This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news the Bloomberg Business Week Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
And we want to talk at bit about a headline we got and a story that involves Apple and Broadcom.
We've got Apple shares they're down a bit. Broadcom they were rallying this after Apple signed a new multi year, multi billion dollar deal with Broadcom to develop five G radio frequency components, which made us want to say, I feel like, what's interesting about this story, Matty, is you keep we all keep kind of watching Apple and what it's doing in terms of its supply chain, and you know the questions of whether it's reducing its exposure to Asia China specifically.
Yeah, and what they're going to do with all of the money that they have, which is a big question.
Right, A lot of money out there, right, It's the richest balanceet whenever you look at it. All right, So let's get to it and let's talk about it deal and broader Apple. Bloomberg Intelligence Senior Technology Analyst Anara Grana is back with us via zoom from Chicago. Honurag good to have you here. First of all, folks on radio can't see it, but really nice haircut. Can I just can I just put that out there something the summary air cut? You're very welcome. Tell us about this deal.
Is this just another company signing up with a supplier to make sure that their supply chain works or is it something much more significant?
No, I think it is diversification of supply chain. They're trying to make sure everybody knows that. You know, they're not just dependent on Asia. They're trying to diversify around the world wherever they can make parts for their devices. I think they have been criticized quite a bit of being very heavy in Asia compared to the rest of the world. And you know, this is a statement saying if there are pots to be made somewhere else, they will go out into it.
So I want to ask you more about the significance of the deal and everything, but just so I can understand the trade. Why is Apple getting punished here? Is this related to downgrades from earlier in the week, or is there something with this deal that the market isn't loving.
Oh?
No, there's nothing to do with the deal, or to be honest, the last few days of downgrade, if you look at it, all tech stocks are really coming under pressure. They've had some unbelievable run over the past two to three months, and I think probably is the first day that I'm seeing some kind of pressure on technology that I can remember in like, you know, several weeks.
So talk to us about Apple and Broadcom, because I thought I heard you earlier on TV that these aren't necessarily companies that have always come along, especially as Apple is building out its own kind of chip world, if you will. So you know, I don't know where can we go as far as calling them frenemies, But that's the tech sector, right, It's often competitors also having to work together.
Yeah, Apple buys products from everywhere. I mean it's you know, Qualcomm, Broadcom, I mean, you name it. And in this case, you know, one of the big questions out there for qualcomf here holders has when you know there will there be a time when Apple stops working with them down the road, and you know, the Capples just basically saying, you know,
they'll go and get paths from wherever they can. You know, One of the things we talk about is Apple doesn't think of these things from a margin point of view, in terms of way they can get things cheaper. But they're more worried about getting the best product from their suppliers. And we see that from a chip point of view. When when now they can't find a chip, they went ahead and designed their own chip, which has been a key driver of their backbooks. And I think we see
we're going to see that. And Mark has reported on this. He broke the story that Apple is looking to develop some of these you know, radio frequency devices internally also down the road. It's just a matter of, you know, how long it's going to take them to do it.
I wonder too, how you rate this move for Apple versus something like I know we've talked before about dividends for an Apple. Do you prefer this use of their finances?
Oh?
Absolutely, I mean there is no two ways about it. A technology company spending more on our far better than any other capital allocation they can do. Because technology is a lot about innovation, and if they're spending a lot more money into that. In the case of Apple, they have way too much money, even after spending on R and D and other areas, and that's where then you have to decide whether you do a buyback versus a dividend, and that's always an ongoing debate.
Hey, Anrach. One of the things I thought too in reading Mark's story today along with Ian king story, is you know, they reminded us that Apple vowed a couple of years ago, right, that they're going to pump about not quite half a tillion dollars into the US economy over the next five years, right, And so this is another deal that helps them move towards that target. So it is part of a bigger, broader strategy on the part of Apple. And I also do think about the politics involved in that as well.
I mean that goes without saying I think, as I said, you know, after the last five six years, there has
been extreme tension between the US and China. And everybody knows Apple makes most of its electronic products in China, consumer product They are all assembled there, most of them are, and Apple needs to figure that out over the next several years as how it's going to diversify it, because you know, it could be a big problem for Apple if they are not able to furnish products just in case, you know, things go south between US and China.
Having said that, I was talking with someone preparing for a couple of panels that I have coming up, a former top regulator in the United States and saying that this idea gets the idea of planning, you know, backup supply chains and so on and so forth, but also said US and China are intertwined, they need each other. Do you agree, as you look at the tech sector more broadly, that that is going to stay in place on some level for years to come.
