Bloomberg Businessweek Weekend - December 2nd, 2022

weekend edition of Bloomberg Business Week. We know that everyone is still talking about FIT Chief J. Powell's comments this past week signaling the Fed will slow the pace of interest rate increases next month, yet stressing the need for rates to keep rising for some time to beat inflation. No doubt about it, Tim, it was top of mine. Also top of mind Carol protests in China, Apple's exposure to that, and a recent conversation that we had with

Cathy Wood. She of course is the founder's CEO and ce IO of our convest who covered everything from the collapse of f t X and Sam Bankman Freed to Ellen, Tesla and Twitter. We even talked about General Motors stock that she's been buying. The full in depth conversation in our second hour. All of that to come, we beat again with the chaos in the place known as iPhone City. We're following the protests over the COVID zero lockdown policies in China. That may be easing, but time will tell.

Related to all of that, a Bloomberg exclusive, it's in the text section of the new issue up Bloomberg Business Week. It's about Apple's reliance on China and how it's growing perilous because of the chaos in the world's second largest economy and a country that turns out tons of Apple products. We bring in Joshua Breusteing. He's technology editor a Bloomberg Business Week. He joined us along with the editor of the magazine, Jill Webber. Where Apple gets its iPhones predominantly

has been from fox Con facilities in China. UM and with the COVID zero situation in China and sort of how the country and company have responded fox Con to the circumstances, it's really led this to be a quite hot situation. Josh What transpired that and what were you guys watching as you started to pull this story together. Yeah, The largest iPhone production facility, known as iPhone City UH

is in Shangho, China. About of the latest iPhone fourteen models are produced there and since October they have been UM experiencing a COVID outbreak within the plant. This is an enormous place, About two hundred thousand people work there, and UM fox Con which runs the facility, attempted to UM lock the plant down. UM isolate UH workers who may have COVID and UM and try to keep the

this this the outbreak from spreading. The problem was they weren't really prepared to handle this and UM workers were complaining of unsanitary conditions of being held in places where

they didn't have access to adequate food. Hundreds of workers left the plant in October and UH there were some some violent protests from workers who were protesting that they were not going to get paid if they didn't stay through a certain amount of time and just she described the dorm tory sort of pretty awful conditions during this lockout.

But these are pretty coveted jobs in China, are they not. Yeah, absolutely, there were workers who are leaving jobs UM that it was surprising because people get these jobs and they're known as good jobs. What's happened over the recent past has been that the COVID situation has really changed the way that this production facility operates, and people thought they had something good and now feel like they're being really mistreated.

I feel like the eyes are on Apple right now and watching what they are doing, and we have seen them, you know, begin to branch out. How how does you and your team kind of think about what's going on with Apple specifically and what it means more broadly. Yeah. Absolutely. I mean, if you want to look at a situation for a company that kind of represents something larger, you

have the world's most valuable company. It makes an enormous amount of phones in China, and what you've seen Apple do is look to diversify a fox con its main manufacturing partners moving to other countries, to India, Vietnam. So you see it looking for for alternatives if things aren't going to be if they can't count on China, they need to know where else they can get phones from.

So what's the status now, Josh, It's it sounds like it's just chaos there They actually still or the assembly line still working or is it sort of in a frozen while all this plays out. Yeah, so the facility is still working. There are are clearly disruptions. UM. We've reported that UM someone familiar with the operations says there could be a production shortfall of close to six million iPhone Pro units this year. The thought is that they maybe they could recover that next year, but these are

serious production interruptions. UM and Apple has already been dealing UM with this even before the acute problem of the last couple of weeks. Josh, some of the reporting was incredible because of how specific and inside the operations and the protests we were able to get. What stood out to you as you worked on the story. I think it was really interesting to hear from some of the workers who were there that the story that that we're publishing UM focuses on one worker who had been making

phones for a decade. UM finally got fed up in October and left, went home, was lowered back by more money, and UH immediately was was actually in a quarantine period UM when these protests broke out last week, and then decided, you know, I can't stay here like I came back, UM, I'm going to go find a job at a different place. As he said, other people are hiring. Will you talk about you know these workers or or the team talks about workers in isolation. There's no food, there's trash piling up.

I mean, these are it sounds like pretty horrible conditions. Yeah. Absolutely, And I think that what you're seeing is a breaking point. I mean, at one point we describe they built barriers between the dormitories and the production facilities so that people basically couldn't stray or or run away, basically in between home and the job. And I don't know, that's pretty dystopia.

It's a little bit like a prison. Absolutely, Hey, Josh, just long term here, Um, no doubt fox Con has uh an, Apple will have this longstanding relationship with China, But what other options does Apple and fox can potentially having the long term? So fox Con is already making more iPhone four team models in India, more than any previous generation, and it's expanded into Vietnam and Thailand as well, And I think that's a sign of how much Chinese

policies are potentially hurting China itself. At the same time, um, Apples spent decades building up this production capability, and it's not like it can just turn off this switch and turn around somewhere else if it really wants to reduce its reduction up reliance on China. It's going to be a long term project. That was Joshua Breustein. He's technology editor for the magazine Bloomberg Business. We editor Joel Webber

with us there as well. Mike Regan's sticking around for our next segment coming up after the break, we examine the broader implications of the Chinese COVID response that has put tons of millions of people on the brink. You're listening to Bloomberg Business Week. This is Bloomberg. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes.

Tim Stenovik from Bloomberg Radio. Hard to miss the videos and pictures and stories about the protests that have erupted over the past week or so across China as its populous rails against the country's COVID zero strategy. We've got the perfect voice to help explain what's happening in the People's Republic and what it means for President Shi jang Ping, who's just a few weeks removed from cementing his rule at the twentie National Congress of the Chinese Communist Party.

