Markets, Broadcom, Crypto, And Freelance Work (Podcast)

The question is for a lot of folks, uh, dead cat bounce or is maybe this market trying to find inform some type of bottom here. Let's check in with Scott Ladner, chief investment officer of Horizon Investments. Uh, Scott, thanks so much for joining us. Despite you being from UNC Chapel Hill, we decided to have you on. Hopefully it'll go well. What are you looking at, Scott as you take a look at these last few days here? Maybe the market you're trying to find a bottom here?

How how do you guys think about it? Yeah? I mean if you think that this trading kind of kind of reechs of like hope, um right, hoping this is over Um, it is very technical in nature. It is not happening on a lot of volume. Um, you know. And and look, markets don't go one direction forever, right, So it has been seven or eight weeks of this sort of malaise and just kind of grinding lower. Um. This this doesn't look a little bit of a deal of a relief rally. But I mean, unfortunately, it's it's

really tough to lose sight of the main points. And the main point is the Fed has told us they want tighter financial conditions and and uh you know that that is that is the way they're going to try to control inflation. They want tighter financial condissions to bring the band down. Um and until dar unless that changes, uh, you know this this is probably we're probably in the cell rallies kind of mode. Alright. Interesting, Um, you know Matt Miller jumped out for some reason, left to do

do something about doing a TV interview. But not to worry, because pretty good to saw the Anpty seat jump right in. Cretty. Thanks for so much for filling in here. Appreciate it. I'll take any opportunity to coinker Sweeney um and and Scott you should know Paul gives everyone who's not duke a hard time. And usually I'll come in and defend them. But for you, I'm a U V A M. So I'm going to draw on your own. Yeah, you're on your on this one. Um. I have to ask about

these recession odds that everyone's talking about. It's it's it's it's kind of wild to see, at least for me, that the market or the economy. I should say, it's not the same thing. I should point out the economy is growing at a two percent clip, and here we are talking about an outright recession. So especially going from two to below zero in the span of a couple of quarters. Maybe are those fears realistic? I mean pretty

it's you know, a year ago. We should probably say no. Um, But I think of how fast everything has been happening cycle wise. I mean that the last couple of three years I've really taught us anything is that economic cycles are just are ever more compressed. Things are happening like ever faster. Um. And and so you know, to think that we can't get like a recession and like measured in months rather than recesion matter measurement quarters or years

probably is and totally crazy anymore. Just just because of how quickly everything is moving through the system and how quickly um, you know, like not only policymakers, but the market reacts, uh to you know, two changes and things. So it's you know, it's it's it's not really out of the realm to think that read they might end up in the recession. We don't think it's will be

a very bad one that we do. There's there's really no there's no accesses in the system to to speak where they've been there there there in the posting ring wrung out um and there's really not not very much leverage in the system. So there's not and that's sort of the ingredients for a like a really nasty type of recession but kind of a garden variety earnings recession, industrial slowdown type of thing in the back half of

the year. You know. But the market is starting to sniff that out and we think that that makes some sense. So Scott at at your shop, are you guys kind of trying to during this you know, the sell off we've had year today, trying to find safe havens or do you just say, hey, we're going to take opportunities to buy companies that we like and maybe add to positions of core holdings. How do you guys try to navigate through what has been a very tough start to

the year. Yeah, I mean it has been tough start to the year, and so we've we've got a few different strategies we have. You know, one of them is is more of an algorithmic derisking and re risking strategy, and so that's that's sort of doing it something. But inside sort of the core allocation portfolios, um, you know, how how camera managing client money and those is really trying to trying to play some defense right now, trying to sort of sort of like let let the talk

play out. You know, this is obviously it's tough to time anything perfectly. But but in terms of um, you know, in terms of like where we're putting money, like, we have been pretty defensive. We've been pretty US based, We've been pretty value based and like, and we don't know those are not overweights that we've had, you know, typically a lot over the last five or six years at least, especially on the value side. But we are we are just sort of trying to run out the clock a

little bit. And you know, we think that time will end up healing the inflation problem, and time will end up healing some of that, some of this, uh some demands. It's fly and balanced problem, but there's no like really

quick fixed for it. And so as so long as there's no really quick fixed for it, we got gotta sort of like play along in places and place in defense and a sort of go in the boring staples types of the types of the world, um and and just you know, hang out until the until we have a chance for the Fed and Center banks to be

