1 00:00:02,720 --> 00:00:10,600 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,640 --> 00:00:14,600 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:14,640 --> 00:00:17,880 Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg 4 00:00:17,960 --> 00:00:21,080 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,400 --> 00:00:23,520 Speaker 1: or watch us live on YouTube. 6 00:00:23,960 --> 00:00:26,640 Speaker 2: Another big trade happened today. I mean, the AI valuation 7 00:00:26,760 --> 00:00:28,760 Speaker 2: story just gets bigger. Every single day. 8 00:00:28,760 --> 00:00:31,320 Speaker 3: There's a new impressive and it's because of this guy, 9 00:00:31,440 --> 00:00:35,440 Speaker 3: Ed Ludlow, Bloomberg Tech co host, joining us a live. 10 00:00:35,320 --> 00:00:37,600 Speaker 2: Here in our Bloomberg Interactive Brokers studio. He's based in 11 00:00:37,640 --> 00:00:39,879 Speaker 2: San Francisco. We've got him on East coast here for 12 00:00:39,920 --> 00:00:42,159 Speaker 2: a little while. So, Ed, what happened? 13 00:00:42,440 --> 00:00:45,560 Speaker 3: What's the deal that just put evaluation of five hundred 14 00:00:45,600 --> 00:00:46,960 Speaker 3: million dollars on open ASP. 15 00:00:47,240 --> 00:00:49,280 Speaker 4: So, actually, the mechanics of it are the one of 16 00:00:49,320 --> 00:00:52,760 Speaker 4: the most interesting parts. It's a secondary or an employee tender. 17 00:00:52,760 --> 00:00:56,120 Speaker 4: In other words, if you are a existing employee or 18 00:00:56,120 --> 00:01:00,320 Speaker 4: even a former employee, you can sell your shares in 19 00:01:00,400 --> 00:01:03,880 Speaker 4: open AI. The eligibility requirements were that you held them 20 00:01:04,000 --> 00:01:06,760 Speaker 4: or you had a vesting period of two years. But 21 00:01:06,800 --> 00:01:10,679 Speaker 4: the reason I say that's interesting is that this is 22 00:01:11,120 --> 00:01:16,320 Speaker 4: a valuation dictated by a third party group of investors 23 00:01:16,400 --> 00:01:18,880 Speaker 4: buying those shares from employees. So the company doesn't raise 24 00:01:18,880 --> 00:01:21,560 Speaker 4: any new money, but there has to be a valuation 25 00:01:21,680 --> 00:01:24,160 Speaker 4: set because a price has to be set. And so 26 00:01:25,160 --> 00:01:28,240 Speaker 4: these investors wanted even more. They wanted like ten billion 27 00:01:28,280 --> 00:01:30,920 Speaker 4: dollars worth of employee shares. In the end they got 28 00:01:30,959 --> 00:01:33,119 Speaker 4: six point six billion dollars. So what does that tell you. 29 00:01:33,600 --> 00:01:37,000 Speaker 4: There's probably a load of open a employees that were like, 30 00:01:37,040 --> 00:01:39,560 Speaker 4: you know what, I'm not going to sell. I'm holding 31 00:01:39,640 --> 00:01:42,640 Speaker 4: on because if I'm at the five hundred billion dollar valuation, 32 00:01:43,360 --> 00:01:45,680 Speaker 4: you know, and there's still a corporate restructures go through, 33 00:01:45,920 --> 00:01:49,200 Speaker 4: you know, a future IPO, maybe, then then hold. So 34 00:01:49,240 --> 00:01:51,640 Speaker 4: I thought that was really fascinating. But I would just 35 00:01:51,680 --> 00:01:55,080 Speaker 4: point out that Sharin Gafari, really talented colleague of mine 36 00:01:55,720 --> 00:01:58,480 Speaker 4: out in San Francisco Bloomberg Newsroom. She did break this 37 00:01:58,520 --> 00:02:00,960 Speaker 4: story in August six, just the close of the round. 38 00:02:01,160 --> 00:02:03,720 Speaker 5: Okay, So now that open ai is valued at five 39 00:02:03,800 --> 00:02:07,680 Speaker 5: hundred billion dollars, that puts it over SpaceX, which is 40 00:02:07,760 --> 00:02:09,520 Speaker 5: valued at four hundred billion. And I bring this up 41 00:02:09,520 --> 00:02:12,280 Speaker 5: because there's a common thread between open ai and SpaceX 42 00:02:12,320 --> 00:02:16,560 Speaker 5: and that is Elon Musk is part of open Ai 43 00:02:16,680 --> 00:02:19,280 Speaker 5: before leaving under some clouds. 44 00:02:19,639 --> 00:02:23,560 Speaker 4: Yep, he has a fractious relationship specifically with some Altman, 45 00:02:23,840 --> 00:02:27,080 Speaker 4: you know, the the other founder and now CEO of 46 00:02:27,120 --> 00:02:30,480 Speaker 4: open Ai. You know what I've written a lot about 47 00:02:30,560 --> 00:02:33,480 Speaker 4: in Bloombot BusinessWeek magazine and in some of the reporting 48 00:02:33,639 --> 00:02:37,320 Speaker 4: is present day. Musk has kind of a little bit 49 00:02:37,320 --> 00:02:40,839 Speaker 4: of a chip on his shoulder. I think, well, specifically 50 00:02:40,880 --> 00:02:44,720 Speaker 4: about the idea that Xai, his ai company, should have 51 00:02:44,880 --> 00:02:49,440 Speaker 4: a valuation that is near to open ayes so, and 52 00:02:49,680 --> 00:02:54,840 Speaker 4: you know there's been litigation. You know, there's a public forum, 53 00:02:55,800 --> 00:02:58,600 Speaker 4: slinging match on social media between the two. Sam Altman 54 00:02:58,639 --> 00:03:01,760 Speaker 4: gets asked about it a lot. But you know, I 55 00:03:01,760 --> 00:03:06,720 Speaker 4: think the main thing is that remember also that Xai has, 56 00:03:06,919 --> 00:03:09,200 Speaker 4: as we've reported it sought to raise money at two 57 00:03:09,240 --> 00:03:12,440 Speaker 4: hundred million dollar valuation this year. You know, it's tides 58 00:03:12,480 --> 00:03:13,959 Speaker 4: and rising ships in that field. 