Speaker 1: From Mahart where Innovation, Money and Power Collie in Silicon
Speaker 1: Valley n Beyond.
Speaker 2: This is Bloomberg Technology with Caroline Hide and Ed Ludlow.
Speaker 3: Live from Bloomberg's World headquarters in New York. I'm Shanali
Speaker 3: bask In for Caroline Hyde and Ed Ludlow.
Speaker 4: This is Bloomberg Technology. Coming up on this hour, full
Speaker 4: earnings coverage ahead.
Speaker 3: We're going to break down results from Meta and push
Speaker 3: ahead to Amazon and Intel's earnings after the bell, Plus
Speaker 3: Sam Megan Fried's testimony is the latest must see moment in.
Speaker 4: The high profile fraud case.
Speaker 3: Updates this hour, and we'll look at the thorny issues
Speaker 3: over technology between the US and China as President Biden.
Speaker 4: Plans to meet with China's foreign minister.
Speaker 3: Now from Tech Earnings, let's bring in Alison Porter, a
Speaker 3: portfolio manager from Janis Henderson on Global Technology Leader's Team. Alison,
Speaker 3: we talk so much about this magnificent, magnificent seven dynamic.
Speaker 3: When you look at some of the drawdowns, we're saying,
Speaker 3: how do you play what's next?
Speaker 5: I mean, when you look at today, you can see
Speaker 5: that this is the first day in sometime that we've
Speaker 5: actually seen all of those Magnificent seven stocks actually down together,
Speaker 5: and we're definitely seeing some signs of profit taking, and
Speaker 5: I think that's really a reflection of more where the
Speaker 5: market is, where bond yields are, and some profit taking
Speaker 5: than it is on earnings results. You know, when you
Speaker 5: look at Meta's results last night, across the board, they
Speaker 5: were really very strong, and you know, we've seen.
Speaker 1: Expectations to tick up.
Speaker 5: I think the Magnificent seven are very very There's a
Speaker 5: wide dispersion of valuations, and even companies like Meta that
Speaker 5: are trade at a discount to the broader equity market,
Speaker 5: that trade at a discount to other technology stocks are being
Speaker 5: hit hard today.
Speaker 1: So it's not really.
Speaker 5: About valuations, it's not been about earning estimates, but just
Speaker 5: some profit taking.
Speaker 1: I think, given as the market has been.
Speaker 5: So concentrated and we're seeing a bond deals almost top
Speaker 5: five percent.
Speaker 3: When you're looking at the metal warning on economic uncertainty
Speaker 3: and you look across the technology sector, who do you
Speaker 3: think will be most hard to hit in this scenario
Speaker 3: that has not been sold off significantly enough.
Speaker 5: So you know, I don't think Meta warned on the
Speaker 5: macro to be I think, you know, Meta commented that
Speaker 5: you know, after major conflicts, there's sometimes a pause or
Speaker 5: a slowdown, and actually their guidance be forward revenue bracketed.
Speaker 1: Exactly where consensus laws.
Speaker 5: But when we came into twenty twenty three, earnings estimates
Speaker 5: for twenty twenty four for META or for about ten dollars.
Speaker 5: Now as we're exiting this year, estimates are for seventeen dollars,
Speaker 5: So we've seen that seventy percent increase in expectations already.
Speaker 5: Maybe some disappointment that those aren't continuing to go up,
Speaker 5: but I think, you know, given where bondis are, given
Speaker 5: the macro uncertainty, not raising guidance has caused some profit taking.
Speaker 1: Obviously with bond deals where they.
Speaker 5: Are, there's concern about the consumer the stronger dollar in Europe.
Speaker 5: But you know, we think most of the pressure that
Speaker 5: we've seen has not been on retail spend on smaller items,
Speaker 5: but on items where the consumer has to actually borrow.
Speaker 5: So that's not really been an advertising sprind or smaller
Speaker 5: cap or purchases, but more in terms of where consumers
Speaker 5: have had to borrow, like autos, where we're definitely seeing
Speaker 5: a bit of a slowdown.
Speaker 3: You know, talking about bond yield a little more. You
Speaker 3: do see a cooling today, but they have been extraordinarily
Speaker 3: all at all. How do you think that this will
Speaker 3: continue into this story When you're thinking about how tech
Speaker 3: response to rates.
Speaker 5: Well, you know, we think that in twenty twenty, which
Speaker 5: obviously was a huge year for for technology, money was free.
Speaker 5: Interest rates were almost at zero, and it caused some
Speaker 5: irrational buying of stocks which are perennially unprofitable. But that
Speaker 5: higher cost of capital now is really causing investors. It's
Speaker 5: a great environment for active investors, actually, because investors have
Speaker 5: got to really get back to fundamentals and focus on
Speaker 5: those companies.
Speaker 1: That actually have the strongest balance sheets.
Speaker 5: And actually the technology sector has best balance sheet across
Speaker 5: all of equities. You know, Meta has over twenty five
Speaker 5: billion in net cash, Alphabet is over ninety billion in
Speaker 5: net cash. And that means that those companies can not
Speaker 5: only continue to reinvest in new areas such as artificial
Speaker 5: intelligence and driving more innovation and earning scains, but it
Speaker 5: also means that they can buy back stock and they
Speaker 5: can start to really return money to shareholders. And we
Speaker 5: saw that with Metal last quarter, buying over three billion
Speaker 5: and stock back and Alphabet also continuing on that journey
Speaker 5: of shareholder return, which we think is really strong long
Speaker 5: term support for these companies and for shareholders.
Speaker 3: Are you seeing any buying moments right now or do
Speaker 3: you think that it's just too volerable and the sell
Speaker 3: off as yet to come still.
Speaker 5: Now, we think this is a great environment for active investors,
Speaker 5: and we do think that valuation discipline is more important
Speaker 5: than ever in this market given the pace of innovation
Speaker 5: on artificial intelligence.
Speaker 1: I think if you're trying to look.