I'm very honest, I hope so, and not just for tech products, but also for consumer products, because you know, while I'm getting my stuff made over there, I like to go out and sell them some you know, Ray banglasses and jeans about it at the same time. So for me, it's a very big consumer market. It spends a lot of money, and it'll be stupid for American corporations not to sell their products in China.
Well, I wonder, since you brought up products, I do want to do a look ahead with you to some of Apple's product announcements that should be coming soon. Do you have any fun surprises you can tell us, and what are you most looking forward.
To because we've talked a lot about the virtual headset with Mark German and that how this is kind of a big project for Tim Kok kind of his alone to move forward.
I'm so looking forward to that release when it comes out, and again it's probably the best not well kept secret out there. From a financial point of view, I don't think it is going to have a material impact in the first year or second year, third year, just because then the Apple's revenue size is so big that you know, these new product launches even are three thousand dollars a pop, it's not going to have that many unit shipments out there. But what it does is that, you know, it opens
up a new ecosystems of applications. You're going to have a brand new operating system that's for virtual reality. People are going to build applications on it. You're going to have, you know, people developing e commerce applications, gaming applications, So it's an entire new ecosystem. It's going to have a separate, i would say, schema of how to build those applications. So it's going to be a lot of fun to watch.
But from a mathematical point of view, I don't see that adding that much to the bottom line or the top line anytime soon.
It's like an octopus, right Apple, right, Like they just have all these tentacles and they don't even care. Like the watch or these different things which may bring in, you know, a few billion dollars but maybe aren't behemoths, but they feed kind of you know, people into the Apple infrastructure, right, and that's where you start to see some of the money really grow.
The ecosystem is the most important thing for Apple, and that's where we've been talking about it. Imagine. I mean, if I'm bound everything from my pictures to my music into the system, and I use Apple Pay to pay for products, all of that really feeds to the bottom line. Remember services, even though it's on twenty percent of revenue or roughly, it has gross margins of seventy percent. I mean that's very high compared to the product gross margins
or hardware gross margins. And that's really I think that's going to improve the profitability of the company down the road. It is already doing.
It actually well really quickly.
Though.
I know in your report you talk about how AirPods are expected to be the third most important product for Apple in the next decade and our final thirty seconds here. If it's the most important product, why are there only like two options. I just feel like we should get some diversity of offering in the air pod space. What do you think.
I'm sure they'll offer one and yellow color for you one of these days. But okay, from my side of you, From my point, it is an absolute essential accessory to have. I have very rarely seen people go back to some of the other you know, AirPods after they've tried it. You know, it just increases the average cost that a user spends on an iPhone because before it was part of the iPhone accessory you have to p ex struckloaded.
I have to say they are crucial and as soon as I lose one, I order us a pair right away and replace it.
So it's like a consumer staple like this is not discretionary.
Spot on yellow or white. I don't care what color, but I've got to have them. Thank you so much, Honourrog really appreciate it. Onnorrog Rana. He is our senior technology analyst at Bloomberg Intelligence, joining us on Zoom from Chicago. As we mentioned, Apple shares, they are a little bit lower, but as he mentioned, Averal Tech Space is a little down. Apple down about one and a half percent, but they
are in quite a tear hair. In twenty twenty three, they're up about thirty two percent here, so we've seen quite a run here.
Good year for them and also good year to have that market cap ever right.
Oh my gosh, it's two point seven trillion, It's unbelievable.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, or watch us live on YOUTUBEA.
All right, everybody, you know that music, which means we're gonna talk a little bit about entertainment and one company that plays into it in a big way, and that is, of course, the Walt Disney Company. This story actually popping up earlier on the Bloomberg and it was a result of some comments from former News Corp. Executive Peter Chernan. He was at the Cutter Economic Forum that's underway by
Bloomberg and it happened earlier today. And what it was is, he said, Walt Disney facing a very rushed succession process as it searches for a candidate to replace CEO Bob Iger. With more on Life after Iger, who was there for a long time, he left it for a brief time, came back, and also some cool research on the streaming download world with us as Bloomberg Intelligence Technology and Media analyst Gita Ringanathan. She's with us from BI headquarters in Princeton,
New Jersey. Gita, so nice to have you back with us. We did see that story and it made us kind of stop and think. Bob Iger. He is just back at the company that he was at for a long time. How do you think about the world in Life after Bob Iger? Is it too soon for us to even be thinking about this?
