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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 2: my co host Matt Miller.
Speaker 1: Every business day we bring you interviews from CEOs, market pros,
Speaker 1: and Bloomberg experts, along with essential market moven News.
Speaker 2: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
Speaker 2: you listen to podcasts, and at Bloomberg dot Com slash
Speaker 2: podcast we talk about serial entrepreneurs. I gotta throw our
Speaker 2: next guest into this category. Brad Jacobs. He's the executive
Speaker 2: chairman of XPO. You know that logistics company. XPO is
Speaker 2: a ticker on your Bloomberg Terminal.
Speaker 3: Mirrork Sockey more than one hundred and seventy percent.
Speaker 4: Not bad.
Speaker 2: It's got a ten point five billion dollar market cap,
Speaker 2: all right. But before that XBO, he was chairman and
Speaker 2: CEO of United Waste Management, United Waste Systems, I'm sorry,
Speaker 2: former chairman and CEO of United Rentals. And he's CEO
Speaker 2: of XBO from twenty eleven to twenty twenty two before
Speaker 2: becoming executive chairman. So this is somebody who just can't
Speaker 2: sit still quite the CV Brad Jacobs. He's in our
Speaker 2: Bloomberg andheract the Broker studio today. So Braday, I know
Speaker 2: you've got a new fund out there, a billion dollars.
Speaker 2: I'm guessing most of it. I it's not all of
Speaker 2: it's your money. What are you guys looking to do
Speaker 2: with this new fund? What's next?
Speaker 5: So only nine hundred million is mine, okay.
Speaker 6: The other one hundred million is from friends and family okay,
Speaker 6: the largest one being Sequoy Heritage.
Speaker 2: Oh nice, that's a good family.
Speaker 6: Being real family.
Speaker 5: Yes, I'm a sister of my brother nephews.
Speaker 6: So we're taking that billion dollars and we're putting it
Speaker 6: into a small cap about fifteen to twenty million dollar
Speaker 6: market cap. Well it was, it's double the stock price today,
Speaker 6: so maybe it's thirty or forty million market cap now
Speaker 6: called silver Sun Technologies. And we're then going to spin
Speaker 6: that company back off to the legacy shareholders of silver Sun.
Speaker 6: So in a few months when the deal closes, the
Speaker 6: silver Sun shareholders with other their company back. They'll also
Speaker 6: get a two and a half million dollar dividend, and
Speaker 6: they'll get a about a zero point three percent share
Speaker 6: in my new company.
Speaker 2: And your new company is going to do what Well,
Speaker 2: we haven't announced the industry yet. I wanted there, are
Speaker 2: you gonna use this shell, this publicly, this entity, this
Speaker 2: vehicle to make an acquisition? Absolutely, so tell us.
Speaker 5: What this company.
Speaker 6: This company will be publicly traded, it'll have billion dollars
Speaker 6: in cash, and we'll do the same playbook that I've
Speaker 6: been doing for decades. I'm going to consolidate an industry.
Speaker 6: I'm going to buy companies, I'm going to assimilate them.
Speaker 6: I'm going to improve them. We're going to going to
Speaker 6: get synergy from them. I'm gonna symbol the world class
Speaker 6: team and applied technology, improve the business, and we'll.
Speaker 5: Be off to the race.
Speaker 2: So you've identified the company, you just haven't announced it yet,
Speaker 2: that's correct, So.
Speaker 5: We can you've identified the industry.
Speaker 2: You've identified the industry.
Speaker 6: We don't have a companies per se that we're about
Speaker 6: to buy, although we're talking to several of them.
Speaker 3: Can you tell us what the industry is here?
Speaker 6: Well, we'll play bigger than a small bread.
Speaker 2: So I got to get your back again. And you're like,
Speaker 2: what a week's time or something something like that. All right,
Speaker 2: all right, So what do you look for? I mean,
Speaker 2: waste management logistics. I mean these things aren't sexy, but
Speaker 2: what are you living more sexy? They essentially for your
Speaker 2: bank accounts.
Speaker 6: It means making a lot of money for shareholders, that's right.
Speaker 6: And United Rentals we got in it was it was
Speaker 6: three dollars and fifty cents a share when I started
Speaker 6: the company in nineteen ninety seven.
Speaker 5: And on Friday it was over five hundred dollars a year.
Speaker 6: And XPO Logistics when we started in twenty eleven. Are
Speaker 6: the investors who came in with me made thirty two
Speaker 6: times in money as a last year, So I can
Speaker 6: save that very very sexy.
Speaker 2: When you put it that way. So what legit. What
Speaker 2: characteristics do you look for in a business when you
Speaker 2: go to acquired because you remind me of a a
Speaker 2: gunging off to think of his name again, who did
Speaker 2: this in the cable industry, the radio business and then
Speaker 2: entertainment business up in Boston. Anyway, What do you look
Speaker 2: for in a company or an industry?
Speaker 6: So I look for very specific things. They've all been
Speaker 6: in industrial services, that's my okay. I look for large industries.
Speaker 6: I look for industries that are hundreds of billions of
Speaker 6: dollars in size. I look for ones that there's lots
Speaker 6: of interesting companies to buy. It's not consolidated so much
Speaker 6: as there's not a whole lot to buy. It's still
Speaker 6: fragmented and at reasonable prices at multiples less than what
Speaker 6: we're going to trade out, so we get some accretion.
Speaker 2: From what we're buying.
Speaker 6: And I look for an industry where it's not totally
Speaker 6: tech forward yet and I can take our tech prowess
Speaker 6: and apply it to the industry to get an advantage.
Speaker 3: So what industries do you see that have opportunities?