59 00:03:14,000 --> 00:03:16,920 Speaker 2: Really, so do we know who was selling here in 60 00:03:16,919 --> 00:03:17,440 Speaker 2: this round? 61 00:03:17,560 --> 00:03:17,760 Speaker 6: No? 62 00:03:18,000 --> 00:03:22,000 Speaker 4: I mean all I know about the eligibility rules. You know. 63 00:03:22,080 --> 00:03:24,320 Speaker 4: The one thing I've reflected on reading the story and 64 00:03:24,400 --> 00:03:28,760 Speaker 4: speaking to sources that the company is Remember in November 65 00:03:28,760 --> 00:03:31,600 Speaker 4: of twenty twenty two when Sam Outman was briefly ousted 66 00:03:31,720 --> 00:03:34,560 Speaker 4: from open ai. There was just a few hundred people 67 00:03:34,560 --> 00:03:37,440 Speaker 4: that worked there at that time. You know, so that 68 00:03:37,480 --> 00:03:40,400 Speaker 4: was three years ago and almost three years ago, and 69 00:03:40,440 --> 00:03:43,880 Speaker 4: now there are thousands of people that work there. So yeah, 70 00:03:44,000 --> 00:03:46,440 Speaker 4: some tenure would probably be a factor here. 71 00:03:46,640 --> 00:03:49,240 Speaker 5: Okay, So now the world's biggest startup worth half a 72 00:03:49,280 --> 00:03:51,800 Speaker 5: trillion dollars, but open ai is not making money. 73 00:03:51,840 --> 00:03:52,920 Speaker 2: It's not part ofable. Yeah. 74 00:03:53,360 --> 00:03:56,960 Speaker 4: So on Monday, open ai has its dev day, its 75 00:03:56,960 --> 00:03:59,480 Speaker 4: developers day in San Francisco, and are we going? And 76 00:04:00,280 --> 00:04:02,840 Speaker 4: it's a good opportunity to ask hard questions like these. 77 00:04:03,200 --> 00:04:06,120 Speaker 4: There's a data point that's going around right now, which 78 00:04:06,160 --> 00:04:10,200 Speaker 4: is that open ai is only converting two percent of 79 00:04:10,240 --> 00:04:14,840 Speaker 4: its free users to paid subscribers. Now, that for me 80 00:04:14,920 --> 00:04:17,440 Speaker 4: is an interesting data point. So it's been on that 81 00:04:17,600 --> 00:04:19,520 Speaker 4: is that there's a lot of room for growth, right, 82 00:04:19,600 --> 00:04:23,560 Speaker 4: and so you know software, you know, this is core 83 00:04:23,640 --> 00:04:27,240 Speaker 4: bi analysis, right, Software is traditionally a higher margin business. 84 00:04:27,720 --> 00:04:30,560 Speaker 4: But the problem is that because of compute expenses and 85 00:04:30,640 --> 00:04:34,600 Speaker 4: op X now talent compensation, even the revenue they are 86 00:04:34,640 --> 00:04:36,760 Speaker 4: making probably ain't that high margin, is it. You know, 87 00:04:36,800 --> 00:04:40,080 Speaker 4: if it's all. So the big question is, Okay, if 88 00:04:40,160 --> 00:04:42,719 Speaker 4: we know that you're not really doing a lot to 89 00:04:42,760 --> 00:04:45,560 Speaker 4: convert the consumers from free to paid, what do your 90 00:04:45,680 --> 00:04:48,599 Speaker 4: enterprise business look like? And that's probably the domain where 91 00:04:48,640 --> 00:04:52,200 Speaker 4: we'll focus. Hey, when you even do a secondary or 92 00:04:52,200 --> 00:04:54,600 Speaker 4: attender with employees, you've got to put a deck together 93 00:04:54,920 --> 00:04:58,880 Speaker 4: that justifies evaluation. So those group of investors, they will 94 00:04:58,880 --> 00:05:01,200 Speaker 4: have seen something in the data room that would say 95 00:05:01,200 --> 00:05:03,279 Speaker 4: this is a five hundred billion dollar company. Like, of 96 00:05:03,279 --> 00:05:04,440 Speaker 4: course they would, that's how it works. 97 00:05:04,520 --> 00:05:06,160 Speaker 2: Well, how come you don't. You haven't gotten your hands 98 00:05:06,160 --> 00:05:06,599 Speaker 2: on that deck? 99 00:05:06,960 --> 00:05:09,800 Speaker 4: You know, a trepid reporter, you know, No, I'll be 100 00:05:09,800 --> 00:05:12,159 Speaker 4: honest about this, Like Sharena has been smashing this story. 101 00:05:12,279 --> 00:05:14,479 Speaker 4: She covers a covery so deeply. And I was on 102 00:05:14,560 --> 00:05:17,839 Speaker 4: vacation for most of August, so you know, I've not 103 00:05:17,960 --> 00:05:21,960 Speaker 4: tracked it as closely for me. You know, the big 104 00:05:22,000 --> 00:05:25,400 Speaker 4: story to focus on with open ai is the corporate restructure, 105 00:05:25,760 --> 00:05:28,279 Speaker 4: you know, from where you have a not for profit 106 00:05:28,320 --> 00:05:31,480 Speaker 4: board that owns the for profit company. That's going to change. 