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You know, we love the big take stories here at Bloomberg News, almost like on a daily basis, puts out these big take stories, really deep dives, deeply reported. Teams of people focused on this thing and they go deep and they get good data, good reporting. And today is a big one. Biden's EV dreams are a nightmare for Tesla in the US car industry. Craig Trudell joins US
Global Autos editor for Bloomberg News on Zoom from London. So, Craig, this is a big deal here because President Biden, that Inflation Reduction Act putting a lot of money behind EV's here. But you can't take China out of the here. What's happening.
Yeah, I think this is a really challenging thing that the Biden administration was trying to do. Right, they were trying to jump start the EV industry in the US. I would say, you know, you can give them high marks for what they've done in terms of the amount of manufacturing investment they've attracted. It's it's really been remarkable
the the response that we've seen there. On the other side of the equation, the demand side, I think, you know, the marks are way more mixed, and I think, you know, the challenges that we're going to see in the years to come, you know, assuming, of course, Ira you know, stands up if we see a change in the White
House later this year. But you know, whether or not manufacturers can sort of pull off what Biden you know, is asking of them, which is to really set up a EV and battery supply chain that is less reliant on China, and it eventually is just not reliant on China. And that's proving to be an extremely difficult task. And that's what we try to lay out today in ways that are you know, really it's a it's a complicated issue.
You know. Tesla everyone thinks about, as.
You know, being a very sort of made in America car brand, and and you know, they sort of are recognized as one legitimately, but you know, when given the opportunity to import batteries because of the fact that the IRA, you know, didn't really necessarily grow some teeth until the beginning.
Of this year.
We saw, you know, just in a matter of months Tesla import two and a half billion dollars worth of EV batteries from China.
Wow, and Craig, that's happening, because it feels like every time we talk about GM for Tesla, a lot of these companies are losing money making their evs. So what was the point of the IRA if not to kind of streamline I guess the kind of inputs of of these batteries.
I think what you have here is a situation where you know, Joe Mansion was was, you know, the player who you know, Washington really just had to sort of bend to his will, and he was really reluctant to you know, allow for electric vehicles to continue to get
tax credits. He was opposed to them. And he said, okay, industry, well we'll give you these tax credits, but you build me a supply chain that, of course, you know, sort of didn't take into account sort of you know the complexities of the supply chain and the fact that China is just so dominant in this space and they've really sort of you know, methodically, you know, for a time quietly you know built this this you know, staggeringly strong position in terms of you know, the control of you know,
the inputs, whether it's you know, nickel and lithium graphite. You know, these inputs are going to be really really difficult to source, not only just you know, whether their mind in China, but whether they're sort of process and refined, and you know, the sort of cost difference that the WES is going to have to sort of overcome really just can't be you know, sort of overstated at this point.
And folks, if you want to see this article, it's fantastic article. Really deeply reporting. Great graphics makes it easy for me because I like the pictures. Bloomberg dot Com slash a big take is kind of where you find it. Big team effort. So you know, Craig, I see in your reporting here. In twenty twenty three, the IRA required that at least half of the value of battery components had to be assembled in North America and that forty percent of the raw materials had to be sourced from
the US. And in twenty twenty seven, that raw material requirement is going to double to eighty percent. Are those numbers are they can they be achieved in that timeframe?
I think that's that's one of the things that you know, it sort of depends on which company you ask.
And I think, you know.
Some of the concerns that the industry is having here is the fact that some of these raw materials the prices have really collapsed.
And you know.
That that you would sort of think, oh, that's a good thing for the auto companies. But if you're trying to build a supply chain in North America for these raw materials and the prices for them have absolutely you know, sort of the bottom has come out. I think of lithium in particular, you've seen this dramatic, you know drop in prices that significantly undermines the economics of those projects. And so, you know, I think the raw materials in
particular are a real challenge. I think battery components will be less of a challenge. But even there, it is a matter of you can't just sort of snap your fingers and open up a bunch of plants for these various components. You know, it does take time, you know, to put you know, dig up the ground and put up these these plants that are coming, but are taking some time and.
Graig across the auto makers. I'm looking at the reporting again, seven of Tesla's twelve models sold in the US fully cleared the eye R raise sourcing hurdles and qualified for the tax credit. What percentage of evs being sold in the US are clearing that hurdle?
I think because Tesla is still so dominant in the US, we're at a point where, you know, the evs that do the most volume are largely qualifying at the moment. But I think the fact that those raw material requirements that kick in next year and then escalate in the years that follow that's really where we're going to see even more of a sort of you know, level of screws put on the industry. But but I think, you know, the other carmaker that I think is particularly well positioned,
I would just call out to General Motors. I think the fact that they have a localized supply chain, UH for batteries, they have a joint venture with a Korean battery supplier.
