WEBVTT - P&L: How Blockchain Will Affect Market Structures 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.560 you and your money, whether you're at the grocery store 0:00:16.800 --> 0:00:19.960 or the trading floor. Find the Bloomberg P L Podcast 0:00:20.000 --> 0:00:28.920 on iTunes, SoundCloud and at Bloomberg dot com. I want 0:00:28.920 --> 0:00:32.319 to bring in Christian Catalini. He is a professor at 0:00:32.360 --> 0:00:35.479 the m I T. Sloan School of Management, coming to 0:00:35.560 --> 0:00:39.600 us from Boston. Christian, you recently wrote a paper UH 0:00:39.720 --> 0:00:42.440 with Joshua and Gance of the University of Toronto arguing 0:00:42.440 --> 0:00:46.760 that cryptocurrencies will affect key costs in the economy and 0:00:47.400 --> 0:00:50.360 namely the cost of verifying transactions, the cost of running 0:00:50.400 --> 0:00:53.000 a network platform or a marketplace. I just want to 0:00:53.040 --> 0:00:56.480 get your sense of where we are in the evolution 0:00:56.640 --> 0:01:01.640 away from paper money and towards cryptocurrencies. So thank you 0:01:01.720 --> 0:01:04.280 very much for having me here. UM. I think this 0:01:04.400 --> 0:01:07.880 is an interesting time, UM are around this space. We 0:01:07.880 --> 0:01:10.200 we we just came back from I think the most 0:01:10.280 --> 0:01:14.840 ip phase around cryptocurrencies and blockchain and digital ledgers. UH 0:01:15.000 --> 0:01:17.640 twenty sixteen and fifteen have seen a lot of VC 0:01:17.720 --> 0:01:20.319 investment and attention in this space, and I think as 0:01:20.319 --> 0:01:23.360 people are starting to build solutions that actually deliver value 0:01:23.680 --> 0:01:27.760 UH to to customers to different industry verticals, we're coming 0:01:27.800 --> 0:01:31.400 closer to two applications. UH. Digital currency is clearly one. 0:01:31.880 --> 0:01:34.160 A number of central banks are looking at this really 0:01:34.160 --> 0:01:37.400 closely because it has implications for how we think about 0:01:37.400 --> 0:01:41.080 monetary policy, taxation, UH, and a number of other dimensions. 0:01:41.160 --> 0:01:44.520 Of course, as many other systemic changes. UH. It's unlikely 0:01:44.560 --> 0:01:46.200 to happen overnight, and I think a lot of the 0:01:46.280 --> 0:01:49.720 IPE has inserved well this UH this ecosystem because the 0:01:49.760 --> 0:01:52.400 technology is complex and bringing it to market what will 0:01:52.440 --> 0:01:55.640 take some time. Can you speak in detail about blockchain 0:01:55.840 --> 0:01:59.600 and its ability to create or to offer tamper proof 0:01:59.640 --> 0:02:04.320 trans action records. I mean that's part of the promise, absolutely, 0:02:04.360 --> 0:02:06.720 and in fact, so in our piece, what we're trying 0:02:06.720 --> 0:02:10.040 to focus on is really basic economic theory. So from 0:02:10.080 --> 0:02:14.880 from an economics perspective, we verify attributes of transactions all 0:02:14.880 --> 0:02:17.320 the time. Anything you can think of in the economy 0:02:17.360 --> 0:02:20.200 is essentially a transaction, whether you're authenticate yourself, you buy 0:02:20.240 --> 0:02:24.080 goods yourself goods, you're trading UM, and those attributes matter 0:02:24.120 --> 0:02:26.480 a lot because often, you know, as long as things 0:02:26.560 --> 0:02:28.960 go well, we we don't worry and and the transaction 0:02:29.000 --> 0:02:31.920 goes smoothly. But when there's an exception, we often need 0:02:31.960 --> 0:02:35.720 to go back and verify credentials of individuals involved, attributes 0:02:35.760 --> 0:02:38.799 of the goods, think about the provenance, how they've been 0:02:38.800 --> 0:02:42.360 manipulated across the supply chain, and that's usually very costly. 0:02:42.440 --> 0:02:45.360 We usually perform an audit when we need to verify attributes. 