Latest / Bloomberg Intelligence / Home Depot’s Sales Fall Short on Lackluster Housing Recovery

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Home Depot’s Sales Fall Short on Lackluster Housing Recovery · Bloomberg Intelligence

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Speaker 2: All right, Neil Dona mentioned Home Depot, So let's get
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Speaker 2: a deeper read on what's going on there and check
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Speaker 2: in with Drew reading, our US home building analyst to
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Speaker 2: recap Home Depot's results. And I mean, Drew, this company
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Speaker 2: is just no matter what, tethered to rising bar and
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Speaker 2: costs and consumer sentiment and both of those are kind
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Speaker 2: of working against it right now.
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Speaker 3: Yeah, So it was a relatively neutral quarter for Home Depot.
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Speaker 3: I think the theme is really stability. You know. They
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Speaker 3: mentioned that during the call that demand is relatively in
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Speaker 3: line with where it was a year ago. They did
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Speaker 3: have a slightness on same store sales, but I think
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Speaker 3: what investors will latch onto and get a little bit
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Speaker 3: of comfort with is the fact that they maintained their
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Speaker 3: full year same store sales guide. Now, when they initially
1:10
Speaker 3: came out with that, it was calling for growth of
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Speaker 3: zero to two percent, so I do think that they
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Speaker 3: left themselves with a little bit of will room to
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Speaker 3: see how the rest of the year plays out. But
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Speaker 3: to your point, you know, we mentioned stability, that is
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Speaker 3: the case, but what the company is missing is kind
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Speaker 3: of that next catalyst, and it's really housing that continues
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Speaker 3: to remain frozen due to elevated rates. We're back up
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Speaker 3: near six point seven percent, and that's after getting to
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Speaker 3: a five handle earlier in the year. And then, as
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Speaker 3: you mentioned consumer confidence. You know, we've heard this pretty
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Speaker 3: much across the housing ecosystem, and it's that consumers are
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Speaker 3: worried about the outlook for the economy, the outlook for employment,
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Speaker 3: and they're just hausing on these big purchasing decisions.
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Speaker 4: What's your world drew in your world of home building
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Speaker 4: and all that kind of adjacent stuff.
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Speaker 5: Let's assume rates are higher for longer. How does your
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Speaker 5: world adapt?
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Speaker 4: I mean, it just seems like if I'm a buyer,
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Speaker 4: i'm a seller, I got it. At some point I
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Speaker 4: gotta thrown in the town and say, hey, it's been
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Speaker 4: a number of years here. This seems to be the
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Speaker 4: new world here in real estate.
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Speaker 3: Yeah, it does seem like the level of demand that
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Speaker 3: we're at right now is kind of a floor. We've
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Speaker 3: been bouncing along a four million unit annualized rate in
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Speaker 3: the housing market for a couple of years now. The
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Speaker 3: new home market has been relatively stable for a couple
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Speaker 3: of years now, so you know, there is a certain
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Speaker 3: level of churn that's going to happen regardless of where
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Speaker 3: rates are. Things happen. You know, people get married, they
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Speaker 3: have kids, they need to move. But to your point,
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Speaker 3: I mean, there's still seventy percent of mortgage holders out
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Speaker 3: there with a rate at five percent or below, So
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Speaker 3: without any forced selling activity, there's not a lot of
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Speaker 3: urgency in the market now. From from the home builder's perspective,
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Speaker 3: what this means is that they're going to continue to
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Speaker 3: have to lean on incentives. That story has been well
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Speaker 3: documented now that they've been very aggressive in their use
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Speaker 3: of mortgage rate buydowns to kind of make the math
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Speaker 3: work a little bit better for their buyers. Coming into
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Speaker 3: the year, I think there was some hope that rates
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Speaker 3: were going to come down they'd be able to take
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Speaker 3: their foot off the gas pedal a little bit. But
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Speaker 3: it looks like at least over the next couple of quarters,
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Speaker 3: they're going to have to continue to offer those concessions
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Speaker 3: to move inventory.
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Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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3:33
Speaker 4: And let's talk a little technology. You can do that
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Speaker 4: with Caroline Hyde be Tech co anchor. She joins us
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Speaker 4: live here in our studio. Meta cutting some jobs. I'm
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Speaker 4: trying to read through the story here. My personal opinion
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Speaker 4: is AI is a job destroyer, not a job creator.
