Bloomberg Businessweek Weekend - October 8th, 2021

volatility in the equity trade. Stocks whipsode by debt ceiling and fiscal spending negotiations to him and also, oh yeah, we talked about inflation. We even talked about stack lation. It does seem like investors for the Q four really need to buckle up right, Yeah, exactly, but it really has created more uncertainty and volatility in the markets. We are a lot going on this broadcast. Yeah, really big

show coming your way. We have the founder, chairman and CEO of Dell Technology is none other than Michael Dell. He's gonna talk all about price pressures and supply chains in the tech sector along with his new book It's called Plain Nice. But when a CEO's journey from founder to leader? Can I be fair? Tim? And I have to look at a lot of books. We talked to a lot of authors. Sometimes we can read some of the books. Sometimes we read Don't get Tory too much.

Don't tell everybody this book. We read and loved it. It's really good. Yeah, and it really details I mean, he is a tech whiz kid created this company. I mean he was working on computers when he was a kid in high school. Um, you know, years old, he's building out this company remarkable well, and also details the take private element of the company and the way the company was able to transform as a private company and come back bigger and better create a company. Take it public,

take it private, take it public again. Really cool, We get into that. Hey. Also this week, Tim and I participated in Bloomberg invest Global. It's an event highlighted by a number of financial heavyweights, including Gray Scale CEO Michael Sonnenschein, who will hear from later on when it comes to

the crypto landscape. The someone also highlighted the analytical power of Bloomberg Intelligence and Bloomberg Global Data, and I spoke with Bloomberg Intelligence chief equity strategist Gina Martin Adams, who said that rising prices, well, they're really something that invests just cannot afford to ignore. I think we need to pay attention to it for a number of reasons, but

most profoundly in the short run. We need to pay attention to it because even though policymakers are telling us it's not going to be around forever, it is still sticking around for a little longer than anyone had anticipated, at least in the short run. And we're saying that reflected an analyst expectations. So far, roughly half of SMP company estimates for operating margins, which is the manifestation of inflation pressures in the earning stream, those estimates have dropped

for third quarter and for fourth quarter season. We've not yet seen a down draft in the forward twelve month that look which I think we want to watch for. That was Bloomberg Intelligence Chief equity strategist Gina Martin Adams. And speaking of earning scroll, we are also going to hear from chip Burg, president and CEO of Levi Strauss, the data maker, coming off of a really strong third quarter. Yeah. Absolutely, also talking about a buyback, So we'll get to that

a little bit later. On all of that to come, we begin with a look at this week's issue of Bloomberg Business Week mag zine, and to him, let's start with the cover story. It's all about tether, the world's most popular stable coin. So for those who don't know, it's a type of cryptocurrency favored by traders because it's

backed by real U S dollars. So every tether it's well supposed to be worth one dollar and backed by one dollar, right, and so with sixty nine billion tethers now in circulation, stay with me, everyone, there should be sixty nine billion dollars in real money to back those coins. Right. Well, the thing is, nobody seems to know exactly where that money is, and that's part of the reason U S

regulators are taking notice. Another important story that we discussed comes from the business section of the magazine, and it turns out that racial and gender diversity at elite law firms is lacking to the point where some big name clients they're actually dock in legal fees. It's so interesting. It's a story by our Ellen Milligan and Todd Gillespie, and it details the pressure that's being put on these mega firms, mega law firms to include more women and

people of color on their teams. So we're talking about companies putting pressure on these law firms. Companies like Facebook, HP and of artists. They're all spending billions on outside council and they say diverse legal teams deliver more creative and well rounded advice. Ironically, though, these are the company's jim that are working on diversity, but they have a long way to go. So it's just kind of funny.

It's like wait a minute, glass houses, etcetera. Exactly. I do think it's interesting though, because we did talk about this in the context of Facebook and Facebook more than you know, one billion dollars in legal fees that have paid last year, and how that's not going to go down anytime soon if we look at what's happening with Facebook. So these huge law firms want to keep these big clients.

They're so important to them. It's also a challenge when it comes to the pipeline because even though there's real lack of diversity, it's hot. Yeah, it starts, you know, lower down. It starts with those first year associates and even goes as far back as law school and making sure to increase diversity in law school. So that pipeline is created. Also this week, we talked about a couple of things that some of our listeners might enjoy on

occasion in their spare time. Potent b an interesting story from Bloomberg News Toronto bureau chief Danielle Boco of on Canadian pot farmers. They bought up a bunch of land and they really hope to get in on the ground floor of a nascent cannabis tourism industry. But it's harder than it sounds. But it turns out the country's complex series of regulations are hampering business in a big way.

So that's a story we chuckled a little bit about it, had some fun with puns, but nonetheless it just shows again this is an industry that's trying to find its way forward, but it's not so easy, and it depends on geography, country, rules, regulations. It's a really interesting tension though, because there are a lot of proponents of the industry who say, hey, this is not just good for the industry, but it's good for the country. It's good for tourism,

it's good for the economy. But if we can't get past these rules and regulations and actually allowed to flourish, similar to the way that the wine industry in California, for example, even the wine industry just outside of Toronto is flourishing. Then it's it's not going to get off the ground. And then there's also in the magazine the so called M I T. Beer game. We're not talking

about pong beer pong, know what it's about. I thought it was when I first saw that, which is why Tim's like, yeah, okay, I'll put this at the top of my reading list. That story from our economics team, all about a decades old business school simulation exercise illuminating how human error can snag up supply chains. We talked about supply chains a lot. That story you can find in the magazine, which is on newstands online and also

on the Bloomberg terminal. And you want to stick around for the whole show, because later on a Bloomberg Business we contribute or details his findings as part of the staff at Walt Disney World. And guess what, it wasn't all magical, though it was certainly colorful. You do not want to miss this Eleven things I never knew about Disney World until I worked there. I love this story. All that and more straight ahead coming up though. Next

Levi strauss out with third quarter earnings. They were better than expected. The company's president and CEO, Chipberg, joining us to talk about the quarter, the outlook, and how he plans to keep the nearly one seventy year old company and iconic brand moving forward. You're listening to Bloomberg Business Week. This is Bloomberg. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Spinovik from Bloomberg Radio.

