Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanobek. We're here every day bringing
Speaker 1: you the latest news from the world of business and finance,
Speaker 1: plus technology, politics, economics, all partnising the power of Business
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Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio, or watch us on
Speaker 1: YouTube search Bloomberg Global News. The U S economy is
Speaker 1: starting to show some signs of strain under the weight
Speaker 1: of decades high inflation and climbing interest rates, raising the
Speaker 1: risk of a downturn. Bloomberg News Economics reporter Rich Miller
Speaker 1: writes about this today, Rich joining us from our Washington
Speaker 1: at d C bureau. Rich, good to have you with us.
Speaker 1: Um what we see, what's happening with the financial markets,
Speaker 1: But if you look beyond those, where are you starting
Speaker 1: to see weakness in the economy. Yeah. I want to
Speaker 1: just make sure that we we understand that you know
Speaker 1: that the economy still has some you know, strong points,
Speaker 1: but but there are like cracks showing in that sort
Speaker 1: of strong facade. UM. Consumers are starting to take on
Speaker 1: more debt. I mean they're faced with you know, uh
Speaker 1: decades high inflation, having to share out more money for um, food, gasoline.
Speaker 1: So consumers are staking taking on more debts. So that's
Speaker 1: a sign that there of some strain the UM. Small
Speaker 1: businesses are also UM turning gloomier UM. Last month, according
Speaker 1: to a DP the accounting firm, small businesses actually uh
Speaker 1: uh so their payroll shrink. That was partly because um,
Speaker 1: they don't feel they can keep keep on raising wages
Speaker 1: and therefore having trouble getting workers. And then, lastly, the
Speaker 1: housing market, which is kind of on the front line
Speaker 1: of the Fed's efforts to slow the economy. We've seen
Speaker 1: mortgage rates grow up at the at the fastest page
Speaker 1: for quite a some time, and and and and some
Speaker 1: signs of slowing down in the sort of frenetic housing
Speaker 1: market that we've had. And rich I mean, from the
Speaker 1: fetes perspective, would they be viewing these as cracks in
Speaker 1: the economy or merely just signs that maybe the economy
Speaker 1: is starting to cool. Uh, they're probably the ladder. They're
Speaker 1: probably sort of welcoming some signs that things are are
Speaker 1: are cooling down, and uh that's what they want to do.
Speaker 1: But you know, it's uh, what is it, Uh three
Speaker 1: little bears right, not to Goldie GOLDI lots, you can't
Speaker 1: you know, it's it's it's it's a fine line, right,
Speaker 1: you know. Uh, it's the same saying could be said
Speaker 1: at what we've seen in the stock market. They made
Speaker 1: very clear that they wanted to get financial conditions tighter,
Speaker 1: and that that meant they wanted uh, you know, tacitly.
Speaker 1: They we're saying, we wanted to see stock prices lower,
Speaker 1: and they've certainly gotten that, but they don't want to
Speaker 1: you know, they don't want to see them go so
Speaker 1: low that people get really discouraged and you know, stop
Speaker 1: buying and we get thrown into recessions. So it's, you know,
Speaker 1: they're walking a very very fine line here. So so
Speaker 1: what do you need to see to prove to you
Speaker 1: that the Fed can pull this off, that the economy
Speaker 1: will be you know, in the words of Goldilocks just right,
Speaker 1: or in the words of of J. Powell, perhaps a
Speaker 1: softish landing softish landing, right right, uh, or some people
Speaker 1: say a semi hard landing. But but anyway, um um,
Speaker 1: I guess the key is going to be inflation. I think,
Speaker 1: um um, they're the Fed is still sort of hoping,
Speaker 1: praying that you know, a good portion of the inflation
Speaker 1: we're seeing is due to the so called supply side.
Speaker 1: And you know, if inflation starts this signs abusing, then
Speaker 1: they won't have to raise rates quite as high high
Speaker 1: as as as they might have to, and that would
Speaker 1: increase the chances they'll pull off what, as you say,
Speaker 1: the softish landing. They've already almost sort of given up
Speaker 1: on a soft landing where you know, everything is perfect
Speaker 1: and you know, inflation comes down but unemployment doesn't go up.
Speaker 1: But it seems now the softish landing means, well, we're
Speaker 1: going to get some a little bit of pain in
Speaker 1: the economy and probably in the jobs market, but we
Speaker 1: won't get a recession. Well let's let's dig in on that, because,
Speaker 1: I mean, the consensus coming into this year among economists
Speaker 1: was that we were going to see a slowdown, a
Speaker 1: cool down, not necessarily a contraction. What is the balance
Speaker 1: of views right now when you look across the landscape.
Speaker 1: What are economy economists saying about the possibility now of
Speaker 1: a recession in the coming years. I think then the
Speaker 1: clear consensus is that we're going to avoid a recession.
