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Tech, EM, and US Steel · Bloomberg Intelligence

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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: I'm the Bloomberg Markets podcast called Apple Podcasts or wherever
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Speaker 2: you listen to podcasts, and at Bloomberg dot Com Slash podcast. Dan,
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Speaker 2: I've senior Equadanaos Whatbush Security covers all things technology. Hey Dan,
1:00
Speaker 2: let's start with the Apple news that just came across
1:02
Speaker 2: the tape here A little bit delaying or halting temporarily
1:05
Speaker 2: at least some of their watch sales in the US.
1:09
Speaker 2: What do you make of this news? Again, it stocks
1:11
Speaker 2: off about one point three percent today.
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Speaker 3: Yeah, I mean, look, there have been some issues on
1:16
Speaker 3: the on the Apple watch side, and a lot of
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Speaker 3: it is really around models in terms of what they're
1:21
Speaker 3: trying to drive. I view this as just a small
1:24
Speaker 3: bump of the room. But I actually think watchals this
1:28
Speaker 3: holiday season are going to be up double digit. So
1:30
Speaker 3: I viewed this is sort of noise relative to the
1:33
Speaker 3: broader story.
1:36
Speaker 4: And I was informed that you are at the airport.
1:39
Speaker 4: So for YouTube audience, unfortunately can't see Dan right now,
1:42
Speaker 4: but usually he's got the pastels on. Paul knows what
1:45
Speaker 4: I'm talking about, but he needs so we're disappointed there.
1:49
Speaker 4: But when you have a stock like this, obviously back
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Speaker 4: around at three trillion dollar market cap threshold, trading round
1:55
Speaker 4: records in news like this kind of breakdown to us,
2:00
Speaker 4: does it make sense to you because you'd think, I mean,
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Speaker 4: the stock's only down I think a little more than
2:04
Speaker 4: one percent at this point. Is it just kind of
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Speaker 4: a reason to sell a little bit here?
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Speaker 5: Yeah?
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Speaker 3: And does in my opinion this is the start of
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Speaker 3: the next phase of the Apple growth story, because essentially
2:16
Speaker 3: what's happening now is services is upticking. Despite some of
2:21
Speaker 3: the news come out of China. You know, I saw
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Speaker 3: Bloomberg report it, which is obviously overall headwind, China is
2:27
Speaker 3: actually resilient as overall demand. So when you put it together,
2:31
Speaker 3: I think a year from now, still in pastels, I
2:35
Speaker 3: think we're looking to afford trillion dollar mark now.
2:38
Speaker 2: So Dan give us I don't know your latest thinking
2:42
Speaker 2: on just China in general, because arguably there is no
2:45
Speaker 2: company in the world that is more exposed positively and
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Speaker 2: potentially negatively to China, both as a customer and as
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Speaker 2: a source of product. How do you break that down
2:57
Speaker 2: for your clients?
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Speaker 3: Yeah, look, I think, and someone like myself spends so
3:03
Speaker 3: much time in the region, you got to separate between
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Speaker 3: headline risk and what's really happening in the market. I
3:10
Speaker 3: think Huawei, what we've seen in terms of cold tech
3:13
Speaker 3: war between.
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Speaker 6: US and China.
3:15
Speaker 3: Yeah, it's an issue, but there's one hundred million iPhones
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Speaker 3: in China that have an upgrade in three years, so
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Speaker 3: the demand continues to be strong there, and I think
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Speaker 3: when it comes from a production perspective, they'll diversify some
3:29
Speaker 3: into India. But the reality is next two to three years,
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Speaker 3: I mean, that's not going to significantly change. That is
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Speaker 3: the hearts and lungs of the Apple story, supply and demand.
3:41
Speaker 4: And Dan, we know you're arguably the biggest bull on
3:44
Speaker 4: Wall Street when it comes to technology. But what do
3:46
Speaker 4: you think is the biggest risk to your brule case
3:49
Speaker 4: in the shorter term?
3:50
Speaker 2: Here?
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Speaker 3: Look, I think the biggest risk your term is China.
3:56
Speaker 3: It's not the numbers, it's not fed despite the poker game,
4:02
Speaker 3: you know, regard everyone knows you're gonna have cuts in
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Speaker 3: twenty four that I think creates really this Pillsbury dough
4:08
Speaker 3: Boys soft landing.
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Speaker 6: I think it's really the China story. It's the it's
4:12
Speaker 6: the geopolitical.
4:13
Speaker 3: But that's also why a lot of the Bears that
4:16
Speaker 3: have been hibernation mode through all of twenty twenty three,
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Speaker 3: they're starting to come out of their caves a little
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Speaker 3: and look at this market, because I believe it's started
4:26
Speaker 3: this new tech bowl market.
4:28
Speaker 2: Hey, Dan, I guess AI. As we think back to
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Speaker 2: twenty twenty three, AI was certainly a theme, the theme,
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Speaker 2: certainly the tech theme. As we look forward to twenty
4:38
Speaker 2: twenty four. Is there something else out there? How do
4:42
Speaker 2: you what's the theme for twenty twenty four in your mind?
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Speaker 6: Yeah, Paul, I think it's okay.
4:47
Speaker 3: I think it's really use cases because if you if
4:51
Speaker 3: you follow the breadcrumbs filew the use cases, you'll find
4:55
Speaker 3: the treasure. So the use cases are really what's gonna
4:58
Speaker 3: drive leg of growth for Microsoft, for Google, for what
5:06
Speaker 3: we see with the Godfather of AI and Vidia and Jenten,
5:09
Speaker 3: and then you have some of the pure players like Pound, Pier, Mango,
5:12
Speaker 3: Dib and others. And I think it's actually a year
5:14
Speaker 3: from now it's going to be the rest of tech.
