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BI Weekend: BlackRock Buys HPS, Salesforce Surge · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Intelligence
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  Speaker 1: with Alex Steina and Paul'swhenie.
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  Speaker 2: The real app performance has been the US corporate high yield.
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  Speaker 3: Are the companies lean enough? Have they trimmed all the fats?
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  Speaker 2: The semiconductor business is a really cyclical business.
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  Speaker 1: Breaking market headlines and corporate news from across the globe.
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  Speaker 3: Do investors like the M and A that we've seen?
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  Speaker 2: These are two big time blue chip companies.
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  Speaker 3: The window between the peak and cut changing super fast.
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  Speaker 1: Bloomberg Intelligence with Alex Steinall and Paul's Whennie on Bloomberg Radio.
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  Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
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  Speaker 2: business stories impacting Wall Street and the global markets.
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  Speaker 3: Each and every week we provide a DEPP research and
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  Speaker 3: data on some of the two thousand companies and one
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  Speaker 3: hundred and thirty industries our analysts cover worldwide.
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  Speaker 2: Today, we'll break down an internal review of the IT
• 0:56
  Speaker 2: company super Microcomputer.
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  Speaker 3: Plus we'll discuss how the automaker Stilandas is faring after
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  Speaker 3: the early departure of its CEO.
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  Speaker 2: But first we begin with a big deal in private credit.
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  Speaker 3: This week, Blackrock agreed to buy HPS Investment Partners in
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  Speaker 3: an all stock deal valued roughly twelve billion dollars.
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  Speaker 2: It's a purchase that will propel the world's largest asset
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  Speaker 2: manager into the highest ranks of private credit.
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  Speaker 3: For more. We are joined by Neil Sipes, Boomberg Intelligence
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  Speaker 3: financials analyst.
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  Speaker 2: We first asked Neil where exactly this purchase leaves black.
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  Speaker 4: Rock top five in private credit now and notably top
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  Speaker 4: five in alternatives as a whole. And so you know,
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  Speaker 4: they've long been top ten in the space, you know,
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  Speaker 4: rivaling the names like a Blackstone Apollo. But when you
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  Speaker 4: think about Blackrock, you're thinking about eleven and a half
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  Speaker 4: trillion dollars in assets, a couple hundred billion in alternatives.
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  Speaker 4: That's pretty small piece of the pie for them, So
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  Speaker 4: you don't necessarily think of them as a main leader
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  Speaker 4: in the alternative space, in private market space. But what
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  Speaker 4: we've seen so far this year is three transactions GIP,
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  Speaker 4: Prequin now HPS, and they're really pushing into this space
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  Speaker 4: because that's where the growth is and that's where the
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  Speaker 4: fees are.
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  Speaker 2: It's just a phenomenal to you can do with all
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  Speaker 2: stock as well. How cool is that if you're Blackrock,
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  Speaker 2: who's HPS or the ex Goldman guys. Is that kind
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  Speaker 2: of how big are they in the space.
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  Speaker 4: Yeah, so they're about one hundred and fifty billion now,
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  Speaker 4: and like you noted, I mean Blackrock had about eighty
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  Speaker 4: billion in private credit prior to this, so it really
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  Speaker 4: more than doubles that business for them. And I think
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  Speaker 4: you know what you're seeing a little bit of Blackrock
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  Speaker 4: is sort of this catch up game. As I just noted,
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  Speaker 4: those three transactions really geared towards the private markets this year,
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  Speaker 4: and they're paying, you know, heftier prices for these types
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  Speaker 4: of transactions. I noted this is where the growth is,
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  Speaker 4: this is where the fees are. You know, the twelve
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  Speaker 4: billion dollars price tag for HPS, that's about eight percent
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  Speaker 4: of assets thirty times you know, fee related earnings. So
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  Speaker 4: they're sort of playing catch up in this space. And
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  Speaker 4: when you think about HPS, one hundred and fifty billion
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  Speaker 4: is not small, but that's about one percent of Blackrock
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  Speaker 4: as a whole, right, But when you look at the
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  Speaker 4: fees that HPS generating, that's almost five percent of what
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  Speaker 4: BlackRock's revenue is. So you can sort of think about
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  Speaker 4: the dichotomy there of aligning the organic growth opportunity more
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  Speaker 4: with the revenue opportunity.
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  Speaker 3: Are there more hps's out there?
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  Speaker 5: There may be.
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  Speaker 4: I don't think we're gonna I mean, I won't say
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  Speaker 4: I don't think we're gonna see Blackrock do anymore, because
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  Speaker 4: they are showing that they're taking initiative to really beef
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  Speaker 4: up in a space that you could argue they were
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  Speaker 4: a little bit under indexed versus some of their traditional
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  Speaker 4: competitors in the space. So we'll be interested to see
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  Speaker 4: what is potentially coming down the road. But again, let's
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  Speaker 4: remember that they are sort of digesting a handful of
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  Speaker 4: transactions that are pretty sizable in what we'll call transformational
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  Speaker 4: for a business that you're typically thinking of sort of
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  Speaker 4: the index and passive type products.
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  Speaker 2: At the end of the day, who competes with black
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  Speaker 2: Rock really aren't they just full?
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  Speaker 3: Okay, what is Blackron now at this point?
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  Speaker 6: Yeah?
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  Speaker 2: What is Blackrock now?
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  Speaker 1: With this one?
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  Speaker 4: Blackrock is I guess I'll say everything sort of in
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  Speaker 4: the asset many.
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  Speaker 3: There are dinner thingsgiving and like someone's like, hey, what's
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  Speaker 3: Blackrock and you're like, it's everything.
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  Speaker 4: Yeah, it's a little bit of everything now in the
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  Speaker 4: asset management space, and again I think they're really filling
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  Speaker 4: out that space where they were maybe least index two
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  Speaker 4: and you know, really focusing in on where the fees are.
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  Speaker 4: And that's what this private credit transaction is going to do.
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  Speaker 3: So are some of the big private equity guys too,
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  Speaker 3: like Blackstone et cetera. Are they also just massive asset
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  Speaker 3: managers now too, rather than just private equity guys.
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  Speaker 4: So they are, and I mean they're sizable, and it's
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  Speaker 4: it's a different realm that we're talking about than black
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  Speaker 4: Rocks eleven trillion. We're talking about single digit trillions and
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  Speaker 4: high hundred billions. But again, you know that size is
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  Speaker 4: not necessarily representative of the fees that these that these
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  Speaker 4: firms are generating. So you think about the names like
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  Speaker 4: a Blackstone, Apollo, Ares, KKR, Carlisle, all of those.
