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Bitcoin Boom Looks Increasingly Perilous to Cumberland's Kotok · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg P M L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Adventures
• 0:32
  Speaker 1: in Muni Land. That's the author of the book that
• 0:35
  Speaker 1: David co Talk, the chairman and Chief investment officer of
• 0:38
  Speaker 1: Cumberland Advisors, co authored. He's based in Sarah Soda. He
• 0:42
  Speaker 1: is uh in California today and David, always a pleasure
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  Speaker 1: to hear your voice, Um, and wonder if you could
• 0:48
  Speaker 1: maybe just explain how Adventures in Muni Land might actually
• 0:53
  Speaker 1: apply to Adventures in Bitcoin? Could that be a serial?
• 0:56
  Speaker 1: Do you think maybe? Is that your second volume coming up?
• 0:59
  Speaker 1: I'm thinking Tim, Thank you very much, Happy holidays to you.
• 1:03
  Speaker 1: I'm thinking about writing that one, but we don't have
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  Speaker 1: enough experience yet in bitcoin we will, I suspect before
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  Speaker 1: this is over. So what do you mean by that
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  Speaker 1: before this is over? You're implying something here. Well, I'm
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  Speaker 1: in the camp that says something that can be created
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  Speaker 1: infinitely with mathematical formulas and that is subject to hacking,
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  Speaker 1: and the experiences we're seeing is not a value. And
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  Speaker 1: so cryptocurrency that isn't backed by anything other than hope
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  Speaker 1: or an algorithm which can be repeated a hundred times
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  Speaker 1: and already is is not something I would invest in.
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  Speaker 1: Now there's another group. I just saw a forecast today
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  Speaker 1: that said next year Bitcoin I'll hit eighteen thousand. Well,
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  Speaker 1: price fantasy ratios have been around for a while, maybe
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  Speaker 1: this is a new one. Well, David, you know you
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  Speaker 1: did in a story published yesterday by Bloomberg News. Clients
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  Speaker 1: bring up bitcoin all the time. You said, they think
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  Speaker 1: it's cool. It has the newness, which is attractive to
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  Speaker 1: some people, though others would say newness is a risk
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  Speaker 1: they don't want to take. When clients bring up bitcoin
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  Speaker 1: with you, what do you say? I say, if you
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  Speaker 1: want to speculate in this remarkable evolution that has a
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  Speaker 1: couple of years of history, and that's all do so,
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  Speaker 1: knowing you might make a lot of money in a
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  Speaker 1: gamble and you might lose it all in managed accounts.
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  Speaker 1: We don't touch it. We don't touch any of the
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  Speaker 1: ets funds or other organization old structures which are coming
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  Speaker 1: quickly to the market trying to reach them. I would
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  Speaker 1: distinguish between lisa mathematically backed cryptocurrency, which by the way,
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  Speaker 1: can work as a transaction medium, but it has no
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  Speaker 1: store of value that we're used to, and dollar back
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  Speaker 1: cryptocurrency or gold back cryptocurrency, which is catching on and
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  Speaker 1: is growing rapidly. It's actually growing more rapidly than the
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  Speaker 1: mathematical backed cryptocurrency. And there's a reason. There's a lot
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  Speaker 1: of players in the world who would like to use
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  Speaker 1: a transactional medium and not have a record and not
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  Speaker 1: have it go through a banking system. Unfortunately, they're the
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  Speaker 1: kinds of folks that threaten the United States and others
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  Speaker 1: who are engaged in more transparent commercial activity. Alright, so, David,
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  Speaker 1: I'm glad you you held back there on your opinion
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  Speaker 1: about the cryptocurrencies. Is there is there something underneath this
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  Speaker 1: though that says why they are popular? What is it
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  Speaker 1: that has lent this air of sort of almost inevitable
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  Speaker 1: ability about the emergence of these kinds of currencies. Why
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  Speaker 1: do you think people are so attracted to them? Now, Well,
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  Speaker 1: you've got human behavior, We've seen it before. There's this
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  Speaker 1: wonderful new movie out. I don't know how popular it is,
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  Speaker 1: toolip Fever with Judy Dench, and it attempts to replicate
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  Speaker 1: the tool of Bubble of centuries ago, and it shows
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  Speaker 1: how momentum drives up prices and it shows what happens
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  Speaker 1: after the fact when they collapse. Are we having one
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  Speaker 1: of those? Maybe? Are we having? And am I wrong?