5:16
Speaker 3: The rest of tech joins this party. I still view
5:21
Speaker 3: it from a tech party. It's nine to thirty pm,
5:25
Speaker 3: it's not two am.
5:27
Speaker 4: Who So, walk us through Tesla. You had a note
5:30
Speaker 4: that came out at the end of the last week
5:32
Speaker 4: talking about how Tesla battle with unions in Scandinavia. Now
5:35
Speaker 4: on the radar for the street, you do have a
5:37
Speaker 4: twelve month price target around three hundred and ten dollars
5:39
Speaker 4: currently trading for Tesla. Right now it stucks around two
5:42
Speaker 4: hundred and fifty seven dollars. Walk us through what you're
5:45
Speaker 4: seeing with Tesla here and what you see moving forward.
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Speaker 6: Yeah, I mean, look, I think when you look at.
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Speaker 3: Deliveries, feel d risk for Q four. I think we're
5:52
Speaker 3: seeing a good China number, and I think that's something.
5:56
Speaker 3: There's a stock that's going to probably move higher in
5:57
Speaker 3: the next few weeks, going to deliveries in early in
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Speaker 3: early January.
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Speaker 6: Bill with the.
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Speaker 3: Union issue, it's a UFC battle at WWE. I mean
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Speaker 3: they're they're starting to see it now in Scandinavia. It
6:09
Speaker 3: was Sweden originally, Now it's gone to Norway. Than when
6:12
Speaker 3: Denmark the worry here, you give in here then uaw
6:19
Speaker 3: sean fain. They watched this carefully, so you can't give
6:24
Speaker 3: it in to you give a mile.
6:25
Speaker 6: And I think that's why this battle is so.
6:27
Speaker 3: Important, because I think there's a better chance to me
6:31
Speaker 3: playing an NFL playoffs than teslavn union workers. Wow.
6:37
Speaker 2: Hey, so Dan, one of the things I'm trying to
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Speaker 2: get wrap my head around is again, AI, I guess
6:43
Speaker 2: I'm there. I was, you know, a little bit, you know,
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Speaker 2: I don't know, just cautious, skeptical at the beginning. I
6:49
Speaker 2: guess what would help me get a little bit more
6:51
Speaker 2: on board is I can go back and look at
6:54
Speaker 2: the IBC technology spend over the last you know, number
6:57
Speaker 2: of years. How much of that going forward incrementally will
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Speaker 2: be AI versus I don't know, just tech spending growth
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Speaker 2: in general.
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Speaker 3: Sure, it's a great question. I think actually it's it's
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Speaker 3: a phenomenal question because it hits it the crux here
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Speaker 3: in twenty twenty three, we think we'll less than one
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Speaker 3: percent of budgets or AI twenty four based on our analysis,
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Speaker 3: eight to ten percent of it budgets will be AI driven.
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Speaker 3: That's why it's the Latto ticket for those companies with
7:30
Speaker 3: the use cases, software chip services.
7:33
Speaker 6: That go into that market. And I think it's all
7:36
Speaker 6: use case driven.
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Speaker 3: Eighty use cases today, three four months ago you had
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Speaker 3: less than twenty.
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Speaker 4: We've talked so much, and especially analysts on Wall Street
7:45
Speaker 4: about the productivity boom potentially when it comes to AI.
7:50
Speaker 4: Walk us through what you think AI skills are and
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Speaker 4: how employees can acquire them.
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Speaker 3: Well, I think I was just I was at a
7:59
Speaker 3: conference speak in a few weeks ago, and it was
8:02
Speaker 3: more of an accounting conference, and you know they're My
8:06
Speaker 3: suggestion is, you know, for anyone on the account it's
8:09
Speaker 3: really gonna be developer language, whether it's Python or other.
8:12
Speaker 3: I think you're gonna see more and more from a
8:14
Speaker 3: developer language perspective starting early that you're going to see
8:18
Speaker 3: more starting take that over as another skill set, because
8:22
Speaker 3: if you understand AI and the developer language as more
8:27
Speaker 3: of these functional areas finance, marketing, within hospitals, within healthcare,
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Speaker 3: it's going to just from a skill set perspective and
8:37
Speaker 3: be that much more valuable.
8:38
Speaker 4: Do you think it's not necessarily than just the stereotypical
8:41
Speaker 4: STEM type careers. It can go beyond that.
8:45
Speaker 6: I think it goes way beyond that.
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Speaker 3: And that's why I just disagree with the view the
8:49
Speaker 3: whole like it takes away everyone's jobs, because I think
8:52
Speaker 3: in the the next three to five years it's a
8:55
Speaker 3: job creator when you actually start to look at what's
8:59
Speaker 3: going to happen from the developers first by marketing and
9:02
Speaker 3: use cases. And I think that's why it's so important.
9:06
Speaker 3: So then we'll be come out for the for really
9:08
Speaker 3: the next decade.
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Speaker 2: All right, Dan ives, thank you so much. We appreciate that.
9:12
Speaker 2: As always, Dan i'ves He's a managing director, senior equity
9:15
Speaker 2: analyst web Bush Securities and a huge Penn State fan
9:20
Speaker 2: he made even going down to Atlanta as Penn State
9:24
Speaker 2: football that Nitleylands continued preparations for the December thirtieth Peach
9:27
Speaker 2: Bowl date with old miss in Atlanta.
