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Speaker 2: Apple right now are down about one point six percent.
Speaker 2: They were hired by as much as four percent earlier
Speaker 2: in the session, more than four percent earlier in the session.
Speaker 2: This after the company reported earnings yesterday. Not a lot
Speaker 2: of great news in the numbers that came out, some
Speaker 2: real weakness in China and the iPhone. We're going to
Speaker 2: talk about all that in just a minute. First, though,
Speaker 2: we got to talk to Mark German about this Bloomberg
Speaker 2: News exclusive that he reported just in the last couple
Speaker 2: of hours. Mark German is chief Technology correspondent. He joins
Speaker 2: us from Los Angeles. Mark, you came out just in
Speaker 2: the last hour with this story about some big news
Speaker 2: Apple canceling this sort of meta glasses competitor. What are
Speaker 2: the details here?
Speaker 3: Thanks for having me. I mean, as we know, the
Speaker 3: Holy Grail and the mixed reality industry are augmented reality glasses,
Speaker 3: and so Apple's been working on this for some time.
Speaker 3: Obviously the vision pro it's a technical and engineering marble,
Speaker 3: but a commercial failure. Even the people who paid four
Speaker 3: thousand dollars for it really aren't using it. So looking
Speaker 3: for the next big thing in the MR space, and
Speaker 3: that is AR glasses. So the original vision was a
Speaker 3: lightweight pair of glasses that you connect to the phone,
Speaker 3: use the phone's chip, use the phone's operating system to
Speaker 3: power some of it, the battery. That had too many
Speaker 3: technical hurdles to overcome, so they pivoted to making MAC glasses.
Speaker 3: So AAR glasses that you can connect to your Mac
Speaker 3: obviously beef your battery, more processing power, additional engines for
Speaker 3: graphics in AI. But now they've pulled the plug on that.
Speaker 3: Apple is abandoning Project N one zero seven. That's what
Speaker 3: they call it internally, that's their augmented reality MAC glasses.
Speaker 3: And now back to the drawing board. They need to
Speaker 3: figure out future for this platform. They've spent tens of
Speaker 3: billions of dollars investing in augmented and virtual reality, the
Speaker 3: whole XR pipeline. Right now, I would say this is
Speaker 3: not great they're lost, and it's it's it's not good.
Speaker 3: It's not good, especially when you realize how behind they
Speaker 3: are on AI too.
Speaker 2: Well, this is it's funny because we're talking about this
Speaker 2: with Caroly. I had yesterday like this could be you
Speaker 2: know where I was saying, this could be an option
Speaker 2: for them because Meta glasses have been somewhat successful. I mean,
Speaker 2: they're not selling off the shelves and they're you know,
Speaker 2: it's still early technology. And Carolin made the point, well,
Speaker 2: you know, Apple's not necessarily first car and Carol made
Speaker 2: this point too, Apples not necessarily first to stuff, but
Speaker 2: oftentimes they're their best to stuff. So I assume that yes,
Speaker 2: they would come out with some sort of wearable piece
Speaker 2: of eyewear that would really change the game. Does that
Speaker 2: mean they're they're just done with this?
Speaker 3: We're talking about two different things here, right, So we're
Speaker 3: talking about augmented reality glasses versus smart glasses. Right, So
Speaker 3: the Meta raye ND glasses, those don't have displays, those
Speaker 3: don't have augmented reality. Right. Meta is not going to
Speaker 3: have AR glasses on the market until twenty seven on
Speaker 3: the earliest, So we're still two three years out from that.
Speaker 3: Actually happening now. I do think there is a world
Speaker 3: where Apple could come out with some fashionable glasses that
Speaker 3: have cameras and speakers and batteries not built in in
Speaker 3: order to compete with the Meta ray bound glasses. That
Speaker 3: being said, Meta will be adding a small little display
Speaker 3: into their glasses next year. It's not an AAR display,
Speaker 3: but it's going to be something similar to what you
Speaker 3: saw from Google Glass a decade ago. Those are going
Speaker 3: to be quite expensive. But certainly this is not a
Speaker 3: good moment for Apple. This is I would say, this
Speaker 3: is terrible. I quite frankly wouldn't be surprised if they
Speaker 3: all but abandon their mixed reality efforts, but also want
Speaker 3: to be surprised if they pull things together and they
Speaker 3: try to get a model out in the future. I
Speaker 3: would say three to five years from now is the
Speaker 3: time horizon on an Apple standalone augmented reality glasses. So
Speaker 3: these glasses that we're talking about today are something a
Speaker 3: little bit in between what Meta has on the market
Speaker 3: today and the eventual vision. Right, So standalone glasses the
Speaker 3: glasses themselves, they have the displays, they have the OS,
Speaker 3: they have the battery read the heap of the engine.
Speaker 3: You don't need a connected to the phone. It's a
Speaker 3: phone replacement. Apples is a bit of a mix. It
Speaker 3: has the lenses, it has some onboard processing power, some
Speaker 3: of the guts and the glasses, but you're going over
Speaker 3: a cable and using mostly what's inside of the computer.
Speaker 4: Right.
Speaker 3: Meta has no displays. It's phone SYNCD what they're launching
Speaker 3: in twenty twenty seven. This is their Orion prototype they
Speaker 3: showed in October of twenty twenty four, just a few
Speaker 3: months ago, that wirelessly pairs with a puck that you
Speaker 3: keep in your pocket and a wrist device and between
Speaker 3: those three mechanisms that's the whole operation of the device.
Speaker 3: But what we really want are fully standalone glasses and
Speaker 3: quite a ways out from that, all right, what's going.
Speaker 5: On at Apple?
Speaker 6: Like, are they just like is this just a you know,
Speaker 6: they're having a tough kind of design moment or what's
Speaker 6: going on that they are It sounds like kind of
Speaker 6: completely walking away from it.
Speaker 3: This is a company that couldn't figure out a self
Speaker 3: driving car. This is a company that hasn't been able
Speaker 3: to figure out AI. This is a company that is
Speaker 3: not able to figure out ar VR. For the time being.
Speaker 3: The good news for them is they're still selling a
Speaker 3: lot of iPhones and that's going to allow them to
Speaker 3: keep having money to throw at R and D budgets
Speaker 3: and try to figure something out. And I think they
Speaker 3: eventually will, but it's a scary time right now.
Speaker 7: I can hear of you.
Speaker 3: Okay, Well, there's a lot of interest for a major
Speaker 3: new product, and there's just not It just isn't something.
Speaker 3: It's about re skinning the existing widgets. They're going to
Speaker 3: have thinner iPhones, foldable iPhones, all sorts of stuff, smart
Speaker 3: home appliances, foldable iPads. But in terms of a revolution,
Speaker 3: we're far from it.
Speaker 6: But I mean, you know what's going on inside? Are
Speaker 6: they just waiting mark for other people to kind of
Speaker 6: figure some things out before they kind of jump on board,
Speaker 6: or do they not have the right people engineers, design
Speaker 6: folks like, like, what is it that's missing? Maybe in
Speaker 6: the mojo of Apple of today.
Speaker 3: They've lost a lot of their visionaries, right, they lost
Speaker 3: a lot of their top engineering talent over the last
Speaker 3: several years. It's really about you know, vision and willing
Speaker 3: to take bold risks to accomplish the next big thing.
Speaker 3: They didn't want to take the bold risk getting a
Speaker 3: car out. Fine, they took the bold risk getting the
Speaker 3: vision pro out, but that took a little too long
Speaker 3: and it was a bit of a failure at least
Speaker 3: till now. I mean, I think with the proper marketing
Speaker 3: and the proper price points, they'll be okay. But at
Speaker 3: some point they're going to have to figure some stuff
Speaker 3: out and make some hard decisions.
Speaker 2: You said, Apple is still selling a lot of iPhones.
Speaker 2: We know that, but they're not selling as many as
Speaker 2: analysts thought they would sell, especially, Okay, so.