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  Speaker 1: And that could be a legitimate change in reserve currencies,
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  Speaker 1: where we're going to use algorithms to drive value instead
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  Speaker 1: of gold or silver fiat currencies that we know, I
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  Speaker 1: would say, in due time will find out. I'm on
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  Speaker 1: the side that five thousand years of history with gold
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  Speaker 1: is a little stronger than five years of history with
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  Speaker 1: a bit Clinton. I think you know, underlying a certain
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  Speaker 1: only some of the enthusiasm is the fact that investors
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  Speaker 1: want returns that are getting harder to get uh in
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  Speaker 1: traditional asset classes, and so bitcoin kind of represents something
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  Speaker 1: that seems more limitless than say, bonds that are constrained
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  Speaker 1: by very low yields or stocks that are constrained by
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  Speaker 1: very high valuations. Do you present ever alternatives to these
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  Speaker 1: investors that might be interested in bitcoin? That might be
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  Speaker 1: higher yielding, and if so, what are they Well, sure
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  Speaker 1: we do, Lisa, but you know you've you have reported
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  Speaker 1: on interest rates and bonds for years. I've watched you
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  Speaker 1: and you are in a period of time, and you know,
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  Speaker 1: because I've heard your report on it. We are in
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  Speaker 1: a decade long period of interest rates which are extraordinarily low,
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  Speaker 1: driven by central bank policies with both you and Tim
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  Speaker 1: have reported on many times which are exceptional and that
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  Speaker 1: distorts behave year over time. Do you think about it?
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  Speaker 1: Any professional in the financial services industry who's under forty
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  Speaker 1: has never experienced a climate other than interest rates which
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  Speaker 1: are rooted in the zero interest rate policy. They've read
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  Speaker 1: about it in books, but they've never experienced it. So
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  Speaker 1: behaviors are entirely different, and that will not last forever.
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  Speaker 1: In my opinion, what do I know? I'm an old goat,
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  Speaker 1: So how do you know? Well, we're not going to
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  Speaker 1: go come on, happy nays to yourself. We love speaking
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  Speaker 1: with you. That's that's your new marketing slogan, right, David Kotak,
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  Speaker 1: the old goat? Well, David, can you tell us? Uh?
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  Speaker 1: Having said all this, what do you think is gonna
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  Speaker 1: happen with interest rates. Do you think we're going to
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  Speaker 1: get four increases next year, as Goldman Sachs has put
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  Speaker 1: out to their investors, I do not. I'm watching things
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  Speaker 1: in the credit markets, credit card delinquency slightly rising, real
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  Speaker 1: estate mortgage structures in growing trouble, twice as many vacancies
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  Speaker 1: in the commercial space area as new construction. Questions about mortgages.
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  Speaker 1: I mean, we're seeing elements warning signs, yellow lights that
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  Speaker 1: things aren't just so perfect, and we also see a
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  Speaker 1: flat yielder. We don't know how to how to interpret
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  Speaker 1: it because of the distortion of the European Central Bank
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  Speaker 1: negative interest rate policy, so we don't have the usual metrics.
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  Speaker 1: I think we are in slow growth. You heard yelling
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  Speaker 1: on her sort of exit remarks say, I'm not so
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  Speaker 1: sure we're gonna have a big inflation. Maybe we got
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  Speaker 1: to go more slowly here. And now we have a
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  Speaker 1: whole new fit. We're gonna have an entirely new federal
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  Speaker 1: reserve within a year that has no experience with ten
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  Speaker 1: years ago, a credit crisis and all that sort of thing.