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  Speaker 5: As a group.
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  Speaker 4: I mean, that's where that explosive growth has been in
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  Speaker 4: asset management, aside from that passive, low fee type space.
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  Speaker 4: That's right, You're seeing those longer duration assets, those private
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  Speaker 4: markets really being where investors want to allocate their cash.
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  Speaker 4: You look at the expectations for allocations to increase pretty
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  Speaker 4: much broadly across the spectrum in private markets. That's where
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  Speaker 4: some of those will call them smaller, more specialized alternative managers.
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  Speaker 3: Are winning our Thanks to Neil Siites Bloomberg Intelligence Financials Analysts.
• 5:23
  Speaker 2: Each week we look at research from Bloomberg and EF
• 5:25
  Speaker 2: previously known as New Energy Finance.
• 5:27
  Speaker 3: They're the team of Bloomberg that tracks and analyzes the
• 5:29
  Speaker 3: energy transition from commodities to power, transport, industries, buildings, and
• 5:33
  Speaker 3: ag sectors.
• 5:34
  Speaker 2: This week we took a look at BNF's outlook for
• 5:36
  Speaker 2: US natural guests from what we were joined by Enrique
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  Speaker 2: Gonzales b n EF, head of US Gas Research.
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  Speaker 3: First we asked n Rique where we stand now with
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  Speaker 3: gas and where the US will stand under Donald Trump administration.
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  Speaker 7: The US is the largest exporter of lergy in the world,
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  Speaker 7: and in the short term we have a considerable amount
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  Speaker 7: of new capacity coming online and that was bound to
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  Speaker 7: happen regardless of whether we had Trump or Camela in office.
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  Speaker 7: But yeah, we have Plaque Mindes and the Corpus Christie
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  Speaker 7: Stage three expansions coming in this December or early next year,
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  Speaker 7: and then the Golden Pass LNG terminal as well, so
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  Speaker 7: giving us more than seven BC of the seven billion
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  Speaker 7: cubic feet per day of new export capacity out of
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  Speaker 7: the US, so further consolidating that role. And then where
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  Speaker 7: the change could be more significant is in the medium
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  Speaker 7: term with the terminals coming later this decade for it,
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  Speaker 7: and especially with the discussions of Trump lifting the DOE
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  Speaker 7: Non Free Trade Agreement Permit post because this is a
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  Speaker 7: key permit that the terminal terminals need to be able
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  Speaker 7: to reach their final investment decision. And there's a few
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  Speaker 7: high profile projects there such as the the CPTW expansion
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  Speaker 7: from ben through Global and then we also have a
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  Speaker 7: subine Pass Corpus Christie expansion alongside other projects that are
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  Speaker 7: targeted for them.
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  Speaker 3: So basically, if you're not exporting energy to a free
• 7:14
  Speaker 3: trade agreement country, then you're no longer allowed to exit
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  Speaker 3: to do it. But many said that was like an
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  Speaker 3: export thing that they were doing that really wasn't going
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  Speaker 3: to hole. It was just an election thing. So that's
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  Speaker 3: what we're referring to. So that would really help get
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  Speaker 3: a lot more investment in.
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  Speaker 2: There is the expectation in your world of natural gas
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  Speaker 2: that a Trump administration combined with republic controlled Congress, this
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  Speaker 2: is going to be the time to get stuff done.
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  Speaker 2: Whether it's a pipeline or refinery or anything.
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  Speaker 4: You know.
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  Speaker 7: Going back to the idea of the LNG terminals, it's
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  Speaker 7: definitely yeah, you have more support to get this project. Still,
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  Speaker 7: I think moving to the idea of pipelines new like
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  Speaker 7: interstate pipelines, that's a bit there needs to be more change.
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  Speaker 7: It's a bigger conversation, but there's definitely more momentum than
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  Speaker 7: we would have otherwise had.
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  Speaker 3: So to that point, and it's a good one that
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  Speaker 3: you make because a lot of the gas that we
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  Speaker 3: have is in Appalaysia and it's really hard to get
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  Speaker 3: that gas out. It's in the northeast, you don't have
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  Speaker 3: a lot of takeaway capacity, and you do get a
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  Speaker 3: ton of gas from also shale productions, so within New
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  Speaker 3: Mexico as well as Texas. So there is that What
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  Speaker 3: do you think we're going to be able to do
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  Speaker 3: in terms of getting pipelines in to get gas out
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  Speaker 3: of Appalachia.
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  Speaker 7: Yeah, so I would say that's not my subject matter
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  Speaker 7: expertise the policy behind the pipelines, but I think there
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  Speaker 7: is space to have more discussions about what can be
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  Speaker 7: done to get some more gas from But if.
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  Speaker 3: We don't, we wind up getting a glut at some
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  Speaker 3: point of gas because there's just too much, we can't
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  Speaker 3: get it out. Therefore, gas prices here in the US
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  Speaker 3: kind of really sink.
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  Speaker 7: Yeah, and when we've already seen this happen, especially this
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  Speaker 7: early November when the weather was pretty warm, I've seen, Yeah,
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  Speaker 7: Appalachia can't really send more gas out, there's no internal
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  Speaker 7: demand in the basin. And then we've seen producers actually
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  Speaker 7: curtel production because the prices have dropped below the level
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  Speaker 7: they need to continue producing even from existing wells, and
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  Speaker 7: they're well below the break events in some cases for
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  Speaker 7: new wells. So we've already seen that have an impact
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  Speaker 7: in production in Appalaysia and as well in other parts
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  Speaker 7: of the country. You have the Haynes Bill as well,
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  Speaker 7: that's closer to the Gulf and where a lot of
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  Speaker 7: the rhetoric is that we the production to meet the
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  Speaker 7: demand from these new allerg terminals is going to come
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  Speaker 7: from there due to the location. But they do have
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  Speaker 7: higher break events and higher costs than in the Northeast.
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  Speaker 5: Coal.
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  Speaker 2: What's going on with coal and what do you expect
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  Speaker 2: under Trump administration? Happened to the coal industri in this country.
