Amazon to Invest Up to $4 Billion in AI Startup

Bloomberg Technology co-host Ed Ludlow reports on Amazon.com planning to invest as much as $4 billion in Anthropic, bagging a crucial partner in its effort to become a major player in generative artificial intelligence. Katy Kaminsky, Chief Research Strategist at Alphasimplex Group and Bloomberg Intelligence Chief US Interest Rate Strategist Ira Jersey share their thoughts on the bond market. Jon Withaar, Head of Asian Special Situations at Pictet Asset Management, explains where to find investment opportunities in Asia. John Caplan, CEO at Payoneer, looks at the state of the global digital payment industry. Bloomberg Businessweek Editor Joel Weber and Businessweek National Correspondent Josh Green provide the details of Josh's Businessweek Magazine story Republicans Aim for New Shutdown Despite Strategy Never Working. And we Drive to the Close with Greg Halter, Director of Research at Carnegie Investment Counsel.
Hosts: Carol Massar and Tim Stenovec. Producer: Paul Brennan. 

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Episode Transcript

Speaker 1 (00:01):
This is Bloomberg Business Wait inside from the reporters and
editors who bring you America's most trusted business magazine, plus
global business finance and tech news. The Bloomberg Business Week
Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.

Speaker 2 (00:20):
In a day that is.

Speaker 3 (00:21):
Kind of mellow, certainly on the equity side, shares of
Amazon definitely standing out. Stucks up about one and a
half percent just off its ties of the day overnight,
the company saying it will invest as much as four
billion in anthropic bagging basically a crucial partner in its
move to become a major player and generative AI. We're
talking about Amazon's move to be a major player and
maybe offering a vote of confidence in a hot startup

(00:44):
which was created by Open Ai veterans. It all leads
back to open Ai.

Speaker 4 (00:48):
Yeah, of course that's the company behind chat GPT. It's
bagged its own mega investment ten billion dollars by Microsoft.
That was earlier this year. Eryl with more on Amazon's
moves and what it all means with us, we got
the individual leading every port on this deal. Ed Ludough,
the co host of Bloomberg Technology. In our san Francisco Bureau.
So ed, this is all about AWS. Explain how this
company helps Amazon in its cloud ambitions.

Speaker 5 (01:11):
Yeah, this is not a straightforward story.

Speaker 6 (01:13):
The easiest way of putting it is the Anthropic, in
the same sort of category as open Ai, is regarded
as a leading startup, a leading developer.

Speaker 5 (01:23):
Of foundation models or large language models.

Speaker 6 (01:26):
Large language models are the trained data sets that are
the backbone of neural networks, basically a brand of artificial
intelligence that basically learns to bitrial and error much like
a human child does. Right, And we've all become familiar
with generative AI tools where you input commands and get
a response, and that's what Anthropic does. It has a

(01:49):
large language model and AI tool called Claude that has billions,
hundreds of billions of parameters, and it's seen as a leader.
So the real question is like, why is AWS making
an investment in it and partnering with it? And there
are definitely things that both sides get out of this deal.

Speaker 3 (02:05):
Well, let's go into it, because that's what I thought
was interesting. And I saw you guys actually cut up
with the CEO of AWS and won't get into that
in just a moment, but I think it's very significant
right that it's done under the AWOS umbrella. Right, this
is a unit, as you report, that tends to build
its own products rather than buy into them.

Speaker 2 (02:21):
So play with that expand that for.

Speaker 5 (02:23):
Us, that's exactly the right observation.

Speaker 6 (02:25):
So you know, in the world of technology, we're all
asking who the late leaders in AI are going to be.
As you guys know, Alphabet or Google has developed their
own large language models and they are seen as a leader.

Speaker 5 (02:36):
In this space.

Speaker 6 (02:37):
Microsoft put a lot of money into open AI, as
Tim observed, and they are a leader in developing large
language models. And there are lots of questions for a while,
is what is Amazon going to do? It has a
long history of work in machine learning and in AI,
but not necessarily at the LM or generative AI scale to.

Speaker 5 (02:55):
Kind of tied ale together.

Speaker 6 (02:57):
When we talk about the computers behind as phisial intelligence,
we talk all the time about Nvidia right in the
H one hundred that's a semiconductor. We talk about Microsoft
and what they're doing on the software side. AWS is
a cloud provider. In other words, if you're a software company,
you use aws's cloud capacity rather than housing literally physical

(03:19):
servers in your own office. It's just a space efficient thing.
And so a lot of the training that's done for
large language models and developing AI is done in the cloud.

Speaker 5 (03:28):
In other words, you're borrowing.

Speaker 6 (03:30):
Someone else's computer capacity rather than having lots of big, loud,
energy expensive boxes lying around the office.

Speaker 5 (03:37):
And this is what ties it together.

Speaker 6 (03:38):
AWS is basically saying to anthropic, come to us, we
will provide you the brains the compute to train your
next generation of AI, and in return, we get to
use that AI and offer it to our cloud customers.
They get first DIBs. So it's a bit of symbiosis
that's going on here.

Speaker 4 (03:56):
So can you play that out for us even a
little further ed, because I think a lot of people
are familiar with generative AI models when they play around
with chat GBT and ask it to plan like a
healthy meal for them, you know, for the week, maybe
add items to a grocery list. But how does it
work when you're a cloud service provider or a company
that's using a cloud service provider, and then how do

(04:16):
consumers end up seeing that?

Speaker 6 (04:17):
Yes, so we talked about large language models being the
trained data sets, lots of data inputs running in parallel
The next iteration of that is what's called a transformer.
So chat, GPT or GPT is a transformer. You can
issue a command or a prompt to that and in
return get text. If I ask a question, I get

(04:39):
an answer back. Or if I say, draw me a
picture of a cow in a field eating dandelions, it
might give me an image back. Goodness knows why I
came up with that example. Okay, what Amazon wants to
be is a place where you can build these It's
basically saying we host the compute anyway, come to our
platform and you can build your own large language model.

(05:00):
Or what you could do is take the template of
somebody else's existing large language model and just use your
data with it, make it relevant to you. It's become
more of a compute platform than it has been a
specific end product. But at the same time, remember that
the symbiosis I was just talking about. You know, a
big sense that I got from the interview of Adam

(05:20):
is that Anthropic is a leading maker of generative AI tools,
and by getting them to use AWS for their compute,
they're also getting first DIBs on whatever Anthropic is making.
And that is something we confirmed in the interview, AWS
can turn around to its cloud customers and say, have
you heard of Anthropic? It has a really powerful foundation
model that you can have first DIBs with because you're

(05:42):
a paying AWS customer, all right.

Speaker 3 (05:44):
And actually we have a little snipet of that interview
with the CEO of AWS, Adam Slipsky, joining Bloomberg Technology
on Bloomberg TV on their AI push check it out, everybody.

Speaker 7 (05:56):
We are fully urgent. We have a strategy that we
really love. It is different than some other cloud provider strategies.

Speaker 1 (06:01):
It's true.

Speaker 7 (06:03):
We have a strategy of providing absolutely uncompromised and security,
which I don't think is true for our cloud providers.
We have a strategy of providing customers the choices to
use whatever is best for their job at hand.

Speaker 3 (06:18):
All right, That, of course is the CEO of AWS
earlier on Bloomberg TV and Bloomberg Technology talking with Ed
and Caroline Hyde.

