Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
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Find the Bloomberg Markets Podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. JP Morgan Equity BQ. That gives me my Bloomberg quote, which is my go to quote for any security I pop in there. It's up like one tenth to one percent today, it's up four percent year to date. Aren't they having an investor day today? Shanli bassk you cover
all the Wall Street stuff I was expecting. Maybe not a bombshell, but can I have a little bit of excitement coming out an investor day?
But so far not so much.
I mean JP Morgan makes money, big deal. No, I'm kidding, Hi, Well, that's the thing.
I mean.
JP Morgan the typically when they do investor Day, you've got a lot of detail about how they're managing the business line by line, business by business, executive by executive. But you know, they they have not been known to sit there and throw out massive, big targets on a fester day. They have reiterated the targets that've set, but they have a one target I think in particular is important.
It's the twenty twenty three that interest income expectation. They're expected to make more, and it's because of that First Republic deal. You would expect some of that, but it's, to your point here, somewhat muted because there is still a lot of uncertainty and JP Morgan's executives tell you all about it.
So there haven't been any bombshells yet, have there from this acquisition of this bank. I mean they kind of sometimes you go when there and you're like, uh, oh, you know, but they didn't have any of that so far at least.
I think what it will be is a matter of showing just how much this will move the deal for JP Morgan overtime. You think back to bear Stearns, for example, and it wasn't immediately clear, especially when on the horizon there were so many hiccups to work through just how much of a huge strategic change bear Stearns would be have made them one of a the top fixed income
trading house on Wall Street. It now is making them such a competitive institutional broke if you will, you know, just at the heart of capital markets, competing with the investment bank. But First Republic will really make it a contender, bigger and bigger in wealth, wealth and consumer.
Here, I'm just looking at a red headline going across the Bloomberg terminal. Biden, We'll meet with McCarthy at five thirty pm today Wall Street time to discuss the debt limits, so we'll have more reporting on that. But that seems like a move in the right direction. Pretty gup that joints us here Bloomberg Interactior broker students just coming off the TV screen. So Creta's just talking to Shanali here. Not a whole lot of action coming out of the JP Morgan. I wanted to ask you about a smaller
deal green Hill, Mizuho Bying green Hill. Now green Hill is only it's a small company, it's less than a billion dollar market cap, but it's Bob Greenhill, who was a just a.
Legendary deal maker.
They were one of the first boutique investment banks to come public like twenty years.
Ago or something.
There's a reason, and I've got to say I thought the story would do well. It is the most read on the terminal already and within a couple of hours here, and the reason is, Yes, Bob Greenhill, he was a bank over the Sumner red Stone. He was a banker to Sandy while he was really in that era of legendary investment bankers Morgan Stanley former Morgans only left out
on his own form green Hill and Company. And yeah, it was one of the original boutiques and one of the first to go public, really the first in this generation, and it inspired others like Evercore, PJT. Hulahan, Loki Mulison Company to go public too. So it's really an end of an era for a public run for green Hill in Company, but really a tough decade. Paul, Yeah, I mean.
I'm just looking at the stock price chart.
I mean it's you know, they're getting paid double where they closed on Friday, but still it's a fraction of where was it its peak.
I mean, in the heat in the aftermath of the financial crisis, this was a stock at more than eighty one dollars a share on Friday. It closed at less than seven dollars a share, So that just shows you how far they had come. And remember, investment bankers are partly paid in equity of their own investment banks, so it's a tough retention tool when you're facing that much pressure on your stock price.
So one of the key takeaways I'm going to bring back to JP Morgan here because five hundred and fifty million dollars from a Zoho. But it feels like JP Morgan all eyes on Jamie Diamond, especially with geopolitics kind of rearing its ugly head once again. What is the JP Morgan take on China?
You know, it's funny you keep on asking that to take unt I know, I'm you're so convinced that the investment banks are stepping away at full scale.
Well, so the reason I ask is because it feels like we're headed towards a and correct me if I'm wrong. It does feel like we're headed towards an era or a couple of decades where you do start to see this kind of de globalization, right, it's been in the works for the past couple of years as well.
