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Speaker 2: An m and a trade up you on the blocks
Speaker 2: on the rocks here.
Speaker 3: Anglo American rebuffed a sweetened takeover offer from BHP Group
Speaker 3: divided at about forty three billion dollars US, leaving it
Speaker 3: up to the Australia minor to make a better bid
Speaker 3: or lose out of what could be the industry's biggest
Speaker 3: deal in a decade.
Speaker 2: Let's bring in an expert on this stuff.
Speaker 3: Alon Ulsha, Bloomberg Intelligence senior Metals and mining analyst.
Speaker 2: He joins us from London. I did not hire him.
Speaker 3: He's a recent simple check him out here, Aylon, what
Speaker 3: do you got for us?
Speaker 2: What's going on in the global mining space? He says,
Speaker 2: with these names.
Speaker 4: Looking for Copper is the most coveted metal out there
Speaker 4: in the mining industry. It's in short supply, it's expensive
Speaker 4: to build new minds, it's risky to build new mines,
Speaker 4: and demand is set to climb significantly because of applications
Speaker 4: around the energy transition. So mineers are looking for opportunities
Speaker 4: to grow exposure, and that's one of the main reasons
Speaker 4: Beuchp's gone after Anglo American, which Anglo American has been
Speaker 4: around for a while. They've got a bunch of assets
Speaker 4: in they're not just copper. But it's always been a
Speaker 4: difficult business to buy because there's some assets in there
Speaker 4: that are problematic, that are unwanted. They've effectively served as
Speaker 4: poison pulls for a takeover. But buchb has now come
Speaker 4: with us, but it's structured in any interesting way, basically
Speaker 4: saying we'll buy you, but you need to emerge some
Speaker 4: of your South African assets, spin them off to your shareholders,
Speaker 4: and we'll pick up the rest.
Speaker 5: And that therein lies the problem. Like that's why no
Speaker 5: one really wants that for Anglo American, right, because they're saying,
Speaker 5: you go spin this off, then will buy the rest
Speaker 5: of your company. Why don't they just buy the whole
Speaker 5: company and then.
Speaker 6: Sell it off.
Speaker 4: Yeah, you're absolutely right. It's one of the reasons shareholders
Speaker 4: don't seem to like it. It's a complicated structure. It
Speaker 4: basically introduces a whole lot of risk for those shareholders
Speaker 4: that will be inheriting these assets execution risk, value risk.
Speaker 4: But for BHP, it's also a headache that they don't
Speaker 4: want to absorb themselves. I don't want to take it
Speaker 4: on there effectively would be taking on potentially the value
Speaker 4: trap that has been plaguing Anglo American for so many years.
Speaker 4: And remember BHP kind of has withdrawn from South Africa.
Speaker 4: The BHP was until not so recently BHP Bulletin and
Speaker 4: then and that was an acquisition of a business, a
Speaker 4: merger with the business that had a huge South African presence,
Speaker 4: and then they spun it off in South thirty two.
Speaker 4: So there goes to South African assets. So they don't
Speaker 4: really want to be there, and it's kind of understandable.
Speaker 4: South Africa is a difficult place to operate at the moment.
Speaker 2: So for them yourself, well, I.
Speaker 4: Know, I do feel bad saying it, but it's it's
Speaker 4: the truth. It's the truth, and we speak the truth.
Speaker 3: And.
Speaker 4: So it's yeah, I think it's just it's a tough
Speaker 4: it's a tough one for them to get the hit around.
Speaker 2: I think that in.
Speaker 5: Essence, what this just also boils down to, is the
Speaker 5: the money made in discovering new copper assets is minimal,
Speaker 5: Like the hurdle rates really high. So the way to
Speaker 5: do that is you have to buy competitors. It's very
Speaker 5: difficult to get the kind of scale right. Building a
Speaker 5: mind is really hard. There are a lot of different
Speaker 5: labor laws in different countries. Look what happened in South
Speaker 5: America all all of a sudden, like mining just was like,
Speaker 5: know what, we're good?
Speaker 6: Like you can't take any copper out of here? I
Speaker 6: think that was in Peru. Does that just speak to
Speaker 6: that problem? And there? What is? What's the other solution
Speaker 6: to that?
Speaker 5: The geopolitical risk premium for copper is a very different
Speaker 5: proposition than I feel like it's been the last few decades.
Speaker 4: Yeah, that that's absolutely right. I mean, geopolitics has made
Speaker 4: things more difficult, but it's not really new. It's been
Speaker 4: a bit of a slow burn issue. It's also the
Speaker 4: reality is, you know, geologically, it's just it's tough to
Speaker 4: find the deposits that are close to surface in really
Speaker 4: high grades. And those deposits tend not to be in
Speaker 4: the US or Australia. They tend to be in some
Speaker 4: tougher jurisdictions like the Congo, the DRC or in Argentina,
Speaker 4: which is politically seems to be always always in flex.
Speaker 4: So if you want to go after these assets, you
Speaker 4: would have built exposure and build these minds. You need
Speaker 4: to take on that risk, and as you say, the
Speaker 4: hurdle rate needs to be is very high, and at
Speaker 4: current copper prices it probably starts to make sense. But
Speaker 4: just a few months ago before kind of the resurgence
Speaker 4: we'd seen when copper was trading, you know, eight and
Speaker 4: a half thousand dollars a ton minusers couldn't make the
Speaker 4: economics work. Now it's a little bit easy at close
Speaker 4: to ten thousand dollars a ton, but even still there
Speaker 4: in these questions as to how sustainable that price is
Speaker 4: in the near term.
Speaker 3: So Ellen, you know, I'm just putting on my investment
Speaker 3: banker cap here. I think Anglo Americans got a great position.
Speaker 3: They don't have to do anything, and they don't. If
Speaker 3: I were them, I'd be like, no, if you guys
Speaker 3: want us, buy the whole thing and then you deal
Speaker 3: with it, you know, pay me a premium, or I'll
Speaker 3: just stay with my copper. Here, I mean there's really
Speaker 3: no reason for Anglo to cave in here, right.
