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Speaker 2: The Bloomberg Business Week Podcast with Carol Masser and Tim
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Speaker 4: Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast.
Speaker 4: This past week a flurry of developments in the world
Speaker 4: of AI, including open ai co founder ilias At Skiver
Speaker 4: with another fundraise for his AI startup, giving it a
Speaker 4: valuation of over thirty billion dollars. Open AI's former CTO
Speaker 4: unveiling plans of her own for her new AI startup
Speaker 4: and more. And we also got the latest FED minutes
Speaker 4: which confirmed Cheer J. Powell and company are in no
Speaker 4: hurry to cut rates, citing concerns President Trump's proposed tariffs
Speaker 4: and deportations could drive inflation higher. Speaking of the President,
Speaker 4: it was another week with more executive orders and comments
Speaker 4: on Tariff's geopolitics, doge, and a lot more our take
Speaker 4: on DC. This week, Silicon Valley shift from the political
Speaker 4: left and now how it seems eager to move fast
Speaker 4: and break things in Washington, while more on that in
Speaker 4: just a moment.
Speaker 1: Plus the chief economist who went against the grain correctly
Speaker 1: predicting a non recession using good old fashioned data. Also
Speaker 1: how sustainability technology and yeah, garbage collection come together from
Speaker 1: the CFO of waste Management. And a little later on
Speaker 1: in our second hour, John Taffer of bar Rescue on immigrants,
Speaker 1: tariffs and starting a small business radio show. It's coming
Speaker 1: for your job, Carol.
Speaker 4: I think we're safe maybe for now, all of that
Speaker 4: to come. We begin with Washington and the prominent role
Speaker 4: of tech titans in President Trump's second term. Yes, of
Speaker 4: course Elon Musk, but there are others too, which raises
Speaker 4: the question, how did Silicon Valley, known for its liberal
Speaker 4: leanings and political backings for so many years, swing on
Speaker 4: over to Donald Trump? And is report publican.
Speaker 1: Party writing about exactly that is Bloomberg BusinessWeek national correspondent
Speaker 1: Josh Green. Josh, it's a question that we've certainly been
Speaker 1: asking ourselves quite a bit over the past few months.
Speaker 1: How did this sort of bastion of liberal leaning Silicon Valley,
Speaker 1: which backed President Obama?
Speaker 3: What happened?
Speaker 1: How did it move to backing Trump?
Speaker 5: Yeah, you know, It's a great question my editor asked
Speaker 5: me for this issue. You know, what was new about
Speaker 5: Trump two point zero? What's different this time than Trump
Speaker 5: one point zero?
Speaker 3: You know?
Speaker 5: And the obvious answer is that there's this new power
Speaker 5: center of Elon Musk in Silicon Valley, tech and crypto
Speaker 5: folks who really seemed to be the dominant force, at
Speaker 5: least in the early years of the second Trump presidency.
Speaker 5: To me, that was particularly striking because back in two
Speaker 5: thousand and seven two thousand and eight, I spent a
Speaker 5: lot of time in Silicon Valley as a political reporter
Speaker 5: because techgative and venture capitalists back then were really the
Speaker 5: strongest force behind Barack Obama and helped fuel his row
Speaker 5: first to defeat Hillary Clinton and then ultimately they kind
Speaker 5: of win the White House. So to me, the really
Speaker 5: interesting thing to look at from a historical perspective is
Speaker 5: why so many folks in Silicon Valleys switched. And I
Speaker 5: think there are number of reasons for that. You know,
Speaker 5: One is the kind of utopian idea of tech, the
Speaker 5: idea that it was an unalloyed force for good. Americans
Speaker 5: have come to understand that there are a lot of
Speaker 5: downsides to technology. Also, and so tech leaders aren't quite
Speaker 5: viewed culturally as the historic, as the heroic figures that
Speaker 5: they might have been fourteen fifteen years ago. But I
Speaker 5: think the other big factor is that the Biden administration
Speaker 5: has just been particularly aggressive and cutting down on tech
Speaker 5: and regulating and even trying to snuff out new technologies
Speaker 5: like cryptocurrency. And so for a lot of folks, there
Speaker 5: was a combination of really frustration drove them to support
Speaker 5: Donald Trump, which which would have been all but unimaginable
Speaker 5: even as recently as like five or ten years ago.
Speaker 6: Yeah, you know, it's kind of interesting.
Speaker 4: And I feel like we've all listened to podcasts too
Speaker 4: with Mark Andresen and you know, even bringing up artificial
Speaker 4: intelligence and having meetings with the Biden administration or so
Speaker 4: they say, and just you know, feeling like there was
Speaker 4: gonna Silicon Valley and business was going to have no
Speaker 4: real say in the oversight of AI.
Speaker 7: You know.
Speaker 4: Having said that, the tech titans that we did see
Speaker 4: in the capital at the inauguration, you know, people like
Speaker 4: Mark Zuckerberg or Jeff Bezos, just all of them, it
Speaker 4: was it was a little surprising.
Speaker 5: Yeah, I think so. And you know, the other factor
Speaker 5: I touch on this in my piece. I think the
Speaker 5: other factor at play here is a simple fear of
Speaker 5: Trump and what he might do to those those CEOs
Speaker 5: and their companies if they fall into his crosshairs. And
Speaker 5: so there was a lot of kind of showing up
Speaker 5: at the inauguration to kind of pay your respects. Many,
Speaker 5: if not all of them donated to the inaugural committee.
Speaker 5: You know, you want to show up and try and
Speaker 5: get on inside of the new president. I think that's
Speaker 5: what you're.
Speaker 3: Seeing, Josh.
Speaker 1: Is it an illusion that Silicon Valley is a liberal
Speaker 1: place or is traditionally a liberal place. I think there's
Speaker 1: this idea that you know, you have San Francisco, the
Speaker 1: big gay rights movement, sort of like what happened in
Speaker 1: the nineteen sixties, being an area like against the Vietnam War,
Speaker 1: that sort of stuff was like looked at as a
Speaker 1: real liberal place. Is that kind of an illusion? Is
Speaker 1: it much more libertarian?
Speaker 5: You know, it's a great question. I think that it's
Speaker 5: liberal in a social sense, you know, when I was
Speaker 5: out there ten years ago. More recently, most tech folks
Speaker 5: believe in global warming, they believe in multiculturalism, They want
Speaker 5: to help the poor, But they're also capitalists, and you know,
Speaker 5: back in the Obama era, you could kind of beat
Speaker 5: both things, and I think that's become much more difficult,
Speaker 5: partly because the Democratic Party has really shifted in the
Speaker 5: direction toward regulation, and Biden famously was very anti monopoly.
Speaker 5: That put pressure on a lot of the tech companies.
Speaker 8: And as you guys had alluded to early, they are
Speaker 8: new emerging technologies like AI, like crypto that a lot
Speaker 8: of Democrats seen intent on regulating, maybe overulating, or in
Speaker 8: the case of Crypto, maybe even stopping. So I think
Speaker 8: that there were also just forces in the government and
Speaker 8: the country and the culture that helped push some of
Speaker 8: these tech founders toward Republicans. Even if some of them
Speaker 8: are a lot of them still have the same values
Speaker 8: that they did, the same personal values that they did,
Speaker 8: you know, ten.
Speaker 5: Twelve years ago. I think it's also worth pointing out too,
Speaker 5: that the tech folks aren't necessarily embracing all of Donald
Speaker 5: Trump's policies. One of the big fights we've had early
Speaker 5: on in Washington is Elon Musk pushing to expand the
Speaker 5: H one V visa program, which allows him to bring
Speaker 5: in kind of foreign engineers, and that goes very much
Speaker 5: against the MAGA one point, I know, beliefs of people
Speaker 5: like Steve Bannon, Steven Miller who are dead set against
Speaker 5: any foreign immigration coming into the US. And so it
Speaker 5: really has produced attention that I think has been overshadowed
Speaker 5: by a lot of other things that Elon and tech
Speaker 5: folks have been doing in the early Trump years. So
Speaker 5: I'm not sure it's so much a difference as just
Speaker 5: change in circumstance, in a realization that, look, we can't
Speaker 5: simply act on our personal values or our social beliefs.
Speaker 5: You know, we've got to protect our businesses. We want
Speaker 5: to grow AI, we want to grow crypto, and therefore
Speaker 5: we're going to get right with Trump and the Republican Party.
Speaker 4: You know what's kind of interesting. I also in terms
Speaker 4: of the tech CEOs we know with Elon, and I
Speaker 4: know this has been used to describe Trump a lot
Speaker 4: being a transactional president, and for Elon, I think it's
Speaker 4: safe to say, to some extent it felt very transactional.
Speaker 4: We know how much you spent to support President Trump
Speaker 4: on the campaign trail, and Republicans, it does feel like
Speaker 4: some would say that that is kind of what you're seeing. Also,
Speaker 4: from those in the tech industry. As you said, they
Speaker 4: ponied up a million dollars for his inauguration, right, yeah, absolutely.
Speaker 5: I mean to me, that's why the shift isn't so
Speaker 5: much a mystery.
Speaker 8: I mean, if you can kind of lift up the
Speaker 8: hood and look.
Speaker 5: Below the surface, there are all sorts of factors that played.
Speaker 5: One of the things I write about in the piece
Speaker 5: that I think is interesting. You know, campaign finance can
Speaker 5: often be boring and make the eyes glazed over, But
Speaker 5: there were two interesting developments in Silicon Valley in the
Speaker 5: last twenty years that completely reshaped Washington politics. In seven
Speaker 5: and eight, the McCain fine Gold Law was in effect,
Speaker 5: which made it difficult to make big donations, and so
Speaker 5: the real currency in politics was networking and all this
Speaker 5: small dollar online money, hundreds and hundreds of millions of
Speaker 5: dollars that helped to get Barack Obama elected. What tech
Speaker 5: executives and Elon Musk in particular, though, realized, was that
Speaker 5: after twenty fourteen, the Supreme Court knocked down a lot
Speaker 5: of those laws and suddenly opened it up so where
Speaker 5: people could make very large, unlimited donations to candidates, to
Speaker 5: party committees. But nobody really took advantage of that to
Speaker 5: the extent that Elon must did until this past year.
Speaker 5: And Musk went in with so much force, I mean,
Speaker 5: almost three hundred million dollars on behalf of Trump and
Speaker 5: Republican and it absolutely moved the needle in a way
Speaker 5: that has entirely reshaped Washington politics. It has also reshaped,
Speaker 5: you know, Musk's relationship to the federal government, the way
Speaker 5: his companies are going to be regulated. I mean, he
Speaker 5: himself is going in there, you know, tearing out agencies,
Speaker 5: putting allies in place. So it really shows you kind
Speaker 5: of what kind of influence money can buy in Washington,
Speaker 5: and especially in Trump's Washington.