I can't remember.
I think you might be the one of who showed me this, or maybe someone else said. But when you look at the league tables, a lot of the deal volumes fallen in Asia specifically. I'm not sure whether that's a function of kind of recession or these late COVID measures or things.
Let me give you the let me give you the bold case, because you have seen a lot of hedge funds come back into China. You have seen a lot of big investment managers hold tight into China even amid all these uncertainties. When you're a banklet Morgan listen to your America's biggest bank. America is your biggest market. A city group, however, is a little more diversified. They have
a lot more global businesses. The reopening of China has been so far a pretty big boon to activity, and not just in China, in Europe pretty where the investment banks are also trying to double down. I think the bigger question here is one how global supply chains start to untangle, and then also geopolitical risks, because the big whale in the room is China's relationship to Taiwan. And
again we've been talking about this a lot. The US bank CEOs have been grilled on Capitol Hill asking what they would do in that event, and it's a complicated question. Because they answer really is nothing. That is the real answer, and it's because they follow what the US regulators would make them do, which at this point in time is nothing.
Well, how does that work exactly? When you kind of let's say they have these deals or even assets sitting in China in that kind of scenario, just play this out for me, worst case scenario. I mean, what happens to those assets? I mean when I'm kind of comparing this to and correct me if I'm wrong, if this is an extreme example, but kind of the bank presence in Russia, for example, would we see something similar.
I think that's a long shot. I think that it would be a long shot to equate the two. It would take a lot. But it is on the surface, it is under the minds, on the minds of many executives. But the idea of it getting to that point is still not the immediate concern because it's not happening. And China is such a whale in the room, the activity of China as a global force in the economy, the demographics being more on their side than in the United States.
I'll give you another example of this. Let's not take JP Morgan. Let's take credit Sweez Credit Squeze. When they tried to build another investment bank, they tried to do it with a firm that focused only in China and Saudi Arabia based in New York City. I don't know, Critty, that doesn't show me a story that is trying to untangle from the rest of the world.
Chani Bask thanks so much for joining as Shannalani Basic. She covers all things Wall Street Today, giving us the latest reporting JP Morgan again. They're having an investor day ongoing today in New York City, as I recall, so getting all their investors and analysts together talking about the future. Maybe go take a tour of their new headquarters, which is being built on Park Avenue. It is awesome. I can't wait to see what it looks like when it opens up, but I'm sure it'll be state of the art.
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Do we want to talk energy, We want to talk ETFs and so we want to do that. We talked to Will Ryan. He's the chief executive officer of Granite Shairs Advisors. He joins us live here in our Bloomberg Interactive Burger studio. So Will on the commodities front here, I want to start with gold. Our commodities analyst here, Mike McLoone of Bloomberg Intelligence. He says, basically, buy gold and short everything else, including the oil. Talk to us about gold. What's your call there?
What are you guys thinking about that?
Well?
Gold right now? I mean the biggest concern for I think point most people in the market, but certainly for those who are interested in gold is the debt ceiling. Because you may remember that back in twenty eleven when the US ultimately defaulted and sorry, as you say, the
credit rating was downgraded for the first time. That propelled gold to at the time high and so clearly if there was any breakdown and talks and a deal doesn't get done, fears that that could happen again certainly elevates that premium for people looking for a hedge in gold.
How does that work exactly? When you invest through the ETF space, it feels like there's that one ETF that everyone uses for gold, But then if you're doing any other sort of commodities, ETFs aren't really the vehicle to use.
Right, I guess it sort of depends, because you know, the beauty of gold and the beauty of precious metals is that their natural state after they've been mined is you can store it in a vault. So the bars that you can put in a vault, they won't decay, nothing will happen to them unless they're you know, clearly something nefarious, and so they're ideal to hold in a
fund that's a natural investment state. When you go outside of precious metal, as you're dealing with commodities that can decay or even die, you know, that's a different proposition. And typically the way that we address that is via the futures market. And so you're talking about broad commodity TF or even an ETF on oil, et cetera.
