WEBVTT - Again Capital's Kilduff Expects Oil Prices to Fall to $42 0:00:00.080 --> 0:00:02.040 P and L is brought to you by proper Cloth, 0:00:02.120 --> 0:00:05.120 a leader in men's custom shirts, with proprietary, smart sized 0:00:05.120 --> 0:00:08.720 technology and top rated customer service. Ordering a custom shirt 0:00:08.760 --> 0:00:11.680 has never been easier. Visit proper cloth dot com to 0:00:11.760 --> 0:00:19.920 order your first custom shirt today. Welcome to the Bloomberg 0:00:20.000 --> 0:00:22.599 P and L Podcast. I'm Pim Fox. Along with my 0:00:22.640 --> 0:00:25.759 co host Lisa Abramowitz. Each day we bring you the 0:00:25.800 --> 0:00:29.360 most important, noteworthy, and useful interviews for you and your money, 0:00:29.360 --> 0:00:32.360 whether at the grocery store or the trading floor. Find 0:00:32.400 --> 0:00:35.840 the Bloomberg P and L Podcast on iTunes, SoundCloud and 0:00:36.080 --> 0:00:44.000 at Bloomberg dot com. Can oil break out of this 0:00:44.280 --> 0:00:48.199 fifty dollars to fifty five dollars a barrel range? I 0:00:49.040 --> 0:00:51.960 don't know the answer, but John Kilduff perhaps does. John 0:00:52.000 --> 0:00:55.400 Kilduff he is founding partner of Again Capital who has 0:00:55.600 --> 0:00:59.480 gotten it right again and again with where at the 0:00:59.520 --> 0:01:02.080 price of is going? So John, uh, you know where 0:01:02.120 --> 0:01:05.080 do you see this sort of tenuous truce in the 0:01:05.120 --> 0:01:09.480 Middle East about not producing too much more oil going? 0:01:09.520 --> 0:01:11.480 And do you think that we we could break out 0:01:11.560 --> 0:01:17.880 of this range? Um? Either way? First, good morning, Good morning, 0:01:18.360 --> 0:01:21.240 And Uh, I think you have to give them certainly 0:01:21.319 --> 0:01:24.240 some credit. The the OPEC and non OPEC producers like 0:01:24.319 --> 0:01:26.920 Russia that came together to try and cut looks like 0:01:26.959 --> 0:01:30.800 they've achieved about eighty five of their efforts. The problem 0:01:30.880 --> 0:01:35.000 is that there's several notable countries not part of the deal, Iraq, 0:01:35.080 --> 0:01:38.440 Iran in particular, and Nigeria and Libya, all of whom 0:01:38.440 --> 0:01:40.319 we're sort of written off in terms of not being 0:01:40.319 --> 0:01:42.440 able to grow their output much more. And it turns 0:01:42.440 --> 0:01:47.360 out there coming back like gangbusters. Um. Also too, we're 0:01:47.400 --> 0:01:49.880 heading into now the end of the winter season, which 0:01:50.080 --> 0:01:53.760 brings a sort of shoulder season demand period to the 0:01:53.800 --> 0:01:58.000 northern hemisphere globally, which I think is going to complicate 0:01:58.120 --> 0:02:01.240 the picture, uh for these guys, and I think dash 0:02:01.280 --> 0:02:04.440 their hopes. So to answer your question, I see it's 0:02:04.480 --> 0:02:07.040 breaking out to the downside here, I think in over 0:02:07.040 --> 0:02:09.799 the course the next couple of weeks. Hey, John, I 0:02:09.840 --> 0:02:13.119 wonder if you could put that together with the demand 0:02:13.240 --> 0:02:15.959 picture and maybe just you know, give us the thirty 0:02:16.000 --> 0:02:18.760 thousand foot few in terms of all right, we're going 0:02:18.800 --> 0:02:21.800 into the peak driving season will be the summertime in 0:02:21.840 --> 0:02:26.200 the northern hemisphere. Uh, you know what percent of production 0:02:26.320 --> 0:02:29.919 is that going to soak up and so on. Yeah, 0:02:29.960 --> 0:02:33.560 so the demand picture actually has been rather soft, particularly 0:02:33.600 --> 0:02:36.520 for refined fuels over the past several weeks here now, 0:02:36.560 --> 0:02:39.440 particularly in the US, we've been down on gasoline demand 0:02:39.800 --> 0:02:42.840 five to seven percent, which is somewhat remarkable. With some 0:02:42.919 --> 0:02:46.040 of that is a drop in exports, but some of 0:02:46.040 --> 0:02:49.560 it seems to be consumer response to the relatively higher 0:02:50.080 --> 0:02:55.880 gasoline prices already. UM And unfortunately for the refiners, UH, 0:02:56.040 --> 0:02:59.400 we're we have record inventories of