Speaker 4: Yeah, that seems to be the way they're going for
Speaker 4: the time being. But there is a lot of pressure
Speaker 4: on Anglo Americans. So at the end of last year
Speaker 4: they came out with an investor update. You know, Anglo
Speaker 4: American before the end of last year, before December, was
Speaker 4: the go to play in the mining space for growth.
Speaker 4: They had a great growth profile, that had good projects,
Speaker 4: that had been investing through the cycle, so growth was
Speaker 4: coming in at the right point in the cycle when
Speaker 4: most of their peers had pulled back and had a
Speaker 4: bit of a growth gap. Then came December last year
Speaker 4: investor update and they slashed guidance the board. Share price
Speaker 4: was decimated, and that's why we're in the position that
Speaker 4: we're in now, and it's it's it's shaken the credibility
Speaker 4: or shake the confidence of investors in the in the
Speaker 4: credibility of management. So yes, they can reject this, but
Speaker 4: but the onuses will then to come up with a
Speaker 4: credible strategy to unlock the value in the stock. And
Speaker 4: that's probably actually going to happen tomorrow in some way,
Speaker 4: shape or form. Where they said they are coming out
Speaker 4: with their standalone strategy. So that'll be really interesting to watch.
Speaker 3: All right, we'll circle back with you and see what
Speaker 3: the see what the market thinks about that. Alon Ulsha
Speaker 3: he's his senior Medals and mining analyst Bloomberg Intelligence in London,
Speaker 3: the Pride of South Africa.
Speaker 2: Although it's tough.
Speaker 3: To be a miner, and so I don't know you
Speaker 3: knew all about the mining stuff too, You're not. Oh,
Speaker 3: you're just at the global energy space.
Speaker 7: You know what.
Speaker 5: No, I can all explain you that too, for sure.
Speaker 5: I started in gold, you started that. I went to copper,
Speaker 5: then I went to oil.
Speaker 3: All right, very good stuff. You learn stuff every day.
Speaker 2: Here.
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Speaker 5: The only big story that we're following is Paul alluded
Speaker 5: to Happy Monday everybody.
Speaker 6: By the way, is.
Speaker 5: Bill Huang's trial on our Keego's capital management. The real issue,
Speaker 5: of course, is that the accusation and what the prosecutors
Speaker 5: are looking at is if he actively lied to the
Speaker 5: banks that were helping him fund these swaps to bet
Speaker 5: on basically ten stocks that came spectaclarly crashing down.
Speaker 6: On him in the last few years.
Speaker 5: Janey Basik is Bloomberg television anchor and she is joining
Speaker 5: us outside of the New York City Federal District Court House.
Speaker 6: Shanellie, what's at stake in this trial?
Speaker 8: Well, there's a lot at stake for Bill Lang and
Speaker 8: of course his chief financial officer, Patrick Halligan, who we're
Speaker 8: being accused here by regulator and of course the Justice
Speaker 8: Department of manipulating the markets of racketeering, wires fraud and
Speaker 8: securities fraud are in particular the charges that they're facing.
Speaker 8: They could face significant jail time depending on how this
Speaker 8: trial goes. Of course they are planning to defend themselves
Speaker 8: quite vigorously here. But there's also what happened, right, We
Speaker 8: know a lot about what happened in the sense of
Speaker 8: the banks had lost billions of dollars off the heels
Speaker 8: of this alex. But remember, as a family office, there
Speaker 8: was not required by means of disclosure for par Kagos
Speaker 8: and Bill Wang in the initial indictment. You did see
Speaker 8: prosecutors not to that fact, but said they did lie
Speaker 8: to the banks and indeed attempt to manipulate the market.
Speaker 8: So it will be a trial unlike we've really seen
Speaker 8: before in the world of white collar crime.
Speaker 2: Chanale.
Speaker 3: The best I can tell from just reading into the
Speaker 3: story is that mister Wang's defense is basically, hey, I'm
Speaker 3: not responsible for the other.
Speaker 2: Sides losses here. They're big boys too.
Speaker 3: Does that does that have mary?
Speaker 8: That is a fair assessment here if you think about
Speaker 8: Credit Suis in its own right, this is not the
Speaker 8: only place they've lost significant money tied.
Speaker 2: To a client.
Speaker 8: You have the banks saying that they were lied to,
Speaker 8: but you have Bill Hung saying, well, okay, his defense
Speaker 8: might bring up Credit Suise his own risk management report
Speaker 8: outlining its own failures in risk management at this point
Speaker 8: in time, So we can see that scuffle between the
Speaker 8: banks and Bill Hung's defense come up into this course
Speaker 8: of this child.
Speaker 6: Yeah.
Speaker 5: See, I think that's so interesting because it really is
Speaker 5: about the banks helping buy a COMCBS issue the shares, right,
Speaker 5: that's one part of investment banking that led to the selloff,
Speaker 5: that led to the margin calls that led to all
Speaker 5: of this unroundling.
Speaker 6: So it's like the two sides shouldn't talk to each other.
Speaker 5: The ones that are working with Bill Huang and the
Speaker 5: ones that are helping buy ACOMCBS issue shares. But in
Speaker 5: this case they probably should have been able to talk
Speaker 5: to each other to see what each other was doing.
Speaker 8: Yeah, let's go back and talk a little bit about
Speaker 8: what prompted all of this.
Speaker 6: It's the idea that he became.
Speaker 8: A family office with an expected one point five billion
Speaker 8: in capital to more than thirty five billion in capital
Speaker 8: in a very short amount of time. And the reason
Speaker 8: he was able to amass these massive positions was really
Speaker 8: buying a lot of these shares on swap agreements. And
Speaker 8: what happened was he had amassed size so sizable in
Speaker 8: ViacomCBS that when the banks went on behalf of the
Speaker 8: company to try to offload or sell more shares on
Speaker 8: behalf of Viacom, that's when that created pressure on the shares.
Speaker 8: That's when the banks started to really look at our chagos,
Speaker 8: how much they were holding their exposures and the needs
Speaker 8: for potential margin calls. Interestingly, on Monday, after those opening arguments,
Speaker 8: we may hear from the first witness for this trial,
Speaker 8: and it may be a counter party at UBS that
Speaker 8: was behind one of those first early calls that really
Speaker 8: talked through those margin calls and how quickly our Chagos
Speaker 8: would be able to put those up. So what do
Speaker 8: they know and not know? What do they need to
Speaker 8: know and what do they need to know by law?