9:30
Speaker 4: I bet we see your picture on I bet you'll
9:32
Speaker 4: see that social medium.
9:33
Speaker 2: Yeah, he'll be out there on the field. We'll figure
9:35
Speaker 2: that out. So against a little bit of news out
9:37
Speaker 2: there on Apple today about a temporary hault of certain
9:40
Speaker 2: watches starting in a few days in the US, stock
9:45
Speaker 2: off a little more than one percent. Maybe on that news,
9:48
Speaker 2: dan Ives takeaway was not material to the overall story
9:52
Speaker 2: at Apple.
9:55
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10:09
Speaker 2: Niphan agreeing to buy US Steel for fourteen point one
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Speaker 2: billion dollars, the deal of the day, books Southerman Jorans,
10:15
Speaker 2: And she's a columnist covering all these industrial companies and
10:18
Speaker 2: end deals, so a great voice to get on that.
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Speaker 2: She's from Bloomberg Opinion zooming in from Boston. Hey Brooke,
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Speaker 2: what do you make of this deal. I mean, it
10:27
Speaker 2: kind of feels like I'm trying to wrap my head
10:29
Speaker 2: around the valuation. The last time I had paid attention,
10:33
Speaker 2: Cleveland Cliffs had a seven billion dollar offer on the table,
10:37
Speaker 2: and now fourteen billion. Where did that come from?
10:41
Speaker 7: It is certainly a very robust premium. I mean, I
10:44
Speaker 7: think that underscores the value of these assets, especially in
10:47
Speaker 7: the context of the saer amount of investment we're seeing
10:51
Speaker 7: in the US in infrastructure and also in factory construction.
10:54
Speaker 7: You need steel to make all of those things. US
10:57
Speaker 7: steel has also been pivoting toward greener production strategies. All
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Speaker 7: of that is very valuable, and these are scarce assets.
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Speaker 7: There's not that many big steel companies left to purchase
11:08
Speaker 7: and for nipon. The ability to gain a really strong
11:11
Speaker 7: foothold in the US, I think is what's really driving
11:14
Speaker 7: this premium here. But it's certainly a significant step up
11:17
Speaker 7: from what we were talking about in August when Cleveland
11:19
Speaker 7: Cliffs lobbed in its initial bid, And I think that's
11:22
Speaker 7: why you see Cleveland Cliffs out this morning congratulating US
11:25
Speaker 7: steal on this steal and wishing them luck. I think
11:28
Speaker 7: that economic gulf is just far too wide for them
11:31
Speaker 7: to be able to close.
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Speaker 4: If you look at US steel stock ticker simple AX
11:35
Speaker 4: up about twenty six percent on pace for its best
11:37
Speaker 4: day since August fourteenth of earlier this year, you look
11:41
Speaker 4: at Nippon, it's actually down about close to five percent.
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Speaker 4: So is it fair to say, if you are a
11:47
Speaker 4: US steel shareholder that they're liking this steal?
11:51
Speaker 7: I mean sure, I don't know what there is to
11:53
Speaker 7: not like about this steal. If you're a US steel shareholder,
11:57
Speaker 7: it's normal for you know, stocks of the acquired to
12:00
Speaker 7: go down on the announcement. I mean, I think the
12:02
Speaker 7: biggest question as a US steel shareholder is what the
12:05
Speaker 7: US government is going to think of this steal. You know.
12:09
Speaker 7: On the call today to talk about it, executives said
12:11
Speaker 7: they did not foresee any issues from ascifius perspective, although
12:15
Speaker 7: of course this will get a review with a foreign
12:18
Speaker 7: company buying a US one, I think that it might
12:21
Speaker 7: be slightly more complicated than their answers on the call suggested.
12:25
Speaker 7: It's this is a very politically charged industry. It was
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Speaker 7: not that long ago that we were slapping tariffs on
12:31
Speaker 7: steel imported from Japan as a quote unquote national security issue.
12:37
Speaker 7: And so I think this is going to get a
12:40
Speaker 7: lot of scrutiny. We already had some comments from politicians,
12:44
Speaker 7: you know, back in August, when this kind of first
12:47
Speaker 7: came under you know, the prospect of a deal was
12:50
Speaker 7: being talked about, the number of politicians said, we do
12:53
Speaker 7: not want to see US steals sold to a foreign company.
12:55
Speaker 7: And obviously that is the announcement that we're getting today.
12:58
Speaker 7: And so it's going to be interesting to see what
13:00
Speaker 7: happens with this now, I will say. I mean, there's
13:02
Speaker 7: been a number of foreign companies making investments in the US,
13:06
Speaker 7: spurred by the incentives included in the Chips Act, included
13:10
Speaker 7: in the IRA those have been cheered by the Biden administration.
13:13
Speaker 7: And from a practical standpoint, if jobs are being created
13:16
Speaker 7: and factories are being built, does it really matter if
13:19
Speaker 7: it's a US company or a US subsidiary of a
13:21
Speaker 7: company that's based in a country that's a strong US ally.
13:25
Speaker 7: Maybe not, But politics can be very prickly.
13:28
Speaker 2: How about the unions, Brooke, I know the unions are
13:31
Speaker 2: a very important voice in these deals, and I believe
13:35
Speaker 2: the union had supported the Cleveland Cliffs offered. I'm not
13:38
Speaker 2: sure about this one.
