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Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast. This past week a flurry of developments in the world of AI, including open ai co founder ilias At Skiver with another fundraise for his AI startup, giving it a valuation of over thirty billion dollars. Open AI's former CTO unveiling plans of her own for her new AI startup
and more. And we also got the latest FED minutes which confirmed Cheer J. Powell and company are in no hurry to cut rates, citing concerns President Trump's proposed tariffs and deportations could drive inflation higher. Speaking of the President, it was another week with more executive orders and comments on Tariff's geopolitics, doge, and a lot more our take
on DC. This week, Silicon Valley shift from the political left and now how it seems eager to move fast and break things in Washington, while more on that in just a moment.
Plus the chief economist who went against the grain correctly predicting a non recession using good old fashioned data. Also how sustainability technology and yeah, garbage collection come together from the CFO of waste Management. And a little later on in our second hour, John Taffer of bar Rescue on immigrants, tariffs and starting a small business radio show. It's coming for your job, Carol.
I think we're safe maybe for now, all of that to come. We begin with Washington and the prominent role of tech titans in President Trump's second term. Yes, of course Elon Musk, but there are others too, which raises the question, how did Silicon Valley, known for its liberal leanings and political backings for so many years, swing on over to Donald Trump? And is report publican.
Party writing about exactly that is Bloomberg BusinessWeek national correspondent Josh Green. Josh, it's a question that we've certainly been asking ourselves quite a bit over the past few months. How did this sort of bastion of liberal leaning Silicon Valley, which backed President Obama?
What happened?
How did it move to backing Trump?
Yeah, you know, It's a great question my editor asked me for this issue. You know, what was new about Trump two point zero? What's different this time than Trump one point zero?
You know?
And the obvious answer is that there's this new power center of Elon Musk in Silicon Valley, tech and crypto folks who really seemed to be the dominant force, at least in the early years of the second Trump presidency.
To me, that was particularly striking because back in two thousand and seven two thousand and eight, I spent a lot of time in Silicon Valley as a political reporter because techgative and venture capitalists back then were really the strongest force behind Barack Obama and helped fuel his row first to defeat Hillary Clinton and then ultimately they kind of win the White House. So to me, the really interesting thing to look at from a historical perspective is
why so many folks in Silicon Valleys switched. And I think there are number of reasons for that. You know, One is the kind of utopian idea of tech, the idea that it was an unalloyed force for good. Americans have come to understand that there are a lot of downsides to technology. Also, and so tech leaders aren't quite viewed culturally as the historic, as the heroic figures that
they might have been fourteen fifteen years ago. But I think the other big factor is that the Biden administration has just been particularly aggressive and cutting down on tech and regulating and even trying to snuff out new technologies like cryptocurrency. And so for a lot of folks, there was a combination of really frustration drove them to support Donald Trump, which which would have been all but unimaginable even as recently as like five or ten years ago.
Yeah, you know, it's kind of interesting.
And I feel like we've all listened to podcasts too with Mark Andresen and you know, even bringing up artificial intelligence and having meetings with the Biden administration or so they say, and just you know, feeling like there was gonna Silicon Valley and business was going to have no real say in the oversight of AI.
You know.
Having said that, the tech titans that we did see in the capital at the inauguration, you know, people like Mark Zuckerberg or Jeff Bezos, just all of them, it was it was a little surprising.
Yeah, I think so. And you know, the other factor I touch on this in my piece. I think the other factor at play here is a simple fear of Trump and what he might do to those those CEOs and their companies if they fall into his crosshairs. And so there was a lot of kind of showing up at the inauguration to kind of pay your respects. Many, if not all of them donated to the inaugural committee. You know, you want to show up and try and get on inside of the new president. I think that's what you're.
Seeing, Josh.
Is it an illusion that Silicon Valley is a liberal place or is traditionally a liberal place. I think there's this idea that you know, you have San Francisco, the big gay rights movement, sort of like what happened in the nineteen sixties, being an area like against the Vietnam War, that sort of stuff was like looked at as a real liberal place. Is that kind of an illusion? Is it much more libertarian?
You know, it's a great question. I think that it's liberal in a social sense, you know, when I was
out there ten years ago. More recently, most tech folks believe in global warming, they believe in multiculturalism, They want to help the poor, But they're also capitalists, and you know, back in the Obama era, you could kind of beat both things, and I think that's become much more difficult, partly because the Democratic Party has really shifted in the direction toward regulation, and Biden famously was very anti monopoly. That put pressure on a lot of the tech companies.
And as you guys had alluded to early, they are new emerging technologies like AI, like crypto that a lot of Democrats seen intent on regulating, maybe overulating, or in the case of Crypto, maybe even stopping. So I think that there were also just forces in the government and the country and the culture that helped push some of
these tech founders toward Republicans. Even if some of them are a lot of them still have the same values that they did, the same personal values that they did, you know, ten.
Twelve years ago. I think it's also worth pointing out too, that the tech folks aren't necessarily embracing all of Donald Trump's policies. One of the big fights we've had early on in Washington is Elon Musk pushing to expand the H one V visa program, which allows him to bring in kind of foreign engineers, and that goes very much against the MAGA one point, I know, beliefs of people like Steve Bannon, Steven Miller who are dead set against
any foreign immigration coming into the US. And so it really has produced attention that I think has been overshadowed by a lot of other things that Elon and tech folks have been doing in the early Trump years. So I'm not sure it's so much a difference as just change in circumstance, in a realization that, look, we can't simply act on our personal values or our social beliefs.
You know, we've got to protect our businesses. We want to grow AI, we want to grow crypto, and therefore we're going to get right with Trump and the Republican Party.
You know what's kind of interesting. I also in terms of the tech CEOs we know with Elon, and I know this has been used to describe Trump a lot being a transactional president, and for Elon, I think it's safe to say, to some extent it felt very transactional. We know how much you spent to support President Trump on the campaign trail, and Republicans, it does feel like some would say that that is kind of what you're seeing. Also,
from those in the tech industry. As you said, they ponied up a million dollars for his inauguration, right, yeah, absolutely.
I mean to me, that's why the shift isn't so much a mystery.
I mean, if you can kind of lift up the hood and look.
Below the surface, there are all sorts of factors that played. One of the things I write about in the piece that I think is interesting. You know, campaign finance can often be boring and make the eyes glazed over, But there were two interesting developments in Silicon Valley in the
last twenty years that completely reshaped Washington politics. In seven and eight, the McCain fine Gold Law was in effect, which made it difficult to make big donations, and so the real currency in politics was networking and all this small dollar online money, hundreds and hundreds of millions of
dollars that helped to get Barack Obama elected. What tech executives and Elon Musk in particular, though, realized, was that after twenty fourteen, the Supreme Court knocked down a lot of those laws and suddenly opened it up so where people could make very large, unlimited donations to candidates, to party committees. But nobody really took advantage of that to the extent that Elon must did until this past year.
And Musk went in with so much force, I mean, almost three hundred million dollars on behalf of Trump and Republican and it absolutely moved the needle in a way that has entirely reshaped Washington politics. It has also reshaped, you know, Musk's relationship to the federal government, the way his companies are going to be regulated. I mean, he himself is going in there, you know, tearing out agencies,
putting allies in place. So it really shows you kind of what kind of influence money can buy in Washington, and especially in Trump's Washington.