Speaker 5: Out for ten or twenty years and pick winners in
Speaker 5: ten or fifteen years time, and you're willing to look
Speaker 5: at losses every year, that's a very difficult environment. That's
Speaker 5: not what we look for. We look for companies have
Speaker 5: strong balance sheets, strong positive free cash flow, who can
Speaker 5: continue to reinvest, and we do see some really attractive
Speaker 5: valuations which are at a discount to the broader equity
Speaker 5: market for actually what is much stronger long term growth?
Speaker 3: How are you looking at this earning in as well?
Speaker 3: We're looking forward to a host of more companies Intel, Amazon,
Speaker 3: What are you going to.
Speaker 4: Be looking for.
Speaker 5: Look at You know, when you look at metas earnings,
Speaker 5: some of the key factors that came out of.
Speaker 1: Meta's earnings, where you know.
Speaker 5: The strength of engagement, that's the user engagement user how
Speaker 5: users react to the platform and the products that you serve,
Speaker 5: and efficiency, a focus on capital allocation.
Speaker 1: So when we look we hear.
Speaker 5: Amazon's results tonight, again that's going to be key.
Speaker 1: You know, what are prime members.
Speaker 5: Doing, how are they responding to investments in their regionalization,
Speaker 5: And then we'll look at AWS and I think the
Speaker 5: growth in AWS is going to be a key driver
Speaker 5: out of Amazon Web. Amazon's results tonight, expectations have come
Speaker 5: down somewhat from sixteen percent growth.
Speaker 1: Down closer to.
Speaker 5: Twelve percent that people are looking for and I think
Speaker 5: we're just looking for a stabilization in some of that
Speaker 5: those optimization trends. After the strength that myso soul in
Speaker 5: its cloud division, Investors want to see that Amazon is
Speaker 5: ticket is also seeing some benefits all of that's investments
Speaker 5: in artificial intelligence as well, that they are seeing some
Speaker 5: stabilization and the optimization that they've seen from customers over
Speaker 5: the last year.
Speaker 3: Alice Importer of Janis Henderson, we thank you for your time.
Speaker 3: Let's hone in now on the digital advertising space for
Speaker 3: these companies and bring in. Rachel Tippograph, the founder and
Speaker 3: CEO of Micmac and e commerce marketing platform for multi
Speaker 3: channel brands.
Speaker 4: Rachel, when you look at.
Speaker 3: Meta itself, what did you take away?
Speaker 6: I was super excited to see metas earnings because what
Speaker 6: it demonstrated is that advertising is active in market and
Speaker 6: Meta has made their ads more efficient.
Speaker 7: And how have they done that with focus?
Speaker 6: Meta stop focusing on the metaverse, Meta stop focusing on
Speaker 6: trying to build native.
Speaker 7: Commerce, and they went all in on improved their core business,
Speaker 7: which is advertising. And a huge part of that is.
Speaker 6: The investments that they one have made to combat changes
Speaker 6: with Apple's iOS privacy changes where all of a sudden
Speaker 6: the world moved from automatically opt in to now automatically
Speaker 6: opt out, as well as AI. What AI is allowing
Speaker 6: to happen within the advertising ecosystem is it's lowering the
Speaker 6: barrier to entry. It's making it easier to buy ads
Speaker 6: than ever before because one of the first areas that
Speaker 6: Meta has invested in is on the creative side, and
Speaker 6: creative has typically been a huge barrier to buying ads.
Speaker 3: Rachel, when you think about the potential slow down the
Speaker 3: economy could face, how much are you concerned that this
Speaker 3: is going to eat into advertising dollars and who is
Speaker 3: the kind of worst off here if things slow down materially.
Speaker 6: I think the outlooking to four on advertising is shaky,
Speaker 6: and the reason being is that the biggest brands in
Speaker 6: the world are under an enormous amount of pressure.
Speaker 7: Their margins are really compressed.
Speaker 6: It's more expensive than ever before to bring goods to market,
Speaker 6: to bring them to a retailer, and then negotiate those
Speaker 6: relationships with retailers.
Speaker 7: That's really where the margin compression is happening.
Speaker 6: And so in order for them to meet Wall Street's numbers,
Speaker 6: typically one of the first places that they.
Speaker 7: Cut budget is in advertising.
Speaker 6: That being said, we are entering the holiday season, so
Speaker 6: typically you'll see brands allocate upwards seventy five percent of
Speaker 6: their media.
Speaker 7: Budget two Q four.
Speaker 6: But I think that they're going to be really choosy
Speaker 6: with their dollars and they're going to invest it in
Speaker 6: platforms where there's consistent ROI Meta is one of those platforms.
Speaker 6: At Nickmac, around eighty five percent of the paid brand.
Speaker 7: Impressions that we see go through Meta. That's how significant
Speaker 7: they are. But the other big area is retail media.
Speaker 6: Meta's competition isn't just Snap and Pinterest and TikTok, it's Amazon,
Speaker 6: it's Target, it's Walmart. And we'll see how that is
Speaker 6: out in Amazon's earnings leader.
Speaker 3: Today, Rachel, can the holiday season save these companies?
Speaker 7: I don't think so. I think that the holiday season
Speaker 7: is going to be really tough. What we have seen
Speaker 7: in micmacs data this year is that there's been.
Speaker 6: A seventeen percent decline in the average vasket size, and
Speaker 6: that really has to do with inflation. Consumers are spending,
Speaker 6: but they're being more selected and.
Speaker 7: They're willing to trade down right now.
Speaker 6: I believe that that's going to translate into the holiday season.
Speaker 3: Rachel Tipograph of micmac, thank you for your time. Coming up,
Speaker 3: we have more to expect on Amazon's earnings and preview
Speaker 3: for Intel's earnings after the valve. And speaking of chips,
Speaker 3: as we had to break watching shares of sk Heinex,
Speaker 3: the South Korean memory chip maker, following the most in
Speaker 3: the year after reporting a larger than expected loss.