Speaker 1: But the when you when you ask people about about
Speaker 1: what are the risks around your so called baseline forecast,
Speaker 1: the risks that we're going to have a recession are
Speaker 1: are rising. A survey that Bloomberg did within the last
Speaker 1: couple of weeks of a broad range of economists, I
Speaker 1: want to say about more than fifty economists showed that,
Speaker 1: you know, they expected a thirty percent chance of a
Speaker 1: recession within the next year. But that was up from like,
Speaker 1: uh fifteen percent of those uh thirty That was up
Speaker 1: from fifteen percent, say at the beginning of the year.
Speaker 1: So the consensus is still we're you know, we're going
Speaker 1: to avoid a recession, but the trends are not in
Speaker 1: the right direction. The number of people that the the
Speaker 1: risks that people assigned to the possibility recession arising, and
Speaker 1: actually growth forecasts are coming down. Bank of America today
Speaker 1: cut its growth forecast for the fourth quarter of next
Speaker 1: year too under a half percent, which is pretty riouslee
Speaker 1: close to zero or negative. So Rich, just in the
Speaker 1: last thirty seconds that we have with you very briefly,
Speaker 1: um Cane. You know, it's it's interesting because it's like
Speaker 1: we think about this from the perspective of FETE officials,
Speaker 1: when you think about it from the perspective of of people,
Speaker 1: but uh, what happens when people pull back because they're
Speaker 1: concerned about spending, Like it becomes self fulfilling in just
Speaker 1: fifteen seconds. Yeah, I mean that that that confidences is
Speaker 1: a key, key key keeping here and if confidence breaks
Speaker 1: and the economy will probably go into recession. It's just
Speaker 1: like you talked about yesterday, Katie with the self fulfilling properity,
Speaker 1: Rich Miller, this is a great piece. Check it out
Speaker 1: on the Bloomberg terminal. Riches economics reporter for Bloomberg News,
Speaker 1: joining us from our d C bureau. Rich, thanks so much.
Speaker 1: You're listening to Bloomberg Business Week on Bloomberg Radio. You're
Speaker 1: listening to Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. Well, the Port
Speaker 1: of Long Beach moved nine point three eight million containers
Speaker 1: in one that's set a record. Then came a record January,
Speaker 1: then came a record February, then came a record March,
Speaker 1: and then came a record April. What's the rest of
Speaker 1: the year looked like, especially as China lifts lockdowns. Well,
Speaker 1: Mario Cordero is the executive director at the Port of
Speaker 1: Long Beach. He joins us on the phone from Long Beach, California. Mario,
Speaker 1: how are you, How are you? Thank you? Thank you
Speaker 1: for the Yeah, it's it's really good to have you
Speaker 1: with us. So, so what does what is May looking like?
Speaker 1: And are we going to be seeing year over year
Speaker 1: records every month this year? Well, we're certainly seeing an
Speaker 1: uptick in terms of the cargo growth here at the
Speaker 1: prolonge that you've reference. We've had a record April and
Speaker 1: for that matter, for the first four months record numbers.
Speaker 1: As to what the rest of the year it looks like,
Speaker 1: I think in the next couple of months we're going
Speaker 1: to continue put an uptick, given that we're entering a
Speaker 1: peak season which ordinarily starts around July, and by that
Speaker 1: I mean the cargo that comes in preparation for the
Speaker 1: fall holiday season. And then as to the last quarter
Speaker 1: of the year, I think that remains to be seen,
Speaker 1: but definitely because of the lockdown and slowed down that
Speaker 1: we've seen in China, that is the zero COVID policy
Speaker 1: that they've implemented there. I think we're gonna have a
Speaker 1: domino effect once China ramps up, and you're gonna see
Speaker 1: that cargo coming again in some kind of a searge. Well,
Speaker 1: let's talk about the domino effect. You know, how are
Speaker 1: how is the Port of Long Beach going to try
Speaker 1: to prevent the congestion that we saw in one as
Speaker 1: we entered this peak season. What a good news is
Speaker 1: a result of the engagement of the White House, more
Speaker 1: specifically the White House Envoy, we've had for several months
Speaker 1: weekly calls for two or three times a week to
Speaker 1: address the various congestion issues. So I can represent to
Speaker 1: you that there's a full court press to address some
Speaker 1: of the issues that we're at the more serious level
Speaker 1: in the fall. And on one very positive metric, you know,
Speaker 1: in January this year, we had a hundred nine vessels
Speaker 1: off the coast. That number now is around thirty two.
Speaker 1: So I think, well, we're still gonna have some challenges.
