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Speaker 3: Bloomberg Originals. This is Bloomberg Business Week for this. Yeah,
Speaker 3: it's a FED Wednesday. It is Wednesday, February nineteenth, Carol
Speaker 3: Master Tim Stenevik. In just a moment, we're going to
Speaker 3: get the FED minutes from the meeting, the first meeting
Speaker 3: of twenty twenty five. It happened three weeks ago. We're
Speaker 3: going to head to Washington, DC. In just a moment, Tim.
Speaker 4: Yeah, we're also going inside the world of the world's
Speaker 4: biggest online dollar store.
Speaker 3: Off to DC we go, and that's where we find
Speaker 3: Bloomberg News International Economics and Policy correspondent Michael McKee.
Speaker 5: Mike, we've got some news from the minutes today as
Speaker 5: there was a lot of discussion apparently at the last
Speaker 5: meeting about TRAID, tariffs, banks and the balance sheet. Whilst
Speaker 5: officials saw a strong economy with a solid labor market
Speaker 5: and declining, if still too high inflation. They spent a
Speaker 5: lot of time talking about potential policy changes and financial
Speaker 5: market supervision. A number of participants suggested the recent rise
Speaker 5: in monthly inflation was likely due to seasonal factors, noting
Speaker 5: substantial progress before that, but potential changes to trade and
Speaker 5: immigration policy from the new administration had the quote potential
Speaker 5: to hinder the disinflation process. One concerning note business contacts
Speaker 5: in a number of districts, indicated that firms would attempt
Speaker 5: to pass on to consumers higher input costs arising from
Speaker 5: potential tariffs. Many said companies were reporting substantial optimism about
Speaker 5: the economic outlook given potential easing of regulations and tax cuts,
Speaker 5: but some participants reported increased uncertainty regarding putential changes in
Speaker 5: federal government policies. Altogether, FED officials generally pointing to upside
Speaker 5: risks to inflation from tariffs and immigration policies, geopolitical threats,
Speaker 5: and stronger than expected consumer spending. They worried it might
Speaker 5: be hard to distinguish persistent changes in inflation from temporary
Speaker 5: ones caused by policy changes. There was also discussion of
Speaker 5: financial market vulnerabilities, including bank's reliance on reciprocal deposits, the
Speaker 5: risk of unrealized losses at banks and non bank institutions
Speaker 5: from any potential rise in long term interest rates, asset valuations,
Speaker 5: and commercial real estate exposures. Several commented on concerns that
Speaker 5: primary dealers didn't have enough intermediation capacity, and the degree
Speaker 5: of levered presitions in the markets was concerning. Finally, on
Speaker 5: the balance sheet, many participants suggested structuring future purposes as
Speaker 5: they run off the balance sheet should be done in
Speaker 5: a way that move the maturity composition of the FEDS
Speaker 5: portfolio closer to that of the outstanding stock of treasury debt,
Speaker 5: and various participants that's a new adverb for the FED
Speaker 5: suggested it might be appropriate to consider pausing or slowing
Speaker 5: balance sheet runoff until the debt ceiling is resolved. They
Speaker 5: obviously made no decision on that and did not make
Speaker 5: any decisions on bank supervision, but it does show they
Speaker 5: were worried about more than just inflation at this last meeting.
Speaker 3: All right, Mike, I feel like that there is definitely
Speaker 3: a follow up to that various participants point that you made.
Speaker 3: But let me just quick check on the markets. Equity
Speaker 3: markets to S and P is up about four points.
Speaker 3: Nazek one hundreds down is up about six points, so
Speaker 3: a little bit of a more positive tilt, but call
Speaker 3: it really slightly more importantly, let's get to the US
Speaker 3: Treasury trade. We had a four to fifty five read
Speaker 3: on the ten year. It's at four fifty four. The
Speaker 3: five year, if I look at it was at four
Speaker 3: thirty eight. That's where we find it short end of
Speaker 3: the yell curve, most sensitive to what the FED may
Speaker 3: say or do. That's exactly at where it was prior
Speaker 3: to the FED minutes, and that's with the yield of
Speaker 3: four to twenty eight. Hey, Mike, anything in here that
Speaker 3: beyond the various participants or that included that would make
Speaker 3: investors traders think differently about what the FED might do
Speaker 3: differently from what we got at that FED meeting.
Speaker 5: Not necessarily a monetary policy, and many of the FED
Speaker 5: officials who've spoken since the meeting have talked about risks
Speaker 5: from trade policy and immigration and the fact that they
Speaker 5: don't know what they can be and they can't quantify
Speaker 5: them at this point. The Bank supervision stuff was interesting
Speaker 5: because there's been a lot of talk about how strong
Speaker 5: the banks are and there's not a lot of concern
Speaker 5: about that. At the press conference, Jay Powell talked about
Speaker 5: how SVP was an outlier when that bank failed, but
Speaker 5: apparently there's more concern about that. There's also been questions
Speaker 5: about whether the FED would change its rules on the
Speaker 5: supplementary leverage ratio. Obviously there are concerns about whether dealers
Speaker 5: have intermediation capacity. And then, of course, finally, the balance
Speaker 5: sheet stuff is really interesting. It's something that bond traders
Speaker 5: and bond analysts are going to have to follow closely
Speaker 5: because it's possible, I suppose at the next meeting, if
Speaker 5: we don't get progress on a debt ceiling from the
Speaker 5: administration and Congress, they might want to consider pausing the
Speaker 5: runoff of the balance sheet until that happens.
Speaker 4: Is it rare to get something Mike in Fed minutes
Speaker 4: that is so not necessarily targeted, but something that specifically
Speaker 4: calls out something that could be happening in Washington that
Speaker 4: Congress has control of.
Speaker 5: We don't see a lot of major policy changes from
Speaker 5: administration to administration that would affect the economy in the
Speaker 5: way that tariffs and immigration policy might. Tax cuts as well.
Speaker 5: So it is unusual, but it is not an unusual
Speaker 5: factor of Fed thinking over the last or five months,
Speaker 5: because they've been trying to parse out what might happen
Speaker 5: and how that might affect the economy, and we still
Speaker 5: don't have very many details about all that. I think
Speaker 5: we've got six different tariff announcements but only one in place,
Speaker 5: the rest postponed for a few weeks until this or
Speaker 5: that happens. So they really don't have an idea of
Speaker 5: what's going to happen, but they are putting it in
Speaker 5: the upside risks category.
Speaker 6: Hey, one last question, Mike, So if j.
Speaker 3: Powell was holding a press conference today off of these minutes,
Speaker 3: what would you ask him.
Speaker 5: Yeah, Well, since everybody else before me would probably ask
Speaker 5: about upside risks to inflation, I'd be interested to know
Speaker 5: more about the balance sheet and what they're really thinking there. Obviously,
Speaker 5: the Fed when it lets them as securities roll off
Speaker 5: up to a limit of thirty trillion thirty billion rather
Speaker 5: a month, then the rest of the rolling off money
Speaker 5: goes back into the treasury. And there's been a lot
Speaker 5: of talk about the maturity curve for the treasury because
Speaker 5: the Biden administration bought a lot of short term bills,
Speaker 5: short term bonds, and now we're looking at longer term
Speaker 5: perhaps losses because interest rates are going to go higher.
Speaker 5: But the Fed is now talking about maybe we want
Speaker 5: to go that direction. So a very interesting question ahead
Speaker 5: for the bond market.
Speaker 3: All right, Bloomberg News International Economics and Policy correspondent Michael
Speaker 3: McKee out there in Washington, DC. All right, let's get
Speaker 3: to any market reaction when it comes to the US
Speaker 3: rates trade. And we've got a great guest for that.
Speaker 4: Well, let's bring in Bloomberg Intelligence Chief US interest rates strategist,
Speaker 4: Ira Jersey. He's out there at Bloomberg Intelligence headquarters in Princeton,
Speaker 4: New Jersey. Ira, why the lack of reaction to this
Speaker 4: to the news in the minutes from the Federal Reserve.
Speaker 7: Because there's a lot of interesting details but nothing new.
Speaker 7: You know. One of the one of the issues that
Speaker 7: we get is with the chairs press conference after the
Speaker 7: meeting is we know, you know ninety plus percent of
Speaker 7: what's likely to be in the minute. So it's really
Speaker 7: around the edges that you look for things. So it
Speaker 7: is those adverbs that Mike was just talking about, So
Speaker 7: you look at you know, were there many members that
Speaker 7: thought something that was different than maybe what was expressed
Speaker 7: by Jay Powell or was it just a couple right,
Speaker 7: So that's a kind of the nuance that we get
Speaker 7: out of the out of the minutes, you know, I'm
Speaker 7: focusing on the minutes here looking at some of the
Speaker 7: statements done by the SOMA portfolio manager, who's that has
Speaker 7: to do with quantitative tightening and what they might end
Speaker 7: up doing with the balance sheet. So there is some
Speaker 7: interesting information in there that we didn't have before. And
Speaker 7: obviously the FED is you know, so maybe so a
Speaker 7: long time from stopping QT, but now we're getting a
Speaker 7: hint as to what they might do if they end
Speaker 7: their their asset runof quantitative tightening.
