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Speaker 2: Again.
Speaker 3: We've been calling out crude oil Brent crude oil up
Speaker 3: three point nine percent today, seventy six dollars seventy seven cents,
Speaker 3: big big move hire over the last several days to
Speaker 3: the Mid East tensions. Here Daboca Krishna Kumar Joints, so
Speaker 3: she's a Bloomberg Oil Markets reporter. Debica, thanks so much
Speaker 3: for joining us. What's the latest that's moving markets today?
Speaker 4: Hi, thanks for having me today. The big question now
Speaker 4: is whether Israel's retort to Israel to Ron's missile strikes
Speaker 4: will involve oil targets or not. We just had moments
Speaker 4: ago comments from President Biden saying that that's currently being discussed.
Speaker 5: Now.
Speaker 4: The market's obviously on edge because oil infrastructure is critical
Speaker 4: when it comes to determining supply and demand going forward.
Speaker 4: Iran produces over three million barrels a day, so any
Speaker 4: attack on their main export facilities or energy infrastructure could
Speaker 4: have significant ripple effects across the market, which is why
Speaker 4: we're seeing now prices rise for a third straight day,
Speaker 4: because markets are very much on edge about how this
Speaker 4: is going to play out.
Speaker 6: And just looking at your reporting, you side a City
Speaker 6: Group analyst saying that a major strike could take one
Speaker 6: and a half million barrels of daily supply off the market,
Speaker 6: whereas a minor infrastructure strike on downstream assets would be
Speaker 6: closer to three hundred thousand to four hundred and fifty
Speaker 6: thousand barrels a day of output. He just put that
Speaker 6: into context and what that means for the energy space
Speaker 6: and for oil.
Speaker 4: Yeah, yeah, of course, we are actually in an interesting
Speaker 4: market right now because some people like to call it
Speaker 4: an artificial prop up because OPEC members and allies are
Speaker 4: basically curtailing production. They were supposed to return supplies to
Speaker 4: the market in October, but they took a look at
Speaker 4: the market and how demand was looking kind of shaky
Speaker 4: because of questions about economic growth in the US and China,
Speaker 4: the two biggest economies in the world, and they thought, well,
Speaker 4: maybe we should pause and maybe we should kind of
Speaker 4: rethink returning supplies to the market. So now the current
Speaker 4: plan is to return supplies to the market in December.
Speaker 4: So in the market looks at this broadly, the reason
Speaker 4: we're not actually seeing more talk about one hundred dollars
Speaker 4: oil or an insane spike in prices is because the
Speaker 4: market is where that OPEC members like Saudi Arabia, UAE
Speaker 4: other Middle Eastern producers could quickly bring on supplies should
Speaker 4: we face a major shortage. And obviously there's also the
Speaker 4: sense that you know, we need we need to understand
Speaker 4: how demand's going to play out. There's still worries about
Speaker 4: the economy, both in the US and China, and bear
Speaker 4: in mind China is actually a big buyer of Iranian
Speaker 4: CREWD so even if we had, even if this doesn't
Speaker 4: descend into further missile strikes an all out war, we
Speaker 4: might see more tighter economic sanctions, and that's kind of
Speaker 4: interesting to see. It'll be interesting to see how that
Speaker 4: plays out as well, because it's you could only target
Speaker 4: financial components of that trade, and that may not necessarily
Speaker 4: result in loss of supply. So in the broad context
Speaker 4: of things, there are several moving parts here, and the
Speaker 4: market really needs to understand how each component is going
Speaker 4: to play out. And it's happening in real time, which
Speaker 4: is why we're seeing the volatility and prices.
Speaker 3: Devika, thank you so much for your reporting. Really appreciate
Speaker 3: getting a few minutes of your time. Devica Krishna Kumar.
Speaker 3: She is part of the team that covers a global
Speaker 3: crude oil for Bloomberg News and they have a good
Speaker 3: reporting out this morning. To check it out on the
Speaker 3: Bloomberg Terminal and on Bloomberg dot Com.
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Speaker 7: I'm Paul Swing.
Speaker 3: You're live here on our Bloomberg Interactive Broker Studio or
Speaker 3: streaming live on YouTube. To check us out there and
Speaker 3: go Bloomberg Live Radio. That's what I did yesterday that
Speaker 3: got me right to where I wanted to go. Networked
Speaker 3: just just fine.
Speaker 2: Here Bailer gets some ism data came out today. It
Speaker 2: looks like better than expected. Here looks better than expected.
Speaker 6: We see the SMP right now down call it two points,
Speaker 6: but major averages pairing losses, if not gains.
Speaker 2: Looking at the.
Speaker 6: Two year right now at three spot seven percent, So
Speaker 6: se markets move, all right.
Speaker 2: Let's get the breakdown of the ISM data.
Speaker 3: Steve Miller joins as he's the chairman for the Institute
Speaker 3: for Supply Management, joining us via that zoom thing. So Steve,
Speaker 3: seems like pretty good numbers. Again, fifty four point nine
Speaker 3: was the headline number they consent. This was fifty one
Speaker 3: point seven and last period was fIF fifty one point five.
Speaker 2: Pretty solid, Yeah, very solid.
Speaker 8: We saw over a six percent increase in both the
Speaker 8: business activity and the new orders indexes, and that's really
Speaker 8: what drove drove the change in the PMI this month.
