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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moving news.

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Speaker 1: Find the Bloomberg Markets Podcast called Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 1: JP Morgan Equity BQ. That gives me my Bloomberg quote,

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Speaker 1: which is my go to quote for any security I

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Speaker 1: pop in there. It's up like one tenth to one

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Speaker 1: percent today, it's up four percent year to date. Aren't

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Speaker 1: they having an investor day today? Shanli bassk you cover

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Speaker 1: all the Wall Street stuff I was expecting. Maybe not

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Speaker 1: a bombshell, but can I have a little bit of

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Speaker 1: excitement coming out an investor day?

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Speaker 3: But so far not so much.

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Speaker 4: I mean JP Morgan makes money, big deal. No, I'm kidding, Hi, Well,

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Speaker 4: that's the thing.

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Speaker 5: I mean.

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Speaker 4: JP Morgan the typically when they do investor Day, you've

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Speaker 4: got a lot of detail about how they're managing the

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Speaker 4: business line by line, business by business, executive by executive.

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Speaker 4: But you know, they they have not been known to

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Speaker 4: sit there and throw out massive, big targets on a

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Speaker 4: fester day. They have reiterated the targets that've set, but

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Speaker 4: they have a one target I think in particular is important.

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Speaker 4: It's the twenty twenty three that interest income expectation. They're

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Speaker 4: expected to make more, and it's because of that First

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Speaker 4: Republic deal. You would expect some of that, but it's,

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Speaker 4: to your point here, somewhat muted because there is still

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Speaker 4: a lot of uncertainty and JP Morgan's executives tell you

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Speaker 4: all about it.

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Speaker 1: So there haven't been any bombshells yet, have there from

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Speaker 1: this acquisition of this bank. I mean they kind of

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Speaker 1: sometimes you go when there and you're like, uh, oh,

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Speaker 1: you know, but they didn't have any of that so

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Speaker 1: far at least.

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Speaker 4: I think what it will be is a matter of

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Speaker 4: showing just how much this will move the deal for

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Speaker 4: JP Morgan overtime. You think back to bear Stearns, for example,

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Speaker 4: and it wasn't immediately clear, especially when on the horizon

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Speaker 4: there were so many hiccups to work through just how

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Speaker 4: much of a huge strategic change bear Stearns would be

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Speaker 4: have made them one of a the top fixed income

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Speaker 4: trading house on Wall Street. It now is making them

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Speaker 4: such a competitive institutional broke if you will, you know,

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Speaker 4: just at the heart of capital markets, competing with the

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Speaker 4: investment bank. But First Republic will really make it a contender,

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Speaker 4: bigger and bigger in wealth, wealth and consumer.

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Speaker 1: Here, I'm just looking at a red headline going across

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Speaker 1: the Bloomberg terminal. Biden, We'll meet with McCarthy at five

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Speaker 1: thirty pm today Wall Street time to discuss the debt limits,

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Speaker 1: so we'll have more reporting on that. But that seems

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Speaker 1: like a move in the right direction. Pretty gup that

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Speaker 1: joints us here Bloomberg Interactior broker students just coming off

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Speaker 1: the TV screen. So Creta's just talking to Shanali here.

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Speaker 1: Not a whole lot of action coming out of the

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Speaker 1: JP Morgan. I wanted to ask you about a smaller

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Speaker 1: deal green Hill, Mizuho Bying green Hill. Now green Hill

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Speaker 1: is only it's a small company, it's less than a

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Speaker 1: billion dollar market cap, but it's Bob Greenhill, who was

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Speaker 1: a just a.

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Speaker 3: Legendary deal maker.

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Speaker 1: They were one of the first boutique investment banks to

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Speaker 1: come public like twenty years.

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Speaker 3: Ago or something.

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Speaker 4: There's a reason, and I've got to say I thought

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Speaker 4: the story would do well. It is the most read

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Speaker 4: on the terminal already and within a couple of hours here,

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Speaker 4: and the reason is, Yes, Bob Greenhill, he was a

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Speaker 4: bank over the Sumner red Stone. He was a banker

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Speaker 4: to Sandy while he was really in that era of

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Speaker 4: legendary investment bankers Morgan Stanley former Morgans only left out

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Speaker 4: on his own form green Hill and Company. And yeah,

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Speaker 4: it was one of the original boutiques and one of

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Speaker 4: the first to go public, really the first in this generation,

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Speaker 4: and it inspired others like Evercore, PJT. Hulahan, Loki Mulison

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Speaker 4: Company to go public too. So it's really an end

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Speaker 4: of an era for a public run for green Hill

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Speaker 4: in Company, but really a tough decade. Paul, Yeah, I mean.

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Speaker 3: I'm just looking at the stock price chart.

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Speaker 1: I mean it's you know, they're getting paid double where

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Speaker 1: they closed on Friday, but still it's a fraction of

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Speaker 1: where was it its peak.

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Speaker 4: I mean, in the heat in the aftermath of the

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Speaker 4: financial crisis, this was a stock at more than eighty

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Speaker 4: one dollars a share on Friday. It closed at less

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Speaker 4: than seven dollars a share, So that just shows you

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Speaker 4: how far they had come. And remember, investment bankers are

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Speaker 4: partly paid in equity of their own investment banks, so

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Speaker 4: it's a tough retention tool when you're facing that much

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Speaker 4: pressure on your stock price.

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Speaker 6: So one of the key takeaways I'm going to bring

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Speaker 6: back to JP Morgan here because five hundred and fifty

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Speaker 6: million dollars from a Zoho. But it feels like JP

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Speaker 6: Morgan all eyes on Jamie Diamond, especially with geopolitics kind

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Speaker 6: of rearing its ugly head once again. What is the

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Speaker 6: JP Morgan take on China?

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Speaker 4: You know, it's funny you keep on asking that to

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Speaker 4: take unt I know, I'm you're so convinced that the

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Speaker 4: investment banks are stepping away at full scale.

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Speaker 6: Well, so the reason I ask is because it feels

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Speaker 6: like we're headed towards a and correct me if I'm wrong.

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Speaker 6: It does feel like we're headed towards an era or

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Speaker 6: a couple of decades where you do start to see

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Speaker 6: this kind of de globalization, right, it's been in the

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Speaker 6: works for the past couple of years as well.

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Speaker 1: I can't remember.

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Speaker 6: I think you might be the one of who showed

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Speaker 6: me this, or maybe someone else said. But when you

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Speaker 6: look at the league tables, a lot of the deal

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Speaker 6: volumes fallen in Asia specifically. I'm not sure whether that's

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Speaker 6: a function of kind of recession or these late COVID

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Speaker 6: measures or things.

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Speaker 4: Let me give you the let me give you the

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Speaker 4: bold case, because you have seen a lot of hedge

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Speaker 4: funds come back into China. You have seen a lot

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Speaker 4: of big investment managers hold tight into China even amid

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Speaker 4: all these uncertainties. When you're a banklet Morgan listen to

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Speaker 4: your America's biggest bank. America is your biggest market. A

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Speaker 4: city group, however, is a little more diversified. They have

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Speaker 4: a lot more global businesses. The reopening of China has

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Speaker 4: been so far a pretty big boon to activity, and

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Speaker 4: not just in China, in Europe pretty where the investment

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Speaker 4: banks are also trying to double down. I think the

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Speaker 4: bigger question here is one how global supply chains start

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Speaker 4: to untangle, and then also geopolitical risks, because the big

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Speaker 4: whale in the room is China's relationship to Taiwan. And

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Speaker 4: again we've been talking about this a lot. The US

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Speaker 4: bank CEOs have been grilled on Capitol Hill asking what

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Speaker 4: they would do in that event, and it's a complicated question.

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Speaker 4: Because they answer really is nothing. That is the real answer,

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Speaker 4: and it's because they follow what the US regulators would

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Speaker 4: make them do, which at this point in time is nothing.

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Speaker 6: Well, how does that work exactly? When you kind of

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Speaker 6: let's say they have these deals or even assets sitting

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Speaker 6: in China in that kind of scenario, just play this

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Speaker 6: out for me, worst case scenario. I mean, what happens

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Speaker 6: to those assets? I mean when I'm kind of comparing

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Speaker 6: this to and correct me if I'm wrong, if this

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Speaker 6: is an extreme example, but kind of the bank presence

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Speaker 6: in Russia, for example, would we see something similar.

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Speaker 4: I think that's a long shot. I think that it

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Speaker 4: would be a long shot to equate the two. It

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Speaker 4: would take a lot. But it is on the surface,

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Speaker 4: it is under the minds, on the minds of many executives.

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Speaker 4: But the idea of it getting to that point is

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Speaker 4: still not the immediate concern because it's not happening. And

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Speaker 4: China is such a whale in the room, the activity

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Speaker 4: of China as a global force in the economy, the

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Speaker 4: demographics being more on their side than in the United States.

