Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
Speaker 1: Find the Bloomberg Markets Podcast called Apple Podcasts or wherever
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
Speaker 1: JP Morgan Equity BQ. That gives me my Bloomberg quote,
Speaker 1: which is my go to quote for any security I
Speaker 1: pop in there. It's up like one tenth to one
Speaker 1: percent today, it's up four percent year to date. Aren't
Speaker 1: they having an investor day today? Shanli bassk you cover
Speaker 1: all the Wall Street stuff I was expecting. Maybe not
Speaker 1: a bombshell, but can I have a little bit of
Speaker 1: excitement coming out an investor day?
Speaker 3: But so far not so much.
Speaker 4: I mean JP Morgan makes money, big deal. No, I'm kidding, Hi, Well,
Speaker 4: that's the thing.
Speaker 5: I mean.
Speaker 4: JP Morgan the typically when they do investor Day, you've
Speaker 4: got a lot of detail about how they're managing the
Speaker 4: business line by line, business by business, executive by executive.
Speaker 4: But you know, they they have not been known to
Speaker 4: sit there and throw out massive, big targets on a
Speaker 4: fester day. They have reiterated the targets that've set, but
Speaker 4: they have a one target I think in particular is important.
Speaker 4: It's the twenty twenty three that interest income expectation. They're
Speaker 4: expected to make more, and it's because of that First
Speaker 4: Republic deal. You would expect some of that, but it's,
Speaker 4: to your point here, somewhat muted because there is still
Speaker 4: a lot of uncertainty and JP Morgan's executives tell you
Speaker 4: all about it.
Speaker 1: So there haven't been any bombshells yet, have there from
Speaker 1: this acquisition of this bank. I mean they kind of
Speaker 1: sometimes you go when there and you're like, uh, oh,
Speaker 1: you know, but they didn't have any of that so
Speaker 1: far at least.
Speaker 4: I think what it will be is a matter of
Speaker 4: showing just how much this will move the deal for
Speaker 4: JP Morgan overtime. You think back to bear Stearns, for example,
Speaker 4: and it wasn't immediately clear, especially when on the horizon
Speaker 4: there were so many hiccups to work through just how
Speaker 4: much of a huge strategic change bear Stearns would be
Speaker 4: have made them one of a the top fixed income
Speaker 4: trading house on Wall Street. It now is making them
Speaker 4: such a competitive institutional broke if you will, you know,
Speaker 4: just at the heart of capital markets, competing with the
Speaker 4: investment bank. But First Republic will really make it a contender,
Speaker 4: bigger and bigger in wealth, wealth and consumer.
Speaker 1: Here, I'm just looking at a red headline going across
Speaker 1: the Bloomberg terminal. Biden, We'll meet with McCarthy at five
Speaker 1: thirty pm today Wall Street time to discuss the debt limits,
Speaker 1: so we'll have more reporting on that. But that seems
Speaker 1: like a move in the right direction. Pretty gup that
Speaker 1: joints us here Bloomberg Interactior broker students just coming off
Speaker 1: the TV screen. So Creta's just talking to Shanali here.
Speaker 1: Not a whole lot of action coming out of the
Speaker 1: JP Morgan. I wanted to ask you about a smaller
Speaker 1: deal green Hill, Mizuho Bying green Hill. Now green Hill
Speaker 1: is only it's a small company, it's less than a
Speaker 1: billion dollar market cap, but it's Bob Greenhill, who was
Speaker 1: a just a.
Speaker 3: Legendary deal maker.
Speaker 1: They were one of the first boutique investment banks to
Speaker 1: come public like twenty years.
Speaker 3: Ago or something.
Speaker 4: There's a reason, and I've got to say I thought
Speaker 4: the story would do well. It is the most read
Speaker 4: on the terminal already and within a couple of hours here,
Speaker 4: and the reason is, Yes, Bob Greenhill, he was a
Speaker 4: bank over the Sumner red Stone. He was a banker
Speaker 4: to Sandy while he was really in that era of
Speaker 4: legendary investment bankers Morgan Stanley former Morgans only left out
Speaker 4: on his own form green Hill and Company. And yeah,
Speaker 4: it was one of the original boutiques and one of
Speaker 4: the first to go public, really the first in this generation,
Speaker 4: and it inspired others like Evercore, PJT. Hulahan, Loki Mulison
Speaker 4: Company to go public too. So it's really an end
Speaker 4: of an era for a public run for green Hill
Speaker 4: in Company, but really a tough decade. Paul, Yeah, I mean.
Speaker 3: I'm just looking at the stock price chart.
Speaker 1: I mean it's you know, they're getting paid double where
Speaker 1: they closed on Friday, but still it's a fraction of
Speaker 1: where was it its peak.
Speaker 4: I mean, in the heat in the aftermath of the
Speaker 4: financial crisis, this was a stock at more than eighty
Speaker 4: one dollars a share on Friday. It closed at less
Speaker 4: than seven dollars a share, So that just shows you
Speaker 4: how far they had come. And remember, investment bankers are
Speaker 4: partly paid in equity of their own investment banks, so
Speaker 4: it's a tough retention tool when you're facing that much
Speaker 4: pressure on your stock price.
Speaker 6: So one of the key takeaways I'm going to bring
Speaker 6: back to JP Morgan here because five hundred and fifty
Speaker 6: million dollars from a Zoho. But it feels like JP
Speaker 6: Morgan all eyes on Jamie Diamond, especially with geopolitics kind
Speaker 6: of rearing its ugly head once again. What is the
Speaker 6: JP Morgan take on China?
Speaker 4: You know, it's funny you keep on asking that to
Speaker 4: take unt I know, I'm you're so convinced that the
Speaker 4: investment banks are stepping away at full scale.
Speaker 6: Well, so the reason I ask is because it feels
Speaker 6: like we're headed towards a and correct me if I'm wrong.
Speaker 6: It does feel like we're headed towards an era or
Speaker 6: a couple of decades where you do start to see
Speaker 6: this kind of de globalization, right, it's been in the
Speaker 6: works for the past couple of years as well.
