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Speaker 2: Let's get to what is top of mind for a
Speaker 2: lot of the Bloomberg terminal readers. Sovereign borrowing rates are
Speaker 2: surging around the world, with yields on thirty year US
Speaker 2: treasuries rising to the hya since two thousand and seven.
Speaker 2: We talked about. You say, two thousand and seven you
Speaker 2: kind of perk.
Speaker 3: Up, you have to perk up, Yeah, you do.
Speaker 2: There are domestic factors right that have a role in
Speaker 2: each market around the globe, no doubt about it. The
Speaker 2: structural forces driving up yields are global in nature, though
Speaker 2: one fear is that persistent geopolitical turmoil will make economies
Speaker 2: more prone to supply shocks and inflationary pressures. Bondholders are
Speaker 2: also worried that governments will fail to rein in spending
Speaker 2: that is certainly a global thing pressuring fiscal health. Meantime,
Speaker 2: changes in market structure and demographics are resulting in waiting
Speaker 2: demand from once steady buyers. So there's a lot going on.
Speaker 2: Let's get to our rates roundtable. It's a killer duo.
Speaker 2: Ara Jersey, Bloomberg Intelligence Chief US Interest rates strategist, he's
Speaker 2: in our Bloomberg Princeton Bureau. And then David Day Babusha,
Speaker 2: he is Bloomberg News corporate finance reporter on set here
Speaker 2: in New York. Ira, David Day, Welcome, Welcome. I should
Speaker 2: point out a story too that has been on our minds.
Speaker 2: Came out yesterday. We're a little obsessed with it. Davia
Speaker 2: Day was part of it, and it was yesterday's Bloomberg
Speaker 2: reporting on how AI is driving up treasury yields. It
Speaker 2: just touches everything. We're going to dig into that in
Speaker 2: just a moment. Ira, I want to come though first
Speaker 2: with you your read on what's happening in the US
Speaker 2: rates market, in the global rates market, and how connected
Speaker 2: they really are.
Speaker 4: Or not while the extremely connected, and I would say
Speaker 4: that one of the big reasons why we do have
Speaker 4: this rise in thirty year US treasuries is there's alternatives
Speaker 4: now for people to buy buy other bonds. So Japanese
Speaker 4: government bonds, when you hedge it back into certain currencies,
Speaker 4: winds up yielding more than US treasuries. So now there's
Speaker 4: the treasury yields have to compete with yields from other countries.
Speaker 4: So that creates this very high correlation between a lot
Speaker 4: of the developed market government bonds and a lot of
Speaker 4: the things that you just said, Carol, you know, things
Speaker 4: like fiscal issues not only here but abroad as well,
Speaker 4: right in Japan, Germany, the UK in particular. Now right,
Speaker 4: you wind up having the situation where people are worried
Speaker 4: about the long term health of these developed bond markets.
Speaker 4: And that's all feeding in to this frenzy of I'm
Speaker 4: not going to say long and selling because I have
Speaker 4: yet to meet anyone who I talked to anyone who's
Speaker 4: actually selling, not necessarily buying, which means that you know,
Speaker 4: the governments who are selling just have to attract people
Speaker 4: by issuing it yield.
Speaker 3: Devina, let's bring you in here. Do you want to
Speaker 3: build on that?
Speaker 5: Yeah, because the interestingly, competition is coming also from the
Speaker 5: corporate side. Now that's the that's what's happening with the
Speaker 5: AI sort of financing wave, right, So we're seeing like
Speaker 5: a lot of corporates issuing tons of that on the
Speaker 5: long end of the curve, so essentially long term maturities,
Speaker 5: which is providing competition to the long end of the
Speaker 5: treasury curve. Essentially perform managers have more to choose from,
Speaker 5: and that leads to sometimes you know, selling treasures to
Speaker 5: buy corporates.
Speaker 3: What's the comp in corporate bonds that we've seen, Like
Speaker 3: this is there a camp?
Speaker 5: I think this is unprecedented quite frankly, like that we
Speaker 5: are seeing like record levels in terms of issuance, Like
Speaker 5: we are at one point five trillion only in the
Speaker 5: investment grade market so far, and that's already like thirty
Speaker 5: percent more than last year. We're going to there's wide expectations.
Speaker 2: Thirty percent more than last year go ahead.
Speaker 5: There's a wide expectation of like essentially record issuance levels this year,
Speaker 5: more than even in twenty twenty.
Speaker 3: It's very low.
Speaker 5: So, yes, it's unprecedented.
Speaker 2: I don't know, you know, iras all right, if they're
Speaker 2: not selling but they're not buying, that's still a problem.
Speaker 6: Yeah, it is.
Speaker 4: And I just want to go back to say that
Speaker 4: you know that in terms of the long investment grade
Speaker 4: corporate bonds, which you know are competing, and certainly the
Speaker 4: AI issuance and other long bond issuance is certainly competing
Speaker 4: at some level. And there are people who want to
Speaker 4: hedge their interest rate risks, so that is people you know,
Speaker 4: selling long ultra bond futures or shorting treasuries against it
Speaker 4: as well. We have seen this type of issuance as
Speaker 4: terms of percentage of the market before. If you go
Speaker 4: back to the telecom boom in the late nineties early
Speaker 4: two thousands, you saw a lot of long term corporate bonds.
Speaker 4: But I was a corporate bond stata just you know,
Speaker 4: several decades ago. Now I hate to say, but and when.
Speaker 2: You we've all been doing this a long time, IRA
Speaker 2: yet we yet oh yeah.
Speaker 4: So when when you have a lot of issuance, and
Speaker 4: particularly when it changes quickly, right so, and in terms
Speaker 4: of you know, people you know selling a lot of
Speaker 4: five and ten year debt and then suddenly they decide
Speaker 4: to go out the curve because they either have a
Speaker 4: funding need to go out that far or they don't
Speaker 4: want to have a maturity wall in a couple of years.
