Latest / Bloomberg Intelligence / Biggest Risk Is Downside Jobs Surprise: JPM's Kennedy

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Biggest Risk Is Downside Jobs Surprise: JPM's Kennedy · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penil podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. We are amidst the longest economic
• 0:23
  Speaker 1: cycle on record. The FED is certainly in the dobish mode.
• 0:26
  Speaker 1: Trade risk appears to be on the back burner, at
• 0:29
  Speaker 1: least for now. So the question is what do investors
• 0:31
  Speaker 1: do after that phenomenal first half of the year. To
• 0:34
  Speaker 1: help us guide us for the second half, we welcome
• 0:36
  Speaker 1: our good friend Tom Kennedy Thomas, Global head of Macro
• 0:39
  Speaker 1: and fixed Income Strategy at JP Morgan Private Bank. They
• 0:42
  Speaker 1: have lots of money under management. Uh. Tom joins us
• 0:46
  Speaker 1: here on our Bloomberg Interactive Brokers studio. Trust me, they
• 0:48
  Speaker 1: have lots of money, the tech tech tons good jillions Jullian.
• 0:52
  Speaker 1: So Tom, what do we do here? Again? A great
• 0:55
  Speaker 1: first half of the year, Probably a tendency for a
• 0:58
  Speaker 1: lot of investors is to protect act what they made.
• 1:01
  Speaker 1: If that's what somebody comes to, what do you tell them, Yeah,
• 1:04
  Speaker 1: come to me a lot to ask that. I think
• 1:05
  Speaker 1: it's all right. Question you get. Protection can come in
• 1:08
  Speaker 1: lots of shapes and sizes, right, I want to protect
• 1:10
  Speaker 1: myself by still staying invested. I think adding longer maturity
• 1:14
  Speaker 1: bonds UH is a great port portfolio hedge. Common pushback
• 1:18
  Speaker 1: eels are so low, Tom, why would I do that? Well,
• 1:21
  Speaker 1: they could go lower and maybe we want to talk
• 1:22
  Speaker 1: about that. The other pieces are gold. I think historically
• 1:25
  Speaker 1: has been a great late cycle play and it protects you.
• 1:29
  Speaker 1: My My only pushback there is it doesn't have any
• 1:31
  Speaker 1: yield to it, so it's a pure protection play. And
• 1:34
  Speaker 1: then what we have seen most on the first half
• 1:36
  Speaker 1: of the of the year was forward steep in their trades,
• 1:39
  Speaker 1: the place where the spread between a two year treasury
• 1:41
  Speaker 1: and a tenure treasury would would steep in a down
• 1:44
  Speaker 1: down draft scenario, but the forward market was relatively flat,
• 1:47
  Speaker 1: so we had people positioning to protect their portfolio for
• 1:50
  Speaker 1: a world where the Fed had to cut aggressively and
• 1:52
  Speaker 1: steep in the curve. They were using that as a
• 1:53
  Speaker 1: portfolio hedge could get lots of leverage in that trade. Um,
• 1:57
  Speaker 1: that trade I think has largely played out. The forward
• 1:59
  Speaker 1: market is steepening already, so I think this is still
• 2:01
  Speaker 1: a good trade, but it's not going to protect your
• 2:02
  Speaker 1: portfolio the same way we thought it would earlier in
• 2:04
  Speaker 1: the year. So you're not recommending bitcoin, No, we're not.
• 2:07
  Speaker 1: That's not part of our two kit at the moment.
• 2:09
  Speaker 1: And I'll pause there alright, seem might become want to
• 2:13
  Speaker 1: want to look for I do have to wonder what
• 2:15
  Speaker 1: you're expecting for Friday. We do get that payrolls number,
• 2:18
  Speaker 1: and the market certainly is positioned for three basis point
• 2:21
  Speaker 1: rate cuts by December. What do we need to see
• 2:24
  Speaker 1: in order to maintain calm on Friday? Yeah, the calm
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  Speaker 1: number I think is north of to one fifty, roughly
• 2:32
  Speaker 1: around consensus. Um. I think you see anything under a hundred,
• 2:36
  Speaker 1: and I think you have to start to think, well,
• 2:37
  Speaker 1: what does the Fed do in July? Is it? Do
• 2:39
  Speaker 1: we have to start the price twenty five basis point
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  Speaker 1: cut in July? This conversation, I think gets gets very
• 2:45
  Speaker 1: myopically focused. What does the Fed do in July? The
• 2:47
  Speaker 1: base case, I think at this point has to be
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  Speaker 1: that they cut twenty five basis points. Inflation expectations are low.