Speaker 3: I will let's just be honest here, right, Like the
Speaker 3: analysts come up with these numbers, they come up with
Speaker 3: these forecasts, right, and then Apple announces a certain number, right,
Speaker 3: and that either beats the number from the forecasts or doesn't.
Speaker 4: Right.
Speaker 3: But it's not like you're comparing Apple numbers to Apple numbers.
Speaker 3: You're comparing Apple numbers to numbers that a bunch of
Speaker 3: analysts came up with themselves, right. And so the question
Speaker 3: is where are they getting this data from?
Speaker 4: Right?
Speaker 3: Why do we think that's how many they would have sold?
Speaker 3: Is it how many they should have sold? How many
Speaker 3: they thought they were going to sell? Right? So I
Speaker 3: do think there are some fundamental questions about the whole
Speaker 3: comparison between analyst estimates and what really were sold. I
Speaker 3: personally think the better metric is how many they sold
Speaker 3: versus how many they sold in the year prior. Are
Speaker 3: they showing growth? What percentage of growth would we have
Speaker 3: liked to see? Right? In terms of China, I think
Speaker 3: that's more of a clear cut example of their performance. Right,
Speaker 3: they dipped three billion dollars year. Every year, they're down
Speaker 3: seven billion dollars compared to two or three years ago
Speaker 3: in the holiday season. Right, So that's a bit more
Speaker 3: cut and dry. The China things extremely concerning. I think
Speaker 3: the iPhone to me was actually pretty good.
Speaker 6: I mean they're still selling one hundred and twenty four
Speaker 6: billion dollars worth of stuff. Like I always think about
Speaker 6: this mark when the numbers cross and we all kind
Speaker 6: of just throw them out there. I mean, they still
Speaker 6: sell a ton of stuff. That's just a quarterly number.
Speaker 3: Yeah, that's a lot. That's a four percent year of
Speaker 3: year growth. That's good, right. I Mean we were at
Speaker 3: a time period about a year and a half ago
Speaker 3: we talked a lot of bit about this about how
Speaker 3: they were declining on an annual basis quarter after quarter, right,
Speaker 3: that was not a great time for them. But now
Speaker 3: we're back in growth mode and that's why the stock
Speaker 3: is up today. It reflects that they have growth in
Speaker 3: the holiday perier. They're going to grow again in the
Speaker 3: March quarter. So I think there are positive signs on
Speaker 3: an overall basis. In terms of the products, I think
Speaker 3: the Mac and the iPad were sneaky good hits recently.
Speaker 3: And you know we've talked about John Turnis, the head
Speaker 3: of Mac iPad engineering, right being in line to be
Speaker 3: the future CEO. I mean, I think that we're just
Speaker 3: keep pushing in that direction by having the main stays
Speaker 3: in the Apple product pipeline doing as well as they're doing, right.
Speaker 3: I think the questions about Apple are the periphreeze.
Speaker 2: Yeah, how about that services revenue? Though that came in
Speaker 2: above estimates.
Speaker 3: It was great. Yeah, app store, cloud services, advertising business
Speaker 3: at Apple is growing quite steadily, so that's helping on
Speaker 3: the margins for them too. Obviously there's some fear around
Speaker 3: the app store outside of the US the regulatory environments,
Speaker 3: but it even seems like that's tapering down to right.
Speaker 3: So services I think quite the positive. Can you imagine
Speaker 3: if Apple didn't get into the services business and did
Speaker 3: the full potion to services about five years ago, where
Speaker 3: they would be right now. I mean, that whole initiative
Speaker 3: has really I'm not going to say saved the company,
Speaker 3: because it's hard to save a company that's making one
Speaker 3: hundred and twenty billion a year, but it's done wonders
Speaker 3: for them.
Speaker 6: Well, Tim and I talk about you know, we look
Speaker 6: at our monthly statements or you know how much I
Speaker 6: pay out to Apple on the services side, not even
Speaker 6: on the hardware side. It's pretty remarkable. Hey, there's a
Speaker 6: couple of other headlines that have come out over the
Speaker 6: past week or so. Apple and Spacelink to support Starlink
Speaker 6: network of iPhones, some different things coming out.
Speaker 5: What do we need to know about that?
Speaker 3: So this is an interesting one. So T Mobile in
Speaker 3: the US is now rolling out a beta version of
Speaker 3: their Starlink partnership with SpaceX. And even though Apple already
Speaker 3: has its own global network for satellite infrastructure through Global Star,
Speaker 3: if you're a T Mobile customer in the US, you're
Speaker 3: gonna have a great experience using Starlink on your iPhone
Speaker 3: when this rolls out officially in the coming months, and
Speaker 3: so I'm very bullish on satellite networking, very bullish on
Speaker 3: the future of satellite connectivity for devices. I think this
Speaker 3: is going to be a great thing for iPhone customers,
Speaker 3: but also are Android customers. Why this was newsworthy is
Speaker 3: because all the disclosures to date is that this would
Speaker 3: be a Android specific technology. But getting it on the
Speaker 3: Apple ecosystem I think is great and so as an
Speaker 3: as an Apple customer, I'm excited to take it first.
Speaker 5: Man, I'm a starlink customer. It's pretty amazing. It's pretty amazing. Anyway,
Speaker 5: go ahead, Hey.
Speaker 2: Mark, just about forty five seconds left. We haven't gotten
Speaker 2: your take on the deep seek news earlier this week.
Speaker 2: How do you see that relating to Apple?
Speaker 3: Okay, so twofold. On one hand, it validates Apple's model
Speaker 3: for artificial intelligence, right, But on the other hand, Apple's
Speaker 3: model for artificial intelligence this is not very good. And
Speaker 3: you have this random small company that nobody ever heard
Speaker 3: of until last weekend eating Apple's lunch, right, So it
Speaker 3: validates it, but also shows how far behind they are
Speaker 3: at the same time, So I don't think it's a
Speaker 3: great thing for Apple. I'm telling you Apple needs to
Speaker 3: figure something out on their AI stuff. I just don't
Speaker 3: understand how a company this resource rich, with the right
Speaker 3: people in place, have been able to just completely miss
Speaker 3: the boat on the biggest new technology since the Internet.
Speaker 5: Well unbelievable.
Speaker 6: Like I said, the tone in your voice, I haven't
Speaker 6: heard that for a while. When it comes to Apple specifically,
Speaker 6: he is Mark German.
Speaker 5: He's amazing.
Speaker 6: Bloomberg News Chief Technology correspond be sure too to check
Speaker 6: out his weekly newsletter. You can find it at Bloomberg
Speaker 6: dot com and of course I always on the Bloomberg terminal.
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Speaker 6: President Donald Trump intends to move ahead with plans on Saturday.
Speaker 5: Tomorrow to impose twenty five.
Speaker 6: Percent tariffs on Mexico and Canada and a ten percent
Speaker 6: levee on China. This was coming from the White House earlier,
Speaker 6: the White House Press Secretary commenting on it.
Speaker 9: I saw that.
Speaker 10: Report and it is false. I was just with the
Speaker 10: President in the Oval Office, and I can confirm that
Speaker 10: Tomorrow the February first deadline that President Trump put into place,
Speaker 10: that a statement several weeks ago continues, the President will
Speaker 10: be implementing tomorrow a twenty five percent tariffs on Mexico,
Speaker 10: twenty five percent tariffs on Canada, and a ten percent
Speaker 10: tariff on China.
Speaker 6: All right, That, of course is the White House Press
Speaker 6: Secretary Caroline Levitt earlier today when she said, I saw
Speaker 6: that report and it was false. There were earlier reports
Speaker 6: today that these tariffs would not be imposed until March first,
Speaker 6: so she was clarifying that no, yes, indeed, it's going
Speaker 6: to start tomorrow, So certainly something that we're following. We
Speaker 6: also let some US economic news this morning on inflation.
