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Speaker 2: Your Community Bank or Tim continues to be on our
Speaker 2: radar because it's soaring again and there's a great story.
Speaker 2: It's a most read story in the Bloomberg really giving
Speaker 2: us some insight into the deal and kind of the
Speaker 2: instant paper profit that these individuals are making.
Speaker 3: Yeah, we're talking about individuals such as US Treasury Secretary
Speaker 3: Steve Menushan, who along with his Liberty Strategic Capital, led
Speaker 3: a group of investors that injected more than one billion
Speaker 3: dollars into New York Community Bank. And this could only
Speaker 3: be the beginning with more on the Menution playbook and
Speaker 3: what is a most read story on the Bloomberg with
Speaker 3: us as Bloomberg's Catherine Doherty, finance reporter off at Bloomberg
Speaker 3: News here in our studio. So, Catherine, it was interesting
Speaker 3: as this all played out yesterday Carol and I were
Speaker 3: on air and the stock was halted multiple times. But
Speaker 3: one thing that we did notice after our Bloomberg News
Speaker 3: team broke the story was that by the time it
Speaker 3: started trading again, it was above the price of two dollars,
Speaker 3: which is the price where Manution and team were able
Speaker 3: to buy in at.
Speaker 4: That's right, they've already minted quite a profit on paper.
Speaker 4: On paper, but it looks like it's holding out today.
Speaker 4: So it's been twenty four hours or so, or as
Speaker 4: we're getting to that point. So it's not to say
Speaker 4: that this is a forever proven strategy. They're going to
Speaker 4: have a lot of work to do. It's not just
Speaker 4: the investment and the number, but it's actually how do
Speaker 4: you turn this ship around and how do you get
Speaker 4: your heads together and bring in the best of the
Speaker 4: best to make sure that this bank has a future.
Speaker 4: But the share price is reflecting investors' sentiment, a positive sentiment,
Speaker 4: and their belief that these leaders and it's not just
Speaker 4: about the money, it's the people that are behind it
Speaker 4: that presumably the bet is that they will succeed in
Speaker 4: turning the ship around.
Speaker 2: Let's talk about that and the Minutian Steve Manushan playbook,
Speaker 2: because this is what's interesting and this was some of
Speaker 2: what we were getting yesterday, that these are people who
Speaker 2: are respected investors, kind of know how to deal with
Speaker 2: this kind of situation. What's the playbook? And let's kind
Speaker 2: of maybe go backwards right to Indie Mac because right
Speaker 2: kind of bringing the gang back together, it seems.
Speaker 4: So back in two thousand and eight Indie Mac which
Speaker 4: eventually turned into West West Bank, I believe was the name,
Speaker 4: and Joseph Auding was the CEO of West of one,
Speaker 4: west of that firm. But today again bringing the back
Speaker 4: together band back together, Adding is the CEO of NYCB
Speaker 4: now And clearly this is the relationships that have been
Speaker 4: built in the past, the trust and the knowledge that
Speaker 4: these leaders have gained in not just finance but in banking,
Speaker 4: which is a very specific industry to have some of
Speaker 4: these very strategic plans that they're going to need to
Speaker 4: set forth in terms of how to diversify the bank,
Speaker 4: how to deal with the existing problems that they've already identified.
Speaker 4: And today they started talking about that to investors.
Speaker 3: Well, that's what I want to hear from you. And
Speaker 3: what do we understand now that they're talking about this,
Speaker 3: how they shore up the balance sheet especially exposure to
Speaker 3: commercial real estate.
Speaker 4: So executives today talked about the main issue being the
Speaker 4: loan portfolio and this portion that is specifically linked to
Speaker 4: New York Office. So they're saying that their goal over
Speaker 4: time is to diversify the bank. Essentially, what they want
Speaker 4: to do is make this bank look more like the
Speaker 4: other regional banks because right now there's so much concentration
Speaker 4: in real estate, in lending to the landlords of New
Speaker 4: York City.
Speaker 2: Yeah, and we've talked about this that the law changes
Speaker 2: and stuff has really kind of changed the financial outlook,
Speaker 2: if you will, of these assets or the profitability one
Speaker 2: thing I want to ask you about. So as they
Speaker 2: kind of move forward, investors, the stocks app thirteen fourteen
Speaker 2: percent just in the last two days alone. But you know,
Speaker 2: the Indiemac deal go backwards for a second. There was
Speaker 2: some criticism of the duo and their past link up ultimately,
Speaker 2: so it'll be interesting to see how they kind of
Speaker 2: deal with all these assets that not any deal going
Speaker 2: forward is ever maybe perfect, that's right.
Speaker 4: And so that deal with Indiemac was linked to mortgages. Correct,
Speaker 4: This is lending, so it's a different business essentially, the
Speaker 4: lending to real estate firms in two buildings, both for
Speaker 4: businesses and for landlords, so for commercial real estate and
Speaker 4: also for housing. Again, these are going to be that's
Speaker 4: different than lending out or giving a mortgage to some
Speaker 4: one if they're buying a home.
Speaker 3: What do we know about where the money came from
Speaker 3: for Liberty Strategic Capital at this point and what the
Speaker 3: former treasure sectary has been doing over the past few
Speaker 3: years when it comes to fundraising.
