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And a very good afternoon everybody live on radio, TV, YouTube, Bloomberg Originals. This is Bloomberg Business Week for this. Yeah, it's a FED Wednesday. It is Wednesday, February nineteenth, Carol Master Tim Stenevik. In just a moment, we're going to get the FED minutes from the meeting, the first meeting of twenty twenty five. It happened three weeks ago. We're going to head to Washington, DC. In just a moment, Tim.
Yeah, we're also going inside the world of the world's biggest online dollar store.
Off to DC we go, and that's where we find Bloomberg News International Economics and Policy correspondent Michael McKee.
Mike, we've got some news from the minutes today as there was a lot of discussion apparently at the last meeting about TRAID, tariffs, banks and the balance sheet. Whilst officials saw a strong economy with a solid labor market and declining, if still too high inflation. They spent a lot of time talking about potential policy changes and financial
market supervision. A number of participants suggested the recent rise in monthly inflation was likely due to seasonal factors, noting substantial progress before that, but potential changes to trade and immigration policy from the new administration had the quote potential to hinder the disinflation process. One concerning note business contacts in a number of districts, indicated that firms would attempt to pass on to consumers higher input costs arising from
potential tariffs. Many said companies were reporting substantial optimism about the economic outlook given potential easing of regulations and tax cuts, but some participants reported increased uncertainty regarding putential changes in federal government policies. Altogether, FED officials generally pointing to upside risks to inflation from tariffs and immigration policies, geopolitical threats,
and stronger than expected consumer spending. They worried it might be hard to distinguish persistent changes in inflation from temporary ones caused by policy changes. There was also discussion of financial market vulnerabilities, including bank's reliance on reciprocal deposits, the risk of unrealized losses at banks and non bank institutions from any potential rise in long term interest rates, asset valuations,
and commercial real estate exposures. Several commented on concerns that primary dealers didn't have enough intermediation capacity, and the degree
of levered presitions in the markets was concerning. Finally, on the balance sheet, many participants suggested structuring future purposes as they run off the balance sheet should be done in a way that move the maturity composition of the FEDS portfolio closer to that of the outstanding stock of treasury debt, and various participants that's a new adverb for the FED suggested it might be appropriate to consider pausing or slowing
balance sheet runoff until the debt ceiling is resolved. They obviously made no decision on that and did not make any decisions on bank supervision, but it does show they were worried about more than just inflation at this last meeting.
All right, Mike, I feel like that there is definitely a follow up to that various participants point that you made. But let me just quick check on the markets. Equity markets to S and P is up about four points. Nazek one hundreds down is up about six points, so a little bit of a more positive tilt, but call it really slightly more importantly, let's get to the US Treasury trade. We had a four to fifty five read on the ten year. It's at four fifty four. The five year, if I look at it was at four
thirty eight. That's where we find it short end of the yell curve, most sensitive to what the FED may say or do. That's exactly at where it was prior to the FED minutes, and that's with the yield of four to twenty eight. Hey, Mike, anything in here that beyond the various participants or that included that would make investors traders think differently about what the FED might do differently from what we got at that FED meeting.
Not necessarily a monetary policy, and many of the FED officials who've spoken since the meeting have talked about risks from trade policy and immigration and the fact that they don't know what they can be and they can't quantify them at this point. The Bank supervision stuff was interesting because there's been a lot of talk about how strong the banks are and there's not a lot of concern
about that. At the press conference, Jay Powell talked about how SVP was an outlier when that bank failed, but apparently there's more concern about that. There's also been questions about whether the FED would change its rules on the supplementary leverage ratio. Obviously there are concerns about whether dealers have intermediation capacity. And then, of course, finally, the balance
sheet stuff is really interesting. It's something that bond traders and bond analysts are going to have to follow closely because it's possible, I suppose at the next meeting, if we don't get progress on a debt ceiling from the administration and Congress, they might want to consider pausing the runoff of the balance sheet until that happens.
Is it rare to get something Mike in Fed minutes that is so not necessarily targeted, but something that specifically calls out something that could be happening in Washington that Congress has control of.
We don't see a lot of major policy changes from administration to administration that would affect the economy in the way that tariffs and immigration policy might. Tax cuts as well. So it is unusual, but it is not an unusual factor of Fed thinking over the last or five months, because they've been trying to parse out what might happen and how that might affect the economy, and we still
don't have very many details about all that. I think we've got six different tariff announcements but only one in place, the rest postponed for a few weeks until this or that happens. So they really don't have an idea of what's going to happen, but they are putting it in the upside risks category.
Hey, one last question, Mike, So if j.
Powell was holding a press conference today off of these minutes, what would you ask him.
Yeah, Well, since everybody else before me would probably ask about upside risks to inflation, I'd be interested to know more about the balance sheet and what they're really thinking there. Obviously, the Fed when it lets them as securities roll off up to a limit of thirty trillion thirty billion rather a month, then the rest of the rolling off money
goes back into the treasury. And there's been a lot of talk about the maturity curve for the treasury because the Biden administration bought a lot of short term bills, short term bonds, and now we're looking at longer term perhaps losses because interest rates are going to go higher. But the Fed is now talking about maybe we want to go that direction. So a very interesting question ahead for the bond market.
All right, Bloomberg News International Economics and Policy correspondent Michael McKee out there in Washington, DC. All right, let's get to any market reaction when it comes to the US rates trade. And we've got a great guest for that.
Well, let's bring in Bloomberg Intelligence Chief US interest rates strategist, Ira Jersey. He's out there at Bloomberg Intelligence headquarters in Princeton, New Jersey. Ira, why the lack of reaction to this to the news in the minutes from the Federal Reserve.
Because there's a lot of interesting details but nothing new. You know. One of the one of the issues that we get is with the chairs press conference after the meeting is we know, you know ninety plus percent of what's likely to be in the minute. So it's really
around the edges that you look for things. So it is those adverbs that Mike was just talking about, So you look at you know, were there many members that thought something that was different than maybe what was expressed by Jay Powell or was it just a couple right, So that's a kind of the nuance that we get out of the out of the minutes, you know, I'm focusing on the minutes here looking at some of the statements done by the SOMA portfolio manager, who's that has
to do with quantitative tightening and what they might end up doing with the balance sheet. So there is some interesting information in there that we didn't have before. And obviously the FED is you know, so maybe so a long time from stopping QT, but now we're getting a hint as to what they might do if they end their their asset runof quantitative tightening.