able to pivot. Um and when that happened, and we think that there will be a chance of that to happen later later this year, um, you know, that'll be the time to really go for you know, go go gangbusters again. But you know, until then, uh, you know, until basically inflation is a secondary concern and growth is a primary concern. Until that, until that has an opportunity to happen, we discuss replay defense a little bit. It's kind of boring, but that's that's how we're that's how

we're working. We have about thirty seconds here. Let's talk about the volatility. Here. We're looking at a twenty seven handle on the vix. Is it going to go back above thirty five? Let's say when we started to originally see the onset of the war in Ukraine. What's next when it comes to volatility. Yeah, I mean in terms of the ball market, is it is it that has

been pretty interesting. I'm I'm an old vultility trader and it's it's um, yeah, that what we've the dynamics we've seen in the option markets over the last over the last couple of months have been somewhat striking because we have not seen any of that pan these types of things that I'm sure you guys are aware, um for for that capitulation that everybody's looking for, um. You know, we we probably do need to see the thick spike. We do need to see some of that panic thing happening.

But you know, unfortunately there is little bit of like like Heisenberg and certainty principal types of things when we when we look at altimlatey market, like if you look at it too closely, it's like it'll know you'll never see it. Um. And so when everybody's looking for that, for that thing, it's you know, it makes it harder and harder to get actually a rum. So that's that's what we're looking for. That's good stuff. Scott, Really appreciate

you taking the time sharing your thoughts. Scott Latner, chief investment officer Horizon Investments for unc GRED, I think he did pretty well. Maybe we'll have him back. Big tech deal goes formal today. Broadcom agreed to buy cloud computing company vm Ware for about sixty one billion dollars in one of the largest tech deals of all time, turning the chip maker into a bigger force in software. Let's get the strategy behind it, Let's get the numbers behind

it with Wujenhoe, senior hardware analysts for Bloomberg and Leigence. Uh, we'll talk to us about broadcast. Like, what I know about Broadcom is this is a company that grows pretty much or large part through acquisitions, and this is a big one vm Ware. Talk to us about the strategy behind the deal. Sure, hey, thanks for having me on.

Paul so um No, the CEO of Broadcom has been laying out this, uh the birse of action strategy ever since it's made it the a acquisition in and um you know, it has essentially grown from a chip business back to about of of its sales coming from software through c A as well as a ManTech adding VM whare just extends and grows its software exposure to about of total sales, so it actually extends to where wants to go directionally going over the long time, it kind

of seems like this is coming into a broader trend of chip makers wanting to diversify and video is another example looking going into you know, graphics chips to diversify the different kinds of things they make. Is this something we can start to expect from the likes of Advanced micro Devices for example, or Qualcom. What's your take? Sure? So, so AMDs actually starts to make that transition away from

the CPU chip and and UH. They've also made other other acquisitions like that the zy Links deal that they've made UH to to get away from just being a CPU but also be a data processor unit or a cloud computing UH and and storage processing unit. So we do expect to see these UM UH silo chip companies to potentially extend and and broaden out that footprint, especially given how much cash at the generator over the past

couple of years, given the strong cycle that they've enjoyed. Um. You know, Broadcome is somewhat unique, uh in a sense, different from Video to some degree with creating and and the reason is it's because I do think that UM, the CEO is trying to look for ways to diversify its business away from a very cyclical chip business and and VM it does that. I want to call out Dina Bass and Leona Baker from Bloomberg Newsday reported on

this deal back on May one. Um, and you know the stock this is this offers a premium to that date, you know, kind of before the Bloomberg News story came out. Is thisn't a creative deal? Is this dilutive? What's it gonna do to Broadcom's earnings and all that kind of stuff? Yeah, that was my tastic reporting by by Bloomberg News on that. So so we we did the deal in math Um. It seems to be earnings neutral if you add the two companies together. Uh, there may be some uh some

some cost imagies that they can yield immediately. And UM, you know, we think that it could be an EPs secretive deal, especially given that it's a cashion stock deal. A longer term, Broadcom expects to have eight point five billion dollars in um iba DA out of vm Ware. That's an additional four billion dollars in ibadalla over the next three or five years. And it all fits within um broadcom strategy now now in terms of the share and in terms of valuation, and I think this is

where you're going out, Paul. You know, we rounded the valuation math and it's quite frankly, given how much UH the software sector and technology evaluations dropped over the past month or so, the deal valuation isn't UM stretched. I mean we calculated to be five times easy to sales twenty times UM twenty times on a four P basis,

and that's consistent with larger broad tech names. Yeah, that's kind of where I wanted to go would because it seems like, you know, a lot of folks are not well, not a lot of folks, but a couple of tech folks that I chatted, which is in the last month or so kind of you mentioned. Kind of what you're saying is there could be some some bargains out there, given how much some of these tech names have sold off.

