Speaker 1: From Mahart where Innovation, Money and power Collie in Silicon
Speaker 1: Vallet NBN. This is Bloomberg Technology with Caroline Hyde and
Speaker 1: Ed Ludlow.
Speaker 2: Live from London and San Francisco. This is Bloomberg Technology
Speaker 2: coming up ASML's CEO on how the US China relationship
Speaker 2: could shape the chip industry.
Speaker 3: The future of sec Oversight will be joined live by
Speaker 3: chair Gary Gensler.
Speaker 2: And SAP shares saw to a new record thanks to
Speaker 2: AI driving cloud revenue. We have that and many more
Speaker 2: earnings for you. But first, let's just check on these markets.
Speaker 2: We shine a light on the Nasdaq, which is currently
Speaker 2: off by about a tenth per percent. The S and
Speaker 2: P five founded off for two straight days. That's the
Speaker 2: first back to back losses we've seen in six weeks.
Speaker 2: There's some caution about where the Federal Reserve goes from here.
Speaker 2: Does it continue to cut rates in the face of
Speaker 2: resilient US economy even as the IMF warns of a
Speaker 2: global slow down ed? But we see tech just off
Speaker 2: a little bit. What's risk sentiment like for some of.
Speaker 4: The names you're watching?
Speaker 3: Yeah, interesting, I'm probably top story is ASML, the Dutch
Speaker 3: producer of chip making equipment. We're about to get right
Speaker 3: to a critical interview with the CEO. But the shares
Speaker 3: are worth looking at because at the high of the
Speaker 3: session in Europe they are up more than three percent.
Speaker 3: They've paired that gain to one percent, but it's worth
Speaker 3: noting we're down still more than fifteen percent since that
Speaker 3: kind of fateful early release of earnings that we covered
Speaker 3: so deeply last week. Intense focus on this name in
Speaker 3: the context of AI and what's happening with chip investment
Speaker 3: around the world.
Speaker 4: Bring us the details, Carra.
Speaker 2: Yeah, let's get to the ASML CEO Christal Fouquet, who
Speaker 2: spoke this morning at the Bloomberg Tech Summit with our
Speaker 2: own Tom Giles. It was right here in London. He
Speaker 2: discussed the future of the chip industry more broadly in China,
Speaker 2: in particular the future revenues and the impact of US regulation.
Speaker 5: Just take a lessen.
Speaker 6: The focus of China is on mainstream semiconductor. The demand
Speaker 6: for that has boomed in twenty twenty one twenty two.
Speaker 1: As a resource, the demand we.
Speaker 6: Had in China in twenty twenty one twenty two has
Speaker 6: boomed as well, and twenty one twenty two was the
Speaker 6: time if you recall where the demand was extremely high
Speaker 6: and SMR was struggling to deliver tools to everyone. Therefore
Speaker 6: we couldn't deliver a large part of the demand in China.
Speaker 6: Backlog in China grew twenty twenty three the rest of markets,
Speaker 6: so offten we got tools we could ship to China,
Speaker 6: same in twenty twenty four. So the level of business
Speaker 6: we had with Chine twenty three twenty four was more
Speaker 6: of a resource of the non delivered capacity in twenty
Speaker 6: two twenty one than anything else. And we've always explained that,
Speaker 6: you know, our fifty percent of the business in China,
Speaker 6: or most fifty percent, this was not normal. This was
Speaker 6: a peak resulting from basically.
Speaker 1: A lack of a bittervery before.
Speaker 6: The normal business in China is around twenty twenty five percent,
Speaker 6: and that's the normal demand related to mainstreams to be conductor,
Speaker 6: and I think we're going to go back to those
Speaker 6: number over time.
Speaker 7: But there is something artificial about the way we think
Speaker 7: about China as a as a purchaser of equipment like asmls,
Speaker 7: in the sense that many countries around the world US
Speaker 7: principally have have have been exerting export controls on the country.
Speaker 7: Are those controls going to become even more stringent? For example,
Speaker 7: China is not able to buy your most advanced machines.
Speaker 7: Is it possible that those restrictions could extend to the
Speaker 7: DUV level, which is used for more mainstream products.
Speaker 8: Yeah.
Speaker 6: So if you go back to the root cause of
Speaker 6: the say, the prime motivation of export ConTroll it to
Speaker 6: us to prevent China to have access to advanced technology.
Speaker 1: EWE is not in China.
Speaker 6: By not having you in China, we pretty much stop
Speaker 6: the ability of China to go beyond the five maybe
Speaker 6: three nonometer note may be able to do a few chips.
Speaker 1: You may see some of that in.
Speaker 6: The press because of of course everyone is watching very carefully.
Speaker 6: But fundamentally, by not having EUV, we have placed China.
Speaker 6: The regulation have placed China I would say ten to
Speaker 6: fifteen years behind when it comes to advanced technology. We
Speaker 6: always talk about China. We usually forget to mention the
Speaker 6: fact that while those restrictions have applied on China and UV,
Speaker 6: a lot of work has been done with other player
Speaker 6: and industry Intel, TSMC, Samsung on the most advanced EUV
Speaker 6: technology as we know it today, et.
Speaker 1: Cetera, et cetera.
Speaker 6: So there's been a lot of work down every single
Speaker 6: day to continue to widen if you want this technology gap.
Speaker 7: Based on your interaction with the Prime Minister of the
Speaker 7: Netherlands with the Foreign Ministry, is it your expectation that
Speaker 7: the restrictions will become even more limiting on China's ability
Speaker 7: to purchase machinery like asmls.
Speaker 6: Well, if you look at the geopolitic landscape, I think
Speaker 6: it's clear that the United States will continue to apply
Speaker 6: pressure on their life for more restriction. Now, the question
Speaker 6: the discussion we have with the Dutch Prime minister, I
Speaker 6: would say the European political leader, because at the end
Speaker 6: of the day, we are technology champion company, right, So
Speaker 6: these other people we have this discussion with, and the
Speaker 6: question is what is right for the Netherlands, what is
Speaker 6: right for Europe and as a results, what is right
Speaker 6: for SML.