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  Speaker 1: So we're in huge unchartered waters. Is great to go
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  Speaker 1: to work every day. I feel like I spent the
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  Speaker 1: last fifty years my life getting ready to be in
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  Speaker 1: business at a time like this. David Kotak, thank you
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  Speaker 1: so much for joining us, and have a wonderful, wonderful
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  Speaker 1: Thanksgiving thinking about bitcoin and the era of low rates.
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  Speaker 1: David Kotak, Chairman and Chief executive officer of Cumberland Advisors,
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  Speaker 1: also the co author of the book Adventures in Muniland.
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  Speaker 1: When Mark Dunklely arrived at Hawaiian Airlines, the airline depended
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  Speaker 1: almost entirely on traffic from the United States mainland and
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  Speaker 1: among Hawaii's islands. Well as chief executive, he has managed
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  Speaker 1: to grab a large share of the international business. International
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  Speaker 1: travel now accounts for about a fourth of the airline's revenue,
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  Speaker 1: flights to such destinations as Japan, China, South Korea, Australia
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  Speaker 1: and New Zealand. But Mark Dunckly has his own destination
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  Speaker 1: and he is departing from Hawaiian Holdings, the parent company
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  Speaker 1: of Hawaian Airlines. He joins us now, Mark Duncley, thanks
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  Speaker 1: for being with us. Maybe you could tell us a
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  Speaker 1: little bit about why are you moving on and what
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  Speaker 1: do you believe your legacy will be at the airline. Well, then,
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  Speaker 1: first all, it's great to talk to you again, as
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  Speaker 1: it always is. Um. Yeah, you know, I've had the
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  Speaker 1: great good fortune to run this business for fifteen years,
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  Speaker 1: and at the same time, you know, I've been a
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  Speaker 1: long way away from from family. You can probably tell
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  Speaker 1: them that being in Hawaiian, being British and having family
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  Speaker 1: on the East Coast makes some of you know, keeping
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  Speaker 1: touch with family a little bit difficult. So it seemed
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  Speaker 1: like the right time to to make that move. In
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  Speaker 1: terms of the legacy of our business. I think it
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  Speaker 1: really just sort of demonstrates that a small carrier with
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  Speaker 1: a real focus on the customer can compete and win
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  Speaker 1: UH in a in a market of very big airlines.
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  Speaker 1: In the story that we had on Bloomberg News in
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  Speaker 1: the past few weeks, it noted how a number of
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  Speaker 1: the big airlines United Continental, UH and Southwest Airlines have
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  Speaker 1: expanded service or said that they were going to from
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  Speaker 1: the mainland to Hawaii. You have said at the time,
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  Speaker 1: had I known about this additional competition at the time
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  Speaker 1: I started discussing my plans with the board of directors,
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  Speaker 1: I would have stayed on. Can you explain that? Yeah? Absolutely,
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  Speaker 1: I mean, you know, one of the reasons why you
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  Speaker 1: get into the airline business and management capacities because you
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  Speaker 1: like to fight. And uh, you know, we've had a
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  Speaker 1: lot of competitive entry in our market during the period
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  Speaker 1: of time when we've grown and developed ourselves. We've always
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  Speaker 1: been able to beat back the competition, um in And so,
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  Speaker 1: uh you know, I see no reason why this next
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  Speaker 1: episode is going to be any different. And I would
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  Speaker 1: very much liked to have been in the saddle to
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  Speaker 1: to take the fight to the to the additional capacity.