Speaker 4: So Mnuchin, there has been some pushback which was referenced
Speaker 4: in this story. There's been some critique because after he
Speaker 4: left being Treasury he was raising money for Liberty from
Speaker 4: sovereign wealth funds in the Middle East, and that includes
Speaker 4: Saudi Arabia's public Investment fund. That is something that was
Speaker 4: under scrutiny. What I found interesting is that with this deal,
Speaker 4: Mnuchan was saying that they initially went out with around
Speaker 4: seven hundred and there was so much interest that then
Speaker 4: they raised it to the one billion mark. So it
Speaker 4: just showed that the enthusiasm that were seen reflected in
Speaker 4: the stock price from other investors was also there when
Speaker 4: they were pitching this deal to the street.
Speaker 2: Yeah, it is interesting, like kind of when you go
Speaker 2: through it and you look backwards in terms of the
Speaker 2: Indiemac deal and just these individuals that have been assembled
Speaker 2: to kind of again not apples to apples in terms
Speaker 2: of the bank, but dealing kind of with a I
Speaker 2: don't want to use the word crisis, but certainly a
Speaker 2: very troubled situation and trying to figure it kind of
Speaker 2: the way forward.
Speaker 4: Right Well, financially it's a troubled situation, and they're buying
Speaker 4: in at such a cheap price. These are the types
Speaker 4: of deals. Think about Warren Buffett coming in and supporting
Speaker 4: Bank of America in its time of crisis way back
Speaker 4: in two thousand and seven, two thousand and eight period,
Speaker 4: and look how that turned out for him. Again, that
Speaker 4: was a windfall and it was also a lifeline for
Speaker 4: Bank of America. So it's a very similar narrative that
Speaker 4: I think a lot of people are comparing this moment
Speaker 4: in time too. You have a bank that has fallen
Speaker 4: on tough times. The share price is showing that, and
Speaker 4: already the deal and the investors that bought in early
Speaker 4: have minted a profit.
Speaker 3: It's on paper going to say it's only day two, right,
Speaker 3: day one, I guess you could say day one full day,
Speaker 3: and they're not out of the woods yet, Kat.
Speaker 4: No, they're gonna need to prove that they have the
Speaker 4: strategies in place. They outlined them this morning, So I
Speaker 4: think that that is another reason that you've seen the
Speaker 4: share price remain at a higher level. It didn't jump
Speaker 4: significantly from where it already jumped yesterday. It's still around
Speaker 4: the four dollar mark, just below last time that I checked.
Speaker 4: But you're you're absolutely right. This is a strategic playbook
Speaker 4: that is needed there. They're going to need time to
Speaker 4: show that it's actually working. And I find it interesting
Speaker 4: the goal of being more like their peers. But this
Speaker 4: is a large organization because they bought assets from Signature
Speaker 4: earlier and they've grown rapidly. That was part of its struggle.
Speaker 4: They didn't know how to deal with that size that
Speaker 4: they a lot of pieces there, a lot of pieces
Speaker 4: of the puzzle. All right, Kat Doherty, Financial Porter, a
Speaker 4: Blomberg News. Thank you so much.
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Speaker 2: Well, you might recall that Bloomberg News was reporting out
Speaker 2: last month on Florida's southwestern coast, long one of America's
Speaker 2: fastest growing regions, and how it is losing some of
Speaker 2: its boomtown swagger as a home insurance crisis and other
Speaker 2: staring costs make homes unaffordable. It's a serious situation, it is.
Speaker 3: And at the same time, Carol, we've also talked about
Speaker 3: how the migration of financial types down south, think Citadel's
Speaker 3: Ked Griffin Moore are now calling South Florida home and
Speaker 3: pushing up prices not just of residential real estate, but
Speaker 3: also commercial real estate too.
Speaker 2: All Right, so there's a lot going down down south,
Speaker 2: specifically in the state of Florida. With all this in mind,
Speaker 2: joining us to talk about the Miami market specifically with
Speaker 2: us as Dina Golden Tayer, she's executive director of sales
Speaker 2: over at Douglas Element. She joins us from Miamia to
Speaker 2: have you here a lot to talk about. First up,
Speaker 2: how are you and how would you describe the luxury
Speaker 2: market in Miami. I mean, technically you're known as an
Speaker 2: ultra luxury specialist, So talk us a little bit about
Speaker 2: demand pricing, what you are seeing.
Speaker 5: Thank you so much for having me today. I am
Speaker 5: indeed ultra luxury specialists focusing on property's ten million and
Speaker 5: up and our market, as they say, is calliente. And
Speaker 5: there is no sign of a slow down for the
Speaker 5: ten million plus marketplace.
Speaker 2: All right, drilled down a little bit, so no slowing down.
Speaker 2: So the same as six months ago, twelve months ago.
Speaker 2: Give us some more color with Bloomberg. We'd love to
Speaker 2: dig a little bit deeper. Give us an idea of
Speaker 2: how it's playing out and how it compares.
Speaker 5: Absolutely this time last year, we in fact had a
Speaker 5: much slower high season, high season being defined as the
Speaker 5: months of December, January, February, March April, when the snowbirds
Speaker 5: will want to be here. And this year we're having
Speaker 5: the type of high seat that we had hoped for
Speaker 5: last year, which is pending sales almost every other day
Speaker 5: for high quality assets that are appropriately priced. So if
Speaker 5: you're watching Zilla, you're going to see a lot of
Speaker 5: stuff go pending.
Speaker 3: Who are the buyers right now and how are they buying?
Speaker 3: Are these all cash buyers? Where are they coming from?
Speaker 3: Give us insight there.
