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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 Stenebek from Bloomberg Radio.
Carol Master, along with Shanali Bossick. Tim is out today. We did Chanali get through this week's inflation reports. We had retail sales, consumer sentiment, a lot of things, and as we've been saying, the next focal point is really next week's FED meeting.
Yeah, and until then, it's kind of a holding pattern, is it. Though we do know some things inflation being a little hotter than expected across a.
Few metrics we know the Fed cares about absolutely, but.
Also that some of the economic data is starting to weaken, which also is not weak enough though to justify not cutting rates.
Well, this is why it's like kind of difficult, I think, for investors to figure out it, which is why we lean on a couple of folks here at Bloomberg. Let's bring in Bloomberg News Economics reporter Steve Matthews. He's out there in our Atlanta Bureau and Bloomberg News Economics editor Molly Smith here in studio, both of you writing about the FED meeting and kind of the backdrop. Steve, I
want to start with you. It is a top the most read on the Bloomberg on this Friday, has been there all day about the FED scene sticking with three cuts here in twenty twenty four. We get an update next week. Tell us about your thinking in the survey that you guys kind of came to this inclusion.
Yeah, it's really interesting. We had a survey of forty nine economists and it's a very close call. It's not an easy call at all, but a majority of them believe that the FED will stick with three right cuts in the blot in the summary of Economic projections next week. More than a third say that they will shift to two. We've had we had a bad inflation report in January, just as past week we had a bad CPI worson expected and worson next affected a PPI. All of that
goes into the FEDS inflation measure, the pc measure. So the thinking is that there will be at least it will take just two of the nineteen FMC participants to change their view on dots to shift from three cuts as being the median to two cuts being the median, and that could well jolt markets because markets are really not looking for that. So it's a close call and it's going to be really really interesting.
Mollie.
Let's bring you in here to talk about what it means for what comes next, because even though people will be looking at that dot plot, what will fetch your Powe will say, the reality is between that FOMC meeting, the one we're having next week, and the next set of economic data before you have the potential set of cuts that you'll see, there's a lot of uncertainty.
Yeah, and I don't think powers are going to give us a great idea of timing. It's all been so vague so far from him, from some other of the FED speakers.
Say though, that we would get rate cuts this year.
Yes, I mean, I mean look where right now at March fifteenth. There's a while ago from now to the end of the year. So and I think if anything more of what you hear that's a little bit more specific than this year is later this year, as in second half of this year. So I still think that I mean, you obviously have next week being the upcoming FED meeting. FED meeting, not really a whole lot of people seeing may as likely for a starting point June
even less likely after this week. At that point, that gets you closer to July, and then September would be the next one. Then you're in the second half of the year, so still a very.
Good closer to a presidential election. Even more so, well, you know, Steve, I mean, when it comes down to the data points, right, not all data points are equal, and I know the FED has a dual mandate, right, They're watching certainly the inflation rate. They're also watching unemployment, the labor market, maybe some softness, a little bit of
still pretty tight. Inflation is what it's all about, right, and the FED is going to be vigilant on that, and that's going to determine ultimately how many rate cuts they do when we get to the end.
Of the year. Yeah.
Really, over the last year year and a half, inflation has been basically the only thing they've been looking at when they were raising rates. When they stopped, we've had basically good inflation reports until this year, and now that is slightly changing though in the last couple of months, the unemployment rate is ticked up to three point nine percent.
It's the highest in two years. You're seeing a little bit more balance in the discussion of the different FED officials and those who are saying that they're going to stick with three rate cuts this year. Many of them are pointing to what's happening with the labor market that you know, they may be they may not want to change to two cuts because they want to have that option open to move relatively quickly if things get worse for the labor market.
Steve, what about the election? You know, Carol alluded to it a little bit here, but given how much pressure there is on the FED to fight inflation, and inflation going into the election is still such a massive concern for so many Americans, wouldn't there be some pressure on the FED here equally not to cut well.
The Fed, no doubt, is really really focused on inflation, and you will hear words every time that Chair Palell speaks. He's going to say, we're firmly committed to getting inflation back to the two percent targeted and that is an overriding goal and it causes pain for everyone, And he's going to say all of the right things to kind
of express concern on inflation. So that is a factor, but the timing of meetings is also a factor of One of the leading economists, Vince ryan Hard, he used to work with the FED, was making the point that in some ways it will be easier for the FED to move in June than September. At one point he was forecasting the first move in September. Now he's in June. Because if you had your first move in September, which if you had two cuts, it might make sense to
do September and December. If you were doing that, that would be like the last meeting before the presidential election. And do you really want to be cutting rights the last meeting before the presidential election. I mean, there would be lots of accusations. As much as the FED is avowedly nonpartisan, there would be accusations that were moving for political reasons, and they want to avoid that impression altogether.
