Speaker 1: This is Bloomberg Business Wait inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: You are listening and watching Bloomberg Business Week. Carol Master
Speaker 2: along at just Matten. She is in for Tim steneviek
Speaker 2: on this Friday? Is it Friday?
Speaker 3: Just?
Speaker 2: I think it's Friday?
Speaker 3: It is?
Speaker 4: It's been every week.
Speaker 5: I hope it is.
Speaker 2: Either way, Folks, everybody in that control room, we're leaving
Speaker 2: after this show. I'm just telling you we're counting it
Speaker 2: a Friday. It is Friday, of course, it's just been
Speaker 2: a busy dance week. We have, though, a really interesting
Speaker 2: next segment coming up because you know Jess. Earlier this
Speaker 2: year McKenzie came out there, of course, the Consulting Giant,
Speaker 2: and they wrote about quantum technology and they noted, and
Speaker 2: this is a quote, quantum computers represent a completely new
Speaker 2: approach to computing. And while they won't replace today's computers,
Speaker 2: by using the principles of quantum physics, they will be
Speaker 2: able to solve very complex statistical problems that today's computers cannot.
Speaker 4: And quantum computing has so much potential and momentum that
Speaker 4: McKinsey has identified it as one of the next big
Speaker 4: trends in tech. Quantum computing alone, just one of the
Speaker 4: three main areas of emerging quantum technology, could account Carol
Speaker 4: for nearly one point three trillion dollars in value by
Speaker 4: twenty thirty five.
Speaker 2: So do you think we've got everybody's attend to now?
Speaker 2: I think we do, all right, So let's get into it.
Speaker 2: We welcome Raj Hasra, president and CEO at Quantinum. I
Speaker 2: hope I'm saying it correctly. There's a lot of us
Speaker 2: in there. He's with us on zoom from Portland, Oregon. Raj,
Speaker 2: nice to have you here with us. Say the name
Speaker 2: of your company. I want to make sure we've got
Speaker 2: it correctly.
Speaker 3: That's great to be here, and it is. You got
Speaker 3: it almost ninety percent right. It's Quentinumum quantin Yes, there
Speaker 3: are a couple of skis in there.
Speaker 2: Okay, we want to make sure we had it right. Listen,
Speaker 2: I'm so glad that we have you here. First, I'll
Speaker 2: tell us a little bit about what your scientists and
Speaker 2: your team and your company are working on what's the mission,
Speaker 2: what's the core business?
Speaker 3: You put Quantinuum is the world's largest full stack hardware
Speaker 3: plus software quantum focus company. We have only one singular focus,
Speaker 3: and that is to accelerate quantum computing technologies and its
Speaker 3: commercialization to solve as you've were noting just now, some
Speaker 3: of those society's largest challenges around inside generation, around cybersecurity.
Speaker 3: It is the next big thing because it is what's
Speaker 3: going to cause the next big value to society and
Speaker 3: value in economics. So our job is future.
Speaker 2: In So help me out here because we're all saying
Speaker 2: the next big thing in technology is AI Artificial intelligence.
Speaker 2: Is there a connective tissue between AI and quantum technology?
Speaker 2: They should? We be thinking about them as two different
Speaker 2: things are highly connected.
Speaker 3: Absolutely done. You hit it on the head. AI is
Speaker 3: a huge force. Think of it as an algorithm set,
Speaker 3: think of it as a methodology, think of it as
Speaker 3: as working on data. The key to it is what
Speaker 3: infrastructure does it run on? So if you not AI
Speaker 3: is all about data, more data every day, you know
Speaker 3: GPT three four five, The training models are getting huge
Speaker 3: lots of data and it's going to run into, and
Speaker 3: it's running into two specific challenges, how do you compute
Speaker 3: with this fast amount of data in a sustainable and
Speaker 3: efficient manner? And number two, which I think you've you've
Speaker 3: seen quite a bit in recent talk about AI being
Speaker 3: trustable by being interpretable and transparent. That is the decisions
Speaker 3: it makes. How do you know it's right? How do
Speaker 3: you know it's the right thing. So quantum computing is
Speaker 3: very relevant to both. There are places in classical AI
Speaker 3: techniques today that quantum is a better way to compute
Speaker 3: from either data storage perspective or data you know compassion perspective,
Speaker 3: or just the raw processing of it. And the more
Speaker 3: exciting part of it is quantum allows things like languages
Speaker 3: to be represented in these models in such a way
Speaker 3: that you can actually make them transparent and interpretable, that
Speaker 3: you can say why, you know exactly why it made
Speaker 3: the decisions and told you what answers it did. And
Speaker 3: that is huge because it not lets those kinds of
Speaker 3: AI techniques be brought into the realm of regulated industries.
Speaker 3: Imagine it's not just chat GPD, you know, helping you
Speaker 3: write an email to your friend. It is chat GPD
Speaker 3: or large language models making large decisions in industrial workflows,
Speaker 3: in banking and finance, in linguistics of you know, trying
Speaker 3: to decide what RNA is and DNA modeling can do.
