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 Stenebeck from Bloomberg Radio.
All Right, everybody, China you know has long been at the heart of Apple supply chain, about eighty percent of the company's manufacturing partners holding a footprint in that country. Now, as US and China Relations Hour, which is something we're going to talk about a little bit later on, new production sites are changing the way Apple's devices are made. And this is according to today's Bloomberg Big Take, this is a story deemed a priority by the Bloomberg editorial team.
It's a must read, basically.
Jess Meantime, speaking of Apple devices, the company is working on a revamped iPad pro for next year. This would be its first major overhaul in a half decade. Carol, it can't come soon enough after sales slipped to its lowest level since the cusp of the pandemic this past quarter.
All right, there's a lot going on, so let's get to it. Today's Apple Round Up back with us as our own Mark German. He's chief technology correspondent here at Bloomberg News. As you know, he said, go do for all of us on everything to do with Apple. He joins us once again on Zoom from Los Angeles. Mark, great to have you back with us. We do want to start a big picture, if we may, about Apple's massive supply chain, so much of it's still in China,
that seems to be changing, but very slowly. Give us a little perspective here.
Yeah, Carol, thank you so much. I'm very happy to be back. So the Apple supply chain, the modern supply chain, i should say, set up about two decades go by Tim Cook. The idea was to build all the products through a company called fox Con in China, have the manufactured there at scale, at speed, with precision, and then shipped globally. Right. But over the last decade or so,
we've seen some changes there. They've added additional manufacturing partners, companies like Quanta Computing, companies like Jabble, companies like Pegatron and Tata, and now you're seeing them retain their Chinese base of manufacturing. All those companies still build products for Apple in mainland China, but in terms of growth in terms of expansion of supply chain that's happening external to China.
So you're seeing new sites in places like Thailand, India, Vietnam, and Malaysia, right those four countries, but with the majority share of that expansion happening particularly in India, and then Vietnam is a close second, Malaysia third, and Thailand fourth.
So when you're looking at that expansion in those particular areas that you were just talking about, how does that translate financially for Apple?
Well, India is a big example of how it translates financially. India and their Prime Minister, you know Modi there, they've implemented terif related rules and fines that if you produce products externally to India and then import them into the country, there's really high import taxes. So what Apple had to do from a financial perspective is build new sites in India to produce versions of the iPhone for sale to save on those taxes.
Do other countries want Apple? I feel like it's a stupid question mark, but I mean I would assume everybody's buying to be like here, co produce manufacturer, you know here? Is that the case?
I mean every country you can name up to the United States is throwing as many incentives at Apple and these other technology companies chip companies in order to get them to produce products in their respective countries and cities. Obviously, anytime Apple comes into your city, it's an economic you know, boom for the area. You're talking about much more employment, much more spending. So it is a positive and that's
why those incentives exist. Now, speaking of the US, I will add you know, Apple doesn't do anything other than token manufacturing at a city in a small part in Austin, Texas for one mac. So I really count that as basically no production in the US and not being facetious. But what they will be doing is they will be working with TSMC to produce a very small number of chips at a plan in Arizona, starting some time at the tail end of next year.
Well what I want to know though, is like I've bought an Apple product. My husband and I and I just I think over the years and we have been fascinating just kind of tracking it through the supply chain and knowing when it's on our shores on the West coast. I mean, it's just such an incredibly efficient supply chain, and I do wonder will that efficiency potentially change over time, and then will it also maybe cost me more for an Apple device.
I think the answer is no on both. They've been shipping products from Vietnam and Malaysia and Thailand for a couple of years now, and there really hasn't been any hiccups that I think the consumer has noticed, either on a pricing perspective, but also on shipment times. If you think about the releases, where the timing really matters for
when you receive the product. That's really when a new product goes on sale, particularly the iPhone, and the first round of iPhones are still shipped from China, so you're not going to see any hiccups there. In all likelihood, there have been some changes on pricing. There are going to be a few tweaks of pricing in some countries on the new iPhones being announced on September twelfth. They should also go in sale September twenty second, by the way,
but I don't think those are production related. I think those are parts related, and obviously inflation and the current state of the economy globally, so I don't I wouldn't put two and two together personally, do you think.
