Speaker 1: This is Bloomberg Business Week Inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news as it happened. S
Speaker 1: Bloomberg Business Week with Carol Messier and Bloomberg Quick Takes.
Speaker 1: Tim Stinovic on Bloomberg Radio. Hi, everyone, Welcome to the
Speaker 1: weekend edition of Bloomberg Business Week. The big news in
Speaker 1: financial market says week here in the United States, as
Speaker 1: it's been for much of the year, inflation. The latest
Speaker 1: print released on Tuesday showed consumer prices once again coming
Speaker 1: in hotter than expected. Well, stocks tumbled following that report,
Speaker 1: the most since we're likely to see another big interest
Speaker 1: rate high two from the Federal Reserve this coming week.
Speaker 1: So all of that Tim on investor's mind. Yeah, Well,
Speaker 1: I've ahead We've got the perfect guest to help us
Speaker 1: understand the data. Legendary investor David Rubinstein gives us tips
Speaker 1: for tough times and a lesson or two from his
Speaker 1: new book. He's seen a few cycles in any time. Yeah,
Speaker 1: he knows a thing or two about investing. Absolutely. Plus,
Speaker 1: we've got a be in Beth's chief marketing officer on
Speaker 1: how the Brewing Giant is staying connected with consumers amid
Speaker 1: an uncertain market outlook. And our Business Week cover story
Speaker 1: on a Chinese spy and some not so encrypted evidence
Speaker 1: on his phone. It's amazing story. First up this hour, though,
Speaker 1: look at how surging borrowing costs are rippling through a
Speaker 1: critical economics sector, the housing market, both here at home
Speaker 1: and abroad. It was the subject of a Bloomberg Big
Speaker 1: Take from this past week. Major cities around the globe
Speaker 1: that had been seeing real estate boom are now facing
Speaker 1: a painful reset. To find out just how grim the
Speaker 1: picture looks, Bloomberg Market Senior editor Mike Reagan and I
Speaker 1: caught up with our San Francisco bureau chief, Carol Wetzel.
Speaker 1: The markets that were really in focus on are the
Speaker 1: ones that have been hugely bubbly black of the bettle
Speaker 1: word over the past few years of the pandemic boom.
Speaker 1: This is Australia, New Zealand, Canada, where investing in real
Speaker 1: estate just became a huge phenomenon. You know, you've seen
Speaker 1: price gains of plus per year. Not apparently, those are
Speaker 1: the ones that suddenly are rapidly cooling because now that
Speaker 1: we have this synchronized interest rates from central banks around
Speaker 1: the world. Borrowing costs are going up everywhere, and you
Speaker 1: have this combination of now prices were at record levels
Speaker 1: and borrowing costs are now just way out of people's reach,
Speaker 1: so they're having the quickest come down now, you know, Kara,
Speaker 1: when I read about potential double digit home price declines,
Speaker 1: I kind of have a nasty flashback to, uh, you
Speaker 1: know about twelve thirteen years ago and the financial crisis.
Speaker 1: I mean, you covered that, right, and if you're like,
Speaker 1: get get chills up the spot a little bit. But
Speaker 1: I'm wondering. I mean, there's so much has been done
Speaker 1: in the US to safeguard the financial system, and we've
Speaker 1: really moved away from those adjustable rate mortgages in the
Speaker 1: US that we're part of the problem back then. But
Speaker 1: I get the impression the rest of the world is
Speaker 1: still more exposed to adjustable rate mortgages than we are
Speaker 1: in the US. Is that true? And are there concerns
Speaker 1: out there about some sort of ripple effects from a
Speaker 1: drop in property values into the global financial system. Yes,
Speaker 1: that's absolutely true. So the US has vastly come away
Speaker 1: from addressable rate mortgages in the aftermath of the financial crisis.
Speaker 1: It's it's been about um seven percent is average of
Speaker 1: loans are in the past five years. And it makes
Speaker 1: sense because rates have been so low, why would you
Speaker 1: not just lock in those rates. But the US is
Speaker 1: actually something I've just found and working on this story,
Speaker 1: is pretty unique in terms of having thirty year fixed
Speaker 1: mortgages or even fixed here that a lot of these
Speaker 1: countries they are just the mortgage system works by they
Speaker 1: have mortgages that may reset every year depending on you know,
Speaker 1: what central banks do, or they may even reset just
Speaker 1: based monthly or just you know, just be directly tied.
Speaker 1: So that is definitely sort of what some of the
Speaker 1: concern is in some of these markets, like in New
Speaker 1: Zealand for instance, more than fifty of mortgages are going
Speaker 1: to reset to a higher rate UM by next June.
Speaker 1: So yes, so these are it's not just you know,
Speaker 1: home buyers that are affected by the rising rates UM
Speaker 1: as it largely is here in the U S. It's
Speaker 1: also homeowners who now are going to be facing higher
Speaker 1: monthly payments on loans in some cases if they bought
Speaker 1: you know, at very high levels. Probably we're already stretching
Speaker 1: to make, you know, to pay for these things. And
Speaker 1: so yes, ripple effects of consumer spending and other other
Speaker 1: types of things for these economies. So that's something you know,
Speaker 1: again as a central banker's way, how much to race
Speaker 1: rates and the effects on the broader economy. That's something
Speaker 1: I think those bankers have to keep in mind there, Kara,
Speaker 1: is there any silver lining here with with with this
Speaker 1: sort of coming down from from these sky high prices?
Speaker 1: And I asked this question fully realizing that we're in
Speaker 1: an environment where interest rates are higher. So you know,
Speaker 1: even if houses become more quote unquote affordable, that monthly
Speaker 1: payment could be even higher than it was for a
Speaker 1: more expensive house because of interest rates. Yes it could.
Speaker 1: But yes, this liver lining is that I think you know,
Speaker 1: we've all been witnessed to this real estate frenzy. I
Speaker 1: mean in the US as well, where you know, you're
Speaker 1: bidding wars and you have to fight you know, fifteen
Speaker 1: other offers to get at home and that's not healthy either,
Speaker 1: and so slowing that down and that's um, you know,
Speaker 1: not necessarily a problem, and it kind of puts us
Speaker 1: back toward normalization. And yes, if home prices do come
Speaker 1: down a bit, you know, if you're a homeowner, you're
Speaker 1: still sitting on a fair amount of equity. Prices have
Speaker 1: gone so much it's hard to cry too many tears
Speaker 1: for like, oh, um, you know my house gained twenty
Speaker 1: percent a year, is now only up ten percent from
Speaker 1: that figure. You're still you know, you're still doing okay.
Speaker 1: So maybe this provides an opportunity for you know, a
Speaker 1: bit of a cool down in the market in the stabilization.
Speaker 1: I'm fascinating in the story Care that it says New
Speaker 1: Zealand was really the poster child of the pandemic housing boom.
Speaker 1: What's going on there? Is it just a matter of
Speaker 1: the lowest interest rates? We're people flocking to New Zealand
Speaker 1: in the pandemic? Have you seen those pictures? The rest
Speaker 1: of my life, I'm willing to flock there personally, it's
Speaker 1: part of it. I think it's just becomes a cultural
Speaker 1: thing that this is where people see they can build
Speaker 1: their wealth and um, it's it's a big investment play,
Speaker 1: and like it's just the culture of you know, you
Speaker 1: need to be a homeowner, and so everybody, um flock
Speaker 1: to it and it it kind of builds on itself. I
Speaker 1: think a similar thing happened in Canada. It's just um,
Speaker 1: you know, where people see the ability to build wealth
Speaker 1: that you need to buy a house and and so
Speaker 1: that extreme and and again and yes, and then this
Speaker 1: colliding at a time of low rates. Obviously the pandemic
Speaker 1: caused a lot of people to rethink how they're living
Speaker 1: and they need a bigger house, to work from home,
Speaker 1: and that type of thing. It was a bit of
Speaker 1: a you know, all these issues colliding. That was Bloomberg
Speaker 1: News San Francisco Bureau Chief Carol Wetzel with Mike Reagan
Speaker 1: and me coming up the origin story of the world's
Speaker 1: biggest video platform, how it came to be, its impact
Speaker 1: also on the concept of free speech on the internet.
Speaker 1: We are talking YouTube. Are in Mark Bergen details YouTube's
Speaker 1: rise to world domination and its plans to hold down
Speaker 1: the top spot in streaming for years to count. And
Speaker 1: he's got a brand new book on it. You're listening
Speaker 1: to Bloomberg Business Week. This is Bloomberg. It's not just
Speaker 1: about cat videos, you know, it isn't. This is Bloomberg
Speaker 1: Business Week with Carol Messer and Bloomberg Quick Takes. Tim
Speaker 1: Stenovik from Bloomberg Radio YouTube. It's ubiquitous. We all check
Speaker 1: it out regularly. Tim and I and our Bloomberg Business
Speaker 1: Week show We're on it every day. And a new
Speaker 1: book tells the inside story of YouTube and how it
Speaker 1: up ended media, culture, industry and democracy. Bloomberg News technology
Speaker 1: reporter Mark Bergen is out with a new book on
Speaker 1: the world's premier video platform. The book is called Like
Speaker 1: Comments Subscribe, Inside YouTube's chaotic rise to world domination, and
Speaker 1: Mark says it's unparalleled success is about much more than
Speaker 1: being at the right place at the right time. They
Speaker 1: made some really important decisions early on, and as a startup,
Speaker 1: they only existed for about eighteen months before Google swept
Speaker 1: in and pay them for for cool one point six billion.