Speaker 1: Josh, there was an interesting moment in the first Trump
Speaker 1: administration when a lot of business leaders who had been
Speaker 1: part of a essentially a business council advising the president,
Speaker 1: they stepped away after Charlottesville. And I'm wondering how, I guess,
Speaker 1: Sticky these business leaders are to supporting the president this
Speaker 1: time around.
Speaker 5: It's interesting. I've thought about this and nothing really sort
Speaker 5: of jumps to mind. I mean, Trump has not done
Speaker 5: or said anything quite as inflammatory is the comments that
Speaker 5: he made after some of the you know, the White
Speaker 5: supremacist marches and Charlottesville. But on the other hand, I
Speaker 5: think I think the kind of US social culture and
Speaker 5: also the culture around business and politics has shifted distinctly
Speaker 5: to the right, where comments and controversies of the sort
Speaker 5: that came up often in the first Trump administration just
Speaker 5: don't really land or resonate as controversies anymore. Maybe that's
Speaker 5: because Trump has become normalized. Maybe that's because people are
Speaker 5: just sort of exhausted of resisted and resisting and fighting back.
Speaker 5: But you could see across the administration both during the
Speaker 5: campaign and especially after Trump was elected, there's just a
Speaker 5: different relationship to Trump now and business leaders right.
Speaker 4: We have heard from folks like the Ford CEO on
Speaker 4: the impact of tariff, certainly on his industry. Hey, one thing, though,
Speaker 4: I wanted to ask you, because you wrote Devil's Bargain
Speaker 4: Steve Bannon, Donald Trump, and the Stormy of the Presidency,
Speaker 4: I must read in terms of understanding how Trump got
Speaker 4: to the White House in the first term, where is
Speaker 4: Steve Bannon? We know he's at odds in a big
Speaker 4: way with Elon Musk, But has President Trump left him
Speaker 4: behind completely?
Speaker 5: No? I don't think he has. I mean I know
Speaker 5: just just from talking to people around Washington that they're
Speaker 5: still in touch. They still talk. Bannon has tried at
Speaker 5: several points to start fights with Musks in hope of
Speaker 5: taking him down a peg and weakening his influence with Trump.
Speaker 5: I don't see any sign yet that Bannon is succeeding,
Speaker 5: but he certainly has a large grassroots following in the
Speaker 5: Mangi universe that Trump really does care about. I mean,
Speaker 5: his podcast and a lot of his allies helped set
Speaker 5: the agenda, and as Bannon himself told me for this
Speaker 5: story and others, you know, on a lot of on
Speaker 5: a lot of issues, he and Musk actually are aligned.
Speaker 5: Ian Bannon is eager to tear apart much of the
Speaker 5: government is Elon is and so while they do differ
Speaker 5: on certain issues like immigration, Bannon's desire to tax billionaires,
Speaker 5: I don't think Elon Musk would agree with that one
Speaker 5: at all. You know, Bannon is still around, but he's
Speaker 5: nowhere near the kind of ov like figure that he
Speaker 5: was in the early years of the first of administration.
Speaker 5: He's just one of many people around Trump trying to
Speaker 5: influence him and trying to figure out how to maneuver
Speaker 5: around Elon Musk, who is the main figure in the
Speaker 5: second Trump presidency today, safe to.
Speaker 4: Say interesting times that we are all living in, all right, Josh,
Speaker 4: thank you so much, really appreciate it.
Speaker 1: That's Josh Green, Bloomberg BusinessWeek National correspondent, the author of
Speaker 1: several books, including Devil's Bargain, Steve Mann and Donald Trump
Speaker 1: and The Storming of the Presidency.
Speaker 4: Coming up, how Apollos Torsten Slock saw the Sherlock Holmes
Speaker 4: Economic Mystery. You're listening to Bloomberg BusinessWeek.
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Speaker 6: Our inboxes get.
Speaker 4: His daily research. It's called the Daily Spark. His weekend readings.
Speaker 6: We get that as well.
Speaker 4: We care because he is chief economist of an asset
Speaker 4: manager that sits atop more than seven hundred billion dollars.
Speaker 1: He's also the person who, when others thought a recession
Speaker 1: was inevitable, he did not, and instead correctly predicted more growth.
Speaker 1: His secret looking at the data. Data like restaurant bookings,
Speaker 1: air travel stats, jet fuel demand, visits to movie theaters,
Speaker 1: and yes, even Lady Liberty herself.
Speaker 6: What to thunk?
Speaker 10: Right?
Speaker 4: All right, Well, that kind of data is key to
Speaker 4: Apollo's chief economist, Torston Slock. He joined us alongside Bloomberg
Speaker 4: News wealth reporter Ben Steverman, who profiled Torston for Bloomberg
Speaker 4: Markets Magazine.
Speaker 11: We're in a moment where you look out ahead and
Speaker 11: it's just like uncertainty as far as the eye can see.
Speaker 11: And this is a moment when economists have really been
Speaker 11: caught wrong footed, flat footed, whatever term you want to use,
Speaker 11: for years like so basically every prominent economist you can
Speaker 11: think of got something wrong over the last several years.
Speaker 11: And I wanted to go to Torston because he's been
Speaker 11: right about at least one thing, which is this this
Speaker 11: higher rates for longer narrative. So many people were predicting
Speaker 11: a recession last year. He kept pointing out, where's the slowdown,
Speaker 11: where's the slowdown? Why hasn't it shown up yet? The
Speaker 11: economic models say it's supposed to. And the other reason
Speaker 11: wanted to profile him is that it's really interesting that
Speaker 11: Apollo has a chief economist in the first place, and
Speaker 11: we can talk more about that too.
Speaker 5: Well.
Speaker 4: Torsted calls make and break up people, that's for sure.
Speaker 4: We are so quick at Bloomberg to point it out
Speaker 4: when they get it right and when they get it wrong.
Speaker 4: That March twenty twenty second call, why were you so
Speaker 4: clear that there was no recession?
Speaker 6: Why and why do you think so many others got
Speaker 6: it wrong?
Speaker 12: Well, what was really interesting about the last few years
Speaker 12: is that you look at the economics textbook and you
Speaker 12: see the filleral reserve raising interest rates. You would expect
Speaker 12: that when interest rates go up, and interest rates went
Speaker 12: up faster that they have done in decades from twenty
Speaker 12: twenty two to the middle of twenty twenty four, and
Speaker 12: that speed with which interest rates went up, everyone concluded, well,
Speaker 12: when interest rates go up, car sales start to slow down,
Speaker 12: home prizes start to fall, capex spending start to slow down.
Speaker 3: But we didn't see any of that.
Speaker 12: Instead, the economy continued to be, as Ben said, remarkably
Speaker 12: strong and resilient. So they really raised a very fundamental
Speaker 12: question in the forecasting community.
Speaker 3: What was wrong with the textbook? Why wasn't it.
Speaker 12: The case that when interustrates went up that the economy
Speaker 12: slowed down, and that's what was.
Speaker 3: The main basis for the discussion.
Speaker 12: And still today even is a very fundamental debate about
Speaker 12: should we still expect interest rate to slow the economy.
Speaker 1: Down or not should we?
Speaker 12: So the answer is now the FED has been cutting
Speaker 12: since the September of last year, and now we have
Speaker 12: had some very unique tailwinds. Namely, we've had significant tailwinds
Speaker 12: coming from components of GDP that are not sensitive to
Speaker 12: interest rates. Those include, of course, defense spending that's not
Speaker 12: sensitive to whether they're fed is raising rates. That's been unusual.
Speaker 12: We also have an AI boom. We all talk about
Speaker 12: the significant spending by the Magnificent seven that's not sensitive
Speaker 12: to interest rates going up.
Speaker 3: We have a data center boom.
Speaker 12: We have associated energy sensition that's also not sensitive to
Speaker 12: interest rates going up. And finally, we also have in
Speaker 12: the US, there's very unique feature that consumers have locked
Speaker 12: in interest rates at very low levels through their mortgages.
Speaker 12: Ninety five percent of mortgages in the US are thirty,
Speaker 12: a fixed rate that is very different from literally any
Speaker 12: other g seven of that matter. OECD country where the
Speaker 12: interest rates sensitivity for consumers is a lot higher so
Speaker 12: because consumers didn't have to pay more in interest expenses,
Speaker 12: consumers did have also more money to consume. So when
Speaker 12: these tailwinds in twenty twenty four, I would expect these
Speaker 12: tailwinds to still be here in twenty twenty five.
Speaker 11: Touristen, do you think that economists have learned the lesson
Speaker 11: of the last few years or maybe the last decade
Speaker 11: or so? Is there a little bit more humility in
Speaker 11: your profession? And what lessons like big picture lessons do
Speaker 11: you think k economists should be learning going forward.
Speaker 3: Yeah, this is a very important question.
Speaker 12: So if you type ECFC go and your Blueberg screen
Speaker 12: and look at the upper right hand color, you could
Speaker 12: see what is the consensus thinking is the probability of
Speaker 12: a recession over the next twelve months. And if you
Speaker 12: go back and look at when did that begin to
Speaker 12: go up, when did the market and when did the
Speaker 12: consensus begin to expect the recession was coming. It exactly
Speaker 12: happened in March of twenty twenty two, when the Federal
Speaker 12: Reserve began to raise interst rates. Then the probability was
Speaker 12: very elevated for a long time at sixty seventy percent.
Speaker 3: Now it's come down to twenty percent.
Speaker 12: But I still think that the narrative that is in
Speaker 12: the market, including also from Chairman Paul, is still that
Speaker 12: we expect the economies are slow and we expect inflation
Speaker 12: to come down, and then suddenly we get inflation data
Speaker 12: where you certainly have Well, maybe that narrative is still
Speaker 12: not the right way of looking at things. So I
Speaker 12: think the short answer Ben to your question is I
Speaker 12: still think that there's a lot of things going on
Speaker 12: that are tailwinds that are not sensitive to interest rates
Speaker 12: staying higher for longer that is indeed still providing support
Speaker 12: to the economy. So yes, the economics professions should still
Speaker 12: remain very humble, because it's not only about the academic
Speaker 12: concepts of our star and the level of interest rates.
Speaker 12: There's a lot of other things that are going on
Speaker 12: that are important.
Speaker 6: So does it just mean Torsten?