Speaker 3: Well, are you, like Mike, that you would want if
Speaker 3: you were posing a question to j Powell if there
Speaker 3: was a press conference after the FED minutes like there
Speaker 3: is after the FED decision, would you ask about the
Speaker 3: balance sheet? Is there something else you'd want to know?
Speaker 3: Based on the headlines we've gotten.
Speaker 7: Probably mostly about the balance sheet at this point, because
Speaker 7: we know and some of the interesting statements in there,
Speaker 7: you know, did follow up is as you were talking
Speaker 7: about a moment ago. There have been a lot of
Speaker 7: speakers since the meeting, right so, and most of those
Speaker 7: speakers have said we can be patient, we can wait,
Speaker 7: you know, there's risks of the upside. There was one
Speaker 7: interesting headline that came over the terminal, and I have
Speaker 7: not yet read it in the minutes. Obviously, the minutes
Speaker 7: were like thirty pages long, so it's taken a little while.
Speaker 7: But they did say, like, you know, until inflation starts
Speaker 7: to move more toward their goal, they can be patient
Speaker 7: and wait. So I think, while not exactly new, I
Speaker 7: think that that was just a confirmation that members of
Speaker 7: the feder Reserve are happy with where rates are given
Speaker 7: the overall economic environment that we've been seeing in a
Speaker 7: lot of the data, particularly that inflation data.
Speaker 4: If we do indeed see policies from the Trump administration
Speaker 4: that are indeed inflationary tariffs, immigration policy, is it a
Speaker 4: realistic thing to say I read that the next move
Speaker 4: from the Fed could be a move higher.
Speaker 7: Well, I think that depends in what everything else is
Speaker 7: doing in the economy, right, because the Federal Reserve, unlike
Speaker 7: most other central banks, have their dual mandate, right so,
Speaker 7: I think there's two things. Is one they have been
Speaker 7: harping and some members have been harping on the on
Speaker 7: the idea that they're not near the neutral rate, that
Speaker 7: for some reason, a lot of members of the Federal
Speaker 7: Reserve think that the neutral rate is probably closer to
Speaker 7: two and a half or three percent instead of four percent.
Speaker 7: I actually think it's closer to three and three quarters
Speaker 7: or four So I think we're probably pretty close to that.
Speaker 7: But there's a difference of opinion, right because it's not
Speaker 7: something you can observe ex ante. You have to wait
Speaker 7: until events happen, and you only know if you were
Speaker 7: at the neutral rate, you know, at some time in
Speaker 7: the past when you look at history. So I do
Speaker 7: think that the Fed itself is going to have to
Speaker 7: think about you know, hey, you know, what does do
Speaker 7: tariffs mean for inflation in the long term and the
Speaker 7: short term? And if inflation does go up and inflation
Speaker 7: expectations rise, and the and the job market is still okay,
Speaker 7: then the Fed will sit on their hands and maybe
Speaker 7: they will hike. But it's more likely that you get
Speaker 7: tariffs and then you also have maybe some job losses,
Speaker 7: and that means that the Fed has decide, hey, are
Speaker 7: we going to ease a little bit to take back
Speaker 7: to ease monetary policy in order to try to support
Speaker 7: the job market, or do we just you know, try
Speaker 7: to push against these Tara fled inflation.
Speaker 3: Hey, just to wrap up, Ira, So you know, as
Speaker 3: your research that you guys that you put out today,
Speaker 3: you say you think there is a non trivial risk
Speaker 3: that the FED may need to increase rates to stema
Speaker 3: climbate inflation expectations market and traders not pricing that in
Speaker 3: yet in your.
Speaker 7: View, Yeah, so the market is not pricing it in.
Speaker 7: There's a very small chance and some options markets that
Speaker 7: the FED reserve might hike one time over the next year.
Speaker 7: I think that's probably too low. Like, it's still not
Speaker 7: our base case. Like our base case is that the
Speaker 7: Fed's on hold for the next twelve months. But I
Speaker 7: think that the market is underpricing the risk that the
Speaker 7: FED might have to hike.
Speaker 3: All right, Gonna leave it there. Hey, listen, Ira, thank
Speaker 3: you so much, so appreciate it reaction to what we saw.
Speaker 6: Of course, Ira.
Speaker 3: Jersey's chief US interest rate strategist. Here at our Bloomberg
Speaker 3: intelligence team out there at the headquarters in Princeton.
Speaker 2: You're listening to the Bloomberg Business Week Podcast. Catch us
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Speaker 3: We'll head to its homepage and you will be bombarded
Speaker 3: with random items Foux leather car seat covers, frog costumes
Speaker 3: for cats.
Speaker 4: I even know.
Speaker 6: I think Tim just bought some.
Speaker 4: I don't have the cat, but the frog costume.
Speaker 3: Sounds great, knock off handbag supplements, whatever, and also a
Speaker 3: flurry of banners, countdown timers and prize wheels, hawking deals,
Speaker 3: price drops and limited time offers. These are the words
Speaker 3: of our own Spencer so Far. I mean, this is Tim.
Speaker 3: The world of tea moves.
Speaker 8: Yeah.
Speaker 4: In just two years, it's become the world's biggest online
Speaker 4: dollar storys days Bloomberg Big Take. It's a deep dive
Speaker 4: into the company and how it got ensnared in President
Speaker 4: Trump's trade war with the tell. We welcome back Bloomberg
Speaker 4: News Tech and e commerce reporter Spencer Sofer. He joins
Speaker 4: us from our Seattle bureau. Spencer, I feel like I'm
Speaker 4: in the minority because I'm not like a big team
Speaker 4: of person I've never used TIMU. I had no idea
Speaker 4: that the growth of TIMO over the last couple of
Speaker 4: years is a direct result on what happened during Trump's
Speaker 4: first term.
Speaker 6: How did it happen?
Speaker 9: Yes, So during Trump's first term, if you remember, he
Speaker 9: imposed these big tariffs on China in particular, and so
Speaker 9: that basically made this demnimous loophole, which has been a
Speaker 9: thing for you know, for nearly a century now, But
Speaker 9: there's this tariff loophole that lets you ship in individual
Speaker 9: packages from China. As long as something a package is
Speaker 9: worth less than eight hundred dollars, it can come into
Speaker 9: the US for free. So all of a sudden, this
Speaker 9: shipping method is much more attractive as opposed to you know, traditionally,
Speaker 9: if you go to a store, you buy something on Amazon,
Speaker 9: it most likely came in a cargo container into a port,
Speaker 9: and you know, tariffs were set will be assessed on that.
Speaker 9: With team who's sending in an individual package to a
Speaker 9: US shopper kind of factory direct, it slides in below
Speaker 9: those tariffs. And that's one thing that gave him a
Speaker 9: big price advantage.
Speaker 3: And then during the Trump administration specifically like where because
Speaker 3: we're didn't Various presidents kind of keep raising the amount.
Speaker 9: Yeah, the dominimus has always been there. The loophole's always
Speaker 9: been there. Wish dot Com benefited from it years ago.
Speaker 9: What happened, though, was Trump didn't do anything about Dominimus.
Speaker 9: Trump imposed these new tariffs, so all of a sudden,
Speaker 9: that existing loophole became that much more valuable.
Speaker 4: Is that existing loophole at risk right now? There's a
Speaker 4: lot of confusion over what happens to this loophole in
Speaker 4: this latest round of tariffs.
Speaker 9: Yeah, so Trump said he was going to eliminate the loophole,
Speaker 9: but then he backtracked because you can't just do it
Speaker 9: with like a stroke of a pen. Realized that the agencies,
Speaker 9: particularly like Customs and Border Protection need time to figure
Speaker 9: out a plan and come up with a plan to
Speaker 9: how to handle this volume because we're talking about four
Speaker 9: million packages a day.
Speaker 8: And to the and to the US through this loophole.
Speaker 9: And so, yes, he he signaled that he wants to
Speaker 9: eliminate it, but exactly how that's going to be and
Speaker 9: whether there's still some loophole, maybe a smaller loophole or
Speaker 9: a different loophole, or just no loophole we don't really
Speaker 9: know until we see exactly how this is going to
Speaker 9: be implemented.
Speaker 4: Spencer, you mentioned this as part of a nearly century
Speaker 4: old tax loophole. The people who put this tax loophole
Speaker 4: into effect, they weren't thinking about cat costumes, including.
Speaker 7: Broad costumes, soames.
Speaker 4: Were maybe they were coming from China. What's the history here.
Speaker 9: Yeah, when you when you think about demonimous, what demonimous
Speaker 9: in Latin translates to something of such marginal value to
Speaker 9: be insignificant, Okay. And so when it generally applies to
Speaker 9: is someone returning and the origins of it someone returning
Speaker 9: from a vacation from another country. They've got, you know,
Speaker 9: loot in their suitcase. Maybe you got some T shirts,
Speaker 9: some gifts for your family, that kind of thing.