Yeah, just to piggyback off of what Steve said there, that in addition to the FED preaching that they are firmly committed to bring inflation to two percent, they will just as equally be preaching that they are an independent institution, that they are not political and that they will not wait into politics whatsoever. So I kind of have a hard time seeing how you make I think the argument
could go either way. If if you cut in June versus September, of like, how that could be politically motivated in either way. I think there are a lot of ways to slice and dice that. But either way, they're going to be focused on inflation and what the data tells them.
Yeah, and I will say in talking with I have a member of the White House Economic Team. We talked with Daniel Hornig ahead of remember his name, Deputy director with the National Economic Council yesterday and when I asked him something about the two percent target, He's like, hey, we don't tell the FED what to do. We stay
away from that. Steve having said that, you know, I think about when you're like driving on ice, and I'm not saying that that this is kind of what the economic situation is, but you know, how you top the brakes so that, you know, could the FED try and do something earlier rather than later and then maybe leave it alone for a couple of months to give it some breathing room just in case that there is like you talked about some signs of maybe some slowing down
in the labor market, just to make sure we don't ultimately slide into some kind of signal downturn.
That is absolutely an option. You heard Vice Chair Jefferson in a recent speech before the FED went into blackout say, you know he referred back to the mid nineteen nineties when Alan Greenspan had a right cut and then pause for several meetings before resuming cuts. And you know he was kind of holding that out as you know, one option that they could do. They could do a move and then hold for on pause for a few meetings.
And you know that is absolutely an option. And if they're not really sure or if they want to keep their options open, that would be a good way to do it real quickly.
Molly ten seconds. What would surprise you in terms of the FED meeting next week.
Probably looking more at the outlook for their inflation projections, if they saw maybe mark those up a bit, wouldn't be surprised as much if maybe there were modifications to the growth forecast, But seeing changes to the inflation on that would definitely be market moving.
That would certainly get the market investors' attention us, Steve, same thing ten fifteen seconds to you. A big surprise would be what from the FED next week?
If anyone dissents, I would be surprised because I think, you know and talking about the FED big non political. I think this is a period of time when they want to be united. Some of them are appointed by Republicans, some by Democrats. They want to show that they are non political, don't they.
At the end of the meeting, all the hands go in the middle of the table and they go yay, all for one. No if they don't hold by y'all come by ya all right, guys, thanks so much, have a great week and Molly Smith, economics edit at Bloomberg News. Here in studio. Steve Matthews, of course, our economics reporter at Bloomberg News out there in Atlanta Bureau.
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Hey, our next guest says, the alchemy of low rates is over. Feels like a very timely conversation. Considering we're getting ready for the next FED meeting next week, let's get to it. Jeff Klingelhoffer is head of investments for Thornberg Investment Management. They've got some forty four billion dollars in assets under management. Joining Chanel and me here in studio. Welcome, Welcome, How are you doing well?
Thank you for having me.
Well, it's great to have you here. And I feel like it's an environment, depending on the day, depending on the data points, kind of certainly shapes the mood of investors a lot to digest. Is there a way that you sum up today's investment environment?
Yeah, I think honestly, the way I would sum it up is we are looking to the forward, looking for the FED. Right, We're looking to a lot of complacency in the market, a lot of uncertainty. The data tells us that, unfortunately, the consumer isn't nearly as strong as the data is telling us. They're taking on more debt, they're dipping into savings, they're defaulting on that additional debt. Yet here we have.
Market talked about.
Oddly.
Yeah, markets are very complacent. Pe multiples looking forward are very high. Right, spreads on bonds are very very tight, Earnings expectations run very high. So what I would say is, it's not that embarrashed. We're really really struggling to square up what we're seeing in the data versus what markets are telling us.
You know, I think Wall Street does this thing. Big investors, they shun off, they shrug off the pains and the consumer. But there is a point at which the real economy starts to meet the market. And where is that overlap?
Yeah, I mean I would characterize it. There's been a bit of a runaway train recently in terms of sentiment to the positive side. And what I worry about as we start to see data points that continue to affirm the economy is slowing, higher rates are actually having an impact that we may see the exact opposite and markets pull back. We'll be watching the Fed very closely next week. Right, we've in the face of a couple of very strong inflation prints the market. The Fed is looking at the
dot plot. Because the Fed tells us they're going to cut rates three times this year. I continue to push back. They told us they were going to be very reactive on the way up. They need to see inflation above two percent, and they needed to stay think it was
going to stay there, right, the famous transitory language. I worry even the FED themself elves they might be making a policy mistake on the belief that they're going to cut rates in the face of this higher inflation in order to prevent that true slowdown.
