This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Disney shares fauling the most, and I think about six months, we definitely saw a bunch of selling today. It was really concerns once again about subscribers in its name Sake streaming service. They also predicted a wider loss in that business this quarter. So let's get to it. Let's talk about the quarter. Let's talk about the business. We've got a great roundtable. David Trainer is chief executive of New Constructs,
former stock analyst on Wall Street. He now has a robo analyst technology that looks at companies, goes through it tells us makes sense about valuation and balance sheets. And Mark Douglas is with us, president CEO of A Mountain. It's an ad software company really works with brands to move into revenue and streaming TV and site visit and all this good stuff.
So it's funked.
I'm trying to set the stage, so let's get to it. Guys, David, I want to start with you your thoughts, just initially coming off of Disney, what they said last night on the call, what stands out.
Yeah, I think that Disney is doing the right thing and de emphasizing Disney plus. I mean, look, streaming was never meant to be a money maker. Netflix has burned billions, They've never actually turned a cash profit in the streaming business, and I think Disney has rightly recognized that streaming is just another way to get customers into the top of their funnel so that they can monetize those folks downstream.
And there are other much more profitable businesses like parks and merchandising, And that's a very unique advantage that Disney had. They actually make a lot of money and their other businesses that they can afford to have streaming as a loss leader, whereas Netflix and some of these other pure streaming plays cannot.
So Mark, this is really interesting because I live it right.
My daughter watches Frozen and Mowana on repeat, and then she begs me to take her to the toy store and spend much more money on the products from those.
Two films to go to the Disney Park, and she.
Wants to go to the parks because of them. So what David's saying makes a heck of a lot of sense to me. I'm much poorer for the streaming service.
What do you think, Well, I think ultimately, you know, you have to buy products, not stocks, in the sense of the stocks that have the best products of what you buy. Consumers want streaming.
So I don't.
Quite agree the idea that Disney should move away from what its customers want. They want on demand content. They want a big choice in the content. And I think Disney and other companies they figured out how to make that profitable on linear television, and I think there's no reason they won't figure out how to do that profitably on streaming. Definitely going through a transition, and that trend from linear to streaming, and that transition has a lot of.
Costs associated with it.
But if you want to be involved in Disney long term, you have to believe in all the process of streaming products, the park products, the cruise products you know, and all the other you know, ESPN and all of that. So I think streaming is potentially the most important part of Disney because the migration from linear to TV is on the level of a million.
Households and more, well to be a size of Phoenix.
David, comeback, are you saying Disney should be out of streaming or that you say it makes sense but it's because it's a funnel into everything else.
Yeah, yeah, I think I think we're really on the same pagtreot. I'm not saying that they should get rid of it. I think that they should be emphasized and not throw you know, money after like crazy like Netflix hit for years, right, and for the Netflix is Netflix and salesforce. These original business models that were built on an unlimited amount of capital to burn and the hopes of building a large enough customer base that they could
eventually monetize that in a profitable way. That's not working for either business. And I think the good news is that Disney's not trying to do that. They do need it. It is a new channel. There's no question streaming around to stay, for sure, But don't go chasing streaming to the point where you're trying to acquire unprofitable customers.
But well, you do think it's a loss leader though, right, David.
So you think, for example, investors sell the stock when they see subscriber numbers fall, streaming subscriber numbers fall, and you're saying, Hey, those subscribers are expensive as hell, so if I see a few of them fall away in a quarter or two, it's not going to bother me.
That's exactly what I'm saying. So I'm saying because a lot of these losses were in India and non US, and those are the least profitable customers. They're money losers, and so it's just time to get rational in the business. Because Netflix set an example being so irrational because they were using capital as a weapon, which that they could spend a limited amount of money to just go acquire
customers for the sake of showing customer growth. Remember when everyone talked about Netflix, it was always about customer growth and nothing about profits. Right now we're talking about profits, and so they're boasting customer declines. And that's because you shouldn't chase unfowful customers. That doesn't mean the channel goes away, it just means it becomes more raptional.
Now Netflix is actually up today or was up in the in the cash session, almost three percent. And I don't want to completely, you know, change the subject of the conversation here, But Mark Douglas, do you think Netflix still has a future? I mean, I think I believe that David's position is Netflix is going to cash burn itself out. Do you think Netflix is going to be able to cut costs and make money at some point because they haven't really generated free cash flow thus far.
Yeah, I mean, I think there's definitely, given this scale, the opportunity to cut costs. I agree with what's being said in terms of different markets have different unit economics and you kind of have to make a clear choice as to which of those economics that you want to pursue.