Josh, there was an interesting moment in the first Trump administration when a lot of business leaders who had been part of a essentially a business council advising the president, they stepped away after Charlottesville. And I'm wondering how, I guess, Sticky these business leaders are to supporting the president this time around.
It's interesting. I've thought about this and nothing really sort of jumps to mind. I mean, Trump has not done or said anything quite as inflammatory is the comments that he made after some of the you know, the White
supremacist marches and Charlottesville. But on the other hand, I think I think the kind of US social culture and also the culture around business and politics has shifted distinctly to the right, where comments and controversies of the sort that came up often in the first Trump administration just don't really land or resonate as controversies anymore. Maybe that's
because Trump has become normalized. Maybe that's because people are just sort of exhausted of resisted and resisting and fighting back. But you could see across the administration both during the campaign and especially after Trump was elected, there's just a different relationship to Trump now and business leaders right.
We have heard from folks like the Ford CEO on the impact of tariff, certainly on his industry. Hey, one thing, though, I wanted to ask you, because you wrote Devil's Bargain Steve Bannon, Donald Trump, and the Stormy of the Presidency, I must read in terms of understanding how Trump got to the White House in the first term, where is Steve Bannon? We know he's at odds in a big way with Elon Musk, But has President Trump left him behind completely?
No? I don't think he has. I mean I know just just from talking to people around Washington that they're still in touch. They still talk. Bannon has tried at several points to start fights with Musks in hope of taking him down a peg and weakening his influence with Trump. I don't see any sign yet that Bannon is succeeding, but he certainly has a large grassroots following in the
Mangi universe that Trump really does care about. I mean, his podcast and a lot of his allies helped set the agenda, and as Bannon himself told me for this story and others, you know, on a lot of on a lot of issues, he and Musk actually are aligned. Ian Bannon is eager to tear apart much of the government is Elon is and so while they do differ on certain issues like immigration, Bannon's desire to tax billionaires, I don't think Elon Musk would agree with that one
at all. You know, Bannon is still around, but he's nowhere near the kind of ov like figure that he was in the early years of the first of administration. He's just one of many people around Trump trying to influence him and trying to figure out how to maneuver around Elon Musk, who is the main figure in the second Trump presidency today, safe to.
Say interesting times that we are all living in, all right, Josh, thank you so much, really appreciate it.
That's Josh Green, Bloomberg BusinessWeek National correspondent, the author of several books, including Devil's Bargain, Steve Mann and Donald Trump and The Storming of the Presidency.
Coming up, how Apollos Torsten Slock saw the Sherlock Holmes Economic Mystery. You're listening to Bloomberg BusinessWeek.
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His daily research. It's called the Daily Spark. His weekend readings.
We get that as well.
We care because he is chief economist of an asset manager that sits atop more than seven hundred billion dollars.
He's also the person who, when others thought a recession was inevitable, he did not, and instead correctly predicted more growth. His secret looking at the data. Data like restaurant bookings, air travel stats, jet fuel demand, visits to movie theaters, and yes, even Lady Liberty herself.
What to thunk?
Right?
All right, Well, that kind of data is key to Apollo's chief economist, Torston Slock. He joined us alongside Bloomberg News wealth reporter Ben Steverman, who profiled Torston for Bloomberg Markets Magazine.
We're in a moment where you look out ahead and it's just like uncertainty as far as the eye can see. And this is a moment when economists have really been caught wrong footed, flat footed, whatever term you want to use, for years like so basically every prominent economist you can think of got something wrong over the last several years. And I wanted to go to Torston because he's been right about at least one thing, which is this this
higher rates for longer narrative. So many people were predicting a recession last year. He kept pointing out, where's the slowdown, where's the slowdown? Why hasn't it shown up yet? The economic models say it's supposed to. And the other reason wanted to profile him is that it's really interesting that Apollo has a chief economist in the first place, and we can talk more about that too.
Well.
Torsted calls make and break up people, that's for sure. We are so quick at Bloomberg to point it out when they get it right and when they get it wrong. That March twenty twenty second call, why were you so clear that there was no recession?
Why and why do you think so many others got it wrong?
Well, what was really interesting about the last few years is that you look at the economics textbook and you
see the filleral reserve raising interest rates. You would expect that when interest rates go up, and interest rates went up faster that they have done in decades from twenty twenty two to the middle of twenty twenty four, and that speed with which interest rates went up, everyone concluded, well, when interest rates go up, car sales start to slow down, home prizes start to fall, capex spending start to slow down.
But we didn't see any of that.
Instead, the economy continued to be, as Ben said, remarkably strong and resilient. So they really raised a very fundamental question in the forecasting community.
What was wrong with the textbook? Why wasn't it.
The case that when interustrates went up that the economy slowed down, and that's what was.
The main basis for the discussion.
And still today even is a very fundamental debate about should we still expect interest rate to slow the economy.
Down or not should we?
So the answer is now the FED has been cutting since the September of last year, and now we have had some very unique tailwinds. Namely, we've had significant tailwinds coming from components of GDP that are not sensitive to interest rates. Those include, of course, defense spending that's not sensitive to whether they're fed is raising rates. That's been unusual.
We also have an AI boom. We all talk about the significant spending by the Magnificent seven that's not sensitive to interest rates going up.
We have a data center boom.
We have associated energy sensition that's also not sensitive to interest rates going up. And finally, we also have in the US, there's very unique feature that consumers have locked in interest rates at very low levels through their mortgages. Ninety five percent of mortgages in the US are thirty, a fixed rate that is very different from literally any
other g seven of that matter. OECD country where the interest rates sensitivity for consumers is a lot higher so because consumers didn't have to pay more in interest expenses, consumers did have also more money to consume. So when these tailwinds in twenty twenty four, I would expect these tailwinds to still be here in twenty twenty five.
Touristen, do you think that economists have learned the lesson of the last few years or maybe the last decade or so? Is there a little bit more humility in your profession? And what lessons like big picture lessons do you think k economists should be learning going forward.
Yeah, this is a very important question.
So if you type ECFC go and your Blueberg screen and look at the upper right hand color, you could see what is the consensus thinking is the probability of a recession over the next twelve months. And if you go back and look at when did that begin to go up, when did the market and when did the consensus begin to expect the recession was coming. It exactly happened in March of twenty twenty two, when the Federal
Reserve began to raise interst rates. Then the probability was very elevated for a long time at sixty seventy percent.
Now it's come down to twenty percent.
But I still think that the narrative that is in the market, including also from Chairman Paul, is still that we expect the economies are slow and we expect inflation to come down, and then suddenly we get inflation data where you certainly have Well, maybe that narrative is still
not the right way of looking at things. So I think the short answer Ben to your question is I still think that there's a lot of things going on that are tailwinds that are not sensitive to interest rates staying higher for longer that is indeed still providing support to the economy. So yes, the economics professions should still remain very humble, because it's not only about the academic concepts of our star and the level of interest rates.
There's a lot of other things that are going on that are important.
So does it just mean Torsten?
You know, I always think about well, so maybe it's different this time around, and then everyone's like, no, it's not different this time around.
Is it different this time around?
