Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business
Speaker 1: Week Inside from the reporters and editors who bring you
Speaker 1: America's most trusted business magazine, plus global business, finance and
Speaker 1: tech news. The Bloomberg Business Week Podcast with Carol Messer
Speaker 1: and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Once Crypto King, once Golden Boy, Crypto, once a modern
Speaker 2: day JP Morgan, that one time billionaire Tim and FTX
Speaker 2: co founder Sam Bankman Fried as you know by, now
Speaker 2: sentenced to twenty five years in prison for stealing billions
Speaker 2: of dollars from customers, marking the final chapter in a
Speaker 2: case that is both captivated and overshadowed the crypto industry
Speaker 2: with more on.
Speaker 3: Today sentencing in the era of crypto and finance failure
Speaker 3: and fraud that the now thirty two year old SBF
Speaker 3: was behind. We welcome into the Bloomberg Studio. Bloomberg News
Speaker 3: Legal anais Judent Grosso. She's also host of Bloomberg Law
Speaker 3: weeknights at six pm Wall Street Time on Bloomberg along
Speaker 3: with Zeke Fox, Bloomberg News Financial Investigations Reporter, also the
Speaker 3: author of Number Go Up, Inside Crypto's Wild Rise and
Speaker 3: staggering fall. Zeke joining us on the phone from New
Speaker 3: York City because Zeke traveling after being in the courtroom
Speaker 3: this morning. Now that's where we want to start. Zeke,
Speaker 3: what was it like in the courtroom earlier today when
Speaker 3: Sam Bankmon freed was sentenced, and also ahead of that sentencing.
Speaker 4: So it was packed as usual with reporters. And when
Speaker 4: Sam walked in, he was wearing his prison jumpsuit instead
Speaker 4: of a suit like during the trial, as his legal procedure,
Speaker 4: and he took the opportunity to address the judge like
Speaker 4: he did during his case. And I was watching to
Speaker 4: see if he would just apologize and take responsibility for
Speaker 4: what happened. For a minute, it sort of looked like
Speaker 4: he might, but then he fell back on the story
Speaker 4: that he's been saying since FTX failed, which is that
Speaker 4: mistakes were made the buckstocks with me. But he's not
Speaker 4: admitting to stealing customer money, all right, So I.
Speaker 2: Want to bring in June Grosso June. So I am
Speaker 2: curious that twenty five year sentence. How much did the judge,
Speaker 2: potentially Judge Kaplan use that. You know that even in
Speaker 2: the eleventh hour, Sam makemin Free didn't come out and
Speaker 2: said I committed a crime. How did that factor into
Speaker 2: the sentencing? Because it could have been much worse, It
Speaker 2: could have been a lot less potentially.
Speaker 5: So even before the sentencing, Judge Kaplan had increased the
Speaker 5: guidelines range for Bankin Freed after finding that he had
Speaker 5: perjured himself at his trial. And what he said at
Speaker 5: the sentencing was when he wasn't outright lying, he was evasive,
Speaker 5: hair splitting, dodging questions and quote, I've never seen a
Speaker 5: performance quite like that. He took that into account, and
Speaker 5: I think that you know that weighed against Sam Bankman Freed.
Speaker 5: He also took into account you know, as Zeke said,
Speaker 5: he didn't think that he was sorry for what he
Speaker 5: had done. He said, he expressed expressed sorrow, but it
Speaker 5: wasn't real to him. And you know also he had
Speaker 5: before the sentencing expanded the guidelines too, and he found
Speaker 5: that Sam Bankmin Freed had tampered with a witness. If
Speaker 5: you remember, before trial, Sam was out on bail and
Speaker 5: the judge called him back to New York and abruptly
Speaker 5: threw him into prison despite the bail because he said
Speaker 5: he had been tampering with a witness. So I mean
Speaker 5: the judge had been through this whole trial watching Sam
Speaker 5: Bankman freed, and you know, this is a very tough
Speaker 5: sentence if you think about though, it is in line
Speaker 5: with some of the big kind of white collar crime
Speaker 5: we've seen. For example, Jeff Skilling at Anron, I think
Speaker 5: he was sentenced to twenty four years and Bernie Evers
Speaker 5: twenty five years, So it is in line with that.
Speaker 5: But you think about state crimes. If you're committed murder
Speaker 5: state basically you know you'll be out in fifteen years
Speaker 5: or so. So they're making this white the white collar
Speaker 5: crime into what.
Speaker 2: You made one hundred and fifty years.
Speaker 5: Yeah, Bernie made off that is held up as the
Speaker 5: most extreme example of how many years of defrauding people.
Speaker 5: So I think it was a tough It is a
Speaker 5: tough sentence.
Speaker 3: Is he come on back in here and give us
Speaker 3: an idea of what Sam Beakman fried was like when
Speaker 3: he found out that he got twenty five years. If
Speaker 3: you saw any reaction from his parents who were in
Speaker 3: the courtroom, because his mom did write a lengthy letter
Speaker 3: to the judge in recent weeks about going being lenient
Speaker 3: in the sentencing.
Speaker 4: Yeah, Sam was standing there, his hands folded. He was
Speaker 4: pretty impassive. It was hard to know what he was thinking.
Speaker 4: His parents also did not make a big dramatic reaction,
Speaker 4: I mean his mom yet she had written a pretty
Speaker 4: moving letter about what Sam was like as a child,
Speaker 4: how he was different from other kids, how he wasn't
Speaker 4: motivated by the same things as them, and how his
Speaker 4: commitment to making the world a better place was real.
Speaker 4: And the defense talked about that that too when they
Speaker 4: when his new lawyer gave a speech, but in the
Speaker 4: defense said, in kind of a good one liner, he
Speaker 4: wasn't a monster, he was a mass nerd. And you know,
Speaker 4: if you if this was all the information you had,
Speaker 4: you know it might be kind of convincing. But the
Speaker 4: problem was that this totally didn't address the fact that
Speaker 4: during the trial, his four best friends and top lieutenants
Speaker 4: at FTX in a row each took the stand and said, hey, no,
Speaker 4: we committed a giant fraud on purpose. We knew it
Speaker 4: was wrong, we did it anyway Sam directed us to
Speaker 4: do it, and they presented a lot of evidence that
Speaker 4: showed that. So whether Sam was a nerd or whether
Speaker 4: he was actually greedy was kind of beside the point.
Speaker 4: It's like this fraud still occurred.
Speaker 3: Yeah, well, Zeke, I said, you bring up a really
Speaker 3: good point. We're talking about Caroline Allison, Nieschad Singing Gary
Speaker 3: Wong right now. They're awaiting their own fate after helping
Speaker 3: seal their former former bosses conviction for pulling off a
Speaker 3: multi billion dollar fraud involving tens of thousands of customers. June,
Speaker 3: I have this dish question, and I don't know to
Speaker 3: what extent you can answer it because we're kind of playing,
Speaker 3: you know, should it would have Kulda here? Yeah, but
Speaker 3: the three individuals I just mentioned, they all pleaded guilty
Speaker 3: and cooperated. What if Sam Bankman Freed had pleaded guilty
Speaker 3: and cooperated with law enforcement? What would he be facing
Speaker 3: right now?
Speaker 5: As I understand, and Zeke may know better. As I understand,
Speaker 5: the prosecutors never offered him a deal. There weren't deal negotiations.
Speaker 5: So that's my understanding that he wasn't offered a deal,
Speaker 5: that they got those three and the case against him
Speaker 5: then just built.
Speaker 4: Zeke, was that the case that's true?
Speaker 6: And I.
