's always been kind of
Speaker 12: like a mix of really high brow kind of oscar
Speaker 12: bait movies and then at the same time they do
Speaker 12: horror films and if you look at a twenty four, yeah,
Speaker 12: they have these two Best Picture nominees this year with
Speaker 12: a zone of interest in past lives, but they also
Speaker 12: their top you know, probably the most lucrative film that
Speaker 12: they had this year was a horror movie Talk to Me.
Speaker 12: So having that kind of high brow mix is very
Speaker 12: much like Mirromax. The difference, obviously, is that Mirrormax with
Speaker 12: the Weinstein brothers. You know, they were very out there
Speaker 12: in the press always throughout their rise before they sold
Speaker 12: to Disney, and A twenty four very much took an
Speaker 12: opposite approach in terms of their company culture and how
Speaker 12: they present themselves of the world.
Speaker 11: Well, the first.
Speaker 1: Paragraph alone, we've had been fun reading in the newsroom.
Speaker 1: I'm not going to tell anything more because there's a
Speaker 1: movie they made. It was a musical, but it maybe
Speaker 1: isn't for the family, so can't read it on there.
Speaker 1: I always love the stuff you do, Felix. Thanks so much.
Speaker 1: Felix de Lap, Media Entertainment and Telecom editor for Bloomberg
Speaker 1: Business Week. This is the cover story of the new issue.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
Speaker 2: each weekday starting at two pm Eastern on applecar Play
Speaker 2: and androyd Auto with the Bloomberg Business App. You can
Speaker 2: also listen live on Amazon Alexa from our flagship New
Speaker 2: York station. Just say Alexa play Bloomberg eleven.
Speaker 1: Thirty Plenty ahead in our second hour of the weekend
Speaker 1: edition of Bloomberg Business Week, including Elon Musk's underground tunnel
Speaker 1: project that was supposed to be the next generation of
Speaker 1: hyperspeed mass transit and instead has hit a muddy and
Speaker 1: dare we say toxic roadblock, while boring companies tiny Las
Speaker 1: Vegas Loop is less hyperloop and more stories of chemical burns,
Speaker 1: broken promises, and a puddle of toxic sludge.
Speaker 3: Also ahead well on the topic of Elon Musk, We've
Speaker 3: got everything you need to know about driving Tesla's polarizing
Speaker 3: electric pickup. You know it, it's the cyber truck. Elon
Speaker 3: and Detroit Automaker's got a break this week on the
Speaker 3: Bloomberg exclusive news of the demise of Apple's car program.
Speaker 3: We got the details from Bloomberg's Mark German, who broke
Speaker 3: the story.
Speaker 1: Yeah, so We've got a lot on cars in Elon
Speaker 1: and Apple in the next sixty minutes. First up, though
Speaker 1: this hour, Tim, here's a surprising stat almost fifty two
Speaker 1: percent of recent college grads are working jobs that do
Speaker 1: not require a college degree. This is what is referred
Speaker 1: to as underemployment.
Speaker 3: It's kind of staggering, it is, and I think that's
Speaker 3: why people are questioning whether or not it's worth it
Speaker 3: to go to college.
Speaker 1: Yeah, it's a really good question. And for those who
Speaker 1: do find themselves underemployed after graduation, it can be incredibly
Speaker 1: difficult to get career earnings on track. It all just
Speaker 1: kind of builds from there.
Speaker 3: Okay, So on that theme, and with the cost of
Speaker 3: attending a time top ranked US college now pushing close
Speaker 3: to ninety thousand dollars a year, Yeah, you heard that right,
Speaker 3: it does have many people wondering if a college degree
Speaker 3: is still worth it. Our next guest, well, he says
Speaker 3: it is. Jim Keyes is the former CEO of two
Speaker 3: Fortune five hundred companies, Blockbuster and A seven eleven. Also
Speaker 3: the founder of the nonprofit Education Is Freedom Foundation. He's
Speaker 3: got a new book out. It's called Education Is Freedom.
Speaker 3: The Future Is in Your Hands. He joined Carol in
Speaker 3: our New York studio.
Speaker 5: We're in a unique bubble right now with three and
Speaker 5: a half percent unemployment and there are a lot of
Speaker 5: jobs out there that don't require a college degree, that
Speaker 5: are very well paying jobs. The question is where will
Speaker 5: we be when we have seven eight percent unemployment? Because
Speaker 5: of course, these things are cycles and it will happen
Speaker 5: at some point in the future, and that degree will
Speaker 5: help you differentiate yourself. Think of it as your brand.
Speaker 5: At some point, you're gonna have to raise money, You're
Speaker 5: gonna have to apply for a job, and not having
Speaker 5: that degree will make it difficult to compete with others who.
Speaker 1: Do you know the story about the amount of student
Speaker 1: debt that's out there, and kids who've gotten college degrees,
Speaker 1: they're indebted and it's taking them years to pay it
Speaker 1: back because they haven't gotten necessarily a job that has
Speaker 1: made it easy to manage that debt.
Speaker 5: Well, I'm going to give you a classic business example. Yeah,
Speaker 5: you would never invest in a company based on today's returns.
Speaker 5: You basically run a net present value of future earning
Speaker 5: streams and discount it back for today's dollars. I'm not
Speaker 5: sure why we don't look at college as an investment
Speaker 5: in ourselves, because it's not going to pay back in
Speaker 5: today's dollars, but it will pay back over time. If
Speaker 5: you look at all of the statistics about having a
Speaker 5: degree versus not having a degree. Now, this doesn't hold
Speaker 5: for every degree that you get or every job that
Speaker 5: you have, but on balance, that degree does give you
Speaker 5: far more earning power over your life. And here's the
Speaker 5: way I like to look at it. Getting a college
Speaker 5: degree is an investment in yourself that pays dividends for
Speaker 5: the rest of your life. Right, So think of it
Speaker 5: as a business investment in yourself.