Well, I will say, and in the spirit of Ben's article here that is coming out in the magazine, I mean, it really depends on where do you put your weight. If you put your weight on the simple idea that interest rates went up, so people should be buying fewer cars, people should be buying fewer washers and dryers, as you be buying fewer iPhones.
Well, then you would expect if you only look.
At that argument in isolation, that things should be slowing down.
But if you then look at the other things that I spoke about earlier, namely the tailwinds that are less sensitive to interest rates, you put that up on the scale, and maybe it is different in the sense that the interest rate sensitivity of the US economy is just a lot lower than what it's been used to, and also, for that matter, than what the text work will predict, simply because we have these other tailwinds again, defense spending,
AI spending, data center spending, energy transition spending, things that are all powering the economy ahead. And now we still also have by the way the Chips Act, the Inflation arch and Act, the Infrastructure Act, that is also powering the economy ahead. So if I put that up on the scale, I still think that, yes, it is true that high interest rates are weighing on some interest rate
sensitive components. But politicians, and for other reasons, we have these sources of growth, data centers, AI defense spending that are still providing significant tailwinds.
Also here in twenty twenty five.
Tours of those tailwinds continue to exist. If we see reciprocal tariffs across the world and tariffs on our closest neighbors and biggest trading partners, including.
That's exactly right, Tima one hundred percent.
This is exactly the uncertainty factor that's beginning to appear. So if you look at measures of trade policy uncertainty. So there are three academics back of bloom and Davis that have quantified you can also find this on your Bloomberg screen quantify trade policy uncertainty, and that is totally through the roof at levels that we just have higher
than what we saw in twenty eighteen nineteen. So the question, tim to your question is exactly, given all the positive things that we're just talking about, how do you then put weight now on this risk that maybe business planning is beginning to worry a bit about what are my input costs? Can I even source the inputs that I'm using for my production? What about the things I'm selling abroad? Remember, forty percent of the revenue in the S and P
five hundred comes from abroad. So if Apple sells fewer iPhones in Europe, if Coca Cola sales fuel cocaines in Canada, it will have negative implications, especially for this and P. So that is why trade wall uncertainty and trade policy uncertainty is indeed something that we're watching very very carefully. But the conclusion up to so to this point is that yes, retail sales was a little bit weaker month or a month, but year what year, it still looks
quite strong. Kept expending is still strong, jobless claims are still strong, the Libor market report, the unployment rate.
Is still falling.
So up to this point it doesn't look like trade policy uncertainty has been weighing on the incoming data, but we're watching it very carefully.
Tourist in when we were hanging out and talking, the thing that blew me away the most was your schedule and first all the travel that you do around the world, but then also just like you're hour by hour, you're talking to Middle Eastern sovereign debt funds and then you're talking to family office groups and they really keep you, keep you moving and they're using you sort of as
a weapon to bring in these assets. That has been it's sort of the big the big goal of the firm of Apollo to basically double assets over the next several years. And that's in a very ambitious goal. And you seem like a key part of talking to all these these investors. And I wonder what you're hearing from
folks when you have those conversations right now. You mentioned trade war, uncertainty, anything else that's rising up in terms of anxiety or worries or questions that that you know might be interesting.
Well, it is. It is a busy job I have.
I'm literally flying to Dubai Monday morning, so last week I was in Europe. So it is a There's a lot of people that I talked to and we talked to at Apollo about the economic outlook. But I think then to your question that there are certainly a lot of different, if I mentions to things that people are worried about at the moment. Trade polosy does take up
a lot of my time at the moment. People have, of course trying to sit with their spreadsheets or the mosaic as we talked about and figure out How does this fit into the bigger picture. Which countries is it that's being hit, Which industries in the US is that that's being impacted?
What will it mean for inflation? What will it mean for GDP?
There are various simulations, including from the Tax Foundation, from the Peterson Institute, from CATO, from Look at the Minutes, from the FED in twenty nineteen and eighteen. There's also some quantifications, so that part takes up a significant amount
of my time at the moment. More broadly, this issue around the US being good and the rest of the world being bad is really also taking up a lot of discussion at the moment, simply because my job for many years has been really easy when the US is good, Europe is good. When the US is bad, Europe is bad. But that's simply not how things are at the moment now.
The US is unusually good for the tailwinds we spoke about earlier, but the rest of the world is unfortunately unusually bad for a number of different reasons that in my view, start with the weakness in China and the problems that China is facing for demographic reasons, because of the housing bubble bursting, and because of the trade Wall. All those things are weighing on German exports and European exports, and also weighing on the global outlooks.
I would say, in.
Short, it really is US policy, where is it going, how significant will be, what will actually be implemented, what will not be implemented. And then there's other challenge that is that the US is pretty good, but the rest of the world is unfortunately unusually weak.
And can that diversion continue.
Hey, Torsten, you started your career at the IMF, you spend time at Deutsche Bank, some short stints at BFA. I am just curious, you know, and now at Apollo. What's the difference in being an economist that maybe kind of a traditional bank, big bank, versus being it at something like Apollo, a big asset management firm.
Yeah, that's a very important question.
So with Deutsche I used to spend almost all my time going to clients and also traveling around the world, but discussing with people in markets of course, customers of Deutsche Bank, in rates, equities, FX, all types of areas for business. We were having a discussion about what's going on in Apollo. I spent a significant amount of time internally talking to deal teams. That's why there's more internal focus here than what I had before.
Very cool staff, great story. Great to get some time with you. We love reading your research. Torsten Slock, chief economist partner at Apollo Global Management, and our own Ben Stevermann, Welf reporter at Bloomberg News.
Check his story out on the Bloomberg.
This is the Bloomberg Business Week Podcast. Listen live each weekday starting at two pm Eastern on Applecarplay and the Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa played Bloomberg eleven thirty Waste Management.
It's the top US garbage haller.
It is one of the Bloomberg fifty Companies to Watch this year, identified by our Bloomberg Intelligence team who did the research identifying this company as one of the firms with a catalyst. In twenty twenty five, the ninety one billion dollar market cap company made a seven billion dollar acquisition of Stereocycle.
That was last year.
Shares of the company are right now up about thirteen percent year to date. So let's get into it because lucky for us, we have Bloomberg News Senior editor Nina Trentman, along with Waste Management CFO Divina Rankin, who joins us from the company's headquarters in Houston, Texas. Divina, so great to have you here. Let's just quickly start with the macro. President Trump just talking about autotarps may come in early April.
The macro, the news from Washington, the global environment, the US environment, tell us how it could impact your business.
Sure, and happy to be here with you. You know, when we think about WM, we really think about a resilient organization that performs well in any economic environment and under any administration, and we don't expect this one to be any different. We're optimistic as a North American, largely North American company that with the current administration being really bullish on growing the US economy, that will continue to do well and we're well positioned to serve what's coming next.
We have our eye on things like tariff's interest rates the workforce, just like everyone else does. But we are really optimistic that we're well positioned to continue to grow and execute upon our strategic priorities in the year ahead.
Divina, you mentioned tariffs. Can you walk us through where you could see a potential impact on the business.
You know, we really are focused on two places, one being our trucks, and there are inputs from renewable energy production equipment that we also source from other markets.
And the other place for us.