Speaker 8: I think that that's the critical part of this discussion here.
Speaker 3: He Shanan, just real quickly, what's the time you hear?
Speaker 3: How long will this trial is? How long is it
Speaker 3: expected to last?
Speaker 8: It will be weeks. It will be a number of weeks.
Speaker 8: So we're expected to hear not only from two of
Speaker 8: his former employees, remember two of them also already pled guilty,
Speaker 8: but there could be a list of more than two
Speaker 8: dozen people from counterparties these banks that might step forward
Speaker 8: in the wake of this trial.
Speaker 3: In the course of this trial, Hi, shanaa Bassek, thank
Speaker 3: you so much for joining a Shana on the basics.
Speaker 2: She's downtown at the courthouse.
Speaker 3: Our Chagos capital trial starting today could take several weeks.
Speaker 3: Big dollars involved a lot of big important investment banks
Speaker 3: in Vahome to here.
Speaker 2: But this was certainly the news.
Speaker 6: Oh my gosh, it was spectacular. I mean just I've
Speaker 6: never seen anything like that before.
Speaker 3: No, And of course, you know, the biggest manifestation is
Speaker 3: it just contributed didn't cost, but it contributed to the
Speaker 3: demise of Credit Swiss, my former employer.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 5: Alex Steel alongside Paul Sweeney. It's a Bloomberg Intelligence Radio.
Speaker 5: We cover all the top news in finance and economics
Speaker 5: with our analysts worldwide. They cover two thousand companies and
Speaker 5: one hundred and thirty industries. We also get the best
Speaker 5: in the brightest to come into the Bloomberg studio on
Speaker 5: a Monday and give us their take on the markets.
Speaker 5: And for that we go to Dryden Pence see io
Speaker 5: at Pence Wealth Management. Now typically Dryden, you're in California.
Speaker 9: That's correct.
Speaker 6: You know, why are you here? Isn't that fun for you?
Speaker 6: Good for us?
Speaker 2: Well?
Speaker 9: Yeah, Now I come to New York about once a quarter.
Speaker 10: We have a lot of you know folks in this area,
Speaker 10: and so it's good to come here. So I'm really
Speaker 10: happy to be here today.
Speaker 5: Thank you for we welcome to you yesterday with rain
Speaker 5: and coldness, so you're welcome on that point.
Speaker 6: So there was a great piece in the Bloomberg.
Speaker 5: They talked about how S and B five hundred companies
Speaker 5: are on track to post their best quarterly earning this
Speaker 5: relative to expectations in at least two years, because nothing
Speaker 5: disastrous happened, we didn't get that recession. And this dovetails
Speaker 5: with your note saying that this year has been much
Speaker 5: ado about nothing.
Speaker 10: It's it is. I mean, people kind of dance on
Speaker 10: the head of the Fed's pen. But I mean the
Speaker 10: point is is that if you look at basic earnings,
Speaker 10: you know we're probably going to have record earnings across
Speaker 10: the S and P five hundred. And we started off
Speaker 10: with the Magnificent seven leading the market, but now the
Speaker 10: rest of them are beginning to catch up. And and
Speaker 10: I think that we're going to see this four to
Speaker 10: ninety three continue to spread out and go, and that
Speaker 10: earnings are going to It's basically the beat goes on
Speaker 10: every time we come where the beat goes on.
Speaker 3: What's the pin on your lapel? People on radio can't
Speaker 3: see it, but what's the pin on your lapel? That's
Speaker 3: a bronze star, Bronze star US Army.
Speaker 2: That's correct. Thank you for your service, my friend, to.
Speaker 9: Thank you for your taxes.
Speaker 2: Yeah, exactly, that's what I'm good at. You don't want
Speaker 2: me in a foxhole.
Speaker 7: You want me writing check.
Speaker 9: You write those checks the way you buy body armor.
Speaker 9: And that says soldier's life. So thank you very much.
Speaker 3: All right, total spent this earning cycle. We're just kind
Speaker 3: of getting through. We'll here from some of the retailers here,
Speaker 3: anything that kind of knocked you off your game one
Speaker 3: way or the other from this earning cycle.
Speaker 10: Well, in the earning cycle, of course, we've got Walmart
Speaker 10: coming up at the at the end of the at
Speaker 10: the end of the week here.
Speaker 9: But I think that what we're seeing is that, you know, consumers.
Speaker 10: Are continuing to spend uh and and that's beginning to
Speaker 10: transfer into earnings. Everybody, you know, lowered their expectations and
Speaker 10: kind of put them down, and so we're coming in
Speaker 10: this thing. It's it's an easy beat cycle, and we
Speaker 10: continue to do that. But consumer, you know, yeah, wages
Speaker 10: are at an all time high. You know, earnings are
Speaker 10: at all time high. We've got more people working than
Speaker 10: ever before, and that drives consumers. And if you give
Speaker 10: an American consumer money, they're.
Speaker 7: Going to spend it.
Speaker 10: So I think that we're continuing to see that across retail.
Speaker 10: We'll continue to see that.
Speaker 9: But it but people break break up. You have certain
Speaker 9: amount of trade downs.
Speaker 10: When we mentioned the Walmart piece of it is that
Speaker 10: the largest fastest growing group of Walmart shoppers are folks
Speaker 10: that make over one hundred thousand dollars a year really
Speaker 10: and so oh.
Speaker 9: Yeah, and then they get in there.
Speaker 10: They get in there because you know, they come for groceries.
Speaker 10: You know, inflation is kicked up groceries quite a bit.
Speaker 10: People feel that they go in and then you know,
Speaker 10: so there really is an opportunity for continued increase in
Speaker 10: market share, and so you kind of get, you know,
Speaker 10: then you get the aspirational side is you have you know,
Speaker 10: the very high end is doing well.
Speaker 9: I mean, gosh, I.
Speaker 10: Mean forty percent of consumer spinning is done by the
Speaker 10: top twenty percent of the population.
