WEBVTT - Equities, Cannabis, Chips, And Geopolitics (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:23.400 at Bloomberg dot com slash podcast. Kind of mixed open 0:00:23.800 --> 0:00:27.360 here for the first forty five minutes or so of 0:00:27.640 --> 0:00:29.560 trading here, looks like folks are kind of waiting on 0:00:29.600 --> 0:00:31.720 some of the big echo data. It's gonna get a 0:00:31.760 --> 0:00:34.319 little sense of kind of how this market's performing, how 0:00:34.360 --> 0:00:36.919 it may discount some of this echo data we will 0:00:36.960 --> 0:00:40.400 get this week, most notably CPI Data as well's pp 0:00:40.520 --> 0:00:44.040 I as well. Cameron christ macro strategists for Bloomberg News 0:00:44.159 --> 0:00:48.839 and Gina Martin Adams, chief equity strategist for Bloomberg Intelligence. 0:00:48.920 --> 0:00:50.919 They both join us here. We're gonna round table this thing. 0:00:52.240 --> 0:00:56.279 I want to record this. Yeah, I think we do 0:00:56.360 --> 0:00:59.160 that on a daily basis. Then we pot it as 0:00:59.280 --> 0:01:02.000 kids say, all right, Cameron, um, we got a lot 0:01:02.040 --> 0:01:05.760 of eco data here today. What are you going to 0:01:05.800 --> 0:01:07.560 be looking for? What do you think I guess more importantly, 0:01:07.600 --> 0:01:09.080 what do you think your federal Reserve is gonna be 0:01:09.120 --> 0:01:13.880 looking for? Well, obviously the CPI is the highlight of 0:01:13.959 --> 0:01:17.080 the of the week. Uh. Yeah, they made it pretty 0:01:17.080 --> 0:01:19.080 clear that they need to see more than one or 0:01:19.120 --> 0:01:23.760 two friendly prints to switch switch course. Um, but last 0:01:23.800 --> 0:01:27.280 month wouldn't even get a friendly print. So uh, it 0:01:27.319 --> 0:01:30.680 would be the first step on a on the journey. 0:01:30.800 --> 0:01:32.840 Could be the sort of the beginning of the end 0:01:33.360 --> 0:01:35.839 of the cycle if we start to see some significant 0:01:35.880 --> 0:01:39.399 downside prints and cp I. But as this year has 0:01:39.440 --> 0:01:41.720 taught us, it is very, very costly to try to 0:01:41.760 --> 0:01:45.479 preempt that. So, Gina, what does an investor do here? 0:01:45.640 --> 0:01:49.000 I mean, Um, it seems like every data point out 0:01:49.160 --> 0:01:52.440 backs up the Fed actually doing what they say, which 0:01:52.480 --> 0:01:55.680 is shocking to the markets. And then, um, it turns 0:01:55.680 --> 0:01:58.840 out when we get a drop in inflation, at least 0:01:58.840 --> 0:02:01.800 according to UM a bunch of research on the street, 0:02:02.560 --> 0:02:06.200 it's going to be horrible for earnings. Well, I think 0:02:06.280 --> 0:02:09.600 that remains to be seen for a start. UM, inflation 0:02:09.680 --> 0:02:12.680 is usually a lagging indicator of growth. Inflation has been 0:02:12.720 --> 0:02:15.200 in a bizarre position this year relative to the past 0:02:15.200 --> 0:02:18.239 twenty years, so any forecasters that really have a strong 0:02:18.360 --> 0:02:21.959 sense of of what inflation is doing probably would would 0:02:22.040 --> 0:02:25.679 use a model that is not accurately going to forecast 0:02:25.800 --> 0:02:28.840 the reality over the next couple of quarters. I think 0:02:28.880 --> 0:02:30.840 that's the sort of the reality of the earning stream 0:02:30.960 --> 0:02:34.720 is that inflation has been a big pain point for earnings. 0:02:34.800 --> 0:02:38.440 Revenues have been growing, but margins have been contracting amid 0:02:38.560 --> 0:02:41.440 the rising input cost pressure, even though companies have been 0:02:41.480 --> 0:02:44.520 able to pass on some price increases. So we might 0:02:44.600 --> 0:02:47.520 be somewhat surprised by the degree to which to drop 0:02:47.560 --> 0:02:51.280 an inflation can actually soothe some of those margin pressure 0:02:51.280 --> 0:02:54.400 margin pressures going forward. And frankly, that is not what's 0:02:54.440 --> 0:02:56.320 happened for the last twenty years. What's happened for the 0:02:56.360 --> 0:03:00.400 last twenty years is company earnings