Speaker 4: You know, that can change the tone certainly, but when
Speaker 4: it comes to treasuries, it's you know, it's not only AI, right,
Speaker 4: we have to make sure that we understand that there's
Speaker 4: a multitude of factors that are driving this that all
Speaker 4: happen to be coming together at the same time, including
Speaker 4: things like Kevin Warsh, you know, not necessarily having the
Speaker 4: confidence of the market, so that has to increase risk premium.
Speaker 4: And you've seen that throughout most of the treasury curve,
Speaker 4: in particular the ten and thirty year part of the
Speaker 4: curve where you've seen those yields rise just on the
Speaker 4: back of you know, people not knowing if the Fed's
Speaker 4: going to be able to you know, control the economy
Speaker 4: the way you use.
Speaker 2: Are what do you blame the most? Is it, mister Warsh?
Speaker 2: Is it the AI issuance? Is it?
Speaker 6: Like?
Speaker 2: What do you blame the most?
Speaker 6: Here?
Speaker 4: There is no most, So it's a little bit of everything.
Speaker 4: And and here's the thing. The AI story wouldn't matter
Speaker 4: if you didn't have these other things going on, right,
Speaker 4: people would just be like, okay, it'd be worth ten
Speaker 4: or twelve basis points right. It would be like a
Speaker 4: blip and a couple of days of reasonably sized moves.
Speaker 4: But the fact that you have now, you know, fears
Speaker 4: of the fiscal situation in the UK, you have fears
Speaker 4: about you know, the boj raising rates even further and
Speaker 4: seeing their yields above four percent for the first time
Speaker 4: in decades as well. Right, all of those things are
Speaker 4: feeding onto this and then you add on to that
Speaker 4: the AI supply story, and it just makes it much worse.
Speaker 2: Hey, guys, I want to bring into the conversation. Edward
Speaker 2: Denny and his team put out a research note. Of course,
Speaker 2: he coined the term bond vigilant vigilantes, and so we
Speaker 2: listened to what mister yard Denny has to say. He
Speaker 2: in the note it said, we aren't pushing the panic button. However,
Speaker 2: we are closely monitoring whether the bond vigilantes might do so.
Speaker 2: We are sticking with our view that the US bond
Speaker 2: yield should continue to trade in a normal range of
Speaker 2: four to five percent without causing any adverse consequences for
Speaker 2: the economy and corporate earnings. Nevertheless, now that the yield
Speaker 2: is approaching the top of this range, we are monitoring
Speaker 2: the activities of the bond vigilantes more closely. We've been here.
Speaker 2: I feel like David Ay before, we've talked about the
Speaker 2: bond vigilantes. We all get crazy and then we settle down.
Speaker 2: Is this just a case of watching or are there
Speaker 2: signs that there is a problem and world get ready
Speaker 2: for higher interest rate costs across the board?
Speaker 5: Well, I mean, like the PUSHI in sort of risk
Speaker 5: premiums is across the board. So in that sense we're
Speaker 5: seeing bond vigilati is also in the corporate bond market,
Speaker 5: where essential investors are asking for higher spreads and higher
Speaker 5: returns on the on corporate bonds, we're seeing investment grade
Speaker 5: bonds basically trading at junk level yields. So yeah, the
Speaker 5: pushire is across the board.
Speaker 2: That's a sign, right, Well.
Speaker 5: It's a sign of investors demanding more because they expect
Speaker 5: so much supply essentially, right, Yeah, I.
Speaker 3: Just can't help it. Turn back to the backdrop of
Speaker 3: the FED, and you know, Iira, you mentioned just kind
Speaker 3: of the confidence of the market in the new FED chair.
Speaker 3: Could you impact that a little bit because you know,
Speaker 3: I think a few of us have lit through a
Speaker 3: different FED share changes. Why would this one be any
Speaker 3: different than the others?
Speaker 4: Well, I think because the changing communication wasn't incremental at all, right,
Speaker 4: it wasn't just a little bit of a slowdown. We're
Speaker 4: going to reduce the amount of forward guidance we give,
Speaker 4: and we're not. We're not going to you know, we're
Speaker 4: going to give just a little bit less information in
Speaker 4: the statement. Look, the the Fed's post meeting statement went
Speaker 4: from about four hundred words to one hundred words in
Speaker 4: one meeting. And so we need good words. One hundred
Speaker 4: good words. Not no, they didn't say it doesn't say
Speaker 4: anything now right as no forward guidance, it has no
Speaker 4: reason of expectation. And here here's the thing, like Kevin Worrish,
Speaker 4: I think so far had you know, kind of misread
Speaker 4: what the market wants and needs. And you know, yes
Speaker 4: he has the communications task force. I put out a big,
Speaker 4: deep dive report on that yesterday where we're you know,
Speaker 4: looking at all of the task forces and the big
Speaker 4: one is communications. Because so far Kevin wosh has to
Speaker 4: you know, hasn't given the market any indication of what's
Speaker 4: coming next or what will come next given any given
Speaker 4: economic outcome. So unless you do one of those two
Speaker 4: things right, either give for your guidance or say, okay,
Speaker 4: here's the five things that might happen, and we'll do
Speaker 4: you know, this, that or the other thing, depending on
Speaker 4: which outcome occurs. He has to do one of those
Speaker 4: two things, and he hasn't. So the market's confused and
Speaker 4: we priced higher risk premium like the other guests mentioned.
Speaker 2: Okay, so a lot of uncertainty about certainly the FED share.
Speaker 2: We need a little bit more specificity. One thing we
Speaker 2: know real quickly. Twenty seconds, David Day, We're going to
Speaker 2: get more credit or bond issuance from all these hyper
Speaker 2: skeles and so and so forth. It's going to keep coming.