Speaker 1: So what restriction makes sense when.
Speaker 6: It comes to national security, which has been the prime argument,
Speaker 6: and where does it stop right because, like I said,
Speaker 6: a lot of the focus in China today is on
Speaker 6: mainstream semiconductor and this is very different from you know AI.
Speaker 6: So that's the discussion we have is if the pressure
Speaker 6: will continue to be there because you know, if you
Speaker 6: look at the landscape, that's what it is. But I
Speaker 6: think that the discussion will get more sophisticated over time,
Speaker 6: the stake will become higher.
Speaker 3: That was asmlco Crystal fuqu earlier today at the Bloomberg
Speaker 3: Summer in London. Let's discuss this a bit more. Ioko
Speaker 3: Yoshioka is portfolio consulting director a wealth Enhancement group. I
Speaker 3: took a quick glance down at my Bloomberg terminal.
Speaker 8: I think you.
Speaker 3: Guys have a small exposure to the ADRs of ASML.
Speaker 3: But listening to that intense conversation, the themes are clear, right.
Speaker 8: Will there be.
Speaker 3: More export controls from the US to China when it
Speaker 3: relates to the lead edge of chips? Will there be
Speaker 3: increased tensions in the supply chain? When you listen to
Speaker 3: that interview, how do you think about a name like ASML?
Speaker 9: Good morning, Good morning ED.
Speaker 10: So you know, when we think about just the overall
Speaker 10: semiconductor chip equipment industry, you know, I think one of
Speaker 10: the key things that the CEO of ASML focus on
Speaker 10: is the mainstream versus AI. You know, we are seeing
Speaker 10: that growth on the AI side. We like names like
Speaker 10: LAM Research as well, which has you know, some etching
Speaker 10: tools for DRAM, which is used a little bit more
Speaker 10: on the AI side, So you know, one area is
Speaker 10: growing a lot more. I think the mainstream side is
Speaker 10: trying to normalize a little bit, especially with everything that's
Speaker 10: going on in China, and you just have to find
Speaker 10: a balance between the two as we look at what
Speaker 10: the chip industry is going to look like going forward.
Speaker 2: Looking at it going forward, do you have any view
Speaker 2: that it'll change post November the fifth, sixth, when we
Speaker 2: have a different outcome from an election and post January
Speaker 2: when we have a different administration in the US.
Speaker 10: You know, it's definitely something that we and our clients
Speaker 10: talk about a lot in terms of what are the
Speaker 10: potential regulatory issues as well as what are the policies
Speaker 10: that might get put in place, whether it's tariffs and whatnot.
Speaker 10: And it can change things going forward, but we have
Speaker 10: to wait and see what the actual details will be
Speaker 10: once we know who's in office and what types of
Speaker 10: policies they're going to be able to get past, just
Speaker 10: also depending on the composition of Congress.
Speaker 2: What has been so abundantly clear is that there is
Speaker 2: the AI perspective of chips, and then there's everything else,
Speaker 2: And from your perspective, is it investable in the everything
Speaker 2: else at the moment when we are still seeing inventory
Speaker 2: weigh so heavily, whether it's the auto exposure, whether it's
Speaker 2: consumer exposure.
Speaker 10: So in the near term, I think it's a little
Speaker 10: bit tougher. You know, in the near term we are
Speaker 10: seeing an oversupply of autos and some of the industrials
Speaker 10: are still sort of struggling. So in market wise, you know,
Speaker 10: it's not as great as it was back in twenty
Speaker 10: twenty year, twenty twenty one. But you know, I think
Speaker 10: going forward, as rates come down and as we see
Speaker 10: the economy continue to stay strong, I think you can
Speaker 10: see a lot of that continuing to grow over the
Speaker 10: long term. You know, these cyclical industries go through these
Speaker 10: ebbs and flows and you just have to kind of
Speaker 10: play through that.
Speaker 3: So that's why Caroline's question is so interesting, The conversation
Speaker 3: is so interesting. They are historically cyclical industries, and forget
Speaker 3: sort of the equity market portion of this. You know,
Speaker 3: the impact of the Chips Act, what's happening in Europe,
Speaker 3: all the money in capex commitment, is there a risk
Speaker 3: that it's overdone, over invested.
Speaker 10: So I think the big risk is that some of
Speaker 10: these hyperscalers do pause and take a little bit of
Speaker 10: their foot off the pedal when it comes to overall
Speaker 10: capax investing on the AI side, because then you have
Speaker 10: the cyclical low on the mainstream side and a pause
Speaker 10: potentially on the AI side. So that would be the
Speaker 10: biggest concern. But I think when you look at it
Speaker 10: in a three to five year outlook, it will all
Speaker 10: sort of equal out and provide growth on both sides.
Speaker 3: You know what we don't talk as much about sometimes
Speaker 3: oko is the technology bit. I'm pretty sure that Monsieur
Speaker 3: Fouquet would say that ASML is at the absolute cutting
Speaker 3: edge of extreme ultra violet lithography. And I bring that
Speaker 3: up because he'd probably also say that there is no
Speaker 3: company in China that could do what they do. So
Speaker 3: in all of this, all the risk and the chaos
Speaker 3: and the politics, is that not something worth considering if
Speaker 3: you're an investor in the technology sector.
Speaker 10: Absolutely, And you know, these chip equipment makers are down
Speaker 10: substantially from their highs, and so I believe that they
Speaker 10: are providing at least the stocks are providing an opportunity
Speaker 10: to get in for investors, and the near term might not,
Speaker 10: you know, be as rewarding as you might think right away,
Speaker 10: but I think over the long term you can see
Speaker 10: that benefit of these chip makers. There are not a
Speaker 10: lot of them out there. There's only a few of
Speaker 10: them that can do what they do from a technological standpoint.