Levi Strausson company this past week posted third quarter sales at top Wall Street expectations. It's a sign that consumers are still willing to shop for apparel despite ongoing uncertainty around COVID nineteen, or at least they're willing to shop for Levi's. Let's just put it up. I mean, at the beginning of the pandemic, I wore Jeanes NonStop and actually wore through some of them. Did you really took this is? It actually took weeks to get a new pair.

This was like the beginning when I didn't realize that the supply chain French would be there. That is really funny. Well, the dnamaker also boosted its full year profit outlook, but there are still challenges ahead. The president and CEO Chitberg stopped by to talk to us about supply chain bottlenecks, the competitive landscape, and of course, the company's recent strong

earnings report. We're really pleased with the quarter, especially when you're consider the macro economic headwinds that we've been facing, supply chain challenges and everything else. Our team around the world is just doing an exceptional job executing. We've delivered sales growth at versus last year, but importantly we were up three versus pre pandemic, and um you know, we expect to be up versus in the fourth quarter as well.

So really good quarter, strong profit delivery. But you know, we've we've just done a great job navigating all of the challenges that are facing the industry. I can hear it in your voice. I think both Tim and I are looking at them. So tell us about the challenges. I mean, what is it that you can't get, what is it that you have to pay a lot more for?

Tell us about that? Well, I think you know, UH supply chain challenges have been in the news and have affected really all of the soft line UH and apparel stocks over the last three three months or so. UH. Pork challenges are obviously an issue. COVID is impacting a number of countries in Asia. Many factories are shut down. But what we've got going for us is I actually believe our global supply chain is a competitive advantage. UM. We have a huge amount of scale. UM. We source.

We made a decision a long long time ago that we were not going to put all of our eggs in one basket. UM. We source from twenty four different countries. No country represents more than our total volume UM. And we also cross source. About half of all of our volume is crosssourced, meaning we could make that same product in different factories in different countries, which gives us an

incredible amount of agility. So that if a factory shuts down unfortunately because of COVID, we've can quickly move that production to somewhere else that's still operating. So that's given us a ton of of agility. I mean, just to dimensionalize that the atnouncement in the news a lot here lately, UM, we're importing less than four percent of our product right now from Vietnam um uh, and so that's that's big. We've also been really agile on the on the shipping front.

In fact, we've locked up about seventy of our shipping through the first half of next year of the capacity that we need. Uh and we've been able to you know, ship deliveries from the West coast to the East coast given the West coast court challenges. So our diversified supply chain and the team that we've got really is a big competitive advantage. We left you know, we did one and a half billion dollars of revenue in the quarter. We left ten million dollars of revenue on the table

from unfilled orders. Really a great really, a great job. Common prices have surge year over a year, according to Bloomberg Intelligence, Shipping prices, I know for you have increased. You did say yesterday, levis indicated that you have pricing power and you're able to pass on some of these increased costs that you face two consumers. How much pricing power do you have? How much more our customer is

going to pay for their levis? Well, A couple of things to first of all, um, you know, there's it's clear inflation is here. And it's not just cotton, it's everything. It's labor, costs, it's shipping costs, it's truck costs, it's it's really everywhere. UM. We saw it coming over a year ago, and we took pricing. We've been taking pricing for the last year. Are au r s are up pretty significantly over the last two years, and it's because we saw inflation coming and we've been pricing ahead of

inflation and have been successful. It's sticking and so a lot of that, and that's part of the reason you're seeing such high gross margins fifty seven and a half percent gross margins this past quarter. We've been in the fifty seven's for the last three quarters, UM, and it's

because we've successfully passed on pricing. We don't buy cotton, We buy fabric from mills, and we've already negotiated our cost of good soul through the first half of with a slow single digit one cost inflation built into our cost of goods. We're in the midst of negotiating the second half. I expect that's going to be higher. Obviously, given what's happening to cotton, we're expecting it's gonna be

somewhere in the mid single digit area. If it's more than that, we may have to take additional pricing, but priced ahead of inflation, and feel that we're in a pretty good place right now. We're also confident in the strength of the brand that if we need to take more pricing, we can do that very surgically and and you know, and recover the higher costs to maintain your margins. Basically exactly. Hey, listen, you said, I thought it was interesting tip you said, um, that you saw inflation coming

about two years ago. Are you saying that there were problems in the supply chain prepare endemic? Because I think this speaks to we are trying to figure out inflation transitory or not. Right, it's the big big question of the day. What would you say someone who has to manage your supply chain so carefully? Is this a bigger deal that lasts, that stays with us longer. Yeah, it wasn't really two years ago we saw coming. It was

about right, kind of coincidental with the pandemic and the lockdowns. Um, we knew that there was already going to be pressure from a labor standpoint. We were seeing that here in the US in particular. Um, you know, I know there's a lot of debate about whether inflation is transitory or not, I personally believe it's here to stay. And that's why

we started taking pricing action early. Is you know, instead of a big huge leap and prices, it's it's better to get the consumer there slowly over a series of price increases and and and so we got going on it early. And I think we're out ahead of the curve. Are au r s are up kind of in the mid to high single digit area versus a year ago and two years ago. UM, so I believe it's here

to say. I mean we're looking at higher late labor cost wage wages are going up pretty significantly around the world. There's shortage of of labor for different types of skills. So I think we're looking at this for at least the next couple of years. That was Levi Stross, president and CEO Chipburg the stock hire by so far this year,

we'll still ahead. On Bloomberg Business Week, bain and Company out with its annual technology report, and as you might imagine, the rift between the United States and China looming over the entire tech sector. The head of Baines Technology and Cloud Services practice in the America's joins US to discuss

the impact of the great decoupling. 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 nineteen and around the globe the Bloomberg Business app and Bloomberg Radio dot com. This is Bloomberg Business Week. Late last month, Bade and Company put out its Technology REPORTE TIM. It

was ninety two pages of the new Technology economy. It provides insights and trends on everything from big tech, m and A venture capital, software, hybrid cloud, the talent wars, and yes, of course chip shortages and supply chains. But layering over it all, well, it's the ongoing spat between the U S and China. Absolutely, and that was also in our news flow this week. Ann Hecker is head of Baynes Technology and Cloud Services practice in the America.