13:41
Speaker 7: No and so they you know, they the head of
13:44
Speaker 7: the unions made some comments of Bloomberg News this morning
13:46
Speaker 7: in the interview that the notice on this deal was
13:49
Speaker 7: rather short and they were not involved in the communication
13:53
Speaker 7: leading up to it, and so it will be interesting
13:57
Speaker 7: to see, you know, what tactic the union takes doesn't
14:00
Speaker 7: like this deal. I don't know what avenues they have
14:03
Speaker 7: to push back. At this point, they'd transferred their right
14:06
Speaker 7: to they'd said they were willing to transfer their right
14:08
Speaker 7: to counterbid to Cleveland Cliffs. But as I mentioned, Cleveland
14:11
Speaker 7: Cliffs is that this morning congratulating us steal and the deal.
14:14
Speaker 7: They do not look like they're gearing up to try
14:17
Speaker 7: to challenge this offer. And the difference between what Cleveland
14:21
Speaker 7: Cliffs was offering Nipon is now offering is very wide,
14:25
Speaker 7: and that would be a very tough bridge to tough
14:28
Speaker 7: gap to bridge. So I'm not entirely sure what the
14:31
Speaker 7: union can do to block the deal.
14:33
Speaker 6: At this point.
14:33
Speaker 4: So any sort of regulatory hurdles.
14:37
Speaker 7: Yes, like I just was talking about with Cyphius, I
14:39
Speaker 7: think that's going to be a key one to watch.
14:41
Speaker 2: So there's nothing like can you actually explain Syphius to me?
14:46
Speaker 2: Because I was just going to ask about DOJ or FTC,
14:49
Speaker 2: but maybe there's a different body here, So explain the
14:51
Speaker 2: Syphius review.
14:53
Speaker 7: Sure, So Syphius gets involved when there's a foreign company
14:57
Speaker 7: acquiring a US act and they tend to review deals
15:01
Speaker 7: from a national security perspective. So it's a different process
15:04
Speaker 7: than what we typically see from the anti trust regulators.
15:08
Speaker 7: You know, there was some question about whether a Cleveland
15:10
Speaker 7: Cliff's US steel combination would raise anti trust red flags.
15:13
Speaker 7: I don't think that's the primary concern in this case
15:17
Speaker 7: is Nipon does not have a particularly robust presence in
15:21
Speaker 7: the US already from a steel perspective. So the question
15:24
Speaker 7: is really going to be are we comfortable with letting
15:27
Speaker 7: a foreign company own this US asset? Obviously, Japan is
15:30
Speaker 7: a very important US ally. It is a very different
15:33
Speaker 7: question than if there was a Chinese company trying to
15:35
Speaker 7: come in and buy a US steel maker. But I
15:38
Speaker 7: still think, just given the environment that we are in
15:41
Speaker 7: politically and all of the scrutiny over ownership of important
15:46
Speaker 7: American assets, that this is going to get sub scrutiny.
15:49
Speaker 4: Do you foresee additional m and A happening in that
15:52
Speaker 4: particular industry group. On the back of this.
15:57
Speaker 7: Never say never. I mean, anytime you have a big
15:59
Speaker 7: deal like this, it tends to get people thinking about
16:01
Speaker 7: what other possibilities there could be. But this is already
16:04
Speaker 7: a very consolidated industry, and so I think to see
16:08
Speaker 7: much more consolidation happen would be difficult. And then you
16:13
Speaker 7: do start bumping up on questions of antitrust.
16:16
Speaker 2: So explain to me, Brooke. I know one of the
16:20
Speaker 2: growth areas of US Steel is I think they have
16:22
Speaker 2: a new plant maybe in Arkansas or something. Can you
16:25
Speaker 2: talk to us about that plant and that technology.
16:29
Speaker 7: Sure, and so it's a greener technology, you know, they
16:34
Speaker 7: use sort of more recycled materials. This is sort of
16:37
Speaker 7: the considered the future of steel making, and so that's
16:39
Speaker 7: obviously a very attractive asset for Nifeon. And you know,
16:43
Speaker 7: these companies talked a lot about and McCall about sort
16:45
Speaker 7: of their shared commitment to decarbonizing, about investing in R
16:50
Speaker 7: and D and new technologies to try to improve upon
16:54
Speaker 7: the steel making process. And so that's certainly one of
16:57
Speaker 7: the key drivers of this acquisition.
17:00
Speaker 4: And when it comes to something like this, especially if
17:02
Speaker 4: you're thinking about steel and what that means for the
17:04
Speaker 4: global economy as far as the position that these two
17:08
Speaker 4: companies are in, what do you think this tells us
17:11
Speaker 4: about the global economy if these two are potentially mrging here?
17:16
Speaker 7: Sure, I mean, I think it's a vote of confidence
17:19
Speaker 7: in the US manufacturing renaissance or revitalization of US supply chains,
17:24
Speaker 7: on shoring, whatever you want to call it. It's a
17:27
Speaker 7: narrative that's taken some hits recently. If you look at
17:30
Speaker 7: particularly in the EV sector, there's been a number of
17:33
Speaker 7: companies sort of pulling back or delaying some of the
17:37
Speaker 7: investments that they've announced, and you know that sort of
17:40
Speaker 7: just does raise the question of, Okay, well, what does
17:42
Speaker 7: this on shoring boom actually look like? And this is
17:46
Speaker 7: something that I've written about a lot. Is I think
17:48
Speaker 7: that you know, there was a lot of enthusiasm around this,
17:50
Speaker 7: partly because of the government stimulus, that this was never
17:53
Speaker 7: going to be sort of a clear and streamlined timeline.