We're seeing, you know, more and more of those partnerships. You know, for about following suit Stilantis, the maker of Jeep and Chrysler, you know, similar deal where they're setting up battery plants in North America and sort of on and on. But those projects, I would say, are much further behind where we have Tesla, which you know for years has been making batteries out Nevada with Panasonic and GM which has a partnership with.
LG in US.
Hey, Craig, I think the narrative out there just kind of the bigger picture on EV's right now is, Gee, maybe demand isn't as high as we all thought at one point. We've got you know, the big automate manufacturers pulling back like Ford for example. Loss is still big. What's your understanding when you talk to your sources as to how people are thinking about the ultimate demand for EV's over the next one to three to five years.
I think, you know, perversely, it was a challenge that you know, for a time, you know, business was too good.
The fact that you know, for a while there, uh you.
Know, so many companies uh you know actually had back orders.
Uh.
Tesla in particular, you.
Know, had demand issues as opposed to a supply issue that you know really sort of caused this uh you know, unsustainable you know, jacking up of prices. The fact that that has had to come down, I would say more dramatically than we've seen for the rest of the industry has had all sorts of you know, unintended unintended consequences when you uh, you know, so dramatically bring down prices on the new side. Uh, the the use side is
of the equation. The use vehicles really lose their value and the fact that I think evs maybe have some sort of you know, particular challenges with you know, maintaining their value. When you think about a used uh, you know, gas car, you don't worry about, you know, the engine holding up. You maybe have you know, relatively more concern, rightfully or not, as to whether or not the battery has been going to hold up. And so what we're seeing is is you know, that really come into play
in terms of total cost of ownership. I think that's one of the things that we've really paid close attention to lately. I think when we step back, you know, the fact that EV's is sort of you know, the way forward, particularly in terms of you know, where the regulators want to see this industry group go. I think we've seen that China is able to make this work. We've seen that Europe is much further along in this transition.
I think the question for the US is whether you know, whether we can sort of, you know, get Americans who tend to like bigger vehicles to come around to electric vehicles. I think that also adds some complications to the mix as well.
All Right, Craig, thanks so much as always. Craig Trudel Global autis editor for Bloomberg News, joining US visa zoom from London. You know, I tested thanks to Matt Miller's connections with Ford, he got me a F one fifty lightning the EV.
Yeah.
I got the test start of that for like a week. How is it awesome? Awesome? Now I have to full disclosure. I'm a Wall Street guy. I don't drive pickup truck, so it's a first pickup truck average rope. It was awesome, and it's the first electric vehicle average drope. But the sticker price was ninety four thousand dollars and I think it's just one of the challenges that haves this cost. Yeah.
No, well, and that's going to be interestingly enough, we get earnings from Rivian and Lucid after the bell today, so we're going to hear how some of these smaller ev makers are hanging in there just given as you mentioned, high costs. These companies are losing money on pretty much every car vehicle they make, and demand doesn't seem to really be there.
Yeah. So anyway, big take story coming out of Bloomberg News today, looking at the you know, the battery side of it and kind of where we're sourcing all this stuff. So again Bloomberg dot com slash Big, Big Take, and that that's where you'll find it.
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Let's check in with Irin Jersey here because I want to know what my Federal Reserve is going to do. I mean, that's got you know, the Fed watchers, they were pounding their chest March. We're gonna get a you know, a rate cut, six rate cuts. Yeah, and now it's kind of May. Now people are talking about June, and we've had a couple of smart people come in here over the last couple of days and say, hey, you better have a scenario where they raise he raise rate.
So I have no idea what's going on. So let's bring in Iri Jersey because it's his job. Ira Jersey, Bloomberg Intelligence Chief US interest rate strategist. Ira. It seems like this thing changes day by day. And I guess that's why the good folks of Bloomberg made the warp function, because it just changes all the time. It's a fluid situation. Given kind of what we know here in the economics and some of the data we've seen, how do you think the Fed's feeling today?
Yeah, so you know, we're get a lot of Fed speak this week. We have the minutes at two o'clock today, so we'll see what they were talking about in some more detailed than than we got during the press conference
from the January meeting. But you know, my view has always been that we were probably gonna only get a few cuts this year, so we'd we'd thought three cuts going into the going into the year over the course, and part of the reason for that was we thought that it would be pretty slow going and getting inflation back toward the fed's target, and you know, so far that's played out more or less the way that we thought.