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Speaker 4: I'm going to stick with that one for until somebody
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Speaker 4: proves me wrong. What's going on in Meta.
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Speaker 7: Well interesting to prove to the point, the one optimistic
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Speaker 7: note I might on that last view of yours. I
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Speaker 7: recognized a few years ago that if you look back
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Speaker 7: over sixty years about I think it's even forty years,
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Speaker 7: only sixty percent of the jobs that currently are existing
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Speaker 7: today didn't exist there. Okay, so there is hope that
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Speaker 7: we find ingenuity in our lower value human capital.
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Speaker 8: Language matters, folks, Language matters.
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Speaker 7: I'm afraid of CEO who's going to talk out about
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Speaker 7: eradicating jobs up to eight thousand of them over a
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Speaker 7: standard charter and calling it lower value human capital. That's
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Speaker 7: going to hurt for the people out there, I've got
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Speaker 7: to say.
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Speaker 6: But by the by, I'm not a pr I'm in.
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Speaker 7: A different type of communications. But the communications that we're
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Speaker 7: getting from META is that tomorrow folks are staying home.
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Speaker 7: If you're working in North America, you sit at home
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Speaker 7: because you're going to learn as to whether you're one
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Speaker 7: of the ten percent who are losing your job.
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Speaker 8: That's about eight thousand people. But before ahead of that,
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Speaker 8: they're actually.
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Speaker 7: Reassigning seven thousand people to more AI focused work. So
4:53
Speaker 7: it's sort of a reassignment of the resources that they've
4:56
Speaker 7: got right now saying that new jobs are going to
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Speaker 7: be related to AI. Your new types of roles that
5:01
Speaker 7: you're going to be seeing. More broadly, you're seeing people
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Speaker 7: perhaps moving from the area of social media where they've
5:07
Speaker 7: lent into and of course we've known that they've been
5:09
Speaker 7: moving the more hardware related and augmented virtual reality play
5:14
Speaker 7: and it's going more into augmented reality glasses, but into
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Speaker 7: more apps and focused on artificial intelligence. Weaving itself throughout
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Speaker 7: Meta's business models. So the chief people officer is just saying,
5:26
Speaker 7: this is going to be a flatter ecosystem, this is
5:28
Speaker 7: going to be smaller teams. They think it's going to
5:30
Speaker 7: be higher value, more enjoyable work. We'll see what the
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Speaker 7: talent think about that.
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Speaker 3: Yeah.
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Speaker 2: Absolutely, And I believe that there's this whole push towards
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Speaker 2: smaller teams anyway across tech land, everyone's seeing the praises
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Speaker 2: of this idea of keeping things really focused and can't base.
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Speaker 8: Said well that some teams will just be one person.
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Speaker 8: If you're an enginet, that's.
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Speaker 4: Not really a tea Speaking to a young fellow over
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Speaker 4: the weekend, twenty nine years old, works in a very
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Speaker 4: big tech company.
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Speaker 5: He manages I think a team of like five or
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Speaker 5: six people. He says. His people with AI, now this
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Speaker 5: is in the last six.
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Speaker 4: Months, are much more productive, not ten percent more, not
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Speaker 4: twenty percent more, three times five times, ten times.
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Speaker 5: More productive on some of their output metrics. It's just crazy.
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Speaker 5: It's amazing, he says. And I said, Okay, I get it.
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Speaker 7: I guess maybe if you're a solo, a solo engineer,
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Speaker 7: maybe your team is AI.
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Speaker 4: And I'm just saying, as a young investment banker, for
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Speaker 4: the first three or four years of my job, that
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Speaker 4: can all be done by AI.
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Speaker 8: Yeah, most high value human capitals do tell me that.
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Speaker 2: But having done that, you know how the process works too.
6:28
Speaker 2: If you haven't done that before, Like you're not able
6:30
Speaker 2: to go marry a.
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Speaker 4: Highield pitch book for company XYZ credit rating like book
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Speaker 4: two seconds later it's.
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Speaker 2: Out, Then how do you go through it in fact
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Speaker 2: check and knows act check?
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Speaker 4: If that make me a pitch book for a highyield
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Speaker 4: deal will take me two.
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Speaker 5: Or three days Now it's minutes.
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Speaker 2: Yeah, well, the formatting will certainly be taking care of
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Speaker 2: by AI.