Speaker 4: You have to imagine he would have gotten a lighter
Speaker 4: set into be just threw himself in the mercy of
Speaker 4: the court. But I have another interesting counterfactual. What if
Speaker 4: all of those people got together and decided, hey, let's
Speaker 4: let's stick to a different story. Let's say it was
Speaker 4: you know, we didn't let's not admit to fraud. Let's
Speaker 4: all say we're not We're not guilty. Could do the
Speaker 4: government have enough evidence from documents and otherwise to convict them.
Speaker 4: I mean, they definitely had some evidence, but it would
Speaker 4: have been a lot harder. All of their text messages
Speaker 4: were set to auto delete, so the government didn't have
Speaker 4: a lot of contemporary records of them, you know, agreeing
Speaker 4: to commit some of the key acts.
Speaker 5: Someone always flips, though, Someone always flips because you have
Speaker 5: three people, four people, and someone is going to feel
Speaker 5: nervous about it. And the prosecutors, you know, they ask
Speaker 5: them questions, they bring them in, they bring them in
Speaker 5: with their lawyers, and you know, it's it's very hard
Speaker 5: to imagine that all three of them, all four of them,
Speaker 5: would have kept to a story. So I think one
Speaker 5: of them would have flipped somewhere along the way.
Speaker 2: See, let me ask you. I mean, the lawyers said
Speaker 2: that they expect to cover more money or enough money
Speaker 2: excuse me to pay back everyone in full in terms
Speaker 2: of FTX investors. So having said that, I don't know,
Speaker 2: does it speak to that, you know, they actually kind
Speaker 2: of figured out some things and did it well in
Speaker 2: the crypto space, Like, how do you read that? Interpret that?
Speaker 4: Yeah, So it is pretty wild that when ftx s failed,
Speaker 4: there's eight billion dollars mithsay, and now the lawyers running
Speaker 4: the bankrupt company are like, we've recovered enough money that
Speaker 4: we think we'll be able to pay all of that
Speaker 4: back to the customers. And the reason, though, is not
Speaker 4: that the money was never stolen. It's that a lot
Speaker 4: of it comes from this huge run up in crypto prices. Basically,
Speaker 4: when FTX filled in Alameda, they still had some crypto
Speaker 4: and it wasn't the stuff they thought they could sell
Speaker 4: quickly enough to satisfy the customer demand, hence the bankruptcy.
Speaker 4: But now they've had more time and the price of
Speaker 4: one of these tokens, in particular Solana, is up like tenfold,
Speaker 4: and if the bankruptcy estate is able to sell it
Speaker 4: all while the market is hot, they'll make like ten
Speaker 4: billion dollars. It's crazy. So that's essentially it's not that
Speaker 4: the customer money wasn't misappropriated. That he did make some
Speaker 4: good gambles with it.
Speaker 7: It looks like or.
Speaker 4: With the help of these bankruptcy lawyers.
Speaker 5: Judge didn't believe that, by the way, talk about that.
Speaker 3: That was interesting momentary.
Speaker 5: Because that was also what was in the defense papers, Hey,
Speaker 5: there's not really a loss here. They're going to be
Speaker 5: paid back. And the judge said the defendant's assurance that
Speaker 5: they'll be paid in full is misleading. It is logically flawed,
Speaker 5: it is speculative. The judge basically everything that they threw
Speaker 5: at him the defense, including that Sam Bankman Freed is autistic,
Speaker 5: he twisted it around and used it against Sam Bankman Fried.
Speaker 5: So they said he's autistic, he's and he said, well,
Speaker 5: he is autistic, but that gives him a great capacity
Speaker 5: to do things.
Speaker 2: He worries the judge Kaplin worried about what he might
Speaker 2: do next.
Speaker 5: Yet that was that was chilling to me and I
Speaker 5: just was reading it, he said, because the defense was
Speaker 5: arguing he has is young, he has an opportunity to
Speaker 5: do so many things. They tried to compare him to
Speaker 5: Michael Milkin, and what could happen if he comes out
Speaker 5: charitable work and the judge said, no, he just wanted power.
Speaker 5: He was power hunger, and he said, there's a risk
Speaker 5: that this man will be in a position to do
Speaker 5: something very bad in the future. It's not a trivial risk,
Speaker 5: and I was shocked by that.
Speaker 2: It's interesting, right.
Speaker 3: Well, I want to talk to Zeke about that, because Zeke,
Speaker 3: before the downfall of Sam Bankman Freed, before the fall
Speaker 3: of FTX, you spent some time one on one with SBF.
Speaker 3: You got to know him a little bit for a
Speaker 3: pretty story in BusinessWeek that you recently recounted in the
Speaker 3: Big Take podcast. Talk a little bit about what he's
Speaker 3: maybe actually maybe it was a Spellcaster podcast. Excuse me,
Speaker 3: it was in one of the great podcasts that our
Speaker 3: team has done.
Speaker 2: That's the message.
Speaker 1: A lot of.
Speaker 3: Podcast was ze talk a little bit about what his
Speaker 3: personality was like and what really shocked you about this guy.
Speaker 4: So one, some people after FTX failed have taken this
Speaker 4: to mean that you know, everything about Sam was a lie,
Speaker 4: and I actually don't think that that's true. When I
Speaker 4: met him, what really made him seem different and interesting
Speaker 4: was that this was a guy who he told me
Speaker 4: this story about how when he was a teenager he
Speaker 4: met a philosopher who convinced him that the best way
Speaker 4: to help the world would be to get really rich
Speaker 4: and give all the money away. I'm meeting him, it's
Speaker 4: like nine years later, and he's worth twenty billion dollars.
Speaker 4: And I actually think, from like all my time getting
Speaker 4: to know him and talking to people in his circles,
Speaker 4: this part of the story is really true, and that
Speaker 4: actually is what motivate made him dangerous because when he
Speaker 4: was presented with a chance to either he could justify
Speaker 4: anything that he wanted to do by saying, hey, there's
Speaker 4: like a real chance that if we're successful, we might
Speaker 4: do something that could change world history. So what's a
Speaker 4: little fraud here and there? Like we might literally save
Speaker 4: millions of lives when we get rich enough and make
Speaker 4: trillions of dollars. And he's a guy who thought about
Speaker 4: the odds all the time. He's somebody who weighed the odds, like,
Speaker 4: what are the odds I'm going to get caught? What
Speaker 4: are the odds if I'm successful? I mean to be fair,
Speaker 4: This is my take. Now, he did not admit to
Speaker 4: this to say sorry today, but I think that's why
Speaker 4: they're saying he's dangerous. Because if he has another chance
Speaker 4: to his philosophy, in my opinion, would justify trying again.
Speaker 2: The means justify the end is basically is basically what
Speaker 2: it is. Hey, June, I want to ask you, this
Speaker 2: was a punitive sentencing. This was about sending a message.
Speaker 2: Is it clear that Judge Kaplan did just that when
Speaker 2: it comes to I don't know, not just crypto but
Speaker 2: finance fraud.
Speaker 5: I think that that was part of what this was
Speaker 5: all about. And he said that this is about such,
Speaker 5: you know, stopping people from doing this in the future.
Speaker 5: And afterwards the Manhattan US Attorney Damian Williams put out
Speaker 5: a statement and he also said that this is a
Speaker 5: way of warning people about this. So that's part of
Speaker 5: a sentence. Because this is such a high profile case.
Speaker 5: It wasn't For example, Mark Mucazy got Trevor Milton four
Speaker 5: years instead of eleven. That case was high profile, but
Speaker 5: not like this. This was crazy. So I think that
Speaker 5: the judge felt that he had to send a message.
Speaker 2: Is there appeal? Can this be reduced real quickly?