Speaker 3: So that the application is huge for AI to benefit
Speaker 3: from quantum computing as the next generation computing infrastructure that
Speaker 3: not only makes it more powerful and efficient, but also
Speaker 3: makes it interpretable and transparent, thereby making bigger use of
Speaker 3: it for society.
Speaker 4: You worked at Intel for about twenty five years, and
Speaker 4: when you're there, you obviously also were incorporating AI and
Speaker 4: machine learning there that really helped revitalize Intel's growth after
Speaker 4: obviously a prolonged period of decline there. What did you
Speaker 4: learn from what when it came to AI, and how
Speaker 4: are you going to end up utilizing that in your
Speaker 4: role at this point.
Speaker 3: That's a great question. As you noted, I was at
Speaker 3: Intel for twenty five years and what we saw the
Speaker 3: growth of classical computing CPU or central processing INNIT based computing,
Speaker 3: dive expand to heterogeneous compute where you had accelerators for
Speaker 3: various workloads. AI was an emerging workload, and what I
Speaker 3: learned was there is you have to do a few
Speaker 3: things in order to successfully deliver the customer expectations. You
Speaker 3: have to build the right infrastructure for the right workload.
Speaker 3: Number two is you have to work with the software
Speaker 3: industry or the software portion and not just build hardware
Speaker 3: and build them in lockstep. So there's a complete solution available.
Speaker 3: There isn't just a hardware asking for software to be
Speaker 3: written for it. And the third thing is what we
Speaker 3: learned is patients in adoption and patience and integrity in
Speaker 3: stating what the results are fundamentally important, so you don't
Speaker 3: create a hip cycle that collapses on you. That is
Speaker 3: exactly what I bring to continue. We are working on
Speaker 3: innovative hardware, but we are a full stack company and
Speaker 3: we are developing hardware and software in concert so we
Speaker 3: can actually build solutions for our customers. I'll give you
Speaker 3: an example. Just last week we announced that names like
Speaker 3: Airbus and BMW are working to incorporate quantum technology into
Speaker 3: their standard workflows that exist today to look at next
Speaker 3: generation fuels or what's called new energy. They're using quantum
Speaker 3: computing technology from US, working with us both our hardware
Speaker 3: and our software to look at better ways and more
Speaker 3: efficient batteries and fuels of the future. That's something they
Speaker 3: cannot do with classical computing for very long, if at all.
Speaker 3: So Yeah, the lessons learned are customer relationships, early and
Speaker 3: closed relationships between hardware and software, and working together to
Speaker 3: build out true economic use cases.
Speaker 2: All right, well listen, We're going to have to continue
Speaker 2: this conversation another time. We have run out of time,
Speaker 2: but we really appreciate it. Continuum CEO and President Raj
Speaker 2: Howzar joining us from Portland, Oregon. You are listening and
Speaker 2: watching Bloomberg BusinessWeek, and this is Bloomberg Radio.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern Listen.
Speaker 6: On Bloomberg dot com, the iHeartRadio app, and the Bloomberg
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Speaker 2: All right, guys, we are going to wrap up. We're
Speaker 2: not quite done. We still a couple of hours here
Speaker 2: on Bloomberg Business Week, but I do feel like we
Speaker 2: started the week, and Jess, we several times came back
Speaker 2: to what was one of the big stories. Yes, the
Speaker 2: move that we saw along the US Treasury curve and
Speaker 2: really among global sovereign dead if you will, in terms
Speaker 2: of yields moving up. But China every day, there was
Speaker 2: a stack of new headlines.
Speaker 4: There definitely wasn't especially because this is the world's second
Speaker 4: largest economy behind the US and then obviously the third
Speaker 4: one is Japan. But this is really crucial to see
Speaker 4: how that economy, if you're seeing, particularly especially this year
Speaker 4: is supposed to be this big rebound year for the economy.
Speaker 4: What does that mean when you have different trajectories for
Speaker 4: both of their central banks.
Speaker 2: It's been tough going and we saw that in certainly
Speaker 2: the economic data points a deflation feear, is a weekending
Speaker 2: housing market, a crisis in the shadow lending sector, so much,
Speaker 2: a surprise rate cut. So let's get to it. Shazad
Speaker 2: Kazi is back with us. We're so delighted he's got
Speaker 2: to report out a new note and he asks, is
Speaker 2: China starting to collapse? Chazad, of course, is managing director
Speaker 2: at China Facebook International. They were founded over a decade
Speaker 2: ago and really to work with and help institutional investors
Speaker 2: and corporate CEOs navigate China's notoriously black box economy. That's
Speaker 2: how they write it on their website. It's so well said.
Speaker 2: He joins us on this Friday afternoon. Shazad the report
Speaker 2: you ask, is China's starting to collapse?
Speaker 6: Is it?
Speaker 2: Or is that just ridiculous?
Speaker 5: No, in China is not collapsing at all. The market
Speaker 5: is just so disappointed at the way twenty twenty three
Speaker 5: is unfolded. They were expecting a big boom basket recovery.
Speaker 5: We always argue that was very unrealistic. That has not happened,
Speaker 5: and so the investor in community has settled on the
Speaker 5: narrative that China's on the version of collapse and the
Speaker 5: only thing that can save the day now is a
Speaker 5: big bang stimulus. We of course argue back and push
Speaker 5: back against that whole thesis.
