Speaker 1: From Marhart where Innovation, Money and Power Collie in Silicon Valley, NBN.
Speaker 2: This is Bloomberg Technology with Caroline Hyde and Ed lud Love.
Speaker 3: I'm Caroline Heinde at Bloomberg's World headquarters in New York,
Speaker 3: and I'm Ed Loudlin in San Francisco.
Speaker 4: Happy Friday. This is Blaming Big Technology.
Speaker 3: Coming up, Ed, we'll dig into the details coming to light,
Speaker 3: I mean Google's anti trust trial. Will dive deeper into
Speaker 3: that and get a look at big text performance this.
Speaker 4: Week and how Huawei's surprise comeback marks a new phase
Speaker 4: in the tech cold war. Will have the latest on
Speaker 4: the US and China's battle for technological dominance. That's ahead.
Speaker 3: Plus we'll get a read on the state of crypto.
Speaker 3: One year since Fchex's collapsed and as the co founder
Speaker 3: of Three Arrows Capital, it's detained trying to leave Singapore.
Speaker 3: The first Let's check in on these markets, including crypto.
Speaker 3: But I'm looking at the NASTAC actually coming off of
Speaker 3: its highs. We're up more than one point four percent
Speaker 3: in earlier trade.
Speaker 5: The mood dips a little bit on the back of well, the.
Speaker 3: Strike's still being protracted and shifting up a gear when
Speaker 3: it comes to the auto sector. But when you looked
Speaker 3: at some of the infrationary pressures, particularly the preferred gauge
Speaker 3: from the Fed PCE, actually looking like inflationary pressure just
Speaker 3: easing off a bit. So we're up six tens percent.
Speaker 3: The two year yield dips down only by two basis points,
Speaker 3: but still we're now at five point zero four let's
Speaker 3: call it on the two year Blueberg Dollar index bounces
Speaker 3: off of its lows, but we're still off by about
Speaker 3: tenth of a percent, So I think that's helping risk
Speaker 3: appetite today across the board. Moving on, have a little
Speaker 3: look at what's happening on individual areas asset classes. I
Speaker 3: bring you crypto because as the dollar is lower, so
Speaker 3: to his bitcoin, so actually risk aversion when it comes
Speaker 3: to the world of crypto, we're basically the bouncing around
Speaker 3: a certain area of trade twenty six, eight hundred and seventy. Look,
Speaker 3: we've been really range bound at the moment ed, but
Speaker 3: going to some of the micros, the individual moves when
Speaker 3: it comes to stocks.
Speaker 4: Yeah, there's no sort of hyperbolic or standout move. I
Speaker 4: know that we're going to be looking really closely at
Speaker 4: Google and the government's antitrust pursuit of Google in the
Speaker 4: search context. Throughout the show, that stock a little bit softer,
Speaker 4: two tents of one percent in the session. Bloomberger reported,
Speaker 4: citing sources that back in twenty twenty, Apple was considering
Speaker 4: buying bing from Microsoft, that search engine. That's kind of
Speaker 4: played into what's happening in the courts with the testimony
Speaker 4: we've had from Apple executives about the relationship with Google
Speaker 4: and search. That stock seven tens of percent higher. Not
Speaker 4: saying there's a causal relationship there, but it's just interesting
Speaker 4: to see Apple up for a second day. I actually
Speaker 4: want to go back to the index level because there's
Speaker 4: a lot going on right now. We're kind of modestly
Speaker 4: higher on the week on the Nasdaq one hundred, around
Speaker 4: half a percentage point or so, but we're snapping, as
Speaker 4: it stands three straight weeks of declines on the Nasdaq
Speaker 4: one hundred, and we're passing economic data. We're thinking about, well,
Speaker 4: if the FED leaves rates higher for longer, does that
Speaker 4: make megacaps attractive in the scheme of things. Na's that
Speaker 4: one hundred up to six tens one percent on the week,
Speaker 4: but actually September has been a bit rough for technology
Speaker 4: in general, and I cited the case of Apple. Apple's
Speaker 4: actually down quite a lot from each julypeak. What's going
Speaker 4: on here, Karl?
Speaker 3: Yeah, let's ask someone who knows who's going to get
Speaker 3: us a broad investing outlook Sarada's money is with US
Speaker 3: portfolio manager Martin Curry, head of Global Long Term Unconstrained
Speaker 3: Invents Investing.
Speaker 5: It's great to have you here, Welcome to the show.
Speaker 6: Thank you.
Speaker 5: What do you make of the landscape right now?
Speaker 3: There are headwinds when it comes to regulation, there are
Speaker 3: headwinds when it comes to macro environment when we're thinking
Speaker 3: more inflationary pressure. Can technology still be an area to
Speaker 3: be allocating over allocating to?
Speaker 7: The short answer is yes, we're very positive still on technology,
Speaker 7: but you have to be very selective in particular, you
Speaker 7: have to have devolution discipline always, but more so at
Speaker 7: this stage in the cycle, when we're heading into a
Speaker 7: potential risk of sloden or potential recession. That discussion around
Speaker 7: recession risk has receded for Visuo, but we believe that
Speaker 7: when we're looking into twenty twenty four, there are headwinds
Speaker 7: that could make the economic landscape more uncertain Notably, we've
Speaker 7: got the US economy with grappling with rates that have
Speaker 7: increased quite rapidly. We've got the Chinese economy as the
Speaker 7: second largest economy globally that is starting to lose momentum,
Speaker 7: and there's uncertainty but next year after the initial recovery
Speaker 7: that we've seen this year. So there are a lot
Speaker 7: of things to grapple with on the economic front.
Speaker 3: You've grappled for years before, we've had downturns. I know
Speaker 3: you come from very senior roles at Black Rock. You
Speaker 3: waded through two thousand and eight financial crisis. You've been there,
Speaker 3: done that, And therefore, with that sort of mindset, do
Speaker 3: you have to be allocating into mega trends. You have
Speaker 3: to be thinking about valuations, even with the optimism around AI.
Speaker 3: I mean, as in video, just too extraordinarily highly valued now.