Speaker 5: There is going to be an appealed that he says,
Speaker 5: they're going to appeal the conviction and the sentence. But
Speaker 5: you know, appeals are very difficult in cases like this,
Speaker 5: so and he has a new team, he has a
Speaker 5: great team. But so we'll see what happens with that.
Speaker 5: And the judge also asked that to be put in
Speaker 5: a low security prison because of his autism and that
Speaker 5: it might be difficult for him in a regular prison,
Speaker 5: although he seems to be getting along okay at Brooklyn Correction.
Speaker 2: Well, a fascinating I guess final chapter. Perhaps I don't
Speaker 2: know appeal yet. Well that's right, okay, so not quite
Speaker 2: a final chapter to both of you. Thank you so
Speaker 2: much really bringing a lot of clarity and analysis to
Speaker 2: the story. Bloomberg News legal alyst jun Gross, host of
Speaker 2: Bloomberg Law Weaknights at six pm Wall Street Time on
Speaker 2: Bloomberg Radio. To catch that and Zeke Fox immeasurable in
Speaker 2: terms of his insight to on the world of crypto
Speaker 2: Bloomberg News Financial Investigations Reporter. Check out his book Number
Speaker 2: Go Up, Inside Cryptos, Wild Rise and Staggering Fall.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from two to five pm Eastern Listen
Speaker 1: on Apple card Play and then Bright Auto with him
Speaker 1: Blomberg Business Act or want us live on YouTube.
Speaker 2: We just talked with Bloomberg's mat Day about Amazon's plan
Speaker 2: to spend almost one hundred and fifty billion dollars over
Speaker 2: I think fifteen years on data centers needed for the
Speaker 2: AI Boom Data Center's tim We know one of the
Speaker 2: real estate investment plays we've heard a lot about for years.
Speaker 2: More recently, the focus and concern when it comes to
Speaker 2: commercial real estate has been on offices as working from home,
Speaker 2: as we know, still sticks for many post pandemic TEMs.
Speaker 3: Yeah, the Bloomberg Readoffice Property Index down about two percent
Speaker 3: so far this year. It lost three percent in twenty
Speaker 3: twenty three, but Carol dropped close to forty percent back
Speaker 3: in twenty twenty two.
Speaker 2: All right, with a look at the commercial real estate space,
Speaker 2: we welcome Lauren Huckfelder. She's co CEO of real estate
Speaker 2: Investing over at Morgan Stanley Investment Management. She joins us
Speaker 2: right here in New York City. Lauren, welcome to Bloomberg. Hey,
Speaker 2: commercial real estate. We know location, location, location, but it
Speaker 2: also can be divided into a lot of different buckets.
Speaker 2: You've got office, retail, You've got data centers, You've got industrial,
Speaker 2: walk us through the different sectors. Where are you seeing
Speaker 2: strength and where's the continued weakness, like perhaps office.
Speaker 8: Sure, well, first of all, thank you for having me.
Speaker 8: It's great to be here. And I would say it's
Speaker 8: funny you use the old expression location, location, location, that
Speaker 8: is absolutely paramount in real estate. But you know, today
Speaker 8: we talk about dislocation, dislocation, dislocation. We have to look
Speaker 8: at what's changing, what's being disrupted, and invest accordingly. So yes,
Speaker 8: take office, take US Commodity office in particular, and it
Speaker 8: is absolutely being disrupted. You have a dramatic demand destruction.
Speaker 8: We all know that people tried out working from home
Speaker 8: in the pandemic and decided it wasn't so bad. So
Speaker 8: we're seeing a dramatic demand destruction. But frankly, also those
Speaker 8: assets just don't meet modern tenant demands. They don't meet
Speaker 8: them from a standpoint of quality or menetization.
Speaker 6: Frankly, they don't meet their carbon reduction goals.
Speaker 8: So these are assets that many of which will be
Speaker 8: stranded because they simply don't have long term cash flow
Speaker 8: growth potential.
Speaker 6: But go to the office.
Speaker 2: Wait, wait, wait, can I jump in there?
Speaker 5: Though?
Speaker 2: So US Commodity Office you're saying it's going to be stranded.
Speaker 2: So what happens and what are the financial implications, whether
Speaker 2: it's to the owners of those properties, to the banks
Speaker 2: who hold the loans on those properties. How does that
Speaker 2: play out? And then how does that maybe make more
Speaker 2: valuable some of the higher tier or office property.
Speaker 8: Yeah, no, no, that's a fantastic question. Well, I'll start
Speaker 8: with the ends. So you're seeing a massive consolidation of
Speaker 8: demand into the best of the best assets. So perhaps
Speaker 8: counter intuitively, the destruction of demand for more commodity space
Speaker 8: is actually driving increased demand for the best of the best.
Speaker 8: I'll give you an example. Take San Francisco. San Francisco
Speaker 8: office is one of the worst markets globally, and I
Speaker 8: can tell you even in San Francis Go we own some.
Speaker 6: Of the best office assets in that market.
Speaker 8: Even today we're signing leases at rents above pre COVID levels.
Speaker 6: So to your point, it speaks to the benefits to
Speaker 6: the best.
Speaker 3: Okay, so let's talk about some of those benefits or
Speaker 3: what that offers potential tenants. I mean, what exactly in
Speaker 3: twenty twenty four, in this world of hybrid work that
Speaker 3: we live in a world where AI companies are just
Speaker 3: flourishing in the Bay Area and bringing people back to
Speaker 3: the city. What is an office building? What does an
Speaker 3: office building need to provide to attract and retain tenants
Speaker 3: right now?
Speaker 6: Yeah?
Speaker 8: Absolutely, Look, it's amenities, it's a focus on wellness. It
Speaker 8: is all of the bones, if you will, so big
Speaker 8: open ceiling, heights, big open windows.
Speaker 6: But ultimately it comes.
Speaker 8: Down to I think amenetization, wellness, and of course location.
Speaker 3: So can can buildings that don't offer those things right now?
Speaker 3: Can they be converted at a reasonable cost to buildings
Speaker 3: that will soon become attractive.
Speaker 8: There's a lot of talk about converting old office buildings
Speaker 8: into other uses, converting it into residential, converting it into life.
Speaker 6: Science or lab space, and the reality.
Speaker 8: Is some assets will be converted. We've seen success stories.
Speaker 8: For example, here in New York. After September eleventh, a
Speaker 8: lot of office buildings in Lower Manhattan were converted to
Speaker 8: residential buildings.
Speaker 6: But two things were different.
Speaker 8: One, many of those office buildings had smaller floor plates,
Speaker 8: so physical structures that were more conducive to conversion. And two, frankly,
Speaker 8: there was a government subsidy for that.
Speaker 6: And I think that the math is.
Speaker 8: Simply, even for those assets that have the right physical footprint,
Speaker 8: the math is very challenging when you get to over
Speaker 8: hauling the mechanical systems, everything going.
Speaker 6: Up and down the building.
Speaker 2: Hey, one thing I wanted to ask you obviously front
Speaker 2: and center here coming off the unfortunate bridge collapse in Baltimore,
Speaker 2: and we are once again talking about supply chains, and
Speaker 2: that is certainly an investment trend that you guys are seeing.
Speaker 2: You call it a second mega trend tail when driving
Speaker 2: demand in the industrial real estate space, and it has
Speaker 2: to do with the global supply chain. Talk to us
Speaker 2: about that, and you guys are investing this.
Speaker 8: Way absolutely, So I would say, in contrast to office
Speaker 8: we love industrial real estate. We love it on a
Speaker 8: global basis, and it's really for two reasons. The first
Speaker 8: is e commerce. So that's very much been the story
Speaker 8: of the last decade. So we, as all of us
Speaker 8: started buying and increasing share of our goods online versus
Speaker 8: in store, and frankly demanding it get to us faster
Speaker 8: and faster. We started buying in buildings, those warehouses that
Speaker 8: get goods to our front doors every day.
