Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Business Wait inside from the reporters and
Speaker 2: editors who bring you America's most trusted business magazine, plus
Speaker 2: global business, finance and tech news. The Bloomberg Business Week
Speaker 2: podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 3: So let's go to a company that has often looked
Speaker 3: to Tim Ford's various businesses that can tell us a
Speaker 3: lot too about the macro business environment and just the
Speaker 3: macro environment overall.
Speaker 4: Yeah, we're talking none other than Berkshire Hathaway. Berkshire's earnings
Speaker 4: always closely watched as a proxy for US economic health
Speaker 4: because the expansive nature of Warren Buffett's businesses, ranging from Railroad, BNSF, Geico,
Speaker 4: Carol and Dairy Queen.
Speaker 3: So much going on and stock has been it was
Speaker 3: moving closer to that tillion dollar mark, but not going
Speaker 3: to make it. It looks like today let's get more though
Speaker 3: on the quarterly update. What we heard from Warren Buffett
Speaker 3: with US is Bloomberg Intelligence, Property and Casualty Insurance Senior
Speaker 3: analyst Matthew Palazola. He's here in studio, Matt. Good to
Speaker 3: have you here, stock was up, we were closer to
Speaker 3: the trillion dollar mark, although we still had a ways
Speaker 3: to go. What was important about the quarter for this company.
Speaker 1: So I'm not surprised that it's didn't reach there today.
Speaker 1: I actually thought it would be down on the open.
Speaker 3: Yeah, it was that three percent.
Speaker 5: Yeah, I was.
Speaker 1: Surprised to see that the quarter was fine. It wasn't
Speaker 1: It wasn't really great positive, It wasn't really all that negative.
Speaker 1: I thought the insurance learnings were actually gonna be a
Speaker 1: little better. They did carry the whole company, but I
Speaker 1: thought they were going.
Speaker 5: To be a little bit better.
Speaker 1: If you peel back the onion on Geico, their expenses
Speaker 1: were a lot lower intentionally, which which helped them out
Speaker 1: a lot or officially, what.
Speaker 3: Do you mean intentionally?
Speaker 1: So the auto insurance loss costs, meaning the cost of accidents,
Speaker 1: has risen dramatically since COVID, Right, We've talked about it.
Speaker 4: We talked about this a lot, but the context of
Speaker 4: how much it cost us in premiums, right, And.
Speaker 1: So they're raising those premiums because their costs are going
Speaker 1: up more using money. So even no matter how much
Speaker 1: more you're paying the once treans, companies are still losing
Speaker 1: money the past couple of years. So what Geico did
Speaker 1: was they actually reduced a lot of staff, they reduced
Speaker 1: a lot of advertising. We looked at the run rate
Speaker 1: for the year and they spent about one point five
Speaker 1: billion dollars less than their run rate normal expenses just
Speaker 1: in Geico, So that that propped them up a little
Speaker 1: bit too. I would say this though, I think the
Speaker 1: negatives were in the letter actually, So you've got the
Speaker 1: typical Witten wisdom of Buffett in there, which was great.
Speaker 1: He had a little homage to Charlie Munger, you know,
Speaker 1: got a little dusty in my home office. But he
Speaker 1: talks to kind of negatively about the railroad outlook and
Speaker 1: the energy outlook. So labor costs and energy and the
Speaker 1: regulatory environment. I'm sorry, labor costs were in the railroad
Speaker 1: and then the regulatory environment in energy, and those are
Speaker 1: go forward issues which will impact next year. So I
Speaker 1: think that's probably partially why the stock selling off.
Speaker 4: Okay, so let's talk a little bit about the balance
Speaker 4: sheet because a big part of the story to emerge
Speaker 4: after Saturday's letter is the record pile of cash. I mean,
Speaker 4: we're talking one hundred and sixty seven point six billion dollars.
Speaker 4: The problem and Warren Buffets talked about this in the past.
Speaker 4: There's nowhere to put that money.
Speaker 3: There's no where they can UN's saying that for years.
Speaker 1: I say that for a long time, and it's been true.
Speaker 1: So what has been the newer thing? I would say
Speaker 1: in the past may five years, as we're talking about
Speaker 1: private equity bidding up a lot of the companies that
Speaker 1: they're looking at, and they hadn't seen this level of
Speaker 1: competition in years. Besides the fact that you just need
Speaker 1: something gigantic to move the needle for them anyway. I
Speaker 1: mean they bought Allegheny was twelve billion dollars. Their investments
Speaker 1: in these Japanese trading houses are now around twenty billion
Speaker 1: dollars adjusted for currency, and that still doesn't move the needle.
Speaker 1: So I don't think we're going to see anything huge
Speaker 1: anytime soon.
Speaker 3: But what about Oh sorry, Carol, No, no, no, officially because
Speaker 3: I want to go back to actually the railroads and energy.
Speaker 4: I was going to say, yeah, what about increasing Steaks
Speaker 4: and Occidental for example, because they have the option to
Speaker 4: do that, or increasing stakes other companies they have.
Speaker 1: So he talks about I always thought they would buy Occidental, right,
Speaker 1: and now that was I think very very widely speculated. They
Speaker 1: threw cold water on that last year at the annual meeting.
Speaker 1: He actually reiterated it in the letter that we're not
Speaker 1: going to buy the entire company. We love it, but
Speaker 1: we're not going to buy the entire company. I think
Speaker 1: they can. They probably will increase the stake in it
Speaker 1: as much as they can. He also called it a
Speaker 1: forever investment, so that one and the Japan trading houses.
Speaker 1: So I think you'll see stuff like that on the margin.
Speaker 1: Thirteen F came out a couple of days ago before
Speaker 1: there weren't any you know, dramatic new positions in there.
Speaker 1: So it's a great a little bit. Yeah, I mean
Speaker 1: it's a good problem to have, but you know, a problem.
Speaker 3: Nonethelesson not bind Nvidia, like it's not his new Apple
Speaker 3: or anything. Right, No, it's not happening.