weakness does not come 0:03:00.440 --> 0:03:03.959 about because inflation is too fast. It comes out about 0:03:04.040 --> 0:03:07.400 because we see a demand demand drop, right, And so 0:03:07.520 --> 0:03:10.680 I think that we've got this really mass confusion going 0:03:10.680 --> 0:03:14.440 on with respect to the earning stream. Um Also, a 0:03:14.520 --> 0:03:18.640 lot of the earning strength has come from energy. Specifically, 0:03:19.440 --> 0:03:22.359 energy is very tied not just to inflation, the inflation 0:03:22.360 --> 0:03:25.480 out but look, but what's happening with the input price, right, 0:03:25.560 --> 0:03:29.800 and our oil prices actually falling. Now are input prices 0:03:29.800 --> 0:03:32.040 actually falling in the energy space is a big question 0:03:32.080 --> 0:03:35.360 mark for the outlook. So I would characterize the current 0:03:35.400 --> 0:03:39.840 outlook is sort of earnings confusion. Um that earnings confusion 0:03:39.880 --> 0:03:42.960 probably persists into the next quarter, but companies can do 0:03:43.040 --> 0:03:45.760 a lot to clear up that earning's confusion, and that's 0:03:45.760 --> 0:03:48.160 what we'll be looking for in the upcoming earning season. 0:03:48.200 --> 0:03:51.880 I mean, today, for example, UBS said forward profit will 0:03:51.960 --> 0:03:55.720 drop fifty this year. That sounds less like confusion and 0:03:55.840 --> 0:04:00.960 just like a huge loss, right, Yeah, Well, I mean, look, 0:04:01.440 --> 0:04:03.800 we would be remiss not to note that what's been 0:04:03.880 --> 0:04:07.400 happening in the auto space has also been completely contrary 0:04:07.400 --> 0:04:11.200 to historical experience over a cycle. We can't get cars. 0:04:11.960 --> 0:04:15.040 Cars aren't coming into the United States. They're going to 0:04:15.120 --> 0:04:16.960 start coming into the United States at a point in 0:04:17.000 --> 0:04:20.320 time where interest rates are increasing. This is just completely 0:04:20.440 --> 0:04:24.040 bizarre and a bizarre experience in the earning stream. So 0:04:24.080 --> 0:04:26.880 do you really want to take a forward example as 0:04:26.960 --> 0:04:31.360 indicative of what's going to happen for tech companies, healthcare companies, 0:04:31.720 --> 0:04:34.760 consumer companies at large. I mean, I think this is 0:04:34.800 --> 0:04:38.120 what I mean by inflation, By inflation and earnings confusion. 0:04:38.960 --> 0:04:41.680 This is a very very difficult point to take any 0:04:41.720 --> 0:04:44.919 individual companies as a representative of what's going to happen 0:04:44.960 --> 0:04:46.840 for the market at large, and that's been the case 0:04:46.839 --> 0:04:49.200 for much of two all right, well, how about let's 0:04:49.200 --> 0:04:51.760 take Mike Wilson's point on you know, he says, when 0:04:51.760 --> 0:04:54.920 inflation comes down, um, the parts that are going to 0:04:55.000 --> 0:04:59.040 remain resilient our shelter, wages and some services, and then 0:04:59.279 --> 0:05:02.360 goods will con any decelery. And that's not a constructive 0:05:02.400 --> 0:05:06.040 picture for the sp It's definitely not a constructive picture 0:05:06.080 --> 0:05:10.520 for the goods centric industries within the SNP five completely 0:05:10.560 --> 0:05:17.000 agree with that scenario. Did centric consumer companies generally indicative 0:05:17.000 --> 0:05:18.880 of what's going to happen at the market at large? 0:05:19.000 --> 0:05:22.359 Is my point of contention with that piece. Hey, Cameron, So, 0:05:22.440 --> 0:05:24.040 I mean, I guess the issue is do we have 0:05:24.120 --> 0:05:26.839 a risk material risk this week of being like really 0:05:26.880 --> 0:05:30.920 negatively surprised the inflation comes in really hot? Of course, 0:05:31.240 --> 0:05:33.840 I mean I would say that any analysis is looking 0:05:33.839 --> 0:05:36.080 at the last twenty or thirty years of inflation what 0:05:36.120 --> 0:05:39.000 it means for earnings isn't particularly useful because this is 0:05:39.000 --> 0:05:43.640 a completely different inflation regime, um than than