So are you saying, because we've had like Towrdsen's lack of apollo management, We've all been talking about it was a most red story in the Bloomberg that we could maybe not get rate cuts this year. Maybe we shouldn't get racuts this year.
Yeah, I'd be a little bit hesitant to say we're not going to see a single rate cut. That's where I was leading into this, But in reality, the Fed is telling us they're probably going to cut rates. What I would discount is I don't think they're going to cut three times. I think a reasonable base case for my view is we'll probably get a single rate cut in recognition that inflation isn't running at nine percent, it is coming down to three.
But they don't maybe they.
Don't need to actually get to two in an incredibly fast way, so they're probably going to hold it there for a little bit. Longer and adjust their expectations higher.
Now, the other question is when we've been talking kind of just before we got on air about how tomorrow is actually the second anniversary since the FED began this FED rate hiking cycle, So how long before begins the rate cutting one?
Does it have to be after the election?
I don't think it has to be after the election. I mean my base case would be towards the late summer. But what I would say is Wall Street, We on Wall Street made a mistake on the back of a very fast, very high interest rate hiking cycle. It was reasonable to assume that those long and variable lags would be a little bit shorter than we're historically accustomed to. But history tells us it's about two years before higher
rates actually start to have a byte. And to your point, here we sit two years later and it is having a bite. So I think it's around the corner. It is slow, but I think it's around the corner, right, because we see every single day the data is coming in just slightly weaker than markets expect to make.
The connection between like an Nvidia that's up eighty percent this year with the stuff we're seeing on everyday Americans what's the connection that maybe we should be making.
I don't know if we should be making a connection. And that's one of the challenges. Right We've got a very bifurcated market. A couple of very large companies the hype around AI are really what's driving the market higher. But the entirety of the rest of the S and P five hundred, right the four hundred and ninety three, if you will, they're struggling.
But we have seen a little bit of a broadening out.
We have, but just earlier this week we saw a survey out of small businesses that suggest forward looking hiring plans are coming down, and they're consistent with that slowdown, and so there is a very big disconnect. And even on some of the AI we have concerns because they're spending a lot of money historically a lot more than they have spent, and their return on that invested capital is coming down. So if Wall Street doesn't see that return pick up, I worry that that sentiment could soften.
Their So you know how there was a point in time where people looked at some of these big tech companies and almost saw them as a haven. Here do you think that that same dynamic is starting to face the semiconductor stocks. Do you think that in some ways that if you believe that a job market is softening, or if you believe that there are some struggles in the broader environment, that there's still would be investment potentially
int AI. I mean, does that start to also drop off in a way that no longer justifies these valuations.
Well, what I'll say is, I think semiconductors traditionally are actually a fairly cyclical investment and they've bucked that trend because of the hype around AI, and every company in the world feels like they have to jump in, they have to play catchup. But I think, just like the Internet or just like robotics, right, AI is something that's going to really work to shape the world, not over the next one or two or three years. It's over the next decades.
To runways longer.
So the cycle probably should be longer. But the hype has really moved forward to a very savage question.
I love the savage question.
The savage question is if companies are investing in this environment where dollars are harder to come by, do they invest in AI or do they invest in the marginal job.
I think over time it's going to have to move back towards that marginal job because again, what we're not seeing is the return on invested capital. So there's a bit just like in markets, there's that fear of missing out FOMO you have to rush in because it's worked across twenty twenty three and twenty twenty four. I feel like companies are also playing that catch up. They hear their peers are investing in AI, and therefore they have to invest in AI. But that should change.
Do you invest in? So is there an AI play that you guys have been investing too in because do you kind of have to or your investors are asking you to.
It's less because of that. But what I would say is what we want to find is companies with very strong modes. And so in the face of all of this uncertainty, this data that suggests on one level the economy is doing well GDP for instance, but then gross domestic income should say the same thing, but it says something very opposite. We're really focusing on companies that surround
the mode around AI. So companies like sk Heinex right still involved in that cycle, but not wrapped up in nearly the same amount of hype and pe multiple Where else.
Are you putting Would you commit new money in this environment?
As you lay it out, Yeah, The biggest takeaway from what I'm talking with clients this week is that uncertainty is very high. It's not that I think we are heading into a recession. It's that the possibility when we look at data and we pair these disparate indicators, right, things like the establishment survey versus the household surveys, very very different thing.
We've talked a lot about the mixed data points that make it tough.
It's pull back. It's just you don't have to be investing in these runaway sectors in order to be involved in the markets. So fixed income continues to look tremendously interesting.
Right.