Speaker 5: They're the usual suspects. They are coming from New York
Speaker 5: from other Northeastern states. They're coming from California and other
Speaker 5: Western states, and they're coming from Canada. The European buyer
Speaker 5: has slowly trickled back into the marketplace post COVID, but
Speaker 5: they're not as strong as they were in prior years.
Speaker 3: What about buyers from Asia and buyers from Russia.
Speaker 5: No, and no, and the buyers that I'm working with
Speaker 5: are not getting mortgages, or at least the deals are
Speaker 5: not finance contingent.
Speaker 2: What's a typical deal on the high end of Miami.
Speaker 2: You used ten million dollars as a price point. Is
Speaker 2: that kind of the mean? The median give us an
Speaker 2: idea because I know that they can go a lot higher,
Speaker 2: especially if you do something like Indian Creek Village, which
Speaker 2: Bloomberg has written about as being a place where millions
Speaker 2: don't matter. It's all about billions and billionaires.
Speaker 5: Great article, great job, Felipe. Ten million gets you a
Speaker 5: nice condo. It gets you a nice house, a very
Speaker 5: nice house, not in the water, an average house on
Speaker 5: the water. Twenty million is where it's at if you
Speaker 5: want something better than nice and my twenty million plus product,
Speaker 5: I have the shortest days on market than any other
Speaker 5: sector that I represent. In fact, it takes me longer
Speaker 5: to sell properties five to fifteen million than homes that
Speaker 5: are over twenty million, where I average about one hundred
Speaker 5: and twenty to one hundred and fifty days on market.
Speaker 3: Do you know who's selling right now? Who doesn't want
Speaker 3: to be there and who wants to sell for these prices?
Speaker 6: Sure?
Speaker 5: I mean that is a broad question because people selling
Speaker 5: don't necessarily not want to be in Miami. They may
Speaker 5: be expanding their family, or they may be going through
Speaker 5: a divorce. A lot of the people that from whom myself,
Speaker 5: or they are staying locally, just in a different asset
Speaker 5: class like downsizing or upsizing, or moving from a house
Speaker 5: to a condo or vice versa.
Speaker 2: You know, Tim was asking earlier Diana about who's doing
Speaker 2: the buying, and we've talked. You know, Bloomberg has done
Speaker 2: a lot of reporting about kind of Wall Street South
Speaker 2: and the amount of financial folks that have moved down
Speaker 2: there not only to live or buy a second home,
Speaker 2: but to actually set up shop and do work, and
Speaker 2: that has certainly had an impact on the Eric. Give
Speaker 2: us a little bit more color if you can around
Speaker 2: what you are seeing on that front specifically, is the
Speaker 2: pace continuing, is it picking up? Is it slowing down
Speaker 2: at all?
Speaker 5: I think if we compare the pace to the COVID times,
Speaker 5: it will always feel like a slowdown. Now Miami and
Speaker 5: Miami Beach, where I specifically focus on, has found a
Speaker 5: new rhythm. We continue to have an influx of the
Speaker 5: Wall Street types and other financiers from around the country.
Speaker 5: They are still taking prime positions at the schools for
Speaker 5: their children and the top reservations in town because we
Speaker 5: have pretty much the same restaurants New York City does,
Speaker 5: if not better right now. So the pace is healthy,
Speaker 5: It's just not a COVID pace, and to compare it
Speaker 5: to that would always look like we're in the run.
Speaker 3: What about folks with backgrounds in crypto right now, especially
Speaker 3: given the rise in crypto that we've seen last year
Speaker 3: and in recent months.
Speaker 5: I'm glad you bring it up, because crypto certainly has
Speaker 5: had a great couple of weeks, but I have not
Speaker 5: seen the complete return of the crypto bros. And in fact,
Speaker 5: when I did work with that fire class, they always
Speaker 5: paid cash.
Speaker 2: Well yeah you know, it's cash is cash? Yeah, got it? Yeah,
Speaker 2: no problem here. Easy clothes, quick clothes.
Speaker 5: But I haven't gotten a few calls lately asking if
Speaker 5: a seller would take crypto, so it is starting to
Speaker 5: come back as a subject point.
Speaker 3: Yeah, and I guess I was more interested in just
Speaker 3: the crypto bro's part of it. But I'm surprised that
Speaker 3: you know, you haven't seen the return of crypto bros
Speaker 3: completely that we saw a couple.
Speaker 1: Of years ago.
Speaker 5: No, and even you know they're already down here, they've
Speaker 5: already established residency. So if they're going to be perhaps
Speaker 5: upgrading because they're cryptos high, great, I'm excited to work
Speaker 5: with them again. But they're not the conversation at the
Speaker 5: height of the topics that are being discussed around town.
Speaker 2: Dana. This is a market you've been in since two
Speaker 2: thousand and five, so if you've seen a fair amount
Speaker 2: of cycles, including the Great Financial Crisis, you've seen obviously
Speaker 2: the pandemic and then some I am curious about how
Speaker 2: this market has evolved, how it's changed in terms of
Speaker 2: pricing and demand. What can you tell us about that,
Speaker 2: because that's a fairly long tenure and some great insight.
Speaker 5: Absolutely, I mean, the market has completely changed the type
Speaker 5: of buyers that were attracting to our marketplace. I don't
Speaker 5: think anyone thought that Miami would be competing with buyers
Speaker 5: looking at London, New York, Hong Kong, that they would
Speaker 5: look to us as their first home. It's very clear
Speaker 5: that Miami is the top city in the country right now.