Speaker 6: And see when I'm looking at our Bloomberg headline expand
Speaker 6: in September at the fastest pace since February twenty twenty three,
Speaker 6: reading too much into that that it's a bullish indicator.
Speaker 8: So I'd say it's a bullish indicator because what we
Speaker 8: saw is an increase in kind of the broadening of
Speaker 8: the expansionary activity, both in business activity as well as
Speaker 8: new orders. But putting that in context, you know, we're
Speaker 8: ending kind of a lackluster Q three. If you look
Speaker 8: at the average PMI for this Q three, it's really
Speaker 8: the lowest average since two thousand and nine. So although
Speaker 8: we're seeing it was a great number for this month,
Speaker 8: but you know, fingers crossed that with the port activity
Speaker 8: and such, we'll be able to see that continued growth.
Speaker 3: Where would you like to see that that headline number,
Speaker 3: that fifty four point nine Again, it seems pretty good
Speaker 3: relative to the last period and relative to consensus. Where
Speaker 3: would you like to see that?
Speaker 8: Yeah, absolutely so if we if we saw consistency fifty
Speaker 8: three fifty five range, that would be really that'd be
Speaker 8: really healthy improvement coming off of a couple of fifty
Speaker 8: ones and then actually contraction before that. We're you know,
Speaker 8: we're on the right trajectory. Hopefully we can hold it
Speaker 8: all right, Very.
Speaker 3: Good, Steve, Thanks so much for joining us for a
Speaker 3: few minutes there, Steve Miller, chairman for the Institute for
Speaker 3: Supply Management.
Speaker 2: That's im to us. Cool kids there, Billy.
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Speaker 2: Right now, let's go to market.
Speaker 3: Betell, Senior portfolio Managered Offspring Global Investments. Margo, We're going
Speaker 3: to get a big jobs print tomorrow, which will be
Speaker 3: presumably pretty informative for.
Speaker 2: This Federal Reserve.
Speaker 3: How are you thinking about the markets these days given
Speaker 3: all the economic data that we have had over the
Speaker 3: past several weeks.
Speaker 9: Well, I think it shows the economy is still growing.
Speaker 9: We had a great GDP number, three percent, which is
Speaker 9: better I think a lot of people thought, and I
Speaker 9: think it says a where to continue to move along
Speaker 9: at modest growth rates, probably less than three percent because
Speaker 9: some of the numbers, especially for labors next so still positive,
Speaker 9: no recession, no boomy upswing in GDP, so a little
Speaker 9: more of the same and a little pressure probably on
Speaker 9: revenues and profit margins going forward.
Speaker 6: And Mary, now that we have the first FED cut
Speaker 6: in the rear view mirror and at least the swaps
Speaker 6: market pricing in a string through the first half of
Speaker 6: next year, how are you positioning in this market, especially
Speaker 6: given the expectation that the Fed can navigate us off landing.
Speaker 9: Well, we think some things are out of control of
Speaker 9: the FED, which is the economy. But I do think
Speaker 9: that we'll see another two quarter point reductions in the
Speaker 9: FED funds rate over the next few months, which would
Speaker 9: be modestly helpful over the long return for the economy.
Speaker 9: But basically we think that, as I said, the economy
Speaker 9: is growing, it's a sustainable level, but more modest than
Speaker 9: perhaps you might like to see. So we think that
Speaker 9: says that return some equity will be maybe mid single
Speaker 9: digit going forward, as opposed to the double digit types
Speaker 9: of rates we've had so far. Is here, So no
Speaker 9: changes in the portfolio or outlonger.
Speaker 3: So Margan, I'm looking at then GO function of the
Speaker 3: Bloomberg Index browser, and I see across the US fixed
Speaker 3: income everything's in the green here, solid mid single digit
Speaker 3: returns for fixed income investors share. The highlight, though, is
Speaker 3: US corporate high yield. How do you think about that
Speaker 3: the high yield market? Is there any value left there?
Speaker 9: Well, yes, there is this modest value. But actually, ever
Speaker 9: since the had began to raise short rates a couple
Speaker 9: of years ago, the best performing part of the high
Speaker 9: old market has been the fixed income market has been
Speaker 9: yield because it just simply pushioned those treasury rate rises
Speaker 9: with the extra yield do you get so right now
Speaker 9: in double B bonds you get a little over two
Speaker 9: hundred basis points two percentage points for single baes, say
Speaker 9: three percentage points, But with a backdrop of the economy
Speaker 9: growing and defaults looking like they're going to be under
Speaker 9: two percent over the next year, that says you're still
Speaker 9: getting a bargain for the risk you're taken by being
Speaker 9: in below investment grade. So we think it's still attractive,
Speaker 9: but modest. Certainly, we're not looking for double digit returns
Speaker 9: going forward, mid single digits, just basically the coupon.
Speaker 6: And so does that impact kind of your allocation to
Speaker 6: risk of your debt or how are you thinking about that?