Speaker 4: You know, I always think about well, so maybe it's
Speaker 4: different this time around, and then everyone's like, no, it's
Speaker 4: not different this time around.
Speaker 6: Is it different this time around?
Speaker 12: Well, I will say, and in the spirit of Ben's
Speaker 12: article here that is coming out in the magazine, I mean,
Speaker 12: it really depends on where do you put your weight.
Speaker 12: If you put your weight on the simple idea that
Speaker 12: interest rates went up, so people should be buying fewer cars,
Speaker 12: people should be buying fewer washers and dryers, as you
Speaker 12: be buying fewer iPhones.
Speaker 3: Well, then you would expect if you only look.
Speaker 12: At that argument in isolation, that things should be slowing down.
Speaker 12: But if you then look at the other things that
Speaker 12: I spoke about earlier, namely the tailwinds that are less
Speaker 12: sensitive to interest rates, you put that up on the scale,
Speaker 12: and maybe it is different in the sense that the
Speaker 12: interest rate sensitivity of the US economy is just a
Speaker 12: lot lower than what it's been used to, and also,
Speaker 12: for that matter, than what the text work will predict,
Speaker 12: simply because we have these other tailwinds again, defense spending,
Speaker 12: AI spending, data center spending, energy transition spending, things that
Speaker 12: are all powering the economy ahead. And now we still
Speaker 12: also have by the way the Chips Act, the Inflation
Speaker 12: arch and Act, the Infrastructure Act, that is also powering
Speaker 12: the economy ahead. So if I put that up on
Speaker 12: the scale, I still think that, yes, it is true
Speaker 12: that high interest rates are weighing on some interest rate
Speaker 12: sensitive components. But politicians, and for other reasons, we have
Speaker 12: these sources of growth, data centers, AI defense spending that
Speaker 12: are still providing significant tailwinds.
Speaker 3: Also here in twenty twenty five.
Speaker 1: Tours of those tailwinds continue to exist. If we see
Speaker 1: reciprocal tariffs across the world and tariffs on our closest
Speaker 1: neighbors and biggest trading partners, including.
Speaker 3: That's exactly right, Tima one hundred percent.
Speaker 12: This is exactly the uncertainty factor that's beginning to appear.
Speaker 12: So if you look at measures of trade policy uncertainty.
Speaker 12: So there are three academics back of bloom and Davis
Speaker 12: that have quantified you can also find this on your
Speaker 12: Bloomberg screen quantify trade policy uncertainty, and that is totally
Speaker 12: through the roof at levels that we just have higher
Speaker 12: than what we saw in twenty eighteen nineteen. So the question,
Speaker 12: tim to your question is exactly, given all the positive
Speaker 12: things that we're just talking about, how do you then
Speaker 12: put weight now on this risk that maybe business planning
Speaker 12: is beginning to worry a bit about what are my
Speaker 12: input costs? Can I even source the inputs that I'm
Speaker 12: using for my production? What about the things I'm selling abroad? Remember,
Speaker 12: forty percent of the revenue in the S and P
Speaker 12: five hundred comes from abroad. So if Apple sells fewer
Speaker 12: iPhones in Europe, if Coca Cola sales fuel cocaines in Canada,
Speaker 12: it will have negative implications, especially for this and P.
Speaker 12: So that is why trade wall uncertainty and trade policy
Speaker 12: uncertainty is indeed something that we're watching very very carefully.
Speaker 12: But the conclusion up to so to this point is
Speaker 12: that yes, retail sales was a little bit weaker month
Speaker 12: or a month, but year what year, it still looks
Speaker 12: quite strong. Kept expending is still strong, jobless claims are
Speaker 12: still strong, the Libor market report, the unployment rate.
Speaker 3: Is still falling.
Speaker 12: So up to this point it doesn't look like trade
Speaker 12: policy uncertainty has been weighing on the incoming data, but
Speaker 12: we're watching it very carefully.
Speaker 11: Tourist in when we were hanging out and talking, the
Speaker 11: thing that blew me away the most was your schedule
Speaker 11: and first all the travel that you do around the world,
Speaker 11: but then also just like you're hour by hour, you're
Speaker 11: talking to Middle Eastern sovereign debt funds and then you're
Speaker 11: talking to family office groups and they really keep you,
Speaker 11: keep you moving and they're using you sort of as
Speaker 11: a weapon to bring in these assets. That has been
Speaker 11: it's sort of the big the big goal of the
Speaker 11: firm of Apollo to basically double assets over the next
Speaker 11: several years. And that's in a very ambitious goal. And
Speaker 11: you seem like a key part of talking to all
Speaker 11: these these investors. And I wonder what you're hearing from
Speaker 11: folks when you have those conversations right now. You mentioned
Speaker 11: trade war, uncertainty, anything else that's rising up in terms
Speaker 11: of anxiety or worries or questions that that you know
Speaker 11: might be interesting.
Speaker 3: Well, it is. It is a busy job I have.
Speaker 12: I'm literally flying to Dubai Monday morning, so last week
Speaker 12: I was in Europe. So it is a There's a
Speaker 12: lot of people that I talked to and we talked
Speaker 12: to at Apollo about the economic outlook. But I think
Speaker 12: then to your question that there are certainly a lot
Speaker 12: of different, if I mentions to things that people are
Speaker 12: worried about at the moment. Trade polosy does take up
Speaker 12: a lot of my time at the moment. People have,
Speaker 12: of course trying to sit with their spreadsheets or the
Speaker 12: mosaic as we talked about and figure out How does
Speaker 12: this fit into the bigger picture. Which countries is it
Speaker 12: that's being hit, Which industries in the US is that
Speaker 12: that's being impacted?
Speaker 3: What will it mean for inflation? What will it mean
Speaker 3: for GDP?
Speaker 12: There are various simulations, including from the Tax Foundation, from
Speaker 12: the Peterson Institute, from CATO, from Look at the Minutes,
Speaker 12: from the FED in twenty nineteen and eighteen. There's also
Speaker 12: some quantifications, so that part takes up a significant amount
Speaker 12: of my time at the moment. More broadly, this issue
Speaker 12: around the US being good and the rest of the
Speaker 12: world being bad is really also taking up a lot
Speaker 12: of discussion at the moment, simply because my job for
Speaker 12: many years has been really easy when the US is good,
Speaker 12: Europe is good. When the US is bad, Europe is bad.
Speaker 12: But that's simply not how things are at the moment now.
Speaker 12: The US is unusually good for the tailwinds we spoke
Speaker 12: about earlier, but the rest of the world is unfortunately
Speaker 12: unusually bad for a number of different reasons that in
Speaker 12: my view, start with the weakness in China and the
Speaker 12: problems that China is facing for demographic reasons, because of
Speaker 12: the housing bubble bursting, and because of the trade Wall.
Speaker 12: All those things are weighing on German exports and European exports,
Speaker 12: and also weighing on the global outlooks.
Speaker 3: I would say, in.
Speaker 12: Short, it really is US policy, where is it going,
Speaker 12: how significant will be, what will actually be implemented, what
Speaker 12: will not be implemented. And then there's other challenge that
Speaker 12: is that the US is pretty good, but the rest
Speaker 12: of the world is unfortunately unusually weak.
Speaker 3: And can that diversion continue.
Speaker 4: Hey, Torsten, you started your career at the IMF, you
Speaker 4: spend time at Deutsche Bank, some short stints at BFA.
Speaker 4: I am just curious, you know, and now at Apollo.
Speaker 4: What's the difference in being an economist that maybe kind
Speaker 4: of a traditional bank, big bank, versus being it at
Speaker 4: something like Apollo, a big asset management firm.
Speaker 3: Yeah, that's a very important question.
Speaker 12: So with Deutsche I used to spend almost all my
Speaker 12: time going to clients and also traveling around the world,
Speaker 12: but discussing with people in markets of course, customers of
Speaker 12: Deutsche Bank, in rates, equities, FX, all types of areas
Speaker 12: for business. We were having a discussion about what's going
Speaker 12: on in Apollo. I spent a significant amount of time
Speaker 12: internally talking to deal teams. That's why there's more internal
Speaker 12: focus here than what I had before.
Speaker 4: Very cool staff, great story. Great to get some time
Speaker 4: with you. We love reading your research. Torsten Slock, chief
Speaker 4: economist partner at Apollo Global Management, and our own Ben Stevermann,
Speaker 4: Welf reporter at Bloomberg News.
Speaker 6: Check his story out on the Bloomberg.
Speaker 2: This is the Bloomberg Business Week Podcast. Listen live each
Speaker 2: weekday starting at two pm Eastern on Applecarplay and the
Speaker 2: Android Auto with the Bloomberg Business App. You can also
Speaker 2: listen live on Amazon Alexa from our flagship New York
Speaker 2: station Just Say Alexa played Bloomberg eleven thirty Waste Management.
Speaker 6: It's the top US garbage haller.
Speaker 4: It is one of the Bloomberg fifty Companies to Watch
Speaker 4: this year, identified by our Bloomberg Intelligence team who did
Speaker 4: the research identifying this company as one of the firms
Speaker 4: with a catalyst. In twenty twenty five, the ninety one
Speaker 4: billion dollar market cap company made a seven billion dollar
Speaker 4: acquisition of Stereocycle.
Speaker 6: That was last year.
Speaker 4: Shares of the company are right now up about thirteen
Speaker 4: percent year to date. So let's get into it because
Speaker 4: lucky for us, we have Bloomberg News Senior editor Nina Trentman,
Speaker 4: along with Waste Management CFO Divina Rankin, who joins us
Speaker 4: from the company's headquarters in Houston, Texas. Divina, so great
Speaker 4: to have you here. Let's just quickly start with the macro.
Speaker 4: President Trump just talking about autotarps may come in early April.
Speaker 4: The macro, the news from Washington, the global environment, the
Speaker 4: US environment, tell us how it could impact your business.
Speaker 13: Sure, and happy to be here with you. You know,
Speaker 13: when we think about WM, we really think about a
Speaker 13: resilient organization that performs well in any economic environment and
Speaker 13: under any administration, and we don't expect this one to
Speaker 13: be any different. We're optimistic as a North American, largely
Speaker 13: North American company that with the current administration being really
Speaker 13: bullish on growing the US economy, that will continue to
Speaker 13: do well and we're well positioned to serve what's coming next.
Speaker 13: We have our eye on things like tariff's interest rates
Speaker 13: the workforce, just like everyone else does. But we are
Speaker 13: really optimistic that we're well positioned to continue to grow
Speaker 13: and execute upon our strategic priorities in the year ahead.