0:02:45.760 --> 0:02:48.240 Um I think the promise of blocation is really lowering 0:02:48.280 --> 0:02:51.440 the cost of that process, that process of verifying attributes 0:02:51.639 --> 0:02:54.400 to almost to zero, and that's quite fascinating, you know, 0:02:54.440 --> 0:02:58.280 to to markets. Well, Christian, I want to look at bitcoin, 0:02:58.400 --> 0:03:03.160 which is probably the most close watched virtual currency out there. Yesterday, 0:03:03.200 --> 0:03:04.720 there was a story in the Wall Street Journal that 0:03:04.800 --> 0:03:07.240 Circle Internet Financial, which is one of the most heavily 0:03:07.280 --> 0:03:10.880 funded digital currency startups, will no longer offer customers the 0:03:10.880 --> 0:03:15.080 ability to buy and sell bitcoins based on the setbacks 0:03:15.080 --> 0:03:19.480 that we have seen with bitcoin gaining cloud as a currency, 0:03:19.880 --> 0:03:22.040 and you know, the failure for block chain to really 0:03:22.080 --> 0:03:24.920 take off at the big banks. What's your optimism that 0:03:24.960 --> 0:03:28.720 we will transfer the financial system towards something that is 0:03:28.760 --> 0:03:32.560 more in line with a cryptocurrency model. Absolutely, so I 0:03:32.880 --> 0:03:35.720 think those are all very valid points and and those 0:03:35.720 --> 0:03:38.000 are kind of the main challenges of a technology that 0:03:38.160 --> 0:03:41.760 is evolving into compliance. Right. So Bitcoin was designed, let's 0:03:41.760 --> 0:03:46.800 remember that to be totally decentralized, censorship proof and distribute it. Right. 0:03:46.800 --> 0:03:49.360 So it was in in total antithesis to the regular 0:03:49.400 --> 0:03:53.560 financial system. Uh, therefore it made some choices in terms of, 0:03:53.600 --> 0:03:56.240 you know, the privacy of the transactions, who can vet 0:03:56.280 --> 0:03:59.600 transactions that were very deu syncratic to Bitcoin at the 0:03:59.640 --> 0:04:01.760 same time, and we need to not forget that the 0:04:01.840 --> 0:04:05.160 major breakthrough in cryptography behind blockchain is much more general 0:04:05.520 --> 0:04:07.880 and in fact, what you're seeing now is you know, banks, 0:04:07.880 --> 0:04:12.240 financial institutions, accounting firms rethinking this technology from the ground 0:04:12.360 --> 0:04:15.960 up and repurposing it for different markets. In different settings. 0:04:16.080 --> 0:04:19.039 You will need different types of cryptocurrencies with different properties, 0:04:19.080 --> 0:04:23.200 with different you know, compliance levels. Bitcoin, I think it's 0:04:23.200 --> 0:04:28.080 scaling quite successfully on a global scale, but not necessarily 0:04:28.320 --> 0:04:30.360 you know, in the way that it's the most compatible 0:04:30.440 --> 0:04:33.400 to current financial systems. Um the movie that you you 0:04:33.480 --> 0:04:35.880 mentioned by Circle is one where the company is seeing 0:04:35.880 --> 0:04:39.120 itself more and more as you know, a global payment 0:04:39.839 --> 0:04:42.720 app where people can easily transfer money across the globe. 0:04:42.880 --> 0:04:45.240 It doesn't really matter what cryptocurrency they use. It could 0:04:45.240 --> 0:04:47.839 be bitcoin, it could be something else. Uh, the technology 0:04:47.880 --> 0:04:49.400 is still kind of working in the background, but the 0:04:49.400 --> 0:04:53.279 consumer doesn't really need to see it. Is This competition 0:04:53.800 --> 0:04:57.640 include companies such as Venmo and then maybe bringing our three, 0:04:57.680 --> 0:05:01.400 which is that consortium back by financial firms right JP, 0:05:01.560 --> 0:05:05.360 Morgan Chase, Bank of America and Barclay's absolutely and in fact, 0:05:05.360 --> 0:05:08.520 I think you're seeing a lot of experimentations from startups 0:05:08.560 --> 0:05:10.880 that maybe want to tie themselves to to bitcoin or 0:05:10.880 --> 0:05:15.159 etherium or other cryptocurrencies to consertions of banks. Are three 0:05:15.560 --> 0:05:20.040 recently released Korda's fascinating to see how even within that consortium, 0:05:20.160 --> 0:05:22.279 some players have decided to just tell people what courtA 0:05:22.400 --> 0:05:25.560 is briefly because that's an interesting collaboration result. Yea. So 0:05:25.640 --> 0:05:28.680 essentially that's a number of banks that have decided to 0:05:28.880 --> 0:05:32.440 design their own protocol to streamline transactions because I think 0:05:32.440 --> 0:05:35.680 there's a huge opportunity here in improving our settlement and 0:05:35.760 --> 0:05:40.120 