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All Right, I have to be honest with you. I'm having a hard time keeping up with this whole China in video AMDB, the fifteen percent tariffs? Can the chips? Are they welcome in China? Are they not? Can they sell them in China? Let's go to Ed Lolo. He's on top of this stuff. Ed loves the Bloomberg Technology co host. He's over in London right now. Hey, Ed, what's the latest here in China?
Is?
I guess they're urging firms not to use in video's H twenty chip. I thought things were kind of thawing out there.
Yeah, this is fast moving. This is, you know, the only appropriate time of the phrase market whip saw that I've been able to use to date in this contact. The Information has reported that China's Internet regulator has ordered firm ordered specific technology companies Ali Barber, Tencent among them, to stop placing orders of in Nvidia's H twenty. The H twenty is the China specific chip that had had performance engineered out of it that was subject to export control.
What we knew, by the way as of Monday morning was that Nvidia had not in any recent months shipped any H twenties to China anyway. But the problem with this latest report, which has been in the last hour or so, is that it's a much more extreme move by China than what Bloomberg had reported overnight, which was basically an advisory. Chinese authorities had strongly recommended to various Chinese technology companies not to use the H twenty in particular,
as well as one chip from AMD. The market's reacting, that's all that matters.
Right, So you're seeing shores of Nvidia down a touch, about eight tens of a percent here. Can you just speak a bit more about what are the implications here for in Nvidia in particular.
Yeah, so the state of play is really important to understand. In Vidia's H twenty chip is not the best chip that a Chinese technology company can buy. Huawei, which is essentially China's domestic champion, has actually several generations of chip that have better performance and power not just more than the Age twenty, but of in Nvidia's H two hundred chip, which until very recently was the sort of cutting ed
generation accelerator that many American companies used. They've since moved on to a later generation called Blackwell that's not available in China. The President, as you know, confirmed yesterday about twenty four hours ago, that he had cut a deal and ad hoc arrangement, a quid pro quo with both Nvidia and AMD where he would allow them to export these China specific chips with lower power performance in exchange for fifteen percent of the revenues gained from that market
for Chinese AI accelerators. The problem is, like, what are we interpreting this as. Is China responding in this way because it's a tactic in the broader negotiations between the United States and China of trade overall, that is what the analyst community thinks. Or is China protecting its own domestic industry for AI accelerators making sure that Chinese tech
companies buy a Chinese AI chip. Both are possible. The main conclusion of cross both is that now Wall Street has to reassess how likely it is that in Video and AMD do business in that market, at least in the near term.
Ed I guess if I were an analy certain investor, I'd be saying, I think I have to factor into my model that the intro would be know that I can't imagine. Yeah, some of the advanced chips being allowed into China just doesn't feel like the political winds are blowing that way at this point.
You know, there are certain sections of Wall Street the most bullish analysts in Video's next quarter coming up is the fiscal second quarter. Some people saw them doing seven billion dollars of sales in China on the basis that, Okay, President said, it's cool even if you have to pay a fifteen percent so called export tax, and there are questions about how constitutional that that rule would be, which we can get into shore. It's still better to have
eighty five percent access to a market than zero. So everyone was like, they can do this quickly, like just turn the tap back on. I would wager I think I said this yesterday anyway, But twenty four hours on, given the newsflow, they're probably reassessing their model down and down and down closer towards zero.
And we of course know that China is a major player here when we think about in video. But and Vida also holds a significant market share in the AI chip sector about ninety five percent. So tell us Abit how big of a deal this most recent news is and how does it kind of change how you look ahead of these earnings that we're going to be getting coming soon.
Well, the thing is, and the reason why, you know, Paor and I back and forth over over the sellside over the last couple of days. As important is there's been zero business for nvideo in China, at least since the turn of the year. You know, they wrote down five billion dollars worth of chips that were specifically made for that market, and they haven't sent any of them there. Let's say they're just sitting in a warehouse somewhere. They
probably are. However, when you think about the context of AI development, the number of researchers and companies working on models, about half of the world's activity is happening in China. It was an important end market. Will we return.
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Looking at the cannabis company, Kilray Brands, it's a name we've been talking about a little bit this morning. Stacks up about nine ten percent here. That's a good news. The band news it is down about twenty five percent year to date, and I think it's up on part. Looking at some of the Bloomberg reporting here, President Trump made some comments that maybe he'd be open to reclassifying cannabis, maybe as a less restrictive drug their substance. So I went to bring in Ken Shay, he covers all this
stuff for Bloomberg Intelligence. Senior consumer products analysts for Bloomberg Intelligence. Ken talk to us about the comments that President Trump made as it relates to the cannabis industry and how impacko could that be?