we've had, uh, 0:05:43.800 --> 0:05:46.599 you know, central bankers Allen Greenspan kind of defined price 0:05:46.640 --> 0:05:52.640 stability is that level of inflation that doesn't materially impact 0:05:52.720 --> 0:05:56.400 the decisions of consumers and businesses in the economy. And 0:05:56.440 --> 0:05:59.039 that's more or less been the case, um from the 0:05:59.080 --> 0:06:04.640 late eighties, uh really through until last year. UM. So 0:06:05.080 --> 0:06:08.240 this is a very different scenario to what we've experienced 0:06:08.240 --> 0:06:11.520 in the nineties, uh and the naughties and and the 0:06:11.520 --> 0:06:13.800 teams on the one hand and on the other hand, 0:06:14.440 --> 0:06:18.120 referencing demand, I mean, the fact stated intention is to 0:06:18.200 --> 0:06:21.560 reduce demand, to break it in the supply um. I 0:06:21.600 --> 0:06:24.480 mean they haven't. They couldn't be any more clear on 0:06:24.520 --> 0:06:28.080 what they're trying to accomplish. Is that in the Is 0:06:28.120 --> 0:06:31.400 that in the price of the stock market? I think 0:06:31.440 --> 0:06:35.320 that's that's really really debatable. Certainly it is not embedded 0:06:35.880 --> 0:06:39.479 in the level of earnings expectations. I think over the 0:06:39.520 --> 0:06:42.599 next over the next few years, and if you look 0:06:42.720 --> 0:06:46.400 at market valuations based on the on the present value 0:06:46.400 --> 0:06:49.719 of those future earnings expectations, the market is not cheap, 0:06:49.960 --> 0:06:52.640 all right. Camera great stuff camera christ Macro strategist, Bloomberg 0:06:52.680 --> 0:06:58.400 News Gina Martin Adams, Bloomberg intelligence equity strategist. This is Bloomberg. 0:07:02.720 --> 0:07:05.039 Let's get over right now to Chris Beal's he's the 0:07:05.080 --> 0:07:08.880 CEO of weed Maps. It's nasdack listed. The ticker is 0:07:09.160 --> 0:07:12.800 m A p S. And to me this seems like 0:07:12.800 --> 0:07:16.400 a growth story. Chris. We just got you know, legal 0:07:16.440 --> 0:07:20.920 weed starting to sell around New York. Um, not entirely 0:07:21.000 --> 0:07:24.960 legally yet, but I guess people will use your app 0:07:25.320 --> 0:07:29.240 to find a place where they can uh safely and 0:07:29.320 --> 0:07:33.800 securely buy weed and um, you know, get reliable quality. 0:07:33.840 --> 0:07:36.920 Is that is that the case? Yeah? Well, actually one 0:07:36.960 --> 0:07:39.160 step further, it's sort of what we provide is sort 0:07:39.200 --> 0:07:41.680 of like Amazon or door Dash for cannabis. So it 0:07:41.760 --> 0:07:46.640 let's retailers and brands showcase their products and enable online ordering, 0:07:47.240 --> 0:07:48.800 and then we have a bunch of software that helps 0:07:48.840 --> 0:07:52.080 them do delivery, post order follow ups, CRM, that sort 0:07:52.080 --> 0:07:54.880 of thing. But yeah, the idea is to take something 0:07:54.920 --> 0:07:58.440 that's traditionally been scary, hard to understand and make it 0:07:58.480 --> 0:08:01.920 easy to shop for consumer is online. So you know 0:08:02.000 --> 0:08:04.360 how many states are you active in? Can you get 0:08:04.360 --> 0:08:07.320 delivery service? I mean, delivery service has been the only 0:08:07.400 --> 0:08:10.080 way to get weed in New York for like thirty years, 0:08:10.080 --> 0:08:14.960 but can you actually get legal delivery service now here? Yeah, 0:08:15.080 --> 0:08:17.440 so when in this varies from state to state. Some 0:08:17.560 --> 0:08:20.400 states only allow in store pick up that sort of thing, 0:08:20.400 --> 0:08:22.680 but in New York they will allow delivery. So you'll 0:08:22.680 --> 0:08:25.840 be able to order on weed maps, on the app 0:08:25.880 --> 0:08:28.200 on your phone, put stuff in a cart. You will 0:08:28.240 --> 0:08:31.360 be able to or you are able to. You will 0:08:31.440 --> 0:08:34.719 be able to win adult use open So right now, 0:08:34.720 --> 0:08:37.160 it's just medical so you could right now just for 0:08:37.240 --> 0:08:40.360 medical shops if you have a medical card. But when 0:08:40.400 --> 0:08:43.520 adult use, these disposies that can sell you know, for 0:08:43.600 --> 0:08:47.400 basically recreational open up. You'll be able to get order 0:08:47.440 --> 0:08:50.120 on the phone and get delivery right to your door. Chris, 0:08:50.160 --> 0:08:53.640 are you active in states that have been open for 0:08:54.640 --> 0:08:58.160 recreational cannabis like Colorado for example, And if so, kind 0:08:58.160 --> 0:09:02.439 of what's your experience been. Yeah, So, so we're ubiquitous. 