gasoline on the East coast, 0:03:00.160 --> 0:03:03.280 UM and you know, we're continuing to see this. This 0:03:03.400 --> 0:03:06.240 lackluster demand sort of hurt them. You saw a STAT 0:03:06.280 --> 0:03:11.079 oil report today UM as did BP, and they both 0:03:11.120 --> 0:03:14.000 referenced the refining sector last quarters as being poor, which 0:03:14.040 --> 0:03:16.240 had been a bright spot. Part of this is being 0:03:16.320 --> 0:03:19.200 driven by the Chinese who sort of ramped up a 0:03:19.720 --> 0:03:22.320 mini sort of boom in refining there and which led 0:03:22.360 --> 0:03:25.360 to record exports during much of last year. So the 0:03:25.360 --> 0:03:28.760 whole world kind of got swamped and refined products. So 0:03:29.120 --> 0:03:32.760 you're seeing today gas leaned down about two down under 0:03:32.760 --> 0:03:34.840 a dollar fifty a gallon on then I am X 0:03:35.440 --> 0:03:39.240 Commodity board and UM the downward pressure I think is 0:03:39.240 --> 0:03:42.440 is going to continue there. So UM also too, we've 0:03:42.440 --> 0:03:45.280 seen the biggest slowdown in twenty six years according to 0:03:45.320 --> 0:03:48.600 the latest data out of China for refined product growth 0:03:48.920 --> 0:03:51.160 demand growth. So there continues to be a lot of 0:03:51.160 --> 0:03:53.760 issues around the whole complex. John, you said that you 0:03:53.800 --> 0:03:55.680 do think that we're going to break out to the downside. 0:03:55.720 --> 0:03:58.840 How low do you think oil prices could go? I 0:03:58.840 --> 0:04:01.440 think if we can, if we can break the fifty market, 0:04:01.520 --> 0:04:03.760 there's no reason why we couldn't retrace all the way 0:04:03.800 --> 0:04:07.520 back down to the lows from November, which was forty 0:04:07.560 --> 0:04:10.080 two dollars about So I think it's pretty easy for 0:04:10.160 --> 0:04:12.440 us to make an argument to get back qually back 0:04:12.480 --> 0:04:16.000 down there. And with a barrel, Which companies would that 0:04:16.160 --> 0:04:21.919 disrupt the most. It's gonna disrupt the pure play producers, 0:04:22.160 --> 0:04:26.240 so it's gonna it's gonna hurt hess UH companies like Hess, 0:04:26.279 --> 0:04:31.760 Occidental Petroleum, UM, some of the shale players, Continental Resources 0:04:31.760 --> 0:04:34.000 companies like that. Well, we'll we'll take it on the chin. 0:04:34.440 --> 0:04:38.479 It may actually help the refiners perversely, because there they'll 0:04:38.520 --> 0:04:41.960 have much lower input costs and UM it may spare 0:04:42.000 --> 0:04:44.440 more demand at the pump again just at the right time. 0:04:44.960 --> 0:04:48.440 As we hit the peak summer travel season. So what 0:04:48.520 --> 0:04:51.360 works early last year, it looks like it may work 0:04:51.400 --> 0:04:53.560 again early this year in terms of trying to play 0:04:53.640 --> 0:04:56.479 the energy patch. So all right, John, let's let's just 0:04:56.560 --> 0:04:59.440 keep this in mind. So we're looking for oil prices 0:04:59.480 --> 0:05:03.520 to go low or for a variety of reasons, right, Okay, 0:05:03.600 --> 0:05:06.520 Now is there any value in connecting this to just 0:05:06.600 --> 0:05:09.360 the thought that oil is up about eleven since the 0:05:09.480 --> 0:05:13.760 November election, that gas is up on nearly twenty since 0:05:13.760 --> 0:05:19.800 the election. Can you knit together a bigger picture for us? Well, 0:05:19.839 --> 0:05:22.000 it's it's interesting to me. I mean, obviously, all the 0:05:22.120 --> 0:05:24.839 entirety of the stock market and a lot of assets 0:05:24.839 --> 0:05:27.560 have risen on on hope for relief and regulation and 0:05:28.000 --> 0:05:31.960 other pro growth policies. The energy industry gets hurt in 0:05:32.000 --> 0:05:33.680 a big way. To refining industry gets hurt in a 0:05:33.760 --> 0:05:37.080 big way if this border tax adjustment UH program were 0:05:37.080 --> 0:05:41.440 to be implemented. Um also too, you know, the oil 0:05:41.480 --> 0:05:44.160 producing oil producers need to be careful of too much 0:05:44.160 --> 0:05:46.440 of a good thing, to the extent that they were 0:05:46.480 --> 0:05:50.080 