Andy Brown is former editorial director at Bloomberg New Economy he spent three decades and Asia's both China editor and columnist for The Wall Street Journal. Andy now leads the China Hub as a partner over at Brunswick Group. That's a critical issues advisory firm. He joined me and Bloomberg

Market senior editor Mike Reagan last Monday. I think it is the beginning of the end of COVID zero and it is going to be I fear a messy, chaotic, uh and deadly unwinding of an irrational, poorly conceived, and and disastrously executed policy that has Ci Jimping's name all over it. He owns it, and he owns the public outrage that led to this, to these street protests and campus protests all all over all over China over the weekend. Look, it's an indictment of she himself, but it's also an

indictment of the system that he set up UM. And it is a top down, heavy handed, personalized system, UM inflexible, ideological, highly politicized, at times brutal. And the system failed, and it's failed catastrophically. And you know, the irony is that it has triggered precisely the thing that s Jimping most fears. So you know for the first time protest, right, well, protest, but the type of protests, so you know their protests in China occur all the time, Okay, but they're you

they're almost always localized, single issue protests. Uh. You know, workers aren't getting paid in a factory or in a rural area. You know, some government connected business has grabbed your land. A lot of protests, um, this is but they're never they're never networked, right and and they're very

easily contained. This These are nationwide protests that bring together disparate groups of people, poor people, rich people, students, workers together for a common cause, and that is to defeat COVID zero, which has led to enormous amounts of frustration within the population. And the trigger for this was a fire in the room chi in an apartment blog killed at least ten people, including we see the picture of

this lovely weaker lady and and and her children. And the suspicion was that they had got trapped in their apartment by COVID restrictions. So fire exit's being blocked or you know, in these concrete barriers to get placed around box of the fire trucks couldn't get in and extinguished the blaze. And this triggered something very deep, very emotional. You know that that that lady was was everybody's mother,

everybody's sister, you know, everybody's wife. Those children could have been my kids, because you've got four hundred million people in China now living under some kind of a lockdown. Many of those in precisely those conditions. You know, their front doors have been welded closed because they can't get out, and people live in fear and have been living in

fear now for a long time. And so you know, this fire just just triggered this, this this swelling sort of a surge of anger right across the country, and it was so big, it wasn't you know how how clever they are and how how you know efficient they are, and that blow kicking discussion on social media, this out this outbreak a bust was was was just so passionate that they couldn't contain it. S Jimping has no good options here, Okay, he only has tough decisions, difficult trade offs.

So I am I'm pretty sure that with every fiber of his body he wants to crack down. Okay, I mean he is haunted by the collapse of the Soviet Union, which you know, he blames. They lost their ideology, abandoned style and repudiated style, and but they lost controls of the levers of power. They compromised, you know, Glass, Gnast and PARASTROI. He's absolutely determined that that is not going

to happen. And he doesn't he doesn't want his policy, his signature policy, to be derailed, to be challenged by street protests. And I'm pretty sure that they are already now, you know, going off to some of these leaders of the protest. But here's the thing. The more you know, if if he cracks down uh violently, you know, he he could he could promoke an even bigger social explosion. People have had enough. I mean, they've they're really up

to here with with zero COVID. Now, on the other hand, if he opens up and opens up too quickly, uh, he risks an explosion in cases and and and mass death. Uh. You know, even under the most optimistic scenarios, if if they opened up like Taiwan did, what Singapore did? You know, because of the infectiousness of Omi crown, you know, and the vulnerabilities that you have in and even a highly vaccinated uh society, you're still going to get you know,

a million or more deaths. Now that that's dynamite, spry and big. You know, the Americans lost a million, Uh, the Europeans lost a million. This proves you know, the the decadence and incompetence and the corruption of their system. Their their careless system. But we in China have to have a have a superior system. You know, nobody, very few people died outside of the original outbreak, so he's

he's going to be very very careful. And but you know, look, uh this, you know, the real problem here is that there has been a staggering failure and it is the failure to build defenses against omicron that you know, they've been so fixated on, you know, on zero COVID that they haven't invested in ICU beds, in train specialist medical staff. Most importantly, they haven't uh adequately vaccinated the elderly population, you know, so and and of course they have no

natural immunity. Now, Andy, do you think if China had accepted the Western vaccines, the Maderida and visor vaccines, would would it be a whole different scenario here? Would would the they'd be able to open a lot, a lot less risky than they are now. You know, I think people exaggerate this point. Uh, look is baffling, right, why they didn't take m RNA vaccine. It's the best in class vaccine, but it's not. It's not the game change that people say it. It might be Chinese vaccines, Okay,

they're fine, right, they do a fine job. Um, they prevent serious illness, they prevent death. But that's if you have your your three dose regimen, right, you get your two vaccines and your boosted. The problem that they have is that they haven't insisted that the elderly get vaccinated. That was Andy Brown. He's a partner at Brunswick Group and a former colleague of ours here at Bloomberg, where he was editorial director at Bloomberg New Economy. Mike g

Regan will be back a bit later in the program. Meantime, we've seen more protests flare up in various parts of China, even amid optimism that China make ease off some of its COVID zero policies, including about to speed up COVID shots for the elderly, Still ahead on Bloomberg Business Week. Our cover story sheds land on the potentially deadly game being played by some young American users of the wildly

popular Chinese own social media platform TikTok. This is Bloomberg broadcasting from the financial capital of the world, Bloomberg eleven Frio in New York to Washington, d C. Bloomberg to Boston, Bloomberg one oh six one to San Francisco, Bloomberg nine sixty to the country Sirius XM Chado one nine team, and around the globe the Bloomberg Business app and Bloomberg Radio dot Com. This is Bloomberg Business Week. Time now for this week's cover story. Also Bloomberg Big Take from

the past week. This one is heart wrenching and disturbing. It's in the latest issue of Bloomberg Business Week. It's on how TikTok's viral challenges, specifically the so called blackout challenge, are luring young users to their deaths. Bloomberg investigative reporter Olivia Carville reveals how the company behind the most popular app in the US is responding to these horrifying cases and the consistent failure of the platform's age verification mechanisms.