Speaker 2: And there in lies the heart of ultimately competition, which
Speaker 2: is what Ed's getting at. And what's so interesting is
Speaker 2: not just competition coming from chip makers against chip makers,
Speaker 2: but eventually these hyperscalers, whether we see them remain committed
Speaker 2: to purchasing in vidio chips at the rate that they are,
Speaker 2: what about making their own chips? What that means to
Speaker 2: the ecosystem?
Speaker 1: How are you.
Speaker 2: Trying to see that out over the next three to
Speaker 2: five years as well?
Speaker 10: Okay, sure, I think you have to, you know, keep
Speaker 10: your pulse on all of it, because you know, from
Speaker 10: the hyper scalers perspective, I don't think anybody wants to
Speaker 10: be solely reliant on in Nvidia, and especially given some
Speaker 10: of the supply issues that they've had as well, So
Speaker 10: you know, it's it's something that we continue to monitor
Speaker 10: on a quarter by quarter basis and do our research on.
Speaker 4: On your research.
Speaker 3: The invitations the CES have started going out this week
Speaker 3: and heading into the U. I just wondered if you
Speaker 3: suspect we'll be talking about exactly the same stuff in January,
Speaker 3: or if we might have moved on to something new
Speaker 3: that you've found through your research.
Speaker 10: I think we're going to continue to be talking a
Speaker 10: lot about AI for quite some time. I think there's
Speaker 10: still a lot of areas to, you know, unfold. There
Speaker 10: could be a killer app that potentially surprises us at CES.
Speaker 10: You know, we never know, and I think that's why
Speaker 10: you have to keep your finger.
Speaker 1: On the pulse.
Speaker 2: Oh, We're only gonna be talking about quantum them, I'm sure.
Speaker 2: I Oka, yes, Ka, We thank you so much. Portfolio
Speaker 2: Consulting director over at Wealthy Enhancement Group.
Speaker 5: We need to have.
Speaker 2: Coming up we're going to be hearing from the essay PCFO.
Speaker 2: That's Dominique Assam. What's now Europe's biggest software company with
Speaker 2: some stellar numbers.
Speaker 5: This is bluem Meg Technology.
Speaker 2: SAP shares jumping to a record after the company announced
Speaker 2: a twenty five percent increase in cloud revenue over the year.
Speaker 2: The company's CFO Dominique Assam spoke with Bloomberg earlier.
Speaker 5: Take a listen.
Speaker 11: We had actually, if you adjust for currency fluctuation, constant
Speaker 11: currency cloud revenue growth of twenty seven percent, and by
Speaker 11: now have actually more cloud revenues in our total revenue
Speaker 11: base than any other source of revenue. So we can
Speaker 11: say after four years of heavy transformation towards the cloud,
Speaker 11: our strategy is paying off handsomely. If you look at
Speaker 11: the composition where that comes from, eighty four percent of
Speaker 11: that cloud revenue is generated but by what we call
Speaker 11: Cloud year Peace feed, which is the core cloud offering
Speaker 11: of SAP, that has actually growing thirty six percent in
Speaker 11: constant currency terms, and that's the eleventh quarter where that
Speaker 11: growth has exceeded the thirty percent growth mark. So that's
Speaker 11: really the core engine powering our growth. And what is
Speaker 11: even better, our so called CCB current cloud backlog, which
Speaker 11: is the twelve months ahead committed subscription revenue is roaring
Speaker 11: at twenty nine percent, so there's also good visibility on
Speaker 11: the growth lying ahead.
Speaker 12: When it comes to the market, to the market cap,
Speaker 12: the stock is up about fifty percent a little over
Speaker 12: fifty percent year today, so you can you can take
Speaker 12: something of a victory lap on that front. The market
Speaker 12: cap is up about one hundred billion US or one
Speaker 12: hundred billion euros since this time last year. It means
Speaker 12: that on your listing you're bumping up against that fifteen
Speaker 12: percent cap. Is Germany still a good place to be listed?
Speaker 12: That is a bit of a challenge for at this point,
Speaker 12: is it not?
Speaker 1: Well, you're right, we.
Speaker 11: Would like to see that kind of fifteen percent cap
Speaker 11: disappear because it constrains a little bit the demand in Germany.
Speaker 11: But we are really focusing on the large pools of
Speaker 11: capital available in the United States. There are still a
Speaker 11: lot of runway, a lot of room for us to
Speaker 11: grow and attract new investors. We would like not to
Speaker 11: exit Germany, but to the country attract capital into Germany,
Speaker 11: and on that front, I have to agree the fifteen
Speaker 11: percent cap in the decks is not very helpful. There's
Speaker 11: other regulation in Europe, for instance, on so called use
Speaker 11: its funds which are actively managed. Many of them are
Speaker 11: actively managed, which are also a little bit constraining, and
Speaker 11: we are currently trying to convince those who run these indecs,
Speaker 11: those in charge of legislation, to reconsider that cap.
Speaker 3: There was sap CFO Dominique Assam earlier on Bloomberg also
Speaker 3: speaking say m CEO Rene Haas, who says he's open
Speaker 3: to a secondary listener listing listen to this.
Speaker 13: We listed in New York over a year ago, and
Speaker 13: at that time are comments where we would look at
Speaker 13: a secondary listening. We're still open to it. It's not
Speaker 13: something that's top of mind right now quite candidly, but
Speaker 13: will continue to have discussions with both stakeholders and the
Speaker 13: government and in the local change.
Speaker 2: Another conversation we had was with tech investment Giant Process,
Speaker 2: the CEO Fabricio Bluisi. We talked about the current roadblocks
Speaker 2: facing adopting generative AI and where he will continue to
Speaker 2: invest in the technology.
Speaker 5: He's just part of our conversation the leaders.