Well, are you, like Mike, that you would want if you were posing a question to j Powell if there was a press conference after the FED minutes like there is after the FED decision, would you ask about the balance sheet? Is there something else you'd want to know? Based on the headlines we've gotten.
Probably mostly about the balance sheet at this point, because we know and some of the interesting statements in there, you know, did follow up is as you were talking about a moment ago. There have been a lot of speakers since the meeting, right so, and most of those speakers have said we can be patient, we can wait, you know, there's risks of the upside. There was one interesting headline that came over the terminal, and I have
not yet read it in the minutes. Obviously, the minutes were like thirty pages long, so it's taken a little while. But they did say, like, you know, until inflation starts to move more toward their goal, they can be patient and wait. So I think, while not exactly new, I think that that was just a confirmation that members of the feder Reserve are happy with where rates are given the overall economic environment that we've been seeing in a lot of the data, particularly that inflation data.
If we do indeed see policies from the Trump administration that are indeed inflationary tariffs, immigration policy, is it a realistic thing to say I read that the next move from the Fed could be a move higher.
Well, I think that depends in what everything else is doing in the economy, right, because the Federal Reserve, unlike most other central banks, have their dual mandate, right so, I think there's two things. Is one they have been harping and some members have been harping on the on the idea that they're not near the neutral rate, that for some reason, a lot of members of the Federal Reserve think that the neutral rate is probably closer to two and a half or three percent instead of four percent.
I actually think it's closer to three and three quarters or four So I think we're probably pretty close to that. But there's a difference of opinion, right because it's not something you can observe ex ante. You have to wait until events happen, and you only know if you were at the neutral rate, you know, at some time in
the past when you look at history. So I do think that the Fed itself is going to have to think about you know, hey, you know, what does do tariffs mean for inflation in the long term and the short term? And if inflation does go up and inflation expectations rise, and the and the job market is still okay, then the Fed will sit on their hands and maybe
they will hike. But it's more likely that you get tariffs and then you also have maybe some job losses, and that means that the Fed has decide, hey, are we going to ease a little bit to take back to ease monetary policy in order to try to support the job market, or do we just you know, try to push against these Tara fled inflation.
Hey, just to wrap up, Ira, So you know, as your research that you guys that you put out today, you say you think there is a non trivial risk that the FED may need to increase rates to stema climbate inflation expectations market and traders not pricing that in yet in your.
View, Yeah, so the market is not pricing it in. There's a very small chance and some options markets that the FED reserve might hike one time over the next year. I think that's probably too low. Like, it's still not our base case. Like our base case is that the Fed's on hold for the next twelve months. But I think that the market is underpricing the risk that the FED might have to hike.
All right, Gonna leave it there. Hey, listen, Ira, thank you so much, so appreciate it reaction to what we saw.
Of course, Ira.
Jersey's chief US interest rate strategist. Here at our Bloomberg intelligence team out there at the headquarters in Princeton.
You're listening to the Bloomberg Business Week Podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple CarPlay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
We'll head to its homepage and you will be bombarded with random items Foux leather car seat covers, frog costumes for cats.
I even know.
I think Tim just bought some.
I don't have the cat, but the frog costume.
Sounds great, knock off handbag supplements, whatever, and also a flurry of banners, countdown timers and prize wheels, hawking deals, price drops and limited time offers. These are the words of our own Spencer so Far. I mean, this is Tim. The world of tea moves.
Yeah.
In just two years, it's become the world's biggest online dollar storys days Bloomberg Big Take. It's a deep dive into the company and how it got ensnared in President Trump's trade war with the tell. We welcome back Bloomberg News Tech and e commerce reporter Spencer Sofer. He joins us from our Seattle bureau. Spencer, I feel like I'm in the minority because I'm not like a big team
of person I've never used TIMU. I had no idea that the growth of TIMO over the last couple of years is a direct result on what happened during Trump's first term.
How did it happen?
Yes, So during Trump's first term, if you remember, he imposed these big tariffs on China in particular, and so that basically made this demnimous loophole, which has been a thing for you know, for nearly a century now, But there's this tariff loophole that lets you ship in individual packages from China. As long as something a package is worth less than eight hundred dollars, it can come into
the US for free. So all of a sudden, this shipping method is much more attractive as opposed to you know, traditionally, if you go to a store, you buy something on Amazon, it most likely came in a cargo container into a port, and you know, tariffs were set will be assessed on that. With team who's sending in an individual package to a US shopper kind of factory direct, it slides in below those tariffs. And that's one thing that gave him a big price advantage.
And then during the Trump administration specifically like where because we're didn't Various presidents kind of keep raising the amount.
Yeah, the dominimus has always been there. The loophole's always been there. Wish dot Com benefited from it years ago. What happened, though, was Trump didn't do anything about Dominimus. Trump imposed these new tariffs, so all of a sudden, that existing loophole became that much more valuable.
Is that existing loophole at risk right now? There's a lot of confusion over what happens to this loophole in this latest round of tariffs.
Yeah, so Trump said he was going to eliminate the loophole, but then he backtracked because you can't just do it with like a stroke of a pen. Realized that the agencies, particularly like Customs and Border Protection need time to figure out a plan and come up with a plan to how to handle this volume because we're talking about four million packages a day.
And to the and to the US through this loophole.
And so, yes, he he signaled that he wants to eliminate it, but exactly how that's going to be and whether there's still some loophole, maybe a smaller loophole or a different loophole, or just no loophole we don't really know until we see exactly how this is going to be implemented.
Spencer, you mentioned this as part of a nearly century old tax loophole. The people who put this tax loophole into effect, they weren't thinking about cat costumes, including.
Broad costumes, soames.
Were maybe they were coming from China. What's the history here.
