WEBVTT - Fed Is Giving Americans a Lesson in Lag Tim 0:00:01.800 --> 0:00:04.400 This is Bloomberg Business Week. I'm Carole Masser and I'm 0:00:04.440 --> 0:00:07.280 Bloomberg Quick Takes Tim Stanibek. We're here every day bringing 0:00:07.280 --> 0:00:09.799 you the latest news from the world of business and finance, 0:00:09.840 --> 0:00:13.640 clus technology, politics, economics, all partnessing the power of Business 0:00:13.640 --> 0:00:17.119 Week reporters and editors, not to mention our journalists and 0:00:17.160 --> 0:00:19.640 analyst in more than one and twenty countries. You can 0:00:19.640 --> 0:00:23.239 download Bloomberg Business Week and iTunes, SoundCloud, or Bloomberg dot com. 0:00:23.400 --> 0:00:25.160 You can also listen to our radio show at two 0:00:25.160 --> 0:00:27.840 pm Eastern Time on Bloomberg Radio, or watch us on 0:00:27.880 --> 0:00:32.400 YouTube search Bloomberg Global News. This is my favorite read 0:00:32.440 --> 0:00:34.320 of the day. I read it in this morning. It's 0:00:34.320 --> 0:00:36.920 also almost read on the Bloomberg and Paul. It's about 0:00:36.920 --> 0:00:38.720 how the FETE is giving us all a lesson when 0:00:38.720 --> 0:00:41.360 it comes to lag time. Yeah. Absolutely, I mean the 0:00:41.360 --> 0:00:43.640 the FET is raising rates, their raising rates aggressively. They've 0:00:43.640 --> 0:00:47.479 communicated that clearly, but it takes time. It doesn't work immediately. 0:00:47.479 --> 0:00:50.320 And Alison Schreeger joins us. She is a senior fellow 0:00:50.360 --> 0:00:53.760 at the Manhattan Institute. She's also Bloomberg Opinion columnist. Joining 0:00:53.840 --> 0:00:56.560 us on zoom from the tri State Area Allison. A 0:00:56.560 --> 0:00:59.480 lot of folks were expecting, okay, the fed raisers rates, 0:00:59.520 --> 0:01:02.360 economy slows, and I would argue, or it seems like 0:01:02.520 --> 0:01:05.360 other than maybe the housing market. This takes some time here, 0:01:05.440 --> 0:01:09.679 doesn't Yeah, it does, because you know it's an inflation 0:01:09.920 --> 0:01:13.760 You know your expectation um, your expectations about inflation are 0:01:13.920 --> 0:01:16.480 in the future. You know, you agreed to a rental contract, 0:01:16.520 --> 0:01:19.080 you agree to a wage or increase. This all happens, 0:01:19.200 --> 0:01:22.360 you know, a year in advance. So that's one of 0:01:22.400 --> 0:01:24.400 the reasons it takes a long time for bad policy 0:01:24.440 --> 0:01:26.800 to work. What's important and I have to just put 0:01:26.800 --> 0:01:28.320 out there. You are the author of a book with 0:01:28.360 --> 0:01:30.679 a great title and economist walks into a brothel, which 0:01:30.680 --> 0:01:33.560 my daughters swiped off my bookshelf. Who is studying economics, 0:01:33.640 --> 0:01:36.800 so she swiped it. Um. You talk about the importance 0:01:36.800 --> 0:01:39.640 of expectations. We often talk about that in the financial 0:01:39.640 --> 0:01:43.080 markets overall, but when it comes to inflation and inflationary expectations, 0:01:43.160 --> 0:01:46.080 it's measured, we follow it. Why is that so important? 0:01:47.160 --> 0:01:49.080 Well as this, as I just said, you know, when 0:01:49.160 --> 0:01:52.040 you agree to a wage contract, you agree to rent 0:01:52.040 --> 0:01:54.760 an apartment, whatever, you know, this is based on what 0:01:54.760 --> 0:01:57.120 you think inflation is going to be over the next year. 0:01:57.560 --> 0:01:59.640 So you know, the monetary policy has shifted a lot 0:01:59.680 --> 0:02:02.200 in a lot us thirty years of thinking. Expectations or 0:02:02.240 --> 0:02:05.200 how you can influence people's expectations is what really matters, 0:02:05.240 --> 0:02:07.440 and it is the most powerful tool for monetary policy, 0:02:07.720 --> 0:02:10.240 So it's super important. Well, can I and just to follow, 0:02:10.520 --> 0:02:15.200 there's a difference between those expectations being well anchored and unanchored. 