Speaker 5: No, I don't think.
Speaker 3: So go back to I mean, what we love about
Speaker 3: this company is that Warren Buffett Berkshire outh we tend
Speaker 3: to really invest in just kind of these core industries
Speaker 3: that often are tell us a lot about the economy,
Speaker 3: So energy, railroad, you said, higher labor costs and energy specifically.
Speaker 1: Energy specifically, so there's the regulatory environment specifically on the
Speaker 1: West coast, so there's a lot of there's wildfires, right,
Speaker 1: and if the utilities end up causing these, they have
Speaker 1: to shoulder a lot of the cost for them. So
Speaker 1: two things. One, Pacific Corp. Which they own, is involved
Speaker 1: in a bunch of litigation they're settling. It's not hugely
Speaker 1: material for the company as a whole, right, It's a
Speaker 1: couple of billion here there. It's not good for Pacific Court,
Speaker 1: but it's not going to hurt Berkshire's financial strength. But
Speaker 1: what Buffett had said was depending on how those fire
Speaker 1: costs end up may determine if we want to make
Speaker 1: further investments. So it was kind of if we get
Speaker 1: banged on this, we may not invest much more.
Speaker 3: Well, that's what I think is interesting. He's not necessarily
Speaker 3: pulling the plug on it, right or backing out. But
Speaker 3: it doesn't necessarily going to pony up more money to it.
Speaker 1: I don't think so. I mean the other thing in
Speaker 1: the railroad you mentioned railroad is constantly consuming capital. It
Speaker 1: wasn't necessarily negative or that things were going poorly there.
Speaker 1: It was just specific two railroads they were having labor
Speaker 1: shortages one and two. He kind of railed against the
Speaker 1: government getting too involved in the labor negotiations and saying
Speaker 1: those keep coming up and those will hurt the margin
Speaker 1: of Burlington Northern, which has trailed Peers historically.
Speaker 4: Just very briefly twenty seconds May fourth, twenty twenty four,
Speaker 4: that's when the annual meeting.
Speaker 5: Is local point next.
Speaker 1: Yeah, well, I want to hear more from g Jane
Speaker 1: and greg Abel.
Speaker 5: They'll be there.
Speaker 1: They were there briefly for the past two years, but
Speaker 1: it would be nice to hear a lot more from
Speaker 1: greg You.
Speaker 3: Do wonder how he pulls those guys in. They obviously
Speaker 3: right are key now to the future of the company.
Speaker 3: But with Charlie Munger and what's happened and his passing,
Speaker 3: how he kind of relies on these guys whether they
Speaker 3: become part of kind of the show if you will, Yeah.
Speaker 1: I mean I hope they will. Honestly, Munger didn't even
Speaker 1: really talk much last time anyway, all.
Speaker 3: Right, gonna leave with them, Matt, Thanks so much. Matt Palizola.
Speaker 3: He's property in casual to insurance Senior Alyss covers Berkshire
Speaker 3: for our Bloomberg Intelligence team right here in studio. This
Speaker 3: is Bloomberg.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: Live weekday afternoons from two to five pm Eastern Listen
Speaker 2: on Apple car Play and then brought auto with a
Speaker 2: Bloomberg Business act or want us live on YouTube.
Speaker 3: Tim Elon Muskin ebies check Elon Muskin satellites and space
Speaker 3: exploration via SpaceX ad check. Then there's the brain Elon's
Speaker 3: neuralleak project.
Speaker 4: Okay, some news there recently too, so we can go
Speaker 4: ahead and say check I think at this point, but
Speaker 4: don't sign me up for it.
Speaker 3: What we haven't earn much about in a while is
Speaker 3: Elon's tunneling venture the Boring Company, That is, until.
Speaker 4: I think it's fair to say uncheck on this one.
Speaker 3: Exactly well, which is why our Bloomberg BusinessWeek team had
Speaker 3: to take do some digging around no pun intended. They
Speaker 3: found out that the Boring Company's tiny Las Vegas loop
Speaker 3: is all that's come of Musk's promise and his promises
Speaker 3: overall to build super fast mass transit hyperloops. Workers say
Speaker 3: it's tunnels, meantime, are packed with chemical slut. Judge this
Speaker 3: is a story by Max Chafkin and Sarah McBride of
Speaker 3: our Bloomberg News team.
Speaker 4: Max is Bloomberg Business We columnists also contributor to the
Speaker 4: Elon Inc. Podcast, a new episode dropping tomorrow onto the
Speaker 4: Bloomberg Terminal and on Bloomberg dot com slash elon Ing.
Speaker 4: Maxis here in our.
Speaker 3: Called the Studge episode.
Speaker 6: It's yeah, it's a sludge special.
Speaker 4: Since we talked about the sledge, we got to start
Speaker 4: with the sludge because it's it's actually kind of serious,
Speaker 4: pretty serious laughing but causes some pretty bad health effects.
Speaker 7: Yeah.
Speaker 6: So, I mean, the genes of this story are these
Speaker 6: documents that we obtained that Sarah McBride and I obtained
Speaker 6: from the state OSHA, that's the Occupational Health and Safety Administration,
Speaker 6: and it basically shows lots of complaints from workers about
Speaker 6: unsafe conditions, including this issue of like these toxic muck,
Speaker 6: which the workers say they've had to wade through. The
Speaker 6: reason it's toxic, it's not it's not necessarily like they're
Speaker 6: doing something that's totally outside the norms of tunneling. These
Speaker 6: chemicals are are sort of standard chemicals that are used,
Speaker 6: but the allegation from the workers is that corners are
Speaker 6: being cut, they're trying to move too fast, they're doing
Speaker 6: it on the cheap, you know. And the funny thing
Speaker 6: about this, or it's not really funny, but these are
Speaker 6: the things that Elon Musk has set out to do
Speaker 6: to some extent, Like the whole point of the Boring Company,
Speaker 6: like many of Musk's companies, has been to cut unnecessary costs.