This would have happened without the US China tensions that are currently going on.
I think that what really got the ball rolling on opening new sites outside of China was the Donald Trump tariffs that were a key a key issue in twenty seventeen to twenty nineteen, right. Those really scared Apple and made them start investigating how they can push some of that supply chain outside of China. Quite frankly, it shouldn't have taken Trump to get Apple to think outside of China, but that's what really did it, and I think that
acceleration has been caused by those tensions. I think something that people don't talk about enough, to be honest with you, is TSMC and the impact of production there. So TSMC they manufacture all of Apple's modern chips that go into all their products. They're based in Taiwan, so you're seeing
a lot of production happening there. I'm no geopolitical expert, but I think you know, Taiwan is probably a major risk point for Apple, and if the Taiwan factory goes down, I mean, I'm told it can take even up to north of the year for Apple and TSMC to build up a site at that same capacity elsewhere.
I love that you went there, because did you see the story on the Bloomberg about the Fox Colon Technology Group founder. I guess he's running for Ago and basically said, you know that he's safe because he because of how much did they play into Apple supply chain, and basically also how much I guess Chinese either pension fund are so on and so forth invest in it that Beijing isn't going to want to play around with them. And I wonder if that's the same story for TSMC well.
I think that's the same logic that applies to Apple. I think it's the same logic that applies to CSMC. But it's only logical until it's not until something changes in the world and the global economy and these geopolitical tensions, then it's fine. But when something changes, then it's a nightmare and it's the end of the world for them. And the question is is there that plan be in
place in order to mitigate that damage. And I think what Apple's trying to do to mitigate that is opening up these production lines outside of China, and I think if you look ten years down the road, it's very possible that the majority of the Apple supply chain will be outside of China, but it's going to take a long time. It's been moving very slow. It's been more of an augmentation outside of China rather than a replacement at this point.
Great perspective.
I want to switch gears real quickly and ask you about the iPad pro. What do we know so far about what could be coming for next year?
So it'll be a redesigned ipet pro next year with an M three chip. Speaking of TSMC, that's going to be their next generation three and nanimeter processor designed by Apple. You're going to see OLED displays. So now the iPad will be using the same screen technology as the iPhone. Remember when Apple shifted to old in twenty seventeen with the iPhone ten. You're gonna get that same new screen technology.
It looks so much better these days. Everyone's used to old on their phone, so they don't really know the difference. But next time you see an iPad from today, hold up an old iPhone next to an lcdipad and you'll see the difference. You're also going to see that new design I mentioned improved cameras slightly larger display on the top end model. So I think it's going to overall be a very compelling new product. First redesign to the iPad pro since the tail end of twenty eighteen, as.
Well, Magic keyboard twenty seconds, imagineboard.
That's right, I forgot about that new function row at the top, larger trackpad, make it a little bit more laptop. Likely costs, yeah, probably between three hundred and fifty and four hundred dollars.
Okay, it's an important device to Apple.
Quickly.
It used to be more important. Now it's sort of lagging, and it's really important for Apple to make it important again. I think they'll get it done.
I say, we use our iPads still a lot, along with everything else Apple in our world. Mark German, thank you that big perspective. I think so important to understanding this company and just the world, and great to get an update on what's going on in terms of the iPad pro. Mark German a go to on all things Apple. We say it a million times because it's so true. He's chief technology correspond at Bloomberg News. Joining us on zoom from our La bureau.
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 YouTube.
All right, everybody, another twenty four hours and another twenty four hour news cycle package news on China. This includes US Commerce Secretary Gena Ramondo saying today that the majority of US China trade has nothing to do with national security and that it's possible to promote and protect experts. At the same time, she commented on the exact framework to do so.
We agree to establish a new Commercial Issues Working Group, a formal working group which will involve US and Chinese government officials and very importantly US.
