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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 2: MASUS is down one and a half percent. I was

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Speaker 2: looking to see if there was anything that came out recently,

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Speaker 2: and it hasn't. So I just wonder if you know,

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Speaker 2: it had a nice run up in their earnings or

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Speaker 2: still just a few months away from fifty two week high.

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Speaker 2: Maybe it's that, but we want to get more insight

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Speaker 2: onto that. Yes, raising a full year outlook good, same

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Speaker 2: store of sales falling less than estimated. Rachel Tenbrink is

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Speaker 2: general partner over Red Bike Capital. She joins us Now

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Speaker 2: in studio. Rachel, you deeply cover the retail industry. What

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Speaker 2: was your broad takeaway from Macy's.

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Speaker 3: So, I think that there's new CEO. The clock is

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Speaker 3: taking there's a lot of pressure, and so I think

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Speaker 3: that he's trying to as quickly as possible make an impact.

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Speaker 3: But truly it's hard to see the short term sort

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Speaker 3: of real pop I think what you're seeing is there's

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Speaker 3: a lot of focus on top doors. There's a lot

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Speaker 3: of focus on top performers in the Bloomingdale's and Blue Mercury,

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Speaker 3: but overall, the consumer is still challenged. They still have

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Speaker 3: inventory issues, and if you look at the overall performance,

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Speaker 3: they did a little better because they had better operating

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Speaker 3: but the top line was down.

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Speaker 4: So when I think about Macy's, I mean, obviously it

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Speaker 4: is the quintessential department store. What's the strategy for Macy's

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Speaker 4: going forward, because it just doesn't feel like this has

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Speaker 4: been a long term trend for department stores in general,

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Speaker 4: you know, with e commerce and so on, kind of.

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Speaker 5: A tough place to be.

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Speaker 4: What's the strategy for Macy's these days?

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Speaker 5: Do you think so?

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Speaker 3: I think the reality is just a smaller footprint, a

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Speaker 3: smaller company. I think it's shocking if you think about

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Speaker 3: the fact that May Season the last twenty years has

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Speaker 3: lost about twenty five percent market share and so to

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Speaker 3: whom to basically retailers, Amazon Discounters. It's just a much

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Speaker 3: smaller company than it used to be twenty years ago.

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Speaker 3: And I think that if you think about the fact

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Speaker 3: that they're going to close one hundred and fifty stores,

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Speaker 3: they're going to be left with three hundred and fifty stores.

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Speaker 3: It's just I think that it's a tough place to be.

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Speaker 3: I think there's still a place for it, and I

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Speaker 3: think they can thoughtfully talk to those customers, but it's

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Speaker 3: just going to be a smaller place.

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Speaker 2: To that point, what as their inventory functioning, Like are

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Speaker 2: they doing that well? Like having a smaller footprint might

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Speaker 2: be good into inventory management, How are they managing that?

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Speaker 3: So from what I read, they were struggling a little

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Speaker 3: bit trying to figure out the transition between spring and summer,

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Speaker 3: so they did have a little bit of elevated inventory levels,

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Speaker 3: but they seem to be doing okay. I think what

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Speaker 3: they're trying to do is create more proprietary and special experiences,

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Speaker 3: private label things that you can't find anywhere else. But

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Speaker 3: they need to hit it on the nose, and the

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Speaker 3: consumer is being very picky right now about where they're spending.

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Speaker 2: You guys know why I asked that question, right Why

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Speaker 2: too much inventory means sales? Sales means ALEX shops there.

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Speaker 2: Good inventory management mean Alex is not shop there. I'm

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Speaker 2: not paying full price. But I mean I asked that

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Speaker 2: I say that in Jess, But it does speak to

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Speaker 2: the promotional activity and if the consumer stretch and they're

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Speaker 2: being picky, that's going to rely on the promotional world

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Speaker 2: to kind of get them in the store to help

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Speaker 2: for more volume. Is Macy's part of that, Yeah.

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Speaker 3: I mean, I think what's interesting if you think about

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Speaker 3: Macy's is that they're sort of picking this biffurcated strategy

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Speaker 3: where on the one hand, they have their own, you know,

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Speaker 3: the Mace's nameplate stores, and I think they're focusing on

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Speaker 3: top doors, sharpening the inventory, sharpening the offer, and then

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Speaker 3: they're going high end with Macy's and Blue Mercury, sorry,

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Speaker 3: with Bloomingdale's and Blue Mercury to try to attract that

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Speaker 3: higher end shopper that's willing to spend a little more.

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Speaker 4: Rachel, I don't know if you're aware, but the big

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Speaker 4: news in this studio over the last week was, for

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Speaker 4: the first time ever, I went to a Walmart store

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Speaker 4: over the weekend. Hugely impressed, blown away everything. You know,

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Speaker 4: it is as you would expect because we had some

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Speaker 4: Walmart earnings last week. What do you take away from Walmart?

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Speaker 5: They seem to be doing pretty well well.

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Speaker 3: I think that you always have to look at the

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Speaker 3: relationship between Walmart Target, right, they're always head to head,

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Speaker 3: and I think right now the consumer is feeling the

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Speaker 3: financial pressure, they're feeling inflation, and they're trying to find deals.

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Speaker 3: And what's interesting is there is still this perception that

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Speaker 3: if you want to find lower price points, specially in

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Speaker 3: things like food that are basic, you go to Walmart.

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Speaker 3: Now it'll be interesting. Now, yesterday Target announced that they're

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Speaker 3: lowering prices on five thousand skews, And so how is

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Speaker 3: that going to affect the dynamic between Wall. You know,

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Speaker 3: they're they're still trying Target is still trying to keep

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Speaker 3: that upscale image that yep, but you know they're fighting

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Speaker 3: for consumers that are really caring about every penny.

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Speaker 4: I mean, I was five thousand skews. I mean, how

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Speaker 4: often does that happen? I don't think I've heard that.

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Speaker 3: I don't know if I know that. I mean, I

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Speaker 3: think that's pretty dramatic. Walmart has been lowering prices as well,

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Speaker 3: so I think they're just sharpening the competition.

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Speaker 2: So they have actually already cut prices on about fifteen

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Speaker 2: hundred items, and they had so that thousands more of

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Speaker 2: reductions are planned over the course of the summer. Yeah,

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Speaker 2: exactly right. One analyst over Barclays was saying that these

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Speaker 2: may have been planned as part of sort of the

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Speaker 2: second quarter inflection that was embedded in guidance. In the

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Speaker 2: second half maybe gets a little bit better, but obviously

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Speaker 2: that's going to be a key topic tomorrow. Also, these

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Speaker 2: items that we're talking about are milk, bread, soda, fruit, veggies.

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Speaker 4: That's good because that's where I've seen it.

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Speaker 2: Yeah, but that's also I wonder if that's a direct

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Speaker 2: competition then to Walmart, because that's where you can make

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Speaker 2: an argument that if you go to Walmart for groceries,

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Speaker 2: that's where you buy your other stuff.

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Speaker 6: And I wonder if Target's trying to play with that exactly.

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Speaker 6: I think that it's sort of a double edged store.

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Speaker 6: Target always tried to be like, you know, better quality,

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Speaker 6: higher end, but still affordable. And I think what they're

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Speaker 6: realizing is right now the customers really focusing on the

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Speaker 6: affordable and they're really focusing on the basics. So they're

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Speaker 6: going head to head on that piece.

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Speaker 4: Is there still too many stores out there, department stores

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Speaker 4: or big box I mean, particularly the department stores. I've

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Speaker 4: always heard like in the department stores. There's still too

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Speaker 4: many stores in America, but now maybe the pandemic solved

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Speaker 4: for that. I don't know.

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Speaker 3: Well, I think part of the challenge is, you know,

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Speaker 3: Macy's did announce one hundred and fifty store closures, so

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Speaker 3: they're definitely that's big. That's a big hit for them.

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Speaker 3: I think a lot of it is, you know, when

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Speaker 3: you think about stores, you also think about location and

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Speaker 3: real estate, and you.

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Speaker 2: Know, what are the top malls.

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Speaker 3: There's obviously you know, it's not just there there are

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Speaker 3: too many stores. Is that there are too many malls

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Speaker 3: and people aren't going to those malls, but there are

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Speaker 3: some shining places. So I think it's about like finding

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Speaker 3: the winners and having a smaller sharper footprint versus so

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Speaker 3: many doors.

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Speaker 2: And it was interesting you say that, Paul, because some

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Speaker 2: of these malls are being anchored by Target. So you

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Speaker 2: also have to wonder if Target has to retrench a

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Speaker 2: little bit here, what does that wind up meaning then

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Speaker 2: for the mall what would be good from Target when

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Speaker 2: they report?

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Speaker 3: So I think the expectation is that they're going to

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Speaker 3: be up slightly about one percent, but we'll have to see.

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Speaker 3: I mean, I do think that this news of better

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Speaker 3: pricing is going to have an impact on them?

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Speaker 2: Mean yeah, meaning that that would be helpful volume, but

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Speaker 2: then obviously not with margins correct, So interesting, where.

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Speaker 4: Do we go from here for retail? I mean, what's

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Speaker 4: your takeaway on the consumer?

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Speaker 7: Here?