Speaker 5: So yeah, and Torsten Slot had a great chart out
Speaker 5: just and he kind of.
Speaker 6: Recycles his chart every once in a while over at Apollo.
Speaker 5: And it's basically those that have either no mortgage on
Speaker 5: their home or have a mortgage below four percent, which
Speaker 5: to that point just freeze up all that cash.
Speaker 10: Exactly if your if your mortgage is at four if
Speaker 10: you have a thirty year mortgage at four percent, you
Speaker 10: don't really work worry too much about mortgages going to
Speaker 10: seven or eight percent.
Speaker 9: Now, if you're a millennial trying to be a first
Speaker 9: time home buyer, your brain's going to explode. But for
Speaker 9: everybody else it's really not as big an issue.
Speaker 3: One of the names on your list is really interesting
Speaker 3: to me, which is Apple, because for the first time
Speaker 3: in a collective memory of a lot of investors, there's
Speaker 3: serious and fundamental headwinds for Apple.
Speaker 2: And if you bull it down to one word's China.
Speaker 2: How do you guys get comfortable with that? We get comforted.
Speaker 10: But I think people underestimate the massive size of Apple.
Speaker 10: If you take a look at the app Store, that's
Speaker 10: an environment of two point two billion active users, and
Speaker 10: they've got two billion active devices that are out there,
Speaker 10: So that's nine hundred million people more than the entire
Speaker 10: population of China. Why so sometimes when you think, okay,
Speaker 10: it's a China story, now it's a global story.
Speaker 9: You know, if you take a look at the app Store, the.
Speaker 10: Total merchandise value that's traded on that is over one
Speaker 10: point one trillion dollars. It's bigger than the Netherlands.
Speaker 9: It's amazing how big it really is.
Speaker 3: So, I mean, I guess the issue there for for
Speaker 3: Apple is, you know, it's can they manage around China?
Speaker 3: Number one? And I think there are a lot of
Speaker 3: people that are on both sides. And then the number two,
Speaker 3: what is their AI strategy? Again, do you think they're
Speaker 3: a tech company that has to have an AI strategy
Speaker 3: because really, at the moment, I don't know.
Speaker 10: I think they have the luxury a because they're so big,
Speaker 10: they have the luxury to take a little time to
Speaker 10: make sure it's right. I mean, Apple doesn't make many mistakes,
Speaker 10: and I think that that you know, they really they're
Speaker 10: really to use of military parliance.
Speaker 9: They're really about you.
Speaker 10: Know, ready aim fire, and so I think rather than
Speaker 10: jump into just anything AI, they want to get it right.
Speaker 10: And I think that's why people trust that brand, They
Speaker 10: trust equipment, they trust all those things. So you know
Speaker 10: the fact that they're not rushing in to be the
Speaker 10: exact leader on integration.
Speaker 9: Of AI means that they're going to try to get
Speaker 9: it right.
Speaker 10: And I think that that's going to be important.
Speaker 5: Well, you mentioned Walmart earlier. We talked about that. What
Speaker 5: about Amazon?
Speaker 6: What why do you own a stock like Amazon?
Speaker 10: You know, Amazon gets about you know, forty cents out
Speaker 10: of every dollar, four out of ten, you know, of
Speaker 10: everything online. And so when you think about how massively
Speaker 10: large that is, and we have a consumer that's moving
Speaker 10: more and more online. If you move from right now,
Speaker 10: we're going like fifteen percent of retail is online.
Speaker 9: If they just move up to.
Speaker 10: If they move to twenty five, which is kind of
Speaker 10: where the most of the world is going, that's a
Speaker 10: three hundred billion dollar opportunity that Amazon has. And so
Speaker 10: as behavior changes and behavior moves more and more online,
Speaker 10: you're going to see greater use of Amazon. And one
Speaker 10: thing we have to think about is on this inflation cycle.
Speaker 10: And even if you if you look at inflation, people
Speaker 10: being price conscious and things like that, the most efficient
Speaker 10: way to bargainshop is online. Oh you're preaching the fire, please,
Speaker 10: and there you go, and there you go. So it's
Speaker 10: just going to increase utilization of that platform. They're so dominant,
Speaker 10: and so I think that we find that that, you know,
Speaker 10: long term, if we're thinking about this, that they're going
Speaker 10: to overcome whatever headwinds people are trying to imagine that
Speaker 10: they have.
Speaker 3: You know, one of the many reasons we're like hearing
Speaker 3: from Walmart and we will this week is just it
Speaker 3: gives us a good read on the consumer. It feels
Speaker 3: like a broad based read on the consumer. How do
Speaker 3: you view the consumer here, because there's a there's definitely
Speaker 3: some cracks out there for a lot of folks.
Speaker 10: I think that then when we talked about early on
Speaker 10: this trade down, right, if you break the consumer up
Speaker 10: into three groups, you have the the top tier, the
Speaker 10: middle tier, and then the lower tier. You know, the
Speaker 10: lower tier, inflation is showing up and it's and it's
Speaker 10: beginning to change some of their behavior. People having to
Speaker 10: pay more attention to pricing and things like that. They're
Speaker 10: going to move into more frequency of a Walmart or
Speaker 10: any of the discounters. But then when you take a
Speaker 10: look at that middle group, like I mentioned before, that
Speaker 10: trade down, where now they're because grocery prices are so high.
Speaker 10: People are going to move in there for grocery and
Speaker 10: the next thing, you know, they look at the rest
Speaker 10: of the sore and when you and you hear it
Speaker 10: all the time, I can't find it anywhere else.
Speaker 9: So I went to Walmart. And so I think that
Speaker 9: we're going to continue to see increased.
Speaker 10: Traffic and that's going to translate, uh to increase increased
Speaker 10: growth in utilization.
Speaker 5: But to the Amazon story, you're definitely buying it as
Speaker 5: a retail story, not as like a cloud play or
Speaker 5: an AI play, where you know, is that just like
Speaker 5: like a pony on a cake?
Speaker 2: What is that?
Speaker 6: I don't want my cake?
Speaker 9: You want a pony on your cake? That could be
Speaker 9: a problem, but I think I think that it is.