Speaker 1: It's interesting because you are so all in on education.
Speaker 5: Oh yeah, And.
Speaker 1: It's interesting when you've got schools now that are sixty
Speaker 1: seventy eighty ninety thousand dollars a year that automatically make
Speaker 1: it kind of problematic for some people to afford them.
Speaker 1: And again they have to tack on a pile of
Speaker 1: debt that doesn't go away so easily.
Speaker 5: I had to address the same thing because I've had
Speaker 5: people Now I'm out there on social media, I've got
Speaker 5: kids going, yeah, it's easy for you to say, Boomer,
Speaker 5: you know you had it easy. College was cheap, so
Speaker 5: I ran the numbers and when I graduated from college,
Speaker 5: my tuition was seven five hundred dollars a year in
Speaker 5: today's dollars is fifty five thousand a year. So yes,
Speaker 5: it's a little bit more today, but not extraordinarily higher.
Speaker 5: And this is a really important point. Endowments have been
Speaker 5: massively improved today versus twenty thirty, forty fifty years ago.
Speaker 5: And college discount rates, this is a really important factor
Speaker 5: that no one takes into consideration, are as high as
Speaker 5: forty five, fifty, sometimes sixty percent discount rate. In other words,
Speaker 5: the amount of scholarship money that they provide. So beware
Speaker 5: being intimidated by the sticker price because the actual price
Speaker 5: may be significant.
Speaker 1: The thing I will say about scholarships having gone through
Speaker 1: the college route with my own daughter, and that there's
Speaker 1: not a ton of academic scholarships anymore. There's a lot
Speaker 1: on the sports side of things, and then there's a
Speaker 1: lot on depending on your economic well being or not
Speaker 1: so well being. And I'm so glad it's there for that,
Speaker 1: but there's a lot of people in the middle that
Speaker 1: kind of get stuck with that debt load there is.
Speaker 5: The middle is tough, and it's always been tough, and
Speaker 5: I guess if you look back at history, this is
Speaker 5: not unique to today. We've always had that challenge of
Speaker 5: kids that really can't afford it are in a much
Speaker 5: better position to get scholarships. The kids who can afford
Speaker 5: it almost doesn't matter. Is that middle group that are challenged.
Speaker 5: But again, I can't stress enough from two perspectives. From
Speaker 5: the individual's perspective, right, it's critical important to differentiate yourself
Speaker 5: down the road and make that investment. But for a corporation,
Speaker 5: you know you remember from from a bio I ran
Speaker 5: two fortune five hundred companies, right, we had a hard
Speaker 5: time in employing an educated workforce at that store manager level,
Speaker 5: and that's even more challenging today with three and a
Speaker 5: half percent unemployment. So if we're going to be competitive,
Speaker 5: if our corporations are going to be competitive twenty thirty
Speaker 5: forty years from now, we better step up and recognize
Speaker 5: the importance we'll go there.
Speaker 1: Because I do feel like before the pandemic, and very
Speaker 1: much so after the pandemic, the role of the corporation
Speaker 1: and kind of taking care of employees. What do you
Speaker 1: think should be the role of employers when it comes
Speaker 1: to helping to educate their workforce.
Speaker 5: Here's the way I look at it. It's a it's
Speaker 5: a classic can turn everything into a classic business problem.
Speaker 5: It supply and demand, right, Yeah, we're the demand. Businesses
Speaker 5: are the demand for an educated workforce, and yet we
Speaker 5: very rarely make the investment in that education state and
Speaker 5: local government that trains public school kids. And so today
Speaker 5: my recommendation in the book, it's a bit of a
Speaker 5: call to action to corporations to see the need for
Speaker 5: investing and how do we do that through technology? You know,
Speaker 5: we've we've got such an opportunity to transform education with
Speaker 5: things like AI.
Speaker 1: How we do it?
Speaker 5: Yeah, digital learning, there's so much opportunity, but that's not
Speaker 5: going to happen at a state and local government level.
Speaker 1: So who needs to do it?
Speaker 5: The companies? I think corporation should, and ultimately I think
Speaker 5: they will once they've realized that this supply and demand
Speaker 5: problem is a problem.
Speaker 1: I'm want to kind of go back to some of
Speaker 1: the stuff you and I were just talking about on air.
Speaker 1: Peter Thiel, who has said, eh, you don't have to
Speaker 1: go to college wrongs. If Peter was here right now,
Speaker 1: what would you say to him?
Speaker 5: I would say, please stop. And here's why. If you
Speaker 5: give a young person an excuse and say you don't
Speaker 5: need to go to college, they're going to take it.
Speaker 5: They're gonna take it. So just step back from this
Speaker 5: and think about global competitiveness. The United States since about
Speaker 5: twenty twelve twenty fifteen has gone from high fifties and
Speaker 5: graduates post secondary graduation rates down to forty. Now COVID
Speaker 5: contributed to that, to climb, but we're going in the
Speaker 5: wrong direction. Meanwhile, China has gone exactly opposite. They have
Speaker 5: gone from the forty percent range up to nearly sixty
Speaker 5: and climbing. They're doubling down on the importance of an
Speaker 5: educated populist and an educated workforce. And this issue is
Speaker 5: critically important to corporate America if we dial forward and
Speaker 5: our ability to sustain competitiveness will depend on an educated
Speaker 5: workforce demand for the supply that is lagging right now?
Speaker 1: What's the answer? And I think about I mean, I'm
Speaker 1: one of seven kids and my parents it was all
Speaker 1: about getting a college education. That was so important. My
Speaker 1: dad came out of World War two a GI GI
Speaker 1: bill went to like, this was from the get go,
Speaker 1: you can do whatever you want after you to college
Speaker 1: was kind of the mission here. How have we gotten
Speaker 1: away from it? In your view, Yeah.