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  Speaker 1: So Mark, let's say you were staying on, how would
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  Speaker 1: you wage this fight? Well, I think we've got the
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  Speaker 1: winning combination. To begin with, Hawaiian Airlines understands the Hawaii
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  Speaker 1: traveler better than any other airline does. Um We've during
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  Speaker 1: the period, you know, with each successive year, our rate
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  Speaker 1: of you know, that margin by which we understand our
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  Speaker 1: customer better has actually increased. Were in better competitive relative
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  Speaker 1: competitive shape today than we were, uh you know, four
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  Speaker 1: or five years ago when we had another bout of
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  Speaker 1: competitive entry. Um. So I think it's it's more about
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  Speaker 1: you know, leaving all of the the advantages that we
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  Speaker 1: currently have. I don't think it's about finding a new
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  Speaker 1: formula I think our formula wins today. Mark just a
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  Speaker 1: little bit on the competition because a little more rather
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  Speaker 1: because we know, so okay, Southwest United there Lisa said
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  Speaker 1: they're upping their their schedules, but not from the West Coast,
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  Speaker 1: and I think that might be Can you just give
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  Speaker 1: a little bit of color there, because the West Coast
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  Speaker 1: also has to do with your ability to maintain margins
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  Speaker 1: and I'm wondering if you could speak to that issue. Yeah,
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  Speaker 1: you know, with the exception of flying as far east
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  Speaker 1: as New York, which we which we fly, as you
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  Speaker 1: well know, most of our services come off the West Coast. Um.
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  Speaker 1: Again that's that that's a market we know very well.
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  Speaker 1: Most of the people UM coming off the West Coast
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  Speaker 1: are flying on NonStop flights, are not making connections. Uh.
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  Speaker 1: And they're the they're the uh. They're the sort of
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  Speaker 1: customers who are most easily uh sort of directly marketed
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  Speaker 1: to UM when you compare it to people in the
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  Speaker 1: middle of the country who have to make connections. So UM,
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  Speaker 1: when we go head to head off the West Coast,
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  Speaker 1: as I say, we win an indeed, uh, if you
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  Speaker 1: look at where we are now, we we have a
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  Speaker 1: double digit revenue advantage over our competitors off the West coast.
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  Speaker 1: All right, that's all right, So we got the West
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  Speaker 1: coast challenge and strength. Tell us about the aircraft. Because
• 13:15
  Speaker 1: you're taking the new A three one Neo from air
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  Speaker 1: Bus that's got twenty five fewer seats than the smallest
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  Speaker 1: planes that you fly today on that West coast route,
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  Speaker 1: and then you're also doing a reconfiguration of the A
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  Speaker 1: three thirty, you're gonna have sixteen fewer seats which might
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  Speaker 1: be able to offer that premium seating, and then it
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  Speaker 1: offsets the other carrier's growth because it pulls a capacity
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  Speaker 1: out of the market. Yeah. Well, we took the first
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  Speaker 1: of our eighteen eight three one Neo aircraft into our
• 13:44
  Speaker 1: fleet just a couple of weeks ago. We're getting it
• 13:46
  Speaker 1: ready for service early in the new year. We're very
• 13:49
  Speaker 1: excited about this aircraft type. Um, you know, all airplanes are,
• 13:55
  Speaker 1: I mean, both manufacturers built terrific airplanes and they're all
• 13:58
  Speaker 1: optimized for certain kind of distances and certain market sizes.
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  Speaker 1: It so happens aucle mile flight and the size nine
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  Speaker 1: seats of the Neo makes it absolutely the best airplane
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  Speaker 1: for the mission. And we think that is UH an
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  Speaker 1: absolute competitive advantage of Visa the competitors flying other narrow bodies.
• 14:23
  Speaker 1: With respect to our wide body fleet, we're just completing
• 14:26
  Speaker 1: UH the introduction of life flat seats on all of
• 14:29
  Speaker 1: our wide body aircraft and we're seeing a phenomenal uptake
• 14:34
  Speaker 1: of of demand for those. It's and you know, we
• 14:39
  Speaker 1: always understood that would be important in the international marketplace.
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  Speaker 1: I think what's been surprising and encouraging is to see
• 14:47
  Speaker 1: just how important it's become to the domestic marketplace as well.