Speaker 4: What's been the catalyst to prevent us seeing a bigger
Speaker 4: rebound here in China's economies? And so many people were
Speaker 4: expecting that to happen in twenty twenty three.
Speaker 5: I think some of the assumptions going into twenty twenty
Speaker 5: three were just misplaced. You know, we had two years
Speaker 5: of a very bad economic shock because of zero COVID
Speaker 5: policies and of course the deflating of the property bubble,
Speaker 5: which really you know, not only destroyed household wealth but
Speaker 5: really crushed consumer confidence. So expecting the Chinese households to
Speaker 5: come strongly into twenty twenty three and spending left and
Speaker 5: right was very, very unrealistic. Couple that with the fact
Speaker 5: that you know, there is slow down in the external
Speaker 5: environment for China as reflected and its export orders as
Speaker 5: seen through you know, sort of the manufacturing recession, if
Speaker 5: you will, that we're seeing take place in Europe. We're
Speaker 5: certainly seeing pretty you know, slow down in manufacturing out
Speaker 5: here in the United States. Those are starting to add on.
Speaker 5: And of course the critical thing the property market, which
Speaker 5: is in a multi year restructure phase and will be
Speaker 5: a problem story I think for the Chinese economy for
Speaker 5: several more years to go.
Speaker 2: Just forgive me, I mean, Shazad, go back to what
Speaker 2: you said, did you say? What did you say about
Speaker 2: the big banks in China? What was needed?
Speaker 5: The idea right now, the consensus is that, you know,
Speaker 5: China needs to unleash big fiscal stimulus projects, the kind
Speaker 5: that they did in the aftermath of the global financial crisis.
Speaker 5: And only can big bang physcal stimulus save the Chinese economy.
Speaker 5: But that's not going to happen. Chinese policy makers are
Speaker 5: looking to de risk the system. They wanted to bring
Speaker 5: down this whole you know, this over leveraged problem that
Speaker 5: they have in the economy. They're not going to, i think,
Speaker 5: add further fuel to fire.
Speaker 2: So then what Okay, So it's great that it's kind
Speaker 2: of contained domestically, all right, or at least how you're
Speaker 2: seeing it. But I mean, if if what's needed is
Speaker 2: not going to be done, then what's I mean? You know,
Speaker 2: I think we talked with you earlier in the week,
Speaker 2: like what do we need to in terms of a
Speaker 2: reset think about the China growth engine?
Speaker 3: Yeah?
Speaker 5: I think you know, as we discussed the other day.
Speaker 5: First of all, investors need to understand that they're looking
Speaker 5: at a structural slowdown in China. They're looking at the
Speaker 5: economic management of the country depart from the model that
Speaker 5: they're used to where we used to get high rates
Speaker 5: of growth. Now China is actually paying the price for
Speaker 5: some of it. The political leadership in China has decided
Speaker 5: that they have the appetite to pay the political price
Speaker 5: because they see it as short term pain and a
Speaker 5: much you know, they're time horizon is a lot longer
Speaker 5: than the markets and investors, I think, and they're willing
Speaker 5: to pay the price today in order to set the
Speaker 5: economy on a more healthy, sustainable pace of growth, even
Speaker 5: though it's going to be a much slower pace of
Speaker 5: growth than anybody I think anticipated China hitting you know,
Speaker 5: they're going to potentially do five percent this year, We're
Speaker 5: looking at sub five percent for sure moving forward, maybe
Speaker 5: even one percent or no growth down the line if
Speaker 5: things continue to deteriorate and they're unsuccessful transitioning the economy.
Speaker 2: All right, not apples to apples, But is this kind
Speaker 2: of a kin if I think about Paul Volker when
Speaker 2: you had to rain and inflation in the seventies, like
Speaker 2: you had to do something that was going to make
Speaker 2: it very uncomfortable, but was going to put the US
Speaker 2: economy on the right trajectory. Is that kind of where
Speaker 2: China is, and it's kind of the responsible way of
Speaker 2: you know, managing your economy.
Speaker 5: Within the property market. And the way they deflated the bubble,
Speaker 5: I agree with that completely. They you know, pain, it
Speaker 5: has to be endured because that's what happens when you
Speaker 5: deflate bubbles. But that's exactly what they're trying to do.
Speaker 5: And this year, I think is a great example of
Speaker 5: the fact that they haven't jumped in to do massive bailouts.
Speaker 5: The last two years, they haven't done massive bailouts, so
Speaker 5: I think that's indicative of the fact that they are
Speaker 5: willing to put the economy on the right track and
Speaker 5: to avoid what could potentially have been a much worse
Speaker 5: hard landing. We may, I think, have gotten the Chinese
Speaker 5: hard landing that everybody predicted this whole time. Over the
Speaker 5: last couple of years, with the evergrand crisis and the
Speaker 5: property crisis that we've seen, you.
Speaker 4: See any sort of red flag's brewing when it comes
Speaker 4: to their property market.