I think the big thing for Netflix is how all in are they going to go in terms of ad supported model, and you know, if they the streaming model, the unit economics at least in some markets, you know right that it's it hasn't been the greatest, but the opportunity to sell ads against that content I think is
a boost to the brand. It brings in more of those subscribers, and even with their core subscribers, I mean, there's an opportunity to essentially do price increases through you know, basically the inclusion of ads at some point and maybe you trade you know, a dollar or two dollars a discount for five, six, seven dollars more of revenue over the month. But these things are hard to do, and I think I completely agree that the obsession with subscribers
it needs to stop. I think people actually want that because it's a reason to get the stock to swing and generate profits for short term traded.
David, you've got this natural language processing technology formula. You can really look at Disney earnings, the quality of those earnings, you know, and against its current valuation. When you do that, David, what does it tell you about Disney?
Well, Disney's economics are are the worst they've been in a while. You know. Look, I think the double whammy of the Fox acquisition in COVID was rough, and you know this, but we are seeing the margins and returnsal capital turning back up. I think with Bob Eiger back in charge, we could expect to see that trend continue. And that's why we're bullish. We think if returnsal capital get back to half of where they were, the stock's easily one hundred and thirty dollars stock.
Mark ESPN streaming. How valuable is that? Because you know that there's been pressure on Disney to kind of kick it out as a separate entity.
Yeah, I think.
I think it's critical to the brand. I mean, the one thing everyone should remember. More people want television a day, then use social media, and they spend three times as much time doing it too. They spend fifty nine minutes a day on TikTok and met they spake three hours a day on television. So, you know, the Disney brand is built on the broad appeal or a lot of consumers. A lot of that appeal starts with those television assets,
those movie assets, so they're really critical to brand. I actually think long term, the biggest risk to Disney is the brand is associated with being magical, and they need to maintain that magic in terms of everything they're doing. So they have to balance the short term cust cutting with maintaining the magic, to maintain the price points that they have like at Disneyland and with all these products,
and maybe over time with the subscription services. I think it's really critical for the long term health of the Disney brand.
All right, guys, we got to leave it on that note, and they get to complain about ESPN Plus, Well, you know, we'll save that for next blog.
Okay, I just want to complaycause I don't get to see enough good games on ESPN plus not on cable.
Well me, is it Friday yet? David Trainer over at New Constructs, Smart Douglas at Mountain, We really appreciate you, Johnny, Matt and myself. You are listening and watching Bloomberg Business Week, and this is Bloomberg Radio.
If you're listening to the Bloomberg Business Week podcast, catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or watch us live on YouTube.
We're going to take a step back from the markets for a moment to something I think it's safe to say that most of us have dealt with in our lives on some level, and that is hearing loss. That two to three out of every one thousand children in the US are born with the detectable level of hearing loss in one or both ears. More than ninety percent of deaf children are born to hearing parents, and roughly fifteen percent of American adults. We're talking about more than
thirty seven million age eighteen and over. Report some trouble hearing, so it's a big issue. So we want to to get to it with doctor Kerrie Neman, core faculty member for the Coochlear Center for Hearing in Public Health at the Johns Hopkins Bloomberg School of Public Health, supported by Michael R. Bloomberg, Founder of course at Bloomberg Elpy and Bloomberg Philanthropies. She is with us on Zoom from Bethesda, Maryland. Doctor Neman, it is so nice to have you here
with Matt and myself. It is a big issue. I certainly dealt with it with my aging dad went through hearing aids. It wasn't always such an easy process. But talk to us a little bit about it.
Why I'm so loud by the way you are loud, man.
Because well I know, but all joking aside, right, It's because I have pretty significant hearing loss.
And over time I just don't afore myself as well.
Are you born with no I just ruined my hearing in my teenage years and as a result, I guess you know, it's the same thing happened to my dad, So it could be genetic genetic to some extent.
Doctor Nemen, come on in and kind of set the stage for us because it apparently, like I said, it affects a lot of us.
Yeah, exactly, exactly. We almost all of us at some point in time are going to experience some degree of hearing loss. The thing that I think has really shifted and changed in the past ten to fifteen years is now how we think about hearing loss. We really no longer think about it as this just benign part of the aging process. It is, you know, something that we view and need to view right in the context of
healthy aging. So if we all want a shot at aging as well as possible, it needs to be kind of in that long list of things that we're all thinking about as we age.
So how do people deal with it if they have less money? You know, my mother in law, who lives in Spain, which is a socialist country, just spent four thousand euros to buy hearing aids and I was so you know, impressed with the price. I just couldn't believe it is that how much that kind of gear costs.
That's kind of what it caused my dad, I think too.
Yeah, it's crazy.