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  Speaker 1: Mark Duckerley, thank you so much for joining us, and
• 14:54
  Speaker 1: best of luck in the next chapter. Mark Dunkerley was
• 14:58
  Speaker 1: among the longest tenure chief executive officers in the airline industry.
• 15:03
  Speaker 1: He is current president chief executive officer of Hawaiian Holdings,
• 15:07
  Speaker 1: which is based in Honolulu, but he has said that
• 15:10
  Speaker 1: he will retire in March and be replaced by the
• 15:12
  Speaker 1: airline's chief commercial officer, Pete Ingram. This is after quite
• 15:18
  Speaker 1: a long tenure at the airline company. It seems like
• 15:22
  Speaker 1: I don't know him. Would you leave Honolulu? I guess
• 15:25
  Speaker 1: I wouldn't know. I've never lived there, but it seems
• 15:28
  Speaker 1: like a beautiful place to be Goldman Sachs has made
• 15:44
  Speaker 1: a big push into consumer lending via its Marcus online
• 15:49
  Speaker 1: lending system after starting it up in recent years, we
• 15:54
  Speaker 1: are now getting some data about what their lone loss
• 15:57
  Speaker 1: expectations are, as well as who they are lending to
• 16:02
  Speaker 1: and with us. Is Dacan Campbell, a financial reporter for
• 16:04
  Speaker 1: Bloomberg News, to talk a little bit about what we're seeing. Dacon,
• 16:08
  Speaker 1: you wrote this fantastic story looking at how Goldman says
• 16:13
  Speaker 1: that they're expecting loan losses that are lower than what
• 16:16
  Speaker 1: others in the industry would expect. Can you just sort
• 16:18
  Speaker 1: of lay out what you're talking about here? Yes, And
• 16:22
  Speaker 1: it's important to note that they actually didn't go as
• 16:25
  Speaker 1: far as you suggest they went. They didn't tell us
• 16:28
  Speaker 1: that the four percent losses that they disclosed in this
• 16:31
  Speaker 1: recent slide. They didn't say, those are going to be
• 16:33
  Speaker 1: losses for our portfolio. They said, hey, analysts and investors,
• 16:38
  Speaker 1: these are losses for a hypothetical industry portfolio, for a
• 16:43
  Speaker 1: business built at scale. Now, many analysts looked at that
• 16:47
  Speaker 1: and said, Okay, these are the losses that Goldman is
• 16:51
  Speaker 1: assuming for their own business. But it's it's important to
• 16:55
  Speaker 1: note that they didn't actually come out and be all right. So,
• 16:58
  Speaker 1: so you got some pushback they basically from the story
• 17:01
  Speaker 1: saying that Goldman wasn't saying that this was their projections,
• 17:04
  Speaker 1: but that you know, they put this out as a
• 17:05
  Speaker 1: hypothetical and people are saying they're hypothetical is too low. Nevertheless,
• 17:09
  Speaker 1: it's a benchmark. It's a benchmark, and it's a fascinating
• 17:11
  Speaker 1: benchmark at a time when Goldman Sachs is trying to
• 17:14
  Speaker 1: recreate its identity and is trying to plow more into
• 17:18
  Speaker 1: an industry that has been dominated by both credit card
• 17:21
  Speaker 1: lenders and peer to peer online lenders. Uh, can you
• 17:24
  Speaker 1: talk a little bit just about how ambitious Goldman Sacks
• 17:27
  Speaker 1: has been and why this is such a lucrative area
• 17:32
  Speaker 1: for banks. Sure, so, Uh, Goldman would like to A
• 17:36
  Speaker 1: couple of months ago, they told us they'd like to
• 17:38
  Speaker 1: originate thirteen billion in loans over the next three years
• 17:43
  Speaker 1: off of this platform. They started at thirteen months ago,
• 17:46
  Speaker 1: So they're ramping up very quickly. They've done two billion already,
• 17:50
  Speaker 1: so uh, they they'll need to do another eleven or
• 17:53
  Speaker 1: twelve billion. Uh. These are largely debt consolidation loans, so
• 17:58
  Speaker 1: they're going out to people who've got credit card debt
• 18:00
  Speaker 1: and offering them this money at a slightly lower interest
• 18:04
  Speaker 1: rate to retire that debt. As we all know, because
• 18:08
  Speaker 1: of the credit card debt that we may or may
• 18:10
  Speaker 1: not have ourselves, those have high interest rates, and so
• 18:14
  Speaker 1: Goldman thinks that that they can get in UH at
• 18:17
  Speaker 1: a slightly lower interest rate but still high UH. This
• 18:21
  Speaker 1: would be very lucrative for them. I mean they they
• 18:24
  Speaker 1: told us that the net interest margin. I don't want
• 18:26
  Speaker 1: to get too jargon e, but it's UH. Banks now
• 18:29
  Speaker 1: have net interest margins of two or three percent for
• 18:32
  Speaker 1: their entire business. Goldman thinks they can get in net
• 18:34
  Speaker 1: interest margin of ten per cent on this business. Okay,
• 18:39
  Speaker 1: just let me get a couple of details in here.