And Chinese commercial private sector representatives as we seek solutions on trade and investment issues and to advance US commercial interests in China.
And that, of course is the US Commerce Secretary Gena Ramando, who has been meeting with Chinese official Many would ask, is it really possible to do bith to promote and protect experts At the same time, we have a great voice on this and excited to have back with us one that we have leaned on a lot in the past when it comes to US China relations, the intersection between geopolitics, policy, and the markets with US the Stefan Seelig.
He's managing partner Bridge Park Advisors. He is a former Undersecretary of Commerce for International Trade at the US Department of Commerce. That was during President Obama's administration. He's once again with us on zoom from Long Island. Sefan, so good to have you back with us.
How are you I'm great, Thank you, Carol. Great to hear your voice again.
Well, same here. Tell us about what we heard from the Commerce secretary. Is it possible to do both promote and protect exports at the same time.
Yeah, I mean, I think these clearly are two different tracks on the one hand. On the other hand, I think over the last number of years, those messages have become somewhat muddled, and the Chinese have interpreted a lot of the actions that have been taken both in the Biden and Trump administrations as actions that are meant to depress their development and the rise of China, as opposed to protecting our national security interests. And as the secretary said,
they really are different things. And I think the value of this dialogue, which is really just re establishing what had been in place. And frankly, what I had led during my tenure is to is to foster relationships that will allow us to potentially make progress in what is a fiercely competitive relationship.
Well, take us back, I mean take us back to your time during the Obama administration, the importance of the US commercial relationship with China. Rank it and how you all approached it then, and what you believe was how China ranked it as well? And is it very different today?
Well, look, it has primacy in so many ways. We're talking about the two biggest economies in the world. The amount that we import and export to each other is very significant, with the exception of Mexico in Canada, there are no two more important relationships in Mexico and Canada
is obviously because they are border states. When I was Under Secretary, I spend more time in China than any country by far, and I work to foster the relationship with my counterpart at the Ministry of Commerce to reflect that reality.
But do they rank this relationship as important and do they still? You think today?
For sure? And in many respects, I think they view it as more important because the number of issues that we're competing on are growing, but also the number of issues that we need to cooperate on are also growing. So as their economy grows, and as they look to establish themselves as a major player both in political, economic, and commercial spheres, you know, their ability to work effectively
with the United States becomes only more important. And I think that's exacerbate right now, Carol, because frankly, you know, their economy is slowing, and they're facing a set of economic issues that we haven't seen or they haven't seen in decades.
What is the biggest issue, because you laid out some of it just teasing it there, and when you're talking about the economy, but then there's the geo political issues, there's the financial markets. There's also when you think about the property concerns and how that's tied to the economy. Which is the most pressing issue at this point.
Well, I mean, look from their perspective, they have a slowing economy. This year, it's going to grow it roughly, you know, four percent, which is, you know, far less than the double digit growth than they've had in the past. But I would say it's still you know, roughly two x what we're growing at as you point out, you know, they have a real estate crisis in the making country Garden, which is their largest developer, may default on their debt payments. China,
Evergrand filed for Chapter eleven. Their exports are slumping for you know, all the reasons that we're talking about, which is our economies begin to fringe sure and the impact of sanctions on their economy. Exports alone are down fifteen percent year over year for them. They're facing rising unemployment, especially amongst young people, where some statistics suggest that more than one out of every five young people in China are now unemployed, which is going to have real risks
to social stability in that country. They're seeing failing or slowing foreign investment in the country, The remendee is depreciating, and consumers are losing confidence, which is causing them to spend less money than they had in the past as they look to save. And so for all of those reasons, the Chinese economy is under real pressure, and I think as a result of that, it reminds them, and not just us, about how vital each we each are to each other in our success.
Seven do you think you know? So, China's made it very clear that they don't want to be the manufacturer to the world, and they have definitely taken steps for that. We talked about this earlier in a segment about Apple slowly moving you know, iPhone production elsewhere, but it's still for the most part in China. But should we want China to be developing its domestic economy? Should we want it to be moving along from you know, kind of a very special emerging market to more of like a
developed world and developed market. Should we want that?