Yeah, And that is Yeah, that's certainly in line with what we see and what we've traditionally seen. The thing that has shifted in this you really past year or so is the advent and the opening of over the
counter hearing aids into the market. And so that's one important piece of the puzzle in terms of how do we make hearing care more affordable, is by bringing the technology side of things down in terms of opening up that market and so it's not dominated just by a few kind of players, but opening up to consumer electronics and many others to enter. But I think the important piece here is, yes, we have technology, but how do
we connect older adults to that technology? And that's a lot of the work that I do in partnership with community partners and particular community health workers.
Yeah, and only I wonder if this is going to be in the budget talks. I'm guessing not necessarily like spending on this or providing I say that I'm bringing that up because the headline is crossed. President Biden's meeting with congressional leaders on the debt ceiling has been postponed. So it goes on business as usual sometimes if you will,
when it comes to Washington. But doctor Nieman, no, I do think about this right like it is so expensive, and you do want what we're doing to somehow make it more affordable or is there something the government can do. I don't know what's the answer here. What do you How do you guys.
Look at it?
How we look at it is you know, we have this kind of new piece in terms of over the counterhearing technology, but it can be really hard to navigate in terms of where in the world you even start in terms of googling versus you know, going to an audiologist versus going to an E ANDT your primary care doctor.
You know, where do we start? And so a lot of the work that we've done is saying, you know, how can we make this as easy as possible in terms of partnering with individuals in a community setting who can go through kind of a structured way in which they introduce somebody to a piece of technology and say, hey, this is how you learn how to use it. This is how we can get you set up and going.
And you know, we have seen results in our work that are comparable to what we see with gold standard hearing. It's fit by an audiologist and that's you know done. You know, in a community setting, in partnership with community health worker two hours using over the counterhearing technology. And so it's not only just the technology, but it's an openness to kind of new and different models of care that are going to need to come alongside.
So talk to us about the gear. The basic setup is how much does it cost?
Is it just like an amplifier that you know, makes the sounds in your in your atmosphere louder and.
Can you get it at you know CVS or Dwayne Reed? What is this?
Yeah, yeap one hundred percent. So there are a lot of different options available. There are options that look like a headset that can be you know, user friendly for individuals who've you know, had a stroke or have bad arthritis, and those can run around just one hundred dollars and
they can work really well. But then there's obviously a lot of other devices that are at your level that look like you're traditional hearing aid and those are going to run more in line with around three hundred four hundred for one side for one ear, So that is certainly some money, but it is definitely an improvement from the four thousand dollars. You know, hearing is that you may get, you know, through your audiologists or your n T.
Can you just do one the year? I guess you can, right, like, if you just have pressure? Yeah, what if you I mean if you kidding?
Ideally, yeah, go ahead.
Yeah, ideally, Ideally it's two. You know, but if we were talking about nothing versus something, we'll always take something, and one is always better than none.
What about people born with hearing loss?
You know I did years ago, I did a piece on cochlear implants for the deaf, and there was some debate in the community about whether or not that was even a good idea because they don't and they don't want to really accept deafness as being something that needs to be fixed. On the other hand, we had a guest the other day who's had ninety percent hearing loss in his left ear since he was born, and he went and got a cochlear implant that he.
Says has just changed his life for the better.
So recently got it.
Yeah, and he's sixty five years old, and he finally said, you know what, it's time. The technology is there and he's bald anyway, so he just went and got one.
Yeah. No, so good question. A lot of what our work is focused on from kind of a public health perspective is really based on on the numbers in terms of you know, for sure there you know, we have individuals who are deaf heart of hearing, who are born deaf, but that does represent a fairly small portion of the population in terms of you know, those numbers you were
citing in terms of in the millions. You know though, that's primarily age related hearing loss, and most of that is mild and moderate and so solidly in the realm of individuals who generally want to stay within the hearing world and are are looking for assistance and don't yet qualified for cochlear implant. So it's really that group of individuals that we're looking, you know, that over the counter hearing aids and kind of these new and different delivery models are looking to help address.
Before we go.
And I'm thinking about this having dealt with you know, aging parents and aging family members, the connection between hearing loss and depression or dementia for that fat matter.
Yeah, so great question. There have been a lot of large population based studies that have seen an association and really kind of repeatedly in association between things like hearing loss, mensia, cognitive decline.
But the big.
Question that really remains for a lot of us in the scientific realm, is have we seen data that shows us that if we take somebody who you know, maybe doesn't have a depression or you know, doesn't have dementia, and you know, give them a hearing aid, can we slow that cognitive cline or can we you know, improve their depression and do that in kind of a structured,
rigorous fashion. And so that is happening and ongoing right now in terms of some of the larger trials, and we're really excitedly waiting the results of that, which are expected out this year in terms of twenty twenty three, so a lot more to come there. But that's exactly the type of thing that we're thinking about when we're saying hearing loss matters.