Speaker 7: Yes, So there are a few things that we'd want
Speaker 7: to highlight. Firstly, on valuation, we want to remain discipline,
Speaker 7: so we use a discount rate that is capturing some
Speaker 7: of the potential for rates to be longer higher for longer.
Speaker 7: So we've got an assumption of five percent for our
Speaker 7: restory rate in the long term and this is something
Speaker 7: that we've been assuming for a long time.
Speaker 6: So even when.
Speaker 7: Rates were at zero close to zero negative in some
Speaker 7: economies eighteen months ago, we use the assumption that monetary
Speaker 7: policies would normalize and rates would go to initially four percent,
Speaker 7: and then last September we increase assumption to five percent,
Speaker 7: and that was on the basis of an assumption that
Speaker 7: inflation was going to be stickier and longer lasting. So
Speaker 7: we're assuming a long term inflation in our models of
Speaker 7: three percent. So that's on the economic side and on
Speaker 7: the valuation front. Then in terms of mega trends, you're
Speaker 7: absolutely right. The way we look at opportunities going forward
Speaker 7: is looking at three mega trends, demographic changes, future of technology,
Speaker 7: and resource scarcity. And these are mega trends we'll be
Speaker 7: talking about for the next decade, two decades, three decades.
Speaker 6: They're here to stay.
Speaker 7: There are themes that are evolving within those mega trends,
Speaker 7: and AI is an important one in particular, but generally speaking,
Speaker 7: that permits us to put our clients strateg is on
Speaker 7: long term structural growth opportunities looking forward rather than looking backwards.
Speaker 7: Then onto your third question, which is around Nvidia and
Speaker 7: AI and valuation around that. Our view is that you
Speaker 7: have to focus on companies that have a profitable profile,
Speaker 7: and we look at that as companies that have high
Speaker 7: returns and invested capital improvement in returns as well as
Speaker 7: an attractive gross profile. And we like that gross to
Speaker 7: come from revenues, not just profits. So when you look
Speaker 7: at a company like Nvidia, we forecast sales growth at
Speaker 7: Nvidia of about thirty percent annualized over the next five years,
Speaker 7: and when you look at the bottom line, we're looking
Speaker 7: at closer to forty percent annualized over the next five years.
Speaker 7: So then when you're looking at the valuation of the stock,
Speaker 7: even just taking the pe a P twelve months forward
Speaker 7: of about thirty times, you look at a company on
Speaker 7: a PE to earnings gross ratio over the next five
Speaker 7: years of less than one. So that to us, as
Speaker 7: a rule of some can argue that Nvidia still has
Speaker 7: strong voluation support.
Speaker 4: Zerio it to dead in San Francisco. It's good to
Speaker 4: see you and thank you for making it through the
Speaker 4: storm in New York City to join us on the program.
Speaker 4: On that assumption that you just outline, I think it's
Speaker 4: so interesting because there's an element of surprise that some
Speaker 4: of the other mega caps in trench market positions big
Speaker 4: balance sheets also get hit. Right that you outline this
Speaker 4: assumption that the rest of the market has higher for longer.
Speaker 4: Does the case for being overweight a name like Apple
Speaker 4: or another megacap hold up in a world where treasuries
Speaker 4: are pushing five percent? Do you see what I mean?
Speaker 7: Yes, you're absolutely right hired. So there's a few things
Speaker 7: to bear in mind. Yes, quality gross companies such as Apple,
Speaker 7: such as Nvidia, which we define as high returns high
Speaker 7: gross profile, generally tend to be impacted negatively by rising
Speaker 7: rates or rising rates expectations because these are long duration names.
Speaker 6: But there's a few aspects to mention.
Speaker 7: Firstly, as you've got right in rates, you've got potential
Speaker 7: risk of economic cycle turning more negative, and in that instance,
Speaker 7: we want to have companies that have both structural growth
Speaker 7: exposures because that permits them to generate their own weather
Speaker 7: at a time when growth could be challenged at the
Speaker 7: economic level. Secondly, companies that have strong balance sheets, because
Speaker 7: if we're heading towards a sharp slowdown or potential risk
Speaker 7: of recession, you want companies to have solid balance sheets. Thirdly,
Speaker 7: companies that have pricing power because in a higher inflation
Speaker 7: for longer environment, companies with pricing power will be able
Speaker 7: to better protect their margins and force companies that have
Speaker 7: resilience in terms of earning stand grades, because we still
Speaker 7: have a view that there's going to be ongoing earning
Speaker 7: standing grades. So we want to be in companies that
Speaker 7: either resist those stand grades or are able to actually
Speaker 7: quite at the opposite surprise on the upside.
Speaker 6: And so when we look across some.
Speaker 7: Of the technological landscape, we do companies that have all
Speaker 7: those characteristics. And that's so once we want to focus
Speaker 7: on so yes, nearer term, the market will always have
Speaker 7: the knee jerk reaction of selling down or selling out
Speaker 7: of quality growth companies as rates increase because of them
Speaker 7: being longer duration and therefore more sensitive to rates. But
Speaker 7: as you think about the second round effect of higher
Speaker 7: rates bringing potential risks to the economic cycle, you want
Speaker 7: to be in exactly those companies that can weather.
Speaker 6: That's taught we've gone so macro.
Speaker 4: I just want to go micro for a minute, because
Speaker 4: I know you follow in video very closely. The news
Speaker 4: twenty four hours ago was that France's regulator raided in
Speaker 4: videos Paris offices in a sort of antitrust action. Do
Speaker 4: something like that concern you.
Speaker 7: We did see that there was that anti antitrust grade.
Speaker 7: At this stage, we're still taking stock of that news.
Speaker 7: We do have a consistent assessment of companies in terms
Speaker 7: of risks, and in the company risk section we have
Speaker 7: an element of regulatory risk assessment. We rate our companies
Speaker 7: from one to five, one being low risk, five being
Speaker 7: high risk, and in the case of Nvidia, we have
Speaker 7: a risk rating on the regulatory side of three, so
Speaker 7: neutral generally. So we're going to be keeping an eye
Speaker 7: on this specific news, but at this stage we are
Speaker 7: not able to comment any further.