107 00:05:31,520 --> 00:05:35,400 Speaker 2: Okay, So that's where I'm focused. Stay with us. More 108 00:05:35,440 --> 00:05:37,599 Speaker 2: from Bloomberg Intelligence coming up after this. 109 00:05:41,240 --> 00:05:44,960 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 110 00:05:45,040 --> 00:05:48,120 Speaker 1: weekdays at ten am Eastern on Apple, Corplay and Android 111 00:05:48,120 --> 00:05:51,440 Speaker 1: Otto with the Bloomberg Business App. Listen on demand wherever 112 00:05:51,480 --> 00:05:54,600 Speaker 1: you get your podcasts, or watch us live on YouTube. 113 00:05:55,640 --> 00:05:57,839 Speaker 5: Let's talk a little bit about Tessa right now, because 114 00:05:57,960 --> 00:06:01,600 Speaker 5: it reported global vehicle delivery and it was a surprise 115 00:06:01,640 --> 00:06:03,560 Speaker 5: to the upside, so that means we need to bring 116 00:06:03,600 --> 00:06:06,520 Speaker 5: in Craig Trudell. He is our Global autos editor for 117 00:06:06,520 --> 00:06:10,200 Speaker 5: Bloomberg News, joining us from London right now. Craig, not 118 00:06:10,320 --> 00:06:13,479 Speaker 5: a surprise insofar as there was this expiration of the 119 00:06:13,480 --> 00:06:17,160 Speaker 5: federal tax credits for evs coming up, so people were 120 00:06:17,240 --> 00:06:20,000 Speaker 5: kind of rushing to make good use of those tax 121 00:06:20,040 --> 00:06:21,279 Speaker 5: credits before they went away. 122 00:06:21,680 --> 00:06:24,840 Speaker 7: Yeah, that's exactly right. I think there was a widespread 123 00:06:24,880 --> 00:06:27,479 Speaker 7: expectation that, you know, given that the clock was ticking 124 00:06:27,520 --> 00:06:29,800 Speaker 7: on those tax credits, that we were going to see 125 00:06:29,839 --> 00:06:33,520 Speaker 7: a strong third quarter. But this this was even better 126 00:06:33,600 --> 00:06:36,799 Speaker 7: than was you know, expected by by analysts that follow 127 00:06:36,839 --> 00:06:39,840 Speaker 7: the company. I think, you know, we did get indications 128 00:06:39,880 --> 00:06:42,279 Speaker 7: as the month of September was coming to a close 129 00:06:42,360 --> 00:06:45,119 Speaker 7: that more and more analysts were much higher than where, 130 00:06:45,520 --> 00:06:48,479 Speaker 7: you know, where the average was the consensus, if you will, 131 00:06:49,240 --> 00:06:52,000 Speaker 7: And also I should add two just on the energy 132 00:06:52,000 --> 00:06:54,640 Speaker 7: side of the business. It was another record quarter of 133 00:06:55,200 --> 00:06:59,040 Speaker 7: energy storage product deployments. So you know that that is 134 00:06:59,480 --> 00:07:03,159 Speaker 7: still a much smaller portion of of Tesla's you know, 135 00:07:03,240 --> 00:07:06,160 Speaker 7: top and bottom lines, but it was a business that 136 00:07:06,279 --> 00:07:09,159 Speaker 7: you know, was growing pretty rapidly that you know, along 137 00:07:09,240 --> 00:07:12,040 Speaker 7: with the car business was struggling in the first half 138 00:07:12,080 --> 00:07:14,880 Speaker 7: of this year. So to see see that tick up 139 00:07:14,920 --> 00:07:17,200 Speaker 7: as well is another positive for the company. 140 00:07:17,480 --> 00:07:19,120 Speaker 3: Craig, can you give us an update where we are 141 00:07:19,160 --> 00:07:22,880 Speaker 3: in the US in terms of charging capabilities? I mean, 142 00:07:23,280 --> 00:07:24,880 Speaker 3: that's I know, that's a gating issue for a lot 143 00:07:24,880 --> 00:07:26,680 Speaker 3: of people that just don't feel like there's enough charging 144 00:07:27,240 --> 00:07:28,239 Speaker 3: capacity in this country. 145 00:07:28,280 --> 00:07:29,560 Speaker 2: Where are we now and what are some of the 146 00:07:29,560 --> 00:07:30,240 Speaker 2: goals do you think? 147 00:07:30,560 --> 00:07:33,280 Speaker 7: Yeah, I mean, Tesla, you have to give them credit 148 00:07:33,320 --> 00:07:35,600 Speaker 7: for still being you know, really sort of ahead of 149 00:07:35,600 --> 00:07:37,840 Speaker 7: the curve in that regard and to the extent that 150 00:07:37,920 --> 00:07:41,840 Speaker 7: other manufacturers have had, you know, some progress in charging 151 00:07:42,320 --> 00:07:46,680 Speaker 7: getting getting better, it's because Tesla made this decision, you know, 152 00:07:46,800 --> 00:07:48,880 Speaker 7: not that long ago to open up its network to 153 00:07:48,920 --> 00:07:52,920 Speaker 7: other manufacturers. I think that that also is you know 154 00:07:53,000 --> 00:07:55,760 Speaker 7: something that you know, perhaps you know, if you look 155 00:07:55,760 --> 00:07:59,040 Speaker 7: at in hindsight, you know, maybe sort of created something 156 00:07:59,040 --> 00:08:01,760 Speaker 7: of an opening for for other carmakers that you know, 157 00:08:01,800 --> 00:08:04,400 Speaker 7: have made Tesla's life a little bit more difficult in 158 00:08:04,600 --> 00:08:07,160 Speaker 7: the US because they went from having a network that 159 00:08:07,280 --> 00:08:10,760 Speaker 7: was you know, really intuitive and easy to use, that 160 00:08:10,760 --> 00:08:13,680 Speaker 7: that was all to themselves, to opening that to others. 