Speaker 8: You know.
Speaker 9: Without the deminimous loophole, you'd have to pay tariffs on
Speaker 9: that because you're bringing in a product of you know,
Speaker 9: from another country of origin, and the duties would apply.
Speaker 9: But they realized, look, we don't want customs agents bugging
Speaker 9: every person coming back into the country about what's in
Speaker 9: their suitcase. So they set this cap, which is currently
Speaker 9: eight hundred dollars, which is a fairly generous one.
Speaker 8: So that's what it was intended for.
Speaker 9: But then you enter the age of e commerce and
Speaker 9: crosswater e commerce, and suddenly you have this big loophole
Speaker 9: where the same rule applies.
Speaker 8: If if Tim orders that cat.
Speaker 9: Costume on Timu and it's only twenty dollars or whatever,
Speaker 9: it can come in under that loophole and it gives
Speaker 9: you a price advantage over say, brick and mortar stores
Speaker 9: that are bringing products in in bulk.
Speaker 3: I think he definitely has one under his desk. Hey, Spencer,
Speaker 3: you know, I got to be honestly, tried to put
Speaker 3: a costume on a cat.
Speaker 6: They're not dogs. I having a dog, Yeah, they're not dogs.
Speaker 6: Also slippery, Yeah, hey Spencer.
Speaker 3: I think what's interesting is I said to Tim, you know,
Speaker 3: as Timu has popped up and we were reading your story,
Speaker 3: I'm like, have you shot there? And He's like, no,
Speaker 3: I haven't shopped there. But it's massive, fifty million other
Speaker 3: US shoppers. Do remind everybody about the size and scope
Speaker 3: of this because I feel like, if we talk about Amazon,
Speaker 3: everybody knows who Amazon is, but Timo is pretty impressive
Speaker 3: and its growth is really impressive even versus Amazon.
Speaker 8: Yeah, so in just a few years.
Speaker 9: Timu this year is expected to surpass thirty billion in
Speaker 9: gross merchandise value, basically the value of all the goods
Speaker 9: they sell in the US.
Speaker 8: That's a milestone.
Speaker 9: It took Amazon more than a decade to make and
Speaker 9: team Who's going to do that in about three years?
Speaker 9: And the fifty million shoppers is you know, bigger than eBay,
Speaker 9: bigger than Walmart. So it's second, really second only to
Speaker 9: Amazon at this point.
Speaker 4: What are people buying there? Because it's not you know,
Speaker 4: in the sense of Amazon. Amazon's known for getting stuff
Speaker 4: quickly to your doorstep. That's really what they're priding themselves
Speaker 4: on when it comes to prime as you know, Spencer,
Speaker 4: what are people buying on Timu and how has it
Speaker 4: changed the way that people shop.
Speaker 9: It's a little bit of everything, but generally you can think, Okay,
Speaker 9: it's gonna be it's likely going to be something small,
Speaker 9: something light, even though you can find like a bulldozer
Speaker 9: on Team Move believe it or not. But generally, generally
Speaker 9: people are buying things that are small, maybe apparel, small
Speaker 9: kitchen appliances. I've shopped on there a bit. I do
Speaker 9: a lot of do it yourself projects. I bought some
Speaker 9: tools on there. It's generally smaller, smaller items. Arts and
Speaker 9: crafts are are popular on there. Things for like a party,
Speaker 9: if you're throwing a party, it's popular on there. I've
Speaker 9: heard of a lot of teachers who will maybe shop
Speaker 9: there as opposed to going to Dollar Tree or something
Speaker 9: to get you know, gifts for the for their students,
Speaker 9: to motivate them, that kind of thing. So there's a
Speaker 9: whole variety of reasons and a whole bunch of things
Speaker 9: you can you can buy on there, but it can
Speaker 9: be very, very random.
Speaker 4: Can trast the experience a little bit with Amazon, not
Speaker 4: the experience of actually using the website or using the app,
Speaker 4: more so the experience of how stuff gets to your
Speaker 4: doorstep because Amazon has built up this network of distribution
Speaker 4: centers that have employees throughout the country trying to get
Speaker 4: that product close to you very quickly. It's already in
Speaker 4: the US, even if it was made in China or
Speaker 4: in another country. How does something get to you from Timo.
Speaker 9: Yeah, so TIMU and they're shifting based on this tariff
Speaker 9: loophole being changed, and they could see that coming, but
Speaker 9: initially you know, generally it's coming from a factory in
Speaker 9: China to a warehouse in China, and then packed in
Speaker 9: that warehouse in China and then put on a plane
Speaker 9: into maybe JFK or LAX and then to your house.
Speaker 9: So it might take a week ten days. But that
Speaker 9: contrast with Amazon, where they call it like forward deployed.
Speaker 9: You know, the inventory is already in the United States
Speaker 9: before you even order it, and that's why they can
Speaker 9: get it to you so quickly. So what Tim Wu's
Speaker 9: proven is, you know, hey, Amazon, you're big on two
Speaker 9: day delivery, one day delivery, same day delivery. We're finding
Speaker 9: customers out there that are patient if you give them
Speaker 9: a good deal, and they really can beat Amazon and
Speaker 9: a lot of other retailers on their price and people
Speaker 9: are willing to wait for those discounts.
Speaker 3: Well, that's what I thought was also interesting in terms
Speaker 3: of this story that you did. You know, you talk
Speaker 3: about how they really tapped into i think one of
Speaker 3: the founders it was of Tim Wu's parent PDD, the
Speaker 3: rise of the budget conscious consumer, and so they really
Speaker 3: tapped into that and something that Amazon has definitely noticed
Speaker 3: as well.
Speaker 9: Yeah, I mean, if you think about the timing of it, right,
Speaker 9: they came right after the pandemic when people were just
Speaker 9: willing to shop virtually anywhere because people were so desperate
Speaker 9: to get things during the pandemic, so any hesitation about
Speaker 9: a new site kind of went away. That was the
Speaker 9: last thing change in habits. Then we got hit with inflation,
Speaker 9: so all of a sudden, people are like, hey, where
Speaker 9: can I find a deal? So TU struck that nerve
Speaker 9: and yeah, it's just they had the timing right. It
Speaker 9: was the right product at the right time.
Speaker 4: I'm interested in what happens in China, not just at
Speaker 4: these products, but not just when these products are made,
Speaker 4: but at a place like PDD. The story does dive
Speaker 4: into that a little bit.
Speaker 8: About PDD.
Speaker 9: Basically they had luck in China what they called the
Speaker 9: forgotten consumer. So you know, Ali Babo was long the
Speaker 9: leading e commerce company in China, and they, similar to Amazon,
Speaker 9: they really focused on urban areas and more affluent urban customers,
Speaker 9: and PDD said, look, let's let's focus on people the
Speaker 9: more rural areas that still want deals, and a lot
Speaker 9: of it was kind of a group on esque buying environment,
Speaker 9: like you would you you would buy collectively with a
Speaker 9: group of other people to get better, better discounts and
Speaker 9: so that's kind of the origins there, But then they
Speaker 9: they're applying that you know, similar philosophy in the US,
Speaker 9: looking for the folks, you know, things that maybe they
Speaker 9: want that they can't buy or at prices they can't find.
Speaker 4: Spencer, will they be able to deliver on this if
Speaker 4: that tax loophole goes away?
Speaker 8: That's a great question, and that's what everyone's wondering.
Speaker 9: They've already been preparing for it by by uh, you know,
Speaker 9: getting more warehouse space in the US and having more
Speaker 9: inventory in the US and even cultivating relationships with US
Speaker 9: based merchants. So it looks like they're already gearing up
Speaker 9: towards that. And then exactly how these terrorists play out.
Speaker 9: I mean, these things generally, aren't you know, one catastrophic
Speaker 9: ending to everybody. There's gonna be some people who navigate
Speaker 9: it and survive. We might see further delineation in the categories.
Speaker 9: Maybe some categories survive and others don't. But I don't
Speaker 9: think we've seen the last of Team moved here.
Speaker 3: Yeah, And I got to just say, just to wrap
Speaker 3: up just kind about a minute here, Spencer, is that
Speaker 3: you write about the culture of the company of PDD
Speaker 3: and Timu and.
Speaker 6: Sound like in there, that's all I'm saying.
Speaker 3: Sounds like there's some long working days and that they
Speaker 3: will not give up easily. Just some insight into the
Speaker 3: company's culture.
Speaker 8: Yeah, well they they.
Speaker 9: Say eleven eleven six, which is kind of a playoff
Speaker 9: of Ali Baba's nine to nine to six. Basically, people
Speaker 9: working eleven am to eleven pm, six days a week,
Speaker 9: you know, long ruling hours.
Speaker 8: It's hard to fall them for that.
Speaker 9: I mean, I'm sure you can find examples of that
Speaker 9: in the US, but yes, it's known for, you know, uh,
Speaker 9: hiring smart people and motivating them with money. But they're gonna,
Speaker 9: they're gonna earn it. They're gonna, they're gonna work their
Speaker 9: tails off.