Speaker 1: The basic feature set of YouTube is pretty much the
Speaker 1: same as it was seventeen years ago. It is simple
Speaker 1: as intuitive. The founders talked about building something that their
Speaker 1: mom could use, and they certainly succeeded. They were one
Speaker 1: of the first digital video sites to building a feature
Speaker 1: where they could embed in other websites and players, which
Speaker 1: was pretty revolutionary at the time. They also took some
Speaker 1: risks that bigger companies including Google and Microsoft wouldn't take.
Speaker 1: Around copyright which ended up paying off for them that
Speaker 1: got them into like big messy legal challenges. So I
Speaker 1: think there was a lot of key decisions they made,
Speaker 1: and then it was like this this moment where there
Speaker 1: was just an explosion in interest and homemade video, and
Speaker 1: clearly video was just moving to the Internet. I think
Speaker 1: what's what's so interesting about this is, you know, in
Speaker 1: the early days of YouTube, there was this reluctance coming
Speaker 1: from media companies to work with it. It was kind
Speaker 1: of seen as like this disruptor that they were really
Speaker 1: scared of. And now what you have is you have
Speaker 1: the large established media organizations using YouTube as a channel
Speaker 1: for for distribution. Mark, can you talk a little bit
Speaker 1: about how they sort of turned from enemies to I
Speaker 1: guess for enemies and now kind of like everybody needs
Speaker 1: to be on YouTube. It was a long battle. I mean,
Speaker 1: they're early These teams at YouTube were very focused on
Speaker 1: getting traditional media to come onto the platform, and part
Speaker 1: of that was a concern that this was the only
Speaker 1: way they were going to have commercial success. That they
Speaker 1: went out and they tried to cut deals with CBS
Speaker 1: and ABC and got pretty close with both of them,
Speaker 1: like to run lost wast like the biggest show and
Speaker 1: one of the biggest shows in America at the time
Speaker 1: on YouTube. A lot of those companies instead went and
Speaker 1: they formed Hulu or they eventually built their own streaming services.
Speaker 1: Disney is a good example, was reluctant to put its
Speaker 1: prized I p onto YouTube. Still to this day, you're
Speaker 1: not going to find like they're they're going on Disney,
Speaker 1: plus they're going in movie theaters. To your point, audience
Speaker 1: was there sort of since day one, and it's been sustainable.
Speaker 1: YouTube put in place rights management system that's basically if,
Speaker 1: if you know, even if someone else uploads a piece
Speaker 1: of Disney content, Disney gets the money from the ad revenue,
Speaker 1: and that was a pretty key decision that they made,
Speaker 1: and that helped persuade the record labels and traditional media
Speaker 1: to come on. YouTube was at one point competing with
Speaker 1: them like they started a few years go, and originals
Speaker 1: building and subscriber only shows. They've dropped that. They're like,
Speaker 1: we're content to be the sort of video advertising platform
Speaker 1: and let Disney, Netflix, Amazon battle it out for subscribers.
Speaker 1: And you've seen media companies being more comfortable with them since.
Speaker 1: But this is what's so weird. I remember a few
Speaker 1: years ago when YouTube did this, I forget what it
Speaker 1: was called. It started off as YouTube Read, which is
Speaker 1: a very clumsy name. But Cobra Kai was was like
Speaker 1: one of the shows that they talked about a lot,
Speaker 1: and nobody watched it when it was on YouTube, but
Speaker 1: then it went to another platform and now everybody talks
Speaker 1: about it. You know, YouTube part of Google. They have
Speaker 1: gobs of money, they're alphabet But at the same time,
Speaker 1: like more recently we reported on this a lot for Bloomberg,
Speaker 1: like they have been cutting back on spending and I
Speaker 1: think the originals program that launched Cobra Kai was sometimes
Speaker 1: in tension with the other goals of the platform, which
Speaker 1: is just scale will get a lot of people out
Speaker 1: of watch hours. You can make an argument that had
Speaker 1: they invested more resources into original content, they could be
Speaker 1: cranking out more of the cobra kais. Google as a
Speaker 1: company just doesn't do media programming, and they went out
Speaker 1: with the original plan was we're going to not just
Speaker 1: have Cobra Kai, but we're gonna have our biggest YouTube
Speaker 1: stars and these shows and then they're some of their
Speaker 1: biggest YouTube stars went out and did like deeply irresponsible
Speaker 1: things that got them in trouble with advertisers and politicians,
Speaker 1: and I think that was a contributing factor to maybe
Speaker 1: maybe we can't take these risks. For years, YouTube had
Speaker 1: been scolded for giving a platform to radical Islamists, and
Speaker 1: I do think about the political side of this and
Speaker 1: the controversy, and this gets to what is YouTube Visit
Speaker 1: a media company, you know, a media arm of Google.
Speaker 1: But but talk to us about some of the controversy
Speaker 1: that has erupted over the years, especially as YouTube has become,
Speaker 1: you know, so ubiquitous. Yeah, it's at the Macaca moment
Speaker 1: is what it was called. And it was a Senate
Speaker 1: race in Virginia. Yeah, candidate was said something deeply racist
Speaker 1: on camera that spread. It was one of the early
Speaker 1: first YouTube political viral hits, and it changed the race.
Speaker 1: I think leaning in you know, I talked the book
Speaker 1: talks about the Arab Spring, which was a very different
Speaker 1: time for social media companies when they were seen as
Speaker 1: toppling dictators. Right. YouTube did at the time invest in
Speaker 1: a partnership around verifying footage coming out of the Middle
Speaker 1: East in the Arab world. For a variety of reasons
Speaker 1: that the company's d n A their risk averse. They
Speaker 1: didn't want to get into legal trouble. They were more
Speaker 1: hands off on taking editorial approach, especially on politics. And
Speaker 1: then fast forward to the Trump era, they've been extremely
Speaker 1: cautious this politics. It is effectively radioactive for YouTube. Um,
Speaker 1: you know they they answer that Susan Wiski, the CEO IS,
Speaker 1: has talked about is that news and politics is a
Speaker 1: relatively small percentage of platform, which in some ways it
Speaker 1: is true. Right, you go look at YouTube, it is gaming,
Speaker 1: it is beauty, kids content, write music videos. You know,
Speaker 1: you've reported on this company, you know for a long time.
Speaker 1: What surprised your what came to light that you were like, wow,
Speaker 1: I didn't know that I was Well, some of the
Speaker 1: early success was actually, um, the YouTube their early success
Speaker 1: was based on myces, which is really funny now if
Speaker 1: we think about my space is the tom That was
Speaker 1: kind of surprising to me. Yeah, the you know, YouTube
Speaker 1: is they built the world's biggest kids entertainment platform and
Speaker 1: it's a multimillion billion dollar business now right, and they're
Speaker 1: like huge conglomerate companies coming out of Hollywood that are
Speaker 1: just around YouTube kids content. What surprised me was the
Speaker 1: extent to which the company had turned a blind eye
Speaker 1: of that and really didn't expect that to happen, and
Speaker 1: for a long time didn't know how to deal with that.
Speaker 1: And I think just in the past recent years, after
Speaker 1: they've been regulated and and a lot of attention to
Speaker 1: focus on that, they're finally turning to, Wow, we we
Speaker 1: have some responsibility here with where we're raising the entire
Speaker 1: generation of kids. Hey, Mark, what is the future of
Speaker 1: of YouTube look like? What do we expect them to
Speaker 1: do to try to compete with TikTok, certainly leading in
Speaker 1: on shorts, they have plans to I believe by the
Speaker 1: end of the year turn on modernization and commercials for
Speaker 1: YouTube shorts. And I think you know, you talked to
Speaker 1: creators and they're really jazzed about TikTok. TikTok is a
Speaker 1: is a play where they can break through to an audience.
Speaker 1: YouTube is very crowded. Now that being said almost consistently,
Speaker 1: it's like, well, I can I can have fun, that
Speaker 1: can experiment on TikTok, I can preach a big audience.
Speaker 1: I really make money on YouTube. And so I think
Speaker 1: once YouTube is able to turn on that flip that switch,
Speaker 1: it's it's going to have a bigger competitive advantage against
Speaker 1: TikTok and against Facebook, which has never really figured out
Speaker 1: how to monetize Um creators in that way. YouTube is
Speaker 1: also they're They're big focus is still like eating into
Speaker 1: the television market. We will see them increasingly try to
Speaker 1: take more capture more time on on big screens. That
Speaker 1: was Bloomberg News technology reporter Mark Bergen. Pick up a
Speaker 1: copy of his new book, Like Comments Subscribe Inside YouTube's
Speaker 1: chaotic rise to world domination still ahead on Bloomberg Business Week. Ethereum,
Speaker 1: one of the world's most popular crypto networks and its makeover.
Speaker 1: A breakdown of the so called Ethereum merge and why
Speaker 1: it could shake up the crypto universe. This is Bloomberg
Speaker 1: Front nesting from the financial capital of the world Bloomberg
Speaker 1: eleven Frio in New York to Washington, d C. Bloomberg
Speaker 1: to Boston, Bloomberg one oh six one to San Francisco,
Speaker 1: Bloomberg nine sixty to the country Sirius XM Chado one
Speaker 1: nine team and around the globe the Bloomberg Business app
Speaker 1: and Bloomberg Radio dot Com. This is Bloomberg Business Week.