161 00:08:13,800 --> 00:08:17,440 Speaker 7: They of course, you know, that that's become something of 162 00:08:17,440 --> 00:08:20,360 Speaker 7: of a you know business for them to be able 163 00:08:20,400 --> 00:08:27,360 Speaker 7: to you know, charge non Tesla drivers for those charging sessions. 164 00:08:27,440 --> 00:08:29,720 Speaker 7: But that is you know, sort of a drop in 165 00:08:29,760 --> 00:08:32,800 Speaker 7: the bucket relative to to the car business for them. 166 00:08:32,920 --> 00:08:36,080 Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this. 167 00:08:40,000 --> 00:08:43,680 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 168 00:08:43,760 --> 00:08:46,440 Speaker 1: weekdays at ten a m. Eastern on Apple, Cocklay and 169 00:08:46,440 --> 00:08:49,720 Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand 170 00:08:49,800 --> 00:08:53,360 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 171 00:08:54,240 --> 00:08:57,240 Speaker 3: There was a deal today in this space petrochemical space. 172 00:08:58,160 --> 00:09:01,000 Speaker 3: Warren Buffet's Berkshire Hathway reached a deal to buy Occidental 173 00:09:01,000 --> 00:09:05,640 Speaker 3: Petroleum Corporation's petro chemical business for about nine point seven 174 00:09:05,880 --> 00:09:09,120 Speaker 3: billion dollars. Let's break that down with Matthew Pathlosola, senior 175 00:09:09,120 --> 00:09:13,160 Speaker 3: analys covering the insurance business, has been covering Berkshire Hathaway 176 00:09:13,200 --> 00:09:16,760 Speaker 3: and Warren Buffett for many, many years. He's so Bloomberg 177 00:09:16,800 --> 00:09:20,520 Speaker 3: Intelligence joining us via zoom. Here Matthew talk to us 178 00:09:20,520 --> 00:09:25,559 Speaker 3: about what a deal like this means for Berkshire Hathaway. 179 00:09:25,920 --> 00:09:28,800 Speaker 6: Hey, Paul, Yeah, I think it's a good deal for 180 00:09:28,840 --> 00:09:31,920 Speaker 6: Berkshire Hathaway. When you really break it down, the nine 181 00:09:31,960 --> 00:09:34,800 Speaker 6: point seven billion dollars is three percent of the cash 182 00:09:34,800 --> 00:09:38,320 Speaker 6: that Berkshire has on hand, So it's funny to say it, 183 00:09:38,400 --> 00:09:40,920 Speaker 6: but kind of a low stakes deal for Berkshire. I 184 00:09:40,960 --> 00:09:45,360 Speaker 6: think this deal helps Occidental. They really need to de lever, 185 00:09:45,520 --> 00:09:47,640 Speaker 6: so they're going to use six point five billion dollars 186 00:09:47,679 --> 00:09:50,720 Speaker 6: with that cash to de lever, which could help their stock, 187 00:09:50,760 --> 00:09:53,800 Speaker 6: which then could also have hel help Berkshire's eleven billion 188 00:09:53,840 --> 00:09:56,520 Speaker 6: dollar steak in Occidental. So I think it's kind of 189 00:09:56,880 --> 00:09:59,000 Speaker 6: a multi layered win for Berkshire Hathaway. 190 00:10:00,160 --> 00:10:03,480 Speaker 5: What does it say about Warren Buffett's willingness to buy 191 00:10:03,559 --> 00:10:06,400 Speaker 5: right now when the market is trading at much higher 192 00:10:06,440 --> 00:10:10,360 Speaker 5: valuations than historically it has been, And I get that 193 00:10:10,400 --> 00:10:12,640 Speaker 5: most of that is because of the tech industry. But 194 00:10:12,760 --> 00:10:16,400 Speaker 5: even beyond that, overall valuation is not low. 195 00:10:18,120 --> 00:10:23,360 Speaker 6: Yeah, Scarlett, I would say Buffett's inclination to be buying 196 00:10:23,440 --> 00:10:27,200 Speaker 6: anything is probably low. At the moment. Berkshire has not 197 00:10:27,240 --> 00:10:29,320 Speaker 6: been buying back their own stock, which is up ten 198 00:10:29,360 --> 00:10:33,080 Speaker 6: percent year to date, so their buybacks are essentially nil. 199 00:10:33,559 --> 00:10:38,040 Speaker 6: They and their equity portfolio they've sold about eleven billion 200 00:10:38,120 --> 00:10:41,560 Speaker 6: dollars net year to date. So you're a spot on 201 00:10:41,679 --> 00:10:45,280 Speaker 6: to say valuations are high and Berkshi is probably not 202 00:10:45,360 --> 00:10:46,960 Speaker 6: buying a lot of stuff. I think this was probably 203 00:10:47,000 --> 00:10:52,120 Speaker 6: just a unique opportunity. The deal valuation is pretty good, 204 00:10:52,160 --> 00:10:54,200 Speaker 6: the terms are pretty good, so I think this was 205 00:10:54,520 --> 00:10:58,560 Speaker 6: Berkshire taking advantage of their relationship with Occidental and doing 206 00:10:58,600 --> 00:11:01,440 Speaker 6: something that could help both. This is some sort of 207 00:11:01,520 --> 00:11:05,440 Speaker 6: statement on wanting to buy more in the market, all right. 