reconciliation of books. Happens on a global scale. Um, but 0:05:40.520 --> 0:05:43.159 even within KORDA I think you're starting to see that, 0:05:43.240 --> 0:05:46.359 you know, uh, Goldman, Sacks and others are deciding to 0:05:46.360 --> 0:05:49.479 go alone because maybe they want a slightly different implementation 0:05:49.480 --> 0:05:52.200 of the same technology. So real quick, what's the one 0:05:52.240 --> 0:05:54.400 thing that you're looking for, the one development that will 0:05:54.440 --> 0:05:57.920 push the evolution of cryptocurrency into the mainstream and make 0:05:57.920 --> 0:06:00.800 it the base of the financial system. I think it 0:06:00.839 --> 0:06:03.119 will take time, but I think what we may see 0:06:03.480 --> 0:06:07.520 is maybe an economy, a government or um. You know, 0:06:07.600 --> 0:06:10.320 it could be even like a private player within an 0:06:10.320 --> 0:06:14.400 ecosystem with the supply chain doing a major adoption effort. Um. 0:06:14.520 --> 0:06:16.640 I think that would take some time, but as you 0:06:17.040 --> 0:06:20.279 as you know, like recent events like the India demonetization 0:06:20.320 --> 0:06:23.080 of the thousand and five hundred Europe's can provide the 0:06:23.120 --> 0:06:25.880 fuel for for further adoption in this market. And I 0:06:25.920 --> 0:06:29.800 wouldn't be surprised if, you know, given the current microeconomic turmoil, 0:06:30.320 --> 0:06:32.880 maybe a central bank we considered this as an opportunity 0:06:32.920 --> 0:06:35.040 to reform taxes and how they do many of their 0:06:35.080 --> 0:06:39.040 services to citizens. Christian Catalini, thank you very much, Professor 0:06:39.120 --> 0:06:43.479 of Entrepreneurship at the m I. T. Sloan School of Management. 0:06:55.640 --> 0:06:58.760 If you want some immediate thoughts from our next guest, 0:06:58.839 --> 0:07:02.880 John Stults was is Oppenheimer's chief investment strategist. He knows 0:07:02.920 --> 0:07:05.640 everything about global markets. John, it's always a pleasure. Thanks 0:07:05.640 --> 0:07:08.280 for being here with us. Let's start off with the 0:07:09.120 --> 0:07:11.680 Mario Draga European Central Bank, and then I want to 0:07:11.680 --> 0:07:13.680 get your thoughts on emerging markets. But won't you start 0:07:13.680 --> 0:07:16.040 there and tell us what that all means for investors. Well, 0:07:16.080 --> 0:07:19.040 we've been big fans of Mario dragging for a long 0:07:19.120 --> 0:07:22.160 time with think his his process of doing whatever it 0:07:22.240 --> 0:07:26.520 takes has has helped Europe. It's a very complex situation. 0:07:26.960 --> 0:07:29.120 But when you consider it that it's they're coming up 0:07:29.160 --> 0:07:33.080 on their second anniversary of KWI and already they're talking 0:07:33.120 --> 0:07:37.000 tapering much of that not officially talking, but I was 0:07:37.040 --> 0:07:42.760 just auty. We learned today at sixty right, sixty billion, 0:07:42.840 --> 0:07:48.000 but for a longer period of time until December. It 0:07:48.120 --> 0:07:51.320 reminds me of Shakespeare Arose by any other name, you know, 0:07:51.680 --> 0:07:54.640 it's I mean, honestly, everyone today is debating the meaning 0:07:54.720 --> 0:07:57.080 of taper. Basically, they said that they're going to lower 0:07:57.800 --> 0:08:01.120 the pace of purchases next year of the longer term 0:08:01.200 --> 0:08:05.320 bonds that they're buying, but they haven't discussed tapering. So 0:08:05.360 --> 0:08:08.960 then you had all of these journalists asking Mario Traggy, wait, 0:08:09.000 --> 0:08:12.240 but how does that work? You're you're you're slowing the purchases. 0:08:12.320 --> 0:08:14.880 I actually looked up tapering in the dictionary this morning. 