Speaker 1: This week, the Ethereum network finalized a shift known as
Speaker 1: the merge, adopting a new mechanism for creating tokens and
Speaker 1: ordering transactions. The network runs Ether, the world's second most
Speaker 1: valuable digital currency. The merge drastically lowers Ethereum's energy use
Speaker 1: and could silence the critics who doubt the sustainability of
Speaker 1: blockchain technology due to its environmental impact. It will also
Speaker 1: make Ether look more like a traditional financial asset that
Speaker 1: pays interest, which could be more lucrative, at least for
Speaker 1: some mainstream investors. In the finance section of the magazine
Speaker 1: this week, crypto reporter Ogakreif breaks down the overhaul, what
Speaker 1: it means for crypto minors, and why the rest of
Speaker 1: us should care. She spoke with Tim Mike Regan and
Speaker 1: Bloomberg Business wee getitor Joe Weber before the merge took place.
Speaker 1: This kind of a change has never been attempted in
Speaker 1: the blockchain world before, and what it does is essentially
Speaker 1: until now and for the next day or so, miners,
Speaker 1: basically very powerful computers are the ones ordering transactions on
Speaker 1: the Ethereum blockchain, and then after that there will be
Speaker 1: a switch to proof of stake essentially stakes of coins.
Speaker 1: Will be used to do the same to order transactions.
Speaker 1: And of course what this means for miners is that
Speaker 1: they will be out of the job. And miners have
Speaker 1: been looking around to see which other changes they could
Speaker 1: potentially move their equipment to or what other options they have.
Speaker 1: And for Ethereum, what this will mean is that um
Speaker 1: power consumption of the blockchain will drop by about which
Speaker 1: is really good news for invest stars and and developers
Speaker 1: who have been deterred from participating in the theorym ecosystem
Speaker 1: because of its high energy consumption. You know, companies and
Speaker 1: investors who have s G requirements can now perhaps give
Speaker 1: ethereum a second look. But what I'm fascinated with is
Speaker 1: the other innovation that this sort of unlocks, which is
Speaker 1: staking coins in return for your yield. You know, you
Speaker 1: lock up your ether uh in a staking protocol and
Speaker 1: you get, say, I don't know, three or four or
Speaker 1: five percent whatever the yield is. Obviously, that makes Ether
Speaker 1: look a lot more like a security than just a
Speaker 1: cryptocurrency like bitcoin. I wonder, how are you thinking about
Speaker 1: the regulators? Is there the potential for a backlash? Absolutely,
Speaker 1: this is an issue that a lot of people are
Speaker 1: thinking about and worrying about. Because so about twenty eighteen,
Speaker 1: high up executive at the SEC essentially said, you know,
Speaker 1: ethereum does not look like a security to us, and
Speaker 1: so that was the assumption to everybody ever since. But
Speaker 1: now Etherium is undergoing some very dramatic changes. Right now
Speaker 1: people are going to be essentially putting in money to
Speaker 1: earn yield. That brings ethereum just a little bit closer
Speaker 1: to appearing to at least one point of about four
Speaker 1: that regulators look at the determine if something is a
Speaker 1: security or not. There are also questions about does the
Speaker 1: theem become more or less decentralized after this change, which
Speaker 1: also impacts whether it will be defined as a security
Speaker 1: or not. So there could be some moves from regulators
Speaker 1: on this front, and in fact, in August, coin Base,
Speaker 1: the US's biggest scripto exchange, did disclose that the SEC
Speaker 1: has asked for some information from it on it's taking services.
Speaker 1: Someone out that things, okay, so this has never happened before,
Speaker 1: it's going to happen. If it doesn't go, well, can
Speaker 1: you just put it in reverse and back up and
Speaker 1: like go back to the way it was before. Well,
Speaker 1: there are some people who are creating an alternative chain
Speaker 1: in hopes that the merge does not go well, and
Speaker 1: then people will be like, wait a minute, we want
Speaker 1: to go back to the previous block chains. There are
Speaker 1: people who are creating a copy of Etherium that will
Speaker 1: still use minors, but the majority of the Ethereum community
Speaker 1: is going ahead with this new proof of state blockchain.
Speaker 1: It's been tested and retested for years. Okay, and what
Speaker 1: does this all mean for bitcoin? And there's this thing
Speaker 1: called the flippening right, so some people believe that this
Speaker 1: puts Etherium more head to head in competition with Bitcoin, which,
Speaker 1: of course crypto fans have long cold digital gold. With
Speaker 1: Ethereum undergoing this transition, perhaps it's going to become more
Speaker 1: more attractive for corporate treasuries and for hedge funds and
Speaker 1: for other investors that have only invested in bitcoins. There
Speaker 1: is a potential for something that crypto fans called the flippenine,
Speaker 1: which is basically the Etherium market cap exceeding bitcoins. Likely
Speaker 1: quite a bit of time before that occurs. This is
Speaker 1: a story that we're going to continue to follow really
Speaker 1: closely in our big Thanks to Bloomberg News crypto reporter
Speaker 1: Olga Karif, Joe Weber and Mike Reagan. We'll be back
Speaker 1: a little later in the program. You're listening to Bloomberg
Speaker 1: Business Week. Up next, Carlisle Group co founder David Rubinstein
Speaker 1: breaks down his new book on stock trading, Tips from
Speaker 1: the best in the business and what to make of
Speaker 1: global markets right now. Good luck with that one. I mean,
Speaker 1: he's got to talk to about this. Yeah, exactly, Stick around.
Speaker 1: This is Bloomberg. You're listening to Bloomberg Business Week with
Speaker 1: Carol Messer and Bloomberg Quick Takes Tim Stinovich from Bloomberg Radio. Well,
Speaker 1: on Tuesday, US docks posted their biggest drop in two
Speaker 1: years after that latest CPI reports, surprise to the up
Speaker 1: side the silver lining, though, maybe it is a good
Speaker 1: time for savvy investors to buy the dip. At least
Speaker 1: that's what David Rubens died told our Bloomberg TV colleagues
Speaker 1: the day after that massive sell off. His comments got
Speaker 1: a lot of play online, because, well, after all, who
Speaker 1: doesn't want investing tips from some of the best in
Speaker 1: the biz. Luckily for us, he's back with more. The
Speaker 1: Carlisle Group co founder, he's well known to our audience.
Speaker 1: He's the host of Bloomberg Wealth and the author of
Speaker 1: numerous books. His latest one is just out. It's called
Speaker 1: How to Invest Masters on the Craft and Tim. We
Speaker 1: spoke with David about a lot of things, including that
Speaker 1: new book. We began though, with his thoughts on how
Speaker 1: to navigate a volatile market environment. Clearly the markets are
Speaker 1: not happy with the higher inflation numbers, and I think
Speaker 1: that's a big actor. When you have higher inflation, you
Speaker 1: can expect higher interest rates, and the Fed is next
Speaker 1: week like the increase interest rates by seventy five basis points.
Speaker 1: There's some who think it could be a hundred basis points,
Speaker 1: but I doubt that that that that would happen. That
Speaker 1: would probably really hurt the markets much more because that
Speaker 1: would show the FT is much more nervous about inflation
Speaker 1: than it has said it is, although it has said
Speaker 1: it's it's worried. But I think a hundred basis points
Speaker 1: will be much more than their guidance has been. So
Speaker 1: if they were to do a hundred basis points and
Speaker 1: market will really sell off. In my view, seventy five
Speaker 1: basis points and markets already assuming that's going to happen,
Speaker 1: so probably not a big surprise of the markets. So
Speaker 1: I think markets are gonna be choppy for a while,
Speaker 1: There's no doubt about it. Shoppy, but you still think
Speaker 1: there are opportunities, especially when we see the equity side
Speaker 1: of the markets. David sell Off that that is a
Speaker 1: time to enter you You stand by that the greatest
Speaker 1: more fortunes in the stock market are generally not made
Speaker 1: when people see a top of the market and they say,
Speaker 1: now I'm going to get in. Generally markets are down,
Speaker 1: and then what happens is people say, I think it
Speaker 1: could go down further, and they try to look for
Speaker 1: the bottom of the market. Anybody that's looking for the
Speaker 1: top of the market or the bottom of the market
Speaker 1: generally is on a fool's Errand so markets are shares
Speaker 1: her off now what more than from the peak, and
Speaker 1: that's a pretty good downside. It could go down a
Speaker 1: little bit more, but I don't see another twenty percent down.
Speaker 1: I think the markets are pretty much near the bottom.
Speaker 1: They might be five percent more to go, or maybe
Speaker 1: a little bit more. But I think we know a
Speaker 1: lot of what's going on in the markets now and
Speaker 1: not likely to see big changes now. The Ukraine Russia
Speaker 1: situation has had some positive news, maybe that war could
Speaker 1: be over sooner than we once thought. Now. Um, generally
Speaker 1: the inflation situation not under control, but the FED seems
Speaker 1: to be on top of the situation, maybe more than
Speaker 1: it was before. So I'm not expecting we're going to
Speaker 1: see another decline in stock prices. But would you con
Speaker 1: see that it's safe to say that we really don't
Speaker 1: know kind of how things go on the other side
Speaker 1: of it. Considering the pandemic that we're coming out of,
Speaker 1: the amount of stimulus that was pumped in to the
Speaker 1: globally economy, is it safe to say we don't quite
Speaker 1: really know how this all plays out. Um. This is
Speaker 1: what lawyers often call a case of first impression, which
Speaker 1: is to say, we have something that's relatively unique in
Speaker 1: the sense that we haven't had five trillion dollars injected
Speaker 1: into an economy quite the way the federal government did,
Speaker 1: and then know what the impact is going to be
Speaker 1: an inflation in the markets a year or two later.