She joined us to break down the report really talk about the impact of that widening rift between the world's superpowers and the world's two biggest economies. It really has accelerated,

I think over the last couple of years. So when we think of this and decoupling, even you know, two or three years ago, we used to lay out three scenarios that you know, we used to be in a world is more globalization, and then we moved to one of globalization, which is a term I think the economist coined where there would still be global trade, but there'll be more tariffs, more sanctions that would flow some things down.

And then the third would be do we moved into a more decoupled world where you really do start to see the development of independent economies and supply cheeses that really just have fewer linkages across those And we used to debate up how fast would you be moving towards that more decoupled scenario, and I think we've moved faster than anyone expected. Um. I don't think it's going to be linear. I think will probably move some to the

left sum to the right over time. But a few data points that have really I think show this is if you look at foreign direct investments, UM tech related foreign direct investment has dropped from who do you think are ultimately based on the latest tech report that you guys put out, who are the winners and losers? Yeah, that's a great question when we look at it. UM part of the report we looked at was just how much technology has really UM broadened in its impact across

all industry. So sometimes we look at, you know, the tech companies, but we also looked in this report about how companies outside of traditional tech channels, so your retail companies, financial service, healthcare, consumer products, and the research there we showed that companies across all industries that take a more tech driven strategy or have a lot of UM tech as an underpinning in their business model are actually outperforming

others in their own industry. So, while we can think of technology companies as a vertical in and of itself, the UM enabling aspect of technology and embracing that across all different industries, companies that have successfully done that are outperforming their peers that haven't done that yet. And can you give us for the sake of case study or or or so so people understand examples, can you share historical examples where where one company has embraced that type

of shift and one hasn't and we've seen out performance. Well, sure, so you can see some of some of the examples would be would be on your listeners are very aware of like companies like an Amazon or an Ali Baba kind in the consumer space that it really just a kind of what we would call born check right, that

they were born with the technology underpinning. And then I think you can see some examples in industrials and financial services where more traditional companies have really embraced technology, either whether it be payments or how do they think about telehealth where they've now added new lines of business or new ways of delivering their goods to the consumers that they've kind of embedded technology into their delivery even if they weren't kind of a born in the cloud type

company we do. It is really such an interesting time and I guess we just keep wondering, you know, what is the next big thing in terms of our world and what happens um If there is a decoupling, I want to go back to that because that's where we started. If we have that decoupling, uh, And it does seem like we're moving towards that because we are already seeing just a strained relationship, but we've been there before re China before. If we are in terms of the tech world,

it just means kind of too tech development verticals. That's how we it plays at and that's okay because there's still a lot of money to go around and still big markets to play in. That's where this a whole coupling gets very challenging because if you actually look at the technology value chain, UM, no one country can do it alone. Right now, we are still a very global supply chain, and there's um it's a very unique value chain,

and that it is very segmented and highly specialized. So each country has areas where they're quite strong, and then also key competencies or parts of the value chain that they're missing. So for example, UM, China really needs semiconductor capital equipment that's nicefully in the U S or Europe. They need access to leading edge manufacturing process technology for semiconductors, which is strong, and the US, Korea and Taiwan. The US really is needs o d in capacity um PCB capacity,

which is very heavily in China right now. The US also needs more leading edge silicon capacity, which again you know the US has some, but a lot of it's in Taiwan, a lot of it's in Korea, and then if you keep going down the value chain, there's different areas where different countries have quite a bit, but everyone is still very dependent on each other, which is what one thing that just makes the coupling so tricky is it's very hard to do. Right now, that's Anne Hecker.

She's head of Baines America's Technology and Cloud services practice in the America's We should know that President Joe Biden and Chinese counterpart are planning a virtual bilateral meeting by the end of the year. You're listening to Bloomberg Business Week. Coming up next one of the most successful investors of all time. That's founder, chairman, and CEO of Dell Technologies, Michael Dell. Is joining us great and wide ranging conversation.

This is Bloomberg. Yeah, you're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick takes Tim Stinovik from Bloomberg Radio. Well to call our next guest, one of the biggest names in technology. Yeah, it would be an understatement. When he first incorporated the company he founded back in

four it was known as Dell Computer Corporation. At the time, Michael Dell was just nineteen years old, and nearly four decades later, he's detailing his climb to the top of his industry and new book it's called a plain, Nice but Win, a CEO's journey from founder to leader until We started off by asking the billionaire innovator about tech and the near to medium term, as volatility and potential

regulatory constraints cast some doubts on its growth prospects. You know, I think it will be a sector that continues to outgrow the economy. And you know, if you think about the way technology is being used, it's now going way beyond the I T departments. And you know, it used to be when we're selling things, it was it was to the I T departments and now, uh, you know, technology is a folcal for everything. So I think as a sector, you know, it'll it'll outgrow GDP, probably by

a significant amount um. You know, we'll we'll see, but certainly, uh, you know, this year has been great for for our company. Fift growth in the last quarter and second half is looking strong as well. Yeah, and shares this year significantly higher as well. Michael, I'm'm wondering about how much that I T spend from companies around the world was pulled forward during the COVID nineteen pandemic, and if you have concerns about slowing growth, and so much of that spend

was pulled forward. If you if you think about this from the perspective of a company or an organization, sort of the only thing that worked during the lockdowns was digital technology, and so companies are just accelerating older investments in that. And if you if you think about hybrid work, uh, you know, that feels like it's becoming more of a permanent way that work gets done. And that's an enormous demand stimulant for us and certainly a great uh you

know tailwind. There are you know, seven hundred million PCs out there on the day that you know, Windows eleven gets introduced that don't run Windows eleven. So you put all that together with with the expansion, you know, it feels like uh and and certainly there have been supply chain challenges even though we're shipping record numbers of machines, more than we've ever shipped. Uh, you know, it feels like the demand growth is going to continue in a

pretty robust way. Here will help me with those supply chain challenges. Michael I mean, computing is on the long list of industries that have been hurt by the semiconductor shortage.