Well, so appreciate catching up with you. Thank you so much. Really important, certainly, doctor carry Neiman. She's core faculty member of the Cochlear Center for Hearing in Public Health at the Johns Hopkins Bloomberg School of Public Health, as we remind you, supported by Michael R. Bloomberg, founder at Bloomberg LP and Bloomberg Philanthropies. But so do you ever think about that you might hearing needs at some point, I.
Think I definitely will. You know, my dad has gotten them. And I think it's interesting that you bring up the connection between hearing loss and dementia or hearing loss and depression, because I have seen that firsthand and the turnaround is pretty marvelous. So I think people just don't think about it and they don't make time to go and deal with this kind of thing because they think I can't hear that. Very well, no big deal. It is a big deal, and it's better if you take care of.
It because you're really, you know, kind of excluded if you can't hear, and so it's it's a really important issue.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business App, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa, play Bloomberg eleven thirty and we want.
To talk to a company and to its head. They actually reported earnings this week. They are about a two point nine billion dollar market cap app, location, software and cloud company. We're talking about Digital Ocean Holdings, first quarter revenues met estimates. As for the overall report, though Barkley said the results were somewhat mixed and we're looking at a stock that's up about twenty five percent so far here in twenty twenty three. Yancy Sproul is CEO at
Digital Ocean, joining us on Zoom from Boulder, Colorado. Yancey, it is nice to have you here with Matt and myself before we start and get into the quarter in the business, just remind our world exactly what you guys do. Application software covers an awful.
Lot, that's sure does and great to be with you. We're a cloud infrastructure company, which means we have a dispersed set of computer and other storage assets around the world, and we rent access to the nearly seven hundred thousand customers around the world one hundred and eighty five countries, and so they can rent access to our cloud infrastructure to achieve their compute needs versus owning their own computer equipment around the world.
So a lot of them startups, a lot of them startups.
Yeah.
We we focused mainly on early stage businesses, so people who have ideas, developers who are testing ideas and they graduate into about one hundred and forty thousand of those seven hundred thousand customers are running small emerging startup businesses on the platform. And why they come to us is it's simple, easy, intuitive to use. We provide a lot of support and documentation.
And they don't have to spend on it.
Then, right, Yeah, and then the last piece is it's cheap, you know, relative to other alternatives.
So yeah, how do you how do you how do you keep it cheap relative the alternatives?
Could you? I would imagine scale allows costs to be dropped. So what do you do to fight?
Yeah, we we certainly don't have the scale of some of the Microsoft et cetera. Those but you know, we are very large customers of some large hardware providers. And you know we over this eleven year history of our company have become very good operators. We're getting better over time and also so that's important operational excellence and that's
an ongoing thing. The other thing is we are very tailored our product applications to a narrow set of customers, which is the SMB small medium sized businesses early stage startups, which is about one hundred billion dollar market size. It's a much smaller market than the than the big players
play that focus on enterprise. So because we are focused on a smaller end of the market, simplicity of the product set allows us to not have to invest in a broad diverse set of applications to cover the breadth of an enterprise market, and that keeps costs down as well, because we can be very focused in our applications that we offer customers.
Yeah, what impact have you seen in your demand flows if you will, coming off of the collapse of Silicon Valley Bank, if you're working with startups in that space, I'm just curious what impact you've seen.
Well, I wouldn't say, you know, one of the things we've seen over the last year is a slowing in the broader economy. I don't know that we've seen any change over the last six weeks since that bank. Seventy percent of our customers are outside of the United States. Most of our customers are bootstraps. You know, they have a day job and then they start a business at night, and when it gets of scale they can pay for their own bills. They quit their day job. So they're
not part of that institutional capital market. So we didn't see we saw very little impact, had very little exposure both directly as a business but also in terms of our customers, and saw no real disruption you know, over the last couple of months as that's all played out.
So I imagine you have server farms, probably in more than one location. Talk to us about where you set up your gear and what kind of energy bills do you pay. You know, we've seen the cost really fluctuate, but last summer, for example, very expensive.
Well, we're in fifty different locations around the world New York, Singapore, Frankfurt, Sydney, Toronto, San Francisco, India, Bangalore, India.
All right, you don't have a name them all, Yancy, all.
Right, So we're all over the place and we serve customers all over. We have a very very high capability in network and you know power energy is a big cost. We talked about that in the last earnings call earlier this week that we are paying slightly higher power costs in Europe because of the anticipated higher costs that we're going to be there because of what's going on in Ukraine. Obviously it hasn't played out, so hopefully that will dissipate over time, but it's a big cost.
You know.
One of the good things about our business is we have Moore's Law playing it in that, you know, efficiencies being built into the chips, into the technology. They get smaller, they consume less power over time. We work very closely with our data. We self host, so we have third party data centers and we work with them on their
strategies for energy efficiency. So I think we have a good plan going forward and actually a good footprint today, and we have tailwinds that are back just given the nature of technology how it evolves, but power is a meaningful cost for us in our footprint today.