they were to be released hogwild to exploit hundreds of 0:05:50.120 --> 0:05:52.400 thousands of more acres and produce more and more oil. 0:05:52.960 --> 0:05:54.560 It's going to add to the glut and not take 0:05:54.600 --> 0:05:57.200 away from it, obviously, So you don't think that there 0:05:57.240 --> 0:06:02.200 will necessarily be as much drilling as perhaps President Trump 0:06:02.240 --> 0:06:04.479 will allow them to do by opening up federal lands, 0:06:04.480 --> 0:06:07.920 which is widely expected. Yes, No, because you know a 0:06:07.920 --> 0:06:12.880 lot of federal land leases went unexploited during the Obama administration. 0:06:12.960 --> 0:06:16.279 You know, the U S producers cut back drastically with 0:06:16.320 --> 0:06:18.680 the price drops. So you know, the US in that 0:06:18.760 --> 0:06:21.719 regard is really the swing producer as much as Saudi 0:06:21.760 --> 0:06:25.359 Arabia these days, except that our policy is driven by economics, 0:06:25.360 --> 0:06:28.279 whereas the Saudis are trying to uh, you know, dictate 0:06:28.320 --> 0:06:31.200 price from on high. But no, I think it will 0:06:31.279 --> 0:06:33.600 be um not as great as land rush as you 0:06:33.640 --> 0:06:35.800 might think, because prices are going to be challenged more 0:06:35.800 --> 0:06:38.880 and more as we're already seeing the shell players ramp up. 0:06:38.960 --> 0:06:42.120 You know, John, last week we were talking about the 0:06:42.160 --> 0:06:45.920 solar industry and how the prices for solar energy has 0:06:45.960 --> 0:06:49.799 dropped to the point where it's competitive at least with gas. 0:06:49.880 --> 0:06:51.880 Do you think that this is going to increasingly be 0:06:51.960 --> 0:06:54.120 a pressure on the oil industry or is this a 0:06:54.200 --> 0:06:59.000 nonstarter just because it's so small relatively No, no, very 0:06:59.080 --> 0:07:01.320 very much. So it's a it's a it's become a 0:07:01.360 --> 0:07:05.360 big factor. Wind has become even a bigger factor. Um 0:07:05.560 --> 0:07:08.279 is it's actually considered a conventional energy source now, not 0:07:08.360 --> 0:07:12.120 even a special sort of case renewable um. But the uh, 0:07:12.800 --> 0:07:14.600 what we're dealing with here, you've got to keep in 0:07:14.640 --> 0:07:17.600 mind is that it's a bigger pressure really for natural gas, 0:07:17.640 --> 0:07:21.120 because oil still is eight barrel of oil is still 0:07:21.760 --> 0:07:25.160 of that barrel goes into transportation um. And we're still 0:07:25.200 --> 0:07:28.080 not seeing obviously solar cars, although we are starting to 0:07:28.080 --> 0:07:30.520 see more electric ones and and really ones that are 0:07:30.560 --> 0:07:34.240 desirable by consumers, like the ones Tesla produces, but for 0:07:34.280 --> 0:07:36.080 now it's going to be a while. So oil is 0:07:36.120 --> 0:07:39.280 still the transportation fuel as opposed to what the electrical 0:07:39.360 --> 0:07:41.440 utility industry is going to have to be dealing with, 0:07:41.440 --> 0:07:45.320 what sort of decentralized power generation prompt solar and now 0:07:45.360 --> 0:07:48.600 importantly the battery technology that's coming along with it. Thanks 0:07:48.680 --> 0:07:53.120 very much, John Kilduff, great stuff, founding partner of again Capital. 0:08:05.080 --> 0:08:07.480 Let's learn more about what to do with your money 0:08:07.640 --> 0:08:12.000 in this market that, as Dave Wilson was earlier describing, 0:08:12.040 --> 0:08:16.720 we could be seeing the SMP five. Tony Dwyers, the 0:08:16.800 --> 0:08:21.960 chief market strategist that can accord genuity, and he joins us, now, Tony, 0:08:22.000 --> 0:08:26.040 thanks very much for being with us. Give us your outlook, 0:08:26.760 --> 0:08:30.120 and then maybe I would throw in with that, give 0:08:30.200 --> 0:08:34.920 us all the things that could go wrong with your outlook. Okay, 0:08:34.920 --> 0:08:37.240 that's that's probably better. Stay to het them. Thanks for 0:08:37.280 --> 0:08:40.720 having me on and RISA. So we believe that the 0:08:40.760 --> 0:08:43.320 next few weeks we're going to see a correction UM 0:08:43.320 --> 0:08:47.040 in the