So so we'd been figuring that they would cut one time before the middle of the year in part to kind of get that first cut over with UH before the before the election, and that gives them some flexibility depending on what the how the numbers come in, you know. That being said, as as you noted, Paul, one of the one of the factors that that we highlighted last week was that that people are buying options on the
potential for higher rates. So so there are some people who are getting a little bit concerned that there might be this tail event where maybe you know, the FED is on hold most of the year, but sometime in the in say the fourth Court or maybe just after the electure or something, they have to hike because inflation
in the economy is holding up reasonably well. So so even though that you know, that's not a base case of just about anybody that that we talked to, although there are a few outliers there that that certainly think
that it's a possibility. You know, I think that that you know, an on hold case is much more likely, and you've heard some people in the fixed income markets talking about that as being more and more realistic possibility that the FED just you know, doesn't cut for a long time or doesn't move at all.
Yeah, iira with that notion hold higher for longer, has been something j Powell said for quite some time. You're talking about a cut coming later in the year. Are we talking September November timeframe?
So September I think will be a little bit hard, even though you know, the feder Reserve says that they're a political but I think that they wouldn't want to start any new actions just prior to the election in September. Is that meeting that sits in between the conventions and
the and the general elections. So I think they wouldn't start anything then, which is again another reason why thinking that that maybe they would do a move in say May, June or July, just to have it out of the way and that gives them flexibility to continue those actions. You know, It's it's definitely possible just given the strength and the data that maybe the FED doesn't move or
doesn't have to move until after the election. That that's you know that there's a non zero chance of that, and I think that you know, if we continue to get data as good as we've seen recently, then then certainly that that's a possibility. Again, like our view continues to be at the moment that that the Fed will cut a few times this year, but not nearly as much as what the market was pricing, say two months ago.
Hey, in your work looking at rates, what is the stuff you're working on now that maybe we're not asking you about that? Maybe we should.
Yeah, well, so so you haven't asked us about supply recently, because supply is certainly something that has gotten a lot of attention in the markets recently, just with with all of the treasury bond auctions and with deficits you know, two trillion ishtops and looking like they're going to remain at those kind of levels for the next couple of years.
Is something that that is still getting a lot of attention and is one of the reasons why it might be more and more difficult as time goes on, just given the stock of treasury securities outstanding for the market to to rally just because you have some supply demand and balances. But interestingly, you know, once we get through through April, it looks like the Treasury Department will be able to stabilize the treasury auctions at the levels what they'll end up in April. And because of that, you
might have a better supply demand and balance. So might you might actually see more a little bit more propensity for the market to rally when we're talking about more rate cuts than it has over the last over the last year or so, as the treasury departments had to, you know, keep on increasing the size of the debt aira.
What are you looking at? What matters?
I was talking to a PM this morning who kind of laughed when I asked him about the minutes later today.
Yes, so within the minutes, you know, it's the details, right, So the details matter, and so the two things that will be focused on or one is the normal stuff, right, it's it's what is their reaction function? Has it changed? Is there the chance that some members have gotten somewhat more cautious given the strength of the data that we had in January, And therefore, will there be a change in the dots and in some of their forecasts when we get the March when we get the March Summary
of Economic Projections. But more importantly, and I guess this goes also to Paul's questions just a second ago about what we're not talking about. But it's also a balance sheet runoff, right, So it's it's completely possible that even if the Federal Reserve doesn't cut interest rates at all this year and keeps keeps rates relatively high, it is possible that the FED is going to have to reduce
the amount that it's running off its balance sheet. So there's so called quantitative tightening, and they as that happens, I think the market will take that as somewhat of a Dubvish bent to the FED and the FED activities. You'll probably see things like risk assets do pretty well, right, credit spreads, tighter, equities do okay. The rate market will probably rally just a little bit on that, just as
they'll take it as a duthersh signal. I don't think it is, because I think that the balance sheet policy at this point is going to be somewhat disconnected from rate policy, because balance sheet policy has other implications in the banking sector, and you know how many how much bank reserves do people need in order to comply with some of the capital regulations and the like. So that's
going to be completely different. But that is something in the minutes that I'm really looking forward to to seeing what they talked about and how they're going to frame the discussion that they're going to have in March, because you know, J. Powell did say that in March they're going to start their talk about balance sheet policy.
All right, So I get home my new hours. I get home in the afternoon, I turn on CBS. I see Inter Milan playing Athletico Madrid. I think that's what I was seeing. Good match. I don't know why I was on the CBS network in the middle of the afternoon. That's another question, Ira, What was I watching yesterday?