Speaker 1: I can't remember.
Speaker 6: I think you might be the one of who showed
Speaker 6: me this, or maybe someone else said. But when you
Speaker 6: look at the league tables, a lot of the deal
Speaker 6: volumes fallen in Asia specifically. I'm not sure whether that's
Speaker 6: a function of kind of recession or these late COVID
Speaker 6: measures or things.
Speaker 4: Let me give you the let me give you the
Speaker 4: bold case, because you have seen a lot of hedge
Speaker 4: funds come back into China. You have seen a lot
Speaker 4: of big investment managers hold tight into China even amid
Speaker 4: all these uncertainties. When you're a banklet Morgan listen to
Speaker 4: your America's biggest bank. America is your biggest market. A
Speaker 4: city group, however, is a little more diversified. They have
Speaker 4: a lot more global businesses. The reopening of China has
Speaker 4: been so far a pretty big boon to activity, and
Speaker 4: not just in China, in Europe pretty where the investment
Speaker 4: banks are also trying to double down. I think the
Speaker 4: bigger question here is one how global supply chains start
Speaker 4: to untangle, and then also geopolitical risks, because the big
Speaker 4: whale in the room is China's relationship to Taiwan. And
Speaker 4: again we've been talking about this a lot. The US
Speaker 4: bank CEOs have been grilled on Capitol Hill asking what
Speaker 4: they would do in that event, and it's a complicated question.
Speaker 4: Because they answer really is nothing. That is the real answer,
Speaker 4: and it's because they follow what the US regulators would
Speaker 4: make them do, which at this point in time is nothing.
Speaker 6: Well, how does that work exactly? When you kind of
Speaker 6: let's say they have these deals or even assets sitting
Speaker 6: in China in that kind of scenario, just play this
Speaker 6: out for me, worst case scenario. I mean, what happens
Speaker 6: to those assets? I mean when I'm kind of comparing
Speaker 6: this to and correct me if I'm wrong, if this
Speaker 6: is an extreme example, but kind of the bank presence
Speaker 6: in Russia, for example, would we see something similar.
Speaker 4: I think that's a long shot. I think that it
Speaker 4: would be a long shot to equate the two. It
Speaker 4: would take a lot. But it is on the surface,
Speaker 4: it is under the minds, on the minds of many executives.
Speaker 4: But the idea of it getting to that point is
Speaker 4: still not the immediate concern because it's not happening. And
Speaker 4: China is such a whale in the room, the activity
Speaker 4: of China as a global force in the economy, the
Speaker 4: demographics being more on their side than in the United States.
Speaker 4: I'll give you another example of this. Let's not take
Speaker 4: JP Morgan. Let's take credit Sweez Credit Squeze. When they
Speaker 4: tried to build another investment bank, they tried to do
Speaker 4: it with a firm that focused only in China and
Speaker 4: Saudi Arabia based in New York City. I don't know, Critty,
Speaker 4: that doesn't show me a story that is trying to
Speaker 4: untangle from the rest of the world.
Speaker 1: Chani Bask thanks so much for joining as Shannalani Basic.
Speaker 1: She covers all things Wall Street Today, giving us the
Speaker 1: latest reporting JP Morgan again. They're having an investor day
Speaker 1: ongoing today in New York City, as I recall, so
Speaker 1: getting all their investors and analysts together talking about the future.
Speaker 1: Maybe go take a tour of their new headquarters, which
Speaker 1: is being built on Park Avenue. It is awesome. I
Speaker 1: can't wait to see what it looks like when it
Speaker 1: opens up, but I'm sure it'll be state of the art.
Speaker 7: You're listening to the team Ken's are Live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern.
Speaker 8: On Bloomberg dot Com, the iHeartRadio app, and the Bloomberg
Speaker 8: Business App.
Speaker 7: Or listen on demand wherever you get your podcasts.
Speaker 1: Do we want to talk energy, We want to talk
Speaker 1: ETFs and so we want to do that. We talked
Speaker 1: to Will Ryan. He's the chief executive officer of Granite
Speaker 1: Shairs Advisors. He joins us live here in our Bloomberg
Speaker 1: Interactive Burger studio. So Will on the commodities front here,
Speaker 1: I want to start with gold. Our commodities analyst here,
Speaker 1: Mike McLoone of Bloomberg Intelligence. He says, basically, buy gold
Speaker 1: and short everything else, including the oil. Talk to us
Speaker 1: about gold. What's your call there?
Speaker 3: What are you guys thinking about that?
Speaker 9: Well?
Speaker 10: Gold right now? I mean the biggest concern for I
Speaker 10: think point most people in the market, but certainly for
Speaker 10: those who are interested in gold is the debt ceiling.
Speaker 10: Because you may remember that back in twenty eleven when
Speaker 10: the US ultimately defaulted and sorry, as you say, the
Speaker 10: credit rating was downgraded for the first time. That propelled
Speaker 10: gold to at the time high and so clearly if
Speaker 10: there was any breakdown and talks and a deal doesn't
Speaker 10: get done, fears that that could happen again certainly elevates
Speaker 10: that premium for people looking for a hedge in gold.
Speaker 6: How does that work exactly? When you invest through the
Speaker 6: ETF space, it feels like there's that one ETF that
Speaker 6: everyone uses for gold, But then if you're doing any
Speaker 6: other sort of commodities, ETFs aren't really the vehicle to use.
Speaker 10: Right, I guess it sort of depends, because you know,
Speaker 10: the beauty of gold and the beauty of precious metals
Speaker 10: is that their natural state after they've been mined is
Speaker 10: you can store it in a vault. So the bars
Speaker 10: that you can put in a vault, they won't decay,
Speaker 10: nothing will happen to them unless they're you know, clearly
Speaker 10: something nefarious, and so they're ideal to hold in a
Speaker 10: fund that's a natural investment state. When you go outside
Speaker 10: of precious metal, as you're dealing with commodities that can
Speaker 10: decay or even die, you know, that's a different proposition.