Speaker 5: I mean, this year has been, you know, a very
Speaker 5: disappointing story for those who bet on the fact that
Speaker 5: property was on a steady road to recovery. You know,
Speaker 5: you're getting sales weakness, you're getting price weakness. Anytime you
Speaker 5: see an improvement in the numbers, it's not at all sustainable.
Speaker 5: And it may very well just be the fact that
Speaker 5: year over year results are so distorted this year, given
Speaker 5: the on again, off again switch that the economy was
Speaker 5: put on last year, the property market and specifically the
Speaker 5: residential market, the housing market, you know, has I think
Speaker 5: a lot more disappointment. I had sort of like a
Speaker 5: one step forward, two steps back type of scenario. We'll
Speaker 5: see what happens, by the way, on the commercial real
Speaker 5: estate side of the economy, which oftentimes will escape attention.
Speaker 5: The commercial property developers are also suffering, as we've seen
Speaker 5: in China pagebooks numbers over the last couple of months.
Speaker 2: All right, So I'm thinking about our audience, who, just
Speaker 2: like the rest of us, over the last couple of weeks,
Speaker 2: are feeling a little overwhelmed by all of the headlines
Speaker 2: coming out of China. As you say, China is not
Speaker 2: starting to collapse, and maybe and what's going on is
Speaker 2: really kind of the responsible thing in terms of getting
Speaker 2: the Chinese economy back on track. So what should we
Speaker 2: keep on our radar? And just got about forty seconds.
Speaker 5: So don't fall for the China's Leman moment story. It's
Speaker 5: not happening.
Speaker 3: As we said.
Speaker 5: If there is a larger crisis that begins to brew,
Speaker 5: I would expect more policy support and banks to step in,
Speaker 5: potentially taking over certain companies and certain projects. But at
Speaker 5: the same time, don't go to the other end of
Speaker 5: the spectrum and start thinking there's going to be big,
Speaker 5: big bailouts taking place, big fiscal projects being announced. A
Speaker 5: lot more nuanced and sophisticated tracking is needed this time around.
Speaker 2: But there might be more stuff that goes that falls down,
Speaker 2: more bankruptcies, but that's going to be okay. Just really quickly.
Speaker 5: We will continue to get mini crisis along the way. Absolutely.
Speaker 5: I don't foresee this turning into a big Leman moment.
Speaker 5: You can get Leman moments in a non commercial financial system,
Speaker 5: which is what you have in Chi.
Speaker 2: So great to check in with you two times this week.
Speaker 2: Shazad Kazi over at China Bacebook International, he's the managing director.
Speaker 2: Have a great weekend. This is Bloomberg.
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Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2: We are living in unusual times. I feel like we
Speaker 2: can't say that enough. Having said that, the macro impacting everything,
Speaker 2: and that includes cryptoes. We had a period of unusual
Speaker 2: calm in the crypto markets and that kind of came
Speaker 2: to an end abruptly this week. The notion of higher
Speaker 2: for longer interest rates, sparking a sell off and risk assets,
Speaker 2: and that included bitcoin. It led to mass liquidations of
Speaker 2: bullish bets. And then there was the Wall Street jonal
Speaker 2: report about SpaceX writing down the value it's bitcoin holding,
Speaker 2: so it was.
Speaker 4: Just a lot, right, And then you're also seeing risk,
Speaker 4: so it's like you're talking about when it comes to
Speaker 4: Bigcoorn sliding as much as eight percent, so clearly under pressure.
Speaker 4: And then everybody's still watching that thirty thousand dollars threshold.
Speaker 2: When it comes to big but we're below it, right, correct,
Speaker 2: All right, So let's get to it our weekly crypto
Speaker 2: segment back or with us, I should say's Frank Holmes.
Speaker 2: He's executive chairman and at the small cap publicly held
Speaker 2: High Digital Technologies. It's a crypto mining company, roughly three
Speaker 2: hundred and twenty onine, three hundred and twenty one million
Speaker 2: in market cap. It's up one hundred and sixty three
Speaker 2: percent year to date. He is on Zoom from San Antonio,
Speaker 2: Texas from Jessics home state. Yes, Frank, nice to have
Speaker 2: you here, Happy Friday.
Speaker 7: How are you outstanding in a bear market?
Speaker 2: Well, tell us about that? What do you make kind
Speaker 2: of the recent trade, it is a bear market, although
Speaker 2: we're I guess what, we're about sixty percent above where
Speaker 2: it started the year on bitcoin, So we have had
Speaker 2: a pop this year.
Speaker 7: Yeah, that's true, That's absolutely true. But after a brutal
Speaker 7: sell off last year. Well, what's interesting to me is
Speaker 7: that the dollar is is up almost we do this
Speaker 7: rolling twenty day standard deviation movement off the dollar versus
Speaker 7: ten yure government versus gold, and versus bitcoin, and what
Speaker 7: we're seeing right now going to the Jackson Hall meeting
Speaker 7: next week, is the dollar's up almost two standard deviations.
