Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Business
Speaker 1: Week Daily reporting from the magazine that helps global leaders
Speaker 1: stay ahead with insight on the people, companies, and trends
Speaker 1: shaping today's complex economy. Plus global business finance and tech
Speaker 1: news as it happens. The Bloomberg Business Week Daily Podcast
Speaker 1: with Carol Masser and Tim Stenebeck on Bloomberg Radio.
Speaker 2: Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast.
Speaker 2: Carol is off this week interplace, though we had a
Speaker 2: great rotating crew of co anchors featuring Nora Melinda, Emily Graffeo,
Speaker 2: Katie Greifeld, and Isabelle Lee. Another busy summer week. We've
Speaker 2: got global tariffs and how that's affecting US company's supply chains,
Speaker 2: plus fed independence and job security for j Powell. Also
Speaker 2: a hefty dose of earnings as banks kicked off Q
Speaker 2: two reporting the latest economic news and crypto week in
Speaker 2: the US House. We get into all of that a
Speaker 2: little bit later, plus Rare Earth's and focus yet again.
Speaker 2: We speak to the CEO of MP Materials on the
Speaker 2: company's multi million dollar deal with the US government to
Speaker 2: boost output of rare Earth magnets. Stateside all that to come.
Speaker 2: We begin, though, with the biggest will he won't he
Speaker 2: story of the week. Speculation over the fate of Federal
Speaker 2: Reserve Chair Jerome Powell set off a short lived tempest
Speaker 2: in financial markets on Wednesday. That volatility was mostly quelled
Speaker 2: after President Trump said he in fact has no plans
Speaker 2: to fire the central bank chief and was only discussing
Speaker 2: it in concept. Still, the president's remarks left open the
Speaker 2: possibility of ousting Powell, a credible threat that could end
Speaker 2: the Fed's independence and demonstrate the President's power to shake
Speaker 2: up global financial markets. For more, we turned to one
Speaker 2: of the few people who actually had experience on the FED.
Speaker 2: Layel Brainerd, is the former vice chair of the FED
Speaker 2: Reserve and former director of the National Economic Council under
Speaker 2: President Biden. She says, any break from bed independence would
Speaker 2: be quote extremely bad.
Speaker 3: I think there's a lot of continuity. He has clearly
Speaker 3: been very frustrated for some period of time with the
Speaker 3: Federal Reserve and their wait and see mode while they
Speaker 3: wait to see how tariffs are going to affect inflation
Speaker 3: and the economy, and you know, he's very impatient to
Speaker 3: see rates come down. So I saw those comments as
Speaker 3: being certainly in that same spirit, although of course the rumors.
Speaker 4: Had more urgency to them.
Speaker 3: Of course, subsequent to that, he seems to have pulled
Speaker 3: back the comments, and that's a good thing. I think
Speaker 3: it would be extremely bad for the United States to
Speaker 3: have a big rupture in the institutional independence of the
Speaker 3: Federal Reserve, which is what that would amount to.
Speaker 5: Exactly, So, how do you think this will affect the
Speaker 5: Fed's credibility in controlling inflation? And more broadly, how will
Speaker 5: this political move really just affect inflation expectations?
Speaker 3: Absolutely so, if the President of the United States were
Speaker 3: to go ahead and actually make an effort to remove
Speaker 3: the chair of the Federal Reserve, that would fly in
Speaker 3: the face of decades of institutional convention that puts the
Speaker 3: Federal Reserve in an independent position to pursue the control
Speaker 3: of inflation as well as keeping labor markets strong. And
Speaker 3: I think it would really raise important questions in the
Speaker 3: minds of investors in the United States and around the
Speaker 3: world as to whether the institutional environment that really underpins
Speaker 3: the value of treasury securities, the strength of the dollar,
Speaker 3: and the expectation that inflation will remain low and stable
Speaker 3: in the United States, All of those things I think
Speaker 3: would be thrown into question, and that should lead investors
Speaker 3: to demand more to hold long term treasury, so that
Speaker 3: should lead to the long end of the curve going up.
Speaker 2: Whenever the Fed Chair gives a press conference, he's asked
Speaker 2: by journalists about the criticism that the President has made
Speaker 2: or is making about him.
Speaker 6: You've worked with j.
Speaker 2: Powell for years, you know him in your view, how
Speaker 2: does he feel about being this punching bag.
Speaker 3: So I don't know how he feels personally, but I
Speaker 3: know that anybody in that position would feel that they
Speaker 3: have an important const well institutional responsibility that he was
Speaker 3: confirmed by the US Senate, that there is a legal
Speaker 3: set of expectations regarding the as a reserve chairs role.
Speaker 3: And of course monetary policy is set by committee. It's
Speaker 3: not set by the chair alone, and so it is
Speaker 3: the Federal Open Markets Committee that has continue to.
Speaker 6: Hold on rates.
Speaker 3: So it's a much broader institutional environment, and personalizing it
Speaker 3: by this relentless focus on the chair, I think is
Speaker 3: extremely problematic. Again, bad for the United States, and ultimately
Speaker 3: defeats the purpose that I think the President is trying
Speaker 3: to achieve, which is to see rates go down sustainably
Speaker 3: in an environment of growth and low inflation.
Speaker 5: When you look at the history of political pressure exerted
Speaker 5: upon the FED, I'm thinking Nixon, arsthur Burns, is today worse?
Speaker 5: Is today different? Or are they more or less the same?
Speaker 3: So I think that the past episodes where we've seen
Speaker 3: a lot of pressure on the Federal Reserve Chair two
Speaker 3: lower interest rates for political reasons have ended extremely badly,
Speaker 3: and we've seen in those episodes high inflation and the
Speaker 3: FED has really struggled to bring inflation back down. So
Speaker 3: I think this is a kind of similar set of
Speaker 3: pressures to what some FED chairs have felt in the past,
Speaker 3: but not in the recent past. I think in the
Speaker 3: you know, during the period that we have seen low
Speaker 3: and stable, moderate what they call the Great Moderation, low
Speaker 3: and stable inflation, there has been a real understanding that
Speaker 3: the President the administration should allow the Federal Reserve to
Speaker 3: conduct monetary policy in a way that establishes their credibility
Speaker 3: on inflation control. So this is a big change relative
Speaker 3: to the last three decades, and it's highly problematic. You know,
Speaker 3: the President has said very explicitly that he wants to
Speaker 3: see the Federal Reserve lower rates because every percentage point
Speaker 3: that rates come down, this is what he says, it
Speaker 3: will save him three hundred billion dollars in interest payments
Speaker 3: on the national debt. And of course that's more important
Speaker 3: than ever now that we've just added through the megalaw,
Speaker 3: another four trillion dollars to the national debt. And so
Speaker 3: when you hear the President talking about this, he really
Speaker 3: seems to be very focused on those interest payments. And
Speaker 3: that is exactly the kind of institutional environment that would
Speaker 3: undermine the credibility of the Federal Reserve in fighting inflation
Speaker 3: and could actually lead investors to demand higher interest rates
Speaker 3: on long term treasuries.
Speaker 2: That's the great irony in this, this whole situation here.
Speaker 2: I just we have twenty seconds left. I just want
Speaker 2: you to make a prediction. Do you think FED Chair J.
Speaker 2: Powell will fulfill his term as the chair? I'm inn
Speaker 2: the Federal Reserve until May of next year.
Speaker 3: I certainly hope so, and yes I do.
Speaker 2: All right, Lalel Brainerd, thank you so much for joining
Speaker 2: us on Bloomberg BusinessWeek Daily.
Speaker 6: That is, of course.
Speaker 2: Lalel Brainerd, former National Economic Council Director, former Vice chair
Speaker 2: of the Federal Reserve Distinguished Fellow at the Georgetown Sorrow
Speaker 2: Center for Financial Markets and Policy.
Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch
Speaker 1: us live weekday afternoons from two to five Easter and
Speaker 1: listen on Apple Karplay and Android Auto with the Bloomberg
Speaker 1: Business app, or watch us live on YouTube.
Speaker 2: Sticking with the President's threats to House j. Powell, this week,
Speaker 2: we turned to another expert on the Central Bank who
Speaker 2: spends a lot of time interviewing members of the feed.
Speaker 2: Michael McKee is Bloomberg News International Economics and Policy correspondent.
Speaker 2: Mike joined us from the Rocky Mountain Economic Summit in Victor, Idaho.
Speaker 2: It's an event that brings together some of the country's
Speaker 2: top economists and policymakers.
Speaker 7: Well, actually, Jim, there's a bit about an eye roll
Speaker 7: going on with a lot of people because we've been
Speaker 7: through this so many times with Donald Trump, and the
Speaker 7: whole idea of taco came up again. So nobody was
Speaker 7: surprised when he came out and denied the earlier reports
Speaker 7: that he was ready to fire the president. Perhaps his
Speaker 7: early fire the FED chair, but the general feeling has
Speaker 7: been and we talked about this a lot at dinner
Speaker 7: last night, that the President won't do it because it
Speaker 7: doesn't get him very far. It would probably lead to
Speaker 7: a steepening of the yield curve, a widening of spreads,
Speaker 7: the dollar falling, and interest rates would go up rather
Speaker 7: than down in the markets, and it would just create
Speaker 7: a lot of confusion and hurt the Fed's credibility. It
Speaker 7: would also end up in court, so he might try
Speaker 7: to remove the FED chair, but it would take many
Speaker 7: months of legal maneuvering to get that far, and really
Speaker 7: Powell doesn't have that much longer to go as chair.
Speaker 2: You said that there was a little bit of eye
Speaker 2: rolling because this is sort of a movie that we've
Speaker 2: seen before. Let's take a listen to the rhetoric from
Speaker 2: the president just over the last few months when it
Speaker 2: comes to the chair of the Federal Reserve.
Speaker 8: And the fake news is saying, Oh, if you fired him,
Speaker 8: it would be so bad, it would be so bad.
Speaker 8: I don't know why it would be so bad. So
Speaker 8: we have a stupid person. Frankly at the FED. I'd
Speaker 8: go him too late, Powell, because he's always too late.
Speaker 8: I know within three or four people who are going
Speaker 8: to pick I mean, he goes out pretty soon, unfortunately,
Speaker 8: because I think he's terrible. I'd love him to resign
Speaker 8: if he wanted to. He's a done, lousy job. Your
Speaker 8: own pal has been very bad for our country.
Speaker 9: We should have the lowest interest rate on earth.
Speaker 10: How we don't.
Speaker 8: He just refuses to do it, and yet he's spending
Speaker 8: two and a half billion dollars rebuilding the bet. He's
Speaker 8: a terrible He's a terrible feed cheer. I'm surprised he
Speaker 8: was appointed. We're not planning on doing it if they
Speaker 8: were very concerned.
Speaker 2: I was President Trump over the last few months his
Speaker 2: rhetoric around Fetchair J. Powell, it's in chronological order, and
Speaker 2: I want to point people to the park just before
Speaker 2: the last SoundBite where he said he's spending two and
Speaker 2: a half billion dollars rebuilding FED. Mike, is there any
Speaker 2: there there with this new line of attack when it
Speaker 2: comes to this renovation, Well.