Speaker 6: All Right, We're gonna leave it there. Hey, Spencer, thank
Speaker 6: you so much. Glad we could get some time with you.
Speaker 3: Spencer Soaper, technology and e commerce reporter here at Bloomberg News,
Speaker 3: joining us from our bureau in Seattle. This is the
Speaker 3: Bloomberg Big Take Today.
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Speaker 10: Well.
Speaker 3: More than one hundred million people are facing frigid conditions
Speaker 3: across the eastern and central United States, and that includes
Speaker 3: the entire state of Texas as an Arctic black threatens
Speaker 3: to break low temperature records. The Electric Reliability Council of
Speaker 3: Texas that's the state's grid operator, said electricity demand will
Speaker 3: jump in the coming days, but it expects to be
Speaker 3: able to meet the spike in consumption.
Speaker 7: Now.
Speaker 3: Regulators and lawmakers have moved to bolster the state's power
Speaker 3: system after the grid collapsed during a series of winter
Speaker 3: storms back in twenty twenty one, killing hundreds of people
Speaker 3: as homes and businesses were left in the dark.
Speaker 6: Someone who knows a lot about the grid system.
Speaker 3: Overall in the United States, but in particular the Texas
Speaker 3: State grid, is our next guest. Zach Dell is co
Speaker 3: founder and CEO based power company. He joins us from
Speaker 3: the Bloomberg News Bureau in Houston, Zach. Great to have
Speaker 3: you here with us. Let's start with Texas. So known
Speaker 3: of course for oil and drilling, it's a leader to
Speaker 3: though in renewables like wind and solar. Tell us first
Speaker 3: of all about the power mix in the Lone Star
Speaker 3: state and the economic models for selling electricity. What should
Speaker 3: kind of the investing audience understand about the state of
Speaker 3: Texas well.
Speaker 1: Texas is the energy capital of the country, the country
Speaker 1: in renewable generation. We have more wind and more so
Speaker 1: or than almost anywhere in the country, and that's because
Speaker 1: Texas is the middle of the wind corridor, it's in
Speaker 1: the middle of the sun Belt, and it's a great
Speaker 1: place to develop energy infrastructure. It's a free market, it's
Speaker 1: a deregulated energy market for the most part. Or COT
Speaker 1: is one of the largest electricity markets in the country,
Speaker 1: and so it's a great place to build energy technology.
Speaker 8: That's why we've decided.
Speaker 1: To start the company here in Texas. But it's also
Speaker 1: a part of the country that's seen incredible population growth,
Speaker 1: it's seen incredible growth in heavy industry, and that's put
Speaker 1: a lot of stress on the grid, and so we
Speaker 1: started the company to increase our capacity for energy consumption
Speaker 1: and add resources to the power grid in the form
Speaker 1: of distributed battery storage to help absorb some of that growth,
Speaker 1: absorb from that demand, and set us up for a
Speaker 1: future of energy abundance and human prosperity here in the state.
Speaker 4: Zach explain where exactly the company lives on the grid
Speaker 4: in the sense of Okay, it's not necessarily a utility,
Speaker 4: it's not necessarily an energy provider. How do you define
Speaker 4: it exactly?
Speaker 1: So we are a distributed energy technology company, So we
Speaker 1: deploy our storage assets on the grid edge on site
Speaker 1: with our customers. So we install batteries on homes today,
Speaker 1: customers sign up for base power, we go install our
Speaker 1: battery on their home. When the grid is up and running.
Speaker 1: We use that battery to support the power grid in
Speaker 1: times of high demand. When the grid goes down. The
Speaker 1: customer gets that battery to protect their home from power averages.
Speaker 3: Well and tell us about it. Like a customer that
Speaker 3: signs up sack exactly what are they getting. They're getting batteries, right,
Speaker 3: and there's installation that's involved. I'm curious about how it works.
Speaker 3: What they get. My understanding is the batteries are big.
Speaker 3: What it costs give me, give us an idea.
Speaker 1: Yes, So customers sign up and pay four ninety five
Speaker 1: upfront and sixteen dollars a month and get all the
Speaker 1: benefits of home backup protection without the high upfront cost
Speaker 1: of buying a large generator or buying a traditional home battery.
Speaker 1: So we install a battery that's twenty five kilod hours
Speaker 1: for one system, and you can you can get two
Speaker 1: systems installed which get you to fifty kilo at hours,
Speaker 1: which will protect your home for up to one to
Speaker 1: two days, depending on the size of the home and
Speaker 1: the event of a power out. So you get a
Speaker 1: really large battery for really low upfront cost and a
Speaker 1: low monthly fee, cheaper than a gym membership, cheaper than
Speaker 1: a Netflix subscription, cheaper than Amazon Prime. And when the
Speaker 1: grid's up and running, you're buying your electricity from us,
Speaker 1: We're able to save you ten to twenty percent a
Speaker 1: month on power, and when the grid goes down, you
Speaker 1: get to protect your home, keep that fridge going, keep
Speaker 1: your AC running, keep your lights on, and keep your
Speaker 1: family safe.
Speaker 4: Zach, we're talking about this in the context of Texas,
Speaker 4: of course, and a lot of focus has been on
Speaker 4: Texas's grid also California's grid another state that comes into focus.
Speaker 4: Any plans to expand to California.
Speaker 7: Absolutely.
Speaker 1: We hope to be in all fifty states over the
Speaker 1: next couple of years, and we're working to partner with
Speaker 1: some of the regulated utilities in states like California that
Speaker 1: don't have a deregulated energy market. Texas is an amazing
Speaker 1: place to start the business because the vast majority of
Speaker 1: the state, about eighty percent, is deregulated. So we are
Speaker 1: actually a retail actor provider and a battery develop heloper.
Speaker 1: So we sell power directly to the homeowner and then
Speaker 1: we own and operate the batteries on site. In a
Speaker 1: state like California, you have regulator utilities like LEDWP and
Speaker 1: PGNE that have kind of geographic monopolies over certain areas,
Speaker 1: and so we'll partner directly with those regulated utilities provide
Speaker 1: our hardware and software to them to enter those markets.
Speaker 3: And from what I understand too, Zach, that the success
Speaker 3: of the company's contingent on more and more people right
Speaker 3: signing up, Right, you need to kind of have a network.
Speaker 1: Well, not necessarily, we're able to operate our batteries at
Speaker 1: the individual level, so we don't necessarily there's not like
Speaker 1: traditional network effect benefits to more people signing up, but
Speaker 1: obviously benefit businesses benefit from scale, and we benefit from
Speaker 1: scale in the same ways. But it's not like the
Speaker 1: system doesn't work well if a couple people in the
Speaker 1: neighborhood have it. There's really no meaningful difference if you're
Speaker 1: the only one in your neighborhood or everyone in your
Speaker 1: neighborhood has based power all right.
Speaker 3: So if you're as an individual, there's no difference. But
Speaker 3: what do you get out of building that scale?
Speaker 1: Well, we benefit from scale, just like most businesses benefit
Speaker 1: from scale. So we have economies of scale on the
Speaker 1: supply chain side, on the engineering side, building out our
Speaker 1: team our resources. The larger we get, the lower the
Speaker 1: cost that we can provide to the customer. So our
Speaker 1: goals and businesses to develop a compounding cost advantage to
Speaker 1: vertical integration. So we develop our own batteries, we develop
Speaker 1: our own software, we manage the insulation, we sell power
Speaker 1: directly with the homeowner, and by doing all those things,
Speaker 1: we can drive the cost down for the customer and
Speaker 1: deliver the most affordable and most reliable power.
Speaker 3: Right Because from what I understand too you're monitoring what
Speaker 3: the prices of energy, and so when it goes down,
Speaker 3: you guys are filling up the batteries.
Speaker 8: Correct, that's right, hey, Zach.
Speaker 4: If a power company sees what you're doing right now
Speaker 4: and says, wait a second, that's a really good idea.
Speaker 4: What's to stop con ED or PGNE on California from
Speaker 4: basically replicating what you're doing, but they already have the
Speaker 4: relationship with the customer.
Speaker 1: Well, it's very hard. You have to become an expert
Speaker 1: in battery hardware engineering, power electronics, supply chain operations. You
Speaker 1: have to deploy these batter on site, you have to
Speaker 1: interface directly with the customers, you have to build a
Speaker 1: consumer brand. There's a lot of interesting and challenging distributed
Speaker 1: systems software problems that you have to solve to deploy
Speaker 1: this technology. So we're really excited to partner with those
Speaker 1: utilities and help them deploy battery technology in their service territories.
Speaker 1: As you guys know, these investor owned utilities are not
Speaker 1: incentivized to invest money in op X in R and
Speaker 1: D their capecks driven businesses. They earn a regulated way
Speaker 1: to return on their capex, and so their incentive is
Speaker 1: really to deploy capex and their service territory, and you know,
Speaker 1: they add that into their rate base and that kind
Speaker 1: of influences what they end up charging the end consumer.