At this point, when do we start to see that supply and demand get back and step Well, it takes about three years to build a new semi charactor plant, so uh, you know, when when when did the you know, we're we're we're only eighteen months into this, and so if you believe there's a demand acceleration that's significant, you know, it's going to take a while for uh, supply to catch up with demand. Uh. You know, we're we're all

challenged by that. You know, as I said, even though we're we're we shipped more last quarter than ever, the backlogs are still at record high levels. Is there panic buying? Though? Do you think because of concerns ever supply chain that we're seeing some of that you know, double awarding being done by companies just to make sure that they've got what they needed. As a result, at some point, we'll see some kind of bubble burst as a result of it.

You know, we've been watching the cancelation rates very carefully, uh, and we have incredible data on this and we haven't really seen that. Um. You know, what we've heard from our customers and partners is that our supply chain is generally functioning better than others. And while they might not uh you know, like the lead time that we give them, it's highly predictable, reliable, um and you know, haven't haven't really seen uh, you know, signs of distress there in

terms of you know, people ordering and then canceling. And you know, it hasn't hasn't been a factory Michael. The chip shortage has revived talks of European or US hardware or chip manufacturing. I'm wondering if you think that that's necessary at this point. I think it's a good thing. Uh. You know, we have not really had you know, industrial policy, right has been a kind of uh dirty phrase that

nobody wants to talk about. But when you have China investing so aggressively in these strategic industries and you know, the US and Europe not, it creates a real challenge. And you know, the theme and supply change has been resilience and moving from just in time to just in case. And you know, given the importance of all these industries to the future and everything that's going on in five G, I think having government support to create the infrastructure, uh,

you know, for for our for our technology future. Semi charactors being an enormous part of that. Yeah, I would be in support of that. Hey, Michael, one more thing on supply chain. I mean, you guys seem to have done a better job at kind of managing your supply chain than some of your peers and keeping yourself supplied with components. How is that possible? And I am curious if if you're eating some of the higher costs here

are ultimately our our higher costs being passed off to consumers. Well, there's definitely been component and cost inflation, and uh, you know that's something that we all feel, and it's a it's a it's a shared experience, if I can call it that. You know, we have had a supply chain strength in our company for for decades and I think it's proven, uh proven itself. Well, you know during the

last year or so. Uh, you know, when a lot of companies outsourced things, I think they also outsourced uh in many cases, a complete understanding of all the components that go in uh to to to these machines. And you're seeing instances where you know, fifty dollar product is held up by a one dollar part. You really have to have a detailed understanding of the entire supply chain, uh, in order to run it efficiently and effectively. Hey, your

book is a great read. Play nice but when, and it talks about your journey from founder to leader and you really we've in the creation of your company, but then you also we've in taking the company private. Uh. It's really a fun read. You talk about acquisitions and and the transformations you were making at your company. Now, one of the things that came up recently at an investor day is what you expect in terms of further m and A for the company, and also some rumors

of maybe taking it private again. Is that a possibility. I don't have any plans to do that. To talk about our capital allocation, you know now that a couple of days ago we got a double notch upgrade by SMP to investment grade. You know, we're doing a large share buy back, gonna issue issue a dividends starting in

the first quarter. And you know, we paid down enormous amount of debt and feel really great about how how the company's position going forward, and and look, um, you know what we what we said, is that, you know, don't don't hold your breath for sort of massive m and a like the kind that we did, you know when we when we did the largest acquisition merger ever ever in tech. It'll it'll be on a lot smaller scale. Well, what are the areas of interest that that pique your interest?

What are the areas of tech right now where you think there is an opportunity to expand to So you know, we have an enormous business in a huge tam in cloud infrastructure and all things uh, you know, end user computing and you know software to find you know, data centers and really enabling our customers to accelerate their digital transformation multi cloud, you know, security, edge five G. These are all new multi billion dollar businesses that we're building

and we'll do that organically. We'll do it with partnerships and we'll do it with you know, selected acquisitions to to help us accelerate. Hey, Michael, I want to get back to the book and talk a little bit about it. As Carol mentioned, it is a great read. The title really struck me. Play nice, But when the idea of playing nice is something I think a lot of parents tell their kids, but your parents said play nice? But

when how did that stick to you? Yeah, it's one of my first memories as a as a child, and uh this is what my parents told told me and my two brothers when we would go out in the street and play ball. And uh yeah, it's it's been uh relatively uh straightforward and uh kind of unifying principle

that we we've talked about a dell all lot. And look, I think dealing forth rightly with integrity and uh you know, honesty, and you know, building a reputation over time uh matters and you know pays, uh you know, dividends over time. Uh and and and look, winning is is a part of this. It's it's who we are. And and uh you've got to balance balance the two and do it successfully. I think I've been able to do that for the

most part. Uh. The book. The book talks about, uh you know all of that, and you know many occasions when it didn't exactly go the way I planned, but we learned from it along the way, and you know,

that's what life is all about. So was it always easy to play nice when you're dealing with the likes of someone like Carl con I mean, it's really kind of fun the passages in the book to be quite honest, and dinner at his house, and um, it was really it was interesting to hear the exchange where you're like, you know, what are you gonna do with the company? What's your strategy? But was it hard to deal with someone like that or what was that experience? Like? It

was very hard? You know, I didn't really have much experience dealing with somebody who would just go on television and a lie. You know that that's not something I had experienced very often in my in my business career. Um. But you know, ultimately, as I talked about in the book, I did go to his house and confront him and you know, really saw that he didn't have any plan whatsoever for the company. That's Deale Technologies Founder, chairman and CEO Michael Dell on the tech sector and of course

his new book. Check it out. It's just out play nice but when a CEO's journey from founder to leader. You can hear the entire interview at Bloomberg dot com and it'll be featured in an upcoming installment of Business Week Talks in Bloomberg business Week that wraps up the first hour of the weekend edition of Bloomberg Business Week from Bloomberg Radio. I'm Carol Masser and I'm Tim Stanivac.