Speaker 4: More earnings coverage ahead. This is Bloomberg Technology. Now let's
Speaker 4: get back to earnings.
Speaker 3: Amazon do out after the bell today and Bloomberg Spencer
Speaker 3: Soper is joining us.
Speaker 4: Now, when you look.
Speaker 3: At what has already happened in the big tech industry,
Speaker 3: are you concerned that or are investors concerned rather that
Speaker 3: Amazon could be facing a greater slowdown ahead in any fashion.
Speaker 8: Yeah, this is going to be very telling because you
Speaker 8: see the market already reacted to Alphabet's earnings on cloud sales,
Speaker 8: and so they're already kind of expecting, you know, a
Speaker 8: similar trajectory with Amazon. Let's from our Amazon last quarter,
Speaker 8: it's cloud computing sales growth was the lowest it has
Speaker 8: ever been, and investors are really hoping to see that
Speaker 8: that's the bottom of the troth and we're and we're
Speaker 8: moving back upward. So yeah, there's definitely concern around the
Speaker 8: cloud market, and also concern on advertising sales, like your
Speaker 8: previous guest was talking about the Facebook market, and Amazon
Speaker 8: advertising is something that definitely contributes to its profit margin.
Speaker 8: And then if people are pulling back there, investors are
Speaker 8: going to be interested to see what that means for
Speaker 8: Amazon's results.
Speaker 4: So we're talking about a truck.
Speaker 3: And a key business. Do you think that there's any
Speaker 3: signs of turnaround?
Speaker 8: Well, Microsoft, there's mixed messages, right, because Microsoft had a
Speaker 8: good print and Alphabet didn't. So yet it will be
Speaker 8: interesting to see where Amazon differentiates. And one thing I
Speaker 8: think where investors are concerned about is maybe Amazon getting
Speaker 8: a little bit quite a little flat footed on artificial intelligence.
Speaker 3: Bloomberg Spencer so for thank you so much for your
Speaker 3: time and out today after the bell.
Speaker 4: Also is Intel.
Speaker 3: The quarterly report will update investors on progress to turn
Speaker 3: around its fortunes and regain lost sales. Bloomberg cy and
Speaker 3: King joins us now from San Francisco. What do you
Speaker 3: think the future looks like for Intel, particularly in this
Speaker 3: very heated competitive space that they're walking into further.
Speaker 9: Yeah, I mean there are two things that play here.
Speaker 9: Analysts are saying basically, look, the PC market is through,
Speaker 9: it's worse. That's the big volume segment for Intel. So
Speaker 9: we're going to get some kind of an improvement going forward.
Speaker 9: But they are still concerned about, you know, what spencers
Speaker 9: companies are doing, what Amazon is spending on servers, what
Speaker 9: Google is spending on servers, and whether they're shifting away
Speaker 9: from Intel technology and pouring more money into accelerators that
Speaker 9: they're getting from in video.
Speaker 3: Well, is there a sense that in PCs that the
Speaker 3: worst is over in terms of any potential slump.
Speaker 9: Yeah, I mean, that's what a lot of analysts have
Speaker 9: been saying. That's what kind of Intel has indicated that
Speaker 9: this mountain of inventory that we've been working through for
Speaker 9: the last few quarters has perhaps been used up and
Speaker 9: we're back to whatever normal shipments are. But again, there's
Speaker 9: still a question of what our consumers and companies spending
Speaker 9: on PCs and what level is the real normal for
Speaker 9: the PC market, whether we go back to that pandemic
Speaker 9: level of over three hundred million units or whether we're
Speaker 9: somewhere in two hundred million units and that's the future now, Ian.
Speaker 3: What do you think about the Nvidia Intel combine here?
Speaker 3: Is there any sense that they're going to do a
Speaker 3: better job taking back some share.
Speaker 9: We'll really have to see what they say later today.
Speaker 9: But the problem that everybody has, and not just Intel
Speaker 9: has right now is in video are so far ahead
Speaker 9: with these new products, and that Intel, AMD and anybody
Speaker 9: else who's really going to try and make a dent
Speaker 9: in what Invidia has done has to have new products,
Speaker 9: really strong products with all of the software that backs
Speaker 9: them up in the market right now, and frankly, they don't.
Speaker 9: They're just at the beginnings of these efforts. They're just
Speaker 9: at the beginnings of trying to get the Amazons the
Speaker 9: Googles to buy their stuff and to sign off on
Speaker 9: that because right now the solid bet is on video
Speaker 9: because they have things in the market that people trust them.
Speaker 10: Know.
Speaker 3: You take a look at Intel still year to date,
Speaker 3: it's still up more than twenty percent, further draw down
Speaker 3: as of late. But do you think that valuation here
Speaker 3: justifies kind of where the PC market is today?
Speaker 9: Yeah, I mean the valuation really is what the market sets.
Speaker 9: That isn't something we can sort of focus on too tightly.
Speaker 9: What really matters, I think in terms of investors right
Speaker 9: now is the momentum. The last couple of quarters, things
Speaker 9: have not got worse and that's been a positive for
Speaker 9: Intel because before that it was getting worse.
Speaker 11: At a horrible rate.
Speaker 9: The bet now is we are approaching the bottom or
Speaker 9: are through the bottom. And really what Intel needs to
Speaker 9: do today is show another example of Hey, things didn't
Speaker 9: get worse, they got incrementally better. But as the CEO,
Speaker 9: Pat Gelsing has said over and over again, they've got
Speaker 9: a long way to go. They're still twenty five billion
Speaker 9: dollars south on an annual basis of where they were
Speaker 9: at their peak in terms of revenue.
Speaker 4: I thank you for your coverage.
Speaker 3: We look forward to your coverage after earning today as well.
Speaker 3: Sam Bigmanfried is testifying today in a New York court
Speaker 3: room in a high profile fraud trial over the collapse
Speaker 3: of his FTX crypto exchange. And for more on this,
Speaker 3: we're going to bring in Bloomberg's Max Chafkin, who's been
Speaker 3: following this trial very closely.