Speaker 5: LA and New York don't have anything on us. Clearly,
Speaker 5: I'm a cheerleader for my marketplace, but having traveled around
Speaker 5: the country to the cities where buyers are fleeing from,
Speaker 5: I can understand, why.
Speaker 3: Do you see? You said you saw a slow down
Speaker 3: in sub ten million dollar listings? Is that the case?
Speaker 5: I would say, there's higher inventory and higher days on market.
Speaker 5: I guess you could call that a slowdown, or I
Speaker 5: would just say it's not as high as homes.
Speaker 3: Of twenty Let's phrase it a different way. Where are
Speaker 3: they're buying opportunities right now?
Speaker 5: Sure they are buying opportunities, definitely in the ten to
Speaker 5: fifteen million range, because those properties are having higher days
Speaker 5: on market. There are neighborhoods that are let's call them
Speaker 5: one notch below the A level, neighborhoods like B plus
Speaker 5: neighborhoods like Miami Shores or Sam Sushi or a keystone
Speaker 5: where there are opportunities, whereas in really established neighborhoods like
Speaker 5: Miami Beach, Golden Beach and Coral Gables, those owners are
Speaker 5: just holding.
Speaker 2: Rates interest rates. Does it even matter? Just got about
Speaker 2: twenty seconds here.
Speaker 5: If interest rates were low, all the buyers would jump
Speaker 5: back in as opposed to the cash buyers having.
Speaker 2: Free ring interesting, so it would kind of give more
Speaker 2: buyers certainly into the market there, all right, Dina, good
Speaker 2: to check in with. You really appreciate it, Dina Golden Tear.
Speaker 2: She's executive director of sales over at Douglas Ellaman. Joining
Speaker 2: us there from Miami.
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Speaker 3: Well, as I mentioned the socks, the Philadelphia semi conductor
Speaker 3: Indeck sitting an all time high today is chipstocks in
Speaker 3: March higher, Broadcom reports after the belt also trading near
Speaker 3: records Carol. At the same time, there are big questions
Speaker 3: about how chip companies are going to navigate Washington's crackdown
Speaker 3: on exports of advanced technologies. That's right.
Speaker 2: Bloomberg was first to report overnight that the US government
Speaker 2: is pressing allies, including the Netherlands, Germany, South Korea, and Japan,
Speaker 2: to further titan restrictions on China's access to semiconductor technology,
Speaker 2: a controversial effort that is drawing resistance in some countries.
Speaker 2: This is at least according to people familiar with that matter.
Speaker 3: To So for what we need to know about how
Speaker 3: companies navigate this delicate balance, we bring in the economic
Speaker 3: historian Chris Miller. He's Associate Professor of International history at
Speaker 3: Tufts University. He's also the author of Chip War, The
Speaker 3: Fight for the World's Most Critical Technology. It's a New
Speaker 3: York Times bestseller. Chris back with us from Boston. Chris,
Speaker 3: good to have you back. How are you.
Speaker 7: Doing well? Thank you for having me back.
Speaker 3: Yeah, well, thanks so much for joining us. We always
Speaker 3: love it when you come on the program. I mean
Speaker 3: talk about timing with your book. It came out in
Speaker 3: twenty twenty two. Since then, the euphoria around chips as
Speaker 3: they relate to AI just has reached fever pitch. I mean,
Speaker 3: look no further than Nvidia super micro computer and more.
Speaker 3: How are you watching this as an academic, as a consultant,
Speaker 3: what are your thoughts?
Speaker 7: Well, you're certainly right that AI has really transformed the
Speaker 7: ship industry. It's the key demand driver go going forward.
Speaker 7: And the big question hanging over AI is when will
Speaker 7: we start to see large scale modernization, How soon will
Speaker 7: that happen? And at what's scaled? Because ultimately, the reason
Speaker 7: why all the hyperscalers are investing tens of billions of
Speaker 7: dollars and building up AI infrastructure and buying lots of
Speaker 7: Nvidia GPUs is because they believe there's money that will
Speaker 7: be made at the end of this process. And that's
Speaker 7: why questions like well how much does Microsoft make off
Speaker 7: Copilot or what does open AI's revenue look like? These
Speaker 7: are the key indicators that investors are looking at to
Speaker 7: assess what will be the implication of AI for corporate profits.
Speaker 2: All right in the tech world, though, sometimes you got
Speaker 2: to build it and then they will come kind of thing.
Speaker 2: Having said that, you've got a socks Chris that was
Speaker 2: up about sixty five percent last year, and let me
Speaker 2: just pull it up on the Bloomberg. But you've got
Speaker 2: the Philadelphia Semiconductor Index up about twenty three percent so
Speaker 2: far here in twenty twenty four. It's just one measurement.
Speaker 2: Maybe it's not the right one. But would you say
Speaker 2: that all the enthusiasm has gotten ahead of itself just
Speaker 2: based on the moves and the share price or it's
Speaker 2: still kind of hard to tell. As I said, you
Speaker 2: need to build it and then they may come.