Speaker 10: It is you know, Amazon is It's got the cloud
Speaker 10: of course, and that's just going to continue to grow
Speaker 10: as we go through all this demand and AI and
Speaker 10: those things. But when we really kind of think about
Speaker 10: the consumer, because that's you know, what are people doing.
Speaker 9: That's a very solid growth.
Speaker 10: Story, and it's a behavior story of the American consumer,
Speaker 10: and I think that it's one that that we really
Speaker 10: need to pay attention to because remember too that that
Speaker 10: pricing online has kind of gone down over over the
Speaker 10: you know, past ten years, whereas CPI and everywhere else
Speaker 10: has gone up. So you get better competitive pricing online,
Speaker 10: better competitive pricing in an inflationary environment.
Speaker 9: And that's just going to continue to.
Speaker 10: Play right into that ecosystem that is part of I've
Speaker 10: yet to find I very rarely find somebody who hasn't
Speaker 10: bought something on Amazon.
Speaker 9: Yeah, and it just continues.
Speaker 2: Yeah.
Speaker 3: Absolutely, We'll hear from Amazon Thursday, Port with earnings. I'm sorry,
Speaker 3: Walmart Thursday. Dreda Pence, thank you so much for joining us.
Speaker 3: Dreda Penci is the chief investment officer Pence Wealth Management,
Speaker 3: based out there in Newport Beach, California.
Speaker 2: Joining us here in a Bloomberg Interactive Broker studio.
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Speaker 5: and every Monday at this time we dip into our
Speaker 5: Bloomberg NIF research team. So this is basically a research
Speaker 5: team that has the best data sets and models built
Speaker 5: by analysts and industry experts all around the world, and
Speaker 5: they cover everything commodity, power, transport, industry, buildings, AGG related
Speaker 5: and it's really all.
Speaker 6: The cutting issues of our.
Speaker 5: Time in my personal opinion, because you know how I
Speaker 5: like the whole green stuff, energy transition stuff. If you
Speaker 5: look at any report, they all quote the EV data
Speaker 5: that comes from Bloomberg NIF. And we have one of
Speaker 5: those individual analysts here with us now, Corey Kanter, is
Speaker 5: being at Bloomberg NAF lead US electric Vehicle analyst. It's
Speaker 5: great to have you here at Corey, thanks for joining us.
Speaker 11: Great to be here, guys. Happy Monday, Happy Monday.
Speaker 6: We made it so you told.
Speaker 5: Your latest note is about how Tesla's there's recent stumbles,
Speaker 5: not necessarily government policy or anything like that, but Tesla's
Speaker 5: recent stumbles creates some adoor opening for the other EV
Speaker 5: makers like a GM and a Ribbean.
Speaker 6: Can you talk us through what your latest research says.
Speaker 11: Yeah.
Speaker 12: So, if you look at last quarter, both globally and
Speaker 12: within the US, Tesla hit a bit of a rough patch.
Speaker 12: You saw globally sales down about nine percent year on year.
Speaker 12: And when you're looking at the EV space and the
Speaker 12: automotive space, year onyar is usually the best way to
Speaker 12: take a look at this market.
Speaker 11: To see how things are changing and growing.
Speaker 12: And so when it comes to GM, when it comes
Speaker 12: to Rivian, Yuendi and even Lucid, there's just an opening
Speaker 12: here for them to expand their market share. Each of
Speaker 12: them has a different strategy as it pertains to twenty
Speaker 12: twenty four. And this doesn't mean that either of them
Speaker 12: are going to or any of them are going to
Speaker 12: pass Tesla in this year. But from yours working in
Speaker 12: the EV space, all you would hear is we're always
Speaker 12: competing for number two. We can never surpass Tesla. And
Speaker 12: whether you're looking at the kind of EV car space
Speaker 12: or even EV charging, the fact that Tesla's taking a
Speaker 12: step back birth both in terms of where they're focusing
Speaker 12: their sales as well as their EV charging network efforts,
Speaker 12: it means that other people, if they are able to
Speaker 12: step up can make in roads.
Speaker 3: It feels like after an initial surge over the last five, six,
Speaker 3: seven years that there's been a lull in demand for evs,
Speaker 3: And I don't know a do you believe that's the
Speaker 3: case in b Why is that? Do you think?
Speaker 5: So?
Speaker 12: Last year we saw in the US about fifty percent
Speaker 12: year on year growth for electric vehicles from twenty twenty two, So,
Speaker 12: if anything, that was a really strong and successful year.
Speaker 12: We did begin to see some of the challenges around
Speaker 12: adoption as you move from that kind of early adopter's
Speaker 12: phase to more of the mass market, and that's where
Speaker 12: consumers are going to be less patient with the technology
Speaker 12: and with the upfront cost as well as charging infrastructure.
Speaker 12: And I think what makes the US different than other
Speaker 12: regions like Europe and China is that charging really hasn't
Speaker 12: been figured out to the same extent, and the heavy
Speaker 12: reliance on Tesla means that when Tesla steps back from
Speaker 12: charging investments, you know, lays off many of the supercharging
Speaker 12: network team, it means it's to be more of a
Speaker 12: uncertainty for the consumer here. So data in the first quarter,
Speaker 12: you know, we're finalizing We've seen a lot of data
Speaker 12: come up outside of Tesla. Other automakers like Ford, Hyendai,
Speaker 12: Rivian all did quite well, but GM, Volkswagen and Tesla
Speaker 12: took a step back and that has a big impact
Speaker 12: on the market.
Speaker 11: In the first quarter. We'll see how Q two goes.
Speaker 5: We are looking down the barrel here this week of
Speaker 5: some tariffs that will be imposed on China EV's imports
Speaker 5: into the US, just knowing what we know about how
Speaker 5: these car makers operate and look at losses per vehicle
Speaker 5: when it comes to EV's, what would be better for
Speaker 5: Rivian and GM, like more competition to kind of light
Speaker 5: a fire or less that gives them more time to
Speaker 5: do stuff.
Speaker 11: Yeah, that's a really good question, Alex.
Speaker 12: I think everyone that you speak to in the automotive
Speaker 12: space knows that the Chinese EV makers are out there,
Speaker 12: your bid and other brands. I mean, we even saw
Speaker 12: Zeker last week a public right, Hio public and.