Speaker 4 (06:24):
Hey, I'm wondering if there's any sort of move here
when it comes to actually using compute power, because we
know these things use a ton of power. Yes, and
you know AWS benefits when you use AWS, so are
you then?

Speaker 1 (06:37):
You know?

Speaker 4 (06:37):
Is this a move for AWS to say, okay, use
this model, use this tool on AWS, and we are
going to be the ones who provide you that service,
that power, and you're going to give us more money
as a result.

Speaker 6 (06:49):
I just want to say, guys, super grateful for you
giving us some time to discuss this.

Speaker 5 (06:53):
It's not straightforward.

Speaker 6 (06:54):
And to answer your question, the other big piece of
news that came out of this is that Anthropic is
going to use AWS or Amazon's own semiconductors in training
their next generation models.

Speaker 5 (07:07):
It's not as.

Speaker 6 (07:07):
Simple as saying, look, I have a semiconductor in my hand,
use it to train models. The real world doesn't work
like that. What we're talking about is that Amazon has
many data centers around the world. Some of them literally
in the boxes in the servers, have Amazon's latest cutting
edge chip.

Speaker 5 (07:24):
Many of them don't.

Speaker 6 (07:25):
And all Amazon is saying is that as part of
this agreement, we're going to make sure that the compute
that we dedicate to Anthropic is coming out of data
centers with that next generation chip. And it's important because
basically those chips can crunch a much larger volume of
data at much higher speeds. That makes it competitive because
there's a cost efficiency, there's an energy efficiency to training

(07:48):
the models because they're cost and energy intensive, and it
also gives us some ex evidence that the next stage
of this story is to ask is Amazon going to
take on and Video? Right, we're obsessed with the H
one hundred GPU. The H one hundred GPU doesn't get
sent out to the mail in the mail to customers,
it goes into data centers operated by the hyperscalers, not Amazon.

(08:09):
We're talking Microsoft, Oracle and Azure from Micro from Microsoft
and also Google. So what Amazon can say is like, hey, guys,
not only are we the leader in cloud computing, but
the data centers that we run to support our cloud
computing they now have the best chips, as evidenced by
Anthropic deciding to use our technology to train their models.

(08:30):
Although the question I asked Adam and he dodged, is
did you just pay on fropic four billion to do this?

Speaker 2 (08:35):
Yeah? Great story. We will continue in the future. Ed
lad Well, thank you so much, co host of Bloomberg Technology.

Speaker 1 (08:42):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from three to six Eastern Listen on
Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business
app or watch us live on YouTube.

Speaker 8 (08:57):
Still fix, you got that right, We.

Speaker 2 (09:04):
Got that right?

Speaker 1 (09:07):
So that right?

Speaker 2 (09:08):
Yeah, she definitely got that right.

Speaker 3 (09:10):
I mean when everybody was shying away and this idea
of like rates going higher and higher and higher, it's
not just higher for longer, it's just higher and higher.
Katy Kaminski definitely caught our attention with a call. I
think it was about mid August or so when she
talked about six percent on the ten years. So let's
get into the trade because we do see that Bonda

(09:30):
bond sell off continuing. It's now and it's fourth week
that ten year climbing to four point five percent four
point five three to be exact, last seeing back in seven.
Kitty Kiminski on Zoom from Cambridge, Massachusetts. She is chief
research strategist of Alpha Simplex Group. And then we've got
our own US interest rate. I'll watch our Ira Jersey.
He is chief US interest rate strategist a Bloomberg Intelligence.

(09:53):
He's on the phone in New Jersey. So Ira, let's
kick it off with you first of all, before we
get into Katie's call, which was really so smart. It
feels like right now, the trade today let's start there
coming off of last week, higher for longer, very clear
in terms of the trade.

Speaker 9 (10:09):
Yeah, well, but that was the move on Thursday, and
then you had a little bit of a snapback on Friday.
I think two things, you know, going on. People came
in Monday after evaluating the FED last week and said,
you know, do we really want to stay long here?
Just with the idea that if the FED is going
to be on hold through most of twenty twenty four,
maybe even beyond right there is a you know, a

(10:31):
note of caution there, then do you really want to
be long rates at these kind of levels when you
can just you know, go out and buy two your notes.
And I think that's one of the reasons why you're
seeing steepening. And the second is you know overnight that
there is this global aspect to what's going on as well,
where you've seen most of the selling actually start during
European hours, and I think that we can't disentangle the

(10:53):
US treasury market from the rest of the global rates markets.
And if Japan is going to unwind or widen the
bands again on its yield curve control program, Plus you
have a hawkish europe coming out there and continuing to
worry about things like stag potential stagflation. Then you know,
I think that there's just not the appetite to hold

(11:14):
risk at this point in the year.

Speaker 4 (11:16):
Hey, Katie, convincing, Come on in here and just give
us an update on what your call is and when
you expect to see Well, first of all, do you
still expect to see a ten year treasury yielding six percent?
When do you expect to see it? And how has
it felt over the last month as we've seen yields
continue to climb.

Speaker 10 (11:33):
Yes, that's a really good point because I think we've
been consistently short fixed income throughout the year, and there's
been a lot of bond bulls out there who kind
of disagreed with us, and more and more people have
really focused on last week really being that point of
recognition where people have realized that if we're not going

(11:54):
to have cuts anytime soon, and if we're in a
situation where inflation is going to be stickier, that long
term cash flows, particularly now where there's plenty of supply
of treasuries, are not looking like their price correctly, and
so I think that makes a case for a dis
inversion of the curve and for a flatter yield curve,

(12:16):
and we're finally starting to see that in the data.
And so I think what this last month has really
shown is that people are coming around to a realization
that higher for longer is going to be a reality,
despite the fact that we really had very little action
on the actual FED conversation.

Speaker 3 (12:33):
So, Katie, six percent on the ten year, you're sticking
by it, and if so, by when.

Speaker 10 (12:39):
Well, I mean, I think six is a good number.
I like the number six, But so I think I
like duration premiums. So I think for us, we don't
really have a specific number because we're we focus on
trend signals and where the trends are going. But what's
interesting about that is that we would like to see
a duration premium in the curve, whether or not that

(13:02):
needs to be that we have cuts at some point,
we definitely need to see a premium for taking on
long term risk, and that's something we haven't seen in
a long time. So I think every investor is starting
to say, Aha, if inflation's long is going to be
higher longer, at some point, I need to get paid
to take on long term cash flows.

Speaker 3 (13:22):
So six percent is possible right, because we want to
see that duration premium. I'm not trying to pin you down,
but it's still possible. Then on a tenure or maybe
even higher, would you go?

Speaker 10 (13:33):
I mean, I think these things are all possible if
we continue to have higher inflation, and if we continue
to have a scenario where people realize that there's an
excess supply of treasuries and that people need to be
paid to hold long term cash flows higher inflation.

Speaker 2 (13:51):
It just makes sense.

Speaker 3 (13:52):
I wrote what you're thinking about kind of where we
top out or go from here, especially on the ten
year longer out, that that duration premium that investors you know,
understandably could be demanding when we still have inflation out there.