Speaker 1: As you have probably know, every gate, every major gate
Speaker 1: with United States have the same challenge is given the
Speaker 1: import search here and the issues involving the disruption of
Speaker 1: global supply chain. However, I believe we're going to be
Speaker 1: in a better position to address some of the issues
Speaker 1: that really surfaced at a very high level a year ago. Maria,
Speaker 1: what about when it comes to labor, because last week
Speaker 1: saw the start of crucial labor talks between the dock
Speaker 1: worker union and employers, but with both parties saying that
Speaker 1: they expect cargo to keep moving until an agreement as
Speaker 1: which reach, do just give us an indication of how
Speaker 1: these talks are going well. As you may know, I'm
Speaker 1: not privy to the talks that I'm not in the room. However, uh,
Speaker 1: in my view, given h the engagement with the parties
Speaker 1: throughout this process of stakeholder engagement prior to the negotiations,
Speaker 1: I'm optimistic that the parties will reach their differences or
Speaker 1: resolved differences in the reasonable period of time. I mean,
Speaker 1: the fact of the matter is that here at this
Speaker 1: port complex, the largest in the nation that is between
Speaker 1: Pearl Long Beach and Pearl Los Angeles, we moved an
Speaker 1: excess of twenty million containers. So and large part is
Speaker 1: because of the productivity that labor has had. So I
Speaker 1: don't expect any slowdown with regard to the productivity on
Speaker 1: the part of labor. Well, can you talk about what
Speaker 1: contingencies you have in place to prevent that slowdown, I mean,
Speaker 1: shoulder an agreement not be reached. Well, I think the
Speaker 1: good news is what we've been able to do during
Speaker 1: this crisis. As one example, extended gate hours, you know,
Speaker 1: to keep the fluidity of the cargo moving. You know,
Speaker 1: some of these terminals have a weekend hours. Our terminal
Speaker 1: t t I, we have a seven pilot project, uh
Speaker 1: and of course the same on the part of Los Angeles.
Speaker 1: So I think we have implemented measures to again make
Speaker 1: sure that we keep some fluidity in the movement of cargo.
Speaker 1: So and with that, we've also identified land in terms
Speaker 1: of at the Acrede where this card was being moved
Speaker 1: off the terminals. So again I I don't expect to
Speaker 1: slow down by labor, and I think for us we
Speaker 1: are certainly better prepared to address any type of scenaria,
Speaker 1: and maybe we were a year ago. So I think
Speaker 1: that's the good news in terms of what we're seeing
Speaker 1: addressing all the issues relevant to the movement of cargo here. Hey, Mario,
Speaker 1: We've talked to CEOs at some companies over the last
Speaker 1: few months, and they've told us that one of the
Speaker 1: ways they've dealt with poor congestion at the ports of
Speaker 1: Los Angeles and Long Beach is to actually go and
Speaker 1: use other ports uh north of you, and then also
Speaker 1: completely other other ports on the other side of the country.
Speaker 1: What are you doing to avoid losing market share? Well,
Speaker 1: I think this has been an ongoing dynamic for several years,
Speaker 1: that is the loss of incremental market share here at
Speaker 1: the West coast, more specifically at the largest nation, largest
Speaker 1: port of conflict. Now you know other gateways be a
Speaker 1: New York to Jersey, Savannah, Charleston, Houston, They've all done
Speaker 1: a great job in uplifting their respective infrastructure. So certainly
Speaker 1: we are very concussant that shippers have a choice. On
Speaker 1: the other hand, I think that this gateway here is
Speaker 1: the most is the gateway most approximate the most important
Speaker 1: trade reason to this country to the USA, which is Asia.
Speaker 1: And at the end of the day, we could move
Speaker 1: that container to Chicago to the Midwest faster than any
Speaker 1: direct service to the go for to the East. That
Speaker 1: dynamic will continue. I think our partnership with the railroads
Speaker 1: and the substitut discussions when we're having with them to
Speaker 1: make sure we keep competitive well well again in my opinion,
Speaker 1: uh remain we will remain competitive. Now again, I want
Speaker 1: to say one thing that if you look at these
Speaker 1: other gateways, I mean just in the news this week,
Speaker 1: it's very briefly ten seconds go ahead, and then news
Speaker 1: this week the congestion is happening in New York and
Speaker 1: New Jersey. So this is a dynamic every major gateways.
Speaker 1: Addressing Mario Cordero, executive director at the Port of Long Beach,
Speaker 1: This is Bloomberg Business Week with Carol Masser and Bloomberg
Speaker 1: Quick Takes Tim Stenovic on Bloomberg Radio. Well. According to
Speaker 1: the World Health Organization, the coronavirus pandemic has directly and
Speaker 1: indirectly killed nearly fifteen million people around the world. So
Speaker 1: how do we prevent the next pandemic? It's the question
Speaker 1: of a new book by Brian Bremner, Global Business Executive
Speaker 1: Editor here at Bloomberg News. He argues that it hinges
Speaker 1: on better understanding the billions of tiny pathogens circulating in nature.
Speaker 1: Brian Bremner is Global Business Executive Editor. He joins us
Speaker 1: on the phone from London. Joel Weber is the editor
Speaker 1: at bloom of Bloomberg business Week. He joins us on
Speaker 1: the access line from Brooklyn. This story is featured in
Speaker 1: the new issue of Business Week magazine. It's available on newsstands,
Speaker 1: on the Bloomberg terminal, and at Bloomberg dot com slash
Speaker 1: business Week. So, Joel, why are why are these teeny
Speaker 1: tiny invisible things so crucial to understand? Yeah, they're not invisible.