Speaker 14: The leaders have to stop being the guy that say
Speaker 14: or the woman that's say I'm going to invest a
Speaker 14: billion dollars or one hundred million dollars and be the
Speaker 14: person that leads using spend time understanding what is the technology,
Speaker 14: spend time understanding that we are just starting that is
Speaker 14: so much development ahead.
Speaker 8: They should lead.
Speaker 14: They should show how they use AI to be more productive,
Speaker 14: to distribute more in the company.
Speaker 8: Will follow. Actually, the younger people, they.
Speaker 14: Even at the state why we're having this discussion, They
Speaker 14: use share, GPT or other things every day or week
Speaker 14: to study. More So leaders lead showing what is a
Speaker 14: good usage of AI instead of just writing mayuse about
Speaker 14: how much you are investing on that.
Speaker 2: You're going to invest in anymore General to AI companies, we.
Speaker 8: Are going to invest a lot.
Speaker 14: Process has a very big investment capacity, and we want
Speaker 14: to help the own emerging market and growth markets to
Speaker 14: lead this new revolution happening right now.
Speaker 8: We can't afford to be out of that.
Speaker 2: Process. And aspecy of Abricia Luisi there of course biggest
Speaker 2: holder of Tencent as a stockholder, but have so many
Speaker 2: investments said across the emerging market. So really a conversation
Speaker 2: about how in Africa, South Africa, how also in Poland
Speaker 2: they're adopting general to AI. In fact they say, look
Speaker 2: they're cutting costs by some thirty percent thanks to the implementation.
Speaker 3: YEP also exposure in not just ten Cent but other
Speaker 3: parts in year Southeast Asia. And he's a CEO to
Speaker 3: watch why moonshot package worth tracking his progress.
Speaker 1: Another story that.
Speaker 3: We're watching here on Bloomberg Technology, Chipotle rolling out an
Speaker 3: artificial intelligence assistant aimed at improving efficiency. It's called Avocado
Speaker 3: and will cover many administrative tasks in the recruiting process.
Speaker 3: The chain hopes will cut the time it takes to
Speaker 3: hire workers by as much as seventy five percent. It
Speaker 3: will be powered by conversational AI from tech firm Paradox.
Speaker 3: Meta is fighting back against fake celebrity scams, deploying facial
Speaker 3: recognition technology to weed out the imposters bloombers Kirkwagner joins
Speaker 3: us with the details, and I guess what is the
Speaker 3: kind of malicious activity that Meta is trying to counter
Speaker 3: here in terms of celebrity image.
Speaker 9: Yeah, so sometimes scammers will run that links to like
Speaker 9: a scammy website right where they'll try to steal your data,
Speaker 9: they'll try to get you to, you know, send money,
Speaker 9: and they will use as part of the ad pictures
Speaker 9: of real celebrities to try and make it seem more
Speaker 9: authentic or more legitimate.
Speaker 15: Right.
Speaker 9: Oftentimes people will see an image of a celebrity and
Speaker 9: therefore think, oh, it's an endorsement by them, or it's
Speaker 9: someone they're familiar with, and they're more likely to click.
Speaker 9: And so in this case, Meta saying, hey, we notice
Speaker 9: these ads are happening. We know these scams are happening,
Speaker 9: and so they're now going to use facial recognition software
Speaker 9: to try and match is there a celebrity in this
Speaker 9: ad doesn't match up with the celebrity on the service,
Speaker 9: and if Stowe, you know, maybe that's a scam. We
Speaker 9: should try to take that ad down.
Speaker 2: And then for anyone who's ever been locked out of
Speaker 2: their accounts many of us have, you're no longer going
Speaker 2: to have to suddenly get your passport ready. They might
Speaker 2: use the technology for that as well.
Speaker 9: That's right, So they're going to start testing this idea
Speaker 9: of sending in a video sell fie right, So it's
Speaker 9: pretty much exactly what it sounds like. You hold up
Speaker 9: your phone, take a short video of your face, send
Speaker 9: it into Meta. They will then match that video two
Speaker 9: photos associated with the account. If there's a match, they'll say, okay,
Speaker 9: this is indeed you know Kurt's account.
Speaker 4: And you can get back in.
Speaker 9: They said the whole thing could take about a minute,
Speaker 9: and they'll delete the video and any data associated with
Speaker 9: it immediately after. This is something that they're trying to
Speaker 9: do to expedite this process because as you mentioned, Caroline,
Speaker 9: right now, they have other ways to verify identity, but
Speaker 9: it's a lot more cumbersome. You might have to send
Speaker 9: in a picture of your ID or a passport or
Speaker 9: something like that. And so they're thinking that this could
Speaker 9: be a faster way of getting people back into their
Speaker 9: accounts automatically if they do get locked out.
Speaker 3: Kurt, why does Meta do this? What's the motivation for them?
Speaker 9: Well, I think think of the scale that met operates on, right,
Speaker 9: there's almost, I believe three point three billion users across Instagram, Facebook, WhatsApp,
Speaker 9: all of their different services, and so people are getting
Speaker 9: locked out every single day. They can't keep up with
Speaker 9: this from a human standpoint, right, they need to automate
Speaker 9: these things, and I think as AI has gotten better
Speaker 9: as their technology has gotten better, they're seen, hey, here's
Speaker 9: a way to do this much quicker. Presumably in the
Speaker 9: future you've been much cheaper, you don't need humans involved,
Speaker 9: and so, you know, I think it's just part of
Speaker 9: their overall push toward AI and these advancements and technology
Speaker 9: to help people out.
Speaker 5: In just thirty seconds.
Speaker 2: Though, Kat, there is a complex relationship with facial recognition
Speaker 2: technology and META.
Speaker 9: In the past well, MET has been sued several times
Speaker 9: in the past for using this technology to profit without
Speaker 9: really giving users appropriate recognition, appropriate way to opt in, right,
Speaker 9: and so this is a type of technology they've sort
Speaker 9: of been hammered on in the past. They've walked away
Speaker 9: from it for a couple of years, and now it
Speaker 9: feels like they're sort of dipping their toe back into it.