Really would be about the commodities that we sell. We sell recycling commodity price or recycled commodities, and some of that goes across US borders, and so if there's restrictions on our ability to move that product outside of the US, we could see some restrictions and limitations that could have short term disruption.
But what I have to tell you is when we look back.
At the strength of this business and how we were able to move product during the COVID era, it really does speak to our ability to move product even domestically.
There's short term disruption, Devin, I'm.
Wondering if there's anything that has come from Washington yet, that's come from the White House that has led you to change your supply chain, led you to make changes when it comes to commodities, led you to make changes to your business as a result of policies or proposed policies, or what you think could come from the White house.
You know, I think about that in two ways, one being the renewable natural gas business. WM has made a very public investment in our sustainability growth, and we're investing about three billion dollars of capital over about a five year period in sustainability growth investments in both recycling and renewable natural gas. On the renewable natural gas front, it really could come down to EPA mandates and decisions that could impact the value of the wrens that we sell
out of that business. That being said, the returns on these investments are really strong. They are three year payback periods, and so we don't expect any disruption to the quality of this investment, and we see demand from customers being strong enough to make this business as resilient as our core through the administration decision making processes. The other place's interest rates, and you mentioned the Stereocycle acquisition. We closed
on that in November. What I'm really excited about is we financed that transaction at a great time.
I just heard you speaking about its feel good. It feels wonderful.
Yeah, are all in Borrowing costs are currently hovering just north of four percent for the total enterprise, so we're in a great position, Devin.
Now, one thing to follow up on this, talk to us a little bit about what's driving costs for you.
Yeah, it's another great question, And what I would tell you is we are a human capital intensive business. At WM, We're more than sixty thousand strong, and so labor inflation is certainly the place that we watch the most, and we continue to expect labor inflation will be in the four to five percent range. We had planned for that coming into twenty twenty five. In addition to thinking about labor inflation, we worked really hard to ensure that we're
more and more efficient every day. So our cost to serve is not just about cost inflation. It's about our ability to drive automation and efficiency across work streams.
One of the things I wanted to ask you about the acquisition just going back there, and you guys have talked about increased synergies of two hundred and fifty million.
Dollars that could be realized in three years.
Some are concerned that there aren't isn't that much overlap, and that those synergies will be tough to realize. What could you give us or tell us in terms of the progress you have made on that.
You know, for us, we're really optimistic about realizing that two hundred and fifty million dollars over the three year period.
It's in three buckets.
One is internalization, two is operating effectiveness and efficiency, and three is back office or SGNA.
The place that we're.
Most bullish is in the back office and SGNA part of the cost equation for stair Cycle. Today they're running at SGNA is a percentage of revenue of over twenty four percent. WM is approaching nine percent. There's a lot of headroom between those two numbers, and we know that we're going to be able to move the dial on that pretty effectively over the next three years.
To follow up on that, you mentioned that being happy with the financing you did for the Statocycle acquisition a few months ago. What about M and A moving forward? Are there more opportunities for M and A for waste management.
There?
Certainly are.
You know, we are a roll up.
That really is the roots of WM, and we invest one hundred to two hundred million dollars a year on tuck and acquisitions. Larger scale strategic M and A is really facts and circumstances driven, but we are committed to always having the balance sheet that is needed in order to be able to execute on the right deal at the right time. So in twenty twenty five, we'll focus on returning our leverage to where we need it to
be to give us strategic flexibility in the future. Right now, we're focused on the organic growth story at WM.
Organic growth of double.
Digits percentage increases in ebitdah is just fantastic in this kind of an economy. We've done that now for we expect to do it for two consecutive years, and we're going to focus on building out those sustainability businesses and integrating the Stereocycle acquisition. So I don't expect any transformational M and A in the year ahead because we've got our plate full in terms of serving those three things.
You mentioned the economy, Divina, just looking at your business, you're cutting a lot of waste from A to B. What does the waste that you're transporting tell you about the state of the US economy.
We look at the state of the economy really in a couple of places.
You know.
We can think about our collection business, so where we use our trucks to go pick up waste from the customers where.
They where they're generating it.
You know, we pick up homes, we pick up small and medium businesses, and then we pick up large scale multilocation companies as well. What I would tell you that we have seen a small and medium business in the consumer are thriving and they're continuing to pursue you know, good strong economic growth and contribute to the health of the economy. Where we've seen a little bit of a
lag in that is in the industrial economy. So we have seen a mild reduction in industrial revenue in the collect and part of our business, and we have our eye on that for the year ahead.
Hey, you know, Jiva, one of the things we talked about tariffs and you know, other policies coming out of Washington. But in the newsletter, the CFO Briefing Newsletter which comes out on Sunday, and you are featured in it, one of the things that you highlight and think about is population growth being a longtime driver for your business. So how concerned are you about changes to immigration under President Trump and how that plays into it.
Now, what I would say there is that we are a great business that is resilient in any economic environment, and while population growth is certainly a contributor to volume, what we are proud of is that our earnings growth long term, and we've always targeted a five to seven percent organic growth in EVA DAH on an annual basis, and we've exceeded that target over the last five years.
We think that that comes from strong execution, from pricing dis len operating excellence, automation of the business where we can, and ensuring that we are customer centric and people centric, and those things have created strong success even in the tough days of COVID environment and it speaks to the resilience of our business model and we expect that to continue. Okay, only because we ask everybody AI, how does that play into your business?
Does it just real quickly? Yes, certainly.
We've got great things happening across the board, whether it's how we engage with our customers through chatbots, whether it's how we code. But the more exciting parts are the optical sorders within our recycling facilities. It's amazing what we've been able to do to automate that part of the business, and so we're going to continue to focus on using technology to be a better operator and provide better solutions for our customers.
Divina, thank you so much, really appreciate it.
Divina. Of course, Rank and she's the CFO of Waste Management, joining us there from Houston, which is where of course.
They are based.
And of course our own Bloomberg News Senior editor Nina Trentman. Do be sure to check out the Bloomberg CFO Briefing newsletter. You can find it at Bloomberg dot com slash CFO slash Briefing and also find it on the Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Plenty Ahead in our second hour of the weekend edition of Bloomberg Business Week, including bar Rescues, John Taffer on tips, tariffs and tough immigration policies shaking up the restaurant industry.
Plus speaking of tariffs, how those imposed on China might affect some American tech companies, The CEO of software company Ignite on that and the race to being the best LM.
First up this hour, speaking of LM's large language models, big news in the world of our official intelligence, from Google's AI powered coscientist on its Gemini two point zero system, and Elon Musk's boasts about Grock three chatbot taking on chat GPT to former Open Ai executives starting their own valuable startups. There's a lot going on in the AI race.
Covering some of the headlines this week with us Bloomberg Intelligence senior tech industry analyst Mandeep Singh and Bloomberg News technology reporter Jackie Devalos.
Let's start with Grock here, because this is Elon Musk's XAI. It's their latest model. It's supposed to have advanced reasoning and capability is just around math and science. It says that it's already performing better than some of the leading models coming from Open ai and Thropic and Google. Obviously, we have to independently verify those claims, but it's a really hard task to do because there's no real way.
To do it.