• 2:53
  Speaker 1: Growth is rolling over. But most importantly, the Fed hasn't
• 2:56
  Speaker 1: pushed back on this. They have not pushed back on
• 2:58
  Speaker 1: financial market pricing, So that should tell us that they
• 3:01
  Speaker 1: are relatively comfortable with the way the market is pricing
• 3:03
  Speaker 1: at this point. Um between now and then Power will
• 3:06
  Speaker 1: speak one more time, and assuming Friday's job job report
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  Speaker 1: is okay, I think you'll have actually Powell lean into
• 3:11
  Speaker 1: and say, you know, what is okay with fifty is unlikely? Okay?
• 3:16
  Speaker 1: So what's the big risk on Friday? Oh? I think
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  Speaker 1: the risk is that we start to see a crack
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  Speaker 1: in the in the labor market. This has been the
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  Speaker 1: foundation of the argument that there's no emergency happening right now.
• 3:30
  Speaker 1: The Fed's gonna cut, but it's doing it because it's
• 3:32
  Speaker 1: a recognition maybe that they hiked one or two times
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  Speaker 1: too many last year. They're gonna get get down towards
• 3:37
  Speaker 1: a lower neutral rate. If the consumers cracks, which it
• 3:40
  Speaker 1: tends to be the last piece to crack um that
• 3:44
  Speaker 1: argument that they're they're they're only gonna hike sorry, excuse me,
• 3:47
  Speaker 1: only gonna cut one or two times looks less likely,
• 3:50
  Speaker 1: and it's more likely they'll have to cut aggressively. UM
• 3:52
  Speaker 1: So I think that's the real risk scenario. All right,
• 3:54
  Speaker 1: that's a good, good some ready for the FED. Let's
• 3:56
  Speaker 1: go across to Europe. We have a new ECB president,
• 3:59
  Speaker 1: Christine the Guard. What does that mean for you and
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  Speaker 1: for markets? Do you think I think we just priced
• 4:03
  Speaker 1: out a hawkish leadership from the e c B. That's
• 4:07
  Speaker 1: got to be step number one recognition. Um. From what
• 4:10
  Speaker 1: we can deduce from her is that she's likely to
• 4:13
  Speaker 1: be supportive of accommodation for from the ECB going forward,
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  Speaker 1: given the limited impact we've we've seen in her past statements.
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  Speaker 1: Kind Of an interesting fact if we remember before ECB
• 4:24
  Speaker 1: instituted QUI the I m F report that year, six
• 4:28
  Speaker 1: months before QUWEE came out, she suggested in there that
• 4:31
  Speaker 1: que was warranted if inflation remained low for a long time.
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  Speaker 1: So she even favored unconventional tools back in. I don't
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  Speaker 1: see anything and what she said since then that would
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  Speaker 1: suggest otherwise. So that's definitely encouraging the doves over in Europe.
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  Speaker 1: I do want to just bring me this headline at
• 4:47
  Speaker 1: President Trump just tweeting that China and Europe are playing
• 4:50
  Speaker 1: a big currency manipulation game. You are seeing the dollar
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  Speaker 1: move a bit on this UH weaketting a touch against
• 4:56
  Speaker 1: its major peers. I'm wondering how the dollar plays in here.
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  Speaker 1: If the dollar does continue to weaken, is that supportive
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  Speaker 1: for US bonds or not? Considering the fact that a
• 5:07
  Speaker 1: lot of Japanese investors are coming in an unhedged basis. Yeah,
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  Speaker 1: this question gets tough that the monetary policy accommodation is
• 5:16
  Speaker 1: globally competitive at this point. So I think you have
• 5:19
  Speaker 1: to answer the where will currency go question with who
• 5:22
  Speaker 1: has more ammunition? Who has more ability to ease financial conditions?