Speaker 4: What is the defense even bringing forward.
Speaker 3: At this point in terms of how they could prove
Speaker 3: him to be not guilty.
Speaker 12: Well, I mean, the most important thing to remember is
Speaker 12: the defense doesn't have to tell a story. All they
Speaker 12: have to do is poke some holes in the prosecution story.
Speaker 12: The problem is that the prosecution story has been very,
Speaker 12: very convincing.
Speaker 11: I mean, again, it's hard to know.
Speaker 12: We're not on the jury, we're not seeing exactly what
Speaker 12: they're seeing. But we've seen witness after witness some of
Speaker 12: Sam bankman Fried's closest friends, his employees, his confidants, including
Speaker 12: his ex girlfriend Caroline Ellison, essentially put a lot of
Speaker 12: the blame for this on him, show that he was
Speaker 12: involved very detailed ways in the alleged misappropriation of a
Speaker 12: huge amount of user money. The prosecution rested case. The
Speaker 12: defense has called two expert witnesses. One is a lawyer
Speaker 12: from Bahamas, the other is a tech like basically a tech.
Speaker 11: Consultant, and then we're going to see Sam Bankman freed.
Speaker 12: We got a signal earlier yet last night basically sent
Speaker 12: saying that what he's going to talk about are advice
Speaker 12: from his lawyers, sort of blaming this on his lawyer,
Speaker 12: saying his lawyers told him was okay and industry practices,
Speaker 12: essentially arguing that he didn't do anything wrong.
Speaker 11: He thought this was okay all along.
Speaker 4: Do you think that's convincing?
Speaker 12: Again, the prosecution's case has been strong and very detailed,
Speaker 12: and unfortunately for Sam Bankman freed. Again, we're seeing many witnesses,
Speaker 12: basically everyone who is close to him except for his parents, frankly,
Speaker 12: saying very damning things about him, and not just saying
Speaker 12: damning things about him, but backing it up with kind
Speaker 12: of documentary evidence that they've been showing the jury.
Speaker 3: Why do you think he wants to testify? Typically, in
Speaker 3: cases like this, their advice by their lawyers not to testify.
Speaker 3: You've talked to him, you've covered him. Well, what's in
Speaker 3: his mind?
Speaker 12: Well, I think anyone who's traditional criminal defendants do not
Speaker 12: testify in their own defense, especially not in cases like this.
Speaker 11: It's not in their interest.
Speaker 12: Sam bangman Fried is not a traditional criminal defendant. He
Speaker 12: is somebody who loves to talk. I think, you know,
Speaker 12: loves to hear the sound of his own voice and
Speaker 12: is very effective at it.
Speaker 11: He's a good talker, a good persuader.
Speaker 12: Used it allowed him to kind of grow the valuation
Speaker 12: of FTX to these crazy heights, to grow his own
Speaker 12: net worth to something like thirty billion dollars. And I
Speaker 12: think the plan here is to sort of talk his
Speaker 12: way through this, which you know, not necessarily the most
Speaker 12: legally sound strategy. I think if you talk to most
Speaker 12: criminal lawyers.
Speaker 11: But again, he is in trouble.
Speaker 12: There have been a lot of very compelling witnesses for
Speaker 12: the prosecution. This may be his only outlet, so I
Speaker 12: think it's a high risk maneuver. I think the chances
Speaker 12: of success are not necessarily super high. But I'm not
Speaker 12: sure what his other options are.
Speaker 3: Well, what about the idea here of the sentence, because
Speaker 3: if he were to be found guilty.
Speaker 4: He's facing a number of charges.
Speaker 3: Do you think that by testifying he can lighten the
Speaker 3: load for himself.
Speaker 12: Well, I think for sure if he's able to somehow
Speaker 12: complicate the story. It's just not clear that what he
Speaker 12: has to offer is going to complicate that story. His
Speaker 12: basic defense has been that he was relying on advice
Speaker 12: of his lawyers and that FTX actually had a lot
Speaker 12: of money that customers will eventually be made whole. That
Speaker 12: second part very relevant to FTX creditors. They are going
Speaker 12: to be super excited to hear that if it's true,
Speaker 12: which again huge questions. Sam Bank mcfree doesn't necessarily have
Speaker 12: the best track record at the moment. That'll mean a
Speaker 12: lot to people who lost money on this thing. It
Speaker 12: doesn't mean anything for the legal case, right, he's accused
Speaker 12: of fraud, he's accused of taking the money and gambling it.
Speaker 12: The fact that he won potentially maybe if you believe
Speaker 12: what he's saying is legally irrelevant, and I don't think
Speaker 12: we'll have a huge impact on.
Speaker 3: His sentence, you know, quickly here last night we were
Speaker 3: together watching the new Ruined documentary that Bloomberg Originals had
Speaker 3: come out, with and you made this extremely strong case
Speaker 3: against effective altruism. And I'm wondering you think with this
Speaker 3: case that so many of the ideals that' say big
Speaker 3: Bean freed and brought forward, do they just die off?
Speaker 12: I think the effect of ultruous community is really struggling.
Speaker 12: This is the charity that Sam Bangmfried was involved with.
Speaker 12: He's so closely associated with it. You know, hundreds of
Speaker 12: billions of dollars from FTX ostensibly profits, although at some
Speaker 12: you know, you sort of wonder how much that money
Speaker 12: may have come from customers. It's all tied up with this.
Speaker 12: So it's going to really hurt the movement. It's going
Speaker 12: to be hard to recruit new followers.
Speaker 3: Bloomberg's Max Chack, can we thank you so much for
Speaker 3: your time. Welcome back to Bloomberg Technology. I'm Chanelli Bassett
Speaker 3: in New York. Now moving to a big meeting for
Speaker 3: President Biden. He said to meet with China's foreign minister
Speaker 3: tomorrow and Washington, potentially laying the groundwork for a leaders
Speaker 3: meeting next month. And now for Mourroaw, let's bring in
Speaker 3: Bloomberg's Nick Wadhams. Nick, what's at stake?