Yeah, when you when you think about demonimous, what demonimous in Latin translates to something of such marginal value to be insignificant, Okay. And so when it generally applies to is someone returning and the origins of it someone returning from a vacation from another country. They've got, you know, loot in their suitcase. Maybe you got some T shirts, some gifts for your family, that kind of thing.
You know.
Without the deminimous loophole, you'd have to pay tariffs on that because you're bringing in a product of you know, from another country of origin, and the duties would apply. But they realized, look, we don't want customs agents bugging every person coming back into the country about what's in their suitcase. So they set this cap, which is currently eight hundred dollars, which is a fairly generous one.
So that's what it was intended for.
But then you enter the age of e commerce and crosswater e commerce, and suddenly you have this big loophole where the same rule applies.
If if Tim orders that cat.
Costume on Timu and it's only twenty dollars or whatever, it can come in under that loophole and it gives you a price advantage over say, brick and mortar stores that are bringing products in in bulk.
I think he definitely has one under his desk. Hey, Spencer, you know, I got to be honestly, tried to put a costume on a cat.
They're not dogs. I having a dog, Yeah, they're not dogs. Also slippery, Yeah, hey Spencer.
I think what's interesting is I said to Tim, you know, as Timu has popped up and we were reading your story, I'm like, have you shot there? And He's like, no, I haven't shopped there. But it's massive, fifty million other US shoppers. Do remind everybody about the size and scope of this because I feel like, if we talk about Amazon, everybody knows who Amazon is, but Timo is pretty impressive and its growth is really impressive even versus Amazon.
Yeah, so in just a few years.
Timu this year is expected to surpass thirty billion in gross merchandise value, basically the value of all the goods they sell in the US.
That's a milestone.
It took Amazon more than a decade to make and team Who's going to do that in about three years? And the fifty million shoppers is you know, bigger than eBay, bigger than Walmart. So it's second, really second only to Amazon at this point.
What are people buying there? Because it's not you know, in the sense of Amazon. Amazon's known for getting stuff quickly to your doorstep. That's really what they're priding themselves on when it comes to prime as you know, Spencer, what are people buying on Timu and how has it changed the way that people shop.
It's a little bit of everything, but generally you can think, Okay, it's gonna be it's likely going to be something small, something light, even though you can find like a bulldozer on Team Move believe it or not. But generally, generally people are buying things that are small, maybe apparel, small kitchen appliances. I've shopped on there a bit. I do a lot of do it yourself projects. I bought some tools on there. It's generally smaller, smaller items. Arts and
crafts are are popular on there. Things for like a party, if you're throwing a party, it's popular on there. I've heard of a lot of teachers who will maybe shop there as opposed to going to Dollar Tree or something to get you know, gifts for the for their students, to motivate them, that kind of thing. So there's a whole variety of reasons and a whole bunch of things you can you can buy on there, but it can be very, very random.
Can trast the experience a little bit with Amazon, not the experience of actually using the website or using the app, more so the experience of how stuff gets to your doorstep because Amazon has built up this network of distribution centers that have employees throughout the country trying to get that product close to you very quickly. It's already in the US, even if it was made in China or in another country. How does something get to you from Timo.
Yeah, so TIMU and they're shifting based on this tariff loophole being changed, and they could see that coming, but initially you know, generally it's coming from a factory in China to a warehouse in China, and then packed in that warehouse in China and then put on a plane into maybe JFK or LAX and then to your house. So it might take a week ten days. But that contrast with Amazon, where they call it like forward deployed.
You know, the inventory is already in the United States before you even order it, and that's why they can get it to you so quickly. So what Tim Wu's proven is, you know, hey, Amazon, you're big on two day delivery, one day delivery, same day delivery. We're finding customers out there that are patient if you give them a good deal, and they really can beat Amazon and a lot of other retailers on their price and people are willing to wait for those discounts.
Well, that's what I thought was also interesting in terms of this story that you did. You know, you talk about how they really tapped into i think one of the founders it was of Tim Wu's parent PDD, the rise of the budget conscious consumer, and so they really tapped into that and something that Amazon has definitely noticed as well.
Yeah, I mean, if you think about the timing of it, right, they came right after the pandemic when people were just willing to shop virtually anywhere because people were so desperate to get things during the pandemic, so any hesitation about a new site kind of went away. That was the last thing change in habits. Then we got hit with inflation, so all of a sudden, people are like, hey, where can I find a deal? So TU struck that nerve
and yeah, it's just they had the timing right. It was the right product at the right time.
I'm interested in what happens in China, not just at these products, but not just when these products are made, but at a place like PDD. The story does dive into that a little bit.
About PDD.
Basically they had luck in China what they called the
forgotten consumer. So you know, Ali Babo was long the leading e commerce company in China, and they, similar to Amazon, they really focused on urban areas and more affluent urban customers, and PDD said, look, let's let's focus on people the more rural areas that still want deals, and a lot of it was kind of a group on esque buying environment, like you would you you would buy collectively with a group of other people to get better, better discounts and
so that's kind of the origins there, But then they they're applying that you know, similar philosophy in the US, looking for the folks, you know, things that maybe they want that they can't buy or at prices they can't find.
Spencer, will they be able to deliver on this if that tax loophole goes away?
That's a great question, and that's what everyone's wondering.
They've already been preparing for it by by uh, you know, getting more warehouse space in the US and having more inventory in the US and even cultivating relationships with US based merchants. So it looks like they're already gearing up towards that. And then exactly how these terrorists play out. I mean, these things generally, aren't you know, one catastrophic ending to everybody. There's gonna be some people who navigate it and survive. We might see further delineation in the categories.
Maybe some categories survive and others don't. But I don't think we've seen the last of Team moved here.
Yeah, And I got to just say, just to wrap up just kind about a minute here, Spencer, is that you write about the culture of the company of PDD and Timu and.
Sound like in there, that's all I'm saying.
Sounds like there's some long working days and that they will not give up easily. Just some insight into the company's culture.
Yeah, well they they.
Say eleven eleven six, which is kind of a playoff of Ali Baba's nine to nine to six. Basically, people working eleven am to eleven pm, six days a week, you know, long ruling hours.
It's hard to fall them for that.
