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Speaker 3: Hi everyone, welcome to the Bloomberg Business Week Weekend podcast. Well,
Speaker 3: this past week earnings from the King of the AI,
Speaker 3: Bellweather's amid nervousness over the artificial intelligence build out and spend.
Speaker 3: Also concerns regarding credit stress and private markets, plus the
Speaker 3: start again Tim. Finally, finally of some US government economic data.
Speaker 1: We're just getting caught up when it comes to the releases.
Speaker 3: We are, and they're coming in funny ways and on
Speaker 3: funny days like it's throwing us awfully.
Speaker 1: It is it is, but it's okay. We'll bring you
Speaker 1: all the updates as we get them. So this our
Speaker 1: on the US labor market, We're going to catch up
Speaker 1: with the CFO over at upwork. Also some of those
Speaker 1: risk concerns about the spending in circular financing of the
Speaker 1: AI buildout. We've been talking about that a lot. Also
Speaker 1: the not so transparent works of private credit. We turned
Speaker 1: to someone who we turned to a lot during the
Speaker 1: Great Financial Crisis, the former investment banker Chris Whalen.
Speaker 3: Plus also glad that we could catch up with the
Speaker 3: CEO of Connect One Bank Orp again on lending on
Speaker 3: the FED on affordable housing. That was a really fun
Speaker 3: part of the conversation. We did talk about rent stabilization
Speaker 3: and the business environments. His bank is involved in affordable
Speaker 3: housing in New York City, so that was a fun
Speaker 3: part of that conversation.
Speaker 1: Plus later on how brilliant leaders unlock collective genius, crypto,
Speaker 1: feeling the pressure, and the inescapable business of beauty.
Speaker 3: All of that to come. We begin with a look
Speaker 3: at the US labor market. Thursday, this past week, not
Speaker 3: on Friday, which is when we normally get monthly reports
Speaker 3: from the Bureau of Labor Statistics, released it's hotly anticipated,
Speaker 3: long long delayed September Jobs report. And what was good
Speaker 3: about this data batch tim they had actually collected i
Speaker 3: think all the data they needed to do this report
Speaker 3: just before the government shut down, so it was pretty complete.
Speaker 1: What we found out the job growth picked up in September,
Speaker 1: the unemployment rate tacked higher, suggests that the labor market
Speaker 1: showed signs of stabilizing before the government shut down.
Speaker 3: Meantime, the BLS also said it will not publish in
Speaker 3: October jobs report. It did, however, note it will incorporate
Speaker 3: those payroll figures into the November report. Are you keeping trying?
Speaker 4: Yeah?
Speaker 3: No.
Speaker 1: This is why I'm glad I sit right next to
Speaker 1: Mike McKee, because if I ever have questions about this,
Speaker 1: I just turn around and I say, Mike, what's going
Speaker 1: on with this?
Speaker 3: Well, and keep in mind that November report will be
Speaker 3: published in December, but it comes after the fed's fatal
Speaker 3: meeting of twenty twenty five. Did you catch that? Do
Speaker 3: you need the whiteboard screen? Do you need me to
Speaker 3: send a little note down?
Speaker 1: No, I don't because I have ECO go on the
Speaker 1: Bloomberg term and that's all I need.
Speaker 3: All right, Well, listen we nonetheless, as the data starts
Speaker 3: to come out finally from the US government, we relied
Speaker 3: once again on Erica Gessert. She's the chief financial officer
Speaker 3: at Upwork who talked about the labor market. Yes, of course,
Speaker 3: she also gave us an update on the company's investor day.
Speaker 5: Our investor day was really timed perfectly for us. The
Speaker 5: reason our stock one up thirteen percent after our earnings
Speaker 5: report was at the end of twenty twenty four, we
Speaker 5: told our investors that we would take a year and
Speaker 5: really reinvest in our company and rebuild up Work, and
Speaker 5: we said that we would return to GSB and revenue
Speaker 5: growth in twenty twenty six.
Speaker 6: Well we did that two quarters early.
Speaker 5: What we told them then was that our results are
Speaker 5: going up into the right right now, and that is
Speaker 5: because of really three investment areas. One is AI, one
Speaker 5: is SMB expanding our relationships with SMB, and one is
Speaker 5: the outsized opportunity that we have with our enterprise.
Speaker 1: So I want to remind everybody Upwork is a hiring platform.
Speaker 1: You can go there to find talent in development and
Speaker 1: ITAI services, design and creative, sales and marketing, admin and
Speaker 1: customer support. It's this two sided markets. So that's right.
Speaker 1: You have a good view on what exactly the type
Speaker 1: of job that companies are hiring for and then also
Speaker 1: the availability of that labor. What does that picture and
Speaker 1: that balance look like right now?
Speaker 5: The last few years have been as we all know
Speaker 5: tough the on the job market, and you know, most
Speaker 5: companies in our industry were down double digits over the
Speaker 5: past few years in terms of both volume and revenue.
Speaker 6: Upwork was relatively flat for the past couple of years.
Speaker 5: So we were gaining share againstaffing companies even other online marketplaces,
Speaker 5: but still relatively flat. And it's really these investments that
Speaker 5: we've made in AI. We're actually seeing both the AI
Speaker 5: category itself increase and that is really, like I say, accelerating.
Speaker 5: So this is this is AI work on the platform,
Speaker 5: but also the investments on the front end.
Speaker 6: So if you think about the.
Speaker 5: Hiring process and how that works, there's a lot of
Speaker 5: friction to it, right. You know, a client comes onto
Speaker 5: our website, they post a job, they have to write
Speaker 5: it up, they have to search for talent, the talent
Speaker 5: has to write.
Speaker 6: A job proposal.
Speaker 5: Well, now AI does all of that for both our
Speaker 5: clients and our talent and make them find each other
Speaker 5: faster and kind of fulfill these jobs and get them done.
Speaker 3: Those matches work, Like what percentage of the time or
Speaker 3: where is it that it's like, well not not good?
Speaker 5: Well, no, So what the AI is doing is it's
Speaker 5: writing the job post, it's writing the job proposal, and
Speaker 5: of course that you know they're they're there can be editing, ye.
Speaker 5: But now we do have AI interviewer and and we
Speaker 5: also one of our one of our most successful, very
Speaker 5: recent launches is UMA, which is our you know, our
Speaker 5: AI companion on our site is now recruiting talent. So
Speaker 5: so the client asked for a certain type of talent,
Speaker 5: UMA goes out within our you know, eighteen million strong
Speaker 5: talent based and identifies the right talent for that job.
Speaker 6: Now we're seeing fil rates much higher.
Speaker 5: Using the using the AI recruiter than with the human recruiter. Why,
Speaker 5: it's good at spinning lots and lots of data, right,
Speaker 5: and so you know, we've been building our platform is
Speaker 5: over ten years old, and we've been building this data
Speaker 5: set of you know, what types of jobs match with
Speaker 5: which talent. You know, whether client client is price sensitive
Speaker 5: or you know, maybe their quality sensitive. And so the
Speaker 5: the recruiter, the air recruiters much better at scanning across
Speaker 5: all of this data than a human can be.
Speaker 1: Are you seeing demand stay a stable decrease or increase
Speaker 1: from the side of your platform that is looking for
Speaker 1: the workers.
Speaker 6: Yeah, So client demand. And I think you know what
Speaker 6: we are seeing is.
Speaker 5: Client demand has been where we have seen the biggest
Speaker 5: impact from from you know, I would say the job
Speaker 5: market and the economy writ.
Speaker 1: Large, like if the economy is softer, then demand will
Speaker 1: go down from the prince, yes.
Speaker 5: And and and if you think about that, if you
Speaker 5: think about you know, our our online marketplace is primarily
Speaker 5: smb customers, right and so small the small.
Speaker 6: Medium sized business. So if you think about what's going on.
Speaker 5: There when inflation is high, you know, you know this,
Speaker 5: this hits consumer whiles it also hits smb you know
Speaker 5: leaders and and and then also when interest.
Speaker 6: Rates are high, they have lower access to capital.
Speaker 5: Right, and so we do see the demand environment in
Speaker 5: terms of just pure volume of SMB hirers relatively flat
Speaker 5: in this in this you know right now.
Speaker 6: But you know, we are.
Speaker 5: One of the few places where these SMBU customers can
Speaker 5: actually access very high quality AI talent and afford you know,
Speaker 5: in an affordable way and quickly, and so as they're
Speaker 5: trying to implement AI work within their businesses, this contingent
Speaker 5: marketplace that we offer is one of the best places
Speaker 5: they can find.
Speaker 3: What's your take on AI and the impact it's going
Speaker 3: to have on the labor force.
Speaker 6: AI is not going to replace humans.
Speaker 5: Humans with AI will replace humans without AI, right, And
Speaker 5: so we're seeing AI replace very simple tasks, but not
Speaker 5: you know, the larger, more complex work because these AI
Speaker 5: agents are not that edgentic, they have no judgment, they
Speaker 5: cannot complete the complex tasks.
Speaker 6: So what we've seen, yeah, over well.
Speaker 5: What we've seen over the years is jobs that are
Speaker 5: three hundred dollars in lower those have those have gone
Speaker 5: down on our platform. So about two years ago we
Speaker 5: had about five percent of our work with job three
Speaker 5: hundred dollars lower.
Speaker 6: Now it's about three and a half percent.
Speaker 5: But at the same time, the AI jobs on our platform,
Speaker 5: clients who engage in AI work spend about three times
Speaker 5: with our normal you know kind of platform work. Yeah,
Speaker 5: it does, and so you know, we see that growing
Speaker 5: and growing because that work is more complex. It requires
Speaker 5: humans and you know, humans using AI agents, but it
Speaker 5: requires humans in the loop.
Speaker 1: That was Erica Gessertz CFO over at Upwork.
Speaker 3: Okay, so the US economy continues to be front and
Speaker 3: center and what it means for FED policy so important.
Speaker 3: But also this week crucial earnings report from the largest
Speaker 3: market cap company in the world. We're talking about the
Speaker 3: king of the AI Bellweathers and Vidia.
Speaker 1: And Vidia delivered a surprisingly strong revenue forecast. It pushed
Speaker 1: back on the idea that the AI industry is in
Speaker 1: a bubble, and I think for a lot of investors
Speaker 1: at East concerns that had spread across the tech sector.
Speaker 1: For some thoughts on the company and the warnings of
Speaker 1: an AI bubble, we lean on Dave Lee Blueberg Opinions,
Speaker 1: US technology columnist.
Speaker 7: The question is no longer is this an AI bubble?
Speaker 8: Right?
Speaker 7: I think we've all come to the agreement there was
Speaker 7: a bubble of some kind, But is he going to
Speaker 7: be a bubble like the Internet dot com bubble where
Speaker 7: there was just devastation when many of these companies that
Speaker 7: had suspect balance it's turned out to be suspect companies.
Speaker 3: Jensen Wang.
Speaker 7: He is saying, Look, there's huge height, there's huge excitement.
Speaker 7: There's a lot of questions about how companies are going
Speaker 7: to use AI. But from where he's sitting, they're still
Speaker 7: seeing this incredibly strong demand for what they do, which
Speaker 7: is obviously create the world's best semiconductors.
Speaker 3: Still be fair, He's got a produciary responsibility. He's not
Speaker 3: going to sit right like. He's got to be careful
Speaker 3: in terms of how he quantitifies or qualifies his business.