Speaker 2: At this point, you're not going to give up, so
Speaker 2: stay tuned.
Speaker 6: I will definitely tell the whole world, what industry we're
Speaker 6: going to consolidate but not today.
Speaker 2: What kind of capital structure do you think is appropriate
Speaker 2: today versus maybe when you did United Reynolds, when you
Speaker 2: did XPO. Debt is not free anymore. Talk to us
Speaker 2: about that, and talk to us about maybe if there's
Speaker 2: any other external equity you need, can you get.
Speaker 6: It so in the first instance, will be debt free.
Speaker 6: We'll have a billion dollars of equity that we're putting
Speaker 6: into the company, and we'll have no debt over time.
Speaker 6: To answer your question, I think one or two turns
Speaker 6: is probably a conservative way to approach it, given the
Speaker 6: world and the turbulence and the risk risky nature of
Speaker 6: what's going on in geopolitics, and in terms of it available,
Speaker 6: there's no never any problem raising money if you've got
Speaker 6: a good track record and you have a good team,
Speaker 6: and you have a good business plan. So I'm not
Speaker 6: worried about access to capital.
Speaker 3: What do you think that tells us about the direction
Speaker 3: of the economy right now?
Speaker 5: Well, I don't.
Speaker 6: I'm not going to give it prediction because my prediction
Speaker 6: has been bad last year and a half, like most
Speaker 6: everyone else year and a half two years ago, I
Speaker 6: thought a recession was coming, and no recession camp so
Speaker 6: I've withdrawn my convey on particular the economy. Having said that,
Speaker 6: I do see it being generally soft out there in
Speaker 6: Europe and the United States, and I see it slowing.
Speaker 6: I don't see it picking up.
Speaker 2: So in your investments, let's say, what you're looking at
Speaker 2: coming forward? Is it Do you prefer to stay in
Speaker 2: the US, You're looking for a global business? How do
Speaker 2: you just think about g geography? Because a lot of
Speaker 2: folks are saying, I can't go to China, Europe's to
Speaker 2: the growth isn't there in Europe for me? How do
Speaker 2: you think about it?
Speaker 6: Well, Asia has an extra level of risk because what's
Speaker 6: going on with China, So I'm not eager to get
Speaker 6: into Asia. I liked North America a lot, like the
Speaker 6: United States a real lot for all the obvious reasons.
Speaker 6: But I don't mind Western Europe, France, UK, Spain, Germany.
Speaker 6: These are great countries with big economies and.
Speaker 2: The rule of law. So what we saw during the
Speaker 2: pandemic was a sense of reshoring or friend shoring, that
Speaker 2: type of thing. Did you see that? Do you see
Speaker 2: that at XBO? And how does maybe how does that
Speaker 2: change our supply chain because I kind of grew up
Speaker 2: in an era that was all about globalization, more and
Speaker 2: more globalization that seems so installed a little bit.
Speaker 6: Ins stalled a lot. I see that more in our
Speaker 6: supply chain spin off GXO Logistics, which has about two
Speaker 6: hundred million square feet of warehouses across a thousand warehouses
Speaker 6: around the world. There you've seen a lot of our
Speaker 6: customers who had a lot big part of their supply
Speaker 6: chain originating in China migrate to Malaysia, to Vietnam, to India,
Speaker 6: to Mexico back to the United States. So that's trend
Speaker 6: that's probably not going to turn around. I think people
Speaker 6: want to de risk being dependent on China.
Speaker 3: And especially when it comes to the supply chains and
Speaker 3: what we just went through because of the pandemic. Where
Speaker 3: are you seeing improvements and where are there still some
Speaker 3: lags there that are issues for the broader global supply chain.
Speaker 6: Oh, the supply chain has normalized quite a bit. It's
Speaker 6: not anything like it was a couple of years ago
Speaker 6: during COVID, when it was hard to get anything and
Speaker 6: things move very slowly and the prices were real high.
Speaker 6: The price of freight transportation and logistics in general has
Speaker 6: come down a lot, and it's capacity. The availability of
Speaker 6: transportation is available quite a bit.
Speaker 2: So what's the biggest challenge as you think about it.
Speaker 2: I mean, you're going to put some capital to work here.
Speaker 2: What do you think, just broadly defined out, some of
Speaker 2: the biggest challenges that you're going to have for again,
Speaker 2: redoing your playbook, growing, maybe through acquisition and so on
Speaker 2: and so forth. What do you think some of the
Speaker 2: challenges over the next several years for you?
Speaker 6: The most important thing that has to be accomplished in
Speaker 6: any business plan, but particularly one that's going to be
Speaker 6: high growth and where we're aiming for the stars in
Speaker 6: terms of very high returns to shareholders is people. You've
Speaker 6: got to assemble a world class real world class, not
Speaker 6: even first class, a world class management team that's hard working,
Speaker 6: that's honest, that gets along well and plays well in
Speaker 6: the play in the sandbox together, is super smart, very focused,
Speaker 6: really understands what they're doing on top of everything. And
Speaker 6: if you can get a management team assembled, it's got
Speaker 6: those kind of superstars.
Speaker 5: The rest.
Speaker 6: I won't say it's super easy, because nothing's super easy,
Speaker 6: but it's relatively easy.
Speaker 3: What's one of the top questions that you get from shareholders.
Speaker 6: Well, shareholders are always thinking about well depends which sheholder
Speaker 6: you're talking about.
Speaker 5: So there's two categories there.