Income opportunities across the globe are very high. Global dividend pain stocks look very attractive to it.
I think so on fixed income with where spreads are today.
Less on spreads, but treasuries right and low four percents is still historically, at least over a reasonable history the last fifteen twenty years is a very interesting starting place. But the reason why I think fixed income in particular is interesting is because we debate what the FED is going to do. I don't think the next move is going to be a hike. It will be a cut. I do think it's much longer. But the beauty of it is central banks around the world can cut if we get that recession.
Wait did you just say I don't think the next move is going to be a hike? So is that even a possibility we should keep in our narrative.
I think it's absolutely we need to keep it in our narrative. Right, central banks run an objective where they have to react to incoming data. The challenges is inflation has stopped falling, and if anything, it's actually started to reaccelerate in some sectors. So I think it's premature to talk about a hike, but it's not off the table.
Wow, great conversation. Come back soon. Jeff Klingelhoff, our head of investments at Thornberg Investment Management, joining us in studio.
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We've been watching a few commodities in the mining space. This is prices for two of the world's most important mind commodities are diverging quickly, with copper ratling above nine thousand a ton as supply cuts into hits the market, and iron ore is sinking as demand headwinds mount as well. Copper, by the way, surging about five percent this week. And then in the iron ore market, you've got futures falling below one hundred dollars a ton for the first time
in seven months. Has to do with China investors betting that China's years long property crisis will run through twenty twenty four, keeping a lid on demand, so we continue to see some pressure on that sector. We've got a great guest, we.
Sure do, and he's joining us from our Bloomberg News bureau in Chicago, William Chen, Managing director and head of Commodities at Singapore based exchange conglomerate SGX Group. Well, how are you welcome? And welcome to a Chicago bureau joining us from the US commodities center of the country.
Really, I'm very well, thank you for having me.
It's a huge delight to be in Chicago, which is really home to one of the earliest trading of commodities contracts.
How do you see the ability for SGX to really expand into different commodities markets and really build on the client base that you have trading commodities on your Singapore based exchange.
You know the nature of what we do in the Singapore Exchange is to be liquidity builders of key things, which represents seaborne flows of commodities going from web to east and east to west, in other words, point A to point B. So a lot of what we do is to mirror what's needed from a resmaragement perspective.
Some of the things that we have done in the.
Past would be stuff which is related to industrialization in Asia, so we've looked at are in all, shipping is a key part of what we do, and recently we've been focusing on some of the newer trends in the markets, which includes things like cobalt and lithium which are crucial in the energy transition story.
Well, and I am curious about China specifically. How do you think you guys can benefit specifically from the general loss of confidence in China. Singapore has long played on that, for example, people who want to bet on China but are too wary to really wade in. Is this good? Can you guys specifically benefit of that?
You know, the key role of an exchange is really very much a arbita of a credible price. So in many ways, people are typically very surprised when we talk about Singapore being the reference price of commodity contracts which are traded around the world. The very essence of the role we play is one of price discovery. In other words, consumers and producers would come to the estecs to look for a fair price. You know what kind of determines the marginal demand and supply which makes up the price
that goes into physical contracts. So that's a price that that's a role that we play, and we play that where the prices are going up or where the prices are going down.
When you look at the macro environment right now, where do you think that there are commodities with the most promise given where many global economies are now and demand that would drive interest in those areas. Do you think that there are certain things that you trade now that have a lot of upside room.
You know, I'd love to talk about iron ore because iron ore and I really love to phrase you know that you use at the very beginning of the program, which is the invasion of iron ore. It really very much mirrors the evolution of iron ore from a product fourteen years ago there was no iron ore futures and today it's a product that's grown to one that's traded four and a half billion tons of paper back in twenty twenty three.
Now this is a huge contract.
It's grown, it's got a lot of potential to do a lot more, and a lot of that is mirroring the role of the role of.
Iron ore in the urbanization story.
So while some quarters some clans look at iron ore as a China reference because China is the world's largest producer of steel.
Urbanization is a global story.
So that's one big thing which is kind of evolving iron ore into a global story. We also talk about the key input of iron o into the making of steel, and steel is a key input into the energy transition story. So we see iron o to be one which is growing and evolving into a global story.
But we'll kind of play off of again some of the uncertainty over in China specifically, I'm curious how you get more commodities companies iron ore and others to build up your to build up their presence specifically on your exchange on SGX. How do you do that?
So the typical clan segment that we attract would be the physical hatches. So both iron ore producers still producers, they would come into the astects for hatching purposes. Now the product itself is evolving into one from a hatching element, to a trading element, to now one of a financial elements. In others, iron oy is finding itself into the connorstone
of many global commodity portfolios. And a lot of that mirrors what we say just earlier around the role of iron evolving into one of a of a global commodity.