Yeah, thank you so much, Carol. Yeah, I definitely think it is really soon. But having said that, I mean, he has been now at the company, or he's been back for more than six months now, so time is kind of running out. So his new contract expires at the end of twenty twenty four, so he definitely does have a year and a half left. But you know, it's I don't know's They're just too many different things that need to be solved. He's already made I think,
considerable progress when it comes to cost cutting efforts. But then there are so many existential questions that still remain. Whether it's the future of ESPN, what happens to so many of these movie franchises, what happens to the linear TV bundle, So there are lots of different things, and of course the top most question, as you rightly pointed out, is really the question of succession.
Can I just jump in for a second. When he was brought back, was it just considered a stop gap? I'm trying to remember and going back to that time when we were all kind of shocked that he was coming back in Bob Chapek just having been there for what seemed like a pretty short time. Was it considered just a stop gap or was it something more?
It was considered I think at that point they just needed somebody to kind of stabilize, you know, the narrative, the organization. There were just too many missteps, both internally as well as politically, so they just kind of kind of needed that guiding force, which obviously, you know, Bob
Iger was more than happy to do. Of course, it was you know, a contract that ran for two years but I think coming in so far and seeing the amount of work that it's going to take to kind of right the ship, I think people are feeling now that the two years is really way, way too short of a time.
Well that makes me wonder whether or not this two years thing is real. Can he just re up the contract at the end of it?
And he's done that so many times now, I mean, this is this is probably like the biggest joke in you know, the entertainment world in Hollywood. You know, he is a legendary CEO. There's absolutely no doubt about it. World class track record, especially when it comes to those acquisitions. You look at Picks, or you look at Marvel, you look at Lucasfilm, and you look at of course the biggest one of them all, which was Fox. And he has really executed, I think, tremendously well in all of those.
But if it comes down to, you know, one thing that he hasn't done well, it's been you know, succession, and this has just been such a persistent issue for him. And of course his hand picked successor, who was Bob Chapek, that completely flopping. So you know, he has to do this, He has to get this right this time. I think that's absolutely imperative for for Bob Biker.
Internally candidates, which is what they have done historically. It feels like, right, yes, Or is it because when they've gone outside that has created some disaster outcomes? Is that what's expected at this point? Does that make the most sense?
I think that definitely does make a lot of sense. I mean, he has now two executives who are heading the entertainment division. So you have Alan Bergman, you have Dana Walden, both of them creative maestros in their own right. They have fantastic, you know, creative skills, which is really needed for a company like Disney. I think that was one area where kind of Bob chape it really fell short. And you know, so Dana Walden Alan Bergman bring a
wealth of experience. Bergman is a thirty year veteran at Disney, kind of knows the movie business inside out. I don't know if they want to maybe make them co CEOs to start off with or.
Wait, because that always works out well, Tita, it actually did, It actually did for Netflix, right, Okay, so it's always an exception. There's always an exception, but go ahead, go ahead.
So you know, I think one thing, if you if you if we have recognized one thing, it's that you know, you need you need folks who have very strong creative expertise, and of course Alden and Bergmann bring that. But then again you have to look at the business as a whole. And if you look at you know, the parks business, which is where kind of Bob Chapek excelled parks actually brings in about sixty five to seventy percent of Disney's
profit Disney's bottom line. So it's going to be interesting to see how they kind of do this balancing act. Because you need the movie business, you need the creative expertise there for creating new ip because that's what that's what is ultimately going to drive people to your parks with all those characters and the franchises and all that stuff. But then you also have to be able to execute in terms of running the parks and running them really really well.
Go back again. So the biggest profit drivers are the parks.
Yes, the streaming business is still losing about three to four billion dollars. The linear TV business is in secular decline. We still really don't know what's going on with ESPN and the studios. They don't really generate a whole lot of money. Yes, Disney is practically half of the global box office, but it's not really necessarily a profit generator. It's really just more you know, kind of fueling the
content flywheel, if you will. So it's so parks are really it's going to come down to a person who can kind of balance both those, right. You need the operational and the executional expertise and the acumen, which a Bob Chapek did have, but he was kind of falling short when it came to, you know, dealing with all these creative heads and they can be a really tough punch, and so you need that balance. It's it's going to be you know, Bob Iger's shoes are really hard to fill.
They're really big shoes to fill.
I mean, he grew up in this company.
He did, he did, and and I think the mailroom.
I think, wasn't it where you started away?
Are you serious?
Right?
I think if he's starting actually as a weather man in an in an Itaca broadcast station and kind of yeah, he's a broadcaster and kind of made it, yeah, and made his way up. So but it's but it's really his his his power. I mean, he understood the power of storytelling and creativity and the and how important it is for the company to build franchises and made those acquisitions when you know they needed to be made. So he's absolutely a genius when it comes to that.