That's typically done like you isn't Wasn't there kind of a famous story about copper ETF's not working for that exact reason that they fall apart or something that the storage becomes an issue.
That's right, So you know they're a physical any physical backed physically backed commodity is clearly going to be challenged to the extent that there's a challenge on securing supply. So if you can imagine something like copper, the price of a pound of copper is clearly materially different from you know, gold, so you need a lot more storage for the same weight of metal as you do in gold. And so it's not to say that you can't do that.
You can, it's just that it's going to be logistically a lot more challenging than providing storage for gold.
Touch on a platinum, that's what we hear. I hear more and more about and you've guys have got the granite shares platinum trust. Why would I want to have exposure to platinum here.
Well, platinum's a really interesting one because the fundamentals for this year we're expecting a big deficit, so in other words, more demand than we have supply for this year, so automatically for any commodity, that puts you on a firm footing. What's interesting is the majority of platinum comes from South Africa and at the moment they're having very very big issues with energy supply to the sector, so you're seeing that manifesting in blackouts across the country, but particularly obviously
is it pertains to the production itself. So once you have energy blackouts, that that affects mind supply and so the outlook for supply gets even bleaker. But the demand story for platinum is really there's two fold good stories. One is main uses in catalytic converters, so particularly for diesel engine cars, so cleans the emissions, and vehicle sales despite all the negative news we have, vehicle sales across
the globe are expected to increase this year. The second thing is that you need platinum or as a vital ingredient for the production of hydrogen. And so hydrogen is another story which people are focused on as an alternative or a complement to electricity produced by batteries, and so hydrogen is an alternative fuel source is something that a lot of governments and indeed make makers of autos to aeroplanes and start to focus on. Now, so we need platinum for that.
When you're talking about platinum, what do you from an investment point of view, though, what's the narrative behind that? For gold? It's easy, it's the debt ceiling, it's inflation. It's all about jazz, copper, it's China oil, China US whatever. What's the investment narrative behind platinum.
Well, platinum's much more of a fundamentally driven commodity. So, in other words, do you expect the demand for platinum to go up over time? And in an ideal scenario, is the demand going to outstrip supply? And therefore, like any commodity, it's sort of economics one oh one that that will dictate where pricing goes. So for platinum, you know, we look at this market. We have more demand than supplies. That's good. Outlook for autos is positive, so more sales
for orders. And we think that the hydrogen story is a really good one. You know, we're going to have hydrogen as an alternative green fuel source and we need platinum for that. But you know that's really the it's a metal. It's thirty times rareer than gold's much smaller market.
I didn't know that.
Okay, all right, let's go more boring stuff, mundane stuff, WTI crude oils.
It's under seventy two.
Bucks a barrel. It just feels like it should be higher. Why isn't it?
The main reason is, again the debt ceiling scenario at the moment, But.
That's going to get fixed.
You're go down to the trading pits of oil and tell these guys it's going to get fixed.
The contrary, and.
Exactly no, it is. I mean, the the any any kind of downward move we've had in oil typically, and I don't want to over generalize, but over the last twelve months has been about recession narratives. So whether we're talking about the debt ceiling immediately leading to recession or whether we're just talking about a more global slowdown. But but that's the story. I mean, the data coming out of China's actually been really good. March was a huge
month in terms of oil demand consumption. And we know from you know, the Middle East that you know, Saudi Arabia and the OPEC Consortium are definitely not opposed to cutting production if they feel like pricing is at a lower left level.
Can we go back to the gold story. I'm just I'm looking you up on your LinkedIn profile. Used to work at the World Gold Council, which that's pretty cool.
There is a thing, there is a thing. Come on, you just count gold.
What do you do with the World Gold Council tell our audience, Well, the World Gold Council is the official industry body, if you will, for the gold industry.