Speaker 1: We did prevent it recession, but we also gave us
Speaker 1: a lot of inflation. Um. If you go back at
Speaker 1: any time in market history, you'll always fullfind that there
Speaker 1: are problems. There's never a case where people say, you know,
Speaker 1: everything is looking great and actually turns out to be great.
Speaker 1: You know, the challenges of getting people back to work,
Speaker 1: the challenges of avoiding another COVID type pandemic, the challenge
Speaker 1: of the U. S. China relationship, the challenge of the
Speaker 1: Russian situation, the energy situation, money challenges. But that's what
Speaker 1: makes great investors great. They can see through the challenges
Speaker 1: and get in when they going is good. Is there
Speaker 1: any concern Do you have any concern that the FED
Speaker 1: could overdo it? Well? Of course the FED didn't make
Speaker 1: a mistake that it admitted it thought the inflation was
Speaker 1: was going to transitory. Obviously was not j Pal who
Speaker 1: used to work at my firm, and I've known him
Speaker 1: for a long time, though I'm obviously not getting inside
Speaker 1: information from him now. I think he's a very cautious person.
Speaker 1: He likes to tell you what he's going to do,
Speaker 1: and they'd like to then do it. Um He's pretty
Speaker 1: much said, I'm gonna go the Fed's gonna FOMC is
Speaker 1: gonna go up by seventy five basis points. I think
Speaker 1: if they were going to go a hundred basis points
Speaker 1: or more, I think they would have tipped the markets
Speaker 1: a bit. A hundred basis points or more now would
Speaker 1: shock the markets, and I think it would be uh,
Speaker 1: something that would see a big sell off in stock.
Speaker 1: So I don't see that being tipped from the FED.
Speaker 1: And obviously he doesn't control what the FMC does, but
Speaker 1: he has an enormous amount of influence. So I suspect
Speaker 1: um will be something around seventy five basis points. The
Speaker 1: real change is whether we will have another fifty basis
Speaker 1: points increase the remainder of the year, which is what
Speaker 1: the markets have assumed, or could it be the case
Speaker 1: that we get more than fifty basis points or the
Speaker 1: remainder of the year. And then, of course, right now
Speaker 1: the markets are generally assuming probably not any real increases
Speaker 1: early next year, and who knows that could change? All right,
Speaker 1: So let's talk about the book How to invest Masters
Speaker 1: on the Craft Uh, And I do wonder, you know, David,
Speaker 1: generally successful investors it's because of their differences they find
Speaker 1: opportunities where others do not. So at the same time,
Speaker 1: I wonder, is there's something that successful investors all have
Speaker 1: in common. Yes, they have these things in common. They
Speaker 1: tend to come from blue collar and middle class families.
Speaker 1: They don't come from very wealthy families. They tend to
Speaker 1: be pretty good students. These are not typically college dropouts
Speaker 1: or high school dropouts. As a general rule of thumb,
Speaker 1: they tend to be pretty good in math. They tend
Speaker 1: to like to make decisions. They tend not like to delegate.
Speaker 1: They tend to be people who will defy conventional wisdom.
Speaker 1: The conventional wisdom say now is not the time to
Speaker 1: to invest. That's when they invest. They also tend to
Speaker 1: be relatively humble because they've made a lot of mistakes
Speaker 1: over the years. Every investor does. They also tend to
Speaker 1: get rid of their mistakes pretty quickly. A really good
Speaker 1: investor when they when he or she makes a mistake,
Speaker 1: they don't labor over it for months and months and
Speaker 1: months and still about it. They get out of the
Speaker 1: position and they go into the next thing. They also
Speaker 1: tend to be i'd say relatively philanthropic. Clearly, if you're
Speaker 1: if you're in the business world and you're an investor,
Speaker 1: as opposed to be in the endowment world or nonprofit world,
Speaker 1: you tend to make a lot of money as investors,
Speaker 1: and they tend to give away a large percentage of it. Generally,
Speaker 1: these are people who are quite articulate, quite smart, and
Speaker 1: quite hard working. We're hard work is not a problem
Speaker 1: for them because what they do is what they love.
Speaker 1: Investing is not for them work, It's it's pleasure. And
Speaker 1: once they've made whatever they need to make a billion dollars,
Speaker 1: two billion, ten billions, twenty billion dollars, they don't stop working.
Speaker 1: They work until they just can't do it anymore. They
Speaker 1: don't tend to retire at fifty five or sixty. Some
Speaker 1: of the names on here, I mean this is a
Speaker 1: who's who of the of the Wall Street world and
Speaker 1: also Silicon Value. When it comes to alternatives, I mean
Speaker 1: we're talking people like Larry Fink, John Gray, Sam Zell
Speaker 1: are featured in here, rate Dahio. When it comes to
Speaker 1: hedge funds, we got John Poulson on hedge funds, Mark Injuries.
Speaker 1: And when it comes to venture capital, I want to
Speaker 1: go back to what you said about mistakes though, What
Speaker 1: are some prominent mistakes that you learned about when you
Speaker 1: were doing reporting for this book. Well, of course, um,
Speaker 1: every investor has his or her stories of their mistakes,
Speaker 1: and I wouldn't put myself in the great investor category,
Speaker 1: but I turned down Facebook when Mark Zuckerberg was in college. UM,
Speaker 1: I basically didn't. I told Jeff Bezos his company wasn't
Speaker 1: gonna get anywhere, and I sold his stock relatively early,
Speaker 1: right at the I P O. When Mark Andreeson came
Speaker 1: to my firm to try to raise money at the
Speaker 1: beginning for Netscape, I told him it would never get anywhere.
Speaker 1: I think every investor UM makes mistakes, and that's what
Speaker 1: life is all about. I'm trying to think of the
Speaker 1: average investor out there, David, and I'm wondering what lessons
Speaker 1: they can take away from listening to the pros. The
Speaker 1: most common mistake that investors make, the pros would say,
Speaker 1: and I think I'm talking about average investors. If the
Speaker 1: book is not designed to make you into sam's Ow
Speaker 1: or John Gray, that's unrealistic. On the book is going
Speaker 1: to do that, but it's designed for people who are
Speaker 1: average investors who dabble in the market, or they buy
Speaker 1: funds and they have other people dabbling for them. And
Speaker 1: if back, I would say that the cost common mistake
Speaker 1: that people point out to me is that people when
Speaker 1: the markets are going up, they rush in and they
Speaker 1: want to catch it at the top, and then when
Speaker 1: the markets are going down, they want to sell. So
Speaker 1: you got to be very careful and I think know
Speaker 1: what you're doing. Also, one of the advantages of of
Speaker 1: of being a value investor in a long term investor's
Speaker 1: Warren Buffett is they tend not to sell a lot.
Speaker 1: And when you sell a lot or you buy a lot,
Speaker 1: you have a lot of transaction costs and you have
Speaker 1: to pay taxes, and that's an important thing. People should
Speaker 1: hold on the things for quite a bit longer than
Speaker 1: than they tend to. David. The people you spoke with,
Speaker 1: um again really interesting names. But can I just says
Speaker 1: a lot of men. There's a lot of men. Well, um,
Speaker 1: there are a lot of women too. I would say.
Speaker 1: Obviously it's easy to do a book like that and
Speaker 1: fill up with old white men. I tried hard not
Speaker 1: to do that. Um. I have in there, for example,
Speaker 1: Kim lou who is the woman that runs the endownment
Speaker 1: for Columbia University. Are really impressive investor. Also was in
Speaker 1: there Paula Blin, who runs the endownment for Rockefeller University.
Speaker 1: But I tried to show is that there are women
Speaker 1: and minorities who are moving up into the pantheon of
Speaker 1: great investors. But let's be honest, today there are more
Speaker 1: white male people who are considered great investors than women,
Speaker 1: rightly or wrong, and it may change in time. And
Speaker 1: in part what I wanted to do is inspire people
Speaker 1: who are not white males to go into this business
Speaker 1: and see that you can become Paula Balin or Kimlu.
Speaker 1: I want to ask David about crypto because you know,
Speaker 1: in the alternative section Mike nova Gradson, who's the name
Speaker 1: very familiar to our audience, UM, but also somebody who
Speaker 1: has you know, dabbled just in traditional finance trad FI
Speaker 1: as it's known, and also in defy with when it
Speaker 1: comes to crypto, your thoughts after interviewing him for this
Speaker 1: book and about whether or not the crypto actually has
Speaker 1: staying power because he did make a lot of money
Speaker 1: and also recently lost a lot of money when it
Speaker 1: comes to crypto. Yes, well, overall, he's ahead my own
Speaker 1: view on crypto, and I don't own crypto currencies myself,
Speaker 1: Like I have invested in companies that service the industry
Speaker 1: because I think the industry is gonna be around for
Speaker 1: quite a while. The people that buy crypto tend to
Speaker 1: be younger people, and I think they like it in
Speaker 1: part because they can trade it frequently, of course, but
Speaker 1: it has fluctuations which makes them think they're going to
Speaker 1: make money and they're willing to take the risk about
Speaker 1: it going down. But also they the privacy associated with it.
Speaker 1: You don't dependent on nobody else knows what you really own.
Speaker 1: The government can't take it away from you. And I
Speaker 1: also think that people that are buying it to a
Speaker 1: large extent are they tend to be very libertarian in
Speaker 1: many ways. They want to be countered to the government,
Speaker 1: and they've lobbied Congress and I've had a lot of uh,
Speaker 1: there are a lot of members of Congress who are
Speaker 1: Republicans who are listening to what they're saying, and I
Speaker 1: think it's unlikely you're gonna see a lot of over regulation.