208 00:11:05,480 --> 00:11:08,280 Speaker 3: Well, on the same day that Bircher Hathaway spends ten 209 00:11:08,280 --> 00:11:13,200 Speaker 3: billion dollars on a petrochemical business, Open Ai, some employees 210 00:11:13,200 --> 00:11:17,480 Speaker 3: there sold some stock to private equity at a five 211 00:11:17,640 --> 00:11:23,679 Speaker 3: hundred billion dollar valuation, how does Bircher Hathaway think about tech? 212 00:11:23,720 --> 00:11:27,080 Speaker 3: Because if you want to put money to work, there's 213 00:11:27,080 --> 00:11:29,680 Speaker 3: some big evaluations out there in the world of tech technology, 214 00:11:29,679 --> 00:11:31,240 Speaker 3: But how did they generally think about tech? 215 00:11:32,600 --> 00:11:37,760 Speaker 6: Yeah, Paul generally been tech adverse, right. I think Buffett 216 00:11:38,880 --> 00:11:42,400 Speaker 6: has tended to invest in things that he has a 217 00:11:42,440 --> 00:11:45,920 Speaker 6: deep understanding of. He has said it was a mistake 218 00:11:46,000 --> 00:11:49,079 Speaker 6: to not invest in Amazon sooner, which you call it 219 00:11:49,240 --> 00:11:54,000 Speaker 6: tech or retail, but he lamented that obviously big investor 220 00:11:54,040 --> 00:11:56,920 Speaker 6: in Apple, which though he kind of sees as a 221 00:11:57,040 --> 00:12:00,760 Speaker 6: retail consumer company versus more than tech. So they have 222 00:12:00,960 --> 00:12:05,480 Speaker 6: very little in the way of cutting edge tech plays 223 00:12:05,600 --> 00:12:11,679 Speaker 6: or AI investments. The investment managers will probably be a 224 00:12:11,720 --> 00:12:13,920 Speaker 6: little more inclined to do that, and maybe Greg Abel. 225 00:12:14,000 --> 00:12:15,960 Speaker 6: So Buffett has only got a couple of months left 226 00:12:16,080 --> 00:12:19,120 Speaker 6: totally at the HELM, I'm sure he'll be involved kind 227 00:12:19,120 --> 00:12:23,640 Speaker 6: of tangentially, but you might see a shift in the 228 00:12:23,720 --> 00:12:25,959 Speaker 6: upcoming years towards more tech investments. 229 00:12:26,520 --> 00:12:29,480 Speaker 5: I'm so glad you mentioned Greg Gable because this latest 230 00:12:29,480 --> 00:12:32,680 Speaker 5: purchase of oxy can nine point seven billion dollars. You 231 00:12:32,679 --> 00:12:34,560 Speaker 5: were saying that Berksher is not making a lot of 232 00:12:34,559 --> 00:12:38,040 Speaker 5: purchases right now. Is this being spearheaded by Warren Buffett 233 00:12:38,200 --> 00:12:39,640 Speaker 5: or is this a Greg Abel call? 234 00:12:41,040 --> 00:12:43,440 Speaker 6: So we don't really know. I mean the press release 235 00:12:43,480 --> 00:12:47,440 Speaker 6: that came out had a quote from Greg Gable only 236 00:12:47,640 --> 00:12:51,560 Speaker 6: in it. I would suspect that Greg probably did most 237 00:12:51,640 --> 00:12:53,600 Speaker 6: of the work on this. Buffett has been saying for 238 00:12:53,640 --> 00:12:56,080 Speaker 6: a while now that he's stepped back from the day 239 00:12:56,120 --> 00:12:58,800 Speaker 6: to day operations of the company, and Greg is kind 240 00:12:58,800 --> 00:13:01,040 Speaker 6: of doing a lot of that leg I would think 241 00:13:01,120 --> 00:13:03,800 Speaker 6: on something of this size, even though I just said 242 00:13:03,800 --> 00:13:06,040 Speaker 6: it was three percent of Burcher's cash, it's still almost 243 00:13:06,040 --> 00:13:08,120 Speaker 6: ten million dollars in a lot of money. I think 244 00:13:08,720 --> 00:13:11,079 Speaker 6: Buffett was probably involved, but if I had to guess, 245 00:13:11,080 --> 00:13:13,079 Speaker 6: I would think Abel probably did a lot of the 246 00:13:13,160 --> 00:13:14,120 Speaker 6: legwork on this deal. 247 00:13:14,480 --> 00:13:16,680 Speaker 3: It was a beautiful afternoon yesterday at the Jersey shore. 248 00:13:16,679 --> 00:13:19,080 Speaker 3: I hopped on the Vestpa went to the beach and 249 00:13:19,120 --> 00:13:21,000 Speaker 3: I could not believe how rough. 250 00:13:20,880 --> 00:13:21,600 Speaker 2: The surf is. 251 00:13:21,720 --> 00:13:25,000 Speaker 3: And apparently there's a couple of hurricanes and storms out 252 00:13:25,120 --> 00:13:27,280 Speaker 3: at sea that's really churning things up, which got me 253 00:13:27,320 --> 00:13:30,960 Speaker 3: thinking about you, Matt, talk to us about the hurricane 254 00:13:31,000 --> 00:13:33,520 Speaker 3: season from the insurance perspective. Has it been so far 255 00:13:33,559 --> 00:13:34,040 Speaker 3: this season? 256 00:13:34,920 --> 00:13:38,000 Speaker 6: Yeah, thanks Paul. Whenever you think of hurricanes, please think 257 00:13:38,040 --> 00:13:42,760 Speaker 6: of this natural disasters. It was exactly so. It's been 258 00:13:42,800 --> 00:13:45,600 Speaker 6: a very mild hurricane season in terms of land falls, right, 259 00:13:45,640 --> 00:13:47,360 Speaker 6: you haven't. You haven't talked to me much, right, so 260 00:13:48,280 --> 00:13:50,520 Speaker 6: we haven't seen a lot. What actually happened was there 261 00:13:50,520 --> 00:13:52,480 Speaker 6: was a hurricane coming and it was headed right towards 262 00:13:52,480 --> 00:13:56,080 Speaker 6: the Carolinas, and then another hurricane, which is a category 263 00:13:56,120 --> 00:13:59,280 Speaker 6: five completely over the ocean, sucked it away and kind 264 00:13:59,280 --> 00:14:02,360 Speaker 6: of pulled it away way from the US coast, kind 265 00:14:02,360 --> 00:14:05,320 Speaker 6: of saved the day for it. They are impacting Bermuda. 