Well, you know, it's a two edge short, right, because you know, that competition that they're that development underscores makes them stronger in some ways, but it also makes us stronger because they're going to be buying more of our products and services, and they're going to have more money, you know, to spend in our economy through either foreign
directive investment, intermediate goods, or otherwise. So it depends on if you think of them as a competitor but also as a customer, and they're both.
So what do you think is the right strategy for the Biden administration to take towards China when they are economically vulnerable at this point?
Well, look, I think what the Secretary said is extraordinarily important that it's about, you know, communication. The President said to the Secretary when before she left, that we need to communicate to avoid conflict. And I think in any in any situation where you have fierce competitors, you also need intense diplomacy. And the Secretary is a very capable commercial diplomat, and that's what she went over there and
is over there doing now. And frankly, what hasn't happened over the last five years when there have been no face to face meetings between our commerce secretary or under secretaries and their counterparts in Stefan?
What's more important the stress with or the tensions between China and Taiwan, and then how that relates to the rest of the world, or the relationship that President Ji has with President putin What should we spend more time on or it can be both.
You know, I'm not sure I could ordinately rank them, Carol, but clearly China has different interests geopolitically and economically and commercially than we do. And you know what I've always said is, you know, hitting China over the head with a cudgel is not going to be an effective way to actually make progress, and what we need to do is to look for win win outcomes where there are things that advance our interests and advance their interests and their whole.
Host boks sephan if I may, I'd love to talk to you a little bit about politics, because we were just talking a lot about the importance of that relationship between US and China. The Republican presidential hopefuls the debate last week talked a lot about China. There was a lot of pushback. Is that cause for concern when you see that? I know some of it is all just grandstanding and performance, but some of it is not.
Yeah, I guess, Carol, you know it's really not just the Republicans. In fact, the only thing I can think of where the Republicans and Democrats seem to be agreeing is getting tough with China. And I think there's a little bit of a contest between them as who can
appear to be tougher with China. And I don't think being tough is necessarily always being smart, and so, you know, frankly, I think the conversation that should be about what should we be doing to advance our interests as opposed to what should we be doing just to punish China.
And is that a cause for concern at all?
Well, for sure, especially just as I mentioned, you know, with China's economy being under pressure, I think the last thing we want to do is push them so hard that they lash out and take actions that would be adverse to us. And we get into this, you know, tit for tat because you know, as you've said, you know, these are the two biggest economies in the world, and we can punish each other plenty, and that doesn't really help us.
Would you want to be back in the White House advising.
Well, you know, look, I think it was it was an honor for me to you know, do that during the Obama administration, and I think, you know, to the extent that you know you are called to do that, I think it's a really hard thing to turn down for any of us that care about our country.
When you're looking at some of the Republican candidates, who kind of stands out in your mind that when you're thinking about the US and China relations as far as what could be a potential viable candidate in that sort of realm, Well, I'm.
Not sure that that's an easy answer. Jess, because as I've said, I think there's just a lot of a lot of piling on. And I also would say, is you know, what people say on the stage in the you know, primaries season is probably not necessarily going to directly inform their policies. You know, if they get into
the they get into the Oval. You know that being said, you know, I think this has to be you know, on the radar screen for whoever is sitting in the Oval office because of the importance not only you know, geopolitically, but commercially and economically for you know, employment in our country, the success of our economy and our consumer well.
And I'm curious to Stefan about your clients and those CEOs that you are talking about, you know, is US China typically top of mind for them or I'm curious what is if it's not.
That you know, there's a lot of trepidation about going into China, and I think especially and that really, I think is the purpose of the Secretary's trip, which is to really re establish a dialogue so people can begin to plan because if the relationship is so uncertain and so volatile, it's very difficult for companies to you know, effectively plan. And if you can't plan, you can't make investments. And so I think, uh, you know that is is is just critical.