Speaker 6: You have short term and long term. So the hedge
Speaker 6: funds and some of the high velocity funds, they're very
Speaker 6: interested in the quarter, maybe the next quarter right the most,
Speaker 6: the outlook for the next year. But the long only
Speaker 6: institutions who own five, ten, fifteen percent of a company
Speaker 6: and are owning it for several years, they're seeing way
Speaker 6: past that. They're not so interested in the quarter. That's interesting,
Speaker 6: but it's not the real focus. The focus is how
Speaker 6: are you going to grow the business? How are you
Speaker 6: going to grow this business over the next five years,
Speaker 6: over the next ten years, how you what kind of
Speaker 6: organic growth a you're going to have, what kind of
Speaker 6: margin expansion you're going to have, What are you looking
Speaker 6: at in terms of return on capital? And what is
Speaker 6: the specific business plan and the levers we should watch
Speaker 6: in order to hold you accountable. Those are the kind
Speaker 6: of questions that the serious shareholders at all.
Speaker 2: Right, we'll be paying attention. We're watching the Bloomberg terminal
Speaker 2: to see if that headline go across Brad Jacobs. He's
Speaker 2: executive chairman for now of XPO, which is in New York.
Speaker 2: Stock executive just say, okay, he's gonna end. He's got
Speaker 2: a new he's got a new fund out there, folks.
Speaker 2: So you know, keep an eye out on your Bloomberg criminals.
Speaker 2: See what the Brad and his team go for next.
Speaker 2: Brad Jacobs, executive Chairman XPO. In our Bloomberg Interactive Brokers studio.
Speaker 4: You're listening to the team. Ken's a live program Bloomberg
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Speaker 4: on demand wherever you get your podcasts.
Speaker 3: Paul, as we were talking about earlier, taking a look
Speaker 3: at Spotify, reducing its workforce by seventeen percent in the
Speaker 3: company steves cuts yet this year is part of an
Speaker 3: aggressive effort to shrink costs and drive profitability. If you
Speaker 3: look at that stock ticker symbol spot up about eight
Speaker 3: percent this morning, on pace for its best day since
Speaker 3: late October. If you look at your date, up over
Speaker 3: one hundred and forty five percent. Who better to chat
Speaker 3: with us about the latest news with Spotify than Ashley Carmen,
Speaker 3: reporter with Bloomberg News covering the auto industry, joining us
Speaker 3: on zoom. Ashley walk us through the latest with Spotify.
Speaker 3: What do we need to know here?
Speaker 7: Yeah, so, I mean, obviously the big headline seventeen percent
Speaker 7: of employees fifteen hundred people. Really awful, really really awful.
Speaker 7: It's a third cut this year. Spotify has really been
Speaker 7: under pressure from investors to cut costs achieve profitability. Spotify
Speaker 7: invested heavily in the podcast space, and investors believed that
Speaker 7: that was a bad one and we're really seeing the
Speaker 7: repercussions of it into this year.
Speaker 2: All right, So, I mean the stockstone great. I'm looking
Speaker 2: on the FA function of the Bloomberg terminal. Analysts are
Speaker 2: expecting this company to turn profitable in twenty twenty four.
Speaker 2: So it seems like the company's in good space. Do
Speaker 2: you feel like this is an announcement of coming from
Speaker 2: a point of strength or not.
Speaker 7: It feels like it's coming from a point of strength.
Speaker 7: Although it is surprising. It does make me wonder about
Speaker 7: the status of the podcast business. We've already seen them
Speaker 7: cut significantly in that department. They cut two percent of
Speaker 7: the workforce in June primarily in podcasting. So it does
Speaker 7: make me wonder if that bet continues to just not
Speaker 7: pay off and they continue to recognize it, or if
Speaker 7: they think that they're just going to have to brand
Speaker 7: into new areas and that they'll have to cut costs
Speaker 7: to do so.
Speaker 3: Talk to us about the issues they've had with losing
Speaker 3: money just in due to terms of when it comes
Speaker 3: to licensing agreements with music right holders.
Speaker 7: Yeah, so they have to pay a substantial portion of
Speaker 7: their revenue to the rights holders, of course, because in
Speaker 7: order to have a music streaming service, you have to
Speaker 7: license the music, and of course the labels want their
Speaker 7: fair share. So that has been a real challenge for Spotify,
Speaker 7: which is why it has attempted to diversify its business
Speaker 7: by moving into podcasts and then most recently, it began
Speaker 7: offering audiobooks as part of premium subscriptions on its service.
Speaker 2: Talk to us about the I guess the competitive environment
Speaker 2: here for streaming music. Just if you get set out
Speaker 2: kind of where Spotify fits in this. I'm not a
Speaker 2: big streamer of music, but you know, I don't know,
Speaker 2: I mean, there's a lot out there. I mean, iHeart
Speaker 2: and everything. Just give us a sense of what the
Speaker 2: competitive landscape looks like.
Speaker 7: Yeah, So Spotify is the largest streaming service pretty much globally,
Speaker 7: and they're independent. They are not tied to a tech platform,
Speaker 7: which their primary competitors are. So you have Apple Music,
Speaker 7: Amazon Music. You mentioned iHeart. I mean, that's obviously a
Speaker 7: big US company in radio, but their primary competitors here
Speaker 7: are Apple Music and Amazon Music, and those two really
Speaker 7: have the benefit of being tied through tech companies. So
Speaker 7: Spotify is trying to make it on its own as
Speaker 7: an independent and make the economics work, which is a challenge.
Speaker 3: So do other players in the industry face similar issues
Speaker 3: just Spotify or is it just more unique to that
Speaker 3: company given what you were talking about when it comes
Speaker 3: to another platform like Apple Music, when you're a part
Speaker 3: of a much bigger technology company, maybe you're more immune.
Speaker 7: I think it could be that there may be more immune.