Speaker 7: That's a huge move on the upside. And this week
Speaker 7: we saw a goal break below the two hundred day
Speaker 7: moving average, and naturally yesterday was bitcoin took it on
Speaker 7: the chin. And I think these collateral assets are moving
Speaker 7: in opposite directions and direction to the dollar. So I
Speaker 7: think that that's what we're living with. But I.
Speaker 4: That's interesting because Carol and I were talking about how
Speaker 4: that had a correlation with the dollar as well, when
Speaker 4: you're talking about what that means for stock prices too,
Speaker 4: but for bitcoin in particular, because earlier this year, especially
Speaker 4: when it came in March, that turned into one of
Speaker 4: those particular assets that we're actually rallying in addition to
Speaker 4: technology stocks. But I'm curious as far as the dynamic
Speaker 4: right now between what's happening with bitcoin and obviously what
Speaker 4: we're seeing with the bond market at this point.
Speaker 7: Well, we had the two year, the five year, ten year,
Speaker 7: and the twenty year government bond yields all screaming this week,
Speaker 7: and that makes it very difficult for alternative asset classes.
Speaker 7: And I think that sort of risk off is clearly
Speaker 7: is the trade rate now, and that's part of that contagion.
Speaker 7: But bitcoin did take off after Silicon Valley bankruptcy. We
Speaker 7: did see that. What's interesting to me is that it's
Speaker 7: not as over sold as it was a year ago
Speaker 7: in May of twenty twenty two. Is actually when you
Speaker 7: look at the elasticity, the movement, the bands of how
Speaker 7: much it goes up over twenty days versus down twenty days,
Speaker 7: it was actually more over sold last year or when
Speaker 7: FTX blew up.
Speaker 2: Hey, listen, if you can, Frank, tell us little bit
Speaker 2: about your business, because you guys are certainly you know,
Speaker 2: involved in I feel like you know so much that
Speaker 2: we talk about, whether it's the connection of AI the
Speaker 2: web three digital transformation. I'll look a little bit at
Speaker 2: your website in terms of of the things that you
Speaker 2: guys are involved in. You're operating massive data centers, are
Speaker 2: you building new ones? Give me an idea of the
Speaker 2: business environment and where you guys are spending the most
Speaker 2: money and the most time in the most effort.
Speaker 7: The biggest growth is AI, clearly, and we have the
Speaker 7: most experience. High was the first to use GPU chips
Speaker 7: and has first actually crypto money company ever go public
Speaker 7: in twenty seventeen, and it ushered in many other companies
Speaker 7: coming into the space. Well, we've been taking our data
Speaker 7: centers and slowly been building out and last year we
Speaker 7: purchased almost seventy million dollars of these high performance and
Speaker 7: VIDIA chips, and now we're building out the expansion of that.
Speaker 7: And we see that as much more stable, high profit
Speaker 7: margin business than actually bitcoin mining. Bitcoin mining has these
Speaker 7: incredible moves to it where your profit margin expands dramatically
Speaker 7: and then all of a sudden it contracts. So our
Speaker 7: focus clearly for bitcoin mining. We will double our footprint
Speaker 7: over the next six months, but they're real growth opportunity
Speaker 7: is clearly the reconfiguring of our data centers into AI
Speaker 7: take a little.
Speaker 2: Bit deeper into those numbers for us. So give us
Speaker 2: an idea bitcoin mining, which has been your big business.
Speaker 2: How much is that still your big business? But give
Speaker 2: us an idea of the AI side of the business
Speaker 2: and the kind of growth you're seeing, and does that
Speaker 2: essentially become the business in three years, five years? Tenure
Speaker 2: help us out here.
Speaker 7: You looked at it today, it would be ten million,
Speaker 7: say eight million a month, and you're making about two
Speaker 7: million a month. With AI that number would be making
Speaker 7: six million a month on eight million dollars. So it's
Speaker 7: a ninety eighty to ninety percent groast margin business and
Speaker 7: you're actually less expensive than the AWS or the Google,
Speaker 7: et cetera. And so the whole chat GBT is exploded.
Speaker 7: That demand for are a four These are four thousand,
Speaker 7: five thousand and six thousand chips.
Speaker 4: Who are your clients that are using this?
Speaker 7: Mind, it's a great question. We're B to B so
Speaker 7: we do not deal with the public, and there are
Speaker 7: other service providers. Even in bitcoin mining, we do not
Speaker 7: deal with the public. We will hotle some of our
Speaker 7: position that has put it in the bank. Others will
Speaker 7: sell to turn around and expand the operation. But when
Speaker 7: it comes to the AI, there are service providers to
Speaker 7: do all the KYCAML do all the client handholding, and
Speaker 7: they take a fee off the top for doing that.
Speaker 7: We provide all the infrastructure and the latest of chips
Speaker 7: and they rent basically on an hourly basis.
Speaker 2: So when you say KYC, is that you know your customer?
Speaker 2: What does that mean? Break it down for folks, folks laundry.
Speaker 7: When you're deal directly with a business, you have to
Speaker 7: have people on staff that are expertise in anti money laundering,
Speaker 7: know your client rules, KYC and a m L. That
Speaker 7: is when you have a B two C business model.