Speaker 9: Well, with your spread so narrow and dollar prices pretty
Speaker 9: high in the high yeld market, most bonds are trading
Speaker 9: pretty close to their face value, maybe ninety eight ninety
Speaker 9: cents on the dollar, we think that you pretty much
Speaker 9: have gotten rid of the extra risk premium that was
Speaker 9: in the high yeld market when the Fed had rates
Speaker 9: or high. So we don't think there's a lot of
Speaker 9: capital appreciation room. So really, if you're looking realistically in
Speaker 9: return and say over the next year five six, maybe
Speaker 9: seven percent. That says to me that the market really
Speaker 9: is going to favor stocks where I think we should
Speaker 9: at least get that much and maybe even a little
Speaker 9: bit more if we have growth to stay around that
Speaker 9: one two percent level. So basically, low volatility, modest coupon,
Speaker 9: and modest return is how we see fixed income in
Speaker 9: the high old market right now.
Speaker 3: And Margie, I guess this month of September it was
Speaker 3: a record month for new issuance.
Speaker 4: What is that?
Speaker 2: Is that good for the market.
Speaker 9: Yes, it's excellent because the problem with the high old
Speaker 9: market is there simply has not been enough supply for
Speaker 9: all the demand by investors for that extra yield. In fact,
Speaker 9: we actually had about a year ago or so the
Speaker 9: market actually shrink because we had new issuance drop off,
Speaker 9: we had maturities and bond calls, so the whole high
Speaker 9: old market actually shrunk. So it would be very good
Speaker 9: to have a big supply. There's a lot of demands
Speaker 9: that will match that, and to have the high old
Speaker 9: market grow a bit would add to the liquidity, give
Speaker 9: investors more choices of names Dubai, So I think more
Speaker 9: supply would be very positive. There's a saying supply creates
Speaker 9: and some demand in the bottom market.
Speaker 3: Yeah, very good at across all of fixed income. A
Speaker 3: really really busy September four new issue. And so Margia Btel,
Speaker 3: thanks so much for joining us market. Bettel is a
Speaker 3: senior portfolio manager all Spring Global Investment. She's based up
Speaker 3: there in Boston. Joining us via Zooming.
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Speaker 1: just say Alexa playing Bloomberg eleven thirty.
Speaker 3: All right, that port strike. It is still ever day
Speaker 3: three here, and it's starting to get serious here, and
Speaker 3: you don't get a sense that there is, you know,
Speaker 3: a lot of discussion going on here. So the questions
Speaker 3: one is going to really start the impact this economy?
Speaker 3: And to what degree? Dristic a critical joins is. She's
Speaker 3: a chief scientist at Workplace Culture. The company is called
Speaker 3: Culture Partners. Joining us via Sacramento via that Zoom thing. Jessica,
Speaker 3: talk about this strike. How do you kind of envision
Speaker 3: this strike from both sides perspective, what's what's going on.
Speaker 2: Here and where could there be movement? Maybe?
Speaker 5: Well, this strike comes down to ultimately two issues. It's
Speaker 5: about wages and it's about automation. So Harold Daggett, who's
Speaker 5: the president of the ISLA, has said, not only are
Speaker 5: they wanting seventy seven percent increase, which is significant, they've
Speaker 5: already been offered fifty percent. They're going to seventy seven,
Speaker 5: but they also want to create air tight language quote unquote,
Speaker 5: air tight language that removes the ability for the ports
Speaker 5: to use automation or semi automation. And it's downright archaic
Speaker 5: what they're asking for. If you want to understand what
Speaker 5: kind of automation they're saying they refuse to allow. It's
Speaker 5: not some complicated, new fancy AI technology. We're just talking
Speaker 5: parking gates going up and down. They're not okay with
Speaker 5: that kind of automation. They're not okay with time card
Speaker 5: stamping automation. In fact, right now they have people who
Speaker 5: are employed as schedulers to write down who is there,
Speaker 5: when they arrived and when they left, which allows for
Speaker 5: inaccuracy and time reporting. So they're really holding the port
Speaker 5: hostage with these demands, and that is why we're at
Speaker 5: a standstill. I think we could easily get there at
Speaker 5: the wages. The ports are doing very well. They have
Speaker 5: the financial capacity to meet the needs of seventy seven percent.
Speaker 5: But it's really the automation that is the sticking point.
Speaker 6: Is that just a fear of automation becoming a slippery
Speaker 6: slope from your understanding.
Speaker 5: I don't think it's a fear. I think it's a strategy.
Speaker 5: They have said, quote, I will cripple you are words
Speaker 5: that have come from the president of the union's mouth.
Speaker 5: He is intentionally trying to cripple the American economy in
Speaker 5: an effort to get what they want and to maintain
Speaker 5: the job security. And it is downright an American. I mean,
Speaker 5: I believe that we all, every industry has the ability
Speaker 5: to implement basic technology, basic automations in order to advance
Speaker 5: and progress as a society. And what's interesting here is
Speaker 5: if you look at what they're doing, they're actually making
Speaker 5: the argument for why we need these ports to implement automation,
Speaker 5: because if they were automated, we wouldn't be being held
Speaker 5: hostage by this union and the effects of the economy
Speaker 5: and the American consumer are going to be felt soon
Speaker 5: and it is going to be widespread. There will be panic.