So the Champions League? I guess, so that the best the best teams in Europe all play each other, or the teams that won their leagues and or came in the top a couple of spots in their leagues. So Athletico Madrid would be playing Milan in the Champions League. The reasons middle of the day is because it's evening in Europe.
So my question was why was it on CBS network. I'm not watching some silly soap operas or game shows or something like that. So that's for that's for me. That's the media question. I'll call my friends.
So, yeah, CBS has the has the rights to the Champions League, just like just like NBC has the rights to the Premier League and the like. So you're going to see it on whatever network you know bought those rights in the US.
So who is favorite in the Champions League? Is that it?
Yeah?
I think it has to be last year's champions Manchester City, Right, there's still one of the Kreme de la Crem's. But you know name, you know, the Milan teams and Byron Munich and PSG like those teams can never be ruled out for sure.
I'm an inter. So you're watching that Send zero. I've been to the Cent zero. Oh really Yeah? Some ac Milan play there back in the day. So that's awesome. Yeah, it's pretty cool. They are insane over there, the stuff that they do. I mean they light stuff on fire, fireworks and it's just crazy. All right, Very good, Ira Jersey, thanks so much. As always, Ira Jersey. He's our chief US Interest rates strategist. He's also our go to soccer officient out of you're.
Listening to the Bloomberg Intelligence podcast. Catch us Live weekdays at ten am Eastern on Affo car, playing Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Bailey, you know it's bad when your cab driver says, are you going to be listening to the Nvidia call today?
No way?
I mean this is going to be missing. So the implied volatility which you showed you from the Bloomer turmal is ten percent and for a company with one hundred and one point seven trillion market app that could be some shekels gained the lost here here coming up sore. Gene Monster joins us because we have to get the bottom line here and Gene can certainly do that. Geene Monsters partner, co founder deep Water Asset Management. He's been
all over the tech space for decades. Hey, Gene, have you ever seen anything like this where a company has not only a big impact I guess on itself on but even in its sector, but also kind of the broader market mentality and video is really outsized, isn't it?
Absolutely? Answer your question, I've maybe seen it back when the iPod iPhone was starting to get going, and that an outsized impact on overall tech. But if you put that into perspective, that was iPhone sixteen years ago, so it's been a long time. When you think about the transformation of AI, it's understandable that and video has gotten attention and the expanding market cap that it's had over the past year, because of course it is in a
poll position. It is benefiting tremendously from this AI infrastructure. That of course is all in the rear view mirror,
and it's all about looking forward. But to answer your question, and this is pretty special times we're in one just final thought, outside of their earnings here, if I look back over the past year and look what's happened to Nvidia relative tech expectations, how they've beat expectations, what they've done to guidance that period those three quarters, That's something I have never seen multi billion dollar company beating by thirty forty to fifty percent, guiding up by twenty percent,
and then beating that upward guide by another thirty forty percent. It is simply breathtaking from a tech investors perspective.
Yeah, folks, so what you just heard is really has some gravitusk because Jean's been investing in analyzing tech companies for decades here, you've seen them from the cradle to the grave, So that means something one point seven bill truly in market cap. Company here stocks up up two hundred and thirty percent over the trailing twelve months, So Gene, that tells me, boy, the bar is extraordinarily high here. What's a win for this company? What's a loss for this company? Here? After the close, I.
Don't know what the stock's going to do tomorrow. It's hard really when you see that kind of volatility built in the options. That means there is a lot of jocking beyond what's going on with kind of fundamental investors. So anything can happen. The stock could be up big on the print and could fade tomorrow. The opposite could happen too. From my perspective, what is most important is understanding how the commentary for the company is going to
impact calendar twenty five revenue growth. And just to kind of put this in a quick perspective, the company's going to grow this quarter at around two hundred and fifty percent year ofvery year. The growth expectations for calendar twenty four is sixty four percent, a pretty big slode on because the law of large numbers and then another big slowdown in twenty five down to seventeen percent. So effectively, investors recognize this company has been through just a breath
taking growth period here. But the general consensus is that the business is going to hit the wall. And even if you look at the valuation right now, it's actually a pretty reasonable valuation. It trades essentially in line with its earnings growth expectations for twenty five. So to answer questions, what I'm looking for tonight is for CFO Jensen Wong just to reiterate what he has said related to where we are with an AI and just to briefly recap
that he has this these four talking points. He talks about these four waves of AI and the current phase that we're just starting in is BAI infrastructure. That's the hyperscalers, that's AI startups. Phase two is enterprise applications that would be like copilot. Phase three is going to be heavy industry getting generit of AI, and he said that is the largest opportunity. Phase four is sovereign nations. I mean,
there's a lot here. So my bottom line is that if investors ultimately walk away from this quarter tomorrow, tonight next week and say we're still very early in this and Nvidia has got a great pole position, then those expectations for calendar twenty five probably start moving higher, which is ultimately going to be for the stock and gene when.
