Speaker 1: This is Bloomberg Business Wait inside from the reporters and
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Speaker 1: global business finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: All Right, everybody, China you know has long been at
Speaker 2: the heart of Apple supply chain, about eighty percent of
Speaker 2: the company's manufacturing partners holding a footprint in that country. Now,
Speaker 2: as US and China Relations Hour, which is something we're
Speaker 2: going to talk about a little bit later on, new
Speaker 2: production sites are changing the way Apple's devices are made.
Speaker 2: And this is according to today's Bloomberg Big Take, this
Speaker 2: is a story deemed a priority by the Bloomberg editorial team.
Speaker 2: It's a must read, basically.
Speaker 3: Jess Meantime, speaking of Apple devices, the company is working
Speaker 3: on a revamped iPad pro for next year. This would
Speaker 3: be its first major overhaul in a half decade. Carol,
Speaker 3: it can't come soon enough after sales slipped to its
Speaker 3: lowest level since the cusp of the pandemic this past quarter.
Speaker 2: All right, there's a lot going on, so let's get
Speaker 2: to it. Today's Apple Round Up back with us as
Speaker 2: our own Mark German. He's chief technology correspondent here at
Speaker 2: Bloomberg News. As you know, he said, go do for
Speaker 2: all of us on everything to do with Apple. He
Speaker 2: joins us once again on Zoom from Los Angeles. Mark,
Speaker 2: great to have you back with us. We do want
Speaker 2: to start a big picture, if we may, about Apple's
Speaker 2: massive supply chain, so much of it's still in China,
Speaker 2: that seems to be changing, but very slowly. Give us
Speaker 2: a little perspective here.
Speaker 4: Yeah, Carol, thank you so much. I'm very happy to
Speaker 4: be back. So the Apple supply chain, the modern supply chain,
Speaker 4: i should say, set up about two decades go by
Speaker 4: Tim Cook. The idea was to build all the products
Speaker 4: through a company called fox Con in China, have the
Speaker 4: manufactured there at scale, at speed, with precision, and then
Speaker 4: shipped globally. Right. But over the last decade or so,
Speaker 4: we've seen some changes there. They've added additional manufacturing partners,
Speaker 4: companies like Quanta Computing, companies like Jabble, companies like Pegatron
Speaker 4: and Tata, and now you're seeing them retain their Chinese
Speaker 4: base of manufacturing. All those companies still build products for
Speaker 4: Apple in mainland China, but in terms of growth in
Speaker 4: terms of expansion of supply chain that's happening external to China.
Speaker 4: So you're seeing new sites in places like Thailand, India, Vietnam,
Speaker 4: and Malaysia, right those four countries, but with the majority
Speaker 4: share of that expansion happening particularly in India, and then
Speaker 4: Vietnam is a close second, Malaysia third, and Thailand fourth.
Speaker 3: So when you're looking at that expansion in those particular
Speaker 3: areas that you were just talking about, how does that
Speaker 3: translate financially for Apple?
Speaker 4: Well, India is a big example of how it translates financially.
Speaker 4: India and their Prime Minister, you know Modi there, they've
Speaker 4: implemented terif related rules and fines that if you produce
Speaker 4: products externally to India and then import them into the country,
Speaker 4: there's really high import taxes. So what Apple had to
Speaker 4: do from a financial perspective is build new sites in
Speaker 4: India to produce versions of the iPhone for sale to
Speaker 4: save on those taxes.
Speaker 2: Do other countries want Apple? I feel like it's a
Speaker 2: stupid question mark, but I mean I would assume everybody's
Speaker 2: buying to be like here, co produce manufacturer, you know here?
Speaker 2: Is that the case?
Speaker 4: I mean every country you can name up to the
Speaker 4: United States is throwing as many incentives at Apple and
Speaker 4: these other technology companies chip companies in order to get
Speaker 4: them to produce products in their respective countries and cities. Obviously,
Speaker 4: anytime Apple comes into your city, it's an economic you know,
Speaker 4: boom for the area. You're talking about much more employment,
Speaker 4: much more spending. So it is a positive and that's
Speaker 4: why those incentives exist. Now, speaking of the US, I
Speaker 4: will add you know, Apple doesn't do anything other than
Speaker 4: token manufacturing at a city in a small part in Austin,
Speaker 4: Texas for one mac. So I really count that as
Speaker 4: basically no production in the US and not being facetious.
Speaker 4: But what they will be doing is they will be
Speaker 4: working with TSMC to produce a very small number of
Speaker 4: chips at a plan in Arizona, starting some time at
Speaker 4: the tail end of next year.
Speaker 2: Well what I want to know though, is like I've
Speaker 2: bought an Apple product. My husband and I and I
Speaker 2: just I think over the years and we have been
Speaker 2: fascinating just kind of tracking it through the supply chain
Speaker 2: and knowing when it's on our shores on the West coast.
Speaker 2: I mean, it's just such an incredibly efficient supply chain,
Speaker 2: and I do wonder will that efficiency potentially change over time,
Speaker 2: and then will it also maybe cost me more for
Speaker 2: an Apple device.
Speaker 4: I think the answer is no on both. They've been
Speaker 4: shipping products from Vietnam and Malaysia and Thailand for a
Speaker 4: couple of years now, and there really hasn't been any
Speaker 4: hiccups that I think the consumer has noticed, either on
Speaker 4: a pricing perspective, but also on shipment times. If you
Speaker 4: think about the releases, where the timing really matters for
Speaker 4: when you receive the product. That's really when a new
Speaker 4: product goes on sale, particularly the iPhone, and the first
Speaker 4: round of iPhones are still shipped from China, so you're
Speaker 4: not going to see any hiccups there. In all likelihood,
Speaker 4: there have been some changes on pricing. There are going
Speaker 4: to be a few tweaks of pricing in some countries
Speaker 4: on the new iPhones being announced on September twelfth. They
Speaker 4: should also go in sale September twenty second, by the way,
Speaker 4: but I don't think those are production related. I think
Speaker 4: those are parts related, and obviously inflation and the current
Speaker 4: state of the economy globally, so I don't I wouldn't
Speaker 4: put two and two together personally, do you think.