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Speaker 4: I'll give you another example of this. Let's not take

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Speaker 4: JP Morgan. Let's take credit Sweez Credit Squeze. When they

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Speaker 4: tried to build another investment bank, they tried to do

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Speaker 4: it with a firm that focused only in China and

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Speaker 4: Saudi Arabia based in New York City. I don't know, Critty,

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Speaker 4: that doesn't show me a story that is trying to

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Speaker 4: untangle from the rest of the world.

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Speaker 1: Chani Bask thanks so much for joining as Shannalani Basic.

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Speaker 1: She covers all things Wall Street Today, giving us the

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Speaker 1: latest reporting JP Morgan again. They're having an investor day

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Speaker 1: ongoing today in New York City, as I recall, so

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Speaker 1: getting all their investors and analysts together talking about the future.

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Speaker 1: Maybe go take a tour of their new headquarters, which

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Speaker 1: is being built on Park Avenue. It is awesome. I

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Speaker 1: can't wait to see what it looks like when it

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Speaker 1: opens up, but I'm sure it'll be state of the art.

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Speaker 7: You're listening to the team Ken's are Live program Bloomberg

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Speaker 7: Markets weekdays at ten am Eastern.

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Speaker 8: On Bloomberg dot Com, the iHeartRadio app, and the Bloomberg

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Speaker 8: Business App.

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Speaker 7: Or listen on demand wherever you get your podcasts.

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Speaker 1: Do we want to talk energy, We want to talk

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Speaker 1: ETFs and so we want to do that. We talked

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Speaker 1: to Will Ryan. He's the chief executive officer of Granite

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Speaker 1: Shairs Advisors. He joins us live here in our Bloomberg

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Speaker 1: Interactive Burger studio. So Will on the commodities front here,

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Speaker 1: I want to start with gold. Our commodities analyst here,

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Speaker 1: Mike McLoone of Bloomberg Intelligence. He says, basically, buy gold

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Speaker 1: and short everything else, including the oil. Talk to us

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Speaker 1: about gold. What's your call there?

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Speaker 3: What are you guys thinking about that?

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Speaker 9: Well?

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Speaker 10: Gold right now? I mean the biggest concern for I

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Speaker 10: think point most people in the market, but certainly for

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Speaker 10: those who are interested in gold is the debt ceiling.

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Speaker 10: Because you may remember that back in twenty eleven when

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Speaker 10: the US ultimately defaulted and sorry, as you say, the

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Speaker 10: credit rating was downgraded for the first time. That propelled

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Speaker 10: gold to at the time high and so clearly if

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Speaker 10: there was any breakdown and talks and a deal doesn't

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Speaker 10: get done, fears that that could happen again certainly elevates

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Speaker 10: that premium for people looking for a hedge in gold.

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Speaker 6: How does that work exactly? When you invest through the

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Speaker 6: ETF space, it feels like there's that one ETF that

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Speaker 6: everyone uses for gold, But then if you're doing any

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Speaker 6: other sort of commodities, ETFs aren't really the vehicle to use.

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Speaker 10: Right, I guess it sort of depends, because you know,

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Speaker 10: the beauty of gold and the beauty of precious metals

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Speaker 10: is that their natural state after they've been mined is

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Speaker 10: you can store it in a vault. So the bars

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Speaker 10: that you can put in a vault, they won't decay,

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Speaker 10: nothing will happen to them unless they're you know, clearly

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Speaker 10: something nefarious, and so they're ideal to hold in a

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Speaker 10: fund that's a natural investment state. When you go outside

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Speaker 10: of precious metal, as you're dealing with commodities that can

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Speaker 10: decay or even die, you know, that's a different proposition.

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Speaker 10: And typically the way that we address that is via

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Speaker 10: the futures market. And so you're talking about broad commodity

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Speaker 10: TF or even an ETF on oil, et cetera.

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Speaker 6: That's typically done like you isn't Wasn't there kind of

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Speaker 6: a famous story about copper ETF's not working for that

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Speaker 6: exact reason that they fall apart or something that the

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Speaker 6: storage becomes an issue.

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Speaker 10: That's right, So you know they're a physical any physical

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Speaker 10: backed physically backed commodity is clearly going to be challenged

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Speaker 10: to the extent that there's a challenge on securing supply.

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Speaker 10: So if you can imagine something like copper, the price

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Speaker 10: of a pound of copper is clearly materially different from

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Speaker 10: you know, gold, so you need a lot more storage

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Speaker 10: for the same weight of metal as you do in gold.

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Speaker 10: And so it's not to say that you can't do that.

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Speaker 10: You can, it's just that it's going to be logistically

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Speaker 10: a lot more challenging than providing storage for gold.

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Speaker 1: Touch on a platinum, that's what we hear. I hear

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Speaker 1: more and more about and you've guys have got the

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Speaker 1: granite shares platinum trust. Why would I want to have

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Speaker 1: exposure to platinum here.

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Speaker 10: Well, platinum's a really interesting one because the fundamentals for

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Speaker 10: this year we're expecting a big deficit, so in other words,

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Speaker 10: more demand than we have supply for this year, so

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Speaker 10: automatically for any commodity, that puts you on a firm footing.

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Speaker 10: What's interesting is the majority of platinum comes from South

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Speaker 10: Africa and at the moment they're having very very big

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Speaker 10: issues with energy supply to the sector, so you're seeing

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Speaker 10: that manifesting in blackouts across the country, but particularly obviously

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Speaker 10: is it pertains to the production itself. So once you

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Speaker 10: have energy blackouts, that that affects mind supply and so

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Speaker 10: the outlook for supply gets even bleaker. But the demand

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Speaker 10: story for platinum is really there's two fold good stories.

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Speaker 10: One is main uses in catalytic converters, so particularly for

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Speaker 10: diesel engine cars, so cleans the emissions, and vehicle sales

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Speaker 10: despite all the negative news we have, vehicle sales across

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Speaker 10: the globe are expected to increase this year. The second

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Speaker 10: thing is that you need platinum or as a vital

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Speaker 10: ingredient for the production of hydrogen. And so hydrogen is

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Speaker 10: another story which people are focused on as an alternative

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Speaker 10: or a complement to electricity produced by batteries, and so

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Speaker 10: hydrogen is an alternative fuel source is something that a

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Speaker 10: lot of governments and indeed make makers of autos to

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Speaker 10: aeroplanes and start to focus on. Now, so we need

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Speaker 10: platinum for that.

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Speaker 6: When you're talking about platinum, what do you from an

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Speaker 6: investment point of view, though, what's the narrative behind that?

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Speaker 6: For gold? It's easy, it's the debt ceiling, it's inflation.

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Speaker 6: It's all about jazz, copper, it's China oil, China US whatever.

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Speaker 6: What's the investment narrative behind platinum.

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Speaker 10: Well, platinum's much more of a fundamentally driven commodity. So,

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Speaker 10: in other words, do you expect the demand for platinum

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Speaker 10: to go up over time? And in an ideal scenario,

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Speaker 10: is the demand going to outstrip supply? And therefore, like

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Speaker 10: any commodity, it's sort of economics one oh one that

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Speaker 10: that will dictate where pricing goes. So for platinum, you know,

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Speaker 10: we look at this market. We have more demand than supplies.

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Speaker 10: That's good. Outlook for autos is positive, so more sales

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Speaker 10: for orders. And we think that the hydrogen story is

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Speaker 10: a really good one. You know, we're going to have

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Speaker 10: hydrogen as an alternative green fuel source and we need

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Speaker 10: platinum for that. But you know that's really the it's

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Speaker 10: a metal. It's thirty times rareer than gold's much smaller market.

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Speaker 3: I didn't know that.

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Speaker 1: Okay, all right, let's go more boring stuff, mundane stuff,

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Speaker 1: WTI crude oils.

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Speaker 3: It's under seventy two.

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Speaker 1: Bucks a barrel. It just feels like it should be higher.

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Speaker 1: Why isn't it?

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Speaker 10: The main reason is, again the debt ceiling scenario at

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Speaker 10: the moment, But.

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Speaker 3: That's going to get fixed.

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Speaker 1: You're go down to the trading pits of oil and

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Speaker 1: tell these guys it's going to get fixed.

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Speaker 6: The contrary, and.