Speaker 3: And the numbers, many would say, yeah, there is still
Speaker 3: strong demand.
Speaker 7: Still a strong demand. I think that it was interesting
Speaker 7: to see the reaction to the earnings because the immediate
Speaker 7: reaction was wow, this really pushes back on the idea
Speaker 7: as a bubble. The problems we were still worried about
Speaker 7: before the earnings they still exist despite the earnings being
Speaker 7: so strong.
Speaker 1: What is your take on why the collective market sort
Speaker 1: of recognized something here? There's no catalyst, at least to
Speaker 1: my knowledge that you know, no new information came to light.
Speaker 7: One of the defining parts of this new bubble so
Speaker 7: far has been, you know, whenever there's a slight clue
Speaker 7: as to the future AI, the reaction needs to be overstated.
Speaker 7: So you remember that that afternoon, that morning when Deep
Speaker 7: Seek was released. The reaction to back in January, I
Speaker 7: mean just devastating when everyone was sort of panicking, and
Speaker 7: then when people really thought about it, they were, well,
Speaker 7: you know what, maybe this isn't so bad after all,
Speaker 7: the same as being I think could be said for
Speaker 7: sort of positive moves. And look, nobody was coming into
Speaker 7: in videos earning thinking oh this could be you know,
Speaker 7: these could be bad or what everyone was expecting to
Speaker 7: be a great quarter. Now it's stronger than some people
Speaker 7: had thought, obviously based on the analyst estimates beforehand. But
Speaker 7: the dynamic that people are worried about isn't so much
Speaker 7: how Nvidio is doing, but how are their clients doing
Speaker 7: when they buy all this computing power? Is it going
Speaker 7: to be worth it for them? And that's where that's where.
Speaker 3: The ROI ultimately the ir yes provate margin.
Speaker 1: I mean, you know, whatever we talk about bubbles and
Speaker 1: the you know, the nineteen ninety nine and late nineties,
Speaker 1: really two thousand, what people come on who were there
Speaker 1: tell us they're push back is yes, but these companies
Speaker 1: are now profitable.
Speaker 7: I think, you know, no one's and I said this
Speaker 7: in my column, no one's calling in video the next
Speaker 7: pets dot Com, right or the risk of that. But
Speaker 7: in Video's clients could be the next pets dot Com.
Speaker 7: Open AI. You know, there's a company burning billions of
Speaker 7: dollars with an unsure way of getting that money back.
Speaker 7: Core Weave was a catalyst for a lot of the
Speaker 7: worries around, you know, just data centers in general. They're
Speaker 7: still finding it very hard to build data centers. It's
Speaker 7: going to be a big problem finding the place to
Speaker 7: build them, finding the energy to power them. There's a
Speaker 7: lot of unknowns that you know, it could could be
Speaker 7: at play here. And when we compare it to that
Speaker 7: dot com bubble, I have to say I wasn't covering
Speaker 7: it because I was a child.
Speaker 3: All right, I was covering it. And I will say
Speaker 3: there is a difference, and we talk about this that
Speaker 3: there are companies with earnings, So I'm trying to understand
Speaker 3: the demand is there, and you're saying, we get it.
Speaker 3: They can't build the data centers fast enough. They don't
Speaker 3: have the energy to power them. Is that enough to
Speaker 3: mean that this is not a real thing and that
Speaker 3: AI is not going to impact us in this spend continues?
Speaker 7: The timeline is the question, right, because when we look
Speaker 7: back at the dot com bubble, they say, well, what
Speaker 7: about Amazon, Right, there's a real company change the world.
Speaker 3: Not profitable, not profitable, not profitable.
Speaker 7: Exactly for years and years years, and I didn't recover
Speaker 7: from its dot com slump for another eight years. After
Speaker 7: nineteen eight years. I noticed that Cisco twenty five years
Speaker 7: only recover on the dot com crash this week, and
Speaker 7: so sure AI could be as big as the Internet
Speaker 7: or even electricity, as some people are saying, whether or
Speaker 7: not there'll be a slump in the meantime that could
Speaker 7: take a huge amount of time to really recover. I
Speaker 7: think that might be one of the concerns that people
Speaker 7: should should be having.
Speaker 1: That was Dave Lee, Bloomberg Opinion US Tech columnists. After
Speaker 1: the company's learnings call, CEO Jensen Wong sat down with
Speaker 1: Bloomberg Tech co host ed Ludlow. They talked about the results.
Speaker 1: You can catch that online on the Bloomberg terminal and
Speaker 1: at Bloomberg dot com.
Speaker 3: All right, coming up, we kind of stay with AI.
Speaker 3: We talk big AI bets, uneasy economy, and credits starting
Speaker 3: to buckle.
Speaker 6: That's a question mark.
Speaker 3: Because I think we're trying to figure it out. He
Speaker 3: was a go to voice for us during the Great
Speaker 3: Financial Crisis. We leaned on him so much. Chris Whalen
Speaker 3: joins us.
Speaker 1: Next, you're listening to Bloomberg Business Week. This is Bloomberg.
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Speaker 9: All Right.
Speaker 3: With Nvidio earnings this past week, it was no surprise
Speaker 3: that the AI trade and debate over a boom or
Speaker 3: bus remained front and center, although I need to say
Speaker 3: that I feel like the idea of a boom was
Speaker 3: more front and center following and Video's earnings. Keep in mind, though,
Speaker 3: fears of an AI bubble bubbled up earlier in the
Speaker 3: week before Nvidia reported, and that was because of warnings
Speaker 3: from investors or continued warnings from investors really who believe
Speaker 3: the AI led rally has run too hot and that
Speaker 3: the industry could be due for somewhat of a correction,
Speaker 3: maybe even just a normal correction. Rothchild and co Redburns
Speaker 3: Alexander Heisel downgraded Microsoft and Amazon for the first time
Speaker 3: since initiating coverage on the two names. That was back
Speaker 3: in June twenty twenty two. That was according to data
Speaker 3: compiled by Bloomberg. This got a lot of attention this
Speaker 3: past week, tim it.
Speaker 1: Did it move the company stocks too. Meantime, Tech bohemoths
Speaker 1: continue to spend so much on AI. Just this week,
Speaker 1: Microsoft and Nvidia announced that they would invest up to
Speaker 1: a combined fifteen billion dollars in the Open AI rival
Speaker 1: and Thropic. It's these types of deals that have investors
Speaker 1: increasingly concerned about so called circular financing within the AI
Speaker 1: spend and build. We should remind everybody the Microsoft portion
Speaker 1: of this is pretty significant, given that Microsoft has such
Speaker 1: a big ownership stake of open Ai. Yeah, and Anthropic
Speaker 1: is open AI's rival, so it's like the owner of
Speaker 1: your competitor investing in the competitor.
Speaker 3: Amid all of this and questions around market and possible
Speaker 3: financial and credit stress, we leaned on a familiar voice.
Speaker 3: Chris Whaleen was a go to for us during the
Speaker 3: Great Financial Crisis. He is chairman of whale and Global Advisors,
Speaker 3: a former investment banker, also editor of The Institutional Risk Analysts.
Speaker 3: It's a weekly newsletter that looks at the intersection of
Speaker 3: financial markets and public policy. This is a guy who
Speaker 3: spends a lot of time looking at financial balance sheets.
Speaker 8: The loss rates on many of these assets. Carol, and
Speaker 8: thank you for having me is quite astounding. Remember that
Speaker 8: you had not just big private equity firms diving into
Speaker 8: private credit, but you had retail firms selling this to
Speaker 8: individual investors for the past couple of years. I think
Speaker 8: it just speaks to a decline in standards in the
Speaker 8: investment world. I've been an investment banker for thirty years,
Speaker 8: member of FINRA, and I've got to tell you most
Speaker 8: of my astute clients, the banks I really have respect for,
Speaker 8: don't see anything that they like. They're using their private
Speaker 8: markets to off credit risk. They're selling assets to raise cash,
Speaker 8: and I think that's frankly and very consistent with what
Speaker 8: Jeff Gunlock is saying, which is that there's so much
Speaker 8: out there that needs to be fixed and the loss
Speaker 8: rates could be rather considerable. So I think it's only
Speaker 8: getting started. You saw the story in Bloomberg about Blue Owl.
Speaker 8: We're going to see a lot more of that, So,
Speaker 8: you know, just take that example and multiply it across
Speaker 8: the entire spectrum of private equity. What an interesting statistics
Speaker 8: I saw it in the last couple of weeks is
Speaker 8: that something like two thirds of the existing private equity
Speaker 8: firms are never going to be able to raise money
Speaker 8: again because the losses on their portfolio are so profound,
Speaker 8: so I think we're seeing something episodic. And as good
Speaker 8: Luck said, this is a commercial story this time. This
Speaker 8: is not about consumers and mortgages. This is purely institutional.
Speaker 1: So the well, the question I have is how it
Speaker 1: manifests and do you believe it manifests in some sort
Speaker 1: of crisis. Does it become something that is systemic and
Speaker 1: has an effect on the entire financial system? Is it
Speaker 1: that big of an issue?
Speaker 8: It is that big, But remember this is institutional investors,
Speaker 8: so a lot of it goes on behind the scenes,
Speaker 8: lawyers and bankers sitting in conference rooms trying to figure
Speaker 8: out how to extract value from a situation. So when
Speaker 8: it impacts a public company, yes, when a bank has
Speaker 8: to fess up about a loss. You just saw one
Speaker 8: with Blackstone, a telecom company, which is going to cost
Speaker 8: them one hundred and fifty million dollars. Looks like the
Speaker 8: whole thing was a fraud from the word go. But
Speaker 8: over time, yes, you're going to see more disclosure from
Speaker 8: the public players, but the amount of loss is going
Speaker 8: to be much larger than what the typical investor, the
Speaker 8: typical media person actually sees, because so much of it
Speaker 8: is private like give you an example, it is a
Speaker 8: really great publication called The Real Deal that covers commercial
Speaker 8: real estate can't even begin to cover all of the
Speaker 8: things that are going on. If you just read their
Speaker 8: headlines every morning, you get a sense for just how
Speaker 8: much restructuring there is going on in some pretty important
Speaker 8: and well located assets here in New York City and
Speaker 8: other cities around the US. And it just continues. And
Speaker 8: yet the funny part is you have new investors jumping
Speaker 8: in to buy these assets after they've been marked down,
Speaker 8: thinking that they're getting a deal.
Speaker 3: Well we'll see, you know, well we will see, right.
Speaker 3: I mean, does the AI spending frenzy play.
Speaker 8: Into this, Oh very much. I covered Silicon Valley for years.
Speaker 8: Carol is a banker, and I have a lot of
Speaker 8: respect for real technologists as opposed to salespeople. I don't
Speaker 8: think AIS it's described to most investors today, is going
Speaker 8: to amount to anything except the convenience for consumer users
Speaker 8: of the Internet. When you talk about real intell diligence
Speaker 8: on the part of a machine that is based on
Speaker 8: its ability to observe and integrate new information, that's not
Speaker 8: what we're doing here. We're simply taking existing language, existing words,
Speaker 8: and putting massive horsepower behind search. Okay, well they summarized
Speaker 8: the first page of Google results. That's it.