Speaker 6: The FED, of course watches very closely. So let's get
Speaker 6: into it. Let's tie it all together in terms of
Speaker 6: what it means for the US economy and really the
Speaker 6: global economy. With us right now is Molly Smith, Bloomberg
Speaker 6: News Global Economy Reporter. She's right here with Tim and
Speaker 6: me in studio and out there in our DC bureau
Speaker 6: where so much news is coming lately, Bloomberg News Global
Speaker 6: Economy Reporter and a current Hey, Molly, I do want
Speaker 6: to start with you.
Speaker 5: We did get inflation data, we got.
Speaker 6: To read on consumers in terms of spending incomes, and
Speaker 6: yet this is all against the backdrop, like I don't know,
Speaker 6: do we not even care about any of that anymore?
Speaker 6: Because tariffs are now front and center.
Speaker 9: It really is.
Speaker 11: I mean, I honestly even was forgetting that we already
Speaker 11: had pc this morning.
Speaker 9: So much has happened since then.
Speaker 5: Good point.
Speaker 11: So and of course this data for PCE is back
Speaker 11: in December, so I mean tomorrow, February first, like man like,
Speaker 11: December is really old news right now. And we also
Speaker 11: kind of had a good sense of how this data
Speaker 11: was going to come in because we got the GDP
Speaker 11: data yesterday, which is quarterly and wraps a lot of
Speaker 11: this stuff into it. So not too many surprise is
Speaker 11: coming out of the December data, but just wrapping up
Speaker 11: what we had a sense of that inflation is well,
Speaker 11: maybe coming down depending on how you look at it,
Speaker 11: but in a lot of ways still moving sideways, and
Speaker 11: consumer spending tough to bet against the consumer, even if
Speaker 11: it looks like there are signs that disposable incomes are
Speaker 11: slowing in the savings rate is dipping, so reasonable to
Speaker 11: think that, you know, consumer spending would start to slow,
Speaker 11: especially if tariffs are enacted, if that is meaningfully going
Speaker 11: to increase consumer prices. But it's just really hard to
Speaker 11: bet against the American consumer. That's tales all the time.
Speaker 6: And a good that we have you here with Molly Smith,
Speaker 6: and you look at the global economy, you look at
Speaker 6: the US economy. Tarriffs twenty five percent on Mexico, Canada,
Speaker 6: ten percent on China. I mean, these are the US's
Speaker 6: largest trading partners. There's a lot that goes back and forth.
Speaker 6: Your initial read on if this sticks, if it sticks
Speaker 6: around for a while, what it could mean.
Speaker 12: Well, certainly a big headline, add a depressed briefing int
Speaker 12: White High. Even though the President has warned about these tariffs,
Speaker 12: imposing them tomorrow for everyone, I think is probably at
Speaker 12: the shock end of the scale for most economists. But
Speaker 12: still we have to wait and see to your point,
Speaker 12: just what exactly our details in this The Press Secretary
Speaker 12: did say will be twenty five percent on Canada and
Speaker 12: Mexico and the ten percent on China. But we need
Speaker 12: to know are we talking about all of the goods,
Speaker 12: the merchandise goods across the borders and come in from
Speaker 12: those countries. We need to know will there be any
Speaker 12: exemptions for some sectors? How long will these tariffs be
Speaker 12: in place for I mean, will there be mitigating circumstances
Speaker 12: where Canada and Mexico and China complete their case. So
Speaker 12: there's lots of you know, devil in the detail on this,
Speaker 12: but taking it at face value, it would be quite
Speaker 12: a shock because you're talking about, you know, everything from food,
Speaker 12: avocado's my colleagues are all about today, lumber crossing the
Speaker 12: border from Canada, cars and car parts go back and
Speaker 12: forth on both borders, and then of course when it
Speaker 12: comes to the US and China. I mean, obviously, China's
Speaker 12: the world's biggest trading nation. They're the factory of the world,
Speaker 12: so you know, the whole gambit of can asumer goods
Speaker 12: will be coming in from that side of things. Now,
Speaker 12: you can argue to talk about how much of an
Speaker 12: inbact ten percent would have, but I think the bigger
Speaker 12: focus for now, the bigger folcus I think right now
Speaker 12: is on that twenty five per cent level. Chann and sorry,
Speaker 12: Canada and Mexico.
Speaker 2: Well to that end, And I'm wondering who you think
Speaker 2: absorbs the majority of these tariffs, especially those from Mexico
Speaker 2: and from Canada. Does it, in your view, happen that
Speaker 2: it's the consumer or is it the company where it
Speaker 2: eats their bottom line who absorbs more Here.
Speaker 12: So there are a few parts in this chain. Number one,
Speaker 12: the question becomes, will the exporter or the producer selling
Speaker 12: their product cut their prices to factor in the tariff.
Speaker 12: That's one side of it. The other side of it
Speaker 12: is will the buyer the importer absorb the tariff rather
Speaker 12: than pass it on? You know, if they have good margins,
Speaker 12: kind of take the tariff on board I rather than
Speaker 12: pass on to consumers. But to your point, this is
Speaker 12: where economists say the rubber hits the road. In truth,
Speaker 12: you know, these companies don't have those margins. Nobody's going
Speaker 12: to take a cut in their selling price. So these
Speaker 12: prices will eventually be passed along to consumer, pass on
Speaker 12: to main street. Now, the Treasury Secretary Scott Besson made
Speaker 12: the point recently his hearing that there are mitigatting circumstances.
Speaker 12: He made the point that it's strong dollar can offset
Speaker 12: the impact of tariffs, and they say consumer patterns will
Speaker 12: change anyway. They won't buy tariff goods or there are
Speaker 12: ways around us. But you know, writ large, there's a
Speaker 12: question mark for sure over the impact prices for consumers
Speaker 12: from tariffs.
Speaker 6: I do want to point out the tariffs would mark
Speaker 6: the first wave of trade levies in Trump's new term,
Speaker 6: and their impact will ripple well beyond Canada and Mexico
Speaker 6: as other nations brace for the possibility that they may
Speaker 6: be targeted next, and as US businesses await possible retaliatory measures.
Speaker 6: And this is the one thing that it maybe stops
Speaker 6: business from kind of moving ahead on something as they
Speaker 6: try to figure out the impact of it. Molly, I
Speaker 6: want to bring you back in here, because how much
Speaker 6: can the US economy absorb if there is a bit
Speaker 6: of a tariff war trade war here? And is it
Speaker 6: more of an impact on growth or is it more
Speaker 6: of an impact on inflation.
Speaker 11: Well, that's what we had a story out this We
Speaker 11: those just examining that exact question. And the conversation this
Speaker 11: time around really has been about inflation. But that's because
Speaker 11: inflation is you know, of course, has dominated the conversation
Speaker 11: for the last couple of years here versus in twenty nineteen,
Speaker 11: the first full year after Trump's first room taffs were enacted.
Speaker 11: You know, the inflation quote problem then was that we
Speaker 11: couldn't get up to two percent inflation, that it had
Speaker 11: been running so low for so many years coming out
Speaker 11: of the financial crisis. So it's a very different conversation
Speaker 11: now versus back then. What was really the concern that
Speaker 11: was starting to unfold was looking at how growth is
Speaker 11: starting to slow down in response to tariffs, how business
Speaker 11: investment is stalling, industrial production is contracting, those factory jobs
Speaker 11: are actually not coming back here, and how these are
Speaker 11: then going to be headwinds to growth. Of course, that
Speaker 11: all got very soon overshadowed by the pandemic and we
Speaker 11: didn't really get to see the full effects of it
Speaker 11: play out, but it's a good lesson for this time around,
Speaker 11: and that's what our story was looking at. As we
Speaker 11: just recently got new transcripts from the FED. These are
Speaker 11: verbatim closed door accounts that come out with a five
Speaker 11: year lag from those meetings that were in twenty nineteen,
Speaker 11: and we saw that it was really more the growth
Speaker 11: concerns rather than inflation that dominated the conversation back then.