Speaker 1: That's Carlisle Group co founder David Rubinstein. Check out his
Speaker 1: new book. It is entitled How to Invest Masters on
Speaker 1: the Craft. It is out now. And that wraps up
Speaker 1: the first hour of the weekend edition of Bloomberg Business
Speaker 1: Week from Bloomberg Radio. I'm Carol Masser and I'm Tim
Speaker 1: Stentivic ahead in our next hour. Our Business Week cover
Speaker 1: story how the FBI built its case against the Chinese
Speaker 1: spy using evidence from his iPhone. It all happens off
Speaker 1: of her phone, doesn't it? Oh my gosh. Plus how
Speaker 1: China is finding a way around slee tariffs with a
Speaker 1: little help from Mexico, and a look at the post
Speaker 1: COVID marketing strategy at the world's largest brewer. We sit
Speaker 1: down with the CMO of A B and BEV. This
Speaker 1: is Bloomberg. This is Bloomberg Business Week inside from the
Speaker 1: reporters and editors who bring you America's most trusted business magazine.
Speaker 1: Plus global business finance and tech news as it happened
Speaker 1: Sloomberg Business Week with Carol Messer and Bloomberg Quick Takes
Speaker 1: Tim Stinovic on Bloomberg Radio. Blay ahead in our second
Speaker 1: hour of the weekend edition of Bloomberg Business Week, including Yeah,
Speaker 1: We're doing some food and beer if. We've got the
Speaker 1: CEO of Upside Foods on how the company is growing
Speaker 1: real meat directly from animal cells. We've also got the
Speaker 1: CMO of A B and BEV opening up a key
Speaker 1: strategic shift at the global brewer. Plus our Business Week
Speaker 1: team looks at how Chinese manufacturers are skirting U S
Speaker 1: tariffs by setting up south of the border. First up
Speaker 1: This Hour, this week's cover story, a Chinese intelligence officer
Speaker 1: targeted US industrial giants for a living and then left
Speaker 1: a heap of evidence on his phone, his iPhone, along
Speaker 1: with his own personal secrets. Drake Bennett and Jordan Robertson
Speaker 1: co wrote that story Drake and Business we getitor Joe
Speaker 1: Webber taking us inside a spy's diary. Whenever you talk
Speaker 1: about China in US and in intellectual property and what
Speaker 1: companies have you know, there's always been this assumption and
Speaker 1: reporting has suggested that Chinese are really good at at spying,
Speaker 1: but we never really get a sense of what that
Speaker 1: actually looks like. And so when Jordan and Drake came
Speaker 1: to just us with this story, the thing that just
Speaker 1: jumped out at us was it's all there in part
Speaker 1: because of this cotton mouse game that evolved that I'm
Speaker 1: sure Drake's gonna tell us about, and it ended up
Speaker 1: in court because the US was able to not only
Speaker 1: nab this Chinese spy and his phone, we got it all.
Speaker 1: We got all the info, and so Drake I mean, like,
Speaker 1: this is raster that you ran across, and I'm curious,
Speaker 1: just like when you saw it and Jordan's saw, how
Speaker 1: did it pop to you guys? I mean, like you said,
Speaker 1: it's just an extraordinary opportunity because this is normally just
Speaker 1: a black box. You just see kind of the outgoing
Speaker 1: stuff where it's the companies that are being targeted or
Speaker 1: it's the people that are being targeted as potential sources,
Speaker 1: and you never get to see what goes on back
Speaker 1: in China. And what happened with this guy is he
Speaker 1: was the first ever MSS officer to be lured out
Speaker 1: of China the Ministry of State Security, so it's basically
Speaker 1: Chinese government Chinese yeah intelligence, which is responsible not only
Speaker 1: for military and government intelligence, but you know economic and
Speaker 1: that's not exactly a secret. No, not a secret, not
Speaker 1: a secret. Um, we know what happens, we know a
Speaker 1: lot less about what it looks like. So when this
Speaker 1: guy gets lured out through this very painstaking FBI investigation,
Speaker 1: he's arrested and he has his phone on him and
Speaker 1: he his iPhone on him and he has backed up
Speaker 1: everything not I mean just everything to the cloud. Um,
Speaker 1: so there's all this like sensitive MSS documents, correspondence between
Speaker 1: him and his colleagues, between him and his sources, and
Speaker 1: there's also just a lot of like really intimate personal
Speaker 1: detail about himself. You know, he's he's someone I mean,
Speaker 1: you know, there's a lot of like his name is
Speaker 1: Juan John, you know, a lot there's some cloak and
Speaker 1: dagger stuff in the story, but a lot of it
Speaker 1: is also just the he's this espionage bureaucrat and he's
Speaker 1: sort of like you watch him get sort of like
Speaker 1: ground down by his job, and he gets more and
Speaker 1: more unhinged, and he's just spending all this time and
Speaker 1: like massage parlors and drunken card games, and I think
Speaker 1: that may have you know, affected his decision making. Tell
Speaker 1: us about the expense account, right, So a lot of
Speaker 1: what they do is they're just handing people money, you know,
Speaker 1: three thousand dollars, six thousand dollars for your travel expenses
Speaker 1: or for whatever. But he one of his sort of
Speaker 1: gripes over time, and it gnaws at him more and more,
Speaker 1: is that his boss just keeps rejecting these expense accounts
Speaker 1: for these dinners he has to like recruit people, and
Speaker 1: it just really drives him nuts, and you because we
Speaker 1: have his diary. He treated his eye calendar like a diary,
Speaker 1: so there's stuff about, you know, meeting with this person
Speaker 1: or doing this hack. And then it's just like my
Speaker 1: boss rejected the expenses again and he just like it
Speaker 1: clearly just burns him, which are just epic, you know.
Speaker 1: So I just you just assume, like we take on
Speaker 1: the us anything you need, and it's like, actually it's yeah,
Speaker 1: the target that ends up being so much of the
Speaker 1: story is actually g E. Right, what was the spy
Speaker 1: going for and and tell us about how that played out.
Speaker 1: So it's g E jet engines and it's in particular
Speaker 1: it's these uh composite fan blade and casings for the
Speaker 1: fan blades. So uh G Aviation is is still basically
Speaker 1: the only company that has these super lightweight fan blades
Speaker 1: and casings so their their engines can be lighter, UM,
Speaker 1: more fuel efficient, UM, safer uh and every and so
Speaker 1: basically this is a key technology UM that Drew had
Speaker 1: sort of focused on, and he sort of rise at
Speaker 1: this through these conversations with folks in the Chinese government,
Speaker 1: with folks at Stayed owned aircraft aeronautics companies um in China,
Speaker 1: and so that's what. So he, through this intermediary, through
Speaker 1: this academic basically a university official, reaches out to this
Speaker 1: engineer at the aviation, you know, through LinkedIn, invites him
Speaker 1: to come give this talk, and then it sort of begins.
Speaker 1: Um What he doesn't realize is that midway through this process,
Speaker 1: the FBI sort of intervenes um and starts investigating um
Speaker 1: his his potential source at the aviation, who then not
Speaker 1: to spoil the end of the story, but who ends
Speaker 1: up being instrumental in in the investigation to then turn
Speaker 1: around and and trap um U himself. Our producer said,
Speaker 1: one of the stupidest or dumbest spies ever just got stop.
Speaker 1: I think that was one of the most interesting takeaways
Speaker 1: from this is like the idea that people have in
Speaker 1: their heads of a James Bond type figure. What is
Speaker 1: the life of a spy? Yeah, I mean he's a bureaucrat.
Speaker 1: He's an espionage bureaucrat. You know, he's a cog in
Speaker 1: this big machine. You know, in certain ways, I think
Speaker 1: he he you know, he has a lot of power
Speaker 1: back home and he sort of seems to abuse it
Speaker 1: in certain ways. But he also has this boss that's
Speaker 1: on him all the time, you know, who's like constantly
Speaker 1: demanding these things that he feels like a really unreasonable
Speaker 1: um And so it's a bit of a grim existence
Speaker 1: in certain ways, and I think it sort of drives
Speaker 1: him a little around the bend. Now, Martinis, no, Aston,
Speaker 1: Martin's no, definitely not. Oh my goodness, we're saying, where
Speaker 1: is he now in jail? Oh, he's in jail in Ohio.
Speaker 1: He's a winning sounding. That was Bloomberg News Technology reporter
Speaker 1: Drake Bennett, along with Business Week editor Joe Weber on
Speaker 1: this week's cover story. Check out the full story online
Speaker 1: on the Bloomberg or on newsstands. Coming up, Jiell Webber
Speaker 1: joins us again for another story in this week's magazine.
Speaker 1: It's about the haven for Chinese companies very close to
Speaker 1: the United States. This is Bloomberg. This is Bloomberg Business
Speaker 1: Week with Carol Messer and Bloomberg Quick Takes Tim Stinovik
Speaker 1: from Bloomberg Radio. Well, this is one of those stories
Speaker 1: that we've come to love business Week four, one that
Speaker 1: taps into the big themes of our time, but may
Speaker 1: not be on your radar, but definitely should be. It's
Speaker 1: about a prime spot between Mexico's industrial capital and the
Speaker 1: US border that's become a haven for Chinese manufacturers looking
Speaker 1: to sidestep US tariffs and shortened supply chains. The story
Speaker 1: was also a Bloomberg Big Take. This week, Bloomberg business
Speaker 1: Week editor Joel Webber is back with more, along with
Speaker 1: Business Week Global Economics editor Christina lynd Lad. China became
Speaker 1: very interested in sort of a side door to the
Speaker 1: U U S there and so we have seen an
Speaker 1: explosion of factories there and uh it is effectively a
Speaker 1: workaround of Trump's tariff policy, which the Biden administration is
Speaker 1: basically kept in place. Um. And so it's interesting about
Speaker 1: that is that you know, you basically have gained the system. Uh.