Speaker 5: There already is panic. There's already been a run on
Speaker 5: toilet paper and paper towels, which is completely unrelated to
Speaker 5: the imports from these ports. So it's interesting that's really
Speaker 5: just psychological in nature. We're remembering when toilet paper wasn't
Speaker 5: available at COVID and so people are going to stockpile
Speaker 5: toilet paper now. But what else will they stockpile? And
Speaker 5: who else is going to be affected by this and
Speaker 5: lose their jobs because supplies that they need to do
Speaker 5: their jobs haven't arrived. It's really going to be devastating
Speaker 5: if this doesn't get resolved soon.
Speaker 3: So Jessco, what has anyone on either side quantified the
Speaker 3: job potential job loss from automation? How big of an
Speaker 3: issue is this in reality?
Speaker 2: Do we know?
Speaker 5: There are a lot of analysts making estimates on the
Speaker 5: cost that this strike will have and the ranges are
Speaker 5: significantly wide, so it's unclear and the job costs we
Speaker 5: can only speak right now philosophically, as construction materials don't arrive,
Speaker 5: when construction workers are not going to be able to
Speaker 5: do their jobs, and so they will be laid off
Speaker 5: or temporarily furloughed, and that impact will be devastating on
Speaker 5: those workers. So if you think about the union, workers
Speaker 5: are being very selfish right now, and they do want
Speaker 5: the American worker and consumer to feel the pain. They're
Speaker 5: counting on it, they're looking forward to that, and I
Speaker 5: think one of the devastating things here is that they're
Speaker 5: saying and don't blame us, blame them, So they're not
Speaker 5: taking accountability for the strategy. And I also don't think
Speaker 5: it's very logical because the American worker and consumer is
Speaker 5: going to become outraged and say, you know what, that
Speaker 5: we want them to automate because this is a danger
Speaker 5: to the American culture, society, workplace, labor market, all.
Speaker 6: Of it Protisica. In terms of the actual dock workers
Speaker 6: about twenty five thousand at the East Coast and Gulf
Speaker 6: Coast ports. What percentage or number of those workers would
Speaker 6: be at risk of losing their jobs if automation were
Speaker 6: to be implemented at a grand scale.
Speaker 5: It all depends on what we're talking about with regards
Speaker 5: to automation. So the schedulers will lose their job if
Speaker 5: we implement time cards. Right now, there is already some
Speaker 5: automation if you think about it. I was listening to
Speaker 5: an interview with one of the union strikers yesterday and
Speaker 5: he said, you know, decades ago, we were literally offloading
Speaker 5: one hundred and twenty five pounds of sugar with our hands.
Speaker 5: So that's not happening anymore. That's because of automation, and
Speaker 5: I'm sure that they celebrate it. So the where automation
Speaker 5: is allowed and where automation isn't allowed is exactly what's
Speaker 5: under negotiation. There is already in their current contract language
Speaker 5: that prevents new automation. They're not saying that they're okay
Speaker 5: with that language though, they're wanting to go backwards. They're
Speaker 5: wanting to remove automation that's already been implemented, and so
Speaker 5: that's really regressive and not progressive at all.
Speaker 3: All right, Well, have to see how this plays out
Speaker 3: where day three and again the tensions are mounting, the
Speaker 3: risks are mounting for the economy. Jessica Kregel, thank you
Speaker 3: so much for joining us. We really appreciate getting your
Speaker 3: thoughts of perspective. Jessica Kriegel. She's a chief scientist of
Speaker 3: workplace culture on the firm is called Culture Partners. They're
Speaker 3: based in Sacramento, California, and she's joining us via zoom.
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Speaker 3: Billy Lipscholtz sitting in for Alex Steele on Paulswuni. We
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Speaker 2: You know, we're a little bit.
Speaker 3: Of a sell off here today, A lot of just
Speaker 3: kind of mixed trading here, all within one or two
Speaker 3: percent of the all time highs.
Speaker 2: I mean why not? I mean, I guess you got a.
Speaker 3: Fed cutting rates, you got decent earnings. I guess that's
Speaker 3: a pretty constructive look for this market. I want to
Speaker 3: how the technicals look. Our next guest, I think can
Speaker 3: help us a little bit there. Francis Stacy chairwoman of
Speaker 3: the Global Digital Finance Committee, joining us from Tampa, Florida
Speaker 3: via zoom. Francis Again, you look at this charge kind
Speaker 3: of up into the right here. What are the technicals
Speaker 3: tell you about this market? Anything concerning you?
Speaker 10: Yeah, So it's very interesting because the technicals actually look
Speaker 10: quite toppy. And I do think that if the S
Speaker 10: ANDP gains any kind of momentum and a bit of
Speaker 10: a sellof which is you know, could be news driven.
Speaker 10: We've got a big jobs number coming out tomorrow, you know.
Speaker 10: I think fifty six twenty five is the initial stop
Speaker 10: for support to indicate that the upward trend is as
Speaker 10: well in play, and there's nothing that's coming on the horizon.
Speaker 10: As far as calculating an additional risk, I agree with you.
Speaker 10: The FED is obviously changed its modality into an easing mode,
Speaker 10: and that's happening globally. I mean, the global money supply
Speaker 10: is up seven point three trillion as of September, and
Speaker 10: just globally we're getting a lot of simultaneous rate cutting
Speaker 10: and that supports the reacceleration and global growth type mindset.
Speaker 10: I do think we'll see a little bit more softening
Speaker 10: in the growth and labor markets here in the US,
Speaker 10: and we just have to see if there's a catalyst
Speaker 10: that would indicate a recession, Well, how.