Speaker 13: Well, a lot of things are at stake here. The
Speaker 13: chief thing is that we are looking for the US
Speaker 13: and China basically to get a relationship back on track
Speaker 13: after a whole series of setbacks. There have been a
Speaker 13: fair number of meetings Secretary of State Anthony Blincoln, when
Speaker 13: Commerce Secretary Gena Raimondo, several others. So they're going to
Speaker 13: be laying the groundwork for Shijinping when he's expected to
Speaker 13: come to San Francisco for an APEC meeting, and there
Speaker 13: will be a one on one almost certainly with Joe
Speaker 13: Biden there that that hasn't been announced yet. So what
Speaker 13: you're really seeing as an administration that wants to get
Speaker 13: things back on track and do what Joe Biden likes best,
Speaker 13: which is those interpersonal relationships with other leaders around the world.
Speaker 3: Now, Nick, if you think about that potential meeting over
Speaker 3: in San Francisco, how does this set the stage for
Speaker 3: that exactly?
Speaker 4: And what do you expect?
Speaker 13: Well, I think you know the big question is what
Speaker 13: would come out of that meeting. Would it just be
Speaker 13: another handshake, a sort of symbolic action, and then not
Speaker 13: amount to really much of anything. The last time these
Speaker 13: two leaders met in Bali Indonesia almost exactly a year ago,
Speaker 13: there was a lot of talk about, Okay, we want
Speaker 13: to set a flo under the relationship. We want to compete,
Speaker 13: but we don't want conflict. And what we've really seen
Speaker 13: is that hasn't necessarily been born out. While there has
Speaker 13: been some improvement of the relationship bilaterally, you've seen a
Speaker 13: lot of real tension points, battles over intellectual property, about
Speaker 13: micro trips, about export controls, and obviously now the real
Speaker 13: kinetic situation in the South China Sea, where the US
Speaker 13: is CE has says it's seen a real uptick and
Speaker 13: aggressive action by Chinese vessels against the US and its allies,
Speaker 13: so that a lot of those disputes really remain unresolved.
Speaker 13: It's not clear at all how a leader's meeting, which
Speaker 13: wouldn't last all that long, would resolve any of those issues.
Speaker 3: Blumberg's Nick Watams, thank you for your time. It's really
Speaker 3: the perfect setup because now for more on US China relations,
Speaker 3: we're going to bring in Liza Tobin, a senior director
Speaker 3: for Research and analysis for the Economy at Special Competitive
Speaker 3: Studies Project. She previously served on the National Security Council's staff.
Speaker 3: As China director, and she led multiple US strategies and
Speaker 3: policies related to China, Liza, when you think about these
Speaker 3: meetings that are ahead of us, what can change?
Speaker 14: Thank you so much, Sonali for having me on today.
Speaker 14: So I think the administration's expectations for this meeting are
Speaker 14: relatively low. As the previous reporter mentioned, they're really trying
Speaker 14: to stabilize ties and make sure that there are open
Speaker 14: lines of communication to deal with these various tensions that
Speaker 14: are ongoing in the world. I think the administration would
Speaker 14: like to make sure that should something happen, should there
Speaker 14: be a contingency, they have someone to call in Beajing,
Speaker 14: someone that will reliably pick up the phone.
Speaker 3: Now, how do things start to change when you think
Speaker 3: about China's economy and where it stands right now? Does
Speaker 3: this lessen the aggressive posturing between the two nations in
Speaker 3: terms of any potential to work together to advance economic initiatives.
Speaker 14: So, I think you bring up a great point. The
Speaker 14: mood music on the Chinese economy has really changed in
Speaker 14: the last several months. It used to be that we
Speaker 14: thought of the Chinese economy just is on a upward
Speaker 14: trajectory for a long time, and I think that really
Speaker 14: has changed and taken an about face, and now I
Speaker 14: think the global consensus is that China is past the
Speaker 14: era of miracle economic growth and they're possibly caught in
Speaker 14: a middle income trap indefinitely where they will never return
Speaker 14: to that rapid growth. However, I think one thing we
Speaker 14: have to keep in mind is that the Chinese economy
Speaker 14: is already quite large. It's the second largest economy in
Speaker 14: the world, so there's still a lot of resources they
Speaker 14: can bring to bear to develop their military and to
Speaker 14: pursue their technology ambitions, so they're not going to be
Speaker 14: too constrained on that side. I think where they will
Speaker 14: really kind of pair back is on the social services side.
Speaker 3: Well, it's been interesting because how do you think about
Speaker 3: the potential to invest from both countries. When you think
Speaker 3: about the United States and the existing financing needs the
Speaker 3: Chinese economy and any potential slowdowns, where do you see
Speaker 3: the investments in future technology artificial intelligence paying off more.
Speaker 14: I think that's a really great point. In the last
Speaker 14: several years, the US government has been caught with some
Speaker 14: unwelcome technology surprises where China was able to race ahead
Speaker 14: and get ahead of the United States on several important
Speaker 14: technologies like hypersonic missiles, EV batteries, five GI network hardware,
Speaker 14: and so really I think we learned the lesson that
Speaker 14: we can't be complacent, that China is a determined rival
Speaker 14: and it's willing to put a lot of resources behind
Speaker 14: its goals.
Speaker 7: And what has happened in the last.
Speaker 14: Year is you've seen that the AI revolution is really
Speaker 14: upon us, and so I think that's given us a
Speaker 14: shot in the arm in the United States because most
Speaker 14: of the really great firms in the generative AI space
Speaker 14: that we're really excited about are US firms, and so
Speaker 14: I think it shows that the US can still innovate.