What about outside of iron ore. You we're asking about commodities with upside risk, but what about those with downside risks? There are still a lot of recession fears baking through the economy, certainly in the United States, but other global economy is giving global Central bank great hiking cycles. You think about next week alone, forty percent of the world's GDP is expected to have a Central Bank meeting in which many will make a case for either keeping interest
rates higher or lower. How will that macro brackdrop that worries about a downturn impacts from commodity.
In your view, you know, all of these macro developments will drive increased and enhanced volatility in prices in commodities. I think the world have seen since COVID and post COVID that the way of doing business which is just in time, just enough in the commodity supply chain that is very.
Susceptible to shops in the market.
Whether it's macro policies, whether it's some of what you've mentioned with central bank moves in the market, but all of that would drive a lot more I guess usage and adoption of what commodities means from a resmanagement perspective. So we see a lot of use cases, like I've said, you know, both upside and downside. We see a lot of clients tending to the ashets for resmanagement services, whether this is in commodities, whether this is in equities, whether
this is in effects. And that's rising across the board for us as we see and con volatility and uncertainty.
In the world.
What's your goal or what's your mission in terms of building up liquidity right on these exchange like this is all great, and you talk about the financialization of iron ore or others or other commodities if you will, or metal based commodities, how do you then'll build up liquidity which will bring in investors?
You know, I guess my mission kind of translates into one outcome, which is the poll voting of iron ore into the global class of key macro commodity contracts.
So think copper, think crude oil. We think iron ore.
Has a very big role to play as it continues to follow lithium.
Is that also part of it? Like a lithium contract.
We think lithium is interesting.
It's certainly part of the energy transition story, and it will have a role to play. It's small in terms of how it kind of mirrors the physical market, but we think this will have a very big role to play in years to come.
All right, gott to leave it on. That notes an interesting to suddenly to think about, certainly against the macro backdrop of some of the trade that we've seen in both copper and also more specifically iron ore. Hey, well, thank you, so much. Thanks stopping for by our Chicago bureau. Wilchin, he's managing director and head of Commodities at SGX Group,
joining us from our Chicago bureau. Yeah, it's kind of interesting, you know, just watching it was funny and to talk about China a little bit the trade because it does feel like for such a long time economic news would come out of China specifically impact the trade here. It feels like whether investors are wary of some of the data points or not trusting it, or waiting for the government to do something that shakes it all up.
And then we remember those US data points hit at ten am Eastern time often, so that changes the trade often, doesn't it.
That's a really good point.
All right.
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They're still going on, certainly in the crypto world. Every day, Bitcoin extending a retreat from its latest record high. This on an intensifying debate about whether the bull run in cryptocurrencies is evidence of speculative froth and global markets. Bitcoin roughly down about seven percent Sanali in the past two days alone.
Yeah, it's interesting that is some leverage popping out of the bubble, isn't it. You know, traders aren't the only ones that are impacted by the bitcoin price. We are going to be joined out right by Adam Slivan, who is a great guest right before the Having cycle, president and CEO of the small cap, publicly held crypto mining firm Core Scientific. Coren Scientific of course emerge from bankruptcy just earlier this year, kind of right in time for
the Having. But when you think about the dynamics that are ahead of you, now, what are you most concerned about in terms of getting the rewards from bitcoin going from more than six bitcoin per block to just over three.
Yeah, yeah, I mean so Core Scientific. We're the leader in bitcoin mining from twenty twenty one to twenty twenty three. In terms of bitcoin's mind. We mind more bitcoin than another publicly traded mining company in twenty twenty four, and so as we look towards the Having, for us, it's about maintaining and increasing our share of the total market.
So today we've seen the total network exca hash continue to increase even through really twenty twenty three, when bitcoin was pulling back, we didn't necessarily have a bull run. Now seeing bitcoin price increase, and so the amount of xa hash that's on the network, the compute applied to the network has continued to increase, going.
To the help because the value has gone up.
Just because the value has gone up, so old equipment is actually turning back online to capture these higher bitcoin prices.
Well, what does that mean for your input costs as well the costs of all the things that you need to mind that bitcoin in the first place.
Yeah, So it's not necessarily about the cost, it's about the difficulty. So the difficulty. Every two weeks, Bitcoin resets how difficult it is to mine a bitcoin, and so the difficulty has been increasing steadily over the course of the past you know, five six years actually for the entirety of bitcoin's existence, but it's been increasing more rapidly in twenty twenty four, given the price run up.