Speaker 1: So that to be fair, just to be and to
Speaker 1: make sure I understand this right, you're arguing that what
Speaker 1: we're seeing right now with llms such as chat GPT
Speaker 1: from open Ai and Claude from Tropic, that's the extent
Speaker 1: of the innovation that we're going to see when it
Speaker 1: comes to the investment in AI.
Speaker 8: The head of AI at Meta, who's a really smart man.
Speaker 8: I was watching some of his videos yesterday over the weekend,
Speaker 8: and you know, he just dismisses this entire phase. And
Speaker 8: I understand what he's talking about. I used to cover
Speaker 8: companies that did what we call natural language processing, where
Speaker 8: we were trying to teach Cooter's words and then be
Speaker 8: able to integrate those words. We're not even doing that
Speaker 8: with AI. We're just simply throwing muscular search at it
Speaker 8: and saying, Okay, what's the top ten search results. Let's
Speaker 8: build a summary. That's not intelligence. So I think a
Speaker 8: lot of the spend, and you've heard this from other people,
Speaker 8: is going to end up being wasted when it comes
Speaker 8: to AI.
Speaker 1: That's a lot of that's a lot of money, and
Speaker 1: that's a lot of big bets in your.
Speaker 8: Video in the interview. Don't get me wrong, I've made
Speaker 8: a lot of money in the video. Sorry, go ahead.
Speaker 8: Well I don't think it will generate revenue proportional to
Speaker 8: the spend. Let's put it that way.
Speaker 3: So okay.
Speaker 8: So I made a lot of money on Nvidio, don't
Speaker 8: get me wrong. And I love that stock, I love
Speaker 8: the company, but I think, you know, the desire for
Speaker 8: investible assets has just overwhelmed these opportunities. We see inflation
Speaker 8: everywhere we look in the financial markets today, and that
Speaker 8: is defined as too much money chasing too fear opportunities.
Speaker 3: I just want I want to push back a little bit, Chris,
Speaker 3: Like you know, I've been talking about this piece that
Speaker 3: was on sixty minutes about the founder of Anthropic Yeah,
Speaker 3: dar Amadae, right, and he talks specifically about how like
Speaker 3: AI in healthcare. And I've talked to doctors too. We
Speaker 3: were at Boston Children's about the use of you know,
Speaker 3: they can't keep up to date on everything and that
Speaker 3: how AI can data points and so on really come
Speaker 3: together to help create in terms of diagnoses, treatment and
Speaker 3: also in terms of innovation. But on the day saying
Speaker 3: on sixty minutes, basically he's talking about this thing of condensing. Basically,
Speaker 3: let me just look what he says, the compressed twenty
Speaker 3: first century, that's the phrase he uses just to describe
Speaker 3: what could happen. He says, the idea would be the
Speaker 3: point that we can get as systems to this level
Speaker 3: of power where they're able to work with the best
Speaker 3: human scientists. Could we get ten times the rate of progress,
Speaker 3: and therefore compress saw the medical progress that's going to
Speaker 3: happen throughout the entire twenty first century in five or
Speaker 3: ten years. I realize it's his book, but I mean
Speaker 3: those of us who've started playing around with it are
Speaker 3: kind of blown away with it in terms of what
Speaker 3: it can do. But again, do you think it's just
Speaker 3: a productivity tool or something more that maybe creates.
Speaker 8: It's this stage. Yes, it's remember in the old days
Speaker 8: where it Chris Wilde was one of the early advocates
Speaker 8: of AI, and he said, well, it's not intelligence, it's
Speaker 8: simulated cognition, and he was right, but then he had
Speaker 8: so many people throwing money at him to go to
Speaker 8: conferences and speak that over time he adopted a more liberal,
Speaker 8: more you know, I guess accepting view of this technological phenomenon.
Speaker 8: But to me as a writer, when I use AI,
Speaker 8: use Google, for example, it's it's nice if you know
Speaker 8: what you're looking for specifically, but I'll always ask the
Speaker 8: machine two or three times the same question differently worded, yeah,
Speaker 8: and you always get different outputs. So let me give
Speaker 8: you another example. Imagine using AI for a mortgage lender
Speaker 8: to deal with customers who are calling, you know, for
Speaker 8: a variety of reasons, and you want to use it
Speaker 8: to try and sift through those inquiries answer the ones
Speaker 8: that you can in a reliable fashion. Also use it
Speaker 8: to do submations of phone calls that have to be
Speaker 8: reviewed and okayed before they're finalized. Right, These are all
Speaker 8: valid functions, but ultimately, all we're really doing here is summarizing.
Speaker 8: And that's what computers do. They sort, they do summations
Speaker 8: and averages and everything else. But it's not intelligence. It's
Speaker 8: not the ability to learn on the fly, and particularly
Speaker 8: without a monitor and a companion, if you will, in
Speaker 8: a human sense. So for a lot of companies, say
Speaker 8: look at the horsepower, they look at the speed and
Speaker 8: the robustness of these AI tools, right, but they don't
Speaker 8: quite get there in terms of rolling it out because
Speaker 8: of the high error rates. Well, so that's the thing.
Speaker 3: Okay, Tim and I are like fighting who gets to
Speaker 3: ask the next question? Go ahead, Tim, because I'm gracious.
Speaker 1: So are you out of Nvidia then? Because if this
Speaker 1: doesn't amount to.
Speaker 3: Everybody seems to be getting Yeah, a lot of people.
Speaker 8: I got it a long while ago. I wrote it up,
Speaker 8: then I got out, then I got back in, and
Speaker 8: each time it went up so much it got to
Speaker 8: be such a big percentage of my portfolio when I
Speaker 8: had to sell.
Speaker 3: Well, the thing I want to ask you, Chris, is
Speaker 3: how does this end? Because I'm looking at Amazon did
Speaker 3: a big their first US dollar bond offering in three years,
Speaker 3: looking to raise twelve billion, but attracts about eighty billion
Speaker 3: of a fifteen.
Speaker 1: Billion the size of the US dollar bond offering fifteen billion.
Speaker 3: It's like, and Meta did it? So how does this end?
Speaker 3: I mean, I mean it when we turned to you
Speaker 3: so many times during the Great Financial Crisis, and this
Speaker 3: was something that there was so much fomo and people
Speaker 3: you know, didn't want to miss the games. But we
Speaker 3: know how it all ended. So how do you I
Speaker 3: don't want to be alarm, I want to be smart here.
Speaker 3: How does this potentially end the AI component? Who's impacted?
Speaker 8: I think you're going to see a correction in some
Speaker 8: of these valuations simply because they've gone up so much
Speaker 8: in a relatively short period of time. Let me give
Speaker 8: you another interesting example company I actually like a lot.
Speaker 8: So Fi so far is the best performing bank stock
Speaker 8: in the United States. It has been for the last
Speaker 8: eighteen months. You know what the next one is? By
Speaker 8: the way, among big banks city the rest of the
Speaker 8: big guys have fallen behind. So why did so Fi
Speaker 8: do so well? Well, slowly, they're growing into their overhead.
Speaker 8: Their overhead was massive. It's still too high relative to
Speaker 8: the size of the bank. It's about fifty billion dollars
Speaker 8: in assets now. But they had a tech component, a
Speaker 8: silicon valley component, a little bit of bitcoin, you know,
Speaker 8: all of these pieces that made equity managers love it,
Speaker 8: and they drove the thing up over one hundred percent
Speaker 8: over the last twelve months. I think stories like that
Speaker 8: are going to cool off. I think Bigcoin, frankly is
Speaker 8: in big trouble because it was kind of co opted
Speaker 8: by Wall Street when you see ETFs with bitcoin, Yeah,
Speaker 8: it's not a good thing. This was supposed to be
Speaker 8: a means of exchange.
Speaker 3: Remember, well, you know, I.
Speaker 8: Think all of these markets are going to have to
Speaker 8: retrieve a little bit, Carol. Will they go down way
Speaker 8: much like two thousand and eight. No, because there's still
Speaker 8: too many dollars chasing these opportunities.
Speaker 3: Yeah, there's a lot of liquidity out there. Chris so
Speaker 3: so glad already. Where my team is like, when can
Speaker 3: we get Chris back?
Speaker 6: Thank you so much.
Speaker 1: Really, I to rebook out. We have lots of follow
Speaker 1: up questions.
Speaker 3: We have lots of follow up so far. By the way,
Speaker 3: it's up almost it's up about seventy four percent year
Speaker 3: to date. City groups up about forty percent comparison. JP
Speaker 3: Morgan also having a good year, but again of about
Speaker 3: twenty five percent year to date. Chris Whale and thank you,
Speaker 3: Thank you so appreciate it. Chris's chairman of Whale and
Speaker 3: Global Advisors.
Speaker 2: This is the Bloomberg Business Week Daily Podcast. Listen live
Speaker 2: each weekday starting at two pm Eastern on Apple car
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Speaker 3: All right, So we continue to try to make sense
Speaker 3: of the US economy. As we've been discussing, growth is slowing,
Speaker 3: the job market is cooling, Inflation has eased from its
Speaker 3: peak but still above target. The Fed is still cautious again,
Speaker 3: and credit conditions show stress in places, even while banks
Speaker 3: overall look resilient. And I got to say, we are
Speaker 3: spending so much time you and I and I feel
Speaker 3: like when we do our planning calls in the morning
Speaker 3: of just are there cracks when it comes to credit
Speaker 3: and any kind of financial stress.
Speaker 1: Well, one person that we regularly go to for his
Speaker 1: view on the economy and rates and building is Frank Sorrentino.
Speaker 1: He's chairman and CEO of the publicly held New Jersey
Speaker 1: based community bank Connect One Bank Corp. It's a very
Speaker 1: company of Connect One Bank. It counts small businesses and
Speaker 1: construction companies among its customers. It's got locations in New
Speaker 1: or Is, New York and Florida. And what's unique about
Speaker 1: Frank is that he has a background as a builder.
Speaker 1: He actually studied construction in college. So we always like
Speaker 1: to talk to him about supply and demand when it
Speaker 1: comes to those physical things buildings and homes.
Speaker 3: We are at this moment where we're trying to figure
Speaker 3: out I feel like I can say this a million
Speaker 3: times this year, like where we are in the US economy,
Speaker 3: what's ahead? What kind of clarity do we have? Tell
Speaker 3: us about your business? And where you're seeing.
Speaker 4: Left the nice calm part of the pool and now
Speaker 4: we're into the rapids and the more turbulent it was,
Speaker 4: and when you look back before Liberation Day. But okay, certainly,
Speaker 4: you know we're seeing a lot of people have a
Speaker 4: lot of apprehension about where we stand right now. Right
Speaker 4: so small businesses have a lot of concerns. There's so
Speaker 4: many things going on, there's so many different data points
Speaker 4: to look at or not look at, or not have
Speaker 4: information in front of them. But you know, I know,
Speaker 4: I know, we've talked about this before. I keep and
Speaker 4: I believe we're on a robust footing here with our economy.
Speaker 3: Because you see it in terms of what loan generation
Speaker 3: or what are our clients.