Speaker 1: You just gotta go super super small invisible. To me,
Speaker 1: it's the naked eye right there, you go? Right? Ok. So,
Speaker 1: so the microbe is sort of the thing that that
Speaker 1: Brian and went went long on here. And in addition
Speaker 1: to this remarks in the magazine, it's subject of his book,
Speaker 1: Man Versus Microbe. If you're a close watcher of Business Week,
Speaker 1: you may remember those words because in the very very
Speaker 1: very early days of the pandemic, right as we started
Speaker 1: to appreciate how big of a story this was gonna be, Uh,
Speaker 1: Brian and I talked and and he spilled up what
Speaker 1: became a very early cover story for us with the
Speaker 1: similar line Man versus microbe and as the pandemic went along,
Speaker 1: and Brian helped oversee so much of Bloomberg News is
Speaker 1: amazing coverage. Um. He got in urge to to pursue
Speaker 1: it as a book. And what I find fascinating about
Speaker 1: this is really how future orientated this idea is. Um.
Speaker 1: We're talking about virus. Obviously when we talk about um uh,
Speaker 1: covid um virus is one of many different microbes there there,
Speaker 1: and they are out there. We we've and our understanding
Speaker 1: of microbes is so limited. But and that's kind of
Speaker 1: where his reporting goes. UM and Al turn it up
Speaker 1: to him, Brian, what we are making progress uh, scientifically
Speaker 1: on this front um almost it feels now like probably
Speaker 1: daily right, But where where could things go? Well, it's
Speaker 1: it's a really interesting time because we're kind of in
Speaker 1: the third year of the pandemic. But the COVID pandemic
Speaker 1: is coincided with kind of a big transformation in biology.
Speaker 1: It's you know, we're now applying technologies like AI, big
Speaker 1: data analytics, automation and Crisper Genie editing technology. So we're
Speaker 1: now at a point where we can redesign the source
Speaker 1: code for for microbes and a lot of biological systems.
Speaker 1: And the reason that's important in the context of how
Speaker 1: do we get better at pandemic management is that this
Speaker 1: this crisis has taught us that if you let any
Speaker 1: kind of pathogen scale up into population centers, it's really
Speaker 1: game over. And this this pandemic are our battle with
Speaker 1: the with the virus really kind of ended in in
Speaker 1: March of when the hotspots around the world, you know,
Speaker 1: took off. And the reason is is that when you
Speaker 1: get to a certain scale, we tend to, you know,
Speaker 1: experience social disorder and we're on our back legs and
Speaker 1: we have to kind of make very very tough choices
Speaker 1: between saving lives and letting our economies collapse. And we
Speaker 1: don't want to be in that position, so we've tried.
Speaker 1: I think the answer if you talk to people who
Speaker 1: are who are devoting their careers to this, is that
Speaker 1: we've got to take this battle to the molecular level,
Speaker 1: and that means building a biosurveillance system that allows us
Speaker 1: to kind of track these pathogens really early when they're
Speaker 1: kind of circular circulating around nature and in animal communities,
Speaker 1: and then try to disrupt them or at least manage
Speaker 1: the you know, the outbreaks much earlier in the process
Speaker 1: before you kind of have that societal impact. Well, Brian,
Speaker 1: the challenge there is, you write in this excerpt of
Speaker 1: your new book Man Versus Microbe, what will it take
Speaker 1: to win, is that as humans were not really wired
Speaker 1: to react to risks that that we can't see or
Speaker 1: feel in the here and now. So, so how do
Speaker 1: we change that wiring? Well, it's difficult because you know,
Speaker 1: you're right, I mean, we're just you know, are The
Speaker 1: way we evolved was just to see a clear and
Speaker 1: present danger threats, you know, the snake slithering through the grass,
Speaker 1: or the you know, the car that jumps the media
Speaker 1: and and oncoming traffic and things like that. Biological events
Speaker 1: are slow moving, they're infrequent, and what it's what's happened
Speaker 1: if you look at the history of of infectious disease outbreaks,
Speaker 1: is that we get caught in this pattern of you know, panicking,
Speaker 1: freaking out, responding, rushing, you know, healthcare responses, and then
Speaker 1: when the crisis you know, passes, we kind of moved
Speaker 1: back into this position of studied in action. And the
Speaker 1: reason we can't do that any longer is that the
Speaker 1: cadence of these infectuous disease outbreaks this century have been increasing,
Speaker 1: and the reasons are for multi you know, fascinated. I mean,
Speaker 1: one big one is that humanity is just kind of
Speaker 1: encroaching on natural habitats. As we know, our mega cities
Speaker 1: take off in our industry, which is livestock intensive, keeps
Speaker 1: you know, expanding. So again we need to use our
Speaker 1: best technologies and build a surveillance system, you know, at
Speaker 1: the microbe level. We kind of have to take the
Speaker 1: contest to them rather than letting them kind of run
Speaker 1: wild in our populations owners, and and we we end
Speaker 1: up with these terrible situations where you know, Um, Brian,
Speaker 1: I'm I'm curious. Um uh. Some some buzzwords, uh have
Speaker 1: cameos in the excerpt, Um, but I'm really genuinely curious
Speaker 1: about how AI factors into this because what you're talking
Speaker 1: about here, the data sets are are obviously enormous. UM,
Speaker 1: and how is AI playing out in terms of how
Speaker 1: we could potentially meet meet the challenge that the microbe
Speaker 1: is presented. Yeah, when you talk to people in the
Speaker 1: worlds of biology and computer science, they're very excited about
Speaker 1: the possible applications of of AI and drug discovery. You know,
Speaker 1: just like mathematics was a very powerful descriptive language for
Speaker 1: physics less century. A lot of people think AI is
Speaker 1: going to help us decode the complexity of biology. And
Speaker 1: why is that, Well, so much of biology is becoming digital.
