WEBVTT - Bloomberg Businessweek Weekend - March 24th, 2023 0:00:01.280 --> 0:00:05.640 This is Bloomberg business Week inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business, finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:20.720 Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio. Hi, everyone, 0:00:20.760 --> 0:00:23.520 Welcome to the weekend edition of Bloomberg Business Week. Big 0:00:23.560 --> 0:00:26.840 focal point this week, FED second monetary policy meeting of 0:00:26.880 --> 0:00:30.040 the year, raising interest rates by a quarter percentage point 0:00:30.040 --> 0:00:33.239 and signaling it's not finished hiking despite the risk of 0:00:33.360 --> 0:00:37.239 exacerbating a bank crisis. That's royal Global markets well more 0:00:37.240 --> 0:00:39.920 than that in just a moment. Also ahead, a state 0:00:39.960 --> 0:00:44.240 of play as Vladimir Putin welcomes China's jijimping to Moscow 0:00:44.520 --> 0:00:47.720 while the war Ukraine grinds on. Plus the CEO of 0:00:47.800 --> 0:00:51.880 identity management platform Octa on it spending. And we've got 0:00:51.880 --> 0:00:54.160 a must read story from our magazine team about what 0:00:54.240 --> 0:00:58.560 happens when chatbots get raunchy with their human companions. Yep, 0:00:58.720 --> 0:01:01.160 you heard right of that to come, we begin with 0:01:01.160 --> 0:01:03.600 our big backdrop this week, and that was the FED 0:01:03.680 --> 0:01:07.360 meeting and continued vigilance over banks with us our Business 0:01:07.400 --> 0:01:11.480 Week Editors roundtable Markets and Finance editor Pat Rigneer, Economics 0:01:11.560 --> 0:01:15.160 editor Christina Lindblab and Bloomberg News Federal Reserve reporter Matt 0:01:15.200 --> 0:01:18.120 Bosler the trio joining me and Bloomberg's Mic Reagan to 0:01:18.200 --> 0:01:21.680 breakdown the week that was. So we were thinking not 0:01:21.760 --> 0:01:23.920 only about sort of like how big will the hike be, 0:01:24.040 --> 0:01:27.400 but what message is that going to send? And you know, 0:01:27.560 --> 0:01:31.440 it gets into you know, Vulcan three dimensional chests really fast, 0:01:31.520 --> 0:01:34.760 you know, like like maybe the you know, if if 0:01:34.800 --> 0:01:36.840 he's worried about the banks, will will he not do 0:01:36.880 --> 0:01:38.759 a hike at all? Or will if he's worried about 0:01:38.760 --> 0:01:40.319 the banks, will he do a hike because he doesn't 0:01:40.319 --> 0:01:42.039 want to let people know that he's worried about the banks. 0:01:42.760 --> 0:01:45.080 It seems like we got kind of the Goldilocks hike, 0:01:45.120 --> 0:01:47.480 at least at least from the point of view of 0:01:47.880 --> 0:01:50.000 how upsetting the week was going to be. It seems 0:01:50.040 --> 0:01:53.520 like the hike we got was the one that sort 0:01:53.560 --> 0:01:56.320 of kept more things from happening, at least for the 0:01:56.360 --> 0:01:59.200 last couple of days. Wait, did you say Vulcan three 0:01:59.200 --> 0:02:03.520 dimensional chests a geek test? I think is the I 0:02:03.520 --> 0:02:09.240 don't remember that's from Star Wars start right, I may 0:02:09.240 --> 0:02:11.639 have gotten the number of dimensions of chance runs. Well 0:02:12.040 --> 0:02:15.280 that's kind of the week that was. I mean, um, Christina, 0:02:15.360 --> 0:02:17.040 come on in on this. I mean, and you know 0:02:17.040 --> 0:02:19.200 we're focusing. We're gonna bring Matt in in just a moment. 0:02:19.280 --> 0:02:21.240 The US central banks so in focus, but we have 0:02:21.480 --> 0:02:25.560 several global central banks, you know, looking at inflation, looking 0:02:25.600 --> 0:02:28.440 at what's going on. It's been a busy I feel 0:02:28.480 --> 0:02:30.600 like week and certainly last week if you rolled the 0:02:30.720 --> 0:02:33.280 European Central Bank into it, yeah, well, the ACB went 0:02:33.320 --> 0:02:37.160 out ahead of the FED basically saying, you know, we 0:02:37.240 --> 0:02:40.960 can do price stability and financial stability at the same time. 0:02:41.560 --> 0:02:44.080 It's not a choice, and that you know, they that 0:02:44.200 --> 0:02:46.880 they had the mandate, you know, to to slay inflation. 