You have a lot of different tools out there that can kind of give you a good sense of just how they're performing against each other. But let's just take some of those claims with a grain of the other thing as you mentioned ilias at skever that's a huge name open in artificial intelligence. He was formally at open AI, as you remember, had a really big role there in developing this technology. So there's not a whole ton that we know about his venture just yet other than its
name super Safe Intelligence. And this is this is really important though, because there's a broader conversation going on about where does all this talk about innovation leave safety, you know, and responsible.
And I think it goes into what it's called super safe intelligence, right, super safe trail. Notice every super super sife right, super safe.
But to your point, this has already gotten a lot of attention from investors, and the reason for that is because there's a lot of confidence that anything ILIA does is going to be a game changer.
Okay, man, deep, come on in here. I want to start. Jackie made a lot of points. I want to start with the XAI point and just this idea that there are indeed some lms that are better than others. There are some models out there that are better than others. How do you think about in you from your Perchet Bloomberg intelligence measuring that claim?
Yeah, I mean when you compare it to the deep Seek moment, which really was the big one this year. I think this wasn't like a big leap in terms of the LLM race. This was more like OpenAI has got a reasoning model. We have one two in terms of Xai. And look, all these companies so far were competing on the size of the cluster. So Xai built the largest GPU cluster, over one hundred thousand GPUs that
they use for pre training. Now, one would have expected their model to be far better, given this was like almost two to five times bigger than all the other clusters that we know of, at least publicly. So from that perspective, I think it wasn't that big of a leap. But at the same time they kept houting that, you know, in certain type of tasks like math encoding, their model performed better. Now, how much better. It's within the plus minus five percent. So that's where I think the deep
Seak moment. The fact that it focused on efficiency, that to me was a big deal in this case. They didn't out efficiency or any other metric. It was more that there our model performed better than the other models.
Well, explain that to me, Mandy, when a model performs better what does that mean?
The answers come up quicker, they are more thorough like how do we.
Get the turnus the latter and look, I think these companies use different types of benchmarks so they know what to optimize for. I mean, when Grog three was trading, they know all the benchmarks, how they are rated. So I feel the latest version of the models are optimized for improving on the benchmarks and the latest known metrics that we have. But at the same time, there wasn't a novel approach where suddenly like Deep Sea came out with that mixture of experts approach where they optimize so
many things. In this case, one, their release wasn't as detailed as the deep Seak release, right, So there isn't a paper where I can read the paper and say, wow, this is something new, And I think that's what's missing.
Devil's in the details always.
Hey, Jackie, come on in here, because I want to go to this idea of thirty billion dollars for evaluation for a company that we don't really know that much about. I mean, it's a pretty mind blowing figure, even for an AI company, even for Silicon Valley, even with this excitement around the space right now? Are are we starting to see some fraud one?
I think even investors would say that there's froth. But at the end of the day, they want to get into the AI plays that are backed by the best talent. That's really what this is about. You also saw the former CTO of Open Ai kind of announced more plans around her own competing AI startup called Thinking Machines Labs. So Mira Muradi obviously you know, on par with an Ilius ascover. Here you have these two really respected artificial and tell diligence minds kind of bringing their own project
to the table. One thing I do want to point out about GROC though, is that I found it interesting that in the live stream that Elon Musk did with a couple of XAI engineers, they said that the goal for XAI and for Grock was to understand the nature of the universe. This is a little fluffy obviously when you think about just kind of the practical applications we want to see out of artificial intelligence, but perhaps it gives us a window into, you know, the different angles
that some of these AI models can take. Maybe they don't have to be the best at everything. Well, but perhaps kind of the more focused applications are the ones to get more.
Traction, like cable going niche or YouTube channels, like, is that what's going to happen?
Man?
People, there'd be like a great AI chatbot for medicine, Well, there'll be one for retail.
Like is that where it breaks down or not?
I mean, you have to look at the data. When it comes to the differences between the foundation models, it will come down to the data. Now, what xai has is the Twitter real time streaming data no one else has. I don't think they want other model providers to have access to the data everyone else has open in data. But then what is unique with the other foundational models is in the case of.
Hold on, yeah, is what's on Twitter actually good? You know you made me nervous? Garbage in garbage out right? And I don't know if you spend much time on x lately, but my experience has certainly shifted on the platform. Is that data worth it? It's not Reddit.
I mean, if he's talking about understanding the universe using Twitter data, I don't think there is a connection. But look, there are certain real time elements when it comes to breaking news and stuff like that people expressing their opinion. A lot of these models were trained on Reddit data. The reason why everyone used Reddit is because it's how people, you know, speak English language, and that's how the user data is generated. So that was a good representation of data.
If you want knowledge, then that's your Wikipedia data. So from that perspective, I can see a connection. But at the same time, you're not going to understand the universe by using Twitter data at least that's not what is unique.
Well, and Mandy, let me just ask you though, Like when we talk about this kind of AI explosion, I mean, I think about search and there's like dominant search engines, right, there's Google like that we all really use, and there's other search engines. But I mean, is there going to be one you know, chat GPT or one chat aichat that's going to dominate?
Like do you is that the same model I'm trying to think about.
That's chat ChiPT right now. Look at the roughly active users and that's where you know, the fact that they vent you know, from the ground up, created this new app where they have three hundred million plus monthly active users. They clearly have the best model. Now Google has overlaid their model across their family of apps, so has Meta, but chat Chip created it from scratch, and so that's the distribution is the most important thing when it comes
to proliferating large angrid models. I mean, xai clearly is there on Twitter, and Twitter has you know, fifty million daily active users. So they be interesting to see how many people actually are willing to pay a thirty dollars subscription, because that's a chat GPT's business model. It's all subscription based. People actually pay a twenty dollars or two hundred dollars subscription.
Let's talk about the price there, because I was super surprised to see the differential between grock and open Ai. Obviously, for the latest reasoning model out of open Ai, you.
Have to be two hundred dollars.
Thankfully, you know, we're able to test it out on Bloomberg's dime over here on the technology team, But if you're a regular person trying to really test some of these out, it's going to cost you. And you know, one of the advantages I think that groc has compared to them is that it's forty bucks a month if you're already a premium plus subscriber.
On X So what are you doing, Jackie playing with the reasoning model of chat GPT lay that out for us.
I like to kind of, you know, show it how I think when it comes to you know, even crafting questions for an interview or you know, brainstorming. This is really important for me as a reporter because sometimes I have a hunch about something I have, you know, a way that I want to frame it, but I just can't really get it going. And what it does, I
think is provide you kind of a good structure. What it's seen on the internet is like a good way to you know, start a paragraph, start an email, those things that sometimes you just need a little bit of help getting started.
Well, can I just say you were in our studio was.
It last week, a couple weeks ago?
Couple weeks ago?
And you were like talking about Gemini, you were talking about TCHATCHYPT.
You're pointing a deep right now.
I am pointing at man deep for those we're listening on radio.
And then I had to do a panel and I had plans, I did my own research, and then I played around with CHATCHYPT and was blown away with what it came up. With similar to what I was thinking, but all organized.
I mean, just look at the length of the prompt that you can give to chatchipt. You can have such a detailed prompt. Then with the search engine, the moment you start typing, after you know ten words, you're going to just lose the query because it's not going to understand. You can pass, you know, thousands of words, and the more words you pass, the better your answer is going
to be. So it is very powerful from that perspective, and that's why I think some people are willing to pay two hundred dollars a month for that.