And especially when you're talking about companies, the curbs that are being put on chip makers, how much of that do you think when you're especially this is companies that have performed very well in the stock market this year. But I mean, when it comes to those types of companies, what do you think that would really mean for them? And when it comes to doing deals with China.
Well, look, it's it's a very big market and we've seen them take actions including blocking you know, Intel's acquisition of an Israeli chip company, which is really adverse to the interests of a of a US of a US company.
Uh.
And so that that really is the point about you know, they have the ability to respond in kind I would say, or I will say, some of the things we have done, I scratch my head a little bit, like the bomb, the like the recent executive of order that is limiting private equity and venture capital investment in you know, advanced
chip making and other sectors. It strikes me that you know, the one thing that China you know, doesn't lack for is capital and so the notion that somehow we are going to constrain their development by not having US investors invest in certain sectors in their economy is not just something that I can easily follow the logic of.
So in terms of you know, going back to some of the things that the folks that you work with, your clients and CEOs on their top of mind. You know, we just had a headline crossing the Bloomberg terminal San Francisco's San Francisco Fed's head of Banks to Provision will retire.
So you know, certainly the US banking sector and the failure of Silicon Valley banks still on the mind of everybody, and watching the regional banking sector and for perhaps what the San Francisco FED missed and maybe you know what we may still be missing. Perhaps that sector certainly on
our minds. What else, you know, Stefan, is you know, in a day where we talk constantly about FED policy, higher inflation are persistent and sticky inflation, even though it's down a lot in the past year, what else is kind of top of mind?
Well, I would say, you know, we did avoid anything resembling a banking crisis, you know, so the FED seems to have done a very good job of managing that situation. I would say there are really two things. One is, you know, is inflation going to be tamed? And what is the Fed going to have to do in terms of raising interest rates in the future to make sure
you know that happens. You know, are we going And if you look at historical data, you know you really do have a you know, short window four or five months to really have a good view about what the economy is going to do. And I think you know, over the next four or five months, folks are not worried about dipping dipping into a recessionary period. But uh, but forecasting for a period that is longer than that
is exceedingly hard to do. And the question is going to be if they have to raise interest rates you know, once twice or three more times, which I think you know is not outside of the realm of possibility. To what degree does that have a dampening impact on growth in our country?
How much does China's disinflation actually help the US?
Well, it certainly doesn't help their consumer and it doesn't help you know, their economic engine, which is we've talked about, Jess, is you know, so important for you know, us in terms of being a buyer of US goods and services. One of the things the Secretary is for sure going to talk about is the importance of tourism. You know, since the pandemic tourism Chinese tourism in the United States and US touris to tourism in China has you know,
fallen off a cliff. The number of flights that are going between the two countries is very small, and travel and tourism, which was a part of the government that I helped look after when I was there, is the most important part of our service economy. And that's a perfect example of something you know, that we need to be on track if you know, we are going to continue to grow and create good paying jobs here.
You know.
And I it's interesting too, because we talked a lot last week about Boeing right and maybe the ability to once again get back into the Chinese markets only with the seven thirty seven max, which has been obviously problematic for understandable reasons, but it's so important to their growth story going forward. I do want to just stay with what you talked about the possibility of maybe three or
four more rate increases. You are on the board of the Simon Property Group, well known redeveloper, malls, outlets, mixed use property concerns here in the US. Do you feel like we are fine or do are there still risks out there?
Well?
Look, you know, there is no such thing as the real estate market, right, so the real estate market in New York is different at San Francisco, which is different than Austin. And you know, apartments are different than office, which is different than multi family that is different from malls. Not to sound like a booster for the company whose board I sit on, but Simon Property has the best management, the best malls, and the best balance sheet in the industry.
So we're feeling very very good about our position. You know, you can't say that, I presume if you are an owner of office buildings in San Francisco.
No, really, well said, you're right, location, location, location, top of mine. Every morning when you get up and you look at the news stories, what is it? And just got about thirty seconds left?