Speaker 3: This would have happened without the US China tensions that
Speaker 3: are currently going on.
Speaker 4: I think that what really got the ball rolling on
Speaker 4: opening new sites outside of China was the Donald Trump
Speaker 4: tariffs that were a key a key issue in twenty
Speaker 4: seventeen to twenty nineteen, right. Those really scared Apple and
Speaker 4: made them start investigating how they can push some of
Speaker 4: that supply chain outside of China. Quite frankly, it shouldn't
Speaker 4: have taken Trump to get Apple to think outside of China,
Speaker 4: but that's what really did it, and I think that
Speaker 4: acceleration has been caused by those tensions. I think something
Speaker 4: that people don't talk about enough, to be honest with you,
Speaker 4: is TSMC and the impact of production there. So TSMC
Speaker 4: they manufacture all of Apple's modern chips that go into
Speaker 4: all their products. They're based in Taiwan, so you're seeing
Speaker 4: a lot of production happening there. I'm no geopolitical expert,
Speaker 4: but I think you know, Taiwan is probably a major
Speaker 4: risk point for Apple, and if the Taiwan factory goes down,
Speaker 4: I mean, I'm told it can take even up to
Speaker 4: north of the year for Apple and TSMC to build
Speaker 4: up a site at that same capacity elsewhere.
Speaker 2: I love that you went there, because did you see
Speaker 2: the story on the Bloomberg about the Fox Colon Technology
Speaker 2: Group founder. I guess he's running for Ago and basically said,
Speaker 2: you know that he's safe because he because of how
Speaker 2: much did they play into Apple supply chain, and basically
Speaker 2: also how much I guess Chinese either pension fund are
Speaker 2: so on and so forth invest in it that Beijing
Speaker 2: isn't going to want to play around with them. And
Speaker 2: I wonder if that's the same story for TSMC well.
Speaker 4: I think that's the same logic that applies to Apple.
Speaker 4: I think it's the same logic that applies to CSMC.
Speaker 4: But it's only logical until it's not until something changes
Speaker 4: in the world and the global economy and these geopolitical tensions,
Speaker 4: then it's fine. But when something changes, then it's a
Speaker 4: nightmare and it's the end of the world for them.
Speaker 4: And the question is is there that plan be in
Speaker 4: place in order to mitigate that damage. And I think
Speaker 4: what Apple's trying to do to mitigate that is opening
Speaker 4: up these production lines outside of China, and I think
Speaker 4: if you look ten years down the road, it's very
Speaker 4: possible that the majority of the Apple supply chain will
Speaker 4: be outside of China, but it's going to take a
Speaker 4: long time. It's been moving very slow. It's been more
Speaker 4: of an augmentation outside of China rather than a replacement
Speaker 4: at this point.
Speaker 2: Great perspective.
Speaker 3: I want to switch gears real quickly and ask you
Speaker 3: about the iPad pro. What do we know so far
Speaker 3: about what could be coming for next year?
Speaker 4: So it'll be a redesigned ipet pro next year with
Speaker 4: an M three chip. Speaking of TSMC, that's going to
Speaker 4: be their next generation three and nanimeter processor designed by Apple.
Speaker 4: You're going to see OLED displays. So now the iPad
Speaker 4: will be using the same screen technology as the iPhone.
Speaker 4: Remember when Apple shifted to old in twenty seventeen with
Speaker 4: the iPhone ten. You're gonna get that same new screen technology.
Speaker 4: It looks so much better these days. Everyone's used to
Speaker 4: old on their phone, so they don't really know the difference.
Speaker 4: But next time you see an iPad from today, hold
Speaker 4: up an old iPhone next to an lcdipad and you'll
Speaker 4: see the difference. You're also going to see that new
Speaker 4: design I mentioned improved cameras slightly larger display on the
Speaker 4: top end model. So I think it's going to overall
Speaker 4: be a very compelling new product. First redesign to the
Speaker 4: iPad pro since the tail end of twenty eighteen, as.
Speaker 2: Well, Magic keyboard twenty seconds, imagineboard.
Speaker 4: That's right, I forgot about that new function row at
Speaker 4: the top, larger trackpad, make it a little bit more laptop.
Speaker 4: Likely costs, yeah, probably between three hundred and fifty and
Speaker 4: four hundred dollars.
Speaker 2: Okay, it's an important device to Apple.
Speaker 5: Quickly.
Speaker 4: It used to be more important. Now it's sort of lagging,
Speaker 4: and it's really important for Apple to make it important again.
Speaker 4: I think they'll get it done.
Speaker 2: I say, we use our iPads still a lot, along
Speaker 2: with everything else Apple in our world. Mark German, thank
Speaker 2: you that big perspective. I think so important to understanding
Speaker 2: this company and just the world, and great to get
Speaker 2: an update on what's going on in terms of the
Speaker 2: iPad pro. Mark German a go to on all things Apple.
Speaker 2: We say it a million times because it's so true.
Speaker 2: He's chief technology correspond at Bloomberg News. Joining us on
Speaker 2: zoom from our La bureau.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch US
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Speaker 2: All right, everybody, another twenty four hours and another twenty
Speaker 2: four hour news cycle package news on China. This includes
Speaker 2: US Commerce Secretary Gena Ramondo saying today that the majority
Speaker 2: of US China trade has nothing to do with national
Speaker 2: security and that it's possible to promote and protect experts.
Speaker 2: At the same time, she commented on the exact framework
Speaker 2: to do so.
Speaker 6: We agree to establish a new Commercial Issues Working Group,
Speaker 6: a formal working group which will involve US and Chinese
Speaker 6: government officials and very importantly US.
Speaker 7: And Chinese commercial private sector representatives as we seek solutions
Speaker 7: on trade and investment issues and to advance US commercial
Speaker 7: interests in China.