0:02:15.360 --> 0:02:19.000 What's the important distinction there? Well, if they're well anchored, 0:02:19.080 --> 0:02:20.800 then people have a lot of put a lot of 0:02:20.800 --> 0:02:23.000 credibility in the FED. You know, this is one of 0:02:23.000 --> 0:02:24.720 the reasons why for a long time the FED was 0:02:24.760 --> 0:02:27.160 targeting to percent inflation. It was this idea, as will 0:02:27.200 --> 0:02:29.200 say it's two percent, everyone will believe it's going to 0:02:29.280 --> 0:02:32.079 be two percent, and everyone's gonna conduct the economy is 0:02:32.120 --> 0:02:34.000 that it's going to be two percent, and it becomes 0:02:34.000 --> 0:02:37.400 this self fulfilling prophecy. But that all requires that people 0:02:37.440 --> 0:02:40.480 actually believe the Fed is actually going to deliver two 0:02:40.480 --> 0:02:43.560 percent inflation, and it seems like they've become unanchored now. 0:02:44.000 --> 0:02:45.840 And Alison, you know a lot of folks are saying 0:02:45.840 --> 0:02:48.760 this is not your grandmother and grandfather's inflation. A lot 0:02:48.800 --> 0:02:50.720 of this was kind of due to the supply side 0:02:50.720 --> 0:02:54.239 issues resulting from the pandemic, and maybe there's a limit 0:02:54.240 --> 0:02:57.239 to what the FED can do, and that's probably a 0:02:57.280 --> 0:03:01.840 valid argument, I outthink it is. I mean this unfortunately, 0:03:01.840 --> 0:03:05.919 this inflation has many fathers, So I mean, so I 0:03:05.960 --> 0:03:09.120 mean this supply side issues definitely, you know we're part 0:03:09.160 --> 0:03:12.000 of it, but we also, I mean partially, we were 0:03:12.000 --> 0:03:16.280 following an old playbook in one which is to boost 0:03:16.280 --> 0:03:19.000 the economy. You've got a boost demand through the severe 0:03:19.080 --> 0:03:22.000 contraction supply, and then boost a demand on top of it. 0:03:22.360 --> 0:03:24.880 So all around you just got a lot of inflation. 0:03:25.360 --> 0:03:28.079 And you know, even if you do have supply induced inflation, 0:03:28.680 --> 0:03:32.040 you know, the remedy is often to reduce demand because 0:03:32.080 --> 0:03:34.280 that's really sort of a lot easier to control. You know, 0:03:34.320 --> 0:03:36.440 the government can do things about supply, but I mean, 0:03:36.480 --> 0:03:38.800 it's even longer lags. If they said, if FED policy 0:03:38.840 --> 0:03:42.440 takes a year, maybe more government sort of boosting supply 0:03:42.520 --> 0:03:44.920 can take, you know, other than sort of certain trade 0:03:44.960 --> 0:03:48.000 policies can take even like more time, like five ten years. 0:03:48.400 --> 0:03:50.200 So one of the things I also loved in your stories, 0:03:50.240 --> 0:03:52.440 you said, the bond market has a terrible track record 0:03:52.480 --> 0:03:55.240 predicting inflation. If history is any kind, bond traders are 0:03:55.240 --> 0:03:57.160 the last to know when inflation is a bout to change, 0:03:57.280 --> 0:03:59.240 which I feel like, Alson, we spent a lot of 0:03:59.280 --> 0:04:01.400 time when we're talking with our TV colleagues about the 0:04:01.400 --> 0:04:03.400 financial marks. Oh, watch the bond market. It knows what 0:04:03.440 --> 0:04:07.120 it's doing. You're saying, not necessarily the case. I've never 0:04:07.200 --> 0:04:09.680 understood why that's a thing. I mean it said they 0:04:09.720 --> 0:04:12.720 have a terrible track record of protecting inflation. I don't 0:04:12.720 --> 0:04:15.160 even really believe inverted yield curves tell us that much. 0:04:15.240 --> 0:04:17.760 I mean, so these you know, they're just bond traders 0:04:17.760 --> 0:04:19.600 are human, and they're just as fallible as the rest 0:04:19.640 --> 0:04:22.239 of us, and they don't have special insight. And in fact, 0:04:22.279 --> 0:04:25.360 I think considering bonds are such long term assets, they 0:04:25.360 --> 0:04:28.200 tend to be very short term in they're thinking. You know, Alison, 0:04:28.200 --> 0:04:31.880 it's this Federal Reserve has been really clear I think 0:04:31.880 --> 0:04:35.080 on its messaging here. I mean, starting with Jackson Hole, Uh, 0:04:35.120 --> 0:04:36.600 you know, if you weren't paying attention that we want 0:04:36.600 --> 0:04:40.000 to fight inflation, now you're better and they've been very consistent. 