Speaker 10: And typically the way that we address that is via
Speaker 10: the futures market. And so you're talking about broad commodity
Speaker 10: TF or even an ETF on oil, et cetera.
Speaker 6: That's typically done like you isn't Wasn't there kind of
Speaker 6: a famous story about copper ETF's not working for that
Speaker 6: exact reason that they fall apart or something that the
Speaker 6: storage becomes an issue.
Speaker 10: That's right, So you know they're a physical any physical
Speaker 10: backed physically backed commodity is clearly going to be challenged
Speaker 10: to the extent that there's a challenge on securing supply.
Speaker 10: So if you can imagine something like copper, the price
Speaker 10: of a pound of copper is clearly materially different from
Speaker 10: you know, gold, so you need a lot more storage
Speaker 10: for the same weight of metal as you do in gold.
Speaker 10: And so it's not to say that you can't do that.
Speaker 10: You can, it's just that it's going to be logistically
Speaker 10: a lot more challenging than providing storage for gold.
Speaker 1: Touch on a platinum, that's what we hear. I hear
Speaker 1: more and more about and you've guys have got the
Speaker 1: granite shares platinum trust. Why would I want to have
Speaker 1: exposure to platinum here.
Speaker 10: Well, platinum's a really interesting one because the fundamentals for
Speaker 10: this year we're expecting a big deficit, so in other words,
Speaker 10: more demand than we have supply for this year, so
Speaker 10: automatically for any commodity, that puts you on a firm footing.
Speaker 10: What's interesting is the majority of platinum comes from South
Speaker 10: Africa and at the moment they're having very very big
Speaker 10: issues with energy supply to the sector, so you're seeing
Speaker 10: that manifesting in blackouts across the country, but particularly obviously
Speaker 10: is it pertains to the production itself. So once you
Speaker 10: have energy blackouts, that that affects mind supply and so
Speaker 10: the outlook for supply gets even bleaker. But the demand
Speaker 10: story for platinum is really there's two fold good stories.
Speaker 10: One is main uses in catalytic converters, so particularly for
Speaker 10: diesel engine cars, so cleans the emissions, and vehicle sales
Speaker 10: despite all the negative news we have, vehicle sales across
Speaker 10: the globe are expected to increase this year. The second
Speaker 10: thing is that you need platinum or as a vital
Speaker 10: ingredient for the production of hydrogen. And so hydrogen is
Speaker 10: another story which people are focused on as an alternative
Speaker 10: or a complement to electricity produced by batteries, and so
Speaker 10: hydrogen is an alternative fuel source is something that a
Speaker 10: lot of governments and indeed make makers of autos to
Speaker 10: aeroplanes and start to focus on. Now, so we need
Speaker 10: platinum for that.
Speaker 6: When you're talking about platinum, what do you from an
Speaker 6: investment point of view, though, what's the narrative behind that?
Speaker 6: For gold? It's easy, it's the debt ceiling, it's inflation.
Speaker 6: It's all about jazz, copper, it's China oil, China US whatever.
Speaker 6: What's the investment narrative behind platinum.
Speaker 10: Well, platinum's much more of a fundamentally driven commodity. So,
Speaker 10: in other words, do you expect the demand for platinum
Speaker 10: to go up over time? And in an ideal scenario,
Speaker 10: is the demand going to outstrip supply? And therefore, like
Speaker 10: any commodity, it's sort of economics one oh one that
Speaker 10: that will dictate where pricing goes. So for platinum, you know,
Speaker 10: we look at this market. We have more demand than supplies.
Speaker 10: That's good. Outlook for autos is positive, so more sales
Speaker 10: for orders. And we think that the hydrogen story is
Speaker 10: a really good one. You know, we're going to have
Speaker 10: hydrogen as an alternative green fuel source and we need
Speaker 10: platinum for that. But you know that's really the it's
Speaker 10: a metal. It's thirty times rareer than gold's much smaller market.
Speaker 3: I didn't know that.
Speaker 1: Okay, all right, let's go more boring stuff, mundane stuff,
Speaker 1: WTI crude oils.
Speaker 3: It's under seventy two.
Speaker 1: Bucks a barrel. It just feels like it should be higher.
Speaker 1: Why isn't it?
Speaker 10: The main reason is, again the debt ceiling scenario at
Speaker 10: the moment, But.
Speaker 3: That's going to get fixed.
Speaker 1: You're go down to the trading pits of oil and
Speaker 1: tell these guys it's going to get fixed.
Speaker 6: The contrary, and.
Speaker 10: Exactly no, it is. I mean, the the any any
Speaker 10: kind of downward move we've had in oil typically, and
Speaker 10: I don't want to over generalize, but over the last
Speaker 10: twelve months has been about recession narratives. So whether we're
Speaker 10: talking about the debt ceiling immediately leading to recession or
Speaker 10: whether we're just talking about a more global slowdown. But
Speaker 10: but that's the story. I mean, the data coming out
Speaker 10: of China's actually been really good. March was a huge
Speaker 10: month in terms of oil demand consumption. And we know
Speaker 10: from you know, the Middle East that you know, Saudi
Speaker 10: Arabia and the OPEC Consortium are definitely not opposed to
Speaker 10: cutting production if they feel like pricing is at a
Speaker 10: lower left level.
Speaker 6: Can we go back to the gold story. I'm just
Speaker 6: I'm looking you up on your LinkedIn profile. Used to
Speaker 6: work at the World Gold Council, which that's pretty cool.
Speaker 1: There is a thing, there is a thing. Come on,
Speaker 1: you just count gold.
Speaker 6: What do you do with the World Gold Council tell
Speaker 6: our audience, Well, the World Gold Council is the official
Speaker 6: industry body, if you will, for the gold industry.