Olivia and Bloomberg Business Week editor Joe Weber join us with more. This is one of these things that everyone just assumes, you know, kids are not going to find them ols in places that they're not supposed to be in. Just truly scary. Some of these corners can become Olivia bring us into how you went about reporting the story, because it really involves some tragic elements. Yeah, it does. I started reporting this piece by trying to get a

sense of what happens inside TikTok. After a child dies participating in an online challenge, and maybe there's been a headline and some local news reports connecting TikTok to their death, how does the company respond and what happens internally? And the way to answer that question was to try and build sources on their trust and safety team. This is the team that is built within TikTok to handle the

worst case scenarios. These are the fixes of the Internet, the people who come in and clean up the mess, protect the company's reputation, but also try and protect users. And I spoke to more than two dozen current and former trust and safety insiders to get a sense of what happens at TikTok, and that's how we were able to tell the story is really through the lens of that trust and safety team. Your piece starts out with just the tragic story of Ariannia Royo. Can you share

her story and what her family has gone through. Arianne was a nine year old girl. She lived down in Milwaukee, Wisconsin, and she loved TikTok. You know, this is the most popular app in the world, and it is hard to deny the success of this company. Seventy percent of teenagers in America are using TikTok, and they're using it more than all of the other apps out there, Facebook, Snapchat, Twitter. So Arianni, like most kids, fell in love with TikTok and she was using the platform on a daily basis

and she really enjoyed participating in the trending challenges. In February of last year, she attempted the Blackout challenge, which is where children try and choke themselves with household objects until they black out and then film the adrenaline and rush or the high they get regaining consciousness. But at the age of nine, Ariani unfortunately was unable to save herself. She had choked herself with a metal dog leash and she tragically died. So Olivia. Obviously TikTok is aware that

there's a challenge here and that they have happened. There's been lawsuits. What does the company have to say about it and with their official response, and then what are others saying about that response? Yeah, I mean, these dangerous challenges bounce across platforms. They exist on TikTok, but they exist on all the others as well, and users actually try and sidestep safety restrictions by doing things like misspelling keywords.

So rather than writing blackout challenge, which has been banned on TikTok, they'll right black out with a zero and try and get around the the artificial intelligence or the systems that have been set up to try and protect kids. So TikTok really doesn't want this content on its platform.

It's done what it can to train its moderators to take down any content relating to the Blackout Challenge, and it also prevents anyone from being able to search for Blackout Challenge related content in the app, and it set those um those safety restrictions in place at the start of last year, after the first ten year old girl died attempting this particular challenge, but unfortunately, kids are smart and they know how to get around these safety restrictions

and they're doing that, and that means that the challenges continuing to spread across social media platforms. And the most recent cases that we could find of deaths associated to the blackout challenge was August of this year. So despite all of those safety features being implemented, the deaths have kept happening. Where do you think we need to go from here to get on top of this, Well, that question of age verification is like the elephant in the room.

This is one of the hardest things for these social media platforms to do. How can you tell the exact age of the person who was on the app, you know, using that device. And don't forget that children's content is allowed on TikTok. You can film your children or your siblings who are under the age of thirteen and post about it. Every social media platform in the US at least has a rule that says you have to be

over the age of thirteen to use the product. You know, they call it within the industry the age gate, and it's very hard to enforce that. So these companies are trying to find ways around it. But this is one of the biggest challenges that social media platforms face. That was Bloomberg Investigative reporter Olivia Carville and Bloomberg Business We Get It or Jil Weber on this week's cover story. Just head to Bloomberg dot com or check it out on the terminal for a full length video feature on

this piece. Hard to stomach, but I gotta say it important for the parents of young kids to see and know about. You're listening to Bloomberg Business Week. Coming up next, we shift gears and take a look at a key area of the consumer economy, the travel and hospitality sector. Then we get a post Thanksgiving pulse check with Price Line CEO bread Larth. This is Bloomberg. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes

Tim Stinovik from Bloomberg Radio. Just over two and a half million passengers passed through US airport checkpoints last Sunday, according to Transportation Security Administration data. We're talking about the t s A. That's the most in a single day since before the COVID nineteen pandemic, up about four and

a half percent from the same day last year. Again, according to the t S, a still a little one day tally fell about eleven percent shy the same figure in that's when two point eight million travelers were screened. With a look at the travel scene this past weekend and what maybe to come a bloomberg market, Senior editor Mike Reagan and Carol spoke with Priceline CEO Brett Keller on the heels of a cross country flight to the

East Coast. The plane was completely packed, you know, a little bit of a delay coming into New York, but overall, you know, the Thanksgiving period of travel across the tree was very smooth. Yeah, Brett. Obviously, inflation has been the hot topic all year. I'm wondering what you're seeing as far as prices in the travel, hotel, airfare, that sort of thing. Are they rising as much as you know, cp I would suggest something like seven Actually a little

hotter than that. Um depends on, you know, whether you're booking a flight or book in a hotel, but they're both up on the hotel side, you know, prices up seven eight percent versus where they were a year ago today, so a little less in the CPI. But when you look at flies and they're closer to fift, especially if you're flying overseas. So with the cost of jet fuel, you know, really up fifty where it was a year ago. That's pushing prices higher along with labor costs, and consumers

seem to be shaking off those higher prices. They continue to prioritize travel over other purchases and are really hitting the road. So here at price line, you know, we're really seeing good, healthy travel demand. October actually accelerated from where it was in August and September. As we look into next year, patterns seem to be holding up at least so far. So are we back at levels based on what you're seeing off your platform? Brett, Yeah, we're

very close. On the hotel front. If you just look at industry data broadly, for for the hotel category, you know, their occupancy rates are just about where they were in two thousand nineteen, maybe a percentage point below, but very healthy. On the flight side, even higher in the nineties in terms of you know, seat capacity utilization. So things look

pretty good in the industry right now. And you know, consumers no longer have any COVID concerns, especially here in domestic travel in the US, and we're seeing a really strong demand into Europe and now starting into Asia as they've lifted restrictions there. Let me just just to follow on that. So I am always curious Brett on a platform like yours, I mean, how much visibility do you have looking out? Is it a couple of months, is

it's six months, is it twelve months? What kind of visibility do you have in terms of what the environment might be for travel heading? Sure, Well, the average booking window for a consumer booking you know out into the future is usually pretty close in two three to four weeks.