0:04:40.240 --> 0:04:42.839 Is that part of being a good federal reserve is 0:04:42.960 --> 0:04:45.640 clearly communicating to the market really where you want to go. 0:04:46.800 --> 0:04:49.240 It is, I mean, thanks following this intellectual tradition, that 0:04:49.320 --> 0:04:52.360 this idea that you know, communication and setting expectations of 0:04:52.400 --> 0:04:54.920 the most powerful tool. I think the problem the FED 0:04:55.000 --> 0:04:57.520 has is it's a little late. Like if they were 0:04:57.560 --> 0:04:59.240 more ahead of the curve on inflation, they might have 0:04:59.279 --> 0:05:00.880 had a bit more credit ability. But the fact they 0:05:00.960 --> 0:05:03.800 kept insisting it was transitory. They keep been putting out 0:05:03.920 --> 0:05:06.359 forecasts that suggest inflation is going to be back to 0:05:06.560 --> 0:05:10.120 North Pole there um, I think really undermines their message. 0:05:10.520 --> 0:05:12.680 So I think they're now doing the right thing, but 0:05:12.720 --> 0:05:14.800 it's a little late, all right. So when someone like 0:05:14.839 --> 0:05:17.120 a Mark Moby says, hey, guys, get ready for maybe 0:05:17.240 --> 0:05:19.599 nine percent moves and interest rates because that's what's going 0:05:19.680 --> 0:05:21.919 to take to bring down the current inflation, how do 0:05:22.000 --> 0:05:24.359 you think about how high the Fed might need to 0:05:24.400 --> 0:05:26.279 go and how much we need to kind of get 0:05:26.279 --> 0:05:28.720 our heads around it. I think nine percent is a 0:05:28.720 --> 0:05:30.880 little high. I agree it would bring out inflation, but 0:05:31.080 --> 0:05:32.720 that in that case the cure might be worse than 0:05:32.760 --> 0:05:35.760 the disease. Um. I think, you know, they're definitely gonna 0:05:35.839 --> 0:05:38.599 go above five percent the inflation number. I mean, the 0:05:38.600 --> 0:05:40.720 way I think about it is you want this sort 0:05:40.720 --> 0:05:43.440 of the real interest rate to at least be at inflation. 0:05:43.520 --> 0:05:45.240 So the FED is still not sort of trying to 0:05:45.240 --> 0:05:48.000 pump demand. But I would look at core inflation rather 0:05:48.000 --> 0:05:50.960 than overall inflation, which is inflation of minus food and energy. 0:05:51.320 --> 0:05:54.520 So that's what about like six nine percent around now, 0:05:54.600 --> 0:05:57.040 So I mean, and it might go down just more 0:05:57.040 --> 0:06:00.000 supply chain issues ease. So probably I think nine percent 0:06:00.000 --> 0:06:01.560 it's a little high, but we could be looking at 0:06:01.600 --> 0:06:04.720 five five and a half and eighties six percent. All right, 0:06:04.800 --> 0:06:08.920 good stuff, Allison, really appreciate it. Alison schreger Uh Senior 0:06:08.920 --> 0:06:12.359 Fellow at the Manhattan Institute. She's also Bloomberg opinion columnists 0:06:12.400 --> 0:06:14.760 joining us on zoom, which we appreciate. We get the seer, 0:06:15.320 --> 0:06:17.839 so that's she's booming into us from the tri state area. 0:06:17.880 --> 0:06:19.800 So good stuff here. It's in it's inflation. It's a 0:06:19.839 --> 0:06:22.719 photo reserve, the Feato reserve. Yes, if you listen to 0:06:22.839 --> 0:06:25.640 most experts, was was behind the curve. Maybe still behind 0:06:25.680 --> 0:06:27.840 the curve, but it's not for lack of trying, at 0:06:27.880 --> 0:06:29.839 least over the last six to nine months. But you know, 0:06:29.880 --> 0:06:31.760 we keep saying, Okay, we're looking for sins Fir to 0:06:31.760 --> 0:06:34.000 come down, but man, is it sticky in terms of 0:06:34.040 --> 0:06:36.240 coming down. But she did emphasize, you know, focus on 0:06:36.279 --> 0:06:38.000 the core, which is something we talked about a lot. 0:06:38.160 --> 0:06:40.080 Check out our book too. It's a great title. It's 0:06:40.080 --> 0:06:42.200 a great book. And econmist walks into a brothel and 0:06:42.279 --> 0:06:46.560 other unexpected places to understand risk. This is Bloomberg Business 0:06:46.680 --> 0:06:50.479 Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic 0:06:50.960 --> 0:06:55.039 on Bloomberg Radio. She's an incredible analyst