• 18:41
  Speaker 1: The maximum amount you can actually borrow on the markets
• 18:44
  Speaker 1: platform is thirty thou dollars. Correct. They make a big
• 18:47
  Speaker 1: deal of saying that there is no fee associated with it,
• 18:50
  Speaker 1: also that there is no pre payment penalty. First question.
• 18:54
  Speaker 1: Pre payment penalties are usually designed to make sure that
• 18:57
  Speaker 1: those who lend the money are given the feeling that
• 19:00
  Speaker 1: they will get this stream of interest payments continuously for
• 19:04
  Speaker 1: the life of the loan. What happens to those investors
• 19:08
  Speaker 1: or in the back of the situation, what happens to
• 19:11
  Speaker 1: those loans when they get prepaid? Good question. So one
• 19:16
  Speaker 1: competitive advantage that Goldman thinks they have is they're putting
• 19:19
  Speaker 1: all of these loans on their balance sheet, so they're
• 19:22
  Speaker 1: not selling any two investors. So in a pre payment,
• 19:26
  Speaker 1: if anyone takes the hit, they take the hit. Yes,
• 19:28
  Speaker 1: and they will take the money that's prepaid early, turn
• 19:31
  Speaker 1: right around and lend it out again. Okay, the second thing,
• 19:34
  Speaker 1: it says that you cannot use these loans for any
• 19:38
  Speaker 1: kind of remideration of student loan debt. Is that correct?
• 19:45
  Speaker 1: I believe so, and I believe that's a regulation. I'm
• 19:48
  Speaker 1: not exactly sure, but uh, they don't want you to
• 19:52
  Speaker 1: be doing that, all right. So this is really as
• 19:53
  Speaker 1: you just said, this is to try to consolidate your
• 19:56
  Speaker 1: loans and it's unsecured. This is this is this is
• 19:59
  Speaker 1: a large what a lot of the online lending marketplaces
• 20:03
  Speaker 1: have done, right, and this is lending club prosper It's
• 20:06
  Speaker 1: largely the same product. It's it's directly in competition with
• 20:10
  Speaker 1: credit cards basically to try to get them a a
• 20:14
  Speaker 1: lower rate, although still at we're not talking low rate here,
• 20:18
  Speaker 1: but It is fascinating to me. The first of all,
• 20:20
  Speaker 1: that Marcus is also plowing into non prime borrowers, which
• 20:23
  Speaker 1: is kind of interesting, uh in and of itself. Also,
• 20:27
  Speaker 1: how did Goldman Sachs do this, Because if they're lending it,
• 20:31
  Speaker 1: and they're putting the loans in their books, this comes
• 20:33
  Speaker 1: at a time when all the other banks are actually
• 20:36
  Speaker 1: reducing their consumer loans. Yes, and that's that was one
• 20:41
  Speaker 1: large part of our story, is that they're getting into
• 20:43
  Speaker 1: this business at a point when credit losses are lower
• 20:47
  Speaker 1: than they've almost ever been. So you're getting into a
• 20:50
  Speaker 1: business when credit losses are expected to go up. We've
• 20:53
  Speaker 1: had an eight year economic expansion. You've got to expect
• 20:56
  Speaker 1: that to come to an end at some point. If
• 20:59
  Speaker 1: you are doing the yourselves, you would not want to
• 21:02
  Speaker 1: get into a business at this point in the cycle.