Speaker 7: But Spotify really came out to get I mean, they
Speaker 7: spent over a billion dollars on podcasting, so they were
Speaker 7: the ones that made that huge, huge bet and push
Speaker 7: on that space, which I think puts them in a
Speaker 7: really unique position. And I do think that they also
Speaker 7: have to diversify to survive. Where is it as possible
Speaker 7: that Apple Music and Amazon Music can kind of they
Speaker 7: squarely focused on music and be Okay, how much of.
Speaker 2: Their business is subscription versus advertising and where does the
Speaker 2: market feel like maybe the most growth can come from.
Speaker 7: They've continued to grow their subscriptions, which quarter or over
Speaker 7: quarter has just been a wild, amazing testament to the
Speaker 7: strength of Spotify. They continue to grow subscribers the advertising business.
Speaker 7: They have free users, of course, and I think as
Speaker 7: they move into more developing countries like India, those users,
Speaker 7: of course are going to potentially beyond cheaper plans or
Speaker 7: free plans, so advertising could become a bigger part of
Speaker 7: the story. But really they are subscription business and investors
Speaker 7: want to see subscriptions.
Speaker 3: And this does come during a year where Taylor Swift
Speaker 3: had quite the momentum on Spotify. So how is it
Speaker 3: when you have someone that's successful on that's still maybe
Speaker 3: not enough to prevent Spotify from having to go through
Speaker 3: these different cost cutting efforts.
Speaker 7: Yeah, I mean Taylor Swift, of course, super successful, Beyonce Drake,
Speaker 7: all of them. But at the end of the day,
Speaker 7: Spotify has to pay royalties every single time someone listens
Speaker 7: to those songs. So they're not getting to necessarily benefit
Speaker 7: from that. I mean they get subscribers and they make
Speaker 7: some money, but not enough to offset just the fact
Speaker 7: that people are obsessed with Taylor Swift. I mean that's
Speaker 7: why that podcast that where they don't have to pay
Speaker 7: royalties whenever someone listens to a podcast with smart But
Speaker 7: the question is can they actually build business around it?
Speaker 7: And isn't working?
Speaker 8: Right?
Speaker 3: So Taylor Swift is actually going to earn more than
Speaker 3: one hundred million dollars in Spotify royalties for twenty seven yes,
Speaker 3: oh my good, breaking it in.
Speaker 2: So where are we with the podcast business? Actually? I
Speaker 2: mean are they still committed to it? How did they
Speaker 2: phrase kind of how they're going to invest in that
Speaker 2: going forward, because I know that was a concern as
Speaker 2: you mentioned before for a lot of investors.
Speaker 7: You know, they still have at least prior to these cuts,
Speaker 7: they still had a podcast department that was dedicated to
Speaker 7: doing original programming. I think after these cuts will find
Speaker 7: out more about what the state is of those shows.
Speaker 7: But really where I have seen the company focus has
Speaker 7: been on advertising. They really want to not only put
Speaker 7: podcast advertisements behind their own programming, but also behind their
Speaker 7: third party partnerships with people like Joe Rogan and Dak Shepherd,
Speaker 7: as well as people who use one of their hosting services,
Speaker 7: So that could be places like MPR, for example, uses
Speaker 7: their service they put ads on their shows. So that
Speaker 7: has really been the focus moving forward for Spotify, and
Speaker 7: that was a newer goal. So I think we're still
Speaker 7: trying to figure out whether that's going to pay off.
Speaker 3: We only have about a minute left. But do you
Speaker 3: see further job cuts coming in the next few months
Speaker 3: or the next year, or do you think this will
Speaker 3: be limited to what we saw today.
Speaker 7: In his blog post, the CEO Daniel X said that
Speaker 7: this decision was made to avoid further cuts into the
Speaker 7: next year or two, so that's where he's at with it.
Speaker 7: I would hope for the sake of the employees that's
Speaker 7: the case, because this has probably been a pretty traumatic
Speaker 7: year for them. But yeah, as of right now, that
Speaker 7: that's kind of what we know.
Speaker 2: All right, Ashley, thank you so much for joining us.
Speaker 2: Really appreciate it, appreciate the reporting there. Ashley Carmen, reporter
Speaker 2: for Bloomberg News, talking about Spotify again, one of the
Speaker 2: bigger stories today on the Bloomberg terminal cutting fifteen hundred jobs.
Speaker 2: You take a look at the stock and it's been
Speaker 2: all over but it's had again up you.
Speaker 3: Know, up over one hundred and forty five percent a
Speaker 3: year to date.
Speaker 2: Yeah, but he just pull up the max chart here.
Speaker 2: I mean, it's obviously well, it's spiked and got up
Speaker 2: to three hundred and fifty dollars three hundred and fifty
Speaker 2: five dollars a share, you know, back in kind of
Speaker 2: the beginning of twenty twenty one. So it's got a
Speaker 2: lot of work to retrace, so it's not nearest all
Speaker 2: time high, but it's definitely moving higher. And again this
Speaker 2: is another tech story, much like meta, where you're getting
Speaker 2: rewarded for cutting your costs and focusing on profitability, which
Speaker 2: was different from you know, just several years ago, when
Speaker 2: a lot of these text stories were rewarded simply for
Speaker 2: growing top line growth with whether that's reven or even
Speaker 2: subscribers or anything like that. Now the metric has become
Speaker 2: profitability kind of the way it probably always should have been.