Speaker 7: There are questions about why the renovation has gone up
Speaker 7: from one point seven billion to two and a half billion,
Speaker 7: and I suppose those are things that could be investigated,
Speaker 7: and Powell has asked the Fed's Inspector General to look
Speaker 7: into it. The Fed's response so far has been that
Speaker 7: these plans were approved in twenty twenty one, and obviously
Speaker 7: right after that we had a big inflation, and so
Speaker 7: the costs of everything have gone up. They have also
Speaker 7: argue that a lot of things that the administration is
Speaker 7: focused on, or some of the administration officials who tweeted
Speaker 7: about it or focused on, are things that are actually
Speaker 7: not in the final plans, and so it doesn't appear
Speaker 7: that there's a lot there. Is it enough for cause
Speaker 7: to fire a FED governor. That would be up to
Speaker 7: the courts to decide, and as I said, that would
Speaker 7: take some time. So I don't know that that's a
Speaker 7: big deal. That string of Trump quotes, I would also
Speaker 7: point to the one where Trump said I was surprised
Speaker 7: he was appointed. Well, Trump appointed him as chair.
Speaker 11: Yeah, Tim is eager to make that point. He did
Speaker 11: also express surprise that Biden renominated him President Biden. I
Speaker 11: do want to get your thoughts, Mike McKee on the
Speaker 11: idea that, Okay, his term as FED chair ends in
Speaker 11: May twenty twenty six. We know that. We also know
Speaker 11: that his term as FED governor doesn't end until January
Speaker 11: twenty twenty eight. We had Treasury Secretary Scott Besson joined
Speaker 11: Bloomberg Television, and he said that would be very confusing
Speaker 11: for markets if pal did stay on as a governor
Speaker 11: until January twenty twenty eight. What does the precedent look
Speaker 11: like there.
Speaker 7: Well, there really isn't a precedent. The closest you can
Speaker 7: get is back in nineteen fifty one the Treasury Fed
Speaker 7: accord where the Treasury Department and the Fed agreed that
Speaker 7: Treasury would handle fiscal policy and the Fed would handle
Speaker 7: monetary policy, and the FED chairman at the time stepped down.
Speaker 7: President Truman appointed a new chair, but the old chair
Speaker 7: stayed on for a couple of years as a governor.
Speaker 7: But it wasn't a matter of standing up to the
Speaker 7: administration at the time. He was actually asked to do
Speaker 7: that to lend his experience. In this case, this would
Speaker 7: be a completely unusual situation. The only close analogy I
Speaker 7: could come up with would be Paul Volker, who faced
Speaker 7: a rebellion among his fellow Board governors and the ragged
Speaker 7: Whitehouse told him, we think this means you need to go,
Speaker 7: and he did resign. But it was a kind of
Speaker 7: different situation than we have right now. So this would
Speaker 7: be as Scott Besson said, a completely confusing mess for
Speaker 7: the markets, particularly if the President appointed someone he's seen
Speaker 7: as a toady to him that would just try to
Speaker 7: lower interest rates regardless of economic conditions. The next thing
Speaker 7: that would happen would be Governor Powell would offer a
Speaker 7: speech and it would get massive coverage, and the markets
Speaker 7: would be torn between which ones to believe. It's also,
Speaker 7: and this is important Tim and Katie to realize that
Speaker 7: the Open Market Committee that sets interest rates selects its
Speaker 7: own chairman of that committee, and it doesn't have to
Speaker 7: be the FED Board chairman. So the President could appoint
Speaker 7: Kevin Hassett as the FED Board chair and the Open
Speaker 7: Market Committee could just keep Jay Powell as its chair,
Speaker 7: and so interest rates wouldn't be any different than they
Speaker 7: are right now.
Speaker 2: All right, Michael McKee, we're gonna have to leave it there.
Speaker 2: Michael mckei Bloomberg News International economics and policy correspondents out
Speaker 2: there in Victor, Idaho.
Speaker 1: This is the Bloomberg Business Week Daily podcast. Listen live
Speaker 1: each weekday starting at two pm Eastern on Apple, Corflay
Speaker 1: and Android Auto. With the Bloomberg Business app. You can
Speaker 1: all so listen live on Amazon Alexa from our flagship
Speaker 1: New York station, just say Alexa play Bloomberg eleven thirty.
Speaker 2: One company that's certainly been on our radar as of
Speaker 2: late is MP Materials. In fact, the company's also on
Speaker 2: Apple's radar. This past week, Apple announced it would commit
Speaker 2: to a five hundred million dollar deal with MP for
Speaker 2: its rare earth magnets. News of that deal led the
Speaker 2: stock of MP Materials to search twenty percent. Adding to
Speaker 2: the surge was this month's announcement that the US Department
Speaker 2: of Defense wants to make a four hundred million dollar
Speaker 2: equity investment in MP, along with one billion dollars in
Speaker 2: financing from JP, Morgan Chase and Goldman Sachs to fund
Speaker 2: a major new plant. This, of course, comes as the
Speaker 2: US continues to secure domestic manufacturing of these critical supplies
Speaker 2: and push back against China's grip on them. James Litinsky
Speaker 2: is the founder, chairman, and CEO of MP Materials. He
Speaker 2: joined Carol and Me alongside Bloomberg News Economic Statecraft reporter
Speaker 2: and mining and minerals expert Joe Doe on what the
Speaker 2: DoD investment means for the company and for the industry.
Speaker 12: There are three pillars to DoD's investment. DOOD made an
Speaker 12: investment in MP. They also provided us with a long term,
Speaker 12: a ten year price floor contract that allows us to
Speaker 12: earn a fair return on the commodity. And then they
Speaker 12: also provided one hundred percent off take for a new
Speaker 12: magnet facility that we're building that will significantly expand.
Speaker 4: It will ten x our magnet capacity.
Speaker 12: What's so important about this is that with the supply chain,
Speaker 12: as you may have heard me say, if we have
Speaker 12: all the rarests in the world, if we don't have
Speaker 12: the downstream, if we don't have the magnet production, or
Speaker 12: vice versa, if we have magnet production but don't have
Speaker 12: the rare oaths, then you know, it's all for nought.
Speaker 12: And so it's really important to look at this supply
Speaker 12: chain on a vertical basis. And so you really have
Speaker 12: to credit President Trump and his administration and of course
Speaker 12: our partners at the Pentagon for sort of looking at
Speaker 12: this challenge and recognizing that you know, MP has put
Speaker 12: together a vertically in a grin a champion, and the
Speaker 12: best solution to kind of catalyze this supply chain is
Speaker 12: making a substantial commitment to us, which they've done We're
Speaker 12: very excited about that. And lastly, I would just say
Speaker 12: that this is this is a huge win for taxpayers
Speaker 12: because the structure of the deal is such that not
Speaker 12: only is DoD now economically our largest shareholder, but they
Speaker 12: have upside participation in both the commodity and in the
Speaker 12: magna business.
Speaker 2: Hey, Joe, come on in here, because you understand this
Speaker 2: space like pretty much nobody else. Talk to us about
Speaker 2: what you see as significant about an investment such as this,
Speaker 2: especially from a position of economic staatecraft.
Speaker 13: Well, I wanted to ask Jim about that. Jim, I
Speaker 13: feel like you're inderplaying. Can you give us size and scope,
Speaker 13: put into context why this is such a big deal
Speaker 13: in your industry and what you think about it.
Speaker 4: Thanks, Jo, it's good to see you.
Speaker 12: Well, I think not to get too wonky, but I
Speaker 12: would recommend, since we are on Bloomberg, for those is
Speaker 12: in our investor relations, we obviously put out a deck
Speaker 12: and I really encourage people to look at that and
Speaker 12: we go through a lot of the economics, but I'll
Speaker 12: give you this summary, which is that we have totally
Speaker 12: transformed MP's business overnight. We've gone from you know, the
Speaker 12: Challenge show, as you know is that the Chinese historically
Speaker 12: have sold rare earth set a substantial loss because they
Speaker 12: use it mercantilistically as a strategic source of control of
Speaker 12: the downstream.
Speaker 13: Which is a way of saying, Jim, that they will
Speaker 13: flood the market to take market share, which is one
Speaker 13: of the things that has always scared investors away from
Speaker 13: your company and other companies in this space.
Speaker 6: Correct.
Speaker 12: And so if you look at the math, we basically
Speaker 12: have transformed MP where we can earn We have long
Speaker 12: term contracted cash lists, so we have ten year agreements
Speaker 12: where essentially, if you kind of look out normalized, you know,
Speaker 12: we believe we can do six hundred and fifty million
Speaker 12: plus of ebadah and this is you know, and again
Speaker 12: look at the various parts, but this has taken our
Speaker 12: business from what was sort of a volatile commodity business
Speaker 12: to a long term, contracted economic platform which enables us
Speaker 12: to further investments downstream and both and those investments downstream,
Speaker 12: we now have one hundred percent off take in DD
Speaker 12: as a customer.
Speaker 4: And if I can't, Joe, let me add one more.
Speaker 12: Point that I think is so important because you hit
Speaker 12: the nail on the head about the Chinese flooding the market.
Speaker 4: The Chinese very thoughtfully realize.
Speaker 12: That, particularly with when we think about physical AI and
Speaker 12: the future of warfare, robotics, drones, the Chinese are willing
Speaker 12: to lose billions to play for trillions of dollars of
Speaker 12: downstream market cap. And when we think about you know,
Speaker 12: our great leaders in technology, whether it's Jensen Wong or
Speaker 12: Elon Musk talking about robotics being potentially the largest industry
Speaker 12: in the history of the world where earth magnets are important,
Speaker 12: very important, extremely critical feedstock to that. And so we've
Speaker 12: got to preserve that trillions of dollars of downstream enterprise value.
Speaker 12: And that obviously is what we're about at MP is
Speaker 12: making sure that our downstream industry has that feedstock and
Speaker 12: obviously ensures that we can make those investments.
Speaker 13: Jim, the Defense Department is famously not flashy about anything.
Speaker 13: It's hard to argue that this was not flashy. Four
Speaker 13: hundred million dollar equity investment in a publicly traded company.
Speaker 13: Have they ever done this before.
Speaker 12: I think it's a pretty unprecedented situation, and I think
Speaker 12: that this is obviously a very unique circumstance. And obviously,
Speaker 12: you know, we we are honored and humbled by it, Joe.
Speaker 12: And as you know, since we've been talking for many years,
Speaker 12: I guess there's the old expression of it takes a
Speaker 12: lifetime of hard work to become an overnight success. We've
Speaker 12: been at this for ten years at MP, and I
Speaker 12: think I think that Dood and the administration realize that
Speaker 12: we've got to look at the supply chain holistically, and
Speaker 12: you know, hopefully this is a model for future other
Speaker 12: scenarios where we have strategic industries that we have to
Speaker 12: return and we've got to figure out a way to
Speaker 12: take on mercantilist economics, and so this is I think
Speaker 12: hopefully a good and model in doing so.
Speaker 2: So Jim, to that point, you operate in a specific
Speaker 2: portion of sort of the rare Earth space when it
Speaker 2: comes to these magnets. In your view, because you're in
Speaker 2: this space, where does the US still lag and where
Speaker 2: does the US need to invest in order to try
Speaker 2: to catch up if even possible.
Speaker 4: Well, we're vertically integrated, so we at MP, and there's
Speaker 4: nobody like this.
Speaker 2: I just mean from the materials and processing perspective, I
Speaker 2: understand you are vertically integrated, but what about for all
Speaker 2: of the rare earths that will be in demand in
Speaker 2: the near future.
Speaker 12: Sure well, so there are two major categories that are
Speaker 12: the light and the heavies, and is part of this announcement,
Speaker 12: DoD is actually also committing some capital for us to
Speaker 12: build out samarium separation at Mountain Pass. Samarium is a
Speaker 12: feedstock into a different kind of magnet that's actually really
Speaker 12: critical for military purposes as well. And so essentially, tim
Speaker 12: if you want to refine, if you want to refine earth,
Speaker 12: so forget the ore bodies around the world, if you
Speaker 12: want to refine and separate them to then become feedstock
Speaker 12: to magnets.
Speaker 4: There are two places to do it.
Speaker 12: There's sort of the Chinese sphere of influence or Mount Pass, California.
Speaker 12: And so I think this basically catalyzes us to move
Speaker 12: downstream and really be able to have MP as an
Speaker 12: economic platform that can encourage additional investment really in all
Speaker 12: spheres in mining and across the stream all the way
Speaker 12: down to magnets.
Speaker 14: You know, Jim, I think people are listening and they're like, yeah,
Speaker 14: you know, if we're thinking about developing our supply chains
Speaker 14: here and making and creating national security for things that
Speaker 14: are so important to so many different aspects of our
Speaker 14: lives here in the United States. People are gonna say, yeah,
Speaker 14: this makes sense, but do you feel like this is
Speaker 14: potentially a step towards you becoming a state owned enterprise?
Speaker 4: Oh not at all, not at all.
Speaker 12: In fact, you know, I think it's actually the opposite,
Speaker 12: which is, for the first time we see an actual
Speaker 12: data point of how we in the West, with free
Speaker 12: market capitalism, can take on mercantilism, but doing so in
Speaker 12: a way that is is along with our value system.
Speaker 12: So let's be very clear about this. D D is
Speaker 12: becoming economically our largest shareholder. But they they are you know,
Speaker 12: they will vote with our board and they expect us
Speaker 12: to be a thriving public company. They want us to
Speaker 12: continue to run the company for shareholders, and obviously their
Speaker 12: interest will will be a benefit for taxpayers to the
Speaker 12: extent that they, you know, are we continue to compound,
Speaker 12: which we expect, and then they also have upside sharing.
Speaker 4: And so I want to I want.
Speaker 12: To, you know, really remind people that if you look
Speaker 12: at this deal, it was a win win win. Obviously,
Speaker 12: you know, the market likes it. I think there's our
Speaker 12: our economic platform has totally changed. But we're serving a
Speaker 12: key national security initiative enabling trillions of dollars of downstream
Speaker 12: enterprise value to be more secure. But the taxpayer also
Speaker 12: has upside in this, and so I think that this
Speaker 12: is sort of again, it's it's a new model. It's
Speaker 12: unprecedented in a sense, but it's of course because we're
Speaker 12: facing a challenge that we haven't faced before.
Speaker 13: Yeah, I guess on some level, Jim. The upside the
Speaker 13: tax payer has is if your stock goes up, the
Speaker 13: investment that the DoD hasn't it goes up. I was
Speaker 13: talking to an investor today asking about this, and I said, well,
Speaker 13: what what does it mean for the taxpayer? And they said, really,
Speaker 13: all it means is a better bet on national security issues.
Speaker 13: So I might push back if.
Speaker 12: I may, Yeah, if I may push back, because if
Speaker 12: you look at the structure of the deal, it's not
Speaker 12: just the shareholding. There are three pillars. It's the shareholding,
Speaker 12: there's then upside participation in the commodity, and then there's
Speaker 12: also upside participation in our magnet business. So there's actually
Speaker 12: three different mechanisms of upside sharing for the taxpayer.
Speaker 13: And can you clarify one thing in the details the agreement.
Speaker 13: It's one hundred and thirty dollars floor, right, or is
Speaker 13: one hundred and ten Sorry, one hundred ten. It's one
Speaker 13: hundred and ten dollars floor. That is just for the
Speaker 13: actual concentrate refined in metal. That is not batteries, right, Sorry,
Speaker 13: that is not permanent magnets.
Speaker 12: That's all NDPR products. So you're right, concentrate oxide medal.
Speaker 12: And then we're on a downstream though. We also have
Speaker 12: one hundred percent off take for the new facility that
Speaker 12: we're going to build called ten X, and as part
Speaker 12: of that off take, we'll have a minimum EBITDAG guarantee
Speaker 12: and then there'll be a catch up for DoD and
Speaker 12: then we'll share. We're fifty to fifty partners and so again, Joe,
Speaker 12: this is this is a transformational public private partnership.
Speaker 15: Right.
Speaker 4: But taxpayer was really really well represented in the structure.
Speaker 13: But Jim, one thing, you probably will be getting a
Speaker 13: lot of pushback from investors, from media whoever, saying what
Speaker 13: we just brought up, which is your biggest stockholder will
Speaker 13: be the Defense Department. And doesn't that bring a concern
Speaker 13: that the federal government has so much say in what
Speaker 13: is supposed to be a publicly traded private company.
Speaker 12: Well, actually, interestingly, as part of our deal, d D
Speaker 12: will be voting their shares with our board.
Speaker 4: And so I really think that this is again it's
Speaker 4: a new.
Speaker 12: Structure that contemplates the fact that we need to be
Speaker 12: a successful public company.
Speaker 6: So this is very different.
Speaker 10: You know.
Speaker 12: I know that maybe there's you know, historical examples of
Speaker 12: where the government needed to come in and rescue an industry.
Speaker 4: It's actually the opposite of what's happening here. The government
Speaker 4: wants to.
Speaker 12: Achieve an important national security objective and we at MP
Speaker 12: are able to help them achieve that objective. And so
Speaker 12: they are going to help support us in accelerating investment
Speaker 12: in our space, and they're going to create the conditions
Speaker 12: that allow us to invest with a fair return on
Speaker 12: capital and not be a tax sort of speak by mercantilism.
Speaker 12: And in exchange for that, they're going to expect some
Speaker 12: upside and so again I think this is hopefully it's
Speaker 12: a new model that we can utilize across some of
Speaker 12: these verticals that are really challenging for us, where we've
Speaker 12: been unable to fully reshore industries because we're facing competition
Speaker 12: that is thinking differently again.
Speaker 4: We yeah, oh go ahead, Sorry, we.
Speaker 2: Only have a minute left, and I just want to
Speaker 2: hear from you how this deal came together in the
Speaker 2: timeline here, who did you speak to? Who first reached out?
Speaker 2: Trips to Washington, trips to you know, Chicago or Nevada, Like,
Speaker 2: how did it all come together and when did the
Speaker 2: discussions first start.
Speaker 12: Well, we've been we've been having a great active dialogue
Speaker 12: with the Pentagon going back to the first Trump administration
Speaker 12: and through the Biden administration and now obviously the Trump administration.
Speaker 12: And obviously this is a non partisan issue getting this
Speaker 12: supply chain back. Suffice to say that what we have been,
Speaker 12: as you know, in our mission, we've been focused on
Speaker 12: this single point of failure since the inception of the
Speaker 12: company post Liberation Day, as we saw the Chinese utilized
Speaker 12: raref magnets in the trade disputes that that basically the
Speaker 12: cutoff of rareth magnets had the threat of sending our
Speaker 12: economy into a deeptail spent and so that really certainly
Speaker 12: accelerated some of this discussion.
Speaker 14: Got to ask you, though, did you actually talk with
Speaker 14: President Trump about this? Like who finally said got to
Speaker 14: do it signed it.
Speaker 12: Well, I think you can look at the the transaction
Speaker 12: documents which which we're signed to the top levels of
Speaker 12: the Pentagon. So this was this was a conversation from
Speaker 12: the very top levels of the Pentagon.
Speaker 4: Is that a yes on mister? Is that a yes on?
Speaker 14: The president?
Speaker 12: So this is this is again I don't I don't
Speaker 12: want to specifically name names of who we spoke to
Speaker 12: and how the conversations went about. But again, how about this,
Speaker 12: I will I will tell you that the President has
Speaker 12: directly mandated that we fixed this supply chain and so
Speaker 12: that is that is public.
Speaker 4: You can see that.
Speaker 12: And so the President mandated the secretary on down to
Speaker 12: fix the supply chain. And I think that this is
Speaker 12: this is really bold and decisive action to make that happen.
Speaker 14: Well, investors certainly taking investors certainly taking note, as we said,
Speaker 14: your stock up fifty percent. I'm going to say thank you,
Speaker 14: thank you, thank you, because there's three of us, and
Speaker 14: we really appreciated your time and getting having a conversation
Speaker 14: with you on this because it does sound like it's
Speaker 14: pretty significant in terms of what happens with.
Speaker 4: Rare Earth's here in the United States.
Speaker 14: Jim thank you, Thank you staying touch Jim Litinski, He's founder,
Speaker 14: chairman and CEO of MP Materials, and of course our
Speaker 14: own Joe Doe Bloomberg News Economic Statecraft Reportito, Thank you
Speaker 14: so much.
Speaker 1: You're listening to the Bloomberg Business Week Daily podcast. Catch
Speaker 1: us live weekday afternoons from two to five eas during
Speaker 1: Listen on Applecarplay and Android Auto with the Bloomberg Business
Speaker 1: app or watch us live on YouTube.
Speaker 2: Back in April, Levi's was one of the first big
Speaker 2: apparel companies to report earnings after President Trump announced sweeping tariffs.
Speaker 2: Since then, a number of its competitors, such as American
Speaker 2: Eagle and Gap, have flagged the tariff's impact, along with
Speaker 2: general consumer caution. Wall Street expected a similar fate for Levi's,
Speaker 2: but instead, Levi's actually announced its revenue outlook to rise
Speaker 2: between one and two percent for the current fiscal year,
Speaker 2: above the average analyst estimate and up from a previous
Speaker 2: view that sales would decline one percent to two percent.
Speaker 2: So is the head to toe Denham Lifestyle paying off.
Speaker 2: Levi Straus chiefinancial and Chief Growth Officer Harmeet Singh expects
Speaker 2: momentum and consumer resilience to overcome tariff uncertainty. He joined
Speaker 2: us alongside Bloomberg News senior editor Nina Trentman.
Speaker 16: We delivered a quarter to beat and we raised our
Speaker 16: fullier guidance. A special shout out to our teams around
Speaker 16: the world for what I call delivering the power of
Speaker 16: the end, which is not only growing direct to consumer business,
Speaker 16: but our wholesale business, growing our US business, and our
Speaker 16: international business, growing men's and women's and I can keep
Speaker 16: going on, and that really explains the momentum we have.
Speaker 16: We delivered our third consecutive quarter of high single digit
Speaker 16: growth and growing our profitability, and that is why we
Speaker 16: believe that we're stepping into the second half. We believe
Speaker 16: we can manage through the uncertainty of tariffs.
Speaker 9: The tariff situation is fluid.
Speaker 16: We assumed an incremental ten percent on tariffs from the
Speaker 16: rest of the world and thirty percent from China. Our
Speaker 16: view is we are competitively in a better part to
Speaker 16: manage through this. Sixty percent of our business is international.
Speaker 16: We have a fairly diversified supply chain, and we've been
Speaker 16: agile over the years in managing through some of the uncertainties.
Speaker 16: We've got some mitigation actions. Tim we are working with
Speaker 16: our vendors. A large piece of our growth is driven
Speaker 16: by higher volumes, and that makes a difference when you
Speaker 16: negotiating with the With our ten year relationships. Over the years,
Speaker 16: we are driving higher full price sales because our product
Speaker 16: offers are working, and we are targeting some pricing actions
Speaker 16: with minimal impact to the consumer. You a question about
Speaker 16: twenty six. We are working through that. Some of the
Speaker 16: mitigation actions will continue. We believe the brand momentum continues.
Speaker 16: The brand has never been wronger. You know, this year
Speaker 16: it's all about center of culture driven through music. We've
Speaker 16: got a partnership with Beyonce. We've got a partnership with
Speaker 16: different musicians around the world. Think Dilgitusan in India, I
Speaker 16: think different influences in Europe, etc.
Speaker 10: Next year, maybe I could jump in there quickly. We'll
Speaker 10: we'll ask about the music partnerships in a second. Just
Speaker 10: wondering in terms of earnings. Of course, an interesting thing
Speaker 10: is happening right now. We were expecting teriff clarity by
Speaker 10: July ninth. Now we're hearing from the White House it's
Speaker 10: going to be August first, and that won't be moved.
Speaker 10: But of course you are on the lucky side that
Speaker 10: you have already reported earning. Still, at the same time,
Speaker 10: you gave an outlook, you provided commentary about what you're
Speaker 10: thinking about the future. And you're doing that in an
Speaker 10: environment where we're hearing teriff announcements from the White House
Speaker 10: basically on a quasi daily cadence. How confident and comfortable
Speaker 10: can you be as CFO to provide forward guidance at
Speaker 10: this point given that target, the tariffs are still such
Speaker 10: a moving target.
Speaker 16: Yeah, you know, a couple of things give us confidence, Nina.
Speaker 16: Number one, the momentum that we're entering the second half,
Speaker 16: it's been sustained over.
Speaker 9: The last three quarters.
Speaker 16: The second is our product offers the consumer so far
Speaker 16: has been resilient. Our customers, our wholesale retailers are still
Speaker 16: buying our products, especially our new product.
Speaker 9: And because we are a global.
Speaker 16: Company, international for example, has been fairly strong. So as
Speaker 16: we manage through the uncertainty, we are trying to do
Speaker 16: it thoughtfully.
Speaker 9: You know, we don't take anything for granted.
Speaker 16: You know, our view is you've got to continue to
Speaker 16: earn the trust with our consumers every day, and you know,
Speaker 16: especially in moments of crisis, consumers tend to gravitate to
Speaker 16: brands that are relevant and also you know, brands they trust,
Speaker 16: and you know, because we have been around for one
Speaker 16: hundred and seventy years, get a different crisis. That's really
Speaker 16: been the genesis of why we think we can manage
Speaker 16: through it. You know, we talked about the impact, we
Speaker 16: talked about actions that we're taking to mitigate that, and
Speaker 16: more importantly, we're doing different scenarios. I mean, after earnings,
Speaker 16: when we received news about certain tariffs, we went back
Speaker 16: and game plan that through another scenario. So we're working
Speaker 16: through different scenarios. The other piece that gives me more
Speaker 16: confidence is the agility of our supply chain and our
Speaker 16: teams around the world. And you know, let me pause here.
Speaker 16: I hope that addresses your question.
Speaker 17: Yeah, Hermie, you mentioned a music partnership that we of
Speaker 17: course all know, Beyonce, and this was a really major
Speaker 17: deal for Levi Strauss. I mean you mentioned the brand
Speaker 17: being relevant. I was just at the Cowboy Cotter concert
Speaker 17: and I look around there's Levi's everywhere. How influential was
Speaker 17: this partnership to the company and how much of an
Speaker 17: impact did it have on sales?
Speaker 16: Yeah, it's been really important, you know, We've had a
Speaker 16: relationship with Beyonce for decades. She's an icon, She's in
Speaker 16: the center of culture, and we are just privileged and
Speaker 16: honors that she chose us for this partnership. It's had
Speaker 16: an impact. Our women's business is on a roll. You know,
Speaker 16: we have doubled the business over the last many years.
Speaker 16: The partnership really accelerated there. We are nowhere near done.
Speaker 16: We think we can double our women's business. You know,
Speaker 16: our women's business is about a little less than forty
Speaker 16: percent of our business. When I joined the company twelve
Speaker 16: years ago, it was about twenty percent. We think our
Speaker 16: women's business can be about you know, half our business.
Speaker 16: And I would say the partnership is important. Her styles
Speaker 16: and what she's wearing, they're selling really well.
Speaker 9: You know, take the Beyonce hat.
Speaker 16: You know, I was in Europe, you know, early June,
Speaker 16: and you know I was hearing stories of consumers wanting
Speaker 16: to wig and shop the hat and the product before
Speaker 16: they went to the Beyonce concert.
Speaker 9: They come to our store.
Speaker 16: You know, we have store managers who help customized the product. Emily,
Speaker 16: you know, who runs our store in Regent Street, is
Speaker 16: a great example. And so from my perspective building and
Speaker 16: coming up with these memorable moments for our consumers is
Speaker 16: what connects us with our fans and makes a big difference.
Speaker 2: We should note Harmee saying who we're speaking to now.
Speaker 2: He's chief financial and growth officer at Levi Strauss. If
Speaker 2: you're listening on radio, he's dressed head to toe in Levi,
Speaker 2: but he's not actually wearing the Beyonce hat right now.
Speaker 2: So next time he joins us, he can shoot for
Speaker 2: that name.
Speaker 17: Sure he'd look great in the Yeah.
Speaker 10: Harmitd You talked about the importance of your supply chain.
Speaker 10: I'm curious to see what you're hearing from suppliers. We've
Speaker 10: seen about a ten percent decrease in the dollar against
Speaker 10: major currencies around the world since the beginning of the year.
Speaker 10: Are you seeing any demands from suppliers to be paid
Speaker 10: in local currencies to not carry some of that the
Speaker 10: currency volatility that has come with dollar.
Speaker 9: Yeah?
Speaker 16: No, you know, we have tenured relationships. We source from
Speaker 16: about twenty eight countries. You know, our relationships are deep,
Speaker 16: have been there for a long long time. Currencies go
Speaker 16: up and down. There are times when the dollar is weaker,
Speaker 16: the times when the dollar is stronger, and you know,
Speaker 16: and I think our supplies, our vendors, and our partners
Speaker 16: are used to that. So we're not seeing any pressure
Speaker 16: to change it into local currency because people have lived through,
Speaker 16: you know, pieces. The more important thing is what goes
Speaker 16: into the production and manufacture. Cotton is a big piece commodity,
Speaker 16: and cotton has a commodity has actually traded down and
Speaker 16: that also helps offset some of the currency pressures. And
Speaker 16: because volumes have been a big piece of us driving
Speaker 16: our growth, you know, and we're thinking long and you
Speaker 16: know as and we believe we can sustain in the
Speaker 16: growth ad mid single digit over a period of time.
Speaker 16: I think that's what helps us ensure there. It's a
Speaker 16: win win both for our manufacturer and vendors as well
Speaker 16: as the brand. And so I think that's how we're
Speaker 16: dealing with it.
Speaker 18: Nina.
Speaker 17: So, while Levi is focusing on direct to consumer, the
Speaker 17: wholesale channel is also growing. Right, what kind of retail
Speaker 17: is specifically doing well for the company? Department stores are
Speaker 17: more so e commerce.
Speaker 9: Yeah, So it's the magic of the end.
Speaker 16: It's great to see our stores perform well, our comments
Speaker 16: perform well, and wholesale and you know, I mentioned jokingly
Speaker 16: within the company. It's a great trifecta on DDC. We're
Speaker 16: growing comp sales. We just reported our thirteen consecutive cot
Speaker 16: of comp sales growth. We're opening doors, so we're you know,
Speaker 16: increasing our market reach. We have thirty thirty two hundred
Speaker 16: doors right now, we're adding fifty sixty a year, and
Speaker 16: we're growing commerce in the mid single digit. Beside all this,
Speaker 16: wholesale is also growing. And where DDC first really helps
Speaker 16: Norah to your question. You know, our wholesale customers see
Speaker 16: the new product which is introduced in our direct to
Speaker 16: consumer stores, see it, see how the performance is doing,
Speaker 16: and in a lot of cases is working, and that
Speaker 16: gives them the confidence to buy into the product. So
Speaker 16: wholesale customers are growing largely because DDC is growing. They're
Speaker 16: seeing the product introduction, they see things working, and that
Speaker 16: makes a big difference. And also with our wholesale retailers,
Speaker 16: our relationships have been here for a long long time.
Speaker 2: Given the tariff uncertainty, are you having serious discussions about
Speaker 2: moving any production or more production or any production excuse
Speaker 2: me to the United States.
Speaker 16: No, Tim, You know, ninety eight percent of all apparel
Speaker 16: soul in the US is actually imported, so you know,
Speaker 16: that's not a conversation that's happening. We believe long term
Speaker 16: the tariff uncertainty will clarify and settle well where the
Speaker 16: consumer in the US, you know, doesn't bay the cost
Speaker 16: of the incremental tariffs, and companies like ours, different apparel companies,
Speaker 16: continue to grow their businesses in the US.
Speaker 2: HARMI always good to see you. Thanks so much for
Speaker 2: taking the time and joining us on Bloomberg BusinessWeek Daily
Speaker 2: this afternoon. That's hermeat saying, chief financial and Growth officer
Speaker 2: at Levi, Strauss and Company. Also Bloomberg News Senior editor
Speaker 2: Nina Trentman. She's the author of the Bloomberg CFO Briefing newsletter.
Speaker 2: You can sign up for it if you haven't already
Speaker 2: at Bloomberg dot com slash CFO Briefing.
Speaker 1: This is the Bloomberg Business Week Daily podcast. Listen live
Speaker 1: each weekday starting at two pm Eastern on Applecarplay and
Speaker 1: Android with the Bloomberg Business App. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: Plenty ahead in our second hour of the weekend edition
Speaker 2: of Bloomberg BusinessWeek, including the shark tank like companies that
Speaker 2: are now feeling the bite of Trump's tariffs and how
Speaker 2: stressed out overworked customs brokers are now left calculating the
Speaker 2: bill for those with tariffs. Plus how Binance aided President
Speaker 2: Trump's crypto firm, then its founder sought a pardon that's
Speaker 2: coming up later this hour. First, though, a pulse check
Speaker 2: of the state of US manufacturing in the age of
Speaker 2: tariffs with one of the largest industrial supply companies in
Speaker 2: the US. Fastenal is a roughly fifty two billion dollar
Speaker 2: market cap wholesale distributor of construction and industrial supplies think nuts, bolts, screws, anchors, rivets,
Speaker 2: and other fasteners, as well as other industrial, janitorial and
Speaker 2: safety supplies and cutting tools. The company sells to builders, manufactures, governed,
Speaker 2: and more so, it's got a great read on the
Speaker 2: industrial and manufacturing economy in the US. For a look
Speaker 2: at how the company is navigating tariff disruptions, Bloomberg Equities
Speaker 2: reporter Nora Melinda and I caught up with fasten Now
Speaker 2: CEO Daniel Flornes.
Speaker 6: You know, we sell to a wide range of customers
Speaker 6: and industries as you As you mentioned across North America
Speaker 6: and in twenty six countries in total, but mostly of
Speaker 6: North America. Our customer base has been relatively subdued for
Speaker 6: the last several years. In the fall of twenty twenty two,
Speaker 6: we saw some indicators saying it was going to slide,
Speaker 6: and we felt that as we moved into the second
Speaker 6: and third quarters of twenty twenty three, and it's been
Speaker 6: really weak since then. About thirty percent of our business
Speaker 6: is very production centered business within manufacturing.
Speaker 2: So are there any signs that that part of the
Speaker 2: business is improving, that those customers are seeing sentiment improve,
Speaker 2: Are you hearing anything from them?
Speaker 6: I think the biggest sign that we're seeing is the
Speaker 6: knife has stopped dropping. You know, we were trying to
Speaker 6: catch that falling knife for a two year period. When
Speaker 6: I talk to our district and regional leadership throughout the
Speaker 6: throughout the world, the feedback I hear is, you know,
Speaker 6: they're not talking about this two hundred thousand dollars month
Speaker 6: customer whose business is off sixty seventy percent. You have
Speaker 6: a much more stability now. Might be stable at a
Speaker 6: lower level than it would have been two years ago,
Speaker 6: but it's much more stable, and so it allows our
Speaker 6: inherent growth to shine through.
Speaker 17: So we've really been in this prolonged downturn, especially in
Speaker 17: the industrial economy. Are you seeing any particular green shoots
Speaker 17: or signs of inflection, and if so, which markets are
Speaker 17: you most optimistic about.
Speaker 6: Yeah, so we're seeing some green shoots for us, we're
Speaker 6: seeing some We are seeing some impact and energy. However,
Speaker 6: I would say that's probably more us taking market share
Speaker 6: than it is a lift in the tide. About twenty
Speaker 6: five percent of our business is outside of the industrial
Speaker 6: and within there we're selling. We're doing quite well. I
Speaker 6: hear a lot of commentary from our folks with data
Speaker 6: centered builds with you even warehousing customers. And we've made
Speaker 6: really good inroads over the last three years into the
Speaker 6: government sector. And that primarily was an offshoot of COVID.
Speaker 6: During COVID, when supply chains blew apart, we stepped in
Speaker 6: to serve a lot of that market when they were
Speaker 6: not being served, and those folks have remembered that and
Speaker 6: we've grown our business there.
Speaker 17: So we need to, of course talk about terrariffs. How
Speaker 17: have tariffs really changed your thinking about product sourcing, particularly
Speaker 17: for fasteners, which we know, of course are primarily sourced
Speaker 17: in China Asia. What other options are you evaluating to
Speaker 17: mitigate the tariff impact here?
Speaker 6: You know? So back in two thous eighteen, we did
Speaker 6: some short term moves of our supply chain, but it
Speaker 6: was fairly limited because you just can't change There's so
Speaker 6: much QC involved with vetting out cut suppliers that you
Speaker 6: couldn't move it fast enough. What we had done quietly
Speaker 6: over the last five six years is continue in that
Speaker 6: progress because the tariffs that were put in place in
Speaker 6: twenty eighteen were sticking and we expected more of it
Speaker 6: to happen, and we wanted to better diversify the supply
Speaker 6: chain for our customer. We did look at a lot
Speaker 6: of options. There aren't a lot of options within North America.
Speaker 6: We looked at some options of doing some manufacturing ourselves.
Speaker 6: The problem is the economics still didn't work. So it
Speaker 6: was really for us more about diversifying supplier base in general.
Speaker 2: Are the economics of that going to work now in
Speaker 2: this new tariff regime? I think during the first Trump administration,
Speaker 2: the goal was to move things out of China, But
Speaker 2: as many companies are learning right now, it doesn't matter.
Speaker 2: It's China, Vietnam, or India. If it's not in the
Speaker 2: United States, there is going to be a terrify on it.
Speaker 2: At least that's what it seems like is going to
Speaker 2: be the case.
Speaker 6: Yeah, economics still do not work, and uh and and and.
Speaker 6: Part of the challenge there isn't just the economics, it's
Speaker 6: the amount of time. When we were researching it very
Speaker 6: in depth two and a half years ago, one of
Speaker 6: the one of the challenges is it's easy to find
Speaker 6: a site. It's relatively easy to get a building up
Speaker 6: and get a supply chain set up. When I say
Speaker 6: relatively easy, I mean timeframe of what it takes to
Speaker 6: do it. The most challenging aspect was the production equipment
Speaker 6: of how many how many months it would take to
Speaker 6: get that And so that aspect really pushed us to
Speaker 6: look more at geographic dispersion of supply chain sourcing because
Speaker 6: because the economics are are still very challenging.
Speaker 2: So how much of what you sell right now is
Speaker 2: actually made in the US?
Speaker 6: If I look across what we're sourcing, what our supply
Speaker 6: our branded suppliers are sourcing, We've always estimated less than
Speaker 6: fifty percent is coming from the US.
Speaker 2: And is that going to stay stable in this new
Speaker 2: tariff regime.
Speaker 6: I suspect it will.
Speaker 17: Okay, So I know fast and All raised prices back
Speaker 17: in April, especially as a result of tariffs. Historically, I
Speaker 17: mean the company has been able to pass on pricing costs.
Speaker 17: What should even in the feedback here from customers, has
Speaker 17: there been much pushback in terms of the ability and
Speaker 17: appetite for customers, frankly to take on additional pricing, especially
Speaker 17: as we head into the second half of the year.
Speaker 6: First off, we sell into a very competitive market. There
Speaker 6: is always pushback. The real challenge in the equation is
Speaker 6: his communication. And one thing that helps in our supply chain,
Speaker 6: we're directly sourcing from the manufacturer that's producing the product,
Speaker 6: more so than most of our competitors in the marketplace,
Speaker 6: just because of our scale, and so we have the
Speaker 6: ability to see into the future farther than a lot
Speaker 6: of our competitors, and it puts us in a position
Speaker 6: to communicate very well. It puts us in a position
Speaker 6: to take steps as the inventory is turning. Unfortunately, the
Speaker 6: one unfortunate part of that it also can create a
Speaker 6: fatigue for your customer, and I would say our customer
Speaker 6: is at the fatigue point right now of where it's
Speaker 6: become challenging, but it always is, and it's all about
Speaker 6: communication and trust.
Speaker 2: I want to talk a little bit about the One
Speaker 2: Big Beautiful Bill Act that became law on the fourth
Speaker 2: of July this year. In the press release for your earnings,
Speaker 2: you didn't mention it, but big picture, what does it
Speaker 2: mean for your customers and for your business?
Speaker 6: You know, big picture what it means for our customers
Speaker 6: is if you look at some of the depreciation rules
Speaker 6: and the timing, it's it makes it very advantageous to
Speaker 6: make capital investment. And so that's the biggest piece that
Speaker 6: we see impacting our customers because our customers have, especially
Speaker 6: on the manufacturing side, an incredible amount of infrastructure that
Speaker 6: they're investing in, and so anything that allows them to
Speaker 6: depreciate faster and to improve their return profile is advantageous
Speaker 6: for our marketplace. And that's a key element that we
Speaker 6: talked about in the release.
Speaker 2: I know that you talked a little bit about to
Speaker 2: us manufacturing your own products in the US and your
Speaker 2: suppliers doing it, but I'm wondering about your customers and
Speaker 2: the way that these so called America First policies might
Speaker 2: help them reshore manufacturing back to the US. Are you
Speaker 2: seeing any evidence or hearing discussion of your customers beginning
Speaker 2: to move manufacturing back to the US.
Speaker 6: You know, I would say it's fairly limited, but again,
Speaker 6: that's not something that happens in six months that you
Speaker 6: set up. We've had some customers set up assembly operations,
Speaker 6: which you can do in a much shorter timeframe as
Speaker 6: opposed to pure production where you're manufacturing components yourself, or
Speaker 6: you're changing your supply chain to more domestic type supply.
Speaker 6: But what we've seen is a lot more willingness of
Speaker 6: making investment even beyond the manufacturing capacity in the short.
Speaker 17: Term, Fastinas refocused on growing with larger customers. What are
Speaker 17: the key drivers there in What additional investments do you
Speaker 17: need to make to enable growth with those customers.
Speaker 6: Yeah, so a position we've put ourselves in for a
Speaker 6: number of years is we have very aggressively made investments
Speaker 6: and this was starting back fifteen plus years ago of
Speaker 6: slowly building an infrastructure to move the supply chain closer
Speaker 6: and closer to the point of use. And what that
Speaker 6: involved for US is investing in a tremendous amount of
Speaker 6: vending infrastructure, and in more recent years a lot more
Speaker 6: OREFID type infrastructure to measure product movement within a facility,
Speaker 6: so that you don't have to to with human capital
Speaker 6: physically observe product being diminished. You can monitor it electronically
Speaker 6: and remotely. And and so we've made extremely large investments
Speaker 6: over the last ten plus years in vending technology, and
Speaker 6: I'm pleased to say that vending technology is all manufactured
Speaker 6: in the United States.
Speaker 2: Yeah, I was surprised when I went to your website earlier.
Speaker 2: So I was preparing for this to see those of
Speaker 2: those vending machines. It's not something that I've run into
Speaker 2: and certainly in my life, but it's pretty cool to
Speaker 2: see that.
Speaker 6: Not just so it's a snack machine.
Speaker 2: Yeah, that's what That's what I was thinking. It's like,
Speaker 2: it's a snack machine, but you can't eat what's in there.
Speaker 6: So exactly.
Speaker 2: Okay, Hey, we've got about a minute left, and I
Speaker 2: just want to talk numbers real quick. Gross profit up
Speaker 2: forty five points forty five point three percent, up from
Speaker 2: forty five point one percent over the second quarter.
Speaker 18: Of last year.
Speaker 2: You said it was partially offset by higher import duty
Speaker 2: costs and higher fleet and transport costs. Are those costs
Speaker 2: in your view, going to stabilize.
Speaker 6: They're going to continue to rise because because about the
Speaker 6: way our supply chain works, we carry a fair amount
Speaker 6: of inventory because we have such dispersion in our locations,
Speaker 6: so we carry quite a few months of inventory. So
Speaker 6: that's going to keep ratcheting up as we're on a
Speaker 6: fightful basis inventory So is that inventory continues to turn,
Speaker 6: that will continue to ratchet up a little bit as
Speaker 6: we move into the third and fourth quarters and into
Speaker 6: twenty twenty six. What really helped us during the quarter
Speaker 6: and what drove the improvement our gross margin? Set aside
Speaker 6: teriffs for a second, right, we've put in place a
Speaker 6: faster expansion starting last summer to widen our inventory, and
Speaker 6: that's really what drove our margin this quarter.
Speaker 2: Dan Florida, CEO of Fast and All, I really appreciate
Speaker 2: you joining us. Shares up today new all time highs
Speaker 2: three point eight percent.
Speaker 1: Right now, you're listening to the Bloomberg Business Week Daily Podcast.
Speaker 1: Catch us live weekday afternoons from two to five Easter
Speaker 1: and listen on Applecarplay and Android Auto with the Bloomberg
Speaker 1: Business app, or watch us live on YouTube for years.
Speaker 2: It was a winning business model. A startup in the
Speaker 2: US would have a clever idea for the kind of
Speaker 2: everyday product that everybody else wished they thought of. First,
Speaker 2: the design and innovation were American, but the manufacturing was
Speaker 2: outsourced to a country with much cheaper production costs, such
Speaker 2: as China, Mexico, or Vietnam. That model was a feature
Speaker 2: of many of the businesses that appear on the hit
Speaker 2: TV series Shark Tank, in which entrepreneurs pitch their idea
Speaker 2: to a panel of potential investors. But now, as President
Speaker 2: Donald Trump plows ahead with promises to upend trade and
Speaker 2: force more manufacturing back to the US, the design in America,
Speaker 2: made in China model is in doubt. Christina Lindblad is
Speaker 2: Bloomberg BusinessWeek Global Economic Editor. She joined Normal Linda and
Speaker 2: Me to discuss how Shark Tank like companies are feeling
Speaker 2: the bite of Trump's tariffs.
Speaker 19: Well, I was actually thinking about how I had watched
Speaker 19: a clip of Shark Tank in which these founders told
Speaker 19: the judges that they had set up a production line
Speaker 19: in the United States, and one of them said, that's crazy,
Speaker 19: you know, And then it is it is crazy, and
Speaker 19: then I thought, how are these companies, so many of
Speaker 19: them which followed, you know, this sort of apple model,
Speaker 19: you know, designed in California, made in TK somewhere else,
Speaker 19: the cheaper China, you know, and how are they faring
Speaker 19: through all of this because you know, they don't have
Speaker 19: the like, you know, lobbying arm and the deep pockets
Speaker 19: to to you know, have their margins be eaten away
Speaker 19: like this. So we decided to go out and we
Speaker 19: actually we we went through a whole we we cast
Speaker 19: a whole bunch of companies, and we decided to focus
Speaker 19: on four. And we did basically as toltoos, you know,
Speaker 19: so we it's like directly from from their mouths, and
Speaker 19: we asked them a bunch of questions about how, you know,
Speaker 19: what kind of tarifs they were paying right now, and
Speaker 19: what they were looking to do about this, and several
Speaker 19: of them said that well, actually some of them said
Speaker 19: they had started out making their products in the US
Speaker 19: but pretty shortly realized that that wasn't going to work out.
Speaker 19: That one of them said the product was so expensive
Speaker 19: nobody bought it, uh, and that they were contacted by
Speaker 19: a Chinese company that was also that was already making
Speaker 19: something like what they made.
Speaker 9: And then the other thing we.
Speaker 19: Heard frequently is that by going to China or going
Speaker 19: to some other countries, you get like a full operation,
Speaker 19: like you know, you don't have to be What people
Speaker 19: were saying is if you're a small company in the US,
Speaker 19: it's like you're having to watch out over all these
Speaker 19: parts that there's different parts of production, like you're importing
Speaker 19: this and that, and you know, making shirt's all going
Speaker 19: to the plant that in China, like somebody is saying,
Speaker 19: we'll take care of all of that for you. And
Speaker 19: and then also we talked to a person she makes
Speaker 19: this this little contraption called a click and carry that
Speaker 19: like you like snap two bags over your shoulders, brilliant.
Speaker 19: I bought one. I'm immediately after.
Speaker 6: Do you like it?
Speaker 2: Do you like it?
Speaker 19: On Shark Time the story after before we wrote the story,
Speaker 19: because I read the transcript, I thought, oh, yeah, this
Speaker 19: is like your bags. Are we sliding up your shots
Speaker 19: when you go to the green market anyway, And she
Speaker 19: said it would take a minimum of eight months to
Speaker 19: bring this back to the US, and it would involve
Speaker 19: something like getting a mold maker in China because there
Speaker 19: are barely any left here in the US to design
Speaker 19: the mold and bring it back and forth, you know,
Speaker 19: between I'm sorry, the designers will be here, the mold
Speaker 19: maker in China, back and forth, sent it back and
Speaker 19: forth for adjustments, right, and finally, once you had the mold,
Speaker 19: you still have to import the resins, the plastic resin
Speaker 19: from China, and you'd probably she said, I'd have to
Speaker 19: find a factory that had a high degree of automation,
Speaker 19: you know, So that kind of beats the whole idea
Speaker 19: of like job creation, you know, for the tariffs. So yeah,
Speaker 19: it's it just seems like some of these that small
Speaker 19: businesses really have a hard time and right now trying
Speaker 19: to figure out what's next.
Speaker 2: So net net, would it be possible for any of
Speaker 2: these companies that you came across in the casting call
Speaker 2: to actually do this in the US right now?
Speaker 19: They said that at this at the level of tariffs
Speaker 19: they were facing, and let's be cleared two weeks ago
Speaker 19: when we were talking to them, No, it's not worth
Speaker 19: it for them. I mean, we could be talking to
Speaker 19: them if we were to go back to them, who knows.
Speaker 19: After August first.
Speaker 1: You're listening to the blow some of the podcasting that
Speaker 1: we've been.
Speaker 2: Talking about quite a bit over the last few months
Speaker 2: is Okay, who eats the picture that we've gotten from
Speaker 2: talking to different it's sort of like everybody in this
Speaker 2: spply chain, So our earnings will take a hit, will
Speaker 2: absorb some of them. Maybe we'll weise prices, consumers might
Speaker 2: pay a little more. That's for big companies. What about
Speaker 2: for these tiny companies that are watching every cent well.
Speaker 19: I mean there's one woman who the founder of click
Speaker 19: and carry. She was saying that, you know, she actually
Speaker 19: had taken it a loan and sold out a bunch
Speaker 19: of stocks in the fall because she was she had
Speaker 19: been selling online and she was actually starting to sell
Speaker 19: through retailers. And she's saying, well, I approached all these
Speaker 19: companies with a certain price. This is what I told them, Like,
Speaker 19: I can provide this to you for this price. But now,
Speaker 19: like you know, with tariffs, I'm going to have to
Speaker 19: go back to them, you know, and quote them another price.
Speaker 19: And she's scared, you know, that some of them will
Speaker 19: drop her product because they've only started carrying it a
Speaker 19: few months ago, and some of them she hasn't even
Speaker 19: gotten it. I mean, she has enough I think to
Speaker 19: supply everyone, you know, all the contracts that she has
Speaker 19: through like you know, early summer. But yeah, a lot
Speaker 19: of companies were talking about how the uncertainty towards the
Speaker 19: back end of the year when like you know, they're
Speaker 19: having to restock.
Speaker 2: Yeah, Like we spoke to Levis CFO and they said
Speaker 2: this in earnings to that about what roughly half of
Speaker 2: their inventory for the remainder of the year is already
Speaker 2: in the US. So that's kind of free and clear
Speaker 2: at this point.
Speaker 17: Oh, most definitely. But I know you mentioned earlier you
Speaker 17: were talking about a company that you said they were
Speaker 17: wanting to pass on some of the tariff impact towards
Speaker 17: the customer, but customers are just unwilling to pay.
Speaker 9: Yeah.
Speaker 19: I mean, I think if you're a young business and
Speaker 19: you have your foot in the door with some of
Speaker 19: these retailers, you know, and you don't have a long relationship,
Speaker 19: you're going to be really scared to do that. So
Speaker 19: mostly we heard the story sounded like it was going
Speaker 19: to be the importers eating the tariffs. I mean, I
Speaker 19: think there's a misconception, largely because of the way the
Speaker 19: White House talks about this, that it's the exporters eating
Speaker 19: the tariffs. And you know, we did hear stories at
Speaker 19: the beginning of Walmart pressuring Chinese suppliers to lower their
Speaker 19: prices in order to compensate for the tariffs. But even
Speaker 19: there we heard that many of them were saying, no,
Speaker 19: I mean, a small company just does not have that
Speaker 19: kind of leverage. Really, So what are people.
Speaker 17: I mean, you cover the economy more broadly, so just
Speaker 17: outside of this story, if we were to just bring
Speaker 17: in a broader context, what are people saying about the
Speaker 17: impact of tariffs on the US economy?
Speaker 13: You know, we.
Speaker 19: Haven't seen it in inflation yet, although I think we
Speaker 19: have a print this week which, yeah, which may throw
Speaker 19: some light on all of this. I think it could
Speaker 19: be a lot of people say because of this dynamic
Speaker 19: in which many people knew tariffs of some level were
Speaker 19: coming right after Trump was elected, right and so, and
Speaker 19: there was this big bump you know, the surgeon imports,
Speaker 19: we haven't you know, we haven't seen costs go up
Speaker 19: because of that because people are selling on the inventory
Speaker 19: they already have. I do think there's still a lot
Speaker 19: of question marks. And also there's been I mean, this
Speaker 19: kind of whack a mole effect where it's just sort
Speaker 19: of like, Okay, it's going to be one hundred and
Speaker 19: forty five, but now we're going to suspend it. Now
Speaker 19: we're going to throw it to August. I'm personally really
Speaker 19: interested in looking at investment figures at some point. I
Speaker 19: suspect that this year may be one of the lowest,
Speaker 19: may show a big fall off and of corporate investment
Speaker 19: around the world.
Speaker 2: Which is not exactly the opposite of what Trump, the
Speaker 2: president likes to see.
Speaker 19: Yes, but I think the uncertainty is just leaving companies
Speaker 19: kind of probably saying I'm going.
Speaker 9: To sit it out.
Speaker 2: So that's what I wanted to talk about. You mentioned
Speaker 2: the whack a mole? Is it going to be one
Speaker 2: hundred and forty five percent? Is it going to be
Speaker 2: what was on Liberation Day? Do you have to wait
Speaker 2: and see what the letter says. I'm true social to
Speaker 2: understand what the effect of tariffs is going to be
Speaker 2: on the country that you manufacture in. Does it mean
Speaker 2: that there's sort of a stasis here with these small
Speaker 2: companies that you talk to, or are they plowing ahead
Speaker 2: and moving forward them.
Speaker 19: Is fortunate and has suppliers in many different countries, and
Speaker 19: they sound like you know, and and they were lucky.
Speaker 19: I think it was you know, Turkey was their main supplier,
Speaker 19: and that well, that wasn't one of the countries that
Speaker 19: had you know.
Speaker 18: The thing is we're going.
Speaker 19: By what liberation date, you know, like the Church, you know,
Speaker 19: and Turkey wasn't you know, very severely affected, you know. So,
Speaker 19: but you never know, you never know, I mean, because
Speaker 19: now we're seeing duties used for purposes other than just
Speaker 19: delivering trade deals, you know, in the case of Brazil. Yeah,
Speaker 19: and both so and you know Trump's friendship with Bolsonarow,
Speaker 19: like you know, so that's been an issue where you know,
Speaker 19: we're seeing Yeah.
Speaker 2: Just to clarify that, he basically said that this was
Speaker 2: not about the trade deficit, because we have a trade
Speaker 2: surplus with Brazil. Instead, this is a punishment for the
Speaker 2: way that U Bolsonnarow is being treated and prosecuted by
Speaker 2: the current president.
Speaker 17: So the story, he talks about the fact that some
Speaker 17: founders are saying that they'd like to get some sort
Speaker 17: of notice, even a ninety day notice. Talk to me
Speaker 17: about that. What are they thinking?
Speaker 19: It's interesting I had that before. Yeah, people were talking
Speaker 19: about getting an advanced notice, about when when tariffs. One
Speaker 19: person said, just like an advanced notice and when tariffs
Speaker 19: are going to go up. Another one said, can get
Speaker 19: enough an advanced notice? If like there's a group a
Speaker 19: of countries, you know, those tarrafs will go up and
Speaker 19: these will go down. You can't really wage a trade
Speaker 19: war like that, though, I don't think, you know, yeah,
Speaker 19: so well we're certainly it's maybe you can, but certainly
Speaker 19: not how it's being how it's being waged now. Yeah, yeah,
Speaker 19: I just think it's it's just like a difficult time
Speaker 19: for people to make decisions, and what came through is
Speaker 19: they wish they had more wherewithal, you know, to like adjust,
Speaker 19: and also you know, you're talking about small businesses sometimes
Speaker 19: with like I mean some of the people talked to
Speaker 19: had less than three people full time staff.
Speaker 18: You know.
Speaker 2: Yeah, they're shipping one container of something at a time,
Speaker 2: right exactly, which is a tiny portion of what you
Speaker 2: see on a cargo ship.
Speaker 19: Yeah, I mean we had one person who we didn't
Speaker 19: end up you know, choosing for the package, who had
Speaker 19: to go back to her old job, you know.
Speaker 2: So yeah, well it's a great piece, Christina. I encourage
Speaker 2: everybody to check it out. It is in Bloomberg Business Week.
Speaker 2: Christina Lynn Blad is the editor of it. She's Global
Speaker 2: Economics editor for Bloomberg Business Week. She's also the brains
Speaker 2: behind the idea for IT. So everything. Shark Tank addressed
Speaker 2: those questions to Christina Lynn Blade. I got to tune in,
Speaker 2: you got to tune in, or you just got to
Speaker 2: read everything in Bloomberg Business Week and get the updates.
Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch
Speaker 1: us live weekday afternoons from two to five eastering. Listen
Speaker 1: on Applecarplay and Android Otto with the Bloomberg Business app,
Speaker 1: or watch us a live I've on YouTube.
Speaker 2: From navigating tariff uncertainty to navigating tariff costs at the ports,
Speaker 2: being a customs broker used to be a pretty straightforward,
Speaker 2: low drama gig, at least according to Jonathan Lieberman, president
Speaker 2: of New York Customs Brokers. It specializes in seafood. Maybe
Speaker 2: there there was the occasional emergency, such as the shipping
Speaker 2: container of crocodile meat that he had to send back
Speaker 2: to Australia because of insufficient paperwork, but most nights he
Speaker 2: could make it home in time for dinner with his wife.
Speaker 2: And two young children after so called liberation. Today everything changed,
Speaker 2: so writes Stacy Vanicksmith for Bloomberg BusinessWeek. Stacy's the co
Speaker 2: host of Bloomberg podcast Everybody's Business. Check it out new
Speaker 2: episodes every Friday. Stacy joins us from New York. Stacy,
Speaker 2: I want to start with just what exactly a customs
Speaker 2: broker does.
Speaker 20: That is a great question. Before I started the story,
Speaker 20: I didn't know myself. A customs broker is kind of
Speaker 20: a facilitator. They kind of guide help to guide products
Speaker 20: into the country from overseas. They take care of the paperwork,
Speaker 20: They know about regulations. In the case of New York
Speaker 20: customs brokers, like you were saying, they specialize in seafood,
Speaker 20: there are all kinds of sustainability laws, noah, FDA regulations
Speaker 20: to navigate, as well as tariffs. So they kind of
Speaker 20: helped facilitate all of that.
Speaker 2: So everything was kind of fine and normal until April. Second.
Speaker 2: Then what happened? What did he start to hear from customers?
Speaker 20: Well, it was so interesting, So I guess normally, you know,
Speaker 20: we've had almost no tariffs, a lot of free trade
Speaker 20: mostly for decades and decades, and so it was a
Speaker 20: pretty straightforward job. But all of a sudden, with Liberation Day,
Speaker 20: all these different tariffs for all these different countries, and
Speaker 20: you know, seafood comes from all over the world, so
Speaker 20: he's been dealing with with dozens and dozens of countries
Speaker 20: and dozens of places all over the US importing these fish.
Speaker 20: And you know, he said, all of a sudden, everyone
Speaker 20: was calling wondering, you know, well, if I get the
Speaker 20: fish from here, but they're fillaid here, what does that mean?
Speaker 20: And I mean, people were just panicked because the margins
Speaker 20: are not huge for seafood, and so you know a
Speaker 20: lot of times like something like shrimp, but there was
Speaker 20: a big box of shrimp in his office when I
Speaker 20: came that day, a big box of frozen shrimp in
Speaker 20: his office. Something like shrimp, a ten percent tariff can
Speaker 20: completely wipe out the profit. So they were really panicked
Speaker 20: and just wondering what the rules even were.
Speaker 15: How has it changed his job itself? As Tim mentioned
Speaker 15: at the top of the show, you know, he used
Speaker 15: to be able to just make it home in time
Speaker 15: for dinner, but now he seems to be spending a
Speaker 15: lot more time at work. Really, how has this specific
Speaker 15: role just gotten so much more stressful and more difficult
Speaker 15: post liberation day, well, for a.
Speaker 20: Couple of different reasons. So initially, you know, it was
Speaker 20: just a lot of paperwork, kind of keeping track of
Speaker 20: shipping containers, occasionally going out to his offices right by
Speaker 20: JFK Airport, occasionally going out to the airport and sort
Speaker 20: of checking on a shipment. Now it's just much different
Speaker 20: because he's got people calling him at all hours asking
Speaker 20: about rules. Also, the Customs and Protection Bureau is just
Speaker 20: issuing all of these new directives and rules all the time,
Speaker 20: like multiple times a week now Apparently that almost never
Speaker 20: used to happen, So he is trying to communicate the
Speaker 20: rules changes to customers. And also there's just a lot
Speaker 20: of confusion over when the tariffs actually hit how much
Speaker 20: they are, So he's getting calls and these are very
Speaker 20: high stakes deals for a shipping container full of like
Speaker 20: lobster tails, that can be almost a million dollars worth
Speaker 20: of lobster tails in which case of ten percent tariffs,
Speaker 20: you know, like one hundred thousand dollars. This is just
Speaker 20: so much money for these companies. Oftentimes they don't know
Speaker 20: how to find it. How much time they have things,
Speaker 20: I mean, they used to actually pay the customs brokers.
Speaker 20: They used to actually just cover the tariffs for their
Speaker 20: customers because they were so tiny, And now you know
Speaker 20: the tariffs can be upwards of one hundred thousand dollars,
Speaker 20: So he's helping them to calculate that. He's answering all
Speaker 20: of these calls. There's a lot of confusion over when
Speaker 20: the rules will change, so he's answering that, and then
Speaker 20: just the paperwork itself is a lot more complicated. He
Speaker 20: has to make sure that he's getting this right. There's
Speaker 20: not a lot of time to waste when you've got
Speaker 20: seafood sitting there waiting to be shipped. So he's just
Speaker 20: he's trying to keep his clients updated on the rules.
Speaker 20: He's trying to answer a bunch of questions like late
Speaker 20: late into the night, and also just keep the shipments
Speaker 20: moving as much as possible.
Speaker 2: We've heard from the President repeatedly that the countries themselves
Speaker 2: are paying these tariffs based on your reporting, did you
Speaker 2: find that to be true?
Speaker 20: That is not true. So the importer of record pays
Speaker 20: the tariff. Now in some cases, the company, the overseas
Speaker 20: companies will also be the importers of record. Sometimes they
Speaker 20: will do that, so sometimes that is actually true, but
Speaker 20: it is always the importer of record who pays the tariffs.
Speaker 20: So if you've got, you know, a seafood restaurant importing
Speaker 20: a lot of seafood, they are paying, they are paying
Speaker 20: the tariffs.
Speaker 15: Did you get a sense at all in your reporting
Speaker 15: about just when the uncertainty is going to ease? Of course,
Speaker 15: we had the initial deadline. Now we have this August
Speaker 15: first deadline of when all these deals you know, need
Speaker 15: to be completed. But from your seat, does it seem
Speaker 15: like that initial like Tariff Liberation Day induced shock that
Speaker 15: kind of spread across markets and economies. Has that cooled off?
Speaker 12: No?
Speaker 20: This was I think the most striking part of my
Speaker 20: reporting is just there is so much uncertainty, and uncertainty
Speaker 20: about the uncertainty I would say. I mean, I spoke
Speaker 20: with one of the companies that works with Jonathan Lieberman
Speaker 20: who uses him as their customs broker. One of the
Speaker 20: biggest it's called Sense is the company. It's one of
Speaker 20: the biggest seafood importers in the country, and the owner,
Speaker 20: one of the presidents of the company, said to me,
Speaker 20: you know, he's like, I don't how do you run
Speaker 20: a business if you don't know what the costs are
Speaker 20: going to be. He's like, I don't know what they're
Speaker 20: going to change, when they're going to change. He was
Speaker 20: stopping shipments. He had stopped a lot of the shipments
Speaker 20: from China just because there was so much uncertainty around
Speaker 20: that situation. The costs were potentially so high. There's just
Speaker 20: there's so much uncertainty, and there's not even certainty about
Speaker 20: when we will have certainty. And I think it's just
Speaker 20: making so hard for businesses to plan anything.
Speaker 2: So enter the magic eight ball. This is not a joke.
Speaker 2: There's a magic eight ball in your story.
Speaker 20: There's this was one of my favorit. Every once in
Speaker 20: a while when you're a reporter, something happens that feels
Speaker 20: a little magical. But I went into Jonathan lie Berman's office,
Speaker 20: like I said, it's right by JFK. And he had
Speaker 20: all the stuff you'd expect, huge customs book, It's a
Speaker 20: foot and a half thick of like every different possible product, files, computer,
Speaker 20: and then there was a magic eight ball on his desk,
Speaker 20: And of course I asked about that. I assumed it
Speaker 20: was from his children or something, but no, he bought
Speaker 20: it right after a liberation date. He was taking calls
Speaker 20: after calls from clients he' did for decades. Just they
Speaker 20: were all panicked wondering what was going on. And he
Speaker 20: kept he said, he kept saying, over and over, I
Speaker 20: wish I had a crystal ball. I wish I had
Speaker 20: a crystal ball. And he said while he was talking,
Speaker 20: he just impulse ordered a magic eight ball of Amazon.
Speaker 6: I wonder.
Speaker 20: So now, he says, somebody he just shakes it up
Speaker 20: to see, you know, to answer questions. And you know,
Speaker 20: when I was there, he should get in. It said
Speaker 20: outlook hazy, which seemed appropriate.
Speaker 2: This magic eight ball likely was not made in the
Speaker 2: US and probably would be such a fact.
Speaker 15: It's a terra made in China.
Speaker 6: It was okay, looked it up.
Speaker 2: Well, there you go. Ever the amazing reporter Stacy Vannick
Speaker 2: Smith writing for Bloomberg Business Week. You can check out
Speaker 2: our story now on the Bloomberg Terminal. It's about customs brokers.
Speaker 2: It was a low stress job, not so in the
Speaker 2: age of tariffs. Also check out Stacy's podcast, co hosted
Speaker 2: with Max Chafkin, Everybody's Business. New episodes come out every Friday.
Speaker 1: This is the Bloomberg Business Week Daily Podcast. Listen live
Speaker 1: each weekday starting at two pm Eastern on Appleclarcklay and
Speaker 1: Android Otto with the Blue Blog Business app. You can
Speaker 1: also listen live on Amazon Alexa from our flagship New
Speaker 1: York station, Just say Alexa Play Bloomberg eleven thirty.
Speaker 2: Bitcoin hit an all time high this past week to
Speaker 2: start what crypto enthusiasts and the Republican majority in the
Speaker 2: House of Representatives have dubbed Crypto Week. After an initial
Speaker 2: roadblock from some conservative holdouts, ultimately the House passed a
Speaker 2: series of crypto friendly bills, a huge win for an
Speaker 2: industry that poured millions into last year's elections to promote
Speaker 2: pro crypto candidates. Now, one of the Trump family's crypto
Speaker 2: ventures has received key behind the scenes help from the
Speaker 2: world's largest digital asset exchange, whose founder is a convicted
Speaker 2: felon now seeking a presidential pardon, and critics say the
Speaker 2: relationship poses a conflict of interest for President Trump, so
Speaker 2: writes Bloomberg News investigative reporter Zeke Fox. Zeke is also
Speaker 2: the author of the book Number Go Up. Inside Crypto's
Speaker 2: wild Rise and Staggering Fall.
Speaker 18: Yeah, so this is like it's a complicated story, but
Speaker 18: I think it's an important one. So the Trumps, while
Speaker 18: Donald Trump was running for president, started this new crypto
Speaker 18: company which they called World Liberty Financial. And the way
Speaker 18: this company set up, at least at the beginning, three
Speaker 18: quarters of all the money that came into this company
Speaker 18: was paid to the Trumps as just a licensing fee.
Speaker 18: So they've made tons of money off it, something like
Speaker 18: three or four hundred million dollars. But as is so
Speaker 18: often the case in crypto, when they started this company,
Speaker 18: they didn't really know what it would do. There was
Speaker 18: some talk about it being like a buying and lending platform,
Speaker 18: borrowing and borrowing and lending platform, but the company had
Speaker 18: really very few coders on staff. They didn't really have
Speaker 18: a team commensurate with all the money they raised. So
Speaker 18: they needed a product, and what we reported was that
Speaker 18: they decided to make a stable coin. Like a cryptocurrency,
Speaker 18: it's always worth a dollar because it's backed by real
Speaker 18: dollars in the bank. And when they went to go
Speaker 18: make this stable coin, because they didn't have a lot
Speaker 18: of programming talent, they called on Binance, the biggest crypto
Speaker 18: exchange owned by cz and what we reported is that
Speaker 18: Binance actually wrote the basic code that powers the world
Speaker 18: liberty stable coin USD one. And so also, in a
Speaker 18: conveniently for him, cz who was only just let out
Speaker 18: of Halfway House last year after pleading guilty through these
Speaker 18: money laundering violations, is seeking a presidential pardon. So his
Speaker 18: company is helping out the Trump's venture while he also
Speaker 18: is looking for this favor for himself.
Speaker 15: So this is.
Speaker 17: One of many crypto currency ventures that the Trump family has, right.
Speaker 18: Yes, I have actually lost track of how many there are.
Speaker 2: You need a whiteboard.
Speaker 18: Yeah, it's it's so confusing that they actually got kind
Speaker 18: of confused themselves the other day. Now the Trumps have
Speaker 18: a meme coin, trump Coin. Those guys announced that they
Speaker 18: were going to make a crypto wallet, and the Trump's
Speaker 18: sons were like, this is not an official Trump project.
Speaker 18: Like these guys can't even keep straight how all their
Speaker 18: different crypto ventures.
Speaker 2: Is Is that unique though, to this trump coin? And
Speaker 2: just this is a little aside, you know, whether we're
Speaker 2: talking about I think there's a cologne that I saw recently.
Speaker 2: There are the shoes, they're the bibles. This is all licensing, right, Yeah?
Speaker 2: Is that any different than what the Trumps are doing
Speaker 2: with crypto.
Speaker 18: So at first I think it's quite possible that when
Speaker 18: they got into crypto, I mean, they did even work
Speaker 18: with some of the same guys that they'd worked with
Speaker 18: on some of these more traditional licensing deals. Maybe they
Speaker 18: thought it was just another thing where they might make,
Speaker 18: you know, a million bucks here or there by licensing
Speaker 18: their name. But it's turned out to be like on
Speaker 18: a totally different scale. Just since Trump has become president,
Speaker 18: I think Bloomberg Billionaires estimates that he's made six hundred
Speaker 18: million off these different crypto ventures, and it's become a
Speaker 18: way that anybody in the world, even people who are
Speaker 18: citizens of other countries who couldn't donate to his campaign,
Speaker 18: can just give him money. There's another crypto billionaire named
Speaker 18: Justin Sun bought seventeen.
Speaker 2: You might know him as the banana guy.
Speaker 18: Yes, best known for paying six million dollars for banana
Speaker 18: and then then eating it. It's modern art. He bought
Speaker 18: seventy five million dollars of World Liberties tokens, and he
Speaker 18: had been facing a frost lawsuit from the US SEC
Speaker 18: and that was later put on hold. And I should
Speaker 18: say that all these people have mentioned have all denied
Speaker 18: that anything untoward is happening, and they're saying like, hey,
Speaker 18: you know, I just want to invest in these coins
Speaker 18: and it's not related to whatever business that might have
Speaker 18: with the government.
Speaker 7: So all these.
Speaker 17: Crypto ventures that we said may not even fit on
Speaker 17: a whiteboard if we rewind back to twenty twenty one.
Speaker 17: Trump was anti crypto, correct. I'm just trying to catch
Speaker 17: up here.
Speaker 18: Yeah, I mean he said it was a scam. I
Speaker 18: think he said maybe it's all made up.
Speaker 17: Scam against the dollar.
Speaker 18: Yeah, And his first administration initiated some of the lawsuits
Speaker 18: that crypto guys have been so up in arms about.
Speaker 18: But it only really changed during this most recent campaign,
Speaker 18: and there was a very concerted effort, mostly by a
Speaker 18: small group of rich bitcoiners to get Trump on board.
Speaker 18: They got together and donated something like twenty million dollars
Speaker 18: to his campaign. It was a fundraiser at the Bitcoin Convention,
Speaker 18: the annual Bitcoin Convention, and they had the fundraiser who
Speaker 18: raised a twenty million. Then he went out on stage
Speaker 18: in Nashville and gave this speech in which he totally
Speaker 18: changed his position and said Bitcoin's going to the moon.
Speaker 18: I want to lead the way. Let's make this a
Speaker 18: crypto capital of the world. It's really an amazing triumph
Speaker 18: of lobbying.
Speaker 2: On the Binance story, we should know. A Finance spokesperson
Speaker 2: didn't respond to questions about the Coding Helper investment deal,
Speaker 2: but said USD one followed the exchange's quote standard listing process.
Speaker 2: A White House spokesperson declined a comment for the story.
Speaker 2: A spokesperson for World Liberty didn't respond to questions about
Speaker 2: the company's dealings with Finance, but set in an email quote,
Speaker 2: your assertions are factually deficient and designed to further a
Speaker 2: political agenda.
Speaker 18: Yeah, I mean this is like quite controversial, so I
Speaker 18: can see why they why people aren't talking about it.
Speaker 18: You know, this work that people familiar with the matter
Speaker 18: told us that Binance did for World Liberty was not
Speaker 18: was not disclosed at the time on and we also
Speaker 18: reported that the Finance has done other things to help
Speaker 18: World Liberty. One of them was so the World Liberty
Speaker 18: is a stable coin. People have to use it for
Speaker 18: the company to make money, and the more people want,
Speaker 18: the bigger this pile of stable coins get. The way
Speaker 18: the company makes money is earning interest on that. So
Speaker 18: right now, of all the stable the USD one coins
Speaker 18: that exist, most of them are actually held by Binance.
Speaker 18: So there's about there's two more than two billion dollars
Speaker 18: of USD one on finance. The interest income that generates
Speaker 18: a lot of it goes to the Trumps.
Speaker 2: But does the USD one that is from is it
Speaker 2: World Liberty Financial?
Speaker 10: Is that right?
Speaker 6: Again?
Speaker 18: They're the issuer. The stable coin.
Speaker 2: Is the Trump is let's just call it. This is
Speaker 2: the Trump family stable coin, a competitors circle stable coin
Speaker 2: and a competitor to tether.
Speaker 18: Yes, okay, and even right now the House is going
Speaker 18: to take up the Genius Act and they're calling it
Speaker 18: Crypto Week. They're going to debate the rules that are
Speaker 18: going to govern these stable coins. And like the rules
Speaker 18: they set might be more favorable to one or another
Speaker 18: of these companies.
Speaker 9: So zeke.
Speaker 17: In this story, here we have cz who pled guilty
Speaker 17: back in twenty twenty three to failing to maintain an
Speaker 17: effective anti money laundering program. Now he wants a part
Speaker 17: in Trump's. The only one that can give it to him,
Speaker 17: is he the only one still cross caught in the
Speaker 17: crosshairs here.
Speaker 18: He has finance was has paid his fine, He's done
Speaker 18: his time on having this criminal record is could make
Speaker 18: it difficult. Right, Finance is the biggest, it's huge worldwide,
Speaker 18: but they've never really been able to establish a foothold
Speaker 18: in the US, and the owner of the company having
Speaker 18: pleaded guilty to this serious felony could make it difficult
Speaker 18: for them to get the required licenses here. So if
Speaker 18: that were wiped away, they might be able to compete
Speaker 18: in this giant market. And like you said, the other
Speaker 18: big companies in crypto, like Coinbase, they were facing serious
Speaker 18: lawsuits under the Biden administration. Those have been dropped. Pretty
Speaker 18: much everybody in crypto has been given the go ahead
Speaker 18: under Trump.
Speaker 2: I got to ask, because your book is called Number
Speaker 2: Go Up. Inside Crypto's Wild Rise and Staggering Fall. You
Speaker 2: wrote you published it at a time when crypto it
Speaker 2: was Crypto winter. How are you thinking about what you've
Speaker 2: learned over the last two years and if that changes
Speaker 2: the narrative of your book at all.
Speaker 18: Yeah, I mean I definitely should have picked a different
Speaker 18: sub title for the book, given that, like crypto is
Speaker 18: always on these boom and bus cycles. But I mean,
Speaker 18: what I've seen in this last like Crypto Recovery, is
Speaker 18: actually nothing that's changed my mind. If anything, it's become
Speaker 18: easier to raise money for crypto projects that have no
Speaker 18: point at all, like this Trump meme coin. They're not
Speaker 18: even claiming this is going to revolutionary, just finance. So
Speaker 18: just like, hey, Trump's famous by this coin, and then
Speaker 18: lots of people are piling in. It's like GameStop mania
Speaker 18: or something.
Speaker 2: So look, I'm not going to ask you to predict
Speaker 2: the future, but do you think we're still in a
Speaker 2: boom bus cycle and this is a boom Oh yeah.
Speaker 18: I mean even people in crypto I think are mostly
Speaker 18: saying this can't go on forever like this. I mean eventually,
Speaker 18: Like with all things, I think that the value has
Speaker 18: to come from actual usage. It has to have real
Speaker 18: world applications. Now, these laws that are being debated, he
Speaker 18: make it so favorable, might be end up so favorable
Speaker 18: for the industry that people will be incentivized to use
Speaker 18: crypto who might not have rtherwise. Wanted to Zeke.
Speaker 2: Always good to see you. Congratulations on this story. Everybody
Speaker 2: read the book. It is a great book. Zeke Fox
Speaker 2: is investigations reporter for Bloomberg News. He's also the author
Speaker 2: of Number Go Up. Inside Crypto's Wild Rise and Staggering Fall.
Speaker 1: This is the Bloomberg Business Weekdaily podcast, available on Apple, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live weekday
Speaker 1: afternoons from two to five pm Eastern on Bloomberg dot com,
Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business App.
Speaker 1: You can also watch us live every weekday on YouTube
Speaker 1: and always on the Bloomberg terminal