• 5:26
  Speaker 1: Is it Japan? Probably not? In the developed world? Is
• 5:29
  Speaker 1: it Europe? Probably not, It's probably the FED. So between
• 5:34
  Speaker 1: your your timing, now, where does flight to quality come
• 5:37
  Speaker 1: into play? If you hit a downdrafting growth that's substantial
• 5:41
  Speaker 1: versus a FED that's trying to ease financial conditions to
• 5:44
  Speaker 1: prevent that from happening. So I think we're in a
• 5:46
  Speaker 1: period now where the dollar is likely to be um
• 5:49
  Speaker 1: biased to depreciate. But you're you're you're talking about a
• 5:52
  Speaker 1: timing game now, I think, and to be very clear,
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  Speaker 1: my base case is not that we hit UH substantial
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  Speaker 1: downdrafting growth over the next six to twelve months, but
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  Speaker 1: we do. We do place a one and three chance
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  Speaker 1: of that happening UH in the next six to twelve months.
• 6:05
  Speaker 1: It's quite high. Tom Kennedy, You'll have to come back
• 6:08
  Speaker 1: after July four holiday and elucidate more of your opinions,
• 6:11
  Speaker 1: because I've got a lot more questions. Tom Kennedy, Global
• 6:14
  Speaker 1: head of Macro and Fixing Strategy at JP Morgan Private Bank. Well,
• 6:31
  Speaker 1: Christine Lagarde, head of the i m F, is poised
• 6:34
  Speaker 1: to take the home of the European Central Bank after
• 6:36
  Speaker 1: Mario dragging leaves in October with us to help us
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  Speaker 1: break this down. As Irene Finelle Higman, she is an
• 6:43
  Speaker 1: adjunct professor of International Affairs at Columbia University in New
• 6:46
  Speaker 1: York City. I mean, thanks so much for having us
• 6:49
  Speaker 1: to what extent was this announcement of miss Laguard a surprise? UM?
• 6:55
  Speaker 1: I think it was, first of all, thank you for
• 6:57
  Speaker 1: letting me come back on Bloomberg to discuss this. UM.
• 7:00
  Speaker 1: I think that this was a surprise, But at the
• 7:05
  Speaker 1: same time, everyone thinks it's a very smart choice. It
• 7:09
  Speaker 1: was a surprise because it was assumed that this would
• 7:12
  Speaker 1: go to a more conventional or traditional high level economist
• 7:16
  Speaker 1: or other head of a central bank. However, I want
• 7:19
  Speaker 1: to make one point because one of the comments has
• 7:22
  Speaker 1: centered that Madame Lagat would bring more political expertise rather
• 7:26
  Speaker 1: than economic central bank expertise. However, it's important to remember
• 7:31
  Speaker 1: that following the sovereign debt crisis in Europe from two
• 7:34
  Speaker 1: thousand ten to two thousand and fourteen, this was a
• 7:38
  Speaker 1: very unique time where for the first time, the I
• 7:41
  Speaker 1: m F under before that DSK and Lagoud, the e
• 7:45
  Speaker 1: c B under Tricia and and Hagi and the EU
• 7:48
  Speaker 1: Commission had to work extremely closely together for the famous
• 7:53
  Speaker 1: Troika to try to bail out these countries, both on
• 7:56
  Speaker 1: the sovereign nation basis and on the banking sector. So
• 8:00
  Speaker 1: the relationship and knowledge and connectivity between the I m
• 8:05
  Speaker 1: F and the e c B is far deeper than
• 8:07
  Speaker 1: it would have been in other circumstances. I mean, this
• 8:10
  Speaker 1: is a really interesting point, and I have to wonder
• 8:12
  Speaker 1: there have been a lot of comments about her nomination,
• 8:15
  Speaker 1: about Christine Lagard's nomination saying in general, being the head
• 8:18
  Speaker 1: of a central bank is becoming increasingly a political role
• 8:21
  Speaker 1: in less of an economics role. I'm wondering, given the
• 8:25
  Speaker 1: backdrop that is unique to the European Union, do you
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  Speaker 1: think that is a leap too far and that this
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  Speaker 1: really is an ECB specific necessity for a political kind
• 8:35
  Speaker 1: of figure rather than simply an economics one. I think
• 8:39
  Speaker 1: it's a combination. Um. I think clearly the e c
• 8:43
  Speaker 1: B right now has had marvelous leadership under Draggy, but
• 8:48
  Speaker 1: even more important, the e c B has taken on
• 8:51
  Speaker 1: a mandate and an expanded scope of functions far beyond
• 8:55
  Speaker 1: its original mandate pure price stability and monetary policy. Under
• 9:00
  Speaker 1: the new banking Union in Europe. The ECB today is
• 9:04
  Speaker 1: very much in the same position as the said on
• 9:07
  Speaker 1: having both extensive and expansive supervisory and monitoring power over
• 9:13
  Speaker 1: the major banks in the Eurozone area and in of
• 9:17
  Speaker 1: course all European banking sectors. So this already puts it
• 9:22
  Speaker 1: in a different position where clearly inter relationship between governments
• 9:26
  Speaker 1: and between the banks and the national central banks is
• 9:29
  Speaker 1: much tighter, is much greater than it would have been.