We look at it from a valuation standpoint, about thirty times twenty twenty five EPs.
When you look at what the path.
Forward that you're mentioning Foreign Video looks like, is it just continuing to grow the AI PI, if you will, or is it being able to fend off would be rivals.
Well, I think that just the pie the TAM expansion. I mean, this has been one of the talking points from AMD. If you look at what they've said at their analyst day last fall versus what they've said a month ago. They've basically said that their addressable market would four x, and then that was three four months ago, and a month ago they said it with two x from that four x. I mean, these are just it's mind boggling kind of how fast these numbers are going up.
And the reason why they're saying that is they're seeing the odor flow and so ultimately, and Video has got an amazing product. They've got a product cycle coming up they have basically a code and operating system that works around what these chips do. It's a developer platform, that's
a better way to say it. So, but if they've got such high market share right now eighty five percent in the GPU market, it's really about continuing to expand the TAM and I think that that's ultimately going to happen. I mean, I'm in the camp that AI is going to be more transformative. Twice is transformative what the Internet has been, which is hard to wrap your head around that, but I think that there's and video is just in a great position relative to that opportunity.
Well, you know, gen, one of my questions is, you know, just as a layperson here as it relates to tech spending, how much of this tech spending associated with AI do you believe is incremental versus maybe just shifting it around from other budgets Here.
The most commentary we've heard is from those big tech companies. Those are the hyperscalers. That's the companies like Google and Meta, Microsoft. Apple hasn't said as much, but they're going to get more into this, but what they've shared is that it is incremental. I've talked about you know, their typical run rate of CAPEX. Let's just call that at a typical growth rate of ten fifteen percent a year, and those growth rates, the spending in CAPEX is going to go up,
call it twenty five thirty percent. This is an average if you look at some of those big companies. So this is incremental. I mean they're seeing this as you have to pay to play to invest in the future, and so I think it is incremental. When you when you kind of process, like go through the theory of this incremental spend, that's how you get expanding addressable markets. Is when you get that incremental spend. When things are shuffling around, it's hard to get those expanding markets. But
in this case, I think it is. It is true. This is just a whole new infrastructure that's being built largely on GPUs versus the old infrastructure on CPUs, and that is incremental spend.
And gene As we've seen the valuation skyrocket and it's leaping above a number of well known names, the Metas and the.
Berkshires of the world.
Can we catch Microsoft Microsoft just south of three trillion dollars in market value compared to Nvidia's one point seven.
I think the AI opportunity is big enough that it can catch that. I mean if in fact I'm right, and I mean our firm is the firm deep water firm believes that this is you know, ninety nine out of a scale of zero to one hundred. Is AI electricity is one hundred. It's that close and the internet's fifty. If that's true, Yes, there is continues to be this upside to I don't want to get carried away by the way in the moment of kind of the hype.
I'm just trying to step back and again, I don't know what the stock is going to do tomorrow, but I do have a sense about how impactful AI is ultimately going to be. And so what is that kind of that high end of the market cap expansion When I was talking about that fourth point sovereign nations, this is countries needing to have their own AI to really reflect their intelligence and their culture. There are some pretty bold and big objectives that these very deep pockets are
going after. When you think about that relative to the market cap, you can build a case that it can go much higher.
Gene, thanks so much again, always appreciate getting your time. Gen Munster, managing partner and co founder of deep Water Asset Management in Nvidia. After the close gene Monster, one of the best voice coming out of the valley.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Potentially a big day in the market today. After the clothes, we get in Vidia reporting. We'll see what it means for that stock, for the tech sector, for the market overall. So let's just get a sense of what's happening out there in this market place.
Here.
Carol Pepper joins us. She's a founder and CEO of Pepper International. Joining us on a zoom call from NYC. Carol, thanks so much for joining us here. I don't know if you're a tech geek or you're into this old in vidio thing, but boy, it's certainly had an impact on this market. Certainly the AI has been a big, big narrative for this market. How do you think about that?
Well, AI is the next large trend that people need to ride.
As you know, I manage money for family offices that have greater than one hundred million dollars in net worth, So we're always looking for the important long term trends. And when Vidias burst on the scene and began to support the development of AI, it became a very interesting stock. The reporting today whether it's up or down, and whether the market likes it short term, it's a long term play.
So I tell.
People on a fear day when in video is perhaps down a bit, even perhaps after earnings are announced, it might go down slightly for a few days.