Speaker 5: We're in this weird bubble of the availability of technology,
Speaker 5: but not the application of technology. And some of it
Speaker 5: comes down to how are we funded state and local
Speaker 5: governments the challenges of that. So we spend a lot
Speaker 5: of money, and we are spending a lot of money,
Speaker 5: but we can spend it far more efficiently. I don't
Speaker 5: think the solution will happen leaving it up to state
Speaker 5: and local governments.
Speaker 11: I hope that.
Speaker 5: Corporations will see that they are ultimately the demand and
Speaker 5: want to step up because the technology is available today
Speaker 5: to completely transform the way we teach and the way
Speaker 5: we learn. We saw a little you know and I
Speaker 5: were talking about, you know during cool the pandemic. Yeah, yeah,
Speaker 5: during the pandemic wasn't so great for some. It wasn't
Speaker 5: so great for some. But here's what happened. It was
Speaker 5: a massive improvement in the availability and access that wasn't there,
Speaker 5: particularly for the underprivileged. It's there now. What we haven't
Speaker 5: done is integrated those platforms, upgraded the user content to
Speaker 5: make it eye popping. So those kids that were hating
Speaker 5: their online class with then play video games for four
Speaker 5: or five hours, right, So you can make school just
Speaker 5: as engaging. That's the challenge, and that will come, that's
Speaker 5: our next step.
Speaker 1: But do we have to be careful about technology? Yay, great, right, Jim.
Speaker 1: But I mean I also think about the importance of
Speaker 1: part of school is social skills, learn to communicate, like.
Speaker 5: Exactly what's the balance here? Well, and that's too. You
Speaker 5: just made my point. That's why a formal education still
Speaker 5: is and will be important for quite some time because
Speaker 5: it's more than just learning. You can learn online virtually anything, right,
Speaker 5: But it's those meta rights. Yeah, yeah, but it's those
Speaker 5: meta skills, it's those soft skills that I've outlined in
Speaker 5: the book, things like curiosity, creative, creativity, critical thinking. Those
Speaker 5: skills are things that you hone in a classroom working
Speaker 5: with others.
Speaker 1: If there's one thing, one thing you could change, or
Speaker 1: one step that you think and I'm assuming it sounds
Speaker 1: like what you're saying is it's on the side of
Speaker 1: corporations to really step up here. What would be the
Speaker 1: step that the world needs to take to improve this?
Speaker 5: Well, the first step I think is we've got to
Speaker 5: get beyond fear, because I think fear is the big
Speaker 5: culprit here right about that In the book, right about
Speaker 5: a whole chapter on fear and a chapter on confidence,
Speaker 5: because confidence is so important for learning and preparation. But
Speaker 5: fear is the killer because we're afraid of so much.
Speaker 5: We're afraid of some of us are afraid of teachers, unions.
Speaker 5: We're afraid that kids are being indoctrinated. We're afraid of
Speaker 5: you know, this and that and this and that, all
Speaker 5: these horrible things that are buzzing around, and it's contributing
Speaker 5: to this narrative that maybe you don't even need school. Well,
Speaker 5: if we can reverse that fear, and you think about
Speaker 5: the antecdote to fear its knowledge. So if we can, ironically,
Speaker 5: if we can reverse the fear replace it with not
Speaker 5: knowledge and understanding and confidence, then I believe that will
Speaker 5: help us recognize the opportunity because we are there right
Speaker 5: on the cusp of being able to completely transform the
Speaker 5: way we teach and learn.
Speaker 1: If we don't do this, what do you think is
Speaker 1: the outcome or the impact in our country.
Speaker 5: I am concerned both for our corporations and global competitiveness
Speaker 5: of America, but also for the country itself. All the
Speaker 5: way back to Jefferson, Alexis Dtopfel came from France and
Speaker 5: said with Jefferson that the sustainability of a democracy depends
Speaker 5: on an educated populace.
Speaker 1: And you get into this, this whole idea of the
Speaker 1: polarization that we see. You believe that this is going
Speaker 1: to be the way that we get rid of some
Speaker 1: of that.
Speaker 5: Right, I do. I believe it's ultimately the solution because
Speaker 5: so much of this polarization is fear and going back
Speaker 5: to FDRs and in doctrination speech all we have nothing
Speaker 5: to fear of but fear itself, right, and we are
Speaker 5: in the grips of fear, and it's just taking us down.
Speaker 5: It's just distracting us from so much potential to move
Speaker 5: forward as a people.
Speaker 3: Our thanks to Jim Keyes, former CEO of Blockbuster and
Speaker 3: seven eleven and the founder of the nonprofit Education Is
Speaker 3: Freedom Foundation.
Speaker 1: You're listening to Bloomberg BusinessWeek coming up. It was meant
Speaker 1: to provide fast and convenient transportation to the Las Vegas community.
Speaker 1: Instead it's racking up safety violations. How Elon Musk's Vegas
Speaker 1: tunnel project is causing chemical burns to its workers. That
Speaker 1: story is next.
Speaker 5: This is Bloomberg.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern. Listen
Speaker 2: on Apple car Play and then Brout Auto with a
Speaker 2: Bloomberg Business act or watch us live on YouTube Jimmy, Elon.
Speaker 1: Musk and EBS check Elon Muskin, satellites and space exploration
Speaker 1: via SpaceX A check. Then there's the brain Elon's neuralleak project.
Speaker 3: Okay, some news there recently too, so we can go
Speaker 3: ahead and say check I think at this point, but
Speaker 3: don't sign me.
Speaker 7: Up for it.
Speaker 1: What we haven't earned much about in a while is
Speaker 1: Elon's toneling venture the Boring Company, that is, until.
Speaker 3: I think it's fair to say uncheck on this one.
Speaker 1: Exactly well, which is why our Bloomberg Business Week team
Speaker 1: had to take do some digging around no pun intended.