I mean, I'm sure you can find examples of that in the US, but yes, it's known for, you know, uh, hiring smart people and motivating them with money. But they're gonna, they're gonna earn it. They're gonna, they're gonna work their tails off.
All Right, We're gonna leave it there. Hey, Spencer, thank you so much. Glad we could get some time with you.
Spencer Soaper, technology and e commerce reporter here at Bloomberg News, joining us from our bureau in Seattle. This is the Bloomberg Big Take Today.
Everybody check it out at a Bloomberg dot com slash a Big Take and also at Bloomberg dot com slash and BusinessWeek.
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Well.
More than one hundred million people are facing frigid conditions across the eastern and central United States, and that includes the entire state of Texas as an Arctic black threatens to break low temperature records. The Electric Reliability Council of Texas that's the state's grid operator, said electricity demand will jump in the coming days, but it expects to be able to meet the spike in consumption.
Now.
Regulators and lawmakers have moved to bolster the state's power system after the grid collapsed during a series of winter storms back in twenty twenty one, killing hundreds of people as homes and businesses were left in the dark.
Someone who knows a lot about the grid system.
Overall in the United States, but in particular the Texas State grid, is our next guest. Zach Dell is co founder and CEO based power company. He joins us from the Bloomberg News Bureau in Houston, Zach. Great to have you here with us. Let's start with Texas. So known of course for oil and drilling, it's a leader to though in renewables like wind and solar. Tell us first of all about the power mix in the Lone Star
state and the economic models for selling electricity. What should kind of the investing audience understand about the state of Texas well.
Texas is the energy capital of the country, the country in renewable generation. We have more wind and more so or than almost anywhere in the country, and that's because Texas is the middle of the wind corridor, it's in the middle of the sun Belt, and it's a great place to develop energy infrastructure. It's a free market, it's a deregulated energy market for the most part. Or COT is one of the largest electricity markets in the country, and so it's a great place to build energy technology.
That's why we've decided.
To start the company here in Texas. But it's also a part of the country that's seen incredible population growth, it's seen incredible growth in heavy industry, and that's put a lot of stress on the grid, and so we started the company to increase our capacity for energy consumption and add resources to the power grid in the form of distributed battery storage to help absorb some of that growth, absorb from that demand, and set us up for a
future of energy abundance and human prosperity here in the state.
Zach explain where exactly the company lives on the grid in the sense of Okay, it's not necessarily a utility, it's not necessarily an energy provider. How do you define it exactly?
So we are a distributed energy technology company, So we deploy our storage assets on the grid edge on site with our customers. So we install batteries on homes today, customers sign up for base power, we go install our battery on their home. When the grid is up and running. We use that battery to support the power grid in times of high demand. When the grid goes down. The customer gets that battery to protect their home from power averages.
Well and tell us about it. Like a customer that signs up sack exactly what are they getting. They're getting batteries, right, and there's installation that's involved. I'm curious about how it works. What they get. My understanding is the batteries are big. What it costs give me, give us an idea.
Yes, So customers sign up and pay four ninety five upfront and sixteen dollars a month and get all the benefits of home backup protection without the high upfront cost of buying a large generator or buying a traditional home battery. So we install a battery that's twenty five kilod hours for one system, and you can you can get two systems installed which get you to fifty kilo at hours, which will protect your home for up to one to two days, depending on the size of the home and
the event of a power out. So you get a really large battery for really low upfront cost and a low monthly fee, cheaper than a gym membership, cheaper than a Netflix subscription, cheaper than Amazon Prime. And when the grid's up and running, you're buying your electricity from us, We're able to save you ten to twenty percent a month on power, and when the grid goes down, you get to protect your home, keep that fridge going, keep your AC running, keep your lights on, and keep your family safe.
Zach, we're talking about this in the context of Texas, of course, and a lot of focus has been on Texas's grid also California's grid another state that comes into focus. Any plans to expand to California.
Absolutely.
We hope to be in all fifty states over the next couple of years, and we're working to partner with some of the regulated utilities in states like California that don't have a deregulated energy market. Texas is an amazing place to start the business because the vast majority of the state, about eighty percent, is deregulated. So we are actually a retail actor provider and a battery develop heloper. So we sell power directly to the homeowner and then
we own and operate the batteries on site. In a state like California, you have regulator utilities like LEDWP and PGNE that have kind of geographic monopolies over certain areas, and so we'll partner directly with those regulated utilities provide our hardware and software to them to enter those markets.
And from what I understand too, Zach, that the success of the company's contingent on more and more people right signing up, Right, you need to kind of have a network.
Well, not necessarily, we're able to operate our batteries at the individual level, so we don't necessarily there's not like traditional network effect benefits to more people signing up, but obviously benefit businesses benefit from scale, and we benefit from scale in the same ways. But it's not like the system doesn't work well if a couple people in the
neighborhood have it. There's really no meaningful difference if you're the only one in your neighborhood or everyone in your neighborhood has based power all right.
So if you're as an individual, there's no difference. But what do you get out of building that scale?
Well, we benefit from scale, just like most businesses benefit from scale. So we have economies of scale on the supply chain side, on the engineering side, building out our team our resources. The larger we get, the lower the cost that we can provide to the customer. So our goals and businesses to develop a compounding cost advantage to
vertical integration. So we develop our own batteries, we develop our own software, we manage the insulation, we sell power directly with the homeowner, and by doing all those things, we can drive the cost down for the customer and deliver the most affordable and most reliable power.
Right Because from what I understand too you're monitoring what the prices of energy, and so when it goes down, you guys are filling up the batteries.
Correct, that's right, hey, Zach.
If a power company sees what you're doing right now and says, wait a second, that's a really good idea. What's to stop con ED or PGNE on California from basically replicating what you're doing, but they already have the relationship with the customer.