Yeah, Hi, Paul, sure. So what I understand is President Trump over the weekend made some comments with regard to a marijuana rescheduling in the US, a topic that's been very top of mine among this industry for a while, and apparently he said that the administration was going to be looking into it now, that's really a long way between that and actual rescheduling. But nevertheless, this beaten down industry and the close observers too, it took that as a dose of old or you know, overdo good news.
I mean, these stocks have have you alluded to before, are down, you know, over fifty percent or so of many of the big ones. So this hint of good news has led to a rally yesterday and today. But you know, I would advise observers to you know, temper their enthusiasm because, as I mentioned, it's a long process between looking into it and actual rescheduling it, and it's even further to legalize it, which would really bestow the greatest benefits of all.
So you mentioned how we've seen a lot of these stocks really taking a beating this year. Can you just kind of contextualize here for our listeners what has created this this lag?
Yeah? Sure, so the market really had turned negative for the last couple of years actually with a lack of progress made on federal reform of this industry. You know, many states have taken it upon themselves to legalize either
at the medical or adult use level. I mean some forty states now talking to a vast majority of states have now legal cannabis in some form, so they a lot of the industry players and the market thought it's just a matter of time that the federal government would retire these really old you know, the treaties that require cannabis to be a Schedule one drug and then really puts the handcuffs on this industry to do a lot
of good things in terms of business. You know, consumer product companies in general have the benefits of the economies of scale because they have interstate commerce, they can advertise, they're not hurt by onerous taxes which these companies are
subject to. So a lot of a lot of barriers facing this industry still given the current status, and so it's really over the prior to these comments over the weekend, I think there's really been a sense of throwing the towel in among investors with this group, and so that that's why you're seeing this at the magnification of response to this news today.
So can if the majority of states have legalized cannabis, what's the what's the problem with the federal government coming around and doing the same.
Well, the biggest thing, Paul, is because This is a treaty that was signed back in the seventies and the Nixon administration that again it's part of the anti drug wars back then, they set this in a stone basically, and only an Act of Congress can change that treaty to no longer include marijuana cannabis, uh, you know, as a Schedule one drug. So so I guess you know,
Congress doesn't seem to be willing to act. I mean, that's the biggest thing that the biggest blockade to legalization, kind of the shortcut reclassification under the Controlled Substances Act. A lot of the industry is saying, look, you're you're putting us at Schedule one, which is the same level as you know, ecstasy and only these horrible harmful things. And the definition for a Schedule one is there's no
proven medical value. Well, that kind of contradicts the own FDA's decision a few years ago when it approved a a cannabis drug called epidialects, which is used to treat seizures in rare cases for epilepsy. So clearly the medical use and it doesn't belong to the Schedule one if it was your scheduled if it was rescheduled to three, it would still remain illegal unless that treaties are changed.
It could at least alleviate something called two ade and a tax code which basically says, look, if you're in the drug business, maybe a bad thing, but we still want your taxes. And so they don't allow these companies, these cannabis companies to deduct ordinary business expenses like rent, salary, marketing, and so as you can imagine, the taxation hit to these companies is just dramatic, and that's really their biggest problem.
So there was a time back in the early nineteen twenties when cigarettes were illegal and then of course we know now when we look at the industry, the tobacco industry globally, it's a multi billion dollar industry. So if we think about cannabis stocks and a lot of these companies here, what's the bowl case.
Well, the ball case is that at some point either gets rescheduled or legalized, and that's a long, long term Can I remember the market as a discounting mechanism is looking you know, well into the future. Now, if you're a real bull, you look well into the future. You know, these companies at the gross margin line are very profitably. It's about forty to fifty sixty percent gross margins. That's a pretty good business. But it's when you get below
that they really get hurt, particularly the taxation line. So if you're a ball on this industry, you say, you know what, these are pretty good companies. You need a license to compete, so there's natural barriers to entry. We know there's a demand for this product. It's been around for a long time, so you know, I think we just get the regulation right, this could be a pretty good business.
Ken you also cover the big tobacco companies. How are they, how have they been impacted or may they be impacted with the various tariff discussions that are out there.