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Speaker 4: The consumer seems like it's I guess that K shaped

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Speaker 4: economy where some small percentage are doing quite well, particularly

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Speaker 4: those that don't said stocks, bonds, houses, and everybody else

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Speaker 4: is really feel into pain. Is that what you're hearing

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Speaker 4: from the retailers?

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Speaker 6: Absolutely?

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Speaker 3: I think that there is this sort of biffurcation of

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Speaker 3: like the have and the have nots, And so for

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Speaker 3: some consumers it's a small group, but they're very profitable.

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Speaker 3: They're doing okay, they're still spending, they're still going to Bloomingdale's,

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Speaker 3: they're still buying their targe, And for others, they're really struggling.

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Speaker 3: And I think it's sort of come to that breaking

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Speaker 3: point where when you start to see stores lowering prices

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Speaker 3: there's a real pressure from the consumer.

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Speaker 5: Good point, yeah, but.

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Speaker 2: Then obviously hurts the margins and then it's like as

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Speaker 2: a stock investor, you're like, well, do I like that

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Speaker 2: volume versus margins in your experience when the retail sector,

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Speaker 2: which ones are kind of crushing it right now, because

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Speaker 2: it does seem to me that what names that people

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Speaker 2: like are very targeted, right like a specialty retail store

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Speaker 2: is the winner? Is that true?

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Speaker 8: Yeah?

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Speaker 3: I mean the first name that comes to mind is

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Speaker 3: Sephora and how it continues to outperform. You know, there's

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Speaker 3: a lot of talk about Sephora kids, but.

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Speaker 4: You just see, so what's a kid?

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Speaker 3: So a Sephora kid is my twelve year old daughter

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Speaker 3: who enjoys spending hours at Sephora. But guess what it

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Speaker 3: means she buys? It means I buy. And I do

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Speaker 3: think that there is an interesting approach where you know,

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Speaker 3: these gen Z consumers that everybody thought, well, they don't

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Speaker 3: really have that much disposable income, but guess what they

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Speaker 3: bring along others?

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Speaker 2: And have you ever seen the line and over here

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Speaker 2: their story always a long line depths of the pandemic lockdown,

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Speaker 2: I mean ground zero, the lockdown people in support.

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Speaker 4: A they didn't close the store, and B there were

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Speaker 4: people in there, I mean triple massed up or whatever.

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Speaker 4: They were there and they were in our chocolate store downstairs.

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Speaker 2: You know what we do, Paul, We invest in our face, yes, yes,

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Speaker 2: and that comes in many different forms. And after we

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Speaker 2: go eat chocolate, and that is what we do. Very good,

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Speaker 2: all right, good stuff. Thanks a lot, really appreciate it.

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Speaker 2: Rachel Tenbring joining us. I'm a partner over at Red

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Speaker 2: Bike Capital. We'll see how those numbers wind up stacking up.

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Speaker 5: Let's top Low's.

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Speaker 4: I mean I went to I've been to a Low's

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Speaker 4: and now I had not been to a Walmart until

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Speaker 4: this past Sunday, but I've been to Lolaise. Now I'm

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Speaker 4: not John Tucker, but I know my way around a Lows.

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Speaker 4: Drew reading those his way around the Lows. He's the

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Speaker 4: home building autost of Bloomberg Intelligence. Joining us from Princeton,

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Speaker 4: New Jersey. Forgot about the whole New Jersey transit can

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Speaker 4: get into New York City thing?

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Speaker 2: No, apparently not today. It's really. Oh yeah, it already

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Speaker 2: broken down.

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Speaker 4: It's like I'm just ignoring it and hoping it'll be

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Speaker 4: fine by the time I leave here.

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Speaker 5: That's my That's how I'm approaching this.

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Speaker 4: Drew talk to us about Low's here. Are people still

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Speaker 4: kind of remodeling their basements.

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Speaker 8: Yeah, So the quarter was a little bit of a

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Speaker 8: tug of war between sales and margins, and I think

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Speaker 8: you're seeing that reflected in the stock today. Same store

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Speaker 8: sales were down about four percent, which was better than

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Speaker 8: the five to six percent decline consensus was looking for.

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Speaker 8: But part of that sales performance was due to the

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Speaker 8: fact that there was a more promotional environment out there.

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Speaker 8: If you think back to when Home Depot reported last week,

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Speaker 8: they cite a late start to spring as something that

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Speaker 8: muted sales. Lows actually said Spring got off to a

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Speaker 8: good start, and that has to do with them being

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Speaker 8: more aggressive on promotions as part of their Spring Fest,

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Speaker 8: and I think that really speaks to you know, what

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Speaker 8: we're seeing really across the retail landscape with the consumer,

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Speaker 8: and that's that they're looking for value wherever they could

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Speaker 8: get it. Now. They did reaffirm their full year operating

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Speaker 8: margin guidance, but that's going to require the company to

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Speaker 8: execute on some internal initiatives. In the back half of

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Speaker 8: the year, Low's has made good progress in improving their

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Speaker 8: their margin profile and them narrowing the gap with Home

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Speaker 8: Depot has really been a key that investors have kind of,

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Speaker 8: you know, grasped onto. So the fact that they're taking

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Speaker 8: a little bit of a step back here maybe making

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Speaker 8: them a little bit uneasy.

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Speaker 2: When how much would the stock have to rerate for

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Speaker 2: investors and analysts to say, okay, fine, the margins are suffering,

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Speaker 2: but at least the volume and the sales are there.

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Speaker 8: Yeah, well, the stock is still trading above you know,

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Speaker 8: the ten year average, even if you go back to

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Speaker 8: prior to the pandemic, So from a pure valuation perspective,

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Speaker 8: you know, it's still a little bit elevated. That being said,

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Speaker 8: I mean, if you take a step back, the move

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Speaker 8: they've made on margins and narrowing the gap with home

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Speaker 8: Depot has been impressive over the last couple of years.

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Speaker 8: So I think, you know, the bulls would argue that

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Speaker 8: this is kind of a one off, and as we

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Speaker 8: get to the back half of the year, margins start

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Speaker 8: to improve as they implement some of their PPI initiatives,

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Speaker 8: and in terms of sales, you know, we're not expecting

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Speaker 8: a huge rebound in sales this year and the second

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Speaker 8: half comps will definitely get easier. But even Lows has

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Speaker 8: stated that comps may turn positive, but that's not a

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Speaker 8: reflection of an improved demand environment. It's strictly a reflection

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Speaker 8: of easier comps. So we think as we get into

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Speaker 8: twenty twenty five, that's when we would expect the market

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Speaker 8: to see more of a turn, as we get more

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Speaker 8: of a rebound and existing home sales.

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Speaker 4: How about lumber, That's something they buy a lot of.

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Speaker 4: How's the cost of lumber these days? How's that impacting

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Speaker 4: their margins?

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Speaker 8: Yeah, lumber is about ten percent of sales for both

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Speaker 8: Home Depot and Lows. Lumber was really more of a

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Speaker 8: story last year was extremely volatile, so you saw the

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Speaker 8: impact on their top line. There not so much of

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Speaker 8: a story this year. I think commodity particularly lumber, are

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Speaker 8: going to have less of an impact in the near term.

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Speaker 2: So you feel like we're not going to really see

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Speaker 2: a benefit in HOLD twenty twenty five. I mean, some

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Speaker 2: analysts are looking for the back half of this year.

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Speaker 2: Maybe some improvement. But for you it's really like a

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Speaker 2: year out kind of thing.

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Speaker 8: Well, I think as we get to the end of

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Speaker 8: this year, I think you'll start to see a little

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Speaker 8: bit of a turn, and a lot of that predicate

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Speaker 8: upon with what happens in the housing market. Obviously people

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Speaker 8: are looking for the FED to cut rates at some

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Speaker 8: point this year, obviously not as much as we had

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Speaker 8: hoped for previously. But we think that you know, when

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Speaker 8: you when you look at existing home sales, we're you know,

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Speaker 8: at the lowest levels in you know, more than two decades,

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Speaker 8: So there's not a whole lot lower we can go

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Speaker 8: absent you know, a broader economic decline where you start

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Speaker 8: to see a lot of job loss. So we think that,

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Speaker 8: you know, if rates come in a little bit, you

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Speaker 8: could kind of start to build a little momentum ending

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Speaker 8: this year carrying into next year. When we think, you know,

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Speaker 8: bigger picture about the home improvement market, there's some there's

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Speaker 8: some solid tail winds out there. You know, you have

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Speaker 8: homeowners who are sitting on record amount of home equity.

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Speaker 8: When you think about you know, the rise and home

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Speaker 8: prices we've seen over the last several years, you've got

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Speaker 8: an aging housing stock, and I think the fact that

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Speaker 8: mobility has been so low because of those high interest

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Speaker 8: rates is going to continue to encourage people to invest

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Speaker 8: in their house and I think what kind of triggers

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Speaker 8: that is rates coming back in a little bit so

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Speaker 8: you can start to tap that equity.

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Speaker 4: True, how many stores as Lows have and are they

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Speaker 4: adding stores? Are they pairing backstores? Kind of worthy with

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Speaker 4: their store count these days?

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Speaker 8: Yeah, so they're under two thousand. It's an interesting dynamic.

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Speaker 8: So their competitor, Home Depot, is actually embarking on their

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Speaker 8: first store expansion in a long time. Lows, on the

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Speaker 8: other hand, has cut back. They got out of their

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Speaker 8: Canadian business, which reduced their store a count. But what

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Speaker 8: they're doing from a store perspective is really introducing new formats.