and she's also 0:06:55.080 --> 0:06:58.680 a comic and she's running around doing the research channel stuff, 0:06:58.720 --> 0:07:02.240 doing TV, doing radio. Because some bankers reported earning this 0:07:02.360 --> 0:07:05.080 Mornia they call the little Little Company for Goldman sax 0:07:05.640 --> 0:07:08.560 stacks up almost three percent in today's trade. Let's get 0:07:08.600 --> 0:07:11.160 to it with Bloomberg Intelligence Senior Global Banks Alas to 0:07:11.160 --> 0:07:15.360 Allison Williams. She's here in our interactive broker's studio. All right, Uh, 0:07:15.600 --> 0:07:16.880 walk us through what do we need to know about 0:07:16.920 --> 0:07:22.840 goldben So number one trading still is the majority of 0:07:22.880 --> 0:07:26.080 their business and they delivered on trading, so fixed income 0:07:26.080 --> 0:07:30.440 trading up that led across that and fixed income trading 0:07:30.480 --> 0:07:33.400 was the highlight of the investment bank this quarter. For 0:07:33.440 --> 0:07:35.600 all banks, it was not interest income, but looking at 0:07:35.640 --> 0:07:39.800 the investment bank fixed income highlight, fees the low light. 0:07:40.400 --> 0:07:42.120 So how about on the equities business, because we get 0:07:42.120 --> 0:07:46.040 a SMP down big this year, NASH back down big. 0:07:46.600 --> 0:07:49.520 Can you make money trading equities in that kind of tape? 0:07:50.040 --> 0:07:53.480 I think the activity is helpful, but we're up against 0:07:53.480 --> 0:07:57.600 a really strong quarter from a year ago. Prime brokerage 0:07:57.720 --> 0:08:00.440 is a business that benefits from higher asset prices, use 0:08:00.480 --> 0:08:03.320 of leverage, so as you can imagine, that's not doing 0:08:03.360 --> 0:08:06.360 as well. But I would say for Goldman the focus is, 0:08:06.400 --> 0:08:09.520 you know what's happening on the market share front. Um. 0:08:09.640 --> 0:08:12.240 They are one of the top three with Morgan Stanley 0:08:12.240 --> 0:08:14.760 and JP Morgan, and that race has gotten a little 0:08:14.760 --> 0:08:17.720 tighter in recent quarters. I mean in a way that's 0:08:17.720 --> 0:08:21.160 all about bragging rights because they're all as the top three, 0:08:21.680 --> 0:08:25.680 focused on profitability and doing well. But you know, Goldman 0:08:25.720 --> 0:08:28.320 hold it held its own there um. And then to 0:08:28.400 --> 0:08:31.280 the fees, everyone's fees are down dramatically, I mean broad 0:08:31.320 --> 0:08:36.640 declines across equity underwriting, debt underwriting, m and AH so plaued. 0:08:36.640 --> 0:08:42.600 The numbers for year old friends that are in that 0:08:42.679 --> 0:08:45.680 are working away and trying to do deals and unfortunately 0:08:46.440 --> 0:08:49.319 not getting they had a few records are really good years. 0:08:49.559 --> 0:08:52.440 I mean last year was truly amazing. I think we 0:08:52.440 --> 0:08:54.600 were at a record, you know, in the middle of 0:08:54.600 --> 0:08:58.400 the year and when when it's these bad markets. I 0:08:58.440 --> 0:09:04.000 talked about the pipeline, the pipeline, and I talk to 0:09:04.040 --> 0:09:06.160 my boss is about it. But I got a great pipe, 0:09:06.320 --> 0:09:08.520 right and you would be saying that and you would 0:09:08.559 --> 0:09:10.920 be saying the same thing since January. The pipeline is 0:09:10.960 --> 0:09:13.480 strong and that's that is the positive things that we 0:09:13.559 --> 0:09:16.320 haven't seen that sort of take a step back. But 0:09:16.360 --> 0:09:19.800 the question is when did will that get executed? We 0:09:19.880 --> 0:09:22.199 have a few more days like we've had the past 0:09:22.240 --> 0:09:23.920 couple of days, and we can get a little bit 0:09:23.920 --> 0:09:26.080 more rally. Does that open up a window to get 0:09:26.120 --> 0:09:30.680 some of these deals done. I think the program like 0:09:30.760 --> 0:09:33.400 there are things happening, there are and you know, it 0:09:33.520 --> 0:09:36.000 was interesting if you looked at the death side of things. 