Speaker 11: So the pressure should be there.
Speaker 12: Tariffs, you're not seeing really too many Chinese evs really
Speaker 12: imported into the US. Volvo and Pulstor might be the exception,
Speaker 12: but really what those tariffs looks like. I want to
Speaker 12: keep an eye on the battery portion because I think
Speaker 12: that could have more of an impact than the couple
Speaker 12: or you know, the thousands of evs from China, specifically,
Speaker 12: given that the battery supply chain is still very heavily
Speaker 12: reliant on China, particularly for those lithyan iron phosphate batteries LFP,
Speaker 12: which is used to help bring down costs and electric
Speaker 12: vehicles for GM. You know, GM is competing in China already,
Speaker 12: so they have a good sense of how competitive that
Speaker 12: space is. And really there you're seeing great technology and
Speaker 12: upfront cost at a low level, which eventually you'll see here.
Speaker 12: I mean, if anything, you know, maybe the tariffs help
Speaker 12: stem the gap a little bit, but if you fall
Speaker 12: behind and don't invest in electric vehicles now, you know,
Speaker 12: we could be having the same conversation in two to
Speaker 12: three years with those Chinese automakers aiming to come to
Speaker 12: the US.
Speaker 3: So do we have a sense that the US OEMs forwards,
Speaker 3: the GM, Stilantis or the world have pulled back on
Speaker 3: their commitment to EV's or maybe they're timing of investments
Speaker 3: on EV's.
Speaker 2: You think that's happening.
Speaker 12: I think the timing on investment in evs is happening
Speaker 12: right in terms of their overall strategy. They've been I
Speaker 12: think approaching the market in a different way. Ford has
Speaker 12: been pushing towards this new EV platform that they're beginning
Speaker 12: to kind of produce in next year. GM of course
Speaker 12: has its Ultium platform, And for Stilantis, they don't actually
Speaker 12: have any fully electric vehicles here yet, although they have
Speaker 12: the highest selling plug in hybrid electric.
Speaker 11: Vehicle, the Jeep Wrangler.
Speaker 12: A lot of this is un timing, but what I
Speaker 12: always like to say is that timing and the investment
Speaker 12: is one thing, but you have to produce ultimately, and
Speaker 12: so if it's a delay of six months a year,
Speaker 12: that's okay, but the cost of inaction gets higher. And
Speaker 12: if you really say, not just to the Chinese automakers,
Speaker 12: but other automakers like Handai and Kia, really could make
Speaker 12: up a lot of ground here, and that's why there's
Speaker 12: such a big opportunity for Rivian to kind of step in.
Speaker 12: Ford and Tesla remain the number one and two EV
Speaker 12: makers here in the US, but they don't really have
Speaker 12: any near term goals for twenty twenty four, and so
Speaker 12: when analysts are taking a look trying to see what
Speaker 12: they're doing next, having a clear product roadmap could kind
Speaker 12: of clear up a lot of that uncertainty, and we
Speaker 12: don't have it right now.
Speaker 5: When am I gonna be able to buy a sixteen
Speaker 5: thousand dollars EV that helps me go from here to
Speaker 5: the Berkshires without a charge?
Speaker 11: You know?
Speaker 12: And I think there's a lot of interesting EV startups
Speaker 12: out there, and you seem pretty well attuned. I think
Speaker 12: we're going to see starting next year, more EV's kind
Speaker 12: of coming down to the low thirty thousand dollars price point.
Speaker 12: The big question is how many of them are going
Speaker 12: to have that seventy five hundred dollars tax credit. And
Speaker 12: of course there's a lot of policy questions, and then
Speaker 12: an election this year that'll have an impact on that too.
Speaker 6: And takeaways is not yet colple of years. Yeah, of course, I.
Speaker 5: Think the seagull is tw thousand books.
Speaker 12: I'm going to look at this thing, all right, Yeah, right,
Speaker 12: it's the BYD's, but.
Speaker 6: That's the whole point that's byd.
Speaker 12: Okay well tiny yeah, in that car, it's about twenty
Speaker 12: thousand dollars in Mexico.
Speaker 11: So the ten thousand, I think is.
Speaker 6: Maybe not the price that I would be paying. Only
Speaker 6: one Winshield wiper.
Speaker 2: How many do you need?
Speaker 6: How does that work?
Speaker 5: I mean to be fair, did the two really make
Speaker 5: a difference, Corey, Thanks a lot, Corey Kanter Bloomberg any
Speaker 5: US electric vehicle analysts.
Speaker 6: But if you put one hundred percent tariff on that,
Speaker 6: how much is that going to cost me?
Speaker 2: That's not going to help.
Speaker 6: But if I could get a ten.
Speaker 5: Thousand dollars one that can get me from here to
Speaker 5: the Berg heres with one charge, I would definitely consider
Speaker 5: something like that.
Speaker 6: This is why, Oh that's.
Speaker 5: Right, the real cold, all of a sudden you have to, like,
Speaker 5: you know, walk home, take your seventeen days. It's just
Speaker 5: basically the batteries don't work that well in the cold.
Speaker 5: They got to figure that one out, all.
Speaker 6: Right, Thanks a lot, Corey. Really appreciate that.
Speaker 5: This is all the pressing stuff that we get you
Speaker 5: here on Bloomberg Intelligence and Bloomberg an EF.
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Speaker 3: All right, last week I was visiting our good friends
Speaker 3: at Boston Consulting Group BCG UP in Boston, I tended
Speaker 3: the Boston Consulting Group Edge Expo in Boston. Had a
Speaker 3: lot of great conversations with executives at BCG. One was
Speaker 3: with Sessha iiro North American co Chare. He focuses on
Speaker 3: helping clients think through the levels of value for new
Speaker 3: artificial intelligence and the role of ai'm moving forward. I
Speaker 3: began by asking him to tell us what he thinks
Speaker 3: AI is today.