Speaker 7: Well, I think it does make sense that companies are
Speaker 7: investing very heavily in this infrastructure given all of the
Speaker 7: advances that we've seen in AI and all of the
Speaker 7: product ideas that are currently being tested and explored by
Speaker 7: tech companies, and the infrastructure is expensive, there's no way
Speaker 7: around it, which is why if you're a big tech company,
Speaker 7: you've got to invest literally tens of billions or else
Speaker 7: you fall behind in your data center build out. But
Speaker 7: the question again is going to be how long can
Speaker 7: this be sustained without monetization And the good news is
Speaker 7: that there are early signs that it is possible to
Speaker 7: make money off of AI products. We just need to
Speaker 7: see more evidence of this at more companies to justify
Speaker 7: ongoing expended shares of this level.
Speaker 2: Well, Chris, how do you distinguish between the names in
Speaker 2: the space, and when you talk about monetization and video
Speaker 2: is certainly the one that we bring up right, and
Speaker 2: their numbers continue to surprise to the upside and give
Speaker 2: us some of that affirmation if you will, about maybe
Speaker 2: the potential for AI. It's not just dreams, it's it
Speaker 2: could be a reality because you see it in their numbers.
Speaker 2: Having said that, go back to distinguishing the names in
Speaker 2: the space. You've got the once giants or leaders. I'm
Speaker 2: thinking of Intel, Texas instruments, the new leaders, Nvidia, AMD
Speaker 2: has come so far, the company that seems to stand alone, TSMC,
Speaker 2: the semicon depwork companies, the equipment makers, Like, how do
Speaker 2: you distinguish How should the Bloomberg audience be thinking about
Speaker 2: a space that's got a lot of different names in them.
Speaker 7: Well, the good news is that as AI advances, you
Speaker 7: actually need more types of chips in larger quantities to
Speaker 7: take advantage. It's not just the AI processors that you
Speaker 7: need that in Vidia produces. It's also more memory, especially
Speaker 7: the high bandwidth memory produced by companies like Skahi x
Speaker 7: or Samsung. And you also end up needing more mixed
Speaker 7: signal and analog chips because these are the chips that
Speaker 7: collect the data that's then being processed by AI systems
Speaker 7: and semi autonomous cars, for example. So that's why the
Speaker 7: boom and AI has benefited most companies in the industry,
Speaker 7: even if they're not directly producing the GPUs that are
Speaker 7: at the center of AI. And it's also why it's
Speaker 7: not just the chip designers themselves, also the tool makers
Speaker 7: from ASML to apply materials that are benefiting as chip
Speaker 7: making companies buy even more tools. But ultimately all of
Speaker 7: these do depend on their end customers continuing to invest
Speaker 7: in more and more semiconductors, and that's where the capital
Speaker 7: expenditure decisions of the big tech firms Microsoft, Google, Amazon
Speaker 7: and others will be e to sustaining this level of
Speaker 7: investment going forward.
Speaker 3: Chris, I want to go back to monetization, and I'm
Speaker 3: so glad you brought it up, because it's something that
Speaker 3: we talk about a lot. We understand the beneficiaries on
Speaker 3: the chip side of AI, but at the same time
Speaker 3: we do see company stocks near all time highs for
Speaker 3: companies investing in this type of technology, including meta platforms,
Speaker 3: Microsoft on the private side, Open AI, and others. What
Speaker 3: are the indications to you that we are seeing monetization
Speaker 3: at this point and when, in your opinion, do you
Speaker 3: think we're going to start seeing real eff efficiencies as
Speaker 3: the result of AI.
Speaker 7: Well, I think the good news is that if you
Speaker 7: look across a much broader cross section of companies, take
Speaker 7: the forty five hundred in aggregate, most companies on that
Speaker 7: list are at least exploring ways that they can use AI,
Speaker 7: either to refine their products or to drive down costs.
Speaker 7: And so the key it's not going to be I
Speaker 7: don't think any individual company or even any individual sector
Speaker 7: it's going to be, and many different sectors learn to
Speaker 7: apply AI for many different use cases and that makes
Speaker 7: it harder to measure, But it also makes AI probably
Speaker 7: more sustainable in the long run, if it's not one
Speaker 7: or two killer applications, but rather a lot of uses
Speaker 7: that end up being a creative either to company's profits
Speaker 7: or to driving down their costs. But for investors looking
Speaker 7: at this base trying to understand how real is this
Speaker 7: and how sustainable is the investment, it means you've got
Speaker 7: to look at a much broader cross section of companies
Speaker 7: to ascertain where is AI actually gaining traction?
Speaker 2: And how do you roll into something like you know,
Speaker 2: Apple's making chips, Microsoft alphabet Google right, Like, it's just
Speaker 2: kind of getting crowded, you know, more crowded if you will.
Speaker 2: I mean, how do you roll those guys into the
Speaker 2: already established, established players. Do you see them in the
Speaker 2: near future or in the longer term as being really
Speaker 2: pretty formidable in this industry?
Speaker 7: Well, I think they are in some ways already competitors
Speaker 7: to companies like AMD or in Nvidia, and companies that
Speaker 7: are big enough to have scale the data center business
Speaker 7: like those that you mentioned, have a strong incentive to
Speaker 7: design their own ships, both because they can own their
Speaker 7: design so that they specifically match the workloads that those
Speaker 7: companies are running the data centers, but also because the
Speaker 7: more choice they have both in house design ships and
Speaker 7: externally designed ships, the more pricing power they hope they
Speaker 7: can win. Visa be their biggest suppliers companies like in
Speaker 7: Nvidia for example, And so there's a market rationale as
Speaker 7: well as the technical rationale for companies to design their
Speaker 7: own in how ships and what we've seen that, as
Speaker 7: you said, as a trend where almost every big tech
Speaker 7: company is now designing not just often one ship for themselves,
Speaker 7: but multiple different types of chips for their own data
Speaker 7: center efforts.