Well, you know, look, the world is a volatile and dangerous place, and so I think when you wake up, you just you know, there's a you take a deep breath. If something bad is not happening in Asia or in the Gulf or you know elsewhere, because frankly, any one of those things can you know, throw a wrench into the global economy, given how interconnect who we are. You know, we've lived through this situation in the Ukraine with Russia. But you know, and we see how problematic that is.
But the connectivity between the US and the Russian economy is infinitezantly small compared to the connectivity between you know, the US and Asia and China and elsewhere. And so you know that to me is you know, highest on the list, I would guess.
Stefan, thank you so much and really great to connect and hear your voice again.
Be well.
Stefan Sielig, Managing partner, Bridge Park Advisors. Joining us on zoom from Long Island, New York.
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 playing Bloomberg eleven thirty.
I got to say, Jess something I look forward to every year, and that is the put out by the Bloomberg New Economy team. It's a group of people who are probably not household names and yet really should be because they are truly changing the world one step at a time. The latest class of individuals has been named. It is the Bloomberg New Economies twenty twenty three Class of Catalysts. And here to tell us a bit more about it is Bloomberg New Economy editorial director Eric Shaftsker
on zoom in Toronto. Eric, thank you so much for doing this. I really do look forward to this list. I think they're just an amazing group of individuals. But give everybody a reminder of who they are. How you guys find them?
Well, you said the keywords, the three key world words, excuse me, change the world, and it truly does take a special kind of person to change the world, and that is those are the people I should say that we every year are on the hunt for We're not alone, of course, there are lots of investors out there, venture capitalists who are in the hunt for people who can change the world. But our focus is, you know, Carol,
is slightly different. We're looking for people who's focus is on or whose mission, if you will, is about outcomes and not necessarily about money in the process. They may prove to be extremely successful entrepreneurs, but as I say, we're more interest in their capacity to change the world and not necessarily their capacity to make billions of dollars. We look everywhere, we tap into the wisdom of Bloomberg's
unparalleled global newsroom. As you know, we have about two seven hundred reporters, editors, researchers, and analysts scattered across the globe, and that gives us a reach that very few other organizations on this planet have. And so with their help, we solicit nominations and then we go through a selection process to find the twenty people whom we chose as this year's catalysts.
So Eric walks through this list. What are the highlights?
Well, I don't want to, I'm I'm very reluctant.
Right, you don't have to pick a favorite child, you don't have to do a way right.
But well, first, the first thing I would say is, I'm very proud. We are all very proud of the fact that this is a very rich list. And what I mean by that is not the amount of money these people have. Eleven of these twenty people are women, and if you look at them, it's a very diverse list from across the world.
These people are.
Doing amazing things in many different places. Marina Bellattani, for example, runs a firm in Brazil called mobbi Bio. And what she's trying to do isn't just make fashion more sustainable. Sustainable fashion is a goal I think we can all embrace, but how you do it matters. Much of the faux leather that's made today is not bidegradable, and so bizarrely
report is biodegradable. And so if you make faux leather for the sake of the animals, perhaps that isn't biodegradable, you're not really doing the planet a whole lot of good. So what she's done is she's gone to these trees in the rainforest, which of course are harvested sustainably anco trees, and she's making a biodegradable plant leather. That's one example. There's another gentleman from Australia named Guy Hudson who is the founder and CEO of a firm called loam Bio.
We're all interested in carbon capture. As you know, carbon capture is produced, proving excuse me to be very difficult to do at scale. What loam bio does is it injects a safe fungus into soil that produces what are called microaggregates that double the carbon storage capacity of soil and actually also serve to improve its yields. It's yields for farmers. So you know, two for the price of one.