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Speaker 8: So they're starting to go after the rural customer. Their

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Speaker 8: stores tend to be located in more rural locations compared

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Speaker 8: to Home Depot, which are more densely populated locations, and

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Speaker 8: they found success with that, so they're starting to compete

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Speaker 8: more with the tractor supplies of the world. They're also

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Speaker 8: introducing Low's outlets, So if you think of you know,

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Speaker 8: appliances that might have things and scratches. You could go

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Speaker 8: there and get heavily discounted items, and that's another way

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Speaker 8: they're looking to kind of, you know, drive traffic through

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Speaker 8: the lows brand.

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Speaker 2: Okay, now you're speaking my language. You put outlet there,

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Speaker 2: and I'm like, boom, we will go find things that

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Speaker 2: are cool.

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Speaker 5: I don't do outlets either.

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Speaker 9: You don't.

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Speaker 2: I know, you don't do outlets. That's my thing. It's

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Speaker 2: just my thing. Even if I had a bazillion dollars,

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Speaker 2: I wouldn't pay full price. Part of the hunt.

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Speaker 6: Okay.

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Speaker 2: AnyWho so drew based on all this, If I wanted

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Speaker 2: to play this housing market right now, what is the

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Speaker 2: best play? And I say that because it's not like

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Speaker 2: the housing market that the demand isn't there, the supply

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Speaker 2: might not be there. The costs are a little too high,

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Speaker 2: mortgage rates are too high, but eventually it'll normalize. What's

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Speaker 2: the best way to capitalize.

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Speaker 8: We think right now kind of sitting at the top

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Speaker 8: of the broader housing ecosystem is the home builders. We think,

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Speaker 8: you know, from a supply perspective, they're in a good

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Speaker 8: position their ability to buy down mortgage rates and make

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Speaker 8: payments more palatable to the consumers is something that differentiates

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Speaker 8: them versus the resale market. They're going to grow community

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Speaker 8: accounts in the coming years, so we really think that

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Speaker 8: they're still in a good position from a competitive perspective.

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Speaker 8: And when you look at you know, within the home

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Speaker 8: building space, you have the large, well capitalized, publicly traded

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Speaker 8: homebuilders who have access to land, access to labor, and

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Speaker 8: you compare that versus the smaller private piers, and you

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Speaker 8: have to remember home building is a very fragmented industry,

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Speaker 8: particularly outside some of the largest markets. But those smaller

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Speaker 8: private peers tend to rely on regional banks for growth

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Speaker 8: capital and with you know, a slowing economy and more

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Speaker 8: concern there, you're starting to see a poolback and lending.

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Speaker 8: So we think it's a good opportunity for those larger

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Speaker 8: builders to continue to take share.

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Speaker 2: Great stuff. Drew, really appreciate it. Thank you so much

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Speaker 2: to reading Bloomberg Intelligence US home Building Analyst. Joining us there.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 2: This is Bloomberg Intelligence Radio. I'm Alex C alongside Paul

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Speaker 2: Sweeney and John Tucker. We bring you all the news

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Speaker 2: in finance and economics through our lens of our Bloomberg

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Speaker 2: Intelligence analysts. They cover about two thousand companies one hundred

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Speaker 2: and thirty industries worldwide. We also use this time to

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Speaker 2: talk about stuff that Paul and I are interested in,

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Speaker 2: so media, maybe some retail, maybe some sports, oh and

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Speaker 2: maybe some energy. Joining us in studio is a doctor

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Speaker 2: Jeff Chamberlain. He is CEO of Volta Energy Technologies. I

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Speaker 2: don't know what that is, so I'm going to learn

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Speaker 2: about it, doctor Jeff Chamberlain. Welcome, thank you for joining us.

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Speaker 2: What is Volta Energy Technologies?

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Speaker 5: Well, thank you Alex for having me. Volta Energy Technologies

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Speaker 5: is a venture capital firm that we spun out of

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Speaker 5: Argon National Laboratory, which is one of the seventeen Department

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Speaker 5: of Energy labs and the lead in battery and storage

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Speaker 5: tech and development for vehicles and for the grid.

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Speaker 2: So that means that you are trying to find good

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Speaker 2: battery storage solutions that we can adopt on a cheaper scale.

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Speaker 7: YEP, that's going. That's it.

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Speaker 5: Basically. And I'll tell you the big thing that we've

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Speaker 5: noticed is a couple of things. One is, a lot

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Speaker 5: of people are focused on the downstream device. Who's going

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Speaker 5: to be the next big electric, who's going to be

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Speaker 5: the next Tesla, who's going to be the next Panasonic

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Speaker 5: or CTL in terms of the battery manufacturing. But before

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Speaker 5: I worked for the government, I worked in the chip industry,

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Speaker 5: and we expect this to go just like the chip industry,

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Speaker 5: where costs down will be king, and cost down will

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Speaker 5: come from innovations in the supply chain and in the adjacencies,

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Speaker 5: things like fast charge, things like power electronics on board

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Speaker 5: the vehicle, new ways to make batteries, all the way

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Speaker 5: upstream to mining lithium. So while the while a lot

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Speaker 5: of investors tend to be focused on those very downstream devices,

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Speaker 5: the truth is lithium is king and it will be

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Speaker 5: for decades going forward, just like oil and gas has

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Speaker 5: been king for a century, just like silicon has been

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Speaker 5: king in the semiconnuctor industry and yet created trillions of

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Speaker 5: dollars of wealth by modifications and wealth generally in the

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Speaker 5: supply chain and in the adjacencies. So it's going well,

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Speaker 5: We're finding a lot of good tech. Where does lithium

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Speaker 5: come from? And then how are you investing in that? Yeah,

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Speaker 5: if we go all the way upstream, let me start

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Speaker 5: by saying, there is no better time for investors in

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Speaker 5: the private markets. And this is a counter two to

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Speaker 5: thought from what you read in the mainstream media. Investing

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Speaker 5: in the kinds of technologies that we're investing in because

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Speaker 5: the needs of the end users are increasing, and by

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Speaker 5: needs I mean lowering costs and improving performance. There's a reason

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Speaker 5: one week ago today the Biden administration put in tariffs

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Speaker 5: that are one hundred percent for electric vehicles coming from China.

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Speaker 5: That happened because the US automotive groups lobbied for that

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Speaker 5: to happen. They know those cars will sell. A lot

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Speaker 5: of the mainstream media says nobody wants to buy electric vehicles.

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Speaker 5: They just leave off the second phrase unless they're lower costs.

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Speaker 5: But when we go all the way back up to mining,

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Speaker 5: it's notable what the big companies are doing. Last fall,

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Speaker 5: after I was here talking to Paul, actually Exon announced

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Speaker 5: that they want to become lithium suppliers. They're going to

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Speaker 5: do it is to leverage their own downhole and refining

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Speaker 5: capabilities and to adopt and scale something called direct lithium

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Speaker 5: extraction or in my industry they call it DLE daily.

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Speaker 5: It's a new way to extract and refine lithium and

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Speaker 5: it's like it sounds, it's direct. If you can remove

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Speaker 5: process steps and use less water, use less energy, you

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Speaker 5: end up with a lower cost production. So prices of

436
00:21:25,000 --> 00:21:28,200
Speaker 5: lithium in the market have been fluctuating substantially these last

437
00:21:28,200 --> 00:21:31,520
Speaker 5: five six years, where the cost of manufacturing has stayed

438
00:21:31,520 --> 00:21:31,960
Speaker 5: the same.

439
00:21:32,760 --> 00:21:35,680
Speaker 2: So where you guys would play in that, for example,

440
00:21:35,760 --> 00:21:38,600
Speaker 2: like I know that's Exxon's investment, you'd be investing in

441
00:21:38,600 --> 00:21:41,720
Speaker 2: the technology that would make direct to mining lithium precisely.

442
00:21:41,880 --> 00:21:44,240
Speaker 5: Precisely. In our fund one, we invested in a company

443
00:21:44,280 --> 00:21:47,840
Speaker 5: called Summit Nanotech and Canada that is now scaling in

444
00:21:47,920 --> 00:21:50,640
Speaker 5: Chile with one of the big lithium suppliers to supply

445
00:21:50,800 --> 00:21:52,440
Speaker 5: that tech to lower the cost.

446
00:21:52,240 --> 00:21:56,000
Speaker 2: When you go fully, when you go further up the

447
00:21:56,040 --> 00:21:58,280
Speaker 2: supply chain, is that where it lands for you in

448
00:21:58,359 --> 00:22:01,040
Speaker 2: lithium you're not looking at like graph or cobalt or

449
00:22:01,080 --> 00:22:01,760
Speaker 2: other stuff.

450
00:22:01,920 --> 00:22:04,880
Speaker 5: Yes, thanks Alex, you know they claim, Paul and as

451
00:22:04,880 --> 00:22:06,640
Speaker 5: claimed they don't know a lot here, but they clearly do.

452
00:22:06,960 --> 00:22:08,720
Speaker 2: Yes, I know, I know, I lot.

453
00:22:11,920 --> 00:22:19,480
Speaker 5: That's great. That's just by Midwestern heritage speaking their modesty.