You mentioned seventy percent of your customers are outside the United States. Is it largely in Europe? Is there a specific region of the world. I'm just no, no, you're shaking your head to You talked about all the centers you have, So what does it tell you then about kind of what's going on in the global economy. You said things have been slowing down over the past year. Are they continuing to slow down?
You know.
The beauty of our business is because we have such an easy way for customers to come to and sign up to be a customer on a website ten million people come to our website a month. Tens of thousands become paying customers every month, so very efficient. We get people from all over the world, and so we're split roughly Europe, Asia, United States, North America and the rest of the world. It looks like GDP, so we truly are a reflection of entrepreneurial activity happening all over the world.
We also don't have a lot of customer or industry.
Concentration, but you still see.
Thanks, We're seeing very consistent trends across the world.
All right, got to run, Yancey, Thank you so much. Yancey Sproul. He's chief executive officer at Digital Ocean. Joining us on zoom from Boulder, Colorado. As we said, this stock is up about twenty six percent this year.
Is Bloomberg Business Week with Carol Messer and Tim Stenebeck on Bloomberg Radio.
Listen, all right, we are going to talk about secrets the new way show Bloomberg BusinessWeek. It's out on newsstands, online at Bloomberg dot com, slash BusinessWeek, and of course on the Bloomberg. The cover story is about an iconic brand with a closely guarded secret recipe We know about that, but we're going to tell you about the plot to still the other secret inside a can of Coca cola. Writing about it the Bloomberg team of Drake Bennett and
Jordan Robertson. Drake is Bloomberg BusinessWeek Technology reporter here in our Bloomberg Interactive Broker Studio along with the editor of Bloomberg Business Week, Joel Weber. And Joel this is another high story. You guys are good with these.
Hi's a that's a funny little inside joke between Drake and me. Uh, yeah, it is.
And even more than that.
It's a story about uh, kind of the Chinese industrial complex looking for IP. And this culminated in a cover story that Jordan and Drake did together last year around ge and that was a miraculous story that had a real cat and mouse game. And if you haven't read that one, you should go back and read it. But you should also read this one because it centers on yet another big secret, which is what's instead of cocaine
but not the liquid. Turns out, the liner Drake Bennett is incredibly valuable as well.
Yeah, and potentially more useful because if you didn't have this two micron thick polymer liner in your cocaine. The coke would basically devour the can.
Not just coke though, right, because a lot of SODA's would devour a can if they didn't have this liner, right, Yeah, exactly, the liners which are.
Made by like Basf Dow Chemical, Axon, Nobel Williams.
So these liners are probably used by I'm guessing other soda makers besides Cocke.
Yeeah, totally.
Coke occupies a particularly important position in this market because they're such a giant. So when they decide, you know, they're going to use something or not use something, it basically decides whether that thing has a market. So that uh happens to be the thing that this woman at the center of our story took advantage of because she was a chemist at Coke and she was responsible for deciding or helping decide which of these new coatings would
go into coke cans or not. And she uses this to basically get a lot more of this information than anyone at Coke had everybody able to get and then takes it to try to start.
Her slow this down.
We got.
There's so much to talk about it. She's only one of only two people that had access.
Yeah.
Shannon Yo, she's a Chinese born chemical engineer, a very talented one with actually like a bunch of cool patents to her name, and she had this job at Coke where she was basically the game keeper. It is something called the Scientific and Regulatory Affairs Group, which is this sort of group that approves these things, and she was the contact person with these big chemical these big coatings companies.
Part of what's fun of the story was just like learning about all these cool coatings out there in the world on like stealth bombers and computers.
Can we talk about that for a second, because like it turns out everything in the world actually has a secret coating on it.
Yeah, yeaheah, all these you know, if you think about there's all these like interfaces in the world where like you're touching a thing, or like you know, there's a bridge and it's in like salty air, so the paint needs to prevent it from rusting, or you know, there's my favorite actually was this paint for ship holes that basically like has the like a bioside in it that kills barnacles so that these ships can go back and forth across the ocean and barnacles can't attach to it.
We put it on our boat.
I wish I had that in my dad when I was a kid, repainted every year.
It's pretty amazing.
It's what you do exactly.
And it turns out like this is what chemists do at big corporations, right. It is like work on these incredibly complicated formulas exactly. Massive ip that's caught up with that, and you think about that within a company is like there's only a few people that. I mean, it makes me wonder if two people have the secret for this formula, how many people have it for the other the core formula?
Right, yeah, yeah, I mean exactly secret.
Secret football suitcase for that. I don't know, Okay, yeah.
I mean there's a whole like staginess around that trade secret.
I feel like, yes, very much.