I want to go back to having though, can I just want to understand and make sure our audience does so. It happens every four years so it means the amount you and other miners have right at this point, basically your validating blocks are cut in half. So how does that Doesn't that impact the top line, the revenue line.
Absolutely, it definitely does. But people on the networkature.
Value of as bitcoin goes up, that's also a factor. That's a big factor.
Yeah.
But once we get to the having part of the network will's shut off because they become unprofitable to mine at those levels, and so we get an increasing share of the overall network post habit.
When you say part of the network shuts off, do you mean that company's rivals of yours will face increased financial pressure.
Absolutely. In twenty twenty two, we saw the down bitcoin price, you know, going to kind of a bear cycle. We saw energy prices go higher, and so what you saw was a number of challenge companies, sell facilities, sell minors, and you'll see that again if they haven't.
Adam, I mean, you're kind of a great person to talk to given that corner. Scientific face bankruptcy ones. Why is this time.
Different for you? Guys?
How did you emerge from bankruptcy and make it into this cycle?
Yeah, I mean it was so it was a thirteen month process, and when we came out, we came out of much stronger company, so we had a much more interesting capital structure. We lowered our debt by almost forty percent, and they gave us optionality in the capital.
Strue hundred million dollars in debt that you guys trimmed.
Yeah, we trimmed about four hundred million. Yeah, And so the rest of our capital structure has optionality in it, meaning there's mandatory converts in it, there's cash exercise warrants, and so if we perform well, it creates a situation where we'll be deat free.
So what are some of the lessons learned from the first ball run we saw in crypto going into now the new bull run going into crypto into the having.
Yeah, it's a bitcoin mining is very much a commodity company, right, So you have energy inputs on one side and you have bitcoin outputs on the other side, and you have to be able to hedge input costs and hedge output costs.
And so you know, we were a case study in we had over six hundred million a bitcoin on balance sheet and when bitcoins started to trade down, it not only hurt our balance sheet, but our income statements started to get constrained as well, and so that was the real issue in twenty twenty two.
So your balance sheet is very different so that you can't get into that situation again. Like go played out for us a little bit more because you are a great case study. I think if I'm an MBA student, I want to study your company. You know what happened and then how you came out and how you're doing something different because I could certainly see similar scenarios and troubles. Playing three tends to repeat itself.
It does, it does. But you know the interesting part is our counter parties, our debt holders, understand that. And so they built two things into the capital structure, time and optionality. So the time is they bought us essentially three to four years before there's any larger maturity walls.
On our jay I didn't have last time, which we had a.
Lot of short term advertising down in a balance sheet before, okay. And they also built U in optionality where if we trade above certain levels, we were able to eliminate our debt. And so really those two things make us a completely different company from that perspective.
Now, let's walk through some of the impacts of the having how much do you think it will impact revenue at the end of the day.
Yeah, it's a great, great question because if you look back the estmates in twenty twenty, no one was right, and so when you look at twenty twenty four and you look at the estimates, we have a feeling that anywhere between ten to fifteen percent of the network will come offline. So that means our revenues will be cut
by about forty percent now depending on bitcoin price. If that trades down, depending on the mix between machines at different power prices, more network actash could come offline, and so we could have a better or worse scenario depending on those factors.
That's a big number. Is that manageable even with the covenants or whatever that you said that you guys are doing it differently in terms of how you're managing your balance sheet, that's a big hit. How do you manage that?
Yeah, you manage it through really three different areas, but one of the main ones is on the energy side. So you need to have flexibility and the ability to curtail more often on the grid because you get paid to curtail or in some cases in regulated markets, It actually brings down your power costs, and so for us, as we look at cut the revenue cut, it actually provides an opportunity for us to showcase what we've built. Internally.
We have the most advanced software team, the most advanced technology team, and the best operations team in the industry.
So you can automatically get those power benefits we can. Yeah, they're right there. Yeah, okay, So what about others here?
I mean, I'm kind of curious about how you think the industry is changing.
Are you gonna say dogecoin? Are you going to go there?
Well, how do you react? Right? How do you re I'm actually going to go to another buzz We're going to go to AI and do you sit there as a bitcoin mining firm and say we're going to diversify into other areas as well where certain hardware could be applicable. We've heard people talking about things like that, do you buy some of your rivals at this point? How do you diversify or maybe double down on this industry?
Yeah, So we actually signed a contractor was announced a few weeks ago with core Weave. You, a very large HPC company that's really the first fora you know, our company has traditional data center roots, and so we're looking at converting about three hundred megawatts of our seven hundred and twenty four megawats today into actually HPC compute facilities.
And so absolutely we're taking a look at what it means in twenty twenty eight to be competitive and trying to work towards the infrastructure is a three year game, so it's working towards altering our infrastructure before the next you know, having in twenty twenty eight.