That's really where most of the bookings happen. But we do see, you know, well into the future people will book out to three and four months for certain types of vacations, and so that's a good proxy for what we're seeing, and so far that data looks pretty good. Things are still relatively healthy as we look into the future into first quarter of next year, so you know, demand again appears to be holding up um and we'll

we'll see where it goes from there. But so far, we're we're happy with how things are playing out in the travel space. You know, Brett, I think probably a lot of listeners hit your site looking for a deal, of course, you know, or any tips on how to save a few bucks in this holiday season considering prices of everything are higher. There any sort of tricks of the trade you could share with us, Yeah, absolutely, listen.

This is why price Line was founded, you know twenty five years ago, was to help consumers navigate a very complex space and and find savings. So when when you think about ways to save money today and this really high priced environment, one is you really need to avoid these high peak travel dates if your schedule allows, and more and more consumers are able to do that now.

So for example, with the upcoming holidays, try your best not to fly on the twenty three and right right before and right after a Christmas holiday or the day after New Year's Day. Really try and push that out a couple of days. You can save fifteen because they really optimally price for those dates. From the airline side, a second way is on a site like price Line,

you can book with mixed carriers. You can fly out on one airline, fly back on another that can typically deliver you anywhere from five percent off of what you would pay if you flew out and back on the same carrier. So by mixing and matching carriers, you can save money. And a third is to package right and bundle your your your books together. So if you're going to book a hotel and a flight, bundle those together.

You will save money because we have access to especially negotiated rays that can only be used in that bundled experience, and that does deliver real value up to you know, a couple of hundred dollars a trip when you really are thoughtful about destinations and how you book those together. You guys do have lots of data you can see in real time, like what's interesting to people, what are

the most popular flights that people are booking right now? Well, uh, you know, coming out of consumers really stayed close to home and many of them were not really even leaving the country. Uh. And so we've seen big markets really start to open up this year, especially for Christmas and New Year's. So New York, Atlanta, Las Vegas, l A

all very very top of the charts right now. Also Orlando. Uh, that's always been a number one or number two market for US in particular, but really for the country, and it continues to be a top market for consumers. Of

what we're seeing a lot more. The second half is people are leaving the US to travel overseas, and when you look at where they're going in Europe, obviously London is a big market, but they're also heading into many other interesting destinations there and a few now moving into Asia. But really for the holiday period, warm destinations are at the top of the list. Locations like Cancoon, Jamaica, Dominican Republic are very very appealing to consumers just looking to

get a break and get some sunshine. A colleague of ours here uh said, yep, we just came back from Jamaica and so yeah, people, Mike are out and about and they're getting out of the US. I'll take any of those destinations. Yes, yes, and yes, hot sand, a golf course, swimming pool, one of those drinks with the umbrella. But Brett, you know, it's such an unusual economic environment that we're in right now. We have high inflation but

super low unemployment. Everyone's worried about a recession. I'm wondering which of those variables matter the most to your business. You know, is it unemployment, is it g d P is an inflation is you know, my guess is unemployment is is probably the main thing that would sort of be a headwind to travel. Is that a fair assumption. Yeah, I think that's a fair assumption. I've been in the industry for over twenty five years. You know, we went through this back in oh eight, and travel is a

very resilient category. People seem to prioritize that they always want to have that opportunity to visit family, to take a break, and so you know, if you're unemployed, obviously that makes it very, very challenging to pull together the dollars that's required to to take a trip like this. But what people will typically do if they're constrained is they'll start to modify how they travel. They may drive instead of fly, they may you know, drop down a

star category. Um, they'll find ways to save money but still take that trip. And we're not necessarily seeing that trade down happen yet, but certainly that's what consumers may

end up doing if they're really pressed for cash. Right, we spend I feel like every day in and out here at Bloomberg, because of the upcoming FED meeting, because of the FED conversations, because of j pal speaking this week, we talk about, you know, the prospect of a recession, whether it will be shallow, whether it will be deep, whether the FED will overdo it. What's the conversations constructive conversations you guys are having at priceline Um when it

comes to the economic outlook and the possibility of a recession. Sure, well, that's obviously on everyone's mind here as well as we read the news and everything that's going on in the in the category. It's interesting though, is so far the hotel chains, the major airlines, they are all signaling good, strong, healthy demand for their product. And a lot of that obviously is because of consumers not being able to travel for really a good year and a half, and so

that's propelling travel forward. And you know, when you think about what consumers are looking to do with whatever extra cash they have, they are prioritizing this now over really commodities. So you know, as we think about a recession, we're thinking, yeah, this could be this could be obviously harmful to the

industry longer term, but we just don't see that. And historically when you look back to Ohay, it weathered that very very well as well, So we're very optimistic about the next couple of years, even in the face of what could be, you know, a recession. But you know, you can't predict the future anymore. It's it's becoming a bit a bit too challenging, you know, Brett. Quickly, I was looking at some of the notes that you sent

us before the show Um and Cruises. The price you gave, the low price for a cruise ship per night made my eyes pop out. Is that a type of seventy dollars a night you can you can go on a cruise work. No, that's absolutely an accurate figure. In fact, you know, that's one of and most people don't know this, it is one of the most cost effective vacations there are because it typically includes obviously food and beverage as well, so you bring that together. It's a it's a really

nice vacation. Now you have to get yourself to a cruise port, but there are ways to either drive there or find a cheap flight to get you there to then get you onto that cruise line. And now you know, the cruise lines obviously had a tough time through COVID and continue to have a lot of excess capacity, more so than many of the other travel categories. So they're really they're really rolling out the credits and other things to get you onto those ships. That was Priceline CEO

Brett Keller with me and Mike Reagan. Priceline, by the way, a subsidiary of the publicly held Booking Holdings. And that wraps up our first hour of the weekend edition of Bloomberg Business Week from Bloomberg Radio. I'm Carol Masser and I'm Tim Stanovic. Ahead in our next hour, we go in depth with Kathy Wood of our convest on everything from Elon Musk to this year's FED policy and the latest on crypto deep freeze brought on by the collapse of ft X. Great voice for so much going on

right now. Yes, a lot of people have lost a lot of money around the crypto acid ecosystem, uh, losing value here. But if we're right on the underlying techno apology and the underlying rules that bitcoin and ether ethereum are going to play in this new world, Uh, then I think we're going to recover pretty quickly. Stick around.