454
00:22:19,600 --> 00:22:22,280
Speaker 5: But the the the answer is we look at it all.

455
00:22:22,600 --> 00:22:25,840
Speaker 5: Graph fight, it's it's fascinating. Even graphite. There is not

456
00:22:25,880 --> 00:22:31,000
Speaker 5: only a tightening on the supply, but it's mostly in China.

457
00:22:31,480 --> 00:22:34,119
Speaker 5: So there's massive moves for the supply chains coming out

458
00:22:34,160 --> 00:22:36,600
Speaker 5: of China being localized for cost reasons as well as

459
00:22:36,600 --> 00:22:40,080
Speaker 5: geopolitical reasons. But we look at it all from from graphite,

460
00:22:40,200 --> 00:22:43,479
Speaker 5: cobalt sulfur actually is a technology that can be used

461
00:22:43,480 --> 00:22:47,280
Speaker 5: in batteries lithium, and then downstream from that to things

462
00:22:47,280 --> 00:22:49,920
Speaker 5: like new microchips that enable power control and can lower

463
00:22:50,000 --> 00:22:51,240
Speaker 5: the cost of electric vehicles.

464
00:22:51,720 --> 00:22:55,399
Speaker 4: Do we need to be concerned about the security of

465
00:22:55,440 --> 00:23:00,640
Speaker 4: the resources for all these electric vehicle components, like are

466
00:23:00,640 --> 00:23:02,720
Speaker 4: they in China that that's a risk or are there

467
00:23:02,760 --> 00:23:04,359
Speaker 4: in parts of the world where it's a risk to

468
00:23:04,400 --> 00:23:05,960
Speaker 4: the US and others?

469
00:23:06,040 --> 00:23:09,320
Speaker 5: Is that a risk? The short answer is yes, there's

470
00:23:09,320 --> 00:23:12,479
Speaker 5: a long or more nuanced ance or graphite and lithium

471
00:23:12,520 --> 00:23:15,280
Speaker 5: in particular, depending on which material you're talking about, eighty

472
00:23:15,320 --> 00:23:17,679
Speaker 5: to ninety five percent of its processed in China, but

473
00:23:17,760 --> 00:23:21,639
Speaker 5: it's not sourced in China, which means there really is

474
00:23:21,680 --> 00:23:24,880
Speaker 5: an opportunity, especially with the advent of technology that lowers

475
00:23:24,960 --> 00:23:28,600
Speaker 5: manufacturing costs, to move that supply chain out of China

476
00:23:28,680 --> 00:23:33,199
Speaker 5: because the resource itself is not in China. However, magnetic materials,

477
00:23:33,840 --> 00:23:36,760
Speaker 5: the core called rare earth elements that are used in

478
00:23:36,760 --> 00:23:40,439
Speaker 5: magnetic materials for electric motors, most of that is in China.

479
00:23:40,520 --> 00:23:43,480
Speaker 5: So there's been a ten to twenty year research effort

480
00:23:43,680 --> 00:23:46,240
Speaker 5: in the Western world to find to develop new magnets

481
00:23:46,280 --> 00:23:48,760
Speaker 5: that don't require rare earths, and those are all going

482
00:23:48,800 --> 00:23:51,000
Speaker 5: to becoming commercial in the next three to five years

483
00:23:51,000 --> 00:23:51,400
Speaker 5: as well.

484
00:23:52,000 --> 00:23:56,280
Speaker 2: I was talking to a graphie producer yesterday who doesn't

485
00:23:57,080 --> 00:24:00,480
Speaker 2: and he was talking about the tariffs or put on.

486
00:24:00,560 --> 00:24:03,119
Speaker 2: I know you mentioned EV's in particular, but then the

487
00:24:03,240 --> 00:24:07,440
Speaker 2: nuance of say the raw materials going to Canada or Mexico,

488
00:24:08,119 --> 00:24:10,360
Speaker 2: and then because we have a free trade agreement, they

489
00:24:10,440 --> 00:24:12,320
Speaker 2: just come into the US. And so there's a huge

490
00:24:12,320 --> 00:24:16,919
Speaker 2: price discrepancy versus what you're willing to pay for localized

491
00:24:17,280 --> 00:24:20,840
Speaker 2: materials versus how cheap China can get it. How do

492
00:24:20,880 --> 00:24:23,000
Speaker 2: you solve for that because that's really going to be

493
00:24:23,040 --> 00:24:25,879
Speaker 2: about lowering the costs, which is really technology, which is

494
00:24:25,880 --> 00:24:26,360
Speaker 2: really you.

495
00:24:27,119 --> 00:24:30,280
Speaker 5: It's really a good question, and I'm not being a politician.

496
00:24:30,480 --> 00:24:32,920
Speaker 5: I don't know how to handle it from a policy

497
00:24:32,960 --> 00:24:36,000
Speaker 5: perspective because there are loopholes that you can go through

498
00:24:36,040 --> 00:24:39,119
Speaker 5: in Mexico and Canada, et cetera. Ultimately, the answer is

499
00:24:39,160 --> 00:24:41,760
Speaker 5: things like graphite. There's graphite all over the world. That

500
00:24:41,920 --> 00:24:45,000
Speaker 5: the largest graphite mine in North America is in Becancoorp,

501
00:24:45,520 --> 00:24:48,960
Speaker 5: north of Montreal, and that's natural graphite. There's also something

502
00:24:49,000 --> 00:24:52,320
Speaker 5: called synthetic graphite where you can manufacture the graph height

503
00:24:52,520 --> 00:24:55,159
Speaker 5: from carbon, and there are big oil producers that are

504
00:24:55,160 --> 00:24:57,040
Speaker 5: looking at doing that as well, right to grow their

505
00:24:57,040 --> 00:24:59,480
Speaker 5: business in that direction. So in my view as a

506
00:24:59,640 --> 00:25:03,119
Speaker 5: technical and as a technology investor, it is fine the

507
00:25:03,200 --> 00:25:06,760
Speaker 5: innovations that can lower the cost for localized supply. And

508
00:25:06,800 --> 00:25:08,600
Speaker 5: I think there'll be bumps in the road between now

509
00:25:08,640 --> 00:25:10,639
Speaker 5: an adoption of that technology in terms of what's happening

510
00:25:10,760 --> 00:25:14,159
Speaker 5: worldwide geopolitics, but I think ultimately it's localized supply that

511
00:25:14,200 --> 00:25:15,280
Speaker 5: will win the game.

512
00:25:16,400 --> 00:25:20,720
Speaker 4: Where does mister Tesla get his batteries, Where's Elon Musk

513
00:25:20,720 --> 00:25:21,719
Speaker 4: get his batteries for his car.

514
00:25:22,880 --> 00:25:24,880
Speaker 5: You know, I used to joke on Capitol Hill when

515
00:25:24,880 --> 00:25:27,119
Speaker 5: I worked for the government that if you peel the

516
00:25:27,200 --> 00:25:30,880
Speaker 5: t off the factory, the gigafactory in Nevada, you see

517
00:25:30,880 --> 00:25:33,720
Speaker 5: a big Panasonic logo underneath it. Originally it was a

518
00:25:33,720 --> 00:25:37,560
Speaker 5: Panasonic deal that they cut and embedded themselves together in

519
00:25:37,600 --> 00:25:41,280
Speaker 5: supply chain. They since have expanded to LG and CTL

520
00:25:41,520 --> 00:25:45,000
Speaker 5: and others. So CTL is the big dominant battery supplier

521
00:25:45,040 --> 00:25:49,399
Speaker 5: in the electric vehicle supply chain that's in China. But they,

522
00:25:49,560 --> 00:25:52,240
Speaker 5: you know, they've onshore manufacturing, and as American citizen, I

523
00:25:52,240 --> 00:25:57,200
Speaker 5: don't think it's about even before IRA became an active Panasonic, LG, Samsung,

524
00:25:57,240 --> 00:25:59,600
Speaker 5: they'd all announced twenty gig one hours of manufacturing in

525
00:25:59,600 --> 00:25:59,920
Speaker 5: the US.

526
00:26:00,200 --> 00:26:01,960
Speaker 4: All right, Jeff, thanks so much for joining us. Doctor

527
00:26:02,000 --> 00:26:05,920
Speaker 4: Jeff Chairperlin, CEO Volta Energy Technologies, Joining s here on

528
00:26:05,920 --> 00:26:07,080
Speaker 4: a Bloomberg and Director Burgos.

529
00:26:08,240 --> 00:26:12,119
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

530
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531
00:26:15,760 --> 00:26:18,520
Speaker 1: Auto with the Bloomberg Business app. You can also listen

532
00:26:18,640 --> 00:26:21,760
Speaker 1: live on Amazon Alexa from our flagship New York station.

533
00:26:22,119 --> 00:26:24,879
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534
00:26:26,400 --> 00:26:29,639
Speaker 2: I'm Alex seel longtied Paul Sweeney. This is Bloomberg Intelligence Radio.

535
00:26:29,680 --> 00:26:31,560
Speaker 2: We make sure you're up to date on all the

536
00:26:31,600 --> 00:26:34,120
Speaker 2: news that you need to know in business and finance.