Speaker 6: The thing that we're hearing with this story, however, and
Speaker 6: I think you see echoes of this elsewhere in Elon
Speaker 6: Musk's empire, actually is that they're not necessarily finding lots
Speaker 6: of innovations there. They're ultimately ending up with a normal
Speaker 6: tunneling company essentially that happens to have a safety record
Speaker 6: that some would say is troubling.
Speaker 4: Okay, So here's what's a little puzzling to me, Max
Speaker 4: Elon Musk is a guy who's literally putting chips in
Speaker 4: people's heads. He's doing something that only until SpaceX did it,
Speaker 4: governments taking a whole of government approach could do. We've
Speaker 4: been able to dig tunnels for transportation purposes for over
Speaker 4: a century. Why is he running into so much trouble here?
Speaker 2: So?
Speaker 6: I think I wrote one of the first stories about
Speaker 6: this back in early twenty seventeen. Talked to Elon Musk
Speaker 6: at the time about this, and just to put a
Speaker 6: slightly different spin on what you just said and which
Speaker 6: relates to this, which is that SpaceX is not the
Speaker 6: first company, not the first private company to build rockets, right,
Speaker 6: the shuttle, all the things that NASA done were built
Speaker 6: by government contractors.
Speaker 4: I guess what I'm saying is that he's doing it
Speaker 4: in a way that is really innovative. Ay, well, yeah,
Speaker 4: very much reusable stuff is that was a really.
Speaker 7: Innovative contracting process.
Speaker 6: They used contracts, they sold them directly the government at
Speaker 6: a fixed price, which was new. But one of the
Speaker 6: core things that SpaceX did was like go out and
Speaker 6: look for existing technology and find a way to improve
Speaker 6: on it and do it cost effectively.
Speaker 7: Now, there are a lot of.
Speaker 6: Potential inefficiencies in the world of aerospace, and.
Speaker 7: Musk has had a much harder time in some.
Speaker 6: Other fields finding similar sort of levels of inefficiency, just
Speaker 6: sort of low hanging fruit. And I think the tunneling
Speaker 6: example is one you know he talked about back in
Speaker 6: twenty seventeen. He talked, you know, it costs a billion
Speaker 6: dollars a year, and it like it takes a mile,
Speaker 6: It takes a year to dig a mile, and it
Speaker 6: costs like a billion dollars a mile or some some
Speaker 6: very large figure like that. And now Boring is doing
Speaker 6: maybe a little better on cost, although it's hard to know,
Speaker 6: but when you look at the actual pace that they're going,
Speaker 6: it's basically a mile a year. It's it's not that
Speaker 6: much faster than existing tunneling projects. And when you look
Speaker 6: at the end result, we're not talking about mass transit.
Speaker 6: We're not talking about you know, big subway cars full
Speaker 6: of people, which is actually what many people in Las Vegas,
Speaker 6: you know, would have hoped for, because traffic there is
Speaker 6: really bad. We're talking about are Tesla's just normal cars
Speaker 6: that can take three people and a driver. They're not
Speaker 6: even driverless, and they're limited to forty miles an hour.
Speaker 6: So we're so far away from the kind of grand visions.
Speaker 6: And just to remind people what Elon Musk originally promised
Speaker 6: here was New York to DC in twenty nine minutes
Speaker 6: San Francisco, Los Angeles.
Speaker 7: Yeah, in thirty five. Sounds awesome.
Speaker 6: You could commute from you know, you could like commute
Speaker 6: halfway across the country, and and you know, it just.
Speaker 7: Hasn't gone that way. And I think, you know, in
Speaker 7: all sorts of.
Speaker 6: Different ways across Elon Musk's empire, you're seeing maybe fissures, cracks,
Speaker 6: ways in which the promises are not necessarily matching up.
Speaker 6: You know, we saw this ruling with pay in Delaware.
Speaker 6: You know, of course, lots of problems documented at x
Speaker 6: slash Twitter. And here you just have like a very
Speaker 6: visceral way where you have these grand promises and the
Speaker 6: end what you have is basically a glorified shuttle bus system.
Speaker 6: It doesn't take you, you know, from one end of
Speaker 6: the country to the other. It takes you from one
Speaker 6: end to the Las Vegas Convention Center to the other.
Speaker 3: Is it just a case of that's all I can
Speaker 3: do so far the plan?
Speaker 6: Yeah, I mean to some extent, yes, I mean the
Speaker 6: thing that if you squint, and I think the reason that.
Speaker 7: This was approved, it's partly that was approved.
Speaker 6: Because Las Vegas is a low regulation city.
Speaker 7: These are mostly on private property.
Speaker 6: There isn't a ton of oversight from the government as
Speaker 6: there might be in other places. But also you know,
Speaker 6: they're talking about opening these stations throughout the city. But
Speaker 6: you know, when we talk to people on the ground there,
Speaker 6: it is a long way from happening. It's also hard
Speaker 6: to see how this is going to make a huge
Speaker 6: impact on traffic. Again, when you're talking about, you know,
Speaker 6: moving people three at a time, very very slowly, A
Speaker 6: lot of things would have to happen, and there are
Speaker 6: lots of reasons for skepticism. I mean, you know, digging
Speaker 6: underground is hard. There's a reason it costs so much money.
Speaker 6: It costs so much money because there's stuff you can
Speaker 6: run into, complicated property rights, and of course.
Speaker 3: So the company's not going to create a trillion jobs.
Speaker 6: Well yeah, which is what Elon Musk told me back
Speaker 6: in twenty seventeen. They were going to create a trillion jobs.
Speaker 6: I'd say, it's a long way from that.
Speaker 7: To put it.