Speaker 4: You know, they discuss the issues of you know, not
Speaker 4: being sure what to do next yet when you ask
Speaker 4: them how are sales. What's going on? You know? Are
Speaker 4: you are you are your revenues up? Are you thinking
Speaker 4: about expansion? Are there opportunities? Are you looking to hire
Speaker 4: people in our market? Anyway, in the New York metro market,
Speaker 4: which is the market we represent, we're finding that people,
Speaker 4: the businesses, business owners here are doing quite well and
Speaker 4: they're continuing to do well. And there's so many inputs
Speaker 4: that are helping that AI is helping in a lot
Speaker 4: of cases, just the amount of capital coming into this region,
Speaker 4: the amount of construction going on, the amount of of
Speaker 4: heavy and highway work, just you name it. The manufacturing.
Speaker 4: I think today there was a fact that came out
Speaker 4: about New York manufacturings on the rise that was actually
Speaker 4: a little bit of surprise to the most, not to me.
Speaker 4: Our our clients are telling us that business is continuing
Speaker 4: to improve, yet they have trepidation about you know, where
Speaker 4: they where they settle right now. However, interestingly, if you
Speaker 4: ask them where they think they'll be in six months
Speaker 4: from now, everyone says they think they'll be in a
Speaker 4: better place.
Speaker 3: Oh so everyone is counting on.
Speaker 4: The economy getting better, right and or at least their
Speaker 4: their conception of what better may be from where they
Speaker 4: are today.
Speaker 7: What I say is.
Speaker 4: They're in a good economy now and it's going to
Speaker 4: continue to do better now. There's also the tale of
Speaker 4: two different stories here. There are some parts of our
Speaker 4: economy that are not doing as well as others, and
Speaker 4: I think we saw some of the reaction to that
Speaker 4: relatively recently in some of the political events that have occurred.
Speaker 4: So I think we do need to take a look
Speaker 4: at this. This what's the distribution of where wealth is
Speaker 4: being created and not created.
Speaker 1: As a New Yorker, it's nice to hear that things
Speaker 1: in the New York City area are are looking good,
Speaker 1: but it also makes me think of the changing politics
Speaker 1: of the city and Mayor elect zor On Mamdani. And
Speaker 1: you know, this is not a political question, It's simply
Speaker 1: a question about how people should plan for the future.
Speaker 1: We reported that aids to President Trump have spent the
Speaker 1: days following Mam Donnie's victory in New York reviewing federal
Speaker 1: funds that benefit the city to potentially suspend or cancel,
Speaker 1: a White House official said, highlighting the threat of retribution
Speaker 1: over the Democratic Socialists. When if we were to see
Speaker 1: in New York City or New York state funding cut
Speaker 1: off for some of these projects. Would that have a
Speaker 1: big effect on the economy?
Speaker 4: Look, I would believe the answer would be yes, it
Speaker 4: will have some effect on the economy.
Speaker 1: Because you mentioned some infrastructure projects.
Speaker 4: Sure, I don't know how big that would be, and
Speaker 4: I don't know what the you know, it seems to
Speaker 4: me in this economy, at least over the last twelve
Speaker 4: months or so, there seemed to be so many inputs
Speaker 4: that have been maybe going in one direction, maybe a
Speaker 4: negative way, and something else turns around and comes back
Speaker 4: to the other the other direction. So, look, New York
Speaker 4: has always been New York, and we've been through all
Speaker 4: different types of political environments, and there have been ups
Speaker 4: and downs. But if you chart the growth of New
Speaker 4: York from sixteen oh nine or whenever when the first
Speaker 4: settlement started here through to today, it has been an uphill, NonStop,
Speaker 4: you know, economy, And so I have every confidence that
Speaker 4: New York is going to continue to be the place
Speaker 4: to be. Are there challenges here today about affordability and
Speaker 4: who can live here, and you know, some of the
Speaker 4: changes that need to be made, Absolutely, I think we'll
Speaker 4: get those things right. One thing I have learned from
Speaker 4: this administration. There are a lot of threats that are
Speaker 4: made and a lot of you know, there's a lot
Speaker 4: of saber rattling. At the end of the day, though
Speaker 4: I think our president loves the city of New York.
Speaker 4: I can't see him doing anything that's generally going to.
Speaker 8: Be harmful to the city.
Speaker 3: Frank correct as if we're wrong. Though, we were talking
Speaker 3: with some of our folks who also cover like the
Speaker 3: banking area and are interesting is you do have some
Speaker 3: exposure to rent regulated We do properties or apartments I
Speaker 3: think via your cre lending. So with the mom Donnie
Speaker 3: win here in New York City, how do you feel
Speaker 3: about that exposure and what he has said about, you know,
Speaker 3: his pledge to freeze rents.
Speaker 4: So look for those, you know, for those properties that
Speaker 4: we're trying to convert from rent regulated or rent stabilized
Speaker 4: rather to market rent. Those properties are going to have
Speaker 4: some challenges going forward because that's not going to happen.
Speaker 4: And part of that was the two thousand night let's
Speaker 4: not forget the twenty nineteen law made that change. And
Speaker 4: it was interesting, right the candidate everybody wanted to win,
Speaker 4: which was Andrew Cromwell, he's the one who signed that law.
Speaker 4: So everybody's afraid of coming in. But yet you know,
Speaker 4: it was the it was the one who ran against
Speaker 4: him that brought that law to pass. For the for
Speaker 4: the balance of the rent stabilized properties that are out
Speaker 4: there that are already cash flowing and have been underwritten
Speaker 4: under those terms, I think they're going to be fine.
Speaker 3: As a matter of.
Speaker 4: Fact, the current mayor elect has spoken many times about
Speaker 4: programs possibly to lower property taxes for some of those
Speaker 4: property owners and come up with insurance programs to sort
Speaker 4: of help out to keep the rents at a lower rate.
Speaker 4: So if that's true, and you know, if there's going
Speaker 4: to be some level of negotiation around what to do
Speaker 4: or how to do it to keep the rent increases lower,
Speaker 4: I'm all for it. That's great. What we have found
Speaker 4: over the years is that there have been rent increases.
Speaker 4: There was just one past recently for I think about
Speaker 4: three percent that went into effect in October. And let's
Speaker 4: not forget that the current mayor has six picks still
Speaker 4: on the Rent Guidelines Board and they're not you know,
Speaker 4: they are supposed to look at the economy on the
Speaker 4: ground today, where are expenses you know, the city does
Speaker 4: raise your taxes and your sewer fees and the cost
Speaker 4: of everything else goes up, so rents should go up
Speaker 4: appropriately as well, you know, based on inflation. So I
Speaker 4: do think there'll be a give and take there. And
Speaker 4: you know, at the end of the day, look, I
Speaker 4: think having a for sable apartments is a very very
Speaker 4: great thing for our city. I'd like to see us
Speaker 4: be able to do more in that regard here in
Speaker 4: New York City.
Speaker 3: Why don't we do more? And I guess I asked
Speaker 3: that we would.
Speaker 4: Need a very long program to get into what. You know,
Speaker 4: there are cities and towns. New Rochelle is an example
Speaker 4: of that where they've taken the opposite approach, which is,
Speaker 4: let's build as many apartments as we can possibly build.
Speaker 4: Let's let the developers go build. And they did that,
Speaker 4: and you know, the laws of supply and demand, they're
Speaker 4: sort of like gravity, right they they you can't you
Speaker 4: can't undo them. And so they built a lot of supply.
Speaker 4: Guess what happened to the rents? They came down, they
Speaker 4: didn't go up.
Speaker 1: They we had the Mayor Yadira Ramos Herbert on a
Speaker 1: few months ago talking about this and the zoning changes.
Speaker 1: You a background as a builder, you actually went to
Speaker 1: college for this before you were a banker. And I
Speaker 1: think it's fair to say that all I'm not gonna
Speaker 1: say all economists. Most economists would agree the way to
Speaker 1: decrease housing prices is to build more housing. How do
Speaker 1: you do that in New York City? And our developer
Speaker 1: is going to do that in New York's Like, what
Speaker 1: would developers need in the next administration order to do
Speaker 1: that apart from zoning changes? Like, what would they need
Speaker 1: to hear from city Hall that says you guys can
Speaker 1: go ahead and build and build more houses.
Speaker 4: Well, we would need zoning changes, We would need the
Speaker 4: ability to build housing that is affordable to build. You
Speaker 4: can't add on all of these issues. Yeah, listen, you know,
Speaker 4: I come from a union family, so I love, you know,
Speaker 4: unionized workforces. But if you're going to force every small
Speaker 4: apartment builder to build using union labor, you're going to
Speaker 4: drive up the cost. If we're going to force buildings
Speaker 4: to not be able to use certain types of natural
Speaker 4: gas appliances, or they got to meet certain.
Speaker 1: Environmentals that New York City has based and builders have
Speaker 1: faced here.
Speaker 4: And so they keep adding all of these things on
Speaker 4: and it makes the projects unaffordable, and if they're unt affordable,
Speaker 4: they don't get built.
Speaker 3: Just one last question, because I've got it we're Bloomberg.
Speaker 3: We do have a last FED meeting December. What are
Speaker 3: you expecting? What do you think we do need? Based
Speaker 3: on you said, pretty upbeat? Just got about forty seconds.
Speaker 4: Okay, if the Fed's got a tough job ahead of them.
Speaker 4: On the one hand, you know, unemployment and the employment
Speaker 4: structure in the economy is giving some mixed signals. Yeah,
Speaker 4: you know, larger businesses maybe hiring, smaller businesses maybe laying off.
Speaker 4: That could be temporary in that camp. I do believe
Speaker 4: that the smaller businesses are going to catch up soon.
Speaker 4: I do think there is I don't think there's a
Speaker 4: lot of inflation built into the economy. I think the
Speaker 4: terriffs are sort of skewing some of those numbers. I
Speaker 4: think they're going to have a tough call. My hope
Speaker 4: would be that they continue on the path and they
Speaker 4: cut rates another twenty five basis points in December.
Speaker 1: Well, just another excuse for Frank to come and hang
Speaker 1: out with us again and get to the round. December
Speaker 1: tenth day when we get that decision from J. Powell
Speaker 1: and the Federal Reserve.
Speaker 3: You're just up the street, so come back soon.
Speaker 4: We'll do.
Speaker 3: Frank Sorrentino, Chairman and chief executive Officer of Connect One Bank,
Speaker 3: joining us right here in our Bloomberg Interactive Broker Studio.
Speaker 2: Listening to the Bloomberg Business Weekdaily Podcast. Catch us live
Speaker 2: weekday afternoons from two to five pm Eastern. Listen on
Speaker 2: Apple CarPlay and Android Auto with the Bloomberg Business app,
Speaker 2: or watch us live on YouTube.
Speaker 3: Plenty ahead in our second hour of the weekend edition
Speaker 3: of Bloomberg Business Week, including how looking Good became a
Speaker 3: four hundred and fifty billion dollar industry, and how one
Speaker 3: retail behemoth is giving strip malls the major glow up.
Speaker 3: We're talking old to.
Speaker 1: Beauty plus well. Hear from the behavioral psychologist with alternative
Speaker 1: thinking on what makes great leaders. It may just be
Speaker 1: time to throw out all those management books, at least
Speaker 1: according to John Levy. He's the author of Team Intelligence,
Speaker 1: How Brilliant Leaders Unlock collective genius, and he joins us
Speaker 1: a little later.
Speaker 3: First up this hour, the Great Crypto Crash of twenty
Speaker 3: twenty five, entered a new phase on Wednesday, as bitcoin
Speaker 3: plunged to its lowest level in seven months, extending the
Speaker 3: more than one trillion dollar wipeout across the digital asset world.