Speaker 10: So it's supported by the gold mining companies with a
Speaker 10: mission to raise awareness for gold. So think of it
Speaker 10: as like a trade association at some respects. But the
Speaker 10: most well known thing that the World Gold Council probably
Speaker 10: does is it owns the gld ETF, which is the
Speaker 10: largest gold ETF. So I was the CEO of that
Speaker 10: for for two and a half years. For starting my
Speaker 10: own one bar with granite shares. That's the ticket, sorry bar,
Speaker 10: But yes.
Speaker 1: Okay, all right, So Critty, here's the thing about Will Ryan.
Speaker 1: Every time he comes in, I'm like, I go look
Speaker 1: through my notes and I see he goes to he
Speaker 1: went to the University of Bath in England.
Speaker 6: So I google that and what you should only say
Speaker 6: in an accent apparent.
Speaker 3: Exactly you can say.
Speaker 1: But you google it and it looks like the most
Speaker 1: beautiful town anywhere. And then I keep asking myself how
Speaker 1: come I've never been there? And I go to my
Speaker 1: little map thing, immajig. It's only an hour and seventeen
Speaker 1: minute train ride from Paddington station in London. Why haven't
Speaker 1: I been. I've been to London like a thousand times.
Speaker 10: It's a good question. So all right, I think it
Speaker 10: just made an itinerary for your next trip.
Speaker 1: I can do a day trip there, right, or I
Speaker 1: could do an overnight trip.
Speaker 10: Oh yeah, easily, easily.
Speaker 3: All right, put that on the itinerary.
Speaker 6: Put that on the itinerary. Let's go back to market
Speaker 6: pricing here. I think we've got a few more minutes left.
Speaker 6: Pull me back to gold, though, we were just near
Speaker 6: record Do we break the record high? I can't remember,
Speaker 6: but we were near record highs for gold and then
Speaker 6: kind of retreated back. I think we're in nineteen seventy
Speaker 6: the last time I checked nineteen seventy two on spot gold.
Speaker 6: What would it take to break that record high?
Speaker 10: Most immediately, some kind of breakdown in the debt ceilings.
Speaker 10: That's the clear and present danger for the market. But
Speaker 10: you know, gold prices will thrive off any kind of
Speaker 10: dislike cation event, and you know, the fear of this
Speaker 10: happening has been one of the main reasons why gold
Speaker 10: has climbed back up to these levels. But clearly, if
Speaker 10: we have any breakdown, obviously, worst case scenario, we had
Speaker 10: some kind of default event, prices of gold would be
Speaker 10: materially higher.
Speaker 1: And silver doesn't the silver foul gold. What's the relationship
Speaker 1: gold to silver?
Speaker 10: It does?
Speaker 3: You know silver?
Speaker 10: Silver is more industrial because the majority of demand for
Speaker 10: silver is more industrial. So it's a bit like platinum
Speaker 10: where it's going to be more related to the business cycle. However,
Speaker 10: you know, silver is the closest correlated to gold, and
Speaker 10: so when gold prices are going up, typically silver prices
Speaker 10: are also going up.
Speaker 1: But you can't corner that. Like who cornered the silver
Speaker 1: market back in the day. That wasn't the Hunt brothers.
Speaker 1: How do you corner a silver market?
Speaker 3: I mean, is it? Is it the size that it
Speaker 3: can be done?
Speaker 10: I mean, most most commodities are at the size that
Speaker 10: they can be done. I mean clearly you know opek,
Speaker 10: remember is a cartel, and if it's self, it's designed
Speaker 10: to corner the market in the in the same sense
Speaker 10: as the Hunts did. But you know that's I guess
Speaker 10: short order, why we have regulation in these markets to
Speaker 10: try and stop these days happening.
Speaker 1: Interesting, Okay, we'll Rind joining us here in our Bloomberg
Speaker 1: Interactive Broker studio Will Rand. He's a chief executive officer
Speaker 1: of Granted Shairs Advisors.
Speaker 7: You're listening to the tape Cat's are live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
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Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: He woke this morning to the news at China declaring
Speaker 1: Micron Technologies a cyber security risk. I guess that's a
Speaker 1: no no. So they're China's barring Micron chips. What does
Speaker 1: it mean? A stockment is down about four percent of
Speaker 1: John just mentioned here. Let's bring in an expert here
Speaker 1: to kind of frame this out. Paula Pincal, she covers
Speaker 1: semiconductors with Bloomberg Intelligence. She joins us live here in
Speaker 1: our Bloomberg Interactive Broker studio. So we appreciate you coming in.
Speaker 1: You get a gold star for that, unlike your management,
Speaker 1: which mails it in, phones it in. I appreciate you
Speaker 1: coming in, Paula. How big a deal is this for Micron? Again,
Speaker 1: the stock is off a little bit, but frame it
Speaker 1: out for.
Speaker 9: Us happy to be here, Paul, Thank you. Look, it
Speaker 9: was a low ball punch against the United States. And
Speaker 9: I say that because MICRONU China can easily replace the
Speaker 9: product with its by its competitors in Southeast Asia, Samsung,
Speaker 9: sk Heinex, So it's not really hurting itself by banning
Speaker 9: these products. Micron stock is down, yes, but I think
Speaker 9: they're starting it's starting to pair some of those losses.
Speaker 9: I think as people look at it more closely, China
Speaker 9: roughly represents maybe eleven percent of direct sales of Micron's
Speaker 9: direct sales, but of that the majority goes into consumer
Speaker 9: electronics products, and so even less of that is likely
Speaker 9: to be exposed to this ban.
Speaker 2: Yet.
Speaker 9: You know caveat here, though, is that China has not
Speaker 9: completely defined what it means by this ban. There's very
Speaker 9: few details out there. There is a risk it could
Speaker 9: be broader than that.
Speaker 6: So you said, it's.
Speaker 1: Given very few details.
Speaker 6: What has it said about this ban.
Speaker 9: It basically said that it's banning Microns chips that are
Speaker 9: used in critical information infrastructure product and you know that
Speaker 9: could be anything from defense, healthcare, transportation. But it's very vague.