Speaker 3: You can go so global for us though, and I
Speaker 3: like that you mentioned China as a macro headwind. China
Speaker 3: on the geopolitical and micro perspective as well, is going
Speaker 3: to be impacting the likes of in video of well,
Speaker 3: any company Tesla with an exposure to China. How do
Speaker 3: you think about that in your risk modeling?
Speaker 6: It's an important focus for us.
Speaker 7: So you asked earlier about mega trends, but within those
Speaker 7: mega trends there are themes, and there are eight themes
Speaker 7: that we particularly focus on going forward in the midterm.
Speaker 7: Four of them are actually related to that technological and
Speaker 7: potential geopolitical and certainty, and the biggest one is what
Speaker 7: we label technological and geopolitical fragmentation, and that comes from
Speaker 7: that risk around Taiwan and the China ambitions around Taiwan,
Speaker 7: the US and the European approach to that territory, the
Speaker 7: need to actually manage the geopolitical risk by the governments,
Speaker 7: and therefore the US encouraging TSMC to build a plant
Speaker 7: in their territory, Japan doing the same. We believe Europe
Speaker 7: will be doing the same. That's leading to technological fragmentation.
Speaker 7: There are potential challenges from that for companies like TSMC,
Speaker 7: but there are also opportunities for companies like SML. We
Speaker 7: believe that that technological fragmentation will be a benefit because
Speaker 7: where they were shipping their tools to Taiwan, they'll be
Speaker 7: shipping some to each of those territories. Those factories become
Speaker 7: live and that will create some boosts to the top
Speaker 7: line as well as scale economies, which will also enhance
Speaker 7: the profitability of that company.
Speaker 3: European chip equipment makers to big players in the US
Speaker 3: and more globally. What a great conversation, Sarah does Manie,
Speaker 3: thank you so much. Of course, from Martin Curry, Google
Speaker 3: antitrust a trial it is underway with the latest piece
Speaker 3: of evidence from the Justice Department saying that a senior
Speaker 3: Google executive wants like in the company's search advertising business
Speaker 3: to selling drugs.
Speaker 5: Now, there is nuance to this, and.
Speaker 3: We're talking about an executive, Michael Rozak, who's vice president
Speaker 3: for finance at Alphabet's Google ed and he's made the
Speaker 3: claim that, look, this was actually hyperbole, exaggeration, This was
Speaker 3: all done for a course in communications. This is not true,
Speaker 3: and I was not sending it to others. But still
Speaker 3: this was a piece of evidence, and it's actually getting
Speaker 3: very murky, a, isn't it as to what evidence should
Speaker 3: be shown. Its arguments coming from both sides is what
Speaker 3: should be made public.
Speaker 4: So it's notes that Michael Rossak's made in a twenty
Speaker 4: seventeen internal presentation only on communications. But his point was
Speaker 4: that you can focus on the supply side, the advertisers,
Speaker 4: not necessarily the end users, in much the same way
Speaker 4: that if you're in the cigarettes industry, which was the
Speaker 4: analogy that he made. You know, you're focus on the
Speaker 4: selling the advertising, not the consequence to the end user.
Speaker 4: That's the point he was trying to make. But it
Speaker 4: a bit of a statement, isn't it.
Speaker 3: Yeah, and perhaps as you're trying to claim an exaggerated.
Speaker 6: One, exaggerated one.
Speaker 4: Indeed. Okay, let's keep the conversation going on the anti
Speaker 4: trust action against Google and bring in Adam Kavakovic, who's
Speaker 4: the CEO and founder of the Chamber of Progress. Where
Speaker 4: we're at the latest conversation is around the dominance of
Speaker 4: search and you know it's important to point out this
Speaker 4: is in the context of a trial brought by the government.
Speaker 4: But what if you learned this week about how dominant
Speaker 4: Google is in the search market.
Speaker 8: Well, we're also only in week three of ten, and
Speaker 8: it's hard to believe because we still have a work
Speaker 8: trial ahead of us. I think this week was bookended
Speaker 8: really by two main aspects of testimony. The first part
Speaker 8: of the week was really about Apple. Eddiq from Apple
Speaker 8: testified earlier in the week and the focus of his
Speaker 8: testimony was that Apple has picked Google as at search
Speaker 8: default because it thinks that Google's results are the best.
Speaker 8: But even though at Google's deals with Apple have been
Speaker 8: kind of the center of this case. There's another company
Speaker 8: that kind of looms over this whole case, and that's Microsoft.
Speaker 8: DOJ has argued that Being is Google's only real competitor
Speaker 8: in general search, and that the reason it hasn't done
Speaker 8: better is because of Google's search default deals, and Being
Speaker 8: would probably be the biggest winner if the DOJ won
Speaker 8: this case. Later in the week, we saw two separate
Speaker 8: Microsoft executives testify the trial, and in their testimony it
Speaker 8: kind of came out that Microsoft has underinvested in Being
Speaker 8: compared to Google's investments, and they also acknowledged even the
Speaker 8: Windows sets Being as the default search engine, most Windows
Speaker 8: users actually quickly change their default search from Being to Google.
Speaker 8: So that kind of undermined aspects of the government's argument
Speaker 8: that search defaults are really sticky and hard to switch.
Speaker 8: But the real main event is probably Sati and Adella
Speaker 8: from Microsoft CEO. He'll be testifying next Monday, and but
Speaker 8: as I said, this are seven more weeks of this trial.
Speaker 8: That will be a moment to watch, but there'll be
Speaker 8: a lot more moments.
Speaker 3: And I think, well, we're all fascinated by how EDQ
Speaker 3: would vindicate the billions that come towards Apple from this
Speaker 3: focus on using Google's search. But what's so interesting was
Speaker 3: come to light is that at one point back in
Speaker 3: twenty twenty, well, Tim Kok and Sati and Adella were
Speaker 3: in rooms talking about maybe even Apple buying thing that
Speaker 3: of course didn't come to bear, in large part because
Speaker 3: the argument was it's not as good a product.