Speaker 6: To put it mildly, I mean, there was sort of
Speaker 6: flirtations or talk of various projects. There was one in Maryland,
Speaker 6: one in Los Angeles, one Chicago, and in all these cases,
Speaker 6: you know, he was bringing along some of the most
Speaker 6: famous politicians in the United States. So it was Larry Hogan,
Speaker 6: you know, governor of Maryland, who former governor of Maryland,
Speaker 6: who was, you know, at the time, a big star
Speaker 6: of the Republican Party, you know, Rama Manuel, you know,
Speaker 6: former chief of staff to President Obama, Mayor of Chicago,
Speaker 6: Eric Garcetti, star mayor of Los Angeles. Like, a lot
Speaker 6: of people went for this and they just you know,
Speaker 6: they haven't been able to deliver. And I think there's
Speaker 6: probably some element of distraction. Obviously Musk has a lot
Speaker 6: going on. And also I think just tunneling this is hard.
Speaker 6: You're dealing with dirt and putting.
Speaker 3: People up in space and stuff in space is really hard.
Speaker 3: Tapping into the auto way industry. I mean, this is
Speaker 3: like going back to Tim's point, right, how many times
Speaker 3: were like, you know, you count out elon Musk or whatever,
Speaker 3: and then he's like, whoa, look what he did. And
Speaker 3: I understand there's a lot on his plate right now
Speaker 3: and that's got to be distracting. But should we not
Speaker 3: rule him out? Has he not found the right boring tool?
Speaker 5: Is?
Speaker 3: What is it? Max?
Speaker 6: Well, I would say, I mean, I think it's there's
Speaker 6: probably a bunch of different factors going on.
Speaker 7: I mean, one thing that was different.
Speaker 6: With SpaceX is you had a very interested buyer, which
Speaker 6: was NASA. You had the US government wanting to finance
Speaker 6: this thing, right, looking for somebody just like Elon Musk,
Speaker 6: and Elon Musk sort of finding a way to fit himself,
Speaker 6: you know, to sort of make himself look like the
Speaker 6: thing that the US government want.
Speaker 7: Elon Musk is really good at this.
Speaker 6: We're seeing this with Starlink as well, where like, you know,
Speaker 6: he's this what would seem like a civilian technology, these
Speaker 6: these internet services for as Musk I told it to
Speaker 6: Walter Isaacson, I think he said, you know, it's to
Speaker 6: Netflix and chill. Increasingly, this looks like a potential military tool.
Speaker 6: This is gonna this is gonna lead to government contracts
Speaker 6: and and and could be a big line of business
Speaker 6: for SpaceX. You know, I think what happened is in
Speaker 6: twenty sixteen and twenty seventeen.
Speaker 7: Donald Trump becomes president.
Speaker 6: There's a lot of talk about infrastructure and in general,
Speaker 6: there's been a lot of talk about wanting to spend
Speaker 6: public money on infrastructure, but there hasn't been a ton
Speaker 6: of delivery, right, And and I think a big part
Speaker 6: of this was predicated on this you know, trillion dollar
Speaker 6: the thing that Trump was saying, which was like a
Speaker 6: trillion dollar infrastructure plan. And you know, ultimately infrastructure, whether
Speaker 6: it's Elon Musk or any one.
Speaker 7: Else, is very expensive.
Speaker 6: It's politically dicey because you have land rights and so on,
Speaker 6: and it it just hasn't come together with the speed
Speaker 6: that SpaceX came together.
Speaker 2: Max.
Speaker 4: I want to dig into something that you said, that
Speaker 4: you mentioned a little earlier, which is the idea that
Speaker 4: back in twenty seventeen twenty eighteen, a lot of politicians
Speaker 4: were kind of jumping up and down with the idea
Speaker 4: of collaborating with Elon Musk. What I noticed in your
Speaker 4: piece is that that tone has totally shifted and they
Speaker 4: are now local politicians who are saying hey, thanks, but
Speaker 4: no thanks.
Speaker 6: Yeah, including the mayor of Las Vegas, who is you know,
Speaker 6: Las Vegas is an interesting place because the city of
Speaker 6: Las Vegas actually doesn't contain most of the Strip, so
Speaker 6: it's not like she has oversight overall this. As I said,
Speaker 6: a lot of it is on public property. But with
Speaker 6: Caroline Goodman, the mayor, longtime mayor, her husband was a
Speaker 6: long time Mariage. She's like one of the probably the
Speaker 6: most famous politician in Las Vegas, is essentially criticizing it
Speaker 6: and criticizing it on the grounds that it's unpractical. She,
Speaker 6: you know, from the start, has raised these safety concerns,
Speaker 6: which I think looks prescient when you look at this,
Speaker 6: oh shut thing and yeah, and she's essentially saying, you know,
Speaker 6: this would be great if it could actually happen, but
Speaker 6: I don't see it. And that again, is that that
Speaker 6: does represent a bit of a departure for Elon Musk.
Speaker 6: You do feel like in Las Vegas at least, you know,
Speaker 6: some of the magic, some of that kind of Elon
Speaker 6: Musk star doest.
Speaker 7: It just doesn't feel quite, you.
Speaker 6: Know, shine quite as brightly. Maybe that's the lights of
Speaker 6: the strip drowning it out. I don't know, but but
Speaker 6: it definitely feels like there's something different.
Speaker 3: Going on there all right. Back to the workers though
Speaker 3: and their conditions. Is this something unusual in terms of
Speaker 3: infrastructure projects? And I'm always a little wary when there's
Speaker 3: a line in your story. Although no one has been
Speaker 3: killed at a boring company work site so far in Vegas,
Speaker 3: it doesn't just speak to how tricky it is.
Speaker 6: Yeah, as I said, these are not like no one's saying,
Speaker 6: they're using chemicals that are worse than anybody else what
Speaker 6: the workers are saying, what you see in these ocean
Speaker 6: complaints are sort of like little things that maybe add
Speaker 6: up to a dangerous situation. And you know, we have
Speaker 6: seen similar stories like this around Tesla's car factories around there.