Speaker 1: They found out that the Boring Company's tiny Las Vegas
Speaker 1: loop is all that's come of Musk's promise and his
Speaker 1: promises overall to build super fast mass transit hyperloops. Workers
Speaker 1: say it's tunnels, meantime, are packed with chemical sludge. This
Speaker 1: is a story by Max Chafkin and Sarah McBride of
Speaker 1: our Bloomberg News team.
Speaker 3: Max is Bloomberg Business Week columnists also contributor to the
Speaker 3: Elon Inc Podcast a new episode dropping tomorrow onto the
Speaker 3: Bloomberg Terminal and on bloomberg dot com slash elon Ing
Speaker 3: maxis here in Art's.
Speaker 1: It called the Sludge Episode.
Speaker 5: Yeah, it's a sludge special.
Speaker 3: Since we talked about the sledge, we got to start
Speaker 3: with the sludge because it's actually kind of serious, pretty
Speaker 3: serious laughing but causes some pretty bad health effects.
Speaker 11: Yeah.
Speaker 6: So, I mean, the genes of this story are these
Speaker 6: documents that we obtained that Sarah McBride and I obtained
Speaker 6: from the state OSHA, that's the Occupational Health and Safety Administration,
Speaker 6: and it basically shows lots of complaints from workers about
Speaker 6: unsafe conditions, including this issue of like these toxic muck,
Speaker 6: which the workers say they've had to wade through. The
Speaker 6: reason it's toxic, it's it's not necessarily like they're doing
Speaker 6: something that's totally outside the norms of tunneling. These chemicals
Speaker 6: are are sort of standard chemicals that are used. But
Speaker 6: the allegation from the workers is that corners are being cut,
Speaker 6: they're trying to move too fast, they're doing it on
Speaker 6: the cheap, you know. And the funny thing about this,
Speaker 6: or it's not really funny but these are the things
Speaker 6: that Elon Musk has set out to do to some extent,
Speaker 6: Like the whole point of the Boring Company, like many
Speaker 6: of Musk's companies, has been to cut unnecessary costs. The
Speaker 6: thing that we're hearing with this story, however, and I
Speaker 6: think you see echoes of this elsewhere in Elon Musk's empire,
Speaker 6: actually is that they're not necessarily finding lots of innovations there.
Speaker 6: They're ultimately ending up with a normal tunneling company essentially
Speaker 6: that happens to have.
Speaker 11: A safety record that some would say is troubling.
Speaker 3: Okay, So here's here's what's a little puzzling to me.
Speaker 3: Max Elon Musk is guy who's literally putting chips in
Speaker 3: people's heads. He's doing something that only until SpaceX did it,
Speaker 3: governments taking a whole of government approach could do. We've
Speaker 3: been able to dig tunnels for transportation purposes for over
Speaker 3: a century. Why is he running into so much trouble here?
Speaker 5: So I think I.
Speaker 6: Wrote one of the first stories about this back in
Speaker 6: early twenty seventeen, talked to Elon Musk at the time
Speaker 6: about this, and just to put a slightly different spin
Speaker 6: on what you just said, and which relates to this,
Speaker 6: which is that SpaceX is not the first company, not
Speaker 6: the first private company to build rockets, right, the shuttle,
Speaker 6: all the things that NASA done were built by government contractors.
Speaker 13: Right.
Speaker 3: Well, what I guess what I'm saying is he's doing
Speaker 3: it in a way that is really innovative anything well
Speaker 3: yeh one hundred percent very much reusable stuff is that
Speaker 3: was a really.
Speaker 11: Innovative contracting process.
Speaker 6: They used contracts, They sold him directly the government at
Speaker 6: a fixed price, which was new. But one of the
Speaker 6: core things that SpaceX did was like go out and
Speaker 6: look for existing technology and find a way to improve
Speaker 6: on it and do it cost effectively. Now, there are
Speaker 6: a lot of potential inefficiencies in the world of aerospace,
Speaker 6: and Musk has had a much harder time in some
Speaker 6: other fields finding similar sort of levels of inefficiency, just
Speaker 6: sort of low hanging fruit. And I think the tunneling
Speaker 6: example is one you know, he talked about back in
Speaker 6: twenty seventeen. He talked, you know, it costs a billion
Speaker 6: dollars a year, and it takes a mile. It takes
Speaker 6: a year to dig a mile, and it costs like
Speaker 6: a billion dollars a mile. Or some some very large
Speaker 6: figure like that, and now Boring is doing maybe a
Speaker 6: little better on cost, although it's hard to know, but
Speaker 6: when you look at the actual pace that they're going,
Speaker 6: it's basically a mile a year. It's it's not that
Speaker 6: much faster than existing tunneling projects. And when you look
Speaker 6: at the end result, we're not talking about mass transit.
Speaker 11: We're not talking about you know, big subway cars full
Speaker 11: of people, which.
Speaker 6: Is actually what many people in Las Vegas, you know,
Speaker 6: would have hoped for, because traffic there is really bad.
Speaker 11: We're talking about are Tesla's.
Speaker 6: Just normal cars that can take three people and a driver.
Speaker 6: They're not even driverless, and they're limited to forty miles
Speaker 6: an hour. So we're so far away from the kind
Speaker 6: of grand visions.
Speaker 11: And just to remind.
Speaker 6: People what Elon Musk originally promised here was New York
Speaker 6: to DC in twenty nine minutes San Francisco, Los Angeles. Yeah,
Speaker 6: in thirty five sounds awesome. You could commute from you know,
Speaker 6: you could like commute halfway across the country, and you know,
Speaker 6: it just hasn't gone that way. And I think, you know,
Speaker 6: in all sorts of different ways across Elon Musk's empire.
Speaker 6: You're seeing maybe fissures, cracks, ways in which the promises
Speaker 6: are not necessarily matching up.
Speaker 11: You know, we saw this ruling with pay in Delaware.