So it's supported by the gold mining companies with a mission to raise awareness for gold. So think of it as like a trade association at some respects. But the most well known thing that the World Gold Council probably does is it owns the gld ETF, which is the largest gold ETF. So I was the CEO of that for for two and a half years. For starting my own one bar with granite shares. That's the ticket, sorry bar, But yes.
Okay, all right, So Critty, here's the thing about Will Ryan. Every time he comes in, I'm like, I go look through my notes and I see he goes to he went to the University of Bath in England.
So I google that and what you should only say in an accent apparent.
Exactly you can say.
But you google it and it looks like the most beautiful town anywhere. And then I keep asking myself how come I've never been there? And I go to my little map thing, immajig. It's only an hour and seventeen minute train ride from Paddington station in London. Why haven't I been. I've been to London like a thousand times.
It's a good question. So all right, I think it just made an itinerary for your next trip.
I can do a day trip there, right, or I could do an overnight trip.
Oh yeah, easily, easily.
All right, put that on the itinerary.
Put that on the itinerary. Let's go back to market pricing here. I think we've got a few more minutes left. Pull me back to gold, though, we were just near record Do we break the record high? I can't remember, but we were near record highs for gold and then kind of retreated back. I think we're in nineteen seventy the last time I checked nineteen seventy two on spot gold. What would it take to break that record high?
Most immediately, some kind of breakdown in the debt ceilings. That's the clear and present danger for the market. But you know, gold prices will thrive off any kind of dislike cation event, and you know, the fear of this happening has been one of the main reasons why gold has climbed back up to these levels. But clearly, if we have any breakdown, obviously, worst case scenario, we had some kind of default event, prices of gold would be materially higher.
And silver doesn't the silver foul gold. What's the relationship gold to silver?
It does?
You know silver?
Silver is more industrial because the majority of demand for silver is more industrial. So it's a bit like platinum where it's going to be more related to the business cycle. However, you know, silver is the closest correlated to gold, and so when gold prices are going up, typically silver prices are also going up.
But you can't corner that. Like who cornered the silver market back in the day. That wasn't the Hunt brothers. How do you corner a silver market?
I mean, is it? Is it the size that it can be done?
I mean, most most commodities are at the size that they can be done. I mean clearly you know opek, remember is a cartel, and if it's self, it's designed to corner the market in the in the same sense as the Hunts did. But you know that's I guess short order, why we have regulation in these markets to try and stop these days happening.
Interesting, Okay, we'll Rind joining us here in our Bloomberg Interactive Broker studio Will Rand. He's a chief executive officer of Granted Shairs Advisors.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
He woke this morning to the news at China declaring Micron Technologies a cyber security risk. I guess that's a no no. So they're China's barring Micron chips. What does it mean? A stockment is down about four percent of John just mentioned here. Let's bring in an expert here to kind of frame this out. Paula Pincal, she covers semiconductors with Bloomberg Intelligence. She joins us live here in our Bloomberg Interactive Broker studio. So we appreciate you coming in.
You get a gold star for that, unlike your management, which mails it in, phones it in. I appreciate you coming in, Paula. How big a deal is this for Micron? Again, the stock is off a little bit, but frame it out for.
Us happy to be here, Paul, Thank you. Look, it was a low ball punch against the United States. And I say that because MICRONU China can easily replace the product with its by its competitors in Southeast Asia, Samsung, sk Heinex, So it's not really hurting itself by banning these products. Micron stock is down, yes, but I think they're starting it's starting to pair some of those losses.
I think as people look at it more closely, China roughly represents maybe eleven percent of direct sales of Micron's direct sales, but of that the majority goes into consumer electronics products, and so even less of that is likely to be exposed to this ban.
Yet.
You know caveat here, though, is that China has not completely defined what it means by this ban. There's very few details out there. There is a risk it could be broader than that.
So you said, it's.
Given very few details.
What has it said about this ban.