Very ingenious and with a potential to truly change, if you will, for lack of a better term, transform the carbon storage capacity of agriculture. And then I'll just point out one other person, and of course we can go through more if you like. But Rico Yu in Hong Kong is the founder and CEO of this firm called arca Reef, which is using racontically three D print the
substrate for coral reefs. The situation in Florida, for those of us living in the United States, has really thrust into focus the tragedy that's unfolding on the world's coral reefs because of you know, hot water, overheated ocean water,
and the bleaching process that really kills coral reefs. There needs to be a way to allow reefs to flourish in other parts of the world where they don't naturally take and this three D printing process of terra cotta clay is just you know, strikes me anyway, is as genius, if not just ingenious.
You know, I think you and I have talked about as a diver, and I think you dive. You know, we have seen the devastation in the world's reefs, and so this to me, I just want to kind of read more about what they're doing because I just find
it kind of mind blowing. The other thing is Eric, I feel like, yes, there are individuals from developed markets, but it is always a reminder when we go through these lists how important the developing world is in defining like unique solutions to the world's problems.
That's right, And many of the solutions developed in the developed world, or at least conceived of in the developed world, aren't immediately relevant to the developing world. The developing world is where most of the world's people live. It has, you know, faces the greatest obstacles in terms of economic development and improvement of quality of life, let alone GDP per capita. It is where I think it's safe to
say the world's most confounding problems exist. And so that is where some of these you know, whether they be made in Bangladesh, made in India, made in Indonesia, solutions made in Brazil, solutions should end are appearing and we love the fact that we can highlight them.
I have to also point out AI is such a hot topic, and you do have Adam Winschel in there.
You worked it in, Eric worked it in helping.
AI companies reduce bias in their information systems that they provide. What did you find when it comes to AI and how it fits into your list?
And just got about thirty seconds get up.
Well, AI is important, as you say, because it's everywhere. But you know, how can innovators contribute in this in a new economy sense?
To AI?
It is by what you say, making it more objective. If we're able to improve the quality of AI tools that are being developed in the developed in the developed world, then I think they'll be that much more applicable to the global economy.
All right, so appreciate it. Eric Shasker, Bloomberg New Economy Editorial Director there on zoom in Toronto, breaking down Bloomberg New Economies twenty twenty three, Class of catalysts. Highly recommend if you want to be inspired a little bit in awe. Just people changing the world and this list you can find out more just head to Bloomberg dot com and you can also find it on the Bloomberg terminal. Eric,
thank you so much, so appreciate it. All right, you are listening and watching Bloomberg Business Week on this Monday, Carl Master along with just metten just in for Tim Stanevik. As you know, we are on Bloomberg Radio, on YouTube and of course streaming on Bloomberg Originals. Don't go anywhere. Lots more to come right here on Bloomberg BusinessWeek.
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On Bloomberg Radio.
All right, TikTok, everybody, eighteen minutes left in today's trading session. Master, long have just met and Jess as you know, in for Tim Stanovic, and we've got a great guest with us. Bill speed back with us founder and CIO over at SMED Capital Management the smeide Value Fund. We say it
every time he joins us for good reason. They've got about four point eight billion in assets under management, at least according to Bloomberg Data, continues to be a top performer in the ninety ninth percentile over the past five years, with an average annual return to nearly eleven percent. He's a nice guy, but we also like his performance, which is why we have him on.
Bill.
Good to have you back with us.
How are you? I'm well, thank you?
Can I be honest with you? We want to get into your thoughts on the markets. But we just had our Bill Maloney in here, and we've had guests on about financial literacy. Why is it that we aren't smarter as a world, as a country in terms of teaching kids from a younger age about investing and financial literacy so they really understand where wealth comes from and how to build it so they have a better, stronger fundial future.
Well, as a general rule, I just think back to being kids. Getting kids to sit down and do math problems was problematic just from impatience. And there's a sizeable group of people that are better English than they are math. So the getting the non math oriented people to do the math is sometimes difficult. I would say.
So, if you had to choose a book to read to one of your clients that they're asking about how to learn more about investing, where do you point them to?
Oh? I get asked that question by young people coming into the business all the time. I'd recommend the same three books, The Bible, The Intelligent Investor by Ben Graham and A Short History of Financial Euphoria by John Kenneth Galbraith. And Avoiding the Really the ignorance is what Charlie Munger calls it. Avoiding ignorance is as important over say thirty or forty years as it was. Everybody's going to have some big winners. But who avoids the ignorance?