Speaker 6: You know, of course, lots of problems documented at x
Speaker 6: slash Twitter, and here you just have like a very
Speaker 6: visceral way where you have these grand promises and the
Speaker 6: end what you have is basically a glorified shuttle bus system.
Speaker 6: It doesn't take you, you know, from one end of
Speaker 6: the country to the other. It takes you from one
Speaker 6: end to the Las Vegas Convention Center to the other.
Speaker 1: Is it just a case of that's all I can
Speaker 1: do so far there?
Speaker 6: Yeah, I mean to some extent, Yes, I mean the
Speaker 6: thing that if you squint and I think the reason
Speaker 6: that this was approved it's partly that was approved because
Speaker 6: Las Vegas is a low regulation city. These are mostly
Speaker 6: on private property. There isn't a ton of oversight from
Speaker 6: the government as there might be in other places. But also,
Speaker 6: you know, they're talking about opening these stations throughout the city,
Speaker 6: but you know, when we talk to people on the
Speaker 6: ground there, it is a long way from happening. It's
Speaker 6: also hard to see how this is going to make
Speaker 6: a huge impact on traffic. Again, when you're talking about
Speaker 6: you know, moving people three at a time, very very slowly,
Speaker 6: a lot of things would have to happen, and there
Speaker 6: are lots of reasons for skepticism. I mean, you know,
Speaker 6: digging underground is hard. There's a reason it costs so
Speaker 6: much money. It costs so much money because there's stuff
Speaker 6: you can run into, complicated property rights, and of course.
Speaker 1: So the company is not going to create a trillion jobs.
Speaker 6: Well yeah, which is what Elon Musk told me back
Speaker 6: in twenty seventeen. They were going to create a trillion jobs.
Speaker 6: I'd say it's a long way from that.
Speaker 11: To put it.
Speaker 6: To put it mildly, I mean, there there was sort
Speaker 6: of flirtations or talk of various projects. There was one
Speaker 6: in Maryland, one in Los Angeles, one in Chicago. And
Speaker 6: in all these cases, you know, he was bringing along
Speaker 6: some of the most famous politicians in the United States.
Speaker 6: So it was Larry Hogan, you know, governor of Maryland,
Speaker 6: who former governor Maryland, who was you know, at the time,
Speaker 6: a big star of the Republican Party.
Speaker 11: You know Rama Manuel, you know.
Speaker 6: Former chief of staff to President Obama, mayor of Chicago,
Speaker 6: Eric Garcetti, star Mayor of Los Angeles, like a lot
Speaker 6: of people went for this and they just you know,
Speaker 6: they haven't been able to deliver. And I think there's
Speaker 6: probably some element of distraction. Obviously Musk has a lot
Speaker 6: going on. And also I think just tunneling this is hard.
Speaker 6: You're dealing with dirt.
Speaker 1: And a lot of people up in space and stuff
Speaker 1: in space is really hard. Tapping into the autorway industry.
Speaker 1: I mean, this is like going back to Tim's point, right,
Speaker 1: how many times were like, you know, you count out
Speaker 1: Elon Musk or whatever, and then he's like, whoa, look
Speaker 1: what he did. And I understand there's a lot on
Speaker 1: his plate right now and that's to be distracting. But
Speaker 1: should we not rule him out? Has he not found
Speaker 1: the right boring tool?
Speaker 4: Is?
Speaker 1: What is it? Max?
Speaker 6: Well, I would say, I mean, I think it's there's
Speaker 6: probably a bunch of different factors going on.
Speaker 11: I mean, one thing that was different.
Speaker 6: With SpaceX is you had a very interested buyer, which
Speaker 6: was NASA. You had the US government wanting to finance
Speaker 6: this thing, right looking for somebody just like Elon Musk,
Speaker 6: and Elon Musk sort of finding a way to fit himself,
Speaker 6: you know, to sort of make himself look like the
Speaker 6: thing that the US government want.
Speaker 11: Elon Musk is really good at this.
Speaker 6: We're seeing this with Starlink as well, where like, you know,
Speaker 6: he's this what would seem like a civilian technology, these
Speaker 6: these internet services for as Musks I told it to
Speaker 6: Walter Isaacson, I think he said, you know, it's to
Speaker 6: Netflix and chill.
Speaker 11: Increasingly, this looks like a potential military tool. This is
Speaker 11: gonna this is gonna.
Speaker 6: Lead to government contracts and and could be a big
Speaker 6: line of business for SpaceX. You know, I think what
Speaker 6: happened is in twenty sixteen, twenty seventeen.
Speaker 11: Donald Trump becomes president.
Speaker 6: There's a lot of talk about infrastructure, and in general,
Speaker 6: there's been a lot of talk about wanting to spend
Speaker 6: public money on infrastructure, but there hasn't been a ton
Speaker 6: of delivery, right, And I think a big part of
Speaker 6: this was predicated on this, you know, trillion dollar the
Speaker 6: thing that Trump was saying, which is like a trillion
Speaker 6: dollar infrastructure plan. And you know, ultimately infrastructure, whether it's
Speaker 6: Elon Musk or anyone else, is very expensive. It's politically
Speaker 6: dicey because you have land rights and so on, and
Speaker 6: it it just hasn't come together with the speed that
Speaker 6: SpaceX came together.
Speaker 2: Max.
Speaker 3: I want to dig into something that you said, that
Speaker 3: you mentioned a little earlier, which is the idea that
Speaker 3: back in twenty seventeen twenty eighteen, a lot of politicians
Speaker 3: were kind of jumping up and down with the idea
Speaker 3: of collaborating with Elon Musk. What I noticed in your
Speaker 3: piece is that that tone has totally shifted and they
Speaker 3: are now local politicians who are saying hey, thanks, but
Speaker 3: no thanks.