Speaker 6: You know, Reuter's had a great piece uh some weeks
Speaker 6: ago about you know, death at a SpaceX site. So
Speaker 6: you know, I mean when you're when you're radically trying
Speaker 6: to cut costs, when you're going around telling people that
Speaker 6: the only law that matters are the laws of physics, right,
Speaker 6: I think I think to some extent they're going to
Speaker 6: be costs of that, and we're seeing that, and and
Speaker 6: but we should say, like this isn't This is probably
Speaker 6: more an indictment of Boring Company being less innovative rather
Speaker 6: than it's like the most dangerous place in there.
Speaker 4: You know, there just hasn't been proof rock three yet, Max.
Speaker 4: And that, by the way, is the tunnel boring machine.
Speaker 3: Read the story you'll find out more.
Speaker 4: Yeah, which is you know, promising, over promising and under delivering.
Speaker 7: They have good names.
Speaker 4: Those Ton Sliot would be proud, of course.
Speaker 3: They do, all right, Max, Thank you so much, Max Staffkin.
Speaker 3: He is Bloomberg Business to be Calm, a story featured
Speaker 3: in the new episode of the Elon Inc. Podcast, debuting
Speaker 3: tomorrow on The Bloomberg and at Bloomberg dot Com slash
Speaker 3: Elon Inc.
Speaker 2: Your listening to the Bloomberg Business Week podcast. Listen live
Speaker 2: each weekday starting a two pm Eastern do applecar Play
Speaker 2: and Android Auto with the Bloomberg Business ad. You can
Speaker 2: also listen live on Amazon Alexa from our flagship New
Speaker 2: York station, Just Say Alexa playing Bloomberg eleven thirty.
Speaker 7: Joel.
Speaker 4: I don't know if you saw this over the weekend,
Speaker 4: but actually you definitely didn't because it happened like in
Speaker 4: the middle of the night and you hopefully, yeah, hopefully
Speaker 4: you're asleep. Micro Strategy, it's the largest publicly held corporate holder.
Speaker 4: Bitcoin suffered a hack on its x account that tricked
Speaker 4: some people into handing over a total of more than
Speaker 4: four hundred one thousand dollars to the attacker.
Speaker 3: Not good, right, the account was compromised. That's pretty amazing,
Speaker 3: and they're not alone. Listen. Some of the other instances
Speaker 3: of hacking in the corporate world in the last couple
Speaker 3: of weeks alone include the Danish it and consulting company
Speaker 3: net Company, a cyber attack against the division of United
Speaker 3: Health Group, and hackers believe to be part of a
Speaker 3: cybercrime group gaining access to some of Prudential's IT system.
Speaker 3: I mean, there's constantly a lot going on.
Speaker 4: Yeah, no question, the hackers are getting more and more
Speaker 4: sophisticated and going after more and more valuable data. That's
Speaker 4: certainly what IBM's X Force, the form of the firm's
Speaker 4: threat intelligence service, has found. We've got with us Charles Henderson,
Speaker 4: global managing Partner and a head of X Force at IBM.
Speaker 4: He joins us from Austin, Texas. Good to have you
Speaker 4: with us this afternoon, Charles, how are you hey.
Speaker 5: I'm doing great. Thanks for having me again.
Speaker 2: Yeah.
Speaker 4: So every year you guys come out with this sort
Speaker 4: of state of the landscape, and you know, I was
Speaker 4: actually surprised to see that it's ransom attacks went down
Speaker 4: in twenty twenty three, but not necessarily down for a
Speaker 4: good reason. The idea is that they're sort of like
Speaker 4: becoming more sophisticated.
Speaker 5: Here.
Speaker 4: So let's take a step back and just think about
Speaker 4: the landscape out there, because each and every day it
Speaker 4: does seem like there's another hacking story.
Speaker 8: Yeah, you know, what's old is new again. And I
Speaker 8: think what you're seeing is not necessarily a change in crime,
Speaker 8: but it's a change in monetization strategy. The cyber criminals
Speaker 8: are getting some headwinds and the market forces dictate a
Speaker 8: change from ransomware, where you have governments that are stepping
Speaker 8: in and saying, hey, we're going to forbid you from
Speaker 8: paying the ransom. You have organizations that are better suited
Speaker 8: to just recover from backup or really anything but pay
Speaker 8: the ransom. And you're seeing attackers change their business strategy
Speaker 8: to accommodate.
Speaker 5: A changing work.
Speaker 3: Okay, so it's interesting, right in terms of some of
Speaker 3: the shifts, I guess what really kind of freaked us
Speaker 3: out or me out specifically is the exploiting of identity.
Speaker 3: And I just think about how increasingly so much of
Speaker 3: us have loaded everything and anything in our world, a
Speaker 3: lot of it financially connected or related, onto our phones. Right,
Speaker 3: And we've got Norton, we've got different types of systems
Speaker 3: in terms of storing our passwords and so on and
Speaker 3: so forth, but nonetheless, are identity, it sounds like, is
Speaker 3: increasingly at risk. What have you guys found out give
Speaker 3: us some color around the number alone.
Speaker 8: So normally, when I get up here and I say, hey,
Speaker 8: there's a five or ten, maybe even a twenty percent
Speaker 8: increase in something, that's a signal that you should be
Speaker 8: paying attention.
Speaker 5: Right, Well, we.
Speaker 8: Have a seventy one percent increase in credential based attacks.
Speaker 8: That's where somebody takes a valid credential set and just
Speaker 8: logs in.
Speaker 5: And the truth of the matter is that logging in.
Speaker 8: Is a lot easier than breaking okay, and once you
Speaker 8: have valid credentials, you really render a lot of the
Speaker 8: primeter defenses useless because a lot of these detection and
Speaker 8: response capabilities are centered around finding things that look abnormal,
Speaker 8: and a log in is just the system behaving normally.
Speaker 8: And a lot of this comes back to the fact
Speaker 8: that we're not using multi factor authentication. Users have a
Speaker 8: tendency to reuse passwords, and when passwords are compromised, there
Speaker 8: aren't a lot of organizations that are checking to make
Speaker 8: sure that those compromised passwords are not still use.
Speaker 5: In their vice.