• 9:33
  Speaker 1: Whether this supplies more to the e c B uh
• 9:37
  Speaker 1: than elsewhere, that may be the case because of the
• 9:40
  Speaker 1: unique structure of the Eurozone, and also because a brand
• 9:45
  Speaker 1: new new commission is now also coming into play post crisis.
• 9:49
  Speaker 1: So I think all of these factors played together that
• 9:53
  Speaker 1: there is no longer a way to nicely compartmentalize the
• 9:56
  Speaker 1: economic side on the political side. So, Professor, what do
• 10:00
  Speaker 1: you think Madame Lagar's goals and strategy will be when she,
• 10:05
  Speaker 1: assuming she assumes this position. I think she will probably
• 10:10
  Speaker 1: follow very closely uh the Druggy both methodology and policy. Uh.
• 10:16
  Speaker 1: There seems to be very much a continuation UH. She
• 10:20
  Speaker 1: herself has uh seems to have had an expansive you
• 10:24
  Speaker 1: of the role of major both multilateral and central banks
• 10:29
  Speaker 1: in helping UH to stabilize economies maintaining stability, taking a
• 10:35
  Speaker 1: very cautious approach, not to assume that economies are, particularly
• 10:39
  Speaker 1: in Europe, suddenly doing well enough for anything dramatic to occur.
• 10:43
  Speaker 1: Yet at the same time, she will have to be
• 10:45
  Speaker 1: very careful because they're not that many tools left in
• 10:49
  Speaker 1: a sense, uh for the ECB to play with. UH.
• 10:53
  Speaker 1: So there I think she will need expert economic advice
• 10:57
  Speaker 1: on the technical side, But what will be very important
• 11:00
  Speaker 1: is to first of all established prestige and total credibility
• 11:04
  Speaker 1: in the markets, particularly in Europe, which I think she
• 11:07
  Speaker 1: has because of her contact, because of her connection with
• 11:11
  Speaker 1: the different governments and what she accomplished at the I M. S.
• 11:15
  Speaker 1: I think also she will be in a very interesting
• 11:18
  Speaker 1: position along with the new heads at the EU Commission
• 11:22
  Speaker 1: and Council, of dealing with Brexit, because Brexit is not
• 11:26
  Speaker 1: only the political set of issues, but it's very much
• 11:29
  Speaker 1: also the set of issues or what policy will the
• 11:31
  Speaker 1: Bank of England take, What will be the into relationship
• 11:34
  Speaker 1: between the ECB and the Bank of England, what maybe
• 11:37
  Speaker 1: the impact, So she will immediately be thrown much more
• 11:41
  Speaker 1: into that, and it will also be a question of
• 11:45
  Speaker 1: basically very carefully and slowly monitoring growth in Europe. So
• 11:52
  Speaker 1: I guess as you're talking about the need for the
• 11:55
  Speaker 1: sort of political savvy, I'm struck by the counter argument
• 11:59
  Speaker 1: to this, the idea the more political essential bankhead gets,
• 12:03
  Speaker 1: the less economic focus it will become in the more
• 12:06
  Speaker 1: frankly arbitrary policy will become more hinged on the popular
• 12:11
  Speaker 1: sentiment of the time. And I'm just wondering, you know,
• 12:15
  Speaker 1: is that a concern of yours? Is there a historical
• 12:18
  Speaker 1: precedent in terms of an increasingly political central bank that
• 12:22
  Speaker 1: gives you comfort rather than pause. I'm not sure that
• 12:27
  Speaker 1: the central bank or any central bank will necessarily respond
• 12:32
  Speaker 1: to more popular sentiment. And in fact, if anything we've
• 12:36
  Speaker 1: seen with the said with your own power really the
• 12:39
  Speaker 1: ability to push back on sudden and acute political pressure.