Speaker 5: But do you think.
Speaker 3: That that really just shows the overall monopolistic environment in
Speaker 3: which we are. Do you think that ultimately this is
Speaker 3: better serving a consumer.
Speaker 8: I don't know how that plays. That's important to say.
Speaker 8: I think you know that came out through Bloomberg's reporting
Speaker 8: non in court, but I don't know how that plays
Speaker 8: because it's just uncertain. I think I don't know. It
Speaker 8: seems somewhat peripheral to me to the heart of this question.
Speaker 8: The heart of the trial is really how to Google
Speaker 8: achieve its share in whether these search default deals were
Speaker 8: the thing or whether it was their quality. And so
Speaker 8: in a trial like this, there's sort of arguments and
Speaker 8: things atmospherically that are kind of interesting and sallacious, but
Speaker 8: I'm not sure have that much bearing on the core
Speaker 8: of the case.
Speaker 4: The other sort of big focus right now is the
Speaker 4: FTC's action against Amazon. We knew it would come. It
Speaker 4: did come Tuesday. By the way, out a chamber of progress.
Speaker 4: You represent the technology industry, right, Your essentially industry grew,
Speaker 4: so implants point out, But what is your assessment of
Speaker 4: the FTC's likelihood of success in its action against Amazon.
Speaker 8: Well, the interesting thing is this case probably won't see
Speaker 8: a courtroom for two years at least, based on the
Speaker 8: normal trajectory of these things. I think some of the
Speaker 8: big dynamic I noticed about this case is it's really
Speaker 8: motivated by the complaints of some sellers on Amazon. Sellers
Speaker 8: are mentioned three hundred and sixty eight times in the
Speaker 8: FTC's complaint, Consumers were only mentioned fifty one times. And
Speaker 8: of course the FDC's argument is that Amazon's behavior towards
Speaker 8: sellers has downstream impacts on consumers. But I think one
Speaker 8: of the challenges they're going to face when they finally
Speaker 8: do get to court is that Amazon has pro consumer
Speaker 8: justifications for these behaviors. So good example, Amazon tells sellers
Speaker 8: that if they want their products to have the Amazon
Speaker 8: Prime label, they have to be shipped through Amazon's own warehouses,
Speaker 8: And of course some sellers don't like that they don't
Speaker 8: like the fees. But when Amazon experimented several years agone
Speaker 8: giving sellers the freedom to ship prime products themselves, only
Speaker 8: sixteen percent of the products made it to consumers in time.
Speaker 8: So even though sellers might complain about a rule like
Speaker 8: that and the FTC, does those rules protect consumers? And
Speaker 8: so I think when this case finally gets to court,
Speaker 8: you can bet that that's going to be a big
Speaker 8: tension in the case the interest of sellers versus the
Speaker 8: interest of the consumer.
Speaker 3: Adams always great catching up with you, Thank you and
Speaker 3: Kavakovic of the Chamber of Progress, wishing you a great weekend. Meanwhile,
Speaker 3: coming up, well, we're not only discussing regulation here in
Speaker 3: the US, but also let's go global as well.
Speaker 5: US curbing China.
Speaker 3: The chips there, but it hasn't actually stopped from developing,
Speaker 3: surprising the advanced technology in that country. We'll bring you
Speaker 3: the details from today's A big take. Yes, we're talking Huawei.
Speaker 3: This has been big technology.
Speaker 6: Now.
Speaker 3: After years of geopolitical back and forth, the conflict between
Speaker 3: US and China are over chips switching a crucial moment
Speaker 3: and Huawei is one company at the center of things.
Speaker 3: A surprise release of the Make sixty pro smartphone in
Speaker 3: late August. Well, it was viewed kind of as a
Speaker 3: statement to the United States, a statement that China may
Speaker 3: still be able to capable to develop advanced technology despite
Speaker 3: US restrictions. Is the focus of today's Big Take for
Speaker 3: more on the broader tech which is between US and
Speaker 3: China where police are welcome. Mark Montgomery is a retired
Speaker 3: Rear Admiral and Senior director of the Central Cyber and
Speaker 3: Technology Innovation And from your perspective, Mark, is China able
Speaker 3: to bypass restrictions?
Speaker 5: Do they even need to be using US technology?
Speaker 3: Can they grow it at home now in a more
Speaker 3: advanced manner than we thought?
Speaker 9: Well, first, Carolyn, thanks for having me, And that's a
Speaker 9: great question. I think it's probably a mix. First, we
Speaker 9: do have to continue to uh, you know, put in
Speaker 9: place export controls and other policy leavers to prevent the tech,
Speaker 9: the transfer technology to China, really to prevent their military
Speaker 9: from using dual use technology, to continue to build systems
Speaker 9: at place US at risk, but also to create a
Speaker 9: level playing field for our companies. And this phone definitely
Speaker 9: shows that they can work their way around our export controls.
Speaker 9: There's a few areas that really worry me. Risk five,
Speaker 9: which is the open source chip design, is really getting
Speaker 9: us in trouble.
Speaker 4: Mark, I'm so glad you went there. Seven nanometer was
Speaker 4: a surprise, right, and the chips found in the May
Speaker 4: sixty pro Risk five the architecture, Why is that a
Speaker 4: technological concern to you? You see it as a backdoor.
Speaker 9: Absolutely, you described it perfectly. It is a backdoor to
Speaker 9: allow the intellectual property work being done by engineers in
Speaker 9: the United States to be easily exported into China. It
Speaker 9: avoids the export controls that we put on very specific
Speaker 9: company chip designs of certain sizes and the provision of
Speaker 9: semiconductor manufacturing equipment for companies like AMSL and others. So
Speaker 9: this is allowing that intellectual property get back into China.
Speaker 9: And if you look at who's using the Risk five products,
Speaker 9: it is broadly these Chinese companies.
Speaker 6: Mark.
Speaker 4: If the investigation finds breaches of sanctions, what is the remedy?