Speaker 1: Our business is a little bit different. We're an R
Speaker 1: and D driven business. We develop technology and we bet
Speaker 1: that technology is going to benefit the customer and we
Speaker 1: benefit downstream of that. And so we think that we're
Speaker 1: an obvious partner or some of these regulated utilities as
Speaker 1: kind of an R and D partner where we can
Speaker 1: develop technology and then we can go deploy that technology
Speaker 1: in their service territory. They benefit, we benefit, and the
Speaker 1: homeowner benefits as well.
Speaker 3: I am also curious are you profitable or how many
Speaker 3: states do you think you have to build, you know,
Speaker 3: reach out to or expand to before you are profitable.
Speaker 1: I don't think about it as a number of states number.
Speaker 1: It's really about building the fleet and getting to scale.
Speaker 1: And so, you know, we started the company a little
Speaker 1: under two years ago. We launched a product in May.
Speaker 1: We've been scaling rapidly. We're doing on the order of
Speaker 1: twenty battery installation of the day. We'll continue to scale
Speaker 1: up at a faster and faster rate and move outside
Speaker 1: of Texas, in states like California and other states across
Speaker 1: the country, and you know, we think there's a really
Speaker 1: attractive kind of economic proposition for the business going forward.
Speaker 3: Hey, Zach, we'd be remiss. Your dad, Michael dal iconic
Speaker 3: in the tech world. This isn't the first company you've founded.
Speaker 3: You've worked at pe Giant Blackstone, also an investor at
Speaker 3: Thrive Capital. They of course founded by Josh Kushner. They've
Speaker 3: invested in your company. I am curious about growing up,
Speaker 3: you know, with your dad. How did your dad influence you?
Speaker 1: Well, I think, you know, I'm the luckiest guy in
Speaker 1: the world. I've got the most incredible CEO coaches as
Speaker 1: my dad. We're extremely close. We talk all the time.
Speaker 1: He's not an investor in the business, but he's a
Speaker 1: very close advisor and confidant and and friend. And you know,
Speaker 1: I think people always ask me, like, oh, why do
Speaker 1: you want to start a company? And I think it's
Speaker 1: kind of a silly question because I got to see
Speaker 1: my dad, you know, live his dream and continue to
Speaker 1: live his dreams. He's still a CEO of Dell. He
Speaker 1: gets to play the most interesting game at the highest level.
Speaker 1: And you know, I aspire to do that too. So
Speaker 1: he's an inspiration. He's he's a hero, he's a role model.
Speaker 1: And people like Josh and some of the folks at
Speaker 1: Blackstone that I've gotten a chance to work with in
Speaker 1: my career have have been kind of similarly inspiring to me.
Speaker 1: So I'm really excited to follow in his footsteps and
Speaker 1: you know, try to build something really important for the world.
Speaker 4: You said he's not an investor in the company, Zachy,
Speaker 4: yet we could say, yeah, are you out there planning
Speaker 4: to raise more money?
Speaker 1: We will raise more capital as the business skills. Yes,
Speaker 1: for sure. I joke with him that, you know, he's
Speaker 1: a late stage investor, so if he wants to invest,
Speaker 1: he's gonna have to pay a high price.
Speaker 3: Well done, You've learned well, as they would say, Hey, listen,
Speaker 3: stay in touch. Let us know I as you continue
Speaker 3: to expand and build out, stay in touch and love
Speaker 3: to get some updates. Sechedal Co found under and CEO
Speaker 3: based power company. Joining us from our Houston bureau.
Speaker 2: You are listening to the Bloomberg Business Week podcast. Catch
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Speaker 4: Taryl Investor's still focused on what's the com regarding tariffs.
Speaker 4: President Trump mentioned the possibility of tariffs of twenty five
Speaker 4: percent on autos and pharmaceuticals just yesterday.
Speaker 11: Some of the biggest companies in the world, and because
Speaker 11: of what we're doing economically and through tariffs and taxas
Speaker 11: and incentives, they want to come back into the United States.
Speaker 2: Have you decided specifically what the auto tariff rain should be.
Speaker 11: Yeah, I probably will tell you that on April second,
Speaker 11: but it'll be in the neighborhood of twenty five percent.
Speaker 11: We want to give them time to come in because,
Speaker 11: as you know, when they come into the United States
Speaker 11: and they have their plant or factory here, there is
Speaker 11: no tariffs. So we want to give them a little
Speaker 11: bit of a chance.
Speaker 4: Well, they have the press in just yesterday at mar
Speaker 4: Lago talking the latest on tariffs. We continue our talk
Speaker 4: on tariffs and macro affecting the business and financial market environment,
Speaker 4: this time with the head of Ignite. It makes software
Speaker 4: for enterprise companies to secure and manage massive amounts of data.
Speaker 4: The companies raised one hundred and forty million dollars in
Speaker 4: metric capital from Google Ventures, Kleiner Perkins, Goldman Sachs and
Speaker 4: others and accounts companies such as Red Bull, Steve Madden
Speaker 4: and Beyontech as customers.
Speaker 3: Great to have you here with us, Fanied. You know,
Speaker 3: let's let's get to it in terms of what we
Speaker 3: continue to get from President Trump and the White House
Speaker 3: regarding tariffs, and again a lot to be known in
Speaker 3: terms of the actuality of what gets imposed and for
Speaker 3: how long. How do you see it as what might
Speaker 3: be the reality of tariffs in your world.
Speaker 10: Hey, Carol Love in my world, you know, I'm talking
Speaker 10: about We are a software as a service provider. So
Speaker 10: anything that impacts IP systems, whether it's servers, networking gear,
Speaker 10: data center components, those would be the ones that I
Speaker 10: would be most interested in, not the autos or pharaceuticals,
Speaker 10: although there's always a cascading impact if there's a general inflation.
Speaker 10: Now I know the numbers on the tariff side keep
Speaker 10: ratcheting up. New announcements are coming out regularly. So a
Speaker 10: couple of tuesdays back, I think there was a ten
Speaker 10: percent tariff announced for this class of hardware. So the
Speaker 10: question is if the underlying data center equipment becomes more expensive,
Speaker 10: and keep in mind a lot of a lot of
Speaker 10: it is made in China. Will that have an impact
Speaker 10: on the ultimate end user solutions that companies like ourselves provide.
Speaker 10: I don't think so, because these costing preases can be
Speaker 10: absorbed by the providers, including companies like ourselves, with some
Speaker 10: impact to the gross margin, but it's not significant yet
Speaker 10: unless these numbers start crossing into twenty five percent or
Speaker 10: higher territory. Until then, I would say I'm pretty sang
Speaker 10: whine about it.
Speaker 4: Is the concern, though, compounded when you think about your customers.
Speaker 4: I mentioned Red Bull, Steve Madden, BEYONCEK just a few
Speaker 4: of your customers. Steve Madden a company that I would
Speaker 4: imagine makes products in China. If they're hit with bigger tariffs,
Speaker 4: then what happens to the amount that they're able to
Speaker 4: spend on services such as yours?
Speaker 9: Oh?
Speaker 10: Absolutely, I think you actually use the right word compounding,
Speaker 10: because ultimately any cost increases for our own customers. Steve
Speaker 10: Madden is a great example. I mean, the fact remains
Speaker 10: that despite all the effort to move manufacturing out of
Speaker 10: China to countries like Vietnam, to Malaysia and even to
Speaker 10: some in India. China is still the factory of the world.
Speaker 10: So it's absolutely normal to assume that if they are
Speaker 10: going to experience cost increases, they being the companies that
Speaker 10: you mentioned, Steve Madden or whoever else, they will pass
Speaker 10: it down to the customers. If they can't, it eats
Speaker 10: up in the gross margin. If they don't want to
Speaker 10: pass the cost down, then they'll squeez supplies like ourselves.
Speaker 10: So there is absolutely a trickle down or rather compounding effect,
Speaker 10: as you eloquently put it.
Speaker 3: We are talking with finiche and co founder and CEO
Speaker 3: of Ignite. He's joining us from Mountain View, California. What
Speaker 3: about global supply chains? Do you think that they will
Speaker 3: be potentially changed forever? Again, devil in the details when
Speaker 3: it comes to the particulars around tariffs, what they are on,
Speaker 3: how large they are, and how long they last. But
Speaker 3: having said that, I do wonder about the psyche that's
Speaker 3: changing within the business environment, thinking we need to get
Speaker 3: out of this mess. Who knows, whether it's this administration
Speaker 3: or what's to come, that maybe we need to have
Speaker 3: our global supply chains or our supply chain in the
Speaker 3: same market that we're selling and is that even possible.
Speaker 10: Carol, That's a very interesting thing. One is the aspiration
Speaker 10: and there is the ground reality. The fact is, for
Speaker 10: decades and decades we have been relying no matter what
Speaker 10: the industry is, whether it's furniture or pharmaceutical or bulgrugs,
Speaker 10: China is, as I said, the factory of the world,
Speaker 10: and to try to shift out of China will take
Speaker 10: a lot longer than what we might assume. Now, there's
Speaker 10: certain things which are fairly fungible that you can switch
Speaker 10: out quite quickly, but the entire supply chain, all the
Speaker 10: way from component suppliers if I'm talking about manufacturing to
Speaker 10: subassembly makers to the final product makers, they're all in China,
Speaker 10: and you can take piece meals of that out over time.