0:08:14.920 --> 0:08:17.680 I'm like, that's the definition of it. That's the thing, 0:08:18.400 --> 0:08:21.440 you know, The process is always one of a lot 0:08:21.480 --> 0:08:26.080 of dialogue, questions of semantics, always wide for interpretation, and 0:08:26.120 --> 0:08:28.440 that that probably offers the day to day drama for 0:08:28.480 --> 0:08:31.000 the markets, which I think we saw on the currency 0:08:31.040 --> 0:08:34.280 with the Europe first was stronger than it moved lower 0:08:35.000 --> 0:08:38.840 uh ash as the announcement came out today. But I 0:08:38.880 --> 0:08:41.320 think the good news is just the thought that they're 0:08:41.360 --> 0:08:46.080 thinking of going to that UH sixty UH number on 0:08:46.160 --> 0:08:49.719 a monthly basis versus eighties shows it yet very much 0:08:49.920 --> 0:08:55.959 on parallel to Bernanky in in May of twenty uh 0:08:56.120 --> 0:08:59.200 when when Bernanky intimated that the Fed was beginning to 0:08:59.240 --> 0:09:03.600 think about the possibility of tapering, and uh when the 0:09:03.679 --> 0:09:06.920 market took that the market actually had a tantrum. Then 0:09:07.000 --> 0:09:08.880 it doesn't look like we're getting that today, And I 0:09:08.920 --> 0:09:11.320 wanted to ask you about that. That to me is 0:09:11.400 --> 0:09:13.920 meaningful that We're not seeing a tantment markets. Yes, you 0:09:13.920 --> 0:09:16.080 are seeing some price wings, but these are pretty minor 0:09:16.160 --> 0:09:18.640 moves in the scheme of things. This is not another 0:09:18.880 --> 0:09:22.160 taper tantrum all over again. Does this mean to you 0:09:22.240 --> 0:09:25.280 that central bankers have really lost their clout, that people 0:09:25.320 --> 0:09:27.840 are not looking to them as much anymore. I really 0:09:27.880 --> 0:09:30.199 don't think that that that's the the issue. I think 0:09:30.200 --> 0:09:32.360 it's more that I think there's a recognition that the 0:09:32.400 --> 0:09:36.640 central bankers have become remarkably experienced since two thousand and 0:09:36.720 --> 0:09:40.640 eight dealing with a significant crisis situation, coming out of 0:09:40.679 --> 0:09:44.800 it and managing a recovery process, both sometimes on a 0:09:44.800 --> 0:09:49.199 concerted effort and sometimes really on a parallel effort. It 0:09:49.320 --> 0:09:51.559 just just depends what they appear to have learned from 0:09:51.559 --> 0:09:54.079 one another. And of course the next chapter is as 0:09:54.120 --> 0:09:58.000 government start fiscal spend. We think the infrastructure story here 0:09:58.080 --> 0:10:00.280 from state side, which would have happened I there with 0:10:00.600 --> 0:10:03.880 Hillary Clinton and now will happen probably a greater extent 0:10:04.200 --> 0:10:07.560 with Donald Trump, will spread around the world, and it's 0:10:07.559 --> 0:10:10.920 something that's needed both by developed nations as well as 0:10:10.920 --> 0:10:14.400 emerging nations. So and it will relieve, it will take 0:10:14.440 --> 0:10:17.160 the onus away from the central banks we think of 0:10:17.240 --> 0:10:20.520 having to carry these economies, aren't we. You mentioned emerging nations. 0:10:20.600 --> 0:10:22.480 I'd like you to get a little specific and tell 0:10:22.559 --> 0:10:24.520 us which ones do you think will benefit the most 0:10:24.520 --> 0:10:27.800 from the fiscal stimulus that you're describing may appear in 0:10:27.840 --> 0:10:30.640 the United States. Well, I would have to think that 0:10:30.800 --> 0:10:34.880 on a regional basis, Uh, we would probably there's risks, 0:10:34.920 --> 0:10:40.559 of course, because of the president elect Candida with Mario. 0:10:40.840 --> 0:10:44.320 In fact, Mario said spec he said, quote political uncertainty 0:10:44.559 --> 0:10:48.360 is dominant, and he cited Brexit and the election of 0:10:48.400 --> 0:10:51.920 Donald Trump. Yeah, without a doubt that there are all 0:10:52.000 --> 0:10:54.679 kinds of questions is to to what's going to come. 0:10:54.679 --> 0:10:57.000 But I think that in terms of signals that are 0:10:57.040 --> 0:11:00.440 coming out of fifty six Street and Fifth Avenue, we 0:11:00.480 --> 0:11:03.040 would have to think that what we're looking at is uh, 0:11:03.240 --> 0:11:07.440 certainly it's somewhat of a melioration from where the very 0:11:07.480 --> 0:11:12.440 sharp rhetoric during the campaign being rounded out here. We'd 0:11:12.440 --> 0:11:14.280 have to think in terms of emerging markets, we think 0:11:14.480 --> 0:11:18.880 Asia looks like it's it's plenty happy about what's going on, 0:11:19.120 --> 0:11:23.280 compared to what many would have thought initially, Uh, not 0:11:23.320 --> 0:11:26.319 necessarily on China, but on the region, so their trading 0:11:26.400 --> 0:11:28.800 partners of what we do like about China. Of course, 0:11:29.040 --> 0:11:33.720 as we saw an uptick in imports and in exports, UH, 0:11:33.760 --> 0:11:37.280 that's a good sign. And we can't help but think that, Yeah, 0:11:37.600 --> 0:11:40.560 Donald Trump is a globalist, even though he is, he 0:11:40.679 --> 0:11:43.440 is looking to uh perhaps take back some of the 0:11:43.480 --> 0:11:47.719 economic edge we gave away years ago in trade agreements. 