Speaker 14: Divina, you mentioned tariffs. Can you walk us through where
Speaker 14: you could see a potential impact on the business.
Speaker 13: You know, we really are focused on two places, one
Speaker 13: being our trucks, and there are inputs from renewable energy
Speaker 13: production equipment that we also source from other markets.
Speaker 6: And the other place for us.
Speaker 13: Really would be about the commodities that we sell. We
Speaker 13: sell recycling commodity price or recycled commodities, and some of
Speaker 13: that goes across US borders, and so if there's restrictions
Speaker 13: on our ability to move that product outside of the US,
Speaker 13: we could see some restrictions and limitations that could have
Speaker 13: short term disruption.
Speaker 6: But what I have to tell you is when we
Speaker 6: look back.
Speaker 13: At the strength of this business and how we were
Speaker 13: able to move product during the COVID era, it really
Speaker 13: does speak to our ability to move product even domestically.
Speaker 6: There's short term disruption, Devin, I'm.
Speaker 1: Wondering if there's anything that has come from Washington yet,
Speaker 1: that's come from the White House that has led you
Speaker 1: to change your supply chain, led you to make changes
Speaker 1: when it comes to commodities, led you to make changes
Speaker 1: to your business as a result of policies or proposed policies,
Speaker 1: or what you think could come from the White house.
Speaker 13: You know, I think about that in two ways, one
Speaker 13: being the renewable natural gas business. WM has made a
Speaker 13: very public investment in our sustainability growth, and we're investing
Speaker 13: about three billion dollars of capital over about a five
Speaker 13: year period in sustainability growth investments in both recycling and
Speaker 13: renewable natural gas. On the renewable natural gas front, it
Speaker 13: really could come down to EPA mandates and decisions that
Speaker 13: could impact the value of the wrens that we sell
Speaker 13: out of that business. That being said, the returns on
Speaker 13: these investments are really strong. They are three year payback periods,
Speaker 13: and so we don't expect any disruption to the quality
Speaker 13: of this investment, and we see demand from customers being
Speaker 13: strong enough to make this business as resilient as our
Speaker 13: core through the administration decision making processes. The other place's
Speaker 13: interest rates, and you mentioned the Stereocycle acquisition. We closed
Speaker 13: on that in November. What I'm really excited about is
Speaker 13: we financed that transaction at a great time.
Speaker 6: I just heard you speaking about its feel good. It
Speaker 6: feels wonderful.
Speaker 13: Yeah, are all in Borrowing costs are currently hovering just
Speaker 13: north of four percent for the total enterprise, so we're
Speaker 13: in a great position, Devin.
Speaker 14: Now, one thing to follow up on this, talk to
Speaker 14: us a little bit about what's driving costs for you.
Speaker 13: Yeah, it's another great question, And what I would tell
Speaker 13: you is we are a human capital intensive business. At WM,
Speaker 13: We're more than sixty thousand strong, and so labor inflation
Speaker 13: is certainly the place that we watch the most, and
Speaker 13: we continue to expect labor inflation will be in the
Speaker 13: four to five percent range. We had planned for that
Speaker 13: coming into twenty twenty five. In addition to thinking about
Speaker 13: labor inflation, we worked really hard to ensure that we're
Speaker 13: more and more efficient every day. So our cost to
Speaker 13: serve is not just about cost inflation. It's about our
Speaker 13: ability to drive automation and efficiency across work streams.
Speaker 4: One of the things I wanted to ask you about
Speaker 4: the acquisition just going back there, and you guys have
Speaker 4: talked about increased synergies of two hundred and fifty million.
Speaker 6: Dollars that could be realized in three years.
Speaker 4: Some are concerned that there aren't isn't that much overlap,
Speaker 4: and that those synergies will be tough to realize. What
Speaker 4: could you give us or tell us in terms of
Speaker 4: the progress you have made on that.
Speaker 13: You know, for us, we're really optimistic about realizing that
Speaker 13: two hundred and fifty million dollars over the three year period.
Speaker 6: It's in three buckets.
Speaker 13: One is internalization, two is operating effectiveness and efficiency, and
Speaker 13: three is back office or SGNA.
Speaker 6: The place that we're.
Speaker 13: Most bullish is in the back office and SGNA part
Speaker 13: of the cost equation for stair Cycle. Today they're running
Speaker 13: at SGNA is a percentage of revenue of over twenty
Speaker 13: four percent. WM is approaching nine percent. There's a lot
Speaker 13: of headroom between those two numbers, and we know that
Speaker 13: we're going to be able to move the dial on
Speaker 13: that pretty effectively over the next three years.
Speaker 1: To follow up on that, you mentioned that being happy
Speaker 1: with the financing you did for the Statocycle acquisition a
Speaker 1: few months ago. What about M and A moving forward?
Speaker 1: Are there more opportunities for M and A for waste management.
Speaker 14: There?
Speaker 13: Certainly are.
Speaker 6: You know, we are a roll up.
Speaker 13: That really is the roots of WM, and we invest
Speaker 13: one hundred to two hundred million dollars a year on
Speaker 13: tuck and acquisitions. Larger scale strategic M and A is
Speaker 13: really facts and circumstances driven, but we are committed to
Speaker 13: always having the balance sheet that is needed in order
Speaker 13: to be able to execute on the right deal at
Speaker 13: the right time. So in twenty twenty five, we'll focus
Speaker 13: on returning our leverage to where we need it to
Speaker 13: be to give us strategic flexibility in the future. Right now,
Speaker 13: we're focused on the organic growth story at WM.
Speaker 6: Organic growth of double.
Speaker 13: Digits percentage increases in ebitdah is just fantastic in this
Speaker 13: kind of an economy. We've done that now for we
Speaker 13: expect to do it for two consecutive years, and we're
Speaker 13: going to focus on building out those sustainability businesses and
Speaker 13: integrating the Stereocycle acquisition. So I don't expect any transformational
Speaker 13: M and A in the year ahead because we've got
Speaker 13: our plate full in terms of serving those three things.
Speaker 14: You mentioned the economy, Divina, just looking at your business,
Speaker 14: you're cutting a lot of waste from A to B.
Speaker 14: What does the waste that you're transporting tell you about
Speaker 14: the state of the US economy.
Speaker 13: We look at the state of the economy really in
Speaker 13: a couple of places.
Speaker 3: You know.
Speaker 13: We can think about our collection business, so where we
Speaker 13: use our trucks to go pick up waste from the
Speaker 13: customers where.
Speaker 6: They where they're generating it.
Speaker 13: You know, we pick up homes, we pick up small
Speaker 13: and medium businesses, and then we pick up large scale
Speaker 13: multilocation companies as well. What I would tell you that
Speaker 13: we have seen a small and medium business in the
Speaker 13: consumer are thriving and they're continuing to pursue you know,
Speaker 13: good strong economic growth and contribute to the health of
Speaker 13: the economy. Where we've seen a little bit of a
Speaker 13: lag in that is in the industrial economy. So we
Speaker 13: have seen a mild reduction in industrial revenue in the
Speaker 13: collect and part of our business, and we have our
Speaker 13: eye on that for the year ahead.
Speaker 4: Hey, you know, Jiva, one of the things we talked
Speaker 4: about tariffs and you know, other policies coming out of Washington.
Speaker 4: But in the newsletter, the CFO Briefing Newsletter which comes
Speaker 4: out on Sunday, and you are featured in it, one
Speaker 4: of the things that you highlight and think about is
Speaker 4: population growth being a longtime driver for your business. So
Speaker 4: how concerned are you about changes to immigration under President
Speaker 4: Trump and how that plays into it.
Speaker 13: Now, what I would say there is that we are
Speaker 13: a great business that is resilient in any economic environment,
Speaker 13: and while population growth is certainly a contributor to volume,
Speaker 13: what we are proud of is that our earnings growth
Speaker 13: long term, and we've always targeted a five to seven
Speaker 13: percent organic growth in EVA DAH on an annual basis,
Speaker 13: and we've exceeded that target over the last five years.
Speaker 13: We think that that comes from strong execution, from pricing
Speaker 13: dis len operating excellence, automation of the business where we can,
Speaker 13: and ensuring that we are customer centric and people centric,
Speaker 13: and those things have created strong success even in the
Speaker 13: tough days of COVID environment and it speaks to the
Speaker 13: resilience of our business model and we expect that to continue. Okay,
Speaker 13: only because we ask everybody AI, how does that play
Speaker 13: into your business?
Speaker 6: Does it just real quickly? Yes, certainly.
Speaker 13: We've got great things happening across the board, whether it's
Speaker 13: how we engage with our customers through chatbots, whether it's
Speaker 13: how we code. But the more exciting parts are the
Speaker 13: optical sorders within our recycling facilities. It's amazing what we've
Speaker 13: been able to do to automate that part of the business,
Speaker 13: and so we're going to continue to focus on using
Speaker 13: technology to be a better operator and provide better solutions
Speaker 13: for our customers.
Speaker 6: Divina, thank you so much, really appreciate it.
Speaker 4: Divina. Of course, Rank and she's the CFO of Waste Management,
Speaker 4: joining us there from Houston, which is where of course.
Speaker 6: They are based.
Speaker 4: And of course our own Bloomberg News Senior editor Nina Trentman.
Speaker 4: Do be sure to check out the Bloomberg CFO Briefing newsletter.
Speaker 4: You can find it at Bloomberg dot com slash CFO
Speaker 4: slash Briefing and also find it on the Bloomberg.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern. Listen
Speaker 2: on Applecarplay and Android Auto with the Bloomberg Business app,
Speaker 2: or watch us live on YouTube.
Speaker 4: Plenty Ahead in our second hour of the weekend edition
Speaker 4: of Bloomberg Business Week, including bar Rescues, John Taffer on tips,
Speaker 4: tariffs and tough immigration policies shaking up the restaurant industry.
Speaker 1: Plus speaking of tariffs, how those imposed on China might
Speaker 1: affect some American tech companies, The CEO of software company
Speaker 1: Ignite on that and the race to being the best LM.
Speaker 4: First up this hour, speaking of LM's large language models,
Speaker 4: big news in the world of our official intelligence, from
Speaker 4: Google's AI powered coscientist on its Gemini two point zero system,
Speaker 4: and Elon Musk's boasts about Grock three chatbot taking on
Speaker 4: chat GPT to former Open Ai executives starting their own
Speaker 4: valuable startups. There's a lot going on in the AI race.
Speaker 1: Covering some of the headlines this week with us Bloomberg
Speaker 1: Intelligence senior tech industry analyst Mandeep Singh and Bloomberg News
Speaker 1: technology reporter Jackie Devalos.