537
00:26:34,119 --> 00:26:36,480
Speaker 2: We have great analysts that cover at two thousand companies

538
00:26:36,520 --> 00:26:39,119
Speaker 2: and one hundred and thirty industries worldwide. We also have

539
00:26:39,160 --> 00:26:42,280
Speaker 2: a huge staple of reporters all around the world, and

540
00:26:42,280 --> 00:26:44,000
Speaker 2: we're going to one of them now on this story.

541
00:26:44,080 --> 00:26:50,119
Speaker 2: So apparently ASML and Taiwan Semiconductor Manufacturing so TSMC have

542
00:26:50,320 --> 00:26:55,280
Speaker 2: ways to disable the world's most sophisticated chip making machines

543
00:26:55,359 --> 00:26:59,119
Speaker 2: in the event that China invades Taiwan. It's basically the

544
00:26:59,160 --> 00:27:01,120
Speaker 2: idea of here's a ca'll switch your press the button

545
00:27:01,119 --> 00:27:03,360
Speaker 2: and all of a sudden those machines stop working. Really,

546
00:27:03,440 --> 00:27:05,879
Speaker 2: it's something right, Isn't that sounding tucky, doesn't it?

547
00:27:05,880 --> 00:27:06,040
Speaker 8: Though?

548
00:27:06,119 --> 00:27:09,600
Speaker 2: Let's get to the guy behind the story. Deerdrik Basil

549
00:27:09,680 --> 00:27:12,720
Speaker 2: joins us Bloomberg Dutch government reporter. He joins us on

550
00:27:12,840 --> 00:27:14,879
Speaker 2: Zoom from Amsterdam. It's a real pleasure and I know

551
00:27:14,920 --> 00:27:17,040
Speaker 2: you're staying up late for us, so thank you very much.

552
00:27:17,080 --> 00:27:18,960
Speaker 2: As well, are working late for us? I should say,

553
00:27:19,520 --> 00:27:21,679
Speaker 2: walk us through this story? What do we know?

554
00:27:23,440 --> 00:27:26,760
Speaker 9: Hiah? Thanks for having me. Yeah, what we reported exactly

555
00:27:26,960 --> 00:27:31,000
Speaker 9: is that ASAML has a so called kill switch and

556
00:27:31,040 --> 00:27:35,280
Speaker 9: it can use it on his most sophisticated machine, does

557
00:27:35,320 --> 00:27:39,239
Speaker 9: the EUV machine or the extreme ultra hided machine. And

558
00:27:39,280 --> 00:27:43,360
Speaker 9: this basically means they can kill the machine remotely when

559
00:27:43,359 --> 00:27:47,760
Speaker 9: they choose to. And this capability was indeed discussed in

560
00:27:47,800 --> 00:27:51,880
Speaker 9: the context of a possible Taiwan invasion and was discussed

561
00:27:51,920 --> 00:27:56,000
Speaker 9: at least with the Dutch government. So yeah, it's an

562
00:27:56,040 --> 00:28:00,000
Speaker 9: important capability in a very sensitive geopolitical company.

563
00:28:01,119 --> 00:28:06,320
Speaker 4: So I guess it's it sounds good. I mean from

564
00:28:06,400 --> 00:28:09,360
Speaker 4: your reporting, is there a belief that this really can

565
00:28:09,440 --> 00:28:12,640
Speaker 4: be achieved, because it sounds like something that could be

566
00:28:13,720 --> 00:28:16,760
Speaker 4: I don't know, hijacked or something. It just it seems

567
00:28:16,800 --> 00:28:17,879
Speaker 4: like it's too good to be true.

568
00:28:20,400 --> 00:28:20,600
Speaker 8: Yeah.

569
00:28:20,760 --> 00:28:25,320
Speaker 9: The sort of thing is ACML has contact with when

570
00:28:25,359 --> 00:28:30,480
Speaker 9: the machines to do updates the machine need anyways, uh,

571
00:28:30,520 --> 00:28:33,639
Speaker 9: And this connection they have can also be used for

572
00:28:33,720 --> 00:28:36,800
Speaker 9: this capability. So it's not a building kill switch, but

573
00:28:36,840 --> 00:28:40,360
Speaker 9: it's a capability that can be used for different purposes.

574
00:28:40,840 --> 00:28:42,880
Speaker 9: And yet what we have heard is that a ISMAEL

575
00:28:43,000 --> 00:28:47,720
Speaker 9: has told government officials that they can do this if

576
00:28:47,840 --> 00:28:49,280
Speaker 9: that is what they decide to do.

577
00:28:49,440 --> 00:28:52,880
Speaker 2: So so I'm assuming though that officials say in China

578
00:28:53,000 --> 00:28:56,480
Speaker 2: might not like that, Like is that a legal thing

579
00:28:56,600 --> 00:28:56,880
Speaker 2: to do?

580
00:28:59,240 --> 00:29:03,160
Speaker 9: Yeah, Like an invasion is also not really legal, I guess,

581
00:29:03,200 --> 00:29:06,840
Speaker 9: so if you end up in such a context, you

582
00:29:06,880 --> 00:29:11,760
Speaker 9: need to ask different questions. But yeah, that's that's the

583
00:29:11,800 --> 00:29:15,600
Speaker 9: context we're talking about. If an invasion would happen, then

584
00:29:15,720 --> 00:29:17,000
Speaker 9: this is a possibility.

585
00:29:18,240 --> 00:29:23,000
Speaker 4: So but I guess today China is still a SML's

586
00:29:23,400 --> 00:29:26,120
Speaker 4: biggest market, isn't you know, even after some restrictions.

587
00:29:27,640 --> 00:29:31,320
Speaker 9: Yeah, close too. Yeah, like TMC is the biggest client,

588
00:29:31,400 --> 00:29:34,640
Speaker 9: but China as a as a country is definitely a

589
00:29:34,720 --> 00:29:37,760
Speaker 9: big market for as well. Yeah, so what are not

590
00:29:37,880 --> 00:29:40,320
Speaker 9: for this? Not for this machine though, not for the

591
00:29:40,360 --> 00:29:44,560
Speaker 9: eu V most sophisticated extreme ulti virus machine. That machine

592
00:29:44,600 --> 00:29:46,360
Speaker 9: isn't allowed to be exported to China.

593
00:29:46,760 --> 00:29:50,840
Speaker 2: Ah okay, So the machines that a SML does export

594
00:29:50,880 --> 00:29:53,480
Speaker 2: to China, does that have this quote unquote kill switch?

595
00:29:55,120 --> 00:29:57,120
Speaker 9: So this know, we were talking about the eu V.

596
00:29:57,400 --> 00:30:00,640
Speaker 9: So that's the most sophisticated machine, and you have plenty

597
00:30:00,680 --> 00:30:06,160
Speaker 9: of them in Taiwan, and that's why it's essential that

598
00:30:06,320 --> 00:30:10,400
Speaker 9: two let This capability exists in the context of the

599
00:30:10,440 --> 00:30:15,800
Speaker 9: Taiwan invasion, but has been subject to export control for

600
00:30:15,880 --> 00:30:19,280
Speaker 9: a while. They have been pushed by the US and

601
00:30:19,320 --> 00:30:22,760
Speaker 9: they have been mostly focused on this EUV machine. The

602
00:30:22,760 --> 00:30:26,920
Speaker 9: most sophisticated is no chip machines that he needs. Those

603
00:30:26,960 --> 00:30:30,320
Speaker 9: machines to the most phisticated chips you need for any

604
00:30:30,480 --> 00:30:35,040
Speaker 9: ai development or any military purpose, and those machines aren't

605
00:30:35,080 --> 00:30:36,040
Speaker 9: in China at the moment.

606
00:30:37,000 --> 00:30:39,840
Speaker 4: These machines aren't cheap, are they. What's one of these

607
00:30:39,840 --> 00:30:40,920
Speaker 4: big chip making machines.

608
00:30:40,960 --> 00:30:41,600
Speaker 5: What do they go for?

609
00:30:42,800 --> 00:30:45,120
Speaker 9: You said this, This eu V is I think it's

610
00:30:45,160 --> 00:30:48,600
Speaker 9: about like two hundred million apiece something like that.

611
00:30:49,000 --> 00:30:53,600
Speaker 2: Yeah, And SML does something very unique, not very unique.

612
00:30:53,600 --> 00:30:56,200
Speaker 2: They do something unique in the semi space right there.

613
00:30:56,400 --> 00:30:59,080
Speaker 2: You can also license. It's a lithography, right, it's like

614
00:30:59,120 --> 00:31:00,880
Speaker 2: the machine you need to make the chips. Can you

615
00:31:00,920 --> 00:31:04,000
Speaker 2: walk me through what exactly that company does and then

616
00:31:04,040 --> 00:31:06,000
Speaker 2: why it becomes so important to the sector.

617
00:31:07,760 --> 00:31:12,240
Speaker 9: Yeah, So basically, ASML is the only company able to

618
00:31:12,320 --> 00:31:16,440
Speaker 9: make this machine, and like all the generation chip machines,

619
00:31:16,720 --> 00:31:18,600
Speaker 9: you have more company that they are able to make

620
00:31:18,640 --> 00:31:22,640
Speaker 9: those but to make the best chips with the lowest

621
00:31:22,880 --> 00:31:28,840
Speaker 9: nanometers you need for what I mentioned ai those machines

622
00:31:28,880 --> 00:31:30,880
Speaker 9: she needs for those chips. ASML at the moment is

623
00:31:30,920 --> 00:31:34,400
Speaker 9: the only company that can make them, so yeah, that

624
00:31:34,560 --> 00:31:39,240
Speaker 9: gives them an important, massive market position, and yeah, you

625
00:31:39,440 --> 00:31:42,560
Speaker 9: also end up in a geopolitical struggle as we see

626
00:31:42,600 --> 00:31:43,000
Speaker 9: right now.