Do you anticipate seeing some more m and a going forward? Well, give me where the valuations are UM I. I think that the larger companies who are talking with smaller companies in the past UH may start becoming a bit more active right now. Now. The question is is that are

are they willing sellers now? And given how much ware the valuation has has come down, and if there's a concern that this is going to be UH in an extended period of lower valuations, some of these CEOs who have held out for higher valuations, they have to rethink that the strategy of either going alone or being under the umbrella of a large company. So there might be a mix of both going forward, and there might be some increased deal activity, especially given how much valuations of

pull pack. I'd really like talking about supply chains here because something bringing it back to end video. I know we're talking about Broadcom. It don't worry. I'll connect the dots and video here. In their earnings said that we see the demand, we know that we can grow. What's getting in our way is these UH COVID lockdowns, the supply chain issues. We're not able to meet our capacity. Will Broadcom have the same issue, um Well, Broadcom said

on the call that they haven't seen those issues. UM as a matter of fact, they reported darning this UH this morning and essentially UH they beat expectations, and a lot of it has to do with UM on the networking side. Part of it has to do with it they're not directly manufacturing the chips, and they're relying a lot more on t SMC too to manufacture the chips for them, and they don't have the graphics. They don't need the PCB boards or broader supply chain to help

UM to have a built out kit for for instance. Now, ironically, vm Ware mis consensus expectations by about three percent when they reported this morning, and they didn't give much detail on the call, but I suspect that it has had to do with supply chain because their hardware providers could not provide the the equipment needed to load VM or software. So you are seeing the supply side affect other areas

UM UH in the tech chain. You know, it's interesting, you know, with the zero COVID policy coming out of China, I guess you could pay in a bear case that this supply chain issue, particularly reach the chips and other things coming out of China any going away anytime soon?

Is it? Well, Cisco addressed it on their call UM a couple of weeks back, and essentially what they're saying is that, look, uh, the shutdowns of lockdowns may be lifted in June, but you have this whole backlog of suppliers who really want to get the products out the door, and you have this, uh, this huge logistics problem going on going past you. And even if it is UM

the shutdown being being lifted. So I agree with you, Paul, this isn't going to end in the in the second quarter, nor are we going to see an easing of the pressure going into the third quarter. Um. Some of the chipmakers are always pushing back. The supply chain isn't going into the middle of three now, uh, And I was calling for the middle of two. So yeah, it's it's it's gonna be tough times for the hard hardware vendors, chip makers as well as the companies who are looking

to buy UM buy hardware as well. Ye. Absolutely, it's the supply chain issue that is not going away anytime soon for large parts of the economy. And I'm thinking about the auto industry, you know, you think about all the chips to go in the auto industry, and if this is going to be an issue. Um, I have to see what those folks are saying. Lugin Hoe, he's a senior hardware analyst for Bloomberg Intelligence, one of the best on the street. We appreciate having access uh to

him and his analysis. Again, you can read all of his analysis and that of Bloomberg Intelligence. Be I go on the terminal. All right, let's talk crypto here, but I want to talk about it. You know, when we talk crypto often we just kind of fall back and say, you know, bitcoin, where is it trading? Well, it's trading off about one point three percent today, nine thousand, four hundred. It's kind of been a fairly stable range down in that area. But I'm gonna talk about just the broader

topics of crypto. Was actually a fairly big topic of conversation in Davos, Switzerland, which is wrapped up today. Danielle Dixon, CEO and executive Director of the Stellar Development Foundation, joins us. Daniel First, I love for you just to quickly tell us what the Stellar Development Foundation is. Great, Yes, thank

you for having me. The Stellar Development Foundation is a non stock and entity and nonprofit entity that's focused on the growth and development of the Stellar foundation of Stellar Network. Really we're focused on creating equitable access to the global financial system using Stellar's blockchain technology. So what was the topic or how are people in Davos, how are they thinking about crypto as you had your conversations throughout the week. Yeah,

it's really kind of fascinating. This year in DAVOSK there were crypto companies and blockchain companies that filled the whole promenade, which is the areas outside of Congress. In Congress, I was on one panel UM and they didn't have very many actually crypto focused panels, but we I think they only had one crypto focused panel and the rest of them they sort of layered crypto into remittances and whatnot.