266 00:14:05,400 --> 00:14:08,680 Speaker 6: Now I don't expect major insured losses from that, but 267 00:14:10,040 --> 00:14:13,920 Speaker 6: so pretty benign season, good for reinsurance companies, Paul, your 268 00:14:13,960 --> 00:14:18,040 Speaker 6: favorite stocks, and we do have something. The National Hurricane 269 00:14:18,040 --> 00:14:25,320 Speaker 6: Center is identified another system that is brewing up and 270 00:14:25,360 --> 00:14:27,600 Speaker 6: could develop into something next week, so we'll stay tuned 271 00:14:27,600 --> 00:14:29,080 Speaker 6: for that. But mile season so far. 272 00:14:29,400 --> 00:14:31,640 Speaker 5: Yeah, I feel like I never want to talk about 273 00:14:31,640 --> 00:14:33,960 Speaker 5: this because the minute you'd be talking about how quiet 274 00:14:34,000 --> 00:14:36,640 Speaker 5: it is is when things really gear up and you 275 00:14:36,680 --> 00:14:38,440 Speaker 5: get a massive storm like the next week. 276 00:14:38,600 --> 00:14:43,480 Speaker 3: Yeah, like, and that happens so real quick, Matt. Just overall, 277 00:14:43,520 --> 00:14:46,479 Speaker 3: how your stock's performing this year? The property and casually insures. 278 00:14:47,240 --> 00:14:50,840 Speaker 6: Not great, the underperforming year to date. We've got tower 279 00:14:50,880 --> 00:14:54,960 Speaker 6: of pressure. Everything can costs more to repair. Lower interest 280 00:14:55,040 --> 00:14:56,440 Speaker 6: rates are not a good thing for the P and 281 00:14:56,480 --> 00:14:59,760 Speaker 6: C names. So Bircher's actually stand out, you know, not 282 00:14:59,800 --> 00:15:02,920 Speaker 6: being an actual peer play P and C company that 283 00:15:02,920 --> 00:15:04,840 Speaker 6: that stocked up ten percent year to date, but the 284 00:15:04,880 --> 00:15:06,720 Speaker 6: rest of the group is down here to date, So 285 00:15:07,720 --> 00:15:11,080 Speaker 6: we're probably looking at peak ros and evaluations got peaked 286 00:15:11,080 --> 00:15:12,720 Speaker 6: before that, So I think that's what we're seeing with 287 00:15:12,760 --> 00:15:14,040 Speaker 6: the P and C stocks. 288 00:15:14,680 --> 00:15:17,760 Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this. 289 00:15:21,280 --> 00:15:24,960 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 290 00:15:25,040 --> 00:15:28,160 Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android 291 00:15:28,160 --> 00:15:31,480 Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever 292 00:15:31,520 --> 00:15:34,640 Speaker 1: you get your podcasts, or watch us live on YouTube. 293 00:15:35,600 --> 00:15:36,120 Speaker 2: We were just. 294 00:15:36,080 --> 00:15:38,760 Speaker 5: Talking about McDonald's and how we don't get a chance 295 00:15:38,760 --> 00:15:40,760 Speaker 5: to go very often, even though there is a McDonald's 296 00:15:40,760 --> 00:15:43,400 Speaker 5: Paul just across the street from US at Worldwide Headquarters. 297 00:15:43,440 --> 00:15:45,200 Speaker 3: Well, I should go to McDonald's fast food when I 298 00:15:45,240 --> 00:15:46,800 Speaker 3: was traveling in airports that would meet by. 299 00:15:46,880 --> 00:15:49,960 Speaker 2: Oh that'd be my one time, I'll goo. Yeah, it's 300 00:15:50,000 --> 00:15:50,960 Speaker 2: just all high end stuff. 301 00:15:51,080 --> 00:15:52,840 Speaker 5: Well, I think we need to move to northern Texas 302 00:15:52,920 --> 00:15:55,680 Speaker 5: because that is where McDonald's is focused on in terms 303 00:15:55,720 --> 00:15:58,840 Speaker 5: of expanding and building out restaurants. This is actually our 304 00:15:58,880 --> 00:16:02,520 Speaker 5: big Take story of the day. Christina Peterson is Bloomberg's 305 00:16:02,520 --> 00:16:04,800 Speaker 5: food reporter and she was the author of the story. 306 00:16:05,000 --> 00:16:07,840 Speaker 5: And Christina, this is about how McDonald's is looking to 307 00:16:08,120 --> 00:16:12,520 Speaker 5: build out fifty thousand restaurants overall. Where are we in 308 00:16:12,600 --> 00:16:14,560 Speaker 5: terms of that goal to get to fifty thousand or 309 00:16:14,600 --> 00:16:16,720 Speaker 5: is it like a third of the way there, halfway there, 310 00:16:16,880 --> 00:16:18,920 Speaker 5: three quarters of the way there. 311 00:16:18,640 --> 00:16:22,240 Speaker 8: They're more than that. They are in the forty thousand range. 