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Speaker 10: Exactly no, it is. I mean, the the any any

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Speaker 10: kind of downward move we've had in oil typically, and

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Speaker 10: I don't want to over generalize, but over the last

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Speaker 10: twelve months has been about recession narratives. So whether we're

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Speaker 10: talking about the debt ceiling immediately leading to recession or

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Speaker 10: whether we're just talking about a more global slowdown. But

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Speaker 10: but that's the story. I mean, the data coming out

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Speaker 10: of China's actually been really good. March was a huge

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Speaker 10: month in terms of oil demand consumption. And we know

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Speaker 10: from you know, the Middle East that you know, Saudi

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Speaker 10: Arabia and the OPEC Consortium are definitely not opposed to

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Speaker 10: cutting production if they feel like pricing is at a

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Speaker 10: lower left level.

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Speaker 6: Can we go back to the gold story. I'm just

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Speaker 6: I'm looking you up on your LinkedIn profile. Used to

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Speaker 6: work at the World Gold Council, which that's pretty cool.

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Speaker 1: There is a thing, there is a thing. Come on,

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Speaker 1: you just count gold.

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Speaker 6: What do you do with the World Gold Council tell

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Speaker 6: our audience, Well, the World Gold Council is the official

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Speaker 6: industry body, if you will, for the gold industry.

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Speaker 10: So it's supported by the gold mining companies with a

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Speaker 10: mission to raise awareness for gold. So think of it

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Speaker 10: as like a trade association at some respects. But the

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Speaker 10: most well known thing that the World Gold Council probably

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Speaker 10: does is it owns the gld ETF, which is the

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Speaker 10: largest gold ETF. So I was the CEO of that

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Speaker 10: for for two and a half years. For starting my

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Speaker 10: own one bar with granite shares. That's the ticket, sorry bar,

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Speaker 10: But yes.

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Speaker 1: Okay, all right, So Critty, here's the thing about Will Ryan.

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Speaker 1: Every time he comes in, I'm like, I go look

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Speaker 1: through my notes and I see he goes to he

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Speaker 1: went to the University of Bath in England.

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Speaker 6: So I google that and what you should only say

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Speaker 6: in an accent apparent.

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Speaker 3: Exactly you can say.

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Speaker 1: But you google it and it looks like the most

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Speaker 1: beautiful town anywhere. And then I keep asking myself how

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Speaker 1: come I've never been there? And I go to my

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Speaker 1: little map thing, immajig. It's only an hour and seventeen

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Speaker 1: minute train ride from Paddington station in London. Why haven't

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Speaker 1: I been. I've been to London like a thousand times.

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Speaker 10: It's a good question. So all right, I think it

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Speaker 10: just made an itinerary for your next trip.

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Speaker 1: I can do a day trip there, right, or I

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Speaker 1: could do an overnight trip.

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Speaker 10: Oh yeah, easily, easily.

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Speaker 3: All right, put that on the itinerary.

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Speaker 6: Put that on the itinerary. Let's go back to market

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Speaker 6: pricing here. I think we've got a few more minutes left.

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Speaker 6: Pull me back to gold, though, we were just near

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Speaker 6: record Do we break the record high? I can't remember,

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Speaker 6: but we were near record highs for gold and then

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Speaker 6: kind of retreated back. I think we're in nineteen seventy

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Speaker 6: the last time I checked nineteen seventy two on spot gold.

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Speaker 6: What would it take to break that record high?

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Speaker 10: Most immediately, some kind of breakdown in the debt ceilings.

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Speaker 10: That's the clear and present danger for the market. But

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Speaker 10: you know, gold prices will thrive off any kind of

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Speaker 10: dislike cation event, and you know, the fear of this

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Speaker 10: happening has been one of the main reasons why gold

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Speaker 10: has climbed back up to these levels. But clearly, if

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Speaker 10: we have any breakdown, obviously, worst case scenario, we had

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Speaker 10: some kind of default event, prices of gold would be

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Speaker 10: materially higher.

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Speaker 1: And silver doesn't the silver foul gold. What's the relationship

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Speaker 1: gold to silver?

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Speaker 10: It does?

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Speaker 3: You know silver?

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Speaker 10: Silver is more industrial because the majority of demand for

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Speaker 10: silver is more industrial. So it's a bit like platinum

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Speaker 10: where it's going to be more related to the business cycle. However,

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Speaker 10: you know, silver is the closest correlated to gold, and

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Speaker 10: so when gold prices are going up, typically silver prices

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Speaker 10: are also going up.

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Speaker 1: But you can't corner that. Like who cornered the silver

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Speaker 1: market back in the day. That wasn't the Hunt brothers.

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Speaker 1: How do you corner a silver market?

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Speaker 3: I mean, is it? Is it the size that it

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Speaker 3: can be done?

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Speaker 10: I mean, most most commodities are at the size that

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Speaker 10: they can be done. I mean clearly you know opek,

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Speaker 10: remember is a cartel, and if it's self, it's designed

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Speaker 10: to corner the market in the in the same sense

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Speaker 10: as the Hunts did. But you know that's I guess

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Speaker 10: short order, why we have regulation in these markets to

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Speaker 10: try and stop these days happening.

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Speaker 1: Interesting, Okay, we'll Rind joining us here in our Bloomberg

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Speaker 1: Interactive Broker studio Will Rand. He's a chief executive officer

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Speaker 1: of Granted Shairs Advisors.

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Speaker 7: You're listening to the tape Cat's are live program Bloomberg

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Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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00:17:26,119 --> 00:17:29,359
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

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00:17:29,400 --> 00:17:32,199
Speaker 7: You can also listen live on Amazon Alexa from our

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00:17:32,240 --> 00:17:37,879
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

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Speaker 1: He woke this morning to the news at China declaring

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Speaker 1: Micron Technologies a cyber security risk. I guess that's a

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Speaker 1: no no. So they're China's barring Micron chips. What does

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Speaker 1: it mean? A stockment is down about four percent of

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Speaker 1: John just mentioned here. Let's bring in an expert here

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Speaker 1: to kind of frame this out. Paula Pincal, she covers

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Speaker 1: semiconductors with Bloomberg Intelligence. She joins us live here in

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Speaker 1: our Bloomberg Interactive Broker studio. So we appreciate you coming in.

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Speaker 1: You get a gold star for that, unlike your management,

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Speaker 1: which mails it in, phones it in. I appreciate you

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Speaker 1: coming in, Paula. How big a deal is this for Micron? Again,

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Speaker 1: the stock is off a little bit, but frame it

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Speaker 1: out for.

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Speaker 9: Us happy to be here, Paul, Thank you. Look, it

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Speaker 9: was a low ball punch against the United States. And

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Speaker 9: I say that because MICRONU China can easily replace the

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Speaker 9: product with its by its competitors in Southeast Asia, Samsung,

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Speaker 9: sk Heinex, So it's not really hurting itself by banning

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Speaker 9: these products. Micron stock is down, yes, but I think

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Speaker 9: they're starting it's starting to pair some of those losses.

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Speaker 9: I think as people look at it more closely, China

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Speaker 9: roughly represents maybe eleven percent of direct sales of Micron's

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Speaker 9: direct sales, but of that the majority goes into consumer

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Speaker 9: electronics products, and so even less of that is likely

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Speaker 9: to be exposed to this ban.

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Speaker 2: Yet.

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Speaker 9: You know caveat here, though, is that China has not

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Speaker 9: completely defined what it means by this ban. There's very

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Speaker 9: few details out there. There is a risk it could

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Speaker 9: be broader than that.

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Speaker 6: So you said, it's.

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Speaker 1: Given very few details.

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Speaker 6: What has it said about this ban.

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Speaker 9: It basically said that it's banning Microns chips that are

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Speaker 9: used in critical information infrastructure product and you know that

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Speaker 9: could be anything from defense, healthcare, transportation. But it's very vague.

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Speaker 9: And so we know that Micron makes most of the

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Speaker 9: chips for consumer electronics like phones and notebooks and things

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Speaker 9: like that. So even though they have this roughly eleven

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Speaker 9: percent direct exposure, actually sixteen percent if you include Hong Kong,

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Speaker 9: the exposure could be a lot less than that. But

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Speaker 9: you know, for headlines, it's like, wow, you know, China

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Speaker 9: is banning Micron chips and that's not gonna you know,

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Speaker 9: the stock market is clearly reacting to that.

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Speaker 6: So when you say there is no direct exposure, kind

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Speaker 6: of unpacked that for us here, because from a very

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Speaker 6: rudimentary knowledge of chips, when you put a chip into

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Speaker 6: or manufacturer chip and then sell us a Chinese company

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Speaker 6: and that goes into a consumer electronics whatever, let's say

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Speaker 6: a smartphone hypothetically bus smartphone has brought let's say exported

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Speaker 6: right back here to the States. Is that the chip

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Speaker 6: that's included in this ban or is it not included

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Speaker 6: because it's ultimately going back into a consumer smartphone.