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  Speaker 7: Yes, so there's been a a lot of discussion now
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  Speaker 7: about potentially rolling back some rules from the EPA or
• 10:06
  Speaker 7: just having or being easier on pollution from coal. I've
• 10:11
  Speaker 7: seen I think it was Duke Energy as well discuss
• 10:14
  Speaker 7: the possibility of keeping some of their coal plants operating
• 10:18
  Speaker 7: for longer. So that is a possibility and what it
• 10:23
  Speaker 7: could mean for gas and for power sector gas consumption
• 10:28
  Speaker 7: could be pretty interesting because over the last ten years,
• 10:30
  Speaker 7: one of the main roles of gas in the power
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  Speaker 7: sector has also been replacing, right this retiring cult coal plants,
• 10:39
  Speaker 7: which has been a benefit in the sense that we've
• 10:42
  Speaker 7: seen lower emissions as well, but this could be more difficult.
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  Speaker 7: If the coal plants stay operating longer, you might not
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  Speaker 7: see gas taking over in the same way it had been.
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  Speaker 3: That's interesting. That would remove like this very cannibal market
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  Speaker 3: function basically for gas and coal is the coal is
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  Speaker 3: it green coal, is it like nice coal that we
• 11:07
  Speaker 3: can all get behind, or is it still dirty coal
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  Speaker 3: that eventually is just going to have to be phased out.
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  Speaker 7: Yeah, and there's a lot of discussion as well about
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  Speaker 7: integrating carbon capture for coal, try to make make it cleaner,
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  Speaker 7: but yeah, the economics are difficult, and especially in the
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  Speaker 7: short term, we probably won't see a lot of that happen,
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  Speaker 7: so it could result in emissions even increasing.
• 11:36
  Speaker 2: Is there the expectation on our Trump administration is that
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  Speaker 2: just a whole move to renewables will slow down and
• 11:41
  Speaker 2: maybe slow down materially or is it just too much momentum.
• 11:45
  Speaker 7: Yeah, No, definitely parts for example of the Inflation Reduction
• 11:51
  Speaker 7: Act or are repealed or there's some changes in that sense,
• 11:56
  Speaker 7: we could see slower deployment of renewables. All leagues in
• 12:01
  Speaker 7: vnf IN or clean energy teams look in a lot
• 12:05
  Speaker 7: of detail into this, but yeah, this could lead to
• 12:09
  Speaker 7: an interesting dynamic where you have less coal retirements, but
• 12:14
  Speaker 7: maybe you have a slower deployment of renewables, where gas
• 12:19
  Speaker 7: maybe doesn't grow because there's less coal, but takes over
• 12:23
  Speaker 7: some of this generation that would be needed that would
• 12:28
  Speaker 7: otherwise come from renewables. So I think there's a very interesting,
• 12:32
  Speaker 7: very interesting analysis and a conversation to have about how
• 12:36
  Speaker 7: this gap is going to look.
• 12:38
  Speaker 2: Thanks to Enrique Gonzalez b n EF, head of US
• 12:42
  Speaker 2: Gas Research.
• 12:43
  Speaker 3: Coming up, we're going to break down potential scenarios related
• 12:45
  Speaker 3: to President like Donald Trump's proposed tear ups.
• 12:47
  Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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  Speaker 2: depth research and data on two thousand companies in one
• 12:52
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  Speaker 2: be a big on the terminal Paul Sweeney and a
• 12:57
  Speaker 2: Malex Steel and.
• 12:58
  Speaker 3: This is Bloomberg.
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• 13:18
  Speaker 3: We begin in the tech space with the it company
• 13:21
  Speaker 3: super Micro Computer.
• 13:23
  Speaker 2: This week's shares a super Micro jump after the company
• 13:25
  Speaker 2: sat an independent review of its business found no evidence
• 13:28
  Speaker 2: of misconduct.
• 13:29
  Speaker 3: However, the re you did recommend the appointment of new
• 13:31
  Speaker 3: top financial and legal leadership, including a new CFO, chief
• 13:35
  Speaker 3: compliance Officer, and general counsel.
• 13:37
  Speaker 2: For more. We were joined by Wouchin Hope, Bloomberg Intelligence
• 13:39
  Speaker 2: Senior Technology aannelists.
• 13:40
  Speaker 3: You first asked Wujin to remind us what the problem
• 13:43
  Speaker 3: is that super Micro has been trying to correct a.
• 13:45
  Speaker 5: Couple of things.
• 13:46
  Speaker 8: There was a short sell of report back in August,
• 13:50
  Speaker 8: citing that there was some fraud you know, with internally,
• 13:56
  Speaker 8: and essentially because of that, there was an internal investigation
• 14:00
  Speaker 8: and they delighted their ten K and ten Q filings.
• 14:03
  Speaker 8: What super Micro is essentially saying their internal investigation has
• 14:06
  Speaker 8: found nothing or no evidence of fraud, but the ten
• 14:10
  Speaker 8: K and ten Q filings still have yet to be filed.
• 14:13
  Speaker 2: But it's not every day that a big four accounting
• 14:15
  Speaker 2: firm does what happened here basically says, you know, they
• 14:19
  Speaker 2: really can't rely upon the management team and they and
• 14:21
  Speaker 2: they just walk away from an account that doesn't happen.
• 14:23
  Speaker 8: Yeah, no, Paul, I think between your lifetime and my
• 14:28
  Speaker 8: lifetime in the financial industry, probably four or five.
• 14:32
  Speaker 5: Times, right, So, yeah, it doesn't happen. It doesn't happen.
• 14:36
  Speaker 8: They did find an alternative bdo USA, and you know,
• 14:41
  Speaker 8: quite quite frankly, with the special investigation you know, being
• 14:46
  Speaker 8: completed without evidence of fraud, it actually almost gives them
• 14:50
  Speaker 8: a BDEO a safety net to actually expedite the ten
• 14:54
  Speaker 8: Q and ten K filing sign off in my opinion.
• 14:57
  Speaker 3: So does this put all the questions to bed at
• 15:00
  Speaker 3: this point?
• 15:01
  Speaker 8: No, not necessarily, quite frankly, I mean let's see what
• 15:04
  Speaker 8: Bdo says. I do think they're going to try to
• 15:07
  Speaker 8: push along the filings as quickly as possible, possibly by
• 15:10
  Speaker 8: year end. You know, the deadline is sometime in late February,
• 15:15
  Speaker 8: but you know, I do think they'll try to push
• 15:17
  Speaker 8: it along. Now, I will tell you. The other question
• 15:22
  Speaker 8: is that was there so much reputation damaged because of this?