I guess thirty seconds, Jackie, do we need Claude, do we need chat GPT, do we need Groth? Do we need Lama? Do we need all of these?
I think it depends on what you do, and if you're a writer, if you're creative, each one is going to appeal to you in a different way. General purpose right now is really popular, but going forward, I think we're going to start to see those applications really narrow down and you're going to get quite a you know, quite a few picks to choose from.
Man deep same question to you in terms of the variety that are out there.
I mean, the this model costs it, you know, almost three hundred four hundred million dollars for one training run. Imagine how many companies can afford to do that. So that's why I think this will narrow because of the costs involved in training these models and.
Pretty amazing stuff, Man Deep Saying Bloomberg Intelligence and industry analyst, along with Bloomberg News Technology reporter Jackie Devallis are thanks to you.
This is the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern up on applecar Play and the Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa played Bloomberg eleven thirty.
Tarriff's definitely in focus again this week, with autos, pharmaceuticals, and semiconductors grabbing the spotlight. And while the levies talked about so far may not impact all, companies in the United States, c suites are watching these developments very closely.
That includes Vinite. Jaynees, CEO of Egnite. It makes software for enterprise companies to secure and manage massive amounts of data. The company has raised one hundred and forty million dollars in venture capital from Google Ventures, Kleiner Perkins, Goldman Sachs and others and accounts companies such as Red Bull, Steve Madden and Beyontech as clients. We talked tariffs and how the AIRAATE is shaping.
Up in my world, you know, I'm talking about We are a software as a service provider, So anything that impacts IET systems, whether it's servers, networking gear, data center components, those would be the ones that I would be most interested in, not the autos or pharmaceuticals, although there's always a cascading impact if there's a general inflation. Now I know the numbers on the tariff side keep ratcheting up.
New announcements are coming out regularly. So a couple of tuesdays back, I think there was a ten percent tariff announced for this class of hardware. So the question is if the underlying data center equipment becomes more expensive, and keep in mind a lot of it, a lot of it is made in China, will that have an impact on the ultimate end user solutions that companies like ourselves provide.
I don't think so.
Because these costing freases can be absorbed by the providers, including companies like ourselves, with some impact to the gross margin, but it's not significant yet unless these numbers start crossing into twenty five percent or higher territory. Until then, I would say I'm pretty sanguine about it.
Is the concern, though, compounded when you think about your customers. I mentioned Red Bull, Steve madd and Beyoncek just a few of your customers. Steve Madden a company that I would imagine makes products in China. If they're hit with bigger tariffs, then what happens to the amount that they're able to spend on services such as yours?
Oh?
Absolutely, I think you actually use the right word compounding, because ultimately any cost increases for our own customers. Steve Madden is a great example. I mean, the fact remains that despite all the effort to move manufacturing out of China to countries like Vietnam, to Malaysia and even to some in India, China is still the factory of the world.
So it's absolutely normal to assume that if they are going to experience cost increases, they being the company needs that you mentioned Steve Madden or whoever else they will pass it down to the customers. If they can't, it eats up in the gross margin. If they don't want to pass the cost down, then they'll squeeze supplies like ourselves. So there is absolutely a trickle down or rather compounding effect, as you eloquently put it.
Fi, what about global supply chains do you think that they will be potentially changed forever? Again, devil in the details when it comes to the particulars around tariff's what they are on, how large they are, and how long they last. But having said that, I do wonder about the psyche that's changing within the business environment, thinking we.
Need to get out of this mess.
Who knows, whether it's this administration or what's to come, that maybe we need to have our global supply chains or our supply chain in the same market that we're selling.
And is that even possible?
Carol, That's a very interesting thing. One is the aspiration and there is the ground reality. The fact is, for decades and decades we have been relying no matter what the industry is, whether it's furniture or pharmaceutical or bul drugs, China is, as I said, the factory of the world, and to try to shift out of China will take
a lot longer than what we might assume. Now, there's certain things which are fairly fungible that you can switch out quite quickly, but the entire supply chain, all the way from component suppliers, if I'm talking about manufacturing to subassembly makers to the final product makers, they're all in China, and you can take piece meals of that out over time. But we're looking at a multi decade effort across the board,
across all industries, if I were to generalize. So we'll have to live with the fact that our dependence on China is not getting dialuted or reduced in the foreseeable future. And when I say forcable future, I'm talking about at least for the next five years.
You know, while we have you Vanit, you guys are all about data.
You have been.
Invested, You've received venture capital from Google Ventures, Kleiner Perkins, Goldman Sachs, kind of a who's who when it comes to tech investing, impressive investors. The AI craze that we are in year two in counting CHATCHYPT Deep Seek, you know, everyone's still talking about AI, but it is also kind of interesting how deep seek has maybe disrupted the conversation
around AI. If you will tell us about the demands for your services and what insight you have in this kind of build out two l MS and AI this next way that's been you know, as I said two years in counting.
My first statement would be is a little radical.
I would promply.
Say that the hype cycle on AI is the highest of any tech trend that I've ever seen. And just to remind you, I've been in the valley for thirty two years. I've seen fads come and go, crypto web three, oh, you name it, right, But right now the crescendo in the news, and in fact the joke is, you know, we get these daily newsletters about investments today. I was looking at one each of them led I'd driven this AI driven that AI driven something. So you clearly know
that we are the peak of the hype cycle. But if you leave aside the high aspect of it, the reality is customers. To be very simple, there is a huge value to be delivered with a slew of these generative AI. Capability is open ey, it's just one of the providers. But the big problem is the value expectation that your customers have today versus the value delivery i e. The capabilities we are providing. There is a big gap, and therefore people are wanting that gap to diminish before
it becomes commonplace. But I still maintain all the AI capabilities that we are talking about that are being invented as we speak, or will be rolled out in the next two years. Take my word for it, they'll become commoditized. People would expect that to be included.
In your product.
Over time, what differentiates you or the premium they're willing to pay, will be a much higher value stack of services. But it's a journey and we are on that. So the problem is real, the solutions are real, but the hype cycle is absolutely at the zen more than anything I've seen before.
It sounds like, though, this time is different words I should never say, so I'm trying to get you to say them. Yes, this time than the dot com bubble.
Yeah, I would not say that. You know you've heard that phrase before. This time is different.
No, it's just like you know, you hear about companies being formed in the last week or so with illustrious names. They don't have a business model defined yet, but people are planking billions of dollars in their fundraise just because of the pedigree of some of these individuals, and not to take anything away from them, This is a classical hype cycle where anything ai especially when you're talking about LMS, if you're talking about big data centers. The amount of
money being poured into this is crazy. Now, will it have its value, of course it will, but it will not be commensurate with the expectations that are being created right now.
Wait, so, okay, is it just because it's not there yet and that the hype will become a reality in maybe two years, or is it that the hype is just hype?
Yeah, so it's a very good question.
I still maintain that the value that these technologies will provide are absolutely insane. My belief is that a lot of these technologies will become commonplace. They'll become commoditized, So expecting people to pay premium prices is going to be a chimera. People will say, hey, I get it from this vendor and that vendor, so why are you charging me extra four dollars six dollars eight dollars by user
per month? That will go away, But also the expectation that customers are having about AI delivering and being a panacea for all the problems they're dealing with without human interaction or the classical word is AGI. We are years and years away from that, So that is where the hype cycle and the gap between what we deliver is very high at what I'm alluding to, But I think this technology is here to stay. I mean, Web three oo has its renaissance. You can see the crypto is
back again with the vengeance. So I'm saying that AI will be there, generate a AI, but the value hype versus the value delivery, that gap will diminish.