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Speaker 6: That's that's the most painful part of those pitch books. Caroline.
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Speaker 2: While we have you, I got to ask you about
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Speaker 2: Google creating an AI cloud business with Blackstone.
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Speaker 6: Is this a joint venture of some sort?
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Speaker 7: It is, and actually Blackstone is putting in most of
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Speaker 7: them money five billion dollars in equity. You leverage that up,
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Speaker 7: it's going to be twenty five billion. Perhaps we're talking
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Speaker 7: five hundred megawatts of compute in the next few years.
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Speaker 8: That's what is it.
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Speaker 7: One Gigawa is about three quarters of a million homes
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Speaker 7: in terms of energy. So this is a lot of compute.
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Speaker 7: But this is as they really focus in on their TPUs.
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Speaker 7: This is their tensive processing unit. This is their chip
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Speaker 7: that has suddenly made their AI so much more powerful
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Speaker 7: and really impressed the market with vertical integration. Now Google
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Speaker 7: builds cloud, they build data centers, but that's expensive. It's
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Speaker 7: nice to get a partner on on side to be
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Speaker 7: able to do that heavy lifting for you, not to
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Speaker 7: put it on your balance sheet. As they're expanding out
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Speaker 7: their Google Cloud offering and they're.
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Speaker 8: Setting up basically a new neocloud.
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Speaker 7: So watch the shares the likes of core Weave, of
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Speaker 7: Nibius to these other clouds out there, because it's going
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Speaker 7: to competitive out there, folks.
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Speaker 4: But Alphabet, they are they turning the Blackstone because they
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Speaker 4: need Blackstone as a funding.
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Speaker 5: Source or what. It's a cool deal for Blackstone. I'm
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Speaker 5: wondering why Alphabet's doing it.
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Speaker 8: Yeah, I think it is the money side of things.
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Speaker 7: Like go Alphabet's already announced that they're going to be
7:56
Speaker 7: what is it all told?
7:57
Speaker 8: These four players, whether it's.
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Speaker 7: Amazon, Alphabet, Meta, Microsoft, are spending up to seven hundred
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Speaker 7: and fifty billion, seven hundred twenty five billion dollars three
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Speaker 7: of course, of a trillion, let's call it in twenty
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Speaker 7: twenty six. Yes, people have actually applauded so no Pitchow's
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Speaker 7: decision to up its capital expenditure plans.
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Speaker 8: But it's still a lot of money.
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Speaker 7: It's still a lot of debt that they've got an issue,
8:18
Speaker 7: and so it's nice to know that perhaps a financing
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Speaker 7: of even greater expansion is being taken on by some
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Speaker 7: other players. This is just up, you know, managing to
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Speaker 7: scale even further, how much their TPUs and their chips
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Speaker 7: are doing the work. I mean, I have to say
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Speaker 7: it's a big move ahead of in videos numbers tomorrow
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Speaker 7: because we just think all these other neoclouds they use
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Speaker 7: in video GPUs.
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Speaker 5: Stay with us. More from Bloomberg Intelligence coming up areter this.
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9:00
Speaker 4: All right, you know how much we love these big
9:02
Speaker 4: take stories on the Bloomberg terminal, really really compelling stories.
9:06
Speaker 5: The reporters take.
9:06
Speaker 4: A ton of time, a ton of resources to get
9:09
Speaker 4: to the really big details. And this one's a good one,
9:12
Speaker 4: particularly if you're a fan of this AI story and
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Speaker 4: all the money that's being spent. Meta is doing a
9:17
Speaker 4: data center down in Louisiana, like two hundred Oh, it's
9:20
Speaker 4: just gonna be a big thing.
9:21
Speaker 5: Two hundred million dollars something.
9:22
Speaker 4: Crazy down there. And our next guest has an awesome
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Speaker 4: story on this, Riley Griffin, tech reporter for Bloomberg News.
9:28
Speaker 4: Of course, you know she peaked when she graduated from
9:31
Speaker 4: Duke University.
9:34
Speaker 5: Riley, thanks so much for joining us here. Talk to
9:36
Speaker 5: us about Mark Zuckerberg and Meta.
9:38
Speaker 4: They're building this huge facility down in Louisiana.
9:42
Speaker 5: Talk to us about that.