Speaker 15: Let's start with Grock here, because this is Elon Musk's XAI.
Speaker 15: It's their latest model. It's supposed to have advanced reasoning
Speaker 15: and capability is just around math and science. It says
Speaker 15: that it's already performing better than some of the leading
Speaker 15: models coming from Open ai and Thropic and Google. Obviously,
Speaker 15: we have to independently verify those claims, but it's a
Speaker 15: really hard task to do because there's no real way.
Speaker 6: To do it.
Speaker 15: You have a lot of different tools out there that
Speaker 15: can kind of give you a good sense of just
Speaker 15: how they're performing against each other. But let's just take
Speaker 15: some of those claims with a grain of the other
Speaker 15: thing as you mentioned ilias at skever that's a huge
Speaker 15: name open in artificial intelligence. He was formally at open AI,
Speaker 15: as you remember, had a really big role there in
Speaker 15: developing this technology. So there's not a whole ton that
Speaker 15: we know about his venture just yet other than its
Speaker 15: name super Safe Intelligence. And this is this is really
Speaker 15: important though, because there's a broader conversation going on about
Speaker 15: where does all this talk about innovation leave safety, you know,
Speaker 15: and responsible.
Speaker 4: And I think it goes into what it's called super
Speaker 4: safe intelligence, right, super safe trail. Notice every super super
Speaker 4: sife right, super safe.
Speaker 15: But to your point, this has already gotten a lot
Speaker 15: of attention from investors, and the reason for that is
Speaker 15: because there's a lot of confidence that anything ILIA does
Speaker 15: is going to be a game changer.
Speaker 1: Okay, man, deep, come on in here. I want to start.
Speaker 1: Jackie made a lot of points. I want to start
Speaker 1: with the XAI point and just this idea that there
Speaker 1: are indeed some lms that are better than others. There
Speaker 1: are some models out there that are better than others.
Speaker 1: How do you think about in you from your Perchet
Speaker 1: Bloomberg intelligence measuring that claim?
Speaker 7: Yeah, I mean when you compare it to the deep
Speaker 7: Seek moment, which really was the big one this year.
Speaker 7: I think this wasn't like a big leap in terms
Speaker 7: of the LLM race. This was more like OpenAI has
Speaker 7: got a reasoning model. We have one two in terms
Speaker 7: of Xai. And look, all these companies so far were
Speaker 7: competing on the size of the cluster. So Xai built
Speaker 7: the largest GPU cluster, over one hundred thousand GPUs that
Speaker 7: they use for pre training. Now, one would have expected
Speaker 7: their model to be far better, given this was like
Speaker 7: almost two to five times bigger than all the other
Speaker 7: clusters that we know of, at least publicly. So from
Speaker 7: that perspective, I think it wasn't that big of a leap.
Speaker 7: But at the same time they kept houting that, you know,
Speaker 7: in certain type of tasks like math encoding, their model
Speaker 7: performed better. Now, how much better. It's within the plus
Speaker 7: minus five percent. So that's where I think the deep
Speaker 7: Seak moment. The fact that it focused on efficiency, that
Speaker 7: to me was a big deal in this case. They
Speaker 7: didn't out efficiency or any other metric. It was more
Speaker 7: that there our model performed better than the other models.
Speaker 4: Well, explain that to me, Mandy, when a model performs
Speaker 4: better what does that mean?
Speaker 6: The answers come up quicker, they are more thorough like
Speaker 6: how do we.
Speaker 7: Get the turnus the latter and look, I think these
Speaker 7: companies use different types of benchmarks so they know what
Speaker 7: to optimize for. I mean, when Grog three was trading,
Speaker 7: they know all the benchmarks, how they are rated. So
Speaker 7: I feel the latest version of the models are optimized
Speaker 7: for improving on the benchmarks and the latest known metrics
Speaker 7: that we have. But at the same time, there wasn't
Speaker 7: a novel approach where suddenly like Deep Sea came out
Speaker 7: with that mixture of experts approach where they optimize so
Speaker 7: many things. In this case, one, their release wasn't as
Speaker 7: detailed as the deep Seak release, right, So there isn't
Speaker 7: a paper where I can read the paper and say, wow,
Speaker 7: this is something new, And I think that's what's missing.
Speaker 6: Devil's in the details always.
Speaker 1: Hey, Jackie, come on in here, because I want to
Speaker 1: go to this idea of thirty billion dollars for evaluation
Speaker 1: for a company that we don't really know that much about.
Speaker 1: I mean, it's a pretty mind blowing figure, even for
Speaker 1: an AI company, even for Silicon Valley, even with this
Speaker 1: excitement around the space right now? Are are we starting
Speaker 1: to see some fraud one?
Speaker 15: I think even investors would say that there's froth. But
Speaker 15: at the end of the day, they want to get
Speaker 15: into the AI plays that are backed by the best talent.
Speaker 15: That's really what this is about. You also saw the
Speaker 15: former CTO of Open Ai kind of announced more plans
Speaker 15: around her own competing AI startup called Thinking Machines Labs.
Speaker 15: So Mira Muradi obviously you know, on par with an
Speaker 15: Ilius ascover. Here you have these two really respected artificial
Speaker 15: and tell diligence minds kind of bringing their own project
Speaker 15: to the table. One thing I do want to point
Speaker 15: out about GROC though, is that I found it interesting
Speaker 15: that in the live stream that Elon Musk did with
Speaker 15: a couple of XAI engineers, they said that the goal
Speaker 15: for XAI and for Grock was to understand the nature
Speaker 15: of the universe. This is a little fluffy obviously when
Speaker 15: you think about just kind of the practical applications we
Speaker 15: want to see out of artificial intelligence, but perhaps it
Speaker 15: gives us a window into, you know, the different angles
Speaker 15: that some of these AI models can take. Maybe they
Speaker 15: don't have to be the best at everything. Well, but
Speaker 15: perhaps kind of the more focused applications are the ones
Speaker 15: to get more.
Speaker 4: Traction, like cable going niche or YouTube channels, like, is
Speaker 4: that what's going to happen?
Speaker 7: Man?
Speaker 4: People, there'd be like a great AI chatbot for medicine, Well,
Speaker 4: there'll be one for retail.
Speaker 6: Like is that where it breaks down or not?
Speaker 7: I mean, you have to look at the data. When
Speaker 7: it comes to the differences between the foundation models, it
Speaker 7: will come down to the data. Now, what xai has
Speaker 7: is the Twitter real time streaming data no one else has.
Speaker 7: I don't think they want other model providers to have
Speaker 7: access to the data everyone else has open in data.
Speaker 7: But then what is unique with the other foundational models
Speaker 7: is in the case of.
Speaker 1: Hold on, yeah, is what's on Twitter actually good? You
Speaker 1: know you made me nervous? Garbage in garbage out right?
Speaker 1: And I don't know if you spend much time on
Speaker 1: x lately, but my experience has certainly shifted on the platform.
Speaker 1: Is that data worth it? It's not Reddit.
Speaker 7: I mean, if he's talking about understanding the universe using
Speaker 7: Twitter data, I don't think there is a connection. But look,
Speaker 7: there are certain real time elements when it comes to
Speaker 7: breaking news and stuff like that people expressing their opinion.
Speaker 7: A lot of these models were trained on Reddit data.
Speaker 7: The reason why everyone used Reddit is because it's how people,
Speaker 7: you know, speak English language, and that's how the user
Speaker 7: data is generated. So that was a good representation of data.
Speaker 7: If you want knowledge, then that's your Wikipedia data. So
Speaker 7: from that perspective, I can see a connection. But at
Speaker 7: the same time, you're not going to understand the universe
Speaker 7: by using Twitter data at least that's not what is unique.
Speaker 4: Well, and Mandy, let me just ask you though, Like
Speaker 4: when we talk about this kind of AI explosion, I mean,
Speaker 4: I think about search and there's like dominant search engines, right,
Speaker 4: there's Google like that we all really use, and there's
Speaker 4: other search engines. But I mean, is there going to
Speaker 4: be one you know, chat GPT or one chat aichat
Speaker 4: that's going to dominate?
Speaker 6: Like do you is that the same model I'm trying
Speaker 6: to think about.
Speaker 7: That's chat ChiPT right now. Look at the roughly active
Speaker 7: users and that's where you know, the fact that they
Speaker 7: vent you know, from the ground up, created this new
Speaker 7: app where they have three hundred million plus monthly active users.
Speaker 7: They clearly have the best model. Now Google has overlaid
Speaker 7: their model across their family of apps, so has Meta,
Speaker 7: but chat Chip created it from scratch, and so that's
Speaker 7: the distribution is the most important thing when it comes
Speaker 7: to proliferating large angrid models. I mean, xai clearly is
Speaker 7: there on Twitter, and Twitter has you know, fifty million
Speaker 7: daily active users. So they be interesting to see how
Speaker 7: many people actually are willing to pay a thirty dollars subscription,
Speaker 7: because that's a chat GPT's business model. It's all subscription based.
Speaker 7: People actually pay a twenty dollars or two hundred dollars subscription.
Speaker 15: Let's talk about the price there, because I was super
Speaker 15: surprised to see the differential between grock and open Ai. Obviously,
Speaker 15: for the latest reasoning model out of open Ai, you.
Speaker 6: Have to be two hundred dollars.
Speaker 15: Thankfully, you know, we're able to test it out on
Speaker 15: Bloomberg's dime over here on the technology team, But if
Speaker 15: you're a regular person trying to really test some of
Speaker 15: these out, it's going to cost you. And you know,
Speaker 15: one of the advantages I think that groc has compared
Speaker 15: to them is that it's forty bucks a month if
Speaker 15: you're already a premium plus subscriber.
Speaker 1: On X So what are you doing, Jackie playing with
Speaker 1: the reasoning model of chat GPT lay that out for us.
Speaker 15: I like to kind of, you know, show it how
Speaker 15: I think when it comes to you know, even crafting
Speaker 15: questions for an interview or you know, brainstorming. This is
Speaker 15: really important for me as a reporter because sometimes I
Speaker 15: have a hunch about something I have, you know, a
Speaker 15: way that I want to frame it, but I just
Speaker 15: can't really get it going. And what it does, I
Speaker 15: think is provide you kind of a good structure. What
Speaker 15: it's seen on the internet is like a good way
Speaker 15: to you know, start a paragraph, start an email, those
Speaker 15: things that sometimes you just need a little bit of
Speaker 15: help getting started.
Speaker 6: Well, can I just say you were in our studio was.