That's what happens. That's a stock to buy and hold long term.
Ten years from now, you'll be very glad you bought that security because it's it's really a way to start riding the trend, as is Microsoft, by the way, because Microsoft is not going to let Nvidia take that whole market. They're starting to develop some new technology as well toward AI.
So caro, what else do you like in the call it AI semiconductor space. Then if buying the dip or sell off on Nvidia and kind of the ripple effects does play out, where else would you be looking to put money to work.
Well, I just think you want to go with a big basket if you can.
So for a lot of the investors out there that aren't necessarily buying single stocks, you can look at even baskets like QQQ. There are other AI baskets that are going to be coming out very shortly, you know.
I think you buy market leaders right now.
So I would stick with Nvidia for your main play on AI and Microsoft at the moment. It doesn't mean there won't be new players that are interesting coming forward, but at the moment, market leaders have continued to lead. So this has been a market where the biggest, biggest caps with the most money whatever sector you're looking at, or leading. So don't get too cute, buy the leaders just on a fear day when you can get in at a decent price.
All right, Carol, So you're mentioning in Nvidia, Microsoft two of the Magnificent seven people wanting to call it the Fab five. Is a shout out to the Michigan basketball team. What's your take on the rest of the group, just giving kind of the divide that we've seen within Nvidia really kind of carrying the baton at this point.
Yeah, Well, the one I would toss out, which is which I think will get tossed out itself, is Tesla.
I mean, I think Elon musk is.
You know, his attention is to divide between too many things, and he's becoming a political liability. He's putting himself far out on the spectrum. So that's the one that I would toss. I don't think they're going to be a market leader five years from now at all, because his attention is too split and he's too troublesome. So I get rid of Tesla and I'd buy the others as a basket. My favorite stock for years and yours.
Has been Amazon.
I think that will continue to be a strong leader. They're continuing to expand, and that they will take.
Over the pharmacy spase eventually. That's something they're trying to do, and that's the stock to watch.
Hey, Carol, you've been in this managing you know, the wealth of these high networth families for decades. Now. How does that change? How's that business change? What are your clients? Are your clients today different than maybe they were twenty years ago?
Yeah, I think family offices and high net worth individuals have become extremely sophisticated. Over the last twenty years, most of them have pulled the acid allocation decision and the stock selection decision inside of their own private family offices. That's what I do. I act as a CIO to the single family offices. They used to give all of those decisions to the banks, but that's like you know, handing the fox the keys to the henhouse.
They understand that.
Banks are actually like supermarkets, and you should go shopping at a bank with a list of what you want. For example, don't let the bank tell you how much large cap growth to put in your portfolios. You tell the bank what you want and you let them show you the products that they have.
So the power balance has really changed. Now we see family.
Offices taking control of their risk appetite, their asset allocation.
They're not following every trend that comes out on the street.
You know, suddenly Germany's gonna outperform the US, or some trend will be pushed by Wall Street for a few months and then fizzle. The families aren't buying it. You know, the families were out of China long before the general market was. Because the bankers don't like to admit mistakes so they don't pivot very quickly. But the family offices can pivot in a day and change their mind about something. So that's why they tend to be really leading investors.
They're into these trends long before everybody else is because they have no one to answer to about themselves.
And Carol, with kind of that topic in mind, how far out are you going at this point in time on the risk curve you mentioned in video really kind of setting the tone for AI and being a long term buying opportunity. You're focusing on some of these big tech names. Are you dabbling and putting exposure into smaller maybe emerging technologies.
Yeah, I mean Eaton.
Family offices tend to look at direct smaller place, so we go in at the very early stage, sometimes pre seed or seat stage, into venture capital. We don't tend to be you know, in the pink sheets or the small publics. Those are in difficult places. That's why you see now a lot more companies staying private and then going public with a billion dollar valuation because there's a graveyard. Unfortunately with a lot of small caps. They'll rally for
a few days and then they'll die again. So we take the bets in the small companies, in directs or in private equity not so much fun sometimes funds, but more direct frankly, and then go for the market leaders in the market. And that's how we sort of split the risk reward scenario.
There than cal on the side.
How much what do your clients ask of you as it relates to alternative investments and if to the extent they have that, how do you scratch that?
Oh?
Well, it's Alternatives are a huge part of family office portfolios. Sometimes they're thirty to forty percent of portfolios. Why because again, family offices can go into things like venture debt, they can go into private lending, they can go into all kinds of you know, esoteric areas or very specialized real
estate plays in an area that they know well. So alternatives are huge for family offices because generally there's more risk, there's less liquidity, but there's more return and alternatives and that's something family offices can definitely handle.