Well, it's very hard. You have to become an expert in battery hardware engineering, power electronics, supply chain operations. You have to deploy these batter on site, you have to interface directly with the customers, you have to build a consumer brand. There's a lot of interesting and challenging distributed systems software problems that you have to solve to deploy
this technology. So we're really excited to partner with those utilities and help them deploy battery technology in their service territories. As you guys know, these investor owned utilities are not incentivized to invest money in op X in R and
D their capecks driven businesses. They earn a regulated way to return on their capex, and so their incentive is really to deploy capex and their service territory, and you know, they add that into their rate base and that kind of influences what they end up charging the end consumer. Our business is a little bit different. We're an R and D driven business. We develop technology and we bet that technology is going to benefit the customer and we
benefit downstream of that. And so we think that we're an obvious partner or some of these regulated utilities as kind of an R and D partner where we can develop technology and then we can go deploy that technology in their service territory. They benefit, we benefit, and the homeowner benefits as well.
I am also curious are you profitable or how many states do you think you have to build, you know, reach out to or expand to before you are profitable.
I don't think about it as a number of states number. It's really about building the fleet and getting to scale. And so, you know, we started the company a little under two years ago. We launched a product in May. We've been scaling rapidly. We're doing on the order of
twenty battery installation of the day. We'll continue to scale up at a faster and faster rate and move outside of Texas, in states like California and other states across the country, and you know, we think there's a really attractive kind of economic proposition for the business going forward.
Hey, Zach, we'd be remiss. Your dad, Michael dal iconic in the tech world. This isn't the first company you've founded. You've worked at pe Giant Blackstone, also an investor at Thrive Capital. They of course founded by Josh Kushner. They've invested in your company. I am curious about growing up, you know, with your dad. How did your dad influence you?
Well, I think, you know, I'm the luckiest guy in the world. I've got the most incredible CEO coaches as my dad. We're extremely close. We talk all the time. He's not an investor in the business, but he's a very close advisor and confidant and and friend. And you know, I think people always ask me, like, oh, why do you want to start a company? And I think it's kind of a silly question because I got to see my dad, you know, live his dream and continue to
live his dreams. He's still a CEO of Dell. He gets to play the most interesting game at the highest level. And you know, I aspire to do that too. So he's an inspiration. He's he's a hero, he's a role model. And people like Josh and some of the folks at Blackstone that I've gotten a chance to work with in my career have have been kind of similarly inspiring to me. So I'm really excited to follow in his footsteps and you know, try to build something really important for the world.
You said he's not an investor in the company, Zachy, yet we could say, yeah, are you out there planning to raise more money?
We will raise more capital as the business skills. Yes, for sure. I joke with him that, you know, he's a late stage investor, so if he wants to invest, he's gonna have to pay a high price.
Well done, You've learned well, as they would say, Hey, listen, stay in touch. Let us know I as you continue to expand and build out, stay in touch and love to get some updates. Sechedal Co found under and CEO based power company. Joining us from our Houston bureau.
You are listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple CarPlay and the Android auto with the Bloomberg Business app or watch us live on YouTube.
Taryl Investor's still focused on what's the com regarding tariffs. President Trump mentioned the possibility of tariffs of twenty five percent on autos and pharmaceuticals just yesterday.
Some of the biggest companies in the world, and because of what we're doing economically and through tariffs and taxas and incentives, they want to come back into the United States.
Have you decided specifically what the auto tariff rain should be.
Yeah, I probably will tell you that on April second, but it'll be in the neighborhood of twenty five percent. We want to give them time to come in because, as you know, when they come into the United States and they have their plant or factory here, there is no tariffs. So we want to give them a little bit of a chance.
Well, they have the press in just yesterday at mar Lago talking the latest on tariffs. We continue our talk on tariffs and macro affecting the business and financial market environment, this time with the head of Ignite. It makes software for enterprise companies to secure and manage massive amounts of data.
The companies raised one hundred and forty million dollars in metric capital from Google Ventures, Kleiner Perkins, Goldman Sachs and others and accounts companies such as Red Bull, Steve Madden and Beyontech as customers.
Great to have you here with us, Fanied. You know, let's let's get to it in terms of what we continue to get from President Trump and the White House regarding tariffs, and again a lot to be known in terms of the actuality of what gets imposed and for how long. How do you see it as what might be the reality of tariffs in your world.
Hey, Carol Love in my world, you know, I'm talking about We are a software as a service provider. So anything that impacts IP systems, whether it's servers, networking gear, data center components, those would be the ones that I would be most interested in, not the autos or pharaceuticals, although there's always a cascading impact if there's a general inflation. Now I know the numbers on the tariff side keep
ratcheting up. New announcements are coming out regularly. So a couple of tuesdays back, I think there was a ten percent tariff announced for this class of hardware. So the question is if the underlying data center equipment becomes more expensive, and keep in mind a lot of a lot of it is made in China. Will that have an impact on the ultimate end user solutions that companies like ourselves provide.
I don't think so, because these costing preases can be absorbed by the providers, including companies like ourselves, with some impact to the gross margin, but it's not significant yet unless these numbers start crossing into twenty five percent or higher territory. Until then, I would say I'm pretty sang whine about it.
Is the concern, though, compounded when you think about your customers. I mentioned Red Bull, Steve Madden, BEYONCEK just a few of your customers. Steve Madden a company that I would imagine makes products in China. If they're hit with bigger tariffs, then what happens to the amount that they're able to spend on services such as yours?
Oh?
Absolutely, I think you actually use the right word compounding, because ultimately any cost increases for our own customers. Steve Madden is a great example. I mean, the fact remains that despite all the effort to move manufacturing out of China to countries like Vietnam, to Malaysia and even to some in India. China is still the factory of the world.
So it's absolutely normal to assume that if they are going to experience cost increases, they being the companies that you mentioned, Steve Madden or whoever else, they will pass it down to the customers. If they can't, it eats up in the gross margin. If they don't want to pass the cost down, then they'll squeez supplies like ourselves. So there is absolutely a trickle down or rather compounding effect, as you eloquently put it.
We are talking with finiche and co founder and CEO of Ignite. He's joining us from Mountain View, California. What about global supply chains? Do you think that they will be potentially changed forever? Again, devil in the details when it comes to the particulars around tariffs, what they are on, how large they are, and how long they last. But having said that, I do wonder about the psyche that's changing within the business environment, thinking we need to get
out of this mess. Who knows, whether it's this administration or what's to come, that maybe we need to have our global supply chains or our supply chain in the same market that we're selling and is that even possible.