This is Bloomberg. This is Bloomberg Business Week inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news as it happened, Sloomberg Business Week with Carol Messier and Bloomberg

Quick Takes Tim Stinovic on Bloomberg Radio. Plenty of head in our second hour of the weekend edition of Bloomberg Business Week, including our comprehensive interview with Kathy Wood of our convest everything from Elon Musk and Twitter and Tesla to the ft X implosion. First up this hour, the

crypto crash from a different angle. The Business Week team has a story online at Bloomberg dot com, slash business Week and on the term at All about how the digital asset turmoil is actually helping couples rekindle their relationships at an angle I didn't see Bloomberg Markets Senior editor Mike Reagan, and I got more from Business Week contributor Joel Stein, as well as the Markets and Finance editor

for the magazine, Pat right Near. I think all of us who spent any time reporting on crypto got to know people for whom crypto became kind of a defining part of their lives. I mean, you know, a lot of people listening to this are just ordinary finance workaholics who have a hard enough time sort of paying attention to this stuff. Um, you know, when the markets are open to crypto has this quality of never being closed, even on the weekends and bringing a lot of things

outside of people's peripheral vision. And UM, I think a lot of people have had a hard time kind of emotionally managing that. And um, the side effect of that is that it's hard on people's relationships. But um, Joel, tell me how you kind of came came onto this. Uh, these were some people you knew. Yes, my friend Igor Hiller who's in the piece, And he was the guy I always called when I ever got assigned a crypto story to ask him like the basics of like what

the hell this is all about? And he was over for dinner with his longtime girlfriend. They've been together for like four years, and they told us that kind of like what started as a really funny story and turned really kind of sad and serious where they almost broke up because he wasn't paying any attention to the relationship because he was so obsessed with his cryptop and hanging out with them and just checking his phone constantly and waiting for n f T drops and just like you know,

degenerate gambler, maybe you'd call it de Jenning when he went into these kind of phases and uh, and she kind of gave him an ultimatum that was either crypto or her. But you know, Joe, you mentioned those n f T drops and I get the impression reading this that U n f T is almost really worsened this situation because you're stuck there waiting for these things to drop, and they can be delayed. Did you get that sense

to that? You know, the the addiction was almost first when it came to n f T s, both because of the time consumption and also sort of the potential upside and those as an investments, at least for a hot minute. There, for a hot minute, n f T s were. But throughout the entire you know, crypto cycle, there was always a different thing that could occupy you twenty four hours a day because crypto markets don't close.

So during the D five farming phase, there was always some new farm that was opening up that you had to get involved and get their coin real quick, or there'd be a coin drop, right like, people were creating new coins all the time, and Elon Musk or someone else would tell you that this was a hot coin you had to get, and you had to get it,

you know, when it was minted. So I don't think it was just n f t s. There were there was always some new craze that you had to get involved in, and you know, maybe you had to simp some star in order to get involved in that, you know, um in that discord channel and by I guess those are off in n f t s. But yeah, there was always a new craze and even if you kept up with one of them, there'd be a new one that popped up. Pat, come on back in on the conversation. Yeah.

You know. One of the things I'm thinking about a lot, with all of the really serious stuff having happening now, is that, um. You know, UM, we've learned that markets can grow up faster than you can teach yourself how to think about them, and I think also faster than you can teach yourself how to emotionally handle them. Um. You know, in the last two years in crypto, even for people who aren't investing in it, um, it's been uh, something that has moved so fast that it just keeps

you kind of like mentally and emotionally agitated. Um, but you know, I mean I also kind of want to talk a little bit about sort of you know, the people who are the partners in these situations, and Joel's sort of like what they felt like they had to do to kind of get ahold of their relationships and

really like bring their partners back from the brink. Yeah, and almost every case there was a guy, and it was almost always a young with always the fact we were looking all around all we could find with young men, uh and and the and the numbers, IM polls and and kind of play this out. But it's a bunch of young men and they get so wrapped up in this and they think it's going to be a life

changing moment that they can't miss out on. It's all fomo, and that there's going to be generational wealth created for their grandchildren if they just stick to this one thing. And they all kind of we're able to get their spouse or more like their girlfriend involved to an extent, but um, not as much as they would have liked. And then there their relationships started to wither because they

were so devoted to this one thing. Yeah, Joe, I wonder if, you know, if these guys really are creating wealth through this, if that sort of changes the equation with the wives and girlfriends a little bit too. Were any of these guys actually, you know, doing well with their trading enough to you know, sort of get the get the day pass from their wives and girlfriends? Sure?

I mean, some of these guys, you know, on a exciting day could make ten dollars the guys I was talking to at least, and that that goes a little, you know, a long way and convincing your girlfriend that's okay, you didn't go out with her this weekend. But you know, those days were few and far between, especially as the markets started to dry up at the beginning of this year.

But in a lot of these cases, eventually, either because of the crash or because of ultimatums, the boyfriends somewhat came around and people were able to resolve their relationships. And in a lot of the cases where I talk to people, So, Joe, what do you think happens if the crypto market takes off again? Are these guys incurriagible or they they learned their lesson? How do you see a plane? I mean, do you know any gamblers to

be encourageable. Um, you know, I think there's there's hope that the lessons were learned, but I think it's it's a very powerful draw. That was Bloomberg Business Week contributor Joel Stein, with Markets and Finance editor Pat Rigneer Mike Reagan taking part there as well. That angle right caught us by surprise. I didn't see that coming. Yeah, exactly,

all right, you're listening to Bloomberg Business Week. Coming up, we go the Distance with our invest founder and CEO Kathy Wood on f t X SPF and Elon Musk's latest venture. I think opening up the algorithms which we think he will do, and taking away the kind of human driven censorship and allowing the transparency of the algorithms that they do put out there. And I think it's going to be very healthy. This is Bloomberg. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes

Tim Stinovik from Bloomberg Radio. Whatever happened, why ever happened? I had a duty, at a duty to all of our stakeholders, to our customers, our creditors. I had to do to our employees, to our investors and to the regulators in the world to do right by them, to make sure the rain things happened at the company, and clearly I'd do a good job of that. I was

shocked by what happened this month. That was fd X founder Sandby had been freed from the New York Times Deal Book summit on Wednesday, trying to explain the collapse of his crypto exchange and trading from Alameda. Certainly a lot of questions though still to be answered. All Right, for the rest of this hour, speaking of questions and views when it comes to SPF and Alameda and f t X. For the rest of this hour, we've got a well known investor to address many of the big

stories of the day, including that latest crypto meltdown. We're also going to talk about elon, Twitter, Ellen and Tesla and so much more. Okay, we're talking about Kathy Wood. She's the founder, CEO and c IO of Arc invest who joined us prior to Thanksgiving. This was in the wake of spfs crypto empire just going belly up, and despite the deepest freeze yet in the crypto winter, Cathy Wood is staying the course. It's been a very challenging few.

Uh while I should say twenty months, but uh, you know, we're looking at our portfolios right now, and um, we are back to where we were in terms of calling them deep value portfolios. If you give us a five year investment time horizon, I mean, we're seeing incredible values for the kinds of growth, kind of growth that our portfolios are going to deliver. You know where I want to go. I gotta talk to you about the crypto space. You um, you know it's it's a world you know

really well. We think about the ft X collapse, the coming undone of Sam Makman freed. You know, you have been buying into some of the different names in the cryptos based coin base, gray scale, Bitcoin trust. Why should investors trust crypto? Why do you trust crypto at this point? If you look at the block chains, let's let's use the Bitcoin blockchain and ethereum, what you'll find is they have the infrastructure. The technology has not skipped a beat

throughout this entire crisis. In fact, the hash rate, Bitcoin's hash rate is at an all time high, and that is a real indication of this security of the network. On ethereum, we're seeing the total value UH staked at twenty four billion. That is an all time high. So we think the infrastructure is working beautifully. UM. As far as coin Base, UH, this is an onshore regulated UH

company and wanting to help shape regulations. Brian Armstrong, the CEO, and Alicia uh CFO have been leaning in into what's going on right now and saying, Okay, regulators, we need more clarity in order to protect investors. Those who wanted to get involved with a certain types of crypto were forced off shore and look at what's happened. So UM, I I think that coin base is going to come

out here looking very very strong. It just lost a very big competitor in t X. Well what is the market missing though, because you know that could be one narrative, Cathy. But at the same time, we haven't exactly seen shares of coin based rally since f t x is collapse. Do you think to you that represents potentially broader concern about just people's interest in crypto following ft x is collapse. No,

I think it's more fear. I think many people say we don't know what we don't know UH, and UH, so what we do is we step back, you know, put a little perspective into the situation here, and what do we have. So the entire crypto asset ecosystem is an eight hundred billion dollar ecosystem. Apple is three times larger in terms of market cap. So that's some perspective. Many people are saying, well, okay, is this another Lehman? Could this be uh, you know, could could we see

the domino effect here? I've just given you one reason why. The banking system back in oh eight oh nine trillions and trillions of dollars and it was the global banking system. Right now we have it seems from f t X h five to ten billion dollars in creditors. If ash as f t X has filed bankruptcy, they will be making claims. If you look at Lehman, that was one point to trillion dollars in claims. So again just trying to put perspective, this is fraud, this is made off.

Made off was sixty four billion dollars in claims. Again f t X five to ten billion. Now I know that crypto assets are you know, they attract a lot of attention. This is um you know, the three revolutions we talk about all the time you know, a new monetary system in terms of the first global private meaning not government controlled digital uh, well spased monetary system that's Bitcoin. A very big idea. Defy is a very big idea.

And uh, while that has been thrown into question in terms of you know, shifting from one exchange to another, we've had a lot of shifting around. But I think, uh, I think DEFY in terms of taking the middlemen out of financial services and and making the ecosystem much more transparent with much less counterparty risk, is going to take off.

It will continue to move forward, we believe. I think one of the things we're trying to figure out is how long that we think the industry will be feeling the ramifications of f t X. I mean, one thing we've learned right with SPF and f t X is what we didn't know. So how long do you think this goes on? Because you obviously have faith in it, You've been buying into it, and you think this is a good entry point at this point, whether it's gray Scale, whether it's coin base, but um, how long do you

think we continue to feel the effect? And do you think there's more contagion to be felt? Um, well, we always look for the whale, uh in in a situation like this, and if if there was a whale out there, it was f t X and and Sam Bankman Freed, you know, king of the hill. Uh. So I think we found the whale. And uh, you know, I'm sure they are going there's going to be more fallout, but we see how big the whale is. And yes, a lot of people have lost a lot of money around

uh the crypto acid ecosystem, uh, losing value here. But if we're right on the underlying technology and the underlying roles that bitcoin and ether ethereum are going to play in this new world, Uh, then I think we're going to recover pretty quickly. More ahead with our invest founder,

CEO and ce IO, Cathy would coming up. She's gonna tell us more about her one on one meeting with Sam Bankman Freed that is in a different time when f t X was still flying high, plus why she thinks SPF is a fraud on the level of Bernie made off. And we do want to emphasize to listeners that regulators are still probing exactly what happened with f t X and Bloomberg News will continue to provide new

information as the case unfolds. I think the thing that is shocking is how many people were very close to him, and one would have presumed looked at all of the documents and got a sense of the books. You're listening

to Bloomberg Business Week. This is Bloomberg broadcasting from the financial capital of the world, Bloomberg eleven Rio in New York to Washington, d C. Bloomberg to Boston, Bloomberg one oh six one does San Francisco, Bloomberg nine sixty to the country Sirius XM Chado one nineteen and around the globe of Bloomberg Business app and Bloomberg Radio dot Com.