It basically said that it's banning Microns chips that are used in critical information infrastructure product and you know that could be anything from defense, healthcare, transportation. But it's very vague. And so we know that Micron makes most of the chips for consumer electronics like phones and notebooks and things like that. So even though they have this roughly eleven percent direct exposure, actually sixteen percent if you include Hong Kong,
the exposure could be a lot less than that. But you know, for headlines, it's like, wow, you know, China is banning Micron chips and that's not gonna you know, the stock market is clearly reacting to that.
So when you say there is no direct exposure, kind of unpacked that for us here, because from a very rudimentary knowledge of chips, when you put a chip into or manufacturer chip and then sell us a Chinese company and that goes into a consumer electronics whatever, let's say a smartphone hypothetically bus smartphone has brought let's say exported
right back here to the States. Is that the chip that's included in this ban or is it not included because it's ultimately going back into a consumer smartphone.
It's not completely clear, and that's sort of a broader potential risk within the supply chain. And but what I will say is that direct exposure being Micron has a contract with a local Chinese distributor or company, who does you know, contract manufacturing for large chip manufacturers and they're literally putting the product together and there they usually buy Micron chips. So in this case, those Chinese companies within China are not going to be allowed to purchase certain
chips directly from Micron. Now you look at a company like Nvidia, they use Micron chips in their latest gaming you know, video gaming products GPU that is manufactured in China. That's Micron chip. Okay, that's still consumer electronics. But like, there is a risk if China really wants to play hardball. I'm not suggesting I think they will, but there is the risk that this could broaden and expand beyond just you know, memory chips sold directly to China.
So where are we on this kind of budding tech cold war between China and kind of the US and the West. I mean, you follow these big chip companies, big tech companies, they have broad exposure there. What are you hearing from your companies? This is really something to be concerned about. As President Biden, you know, kind of came out today and said not to worry, We're gonna tone.
It down a little bit with China.
But is there a cold war in technology?
Yes?
Okay, and there has been for some time, and it's actually it's heating up right now. And you know, we just had a G seven event and at that event, China was criticized not just for economic policies, but also for human rights abuses all these other things. And so it's not surprising that literally a day later they come out with the conclusion on cyber security risk for microns chips. So there is a cybersecurity war. So what we're seeing is just a disruption in the overall supply chain. There's
a regionalization taking place. No one really knows what it's going to look like in the end because everybody it's so complicated and everybody's so integrated. So even China, they're walking a fine line because they need many of our advanced chips. So that's why I say banning microns chips was an easy one because they can source them elsewhere
pretty easily because they're commoditized. But they're not going to potentially ban you know, Qualcomm's chips right away because that's half their phones going into their own domestic market.
I was just about to say, so that's a soft punch. What does what does a hard punch look like to the US.
You know, I again, that would be a hard that would be looking at a Qualcomm or some company like Qualcomm sixty four percent of their revenues derived from China and so, and I don't know how realistic that is, but something like that would be a hard punch. If China came out today and said, yeah, we have three nanometer node technology, which you know, they say they have
seven nano, which is more advanced. Mostly China uses twenty four nanometer technology right now, advanced to seven nano and under in general they developed seven nano, but it's not being mass produced yet and it takes time to like experiment with these things to get them up running efficiently. So if China came out and said, oh, we have three nanotechnology or we now have advanced memory technology, that
could be a big blow. They could steal it. They may have it and they're trying to develop it further, or they may have a product and often they look at that product and sort of back into the technology to create their own. So these are the kind of thing things that could be hurtful. But I suspect there's going to be more negotiation because no one wins in the.
End, right, it's very integrated, as we're finding out. Paula, thanks so much for joining us.
Paula Pencalocy is the semiconductor analyst on the technology team at Bloomberg Intelligence, again, in my opinion, the best tech team on Wall Street. Appreciate getting some time from Paula.
Here. You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern.
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All right, let's turn to this debt ceiling issue where it looks like President Biden has a call with Speaker of the House today at five point thirty pm Wall Street time.
I take that as a good sign.
I mean, you know, I kind of think in negotiations you'll want the sides to be talking rather than not talking. But let's check it with Nancy Kimmelman, professor at Northeastern University. Nancy, how do you think about this these discussions here? Is it just just the cost of doing business in America today? Is there something that we should be maybe more concerned about this? There might be a bigger risk out there than maybe the average person thinks, well.