• 12:45
  Speaker 1: So I think that if it's an issue of suddenly
• 12:49
  Speaker 1: seeing the central Bank the e c B is functioning
• 12:52
  Speaker 1: as an arm of German policy, I don't think that
• 12:55
  Speaker 1: will be the case. Um. I think right now what
• 12:58
  Speaker 1: it does show is a tighter German French partnership which
• 13:02
  Speaker 1: clearly brilliantly orchestrated, bringing in a German woman now as
• 13:07
  Speaker 1: a new Urslabander Lean as a new EU Commissioner president
• 13:11
  Speaker 1: and Christine Lagat at the ECB. That's one element, which yes,
• 13:18
  Speaker 1: is more political, but fundamentally what we saw with Droggy,
• 13:22
  Speaker 1: what we seem to have seen all along with the FED,
• 13:24
  Speaker 1: they seem to be very cautious and more responding to
• 13:28
  Speaker 1: in fact all of the economic facts, rather than responding
• 13:33
  Speaker 1: more at hoc to any particular sentiment. Irene Finelnigman, thank
• 13:38
  Speaker 1: you so much for joining us today. Irene finel Hanigman.
• 13:42
  Speaker 1: Is an adject professor of International Affairs at Columbia University
• 13:45
  Speaker 1: in New York, talking about Christine Lagarde's nomination to head
• 13:49
  Speaker 1: the ECB. Initially, when we talked about blockchain, it was
• 14:09
  Speaker 1: a sort of sexy, unknown thing that was going to
• 14:11
  Speaker 1: lead to the disruption of traditional currencies. Now it has
• 14:15
  Speaker 1: actually got a little bit more on the back burner,
• 14:17
  Speaker 1: and yet it has been increasingly adopted as a mainstay
• 14:21
  Speaker 1: for a lot of industries, and here to talk about it.
• 14:24
  Speaker 1: I'm so glad to say, as Bridget of Redlagon, she
• 14:27
  Speaker 1: is Senior vice president of Global Industries, Clients, Platforms and
• 14:32
  Speaker 1: Blockchain for IBM. Bridget, thank you so much for being
• 14:35
  Speaker 1: with us. Can you first just talk a little bit
• 14:38
  Speaker 1: about the adoption of blockchain across a variety of industries
• 14:42
  Speaker 1: so far? Yes, thanks Lisa for having me on the show.
• 14:46
  Speaker 1: Stem so happy to talk about it. So Yes, there's
• 14:49
  Speaker 1: been a lot of hype, as you said, around the
• 14:52
  Speaker 1: crypto and elements on the currency elements of blockchain, but
• 14:56
  Speaker 1: the real aspect of blockchain allows is very complex. Um
• 15:02
  Speaker 1: multi party processes or workflows between customers, competitors and industries
• 15:09
  Speaker 1: can be safely stored and exchanged in a way that
• 15:14
  Speaker 1: they can be shared between all participants and once something
• 15:19
  Speaker 1: is put on a blockchain, it can't be changed. We
• 15:22
  Speaker 1: could talk about it being immutable, which means that anything
• 15:25
  Speaker 1: that needs to show provenance will actually work fantastically on
• 15:30
  Speaker 1: a blockchain. So um, we are working with many enterprise
• 15:35
  Speaker 1: blockchains across diverse industries like shipping, which we've got some
• 15:38
  Speaker 1: big news I'll talk to you about later, but also
• 15:41
  Speaker 1: trust and provenance for food and food safety, diamonds and jewelry,
• 15:46
  Speaker 1: commodities trading UM and energy trading off a grid, UM,
• 15:51
  Speaker 1: carbon credits, plastic recycling. Um. So it's really in real
• 15:57
  Speaker 1: life aspects for big, big industries like food and and shipping,
• 16:02
  Speaker 1: but also small industries like microfinance in Kenya where we
• 16:05
  Speaker 1: actually have a microfinance blockchain. So particularly excited to see
• 16:09
  Speaker 1: the real work, so particulous a sense of how blockchain
• 16:12
  Speaker 1: is being used in the global shipping supply chain. Yes,
• 16:16
  Speaker 1: so so that that that poll so so Actually, just
• 16:20
  Speaker 1: yesterday we announced that our trade lanes are shipping blockchain
• 16:27
  Speaker 1: for the shipping industry has An. We've announced that we
• 16:31
  Speaker 1: have two new members, Huppuck Lloyd and O N. E.