And also the.
Price expectation we have as vendors that you'll pay me this much. We'll have to get grounded into reality that people will pay, but not as what we're expecting. So all the investments we are making right now in order to get the return, there'll be some let's say realignment.
What makes you say that we're so far from AGI?
Very simply stated. Having technology today which can reduce the human interaction for low level task in accounting or generating memos or creating a media brief or even an advertisement, that's there. But having it to the point where no human curation is needed or human interaction is needed, and have the faith and belief between you as a provider to say I can just let the machine or the gen AI capability deliver the end product that is not going to be there. It's not there today, it won't
be there for a long time. So lights out automation is possible in certain industries, But for the kind of things I'm talking about, where can you invent or have a protein marker for some disease, run through a complete AI related pipeline and not have a human intervened impossible.
Of course there'll be clinical trials for that. But even in our world of software, I don't think our software is at a point today or two years from now where somebody could say, let's use the soft software and let it solve the problem the complete workflow with no human looking into it. So that's my reference about AGI.
To be honest, hey, listen, I really appreciate this, We really appreciate this.
I'm getting your perspective.
One last question, then, so if everything may take a few years to work out in terms of the investments that have gone into an Nvidia and others, is it a case that that may not make sense or that will make sense because that's part of the infrat structure build that will still be there in years to come. But whether it's an open AI or someone else who leads in this what you say might be a commoditized business going forward, that's TBD to be determined.
Yeah, you know, this is a little bit about my pay grade because you're bringing into the pick and shovel business of Nvidia versus you know, the gold Yeah, from the other guys. The relevance of Nvidia I don't see diminishing, except that they will be more competitors. It's a nature of the beast, right, they cannot have this market all
to themselves. But also the providers, whether it's you say, open AI or Anthropic or Mistral or so many there, Google Gemini, they will of course keep up leveling the value delivery of what they're providing or the value chain of what they're delivering. But a lot of technology that they are investing in today compared to what the other party is developing, they'll become almost similar and therefore commoditized.
So the arms raised to be the best of providing the best l that's going to be very expensive, and at some point there'll be some I keep scrambling for the right word, there'll be some realignment or readjustment on expectations, even from the investor perspective.
Hey, Carol said it was the last question. But I can't come on our air and I can't ask you this question. When's the IPO happening?
I can go there, I can't go, Well, you could. One thing I can say is I've done this company very differently coming from the valley. So you mentioned I've raised one hundred and forty two million, but also I would like to add the last round came in twenty eighteen. Yes, any raised years Yeah, and we don't plan to raise any private financing in that way because we have been
cashflow positive with improving EBIT of margins. But at the same time, I take a lot of pride in saying that I've never built a company which is insanely high growth with insanely high losses. The very high losses, it's predictable, durable growth with improving cash flow mechanics, improving even the margin, so more sustainable and hopefully the markets will reward us in whatever the outcome. Is ip of being one of them.
Well, we certainly appreciate your time and the expertise and kind of industry knowledge that comes with thirty years in Silicon Valley.
Thank you so much.
Vanite Jane, co founder and CEO of Ignite, joining us there from Mountain View, California.
In the thick of it.
This is the Bloomberg Business Week Podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and the Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa played Bloomberg eleven thirty.
The great American egg shortage is getting worse, with prices surging more than fifteen percent in January from a month earlier. That's the biggest jump in a decade, indicating that inflation is still very much an issue in the food and bever space.
Really for us.
All, that's something that's close to the world of John Taffer. He's spent thirty plus years in the hospitality business and is well known from his hit Paramount Network reality series Bar Rescue. He's never shy a yell, shut it down.
How was that well okay, thank you.
In a failing bar or restaurant. John also the author of several books, including the Power of Conflict, Speak your Mind and Get the results you want.
He's at Byers Studio to talk tariffs, immigration, inflation, and a lot more.
We had what we called escalating costs. Now we have creeping costs, so it's a little slower. But you know, the restaurant business is such that food costs can't really exceed thirty percent thirty three percent. So for every dollar that my costs go up, I have to raise it three dollars to the consumer.
Wow.
Now there's only a certain amount of elasticity in that. So let's say my hamburger prices go up three dollars, I got to increase them by nine dollars. Now the consumer's not going to accept that nine dollars, So maybe I can push it to three or four dollars. Right, So I can recover half of the inflationary impact on my business, but in many cases I can't recover all of it. So that's where it's eroding on our operating costs.
So what do you do, John?
Do you like make the burger smaller?
Do you?
Well, you have a couple of choices. You can make the burger smaller, that's one choice, or you can raise your prices, or you can try to redesign your menu. So, for example, and this is interesting, psychological pricing and eye tracking with laser movement tells me that if I box an item on a menu, sales of that item will go up by twenty percent unbelieved. If I shadow or chef specially goes up by about fourteen percent. People have a six percent propensity to order the bottom two items
on a list. So what I'll do is, I'll take my most profitable item in dollars and cents, not percentage. I'll box that one, take my second, most, shadow it, third and fourth, put them on the list properly. I won't price anything other than ninety five cents. There's no such thing as eight twenty five, eight fifty, eight seventy five. It's eight ninety five. When I need to raise my price,
it goes to nine ninety five. Psychological pricing, If you price at eight fifty, you leaving forty five sense on the table every time. It means nothing at that point. So understanding these elements, I want to move you through boxing I'm going to move you to different menu items.
Wow.
So for example, waffle House is infusing a fifty, I would also run eggs. I would run a special on waffles because that doesn't use eggs. So I'm telling my friends in the breakfast business, run pancake specials, run corn beef hash specials. Do everything you can to move the consumer away from the eggs consumtion.
Do that you didn't mention automation, which you see the chain's doing a lot right now. Are are mom and pop shops able to use automation?
Well, you know a lot of them are a little intimidated by I tell you the truth, just like they're intimidated by sophisticated accounting systems. And so my research tells me that about seventy percent of the independent operators don't even have monthly p and ls. So we're asking them to look at a capital investment or a long term lease program, you know, to buy technology a little intimidating for them. So I find that they're not as eager
to move into it. And interestingly, if you go to the restaurant convention the National Restaurant Association five years ago, there may be two robotic boots. Now there's probably close to one hundred robotic boots, everything from French fry robots to hamburger flipping robots, everything you can possibly that BT.
But Mom and Pops aren't doing that yet.
That's like.
And the Chipotle's got you know, they've got the autocado with which helps with peeling and you know, coring avocados and freeze people up to do other things. But we're not seeing that yet.
From I think McDonald's is one of the leaders in some of the robotic French fry equipment and such. But certainly, you know, it costs a lot less, it doesn't get sick, and it's the future of our industry. And look, we're struggling with labor as you know still, and we think that the no tax on tips might really make a difference for us as an industry, really really could solve that problem. It happens, Oh, we think it's going to happen. Yeah, I believe it's going to happen.