Speaker 6: And as e commerce penetration went grew by two and
Speaker 6: a half x so too did rents.
Speaker 8: So that's been a great tailwind for US industrial real estate,
Speaker 8: for global industrial real estate, and I think that will continue,
Speaker 8: albeit decelerate the second mega trend, and it's really at
Speaker 8: the earlier inning. So even more exciting is the overhaul
Speaker 8: in the global supply chain. Look, we're coming off decades
Speaker 8: of a super smooth, super efficient global supply chain. We've
Speaker 8: all enjoyed the disinflationary benefits of that supply chain, but
Speaker 8: now things are changing.
Speaker 6: You look at.
Speaker 8: What happened tragically in Baltimore this week, but I think
Speaker 8: it's really it goes well beyond that. Among the many
Speaker 8: things that COVID late, there was the fragility of the
Speaker 8: global supply chain and we live it daily now.
Speaker 6: It is event driven supply shocks, so COVID certainly.
Speaker 8: Being an enormous one, but you also have what's going
Speaker 8: on in the Panama Canal or labor disputes at the court,
Speaker 8: so event driven supply shocks, and frankly, you have the
Speaker 8: overlay of geopolitics.
Speaker 3: Yeah global Hey, Lauren, we only have thirty seconds left,
Speaker 3: but I do want to talk politics, not geopolitics. How
Speaker 3: do investors in this space need to follow the presidential election.
Speaker 3: Does do things change for you if Biden loses and
Speaker 3: Trump wins?
Speaker 2: Just got about twenty seconds.
Speaker 9: Love.
Speaker 8: Politics affects everything, but ultimately we are focused around big,
Speaker 8: mega trends that are durable demand drivers, regardless of who's
Speaker 8: in office.
Speaker 2: All right, interesting stuff, and certainly it feels like this
Speaker 2: is going to be continuing a chapter in the real
Speaker 2: estate state space in general. Kind of we talk about
Speaker 2: in terms of how office plays its way out and
Speaker 2: then just kind of where investors are going. Hey, Lauren,
Speaker 2: thank you so much. Lauren Hackfelder, co CEO real Estate
Speaker 2: Investing and Morgan Stanley Investment Management joining us in New
Speaker 2: York City.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Listen live
Speaker 1: each weekday starting at two pm Eastern on applecar Play
Speaker 1: and Android Auto with the Bloomberg Business ad. You can
Speaker 1: also listen live on Amazon Alexa from our flagship New
Speaker 1: York station, Just Say Alexa playing Bloomberg eleven thirty.
Speaker 3: Well, a salvage firm that helped contain the Deep Water
Speaker 3: Horizon oil spill and safely blow up part of New
Speaker 3: York's Tappanzee Bridge, is heading to Baltimore as a first
Speaker 3: step to what will likely become a more than two
Speaker 3: billion dollar rebuilding projects.
Speaker 2: Yeah, and Tim, someone who knows the Baltimore area very well,
Speaker 2: haven't been born there, is well known to our Bloomberg
Speaker 2: audience as he is the host of peer to peer
Speaker 2: Conversations on Bloomberg is Carlisle. Co founder and co chairman
Speaker 2: David Rubinstein, who I caught up with last night to
Speaker 2: talk about the bridge, as well as some news earlier
Speaker 2: in the day. We started now on the collapse of
Speaker 2: the Francis Scott Key Bridge. I want to start with
Speaker 2: something that we have certainly been focusing on the last
Speaker 2: twenty four hours or so, and that is what's going
Speaker 2: going on in Baltimore. You were raised there, born there.
Speaker 2: The collapse obviously of the Francis Scott Key Bridge. How
Speaker 2: important is this bridge to the area. What does it
Speaker 2: mean to the people who live in and around that area.
Speaker 9: It's an important bridge to people in this area. It's
Speaker 9: important bridge for the country in many ways because many
Speaker 9: important ships go through that channel there. But the bridge
Speaker 9: itself is iconic, well known, named after a very famous person,
Speaker 9: of course, Francis Scott Key. But it is a sad
Speaker 9: situation that it couldn't have been prevented. Apparently the ship
Speaker 9: lost control or lost its power, and therefore it couldn't
Speaker 9: control where it went. Based on what I read, and
Speaker 9: I think that at this point there's been a loss
Speaker 9: of life. It's tragic. The governor is on top of it.
Speaker 9: He's an incredibly pessive person, and he and the Secretary
Speaker 9: of Transportation are on top of what needs to be done.
Speaker 9: In President Biden has said that the federal government will
Speaker 9: put up the money to fix the bridge, but it's
Speaker 9: going to take time. So there'll have to be a
Speaker 9: way to figure out how to get people across that area,
Speaker 9: which is otherwise you know, reached by the bridge. But
Speaker 9: you know, sad situation for the city for sure.
Speaker 2: But I just want to ask you as someone who's
Speaker 2: lived in the area, right, I think you know, when
Speaker 2: we live across the country or we're not from that area,
Speaker 2: we think, okay, it's it's another bridge, And obviously loss
Speaker 2: of life first and foremost we feel bad for that.
Speaker 2: But I'm just in terms of the area and and
Speaker 2: you growing up in that area, like how you how
Speaker 2: you think about that bridge?
Speaker 9: Well, the bridge is one that is an important part
Speaker 9: of the commerce of this area, important for people that
Speaker 9: live in the area. It wasn't actually built when I
Speaker 9: was growing up, and blomers built afterwards, but it's an
Speaker 9: important bridge and serves a great purpose. It's just so
Speaker 9: tragic that the ship lost power and it was in
Speaker 9: the middle of the night and you couldn't really help
Speaker 9: eeasibly rescue people. But Baltimore has had many challenges in
Speaker 9: recent years. This is a challenge, but it's a challenge
Speaker 9: that you know we can where you can't recover the
Speaker 9: lives of people who are gone. But I think the
Speaker 9: bridge can be rebuilt. It just takes time to build bridges,
Speaker 9: and therefore there'll have to be some temporary measures to
Speaker 9: get people across that area.
Speaker 2: We certainly have heard from various government officials about that,
Speaker 2: specifically about the time that's going to be needed to
Speaker 2: get certainly the port up and running, but even more
Speaker 2: importantly at the longer term time that it will take
Speaker 2: in terms of getting that bridge rebuilt. Are you confident
Speaker 2: that the government will do what it needs to get
Speaker 2: that bridge rebuilt in a timely manner.
Speaker 9: I'm confident that the government as the intent to get
Speaker 9: it done as quickly as possible, and the present United States,
Speaker 9: the governor of Maryland, the mayor, and Baltimo are all unified.
Speaker 9: It's not a political issue, just a question of you know,
Speaker 9: it's something that it takes time to build, and you've
Speaker 9: got to redesign the bridge, and you've got to get
Speaker 9: structural engineers and you've got to get construction people. So
Speaker 9: it's a multi year effort to get that rebuilt, there's
Speaker 9: no doubt.
Speaker 2: And as I said, we've heard from the government. Is
Speaker 2: there something that the private sector can do? Is there
Speaker 2: a public you know, private partnership that needs to be
Speaker 2: thought about in terms of getting this bridge up, up
Speaker 2: and running and rebuilt.
Speaker 9: Well, typically you have public private partnerships when there's a
Speaker 9: need to involve the private sector in some way, and
Speaker 9: the government can help with financial support. Here, the government
Speaker 9: is putting up all the money necessary for the rebuild.