So, Gi, then our final couple of minutes with you here, I want to broad in it out just a little bit because you have some great analysis on the streaming wars in general, and in it you say, like it it's no competition anymore when it comes to the subscriber's space. But what could Disney do to beat out a Netflix? Is ESPN the saving grace?
That's a great question. I think everyone's kind of scratching their heads at this point, and you're absolutely right, Madison. I think the streaming wars are really over at this point. What it's coming down to now is which company can get to profitability and who can get to it fastest and who can make the most money for the longest period of time. Yes, I think content of you know,
content obviously is going to be a huge differentiator. But at the same time, we're seeing all these company and these kind of really tightened the reins on their content spending budgets, whether it's a Disney, Netflix, all all of them. You know, they are spending money, but they're also going to be careful. They're not just green lighting you know, projects all over the place. So it's going to be really Again, this comes down again to this balancing act
of you know, subscribers, you know, driving pricing. With ESPN again, there is that perennial question mark. There was a story which ran a few days ago it said, you know, they are very they're looking very closely at kind of
launching this direct to consumer service. But it's a little more complex than that with the ESPN because you have all the leagues, you have these different sports rights that you have to negotiate, and remember most of these rights only still exist for the linear world, so they have to go back, they have to work out all those arrangements.
And they know this is like pulling the trigger on a grenade because the minute they launched that ESPN trect to consumer service, you're basically going to accelerate cord cutting at a pace that was you know, that's unimaginable. So if you're seeing right now, like a seven to eight percent erosion. Right, there's nothing to stop like a fifteen to twenty percent erosion if that ESPN you know, direct to consumer service comes to market, so they have to do it very very tightfully.
God, you know this company so well, it's so much fun. And forgive me Bob Iger because right, Keita knows it all and she was right. Seventy four, Bob Iger work started work as a weatherman at an ABC news station. Keita, Thank you. Keita. Ringing Athon technology media analyst a Bloomberg Intelligence on zoom from BI headquarters in Princeton, New Jersey.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business App, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Hey listen. The retail sector definitely has been in focus. We talked a little bit about high end luxury retail earlier, Maddie and I did, but we've seen a lot of the publicly held companies reporting the latest quarterly updates and outlooks. I mean, we got lows today.
Right.
They reported some gains among professional contractors, but a drop in comp sales comparable sales that was less than that of its main rival, Home Depot, which reported last week. So we have been talking about the space a lot, and we wanted to get to our next guest, who's got some thoughts and specifically how the property retail kind of fits in together and what we're seeing and maybe
what needs to be done. So we welcome back the president and CEO of ICSC, the International Council of Shopping Centers. He is Tom McGee, and he's actually at a company convention in Las Vegas where the focus is on the real estate side of retail. Tom joining us on the phone. Tom, Hey, good to have you here with us. How are you.
I'm doing great. It's great to be with you again. I hope you're doing well.
Doing okay, hanging in there, trying to keep up with everything. I'm curious the event you're at. Let's just start there. Tell us a little bit about it and what the mood is and what seems to be top of mind, the big topic that everybody wants to talk about.
Sure, So I'm at ICC Las Vegas. It is the largest commercial real estate event in the country. We have about twenty five thousand people in attendance. The focus is on retail real estate and the mood is quite positive. I mean, the demand for physical space is very strong, you know, if you really kind of take a big picture perspective. Over the course of the last fifteen years, retail sales in the United States have almost doubled, but the supply of physical retail has visually been unchanged over
that fifteen year time period. So there's a lot of demand for really a limited amount of supply of physical retail. And that's the focus of this conference. It's really around leasing activity. It's a deal making conference, and so it's positive. There is obviously challenges in urban retail. Suburban retail because of work from home and the move of the suburbs is exceptionally strong enoughs where the vast majority of physic with retail resides.
That's really interesting to me because I feel like when I'm home in Florida, shop in person way more than I do in New York City because it's harder to do everything here and carry my bags around. But can you explain to me, Tom, when you said that you're you're seeing demand within the retail space. Can you talk to me about where the strongest demand is.
Sure, well, you know, clearly the strongest demand for space right now is in open air growth. Your traditional grocery anchored suburban retail center. I mean, as people are working from home more, those suburban retail centers have become exceptionally popular as well as regional malls, but particularly grocery anchored suburban centers, discount retail centers, target anchored Walmart anchored centers.
You know, the store has become not just for traditional shopping, but increasingly has become a mini fulfillment center, you know,
solving for that last mile. So that's where the highest demand is the most challenge A part of the sector would be urban retail, and that really interrelates not so much with retail, but obviously the challenges in the office market, as all of us are from New York as well, and we know that midtown Manhattan, for example, is challenged because people aren't coming into the office at the same rate, and so you are going to see vacancies and urban retail as a result of that. But again, the vast
majority of physical retail isn't in central business districts. It's in suburban America, and that is super strong.