Speaker 9: So it'll be interesting to see if there's a more
Speaker 9: lawsuits that ultimately come of them trying to kind of
Speaker 9: give back into the facial recognition space.
Speaker 2: Looking at you, Illinois and Texas, Kerle Wagner, great reporting,
Speaker 2: We thank you.
Speaker 3: We want to welcome our Bloomberg Radio and television audience
Speaker 3: right now to a special conversation with us SEC Chair
Speaker 3: Gary Glentzler and mister Gensler. The SEC clearly looking closer
Speaker 3: at the use of AI tools in finance. We know
Speaker 3: that from the agency's latest exam priorities. But in parallel
Speaker 3: a year ago, you embarked on this rule making process,
Speaker 3: and I want to start by asking what sort of
Speaker 3: additional authority or power you feel you need through a
Speaker 3: rule that you wouldn't be able to regulate through through
Speaker 3: examinations so.
Speaker 4: Let me say this.
Speaker 16: I think that the use of artificial intelligence, which has
Speaker 16: been around for at least ten years, has taken on
Speaker 16: and it's an important transformative part of our economy.
Speaker 4: Every bit is transformative.
Speaker 16: Is the Internet, probably more every bit is transformative as
Speaker 16: one hundred years ago when we electrified so many things
Speaker 16: in our markets. Our factory is the automobile, the refrigerator.
Speaker 16: That transformative. In finance, it's being used today by many
Speaker 16: brokerage apps and investment advisors when they're selling to the public,
Speaker 16: just as.
Speaker 4: When we're looking at.
Speaker 16: Movie apps that have figured out long ago that I'm
Speaker 16: a rom com type of guy and I want to
Speaker 16: watch those movies, and so it's it's to ensure that
Speaker 16: in the algorithm, in the actual math of the algorithm,
Speaker 16: that they ensure that they put the public's interest, their
Speaker 16: customers interest, ahead of the investment advisor and broker dealer.
Speaker 4: That's it in a nutshell.
Speaker 2: In a nutshell, do you think that there's financial systemic
Speaker 2: risk still looming large because of adoption of AI and
Speaker 2: AI models ultimately being too similar from one brokerage to
Speaker 2: the next.
Speaker 4: I do think.
Speaker 15: So.
Speaker 16: I said I liked rom coms, so I'll just go
Speaker 16: with that wonderful movie her when Scarlett Johansson, you know,
Speaker 16: played this virtual assistant when she went offline late in
Speaker 16: the movie eight three hundred and six teen, folks were
Speaker 16: broken hearted. We could see that in finance there's right
Speaker 16: now two or three large cloud providers that are backing
Speaker 16: some of the biggest investments in what's called generative AI.
Speaker 4: As the financial sector more and more.
Speaker 16: Relies on those big base models, it is not only
Speaker 16: possible but likely that some financial crisis in the future
Speaker 16: is that everybody's relying on it. And whether it's like
Speaker 16: Scarlett Johansson going offline or if Scarlett Johanson of the
Speaker 16: future I'm talking about the AA model is hurting and
Speaker 16: taking the capital markets off of some various cliff and
Speaker 16: I think that's a hard project to solve because of
Speaker 16: the dominance of a few base models likely in the future.
Speaker 2: Do therefore more clear rules need.
Speaker 4: To be envisaged.
Speaker 2: Here is examination the tool of choice.
Speaker 4: So I'm separating out there's important.
Speaker 16: Investor protection issues directly about the conflicts, and I think
Speaker 16: we can do that and proceed for I've asked staff
Speaker 16: for recommendations on a reproposal of that role. I think
Speaker 16: a secondary we didn't talk about is fraud.
Speaker 4: Fraud is fraud.
Speaker 16: If you use the algorithm and the AI model to
Speaker 16: defraud the public, it's still fraud. But I think that
Speaker 16: that's going to play out not only for US, but
Speaker 16: in other agencies around the country, the Federal Trade Commission
Speaker 16: and elsewhere, but on these systemic issues. On these systemic issues,
Speaker 16: I think it's a tough challenge that global regulators need
Speaker 16: to come together and how do we protect against what
Speaker 16: is likely to be a very concentrated, interconnected system that's
Speaker 16: relying you know, like I say, three hundred and sixteen,
Speaker 16: relying on Scarlet Johansson for their love was one thing
Speaker 16: in a fictional movie.
Speaker 4: But what do we do here?
Speaker 3: If you're just joining us on Bloomberg Television and radio,
Speaker 3: we're speaking with the SEC chair, Gary Gensler and mister Ginsley.
Speaker 3: You're also busy in parallel with the crypto industry. I
Speaker 3: think there's consensus on the eve of an election that
Speaker 3: all of those parties involved in responsible want to hammer
Speaker 3: out some sort of new jurisdictional framework for crypto regulators
Speaker 3: to make some progress on settling oversight of that industry.
Speaker 3: Can you talk to us about the work you're doing
Speaker 3: there and if you're making any progress in that field.
Speaker 16: Look, there's nothing incompatible about the ledger technology. You know,
Speaker 16: it's just this Halloween, it will be sixteen years since
Speaker 16: Toshinakamaldo wrote that white paper, So happy sweet sixteen in
Speaker 16: a week. There's nothing incompatible about a ledger technology, decentralized
Speaker 16: ledger technology, and the securities laws. And it's important that
Speaker 16: in the securities market that investors get to decide on
Speaker 16: their investments, but they get the proper disclosure that we
Speaker 16: goard against conflicts of interest.
Speaker 4: And the like.
Speaker 16: And we're going to continue to do that at the
Speaker 16: Securities and Exchange Commission. If a market's ever going to
Speaker 16: have trust, it also needs to come into compliance. And
Speaker 16: a lot of this field, and we've seen the challenges
Speaker 16: in this field where a lot of people have lost money.