Speaker 6: Much is that recession risk being priced in. I'm just
Speaker 6: looking at the swaps market, and at least as it
Speaker 6: relates to the FED, we're at an implied rate at
Speaker 6: a round three and a half percent by May of
Speaker 6: next year. In VideA is kind of the S and
Speaker 6: P one, if you will, and is seemingly talking up demand.
Speaker 6: Apple and Microsoftware are relatively bullish as well.
Speaker 2: Kind of what do you make of those dynamics.
Speaker 10: Yeah, so absolutely there's no indication and the markets are
Speaker 10: not pricing in an indication of a recession, which makes
Speaker 10: this rate cutting and a regressive rate cutting, I would
Speaker 10: argue globally very interesting. I mean, I think they're cutting
Speaker 10: rates globally on the orders of magnitude that they did
Speaker 10: during the you know, the global financial crisis. Without that
Speaker 10: catalyst in place. It's just basically looking at the yield
Speaker 10: curve and potential. You know what happens when you have
Speaker 10: a prolonged and yield curve inversion that is, you know,
Speaker 10: pretty severe and you have the resteepening quinte essentially that
Speaker 10: has been an indicator mechanically of an imminent recession. However,
Speaker 10: there was always a catalyst. You know, in the nineties
Speaker 10: you had the invasion, you know, the Kuwait situation, and
Speaker 10: the two thousands you had the tech bubble bursting, and
Speaker 10: then of course with the GFC you had the housing
Speaker 10: bubble burst that sort of tipped that domino effect. Right now,
Speaker 10: there's nothing in the system, and certainly, as you say,
Speaker 10: not being priced in that that domino effect is ready
Speaker 10: to be tipped. But you know, sometimes these things happen
Speaker 10: slowly and then all at once.
Speaker 3: So overall, I mean here it's it seems like again
Speaker 3: the backdrop for a lot of the the bull seems
Speaker 3: pretty simple. I've got decer earnings growth, I got of
Speaker 3: interest rates coming down. Is the recession risk something that
Speaker 3: could really be upset that kind of foundation.
Speaker 10: Yes, certainly if there's a catalyst, and we do have
Speaker 10: some potential catalysts in our geopolitical environment. I don't know
Speaker 10: sort of what volatility the election outcome could enter into
Speaker 10: the system. So we just you know, we just have
Speaker 10: to watch the catalyst. We have to, as you say,
Speaker 10: you know, watch the spreads, watch the swaps and see
Speaker 10: if there's any sort of a reaction there. It's interesting
Speaker 10: because from the role of my new committee, and I've
Speaker 10: brought in John Degastino, who's very storied as my co chair,
Speaker 10: we are looking at the fiscal and debt dynamics around
Speaker 10: the world, and we are engaging countries and looking at
Speaker 10: the new prominence of global digital finance and what that
Speaker 10: algorithm looks like. Because here's the thing. You put a
Speaker 10: record amount of monetary and fiscal stimulus and you know,
Speaker 10: pretty much globally, but the most in the US during COVID,
Speaker 10: and then you know, something like the mechanical implications of
Speaker 10: the yield curven version. We've seen an elongation of the
Speaker 10: seasons of these economic cycles, and so the question becomes,
Speaker 10: have the mechanics fundamentally changed post COVID or do we
Speaker 10: have the same mechanics in place on a delay. And
Speaker 10: then also just looking at the liquidity dynamics around the
Speaker 10: world juxtaposed to the debt and looking at the potential
Speaker 10: a potential new algorithm for the managing of this, the
Speaker 10: managing of recession risk, you know, with the integration of
Speaker 10: the digital finance component, and certainly you know a potential
Speaker 10: for digital currencies as well.
Speaker 6: So are you talking we're talking bitcoin?
Speaker 2: Is that what you're kind of alluding to?
Speaker 10: Bitcoin will never replace fiat because it has a finite
Speaker 10: supply and it cannot disrupt the function of the central banks.
Speaker 10: If it cannot do the function of the central banks.
Speaker 10: Central banks adjust mone you know, money supply, and you know,
Speaker 10: in the United States they have their dual mandate of
Speaker 10: price stability and full employment. They could never accomplish that
Speaker 10: because they can't manage the supply of bitcoin. But you know,
Speaker 10: for instance, El Salvador has this hybrid approach between bitcoin
Speaker 10: and the US dollar, and I do think that it's
Speaker 10: kind of like trying to make an electric car talk
Speaker 10: to an internal combustion engine. They have different underlying mechanics,
Speaker 10: but there is potentially an algorithm possible that bridges that
Speaker 10: gap and brings in a digital currency. I do think
Speaker 10: if we see digital currencies, you know, obviously Bitcoin is
Speaker 10: legal tender and El Salvador, but if we do see
Speaker 10: digital currencies widely adopted as legal tender, it's going to
Speaker 10: be the central banking digital currencies because those are the
Speaker 10: only things that can disrupt what the central bank is doing.
Speaker 10: The Central Bank has been given all of the legal authority,
Speaker 10: has all of the legal precedent from Congress, and you
Speaker 10: know that's you're not likely to unmock that anytime soon.