9:44
Speaker 9: Yeah, I mean, the scale of this facility is truly unfathomable.
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Speaker 9: Pie I spent weeks going to and from Richland Parish, Louisiana.
9:52
Speaker 9: That's in the northeast corner of the state. It's the
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Speaker 9: Delta region, and it's one that has long faced economic hardship.
9:59
Speaker 9: Farming right now in the US is a difficult task,
10:02
Speaker 9: particularly if you're farming cotton as this region does. And
10:07
Speaker 9: Meta is planting a two hundred billion dollar data center there.
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Speaker 9: What that looks like is nearly four thousand acres. President
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Speaker 9: Donald Trump has said it will be Manhattan sized. They
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Speaker 9: are building ten new natural gas plants just for this
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Speaker 9: data center alone. That's about the energy consumption of New
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Speaker 9: York City on a winter day. And the one of
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Speaker 9: the largest private capital deals ever assembled is funding its development.
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Speaker 3: And that's all.
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Speaker 9: Before we get to the two hundred billion. So it's
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Speaker 9: just a massive, massive project in a very small farming community,
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Speaker 9: which makes for tensions and growing pains, but also, unlike
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Speaker 9: a lot of American cities and suburbs that are pushing
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Speaker 9: back against data centers, this is a community that is
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Speaker 9: cautiously optimistic that it will prove to be an economic lifeline.
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Speaker 2: So tell us a little bit more about what people
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Speaker 2: told you when you went down from Louisiana and checked
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Speaker 2: in with the locals.
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Speaker 6: There are those who would be directly affected by this.
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Speaker 9: Yeah, you know, before I went to Richland Parish, I
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Speaker 9: didn't realize how much of an agriculture story this would be.
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Speaker 9: I spent times with time with more than one hundred
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Speaker 9: people in the region, and again and again hearing just
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Speaker 9: how hard it has been to grow cotton, corn, soybean.
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Speaker 9: You know, it really landed with me. These are folks
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Speaker 9: who are losing hundreds of dollars on every acre that
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Speaker 9: they plant. Subsidies aren't making up half of that. There
11:36
Speaker 9: are a lot of bankruptcies. Small farms don't even exist anymore.
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Speaker 9: And you know, as one person, Dustin Morris, who runs
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Speaker 9: a soybean and corn farm in the parish, told me,
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Speaker 9: you know, the promise of the land has been broken
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Speaker 9: for a lot of folks. They've held land in their
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Speaker 9: family for generations. They don't even know how long back
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Speaker 9: they've they've been in the parish and they're just unable
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Speaker 9: to break even right now. So enter Meta after years
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Speaker 9: of that, you know, a lot of people are trying
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Speaker 9: to get in on the land rush. For now, one
12:11
Speaker 9: family has been the primary beneficiary, but it is a
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Speaker 9: textbook boomtown. Seventy five hundred workers have descended on a
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Speaker 9: community of just twenty thousand. That comes with its own challenges,
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Speaker 9: But folks are optimistic that Meta long term will provide
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Speaker 9: some of the economic opportunity that has been lost over
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Speaker 9: the last century.
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Speaker 4: And what I think we're all learning ralely about data
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Speaker 4: centers is what is one of the gating issues is
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Speaker 4: access to power. This yes, access to power down in
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Speaker 4: rural Louisiana.
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Speaker 9: Well, Louisiana is an oil and gas state, so Energy Louisiana,
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Speaker 9: the utility that is working with Meta on this, has
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Speaker 9: told Meta use all you want, will make more. They
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Speaker 9: are saying that energy won't be the constraint, and they're
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Speaker 9: going to build these ten new natural gas really to
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Speaker 9: serve this one data center. Six of those are going
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Speaker 9: to be in Richland Parish, just to put that in perspective.
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Speaker 9: So I think Meta has really benefited from picking a
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Speaker 9: place where regular Tory hurdles to getting that kind of
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Speaker 9: you know, fossil fuel generation has been a real boon
13:23
Speaker 9: and we're seeing that across the board right with these
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Speaker 9: mega data centers, hyperscalers, companies like Meta, they're not looking
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Speaker 9: to northern Virginia anymore. They're looking to the south. They're
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Speaker 9: looking to rural regions where land is abundant, they can
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Speaker 9: get lots of energy, and there are politicians who are
13:41
Speaker 9: willing to clear the red tape. And that's a big
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Speaker 9: part of this story is thinking about Louisiana politicians at
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Speaker 9: the national level, at the local level, at the state
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Speaker 9: level who really heard meta and its demands and said
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Speaker 9: we will do everything it takes, as one person said,
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Speaker 9: we will move heaven and earth to make this happen
13:59
Speaker 9: for you.