So, but uh yeah so anyway, so yeah, so basically, and the I mean one of the other cool things about this coding is is it has to get sprayed on in these cans that are like going at super high speeds through these giants. So there's all these sort of technical problems that these companies had to solve, and they spent tens of millions of dollars over many years
to get these coatings just right. And the other bit of it, if you want to get into it, is that these particular ones were particularly valuable and new because they had gotten BPA out of them, which is something that we're increasingly trying to get out of things that touch.
EPA is like a plasticy substance that what does it cause cancer if we're exposed to it for too long?
There's some research that suggest that it messes with your endocrinces, so it can give you diabetes. It can, it can sort of, right.
If consumed in large right, if it consumed in American level quantities, right.
Yeah, exactly.
So she was a great colleague, it turns out.
Yeah, right, no exactly. I mean, part of what's kind of particularly like colorful about the story we felt is that if you were trying to do something like what she was trying to do, which is basically like squirrel away these incredibly valuable trade secrets from your employer, like you try to be presumably like pretty thick chill about it.
But she was actually this incredibly obstreperous personality, and everyone at a new place she'd ever worked with, was like, Yeah, she was just always like really loud and really like getting any of these arguments and had these like very contentious relationships with the companies whose ip she was like trying to steal basically, So it's not one of those things where like, you know, after the crime, everyone's like, wow, you know, I never thought he you know, it seemed like such a nice boy.
Yeah, I never thought.
Yeah she was.
She did get fired.
They fired her though before, so maybe if they hadn't fired her, she wouldn't have tried to steal their ip.
Well actually yes, and so that is actually something that her family members mentioned in the sort of sentencing letters they were to the judge after she was convicted, which is that, yeah, she would have they say, you know,
stated Coke and you know, made her career there. I mean, that's complicated by the fact that she had been So the other part of this is that all along or basically through the entire period she was working at Coke, and then afterwards when she goes to work at Easton Chemical, she's having these conversations with these business partners, including some relatives in China, about starting her own competing codings company to bring these new high tech codings to China where
there is not a a sort of domestic producer of these things. So it's this giant unmet need. There's a lot of public money that they can get to do this, and so there's this kind of parallel thing going on that emerges, you know, only when the FBI gets their hands on all of our electronic devices, where she's got this whole plan going at the same time, and that's why she needs this ip.
A thousand talents program.
This has come up in many other stories, not totally new here, but what concerns do American corporations have about things like Beijing's thousand talents programs?
So thousand Talents is probably the best known of these sort of grant programs that the Chinese government has. Provincial governments have them, the national government has them. And ostensibly they're basically a way to try to get these Chinese born engineers and scientists who have gone abroad to get educated or to get these jobs at high tech companies, to get them to come back and start Chinese companies. What they end up doing, according to their critics, is
also functioning as these bounties for IP. So it's like come back and start a company, but bring some like valuable IP with you from ge aviation or from coke or wherever you are now.
And so this is what was smart. Wh wouldn't they do that?
Yeah? Right, it's like exactly, it's just.
How internationally forever yes.
Right now, there's a long history of you know, the United States did it, England did it? You know, I just go back. It's sort of what it's the way the game has been played. But right now one of the ways the game is played is through these programs. And so Shannon and her co founders uh got some of this money. They applied for it, and they got it for the purpose of starting up a BPA free coding factory and lab in China.
I had this idea, yeah right.
Stuff right, yeah no, And it's like you know, I mean it was very important for the purposes of the application to say, like here's the IP that we have. And you know, they didn't just to kind of like they they had. It was for the application. The they basically she has an impressive resume, but they basically like guild the lily in all these amazing ways. They say, she's like the CTO of fortune. Five hundred company, which she wasn't. They say she actually invented these codings, which
she didn't. They produce this fake sort of licensing agreement that would have given them the rights to these technologies, which they didn't have. So there's a whole package that's very fraudulent that they used to get the money.
Okay, so she's got you know, employers and employees who don't really like her, She's got this exit strategy in China. How does the all come to a head.
Well, it comes to a head because again she basically keeps making such a spectacle of herself and being so sort of blatant about what she's doing that her employer, after Coke, which is Eastman Chemical, sort of fires her. But even after that, she sort of keeps doing these things that raise these red flags, and so eventually they
get their hand. They they noticed she's been like downloading these files onto a USB drive, and so they insist on getting that back when they fire her, and they find these Eastman files, but then all these other files from all these companies where she hasn't even worked before. And so then at that point there's a guy that he'sman who used to work for the FBI, and he calls some of his old colleagues and then it becomes
a criminal thing. And then the companies, the ax Nobels and Sean Williams find out that their secrets are out there and they so she gets in. At that point, she gets starts getting in big trouble.