Speaker 9: So the private sector I think can probably help the
Speaker 9: most by raising funds for the families who lost their
Speaker 9: loved ones in this tragic accident. And I think that's
Speaker 9: something the federal government doesn't typically provide support for, and
Speaker 9: so I think you'll see private sector money focused on
Speaker 9: that for the commediate future.
Speaker 2: All right, and David, we definitely obviously appreciate you weighing
Speaker 2: in on the collapse. I think we would be remiss
Speaker 2: not to ask about some big news for you personally today,
Speaker 2: and that is about the Baltimore Orioles. You tweated it
Speaker 2: out about ownership. Major League Baseball's owners today unanimously approving
Speaker 2: you as the new controlling owner of the Baltimore Orioles
Speaker 2: just before opening season begins or the season begins. Congratulations,
Speaker 2: you've wanted this team for years. What's gone through your
Speaker 2: mind now that you've got it.
Speaker 9: Well, whenever you achieve something you want, you always have
Speaker 9: to wonder what bad things can happen, because you you know,
Speaker 9: life can always be perfect. So I'm very pleased. We
Speaker 9: have a great team, a great investment group that I've assembled.
Speaker 9: But you know, it's one hundred and sixty two games,
Speaker 9: and it's you know, you're considered successful if you win
Speaker 9: you know, one hundred or so of them. So you're
Speaker 9: going to lose a fair number of games. So we
Speaker 9: have an opening day tomorrow. Hopefully the weather will operate
Speaker 9: and well, we'll do well in opening day. But it's
Speaker 9: a long season. I just pleased that I was able
Speaker 9: to do this. I came from very modest circumstances in Baltimore.
Speaker 9: Never dreamed that I would be able to buy the
Speaker 9: Ortols when I was growing up. But you know, life
Speaker 9: moves forward in strange ways, and things worked out, and
Speaker 9: I'm happy to do this as a way to help
Speaker 9: give back to Bottomore if it's good for having helped
Speaker 9: me get a very good education here.
Speaker 2: I feel like it's an obvious question. I'm assuming you
Speaker 2: will be sitting in the owner's box tomorrow at Camden Yards.
Speaker 9: It's an obvious question, but the answer is not obvious.
Speaker 1: I will be.
Speaker 9: I have some friends, relatives and others coming, but I
Speaker 9: don't want to be there that long because I want
Speaker 9: to move around the stadium and see what the fans think,
Speaker 9: and because I'll be sitting in various parts of the
Speaker 9: stadium and sitting next to average fans. That's what I
Speaker 9: hope to do in that game and other games.
Speaker 2: That's really lovely to hear. And the other thing I'm
Speaker 2: going to ask you is a team obviously you've thought
Speaker 2: about for a long time. As you said, you feel
Speaker 2: I can hear in your voice that you know Lucky
Speaker 2: to have it as your team and be part of
Speaker 2: the ownership there. It is a young team made the
Speaker 2: playoffs last year? What are your plans? How are you
Speaker 2: thinking about that?
Speaker 9: We have the best manager in the American League, as
Speaker 9: voted by the league last year, and the best general manager.
Speaker 9: Nobody has ever thought that my baseball expertise was quite
Speaker 9: at the level of those two individuals. So I'm going
Speaker 9: to rely on them on what to do, and I'll
Speaker 9: try to be as supportive as possible from the business side,
Speaker 9: but clearly on the player's side, you know. I mean,
Speaker 9: we have it in the hands of people that are
Speaker 9: really experts, and my job is to kind of help
Speaker 9: them do what they need to do.
Speaker 2: So if they say we need to spend more on
Speaker 2: the team payroll, would you be up for that.
Speaker 9: I'm going to follow the advice of the people that
Speaker 9: know what they're doing in baseball, so I you know,
Speaker 9: I'm RELI look at what they recommend. So I just
Speaker 9: don't want to be committing to any one thing or
Speaker 9: getting people's hopes up beyond what I can realistically do.
Speaker 9: So I think I want to rely on Mike Elias,
Speaker 9: who's the incredible general manager. We have in Brandon High
Speaker 9: the great manager we have. And beyond that, I don't
Speaker 9: think I can say more.
Speaker 2: Hey, listen, and I don't know what you can say
Speaker 2: about the dispute that's been going on for a long
Speaker 2: time with Mason. Is there anything in terms of moving
Speaker 2: that forward and getting some kind of resolution.
Speaker 9: I do think that it would be helpful to base
Speaker 9: Ball generally and helpful to the Nationals and the Eros
Speaker 9: to have some type of resolution. But obviously, when you
Speaker 9: have something that's going on for ten years of dispute,
Speaker 9: no one can come in overnight say I got a
Speaker 9: solution that no, none of you thought of. So it's
Speaker 9: something that we want to resolve. I think the Commission
Speaker 9: of Baseball would like to see it resolve, but it's
Speaker 9: going to take some time to dig into it. Obviously
Speaker 9: lawyers have benefited from this over the years. But hopefully
Speaker 9: we can get it resolved without the lawyers being too
Speaker 9: deeply involved in and we can get it resolved before
Speaker 9: too long. But it's beyond that. I can't really say, hey, David,
Speaker 9: one more thing.
Speaker 2: You know you talk about tomorrow, you know, being among
Speaker 2: the fans and walking around the stadium, and I do
Speaker 2: wonder how you think about it. I know it's something
Speaker 2: we talk about in New York a lot about the
Speaker 2: expensive cost of taking a family affoord to go see
Speaker 2: a team. And how do you think about, you know,
Speaker 2: making this you know, wonderful sport and this team, you know,
Speaker 2: accessible to everyone.
Speaker 9: Well, people in New York who want to go to
Speaker 9: a baseball game might find it cheaper to come to
Speaker 9: the Orioles game than to go to the Mets or
Speaker 9: the Yankees game. So we welcome everybody in New York
Speaker 9: to come to Baltimore, which is less expensive and a
Speaker 9: beautiful city, charm city as it's known. So I think
Speaker 9: the prices here are more affordable, even with the transportation.
Speaker 9: So I hope people from New York who might be listening,
Speaker 9: we'll say, let's go to Baltimore.
Speaker 2: All right, I'm going to let all the New York fans. Hey,
Speaker 2: I lied one more question. You've been the chairman of
Speaker 2: the Kennedy Center Honors for fourteen years. You've got one
Speaker 2: more year. You step down tomorrow. I know it sounds
Speaker 2: like taking something off your plate. You've got a lot
Speaker 2: going on, is understandable, but any thoughts about that. It's
Speaker 2: something that I've enjoyed watching with my family, and I'm
Speaker 2: just curious as you wrap that up and move on
Speaker 2: to other things, how you're thinking about that.
Speaker 9: Well, the Kenny Center has been something I've chaired for
Speaker 9: fourteen years. I'll finish at the end of December, but
Speaker 9: then I'll become the chairman of the Kenny Center Foundation,
Speaker 9: which is designed to help raise money for the endowment
Speaker 9: of the Kenny Center. So I'll still be involved there
Speaker 9: a bit, but I think it's a good time to
Speaker 9: get somebody who's young and pressure than me, and I
Speaker 9: have one more honors to do, and we're going to
Speaker 9: pick the honorees in the New York Future and hopefully
Speaker 9: everybody will think it's a great selection.
Speaker 2: All right, David, thank you so much. Any celebrating tonight, we.
Speaker 9: Have the investors and Maney of the key people in
Speaker 9: the OILS organization having a dinner tonight, and I will
Speaker 9: host that dinner with some of my partners.
Speaker 2: Yes, all right, That of course is Carlile co founder
Speaker 2: and co chairman David Rubinstein. Conversation I had with him
Speaker 2: last evening, obviously talking about the bridge, but also the
Speaker 2: news yesterday that he is now the owner of the
Speaker 2: Baltimore Ornols. That's a big deal, John Tucker.