Coming up in our next hour, our cover story it's all about Tether, their crypto stable coin backed by real u S dollars sixty nine billion of them. So where exactly is all that money? That is a great question. Plus true to worries From the most magical place on Earth, a Bloomberg Business Week contributor goes undercover inside Disney World.

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 Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Hi, I'm Carol Messer and I'm Tim stock Plenty ahead in our second hour of the weekend edition of Bloomberg Business Week, including a look behind the curtain at the most magical place center.

We're talking about Disney World. It's a fun one. Plus a deep conversation on bitcoin and the broader crypto market. Carol does that with Gray Scale CEO Michael Sonensheine. It's part of our Bloomberg invest Global event. Right, it's a week where we saw a bitcoin once again top fifty thou dollars, and we've seen that certainly before, lots of all atility in that market. First up this hour, though, let's get to this week's cover story. It's also related

to crypto, but it looks through a different lens. It's about Tether, the world's most popular and mysterious stable coin. Well, to help us understand what Tether is and the character is behind it and why US regulators are scrutinizing it's purported at sixty billion dollar market, we turned to the man who wrote the story, Bloomberg News Financial Investigations reporter Zeke Fox. He joined us along with Business Week editor Joel Webber. Yeah, so it's it's been a mystery for years.

There's always been this cryptocurrency called Tether that's worth a dollar because each coin is supposedly backed by a dollar in the bank. But there have always been these critics who are saying, where are these dollars? Really? Does this company really have the money it claims? And this year they've been printing like a crazy amount of tether's. So there's now sixty nine billion of them, which means the company is supposed to have sixty nine billion of real

dollars where of real US cash. It needs to be backed by real US cash exactly. That's what they promised. And I went out to try and figure out, all, right, where is this money, what have they done with it? How much of it did you find? It was a little disappointed because I was hoping they would just be like a pile of gold somewhere, but I realized that

that's not uh, that's not really how how money work. Yeah. Um, But it turns out that they're one of the biggest banks is down in the Bahamas, and I went and met with the chairman of the bank. It's called del Tech, and he said that they hold about fifteen billion. I think he said of the of the sixty nine, but he's not quite sure. He can't speak for He said that money safe, it's here with us, but he can't

speak for the rest of it. Um. So I mean, the reason this is really important is that, uh, tether is sort of like at the center of the cryptocurrency world. You might think it's kind of like pointless, like why would you even want a cryptocurrency that wasn't to make you rich? But this is the one that you use to send money from one exchange to the other to

place your bets at the exchange. Essentially, if you think of the cryptocurrency exchanges as like giant casinos, these are the chips, and all the casinos make you get the same chips, which are tethers. So it's like the connection between all the different parts of the cryptocurrency world. And so if these coins aren't worth one dollar, it could throw all these markets out of whack. Would be like a huge deal for for all of crypto worth mentioning

what he did before he was a Bahammed Bahamed banker. Yes, so very impressive, dude, Jean Chalapin the chairman of del Tech, he actually is. The first big success was creating the cartoon about the cyborg cop inspector gadget or cyboard. H Yeah, so he got got very rich from from that and making also some other cartoons. He uh sold his studio, moved to the Bahamas, where he bought this beautiful pink colonial mansion that you probably saw in the James Bond

foam casino Royale. It was the it was the it was the villains, it was the villain's house and that and it's certainly nice enough to be that. And he then bought this bank in the Bahamas, And I mean, it's the whole thing is kind of is hugely hard to wrap your mind around. But essentially tether needs to have it needs banks. It needs banks to hold money because people send tether real money to get the tether coins.

And they've had a lot of trouble over the years finding banks that will do business with them because a lot of banks have just not wanted to do business with cryptocurrency companies in general. And so he this del tech bank of the Bahamas is one of the few that would and really save them at a time when they were struggling to figure out what to do with their money. Might this be a Ponti scheme? So that's

what some of the harshest critics have said. I mean, the information that I got is that, um, they are taking this money and investing it and rather than it just being totally a giant scam, it's all made up. It's more about a conflict of interest where when you

buy a tether coin. You really wanted to be safe, you really want to get your dollar back no matter what if you uh yeah, but if you're the it turns out that the the way it structured, the owner of the tether company, he's not sitting on six billion dollars. He can invest that money in different things and if any earnings on those investments go to am so even if he earns like one, that's six and ninety million dollars and uh, there's not much expenses in running this company.

It's a really small operation. So his incentive is to invest in weird stuff to try and make some money. And what I found was that, in fact, a fair amount of it billions was invested in Chinese commercial paper, which is kind of like, uh, something that people on Wall Street really avoid. Like there's a most commercial papers held by money market funds, and they just basically will not buy Chinese commercial paper. There's very few of them

have much of it. That was Bloomberg News Financial Investigations reporter Zeke Fox along with Business Week editor Joel Weber. It's the cover of this week's edition of Bloomberg business Week. Coming up, we'll stick with cryptocurrencies and talk about the promise the volatility of bitcoin with Great Scale CEO Michael Son and Chine. This is Bloomberg. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovik from Bloomberg Radio. Well, this past week we took part

in Bloomberg invest Global. It's an event that's put on by our Bloomberg Live team and it brings together the expertise of the world's largest newsroom with the biggest newsmakers in finance. It was an unbelievable line up. There's so much information at Bloomberg dot com and on the terminal, so I highly recommend that you check it out. I actually had the chance to catch up with Gray Scale CEO Michael Sonenshine and Sebastian Baya. He's president of One

River Digital at One River Asset Management. We talked about a lot of things, including whether cryptocurrencies should be in institutional portfolios and the volatility and the bitcoin trade. It's not for everybody, the same way that every investment opportunity is not something that every investor ends up actioning for

their portfolios. I think one of the important things that Sebastian brought up that really should be something that you know, viewers and those listening in should take away from this conversation and throughout, you know, the entire Bloomberg Investor event is just how early it is. You are seeing tremendous coverage around cryptocurrency and popular financial media. Um, you're seeing the on rams into the ecosystem continue to get developed,

but it really is still early days. Bitcoin has only been around for the last ten or twelve years, and so one of the important things to remember when we think about institutions is that there are still some legal and operational hiccups when it when it comes to whether

or not they can allocate. Many of them don't have the legal or operational wherewithal to hold a bearer instrument like bitcoin directly or like ethereum directly, and so what we're starting to see is some of these institutions either leverage investment vehicles that can give them that type of exposure, whether that's through great scale or otherwise, or they're actually developing dedicated funds whose documentation and investment mandate actually does

allow for that type of exposure. So while I would say that it's still early days, that is probably The most important takeaway for folks listening to this that it's not somehow when you see price movements um that suddenly the wave has been missed or or somehow crypto has gotten away from them. Well, it's Sebastian. You know, on our planning call you talked about a colleague who said, man, we've seen cryptocurrencies or bitcoin, have you know bubbles and bursts?