• 21:04
  Speaker 1: It's almost the worst point to get into the business. Now.
• 21:08
  Speaker 1: What Goldman will tell you, and they've said this publicly,
• 21:11
  Speaker 1: is hey, we're getting this. We're building this for the
• 21:13
  Speaker 1: long haul, and doesn't really matter when we get into it,
• 21:16
  Speaker 1: because we'll take early losses and then a few years
• 21:20
  Speaker 1: down the line it'll be fine. This is you know,
• 21:23
  Speaker 1: multi year so take that for what you will, all right,
• 21:26
  Speaker 1: and thank you very much. They Can Campbell is our
• 21:28
  Speaker 1: financial reporter for Bloomberg News. You can follow him on
• 21:31
  Speaker 1: Twitter at Daycan Campbell, and I urge you to read
• 21:34
  Speaker 1: his story about Goldman Sachs and Marcus by Goldman Sax.
• 21:37
  Speaker 1: The online lending platforms Uber has disclosed that it paid
• 21:53
  Speaker 1: hackers a hundred thousand dollars in an effort to conceal
• 21:56
  Speaker 1: a data breach that affects fifty seven million accounts. But
• 22:01
  Speaker 1: this happened one year ago, So why are we only
• 22:04
  Speaker 1: learning about it now? Here to help us understand the
• 22:07
  Speaker 1: issue and its consequences, is Shira Ovid are Bloomberg Gadfly
• 22:11
  Speaker 1: columnist when it comes to everything technological? Sure, So maybe
• 22:15
  Speaker 1: just lay out some of the details as we know
• 22:17
  Speaker 1: them and what you believe the fallout will be right. So,
• 22:21
  Speaker 1: our colleague Eric Newcomer reported yesterday that Uber's board did
• 22:26
  Speaker 1: an investigation and discovered that there had been this data
• 22:30
  Speaker 1: breach in October of last year. So, as you said,
• 22:32
  Speaker 1: more than a year ago that affected personal information on
• 22:37
  Speaker 1: fifty seven million Uber writers and also hundreds of thousands
• 22:42
  Speaker 1: of US Uber drivers, and the company didn't disclose it
• 22:47
  Speaker 1: UM and instead paid hackers a hundred thousand dollars to
• 22:51
  Speaker 1: basically delete or say they would delete the personal information.