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Speaker 2: Wow, that is some pretty strong a pretty strong stance there.
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Speaker 2: What surprised you the most, Riley as you were doing
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Speaker 2: the reporting for this in terms of I know the
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Speaker 2: scale was something that kind of blows all our minds,
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Speaker 2: but what took you by surprise?
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Speaker 9: Yeah, I again coming back to the state of American agriculture.
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Speaker 9: That's not a sector I've actually covered. I've spent many
14:23
Speaker 9: years covering healthcare and now I cover tech, but to
14:26
Speaker 9: learn more about ag it feels like you can't tell
14:31
Speaker 9: this story about ural Louisiana without telling a story of agriculture.
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Speaker 9: So that really stuck with me and just thinking about
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Speaker 9: the long term questions. This is a story at its beginning.
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Speaker 9: The data center is an open thing till twenty twenty eight,
14:42
Speaker 9: so more to come.
14:44
Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.
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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
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Speaker 1: get your podcasts, or watch us live on YouTube.
15:05
Speaker 2: We want to continue on with Bloomberg Intelligence, and we
15:08
Speaker 2: have a great guest right now. Let's talk about currencies,
15:11
Speaker 2: because people conflate a currency with the country that issues it, right,
15:15
Speaker 2: like the US dollar equals the US and vice versa.
15:17
Speaker 2: But if you look at the history of the dollar,
15:19
Speaker 2: it tells us otherwise. Our friend Brendan G Really has
15:22
Speaker 2: devoted years to studying this and based his PhD dissertation
15:26
Speaker 2: on it as well. He joins US now and full disclosure,
15:29
Speaker 2: Brendan used to work at Bloomberg as a reporter for
15:31
Speaker 2: Business Week and as an anchor on Bloomberg Television, hosting
15:34
Speaker 2: Surveillance with Tom Keen and myself.
15:36
Speaker 6: So welcome back, Brendan.
15:37
Speaker 10: Thank you so great to be here. I have one
15:39
Speaker 10: correction to make. Unfortunately, when I arrived at school, they
15:42
Speaker 10: told me your book, your popular trade press book about
15:45
Speaker 10: the history of the dollar, cannot be your dissertation.
15:47
Speaker 5: So I have a completely different.
15:48
Speaker 10: Oh my gosh, it's too approachable.
15:52
Speaker 9: Wow.
15:52
Speaker 2: Okay, yeah, no, you didn't need it to be much
15:54
Speaker 2: more obscure than dissertation. Well, let's talk about your book then,
15:57
Speaker 2: It's called the Almighty Dollar and about five hundred years
16:00
Speaker 2: of the world's most powerful money. The US is about
16:03
Speaker 2: to celebrate its two hundred and fiftieth anniversary this July.
16:06
Speaker 2: But how does the history of the dollar go back
16:08
Speaker 2: five hundred years?
16:09
Speaker 5: So I had to figure out how to write about
16:11
Speaker 5: the dollar. I had to figure out where to start.
16:12
Speaker 10: So I thought I would start in nineteen seventy one
16:14
Speaker 10: Nixon closes the gold window, and then I sort of
16:16
Speaker 10: like keep pulling that thread, and I end up in
16:18
Speaker 10: nineteen thirteen with the FED. And then you end up
16:20
Speaker 10: with what I've been thinking of as a seventeen seventy
16:22
Speaker 10: six problem, which is that we learn in school to
16:26
Speaker 10: assume that countries have monetary sovereignty, that they have control
16:28
Speaker 10: over their own currencies. The problem with that is when
16:31
Speaker 10: you get to seventeen seventy six, United States declares political sovereignty,
16:36
Speaker 10: but it chooses as its currency a Spanish coin made
16:40
Speaker 10: of Mexican silver with a German name. I know that,
16:44
Speaker 10: and so we can talk through like where that came
16:45
Speaker 10: from and how we got there. But for me, the
16:47
Speaker 10: most important part of this story is that at its founding,
16:50
Speaker 10: the United States did not have control over the dollar.