Speaker 3: The day before that, on Tuesday, investors pulled more than
Speaker 3: half a billion dollars from Black Rocks I Shares b
Speaker 3: coin Trust, the largest single day outflow tim since the
Speaker 3: funds debut.
Speaker 1: The total market cap of cryptocurrencies peaked at about four
Speaker 1: point three trillion dollars. Now that was a little over
Speaker 1: a month ago back on October six. At now hovers
Speaker 1: around three point two trillion dollars, and much of that
Speaker 1: change reflects paper losses, not real world cash. Leaving hands
Speaker 1: to talk all things crypto, we were joined by Zach Pandel,
Speaker 1: head of research at the crypto asset manager Grayscale Investments.
Speaker 1: Also Isabelle Lee Bloomberg News cross Asset Reporter.
Speaker 3: And just one more thing. Grayscale recently filed for an IPO,
Speaker 3: so we know the company manages about thirty five billion
Speaker 3: in assets with more than forty products giving exposure to
Speaker 3: over forty five tokens.
Speaker 10: Well, what I see is a repricing of technology related
Speaker 10: assets across the board, whether it's some of the AI names,
Speaker 10: satellite companies, quantum computing stocks, and crypto has been part
Speaker 10: of that story. So it really hasn't been a crypto
Speaker 10: specific sell off. It's been a frontier technology sell off,
Speaker 10: and so I see macro drivers behind that rather than
Speaker 10: crypto specific.
Speaker 1: But if we look at them to sell off and
Speaker 1: then ASZAC worked out about the roughly six percent from
Speaker 1: all time highs, I mean we're down thirty percent.
Speaker 10: Yeah, Bitcoin modest for the big indexes and some of
Speaker 10: the megacap names. You see much larger declines at Bitcoin
Speaker 10: and some of the again frontier technology type of names,
Speaker 10: and crypto is that sort of space. On the one hand,
Speaker 10: Bitcoin is a major asset, a two trillion dollar asset,
Speaker 10: much of the asset class though still early stage technologies.
Speaker 10: I think it's fair to characterize it, and it's definitely
Speaker 10: been trading with that part of the market. I think
Speaker 10: that has to do with concerns about the US economy,
Speaker 10: questions about the FED policy, much more than what's happening
Speaker 10: in crypto specific.
Speaker 3: Well, how do you see gray scale and or just
Speaker 3: crypto in general, Like is it a safe haven, is
Speaker 3: it a cryptocurrent? Is it a currency, Is it a commodity?
Speaker 3: Is it an asset? Like? How do you like? How
Speaker 3: do you really define it?
Speaker 10: Crypto is a four trillion dollar alternative asset class today,
Speaker 10: so it's a mid size alternatives category, and investors think
Speaker 10: about putting in their portfolio in that way alongside hedge funds,
Speaker 10: private equity, infrastructure bets. Crypto fits in that way with
Speaker 10: the same.
Speaker 3: Amount of risk or now not necessarily.
Speaker 10: It's definitely a higher volatility alternative and it should be
Speaker 10: considered that way, but that fits very well for many
Speaker 10: investors with longer term portfolios. They're looking for many different
Speaker 10: ways to take risks in markets that don't have the
Speaker 10: same correlation with public market equity. Sometimes that means it
Speaker 10: outperform socks. Sometimes that means it underperformed. Sock has been
Speaker 10: a great diversifier overtime.
Speaker 1: I know Issille wants to jump in here in a second,
Speaker 1: but I just want to get one more in And
Speaker 1: that's on this conversation. The idea of some of the
Speaker 1: other assets that you mentioned. Okay, if we're talking about alternatives,
Speaker 1: you know, maybe we're talking private credit, maybe we're talking
Speaker 1: real estate. Sometimes those are hard assets like real estate.
Speaker 1: Sometimes they are assets that produce cash, like private credit returns.
Speaker 1: You know, your loan money to people, they give you
Speaker 1: money back at a higher interest rate.
Speaker 3: You hope, you hope.
Speaker 1: Yeah, we'll see if that happens in the future. With bitcoin.
Speaker 1: That doesn't exist. There are no cash flows with bitcoin.
Speaker 3: That's right.
Speaker 10: So we call it the crypto asset class. We could
Speaker 10: call it the blockchain asset class, because that's what it's
Speaker 10: all about. Blockchain technology. That's what stitches together everything in
Speaker 10: the crypto asset class, and it has a diverse range
Speaker 10: of use cases digital money like bitcoin, digital finance applications
Speaker 10: like decentralized finance, stable coins, tokenization, all the things we've
Speaker 10: been talking about this year. It is all of those
Speaker 10: different things, and it will compete in some ways with
Speaker 10: commodity markets. In some ways it'll compete with equity markets.
Speaker 10: And so it is hard to give a tight answer
Speaker 10: because it is its own unique thing. A four trillion
Speaker 10: dollar blockchain based digital finance and money asset class is
Speaker 10: how we think about it.
Speaker 11: So Grayscale is an early mover actually when it comes
Speaker 11: to offering crypto funds, namely bitcoin and Ether. They scored
Speaker 11: a legal victory. That's why we have this very successful
Speaker 11: dozen or so bitcoin ETFs that we have seen ether ETFs, dogecoin,
Speaker 11: Carol tim everything. Really, how has the proliferation of ETFs
Speaker 11: shape the market? And do you think it's for better
Speaker 11: or for worse?
Speaker 8: Well?
Speaker 10: Absolutely for better. I mean it's broadening access to this
Speaker 10: asset class to a much wider range of investors and
Speaker 10: allowing them to access it in ways that's convenient for
Speaker 10: them the same reason that they use ets for other purposes.
Speaker 10: You can include it in tax advantage accounts, it makes
Speaker 10: taxes easier, it makes estate planning easier. All of these
Speaker 10: reasons are why the ETFs have been so popular.
Speaker 11: But what do you what is your response when people
Speaker 11: say the whole premise of bitcoin is to be decentralized,
Speaker 11: and now the biggest holders of ibit is Blackrock as Harvard,
Speaker 11: although we know that's not really a conviction bit It
Speaker 11: could just be because of basis trade and all of that,
Speaker 11: but Blackrock all those big issues grey scale.
Speaker 10: Yeah, that's right. The premise is that bitcoin mining, which
Speaker 10: provides the security for this network, is decentralized, and if
Speaker 10: for some reason that were to be questioned in the
Speaker 10: longer one, investors should question a bitcoin, because that's the
Speaker 10: thing that really matters, not who is holding the asset,
Speaker 10: and the same ways for gold. Nation States hold gold
Speaker 10: as a decentralized asset for store of value, and they
Speaker 10: keep it in the basement of the New York fed
Speaker 10: here in downtown Manhattan. So it's just convenient to hold
Speaker 10: it in this same place. The ETFs or gold, it doesn't.
Speaker 10: That's not what gives it its values. Really, bitcoin mining
Speaker 10: that's core.
Speaker 4: To the value.
Speaker 1: I've actually seen some of that gold, by the way,
Speaker 1: I visited FED yeah years ago, and I got to
Speaker 1: go underground and see the gold. They weren't They wouldn't
Speaker 1: allow us to take pictures.
Speaker 3: I bet it's there.
Speaker 1: It's there, but it didn't count it.
Speaker 3: Why not just buy cryptodirectly? Like if the whole idea
Speaker 3: is this to be this kind of pure straight to it,
Speaker 3: very different from what the financial system has been, Zach,
Speaker 3: Why do I need you guys or anybody else who's
Speaker 3: kind of a middle man or middle individual.
Speaker 10: The premise of this technology is taking intermediaries out of
Speaker 10: the financial system, and we're going to drive huge efficiencies
Speaker 10: in the financial system over time through tokenization, stable coins,
Speaker 10: all these different use cases. However, there will be a
Speaker 10: lasting role for certain types of intermedia as we think,
Speaker 10: including fund managers and others, and we are just providing
Speaker 10: a convenient way to access these access for many types
Speaker 10: of investors. Again for taxes more as state planning for
Speaker 10: tax advantage accounts, it makes it much more effective. But
Speaker 10: self custody, holding your crypto yourself is a core part
Speaker 10: of what the asset class is all about, and we
Speaker 10: certainly would encourage more sophisticated investors that have an understanding
Speaker 10: that to please go for it.
Speaker 3: But don't crypto. For cryptocurrencies to have value, don't we
Speaker 3: have to really be using them to do things. And
Speaker 3: we're still no fans. But I'm still I don't know,
Speaker 3: still using dollars. So like I'm just trying to understand,
Speaker 3: Like I understand blockchain, like if you buy a house
Speaker 3: and you have you know rather than you know, the
Speaker 3: ownership and so on and so forth is all there
Speaker 3: the papers, I understand the blockchain that value, but.
Speaker 1: That hasn't happened yet, by the way, But we're still
Speaker 1: doing old school titles.
Speaker 3: That's right, thank you, titles, But I don't quite still
Speaker 3: yet the transacting that I will be doing. I think
Speaker 3: there's been research that it's still a lot of folks
Speaker 3: who want to keep things, you know, under the radar
Speaker 3: illegal activity. I'm trying to understand.
Speaker 10: So I think you're going to be using stable coins,
Speaker 10: and we had, you know, a lot of people hearing
Speaker 10: more about this this year because we had a key
Speaker 10: piece of legislation in July, the Genius Act, which provided
Speaker 10: a comprehensive regulatory framework for it stable coins here in
Speaker 10: the US, and over time, you will see many more
Speaker 10: payments use cases for this technology. You will also see
Speaker 10: stable coins on corporate balance sheets. You will see stable
Speaker 10: coins as collateral on the major US derivatives exchanges, so
Speaker 10: you will see this dollar based blockchain based dollars ubiquitous
Speaker 10: in our system relatively soon.
Speaker 3: But if people are.
Speaker 1: Using our companies are using stable coin or stable coins
Speaker 1: as collateral, aren't they just saying they're using treasuries as collateral.
Speaker 10: Blockchain technology, again is to take intermediaries out of the
Speaker 10: financial system.
Speaker 1: So those stable coins are backed up by treasuries depending
Speaker 1: on where you buy it. But for the most part,
Speaker 1: if we're talking about the most well known stable coins
Speaker 1: like USDC backed up by treasuries.
Speaker 10: Yeah, absolutely, then for one backed one for one and
Speaker 10: that is written in the regulation, and that's a very
Speaker 10: important piece of the whole story. If these technologies are
Speaker 10: going to be ubiquitous in the financial system, they need
Speaker 10: to be safe for consumers, safe for the financial system
Speaker 10: as a whole. That's why this regulation in July was
Speaker 10: so important.
Speaker 11: So as aechair, Paul Atkins conceded that he promised a
Speaker 11: token taxonomy. For the longest time, people have been confused
Speaker 11: whether crippoint is a security or commodity, and so this
Speaker 11: moves away from the fact that almost every digital token
Speaker 11: acts like a stock or something like that. How do
Speaker 11: you view that Because the lawyers have talked to some
Speaker 11: viewed it as a win, but some didn't really.
Speaker 10: So the Senate is working on legislation exactly on this
Speaker 10: topic and I think will clarify a lot of these
Speaker 10: issues for investors over time. Look, bitcoin is a commodity.