0:09:02.520 --> 0:09:06.439 We're in all thirty seven states that have cannabis legalization. 0:09:06.480 --> 0:09:08.760 We're actually a fourteen year old company. Were started out 0:09:08.800 --> 0:09:13.160 in California, and we're we operate internationally and seven international 0:09:13.240 --> 0:09:16.240 jurisdictions at this point as well. So yeah, we're in Colorado. 0:09:16.920 --> 0:09:20.680 Interestingly enough, Colorado has very limited delivery. Despite what people 0:09:20.760 --> 0:09:23.600 might think, they're really kind of just rolling out pilots 0:09:23.640 --> 0:09:26.280 for it um. But we see we operate in all 0:09:26.320 --> 0:09:28.760 these different states, and we see very big differences in 0:09:28.840 --> 0:09:31.360 how the businesses operate, and our software has to deal 0:09:31.400 --> 0:09:34.880 with the different rules and compliance regulations um. And then 0:09:34.880 --> 0:09:36.959 the way consumer shop varies a lot. I think New 0:09:37.040 --> 0:09:40.880 York will be very similar in terms of consumers shopping 0:09:40.920 --> 0:09:43.920 habits to California, which makes sense because New York has 0:09:43.920 --> 0:09:47.480 been buying California cannabis for the last thirty years. So, 0:09:47.720 --> 0:09:51.240 I mean my experience is when I was a kid, 0:09:51.320 --> 0:09:53.319 you know what we You'd have a delivery guy come 0:09:53.400 --> 0:09:56.240 and meet you, come to your door, you'd get in 0:09:56.240 --> 0:10:00.240 his car, whatever. But now that these dispensries are opening up, 0:10:00.840 --> 0:10:03.040 it's too much fun to go there. Why would I 0:10:03.040 --> 0:10:05.960 want to get delivery? It's going to Empire is like 0:10:06.000 --> 0:10:09.960 going to the Dylan's candy store of weed? Um. Is 0:10:10.000 --> 0:10:12.080 that gonna wear off? Am I gonna get tired of 0:10:12.120 --> 0:10:15.200 that and want to go for delivery later on? Well? 0:10:15.679 --> 0:10:17.520 So the thing is is avengeal for a lot of 0:10:17.520 --> 0:10:21.040 people when they become regular cannabis consumers. And look, we're 0:10:21.040 --> 0:10:24.079 seeing a lot of that people who are substituting cannabis 0:10:24.080 --> 0:10:26.880 for alcohol as a healthier alternative. You know what you 0:10:26.920 --> 0:10:28.760 want or you want to you don't want to go 0:10:28.800 --> 0:10:30.400 through the hassle and going to the dispensary and a 0:10:30.520 --> 0:10:33.080 dispensaries the lines can be long, and it can be 0:10:33.440 --> 0:10:35.360 you know, a bit confusing. But the other big use 0:10:35.400 --> 0:10:38.920 case we're seeing in mature states, the average cannabis dispensary 0:10:38.960 --> 0:10:41.679 has over a thousands skews, and so we see a 0:10:41.679 --> 0:10:43.880 lot of people pulling out weed maps when they're in 0:10:43.880 --> 0:10:47.319 the store just to go through and understand what are 0:10:47.360 --> 0:10:49.600 all these different products? Because you know, to go from 0:10:49.640 --> 0:10:52.000 that that guy saying, hey, come get in my car, 0:10:52.600 --> 0:10:54.839 he only has what he can carry in his backpack 0:10:55.320 --> 0:10:57.760 to a dispensary, you got over a thousand different things. 