0:02:46.919 --> 0:02:49.680 And I think the message this week was the same 0:02:49.720 --> 0:02:52.400 from the FED. I found it interesting that going into 0:02:52.440 --> 0:02:56.760 the meeting, everyone's expectations were completely scrambled right up to it, 0:02:56.840 --> 0:02:59.239 you know, with like I think Goldman coming out saying, 0:02:59.360 --> 0:03:03.680 you know, no hike. I think Nomura maybe like saying 0:03:03.840 --> 0:03:07.680 like cut maybe as soon as as this meeting, and 0:03:07.720 --> 0:03:10.200 then though after the meeting is like and now we've 0:03:10.240 --> 0:03:13.600 resume our regular programming in which Wall Street starts wishing 0:03:13.639 --> 0:03:18.239 for the pivot. It was. It was whacky. I feel 0:03:18.240 --> 0:03:20.680 like there were so many different scenarios. Matt Bosler, come 0:03:20.720 --> 0:03:23.600 on in. You followed the Fed, half followed the Fed here, 0:03:24.160 --> 0:03:27.200 you know, thinking about the week that was what is 0:03:27.280 --> 0:03:31.360 top of mind for you? Well, I think, you know, 0:03:31.440 --> 0:03:35.480 yesterday's FED decision and Jerome Powell's press conference were really 0:03:35.480 --> 0:03:39.560 interesting because, you know, at first they announced a rate hike, 0:03:39.720 --> 0:03:44.320 their projections didn't show much more tightening. Markets initially responded 0:03:44.360 --> 0:03:46.680 positively to that, but then of course they sold off 0:03:46.680 --> 0:03:49.320 pretty heavily near the end of the press conference and thereafter. 0:03:49.400 --> 0:03:52.680 And so I think the broad takeaway was just not 0:03:52.840 --> 0:03:56.800 necessarily a lot of confidence that the Fed is fully 0:03:56.840 --> 0:03:59.840 attuned to the risks out there right now. And if 0:03:59.840 --> 0:04:01.880 you look kind of under the hood of some of 0:04:01.880 --> 0:04:05.560 the projections they put out, there's also a bit more 0:04:05.600 --> 0:04:09.280 of an acceptance on their part of the potential downside 0:04:09.360 --> 0:04:13.680 risks here. You know, the way the economic projections they 0:04:13.680 --> 0:04:17.240 put out basically implicitly have a recession written into them now, 0:04:17.279 --> 0:04:20.240 whereas they didn't three months ago the last time they 0:04:20.279 --> 0:04:24.599 issued projections. And so just that, you know, seeming willingness 0:04:24.720 --> 0:04:29.600 on the part of policymakers to allow those greater downside 0:04:29.680 --> 0:04:33.520 scenarios to materialize, especially right in the middle of a 0:04:33.600 --> 0:04:36.400 bit of a crisis in the banking system that in 0:04:36.520 --> 0:04:39.640 large part has been brought about by the aggressive rate 0:04:39.720 --> 0:04:42.960 hikes over the last year. You know, that's not necessarily 0:04:43.800 --> 0:04:46.520 exactly what Wall Street may have wanted to hear from 0:04:46.520 --> 0:04:50.080 the Fed yesterday. Man, I have a question, how much 0:04:50.120 --> 0:04:52.520 do you think the Fed, in advance of everything that 0:04:52.600 --> 0:04:56.320 happened with a Silicon Dolly Bank anticipated that what they 0:04:56.360 --> 0:04:59.920 were doing could potentially have, you know, the effect of 0:05:00.120 --> 0:05:02.640 like breaking a bank. You know, I think we often 0:05:02.680 --> 0:05:05.679 think of when we talk about how rate high works. 0:05:05.680 --> 0:05:07.480 We think of them is only the kind of pneumatic things. 0:05:07.480 --> 0:05:09.359 It's like, well, they're gonna raise rates and that's gonna 0:05:09.520 --> 0:05:12.040 like raise borrowing costs and it's gonna sort of slow 0:05:12.080 --> 0:05:15.000 things down and make financial conditions tighter. But like anybody 0:05:15.000 --> 0:05:17.960 who remembers like the nineteen eighties knows that, like when 0:05:18.000 --> 0:05:21.120 you change interest rate regimes, like you can bust a 0:05:21.120 --> 0:05:23.440 bunch of financial institutions. We had a long savings and 0:05:23.520 --> 0:05:26.920 loan crisis through the eighties. After this is this was 0:05:26.960 --> 0:05:29.960 this part of their mental model for what might happen 0:05:30.040 --> 0:05:33.240 if they raise rates, that they could have an accident 0:05:33.320 --> 0:05:35.719 like