What five six times are ready? So to that, you know, that's certainly spaces of the volatility, but does it also speak to the resiliency of the crypto area in terms of it continues to come back. Absolutely, we think that this asset class is new and important, and it's much more than one or two assets, right. Um. We think that the resiliency you've seen in the case of bitcoin and with ethereum relates ultimately to the powerful impact that these assets could have in changing the way that we

move assets. Right. So, the web moves information and you see people talk about web three point out what are they talking about? What they're talking about here is that cryptocurrency will likely be the way that we move assets around the world. That's why that's why institutions are paying more attention to these to these assets and these opportunities, and that's why they're not deterred by the high volatility

and the uncertain nature of the assets and how they're held. Uh. You know, that's why candidly, we were brought into the space by one of our largest clients last year when we entered the markets, and we've made the largest institutional allocation to Bitcoin and ethereum when bitcoin was a fifteen thousand and ethereum was at four hundreds um O. Our client and other clients are definitely concerned about the volatility and UH and the way which is assets trade, but

they see the potential um and they need As Michael said, there are hiccups, and with regards to legal and operational there are clearly structural impeditents. At a high level you can summarize as partners and plumbing. Right, this industry is growing. It's partners and plumbing to enable institutions to on board, and they're coming because they see that this may well may well be the way by which assets move in

the future. And it's much bigger than a couple of assets that are a little bit vaulatial in your portfolio. I want to get into regulate the regulatory environment, because that's certainly a big piece of this. Let me just ask you, because you talked about bitcoin, you talked about etherorium. Those are two that we talked about a lot here at Bloomberg. Um, is it going to be a smattering

of different currencies that stay with us? I mean, we pull up our monitor and the list is rather long, and we know that there's a ton out there is a Bitcoin that continues to be the dominant cryptocurrency. Is it ethereum? There were some stories that I was reading this morning that the flows are moving out of bitcoin and into ethereum. Um. Michael, what do you think do we do we know at this point? I don't think

we know at this point. I think that the digital currency ecosystem is continuing to allow for new use cases and new protocols to come into the fold. We've recently looked very substantially at protocols that are part of the defy or decentralized finance ecosystem. We've started to see the confluence of digital assets and gaming, digital assets and privacy, digital assets and file storage, digital assets and video streaming.

Right we're starting to start moving into these new use cases that were not yet imagined when Bitcoin and ethereum and other major protocols had been created and brought into the fold. Now, while that is certainly the case and the barrier to entry to launching new assets is relatively low, we would suspect that over time the hundreds, if not

thousands of digital currencies will ultimately get consolidated. We often think about, you know, maybe analogizing digital assets to the precious metals family, and we look at things like gold, silver, attinam, palladium, etcetera, all being part of a singular family of precious stones

or precious metals. However, each of them have an addressable market and addressable use case and a different price, and through that lens you may find that there's a cohort of digital assets that grow and thrive and coexist, and each of them do in fact occupy their own addressable market, have their own use cases in their own prices, whether or not that's bitcoin, ethereum, other assets. It's early days, so it's hard to say what that will look like.

But if there's any telling how this ecosystem evolves, certainly going to see the emergence of more protocols before we see consolidation. Michael, do you have a price on bitcoin though, since that seems to be the dominant player though that we talk about. You know, I never give bitcoin price predictions. I've been in this industry for eight years, and what I can tell you is really just what investor behavior

has been. As you said, the bitcoin price has moved around quite a lot, even recently, and so when we see dips and prices, we often see that as an opportunity and investors moving in to buy those dips if they find mentally have not changed their perception or their conviction and an investment, but they can buy an asset ten fifteen, sometimes cheaper than they could a day two days ago. Well that's a compelling opportunity, and investors tend

to action those types of opportunities. That was Gray Scale CEO Michael Sonensheine and Sebastian Baia, president of One River Digital at One River Asset Management. And you can catch that entire conversation just check out Bloomberg Live dot com search on Bloomberg invest Global. Still to come on Bloomberg Business Week. Why Canada's dreams of a booming pot tourism industry could be going up and smoke, so he did. They're very clever. Plus Disney Confidential, how the world's busiest

resort keeps the magic going. You'll want to hear this someone going undercover at Disney. This is Bloomberg and Casting from the financial capital of the world, Bloomberg eleve in Frio in New York to Washington, d C. Bloomberg to Boston, Bloomberg one O six one to San Francisco, Bloomberg nine sixty to the Country Sirius XM Chado one nineteen and around the globe the Bloomberg Business app and Bloomberg Radio

dot Com. This is Bloomberg Business Week. Alright, So by land grow bunt to marijuana, welcome in tourists, and then repeat that had been the plan for some of Canada's biggest cannabis producers. Tim Well. It turns out the country's complex regulations around the drug are dashing hopes in a burgeoning industry. From more on a piece that you'll find in this week's issue, we turned to our editor Joel Weber,

also Bloomberg News Toronto bureau chief Danielle Bokov. I went out to do this story in the first place because I was pitched by a PR firm that represents some Ontario growers, and they had written to me about these kind of dreams that some of the producers in Canada where where pod is now legal, had in terms of way to ways to actually sell cannabis from their farms.