Speaker 6: Yeah, including the mayor of Las Vegas, who is you know,
Speaker 6: Las Vegas is an interesting place because the city of
Speaker 6: Las Vegas actually doesn't contain most of the Strip, so
Speaker 6: it's not like she has oversight overall this. As I said,
Speaker 6: a lot lot of it is on public property. But
Speaker 6: with Caroline Goodman, the mayor, longtime mayor, her husband was
Speaker 6: a long time Mayriorg. She's like one of the probably
Speaker 6: the most famous politician in Las Vegas, is essentially criticizing
Speaker 6: it and criticizing it on the grounds that it's unpractical. She,
Speaker 6: you know, from the start, has raised these safety concerns
Speaker 6: which I think look prescient when you look at this
Speaker 6: oh shut thing and yeah, and she's essentially saying, you know,
Speaker 6: this would be great if it could actually happen, but
Speaker 6: I don't see it. And that again, is that does
Speaker 6: represent a bit of a departure for Elon Musk. You
Speaker 6: do feel like in Las Vegas at least, you know,
Speaker 6: some of the magic, some of that kind of Elon
Speaker 6: Musk stardust. It just doesn't feel quite you know, shine
Speaker 6: quite as brightly. Maybe that's the lights of the strip
Speaker 6: drowning it out. I don't know, but it definitely feels
Speaker 6: like there's something different going.
Speaker 11: On there all right.
Speaker 1: Back to the workers though and their conditions. Is this
Speaker 1: something unusual in terms of infrastructure projects? And I'm always
Speaker 1: a little wary when there's a line in your story.
Speaker 1: Although no one has been killed at a boring company
Speaker 1: work site so far in Vegas, it doesn't just speak
Speaker 1: to how tricky it is.
Speaker 6: Yeah, as I said, these are not like no one's
Speaker 6: saying they're using chemicals that are worse than anybody else.
Speaker 6: What what the workers are saying, what you see in
Speaker 6: these ocean complaints are sort of like little things that
Speaker 6: maybe add up to a dangerous situation. And you know,
Speaker 6: we have seen similar stories like this around Tesla's car
Speaker 6: factories around there. You know, Reuter's had a great piece
Speaker 6: some weeks ago about you know, death at a SpaceX site.
Speaker 11: So you know, I mean when you're when you're radically.
Speaker 6: Trying to cut costs, when you're going around telling people
Speaker 6: that the only law that matters are the laws of physics, right,
Speaker 6: I think I think to some extent they're going to
Speaker 6: be costs of that, and we're seeing that, and and
Speaker 6: but we should say, like this isn't This is probably
Speaker 6: more an indictment of boring company being less innovative rather
Speaker 6: than it's like the most dangerous place in the you.
Speaker 3: Know, there's just hasn't been proof rock three yet Max.
Speaker 3: And that, by the way, is the tunnel boring machine.
Speaker 1: Read the story you'll find out more.
Speaker 3: Yeah, which is you know, promise, over promising and under delivery.
Speaker 3: They have good names of home ts Eliot would be crouded.
Speaker 1: All right, Max, Thank you so much. Max Chapkin. Here
Speaker 1: is Bloomberg Business Week column a store featured in the
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Speaker 1: Big News this past week. By big, I mean really
Speaker 1: big in the tech space, in the car space. It
Speaker 1: was a Bloomberg exclusive by Bloomberg's Mark German. And what
Speaker 1: Mark found out. Apple is abandoning plans for a self
Speaker 1: driving car, giving up on billions in potential revenue and
Speaker 1: the dream of selling what one executive called the ultimate
Speaker 1: mobile device.
Speaker 3: Reached this crossroads Tuesday when I told employees it was
Speaker 3: winding down the car project and reassigned some of the
Speaker 3: staff to its AI efforts. The decision followed months of
Speaker 3: frenzied meetings between top executives and the company's board over
Speaker 3: how to proceed.
Speaker 1: The sudden demise of Apple's car program is another bleak
Speaker 1: sign for the electric vehicle market. It's also a welcome
Speaker 1: boon for automakers Detroit. Those in Detroit and Tesla perhaps
Speaker 1: breathing a sigh of relief. As Apple's exit eliminates a
Speaker 1: potential threat in an EV market that is slowing and
Speaker 1: frees up a pool of talented engineers who may be
Speaker 1: out of a job.
Speaker 3: Tesla's CEO, Elon Musk, wasn't shy about commenting, celebrating the
Speaker 3: move by sharing a post on his ex platform with
Speaker 3: a saluting emoji and a cigarette. For more on the
Speaker 3: Apple news, we spoke to Mark German, Bloomberg News chief
Speaker 3: technology correspondent, who broke the story exclusively on Bloomberg.
Speaker 14: Apple officially canceled work on a self driving electric car.
Speaker 14: Jeff Williams, the company's chief operating officer in Kevin Lynch,
Speaker 14: the company's vice president of technology, who was foremost in
Speaker 14: charge of the car project, announced to the team it's
Speaker 14: about two thousand people that the project, called Titan internally,
Speaker 14: is winding down. There will be layoffs of some hardware people.
Speaker 14: Hardware people will have the opportunity to apply to other teams.
Speaker 14: Other people working on the project are being shifted to
Speaker 14: Apple's AI and Machine Learning division to work on generative
Speaker 14: AI products, a key future component of the company. There
Speaker 14: will some There will be some people moved to the
Speaker 14: Vision pro as well, with that focus on spatial computing.
Speaker 14: But this is a bombshell development.
Speaker 11: This is a very rare retreat for Apple.
Speaker 14: This is a project that they've invested over ten billion
Speaker 14: dollars in. They've worked on it for over ten years.
Speaker 14: It's had many fits and starts, It's had many directional changes.
Speaker 14: About a month ago, we reported that Apple had reached
Speaker 14: a make or break point for the car project. We
Speaker 14: reported at the latest incarnation of the project after several
Speaker 14: meetings with the company's board of directors, was a new
Speaker 14: budget around a Level two plus car that was a
Speaker 14: downgrade from the original vision of a Level four or
Speaker 14: a Level five fully autonomous vehicle, and they also pushed.