Speaker 9: And so we know that Micron makes most of the
Speaker 9: chips for consumer electronics like phones and notebooks and things
Speaker 9: like that. So even though they have this roughly eleven
Speaker 9: percent direct exposure, actually sixteen percent if you include Hong Kong,
Speaker 9: the exposure could be a lot less than that. But
Speaker 9: you know, for headlines, it's like, wow, you know, China
Speaker 9: is banning Micron chips and that's not gonna you know,
Speaker 9: the stock market is clearly reacting to that.
Speaker 6: So when you say there is no direct exposure, kind
Speaker 6: of unpacked that for us here, because from a very
Speaker 6: rudimentary knowledge of chips, when you put a chip into
Speaker 6: or manufacturer chip and then sell us a Chinese company
Speaker 6: and that goes into a consumer electronics whatever, let's say
Speaker 6: a smartphone hypothetically bus smartphone has brought let's say exported
Speaker 6: right back here to the States. Is that the chip
Speaker 6: that's included in this ban or is it not included
Speaker 6: because it's ultimately going back into a consumer smartphone.
Speaker 9: It's not completely clear, and that's sort of a broader
Speaker 9: potential risk within the supply chain. And but what I
Speaker 9: will say is that direct exposure being Micron has a
Speaker 9: contract with a local Chinese distributor or company, who does
Speaker 9: you know, contract manufacturing for large chip manufacturers and they're
Speaker 9: literally putting the product together and there they usually buy
Speaker 9: Micron chips. So in this case, those Chinese companies within
Speaker 9: China are not going to be allowed to purchase certain
Speaker 9: chips directly from Micron. Now you look at a company
Speaker 9: like Nvidia, they use Micron chips in their latest gaming
Speaker 9: you know, video gaming products GPU that is manufactured in China.
Speaker 9: That's Micron chip. Okay, that's still consumer electronics. But like,
Speaker 9: there is a risk if China really wants to play hardball.
Speaker 9: I'm not suggesting I think they will, but there is
Speaker 9: the risk that this could broaden and expand beyond just
Speaker 9: you know, memory chips sold directly to China.
Speaker 1: So where are we on this kind of budding tech
Speaker 1: cold war between China and kind of the US and
Speaker 1: the West. I mean, you follow these big chip companies,
Speaker 1: big tech companies, they have broad exposure there. What are
Speaker 1: you hearing from your companies? This is really something to
Speaker 1: be concerned about. As President Biden, you know, kind of
Speaker 1: came out today and said not to worry, We're gonna tone.
Speaker 3: It down a little bit with China.
Speaker 1: But is there a cold war in technology?
Speaker 5: Yes?
Speaker 9: Okay, and there has been for some time, and it's
Speaker 9: actually it's heating up right now. And you know, we
Speaker 9: just had a G seven event and at that event,
Speaker 9: China was criticized not just for economic policies, but also
Speaker 9: for human rights abuses all these other things. And so
Speaker 9: it's not surprising that literally a day later they come
Speaker 9: out with the conclusion on cyber security risk for microns chips.
Speaker 9: So there is a cybersecurity war. So what we're seeing
Speaker 9: is just a disruption in the overall supply chain. There's
Speaker 9: a regionalization taking place. No one really knows what it's
Speaker 9: going to look like in the end because everybody it's
Speaker 9: so complicated and everybody's so integrated. So even China, they're
Speaker 9: walking a fine line because they need many of our
Speaker 9: advanced chips. So that's why I say banning microns chips
Speaker 9: was an easy one because they can source them elsewhere
Speaker 9: pretty easily because they're commoditized. But they're not going to
Speaker 9: potentially ban you know, Qualcomm's chips right away because that's
Speaker 9: half their phones going into their own domestic market.
Speaker 6: I was just about to say, so that's a soft punch.
Speaker 6: What does what does a hard punch look like to
Speaker 6: the US.
Speaker 9: You know, I again, that would be a hard that
Speaker 9: would be looking at a Qualcomm or some company like
Speaker 9: Qualcomm sixty four percent of their revenues derived from China
Speaker 9: and so, and I don't know how realistic that is,
Speaker 9: but something like that would be a hard punch. If
Speaker 9: China came out today and said, yeah, we have three
Speaker 9: nanometer node technology, which you know, they say they have
Speaker 9: seven nano, which is more advanced. Mostly China uses twenty
Speaker 9: four nanometer technology right now, advanced to seven nano and
Speaker 9: under in general they developed seven nano, but it's not
Speaker 9: being mass produced yet and it takes time to like
Speaker 9: experiment with these things to get them up running efficiently.
Speaker 9: So if China came out and said, oh, we have
Speaker 9: three nanotechnology or we now have advanced memory technology, that
Speaker 9: could be a big blow. They could steal it. They
Speaker 9: may have it and they're trying to develop it further,
Speaker 9: or they may have a product and often they look
Speaker 9: at that product and sort of back into the technology
Speaker 9: to create their own. So these are the kind of
Speaker 9: thing things that could be hurtful. But I suspect there's
Speaker 9: going to be more negotiation because no one wins in the.
Speaker 3: End, right, it's very integrated, as we're finding out. Paula,
Speaker 3: thanks so much for joining us.
Speaker 1: Paula Pencalocy is the semiconductor analyst on the technology team
Speaker 1: at Bloomberg Intelligence, again, in my opinion, the best tech
Speaker 1: team on Wall Street. Appreciate getting some time from Paula.
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Speaker 7: Bloomberg Markets weekdays at ten am Eastern.
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Speaker 1: All right, let's turn to this debt ceiling issue where
Speaker 1: it looks like President Biden has a call with Speaker
Speaker 1: of the House today at five point thirty pm Wall
Speaker 1: Street time.
Speaker 3: I take that as a good sign.
Speaker 1: I mean, you know, I kind of think in negotiations
Speaker 1: you'll want the sides to be talking rather than not talking.