Speaker 7: When you have a B to B, that's not what
Speaker 7: we have to worry about. That's one reason why I'm
Speaker 7: a fund manager and launching of Hive was was we
Speaker 7: couldn't launch a bitcoin ETF six years ago. So we
Speaker 7: end up co founding the creation of Hive because we
Speaker 7: basically mine the coins we create that original coin.
Speaker 2: But it sounds like you're increasingly moving away from that
Speaker 2: business because the AI side of it is much more productive.
Speaker 2: Is that fair?
Speaker 7: It's it's fair because it's two parts. You know, it's
Speaker 7: a good question because we have we're mining ethereum, and
Speaker 7: Ethereum was a very high margin business just like AI is.
Speaker 7: Uh And so with that, I think the volatility of
Speaker 7: bitcoin will maintain itself and it'll be an ongoing business.
Speaker 7: But the real growth and big potential are these data
Speaker 7: centers that we built and own and we continue to
Speaker 7: expand on and the applications that are necessary with these
Speaker 7: chips that are out there. So I think AI, there's
Speaker 7: no doubt, is high margin, high growth, and data centers
Speaker 7: have huge valuations versus crypto mining stocks really don't have
Speaker 7: the big valuation that AI has.
Speaker 4: Are you able to use whenever you're talking about some
Speaker 4: of the data and tracking your customers as far as
Speaker 4: inflection points and how that can affect maybe the crypto
Speaker 4: space and the prices.
Speaker 7: No, we don't. We really don't get into that. Where
Speaker 7: we use AI would be on if you're mining any
Speaker 7: of the alternative coins and a proof of work scenario,
Speaker 7: you use AI to maximize your returns what you want
Speaker 7: to mine, But no, we don't. That's all. It's a
Speaker 7: B to B business model.
Speaker 2: Yeah, it's really interesting, so cap x that you guys,
Speaker 2: data centers are expensive if you're building them out, but
Speaker 2: you know AI is going to need them. You what
Speaker 2: are your expectations for capex over the next six to
Speaker 2: twelve months and are you raising it? Do you feel
Speaker 2: confident enough to raise it in today's environment?
Speaker 7: We do. We feel very confident. We have a strong
Speaker 7: balance sheet, we have positive cash flow, even with bitcoin
Speaker 7: where it is today, and we think that the industry
Speaker 7: itself is going to go through a big reckoning in
Speaker 7: the bitcoin industry because a lot of the machines that
Speaker 7: are mining today are not as energy is efficient and
Speaker 7: what's called a having next May and that's basically going
Speaker 7: to say you're going to earn half the amount of
Speaker 7: rewards of bitcoin, So bitcoin's going to have to be
Speaker 7: over sixty thousand dollars to cover your costs. So I
Speaker 7: don't think it's going to work out perfectly for a
Speaker 7: lot of those inefficient miners, and so we want to
Speaker 7: make sure that HIVE is in a position that we
Speaker 7: can deal with that, and that's what we've been doing.
Speaker 7: So our expansion there in ASEX and along with AI
Speaker 7: will probably be in the tune of one hundred million dollars.
Speaker 2: All right, Well, good to check in with you and Frank,
Speaker 2: you get a t rex behind you, so you better
Speaker 2: be careful. I think it's a t rex. It's a
Speaker 2: red one.
Speaker 7: It's it's right. It's a political statement that came out
Speaker 7: of China by a sculpture that China's trying to eat
Speaker 7: the world.
Speaker 2: It's a fascinating sculpture.
Speaker 7: Listen.
Speaker 2: Good to check in with you look forward to doing
Speaker 2: again in the future. Frank Homes, executive chairman at Hive
Speaker 2: Digital Technologies, on Zoom from San Antonio, Texas.
Speaker 5: I'm brother Marco, a journal How about you let me drive?
Speaker 1: Oh no, no, no no, who's going to honey?
Speaker 3: Please? I'll do the riding gravels.
Speaker 7: Let's mate, I want to drive.
Speaker 3: It's a good question.
Speaker 1: That tis This is the drive to the clothes.
Speaker 3: Down cons me think well by around.
Speaker 1: Yelling on on Bloomberg Radio.
Speaker 2: All right, tiktack everybody, Just about fifteen minutes to go
Speaker 2: until the closing bell. Carol Master along with Just met
Speaker 2: in live in our Bloomberg Get Directive studio on YouTube
Speaker 2: in Bloomberg Originals. As we said, Jess is in for
Speaker 2: Tim Stenevik, who's off today, and Jess, I'm looking at
Speaker 2: an equity trade here in the US little change a
Speaker 2: little bit higher, but we're seeing some buying into the close.
Speaker 2: Go figure.
Speaker 4: And now the S and P five hundred on pace
Speaker 4: for its worst weeks since early August. It had been
Speaker 4: the worst care March.
Speaker 1: So hey, there we go.
Speaker 4: But yeah, you'd think for a Friday afternoon, but things
Speaker 4: coming off the lows there for the broader market.
Speaker 2: Yeah, And if my understanding was volume up a little
Speaker 2: bit today.
Speaker 4: Yes it was. And also you'd think a summer Friday,
Speaker 4: right where volume tends to be lighter.