Speaker 2: Well, speaking of the FED, there were a lot of
Speaker 2: questions Molly to Fed chair J. Powell earlier this week
Speaker 2: about Trump's proposed policies, and you know, just to paraphrase
Speaker 2: a little bit, he basically said, well, we haven't seen
Speaker 2: the policies enacted yet, so we can't really comment on them.
Speaker 2: We don't have a roadmap for them necessarily. Now he's
Speaker 2: now at the FED, they have their work cut out
Speaker 2: for him because they know that these tariffs are starting tomorrow.
Speaker 2: How does it change the conversation that they're having.
Speaker 11: Well, I think the flat that honestly Powell has gotten,
Speaker 11: you know from economists who have commented on this since
Speaker 11: the FED meeting on Wednesday, is that the Fed you know,
Speaker 11: communication up until Wednesday was we are data dependent. We're
Speaker 11: going away to see how economic data evolves and that's
Speaker 11: going to guide our policy and how we think about
Speaker 11: the economy. But the message that a lot of people
Speaker 11: heard on Wednesday was we're going to wait to see
Speaker 11: what Donald Trump and his administration doesn't that that's going
Speaker 11: to guid or understanding of the economy. Those are two
Speaker 11: very different things, and that's I mean, it's still just
Speaker 11: again was saying devil in the details, like there's just
Speaker 11: still so much unknown with that, and of course, how
Speaker 11: much the data of that is going to pick up
Speaker 11: as well.
Speaker 6: You know, and it makes me wonder about kind of
Speaker 6: this Goldie Locke's economy, perhap, or just write economy that.
Speaker 5: President Trump inherited in his second term.
Speaker 6: You write about it in the BusinessWeek newsletter b W
Speaker 6: Daily that is out on the Bloomberg and at Bloomberg
Speaker 6: dot com.
Speaker 5: I mean, he came into this.
Speaker 6: Second term with a lot of things doing really well.
Speaker 12: Yeah, like Molly was saying, there, you've got a very
Speaker 12: strong consumer base at the moment, you have strong aggregate GDP.
Speaker 12: The labor market is cooling, but still in pretty good order.
Speaker 12: The Fed chairman himself, Jerome Pile, said this week that
Speaker 12: the economy is in a good place. Of course, the
Speaker 12: question becomes what sort of a bouncing act President Trump
Speaker 12: faces under one hounds once a go ahead with these tariffs,
Speaker 12: how might that impact consumer confidence and business confidence? For example,
Speaker 12: he also has other programs going on, for example, a
Speaker 12: deportation program, which is a question mark for businesses who
Speaker 12: might be impacted by that labor source. But of course,
Speaker 12: on President Trump's side, he would make the point that
Speaker 12: they're also pushing for lower taxes that will spur investment.
Speaker 12: They also say higher tariffs will bring manufacturing and investment
Speaker 12: back to the US as well, and of course raise
Speaker 12: revenues to offset fiscal depths. So they're making the case
Speaker 12: for what they need to do. But I think at
Speaker 12: the very least, it's a lot of policy change for
Speaker 12: any economy to manage in a short space of time,
Speaker 12: and I think there's going to be a lot to
Speaker 12: assess that's coming at US pretty fast now in the
Speaker 12: weeks and the months ahead.
Speaker 6: We should point out too that, of course, this was
Speaker 6: a major part of President Trump's campaign, his pledges to
Speaker 6: impose sweeping tariffs. He is already ready ordered up reports
Speaker 6: there do April first on overall trade issues in tariffs
Speaker 6: that could lead him to trigger new levees or to
Speaker 6: quit the Continental Trade pack giving negotiated with Canada and
Speaker 6: Mexico in his first term. That agreement, by the way,
Speaker 6: is up for review in twenty twenty six. One thing
Speaker 6: I want to ask you, and you know, we filter
Speaker 6: all of what comes out of Washington through the financial markets,
Speaker 6: and we did see equity markets take a leg down
Speaker 6: here on news from the White House Press secretary that
Speaker 6: indeed there would be Tarr's forthcoming on Canada, on Mexico,
Speaker 6: and on China. So I do wonder the president is
Speaker 6: also sensitive to what happens in the financial markets.
Speaker 5: What is the overall thinking.
Speaker 6: Within the economic community in terms of how much of
Speaker 6: it is bluster, how much of it is still campaigning,
Speaker 6: how much of it is now a real activity, How
Speaker 6: do you make sense of it, and how much do
Speaker 6: we think that the president, once he sees some market reaction,
Speaker 6: might reverse course.
Speaker 12: It's certainly a moving target. I mean, to your point,
Speaker 12: a lot of e commists say this is a negotiating tool.
Speaker 12: Some of President Trump's own officials have made that point.
Speaker 12: I mean, Howard Lipnik in his hearing for Commerce Secrety
Speaker 12: made the point this week Tariff's circumbany us for negotiating.
Speaker 12: Scott Beston has made that point. So there is a
Speaker 12: kind of a feeling. Now. Critics would say that's complacency
Speaker 12: among the market watching community, because President Trump has made
Speaker 12: it very clear to the people during his campaign that
Speaker 12: he's going to go ahead with tariffs, and he has
Speaker 12: a mandate to do so. But then to your point,
Speaker 12: there is a question, and this is what it goes
Speaker 12: back to. Earlier the point is making about the economy
Speaker 12: and the bouncing Act. There is there a point where
Speaker 12: if markets responding negatively, would that put the brakes on
Speaker 12: President Trump's use of tariffs. This is a talking point
Speaker 12: among market watchers all the time. You'd have to say,
Speaker 12: so far, given all the tariff talks since President Trump
Speaker 12: won the election and come back to office, markets having
Speaker 12: to really toss themselves upside down on this, certainly not
Speaker 12: equity markets. There's been bigger moves in currency markets. But
Speaker 12: if we start to see equities come off sharply over
Speaker 12: the coming weeks, I think that certainly would add a
Speaker 12: fuel to this idea that there is a break in
Speaker 12: President Trump's ambitions. But I wouldn't say we're there yet
Speaker 12: on that one.
Speaker 5: It's a good point, Molly.
Speaker 6: One thing I want to ask you, though, if you
Speaker 6: know a lot of analysis, is to also come down
Speaker 6: that when it comes to tariffs, if it's kind of
Speaker 6: one big dump and we know kind of what's hitting us,
Speaker 6: that's one thing. But if it's a constant barrage every
Speaker 6: few weeks or every month about some new tariffs being levied,
Speaker 6: that is a bigger toll on the US economy, right.
Speaker 11: And to the point then of as well, what was
Speaker 11: the real factor on growth in twenty nineteen, back when
Speaker 11: in the first turn, when this was happening. The broader
Speaker 11: uncertainty about US trade policy also factors into that that
Speaker 11: businesses are really just almost paralyzed, you know, in like
Speaker 11: terms of we just don't know how this outlook is
Speaker 11: going to evolve. How can you really move forward with
Speaker 11: investments that are moving on a much longer timeline than
Speaker 11: what the White House is coming out with every other day.
Speaker 11: So that really is difficult when you're thinking about how
Speaker 11: you're going to be making, you know, multimillion billion dollar
Speaker 11: decisions and you just really have no idea when that
Speaker 11: moving target is going to hit.
Speaker 2: Yeah, I think important to look at the fine print
Speaker 2: too of what happens tomorrow, given that some products could
Speaker 2: be exempted, and you know, get an understanding for what
Speaker 2: exactly this is going to hit. Hey, next week, we
Speaker 2: do have more economic data coming a real look at
Speaker 2: the jobs market next week with Jolts with the January
Speaker 2: Employment Report survey says for at least the change in
Speaker 2: private payrolls or changeing non front payrolls, rather one hundred
Speaker 2: and sixty five thousand jobs added, what's the conversation that
Speaker 2: you're going to be having around that.