627
00:31:43,200 --> 00:31:45,000
Speaker 4: Yep, absolutely all right, Dieterrek, thank you so much for

628
00:31:45,080 --> 00:31:49,320
Speaker 4: joining us. Die Derek Bazil, Dutch government reporter for Bloomberg News,

629
00:31:49,400 --> 00:31:54,360
Speaker 4: joining us from Amsterdam via zoom. Again, ASML TSMC big

630
00:31:54,440 --> 00:31:59,360
Speaker 4: chip makers, apparently they can disable chip machines if China

631
00:31:59,480 --> 00:32:02,440
Speaker 4: invades Taiwan. You think about that cybersecurity, and it just

632
00:32:02,520 --> 00:32:04,720
Speaker 4: kind of goes to the issue of this what seems

633
00:32:04,760 --> 00:32:09,120
Speaker 4: to be a growing technology cold war between you know,

634
00:32:09,200 --> 00:32:12,080
Speaker 4: it's called it China and the West broadly defined it.

635
00:32:12,200 --> 00:32:16,040
Speaker 4: I'm not sure how you do that, but again, governments

636
00:32:16,080 --> 00:32:19,280
Speaker 4: are making plans. Companies here we see from this reporting

637
00:32:19,600 --> 00:32:20,440
Speaker 4: are making plans.

638
00:32:20,480 --> 00:32:24,760
Speaker 2: But this also devetails with Vault Energy that we spoke

639
00:32:24,840 --> 00:32:28,440
Speaker 2: to in the last hour, So that company makes investments

640
00:32:28,840 --> 00:32:32,800
Speaker 2: in technology that can help reshore the supply chains for

641
00:32:32,880 --> 00:32:35,760
Speaker 2: batteries and storage. Right, So think like lithium, how to

642
00:32:35,840 --> 00:32:39,440
Speaker 2: extract lithium more cheaply and more cost efficiently. It's all

643
00:32:39,480 --> 00:32:43,120
Speaker 2: part of the same story. How do you decouple after

644
00:32:43,240 --> 00:32:46,920
Speaker 2: a few decades of coupling when you're a company, whether

645
00:32:46,960 --> 00:32:50,440
Speaker 2: it's tech, whether it's rare rare earths, whether it's another

646
00:32:50,480 --> 00:32:56,320
Speaker 2: asset as a CEO, how do you capital allocate from that?

647
00:32:56,480 --> 00:32:56,680
Speaker 8: Right?

648
00:32:56,720 --> 00:32:59,640
Speaker 2: Like some companies like a Caterpillar, they make their stuff,

649
00:32:59,760 --> 00:33:02,840
Speaker 2: they train technologies. For example, it's an age back company.

650
00:33:02,960 --> 00:33:05,160
Speaker 2: They make stuff in China and sell to China. Right,

651
00:33:05,160 --> 00:33:07,440
Speaker 2: So their China sales might be fine, and then maybe

652
00:33:07,480 --> 00:33:10,280
Speaker 2: you're you're insulated, but otherwise I would think it'd be

653
00:33:10,400 --> 00:33:11,400
Speaker 2: very very difficult.

654
00:33:11,840 --> 00:33:13,960
Speaker 4: Yeah, And you know, and one of the companies that

655
00:33:14,000 --> 00:33:16,800
Speaker 4: I think when I think of just China risk broadly defined,

656
00:33:16,960 --> 00:33:19,040
Speaker 4: I think of Apple. I mean, you know, twenty percent

657
00:33:19,080 --> 00:33:22,680
Speaker 4: of their sales go there. It's obviously a huge growth market.

658
00:33:22,840 --> 00:33:25,880
Speaker 4: It's also critical to the supply chain, as we just

659
00:33:25,920 --> 00:33:28,360
Speaker 4: kind of learned a little bit here from DEETS reporting

660
00:33:28,360 --> 00:33:31,560
Speaker 4: in terms of where the chips come from and where

661
00:33:31,600 --> 00:33:36,400
Speaker 4: their hardware is manufactured in China. If you're Tim Cook, boy,

662
00:33:36,440 --> 00:33:37,840
Speaker 4: I don't know how you manage that. I guess you

663
00:33:37,920 --> 00:33:38,360
Speaker 4: just kind of.

664
00:33:38,360 --> 00:33:39,160
Speaker 9: Go to India.

665
00:33:39,280 --> 00:33:41,280
Speaker 4: You go to India, but that's going to take a

666
00:33:41,600 --> 00:33:44,920
Speaker 4: long time as we're told to build that whole infrastructure out.

667
00:33:44,920 --> 00:33:46,840
Speaker 4: But I guess if you're Tim Cook, you go to

668
00:33:46,920 --> 00:33:49,200
Speaker 4: China as often as you can and try to, you know,

669
00:33:50,000 --> 00:33:52,680
Speaker 4: just try to keep a good I guess dialogue going

670
00:33:52,720 --> 00:33:55,720
Speaker 4: with the government officials or to keep the status quo going.

671
00:33:56,000 --> 00:33:58,640
Speaker 2: Yeah, and we were talking about that when we had

672
00:33:58,640 --> 00:34:01,360
Speaker 2: a great story about maybe Tim cook succession plan and

673
00:34:01,400 --> 00:34:03,720
Speaker 2: sort of you know, do you need a full time

674
00:34:03,840 --> 00:34:08,040
Speaker 2: China ambassador? Basically as a as a company, you need

675
00:34:08,080 --> 00:34:11,239
Speaker 2: to have someone who can really help secure that relationship.

676
00:34:11,239 --> 00:34:13,080
Speaker 2: In addition to all the other stuff like capital allocat

677
00:34:13,120 --> 00:34:16,160
Speaker 2: you frend of an ends like invate his job.

678
00:34:16,360 --> 00:34:18,560
Speaker 4: Elon Musk's job has also got a lot of exposure

679
00:34:18,600 --> 00:34:21,319
Speaker 4: to their you know, CEOs. Jamie Dimond has been over

680
00:34:21,320 --> 00:34:23,840
Speaker 4: there recently for Japo Warton Chase, So a lot of

681
00:34:23,880 --> 00:34:26,680
Speaker 4: CEOs you know, going over to China trying to I guess,

682
00:34:27,000 --> 00:34:29,880
Speaker 4: maintain decent relationships in the face of governments.

683
00:34:32,560 --> 00:34:36,440
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

684
00:34:36,520 --> 00:34:40,080
Speaker 1: weekdays at ten am Eastern on applecar Play and Android

685
00:34:40,080 --> 00:34:42,840
Speaker 1: Auto with the Bloomberg Business app. You can also listen

686
00:34:42,960 --> 00:34:46,040
Speaker 1: live on Amazon Alexa from our flagship New York station.

687
00:34:46,440 --> 00:34:49,200
Speaker 1: Just say Alexa play Bloomberg eleven thirty.

688
00:34:50,560 --> 00:34:52,000
Speaker 2: Let's go to the bond market. Here we are seeing

689
00:34:52,000 --> 00:34:54,120
Speaker 2: a little bit bit into the bond market. Ira Jersey,

690
00:34:54,120 --> 00:34:58,160
Speaker 2: Bloomberg Intelligence Chief US interest rate strategist, is joining us.

691
00:34:58,800 --> 00:35:02,080
Speaker 2: IRA the mark it supposedly the narrative is that it's

692
00:35:02,080 --> 00:35:06,320
Speaker 2: waiting for Nvidia. What does the bond market do with Nvidia.

693
00:35:06,800 --> 00:35:08,200
Speaker 10: I don't know if the bond market's going to do

694
00:35:08,200 --> 00:35:10,200
Speaker 10: a whole heck of a lot with you know, story

695
00:35:10,239 --> 00:35:13,759
Speaker 10: stocks in particular, But the bond market is, you know,

696
00:35:13,800 --> 00:35:15,840
Speaker 10: still waiting for the Fed. We have a ton of

697
00:35:15,840 --> 00:35:18,400
Speaker 10: Fed speak this week. We have the minutes coming out tomorrow,

698
00:35:18,520 --> 00:35:20,480
Speaker 10: So the bond market's going to kind of be on

699
00:35:20,600 --> 00:35:23,080
Speaker 10: edge as to you know, when the Fed's gonna cut,

700
00:35:23,360 --> 00:35:26,480
Speaker 10: how do they see the balance sheet shaping up? And

701
00:35:26,680 --> 00:35:28,120
Speaker 10: you know, you've had a lot of speakers like I

702
00:35:28,480 --> 00:35:31,719
Speaker 10: literally just before walking on, we finished up with with

703
00:35:31,800 --> 00:35:36,640
Speaker 10: Governor Chris Waller, who you know, gave not anything significantly

704
00:35:36,640 --> 00:35:39,560
Speaker 10: different than what Jay Powell has been saying, but certainly

705
00:35:39,920 --> 00:35:43,400
Speaker 10: certainly some details that you know, I have people talking

706
00:35:43,400 --> 00:35:46,399
Speaker 10: about the future of monetary policy and things like what

707
00:35:46,520 --> 00:35:49,200
Speaker 10: is our star, what is the neutral FED fund rate?