And we still right across the street from the Bloomberg office have open space from retailers that used to be right across the street from us. What does that look like then in the next let's say, five years, what happens to those empty spaces?
Well, I mean, I think that's the big question. You know, so much of that is dependent upon what happens in the office sector and just the trends around you work style, and if you have fifty percent occupancy in offices, that's going to be challenge for urban retail, urban food, food
and beverage, all those types of things. Even if you look at you know, Manhattan as a sub sector, if you look at the neighborhoods, you know, the Upper East, the Upper West, the villages, et cetera, and any other boroughs, they're doing really actually quite well. I mean, retail is thriving in those areas. But in the areas that are very dependent upon office traffic, that is more challenging. And and you know, I think that is going to depend upon what happens in you know, this whole work from
home work from office environment and what that means. That's going to create a lot of challenges for cities for sure, not just for retail, but you know, just the economics of a city like New York or San Francisco or Los Angeles, et cetera, which are so dependent upon property taxes and dependent upon communities coming into the city.
Tom, you mentioned at the top of our conversation that there was optimism right at this event, and you are. You know, it's all about using activity. And I'm curious about what is it the volume of deals that are being done, And I'm curious about pricing on spacing. You know, is it twenty nineteen levels, is it above that? Is it below that? Give us a little bit more color on what's going on.
Well, if you took, for example, you know, some of the high profile occupancies that you know have a results from some some you know, retailers that have regionallyp opera fanquency like a bed bath and beyond, I mean there are multiple folks lined up for that space because it's very desirable, very well located physical space. And so you know, in that case, pricing is is definitely strong. I don't
know whether it's twenty nineteen twenty seventeen levels. It depends upon the geography and so forth, but there's a lot of demand for that space and it makes sense. I mean, just to give you a stat in the last fifteen years, I said, you know, retail sales of almost doubled this country. They're up by about eighty two percent. The GDP has grown by twenty nine percent, populations grown by almost ten percent. Retail square footage is almost not grown at all in
that period of time. And there's been to the extent there's been new development, A lot of obsolete retail space has gone off market, have been converted into other sources, and so that demand for that space that exists because of economic growth, and quite frankly, retailers using stores for multiple purposes now not just for traditional shopping but for fulfilling online orders is really increasing demand for physical space quite significantly.
So even though when you talk about that retail sales number doesn't mean everything is necessarily being purchased at the store, but if it's purchased online but picked up at the store, that's how you're seeing. It just got about fifteen seconds left here. Is that fair?
Absolutely? I mean, obviously retailers want to use their stores to fulfill and retailer is agnostic want to They want to sail and use their sort of fulfil the order. That's to their.
Benefit to do so. Yeah, I guess as a consumer, I'm really happy when I can order online and pick up at a store, return it at a store. It makes me more inclined to push the buy button if I have that flexibility. Tom, always good to get some time with you and some color on what's going on in retail and specifically today on retail and real estate. Tom Aghee, President and CEO at ic SC on the phone in Vegas. This is Bloomberg Radio.
Fights the Pom.
Fight, all right. They're definitely fighting the fight if you will, and we'll get into exactly what they're doing. Especially if you're head out west to the University of California at Berkeley, you will find a class called the Berkeley Citizen Clinic, and in it, students are learning how to fight hackers and help non governmental organizations. We're talking about the NGOs
really better protect themselves. This story is uh in the upcoming new double issue of Bloomberg Business Week on newstands later this week. Already online at Bloomberg dot com, slash Businessweekend on the Bloomberg So let's get to it. Bloomberg News cybersecurity reporter Margie Murphy on zoom in San Francisco. The editor of Bloomberg Business Week, Joe Webber right here in our Bloomberg Interactive Broker's studio, Jill. This clinic the
first of it's kind in the country. I'm just curious how this story got the green light, Like, what was the pitch?
I just thought it was so interesting because we look, we're always interested in what's happening in the cybersecurity world, and this was just an effort that I hadn't heard about, and yet students are doing cool stuff and this the Travers Project, when I first even read about it in the story, just was like, wow, this is they're doing something that I had not been aware of before this Travis Project. I hadn't been aware of what they were doing.
But what they're doing is actually, you know, draws attention from people that aren't exactly like, you know, doing good stuff in the world. Right, And so the Berkeley Citizen Clinic comes in there and this is a pro bono effort and it just has a little bit of a feel good quality. But what I'm really curious about is what happens in the classroom to lock this stuff down, Margie. So let's start actually Traverse Project. What are they doing this nonprofit?