Carol, That's a very interesting thing. One is the aspiration and there is the ground reality. The fact is, for decades and decades we have been relying no matter what the industry is, whether it's furniture or pharmaceutical or bulgrugs, China is, as I said, the factory of the world, and to try to shift out of China will take
a lot longer than what we might assume. Now, there's certain things which are fairly fungible that you can switch out quite quickly, but the entire supply chain, all the way from component suppliers if I'm talking about manufacturing to subassembly makers to the final product makers, they're all in China, and you can take piece meals of that out over time. But we are looking at a multi decade effort across the board, across all industries, if I were to generalize.
So we'll have to live with the fact that our dependence in China is not getting diluted or reduced in the foreseable future. And when I say forcable future, I'm talking about at least for the next five years.
So, given given your experience running this company, the other experience that you've had in Silicon Valley and understanding supply chains of hardware. Do we have as a country the United States, what it takes to to compel companies to build these products in the United States? Do we have that technology? Do we have that ability?
You know, you ask a very difficult question because it depends on what are you referring to. So, for instance, are we trying to replicate a TSMC here, and you know, all the efforts underway. In fact, there's a lot more noise, especially around with the news of Intel yesterday, with Broadcom TSMC looking at them. But the honest answer is the intellectual capital is still ours. We are the ones who owned the R and D. We are the ones who
owned the design. Now, if you are a Cisco or an Arista, you are getting the manufacturing done by your contract manufacturers like JABL Filextronix, Selectron. Bringing those manufacturing capabilities in house is non trivial. But given it's our own
intellectual capital, manufacturing prowess is still within our hands. It's the investment and the will and the most important thing that people don't talk about finding the talent or grooming the talent with vocational skills is going to be critical, but it can be done. But I would say you're talking about a decade or so where art depends on China becomes less and less. It won't be any time in the future.
Hey, you know, while we have you Vanit, you guys are all about data. You have been invested, You've received venture capital from Google Ventures, Kleana Perkins, Goldman Sachs, kind of a who's who when it comes to tech investing, certainly impressive investors. The AI craze that we are in year two in counting, Chatchipt, deep Seek. You know, everyone's still talking about AI, but it is also kind of interesting how deep seek has maybe disrupted the conversation around AI.
If you will tell us about the.
Demands for your services and what insight you have in this kind of build out to ll MS and AI, this next way that's been you know, as I said two years in counting.
My first statement would be is a little radical. I would promply say that the hype cycle on AI is the highest of any tech trend that I've ever seen. And just to remind you, I've been in the valley for thirty two years.
I've seen fads.
Come and go crypto web three. Oh you name it right, but right now the crescendo in the news, and in fact, the joke is, you know, we get these daily newsletters about investments. Today I was looking at one and I saw eleven investments or fundraises announced, sorry, eleven fourteen. Each of them led AI driven, this, AI driven that, AI driven something. So you clearly know that we are the peak of the hype cycle. But if you leave aside
the hiphe aspect of it, the reality is customers. In fact, as I speak, right next to me is a big conference room. We have one of our largest customers. There's CIO sitting with fourteen members of my team, and this is one of the largest advertising companies in the world. I can't name them. And the whole conversation is about AI and of course all the things we are doing along with other providers, they're leveraging. So the challenge is
to be very simple. There is a huge value to be delivered with a slew of these generative AI capabilities. Open Eyes just one of the providers. But the big problem is the value expectation that your customers have today versus the value delivery i e. The capabilities we are providing. There's a big gap, and therefore people are wanting that
gap to diminish before it becomes commonplace. But I still maintain all the AI capabilities that we are talking about that are being invented as we speak, or will be rolled out in the next two years. Take my word for it, they'll become commoditized. People would expect that to be included in your product. Over time. What differentiates you or the premium they're willing to pay, will be a much higher value stack of services. But it's a journey
and we are on that. So the problem is real, the solutions are real, but the hype cycle is absolutely at the zenith, more than anything I've seen before.
It sounds like, though, this time is different words I should never say, so trying to get you to say them. Yes, it's time to learn it than the dot com bubble.
Yeah, I would not say that. You know you've heard that phrase before. This time is different. No, it's just like you know, you hear about companies being formed in
the last week or so with illustrious names. They don't have a business model defined yet, but people are planking billions of dollars in their fundraise just because of the pedigree of some of these individuals, and not to take anything away from them, this is a classical hype cycle where anything ai especially when you're talking about llms, if you're talking about big data centers. The amount of money
being poured into this is crazy. Now, will it have its value, of course it will, but it will not be commensurate with the expectations that are being created right now.
Wait, so, okay, is it just because it's not there yet and that the hype will become a reality in maybe two years or.
Is it that the high just hype and you are the two factors.
Yeah, so it's a very good question. I still maintain that the value that these technologies will provide are absolutely insane, even for the things our own engineers build. When I get to play with them, I'm like, holy whatever, this is great. Sorry for that.
That's it.
But my belief is that a lot of these technologies will become commonplace. They'll become commoditized, So expecting people to pay premium prices is going to be a chimera. People will say, hey, I get it from this vendor and that vendor, so why are you charging me extra? Four dollars six dollars eight dollars by use it per month.
That will go away. But also the expectation that customers are having about AI delivering and being a panacea for all the problems they're dealing with without human interaction or the classical word is AGI. We are years and years away from that. So that is where the hype cycle and the gap between what we deliver is very high. Ist what I'm alluding to. But I think this technology is here to stay. I mean, Web three oh has its renaissance. You can see the cryptos back again with
the vengeance. So I'm saying that AI will be there generated AI, but the value hype versus the value delivery, that gap will diminish. And also the price expectation we have as vendors that you'll pay me this much. We'll have to get grounded into reality that people will pay but not as what we're expecting. So all the investments we are making right now in order to get the return, there'll be some let's say, realignment.
What makes you say that we're so far from AGI.
You know, expecting very simply stated, having technology today which can reduce the human interaction for low level task in accounting or generating memos or creating a media brief or even an advertisement that's there, but having it to the point where no human curation is needed or human interaction is needed, and have the faith and belief between you as a provider to say I can just let the machine or the GENAI capability deliver the end product that
is not going to be there. It's not there today, it won't be there for a long time. So lights out automation is possible in certain industries, but for the kind of things I'm talking about, where can you invent or have a protein marker for some disease, run through a complete AI related pipeline and not have a human intervened impossible. Of course, there'll be clinical trials for that.