Speaker 11: Though, honestly, the bigger conversation I keep forgetting that we
Speaker 11: are getting January data, because the bigger one is more
Speaker 11: about the revisions to all of last year. So that's
Speaker 11: really where the conversation is happening. If you remember, we
Speaker 11: got a report last August, this was an initial estimate
Speaker 11: of what the revisions might show for payrolls through March
Speaker 11: of twenty twenty four, and that estimate said that payrolls
Speaker 11: would be marked down by more than eight hundred thousand
Speaker 11: and that was the biggest downward revision since two thousand
Speaker 11: and nine. That was very scary at the time and
Speaker 11: even drew a lot of attention from Congress, which usually
Speaker 11: like this is a pretty sleepy report for the most part.
Speaker 11: So that's where a lot of the eyeballs are going
Speaker 11: to be. The other big thing is we're going to
Speaker 11: see how the new population estimates are going to impact
Speaker 11: the household survey, and right this is going to be
Speaker 11: really important to the Trump administration as well, because so
Speaker 11: much of what has boosted the labor market in recent
Speaker 11: years has been immigration, and if we start to see
Speaker 11: that that's really starting to falter off, could really change
Speaker 11: our understanding of the strength.
Speaker 6: All Right, Molla Smith, thank you so much, Bloomberg News
Speaker 6: Global Economy Reporter, and of course out there in DC,
Speaker 6: Bloomberg News Global Economy Reporter.
Speaker 5: End to current.
Speaker 6: Some newmes from Meta that maybe not surprising since we
Speaker 6: kind of see a trend maybe happening.
Speaker 2: Yeah, the Wall Street Journal reports that Medicine talks to
Speaker 2: reincorporate in Texas or another state. This would not relocate
Speaker 2: its corporate headquarters from California, but it follows moves that
Speaker 2: Elon Musk companies have made as far as leaving Delaware
Speaker 2: and going to Texas. Again, the Wall Street Journal reporting
Speaker 2: that news just moments ago.
Speaker 6: And we know most of US companies right are incorporating Delaware,
Speaker 6: so this would be a little bit of a switch
Speaker 6: against the trend that we've seen for decades. All Right, folks,
Speaker 6: you are listening and watching Bloomberg Business Sweek Carol Master,
Speaker 6: Tim Stanevek, morticalm In just a moment.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 6: The nation's biggest office to residential conversion, it is hitting
Speaker 6: the market with thirteen hundred apartments carved from a million
Speaker 6: square foot brick fortress originally built to house computers and
Speaker 6: not much else, which means they didn't really care too
Speaker 6: much about window placement.
Speaker 2: No, they didn't, but after a two year transformation the
Speaker 2: fifty five year old at building in Manhattan's Financial District.
Speaker 2: For years it was used to process checks, money transfers,
Speaker 2: and other paperwork for manufacturers, handover trust and later for
Speaker 2: back office staff at a company called JP Morgan. That
Speaker 2: building now Carol It's unrecognizable.
Speaker 6: GFP real Estate is one of the developers behind the building.
Speaker 6: The firm has a portfolio of more than sixteen million
Speaker 6: square feet, focusing on operating, property management, and development of
Speaker 6: commercial real estate in addition to owning.
Speaker 5: Of course.
Speaker 6: Brian Steinwertzel, co CEO and principal of GFP real Estate.
Speaker 6: He joins us from New York City. Brian, so happy
Speaker 6: to have you here with us. As story, We've been
Speaker 6: a little obsessed with it. Contextualize it for us. How
Speaker 6: big of a project was this for your team. How
Speaker 6: difficult was it to make this conversion?
Speaker 7: Well, Carroll, Tim, thanks for having me here. This is
Speaker 7: the largest office residential conversion projects in the country to date.
Speaker 7: We took a one million square foot building, basically had
Speaker 7: to remove all of the brick from the outside of
Speaker 7: the building, carved two lightwells throughout the building, and then
Speaker 7: took all of that floor area and restacked it on
Speaker 7: top for an extra ten stories. And what results from
Speaker 7: that is over one three hundred apartments which we launched
Speaker 7: leasing this week. That will include over one hundred thousand
Speaker 7: square feet of amenities. And if you're in the building today,
Speaker 7: there is a rooftop deck, indoor and outdoor pool, coworking,
Speaker 7: pickleball courts, basketball courts, bowling alley, golf, simulators, arcades, pretty
Speaker 7: much anything anyone would want in a residential building, Brian.
Speaker 2: For years, Carol and I've been talking to folks in
Speaker 2: real estate, especially in the wake of the pandemic when
Speaker 2: people weren't coming to offices in Manhattan and other cities.
Speaker 2: But there was also a housing crunch and a lot
Speaker 2: of affordabilly issues in cities such as this. How do
Speaker 2: you make the numbers work here? Because we were told
Speaker 2: over and over again it's just too hard to do.
Speaker 2: In most buildings, the windows don't open, the bathrooms aren't
Speaker 2: in the right place, the plumbing doesn't make sense. It
Speaker 2: just doesn't work from a numbers perspective. How do you
Speaker 2: make it work?
Speaker 7: Well, we start with an extraordinary team and the team
Speaker 7: at GFP real Estate had just finished building David Geffenhall
Speaker 7: for Lincoln Center, and we brought on such a Ruddy,
Speaker 7: which is one of the top firms that does this
Speaker 7: kind of work, and along with our partner metro Loft,
Speaker 7: assembled a team that included over a thousand people that
Speaker 7: have touched this project in order to make happen. You know,
Speaker 7: New York City unfortunately has suffered a distress commercial office environment,
Speaker 7: but we are looking to make lemonade where there's lemons.
Speaker 7: And so we bought this building from the lenders and
Speaker 7: from the prior owner, and we brought on a capital
Speaker 7: partner that was willing to take the risk to do this.
Speaker 7: And with that team of over a thousand people have
Speaker 7: created this project.
Speaker 6: And you guys got what a five hundred and thirty
Speaker 6: six million dollar loan for the acquisition of the building
Speaker 6: its existing debt and the cost of conversion.
Speaker 5: And you know, so you.
Speaker 6: Did this, is it fully give us an idea of
Speaker 6: occupancy what you were seeing, give us an idea of
Speaker 6: the interest in the building.
Speaker 7: So the Financial District has done extraordinarily well over the
Speaker 7: last decade. I actually lived in the Financial District in
Speaker 7: two thousand and four, and the neighborhood is completely different today.
Speaker 7: There's tens of thousands of residents that live there, and
Speaker 7: every day there's more and more that are coming in.
Speaker 7: You know, the big building has a big capitalization, but
Speaker 7: the absorption in this market has been nothing sort of extraordinary.
Speaker 7: There were two buildings that opened up recently in the
Speaker 7: last year. Both of those are one of them is
Speaker 7: completely full and the other one has actually is almost full.
Speaker 7: And our anticipation just based on opening on Wednesday and
Speaker 7: the number of tours and inquiries we've had, which is
Speaker 7: in the hundreds, that we will lease very quickly.
Speaker 5: Can you say how quickly?
Speaker 7: Well, you know, I think for GFP real Estate and
Speaker 7: our partners were very conservative in our assumptions of how long. Yeah,
Speaker 7: but our hope is that by the end of next
Speaker 7: year will be entirely leased.
Speaker 2: Does this create some sort of new blueprint for how
Speaker 2: you move forward with conversions, is that what's next? Are
Speaker 2: you interested in converting any more buildings? How are you
Speaker 2: thinking about the path forward right now?
Speaker 7: Yeah, So, including this building, we have approximately three thousand
Speaker 7: units that are in our pipeline that we're creating. So
Speaker 7: we have several other projects that are coming down the
Speaker 7: road and will be complete. And I think what's helped
Speaker 7: us be successful is a partnership with the city and
Speaker 7: state who recognized early on in the pandemic that this
Speaker 7: was a major issue and that they had to sit
Speaker 7: with the industry and come up with a game plan
Speaker 7: for us to take these distress office buildings and create
Speaker 7: housing out of them. And so there's a program called
Speaker 7: the four sixty seven M program that the mayor and
Speaker 7: governor both put into law last year and that has
Speaker 7: helped become an accelerator for getting these kinds of buildings done.