• 15:26
  Speaker 5: Did they lose business?
• 15:28
  Speaker 2: So, assuming they can put this issue behind them, what
• 15:31
  Speaker 2: is the story for this company here, super Micro News?
• 15:33
  Speaker 2: How do you position it within your tech stocks?
• 15:37
  Speaker 5: Yeah?
• 15:37
  Speaker 8: Look, super Micro has been one of the hottest companies
• 15:42
  Speaker 8: within the hardware industry. They were on the forefront or
• 15:45
  Speaker 8: the poster child of AI servers. And you've seen a
• 15:49
  Speaker 8: rapid rise in sales, going from a billion dollars or
• 15:52
  Speaker 8: three billion dollars in annual sales and they were on
• 15:55
  Speaker 8: track to about twenty six to thirty billion dollars in
• 15:58
  Speaker 8: annual sales and fiscal twenty twenty five, right, and this
• 16:01
  Speaker 8: is over a span of four years.
• 16:03
  Speaker 5: Now, they didn't.
• 16:05
  Speaker 8: Retract a guidance, but they didn't affirm guidance either. So
• 16:09
  Speaker 8: the question is is that, look, what is the real
• 16:12
  Speaker 8: sales going into fiscal twenty five. We do have a
• 16:14
  Speaker 8: scenarios scenario analysis that in the draconian way, it's going
• 16:18
  Speaker 8: to be sixteen billion dollars in sales. Right, that's far
• 16:21
  Speaker 8: off of the twenty six on the low end, but
• 16:24
  Speaker 8: you know, it's still sixteen billion dollars in sales as
• 16:26
  Speaker 8: super Micro could deliver on the AI story alone.
• 16:30
  Speaker 3: And this is AI netlike hardware right versus AI chips
• 16:35
  Speaker 3: for example from in Video right, So a competitor would
• 16:37
  Speaker 3: be like Dell right, like an AI server play exactly.
• 16:41
  Speaker 3: So if I was a customer and I was like,
• 16:43
  Speaker 3: you know what, super Micro, I need to go somewhere else.
• 16:45
  Speaker 3: Is the only other option Dell? Or are there other
• 16:47
  Speaker 3: players out there?
• 16:49
  Speaker 5: Oh yeah?
• 16:49
  Speaker 8: Look, if we go back to last May at Video's conference,
• 16:55
  Speaker 8: there were a host of AI server companies that will
• 17:00
  Speaker 8: only to partner with Nvidia.
• 17:01
  Speaker 5: So Supermarker is not the only game in town. Now.
• 17:04
  Speaker 5: There is Dell nor Hpe.
• 17:06
  Speaker 8: There are some Taiwanese ODMs that are more than happy
• 17:09
  Speaker 8: to assemble AI servers out there. So we've seen the
• 17:13
  Speaker 8: because of the growing competitive pressure, we've seen margins compress
• 17:17
  Speaker 8: as a result for the industry.
• 17:18
  Speaker 2: So they sacrifice it feels like the CFO here. How
• 17:23
  Speaker 2: does the street feel about the rest of the management team,
• 17:26
  Speaker 2: the leadership as well as the board.
• 17:29
  Speaker 8: Well, look, the main issue in my mind was not
• 17:32
  Speaker 8: only the CFO but also the board. When you have
• 17:36
  Speaker 8: the wife of the CEO as a member of the
• 17:39
  Speaker 8: board and a seventeen year old a person on the
• 17:42
  Speaker 8: board who's been on for about seventeen years, there's very
• 17:46
  Speaker 8: limited independence. Quite frankly, I do think there needs to
• 17:49
  Speaker 8: be some sort of overhaul of the board. And I've
• 17:52
  Speaker 8: said in the past on this show and I have
• 17:54
  Speaker 8: written that I think the CEO may need to be
• 17:57
  Speaker 8: promoted to a chairman role and I may need CEO.
• 18:01
  Speaker 3: Now is this what part of all of this has
• 18:03
  Speaker 3: to do with just going from a company in the
• 18:06
  Speaker 3: Russell to the company in the S and P and
• 18:08
  Speaker 3: is growing super fast and having different kind of analysts
• 18:12
  Speaker 3: coverage And how much of this was gonna come kind
• 18:13
  Speaker 3: of no matter what.
• 18:15
  Speaker 8: Yeah, you know, that's a good question, Alex. You know, look,
• 18:19
  Speaker 8: this used to be a Russell company or a mid
• 18:23
  Speaker 8: cap company, and it was under the radar for a
• 18:26
  Speaker 8: lot of analysts, and now we're talking about being in
• 18:28
  Speaker 8: the S and P. Five hundred index and you're gonna
• 18:31
  Speaker 8: have a lot of magnifying glasses on the financials. And
• 18:34
  Speaker 8: keep in mind, you know, it's only been about five
• 18:37
  Speaker 8: to six years back where they were delicted from the
• 18:39
  Speaker 8: NASDAC and for them to do this again, it's quite
• 18:43
  Speaker 8: frankly shameful in my mind.
• 18:46
  Speaker 5: Now.
• 18:46
  Speaker 8: If there is no wrongdoing here, shame on me. Right,
• 18:50
  Speaker 8: But you know Fuolmi wants, you know, shame on them.
• 18:54
  Speaker 8: Fool me twice, Shame on me. So you know you're
• 18:57
  Speaker 8: going to see a lot of scrutiny going forward. I
• 18:59
  Speaker 8: don't know if they'll come back this.
• 19:00
  Speaker 2: Have they lost customers to any material basis?
• 19:04
  Speaker 5: Nothing reported as of yet.
• 19:08
  Speaker 8: What they said on the last earnings call was that
• 19:11
  Speaker 8: there were a couple of customers who you know, they're
• 19:16
  Speaker 8: trying to retain.
• 19:17
  Speaker 3: How much more? Okay, So just pure valuation perspective, How
• 19:20
  Speaker 3: do we know how to value this company when they're
• 19:22
  Speaker 3: all these questions.
• 19:24
  Speaker 8: Look at the end of the day, and Paul taught me, well,
• 19:26
  Speaker 8: it's all about cash flow and earnings.
• 19:28
  Speaker 5: Nice John, And I don't know what.