You know, my family offices, I always.
Have them have at least two years worth of expenses set aside in cash and money markets earning four or five percent, and then we go take risk with longer term money so they're.
Very open and very interested on alternatives.
Alternatives in real estate funding, biotechs funding, you know.
Research, genetic research.
There's all sorts of very very interesting deals that go family office to family office and never see the inside of JP Morgan or.
Oldman Sachs Carol.
During my day job, when I'm not hanging out with Paul, I read about the IPO market and it still very much feels when I talk to venture cap less investors as well as kind of some of the crossover funds, that it is a investor friendly market where you can walk away on valuation or pick up some of these shares of companies in the private markets at a steep discount. How are you putting money to work in the private arena and how has that really shifted from a peak, you know, just over two years ago.
Yeah, I think the private market obviously you can't expect a big and quick in and out right now.
Markets drifts still very tenuous.
I think they'll get less tenuous when rates come down a bit so that financing gets easier.
But things have not.
You know, people are out there trying to beat up the small companies and get in at the good valuation. And you know, evaluation for a company that might have been twenty million is now five and it's heartbreaking for the entrepreneurs. So you can pick up some discounts in that respect because they're just people that couldn't get funded. But you still have to look for the fundamentals, which is a very strong team, a very strong you know,
go back to Michael Porter Competitive Advantage. You know, Harvard Business School, read that book. It's a classic. Why is this company in existence? And why should it win? Because if there's no winning strategy, it doesn't matter how cheap you get the company, it's just going to die. Because a lot of these companies are dying now because they can't. The old model was you just live on rounds and rounds of financing until eventually you pop.
That model's gone.
There's less tolerance for continually refunding. A company that can't earn can't make earnings unless it's led by somebody huge, you know, like the founder of Uber or something where you know that guy knows how to do it. But for new startups, you're looking for cash flow a lot earlier, and that gives and people are raising smaller rounds, so you get into a lot of sprinkle into some small pre seed rounds and then help the company grow is more of the strategy these days in my experience.
Gotcha, Carol, we only have about thirty seconds left. One of the stocks we talked about at the top of the show, Palato Networks, down twenty six percent. This is a big cybersecurity play. Are those type of selloffs that you would look to buy?
Absolutely, I don't happen to know that company very well, but yes, I mean there are the market swings a lot, So you should have your favorite names, know why you like them, now, how they're going to fit into your portfolio, and what size you want, and then wait for the fear day. You know, there'll be a fear day for Nvidia too. Even though it's so high, people have said to me, I can't get in. You know, people were saying that about Amazon ten years ago. Oh it's too high,
I can't get in. So those value guys miss the entire run. So just you know, hold your breath, hold your nose, and get in on a fear day to the stocks that.
You're interested in.
And by the way, cybersecurity long term is a very important play and trend that is.
Not going away.
Hi, Carol, Thank you so much for your time. Really appreciate it. Carol Pepper, President, founder and CEO Pepper International, joining us via that Zoom thing from New York City. I appreciate getting a few minutes of your time.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Looking at bitcoin here memory of Matt Miller boys since a March low last year March of last year, except about one hundred and fifty five percent. It just had such a huge move and there's a lot of reasons behind that, including we got to spot bitcoin ETF, which I think the crypto kids are all happy about. Cave Tagupta joins and she's a founder and managing partner of Delta Blockchain Fund. She joins us on Zoom from New
York City. Coveta, big move here in bitcoin. I'd love to get your thoughts about kind of what's really driving it here over the last you know, kind of eight to nine ten months.
First of all, paulin Biley, thank you for having me. I think it's been a very interesting journey. People in the space already knew that.
Of course, the.
Anticipation of Bitcoin ETF plus the halving of bitcoin which is about to happen in May starting from April, which is going to make it more difficult to.
Produce new bitcoins.
So the basic principle of economics of supply and demand is going to be off. Are going to trigger a lot of bitcoin movement in a positive direction to.
The downside, though with the underlying risk a lot of uncertainty from the stock markets perspective. Is fifty thousand a support level? Kind of what do you look at when you're seeing potential downside, just given how volatile bitcoin historically has been pulling back from some of these big rallies.
Yeah, and I don't think this is all time high. As you said that, it is a support point. The support point may go down to early forties or mid forties, but I doubt it's going to go down before it reaches an all time higher. We see a cryptosummer end of this year to mid of next year, back to sixteen or in twenties anytime soon for an year or two.
I feel like there is so much of new.
Capital because of the Bitcoin ETF, which has come into the market multi billion dollars, that the there is now going to be a continuous demand for bitcoin.