Speaker 9 (14:06):
Well, I think that the inflation point is what people
are trying to readjust their thinking about. Right, there was
a large group of people out there who were thinking
that oil prices were going to head back lower to
like forty dollars a barrel, and that you wouldn't have
a big fear of inflation expectations going up wholl of

(14:27):
a lot, and certainly they haven't. Right when you look
at things like tips, brake evens and inflation swaps, neither
of those has moved very significantly. So a lot of
what is driving this is things like like term premium
risk premium, where you have tips yields that are going up,
so real yields are moving significantly higher. You when we
go back and we think about the forever history of

(14:50):
real yields, they were meaningfully higher prior to the two thousands,
and obviously you've had a structural shift now, you know,
will we have trend higher rates in the longer term?
You know, could we get the six percent It's certainly
not out of the question. Right in the nineteen nineties
we were there, But I think in order to do
that you do have to get inflation expectations probably up

(15:10):
a bit more from where they are, so you know,
I can envision a scenario where if you get up
to a six percent nominal yield, you probably need to
have three percent inflation more persistent, and the market has
the price for that and you know, the market is
not yet pricing for that now. Could it sure? But
I don't think it will. I think a lot of
what is going on right now is very technical. It's
it is a readjustment of the central bank outlook, and

(15:32):
not only here in the us. Like I mentioned before,
you know, if you have Europe that is going to
continue to be somewhat more hawkish and try to fight
a stagflationary environment, then that's going to affect treasury yields
one way or the other, just because you're going to
have less demand from overseas.

Speaker 4 (15:47):
Hey, Iira. A lot of the conversation today has focused on,
you know, why we're seeing these moves in the rates market.
So break that down for us exactly. I mean, is
it is it about inflation expectations, is about growth expectations
or like you said, you know it's just alluded to
it's something more technical.

Speaker 9 (16:04):
It's not about inflation or growth expectations at all. It's
it's about policy expectations, which you know at some level
are related to growth. But the market is certainly thinking
that the no landing scenario is becoming a higher probability
than it was not so long ago. And really not
as much has changed, right that. You know, the FED
coming out with new dots saying that they're not going

(16:26):
to cut as much in twenty twenty four as they thought,
and we thought, you know, our read on that was
that there's a distinct possibility and We've been saying for
a very long time that we didn't think the FED
was going to cut at all in twenty twenty four,
and that looks more and more likely. But this trait,
and one of the reasons I think this is technical,
is that that I do think that if if this

(16:47):
was much more about not technical and was about fundamentals,
that the curve shift would be much more, would be
much more. Even so you'd wind up seeing more of
a parallel shift upwards in the curve where you know,
if your notes kind of approaching the policy rate a
little bit more, and then and you'd wind up with
ten year yields maybe here too, but you'd see two

(17:07):
year yields a little bit higher as well. And because
you're not seeing that, I do think it's people maybe
who are thinking in long duration just stopping themselves out.

Speaker 2 (17:15):
Katie, I saw you nodding several times here.

Speaker 10 (17:18):
I agree. But one thing I would point out is
the technicals have actually already been in this trade. We've
been short the position for quite a while. So the
people who are changing position are those that have had
an AHA moment last week. So my view is that
the market has had a point of recognition where they said,
wait a minute, we actually think that we need to

(17:40):
reevaluate the pricing of some of these bonds. Maybe we
need to reevaluate the way that we adjust our portfolios,
and that is actually causing some adjustments. So we've steadily
seen more fundamental investors and different investors adjusting their positions
throughout the year, despite the fact that the technical signals
have actually been short or earlier on. And so I

(18:02):
think that's an interesting point. Is who's trading right now?
Is probably the question? Who's the trader? Who's moving the
price right now? Might be the best question to ask.

Speaker 2 (18:11):
Is this a silly question to ask?

Speaker 3 (18:13):
But I'm going to go for it because when Liz Kapa, McCormick,
and Chris Ansy write about it, I go for it.
And they basically looked into negative rates returning to the
US in a few years, and they cite a Boston
College professor and financial historian and basically he looked at
data back to thirteen eleven and it shows a clear
declining trend for inflation adjusted or real interest rates with

(18:34):
bouts a volatility above and below the trend line. Katie
just got thirty seconds. Is it too early to start
thinking about this concept of.

Speaker 2 (18:41):
Maybe negative rates.

Speaker 3 (18:43):
We've never lived through a pandemic before, so we really
don't know how it ends.

Speaker 10 (18:47):
I think we have to be suspects of certain rate
periods in history because they rhyme but don't always repeat.
I'm more concerned about inflation being back higher for longer
because I think low rates, like negative rates is actually
more of a rare occurrence in history than most. We
all think it's normal, but actually a historian would think

(19:09):
it's abnormal.

Speaker 2 (19:10):
Ira saved to ten seconds quick thoughts on that.

Speaker 9 (19:13):
Yeah, I don't think we're going back We're going to
have negative rates in the US. I think the forty
five year downtrend in rates is over and broken, and
that we're going to wind up seeing rates, you know,
more like you're at the point of the long term.

Speaker 3 (19:25):
Well, listen, Chris are going to call you both. I
know they're going to continue this discussion. Katy Kamenski over
at Alpha Simplex Group, and of course our own Bloomberg Intelligence.

Speaker 2 (19:33):
Ira Jersey, thank you both.

Speaker 1 (19:38):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from three to six Eastern on Bloomberg Radio,
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Just Say Alexa, Play Bloomberg. Eleven thirty.

Speaker 3 (19:58):
Western firms in fact in China are now the gloomiest
that they've been about the future in decades, largely due
to geopolitical risks. This is occurring to a recent survey
by the American Chamber of Commerce in Shanghai. Persistent intensions
with the West, coupled with China's economic slowdown, have sparked
a one hundred and eighty eight billion dollar exodus from
Chinese stocks and bonds from a December twenty twenty one

(20:18):
peak through the end of June this year, so diminishing
the market's cloud and global portfolios. We've been talking about
it for over a year, if not even longer, about
that kind of change in investor sentiment.

Speaker 4 (20:28):
The region, though it's not a monolith. And here with
some thoughts on investment opportunities in Asia is John with
our head of Asia Special Situations for Picta Asset Management.
It's based in Singapore, but we got John with us
right now in our Bloomberg Interactive Brokers studio. John, good
to have you with us, how are you? Thank you
very much for having me. All right, let's start with
China and then we got plenty of areas to go
from there. But to Carol's point, is China uninvestable?

Speaker 11 (20:51):
Now?

Speaker 12 (20:52):
I think China's uninvestable, but there's certainly challenges. I mean,
we're all aware of what's happening with the micro environment there,
We're all aware of the property market, and you know,
the property market is clearly a huge part of the economy,
but you know, it's worth mentioning that it's still relatively
cheap market. We're still round about ten times forward PE,
so we're starting from a pretty low base here. I
think one thing that we haven't seen yet in China

(21:13):
is a policy response, an effective policy response. And I
think whilst we sort of sit back and wait and
the hope of that sort of starts to dissipate, the
reality is at some point, you know, there is a
likelihood that there's we some kind of policy response coming
down the pipe at some point. So I think it's
not all totally doom and gloom. We do worry a
little bit about what looks like in the midterm, but
I think certainly, Yeah, we can expect some kind of

(21:35):
a pology to response that may see some short term
so optimism coming to the market. I mean, as you
just pointed out, sentiment is at absolute rock bottom and
people really don't own it anymore.