Speaker 4: What can the US actually do about this?
Speaker 9: What I think first, put the proper export control where
Speaker 9: there was a gap, close the gap, and we definitely
Speaker 9: have to get more agile. I mean, our export control
Speaker 9: management are listing of companies who have made violations as
Speaker 9: extremely pedestrian and not agile. We have to become more agile,
Speaker 9: and we can't be playing whack a mole with a
Speaker 9: thousand holes on the whack a mole grid, right. We
Speaker 9: have to more aggressively determine what are those technologies we're
Speaker 9: going to limit and pass broader export controls to get it.
Speaker 6: I would tell you Risk five is a place i'd
Speaker 6: go first.
Speaker 5: Mark, great to have some expertise for you today.
Speaker 3: Thank you, Mark Montgomery of the Center on Cyber and
Speaker 3: Technology Innovation. From New York, from Washington, from San Francisco,
Speaker 3: there's a Bluemberg Technology.
Speaker 5: Welcome back to Bloemberg Technology. I'm Caninehid to New.
Speaker 4: York and I'm ed Lovelow in San Francisco. Carra quit
Speaker 4: check in on the markets. It is the last trading
Speaker 4: session of September. Then as like one hundred on a
Speaker 4: weekly basis, up six ten to one percent. We have
Speaker 4: had till this point three straight weeks of declines at
Speaker 4: the index level, and as we've discussed in the show,
Speaker 4: there's this kind of recognition that whatever the Fed does
Speaker 4: next in the moment, it's going to be a higher
Speaker 4: for longer situation with rates, and I thought that Zero
Speaker 4: Doors Money did a great job explaining how you position
Speaker 4: yourself within the technology sector on that front. But September
Speaker 4: itself has just been an interesting month, not just for
Speaker 4: risk assets in the equity space, but bitcoin as well.
Speaker 4: Bitcoin is holding around twenty seven thousand US dollars per token,
Speaker 4: and you go back to the start of the month,
Speaker 4: Basically over the last thirty days or so, we've traded
Speaker 4: in this range between twenty six thousand US dollars per
Speaker 4: token to just above twenty seven thousand US dollars per token.
Speaker 4: The same factor is under consideration when it comes to Bitcoin,
Speaker 4: our favorite risk asset as they are inequities. But it's
Speaker 4: interesting to see a kind of less of a downward slide,
Speaker 4: I suppose, like we've seen in some of the megacap
Speaker 4: and higher evaluation x docs. Sticking with this space broadly,
Speaker 4: liquidators to Three Arrows Capital said The hedge fund's co founder.
Speaker 4: Suesu was apprehended in Singapore while trying to leave the country.
Speaker 4: This afters you failed to comply with a court order
Speaker 4: compelling him to cooperate with a liquidation investigation. Three aras
Speaker 4: Capital's troubles started with the collapse of Lunar, you'll remember
Speaker 4: and its algorithmic stable coin Ust about one year ago,
Speaker 4: when the hedge fund failed to meet margin calls from
Speaker 4: its lenders, which led to its fallout Caroline, and of.
Speaker 3: Course that story continued to unravel. A few months later
Speaker 3: it would be the turn of FTX, and of course
Speaker 3: I'm about to get a heavy duty dose of reminding
Speaker 3: ourselves of that time because sam Agmuan Fried is counting
Speaker 3: to trial for what prosecutors alleged is one of the
Speaker 3: biggest financial frauds in US history.
Speaker 5: That's where in Bluembagcinia editor Macwagan to take.
Speaker 3: The pulse of basically how it feels in the world
Speaker 3: of digital assets right now, because you've been reading and
Speaker 3: writing about one year on and it doesn't seem to upbeat.
Speaker 2: Yeah, that's right.
Speaker 10: And I think the headline in the story we had
Speaker 10: out today sort of sums it up very nicely. It's
Speaker 10: been miserable was a quote from Nico Cordiero, who's the
Speaker 10: chief investment officer of a crypto hedge fund called strichs Lebiathan.
Speaker 10: And there's a variety of reasons for that I think importantly,
Speaker 10: on a personal level, a lot of people who work
Speaker 10: in crypto now or did in the wake of FTX,
Speaker 10: have just really been doing a lot of soul searching,
Speaker 10: you know, their friends and family reaching out to them
Speaker 10: asking them, why are you.
Speaker 6: In this business?
Speaker 10: You know, isn't this just a big scam. We talked
Speaker 10: to one guy named Halal Diab. He started a basically
Speaker 10: a analysis tool for the blockchain, and he said he
Speaker 10: told my colleague Ana Arera that whenever the topic comes up,
Speaker 10: even among his family, what he's doing with his career,
Speaker 10: they just clunch up. There's just this suspicion and this
Speaker 10: skepticism towards this asse class that has just gotten worse
Speaker 10: and worse since FTX blew up.
Speaker 6: And that's just sort of the personal human level, Carolyn.
Speaker 10: You know, if you look at the numbers, the capital
Speaker 10: coming into the market has really dried up. Venture capital
Speaker 10: investments in the crypto space or at about seven billion
Speaker 10: dollars a year to date according to Pitchbook.
Speaker 11: In the heyday of twenty twenty one and twenty twenty two,
Speaker 11: those full year values were about thirty billions. So that
Speaker 11: you know that spicet of money from BC has dried up.
Speaker 11: The money coming in for retail investors has also dried up.
Speaker 10: So really the opportunity sets more than just the human element,
Speaker 10: the opportunity sets for investors and traders in crypto have
Speaker 10: really been decimated in this year since FTX blew up
Speaker 10: and went bankrupt.
Speaker 6: FA Vaccine.
Speaker 4: Edit to Mike Reagan with just really must read peace
Speaker 4: out on the Bloomberg and on dot com today.
Speaker 6: Thank you very much.
Speaker 4: Let's keep a conversation going now with Ayakontorovich, co CEO
Speaker 4: and co founder of Fractal, an infrastructure provider enabling institutions
Speaker 4: to clear, settle, and margin digital assets on chain, and Aya,
Speaker 4: you heard what Mike had to say. He actually made
Speaker 4: the point in the story that, yeah, bitcoin is an example.