Speaker 1: But let's check it with Nancy Kimmelman, professor at Northeastern University. Nancy,
Speaker 1: how do you think about this these discussions here? Is
Speaker 1: it just just the cost of doing business in America today?
Speaker 1: Is there something that we should be maybe more concerned
Speaker 1: about this? There might be a bigger risk out there
Speaker 1: than maybe the average person thinks, well.
Speaker 11: There could be risk. I mean, we are getting remarkably
Speaker 11: or distressingly close to this judent first dead line, and
Speaker 11: it's a real deadline. I mean, if we push against it,
Speaker 11: Medicare payments aren't going to get out, Social Security payments
Speaker 11: aren't going to get out, and it's going to have
Speaker 11: a real impact on real people. So it's not something
Speaker 11: to pooh pooh about. That said, you know, this year,
Speaker 11: the dead ceiling talk is taking place in a different world.
Speaker 11: We live in a different world politically. You know, we're
Speaker 11: in the midst now of figuring out who the candidates
Speaker 11: are going to be for the next presidential election. We
Speaker 11: have the Santis throwing his hat and Trump is going
Speaker 11: full bore. You know, that is a part of this
Speaker 11: whole conversation, because I think a lot of what's going
Speaker 11: on between McCarthy and Buden at this point is political theatrics,
Speaker 11: and neither side can really afford to be seen given ground,
Speaker 11: and it's causing this death ceiling debate or this negotiation
Speaker 11: to just be held at a different level than we've
Speaker 11: seen previously.
Speaker 12: So then do you think that this is more a
Speaker 12: debate that is just for showmanship, like you said, or
Speaker 12: do you think there's real risk here to a potential
Speaker 12: default that markets might not even necessarily be properly pricing
Speaker 12: in right now.
Speaker 11: I think the impact on the economy and especially the
Speaker 11: financial markets could be very, very real. It already is.
Speaker 11: We're already seeing the prices getting hammered for treasury securities
Speaker 11: that would be affected by the by the Treasury not
Speaker 11: being able to roll over the debt. We've seen the
Speaker 11: forecasts that are coming out of private forecasters as well
Speaker 11: as the Council of Economic Advisors and others in Washington
Speaker 11: suggesting that if we if we breached this this this
Speaker 11: line in the sand, the impact on unemployment could be severe.
Speaker 11: It could immediately throw the economy into a recession. I mean,
Speaker 11: this is this is real, real side economics, and it's
Speaker 11: really unfortunate that the politicians are planning a little bit
Speaker 11: loose with these negotiations. Not that they're not trying, but
Speaker 11: you know, nobody's willing to give brown. There's really a
Speaker 11: sense that politics at this point in time, neither side
Speaker 11: can be seen giving in. And that's a very dangerous
Speaker 11: position for us to be on politically as well. As economically.
Speaker 1: All right, here's my dumb question of the day, professor,
Speaker 1: Maybe you can help me out. What what are they
Speaker 1: actually negotiating? Like, is it a debt ceiling raise? Is
Speaker 1: it to solve our problems for the end of time?
Speaker 3: What are they negotiating?
Speaker 11: No, No, it's certainly not for the end of time.
Speaker 11: It would be nice if it were. No, here's the
Speaker 11: gig the treasury has. The government has already. This is
Speaker 11: the irony that probably those people don't realize. The government
Speaker 11: has already authorized payment of these moneies. In other words,
Speaker 11: the government has a spending plan of what it has
Speaker 11: to spend on every day of the year. And the
Speaker 11: problem is we don't raise enough in the way of
Speaker 11: taxes to be able to make those commitments real. In ords,
Speaker 11: if we want to send out Social Security checks, we
Speaker 11: have to either have enough tax revenue in the Treasury's
Speaker 11: coffers to be able to pay those Social Security checks
Speaker 11: or we have to borrow the money. Now, everyone knows
Speaker 11: that the US government runs a deficit. We have in
Speaker 11: for decades, and therefore the gap is always made up
Speaker 11: by issuing new debt. But the commitment to spend the
Speaker 11: money is already there. What they're arguing about is whether
Speaker 11: they're going to approve the debt to be issued so
Speaker 11: that the payments can be made. So that's what it's
Speaker 11: about now. The problem is, because we run a continual
Speaker 11: deficit year after year after year, the amount of debt
Speaker 11: outstanding just keeps growing and growing and growing. Pay off
Speaker 11: the debt that we issued last year or ten years
Speaker 11: ago or thirty years ago, we never really pay it off.
Speaker 11: We just replace it with newer securities, with newer bonds.
Speaker 11: So the debt is going to continue to accumulate. That number,
Speaker 11: which obviously is in the trillion. It's is just going
Speaker 11: to keep getting bigger and bigger, and they'll agree to
Speaker 11: a debt limit, I hope before June first. But all
Speaker 11: that will do is take the debt limit, that debt
Speaker 11: ceiling off the conversation, out of the conversation. I'll take
Speaker 11: it off the table for a period of time, maybe
Speaker 11: a couple of years, and then we'll be right back
Speaker 11: in it again with another negotiation. Because the government really
Speaker 11: doesn't ever get to a point where the level of
Speaker 11: debt outstanding at repulse.
Speaker 12: Do you think that they let it expire for a
Speaker 12: couple of years though, or do you think Republicans say, hey,
Speaker 12: let's have another expiration date before the twenty twenty four election.
Speaker 11: Oh, that is a nasty question. That is a nasty question.
Speaker 11: I think everyone can earned is praying that that's not
Speaker 11: what happened. And I also have to say, no, Eli,
Speaker 11: are we all praying it doesn't happen. I'm not exactly
Speaker 11: sure who which side is going to be the loser
Speaker 11: in this. Neither side is going to come out the winner,
Speaker 11: but which side is really going to be the worst loser?