Speaker 16: Regular investors have lost money in a field that's not
Speaker 16: providing the fundamental disclosure about their projects, about these these
Speaker 16: investment contracts and these schemes, and that a field that
Speaker 16: has a lot of conflicts in the middle of it.
Speaker 3: Something interesting has been happening over the last year where
Speaker 3: you've been focusing on policy and regulation in the Fifth
Speaker 3: Circuit Court of Appeals, there have been many suits file
Speaker 3: in what is a kind of business friendly courts? How
Speaker 3: do you have to respond to that and adjust the
Speaker 3: policy side in response to the litigation side.
Speaker 16: Misticenza No, No, I think ed it's a really good question.
Speaker 16: We do everything we do within the law and how.
Speaker 4: The courts interpret the law.
Speaker 16: If the courts interpret it differently, we adjust.
Speaker 4: That's what we do.
Speaker 16: It's part of our great democracy. But I do think
Speaker 16: that we're focused every day on how we drive lower
Speaker 16: cost in the system. That's why we did equity market reform,
Speaker 16: I would note unanimously through our five member commission.
Speaker 4: That's why we've.
Speaker 16: Worked so hard on the treasury markets, this twenty eight
Speaker 16: trillion dollar market at the base of our capital markets,
Speaker 16: and driving lower cost which is called efficiency, and lower
Speaker 16: risk which is called resiliency in these really consequential, significant markets.
Speaker 2: Just for a moment reminding our TV and radio audience
Speaker 2: were in a conversation with SEC Chair Gary Gensler, and
Speaker 2: just to stick with the crypto aspect for a moment more.
Speaker 2: There is, though this ongoing narrative that you haven't changed
Speaker 2: that much. You haven't adjusted much in terms of it
Speaker 2: is regulation via enforcement. Will that change?
Speaker 5: Ultimately?
Speaker 2: Do you see laws coming to bear from Congress rather
Speaker 2: than you having to enforce via enforced and regulate Caroline.
Speaker 16: We have benefited for nine decades from robust laws from
Speaker 16: Congress and rules from various agencies, not just the SEC,
Speaker 16: but the Commodity Future's Trading Commission, another significant and great
Speaker 16: agency that I was honored a chair, to help promote
Speaker 16: the markets, to protect investors, to promote capital formation, and
Speaker 16: the markets in the middle.
Speaker 4: And that's what will continue to do.
Speaker 16: Whether it's related to the stock markets fifty sixty trillion
Speaker 16: dollars stock markets, whether it's related to the treasury markets
Speaker 16: as I said, nearly thirty trillion dollars, whether it's related
Speaker 16: to the bonds and fixed income markets, and yes, even
Speaker 16: related to this newer market, where as I said, all
Speaker 16: too many people have been hurt, All too many people
Speaker 16: have lost money and lined up in bankruptcy court to
Speaker 16: deal with their claims. And fundamentally, what President Roosevelt laid
Speaker 16: out and has been looked at over the years, Congress
Speaker 16: could adjust, but at the fundamentally it's about disclosure to
Speaker 16: the public. So the public can decide, and then guarding
Speaker 16: the public against the conflicts and the fraud and things
Speaker 16: that happen in the capital markets that are unregulated. We
Speaker 16: saw that happen in the nineteen twenties. None of us
Speaker 16: were alive, but you can read about it, and we
Speaker 16: don't want that to happen to the investing public and
Speaker 16: undermine the trust in the overall it's hapital mark markets
Speaker 16: as we know them.
Speaker 2: Talking of disclosures, one disclosure from former President Trump is
Speaker 2: that he would fire you ultimately unsurprising to you, I'm sure.
Speaker 2: But also he's got some plans purported plans, of course,
Speaker 2: to introduce his own crypto platform and has been working
Speaker 2: on it.
Speaker 8: What do you make of that.
Speaker 16: I'm not going to comment on any one project. I
Speaker 16: think your viewing audience can appreciate that. It's just not
Speaker 16: well we do and so our Caroline, I'll let you
Speaker 16: go to your next question.
Speaker 4: Well missed against I'll jump in.
Speaker 3: You talked about the investing public that you serve, right,
Speaker 3: and there is something happening where private credit firms are
Speaker 3: taking private market assets where you could debate the real valuation,
Speaker 3: and they're wrapping them in products like ETFs that are
Speaker 3: somewhat sort of more retail friendly. It's a newer area,
Speaker 3: it's something interesting happening, and I know it's an intense
Speaker 3: interest our audience. How do you regulate that and how
Speaker 3: much are you personally thinking about that right now?
Speaker 16: Let me put it in context our dollar credit markets,
Speaker 16: where you can your commercial credit and you're borrowing probably
Speaker 16: worldwide in excess of thirty trillion dollars, and banks and
Speaker 16: non banks alike play important roles in that. And so
Speaker 16: what we've private credit existed when I started at Goldman
Speaker 16: Sachs forty some years ago.
Speaker 4: I mean, there were direct.
Speaker 16: Loans that could be made outside of the banking system.
Speaker 16: But today you've seen a growing share involved in that.
Speaker 16: I think that competition is good for borrowers, investors, savers
Speaker 16: and the like. That's competition in our capital markets, but
Speaker 16: it still has to sort of comply with the basic
Speaker 16: tenants of risk management, disclosure, transparency and the like. Our
Speaker 16: role in it is a capital markets oversight is an
Speaker 16: important one. But I think the competition is actually benefiting
Speaker 16: a lot of borrowers. I would note this, it hasn't
Speaker 16: at this size, it hasn't lived through a downturn, so
Speaker 16: it hasn't been tested in you know, the inevitable at
Speaker 16: some point downturns that would come. There's also some intersections
Speaker 16: between this private credit merging system and the insurance sector
Speaker 16: and the banking sector. But particularly it's intersection with the
Speaker 16: insurance sector. That's you know, bears look and ratings as
Speaker 16: well the use of private letter.
Speaker 4: Ratings on some of this.