Speaker 1: You know, we're now out building these pretty big bio banks.
Speaker 1: When people you know, genetically sequence of microbe or a
Speaker 1: cell or complex of cells, that all gets stored away
Speaker 1: in databases that AI programs can kind of rifle through.
Speaker 1: And you know, one of the most dramatic examples of
Speaker 1: that was just happened a few years ago at m
Speaker 1: I T. We're synthetic biologist James Collins and his team
Speaker 1: used an AI program to rifle through like a hundred
Speaker 1: million chemical compounds. Gave them some instructions about what kind
Speaker 1: of antibiotic they might be interested in, and the program
Speaker 1: found it, and they found a structurally unique uh antibody
Speaker 1: antibiotic that they nicknamed Heels, you know, the creepy computer
Speaker 1: from two thousand and one. Brian, We're gonna have to
Speaker 1: leave it there just very quickly five seconds. Optimistic or
Speaker 1: pessimistic after writing this book, I'm optimistic optimistic there it is.
Speaker 1: Brian Bramer Global Business executive editor his new book out
Speaker 1: Man Versus Microbe What Will It Take to Win? Also
Speaker 1: joined by Joe Webber, the editor of Bloomberg Business Week.
Speaker 1: This is Bloomberg. You're listening to Bloomberg Business Week with
Speaker 1: Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well,
Speaker 1: bitcoin is down nearly from its highs back in November.
Speaker 1: Terry us D and Luna have collapsed. We've covered that
Speaker 1: closely here over the last two weeks. What's it looking
Speaker 1: like when it comes to crypto at least in venture capital?
Speaker 1: For that, we turned to Rob Frasca, managing partner at
Speaker 1: Cosmo Ventures. It's a venture capital fund. It's tokenized to
Speaker 1: invest in early stage blockchain projects and opportunities. Rob, how
Speaker 1: are you. I'm doing great? How are you? We're doing well?
Speaker 1: I mean, you know, it is a bear market, but
Speaker 1: it is Friday. It is Friday, so yes, there's a
Speaker 1: silver lining to everything right arm this weekend? We are. Well,
Speaker 1: you're somebody who's seen You're somebody who's seen quite a
Speaker 1: few market cycles, and I'm wondering how you're viewing this
Speaker 1: specifically right now in your world, not in the world
Speaker 1: of public equities, but in the in the world of blockchain. Yeah.
Speaker 1: So I'm an early dot com guy. I get a
Speaker 1: budget companies through the whole kind of dot com life cycle.
Speaker 1: H took one public, took another one um and sold it. Uh.
Speaker 1: And so I you know, when I look at what's
Speaker 1: happening here, it's it's very similar. You know, tech grows exponentially,
Speaker 1: and generally what winds up happening in tech is there's
Speaker 1: a lot of excitement. Uh. And there's there and and
Speaker 1: that excitement of the promise of a new technology, people
Speaker 1: jump in and then you kind of get a little
Speaker 1: bit of over exuberance, uh, you know around that tech,
Speaker 1: and it tends to go a little bit beyond what
Speaker 1: it's promises at that moment. And you know, uh, you
Speaker 1: can't get caught up in kind of the short term volatility.
Speaker 1: If you really believe in a new technology, you really
Speaker 1: believe in what the capabilities are and the value creation
Speaker 1: it's going to be, Uh, then you've got to take
Speaker 1: a longer term focus. So I think that, you know,
Speaker 1: I always we invest in blockchain. We believe that blockchain
Speaker 1: is really I actually think it's bigger than the Internet. Itself.
Speaker 1: I think it's the single about Yeah, I had a single.
Speaker 1: Uh well, you know, when you think about the early
Speaker 1: days of the Internet, right, what was it all about.