Speaker 11: You know, if the McCarthy and the Republicans really play
Speaker 11: hardballs here and the Democrats, which they haven't done yet,
Speaker 11: by the way, can say, tell a convincing story about
Speaker 11: how they're playing ball, but the other side isn't. I
Speaker 11: don't think, you know, the Democrats have done a particularly
Speaker 11: good job for themselves in that regard. But if the
Speaker 11: American people decide that Grandma didn't get her Social Security
Speaker 11: check and it's because of that wrangling in Washington, I
Speaker 11: don't know that that's going to be particularly good for
Speaker 11: election prospects for either side. So I suspect that the
Speaker 11: Republicans as well as the Democrats, we'll get this thing passed,
Speaker 11: and it will take us test hopefully will take us
Speaker 11: past the election, because I don't think either side wants
Speaker 11: to be negotiating this going into an election in a
Speaker 11: few months.
Speaker 1: At some point, do we as a government of people,
Speaker 1: do we have to pay down this debt, pay back
Speaker 1: this debt, or we just can let it roll into perpetuity.
Speaker 11: We let it roll into perpetuity. Now, let's be realistic
Speaker 11: about it is what is at risk here if we
Speaker 11: don't pass a debt ceiling is that the world will
Speaker 11: not look upon US debt the same way it has
Speaker 11: in the past. For decades now, foreign buyers of US
Speaker 11: Treasury securities have been robust. Those purchases by foreigners have
Speaker 11: been very robust. So we really haven't seen any need
Speaker 11: to pay down our debt because every time we have
Speaker 11: a new bond issue or a new bill issue, not
Speaker 11: only do American Americans buy those securities, but people come
Speaker 11: all over the world by those securities, and they do
Speaker 11: so willingly. Not only do are the buyers there willingly. Remember,
Speaker 11: the US Treasury has a relatively low interest rate to pay.
Speaker 11: Our interest rates are sort of the benchmark, and they're
Speaker 11: below all the other interest rates that companies and individuals
Speaker 11: have to pay, so there's no incentive for the US
Speaker 11: Treasury to get to the point where we would pay
Speaker 11: down the debt. As long as as long as the
Speaker 11: rest of the world, and as long as the Americans
Speaker 11: are willing to lend that money to the US Treasury.
Speaker 11: It seems a model.
Speaker 1: That works, all right.
Speaker 3: It's a model.
Speaker 11: I don't think anyone's ready to break that model.
Speaker 1: Yeah, it's a model that doesn't work for me, But
Speaker 1: I guess it works for the government.
Speaker 3: Good for them. I guess, doctor Nancy Kimmelman, work.
Speaker 11: For you individually at all. It doesn't work for any
Speaker 11: of us.
Speaker 1: No, exactly, Doctor Nancy Kimmelman, economics professor for Northeastern University
Speaker 1: and Tufts University, talking about this debt ceiling.
Speaker 7: You're listening to the tape can'sur live program Bloomberg Markets
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Speaker 7: thirty and.
Speaker 1: We need to know about tech. We talked to this guy,
Speaker 1: man Deep Singh.
Speaker 3: We hired him.
Speaker 1: We can't get rid of the dude. He just keeps
Speaker 1: sticking around. He's our senior tech anistor for Bloomberg Intelligence,
Speaker 1: and he shows up every day. None of this phoning
Speaker 1: it in, working from home, any of that silliness. He's
Speaker 1: in here in a Bloomberg Interactive broker studio. All right,
Speaker 1: so meta, there is nothing stopping this freight train this year.
Speaker 1: I mean it got crushed last year, down sixty percent,
Speaker 1: but it's up over one hundred percent. They get fined
Speaker 1: by the EU, and the market's just.
Speaker 3: Like, no big deal. Is that? Is that a.
Speaker 1: Reasonable read that it really is not that big a
Speaker 1: deal for their business?
Speaker 5: Well, so, I think last year the sentiment was too negative.
Speaker 5: This year everyone realizes that it's a great business. It
Speaker 5: can print thirty forty billion dollars in freak cash flow
Speaker 5: every year. And then you know, when you think about
Speaker 5: the size of the fine, one billion dollar isn't that
Speaker 5: big off a deal. I think what it conveys to
Speaker 5: me is one regulators feel this business model is too good,
Speaker 5: and it's you know, kind of driven by the ad market,
Speaker 5: which there is a very fine line between privacy and
Speaker 5: showing ads. And we have seen that with Google over
Speaker 5: the years. Google has paid over eight to ten billion
Speaker 5: dollars in cumulative fines just in the EU.
Speaker 1: So and Microsoft before, Microsoft before.
Speaker 5: We have and and so it's not changing. I think
Speaker 5: what it does to a company is it limits their
Speaker 5: ability to really innovate in a sense that they can't
Speaker 5: you know, acquire any company. I mean, forget about you know,
Speaker 5: capturing more data from the users. In turn, they have
Speaker 5: to change their business practices to please their regulators, and
Speaker 5: you won't see any effect, you know, in the next
Speaker 5: one or two quarters, but over time it limits their
Speaker 5: ability to grow. And I think that is the big risk.
Speaker 5: Given the business model is so good, given they keep
Speaker 5: you know, printing free cash flow, is will it hurt
Speaker 5: their growth in the long term. And the answer to
Speaker 5: that is yes. We did see my Microsoft Limited you
Speaker 5: know for a number of years now the EU has
Speaker 5: approved the activision deal, but for a number of years
Speaker 5: Microsoft couldn't buy anything. And I think that is what
Speaker 5: you will see with Meta as well.
Speaker 12: Can Meta hedge against that through any changes on their
Speaker 12: end or by just suffering the losses that aren't that
Speaker 12: big of a deal for them, well.
Speaker 5: So GDPR came into effect, you know, three years back,
Speaker 5: and they have plenty of time to change AD or PETE.
Speaker 1: That is the stuff that says I got to click
Speaker 1: yes if I want the cookies one kind of stuff.
Speaker 3: Yeah, that's that. Yes.
Speaker 5: And also the regulations with regards to storing the data
Speaker 5: within the EU region. That is why they had to
Speaker 5: pay this fine. Is because right now they are storing
Speaker 5: the data, the EU data outside the region in the
Speaker 5: US data centers.