Speaker 4: What sixty percent year to day around twenty seven thousand
Speaker 4: US dollars partoken, nowhere near sixty nine thousand US sol
Speaker 4: has partoken. This idea that a lot of these digital
Speaker 4: currencies will be in place of or alongside traditional currency
Speaker 4: hasn't quite happened. Based on everything you just heard, what
Speaker 4: do you think I.
Speaker 12: Think it's important to really separate the difference between the
Speaker 12: appreciation and depreciation of these currencies and the actual underlying
Speaker 12: technology that's being built here that for example, we're working on,
Speaker 12: but also a number of players, especially after what happened
Speaker 12: with FTX in November, and I think it really emphasized
Speaker 12: the need for transparency, better capital efficient and see collateral
Speaker 12: management and operational overhead that the blockchain technology just naturally
Speaker 12: is a better fit for. And I think that that
Speaker 12: has really shown clear in the adoption of some of
Speaker 12: those infrastructure providers.
Speaker 13: Even if you look at going back to price.
Speaker 12: Action, if you look at for example, maker Doo with
Speaker 12: a maker token appreciating forty five percent in the last
Speaker 12: thirty days relative to them being able to successfully bring
Speaker 12: on tokenized treasuries on chain for die holders to get
Speaker 12: access to. You've seen other forms of technology just being
Speaker 12: better for different forms of settlement, whether it's between bonds, FX,
Speaker 12: repo markets. Circle just announced that they are publishing or
Speaker 12: pushing out a credit protocol which will basically have repos
Speaker 12: on chain, and so I think that technology it takes
Speaker 12: time for you to build these things long term, but
Speaker 12: it's there and it's there to stay.
Speaker 13: There's no doubt we're in a bear market, but we're
Speaker 13: not going anywhere.
Speaker 5: Do you think is institutional money still interested.
Speaker 3: I mean, we had the anecdotal evidence of some people
Speaker 3: getting frustrated around the dinner table, but that doesn't speak
Speaker 3: to the fact that outside of their dinner table they
Speaker 3: might still be able to be striking deals with really
Speaker 3: big players from names that we have brumbergno, Morol.
Speaker 5: Absolutely.
Speaker 12: I think it's fair to say that all of the
Speaker 12: large banks, both in the United States and globally have
Speaker 12: a digital asset strategy right now, and they're all focusing
Speaker 12: on the underlying technology and how it helps with operational
Speaker 12: overhead for these banks, who have you know, teams of
Speaker 12: a thousand plus people working on these specific issues where
Speaker 12: it's not capital efficient and it's very expensive, and I
Speaker 12: think specific to you know, these institutional investors, they're staying
Speaker 12: in the space. The numbers have decreased in terms of
Speaker 12: new allocation into the space, but that doesn't discredit all
Speaker 12: of the money that has already been placed in the
Speaker 12: industry and all of the work that's being done to
Speaker 12: build these new technologies.
Speaker 3: You just use the word discredit, and I think that
Speaker 3: was I really gut punched to everyone, was that Sam
Speaker 3: mag Munfrey discredited an ecosystem that people were already trying
Speaker 3: to find the comfort levels with. Do you think in
Speaker 3: a way that Traum next week will help clear that
Speaker 3: air and makes outlet look he was doing what you
Speaker 3: could do in any industry, or do you think it
Speaker 3: will re engulf the whole crypto world and the worry
Speaker 3: that SEC governor SEC chair Garagensta has.
Speaker 5: I think a little bit of both.
Speaker 12: I think the industry is very ready to close this
Speaker 12: chapter move on, and I think that we are going
Speaker 12: to revisit a lot of the pain and trauma that
Speaker 12: a lot of these funds and many players in the
Speaker 12: space had to deal with in November of last year
Speaker 12: that led into you know, almost a year from now.
Speaker 13: That said, and you'll see headlines on it.
Speaker 12: I'm sure Gary Gensler will reference it in an addition
Speaker 12: to push and delay the Bitcoin ETF. That said, there
Speaker 12: are still rumors that the Ethereum ETF may get published
Speaker 12: in as soon as October, so next week, and so
Speaker 12: that I think there's.
Speaker 13: Good news in the bad news. And again, SBF is
Speaker 13: just a person. He's a human being.
Speaker 12: That doesn't again to your point, it shouldn't discredit the
Speaker 12: underlying technology and if anything, it should emphasize that we
Speaker 12: should put more trust into the technology versus the people
Speaker 12: managing them.
Speaker 4: A number of industry leaders and participants have been on
Speaker 4: the program with US basically outlining what they see as
Speaker 4: a US administration and federal government that is not supportive
Speaker 4: of the industry broadly, so they're being pushed offshore. Do
Speaker 4: you recognize that as a trend or a theme.
Speaker 12: I think there is no doubt about the fact that
Speaker 12: currently if you go to geographies like Singapore, Hong Kong,
Speaker 12: and Southeast Asia, the risk aversion is much higher and
Speaker 12: there's higher appetite for crypto, especially with there being clear
Speaker 12: regulatory standards for how to operate a business in these jurisdictions.
Speaker 12: That said, again referencing this ethereum ETF, if we do
Speaker 12: get guidelines for that in the next month, I think
Speaker 12: that will really change the tone of the conversations that
Speaker 12: are happening in the United States. And you're starting to
Speaker 12: see that already with just markets overall. Implied volatility and
Speaker 12: ethereum is up this week with institutions trading around that
Speaker 12: potential rumor of the ETF approval, and you're seeing that
Speaker 12: this week was actually a very big call option by
Speaker 12: for institutional investors, and so that's really exciting as we
Speaker 12: look into Q four.
Speaker 4: Let's end on a positive notes Friday, it does seem
Speaker 4: now to be potential for a lot to be approved,
Speaker 4: a lot to happen. The question that the market keeps
Speaker 4: asking is to regulates approve all of these proposed products
Speaker 4: all at once so that they have a fair footing,
Speaker 4: or do they stagger them? And I wondered if you
Speaker 4: had an opinion on that.