market somewhere around five And that doesn't sound 0:08:47.160 --> 0:08:48.880 like a lot, but when you're down a couple of 0:08:48.920 --> 0:08:51.200 percent in the new kind of trading world that we're in, 0:08:51.360 --> 0:08:53.240 everybody kind of gets scared that it's going to be 0:08:53.240 --> 0:08:56.520 a ten to fifteen percent correction, and we we want 0:08:56.520 --> 0:08:59.400 to be in a position to really aggressively by that um. 0:08:59.520 --> 0:09:03.160 For the list nurse to make this really super simple, UM, 0:09:03.320 --> 0:09:06.200 you never want to be a net seller or negative 0:09:06.240 --> 0:09:09.640 on stocks until you have a recession in sight, because 0:09:09.679 --> 0:09:13.079 any correction in the midst of a positive growth backdrop 0:09:13.640 --> 0:09:17.160 always comes back um and pretty quick form and goes higher. 0:09:17.200 --> 0:09:18.880 So the only time you really want to be negative 0:09:18.960 --> 0:09:20.880 is if you can see a recession, and we don't 0:09:20.920 --> 0:09:23.480 see a recession for at least another couple of years. 0:09:23.720 --> 0:09:25.640 Hold on a second, Tony, you said, next couple of 0:09:25.640 --> 0:09:29.240 weeks you see a five percent pulled back in stocks. 0:09:29.280 --> 0:09:31.840 This sort of conflicts with what we hear a lot, 0:09:31.960 --> 0:09:34.640 which is I can't predict the next few weeks. I 0:09:34.640 --> 0:09:37.080 can maybe predict the next few years or give a 0:09:37.120 --> 0:09:39.880 sense of of sort of the trend. But this stands 0:09:39.920 --> 0:09:43.640 out why such conviction about a time frame that's so 0:09:43.760 --> 0:09:46.440 near to us. Well, to be fair, I've been making 0:09:46.440 --> 0:09:49.120 the call since mid December, and you know, we turn 0:09:49.200 --> 0:09:51.920 neutral on the market in mid December because we thought 0:09:51.960 --> 0:09:54.800 a lot of the positive um data was already reflected 0:09:54.800 --> 0:09:57.319 in stocks and you had an extreme overbaught condition. And 0:09:57.760 --> 0:09:59.680 that's the case, like, for example, today, if you don't 0:09:59.679 --> 0:10:01.640 have a one percent move, I read on the Bloomberg 0:10:01.960 --> 0:10:04.280 that if you don't have an enter day one percent move, 0:10:04.320 --> 0:10:07.240 it will match the longest period without a one percent 0:10:08.160 --> 0:10:10.600 move in the market for this cycle. So you just 0:10:10.679 --> 0:10:12.800 have been in this period of very very very low 0:10:12.920 --> 0:10:15.920 volatility and that typically comes to an end in a 0:10:16.000 --> 0:10:18.640 sharp way. And and that doesn't mean that you know, 0:10:18.679 --> 0:10:21.280 everybody should run for the hills because the fundamental backdrop 0:10:21.360 --> 0:10:23.280 is so good you just have to be ready and 0:10:23.600 --> 0:10:27.040 expect it to happen. Um. So it's not just it's 0:10:27.080 --> 0:10:29.080 not just the call that I've made today for the 0:10:29.120 --> 0:10:31.200 next three weeks. It's a call that we've been in 0:10:31.200 --> 0:10:33.760 since mid December. Hey, Tony, I wonder if you could 0:10:33.760 --> 0:10:36.720 just bring in the concept of active investments, in other words, 0:10:36.760 --> 0:10:40.120 people picking stocks. Plus, you're in the earning season and 0:10:40.160 --> 0:10:42.160 I'm wondering if that might have anything to do with 0:10:42.200 --> 0:10:44.800 what happens to last price, because that's really what we're 0:10:44.800 --> 0:10:47.360 talking about. You're not talking about value, talking about how 0:10:47.480 --> 0:10:50.800 much someone is paying for something in the short term, right, 0:10:50.760 --> 0:10:54.280 And the earnings backdrop has been really strong or not, 0:10:54.600 --> 0:10:58.120 that's that's not right. The earnings backdrop has been significantly 0:10:58.160 --> 0:11:00.839 improved from where was a year go or even two 0:11:00.920 --> 0:11:03.959 quarters ago, because you're seeing a recovery in the commodities. 0:11:04.000 --> 0:11:06.640 And I think the story, guys that that nobody's really 0:11:06.679 --> 0:11:09.840 talking about is how good the global economy is acting. 