• 16:34
  Speaker 1: And this follows the news in May that CMA, CGM
• 16:38
  Speaker 1: and Mediterranean Shipping Company would be on the platform. We
• 16:41
  Speaker 1: started this a couple of years ago with MIRSK and
• 16:44
  Speaker 1: we are now in a situation where fifteen ocean carrier
• 16:47
  Speaker 1: lines are on the blockchain called trade lens Are blockchain,
• 16:52
  Speaker 1: and more than half of the world's ocean container cargo
• 16:56
  Speaker 1: will be available on this block chain. So so with
• 16:59
  Speaker 1: a users already, a hundred participants already. So why is
• 17:02
  Speaker 1: this important and what's the blockchain impact? Well, if you
• 17:05
  Speaker 1: think about it, nine of everything we use every day
• 17:09
  Speaker 1: is shipped over the oceans. It is the most primary
• 17:13
  Speaker 1: area of transport. And there's an estimate that around twenty
• 17:17
  Speaker 1: pc of the cost of shipping an item is in documents,
• 17:23
  Speaker 1: um and time wasted because of poor documentation. So an average,
• 17:27
  Speaker 1: an average simple shipment will have around two hundred documents exchange,
• 17:31
  Speaker 1: around three hundred different people involved, all on paper, all
• 17:35
  Speaker 1: on different systems. And so what we are able to
• 17:38
  Speaker 1: do is we've created an integrated, trusted blockchain platform where
• 17:43
  Speaker 1: every participant in the shipping cycle to think about a
• 17:46
  Speaker 1: freight forwarder, the person who's shipping the goods, the carriers
• 17:49
  Speaker 1: the customs, the ports, the the carrier, the land carrier
• 17:54
  Speaker 1: will all share that data on the block blockchain and
• 17:59
  Speaker 1: be able to instantly and there's kind of like one
• 18:02
  Speaker 1: version of the truths. So what that allows you to do, right,
• 18:06
  Speaker 1: is that anyone can quickly pinpoint where their cargo is
• 18:10
  Speaker 1: located the state of its availability. That reduces portant terminal congestion,
• 18:15
  Speaker 1: reduces time for truckers, reduces customs and inspections delays um
• 18:20
  Speaker 1: and ultimately shortens the lead time. So then so we
• 18:23
  Speaker 1: go ahead. I really wanted to just pick up on
• 18:26
  Speaker 1: one point. You said that twenty of shipping costs stem
• 18:30
  Speaker 1: from the documentation process, and I'm just wondering if you
• 18:33
  Speaker 1: could address how much you expect using the blockchain for
• 18:37
  Speaker 1: the shipping industry could reduce the cost. So so we
• 18:42
  Speaker 1: we we We are using data actually supplied by the
• 18:45
  Speaker 1: World Economic Forum, and the World Economic Forum believes that
• 18:48
  Speaker 1: reducing barriers within the international supply chain, which means really
• 18:52
  Speaker 1: the things I've talked about, you know, speeding speeding up,
• 18:55
  Speaker 1: reducing documentation, improving lead times, reducing delays, using spoilage because
• 19:01
  Speaker 1: things are sitting there. There's a view that that could
• 19:03
  Speaker 1: um increase GDP worldwide GDP by five and total trade
• 19:09
  Speaker 1: volume by fifteen percent. So those are those are those
• 19:13
  Speaker 1: are significant. Um if you think about economic impact factors,
• 19:18
  Speaker 1: both in terms of reducing costs but also um increasing
• 19:22
  Speaker 1: inclusion for people to be able to actually ship globally
• 19:25
  Speaker 1: and to export um so so again, using the World
• 19:28
  Speaker 1: Economic Forum, there's an estimate that improved these kinds of
• 19:32
  Speaker 1: improvements would improve by around fifteen percent. So we were
• 19:37
  Speaker 1: were we are, we are, we are we are. One
• 19:40
  Speaker 1: of the reasons I think that the whole industry is
• 19:43
  Speaker 1: is really stepping up and getting involved in this blockchain
• 19:46
  Speaker 1: is because it does benefit every participant in this ecosystem
• 19:50
  Speaker 1: to solve a problem it couldn't be solved in another way.