Speaker 1: It was all about kind of peer to peer content, right,
Speaker 1: all of a sudden, anybody could create a content and
Speaker 1: publish it. And now we've got a world where everybody's
Speaker 1: a content creator, right, And and I did a company
Speaker 1: in that in that space. And then you think about
Speaker 1: the second phase of the Internet, it was kind of
Speaker 1: the decentralization or the peer to peer of communication. And
Speaker 1: then kind of the third phase was the decentralization of commerce.
Speaker 1: Now anybody can sell anything to anybody. And the one
Speaker 1: the one thing in our world that's still kind of
Speaker 1: centralized is is trust. Right. We use banks, we use brokers,
Speaker 1: Our entire society is based on this kind of concept
Speaker 1: of centralized trust, and and and and and it's it's
Speaker 1: a problem when you kind of connect those central institutions
Speaker 1: of trust to a network world like the Internet, right,
Speaker 1: become kind of hacker targets. Right. So what blockchain does
Speaker 1: is it kind of solves that problem. It decentralizes trust.
Speaker 1: And so all of a sudden, we're kind of creating
Speaker 1: this whole new peer to peer financial layer, and the
Speaker 1: ramifications of that are just massive. They're just absolutely massive.
Speaker 1: Cap Yeah, I was just gonna say, I mean, the
Speaker 1: pitch I here for things like Web three point oh,
Speaker 1: is that it's going to combine the blockchain and the Internet.
Speaker 1: That basically you're going to put the Internet on the blockchain.
Speaker 1: Do you, I mean, is that your view of it
Speaker 1: as well? Are you investing along that thesis? Absolutely along
Speaker 1: that thesis. We're all in on this, um, you know. I,
Speaker 1: like I said, I'm a dot com guy and always
Speaker 1: tell my partners, I said, man, we've seen this movie
Speaker 1: before several times. We've been in this movie as entrepreneurs,
Speaker 1: and we we sort of know how it ends. Uh
Speaker 1: and and so I do believe that I think that
Speaker 1: what web three really is is the promise of the
Speaker 1: decentralization of everything. You know, the whole n f T craze. Right,
Speaker 1: everybody's talking about n f T S and they talk
Speaker 1: about these pictures and and all that stuff, right, you know, JPEGs,
Speaker 1: It's like it's like digital Beatie dats right for me.
Speaker 1: For me, the reason why I'm excited about n f
Speaker 1: T S is is really what it's about is the
Speaker 1: decentralization of digital rights. It's kind of like royalty management.
Speaker 1: It's digital rights management, and that has profound effects on society. Right,
Speaker 1: So it's not so much about the artwork itself. It's
Speaker 1: the fact that now, all of a sudden, I can
Speaker 1: use technology to kind of manage those royalties. So for
Speaker 1: for our perspective, we're all in. We invest in this space,
Speaker 1: and um, it's hard not to get caught up in
Speaker 1: this kind of short term volatility. Right when you see
Speaker 1: what's going on, You're like, holy cow, Right, I was up, Rob.
Speaker 1: We only have a minute left, so I want to
Speaker 1: make sure to get this in sure. We talked earlier
Speaker 1: this week toils That Chapman. Her big take story here
Speaker 1: at Bloomberg was about it belt the belt tightening that
Speaker 1: we're seeing in Silicon Valley. You're not in Silicon Valley,
Speaker 1: You're in Boston, but you do have more than twenty
Speaker 1: portfolio companies. I'm wondering what you're telling them about this
Speaker 1: decline that we're seeing right now. What you are you
Speaker 1: telling them to hold off on hiring, to freeze hiring.
Speaker 1: What are you saying? Yeah, look, ultimately this is global, Uh,
Speaker 1: This is absolutely global. It's way beyond Silicon Valley. Uh,
Speaker 1: this is this is a total global phenomena. Anytime you
Speaker 1: have a down term in the market, you have to
Speaker 1: be prudent. You've got to tell the entrepreneurs that are
Speaker 1: running these businesses, you know, cash is king. Make sure
Speaker 1: you understand that you've got runaway and that you can deliver. Uh. So,
Speaker 1: you know, it would be irresponsible to not say that. However,
Speaker 1: I do believe that this is the early early inning
Speaker 1: of blockchain, and so I think there's a lot of
Speaker 1: room to grow here. Only ten percent of the world
Speaker 1: is really using us, which means there's nine of the
Speaker 1: world yet to come online, which means a lot of
Speaker 1: growth is still there. Um, So just deal with the
Speaker 1: short term volatility, but really you've got to look at
Speaker 1: the long term prospect of this. Rob Frasca, managing partner
Speaker 1: Cosmo Ventures, robbed this afternoon joining us on the phone
Speaker 1: from Boston. It's a tokenized venture capital fund that invest
Speaker 1: in early stage at blockchain startups. You're listening to Bloomberg
Speaker 1: Business Week on Bloomberg Radio. I'm brother journal Yeah, but
Speaker 1: you let me drive. Oh no, no, no, no no, honey, please,
Speaker 1: I'll do I want to drive? It's good question. This
Speaker 1: is the drive to the close up on Bluebird Radio.