0:11:10.240 --> 0:11:13.120 We're so focused on what President Trump is tweeting in 0:11:13.160 --> 0:11:16.600 the legislation. Well, it's interesting because Lisa Brahma, hold on, Tony, 0:11:16.600 --> 0:11:20.280 because Lisa Bramwitz. You mentioned even just last week, the 0:11:20.440 --> 0:11:26.040 economic performance in Europe is better than many investors believe 0:11:26.120 --> 0:11:28.480 on the surface. Right, So some people are actually going 0:11:28.679 --> 0:11:33.000 back to an increasing number of hedge funds. But but Tony, 0:11:33.040 --> 0:11:34.680 I want to get to your point. I mean about 0:11:34.960 --> 0:11:37.520 just because of President Trump and some of his rhetoric. 0:11:37.679 --> 0:11:41.079 You know, dot dot dot. Seth Klarman, who is a 0:11:41.360 --> 0:11:44.079 very respected hedge fund manager, put out a letter in 0:11:44.160 --> 0:11:46.200 the past few weeks that was quoted in the New 0:11:46.280 --> 0:11:49.200 York Times, and he was saying, that's important in and 0:11:49.240 --> 0:11:51.840 of itself, when you have a president, a leader who 0:11:51.880 --> 0:11:56.600 puts who makes volatility his strategy, that could potentially upend 0:11:56.960 --> 0:11:59.360 a lot of the order that we've seen in markets. 0:11:59.400 --> 0:12:01.640 Markets don't like uncertainty. What do you say to that. 0:12:02.240 --> 0:12:05.360 I think markets don't like uncertainty. But we've been uncertain 0:12:05.400 --> 0:12:08.200 since the summer of last year, and you have one 0:12:08.240 --> 0:12:12.079 of the lowest volatility periods on record. So to this 0:12:12.160 --> 0:12:14.480 to this point, Seth is right, it's gonna end up. 0:12:14.600 --> 0:12:17.040 And that's kind of our correction call. When you have 0:12:17.200 --> 0:12:20.959 such low volatility in an environment where so much rhetorics 0:12:21.000 --> 0:12:23.320 coming out, you've got to you've got to believe that 0:12:23.400 --> 0:12:26.040 at some point it's going to come into play. What's 0:12:26.040 --> 0:12:28.560 amazing to me and I think Seth and anybody else 0:12:28.920 --> 0:12:32.640 is it hasn't yet. You've had such a narrow trading 0:12:32.720 --> 0:12:36.880 range of the market despite so many issues being you know, 0:12:37.160 --> 0:12:43.320 um harshly criticized and talked about back and forth. So again, 0:12:43.400 --> 0:12:46.280 what here's what I would urge the listeners to do. 0:12:46.880 --> 0:12:49.480 Invest your money based on what you know, not on 0:12:49.559 --> 0:12:52.839 what you fear. What we know is that even with 0:12:52.960 --> 0:12:57.000 increases and interest rates in the US monetary policy, meaning 0:12:57.600 --> 0:13:00.040 you know, credit is in very very good shape, the 0:13:00.120 --> 0:13:06.240 set is historically accommodatives. On another points higher in you Yeah, 0:13:06.400 --> 0:13:08.320 Tony Dwyer, thank you so much for joining US chief 0:13:08.320 --> 0:13:21.360 market strategist at can Accord Genuity, P and L is 0:13:21.400 --> 0:13:23.640 brought to you by proper Cloth, the leader in men's 0:13:23.679 --> 0:13:27.160 custom shirts. At proper cloth dot com, ordering custom shirts 0:13:27.200 --> 0:13:30.040 has never been easier. To create your custom shirt size 0:13:30.040 --> 0:13:33.960 by answering ten easy questions, select from over five fabrics 0:13:34.000 --> 0:13:37.160 to suit your personal taste. Shirts start from eighty five 0:13:37.200 --> 0:13:40.080 dollars and are delivered in just two weeks with proper 0:13:40.120 --> 0:13:44.160 Cloths perfect fit guarantee remakes are completely free and expert 0:13:44.200 --> 0:13:47.800 staff are standing by to help. For premium quality, perfect 0:13:47.840 --> 0:14:00.400 fitting shirts, visit proper cloth dot com custom shirts made Smarter. Uh, 0:14:00.400 --> 0:14:02.960 there was a fascinating story that I really want to 0:14:03.080 --> 0:14:06.600 highlight that raises the question of the hardware and the 0:14:06.640 --> 0:14:10.600 integrity of the hardware behind the giants of Apple, Google, 0:14:10.679 --> 0:14:12.960 and Facebook. I want to bring in Jordan Robertson, a 0:14:12.960 --> 0:14:15.960 technology reporter with Bloomberg