Speaker 5: I mean it's relentless. Yes, when we're looking like, you know,
Speaker 5: school trillion over the next couple of years in terms
Speaker 5: of estimates. So yes, just in the investment grade market.
Speaker 5: So it's a lot to come yet.
Speaker 2: All right, good stuff, guys, Thank you so much. This
Speaker 2: is what we were hoping to do. David A. Barbusha.
Speaker 2: He is Bloomberg News Corporate Finding It's reporter and of
Speaker 2: course Ira Jersey, Bloomberg Intelligence Chief US interest rate strategist,
Speaker 2: joining us.
Speaker 7: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 7: up after this.
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Speaker 2: We're gonna talk a little bit about China. There's stuff
Speaker 2: going on.
Speaker 3: Let's do it. We have a very highly anticipated summit
Speaker 3: between Chinese President Hi Jinping and US President Donald Trump.
Speaker 3: There's many people who've been watching this, many more people
Speaker 3: who have not, and that's why we're bringing in Shazad
Speaker 3: Kazi to discuss that. He's the COO and managing director
Speaker 3: of the China Beaige Book International Space here in New York.
Speaker 3: He joins us in the studio. Hizat, thanks for joining us.
Speaker 6: Thank you, good to see you.
Speaker 2: Great to see you.
Speaker 3: I would like to start at the summit you had
Speaker 3: in a recent note, some very detailed back and forth,
Speaker 3: the pluses and minuses and what may actually not get
Speaker 3: taken care of in September. Could we start there for
Speaker 3: investors who may be thinking too much of this meeting.
Speaker 2: And this is a summit between President and g and
Speaker 2: President Trump.
Speaker 3: Correct, that's right, that's right.
Speaker 6: I mean I think once again expectations should be very
Speaker 6: very low for what's about to happen. I think where
Speaker 6: we need to get a day long summit. It looks
Speaker 6: like at most this time around, and both sides are
Speaker 6: trying to talk about deliverables. The Chinese side wants us
Speaker 6: to be superscripted and are very frustrated. The US side
Speaker 6: doesn't understand why the Chinese side is so frustrated. But
Speaker 6: at the same time they both agree there's not going
Speaker 6: to get a whole lot done at this meeting. You know,
Speaker 6: the big deliverable that might come out of it are
Speaker 6: details in some finalization of what that so called Board
Speaker 6: of Trade needs to look like. Don't expect much beyond that.
Speaker 3: What do you mean, what is the Board of Trade
Speaker 3: walk us through that?
Speaker 6: So the USRA representative famously says, I am the Board
Speaker 6: of Trade. And what that means is that Ambassador Greer
Speaker 6: has agreed with this counterparts that we're going to pick
Speaker 6: about roughly thirty billion dollars worth of things that we
Speaker 6: are happy to import from you we consider to be
Speaker 6: non strategic. You'll do the same, and we're going to
Speaker 6: manage trade between us. So unlike what we've thought of
Speaker 6: trade deals as saying, look, we're going to open up
Speaker 6: free flow of trade. This is more about actually saying
Speaker 6: we're going to decide what's truly free and the rest
Speaker 6: of the stuff we're going to slap on tariffs.
Speaker 2: Is that a good thing?
Speaker 6: It's driven by a national security imperative from that standpoint
Speaker 6: on both sides, from both sides, certainly from our side,
Speaker 6: and I think the Chinese side will determine what their
Speaker 6: national security priorities are. So it is there are positives
Speaker 6: to it. I don't know how much it'll do in
Speaker 6: the long run though, to take care of things like
Speaker 6: supply chain dependency on China and so forth, because it
Speaker 6: doesn't address the other critical issues like transcriptment, which is
Speaker 6: a big one staring us.
Speaker 2: Can you clarify how much we still rely on China
Speaker 2: in terms of supply chains, global supply.
Speaker 3: Chains immense amount?
Speaker 6: Right? There really isn't anything in our homes, in our
Speaker 6: and ustrial centers and our data centers, really even factories
Speaker 6: that is not coming our hospitals is not coming by
Speaker 6: and large from China.
Speaker 3: What they did with rare earth metals.
Speaker 6: Really scared us because I think it created this other
Speaker 6: discussion said, think about what if they did that with
Speaker 6: pharmaceuticals and surgical supplies and medical goods, forget about everything else. Yeah,
Speaker 6: so a ton and.
Speaker 3: She's just I mean, that's why we're kind of here
Speaker 3: right now. Right we have the export controls that China
Speaker 3: puts in place on critical minerals and permanent magnets. The
Speaker 3: United States says we're going to do the same thing
Speaker 3: on chip technology, and ultimately the two sides, who are
Speaker 3: you know, heavy hitters in the world economy, say okay, okay,
Speaker 3: we got to reach some sort of truth here to
Speaker 3: calm markets down globally and also to calm this diplomatic
Speaker 3: relationship down.
Speaker 6: Yeah, and I think one idea was really the predominant idea,
Speaker 6: was that if the two leaders keep meeting each other,
Speaker 6: then the truth continues. Now everybody realizes the truth is
Speaker 6: because we need the truth because we can't we don't
Speaker 6: have the rarers and the magnets were wholly depending.
Speaker 2: On gener have a choice.
Speaker 6: We don't have a choice. And the Chinese won the
Speaker 6: truth because that's the best way to keep kicking this
Speaker 6: thing down the road, to push off tariffs for as
Speaker 6: long as possible, run out the clock on Trump, and then.
Speaker 3: You deal with whoever the next president is.