17:58
Speaker 7: That there's a lot of variability here, a lot of
18:00
Speaker 7: pushes and pulls. This is not something that has you know,
18:03
Speaker 7: managed to separate itself entirely from the broader economy. That
18:08
Speaker 7: companies are still sort of subject to those economic forces,
18:11
Speaker 7: but there are underlying tailwinds here that are driving investment,
18:14
Speaker 7: one of which, of course is the stimulus funds, and
18:16
Speaker 7: that there is you know, the lessons learned from COVID,
18:19
Speaker 7: but also you know the terrafs or the Trump administration
18:22
Speaker 7: that it's very valuable to have a US supply chain
18:24
Speaker 7: and not be dependent on having ship goods from across oceans.
18:29
Speaker 7: And then you know, the energy transition. Things like that
18:31
Speaker 7: are very strong underlying forces that I think will ultimately
18:36
Speaker 7: lead to more manufacturing in the US. It just may
18:39
Speaker 7: not happen on the on the timeline that we might
18:42
Speaker 7: have been hoping for.
18:43
Speaker 2: Brooke, thanks so much for joining us. Brook Sutherland calumnist
18:46
Speaker 2: covering industrials and deals for Bloomberg Opinion. Again, Japan's a
18:50
Speaker 2: Nipon agrees to buy US Steel for fourteen point one billion,
18:53
Speaker 2: and of course I go check out who the bankers
18:55
Speaker 2: are on the m and a banker City Group is
18:58
Speaker 2: acting as financial advisor to Nipon steal. Barclay's, Goldman, Sachs
19:03
Speaker 2: and Evercore are advising US Steel. So this is a
19:06
Speaker 2: it's a good deal to get announced before year in
19:09
Speaker 2: to you know, global iconic names, particularly US Steel, but
19:12
Speaker 2: Nippon Steel has been a big, big player globally for
19:15
Speaker 2: a long time. So good m and a trade to
19:17
Speaker 2: get on your sheet right before year in. You go
19:19
Speaker 2: talk to your boss and well, they'll be working over
19:22
Speaker 2: the holidays papering over this deal.
19:24
Speaker 5: You're listening to the tape. Cat's are live program Bloomberg
19:27
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
19:31
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
19:34
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19:37
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19:43
Speaker 2: Penny Folly, managing director for Emerging Markets for TCW, joins
19:48
Speaker 2: this year in studio, so she gets a special gold
19:51
Speaker 2: star there. Penny, How can I play merging markets when
19:55
Speaker 2: my biggest merging market is China and I have no
19:58
Speaker 2: idea what's going on in China? How do you guys
20:00
Speaker 2: think about that from a thirty thousand foot.
20:02
Speaker 8: Level, Well, we focus obviously on fixed income. China is
20:07
Speaker 8: actually a relatively small part of the index. It's about
20:10
Speaker 8: four percent, and we're typically that's the dollar index, and
20:16
Speaker 8: we're underweight. China could use corporates to some extent, which
20:21
Speaker 8: are pretty defensive, shorter maturity, higher ratings. So that would
20:25
Speaker 8: be how we play China in the dollar market. In
20:27
Speaker 8: the local currency market, we've used China as a funder
20:31
Speaker 8: largely low you know, is it low yields. The currency
20:37
Speaker 8: has been relatively stable, so that for US is a funder.
20:41
Speaker 8: If you look at EM as a whole, the growth
20:45
Speaker 8: rates this year have widened relative to DM growth rates.
20:49
Speaker 8: We expect the same and twenty twenty four, and that
20:52
Speaker 8: excluding China, we expect growth to really remain pretty much
20:56
Speaker 8: the same from twenty three to twenty four. So I
20:59
Speaker 8: think the fundamentals are pretty attractive in these markets. If
21:02
Speaker 8: you look at the world from a debt perspective, debt
21:05
Speaker 8: peaked at about sixty two This is excluding China. Debt
21:09
Speaker 8: peaked at about sixty two and a half percent in
21:11
Speaker 8: twenty twenty. We expect it to be about fifty six
21:14
Speaker 8: percent by the end of twenty twenty four. There was
21:18
Speaker 8: a lot of concern about default in twenty at the
21:21
Speaker 8: beginning of twenty twenty three, and that concern continues. They're
21:24
Speaker 8: about seventeen countries in EM that don't have access to
21:29
Speaker 8: the public markets, so those are clearly candidates. Of those,
21:33
Speaker 8: eight have maturities in twenty twenty four, and we expect
21:38
Speaker 8: seven of those will be able to make it through
21:41
Speaker 8: with funding from the IMF and other sources local markets
21:46
Speaker 8: as well. The only one that is at risk is Athiopia,
21:49
Speaker 8: which obviously just announced their intention not to pay.
21:54
Speaker 4: How do you view emerging markets that are commodities driven
21:58
Speaker 4: emerging markets versus the rest that aren't as closely tied
22:02
Speaker 4: to commodities, as far as what their economic outlook looks
22:05
Speaker 4: like next year.
22:06
Speaker 8: You know, I think that one of the things to
22:07
Speaker 8: think about in emerging markets is the index today for
22:11
Speaker 8: fixed income is about seventy countries plus, so they're all
22:15
Speaker 8: over the place. It used to be back in the
22:17
Speaker 8: old days, when you could just say this is a
22:19
Speaker 8: this is a trade where you know we're going to
22:21
Speaker 8: have compression of spreads, and everybody was pretty much in
22:25
Speaker 8: the same area. We had ten countries in the index
22:29
Speaker 8: and two thousand, you had thirty in two thousand and eight,
22:32
Speaker 8: and you have over seventy. So it's very much a
22:35
Speaker 8: game of differentiation. And so in our in our strategy,
22:39
Speaker 8: we're about forty countries and that so we really are
22:43
Speaker 8: ignoring about a third of the index. And there are
22:47
Speaker 8: countries that we that are in the in the portfolio
22:50
Speaker 8: because we like the local story and you know, Mexico
22:55
Speaker 8: and Brazil or two that benefit both from local story
22:58
Speaker 8: as well as in the case of Brazil, uh is
23:01
Speaker 8: commodities and in the case of Mexico it's really near
23:05
Speaker 8: shoring into the US. So those are two countries we
23:09
Speaker 8: like very much.