0:09:36.120 --> 0:09:39.079 In August, things opened up and it was a really 0:09:39.120 --> 0:09:42.880 strong month on that side of the business. Uh. You know, 0:09:42.920 --> 0:09:45.400 there's a lot of questions around the leverage land marks. Right, 0:09:45.400 --> 0:09:46.880 there was a big there were a lot of mark's 0:09:46.920 --> 0:09:49.360 last quarter. This quarter aware of the marks, and you 0:09:49.400 --> 0:09:51.400 know what we're also seeing the endowments is starting to 0:09:51.440 --> 0:09:53.800 report their performance and they're actually very I thought it'd 0:09:53.800 --> 0:09:57.440 be down. This is through June. They're kind of flatish. 0:09:58.080 --> 0:10:00.400 And what that tells me is a they were pretty 0:10:00.400 --> 0:10:03.079 well hedged, but by they haven't marked their big private 0:10:03.080 --> 0:10:05.360 equity investments to date. I wonder if the banks are 0:10:05.880 --> 0:10:08.640 slow to mark investments because these things got to be 0:10:08.640 --> 0:10:11.800 down significantly. Well, there were big marks, I mean big 0:10:11.840 --> 0:10:14.160 marks in the context. Right, So there were marks last quarter. 0:10:14.200 --> 0:10:16.080 I think this quarter was less because I think when 0:10:16.120 --> 0:10:18.679 the window opened up, you know, maybe there were some 0:10:18.760 --> 0:10:22.400 things that got done. Um and you know a couple 0:10:22.440 --> 0:10:24.720 of banks. Dad given number, a city gave and number. 0:10:24.760 --> 0:10:26.680 I think it was something like a hundred million last 0:10:26.720 --> 0:10:30.280 quarters six million. Deutsche Bank and Credit Suites are going 0:10:30.280 --> 0:10:32.280 to be the ones we're watching because they're bigger in 0:10:32.360 --> 0:10:35.320 the leverage business. Deutsche Bank has said they expect something. 0:10:35.400 --> 0:10:38.920 We'll find out how big that is. But I mean 0:10:38.960 --> 0:10:42.440 for the industry. Uh, you know, Jamie Diamond, I think 0:10:42.520 --> 0:10:45.480 made the great comments. It's you know, a fifth of 0:10:45.480 --> 0:10:47.760 what we were at the financial crisis, so you remember 0:10:48.120 --> 0:10:50.880 back in those days that was a real concern what 0:10:50.920 --> 0:10:54.200 was going on. And just because the size of that 0:10:54.240 --> 0:10:57.920 business and the size of banks balance sheets today, smaller business, 0:10:57.920 --> 0:11:01.000 bigger balance sheets. So is there is some aliceon net 0:11:01.000 --> 0:11:03.160 takeaway as if we try to kind of glean from 0:11:03.200 --> 0:11:04.440 what the CEO has had to say and how the 0:11:04.440 --> 0:11:07.200 big banks performed, what it says about the outlook here, 0:11:07.880 --> 0:11:11.200 I would say there, you know the three takeaways. One 0:11:11.480 --> 0:11:15.120 is the net interest income which was super strong that 0:11:15.559 --> 0:11:19.520 you know third quarters history, but the run rate is 0:11:19.559 --> 0:11:21.760 so much stronger coming into the fourth quarter. That's good 0:11:22.120 --> 0:11:26.439 as we look into can the loans hold up, can 0:11:26.520 --> 0:11:30.240 the class of deposits hold up UM. Secondly, we talked 0:11:30.240 --> 0:11:32.640 a lot about trading. We think that there continues to 0:11:32.640 --> 0:11:36.680 be volatility. We think that helps fixed income trading. UM 0:11:36.760 --> 0:11:40.080 fees at least are studying quarter to quarter, so still 0:11:40.120 --> 0:11:42.040 down a lot your year, but we're starting to see 0:11:42.080 --> 0:11:44.520 some studying, so that bodes well for next year. The 0:11:44.600 --> 0:11:47.560 last thing, provisions, that's what we called the wild card 0:11:47.600 --> 0:11:50.600 coming into this quarter, and they were a little bit 0:11:50.679 --> 0:11:53.440 higher than we expected, but not by much, so I 0:11:53.480 --> 0:11:57.240 would say tweaking the credit view and maybe the biggest 0:11:57.280 --> 0:12:00.040 number that we got or the biggest statement for the 0:12:00.160 --> 0:12:04.200 order wise Jamie diamond saying, Um, you know, if we 0:12:04.240 --> 0:12:07.080 go to five to six percent unemployment, five to six 0:12:07.120 --> 0:12:10.640 billion or provisions, you know, that's obviously worse than people expect, 0:12:10.679 --> 0:12:17.320 but nowhere near what we saw, Um perspectives. Yeah, Bloomberg 0:12:17.600 --> 0:12:20.400 Intelligent Senior Global Banks Alist Alison Williams, thank you so much, 0:12:20.440 --> 0:12:24.360 really appreciate it. You're listening to Bloomberg Business Week with 0:12:24.440 --> 0:12:29.280 Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. 