Speaker 1: It last week, a couple weeks ago?
Speaker 6: Couple weeks ago?
Speaker 4: And you were like talking about Gemini, you were talking
Speaker 4: about TCHATCHYPT.
Speaker 1: You're pointing a deep right now.
Speaker 6: I am pointing at man deep for those we're listening
Speaker 6: on radio.
Speaker 4: And then I had to do a panel and I
Speaker 4: had plans, I did my own research, and then I
Speaker 4: played around with CHATCHYPT and was blown away with what
Speaker 4: it came up. With similar to what I was thinking,
Speaker 4: but all organized.
Speaker 7: I mean, just look at the length of the prompt
Speaker 7: that you can give to chatchipt. You can have such
Speaker 7: a detailed prompt. Then with the search engine, the moment
Speaker 7: you start typing, after you know ten words, you're going
Speaker 7: to just lose the query because it's not going to understand.
Speaker 7: You can pass, you know, thousands of words, and the
Speaker 7: more words you pass, the better your answer is going
Speaker 7: to be. So it is very powerful from that perspective,
Speaker 7: and that's why I think some people are willing to
Speaker 7: pay two hundred dollars a month for that.
Speaker 1: I guess thirty seconds, Jackie, do we need Claude, do
Speaker 1: we need chat GPT, do we need Groth? Do we
Speaker 1: need Lama? Do we need all of these?
Speaker 15: I think it depends on what you do, and if
Speaker 15: you're a writer, if you're creative, each one is going
Speaker 15: to appeal to you in a different way. General purpose
Speaker 15: right now is really popular, but going forward, I think
Speaker 15: we're going to start to see those applications really narrow
Speaker 15: down and you're going to get quite a you know,
Speaker 15: quite a few picks to choose from.
Speaker 4: Man deep same question to you in terms of the
Speaker 4: variety that are out there.
Speaker 7: I mean, the this model costs it, you know, almost
Speaker 7: three hundred four hundred million dollars for one training run.
Speaker 7: Imagine how many companies can afford to do that. So
Speaker 7: that's why I think this will narrow because of the
Speaker 7: costs involved in training these models and.
Speaker 4: Pretty amazing stuff, Man Deep Saying Bloomberg Intelligence and industry analyst,
Speaker 4: along with Bloomberg News Technology reporter Jackie Devallis are thanks
Speaker 4: to you.
Speaker 2: This is the Bloomberg Business Week podcast. Listen live each
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Speaker 4: Tarriff's definitely in focus again this week, with autos, pharmaceuticals,
Speaker 4: and semiconductors grabbing the spotlight. And while the levies talked
Speaker 4: about so far may not impact all, companies in the
Speaker 4: United States, c suites are watching these developments very closely.
Speaker 1: That includes Vinite. Jaynees, CEO of Egnite. It makes software
Speaker 1: for enterprise companies to secure and manage massive amounts of data.
Speaker 1: The company has raised one hundred and forty million dollars
Speaker 1: in venture capital from Google Ventures, Kleiner Perkins, Goldman Sachs
Speaker 1: and others and accounts companies such as Red Bull, Steve
Speaker 1: Madden and Beyontech as clients. We talked tariffs and how
Speaker 1: the AIRAATE is shaping.
Speaker 10: Up in my world, you know, I'm talking about We
Speaker 10: are a software as a service provider, So anything that
Speaker 10: impacts IET systems, whether it's servers, networking gear, data center components,
Speaker 10: those would be the ones that I would be most
Speaker 10: interested in, not the autos or pharmaceuticals, although there's always
Speaker 10: a cascading impact if there's a general inflation. Now I
Speaker 10: know the numbers on the tariff side keep ratcheting up.
Speaker 10: New announcements are coming out regularly. So a couple of
Speaker 10: tuesdays back, I think there was a ten percent tariff
Speaker 10: announced for this class of hardware. So the question is
Speaker 10: if the underlying data center equipment becomes more expensive, and
Speaker 10: keep in mind a lot of it, 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 3: I don't think so.
Speaker 10: Because these costing freases can be absorbed by the providers,
Speaker 10: including companies like ourselves, with some impact to the gross margin,
Speaker 10: but it's not significant yet unless these numbers start crossing
Speaker 10: into twenty five percent or higher territory. Until then, I
Speaker 10: would say I'm pretty sanguine about it.
Speaker 1: Is the concern, though, compounded when you think about your customers.
Speaker 1: I mentioned Red Bull, Steve madd and Beyoncek just a
Speaker 1: few of your customers. Steve Madden a company that I
Speaker 1: would imagine makes products in China. If they're hit with
Speaker 1: bigger tariffs, then what happens to the amount that they're
Speaker 1: able to spend on services such as yours?
Speaker 3: 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 company needs
Speaker 10: that you mentioned Steve Madden or whoever else they will
Speaker 10: pass it down to the customers. If they can't, it
Speaker 10: eats up in the gross margin. If they don't want
Speaker 10: to pass the cost down, then they'll squeeze supplies like ourselves.
Speaker 10: So there is absolutely a trickle down or rather compounding effect,
Speaker 10: as you eloquently put it.
Speaker 4: Fi, what about global supply chains do you think that
Speaker 4: they will be potentially changed forever? Again, devil in the
Speaker 4: details when it comes to the particulars around tariff's what
Speaker 4: they are on, how large they are, and how long
Speaker 4: they last. But having said that, I do wonder about
Speaker 4: the psyche that's changing within the business environment, thinking we.
Speaker 6: Need to get out of this mess.
Speaker 4: Who knows, whether it's this administration or what's to come,
Speaker 4: that maybe we need to have our global supply chains
Speaker 4: or our supply chain in the same market that we're selling.
Speaker 6: 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 bul drugs,
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're looking at a multi decade effort across the board,
Speaker 10: across all industries, if I were to generalize. So we'll
Speaker 10: have to live with the fact that our dependence on
Speaker 10: China is not getting dialuted or reduced in the foreseeable future.
Speaker 10: And when I say forcable future, I'm talking about at
Speaker 10: least for the next five years.
Speaker 4: You know, while we have you Vanit, you guys are
Speaker 4: all about data.
Speaker 12: You have been.
Speaker 4: Invested, You've received venture capital from Google Ventures, Kleiner Perkins,
Speaker 4: Goldman Sachs, kind of a who's who when it comes
Speaker 4: to tech investing, impressive investors. The AI craze that we
Speaker 4: are in year two in counting CHATCHYPT Deep Seek, you know,
Speaker 4: everyone's still talking about AI, but it is also kind
Speaker 4: of interesting how deep seek has maybe disrupted the conversation
Speaker 4: around AI. If you will tell us about the demands
Speaker 4: for your services and what insight you have in this
Speaker 4: kind of build out two l MS and AI this
Speaker 4: next way that's been you know, as I said two
Speaker 4: years in counting.
Speaker 10: My first statement would be is a little radical.
Speaker 3: I would promply.
Speaker 10: Say that the hype cycle on AI is the highest
Speaker 10: of any tech trend that I've ever seen. And just
Speaker 10: to remind you, I've been in the valley for thirty
Speaker 10: two years. I've seen fads come and go, crypto web three, oh,
Speaker 10: you name it, right, But right now the crescendo in
Speaker 10: the news, and in fact the joke is, you know,
Speaker 10: we get these daily newsletters about investments today. I was
Speaker 10: looking at one each of them led I'd driven this
Speaker 10: AI driven that AI driven something. So you clearly know
Speaker 10: that we are the peak of the hype cycle. But
Speaker 10: if you leave aside the high aspect of it, the
Speaker 10: reality is customers. To be very simple, there is a
Speaker 10: huge value to be delivered with a slew of these
Speaker 10: generative AI. Capability is open ey, it's just one of
Speaker 10: the providers. But the big problem is the value expectation
Speaker 10: that your customers have today versus the value delivery i e.
Speaker 10: The capabilities we are providing. There is a big gap,
Speaker 10: and therefore people are wanting that gap to diminish before
Speaker 10: it becomes commonplace. But I still maintain all the AI
Speaker 10: capabilities that we are talking about that are being invented
Speaker 10: as we speak, or will be rolled out in the
Speaker 10: next two years. Take my word for it, they'll become commoditized.
Speaker 10: People would expect that to be included.
Speaker 3: In your product.
Speaker 10: Over time, what differentiates you or the premium they're willing
Speaker 10: to pay, will be a much higher value stack of services.
Speaker 10: But it's a journey and we are on that. So
Speaker 10: the problem is real, the solutions are real, but the
Speaker 10: hype cycle is absolutely at the zen more than anything
Speaker 10: I've seen before.
Speaker 1: It sounds like, though, this time is different words I
Speaker 1: should never say, so I'm trying to get you to
Speaker 1: say them. Yes, this time than the dot com bubble.
Speaker 3: Yeah, I would not say that. You know you've heard
Speaker 3: that phrase before. This time is different.
Speaker 10: No, it's just like you know, you hear about companies
Speaker 10: being formed in the last week or so with illustrious names.
Speaker 10: They don't have a business model defined yet, but people
Speaker 10: are planking billions of dollars in their fundraise just because
Speaker 10: of the pedigree of some of these individuals, and not
Speaker 10: to take anything away from them, This is a classical
Speaker 10: hype cycle where anything ai especially when you're talking about LMS,
Speaker 10: if you're talking about big data centers. The amount of
Speaker 10: money being poured into this is crazy. Now, will it
Speaker 10: have its value, of course it will, but it will
Speaker 10: not be commensurate with the expectations that are being created
Speaker 10: right now.
Speaker 4: Wait, so, okay, is it just because it's not there
Speaker 4: yet and that the hype will become a reality in
Speaker 4: maybe two years, or is it that the hype is
Speaker 4: just hype?
Speaker 3: Yeah, so it's a very good question.
Speaker 10: I still maintain that the value that these technologies will
Speaker 10: provide are absolutely insane. My belief is that a lot
Speaker 10: of these technologies will become commonplace. They'll become commoditized, So
Speaker 10: expecting people to pay premium prices is going to be
Speaker 10: a chimera. People will say, hey, I get it from
Speaker 10: this vendor and that vendor, so why are you charging
Speaker 10: me extra four dollars six dollars eight dollars by user
Speaker 10: per month? That will go away, But also the expectation
Speaker 10: that customers are having about AI delivering and being a
Speaker 10: panacea for all the problems they're dealing with without human
Speaker 10: interaction or the classical word is AGI. We are years
Speaker 10: and years away from that, So that is where the
Speaker 10: hype cycle and the gap between what we deliver is
Speaker 10: very high at what I'm alluding to, But I think
Speaker 10: this technology is here to stay. I mean, Web three
Speaker 10: oo has its renaissance. You can see the crypto is
Speaker 10: back again with the vengeance. So I'm saying that AI
Speaker 10: will be there, generate a AI, but the value hype
Speaker 10: versus the value delivery, that gap will diminish.