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Speaker 9: It's not completely clear, and that's sort of a broader

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Speaker 9: potential risk within the supply chain. And but what I

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Speaker 9: will say is that direct exposure being Micron has a

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Speaker 9: contract with a local Chinese distributor or company, who does

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Speaker 9: you know, contract manufacturing for large chip manufacturers and they're

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Speaker 9: literally putting the product together and there they usually buy

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Speaker 9: Micron chips. So in this case, those Chinese companies within

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Speaker 9: China are not going to be allowed to purchase certain

439
00:21:31,000 --> 00:21:35,360
Speaker 9: chips directly from Micron. Now you look at a company

440
00:21:35,480 --> 00:21:39,600
Speaker 9: like Nvidia, they use Micron chips in their latest gaming

441
00:21:40,040 --> 00:21:45,520
Speaker 9: you know, video gaming products GPU that is manufactured in China.

442
00:21:46,080 --> 00:21:49,879
Speaker 9: That's Micron chip. Okay, that's still consumer electronics. But like,

443
00:21:50,200 --> 00:21:53,639
Speaker 9: there is a risk if China really wants to play hardball.

444
00:21:53,720 --> 00:21:55,960
Speaker 9: I'm not suggesting I think they will, but there is

445
00:21:56,000 --> 00:22:00,480
Speaker 9: the risk that this could broaden and expand beyond just

446
00:22:01,160 --> 00:22:04,760
Speaker 9: you know, memory chips sold directly to China.

447
00:22:05,520 --> 00:22:09,400
Speaker 1: So where are we on this kind of budding tech

448
00:22:09,440 --> 00:22:12,960
Speaker 1: cold war between China and kind of the US and

449
00:22:13,000 --> 00:22:15,679
Speaker 1: the West. I mean, you follow these big chip companies,

450
00:22:15,720 --> 00:22:19,520
Speaker 1: big tech companies, they have broad exposure there. What are

451
00:22:19,520 --> 00:22:21,479
Speaker 1: you hearing from your companies? This is really something to

452
00:22:21,480 --> 00:22:23,879
Speaker 1: be concerned about. As President Biden, you know, kind of

453
00:22:23,880 --> 00:22:27,480
Speaker 1: came out today and said not to worry, We're gonna tone.

454
00:22:27,240 --> 00:22:28,280
Speaker 3: It down a little bit with China.

455
00:22:28,320 --> 00:22:30,840
Speaker 1: But is there a cold war in technology?

456
00:22:31,359 --> 00:22:31,679
Speaker 5: Yes?

457
00:22:32,000 --> 00:22:34,680
Speaker 9: Okay, and there has been for some time, and it's

458
00:22:34,800 --> 00:22:38,560
Speaker 9: actually it's heating up right now. And you know, we

459
00:22:38,720 --> 00:22:41,760
Speaker 9: just had a G seven event and at that event,

460
00:22:42,359 --> 00:22:48,919
Speaker 9: China was criticized not just for economic policies, but also

461
00:22:49,080 --> 00:22:52,640
Speaker 9: for human rights abuses all these other things. And so

462
00:22:53,440 --> 00:22:57,160
Speaker 9: it's not surprising that literally a day later they come

463
00:22:57,200 --> 00:23:01,679
Speaker 9: out with the conclusion on cyber security risk for microns chips.

464
00:23:02,080 --> 00:23:05,040
Speaker 9: So there is a cybersecurity war. So what we're seeing

465
00:23:05,119 --> 00:23:08,720
Speaker 9: is just a disruption in the overall supply chain. There's

466
00:23:08,760 --> 00:23:12,360
Speaker 9: a regionalization taking place. No one really knows what it's

467
00:23:12,359 --> 00:23:15,160
Speaker 9: going to look like in the end because everybody it's

468
00:23:15,200 --> 00:23:20,320
Speaker 9: so complicated and everybody's so integrated. So even China, they're

469
00:23:20,359 --> 00:23:23,920
Speaker 9: walking a fine line because they need many of our

470
00:23:23,960 --> 00:23:28,080
Speaker 9: advanced chips. So that's why I say banning microns chips

471
00:23:28,119 --> 00:23:31,040
Speaker 9: was an easy one because they can source them elsewhere

472
00:23:31,080 --> 00:23:34,240
Speaker 9: pretty easily because they're commoditized. But they're not going to

473
00:23:34,280 --> 00:23:38,359
Speaker 9: potentially ban you know, Qualcomm's chips right away because that's

474
00:23:38,400 --> 00:23:41,600
Speaker 9: half their phones going into their own domestic market.

475
00:23:41,600 --> 00:23:43,480
Speaker 6: I was just about to say, so that's a soft punch.

476
00:23:43,520 --> 00:23:45,240
Speaker 6: What does what does a hard punch look like to

477
00:23:45,280 --> 00:23:45,640
Speaker 6: the US.

478
00:23:46,200 --> 00:23:50,159
Speaker 9: You know, I again, that would be a hard that

479
00:23:50,200 --> 00:23:54,320
Speaker 9: would be looking at a Qualcomm or some company like

480
00:23:54,400 --> 00:23:59,000
Speaker 9: Qualcomm sixty four percent of their revenues derived from China

481
00:23:59,119 --> 00:24:02,440
Speaker 9: and so, and I don't know how realistic that is,

482
00:24:03,040 --> 00:24:06,360
Speaker 9: but something like that would be a hard punch. If

483
00:24:06,480 --> 00:24:08,960
Speaker 9: China came out today and said, yeah, we have three

484
00:24:09,040 --> 00:24:14,400
Speaker 9: nanometer node technology, which you know, they say they have

485
00:24:14,520 --> 00:24:20,080
Speaker 9: seven nano, which is more advanced. Mostly China uses twenty

486
00:24:20,080 --> 00:24:25,040
Speaker 9: four nanometer technology right now, advanced to seven nano and

487
00:24:25,200 --> 00:24:29,919
Speaker 9: under in general they developed seven nano, but it's not

488
00:24:30,080 --> 00:24:34,000
Speaker 9: being mass produced yet and it takes time to like

489
00:24:34,080 --> 00:24:36,920
Speaker 9: experiment with these things to get them up running efficiently.

490
00:24:37,240 --> 00:24:38,919
Speaker 9: So if China came out and said, oh, we have

491
00:24:39,000 --> 00:24:44,360
Speaker 9: three nanotechnology or we now have advanced memory technology, that

492
00:24:44,440 --> 00:24:49,800
Speaker 9: could be a big blow. They could steal it. They

493
00:24:49,880 --> 00:24:51,920
Speaker 9: may have it and they're trying to develop it further,

494
00:24:52,040 --> 00:24:55,040
Speaker 9: or they may have a product and often they look

495
00:24:55,080 --> 00:24:57,680
Speaker 9: at that product and sort of back into the technology

496
00:24:57,720 --> 00:24:59,879
Speaker 9: to create their own. So these are the kind of

497
00:24:59,880 --> 00:25:03,480
Speaker 9: thing things that could be hurtful. But I suspect there's

498
00:25:03,480 --> 00:25:08,120
Speaker 9: going to be more negotiation because no one wins in the.

499
00:25:08,119 --> 00:25:10,879
Speaker 3: End, right, it's very integrated, as we're finding out. Paula,

500
00:25:10,880 --> 00:25:11,879
Speaker 3: thanks so much for joining us.

501
00:25:11,880 --> 00:25:16,000
Speaker 1: Paula Pencalocy is the semiconductor analyst on the technology team

502
00:25:16,119 --> 00:25:19,560
Speaker 1: at Bloomberg Intelligence, again, in my opinion, the best tech

503
00:25:19,560 --> 00:25:22,520
Speaker 1: team on Wall Street. Appreciate getting some time from Paula.

504
00:25:22,560 --> 00:25:27,000
Speaker 7: Here. You're listening to the team Ken's are Live program

505
00:25:27,119 --> 00:25:30,000
Speaker 7: Bloomberg Markets weekdays at ten am Eastern.

506
00:25:29,760 --> 00:25:33,119
Speaker 8: On Bloomberg dot Com, the iHeartRadio app and the Bloomberg

507
00:25:33,160 --> 00:25:36,600
Speaker 8: Business app, or listen on demand wherever you get your podcasts.

508
00:25:38,880 --> 00:25:42,200
Speaker 1: All right, let's turn to this debt ceiling issue where

509
00:25:42,240 --> 00:25:45,000
Speaker 1: it looks like President Biden has a call with Speaker

510
00:25:45,320 --> 00:25:47,960
Speaker 1: of the House today at five point thirty pm Wall

511
00:25:48,000 --> 00:25:48,480
Speaker 1: Street time.

512
00:25:49,119 --> 00:25:50,320
Speaker 3: I take that as a good sign.