But even in our world of software, I don't think our software is at a point today or two years from now where somebody could say, let's use the soft software and let it solve the problem the complete workflow with no human looking into it. So that's my reference about AGI.
To be honest, Hey, listen, I really appreciate this, We really appreciate this.
I'm getting your perspective. And one last question, then.
So if everything may take a few years to work out in terms of the investments that have gone into an Nvidia and others. Is it a case that that may not make sense or that will make sense because that's part of the infrastructure build that will still be there in years to come. But whether it's an open AI or someone else who leads in this what you say might be a commoditized business going forward, that's TBD to be determined.
Yeah, you know, this is a little bit about my pay grade because you're bringing into the fix and shovel business of Nvidia versus you know, the gold yeah from the other guy. The relevance of Nvidia, I don't see diminishing, except that they will be more competitors. It's a nature of the beast, right, they cannot have this market all
to themselves. But also the providers, whether it's you say, open AI or Anthropic or Mistral or so many of their Google Gemini, they will of course keep up leveling the value delivery of what they're providing or the value chain of what they're doing livering. But a lot of technology that they are investing in today compared to what the other party is developing, they'll become almost similar and therefore commoditized. So the arms raised to be the best
of providing the best LLM. That's going to be very expensive, and at some point there'll be some I keep scrambling for the right word, there'll be some realignment or readjustment on expectations, even from the investor perspective.
Hey, Carol said it was the last question. But I can't come on our air and I can't ask you this question. When's the IPO happening?
I can go there, I can't, Well, you could. One thing I can say is I've done this company very differently coming from the valley. So you mentioned I've raised one hundred and forty two million, but also I would like to add the last round came in twenty eighteen. Any raised, Yeah, and we don't plan to raise any private financing in that way because we have been cash
flow positive with improving EBIT margins. But at the same time, I take a lot of pride in saying that I've never built a company which is insanely high growth with insanely high losses. The very high losses, it's predictable, durable growth with improving cash flow mechanics, improving even the margin, so more sustainable and hopefully the markets will reward us in whatever the outcome is, IPO being one of them.
Well, we certainly appreciate your time and the expertise and kind of industry knowledge that comes with thirty years in Silicon Valley.
Thank you so much.
Vanite Jane, co founder and CEO of Ignite, joining us there from Mountain View, California.
In the thick of it.
Hey, we're in the thick of it when it comes to the trade. Today, we got about twenty minutes until the closed. The Nasdaq flat right now, so we're off our best sessions, best levels of the day during this session. The S and P five hundred of about two tenths of one percent as we speak, while the Dow is up one tenth of one percent.
All right, I am curious to see what our next guest has to say, especially when it comes to the semi space. Take a name like Tell was up sixteen percent yesterday, down six percent today. It's an area he certainly has been looking at. JJ Kinahan is back with the CEO of Tasty Trade at IG, joining us from Chicago.
JJ.
Good to have you here, well, great to have you here. Let's start big broad and macro in terms of the environment. How do you see it right now?
Well, you know, obviously when you're at all time highs, it's something that it continues to be a market that people look for bad news and you can get it pointed out all day long. Yet the market just seems to be resilient and continues to just go higher and hire.
I thought it was a real maybe breath of fresh air and encouraging for retail investors today when in the FED notes they said, well, we're really not sure what's going to happen with the tariffs and what effect that will have on the economy, And I think that it's like, while you're just expressing what really everybody else seems to be saying. But in the meantime, you know, I look at our clients, they continue to just buy the market.
It's interesting. One of the stocks that they've come back to after sort of maybe not being a bit out of favor, if you will, until the last couple of weeks where we've seen you know, almost eighty percent of the activity be bullish is actually Apple not quite a semiconductor, but of course one that's been a lot of people's portfolios, not maybe as much of a traded stock as it
is just an investing stock. And it's really interesting how the buying there has picked up pretty significantly over the last few weeks, when some of the other Magnificent seven haven't been quite as interesting.
Okay, we're talking in Nvidia, we talked meta platforms. You mentioned Apple JJ. Caterpillar is an interesting name on your list. Your clients are bullish on cat. What's going on?
Yeah, that's really not a name we talk about very often, is it. So you know, a stock that's had a little bit of trouble and kind of turning things back around the other way. And so with that one again, maybe a bit also of a vote that we're going to continue with a lot of these infrastructure plays with the new president, et cetera. So all that I think
is adding up to this. Again, when I see a name like Caterpillar on our list of most bullish stocks, the one thing that does make me happy about that is it shows that we're continuing to spread out from just the mag seven. If you think about a year ago when we were talking about these rallies, we were
talking about primarily the mag seven stocks. Now you're talking about a lot more stocks being involved, and let's face it, the average retail trader, not necessarily Caterpillar making the list of good volumes and people having a high interest in it.
All right, so names another name you don't like Starbucks, which we know who has a new CEO.
I don't know if he doesn't like them.
Do you buy coffee from Starbucks?
I'm drinking, I have a cup here as we speak.
Okay, all right, just check it out.
Wait, so do as I say, not as I do? Is that kind of a thing.
So Starbucks, we know, high profile CEO came from Chipotle, Brian Nicol. We've talked to him a lot, was really instrumental in terms of driving growth, getting them focused on the digital side of the business at Chipotle, now at Starbucks, and he's making some changes. But you don't, you're not so keen on it.
How come?
Well, I think we've seen an incredible run up in the stock since he's been named CEO. Let's face it, and you know, give credit where it's due. The anticipation of what he was going to do, followed by you know who doesn't love the ac DC thunderstruck as their commercials and the brand new commercial. It's very catchy and narrowing. The menu fantastic. But I think that there was this,
you know, sense as he took over people immediately. It took a few weeks, but once some of the employee issues that settled down, the stock pretty quickly followed suit. In anticipation of this. Now it's a matter of okay, will the execution all the way down the line follow what's going to happen with the announcements and with them trying to do this obviously incredibly successful ceo where he's been in the past, can he take that magic again?