Speaker 2: We want to move on to the actual chip war,
Speaker 2: which is what your book was all about, because we
Speaker 2: feel like it just is picking up tensions. But before
Speaker 2: we do, which among the semiconductor companies that are out
Speaker 2: there do you find most interesting that you think we
Speaker 2: must I think about the investing audience of Limerick must
Speaker 2: always keep on your radar.
Speaker 7: You know, a lot of people who are only paying
Speaker 7: attention to the space and alongside the rest of the
Speaker 7: tech sector don't often focus enough on the tool makers,
Speaker 7: the companies that make the tools that make the chips possible.
Speaker 7: But if you look at the extraordinary growth and the
Speaker 7: industry over the past several years, it's not just the
Speaker 7: chip designers like in Video or AMD, it's also the
Speaker 7: companies that produce the tools ASML or Land Research or
Speaker 7: Applied Materials that are benefiting just as much from a
Speaker 7: lot of the growth industry.
Speaker 3: Okay, so let's you mentioned ASML, So we're going to
Speaker 3: talk about related to that company, some of the tensions
Speaker 3: that we reported at the top. The US China battle
Speaker 3: for tech supremacy. Chips are certainly at the top of
Speaker 3: the list. AMD hitting roadblock this week because of US rules.
Speaker 3: Take a step back and just give us your impression
Speaker 3: about why the US is now pressing allies to make
Speaker 3: sure that China doesn't get its hands on certain types
Speaker 3: of chips, Like big picture, what's worst case scenario here?
Speaker 3: Like why does the US and its allies want to
Speaker 3: keep China from getting this technology?
Speaker 7: The US strategy, I think is pretty straightforward, and the
Speaker 7: dilemma of the US faces is this, by any metric,
Speaker 7: China will quantitatively outproduce the US in terms of military systems,
Speaker 7: whether it's ships or missiles or drones. China already has
Speaker 7: more and it will have even more of a quantitative
Speaker 7: edge in the future. So the US is hoping it
Speaker 7: can retain its qualitative edge in terms of defense and
Speaker 7: intelligence system by applying advanced computing and AI to defense,
Speaker 7: and doing so requires having better advanced computing and better
Speaker 7: AI than China. And that's at the core of what
Speaker 7: the US is trying to accomplish here. It's laser focused
Speaker 7: on AI chips and the machines that are capable of
Speaker 7: making cutting ANGI chips with the aim of restraining the
Speaker 7: growth of China's AI ecosystem and keeping a technological edge
Speaker 7: that the United States has had for the past several decades.
Speaker 2: Well, having said that too, you know, with that in mind,
Speaker 2: and I keep thinking about TSMC, you know, the ultimate fabricator.
Speaker 2: I mean, people can design chips, but ultimately they go
Speaker 2: to TSMC to make them and spit them out. How
Speaker 2: critical is it for the United States or other countries,
Speaker 2: you know, to back off of their dependency on TSMC.
Speaker 7: Well, I think you see a lot of interest in
Speaker 7: the US and Europe and Japan and elsewhere to have
Speaker 7: a more diversified manufacturing footprint, which is partly why TSMC
Speaker 7: is building new plants in the US, in Japan and
Speaker 7: in Germany. But the reality is, when it comes to
Speaker 7: AI processors in particular, like the GPUs that in video makes,
Speaker 7: almost all of them are manufactured by TSC in Taiwan.
Speaker 7: So thus far we haven't actually seen much diversification, at
Speaker 7: least when it comes to these ultra cutting edge chips.
Speaker 2: So how critical is it for the US to reduce
Speaker 2: that dependency.
Speaker 7: Well, I think you see that the United States spending
Speaker 7: a fair amount of money trying that Chips Act is
Speaker 7: going to spend forty billion dollars precisely on incentivizing firms
Speaker 7: to build factories in the United States, and Japan and
Speaker 7: Europe are doing the same thing.
Speaker 3: Does it go far enough here in the US, because
Speaker 3: we have seen some prominent players pull back and scale
Speaker 3: back on some of these plans in the US.
Speaker 7: Well, I think it's never going to be easy to
Speaker 7: see supply chains shift in a big way over a
Speaker 7: short period of time. The chip supply chain and the
Speaker 7: role of SMC was built up over many decades, and
Speaker 7: so it's just implausible to imagine the shift is going
Speaker 7: to happen quickly, and it's not going to happen quickly,
Speaker 7: both because it's hard and slow, but also because the
Speaker 7: reason TSMC has such an entrenched position is because its
Speaker 7: economies of scale have given it a technological edge, and
Speaker 7: so it's not just about any individual type of technology
Speaker 7: or subsidy for any individual factory. It's the entire business
Speaker 7: model that gives TSMC its position, and that's why TSMC
Speaker 7: is going to be very hard for any of its
Speaker 7: competitors to dislodge at the top of the foundry market.
Speaker 7: And why I really think most of the industry is
Speaker 7: expecting TSMC to remain the dominant player for a very
Speaker 7: long time to come.
Speaker 3: Is it realistic to think that if the US is
Speaker 3: successful in cutting off this technology to China, that China
Speaker 3: will not develop this on its own. I mean, after all,
Speaker 3: last August we got the news that in this Huawei
Speaker 3: phone there was a chip developed that was more than
Speaker 3: a generation ahead of where the US had sought to
Speaker 3: halt China's progress.