0:11:48.120 --> 0:11:50.880 Now on a world where the competitive landscape has been 0:11:51.000 --> 0:11:57.439 vastly reduced or leveled by globalization as well as by technology, 0:11:57.440 --> 0:12:00.559 where emerging markets are so which countries okay? In terms 0:12:00.600 --> 0:12:05.440 in terms of countries, I'd have to think, Uh, Korea, Taiwan. 0:12:06.400 --> 0:12:08.560 I would have to think, are you naming countries that 0:12:08.640 --> 0:12:14.640 have turmoil related to the political issues or opportunities both well? 0:12:14.720 --> 0:12:17.480 I would say here opportunities from the extent that of 0:12:17.840 --> 0:12:23.160 multinational uh trade positions that will likely not be as 0:12:23.160 --> 0:12:26.080 affected as negatively as might be thought. And we'd have 0:12:26.160 --> 0:12:29.200 to think China will come will benefit from this as well. 0:12:29.280 --> 0:12:31.960 We we've just been usually we like to benefit from 0:12:32.000 --> 0:12:35.920 the region more than direct in China. What about back 0:12:36.200 --> 0:12:39.280 here in the U s UM, I've heard some calls 0:12:39.360 --> 0:12:43.280 for decline and the SMP UH. Some people are saying 0:12:43.280 --> 0:12:47.160 maybe just a ten percent. What's your thought? What what 0:12:47.640 --> 0:12:49.679 in terms of you know, and we'd have to get 0:12:49.720 --> 0:12:51.680 some kind of a bolt from the blue to see 0:12:51.720 --> 0:12:53.520 some kind of a decline. Do you think that the 0:12:53.600 --> 0:12:55.719 SMP is going to keep going up? I think that 0:12:56.040 --> 0:12:58.559 the S and P will likely level out. We're hoping 0:12:58.559 --> 0:13:01.079 it will go through our twenty target, which we put 0:13:01.120 --> 0:13:03.800 in last December twenty two. We're about two and a 0:13:03.840 --> 0:13:08.040 half percent away from that right now. But we've seen 0:13:08.400 --> 0:13:11.800 real good performance, much better performance out of mids and smalls, 0:13:11.880 --> 0:13:16.200 and we were market capagnostic also, so we're optimistic. We 0:13:16.280 --> 0:13:19.480 think the the but the the level of and and 0:13:19.559 --> 0:13:22.600 momentum that we're seeing now we think will carry through 0:13:22.640 --> 0:13:24.839 the end of the year. But the first quarter may 0:13:24.880 --> 0:13:29.680 have a traditional New Year's revisiting and consideration, but we're 0:13:29.679 --> 0:13:31.920 not looking for a significant drop. Just real quick, What 0:13:31.960 --> 0:13:35.440 about highyeld bonds related to high yield? You know, the 0:13:35.480 --> 0:13:37.480 thing about high yield is if, if if anything, it 0:13:38.200 --> 0:13:41.200 tends to be an area that we're sentiment swings very 0:13:41.240 --> 0:13:43.480 sharply either one side of the boat or the other. 0:13:43.960 --> 0:13:47.559 Right now, the fact that you're dealing with a scenario 0:13:47.679 --> 0:13:52.319 that appears to be a continuation of increasing growth. State 0:13:52.360 --> 0:13:55.680 side moving forward should be good for high yield bonds, 0:13:55.679 --> 0:13:58.560 which are proxies for the equity market within the bond 0:13:58.600 --> 0:14:03.280 space forward. You sound pretty bullish. Yeah, I still am bullish, 0:14:03.400 --> 0:14:07.440 and I have been bullish actually since January of two 0:14:07.480 --> 0:14:10.679 thousand and nine when we were looking forward. Fortunately we 0:14:10.679 --> 0:14:13.640 were quoted by by a newspaper out in Des Moines 0:14:13.679 --> 0:14:16.000 at that time, Otherwise we would have forgotten when we 0:14:16.040 --> 0:14:21.760 turned bullish. John stultis Oppenheimer's