And I thought this was really intriguing because the idea is kind of lovely, right, and they're talking about sort of leveraging things like wine tourism, maybe even coaching some of those tourists. And you get this sort of idea that what you're going to see is people traveling along these sort of quiet country roads from vineyard to apple orchards to pot farm, sampling Ontario's bounty. And it just turned out that that's not what is happening. Why is

that exactly though? I mean, is it? I mean, you paint a really nice picture of what you could actually do. It's it's exactly like being at a winery, right, But it does. But I mean, in some instances, Danielle, you write that the people who work at these um these these facilities can't even sample their own product. Yeah, there are so many rules in terms of what they're they're not allowed to do in the way they have to

do things. So I mean, let's start with what they are allowed to do, which is if they get the correct license. There's an amendments to their licenses, and it is a very long and bureaucratic process, then they are legally allowed to sell some weed on site, um in a very convoluted way. So so technically what they actually have to do is they have to route some of their product through the Ontario Cannabis Store, which is the government regulated buyer, so that the government still gets it's

cut um. But they can do it without it actually leaving the property. So that's great. It means that they don't have all the shipping costs and all of that um. But they can't take people on tours of the fields because they're worried about contamination. They can't offer sampling, they can't serve food, they can't serve wine. Uh. If they do open a gift shop you mentioned, the windows have to be blacked out because they can't risk their being

a minor in the parking lot who sees inside. So you're not kind of talking about, you know, a roadside stand selling eggs. You're not going to see patios with tables and and umbrellas set up. Uh, it's yeah, it's there's not much left when you when you take all those balls, just like smoke a little bit and let's figure out these rules and make it all Like why can't we all just be happy? I'm just saying, don't need to smoke. You know, that's right, that's true, So

Joel Webber, editor Bloomberg Business Week. So I still can't get over when we just like have amazing photos of like a lot of ganja in the magazine. If there is going to be a tourism boom, Daniel, what what do you what do we think it might look like? What are going to be? Where is there hope? You know, I have a hard time believing it's going to happen

if the regulations don't change. And that is kind of I think what was kind of at the heart of the story, Right, It's like you have these people, I said, there are puns everywhere, but you have these people with these high hopes and and then you're faced with the reality. Right, they have this kind of evangelical almost excitement about their product and the potential and the medicinal aspects of it, and and you pull up in front of their operation.

And the first thing you see is the security. There are high spences, there's armed wire there. You know, it's it's not it's not as I would want to have my vacation. But you know, so all right, you know, because we know investors have been hot and heavy for this world and we've seen kind of booms and busts with it, I feel like, um, Danielle, what's the the outlook here? Well, things change? Um, I don't know, how

does it? How do you how do you or what are you hearing in terms of how it ultimately plays out longer term here. I think there's still a tremendous market for cannabis obviously, and um, when I was speaking to Brendan Ditmar, who's the master grower there, he's also doing a lot of experimentation with PHC, which is obviously the component of cannabis that gets you high. And that's

really the reality is where the market is. Certainly in Canada right now, the demand is forever higher levels of p HC and there is a lot of money that can be made doing that. And so I think that what is going to happen is that for those growers who are willing to go through all of the steps and invest a huge amount of money on just the hope of getting a license because it all has to be done up front. Um, if they managed to get their license, they'll be selling to to Ontario regulated stores

and they'll be making their money. That right. That's Bloomberg News Toronto Bureau chief Danielle Bokov along with the editor of the magazine, Joel Webber. You're listening to Bloomberg Business Week coming up Secrets from the most magical place on Earth. Bloomberg Senser reporter inside Disney World to reveal what really goes on behind the scenes. And there's some pretty shocking stuff. Oh my god. You don't want to be Jack Sparrow. You don't, well, maybe you do? Well, maybe, well, that's

a good point. You want to hear this. This is Bloomberg. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes. Tim Stinovik from Bloomberg Radio. So abandoned children, lusting after people dressed as fictional characters, and spreading the ashes of deceased relatives and inappropriate places. Tim, what does that sound like to you? Know? Some dystopian parallel universe or I don't know, under going undercover at Disney World, right,

And that's exactly what Brandon Pressor did in Pursuits. We're gonna talk about that in just a moment. Let's bring in Bloomberg Pursuits editor Chris Rouser, who joins us with a look at this week's Pursuits section. So, first of all, this isn't the first time Brandon Pressor has kind of gone undercover for you guys. Know. So we have this amazing reporter, Brandon, who has this uncanny ability to convince luxury destination travel outfits to let him go and work there.

So we've sent him to work as a waiter at Nobu, as a ski instructor at Aspens, a deckhand on a super yacht, as a butler at the Plaza Hotel. All of these places has let him go and work there, and he has this uncanny ability to talk to staff to get them to tell his secrets, to see really crazy stuff. And every time a place agrees to let us do it, we're always like, what didn't you read the other stories? This is going to be in print.

And Brandon came to us and said, hey, I want to do Disney And we were like, no way is that going to work? And it did, and they set him up as a staff member as a cast member with it, which is what they call it at Disney, and he got to see a lot of sides of how it works and it's just a really amazing piece. So so Brandon, come on in here and talk a little bit about this set the scene for us. What did you do? Who? Who? Who did you represent as

a cast member? Sure? Yeah, spent about a week at Walt Disney World and um every day I sort of shadowed a different cast member all over the park. So I worked with the photo Photopaths team to document special events like king sen eras and gender reveals and engagements. UM. I shadowed the Dapper Dans, which has been sort of in house a cappella group, um as they go through the park singing. I worked with one of the elite concierge teams at one of the higher end hotels, um

as they catered to everyone's needs. Uh. And I actually got to work in the hippo stables at the Kingdom. You've got to work there. That was that was a privilege, that that was a true privilege and and and actually the highlight of the entire experience. To be honest, you know so much of what they do at Disney. Having been there with my daughter, I have to say when she said at the end, um, Mom, can we just go live in in a castle, I'm like, I'm in

with you. They create this atmosphere that you really do buy in. You know, there's not a million Cinderella's all around you there, There's only one at one time that you kind of run into. And I mean all of this is very carefully orchestrated, right absolutely. I mean you know, really, you know, this story has a lot of like fun

color about, you know, the different kinds of guests. But really, at the end of this is a love letter to Disney, because, um, what they do just can't be replicated by any other theme park or really on any other kind of hospitality initiative. It is perfect service that they offer, well almost perfect. It's not like you can really leave your kids with Mary Poppins because you actually happens it did. Um, you know,

it was really funny. And I have to be totally honest, Um, while I was there, obviously I was kind of poking around to see how far I could push things on, how many questions I could ask, And Um, Disney really put up a wall as far as um getting information about the characters, and that characters with a capital C M because they want to preserve the magic at all costs.