Speaker 3 (21:46):
There's sentiment and then there's fundamentals. John, as you are,
you're in from Geneva, right, that's your home base. You're
in Singapore, forgive me in from Singapore. And I'm just
curious as you make the rounds here in the U
House and elsewhere, you know, what are you hearing investor interest,
institutional investor interest in terms of putting money in China
specifically before we bride out.

Speaker 12 (22:07):
Sure, yeah, I mean it's not great. Let's be clear.
I think people are very very cognizant other risks. And
there are risks right obviously the macro is one, their
geo politicals another. And the realities is that we are
seeing a bit of a step change now. There is
definitely a trend of friendshuring and reshoring out of China
that really doesn't help the whole fundamental story as well.
So people are very very switched on about what's happening

(22:29):
in China at the moment, and that has obviously really
moderated investor sentiment. So it's about as bad as I've
seen it in my career, and I've been.

Speaker 4 (22:36):
Doing this for many years.

Speaker 12 (22:38):
But you know, we'll see what happens.

Speaker 3 (22:41):
Is it a c shift or is it it's a
big change that may not change?

Speaker 12 (22:45):
You know what. It's been a gradual decline, to be honest,
So you know, when I was here sort of three
six months ago, it was still pretty bad. We've obviously
seen some major US investors move a lot of allocations
out of China, and a number of the big pension
funds have actually said, you know, they're excluding China altogether.
So you know, this is something that is It's not
a surprise. It's been happening over a long period of time.

(23:07):
And yeah, we'll be just waiting for that cat seat
reverse if at all we see it.

Speaker 4 (23:11):
You know, it's funny. I was preparing for this interview
and guard an email from the folks over at LPL
Financial with a new note asking the question is India
the new China? And it's a question I thought to myself,
you know what, that'd be a good question to ask
John Whittier instead of me.

Speaker 12 (23:29):
Sure is it look yes and no is the answer.
I mean, the reality is, yes, they're the largest population
plant in the world. I'm in the world now. But ultimately,
you know, we still need a lot to happen in
India for it to realize. So the potential that we've
been waiting for it to realize that they still don't
have the infrastructure that they're have in China. And the
reality is as an investable market, you know, China is

(23:51):
very developed, so obviously the second largest market in the world.
Whilst the Indian population is very large, the economy is
now where he is large, and the market is still
very small and quite ill liquid. It's also expensive and
quite complex to trade. So the trajectory is great. I
think the woes that we saw with the Dani and
a lot of the attention that we saw come out
of that was very positive because it's shined a light

(24:14):
on shareholder shareholder rights and whatnot, you know, and those
kinds of things.

Speaker 4 (24:20):
But ultimately, in terms of transparency.

Speaker 12 (24:22):
Absolutely absolutely so we are seeing the discussions being had
where previously you didn't and that's and that's very important.
So in a twisted type of way, it was actually
quite a good thing that this happened, because it did
shine a light on corporate governance and those kinds of things.
But ultimately that market is still it's still small, and
it's still it's still quite difficult to trade. Access is
sort of is not ideal, and it's illiquid and now

(24:46):
actually it's expensive as well. So I don't think people
are that's a barreling in. There's obviously some allocation that's
coming into India from other parts of the region. Obviously,
as capital does flow out of China and it's looking
to sort of dissipate elsewhere in a it does find
its way into India, But certainly it's something that we
think is still very much a work in progress.

Speaker 3 (25:05):
So and you shared notes with our producer Paul Brandon,
and it was about the macro environment in US, China
and Europe is still challenging. This is again your guys view,
Asia's better positioned than most regions going forward. Demographic tailwinds
will support GDP growth in the region. So basically you're saying,
what in terms of global investors looking around the world,
that it makes more sense to invest in Asia versus

(25:27):
some of these developed markets like US and China. You
made the case for China, but US and Europe even.

Speaker 12 (25:33):
Look, I think for US and certainly for my group,
and we're listening in special situations. I think for US
the focus is Japan, which we consider part of Asia.
Certainly we do, and.

Speaker 2 (25:42):
That's k is up twenty dollar terms.

Speaker 12 (25:45):
It's absolutely absolutely And you know, there are a number
of reasons, and we can get into that a second
if you like, but you know, that's one part of it,
I think the ball case that we have in Asia.
But the other is, you know, the foreign direct investment
is flowing out of China is finding its way into
other parts of Asia, and particularly Southeast so some of
its finding its way into India obviously, but you're getting
foreign direct investment flowing into markets like Vietnam, Indonesia, Malaysia, Thailand.

(26:06):
These kinds of markets are benefiting and we're seeing that
very tangibly. And so alongside what you're seeing happen in
Japan and the capital that's coming out of China, that
capital is moving into places that are ultimately small, but
they are reforming themselves.

Speaker 2 (26:21):
So is it all going into other Asian markets or now.

Speaker 12 (26:24):
I think it's going it's going to a lot of
different places. But you know, as from the statistics that
we've seen, Southeast Asia has absolutely been a beneficiary.

Speaker 4 (26:32):
A jan you have a really interesting job because it's
encompasses a very large portion of the world with a
very large number of people. Give us an idea of
your process in terms of like how much time you're
spending on the ground in these countries and how you're
getting your data beyond the numbers that we are gat
with FDI and whatnot.

Speaker 12 (26:49):
Sure, so you know, there are a lot of company meetings,
we are meeting corporates, We are trying to get a
sense of you know what companies, the thinking, strategic direction, industries,
those kinds of things, and that's very important. Sentiment as well,
croporable sentiment is really a big driver of our universe.
You know, we are going on the ground, but ultimately,
you know, thanks to create systems like yours, you know,
the information is getting a lot better and for us,

(27:11):
you know, we've got a lot of different areas that
we're getting information from. We're sucking it in. We are
using data tools as well, using things like natural language
processing tools, those kinds of things to suck data in
and then give us a better of the lie of
the land in those types of markets.

Speaker 3 (27:23):
So if an investor had some new money to put
to work in Asia, where would you guys suggest they do?

Speaker 2 (27:29):
We just have about thirty seconds.

Speaker 12 (27:30):
Sure, unequivocally, Japan. Japan is the is the market right
now that we're most excited about in our space.

Speaker 2 (27:36):
All Japan, large cap Japan specific sectors in Japan.

Speaker 12 (27:39):
I mean all Japan I think is exciting to us.
I mean large caps obviously more liquid. But Japan there's
a lot happening. And you know, we're seeing this thirty
three year high, but there's a lot behind that, and
what drives that. Ultimately, it's not just the flow of money,
it's structural as well, So structural change, corporate governance, these
kinds of things.

Speaker 4 (27:52):
What would you say, just in thirty seconds somebody who
pushes back and says, what about demographic concerns of Japan?

Speaker 12 (27:57):
I think demographics has been the what we've been told
over a number of years. But the reality is is
that the structural shifting, technology, efficiency, all these things to
a certain extent, offset what was seeing in the demographics.
Companies are getting morefficient, they require less labor, All these
kinds of things. So you know we're excited. There's a
lot happening. Thirty three ye high, Let's.

Speaker 2 (28:15):
Go JOm withar. Thank you so much.

Speaker 3 (28:17):
Heead of Asian special situations for Picta Asset Management, as
he reminded us, based in Singapore, but making his way
to the US and joining us here in our Bloomberg
Interactive Broker Studio.

Speaker 1 (28:27):
If you're listening to the Bloomberg Business Week podcast, catch
us live weekday afternoons from three to six Eastern Listen
on Bloomberg dot com, the iHeartRadio app, and the Bloomberg
Business App, or watch us live on YouTube.

Speaker 3 (28:42):
Let's get back to what's going on in terms of consumers.
A survey from the Federal Reserve last year finding that
nearly seventy percent of consumers are using some sort of
mobile payment service or device to send or receive money,
and more than eighty percent tim of consumers using a
digital wallet, ortech, fintech human app, including more than seventy
percent of those who are age fifty five and older.

(29:03):
I have to say the pandemic was a real game changer,
certainly for us as a family, Like nobody carries cash anymore.

Speaker 4 (29:09):
It's true, but you still do need cash in some situations,
Trust me, you do. You never want to find yourself
without cash, because I do all the time. And then
I'm like, I got to go to an ATM, especially
at the bagel store. Great to have John Kaplan with
a CEO at the publicly traded payment platform Paioneer. It's
a company that specializes in cross border payments. They've got
a market cap about two point two billion dollars.

Speaker 1 (29:29):
John.

Speaker 4 (29:29):
Good to have you with us. How are you.

Speaker 13 (29:31):
I'm terrific. It's great to be here.

Speaker 4 (29:32):
Hey, it's great to have you with us. Hey, I
just wanted to start and you know, before we get
into what exactly you guys are seeing at payanier, what
you're what you're doing, what you've been doing since March
when you became a CEO of the company. Before that
you were co CEO, give us a read on the economy,
not just here in the US, but what you're seeing
around the world.

Speaker 13 (29:51):
Yeah, So we are as you know, Payoneer is a
platform that makes it easy for entrepreneurs all over the
globe to do business anywhere, right, and we have customers
in one hundred and ninety countries. So our sense of
the global economies. Really, you know, on point, because we
have millions of customers in just about every region and

(30:12):
country on the planet. What we see is entrepreneurs are
very focused on cross border trade. Small business owners are
looking to export their goods and services abroad, and they're
looking to leverage the cost benefits of sourcing either personnel
to work for them or raw materials for their factory

(30:33):
also across border. So as in some ways the world
has gotten smaller for small businesses and they are very
focused on leveraging the global landscape.

Speaker 4 (30:43):
That kind of makes sense, like we know what they
want to do, but what are they seeing on the
ground in terms of customers in different regions? What can
you tell us about softness in certain areas of the globe? Like,
what can you tell us that given the data that
you have.

Speaker 13 (30:55):
Yeah, So we did a recently completed a survey pioneers
in inaugural some b Ambitions Barometer, and seventy two percent
of surveyed businesses agreed that expanding overseas leads to increased revenue. However,
only forty one percent of these businesses are currently seizing
that opportunity. And so I think inside your question about

(31:16):
their confidence in the economy. Is this goal for diversification, right, Really,
small business owners around the globe are looking to find
new channels to sell and more places to source. And
my you know supposition coming out of that is to say,
you know what, there is some weakness in parts of
the economy and people are looking abroad in markets like India,

(31:38):
where we're very strong. The GDP is growing seven percent.
In Latin America, we're seeing, you know, merely triple digit
growth in parts of our business because because businesses in
the West are increasingly using software engineers in Argentina and
other parts of the global economy. So it really is
depends what business you're in and what region you're in,

(31:59):
how you're handling the you know, the tumult in the
global economy.

Speaker 3 (32:03):
Well, look at the dees page on the Bloomberg. In
terms of your company, I mean, the bulk of the revenue,
right is outside the United States. I think China Greater
China is second, and then you have the United States.
So can you give us some broad strokes on where
the growth is because it sounds like it's a lot
of stuff outside the United States.

Speaker 13 (32:20):
Yeah, so our business is about a third China, which
is growing very strong, and we we're excited about the
growth we're seeing in China. A third Latin America, APEC
and SAMEA. Those markets are seeing forty five percent year
over year growth, really powering the growth of the Pioneer platform.
And as our services have expanded more invoicing capability, more

(32:45):
commercial credit card capability for our customers, we're seeing those
customers you know, spend have more of their accounts receivable
on the Pioneer platform. We really are the solution for
an emerging market business that wants to do business cross border.

Speaker 3 (33:00):
Go back to China, you said, China growing very strong,
which is interesting because we just had a guest talking
about investment opportunities. This was the head of Asian Special
Situations for Picta Asset Management, John Whar and he talked
about a lot of investment money flowing out of China.
Based on what you're seeing, though, John, what does it
tell you about the Chinese economy.

Speaker 13 (33:22):
Yeah, So our customers are small business exporters in China,
so they're exporting iPhone cases and they're you know, they're
they're exporting what are effectively consumer goods that people in
the West, you know, have a voracious appetite for they
are not they're not exporting. Uh you know, you know
they're not they're exporters, So they're they're small business manufacturers.

(33:43):
It's different than people who are looking to invest in
the real estate sector, for example, in China. That I
that I wouldn't have any color.

Speaker 11 (33:50):
To add on.

Speaker 3 (33:51):
I was just curious if there was any kind of
business to consumer though specifically staying within the China network,
if you are the China loop.

Speaker 2 (33:58):
But it sounds like it's all exporters.

Speaker 13 (34:00):
Yeah, our customers are one hundred percent exporters in China, manufacturers, traders,
good suppliers, Amazon sellers, eBay sellers, Walmart sellers, you know,
the people who are you know, going into holiday twenty
twenty three should have a strong season.

Speaker 4 (34:16):
What are your US customers? How would you describe them?

Speaker 5 (34:20):
So?

Speaker 13 (34:20):
Our US customers primarily are businesses in the United States
that are have contractors or employees outside of the United
States and use the Pioneer platform to pay them to
you know, pay suppliers that they have in Asia, to
pay freelance software developers in Latin America or Ukraine.

Speaker 4 (34:41):
N Yeah, I just want to jump in. I think
for a lot of people, they don't necessarily know why
it's so difficult to do these cross border payments. I mean,
for example, a friend came. I've talked about this before,
but a friend came to a concert from the UK
and he wanted to pay me back for the ticket
and I could. He couldn't pay me on VENMO, he
couldn't pay me on pay and we just decided, you know,

(35:01):
the next time you come to the US, you can
do Yeah, like it's so hard to do this, so yeah.

Speaker 13 (35:08):
The real reason for this is if you're a business
owner outside of the United States, you don't have a
Social Security number, so you can't get a US bank account.
You can't participate in the US financial system as easily
as you or or we can. You know and have
all of our lives, so when you have, you know,
businesses abroad won't use the Pioneer platform to manage their

(35:31):
international accounts receivable and accounts payable. So in the event
that your friend had a business and was on the
Payoneer platform, you very easily could have paid them, just
as easily as you could have venmoded someone or made
a xell payment to someone with the payoneer platform that's
baked into exactly how we've set up the program.

Speaker 3 (35:48):
Very interesting, John, come back soon, love to continue. Uh
this conversation John Kaplan's CEO at Penney or joining us
in New York City.

Speaker 2 (35:58):
Pretty cool stuff.

Speaker 4 (35:59):
Yeah, my friend did pay me back. He was good
for it. Don't worry.

Speaker 2 (36:02):
Did he send you like a check?

Speaker 4 (36:04):
I think he just he came to buy a couple
of meal.

Speaker 1 (36:07):
Yeah.

Speaker 4 (36:08):
I mean we also like tagged along on his honeymoon
after he got marriage.

Speaker 3 (36:11):
This is where you start to think, like bitcoin or blockchain,
maybe this could be easier.

Speaker 2 (36:15):
Right, And I'm waiting cross border.

Speaker 4 (36:17):
I'm waiting.

Speaker 2 (36:17):
All right, you're listening and watching Bloomberg Business Week. I'm
Bloomberg Radio.

Speaker 1 (36:29):
I'm not sure if.

Speaker 4 (36:32):
I was just gonna say that.

Speaker 3 (36:34):
As Republicans barreling toward another government shutdown at the end
of the month, in case you're not keeping track, this
would be the eleventh shutdown since nineteen.

Speaker 4 (36:44):
Eighty Well as in the past, the logic of shutting
down the federal government is clear. The Republican instigators believe
that the public will rally behind them and force Democrats
to moderate Republicans to slash spending enacting the cuts that
they have conspicuously failed to achieve through ordinary check Carl's channels.
Here's the thing, Carol, the record of shutdowns that how
it plays out, it's not up.

Speaker 13 (37:04):
Well.

Speaker 4 (37:05):
The record of shutdowns and bringing about the outcome that
they want is over ten. So writes Josh Green, national
correspondent for Bloomberg Business Week, in the Remark section in
the current issue of Bloomberg BusinessWeek. It's available on newsstands,
on the Bloomberg terminal and at Bloomberg dot com Slash BusinessWeek.
Josh also the author of the number one New York
Times bestseller Devil's Bargain, Steve Mann and Donald Trump and

(37:26):
the Storming of the Presidency. Josh joins us on the
phone from Washington, DC. Also with us as Joel Webber.
He's the editor of Bloomberg BusinessWeek. He's with us right
now in the Bloomberg Interactive Brokers studio. Oh for ten,
Joel could be over eleven.

Speaker 14 (37:39):
Well, I think Josh has written about many of those, right,
like tirement comes up. But Josh Green batphone, So, yeah,
there's a couple in there that he hasn't probably written about.
But there's a commonality that Josh wrote about here, and

(38:00):
as it's unfolding, it's worth bringing that back up.

Speaker 8 (38:05):
Josh, did I miss that or did you?

Speaker 10 (38:07):
Have?

Speaker 8 (38:07):
You actually written about all of them at some point?

Speaker 11 (38:10):
No, no, I wasn't old enough to write about the
shutdown in nineteen eighty, but I do know from my
lengthy research, and it didn't work out very well, and
neither did the next one. Or the next one or
the next one are probably not the one that we're
likely to have at the end of the month. The
fact is, these things just don't work, and yet both parties,
but especially Republicans, often managed to talk themselves into believing

(38:33):
that this time will be different. This time they will work.
And there's enough of a segment of Republicans that are
believing that right now that I think it's pretty likely
that we're going to get the eleventh shutdown at the
end of this month, barring some kind of last minute miracle.

Speaker 8 (38:46):
Okay, so where are we now and what are you watching?

Speaker 5 (38:50):
Well?

Speaker 11 (38:51):
We are. Where we are right now is that there's
a rump group of maybe two dozen hardline conservative mod
Republicans who think that if they shut down the government
and just refuse to pass a spending bill, that the
American people will rise up and anger at Democrats and

(39:12):
somehow force them to cut spending that Republicans haven't been
able to win through the ordinary political process, So it's
a sort of a you know, immaculate conception spending cut.
Nobody has to vote for it. They just have to
kind of shut down the government. Point a finger, you know,
and people will come rushing to their defense. And there

(39:34):
have been a number of Republicans somes who might quote
in this Business Week piece essentially saying that, you know,
we're going to shut down the government. Ralph Norman of
South Carolina said, we believe in what we're doing, and
the jury will be the country.

Speaker 8 (39:46):
You know.

Speaker 11 (39:46):
The problem, if you look at the historical record, is
that Americans don't like government shutdowns. They don't like it
when they can't get their passport. They don't like it
if they work for the government and they're furloughed and
don't get a paycheck. You know, they don't like it
if their public services are disrupted. They get angry. They
go look at who's to blame, and they find out
in this case and in the last case, it's the
Republicans and sooner or later, you know, the party that

(40:07):
shuts down the government winds up having a black eye
and having to kind of relent, and often or almost
always doing so without having won anything except for a
big drop in their pull numbers.

Speaker 2 (40:19):
So Josh, okay, why do they do it?

Speaker 11 (40:21):
Then?

Speaker 2 (40:22):
I mean, if they come on, we're talking about Washington here,
I know, but I.

Speaker 3 (40:26):
Mean, isn't there anybody who says, okay, guys, it hasn't
worked for either party, why.

Speaker 5 (40:32):
Do we do this?

Speaker 11 (40:33):
It's actually, it's actually a really good question. And I
went to some length just to kind of, you know,
break through my ordinary Washington cynicism and made some reporting calls.
There are some interesting reasons they're not going to change
the outcome. But one of the reasons is that a
lot of Republicans in Congress are new. They haven't been
around for more than two years or more than four years,
so they haven't lived through a shutdown. They've never experienced

(40:56):
firsthand kind of stepping on the land mine and having
it blow up in their face. So they're a little innocent.
They've convinced themselves, you know what, people are going to
be on my side. They're going to like this I
think the other reason is that a lot of these
members live in deeply red districts just don't bump into people,
you know, ordinary independents or Democrats who might have a
different view than they do. And so you know, everybody

(41:19):
you know and talk to in your political life is
a right wing maga Republican. Yeah, it may seem like
a good idea to shut down the government, and they'll
just have to discover through through trial and error that
maybe it's not the best way to kind of get
things going. And then the biggest reason of all, I
think is that Donald Trump is the guy who sets
the tone for the Republican Party. And Trump came out

(41:40):
on truth Social his Twitter knockoff social media site the
other day and said, shut down the government, do not
give up until you've got everything you demanded. That is
just a fantasy way for politics work. It's not going
to happen. But a lot of Republicans do take their
marching orders from Trump obviously has a lot of fans
in the party that put pressure on their elected members,

(42:03):
and so it very much looks like we're going to
have a shutdown and go through this process. Now, I
guess for the eleventh time since nineteen eighty. And if
there's one thing we know, it's that all of this
kind of chaos and pressure is going to blow back
on Republicans, lead to a lot of recriminations and eventually
a political laws.

Speaker 8 (42:22):
Okay, but sure there's been ten eleven of these, but
the first for Kevin McCarthy as speaker, right, So, how
is he attempting to navigate any of this and what
insights do you have about what options he might have.

Speaker 11 (42:37):
Well, the problem and the reason this shutdown is so
likely is because McCarthy is a very weak speaker. He
only has a four vote majority in the House of Representatives,
and he seems to be more intent on maintaining his job,
maintaining his speakership, than he is on keeping the government open.
And so McCarthy is between a rock and a hard place.

(42:58):
If he were to go to DEMOC right now and say, guys,
my right wing flank is crazy, let's team up with
some kind of a moderate spending bill that can pass
the House, pass the Senate, and keep the government open,
what would very likely happen is that one of these
Republicans would file what's called emotion to excuse me motion

(43:19):
to the Smith, which is essentially a vote on whether
McCarthy should be fired or not. So he doesn't want
to risk doing that, so instead of going and cutting
a moderate deal, instead, what he's tried and failed so
far to do is appeased those hardliners. The first thing
he tried to do was launch an impeachment inquiry of
Joe Biden. He thought that would win him some good will.

(43:40):
It did not. He's passed, or he's tried to pass,
introduce a spending bill that cuts government agency by about
eight percent, which is far more than anything Senate Republicans
and Democrats would agree to. That didn't fly. Now there's
some talk if we pass a new bill with a
twenty seven spending cut. That hasn't worked either. So basically,

(44:00):
there's nothing that's going to make his right flank happy,
and therefore, in order to preserve his job, he's got
to just go ahead with a shutdown, prove his loyalty
to them, and hope that the pain becomes so much
for everybody that they grudgingly relent and allow him to
cut some kind of a deal to open the government
back up without costing him his job.

Speaker 3 (44:20):
This is just how it goes or if there was
a different Speaker of the House and it wasn't Kevin McCarthy,
do you think we'd be having this conversation and the
threat of another shutdown.

Speaker 11 (44:28):
I really think we would. The party is just so
split between its maga flank, which is sizeable, and it's
kind of moderate governing flank, which is less sizeable. There's
just a rift in the party that can't be solved.
I mean, you know, Republicans from deep red districts by
and large just don't have any interest in compromise anymore.

(44:51):
And if enough of them refuse to compromise, what we
wind up with as a government shutdown. I don't know
that any speaker would have the power. This sweet talk
the caucus or the conference that McCarthy has into agreeing
on one spending bill absence something like a shutdown coming first,
and so as a result, a shutdown is probably what

(45:14):
we're going to get.

Speaker 4 (45:14):
So if we do get that shut down, Josh, what
ends up being the damage to the Republican Party as
we head into an election year.

Speaker 11 (45:22):
Well, there's a couple of things. I mean, Number one,
the Republican hardliners who engineered the shutdown are very likely
to lose because they'll be cut out of discussions. At
some point, the pressure will become too great. There will
likely be a bill that emerges in the Senate between
moderate Republicans and Democrats that gets forced down the Republican's throat.
So the hardliners are going to lose. I think the

(45:42):
Republican Party overall is going to lose also because this
is a black eye when it comes to public relations.
You know, in a moment when Joe Biden is really
struggling in the polls and Democrats are worrying can he
get reelected, We're about to have a grand display of
Republican chaos and dysfunction, which is going to remind voters, well,

(46:03):
you know, I may not like Joe Biden. I may
not like the prices the grocery store and at the
gas pump, but Jesus, I don't know if I want
to sign up for this circus again, you know. And
the other problem I think it's going to have is
that it's just going to lead to more kind of
chaos and dysfunction in Washington, which is going to turn
off even more people to the presidential race, to the

(46:24):
political system, lead to more bad feelings, and you know,
and that's never good for the country in our civic
fabric if everybody is angry and despises the people in
Washington as the president and all this is being egged
on by Donald Trump and other conservative provocateurs. And so
we're going right back into this cycle. We all know
how it's going to end. But for whatever reason, Republicans

(46:49):
don't seem to be able to kind of pull up
the nose of the plane and prevent the spiral that
we're all heading in right now.

Speaker 8 (46:55):
Okay, So from just like a normal American point of view,
like how is this actually going to show up and
affect people? Like for that first couple of days, probably
not as much. But what becomes the potential costs of
this as a shutdown might linger.

Speaker 11 (47:12):
Uh, you know a lot of things, you know, from
basic stuff like I need to get my passport renewed
so I can go on a you know, on a
cruise or on a trip. You can't do it to
you know, I need you know, I need help from
my congressman's office to you know, look into why I'm
not getting my Social Security check that kind of thing.
Get your call return to you know, various agencies being

(47:33):
closed to You know, if you happen to work for
a government agency and are furloughed, you're not going to
get a paycheck for a while, you know, the way
these things work. At the at the end of the shutdown, eventually,
you know, employees will be repaid, but huge financial disruption
to lots of people's lives, you know, and these things
tend to cascade. Then there's of course the cost of taxpayers.

(47:56):
Every time that this happens in the markets, it adds
to bond prices, and you know, millions and millions of
dollars taxpayer dollars are spent unnecessarily, you know, fixing and
paying for a lot of the chaos that this cause is.
And you know, ultimately it just undermines faith in the
ability of the US government to function. And that's never

(48:20):
good for anybody, which is why.

Speaker 3 (48:22):
Moody's came out right and said the US government shutdown
would be negative for rating.

Speaker 4 (48:25):
Josh, I hate to be so cynical here, but if
this is indeed bad for Republicans, if the government shuts down,
what are Democrats telling you about this? What are what
are you hearing from them about this?

Speaker 5 (48:36):
Possible.

Speaker 11 (48:37):
What I'm hearing, what I'm hearing from every single Democrat,
is that we're going to step back, get out of
the way, and let all the blame fall in Republicans.
You know, when your enemy is hanging himself, you just
give him more rope. And not only Democrats, but you know,
most of the Republicans in Washington say privately they know
exactly what's going to happen. There's really nothing they can

(48:57):
do to stop it. Because you know, the the group
of legislators that is instigating this shutdown just live in
a different part of America. It's deeper red, they have
different political pressures. They're more worried about looking like a
rhino than they are and looking like somebody who you know,
can't keep the government open. And it's just created a

(49:20):
problem where there really isn't a functioning Republican Even though
Republicans have a majority in the House of Representatives, there
really isn't a functioning Republican majority and the House of Representatives.
And so we're going to see what happens when you
don't have a functional majority. Everything. You know, the process
is going to break down. We're very likely to have
a shutdown.

Speaker 8 (49:39):
Okay, So how many more stories about the shutdown are
you planning on writing for Bloomberg Business Week, Josh Man?

Speaker 11 (49:45):
Depend how many of you assigned me? You know, I
feel like at this point, like we ought to just
have a bunch of evergreens on the shelf, or we
can just feel like Groundhog Day, where we keep running
the same one over and over, you know, Republicans and chaos.
Government shuts down, pull numbers, drop voters angry. I mean,
we can just keep updating that every day, it looks
like to me, and the real question is going to
be how long does how long does this last? Right

(50:07):
when Democrats shut down the government a few years ago
over immigration measures, you know, they lasted all of three
days and then they kind of lost their nerve. I mean,
my sense this time with the Republicans that this is
going to last a lot longer than that, maybe as
long as the twenty nineteen shutdown, which was thirty five
days that was the record for a US government shutdown.

(50:27):
You hope it doesn't last that long, but you know,
at this point the system is so broken and so
polarized the Republican party is that like there just isn't
a clear resolution. At this point, it's about how much
pain in public relations pressure can they endure before they relent?
And somebody cobbles together a deal with Democrats and nobody
wants to step forward, certainly not Kevin McCarthy and be

(50:49):
the guy that does that.

Speaker 3 (50:52):
And what's crazy, as we're talking about, it's amazing at
the process, right, rather than the substance of what they
might be deciding that was into it. Josh Green always
appreciate national correspondent for Bloomberg business Week and of course
the editor Business Week, Jill Webber.

Speaker 11 (51:09):
I'm brother Marco, a journal How about you let me drive?

Speaker 4 (51:16):
Oh no, no, no, no.

Speaker 5 (51:19):
Honey, please, how do the riding gravels?

Speaker 1 (51:21):
Let's wat I.

Speaker 3 (51:22):
Want to drive.

Speaker 7 (51:23):
It's a good question, drives.

Speaker 4 (51:30):
This is the drive to the globe.

Speaker 13 (51:32):
Dot coms me, I think we'll buy around.

Speaker 1 (51:34):
Yelling on on Bloomberg Radio.

Speaker 3 (51:36):
All right, everybody, just about seventeen and a half minutes
left in today's trading session.

Speaker 2 (51:40):
We're up with them. It's like a little Katie Perry
so on today.

Speaker 4 (51:43):
Shoppy was zompy and uh, Bill Maloney just described it. Yeah,
it's totally what it is.

Speaker 3 (51:49):
Yeah, it's just and it's not tremendous big moves. Uh,
and continue to watch that treasury trade because it seems
like that's where we need to be focused. That ten
year note right now four fifty four two year note
with the yield of five. Well, so let's get to it.
Let's do the drift of the clothes.

Speaker 8 (52:03):
Yeah.

Speaker 4 (52:03):
We got Greg Halter, director of research at the registered
investment advisor Carnegie Investment Council, joining us on zoom from Cleveland, Ohio.
Good to have you with us. Greg. Just start off
by give it an idea of what you're watching, what
you're seeing right now, and then we can get more
into your views on inflation and what we're seeing with
the labor market too.

Speaker 15 (52:21):
Sure, and thank you for having me again on the program.
Definitely lots of media attention around the potential government shutdown.
We've seen this spike in energy prices for the food
and especially beverage and chocolate companies, rises in sugar and cocoa.

(52:44):
On the other hand, things like lumber have come way down.
And of course we always have economic releases coming this week,
a PCE might be the biggest one for the week.

Speaker 3 (52:55):
What would you trade on right now? What are the
data points. What are the trend lines that you feel
confident enough to trade on.

Speaker 15 (53:03):
Well, we're our focus is really on the long term.
We look to take it.

Speaker 3 (53:09):
Sometimes really smart short term decisions lead to longer term payoffs.

Speaker 2 (53:13):
So help me out here.

Speaker 15 (53:15):
This is true, and you're exactly right. You do get
big moves in stocks based on some of these moves.
We had some of the real estate investment trusts dropped
last week on W. P. Kerrey's announcement and others, and
maybe that's an opportunity on a short term basis. We're
not very good at catching falling knives, but we certainly

(53:35):
pay attention, and if the fundamentals are not dramatically different
than that is something that we could be attracted to.

Speaker 4 (53:42):
Is the S and P five hundred of falling knife
right now?

Speaker 15 (53:45):
I don't think so at all.

Speaker 4 (53:47):
Well, do you think we're going to have lower to go?
I mean we're trading at forty three twenty eight right now,
just up eight points, but still down four percent so
far this month. More declines ahead.

Speaker 13 (53:58):
Correct.

Speaker 15 (53:59):
The seasonal definitely are playing a factor, I think, or
kind of tracking the playbook where August was down, September's
down so far, I think the seasonals do lesson as
we move through the end of the year. I know
some have called for forty two hundred on the S
and P. You know, we don't make market predictions on levels,

(54:21):
but that's what we've heard and seen, is that's a
level that some may be looking at.

Speaker 3 (54:26):
Hey, Greg, you know, relationships between indices or assets can
kind of sometimes give us an indication of where things
are going. When you look at something like the Russell
two thousand, which measures, of course small cap performance, we're
down more than ten percent from the end of July
from a recent high. There small caps can be very
interesting and predictive in terms of maybe the US economy

(54:49):
and where we go. What does that ten percent decline?

Speaker 2 (54:52):
Maybe say to.

Speaker 15 (54:53):
You, well, there's been a huge amount of interest in
the megacap and I think those have really helped hold
up the market. There's so many cross currents these days
with the algorithmic trading that it's hard to tell what's
really going on behind the scenes in terms of the fundamentals. Yes,

(55:16):
down ten percent, That does that mean that these businesses
are really down ten percent in terms of revenues or earnings?
If anything, they've become more on the value side of things,
you know, if you're willing to step in there.

Speaker 4 (55:32):
Hey, Greg, where's fixed income playing a role right now
in your portfolio? Is a big theme of the year
has been Okay, finally we're starting to save, you know,
savers not being punished.

Speaker 15 (55:41):
Anymore, exactly correct. We have made a big movement in
our portfolios to go from the zero point three percent
we were getting in some of the products of the
custodians and so forth, into money market mutual funds, where
we're getting anywhere from five to five and a half

(56:01):
percent on a risk free basis. So in terms of
client portfolios, that's a huge boost to their incomes.

Speaker 4 (56:09):
Why money markets instead of say, you know, the two
year or you know, the shorter end of the yield curve.

Speaker 2 (56:17):
Five years, four point six.

Speaker 15 (56:18):
Yeah, we're not strictly on money markets per se. I mean,
we have looked at our bond portfolio probably from a
two to three year perspective. In terms of maturities, we
are looking to extended duration when we think the last
FED rate hike is upon us. We don't think it's

(56:39):
there yet, but we do have a mix of bonds,
individual bonds and money market funds. Again, money market funds
can really change and yield very quickly versus a fixed
product for two, three, four or five years.

Speaker 3 (56:53):
I mean, what do you believe is the biggest risk
to the investment environment right now?

Speaker 15 (57:01):
My guess is it would be something that comes from
left field, the so called black swan event. Of course,
no one ever knows what those are until they happen.
You know, if we had the government shutdown lasts for
more than a couple of weeks, that would be a problem.
If oil continues to go higher, that could be a

(57:22):
potential problem as well. Again, a lot of times these
things happen and you don't really see them coming.

Speaker 4 (57:29):
Is there anything else that you know, you've listed those
events twice at this point throughout the interview, or is
there anything else on your horizon that could that could
kind of push us off course here?

Speaker 15 (57:39):
Well, the student loan repayments definitely are an issue so far,
the payments that come in better than anticipated or more
than anticipated. But what does that do to consumer spending?
Certainly on the discretionary side and maybe even on the
staple side. We've seen some of the food companies even
get hurt because they're doubts whether or not they can

(58:01):
push price increases through again.

Speaker 4 (58:03):
Well, Jeffreys downgraded Nike along with a couple other companies
or have been Outfitters and full Lucker as well today
as a result of a survey that they did carol
about people who have student loan payments being uncomfortable about
making sure they're making their budget.

Speaker 2 (58:17):
I think this can be one to watch.

Speaker 3 (58:18):
I mean we just talked about, right the FEDS survey
of household savings and those in the middle class and
certainly at the lower end of the income spectrum. I mean,
they are everybody's down from where we were right post
pandemic with all of the government programs that help beef
up balance sheets. But it's a very different story, and
people don't have the amount of money that they used

(58:40):
to be able to spend.

Speaker 2 (58:41):
Yeah, it's going to impact things. Greg, Thank you so much.

Speaker 3 (58:44):
Greg Halter, director of Research at the registered investment advisor
Carnegie Investment Council. Joining us on zoom in Cleveland, Ohio.

Speaker 1 (58:51):
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