And why do that?
Does that draw the attention of the bad people in the world?
Yeah? Absolutely, So.
I talked to Austin Shamlin, who is the founder of the Travis Project, and he's spent many years working in the kind of anti human trafficking industry, I guess you could call it. And he's he's set up this nonprofit and what it is, it's tech. It's a tech company really, and they provide technology to law enforcement.
Around the world.
And so they you know, they have a special proprietary technology, which you know is.
It's kind of their secret source.
And they're helping find the bad guys, the people who are supplying women from Ukraine who are trying to get over to poland sending them to brothels around eastern Europe. And he's helping with his tracking technology.
A little bit of a freeze here, we'll see if we can. Are you there, Margie, I'm here, Okay, great, no, no, no, technology it happens go ahead and pick up please go ahead.
Yeah, So often is you know, for this his human
trafficking technology company. He's helping track down the people who are moving women and children around the world, often for sex trafficking, and so he's attracting the ire of some really bad people, and all the money that he's getting to fund his company, it's going into the technology that he's providing to help with this effort, and he doesn't have the budget to spend it on actually securing himself and his volunteers and his employees who are kind of
putting themselves on the front line against criminal gangs, you know, potential moles.
In the law enforcement themselves.
So although he's working in tech, he doesn't have the budget to go and get a consultant to kind of show him where all the vulnerabilities. Maybe every time he speaks to a volunteer talk about, you know, where there could be people who might be in their networks watching what they're.
Doing, trying to get a step ahead of them.
So he heard about this clinic at Berkeley and now he's this fall will get about fifteen students who are going to help him draw up a cybersecurity plan, tell him kind of the best ways for him to communicate with his volunteers and with the partners that they have all around the world to make sure that they can continue doing what they need to do in a safe manner and not putting their volunteers at risk.
So what's the backstory at Berkeley? Where did this program come from?
Right?
So it kind of it all came from there's a program which is like the Public Interest Cybersecurity Program, and that that was a module that cybersecurity students could teach, and Sarah Powers out at Berkeley has been kind of spearheading that.
And they thought, you know, often.
These universities do you have a bit of a pro bono effort and they look around in their community and think, you know, how can we be helpful?
And they realized that.
A lot of these students were going on to work with large companies with huge sums of money, and they were never they were never going on to help kind of work with the smaller organizations around them or the NGOs and nonprofits that they felt really needed the help,
the help securing themselves. And so they started off by I think they did a couple of local women's health clinics anti abortion clinics, and then they started getting more interest and they realized this is like an international thing, and so now they they they've been doing it for about I think it's like four years now, and they now they have to scream for the clients that they have come in and they make sure that they're going for the kind of lowest budget but higher risk clients.
Margie, you know what I think is interesting too, And we have so many conversations where when you talk to the head of a company, a publicly held company or other, you know, cybersecurity is a big issue. It is just a part of doing business. Of course they're going to spend on it, they have money to do so, but
there's a there's some information in your story. We write about these NGO small organizations that they are three times more likely to be targeted by hackers than large companies, and about sixty percent of those groups shut down within six months of an attack. So they are very vulnerable and their organization is really at stake of being shut
down if they get hacked. I had no idea and didn't think about how vulnerable they are, and that they don't have the access to either spend to protect their information or their organizations.
Yeah.
Absolutely, And there's two things here. So these specific NGOs that the Berkeley Clinic are working with, it's like that they tend to be super high risk because they are doing things like anti human trafficking, abortion work, you know, political kind of NGOs, and so they're super high risk and they are highly highly at risk of being hacked because of the work they do, because of prying governments
and the criminal gangs. Then on top of that, there's also the risk that is too small businesses generally across the US, because we hear so much about really large scale hats hackers going after you know, publicly listed companies because the return one, you know, if they do a ransomware attack and if they try and get like five percent of their quarterly.
Earnings, it's a huge sum.
But we never really talk about how like the scale of the smaller organizations that are being hacked and the returns are smaller for the hackers, but it's easier for them to get in and cumulatively they're making tons of money off the smaller organizations which are less likely to be protected, which are less likely to have cyber insurance. And then as the stats show, are more likely to fold as a result of that attack.
Marguie.
This isn't really featured in the story, but I'm just curious. Is this something that the sources you spoke with think they could scale in a tangible way. Do they anticipate trying to roll out resources that make the education on how to do this a little bit more accessible.
I think it's something they'd love to do.
And in this example, what the students are doing is essentially it's free consultancy, so they're not providing any technology themselves. And I think that a lot of what the students going to do is they become consultants. They're working like one of the one of my sources, Rachel, she now works at Deloitte, and they're kind of I guess they're hoping that they could maybe bring what they learn with them and pay it back in terms.