Speaker 2: Has China feeling about the United States? And I bring
Speaker 2: that up because Chinese Foreign minister when you will visit
Speaker 2: South Korea for two days from Wednesday to talk about
Speaker 2: North Korean bilateral and global issues with South Korean Foreign
Speaker 2: Minister A choky On, And this is coming after President
Speaker 2: Trump ordered the Pentagon to reduce joint exercises with South
Speaker 2: Korea citing their cost and his relationship with the North
Speaker 2: Korean leader. And there was also some connection with orn
Speaker 2: and supporting and the nuclearization. What's your read political read
Speaker 2: on that.
Speaker 6: So I don't necessarily align myself with the idea that
Speaker 6: wherever the US tries to withdraw from a geogeography or something,
Speaker 6: China will try to step in. Necessarily by the same
Speaker 6: time China is in them, I think it can certainly
Speaker 6: embolden them. Even if they don't want to take action immediately,
Speaker 6: Certainly they may fee like they could, and potentially the
Speaker 6: probability success goes up if you will. So they're doing
Speaker 6: all of this, I think, on the other hand, even
Speaker 6: the United States, though on the other hand, even when
Speaker 6: they're showing up here, they are taking an aggressive tact
Speaker 6: they're saying, look, we're watching what's happening in Congress.
Speaker 3: We're watching that.
Speaker 6: You know, you guys are not blaming us for an
Speaker 6: election of difference, and we don't like this. Don't try
Speaker 6: to threaten the truth. So apparently the tough talk is
Speaker 6: happening behind the scenes.
Speaker 3: I think oftentimes all of us kind of look at
Speaker 3: this from the perspective of the US, and what's the US,
Speaker 3: haven't it? But maybe we could bring you in to
Speaker 3: look from the vantage point of the China right now?
Speaker 3: Right there are economic pressures internally. How do those play
Speaker 3: in this broader discussion? Yeah, I mean, in.
Speaker 6: Some ways this really is I think she's, you know,
Speaker 6: the genius move, I can call it.
Speaker 3: That the economy internally is pretty weak.
Speaker 6: Not only is the consumption side week, the household side week,
Speaker 6: and not only are they completely sort of failing to
Speaker 6: embark upon this economic transition that they've been talking.
Speaker 3: About for a decade and a half.
Speaker 6: Really, certainly at least the last five six years in earnest,
Speaker 6: they are feeling on all those accounts. Yet they are
Speaker 6: able to because the expert machinery is running, they're able to,
Speaker 6: you know, show up at the table and deal with
Speaker 6: not with the US, not just as competitors and equals,
Speaker 6: but you know ones that oftentimes look like they have
Speaker 6: the cards.
Speaker 2: Right, does it ever matter because we always talk about
Speaker 2: Chinese deep pockets, right, and the governments always they are
Speaker 2: to either boost up a company or boost up a sector.
Speaker 2: Those pockets are still pretty deep.
Speaker 6: Right, The pockets are still pretty deep. And where is
Speaker 6: their traditional way of doing stimulus isn't working? We have
Speaker 6: to remember they haven't really attempted household style style side
Speaker 6: stimulus at all. So that's a whole other playbook that
Speaker 6: they could resort to. They just don't ideologically like to
Speaker 6: do that. It is, it is ironic. It's a communist party.
Speaker 6: They don't like to do welfare, but they quite if
Speaker 6: they wanted to push company show.
Speaker 3: I mean, all of this comes down to job. That's
Speaker 3: that's the power that the poulap burrow that the Communist
Speaker 3: Party has within China. Of course, I mean the growing
Speaker 3: middle class since dunkshell Ping I mean just speaks volumes
Speaker 3: to that. But as you embark on this AI transition, like,
Speaker 3: what what does that do to what is still a
Speaker 3: very deeply industrial based jobs economy.
Speaker 6: Yeah, I think that is a big, big challenge for them.
Speaker 6: They do not have an answer for this as yet.
Speaker 6: They're already staring at obviously a very large youth unemployment problem.
Speaker 6: These young people will eventually become older, so you have
Speaker 6: to do something about them. Plus the new entrance, the
Speaker 6: Communist Party certainly has a big challenge out of itself
Speaker 6: from them.
Speaker 2: Yeah, where are they in this transformation? We talk about
Speaker 2: whether it's EVS or you know, pick even AI, like
Speaker 2: how advanced they are certainly when it comes to robotics
Speaker 2: and so and so far, so it sounds like they're
Speaker 2: so advanced and that we should be worried. But is
Speaker 2: that true?
Speaker 3: They are advanced, and we have to remember that we're
Speaker 3: talking and a.
Speaker 2: Risk to the US in terms of high tech and
Speaker 2: so on.
Speaker 6: Well, certainly, I mean, we can't compete with them at
Speaker 6: this point when it comes to things like robotics, right,
Speaker 6: there's no factory in America that could just say, oh, yeah,
Speaker 6: we're competing with the Chinese when it comes to automation
Speaker 6: and products and such. And you have to remember we're
Speaker 6: talking about AI related job losses a lot in this
Speaker 6: country now that transition to automation, especially in the manufacturing
Speaker 6: side has been happening for a long time in China,
Speaker 6: So they have this they sort of know how to
Speaker 6: deal with it by now a little bit also compared
Speaker 6: to maybe other economies, but they are certainly very far
Speaker 6: ed's it's incredible.
Speaker 2: So what should investors be thinking about? You know, we've
Speaker 2: been talking about China forever and for such a long time.
Speaker 2: I know when I started my career like decades ago,
Speaker 2: you know, it was all about having access to the
Speaker 2: Chinese market. That's what was important to every global multinational company.
Speaker 2: We think differently post COVID, post what have you. And
Speaker 2: so I do wonder how investors have to think about
Speaker 2: China's relationship with the world. We know China is friends
Speaker 2: with Iran, with Russia. You know, we talk about this
Speaker 2: other kind of access of power North Korea. What is
Speaker 2: their role?