Well, the US tobacco industry is really a domestic business. You know the big guys, you know Aultria, Uh, they source virtue all the tobacco domestically for domestic use, so they were only exposure to the tariffs is really very small. Some of the materials they use, like they're smokeless tobacco cans, ten metals, things like that. Then they you know, get
from suppliers offshore and that could be indirect problems. I mean, you know, other suppliers could raise prices in a small way for products for other inputs, but by and large, they they've been skirt they've been they can skirt this problem, and it's not really an issue for the US tobacco industry.
Quickly hopping off of that question, I'm going to ask the same of cannabis. Is that more a domestic industry here? Any tariff concerns.
No tariffs concerned. Matter of fact, it's illegal to import cannabis into the US, so it would only be to the extent where the vaporizers and the electronic goods and the you know, the ancillary products that are used with cannabis are subject to those import terrorists. But the planet itself, there's no tiriff issue.
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Looking at this market, we still got some greena on at this reen here today I want to check in with on rog run on a Bloomberg intelligence technology analysts honorack I Steem remember something in the zeitgeist, as Tom Keen would say, Elon Musk not real happy with Apple and maybe even vice versa. I'm not sure what's going on there.
Yeah, if you go back a few years ago, you know, Elon made a big deal of about the fee that they have to pay on for you know, X subscriber to the thirty percent or so. I mean there was a visible argument. But you know, in a few days he was seen, you know, walking around with him cocaine in the campus, and you know, the whole thing. I mean, today's complain was a bit odd because apps on the App Store don't go up just because Apple wants to do it that way. I mean, they go up because
users are downloading one app over the other. In fact, the other day, I remember the perplexity CEO was saying that in India App Store, you know, his app is above Chat, GPT and so forth. So I mean he's basically complaining that, you know, Xai is not getting the same love as Chad GPT is, which to me is understandable given you know where the presence of that is in terms of the ecosystem and the users. So I think that's really, you know, some argument going there, but
I think it's it's just news. Frankly, it's it's there's not much to it.
I mean, so you mentioned not much to it. So where do you go from here? I mean, how what steps forward would he need to make to see any changes here?
He has to go prove the world that his grock model is better than Chad GPT and their models. They just launched a brand new model and they have to go figure out whether it's better than that, And he has to go and sell that to either enterprises or the consumer application and become you know, have the same number of users. I mean, you just can't say that, you know, my product is not doing better because somebody else is you know, not giving it the same amount
of love. Even Google's model Gemini is doesn't have that level of user based right now. I mean, the first movement advantage is open AI and Chad GPT, and the user growth has just been phenomenal, you know, on that end, and there isn't I you know, I don't think I know anybody at this time who's not using Chad GPT on their phone or any other device that they.
Have you can look at me, I don't use it. Let's talk about Apple. I see the stock having this nice move here, you know, during the month of August. Here is this a sense that maybe they'll do something to maybe get a little bit more in the game as it relates to AI.
I think we to discuss this a few months ago, when you know, the President came out and criticized them for building phones in India, and you know, the stock really took a hte at that point. But I think them could do the right thing. He announced the big plan, He went to the White House, he you know, essentially gave President Trump an assurance that he is working very hard to bring whatever he can in the US. You know, this was just glass at one point, but I think
that really made a huge pivot. The President was extremely complimentary of the stuff that he's doing. So I mean, since then, you can see stocks pin at a tier. So there was danger that you know, it could they could be additional surcharge on Apple or anything out there. So you don't want to be against the president at this point. So I think Apple's done a good job of managing that. Now the question is whether iPhone seventeen
will deliver. We've heard it's got a really cool new phone coming out, so I think things are looking good for Apple from that, but I'm still waiting for one particular element, that is the Google case and whether Apple gets to keep the powers partially or somewhat of the payment that it gets from Google.
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Next guest had a fascinating story out Bloomberg Business Week cover story Treasury Secretary Scott Bessant. The US Treasury sector has the ear of an impulsive president and nervous investors worldwide. Hope it stays that way. And Eric Schatsker has an exclusive interviewed Eric Schatsker, Bloomberg New Economy Editorial director, Should we just live here in on our Bloomberg and Active Broker studio. Eric your setan Scott beston for an extended
period of time. What were some of your takeaways there?