0:10:57.760 --> 0:11:01.200 And you look at segments like uh concentrates and all 0:11:01.200 --> 0:11:03.520 these new types of concentrates. Look at edibles, there's a 0:11:03.600 --> 0:11:05.760 huge growth in the beverage segment. How do you as 0:11:05.800 --> 0:11:07.679 a consumer makes sense of all of that? I mean, 0:11:07.679 --> 0:11:09.840 and a lot of times the dispensary doesn't even fully 0:11:09.880 --> 0:11:12.760 understand everything because the brand explosion is just in the 0:11:12.800 --> 0:11:15.160 early innings right now, and it's accelerating. By the way, 0:11:15.160 --> 0:11:18.239 do you have a team of people reviewing these products 0:11:18.559 --> 0:11:21.679 or do you rely on you know, written in reviews 0:11:21.679 --> 0:11:25.640 from consumers. So what we do is we rely on 0:11:25.760 --> 0:11:28.599 written in reviews from verified purchasers. So people who have 0:11:28.960 --> 0:11:31.480 it's it's I have to be careful. I say this 0:11:31.480 --> 0:11:34.439 because Amazon, the Amazon review systems fallen under a lot 0:11:34.440 --> 0:11:36.560 of I think rightful criticism. But what we do is 0:11:36.559 --> 0:11:40.960 we look at consumers who have purchased online through weed Maps, 0:11:40.960 --> 0:11:43.920 through the marketplace, and then say, give us feedback, give 0:11:44.000 --> 0:11:48.120 us reviews on things like how it clinically affected you, 0:11:48.200 --> 0:11:50.760 how was your store experience, how is the delivery experience, 0:11:51.040 --> 0:11:52.800 and there's other things we can do. We do have 0:11:52.840 --> 0:11:55.880 a content and learning part of the site to learn 0:11:55.880 --> 0:11:58.360 about strains, to learn about new products, where we do 0:11:58.400 --> 0:12:01.040 have expert reviewers in common taters and we can pull 0:12:01.080 --> 0:12:04.480 some of that across. The other thing is um A 0:12:04.520 --> 0:12:05.679 lot of what we do is we have one of 0:12:05.720 --> 0:12:08.040 the largest brand catalogs out there. So many times the 0:12:08.120 --> 0:12:11.480 brands will write, they'll provide the images, they'll provide the 0:12:11.520 --> 0:12:15.400 descriptions and more than that the ascribed clinical effects, and 0:12:15.400 --> 0:12:18.200 then we syndicate that through all the retailers who carry 0:12:18.240 --> 0:12:21.080 those branded products. Chris, As far as the stock, what 0:12:21.360 --> 0:12:25.200 is going on. You're trading for less than sales, you know, 0:12:25.400 --> 0:12:28.560 three times earnings right now, These are not numbers that 0:12:28.600 --> 0:12:33.079 we typically see, even for companies that are distressed. Yeah, 0:12:33.120 --> 0:12:35.400 and on top of that, we've been profitable for essentially 0:12:35.440 --> 0:12:39.000 our entire history. Uh. We were effectively bootstrapped until we 0:12:39.040 --> 0:12:41.720 went public. Uh. You know, look, I think what you 0:12:41.840 --> 0:12:44.480 see it's it's frustrating to me. And I think it's 0:12:44.480 --> 0:12:46.840 one of those reminders of as a CEO, you have 0:12:46.920 --> 0:12:49.480 to control what you can control, which is us growing 0:12:49.480 --> 0:12:52.160 adoption of the marketplace and that. But I think partially 0:12:52.160 --> 0:12:54.640 what you're seeing is a reflection of stigma. There's still 0:12:54.679 --> 0:12:57.680 a lot of institutional investors who won't invest in the sector, 0:12:57.840 --> 0:13:02.640 even for a NASDAQ listed UH technology and sillery provider 0:13:02.760 --> 0:13:05.920 like maps UH. And I think you know at the 0:13:06.000 --> 0:13:07.720 end of the day that the market is a factor 0:13:07.760 --> 0:13:11.000 of supply and demand, and on the demand side, Uh, 0:13:11.040 --> 0:13:13.600 there's just far too many funds who are reluctant to 0:13:13.600 --> 0:13:15.720 invest in the cannabis spector despite the fact that some 0:13:15.800 --> 0:13:18.400 people estimate that's going to be a hundred billion dollar 0:13:18.480 --> 0:13:22.400 industry at the end of this decade UM. So you know, 0:13:22.440 --> 0:13:25.040 we're out there trying to educate people, make them understand 0:13:25.080 --> 0:13:28.440 that there's very deep modes around this business in terms 0:13:28.520 --> 0:13:32.240 of the regulatory requirements, the data science you have to do. 0:13:32.440 --> 0:13:35.040 You know, we're solving problems that Frankly, Go Puff and 0:13:35.040 --> 0:13:39.199 a bunch of other online market places haven't solved because 0:13:39.200 --> 0:13:41.560 we need to we Yeah, we can't touch the actual 0:13:41.600 --> 0:13:44.120 cannabis product or do we ever want to. So, but 0:13:44.200 --> 0:13:46.920 we had President Biden recently kind of you know, say, 0:13:47.120 --> 0:13:51.800 you know he's gonna expunge federal marijuana convictions. I mean 0:13:51.800 --> 0:13:55.160 that had to be a step in the right direction. Yeah, 0:13:55.280 --> 0:13:57.319 it looks I think there's a lot of twists and 0:13:57.400 --> 0:14:00.320 turns to that because I think it is potentially less 0:14:00.360 --> 0:14:02.800 impactful than people think on the part in side, because 0:14:02.840 --> 0:14:05.559 there aren't a lot of federal prisoners who are under 0:14:05.840 --> 0:14:09.319 federal custody for simple possession. A lot of its trafficking, 0:14:09.440 --> 0:14:11.320 or they'll attack on other charges to get a plea. 0:14:11.559 --> 0:14:16.240 But the promise to reschedule if they follow through on 0:14:16.280 --> 0:14:19.720 that could meaningfully change things. Um, you know, when we've 0:14:19.720 --> 0:14:23.840 tried to sponsor scientific research on cannabis, those researchers have 0:14:24.200 --> 0:14:27.480 in some cases gotten threats to have their National Science 0:14:27.480 --> 0:14:30.080 Foundation or in i H grants funding polled because they're 0:14:30.120 --> 0:14:32.960 doing cannabis research. So the rescheduling would help there. But 0:14:32.960 --> 0:14:35.000 but the biggest thing that I think people are missing 0:14:35.080 --> 0:14:38.240 is it's a stigma reduction. When you look at why 0:14:38.360 --> 0:14:41.920 funds aren't investing in cannabis names, it's not because they can't. 0:14:42.120 --> 0:14:44.640 It's a stigma thing. When you look at why major 0:14:44.680 --> 0:14:48.200 credit card providers don't bank or don't provide credit for 0:14:48.280 --> 0:14:50.960 financial side, it's that all right. Chris great stuff, Chris 0:14:50.960 --> 0:14:59.160 Bal's CEO of Weed Maps on the cannabis business. One 0:14:59.240 --> 0:15:01.880 talk technology, you here, and I'm gonna talk us China 0:15:01.960 --> 0:15:03.800 supply chain is But we found out the beginning of 0:15:03.800 --> 0:15:07.040 the pandemic that it is not good to be overreliant 0:15:07.080 --> 0:15:09.400 on one source of stuff. And like we saw it 0:15:09.400 --> 0:15:13.280 into technology space with chips and so woulgin Hoe, which 0:15:13.320 --> 0:15:14.960 by the way, is my favorite name on Wall Street. 0:15:14.960 --> 0:15:18.560 Wuginhoe is a senior technology analyst for Bloomberg Intelligence. He's 0:15:18.560 --> 0:15:22.880 got a research report out entitled Untangling US China tech 0:15:23.240 --> 0:15:27.480 supply chain issues. He says it's difficult but doable. Wulgin, 0:15:27.560 --> 0:15:30.240 thanks so much for joining us here. Talk to us 0:15:30.280 --> 0:15:32.280 about kind of what we've learned over the last two 0:15:32.280 --> 0:15:35.960 and a half three years about that supply chain reliance 0:15:36.040 --> 0:15:38.840 on China and maybe how some of the technology companies 0:15:38.880 --> 0:15:41.920 are trying to untangle that right now. Thanks for having 0:15:41.960 --> 0:15:46.040 me on, Paul so Um. It's it's clear over the 0:15:46.080 --> 0:15:49.520 past couple of years that China is a main supplier 0:15:49.640 --> 0:15:54.920 not only for for chips, but more importantly electronics manufacturing. 0:15:55.000 --> 0:15:58.440 If in our research support that I worked with our 0:15:58.560 --> 0:16:04.720 Asia UH Boomberg Tmt colleagues, is that roughly of all 0:16:04.760 --> 0:16:07.280 of the electronics manufacturing source of of China. And it 0:16:07.360 --> 0:16:10.760 kind of makes sense right over the years manufacturing shifted 0:16:10.760 --> 0:16:14.040 over from US and Mexico and it and moved over 0:16:14.080 --> 0:16:17.600 to China because of economies of scales, because what we 0:16:17.640 --> 0:16:20.280 are fair and focused on margin and trying to unentangle 0:16:20.320 --> 0:16:23.360 that is going to be uh quite a task. We 0:16:23.440 --> 0:16:26.600 also have Brendon Murray with us. Uh he is the 0:16:26.640 --> 0:16:30.200 Bloomberg trades are out of Atlanta? Is that right in Lanta? Brendon. 