So I had to kind of nose around and chat with some people, UM on my own, and that's when I sort of came across some really funny tidbits, like the fact that Mary Poppins does such a convincing job of being warm and friendly that suddenly parents feel like it's perfectly okay to abandon there's still stridd with her and go off and have a fun time. What other what other bad behavior did you hear about in terms

of the guests? Um. What's funny because the cast members, the staff, they are so in love with their jobs and so in love with providing service that it really took ten fifteen tries to get them to talk about the sort of unmagical behavior. Um. And and finally, when I you know, pop the lid. UM. A lot of it was about guests being ornery in the late afternoon. And this is I think very Orlando specific, because it

rains in the afternoon, it's incredibly humid. And people who go to Walt Disney World, which really sort of feels like the Mothership. You know, they're coming from all over the world. They're spending a week, and you know, when you're day five in the humidity, in the rain and it's the afternoon, or your kids are whining, you kind of lose it. Um. So it's like really dealing with

a lot of meltdowns. Whether that's kind of you know, going to the bathroom in line because you don't want to get out of line, and adults it does, yeah, and ye are actually perfectly happy. You know, some members are actually trained, the cast members trained to spot kids in line that are doing like the p dance where they have their like legs across and and they actually will go up to different guests and be like, listen, it looks like your child has a p I'll save

your place in line, go use the bathroom. It's totally fine. You know, cast members really have an eye for that kind of thing. But you know they can't catch everyone. Hey, what's it like to be Captain Jack Sparrow? It was so the most thing and that that I was sort of wondering is you know, obviously a lot of children have UM their star struck when they see uh a Cinderella, and I was sort of wondering, how do adults feel, UM, and I thought that it would be some men kind

of maybe hitting on a snow White or Cinderella. But it turns out that categorically it's sort of the bad guy male characters that get hit on by women and UM. A former cast member told me that when they debuted Jack Sparrow, UM, women were so in love with him that they would slip their key cards of their hotel room into his pocket. Yes, everybody who's listening, you heard that, right, and tell him to keep wearing a costume, right, yes, And they're like, I know you're not Johnny Depp. I

you know, maybe your room six or three. You keep the costume on, all right? So there are those those women who are out there who are thinking Johnny Depp when it comes to Jack Sparrow. Um. What about those you know who run into Christopher Orlando? Who's that? So? You know, I thought this was one of the cutest things. Um. The cast members are really precious about their costumes, and they are club costumes even if you're just you know, a ride operator. If you were inn sanitation, everyone is

on stage. Um. And the one thing that you home because everything is sort of rigorously laundered. Uh, this when you take home is your name tag. And there's this whole you know, prestige around the name type when you get your name tag, your officials, Disney cast member. Um. But you know, if there's a day where you're stressed and you accidentally forget your name take at home. They have these backup name tags for you when you check in, and it's there's dozens name tags that are printed. Chris

from Orlando. Do you get your first name and where you're from? And it's sort of the perfect agnostic, gender neutral name that anyone could wear. And since everyone lives in Orlando, that works a wall Disney World. Um, you know it's not false. So you you followed around of photographers, you saw wedding proposals. You said, sometimes wedding proposals go

wrong and they shoot them anyway. Um, but you said that you described a circle of life, so like birth and birth celebrations, gender reveals, and then sometimes people try to spread ashes at the park. Yeah, so every stage of life is represented and it was really interesting because, Um, one of the castomers that I worked with, he said, really, about five percent of people are celebrating something use the concierge and he's constantly, you know, sending goodies to people's rooms.

Um and usually in that everything from you know, beating cancer to sobriety to a wedding anniversary and a wedding. And I thought one of the most interesting things with some people have such a connection with Disney that they request before they passed away for their ashes to be spread, and usually it's at the Haunted Mansion, which the last line, UM in the audio is there's room for one more, so why not let it be Grandma. Oh my gosh. Listen, it's been such a fun chat and it's such a

great read. Another great you know behind the scenes look by you, Brandon. And there's a lot more to uh in the article in in Pursuit. So we highly recommend everybody check it out. Listen. Thank you so much, Brandon Pressor. He's a Blueberg Business Week contributor. Chris. Just quickly, Um, you also talked a little bit about a little bit

more Disney in the in the issue. Yes, so this is so we did all this because it's their fiftieth anniversary and we um and they're changing some of the rules at Disney, so their sun setting, the fast past system, uh, and they're making a new one called Genie Plus, and there's a lot of pandemic restrictions. So we have a whole section about Disney hacks, like what you need to know to make your trip work, because, as you know, there's a lot of ways that can go wrong or

be kind of a pain in the neck. Chris Rowser, thank you so much. He is the editor of Bloomberg Pursuits and definitely check it out. The new issue is out, um that's up. Or we can addition to Bloomberg Business Week from Boomberg Radio. Thanks so much for joining us. I'm Carol Messer and I'm Tim Stanek. Be sure to tune into our Bloomberg Business Week daily show. There's Monday through Friday and starts at two pm Wall Street Time on Bloomberg Radio. What character would you be all right

to be continued? I can't say Captain Jack spar just on. Okay, thank you, Chris, right exactly. You can also watch our daily broadcast on YouTube. Just search Bloomberg Global News. Also check out our Bloomberg Business Week podcast. You can find it at Bloomberg dot com, Apple, or wherever you get your podcast. Bloomberg Business Week available on newstands, now, at Bloomberg dot com and on the Bloomberg terminals. You can

also see me at Bloomberg. Quickdake available at Bloomberg dot com, slash q T, and streaming platforms like Roku, Apple TV, Samsung TV and more. Have a great weekend everyone. This is Bloomberg. H