Speaker 14: We can't still lead, but we can't take our lead
Speaker 14: for granted. We have to invest at home and do
Speaker 14: more to run faster.
Speaker 3: Now, giving you and focus so much on strategy, look
Speaker 3: ten years out, when you think about how global the
Speaker 3: world has been and how interconnected the US and China
Speaker 3: have been, does that need to be the case in
Speaker 3: the future.
Speaker 14: So, I think what we've seen over the last few
Speaker 14: years of experiencing Chinese economic coercion, where China's putting pressure
Speaker 14: on foreign businesses, pushing them out and all of that,
Speaker 14: is that over the long term, we do need to
Speaker 14: reduce our exposure to China. We really should be trading
Speaker 14: and investing more with other democratic market economies, other economies
Speaker 14: that respect the rules and that want to trade fairly,
Speaker 14: and that promote transparency and the rule of law. I
Speaker 14: think the track record of China over the last twenty
Speaker 14: years is that is not the direction they're heading. In fact,
Speaker 14: the opposite Undersijenping, where really they've made a choice to
Speaker 14: go in a different direction. So I think we really
Speaker 14: need to be reducing our exposure. And this doesn't mean
Speaker 14: in cutting everything off, but I think we should when
Speaker 14: it comes to strategic technologies and our investments and trade
Speaker 14: in those sectors, it really should be doing it more
Speaker 14: with other democracies.
Speaker 3: When you think about President Biden's approach to China here
Speaker 3: and the initiatives already put in place to boost American competitiveness,
Speaker 3: what do you find to be the most effective.
Speaker 14: So I think there's an emerging kind of two pronged
Speaker 14: approach promote and protect. So the promote side is this
Speaker 14: emerging American industrial strategy. You have massive investments in the
Speaker 14: semiconductor sector as well as the Inflation Reduction Act, which
Speaker 14: puts a lot of domestic investment into renewable energy evs
Speaker 14: and the like, and so that's all a really great start,
Speaker 14: and we need to be doing more of that and
Speaker 14: investing spending more on research and development. There's a lot
Speaker 14: of bang for the buck if we invest in these things,
Speaker 14: they tend to pay off economically and also for our
Speaker 14: security and resilience. So I think we need to keep
Speaker 14: going in these areas.
Speaker 3: Liza Tobin of the Special Competitive Studies Project, we think
Speaker 3: you for your time now coming up. Coinbase is out
Speaker 3: with its second State of the Crypto Report, and they
Speaker 3: are sharing.
Speaker 4: The details exclusively with Bloomberg.
Speaker 3: Jesse Pollock, Senior director of Engineering at Coinbase, joins us next,
Speaker 3: this is Bloomberg. As crypto continues to come into its own,
Speaker 3: so do attitudes about how it's used. Coinbase is putting
Speaker 3: out its second State of the Crypto Report, and it
Speaker 3: analyzes how Americans from different age groups and backgrounds feel
Speaker 3: about crypto and the financial system as a whole. More
Speaker 3: than half of those surveyed said they don't use or
Speaker 3: rarely use traditional finance tools, and thirty eight percent say
Speaker 3: that crypto and blockchain can increase economic opportunities joining us
Speaker 3: now with more on this is Jesse Pollock's senior director
Speaker 3: of engineering at Coinbase. It's interesting because, you know, we
Speaker 3: always think about crypto as in part being born out
Speaker 3: of the financial crisis, people turning to crypto out of
Speaker 3: mistrust of the financial system. But we're standing here today
Speaker 3: and Sam bankman Freed is about to potentially testify it
Speaker 3: as own trial. And you've had many investors be very
Speaker 3: burned by the downfall of crypto last year, So how
Speaker 3: then do they regain trust?
Speaker 2: Now?
Speaker 4: Yeah?
Speaker 15: Absolutely, And I think if you look at the Sam
Speaker 15: Bank free trial, but we don't think that that's representative
Speaker 15: of the crypto industry. You know, if you look at
Speaker 15: businesses like Coinbase, I think what you've seen is that
Speaker 15: for the last decade we've been building in a trusted way,
Speaker 15: helping people understand how to use crypto in an easy,
Speaker 15: secure way, and people have really leaned into that. And
Speaker 15: I think the challenge that we've seen at the same
Speaker 15: time is that because of a lack of clear regulatory environment,
Speaker 15: increasingly folks have also been pushed into offshore, unregular environments
Speaker 15: like SBF, which has led to bad outcomes. And so
Speaker 15: I think the thing that we need to be doing
Speaker 15: rebuild trust is to be investing in these clearer policy frameworks,
Speaker 15: and that's exactly what we looked at with this report,
Speaker 15: and we think that there's a ton of appetite and
Speaker 15: a ton of urgency from the American people around getting
Speaker 15: clear regulations in place so that crypto can be used
Speaker 15: as this powerful tool to upgrade our systems.
Speaker 3: Now, when we're talking about crypto, or are we talking about
Speaker 3: crypto at large or are we talking about bitcoin Jesse, I.
Speaker 15: Think we're talking about crypto at large. You know, Bitcoin
Speaker 15: was obviously the first crypto that kind of brought this
Speaker 15: technology onto the scene, But over the last decade, we've
Speaker 15: seen how crypto can be used in a ton of
Speaker 15: different ways beyond just money. And I think increasingly people
Speaker 15: are seeing this kind of like the next generation of
Speaker 15: the Internet, where they're seeing crypto as a tool that
Speaker 15: can take these financial systems which in many cases have
Speaker 15: been around for you know, one hundred years and haven't
Speaker 15: really been upgraded, and use that technology to upgrade those
Speaker 15: systems and make them actually work better for everyday people.
Speaker 3: Now, what are people actually using crypto mostly for at
Speaker 3: large these days?
Speaker 4: Is it an investment.
Speaker 3: Is it a payment rail and if it's a pain
Speaker 3: when you look at how it's used in America, why
Speaker 3: would it be any better than how we use any
Speaker 3: other credit card company or other type of form of payment.