Speaker 10: But we are looking at a multi decade effort across
Speaker 10: the board, across all industries, if I were to generalize.
Speaker 10: So we'll have to live with the fact that our
Speaker 10: dependence in China is not getting diluted or reduced in
Speaker 10: the foreseable future. And when I say forcable future, I'm
Speaker 10: talking about at least for the next five years.
Speaker 4: So, given given your experience running this company, the other
Speaker 4: experience that you've had in Silicon Valley and understanding supply
Speaker 4: chains of hardware. Do we have as a country the
Speaker 4: United States, what it takes to to compel companies to
Speaker 4: build these products in the United States? Do we have
Speaker 4: that technology? Do we have that ability?
Speaker 10: You know, you ask a very difficult question because it
Speaker 10: depends on what are you referring to. So, for instance,
Speaker 10: are we trying to replicate a TSMC here, and you know,
Speaker 10: all the efforts underway. In fact, there's a lot more noise,
Speaker 10: especially around with the news of Intel yesterday, with Broadcom
Speaker 10: TSMC looking at them. But the honest answer is the
Speaker 10: intellectual capital is still ours. We are the ones who
Speaker 10: owned the R and D. We are the ones who
Speaker 10: owned the design. Now, if you are a Cisco or
Speaker 10: an Arista, you are getting the manufacturing done by your
Speaker 10: contract manufacturers like JABL Filextronix, Selectron. Bringing those manufacturing capabilities
Speaker 10: in house is non trivial. But given it's our own
Speaker 10: intellectual capital, manufacturing prowess is still within our hands. It's
Speaker 10: the investment and the will and the most important thing
Speaker 10: that people don't talk about finding the talent or grooming
Speaker 10: the talent with vocational skills is going to be critical,
Speaker 10: but it can be done. But I would say you're
Speaker 10: talking about a decade or so where art depends on
Speaker 10: China becomes less and less. It won't be any time
Speaker 10: in the future.
Speaker 3: Hey, you know, while we have you Vanit, you guys
Speaker 3: are all about data. You have been invested, You've received
Speaker 3: venture capital from Google Ventures, Kleana Perkins, Goldman Sachs, kind
Speaker 3: of a who's who when it comes to tech investing,
Speaker 3: certainly impressive investors. The AI craze that we are in
Speaker 3: year two in counting, Chatchipt, deep Seek. You know, everyone's
Speaker 3: still talking about AI, but it is also kind of
Speaker 3: interesting how deep seek has maybe disrupted the conversation around AI.
Speaker 6: If you will tell us about the.
Speaker 3: Demands for your services and what insight you have in
Speaker 3: this kind of build out to ll MS and AI,
Speaker 3: this next way that's been you know, as I said
Speaker 3: two years in counting.
Speaker 10: My first statement would be is a little radical. I
Speaker 10: would promply say that the hype cycle on AI is
Speaker 10: the highest of any tech trend that I've ever seen.
Speaker 10: And just to remind you, I've been in the valley
Speaker 10: for thirty two years.
Speaker 7: I've seen fads.
Speaker 10: Come and go crypto web three. Oh you name it right,
Speaker 10: but right now the crescendo in the news, and in fact,
Speaker 10: the joke is, you know, we get these daily newsletters
Speaker 10: about investments. Today I was looking at one and I
Speaker 10: saw eleven investments or fundraises announced, sorry, eleven fourteen. Each
Speaker 10: of them led AI driven, this, AI driven that, AI
Speaker 10: driven something. So you clearly know that we are the
Speaker 10: peak of the hype cycle. But if you leave aside
Speaker 10: the hiphe aspect of it, the reality is customers. In fact,
Speaker 10: as I speak, right next to me is a big
Speaker 10: conference room. We have one of our largest customers. There's
Speaker 10: CIO sitting with fourteen members of my team, and this
Speaker 10: is one of the largest advertising companies in the world.
Speaker 10: I can't name them. And the whole conversation is about
Speaker 10: AI and of course all the things we are doing
Speaker 10: along with other providers, they're leveraging. So the challenge is
Speaker 10: to be very simple. There is a huge value to
Speaker 10: be delivered with a slew of these generative AI capabilities.
Speaker 10: Open Eyes just one of the providers. But the big
Speaker 10: problem is the value expectation that your customers have today
Speaker 10: versus the value delivery i e. The capabilities we are providing.
Speaker 10: There's a big gap, and therefore people are wanting that
Speaker 10: gap to diminish before it becomes commonplace. But I still
Speaker 10: maintain all the AI capabilities that we are talking about
Speaker 10: that are being invented as we speak, or will be
Speaker 10: rolled out in the next two years. Take my word
Speaker 10: for it, they'll become commoditized. People would expect that to
Speaker 10: be included in your product. Over time. What differentiates you
Speaker 10: or the premium they're willing to pay, will be a
Speaker 10: much higher value stack of services. But it's a journey
Speaker 10: and we are on that. So the problem is real,
Speaker 10: the solutions are real, but the hype cycle is absolutely
Speaker 10: at the zenith, more than anything I've seen before.
Speaker 4: It sounds like, though, this time is different words I
Speaker 4: should never say, so trying to get you to say them. Yes,
Speaker 4: it's time to learn it than the dot com bubble.
Speaker 10: Yeah, I would not say that. You know you've heard
Speaker 10: that phrase before. This time is different. No, it's just
Speaker 10: like you know, you hear about companies being formed in
Speaker 10: the last week or so with illustrious names. They don't
Speaker 10: have a business model defined yet, but people are planking
Speaker 10: billions of dollars in their fundraise just because of the
Speaker 10: pedigree of some of these individuals, and not to take
Speaker 10: anything away from them, this is a classical hype cycle
Speaker 10: where anything ai especially when you're talking about llms, if
Speaker 10: you're talking about big data centers. The amount of money
Speaker 10: being poured into this is crazy. Now, will it have
Speaker 10: its value, of course it will, but it will not
Speaker 10: be commensurate with the expectations that are being created right now.
Speaker 3: Wait, so, okay, is it just because it's not there
Speaker 3: yet and that the hype will become a reality in
Speaker 3: maybe two years or.
Speaker 6: Is it that the high just hype and you are
Speaker 6: the two factors.
Speaker 10: Yeah, so it's a very good question. I still maintain
Speaker 10: that the value that these technologies will provide are absolutely insane,
Speaker 10: even for the things our own engineers build. When I
Speaker 10: get to play with them, I'm like, holy whatever, this
Speaker 10: is great. Sorry for that.
Speaker 8: That's it.
Speaker 10: But my belief is that a lot of these technologies
Speaker 10: will become commonplace. They'll become commoditized, So expecting people to
Speaker 10: pay premium prices is going to be a chimera. People
Speaker 10: will say, hey, I get it from this vendor and
Speaker 10: that vendor, so why are you charging me extra? Four
Speaker 10: dollars six dollars eight dollars by use it per month.
Speaker 10: That will go away. But also the expectation that customers
Speaker 10: are having about AI delivering and being a panacea for
Speaker 10: all the problems they're dealing with without human interaction or
Speaker 10: the classical word is AGI. We are years and years
Speaker 10: away from that. So that is where the hype cycle
Speaker 10: and the gap between what we deliver is very high.
Speaker 10: Ist what I'm alluding to. But I think this technology
Speaker 10: is here to stay. I mean, Web three oh has
Speaker 10: its renaissance. You can see the cryptos back again with
Speaker 10: the vengeance. So I'm saying that AI will be there
Speaker 10: generated AI, but the value hype versus the value delivery,
Speaker 10: that gap will diminish. And also the price expectation we
Speaker 10: have as vendors that you'll pay me this much. We'll
Speaker 10: have to get grounded into reality that people will pay
Speaker 10: but not as what we're expecting. So all the investments
Speaker 10: we are making right now in order to get the return,
Speaker 10: there'll be some let's say, realignment.
Speaker 4: What makes you say that we're so far from AGI.
Speaker 10: You know, expecting very simply stated, having technology today which
Speaker 10: can reduce the human interaction for low level task in
Speaker 10: accounting or generating memos or creating a media brief or
Speaker 10: even an advertisement that's there, but having it to the
Speaker 10: point where no human curation is needed or human interaction
Speaker 10: is needed, and have the faith and belief between you
Speaker 10: as a provider to say I can just let the
Speaker 10: machine or the GENAI capability deliver the end product that
Speaker 10: is not going to be there. It's not there today,
Speaker 10: it won't be there for a long time. So lights
Speaker 10: out automation is possible in certain industries, but for the
Speaker 10: kind of things I'm talking about, where can you invent
Speaker 10: or have a protein marker for some disease, run through
Speaker 10: a complete AI related pipeline and not have a human
Speaker 10: intervened impossible. Of course, there'll be clinical trials for that.