16:52
Speaker 10: It was very clear when you look at the correspondence
16:54
Speaker 10: from the founding fathers what they thought.
16:55
Speaker 5: A dollar was. They saw it as a silver coin.
16:57
Speaker 10: Alexander Hamilton called this coin the Ancient Dollar, and I
17:01
Speaker 10: wanted to actually title the book the Ancient Dollar, and
17:04
Speaker 10: my editor was like, do you intend to sell any books? So,
17:08
Speaker 10: and you know, Thomas Jefferson said, it's important when we
17:10
Speaker 10: choose a currency to choose one that the people are
17:12
Speaker 10: already familiar with. So I think of monetary sovereignty now
17:17
Speaker 10: sort of after doing the work on this book, as
17:19
Speaker 10: something that has to be one with a lot of work,
17:22
Speaker 10: very slowly over time, and it's constantly in danger of eroding.
17:26
Speaker 10: So the story of the dollar is not the story
17:28
Speaker 10: of America. It's not the story of the Federal Reserve.
17:30
Speaker 10: It's not the story of the United States Treasury. It
17:32
Speaker 10: has its own history. So I end up, you know,
17:35
Speaker 10: literally at the bottom of a Czech silver mine, looking
17:38
Speaker 10: at four five hundred year old chisel marks to understand
17:43
Speaker 10: sort of the origins of this currency that is much
17:45
Speaker 10: older and much powerful than much the dollar that we
17:48
Speaker 10: know of.
17:49
Speaker 5: When did that come into existence? Really define what we
17:53
Speaker 5: know of Okay, I don't know when did what we
17:55
Speaker 5: use now?
17:56
Speaker 10: Well, okay, So so this silver coin, I'll give you
17:58
Speaker 10: like a brief potted history. We can do this in
18:00
Speaker 10: like one radio minute, which is that there was this
18:03
Speaker 10: silver mine in a place called Yoachham's Tall in Bohemia.
18:07
Speaker 10: They produced only very high quality, large silver coins. Those
18:10
Speaker 10: were very useful for trade. Those coins became known as
18:13
Speaker 10: Yoachham's Taller from Yoakham's Tall, and that got shortened to Taller,
18:17
Speaker 10: and then in Dutch dollar and then in English it
18:19
Speaker 10: became dollar. This is all in the sixteenth century, right,
18:21
Speaker 10: So early in the sixteen hundreds, Shakespeare used the word
18:25
Speaker 10: dollar in his plays.
18:27
Speaker 5: In the Scottish Play.
18:28
Speaker 10: And in the Tempest there mentions of the dollar, so
18:31
Speaker 10: it was clear that that was a coin that was
18:32
Speaker 10: familiar in English well before the founding of the United States.
18:36
Speaker 10: So when you actually get to the Constitution and what
18:40
Speaker 10: we think of as the actually United States, not just
18:42
Speaker 10: the colonies, there was about a sixty year period to
18:47
Speaker 10: take this silver coin and turn it into what we
18:49
Speaker 10: think of now as a dollar, which is bank money.
18:52
Speaker 10: So what we think of now as a dollar is
18:53
Speaker 10: sits on the ledger of a bank, of a commercial bank.
18:56
Speaker 10: It's a bank deposit or banknote that's printed by the FED.
18:59
Speaker 10: But increasingly nobody uses cash, so we're really just talking
19:02
Speaker 10: about bank deposits. So the United States had to win
19:06
Speaker 10: sovereignty over that very slowly. And there's this long history
19:09
Speaker 10: of panics in the nineteenth and early twentieth centuries, and
19:12
Speaker 10: after each panic there's new regulation. So Panic of eighteen
19:15
Speaker 10: thirty seven introduces comptrollers of the currency at the state level.
19:19
Speaker 10: It introduces reserve requirements, you have to hold silver in
19:21
Speaker 10: the bank.
19:23
Speaker 5: You know.
19:24
Speaker 10: Eighteen sixty one, there's oor in eighteen sixty two, there's
19:26
Speaker 10: new legislation. During the Civil War introduces backing banknotes with treasuries. Right,
19:30
Speaker 10: we had to figure that out. Nineteen oh seven, we
19:33
Speaker 10: have the Federal Reserve, which provides cash in an emergency.