And what are your top questions that you hear from your clients as far as things that they just don't understand, what they want to learn more about it?
What's the ignorance that maybe we have to be careful, we're not I don't want.
To tell ignoring maybe, but like maybe you feel more comfortable going to your financial advisor.
Well, the number one issue right now is the number one issue in the market, both that people want to know about the bill, Why are you so convinced that this inflation is not going to go away? And that we're in an inflationary ere that that is the number one question we get from financial advisors and institutions all across the country. Why are you so adamant compared to other people. So we just got a chart today from
the folks at Cyprus Capital. They put out great charge and it shows that the thirty year tips the Treasury inflation protected securities got to a two percent spread for the first time since twenty twelve, and it hit me like a load of bricks. We were trying to tell people in twenty twelve that they shouldn't be worried about inflation because they were looking at the growth and the money supply to try to get us out of the financial crisis and thinking that that was automatically going to
equate to inflation. But that money supply only becomes inflationary if it gets used. So fast forward to today, nine plus trillion dollars of stemmy checks and PPP and government forgiveness and YadA, YadA, YadA. The borrowing this time did get put into the system. People do want to buy houses. They didn't in two thousand and nine, ten, eleven, and twelve, So the last time we got here, people were definitely afraid of inflation in twenty eleven, twenty twelve for no
reason whatsoever. And this time there are too many millennials with too much money chasing too few goods, and the cat is already out of the bag. You cannot take this and stuff it back in.
You shared notes with our producer Paul Brennan, and you say, this financial euphoria episode has gone to a sustained high that makes the dot com bubble look like small change. So how does it end then?
In your view, well, it ends the way they all end. It ends the way RCA ended in twenty nine, the way the Go Go sixties added for the Jerry Size Enterprise Fund, the way the nifty to fifty died in nineteen seventy two, the way the dot com bubble died. They all end the same way. The residential real estate Euphouri three to six, they all end the same way. So it's funny people say, well, gee, you know, it
just seems like it's going on forever. Yes, we've basically had a three or four year topping process in this financial Elfouria episode compared to say, a year and a half topping process in the dot com bubble. That's why we think it's going to be so much more damaging because they've sucked way more people in and way more money in. And then they called up Doug Flutie and said, hey, let's throw a hail Mary and get people all jacked up about this AI thing, and they did so.
Then tell us specific names that you're buying in your.
Selling well, not doing much selling because we've kind of avoided the Euphorix stuff since the second half of twenty twenty one. But we really like the oil business. We like oxy o vand Devon Apache. It's just an ideal setup. There's just almost no money is being spent poking holes in the ground, and therefore whoever has existing streams of
production it will get much more valuable. I'm on a drive from the Portland, Oregon area down to where we live in Phoenix, and I passed a whole bunch of wind turbines in the windiest area of the Columbia River Gorge, the Gorge Scenic Area, and they're not moving today. So some days they don't move, but every day people need the energy and it doesn't always sunshine where they make solar energy, whereas the fossil fuels are there every single day, regardless of whether the wind blows.
Hey, just real quickly, just got about thirty forty seconds, and I agree with you because the transition to evs it's happened, but it's slow, and supply demand metrics seem to be in oil's favor. Thirty seconds left. Homebuilders you still like that, right, that group, some of.
Them still like them. They were very strong and we had a bit of a uphouric on the news that Buffetts folks were buying. That's a great five to ten year play because whenever we finally decide to stop kitening credit and allow rates to come down in the next recession, I think those stocks will take off like a cut cat.
All right, And they've already had some nice performance outperformance, certainly in the past year or so, or certainly this year. Bill smeeid, we always appreciate it. Bill smeeith, he's founder in CIO at Smeat Capital Management. We mentioned the value fund beating pretty much all of its peers over the past five years ninety nine percentile. Carol Master just metten. This is Bloombird.
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