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Speaker 2: Jess and I have talked about a big, big story
Speaker 2: in the stock market, in the economy in twenty twenty
Speaker 2: three has been AI can nowhere, and now every company
Speaker 2: talks about it. I don't care what business they're in,
Speaker 2: the trans transform, disruptor and I don't know. But there
Speaker 2: are legal issues associated with this which I think we're
Speaker 2: just starting to get our arms around, and that is
Speaker 2: includes an area of in marketing and advertising, So that's
Speaker 2: a big issue. The question is is it a slippery
Speaker 2: slope or a good idea? The person has the answer
Speaker 2: to that question is Ronnie is set Home. She's a
Speaker 2: managing partner set Home Law Group. So Ronnie, when I
Speaker 2: think about I'm just reading your stuff here. Only something
Speaker 2: this is according to the US Copyright offic is only
Speaker 2: something generated by a person can be copyrighted, and AI
Speaker 2: is not a person under copyright or patent law. So
Speaker 2: if AI is used to come up with an advertising campaign,
Speaker 2: a marketing campaign, who owns it? And aren't they using
Speaker 2: maybe stuff that was created by a human that's protected
Speaker 2: by copyright. And how's all that work?
Speaker 8: Yeah, it's complicated. It is only protected if it's written
Speaker 8: by a human being, and the application will denote who
Speaker 8: owns it. Typically they'll put a company name. Anyway, we
Speaker 8: may never know whether it was written by AI. But
Speaker 8: some things that can happen is that as AI is
Speaker 8: learning whatever that means, it may be overly inspired by
Speaker 8: something that was written by somebody else, and that's a landmine. Also,
Speaker 8: the voice of the person may change slightly, and the
Speaker 8: messaging may not be exactly what you want. Right. We're
Speaker 8: emotional creatures as humans, and marketing just hits that nail
Speaker 8: right on the head. I'm not sure if AI has
Speaker 8: honed in on our feelings just yet.
Speaker 3: What are some examples of some companies that may have
Speaker 3: run up against some legal issues here when it comes
Speaker 3: to AI in marketing.
Speaker 8: Well, I think we spoke previously a little bit about
Speaker 8: Sarah Silverman saying that whatever they're doing with her book
Speaker 8: is is a copyright infringement because AI is learning her
Speaker 8: book and other people's books, of course, and then they're
Speaker 8: going to market something as a result. We don't know
Speaker 8: what it is yet, But she recently found herself in
Speaker 8: a setback in court and the court said that she
Speaker 8: did not prove her case and she didn't allege the
Speaker 8: facts needed to proceed. So I think everyone is still
Speaker 8: having this huge learning curve and we all need to
Speaker 8: study hard to figure out where our options lie.
Speaker 2: What you use in your note here, you just had
Speaker 2: as an example of where this could be is that
Speaker 2: these machines go out and start aggregating information. They may
Speaker 2: go out and if they're looking for an advertising tagline,
Speaker 2: nothing gets between me and Mike Calvin's, which was just
Speaker 2: a kind of campaign starring Brookes Shields. Im it worked
Speaker 2: because that's all people talked about for a very long
Speaker 2: time about this this product. But let's say a machine
Speaker 2: goes out there and grabs that, yes, and somehow that
Speaker 2: gets incorporated into a marketing campaign. Somebody owns that copyright too.
Speaker 2: Nothing gets between me and my Calvins. I don't know
Speaker 2: if it's kaviakline or the ad agency or whatever. Somebody's
Speaker 2: got to do the homework on that.
Speaker 8: Yes, it is very important if you're going to use
Speaker 8: machines to help you that you have to check the
Speaker 8: machines work you can't just accept whatever it is generated.
Speaker 2: Do you think that's happening?
Speaker 8: Uh? Not really. I think that AI is making a
Speaker 8: lot of things easier and streamlining a lot of processes.
Speaker 8: And again we like that right as people. I mean,
Speaker 8: look what happened with computers. Everybody was against them. Oh
Speaker 8: my goodness, y two K we're all going to die.
Speaker 8: I think that happened and it was wrong. So we
Speaker 8: love things that are convenient.
Speaker 3: What industries are using AI and marketing the most right now?
Speaker 8: I think all industries are using the board across the board,
Speaker 8: and we just don't know it. I think that you know,
Speaker 8: they take aggregated information. For example, a hospital, right, how
Speaker 8: many I don't know how many people are going to
Speaker 8: that hospital for some kind of sports injury. Well, they're
Speaker 8: going to start marketing about sports injury because it's difficult
Speaker 8: for one person to sit there and examine each and
Speaker 8: every commercial, each and every posted ad, everything, but a
Speaker 8: machine can do it. Leakidy split all right.
Speaker 2: So AI was once again in the forefront of some
Speaker 2: of the Hollywood strike issues between the writers and the
Speaker 2: studios and the actors in the studios. And I guess
Speaker 2: there's new language in those agreements, and is what language
Speaker 2: was incorporated in there to kind of give protection vis
Speaker 2: a VAI.
Speaker 8: Well, I think that they're both winners and losers with
Speaker 8: the provisions that are in their contract now. So one
Speaker 8: thing that's a win for the actors is that if
Speaker 8: you use AI to create a fake Ranya, for example,
Speaker 8: I still get paid even though I may not have
Speaker 8: worked on it. Because you're using my likeness. Everyone thinks
Speaker 8: it's me, so I'm going to get paid. That's certainly
Speaker 8: a win. The producers are permitted to create synthetic characters
Speaker 8: that may not look like anyone you recognize, and no
Speaker 8: one gets paid for that. They can also make a
Speaker 8: double of me and use it for satire, So think
Speaker 8: of I'm going to date myself again. We'd al Yankovic
Speaker 8: all right, what he was doing, like a surgeon or whatever.