Speaker 7: Well, I think China is no doubt going to try
Speaker 7: to keep developing it's both semiconductor and at AI capabilities,
Speaker 7: and there are a very large number of very well trained,
Speaker 7: intelligent people in the country who are going to be
Speaker 7: focused on this effort. I think the question is really
Speaker 7: what's the technological gap between, for example, the tips that
Speaker 7: can be made in Taiwan and the tips that can
Speaker 7: be made in China. And what you find if you
Speaker 7: look closely, is that for certain types of chip that
Speaker 7: gap has closed someone but there still at least four
Speaker 7: year gap, maybe a five year gap between the cutting
Speaker 7: edge Taiwanese capabilities and the most advanced capabilities today in China.
Speaker 7: And we'll see if China can close that further, but
Speaker 7: the US is trying to prevent that, both by incentivizing
Speaker 7: it companies to race forward technologically via the TIPS Act
Speaker 7: and other R and D funts, but also by making
Speaker 7: it harder and harder for China access cutting edge chip
Speaker 7: making tools.
Speaker 2: Chris, forgive me if I sound naive, I mean the
Speaker 2: stakes I understand as you lay it out very high.
Speaker 2: We know we've been reporting all the stories for countries,
Speaker 2: for companies right this tech battle for supremacy. Why does
Speaker 2: it have to be a fight. Why is it a fight?
Speaker 7: Well, the first ships that were invented were emerged essentially
Speaker 7: for use in guiding nuclear missiles more accurately, and since then,
Speaker 7: militaries and intelligence apts have seen computing as core to
Speaker 7: their ability to produce next generation systems. And at a
Speaker 7: time when you see every major defense ministry, whether it's
Speaker 7: in Beijing or in Washington or Tokyo anywhere on the world,
Speaker 7: they're all right now trying to deploy AI to military
Speaker 7: systems to make them more capable, more efficient, more accurate.
Speaker 7: And this means that AI is not only going to
Speaker 7: be powering systems like chat GPT, It's also going to
Speaker 7: be used in military and intelligence uce cases as well,
Speaker 7: and that is a sphere where there's a really severe
Speaker 7: competition right now between China and the United States.
Speaker 3: Hey, Chris, we only have thirty seconds left. But you're
Speaker 3: also a consultant for several different firms or in depth
Speaker 3: several different capacities. I should know what's the number one
Speaker 3: question you get from executives at the companies you work with.
Speaker 7: The key question companies are asking is both what's next
Speaker 7: and and also what's next in Washington in terms of
Speaker 7: the types of regulation that we're going to see either
Speaker 7: from Congress or from the next presidential administration.
Speaker 2: We'll see if we get any clues in the State
Speaker 2: of the Union tonight when President Biden takes to the country.
Speaker 2: All right, listen, Chris. Incredible. Chris Miller Associate professor of
Speaker 2: international history at Tufts University. His book Chip War, The
Speaker 2: Fight for the World's most Critical Technology. Feel like every
Speaker 2: day there's a story somehow on the industry or about
Speaker 2: kind of the battle between nations and the concerns and
Speaker 2: the constraints. You know.
Speaker 3: It's one of Barack Obama's favorite books last year.
Speaker 2: That's pretty cool, Chris, Thanks so much. This is Bloomberg.
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Speaker 3: Let's get a big picture outlook from Tersey McMillian, head
Speaker 3: of Global Acid Allocation Strategy at the Wells Spargo Investment Institute,
Speaker 3: joining us from Winston Salem, North Carolina. Tracy, how are you.
Speaker 6: I'm well, Thank you well.
Speaker 3: It's good to have you back with us. I do
Speaker 3: want to remind everyone since October the S and B
Speaker 3: five hundred is up more than twenty five percent. We
Speaker 3: do have lots of market voices coming on saying there's
Speaker 3: still room to run higher this year. You argue, though,
Speaker 3: that now is the time to start being defensive when
Speaker 3: it comes to equities and fixed income.
Speaker 6: Why that's right. We are a little more cautious here,
Speaker 6: and you know, it does look like this is going
Speaker 6: to be the seventeenth positive week out of the last
Speaker 6: nineteen weeks for the S and P five hundred, So
Speaker 6: you know, we think a pullback is probably due here
Speaker 6: and it's probably going to come in conjunction with an
Speaker 6: economic slowdown that we see emerging over the next couple
Speaker 6: of quarters. So you know, we might see a spring
Speaker 6: summer soft patch and that would set the stage for
Speaker 6: a rebound towards the end of the year, and we
Speaker 6: think that will be the out opportunity for investors to
Speaker 6: broaden out their equity exposure.
Speaker 2: Well, it's interesting, all right, So a little bit of
Speaker 2: a pullback, So you're just saying, yeah, so how much
Speaker 2: of a pullback did you say? Or did you not?
Speaker 6: I did not, But a ten percent pullback is not
Speaker 6: at all uncommon. We typically do see about a ten
Speaker 6: percent pullback every year.
Speaker 2: All right, So just normal, nothing fundamentally wrong. It's just
Speaker 2: a case of taking some of the fluff out of
Speaker 2: the market or the run up, right, Just a little
Speaker 2: bit of kind of taking some of that out, correct.
Speaker 3: That's right.
Speaker 6: Yes, I'm just looking for, you know, some of the
Speaker 6: accesses to come out of the market. And if we
Speaker 6: were to see a pullback in the S and P.