• 19:52
  Speaker 1: That is fascinating. I mean, the five percent GDP left
• 19:55
  Speaker 1: would be uh, you know, monumental. What the see how
• 19:58
  Speaker 1: that plays our Bridget Vancrology and think you so much.
• 20:00
  Speaker 1: Bridget is senior vice president of Global Industries, Clients, Platforms,
• 20:04
  Speaker 1: and Blockchain for IBM. Broadcom tries again after the debacle
• 20:22
  Speaker 1: with Qualcom. Broadcom now in advanced talks to buy cybersecurity
• 20:27
  Speaker 1: from Symantec Corporation. Cybersecurity obviously a very hot field right now,
• 20:32
  Speaker 1: given how many threats there are from hackers. Joining us
• 20:35
  Speaker 1: now to talk about the deal, Man Deep Sing, senior
• 20:37
  Speaker 1: tech industry analyst for Bloomberg Intelligence, very much in the
• 20:40
  Speaker 1: office and present and analyzing this deal onto this pre
• 20:43
  Speaker 1: July four day in New York City. So, uh, Man Deep,
• 20:47
  Speaker 1: what can you tell us about this deal that you
• 20:49
  Speaker 1: find most interesting? Well, this steal is very similar to
• 20:52
  Speaker 1: what Broadcom did with c A last year, and Water
• 20:56
  Speaker 1: tells you is the company is trying to diversify from
• 20:59
  Speaker 1: hardware to software. It's fairly obvious this deal has the
• 21:02
  Speaker 1: exact same characteristics. Four billion dollars in revenue from Semantic
• 21:07
  Speaker 1: and the company Semantic has been, you know, under performing
• 21:11
  Speaker 1: for the last three years. When you look at the
• 21:13
  Speaker 1: cybersecurity market, which is extremely fragmented, Semantic hasn't been able
• 21:17
  Speaker 1: to turn itself around. They have had four CEO changes
• 21:22
  Speaker 1: and now you know they don't even have a permanent CEO.
• 21:25
  Speaker 1: So it looks like it's right in the playbook of
• 21:28
  Speaker 1: hawkt Hand, the CEO of Broadcam. He really could execute
• 21:32
  Speaker 1: on this one. And there are some synergies that obviously
• 21:36
  Speaker 1: will come about when this deal gets announced or these
• 21:38
  Speaker 1: Broadcom folks are really active on the M and A front.
• 21:41
  Speaker 1: I mean, is Lisa mentioned Qualcom that deal was blocked
• 21:44
  Speaker 1: by President Trump, but they bought ce A last year.
• 21:48
  Speaker 1: Is the street backing up this management in this board
• 21:50
  Speaker 1: in terms of this aggressive acquisition policy? They are and
• 21:53
  Speaker 1: Broadcom is a serial acquirer. You can see that. You know,
• 21:56
  Speaker 1: It's something that I feel it's in the DNA of
• 21:59
  Speaker 1: the company, and they execute very well. So if this
• 22:02
  Speaker 1: anybody out there, you know, and when it comes to
• 22:04
  Speaker 1: large tech that can really turn around Semantic and fix it,
• 22:08
  Speaker 1: it's going to be Broadcom. And and so from that perspective,
• 22:11
  Speaker 1: it makes a lot of sense when you talk about
• 22:13
  Speaker 1: synergies what are they because I do think of Broadcom
• 22:16
  Speaker 1: as being a hardware story and I think of Semantic
• 22:19
  Speaker 1: as being a software company. Sure, so what Broadcom has
• 22:22
  Speaker 1: showed with CIA integration is obviously there are some revenue
• 22:26
  Speaker 1: synergies because they cater to an enterprise customer base. So
• 22:30
  Speaker 1: Semantex's revenue half of it comes from enterprise. So over
• 22:35
  Speaker 1: there you could see now that Broadcom has a footprint
• 22:38
  Speaker 1: and infrastructure software with CIA integration, they can really leverage
• 22:42
  Speaker 1: Semantic on the enterprise side. On the consumer side, which
• 22:45
  Speaker 1: is Semantec's flagship Norton product and the Lifelog business, I'm
• 22:50
  Speaker 1: not sure if there are any imminent synergies, especially on
• 22:53
  Speaker 1: the revenue side. On the cost side, yes, there are
• 22:56
  Speaker 1: some synergies that will come about simply because this company
• 23:00
  Speaker 1: is too big. Their skills in marketing expenses are very
• 23:03
  Speaker 1: high for Semantic, and you can see there are some
• 23:06
  Speaker 1: cost synergies over there. So obviously this deal has not
• 23:08
  Speaker 1: been announced. Speculating that it will occur any senses to evaluation.