Speaker 5: Back and delayed that.
Speaker 14: Since then, there have been more discussions and executives made
Speaker 14: the final decision earlier this month. I'm told to completely
Speaker 14: shutter the project. So again, this is Apple canceling work
Speaker 14: on an electric car. This is a significant development for
Speaker 14: one of the company's most ambitious attempts at a new
Speaker 14: product category in its history. So this is a very
Speaker 14: significant day for the company.
Speaker 1: Yeah, very significant. It's not like it's just you know,
Speaker 1: an idea on the back of a napkin. I mean
Speaker 1: they had been pursuing, as you said, Mark, for over
Speaker 1: ten years. The road was rough though, in Apple's pursuit
Speaker 1: in terms of bringing a car to market. I mean,
Speaker 1: you know this company, for them to step up the
Speaker 1: amount of time, money, people, effort that they have put
Speaker 1: into something like this, I don't know. How do you
Speaker 1: get your head around it. Does it mean just completely done?
Speaker 1: Does it mean that they could buy into something in
Speaker 1: the future, or they're just saying this isn't a market
Speaker 1: for us.
Speaker 14: Certainly there are considerations on the table to acquire an
Speaker 14: existing car maker. Obviously, you've seen what's happened in the
Speaker 14: car industry lately. Rivian has not been doing so hot.
Speaker 14: You've seen other car companies struggling, Lucid being one. Tesla
Speaker 14: has had its own ups and downs. It's a very
Speaker 14: very thin profit margin business. It's not the typical business
Speaker 14: that Apple likes to get into. But there is some
Speaker 14: risk in abandoning this project. What if Alphabet, Google, Waimo,
Speaker 14: Amazon with Zookes, some of these other big technology companies,
Speaker 14: certainly the Chinese phonemakers, they're all getting into cars. What
Speaker 14: if one of these companies comes up with a great
Speaker 14: car idea One day and successfully creates a new ecosystem
Speaker 14: of its own to rival Apples, and they can risk
Speaker 14: pulling people away from Apple into a Google car or
Speaker 14: an Amazon car and getting them on their other products
Speaker 14: in the ecosystem. So there's certainly some very long term
Speaker 14: risk here, But in the short term this may be
Speaker 14: a good thing for Apple being able to focus resources
Speaker 14: towards perhaps more promising areas in the short term like
Speaker 14: spatial computing and generative artificial intelligence.
Speaker 3: Well, that's exactly where I wanted to go with you
Speaker 3: next mark to you. Is this more about Apple saying
Speaker 3: no to a car and less about Apple focusing resources
Speaker 3: on AI? Or is it the other way around here?
Speaker 3: Is it all about Apple saying wait a second, the
Speaker 3: rise in interest in generative AI over the last eighteen
Speaker 3: months has just been massive, and we need to go
Speaker 3: all in on this such that we need to actually
Speaker 3: cancel our work on the car in order to do that.
Speaker 14: It's certainly not the latter tim This is Apple making
Speaker 14: a decision to wind down the car project because they
Speaker 14: weren't getting anywhere. It kept getting delayed, it kept getting
Speaker 14: more expensive. They have these hundreds and thousands of employees
Speaker 14: that are brilliant people, and we have places for them.
Speaker 14: Generative AIS a key area, let's throw them there. There's
Speaker 14: a lot of artificial intelligence machine learning overlap between work
Speaker 14: on an autonous vehicle and what needs to be done
Speaker 14: for the future of AI on phones and watches and
Speaker 14: earbuds and glasses and such, so it makes sense to
Speaker 14: reallocate those resources. But don't be mistaken, this is a
Speaker 14: decision all about canceling the car. They just happen to
Speaker 14: have an excellent soft landing for the resources that have
Speaker 14: been invested in the vehicle project.
Speaker 3: Our thanks to Mark German, Bloomberg News Chief Technology correspondent.
Speaker 1: All right, Tim, so, no Apple cars hitting the road,
Speaker 1: and yet look around, after a two year delay that
Speaker 1: began with a smashed window gaff, the most anticipated vehicle
Speaker 1: of the year is out and about in the United States.
Speaker 3: It's not easy to get your hands on one, but
Speaker 3: our own Hannah Elliott sure did. She's Bloomberg Pursuits autocolumnist,
Speaker 3: and she spent a full day driving the cyber truck
Speaker 3: all around Hollywood, and needless to say, she got plenty
Speaker 3: of attention. She joined Carol Los Angeles to tell all
Speaker 3: of us why she was surprised that Tesla's futuristic electric
Speaker 3: pickup truck might actually be worth the hype.
Speaker 13: I was surprised because we've been talking and hearing about
Speaker 13: this truck since twenty nineteen when it debuted, and really before,
Speaker 13: So you know, it's just kind of I roll my
Speaker 13: eyes and think, can it really be that great? And
Speaker 13: by now is it even outdated? We've been waiting for years,
Speaker 13: And yes it is polarizing. Yes the brutalist looks may
Speaker 13: not be for you, but I have to say it
Speaker 13: was surprisingly nice. I enjoyed it. It was fun, and
Speaker 13: I loved seeing all of the positive reactions that people
Speaker 13: had to it, because you don't get that very often
Speaker 13: these days.
Speaker 1: I have to say, your pictures which are going out
Speaker 1: on YouTube and also on Bloomberg Streaming, when you shared
Speaker 1: them with our YouTube producer Elizabeth, I'm like, those are sick.
Speaker 1: First of all, the pictures you took are just gorgeous
Speaker 1: in how you set them. But it is a crazy,
Speaker 1: crazy car and really interested interesting. So tell us about
Speaker 1: kind of the outside and then take us inside.