23:10
Speaker 2: What else besides those, how risky do you go out
23:14
Speaker 2: in your kind of profile for merging markets?
23:17
Speaker 8: Well, you know, I think one of the things that
23:19
Speaker 8: is particularly interesting about em is that is those countries
23:22
Speaker 8: that are you know, that have tried every bad idea
23:25
Speaker 8: in the you know, in the book, and they run
23:28
Speaker 8: out options. And that's what we call a significant turning point,
23:31
Speaker 8: and that can be driven by just hitting the wall,
23:34
Speaker 8: can be driven by a change in administration. Argentina is
23:38
Speaker 8: a good example right now of a country it could
23:40
Speaker 8: well come out from a couple of decades of bad
23:44
Speaker 8: management to a better UH, to a better environment and
23:48
Speaker 8: it's you know, it's still relatively So how.
23:50
Speaker 2: Are your positioned for Argentina, for example, because that what
23:52
Speaker 2: really was in the news most.
23:53
Speaker 8: Recently, we are We're overweight Argentina pretty significantly. We have
23:58
Speaker 8: a strong, you know, em Latin America strategist who's been
24:03
Speaker 8: he's Argentine and he's and he suffers from from a
24:07
Speaker 8: negative bias, but he's been very positive about Argentina and
24:12
Speaker 8: the and the outlook under the new administration.
24:17
Speaker 4: You look at some of the data under Bloomberg Intelligence,
24:20
Speaker 4: so Gina Martin's Adams team, they're looking more at what
24:22
Speaker 4: happens with the equity side of things, but especially looking
24:25
Speaker 4: at how emerging markets are definitely prime to lead when
24:27
Speaker 4: they're looking at some of their global counterparts, just because,
24:30
Speaker 4: especially from an earnings perspective, they have gotten hit hard
24:33
Speaker 4: in the past few years. How do you view that
24:35
Speaker 4: going into next year when you're looking at emerging markets
24:37
Speaker 4: versus other countries globally.
24:40
Speaker 8: Well, I think EAM went into a downturn a little
24:44
Speaker 8: earlier than the developed world, and they're coming out a
24:46
Speaker 8: little earlier. They started to increase rates really a year
24:52
Speaker 8: before before the developed world, and they're in Latin America
24:56
Speaker 8: and in Central and Eastern Europe rates are coming down.
24:59
Speaker 8: We expect that to broaden out over the course of
25:02
Speaker 8: twenty twenty four inflation is coming down faster than it
25:06
Speaker 8: is in the developed world. So right now you have
25:09
Speaker 8: about a third of countries that have services inflation pre
25:15
Speaker 8: pandemic levels and two thirds goods inflation pre pandemic levels.
25:20
Speaker 2: So you mentioned Central and Eastern Europe, and of course
25:24
Speaker 2: a lot of geopolitical risks there that you and other
25:27
Speaker 2: merging markets folks have to deal with. How do you
25:29
Speaker 2: think about that part of the world here? Is it
25:31
Speaker 2: just too risky given what's happening in Ukraine.
25:34
Speaker 8: No, we're we are neutral the region overall. Obviously E three.
25:40
Speaker 8: We've taken our way in Poland, which also is going
25:45
Speaker 8: through a transition, a government transition, which could be positive,
25:50
Speaker 8: and we're less excited about some of the other countries
25:54
Speaker 8: in the region which are going in our view and
25:57
Speaker 8: slightly in the wrong direction.
25:58
Speaker 4: There's been so much debate about the Federal Reserve potentially
26:01
Speaker 4: having to maintain a hockey stanch, even on the back
26:03
Speaker 4: of what we obviously heard from FED share pal last
26:06
Speaker 4: week and these FED officials that have been coming out
26:09
Speaker 4: leaving the door open to those potential rate cuts in
26:11
Speaker 4: the second half of next year. But when you're looking
26:13
Speaker 4: from a global perspective. Do you see anything, even in
26:16
Speaker 4: particular with emerging markets or anything going on with inflation
26:20
Speaker 4: that you really feel like is a risk and could
26:22
Speaker 4: end up sparking potentially further downside risk to the global
26:27
Speaker 4: economy that maybe investors are underestimating.
26:31
Speaker 8: I think the biggest risk on the inflation side is
26:35
Speaker 8: really commodity prices and conflict that generate higher commodity prices.
26:41
Speaker 8: Ukraine Russia. Ukraine obviously shot food prices up substantially, that's
26:46
Speaker 8: come down a little bit since then, and on the
26:50
Speaker 8: conflict in the Middle East has yet to have a
26:52
Speaker 8: major impact on oil prices. But those are two major risks,
26:55
Speaker 8: and oil and food or very heavy weight in them
26:58
Speaker 8: inflation basket close to fifty percent. So those I think
27:03
Speaker 8: will be the bigger the big risk.
27:05
Speaker 2: Where you what areas or situations are you guys avoiding
27:09
Speaker 2: the most? Where's your highest conviction of Like, we just
27:11
Speaker 2: cannot be in this part of the world.