708
00:35:49,239 --> 00:35:52,080
Speaker 10: And where should it be given given the current environment?

709
00:35:52,320 --> 00:35:54,319
Speaker 4: All Right, For all of the listeners and viewers out

710
00:35:54,320 --> 00:35:56,359
Speaker 4: there who maybe don't have a Bloomberg terminal in front

711
00:35:56,360 --> 00:35:59,560
Speaker 4: of them, one of the most widely used functions is

712
00:35:59,640 --> 00:36:02,880
Speaker 4: ea ECO go. It gives you a nice list of

713
00:36:02,920 --> 00:36:06,520
Speaker 4: all the economic data that's released by the government so

714
00:36:06,560 --> 00:36:08,759
Speaker 4: you can stay on top of it all. And of

715
00:36:08,800 --> 00:36:13,239
Speaker 4: course on there is for tomorrow FOMC meeting minutes. My

716
00:36:13,360 --> 00:36:19,040
Speaker 4: question iras who cares because we hear these FED people

717
00:36:19,080 --> 00:36:21,920
Speaker 4: speaking all day every day except for like a fifteen

718
00:36:21,920 --> 00:36:26,120
Speaker 4: minute blackout every quarter. Did the minutes really tell something

719
00:36:26,239 --> 00:36:28,560
Speaker 4: since these folks are always speaking anyway.

720
00:36:29,640 --> 00:36:32,480
Speaker 10: It does, and it tells you a couple of different things.

721
00:36:32,520 --> 00:36:36,640
Speaker 10: I mean, firstly, it tells you the entire committee, right,

722
00:36:36,640 --> 00:36:39,680
Speaker 10: because there are certain people who speak more frequently in

723
00:36:39,719 --> 00:36:42,719
Speaker 10: front of the media. For example, Raphaelbostik of Atlanta FED.

724
00:36:43,320 --> 00:36:46,000
Speaker 10: He's on TV all the time, right, he was on

725
00:36:46,360 --> 00:36:50,560
Speaker 10: Bloomberg Television not so long ago like yesterday. We also

726
00:36:50,640 --> 00:36:53,720
Speaker 10: have we also have you know, Chris Waller speaks a lot,

727
00:36:53,960 --> 00:36:57,040
Speaker 10: so it but it gives you all nineteen members view

728
00:36:57,200 --> 00:36:59,839
Speaker 10: and then you know who believes what in a more

729
00:37:00,160 --> 00:37:03,359
Speaker 10: SYNCD fashion, then you can maybe glean from a lot

730
00:37:03,400 --> 00:37:05,520
Speaker 10: of the Q and as that wind up generating a

731
00:37:05,520 --> 00:37:07,719
Speaker 10: lot of headlines. But it's hard to kind of get

732
00:37:07,719 --> 00:37:10,800
Speaker 10: a complete narrative of where what everyone is thinking. So

733
00:37:11,160 --> 00:37:13,880
Speaker 10: I think that the minutes are useful. They're also useful

734
00:37:13,960 --> 00:37:16,680
Speaker 10: from analytical perspective. What we use the minutes for in

735
00:37:16,760 --> 00:37:19,640
Speaker 10: determining where we think the future path of policy is

736
00:37:20,000 --> 00:37:24,520
Speaker 10: going to be is we compare what's being said to

737
00:37:24,680 --> 00:37:27,840
Speaker 10: other periods, and so we actually have a model and

738
00:37:27,960 --> 00:37:31,640
Speaker 10: natural language processing model that says the FED is hawkish

739
00:37:31,640 --> 00:37:33,400
Speaker 10: and dubbish. And the nice thing about the minutes it

740
00:37:33,440 --> 00:37:37,239
Speaker 10: says a few members, most members, some members, and we're

741
00:37:37,280 --> 00:37:39,719
Speaker 10: able to get an idea about how many members have

742
00:37:39,840 --> 00:37:42,160
Speaker 10: that view, which is not something you can get from

743
00:37:42,160 --> 00:37:44,680
Speaker 10: the post meeting press conference, which is not something you

744
00:37:44,719 --> 00:37:47,520
Speaker 10: can necessarily get from just listening to you know, three

745
00:37:47,640 --> 00:37:50,520
Speaker 10: or four or five speakers instead of all nineteen That's

746
00:37:50,719 --> 00:37:52,280
Speaker 10: where I wanted to kind be pretty helpful.

747
00:37:52,400 --> 00:37:55,240
Speaker 4: I saw on your research, which I do read despite

748
00:37:56,480 --> 00:38:00,719
Speaker 4: you know all what, Yeah, I read it grudgingly because

749
00:38:00,719 --> 00:38:05,279
Speaker 4: it's great stuff. In their natural language processing model you

750
00:38:05,440 --> 00:38:08,839
Speaker 4: use for the minutes, what is that all about?

751
00:38:09,960 --> 00:38:13,279
Speaker 10: Yeah, So our model basically takes every sentence that it

752
00:38:13,360 --> 00:38:16,000
Speaker 10: has to do with monetary policy and the economy within

753
00:38:16,600 --> 00:38:18,799
Speaker 10: the minutes. We also do the same thing for the

754
00:38:18,840 --> 00:38:21,759
Speaker 10: post meeting press conference, for the prepared remarks that Jay

755
00:38:21,800 --> 00:38:24,200
Speaker 10: Powell makes, and tries to determine whether or not it's

756
00:38:24,239 --> 00:38:26,880
Speaker 10: a little bit hawkish, a little bit dubvish, neutral, or

757
00:38:26,960 --> 00:38:29,799
Speaker 10: very hawkish or very dubbsh. And in doing that we

758
00:38:29,880 --> 00:38:31,960
Speaker 10: can then wait it right. That's the advantage of the

759
00:38:31,960 --> 00:38:34,840
Speaker 10: minutes over some of the other over some of the

760
00:38:34,880 --> 00:38:38,080
Speaker 10: other models that you can potentially use that are similar.

761
00:38:38,800 --> 00:38:42,200
Speaker 10: Where the minutes I have other indicators. For example, it

762
00:38:42,200 --> 00:38:45,440
Speaker 10: says a member thinks, which means one person, right, Whereas

763
00:38:45,440 --> 00:38:48,279
Speaker 10: if it says many members think, then that's less than half,

764
00:38:48,360 --> 00:38:49,480
Speaker 10: but more.

765
00:38:49,920 --> 00:38:51,600
Speaker 5: Than a couple, right, more than three or four.

766
00:38:51,960 --> 00:38:55,120
Speaker 10: So you wind up with probably a better overall gauge

767
00:38:55,440 --> 00:38:58,359
Speaker 10: of how hawkish or dubvish the FED is, and what

768
00:38:58,400 --> 00:39:02,080
Speaker 10: our model shows right now as of the last meeting minutes,

769
00:39:02,120 --> 00:39:06,640
Speaker 10: which will probably remain the same this week this week presumably,

770
00:39:07,080 --> 00:39:09,880
Speaker 10: is that they're very neutral. They're basically right in line

771
00:39:09,960 --> 00:39:13,000
Speaker 10: with what would be an on hold FED. And that's

772
00:39:13,080 --> 00:39:15,719
Speaker 10: very consistent with what we're seeing now. I suspect that

773
00:39:16,560 --> 00:39:21,160
Speaker 10: unless the economic data deteriorates or improves very significantly, like

774
00:39:21,200 --> 00:39:24,200
Speaker 10: you see in optic and inflation, that the FED will

775
00:39:24,200 --> 00:39:28,000
Speaker 10: probably remain in that neutral territory with a little nuance there,

776
00:39:28,560 --> 00:39:30,080
Speaker 10: which just means that they're going to be on hold.

777
00:39:30,080 --> 00:39:32,920
Speaker 10: And you know, Chris Waller said today that he thinks

778
00:39:32,960 --> 00:39:34,399
Speaker 10: that rates are going to be on hold at least

779
00:39:34,440 --> 00:39:35,279
Speaker 10: until the fourth quarter.

780
00:39:35,320 --> 00:39:36,480
Speaker 5: Bostic said the same thing.

781
00:39:37,239 --> 00:39:40,799
Speaker 10: So those are those are indicators that the minutes have,

782
00:39:40,960 --> 00:39:43,680
Speaker 10: you know, at least are in line with the other

783
00:39:43,800 --> 00:39:47,040
Speaker 10: speakers that you hear in them, you know in the.

784
00:39:46,920 --> 00:39:50,520
Speaker 2: Media, Bostic talking up neutral. As for what is neutral,

785
00:39:50,560 --> 00:39:52,480
Speaker 2: I feel like J. Powell in the last press conference

786
00:39:52,640 --> 00:39:56,680
Speaker 2: really didn't take that bait. How do you view what

787
00:39:56,719 --> 00:39:59,040
Speaker 2: the neutral rate is and how important is that to

788
00:39:59,080 --> 00:40:00,160
Speaker 2: the conversation right now?