Speaker 13: So the cyber truck, as I'm sure you've heard, is
Speaker 13: a stainless steel truck and you know, this again is
Speaker 13: not new technology. You might remember the DeLorean from Back
Speaker 13: to the Future in the eighties.
Speaker 1: Did it feel like a DeLorean in many ways? I
Speaker 1: mean not on the inside.
Speaker 13: The inside actually feels really modern and nice, but certainly
Speaker 13: on the outside. It's like if the Dolorian was a truck,
Speaker 13: it would be that. You know, one cool thing I
Speaker 13: really loved about it is that the back of the
Speaker 13: truck bed there's a rolling cover that you can lock,
Speaker 13: and that is really it comes.
Speaker 1: With the truck.
Speaker 13: You deploy it at the push of a button, so
Speaker 13: you can lock the truck bed, which is really great
Speaker 13: and practical, and the inside is really modern, clean, very
Speaker 13: well thought out. I have to give props to Tesla.
Speaker 13: Of course we've heard reports about some poor craftsmanship, but
Speaker 13: this particular cyber truck I drove, I didn't detect any
Speaker 13: of that, all right.
Speaker 1: You were kind of renting it for the day, so
Speaker 1: you had to be probably careful at how much you
Speaker 1: good push it because I know you like to check
Speaker 1: it out on like different terrain. But tell us a
Speaker 1: little bit about the ride and what it was like.
Speaker 13: So I wanted to have a very la day with
Speaker 13: this truck, which as you might imagine, would involve a
Speaker 13: photo shoot, a coffee run, maybe a lunch, you know,
Speaker 13: somewhere a little bit fancy in West Hollywood. I even
Speaker 13: went to home depot with it and was practically swarmed there.
Speaker 13: The owner of the truck from Touro did ask that
Speaker 13: I not take it off road, and that's that's fair.
Speaker 1: So this truck admittedly was coddled.
Speaker 13: We don't actually know how it will do over the
Speaker 13: long term, and we certainly don't know how it would
Speaker 13: do off road in a real rugged environment. This truck
Speaker 13: weighs almost seven pounds, so it's a lot of weight,
Speaker 13: but also a six hundred horsepower and instant torque, so
Speaker 13: it does feel really fast. Of course, it's silent. The
Speaker 13: brakes are really great, and the rear wheel steering makes
Speaker 13: it actually pretty easy to park and gives it some
Speaker 13: great turning radiuses when you're parking. And the valets I know,
Speaker 13: when I had them park it at the Chateau Marmont.
Speaker 1: I don't believe you went there. They appreciated it. I
Speaker 1: love it. Listen, you pop into a lot of different cars,
Speaker 1: a lot of you know, similar kind of I don't know,
Speaker 1: trucks with a lot of hef I think about the
Speaker 1: Hummer ev You're right about this in the story the
Speaker 1: Rolls Royce specter. I mean, how did it compare to
Speaker 1: some of the other ones that you might put in
Speaker 1: this category.
Speaker 13: Very comparable in terms of driving range, in terms of power,
Speaker 13: in terms of driveability, I would say very comparable. I
Speaker 13: actually back to the driving range. You know, Tesla says
Speaker 13: about three hundred and forty miles on a single charge.
Speaker 13: Probably in real life driving it's going to be less
Speaker 13: than that. But you know, comparable to the Rivian R
Speaker 13: one t about the same horse power. But I will
Speaker 13: say again back to this nimble maneuverability in small clothes sections.
Speaker 13: I actually felt the cyber truck, for its size, really excelled.
Speaker 13: I really did think they did a great job with that.
Speaker 1: All right, But if you're sitting in the rear seat,
Speaker 1: it ain't so comfortable, right because I mean, if you
Speaker 1: look at the roof, the pitch is pretty rough.
Speaker 13: Yes, as with any truck, the rear seat is a
Speaker 13: little bit compromised. And with the cyber truck, you've got
Speaker 13: this steep roofline that is almost like a triangle shaped
Speaker 13: and it does compromise the rear headroom a little bit,
Speaker 13: especially if you're really tall, you might notice it. So
Speaker 13: you're not going to want to put your tallest friend
Speaker 13: or your kid brother in the back if he's a
Speaker 13: big guy. But you know, it wasn't horrible. I would
Speaker 13: say it wasn't horrible. It's a three person bench seat
Speaker 13: in the back. It's doable.
Speaker 1: Favorite thing about it, Hannah.
Speaker 13: You know, I actually loved how it really caused an
Speaker 13: emotional reaction for people. And like I said at the
Speaker 13: start of this conversation, so many things look safe and
Speaker 13: ubiquitous and they all just look the same. And whatever
Speaker 13: you think of the cyber truck, at least they have
Speaker 13: a strong point of view and a strong design, and
Speaker 13: least in Los Angeles, people got really excited about it.
Speaker 1: I love seeing the enthusiasm. Really cool, and I love
Speaker 1: how you finish up your story that when your time
Speaker 1: was up and you had to deliver it, you got
Speaker 1: up early because you wanted, what one more cup of
Speaker 1: coffee in LA Are you ready to give it back?
Speaker 12: Yeah?
Speaker 10: I have to say.
Speaker 13: You know, some cars I'm actually glad to give get
Speaker 13: rid of and give back this cyber truck.
Speaker 1: I would have kept it for the weekend. At least
Speaker 1: it's fun. I love it. Hey, how much does it cost?
Speaker 1: For quickly?
Speaker 13: So the one I drove costs around one hundred thousand dollars.
Speaker 13: Cheaper versions cost about seventy six thousand, and then we're
Speaker 13: going to have some higher performance versions coming out later
Speaker 13: for one hundred and twenty or so.
Speaker 1: Such great stuff. Love it, love the photos, Love you,
Speaker 1: Love your story. Bloomberg pursuits auto columnist Hannah Elliott out
Speaker 1: there in La Hannah, take care.
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