Gosh, Well, first of all, the man is unbelievably busy. Spent a day at the Treasury Department with ALCOHOLICU Dan Flatley, and to observe how much he gets done in the course of a day, including spending an extended amount of time with US, gives you a window into the life of the Treasury Secretary in the Trump administration. And it's important to emphasize in the Trump administration because this particular Treasury Secretary has been given a whole host of responsibilities
that go beyond that of the typical Treasury secretary. We know that the Treasury Secretary in any administration is involved in tax policy, is involved in economic sanctions, is involved in financial regulation, and the like. But President Trump has tasked Scott Bessen with trade negotiations with striking and not just any old trade negotiations. China perhaps the most difficult trade negotiation of all, Japan, which was successful, South Korea,
which was successful, Indonesia. The list goes on. He's also the acting IRS Commissioner. He also crafted the deal that the very novel and original deal that the United States struck with Ukraine for a share of that country's mineral resource wealth back in April. These are not and furthermore, I have to add he was instrumental in getting the One Big Beautiful Bill through opposition in both among Republicans in both the House and the Senate in order to
meet the president's self imposed July fourth deadline. So Scott Besson has taken on way more than your traditional Treasury secretary does, and much of that is because the President himself has asked him to do so.
And it seems as though a lot of people see Besson as really having the president's ear here. And this is a really fantastic story. Okay, what was the most surprising element through your conversation with him?
Oh?
Well, there are so many surprises. I would say that the thing I didn't fully appreciate and which he spelled out for us, and which others spelled out for us, is the degree to which this is something he sought after going back many years. Besson told us that he thought about joining the Trump campaign as early as twenty sixteen, but at that time he just started a new hedge fund, Key Square Group, and he didn't feel like he could
abandon his employees or abandon his clients. But what he did do was start to get to know the people close to Trump almost immediately thereafter, starting with Steve Bannon and subsequently Peter Navarro, Stephen Moore, Kevin Hassett. For example, Trump's close economic advisor's Art Lafer. He went down to see Art Lafer in the South, made a pilgrimage of starts to get Art Lafer's blessing for his ambitions to become Treasury secretary, and these he didn't make known to
Trump until October of twenty twenty three. Excuse me, November of twenty twenty three throws, So it was almost a six year period in which he was maneuvering to position himself for a shot at Treasury secretary. And when he saw Trump in that November twenty twenty three meeting at mar Alago, Trump asked him if he wanted the job, if he was interested in being fed chair, and Besson said, no, I have another job in mind.
Very good. The Street Eric gives Scott Besson a fair amount of credit for walking to President back and maybe some of the more difficult tariffs that were initially announced. Is that a valid point that Scott Beson play a big role in walking the president back a little bit, and does he take credit for that or is he kind of demure.
Besson insists that his job is not to explain things to the president or to advise the president. It is to present the president with a series of options. Here's path one, here's path two, here's here's path three, and I will explain to you where we get if we go down one, if we go down two, or if we go down three, and he leaves it ultimately for
Trump to make the decision. That's very I wouldn't say that's unique to this president, but Trump has a very particular view of his role as a decide in chief in this administration that is perhaps different from what we saw with Biden, or with Obama, or even going back in history to other Republicans like George W. Bush and
maybe even Ronald Reagan. So Besont does not claim credit for being the de escalationist, but it is clear talking to people around him and to understanding how the market thinks market psychology, if you will, which is you know, one of his areas of expertise, having been a macro hedge fund manager for almost forty years. That is where it really counts. The market trusts him, and the market based on its observations draws these conclusions, rightly or wrongly.
Does he share any concerns he may have about just getting somehow involved in some of the crossfire that happens around President Trump and getting into President Trump's bad graces or just kind of I mean, because it's such a perilous those people that fight fly close to President Trump historically have done at their own risk. Well, the former vice president, so yeah, how does he shape Is he even acknowledged that that's a risk.
What I divine from the conversations we had with the Treasury Secretary is that it there is a formula for success in the Trump administration, and it means making certain compromises if you will with yourself. You can come in with your own ideas, but it is not your job to advance that agenda. So you have to make some compromises.
If you don't, and Steve Stephen Mnuch and the former treasure secretary, points this out, if you cannot represent the president well, in other words, if you can't get behind what the president wants, the role has no power. What's the point of being in DC. What's the point of abandoning a forty year career in finance where you rose to be one of the most successful hedge fund managers and have you know, for it all to be worthless, have to have no power. No, you want to be
able to wield influence and get things done. And that's very much much in the back of Scott Beston's mind. What's my legacy as Treasury Secretary going to be.
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