Speaker 2: And that, of course is the US Commerce Secretary Gena Ramando,
Speaker 2: who has been meeting with Chinese official Many would ask,
Speaker 2: is it really possible to do bith to promote and
Speaker 2: protect experts At the same time, we have a great
Speaker 2: voice on this and excited to have back with us
Speaker 2: one that we have leaned on a lot in the
Speaker 2: past when it comes to US China relations, the intersection
Speaker 2: between geopolitics, policy, and the markets with US the Stefan Seelig.
Speaker 2: He's managing partner Bridge Park Advisors. He is a former
Speaker 2: Undersecretary of Commerce for International Trade at the US Department
Speaker 2: of Commerce. That was during President Obama's administration. He's once
Speaker 2: again with us on zoom from Long Island. Sefan, so
Speaker 2: good to have you back with us.
Speaker 5: How are you I'm great, Thank you, Carol. Great to
Speaker 5: hear your voice again.
Speaker 2: Well, same here. Tell us about what we heard from
Speaker 2: the Commerce secretary. Is it possible to do both promote
Speaker 2: and protect exports at the same time.
Speaker 5: Yeah, I mean, I think these clearly are two different
Speaker 5: tracks on the one hand. On the other hand, I
Speaker 5: think over the last number of years, those messages have
Speaker 5: become somewhat muddled, and the Chinese have interpreted a lot
Speaker 5: of the actions that have been taken both in the
Speaker 5: Biden and Trump administrations as actions that are meant to
Speaker 5: depress their development and the rise of China, as opposed
Speaker 5: to protecting our national security interests. And as the secretary said,
Speaker 5: they really are different things. And I think the value
Speaker 5: of this dialogue, which is really just re establishing what
Speaker 5: had been in place. And frankly, what I had led
Speaker 5: during my tenure is to is to foster relationships that
Speaker 5: will allow us to potentially make progress in what is
Speaker 5: a fiercely competitive relationship.
Speaker 2: Well, take us back, I mean take us back to
Speaker 2: your time during the Obama administration, the importance of the
Speaker 2: US commercial relationship with China. Rank it and how you
Speaker 2: all approached it then, and what you believe was how
Speaker 2: China ranked it as well? And is it very different today?
Speaker 5: Well, look, it has primacy in so many ways. We're
Speaker 5: talking about the two biggest economies in the world. The
Speaker 5: amount that we import and export to each other is
Speaker 5: very significant, with the exception of Mexico in Canada, there
Speaker 5: are no two more important relationships in Mexico and Canada
Speaker 5: is obviously because they are border states. When I was
Speaker 5: Under Secretary, I spend more time in China than any
Speaker 5: country by far, and I work to foster the relationship
Speaker 5: with my counterpart at the Ministry of Commerce to reflect
Speaker 5: that reality.
Speaker 2: But do they rank this relationship as important and do
Speaker 2: they still? You think today?
Speaker 5: For sure? And in many respects, I think they view
Speaker 5: it as more important because the number of issues that
Speaker 5: we're competing on are growing, but also the number of
Speaker 5: issues that we need to cooperate on are also growing.
Speaker 5: So as their economy grows, and as they look to
Speaker 5: establish themselves as a major player both in political, economic,
Speaker 5: and commercial spheres, you know, their ability to work effectively
Speaker 5: with the United States becomes only more important. And I
Speaker 5: think that's exacerbate right now, Carol, because frankly, you know,
Speaker 5: their economy is slowing, and they're facing a set of
Speaker 5: economic issues that we haven't seen or they haven't seen
Speaker 5: in decades.
Speaker 3: What is the biggest issue, because you laid out some
Speaker 3: of it just teasing it there, and when you're talking
Speaker 3: about the economy, but then there's the geo political issues,
Speaker 3: there's the financial markets. There's also when you think about
Speaker 3: the property concerns and how that's tied to the economy.
Speaker 3: Which is the most pressing issue at this point.
Speaker 5: Well, I mean, look from their perspective, they have a
Speaker 5: slowing economy. This year, it's going to grow it roughly,
Speaker 5: you know, four percent, which is, you know, far less
Speaker 5: than the double digit growth than they've had in the past.
Speaker 5: But I would say it's still you know, roughly two
Speaker 5: x what we're growing at as you point out, you know,
Speaker 5: they have a real estate crisis in the making country Garden,
Speaker 5: which is their largest developer, may default on their debt payments. China,
Speaker 5: Evergrand filed for Chapter eleven. Their exports are slumping for
Speaker 5: you know, all the reasons that we're talking about, which
Speaker 5: is our economies begin to fringe sure and the impact
Speaker 5: of sanctions on their economy. Exports alone are down fifteen
Speaker 5: percent year over year for them. They're facing rising unemployment,
Speaker 5: especially amongst young people, where some statistics suggest that more
Speaker 5: than one out of every five young people in China
Speaker 5: are now unemployed, which is going to have real risks
Speaker 5: to social stability in that country. They're seeing failing or
Speaker 5: slowing foreign investment in the country, The remendee is depreciating,
Speaker 5: and consumers are losing confidence, which is causing them to
Speaker 5: spend less money than they had in the past as
Speaker 5: they look to save. And so for all of those reasons,
Speaker 5: the Chinese economy is under real pressure, and I think
Speaker 5: as a result of that, it reminds them, and not
Speaker 5: just us, about how vital each we each are to
Speaker 5: each other in our success.
Speaker 2: Seven do you think you know? So, China's made it
Speaker 2: very clear that they don't want to be the manufacturer
Speaker 2: to the world, and they have definitely taken steps for that.
Speaker 2: We talked about this earlier in a segment about Apple
Speaker 2: slowly moving you know, iPhone production elsewhere, but it's still
Speaker 2: for the most part in China. But should we want
Speaker 2: China to be developing its domestic economy? Should we want
Speaker 2: it to be moving along from you know, kind of
Speaker 2: a very special emerging market to more of like a
Speaker 2: developed world and developed market. Should we want that?
Speaker 5: Well, you know, it's a two edge short, right, because
Speaker 5: you know, that competition that they're that development underscores makes
Speaker 5: them stronger in some ways, but it also makes us
Speaker 5: stronger because they're going to be buying more of our
Speaker 5: products and services, and they're going to have more money,
Speaker 5: you know, to spend in our economy through either foreign
Speaker 5: directive investment, intermediate goods, or otherwise. So it depends on
Speaker 5: if you think of them as a competitor but also
Speaker 5: as a customer, and they're both.
Speaker 3: So what do you think is the right strategy for
Speaker 3: the Biden administration to take towards China when they are
Speaker 3: economically vulnerable at this point?
Speaker 5: Well, look, I think what the Secretary said is extraordinarily
Speaker 5: important that it's about, you know, communication. The President said
Speaker 5: to the Secretary when before she left, that we need
Speaker 5: to communicate to avoid conflict. And I think in any
Speaker 5: in any situation where you have fierce competitors, you also
Speaker 5: need intense diplomacy. And the Secretary is a very capable
Speaker 5: commercial diplomat, and that's what she went over there and
Speaker 5: is over there doing now. And frankly, what hasn't happened
Speaker 5: over the last five years when there have been no
Speaker 5: face to face meetings between our commerce secretary or under
Speaker 5: secretaries and their counterparts in Stefan?
Speaker 2: What's more important the stress with or the tensions between
Speaker 2: China and Taiwan, and then how that relates to the
Speaker 2: rest of the world, or the relationship that President Ji
Speaker 2: has with President putin What should we spend more time
Speaker 2: on or it can be both.
Speaker 5: You know, I'm not sure I could ordinately rank them, Carol,
Speaker 5: but clearly China has different interests geopolitically and economically and
Speaker 5: commercially than we do. And you know what I've always
Speaker 5: said is, you know, hitting China over the head with
Speaker 5: a cudgel is not going to be an effective way
Speaker 5: to actually make progress, and what we need to do
Speaker 5: is to look for win win outcomes where there are
Speaker 5: things that advance our interests and advance their interests and
Speaker 5: their whole.
Speaker 2: Host boks sephan if I may, I'd love to talk
Speaker 2: to you a little bit about politics, because we were
Speaker 2: just talking a lot about the importance of that relationship
Speaker 2: between US and China. The Republican presidential hopefuls the debate
Speaker 2: last week talked a lot about China. There was a
Speaker 2: lot of pushback. Is that cause for concern when you
Speaker 2: see that? I know some of it is all just
Speaker 2: grandstanding and performance, but some of it is not.
Speaker 5: Yeah, I guess, Carol, you know it's really not just
Speaker 5: the Republicans. In fact, the only thing I can think
Speaker 5: of where the Republicans and Democrats seem to be agreeing
Speaker 5: is getting tough with China. And I think there's a
Speaker 5: little bit of a contest between them as who can
Speaker 5: appear to be tougher with China. And I don't think
Speaker 5: being tough is necessarily always being smart, and so, you know, frankly,
Speaker 5: I think the conversation that should be about what should
Speaker 5: we be doing to advance our interests as opposed to
Speaker 5: what should we be doing just to punish China.
Speaker 3: And is that a cause for concern at all?
Speaker 5: Well, for sure, especially just as I mentioned, you know,
Speaker 5: with China's economy being under pressure, I think the last
Speaker 5: thing we want to do is push them so hard
Speaker 5: that they lash out and take actions that would be
Speaker 5: adverse to us. And we get into this, you know,
Speaker 5: tit for tat because you know, as you've said, you know,
Speaker 5: these are the two biggest economies in the world, and
Speaker 5: we can punish each other plenty, and that doesn't really
Speaker 5: help us.
Speaker 2: Would you want to be back in the White House advising.
Speaker 5: Well, you know, look, I think it was it was
Speaker 5: an honor for me to you know, do that during
Speaker 5: the Obama administration, and I think, you know, to the
Speaker 5: extent that you know you are called to do that,
Speaker 5: I think it's a really hard thing to turn down
Speaker 5: for any of us that care about our country.
Speaker 3: When you're looking at some of the Republican candidates, who
Speaker 3: kind of stands out in your mind that when you're
Speaker 3: thinking about the US and China relations as far as
Speaker 3: what could be a potential viable candidate in that sort
Speaker 3: of realm, Well, I'm.
Speaker 5: Not sure that that's an easy answer. Jess, because as
Speaker 5: I've said, I think there's just a lot of a
Speaker 5: lot of piling on. And I also would say, is
Speaker 5: you know, what people say on the stage in the
Speaker 5: you know, primaries season is probably not necessarily going to
Speaker 5: directly inform their policies. You know, if they get into
Speaker 5: the they get into the Oval. You know that being said,
Speaker 5: you know, I think this has to be you know,
Speaker 5: on the radar screen for whoever is sitting in the
Speaker 5: Oval office because of the importance not only you know, geopolitically,
Speaker 5: but commercially and economically for you know, employment in our country,
Speaker 5: the success of our economy and our consumer well.
Speaker 2: And I'm curious to Stefan about your clients and those
Speaker 2: CEOs that you are talking about, you know, is US
Speaker 2: China typically top of mind for them or I'm curious
Speaker 2: what is if it's not.
Speaker 5: That you know, there's a lot of trepidation about going
Speaker 5: into China, and I think especially and that really, I
Speaker 5: think is the purpose of the Secretary's trip, which is
Speaker 5: to really re establish a dialogue so people can begin
Speaker 5: to plan because if the relationship is so uncertain and
Speaker 5: so volatile, it's very difficult for companies to you know,
Speaker 5: effectively plan. And if you can't plan, you can't make investments.
Speaker 5: And so I think, uh, you know that is is
Speaker 5: is just critical.
Speaker 3: And especially when you're talking about companies, the curbs that
Speaker 3: are being put on chip makers, how much of that
Speaker 3: do you think when you're especially this is companies that
Speaker 3: have performed very well in the stock market this year.
Speaker 3: But I mean, when it comes to those types of companies,
Speaker 3: what do you think that would really mean for them?
Speaker 3: And when it comes to doing deals with China.
Speaker 5: Well, look, it's it's a very big market and we've
Speaker 5: seen them take actions including blocking you know, Intel's acquisition
Speaker 5: of an Israeli chip company, which is really adverse to
Speaker 5: the interests of a of a US of a US company.
Speaker 4: Uh.
Speaker 5: And so that that really is the point about you know,
Speaker 5: they have the ability to respond in kind I would say,
Speaker 5: or I will say, some of the things we have done,
Speaker 5: I scratch my head a little bit, like the bomb,
Speaker 5: the like the recent executive of order that is limiting
Speaker 5: private equity and venture capital investment in you know, advanced
Speaker 5: chip making and other sectors. It strikes me that you know,
Speaker 5: the one thing that China you know, doesn't lack for
Speaker 5: is capital and so the notion that somehow we are
Speaker 5: going to constrain their development by not having US investors
Speaker 5: invest in certain sectors in their economy is not just
Speaker 5: something that I can easily follow the logic of.
Speaker 2: So in terms of you know, going back to some
Speaker 2: of the things that the folks that you work with,
Speaker 2: your clients and CEOs on their top of mind. You know,
Speaker 2: we just had a headline crossing the Bloomberg terminal San
Speaker 2: Francisco's San Francisco Fed's head of Banks to Provision will retire.
Speaker 2: So you know, certainly the US banking sector and the
Speaker 2: failure of Silicon Valley banks still on the mind of everybody,
Speaker 2: and watching the regional banking sector and for perhaps what
Speaker 2: the San Francisco FED missed and maybe you know what
Speaker 2: we may still be missing. Perhaps that sector certainly on
Speaker 2: our minds. What else, you know, Stefan, is you know,
Speaker 2: in a day where we talk constantly about FED policy,
Speaker 2: higher inflation are persistent and sticky inflation, even though it's
Speaker 2: down a lot in the past year, what else is
Speaker 2: kind of top of mind?
Speaker 5: Well, I would say, you know, we did avoid anything
Speaker 5: resembling a banking crisis, you know, so the FED seems
Speaker 5: to have done a very good job of managing that situation.
Speaker 5: I would say there are really two things. One is,
Speaker 5: you know, is inflation going to be tamed? And what
Speaker 5: is the Fed going to have to do in terms
Speaker 5: of raising interest rates in the future to make sure
Speaker 5: you know that happens. You know, are we going And
Speaker 5: if you look at historical data, you know you really
Speaker 5: do have a you know, short window four or five
Speaker 5: months to really have a good view about what the
Speaker 5: economy is going to do. And I think you know,
Speaker 5: over the next four or five months, folks are not
Speaker 5: worried about dipping dipping into a recessionary period. But uh,
Speaker 5: but forecasting for a period that is longer than that
Speaker 5: is exceedingly hard to do. And the question is going
Speaker 5: to be if they have to raise interest rates you know,
Speaker 5: once twice or three more times, which I think you
Speaker 5: know is not outside of the realm of possibility. To
Speaker 5: what degree does that have a dampening impact on growth
Speaker 5: in our country?
Speaker 3: How much does China's disinflation actually help the US?
Speaker 5: Well, it certainly doesn't help their consumer and it doesn't
Speaker 5: help you know, their economic engine, which is we've talked about, Jess,
Speaker 5: is you know, so important for you know, us in
Speaker 5: terms of being a buyer of US goods and services.
Speaker 5: One of the things the Secretary is for sure going
Speaker 5: to talk about is the importance of tourism. You know,
Speaker 5: since the pandemic tourism Chinese tourism in the United States
Speaker 5: and US touris to tourism in China has you know,
Speaker 5: fallen off a cliff. The number of flights that are
Speaker 5: going between the two countries is very small, and travel
Speaker 5: and tourism, which was a part of the government that
Speaker 5: I helped look after when I was there, is the
Speaker 5: most important part of our service economy. And that's a
Speaker 5: perfect example of something you know, that we need to
Speaker 5: be on track if you know, we are going to
Speaker 5: continue to grow and create good paying jobs here.
Speaker 8: You know.
Speaker 2: And I it's interesting too, because we talked a lot
Speaker 2: last week about Boeing right and maybe the ability to
Speaker 2: once again get back into the Chinese markets only with
Speaker 2: the seven thirty seven max, which has been obviously problematic
Speaker 2: for understandable reasons, but it's so important to their growth
Speaker 2: story going forward. I do want to just stay with
Speaker 2: what you talked about the possibility of maybe three or
Speaker 2: four more rate increases. You are on the board of
Speaker 2: the Simon Property Group, well known redeveloper, malls, outlets, mixed
Speaker 2: use property concerns here in the US. Do you feel
Speaker 2: like we are fine or do are there still risks
Speaker 2: out there?
Speaker 4: Well?
Speaker 5: Look, you know, there is no such thing as the
Speaker 5: real estate market, right, so the real estate market in
Speaker 5: New York is different at San Francisco, which is different
Speaker 5: than Austin. And you know, apartments are different than office,
Speaker 5: which is different than multi family that is different from malls.
Speaker 5: Not to sound like a booster for the company whose
Speaker 5: board I sit on, but Simon Property has the best management,
Speaker 5: the best malls, and the best balance sheet in the industry.
Speaker 5: So we're feeling very very good about our position. You know,
Speaker 5: you can't say that, I presume if you are an
Speaker 5: owner of office buildings in San Francisco.
Speaker 2: No, really, well said, you're right, location, location, location, top
Speaker 2: of mine. Every morning when you get up and you
Speaker 2: look at the news stories, what is it? And just
Speaker 2: got about thirty seconds left?
Speaker 5: Well, you know, look, the world is a volatile and
Speaker 5: dangerous place, and so I think when you wake up,
Speaker 5: you just you know, there's a you take a deep breath.
Speaker 5: If something bad is not happening in Asia or in
Speaker 5: the Gulf or you know elsewhere, because frankly, any one
Speaker 5: of those things can you know, throw a wrench into
Speaker 5: the global economy, given how interconnect who we are. You know,
Speaker 5: we've lived through this situation in the Ukraine with Russia.
Speaker 5: But you know, and we see how problematic that is.
Speaker 5: But the connectivity between the US and the Russian economy
Speaker 5: is infinitezantly small compared to the connectivity between you know,
Speaker 5: the US and Asia and China and elsewhere. And so
Speaker 5: you know that to me is you know, highest on
Speaker 5: the list, I would guess.
Speaker 2: Stefan, thank you so much and really great to connect
Speaker 2: and hear your voice again.
Speaker 8: Be well.
Speaker 2: Stefan Sielig, Managing partner, Bridge Park Advisors. Joining us on
Speaker 2: zoom from Long Island, New York.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern on Bloomberg Radio,
Speaker 1: the Bloomberg Business App, and YouTube. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2: I got to say, Jess something I look forward to
Speaker 2: every year, and that is the put out by the
Speaker 2: Bloomberg New Economy team. It's a group of people who
Speaker 2: are probably not household names and yet really should be
Speaker 2: because they are truly changing the world one step at
Speaker 2: a time. The latest class of individuals has been named.
Speaker 2: It is the Bloomberg New Economies twenty twenty three Class
Speaker 2: of Catalysts. And here to tell us a bit more
Speaker 2: about it is Bloomberg New Economy editorial director Eric Shaftsker
Speaker 2: on zoom in Toronto. Eric, thank you so much for
Speaker 2: doing this. I really do look forward to this list.
Speaker 2: I think they're just an amazing group of individuals. But
Speaker 2: give everybody a reminder of who they are. How you
Speaker 2: guys find them?
Speaker 9: Well, you said the keywords, the three key world words,
Speaker 9: excuse me, change the world, and it truly does take
Speaker 9: a special kind of person to change the world, and
Speaker 9: that is those are the people I should say that
Speaker 9: we every year are on the hunt for We're not alone,
Speaker 9: of course, there are lots of investors out there, venture
Speaker 9: capitalists who are in the hunt for people who can
Speaker 9: change the world. But our focus is, you know, Carol,
Speaker 9: is slightly different. We're looking for people who's focus is
Speaker 9: on or whose mission, if you will, is about outcomes
Speaker 9: and not necessarily about money in the process. They may
Speaker 9: prove to be extremely successful entrepreneurs, but as I say,
Speaker 9: we're more interest in their capacity to change the world
Speaker 9: and not necessarily their capacity to make billions of dollars.
Speaker 9: We look everywhere, we tap into the wisdom of Bloomberg's
Speaker 9: unparalleled global newsroom. As you know, we have about two
Speaker 9: seven hundred reporters, editors, researchers, and analysts scattered across the globe,
Speaker 9: and that gives us a reach that very few other
Speaker 9: organizations on this planet have. And so with their help,
Speaker 9: we solicit nominations and then we go through a selection
Speaker 9: process to find the twenty people whom we chose as
Speaker 9: this year's catalysts.
Speaker 3: So Eric walks through this list. What are the highlights?
Speaker 9: Well, I don't want to, I'm I'm very reluctant.
Speaker 2: Right, you don't have to pick a favorite child, you
Speaker 2: don't have to do a way right.
Speaker 9: But well, first, the first thing I would say is,
Speaker 9: I'm very proud. We are all very proud of the
Speaker 9: fact that this is a very rich list. And what
Speaker 9: I mean by that is not the amount of money
Speaker 9: these people have. Eleven of these twenty people are women,
Speaker 9: and if you look at them, it's a very diverse
Speaker 9: list from across the world.
Speaker 4: These people are.
Speaker 9: Doing amazing things in many different places. Marina Bellattani, for example,
Speaker 9: runs a firm in Brazil called mobbi Bio. And what
Speaker 9: she's trying to do isn't just make fashion more sustainable.
Speaker 9: Sustainable fashion is a goal I think we can all embrace,
Speaker 9: but how you do it matters. Much of the faux
Speaker 9: leather that's made today is not bidegradable, and so bizarrely
Speaker 9: report is biodegradable. And so if you make faux leather
Speaker 9: for the sake of the animals, perhaps that isn't biodegradable,
Speaker 9: you're not really doing the planet a whole lot of good.
Speaker 9: So what she's done is she's gone to these trees
Speaker 9: in the rainforest, which of course are harvested sustainably anco trees,
Speaker 9: and she's making a biodegradable plant leather. That's one example.
Speaker 9: There's another gentleman from Australia named Guy Hudson who is
Speaker 9: the founder and CEO of a firm called loam Bio.
Speaker 9: We're all interested in carbon capture. As you know, carbon
Speaker 9: capture is produced, proving excuse me to be very difficult
Speaker 9: to do at scale. What loam bio does is it
Speaker 9: injects a safe fungus into soil that produces what are
Speaker 9: called microaggregates that double the carbon storage capacity of soil
Speaker 9: and actually also serve to improve its yields. It's yields
Speaker 9: for farmers. So you know, two for the price of one.
Speaker 9: Very ingenious and with a potential to truly change, if
Speaker 9: you will, for lack of a better term, transform the
Speaker 9: carbon storage capacity of agriculture. And then I'll just point
Speaker 9: out one other person, and of course we can go
Speaker 9: through more if you like. But Rico Yu in Hong
Speaker 9: Kong is the founder and CEO of this firm called
Speaker 9: arca Reef, which is using racontically three D print the
Speaker 9: substrate for coral reefs. The situation in Florida, for those
Speaker 9: of us living in the United States, has really thrust
Speaker 9: into focus the tragedy that's unfolding on the world's coral
Speaker 9: reefs because of you know, hot water, overheated ocean water,
Speaker 9: and the bleaching process that really kills coral reefs. There
Speaker 9: needs to be a way to allow reefs to flourish
Speaker 9: in other parts of the world where they don't naturally
Speaker 9: take and this three D printing process of terra cotta
Speaker 9: clay is just you know, strikes me anyway, is as genius,
Speaker 9: if not just ingenious.
Speaker 2: You know, I think you and I have talked about
Speaker 2: as a diver, and I think you dive. You know,
Speaker 2: we have seen the devastation in the world's reefs, and
Speaker 2: so this to me, I just want to kind of
Speaker 2: read more about what they're doing because I just find
Speaker 2: it kind of mind blowing. The other thing is Eric,
Speaker 2: I feel like, yes, there are individuals from developed markets,
Speaker 2: but it is always a reminder when we go through
Speaker 2: these lists how important the developing world is in defining
Speaker 2: like unique solutions to the world's problems.
Speaker 9: That's right, And many of the solutions developed in the
Speaker 9: developed world, or at least conceived of in the developed world,
Speaker 9: aren't immediately relevant to the developing world. The developing world
Speaker 9: is where most of the world's people live. It has,
Speaker 9: you know, faces the greatest obstacles in terms of economic
Speaker 9: development and improvement of quality of life, let alone GDP
Speaker 9: per capita. It is where I think it's safe to
Speaker 9: say the world's most confounding problems exist. And so that
Speaker 9: is where some of these you know, whether they be
Speaker 9: made in Bangladesh, made in India, made in Indonesia, solutions
Speaker 9: made in Brazil, solutions should end are appearing and we
Speaker 9: love the fact that we can highlight them.
Speaker 3: I have to also point out AI is such a
Speaker 3: hot topic, and you do have Adam Winschel in there.
Speaker 2: You worked it in, Eric worked it in helping.
Speaker 3: AI companies reduce bias in their information systems that they provide.
Speaker 3: What did you find when it comes to AI and
Speaker 3: how it fits into your list?
Speaker 2: And just got about thirty seconds get up.
Speaker 9: Well, AI is important, as you say, because it's everywhere.
Speaker 9: But you know, how can innovators contribute in this in
Speaker 9: a new economy sense?
Speaker 3: To AI?
Speaker 9: It is by what you say, making it more objective.
Speaker 9: If we're able to improve the quality of AI tools
Speaker 9: that are being developed in the developed in the developed world,
Speaker 9: then I think they'll be that much more applicable to
Speaker 9: the global economy.
Speaker 2: All right, so appreciate it. Eric Shasker, Bloomberg New Economy
Speaker 2: Editorial Director there on zoom in Toronto, breaking down Bloomberg
Speaker 2: New Economies twenty twenty three, Class of catalysts. Highly recommend
Speaker 2: if you want to be inspired a little bit in awe.
Speaker 2: Just people changing the world and this list you can
Speaker 2: find out more just head to Bloomberg dot com and
Speaker 2: you can also find it on the Bloomberg terminal. Eric,
Speaker 2: thank you so much, so appreciate it. All right, you
Speaker 2: are listening and watching Bloomberg Business Week on this Monday,
Speaker 2: Carl Master along with just metten just in for Tim Stanevik.
Speaker 2: As you know, we are on Bloomberg Radio, on YouTube
Speaker 2: and of course streaming on Bloomberg Originals. Don't go anywhere.
Speaker 2: Lots more to come right here on Bloomberg BusinessWeek.
Speaker 4: M brother mac.
Speaker 8: A journal Now about you?
Speaker 4: Let me drive?
Speaker 5: No, no, no, no, who's going to drive?
Speaker 4: Honey?
Speaker 1: Please?
Speaker 5: How do the gravels?
Speaker 7: Let's wat?
Speaker 2: I want to drive.
Speaker 5: It's a good question.
Speaker 9: Good try.
Speaker 1: This is the drive to the Globes.
Speaker 5: Dot com for me. I think we'll buy around.
Speaker 1: On Bloomberg Radio.
Speaker 2: All right, TikTok, everybody, eighteen minutes left in today's trading session. Master,
Speaker 2: long have just met and Jess as you know, in
Speaker 2: for Tim Stanovic, and we've got a great guest with us.
Speaker 2: Bill speed back with us founder and CIO over at
Speaker 2: SMED Capital Management the smeide Value Fund. We say it
Speaker 2: every time he joins us for good reason. They've got
Speaker 2: about four point eight billion in assets under management, at
Speaker 2: least according to Bloomberg Data, continues to be a top
Speaker 2: performer in the ninety ninth percentile over the past five years,
Speaker 2: with an average annual return to nearly eleven percent. He's
Speaker 2: a nice guy, but we also like his performance, which
Speaker 2: is why we have him on.
Speaker 6: Bill.
Speaker 2: Good to have you back with us.
Speaker 8: How are you? I'm well, thank you?
Speaker 2: Can I be honest with you? We want to get
Speaker 2: into your thoughts on the markets. But we just had
Speaker 2: our Bill Maloney in here, and we've had guests on
Speaker 2: about financial literacy. Why is it that we aren't smarter
Speaker 2: as a world, as a country in terms of teaching
Speaker 2: kids from a younger age about investing and financial literacy
Speaker 2: so they really understand where wealth comes from and how
Speaker 2: to build it so they have a better, stronger fundial future.
Speaker 8: Well, as a general rule, I just think back to
Speaker 8: being kids. Getting kids to sit down and do math
Speaker 8: problems was problematic just from impatience. And there's a sizeable
Speaker 8: group of people that are better English than they are math.
Speaker 8: So the getting the non math oriented people to do
Speaker 8: the math is sometimes difficult. I would say.
Speaker 3: So, if you had to choose a book to read
Speaker 3: to one of your clients that they're asking about how
Speaker 3: to learn more about investing, where do you point them to?
Speaker 8: Oh? I get asked that question by young people coming
Speaker 8: into the business all the time. I'd recommend the same
Speaker 8: three books, The Bible, The Intelligent Investor by Ben Graham
Speaker 8: and A Short History of Financial Euphoria by John Kenneth Galbraith.
Speaker 8: And Avoiding the Really the ignorance is what Charlie Munger
Speaker 8: calls it. Avoiding ignorance is as important over say thirty
Speaker 8: or forty years as it was. Everybody's going to have
Speaker 8: some big winners. But who avoids the ignorance?
Speaker 3: And what are your top questions that you hear from
Speaker 3: your clients as far as things that they just don't understand,
Speaker 3: what they want to learn more about it?
Speaker 2: What's the ignorance that maybe we have to be careful,
Speaker 2: we're not I don't want.
Speaker 3: To tell ignoring maybe, but like maybe you feel more
Speaker 3: comfortable going to your financial advisor.
Speaker 8: Well, the number one issue right now is the number
Speaker 8: one issue in the market, both that people want to
Speaker 8: know about the bill, Why are you so convinced that
Speaker 8: this inflation is not going to go away? And that
Speaker 8: we're in an inflationary ere that that is the number
Speaker 8: one question we get from financial advisors and institutions all
Speaker 8: across the country. Why are you so adamant compared to
Speaker 8: other people. So we just got a chart today from
Speaker 8: the folks at Cyprus Capital. They put out great charge
Speaker 8: and it shows that the thirty year tips the Treasury
Speaker 8: inflation protected securities got to a two percent spread for
Speaker 8: the first time since twenty twelve, and it hit me
Speaker 8: like a load of bricks. We were trying to tell
Speaker 8: people in twenty twelve that they shouldn't be worried about
Speaker 8: inflation because they were looking at the growth and the
Speaker 8: money supply to try to get us out of the
Speaker 8: financial crisis and thinking that that was automatically going to
Speaker 8: equate to inflation. But that money supply only becomes inflationary
Speaker 8: if it gets used. So fast forward to today, nine
Speaker 8: plus trillion dollars of stemmy checks and PPP and government
Speaker 8: forgiveness and YadA, YadA, YadA. The borrowing this time did
Speaker 8: get put into the system. People do want to buy houses.
Speaker 8: They didn't in two thousand and nine, ten, eleven, and twelve,
Speaker 8: So the last time we got here, people were definitely
Speaker 8: afraid of inflation in twenty eleven, twenty twelve for no
Speaker 8: reason whatsoever. And this time there are too many millennials
Speaker 8: with too much money chasing too few goods, and the
Speaker 8: cat is already out of the bag. You cannot take
Speaker 8: this and stuff it back in.
Speaker 2: You shared notes with our producer Paul Brennan, and you say,
Speaker 2: this financial euphoria episode has gone to a sustained high
Speaker 2: that makes the dot com bubble look like small change.
Speaker 2: So how does it end then?
Speaker 8: In your view, well, it ends the way they all end.
Speaker 8: It ends the way RCA ended in twenty nine, the
Speaker 8: way the Go Go sixties added for the Jerry Size
Speaker 8: Enterprise Fund, the way the nifty to fifty died in
Speaker 8: nineteen seventy two, the way the dot com bubble died.
Speaker 8: They all end the same way. The residential real estate
Speaker 8: Euphouri three to six, they all end the same way.
Speaker 8: So it's funny people say, well, gee, you know, it
Speaker 8: just seems like it's going on forever. Yes, we've basically
Speaker 8: had a three or four year topping process in this
Speaker 8: financial Elfouria episode compared to say, a year and a
Speaker 8: half topping process in the dot com bubble. That's why
Speaker 8: we think it's going to be so much more damaging
Speaker 8: because they've sucked way more people in and way more
Speaker 8: money in. And then they called up Doug Flutie and said, hey,
Speaker 8: let's throw a hail Mary and get people all jacked
Speaker 8: up about this AI thing, and they did so.
Speaker 3: Then tell us specific names that you're buying in your.
Speaker 8: Selling well, not doing much selling because we've kind of
Speaker 8: avoided the Euphorix stuff since the second half of twenty
Speaker 8: twenty one. But we really like the oil business. We
Speaker 8: like oxy o vand Devon Apache. It's just an ideal setup.
Speaker 8: There's just almost no money is being spent poking holes
Speaker 8: in the ground, and therefore whoever has existing streams of
Speaker 8: production it will get much more valuable. I'm on a
Speaker 8: drive from the Portland, Oregon area down to where we
Speaker 8: live in Phoenix, and I passed a whole bunch of
Speaker 8: wind turbines in the windiest area of the Columbia River Gorge,
Speaker 8: the Gorge Scenic Area, and they're not moving today. So
Speaker 8: some days they don't move, but every day people need
Speaker 8: the energy and it doesn't always sunshine where they make
Speaker 8: solar energy, whereas the fossil fuels are there every single day,
Speaker 8: regardless of whether the wind blows.
Speaker 2: Hey, just real quickly, just got about thirty forty seconds,
Speaker 2: and I agree with you because the transition to evs
Speaker 2: it's happened, but it's slow, and supply demand metrics seem
Speaker 2: to be in oil's favor. Thirty seconds left. Homebuilders you
Speaker 2: still like that, right, that group, some of.
Speaker 8: Them still like them. They were very strong and we
Speaker 8: had a bit of a uphouric on the news that
Speaker 8: Buffetts folks were buying. That's a great five to ten
Speaker 8: year play because whenever we finally decide to stop kitening
Speaker 8: credit and allow rates to come down in the next recession,
Speaker 8: I think those stocks will take off like a cut cat.
Speaker 2: All right, And they've already had some nice performance outperformance,
Speaker 2: certainly in the past year or so, or certainly this year.
Speaker 2: Bill smeeid, we always appreciate it. Bill smeeith, he's founder
Speaker 2: in CIO at Smeat Capital Management. We mentioned the value
Speaker 2: fund beating pretty much all of its peers over the
Speaker 2: past five years ninety nine percentile. Carol Master just metten.
Speaker 2: This is Bloombird.
Speaker 1: This is the Bloomberg Business Week podcast, Spotify and anywhere
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