0:12:29.800 --> 0:12:32.200 So we know Ernie season is getting into full swing, 0:12:32.200 --> 0:12:33.720 and next week we'll get an update on the business 0:12:33.720 --> 0:12:36.520 of metal platforms. And ahead of that, in a story 0:12:36.559 --> 0:12:39.040 you can find online at Bloomberg business Week dot com, 0:12:39.160 --> 0:12:40.960 have a founder of Meta. Of course, we're talking about 0:12:40.960 --> 0:12:44.000 Mark Zuckerberg isn't saying much about the core platform in 0:12:44.080 --> 0:12:49.280 business known as Facebook exactly. We're also gonna get the 0:12:49.280 --> 0:12:51.160 truth behind the legs on the avatars and the metaburse. 0:12:51.240 --> 0:12:54.920 Let's get to this story. It's by columnist Max Jaffkin, 0:12:54.960 --> 0:12:57.439 who joins us along with the editor Bloomberg Business Week 0:12:57.559 --> 0:13:00.240 editor Joel Webber, both in our studio. But Max, let's 0:13:00.280 --> 0:13:04.360 kick it off with you, UM, tell us about what 0:13:04.559 --> 0:13:06.360 is really the focus. We know it's all about the 0:13:06.440 --> 0:13:10.520 metaverse for Mark Zuckerberg right now, right so it meta 0:13:10.679 --> 0:13:13.439 You know a K. Facebook is a very interesting company 0:13:13.520 --> 0:13:15.800 right now because on one hand, you have this enormous 0:13:15.840 --> 0:13:19.480 and very successful, you know, dominant business which is social 0:13:19.480 --> 0:13:23.560 networking and UM advertising so dominant that you know, governments 0:13:23.559 --> 0:13:25.880 all around the world are are, you know, worried about 0:13:25.880 --> 0:13:28.600 regulating it even possibly breaking it up. We saw they 0:13:28.720 --> 0:13:31.640 have to defest from Giffy tiny company they acquired a 0:13:31.679 --> 0:13:34.040 couple of years back. UM. And then you have the metaverse, 0:13:34.160 --> 0:13:37.480 which Zuckerberg is very excited about talking about all the time, 0:13:37.520 --> 0:13:39.520 and is you know, it seems to be the you know, 0:13:39.760 --> 0:13:42.200 much of his focus and the focus of the UM 0:13:42.200 --> 0:13:45.640 sort of senior executives around him, and there really just 0:13:45.760 --> 0:13:49.080 isn't a whole lot of traction despite tons and tons 0:13:49.160 --> 0:13:52.200 of spending, you know, and almost mind boggling sums of 0:13:52.240 --> 0:13:55.680 money that they're spending to try to make this thing happens. 0:13:55.679 --> 0:14:00.000 The attraction within Facebook for or meta for the Metaverse. 0:14:00.280 --> 0:14:04.880 Well that is what you know, super details, you know, 0:14:05.080 --> 0:14:07.200 super discouraging from the point of view of a sort 0:14:07.200 --> 0:14:11.559 of meta investor. We saw reports over the last couple 0:14:11.600 --> 0:14:15.800 of weeks of um Meta employees not wanting to use 0:14:15.840 --> 0:14:19.040 their own product, which again that that that's sort of 0:14:19.080 --> 0:14:21.760 discouraging on one level because you'd you'd expect and hope 0:14:21.760 --> 0:14:23.920 that the people who are building this thing are excited 0:14:23.920 --> 0:14:27.560 about it, but also because Zuckerberg is pushing the idea 0:14:27.640 --> 0:14:29.840 that the metaverse is going to make a huge difference 0:14:29.840 --> 0:14:32.600 for office work, right, that it's not just a video 0:14:32.640 --> 0:14:35.080 game platform. And the reason he's doing that is because 0:14:35.280 --> 0:14:37.720 the video game business is actually pretty mature, you know, 0:14:37.760 --> 0:14:40.120 they've they've been at this for almost a decade UM. 0:14:40.160 --> 0:14:43.040 And the fact that they can't get their own employees 0:14:43.320 --> 0:14:46.320 to use the platform, how they say we're all going 0:14:46.360 --> 0:14:48.960 to use it in the future, um, you know, doesn't 