News who wrote the story. He 0:14:16.040 --> 0:14:21.280 is coming to us from Washington. Jordan's first, I just 0:14:21.320 --> 0:14:24.320 want to get a sense of how easily it would 0:14:24.400 --> 0:14:30.080 be to potentially manipulate the hardware that sort of provides 0:14:30.080 --> 0:14:34.040 the infrastructure for Apple, Google, and Facebook before they even 0:14:34.080 --> 0:14:36.960 get it. Hi. Sure, Yeah. You know, part of the 0:14:37.000 --> 0:14:40.400 problem with the supply chain security for these large technology 0:14:40.440 --> 0:14:43.400 companies is, you know, the way the technology industry has 0:14:43.440 --> 0:14:46.640 evolved is that most of the code is proprietor for 0:14:46.760 --> 0:14:50.560 understandable reasons, Companies like Cisco, which make network switches that 0:14:50.600 --> 0:14:54.800 shuttle data traffic. The very significant parts of these companies networks. Uh, 0:14:54.840 --> 0:14:57.240 you know, their business is selling the code and the hardware, 0:14:57.280 --> 0:14:59.880 and they don't open sources. They don't disclose that code 0:15:00.000 --> 0:15:03.320 anybody else. The problem with that is if somebody is 0:15:03.360 --> 0:15:06.280 able to tamper with the process of creating that code, 0:15:06.640 --> 0:15:08.600 uh you know, typically it would be a foreign government 0:15:08.680 --> 0:15:11.560 or even the US government. In some cases, uh you know, 0:15:11.640 --> 0:15:14.920 customers like Facebook or Google or Apple, you know, or 0:15:15.000 --> 0:15:17.600 LinkedIn or others had no way to check that code 0:15:17.640 --> 0:15:20.840 to to verify the presence are not of a government 0:15:20.840 --> 0:15:23.720 back door. This has taken out a new life after 0:15:23.720 --> 0:15:26.600 they Edwards Snowden revelations of a few years ago, and 0:15:26.720 --> 0:15:29.000 companies are now starting to try to create some of 0:15:29.040 --> 0:15:34.040 that network switching code on their own. Hey, Jordan's a 0:15:34.040 --> 0:15:38.760 great story. Can you just describe a photograph that really 0:15:39.080 --> 0:15:41.400 kind of highlights what you're talking about? Just describe what's 0:15:41.400 --> 0:15:44.360 in this photograph, where it came from, etcetera. Sure, there's 0:15:44.360 --> 0:15:46.280 a very famous photograph that came out a couple of 0:15:46.320 --> 0:15:50.280 years ago. Again, part of the Snowden League was published 0:15:50.280 --> 0:15:53.120 in Glenn Greenwalt's book on the Snowden Leagues, and what 0:15:53.240 --> 0:15:56.600 it shows is, you know, uh u s government officials 0:15:56.840 --> 0:16:01.200 federal agents intercepting a piece of cisk O network hardware 0:16:01.240 --> 0:16:05.520 equipment at a transmission a distribution facility, probably a UPS 0:16:05.640 --> 0:16:09.120 or fed X or some other transit point, very carefully 0:16:09.160 --> 0:16:11.560 opening the box and then taking it to a what 0:16:11.600 --> 0:16:13.720 they call a load station, which is you know, just 0:16:13.760 --> 0:16:16.200 some a series of laptops on the desk next to 0:16:16.240 --> 0:16:20.360 the the conference table and loading it with you know, 0:16:20.440 --> 0:16:24.120 basically malware with malicious code. And you know, this photo 0:16:24.280 --> 0:16:28.360 really struck fear in the hearts of network operators throughout 0:16:28.360 --> 0:16:30.920 Silicon Valley. Uh. You know, there are lots of things 0:16:30.920 --> 0:16:32.880 in the snow and disclosures that struck fear in the 0:16:32.920 --> 0:16:36.160 hearts of data center people, but this one especially because 0:16:36.200 --> 0:16:38.840 what it showed them was you know, uh, you know, 0:16:38.920 --> 0:16:42.720 the U. S. Government and others by extension, you know, 0:16:42.840 --> 0:16:45.960 are able to intercept this hardware. And again when you 0:16:46.040 --> 0:16:49.400 talk about Cisco and Juniper and network equipment, this is 0:16:49.480 --> 0:16:51.840 central that the brains of these networks, who they're not 0:16:51.880 --> 0:16:55.520 just computer servers either as switches that shuttle data traffic 0:16:55.560 --> 0:16:58.800 around these networks, and they see everything