Speaker 11: Yeah.
Speaker 15: I think when crypto originally kind of started, it was
Speaker 15: definitely mostly used as an investment. That was kind of
Speaker 15: the early days of crypto. I think what we're seeing
Speaker 15: increasingly now is that crypto is expanding its utility, and
Speaker 15: that's really where we're focused as a business, seeing how
Speaker 15: crypto can be used for payments, how can we use
Speaker 15: for commerce, How it can we use to support creators
Speaker 15: who are making music and doing other kinds of activities
Speaker 15: on the Internet. And I think that's where we see
Speaker 15: the most opportunity in the future in terms of how
Speaker 15: this is actually going to be better than the systems
Speaker 15: that we have today. I think if you look at
Speaker 15: these systems, in many cases, people are paying really high fees.
Speaker 15: For instance, the average small business pays three percent of
Speaker 15: their profit, which is fifty percent of their overall margin,
Speaker 15: to credit card processors. We think there's an opportunity to
Speaker 15: use crypto to lower those fees for small businesses to
Speaker 15: make payments faster and easier for everyday people, and to
Speaker 15: open up a ton of access the people who don't
Speaker 15: have access today.
Speaker 3: You think about colleges and universities when you look at
Speaker 3: what's happening on campus, is there anything that's happening there
Speaker 3: that tells you the direction of travel for the industry.
Speaker 4: Yeah?
Speaker 15: Absolutely, you know, I think Americans have been promised this
Speaker 15: American dream for a long time, and I think for
Speaker 15: older generations that was very much the case. But people
Speaker 15: in my generation, I think what we've seen is we
Speaker 15: were told go to college, you'll get a good job,
Speaker 15: you will.
Speaker 4: Get to buy a house.
Speaker 15: In fact, we went to college and we got debt,
Speaker 15: and there weren't jobs and it was impossible to buy
Speaker 15: a house. And I think that this is leading to
Speaker 15: people to say, hey, these systems aren't working for us
Speaker 15: and we need new systems. And people are looking to say, hey,
Speaker 15: how can I find new ways to make money? How
Speaker 15: can I have different kinds of jobs that give me
Speaker 15: access in different ways to the economy. And they see
Speaker 15: crypto as a really, really powerful tool for upgrading these systems.
Speaker 15: And so I think what we're seeing on college campuses
Speaker 15: and what we're seeing in folks too. Maybe our drop
Speaker 15: out of colleges aren't following the traditional path. Is this
Speaker 15: excitement and this energy to find new pathways that can
Speaker 15: lead to that American dream that currently today is unachievable.
Speaker 3: You were also very involved in the creation of Base,
Speaker 3: and when you look at what not just clients and
Speaker 3: customers and people who are buying using crypto in terms
Speaker 3: of coin based customers, how are other members of the
Speaker 3: community thinking about new use cases.
Speaker 15: Yeah, people are building all sorts of things on Base,
Speaker 15: and we like to think about Base as kind of
Speaker 15: on chain like online happened in the early two thousands.
Speaker 15: And what this means is this really powerful platform where
Speaker 15: new kinds of applications are emerging. So we're using people
Speaker 15: build applications that are helping small businesses with loyalty. We're
Speaker 15: seeing people build new kinds of games. We're seeing people
Speaker 15: bring music on chain, and in general, we're seeing people
Speaker 15: embrace crypto as this incredibly powerful platform that's actually making
Speaker 15: it easier, better, faster, cheaper for people to transact and
Speaker 15: to engage on the Internet.
Speaker 3: I'm going to push you a little here, Jesse, because
Speaker 3: I get pushed on this too. Why is it a
Speaker 3: better mouse trap than what we already have.
Speaker 4: Yeah.
Speaker 15: So, like I said, again, most of the systems that
Speaker 15: we're operating in are tens or hundreds of years old.
Speaker 15: And what that means, it means that people are paying
Speaker 15: high fees. It means that when they're trying to move
Speaker 15: money it maybe takes three to five days. It means
Speaker 15: that the people who are controlling those systems are very
Speaker 15: select few. And I think the opportunity was on chain
Speaker 15: is the opportunity to bring more people in, to lower
Speaker 15: those fees, to make transactions faster, and to make it
Speaker 15: so we can rebuild these systems that can give better
Speaker 15: outcomes to everyday people. And again going back to our
Speaker 15: State of Crypto report, what we're seeing is that excitement
Speaker 15: about crypto is not a partisan issue. You know, Democrats
Speaker 15: and Republicans and independents are adopting crypto at the same rates. Instead,
Speaker 15: it's a generational issue. And what that means it means
Speaker 15: that young people today, because they're seeing this opportunity to
Speaker 15: use this technology to update the systems, they're almost three
Speaker 15: times is likely to own crypto. Young people are saying
Speaker 15: they're majority likely to go and vote for candidates who
Speaker 15: are supporting crypto, and I think young people are saying,
Speaker 15: you're either with us or you're behind us. We are
Speaker 15: going to take these new technologies, we are going to
Speaker 15: upgrade these systems, and we're going to make a better America.
Speaker 15: Whether you are on our team or not, we want
Speaker 15: you to be here. We want to work with you.
Speaker 4: Jesse Dear, We want to do this together.
Speaker 3: Do you ever feel like sometimes the industry is trying
Speaker 3: to accomplish too much? You give us a ton of
Speaker 3: potential use cases. You know, it's interesting to see that
Speaker 3: many exist, But if it's trying to compete with so
Speaker 3: many existing systems, what's the narrative?
Speaker 15: Yeah, well, I think you know, you could have said
Speaker 15: the same thing about the Internet in the early two thousands, Right,
Speaker 15: is the Internet trying to upgrade all of our world
Speaker 15: to come online? And I think if we look now,
Speaker 15: you know, a decade, two decades later, what we've seen
Speaker 15: is the Internet has transformed the world. And I think
Speaker 15: we see the same opportunity here and we're not just
Speaker 15: seeing it kind of in the abstract. We are seeing
Speaker 15: it in the concrete. Every single day, you know, I
Speaker 15: talk to people who are using crypto to transact to
Speaker 15: people who are using an adopting crypto, like at Blackbird
Speaker 15: in New York City restaurants to make better connections with
Speaker 15: their customers and drive more revenue for their small businesses.