19:36
Speaker 10: Nineteen thirty two, after that bank panic, we finally get
19:38
Speaker 10: national deposit insurance.
19:40
Speaker 5: That's huge.
19:41
Speaker 10: No other country, no other currency zone, nearly the size
19:43
Speaker 10: of ours has unified deposit insurance. Only America has that.
19:47
Speaker 10: And so to answer your question, I think it was
19:50
Speaker 10: by nineteen thirty two that we had stable regulated banks.
19:53
Speaker 2: Gotcha, Okay, so regulation was key here and making a
19:56
Speaker 2: lot of mistakes and kind of addressing those mistakes was
19:58
Speaker 2: key in how the dollar system grew up. Where does
20:03
Speaker 2: that leave us now when we talk about things like
20:06
Speaker 2: stable coins or cryptocurrency, how do you think about the
20:11
Speaker 2: dollar's role in a decentralized financial system where regulation is
20:16
Speaker 2: less robust, if even there.
20:18
Speaker 10: For me, the key to thinking about crypto is that
20:20
Speaker 10: it's not new. It's not that novel. I think of
20:22
Speaker 10: crypto as finances if the past never happened. When you
20:26
Speaker 10: look at the various kinds of crypto, there's bitcoin that's
20:29
Speaker 10: basically a commodity. We know how that fits into the
20:31
Speaker 10: financial system. It's a commodity you think about most coins
20:35
Speaker 10: are they're essentially equities. Stable Coins, to your point, are
20:40
Speaker 10: really interesting case because, as you know, they're pegged one
20:43
Speaker 10: to one to the dollar. But to me, it just
20:46
Speaker 10: looks like a bank. So right now we have decentralized money.
20:49
Speaker 10: Commercial banks when they make a loan, when you take
20:51
Speaker 10: out a mortgage, they are not getting that money from
20:53
Speaker 10: somewhere else. They're marking that up on their balance sheet,
20:56
Speaker 10: brand new deposits for you. A stable coin provider, that's
21:00
Speaker 10: the same fiduciary responsibility as a bank. They've got when
21:03
Speaker 10: you deposit, they've got to buy assets. Those assets have
21:05
Speaker 10: to have meaning, we have to know that they have
21:07
Speaker 10: the assets they say they have. Every time I hear,
21:10
Speaker 10: like somebody in crypto say, you know we've got the
21:13
Speaker 10: first private decentralized money, my answer is, my dude, you
21:15
Speaker 10: just invented a bank.
21:16
Speaker 5: We know how those.
21:17
Speaker 6: Work, except they're not regulated like a bank.
21:19
Speaker 5: That's exactly right.
21:20
Speaker 10: And so what I worry about, to my point earlier
21:21
Speaker 10: about monetary sovereignty, it's one slowly and painfully over time,
21:25
Speaker 10: and it's constantly in danger of being eroded. And what
21:26
Speaker 10: I see when I look at stable coins is these
21:28
Speaker 10: are bank dollars that are slowly slipping out of the
21:31
Speaker 10: regulatory control that we built up over the course of
21:33
Speaker 10: a century. Like we know how finance works, we know
21:36
Speaker 10: how banks blow up, and I know that the Bloomberg
21:37
Speaker 10: audience right now are shaking their fits and anger at
21:39
Speaker 10: the radio. I do think that, like the basic bulwark
21:42
Speaker 10: of FDIC Comptroller Federal Reserve that we built up to
21:47
Speaker 10: protect banks needs to be extended full force two stable coins.
21:51
Speaker 10: And I think if you did that they'd lose a
21:52
Speaker 10: lot of their appeal because it's no fun running a
21:55
Speaker 10: bank because it's very well regulated for obvious reasons.
21:58
Speaker 5: Big money versus small money.
22:00
Speaker 3: What is that?
22:01
Speaker 10: Well, there's this sort of theory of coins, you know,
22:05
Speaker 10: physical coins that points out that small coins are much
22:09
Speaker 10: more no no actual coins jingle gingle.
22:12
Speaker 9: Yeah.
22:13
Speaker 10: That actually that points out that small coins are much
22:15
Speaker 10: more expensive per unit of value to produce because each
22:18
Speaker 10: coin had to be hammered out. It's an industrial process.
22:20
Speaker 10: I've seen that.