Speaker 1: And so things going forward may not be manufactured in
Speaker 1: China as before you find some cheap real estate in
Speaker 1: other countries. Mexico is not the only version of this,
Speaker 1: but certainly the closest to the U S. UM. So
Speaker 1: how's this, how's this working out? As uh as a
Speaker 1: little bit of arbitrage, Christina, Well, that's the globalization is
Speaker 1: always arbitrage, right, So I think when we interviewed companies
Speaker 1: that are based in one particular industrial park that we
Speaker 1: focused on. They most of the Chinese firms preferred to
Speaker 1: emphasize the you know, proximity to the US market and
Speaker 1: this and this savings on shipping, but when pressed they
Speaker 1: admitted that, you know, for example, one furniture maker was
Speaker 1: facing taffs of twenty when they were shipping from China
Speaker 1: and now uh qualified for duty free shipments into the US.
Speaker 1: What blew me away is how quickly they were able
Speaker 1: to do that, right, Like I always feel like when
Speaker 1: we're talking to CEOs and like, well the shift, you know,
Speaker 1: if we have to shift our production elsewhere, it's going
Speaker 1: to take a long time. I mean, they move pretty quickly,
Speaker 1: and it reminds us that they are still the manufacturer
Speaker 1: to the world. Yes, and I think some of these
Speaker 1: companies are pretty I mean they're not all big. I
Speaker 1: mean one of the manufacturers is a really big manufactor
Speaker 1: in China, but like so they are nimble and they
Speaker 1: you know um. As a policy, China has been basically
Speaker 1: willing to shed kind of low margin manufacturing businesses as
Speaker 1: it you know, as it focuses on high end stuff
Speaker 1: like you know, new new fuel vehicles and biotechnology and semiconductors.
Speaker 1: So I think the first wave went to places like Vietnam.
Speaker 1: But now you know, you can see, like, you know,
Speaker 1: businesses are moving for they're away, you know, from those
Speaker 1: comfort kind of locales where they first landed. And um, yeah,
Speaker 1: I mean I think what I thought it was kind
Speaker 1: of funny was that. Do you remember when Trump tweeted
Speaker 1: basically ordering American companies home, and I said, what came
Speaker 1: floating across like the Pacific or Chinese Chinese plants didn't
Speaker 1: exactly work that way. I don't know. It seems like
Speaker 1: there could be like a way for the US to
Speaker 1: close this loophole. I mean, they know what these Chinese
Speaker 1: companies produce, and isn't there a way that they can say, Okay,
Speaker 1: well we know that it comes from a subsidiary of
Speaker 1: a Chinese company, and you're not sticking to the spirit
Speaker 1: of the rule. Um, we're going to attack on that tariff?
Speaker 1: Do they want to? Oh? I don't know. I mean
Speaker 1: that might cause issues with the U. S m c
Speaker 1: A right like the successor to NAFTA. I mean, I
Speaker 1: think Mexico would have legitimate reason to say what are
Speaker 1: you doing? You know, as long as they meet the
Speaker 1: content requirements, which they are and to do that. I mean,
Speaker 1: we should be clear that this implies a certain amount
Speaker 1: of effort on the part of these Chinese companies because
Speaker 1: they're having to source products from Mexico, could be even
Speaker 1: North America. There they can't just import assemble everything from
Speaker 1: Chinese parts and shipping across. Yeah. The other thing to
Speaker 1: keep in mind here, you know, Belton Road is a
Speaker 1: very top down initiative in China. This is not that
Speaker 1: this is just grassroots, grassroots effort by Chinese exporters to
Speaker 1: be like, how do we It's kind of simple, but
Speaker 1: it makes so much sense also, I mean, we talked
Speaker 1: to some companies that off the record explicitly said part
Speaker 1: of the reason we're doing this isn't just cost savings,
Speaker 1: is that there's political risk, I mean policy risk. Rather
Speaker 1: in China in recent years we've seen like crackdowns in
Speaker 1: tech and other sectors, and so, you know, so we
Speaker 1: talked about the Mexico side of this too. Amlo being obviously,
Speaker 1: um the president of Mexico has been you know, very
Speaker 1: eager to try and get employment whatever there can be employment.
Speaker 1: How is this shaping out domestically for him? Well? The
Speaker 1: interesting thing is at the federal level, Mexico has never
Speaker 1: really actively courted Chinese investment because they see Chinese exporters
Speaker 1: as rivals in third markets, right. So, but the state,
Speaker 1: at the state level, they like states have so Nueo Leon,
Speaker 1: which is where you know, this particular industrial park, and
Speaker 1: these are a lot of these companies are setting up shop.
Speaker 1: UM has has done and they're building a special road
Speaker 1: for example, from like you know, the from the industrial
Speaker 1: park to the border. Uh. And so yeah, but I
Speaker 1: think that some people have said that Mexico might have
Speaker 1: actually seen even a bigger windfall of this kind of
Speaker 1: investment if am Low was being less nationalistic on topics
Speaker 1: like energy and you know and things like that. But
Speaker 1: I mean, this is great for Mexico, right, Like the
Speaker 1: number that really jumped out at me here is UH
Speaker 1: near shoring UH could boost Mexico's exports by three five
Speaker 1: billion year, a bit over seven percent. I mean, that's
Speaker 1: like the real that's reformative. Yeah. Also, I mean while
Speaker 1: the Chinese investment, like like the most recent figures five
Speaker 1: million dollars a year is not huge, there is there
Speaker 1: are a couple of deals that could happen this year
Speaker 1: that would be transformative that that we're talking about billion
Speaker 1: dollar factories. One of them is there an e V
Speaker 1: engine maker that's looking at two different sites in Mexico.
Speaker 1: And those kinds of investments pulls supply chains you know,
Speaker 1: around them, you know, So that kind of that kind
Speaker 1: of thing I think would take it to the next level.
Speaker 1: The suppliers that play into it. Hey, um, you guys
Speaker 1: point out in the story, though Chinese companies aren't the
Speaker 1: first to seek shelter from US terris right, Japan did.
Speaker 1: It went back in the similar playbook when Reagan started
Speaker 1: layering all these different restrictions on Japanese cars, and then
Speaker 1: when NAFTA took effect, they saw, well, this is a
Speaker 1: great export platform now. But I think it's interesting, right
Speaker 1: in terms of the globalization conversations that we're having about
Speaker 1: what is going on. What I forgot about that we
Speaker 1: haven't talked about that forever. Well, I mean the way
Speaker 1: I think, well, we didn't use the word French shor freh. Yes,
Speaker 1: that's when you go to friendly countries. That was Bloomberg
Speaker 1: business Week editor Joel Webber, along with Business Week Global
Speaker 1: Economics editor Christina Lyndblad still to come on Bloomberg Business Week,
Speaker 1: Beyond Meat and Impossible Foods are the key players in
Speaker 1: the race to market plant based meat alternatives, often with
Speaker 1: ingredients like p protein and soy. Going up next, you'll
Speaker 1: meet Upside. That's the company that's got a different approach.
Speaker 1: They're actually growing meat. We take real animals, take themselves
Speaker 1: from those animals. We essentially select the ones that are
Speaker 1: going to taste the best and grow the best. When
Speaker 1: I first had my bite of cultivated meat, I can
Speaker 1: tell you that's the moment when I really believe. Upsides
Speaker 1: Chief operating Officer Amy Chan explains on the other side,
Speaker 1: this is Bloomberg broadcasting from the financial capital of the world,
Speaker 1: Bloomberg eleven Frio in New York to Washington, d C.
Speaker 1: Bloomberg to Boston, Bloomberg one oh six one to San Francisco,
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Speaker 1: and Bloomberg Radio dot Com. This is Bloomberg Business Week.
Speaker 1: Eating meat takes a toll on the environment. You know
Speaker 1: that We've talked about it on our broadcast. We've also
Speaker 1: talked about several plant based food startups that manufactured meat
Speaker 1: alternatives beyond meat and impossible foods, commonly using ingredients such
Speaker 1: as soy and p protein. Turning now to a company
Speaker 1: that's got quite a different solution for sustainable consumption. Check
Speaker 1: out Upside Foods. It's a startup that grows meat directly
Speaker 1: from animal cells. The company recently announced a four million
Speaker 1: dollars seriously funding round. It put its valuation at over
Speaker 1: a billion dollars. Investments came from Bill Gates, Tyson Foods,
Speaker 1: and soft Bank, to name just a few. Upsides products
Speaker 1: are still pending reulatory review, but the company hopes it's
Speaker 1: lab grown chicken, breasts, steaks, and more will be market
Speaker 1: ready by the end of this year. Tim and Mike
Speaker 1: Reagan recently spoke with Amy Chen. She is the company's
Speaker 1: chief operating officer. We take real animals, take themselves from
Speaker 1: those animals. We essentially select the ones that are going
Speaker 1: to taste the best and grow the best, and then
Speaker 1: we feed them something that we call self feed or media.