I'm HPC high performance computing. Yes, okay, just want to make sure I understand it good.
I didn't know that.
Oh, thank you by Google.
Thank you.
But you know, when you're thinking about twenty twenty eight and you think about this having cycle, even if having cycles of the past had paused a run up in bitcoin or at least preceded one, how can you be sure that that will be the case for the future. As somebody who's running a business, do you almost have to protect yourself from maybe that not being the case every time.
This business is about protecting your downside risk and preparing for downside volatility, because if you can have time and market in bitcoin mining, you can actually experiencing you can actually experience the bull runs, which if you can't experience the bull runs, then you know bitcoin mining is is generally just you know, for most of the time, bitcoin is you know, about a thirty to forty percent margin business. But during bull runs, you know, the margin profile expands rapidly.
So are you set up? Okay, So we're just below seventy thousand dollars on bitcoin? Are you a with bitcoin at sixty five thousand?
Absolutely?
Sixty thousand, absolutely, fifty five thousand.
Absolutely, we emerge at it. We emerged at less than half of it at seventy thousand.
There's some kind of significant haircut. You're fine.
Absolutely, So when you're.
Rolling back to the capital markets, right, I think one thing that fast fascinates me is that a lot of these big bitcoin companies and sorry just about a minute to answer here, but these big companies are levering up again. Does that come with a warning sign?
It does a little bit, absolutely. I mean this industry is, you know, bitcoin, especially the price has been driven by leverage in the past. You know, we're seeing a little bit different bitcoin price run up today driven by ETFs, and I think that's actually a positive sign for our industry micro strategy.
What'd you say?
Micro strategy just brought a ton of money to be buying bitcoin, So leverage looks a little different in the system these days, I guess, and I hadn't past well.
As you can see, we get pretty excited. I know you get wrong. We're talking about this topic, Adam, comebacks soon. Interesting especially it's a different year, new year for you guys, so be interesting to maybe catch up with you real soon. Absolutely really appreciate it, Adam Sullivan, President and CEO, as we said, small cap publicly al crypto mining firm, course scientific you can find it certainly to her as co r z.
Um brother Marco.
Journal.
How about you let me drive?
No, no, no, no, who's going to drive?
Honey?
Please, I'll do the riding gravel.
Let's make I want to try it.
It's a good question.
This is the drive to the Globe dot com. I think we'll buy an sell it on on Bloomberg Radio.
All right, TikTok, everybody, Just about eighteen minutes left in today's trading session, getting ready to wrap up the Friday trade and the week overall. And it's safe to say that we are so ready to do it. Let's bring in Nancy Tangler. Great to have her back. She's CEO and chief investment officer at Laffertangler Investments, author of The Women's Guy to Successful Investing with us from Scottsdale, Arizona. It is great to have you back. How are you.
I'm fine, Carol. How are you doing well?
Doing well? Keeping up, getting ready for the FED meeting next week. I am curious you are there before we get into that, because there's so much stuff that went on this week. But I am curious when you are in and around Scottsdale. What is it that's top of mind for everybody? Is it the economy? Is it the election? Is it FED talk?
What is it?
Well, Carol, I wake up at three point thirty in the morning and I go home and go to bed at six o'clock. At nights, you don't talk to anybody. I don't top of mind with too many people. But I think in our in the circles that I that I do travel in people well. Here, of course they're worried about immigration, but from an economic standpoint, they're just worried about inflation. I mean only in our business when
we talk about rate of change. It's coming down, but still, you know, costs in grocery stores are up twenty five percent, and that's that is that's not the rate to change, right, I mean, that's there's hard to take away. I just wrote a piece on Walmart. But one of the things that struck me the last time I was there, I paid seven dollars and twenty cents at Walmart for a sixty four ounce jug of chlorox bleach. Wow. Well, it's interesting two point fifty pre pandemic.
Yeah, that inflation story too. We were kind of talking a little earlier about who it's impacting and who it's not impacting, and how do you think about that divergence in the economy right now and how that feeds through to the broader market.
Yeah, it always, I mean, shall it always hurts the lower income cohort among us. And I grew up as a lower income cohort, and I grew up in the seventies when inflation was raging. And you know, I baby said, I took care of people's dogs, I cleaned houses. You had to do that to make ends meet because my mom was a single parent. So I think that's what's so troubling and now with gas edging back up and the PPI is pretty elevated. They led down when the
CPI started its descent from nine point two percent. They start coming down in the spring of was that last year or the year before? So I think the fact that the PPI came in so hot is at least giving some of us pause because you know, we may see a resurgent in inflation and sticky inflation is still elevated in the four and a half percent range.