Speaker 7: Does that mean we get tickets? Well, we should point
Speaker 7: how does this benefit me, John Tucker, I don't know
Speaker 7: the answer to that question. I'm kidding.
Speaker 2: We should point out though, Michael R. Bloomberg, of course,
Speaker 2: the founder of Bloomberg LP and Bloomberg Philanthropies, is also
Speaker 2: part of that investor group.
Speaker 7: I will just say it's a sight when the Yankees
Speaker 7: here in New York go play book. Bltimore Camden Yards
Speaker 7: is a fantastic studio.
Speaker 5: Love.
Speaker 7: Yeah, it's a great trip, by the way. Yeah, sometimes
Speaker 7: you get more Yankee fans in Baltimore.
Speaker 2: Then because it's a good deal, because it's cheaper.
Speaker 7: It's it's a great trip.
Speaker 2: Yeah, it's a great trip. All right, all right, folks,
Speaker 2: Carol Master, timstad Vic, where to come. We're going to
Speaker 2: talk about the markets right here on Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week Podcast. Catch us
Speaker 1: live weekday afternoons from two to five pm Eastern. Listen
Speaker 1: on Apple car Play and then brout Auto with a
Speaker 1: Bloomberg Business app, or watch us live on YouTube.
Speaker 3: So we're going to go further with Apple, the company
Speaker 3: in the processers of it, seems regulators around the globe.
Speaker 3: Here in the US, as you know, one week ago,
Speaker 3: the US Justice Department in sixteen attorneys General suit Apple,
Speaker 3: accusing the iPhone maker of violating anti trust laws by
Speaker 3: blocking rivals from accessing hardware and software features on its
Speaker 3: popular devices.
Speaker 2: Indeed, well, our next guest believes misguided anti trust actions
Speaker 2: could harm consumers and small businesses and only lead to
Speaker 2: increased government intervention. So here to explain her view is
Speaker 2: Jennifer Huddleston. She's Technology Policy Research Fellow at the Cato Institute,
Speaker 2: adjunct professor at George Mason University's Antonin Scalia Law School,
Speaker 2: and she joins us from Washington, d C. Jennifer, good
Speaker 2: to have you here on Bloomberg. So let's get to it.
Speaker 2: You it sounds like you don't agree with this action
Speaker 2: by the US Justice Department. Lay it out for us.
Speaker 10: What we have is the US Justice Department trying to
Speaker 10: very narrowly define a market in order to show a
Speaker 10: market dominance that doesn't actually reflect the reality that most
Speaker 10: consumers have or why Apple is a large, successful company. Instead,
Speaker 10: what we have is a bit of a return of
Speaker 10: a big as bad mentality the idea that certain companies,
Speaker 10: because of their size, should be immediately subject to greater
Speaker 10: regulatory scrutiny. But if we think about some of the
Speaker 10: issues brought up in the complaint, things like the idea
Speaker 10: that you get a green bubble and messaging if you
Speaker 10: have an Android device, the reality is that many consumers
Speaker 10: are choosing from a lot of different messaging options, not
Speaker 10: just text message and I Message, but any array of
Speaker 10: apps that are out there like WhatsApp, Signal, Telegram, and
Speaker 10: so on. This also makes a lot of presumptions about
Speaker 10: what the smartphone market is. The average consumer when they're
Speaker 10: choosing a smartphone is going to consider many many different
Speaker 10: features beyond just the operating system. They may be thinking
Speaker 10: about things like the camera, or the availability of certain apps,
Speaker 10: or the privacy and security features of a phone.
Speaker 3: Hey, one thing I do want to, just for transparency,
Speaker 3: make clear to our audience is understand the funding of
Speaker 3: the Cato Institute. We do this with our think tank guests.
Speaker 3: So give us an idea of where the funding comes
Speaker 3: from for the Cato Institute, and if Apple is one
Speaker 3: of the companies that does support the Cato Institute, I'm.
Speaker 10: Here to talk about my research, I don't work on
Speaker 10: our development team. Institute is funded by a wide range
Speaker 10: of individuals, and I can direct any questions you might
Speaker 10: have on that to the appropriate sources, all.
Speaker 2: Right, and companies though, to be fair, so we just
Speaker 2: want to make sure the transparency is out there. Well,
Speaker 2: what is it about your research says that you know
Speaker 2: consumers would be hurt and small businesses would be hurt
Speaker 2: by this decision.
Speaker 10: Well, when we look at what's gone on in the past,
Speaker 10: when we have seen something that was not the consumer
Speaker 10: welfare standard applied in anti trust, whether it was in
Speaker 10: the US in a private prior anti trust era, or
Speaker 10: if it was looking to Europe, what we have traditionally
Speaker 10: seen is that that focuses more on subjective means of
Speaker 10: measuring what is good and bad for competition, and it
Speaker 10: really sets up for a potential government intervention against politically
Speaker 10: disfavored companies, and it can actually take away some of
Speaker 10: those very features that consumers enjoy, whether it's the ability
Speaker 10: to know that an ecosystem is closed and therefore they
Speaker 10: feel that it's more secure because they know that that's
Speaker 10: the way that the product was designed, or whether it
Speaker 10: is to look at other aspects of the smartphone market,
Speaker 10: particularly for small developer for app store developers, this could
Speaker 10: change the way that the app store works as well,
Speaker 10: and the way that different elements that are currently available
Speaker 10: are such that it makes it much more complicated and
Speaker 10: in some ways could make every phone the same rather
Speaker 10: than really allowing a wider range of options for consumers.
Speaker 3: Jennifer, what about the take rate for Apple, that thirty
Speaker 3: percent fee that it takes from stuff that's purchased through
Speaker 3: apps that are downloaded from the Apple App Store. I'm
Speaker 3: wondering your thoughts on that and if there are any
Speaker 3: antitrust concerns about that. Just to remind our viewers and listeners,
Speaker 3: it's the idea that when you buy something through an
Speaker 3: app that you downloaded through Apples App Store, whether or
Speaker 3: not that app comes from Apple or not, Apple does
Speaker 3: get and these are digital goods we're talking about, Apple
Speaker 3: does get a portion of that. That's what really set
Speaker 3: things off with regulators, and that's where Epic Games was
Speaker 3: coming from.
Speaker 10: And we've actually already seen that, as you largely litigated
Speaker 10: in the Epic Games case, in which the court found
Speaker 10: mostly in favor of Apple's process. I think the question
Speaker 10: there is also is that actually an antitrust concern? Is
Speaker 10: that actually an anti competitive behavior or is that a
Speaker 10: matter of contract law? Is this a case of companies
Speaker 10: that can negotiate with each other over a fee the
Speaker 10: way that we would see in an offline world. If
Speaker 10: this was a shopping mall, for example, or Walmart, or
Speaker 10: a department store like Nordstrom, and they were having a
Speaker 10: negotiation with someone who went to sell something in their space,
Speaker 10: we would say that's a contract negotiation, and different companies
Speaker 10: may or may not like the terms of those contracts,
Speaker 10: but we would say that's a contract dispute and not
Speaker 10: necessarily an anti trust issue.
Speaker 3: Jennifer, what would rise to an anti trust issue in
Speaker 3: your opinion when it comes to Apple. What would you
Speaker 3: have to see from the company to say, Okay, this
Speaker 3: is an instance where we need to see regulators get involved.
Speaker 10: We would want to see something that indicated that it
Speaker 10: was anti competitive behavior and not just the case of
Speaker 10: having a product that responds to what consumers want and
Speaker 10: having a product that has been very popular with consumers.