But there was a lot of discussion around sustainability, not surprisingly but because they focus a lot on proof of work and proof of steak UH consensus mechanisms. Stellars is a different mechanism, it's proof of agreement, so there's a different sustainability. We're actually very sustainable from the standpoint of the network. So there was a lot of focus there

outside of the Congress. In the in the area, there's discussions just around regulation, global sort of focusing on the global pieces of regulation and also in the US UH and the need for us to be able to create some really strong stability because we've taken so many steps forward as an industry and we need to focus on sustainability, but as well, we need to focus on just continuing to really highlight the use cases, the really good use cases,

so that we can demonstrate to governments and regulators all over the world the value that blockchain brings to their region. I have to ask here, when we're talking about cryptocurrencies, let's put this in the perspective of it's not just the crypto players in kind of competing in the space right now, you're actually looking at the e c B, the p BOC looking at creating a digital you want a digital euro, I think a digital doll or maybe

a little bit far away. But I have to ask, when you think about that from a regulatory standpoint, and those actually backed by these major central banks, what is the value or what is the appeal of cryptocurrencies. Well, so the fact of the matter is, once stellar, we focus a lot on stable coins, and CBDCs are an asset that we would love to have because we focus on payments and payments. Really you want to use a stable coin or a CBDC because it's going to create

trust and going to create credibility. When you're sending a payment, you want to know that what you send is also what you're going to receive on the other side or the person is going to receive on the other side. So I actually think it's a really strong uh, it's a strong message that government see the value of this technology. If you issue a CBDC and it's available on lots of different chains, it creates this opportunity to be able

to leverage these assets in a really positive way. It creates this sort of borderless economy of scale for for folks to be able to send and receive value all over the world. Then give us, if you could just kind of an overview of kind of where we are in the regulatory environment for the crypto space. What are some of the things that you're looking at investors should be looking at. You think, Yeah, so in the US, a lot of the focus right now, I think it's

going to be on stable coins. Not surprisingly, what happened with Terra and Luna a couple of weeks ago really created more and more focused on this particular issue. We've been advocating for stable coin legislation for a while now, and again this is important to us because we like to be able to have stable coins, which are just

to get clarity. From our standpoint, we see stable coins as those assets that are one to went backed with fiat so currency like stable currency, and that you can hold those assets, that those assets are held in an account, that is, they're reserved and they're held in an insured account, so that you know that you're going to be able to trust and have credibility with respect to the asset

that you're sending. So I think we're going to see at least in the US some regulation around on stable coins, so that basically in what I just said in terms of having audits and reserves and making sure that they're the back one to one and that there's a lot of transparency for the the companies and the end users that are leveraging those assets so that they can feel good about them. So we've see a lot of movement

towards this. I think that we'll see something like this, if not by the end of this year early next year, and then there's obviously going to be focused around the trading pieces and what's happening in that market. All right, daniel thank you very much for that overview. Danielle Dixon, CEO and executive director the Stellar Development Foundation, kind of getting an overview kind of where we are on some of the big big macro issues on the crypto space.

Mika Kaufman, CEO and founder of Fiber joins us simple on the New York Stock Exchange. You can punch into your Bloomber terminal f v r R you can. Thanks so much for joining us here for our audience. I'd love free to just give us kind of the thirty second overview of what fib is, what you guys are up to these days. Thanks for having me so. Essentially, Fiber is a two sound market place that connects any type of business with tremendous amount of freelancers in almost

six hundred different categories of digital services. So anything you can think from business formations, finding a name for your business, to developing software for your business, or editing video, writing content or helping you run marketing campaign, any type of talent could be found on the on the platform. And the average time that it takes anyone who visits the site to actually place in order is fifteen minutes. This is compared to the average time that takes to find

a freelancers elsewhere, this is about thirty days. UM. So that's the efficiency compression that Fiber is presenting. The company has been around in two thousand and ten, went public three years ago, and continues to grow very very fast. So I'm just wondering how how these freelancers compared to other, you know, gig economy workers UM for example, compared to like an Uber driver UM. Do they have issues with fees? Do they have problems organizing? Is unionization a concern? Uh?