Why do you think it's a good idea?
Because I think for those of us who pay taxes on all of our income are wondering, well, wait a minute, how is that fair? And I guess the other side is that let's pay those workers a living wage. And so it's not you know, because I feel like increasingly we're tipping everybody also who.
Declares their tips.
Well, I don't like it when I go into a coffee store, yeah, and you know, I'm asked to tip the batista. I mean, it's a little out of line. Sometimes. I went to a dry cleaner the other day and I went in to pick up my dry cleaning, and it asked me if I wanted to tip the dry cleaning. It's a little outrageous. Now, every guy out of control.
So what you think within the hotel or the restaurant industry, let me tell you why.
Because they get an employee tip credit. So many in many states, they don't make minimum wage. They make two and three dollars an hour.
No I know.
So by not tipping them on you, by not taxing them on their tips, we're giving them a chance at that living wage.
It's really im Why don't we make the institution in the restaurant pay them that living wage?
Why don't we do it there?
Well, we could do it there, but that's going to increase costs. So if we look at inflation in those costs. Here's the problem in the restaurant industry. It's it's an industry that we manage by percentage. Occupancy costs cannot exceed twelve percent of revenue every month or every year. It just cannot. Okay, Labor costs cannot exceed thirty percent, them up to forty five percent already. Yeah, food costs can
exceed thirty percent, them up to seventy five percent. Now I have my ang my insurance, my utilities, all my other costs, I have waste and supplies. By the time I move that up, guys, I'm at twelve fifteen percent margins. That's all I got.
But what if we didn't have tips, like you know, and I know who was it that tried to do it?
Here?
Was it Danny Meyer?
Was it Danny Meyer?
Est Lego?
Tips?
Like?
Do you don't think we would think, Okay, I'm paying more because I'm not tipping that that would make it even it out and then possibly.
But there's some fear in that. As an operator, Okay, you know, I have to educate the customer, and I must tell you anytime somebody tells me I'm going to start a business and educate the consumer, they tend not to be very successful at it.
That's fair.
That's fair, use tight margins.
Also, I got to share with you that the restaurant industry is the largest non government employer in America. And when the restaurant industry hurts, America hurts. Right, There's a lot of consumers work for us. So keeping that industry healthy is our largest consumer, is very very important. And I look at the buyouts the car companies have gotten and other industries have gotten. The restaurant industry hasn't gotten that. So I think providing this relief makes sense for that industry.
Of course, I'm an advocate for it, but I do.
Hey, Johnny, you mentioned the no tax on tips as one of the policies forthcoming from this administration. How are you looking at other policies in terms of growth, in terms of helping the restaurant industry, in terms of potentially hurting the restaurant industry if prices go up as a result of tariffs and people have less disposable income, how are you looking at what's coming out of Washington.
I mean, I've done a lot of work on tariffs. I've read a lot of white papers, and I've really tried to do my homework on it, and it's tough to come down with a hard position on knowing how it's really going to have an impact. I look at it this way. A German car company is charging a German is charging is ten percent tariff to bring our cars there. We're charging two and a half percent. Let's say we bumped that two and a half percent to
ten percent. So now the German car comes into America at a base costs point in theory, ten percent higher than an American competitor. They can't compete that way, so they're going to have to make adjustments and distribution and operating costs in some way to be competitive again. So it's hard for me to accept that every tariff that ten points is going to make it to our pockets. I think there's competitive influences and a whole bunch of factors that play upont And then what could BMW they
built the factory in America. You can tell you what they built the factory in America. So I think that we have to look at this as a longer play.
Well, look at Ford and GM they built cars in Canada and Mexico, and then they'll get hit with tariffs when they bring those cars in and when the car components cross the border multiple times as a result of the manufacturing process.
It's but I would say, you know who was sitting at who was controlling our government? And we allowed Ford Motor Company to start building plants in Canada and Mexico, Why didn't we incentivize them to build them here? Then? So now I think we're backing into it. We have these these international companies that we want to make residents.
Well, some of it is like, you know, the globalization right of our world, and so we we've got allies, and we've got alliances, and we invest in your country and you invest in our country. Right, That's kind of how it's all happened. Is it bad if we kind of back off of all.
Of that in your view?
I don't know if we're backing off on all of that. Is understanding that in the post COVID world, every country is in a different economic place. Today, it's a different we're talking about environment, there's a very different environment now. America is operating at a significant deficit with significant debt. We have to fix this. The world knows we have to fix it. The world doesn't want us to cave in.
We're the largest marketplace in the world, so it seems to me that the world has to accept that these changes have to be made to eliminate the deficits that we all have to make us all healthy. So can we do this together in a constructive way, That's what remains to be seen to me.
What about in your world at the bar world, where tariffs could affect the liquor market Mexican tequila, which coming from Canada.
That concerns me, but you know that Mexican tequila needs to compete, you know, with other brands and other prim I don't have to sell as much to Kiel. I can move my menu and sell more bourbon. So you know, we do have options in the industry. And I think that the marketplace is a challenge. The liquor industry is in the toilet right now, so the marketplace is a challenge for them. I think they need to be aggressive and I don't think they're going to allow a tariff to take them down.
Yeah, increasingly, there's a lot of interesting dynamics the.
Liquor als not saying I know this to be a fact, but this is just how I feel with this. I think time will tell on Well.
In terms of policies, you talked about, you know, a shortage of workers in terms of immigration, and I know there's illegal versus legal, but you know, the hospitality industry got really hurt, you know, after the pandemic, a lot of people left that industry found better jobs, better paying jobs.
What's your view on immigration?
Well, I think legal immigration is important, but I think we need immigrants to come in first. Well, I don't want to hire somebody who I can't do a background check on. I can't do that. There's too much liability today, especially in the hotel industry, So I have to hire people that I can do background checks on, that I can have confidence in hiring them, that they're safe, they're not thieves, my employees are safe, et cetera. And right
now we don't have that. So when I look at the immigrants, the illegal immigrants that have come across that I can track their background, they have no value to me. Interesting, I'm not sure there are of much value to America if we can't track their backgrounds.
I would say that someone might someone might push back and say, well, if there's fewer people to do the labor that illegal immigrants do right now, that might pull from your labor labor force of legal immigrants working at restaurants and then cause your cost to go higher.
Well, I didn't use the term. I'm trying to focus on criminals. There are legal immigrants that do have backgrounds and you can verify who they are. I don't have an issue with that. I have an issue with the criminals or the people whose backgrounds we can check. The ones that have gang tattoos, et cetera. They're of no use to the hospitality industry. So that doesn't solve our problem. The good ones do, the ones that have backgrounds that came here with well, good.
Whoever comes in, like, You've got to make sure you understand exactly.
So we have to understand that people that come here with good intentions could be valuable contributors to our society.
Seven tune in. What is that about?
Oh? You know, I'm doing a small business radio show. You know, with all my experience in dealing with failure and the things, I have new entrepreneurs, I want to talk to them, you know.
Nur.
John Tooker Le help out you do.
It's a way for well, you guys are doing it in a little more sophisticated I want to really help those small entrepreneurs, those people starting out in those family businesses.
There's so many out there. John Taffer, congratulations on a tenth season. So appreciate you coming in, of course, the hosting recorded producer of Bar Rescue.
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