Speaker 2: I don't know, it's really kind of wacky, and right,
Speaker 2: we have seen volumes, Dan, and I'm looking at the
Speaker 2: major industry groups in the S and P five hundred,
Speaker 2: specifically energy, you're out performers. You've got more major industry
Speaker 2: groups in the S and B five hundred actually showing
Speaker 2: some gains versus those to the decline.
Speaker 4: Right, and communication services those are obviously more growth oriented
Speaker 4: sector that went down close to one percent.
Speaker 2: All right, let's get to it, guys. The drive to
Speaker 2: the clothes with about fourteen minutes left in the trading session.
Speaker 2: Sam down that is with us. He's chief investment officer
Speaker 2: at Angel Capital Advisors. He joins us on zoom in Atlanta.
Speaker 2: Zim Sam, good to have you here on this Friday.
Speaker 2: It is an interesting day. We thought, we hoped, we
Speaker 2: fingers crossed after a rather dense week, that it would
Speaker 2: be a little bit quieter, but that's not the case.
Speaker 2: How are you thinking about the trade here? First of all,
Speaker 2: let's talk about the US market specifically. I think the
Speaker 2: S and P is on track. As just said, not
Speaker 2: a great week, but we're down about three weeks in
Speaker 2: a row here. What does the reset it feels like?
Speaker 2: And US equities tell you, and really the reset if
Speaker 2: you will, in US yields, it's.
Speaker 8: Definitely an our view a function of yields. You know,
Speaker 8: where we focus as fixed income and not necessarily the
Speaker 8: equity markets. But I think equities have clearly been under
Speaker 8: pressure this month and this week, just given the recent
Speaker 8: rise that we've seen in risk free yields over the month.
Speaker 8: I mean just for August alone, you know, treasury yields
Speaker 8: are up four to thirty five basis points across the curve,
Speaker 8: and that's really been pressuring clearly stocks and other risk
Speaker 8: assets here. But we think it's pretty interesting as an
Speaker 8: opportunity is risk free yields and tenure note yields, for example,
Speaker 8: have reached the highest level we've seen since two thousand
Speaker 8: and seven. So risk free yields present a huge opportunity
Speaker 8: in our view. And while you know there may be
Speaker 8: further room to run here, perhaps at rates in the
Speaker 8: long end, we think it's a pretty historic opportunity, particularly
Speaker 8: in areas of mortgage backed securities, where yields are even
Speaker 8: higher even in government guaranteed mortgage backed securities today.
Speaker 4: And so you just mentioned the positioning there as far
Speaker 4: as what you see in opportunities when it comes to
Speaker 4: those risk free type of rates, where are you shining
Speaker 4: away from in alternatives that you don't want to necessarily
Speaker 4: advise clients to buy at this point.
Speaker 8: Yeah, where we've been focusing is clearly in quality and
Speaker 8: shorter duration areas of fixed income where you can get
Speaker 8: these equity like returns. As I mentioned, you know, with
Speaker 8: risk free rates surging to the extent that they have
Speaker 8: after twenty twenty two and into twenty twenty three, you know,
Speaker 8: investors don't have to take a tremendous amount of credit
Speaker 8: risk here or even just convexity risk to earn you know,
Speaker 8: high current yields in the you know, six to nine
Speaker 8: percent range, So you know, we're focusing on higher quality
Speaker 8: and within the subsectors we focus on in the securitized
Speaker 8: credit space, really focused on mortgage backed securities here binds
Speaker 8: backed by residential mortgages, but definitely cautious towards areas, for example,
Speaker 8: within the CNBS space, just given some of the concerns
Speaker 8: that we have in underlying commercial real estate.
Speaker 4: I know you're not calling out right for a pending
Speaker 4: recession in the near term. How do you view the
Speaker 4: recent batch of economic data that we've seen that shows
Speaker 4: there's still a resilient consumer out there, especially when you're
Speaker 4: looking at those retail sales numbers and then hearing from
Speaker 4: some of the corporates, especially on the retail side with
Speaker 4: Walmart and others this week.
Speaker 8: Yeah, the consumer has been extraordinarily resilient and definitely you know,
Speaker 8: exceeded our expectations. This year. We've been generally favorable towards
Speaker 8: the consumer, particularly in the post COVID era. We did start,
Speaker 8: you know, getting a little more cautious h towards you know,
Speaker 8: the consumer that's been a little more impacted due due
Speaker 8: to the inflationary pressures and and the lower real wage
Speaker 8: growth that we were seeing. But that's that's really starting
Speaker 8: to change, uh, particularly as it relates to inflation coming down.
Speaker 4: Uh.
Speaker 8: You know, most recently, we expect inflation to continue to fall,
Speaker 8: which should bolster real wages looking forward.
Speaker 4: Uh.
Speaker 8: So, you know, the consumers definitely shined. And I would
Speaker 8: say one thing that market partisemants I think are beginning
Speaker 8: to really appreciate is just a lack of interest rate
Speaker 8: sensitivity on consumers balance sheet given you know, typically the
Speaker 8: largest liability for for US borrowers is the the you know,
Speaker 8: their home.