513
00:25:50,440 --> 00:25:52,360
Speaker 1: I mean, you know, I kind of think in negotiations

514
00:25:52,560 --> 00:25:55,000
Speaker 1: you'll want the sides to be talking rather than not talking.

515
00:25:55,200 --> 00:26:00,679
Speaker 1: But let's check it with Nancy Kimmelman, professor at Northeastern University. Nancy,

516
00:26:00,720 --> 00:26:03,159
Speaker 1: how do you think about this these discussions here? Is

517
00:26:03,160 --> 00:26:06,160
Speaker 1: it just just the cost of doing business in America today?

518
00:26:06,320 --> 00:26:09,800
Speaker 1: Is there something that we should be maybe more concerned

519
00:26:09,800 --> 00:26:11,880
Speaker 1: about this? There might be a bigger risk out there

520
00:26:11,880 --> 00:26:15,520
Speaker 1: than maybe the average person thinks, well.

521
00:26:15,359 --> 00:26:19,080
Speaker 11: There could be risk. I mean, we are getting remarkably

522
00:26:19,280 --> 00:26:23,040
Speaker 11: or distressingly close to this judent first dead line, and

523
00:26:23,080 --> 00:26:26,160
Speaker 11: it's a real deadline. I mean, if we push against it,

524
00:26:26,600 --> 00:26:29,560
Speaker 11: Medicare payments aren't going to get out, Social Security payments

525
00:26:29,640 --> 00:26:31,600
Speaker 11: aren't going to get out, and it's going to have

526
00:26:31,640 --> 00:26:34,600
Speaker 11: a real impact on real people. So it's not something

527
00:26:34,600 --> 00:26:38,360
Speaker 11: to pooh pooh about. That said, you know, this year,

528
00:26:38,440 --> 00:26:42,560
Speaker 11: the dead ceiling talk is taking place in a different world.

529
00:26:42,640 --> 00:26:46,160
Speaker 11: We live in a different world politically. You know, we're

530
00:26:46,240 --> 00:26:49,680
Speaker 11: in the midst now of figuring out who the candidates

531
00:26:49,720 --> 00:26:52,919
Speaker 11: are going to be for the next presidential election. We

532
00:26:52,960 --> 00:26:55,359
Speaker 11: have the Santis throwing his hat and Trump is going

533
00:26:55,440 --> 00:26:58,840
Speaker 11: full bore. You know, that is a part of this

534
00:26:58,920 --> 00:27:02,240
Speaker 11: whole conversation, because I think a lot of what's going

535
00:27:02,280 --> 00:27:07,360
Speaker 11: on between McCarthy and Buden at this point is political theatrics,

536
00:27:08,200 --> 00:27:12,600
Speaker 11: and neither side can really afford to be seen given ground,

537
00:27:12,720 --> 00:27:17,840
Speaker 11: and it's causing this death ceiling debate or this negotiation

538
00:27:18,800 --> 00:27:20,840
Speaker 11: to just be held at a different level than we've

539
00:27:20,840 --> 00:27:21,760
Speaker 11: seen previously.

540
00:27:22,640 --> 00:27:25,200
Speaker 12: So then do you think that this is more a

541
00:27:25,359 --> 00:27:28,119
Speaker 12: debate that is just for showmanship, like you said, or

542
00:27:28,160 --> 00:27:30,840
Speaker 12: do you think there's real risk here to a potential

543
00:27:30,840 --> 00:27:35,040
Speaker 12: default that markets might not even necessarily be properly pricing

544
00:27:35,080 --> 00:27:35,640
Speaker 12: in right now.

545
00:27:37,040 --> 00:27:40,199
Speaker 11: I think the impact on the economy and especially the

546
00:27:40,240 --> 00:27:43,640
Speaker 11: financial markets could be very, very real. It already is.

547
00:27:44,080 --> 00:27:47,800
Speaker 11: We're already seeing the prices getting hammered for treasury securities

548
00:27:48,280 --> 00:27:51,399
Speaker 11: that would be affected by the by the Treasury not

549
00:27:51,480 --> 00:27:55,040
Speaker 11: being able to roll over the debt. We've seen the

550
00:27:55,080 --> 00:27:58,040
Speaker 11: forecasts that are coming out of private forecasters as well

551
00:27:58,080 --> 00:28:01,520
Speaker 11: as the Council of Economic Advisors and others in Washington

552
00:28:01,920 --> 00:28:05,479
Speaker 11: suggesting that if we if we breached this this this

553
00:28:05,640 --> 00:28:09,840
Speaker 11: line in the sand, the impact on unemployment could be severe.

554
00:28:10,240 --> 00:28:14,320
Speaker 11: It could immediately throw the economy into a recession. I mean,

555
00:28:14,520 --> 00:28:18,040
Speaker 11: this is this is real, real side economics, and it's

556
00:28:18,200 --> 00:28:21,040
Speaker 11: really unfortunate that the politicians are planning a little bit

557
00:28:21,080 --> 00:28:25,159
Speaker 11: loose with these negotiations. Not that they're not trying, but

558
00:28:25,400 --> 00:28:28,520
Speaker 11: you know, nobody's willing to give brown. There's really a

559
00:28:29,440 --> 00:28:33,240
Speaker 11: sense that politics at this point in time, neither side

560
00:28:33,280 --> 00:28:35,720
Speaker 11: can be seen giving in. And that's a very dangerous

561
00:28:35,760 --> 00:28:38,640
Speaker 11: position for us to be on politically as well. As economically.

562
00:28:39,000 --> 00:28:41,440
Speaker 1: All right, here's my dumb question of the day, professor,

563
00:28:41,480 --> 00:28:43,840
Speaker 1: Maybe you can help me out. What what are they

564
00:28:43,880 --> 00:28:47,720
Speaker 1: actually negotiating? Like, is it a debt ceiling raise? Is

565
00:28:47,720 --> 00:28:49,640
Speaker 1: it to solve our problems for the end of time?

566
00:28:50,080 --> 00:28:50,960
Speaker 3: What are they negotiating?

567
00:28:51,080 --> 00:28:53,080
Speaker 11: No, No, it's certainly not for the end of time.

568
00:28:53,440 --> 00:28:55,480
Speaker 11: It would be nice if it were. No, here's the

569
00:28:55,520 --> 00:28:59,040
Speaker 11: gig the treasury has. The government has already. This is

570
00:28:59,080 --> 00:29:01,880
Speaker 11: the irony that probably those people don't realize. The government

571
00:29:01,960 --> 00:29:06,240
Speaker 11: has already authorized payment of these moneies. In other words,

572
00:29:06,240 --> 00:29:09,360
Speaker 11: the government has a spending plan of what it has

573
00:29:09,400 --> 00:29:12,320
Speaker 11: to spend on every day of the year. And the

574
00:29:12,400 --> 00:29:14,560
Speaker 11: problem is we don't raise enough in the way of

575
00:29:14,600 --> 00:29:19,200
Speaker 11: taxes to be able to make those commitments real. In ords,

576
00:29:19,200 --> 00:29:21,480
Speaker 11: if we want to send out Social Security checks, we

577
00:29:21,640 --> 00:29:25,000
Speaker 11: have to either have enough tax revenue in the Treasury's

578
00:29:25,040 --> 00:29:27,440
Speaker 11: coffers to be able to pay those Social Security checks

579
00:29:27,920 --> 00:29:30,160
Speaker 11: or we have to borrow the money. Now, everyone knows

580
00:29:30,160 --> 00:29:32,320
Speaker 11: that the US government runs a deficit. We have in

581
00:29:32,480 --> 00:29:36,320
Speaker 11: for decades, and therefore the gap is always made up

582
00:29:36,360 --> 00:29:40,280
Speaker 11: by issuing new debt. But the commitment to spend the

583
00:29:40,280 --> 00:29:43,600
Speaker 11: money is already there. What they're arguing about is whether

584
00:29:43,600 --> 00:29:48,280
Speaker 11: they're going to approve the debt to be issued so

585
00:29:48,320 --> 00:29:51,560
Speaker 11: that the payments can be made. So that's what it's

586
00:29:51,560 --> 00:29:54,400
Speaker 11: about now. The problem is, because we run a continual

587
00:29:54,480 --> 00:29:57,160
Speaker 11: deficit year after year after year, the amount of debt

588
00:29:57,200 --> 00:30:00,920
Speaker 11: outstanding just keeps growing and growing and growing. Pay off

589
00:30:01,640 --> 00:30:03,880
Speaker 11: the debt that we issued last year or ten years

590
00:30:03,920 --> 00:30:06,520
Speaker 11: ago or thirty years ago, we never really pay it off.

591
00:30:06,560 --> 00:30:09,720
Speaker 11: We just replace it with newer securities, with newer bonds.