One of my favorite details from this point in time the NDA's that she got right wrapped up in where she was getting companies to like do NDAs just for her, and then when Coke has to intervene, they had to like do India's to like supersede the NDAs.
It's nuts.
I mean, I think it's sort of it's amazing how much she's able to do as this like kind of mid level person at this company.
And there's hope for all of us out there, right, I.
Mean, she is a phdah, she went to high to get her doctorate, and yet we educated her.
I mean, I don't know if I say like that.
But but but the most fabulous thing becomes this FBI interrogation, right.
Right, So we so one of the key pieces of evidence that gets referred to over and over again in her trial is this two hour conversation she has right after she's arrested in uh In, Michigan at an FBI office there where this the lead investigation, lead investigator in the case basically kind of like walks her through. I mean,
it's it's interesting. It's just kind of like a case study and how you do these things, because he sort of starts out, you know, with a bunch of like very innocent questions, and she's kind of basically lies about a lot of things, and then he sort of reveals just because they've been in her we chats, they've been in her like Gmail, they've been in her work, like they just voicemail.
Yeah, they know the story, they know it, yeah yeah.
And so basically and there's some part it seems where he's like sort of the FBI agent is like, you know, floating the idea of trying to get her to maybe like roll over on her co conspirators, but she doesn't seem very interested. So then it basically becomes him kind of confronting her with all these things that it's clear that she was doing.
Which makes her fall pretty quiet. I think I would have asked for my lawyer a few hours before.
Dude never talks to the cops. It doesn't even matter how innocent you are. Never ever, ever, ever ever talk to the police.
They're not your friends, Jill. You know Anthony Massini, who oversees radio and more audio, he's like, you know, he's like, you know, when you're talking to y'all, like, what is it that made you green light this story?
So I love a good heist, you know, And at the at the end of the day, you know, IP is the most valuable thing that any of us kind of create for our companies, right, and our companies value that. And yet you know, that is a thing that is very difficult to write about and talk about. So when you end up with a narrative and the drama around it and characters like shaneon you know, and what happens here,
it just connects so many different pieces. So there's a very big story here, but we can tell it through you know, something that's very dramatic and kind of small and invisible. It's super important and invisible, Like you would have never even known that codings are worth this much money. And by the end of it, you're just.
Like, it's also an incredible multimedia story. The way you told it and the way you laid it out. You've got video in the text and obviously not in the magazine, but you can go to BusinessWeek dot com and get Yeah.
You can read it anywhere you want, anywhere.
I usually like magazine, but.
That's my favorite way.
We got to go, guys. Joe Weber, Editor Business Feet, Jack Bennett, he wrote it. This is radio.
This is Bloomberg Business. Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus gloom War, business finance, and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Mucle A Journal.
Now about you let me drive?
Oh no, no, no, no, who's going to drive home? Alright?
Please?
I'll do the travels.
Wait, I want to drive. It's a question.
This is the drive to the Clothes dot com.
We'll drive up child down on Bloomberg Radio.
All right, everybody, Just about seventeen and a half minutes left in today's trading session. Carol Masser along with the sometimes shy and a little nervous Matt Miller. Hard to believe.
I never have you been doing this twenty three?
I know you were, you know you were just a wee one.
Yeah.
When we first met you were over in Germany. I had hair, he had lots of Hey, Gordon Gecko.
Had I weighed twenty pounds less.
You were kind of a skinny little dude. Let's get to it, folks. Let's talk about the markets. That's what everybody wants to know. It's kind of I've called it a meh week, and I feel like we're having another.
I have to disagree with you there as you why because there's been so much movement under the hood.
So, yes, you haven't in stocks too.
If you have a behemoth like Disney, a two hundred billion dollar stock dropping ten percent in a day. I mean, the volatility for individual names has been insane. But the thing is it's been barbelled, right, So the index hasn't moved much as.
Just about quarter Yeah I know.
Yeah, so the S and P doesn't move a lot.
But he's a big picture.
Yes, exactly. Okay, I'm looking more granularly.
Katie Kaminsky is like these two idiots, Well, they finally get to meet. Katie is chief research drategist in portfolio manager at Alphice Simplex Group. She joins us via Zoom from Boston, Katie, Katie, it's been that kind of a week. Matt is not wrong. Underneath, like look at regionals or something. You know, underneath, there's a lot of stuff going on. Big picture, it doesn't feel how do you make sense of this trade?
Well, I'll just be honest. We've been treading water and for most of the you know, technical traders and quantitative traders out there, the signals are super mixed, and it feels like the world is waiting for a data point to tell us where we're going. And I think that's what's been so.
Hard, like an economic data point or a market data Yeah, okay, I mean I.
Feel like it's anything. I don't know. I mean, every single data point you start the week and it goes CPI on Wednesday, and then everyone's like, okay, it's going to come out.