Speaker 10: It's a digital commodity, and that can maybe be hard
Speaker 10: to understand, but that's what it is. It's a digital
Speaker 10: commodity like gold or copper or silver, it just in
Speaker 10: digital form. But there are other crypto assets that look
Speaker 10: more like a claim of some kind, and I believe
Speaker 10: we will see more of that, that it will be
Speaker 10: common for large corporations to issue tokens as part of
Speaker 10: their capital structure. Alongside equity debt, preferreds and other hybrid instruments.
Speaker 10: You will see tokens and so there's a lot of
Speaker 10: different uses. It's all based again on that same technology,
Speaker 10: but it's hard to put one label on all these assets.
Speaker 3: I just feel like there's a bunch of smart people
Speaker 3: here and a lot of smart people at Bloomberg, and
Speaker 3: we constantly are having conversations like kind of I feel
Speaker 3: like a toddler. Why why like why is this needed?
Speaker 1: Well, that's why Zach is here to explain to us
Speaker 1: all the questions that we have that toddlers would ask. Hey,
Speaker 1: you know, I mentioned political tailwinds, and one thing that
Speaker 1: I wanted to get your view on is obviously, the
Speaker 1: regulatory environment is much better for cryptocurrency companies right now
Speaker 1: than it was during the previous administration. I mean, look
Speaker 1: at prices as you know a result of that. But
Speaker 1: the Trump family and the Trump family's connections to the
Speaker 1: actual crypto industry, how do you view that.
Speaker 10: Look, it's not a crypto friendly administration. It's a crypto
Speaker 10: friendly nation or crypto friendly voter.
Speaker 1: I don't know if I don't necessarily agree with that,
Speaker 1: because here's why I don't agree with it and pushback
Speaker 1: on this feel free. But yes, a lot of the
Speaker 1: pro crypto candidates won in twenty twenty four, but the
Speaker 1: messaging that the crypto community pushed in their districts wasn't
Speaker 1: crypto messaging. Like if you look at the ads for
Speaker 1: Bernie Moreno, who won in Ohio, it wasn't about crypto.
Speaker 1: It was about other issues that resonated with those voters.
Speaker 1: So I don't necessarily see it as a crypto friendly nation.
Speaker 1: Is that what you meant by crypto friendly nation? Like
Speaker 1: these people were voted in.
Speaker 10: What I mean is that holders of the technology, users
Speaker 10: the technology are bipartisan. That is a global asset class
Speaker 10: and we see comparable things happening all over the world.
Speaker 10: That Democrats voted for the Genius Act and the Clarity
Speaker 10: Act that passed the House, and I think will again
Speaker 10: vote for market structured legislation in the Senate. And this
Speaker 10: is really a key issue for US as an industry
Speaker 10: that it continues to be partisan so that any changes
Speaker 10: are and they last well beyond anyone individual.
Speaker 1: So the essentially you're saying is it doesn't really matter
Speaker 1: at this point. The administration doesn't really matter because these
Speaker 1: laws have been put into effect. It doesn't matter who
Speaker 1: SEC chair is.
Speaker 10: In the long run, doesn't matter because this is innovative
Speaker 10: technology that's going to transform the financial system. And how
Speaker 10: the politics shake out over time is hard to predict,
Speaker 10: but I have no doubt that in ten and twenty
Speaker 10: years time that the technology and the assets will be
Speaker 10: everywhere in our financial system and will have to clean
Speaker 10: right everywhere everywhere.
Speaker 1: And now you see Democrats as on board as Republicans were.
Speaker 10: Last year, increasingly on board, and I think that that's
Speaker 10: because their voters care about these issues. In our own
Speaker 10: survey data, slightly more Democrats hold crypto assets than Republicans,
Speaker 10: so we see it clearly as a bipartisan issue. I
Speaker 10: think again, you see that in the House and Senate also, Zach.
Speaker 3: I do wonder. I know, Isabel, you wrote about the
Speaker 3: coming IPO, and you know, I know you're probably limited
Speaker 3: in what you can say, but I do wonder about
Speaker 3: the market volatility that we're seeing, and this is a
Speaker 3: big week. We're going to get Nvidia earnings, which will
Speaker 3: certainly play into the AI trade and enthusiasm or lack
Speaker 3: or pull back that we've seen in that. But we'll
Speaker 3: market volatility, possibly change your timing on all of this
Speaker 3: and maybe delay it.
Speaker 10: Yeah, as you know, I'm in a quiet period, so
Speaker 10: we're limited to what we can say, but as soon
Speaker 10: as we have more to say, we will offer that. Look,
Speaker 10: what I would say is, in the longer run, I'm
Speaker 10: incredibly enthusiastic about where this technology and where this asset
Speaker 10: class to do. I wouldn't spend all my time on
Speaker 10: it if I wasn't, And it's hard to predict the
Speaker 10: short term in any asset class. I think it's a
Speaker 10: very great long term bet for many investors too. Allocate
Speaker 10: the crypto.
Speaker 3: Will you have more information on the ipo TBD? All right,
Speaker 3: just check in. Thank you so much.
Speaker 6: We really enjoyed this.
Speaker 3: Zach Pandele He's head of research over at grays Scale
Speaker 3: Investments in our Bloomberg Interactive Broker studio, along with the
Speaker 3: amazing Isabel Lee Crosshouset reporter here at Bloomberg used as well.
Speaker 3: Thanks for coming me.
Speaker 2: This is the Bloomberg Business Week Daily Podcast. Listen live
Speaker 2: each weekday starting to Eastern on applecar Play and the
Speaker 2: Android Auto with the Bloomberg Business app. You can also
Speaker 2: listen live on Amazon Alexa from our flagship New York
Speaker 2: station Just Say Alexa played Bloomberg eleven thirty.
Speaker 3: Elon has it, so too does President Trump and Steve
Speaker 3: Jobs also as well.
Speaker 1: We're talking about leadership. I mean, these are all leaders.
Speaker 1: John Levy thinks about leadership a lot. He argues, though,
Speaker 1: that one thing all leaders have in common is not
Speaker 1: the thing that we're told when it comes to these
Speaker 1: executive coaches or these business school courses, like you know,
Speaker 1: empathy or humility, those sorts of things. He says, it's
Speaker 1: something else. John Levy is a behavioral scientist and New
Speaker 1: York Times bestselling author. He's got a new book out,
Speaker 1: Team Intelligence, How brilliant leaders unlock collective genius.
Speaker 12: Let's think about it like this, Elon Musk or Steve Jobs, right,
Speaker 12: they weren't great at creating psychological safety or even getting
Speaker 12: consensus among their leadership. People still hold them up as
Speaker 12: these examples of amazing leaders. The problem is that what
Speaker 12: we've been sold is that, and mostly through universities like
Speaker 12: Harvard Yale, and so on, is that we have to
Speaker 12: have these essential skills if you want to be a leader,
Speaker 12: and if you pay them a whole lot of money,
Speaker 12: they'll teach you those skills and then you'll be a
Speaker 12: certified leader. Congratulations. The problem is it just doesn't track.
Speaker 12: When we really started looking at this, there was only
Speaker 12: one trait that was common across all leaders.
Speaker 8: What is it?
Speaker 12: It's that they have followers. It's so self referential and
Speaker 12: it's kind of ridiculous, and so we really wanted to
Speaker 12: ask the question, then, Okay, what causes us to follow someone?
Speaker 12: Generally people say, okay, it's vision and charisma, but that
Speaker 12: doesn't make sense. There are plenty of people who have
Speaker 12: no vision and no charisma, still people follow them.
Speaker 7: Yeah.
Speaker 12: So the answer, it turns out, comes down to this.
Speaker 12: Do you remember how you felt when you were in
Speaker 12: high school on Sunday at six pm? The Sunday scaries. Now,
Speaker 12: why do you think about this? You were free, you
Speaker 12: were at home, but you felt anxious. Friday at one
Speaker 12: o'clock you were in class. But how did you feel?
Speaker 6: Great?
Speaker 12: Yeah, so exciting, ecstatic, And that's because human beings don't
Speaker 12: relate to the present. They relate to the future that
Speaker 12: they believe they have. If you can make me feel
Speaker 12: don't live in the moment, definitely not. We believe we
Speaker 12: tend to have this association right now to what we
Speaker 12: think is about to happen. And so in high school
Speaker 12: on Sunday, what was going to happen was school the
Speaker 12: next day, Or if you're about to leave for vacation,
Speaker 12: you might be sitting at work, but you're wildly excited.
Speaker 12: The reason we follow somebody is because when we interact
Speaker 12: with them or their media, they cause us to feel
Speaker 12: that there'll be a new and better future.
Speaker 7: That's it.
Speaker 6: So that's fascinating. So let's take it to somebody.
Speaker 3: President Trump is that kind of his success or is today?
Speaker 3: It's because of that.
Speaker 12: I would argue that people in general vote for whoever
Speaker 12: they feel will cause them to have a new in
Speaker 12: better future, whether it's President Trump or it's investing into
Speaker 12: Elon Musk's companies. Listen, when you read the reports of
Speaker 12: what he's like as a boss at Elon, right, it's
Speaker 12: not the type of boss that we exemplify.
Speaker 1: I mean, you know it might not even have to
Speaker 1: read reports of what he's like as a boss. You
Speaker 1: could just follow him on social media and you had
Speaker 1: a good understanding of his personality.
Speaker 12: And when you do, you have to ask yourself like,
Speaker 12: is this really the person I'd want to be reporting to?
Speaker 12: And the answer is maybe not. But what he's amazing
Speaker 12: at is he has a handful of super skills that
Speaker 12: nobody else has.
Speaker 8: Right.
Speaker 12: He thinks at scale and moves faster than anyone in
Speaker 12: our society. And those super skills are so profound that
Speaker 12: when we interact with him, people will either say, hey,
Speaker 12: we'll give him a trillion dollar bonus, right, or we
Speaker 12: will come and work for you, or we want to
Speaker 12: launch things into space. But it's not because he's charismatic.
Speaker 1: Right, I mean, look at the example of when he
Speaker 1: pieced together the Doge team. What was the what were
Speaker 1: the qualifications that he put out there? Right, you have
Speaker 1: to work eighty hours a week, You're not going to
Speaker 1: get paid, Yeah, and you know you sign me up.
Speaker 1: He had people from all over the country who not
Speaker 1: just wanted to work with him, but believed in his mission.
Speaker 3: Yeah. It's really kind of fascinating. So the things that
Speaker 3: we get so being nice and generous is not necessarily
Speaker 3: things that are going to make a good leader.
Speaker 12: It's I want to separate two things. Okay, let's separate
Speaker 12: being an effective leader from having followers. Having followers just
Speaker 12: means that people feel that you'll have a new and
Speaker 12: better or they'll feel doesn't mean you will correct, because
Speaker 12: you could have somebody who's incompetent leading a bunch of morons. Frankly,
Speaker 12: and get nowhere. When we actually started looking at the
Speaker 12: research of what causes teams to be really effective, it
Speaker 12: came from a woman named Anita Williams Willie, and what
Speaker 12: she found in running a whole series of experiments is
Speaker 12: that none of the things that we actually thought actually
Speaker 12: make a team more effective. Right, So IQ of the
Speaker 12: smartest person no effect, average IQ, no effect. How much
Speaker 12: people liked each other not a great predictor.
Speaker 4: Right.