chief investment strategist. Thank you 0:14:22.000 --> 0:14:36.880 so much. I want to learn more about moonshot ideas, 0:14:36.920 --> 0:14:40.240 to sort of out there crazy ideas that may one 0:14:40.320 --> 0:14:43.280 day make another billion dollars with us, to tell us 0:14:43.360 --> 0:14:47.040 all about those ambitions, ambitions and how they may be 0:14:47.160 --> 0:14:51.800 getting ratcheted back at Google. Is Max Chafkin, Bloomberg tech 0:14:51.840 --> 0:14:56.000 reporter who's here in Bloomberg eleven three Oh's studio. Max, 0:14:56.080 --> 0:14:59.440 you wrote this fascinating story about how Google makes so 0:14:59.520 --> 0:15:02.040 much money. Me that never had to worry about financial 0:15:02.040 --> 0:15:06.400 discipline until now set the scene for us. Right. So, uh, 0:15:07.120 --> 0:15:10.560 basically you think of Google, and you think of um 0:15:10.720 --> 0:15:13.080 search obviously, but you also think of a very successful 0:15:13.080 --> 0:15:17.240 email program. Maybe YouTube, Um, maybe you start thinking about 0:15:17.240 --> 0:15:20.040 these these further off ideas, the self driving car, they 0:15:20.080 --> 0:15:23.360 make internet balloons. Uh, they have venture capital arms, they 0:15:23.360 --> 0:15:25.840 have all these different divisions trying to find a cure 0:15:25.880 --> 0:15:28.680 for death trying. Yeah, there's a company called Calico trying 0:15:28.720 --> 0:15:30.640 to find a cure for death, run by Art Levinson, 0:15:31.120 --> 0:15:33.600 um and and and the weird kind of reality of 0:15:33.600 --> 0:15:36.120 this is that there's really only one piece of the 0:15:36.120 --> 0:15:39.200 business that makes a lot of money, which is their 0:15:39.240 --> 0:15:42.640 advertising part, primarily search ads, the little ads that show 0:15:42.680 --> 0:15:46.120 up when you search and you know, and that and 0:15:46.120 --> 0:15:48.840 that's created kind of like one of the weirdest companies 0:15:48.880 --> 0:15:50.880 I think in like the history of capitalism, where you 0:15:50.920 --> 0:15:54.040 have this amazingly successful business and then all these other 0:15:54.920 --> 0:15:59.000 businesses that are outside of that and um. For years, uh, 0:15:59.200 --> 0:16:03.400 Larry Page ands are gay Brand basically allowed these other businesses, 0:16:03.400 --> 0:16:05.000 which are kind of these little fife tums to just 0:16:05.040 --> 0:16:08.280 do whatever they want. And now Google, which is now 0:16:08.320 --> 0:16:10.560 called Alphabet, is trying to kind of rain that in 0:16:10.720 --> 0:16:12.680 but also ran it in a way that doesn't totally 0:16:12.720 --> 0:16:15.760 squash innovation. You know. One of the illustrations for this 0:16:15.880 --> 0:16:20.280 story is an energy generating kite, and I confessed that 0:16:20.320 --> 0:16:24.760 it immediately brought to mind images of Howard Hughes and 0:16:25.000 --> 0:16:29.440 the spruce goose, the mega plane that flew just once. 0:16:30.000 --> 0:16:33.800 Can you tell us about Astro Teller, the people that 0:16:33.840 --> 0:16:37.240 you met while you made this story come to life? Right? So, 0:16:37.240 --> 0:16:39.640 so my co writer and I Mark Bergen went inside 0:16:39.640 --> 0:16:42.240 of X, which is used to be called Google X. 0:16:42.280 --> 0:16:45.840 It is the crazy research lab that's responsible for for 0:16:45.920 --> 0:16:49.000 Google's moonshots. They call themselves the Moonshot Factory. They all 0:16:49.040 --> 0:16:52.280 have these crazy titles. Astro I think is now called CEO, 0:16:52.440 --> 0:16:54.720 but for a long time he was keptain of moonshots 0:16:55.160 --> 0:16:57.280 um and and so you have and so anyway, it's 0:16:57.280 --> 0:16:59.560 it's it's this crazy research lab they have. They have 0:16:59.560 --> 0:17:03.360 the driver car, they have the energy generating kites, they 0:17:03.400 --> 0:17:07.720 have these Internet balloons, and they have drone delivery and 0:17:08.000 --> 0:17:10.440 you know, all of these things. You know, they could 0:17:10.480 --> 0:17:12.960 be huge businesses, but they're all still sort of a 0:17:13.000 --> 0:17:15.919 ways off. I'd say the car, the driverless car, is 0:17:15.960 --> 