Speaker 10: So we would be looking for things that were actually
Speaker 10: somehow distorting the market as opposed to something that's just
Speaker 10: a result of a company's success. We want companies to
Speaker 10: be responding to what their consumers want and creating products
Speaker 10: that meet those that meet those demands, and that may
Speaker 10: mean that they're successful and that they drive innovation as
Speaker 10: a result that other companies have to really rise to
Speaker 10: that challenge.
Speaker 2: Well, to be fair, I mean, we talk about it
Speaker 2: a lot, right tim, We've talked about I mean, I'm
Speaker 2: an Apple family and we've made a choice, and so
Speaker 2: everything we do is within the Apple universe. And having
Speaker 2: said that, we don't necessarily as consumers know that if
Speaker 2: Apple was more open with its platform whether or not
Speaker 2: we might benefit from that as consumers. So it's hard
Speaker 2: to kind of make that case right without knowing whether
Speaker 2: or not by opening it up and not being so
Speaker 2: closed in terms of the Apple system, whether or not
Speaker 2: we actually might benefit.
Speaker 10: There is an alternative system out there in that the
Speaker 10: Android system provides a different option, and so for people
Speaker 10: that are looking at wanting to have that more side
Speaker 10: loading experience, there are options out there where there's a
Speaker 10: wider range of operating systems. Apple has really tried to
Speaker 10: distinguish itself in the market through kind of having this
Speaker 10: closed ecosystem that they market as better for privacy and security,
Speaker 10: and that's part of their marketing strategy and what they
Speaker 10: feel is their role and their competitive advantage in the market,
Speaker 10: meaning in that would take away a company's option of
Speaker 10: really portraying themselves as that privacy centric option.
Speaker 3: I'm wondering what you think of the idea of an
Speaker 3: environment being created where startups can flourish. And I think
Speaker 3: that a lot of people would point to the anti
Speaker 3: trust action taken against Microsoft in the nineties that essentially
Speaker 3: hobbled Microsoft for so many years, created this foundation in
Speaker 3: Silicon Valley where a lot of startups that are now
Speaker 3: the biggest companies in the world were actually able to
Speaker 3: succeed and flourish. Do you think Apple and other big
Speaker 3: companies are preventing startups from succeeding in this day and
Speaker 3: age because of their size.
Speaker 10: We continue to have a really flourishing ecosystem of startups
Speaker 10: in the US, and we're very lucky that there are
Speaker 10: very low barriers to entry to start a company because
Speaker 10: of how we've had a light touch regulatory approach to regulation.
Speaker 10: I get concerned with some of the calls to change
Speaker 10: antitrust law around mergers and acquisitions, not only for the
Speaker 10: impact that could have on large companies, but for the
Speaker 10: impact that could have on some of those small companies.
Speaker 10: Some companies want to be the next Apple, the next Google,
Speaker 10: the next Microsoft and IPO and get really big. Others
Speaker 10: are looking at other exit strategies where they want to
Speaker 10: make an existing product better, or perhaps you know there's
Speaker 10: someone who the better option is to get acquired by
Speaker 10: a large company and continue to be a serial entrepreneur.
Speaker 10: So what we ideally want is something that has a
Speaker 10: wide range of exit strategies for companies of all sizes,
Speaker 10: so that they're really focused on benefiting consumers and on
Speaker 10: trying and failing in the marketplace.
Speaker 3: Jennifer, we only have fifteen seconds left, But how do
Speaker 3: you think this plays out in court over the next
Speaker 3: few years.
Speaker 10: I think the next few years is key there. This
Speaker 10: is going to be a long case. We're going to
Speaker 10: see a lot of conversations and a lot of further
Speaker 10: discussion on this issue.
Speaker 2: All right, really it there? Hey, listen, Thank you so much.
Speaker 2: Jennifer Huddleston, technology policy research fellow at the Cato Institute,
Speaker 2: joining us from Washington, d C. And I will say
Speaker 2: tim our own legal analysis Jennery here at our Bloomberg
Speaker 2: intelligence team on this case, saying that you know, it's
Speaker 2: probably going to be three years in the making, and
Speaker 2: says that there is a lot that can happen in
Speaker 2: the technology world that might make it a very different
Speaker 2: case in that time.
Speaker 3: Once again, a good thing for lawyers. They always out
Speaker 3: there a we seem to win.
Speaker 1: M brom.
Speaker 5: Journal.
Speaker 6: How about you let me drive?
Speaker 11: Oh no, no, no no, who's going to drive?
Speaker 4: Honey?
Speaker 1: Please?
Speaker 11: How do the riding gravels? Let's make I want to drive.
Speaker 6: It's a good question that.
Speaker 1: This is the drive to the globe dot Com? Tim,
Speaker 1: think we'll buy around it on Bloomberg Radio.
Speaker 2: All right, everybody, TikTok. Just about eighteen minutes left in
Speaker 2: today's training session. Carol Master along with Tim stane It
Speaker 2: getting ready to wrap up the holiday shortened trading week
Speaker 2: and wrap up Tim the first quarter. That was quite
Speaker 2: a stellar quarter if you were a bull in the
Speaker 2: equity markets here in the US.
Speaker 3: Yeah, I'm really curious what Alan Zopfren has to say
Speaker 3: about that. He's founding partner in co CEO at IQ Capital.
Speaker 3: He joins us once again from Foster City, California. Alan,
Speaker 3: how are you.
Speaker 11: I'm great, Tim, and Carol, how are you doing?
Speaker 3: We're doing pretty well. Hard to believe.
Speaker 2: We just opened up our four oh one k's and
Speaker 2: we're like, no, okay, no.
Speaker 3: The trick, Carrol is never looked. That's the trick, never periodically.
Speaker 4: Yes, of course you did.
Speaker 3: Yeah, way too much. All right, what do you think
Speaker 3: of what's going what happened this quarter? I mean, what
Speaker 3: how does it mesh with what you thought would happen
Speaker 3: in the first quarter of the year, And where do
Speaker 3: you think we're going in the remaining seventy five percent
Speaker 3: of the year.
Speaker 11: Well, first of all, the equity rally surprised me, probably
Speaker 11: as much as many investment professionals. So now we're calling
Speaker 11: it a five oh one K or six to one
Speaker 11: k Carol, not a one k.
Speaker 6: I like that.
Speaker 11: But you know, here's what happened in retrospect. It's easy
Speaker 11: to see it in retrospect. The market investors basically determine
Speaker 11: the Fed pivoted its policy in mid October. And the
Speaker 11: easiest way to consider that as you look at the
Speaker 11: yield on the two year treasury. It peaked in mid
Speaker 11: October on five and a quarter percent. It's right now
Speaker 11: at about four point sixty two percent. Once the market
Speaker 11: concluded the Fed had pivoted, everyone concluded it was time
Speaker 11: to be bullshigan and put money back into the markets.
Speaker 11: And if you look at history, markets always rally even
Speaker 11: if economic activity is weakening post the FED pivot. So
Speaker 11: that's what we think is happen to you have a
Speaker 11: liquidity washed market, and it goes to old adage time
Speaker 11: in the market is better than timing the market. So,
Speaker 11: despite my skepticism with a looming recession, sitting on our
Speaker 11: hands and not taking steps to mak any changes ended
Speaker 11: up being the right decision.
Speaker 2: Having said that, okay, so we're getting ready for the
Speaker 2: Powell pivot or Powelling company pivoted. But yesterday, as we've
Speaker 2: been talking about allan, FED Governor Chris Waller saying that
Speaker 2: recent inflation data make him hesitant to cut rates as
Speaker 2: soon as he did a couple of months ago. And
Speaker 2: it's kind of interesting. So, you know, you do wonder
Speaker 2: and I'm curious about what Jay Powell will say ultimately
Speaker 2: tomorrow whether or not we're starting to get a little
Speaker 2: bit more managed about Yeah, maybe it's three, maybe it's two,
Speaker 2: maybe it's one, maybe it's none. Like I don't know.