Speaker 8: So you can use it for parody. You can use
Speaker 8: a double of me or anyone else for parody, and
Speaker 8: you can use it for some kind of biographical data,
Speaker 8: and the actors won't get paid for that. So there
Speaker 8: are some winners, but there are also some losers. And
Speaker 8: there's a wide availability of new characters out there. If
Speaker 8: we've ever wanted to figure out what a baby would
Speaker 8: look like if it was had two parents that we
Speaker 8: both think are pretty We can create this image in
Speaker 8: AI moving forward.
Speaker 3: How much of an issue is going to be, especially
Speaker 3: for marketing if AI still has a lot of question
Speaker 3: marks surrounding it, and how it's going to be used
Speaker 3: by companies, Well, I think.
Speaker 8: To protect yourself as a company. I mean, that's who
Speaker 8: I'm usually working with as the company. I tell them
Speaker 8: to have review rights in all their contracts. So before
Speaker 8: the agency just posts your advertisement, check it. Make sure
Speaker 8: it sounds like you, or if it doesn't, you like
Speaker 8: the new sound, and make sure that whatever is stated
Speaker 8: is factual. Because there's sales puffery and then there's misrepresentation,
Speaker 8: and it's a very fine line, and then.
Speaker 3: The Hollywood strikes. As far as what that means for
Speaker 3: potential jobs, talk to us.
Speaker 8: About that, well, I think what can happen. What I
Speaker 8: do see happening is if some stars either want to
Speaker 8: make too much whatever that means, or they have attitudes
Speaker 8: that the producers or directors don't like, they'll just create
Speaker 8: a synthetic character that doesn't look like them or anyone else,
Speaker 8: and then they just pluck them out.
Speaker 2: All right, let's switch gears. Let's talk another New York
Speaker 2: specific issue, which non compete agreements, which are in financial
Speaker 2: services industry here in New York and the legal industry
Speaker 2: in New York, lots of them really prevalent. What's the
Speaker 2: status of non competes in New York.
Speaker 8: Well, Kathy Hockel just last week rejected the bills as
Speaker 8: given to her. And this was a bill to This
Speaker 8: was a bill that says all non competes in New
Speaker 8: York will be prohibited. And she said, no, that's not
Speaker 8: going to help businesses out. And she has until December
Speaker 8: thirty first of this year to redline it. Maybe she's
Speaker 8: going to add some limitations to it. One limitation I've
Speaker 8: been listening to is if someone is making more than
Speaker 8: two hundred and fifty thousand dollars, you can enforce a
Speaker 8: non compete. Otherwise maybe not. So we're going to wait
Speaker 8: and see the power of the pen and how she
Speaker 8: uses it until the end of the year.
Speaker 2: How important is this to like, what's the business community
Speaker 2: in New York saying.
Speaker 8: Well, everyone is frightened. I mean, think about it. If
Speaker 8: I purchase your company and then tomorrow you can open
Speaker 8: up another company and tell all your previous customers, who
Speaker 8: I just thought were going to be my customers, that
Speaker 8: you're doing the same thing under a new name.
Speaker 2: So who's backing the passage of this just labor groups? Yes, okay,
Speaker 2: so this is a question just I mean, this is
Speaker 2: kind of a new issue, but it's you're either pro
Speaker 2: business or your pro labor. It's at its basic fundamental level.
Speaker 2: I guess.
Speaker 8: Well, I think that's what we're seeing across the United States,
Speaker 8: either your four or again something and the world is
Speaker 8: very nuanced and it's a difficult position to be in
Speaker 8: to always just say yes or no.
Speaker 2: So again, we'll hear from Governor Hokel by the end
Speaker 2: of December, or is that the plan?
Speaker 8: Maybe if she does not make any changes, then it'll
Speaker 8: just disappear. However, President Biden has something similar in the
Speaker 8: works on a federal basis, so it may be irrelevant soon.
Speaker 2: Interesting, Okay, lots out there. That's why we talk to
Speaker 2: people like you, Rania set Home, she's a managing partner
Speaker 2: set Home a law group, talking about AI and it's
Speaker 2: impact on a lot of businesses, including marketing and advertising
Speaker 2: and all that kind of stuff. And then just more
Speaker 2: broadly find on the on the employment front, just non compete.
Speaker 2: It seems like non competes have been around forever.
Speaker 3: They have been, especially in financial services.
Speaker 2: Yeah, exactly, garden leaf. I mean, you know how many
Speaker 2: people have taken up a new skill just by playing
Speaker 2: out playing with their garden leave a little bit s
Speaker 2: and P five hundred off six tenths of one percent
Speaker 2: here in the market. So we got a little bit
Speaker 2: of solve, but that was after I guess five weeks
Speaker 2: of big time performance.
Speaker 4: You're listening to the tape cans are live program Bloomberg
Speaker 4: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 4: flagship New York station, just say Alexa playing Bloomberg eleven thirty.
Speaker 2: There's a little place out west called California. They have
Speaker 2: a lot of teachers they do California and they taught
Speaker 2: My youngest son actually graduated from my California high school.
Speaker 2: And those folks say for retirement, somebody's got to manage
Speaker 2: that money.
Speaker 3: It's a lot of word.
Speaker 2: Our next guest is that does that Chris Allman, he's
Speaker 2: the CIO of Cowster's California State Teachers Retirement System, got
Speaker 2: a little lost between the sixth and fifth Florida. We
Speaker 2: found you, Chris. That was a heck of a November
Speaker 2: for these markets. What happened there?
Speaker 5: That was the soft landing. The soft landing rates are done?
Speaker 2: You know, do we see peak rates? Do you think
Speaker 2: we saw peak rates?
Speaker 9: Maybe twenty five just for but I know we've hit
Speaker 9: peak grades. Oh yeah, But I don't think they need
Speaker 9: to ease anytime soon because that would imply a recession.