Speaker 1: Well stocks getting a bid as we drive to the clothes.
Speaker 1: We are just about ten minutes away from the clothes here.
Speaker 1: Office session lows. The SMP five hundred down three tenths
Speaker 1: of one percent, the Nasdaq Composit down eight tenths of
Speaker 1: one per cent. Let's get ready to it with Alan Zaffron,
Speaker 1: the founding partner and co CEO at I e Q Capital,
Speaker 1: Alan joining us once again on the phone from Foster City, California. Alan,
Speaker 1: good to have you back with us. How are you?
Speaker 1: I'm doing great? Ten. Great to be on with you
Speaker 1: and Katie today. It's a good day to have you
Speaker 1: on because I'm curious about your take on on the
Speaker 1: economy and the markets. Is the sky falling temporarily? If falling? Um,
Speaker 1: I think the challenges We've got really bad sentiment in
Speaker 1: the market. But bad sentiment doesn't create a market bottom,
Speaker 1: and even lower valuations were now trading at value multiple
Speaker 1: below the average on the SMP five Learned Index if
Speaker 1: you believe current earnings estimates, but valuations don't create bottoms either.
Speaker 1: It creates a bottom in the market is when the
Speaker 1: spot finally the economy bottoms, or when the FED finally
Speaker 1: decides to go from tightening to loosening, and there's no
Speaker 1: evidence yet we're at either point, so we're funny. Spot
Speaker 1: sentiment is terrible right now, so we're we're ready for
Speaker 1: a bear market rally, but it's still probably a bear
Speaker 1: market rally until such time as there's evidence the economy
Speaker 1: that's very close to a bottom or the Fed is
Speaker 1: ready to go from tightening to go back to a
Speaker 1: more looser policy, and that that could be a while.
Speaker 1: That could be a while, given where inflation is alan
Speaker 1: So I'm wondering which one happens first, And what's the
Speaker 1: sign that that you'll see that the that the economy
Speaker 1: has at a bottom. Well, if you're looking for the
Speaker 1: economy bottom is going to take a lot because ultimately,
Speaker 1: when you're getting towards the bottom of economical like the
Speaker 1: leading indicators and what you're I want to see more
Speaker 1: far from new orders improving, relative inventories being built up,
Speaker 1: or you're gonna see earning revision going up on companies
Speaker 1: not down, or you're gonna see credit spreads narrowing, or
Speaker 1: you're gonna see long term body fields rising because they've
Speaker 1: been falling over the last couple of weeks in a
Speaker 1: slowdown the economy that we are in the midst of,
Speaker 1: or about to see it's going to take a well
Speaker 1: to see that again, or you're eventually going to see, um,
Speaker 1: other evidence of economic activity. We have to go through
Speaker 1: this economic slowdown, which stock prices have already front and run.
Speaker 1: Stock prices have gone down. It company hasn't really slowed
Speaker 1: down yet, and it's about to, isn't. It's interesting to
Speaker 1: hear you say that you know that's already priced in stocks.
Speaker 1: I mean when you look across other asset classes, do
Speaker 1: you think that it's also priced when he looks at
Speaker 1: things like treasuries, when you look at the credit markets, Um,
Speaker 1: you know, the reality is we're priced in. If this
Speaker 1: is your run of the mill correction. On average, if
Speaker 1: you look at the set of corrections that have taken
Speaker 1: place since nineteen eighty, the average decline to the SMPS
Speaker 1: about seventeen percent. However, talking about a full on recession
Speaker 1: driven bear market, the average client peaked the valley. So
Speaker 1: the problem what's going right now is the dispersion of
Speaker 1: estimates among analysts and alster about what is the earnings
Speaker 1: outlook is incredibly high. It's you're an all time record
Speaker 1: high because there's so much uncertainty as to what impacts
Speaker 1: the inflation that we've seen will have a profit margins,
Speaker 1: and now why we're getting these rampant movements up and down.
Speaker 1: It's also what makes for bear market rallies. We've already
Speaker 1: seen two significant rallies, while following history is in a guide.
Speaker 1: We'll see several more before we get through all this volatility.
Speaker 1: And so I think it's a little different. Two years
Speaker 1: ago we have the most rapid decline in Musa to
Speaker 1: another twenty following also the most rapid recovery of a
Speaker 1: bear market. Because he has a federal government and the
Speaker 1: subtle reserved story, a massive amount of money in the economy,
Speaker 1: it won't happen this time. And so as much as
Speaker 1: I'd like to hope that we were to happen, I
Speaker 1: think what's going to happen this time. This is a
Speaker 1: recalibration of where valuation should be. But it's going to
Speaker 1: take longer to get back up to where we were
Speaker 1: because he can't count on government and subtle reserved stimulus
Speaker 1: to proctice economy up as quickly as it did from
Speaker 1: two years ago, and people like me suffer from recency memory.