Speaker 2: I guess we need to see and read the tea
Speaker 2: leaves here.
Speaker 11: You're actually a highlighting we think is a greater risk
Speaker 11: of the market. Here's the irony. We would tell you
Speaker 11: greater economic strength with more inflation and a higher rate
Speaker 11: environment is actually more problematic and scary in the short
Speaker 11: run for markets than a slow down economically, even into
Speaker 11: a recession. In other words, we're at a near all
Speaker 11: time high of correlation with where yields are on what's
Speaker 11: happening with stock prices, and so our view is the
Speaker 11: biggest new term risks of the market is not a
Speaker 11: slow down economically. It's a pick up an inflation, a
Speaker 11: FED that doesn't lower the Fed funds rate and people
Speaker 11: have to unwind all their expectations about the rate cuts
Speaker 11: and we change the valuations we're paying for these stocks.
Speaker 11: So that is in fact the risk.
Speaker 2: What's the balance of someone like you who watches the
Speaker 2: markets has to come out with advice and say the
Speaker 2: balance between growth good, a little bit of inflation good
Speaker 2: maybe versus a recession or deep recession and fallout.
Speaker 11: Well. Stocks Historically archery actually and inflation hedge. It's only
Speaker 11: in times of extreme inflation where stock markets tend to
Speaker 11: fall or disinflation with recession. So we would argue, you know,
Speaker 11: it's semantics, but whether it's one and a half to
Speaker 11: three and a half percent, inflation is completely tolerable. What
Speaker 11: you're really looking for in the long run is, if
Speaker 11: you think about it mathematically, stocks are giving you real
Speaker 11: GDP growth of around four percent, inflation of another three percent,
Speaker 11: you get your two percent dividen yield. On an average,
Speaker 11: stock share counts drop by about one percent year, more
Speaker 11: shares are repurchased or redeemed than issued, So four three
Speaker 11: two one that's a ten percent rate to return. That's
Speaker 11: the historical rat return in the market. So inflation doesn't
Speaker 11: prevent the four percent economic growth as long as it's
Speaker 11: kind of in that one and a half to four
Speaker 11: percent range. When it gets too low, it's telling you
Speaker 11: there's no growth in the economy. Or when it's way
Speaker 11: too high, consumers can't afford to pay prices anymore. Companies
Speaker 11: have to raise prices to point the crowd out consumption,
Speaker 11: it leads to recession. So inflation is okay to a point,
Speaker 11: and in this environment win it's plenty fined as long
Speaker 11: as the pressure isn't great enough to cause rates to
Speaker 11: go a lot higher.
Speaker 3: Hey, al, and I've been asking all our guests about
Speaker 3: asset allocation lately, given that we are seeing really highs
Speaker 3: in a lot of different asset classes. Right now, someone
Speaker 3: comes to you with new money, how do you deploy it?
Speaker 11: Obviously, let's go back to risk Tarrant's investment time line, timeline,
Speaker 11: age goals, objectives, income needs, tax rate. But as a generalization,
Speaker 11: we would argue it's no different than any other time.
Speaker 11: But we would always argue whatever you're going into dollar
Speaker 11: cost average. So if I was going to tell you
Speaker 11: you are forty years old, you might be sixty percent
Speaker 11: stocks and forty percent bonds. But that's sixty percent in stocks.
Speaker 11: I'm going to take ten to twelve months to dollar
Speaker 11: cost average.
Speaker 9: You wins.
Speaker 11: You're buying ten percent of the stocks every month for
Speaker 11: ten months, and you get an average cost. You don't
Speaker 11: put all the money in on day one, because it's
Speaker 11: very hard emotionally to put all your money in the
Speaker 11: stock market. In three weeks later, if the market's down,
Speaker 11: you'll panic. So we would tell you it's status quote,
Speaker 11: it's no different than a normal time right now, But
Speaker 11: normal time means you tiptoe into markets. You don't put
Speaker 11: all your eggs into the basket on the very first day.
Speaker 2: All right, So you shared with our producer Paul Brennan
Speaker 2: ten market themes for twenty twenty four. You believe a
Speaker 2: new bull market is underway, Allen, lower interest rates finally
Speaker 2: bring economic reacceleration. Insight, markets are evolved to what we
Speaker 2: think they resolve higher. And you say, this bull market,
Speaker 2: this new bull market, requires a different playbook, and that
Speaker 2: you believe interest rates and inflation will ultimately setter at
Speaker 2: a higher baseline level compared to the last fifteen years.
Speaker 2: So this is a rethink. Do we get the Fed
Speaker 2: to buy in on that rethink? You think anytime soon?
Speaker 2: And kind of admit that, yeah, I do.
Speaker 11: I actually think the Fed has already admitted it. But
Speaker 11: they don't want to be a Fed like Arthur Burns
Speaker 11: in the nineteen seanies that let inflation creep back in
Speaker 11: and created a massive recession. So what they're going to
Speaker 11: do is they're purposely going slowly. They'd rather keep rates
Speaker 11: a little bit too high, a little too long, to
Speaker 11: guide us into this new economic environment. Then lower rates
Speaker 11: too quickly reads to gate inflation to cause a greater havoc.
Speaker 11: So I do think that's the playbook, but I think
Speaker 11: they are in fact could be methodical working us back
Speaker 11: down in the way they tip to us back down
Speaker 11: on the Yulker.
Speaker 2: Favorite investment idea somewhere where you would commit money right
Speaker 2: now and be as specific as you can.
Speaker 11: Private credit so you can buy both in public markets
Speaker 11: there are vehicles as well as in the private markets.
Speaker 11: Private credit is basically a set of loans senior and
Speaker 11: floating great issued largely than private companies, and because they're
Speaker 11: tied to the effectively the Fed Funds rate, it's called soafer.
Speaker 11: It's like what Libra was. Companies are you use the
Speaker 11: investor or lending money to a bask good of businesses
Speaker 11: that are giving you anywhere from five and a half
Speaker 11: to seven and a half percent of the five and
Speaker 11: a half percent Fed Funds rate.
Speaker 2: So you're making no worry though there's a lot of
Speaker 2: transparency concerns about that. Alan just got about twenty seconds.
Speaker 11: But if you're the senior floating rate lender on loans
Speaker 11: that are three or four and if you go into
Speaker 11: a pool of thousands of loans, the propensity you'll lose money,
Speaker 11: and that is exceptionally small. So experienced manager with a
Speaker 11: well diversified portfolio can make a very good private credit issuance.
Speaker 11: Note it's ordinary income, so that's the challenge.
Speaker 2: It's an argument in favor we've heard a lot about,
Speaker 2: but interesting, there's also some nervousness about the sector. Allen,
Speaker 2: thank you so much of a good holiday weekend. Alan Zaffron,
Speaker 2: founding partner co CEO at IEQ Capital, joining us there
Speaker 2: from California. This is Bluebird.
Speaker 1: This is the Bloomberg Business Week podcast. I'll a little
Speaker 1: lot of Apple, Spotify and anywhere else you get your podcast.
Speaker 1: Listen live weekday afternoons from two to five pm Eastern
Speaker 1: on Bloomberg dot com, the iHeartRadio app, tune In, and
Speaker 1: the Bloomberg Business App. You can also watch us live
Speaker 1: every weekday on YouTube and always on the Bloomberg terminal
Speaker 6: M