Speaker 10: But even in our world of software, I don't think
Speaker 10: our software is at a point today or two years
Speaker 10: from now where somebody could say, let's use the soft
Speaker 10: software and let it solve the problem the complete workflow
Speaker 10: with no human looking into it. So that's my reference
Speaker 10: about AGI.
Speaker 3: To be honest, Hey, listen, I really appreciate this, We
Speaker 3: really appreciate this.
Speaker 6: I'm getting your perspective. And one last question, then.
Speaker 3: So if everything may take a few years to work
Speaker 3: out in terms of the investments that have gone into
Speaker 3: an Nvidia and others. Is it a case that that
Speaker 3: may not make sense or that will make sense because
Speaker 3: that's part of the infrastructure build that will still be
Speaker 3: there in years to come. But whether it's an open
Speaker 3: AI or someone else who leads in this what you
Speaker 3: say might be a commoditized business going forward, that's TBD
Speaker 3: to be determined.
Speaker 10: Yeah, you know, this is a little bit about my
Speaker 10: pay grade because you're bringing into the fix and shovel
Speaker 10: business of Nvidia versus you know, the gold yeah from
Speaker 10: the other guy. The relevance of Nvidia, I don't see diminishing,
Speaker 10: except that they will be more competitors. It's a nature
Speaker 10: of the beast, right, they cannot have this market all
Speaker 10: to themselves. But also the providers, whether it's you say,
Speaker 10: open AI or Anthropic or Mistral or so many of
Speaker 10: their Google Gemini, they will of course keep up leveling
Speaker 10: the value delivery of what they're providing or the value
Speaker 10: chain of what they're doing livering. But a lot of
Speaker 10: technology that they are investing in today compared to what
Speaker 10: the other party is developing, they'll become almost similar and
Speaker 10: therefore commoditized. So the arms raised to be the best
Speaker 10: of providing the best LLM. That's going to be very expensive,
Speaker 10: and at some point there'll be some I keep scrambling
Speaker 10: for the right word, there'll be some realignment or readjustment
Speaker 10: on expectations, even from the investor perspective.
Speaker 4: Hey, Carol said it was the last question. But I
Speaker 4: can't come on our air and I can't ask you
Speaker 4: this question. When's the IPO happening?
Speaker 10: I can go there, I can't, Well, you could. One
Speaker 10: thing I can say is I've done this company very
Speaker 10: differently coming from the valley. So you mentioned I've raised
Speaker 10: one hundred and forty two million, but also I would
Speaker 10: like to add the last round came in twenty eighteen.
Speaker 10: Any raised, Yeah, and we don't plan to raise any
Speaker 10: private financing in that way because we have been cash
Speaker 10: flow positive with improving EBIT margins. But at the same time,
Speaker 10: I take a lot of pride in saying that I've
Speaker 10: never built a company which is insanely high growth with
Speaker 10: insanely high losses. The very high losses, it's predictable, durable
Speaker 10: growth with improving cash flow mechanics, improving even the margin,
Speaker 10: so more sustainable and hopefully the markets will reward us
Speaker 10: in whatever the outcome is, IPO being one of them.
Speaker 3: Well, we certainly appreciate your time and the expertise and
Speaker 3: kind of industry knowledge that comes with thirty years in
Speaker 3: Silicon Valley.
Speaker 6: Thank you so much.
Speaker 3: Vanite Jane, co founder and CEO of Ignite, joining us
Speaker 3: there from Mountain View, California.
Speaker 6: In the thick of it.
Speaker 4: Hey, we're in the thick of it when it comes
Speaker 4: to the trade. Today, we got about twenty minutes until
Speaker 4: the closed. The Nasdaq flat right now, so we're off
Speaker 4: our best sessions, best levels of the day during this session.
Speaker 4: The S and P five hundred of about two tenths
Speaker 4: of one percent as we speak, while the Dow is
Speaker 4: up one tenth of one percent.
Speaker 3: All right, I am curious to see what our next
Speaker 3: guest has to say, especially when it comes to the
Speaker 3: semi space. Take a name like Tell was up sixteen
Speaker 3: percent yesterday, down six percent today. It's an area he
Speaker 3: certainly has been looking at. JJ Kinahan is back with
Speaker 3: the CEO of Tasty Trade at IG, joining us from Chicago.
Speaker 6: JJ.
Speaker 3: Good to have you here, well, great to have you here.
Speaker 3: Let's start big broad and macro in terms of the environment.
Speaker 3: How do you see it right now?
Speaker 12: Well, you know, obviously when you're at all time highs,
Speaker 12: it's something that it continues to be a market that
Speaker 12: people look for bad news and you can get it
Speaker 12: pointed out all day long. Yet the market just seems
Speaker 12: to be resilient and continues to just go higher and hire.
Speaker 12: I thought it was a real maybe breath of fresh
Speaker 12: air and encouraging for retail investors today when in the
Speaker 12: FED notes they said, well, we're really not sure what's
Speaker 12: going to happen with the tariffs and what effect that
Speaker 12: will have on the economy, And I think that it's like,
Speaker 12: while you're just expressing what really everybody else seems to
Speaker 12: be saying. But in the meantime, you know, I look
Speaker 12: at our clients, they continue to just buy the market.
Speaker 12: It's interesting. One of the stocks that they've come back
Speaker 12: to after sort of maybe not being a bit out
Speaker 12: of favor, if you will, until the last couple of
Speaker 12: weeks where we've seen you know, almost eighty percent of
Speaker 12: the activity be bullish is actually Apple not quite a semiconductor,
Speaker 12: but of course one that's been a lot of people's portfolios,
Speaker 12: not maybe as much of a traded stock as it
Speaker 12: is just an investing stock. And it's really interesting how
Speaker 12: the buying there has picked up pretty significantly over the
Speaker 12: last few weeks, when some of the other Magnificent seven
Speaker 12: haven't been quite as interesting.
Speaker 4: Okay, we're talking in Nvidia, we talked meta platforms. You
Speaker 4: mentioned Apple JJ. Caterpillar is an interesting name on your list.
Speaker 4: Your clients are bullish on cat. What's going on?
Speaker 12: Yeah, that's really not a name we talk about very often,
Speaker 12: is it. So you know, a stock that's had a
Speaker 12: little bit of trouble and kind of turning things back
Speaker 12: around the other way. And so with that one again,
Speaker 12: maybe a bit also of a vote that we're going
Speaker 12: to continue with a lot of these infrastructure plays with
Speaker 12: the new president, et cetera. So all that I think
Speaker 12: is adding up to this. Again, when I see a
Speaker 12: name like Caterpillar on our list of most bullish stocks,
Speaker 12: the one thing that does make me happy about that
Speaker 12: is it shows that we're continuing to spread out from
Speaker 12: just the mag seven. If you think about a year
Speaker 12: ago when we were talking about these rallies, we were
Speaker 12: talking about primarily the mag seven stocks. Now you're talking
Speaker 12: about a lot more stocks being involved, and let's face it,
Speaker 12: the average retail trader, not necessarily Caterpillar making the list
Speaker 12: of good volumes and people having a high interest in it.
Speaker 3: All right, so names another name you don't like Starbucks,
Speaker 3: which we know who has a new CEO.
Speaker 4: I don't know if he doesn't like them.
Speaker 6: Do you buy coffee from Starbucks?
Speaker 12: I'm drinking, I have a cup here as we speak.
Speaker 4: Okay, all right, just check it out.
Speaker 6: Wait, so do as I say, not as I do?
Speaker 6: Is that kind of a thing.
Speaker 3: So Starbucks, we know, high profile CEO came from Chipotle,
Speaker 3: Brian Nicol. We've talked to him a lot, was really
Speaker 3: instrumental in terms of driving growth, getting them focused on
Speaker 3: the digital side of the business at Chipotle, now at Starbucks,
Speaker 3: and he's making some changes. But you don't, you're not
Speaker 3: so keen on it.
Speaker 6: How come?
Speaker 12: Well, I think we've seen an incredible run up in
Speaker 12: the stock since he's been named CEO. Let's face it,
Speaker 12: and you know, give credit where it's due. The anticipation
Speaker 12: of what he was going to do, followed by you
Speaker 12: know who doesn't love the ac DC thunderstruck as their
Speaker 12: commercials and the brand new commercial. It's very catchy and narrowing.
Speaker 12: The menu fantastic. But I think that there was this,
Speaker 12: you know, sense as he took over people immediately. It
Speaker 12: took a few weeks, but once some of the employee
Speaker 12: issues that settled down, the stock pretty quickly followed suit.
Speaker 12: In anticipation of this. Now it's a matter of okay,
Speaker 12: will the execution all the way down the line follow
Speaker 12: what's going to happen with the announcements and with them
Speaker 12: trying to do this obviously incredibly successful ceo where he's
Speaker 12: been in the past, can he take that magic again?
Speaker 12: We saw them talking about opening five hundred news stores yesterday,
Speaker 12: so again there is a lot perhaps to like there.