• 19:31
  Speaker 8: I don't know what earnings is In our scenario model,
• 19:34
  Speaker 8: we have a buck sixty in earnings go going forward,
• 19:39
  Speaker 8: and hardware companies of this ilk Ai companies are ranging
• 19:44
  Speaker 8: anywhere between ten to fifteen times. So if my buck
• 19:48
  Speaker 8: sixty is right and it's going at around, let's just
• 19:50
  Speaker 8: say at the high end fifteen to sixteen times. No,
• 19:53
  Speaker 8: it seems like from a valuation standpoint, it's training at
• 19:57
  Speaker 8: the fundamentals all right.
• 19:58
  Speaker 2: Thanks to Woojin Hoo, Bloomberg intelligen Senior technology analyst.
• 20:01
  Speaker 3: This week, we focused on a Bloomberg Big Take story
• 20:03
  Speaker 3: titled A Roadmap through the Drama and Realities of Trump's
• 20:07
  Speaker 3: Trade War.
• 20:07
  Speaker 2: You can find it on Bloomberg dot Com and the Terminal.
• 20:10
  Speaker 2: The story looks at president like Donald Trump's proposed herfs.
• 20:13
  Speaker 3: Everyone from Wall Street investors to foreign governments are trying
• 20:16
  Speaker 3: to map out Trump's tariff plan and a fog of uncertainty,
• 20:19
  Speaker 3: and Bloomberg Economics has mapped out a plausible scenario for
• 20:21
  Speaker 3: what lies ahead.
• 20:22
  Speaker 2: For more on this, we were joined by Brendan Murray,
• 20:25
  Speaker 2: Bloomberg Global Trade Editor.
• 20:26
  Speaker 3: We first asked Brendan to break down that latest research.
• 20:29
  Speaker 9: So, if you add up all of the tariff threats
• 20:32
  Speaker 9: that incoming President Trump made over the past week, about
• 20:37
  Speaker 9: half the world's population of eight billion people would be
• 20:40
  Speaker 9: hit if you take the countries that he targeted. So
• 20:43
  Speaker 9: there's a lot to unpack here. And so what we
• 20:46
  Speaker 9: tried to do was separate the rhetoric, the late night
• 20:51
  Speaker 9: social media posts from the more procedural approach that Trump
• 20:57
  Speaker 9: administration is going to have to take when it comes
• 20:59
  Speaker 9: to rolling out tariffs. We talked to people who were
• 21:02
  Speaker 9: in the previous Trump administration and supervised the last design
• 21:07
  Speaker 9: of the tariff package, and we got a sense for
• 21:11
  Speaker 9: how this next wave would be rolled out. So what
• 21:15
  Speaker 9: we came up with Bloombery Economics. Crunch these numbers, and
• 21:18
  Speaker 9: you're looking at three waves of tariff starting in the
• 21:21
  Speaker 9: summer of twenty twenty five, and by the end of it,
• 21:25
  Speaker 9: at the end of twenty twenty six, the average tariff
• 21:29
  Speaker 9: rate in the US is going to go up by
• 21:32
  Speaker 9: about triple, so from three and a half percent to
• 21:35
  Speaker 9: about seven or eight percent. So and Shina is going
• 21:38
  Speaker 9: to bear the brunt to that.
• 21:39
  Speaker 2: Did tariffs generate revenue for the US government?
• 21:42
  Speaker 9: Yeah, they sure do. The customs revenue, you know, the
• 21:45
  Speaker 9: Treasury reports those once a month, and they would generate
• 21:51
  Speaker 9: revenue for the US government. Weather they'll generate enough to
• 21:56
  Speaker 9: close the gap that tax cuts extending task will create
• 22:02
  Speaker 9: is a whole other question. You have to go back
• 22:04
  Speaker 9: one hundred, one hundred and fifty years to see when
• 22:08
  Speaker 9: tariffs were actually a sizeable part of the US budget.
• 22:11
  Speaker 9: At the moment, they're the tiny fraction of overall US
• 22:14
  Speaker 9: government revenue.
• 22:16
  Speaker 3: What I also find interesting in the piece, you guys
• 22:18
  Speaker 3: talked about how the tariffs will mostly be on intermediate
• 22:21
  Speaker 3: and capital goods. First of all, what does that mean specifically,
• 22:24
  Speaker 3: and then what does that mean for say a small
• 22:26
  Speaker 3: business versus me.
• 22:28
  Speaker 9: Yeah, those are not final consumer goods. Those are parts
• 22:33
  Speaker 9: and machinery that go into the making of consumer goods.
• 22:37
  Speaker 9: So the thinking there would be number one, is that
• 22:39
  Speaker 9: you could source those from another country other than China
• 22:43
  Speaker 9: if the US put tariffs on these capital and intermediate goods.
• 22:47
  Speaker 9: So that would be the first consideration is could you
• 22:50
  Speaker 9: replace what you already get China from somewhere else? And
• 22:53
  Speaker 9: the idea and then the goal there would be to
• 22:56
  Speaker 9: soften the inflationary impact that that we pay at the
• 23:01
  Speaker 9: store at Target or Walmart or werver we're shopping for
• 23:04
  Speaker 9: consumer goods. That the goal would be to soften the
• 23:07
  Speaker 9: inflationary impact. But there comes a time when you can
• 23:10
  Speaker 9: only put tariffs on so many goods and then you
• 23:12
  Speaker 9: start to hit those those products that we pay for
• 23:15
  Speaker 9: it as consumers.
• 23:16
  Speaker 2: What most economists think the retaliation will be on a
• 23:20
  Speaker 2: part of these governments, because that's also at a level
• 23:22
  Speaker 2: of concern. How do we expect some of these foreign
• 23:26
  Speaker 2: governments to respond.
• 23:27
  Speaker 9: Well, if you listen to President elect Trump, he would
• 23:33
  Speaker 9: say that, look, I threatened these tariffs against countries and
• 23:35
  Speaker 9: they come to the negotiating table when they give us
• 23:37
  Speaker 9: what we want at fairness and trade, or in the
• 23:40
  Speaker 9: case of Canada and Mexico over the past week, more
• 23:43
  Speaker 9: border security to prevent the flow of fentanyl and illegal migration.
• 23:49
  Speaker 9: So it's something other than just a way to collect
• 23:52
  Speaker 9: revenue or to fix trade imbalances. It's to President Trump,
• 23:57
  Speaker 9: a way to exert form policy priorities as well, right.