And then and then nothing happened.
And then nothing happens.
We're all waiting for options expiries all of a sudden again, right, and then nothing happens.
I'm waiting for the x dade. I don't know about you, guys. Yeah, I'm just kidding.
I mean, yeah, I don't know. I mean, and then and then it's like this debt ceiling stuff, and it's exactly. It feels like somebody just tell us, like, where is it going to go? And from our side, the signals are so mixed and the markets are basically disagreeing, so equities and bonds don't always agree and it's real confusing.
To be honest. This is what I want to ask you. This is what you guys do. You look into market behavior, that's what you study, and you study investment risk and you share that with your clients. So I am curious. Are you just telling your clients folks, we really don't know what's going on?
Well that I mean, I don't think anyone knows perfectly what's going on here. But what we're telling them is that signals are mixed, and when you look at the net positioning in equity markets, it sort of disagrees with the net positioning and fixed income and if you look at the shape of the yield curve, it's still inverted. And people are optimistic on a pause, but at the same time they're saying, well, but we're gonna have cuts
right away, which is also confusing. So I think that's where right now, what we are seeing from a technical perspective is views are definitely conflicting.
If we get cuts, I mean, isn't it wouldn't it be terrifying If the Fed feels, if this Federal Reserve feels it has to cut rates in twenty twenty three, that means something awful happened exactly.
And I think that's why I'm surprised, because when you think of it from a more rational perspective and looking at the shape of the yield curve, either we haven't priced in that things have to go up with inflation, or people think that things are going to get so bad because we're gonna have to cut quickly. To me, cuts this year is a bad sign. It means that things deteriorated.
Hey, forgive me. I just want to point out we can't check a share price because Twitter is private. But Elon Musk announcing a new CEO for x Twitter. He's transitioning to executive chair and CTO. So again, Elon Musk not CEO. He's getting a new CEO for ex Twitter and he is going to be executive chair and chief Technology officer of the company.
I don't know who on Earth would want that job.
Can you imagine? I mean, if you take over as the boss of Twitter. You must know that you're not the boss of Twitter.
All I would say is SpaceX. Right, he's had somebody running that and you know it can work. So it could be a little tricky, but nonethelessly less public, k Katie. This is the world we live in, right, there's headlines coming out is some are wacky. That makes sense.
It's called X Twitter Now, I guess so I didn't realize it must announces new CEO for X.
You know he changes his life Twitter, Katie. Again, confusion, there's sometimes confusion when it comes to Twitter and what's going on there at confusion in the market. So how do you trade this or do you just park it in short term T bills or cash under the mattress and being extreme, but you know, what do you do well?
I mean, to be honest, you have to have a diversified approach. And there are things that will move and have moved. We have seen some interesting moves and precious metals. People have been talking about gold, they've been talking about silver. There are some movements in the commodity space that are a little bit more pronounced than what you've seen in stocks and bonds and I think unfortunately, that's what I'm saying. You almost have to wait until we have some confirmation
for those traditional asset classes. I'm a little bit of a pessimistic person in the sense that I worry about what people are not worrying about, and my worry is the bond market. People think last year was a fluke. If you look in periods of inflation, bonds are a little more sensitive and more challenging. So I think that's what I'm worried about more than anything.
Else, meaning how bad it can be.
Yeah, I mean, I think let's just take a simple narrative of inflation staying sticky, but stickier than most people would like. At some point you start thinking, you know, it takes longer for the effects of the tightening to go through the system, and thus some of the bonds that you might own may not look as desirable. And I think that's where people have really thought about fixed income as the safety bet, like it's always going to
be there. But the truth is, it tends to be better when the FED would stop hiking if the yield curve was steeper, and right now we have it inverted, so that means either bond yields have to go up to match, or that we have the cuts, and either of those are not super greats.
In general, Bill gross is recommended buying the short end of the curve, and a lot of people are talking about tea bills that mature right around the X state whenever that is. But the interesting thing to me is if they come to if you own those bonds and then they get a deal, all of a sudden, the value of the asset you hold is going to drop like a stone.
Right.
Yeah, that's a tricky place to be. And I think tea bills, especially with the narrative of thinking about politics and resolution of those issues, for me, that's getting sort of it's getting hard, right, And so I think there's definitely some trades there, but they're going to be much more complex than sort of a simple supply demand narrative. But I do think that shorter term or even if you're thinking out into a one year horizon, so you kind of think that this may be resolved by then,
might make sense. If you're worried about the end of the yield curve or the steepener trade, Why.
Don't that sets the beginning mastery well?
True?
And then why they get paid the big box exactly.
Katiekaminski, Chief Research Strategies, probably a manager Alpha Simplex Group. Great to have you here, be well, she's joining us or was joining us on zoom from Boston.
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