This is Bloomberg Business Week. More now, from recent conversation with our invest founder, CEO and c I O Kathy would When we spoke with her on November twenty two, the scope of the ft X bankruptcy probe was and still is coming into focus, and even since our conversation with her, Carol, we've seen several other dominoes fall just in the last few days. That does, of course include block Fire recently filing for bankruptcy. Here we ask about Sam Bankman freed though and Cathy would. She did not

mince words here. Again, we do remind you that investigators are still looking into whether he committed a crime end if so, on what scale, more like made off. We'll give us some give us an understanding of what your interactions were with Sam Bankman Freed before this followed. And have you spoken to him, because I know you were at Crypto Bahamas along with many other people earlier this year, the ft X Salt conference. Yes, I had a zoom my team and I had a zoom with Sam before

that conference. I think they wanted to have us represented at the conference. But other than that one phone call just to set up I have never talked to him um, and by the end of the phone call seemed to be distracted by whatever else he was doing. So that was my one exposure to him. And you know, I think the thing that is shocking is how many people were very close to him, and one would have presumed looked at all of the documents and got a sense of the books. Uh. The fact that so many people

were completely fooled um is quite shocking. You know. I think he had this aura around him or something that caused people to to to ask fewer questions than might otherwise have been the case. It's very hard to understand. Do you worry it all about as you buy into gray Scale, Kathy, you know the whole world of the Digital Currency Group and Barry Silver's company, I mean, the various connections that kind of go back to f t X. Are you at all worried about a liquidation or anything.

We know that the Gray Scale investment trusts are the most valuable part of that company right now, we think they're going to try and hold on to that if nothing else. Now, one of the things that we know that Gray Scale and Michael Sun and Cheim a great Scale wanted was to convert this trust into an e t F. I think what's happened with the fallout here might increase the probability that a Bitcoin e t F will be approved. I'm not saying immediately, but we know that.

And even the newest SEC commissioner him Lizarraga I think is his name, has come out and said we need as regulators to focus on decentralization and transparency. What is the most decentralized and transparent crypto asset in the world. It is bitcoin, And yet retail investors do not have easy access through liquid asset like uh an E t F, which honestly I don't understand given that they approved a bitcoin futures um, and so I think it might increase

the odds we shall see. Well, and some of them been wondering whether or not you're playing the arbitrage um with GBTC right now, you know, is it that because of the trust deep discount at this point, is that the thinking for you to kind of be moving more money into this name, Well, it is one of the few securities we have to own securities in uh E t F s, so it is one of the few securities we can buy. And yes, it's at a very big discount, so it is more attractive bitcoin if they

were to even liquidate it. You know, we've got such a big discount relative to to bitcoin. We don't think they're going to This is the most valuable property. I think they're going to hang onto it, and I think over time the discount will close. Don't know if it's because of a conversion to a bitcoin ETF. I'm sure the regulators will take a very close look at d CG and the gray scale Bitcoin Investment trust, but we do know this is a grant ord trust, highly regulated. Kathy,

We've talked coin Base, We've talked g BTC. Are there any other opportunities in crypto that you see right now in the wake of f TXs collapse as prices have been beaten up. Well again for our e t f s. As you mentioned on coin base, we also owned Square and it is interesting that Jack Dorsey has chosen the most transparent, most decentralized crypto asset to center blocks crypto exposure too, and I realized he's trying to from a developer community point of view, leave them on their their own.

But we do think bitcoin, uh, and you can see through the behavior of the infrastructure hasn't skipped a beat at more secure than it was yesterday, the day before, in the day before. So I have a feeling this is going to elevate Bitcoin in the eyes of not only the crypto world, but the investment world at large. And I have a feeling it's going to have more running room through the rest of the world. We think

they're going to be very successful. That, of course is Kathy would of our convest will wrap up getting her thoughts on one of her longtime investments. Yes, safe to say, Tim, she is the original Tesla bowl. We asked Kathy Wood on where Elon his e V giant and yes, Twitter

go from here? This is Bloomberg. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovich from Bloomberg Radio heading for home on this weekend broadcast and bringing you are Deep Dive with Kathy would of our Convest. We talked with her just before Thanksgiving. At the time, she reaffirmed her forecast her Bitcoin to reach a million dollars per coined by though she did

say the recent crypto crash could slow institutional adoption. Of course, our Convest has interests that go well beyond digital assets. One of those is Elon Musk. Cathy Wood has already bet big and cashed in on Tesla. Now she's looking to do the same with Twitter, purchasing a private stake in Twitter via our adventure fund back in early November. The question now is mother Musk is the right person

for this job too. We owned Twitter for quite a while and we sold it into the rumors that Ellen was going to buy it because we knew there would be a lot of controversy around that, so it moved into the sixties. I think it got to seventy and we sold there and have been watching from the sidelines. But if you look at that model longer run, it

has not delivered on the promise. And I think opening up the algorithms which we think he will do, and taking away the kind of human driven censorship and allowing the transparency of the algorithm is that they do put out there, you know, allowing people to question them, I think it's going to be very healthy. If you look at the daily average users, I think the various metrics that you can count daily, they have been going up dramatically.

So I know a lot of people who you know, basically decided to quit Twitter because they didn't like the kind of censorship and so forth that was going on. So I actually like what he's doing. It seems interestingly enough, though, that a lot of brands don't like what he's doing, Kathy, and we've seen some prominent companies pull back or at

least pause advertising on the plant pot. Of course, I mean that makes sense if you know you don't necessarily want to support the guy who owns Tesla if you're making competitive vehicles to Tesla, but bigger brands that are worried about brand safety, and I'm wondering, you know, it doesn't seem like it's necessarily moving in the direction of increasing revenue from an advertorial perspective right now, I do

think that this is not just an advertising vehicle. In fact, this is that probably might diminish quite significantly in terms of its importance longer run. You'll remember that Ellen started his entrepreneurial pursuits with a precursor to PayPal. So he very a very long time ago had this idea of a digital wallet, a super app like what's app um in mind, and of course took a big detour into another passion of his um. We know he knows a lot about this world, and I think if anyone in