312 00:16:22,560 --> 00:16:24,720 Speaker 8: I think it was forty one thousand about a year ago, 313 00:16:24,760 --> 00:16:27,960 Speaker 8: so steadily getting closer. That actually will not make them 314 00:16:27,960 --> 00:16:30,760 Speaker 8: the biggest restaurant train in the world. That has mixed 315 00:16:30,760 --> 00:16:34,000 Speaker 8: you the Chinese bubble team makers at fifty three thousand, 316 00:16:34,040 --> 00:16:36,120 Speaker 8: but they will definitely be closer. 317 00:16:35,760 --> 00:16:36,280 Speaker 4: To that goal. 318 00:16:36,920 --> 00:16:41,040 Speaker 3: Hey, Subway, I bet you's up there too, because they're everywhere. Christina, 319 00:16:41,160 --> 00:16:43,920 Speaker 3: So what's going on here with Donald's. I would have 320 00:16:43,960 --> 00:16:45,200 Speaker 3: if you had to ask me how, I would have said, 321 00:16:45,200 --> 00:16:48,560 Speaker 3: there's some McDonald's on every corner in every city USA. 322 00:16:48,880 --> 00:16:50,400 Speaker 3: Why are they going on this expansion? 323 00:16:51,520 --> 00:16:51,720 Speaker 6: Right? 324 00:16:52,000 --> 00:16:55,240 Speaker 8: Well, for years they were actually shuddering more restaurants than 325 00:16:55,280 --> 00:16:58,480 Speaker 8: they were opening. Between twenty fifteen and twenty twenty one, 326 00:16:58,600 --> 00:17:01,920 Speaker 8: they closed a net of nine hundred sum stores, some 327 00:17:02,000 --> 00:17:06,080 Speaker 8: of them were inside walmarts. But since twenty twenty two, 328 00:17:06,200 --> 00:17:10,560 Speaker 8: they have been reversing that strategy and expanding, opening new locations, 329 00:17:10,920 --> 00:17:13,280 Speaker 8: and they've really been trying to follow where the population 330 00:17:13,480 --> 00:17:16,720 Speaker 8: is going. So, for example, North Texas is a place 331 00:17:16,760 --> 00:17:20,000 Speaker 8: where people are just flooding. Texas in general has seen 332 00:17:20,040 --> 00:17:23,199 Speaker 8: two million people move there since twenty twenty, So they 333 00:17:23,280 --> 00:17:26,560 Speaker 8: are chasing those new diners, trying to get as close 334 00:17:26,600 --> 00:17:28,719 Speaker 8: to where people are living now as they can. And 335 00:17:29,040 --> 00:17:31,199 Speaker 8: McDonald says that its goal is to be within a 336 00:17:31,240 --> 00:17:34,199 Speaker 8: five minute drive from as many people as possible, So 337 00:17:34,240 --> 00:17:36,240 Speaker 8: they're just trying to go where those people are now. 338 00:17:36,600 --> 00:17:39,040 Speaker 5: Yeah, we were just talking earlier about how Dallas has 339 00:17:39,119 --> 00:17:41,879 Speaker 5: really exploded in terms of population growth, in terms of 340 00:17:41,920 --> 00:17:44,600 Speaker 5: being a place where folks want to move to because 341 00:17:44,640 --> 00:17:47,760 Speaker 5: of the lower cost of living. Is McDonald's an early 342 00:17:47,800 --> 00:17:51,400 Speaker 5: bird or a latecomer to the population boom in Northern 343 00:17:51,600 --> 00:17:53,359 Speaker 5: Dallas Northern Texas? 344 00:17:53,640 --> 00:17:53,840 Speaker 4: Is it? 345 00:17:53,960 --> 00:17:56,960 Speaker 5: You know, the master planned communities are building out, but 346 00:17:57,440 --> 00:18:00,000 Speaker 5: are there stores or brands that are ahead of McDonald 347 00:18:00,240 --> 00:18:02,640 Speaker 5: in that effort to populate it. 348 00:18:02,640 --> 00:18:05,960 Speaker 8: It's such an interesting point because they are still earlier 349 00:18:06,000 --> 00:18:09,040 Speaker 8: than many other brands, but they are not as early 350 00:18:09,080 --> 00:18:11,800 Speaker 8: in these spots as they once would have otherwise been. 351 00:18:12,359 --> 00:18:15,399 Speaker 8: Oftentimes McDonald's is one of the first businesses to open 352 00:18:15,840 --> 00:18:19,240 Speaker 8: in places like this. They aren't the earliest. We see 353 00:18:19,560 --> 00:18:22,160 Speaker 8: forty some McDonald's in the Dallas area in the past 354 00:18:22,240 --> 00:18:25,880 Speaker 8: few years, but the population there has been absolutely exploding, 355 00:18:26,359 --> 00:18:30,080 Speaker 8: so they're still ahead of the full wave. But they 356 00:18:30,119 --> 00:18:34,520 Speaker 8: were not the very earliest pioneers in these places where 357 00:18:34,680 --> 00:18:36,320 Speaker 8: many people would have expected them to be. 358 00:18:36,800 --> 00:18:37,200 Speaker 2: Christina. 359 00:18:37,240 --> 00:18:39,439 Speaker 3: I know you traveled to North Texas for this story. 360 00:18:39,680 --> 00:18:42,760 Speaker 3: My question is, where's Texas putting all these people? Are 361 00:18:42,800 --> 00:18:45,240 Speaker 3: they just building houses in the middle of the desert somewhere. 