• 24:02
  Speaker 3: Which makes even more difficult to game out right, because
• 24:05
  Speaker 3: you don't know how much of that is going to
• 24:06
  Speaker 3: be just a strong arm to get other things, and
• 24:08
  Speaker 3: how much of it is actually going to be implemented,
• 24:11
  Speaker 3: and then what the retaliatory factor are. What's the level
• 24:14
  Speaker 3: of conviction When you were speaking to say Anawan and
• 24:17
  Speaker 3: Bloomberg Economics and other peers in the area. What's everyone's
• 24:21
  Speaker 3: conviction on their calls right now?
• 24:24
  Speaker 9: No one can make a call right now with any
• 24:26
  Speaker 9: high level of confidence there as we lay out in
• 24:30
  Speaker 9: this Big Take story, there are just a lot of unknowns,
• 24:34
  Speaker 9: you know how, the degree to which the president elect
• 24:38
  Speaker 9: is threatening rather as opposed to know things that he'll
• 24:41
  Speaker 9: follow through on. So this is what we call a
• 24:44
  Speaker 9: plausible scenario. It's one that's based on the modeling that
• 24:48
  Speaker 9: Bloomberg Economics does, the reporting that our Bloomberg News reporters
• 24:52
  Speaker 9: have done, speaking to people who were there for the
• 24:56
  Speaker 9: first time, and gaming out how it might happen the
• 24:59
  Speaker 9: second time. So it's a it's an attempt to describe
• 25:03
  Speaker 9: the method that will come with a lot of the
• 25:07
  Speaker 9: perceived madness of trade wars and the second Trump administration.
• 25:11
  Speaker 2: Our thanks to Brendan Mary, Bloomberg Global Trade.
• 25:13
  Speaker 3: Editor, coming up on the program will break down earnings
• 25:15
  Speaker 3: from software provider Salesforce.
• 25:17
  Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing research
• 25:21
  Speaker 2: and data on two thousand companies and one hundred and
• 25:23
  Speaker 2: thirty industries. You can access Bloomberg Intelligence via bi go
• 25:26
  Speaker 2: on the terminal, I'll Paul Sweetey.
• 25:27
  Speaker 3: And Amlex Steele, and this is Bloomberg.
• 25:36
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• 25:40
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• 25:43
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• 25:46
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• 25:52
  Speaker 3: Thirty to move next to the auto sector and Stialantis.
• 25:56
  Speaker 3: Stalanta's CEO, Carlos Taveras recently resigned and this has left
• 26:00
  Speaker 3: automaker without clear leadership at a time of significant up
• 26:03
  Speaker 3: people in the industry.
• 26:04
  Speaker 2: For more, we were joined by Steve Man Bloomberg Intelligence,
• 26:07
  Speaker 2: Global Autos and Industrials and Research Channels. We first asked
• 26:10
  Speaker 2: Steve for his take on the most recent news.
• 26:12
  Speaker 10: Probably a bad timing for the CEO to make an
• 26:15
  Speaker 10: exit at the moment. You know, they are facing really
• 26:19
  Speaker 10: tough market conditions, you know, in Europe, in the US,
• 26:25
  Speaker 10: and you know, to a certain extents some emerging markets.
• 26:28
  Speaker 10: So you know, Carlo has been you know, he's been
• 26:31
  Speaker 10: very good at controlling costs and that's what we need
• 26:33
  Speaker 10: at the moment to adjust to the current market condition.
• 26:37
  Speaker 3: So what's your read then on why now?
• 26:40
  Speaker 10: Well, I think you know they've you know, Carlos and
• 26:43
  Speaker 10: the management team has done a lot, He's made some
• 26:45
  Speaker 10: management changes, uh, to really bring down the inventory in
• 26:49
  Speaker 10: the US. That's where the pain is.
• 26:51
  Speaker 5: You know.
• 26:51
  Speaker 10: They they typically get you know, adjusted operating income of
• 26:55
  Speaker 10: double digits in the teams, but that's been down to
• 26:59
  Speaker 10: single digit and last quarter. So there's a lot of
• 27:02
  Speaker 10: work to be done to actually bring down inventory in
• 27:05
  Speaker 10: the US so they can actually try to get some
• 27:09
  Speaker 10: you know, pricing on their new new models that's coming
• 27:12
  Speaker 10: out at the moment. So a lot of work to
• 27:16
  Speaker 10: be done. But it's it's really out of his control
• 27:19
  Speaker 10: at the moment. He's done all he's can Carlos. That is,
• 27:23
  Speaker 10: it's really something who can he can? He cann't control.
• 27:26
  Speaker 10: It's the market. Every automaker is facing a similar situation
• 27:30
  Speaker 10: around the world.
• 27:31
  Speaker 2: And I think what we're seeing, I guess what I'm
• 27:33
  Speaker 2: piecing together from reading your research and reading the Bloomberg
• 27:36
  Speaker 2: News reporting here is and kind as it relates to
• 27:38
  Speaker 2: the global auto industry. You're up in a tough place
• 27:41
  Speaker 2: because again, like everybody else, they're not sure about this
• 27:43
  Speaker 2: transition to EVS yet. At the same time, China is
• 27:47
  Speaker 2: flooding the market with electric vehicles, so it makes it
• 27:49
  Speaker 2: even tougher for the incumbent manufacturers. Where are we in
• 27:54
  Speaker 2: that process?
• 27:55
  Speaker 10: Yeah, I mean, it's it's an interesting industry right now
• 27:58
  Speaker 10: to follow because there's all these Dynams makes. There's new competitor.
• 28:02
  Speaker 10: It's it's becoming the eight hundred pound gorilla China, which
• 28:05
  Speaker 10: you know, it's coming into the market, not just in Europe,
• 28:08
  Speaker 10: they're thinking about coming into North America. We'll see how
• 28:11
  Speaker 10: that goes with Trump in the office. But you know,
• 28:16
  Speaker 10: EV is tough. You know, a lot of countries in
• 28:19
  Speaker 10: Europe have cut back subsidies for consumers, so you know
• 28:24
  Speaker 10: you hear Volkswagen cutting closing plants, two three plants in Europe.
• 28:29
  Speaker 10: So it's it's going to take time to work out.
• 28:32
  Speaker 10: I think we're going to see pain three twenty twenty five.