Speaker 3: And also the.
Speaker 10: Price expectation we have as vendors that you'll pay me
Speaker 10: this much. We'll have to get grounded into reality that
Speaker 10: people will pay, but not as what we're expecting. So
Speaker 10: all the investments we are making right now in order
Speaker 10: to get the return, there'll be some let's say realignment.
Speaker 1: What makes you say that we're so far from AGI?
Speaker 10: Very simply stated. Having technology today which can reduce the
Speaker 10: human interaction for low level task in accounting or generating
Speaker 10: memos or creating a media brief or even an advertisement,
Speaker 10: that's there. But having it to the point where no
Speaker 10: human curation is needed or human interaction is needed, and
Speaker 10: have the faith and belief between you as a provider
Speaker 10: to say I can just let the machine or the
Speaker 10: gen AI capability deliver the end product that is not
Speaker 10: going to be there. It's not there today, it won't
Speaker 10: be there for a long time. So lights out automation
Speaker 10: is possible in certain industries, But for the kind of
Speaker 10: things I'm talking about, where can you invent or have
Speaker 10: a protein marker for some disease, run through a complete
Speaker 10: AI related pipeline and not have a human intervened impossible.
Speaker 10: Of course there'll be clinical trials for that. But even
Speaker 10: in our world of software, I don't think our software
Speaker 10: is at a point today or two years from now
Speaker 10: where somebody could say, let's use the soft software and
Speaker 10: let it solve the problem the complete workflow with no
Speaker 10: human looking into it. So that's my reference about AGI.
Speaker 4: To be honest, hey, listen, I really appreciate this, We
Speaker 4: really appreciate this.
Speaker 6: I'm getting your perspective.
Speaker 4: One last question, then, so if everything may take a
Speaker 4: few years to work out in terms of the investments
Speaker 4: that have gone into an Nvidia and others, is it
Speaker 4: a case that that may not make sense or that
Speaker 4: will make sense because that's part of the infrat structure
Speaker 4: build that will still be there in years to come.
Speaker 4: But whether it's an open AI or someone else who
Speaker 4: leads in this what you say might be a commoditized
Speaker 4: business going forward, that's TBD 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 pick and shovel
Speaker 10: business of Nvidia versus you know, the gold Yeah, from
Speaker 10: the other guys. 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 there,
Speaker 10: Google Gemini, they will of course keep up leveling the
Speaker 10: value delivery of what they're providing or the value chain
Speaker 10: of what they're delivering. But a lot of technology that
Speaker 10: they are investing in today compared to what the other
Speaker 10: party is developing, they'll become almost similar and therefore commoditized.
Speaker 10: So the arms raised to be the best of providing
Speaker 10: the best l that's going to be very expensive, and
Speaker 10: at some point there'll be some I keep scrambling for
Speaker 10: the right word, there'll be some realignment or readjustment on expectations,
Speaker 10: even from the investor perspective.
Speaker 1: Hey, Carol said it was the last question. But I
Speaker 1: can't come on our air and I can't ask you
Speaker 1: this question. When's the IPO happening?
Speaker 10: I can go there, I can't go, Well, you could.
Speaker 10: One thing I can say is I've done this company
Speaker 10: very differently coming from the valley. So you mentioned I've
Speaker 10: raised one hundred and forty two million, but also I
Speaker 10: would like to add the last round came in twenty eighteen. Yes,
Speaker 10: any raised years Yeah, and we don't plan to raise
Speaker 10: any private financing in that way because we have been
Speaker 10: cashflow positive with improving EBIT of margins. But at the
Speaker 10: same time, I take a lot of pride in saying
Speaker 10: that I've never built a company which is insanely high
Speaker 10: growth with insanely high losses. The very high losses, it's predictable,
Speaker 10: durable 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 ip of being one of them.
Speaker 4: Well, we certainly appreciate your time and the expertise and
Speaker 4: kind of industry knowledge that comes with thirty years in
Speaker 4: Silicon Valley.
Speaker 6: Thank you so much.
Speaker 4: Vanite Jane, co founder and CEO of Ignite, joining us
Speaker 4: there from Mountain View, California.
Speaker 6: In the thick of it.
Speaker 2: This is the Bloomberg Business Week Podcast. Listen live each
Speaker 2: weekday starting at two pm Eastern on Apple car Play
Speaker 2: and the Android Auto with the Bloomberg Business App. You
Speaker 2: can also listen live on Amazon Alexa from our flagship
Speaker 2: New York station Just Say Alexa played Bloomberg eleven thirty.
Speaker 4: The great American egg shortage is getting worse, with prices
Speaker 4: surging more than fifteen percent in January from a month earlier.
Speaker 4: That's the biggest jump in a decade, indicating that inflation
Speaker 4: is still very much an issue in the food and
Speaker 4: bever space.
Speaker 6: Really for us.
Speaker 1: All, that's something that's close to the world of John Taffer.
Speaker 1: He's spent thirty plus years in the hospitality business and
Speaker 1: is well known from his hit Paramount Network reality series
Speaker 1: Bar Rescue. He's never shy a yell, shut it down.
Speaker 9: How was that well okay, thank you.
Speaker 1: In a failing bar or restaurant. John also the author
Speaker 1: of several books, including the Power of Conflict, Speak your
Speaker 1: Mind and Get the results you want.
Speaker 4: He's at Byers Studio to talk tariffs, immigration, inflation, and
Speaker 4: a lot more.
Speaker 9: We had what we called escalating costs. Now we have
Speaker 9: creeping costs, so it's a little slower. But you know,
Speaker 9: the restaurant business is such that food costs can't really
Speaker 9: exceed thirty percent thirty three percent. So for every dollar
Speaker 9: that my costs go up, I have to raise it
Speaker 9: three dollars to the consumer.
Speaker 14: Wow.
Speaker 9: Now there's only a certain amount of elasticity in that.
Speaker 9: So let's say my hamburger prices go up three dollars,
Speaker 9: I got to increase them by nine dollars. Now the
Speaker 9: consumer's not going to accept that nine dollars, So maybe
Speaker 9: I can push it to three or four dollars. Right,
Speaker 9: So I can recover half of the inflationary impact on
Speaker 9: my business, but in many cases I can't recover all
Speaker 9: of it. So that's where it's eroding on our operating costs.
Speaker 4: So what do you do, John?
Speaker 6: Do you like make the burger smaller?
Speaker 12: Do you?
Speaker 9: Well, you have a couple of choices. You can make
Speaker 9: the burger smaller, that's one choice, or you can raise
Speaker 9: your prices, or you can try to redesign your menu. So,
Speaker 9: for example, and this is interesting, psychological pricing and eye
Speaker 9: tracking with laser movement tells me that if I box
Speaker 9: an item on a menu, sales of that item will
Speaker 9: go up by twenty percent unbelieved. If I shadow or
Speaker 9: chef specially goes up by about fourteen percent. People have
Speaker 9: a six percent propensity to order the bottom two items
Speaker 9: on a list. So what I'll do is, I'll take
Speaker 9: my most profitable item in dollars and cents, not percentage.
Speaker 9: I'll box that one, take my second, most, shadow it,
Speaker 9: third and fourth, put them on the list properly. I
Speaker 9: won't price anything other than ninety five cents. There's no
Speaker 9: such thing as eight twenty five, eight fifty, eight seventy five.
Speaker 9: It's eight ninety five. When I need to raise my price,
Speaker 9: it goes to nine ninety five. Psychological pricing, If you
Speaker 9: price at eight fifty, you leaving forty five sense on
Speaker 9: the table every time. It means nothing at that point.
Speaker 9: So understanding these elements, I want to move you through
Speaker 9: boxing I'm going to move you to different menu items.
Speaker 1: Wow.
Speaker 9: So for example, waffle House is infusing a fifty, I
Speaker 9: would also run eggs. I would run a special on
Speaker 9: waffles because that doesn't use eggs. So I'm telling my
Speaker 9: friends in the breakfast business, run pancake specials, run corn
Speaker 9: beef hash specials. Do everything you can to move the
Speaker 9: consumer away from the eggs consumtion.
Speaker 1: Do that you didn't mention automation, which you see the
Speaker 1: chain's doing a lot right now. Are are mom and
Speaker 1: pop shops able to use automation?
Speaker 9: Well, you know a lot of them are a little
Speaker 9: intimidated by I tell you the truth, just like they're
Speaker 9: intimidated by sophisticated accounting systems. And so my research tells
Speaker 9: me that about seventy percent of the independent operators don't
Speaker 9: even have monthly p and ls. So we're asking them
Speaker 9: to look at a capital investment or a long term
Speaker 9: lease program, you know, to buy technology a little intimidating
Speaker 9: for them. So I find that they're not as eager
Speaker 9: to move into it. And interestingly, if you go to
Speaker 9: the restaurant convention the National Restaurant Association five years ago,
Speaker 9: there may be two robotic boots. Now there's probably close
Speaker 9: to one hundred robotic boots, everything from French fry robots
Speaker 9: to hamburger flipping robots, everything you can possibly that BT.
Speaker 1: But Mom and Pops aren't doing that yet.
Speaker 9: That's like.
Speaker 1: And the Chipotle's got you know, they've got the autocado
Speaker 1: with which helps with peeling and you know, coring avocados
Speaker 1: and freeze people up to do other things. But we're
Speaker 1: not seeing that yet.
Speaker 9: From I think McDonald's is one of the leaders in
Speaker 9: some of the robotic French fry equipment and such. But certainly,
Speaker 9: you know, it costs a lot less, it doesn't get sick,
Speaker 9: and it's the future of our industry. And look, we're
Speaker 9: struggling with labor as you know still, and we think
Speaker 9: that the no tax on tips might really make a
Speaker 9: difference for us as an industry, really really could solve
Speaker 9: that problem. It happens, Oh, we think it's going to happen. Yeah,
Speaker 9: I believe it's going to happen.
Speaker 6: Why do you think it's a good idea?
Speaker 4: Because I think for those of us who pay taxes
Speaker 4: on all of our income are wondering, well, wait a minute,
Speaker 4: how is that fair? And I guess the other side
Speaker 4: is that let's pay those workers a living wage. And
Speaker 4: so it's not you know, because I feel like increasingly
Speaker 4: we're tipping everybody also who.