basically either they 0:16:58.800 --> 0:17:01.280 all seeing I and you know, if you're able to 0:17:01.320 --> 0:17:05.520 interspect this equipment, modify the software code on it, uh 0:17:05.560 --> 0:17:09.520 to maliciously spy on you all the data traffic passing 0:17:09.560 --> 0:17:12.520 through these switches, you know, you're able to get visibility 0:17:12.520 --> 0:17:16.199 into an entire network, and that's really scary for operators 0:17:16.240 --> 0:17:20.080 of large data centers because for internet company, their data 0:17:20.240 --> 0:17:22.639 is their lifeblood. But you know, if they lose control 0:17:22.680 --> 0:17:25.360 of that, they lose control of the company. Hey, Jordan's 0:17:25.680 --> 0:17:28.919 I think of this in terms of every problem that 0:17:29.000 --> 0:17:33.800 technology creates. Technology with a heavy dose of experience and 0:17:33.960 --> 0:17:37.800 funding works to find a solution. Right there are the 0:17:37.880 --> 0:17:43.520 open compute project snap Route tell us about this, that's right, Yeah, 0:17:43.520 --> 0:17:45.480 So that's that's really the crux of the story today 0:17:45.520 --> 0:17:49.119 is that there's a company called snap Route out of Tawa, Alto, California. 0:17:49.160 --> 0:17:51.800 They've just gotten twenty five million dollars in funding. You know, 0:17:51.960 --> 0:17:54.280 big ZC announcements seemed to happen every day or every 0:17:54.320 --> 0:17:57.399 week out in California. But what's interesting about them this 0:17:57.440 --> 0:18:00.760 is a group of former former Apple engineers. Uh, you know, 0:18:00.800 --> 0:18:03.679 they've been designing their own network technology for a while 0:18:03.760 --> 0:18:07.200 for performance and other reasons, but security became a really 0:18:07.240 --> 0:18:09.360 big focus for them and they said, look, we need 0:18:09.400 --> 0:18:13.040 to have a hundred percent visibility into our code because 0:18:13.080 --> 0:18:16.480 we just simply can't trust that these proprietary technologies from 0:18:16.480 --> 0:18:19.439 Cisco and Juniper and others. Even if the companies have 0:18:19.520 --> 0:18:22.320 the best of intentions, you know, are not compromised at 0:18:22.359 --> 0:18:25.400 some point you know, along the way. So what they're 0:18:25.400 --> 0:18:27.520 saying is we're going to create an open source switch 0:18:27.720 --> 0:18:30.439 network switch. This is actually a really big deal because 0:18:30.520 --> 0:18:33.640 open source technology has admitted for a very long time 0:18:33.680 --> 0:18:37.000 in computing, but it hasn't really migrated to the network 0:18:37.320 --> 0:18:40.120 switch level. And again, these are the brains of these 0:18:40.160 --> 0:18:43.119 computer networks. It's hard stuff to do. But what the 0:18:43.400 --> 0:18:46.440 goal is to give network operators at these big Internet 0:18:46.440 --> 0:18:51.360 Silicon Valley companies visibility into what's happening on their network switches. 0:18:51.560 --> 0:18:55.399 What's the likelihood this is going to fundamentally disrupt Cisco's business. 0:18:56.080 --> 0:18:58.639 I'll tell you Cisco is nervous. Cisco very nervous to 0:18:58.720 --> 0:19:00.960 talk with them for the story. You know, obviously they 0:19:01.119 --> 0:19:03.320 know Cisco is a huge competitor here. I mean they 0:19:03.359 --> 0:19:06.240 control over half of the computer networking market. They're not 0:19:06.280 --> 0:19:09.560 going anywhere anytime soon. This is a very nascent, very 0:19:09.600 --> 0:19:12.119 small market right now. It's only the large data center 0:19:12.119 --> 0:19:15.800 operators up including big banks as well. They're doing this, however, 0:19:16.359 --> 0:19:18.520 there's a lot of value here because you can drop 0:19:18.600 --> 0:19:21.399 the price of this equipment by tens of thousands of 0:19:21.440 --> 0:19:24.280 dollars if you're willing to kind of take some ownership 0:19:24.320 --> 0:19:26.960 of the management of this stuff. So you could see 0:19:26.960 --> 0:19:31.240 this eventually, you know, evolving from just the data center operators. Uh, 0:19:31.280 --> 0:19:34.600 you know too, smaller midsize and smaller