0:14:49.080 --> 0:14:54.680 doesn't bode well. Max, uh so in the Horizon world, 0:14:54.800 --> 0:14:57.000 is that what happened? Did we lose him? I was 0:14:57.040 --> 0:15:00.360 there for a second, lost in the spreadsheet on my phone, 0:15:00.400 --> 0:15:02.680 and as you write, it's soon going to be strapped 0:15:02.680 --> 0:15:05.440 to my face. That's so I can see it much 0:15:05.440 --> 0:15:08.800 more closely like comes into clarity. But but I do 0:15:08.880 --> 0:15:12.080 think that there's an interesting kind of strategic decision here 0:15:12.120 --> 0:15:16.080 at meta of like this tech maybe away from consumers 0:15:16.080 --> 0:15:19.280 and towards the corporate world and walk us through how 0:15:19.320 --> 0:15:22.360 that's looking so far. Right, So, if you watched connect um, 0:15:22.360 --> 0:15:25.520 which is their annual developer event for vr UM, a 0:15:25.520 --> 0:15:28.000 lot of the focus was around office work, as you said, 0:15:28.120 --> 0:15:30.320 you know, the big special guests. You know, they had 0:15:30.360 --> 0:15:32.680 some gaming announcements and and they did sort of the 0:15:32.760 --> 0:15:36.080 usual stuff. Um, but the big get was Sati Adela, 0:15:36.520 --> 0:15:39.480 the CEO of Microsoft, talking about now you can, um, 0:15:39.520 --> 0:15:42.720 you know load Microsoft sixty five, which is the product 0:15:42.760 --> 0:15:45.960 most people know is as office Word, Excel, power Point, 0:15:46.120 --> 0:15:48.760 you can do that in the metaverse, the chief executive 0:15:48.840 --> 0:15:51.360 of a Centure showed up to say, um, you know 0:15:51.880 --> 0:15:53.960 we Centure. You know, I think this is such a 0:15:53.960 --> 0:15:56.760 great thing. We've been you know, doing brainstorming sessions on 0:15:56.800 --> 0:15:59.760 the nth floor, which is the consultancies. Um, you know 0:15:59.760 --> 0:16:04.600 met first thing. And again this stuff potentially could could 0:16:04.720 --> 0:16:07.000 matter and you can sort of understand from a strategic 0:16:07.320 --> 0:16:11.000 perspective why Microsoft or why censure thinks is a good 0:16:11.040 --> 0:16:13.760 idea you know, Microsoft wants to be everywhere. Um, but 0:16:13.880 --> 0:16:16.440 there are points in the metaverse. Yeah yeah, so so 0:16:16.520 --> 0:16:19.560 hey why not. On the other hand, it's it's really 0:16:19.960 --> 0:16:21.680 hard to watch that and think, like, who is going 0:16:21.720 --> 0:16:23.960 to get excited about this? They're talking about sort of 0:16:24.000 --> 0:16:28.240 the parts of office work that everyone hates, you know, spreadsheets, 0:16:28.320 --> 0:16:33.720 management consultants, um, you know, brainstorming, you know, sessions. You 0:16:33.800 --> 0:16:35.440 really have to yeah, I mean you have to be 0:16:35.520 --> 0:16:38.080 like sort of being a management consultant to like this um. 0:16:38.160 --> 0:16:40.520 Which again, okay, maybe there are a lot of management 0:16:40.520 --> 0:16:43.600 consultants made that could be a good business um. But 0:16:43.600 --> 0:16:45.960 but it's just it just doesn't feel like they're able. 0:16:46.000 --> 0:16:48.480 They're generating a ton of excitement, and when you compare 0:16:48.560 --> 0:16:51.800 that to the revenue that sorry, the amount of spending 0:16:51.800 --> 0:16:54.480 they've done. We're talking something like twenty seven billion dollars 0:16:54.720 --> 0:16:58.320 since early UM and they call that an investment. Of course, 0:16:58.400 --> 0:17:02.400 Wall Street calls it a law. UM. So so we'll see. Okay, 0:17:02.440 --> 0:17:05.080 So the headset is another thing that comes up in 0:17:05.119 --> 0:17:07.800 the in the story and has been you know, talked 0:17:07.800 --> 0:17:12.159 about a lot. It's expensive bucks, right, like what what 0:17:12.520 --> 0:17:15.040 uh what? What's your take on on the headset. So 0:17:15.200 --> 0:17:18.000 the headset, it'll be very interesting. You know, Apple is 0:17:18.080 --> 0:17:21.399 widely rumored, we've reported, um that they're they're working on 0:17:21.440 --> 0:17:23.800 a headset. Will be interesting what they do. Um. I 0:17:23.840 --> 0:17:26.960 think the headset was both sort of more expensive than 0:17:27.000 --> 0:17:30.119 a lot of people who watched Space closely. We're hoping 0:17:30.200 --> 0:17:34.800 you knows, is three times what Facebook's sort of consumer 0:17:34.800 --> 0:17:38.440 headset costs. It's kind of hard to imagine somebody upgrading. 