Speaker 3: Uh.
Speaker 8: And the weighted average mortgage ready today is around three
Speaker 8: and a half percent, and the vast majority of that,
Speaker 8: over ninety percent is fixed rate. And I think that's
Speaker 8: provided a tremendous amount of resilience for consumers given the
Speaker 8: swift pace of FED tightening that we've seen not only
Speaker 8: on the front end but through quantitative tightening. But we
Speaker 8: are growing increasingly cautious given how fast the FED has gone,
Speaker 8: particularly as it relates to asset prices generally speaking, but
Speaker 8: we do think housing is going to be extraordinarily resilient
Speaker 8: here just amid this recent tightening we've seen really related
Speaker 8: to the stability and the mortgage rate, So that's bolstering
Speaker 8: the consumer as well.
Speaker 2: Hey, where's money flowing? Among your various investment options. You've
Speaker 2: got a bunch of mutual funds, as you said, you know,
Speaker 2: you're really all about yields or the function of yields
Speaker 2: in terms of investments. You've got an income ETF and
Speaker 2: ultra short income ETF, you've got a multi strategy income fund.
Speaker 2: Where is the money flowing? What kind of flows are
Speaker 2: we seeing money move out of the safety and security
Speaker 2: of money market are perceived safety and security of money markets?
Speaker 2: And where is it flowing?
Speaker 8: It's a great question. Yeah, you know, industry wide and
Speaker 8: just across the the bond complex or the fixed income complex,
Speaker 8: you really saw a huge amount of outflows in twenty
Speaker 8: twenty two, and you saw a nice surge, I would
Speaker 8: say at the beginning of this year from a flows perspective,
Speaker 8: you know, into fixed income, but the vast majority of
Speaker 8: the flows, as you well know, have really gone into
Speaker 8: the front end of the bill curve and in the
Speaker 8: money market funds. You know, I think global money market
Speaker 8: funds are approaching nine hundred and twenty five billion on
Speaker 8: a year to day basis, So the vast majority of
Speaker 8: global investors are still hiding out on the front end
Speaker 8: of the curve. But we think, you know, we are
Speaker 8: definitely in the camp that we are at or New
Speaker 8: York peak policy and encourage investors to really consider extending
Speaker 8: duration in both you know, hard think you're a.
Speaker 2: Peak policy even though the world is kind of thinking
Speaker 2: about a reset of you know, we were just talking
Speaker 2: with our Michael McKenzie. Maybe two percent inflation just doesn't
Speaker 2: make sense. Maybe it's more like a three percent inflation world.
Speaker 2: Do we need to start kind of embracing are you
Speaker 2: guys embracing the idea that maybe it's a different higher
Speaker 2: reset when it comes to inflation, and that means maybe
Speaker 2: a different different investment think, you.
Speaker 8: Know, perhaps over the medium term, I think in the
Speaker 8: law in the near term, though, you know, we expect
Speaker 8: inflation to come down pretty significantly towards the latter part
Speaker 8: of this year and into twenty twenty four. Is the
Speaker 8: shelter component of the the inflation data continues to roll
Speaker 8: over pretty hard, is you know, it's been very well publicized.
Speaker 8: It's definitely a lagging part of the inflation component and
Speaker 8: we're seeing rents falling very fast, and obviously home prices
Speaker 8: have come off the recent highs that we experienced after COVID,
Speaker 8: so as that shelter component really filters into the inflation data,
Speaker 8: we think that's going to be very supportive to you know,
Speaker 8: a FED narrative that we'll be approaching, you know, a
Speaker 8: potential slower growth scenarios we head end of this year
Speaker 8: and into early next.
Speaker 4: Sam, I have to ask, what's the top question you're
Speaker 4: hearing from your clients?
Speaker 8: You know, the top question we're we're getting is why
Speaker 8: are mortgages generally so cheap in today's market? You know,
Speaker 8: agency mortgages in particular have gotten a lot of attention,
Speaker 8: especially on uh you know, Bloomberg News and in the
Speaker 8: headlines recently and uh, you know, agency mortgage backed securities
Speaker 8: to give you some context from a spread perspective or
Speaker 8: at the widest levels versus treasuries that you've really seen
Speaker 8: since the financial crisis, and a lot of investors are asking,
Speaker 8: you know, what are we missing here? What's going on there?
Speaker 4: Uh?
Speaker 8: In an arview is purely a function of Carol's question
Speaker 8: on flows. You've seen a tremendous amount of flow into
Speaker 8: the front end of the curve. UH and you've also
Speaker 8: seen banks reducing holdings from from the highs after after
Speaker 8: COVID and QE. But you've also seen quantitative tightening implemented
Speaker 8: in earnest and it's created a pretty historic opportunity in
Speaker 8: ourview towards towards mortgages and just risk free assets generally speaking.
Speaker 2: All right, good to get your thoughts on that, and
Speaker 2: so appreciate it. Sam, Thanks for funding time for us,
Speaker 2: and have a great week, and so I'm done. Lap
Speaker 2: CEO at angel Oakcapital Advisors, joining us on zoom in Atlanta.
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