592
00:30:10,200 --> 00:30:13,719
Speaker 11: So the debt is going to continue to accumulate. That number,

593
00:30:14,040 --> 00:30:15,840
Speaker 11: which obviously is in the trillion. It's is just going

594
00:30:15,880 --> 00:30:18,760
Speaker 11: to keep getting bigger and bigger, and they'll agree to

595
00:30:18,800 --> 00:30:21,960
Speaker 11: a debt limit, I hope before June first. But all

596
00:30:22,000 --> 00:30:24,800
Speaker 11: that will do is take the debt limit, that debt

597
00:30:24,880 --> 00:30:28,120
Speaker 11: ceiling off the conversation, out of the conversation. I'll take

598
00:30:28,160 --> 00:30:30,800
Speaker 11: it off the table for a period of time, maybe

599
00:30:30,840 --> 00:30:32,920
Speaker 11: a couple of years, and then we'll be right back

600
00:30:32,920 --> 00:30:37,160
Speaker 11: in it again with another negotiation. Because the government really

601
00:30:37,200 --> 00:30:39,760
Speaker 11: doesn't ever get to a point where the level of

602
00:30:39,800 --> 00:30:42,120
Speaker 11: debt outstanding at repulse.

603
00:30:43,160 --> 00:30:46,440
Speaker 12: Do you think that they let it expire for a

604
00:30:46,440 --> 00:30:49,000
Speaker 12: couple of years though, or do you think Republicans say, hey,

605
00:30:49,120 --> 00:30:52,080
Speaker 12: let's have another expiration date before the twenty twenty four election.

606
00:30:52,760 --> 00:30:57,640
Speaker 11: Oh, that is a nasty question. That is a nasty question.

607
00:30:58,560 --> 00:31:02,120
Speaker 11: I think everyone can earned is praying that that's not

608
00:31:02,160 --> 00:31:05,880
Speaker 11: what happened. And I also have to say, no, Eli,

609
00:31:05,920 --> 00:31:08,880
Speaker 11: are we all praying it doesn't happen. I'm not exactly

610
00:31:09,000 --> 00:31:12,840
Speaker 11: sure who which side is going to be the loser

611
00:31:12,960 --> 00:31:14,920
Speaker 11: in this. Neither side is going to come out the winner,

612
00:31:15,240 --> 00:31:17,400
Speaker 11: but which side is really going to be the worst loser?

613
00:31:18,280 --> 00:31:22,080
Speaker 11: You know, if the McCarthy and the Republicans really play

614
00:31:22,120 --> 00:31:26,600
Speaker 11: hardballs here and the Democrats, which they haven't done yet,

615
00:31:26,680 --> 00:31:29,760
Speaker 11: by the way, can say, tell a convincing story about

616
00:31:29,760 --> 00:31:31,880
Speaker 11: how they're playing ball, but the other side isn't. I

617
00:31:31,880 --> 00:31:34,160
Speaker 11: don't think, you know, the Democrats have done a particularly

618
00:31:34,200 --> 00:31:37,240
Speaker 11: good job for themselves in that regard. But if the

619
00:31:37,240 --> 00:31:41,240
Speaker 11: American people decide that Grandma didn't get her Social Security

620
00:31:41,320 --> 00:31:45,000
Speaker 11: check and it's because of that wrangling in Washington, I

621
00:31:45,040 --> 00:31:47,400
Speaker 11: don't know that that's going to be particularly good for

622
00:31:47,600 --> 00:31:50,840
Speaker 11: election prospects for either side. So I suspect that the

623
00:31:50,920 --> 00:31:54,560
Speaker 11: Republicans as well as the Democrats, we'll get this thing passed,

624
00:31:54,560 --> 00:31:57,240
Speaker 11: and it will take us test hopefully will take us

625
00:31:57,280 --> 00:32:01,240
Speaker 11: past the election, because I don't think either side wants

626
00:32:01,280 --> 00:32:03,720
Speaker 11: to be negotiating this going into an election in a

627
00:32:03,760 --> 00:32:04,480
Speaker 11: few months.

628
00:32:04,840 --> 00:32:07,840
Speaker 1: At some point, do we as a government of people,

629
00:32:07,920 --> 00:32:10,560
Speaker 1: do we have to pay down this debt, pay back

630
00:32:10,600 --> 00:32:13,680
Speaker 1: this debt, or we just can let it roll into perpetuity.

631
00:32:14,440 --> 00:32:19,320
Speaker 11: We let it roll into perpetuity. Now, let's be realistic

632
00:32:19,360 --> 00:32:22,560
Speaker 11: about it is what is at risk here if we

633
00:32:22,600 --> 00:32:25,240
Speaker 11: don't pass a debt ceiling is that the world will

634
00:32:25,240 --> 00:32:27,680
Speaker 11: not look upon US debt the same way it has

635
00:32:27,720 --> 00:32:32,840
Speaker 11: in the past. For decades now, foreign buyers of US

636
00:32:32,920 --> 00:32:37,520
Speaker 11: Treasury securities have been robust. Those purchases by foreigners have

637
00:32:37,600 --> 00:32:40,520
Speaker 11: been very robust. So we really haven't seen any need

638
00:32:40,560 --> 00:32:42,920
Speaker 11: to pay down our debt because every time we have

639
00:32:42,960 --> 00:32:45,920
Speaker 11: a new bond issue or a new bill issue, not

640
00:32:45,960 --> 00:32:49,719
Speaker 11: only do American Americans buy those securities, but people come

641
00:32:49,760 --> 00:32:52,000
Speaker 11: all over the world by those securities, and they do

642
00:32:52,080 --> 00:32:55,920
Speaker 11: so willingly. Not only do are the buyers there willingly. Remember,

643
00:32:56,160 --> 00:32:59,680
Speaker 11: the US Treasury has a relatively low interest rate to pay.

644
00:33:00,160 --> 00:33:02,080
Speaker 11: Our interest rates are sort of the benchmark, and they're

645
00:33:02,120 --> 00:33:05,480
Speaker 11: below all the other interest rates that companies and individuals

646
00:33:05,520 --> 00:33:10,360
Speaker 11: have to pay, so there's no incentive for the US

647
00:33:10,400 --> 00:33:12,440
Speaker 11: Treasury to get to the point where we would pay

648
00:33:12,480 --> 00:33:15,480
Speaker 11: down the debt. As long as as long as the

649
00:33:15,520 --> 00:33:17,200
Speaker 11: rest of the world, and as long as the Americans

650
00:33:17,240 --> 00:33:19,320
Speaker 11: are willing to lend that money to the US Treasury.

651
00:33:19,960 --> 00:33:21,240
Speaker 11: It seems a model.

652
00:33:21,000 --> 00:33:21,800
Speaker 1: That works, all right.

653
00:33:21,840 --> 00:33:22,440
Speaker 3: It's a model.

654
00:33:22,560 --> 00:33:24,680
Speaker 11: I don't think anyone's ready to break that model.

655
00:33:25,200 --> 00:33:26,880
Speaker 1: Yeah, it's a model that doesn't work for me, But

656
00:33:27,080 --> 00:33:28,280
Speaker 1: I guess it works for the government.

657
00:33:28,320 --> 00:33:30,640
Speaker 3: Good for them. I guess, doctor Nancy Kimmelman, work.

658
00:33:30,600 --> 00:33:32,600
Speaker 11: For you individually at all. It doesn't work for any

659
00:33:32,680 --> 00:33:33,440
Speaker 11: of us.

660
00:33:32,960 --> 00:33:37,640
Speaker 1: No, exactly, Doctor Nancy Kimmelman, economics professor for Northeastern University

661
00:33:37,720 --> 00:33:41,400
Speaker 1: and Tufts University, talking about this debt ceiling.

662
00:33:41,480 --> 00:33:45,080
Speaker 7: You're listening to the tape can'sur live program Bloomberg Markets

663
00:33:45,160 --> 00:33:48,560
Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune

664
00:33:48,600 --> 00:33:51,560
Speaker 7: in app, Bloomberg dot Com, and the Bloomberg Business App.

665
00:33:51,600 --> 00:33:54,400
Speaker 7: You can also listen live on Amazon Alexa from our

666
00:33:54,440 --> 00:33:58,400
Speaker 7: flagship New York station. Just say Alexa, play Bloomberg eleven

667
00:33:58,520 --> 00:34:01,680
Speaker 7: thirty and.

668
00:34:01,680 --> 00:34:04,960
Speaker 1: We need to know about tech. We talked to this guy,

669
00:34:05,040 --> 00:34:06,080
Speaker 1: man Deep Singh.

670
00:34:06,360 --> 00:34:06,959
Speaker 3: We hired him.