Speaker 7: And we are, along with our partners, fully invested in
Speaker 7: these programs.
Speaker 6: Hey, one of the things, though, you know, you obviously
Speaker 6: got through it all, what was though, the largest hurdle
Speaker 6: to overcome with the office to residential conversion of this
Speaker 6: size and scope.
Speaker 7: It's it's a great. It's a great question, and I'd
Speaker 7: say there's almost like it feels like the largest hurdle
Speaker 7: every month when you're in a project of this magnitude.
Speaker 7: But this is a very complex building. It was designed
Speaker 7: to look like an IBM punch card, and the way
Speaker 7: they made the punch card lines is they actually had
Speaker 7: the facade and each floor jut in and out at
Speaker 7: different times on every different floor. And one thing that
Speaker 7: we made a decision on early on in the project
Speaker 7: is we wanted to actually carry forward that architecture but
Speaker 7: at the same time have a new window wall throughout.
Speaker 7: And so one of the most difficult things was we
Speaker 7: actually have the window wall custom made and it comes
Speaker 7: in and out on each floor and that architectural feature
Speaker 7: can still be seen from the inside and the outside
Speaker 7: of the project. But doing that and preserving that work
Speaker 7: was one of the most difficult parts of this project.
Speaker 5: But you knew you wanted to do it right. It
Speaker 5: wasn't just because you had to. You wanted to. Is
Speaker 5: that fair?
Speaker 7: Yes, it is. I think every project that we take on,
Speaker 7: and the majority of our portfolio are historic buildings. We
Speaker 7: are looking to preserve whatever can be preserved, especially the
Speaker 7: most important elements of that project, and even if it
Speaker 7: costs a little bit more or takes a little bit
Speaker 7: more time to do it important part and I think
Speaker 7: the residents that will live there will see that and
Speaker 7: feel good that this was preserved.
Speaker 2: Do the economics of this only work when you create
Speaker 2: them for rentals or would it work for sales as well?
Speaker 7: I think the hard part with sales is the building
Speaker 7: of this size you're doing. You have to do so
Speaker 7: much condo sales that it's more suited towards rental. That
Speaker 7: being said, there are a number of other conversion projects
Speaker 7: that are condo. Our organization has owned the Flat Iron
Speaker 7: Building with partners since the nineteen nineties. In that building
Speaker 7: will be turned into a condominium building, but that building
Speaker 7: has only a few dozen units, and so it's really
Speaker 7: a different scale and magnitude.
Speaker 5: Hey, Brian just quickly got thirty seconds left.
Speaker 6: Here our team Arshanali Bosik catching up with Blackstone president
Speaker 6: John Gray, and I think members of our team also
Speaker 6: talking with him. He said they're the world's largest commercial
Speaker 6: property owner. He said the worst is over for the
Speaker 6: global office market after prolonged slump fueled by the pandemic.
Speaker 6: Just got twenty five seconds here.
Speaker 7: Do you agree, Well, I certainly hope so, and I
Speaker 7: would agree.
Speaker 2: So.
Speaker 7: GFP is the largest landlord of small and medium sized
Speaker 7: tenants in New York City, and I think for a
Speaker 7: while now we've seen positive absorption and and tenants returning
Speaker 7: to the office. I think that he has it right
Speaker 7: and I hope that continues.
Speaker 6: All right, great to check in with you, and hopefully
Speaker 6: we can do so again in the future. Brian stein Wertzel,
Speaker 6: he's co CEO and principle of GFP real Estate. Joining
Speaker 6: us here in New York City.
Speaker 8: You are listening to the Bloomberg Business Week podcast. Catch
Speaker 8: us live weekday afternoons from two to five pm Eastern.
Speaker 8: Listen on Applecarplay and the Android Auto with the Bloomberg
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Speaker 2: I don't need to tell you this, but there's a
Speaker 2: lot out there for CEOs to navigate. Right now, we
Speaker 2: got breaking news from the White House on tariffs. We've
Speaker 2: been covering that this afternoon. Not to mention the new
Speaker 2: administration in the White House, their priority is geopolitical threats,
Speaker 2: technological disruption from AI and.
Speaker 6: Yeah, there are so much. Sharon Marcel is CEO of
Speaker 6: Boston Consulting Group. Here's regularly from chief executive officers from
Speaker 6: the c suite, and she joins us right now from
Speaker 6: Raleigh Durham, No, North Carolina. Sharon, good to have you
Speaker 6: here with us. You are just back from Davos. Our
Speaker 6: team too. We've all been kind of talking about what
Speaker 6: was talked about, what was top of mind, what was
Speaker 6: concerned to the things that I heard It was President
Speaker 6: Trump and artificial intelligence.
Speaker 5: What did you hear?
Speaker 13: Yeah, Carolyn, tim thanks for having me. I really appreciate it.
Speaker 13: And exactly right, just back from Davos. I'm Sharon Marcel.
Speaker 13: I'm the North America head of BCG, the Boston Consulting Group.
Speaker 13: So this is my third year at Davos. I think
Speaker 13: each each year you get a bit more out of it.
Speaker 13: And you know, I was struck by a few things
Speaker 13: in terms of Davos. I think number one was the
Speaker 13: optimism in terms of the business growth orientation. And I
Speaker 13: think that's you know, of course, particularly true in the
Speaker 13: US and then in Asia, less so in core Europe
Speaker 13: and in places like Canada and Mexico. When you spoke
Speaker 13: to some of the uncertainty there with respect to tear US,
Speaker 13: but there was, you know, a good sense of optimism.
Speaker 9: I think the other.
Speaker 6: Can I jump in for a second, because I'm just thinking,
Speaker 6: what is the story that's dominating on this Friday, and
Speaker 6: we're all trying to put some context around it. But
Speaker 6: we do have President Trump attending to move ahead with
Speaker 6: plans tomorrow to compost twenty five percent tariffs on Mexico
Speaker 6: and Canada, a ten percent leve on China. The White
Speaker 6: House has confirmed this, and this could be just step
Speaker 6: one in more tariffs to come, perhaps on other nations.
Speaker 6: We know that that has been certainly some broad expectations
Speaker 6: ahead of.
Speaker 5: Donald Trump coming into the White House.
Speaker 6: How might this news, if it was out before Davos
Speaker 6: maybe impact some of that optimism.
Speaker 13: I think what was anticipated at Davas was there would
Speaker 13: be tear us, you know. I think that was a
Speaker 13: promise during the presidential campaign, and I think that was anticipated.
Speaker 13: I also think that we did a survey of companies
Speaker 13: from around the world. Eighty five percent of companies have
Speaker 13: a plan in terms of how to deal with it.
Speaker 9: Now.
Speaker 13: It's a plan which is very much in flux and
Speaker 13: lots of different scenarios because it's not known exactly when
Speaker 13: it will come, exactly what it will look like, and
Speaker 13: so I think those scenarios are very fluid. But I
Speaker 13: do think that versus in previous times, I think there
Speaker 13: has been a lot of planfulness in terms of preparing
Speaker 13: for what might come.
Speaker 2: You know, one thing that I've been pretty surprised about
Speaker 2: over the last couple of weeks has been the changing
Speaker 2: tone that we're hearing from US companies about this administration
Speaker 2: and their willingness to really embrace it. And I'm wondering
Speaker 2: what you're hearing behind the scenes from CEOs about that
Speaker 2: is is it really is it really purely the cost
Speaker 2: of doing business? Is that what it's seen, or are
Speaker 2: they seeing this as embracing a fundamental shift in America
Speaker 2: right now?
Speaker 13: Look, I think I think if you if you talk
Speaker 13: to business leaders, you know they're positive in terms of
Speaker 13: some of the economic signals. Now, those signals, you know,
Speaker 13: aren't brand new, They're coming from twenty twenty four and before.
Speaker 13: And I think I think there's optimism about the pro
Speaker 13: growth posture of the administration. So so you know, I
Speaker 13: don't know how much there is really new, but I
Speaker 13: think there will be greater investment in the US.