Speaker 1: Declares their tips.
Speaker 9: Well, I don't like it when I go into a
Speaker 9: coffee store, yeah, and you know, I'm asked to tip
Speaker 9: the batista. I mean, it's a little out of line. Sometimes.
Speaker 9: I went to a dry cleaner the other day and
Speaker 9: I went in to pick up my dry cleaning, and
Speaker 9: it asked me if I wanted to tip the dry cleaning.
Speaker 9: It's a little outrageous. Now, every guy out of control.
Speaker 4: So what you think within the hotel or the restaurant industry,
Speaker 4: let me tell you why.
Speaker 9: Because they get an employee tip credit. So many in
Speaker 9: many states, they don't make minimum wage. They make two
Speaker 9: and three dollars an hour.
Speaker 3: No I know.
Speaker 9: So by not tipping them on you, by not taxing
Speaker 9: them on their tips, we're giving them a chance at
Speaker 9: that living wage.
Speaker 4: It's really im Why don't we make the institution in
Speaker 4: the restaurant pay them that living wage?
Speaker 6: Why don't we do it there?
Speaker 9: Well, we could do it there, but that's going to
Speaker 9: increase costs. So if we look at inflation in those costs.
Speaker 9: Here's the problem in the restaurant industry. It's it's an
Speaker 9: industry that we manage by percentage. Occupancy costs cannot exceed
Speaker 9: twelve percent of revenue every month or every year. It
Speaker 9: just cannot. Okay, Labor costs cannot exceed thirty percent, them
Speaker 9: up to forty five percent already. Yeah, food costs can
Speaker 9: exceed thirty percent, them up to seventy five percent. Now
Speaker 9: I have my ang my insurance, my utilities, all my
Speaker 9: other costs, I have waste and supplies. By the time
Speaker 9: I move that up, guys, I'm at twelve fifteen percent margins.
Speaker 9: That's all I got.
Speaker 4: But what if we didn't have tips, like you know,
Speaker 4: and I know who was it that tried to do it?
Speaker 7: Here?
Speaker 1: Was it Danny Meyer?
Speaker 6: Was it Danny Meyer?
Speaker 7: Est Lego?
Speaker 4: Tips?
Speaker 7: Like?
Speaker 4: Do you don't think we would think, Okay, I'm paying
Speaker 4: more because I'm not tipping that that would make it
Speaker 4: even it out and then possibly.
Speaker 9: But there's some fear in that. As an operator, Okay,
Speaker 9: you know, I have to educate the customer, and I
Speaker 9: must tell you anytime somebody tells me I'm going to
Speaker 9: start a business and educate the consumer, they tend not
Speaker 9: to be very successful at it.
Speaker 6: That's fair.
Speaker 1: That's fair, use tight margins.
Speaker 9: Also, I got to share with you that the restaurant
Speaker 9: industry is the largest non government employer in America. And
Speaker 9: when the restaurant industry hurts, America hurts. Right, There's a
Speaker 9: lot of consumers work for us. So keeping that industry
Speaker 9: healthy is our largest consumer, is very very important. And
Speaker 9: I look at the buyouts the car companies have gotten
Speaker 9: and other industries have gotten. The restaurant industry hasn't gotten that.
Speaker 9: So I think providing this relief makes sense for that industry.
Speaker 9: Of course, I'm an advocate for it, but I do.
Speaker 1: Hey, Johnny, you mentioned the no tax on tips as
Speaker 1: one of the policies forthcoming from this administration. How are
Speaker 1: you looking at other policies in terms of growth, in
Speaker 1: terms of helping the restaurant industry, in terms of potentially
Speaker 1: hurting the restaurant industry if prices go up as a
Speaker 1: result of tariffs and people have less disposable income, how
Speaker 1: are you looking at what's coming out of Washington.
Speaker 9: I mean, I've done a lot of work on tariffs.
Speaker 9: I've read a lot of white papers, and I've really
Speaker 9: tried to do my homework on it, and it's tough
Speaker 9: to come down with a hard position on knowing how
Speaker 9: it's really going to have an impact. I look at
Speaker 9: it this way. A German car company is charging a
Speaker 9: German is charging is ten percent tariff to bring our
Speaker 9: cars there. We're charging two and a half percent. Let's
Speaker 9: say we bumped that two and a half percent to
Speaker 9: ten percent. So now the German car comes into America
Speaker 9: at a base costs point in theory, ten percent higher
Speaker 9: than an American competitor. They can't compete that way, so
Speaker 9: they're going to have to make adjustments and distribution and
Speaker 9: operating costs in some way to be competitive again. So
Speaker 9: it's hard for me to accept that every tariff that
Speaker 9: ten points is going to make it to our pockets.
Speaker 9: I think there's competitive influences and a whole bunch of
Speaker 9: factors that play upont And then what could BMW they
Speaker 9: built the factory in America. You can tell you what
Speaker 9: they built the factory in America. So I think that
Speaker 9: we have to look at this as a longer play.
Speaker 1: Well, look at Ford and GM they built cars in
Speaker 1: Canada and Mexico, and then they'll get hit with tariffs
Speaker 1: when they bring those cars in and when the car
Speaker 1: components cross the border multiple times as a result of
Speaker 1: the manufacturing process.
Speaker 9: It's but I would say, you know who was sitting
Speaker 9: at who was controlling our government? And we allowed Ford
Speaker 9: Motor Company to start building plants in Canada and Mexico,
Speaker 9: Why didn't we incentivize them to build them here? Then?
Speaker 9: So now I think we're backing into it. We have
Speaker 9: these these international companies that we want to make residents.
Speaker 4: Well, some of it is like, you know, the globalization
Speaker 4: right of our world, and so we we've got allies,
Speaker 4: and we've got alliances, and we invest in your country
Speaker 4: and you invest in our country. Right, That's kind of
Speaker 4: how it's all happened. Is it bad if we kind
Speaker 4: of back off of all.
Speaker 12: Of that in your view?
Speaker 9: I don't know if we're backing off on all of that.
Speaker 9: Is understanding that in the post COVID world, every country
Speaker 9: is in a different economic place. Today, it's a different
Speaker 9: we're talking about environment, there's a very different environment now.
Speaker 9: America is operating at a significant deficit with significant debt.
Speaker 9: We have to fix this. The world knows we have
Speaker 9: to fix it. The world doesn't want us to cave in.
Speaker 9: We're the largest marketplace in the world, so it seems
Speaker 9: to me that the world has to accept that these
Speaker 9: changes have to be made to eliminate the deficits that
Speaker 9: we all have to make us all healthy. So can
Speaker 9: we do this together in a constructive way, That's what
Speaker 9: remains to be seen to me.
Speaker 1: What about in your world at the bar world, where
Speaker 1: tariffs could affect the liquor market Mexican tequila, which coming
Speaker 1: from Canada.
Speaker 9: That concerns me, but you know that Mexican tequila needs
Speaker 9: to compete, you know, with other brands and other prim
Speaker 9: I don't have to sell as much to Kiel. I
Speaker 9: can move my menu and sell more bourbon. So you know,
Speaker 9: we do have options in the industry. And I think
Speaker 9: that the marketplace is a challenge. The liquor industry is
Speaker 9: in the toilet right now, so the marketplace is a
Speaker 9: challenge for them. I think they need to be aggressive
Speaker 9: and I don't think they're going to allow a tariff
Speaker 9: to take them down.
Speaker 6: Yeah, increasingly, there's a lot of interesting dynamics the.
Speaker 9: Liquor als not saying I know this to be a fact,
Speaker 9: but this is just how I feel with this. I
Speaker 9: think time will tell on Well.
Speaker 4: In terms of policies, you talked about, you know, a
Speaker 4: shortage of workers in terms of immigration, and I know
Speaker 4: there's illegal versus legal, but you know, the hospitality industry
Speaker 4: got really hurt, you know, after the pandemic, a lot
Speaker 4: of people left that industry found better jobs, better paying jobs.
Speaker 6: What's your view on immigration?
Speaker 9: Well, I think legal immigration is important, but I think
Speaker 9: we need immigrants to come in first. Well, I don't
Speaker 9: want to hire somebody who I can't do a background
Speaker 9: check on. I can't do that. There's too much liability today,
Speaker 9: especially in the hotel industry, So I have to hire
Speaker 9: people that I can do background checks on, that I
Speaker 9: can have confidence in hiring them, that they're safe, they're
Speaker 9: not thieves, my employees are safe, et cetera. And right
Speaker 9: now we don't have that. So when I look at
Speaker 9: the immigrants, the illegal immigrants that have come across that
Speaker 9: I can track their background, they have no value to me. Interesting,
Speaker 9: I'm not sure there are of much value to America
Speaker 9: if we can't track their backgrounds.
Speaker 1: I would say that someone might someone might push back
Speaker 1: and say, well, if there's fewer people to do the
Speaker 1: labor that illegal immigrants do right now, that might pull
Speaker 1: from your labor labor force of legal immigrants working at
Speaker 1: restaurants and then cause your cost to go higher.
Speaker 9: Well, I didn't use the term. I'm trying to focus
Speaker 9: on criminals. There are legal immigrants that do have backgrounds
Speaker 9: and you can verify who they are. I don't have
Speaker 9: an issue with that. I have an issue with the
Speaker 9: criminals or the people whose backgrounds we can check. The
Speaker 9: ones that have gang tattoos, et cetera. They're of no
Speaker 9: use to the hospitality industry. So that doesn't solve our problem.
Speaker 9: The good ones do, the ones that have backgrounds that
Speaker 9: came here with well, good.
Speaker 4: Whoever comes in, like, You've got to make sure you
Speaker 4: understand exactly.
Speaker 9: So we have to understand that people that come here
Speaker 9: with good intentions could be valuable contributors to our society.
Speaker 6: Seven tune in. What is that about?
Speaker 9: Oh? You know, I'm doing a small business radio show.
Speaker 9: You know, with all my experience in dealing with failure
Speaker 9: and the things, I have new entrepreneurs, I want to
Speaker 9: talk to them, you know.
Speaker 7: Nur.
Speaker 6: John Tooker Le help out you do.
Speaker 9: It's a way for well, you guys are doing it
Speaker 9: in a little more sophisticated I want to really help
Speaker 9: those small entrepreneurs, those people starting out in those family businesses.
Speaker 4: There's so many out there. John Taffer, congratulations on a
Speaker 4: tenth season. So appreciate you coming in, of course, the
Speaker 4: hosting recorded producer of Bar Rescue.
Speaker 6: This is Bloomberg.
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