this, and that that is actually part of the mechanism, 0:05:35.839 --> 0:05:37.719 or it was this as much of a surprise to 0:05:37.760 --> 0:05:40.880 them as it was to us. I think you have 0:05:41.000 --> 0:05:43.880 to assume that, you know, most or all FED officials 0:05:43.880 --> 0:05:46.800 are very aware of the history that you're talking about, right, 0:05:46.839 --> 0:05:49.320 I mean, this is like kind of just fed one 0:05:49.320 --> 0:05:52.400 on one for everyone inside the Central Bank on the 0:05:52.400 --> 0:05:55.120 one hand. On the other hand, there certainly was no 0:05:55.240 --> 0:05:59.160 public you know, discussion of these risks, right, and the 0:05:59.560 --> 0:06:03.080 conversation has always been couched more in terms of the 0:06:03.080 --> 0:06:07.839 effect that tightening financial conditions would have on economic growth 0:06:07.839 --> 0:06:10.760 and labor markets and inflation, and you know, more of 0:06:10.800 --> 0:06:13.600 a linear kind of step change to tighter conditions leading 0:06:13.640 --> 0:06:16.560 to that slow down in growth. You know. The other 0:06:16.560 --> 0:06:18.800 big thing that people have been talking about the last 0:06:18.839 --> 0:06:22.920 few weeks is that there was no rising interest rate 0:06:22.960 --> 0:06:25.760 scenario in the FEDS stress tests of the banks. So 0:06:25.800 --> 0:06:29.600 that's another place where that conversation seemingly was a little 0:06:29.600 --> 0:06:32.200 bit absent, you know, Matt, As you know, I view 0:06:32.480 --> 0:06:35.479 all of these issues through the lens of the stock 0:06:35.560 --> 0:06:40.279 market mainly, and the story there is almost that the 0:06:40.480 --> 0:06:43.920 rate increases almost an afterthought. What everyone instead is looking 0:06:43.960 --> 0:06:48.080 at is the extension of the Fed's balance sheet. You know, 0:06:48.240 --> 0:06:51.120 one hundred and fifty some billion dollars loaned out through 0:06:51.520 --> 0:06:55.920 the discount window, and you get people using the old 0:06:56.400 --> 0:07:00.880 pandemic ra expression money printer go burr, meaning the Fed 0:07:01.360 --> 0:07:06.039 is flooding the system with liquidity, and that's just a 0:07:06.240 --> 0:07:10.360 natural reaction is to buy stocks, by crypto, by risky assets. 0:07:10.760 --> 0:07:12.640 But to me, I feel like there's a big difference 0:07:12.680 --> 0:07:16.840 between what the Fed's doing now extending ninety day loans 0:07:16.880 --> 0:07:21.680 to banks versus quantitative easing when they were buying treasuries 0:07:22.200 --> 0:07:25.040 and mortgage backed securities from banks, and that it's kind 0:07:25.040 --> 0:07:28.240 of a mistake to view the expansion of the balance 0:07:28.280 --> 0:07:31.080 sheet as having the same effect. I'm curious how you 0:07:31.120 --> 0:07:35.320 think about it. Yeah, so, you know, the FED wants 0:07:35.320 --> 0:07:38.400 to keep these two things separate, right, They want to 0:07:38.440 --> 0:07:41.400 be able to continue their balance sheet reduction program and 0:07:41.480 --> 0:07:45.000 also have these facilities that are temporary, temporarily expanding the 0:07:45.040 --> 0:07:47.760 balance sheet. And that was actually one of the things 0:07:47.880 --> 0:07:50.559 that you know, it was a little bit interesting about 0:07:50.640 --> 0:07:54.240 yesterday's decision, they didn't announce any plans to slow down 0:07:54.400 --> 0:07:57.320 or stop the pace of their balance sheet reduction program. 0:07:57.400 --> 0:08:00.000 Right They're still allowing these bonds that are on their 0:08:00.080 --> 0:08:02.040 balance sheet that are coming due every month to just 0:08:02.160 --> 0:08:05.080 roll off, which is having the effect of removing reserves 0:08:05.120 --> 0:08:08.320 from the banking system even as they're temporarily adding them 0:08:08.320 --> 0:08:10.200 through these facilities. And a lot of analysts over the 0:08:10.280 --> 0:08:12.040 last two weeks have pointed out that, you know, this 0:08:12.120 --> 0:08:15.360 is kind of a counterproductive thing, and it would make 0:08:15.440 --> 0:08:19.000 sense for them to, you know, maybe temporarily halt the 0:08:19.000 --> 0:08:22.440 balance sheet reduction so as to be more in keeping 0:08:22.440 --> 0:08:25.840 with what they're doing on the emergency lending side. Now. Interestingly, 0:08:25.880 --> 0:08:27.880 that was one of the things that came up near 0:08:27.920 --> 0:08:30.160 the end of the press conference when you started really 0:08:30.200 --> 0:08:33.440 seeing markets sell off after an initial positive reaction to 0:08:33.480 --> 0:08:36.640 the FED decision. When Powell was asked whether it had 0:08:36.640 --> 0:08:40.000 even been discussed at the meeting that you know, they 0:08:40.080 --> 0:08:43.400 might consider slowing the pace or stopping the pace of 0:08:43.480 --> 0:08:46.319 balance sheet reduction, he said that it wasn't something that 0:08:46.360 --> 0:08:48.920 had really been discussed at the meeting, and so just that, 0:08:49.280 --> 0:08:51.320 you know, very blunt, like it was not even on 0:08:51.360 --> 0:08:54.439 the table. I think, you know, potentially could have contributed 0:08:54.440 --> 0:08:58.160 a little bit to the overall turn and sentiment toward 0:08:58.200 --> 0:09:00.400 the end of the presser, Christina say not in your 0:09:00.400 --> 0:09:02.600 head in a big way. No, I mean I would 0:09:02.640 --> 0:09:05.480 like the stuff that Matt's been doing. He's been writing about, 0:09:05.600 --> 0:09:07.960 you know, I think interestingly the stuff about in the 0:09:08.160 --> 0:09:11.520 SEP in the latest round of economic projections in which 0:09:11.760 --> 0:09:13.320 you know, I mean, the feed has been very careful 0:09:13.400 --> 0:09:16.480 not to say the word recession unless you know, asked 0:09:16.600 --> 0:09:18.960 pointed questions about it. But like you know, if you 0:09:19.080 --> 0:09:22.080 look at you know, the GDP track or the Atlanta 0:09:22.160 --> 0:09:25.160 FED has you know, says, you know, first quarter GDP 0:09:25.280 --> 0:09:27.520 growth at three point two percent, that means that for 0:09:27.600 --> 0:09:29.720 the rest of the year to get to the zero 0:09:29.760 --> 0:09:31.800 point four that the FETE is forecasting for all of 0:09:31.800 --> 0:09:33.520 it means that we have to be shrinking for the 0:09:33.520 --> 0:09:35.920 rest of the year. Many thanks to the Bloomberg BusinessWeek 0:09:36.040 --> 0:09:39.240 editorial team of Pat Ragneer and Christina Lynn Blad, along 0:09:39.240 --> 0:09:42.439 with FED reporter Matt Bosler Bloomberg Market Senior editor Mike 0:09:42.480 --> 0:09:45.160 Reagan with us there as well. Coming up, as the 0:09:45.240 --> 0:09:48.520 war in Ukraine hits the thirteen month mark, Vladimir Putin 0:09:48.559 --> 0:09:51.040 looks to show up an alliance with his Chinese counterpart, 0:09:51.240 --> 0:09:55.160 She Jimping. Jimping talks about how the two countries Russian 0:09:55.240 --> 0:10:00.680 China are united in opposition to a geminy, domination and bullying. 0:10:01.160 --> 0:10:05.360 I think it's really about showing their mutual opposition to 0:10:05.559 --> 0:10:09.480 a US led world order. You're listening to Bloomberg Business Week. 0:10:09.880 --> 0:10:20.760 This is Bloomberg. You're listening to the Bloomberg Business Week podcast. 0:10:21.000 --> 0:10:24.199 Catch us live weekday afternoons from three to six Eastern 0:10:24.400 --> 0:10:27.640 Listen on Bloomberg dot Com, the iHeartRadio app, and the 0:10:27.679 --> 0:10:32.680 Bloomberg Business app, or watch us live on YouTube for 0:10:32.760 --> 0:10:35.720 three days. This past week, Russian President Vladimir Putin and 0:10:35.800 --> 0:10:39.320 Chinese President Jejimping met. The visit by Ji, his first 0:10:39.360 --> 0:10:42.360 to Russia since Putin's army invaded Ukraine just over a 0:10:42.440 --> 0:10:46.120 year ago, marked a political win for both leaders. Gee 0:10:46.160 --> 0:10:48.600 saw an opportunity to push back at the US and 0:10:48.679 --> 0:10:51.800 buttress his image as a global statesman after helping to 0:10:51.800 --> 0:10:55.360 broker a Saudi randal, while Putin can show he has 0:10:55.360 --> 0:10:57.920 the support of one of the world's most powerful leaders, 0:10:58.280 --> 0:11:01.319 even as the US and its ally try to isolate him. 0:11:02.000 --> 0:11:04.640 Yet the lack of progress on any major energy deals 0:11:04.920 --> 0:11:08.480 or specifics on other areas of economic cooperation showed some 0:11:08.600 --> 0:11:12.920 hesitation from China on appearing too close to Russia. Meantime, 0:11:12.960 --> 0:11:16.240 the Biden administration unveiled tight restrictions on new operations in 0:11:16.320 --> 0:11:19.200 China by chipmakers that get federal funds to build in 0:11:19.200 --> 0:11:22.280 the US, potentially hampering efforts to expand in the world's 0:11:22.360 --> 0:11:26.520 largest semiconductor arena. And then we had Vanguards said to 0:11:26.520 --> 0:11:29.280 be shuttering its business in China after a retreat two 0:11:29.360 --> 0:11:32.840 years ago. There was so much going on. So Earlier 0:11:32.840 --> 0:11:35.040 in the week, Bloomberg News deputy team leader for US 0:11:35.080 --> 0:11:38.440 Equities Jess Metton and I caught up with Dexter Tiff Roberts. 0:11:38.640 --> 0:11:41.400 He's a senior fellow at the Atlantic Council's Indo Pacific 0:11:41.440 --> 0:11:45.360 Security Initiative and former Bloomberg Business Weeks China Bureau chief. 0:11:45.720 --> 0:11:48.439 Our first question to Tiff should we be concerned about 0:11:48.520 --> 0:11:53.320 Moscow and Beijing strengthening ties? Yes, I do think the 0:11:53.440 --> 0:11:58.640 world should be worried. China has been selling this ongoing 0:11:58.760 --> 0:12:02.000 visit by Hijimking to Moscow and the meetings Putin as 0:12:02.040 --> 0:12:07.120 a mission of peace and talking about their twelve point 0:12:07.240 --> 0:12:11.560 plan to try to bring peace in Ukraine. But I 0:12:11.600 --> 0:12:16.520 think that's really a bit of propaganda. If you look at, 0:12:16.880 --> 0:12:23.120 for example, the commentary that Shijim King published in Russian media. 0:12:23.200 --> 0:12:26.720 Putin also did a commentary in Chinese media right on 0:12:26.760 --> 0:12:29.719 the eve of the visit. Jim King talks about how 0:12:29.720 --> 0:12:35.559 the two countries Russian China are united in opposition to hegemony, domination, 0:12:35.760 --> 0:12:40.320 and bullying. I think it's really about showing their mutual 0:12:40.320 --> 0:12:44.920 opposition to a US led world order. And something that 0:12:45.320 --> 0:12:47.600 really struck me is just when it comes to these 0:12:47.800 --> 0:12:51.760 chip makers that obviously have that exposure toward China, what 0:12:51.840 --> 0:12:54.760 do you think from a broad sense, a big picture sense, 0:12:54.800 --> 0:12:57.200 do you think this means for corporate American, especially these 0:12:57.280 --> 0:13:02.439 semiconductor type companies that aren't going to benefit from this. Well, 0:13:02.440 --> 0:13:06.760 I think it's not good news for corporate America. The 0:13:07.400 --> 0:13:11.400 already multiple problems, very real problems in the US China 0:13:11.440 --> 0:13:15.160 relationship have been putting pressure on corporate America. And you 0:13:15.240 --> 0:13:21.000 mentioned semiconductors. The US is in the midst of an 0:13:21.000 --> 0:13:26.240 a radical rethinking of its semiconductor relationship with China, and 0:13:26.280 --> 0:13:29.760 as as I think Carol mentioned an introduction, there's new 0:13:29.800 --> 0:13:35.160 restrictions coming almost every week on US companies, US persons 0:13:35.800 --> 0:13:39.960 being associated in any way with the Chinese semiconductor industry. Well, 0:13:40.000 --> 0:13:44.400 it's a big market for the US on the semiconductor 0:13:44.440 --> 0:13:48.520 side and obviously more broadly, so this is not good news. 0:13:48.960 --> 0:13:51.600 One more source of very real tension between the US 0:13:51.640 --> 0:13:56.160 and China. Just budding relationship that's growing stronger and stronger 0:13:56.200 --> 0:14:01.520 between Russian China. One more reason to one more place 0:14:01.520 --> 0:14:05.119 where there's really bad news for the US corporate relationship 0:14:05.160 --> 0:14:07.880 with China. Are we at the point of no return 0:14:08.160 --> 0:14:11.960 where China and President Gee specifically have turned its back 0:14:12.080 --> 0:14:16.719 on the United States. I think we can't say we're 0:14:16.720 --> 0:14:19.360 at the point of no return, but I would note 0:14:19.480 --> 0:14:23.840 that last week or during the two sessions