• 28:36
  Speaker 3: Well, where is the biggest pain point? Because you just
• 28:38
  Speaker 3: listed off a lot of stuff, And when I think
• 28:40
  Speaker 3: about carmakers, I think, ooh, evs right, Like, it's not
• 28:43
  Speaker 3: yet really profitable for these guys to make them. But
• 28:44
  Speaker 3: you've got to make them in order to make the
• 28:46
  Speaker 3: prices lower and make them competitive and kind of put
• 28:48
  Speaker 3: it out there and get the supply. Is that really
• 28:51
  Speaker 3: the issue in addition to Chinese competition or a traditional
• 28:54
  Speaker 3: auto landscape also struggling when it comes to I should say.
• 28:59
  Speaker 10: That's very good question. It's it's really not about evs.
• 29:04
  Speaker 10: You know, EV only makes up you know, less than
• 29:06
  Speaker 10: ten percent of a lot of these companies annual sales,
• 29:11
  Speaker 10: So it's not really EV. It's really the ice vehicles
• 29:14
  Speaker 10: that you know, during COVID, we had a lot of
• 29:17
  Speaker 10: shortages because of the supply chain constraints. But over the
• 29:20
  Speaker 10: past couple of years, with that supply chain constraint going away,
• 29:25
  Speaker 10: they've been producing a lot of vehicles and they're refilling
• 29:28
  Speaker 10: that inventory and with higher interest rate over the last
• 29:31
  Speaker 10: you know, past past few quarters, you see that inventory,
• 29:36
  Speaker 10: inventory piling up, and now they can't sell. They sell
• 29:40
  Speaker 10: the cars, but at the same time they're they're gonna
• 29:43
  Speaker 10: have to drop prices, and the worry is it's gonna
• 29:47
  Speaker 10: spiral out of control, not only for Stilentists or Nissan,
• 29:51
  Speaker 10: but for the rest of the auto industry. You know,
• 29:53
  Speaker 10: price cutting is not where the where the industry needs
• 29:57
  Speaker 10: to go.
• 29:57
  Speaker 2: Right now, So talk to us about Stillantis to their
• 30:00
  Speaker 2: brands in North America, how are they faring?
• 30:03
  Speaker 1: Then?
• 30:04
  Speaker 10: Yeah, that's also a very good question. I think Carlos
• 30:08
  Speaker 10: really had, the former CEO of Silenti's is, really had
• 30:12
  Speaker 10: a tough job. Not only does he need to manage uh,
• 30:16
  Speaker 10: the the new market conditions that he's seeing in a
• 30:20
  Speaker 10: lot of developed markets. But look, you know, Stillenti's is
• 30:24
  Speaker 10: really an amalgamation of brands that a lot of brands
• 30:27
  Speaker 10: that a lot of automakers didn't want, right. You know,
• 30:31
  Speaker 10: I think you know, in the North American market, you know,
• 30:34
  Speaker 10: I think GM and four are probably more of the
• 30:37
  Speaker 10: go to brands. You know, third is is you know
• 30:40
  Speaker 10: the Asians. Uh, and then you know Stillentis is you
• 30:44
  Speaker 10: know Jeep and Dodge in Chrysler. Uh, they're kind of uh,
• 30:49
  Speaker 10: they're famous brands, but it's not in at the top
• 30:52
  Speaker 10: of the consumers wish list. And you can say that
• 30:55
  Speaker 10: say the same thing over in Europe as well with Fiat.
• 30:58
  Speaker 3: Right, because I guess from what I hear, and this is,
• 31:01
  Speaker 3: let's be clear, just a Matt Miller thing like trucks, right,
• 31:04
  Speaker 3: Like trucks is the thing like pickup trucks is the
• 31:06
  Speaker 3: thing those stuff the Stlanta's. What's their market share in
• 31:10
  Speaker 3: that arena?
• 31:11
  Speaker 10: Well, they still have you know, their top three their
• 31:14
  Speaker 10: third behind Ford and GM Chevrolet. You know they you know,
• 31:20
  Speaker 10: when they came out with the new redesigned Ram truck
• 31:24
  Speaker 10: a few years ago, they did did reach the number
• 31:27
  Speaker 10: one market position in the US, but it has since
• 31:30
  Speaker 10: then has fallen off. And you know, their vehicles are
• 31:32
  Speaker 10: getting old. Their their their pickup trucks needs a new redesign.
• 31:36
  Speaker 10: Their SUVs are going through that process right now. They
• 31:40
  Speaker 10: need to come out with new products to really excite
• 31:42
  Speaker 10: the consumers.
• 31:43
  Speaker 3: Our thanks to Steve Man, Bloomberg Intelligence Global Autos and
• 31:46
  Speaker 3: Industrials Research analyst, this.
• 31:48
  Speaker 2: Week's Salesforce shares hit a record high after the company
• 31:50
  Speaker 2: reported better than expected their quarter revenue.
• 31:52
  Speaker 3: This boosts hopes for the companies much hyped artificial intelligence strategy.
• 31:57
  Speaker 3: For more. We were joined by anarag Rana, Bloomberg Intelligence
• 31:59
  Speaker 3: Technology analyst.
• 32:01
  Speaker 2: We first asked an Arok what the street liked about
• 32:03
  Speaker 2: recent Salesforce numbers.
• 32:05
  Speaker 6: I think when you'd really peel the numbers on sales
• 32:07
  Speaker 6: and backlog, they were pretty much in line. But I
• 32:10
  Speaker 6: think what is really happening, and something that we highlighted
• 32:13
  Speaker 6: during a preview w some notes that we wrote earlier
• 32:17
  Speaker 6: in October, they released a new product called Agent Force,
• 32:20
  Speaker 6: which is truly their AI product. Now that's not going
• 32:23
  Speaker 6: to drive revenue over the next twelve months, but it
• 32:25
  Speaker 6: really changes the shape of the company and with the
• 32:28
  Speaker 6: direction it's going in, and I think that's what investors
• 32:31
  Speaker 6: are buying in right now, along with their steady margin expansion.
• 32:34
  Speaker 6: Margins were so good that has been a big story
• 32:37
  Speaker 6: for them as well. So I think on all fronts
• 32:40
  Speaker 6: they're doing well. And as I said, the sales growth
• 32:42
  Speaker 6: is not going to show up time near term, but
• 32:45
  Speaker 6: I think they have a clear strategy how they're going
• 32:47
  Speaker 6: to play this game.
• 32:48
  Speaker 3: So to this point, if Salesforce are doing this well
• 32:51
  Speaker 3: without Agent Force materially contributing to its bottom line, I mean,
• 32:56
  Speaker 3: what kind of upside do we really have and when
• 32:58
  Speaker 3: do they read sort of full to that?