Speaker 16: So we're looking at some of this, but I think
Speaker 16: overall it's capital markets benefiting and the public benefiting from competition.
Speaker 3: Apollo and State Street have such a private market ETF
Speaker 3: pending before the SEC. My colleagues tell me it's controversial.
Speaker 3: What can you tell me about that specific case study.
Speaker 16: I guess I could tell you the same thing I
Speaker 16: told Caroline earlier that you know, in a role like mine,
Speaker 16: i'm a very asked to be disciplined. I try to
Speaker 16: state this one. I don't comment on specific prod ducts
Speaker 16: or projects that may be in front of the staff
Speaker 16: or in front of our five member commission.
Speaker 4: So I'm going to demure on that.
Speaker 16: But I hope you're listening public understands why.
Speaker 2: Do you worry about that ill liquidity mismatch? Though a
Speaker 2: potential one.
Speaker 16: Look there's an illiquidity mismatch in banks. So our twenty
Speaker 16: six trillion dollar banking system in the US has twenty
Speaker 16: trillion dollars in deposits runnable deposits.
Speaker 4: Of course, a lot of.
Speaker 16: Them are insured, but a lot of them are uninsured.
Speaker 16: And so banks themselves transform liquidity, transform what's called maturity
Speaker 16: or duration.
Speaker 4: And then you think about it.
Speaker 16: In the non bank sector, you have, frankly, a better
Speaker 16: match of maturity of the the liability side of a
Speaker 16: private fund and the assets they hold.
Speaker 4: So it may it's not without risk, but it might
Speaker 4: be in.
Speaker 16: A part of the market that they can better bear
Speaker 16: that illiquidity risk.
Speaker 2: It's really interesting how you've got this is a line
Speaker 2: of sight, but also everything we've just articulated AI crypto
Speaker 2: private markets a lot to get on with. And your
Speaker 2: term is what until June twenty twenty six? But will
Speaker 2: it run until then? Many feel that perhaps not. What
Speaker 2: do you want to get done in the remaining months
Speaker 2: or so?
Speaker 16: Look, I think it's the greatest privilege of my life,
Speaker 16: other than having these three wonderful daughters that I have.
Speaker 16: But I'm talking about professional privilege. And so every day
Speaker 16: I come into work and think with my colleagues and
Speaker 16: fellow commissioners, how do we get things done for the
Speaker 16: investing public and the issuing public that the markets in
Speaker 16: the middle work for them, not that the issue and
Speaker 16: the investors are working for the intermediaries and the markets
Speaker 16: in the middle, but the markets work for them. So
Speaker 16: that's like lowering cost through competition, transparency and the like,
Speaker 16: and access to the markets, and then resiliency trying to
Speaker 16: use like central clearing and so forth, the backside and
Speaker 16: the plumbing. So we've gotten We laid out an agenda
Speaker 16: of fifty or fifty five projects three and a half
Speaker 16: years ago.
Speaker 4: We've actually gotten.
Speaker 16: Across the line, proposed and adopted forty three of those.
Speaker 4: You can do the math. The other projects, a number
Speaker 4: of them.
Speaker 16: I've asked staff to we consider possible reproposals.
Speaker 4: But we're still.
Speaker 16: Working on some rules around market structure of the treasury markets,
Speaker 16: some rules around central clearing and segregation of funds and
Speaker 16: the like. But we're going to continue to move forward,
Speaker 16: you know, And elections have consequences. That's a great thing
Speaker 16: of our democracy.
Speaker 5: They do.
Speaker 2: SEC Chair Gary Gensler, I'll let you return to some
Speaker 2: rom coms. Thank you so much for us. Coming up,
Speaker 2: we're going to talk a little bit more about though
Speaker 2: we were just were crypto. At least Colleen founder and
Speaker 2: managing partner is still Mark joins us.
Speaker 5: Next. That's a good big technology.
Speaker 2: Let's check in on crypto for you. Bitcoin at one
Speaker 2: point was almost at seventy thousand yesterday. We're now training
Speaker 2: about sixty seven thousand dollars level right now. We're looking
Speaker 2: at ETF inflows. Of course resurgence there more than two
Speaker 2: billion dollars in recent week or so. But what does
Speaker 2: the election mean for crypto deed regulation? At least Colleen
Speaker 2: found a managing partner at Stillmont. You are listening into
Speaker 2: that conversation with Gary Gensler, and I'm interested as to
Speaker 2: what you think the election means for your space.
Speaker 15: The election means that we are going to be attending
Speaker 15: to the disposition of a new administration towards innovation, and
Speaker 15: that includes bitcoin innovation.
Speaker 17: So what we're hoping to see, regardless of the.
Speaker 15: Administration INSIDU, is that they take a thoughtful approach, that
Speaker 15: they take a studied approach, and that they are discerning
Speaker 15: and how they apply regulation within the bitcoin ecosystem and
Speaker 15: industry to make sure that we are updating rules of
Speaker 15: the past so that they fit well with the current innovation,
Speaker 15: that they are not just protecting investors and participants in
Speaker 15: the ecosystem, but that they are also fostering innovation so
Speaker 15: that America can continue to lead here.
Speaker 2: Does it continued to lead from your perspective with the
Speaker 2: regulatory environment and suddenly, the potential next President, Donald Trump,
Speaker 2: he's certainly saying he wants us to be the crypto capital.
Speaker 2: If regulation stays as it is, var enforcement, will it
Speaker 2: remain so.
Speaker 12: Well?
Speaker 15: So the US has an advantage now and that many
Speaker 15: of the top founders, the most innovative companies in the space,
Speaker 15: including those advancing bitcoins payment technology, for example, are based
Speaker 15: in the United States. They can continue to innovate from
Speaker 15: here with a regulator that sees the advantages of having
Speaker 15: that activity in the US, and we are hopeful that,
Speaker 15: regardless of the administration, that those involved will be looking
Speaker 15: to foster such innovation. I also want to note that,
Speaker 15: of course, the coin innovation is not happening in the silo.