Speaker 3: Well, I'm also amazing how much I get something in
Speaker 3: the mail or some kind of email. Oh, by the way,
Speaker 3: you know, our systems were compromised and it was your
Speaker 3: information and here I'm finding about it, you know, several
Speaker 3: weeks after the fact.
Speaker 7: I mean, so be vigilant.
Speaker 3: Yeah, thanks to be more specific in terms of what
Speaker 3: kinds of things are to your awareness are being targeted.
Speaker 8: So you know, the world at large suffers a lot
Speaker 8: of breaches, and each time a breach occurs, information is
Speaker 8: in it, and the attackers are taking that information and
Speaker 8: selling it on the black market, on the dark web,
Speaker 8: and a lot of it is prudentials, and prudential sets
Speaker 8: have escalated in value because criminal organizations are becoming adept
Speaker 8: at using those credentials to affect a breach. They're using
Speaker 8: it as their initial point of access. And essentially, when
Speaker 8: you have valid credentials and you know that users are
Speaker 8: going to reuse passwords, it becomes really easy. We're taking
Speaker 8: an already stat deck and we're really giving the criminals
Speaker 8: a real advantage.
Speaker 4: My concern, Charles, is less about you know what I'm
Speaker 4: doing right now to keep myself safe. I'm pretty confident.
Speaker 4: Well I shouldn't say that because then everyone's going to
Speaker 4: try to attack me. But anyway, my bigger concern is
Speaker 4: like what's already out there and I always get like,
Speaker 4: you know, these annoyed like I was at the dentist.
Speaker 4: I think I shared this story its a dentist a
Speaker 4: couple of years ago, and they're like, we need your
Speaker 4: social Security number and there's no way I'm giving you
Speaker 4: my social Security number. You're a dentist, Like you're good
Speaker 4: at filling cavities, but I have no idea how good
Speaker 4: you are accum You never except yeah, like I need
Speaker 4: it for the insurance. And I'm like, really, if you do,
Speaker 4: then I'm not going to come here. And he's like, Okay,
Speaker 4: we don't need it for the insurance, Like we'll figure
Speaker 4: that out another way. But it's like, never give out
Speaker 4: your socials. But it's out there, that's the problem, and
Speaker 4: then it gets stolen, and I mean, what's it. What's
Speaker 4: a consumer to do?
Speaker 5: Well?
Speaker 8: You know, first of all, I think I think you
Speaker 8: had a great strategy there, which is just don't give
Speaker 8: the private information that you don't need to give. Secondarily,
Speaker 8: there's some information that you may have given out. Maybe
Speaker 8: you have a password that you use more than once,
Speaker 8: and I know we tell you not to do it,
Speaker 8: but statistics show you're going to do it well every time.
Speaker 8: You get a note that says your information has been breached,
Speaker 8: that's a great time to rotate all your passwords. Okay,
Speaker 8: and at the very least look at the password you
Speaker 8: are using in the Bridge account make sure you're not
Speaker 8: using it elsewhere. Similarly, you can start to think about
Speaker 8: the type of information that may be exposed in a
Speaker 8: given breach and ensure that you understand what your exposure is.
Speaker 3: Is artificial intelligence helping fight against a cyber attax or
Speaker 3: is it helping to stimulate and increase the frequency and
Speaker 3: maybe even the sophistication of cyber attacks? And yes, yes
Speaker 3: is a good answer too.
Speaker 8: Yeah, there's three real I think pillars of AI if
Speaker 8: you want to think about it.
Speaker 5: When it comes to security.
Speaker 8: There's AI as a target, there's AI as a tool
Speaker 8: to prevent attacks, and there's AI abating an attack. And
Speaker 8: right now we're in the very early stages of AI,
Speaker 8: and we really haven't seen AI used in massive attacks
Speaker 8: just yet. That said, you know, we've seen it used
Speaker 8: maybe in helping to craft phishing emails as an example
Speaker 8: of a foreign language. That's not to say it won't
Speaker 8: be used, it's just an early phase of adoption. Secondly,
Speaker 8: we have AI used in defense, So AI used in
Speaker 8: defensive attack. You're really starting to see that blossom. And
Speaker 8: the hope is that the security industry can stay ahead
Speaker 8: of attackers in leveraging AI. And then finally you have
Speaker 8: AI as a target for attack. And it's really important
Speaker 8: that we start looking at the supporting infrastructure that we're
Speaker 8: using in a lot of these AI instaf and say, hey,
Speaker 8: have we thought.
Speaker 5: About security there?
Speaker 8: Not to mention the AI itself, but you know, think
Speaker 8: about all the things you used to train AI or
Speaker 8: to host the functionality of AI. There's a lot of
Speaker 8: attack surface there. And as we rush to this this
Speaker 8: new market, we want to make sure that we're doing
Speaker 8: it responsible.
Speaker 4: Charles, how concerned are you about spoofing? And I'm not
Speaker 4: just I don't just mean spoofing when it comes to
Speaker 4: you know, the caller ID says Amazon's calling and it's not,
Speaker 4: you know, really Amazon. More so when it comes to
Speaker 4: the voice stuff, and you know, we had that robook
Speaker 4: call earlier this year during the New Hampshire primary that
Speaker 4: was not actually Joe Biden but sounded like President Biden.
Speaker 4: And then you have all these you know, people who
Speaker 4: are saying, okay, you know, I didn't know if my
Speaker 4: son was actually in jail, and I got this call
Speaker 4: that said he needed money, and those sorts of things
Speaker 4: that used to be emails that you could ignore, but
Speaker 4: now they're getting pretty sophisticated.
Speaker 5: You know.
Speaker 8: I think there's a learning curve on the part of
Speaker 8: the general population there in terms of, hey, these things
Speaker 8: can be faked.
Speaker 1: You know.
Speaker 8: Ten years from now, I think we'll have a deep
Speaker 8: understanding collectively as a society that just because you hear
Speaker 8: or see something on video or audio doesn't mean that.
Speaker 5: There's a high fidelity to it. It can be faked.