We saw them talking about opening five hundred news stores yesterday, so again there is a lot perhaps to like there. But I also think that when you have this kind of run, you're at an all time high in the market, what people start to look for is, okay, those that have run, maybe time to let lighten up, or even to take the other side of and look for some of the more beaten down stocks or stocks that have
had trouble participating in this upward move. And again, Starbucks has had a pretty good run for the last four or five months.
Hey JJ, a member of the Bloomberg Business week audience getting in touch. He wants to know about a view on equities moving forward. Given we're likely going to see government layoffs, Inflation, as the Federal Reserve has said, is sticky consumer that is weakening.
What do you see. I still see US equities as the best game in the world, so to speak. So people are going to have to put their money somewhere and they're always going to be looking for return. So, you know, I've just returned from some overseas trips and it really is amazing to me how everyone is looking to get their money into the US to be part of the US markets. Right now, we see inflation all of you know, in different spots of the world, creeping up,
if you will. I think the part that is going to be the most interesting is going to be the terrific side of this and what's going to be the longer term effect in terms of costs. You know, you had some of the housing stocks released this morning and some of their fears around what this could mean for the cost of housing, particularly brand new housing, and how so many of them had to give away already incentives
to get the houses sold. What does that mean at the price of lumber and steal, and even things like insulation goes up in the future, that's going to make it much more difficult. But with all that said, when I look around the rest of the world and the competition, there isn't much else that is competing with that on a worldwide scale, So it still seems to be the best best bet in town, if you will.
Well.
But just to the point that our listener sent in his question, I mean, if you look at the MSCI World x US Index, so take out the United States, it's up more than seven percent, seven point four. If I look at MSCI World INDECKS, which includes the US, it's up about five percent s and p's up about four percent. So we know, we've all been talking about the start to the year where markets outside of the United States are outperforming, and maybe it's a case of
just they've been so beaten down, so undervalued. But you don't think that trade continues, that outperformance continues.
I think it's the more we start to see tariffs come up, the more we start to see inflationary pressures rise, the harder it gets on the rest of the world. In my opinion, because of the you know, to your point, some of This, I think is people who are like, Okay, where can I go next? Just as I talked about the US market expanding out from the Magnificent seven. To me, the natural derivative of that is to say, what other markets can I go to that have been beaten up?
But in my experience what happens is those markets that tend to go up very quickly, especially if you believe that you know, the rally may be pausing for a while or correcting for a while, they tend to go the other way very quickly. Also in our perform on the downside as well as the upside. That's not to say that you can't get better returned, but I do
think you have to take into the account. What's the volatility you're going to take in by doing that, in my opinion's much higher almost everywhere else in the world than it is in the US right now.
What's the biggest risk that the market faces right now? I mean, we're I don't want to say we price for perfection, because who knows if that's the case, but we are hovering around records. What's what what could derail this rally?
Well?
I think the you know, the fear of the fear of the unknown is always out there. Of course, it really does seem amazing that we've been able to quell some of the uh you know, countries having issues, which makes me think that inflation is going to be the number one thing that we're going to have a problem with because as you also mentioned, yes, there does appear to be not only government uh employment maybe in question.
But let's face it, I think that what you're starting to see from starting with technology companies is do we need as many people as we used to, particularly as
AI comes into use. And I'm not ripping AI is taking away jobs, but every time we've seen new technology in the short term it does take away jobs and in the long term it expands jobs significantly, but where at a point where we may see higher costs for things at the same time some job being eliminated, and so that combination I think does have an opportunity to
slow the economy down pretty significantly. And as we all know, you know the Mike Tyson line, the thing that knocks the punch of knocks you out is the one you don't see. So who knows what else could be out there?
Hey, one name that we often spend a lot of time talking about and I just want to go back to we know we talked about the mag seven Apple and I'm just looking at it's just a little changed on the day new phone that came out today. It's down about two percent for the year overall. But when it comes to Apple, you're bullish on Apple. What in particular are the catalysts or is it just a continuation of what they're known for, or is there something in particular.
The iPhone sixteen E.
Available in white and black starting at five ninety nine, available starting February twenty eight.
That's the headlines. I mean, our Mark Herman hasn't very thanks, Okay, I thought I was hearing a.
Brought to you by anyway, but no, we've been waiting for this and our Mark German has been talking about it a lot. And so that was just some of the headlines that came out late morning. What is it about Apple?
So you know what's really interesting if I look at Apple. Let's back up a little bit. Let's talk about Apple over the last two years for a second, if you don't mind, so think about it, maybe even more maybe spears think about that whole by the dip mentality that we all experienced for a year and a half or so. Apple was the first stock that by the dip started
with and everybody's like Apple, Apple, Apple. What happened over the last six to nine months, Apple kind of fell out of favor a lot more with the retail investor, which is really interesting, and it had never experienced anything like that, since it's become more of a you know, quote unquote major stock, and so that had switched over to Microsoft as the company people bought first whenever there was times of trouble. Now we're seeing a lot of
different stocks. You know, when Tesla had the big sell off a few weeks ago, Netflix, we're seeing that the times that retail investors will step in and buy stocks like that, that or trusted. I think what's happened to Apple over the last four months is kind of where we started the segment. Okay, we're right in your all time highs. What could upset us overall? And so I think one of the reasons that people have become more attracted to Apple overall is exactly what you said, you
know what the products are. I don't think there's anything that's so brand new, you know, yes, Ai, it's great to have on there, et cetera. But I don't think that's the primary reason people are buying their phones. They're buying their phones because they know the reliability. They're buying them because they know what they're getting overall, and when people are unsure, they go to products they know, they
go to names they know. Apple is still a very very trusted name by most people, and so there has been I won't say that people have gotten more socious overall, but toward that they have got.
Over or if they live in the master household and their child of the master household, they don't have a choice because it's an Apple household. If I found mine, I found mine, but again it would be Apple. Yeah, just saying this is what kind of happens you get entrenched to within the network.
JJ.
Thanks Jjkinahan, Chief executive Officer, Tasty Trade and IG joining us from Chicago.
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