Speaker 15: It's relevant to other industries that are of national relevance,
Speaker 15: such as the transition to renewable energy the explosion of
Speaker 15: interest and opportunity and generative AI and l A.
Speaker 17: Lambs.
Speaker 15: Bitcoin's relevance to that brings more attention to bitcoin.
Speaker 17: Technologies itself, and regulators will.
Speaker 15: Hopefully respond to take themselves a studied approach to the
Speaker 15: bitcoin space.
Speaker 3: What we could have asked SEC chair Against there a
Speaker 3: few moments ago, at least so I suspect he would
Speaker 3: have declined to answer, was his understanding of the relative
Speaker 3: policy platforms of Vice President Harris and former President Trump
Speaker 3: when it comes to crypto and the fundamental differences between them.
Speaker 3: We won't get that answer, but do you have that
Speaker 3: kind of clear understanding of what either outcome might mean
Speaker 3: from a policy perspective.
Speaker 15: I'm quite happy that both candidates are paying attention to
Speaker 15: participants in the ecosystem. They both have advanced policy agendas
Speaker 15: and let us.
Speaker 17: Know that they're paying attention to the space now.
Speaker 15: Instead of evaluating policies during a campaign, what we're really
Speaker 15: looking to see and to participate in and then to
Speaker 15: evaluate is the inaction of policy itself and action rather
Speaker 15: than campaign promises. And it looks to us as though
Speaker 15: both campaigns have an intention to partner with the industry
Speaker 15: to study and to apply a thoughtful approach. And now
Speaker 15: we'll have to look at the rest of the candidates
Speaker 15: in their administrations, the potential administration's behavior, so that we
Speaker 15: can decide whether optimism is deserved. But I think there's
Speaker 15: a reason to be optimistic regardless of the outcome of
Speaker 15: this election.
Speaker 3: That conversation was about, I guess regulatory in the context
Speaker 3: of the risks crypto poses to the financial system, rather
Speaker 3: than how we use the underlying technology against the called
Speaker 3: it the ledger right in the financial system, modernizing global finance.
Speaker 8: Do you think we.
Speaker 3: Should kind of go back to talking about that a
Speaker 3: little bit?
Speaker 17: I think so again.
Speaker 15: Gary Gensler also spoke about his concerns about the stability
Speaker 15: of core technologies like LLM models, and as he's thinking
Speaker 15: about that, or as perhaps the next to take his
Speaker 15: seat is thinking the same, they should be looking to
Speaker 15: how bitcoin can support the robustness of a generative AI
Speaker 15: and LLM ecosystem. So, for example, here energy stabilities, so
Speaker 15: the stability of the grid, the demands that LMS and
Speaker 15: applications running on top of them will have for energy
Speaker 15: will require robustness of the supply, and bitcoin can help
Speaker 15: facilitate that. Of course, we know that bitcoin is an
Speaker 15: off taker of energy in the same way that AI
Speaker 15: is as well.
Speaker 17: But the difference here is that bitcoin.
Speaker 15: Is price responsive, and what that means is that bitcoin
Speaker 15: can off take energy at low prices when there's low
Speaker 15: demand that can shut off and peak times. So bitcoin
Speaker 15: will not contribute to peak times in the grid, which
Speaker 15: means that it will not destabilize the grid and can
Speaker 15: allow for instead healthy growth of renewable generation in a
Speaker 15: way that contributes also to the LM ecosystem's.
Speaker 17: Own stability, a place where Gensler express concern.
Speaker 2: It's interesting that, of course a proof of work, proof
Speaker 2: of stake, that's something in other parts of the crypto
Speaker 2: ecosystem that have to deal with their energy impact. But
Speaker 2: more broadly, everyone is waiting when the killer app is
Speaker 2: really going to be here. From your perspective, does it
Speaker 2: remain as an asset class as an area to invest
Speaker 2: in if you're worried about inflation and that's why you
Speaker 2: get into gold and crypto, or does at some point
Speaker 2: what you're investing in, the projects you invest in end
Speaker 2: up being of service to society.
Speaker 15: This is a great question. So there's two things happening here.
Speaker 15: In terms of advancement of the ecosystem. We've seen, of course,
Speaker 15: the bitcoin is a store of value has matured. At
Speaker 15: the Bitcoin ETF has reached over twenty billion in aggregate
Speaker 15: assets in less than the year's time, which exceeds what
Speaker 15: goal dts did on their launch. And of course the
Speaker 15: Bitcoin spot ETF launch was one of the most successful
Speaker 15: in history. So Bitcoin as a store of value has
Speaker 15: secured its place in history. But what's also happening, of course,
Speaker 15: is that we've seen stable coins find product market fit
Speaker 15: both internationally and.
Speaker 17: Within the US. At the same time the.
Speaker 15: Stable coins have achieved this product market fit, they're coming
Speaker 15: to the bitcoin payment system, which is Likening Network. In July,
Speaker 15: Likening Network launched payment channels that can hand other assets,
Speaker 15: including stable coins, which brings the market that Lightning Network
Speaker 15: has been able to achieve. For example, their Lightning Network
Speaker 15: processes over two hundred thousand transactions a day, over eighty
Speaker 15: million dollars in value a month. And now stable coins
Speaker 15: are coming to the Lightning Network. And so when we're
Speaker 15: looking about what the killer app is for Bitcoin, and
Speaker 15: we're thinking about bitcoin asystore of value and Bitcoin technologies
Speaker 15: for stable coins.
Speaker 2: Ane Colleen founder and managing partner of Stillmock, inter Twining
Speaker 2: stable Coins and Clote. We thank you very much. Indeed,
Speaker 2: now that does it for this edition of Bloomberg Technology.
Speaker 3: Ed jam packed with the interviews. Check out the pod
Speaker 3: you know exactly where to find it. From London in
Speaker 3: San Francisco, this is Bloomberg Technology