Speaker 10: So I do think that there's going to be an
Speaker 10: opportunity coming up. But that's that's what we're really looking
Speaker 10: at systemically.
Speaker 2: Very interesting.
Speaker 3: Francis Stacey, thank you so much for joining us. Francis Stacey,
Speaker 3: she's a chairwoman of the Global Digital Finance Committee. Joining
Speaker 3: US FRO Tampa, Florida.
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Speaker 3: Another big news in the tech spasis, some of the
Speaker 3: valuations they are coming back, it seems to think in
Speaker 3: a big ways, particularly if you have anything to do
Speaker 3: with AI. So if you have a company that's called
Speaker 3: open ai, that's a pretty good name to happen, a
Speaker 3: pretty good time to raise capital. OpenAI I just raised
Speaker 3: six point six billion dollars in the private markets and
Speaker 3: new funding, giving the artificial intelligence company a one hundred
Speaker 3: and fifty seven billion dollar valuation as a look to
Speaker 3: build the world's leading generative AI technology. Check in with
Speaker 3: it somebody who knows this stuff really well. On a
Speaker 3: rock run of technology channels for Bloomberg Intelligence from the
Speaker 3: tech hub of Chicago, Illinois, anurag talks about open Ai.
Speaker 1: Here.
Speaker 3: These are some real numbers here on a rock, and
Speaker 3: there's some real investors investing in this company.
Speaker 2: At this stage, what do we know?
Speaker 11: Yeah, open air has really taken a lead over the
Speaker 11: last three years because of the launch of chat GPT
Speaker 11: and after that it has become to go to things
Speaker 11: even for enterprises. We recently did a CIO survey and
Speaker 11: open Ai Microsoft combination was far ahead than all the
Speaker 11: other large language models that was out there.
Speaker 7: So that's on the enterprise side and consumer side.
Speaker 11: We already know how well they are doing both on
Speaker 11: the app that they're selling along with the distribution that
Speaker 11: they what they won with Apple being part of CD
Speaker 11: when the software upgrade is going to come. So open
Speaker 11: ai in the world of large language models really at
Speaker 11: the top of the you know, the top of the
Speaker 11: mountain at this point, and this is one of the
Speaker 11: reasons you're getting these high valuations.
Speaker 6: Yeah, I just want to put into perspective, at one
Speaker 6: hundred and fifty seven billion dollars, open AI would be
Speaker 6: larger than uber and at that six point six billion
Speaker 6: dollars in funding relative to IPOs, it would be the
Speaker 6: twelfth largest global IPO since twenty eighteen. So anorak, are
Speaker 6: we in a AI bubble as it relates to private markets?
Speaker 11: I think, to be very frank with you, I can
Speaker 11: only answer that five years from now. But we just
Speaker 11: you know, updated our numbers looking at capital expenditures for
Speaker 11: the top five six companies. These companies, which includes Amazon, Microsoft, Meta, Oracle,
Speaker 11: et cetera. In twenty twenty three, they spend about one
Speaker 11: hundred and ten billion dollars in all the things what
Speaker 11: we call capital expenditures. In twenty twenty five, they're going
Speaker 11: to spend about two hundred billion dollars. So that's a
Speaker 11: massive increase of ninety billion over a two year period.
Speaker 7: You know, where is that money going to?
Speaker 11: Expansion of data center, buying more GPUs, buying more hardware,
Speaker 11: expanding their own large language models. So it really feels real, frankly,
Speaker 11: as to the amount of money that the big guys
Speaker 11: are spending it over here, they won't be doing it
Speaker 11: if they didn't see the demand on the other side
Speaker 11: of the equation.
Speaker 3: It's been a turbulent year for the company here. I know,
Speaker 3: last November the company's board fired and then quickly re
Speaker 3: hired the CEO, Sam Altman. Following months at a lot
Speaker 3: of key leaders leave, including the co founder, the chief
Speaker 3: technology officer. It seems like the market's kind of forgotten
Speaker 3: all about that, or maybe it's not a problem anymore.
Speaker 3: How's the market dealing with some of that turmoil we've
Speaker 3: seen over the last year.
Speaker 11: I think people tend to forget that who's really behind
Speaker 11: a lot of backing of this particular company, and that's Microsoft,
Speaker 11: and you know they have the biggest distribution and among enterprises.
Speaker 11: So if they are basically telling people, if you want
Speaker 11: to create an enterprise application using some AI large language model,
Speaker 11: here is open a model and you can host it
Speaker 11: on our cloud platform, I think that is resonating very
Speaker 11: well with customers. So as long as that continues for
Speaker 11: the next several years, open AI's revenue will continue to
Speaker 11: go up. And you know, then you can and you know,
Speaker 11: argue whether the valuations is high or not.
Speaker 6: And just from the bloom we're reporting Tiger Global put
Speaker 6: in three hundred and fifty million dollars, Ultimeter putting in
Speaker 6: at least two hundred and fifty million dollars. But to
Speaker 6: your point, if Microsoft is able to write such large checks,
Speaker 6: how does that impact the funding environment for AI companies.
Speaker 6: I'm just thinking about the biggest competitors for open ai
Speaker 6: in Anthropic and Xai.
Speaker 11: Yeah, I mean, Anthropic is backed by you know, Amazon
Speaker 11: Web Services at this point primarily, and almost all the others.