Speaker 9: I think that's seen as a positive.
Speaker 13: I think there's an there there may well be a
Speaker 13: lower tax regime, which could be positive in terms of
Speaker 13: actually investing more on R and D, investing more in
Speaker 13: the business community, and also for returns, and so I
Speaker 13: think there's there's reasons for positivity, but I don't want
Speaker 13: to underplay there's also a lot of volatility and a
Speaker 13: lot of which is unknown that I think business leaders
Speaker 13: are preparing well.
Speaker 2: Sharon, just give us an idea of who's some of
Speaker 2: the business leaders you spoke to at Davos where we
Speaker 2: like specifics here.
Speaker 9: Well, from a range of industries.
Speaker 13: I mean I spoke to people from the pharmaceutical industry,
Speaker 13: people from the tech industry, people from the aviation industry,
Speaker 13: So it was really a wide range of industries. No
Speaker 13: one sample set, no.
Speaker 2: Can you give us any names.
Speaker 9: I can't.
Speaker 6: But you did say that there was optimism, and I
Speaker 6: guess you know what I do wonder for CEO's Sharon,
Speaker 6: is that, as you said, they expected tariffs, we were
Speaker 6: kind of surprised on Donald Trump's first day or even
Speaker 6: two days in the White House that we really didn't
Speaker 6: get anything specific on that front. Because I think everybody
Speaker 6: expected that to be the first thing out of the gate.
Speaker 6: Having said that is for the C suite, even if
Speaker 6: twenty five percent tariffs can be on Mexico and Canada
Speaker 6: and who knows what might come might be onerous or problematic,
Speaker 6: knowing what you are dealing with rather than the unknown,
Speaker 6: is that better for the C suite or not?
Speaker 5: Necessarily?
Speaker 9: I think you're right. I think it's better.
Speaker 13: And I think when when you know what direction things
Speaker 13: are heading in, you know you've done all the scenario analysis,
Speaker 13: you have tentative plans for which direction you can head in,
Speaker 13: but you know you're not going to put your dollars
Speaker 13: at work until there's greater certainty. And so I think
Speaker 13: I think as there is greater certainty, whatever direction that
Speaker 13: heads be in, I think it will open up the
Speaker 13: aperture in terms of investment.
Speaker 2: I think one area that we've been obsessed with over
Speaker 2: those lists last week has been AI and really trying
Speaker 2: to understand the way that the narrative was rewritten or
Speaker 2: could be rewritten as a result of what we saw
Speaker 2: from Deep Seek. And I know that was a big
Speaker 2: part of the conversation at Davos. In your view, when
Speaker 2: are you going to start to see companies that are
Speaker 2: not actually in the AI space start to increase their
Speaker 2: bottom lines as a result from this technology.
Speaker 13: I think that's a great question, and I think that
Speaker 13: was actually the question at Davos, and there was a
Speaker 13: lot of great discussion. A couple of years we've been
Speaker 13: talking about AI, and the business community has been very
Speaker 13: excited about AI, and I think what's encouraging is those
Speaker 13: conversations are moving from hype and experimentation and use cases.
Speaker 13: You know, we're doing twenty five use cases over here
Speaker 13: and thirty five use cases over there, to actually, where
Speaker 13: are we going to get tangible value in the core
Speaker 13: processes in our business.
Speaker 9: That actually drive competitive advantage. You know.
Speaker 13: In fact, in twenty twenty four, PCG did a survey
Speaker 13: of executives and we found that two thirds of AI
Speaker 13: transformations were falling short of expectations. But we're finding with
Speaker 13: our clients and in the conversations at Davos that are
Speaker 13: succeeding it's because they're focusing. They're focusing on the areas
Speaker 13: of the business that they can transform and create competitive
Speaker 13: advantage versus lots of areas around the edges. And we
Speaker 13: like to say, you know, look you can get the algorithms,
Speaker 13: that's ten percent. You can get the tech stack, it's important,
Speaker 13: but it's twenty percent. But what you have to be
Speaker 13: able to do is get the processes in people and
Speaker 13: really scale the transformation that we call it ten twenty seventy.
Speaker 13: And I think that's a place where companies, clients, you know,
Speaker 13: the folks and davas are leaning into where can we
Speaker 13: really scale and get competitive advantage.
Speaker 6: Hey, before we go, just got about a minute left here, Sharon,
Speaker 6: and I do wonder going back to you know, we're
Speaker 6: just focusing once again on davas a little bit more.
Speaker 6: Is the corporate community breathing a sigh of relief that
Speaker 6: even though Donald Trump, many would say, President Trump is
Speaker 6: unpredictable or can be unpredictable in terms of what we
Speaker 6: get from him and sometimes at unexpected times or unexpected places,
Speaker 6: that they expect it to be an easier regulatory and
Speaker 6: very business friendly environment. So they're willing to kind of
Speaker 6: put up with some things because they think the overall
Speaker 6: policies will be much more friendly to doing business in
Speaker 6: the United States.
Speaker 5: And just got about thirty seconds here.
Speaker 13: Sure, I think there's a couple of the economy is strong, right,
Speaker 13: So I think that's that's the core input. And I
Speaker 13: think if you think about this current administration, I think
Speaker 13: some of the policies that Donald Trump campaigned on and
Speaker 13: was elected on are a little bit more pro growth
Speaker 13: oriented and and I think that you know, the business
Speaker 13: leaders can see some of those policies and regulations as
Speaker 13: being adventacious in terms of the growth the growth of
Speaker 13: their business.
Speaker 6: And even tariffs. Just ten seconds they thought tariffs were
Speaker 6: growth oriented.
Speaker 9: I think those are. I think tariffs are. I think
Speaker 9: tariffs are back.
Speaker 13: But I think other policies that the administration is advocating
Speaker 13: our growth oriented.
Speaker 6: All right, Great to get some time with you and
Speaker 6: to share what you saw and heard at DAVO. Sharon Marcel,
Speaker 6: chief executive officer of Boston Consulting Group North America, joining
Speaker 6: us from North Carolina.
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Speaker 6: All right, everybody just got about eighteen minutes to go
Speaker 6: until we wrap up the trading day and the trading week.
Speaker 6: Carol Master along with Tim Staneviek live here in our
Speaker 6: Bloomberg Interactive Broker Studio live on Blueberg Business Week. Just
Speaker 6: a reminder, we are anticipating at the top of the
Speaker 6: hour in an update and briefing from the NTSB looking
Speaker 6: at into that investigation to Wednesday's mid air collision at
Speaker 6: Reagan National. So as soon as that begins, we will
Speaker 6: take you there live the latest on that. In the meantime,
Speaker 6: got to talk about the markets because a lot of
Speaker 6: news coming out of DC and really top of mine
Speaker 6: right now, Tim, is what we are anticipating at this point,
Speaker 6: tariffs that go into effect tomorrow.
Speaker 2: Yes, I knew you were going to say.
Speaker 5: Tariffs the chief trading partners with the United States.
Speaker 2: Yeah, that would include Mexico Canada of those twenty five
Speaker 2: percent tariffs, then ten percent tariffs on China. Shan O'Hara
Speaker 2: is president at piacer Ets. They got about forty seven
Speaker 2: billion dollars in assets under management. Sean joins us from
Speaker 2: West Palm Beach, Florida this afternoon. Sewan, good to have
Speaker 2: you with us. We did see stocks take a leg
Speaker 2: lower after the White House said during the press briefing
Speaker 2: that those tariffs would begin tomorrow. How are you looking
Speaker 2: at the policies that have been enacted thus far at
Speaker 2: least been talked about thus far by the Trump administration.
Speaker 14: Good afternoon, Thanks for having me. It's nice to be
Speaker 14: with you both. I think there's some good and some bad,
Speaker 14: if you will, or some that are appealing to investors,
Speaker 14: and then some that make investors a little nervous, which
Speaker 14: is probably why this information or news on tariffs is
Speaker 14: sort of causing a little bit of stress in the
Speaker 14: market overall. You know, if you take the President at
Speaker 14: his word, he's going to reduce regulation, make it easier
Speaker 14: for businesses to do the things that they do. I
Speaker 14: think that's generally a positive. He's definitely got to focus
Speaker 14: on America first. I think that's also generally a positive.