671
00:34:07,000 --> 00:34:08,480
Speaker 1: We can't get rid of the dude. He just keeps

672
00:34:08,480 --> 00:34:11,600
Speaker 1: sticking around. He's our senior tech anistor for Bloomberg Intelligence,

673
00:34:11,920 --> 00:34:14,080
Speaker 1: and he shows up every day. None of this phoning

674
00:34:14,120 --> 00:34:17,319
Speaker 1: it in, working from home, any of that silliness. He's

675
00:34:17,360 --> 00:34:19,839
Speaker 1: in here in a Bloomberg Interactive broker studio. All right,

676
00:34:19,880 --> 00:34:23,799
Speaker 1: so meta, there is nothing stopping this freight train this year.

677
00:34:23,880 --> 00:34:26,120
Speaker 1: I mean it got crushed last year, down sixty percent,

678
00:34:26,440 --> 00:34:29,120
Speaker 1: but it's up over one hundred percent. They get fined

679
00:34:29,160 --> 00:34:30,919
Speaker 1: by the EU, and the market's just.

680
00:34:30,840 --> 00:34:34,440
Speaker 3: Like, no big deal. Is that? Is that a.

681
00:34:33,760 --> 00:34:36,040
Speaker 1: Reasonable read that it really is not that big a

682
00:34:36,080 --> 00:34:37,120
Speaker 1: deal for their business?

683
00:34:37,360 --> 00:34:41,040
Speaker 5: Well, so, I think last year the sentiment was too negative.

684
00:34:41,200 --> 00:34:44,160
Speaker 5: This year everyone realizes that it's a great business. It

685
00:34:44,239 --> 00:34:47,520
Speaker 5: can print thirty forty billion dollars in freak cash flow

686
00:34:47,520 --> 00:34:49,799
Speaker 5: every year. And then you know, when you think about

687
00:34:49,880 --> 00:34:53,160
Speaker 5: the size of the fine, one billion dollar isn't that

688
00:34:53,200 --> 00:34:56,600
Speaker 5: big off a deal. I think what it conveys to

689
00:34:56,640 --> 00:35:00,520
Speaker 5: me is one regulators feel this business model is too good,

690
00:35:00,600 --> 00:35:05,400
Speaker 5: and it's you know, kind of driven by the ad market,

691
00:35:05,520 --> 00:35:09,120
Speaker 5: which there is a very fine line between privacy and

692
00:35:09,160 --> 00:35:11,439
Speaker 5: showing ads. And we have seen that with Google over

693
00:35:11,480 --> 00:35:14,560
Speaker 5: the years. Google has paid over eight to ten billion

694
00:35:14,600 --> 00:35:17,560
Speaker 5: dollars in cumulative fines just in the EU.

695
00:35:17,719 --> 00:35:22,120
Speaker 1: So and Microsoft before, Microsoft before.

696
00:35:21,560 --> 00:35:24,239
Speaker 5: We have and and so it's not changing. I think

697
00:35:24,320 --> 00:35:27,080
Speaker 5: what it does to a company is it limits their

698
00:35:27,080 --> 00:35:30,880
Speaker 5: ability to really innovate in a sense that they can't

699
00:35:30,920 --> 00:35:34,960
Speaker 5: you know, acquire any company. I mean, forget about you know,

700
00:35:35,120 --> 00:35:37,960
Speaker 5: capturing more data from the users. In turn, they have

701
00:35:38,040 --> 00:35:42,600
Speaker 5: to change their business practices to please their regulators, and

702
00:35:42,680 --> 00:35:44,560
Speaker 5: you won't see any effect, you know, in the next

703
00:35:44,560 --> 00:35:47,920
Speaker 5: one or two quarters, but over time it limits their

704
00:35:47,960 --> 00:35:50,400
Speaker 5: ability to grow. And I think that is the big risk.

705
00:35:50,719 --> 00:35:53,160
Speaker 5: Given the business model is so good, given they keep

706
00:35:53,200 --> 00:35:56,279
Speaker 5: you know, printing free cash flow, is will it hurt

707
00:35:56,320 --> 00:35:58,200
Speaker 5: their growth in the long term. And the answer to

708
00:35:58,239 --> 00:36:01,120
Speaker 5: that is yes. We did see my Microsoft Limited you

709
00:36:01,120 --> 00:36:03,799
Speaker 5: know for a number of years now the EU has

710
00:36:03,840 --> 00:36:06,720
Speaker 5: approved the activision deal, but for a number of years

711
00:36:06,719 --> 00:36:09,480
Speaker 5: Microsoft couldn't buy anything. And I think that is what

712
00:36:09,520 --> 00:36:10,959
Speaker 5: you will see with Meta as well.

713
00:36:11,120 --> 00:36:15,160
Speaker 12: Can Meta hedge against that through any changes on their

714
00:36:15,239 --> 00:36:17,719
Speaker 12: end or by just suffering the losses that aren't that

715
00:36:17,760 --> 00:36:19,280
Speaker 12: big of a deal for them, well.

716
00:36:19,120 --> 00:36:22,279
Speaker 5: So GDPR came into effect, you know, three years back,

717
00:36:22,320 --> 00:36:25,280
Speaker 5: and they have plenty of time to change AD or PETE.

718
00:36:25,719 --> 00:36:27,879
Speaker 1: That is the stuff that says I got to click

719
00:36:27,960 --> 00:36:29,760
Speaker 1: yes if I want the cookies one kind of stuff.

720
00:36:29,800 --> 00:36:30,879
Speaker 3: Yeah, that's that. Yes.

721
00:36:31,000 --> 00:36:34,680
Speaker 5: And also the regulations with regards to storing the data

722
00:36:34,719 --> 00:36:37,080
Speaker 5: within the EU region. That is why they had to

723
00:36:37,120 --> 00:36:40,680
Speaker 5: pay this fine. Is because right now they are storing

724
00:36:40,719 --> 00:36:44,440
Speaker 5: the data, the EU data outside the region in the

725
00:36:44,560 --> 00:36:46,280
Speaker 5: US data centers.

726
00:36:45,880 --> 00:36:48,120
Speaker 3: And the EU regulators don't want that.

727
00:36:49,120 --> 00:36:51,640
Speaker 5: But when you think about you know, generative AI and

728
00:36:51,760 --> 00:36:55,680
Speaker 5: large aguage models, it's about gathering a lot of data

729
00:36:55,960 --> 00:36:59,480
Speaker 5: and then doing AI on it. So Meta, even though

730
00:36:59,480 --> 00:37:04,359
Speaker 5: it has all these different assets Instagram, you know, Facebook, app, WhatsApp,

731
00:37:04,719 --> 00:37:07,960
Speaker 5: and then it operates globally, it can't really combine all

732
00:37:07,960 --> 00:37:11,320
Speaker 5: those data sets because of these restrictions. So if EU

733
00:37:11,440 --> 00:37:15,600
Speaker 5: restricts their ability to take the data outside the region,

734
00:37:16,000 --> 00:37:18,279
Speaker 5: then basically, you know, think of it this way, they

735
00:37:18,280 --> 00:37:21,319
Speaker 5: can't even apply AI to their own first party data

736
00:37:21,320 --> 00:37:24,640
Speaker 5: set that they have across regions. And I think again

737
00:37:24,719 --> 00:37:27,560
Speaker 5: it goes back to the point about putting restrictions which

738
00:37:27,719 --> 00:37:30,399
Speaker 5: limit your ability to target ads and then on top

739
00:37:30,480 --> 00:37:32,640
Speaker 5: of that, you have to make business model changes to

740
00:37:32,680 --> 00:37:35,520
Speaker 5: please their regulators, So it is restrictive in that sense.

741
00:37:35,640 --> 00:37:40,320
Speaker 1: Markus Zuckerberg the metaverse, it's a business. Most of his

742
00:37:40,400 --> 00:37:44,640
Speaker 1: shareholders don't understand, but what they know is he initially

743
00:37:44,719 --> 00:37:46,880
Speaker 1: was going to spend a gajillion one dollars on it.

744
00:37:47,520 --> 00:37:48,040
Speaker 3: How is he.

745
00:37:48,040 --> 00:37:52,440
Speaker 1: Viewing this metaverse and the expenditures associated with developing it.