789
00:40:01,520 --> 00:40:04,560
Speaker 10: Well, so, ex ante, it's very difficult to determine what

790
00:40:04,600 --> 00:40:06,920
Speaker 10: the neutral rate is, right, because you don't know what

791
00:40:06,960 --> 00:40:11,160
Speaker 10: the propensity for people to take loans are and how

792
00:40:11,200 --> 00:40:14,640
Speaker 10: high or how low interest rates need to be versus

793
00:40:14,640 --> 00:40:18,720
Speaker 10: inflation or some other measure for you know, where interest

794
00:40:18,800 --> 00:40:21,520
Speaker 10: rates are going to you know, not increase inflation or

795
00:40:21,520 --> 00:40:24,640
Speaker 10: decrease inflation, and there's really realistically no way to know that,

796
00:40:24,680 --> 00:40:27,719
Speaker 10: which is the reason why you get these cycles. The

797
00:40:28,080 --> 00:40:30,239
Speaker 10: idea though, and I think this is what everyone in

798
00:40:30,239 --> 00:40:33,359
Speaker 10: the academic land and you know, rate strategists all over

799
00:40:33,360 --> 00:40:36,480
Speaker 10: the world we're talking about, is, given how low we

800
00:40:36,520 --> 00:40:40,040
Speaker 10: think the neutral rate was between twenty ten and twenty nineteen,

801
00:40:40,520 --> 00:40:43,239
Speaker 10: has that moved up? And the answer is unequivalentally, yes,

802
00:40:43,320 --> 00:40:44,160
Speaker 10: it just it had to.

803
00:40:44,280 --> 00:40:44,400
Speaker 8: Right.

804
00:40:44,440 --> 00:40:46,600
Speaker 10: We're in a much more we're in a tighter labor

805
00:40:46,600 --> 00:40:50,600
Speaker 10: market environment. We don't have the same type of globalization

806
00:40:51,000 --> 00:40:54,719
Speaker 10: pushing pushing down goods costs that we had ten years ago.

807
00:40:55,000 --> 00:40:57,399
Speaker 10: So all of those things are probably true. The problem

808
00:40:57,480 --> 00:41:00,000
Speaker 10: is nobody really can guestimate the magnitude.

809
00:41:00,320 --> 00:41:01,799
Speaker 5: There's a lot of models to do that.

810
00:41:01,920 --> 00:41:03,600
Speaker 10: You know, is it two and a half percent, which

811
00:41:03,680 --> 00:41:05,680
Speaker 10: is kind of what the FED seems to think that

812
00:41:05,760 --> 00:41:08,239
Speaker 10: it is based on the dop plot. Some people think

813
00:41:08,239 --> 00:41:09,960
Speaker 10: it's a bit higher than that. I actually think it

814
00:41:10,000 --> 00:41:12,400
Speaker 10: probably is a little bit higher than that. But the

815
00:41:13,440 --> 00:41:17,160
Speaker 10: you know, but there's no realistic way to know beforehand

816
00:41:17,239 --> 00:41:19,600
Speaker 10: exactly where our star is. But you have to you

817
00:41:19,680 --> 00:41:21,680
Speaker 10: have to guess if you're if you're a member of

818
00:41:21,680 --> 00:41:25,319
Speaker 10: the FED or any central bank, because otherwise you don't know,

819
00:41:25,440 --> 00:41:28,520
Speaker 10: you know, are we restrictive or are we not. I'd

820
00:41:28,600 --> 00:41:31,400
Speaker 10: argue that the FED probably is modestly restrictive, maybe not

821
00:41:31,520 --> 00:41:35,240
Speaker 10: restrictive enough, but they are certainly, you know, more restrictive

822
00:41:35,239 --> 00:41:36,880
Speaker 10: than they were when interest rates were at zero.

823
00:41:37,360 --> 00:41:39,680
Speaker 4: Hey, I'm just looking at the ten year treasury just

824
00:41:39,680 --> 00:41:41,320
Speaker 4: in the last i don't know, three to four weeks,

825
00:41:41,360 --> 00:41:43,480
Speaker 4: it's kind of come down and yield from four to

826
00:41:43,480 --> 00:41:46,680
Speaker 4: seventy range down to about four forty. Does that tell

827
00:41:46,760 --> 00:41:49,399
Speaker 4: us anything or is that just kind of trading within

828
00:41:49,400 --> 00:41:50,840
Speaker 4: a range?

829
00:41:51,200 --> 00:41:52,760
Speaker 5: Yeah, I think we've hit that range.

830
00:41:52,760 --> 00:41:55,200
Speaker 10: We talked I think it was last week, Paul, where

831
00:41:55,040 --> 00:41:58,600
Speaker 10: we were mentioning on that that kind of four thirty

832
00:41:58,680 --> 00:42:01,920
Speaker 10: to four fifth might be the new range for now

833
00:42:02,000 --> 00:42:05,960
Speaker 10: until we get a significant regime shift. It's not telling

834
00:42:06,000 --> 00:42:09,400
Speaker 10: us much of anything except that again, the market is

835
00:42:09,440 --> 00:42:12,799
Speaker 10: still pricing for the Federal Reserve at some point in

836
00:42:12,880 --> 00:42:15,879
Speaker 10: the not too distant future will be lowering interest rates.

837
00:42:15,920 --> 00:42:19,279
Speaker 10: And that's why you have the continued inversion of the

838
00:42:19,360 --> 00:42:21,920
Speaker 10: yield curve where the ten year yield is lower than

839
00:42:21,960 --> 00:42:25,239
Speaker 10: the two year yield. But even that has contracted quite

840
00:42:25,280 --> 00:42:27,080
Speaker 10: a lot. Right that was as much as one hundred

841
00:42:27,120 --> 00:42:31,120
Speaker 10: basis points between the two and now it's less than fifty.

842
00:42:31,160 --> 00:42:35,239
Speaker 10: It's forty ish basis points right now. So that's just

843
00:42:35,280 --> 00:42:37,520
Speaker 10: saying that at some point the Fed's going to cut.

844
00:42:37,560 --> 00:42:39,759
Speaker 10: When the Fed cuts, ten year yields are probably going

845
00:42:39,800 --> 00:42:41,480
Speaker 10: to rally a little bit. But we're already priced for

846
00:42:41,480 --> 00:42:43,320
Speaker 10: at least part of that cutting cycle.

847
00:42:44,200 --> 00:42:46,520
Speaker 2: All right, IIRA, thanks a lot. We really appreciate you.

848
00:42:46,680 --> 00:42:49,799
Speaker 2: Thank you very much. Our Jersey Bloomberg Intelligence Chief US

849
00:42:49,880 --> 00:42:51,799
Speaker 2: interest rate strategist adjoining us there.

850
00:42:51,840 --> 00:42:54,520
Speaker 4: And the way to get all that research, Alex is

851
00:42:54,600 --> 00:42:58,200
Speaker 4: BI space r ate. B I rate will get you

852
00:42:58,239 --> 00:43:00,799
Speaker 4: to all the interest rate analysis for our Jersey and

853
00:43:00,800 --> 00:43:02,280
Speaker 4: his team on a global basis.

854
00:43:02,520 --> 00:43:03,080
Speaker 6: You pull up.

855
00:43:03,120 --> 00:43:06,880
Speaker 4: There's stuff about Canada, there's stuff about Asia, China and

856
00:43:07,040 --> 00:43:09,360
Speaker 4: all different languages on this dashboard, but it is the

857
00:43:09,480 --> 00:43:12,200
Speaker 4: global view of interest rates.

858
00:43:11,960 --> 00:43:13,560
Speaker 2: And you can't beat them. You just really can't, Like,

859
00:43:13,640 --> 00:43:15,239
Speaker 2: I mean, you can't be the model that goes through

860
00:43:15,280 --> 00:43:17,200
Speaker 2: and looks at speeches like you just can't beat.

861
00:43:17,000 --> 00:43:19,799
Speaker 4: That a large like a language model.

862
00:43:19,840 --> 00:43:24,800
Speaker 7: I don't know. There's also a MOSAD, the Israeli Intelligence Agency,

863
00:43:24,920 --> 00:43:29,960
Speaker 7: uses a very similar type of software to look at

864
00:43:30,000 --> 00:43:33,520
Speaker 7: conversations that they intercept. We use the same thing for

865
00:43:33,719 --> 00:43:35,120
Speaker 7: conference calls and.

866
00:43:36,520 --> 00:43:38,800
Speaker 5: Well yeah, no sentiment, yeah.

867
00:43:38,760 --> 00:43:41,040
Speaker 7: Just to look for keywords and whatever so you don't

868
00:43:41,040 --> 00:43:42,359
Speaker 7: have to sit there and listen a long thing.

869
00:43:43,120 --> 00:43:44,680
Speaker 2: Well, I listen to conference calls all day.

870
00:43:45,160 --> 00:43:46,239
Speaker 5: I have just spent a career doing it.

871
00:43:46,400 --> 00:43:47,160
Speaker 8: I mean, come on.

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Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify,

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Speaker 1: and anywhere else you will get your podcasts. Listen live

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00:43:55,680 --> 00:43:59,240
Speaker 1: each weekday ten am to noon Eastern on Bloomberg dot com,

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00:43:59,360 --> 00:44:02,800
Speaker 1: Thehart Radio app, tune In, and the Bloomberg Business app.

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Speaker 1: You can also watch us live every weekday on YouTube

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Speaker 1: and always on the Bloomberg terminal