27:14
Speaker 8: Well, we were pretty much in all parts of the world. Okay,
27:18
Speaker 8: turns out right now we're overweight Latin America and we're
27:22
Speaker 8: overweight UH SUPs of here in Africa, We're we're equal
27:27
Speaker 8: weight in in in UH CEE and also in the
27:32
Speaker 8: Middle East, and we're way underweight in Asia. We find
27:35
Speaker 8: that less interesting. Underweight underweight in Asia, we find it
27:39
Speaker 8: less interesting at this point just just in terms of
27:42
Speaker 8: UH in terms of rates are lower, they have less,
27:45
Speaker 8: you know, less duration opportunities there as well. So our
27:49
Speaker 8: big positions in UH in Asia are Indonesia UH India
27:56
Speaker 8: in corporates in the dollar side, India on the local
27:59
Speaker 8: currency side because of its inclusion in the index going forward,
28:04
Speaker 8: and Korea also on the local currency side in expectation
28:08
Speaker 8: for a better external environment and also possibly being included
28:13
Speaker 8: in the WIGBI.
28:14
Speaker 4: We only have about twenty seconds left. But what's the
28:16
Speaker 4: top question you get from your clients?
28:19
Speaker 8: Well, interesting enough, we now get one of our top
28:21
Speaker 8: questions is when do we get involved? If you look
28:24
Speaker 8: at the technicals, we've lost something like one hundred and
28:28
Speaker 8: fifteen billion outflows since the beginning of twenty twenty two,
28:33
Speaker 8: So there's most people in our in my seat are
28:37
Speaker 8: either neutral or underweight, and there's very little tourist capital
28:40
Speaker 8: in our markets. So I think the technicals are really
28:43
Speaker 8: supportive going forward. And in terms of issuance, we expect
28:46
Speaker 8: issuance to be largely ig.
28:48
Speaker 2: Okay, very good, pennyfully thank you so much for joining us.
28:51
Speaker 2: Pennyfullies and managing director and Meerger Markets for TCW.
28:54
Speaker 5: You're listening to the tape Can's our line program, Bloomberg
28:58
Speaker 5: Markets weekdays at ten am Easter on Bloomberg Radio, the
29:01
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business app.
29:05
Speaker 5: You can also listen live on Amazon Alexa from our
29:07
Speaker 5: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
29:14
Speaker 2: You know, I've been long saying that she seems to
29:16
Speaker 2: me for the next generation, one of the really big
29:19
Speaker 2: growth stories is going to be cybersecurity. Yes, I mean,
29:22
Speaker 2: you can't go wrong there. Everybody's got to spend money to,
29:25
Speaker 2: you know, protect their their their networks. I'm looking at
29:28
Speaker 2: Palo Alto Networks here stock. It's a ninety seven billion
29:31
Speaker 2: dollar market cap stock. I guess the market agrees with
29:33
Speaker 2: my assessment. Stocks up one hundred and twenty percent. So
29:36
Speaker 2: Wendy Whitmore joins us. She's the senior vice president, head
29:40
Speaker 2: of the cybersecurity team of Palo Alto Networks, and but
29:44
Speaker 2: her highlight of her resume, she's on Duke University, Master
29:47
Speaker 2: of Engineering and Cybersecurity Industry Advisory Board. That's a mouthful,
29:51
Speaker 2: but anybody who's associated with Duke can stay Wendy, Can
29:56
Speaker 2: you tell us what Unit forty two.
29:59
Speaker 9: Is absolutely so great to be here. Unit forty two
30:05
Speaker 9: is really the eyes and ears on the ground for
30:06
Speaker 9: all of Palo Optove network. So we are the special
30:10
Speaker 9: form forces unit, if you will, that really responds on
30:13
Speaker 9: the ground to all of our clients' situations. So oftentimes
30:17
Speaker 9: that's helping them in their worst day, everything from responding
30:20
Speaker 9: to breaches, to doing the research and analysis on the
30:22
Speaker 9: front end to understand what cyber attackers are doing and
30:25
Speaker 9: then threat hunting on nodes throughout the world to identify
30:29
Speaker 9: the latest and greatest attack patterns.
30:31
Speaker 4: Well, there were a number of big cyber attacks this
30:35
Speaker 4: year alone. Why do you think this is and Woolsey
30:39
Speaker 4: continue to.
30:40
Speaker 9: Escalate They unfortunately, they absolutely will continue. I think we're
30:46
Speaker 9: you mentioned it. You know, cyber is really the story
30:48
Speaker 9: in terms of a major industry moving forward. The reality
30:52
Speaker 9: is right now there's a lot of money to be
30:53
Speaker 9: made by attackers in the space. So what's happened is
30:57
Speaker 9: we have major geopolitical activity going on throughout the world
31:01
Speaker 9: right every region from Amia to certainly in the Asia
31:06
Speaker 9: Pacific Rim as well. And so when you have that occurring,
31:10
Speaker 9: you oftentimes behind the scenes have nation state actors continuing
31:14
Speaker 9: to propagate activity even more. And so we're seeing that.
31:17
Speaker 9: What we're also seeing though, is a combination of cyber
31:20
Speaker 9: criminals becoming more sophisticated. Again, this relates to money being
31:24
Speaker 9: made and the reality that there's a lot of money
31:27
Speaker 9: to be made in this space. But cyber criminals in
31:29
Speaker 9: particular really understand how businesses operate, their level of interconnectivity
31:35
Speaker 9: between B to B type of markets, and they're taking
31:38
Speaker 9: advantage of that as we speak.