0:16:31.800 --> 0:16:36.480 I'm in London. Oh in London, sorry, um, uh in London, Brendon, 0:16:37.440 --> 0:16:41.600 What do we know about um President Biden right now? 0:16:41.800 --> 0:16:44.680 And the rules on chip makers? Are the rules on 0:16:44.760 --> 0:16:48.760 technological access by companies in China? Yeah, Well, what we 0:16:48.840 --> 0:16:51.800 know right now is that that pre President Biden is 0:16:51.840 --> 0:16:55.960 trying to make some of those decisions for uh, for 0:16:55.960 --> 0:16:59.480 for industry rather than uh, you know, basically to try 0:16:59.520 --> 0:17:02.000 to make it more difficult for for China to produce 0:17:02.040 --> 0:17:05.360 its chips and easier for Eric companies to get these 0:17:05.359 --> 0:17:08.160 semiconductors that you know, going just about you know, every 0:17:08.240 --> 0:17:12.520 household appliance that we buy. So that's that's the administration 0:17:12.640 --> 0:17:15.160 stance right now. It's it's you know, some of it's 0:17:15.160 --> 0:17:18.000 borrowed from the Trump administration to uh, you know, try 0:17:18.040 --> 0:17:21.719 to sort of create our own industries here that you know, 0:17:21.760 --> 0:17:25.000 many of them migrated away. So so the tech supply 0:17:25.160 --> 0:17:29.600 chains you know, are definitely well embedded in China and 0:17:29.640 --> 0:17:33.399 elsewhere in Asia, but they can they can make some 0:17:33.520 --> 0:17:38.120 progress on them with government incentives and and uh and 0:17:38.119 --> 0:17:43.840 and penalties um, you know against Chinese producers. But what 0:17:43.960 --> 0:17:45.920 is this? First of all, I thought you were I 0:17:46.040 --> 0:17:48.520 mistakenly thought you were in Atlanta because you used to 0:17:48.520 --> 0:17:52.359 write for the Atlanta Business Chronicle, So that was I 0:17:52.359 --> 0:17:56.919 guess a while back. But what does this mean for 0:17:56.960 --> 0:18:00.119 the chip industry in China? I mean, is this a 0:18:00.240 --> 0:18:04.119 huge blow? Um? You know, will it whither away or 0:18:04.240 --> 0:18:06.800 is it still going to be I mean, I assume 0:18:06.840 --> 0:18:11.480 it's the main place that chips are made globally. Yeah, 0:18:11.520 --> 0:18:13.960 I mean, I think judging by the market reaction in 0:18:14.119 --> 0:18:18.160 China today to the news from the US on Friday 0:18:18.280 --> 0:18:21.119 through the weekend, you know, investors do expect it to 0:18:21.119 --> 0:18:23.560 be uh, you know, to to to you know, to 0:18:23.560 --> 0:18:28.400 to to cause some cause some problems for the Chinese producers. Hey, 0:18:28.440 --> 0:18:30.440 would you know I think you know, at some point 0:18:31.160 --> 0:18:33.800 during this pandemic, when this this issue, the supply chain 0:18:33.840 --> 0:18:37.480 issues relates to chips became you know, really prevalent, everybody 0:18:37.520 --> 0:18:40.199 was just saying, well, just let's onshore this stuff. And 0:18:40.400 --> 0:18:43.120 there's been some announcements in the great state of Ohio, 0:18:43.440 --> 0:18:45.560 in the state of New York about maybe bringing some 0:18:45.600 --> 0:18:48.560 of these fabs onshore. Is that really a thing, Is 0:18:48.560 --> 0:18:51.119 that a solution or is that just more kind of 0:18:51.200 --> 0:18:56.359 rhetoric and politics? Well, UM. Well, the Biding administration is 0:18:56.400 --> 0:18:59.080 actually putting their money where the mouth is, right, the 0:18:59.080 --> 0:19:01.800 fifty two billion doll the Chips Act is supposed to 0:19:01.840 --> 0:19:07.240 help UM initiate an investment into UH some of these 0:19:07.240 --> 0:19:12.000 facts and manufacture these UM advanced technology chips. Right, So, 0:19:12.000 --> 0:19:14.200 so they are trying to onshore some of that to 0:19:14.200 --> 0:19:17.040 to lessen the reliance. Now, now, you know, just just 0:19:17.160 --> 0:19:21.119 to pick it back on on Brandon's point that the 0:19:21.119 --> 0:19:23.159 