the annual 0:14:24.240 --> 0:14:29.920 Legislatives meetings held in Beijing, Shijingping actually singled out the 0:14:30.040 --> 0:14:34.080 US by name, which he doesn't usually do, and said 0:14:34.120 --> 0:14:37.320 that they were leading a block of world nations that 0:14:37.760 --> 0:14:42.160 were trying to contain and suppress China and bringing severe 0:14:42.240 --> 0:14:45.720 challenges to China's development. That's a big deal. Shijing Ping 0:14:45.840 --> 0:14:48.640 usually when he's referring to the US will say something 0:14:48.720 --> 0:14:53.520 like certain countries or hostile foreign forces. But I think 0:14:53.520 --> 0:14:56.360 the fact that he mentioned the US at this point 0:14:56.360 --> 0:15:00.720 by name shows just how bad the relationship is. All Right, 0:15:00.720 --> 0:15:03.520 tiff for at risk of sounding really stupid, but I'm 0:15:03.520 --> 0:15:09.680 okay with that. I mean, is China desperate? I don't 0:15:09.720 --> 0:15:12.840 think China feels desperate at this point. I think that 0:15:12.880 --> 0:15:16.320 what they're doing is, first of all, they're going to 0:15:16.320 --> 0:15:19.040 do their best to try to continue to woo American 0:15:19.080 --> 0:15:24.000 corporates to China. The spokesman for the Ministry of Commerce 0:15:24.040 --> 0:15:28.000 during the same legislative meetings basically sent out the message 0:15:28.000 --> 0:15:30.480 we're open for business, we want you, we want you 0:15:30.520 --> 0:15:32.920 back now that we're lifting we've lifted the restrictions from 0:15:32.960 --> 0:15:36.480 the pandemic. So they want corporate America. But they're going 0:15:36.520 --> 0:15:39.360 to try to sort of divide and conquer. They realize 0:15:39.360 --> 0:15:42.600 that the relationship with Washington is in very dire strait. 0:15:43.040 --> 0:15:45.480 At the same time, they're trying to woo Europe and 0:15:45.520 --> 0:15:50.000 it's obviously not easy when they've cited to the degree 0:15:50.040 --> 0:15:53.800 to which they have with Putin in the invasion of Ukraine. 0:15:54.040 --> 0:15:57.520 And you were talking about the strained relationship China does 0:15:57.600 --> 0:16:00.200 have with Washington. What do you think the long game 0:16:00.480 --> 0:16:03.720 is here for China? What is the sort of motivation 0:16:03.800 --> 0:16:08.840 to all of this? I do think and I am 0:16:08.880 --> 0:16:13.960 concerned that China is deciding that the two sides are 0:16:14.680 --> 0:16:18.200 implacably opposed to each other and that they're the room 0:16:18.320 --> 0:16:23.760 for actual cooperation is narrowing. So UM, I hope that's 0:16:23.800 --> 0:16:26.560 not the case, but I do feel I do get 0:16:26.600 --> 0:16:30.280 that feeling that this is increasingly how Beijing fealed. I think, 0:16:30.280 --> 0:16:32.760 as I said, they're they're certainly not going to close 0:16:32.800 --> 0:16:35.480 the door to American companies. They're certainly not going to 0:16:35.520 --> 0:16:39.840 close the door to the European Union. Um, they if 0:16:39.880 --> 0:16:46.000 the US, If the US were to move a little 0:16:46.000 --> 0:16:49.720 closer to what China thinks is a proper bilateral relationship, 0:16:49.760 --> 0:16:52.480 I bet Beijing would be willing to more than willing 0:16:52.480 --> 0:16:55.720 to talk with Washington. But I do think that the 0:16:55.920 --> 0:16:59.000 trend lines are pretty bad. You know, you talk about 0:16:59.000 --> 0:17:01.320 closing doors, and it's interesting. There was another story in 0:17:01.320 --> 0:17:04.440 the Bloomberg Tiff today about Vanguard planning to shutter its 0:17:04.440 --> 0:17:07.960 business in China. This is after they've been I guess 0:17:08.000 --> 0:17:10.439 a retreat two years ago. This according to folks familiar 0:17:10.480 --> 0:17:12.920 with the matter, but you know, in our story it 0:17:12.960 --> 0:17:15.280 says the moves will mark a complete exit from China 0:17:15.359 --> 0:17:17.600 for the seven point one trillion dollars giant, which one 0:17:17.640 --> 0:17:21.280 saw significant potential in the world's second largest economy. I've 0:17:21.280 --> 0:17:23.360 said it a million times before because I think about 0:17:23.359 --> 0:17:26.000 at