362 00:18:45,840 --> 00:18:48,080 Speaker 8: The houses are just popping up. When I was there, 363 00:18:48,080 --> 00:18:49,720 Speaker 8: I would talk to people who had moved to the 364 00:18:49,760 --> 00:18:54,399 Speaker 8: area weeks or even days earlier. They're an enormous number 365 00:18:54,400 --> 00:18:57,840 Speaker 8: of houses being built, and they're expanding. The Dallas North Tollway, 366 00:18:58,200 --> 00:19:02,040 Speaker 8: which goes north from Dallas. Slina, where I went, was 367 00:19:02,040 --> 00:19:05,200 Speaker 8: about fifty minutes away, and that highway is going to 368 00:19:05,240 --> 00:19:07,680 Speaker 8: reach there by twenty twenty seven. So you see, as 369 00:19:08,080 --> 00:19:11,240 Speaker 8: transit gets easier, as it's faster to get to these places, 370 00:19:11,359 --> 00:19:12,600 Speaker 8: more and more people are moving there. 371 00:19:14,000 --> 00:19:17,920 Speaker 5: So a company like McDonald's is massive, and I imagine 372 00:19:17,960 --> 00:19:20,840 Speaker 5: that a goal to get to fifty thousand restaurants takes 373 00:19:20,840 --> 00:19:24,560 Speaker 5: some time to play out. So the fact that it's 374 00:19:24,680 --> 00:19:27,679 Speaker 5: doing all this, is this a move now to expand 375 00:19:27,760 --> 00:19:30,119 Speaker 5: in response to conditions that it spotted. I don't know, 376 00:19:30,200 --> 00:19:32,680 Speaker 5: a year ago, or three years ago or five years ago. 377 00:19:32,720 --> 00:19:35,560 Speaker 5: I'm just wondering how quickly McDonald's can decide on something 378 00:19:35,840 --> 00:19:37,359 Speaker 5: and then execute on it. 379 00:19:38,720 --> 00:19:41,080 Speaker 8: Yeah, I mean this is definitely years in the making. 380 00:19:41,840 --> 00:19:44,800 Speaker 8: Being convenient as a cornerstone of their strategy, and I 381 00:19:44,840 --> 00:19:48,679 Speaker 8: think they've just had to reconfigure where that convenience is, 382 00:19:48,840 --> 00:19:52,280 Speaker 8: where the people are. They have a very extensive team 383 00:19:52,320 --> 00:19:55,399 Speaker 8: that follows demographics other people in the industry watch to 384 00:19:55,440 --> 00:19:59,120 Speaker 8: see where McDonald's open. We spoke to an executive who 385 00:19:59,200 --> 00:20:01,600 Speaker 8: had previously been at Chipotle, and she said she knew 386 00:20:01,600 --> 00:20:03,720 Speaker 8: when there were three McDonald's in an area, they were 387 00:20:03,720 --> 00:20:07,320 Speaker 8: ready for other restaurants. So they're very sophisticated with these 388 00:20:07,400 --> 00:20:08,480 Speaker 8: kinds of calculations. 389 00:20:09,160 --> 00:20:12,479 Speaker 3: Any early feedback on how some of these new stores 390 00:20:12,480 --> 00:20:12,920 Speaker 3: are doing. 391 00:20:13,880 --> 00:20:16,399 Speaker 8: Yeah, we looked at third party data that showed that 392 00:20:16,440 --> 00:20:20,000 Speaker 8: these stores are not quite as busy as more established 393 00:20:20,000 --> 00:20:24,240 Speaker 8: stores and denser areas. McDonald's told us it typically takes 394 00:20:24,280 --> 00:20:26,480 Speaker 8: two or three years for a new location to catch 395 00:20:26,560 --> 00:20:31,000 Speaker 8: up on traffic with older stores, and they see positive signs. 396 00:20:31,320 --> 00:20:34,280 Speaker 8: So it could be that as these cities become more populous, 397 00:20:34,359 --> 00:20:38,520 Speaker 8: these McDonald's will become more frequently visited. And it was 398 00:20:38,600 --> 00:20:42,359 Speaker 8: interesting other businesses in these Texas towns said they weren't 399 00:20:42,400 --> 00:20:45,800 Speaker 8: being cannibalized by McDonald's opening. There's just a lot of 400 00:20:45,800 --> 00:20:48,520 Speaker 8: business for everyone where cities are growing as fast as 401 00:20:48,520 --> 00:20:48,920 Speaker 8: these are. 402 00:20:49,920 --> 00:20:52,479 Speaker 5: Christian. Final question to you, how is this expansion going 403 00:20:52,520 --> 00:20:54,720 Speaker 5: to show up in the financials? And I wonder whether 404 00:20:54,840 --> 00:20:57,959 Speaker 5: investors will give McDonald's credit for it, because, as you know, 405 00:20:58,160 --> 00:21:01,560 Speaker 5: typically analyst tracks seam stores sales sales at stores open 406 00:21:01,600 --> 00:21:03,439 Speaker 5: for at least a year to gauge demand, and now 407 00:21:03,520 --> 00:21:06,560 Speaker 5: McDonald's is building out new stores, which I guess don't 408 00:21:06,600 --> 00:21:08,520 Speaker 5: quite filter into the revenue number in the same way. 409 00:21:09,240 --> 00:21:12,040 Speaker 8: Well, one thing that's interesting is that McDonald's has raised 410 00:21:12,080 --> 00:21:16,000 Speaker 8: the royalty fee for many new franchise owners, so there 411 00:21:16,080 --> 00:21:18,720 Speaker 8: is more revenue that they are getting from these stores. 412 00:21:19,240 --> 00:21:22,280 Speaker 8: Same store stales hit their lowest point in a decade 413 00:21:22,320 --> 00:21:25,760 Speaker 8: last year, but have been more positive this year, so 414 00:21:25,880 --> 00:21:29,119 Speaker 8: there are signs that this is good for McDonald's corporate numbers. 415 00:21:30,320 --> 00:21:35,000 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, 416 00:21:35,200 --> 00:21:39,160 Speaker 1: and anywhere else you get your podcasts. 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