So come to hell else? I mean, should we expect an ethereum bitcoin? I mean e ETF going forward? Is that kind of the next thing you guys are looking.
For Ethereum is the technology and ether ETF. Yes, there is a conversation going on. And why not because at the end of the day, ETF is the wages for the institutional investors within us to be able to hold it in a much more credible manner and to have more capital injected in it.
I am, personally, honestly at this point of time, if it's just.
The price or the technology from both perspective, more bullish on Ether than Bitcoin. I do feel like the Ether has been going between two point nine to three point one kin last two three days. Again, I feel like even if it goes down a little bit, we're going to see the resting price in two But I am more bullish on Ether the overall technology for ethereum.
Okay, so your bullush Ether over bitcoin. Where else are you seeing opportunities? It seemed like coinbase was seen as a big winner and a number of these other platforms and technologies just given the approval of the ETFs that Paul mentioned.
Yeah, I think within the space there is a lot of technologies. The other layer twos which I'm really bullish about, or the roll ups is optimism is a big one. I do see resurrection of Solana when the DeFi institution is going to happen, and a lot of defive which is very similar to how the hedge funes work with USD or different currencies. The same thing with ether, bitcoin and with the stable coins. We have decentralized financial products
like aw A, compound, a lot of lending protococols. I do feel like there's going to be an institutional staking around that and that's going to really take over a lot of technology solutions. So I'm also bid bullish on Celestia and different data layers two.
So who's capta Who are you talking to? You've got a fund, you invest in companies, you see very early stage companies out there. How broad do you think is the support out there for just crypto blockchain because we still have the likes of a Jamie Diamond just giving it no love whatsoever, and I'm wondering just how deep your market is.
So you do have people like Jamie Diamond who doesn't love it and very vocal about it. But at the same time, the market continues, right he has been vocal against it since sixteen or fifteen if I remember it correctly, and we didn't disappear. The market continued, it has become more strength, and I don't see a space wear JP margat at any given point of time will not offer its clients and ETF option.
On Bitcoin or on Ether over time.
So I do believe that the technology is here to stay. Now what form of it is going to be there and what form of token's going to be there?
Some crypto and some technology tokens that will have to see within us.
But one of the most interesting part about this space is it's very global. So one country, even if they have tried in the past, has not been able to really close.
The chapter on it.
So we continues to see countries like Abu Dhabi coming up giving licenses, or Singapore trying to be ahead of it, or countries in euro from UK to Lisbon trying to be an amazing hub.
For the growth. So I just see a lot of growth in the space.
Well, Kavita, you can't talk about crypto without mentioning binance and FTX. How do you approach investing given the fact that bulls will argue that bad actors are being flushed out, But on the flip side, it feels like that could just open up an opportunity for other people to take advantage.
So I think the game anytime when there is finance and money and dollar involved in it, whether it's made of scheme or whether it's like anything out there, you are going to see scams, some sort of scams or some things which you don't have regulations and have a great area people really pushing beyond. So we do have FTX and finance and to be very honest, and I don't take away that what FTX did was completely stupid, which was very similar to Bernie.
Made of scheme, but also the lack of regulations.
Even though you understand the space is here to stay, you are still doing ETFs, you are you have companies like Coinbase going IPO which are signed by everyone. Lack of regulations from SEC is the biggest thing which hurts and push more fear or more.
Scams around it. And I think that's where we should focus on.
All right, Very good, Covet, I thank you so much for joining us. Coveta Gupta, founder and managing partner of Delta Blockchain Fund based here in New York, and joining us via zoom and again looking at bitcoin here fifty one, one hundred and four bitcoin and that whole heaving thing ha lvig basically reducing the number of new bitcoins that can be mined kind of just puts that a further constraint on the supply. And then that's one side of
the equation. The other side of the equation, as Mike mcloan explained it to me years ago, is presumably more use cases for bitcoin, so fixed supply, presumably higher demand that should push the price up. That's Mike mcloone's pitch to me, which I could understand.
Yeah, I mean that's the kind of economics, right, you know, he limit supply, increased demand, prices rise. When you look at from a seasonal perspective. One thing that stands out over last decade, best two of the three best months out of the year April and May. But bitcoin right now up twenty percent in February alone, YEP, absent of which is really not as in line with big tech as it had been historically.
Seem to see how that plays out. And the spot, you know, having that spot ETF is big, and I guess there were nine ETFs that think that came out. So presumably that's expanding the base of investors in this football since it Yeah, that's what the bulls say, so we'll have to see. But the again, ETFs, let's do a blockchain. Let's do it, you know, crypto ETF, and that is perfect XBT.
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