Speaker 14: So as all of these policies sort of tend to
Speaker 14: roll themselves out, we'll get a.
Speaker 4: Clearer and clearer picture.
Speaker 14: My own personal view on the tariff side is I
Speaker 14: think we're making a lot out of something that may
Speaker 14: not ultimately mean that much in the long run.
Speaker 4: I think the.
Speaker 14: President uses terrorists as a way to negotiate, if you will,
Speaker 14: to get people to do the things that he thinks
Speaker 14: they should do that would benefit Americans the most and
Speaker 14: benefit the American economy the most. But I think you
Speaker 14: get a little bit of a mixed bag going on,
Speaker 14: some good, a little bit that makes us nervous, I guess,
Speaker 14: or at least makes the market nervous.
Speaker 6: So soon, what do you make though of really the
Speaker 6: pushback what seems on ESG, which has been actually happening.
Speaker 6: I would say, certainly here on the financial side of
Speaker 6: things for a while now, but even on DEI diversity,
Speaker 6: equity and inclusion, the pushback on those policies, How do
Speaker 6: you square when after I feel like it's been years
Speaker 6: and years and years that consultants, McKinsey and others have
Speaker 6: talked about the importance of diversity from even a financial level,
Speaker 6: that diverse boards companies that are diverse in terms of
Speaker 6: their approach and their composition, that they financially do better.
Speaker 5: Was that just all lies?
Speaker 4: Well?
Speaker 14: I mean, I guess that's what you get when you
Speaker 14: ask mckensey consultants how you should run your business? A
Speaker 14: little poke at that maybe within their twenty six year
Speaker 14: old MBAs. I think generally speaking, if you run a company,
Speaker 14: you should run a company for the benefit of your
Speaker 14: shareholders first. And I think that you know it's it's
Speaker 14: it couldn't happen soon enough in my view, that we
Speaker 14: sort of have shifted some of these things off to
Speaker 14: the side. I think that's a net positive for companies.
Speaker 14: You know, one of the things that we need in
Speaker 14: this market, and that American companies need is productivity growth.
Speaker 14: When you have programs that sort of potentially stunt that
Speaker 14: productivity growth or are an additional expense line in terms
Speaker 14: of how they run their business, then that sort of
Speaker 14: stunts productivity. And so we never were real big believers
Speaker 14: in ESG or DEI. We never followed all the big
Speaker 14: ETF issuers into the ESG to try to get the
Speaker 14: big institutional assets under management. We just focused on trying
Speaker 14: to find strategies in our ETF lineup that were really
Speaker 14: focused on fundamentals that were good for companies that would
Speaker 14: hopefully over time, make those companies more valuable and see
Speaker 14: their stock prices rise.
Speaker 6: So, in terms of you said we kicked it off
Speaker 6: talking about the second term of Donald Trump and the
Speaker 6: White House, you said, some good policies, some bad policies.
Speaker 6: The most right story in the Bloomberg has to do
Speaker 6: with these tariffs that are coming on China, Mexico and Canada, right,
Speaker 6: and they are expected to go into effect tomorrow. Twenty
Speaker 6: five percent on Mexico and Canada, ten percent levy on China.
Speaker 5: Is that in your good bad column? In the bad column?
Speaker 6: In terms of the possible impact on companies and the
Speaker 6: US economy and ultimately on US publicly held companies, I
Speaker 6: did it.
Speaker 14: Put it in my bad. I put it in my
Speaker 14: unknown category. We'll have to seek category.
Speaker 4: I think generally, why unknown?
Speaker 14: Yeah, Well, because I don't think we really know what
Speaker 14: the ultimate tariffs are going to be, or if there
Speaker 14: are actually tariffs that last. I mean, everybody needs to
Speaker 14: keep in mind this is the second time that President
Speaker 14: Trump has been president, and the first time he wasn't
Speaker 14: very different in terms of.
Speaker 4: How vocal he was about tariffs.
Speaker 14: And in spite of all of that, the markets did
Speaker 14: just fine and the American economy grew. And so I
Speaker 14: think he's focused on the tariff side because of all
Speaker 14: these trade deficits. In other words, we shouldn't have trading
Speaker 14: partners where we're as unequal as we are. I'm not
Speaker 14: sure we'll ever be equal on the trade side with China,
Speaker 14: but we should do what we can, if you will,
Speaker 14: to make sure that the American companies that are exporting
Speaker 14: outside of the US US have an equal chance. And
Speaker 14: so I suspect that we're not going to see, you know,
Speaker 14: twenty five or thirty percent tariffs on Mexico or Canada.
Speaker 14: They might meet somewhere in the middle, or they may
Speaker 14: recraft an overall trade deal that makes them not necessary.
Speaker 14: So I just I just think we need to wait
Speaker 14: and see and be a little bit calm. I know that,
Speaker 14: you know, it's one of those things that we talk
Speaker 14: about on or that some people talk about on the
Speaker 14: air all the time, and it makes everybody nervous. I
Speaker 14: would just say, with regard to that, you know, let's
Speaker 14: just pump the brakes a little on the hysteric hysteria there,
Speaker 14: and let's wait and see what happens and what the
Speaker 14: outcome is.
Speaker 2: Well, you have dozens of ETFs at PACER, including those
Speaker 2: that are you've categorized as risk mitigation, high value growth,
Speaker 2: somatic growth factor, structured structured outcome and income. Where are
Speaker 2: you seeing the flows right now as far as money
Speaker 2: coming in where people putting.
Speaker 4: In a great, great question.
Speaker 14: The biggest flows for us are coming into an ETF
Speaker 14: the tickers COLG, it's our growth like twin sister or
Speaker 14: brother to the cow Z value story used free cap move.
Speaker 4: We used free cash flow margin.
Speaker 14: That's a simple calculation as the sales a company gets
Speaker 14: divided into the free cash flow, so it's just a
Speaker 14: measurement of how effectively companies convert their sales to profits.
Speaker 14: And the higher that free cash flow margin, the more
Speaker 14: effective companies are. What's fascinating, and I think what's leading
Speaker 14: to some of the inflows is that if you look
Speaker 14: at say col G versus the Nastak one hundred or
Speaker 14: the Russell one thousand growth, we're performing as well or
Speaker 14: better over the last couple of years than those two
Speaker 14: big indexes with one major distinction which I think is important,
Speaker 14: and that is it we only have seventeen percent overlap
Speaker 14: to the Russell growth and only about seventeen or fifteen
Speaker 14: percent overlap to the Nastak one hundred in terms of
Speaker 14: portfolio names, but we only have four percent of the
Speaker 14: portfolio weight in the mag seven names, and so One
Speaker 14: of the things that we're talking to advisors and investors
Speaker 14: about is that what once was designed to be diversified
Speaker 14: is not necessarily as the fight as you think based
Speaker 14: on the way the market's performed the last couple of years,
Speaker 14: and potentially one of the biggest risk to investors is
Speaker 14: that over concentration, as much as has made us feel
Speaker 14: great on the way up, could be ultimately as disappointing
Speaker 14: on the way down. And so we're not saying, you know,
Speaker 14: sell all your cues or sell your IWF, which is
Speaker 14: the Russell growth ETFO. What we're saying is, you know,
Speaker 14: you should recognize how how concentrated and dependent you are
Speaker 14: to a very small number of names and perhaps find
Speaker 14: a different way to do that. Yeah, and when you
Speaker 14: use three cash flow margin as your screen, you wind
Speaker 14: up owning names like Apple love.
Speaker 4: In, which is in the Russian growth but a very
Speaker 4: small wave.
Speaker 6: We got to run have a great weekend, So glad
Speaker 6: we got time. Sean O'Hara, President at Pacer ATFS.
Speaker 5: This is Bloomberg.
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