0:17:20.120 the thing that's closest to becoming you know, a revenue 0:17:20.200 --> 0:17:24.240 generating uh business. They're they're supposedly they're going to spin 0:17:24.320 --> 0:17:26.600 it off next year, although we don't know for sure. 0:17:27.280 --> 0:17:32.040 I love this quote from the Owner's manual for Google shareholders, 0:17:32.400 --> 0:17:35.359 do not be surprised if we place smaller bets in 0:17:35.440 --> 0:17:39.879 areas that seem very speculative or even strange. Uh. You know, 0:17:39.920 --> 0:17:43.480 you were talking Max about how Google is unlike any 0:17:43.480 --> 0:17:46.480 other company possibly in history, because they get most of 0:17:46.520 --> 0:17:48.280 their revenue from one area and then invest in all 0:17:48.280 --> 0:17:52.560 these other areas. One possible agent for change has been 0:17:52.640 --> 0:17:55.760 Ruth Poorat, who came to the company last year as 0:17:55.800 --> 0:18:00.000 chief financial officer from Morgan Stanley. Uh. And she's developed 0:18:00.080 --> 0:18:05.680 sort of an unflattering reputation among these sort of Moonshot magicians. Correct. Right, Well, 0:18:05.720 --> 0:18:08.320 so it's probably important to point out that on Wall 0:18:08.320 --> 0:18:12.439 Street people love this. They love they They're very happy 0:18:12.480 --> 0:18:14.600 that Google is trying to be a little bit smarter 0:18:14.640 --> 0:18:17.840 about how it spends its money. However, in the Moonshot 0:18:17.880 --> 0:18:21.520 Factory and in some of these other divisions, uh, this 0:18:21.600 --> 0:18:23.720 is look really looked at as like bringing in this 0:18:23.920 --> 0:18:27.600 kind of New York Wall Street type to kind of, 0:18:27.680 --> 0:18:30.000 you know, make a bunch of decisions where you know 0:18:30.000 --> 0:18:32.800 what I mean, where where. From their perspective, she doesn't 0:18:32.800 --> 0:18:35.160 know anything about Yeah, it's some one person called called 0:18:35.200 --> 0:18:38.679 her referred to as a hatchet man. Um. Now, I 0:18:38.720 --> 0:18:42.480 think what Google would say, and what what what people 0:18:42.560 --> 0:18:46.040 inside of these bets as they're called say, is that 0:18:46.200 --> 0:18:50.240 you know, from you know, constraints, you can still have innovation. 0:18:50.280 --> 0:18:52.960 That sometimes it's important actually to say like you can 0:18:52.960 --> 0:18:55.520 only spend this much money, because that forces people to 0:18:55.520 --> 0:18:57.840 be a little bit more creative. I actually think there's 0:18:57.960 --> 0:19:00.240 something to that. And I think one of the things, 0:19:00.359 --> 0:19:03.240 especially when you look at, say the driverless car, I 0:19:03.240 --> 0:19:05.600 think it's possible that the driverless car suffered a little 0:19:05.600 --> 0:19:09.239 bit from basically an almost unlimited budget. Um. You know, 0:19:09.600 --> 0:19:13.160 Google is technologically ahead of just just about everybody else, 0:19:13.359 --> 0:19:16.040 but commercially they are actually kind of behind a bunch 0:19:16.080 --> 0:19:19.480 of companies there, behind Tesla, they're behind Uber and you 0:19:19.800 --> 0:19:22.600 wonder if maybe if they had had placed some more 0:19:22.640 --> 0:19:25.199 constraints on the business, they would have been forced to 0:19:25.240 --> 0:19:27.240 take a product to market sooner. On the other hand, 0:19:27.240 --> 0:19:30.160 their safety reasons and and you know, it's a long game. 0:19:30.200 --> 0:19:34.040 So we'll see. How was the food. The food at 0:19:34.080 --> 0:19:38.280 Google and Alphabet is excellent, as you might imagine. Um, 0:19:38.400 --> 0:19:41.920 And and one of the one of the most surreal experiences, Uh, Mark, 0:19:42.000 --> 0:19:43.919 my co writer and I had during the during our 0:19:44.000 --> 0:19:46.640 visit to X was you know, sitting there and there's 0:19:46.680 --> 0:19:49.000 this picnic area where people are picking at you know, 0:19:49.119 --> 0:19:52.879 seared tofu it's probably locally sourced or something. And you know, 0:19:53.000 --> 0:19:55.760 just a few feet away from this picnic area, there's 0:19:55.760 --> 0:19:58.280 a drone going up and down and up and down, 