Speaker 1: It's essentially the same kind of nutrients they would normally
Speaker 1: get inside of an animal's body. We just do it
Speaker 1: in a what we call cultivator, which is like a
Speaker 1: stainless steel tank that you might see in a brewery
Speaker 1: or in a yogurt factory. We allow them to grow,
Speaker 1: continue feeding them, and then ultimately are able to harvest
Speaker 1: meat that is as close to the real thing as
Speaker 1: you can possibly get because it's grown from real animals.
Speaker 1: Amy the timing of this segment is perfect because Tim
Speaker 1: and I were both starving. So I'm curious when will
Speaker 1: we be able to see this on the market. I
Speaker 1: understand it has to get regulatory approval first, right, That's
Speaker 1: exactly right, and so we are currently pending regulatory approval.
Speaker 1: But as soon as it happens, we will be excited
Speaker 1: to start being able to share are it more broadly
Speaker 1: with consumers. One of the things that really convinced me
Speaker 1: about the potential and the promise of cultivated meat was
Speaker 1: actually the taste of it, and growing up in the
Speaker 1: food world, taste of King and Queen. When I first
Speaker 1: had my bite of cultivated meat, I can tell you
Speaker 1: that's the moment when I really believe, and when you
Speaker 1: think about plant based and a lot of these other
Speaker 1: things that require people to make changes in their habits.
Speaker 1: I'm from Texas, and I love my meat and so
Speaker 1: I have always just wanted to be able to think
Speaker 1: about a way to change the world without requiring people
Speaker 1: to really change their habits. And I think does this
Speaker 1: in a really compelling way. What okay, if you were
Speaker 1: to be able to buy this in this store when
Speaker 1: you look at the ingredients, but on the box, what
Speaker 1: would it say? And also are their antibiotics? Are their
Speaker 1: their chemicals in it, etcetera. Now, one of the things
Speaker 1: that's amazing is that it doesn't have antibiotics or hormones
Speaker 1: or some of the things that you think about with
Speaker 1: respect to conventional meat. We're still working on exactly what
Speaker 1: the label would say, but would essentially say chickens grown
Speaker 1: from animal cells are cultivated from high quality animal cells.
Speaker 1: There's a whole range of products is you can imagine
Speaker 1: everything from a chicken breast or a chicken file at
Speaker 1: through to a sausage or a hot dog. Um. Different
Speaker 1: products of conventional meat would have different labels, and so
Speaker 1: you'd see that same kind of thing reflected here. But
Speaker 1: ultimately the promise is that the real cell can be
Speaker 1: the meat that we all love. You know, Amy, I'm
Speaker 1: wondering if there's the potential down the roads even sort
Speaker 1: of improve on mother nature, you know, and make a
Speaker 1: steak with less cholesterol, or chicken that I don't know
Speaker 1: comes pre flavored with buffalo sauce or something like that.
Speaker 1: But you're you're just playing with God there, alright. But
Speaker 1: I'm curious, is there yeah? Is there is there the
Speaker 1: potential to actually enhance foods and make them even healthier,
Speaker 1: more nutritious than than what we're used to. Long term? Absolutely, um,
Speaker 1: I think that's something on our roadmap in the horizon.
Speaker 1: I think in the near term we're focused on delivering
Speaker 1: amazing delicious meat um that is safe enough, high quality,
Speaker 1: and that fits into people's diets and into their habits
Speaker 1: in a way that makes a lot of sense. But absolutely,
Speaker 1: longer term, I mean exactly what you say, you could
Speaker 1: have a steak with the intritional profile of samins um
Speaker 1: or anything else you could imagine in terms of allergies
Speaker 1: or other issues that are currently part of the conventional
Speaker 1: meat system. Well, Amy, speaking of the conventional meat system,
Speaker 1: a lot of people who are vegetarians, they don't they
Speaker 1: don't eat meat, you know, for a few reasons, and
Speaker 1: among those reasons include treatment of animals, or they're just
Speaker 1: against killing animals for food. UM, what is this type
Speaker 1: of thing vegetarian friendly? You know, it's a great question. UM.
Speaker 1: I would say absolutely, but it probably depends on what
Speaker 1: kind of vegetarians are UM. We have a company that
Speaker 1: is a mix of passionate meat eaters UM and carnivores
Speaker 1: and folks that are passionate vegans and vegetarians. And what
Speaker 1: we've generally found is that people who are vegetarian or
Speaker 1: vegan for ethical reasons or environmental reasons UM will embrace
Speaker 1: cultivated meat. Folks who are maybe vegetarian or vegan for
Speaker 1: religious reasons or other ones may want to take a
Speaker 1: second look. I was going to say, the the environmental
Speaker 1: footprint of cultivated meat sounds like it must be way
Speaker 1: less than the farm grown version. Is that is that safe?
Speaker 1: Is that a selling point of this product? Absolutely? I
Speaker 1: think one of the pieces when you think about what's
Speaker 1: happening in the future is people predict that demand for
Speaker 1: meat is going to almost double by And when you
Speaker 1: think about the amount of land and water, it's about
Speaker 1: a third that's currently used for agriculture, you know, one fifth,
Speaker 1: one six of all greenhouse gases, and the world simply
Speaker 1: cannot sustain the kind of demand increases that we're expecting
Speaker 1: on meat UM and so one of the things that's
Speaker 1: really exciting about cultivated meat is because it happens in
Speaker 1: a controlled environment similar to a manufacturing plant. UM, it
Speaker 1: had the potential to have a substantially lower footprint. That
Speaker 1: was a me chen chief operating officer of Upside Foods
Speaker 1: with Tim and fellow Bloomberg carnivore Mike Crea again, and
Speaker 1: a big shout out to Mike for filling in while
Speaker 1: I was out of the office. Maybe I'll send a
Speaker 1: mistake or something. You're listening to Bloomberg Business Week coming up.
Speaker 1: You've had your food, now, how about a beer. I mean,
Speaker 1: it has been quite a week. The chief marketing officer
Speaker 1: at a Bienbev joins us right after the break. This
Speaker 1: is Bloomberg. You're listening to Bloomberg Business Week with Carol
Speaker 1: Masser and Bloomberg Quick takes Tim Steinovik from Bloomberg Radio.
Speaker 1: This company, it is the world's biggest brewer maker, Budweiser, Stella,
Speaker 1: Artois and Corona. And our next guest to spent nearly
Speaker 1: twenty years at the company, and he's got some thoughts
Speaker 1: for us. On today's marketplace for adult beverages and really
Speaker 1: what consumers want most. Marsin Marcondez is the chief marketing
Speaker 1: Officer at a b Nbev. He's also the former global
Speaker 1: president of a b nbev's Beyond Beer division. He joined
Speaker 1: us in studio this past week and express his hope
Speaker 1: that the world is finally hopefully putting COVID nineteen in
Speaker 1: the rear view mirror your business. It's very meaningful to
Speaker 1: see the people that people are really willing to go
Speaker 1: back to life to enjoy, to be outside, to enjoy
Speaker 1: concerts too, to be with friends, to be with family,
Speaker 1: to have a good time, to feel like they can
Speaker 1: enjoy time together one more time. This has an impact
Speaker 1: on on the economy. This this has a significant impact
Speaker 1: in our business as well. You can imagine all the
Speaker 1: frequency on the restaurants, bars, events are all those things
Speaker 1: that were not happening anymore. So there's a balance points
Speaker 1: of concern as as it's always the case in life,
Speaker 1: but a lot of points for optimism as well. Do
Speaker 1: you feel like you have a lot of clarity and
Speaker 1: and in terms of the outlook, And it's interesting that
Speaker 1: you talk about events tib and I did a couple
Speaker 1: of shows from the U S Open here in New
Speaker 1: York City and it was so packed compared to where
Speaker 1: it was pretty pandemic. So, having said that, do you
Speaker 1: feel like the economy is stronger versus like all of
Speaker 1: the recessionary talk that seems to be going on globally. Yes,
Speaker 1: And I am optimistic. That's exactly how I feel, especially
Speaker 1: for our industry. I am optimistic. There's a lot of
Speaker 1: bright side, a lot of bright angles for us to observe,
Speaker 1: like the ones you just described. People are out there.
Speaker 1: There's always a key concern about inflation, recession here and there,
Speaker 1: but there's a bigger inner voice and energy saying go live. Well,
Speaker 1: it's it's interesting here you speak this way because obviously
Speaker 1: your job is to tappen to what people are feeling,
Speaker 1: because you need to know how to communicate to them.
Speaker 1: You need to know how to express your brands to
Speaker 1: them in a way that they will be receptive to.
Speaker 1: How have you community? How is your communication A B
Speaker 1: N beats communication changed over the last couple of years.
Speaker 1: And that's a very good question. And actually I should
Speaker 1: take one or two steps back before I get really
Speaker 1: straight into your into your question, because I think we
Speaker 1: we as a company, we're going through a meaningful process
Speaker 1: of evolution. We're known for our financial discipline and for
Speaker 1: growing inorganically. But then in the last couple of years,
Speaker 1: to your question, we became the indisputable number one brewery
Speaker 1: in the world. And by the time you become the
Speaker 1: number one, you lead the category. So your growth model
Speaker 1: needs to adjust because it's not about acquiring other companies
Speaker 1: anymore and just fighting for share. You need to work
Speaker 1: to enlarge and to grow the whole category so that
Speaker 1: everybody wins and win together. Meaning we need to move
Speaker 1: from a growth model that is focused on inorganic growth
Speaker 1: to a growth model that is focused on organic growth.