There could be risk. I mean, we are getting remarkably or distressingly close to this judent first dead line, and it's a real deadline. I mean, if we push against it, Medicare payments aren't going to get out, Social Security payments aren't going to get out, and it's going to have a real impact on real people. So it's not something to pooh pooh about. That said, you know, this year, the dead ceiling talk is taking place in a different world.
We live in a different world politically. You know, we're in the midst now of figuring out who the candidates are going to be for the next presidential election. We have the Santis throwing his hat and Trump is going
full bore. You know, that is a part of this whole conversation, because I think a lot of what's going on between McCarthy and Buden at this point is political theatrics, and neither side can really afford to be seen given ground, and it's causing this death ceiling debate or this negotiation to just be held at a different level than we've seen previously.
So then do you think that this is more a debate that is just for showmanship, like you said, or do you think there's real risk here to a potential default that markets might not even necessarily be properly pricing in right now.
I think the impact on the economy and especially the financial markets could be very, very real. It already is. We're already seeing the prices getting hammered for treasury securities that would be affected by the by the Treasury not
being able to roll over the debt. We've seen the forecasts that are coming out of private forecasters as well as the Council of Economic Advisors and others in Washington suggesting that if we if we breached this this this line in the sand, the impact on unemployment could be severe. It could immediately throw the economy into a recession. I mean, this is this is real, real side economics, and it's really unfortunate that the politicians are planning a little bit
loose with these negotiations. Not that they're not trying, but you know, nobody's willing to give brown. There's really a sense that politics at this point in time, neither side can be seen giving in. And that's a very dangerous position for us to be on politically as well. As economically.
All right, here's my dumb question of the day, professor, Maybe you can help me out. What what are they actually negotiating? Like, is it a debt ceiling raise? Is it to solve our problems for the end of time?
What are they negotiating?
No, No, it's certainly not for the end of time. It would be nice if it were. No, here's the gig the treasury has. The government has already. This is the irony that probably those people don't realize. The government has already authorized payment of these moneies. In other words, the government has a spending plan of what it has to spend on every day of the year. And the problem is we don't raise enough in the way of
taxes to be able to make those commitments real. In ords, if we want to send out Social Security checks, we have to either have enough tax revenue in the Treasury's coffers to be able to pay those Social Security checks or we have to borrow the money. Now, everyone knows that the US government runs a deficit. We have in for decades, and therefore the gap is always made up by issuing new debt. But the commitment to spend the
money is already there. What they're arguing about is whether they're going to approve the debt to be issued so that the payments can be made. So that's what it's about now. The problem is, because we run a continual deficit year after year after year, the amount of debt outstanding just keeps growing and growing and growing. Pay off the debt that we issued last year or ten years ago or thirty years ago, we never really pay it off. We just replace it with newer securities, with newer bonds.
So the debt is going to continue to accumulate. That number, which obviously is in the trillion. It's is just going to keep getting bigger and bigger, and they'll agree to a debt limit, I hope before June first. But all that will do is take the debt limit, that debt ceiling off the conversation, out of the conversation. I'll take it off the table for a period of time, maybe a couple of years, and then we'll be right back
in it again with another negotiation. Because the government really doesn't ever get to a point where the level of debt outstanding at repulse.
Do you think that they let it expire for a couple of years though, or do you think Republicans say, hey, let's have another expiration date before the twenty twenty four election.
Oh, that is a nasty question. That is a nasty question. I think everyone can earned is praying that that's not what happened. And I also have to say, no, Eli, are we all praying it doesn't happen. I'm not exactly sure who which side is going to be the loser in this. Neither side is going to come out the winner, but which side is really going to be the worst loser?