Speaker 3: And the EU regulators don't want that.
Speaker 5: But when you think about you know, generative AI and
Speaker 5: large aguage models, it's about gathering a lot of data
Speaker 5: and then doing AI on it. So Meta, even though
Speaker 5: it has all these different assets Instagram, you know, Facebook, app, WhatsApp,
Speaker 5: and then it operates globally, it can't really combine all
Speaker 5: those data sets because of these restrictions. So if EU
Speaker 5: restricts their ability to take the data outside the region,
Speaker 5: then basically, you know, think of it this way, they
Speaker 5: can't even apply AI to their own first party data
Speaker 5: set that they have across regions. And I think again
Speaker 5: it goes back to the point about putting restrictions which
Speaker 5: limit your ability to target ads and then on top
Speaker 5: of that, you have to make business model changes to
Speaker 5: please their regulators, So it is restrictive in that sense.
Speaker 1: Markus Zuckerberg the metaverse, it's a business. Most of his
Speaker 1: shareholders don't understand, but what they know is he initially
Speaker 1: was going to spend a gajillion one dollars on it.
Speaker 3: How is he.
Speaker 1: Viewing this metaverse and the expenditures associated with developing it.
Speaker 5: I mean, it's been a complete one eighty you know,
Speaker 5: in the sense that last year he was like, we
Speaker 5: are doing this, and we're going to do this at
Speaker 5: all costs. This year it's been more shareholder of friendly
Speaker 5: acknowledging what shareholders want in terms of restraining their meta
Speaker 5: worse bets, and they have taken down the guidance in
Speaker 5: terms of this spend. So clearly that is what's driven
Speaker 5: that one hundred percent move in the stock. I mean,
Speaker 5: has a completely given up on meta worse. That can
Speaker 5: happen only if he changes the name of the company
Speaker 5: back to Facebook from Meta I don't know if that
Speaker 5: will happen anytime soon.
Speaker 12: Well, it sort of feels like the metaverse very minimal
Speaker 12: wave was like totally overtaken by the AI wave. If
Speaker 12: we're going to compare the two. Does metas focused on
Speaker 12: cost cutting become the new headline story for them? And
Speaker 12: is the market happy about that?
Speaker 5: I mean market is happy about the cost discipline that
Speaker 5: they have showed this year. I don't know if they'll
Speaker 5: be happy about Meta being a cost cutting story for
Speaker 5: the medium to long term, simply because if it's not
Speaker 5: a growing asset, why does it serve a premium multiple
Speaker 5: in the peer group. And we've got a lot of
Speaker 5: you know, assets within tech which becomes low growth over time,
Speaker 5: and then the market is like, okay, this is just
Speaker 5: a cash machine. They can do buybacks, but there won't
Speaker 5: be any top line growth. And that is what they
Speaker 5: need to answer, whether it's metawors or generative AI. I
Speaker 5: don't think it's that we answer that then well so,
Speaker 5: I mean, ad models are beautiful in the sense they
Speaker 5: scale very well. And Meta has got Instagram, WhatsApp. WhatsApp
Speaker 5: a lot of people would argue is under monetized, and
Speaker 5: they have been talking about click to message ads being
Speaker 5: a ten billion dollar revenue run red business. If they
Speaker 5: can scale that, that could easily drive the next three
Speaker 5: years of top line growth. And Instagram we know how
Speaker 5: well that has done. They have a problem with the
Speaker 5: Core Blue app, but clearly I think they have levers
Speaker 5: to pull. The question is what will that meta verse
Speaker 5: that look like? And if Apple launches a device, which
Speaker 5: we are hearing they could next week, then maybe that
Speaker 5: validates that metalworse much. Next week, well, they have their
Speaker 5: Apple has their developer conference, right, so you know that
Speaker 5: I'm not going, but we have coverage within bi.
Speaker 1: Within bi Okay. Sandis Stander is a Ford investor day today,
Speaker 1: just pointing that out. All right, let's talk about the
Speaker 1: NASDAK here up twenty one percent year to date. That's good,
Speaker 1: but we're still down twenty percent from that late twenty
Speaker 1: one high.
Speaker 3: Do I buy NASDAK here? Do I buy tech? Or
Speaker 3: do I make a value call? Do I? I mean? What
Speaker 3: am I doing here?
Speaker 5: Well, so it all goes back to I think what
Speaker 5: FED does in terms of interest rates. Remember these are
Speaker 5: all long duration assets, right, so if the FED has
Speaker 5: hit a pause and they are not going to raise
Speaker 5: interest rates, that is a positive for a lot of
Speaker 5: the tech stocks, and that is why they've gone up
Speaker 5: so much. The question is can the top line growth
Speaker 5: come back, which is really what is not very obvious
Speaker 5: right now is can Google go back to, you know,
Speaker 5: growing fifteen twenty percent, Can Meta go back to growing
Speaker 5: fifteen twenty percent? I think clearly we've seen an inflection
Speaker 5: in terms of ad pricing headmans ad pricing is getting better.
Speaker 5: So that's a fourth step, and then you just have
Speaker 5: to watch out for how the overall global economy does
Speaker 5: in the second half.
Speaker 1: I'm looking at the chart here for Meta again, it's
Speaker 1: up one hundred and some odd percent this year, but
Speaker 1: it's still down pretty big from it's late.
Speaker 3: Twenty one high.
Speaker 1: So I mean it seems like the market is kind
Speaker 1: of in between on these names.
Speaker 3: I mean, they.
Speaker 1: Oversold them, as you said, last year, and now trying
Speaker 1: to get some of that back. All right, I'll go
Speaker 1: with that.
Speaker 3: You know, how can you not own big tech?
Speaker 1: Maybe it's just because we've been so influenced over the
Speaker 1: last fifteen years really and even longer than that quite frankly,
Speaker 1: but the big tech is back.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three and I'm fall Sweeney.
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Speaker 1: You can always catch us worldwide at Bloomberg Radio