746
00:37:53,000 --> 00:37:56,040
Speaker 5: I mean, it's been a complete one eighty you know,

747
00:37:56,120 --> 00:37:59,120
Speaker 5: in the sense that last year he was like, we

748
00:37:59,200 --> 00:38:02,200
Speaker 5: are doing this, and we're going to do this at

749
00:38:02,239 --> 00:38:06,520
Speaker 5: all costs. This year it's been more shareholder of friendly

750
00:38:06,600 --> 00:38:10,439
Speaker 5: acknowledging what shareholders want in terms of restraining their meta

751
00:38:10,480 --> 00:38:13,680
Speaker 5: worse bets, and they have taken down the guidance in

752
00:38:13,760 --> 00:38:16,280
Speaker 5: terms of this spend. So clearly that is what's driven

753
00:38:16,320 --> 00:38:18,959
Speaker 5: that one hundred percent move in the stock. I mean,

754
00:38:19,520 --> 00:38:22,480
Speaker 5: has a completely given up on meta worse. That can

755
00:38:22,560 --> 00:38:25,000
Speaker 5: happen only if he changes the name of the company

756
00:38:25,040 --> 00:38:27,040
Speaker 5: back to Facebook from Meta I don't know if that

757
00:38:27,080 --> 00:38:28,319
Speaker 5: will happen anytime soon.

758
00:38:28,920 --> 00:38:33,080
Speaker 12: Well, it sort of feels like the metaverse very minimal

759
00:38:33,200 --> 00:38:36,120
Speaker 12: wave was like totally overtaken by the AI wave. If

760
00:38:36,120 --> 00:38:39,680
Speaker 12: we're going to compare the two. Does metas focused on

761
00:38:40,120 --> 00:38:44,279
Speaker 12: cost cutting become the new headline story for them? And

762
00:38:44,440 --> 00:38:45,680
Speaker 12: is the market happy about that?

763
00:38:45,960 --> 00:38:48,840
Speaker 5: I mean market is happy about the cost discipline that

764
00:38:48,920 --> 00:38:51,520
Speaker 5: they have showed this year. I don't know if they'll

765
00:38:51,560 --> 00:38:54,759
Speaker 5: be happy about Meta being a cost cutting story for

766
00:38:54,880 --> 00:38:57,799
Speaker 5: the medium to long term, simply because if it's not

767
00:38:57,920 --> 00:39:01,480
Speaker 5: a growing asset, why does it serve a premium multiple

768
00:39:01,560 --> 00:39:03,759
Speaker 5: in the peer group. And we've got a lot of

769
00:39:03,920 --> 00:39:07,439
Speaker 5: you know, assets within tech which becomes low growth over time,

770
00:39:07,480 --> 00:39:09,560
Speaker 5: and then the market is like, okay, this is just

771
00:39:09,600 --> 00:39:12,759
Speaker 5: a cash machine. They can do buybacks, but there won't

772
00:39:12,800 --> 00:39:14,680
Speaker 5: be any top line growth. And that is what they

773
00:39:14,719 --> 00:39:18,719
Speaker 5: need to answer, whether it's metawors or generative AI. I

774
00:39:18,719 --> 00:39:21,960
Speaker 5: don't think it's that we answer that then well so,

775
00:39:22,320 --> 00:39:24,759
Speaker 5: I mean, ad models are beautiful in the sense they

776
00:39:24,800 --> 00:39:28,560
Speaker 5: scale very well. And Meta has got Instagram, WhatsApp. WhatsApp

777
00:39:28,560 --> 00:39:31,640
Speaker 5: a lot of people would argue is under monetized, and

778
00:39:32,000 --> 00:39:34,680
Speaker 5: they have been talking about click to message ads being

779
00:39:34,680 --> 00:39:37,080
Speaker 5: a ten billion dollar revenue run red business. If they

780
00:39:37,080 --> 00:39:40,279
Speaker 5: can scale that, that could easily drive the next three

781
00:39:40,360 --> 00:39:42,960
Speaker 5: years of top line growth. And Instagram we know how

782
00:39:42,960 --> 00:39:45,040
Speaker 5: well that has done. They have a problem with the

783
00:39:45,080 --> 00:39:48,240
Speaker 5: Core Blue app, but clearly I think they have levers

784
00:39:48,239 --> 00:39:51,200
Speaker 5: to pull. The question is what will that meta verse

785
00:39:51,280 --> 00:39:53,680
Speaker 5: that look like? And if Apple launches a device, which

786
00:39:53,719 --> 00:39:56,560
Speaker 5: we are hearing they could next week, then maybe that

787
00:39:56,719 --> 00:39:59,680
Speaker 5: validates that metalworse much. Next week, well, they have their

788
00:39:59,680 --> 00:40:02,640
Speaker 5: Apple has their developer conference, right, so you know that

789
00:40:03,920 --> 00:40:06,440
Speaker 5: I'm not going, but we have coverage within bi.

790
00:40:06,760 --> 00:40:12,080
Speaker 1: Within bi Okay. Sandis Stander is a Ford investor day today,

791
00:40:12,880 --> 00:40:15,759
Speaker 1: just pointing that out. All right, let's talk about the

792
00:40:15,880 --> 00:40:20,360
Speaker 1: NASDAK here up twenty one percent year to date. That's good,

793
00:40:21,000 --> 00:40:23,320
Speaker 1: but we're still down twenty percent from that late twenty

794
00:40:23,360 --> 00:40:23,880
Speaker 1: one high.

795
00:40:24,680 --> 00:40:26,840
Speaker 3: Do I buy NASDAK here? Do I buy tech? Or

796
00:40:26,880 --> 00:40:29,200
Speaker 3: do I make a value call? Do I? I mean? What

797
00:40:29,239 --> 00:40:30,000
Speaker 3: am I doing here?

798
00:40:30,360 --> 00:40:33,279
Speaker 5: Well, so it all goes back to I think what

799
00:40:34,120 --> 00:40:36,359
Speaker 5: FED does in terms of interest rates. Remember these are

800
00:40:36,400 --> 00:40:38,920
Speaker 5: all long duration assets, right, so if the FED has

801
00:40:39,000 --> 00:40:41,239
Speaker 5: hit a pause and they are not going to raise

802
00:40:41,680 --> 00:40:44,000
Speaker 5: interest rates, that is a positive for a lot of

803
00:40:44,000 --> 00:40:45,960
Speaker 5: the tech stocks, and that is why they've gone up

804
00:40:46,000 --> 00:40:49,200
Speaker 5: so much. The question is can the top line growth

805
00:40:49,239 --> 00:40:53,200
Speaker 5: come back, which is really what is not very obvious

806
00:40:53,320 --> 00:40:55,560
Speaker 5: right now is can Google go back to, you know,

807
00:40:55,680 --> 00:40:58,600
Speaker 5: growing fifteen twenty percent, Can Meta go back to growing

808
00:40:58,640 --> 00:41:02,200
Speaker 5: fifteen twenty percent? I think clearly we've seen an inflection

809
00:41:02,360 --> 00:41:05,600
Speaker 5: in terms of ad pricing headmans ad pricing is getting better.

810
00:41:05,800 --> 00:41:07,640
Speaker 5: So that's a fourth step, and then you just have

811
00:41:07,719 --> 00:41:10,959
Speaker 5: to watch out for how the overall global economy does

812
00:41:11,080 --> 00:41:11,960
Speaker 5: in the second half.

813
00:41:12,640 --> 00:41:14,520
Speaker 1: I'm looking at the chart here for Meta again, it's

814
00:41:14,560 --> 00:41:16,319
Speaker 1: up one hundred and some odd percent this year, but

815
00:41:16,320 --> 00:41:19,160
Speaker 1: it's still down pretty big from it's late.

816
00:41:19,040 --> 00:41:19,759
Speaker 3: Twenty one high.

817
00:41:19,880 --> 00:41:22,319
Speaker 1: So I mean it seems like the market is kind

818
00:41:22,320 --> 00:41:23,439
Speaker 1: of in between on these names.

819
00:41:23,480 --> 00:41:23,919
Speaker 3: I mean, they.

820
00:41:23,840 --> 00:41:27,000
Speaker 1: Oversold them, as you said, last year, and now trying

821
00:41:27,000 --> 00:41:29,880
Speaker 1: to get some of that back. All right, I'll go

822
00:41:29,960 --> 00:41:30,239
Speaker 1: with that.

823
00:41:30,560 --> 00:41:32,200
Speaker 3: You know, how can you not own big tech?

824
00:41:32,239 --> 00:41:35,000
Speaker 1: Maybe it's just because we've been so influenced over the

825
00:41:35,080 --> 00:41:38,440
Speaker 1: last fifteen years really and even longer than that quite frankly,

826
00:41:38,480 --> 00:41:40,160
Speaker 1: but the big tech is back.

827
00:41:43,600 --> 00:41:46,680
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can

828
00:41:46,719 --> 00:41:50,480
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

829
00:41:50,560 --> 00:41:54,280
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

830
00:41:54,520 --> 00:41:57,720
Speaker 2: at Matt Miller nineteen seventy three and I'm fall Sweeney.

831
00:41:57,760 --> 00:42:00,319
Speaker 1: I'm on Twitter at pt Sweeney before the Pods cast.

832
00:42:00,360 --> 00:42:02,799
Speaker 1: You can always catch us worldwide at Bloomberg Radio