Speaker 15: To artists who are using crypto to build more meaningful
Speaker 15: connections with their fans. And to financial institutions you know,
Speaker 15: like JP Morgan, like Coinbase, that are using crypto to
Speaker 15: lower settlement times and to increase the efficiency of these systems.
Speaker 11: And so we believe that, like the.
Speaker 15: Internet, on chain has the opportunity to completely transform our
Speaker 15: world for the better.
Speaker 3: Jesse Pollocks, Senior director of Engineering at Coinbase. Morgan Stanley's
Speaker 3: succession race is over, and boy was it a long
Speaker 3: and heated succession race. Earlier today I spoke with Morgan
Speaker 3: Stanley CEO James Gorman and incoming CEO Ted Pick, and
Speaker 3: what they told me is they expect dealmaking to make
Speaker 3: a back and to lead the next cycle. Take a listen.
Speaker 16: Organizations grow because you have change. I mean, you're not
Speaker 16: going to grow by doing the same thing again and again.
Speaker 16: And I feel like we set this up several years
Speaker 16: ago with the board. We've had a very very intentional
Speaker 16: process and we ended up with a phenomenal outcome, which
Speaker 16: is Ted, and we've got other unbelievably good executives who
Speaker 16: are taking leadership roles as co presidents Andy Sepson and
Speaker 16: Dan Sinkret.
Speaker 10: So it's sort of what you hope for. I mean,
Speaker 10: you try and drive strategy, you try and put together
Speaker 10: a team, you try and deal with the inevitable knocks
Speaker 10: that you get from the market and the disappointments that
Speaker 10: come in times in any complex business. But at the
Speaker 10: end of the day, you're also trying to hand it
Speaker 10: off for the next generation. So it feels great and
Speaker 10: it feels right.
Speaker 3: You've been rumored to be a CEO contender for oh
Speaker 3: so long, Ted, How does it finally feel to step
Speaker 3: into the role next year?
Speaker 1: Finally?
Speaker 17: Morgan Stanley was the first place that I worked out
Speaker 17: of college, and thirty three years later, I'm sitting next
Speaker 17: to mister James Gorman.
Speaker 11: It's the thrill of a lifetime.
Speaker 2: I'm so excited.
Speaker 3: Now you've really inherited a gift here, a massive transformation
Speaker 3: over fourteen years, one of the best valuations here in
Speaker 3: global banking. But there are investors who are worried this
Speaker 3: is as good as a guests what do you.
Speaker 17: Tell them there's more to come.
Speaker 11: There's more to come.
Speaker 17: We look at the five year chart, the ten year chart,
Speaker 17: the fifteen year chart.
Speaker 11: The wealth and.
Speaker 17: Asked management businesses have these remarkable, durable earnings. The Global
Speaker 17: Investment Bank has lots of miles to go. So we're
Speaker 17: thrilled about the business strategy we have in place and
Speaker 17: it's going to continue to deliver a long term value
Speaker 17: for Sheerald.
Speaker 3: Now for both of you, we've been in such a
Speaker 3: prolongedble market that has hit such volatile times as of late.
Speaker 4: Do you expect the next couple.
Speaker 3: Of years from Morgan Stanley to be a little more choppy?
Speaker 10: You know, I don't know's I thought this year would
Speaker 10: be tough than it was. A lot of what's going
Speaker 10: in the market conspise against our particular business makes some
Speaker 10: of the more commercial retail banks mortgage bank very different
Speaker 10: business model. But our turn will come. I think, you know,
Speaker 10: I personally think the US has dodged a recession. I
Speaker 10: think the FED is very close to being final within
Speaker 10: probably twenty five basis points. We're starting to see activity.
Speaker 10: Look for the Chevron deal we just announced the other day.
Speaker 10: I'm in phenomenal so we're seeing activity in different sectors.
Speaker 10: It's coming alive now. So no, I think the next
Speaker 10: couple of years will be great. But what I care
Speaker 10: about is over the really long run. When we set
Speaker 10: about on this journey, we weren't focused on a quarter,
Speaker 10: and if the stock takes a dip in a quarter,
Speaker 10: I say, that's kind of good news because we're buying
Speaker 10: back stock and every share you buy back, you're retiring
Speaker 10: a dividend, So shareholders who hang tough at getting a
Speaker 10: four and a half percent yield and we're buying back
Speaker 10: stock and the stock's cheap, so it's it's kind of
Speaker 10: a good situation being But medium term, no, I think
Speaker 10: we're I think the film is going.
Speaker 11: To do great.
Speaker 3: Ted, what are the biggest challenges for you as you
Speaker 3: navigate this environment?
Speaker 17: There's just so much opportunity. We're definitely a new paradigm.
Speaker 17: Interest rates are going to be higher for longer, and
Speaker 17: the world's gotten smaller, which means the clients need advice
Speaker 17: they need in the wealth and asked and management space
Speaker 17: they need in the institutional space our corporate clients, and
Speaker 17: we're going to have lots of activity around those clients.
Speaker 17: So I just want to make sure that we are
Speaker 17: completely aligned in the business strategy we have in place.
Speaker 17: It's something that James is painstakingly put together for fourteen years.
Speaker 17: The market knows we want to do so I'm incredibly
Speaker 17: optimistic over the next couple of years.
Speaker 4: Now.
Speaker 3: That does it for this edition of Bloomberg Technology, And
Speaker 3: don't forget to check out the VTech podcast. You can
Speaker 3: find it on the terminal as well as online on Apple, Spotify,
Speaker 3: and iHeart This is Bloomberg