You know, if the McCarthy and the Republicans really play hardballs here and the Democrats, which they haven't done yet, by the way, can say, tell a convincing story about how they're playing ball, but the other side isn't. I don't think, you know, the Democrats have done a particularly
good job for themselves in that regard. But if the American people decide that Grandma didn't get her Social Security check and it's because of that wrangling in Washington, I don't know that that's going to be particularly good for
election prospects for either side. So I suspect that the Republicans as well as the Democrats, we'll get this thing passed, and it will take us test hopefully will take us past the election, because I don't think either side wants to be negotiating this going into an election in a few months.
At some point, do we as a government of people, do we have to pay down this debt, pay back this debt, or we just can let it roll into perpetuity.
We let it roll into perpetuity. Now, let's be realistic about it is what is at risk here if we don't pass a debt ceiling is that the world will not look upon US debt the same way it has in the past. For decades now, foreign buyers of US Treasury securities have been robust. Those purchases by foreigners have
been very robust. So we really haven't seen any need to pay down our debt because every time we have a new bond issue or a new bill issue, not only do American Americans buy those securities, but people come all over the world by those securities, and they do so willingly. Not only do are the buyers there willingly. Remember, the US Treasury has a relatively low interest rate to pay.
Our interest rates are sort of the benchmark, and they're below all the other interest rates that companies and individuals have to pay, so there's no incentive for the US Treasury to get to the point where we would pay down the debt. As long as as long as the rest of the world, and as long as the Americans are willing to lend that money to the US Treasury. It seems a model.
That works, all right.
It's a model.
I don't think anyone's ready to break that model.
Yeah, it's a model that doesn't work for me, But I guess it works for the government.
Good for them. I guess, doctor Nancy Kimmelman, work.
For you individually at all. It doesn't work for any of us.
No, exactly, Doctor Nancy Kimmelman, economics professor for Northeastern University and Tufts University, talking about this debt ceiling.
You're listening to the tape can'sur live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg eleven thirty and.
We need to know about tech. We talked to this guy, man Deep Singh.
We hired him.
We can't get rid of the dude. He just keeps sticking around. He's our senior tech anistor for Bloomberg Intelligence, and he shows up every day. None of this phoning it in, working from home, any of that silliness. He's in here in a Bloomberg Interactive broker studio. All right, so meta, there is nothing stopping this freight train this year. I mean it got crushed last year, down sixty percent, but it's up over one hundred percent. They get fined by the EU, and the market's just.
Like, no big deal. Is that? Is that a.
Reasonable read that it really is not that big a deal for their business?
Well, so, I think last year the sentiment was too negative. This year everyone realizes that it's a great business. It can print thirty forty billion dollars in freak cash flow every year. And then you know, when you think about the size of the fine, one billion dollar isn't that big off a deal. I think what it conveys to me is one regulators feel this business model is too good, and it's you know, kind of driven by the ad market, which there is a very fine line between privacy and
showing ads. And we have seen that with Google over the years. Google has paid over eight to ten billion dollars in cumulative fines just in the EU.
So and Microsoft before, Microsoft before.
We have and and so it's not changing. I think what it does to a company is it limits their ability to really innovate in a sense that they can't you know, acquire any company. I mean, forget about you know, capturing more data from the users. In turn, they have to change their business practices to please their regulators, and you won't see any effect, you know, in the next one or two quarters, but over time it limits their ability to grow. And I think that is the big risk.
Given the business model is so good, given they keep you know, printing free cash flow, is will it hurt their growth in the long term. And the answer to that is yes. We did see my Microsoft Limited you know for a number of years now the EU has approved the activision deal, but for a number of years Microsoft couldn't buy anything. And I think that is what you will see with Meta as well.
Can Meta hedge against that through any changes on their end or by just suffering the losses that aren't that big of a deal for them, well.
So GDPR came into effect, you know, three years back, and they have plenty of time to change AD or PETE.
That is the stuff that says I got to click yes if I want the cookies one kind of stuff.
Yeah, that's that. Yes.
And also the regulations with regards to storing the data within the EU region. That is why they had to pay this fine. Is because right now they are storing the data, the EU data outside the region in the US data centers.
And the EU regulators don't want that.