0:17:38.560 --> 0:17:42.040 And then the technical capabilities. It includes eye tracking, which 0:17:42.080 --> 0:17:45.240 is you know, very cool. I guess, um the company 0:17:45.240 --> 0:17:47.960 says for sort of meetings and things like that. Um, 0:17:48.000 --> 0:17:50.920 but battery life is lower than their cheaper headset. You know, 0:17:50.960 --> 0:17:54.159 the processing power doesn't seem like hugely better. Um. We 0:17:54.200 --> 0:17:57.680 even had a meta employee, you know, John Carmack, who's 0:17:57.720 --> 0:18:01.120 like a industry pioneer, sort of saying, you know, they're 0:18:01.240 --> 0:18:03.879 their pros and cons of this device, which you wouldn't 0:18:03.920 --> 0:18:06.400 really want to hear when you're talking about your hot 0:18:06.400 --> 0:18:08.800 new product that you just released compared to something that 0:18:08.840 --> 0:18:11.000 you released, you know, two years ago, that costs a 0:18:11.080 --> 0:18:14.560 third the price. I'm wondering, if nothing else, this metaverse 0:18:14.640 --> 0:18:17.840 discussion has taken some of the attention away from some 0:18:17.880 --> 0:18:20.760 of the problems that Facebook has with the regulators, elections 0:18:20.800 --> 0:18:22.479 coming up, things like this, it kind of feels like, 0:18:23.200 --> 0:18:26.879 at least maybe unintentional head fake so or maybe it's 0:18:26.880 --> 0:18:28.720 an intentional head fake. I mean, you know, one of 0:18:28.760 --> 0:18:31.960 the interesting things that's happened is you go back two 0:18:32.320 --> 0:18:36.080 years ago, We're heading into a general election, and all 0:18:36.160 --> 0:18:39.560 Mark Zuckerberg wanted to talk about was the platform sort 0:18:39.560 --> 0:18:42.879 of responsibility to society. We saw you know, Meta talking 0:18:42.920 --> 0:18:44.960 a lot about back then called Facebook, you know, talking 0:18:44.960 --> 0:18:47.639 a lot about election integrity, UM also talking a lot 0:18:47.680 --> 0:18:50.160 about public health and things like that. Now what's happened 0:18:50.200 --> 0:18:52.720 since then is some of those duties have been sort 0:18:52.760 --> 0:18:54.639 of pushed off to other parts of the company. You know, 0:18:54.680 --> 0:18:57.560 we have Nick Klegg has been elevated, uh to to 0:18:57.680 --> 0:19:00.320 this sort of role that Zuckerberg I think himself was 0:19:00.520 --> 0:19:04.199 largely handling before um AND. And as a result, you know, 0:19:04.520 --> 0:19:08.000 all the focus in terms of media attention and um 0:19:08.080 --> 0:19:10.159 AND and from a public policy point of view, is 0:19:10.160 --> 0:19:12.239 on this new thing UM, which I think has has 0:19:12.280 --> 0:19:14.200 come with some pros and cons. On one hand, UM 0:19:14.320 --> 0:19:17.080 Zuckerberg isn't taking it from all sides like is not 0:19:17.160 --> 0:19:19.919 maybe being criticized as much even as there's tons and 0:19:19.960 --> 0:19:22.560 tons of misinformation on the platform today. Um. On the 0:19:22.600 --> 0:19:25.399 other hand, a lot of focus on this platform that 0:19:25.480 --> 0:19:29.200 really doesn't seem to be thriving, and you know, breaking 0:19:29.280 --> 0:19:32.600 up of those election teams that you know, we're we're 0:19:32.720 --> 0:19:34.399 sort of a response to sort of some of the 0:19:34.760 --> 0:19:38.000 sketchy stuff that had happened previously. And you know, as 0:19:38.000 --> 0:19:40.560 you write, your kicker, pretty memorable. Gotta pay for that 0:19:40.600 --> 0:19:43.440 metaverse somehow. Well, and you know, Zuckerberg went on Joe 0:19:43.520 --> 0:19:46.680 Rogan's podcast a few months ago to talk about the 0:19:46.920 --> 0:19:50.160 metaverse and and that you know, huge opportunity for the metaverse. 0:19:50.400 --> 0:19:53.159 But Rogan has been like a prominent uh you know, 0:19:53.240 --> 0:19:56.360