Speaker 8: And I think that until we get to that learning curve,
Speaker 8: there's certainly going to be abuse of the ability to
Speaker 8: use AI and other technologies to fake audio and video.
Speaker 3: Hey, one last thing, Europe feeling the brend to the
Speaker 3: cyber attacks. According to you guys your report and when
Speaker 3: you're finding is making up thirty two percent of global incidents.
Speaker 3: Why and how is the US doing? And we just
Speaker 3: have about a minute or so left here, So.
Speaker 5: The US is right behind them.
Speaker 8: So don't breathe a sigh of relief just yet this year, essentially,
Speaker 8: or in twenty twenty three, essentially, Asia, pac and Europe
Speaker 8: switch places. Some of that can be geopolitical tension, other
Speaker 8: can just be following the money trail and you know,
Speaker 8: easy targets. At the end of the day, attackers are
Speaker 8: going to take the path at least resistance.
Speaker 3: One last piece of advice for those of us who
Speaker 3: are worried about our identity being stolen, Just a quick
Speaker 3: piece of advice thirty seconds. Is it just simple? Passwords?
Speaker 3: Be smart folks.
Speaker 5: Passwords is a great start.
Speaker 8: First of all, use unique passwords, complicated passwords, all of that.
Speaker 5: But most of the organizations you deal with.
Speaker 8: Will offer multi factor authentication as an option, if not
Speaker 8: require it. Just because they don't require it doesn't mean
Speaker 8: you shouldn't be using it. Enable multi factor authentication. It
Speaker 8: only works if you enable it.
Speaker 3: Agreed. I kind of love it.
Speaker 4: I do too, I do it for everything.
Speaker 3: I'm like, okay, okay, hey, we.
Speaker 4: Got to hear on the Bloomberg terminal, every time you
Speaker 4: log in rights your password, you get your fingerprint.
Speaker 3: It's really cool.
Speaker 5: Or you can use the iPhone out.
Speaker 3: No, it's good and it's super super secure.
Speaker 7: Muck a journal.
Speaker 3: How about you let me drive? Oh no, no, no, no, who's.
Speaker 2: Going all right, please, I'll do the gravel wat I
Speaker 2: want to drive.
Speaker 4: It's a good question.
Speaker 2: Which is the drive to the globe down?
Speaker 5: Thing?
Speaker 2: Well by around on Bloomberg Radio.
Speaker 3: All right, everybody just got about eighteen minutes left in
Speaker 3: today's trading session. Carol Master along with Tim Stenovik, Charlie
Speaker 3: of course, just breaking down the numbers. We were just
Speaker 3: talking with our Bill Maloney uh and Jess who covers
Speaker 3: the markets. Uh goes on the Squawk and talks about
Speaker 3: interesting trends and stories.
Speaker 4: We squawks on the weekends.
Speaker 7: He does, there's news.
Speaker 3: He's kind of NonStop. But it's just he said today,
Speaker 3: it was like you kind of were searching for things
Speaker 3: to talk about. Although he did note bitcoin topping fifty
Speaker 3: three thousand, reaching the highest in more than two years.
Speaker 4: It gives me something to think about, that's it. Yeah,
Speaker 4: what maybe like a little comment about bitcoin during the
Speaker 4: close today and we'll see they're like we need those
Speaker 4: dueling comments. Hey, I know somebody who has their eye
Speaker 4: on the markets all the time. That's An Maletti, head
Speaker 4: of active equity at all Spring Global Investment. She joins
Speaker 4: us from Wisconsin and good to have you with us
Speaker 4: this afternoon.
Speaker 3: How are you good? Thanks for having me back.
Speaker 4: Okay, quiet day, But that's okay because not every day
Speaker 4: can be like what we saw last week. You're arguing
Speaker 4: that the sign that we're seeing that breath is expanding
Speaker 4: when it comes to the rally that we've seen so
Speaker 4: far this year, bodes well for stocks moving forward this year.
Speaker 9: I do think it does. Signs of breath are generally positive.
Speaker 9: We saw a lot of concentration, as everyone knows, that
Speaker 9: was the theme of twenty three the Magnificent seven. What
Speaker 9: quietly started to happen in October of last year is
Speaker 9: a broadening out and it's something that we talked about
Speaker 9: in our outlook piece for twenty twenty four that we
Speaker 9: really believe that would be the trend for twenty twenty four,
Speaker 9: that especially in the small and mid cap space, that
Speaker 9: those areas of the market that had been ignored would
Speaker 9: start to outperform in twenty twenty four. And that's what
Speaker 9: we've started to see kind of quietly, and name by name,
Speaker 9: which is another thing that I think is warranted. Fundamentals
Speaker 9: do matter, valuations do matter, and we're starting to see that.
Speaker 9: And so for the last I think eleven of the
Speaker 9: thirteen eleven of the last thirteen weeks, we've seen the
Speaker 9: S and P mid cap index outperform. We're kind of
Speaker 9: nearing where the high was in November of twenty twenty one,
Speaker 9: so not quite at that peak, but close to that peak.
Speaker 9: And the Russell two thousand even, you know, continues to
Speaker 9: look attractive. You know, people forgot that we've been in
Speaker 9: a bear market for the Russell two thousand one that
Speaker 9: lasted twenty three months, and that's a long time. The
Speaker 9: average bear market for the Russell two thousand typically lasts
Speaker 9: eleven months, where the typical bull market for the Russell
Speaker 9: two thousand last thirty five months. And so you know it,
Speaker 9: just the rally started in October, we're early into it.
Speaker 9: And so if fundamentals and the macro economy can stay strong,
Speaker 9: I think the quiet areas of the market are the
Speaker 9: places to be and in the places that have been
Speaker 9: ignored are still the places to be.