the US can do this, I think he can. I think he'll surround himself by the right business leaders. He's not going to do this himself. Many people say, aren't you worried about Tesla, No, we're not. Because of our work on electric vehicles. They are are grabbing a disproportionate share and will continue to do so of a market that we think will account for eighty five to of all cars sold in the world, So that's on automatic pilot. He's now working on autonomous, which we think is going

to work. In fact, I just had the pleasure of riding in a Cruise car in San Francisco, an autonomous car GM just wanted to see, wanted to check it out, and I have to tell you I love the ride. And Uh, I know autonomous is possible because Cruise and Weimo are doing it, and we think Tesla is going to do it in a much bigger way. So that's Tesla. But onto Twitter, it really needed to be shaken up. I think think he can make it be a great

business and very profitable. And if so, how I do think about the amount of data that Twitter has uh, and it's proprietary data, and think about the combination of that and artificial intelligence. Remember he has AI expertise and experts. I know he brought in some of his engineers, UH, and they are going to I think surprise and delight

heading for a super app kind of product. And you know, by our estimates and you'll find this in our big ideas, I think it was um the value of each customer in a digital wallet, uh, should be in the twenty thousand plus range, because not just for financial services, it will ultimately be for commerce and AI is the glue that's going to pull this all together and the data that they have, the data is the new oil. You've

heard that this is absolutely true in the case of Twitter. Well, Kathy, I mean the currency Twitter as a currency has worked really well for you. You've got one point five million followers on the platform. A lot of people see what you tweet. We saw eulogies being written for Twitter. It didn't end up dying as many people thought it would. But what would happen if Twitter went away? And are you concerned that this is an extremely productive social network

for us? It is our most productive and you know it truly is the global public town square. You know I can write an open letter to the FED and put it out over Twitter. Now do I think the Fed's going to listen to me? No, I don't, but that they may listen, that the FED board members may listen to someone who might think that I have something to say, which is simply a question. Wait a minute, how can you be unanimous seventy five basis points at

a time? How can you be unanimous when there is so much conflicting data out there, including an inverted yield curve now at seventy five basis points, that's crazy. I think we're going to look back in history and say, what were they thinking unanimous? Commodity prices are fall calling. You've got excess inventories all over the place. We're seeing massive discounting. I think we're going to see deflation and then they'll make a move in the opposite direction. But

we need, we need a steadier hand than that. So when Kathy went to you, because you've argued this and you and you've put this out there in terms of FED policy, in terms of deflation, when do you think it will come? I think we're seeing it. I think if you look at a lot of commodity prices, not only are they down thirty two some of them from their peaks, they're down on a year over year basis. In fact, on oil itself is almost down on a year over year basis. Now the big pushbacks on this

call we get our wages and rents. We're seeing rent inflation reverse quite suddenly and dramatically. What I think we will look back in history and say this inflation shock was the function of a supply shock caused by COVID supply chain probably ms afterwards, and even more problems after Russia's invasion of Ukraine. If I can just take one second, I would like to give an analogy to the late

nineteen teams. We were in the middle of the massive innovation the history of the world had seen telephone, electricity, and automobile all at the same time. But we had World War One and we had the Spanish flu sound familiar now. That was much worse than what we've gone through. We've gone through nothing like that, But there were massive supply chain problems back then. And inflation peaked at twenty four percent right in June of nine, and by June

of it was minus fifteen percent. So I think that our eight to ten percent inflation, which is where it was at the peak, is going to turn around and we're going to see some very big surprises on the inflation front. And you know who agrees with us, the bond market. Look at what the bond market is doing now, sevent inverted. That's telling us that the bond market is saying recession and or big surprises on the low side of inflation. Expectations, so and it's probably both. Kathy unfortunately,

have a couple of minutes left here. One thing we did want to squeeze in. Um. We've been talking about in the newsroom that Alliance Bernstein is getting ready to launch actively managed disruptor e t f s. And from what I understand, you pitched them, you know, years ago. Um, how does that make you feel? And you know, to see from that you worked at kind of doing a

very similar thing or looking to do something similar. Yes, well, um, Alliance Bernstein I believe got the first fully active, fully transparent e t F in I think it was early. It got the approved in early two thousand thirteen. So that's when I put my hand up and said I'll do that. And um uh, there were there was a belief that e t f s were not safe or you know, there were a lot of arguments against it. Probably the biggest one was mutual funds, which are much

more profitable. I would say the economics there are higher than e t f s. How does it make me feel? You know, I'm the more the merrier. I I think this is a fantastic wrapper for the end consumer. It's fully liquid on like mutual funds, you have to wait till the end of the day. Transparent, fully transparent, that's what that's what investors want. UH. It is more tax effective,

much more tax effective. We're seeing mutual funds that are down thirty percent this year, but they're slapping their investors with UH in capital tax gains. UH. And then finally, it's more cost effective when you because all of the what you see is what you get with these fees. There aren't a bunch of hidden fees. So it's a great rapper for the end consumer. I highly recommend it, and we're happy that that they that they are seeing the light. Now. That's Kathy would our can best founder,

CEO and CEE. I. Oh, if you missed any of the conversation, just head on over to our podcast feed. And that wraps up the weekend edition of Bloomberg Business Week from Bloomberg Radio. Thanks so much for joining us. Big shout out to Bloomberg Market Senior editor Mike Reagan for helping us out. I'm Carol Masser and I'm Tim Stanovk. Be sure to tune into Bloomberg Business Week Monday through Friday, starting at two pm Wall Street Time on Bloomberg Radio.

You can also watch our daily broadcast on YouTube just search Bloomberg Global News and check out our Bloomberg Business Week podcast. You can find that at Bloomberg dot com, Apple, or wherever you get your podcast. Bloomberg Business Week is available on newstands, now, at Bloomberg dot com and always on the Bloomberg Terminal, and you can also see me on Bloomberg Quick Take available on Bloomberg dot com, slash Qt, and streaming platforms like Roku, Apple TV, Samsung TV, and more.

Have a great weekend, everyone, stay safe. This is Bloomberg