Of scaling it.
At the moment, there's actually Berkeley is one of several clinics that have actually popped up, and there is a consortium that they've all pulled together, and there are donors who are feeding some money into that, and I think they're hoping that that will expand and that will get bigger and we'll see more community based pro bono work as we see more cyber attacks happening and we see
the cost of cybersecurity software rising. So in terms of scaling, it wouldn't be a scale like we would see with a product, but I think in terms of people getting involved in trying to help and maybe seeing private companies put some funding behind it, that we might see scale.
So the Travis project, obviously, that was a really interesting one. I'm curious what other organizations the clinic at Berkeley and beyond, who else are they attempting to assist with these efforts.
Yeah, so interestingly, each each clinic so they they're attached to universities, and each university has their own I guess the theme probably isn't the right word, but the type of organization they do, so Berkeley was these high risk NGOs.
I think M I T was doing more community focused like local healthcare and.
Government, and so they kind of special on that, but Berkeley specifically. I also spoke to the administrative manager at the abortion clinic in the San Francisco General Hospital who has worked with them. They've also done other women's health
organizations they also work with. There was a organization in Guatemala, which was kind of more of a political NGO, so it's quite international, and I think that what really struck me was how this could be applied to pretty much any vertical as well, you know, impacts.
It's not just the NGOs.
There are small businesses around the country which really need this help and they're not getting it and they can't afford it.
And yeah, we've read about all the ransomware that have gone down, and it's like hospitals, schools, private companies. It's like take your pick, and like anytime it happens, it is your nightmare. And then to think like you don't have the funding that you need to actually defend yourselves from these things, and especially if you're attemptantion you could work like these folks. It's an amazing conundrum.
Right, the concept of that, like what you're doing is all of a sudden shut down and then maybe you can't even recover from it. So it's really really concerning.
The other thing I thought was interesting, Margie, and maybe because we've been talking a lot about earlier on our broadcast, Matty and I got into how women participation, certainly in the prime earning their participation post pandemic is at a record high, and I just think about the tight labor force that is forcing Also companies or folks that maybe night might not have in another environment leaned on students
to help them. They're like, I'm okay with it because it's actually kind of solving a problem because there's just not enough cybersecurity officials right to go out there and do it.
Totally. I mean, the idea itself sounds terrifying.
Setting a load of students on your kind of cybersecurity you practice, which is meant to be you know, the most people well cyber security people would argue is the most important part of your business. But when you don't have the people to help you that, you know, when you can't afford it, you'll take what you're given. And it turns out that actually these students are really really good and they are being trained by the best in class.
So the tutors that they have a people who've worked in the industry for years and they want to give back and they know what the problem is. And oftentimes these problems aren't really expensive to solve. That Sometimes people are being sold things that you know, they're being told you need to pay a certain amount for this. A
lot of it comes down to cyber hygiene. But with the kind of growing threat and the sophistication in which cyber criminals are, you know, evolving, we just need people need refreshes quite often on how to you know, privately message access controls over your files, who can see what It can be quite simple stuff, but unless you have someone who knows telling you that you know, you don't know until you don't know, and then you've been hacked, and that's a problem.
So I think seven weeks of training. I love this, right, power of backups, importance of privacy controls and software, the operation of virtual private networks, and how to assemble it all into a cybersecurity plan. Seven weeks and they can then take on clients. I love it. It's just a really smart story and just people figuring out how to get it done. Margie, thank you so much. Appreciate it. Margie Murphy, cybersecurity reporter at Bloomberg News. She is there
on zoom in San Francisco. Jill Webber, the editor of Bloomberg business Week, here in studio. This story in the upcoming new issue of BusinessWeek. Do add on newsstands on Thursday online already on the Bloomberg This is Boomberg.
Radio, Umbromark.
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All right, everybody, only Tuesday, but it feels like it should be Friday because every day is a packed one. But you look at the trade and it's safe to say, certainly on the equity side of things, investors just kind of waiting for something out of DC Tech in particular, as you heard from Charlie, really taking it on the nose, down about one percent on the NASDAX. So let's get to it. Tom Martin is with Maddie and me in
our Drive to the Close here. He's lead portfolio manager for ESG Strategies at the Atlanta based RIA registered investment advisor Global Investments. He joins us on Zoom from Atlanta. Tom, nice to have you here. Let's start broad macro because I do wonder how you think about what's going on in DC the perspect of default. We've been here before, but it does feel a little bit more tortured this
time around. As the debt continues to grow. What could be the implications for the financial markets longer term and the ESG space, especially if we see some cutbacks on spending in the ESG and green world.