the beginning of my career, any company I talked to, 0:17:26.440 --> 0:17:28.199 it was as China was real, you know, it was 0:17:28.280 --> 0:17:33.440 opening its doors and kind of almost begging multinationals from 0:17:33.480 --> 0:17:36.240 around the world to come in, set up shop, you know, 0:17:36.400 --> 0:17:39.600 kind of teach us what you know. And it's it's 0:17:39.600 --> 0:17:41.960 only you know, a few decades ago that I feel 0:17:42.000 --> 0:17:47.040 like things have changed dramatically. So it's pretty significant. The shift, 0:17:48.520 --> 0:17:52.919 I think it really is significant. We're seeing hedge funds 0:17:52.920 --> 0:17:56.399 pulling out. Came in early after the pandemic restrictions were lifted, 0:17:56.440 --> 0:17:59.399 and then they were they started getting out. We see, 0:17:59.480 --> 0:18:02.320 you know, based by the American Chamber of Commerce that 0:18:02.400 --> 0:18:05.080 are showing that for the first time, China is not 0:18:05.119 --> 0:18:10.160 even a top three investment choice for American companies. You're 0:18:10.200 --> 0:18:14.600 seeing companies, American companies say that they are very they 0:18:14.600 --> 0:18:17.680 feel very little optimism about the China market going forward, 0:18:18.000 --> 0:18:21.760 and yeah, we're seeing some big prominent examples like Vanguard. 0:18:22.240 --> 0:18:25.159 It sounds like that are thinking of actually moving on 0:18:25.280 --> 0:18:28.840 somewhere else. So I do think there's been a real shift. 0:18:29.560 --> 0:18:32.240 China is trying to China doesn't want to see that happen, 0:18:32.280 --> 0:18:34.960 as I said a moment ago, so they're trying. They're 0:18:35.000 --> 0:18:38.679 trying to put out this message We're open to the world, 0:18:39.160 --> 0:18:42.000 I'll come back investors. But things aren't looking very good 0:18:42.000 --> 0:18:44.399 on that front. Hey, Tiff, just got about thirty seconds 0:18:44.480 --> 0:18:45.920 last time you were on. I asked if you were 0:18:45.920 --> 0:18:47.679 writing a new book. You said you were heading in 0:18:47.680 --> 0:18:50.720 that direction. The title you offered up maybe China isn't 0:18:50.720 --> 0:18:52.720 going to take over the world. Would that still be 0:18:52.760 --> 0:19:00.359 the title? Absolutely? I see tremendous structural challenges facing China, demography, 0:19:00.760 --> 0:19:05.080 growing inequality, and above all this politicization from the top 0:19:05.160 --> 0:19:10.480 leadership and Chijing thing himself. That makes it much less 0:19:10.520 --> 0:19:12.840 likely it's going to be the economic superpower many of 0:19:12.920 --> 0:19:14.840 us thought it was going to be. That was Dexter 0:19:14.880 --> 0:19:17.719 Tiff Roberts, Senior Fellow at the Atlantic Council's Indo Pacific 0:19:17.800 --> 0:19:21.560 Security Initiative and former Bloomberg BusinessWeek, China Bureau Chief. His 0:19:21.640 --> 0:19:25.360 most recent book. It is titled The Myth of Chinese Capitalism, 0:19:25.400 --> 0:19:27.800 The Worker, the Factory and the Future of the World. 0:19:28.200 --> 0:19:30.639 We certainly are looking forward to his next one. All right, 0:19:30.640 --> 0:19:33.440 Bloomberg's Jess Mattins sticking around with us, still ahead on 0:19:33.480 --> 0:19:36.560 Bloomberg Business Week. How the collapse of Silicon Valley Bank 0:19:36.720 --> 0:19:40.320 is reverberating through the tech sector for companies of all sizes. 0:19:40.520 --> 0:19:43.800 Todd McKinnon, the CEO of publicly traded Octa, joins us. Next, 0:19:44.000 --> 0:19:52.679 This is Bloomberg. You're listening to the Bloomberg Business Week podcast. 0:19:52.920 --> 0:19:56.160 Catch us live weekday afternoons from three to six Eastern 0:19:56.280 --> 0:20:00.159 on Bloomberg Radio, the Bloomberg Business app, and YouTube. You 0:20:00.160 --> 0:20:03.360 can also listen live on Amazon Alexa from our flagship 0:20:03.440 --> 0:20:09.120 New York station, jo Say Alexa playing Bloomberg eleven thirty Well. 0:20:09.160 --> 0:20:12.080 Earlier this month, Octa reported earnings that sended stock starring 0:20:12.119 --> 0:20:15.560 some thirteen percent, and gave an upbeat first quarter revenue forecast. 