Speaker 12: From my perspective, it has to be all at once.
Speaker 12: You really shouldn't be favoring different products in the market,
Speaker 12: and I think that's probably one of the reasons that
Speaker 12: you're waiting to get all of these approvals in whether
Speaker 12: they choose to stagger or approve them. Either way will
Speaker 12: be really good reflection for the market at large and
Speaker 12: will mean that institutions at you know, who are comfortable
Speaker 12: trading through their Carno parties, whether it's banks or asset managers,
Speaker 12: will finally be able to access this underlying as a class,
Speaker 12: which is how outperformed the market year to date.
Speaker 5: Hi Cantanovich, great to have you here with us.
Speaker 3: Thank you from Fractal Fanwhile, coming up more than the
Speaker 3: potential US government shutdown and another industry it could be impacting.
Speaker 5: But talk about defense tech next. More on that from
Speaker 5: Blue Big Technology.
Speaker 4: Time for Talking Tech and first Up. Nvidia may be
Speaker 4: the target of an antitrust inquiry in France. The Wall
Speaker 4: Street Journal reports that French enforces raided offices of a
Speaker 4: business suspected of engaging in quote, anti competitive practices in
Speaker 4: the graphics cards sector. It's important to note that the
Speaker 4: agency did not name in Vidia in its statement. The
Speaker 4: move follows a doom report published by the agency on
Speaker 4: competition in the cloud computing market. And VideA also declined
Speaker 4: to comment. And the US Commerce Department is setting aside
Speaker 4: five hundred million dollars in government grants for smaller chip suppliers.
Speaker 4: The funding is open to projects that cost less than
Speaker 4: three hundred million dollars. The application process is also designed
Speaker 4: to be less burdensome for some of those companies. It's
Speaker 4: part of an effort to beef up domestic semiconductor production. Plus,
Speaker 4: the United Auto's Workers' Union aren't the only union coming
Speaker 4: to blows over labor. Construction workers responsible for building TSMC's Phoenix,
Speaker 4: Arizona plant are also seeking project labor agreement. The contracts
Speaker 4: would provide clarity over how the parties would address safety,
Speaker 4: training and other issues as they arise before starting work
Speaker 4: on TSMC's second site. In response, once TSMC says they
Speaker 4: keep an open channel of communication with all our construction
Speaker 4: partners and that also includes the unions Caroline well.
Speaker 3: Aside from union focus, let's get back to the US
Speaker 3: government more broadly, fast approaching yet another shut down. Unless
Speaker 3: Congress enacts a temporary spending bill before the new fiscal
Speaker 3: year starts on well October first, this weekend shutdown could
Speaker 3: hold many facets of the US ecosystem, from services possessing
Speaker 3: your passports, your visas, overside of financial swap markets, economic
Speaker 3: reports from the Labor Department, some IRS services, and potentially
Speaker 3: it could also impact the sector of defense technology. As
Speaker 3: why we're going to focus for a moment, please to
Speaker 3: welcome to the show, Jane Lee, Chief Government Affairs Officer,
Speaker 3: a rebellion defense and also a former senior advisor to
Speaker 3: Senate Majority leader on budget, on economic policy, on these
Speaker 3: very matters, and therefore, Jane, and can you just steer
Speaker 3: us a little bit as to how this could, in
Speaker 3: your mind's eye affect innovation and indeed defense.
Speaker 14: Absolutely defense has become more about code than combat these days.
Speaker 14: And we actually at Rebellion Defense, we're a founding member
Speaker 14: of the Software and Defense Coalition, a group of forty
Speaker 14: CEOs and tech founders that are trying to push for
Speaker 14: faster adoption of emerging technology and bring the best tools
Speaker 14: and technology to the warfighter. This isn't about taking the
Speaker 14: operator out of the equation, but enabling their ability to
Speaker 14: do their mission better or faster and enable the technology.
Speaker 2: You know who's not shutting down the doors.
Speaker 14: It's China, and they're investing so much money into AI,
Speaker 14: into technology, into enabling the platform performance. And so it's
Speaker 14: really important and sucumbent upon us to make sure that
Speaker 14: our government remains open.
Speaker 4: Jane, I want to bring you the stat of the day,
Speaker 4: but it shout out to Bloomberg Scarlet Foo, who's been
Speaker 4: writing about this. The US government is currently spending more
Speaker 4: to pay its interest on the thirty three trillion dollars
Speaker 4: in national debt than it does on national defense. That
Speaker 4: according to the the US Treasury's latest monthly statement. What's
Speaker 4: the lesson we take from that?
Speaker 14: Ultimately, there does need to be structural reforms moving forward,
Speaker 14: But in the near term it's about keeping our doors
Speaker 14: open again. Our foreign adversaries are not going to be
Speaker 14: resting and in terms of stopping their investments while our
Speaker 14: government waits and deliberates on funding the federal government. And
Speaker 14: so again we need to join together in terms of
Speaker 14: this short term deadline here to allow for an opportunity
Speaker 14: to move forward, find consensus, and again keep our dwarves
Speaker 14: and agencies operating.
Speaker 3: If that was a temporary shutdown, can you just go
Speaker 3: into intricacies of how this affects companies small and large,
Speaker 3: what happens, what's put on ice, how does it actually
Speaker 3: really hurt them?
Speaker 14: Sure, in terms of small businesses, I'm concerned that actually
Speaker 14: the defense industrial base isn't prepared for shutdown. The last
Speaker 14: shutdown where Defense Department was materially impacted in terms of
Speaker 14: their operations was actually a decade ago.
Speaker 2: In twenty thirteen.
Speaker 14: In twenty eighteen, the shutdown only lasted for a weekend.
Speaker 14: In twenty nineteen, the shutdown was the longest shutdown in
Speaker 14: US history, But DoD.
Speaker 2: Actually already had enacted appropriations.