Speaker 1: I remember what it was like two years ago and
Speaker 1: think it's going to pop right back up. It's going
Speaker 1: to take a while this time. So when people are
Speaker 1: not going to get that stimulus, So when should people
Speaker 1: If if people have cash to deploy, when should they
Speaker 1: start deploying that cash? Well, I think I think you
Speaker 1: have to begin to be a buyer anytime you're at
Speaker 1: a long term investor, when you're down on the SMP
Speaker 1: and close down on the nasdack, if you're taking a
Speaker 1: long term you, I think it's landish is not to
Speaker 1: begin to dollar cop an average into the weakness. The
Speaker 1: question is how bad could it get? Just to give
Speaker 1: you give you a sense. Okay, we're trading right now
Speaker 1: at about sixteen and a half times current conventional estimates
Speaker 1: for two thousand twenties for US, we're current estimates are
Speaker 1: around now twelve months board. If you see the market
Speaker 1: should trade, it's at its average multiple last twenty five years.
Speaker 1: We're already at fair value. The problem is if you
Speaker 1: think the earnings drop and you want to lower that
Speaker 1: multiple to where multiples trade in recessions, and there's a
Speaker 1: wide dispersion. Call it anywhere from believing or not as
Speaker 1: low as eight as much as twenty times earnings. Let's
Speaker 1: call it fourteen fifteen times lower earnings. I can't make
Speaker 1: an argument you're gonna get down to about thirty s ANDP.
Speaker 1: That's another percent down from here that would get you
Speaker 1: down top the bottom, which conveniently is exactly what's in
Speaker 1: March two. Uh. If you believe that to be true,
Speaker 1: that's a pretty bad case. You're really hitting earnings by
Speaker 1: about ten percent from already here, which would mean inflation
Speaker 1: stays around, probably as deeply as most bears would believe.
Speaker 1: I think you don't know if it's going to get
Speaker 1: that bad. And markets are ripe for rallies at any
Speaker 1: moment in time, and if you miss the rally, you
Speaker 1: know you missed those handful of days when we finally
Speaker 1: snapped back, and you've missed the move. You get to
Speaker 1: start dollar cost averaging. But depending on how barish you are,
Speaker 1: you're dollar cost averaging slowly down either under on the INDO.
Speaker 1: If it gets out there's no resturants, it will possible
Speaker 1: your bottom here. But if you really bearish, you start
Speaker 1: to bear a bitch and new ability to go slowly
Speaker 1: because if you want to make a bear case, you know,
Speaker 1: go down to fourteen times reduced learnings and you're down
Speaker 1: like two D. And so if everyone wants to know
Speaker 1: how deep is this going to be? How long can it? Laughs?
Speaker 1: No one knows because nobody at this moment can understand
Speaker 1: the impact of China shutting down its economy due to
Speaker 1: COVID concerns screwing up the supply chain and the implications
Speaker 1: for inflation, which are implications for profits. That certainty is
Speaker 1: the problem to your point that you know, no one
Speaker 1: can really know how deep this is going to go.
Speaker 1: I have a sort of philosophical question. I mean, is
Speaker 1: there any way to distinguish at this moment a bear
Speaker 1: market rally from a true rally or is that just
Speaker 1: impossible to know without hindsight? I mean, it's largely the ladder, um,
Speaker 1: it's largely the ladder. It's usually what happens. Is the
Speaker 1: problem with that is you're trying to forecast future fundamentals
Speaker 1: and the speed of which they show up, and you
Speaker 1: can't really do so. So I think it's impossible to
Speaker 1: discern one from the other. All right, Alan, we only
Speaker 1: got a minute left, but just briefly give us your
Speaker 1: ideas of where you're deploying capital right now, because I
Speaker 1: know that you see that you say that cash and
Speaker 1: traditional fixed income are the least attractive asset classes. So yes, So,
Speaker 1: first of all, if you're an inflationary environment, I think
Speaker 1: still owning short duration income generating inflation sensitive assets like
Speaker 1: rates or even private rates or private senior secured floating
Speaker 1: rate lending makes tremendous sense because their inflation sensitive assets
Speaker 1: that will do well in an inflationary environment. Secondly, if
Speaker 1: you're looking at stocks, avoid the high beta stocks, high
Speaker 1: the deep cyclical stocks, because if the economy is going
Speaker 1: to weaken, the weakness and the earnings are gonna be
Speaker 1: most rampant in those cyclical and highly leveraged names. Look
Speaker 1: for stocks that have high operating margins, high interest rate coverages,
Speaker 1: high returns on assets, and relatively consistent revenue streams with
Speaker 1: low volatility, high quality companies at this point in the cycle.
Speaker 1: Alan Zafron, founding partner and co CEO and I EQ Capital,
Speaker 1: Allen joining us once again on the phone from Foster City, California.
Speaker 1: Thanks for listening to Bloomberg Business Week, download the podcast
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