Speaker 12: Do you need to trust each other sure, or think
Speaker 12: that somebody is competent? Yeah, but you don't necessarily need
Speaker 12: to want to invite everybody you work with your wedding
Speaker 12: or something like that. The single greatest predictor the number
Speaker 12: of women on the team. Yeah, And I want to
Speaker 12: be clear, it's not because they're women. It's not a
Speaker 12: chromosomal thing. We're not out of a job. Don't worry
Speaker 12: he was looking at me. Yeah, it's because women index
Speaker 12: higher on emotional intelligence, and so there are plenty of
Speaker 12: men with high emotional intelligence, plenty of women who don't
Speaker 12: have any.
Speaker 3: But this makes a better Wait. So more women on
Speaker 3: a team means.
Speaker 12: What that on average, you have more emotional intelligence on
Speaker 12: the team, and then the team can function better because
Speaker 12: they can coordinate better, and then they outperform because when
Speaker 12: you have a single person sport, it's all about pure talent,
Speaker 12: right or activity. But when you have a group, you've
Speaker 12: gone from taking your shots to passing either information or
Speaker 12: the ball. Now, if I can't communicate with you, we
Speaker 12: are not going to be able to work well together.
Speaker 12: Having that high emotional intelligence on the team means that
Speaker 12: we know when to push on a topic and when
Speaker 12: not to, who to call on even if they're being quiet,
Speaker 12: and get the information out.
Speaker 1: Your behavioral well, what is your credential in this? Because
Speaker 1: you've studied behavioral science, but you know there are entire
Speaker 1: curricula that are dedicated to teaching leadership that ostensibly have
Speaker 1: evidence backed you know, elements that are backed by studies
Speaker 1: that say this is the right way to do things.
Speaker 1: And you're essentially saying that's not really the right predictor here.
Speaker 1: We have been looking at the right thing. What's the
Speaker 1: evidence that you have when it comes to number of
Speaker 1: followers or people who are actually following this charismatic personality
Speaker 1: that says this is the right outcome.
Speaker 12: So let's separate a few things. On the team stuff.
Speaker 12: There's a bunch of research I mentioned Anita Williams Willie,
Speaker 12: and there's several studies that back the same thing that
Speaker 12: teams with more emotional intelligence outperform on the leadership side.
Speaker 12: When you actually look at all of the studies on
Speaker 12: people who've gotten MBAs versus those who didn't, they find
Speaker 12: that there's absolutely no improvement in performance whatsoever having an
Speaker 12: NBA versus not compared. And there's like several of these
Speaker 12: studies on the three year mark, five year mark, seven
Speaker 12: year mark. There's no evidence in better management skills or
Speaker 12: anything like that. And so the skills that we're told
Speaker 12: are essential, we might not really be able to train
Speaker 12: them in the way that these programs are running.
Speaker 1: The reason I ask about your reason, I know you
Speaker 1: want to jump in, but the reason I ask about
Speaker 1: the credentialing here is because you have this background and
Speaker 1: having these dinners hosting thousands of people over the last
Speaker 1: ten years, fifteen people years, four thousand people. These are
Speaker 1: private influencer dinners where you have had Nobel laureates, Olympians,
Speaker 1: Grammy winning musicians all at different times show up and
Speaker 1: be together. What are the takeaways that you've been able
Speaker 1: to gather from getting this disparate group of people together
Speaker 1: and having them interact with one another.
Speaker 12: So there's kind of two main things that I've really noticed.
Speaker 12: The first is that all of them are at the
Speaker 12: top of their industry, whether they're commanding the International Space
Speaker 12: Station or they're running a major company, and none of
Speaker 12: them have the same characteristics at all. Malala does not
Speaker 12: produce results in the same way as a military commander,
Speaker 12: but people follow and will go very far in both
Speaker 12: cases right to support that cause. The second is, and
Speaker 12: this is kind of a wilder thing that people don't
Speaker 12: really notice, is that no matter how successful people are,
Speaker 12: they tend not to feel like they fit in or
Speaker 12: belong because the CEO knows that they've had three great quarters,
Speaker 12: but if the next two are off there, they might
Speaker 12: be out of a job, and the olympian knows that
Speaker 12: maybe they won at the last Olympics, but who knows
Speaker 12: if even qualify at the next one, and then no
Speaker 12: one will care. And so no matter what, there's this
Speaker 12: absolute factor that people feel a great desire to want
Speaker 12: to fit in and belong, which brings me to my
Speaker 12: real desire to understand is clearly those leadership traits didn't matter,
Speaker 12: and if there's such a great desire to belong, it's
Speaker 12: because human beings tend to be best with each other.
Speaker 12: So let's try and understand at our core what will
Speaker 12: allow us to be best with each other. And that's
Speaker 12: what the book explores, which is what are the characteristics
Speaker 12: that makes teams smarter than the sum of their parts?
Speaker 3: Okay, so why if that is our driving force? When
Speaker 3: I look at Congress, and I know you layer politics
Speaker 3: on things, and things change. But if we are better.
Speaker 1: They cannot be studied.
Speaker 3: If we are better as a group and a community,
Speaker 3: and yes, indeed right they have to vote on things,
Speaker 3: and so when they work together, things can actually move forward,
Speaker 3: or at least move Why does that not work its
Speaker 3: way out?
Speaker 12: So that's I think a great question, And I want
Speaker 12: to be very clear, I don't study politics.
Speaker 3: I'm not actually and full disclosure, like you lay politics
Speaker 3: on everything and.
Speaker 6: So a little bit different.
Speaker 12: I'm under the impression that things changed, and this is
Speaker 12: what I've been told after Newt Gingridge was in Congress,
Speaker 12: because he really pushed for less cooperation and also for
Speaker 12: people to spend more time in their home districts. Now,
Speaker 12: when that occurs, then we have something called the mirror
Speaker 12: exposure effect. The mere exposure effect is simply here's the
Speaker 12: funny thing. Have you ever what would you consider the
Speaker 12: greatest painting of all time?
Speaker 3: What people will say Mona Lisa exactly?
Speaker 2: Do you know?
Speaker 3: Why?
Speaker 1: Isn't it the perfectly symmetrical.
Speaker 12: That's what they'll tell you, But that's frankly not true.
Speaker 12: In nineteen eleven, a man walked into the Louver on
Speaker 12: a Monday while it was closed. The Louver was protected
Speaker 12: by eleven mostly drunk legionnaires, and walked into the Renaissance section,
Speaker 12: ripped the smallest painting he could off the wall, took
Speaker 12: it out of its frame, and then wrapped in an
Speaker 12: workman's bock and walked out.
Speaker 3: That was a Mona Lisa, wasn't it.
Speaker 8: Yeah?
Speaker 7: Yeah.
Speaker 12: Newspapers around the world spread images of it, and that's
Speaker 12: the first time almost anybody had ever heard of it.
Speaker 12: It was not considered a great painting. Three years later
Speaker 12: it was returned once again. Newspapers around the world rejoiced.
Speaker 12: And it was a way too. It was the build
Speaker 12: up to World War One, so it was a way
Speaker 12: to make fun of the French government and it's incompetence
Speaker 12: at the time. Now, human beings tend to like and
Speaker 12: trust the things that they're familiar with. And when you
Speaker 12: see you're the person who might be across the aisle
Speaker 12: picking up kids at school and your kids are in
Speaker 12: the same class, and you're at the same birthday parties,
Speaker 12: and you've developed familiarity and trust and all these other
Speaker 12: factors outside of that voting room, then suddenly you tend
Speaker 12: to treat people with more humanity and have a greater
Speaker 12: ability to work with them. And so much like the
Speaker 12: Mona Lisa is not really a great painting. If you
Speaker 12: actually speak to historians, the lack of that mere exposure
Speaker 12: and the trust that develops from interacting outside of these
Speaker 12: traditional negotiations, Yeah, we've lost a lot.
Speaker 7: Of that well.
Speaker 3: And we always bring up Alan Greenspan saying years ago
Speaker 3: about how when he was in Washington people. Actually Democrats
Speaker 3: Republicans went to cocktail parties together, and so you know,
Speaker 3: you have a glass of wine with somebody and yeah,
Speaker 3: you know you kind of relate. You're much more relatable,
Speaker 3: if you will, John, this was really really fun. Hopefully
Speaker 3: we can catch up again in the future.
Speaker 12: I'd be honored.
Speaker 3: Thank you for having Yeah, John Levy. He's a behavioral
Speaker 3: scientist New York Times bestselling author. His new book is
Speaker 3: Team Intelligence, How Brilliant Leaders Unlock collective genius. Joining us
Speaker 3: right here in studio.
Speaker 1: Were you invited to one of the secret dinners?
Speaker 3: Ever, it's secrets, so I can't tap.
Speaker 1: Oh okay, yeah, same same.
Speaker 2: You are listening to the Bloomberg Business Weekdaily podcast. Catch
Speaker 2: us live weekday afternoons from two to day five pm Eastern.
Speaker 2: Listen on Apple CarPlay and Android Auto with the Bloomberg
Speaker 2: Business app, or watch us live on YouTube.
Speaker 1: Let's talk about Alta Beauty because by some measures, it's
Speaker 1: the largest beauty retailer in the country. Yes, larger than Sephora.
Speaker 1: Even though you see those stores everywhere, especially in like
Speaker 1: high density areas. So true, but sometimes Alta hides in
Speaker 1: plain sight. Its stores primarily populating suburban and ex urban
Speaker 1: shopping centers instead of thriving high end malls in pricey
Speaker 1: urban shopping districts.
Speaker 3: All Right, it is a story about Alta, how big
Speaker 3: it is, what it's up to. It is the cover
Speaker 3: story of the December issue of Bloomberg business Week. It's
Speaker 3: written by Amanda Mull. She's Bloomberg BusinessWeek senior reporter and
Speaker 3: she joins us in New York City. We've been dying
Speaker 3: to talk to you about this, but it is true.
Speaker 3: When I think cosmetics and stuff, you know, I think
Speaker 3: about the explosion of Sephora, But Alta beauty, I feel
Speaker 3: like it's been a quiet sleeper.
Speaker 13: It's massive, yeah, I think, especially for people who live
Speaker 13: in dense urban areas, and especially perhaps New York City
Speaker 13: also sort of hides in plain sight. It opened its
Speaker 13: fifteen hundredth US location just a couple of weeks ago.
Speaker 13: That's more than twice the locations that Sephora has in
Speaker 13: the US. The typical Alta is ten thousand square feet,
Speaker 13: which is twice the size of the typical Sephora. And
Speaker 13: it's been around since nineteen ninety. It has sort of
Speaker 13: like quietly grown over the years and in the last
Speaker 13: five or six years, it's had like a real growth spike.
Speaker 13: In twenty nineteen, right before the pandemic, it's annual revenue
Speaker 13: with six billion dollars, and in twenty twenty four it
Speaker 13: had increased all the way to eleven billions. So it's
Speaker 13: a booming business even though you might not notice it
Speaker 13: every day.
Speaker 1: What does it say about how Americans shop for beauty products?
Speaker 1: Because Sephora, for example, this is actually a case, like
Speaker 1: a Harvard case study in business school, like the experiential part,
Speaker 1: the way that they built these stores out, how do
Speaker 1: American shop when it comes to ALTA.