Great, well, yeah, thank you for having me on your program. You know, that's what's on everybody's mind. It's all it's on everybody's mind is what's going to happen with the debt ceiling, and the markets for the most part, are priced as though a deal is going to get done. The only thing that's not really priced that way is the one month Treasury bill because there is some risk of potentially missing payments, although that hasn't happened and probably
isn't going to happen now. What's more important really is what happens to liquidity afterwards and the raising of the debt that needs to be issued by the Treasury, what effect that has on the market, and what kinds of actions can be taken so that that doesn't really affect the markets.
This is what we were talking about with our IRA Jersey right that ultimately after a deal is done right, the amount of issuance and what it does to the liquidity within the market, right and pulling essentially cash out.
That's right. And if you overlay a chart of the Nasdaq with liquidity, you find that they're kind of right on top of each other. And so that's what has been not today accepted. But the Nasdaq is up very strongly as we all know, year to date, and a lot of that is liquidity driven. So when that liquidity goes away, and you know if to what degree it's replaced and how it's replaced, is going to have an impact on the equity markets and particularly the technology stocks that we've seen run so much.
Okay, I keep kind of hammering the horse on this, but do you think that there's potential upside a relief rally in store once they do resolve the debt ceiling?
You could be real you're working in a story.
Yea, I'm doing a story about this, and I'm kind of double dipping my workday here, so I'm trying to get some some quotes about, yeah, the relief rally that might be in store here.
Well, there's so much pessimism that is embedded in the markets, notwithstanding that the S and P and the NASDAC have done very well in a year to day. Yes, but you know you've seen that the bearishness is still pretty one sided. Everybody thinks there's going to be a recession. We've had, you know, the biggest fastest rate rise almost in history. You have the banking crisis, which may not be as much of a crisis anymore, but certainly there's
a tightening in standards there. So the question is is that those things act with lag, and everybody's looking for signs of a session. The problem is is that we haven't seen it in employment, and we really haven't seen it to any large degree even with the consumer, although this quarter's retail information was a little bit on the softer side. So to answer your question, if something goes right as opposed to going wrong, you at least see
the market grind higher, if not a relief rally. But I do think we have to be careful about this liquidity after the deal is announced, the raising of the debt ceiling.
Okay, so then on the liquidity question, come with me on this journey. Right, Let's say liquidity is pulled out, but then the Fed says that's good news for us, Maybe we don't have to raise raids and be as hawkish. So then is that happy for markets?
Right? So we were in in the past this era of bad news is good news and good news is bad news. And that's when the FED was raising and we weren't sure what was happening with inflation. Now that we know that inflate disinflation has started at any rate, and it's on its way back down, maybe not as
fast as people would like. And we know that the FED has gotten to that sort of magical five to five and a quarter percent area, and they say that we are now in restrictive territory and we've had an issue.
With the banks.
The FED is in a position to be able to pause. But since inflation's not done. If you pay attention to the FED speak lately, it's about fifty to fifty between yes, we can pause and to know we have more to do even if we do pause. So that's the open question. I think the FED still has to be very pawkish and make sure that everybody knows that they are going
to stamp out inflation. On the other hand, they really would like to pause here see what happens and let some of this, other these other things that you mentioned do their work for them.
So I want to go back to ESG since that's something that's certainly under your purview. I do wonder, you know, we talk a lot about it going through a bit of a reckoning. What are the flows that you are seeing tom an investor interest in ESG, which, as I said, really has gone through a bit of a reckoning, certainly when it comes to performance. Over the past year or.
So, well, it has gone through a reckoning far as far as performance. It's also gone through a lot of sort of batting around in the culture wars of politics and in politics, et cetera. And I think that, you know, it's sort of taken on a life of its own apart from what ESG was originally really meant to do. It wasn't really meant to sew divisiveness. It was meant
to sow positive ness. But in the meantime you see this sort of the growth of ESG has slowed certainly, and we've seen that as well as people sort of get their hands and their minds around what it is that they want from it and what they expect from it. So there's all sorts of different things and ways to
manage it. Our way of doing it is to not be an activist and to not sort of enter into an argument about morals so much as to look at where the risks are with regard to some of the metrics and to be able to protect against those and incorporate that into our investment decisions.
Which is really what it initially set out to be. But this gets it too, some of the problems, and this is why ESG everybody looks at it kind of differently. Hey Tom Good, to get some time with you on this Tuesday time. Artines, senior portfolio manager at Globald Investments, over seeing those ESG strategies at the firm. Right here on Bomberg Radio.
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