Speaker 14: So if the shutdown is lengthy, ultimately there's going to
Speaker 14: be a major squeeze on small businesses. Back in twenty thirteen,
Speaker 14: the last major SHUTDOWNJO and congressional reports looked at the
Speaker 14: impacts of small business operators that had federal contract with
Speaker 14: the federal government, and there's a material impact on their pocketbooks,
Speaker 14: their cash flow, and their ability to do operations. You
Speaker 14: had to furlough employees. Ultimately, there was a decline in
Speaker 14: small business contracts by a third. Spending on small business
Speaker 14: engagements by DoD actually dropped by forty percent.
Speaker 2: So there is material impact here for shutting our doors.
Speaker 4: Jane, I'm sorry to jump around here. I'm just fascinated
Speaker 4: by your background, your cv A case. You've been in
Speaker 4: economic affairs policy on the government side. Now you're thinking
Speaker 4: about defense and technology, and Caroline and I always talk
Speaker 4: about the artificial intelligence in terms of the moral debate.
Speaker 4: The industry is worried that the AI gets used for
Speaker 4: defense or in the defense use case. But you're also
Speaker 4: saying that China is spending in this area, so the
Speaker 4: US should too. How do we balance that moral conundrum out.
Speaker 14: Again, in terms of the pacing challenge of China, they've
Speaker 14: made it very clear that in terms of emerging technology
Speaker 14: for AI, for cloud computing, for hypersonics, for Director of Energy.
Speaker 14: They want to be dominated by twenty thirty, and they
Speaker 14: have again amassed their investments. They're all of their resource
Speaker 14: to that particular goal and so trusted safe AI, for example,
Speaker 14: the debate that's happening right now is absolutely important. We
Speaker 14: have to make sure again that we're focusing in the
Speaker 14: near term here about agency operations. This is about keeping
Speaker 14: our doors open just to do business and keep our
Speaker 14: investments skilling, because there will be material impact.
Speaker 2: It slows down the capabilities to the warfighter.
Speaker 14: There is again outcomes here that I think are unintended
Speaker 14: consequences of a shutdown.
Speaker 4: Jane Lee, Chief Government Affairs Officer, a rebellion defense.
Speaker 6: Great to have you on the program.
Speaker 4: These are difficult considerations and conversations that we're having.
Speaker 3: New York Fed President John Williams making statements at the moment,
Speaker 3: and the market not liking all of it, in particular
Speaker 3: the fact that he expects a need for restrictive policy
Speaker 3: for some time. Basically interest rates to remain high for longer.
Speaker 3: We're looking at an SMP that has eroded all of
Speaker 3: its gains for the day at the moment. Ends so
Speaker 3: some risk aversion, even though he also goes on to
Speaker 3: say that the FED is at or near peak level
Speaker 3: of interest rates, but valuations they're still hot in some areas.
Speaker 5: Of the market.
Speaker 4: Yeah, that's putting it lightly. Indeed, the race for AI
Speaker 4: chatbots is pretty hot right now. Character Ai is a
Speaker 4: startup offering chatbots that can impersonate virtually anyone or anything,
Speaker 4: and it's in early talks to raise new funding that
Speaker 4: could value it at more than five billion dollars. That's
Speaker 4: according to Bloomberg sources. I want to bring Bloomberg's Rachel
Speaker 4: mets In, who leads our coverage of AI, and Rachel,
Speaker 4: this is one I reported out with the team. Right
Speaker 4: it's surprising because of where character ai is a company
Speaker 4: and also in development of this technology. Is what is
Speaker 4: character Ai? Does it make any money? Is it valued
Speaker 4: at five billion dollars?
Speaker 1: Well, let's save the valuation for a last but we
Speaker 1: can start with what it is and what it does.
Speaker 1: Character is a really interesting company. The people behind it
Speaker 1: used to work at Google and they did some pioneering
Speaker 1: work in AI there, and they built a large language model,
Speaker 1: so a model that you can feed text too, like
Speaker 1: a text prompt, and it will generate text in response.
Speaker 1: What they built is a large language model that it's
Speaker 1: users character. AI users can then customize in basically infinite ways.
Speaker 1: They can give it some more dialogue, to refer to,
Speaker 1: give it some details, and then you'll see if you
Speaker 1: go on their website, they have all these different chatbots that.
Speaker 13: People have made.
Speaker 1: Some of the most popular ones are referring to video
Speaker 1: game characters, so then you can other people can interact
Speaker 1: with them.
Speaker 2: It's pretty interesting.
Speaker 1: There's Mario and other ones, and I mean I was
Speaker 1: messing around with one that claimed to be a gassy
Speaker 1: Unicorn at one point.
Speaker 2: That was pretty fun.
Speaker 5: Pretty sure your kids would have loved that.
Speaker 3: Why then raise money and where is the revenue opportunity?
Speaker 1: Okay, that is a really good question, or two really
Speaker 1: good questions. So why raise money? What they're doing is
Speaker 1: super expensive, and for the most part, they're not charging
Speaker 1: people for it. It costs a lot of money both
Speaker 1: to train this kind of AI system and to operate it.
Speaker 1: So every time somebody types in something to the Mario
Speaker 1: character or the Gassy Unicorn character, that is essentially that
Speaker 1: is costing the money a little bit, you know, a
Speaker 1: tiny bit of money at a time, but it adds
Speaker 1: up very very quickly, and they recently introduced a service
Speaker 1: where users pay I think it's ten dollars a month
Speaker 1: if C plus is the surface, and that gives you
Speaker 1: faster access because what users had been experiencing, like I
Speaker 1: did when I reported a story on them recently, is
Speaker 1: sometimes the website can't load, or the service just.
Speaker 5: Isn't coming to wait for your guests, unicorn.
Speaker 2: I know there aren't many worse things in the world.
Speaker 5: Yes, Rachel Matt's brilliant story. That does it for this
Speaker 5: edition of Like Technology Ed.
Speaker 6: Yeah.
Speaker 4: Check out the podcast recap show and stay safe, Caroline,
Speaker 4: stay dry out in New York City.