Speaker 13: Well, the beauty business is sort of fascinating, especially at
Speaker 13: this point in the retail lands Skate because most other
Speaker 13: sectors of the consumer economy don't really have like a
Speaker 13: thriving multi brand retail scene. You know, department stores things
Speaker 13: like that have really have really declined in a lot
Speaker 13: of places, as well as like specialty retailers like electronics stores.
Speaker 13: But beauty is a really in person business. You know,
Speaker 13: it is a tactile, fun thing to go shop for,
Speaker 13: and you want to be able to smell perfume, you
Speaker 13: want to be able to try a lipstick on or
Speaker 13: see if the certain foundation actually matches your skin tone,
Speaker 13: which makes it a really unique opportunity for companies that
Speaker 13: want to operate brick and mortar stores, and that has
Speaker 13: been a real, a real upside for Alta. And Alta
Speaker 13: and Sephora sort of take a separate, separate approaches to
Speaker 13: beauty really, and they are like both quite successful. Alta,
Speaker 13: you know, carries everything from drug store products to Chanel
Speaker 13: perfume and pa and Door Look gloss and things like that.
Speaker 13: Sephora really concentrates at the upper end of the spectrum.
Speaker 13: But the Alta theory is that you know, women and
Speaker 13: beauty consumers in general shop across price points. There's very
Speaker 13: few who only shop at the drug store or who
Speaker 13: only shop from high end brands. So their theory is,
Speaker 13: if you can put that all under one roof and
Speaker 13: make it really easy for people to go to, you know,
Speaker 13: when they're out, you know, buying dog food or out
Speaker 13: shopping for a coat or something like that at a
Speaker 13: you know, at a discount store, Alta is right there
Speaker 13: and you can just drive right up, park outside, hop in,
Speaker 13: get whatever you need.
Speaker 3: Tell us about the Alta Beauty CEO who's actually been
Speaker 3: with the company for a while in some different positions.
Speaker 12: Yeah.
Speaker 13: So in January, the longtime CEO, Dave Kimball, stepped down
Speaker 13: and retired and Keisha Steelman, the current CEO, took his spot.
Speaker 13: She has been with Alta since twenty fourteen in a
Speaker 13: series of operations roles. Her background is in operations and
Speaker 13: she was most recently Chief Operator Officer. And to me,
Speaker 13: her background is sort of fascinating because, you know, you,
Speaker 13: Alta is a Fortune five hundred company, and at the
Speaker 13: tops of these companies you usually find people with very
Speaker 13: similar types of backgrounds, people with elite educations, people who
Speaker 13: went through certain types of jobs, certain types of you know,
Speaker 13: consulting firm work, lawyer work, things like that. Keisha came
Speaker 13: up through retail from working in stores. Her first job
Speaker 13: in her career was, you know, in a Target store,
Speaker 13: and she has worked in stores and then in the
Speaker 13: corporate governance of stores her entire career. She's from a
Speaker 13: very small town in Iowa, and she's really, I think,
Speaker 13: sort of like the Alta customer. She has a particular
Speaker 13: insight into how Alta's customers want to shop Alta. Something
Speaker 13: interesting about them, I think is that they open a
Speaker 13: lot of rural locations where you don't get Sephoras and
Speaker 13: you may not have like a target even so Alta
Speaker 13: opens in a lot of places where you know, they
Speaker 13: try to meet people where they.
Speaker 3: Are such cool stuff. Thirty seconds here, if you say Sephora,
Speaker 3: do they give you the evil eye?
Speaker 2: You know?
Speaker 13: A source that I talked to for this story described
Speaker 13: Sephora Alta as phrenemies. And you know, they carry a
Speaker 13: lot of the same products. There's at the high end, especially,
Speaker 13: and I think that there's this sort of silent rivalry
Speaker 13: between them. But because Sephora concentrates so much on like
Speaker 13: high end urban real estate and high end malls with
Speaker 13: like affluent customer bases, and Alta just takes an opposite
Speaker 13: look at the at the market, so they don't overlap
Speaker 13: that much.
Speaker 3: I went to an Alta recently for the first time,
Speaker 3: and I was kind of blown away, although I still
Speaker 3: it's just, yeah, the whole beauty industry just kind of
Speaker 3: blows my mind.
Speaker 1: Our thanks to Amanda Mole, Bloomberg Business Week Senior Reporter. Reminder.
Speaker 1: This is the cover story of the December issue of
Speaker 1: Bloomberg Business Week. You can read it on the Bloomberg
Speaker 1: Terminal and at Bloomberg dot com Slash BusinessWeek.
Speaker 3: The beauty industry, though overall, has several players. We talk
Speaker 3: about the growth, we talk about the profitability. We just
Speaker 3: talk about you know, consumers, they're out there spending.
Speaker 1: Yeah, let's talk a little bit about one of those companies,
Speaker 1: Sally Beauty Holding. Following the company's most recent earnings report,
Speaker 1: fourth quarter comp sales up one point three percent that
Speaker 1: beat Wall Street estimates. The company also beat estimates when
Speaker 1: it came to fourth quarter adjusted EPs and Q four
Speaker 1: net sales. Dealise Polonis is a president and CEO of
Speaker 1: the one point four billion dollar market cap Sally Beauty Holding.
Speaker 1: She joins US from Texas. Shares up more than thirty
Speaker 1: eight percent so far this year. Denise, we want to
Speaker 1: talk about the company, but I want to start with
Speaker 1: just your view on the consumer right now. How is
Speaker 1: the consumer?
Speaker 3: First?
Speaker 9: Thanks for having me, great to be on.
Speaker 3: You know.
Speaker 9: Overall, the consumer that we're seeing is resilient, but is choiceful,
Speaker 9: So resilient in total dollars spending, but very picky about
Speaker 9: what they're going to put their money into right now,
Speaker 9: just knowing that they might have a limited, limited budget to.
Speaker 3: Spend what are they spending it on? Then, if they
Speaker 3: have a been a budget, is it smaller things that
Speaker 3: cost less? I'm curious.
Speaker 9: I think what we see is we see people both
Speaker 9: splurging and then being frugal. So they'll splurge on experiences,
Speaker 9: They'll splurge on special products that are important to them.
Speaker 9: I expect that they'll splurge a bit on things like
Speaker 9: Thanksgiving dinner, but they'll pull back and say, you know,
Speaker 9: if I have enough of something in my pantry, maybe
Speaker 9: I won't buy three more bottles of shampoo or three
Speaker 9: more lipsticks.
Speaker 6: I'm going to lean in for what really matters to me.
Speaker 3: Well, that's what I mean, though, So then I don't
Speaker 3: mean you. No. I get it that they might not
Speaker 3: spend you know, they look at their whole wallet and
Speaker 3: what they could spend on. But so what are they
Speaker 3: really spending money on? At Sally Beauty, I will.
Speaker 9: Tell you it's Sally Beauty. The big thing is hair color.
Speaker 9: So our hair color business was up high single digits
Speaker 9: at Sally this quarter. What we're really seeing is customers
Speaker 9: who have always done DIY for their hair continuing to
Speaker 9: do so. But more and more we're seeing customers who
Speaker 9: are splitting their time that they might regularly get done
Speaker 9: in a salon, but they'll come in and do a
Speaker 9: fill in or an update, you know, to kind of
Speaker 9: stretch their wallet a little bit between those salon visits
Speaker 9: by coloring their hair, touching up their roots. And we've
Speaker 9: also see a reinvigoration of vivid colors as people I
Speaker 9: think want some fun in their lives and want that
Speaker 9: experience of pink.
Speaker 8: Or purple hair.
Speaker 1: Just remind us that where you play and where you
Speaker 1: meet the consumer. You call yourself the world's largest distributor
Speaker 1: and retailer of professional beauty products. Brands that might be
Speaker 1: and probably known to most of the audience include Clairel
Speaker 1: con Air, Hotshot Tools, Wella, and more. Where do you
Speaker 1: meet the consumer because it happens at retail stories, but
Speaker 1: it also happens via salons.
Speaker 9: Does we meet them in two spots?
Speaker 6: So overall, we're about a four.
Speaker 9: Billion dollar sales player that split half and half between
Speaker 9: serving a traditional consumer with Sally, which is a public
Speaker 9: consumer retail stores that are out there, and then we
Speaker 9: serve us all of the beauty salon professionals, so you know,
Speaker 9: all those folks who work as independent contractors are working
Speaker 9: as taking care of folks. We're actually that largest distributor
Speaker 9: to that salon professional and primarily what we do on
Speaker 9: both sides of our business is everything hair, hair color,
Speaker 9: hair care, accessories, tools, you name it, that's what we do.
Speaker 3: Hey, I am curious with tariffs and so on and
Speaker 3: so forth. The global supply team when it comes to
Speaker 3: beauty products, I think it's around the world, France, South Korea,
Speaker 3: the US, China, Italy, Japan. How has that impacted the
Speaker 3: cost of things or your business?
Speaker 9: Yeah, I think we're quite fortunate that eighty percent of
Speaker 9: our product comes from North America and the twenty percent
Speaker 9: that doesn't is kind of split equally between China.
Speaker 6: And Western Europe.
Speaker 9: So we're a little bit more insulated than some other
Speaker 9: beauty players out there, which is great news for us.
Speaker 9: When we think about what's most affected for us, it's
Speaker 9: things like blow dryers or flat irons that might be
Speaker 9: coming in from China and have a little bit more
Speaker 9: of that tariff on it. But we've got some great
Speaker 9: relationships and we're navigating it quite nicely. I don't expect
Speaker 9: the consumer we'll see any notable increase to them as
Speaker 9: we're going through the holiday selling season on those products,
Speaker 9: with the cooperation we have with our vendors and how
Speaker 9: we're trying to navigate.
Speaker 1: Sourcing, the disconnect between Wall Street's expectations and what you delivered.
Speaker 1: I know, a big part of any executive's job is
Speaker 1: managing expectations. It was a beat pretty much across the board.
Speaker 1: Where did that come from?
Speaker 9: Yeah, well, I'll tell you, the team just did a
Speaker 9: fantastic job executing. We've got a few key initiatives that
Speaker 9: are working really well for us today, you know, namely
Speaker 9: starting with innovation, particularly on the pro side of our business.
Speaker 9: Thirty five percent of our sales in hair care this
Speaker 9: last year came from a product that's new to us
Speaker 9: in the last eighteen months or so, and that's three
Speaker 9: times higher than it was a couple of years ago,
Speaker 9: where that was only ten percent from newness. So that
Speaker 9: newness is resonating with our salon customers quite a bit.
Speaker 9: On the on the retail side, marketplaces we now participate
Speaker 9: with Uber eats, door Dash, and instacart in terms of
Speaker 9: kind of the non t additional marketplaces you delivered to
Speaker 9: your door in two hours. It's been a great business
Speaker 9: growth opportunity for us. We laugh internally that the fact
Speaker 9: is there's a lot of people who have an eyelash
Speaker 9: emergency at six o'clock on a Saturday night before you know,
Speaker 9: a big party.
Speaker 1: That was Denise Paulonis, President and CEO over at Sally
Speaker 1: Beauty Holdings.
Speaker 3: And that wraps up the weekend edition of Bloomberg Business
Speaker 3: Week from Bloomberg Radio. Thank you so much for joining us.
Speaker 1: I'm Tim Stunebeck and I'm Carol Masser.
Speaker 3: Have a good and safe weekend everyone.
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