But when you think about you know, generative AI and large aguage models, it's about gathering a lot of data and then doing AI on it. So Meta, even though it has all these different assets Instagram, you know, Facebook, app, WhatsApp, and then it operates globally, it can't really combine all
those data sets because of these restrictions. So if EU restricts their ability to take the data outside the region, then basically, you know, think of it this way, they can't even apply AI to their own first party data set that they have across regions. And I think again it goes back to the point about putting restrictions which limit your ability to target ads and then on top of that, you have to make business model changes to please their regulators, So it is restrictive in that sense.
Markus Zuckerberg the metaverse, it's a business. Most of his shareholders don't understand, but what they know is he initially was going to spend a gajillion one dollars on it.
How is he.
Viewing this metaverse and the expenditures associated with developing it.
I mean, it's been a complete one eighty you know, in the sense that last year he was like, we are doing this, and we're going to do this at all costs. This year it's been more shareholder of friendly acknowledging what shareholders want in terms of restraining their meta worse bets, and they have taken down the guidance in terms of this spend. So clearly that is what's driven that one hundred percent move in the stock. I mean,
has a completely given up on meta worse. That can happen only if he changes the name of the company back to Facebook from Meta I don't know if that will happen anytime soon.
Well, it sort of feels like the metaverse very minimal wave was like totally overtaken by the AI wave. If we're going to compare the two. Does metas focused on cost cutting become the new headline story for them? And is the market happy about that?
I mean market is happy about the cost discipline that they have showed this year. I don't know if they'll be happy about Meta being a cost cutting story for the medium to long term, simply because if it's not a growing asset, why does it serve a premium multiple in the peer group. And we've got a lot of you know, assets within tech which becomes low growth over time, and then the market is like, okay, this is just a cash machine. They can do buybacks, but there won't
be any top line growth. And that is what they need to answer, whether it's metawors or generative AI. I don't think it's that we answer that then well so, I mean, ad models are beautiful in the sense they scale very well. And Meta has got Instagram, WhatsApp. WhatsApp a lot of people would argue is under monetized, and they have been talking about click to message ads being a ten billion dollar revenue run red business. If they can scale that, that could easily drive the next three
years of top line growth. And Instagram we know how well that has done. They have a problem with the Core Blue app, but clearly I think they have levers to pull. The question is what will that meta verse that look like? And if Apple launches a device, which we are hearing they could next week, then maybe that validates that metalworse much. Next week, well, they have their Apple has their developer conference, right, so you know that I'm not going, but we have coverage within bi.
Within bi Okay. Sandis Stander is a Ford investor day today, just pointing that out. All right, let's talk about the NASDAK here up twenty one percent year to date. That's good, but we're still down twenty percent from that late twenty one high.
Do I buy NASDAK here? Do I buy tech? Or do I make a value call? Do I? I mean? What am I doing here?
Well, so it all goes back to I think what FED does in terms of interest rates. Remember these are all long duration assets, right, so if the FED has hit a pause and they are not going to raise interest rates, that is a positive for a lot of the tech stocks, and that is why they've gone up so much. The question is can the top line growth come back, which is really what is not very obvious right now is can Google go back to, you know, growing fifteen twenty percent, Can Meta go back to growing
fifteen twenty percent? I think clearly we've seen an inflection in terms of ad pricing headmans ad pricing is getting better. So that's a fourth step, and then you just have to watch out for how the overall global economy does in the second half.
I'm looking at the chart here for Meta again, it's up one hundred and some odd percent this year, but it's still down pretty big from it's late.
Twenty one high.
So I mean it seems like the market is kind of in between on these names.
I mean, they.
Oversold them, as you said, last year, and now trying to get some of that back. All right, I'll go with that.
You know, how can you not own big tech?
Maybe it's just because we've been so influenced over the last fifteen years really and even longer than that quite frankly, but the big tech is back.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three and I'm fall Sweeney.
I'm on Twitter at pt Sweeney before the Pods cast. You can always catch us worldwide at Bloomberg Radio