• 23:12
  Speaker 1: I'm just looking at Broadcom stockdown about almost four percent today. Um,
• 23:16
  Speaker 1: is there a risk here that they might overpay? Well,
• 23:20
  Speaker 1: one thing is they're more likely to go for a
• 23:23
  Speaker 1: stock deal simply because Broadcom trads at about five to
• 23:27
  Speaker 1: six time sales. Semantech trads at about three to four
• 23:30
  Speaker 1: time sales. So I can see, you know, why a
• 23:33
  Speaker 1: Broadcom may be interested in using their stock more. And
• 23:36
  Speaker 1: we've seen that salesforce, you know, buying tablet with an
• 23:39
  Speaker 1: all stock offer. So given the leverage situation with Broadcom,
• 23:44
  Speaker 1: they're more likely to use some stock here. One thing
• 23:48
  Speaker 1: I'm curious about is why is Broadcom so aggressive. Why
• 23:51
  Speaker 1: is their playbook acquisitions to such a degree. Well, look
• 23:56
  Speaker 1: at it this way. Broadcom's DNA at the company is
• 24:00
  Speaker 1: built around hardware. They're really trying to you know, uh
• 24:05
  Speaker 1: and and hardware businesses have lower ebit dum margins operating margins,
• 24:09
  Speaker 1: so I think what software gives them. In this case,
• 24:11
  Speaker 1: Semantech has operating margins over thirty So now with c
• 24:16
  Speaker 1: A and Semantech broadcomps operating margin profile goes up simply
• 24:21
  Speaker 1: because software businesses are attractive. So are we going to
• 24:24
  Speaker 1: see more M and A here in the security cybersecurity space?
• 24:27
  Speaker 1: I mean, Lisa correctly pointed out that, boy, it's it's
• 24:30
  Speaker 1: a hot area. Do you think it's going to see
• 24:32
  Speaker 1: more consolidation there? Absolutely? Cybersecurity is one area in the
• 24:36
  Speaker 1: of the software market that's very fragmented. There are new
• 24:39
  Speaker 1: attacks happening every day, there are new companies popping up
• 24:42
  Speaker 1: every day that solve those attacks. And you know, the
• 24:45
  Speaker 1: fragmentation is a nightmare for enterprises because they're just putting
• 24:51
  Speaker 1: band aids, you know, putting one solution on top of another.
• 24:54
  Speaker 1: And from an enterprise perspective, they want to see some
• 24:57
  Speaker 1: consolidation in the cybersecurity space. So if you've already seen
• 25:01
  Speaker 1: the likes of Paul Altel and Fortnet, and you know
• 25:04
  Speaker 1: the next gen firewall security companies being acquisitive, you're gonna
• 25:08
  Speaker 1: see more of fit. I think with this deal, I
• 25:10
  Speaker 1: feel like people just want to throw all the smart
• 25:12
  Speaker 1: people in cybersecurity programming in a room and say, just
• 25:15
  Speaker 1: go figure out what's next. I say, if I were
• 25:17
  Speaker 1: a young engineer coming out of school, I'd be like,
• 25:19
  Speaker 1: I'm gonna be a forget the app thing. I'm gonna
• 25:21
  Speaker 1: be a cybersecurity expert, because that's just like a growth
• 25:24
  Speaker 1: second industry for I can't forever. Do you have time
• 25:27
  Speaker 1: to have lunch with my son? Of course? Excellent men,
• 25:31
  Speaker 1: Deep saying thank you so much. Mendep Has, senior tech
• 25:33
  Speaker 1: industry annalyst for Bloomberg Intelligence. Thanks for listening to the
• 25:37
  Speaker 1: Bloomberg P ANDL podcast. You can subscribe and listen to
• 25:39
  Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.
• 25:43
  Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
• 25:46
  Speaker 1: Abram Woyds. I'm on Twitter at Lisa A. Bramwit's one
• 25:49
  Speaker 1: before the podcast. You can always catch us worldwide I'm
• 25:51
  Speaker 1: Bloomberg Radio