• 33:01
  Speaker 6: Yeah, I think I would agree with you on that,
• 33:03
  Speaker 6: because you know, people are buying into that without seeing
• 33:05
  Speaker 6: the results. And I think this is truly what we
• 33:08
  Speaker 6: have seen a lot in the software space is people
• 33:11
  Speaker 6: really figured out which are the companies that will benefit
• 33:14
  Speaker 6: in the long run, and a lot of that, you
• 33:16
  Speaker 6: could say, value realization happens sooner, you know, when the
• 33:20
  Speaker 6: revenue realization is so perhaps down the road there will
• 33:23
  Speaker 6: be a time when the software space may not see
• 33:25
  Speaker 6: evaluation uptake, but the sales growth will go up. But
• 33:28
  Speaker 6: you know, one of the things you have to think
• 33:30
  Speaker 6: about it when former salesforce point of view, they have
• 33:32
  Speaker 6: two really critical products. One is sales automation for salespeople
• 33:36
  Speaker 6: and the other is customer service products for customer service
• 33:39
  Speaker 6: people and in enterprises AI and is the biggest beneficiary
• 33:45
  Speaker 6: to those customer service people chat pots AI agents. We
• 33:49
  Speaker 6: recently did a conference and when we ask the question
• 33:52
  Speaker 6: as to how many people use chat pots, it's still
• 33:55
  Speaker 6: less than twenty percent at this point. So that is
• 33:58
  Speaker 6: the direction where the world is going in terms of
• 34:00
  Speaker 6: working with retailers, working with you know, airlines, and these
• 34:05
  Speaker 6: guys are right in the middle of it all.
• 34:06
  Speaker 2: Right, So what's getting the market all excited here this
• 34:09
  Speaker 2: AI product? What is their AI product and what is
• 34:11
  Speaker 2: it supposed to do? Because I actually moderated a panel
• 34:14
  Speaker 2: with the salesforce executive and I forgot everything.
• 34:17
  Speaker 6: You told me so think about it. I actually have
• 34:20
  Speaker 6: a very interesting demonstration if you go to YouTube and
• 34:23
  Speaker 6: look at their Dreamforce and demo. It was actually pretty
• 34:25
  Speaker 6: interesting because they did Sacks Fifth Avenue. So think about
• 34:29
  Speaker 6: it this way, Paul, you you buy. You know, the
• 34:31
  Speaker 6: presenter bought a jacket from Saxs Fifth Avenue, didn't like
• 34:35
  Speaker 6: the the size or something, just went to the chatpot
• 34:38
  Speaker 6: and say can you find me a different size? And
• 34:41
  Speaker 6: can you the chatbot basically took care of everything, basically
• 34:44
  Speaker 6: knew what size this person was, was able to return
• 34:48
  Speaker 6: the jacket, you know, send another one to this person's address,
• 34:52
  Speaker 6: or that matter.
• 34:53
  Speaker 9: If it wasn't.
• 34:54
  Speaker 6: Available, you could go to the store and pick it
• 34:56
  Speaker 6: up without the intervention of a human. That level of
• 34:59
  Speaker 6: sophistication coming into a chat pot so quick in the game,
• 35:03
  Speaker 6: I think it's really what people are getting excited about.
• 35:06
  Speaker 3: And put some numbers on that, like how much is
• 35:09
  Speaker 3: that going to do for them in terms of revenue?
• 35:11
  Speaker 3: And how much do they charge for like that chatbot?
• 35:13
  Speaker 3: So say like that chatbot works for me for two minutes,
• 35:16
  Speaker 3: what's the translation of money?
• 35:18
  Speaker 6: So the pricing starts at two dollars per conversation. Now
• 35:22
  Speaker 6: the question is what does that mean? So when you
• 35:25
  Speaker 6: look at you know, a person calling at and D
• 35:28
  Speaker 6: or Hoverizon, that call could cost as much as ten
• 35:31
  Speaker 6: to fifteen dollars. If it's a quasi mix of an
• 35:34
  Speaker 6: automated chat pot and a customer service person, you know,
• 35:38
  Speaker 6: that call could be seven dollars eight dollars per conversation.
• 35:41
  Speaker 6: Salesforce is pricing at two dollars or so, so it
• 35:45
  Speaker 6: will force companies to fix their customer service because think
• 35:49
  Speaker 6: about it, if you're an insurance company, if you are
• 35:51
  Speaker 6: a phone company, that's really a very large portion of
• 35:54
  Speaker 6: your cost. Amazon's already doing so much of that in
• 35:57
  Speaker 6: the chatbot. If you are used to returning things on
• 36:00
  Speaker 6: Amazon through their chat pot, it's actually pretty impressive right now.
• 36:03
  Speaker 6: But it is still rule based, which is if it
• 36:06
  Speaker 6: can only do so much based on the data that's available,
• 36:09
  Speaker 6: it doesn't take you to the next level. And this
• 36:11
  Speaker 6: is what Salesforce is saying is the direction of that
• 36:15
  Speaker 6: is that the agent or the chat pot is able
• 36:17
  Speaker 6: to execute a transaction for you without getting a human
• 36:21
  Speaker 6: involved in it, which is refund the money for you
• 36:24
  Speaker 6: return your things, give you an alternative of whatever you
• 36:29
  Speaker 6: were doing before without any person getting in and that
• 36:32
  Speaker 6: really saves costs.
• 36:33
  Speaker 2: All right, so this coman's got like thirty nine to
• 36:35
  Speaker 2: forty percent EBITDA margin. Pretty much all of that goes
• 36:38
  Speaker 2: down to the free cash flow line.
• 36:39
  Speaker 6: What do they do with their cash right now? They're
• 36:41
  Speaker 6: buying back shares. I'm sorry, Paul, but that's exactly what
• 36:44
  Speaker 6: most software companies do when they have it. Now, think
• 36:47
  Speaker 6: about it this way. Just one and a half two
• 36:49
  Speaker 6: years ago, this was almost ten percent reach points lower
• 36:53
  Speaker 6: because they were spending even more on sales and marketing.
• 36:55
  Speaker 6: The big story for salesforce in the last one and
• 36:58
  Speaker 6: a half years has been a really improvement in bulgins our.
• 37:01
  Speaker 3: Thanks to Anna Rograna, Bloomberg Intelligence technology analyst.
• 37:05
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• 37:12
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• 37:16
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• 37:20
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• 37:23
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