Speaker 7: Let's listen, Sylvia, really looking at how we can really
Speaker 7: leverage technology and when we say intelligence, being able to
Speaker 7: really interpret data, apply data to really drive change, to
Speaker 7: create value inside of organizations. It's how do you take
Speaker 7: the data apply it against processes to really get rounds
Speaker 7: of value around either productivity, around cost, around top line,
Speaker 7: around customer impact, around customer intimate, see and delight. So
Speaker 7: how do you essentially use data to generate that insight.
Speaker 7: So in a simple way, that's what he is about.
Speaker 7: A lot that we are clearly observing right now. Is
Speaker 7: also not just predictive AI, which has been around for
Speaker 7: a long time, but the emergence of generative AI. That
Speaker 7: then adds four specific things. The first is the synthesis
Speaker 7: of information and large reams of information. How do you
Speaker 7: synthesize and get the right information in the right construct
Speaker 7: to the right person. There's a lot around generation. We
Speaker 7: actually can generate not only text, but we can generate voice,
Speaker 7: we can generate videos. The third is it's very conversational, right,
Speaker 7: so you can actually engage with very low friction. And
Speaker 7: then the last is it has the ability to reason,
Speaker 7: so it can actually have a good dialogue with you.
Speaker 7: So we are starting to see these additional attributes in
Speaker 7: gen AI that are actually bringing a lot more value
Speaker 7: front inside.
Speaker 2: It's interesting.
Speaker 3: I think there is Bloomberg ran a story a quarter
Speaker 3: or two ago. Every company in the S and P.
Speaker 3: Five hundred on their earnings conference.
Speaker 2: Call mentioned AI. It has come out of nowhere.
Speaker 3: How receptive are your clients to discussing AI, making the
Speaker 3: investments in AI, whether that's upping their technology budget, reallocating
Speaker 3: their technology budget.
Speaker 2: How do those discussions go?
Speaker 7: So we did a survey earlier this year. We are
Speaker 7: clearly seeing seventy percent of execs increasing the payment okay,
Speaker 7: and then within that that seventy percent. We are seeing,
Speaker 7: you know, fifty percent of execs say that JENNYI is
Speaker 7: going to be a top priority. So we're clearly seeing
Speaker 7: more investments going against leveraging this to deliver to value.
Speaker 7: Now that being said, the other thing that we're also
Speaker 7: observing is there's only one in ten executives who's are
Speaker 7: companies that are truly pioneers. Okay, right, the other nine
Speaker 7: and ten are I would say doing a bit and watch.
Speaker 7: But what we're really observing that are amazing characteristics in
Speaker 7: these pioneers. One is they are massively ambitious. They truly
Speaker 7: see the potential of the technology. They want to get
Speaker 7: the value from it, they're investing in it. They're very
Speaker 7: business value driven. That's one. And their ambition, what we
Speaker 7: observe is anyway one point three to one point five
Speaker 7: times the ambition of the folks who are not investing.
Speaker 7: The second is we clearly see upskilling and reskilling to
Speaker 7: be center of their focus. Forty six percent of people
Speaker 7: will need to be reskilled. It's bigger, it's a big number.
Speaker 7: It's a big number in organizations. You think about organizations
Speaker 7: that are you know, fifty hundred thousand people, you're drunging
Speaker 7: about thousands and thousands of people that need to be reskilled.
Speaker 7: Also related to that are senior executive Sixty percent of
Speaker 7: senior executives need to be upskilled so they know how
Speaker 7: to be good sponsors to actually apply the technology. The
Speaker 7: third thing is intimately understanding costs. I mean, many folks
Speaker 7: understand derect costs. Indrect costs are still not fully in
Speaker 7: the equations understanding the cost of what the stakes not
Speaker 7: only on the build but also once you deploy to
Speaker 7: operate it. The fourth is partnerships. Are you truly engaging
Speaker 7: the right partners in your ecosystem because this is not
Speaker 7: a one partner solved, this is a multi partner solve.
Speaker 7: And then the last thing is which is very important
Speaker 7: to us at VCG, is leading with responsibile AI. You
Speaker 7: can apply the technology, there are a lot of downsides
Speaker 7: to it. How do you put the right controls in?
Speaker 3: If you come into my office or when you come
Speaker 3: into my office and really make the case that I
Speaker 3: need to invest in AI, I'm going to ask you, okay,
Speaker 3: but is it going to make me better?
Speaker 2: Is it going to make me more efficient?
Speaker 3: Because I'm gonna have to up my tech budget.
Speaker 2: You just explain to me how I'm probably gonna need
Speaker 2: to up my.
Speaker 3: Tech budget over a long period of time.
Speaker 2: What's the payoff for me from a P and L perspective?
Speaker 2: Can you make that ROI case?
Speaker 7: Yeah, So there are three pathways to value that we observe.
Speaker 7: The first is what we call deploy, where existing solutions
Speaker 7: already have GENII features. So if you think about Office
Speaker 7: three sixty five pilot, or you think about giub copilot,
Speaker 7: or you think about Zoom, the video application that can
Speaker 7: generate a transcript from a call, it's turning on those
Speaker 7: features and you can start to see value that's tend
Speaker 7: to twenty percent there. The second pathway is what we
Speaker 7: call reshape, which is driving end to end transformations of
Speaker 7: specific functions. You think about the marketing function, you think
Speaker 7: about the finance function, or you think about the customer
Speaker 7: service function, or let's say the underwriting process in an
Speaker 7: insurance company. That's thirty to fifty percent in terms of
Speaker 7: not just productivity unlock, but in terms of speed of performance,
Speaker 7: in terms of value delivery that happens to the customer
Speaker 7: that is at the end of that process. And then
Speaker 7: the third thing that we're observing is what we call
Speaker 7: invent where it's completely new business models. So you think
Speaker 7: about creating a new beauty assistant? Do you think about
Speaker 7: creating new molecules? V Recently and on the invent side,
Speaker 7: we have now done a longitudinal study where AI generated
Speaker 7: molecules have two times the success coming out of clinical
Speaker 7: phase one trials compared to molecules that are created in
Speaker 7: the latter. Look, that's amaze, it is right, And you
Speaker 7: think about ROI there, I mean, the r I is
Speaker 7: so obvious, so we are seeing specific sectors and you know,
Speaker 7: specific functions really go through massive change.