Speaker 12: But I also think that when you have this kind
Speaker 12: of run, you're at an all time high in the market,
Speaker 12: what people start to look for is, okay, those that
Speaker 12: have run, maybe time to let lighten up, or even
Speaker 12: to take the other side of and look for some
Speaker 12: of the more beaten down stocks or stocks that have
Speaker 12: had trouble participating in this upward move. And again, Starbucks
Speaker 12: has had a pretty good run for the last four
Speaker 12: or five months.
Speaker 4: Hey JJ, a member of the Bloomberg Business week audience
Speaker 4: getting in touch. He wants to know about a view
Speaker 4: on equities moving forward. Given we're likely going to see
Speaker 4: government layoffs, Inflation, as the Federal Reserve has said, is
Speaker 4: sticky consumer that is weakening.
Speaker 12: What do you see. I still see US equities as
Speaker 12: the best game in the world, so to speak. So
Speaker 12: people are going to have to put their money somewhere
Speaker 12: and they're always going to be looking for return. So,
Speaker 12: you know, I've just returned from some overseas trips and
Speaker 12: it really is amazing to me how everyone is looking
Speaker 12: to get their money into the US to be part
Speaker 12: of the US markets. Right now, we see inflation all
Speaker 12: of you know, in different spots of the world, creeping up,
Speaker 12: if you will. I think the part that is going
Speaker 12: to be the most interesting is going to be the
Speaker 12: terrific side of this and what's going to be the
Speaker 12: longer term effect in terms of costs. You know, you
Speaker 12: had some of the housing stocks released this morning and
Speaker 12: some of their fears around what this could mean for
Speaker 12: the cost of housing, particularly brand new housing, and how
Speaker 12: so many of them had to give away already incentives
Speaker 12: to get the houses sold. What does that mean at
Speaker 12: the price of lumber and steal, and even things like
Speaker 12: insulation goes up in the future, that's going to make
Speaker 12: it much more difficult. But with all that said, when
Speaker 12: I look around the rest of the world and the competition,
Speaker 12: there isn't much else that is competing with that on
Speaker 12: a worldwide scale, So it still seems to be the
Speaker 12: best best bet in town, if you will.
Speaker 8: Well.
Speaker 3: But just to the point that our listener sent in
Speaker 3: his question, I mean, if you look at the MSCI
Speaker 3: World x US Index, so take out the United States,
Speaker 3: it's up more than seven percent, seven point four. If
Speaker 3: I look at MSCI World INDECKS, which includes the US,
Speaker 3: it's up about five percent s and p's up about
Speaker 3: four percent. So we know, we've all been talking about
Speaker 3: the start to the year where markets outside of the
Speaker 3: United States are outperforming, and maybe it's a case of
Speaker 3: just they've been so beaten down, so undervalued. But you
Speaker 3: don't think that trade continues, that outperformance continues.
Speaker 12: I think it's the more we start to see tariffs
Speaker 12: come up, the more we start to see inflationary pressures rise,
Speaker 12: the harder it gets on the rest of the world.
Speaker 12: In my opinion, because of the you know, to your point,
Speaker 12: some of This, I think is people who are like, Okay,
Speaker 12: where can I go next? Just as I talked about
Speaker 12: the US market expanding out from the Magnificent seven. To me,
Speaker 12: the natural derivative of that is to say, what other
Speaker 12: markets can I go to that have been beaten up?
Speaker 12: But in my experience what happens is those markets that
Speaker 12: tend to go up very quickly, especially if you believe
Speaker 12: that you know, the rally may be pausing for a
Speaker 12: while or correcting for a while, they tend to go
Speaker 12: the other way very quickly. Also in our perform on
Speaker 12: the downside as well as the upside. That's not to
Speaker 12: say that you can't get better returned, but I do
Speaker 12: think you have to take into the account. What's the
Speaker 12: volatility you're going to take in by doing that, in
Speaker 12: my opinion's much higher almost everywhere else in the world
Speaker 12: than it is in the US right now.
Speaker 4: What's the biggest risk that the market faces right now?
Speaker 4: I mean, we're I don't want to say we price
Speaker 4: for perfection, because who knows if that's the case, but
Speaker 4: we are hovering around records. What's what what could derail
Speaker 4: this rally?
Speaker 7: Well?
Speaker 12: I think the you know, the fear of the fear
Speaker 12: of the unknown is always out there. Of course, it
Speaker 12: really does seem amazing that we've been able to quell
Speaker 12: some of the uh you know, countries having issues, which
Speaker 12: makes me think that inflation is going to be the
Speaker 12: number one thing that we're going to have a problem
Speaker 12: with because as you also mentioned, yes, there does appear
Speaker 12: to be not only government uh employment maybe in question.
Speaker 12: But let's face it, I think that what you're starting
Speaker 12: to see from starting with technology companies is do we
Speaker 12: need as many people as we used to, particularly as
Speaker 12: AI comes into use. And I'm not ripping AI is
Speaker 12: taking away jobs, but every time we've seen new technology
Speaker 12: in the short term it does take away jobs and
Speaker 12: in the long term it expands jobs significantly, but where
Speaker 12: at a point where we may see higher costs for
Speaker 12: things at the same time some job being eliminated, and
Speaker 12: so that combination I think does have an opportunity to
Speaker 12: slow the economy down pretty significantly. And as we all know,
Speaker 12: you know the Mike Tyson line, the thing that knocks
Speaker 12: the punch of knocks you out is the one you
Speaker 12: don't see. So who knows what else could be out there?
Speaker 3: Hey, one name that we often spend a lot of
Speaker 3: time talking about and I just want to go back
Speaker 3: to we know we talked about the mag seven Apple
Speaker 3: and I'm just looking at it's just a little changed
Speaker 3: on the day new phone that came out today. It's
Speaker 3: down about two percent for the year overall. But when
Speaker 3: it comes to Apple, you're bullish on Apple. What in
Speaker 3: particular are the catalysts or is it just a continuation
Speaker 3: of what they're known for, or is there something in particular.
Speaker 6: The iPhone sixteen E.
Speaker 3: Available in white and black starting at five ninety nine,
Speaker 3: available starting February twenty eight.
Speaker 6: That's the headlines. I mean, our Mark Herman hasn't very thanks, Okay,
Speaker 6: I thought I was hearing a.
Speaker 3: Brought to you by anyway, but no, we've been waiting
Speaker 3: for this and our Mark German has been talking about
Speaker 3: it a lot. And so that was just some of
Speaker 3: the headlines that came out late morning. What is it
Speaker 3: about Apple?
Speaker 12: So you know what's really interesting if I look at Apple.
Speaker 12: Let's back up a little bit. Let's talk about Apple
Speaker 12: over the last two years for a second, if you
Speaker 12: don't mind, so think about it, maybe even more maybe
Speaker 12: spears think about that whole by the dip mentality that
Speaker 12: we all experienced for a year and a half or so.
Speaker 12: Apple was the first stock that by the dip started
Speaker 12: with and everybody's like Apple, Apple, Apple. What happened over
Speaker 12: the last six to nine months, Apple kind of fell
Speaker 12: out of favor a lot more with the retail investor,
Speaker 12: which is really interesting, and it had never experienced anything
Speaker 12: like that, since it's become more of a you know,
Speaker 12: quote unquote major stock, and so that had switched over
Speaker 12: to Microsoft as the company people bought first whenever there
Speaker 12: was times of trouble. Now we're seeing a lot of
Speaker 12: different stocks. You know, when Tesla had the big sell
Speaker 12: off a few weeks ago, Netflix, we're seeing that the
Speaker 12: times that retail investors will step in and buy stocks
Speaker 12: like that, that or trusted. I think what's happened to
Speaker 12: Apple over the last four months is kind of where
Speaker 12: we started the segment. Okay, we're right in your all
Speaker 12: time highs. What could upset us overall? And so I
Speaker 12: think one of the reasons that people have become more
Speaker 12: attracted to Apple overall is exactly what you said, you
Speaker 12: know what the products are. I don't think there's anything
Speaker 12: that's so brand new, you know, yes, Ai, it's great
Speaker 12: to have on there, et cetera. But I don't think
Speaker 12: that's the primary reason people are buying their phones. They're
Speaker 12: buying their phones because they know the reliability. They're buying
Speaker 12: them because they know what they're getting overall, and when
Speaker 12: people are unsure, they go to products they know, they
Speaker 12: go to names they know. Apple is still a very
Speaker 12: very trusted name by most people, and so there has
Speaker 12: been I won't say that people have gotten more socious overall,
Speaker 12: but toward that they have got.
Speaker 3: Over or if they live in the master household and
Speaker 3: their child of the master household, they don't have a
Speaker 3: choice because it's an Apple household. If I found mine,
Speaker 3: I found mine, but again it would be Apple. Yeah,
Speaker 3: just saying this is what kind of happens you get
Speaker 3: entrenched to within the network.
Speaker 6: JJ.
Speaker 3: Thanks Jjkinahan, Chief executive Officer, Tasty Trade and IG joining
Speaker 3: us from Chicago.
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