company. That's the 0:19:34.640 --> 0:19:37.320 ways off. But I will play Cisco and the other 0:19:37.440 --> 0:19:40.720 legacy technology vendors are very nervous because there are a 0:19:40.760 --> 0:19:43.399 lot of advantages to this technology, some downsides to but 0:19:43.520 --> 0:19:46.280 some big advantages. Thanks very much for being with us 0:19:46.280 --> 0:19:50.000 and shedding light on this topic. Jordan Robertson, technology reporter 0:19:50.119 --> 0:19:55.960 for Bloomberg News, speaking about open compute projects, snap Root 0:19:56.440 --> 0:20:11.760 and challenges to Cisco. I want to get David Well 0:20:11.840 --> 0:20:14.440 to bring him into the conversation. He's Detroit bureau chief. 0:20:14.560 --> 0:20:17.640 He covers General Motors, and Uh, David, can you give 0:20:17.720 --> 0:20:21.239 us some insight into why such a negative response from 0:20:21.280 --> 0:20:27.080 stock investors? Well, General Motors is really defied gravity All 0:20:27.160 --> 0:20:29.280 year long, the market has gotten a little bit softer 0:20:29.480 --> 0:20:32.320 or it's flattened. You've seen Forward pulled back on their 0:20:32.320 --> 0:20:35.720 earnings forecast and they've missed some of their numbers, and 0:20:35.840 --> 0:20:38.240 GM has been able to keep keep pushing. The growth 0:20:38.640 --> 0:20:41.520 showed weaker margins and they're showing growing inventories, which is 0:20:41.720 --> 0:20:44.240 I think giving some investors a little bit of worry 0:20:44.320 --> 0:20:48.600 that maybe even GM is is unable to keep the 0:20:48.600 --> 0:20:51.440 proper train going with the market that's kind of flattening 0:20:51.440 --> 0:20:54.160 out a bit, maybe going a little bit soft. David, 0:20:54.240 --> 0:20:56.919 I was looking at the performance of General Motors stock 0:20:57.320 --> 0:20:59.880 before today. It was up fourteen percent, so you've got 0:20:59.880 --> 0:21:03.600 the dropped today. This is from the election of fourteen percent. 0:21:03.640 --> 0:21:06.159 Since the election, the four percent dropped today, So I 0:21:06.160 --> 0:21:09.760 mean the stock has already had a decent run. Did 0:21:09.760 --> 0:21:12.840 you learn anything today the details of anything like free 0:21:12.880 --> 0:21:15.639 cash flow or margins in China? What stood out to 0:21:15.640 --> 0:21:19.840 you in today's detailed report. The thing that jumped out 0:21:19.880 --> 0:21:21.679 of me the most was that in the fourth quarter, 0:21:22.080 --> 0:21:25.320 margins in North America. So, and that's really the profit horse. 0:21:25.840 --> 0:21:28.160 China is a real money maker for them. It's about 0:21:28.160 --> 0:21:30.959 two billion dollars a year. But then you look at 0:21:30.960 --> 0:21:33.000 the nine to ten billion a year that GM has 0:21:33.040 --> 0:21:36.840 been making and you know the rest of it, and 0:21:36.880 --> 0:21:39.520 then some comes from North America. So you saw a 0:21:39.520 --> 0:21:41.720 fourth quarter of stall margins go from ten percent a 0:21:41.800 --> 0:21:44.320 year ago two I think it was eight and a 0:21:44.359 --> 0:21:48.080 half percent. Roughly, It's it's not awful, it's a good performance, 0:21:48.560 --> 0:21:51.359 but it's it's headed in the wrong direction. Now. GM 0:21:51.440 --> 0:21:53.119 had a lot of reasons for this. They're saying that 0:21:53.160 --> 0:21:56.720 they've got a lot of SUVs coming to market later 0:21:57.000 --> 0:21:59.560 this year that will really help margins. So they're in 0:21:59.560 --> 0:22:02.439 inventor build out right now. Uh, and a lot of 0:22:02.480 --> 0:22:05.800 the cars really still dominate their a lot in terms 0:22:05.840 --> 0:22:07.879 of what they're offering consumers, and cars are out of 0:22:07.920 --> 0:22:10.560 favor and require a lot of incentives. They're saying, hey, 0:22:10.560 --> 0:22:13.080 the good stuff really isn't on the lot yet. When 0:22:13.119 --> 0:22:15.160 it is, we're going to make good money. And they 0:22:15.160 --> 0:22:17.439 did affirm their their guidance that they will again have 0:22:17.560 --> 0:22:20.959 record profits for two thousand seventeen. But I think analysts 0:22:21.000 --> 0:22:24.480