22:20
Speaker 2: That's what we're not printing or minting the penny anymore. Yes, absolutely, right,
22:23
Speaker 2: Like money is a product, somebody's got to produce it.
22:26
Speaker 2: Money doesn't happen by magic, and so the big coins
22:29
Speaker 2: are cheaper per unit of cost to produce. And what
22:31
Speaker 2: we found sort of historically is that mints, almost all
22:35
Speaker 2: mints were privately run, would much rather make the big coins.
22:37
Speaker 2: So you have this constant demand for small coins to
22:41
Speaker 2: settle small retail transactions. Right, these are these are not
22:44
Speaker 2: It's not as if the small coins are units of
22:47
Speaker 2: the big coin. They're completely different economies.
22:49
Speaker 10: So when we look at the economies of you know,
22:51
Speaker 10: a Renaissance Italy, Florence, Genoa, Venice. They all had a
22:56
Speaker 10: big silver coin for international trade and small coins, and
22:59
Speaker 10: the change rate fluctuates between the two of them because
23:02
Speaker 10: the small coins are for local purchases and you've got
23:04
Speaker 10: to manage inflation in a slightly different way than you
23:06
Speaker 10: do with a big coin. So I think that's still true.
23:08
Speaker 9: Now.
23:09
Speaker 10: Banks are like mints. They produce our money. Banks for
23:12
Speaker 10: the exact same reasons, would rather produce, would rather deal
23:15
Speaker 10: with big loans, big deposits, big transfers, than small loans,
23:18
Speaker 10: small deposits, small transfers, And so I think we've replicated
23:22
Speaker 10: that system with banks. And when you look at the
23:24
Speaker 10: problems with banking in America, rather the challenges of getting
23:26
Speaker 10: people into the financial system, it's the exact same problem.
23:29
Speaker 10: Banks don't want to handle small depositors, they don't want
23:32
Speaker 10: to make small business loans because the back office costs
23:35
Speaker 10: are higher. This is a problem that would be very
23:36
Speaker 10: familiar to a mint.
23:38
Speaker 2: I want to switch gears and talk a little bit
23:40
Speaker 2: about currencies used in commodities and international systems. We talk
23:43
Speaker 2: a lot about this petro dollar because will, which we
23:46
Speaker 2: talk about constantly given how much it's risen is priced
23:48
Speaker 2: in US dollars, and how other central banks are kind
23:51
Speaker 2: of beholding to the US because everything is priced in dollars,
23:53
Speaker 2: and how they want commodities to be priced in other
23:56
Speaker 2: currencies for instance. Is that doable given where we sit.
23:59
Speaker 2: Is this something that the US controls or is it
24:01
Speaker 2: all way beyond our control?
24:03
Speaker 5: I think so.
24:04
Speaker 10: I've been splitting hairs on this one. I think it
24:06
Speaker 10: is within our control, but beyond our regulation. And what
24:09
Speaker 10: I mean by that is when we think of the
24:11
Speaker 10: the offshore dollar system the year, what we think of
24:13
Speaker 10: is the euro dollar system. This is just foreign banks
24:17
Speaker 10: producing their own dollars, manufacturing their own dollars using new
24:20
Speaker 10: loans nominated in dollars. Okay, So the FED doesn't have
24:24
Speaker 10: any oversight, the Treasury the control or nobody. We can't
24:28
Speaker 10: look at what's happening. But the FED does step in
24:30
Speaker 10: as we know. And eight twenty twenty with these swap
24:33
Speaker 10: lines with foreign central banks. To me, that says the
24:36
Speaker 10: US dollar is unique in that since the sixties, we've
24:39
Speaker 10: been willing to tolerate in the United States some level
24:41
Speaker 10: of offshore activity. It's very useful to the United States
24:44
Speaker 10: to have these offshore dollars, and in return, we provide
24:49
Speaker 10: this service, Is it sustainable? It seems to be so far.
24:53
Speaker 10: When we look at measures of euro dollar growth of
24:56
Speaker 10: offshore dollar growth, that.
24:58
Speaker 5: Line is still going up into the right.
25:00
Speaker 10: There are fourteen trillion euro dollars off show dollars. There
25:03
Speaker 10: are nineteen trillion domestic dollars. They're comparable in scale and
25:06
Speaker 10: they're still growing. So offshore banks seem to think it's sustainable.
25:10
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