Speaker 9: They'll gradually step down, but the streets ahead of itself,
Speaker 9: and I think November was the signal that was a
Speaker 9: soft landing.
Speaker 3: So how do you view markets heading into year end?
Speaker 3: And what's your outlook for twenty twenty four as far
Speaker 3: as when we're talking about that soft landing scenario.
Speaker 9: Yeah, that's the interesting question is I don't think anybody's
Speaker 9: happy about this soft landing and very worried because normally
Speaker 9: you would think that that means the economy is going
Speaker 9: to take off, but you don't get that sense. We
Speaker 9: had a bit of a merger Monday, so maybe the
Speaker 9: market's coming back that way, but cautious and absolutely neutral
Speaker 9: on the asset classes. We're not going to take a
Speaker 9: bet fixed in comes back. There's no bonds are back,
Speaker 9: so you can buy and hold. I wouldn't trade, but
Speaker 9: private credit, there's just not a lot of opportunities. Everything's
Speaker 9: priced to perfection.
Speaker 3: It's interesting because there still is a lot of pessimism
Speaker 3: out there from a sentiment standpoint, and when you square
Speaker 3: that away with a lot of the consumer spinning data
Speaker 3: that's still really strong. What is it that's really pushing
Speaker 3: people who have a call going into next year thinking
Speaker 3: that the economy is going to substantially slow. What is
Speaker 3: going to be the catalyst?
Speaker 9: You know, that's a tough question because I've been predicting
Speaker 9: a recession for sixteen months.
Speaker 5: So I've been wrong the whole time. And I think are.
Speaker 3: Also in that camp and who have not admitted that
Speaker 3: they are.
Speaker 7: No.
Speaker 5: No, I'll fess up.
Speaker 9: I've been wrong a lot in my career. It happens,
Speaker 9: So I don't know what would cause that catalyst. I
Speaker 9: think the lower end consumer is running out of money.
Speaker 9: When you have a weakness out of Walmart, out of
Speaker 9: dollar store, Sprint, Airlines, Frontier, having a few open seats.
Speaker 9: Maybe they're going to spend at Christmas, they're going to overextend,
Speaker 9: and so maybe we have a bit of a debt
Speaker 9: hangover in January February. That's where we feel it. I'm
Speaker 9: getting nervous because you still see like Spotify today, you
Speaker 9: still see layoff notices and reductions. We'll wait to see
Speaker 9: the employment numbers on Friday. They have been surprising us
Speaker 9: on the upside. So this is also called muddling along,
Speaker 9: and I think in a large extent that's what twenty
Speaker 9: three was about and twenty four will be about.
Speaker 2: All Right, You've been doing this a long time here.
Speaker 2: I'm not commenting on his age. I'm just saying you've
Speaker 2: been around this a few times. When you see a
Speaker 2: stock market up eighteen nineteen percent, what are the smp
Speaker 2: is here? But when you back out six seven names
Speaker 2: and it's basically got four or five percent, what does
Speaker 2: that tell you?
Speaker 9: Whorries the heck outomy? I listen to you guys every day,
Speaker 9: So just a plug, I really do. I listen to
Speaker 9: you every day driving into work California.
Speaker 2: Times.
Speaker 5: You've been around along as I've been around.
Speaker 9: I will just say that they that no that always
Speaker 9: causes for concern because we've seen that before in some
Speaker 9: technology names, and this is so extreme with that magnificent seven.
Speaker 9: So it's not healthy breadth in the market. I think
Speaker 9: that's another downside. Jess As you said, what would cause
Speaker 9: the market to down turn down? I think it's a
Speaker 9: high inflation number or an up to inflation, a worry
Speaker 9: about employment, and then everybody resettles their expectations.
Speaker 3: Gina Martin Adams have to bring her up, who over
Speaker 3: at Bloomberg Intelligence, who leads the equity side. She and
Speaker 3: her team did research on the concentration when you are looking,
Speaker 3: especially with megacap TAC and even when there is heavy concentration,
Speaker 3: there's still time to make money between that concentration and
Speaker 3: when obviously there could be a flip and leadership. But
Speaker 3: from your point of view, I mean, is there still
Speaker 3: time where people will lose out if they're too concerned
Speaker 3: for too long, Well, they end up losing out on
Speaker 3: making money. I'm concerned about.
Speaker 5: To concern for too long.
Speaker 9: Compt My staff will tell you I've been a permanent
Speaker 9: bear through all of this and it's not worked. Paul,
Speaker 9: I thought a global pandemic was a bad thing. But
Speaker 9: I've found out now in my career it's a good thing.
Speaker 9: So I have been a bear and that has not
Speaker 9: been the place to be. We're neutral on our equity
Speaker 9: waiting and we have been over this sixteen month bear
Speaker 9: market prediction and recession prediction because it's too expensive to
Speaker 9: be out. So I think you have to be fully invested.
Speaker 9: You have to pay attention to asset allocation again.
Speaker 5: And be balanced.
Speaker 9: You can't just be in the magnificent seven.
Speaker 3: Nobody realzed what are you advising clients.
Speaker 9: I've been telling people pay attention to fixed income again.
Speaker 9: It's back rates are up, It's at a decent place
Speaker 9: to invest.
Speaker 5: You know, we're not putting new money to work in
Speaker 5: real estate.
Speaker 9: Are in private equity at these levels, just to steady
Speaker 9: investor in private equity, but really private credit, it's hard
Speaker 9: to find opportunities again because the fren credit.
Speaker 3: Paul's very private credit.