Not really, because we're talking about skilled labor. And the difference between UM fiber and other gig economy platforms is that on Fiber, the freeancers actually get to name their own term. They decide when they work, how much they work, how much they charge for their work. So from that perspective, they have total freedom of deciding or or setting up their destiny. But and then you take your cut from the business or from the freelancer. We actually take both, UM.

We take some of it from the freelancer and some of it from the customer. So because that the pandemic must have altered your business or had a huge impact on your business as people were working from home. Maybe they lost their day job and now they're trying to find some gig type of thing. Talk to us about how your business kind of was impacted and maybe today continues to be impacted by kind of the change in

the labor force. Sure, I think that what was interesting when we started the business in two thousand and aintended it was it was a decade when freelancing went from being something people did in between jobs, being a full time career decision and a life side decision. So freelancing is very different right now by twenty thirty, by the end of this decade, are going to be fifty percent of the workforce, which is which is a huge cohort. Now.

Obviously throughout the years we've been growing very fast in the pandemic. The pandemic in many ways have made the case for what we've been preaching for the past ten years, which is there's a tremendous amount of value in working with freelancers, even if it's remote, because you don't need control over people's time. All that companies care is output

and only not. They're super efficient beyond us. It's the fact that UM, I think throughout the pandemic and now if we're thinking about potential recession coming in, UM I think more companies are thinking about deficiency and are thinking about the varial book expenses versus stick expenses. And this is what greenancing talent is giving you. It's giving you the option to scale up or down is needed. And I think that this is super powerful when when companies

are thinking about deficiencies. So I'm an old stock analyst. I'm looking at your chart here. Ipoed in mid nineteen at twenty one dollars a share, peaked in February one and over three dollars. You share now today trades just below forty dollars to share. That looks like a Peloton chart, that looks like a zoom chart. Was your stock one of those names that was just thrown on the list of this is a pandemic stock to own. And then conversely, coming out of the pandemic, like much of the world,

is that perhaps that's not the trade. Is that kind of what's impacted your that price? Yeah, I think that the market is a little bit is behaving a little bit like a pendulum it's either overreacting or underreacting. UM. I think that what we're seeing now is a little bit of a spear. That's maybe the pandemic was a one time boost to the business and that would not last. Everything that we see from the fundamentals of the business. So otherwise, which is fundamentals are extremely strong. Our core

behavior of the customers is stronger than pre pandemic. The available market is just growing. The online portion of financing it's about five percent. Listen, it's like e commerce twenty years ago. We haven't even started. So there's so much room to grow into it. If you take that example, in the past twelve months, we've had four point two

million active businesses on the platform. Half of them are in the U S which is two point one million, but that is two point one million out of more than thirty millions and be deveilable in the US alone, So there's so much room to grow into that. We don't have any concern about the ability to grow. I think the marketing is going to correct itself. It's just just patient. We can't optimize for the for the shore of the price. We we optimized for the performance of

the business by the way you have now. I think about eight verticals right, including graphic design, including digital marketing. Obviously writing code is a big deal. Um. Do you do you see yourself growing into more traditional sectors or is it all about digital services? We focus on digital services because physical services face tremendous amount of friction, um and and and challenges right now. I mean when we took it to Combody Publics three years ago, we've had

about three hundred categories. We now have about six hundred, so we're adding about thirty new categories every quarters. There's so much categories to grow into. If you look at it, it's classical e commerce. Amazon has about thirty thousand different categories. We have a we have room to grow into, all right, Mika, really really fascinating stuff, Maka Kaufman, CEO and founder of the firm Fiber, New York stockygage symbol for your Bloomberg

terminal f v r R, publicly traded company. They're really fascinating story, fascinating part of the market. Uh. Catering to the folks that are working from home, I guess thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts, or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Pet On Ball Sweeney I'm on Twitter

at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio