September 27, 2023 • 44 mins
Peter Atwater, President of Financial Insyghts, discusses the outlook for earnings and the impact of a possible government shutdown on the business sector. Erik Wasson joins to discuss the latest on a potential shutdown. Steve Case, Chairman and CEO at Revolution, discusses his book Rise of the Rest: How Entrepreneurs in Surprising Places are Building the New American Dream. Paul Hsu, CEO at Decasonic, talks about the mainstream adoption of web3. And we Drive to the Close with Stephanie Pierce, CEO of Dreyfus, Mellon and ETFs at BNY Mellon.
Hosts: Carol Massar and Tim Stenovec Producer: Paul Brennan
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Episode Transcript
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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):
Peter Atwater, he's adjunct professor of economics at William and Mary,
but before that worked in at financial services and with
hedge funds. You might recall it he coined Carol, the
term K shape recovery.
Speaker 3 (00:29):
Yeah, he did.
Speaker 4 (00:30):
Indeed, he was recently on to talk about his new book,
The Confidence Map, which came out in July. So delighted
to have you back. How are you. I'm doing great here. Well,
it's great to have you here. How are you thinking
about kind of the things that are coming at investors
right now and just the world at large.
Speaker 5 (00:45):
Well, you know, there's a lot coming at investors. But
what's been so striking to me about the past couple
of weeks is the absence of emotion. We've watched the
sell off in bonds, we've watched the sell off in stocks,
we've watched oil prices rise, and there's this remarkable at
ease that investors seem to have even though markets have
(01:08):
gotten over sold or in the case of oil, over blought,
and it's really inconsistent to me with what prices would suggest.
So I'm perplexed that people are taking all of this
as commonly as they are, particularly because it wasn't, you know,
six months ago interest rates were at this level and
people were panicking about the banks, and it's a big
(01:31):
gone today.
Speaker 2 (01:32):
So what do you attribute that to.
Speaker 5 (01:35):
I'm a little worried about real complacence behavior on the
part of investors, because there's there's no sense of that
things could get worse, whether in terms of the economy
itself or you know, higher interest rates or inflation. There's
(01:56):
almost this sense of, Okay, this is what it is.
Until the economy gives us signals that it's weakening, or
until the consumer rolls over, we're going to count on
some sort of miraculous landing of this.
Speaker 2 (02:13):
One thing that Caroly and I talked about this week
was the depletion that we're seeing when it comes to
the cash savings of Americans right Castle Bales, Castle balance sheets.
I mean, pretty much everyone except the top twenty percent
has run out of that excess cash savings that they
had yeah, during the pandemic and post pandemic.
Speaker 5 (02:29):
I worry about those at the low end where the
cash ran out a long time ago. I think it's
interesting that folks are only taking note of it now,
But for those at the bottom, this is a phenomenon
that's now more than a year old, and so you're
starting to see that roll into delinquency rates, particularly in
(02:49):
automobile loans and credit card loans, and the automobile loan
one worries me because, particularly for low income individuals, the
car is the job, yeah, and they don't have the
flexibility of work from home that many above do.
Speaker 4 (03:05):
Peter, what do you make of we were just talking
about with Romain and Katie on our TV side about
the ghost jobs that will never be filled. Do you
are you comfortable with some of the data points that
are out there, including the labor statistics here in the
United States?
Speaker 5 (03:17):
You know, I'm comfortable with the statistics. But what is
clear even with these statistics is that jobs are not
equating to confidence, and that you've seen no material improvement
in mood even though jobs have come back and people
are working more. And so I think we do ourselves
(03:42):
a disservice to think that having a job is going
to boost confidence.
Speaker 4 (03:46):
I think it's funny because I think Tim and I
talk a lot about like the things that we're paying
for in life right now, whether it's homes or rates on.
You know, buying a home.
Speaker 2 (03:57):
Right in assurance is super expensive now cool.
Speaker 4 (04:00):
Everything seems super expensive right now. Yeah, and then we
have jobs and we feel pretty commion This.
Speaker 5 (04:05):
Is these are the things that are at the low
end of the hierarchy of need. So we're not talking
about luxury goods where you can do with or without.
We're talking about essentials, and so that creates this sense
of vulnerability where people feel hostage to either the price
scarcity or the supply scarcy or the demand scarcity.
Speaker 2 (04:25):
Everything you're talking about we could have talked about six
months ago. We could have talked about in January before
the run up of close to twenty percent on the
S and P five hundred this year, which by the way,
has now been pretty much cut in half at this point. So, Peter,
what were people ignoring and what does it portend for
the future.
Speaker 5 (04:42):
So if I look at the markets over the last
six months, I think the indices are masking what's really
going on, which is this enormous stratification where the low
end russells small cap stocks or barely I don't know
this afternoon, if they're.
Speaker 4 (05:00):
Up for the years talk about all the time they
talk about the small shops.
Speaker 5 (05:03):
So for me, and this is an indication of declining
confidence and declining success for small businesses. And so I
worry that investors, by pouring money into the thoroughbreds, into
the Amazon and Apple and Google and Microsoft, are being
(05:24):
misled by the fact that things are troublesome below the
surface the other four hundred and ninety five companies.
Speaker 4 (05:32):
The other thing I guess I would go to is
that when we talk about rates and we constantly keep going, well,
you know, highest rates as seven or eight time, and
that time really felt like the bottom was going to
come out from under us. It doesn't necessarily feel like
that time today that bad. But then again, is it
because we're not necessarily really reading what's going on?
Speaker 5 (05:53):
Are we missing things?
Speaker 6 (05:54):
Yeah?
Speaker 5 (05:55):
And I think we're still in this unwind from negative
interest rates two years ago, and so we tend to
look at it on an absolute basis. But it's going
to be interesting to see how balanced investors feel when
they get their statements at the end of the quarter,
where both their stock portfolios.
Speaker 2 (06:16):
I was going to say, a lot of people don't
wait to get the statements. They you know, log in
when they see red.
Speaker 4 (06:21):
I check periodically, but you're right, it's like a reality
check of like, it's again a reminder not everything goes up,
but when we do go like, is there something though
significant when we do make those references back to two
thousand and seven, two thousand and eight, which was such
a significant time in this country as well as certainly
within the financial market universe, is it are we setting
(06:44):
up for a period another period that's as rough as
some of the stuff we went through there in terms
of the markets.
Speaker 5 (06:50):
So I think what's been so interesting in the past
two years is we're seeing a concurrent unwind of extreme
sentiment in both stocks and bonds. The trade isn't risk
on versus risk off, it's risk one versus risk out,
and you're seeing that in the growth in money market funds,
(07:11):
where money is leaving the market outright, and that's a
trend we need to keep a lot of attention on
because you know, seven oh eight, other than a few
weeks there was this rotation into bonds out of stocks,
and that we're not seeing that, even though yields are
(07:33):
significantly higher than they were recent one.
Speaker 2 (07:35):
So where's the money going.
Speaker 5 (07:36):
It's going into money market funds.
Speaker 2 (07:37):
Over five percent in a money market fund and you
just said it there until you know you're earning.
Speaker 5 (07:42):
More than ten year yields today. I mean, so it's
it's a really it's cash has become a viable alternative.
And as I said, with stocks and bonds moving down
in price together that it could start to feed upon it.
Speaker 4 (07:58):
Well state that way.
Speaker 5 (08:01):
Who knows, who knows.
Speaker 2 (08:04):
But I mean at a certain point, bonds are going
to become attractive to some of these people, right.
Speaker 5 (08:08):
So that's the question. If bonds were a bubble, if
negative interest rates were a sign of extreme sentiment, then
we're likely to see that rising rates. Falling prices don't
draw a crowd. That we've seen everybody who is going
(08:31):
to buy a bond did, and much as you see
when stock market bubbles, unwined, lower price doesn't draw anybody.
You get the occasional bounces, but it's a perpetual unwinding machine.
Speaker 4 (08:44):
Is it safe to say we've got about forty five
seconds and you're going to come back and stay with us,
and we're going to talk some more. But is it
safe to say, and I think you mentioned this earlier,
we've never come out of a pandemic, We've never come
out of a time period like this. We don't really
ultimately know how it all settles. We don't.
Speaker 5 (09:00):
But let me create a bull case here. You talk
out of both sides of my mouth. On Economis's we
talked about all this cash going into all the money
going into money markets, that then becomes a potential source
for further enthusiasm. If sentiment were to bottom.
Speaker 4 (09:21):
The cash on the side of cash on the.
Speaker 5 (09:23):
Sideline, and there's a lot of it, I mean, there's
an enormous amount of cash sitting there, and so you
could have this powerful reversal where the crowd says that
was it, that was as bad as it got, and
we're back to the races.
Speaker 2 (09:38):
I mean, if you're saying that, like the S and
P five hundred, at forty five hundred, you were regretting
not putting some money in. Now it's at forty two
hundred and you're like, Okay, maybe it's time, or there
could be further to go.
Speaker 5 (09:47):
Well, and I can create a bull scenario, which is
if the dollar is then going to fall, you start
to see a declining dollar. That's a huge tailwind for
these megacaps.
Speaker 4 (09:59):
With US as News Congressional reporter Eric Watson on the
phone at the Capitol in Washington, DC, still with US,
Peter Atwater as a professor of economics at William and
Mary and author of the Confidence Matt and Eric, I
want to start with you give us some color about
what are you hearing. What's the environment in and around
the Capitol as we count down to that possible shutdown.
Speaker 6 (10:19):
Well, you know, I think really the focus is on
the House, where even longtime Republican aids and operators are saying,
it's just a chaos. They haven't seen anything like it.
It's just an inability really of the House Republicans to
come together on even an offer. You know, they've proposed
a stop gap spending bill of between thirty one days
or forty five days, try to attach that to some
border security position provisions that make the President come to
(10:42):
terms on a border deal. But they can't even really
get the votes to pass that, So they're not even
off of first base here, and meanwhile, the Senate's moving
forward with his bipartisan deal. You know, it's about six
billion dollars in Ukraine aid six billions for disaster fund
the government for forty seven days. Now, you know, if
the Senate passes that, which it likely could do by Sunday,
(11:04):
a government shutdown had already started. But there'd be a
lot of pressure on McCarthy to bring that up, but
he told his conference he's not going to bring that
up today, and so we're really heading to a shutdown.
Speaker 2 (11:14):
Eric, you've seen this play out before, So just give
us an idea of if the government does shut down,
or maybe we say, at this point when the government
does shut down, help us by looking into your crystal
ball and giving us an idea of when things open
up back open up again.
Speaker 6 (11:28):
Well, one intriguing possibility is that House Moderates conducted rebellion,
put a couple of tours in the Boomberg about that.
They have some procedural mechanisms once called the discharge petition,
where they could within about nine legislative days, force a
vote against speakers wishes on that Senate bill or on
their own rival plan, which would actually extend government counting
to January eleventh, you know, to be viewed as a
(11:48):
betrayal of the party. But they are arguing, well, be
a lot of the Conservatives that vote against the warty
speaker candidate and vote against House rules and other things,
so they've also shown disloyalty. You know. Mike Lawler of
New York, one of the moderate Biden district Republicans beating
that effort. He can probably bring along five other New
York Republicans to help him, and that's all it's really
(12:09):
needed to trigger this process. So it could be as
little as nine days. There are ways the Speaker could
try to support that, you know. On the other hand,
I could see a resolution quicker. It just really depends
on really on these moderates and whether the Speaker ultimately decides,
you know, just the shut does it's not worth the pain,
worth risking the House. He could face emotion now as
to him at that point to be up to Democrats
(12:31):
whether they bail him out. You know, there's probably enough
conservatives that he would you know, be able to be
oust and without democratic help.
Speaker 4 (12:39):
The political process. As we said earlier when we began
talking with Peter Atwater at the top of the broadcast. Peter,
one of the things that's on the minds of investors
is his potential for a government shut down. There is
potentially an impact when you don't have government programs, the
expenditures going out, you don't have employees being paid. There's
an impact. I mean, how do you think about it?
(13:00):
I think about William and Marry. They spend a lot
of time in terms of policy and the connection of
policy and economic impacts.
Speaker 6 (13:05):
Yeah.
Speaker 5 (13:06):
So I often say that policy makers follow mood, and
this is policy makers in me here now mode. The
only thing they care about is their individual survival. And
with mood falling is indicated by the markets, that's going
to make getting a resolution together very difficult until there
(13:28):
is ultimately capitulation where some group is led to believe
that they're vulnerable in this process. And what we see
today is a lot of between the gerrymandering and the
heavy one statedness that we have in terms of political alignment,
(13:50):
that vulnerability is not showing up anywhere anytime soon.
Speaker 2 (13:55):
So, Peter, your book is called the Confidence Map, Charting
a Path from Chaos to Clarity. House is a word
I think a lot of people would associate with what's
going on, at least in Washington right now. Eric, you
might agree or disagree. I don't know. Do Americans still
look for confidence in the government or if we kind
of said, you know what, it's not happening.
Speaker 5 (14:15):
The bond market would say they don't. I mean that
the markets yawn over what's happening in Washington is remarkable
to me. But that is the nature of the investing
crowd to do.
Speaker 2 (14:29):
But is it yawning because they know it's going to
get resolved and it's happened before.
Speaker 1 (14:33):
Yeah, yeah, I.
Speaker 5 (14:33):
Think we're numb to it. But therein lies the danger
that that belief that ultimately Congress comes to its senses
is based on the past and the environment. The mood environment,
at least right now, suggests that that may not be
the best assumption.
Speaker 4 (14:52):
Eric, come on back in here, because I do it
was interesting what Peter said, Like, I do think that
there is such a big yawn. I think if I
brought this up with a lot of my family members,
they'd be like, yeah, okay, tell me something I care about.
But I do wonder Eric, in terms of do members
of Congress are they getting calls from their constituents. I mean,
I'm sure, corporate folks might be if they're not going
to get some kind of you know, government contract payout
(15:14):
or something. But I just wonder, do lawmakers here from
the voting members of the US.
Speaker 6 (15:20):
Well, you know, some of them say that they aren't
hearing some of them say they are. But I would say,
we have a couple of really good things in the
terminal right now. One is a great story which talks
about which lawmakers have the most federal workers in their district,
and one of them is Matt Gates is leading that
the government shutdown charge. He has the third most number
of federal workers in his district. So you know, these
(15:41):
are people who are not necessarily acting in the interests
of their constituents. I'd also point out another story I
wrote on the terminal, which is about the economic impact.
You know, we discovered big of the Bloomberg government data
at one point nine billion dollars per day and lost
their delayed revenue to federal contractors, and that is going
to You're going to see service contractors laid off and
(16:02):
never get back pay. You're going to see production lines disrupted.
And who we talked to in that story, basically, you know,
they said you know, this is the time with high inflation,
high interest rates, You're going to see a cash flow
crunch on these small contractors. You're going to see some
companies even go bailly up in a six to seven
week shutdown. So, you know, I think the longer it
goes on, the longer the clamor the bigger the pain.
(16:23):
As your guests said, you know, and someone's going to
have to capitulate.
Speaker 4 (16:27):
Eric, you know that is such a really good point.
I mean, Peter, I do think about that. Smaller companies, man,
they live I feel like from money into money out,
like they just live from day to day in terms
of their you know, financial books, if you will. I mean,
that is a possible cost to all of this.
Speaker 5 (16:42):
Yeah, And I think it's yet another moment where those
on the left and the right fail to appreciate the
vulnerability of those at the bottom and business and individually
and ultimately the potential that those at the bottom say
enough of both left and right.
Speaker 2 (17:04):
What happens when or if that happens?
Speaker 1 (17:06):
Peter.
Speaker 5 (17:06):
So, I think you start to see grassroots movements where
you see pockets of both red and blue individuals and
businesses that below ends say we've had enough.
Speaker 4 (17:22):
I feel like you need to occupy Wall Street or
occupy corporate America, you know.
Speaker 2 (17:27):
But I mean maybe that was the Tea Party, or
maybe it was the rise of Trump in twenty sixteen.
Speaker 5 (17:31):
But I think that and Eric may want to weigh
in on this, is that the environment today is uniting, well,
uniting everybody goes with similar vulnerabilities.
Speaker 3 (17:47):
Well, Eric, we've.
Speaker 4 (17:48):
Got only about twenty five seconds. What do you say
to that about unifying people?
Speaker 6 (17:52):
Well, I think one of the interesting things is how
split America is. You've got almost a fifty to fifty country.
And that's why the House is the margin is so small,
and that's what's really causing the problem here is that
you McCarthy's majority. If he had twenty seat majority, this
would be the issue we're seeing today. The fact is
he's only was four and this is a very small
number five to seven who are basically saying, you know,
(18:13):
we won't vote for this starting position CR. So I
think that's that's an element of it to the small
House majority, right, and you know, his personal skills Nancy
Pelosi had a small majority to get more through. You know,
he just isn't able to get those last couple of votes.
Speaker 1 (18:26):
That he needs.
Speaker 4 (18:27):
Eric Watson, we know you're busy. Thank you so much,
Congression reporter at Bloomberg News, Peter Atwater, President of Financial Insights,
and check out his book, of course, The Confidence Map.
Thank you so much.
Speaker 1 (18:35):
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 4 (18:49):
D Cass chairman and CEO at his investment firm Revolution,
co founder of course of AOL which at its peak
nearly half of Internet users in the US used AOL,
so really.
Speaker 7 (18:59):
Just a game.
Speaker 4 (19:00):
And he's back with us on zoom from Washington, DC. Steve,
it is great to have you back here with Tim
and myself on Bloomberg Business Week. You know, it's been
a year since you published Rise of the Rest How
entrepreneurs and surprising places are building the New American Dream.
It's now out in paperback. How is the entrepreneurial spirit
and the American dream doing in your view in the
(19:21):
pursuit of it?
Speaker 8 (19:22):
Well, I think entrepreneurship continues to be alive, and well.
And the message of the Rise of the Rest book
is it just isn't alive and well just in places
like Silicon Valley, it's placed all around the country. They're
developing a strong startup ecosystems. And that's helpful because entrepreneurs
who historically would would have to feel like they left
and leave where they were from to go to the
coast to be part of the innovation of come and
(19:43):
now can stay and build and scale there and great
jobs there. So it's been great to see the momentum
over the last decade since we started Rise of the
Rest the pandemic, it's certainly been an accelerant, almost a
tipping point in terms of more people decided to move
other places. So it's seen a dispersion of talent and
the spurs of capital and a lot of great ideas
that are really kind of reimagining healthcare and food and
(20:04):
agriculture and financial services and transportation and education, some of
the most important aspects of our lives and some of
the biggest industries are really up for grabs in this
next next phase.
Speaker 2 (20:14):
Rise of the Rest is the name of the book,
it's the name of the seed fund as well. Steve,
What about rise of the rates that we've seen over
this year to what extent is that hurting the startups
that you talk to when you interact.
Speaker 8 (20:25):
With well, certainly when rates are higher, you know there's
a little bit of a pullback in terms of the
stock market valuations, as we've seen, and they're therefore a
pullback in terms of particularly the late stage private market valuations,
the pre IPO valuations. So we've seen that dynamic or
the last eighteen months or so, which frankly I think
is healthy and not all that unexpected a couple of
(20:46):
years ago. Things we're getting a little frothy in that
later stage and so we're seeing a correction at the
growth stage of the market. On the earlier seed side,
it's not quite the same impact. And particularly in these
rises of the rest cities. The valuation of the seed
investments we've done with our rides the Rest Fund, and
so far we've done two hundred over two hundred investments
in one hundred different cities. Valuations tend to be about
(21:08):
half of what the valuations are for comparable companies at
the seed stage. In places like Silicon Valley, it's a
classics supply and demand so much capitals focused on venture capital,
focused on Silicon Valley, not enough on other parts of
the country, So that dynamics still creates a great opportunity
for investors who are willing to do the extra work
to identify promising entrepreneurs tackling big industries in dozens of
(21:33):
cities all around the country.
Speaker 4 (21:34):
Well, and that's a really good point that you talked
about all the innovation that's going on in other cities
beyond Silicon Valley. Having said that, the collapse of Silicon
Valley Bank and the fallout, what did you see as
a result of that in terms of the work that
you're doing in the investments that you're doing or none.
Speaker 8 (21:49):
Mean, it was a problem, no question. Even though it's
called Silicon Valley Bank or SVB, actually banked startups all
over the country, not just in Silicon Valley, and about
half of the startups and about half of the venture
firms in America or back by banked by SVB. So
it's been very unhelpful. A number of firms are trying
to fill the void and offer different products and services
(22:12):
to both the venture funds and to the entrepreneurs, but
it's certainly been a negative this year.
Speaker 4 (22:18):
Hey, one thing we really wanted to ask you and
was about what's going on in terms of regulation. We've
been talking a lot about the FTC suit against Amazon,
right anti trust case. We've all been kind of waiting
for this, and the accusations are that Amazon is monopolizing
the online marketplace services by degrading quality for shoppers and
overcharging sellers. How do you think about this.
Speaker 8 (22:42):
Well, I haven't read the actual case obviously, as you said,
it's been expected for some time. The FTC has gotten
more aggressive on big tech.
Speaker 1 (22:49):
And that good.
Speaker 4 (22:50):
Is that good that they've got.
Speaker 8 (22:51):
Big more, more more scrutiny of big tech and it
gets healthy. My focus is, as you know, is around
the new companies, the entrepreneurs, the insurgents that want to
take on some of the bigger incumbents, and making sure
that there's an environment that allows innovation to floorish entrepreneurs
to be successful, including in areas of e commerce. Or
have a similar case with with Google on some issues
(23:13):
related to the search. I think that scrutiny is appropriate.
Exactly what happens in each court case obviously needs to
kind of just you know, have to see how it
plays out. But I think it is important that we
make sure we're airing on the site as a nation
of making sure entrepreneurship can flourish everywhere. And you know,
big tech doesn't just get bigger, including by the way,
with AI. One of the one of the big debates
here in Washington around AI as it gets more attention,
(23:36):
is is it going to end up being a few
big companies getting even bigger or is it going to
be a broader, more dispersed innovation ecosystem a little bit
more on the open source side. And so I will
see how that plays out over the coming year. But
the Internet is not so important. Technology so important. Every
industry really is now tech enabled. Every company really is
in some ways a tech company. It's not at all
surprising that there's more anti trust scrutiny.
Speaker 2 (23:58):
Did it never feel like to you that AO, well,
in your days of founding and running AOL was so
big that it could have faced more anti trust scrutiny.
Speaker 8 (24:07):
No, we actually did, and some of the News Corp
And others at one point, you know, filed suits saying
AOL had too much control of the Internet. And even
when we merged with Time Warner, the Microsoft at and
t others were trying to block the deal with that
you know, that argument, and so in that particular case,
obviously I hate to say it, but for a whole
host of reasons, AOL failed by the wayside, new entrants
(24:28):
including you know, Google and Facebook and others kind of felt,
you know, took over. And it's because those news companies
were able to start, They were able to raise the
venture capital or were not barriers to entry to allow
them to start. So that's the philosophy we need going forward.
Celebrate the successes we have in our country, including some
of these great companies Amazon and Google and so many
many others, but how do we make sure we're also
(24:50):
creating environments so more of those companies can be the
big companies of tomorrow, not just on the coast, not
just in Silicon Valley, but all over the country, which
obviously why I wrote the book Prize of the Rest.
Speaker 2 (25:01):
So how do we do that? Though, I mean, we
spoke to Diana Henriquez last week, who you know, compared
the power companies of the nineteen twenties and nineteen thirties
and the regulation of the power companies to the tech companies.
The huge tech giants today, and she says government needs
to get involved with them. What does the government need
to do in order to ensure that the rest can rise?
Speaker 8 (25:21):
Well, I'm marketing, I'm coach sharing the National Advisory Council
on Innovation and Entrepreneurship here here in Washington, and we're
working on a National Entrepreneurship Strategy which we'll be releasing
later this year. And there's a number of facets to it.
Some relate to the talent, including immigration policy. Some relate
to access to capital, including some of the work around
prize of the rest. Some of it relates to making
(25:43):
sure you know, there's continued investment in regional hubs. Congress
passed the Chips and Science Act a couple of years
ago and authorized ten billion dollars for regional hubs, with
its only so far appropriated five hundred million dollars of it.
Someone's making sure America continues to invest in the R
and D, the technologies of the future to create the
industries of the future. So there's many facets to it,
but the overarching theme I think is how do you
(26:06):
make sure this next generational entrepreneurs can start and scale
and do it anywhere in the country, not just a
few big companies being able to innovate, or only people
in a few places like silicate values. So it's trying
to create a more inclusive innovation economy has to be
a key part of the answer, Steve.
Speaker 4 (26:21):
We're often so critical of other countries and their supportive industries.
I'm thinking about China specifically, But you know, we are
increasingly seeing the US, whether it's in the semiconductor space,
whether it's in the EV or the energy transition support
industries here in the United States. Should we especially when
it comes to some of the more newer innovative areas.
Speaker 8 (26:40):
Yes, and again there's sort of this long debate about
industrial policy, long debate about how much of a role
should government play. But the reality is the Internet wouldn't
exist if the government hadn't funded you know, DARPA research
agency a half a century ago and then open it up,
commercialized access to the Internet, and broken up the phone company,
so the costs of communications, you know, came down. There
are a number of decisions that really unleashed the Internet.
(27:03):
So having that government role, I think is important that
we the innovators need to respect the role of policy makers.
I actually think in the next decade. The two mega
themes are going to be place and policy that we're
focused here at revolution around place, particularly Rise the Rest.
We think a lot of the big companies that tomorrow
will have a policy aspect to them because of the
nature of the industries up for grabs, and because Congress
(27:26):
has passed legislation about three trillion dollars of legislation, the
Chips and Science Act, the Inflation Reduction Act, the Bipartisan
Infrastructure Bill that's going to really invest in these industries
in a big way and create opportunities for investors as
well as ensuring that America has the right infrastructure, has
the right technologies to continue to be the most innovative
entrepreneurtion in the world.
Speaker 4 (27:45):
Got to say, Steve, every time you're on you just
leave us wanting more, So come back soon and good
luck with the paper book, a paperback version, I should say,
Rise of the Rest.
Speaker 8 (27:53):
How entrepreneur, thank you?
Speaker 4 (27:54):
Okay, be well, How entrepreneurs and surprising places are building
the new American dream.
Speaker 1 (27:59):
Of course, Steve Case, you're listening to the Bloomberg Business
Week podcast. Catch us live weekday afternoons from three to
six Eastern on Bloomberg Radio, the Bloomberg Business app and YouTube.
You can also listen live on Amazon Alexa from our
flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
Speaker 4 (28:20):
Paul Sews is with us. He's founder and CEO at Dekasonic.
It's firm then invest in and advisors around NFTs, cryptocurrencies,
blockchain infrastructure, the metaversity, centralized finance, and more so, it's
really kind of on it when it comes to I
feel like innovation in a big way. In other words,
the world of what's become known to many as Web three.
Speaker 1 (28:39):
Yeah.
Speaker 2 (28:40):
Paul joins us on Zoom in Chicago this afternoon. Paul,
give us your reaction to facebooker keep calling it Facebook, Carol, Yeah,
stop that platforms.
Speaker 7 (28:48):
Today, Tim, Carrol, thanks for having me again. Very excited
to be here and talking about meta. Certainly, their announcements
to tape points to what early stage vcs are investing
in this intersection of technologies. It's where two or more
disruptive technologies converge, in this case AI and mixed reality
(29:13):
chatbots from Tom Brady with their Quest Pro three launch
that's upcoming, it's generating a lot of consumer excitement. We
see this in history on how Apple also innovated on smartphones,
intersecting cell your voice with consumer mobile data.
Speaker 4 (29:33):
So I mean, I keep trying to figure out, like
I get it to some extent, but I do try
to figure out, like, how does this really move the needle?
Akin to the Internet, which really did move the needle,
and how we do so much in our world. It's
kind of amazing, right, how ubiquitous it is to a
kind of almost everything we do, whether it's at work,
(29:54):
at play, have you? Is that how we need to
be thinking about the impact of chatbots and generative AI.
Speaker 7 (30:04):
Ubiquity and the Internet that happened overnight. I think it
took about fifteen twenty years to really go mainstream, and
we're seeing Facebook and Meta also make these long term
investments on an immersive experience. Apple has their Vision Pro
launch upcoming as well. It's much more expensive than Meta,
(30:25):
and so they believe Meta believes that with the deflation
in device costs, this will accelerate mainstream adoption.
Speaker 2 (30:33):
You know one thing that I wonder though, and we
were just talking to Steve Case, founder of AOL, who
knows a thing or two about starting companies and building
them all about this because he's got his the paperback
out of his new book that he wrote last year.
Are is the environment conducive to startups actually winning in
(30:57):
this day and age? I mean, look at this. You have,
you know, well companies out there that are doing really
cool stuff in Web three and AI in the metaverse.
But you know Facebook is doing its developers conference today
and sucking a lot of the air out of the room.
Speaker 7 (31:12):
The only data point I could sure is we're seeing
success in our portfolio companies that are winning. They are
taking this approach of the intersection of these technologies. It's
not so obvious for a large company to be pursuing
blockchain and AI convergence, metaverse and Web three intersection, metaverse
and blockchain intersection, mobile and Web three intersection. But we
(31:36):
are seeing pockets as an early stage investor, that success
and trajectory upwards of one hundred million dollars in revenues.
And that might not move the dial for a multi
trillion dollar company, but it's certainly very interesting for early
stage vcs.
Speaker 4 (31:51):
Where are you seeing or where are you investing the
most in? Is it NFTs? Is it crypto generally speaking? Blockchain?
Is it the metaverse? Is it centralized finance, Give us
a little bit more specificity in terms of your interest
and really the investment interest right now where you want to.
Speaker 7 (32:06):
Commit Dekasnic is a fun focus on the mainstream adoption
of blockchain, Web three and metaverse. A lot of those
use cases are non financial use cases and it does
bring in global brands with their global communities around digital collectibles.
(32:27):
We are seeing a lot of customer heat in this area,
a lot of interest and a lot of revenues starting
to scale in these non financial use cases like what
for example, in our portfolio company, we have Spaceport. They
(32:48):
are working at the intersection of metaverse and blockchain. Spaceport
is accelerating deals with creators in blockchain verified royalties very
timely as the writer strike focuses on AI and creation.
Mobile and web three is another intersection. Paragon provides a
mobile first way to experience digital collectibles collectibles like the
(33:12):
Starbucks Odyssey program. This is very important as gen Z
prefers mobile access to their crypto assets. Yeah, and lastly,
where we have an investment in Marariri, they have a
tokenized network to deliver mixed reality experiences. This is the
intersection of Metaverse and Web three very important as uh.
(33:35):
You know, the VR goggles require high fidelity experiences, so
they will work with Disney and vision Pro and Meta
around these goggles.
Speaker 2 (33:44):
I gotta tell you this stuff still seems so niche
to me. It's not like we're all running around wearing
these goggles. It's uh, when does it become mainstream?
Speaker 1 (33:54):
Today?
Speaker 7 (33:54):
A lot of goggles are gaming focused. Meta also announced
smart sunglasses today and that might have a higher adoption
rate initially. You know, Crypto today is roughly fifty two
million Americans, A lot of them seventy five percent of
them make less than one hundred k a year. Right,
this is data from Coinbase.
Speaker 2 (34:16):
I do want to bring up an article that our
own Alex Brinka wrote earlier today. Snap is set to
shutter it's business focused AR unit that was just launched
this year. So what you know Facebook and Slash Meta
Platforms is doing. Snap is saying, okay, we're not longer doing.
Speaker 4 (34:28):
That augmented reality.
Speaker 7 (34:30):
Yeah. I think Snap has a great camera experience and
they've certainly scaled AI chatbots that has influenced Facebook to
get into this area.
Speaker 2 (34:42):
Well this, I'm sorry, Tim, I was just gonna say,
this is the areas unit short for augmented Reality for
Enterprise services. It was just announced back in March.
Speaker 4 (34:49):
So I wonder too, Paul, the news from Meta today,
does that we just got about twenty five seconds left here?
Does that somehow make you say, oh, wait, maybe we
should be also doing this because of what Meta said today.
Speaker 7 (35:01):
Just very quickly, very quickly, we will assess the news
and look at some of the gaming companies that might
be optimized for the Quest Pro three. This was Mark's
focus of his demos today, and there will be new
gameplay focused on you know, Xbox and Meta integration.
Speaker 4 (35:22):
All right, Well, good to check in with you on
a day where we've had some news and you certainly
have some overview insight into all of it. Paul, of course,
founder and CEO at Dekasonic, joining us on zoom in Chicago,
Carol Master, Tim Stenevic, and this is Bloomberg.
Speaker 7 (35:39):
Marco Journal. Now about you.
Speaker 1 (35:43):
Let me drive, no, no, no, honey, please, I.
Speaker 3 (35:51):
Want to try.
Speaker 6 (35:51):
It's a good question.
Speaker 1 (35:55):
Good, good drive, good clothes to me. Well b on
on Bloomberg Radio.
Speaker 4 (36:05):
All right, you know it's going to drive you crazy,
Tim Stenebek.
Speaker 2 (36:07):
This market environment, Yeah, This is enough to drive crazy.
Speaker 4 (36:11):
Poor Tim. Like, we're getting ready for our simulcast with
our TV colleagues and we have to have you know,
decliners and gainers.
Speaker 2 (36:17):
You know, we're organized. We get this stuff done before
the show. We're like, you know, what's down three percent,
that's not going to change.
Speaker 4 (36:23):
Yes, it is on a daylight today. Thanks Meta platform
definitely an I know we are kind of rolling over again.
Speaker 8 (36:31):
Yeah, it's done, all right, so let's get to it.
Speaker 4 (36:33):
Our drive to the close guest to light it up.
Back with us, Stephanie Pierce, she's CEO of Dreyfus Melon
and Exchange traded funds at B and Y Melan Investment Management.
As we said, back with us, joining us on zoom
in New York City. Stephanie, how are you, Carol.
Speaker 3 (36:45):
It's so great to see you. Hello, Tim, Carol it's here.
Speaker 4 (36:49):
It's great to have you back with us. It is
kind of another wacky trading day, and we, you know,
talk about the concerns coming at investors, whether it's the
possibility of a government shutdown here in the US, US,
the UAW strike going on longer, you know, the worries
over this higher rate environment. It feels like investors aren't
quite sure what to do. How do you kind of
(37:11):
think about what are the important macro trends to pay
attention to?
Speaker 9 (37:16):
Well, As you know, Carol, we sit here in our
short end of the curve world where we talk about
a lot of really interesting things in that space, you know,
from a macro perspective. As you know, we are surrounded
by smart people in terms of our economists and our
portfolio managers, and we actually think cash is a pretty
good place to be right now. We're certainly in this
I would call it, you know, higher for longer environment
(37:37):
than people thought a few months ago.
Speaker 3 (37:39):
There's probably one more high ahead of us.
Speaker 9 (37:40):
And at some point here we want to start positioning
and hedging portfolios for lower rates. But we're not quite
there yet, right and so you know that's certainly something
we're guiding investors to think about. Now is the time
to start extending duration. Of course, we in cash land,
you know, extending duration means about a year for us,
but certainly feeling really good about cash as a very
attractive investment, giving other asset classes a run for its money,
(38:02):
so to speak.
Speaker 1 (38:02):
We know.
Speaker 2 (38:03):
The thing is, I was saying this earlier to Peter Attwater.
I mean, we've been in an environment where all your
cash has looked like a pretty good investment, but you
missed out on a run up of close to twenty
percent in the S and P five founder that since
given back quite a bit of those gains. How do
you know when the right time is to get back
in even if cash continues to be attractive.
Speaker 3 (38:20):
Now, it's a very very good point.
Speaker 9 (38:21):
One of the things that we advise when we think
about clients that we work with across our ecosystem at
the YMEL and we have a wealth management business, we
have pershing, we have our very large investment management business.
So from a fiduciary perspective, you know, timing the market
is always a challenge, right, we know we all know
the statistics about how well that works out.
Speaker 3 (38:38):
So generally we advise.
Speaker 9 (38:40):
Clients to stay with strategic allocation in that account. Allocation
in many cases includes cash. So that's the way we
think about it.
Speaker 4 (38:47):
And you're lodging some new funds tell us about that.
Speaker 3 (38:50):
Well. I have to say today is a sparkly day
for me.
Speaker 9 (38:53):
Yesterday we launched the Dreyfust Spark Shares, which are a
new share class of our largest flagship government cash fund.
And even though you know we talk about cash as
being not that exciting, we think, as Carol, we've talked
about it before. Cash is not only interesting and I'll use
the word sexy from a yield perspective. But what we're
doing with this fund and this shareclass we're really excited about.
Speaker 3 (39:13):
So the sparkshares enable our.
Speaker 9 (39:15):
Institutional clients to basically give back, do well, and do good,
so they get the same yield as they get on
the full fall and same liquidity all of that. But
we are actually taking ten percent of the net revenues
on this new share class that we earn as a
company and contributing that to the charity of the client's choice.
So we get to sit on the same side of
the table with clients and help them think about how
(39:37):
they can make their cash work harder by putting that
money in a place that really matters to the hearts
and the minds of their employees, their board, or their stakeholders.
Speaker 3 (39:44):
So we're really excited.
Speaker 4 (39:45):
That is so interesting. Why why do that and why
do that?
Speaker 3 (39:49):
Now?
Speaker 4 (39:50):
I mean, forgive me good thing, no doubt about it.
I'd love to see things like that. But you know
what I'm asking, why do that? And why do that now?
Has there been demand? Why?
Speaker 3 (39:59):
Yeah, absolutely so, Carol.
Speaker 9 (40:00):
About a year and a half ago, as you may recall,
we launched a share class that we called BOLD, also
a dedicated share class off our largest fund and that
stood for Block Opportunity for Learning and Development. That share
class now stands at about fourteen billion or so, having
launched it with five hundred million. And so what we
found through that is that is a share class that
(40:21):
really is dedicated to helping fund students in need at
Howard University by you know, basically filling that gap when
they run out of money junior year and have to
drop out.
Speaker 3 (40:30):
And it's been very successful.
Speaker 9 (40:32):
Our clients have loved it, but many of them said
to us, you know, there's something in my community.
Speaker 3 (40:36):
There's a place where my employees volunteer.
Speaker 9 (40:38):
There's something we give to as a company that's near
and dear to my heart, in my backyard that I
would love.
Speaker 3 (40:43):
To give to. So if there's a way for you
to facilitate that, please call me.
Speaker 9 (40:47):
So we spent a few months, a couple quarters thinking
about it, and that's exactly what we're doing. We launched
with a billion dollars two days ago. We're really excited
and or yesterday sorry, and you know, clients have been
really interesting, did so you know, really what we're doing
is allowing them to what we call spark change or
enable change in their own communities.
Speaker 2 (41:06):
Is there any sort of tax benefit to you guys
for doing something like this?
Speaker 9 (41:11):
You know, we're really not doing it for the tax benefit,
but you know when clients ask us, gee, do I
get the tax benit? Of course we are making the donation,
so that would not accrue to the investor. It would
accrue you know, I supposed to to us in some way,
but that's not really the goal of it, right The
goal is to really make an impact, and that's exactly
what we're doing.
Speaker 4 (41:30):
Hey, listen, Steffanie, what can you tell us though about
just overall trend flows, like where the money is flowing in,
where the money is flowing at right now?
Speaker 9 (41:39):
Absolutely so, if you look at the just the space
we've been talking about in cash, we have clearly seen
you know, as I said, many investors, both retail and institutional,
looking at this is actually an attractive place to put money,
just simply given the five plus percent yields. You know,
of course, we are seeing, as you referenced earlier, people
(42:00):
be much more comfortable as we think about the economy
potentially heading for a soft landing rather than maybe a
more concerning one as we talked about a few months ago,
and as that rhetoric has improved from the FED and
then the market as a whole with the data that
we've seen, certainly investors are starting to extend out, not
only in terms of duration and fixed income or money markets,
but also in overall portfolios from a risk perspective, So
(42:21):
we are seeing some re risking in the overall environment
fund investors right now in addition to this continued attractive
attractiveness of cash.
Speaker 4 (42:29):
Wait, we're risking, so taking risk off or adding risk on.
Speaker 9 (42:33):
Now, I think feeling more comfortable that the market is
starting to behave in a manner that recognizes we're probably
heading for a little bit of a softer landing than
what was expected previously. So that's really what we're seeing
is and that's just being a little more comfortable with
the markets here.
Speaker 2 (42:47):
What does the rest of the year look like? Help us,
help us, you know, get some clarity. We're very we're
very confused here.
Speaker 9 (42:53):
We sure, let me put on my guests, let me
pull out my tarot cards. So for the rest of
the year, clearly, you know, as we've seen the FED
you know, was on pause this month, no surprise we
could do to see firmer data. So we do expect
that this sort of market pricing in about fifty to
fifty chance of another rate is probably going to happen.
And that's you know, continue to see the rhetoric that
(43:14):
that that's the case. And then as you kind of
round the corner into the end of the year, the
expectation is that, you know, markets will start to position.
Certainly in our markets, we're starting to position for you know,
hedging against lower rates at some point in the middle
part of next year.
Speaker 3 (43:27):
But again generally we don't think that will.
Speaker 9 (43:29):
Be an aggressive path downward as was previously you know,
expected or hope for. We think it'll be more moderate
and again higher for longer. So against that backdrop again,
soft landing is certainly where I think the rhetoric has gone,
and that's really what we're positioning for as well in
our portfolios.
Speaker 4 (43:43):
Are you buying the rhetoric just ten seconds, yes.
Speaker 9 (43:47):
Generally yes, Again, we look at what markets are pricing
in you know, our goal is the y.
Speaker 4 (43:52):
Lets you go okay listen, Always fun and always delighted
to see you. Stephanie Pearce of Dreyfus, Mellon and ATF
Funds at be in Mind.
Speaker 1 (44:00):
This is the Bloomberg Business Week Podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live weekday
afternoons from three to six Eastern on Bloomberg dot com,
the iHeartRadio app, tune In, and the Bloomberg Business App.
You can also watch us live every weekday on YouTube
and always on the Bloomberg Jerminal
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):
Peter Atwater, he's adjunct professor of economics at William and Mary,
but before that worked in at financial services and with
hedge funds. You might recall it he coined Carol, the
term K shape recovery.
Speaker 3 (00:29):
Yeah, he did.
Speaker 4 (00:30):
Indeed, he was recently on to talk about his new book,
The Confidence Map, which came out in July. So delighted
to have you back. How are you. I'm doing great here. Well,
it's great to have you here. How are you thinking
about kind of the things that are coming at investors
right now and just the world at large.
Speaker 5 (00:45):
Well, you know, there's a lot coming at investors. But
what's been so striking to me about the past couple
of weeks is the absence of emotion. We've watched the
sell off in bonds, we've watched the sell off in stocks,
we've watched oil prices rise, and there's this remarkable at
ease that investors seem to have even though markets have
(01:08):
gotten over sold or in the case of oil, over blought,
and it's really inconsistent to me with what prices would suggest.
So I'm perplexed that people are taking all of this
as commonly as they are, particularly because it wasn't, you know,
six months ago interest rates were at this level and
people were panicking about the banks, and it's a big
(01:31):
gone today.
Speaker 2 (01:32):
So what do you attribute that to.
Speaker 5 (01:35):
I'm a little worried about real complacence behavior on the
part of investors, because there's there's no sense of that
things could get worse, whether in terms of the economy
itself or you know, higher interest rates or inflation. There's
(01:56):
almost this sense of, Okay, this is what it is.
Until the economy gives us signals that it's weakening, or
until the consumer rolls over, we're going to count on
some sort of miraculous landing of this.
Speaker 2 (02:13):
One thing that Caroly and I talked about this week
was the depletion that we're seeing when it comes to
the cash savings of Americans right Castle Bales, Castle balance sheets.
I mean, pretty much everyone except the top twenty percent
has run out of that excess cash savings that they
had yeah, during the pandemic and post pandemic.
Speaker 5 (02:29):
I worry about those at the low end where the
cash ran out a long time ago. I think it's
interesting that folks are only taking note of it now,
But for those at the bottom, this is a phenomenon
that's now more than a year old, and so you're
starting to see that roll into delinquency rates, particularly in
(02:49):
automobile loans and credit card loans, and the automobile loan
one worries me because, particularly for low income individuals, the
car is the job, yeah, and they don't have the
flexibility of work from home that many above do.
Speaker 4 (03:05):
Peter, what do you make of we were just talking
about with Romain and Katie on our TV side about
the ghost jobs that will never be filled. Do you
are you comfortable with some of the data points that
are out there, including the labor statistics here in the
United States?
Speaker 5 (03:17):
You know, I'm comfortable with the statistics. But what is
clear even with these statistics is that jobs are not
equating to confidence, and that you've seen no material improvement
in mood even though jobs have come back and people
are working more. And so I think we do ourselves
(03:42):
a disservice to think that having a job is going
to boost confidence.
Speaker 4 (03:46):
I think it's funny because I think Tim and I
talk a lot about like the things that we're paying
for in life right now, whether it's homes or rates on.
You know, buying a home.
Speaker 2 (03:57):
Right in assurance is super expensive now cool.
Speaker 4 (04:00):
Everything seems super expensive right now. Yeah, and then we
have jobs and we feel pretty commion This.
Speaker 5 (04:05):
Is these are the things that are at the low
end of the hierarchy of need. So we're not talking
about luxury goods where you can do with or without.
We're talking about essentials, and so that creates this sense
of vulnerability where people feel hostage to either the price
scarcity or the supply scarcy or the demand scarcity.
Speaker 2 (04:25):
Everything you're talking about we could have talked about six
months ago. We could have talked about in January before
the run up of close to twenty percent on the
S and P five hundred this year, which by the way,
has now been pretty much cut in half at this point. So, Peter,
what were people ignoring and what does it portend for
the future.
Speaker 5 (04:42):
So if I look at the markets over the last
six months, I think the indices are masking what's really
going on, which is this enormous stratification where the low
end russells small cap stocks or barely I don't know
this afternoon, if they're.
Speaker 4 (05:00):
Up for the years talk about all the time they
talk about the small shops.
Speaker 5 (05:03):
So for me, and this is an indication of declining
confidence and declining success for small businesses. And so I
worry that investors, by pouring money into the thoroughbreds, into
the Amazon and Apple and Google and Microsoft, are being
(05:24):
misled by the fact that things are troublesome below the
surface the other four hundred and ninety five companies.
Speaker 4 (05:32):
The other thing I guess I would go to is
that when we talk about rates and we constantly keep going, well,
you know, highest rates as seven or eight time, and
that time really felt like the bottom was going to
come out from under us. It doesn't necessarily feel like
that time today that bad. But then again, is it
because we're not necessarily really reading what's going on?
Speaker 5 (05:53):
Are we missing things?
Speaker 6 (05:54):
Yeah?
Speaker 5 (05:55):
And I think we're still in this unwind from negative
interest rates two years ago, and so we tend to
look at it on an absolute basis. But it's going
to be interesting to see how balanced investors feel when
they get their statements at the end of the quarter,
where both their stock portfolios.
Speaker 2 (06:16):
I was going to say, a lot of people don't
wait to get the statements. They you know, log in
when they see red.
Speaker 4 (06:21):
I check periodically, but you're right, it's like a reality
check of like, it's again a reminder not everything goes up,
but when we do go like, is there something though
significant when we do make those references back to two
thousand and seven, two thousand and eight, which was such
a significant time in this country as well as certainly
within the financial market universe, is it are we setting
(06:44):
up for a period another period that's as rough as
some of the stuff we went through there in terms
of the markets.
Speaker 5 (06:50):
So I think what's been so interesting in the past
two years is we're seeing a concurrent unwind of extreme
sentiment in both stocks and bonds. The trade isn't risk
on versus risk off, it's risk one versus risk out,
and you're seeing that in the growth in money market funds,
(07:11):
where money is leaving the market outright, and that's a
trend we need to keep a lot of attention on
because you know, seven oh eight, other than a few
weeks there was this rotation into bonds out of stocks,
and that we're not seeing that, even though yields are
(07:33):
significantly higher than they were recent one.
Speaker 2 (07:35):
So where's the money going.
Speaker 5 (07:36):
It's going into money market funds.
Speaker 2 (07:37):
Over five percent in a money market fund and you
just said it there until you know you're earning.
Speaker 5 (07:42):
More than ten year yields today. I mean, so it's
it's a really it's cash has become a viable alternative.
And as I said, with stocks and bonds moving down
in price together that it could start to feed upon it.
Speaker 4 (07:58):
Well state that way.
Speaker 5 (08:01):
Who knows, who knows.
Speaker 2 (08:04):
But I mean at a certain point, bonds are going
to become attractive to some of these people, right.
Speaker 5 (08:08):
So that's the question. If bonds were a bubble, if
negative interest rates were a sign of extreme sentiment, then
we're likely to see that rising rates. Falling prices don't
draw a crowd. That we've seen everybody who is going
(08:31):
to buy a bond did, and much as you see
when stock market bubbles, unwined, lower price doesn't draw anybody.
You get the occasional bounces, but it's a perpetual unwinding machine.
Speaker 4 (08:44):
Is it safe to say we've got about forty five
seconds and you're going to come back and stay with us,
and we're going to talk some more. But is it
safe to say, and I think you mentioned this earlier,
we've never come out of a pandemic, We've never come
out of a time period like this. We don't really
ultimately know how it all settles. We don't.
Speaker 5 (09:00):
But let me create a bull case here. You talk
out of both sides of my mouth. On Economis's we
talked about all this cash going into all the money
going into money markets, that then becomes a potential source
for further enthusiasm. If sentiment were to bottom.
Speaker 4 (09:21):
The cash on the side of cash on the.
Speaker 5 (09:23):
Sideline, and there's a lot of it, I mean, there's
an enormous amount of cash sitting there, and so you
could have this powerful reversal where the crowd says that
was it, that was as bad as it got, and
we're back to the races.
Speaker 2 (09:38):
I mean, if you're saying that, like the S and
P five hundred, at forty five hundred, you were regretting
not putting some money in. Now it's at forty two
hundred and you're like, Okay, maybe it's time, or there
could be further to go.
Speaker 5 (09:47):
Well, and I can create a bull scenario, which is
if the dollar is then going to fall, you start
to see a declining dollar. That's a huge tailwind for
these megacaps.
Speaker 4 (09:59):
With US as News Congressional reporter Eric Watson on the
phone at the Capitol in Washington, DC, still with US,
Peter Atwater as a professor of economics at William and
Mary and author of the Confidence Matt and Eric, I
want to start with you give us some color about
what are you hearing. What's the environment in and around
the Capitol as we count down to that possible shutdown.
Speaker 6 (10:19):
Well, you know, I think really the focus is on
the House, where even longtime Republican aids and operators are saying,
it's just a chaos. They haven't seen anything like it.
It's just an inability really of the House Republicans to
come together on even an offer. You know, they've proposed
a stop gap spending bill of between thirty one days
or forty five days, try to attach that to some
border security position provisions that make the President come to
(10:42):
terms on a border deal. But they can't even really
get the votes to pass that, So they're not even
off of first base here, and meanwhile, the Senate's moving
forward with his bipartisan deal. You know, it's about six
billion dollars in Ukraine aid six billions for disaster fund
the government for forty seven days. Now, you know, if
the Senate passes that, which it likely could do by Sunday,
(11:04):
a government shutdown had already started. But there'd be a
lot of pressure on McCarthy to bring that up, but
he told his conference he's not going to bring that
up today, and so we're really heading to a shutdown.
Speaker 2 (11:14):
Eric, you've seen this play out before, So just give
us an idea of if the government does shut down,
or maybe we say, at this point when the government
does shut down, help us by looking into your crystal
ball and giving us an idea of when things open
up back open up again.
Speaker 6 (11:28):
Well, one intriguing possibility is that House Moderates conducted rebellion,
put a couple of tours in the Boomberg about that.
They have some procedural mechanisms once called the discharge petition,
where they could within about nine legislative days, force a
vote against speakers wishes on that Senate bill or on
their own rival plan, which would actually extend government counting
to January eleventh, you know, to be viewed as a
(11:48):
betrayal of the party. But they are arguing, well, be
a lot of the Conservatives that vote against the warty
speaker candidate and vote against House rules and other things,
so they've also shown disloyalty. You know. Mike Lawler of
New York, one of the moderate Biden district Republicans beating
that effort. He can probably bring along five other New
York Republicans to help him, and that's all it's really
(12:09):
needed to trigger this process. So it could be as
little as nine days. There are ways the Speaker could
try to support that, you know. On the other hand,
I could see a resolution quicker. It just really depends
on really on these moderates and whether the Speaker ultimately decides,
you know, just the shut does it's not worth the pain,
worth risking the House. He could face emotion now as
to him at that point to be up to Democrats
(12:31):
whether they bail him out. You know, there's probably enough
conservatives that he would you know, be able to be
oust and without democratic help.
Speaker 4 (12:39):
The political process. As we said earlier when we began
talking with Peter Atwater at the top of the broadcast. Peter,
one of the things that's on the minds of investors
is his potential for a government shut down. There is
potentially an impact when you don't have government programs, the
expenditures going out, you don't have employees being paid. There's
an impact. I mean, how do you think about it?
(13:00):
I think about William and Marry. They spend a lot
of time in terms of policy and the connection of
policy and economic impacts.
Speaker 6 (13:05):
Yeah.
Speaker 5 (13:06):
So I often say that policy makers follow mood, and
this is policy makers in me here now mode. The
only thing they care about is their individual survival. And
with mood falling is indicated by the markets, that's going
to make getting a resolution together very difficult until there
(13:28):
is ultimately capitulation where some group is led to believe
that they're vulnerable in this process. And what we see
today is a lot of between the gerrymandering and the
heavy one statedness that we have in terms of political alignment,
(13:50):
that vulnerability is not showing up anywhere anytime soon.
Speaker 2 (13:55):
So, Peter, your book is called the Confidence Map, Charting
a Path from Chaos to Clarity. House is a word
I think a lot of people would associate with what's
going on, at least in Washington right now. Eric, you
might agree or disagree. I don't know. Do Americans still
look for confidence in the government or if we kind
of said, you know what, it's not happening.
Speaker 5 (14:15):
The bond market would say they don't. I mean that
the markets yawn over what's happening in Washington is remarkable
to me. But that is the nature of the investing
crowd to do.
Speaker 2 (14:29):
But is it yawning because they know it's going to
get resolved and it's happened before.
Speaker 1 (14:33):
Yeah, yeah, I.
Speaker 5 (14:33):
Think we're numb to it. But therein lies the danger
that that belief that ultimately Congress comes to its senses
is based on the past and the environment. The mood environment,
at least right now, suggests that that may not be
the best assumption.
Speaker 4 (14:52):
Eric, come on back in here, because I do it
was interesting what Peter said, Like, I do think that
there is such a big yawn. I think if I
brought this up with a lot of my family members,
they'd be like, yeah, okay, tell me something I care about.
But I do wonder Eric, in terms of do members
of Congress are they getting calls from their constituents. I mean,
I'm sure, corporate folks might be if they're not going
to get some kind of you know, government contract payout
(15:14):
or something. But I just wonder, do lawmakers here from
the voting members of the US.
Speaker 6 (15:20):
Well, you know, some of them say that they aren't
hearing some of them say they are. But I would say,
we have a couple of really good things in the
terminal right now. One is a great story which talks
about which lawmakers have the most federal workers in their district,
and one of them is Matt Gates is leading that
the government shutdown charge. He has the third most number
of federal workers in his district. So you know, these
(15:41):
are people who are not necessarily acting in the interests
of their constituents. I'd also point out another story I
wrote on the terminal, which is about the economic impact.
You know, we discovered big of the Bloomberg government data
at one point nine billion dollars per day and lost
their delayed revenue to federal contractors, and that is going
to You're going to see service contractors laid off and
(16:02):
never get back pay. You're going to see production lines disrupted.
And who we talked to in that story, basically, you know,
they said you know, this is the time with high inflation,
high interest rates, You're going to see a cash flow
crunch on these small contractors. You're going to see some
companies even go bailly up in a six to seven
week shutdown. So, you know, I think the longer it
goes on, the longer the clamor the bigger the pain.
(16:23):
As your guests said, you know, and someone's going to
have to capitulate.
Speaker 4 (16:27):
Eric, you know that is such a really good point.
I mean, Peter, I do think about that. Smaller companies, man,
they live I feel like from money into money out,
like they just live from day to day in terms
of their you know, financial books, if you will. I mean,
that is a possible cost to all of this.
Speaker 5 (16:42):
Yeah, And I think it's yet another moment where those
on the left and the right fail to appreciate the
vulnerability of those at the bottom and business and individually
and ultimately the potential that those at the bottom say
enough of both left and right.
Speaker 2 (17:04):
What happens when or if that happens?
Speaker 1 (17:06):
Peter.
Speaker 5 (17:06):
So, I think you start to see grassroots movements where
you see pockets of both red and blue individuals and
businesses that below ends say we've had enough.
Speaker 4 (17:22):
I feel like you need to occupy Wall Street or
occupy corporate America, you know.
Speaker 2 (17:27):
But I mean maybe that was the Tea Party, or
maybe it was the rise of Trump in twenty sixteen.
Speaker 5 (17:31):
But I think that and Eric may want to weigh
in on this, is that the environment today is uniting, well,
uniting everybody goes with similar vulnerabilities.
Speaker 3 (17:47):
Well, Eric, we've.
Speaker 4 (17:48):
Got only about twenty five seconds. What do you say
to that about unifying people?
Speaker 6 (17:52):
Well, I think one of the interesting things is how
split America is. You've got almost a fifty to fifty country.
And that's why the House is the margin is so small,
and that's what's really causing the problem here is that
you McCarthy's majority. If he had twenty seat majority, this
would be the issue we're seeing today. The fact is
he's only was four and this is a very small
number five to seven who are basically saying, you know,
(18:13):
we won't vote for this starting position CR. So I
think that's that's an element of it to the small
House majority, right, and you know, his personal skills Nancy
Pelosi had a small majority to get more through. You know,
he just isn't able to get those last couple of votes.
Speaker 1 (18:26):
That he needs.
Speaker 4 (18:27):
Eric Watson, we know you're busy. Thank you so much,
Congression reporter at Bloomberg News, Peter Atwater, President of Financial Insights,
and check out his book, of course, The Confidence Map.
Thank you so much.
Speaker 1 (18:35):
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 4 (18:49):
D Cass chairman and CEO at his investment firm Revolution,
co founder of course of AOL which at its peak
nearly half of Internet users in the US used AOL,
so really.
Speaker 7 (18:59):
Just a game.
Speaker 4 (19:00):
And he's back with us on zoom from Washington, DC. Steve,
it is great to have you back here with Tim
and myself on Bloomberg Business Week. You know, it's been
a year since you published Rise of the Rest How
entrepreneurs and surprising places are building the New American Dream.
It's now out in paperback. How is the entrepreneurial spirit
and the American dream doing in your view in the
(19:21):
pursuit of it?
Speaker 8 (19:22):
Well, I think entrepreneurship continues to be alive, and well.
And the message of the Rise of the Rest book
is it just isn't alive and well just in places
like Silicon Valley, it's placed all around the country. They're
developing a strong startup ecosystems. And that's helpful because entrepreneurs
who historically would would have to feel like they left
and leave where they were from to go to the
coast to be part of the innovation of come and
(19:43):
now can stay and build and scale there and great
jobs there. So it's been great to see the momentum
over the last decade since we started Rise of the
Rest the pandemic, it's certainly been an accelerant, almost a
tipping point in terms of more people decided to move
other places. So it's seen a dispersion of talent and
the spurs of capital and a lot of great ideas
that are really kind of reimagining healthcare and food and
(20:04):
agriculture and financial services and transportation and education, some of
the most important aspects of our lives and some of
the biggest industries are really up for grabs in this
next next phase.
Speaker 2 (20:14):
Rise of the Rest is the name of the book,
it's the name of the seed fund as well. Steve,
What about rise of the rates that we've seen over
this year to what extent is that hurting the startups
that you talk to when you interact.
Speaker 8 (20:25):
With well, certainly when rates are higher, you know there's
a little bit of a pullback in terms of the
stock market valuations, as we've seen, and they're therefore a
pullback in terms of particularly the late stage private market valuations,
the pre IPO valuations. So we've seen that dynamic or
the last eighteen months or so, which frankly I think
is healthy and not all that unexpected a couple of
(20:46):
years ago. Things we're getting a little frothy in that
later stage and so we're seeing a correction at the
growth stage of the market. On the earlier seed side,
it's not quite the same impact. And particularly in these
rises of the rest cities. The valuation of the seed
investments we've done with our rides the Rest Fund, and
so far we've done two hundred over two hundred investments
in one hundred different cities. Valuations tend to be about
(21:08):
half of what the valuations are for comparable companies at
the seed stage. In places like Silicon Valley, it's a
classics supply and demand so much capitals focused on venture capital,
focused on Silicon Valley, not enough on other parts of
the country, So that dynamics still creates a great opportunity
for investors who are willing to do the extra work
to identify promising entrepreneurs tackling big industries in dozens of
(21:33):
cities all around the country.
Speaker 4 (21:34):
Well, and that's a really good point that you talked
about all the innovation that's going on in other cities
beyond Silicon Valley. Having said that, the collapse of Silicon
Valley Bank and the fallout, what did you see as
a result of that in terms of the work that
you're doing in the investments that you're doing or none.
Speaker 8 (21:49):
Mean, it was a problem, no question. Even though it's
called Silicon Valley Bank or SVB, actually banked startups all
over the country, not just in Silicon Valley, and about
half of the startups and about half of the venture
firms in America or back by banked by SVB. So
it's been very unhelpful. A number of firms are trying
to fill the void and offer different products and services
(22:12):
to both the venture funds and to the entrepreneurs, but
it's certainly been a negative this year.
Speaker 4 (22:18):
Hey, one thing we really wanted to ask you and
was about what's going on in terms of regulation. We've
been talking a lot about the FTC suit against Amazon,
right anti trust case. We've all been kind of waiting
for this, and the accusations are that Amazon is monopolizing
the online marketplace services by degrading quality for shoppers and
overcharging sellers. How do you think about this.
Speaker 8 (22:42):
Well, I haven't read the actual case obviously, as you said,
it's been expected for some time. The FTC has gotten
more aggressive on big tech.
Speaker 1 (22:49):
And that good.
Speaker 4 (22:50):
Is that good that they've got.
Speaker 8 (22:51):
Big more, more more scrutiny of big tech and it
gets healthy. My focus is, as you know, is around
the new companies, the entrepreneurs, the insurgents that want to
take on some of the bigger incumbents, and making sure
that there's an environment that allows innovation to floorish entrepreneurs
to be successful, including in areas of e commerce. Or
have a similar case with with Google on some issues
(23:13):
related to the search. I think that scrutiny is appropriate.
Exactly what happens in each court case obviously needs to
kind of just you know, have to see how it
plays out. But I think it is important that we
make sure we're airing on the site as a nation
of making sure entrepreneurship can flourish everywhere. And you know,
big tech doesn't just get bigger, including by the way,
with AI. One of the one of the big debates
here in Washington around AI as it gets more attention,
(23:36):
is is it going to end up being a few
big companies getting even bigger or is it going to
be a broader, more dispersed innovation ecosystem a little bit
more on the open source side. And so I will
see how that plays out over the coming year. But
the Internet is not so important. Technology so important. Every
industry really is now tech enabled. Every company really is
in some ways a tech company. It's not at all
surprising that there's more anti trust scrutiny.
Speaker 2 (23:58):
Did it never feel like to you that AO, well,
in your days of founding and running AOL was so
big that it could have faced more anti trust scrutiny.
Speaker 8 (24:07):
No, we actually did, and some of the News Corp
And others at one point, you know, filed suits saying
AOL had too much control of the Internet. And even
when we merged with Time Warner, the Microsoft at and
t others were trying to block the deal with that
you know, that argument, and so in that particular case,
obviously I hate to say it, but for a whole
host of reasons, AOL failed by the wayside, new entrants
(24:28):
including you know, Google and Facebook and others kind of felt,
you know, took over. And it's because those news companies
were able to start, They were able to raise the
venture capital or were not barriers to entry to allow
them to start. So that's the philosophy we need going forward.
Celebrate the successes we have in our country, including some
of these great companies Amazon and Google and so many
many others, but how do we make sure we're also
(24:50):
creating environments so more of those companies can be the
big companies of tomorrow, not just on the coast, not
just in Silicon Valley, but all over the country, which
obviously why I wrote the book Prize of the Rest.
Speaker 2 (25:01):
So how do we do that? Though, I mean, we
spoke to Diana Henriquez last week, who you know, compared
the power companies of the nineteen twenties and nineteen thirties
and the regulation of the power companies to the tech companies.
The huge tech giants today, and she says government needs
to get involved with them. What does the government need
to do in order to ensure that the rest can rise?
Speaker 8 (25:21):
Well, I'm marketing, I'm coach sharing the National Advisory Council
on Innovation and Entrepreneurship here here in Washington, and we're
working on a National Entrepreneurship Strategy which we'll be releasing
later this year. And there's a number of facets to it.
Some relate to the talent, including immigration policy. Some relate
to access to capital, including some of the work around
prize of the rest. Some of it relates to making
(25:43):
sure you know, there's continued investment in regional hubs. Congress
passed the Chips and Science Act a couple of years
ago and authorized ten billion dollars for regional hubs, with
its only so far appropriated five hundred million dollars of it.
Someone's making sure America continues to invest in the R
and D, the technologies of the future to create the
industries of the future. So there's many facets to it,
but the overarching theme I think is how do you
(26:06):
make sure this next generational entrepreneurs can start and scale
and do it anywhere in the country, not just a
few big companies being able to innovate, or only people
in a few places like silicate values. So it's trying
to create a more inclusive innovation economy has to be
a key part of the answer, Steve.
Speaker 4 (26:21):
We're often so critical of other countries and their supportive industries.
I'm thinking about China specifically, But you know, we are
increasingly seeing the US, whether it's in the semiconductor space,
whether it's in the EV or the energy transition support
industries here in the United States. Should we especially when
it comes to some of the more newer innovative areas.
Speaker 8 (26:40):
Yes, and again there's sort of this long debate about
industrial policy, long debate about how much of a role
should government play. But the reality is the Internet wouldn't
exist if the government hadn't funded you know, DARPA research
agency a half a century ago and then open it up,
commercialized access to the Internet, and broken up the phone company,
so the costs of communications, you know, came down. There
are a number of decisions that really unleashed the Internet.
(27:03):
So having that government role, I think is important that
we the innovators need to respect the role of policy makers.
I actually think in the next decade. The two mega
themes are going to be place and policy that we're
focused here at revolution around place, particularly Rise the Rest.
We think a lot of the big companies that tomorrow
will have a policy aspect to them because of the
nature of the industries up for grabs, and because Congress
(27:26):
has passed legislation about three trillion dollars of legislation, the
Chips and Science Act, the Inflation Reduction Act, the Bipartisan
Infrastructure Bill that's going to really invest in these industries
in a big way and create opportunities for investors as
well as ensuring that America has the right infrastructure, has
the right technologies to continue to be the most innovative
entrepreneurtion in the world.
Speaker 4 (27:45):
Got to say, Steve, every time you're on you just
leave us wanting more, So come back soon and good
luck with the paper book, a paperback version, I should say,
Rise of the Rest.
Speaker 8 (27:53):
How entrepreneur, thank you?
Speaker 4 (27:54):
Okay, be well, How entrepreneurs and surprising places are building
the new American dream.
Speaker 1 (27:59):
Of course, Steve Case, you're listening to the Bloomberg Business
Week podcast. Catch us live weekday afternoons from three to
six Eastern on Bloomberg Radio, the Bloomberg Business app and YouTube.
You can also listen live on Amazon Alexa from our
flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
Speaker 4 (28:20):
Paul Sews is with us. He's founder and CEO at Dekasonic.
It's firm then invest in and advisors around NFTs, cryptocurrencies,
blockchain infrastructure, the metaversity, centralized finance, and more so, it's
really kind of on it when it comes to I
feel like innovation in a big way. In other words,
the world of what's become known to many as Web three.
Speaker 1 (28:39):
Yeah.
Speaker 2 (28:40):
Paul joins us on Zoom in Chicago this afternoon. Paul,
give us your reaction to facebooker keep calling it Facebook, Carol, Yeah,
stop that platforms.
Speaker 7 (28:48):
Today, Tim, Carrol, thanks for having me again. Very excited
to be here and talking about meta. Certainly, their announcements
to tape points to what early stage vcs are investing
in this intersection of technologies. It's where two or more
disruptive technologies converge, in this case AI and mixed reality
(29:13):
chatbots from Tom Brady with their Quest Pro three launch
that's upcoming, it's generating a lot of consumer excitement. We
see this in history on how Apple also innovated on smartphones,
intersecting cell your voice with consumer mobile data.
Speaker 4 (29:33):
So I mean, I keep trying to figure out, like
I get it to some extent, but I do try
to figure out, like, how does this really move the needle?
Akin to the Internet, which really did move the needle,
and how we do so much in our world. It's
kind of amazing, right, how ubiquitous it is to a
kind of almost everything we do, whether it's at work,
(29:54):
at play, have you? Is that how we need to
be thinking about the impact of chatbots and generative AI.
Speaker 7 (30:04):
Ubiquity and the Internet that happened overnight. I think it
took about fifteen twenty years to really go mainstream, and
we're seeing Facebook and Meta also make these long term
investments on an immersive experience. Apple has their Vision Pro
launch upcoming as well. It's much more expensive than Meta,
(30:25):
and so they believe Meta believes that with the deflation
in device costs, this will accelerate mainstream adoption.
Speaker 2 (30:33):
You know one thing that I wonder though, and we
were just talking to Steve Case, founder of AOL, who
knows a thing or two about starting companies and building
them all about this because he's got his the paperback
out of his new book that he wrote last year.
Are is the environment conducive to startups actually winning in
(30:57):
this day and age? I mean, look at this. You have,
you know, well companies out there that are doing really
cool stuff in Web three and AI in the metaverse.
But you know Facebook is doing its developers conference today
and sucking a lot of the air out of the room.
Speaker 7 (31:12):
The only data point I could sure is we're seeing
success in our portfolio companies that are winning. They are
taking this approach of the intersection of these technologies. It's
not so obvious for a large company to be pursuing
blockchain and AI convergence, metaverse and Web three intersection, metaverse
and blockchain intersection, mobile and Web three intersection. But we
(31:36):
are seeing pockets as an early stage investor, that success
and trajectory upwards of one hundred million dollars in revenues.
And that might not move the dial for a multi
trillion dollar company, but it's certainly very interesting for early
stage vcs.
Speaker 4 (31:51):
Where are you seeing or where are you investing the
most in? Is it NFTs? Is it crypto generally speaking? Blockchain?
Is it the metaverse? Is it centralized finance, Give us
a little bit more specificity in terms of your interest
and really the investment interest right now where you want to.
Speaker 7 (32:06):
Commit Dekasnic is a fun focus on the mainstream adoption
of blockchain, Web three and metaverse. A lot of those
use cases are non financial use cases and it does
bring in global brands with their global communities around digital collectibles.
(32:27):
We are seeing a lot of customer heat in this area,
a lot of interest and a lot of revenues starting
to scale in these non financial use cases like what
for example, in our portfolio company, we have Spaceport. They
(32:48):
are working at the intersection of metaverse and blockchain. Spaceport
is accelerating deals with creators in blockchain verified royalties very
timely as the writer strike focuses on AI and creation.
Mobile and web three is another intersection. Paragon provides a
mobile first way to experience digital collectibles collectibles like the
(33:12):
Starbucks Odyssey program. This is very important as gen Z
prefers mobile access to their crypto assets. Yeah, and lastly,
where we have an investment in Marariri, they have a
tokenized network to deliver mixed reality experiences. This is the
intersection of Metaverse and Web three very important as uh.
(33:35):
You know, the VR goggles require high fidelity experiences, so
they will work with Disney and vision Pro and Meta
around these goggles.
Speaker 2 (33:44):
I gotta tell you this stuff still seems so niche
to me. It's not like we're all running around wearing
these goggles. It's uh, when does it become mainstream?
Speaker 1 (33:54):
Today?
Speaker 7 (33:54):
A lot of goggles are gaming focused. Meta also announced
smart sunglasses today and that might have a higher adoption
rate initially. You know, Crypto today is roughly fifty two
million Americans, A lot of them seventy five percent of
them make less than one hundred k a year. Right,
this is data from Coinbase.
Speaker 2 (34:16):
I do want to bring up an article that our
own Alex Brinka wrote earlier today. Snap is set to
shutter it's business focused AR unit that was just launched
this year. So what you know Facebook and Slash Meta
Platforms is doing. Snap is saying, okay, we're not longer doing.
Speaker 4 (34:28):
That augmented reality.
Speaker 7 (34:30):
Yeah. I think Snap has a great camera experience and
they've certainly scaled AI chatbots that has influenced Facebook to
get into this area.
Speaker 2 (34:42):
Well this, I'm sorry, Tim, I was just gonna say,
this is the areas unit short for augmented Reality for
Enterprise services. It was just announced back in March.
Speaker 4 (34:49):
So I wonder too, Paul, the news from Meta today,
does that we just got about twenty five seconds left here?
Does that somehow make you say, oh, wait, maybe we
should be also doing this because of what Meta said today.
Speaker 7 (35:01):
Just very quickly, very quickly, we will assess the news
and look at some of the gaming companies that might
be optimized for the Quest Pro three. This was Mark's
focus of his demos today, and there will be new
gameplay focused on you know, Xbox and Meta integration.
Speaker 4 (35:22):
All right, Well, good to check in with you on
a day where we've had some news and you certainly
have some overview insight into all of it. Paul, of course,
founder and CEO at Dekasonic, joining us on zoom in Chicago,
Carol Master, Tim Stenevic, and this is Bloomberg.
Speaker 7 (35:39):
Marco Journal. Now about you.
Speaker 1 (35:43):
Let me drive, no, no, no, honey, please, I.
Speaker 3 (35:51):
Want to try.
Speaker 6 (35:51):
It's a good question.
Speaker 1 (35:55):
Good, good drive, good clothes to me. Well b on
on Bloomberg Radio.
Speaker 4 (36:05):
All right, you know it's going to drive you crazy,
Tim Stenebek.
Speaker 2 (36:07):
This market environment, Yeah, This is enough to drive crazy.
Speaker 4 (36:11):
Poor Tim. Like, we're getting ready for our simulcast with
our TV colleagues and we have to have you know,
decliners and gainers.
Speaker 2 (36:17):
You know, we're organized. We get this stuff done before
the show. We're like, you know, what's down three percent,
that's not going to change.
Speaker 4 (36:23):
Yes, it is on a daylight today. Thanks Meta platform
definitely an I know we are kind of rolling over again.
Speaker 8 (36:31):
Yeah, it's done, all right, so let's get to it.
Speaker 4 (36:33):
Our drive to the close guest to light it up.
Back with us, Stephanie Pierce, she's CEO of Dreyfus Melon
and Exchange traded funds at B and Y Melan Investment Management.
As we said, back with us, joining us on zoom
in New York City. Stephanie, how are you, Carol.
Speaker 3 (36:45):
It's so great to see you. Hello, Tim, Carol it's here.
Speaker 4 (36:49):
It's great to have you back with us. It is
kind of another wacky trading day, and we, you know,
talk about the concerns coming at investors, whether it's the
possibility of a government shutdown here in the US, US,
the UAW strike going on longer, you know, the worries
over this higher rate environment. It feels like investors aren't
quite sure what to do. How do you kind of
(37:11):
think about what are the important macro trends to pay
attention to?
Speaker 9 (37:16):
Well, As you know, Carol, we sit here in our
short end of the curve world where we talk about
a lot of really interesting things in that space, you know,
from a macro perspective. As you know, we are surrounded
by smart people in terms of our economists and our
portfolio managers, and we actually think cash is a pretty
good place to be right now. We're certainly in this
I would call it, you know, higher for longer environment
(37:37):
than people thought a few months ago.
Speaker 3 (37:39):
There's probably one more high ahead of us.
Speaker 9 (37:40):
And at some point here we want to start positioning
and hedging portfolios for lower rates. But we're not quite
there yet, right and so you know that's certainly something
we're guiding investors to think about. Now is the time
to start extending duration. Of course, we in cash land,
you know, extending duration means about a year for us,
but certainly feeling really good about cash as a very
attractive investment, giving other asset classes a run for its money,
(38:02):
so to speak.
Speaker 1 (38:02):
We know.
Speaker 2 (38:03):
The thing is, I was saying this earlier to Peter Attwater.
I mean, we've been in an environment where all your
cash has looked like a pretty good investment, but you
missed out on a run up of close to twenty
percent in the S and P five founder that since
given back quite a bit of those gains. How do
you know when the right time is to get back
in even if cash continues to be attractive.
Speaker 3 (38:20):
Now, it's a very very good point.
Speaker 9 (38:21):
One of the things that we advise when we think
about clients that we work with across our ecosystem at
the YMEL and we have a wealth management business, we
have pershing, we have our very large investment management business.
So from a fiduciary perspective, you know, timing the market
is always a challenge, right, we know we all know
the statistics about how well that works out.
Speaker 3 (38:38):
So generally we advise.
Speaker 9 (38:40):
Clients to stay with strategic allocation in that account. Allocation
in many cases includes cash. So that's the way we
think about it.
Speaker 4 (38:47):
And you're lodging some new funds tell us about that.
Speaker 3 (38:50):
Well. I have to say today is a sparkly day
for me.
Speaker 9 (38:53):
Yesterday we launched the Dreyfust Spark Shares, which are a
new share class of our largest flagship government cash fund.
And even though you know we talk about cash as
being not that exciting, we think, as Carol, we've talked
about it before. Cash is not only interesting and I'll use
the word sexy from a yield perspective. But what we're
doing with this fund and this shareclass we're really excited about.
Speaker 3 (39:13):
So the sparkshares enable our.
Speaker 9 (39:15):
Institutional clients to basically give back, do well, and do good,
so they get the same yield as they get on
the full fall and same liquidity all of that. But
we are actually taking ten percent of the net revenues
on this new share class that we earn as a
company and contributing that to the charity of the client's choice.
So we get to sit on the same side of
the table with clients and help them think about how
(39:37):
they can make their cash work harder by putting that
money in a place that really matters to the hearts
and the minds of their employees, their board, or their stakeholders.
Speaker 3 (39:44):
So we're really excited.
Speaker 4 (39:45):
That is so interesting. Why why do that and why
do that?
Speaker 3 (39:49):
Now?
Speaker 4 (39:50):
I mean, forgive me good thing, no doubt about it.
I'd love to see things like that. But you know
what I'm asking, why do that? And why do that now?
Has there been demand? Why?
Speaker 3 (39:59):
Yeah, absolutely so, Carol.
Speaker 9 (40:00):
About a year and a half ago, as you may recall,
we launched a share class that we called BOLD, also
a dedicated share class off our largest fund and that
stood for Block Opportunity for Learning and Development. That share
class now stands at about fourteen billion or so, having
launched it with five hundred million. And so what we
found through that is that is a share class that
(40:21):
really is dedicated to helping fund students in need at
Howard University by you know, basically filling that gap when
they run out of money junior year and have to
drop out.
Speaker 3 (40:30):
And it's been very successful.
Speaker 9 (40:32):
Our clients have loved it, but many of them said
to us, you know, there's something in my community.
Speaker 3 (40:36):
There's a place where my employees volunteer.
Speaker 9 (40:38):
There's something we give to as a company that's near
and dear to my heart, in my backyard that I
would love.
Speaker 3 (40:43):
To give to. So if there's a way for you
to facilitate that, please call me.
Speaker 9 (40:47):
So we spent a few months, a couple quarters thinking
about it, and that's exactly what we're doing. We launched
with a billion dollars two days ago. We're really excited
and or yesterday sorry, and you know, clients have been
really interesting, did so you know, really what we're doing
is allowing them to what we call spark change or
enable change in their own communities.
Speaker 2 (41:06):
Is there any sort of tax benefit to you guys
for doing something like this?
Speaker 9 (41:11):
You know, we're really not doing it for the tax benefit,
but you know when clients ask us, gee, do I
get the tax benit? Of course we are making the donation,
so that would not accrue to the investor. It would
accrue you know, I supposed to to us in some way,
but that's not really the goal of it, right The
goal is to really make an impact, and that's exactly
what we're doing.
Speaker 4 (41:30):
Hey, listen, Steffanie, what can you tell us though about
just overall trend flows, like where the money is flowing in,
where the money is flowing at right now?
Speaker 9 (41:39):
Absolutely so, if you look at the just the space
we've been talking about in cash, we have clearly seen
you know, as I said, many investors, both retail and institutional,
looking at this is actually an attractive place to put money,
just simply given the five plus percent yields. You know,
of course, we are seeing, as you referenced earlier, people
(42:00):
be much more comfortable as we think about the economy
potentially heading for a soft landing rather than maybe a
more concerning one as we talked about a few months ago,
and as that rhetoric has improved from the FED and
then the market as a whole with the data that
we've seen, certainly investors are starting to extend out, not
only in terms of duration and fixed income or money markets,
but also in overall portfolios from a risk perspective, So
(42:21):
we are seeing some re risking in the overall environment
fund investors right now in addition to this continued attractive
attractiveness of cash.
Speaker 4 (42:29):
Wait, we're risking, so taking risk off or adding risk on.
Speaker 9 (42:33):
Now, I think feeling more comfortable that the market is
starting to behave in a manner that recognizes we're probably
heading for a little bit of a softer landing than
what was expected previously. So that's really what we're seeing
is and that's just being a little more comfortable with
the markets here.
Speaker 2 (42:47):
What does the rest of the year look like? Help us,
help us, you know, get some clarity. We're very we're
very confused here.
Speaker 9 (42:53):
We sure, let me put on my guests, let me
pull out my tarot cards. So for the rest of
the year, clearly, you know, as we've seen the FED
you know, was on pause this month, no surprise we
could do to see firmer data. So we do expect
that this sort of market pricing in about fifty to
fifty chance of another rate is probably going to happen.
And that's you know, continue to see the rhetoric that
(43:14):
that that's the case. And then as you kind of
round the corner into the end of the year, the
expectation is that, you know, markets will start to position.
Certainly in our markets, we're starting to position for you know,
hedging against lower rates at some point in the middle
part of next year.
Speaker 3 (43:27):
But again generally we don't think that will.
Speaker 9 (43:29):
Be an aggressive path downward as was previously you know,
expected or hope for. We think it'll be more moderate
and again higher for longer. So against that backdrop again,
soft landing is certainly where I think the rhetoric has gone,
and that's really what we're positioning for as well in
our portfolios.
Speaker 4 (43:43):
Are you buying the rhetoric just ten seconds, yes.
Speaker 9 (43:47):
Generally yes, Again, we look at what markets are pricing
in you know, our goal is the y.
Speaker 4 (43:52):
Lets you go okay listen, Always fun and always delighted
to see you. Stephanie Pearce of Dreyfus, Mellon and ATF
Funds at be in Mind.
Speaker 1 (44:00):
This is the Bloomberg Business Week Podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live weekday
afternoons from three to six Eastern on Bloomberg dot com,
the iHeartRadio app, tune In, and the Bloomberg Business App.
You can also watch us live every weekday on YouTube
and always on the Bloomberg Jerminal
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Carol Massar
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