Speaker 11: The one thing we heard, you know, from reporting from
Speaker 11: Bloomberg News is that open ai is asking them not
Speaker 11: to back up you know, Elon's Xai or others. And
Speaker 11: I think that's partially the reason you see all the
Speaker 11: other plays coming in because and by the way, there's
Speaker 11: not going to be one winner, They're going to be
Speaker 11: multiple models. They're going to be multiple companies doing well here.
Speaker 11: And there is no reason Anthropic don't thrive in this way,
Speaker 11: or Mistral or all the other large language model companies.
Speaker 3: What do we know about open AI's financials, If anything.
Speaker 7: It's I mean, I don't have a clear pick on it.
Speaker 11: I've read as much as you have, and you know,
Speaker 11: we have seen projections out there for the next several
Speaker 11: years they can get to I don't know, five billion,
Speaker 11: ten billion or so forth. So I mean it's it's
Speaker 11: unless we see the s one when they go public,
Speaker 11: you know, up till at that point, you know, it's
Speaker 11: it's it's purely a guess work.
Speaker 3: Do we have any sense of do they have an
Speaker 3: appetite to go public? Is it a sense of timing?
Speaker 3: What are their plans for going public if any?
Speaker 7: See?
Speaker 11: My personal view is they don't need to go public
Speaker 11: at all. They don't need the funding they will you know,
Speaker 11: the whoever is part of this particular ecosystem is getting
Speaker 11: rich every day. I think they should figure out how
Speaker 11: to grab as much enterprise workloads as possible before they
Speaker 11: think about it, because one thing is for sure, even
Speaker 11: as they are doing this land grabbing right now, they're
Speaker 11: at a loss, and they will be at a loss
Speaker 11: for several years out because the cost of running these
Speaker 11: workloads is very high and it's going to you know,
Speaker 11: you're not going to see any free cash flow. You're
Speaker 11: not going to see any But once you've got public,
Speaker 11: you know, you really go under the lens when it's
Speaker 11: about profitability and your margins.
Speaker 6: Well about thirty seconds. But going back to a story
Speaker 6: that has been reported out recently in terms of giving
Speaker 6: Altman a stake in the company that could be worth
Speaker 6: more than ten billion dollars, what do you make of
Speaker 6: those conversations and what that could mean for the company
Speaker 6: and its ambitions.
Speaker 11: Yeah, I mean he's always talked about how he is
Speaker 11: doing it for the greater good of the world. But
Speaker 11: but I guess when you get this much options, you
Speaker 11: change your mind on that.
Speaker 7: But it's it is what it is.
Speaker 2: It is what it is. We always fall back on
Speaker 2: that one.
Speaker 3: I love it on a Ragranet technolog channels Bloomberg Intelligence
Speaker 3: joinings today talking about open Ai again. Just a huge,
Speaker 3: huge funding round six point six billion dollars raised and
Speaker 3: giving the company an evaluation of one hundred and fifty
Speaker 3: seven billion. That's just massive and impressive in and of itself.
Speaker 3: What's also impressive to me is who's going in there.
Speaker 3: We're getting some big, big technology companies, including Nvidia, some
Speaker 3: seriously smart private equity money, private capital money including the
Speaker 3: Tiger and some others, and Fidelity as well. So a
Speaker 3: lot of what a lot of folks would call smart
Speaker 3: money getting in even at this value oation level. That
Speaker 3: gets your attention here, so we'll keep an eye on that.
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Speaker 3: Thirty Barely Lipsholtz sitting in for Alex Steele today, I'm
Speaker 3: Paul Suonier live.
Speaker 2: Here in our Bloomberg Interactive Brokers studio.
Speaker 3: Streaming live on YouTube's at headverd YouTube dot com search
Speaker 3: Bloomberg Live Radio on this where you will find us
Speaker 3: which s are from the CEO of Levi Strauss, Michelle
Speaker 3: Gost talking about the business. Let's do a little bit
Speaker 3: more retail here, Mary Ross Gilbert. She's a senior equity
Speaker 3: analyst for Bloomberg Intelligence covering the retail space. She's based
Speaker 3: out there in Los Angeles. Mary, what did you make
Speaker 3: of We'll just start with the Levi's story. What did
Speaker 3: you make of their their quarter, their outlook and kind
Speaker 3: of maybe some of the reasoning for some of the
Speaker 3: weakness they're seeing.
Speaker 12: Yeah, so, Paul, the Levi's earnings out yesterday, I think
Speaker 12: there was too much focus on some of the negativity,
Speaker 12: so for example, weakness in China. China is only two
Speaker 12: percent of the business and still the growth prospects there
Speaker 12: are tremendous, but we have been hearing that there has
Speaker 12: been some weakness generally with the consumer. But also I
Speaker 12: think there's some execution opportunities there. So they did bring
Speaker 12: in a new leader, so I think we could see
Speaker 12: things shift, but frankly, it's really really small if you
Speaker 12: look at what's happening in the bigger parts of the business.