Speaker 1: And by the time any company makes that decision, brands
Speaker 1: become inevitably one of the most important assets of the organization,
Speaker 1: if not the most important ones. And this is when
Speaker 1: we really talk about our messaging and all that. So
Speaker 1: we are intentionally becoming much more consumer centric. And this
Speaker 1: is for real, it's not just a nice thing a
Speaker 1: nice thing to say. So we became obsessed about talking
Speaker 1: to people, understanding people, understanding what's going on with them,
Speaker 1: what's impacting their behaviors, which are their needs so that
Speaker 1: we can identify relevant opportunities to make our brands relevant
Speaker 1: in their lives. The key thing is that when you
Speaker 1: do marketing, when you build brands, there's a trap or
Speaker 1: a tendency for people to be okay just if they're visible,
Speaker 1: and then you can spend a lot of money just
Speaker 1: on visibility. The key thing to really drive growth and
Speaker 1: to be meaningful to people is when you find the
Speaker 1: right spots to be relevant to them. How do you
Speaker 1: figure relevancy? It all comes. It all comes as a
Speaker 1: consequence of being closed to them. So we talked to
Speaker 1: literally millions of people every year. We have survey we
Speaker 1: have online panels and fixed online panels. We we talked
Speaker 1: to thousands of consumers every week because we're obsessed about
Speaker 1: understanding their behavior. We learn a lot of that coming
Speaker 1: after COVID right, because when the big thing happens that
Speaker 1: it significantly changes the way people live. We need to
Speaker 1: to have a much tighter post on how they're living
Speaker 1: so you can identify the opportunities to be meaningful and
Speaker 1: relevant in their lives. And that's a big change that
Speaker 1: we've been going through as an organization. Because there's so
Speaker 1: many brands today b and some five brands. How does
Speaker 1: is structured internally because you can't personally oversee five hundred brands.
Speaker 1: So take us inside the company a little bit. I
Speaker 1: was about to say welcome to the kitchen, but i'd
Speaker 1: right say welcome to the bar, to the brewery, all right.
Speaker 1: I have heads of marketing responsible for the different regions
Speaker 1: of the world, and I also have people reportents directly
Speaker 1: to me to lead from those five brands. With the
Speaker 1: four global brands, and they are Budweiser, Stellartoa, Corona, and Miklobota,
Speaker 1: So there's a special focus their plus the long tail
Speaker 1: of brands because this is still an industry where fifty
Speaker 1: percent of the industry is focused still in local brands,
Speaker 1: they usually carry the local pride. Right, that makes a
Speaker 1: lot of sense. I mean, do you anticipate that those
Speaker 1: four brands continue to be really the engine for the
Speaker 1: company going forward? Definitely yes, because these four brands there
Speaker 1: are premium brands, and the premiumization is a gigantic trend
Speaker 1: that we see having a huge impact in multiple industries,
Speaker 1: including hours and it's here to stay. What are the
Speaker 1: top brands that's sell in the United States. I'll give
Speaker 1: you the top two. Okay, so number one, it is
Speaker 1: not going to be hard to to guess. It's bud
Speaker 1: Light and it's been the case for decades. But number
Speaker 1: two might be in new news for you. Number two
Speaker 1: is michelob Ultra low carbs, locale, great taste for twenty years.
Speaker 1: That's been around for twenty years, and since last year
Speaker 1: it's the number two brand in volumes in the United States. Timmy,
Speaker 1: you were shocked by that. Yeah, I was really surprised
Speaker 1: because to me, it's still a new brand even though
Speaker 1: it is twenty years old. That's one of those brands
Speaker 1: that I think I remember when it was introduced, like
Speaker 1: how has it been so successful and why, especially in
Speaker 1: the last year, has it seen a real uptick Again,
Speaker 1: It's all about getting extremely well connected with consumer behavior
Speaker 1: and with big consumer trends and industry trends. In this case,
Speaker 1: we see that health and wellness is a big trend.
Speaker 1: We see this in every industry for sure. COVID has
Speaker 1: accelerated that as well, so we see a clear impact
Speaker 1: of this in our industry too, and this has definitely
Speaker 1: accelerated the performance of Mikolo Boltra more so. That's what
Speaker 1: I wanted to ask you, like Tim and I for
Speaker 1: so many of our conversations for a long time, and
Speaker 1: I do feel like we're getting increasingly away of thinking
Speaker 1: about the COVID impact. But what happened to you guys
Speaker 1: during COVID that has stayed with you in terms of
Speaker 1: corporate strategy and how you relate with consumers. So when
Speaker 1: you think about brands and commercial trends in the indust
Speaker 1: three I could name three. So the first one, as
Speaker 1: we just spoke about, is health and wellness. Second point
Speaker 1: is premiumization. Because beer is affordable luxury, right, so when
Speaker 1: people say, like Okay, things are complicated, I want to
Speaker 1: give myself some treat, they can't afford great beers. So
Speaker 1: we see premiumization. Again. This is a trend that we
Speaker 1: see happening in multiple industries, but in our case in
Speaker 1: the beer industry, it's a very evident and strong trend.
Speaker 1: So back to your previous question on the global brands,
Speaker 1: they're all premium and they continue to be the big
Speaker 1: growth engine of the company because they're sitting over a
Speaker 1: gigantic trend. The third thing that I think we all
Speaker 1: feel it e commerce. Because of the lockdown lives people
Speaker 1: started getting used to buying things online. So we've been
Speaker 1: investing significantly significant amounts of money on technology, on building
Speaker 1: those platforms. And for example, more than fifty percent of
Speaker 1: our net revenues they are already sold worldwide via digital channels.
Speaker 1: How does that work for beer? Right? How does that work?
Speaker 1: So this is because but this is sold from us
Speaker 1: to the clients, to the retailers right, so to the entrade.
Speaker 1: These are business to business platform called bees. It's already
Speaker 1: one of the top ten e commerce platforms in the world.
Speaker 1: But imagine a company our size, more than fifty percent
Speaker 1: of our natural revenues are already sold via digital channels.
Speaker 1: What about director consumer? Direct to consumers? This is our
Speaker 1: next endeavor. So we have already in a few countries.
Speaker 1: So in the US specifically, we have strong partnerships with
Speaker 1: the big retailers that are that also have online versions
Speaker 1: like Walmart and so and so forth and easily and
Speaker 1: the ones you mentioned. We cannot operate in the US
Speaker 1: doing direct two consumers operations, but in multiple countries of
Speaker 1: the world we can. In Brazil, it's uh, it already
Speaker 1: represents more than five percent of our total sales. We
Speaker 1: sell direct to consumers. And that we're just about to launch,
Speaker 1: Like fIF World Cup will be a big opportunity for us,
Speaker 1: especially in Latin American markets because imagine how many people
Speaker 1: will be watching the games at home. I feel like, oh,
Speaker 1: I should have ordered more beers. So we're launching Tada
Speaker 1: Tada right, which is our our new global brand for
Speaker 1: for director consumers in more than ten countries in the
Speaker 1: second semester of this year. And this has become this
Speaker 1: is growing very fast. Are beer trends among consumers? I mean,
Speaker 1: it's probably stupid question, but I mean, are they the same? Like?
Speaker 1: How different are some some things they hit the tren
Speaker 1: the different markets, uh, and with different intensities, But they're
Speaker 1: the same, Like the mega trends as we say, like primalization,
Speaker 1: health and well in the e commerce these are mega trends.
Speaker 1: But for example, beyond beer is something that is not
Speaker 1: equally split yet. So you see like the US, for example,
Speaker 1: having a very meaningful market already for beyond beer, I
Speaker 1: mean selters, ready to drink, cocktails, hearties and these kinds
Speaker 1: of products. It's already tennish percent of the total industry
Speaker 1: in the US. It's very sizeable in other markets, it's
Speaker 1: still more at the early stages. So this is one trend.
Speaker 1: It is a trend everywhere, but it's still uneven lead
Speaker 1: the street any thanks to Marsel Marcone days he's the
Speaker 1: chief marketing officer at A B and BEV. And speaking
Speaker 1: of thanking someone, a big shout out to our Carley
Speaker 1: Wanna of Bloomberg News. She has been with us doing
Speaker 1: a rotation three months with the Bloomberg Radio Group and
Speaker 1: she's been such an important member of our team, including
Speaker 1: helping us produce this weekend broadcast on a regular basis.
Speaker 1: And she's not going too far, so maybe she'll actually
Speaker 1: get to join us back on air in a bit
Speaker 1: when she's got some new stories potentially about Crypto. We
Speaker 1: totally want her back. And that wraps up the weekend
Speaker 1: edition of Bloomberg Business Week from Bloomberg Radio. Thank you
Speaker 1: so much for joining us. I'm Carol Masser and I'm
Speaker 1: Tim Stanovk. Be sure to tune into Bloomberg Business Week
Speaker 1: Monday through Friday. It starts at two pm Wall Street
Speaker 1: time on Bloomberg Radio. You can also watch our daily
Speaker 1: broadcast on YouTube. Just search Bloomberg Global News and check
Speaker 1: out our Bloomberg Business Week podcast. You can find that
Speaker 1: at Bloomberg dot com, Apple, or wherever you get your podcast.
Speaker 1: Bloomberg Business Week is available on newsstands, now, at Bloomberg
Speaker 1: dot com and always on the Bloomberg terminal. You can
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Speaker 1: care of stay safe. This is Bloomberg