Speaker 3: And so I was just want to go what's been
Speaker 3: the good of the market so far in terms of
Speaker 3: trends and maybe just I was gonna say technicals, but
Speaker 3: we don't have to go there. But just in terms
Speaker 3: of fundamentals, what's been the bad of the market so
Speaker 3: far this year, because if I look at the S
Speaker 3: and P five hundred, most of the major industry groups
Speaker 3: are higher by a lot so far this year. And
Speaker 3: then we've got like real estate utilities at the bottom
Speaker 3: of the pack losing some ground, and we kind that
Speaker 3: makes some sense in terms of the interest rate environment.
Speaker 3: But what is the good and bad of the market
Speaker 3: so far?
Speaker 9: Yeah, Carol, it's a great question, and what I really like,
Speaker 9: as you point out, it's hard to see it when
Speaker 9: you look at the suctor level, but the good and
Speaker 9: the bad really is happening kind of at the company level,
Speaker 9: and you're even caring about it. You guys talk about
Speaker 9: it every afternoon when you talk about earnings, and you're
Speaker 9: seeing earnings react to what the company is delivering on
Speaker 9: and so if the company is actually delivering and producing
Speaker 9: growth and earnings, then the company is getting rewarded. And
Speaker 9: that wasn't always the case. In twenty twenty four for
Speaker 9: the small and MidCap space, you are seeing multiple compression
Speaker 9: even if the companies were performing, even if they were
Speaker 9: delivering earnings. Where in the meg seven stocks, yes they
Speaker 9: were delivering earnings, but you were also seeing huge multiple expansion,
Speaker 9: and so fundamentals are really starting to matter, so is valuation.
Speaker 3: I would say there are.
Speaker 9: Still some areas of the market that look attractive to us.
Speaker 9: You can't ignore technology, so I'll just throw that out there.
Speaker 9: Our managers certainly are still interested in technology, but it's
Speaker 9: not necessarily just a few select names. They are looking
Speaker 9: down cap and looking at technology names, and it's because
Speaker 9: margins are really strong in those areas, in that area
Speaker 9: in particular. And we think sustainable healthcare, though, is kind
Speaker 9: of about the other end of the spectrum. It has
Speaker 9: been the area that's been the baby thrown out with
Speaker 9: the pathwater. In some cases, fundamentals weren't the greatest in
Speaker 9: twenty twenty three. They were hurt by a lot of
Speaker 9: factors lower utilization, post COVID, etc. But we're starting to
Speaker 9: see utilization pick up. I think also the fears of
Speaker 9: the GLP one drugs now is starting to get sorted out,
Speaker 9: like what might be reality and what might be just
Speaker 9: kind of like fear. And when you look at Earning's
Speaker 9: growth projections for twenty twenty four, healthcare has one of
Speaker 9: the best expectations for Earning's growth, and so that is
Speaker 9: an area that I would say, generally speaking, our managers
Speaker 9: are also very interested in.
Speaker 3: Well and it's actually the third best performing major industry
Speaker 3: out of eleven in the S and P five hundred
Speaker 3: as a whole, up about seven point seven percent. And
Speaker 3: it's interesting. I love that you went there because it's
Speaker 3: I feel like there's been so much news. There's been
Speaker 3: a fair amount of M and A activity like within
Speaker 3: the space, so you definitely see some things moving around.
Speaker 3: Where do you not want to be right now?
Speaker 9: I think the areas of the market where you really
Speaker 9: just want to stay away from kind of factor into
Speaker 9: that low quality space. And I know that's kind of
Speaker 9: a generalization, so let me just define that a little bit. Certainly,
Speaker 9: I would be fearful our managers are kind of shining
Speaker 9: away from companies that don't have great balance sheets, the
Speaker 9: where cash flow, where free cash flow is kind of
Speaker 9: on the decline, where the competitive situation for companies doesn't
Speaker 9: look great. And so I know it's easy to kind
Speaker 9: of go to low quality when the market is rallying
Speaker 9: like this, because that's where you think you're going to
Speaker 9: get the biggest bang for your buck. But I don't
Speaker 9: think that's a good long term strategy because the macro
Speaker 9: environment is still certain. So generally speaking, I would stay
Speaker 9: away from anything that appears to be low quality, and
Speaker 9: that's what our managers are doing. I do think the
Speaker 9: utility space has been a little bit more difficult, as
Speaker 9: you pointed out, because of rates that you know probably
Speaker 9: will stay that way for a good portion of the year,
Speaker 9: but you know it does have a yield and you
Speaker 9: know at a certain point that's going to be attractive
Speaker 9: to Hey, and.
Speaker 4: Just thirty seconds left, our team breaking the news that
Speaker 4: Charter Communications is said to weigh a takeover of ALTCUSA.
Speaker 4: You argue that M and A is going to start
Speaker 4: accelerating in the later half of the year. Where should
Speaker 4: we be looking for M and A.
Speaker 9: I think, you know, healthcare is definitely one of the
Speaker 9: places technology as well, but I think we're going to
Speaker 9: see it across the board. Companies and CEO CFOs tend
Speaker 9: to get a little bit more optimistic once we see
Speaker 9: rates stabilize and once they think that the economy is
Speaker 9: pretty stable, and so I think the setup is pretty
Speaker 9: ripe right now for M and A.
Speaker 3: Hey, ten seconds M and A activity that we are seeing,
Speaker 3: that's a good market side that's a positive. Correct, Yes,
Speaker 3: it is so a great sign. All right, good stuff.
Speaker 3: Thank you covered so much ground as we always do
Speaker 3: with Anna Maleetti, and take care be well. A Maleetti,
Speaker 3: head of Active Equity over an all Spring Global Investments,
Speaker 3: joining us from a Nominee Falls, Wisconsin.
Speaker 2: This is the Bloomberg Business Week podcast, available on Apple, Spotify,
Speaker 2: and anywhere else you get your podcasts. Listen live weekday
Speaker 2: afternoons from two to five pm Eastern on Bloomberg dot Com,
Speaker 2: the iHeartRadio app, tune In, and the Bloomberg Business App.
Speaker 2: You can also watch us live every weekday on YouTube
Speaker 2: and always on the Bloomberg journyalone