Speaker 12: The overall Levi's business on a currency neutral basis was up,
Speaker 12: and if you look at direct to consumer and that's
Speaker 12: about forty four percent of the business, that was up
Speaker 12: twelve percent. The USDTC was up twelve percent, Europe was
Speaker 12: up nine percent, and also the European wholesale business turned
Speaker 12: positive and comped up four percent, and then they have
Speaker 12: a strong order book for the fourth quarter. US wholesale
Speaker 12: though is still you know, trending negative. It's improving, but
Speaker 12: still noative. So you do have a little bit of
Speaker 12: headwinds there, but like I said, the big focus is
Speaker 12: really on DTC, it's on women's. The women's business is
Speaker 12: about thirty five percent of sales, but that could be
Speaker 12: half the business that was also of double digits with
Speaker 12: strong performance you know, across bottoms and tops there. So
Speaker 12: I think there's some real strong points here. And then
Speaker 12: the news about the sale of Dockers. That's great news.
Speaker 12: They've tried to sell this company in the year is passed,
Speaker 12: and it will be great to get rid of it
Speaker 12: and really focus on the strength of the Levi's brand
Speaker 12: and also expanding beyond yoga.
Speaker 6: Mary, you sound really bullish and the stocks down eight percent,
Speaker 6: So why is it getting beat so badly? I mean,
Speaker 6: it's it's returned over the last twelve months fifty one percent.
Speaker 6: Does it sell the news or is it just that
Speaker 6: uncertainty From a macro perspective.
Speaker 12: I don't think so. I think sometimes there's volatility around
Speaker 12: earnings that don't necessarily reflect the true fundamentals. So I
Speaker 12: think there there was a miss on the top line,
Speaker 12: you know, on the revenue miss versus consensus, but of
Speaker 12: course they beat on the bottom line. But I think
Speaker 12: the real focus was okay, they said net revenues. Previously
Speaker 12: the guidance was net revenues to rise one to three percent.
Speaker 12: Now it's going to be just up one percent. I
Speaker 12: don't really if anything, I view that as an opportunity
Speaker 12: to beat. We do have the port strike, of course
Speaker 12: that's making headlines, but Levi's and a lot of other
Speaker 12: apparel companies have shifted more of their shipments over to
Speaker 12: the West Coast and so and when you think about holiday,
Speaker 12: most of that is already in. They start shipping in
Speaker 12: July or the ports start the West coast ports start
Speaker 12: receiving in July, and it goes all the way through September,
Speaker 12: and September was quite busy for the West coast ports.
Speaker 12: I checked in with the Port of Los Angeles yesterday
Speaker 12: on that. So I think there's going to be some impact. Obviously,
Speaker 12: it really has to do with how long the strike lasts.
Speaker 12: But I think that Levi's, Macy's and other companies have
Speaker 12: mitigation measures in place.
Speaker 3: What does it mean as it relates to the port
Speaker 3: out and cheer on margins, I mean, presumably their cost
Speaker 3: will be hired to get some product that was East
Speaker 3: Coast bound to get it now to the West coast.
Speaker 2: What does that do to their margins? Of companies given
Speaker 2: in guidance.
Speaker 12: Yeah, there's a couple of companies that have indicated, not
Speaker 12: all of them, so for example, Oxford Industry, so that's
Speaker 12: the Tommy Bahama, Lily Pulitzer brands. So what they did
Speaker 12: say is that they expect a freight negative freight impact
Speaker 12: in the second half of about fifteen to twenty basis points,
Speaker 12: and in that they did incorporate what they think might
Speaker 12: be the impact from a possible because again their earnings
Speaker 12: call was before the strike which just hit this week
Speaker 12: on Tuesday. They said that that does incorporate that impact,
Speaker 12: but once again it depends on the duration and just
Speaker 12: looking back and in previous disruptions with regard to the port,
Speaker 12: we sort of estimate it could be in that sort
Speaker 12: of ten to twenty basis points impact on margin, But
Speaker 12: again it depends on the duration and then also any
Speaker 12: other mitigation factors that will help offset some of those
Speaker 12: costs if they're able to.
Speaker 6: And Mary, you mentioned the duration. How long does this
Speaker 6: strike have to last for it to start to show
Speaker 6: up and impact some of these businesses.
Speaker 12: That is a really good question. When I think about
Speaker 12: some of the other disruptions and the duration, and of
Speaker 12: course the last one that happened back in the seventies,
Speaker 12: I was sixty days, I can imagine the damage must
Speaker 12: have been pretty extensive, and even just thinking of you know,
Speaker 12: let's say eight days. Going back to twenty fifteen when
Speaker 12: the West Coast ports had some you know, shutdowns, so
Speaker 12: it wasn't actually a strike, but they were called shutdowns
Speaker 12: at that time, and that that did last for days,
Speaker 12: but there was an impact that lasted months after that.
Speaker 12: So there was an impact on margin because if you
Speaker 12: have a delay in getting your apparel, then once it
Speaker 12: does arrive, you have to promptly mark it down. And
Speaker 12: that's exactly what happened with Macy's on off price. They
Speaker 12: tend to be less impacted to a certain extent because
Speaker 12: they can just pack it away and bring it out,
Speaker 12: you know, when the season is right.
Speaker 3: All right, Mary, thank you so much for joining us.
Speaker 3: Mary Ross Gilbert, she's a senior equity analysts covering the
Speaker 3: retail space for Bloomberg Intelligence. To space that Bloomberg's Los
Speaker 3: Angeles office, joining us of via that zoom thing.
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