0:20:15.680 --> 0:20:18.560 Like many tech companies, though it is finding a focus 0:20:18.600 --> 0:20:21.320 on efficiency, it is paying off for the company. The stock, 0:20:21.359 --> 0:20:23.960 by the way, up more than twenty percent year to date, 0:20:24.040 --> 0:20:26.080 So let's get to it. Lots of questions for our 0:20:26.119 --> 0:20:29.840 next guest. Todd McKinnon is the CEO and founder of Octa. 0:20:29.920 --> 0:20:32.760 It's a fourteen year old software maker known for authentication 0:20:32.880 --> 0:20:36.239 services count Sono, Assume, Hpe, and open Ai among its 0:20:36.320 --> 0:20:39.320 customers and lucky for us, Todd's and our Bloomberg Interactive 0:20:39.320 --> 0:20:41.879 Broker studio. So nice to have you here. I do 0:20:42.000 --> 0:20:45.199 have a million questions that we're to cram into eight minutes. 0:20:46.240 --> 0:20:50.240 First of all, Silicon Valley Bank, tell us about the 0:20:50.240 --> 0:20:52.720 relationship you guys have had with them and how you 0:20:52.760 --> 0:20:56.399 see this situation. It's for many companies, Octa included. It 0:20:56.440 --> 0:20:58.480 was the first bank we had as a company. We 0:20:58.600 --> 0:21:00.399 raised our financing and we put it in there and 0:21:00.400 --> 0:21:03.760 started running the business. And over the years the relationship. 0:21:03.800 --> 0:21:05.280 Did you put more than two hundred and fifty thousand 0:21:05.280 --> 0:21:07.280 dollars in deposit? For sure? I mean our first our 0:21:07.320 --> 0:21:09.160 first seed round was a million dollars. In the next 0:21:09.240 --> 0:21:11.520 round was ten million dollars and it went in all yeah, 0:21:11.560 --> 0:21:14.600 all in Silicon Valley Bank. Sorry, yeah. And so over 0:21:14.600 --> 0:21:16.320 the years, what happens is you grow and you do 0:21:16.400 --> 0:21:18.359 in the big diversification point I think for a lot 0:21:18.400 --> 0:21:21.280 of companies is when they go international, it's really you 0:21:21.320 --> 0:21:23.440 have to have a big diverse set of banking partners 0:21:23.440 --> 0:21:26.639 to pay internationally, to accept payments internationally. So that was 0:21:26.680 --> 0:21:29.440 the point of diversification. But for a company that's early 0:21:29.480 --> 0:21:33.480 in its life cycle, it's it was really a it's 0:21:33.480 --> 0:21:35.600 a serious issue for a company that has operational to 0:21:35.680 --> 0:21:38.560 a lifeline for you guys are crucial, right, yeah, Well 0:21:38.600 --> 0:21:41.360 we've evolved passing yeah in the early days, but once 0:21:41.400 --> 0:21:43.200 you get to a certain size and scale like we are, 0:21:43.440 --> 0:21:45.760 you're pretty diverse. But it did bring back memories of 0:21:45.840 --> 0:21:48.280 when we were. Octa was founded in the right after 0:21:48.320 --> 0:21:51.119 the financial crisis fourteen years old, started in two thousand 0:21:51.160 --> 0:21:53.439 and nine, so it really brought back some memories of 0:21:53.480 --> 0:21:56.280 banks failing and you know, be in that early stage 0:21:56.280 --> 0:21:58.160 of a company where you're trying to survive and trying 0:21:58.160 --> 0:21:59.800 to get product market fit. And the last thing you 0:21:59.800 --> 0:22:01.840 want to deal with as a small startup, as you're 0:22:02.080 --> 0:22:05.440 something you trusted as being really something that could never 0:22:05.480 --> 0:22:07.040 go away, is to have a serious question about it. 0:22:07.040 --> 0:22:09.080 If it would be around Todd No Silicon Valley Bank, 0:22:09.119 --> 0:22:12.600 What does it mean then for entrepreneurs, like, what's what 0:22:12.680 --> 0:22:17.000 Todd McKinnon today do well? Entrepreneurs are by definition pretty 0:22:17.040 --> 0:22:21.960 adaptive and different Todd McKinnon, Yeah, exactly, exactly. They're pretty 0:22:21.960 --> 0:22:26.080 adaptive and they're good at navigating changes and uncertainty. If 0:22:26.080 --> 0:22:28.639 you wanted a stable, static environment, you'd never be an 0:22:29.200 --> 0:22:32.800 an entrepreneur. So I think other folks will step in 0:22:32.800 --> 0:22:35.520 to fill the wood, and I'm very optimistic in the 0:22:35.560 --> 0:22:38.840 opportunistic future of both the world in general and also 0:22:38.880 --> 0:22:42.560