Speaker 6: Five hundred, we think that some of the other areas
Speaker 6: of the market that have been underperforming large caps, like
Speaker 6: small caps, emerging markets, the riskier corners of the markets
Speaker 6: might perform even worse and provide a better entry point.
Speaker 6: So at this point, we've been cautious over the path
Speaker 6: just a couple of years now and been overweighted large caps,
Speaker 6: and that's been the right place to be. But we're
Speaker 6: just looking for that opportunity to take something out of
Speaker 6: fixed income, move it into small caps, perhaps even emerging
Speaker 6: markets down the line.
Speaker 3: I want to go back to this idea of there
Speaker 3: being an economic slowdown later this year. We're going to
Speaker 3: get the February employment report tomorrow. We got CPI next week. Tracy,
Speaker 3: what are the indications now that we're starting to see
Speaker 3: a slowdown that could emerge in the next couple of quarters.
Speaker 3: What do you see?
Speaker 6: Yeah, there are a couple of things. So we are
Speaker 6: seeing the labor markets starting to weaken on the fringes.
Speaker 6: So what we saw yesterday in the JOLTS data was
Speaker 6: that there were fewer quits. We've also seen that current
Speaker 6: job holders are more concerned about getting a job if
Speaker 6: they were to lose their job, and so we're starting
Speaker 6: to see some weakness there in the labor markets around
Speaker 6: the edges. Tomorrow, we're going to be watching for the
Speaker 6: number of hours, the weekly hours that employers are asking
Speaker 6: of their employees. We're going to be looking at temp
Speaker 6: workers to see if that's an early sign that maybe
Speaker 6: some layoffs are ahead. So labor markets starting to cool
Speaker 6: a little bit. We're seeing some rising default rates in
Speaker 6: the consumer credit markets, and so that's giving us a
Speaker 6: little bit of pause as well. But we're again just
Speaker 6: probably a summer soft patch, a slow down here. Take
Speaker 6: the opportunity to reposition a bit. But you know, we
Speaker 6: aren't seeing anything at this point more severe than that.
Speaker 2: But time to be defensive, correct in both your equity
Speaker 2: and fixed income postures.
Speaker 6: Yes, yes, so we're just cautious here ahead of a
Speaker 6: potential pullback. So cautious to us means looking for higher
Speaker 6: quality equities and higher quality fixed income. We're positioned on
Speaker 6: the short end of the fixed income curve because we
Speaker 6: do think rates could move higher towards the end of
Speaker 6: the year, and so we'd rather be more short term focused.
Speaker 6: So that's more defensive, and that defensive positioning and fixed
Speaker 6: income we think will give us the dry powder to
Speaker 6: move into other areas of the market when we get
Speaker 6: more attractive buying opportunity.
Speaker 3: Hey, Tracy, it's Women's History month, and one thing that
Speaker 3: we were talking about and we've been talking about, is
Speaker 3: the idea that when it comes to women and investing,
Speaker 3: we don't see the same participation as we do when
Speaker 3: we see that we see with men. But also at
Speaker 3: the same time, it's even more important because women often
Speaker 3: outlive men and need to be planning for the future
Speaker 3: for even more years on average. Talk to us a
Speaker 3: little bit about what you folks are doing at the
Speaker 3: Wells Fargo Investment Institute.
Speaker 6: Yeah, happy to. So I've been really following this for
Speaker 6: about the past fifteen years, and we've done several studies
Speaker 6: of actual accounts that are managed by women, and what
Speaker 6: we find is that women consistently outperform on a risk
Speaker 6: adjusted basis. So we think that's a really important message
Speaker 6: to get out to women that when they take the
Speaker 6: step to invest, they're doing a pretty good job managing
Speaker 6: their assets. But we do also see that they tend
Speaker 6: to say they feel less confident about investing, and a
Speaker 6: recent study that we've just performed showed that fewer women
Speaker 6: felt that now was a good time to invest, and
Speaker 6: there was a fourteen percent gap when it came to
Speaker 6: being confident about where to invest, with only about a
Speaker 6: third of women, saying that they felt confident. So we
Speaker 6: think part of that might be that women are less
Speaker 6: likely to engage in conversations about money. Gen Z says
Speaker 6: that they feel judged when they talk about money, and
Speaker 6: the older generations feel like it's a private topic. So
Speaker 6: we need to get those conversations started.
Speaker 2: Tracy, twenty seconds here, why do you think the women
Speaker 2: have outperformed?
Speaker 6: Oh, we think that they've outperformed because they tend to
Speaker 6: generate a plan and stick with that plan. They tend
Speaker 6: to be more disciplined about saving, and they also tend
Speaker 6: to trade less. So we think that contributes to those
Speaker 6: higher risk aggested returns.
Speaker 2: Wait did you say because we're the better sex? Is
Speaker 2: that what you said?
Speaker 3: I just want to make sure that silent.
Speaker 2: Hey, I'm not going to make sure we get all
Speaker 2: of the data.
Speaker 3: Night's not going to do any Tim's splaining men's planning.
Speaker 2: Here better not international women's data is tomorrow. It's our day, Tracy,
Speaker 2: Thank you so much, really appreciate you sharing that insight.
Speaker 2: Tracy McMillian, head of Global Asset Allocation Strategy, Wells Fargo
Speaker 2: Investment Institute, joining us from our Carolina. You're listening and
Speaker 2: watching Bloomberg Business Week and this is Bloomberg.
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