0:19:58.520 --> 0:20:02.320 and everybody's just you know, basically ignoring it, like you know, 0:20:02.480 --> 0:20:04.879 like it's nothing, and you just realize, like, man, this 0:20:04.960 --> 0:20:06.800 is a this is an interesting place. Is a place 0:20:06.880 --> 0:20:09.119 that's that's doing things that nobody else is doing, and 0:20:09.119 --> 0:20:11.320 it's kind of doing it on a scale that nobody 0:20:11.359 --> 0:20:13.159 else is doing it at while you're doing it on 0:20:13.200 --> 0:20:15.560 a great scale. By sharing this information in this story 0:20:15.600 --> 0:20:20.240 with us Max Chafkin, also with Mark Bergen, co authors 0:20:20.600 --> 0:20:22.560 of this great story, you've got to read about Google 0:20:22.560 --> 0:20:24.760 making so much money that it doesn't necessarily have to 0:20:24.800 --> 0:20:38.480 worry about discipline. I want to take a look at bonds. 0:20:38.520 --> 0:20:41.080 I want to look at particular European bonds which have 0:20:41.240 --> 0:20:45.880 been out responding to today's ECB announcement that they will 0:20:46.280 --> 0:20:49.680 slower the amount of bonds that they will purchase each 0:20:49.720 --> 0:20:52.160 month starting in April next year. But they also had 0:20:52.160 --> 0:20:55.000 some other messages that might be a little bit more uh, 0:20:55.280 --> 0:20:57.639 sort of dovish. Frankly, I want to bring in for 0:20:57.760 --> 0:21:03.040 more insight, uh, Max seems abay, Euro Area economist for 0:21:03.119 --> 0:21:05.919 Bloomberg Intelligence. Uh, to give us a better sense of 0:21:05.960 --> 0:21:08.360 what's going on here. So Maxie, what's your big takeaway 0:21:08.359 --> 0:21:11.680 from the CBS announcement today? Yes, Settle from London. Well, 0:21:11.720 --> 0:21:13.560 the the announcement of d c B was quite a 0:21:13.560 --> 0:21:16.879 surprise actually because right, yeah, because they went for for 0:21:17.000 --> 0:21:19.439 actually it went for longer than what I expected, but 0:21:19.600 --> 0:21:22.120 at a bit at a smaller pace. So now they're 0:21:22.119 --> 0:21:26.680 gonna buy sixty billion months starting in April until December 0:21:26.680 --> 0:21:28.879 two thousand seventeen. So that means they're going to go 0:21:28.920 --> 0:21:32.560 for one more year of que market expectations, well for 0:21:32.640 --> 0:21:35.720 something a bit a bit shorter at the same current 0:21:35.760 --> 0:21:39.320 eighty billion pace. So they're going smaller but for longer. Wait, 0:21:39.359 --> 0:21:42.119 hold on, I just I want to raise one important point. 0:21:42.400 --> 0:21:45.719 They also lowered the yields, or they allowed the ECB 0:21:45.920 --> 0:21:48.480 to buy bonds with yields that are lower than the 0:21:48.480 --> 0:21:51.159 deposit rate. In other words, Uh, this is saying, Okay, 0:21:51.240 --> 0:21:53.439 you want to go buy those two year German yields, 0:21:53.640 --> 0:21:55.880 German bonds that have yields that are too low under 0:21:55.920 --> 0:21:58.800 the current provisions, go ahead, We're going to allow that. 0:21:58.960 --> 0:22:01.640 And what you're seeing is a steepening in the yield curve. 0:22:01.720 --> 0:22:05.879 In fact, the German yield curve steepened to the widest 0:22:06.359 --> 0:22:09.080 of the year and uh and and the most in 0:22:09.080 --> 0:22:11.600 in many years. So I'm looking at this and wondering, 0:22:11.800 --> 0:22:14.080 is this a similar move to the Bank of Japan. 0:22:14.240 --> 0:22:16.560 Is this basically the e c B saying we're gonna 0:22:16.640 --> 0:22:19.159 peg short term rates and we're gonna allow longer term 0:22:19.280 --> 0:22:22.000 rates to sort of creep upward. Well that's not what 0:22:22.040 --> 0:22:25.159 they said explicitly, but maybe they're going to that. The 0:22:25.200 --> 0:22:27.399 deposit rule well actually something they put in place from 0:22:27.400 --> 0:22:30.720 the start to avoid making losses on on these purchases. 0:22:30.920 --> 0:22:33.719 And basically now they can buy anything below the deposit 0:22:34.440 --> 0:22:36.840 which is set a minus your point four percent. And 0:22:36.920 --> 0:22:40.960 also another cuy parameters that changed today is the fact 0:22:40.960 --> 0:22:45.359