Speaker 3: I think most people as they've come up the AI
Speaker 3: curve and just understanding, are concerned about responsiblity, this responsible
Speaker 3: use of AI, the risk to AI.
Speaker 2: Will AI take over the world? War, the machines take
Speaker 2: over the world?
Speaker 3: How do you frame that risk out and what do
Speaker 3: you suggest to your clients.
Speaker 7: So one of the things we tell our clients is clearly,
Speaker 7: there's so much of value when you adopt this technology,
Speaker 7: but you have to do it in a really responsible way.
Speaker 7: So what is your responsible AI framework to put against it?
Speaker 7: What is your responsibili strategy? How do you really think
Speaker 7: about responsible II governance. What are your lines of defense?
Speaker 7: How do you actually implement the right structures in place?
Speaker 7: When you think about processes, your product development process or
Speaker 7: your portfolio monitoring process, how you really including responsible AI
Speaker 7: in it? For example, when you're building GENI solutions that
Speaker 7: have lms in the middle of it, are you really
Speaker 7: doing proper verification and validation to ensure that llms perform
Speaker 7: to your objective function and they don't start doing something
Speaker 7: you don't want it to do. Do you have things
Speaker 7: in place for that? So there are a number of
Speaker 7: these different pieces of the entire responsible AI framework. So
Speaker 7: we have a comprehensive framework. We'll lead with that at
Speaker 7: our clients, and it is a capability built So just
Speaker 7: like you have a capability built around risk and compliance,
Speaker 7: there is now a capability built around responsibily.
Speaker 2: Am interesting?
Speaker 3: I know at BCG you have the ten twenty seventy U.
Speaker 2: Yeah, what is that?
Speaker 7: So when we think about truly driving transformative change with technology,
Speaker 7: at the core, our ten twenty seventy is ten percent
Speaker 7: is the algorithm, twenty percent is that data and the
Speaker 7: technology components, and seventy percent is the change management processor engineering,
Speaker 7: the adoption of the technology. So to drive real value
Speaker 7: you need all three. Right, were many organizations I would
Speaker 7: say focus on the ten and the twenty yep, but
Speaker 7: not fully focus on the seventy. And we lead with
Speaker 7: the ten twenty seventy that really drives, so we deliver
Speaker 7: I would say impact and outcomes, not systems.
Speaker 2: Right.
Speaker 3: So I mean it sounds like in order for a
Speaker 3: company to really champion AI within your business, the commitment
Speaker 3: has to be from the board to the c suite.
Speaker 2: Down all the way through the organization.
Speaker 3: Because it sounds like, A it's a big financial investment,
Speaker 3: but B it's a little bit of a different way
Speaker 3: of thinking about your business.
Speaker 2: How do you achieve that?
Speaker 7: I think it goes back to if you think about
Speaker 7: the unbroken chain of why, why does the company exist?
Speaker 7: What value does it add to its customers? What value
Speaker 7: does it add to it employees, how does it contribute
Speaker 7: to society? If you really unpack the why, I think
Speaker 7: this does need to start at the top. So what
Speaker 7: is the competitive differentiation that technology or GENI can drive
Speaker 7: for an organization? It starts from there, and that is
Speaker 7: a CEO level point, and then it migrates into what
Speaker 7: does it do for my customer, What does it do
Speaker 7: for my product? What does it do for my processes?
Speaker 7: What does it do for my employees? All of that
Speaker 7: then follows through. So if you think about value, customer intimacy, value.
Speaker 7: We have a car manufacturer that has integrated GENI into
Speaker 7: their cars. They sell two million cars a year. That
Speaker 7: is changing the way in which consumers experience their product.
Speaker 7: You think about product lines. Google recently came out with
Speaker 7: Google Wids, where you can actually now create videos on demand.
Speaker 7: The marginal cost of creativity has dropped substantially. You can
Speaker 7: build not only images, but you can build presentations, you
Speaker 7: can build videos. It's so easy to do it. You
Speaker 7: think about process excellence. We already talked about our software development.
Speaker 7: You have a large financial global bank that is looking
Speaker 7: to imp productivity by thirty to forty percent. I mean,
Speaker 7: these things are real, and I think the CEOs clearly
Speaker 7: know that they can drive differential competitive advantage across all
Speaker 7: of these different dimensions.
Speaker 3: What's the biggest pushback you get from your clients about this?
Speaker 7: Is it the cost?
Speaker 3: Is it the I don't know, I'm just technology concerned
Speaker 3: about technology.
Speaker 2: What's the pushback you get?
Speaker 7: I think the biggest thing that we see. If I
Speaker 7: think about CEOs, their entire focus is on how can
Speaker 7: I get to this value fast? So is it going
Speaker 7: to really change the trajectory of my business? Talk to
Speaker 7: me about outcomes that I can deliver too. So when
Speaker 7: we think about the three dimensions of you know what
Speaker 7: really matters to these folks is can I deliver outcomes
Speaker 7: at scale? Don't talk to me about an experiment to
Speaker 7: talk about it at scale? Can I combine JENNYI with
Speaker 7: predictive AI and other technologies? Automation? Show me the end
Speaker 7: to end, not just the once sliver of this. And
Speaker 7: then I think the third is the ten twenty seventy.
Speaker 7: A lot of folks need with oh this is such
Speaker 7: cool technology, but can you really show me the impact?
Speaker 7: Will my people be better off when they adopt the technology?
Speaker 7: That's a big part of our PC. So I think
Speaker 7: those are the three things outcome at scale, predictive plus
Speaker 7: plus generative AI plus automation and then the third pieces
Speaker 7: of ten twenty seventy.
Speaker 3: All right, that was my conversation with Sesshire, he's a
Speaker 3: North American co chair of the Boston Consulting Group. Talking
Speaker 3: about AI. We were up at their Expo condors up
Speaker 3: in Boston last week. Can't say AI. It was front
Speaker 3: and center as BCG talks to their clients. That's what
Speaker 3: the CEOs want to talk about in one strategy, about
Speaker 3: how to invest and when to invest and how much
Speaker 3: to invest. So it was good to check in with
Speaker 3: some of the smart folks at BCG.
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