31:41
Speaker 2: So, you know, in twenty twenty three, one of the
31:44
Speaker 2: investing drivers here was AI artificial intelligence, and I just
31:49
Speaker 2: first time I kind of heard that, I was like,
31:51
Speaker 2: oh boy, put AI together with criminals? Where how bad
31:54
Speaker 2: can this get? So, how do you guys appallo out
31:56
Speaker 2: to networks when you talk to your clients, how do
31:59
Speaker 2: you out AI as an opportunity but as also a risk?
32:05
Speaker 9: Absolutely? So I think with any new advancement in technology,
32:09
Speaker 9: there are pros and there are cons. On the pro side,
32:11
Speaker 9: we have leveraged AI in particular precision AI as well
32:16
Speaker 9: as machine learning to advance our technologies and detect these attacks.
32:20
Speaker 9: And that's been going on for years, but what we've
32:22
Speaker 9: seen over the past year in particular is the advancement
32:25
Speaker 9: of generative AI, and that is obviously enabling a lot
32:29
Speaker 9: more effective human communications and that's everything from Britain to
32:33
Speaker 9: verbal and in some cases video. So we think from
32:37
Speaker 9: a defender perspective, there is a whole lot of great
32:39
Speaker 9: things that we can leverage from AI, and we're doing
32:44
Speaker 9: that today to advance our analysis, to make sure that
32:47
Speaker 9: we're leveraging our human resources for the most difficult problems
32:51
Speaker 9: and automating as much as possible on the front end
32:53
Speaker 9: for our machines to solve that said, the attackers are
32:57
Speaker 9: also doing something similarly. What we're seeing today is their
33:00
Speaker 9: use of heavy reliance on the communications piece, so whether
33:05
Speaker 9: that's in crafting spear phishing emails or communications on the
33:10
Speaker 9: written side, or in some cases whether that's impersonating verbal
33:14
Speaker 9: communications to circumvent employee identity verification so that they can
33:19
Speaker 9: break into an environment. We're seeing a full spectrum.
33:22
Speaker 4: Talk to us about this new SEC ruling and how
33:26
Speaker 4: it relates to cybersecurity.
33:30
Speaker 9: Well, so we're seeing increased regulation across the board, right,
33:33
Speaker 9: So what we're looking at from the SEC is an
33:36
Speaker 9: emphasis for reporting from individual organizations. I think the challenges
33:42
Speaker 9: are in terms of timeframes oftentimes you know the least
33:45
Speaker 9: and not oftentimes always you know, you know the least
33:48
Speaker 9: at the beginning of an investigation, and so those first
33:51
Speaker 9: forty eight to seventy two hours to weeks are really
33:54
Speaker 9: where we're identifying a lot of information, and it can
33:57
Speaker 9: be very dynamic, right, it is changing constantly. One thing
34:01
Speaker 9: that I think we're seeing that's really interesting coming from
34:04
Speaker 9: the SEC notification is the fact that attackers have now
34:08
Speaker 9: and again we're talking about cyber criminals, not nation state
34:11
Speaker 9: actors at least not yet, but cyber criminals saying well, hey,
34:14
Speaker 9: I'm going to use this to my advantage, and if
34:16
Speaker 9: I compromise an organization and they didn't report it yet,
34:20
Speaker 9: I'm going to let the SEC know and I'm going
34:21
Speaker 9: to follow a disclosure notification myself, which is causing you know,
34:26
Speaker 9: obviously even more headache around the notification challenges.
34:30
Speaker 2: We do we know what percentage of cybercrime is by individuals.
34:36
Speaker 2: A couple of knuckleheads in the garage versus US, you know,
34:39
Speaker 2: nation states.
34:42
Speaker 9: But you know, that's a great question. I'm not sure
34:44
Speaker 9: anyone can answer that completely comprehensively. But I would say
34:48
Speaker 9: a significant amount of the activity, certainly that we see
34:51
Speaker 9: and that our competitorcy is focused on nation state. The
34:55
Speaker 9: difference there is that it often you know, really runs
34:58
Speaker 9: under the scenes.
34:58
Speaker 8: Right.
34:59
Speaker 9: It's not something where these attackers are stealing information and
35:03
Speaker 9: data and then sharing it publicly, right, they are providing
35:07
Speaker 9: it to some sort of analytical capability on the back
35:09
Speaker 9: end so that they can identify information, usually targeted against
35:13
Speaker 9: a political objective. That's very different than when you have
35:16
Speaker 9: a cyber criminal who's looking to cause disruption to business.
35:20
Speaker 4: Right.
35:20
Speaker 9: We're seeing that today with disruption to retailers, you know,
35:23
Speaker 9: on their busiest period trying to satisfy orders before the
35:26
Speaker 9: holiday season. And you know we see that over the
35:30
Speaker 9: past few months. You saw disruption in Las Vegas in
35:33
Speaker 9: terms of operational impact. People can't check into hotel rooms,
35:36
Speaker 9: they can't place bets, right, So we see really two
35:39
Speaker 9: different objectives there.
35:41
Speaker 2: All right, Wendy, thank you so much for joining us.
35:43
Speaker 2: Fascinating stuff. And again, if you think back to the
35:46
Speaker 2: movie The Graduate Plastics as being the future cybersecurity. I
35:50
Speaker 2: think it's the future here. Wendy Widmore, senior vice president
35:54
Speaker 2: and headed the cyber security team at Palo Alto Network.
35:57
Speaker 2: Do you think she gets some like panic phone calls
36:00
Speaker 2: in the middle of the night. You think that happens
36:01
Speaker 2: from clients, I would imagine.
36:06
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36:13
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36:19
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