Well, you know what, Nancy, this is a question I asked Jeff Klingelhoffer over at Thornberg Investment Management, who is with us on in the last hour like that connection or disconnect or how do you draw the line between some of the run ups we've seen in the semispace and VideA other names versus what's going on on main streem in real America people paying six seven dollars for
Clorox and other things like that. Disconnect between people with household debt that has really raised to significant levels and is a burden versus again, the run ups that we've seen in so many names.
Yeah, well it's it's always been thus unfortunately. But I think the one thing that's different this time than in the seventies is that people are still working. And you know, we saw the revisions to the jobs gains, but still this is a healthy labor market, despite the fact that the labor force participation rate just doesn't seem to get
be able to get out of its own way. But I think too, you know, I was looking at the Nasdaq just like if you go back two years, so twenty two and twenty three, it was down three percent cumulatively over that period. You go about three years, it's up four percent. So this notion that we're in a bubble, I just don't see it. As you know, we've talked about this. I've drawn an analogy to the nineteen nineties, and this is I think this is the playbook the
Fed's going to use. You know, Greens band raise rates aggressively in ninety four, and then he cut once in ninety five, sat there and then cut twice in ninety six and kept rates above five and a half percent for the rest of the decade. Stocks still were able to coexist quite nicely with strong performance. I think that's the world we're in unless unless something, you know, unless things fall off rails. But Steel Dynamics reported today and
they beat right right. I mean materially a steel company, flat rolled steel. I mean, I own it, and I've been thinking about, gee, should I get out of this thing? But you know, industrials, the industrial segment, manufacturing is starting to turn, and I think that may be the next leg of this kind of rolling recession that's going to improve good back. So I'm still optimistic.
Go back forgive me, you said the Nasdaq if you go back a couple of years. You said, go back, because I'm just looking at the year performances on the NASAQ. Make that point again for me. Oh yeah, So for the for.
Twenty two and twenty three, the cumulative return on the Nasdaq was a negative two point four percent. If you go back three years, so this would be twenty one, twenty twenty two, twenty twenty three, we're up like four percent ish. That's approximate. I wrote it down, but I don't know what I did with it. And and so you know that's that's not a bubble. I mean, valuations
are not crazy. Now in some names they are, but in general, I think you know, if you eat even if you look at the mag seven the price earnings to growth rate is one point five times two and a half percent for the rest of the market. So I think, you know, investors need to take a breath. We needed a correction. If this is it, I'm glad because I'll be in buying some of the names like Adobe that got clobbered or Palo Alto Networks. They've been
trimming all those names. But this is an opportunity because this bull market is not finished yet.
Hey, Nancy, what gives you conviction that we won't see a bigger correction.
More than ten percenttionally?
Yeah, more than ten percent.
I mean, I think we could tolerate ten to fifteen don't I don't. I don't think that's devastating. But I don't think we're going to go down into bear market territory. And the reason for that is that earnings are still pretty robust, so interest rates are not as high as they were in the nineteen nineties, and you know, the Nasdaq was up over eight hundred percent in the nineties.
But more importantly, these are real businesinesses. You know, we're not valuing them on clicks and eyeballs, and so our investing theme has been as we did in the nineties. Ours has been old economy companies that are pivoting to digitization and cloud computing and robotics. So think Walmart, or think Xylum, a water treatment company. It's across all sectors.
And then we like the suppliers of the picks and shovels, and those were the ones that were delivering really reliable earnings growth in the bear market of twenty twenty two. And so that's why we were in in October increasing our exposure to technology and consumer discretionary because we felt like it had been way overdone, and indeed it was. And many of these companies actually benefited from higher interest rates because they have fortress balance sheets.
Right, Hey, Nancy, thirty seconds left here. I understanding. You know you like those companies with reliable earnings. Microsoft is one of them. Just quick twenty seconds on Microsoft specifically, which as we know, is about ten eleven percent this year.
Yeah.
I mean, it's just an extraordinarily well managed company, and they are increasing the use cases for generative AI. It's going to be you know, throughout the entire system, and I think that's going to continue to drive margins. It's not as fast as a grower as some of the other tech names that we own. But it's a reliable grower with a dividend that's growing, So that's what we like.
All right.
I'm going to leave it on that note. Hey, listen, have a great weekend. Try and get some sleep. Don't wake up that early on the weekend. Nancy Tangler, of course, CEO and chief investment officer over at Laffertanglar Investments, author of the Women's Guide to Successful Investing, Joining us from Scottsdale, Arizona.
This is the Bloomberg Business Week Podcast. I'll a little on Apple, Spotify, and anywhere else you can get your podcast. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.