Speaker 6: I think their role for an economic standpoint is that
Speaker 6: you have to look at what China's becoming as a state,
Speaker 6: which is that they want to be this high tech superpower.
Speaker 6: They want to be this industrial giant. They say, we'll
Speaker 6: make the cheap goods and will make the advance sophisticated goods,
Speaker 6: and the Chinese commodity story is incredibly interesting still. I mean,
Speaker 6: what's happening with oil, but even what's happening in other places.
Speaker 6: Steel demand is down, yet China's buying up all the
Speaker 6: iron ore it can, right, So those relationships have broken down.
Speaker 6: They're not what they used to be. And so there
Speaker 6: are some interesting things happening inside the economy and the
Speaker 6: traditional model thinking about China just doesn't apply anymore. You
Speaker 6: really do have to kind of watch it at grundy
Speaker 6: in our level.
Speaker 3: Yeah, you know, the trade hawks still are stuck on
Speaker 3: over capacity and subsidies, right, and we even saw Peter
Speaker 3: Navarro put out a report that's made the rounds in
Speaker 3: the past week. I mean, what do you make of
Speaker 3: all that still hanging?
Speaker 6: You know, my message to my friends in DC has
Speaker 6: always been that you can talk about Chinese over capacity
Speaker 6: all day long. It's not going to make an injin
Speaker 6: of for difference til unless you can compel American companies
Speaker 6: to rethink their supply chain strategy and a very very
Speaker 6: whole stick and broadway.
Speaker 2: As long as though the government. Now here's the funny part, right,
Speaker 2: because you have the US government getting involved in our
Speaker 2: companies now. So I do wonder, you know, kind of
Speaker 2: how ironic this is. But as long as we know
Speaker 2: the Chinese government can actively and aggressively get involved, is
Speaker 2: it not ever going to be a market that investors
Speaker 2: global investors really want to embrace.
Speaker 6: Well, if you're going aligning yourself with companies that are
Speaker 6: in the states favor sectors that the state is favoring,
Speaker 6: then there's a pretty good chance that you could get
Speaker 6: in there. You can make money, especially with the plfuff
Speaker 6: companies they're ipoing out of Hong Kong now, so including
Speaker 6: Changa of course as well.
Speaker 3: So you've got that.
Speaker 6: But yes, you have to be very very careful because
Speaker 6: you know, look at what happened to Baba and so forth.
Speaker 6: The state decides the winners and losers at the end
Speaker 6: of the day.
Speaker 3: Just a real quick one here, what is the one
Speaker 3: thing through the end of the year that you think
Speaker 3: investors should be paying most attention to with China right now?
Speaker 6: I would say, figure out what could break this truth?
Speaker 3: Maybe past November.
Speaker 2: Okay, that's a big one to keep on our radar.
Speaker 2: Always important to China, And we were remarking it's been
Speaker 2: a while since we've talked to you and how the
Speaker 2: news flow and certainly out of the White House has
Speaker 2: had us so focused on the Middle East as of late,
Speaker 2: but you can never ever forget what's going on in China. Shazad,
Speaker 2: thank you so much. Let's make it sooner. Shazad Kazi,
Speaker 2: he's Chief operating Officer Managing director for China beag Book International,
Speaker 2: joining us right here in studio.
Speaker 7: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 7: up after this.
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Speaker 2: Hey, got to talk a little bit more about that
Speaker 2: sell off in chip stocks. We've definitely seen almost I
Speaker 2: think earlier in the session we had every name in
Speaker 2: the socks lower. Today now there's about twenty eight to
Speaker 2: the downside.
Speaker 3: Yeah, I mean this is just building on yesterday we
Speaker 3: were talking about, well, things are looking up, and you know,
Speaker 3: there's a lot of discussion over the demand that is
Speaker 3: an AI in chips. I'm today going the opposite way,
Speaker 3: and I'm curious to hear a little more about it.
Speaker 2: Yeah, And I got to say Whenever there's a question
Speaker 2: about any development, and there's been NonStop, we always lean
Speaker 2: on Ian King. He is u a semiconductor reporter for
Speaker 2: Bloomberg News. He's out there in our San Francisco Pure Bureau.
Speaker 2: I will remind everybody, with the socks down about five
Speaker 2: and a half percent, it is still up nearly seventy
Speaker 2: percent year to date. Earlier though in the year it
Speaker 2: had more than doubled. So ups and downs that's pretty normal,
Speaker 2: I think for the semiconductor space, right Ian, Absolutely.
Speaker 8: Yeah, I know you make a good point. I mean,
Speaker 8: end of April we were at seven thousand points. Currently
Speaker 8: we're at what twelve thousand points for the Philadelphia Semiconductor Index,
Speaker 8: So yeah, we're still a long way up.
Speaker 2: Is it just a risk off day to day? I mean,
Speaker 2: how do you read the up and downs here? I
Speaker 2: know we've talked to you about the cycles in the
Speaker 2: space overall, We've talked to you a lot about the
Speaker 2: AI impact on that. Is this just maybe a risk
Speaker 2: off day because of rising yields and you know, rethinking
Speaker 2: of maybe some valuations or the move up that we've seen,
Speaker 2: or is there some fundamentals or fundamental problems or concerns
Speaker 2: in the space as you see it well, and I.
Speaker 8: Think you identify it correctly. There we're seeing sort of
Speaker 8: fairly exaggerated movements even on a daily basis, and that's
Speaker 8: because you know, so much money has been put to
Speaker 8: work here. This is such a big part of the market,
Speaker 8: So whatever the overall market is doing is going to
Speaker 8: be reflected in. You know, you're selling those that you've
Speaker 8: made the most money out of, so profit taking, you
Speaker 8: could argue, has become a bigger factor than ever. But
Speaker 8: also fundamentally there's a daily kind of naval gazing examination
Speaker 8: of what is all this built upon? You know, is
Speaker 8: AI going to pay off? So there's certainly that going
Speaker 8: on as well.
Speaker 3: Yeah, like yesterday we were talking about how all the
Speaker 3: indicators were that AI. It's it's even better than we
Speaker 3: understand and we're not fully grasping, you know, revnur minds
Speaker 3: around it. I mean we even have this b of
Speaker 3: a note saying that Nvidia could be trading at a
Speaker 3: discount of as much as fifty percent. So Ian you
Speaker 3: spend most of your time living through the weeds. I mean,
Speaker 3: how do you when you kind of look through the
Speaker 3: end of the end of the week, Like, what are
Speaker 3: you really looking at moving ahead in the chip space?
Speaker 3: Is this just a one day thing to say, Okay,
Speaker 3: it is what it is, let's look at the bigger deal.
Speaker 8: Well, I mean, we've got in video earnings next week,
Speaker 8: which will give us a very concrete signposts in terms
Speaker 8: of where we are in terms of fundamental demands. Either
Speaker 8: they're continuing to grow at the pace that we expect
Speaker 8: or they're not. And that'll tell you a lot given
Speaker 8: how important they are. But what's the consideration in the
Speaker 8: short term is really what's going on with the financing
Speaker 8: of all of this AI build out. On a daily basis,
Speaker 8: investors change their mind as to whether these giant deals
Speaker 8: are a good thing or sign of an iceberg on
Speaker 8: the horizon that we need to be scared about and
Speaker 8: not as a real focus for investors right now.
Speaker 2: I think you know, in Nvidia, man, there is always
Speaker 2: so much coming out I feel like on a daily
Speaker 2: basis about this company, and either it's something Jensen says
Speaker 2: or it's something Nvidia does. We talked about they had
Speaker 2: agreed to spend as much as one hundred and five
Speaker 2: billion to support a massive new data center campus in Ohio,
Speaker 2: said to be leased by open Ai. You know this
Speaker 2: non to stop spend. This is the story I believe
Speaker 2: that you and Will Wade did you know? And I
Speaker 2: just there's already a big commitment by open ai to
Speaker 2: buy Nvidia Gear, which could represent about six hundred million
Speaker 2: dollars of revenue for Nvidia through twenty thirty. Does all
Speaker 2: of this make sense to you? I mean, it's just
Speaker 2: NonStop this news and I think about you're smiling, but
Speaker 2: I mean, you know when it comes to earnings next week,
Speaker 2: I mean, what is it that we need to hear
Speaker 2: that says all of this that you're doing that feel
Speaker 2: so cozy as I like to say that, it's that
Speaker 2: it is based on fundamentals. It makes sense. No.
Speaker 8: I mean again, you've nailed it that. There are two
Speaker 8: ways to look at this financing effort. The one is
Speaker 8: the video viewpoint, which is, look, this is just a good.
Speaker 3: Use of our cash.
Speaker 8: Anything that accelerates the uptake of our of our products,
Speaker 8: anything that accelerates the uptake of AI is money well spent.
Speaker 3: It's just like R and D.
Speaker 8: It's just like developing new products. The flip side is,
Speaker 8: hold on a minute, if all of these companies have
Speaker 8: got so much demand. If AI is now so important,
Speaker 8: if it's already contributing to everybody's innings, why do they
Speaker 8: need your help to raise money? And you know, the
Speaker 8: truth probably lies somewhere in between those two, And it
Speaker 8: really depends on the day as to how investors feel
Speaker 8: about this.
Speaker 3: Yeah, I don't know how you do it on a
Speaker 3: daily basis, Hee, And I mean there's so much out there,
Speaker 3: there's so much being discussed. I mean, we must have
Speaker 3: talked to five different analysts yesterday who were speaking on
Speaker 3: both sides of this. But when you just cut through
Speaker 3: all of it, and like you said, you're just looking
Speaker 3: at the hard numbers, I mean, is it is in
Speaker 3: fact difficult for the human brain to really wrap its
Speaker 3: mind around how much of a step change we're talking
Speaker 3: about in these markets because of the space.
Speaker 8: No, you're absolutely right, the scale that we're talking about,
Speaker 8: whether it's investments amounts, whether it's revenue.
Speaker 3: For example, next.
Speaker 8: Year, if Wall Street is right, in video will have
Speaker 8: half a trillion dollars of sales. Right, that's more than
Speaker 8: the entire chip industry was managing in sales three years ago.
Speaker 8: So we've come a long way, very fast. And of course,
Speaker 8: given the history of the chip industry, people are naturally saying,
Speaker 8: is us too far, too fast? I'm given their ponchamp
Speaker 8: for these giant swings between oversupply and undersupply. You know,
Speaker 8: disaster got to be a bad sign, so that all
Speaker 8: of these concerns are absolutely natural given the basic pattern
Speaker 8: recognitions that you have to apply to industry.
Speaker 2: You know, it's interesting too, And you mentioned the b
Speaker 2: of A call, Joe Ian. I'm sure you saw it
Speaker 2: that in video, you know, shows could be trading it
Speaker 2: a discount of as much as fifty percent according to
Speaker 2: b of A, And they suggest that in video could
Speaker 2: ease worries over lower earnings quality by committing a greater
Speaker 2: share of its free cash flow to buybacks. You know,
Speaker 2: whenever I hear that, I'm like, that's just math right,
Speaker 2: You're reducing the amount of shares, You're going to improve
Speaker 2: their earnings per share. That to me, I don't know.
Speaker 2: I read that as more of a warning sign. But
Speaker 2: I don't know how do you read it?
Speaker 8: I mean, all I can tell you is in video
Speaker 8: have been very clear what comes first is spending on
Speaker 8: the business. Anything that we think will help us down
Speaker 8: the line, we're going to spend on that first, and
Speaker 8: then investor returns and everything else comes after that. And
Speaker 8: in the past, I think you're right. People have looked at,
Speaker 8: for example, IBM and massive buyback programs. There is financial engineering,
Speaker 8: is what it was criticized. When you don't have growth,
Speaker 8: you you know, you change the denominator and you make
Speaker 8: P and E look better by reducing the share count.
Speaker 8: So you know, there is a bit of a history
Speaker 8: and a bit of a psychosis there. I think among
Speaker 8: some investors, Oh, this is a bad thing, this is
Speaker 8: a bad thing. Others would say no, no, this is
Speaker 8: if you really believe in your innings and your future,
Speaker 8: then you pay us now. So it depends on what
Speaker 8: day you're honor is to have what's the prevalent opinion.
Speaker 2: I think I'm going to squeeze you twenty seconds is
Speaker 2: what could Jensen say that would just blow your mind
Speaker 2: next week real quickly.
Speaker 8: I think, you know, if he comes in and shows
Speaker 8: even more growth and isn't expected, I think that will
Speaker 8: have a profound effect.
Speaker 2: Well, you always have a profound effect on us. We
Speaker 2: love you, Ian King, You're incredible. Bloomberg News US semiconductor
Speaker 2: reporter Ian King in our San Francisco Newsburier always just
Speaker 2: gives us like the smart perspective on AI.
Speaker 3: Right, this, this is what Bloomberg's about.
Speaker 2: It is exactly.
Speaker 7: Stay with us. More from Bloomberg Business Week Daily coming
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Speaker 2: Well more than thirty three million people I don't know
Speaker 2: if you know this in the US live with food allergies.
Speaker 2: That's according to Fair's National Indication Indicator Report on Food Allergy.
Speaker 2: They are a five oh one to three C charterable organization.
Speaker 2: They've got a mission to improve the quality of life
Speaker 2: and health of those with food allergy through transformative, transformative research, education,
Speaker 2: and advocacy. And I have to say, I know people
Speaker 2: who've had kids with extreme allergies. It's very serious. Runs
Speaker 2: to the emergency room, like these are things that can
Speaker 2: be life or death. Yeah, get a little one, Like
Speaker 2: you're dealing with food.
Speaker 3: Oh every day, right, I mean even in the early
Speaker 3: days where it's like okay, we're going to test all
Speaker 3: the things. Yeah, now that I'm a parent, I think
Speaker 3: more than ever about the food going into the mouths
Speaker 3: of anybody.
Speaker 2: Yeah, I'm with you as well. And our next guest too,
Speaker 2: has done her own research and education in this area.
Speaker 2: For her, it was personal. It led to the creation
Speaker 2: of a company that's helping others, and we're delighted to
Speaker 2: have with us in our Bloomberg Interactive Broker studio Vanessa Phillips.
Speaker 2: She's CEO and founder of Feel Good Foods. You could
Speaker 2: find them in Whole Foods, Target, Thrive Market, Stop and
Speaker 2: Shops and more. Welcome, Welcome, Nice to have you here
Speaker 2: in studio. It is personal and time and time again,
Speaker 2: you have an individual who's got a situation or a
Speaker 2: problem and they figure out a way to solve it.
Speaker 2: That was your case. Just briefly give us your backstory.
Speaker 9: Okay, well, thank you for having me. Excited to be here. So, yes,
Speaker 9: I mean, Feel Good Foods is very personal for me.
Speaker 9: I grew up in New York City. My family owned restaurants,
Speaker 9: and from a very early age I was a foodie,
Speaker 9: so loved food and was always exploring and open to
Speaker 9: eating everything. And in my teenage year, I just started
Speaker 9: having so many symptoms that were really hard to pinpoint.
Speaker 9: It just was like I was sick all the time.
Speaker 9: Everything I ate. I remember saying to my parents, maybe
Speaker 9: I'm allergic to salt, maybe it's water like it was
Speaker 9: literally everything I was eating was making me sick. And
Speaker 9: in college, I was diagnosed with Celiac disease and was
Speaker 9: told that I had to go on a really strict
Speaker 9: gluten free diet and I had to rethink everything because
Speaker 9: to that point I was determined to do something in
Speaker 9: the culinary world, and being on such a restrictive diet
Speaker 9: after that, I kind of had to, you know, relearn
Speaker 9: all everything I knew about food up until that point.
Speaker 9: So I, you know, was really on a mission to
Speaker 9: not give up my favorite foods. I especially loved potstickers
Speaker 9: and egg rolls. My father owned Chinese restaurants, and I
Speaker 9: remember getting an endoscopy, which was how I was diagnosed
Speaker 9: with Celiac disease, which was they could take pictures of
Speaker 9: your stomach. And I woke up from anesthesia and the
Speaker 9: first thing I said is well, can I still eat potstickers?
Speaker 9: And the doctor was like, I don't think so. I
Speaker 9: actually think that that probably has gluten in it, and
Speaker 9: I was like, Okay, well then I'm going to have
Speaker 9: to figure out how to make a gluten free potsticker.
Speaker 9: So that was the beginning of my journey and I
Speaker 9: just started doing a lot of research. I teamed up
Speaker 9: with a chef and we just went at it. We
Speaker 9: were determined to create all of my childhood favorite foods.
Speaker 9: It was all about nostalgia, comfort foods, foods that I
Speaker 9: was craving, but in a way where I could enjoy
Speaker 9: them as an adult. So that's what feel good Foods
Speaker 9: is all about. I mean, everything we do really does
Speaker 9: stem from the foods that I ate as a kid,
Speaker 9: but reimagined as an adult with simple ingredients, always gluten free.
Speaker 9: But interestingly enough, seventy percent of our consumers today are
Speaker 9: actually not gluten free. So really, you know, I mean
Speaker 9: really holding the bar very high for us where we
Speaker 9: are not trying to be just a gluten free food brand,
Speaker 9: but just a food brand that really focuses on comfort
Speaker 9: food with simple ingredients.
Speaker 3: On that the number, say the number again, how many
Speaker 3: are seventy percent? So you know, listen, I know you
Speaker 3: live this every day, but in my experience with gluten
Speaker 3: free right and the conversations evolved over time. It's kind
Speaker 3: of like, initially, I think a lot of people just
Speaker 3: thought it was a healthy way to eat. So I'm
Speaker 3: just wondering, like, what is the difference between the percentage
Speaker 3: you have actual gluten allergies versus the percentage you are
Speaker 3: consuming your product that are just thinking, oh, this is healthier.
Speaker 9: So there is that halo a fact, and you know,
Speaker 9: seventy percent of our consumers are you maybe think it's healthier,
Speaker 9: but also just might buy it based on the ingredient
Speaker 9: panel and it works for them and their lifestyle. They
Speaker 9: think it the product looks delicious, and because it tastes delicious,
Speaker 9: they come back and they repeat it. It's very convenient.
Speaker 9: You know, air fyers right now are like an all
Speaker 9: time high. So the fact that you can get that
Speaker 9: restaurant quality experience at home and an air fryer is
Speaker 9: also like a huge you know, selling point. And then
Speaker 9: there's more of the kind of you know, this fits
Speaker 9: with my lifestyle, but also this fits with the medical
Speaker 9: need that I have. So one percent of you know,
Speaker 9: the US population of Celiac disease. There's several other reasons
Speaker 9: why somebody would eat gluten free aside from Celiac disease.
Speaker 9: You can have a gluten intolerance, which you know can
Speaker 9: be just as widespread in your body and cause so
Speaker 9: much discomfort, but you don't have the autoimmune disease. You know,
Speaker 9: you can have other autoimmune diseases that benefit from a
Speaker 9: gluten free diet. You know, it's also an anti inflammatory diet.
Speaker 9: So there's a lot of reasons why people are choosing
Speaker 9: to be gluten free today, but we're really seeing more
Speaker 9: the larger consumer base is just consumers who are just
Speaker 9: looking for that like delicious, simple ingredient, you know, product
Speaker 9: that they can have in their homes that just solves
Speaker 9: a problem of like what to eat when you're living
Speaker 9: a very busy lifestyle that you can rely on.
Speaker 2: What's growth metrics? Talk to us about the expansion that
Speaker 2: you guys have seen since you started. I think you
Speaker 2: started back in twenty twelve.
Speaker 3: Twenty twelve.
Speaker 9: Yeah, we you know, we saw a huge growth spurt
Speaker 9: during COVID and that has really sustained since. You know,
Speaker 9: I think that the frozen food category in general saw
Speaker 9: a huge growth spurt during COVID. Yeah, people were at home,
Speaker 9: a lot restaurants were closed, so it was, you know,
Speaker 9: a really great opportunity for us to have incredible trial.
Speaker 9: We've seen a lot of sustained growth since COVID because
Speaker 9: the category is continuing to grow. Also, we're just expanding
Speaker 9: a lot. We started out very much as like a
Speaker 9: natural food brand, right like we started in Whole Foods.
Speaker 9: We were really speaking to that natural, better for you consumer,
Speaker 9: and retailers were a little bit slower to adapt. And
Speaker 9: then in recent years we've seen a ton of growth
Speaker 9: in conventional retailers, you know, bringing on retailers like the
Speaker 9: Walmart and Target.
Speaker 2: What kind of growth can you I'm always curious.
Speaker 9: Were featured in sixty percent in retail from when to
Speaker 9: when in the last year, and then you're the top line. Yeah,
Speaker 9: and then but year over year we're growing fifty percent.
Speaker 9: So it's definitely seen a really big surge later in
Speaker 9: our life cycle. A lot of that is coming from
Speaker 9: velocity growth, which is something that you don't always see
Speaker 9: as you're growing your distribution so much. Typically velocity will
Speaker 9: dip a little bit as you're growing into more stores.
Speaker 9: We're not seeing that at all. A lot of that
Speaker 9: is like new to brand consumers, and then we're also
Speaker 9: seeing a lot of growth just due to new distribution.
Speaker 9: I mean, we're in twenty five thousand grocery stores, but
Speaker 9: a lot of that has been added in the last
Speaker 9: couple of years with you know, rolling out nationally at Walmart,
Speaker 9: target regions of costco publics, so you know, really seeing
Speaker 9: mainstream adaption to what started out as like a very
Speaker 9: kind of like niche Idea.
Speaker 2: Vanessa, you bootstrapped it. We've just got about thirty five
Speaker 2: seconds left here. What's your plan to continue going alone
Speaker 2: or I'm curious are you getting offers.
Speaker 9: Or we're right now like we're having so much fun
Speaker 9: and we're just going to keep like continuing the mission
Speaker 9: and you know, keep growing and get into more stores
Speaker 9: and feed more people.
Speaker 2: So that's no to any offers that.
Speaker 9: Is right now. We are just continuing to have fun
Speaker 9: and do this.
Speaker 2: What about go public real quickly?
Speaker 3: No, not right now.
Speaker 9: We don't have any plans for that right now.
Speaker 2: Just do your own thing. So yeah, come on back,
Speaker 2: let us know how things are going. Okay, I will
Speaker 2: The food space is always interesting. I feel like there's
Speaker 2: so many newer companies that have come on to kind
Speaker 2: of go up against some of the giants. Vanessa Phillips,
Speaker 2: CEO and founder of Feel Good Foods. Thank You, Thank You.
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