one thing I will say is that they're trying to 0:19:23.400 --> 0:19:25.040 what the US is trying to do with some of 0:19:25.080 --> 0:19:29.679 the I guess renewed UM sanctions on China is to 0:19:29.760 --> 0:19:32.879 slow down the manufacture of advanced ships. Now, now the 0:19:32.920 --> 0:19:36.480 one China doesn't really make many advanced ships. It's it's 0:19:36.480 --> 0:19:39.399 it's mostly Taiwan and and if anything, is UM the 0:19:39.520 --> 0:19:44.920 US trying to mitigate the reliance on UM on Taiwan 0:19:45.000 --> 0:19:49.040 on some of these advanced ships because of the geo politics. UM. 0:19:49.080 --> 0:19:51.600 These are two issues, well, the supply chain and chips 0:19:51.640 --> 0:19:56.320 are two issues that have become conflated and intertwined over 0:19:56.359 --> 0:19:59.639 the crisis. But UM, we should keep them separate. I 0:19:59.640 --> 0:20:01.960 guess right, Brendan, Because you have a great, big story 0:20:02.000 --> 0:20:04.640 out in the Bloomberg today showing that we could see 0:20:04.680 --> 0:20:08.280 the supply chain returning to some sense of normalcy. And 0:20:08.880 --> 0:20:13.520 throughout the story you talk about the reduction in weight 0:20:13.600 --> 0:20:18.080 times that ships have outside of harbors. Yeah, we definitely 0:20:18.160 --> 0:20:20.520 need to make a distinction between tech supply chains and 0:20:21.320 --> 0:20:24.160 normal supply chains. You know that they are they are 0:20:24.200 --> 0:20:27.040 inter linked to some extent, but but tech supply chains 0:20:27.080 --> 0:20:31.240 are very you know, very complex and and and difficult 0:20:31.280 --> 0:20:34.560 to replicate in other countries. But but for other things, 0:20:35.200 --> 0:20:37.959 more basic sort of lower value goods or you know, 0:20:38.119 --> 0:20:41.439 textiles or things that don't require you know, lots of 0:20:41.880 --> 0:20:45.639 you know, complicated machinery or engineering can be can be 0:20:45.720 --> 0:20:48.200 produced and are being produced and have been shifting out 0:20:48.200 --> 0:20:51.000 of China for you know, many years, even before the 0:20:51.000 --> 0:20:54.480 pandemic and the US Trade Board with with with China, 0:20:54.640 --> 0:20:58.080 So so that shift has been ongoing and and and 0:20:58.119 --> 0:21:00.600 what we're seeing now is, uh, you know, if you 0:21:00.640 --> 0:21:03.600 set the tech supply chain aside for a second, we're 0:21:03.600 --> 0:21:07.720 seeing the demand cooling around around Europe and the US 0:21:07.760 --> 0:21:10.399 in particular. So so we're seeing a lot of that 0:21:10.520 --> 0:21:12.800 congestion that we saw. You know that most of US 0:21:12.840 --> 0:21:16.560 is sort of transportation related as opposed to production related. 0:21:16.640 --> 0:21:19.320 So some of that is freeing up just because there's 0:21:19.400 --> 0:21:22.760 there's demand that's coming off. You know, the peak, the 0:21:22.800 --> 0:21:24.520 peak levels that it is seen over the past couple 0:21:24.520 --> 0:21:26.960 of years. All right, Brendan, great stuff, Really appreciate you. 0:21:26.960 --> 0:21:30.280 You're taking a time. Brendan Murray Trades are for Bloomberg 0:21:30.440 --> 0:21:32.600 News based in London, and Bloomberg News is all over 0:21:32.600 --> 0:21:35.480 this global supply chain issue, as is Bloomberg Intelligence Investment 0:21:35.520 --> 0:21:39.600 Research Wujinho technology analysts for Bloomberg Intelligence. They have a big, 0:21:39.600 --> 0:21:47.120 big report out on the terminal bond market, closed equity 0:21:47.119 --> 0:21:49.959 market open. Who's in charge out there? I mean, somebody's 0:21:49.960 --> 0:21:52.960 got to get it together. Here, let's continue our discussion 0:21:53.080 --> 0:21:56.720 of technology. It's time we're keep our focus on the 0:21:56.800 --> 0:22:00.600 chip business, um because a lot of industries penned upon 0:22:00.880 --> 0:22:03.199 the chip business. You didn't think so until we had 0:22:03.240 --> 0:22:05.359 this pandemic. Then you're like, oh yeah, chips are and everything. 0:22:05.359 --> 0:22:08.560