Speaker 9: Well, you know, variable rate returns, You've got to do
Speaker 9: your homework, You've got to look at your credit and analysis. Absolutely,
Speaker 9: But that's been a very nice place to be because
Speaker 9: the banks are out, so a lot of the big
Speaker 9: pinsion plans. The Maple Layton, Canada, are investing in that area.
Speaker 2: So what is it for cowsters? A typical asset allocation?
Speaker 2: You know, equities, fixed income, alternates, what's typically been your model.
Speaker 9: You know, we've adjusted it over time. We're going back
Speaker 9: into fixed income. Our fixed income got all the way
Speaker 9: down to twelve percent. We're going to oh yeah, because
Speaker 9: there was just no return out of fixed income. So
Speaker 9: you know, equities for a long time was over fifty percent.
Speaker 9: That's coming down a little bit into the forties. We're
Speaker 9: going to go to fifteen in fixed income. But we're
Speaker 9: also heavily invested fifteen in real estate, fifteen in private equity.
Speaker 9: We've got some inflation sensitive assets, and we have another
Speaker 9: category we call risk mitigating strategies, a bucket of things
Speaker 9: publics and privates that diversify the portfolio. So if you
Speaker 9: go back to the big picture, we're eighty twenty and
Speaker 9: we always have been. It's just the subcomponents have changed
Speaker 9: over time.
Speaker 2: How concerned are you about this private credit business, because
Speaker 2: it just feels like we're one or two big blow
Speaker 2: ups away from everybody's eyes going to private credit saying,
Speaker 2: oh my goodness, how much capital do these people have
Speaker 2: over there? I just feel like there's no really anybody
Speaker 2: kind of the wild West. Nobody's really looking at it.
Speaker 5: I hear you. I think that, and you will.
Speaker 9: If you have a recession, you'll have some blow ups
Speaker 9: and credit because people didn't do their homework. Covenant light
Speaker 9: will come back as a real concern paying attention. Credit
Speaker 9: work has always been about the underlying credit, the due
Speaker 9: diligence on the construction of the loan. That all still
Speaker 9: matters and always has. The big banks have stepped away
Speaker 9: from that middle market lending, and that's why we've been
Speaker 9: able to come in. Yes, you're now seeing this wave
Speaker 9: of capital going in, but it's been going in place
Speaker 9: for about four to five years. It's not brand new,
Speaker 9: it's just using that term as more recent. I think
Speaker 9: it's going to be an investable area, but it will
Speaker 9: always have its stories. You're gonna have your Silicon valley
Speaker 9: banks and your first reserves.
Speaker 5: That's just natural life.
Speaker 3: So no red flags brewing in private credit from your purview.
Speaker 9: I don't think so, because you know, spreads are tight,
Speaker 9: so that's a concern, But spreads are tight in the
Speaker 9: corporate bond market. But no, I don't think it needs
Speaker 9: added regulation, and I think people. I will just constantly
Speaker 9: caution people, do your homework on your credit analysis. Don't
Speaker 9: loan money to people who can't pay it back. Ultimately
Speaker 9: they won't.
Speaker 2: California, how's the economy out there?
Speaker 5: You know, very mixed. People don't like an inflations.
Speaker 2: That's a big state.
Speaker 5: Oh yeah, very diverse.
Speaker 9: Well, and you guys, you know, San Francisco is in
Speaker 9: the spotlight with APAC not as bad as some people
Speaker 9: made it out. All the big cities are having trouble
Speaker 9: with homelessness. Southern California is doing okay. We get hit
Speaker 9: by higher fuel prices and higher energy prices, and I
Speaker 9: think we're going to be continually impacted by climate change
Speaker 9: and people aren't paying enough attention to that. Stronger storms,
Speaker 9: aberate weather.
Speaker 2: How do you incorporate that? Because we have a like
Speaker 2: everywhere else, we have a big ESG focus at Bloomberg.
Speaker 2: We allocate a lot of resources to it. But it's
Speaker 2: become politicized in the US, and I kind of feel
Speaker 2: like it's losing some of its time in the spotlight,
Speaker 2: at least here in US. I know it's different in Europe.
Speaker 2: How does ESG go into your investment process?
Speaker 9: Absolutely integrained ingrained into everything we do. It's part of
Speaker 9: our core and our center. Larry Fink said he won't
Speaker 9: use the letters E, S and G. That's become politicized.
Speaker 9: The idea of governance risks, environmental risk, employment, social risks
Speaker 9: still matter, and they're just part of long term investment risk.
Speaker 9: And so I think we've got to get away from
Speaker 9: the initials and the political side and really focus in
Speaker 9: on long term business risks, which absolutely matter. CEOs pay
Speaker 9: attention to this, they just don't use those initials.
Speaker 2: Just real quick twenty seconds. Do you think there's a
Speaker 2: positive correlation between climate change in your investment process and returns?
Speaker 9: I think there will be over time. I think it
Speaker 9: is the biggest mega trend, Paul, that we're going to
Speaker 9: see in the next ten years. It is absolutely going
Speaker 9: to dominate the investment lands safe we have to go
Speaker 9: through a huge energy transition.
Speaker 2: I would love to be at a table. Maybe I'll
Speaker 2: get this dinner, him saying his kind of part in
Speaker 2: Texas is kind of part in Florida.
Speaker 5: Hey, I talked to Jason Alby Texas.
Speaker 9: Good friends with Florida. Let me hit your tea time
Speaker 9: on Freddy.
Speaker 2: Exactly, very good chrisy Almen, thank you so much for
Speaker 2: Journey's really appreciate it.
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller nineteen seventy three, and I'm Fall Sweeney.
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Speaker 2: can always catch us worldwide at Bloomberg Radio