• 22:55
  Speaker 1: And that was kind of the end of it. It was,
• 22:56
  Speaker 1: you know, basically a cover up before we get to
• 22:59
  Speaker 1: the sort of ethic of not disclosing it. And the
• 23:01
  Speaker 1: fact that the New York Attorney General is now looking
• 23:04
  Speaker 1: into this and this could potentially add to the Uber's
• 23:07
  Speaker 1: legal woes. A hundred thousand dollars is nothing for what
• 23:11
  Speaker 1: these hackers charge, and it makes me wander, first of all,
• 23:14
  Speaker 1: whether this was sufficient. Second of all, what kind of
• 23:16
  Speaker 1: hack was this? Uh? And and third, you know, is
• 23:20
  Speaker 1: this uh? Is there more to this than perhaps they're
• 23:22
  Speaker 1: letting on? Yeah? These are all good questions. So I
• 23:24
  Speaker 1: will say that generally Uber has been regarded as having
• 23:28
  Speaker 1: a kind of robust security team. This is not a
• 23:32
  Speaker 1: company like Equifax, are previous giant cyber hack victim that
• 23:37
  Speaker 1: seemed fairly incompetent about keeping user data secure. Although the
• 23:41
  Speaker 1: irony of this Uber hack was that it happened at
• 23:43
  Speaker 1: the same time that Uber was trying to repair relations
• 23:48
  Speaker 1: with the Federal Trade Commission over previous misrepresentations of the
• 23:55
  Speaker 1: um security of Uber driver and writer information. So it's
• 23:59
  Speaker 1: sort of ironic that it was kind of being hacked
• 24:02
  Speaker 1: at the same time it was trying to repair relations
• 24:05
  Speaker 1: over previous breaches. Can you say this is a hack
• 24:09
  Speaker 1: and be hacked? Because isn't Uber the company that was
• 24:13
  Speaker 1: cited as being uh sort of the poster child for
• 24:18
  Speaker 1: using nefarious methodology in order to not only gain insight
• 24:23
  Speaker 1: into their competitors, to game the system of their competitors,
• 24:27
  Speaker 1: to flood the competitors system with bogus requests, and also,
• 24:33
  Speaker 1: as I recall, to manipulate the data that was accessible
• 24:38
  Speaker 1: to regulators in different municipalities. Yes, among the kind of
• 24:44
  Speaker 1: very long list of Uber's troubles over the years is
• 24:48
  Speaker 1: all of those things. In spied on writers um using
• 24:54
  Speaker 1: kind of an internal view of where people were going.
• 24:58
  Speaker 1: It used its data, manipulated its data to kind of
• 25:02
  Speaker 1: make sure that regulators who were trying to correct down
• 25:05
  Speaker 1: an Uber couldn't get rides and investigate your further. Yes,
• 25:08
  Speaker 1: all of those Okay, So if all right now, if
• 25:10
  Speaker 1: Uber says they're an asset light company, therefore they're not
• 25:13
  Speaker 1: a transport company, they're a technology company, what special sauce
• 25:18
  Speaker 1: does Uber now claim to have. That makes them distinctive
• 25:24
  Speaker 1: because if their technology is hackable, and clearly it is,
• 25:29
  Speaker 1: and they don't know how to disclose it. If they're
• 25:32
  Speaker 1: not a technology they know, they just decided not so
• 25:34
  Speaker 1: I mean, but to be fair, I mean, you know,
• 25:36
  Speaker 1: I haven't heard from their you know, their side. But
• 25:39
  Speaker 1: if that's the case, so what is this special magic
• 25:42
  Speaker 1: that they have? What what that demands a seventy billion
• 25:45
  Speaker 1: dollar valuation? That is a fair question. Although will say
• 25:47
  Speaker 1: that the information that was attacked was not Uber's algorithm,
• 25:53
  Speaker 1: which is a sophisticated way of kind of matching writer
• 25:57
  Speaker 1: and uh just everybody's license for you know, the driver's
• 26:00
  Speaker 1: licenses and personal uh credit cards. Right, they breached a
• 26:05
  Speaker 1: database of some personal information, although Uber said that it
• 26:08
  Speaker 1: doesn't include things like credit cards. Although you know, if
• 26:11
  Speaker 1: you're if you're a driver and includes your license plate number,
• 26:15
  Speaker 1: you might have serious concerns about your that information leaking out.
• 26:19
  Speaker 1: My issue is, I mean, look, hacks are going to happen.
• 26:22
  Speaker 1: Everyone who we have on this show whose in cybersecurity
• 26:25
  Speaker 1: says it's not a matter of if another hack will occur,
• 26:28
  Speaker 1: but when so, you know, you can't necessarily say, well,
• 26:31
  Speaker 1: Uber is going to go under now because they were hacked.
• 26:33
  Speaker 1: I mean, this is part of the course. Uh. The
• 26:35
  Speaker 1: question is the fact that they did not disclose this information,
• 26:38
  Speaker 1: and this raises some serious questions about the current CEO,
• 26:41
  Speaker 1: Kasar Shahi, what he knew, when he knew it, and
• 26:45
  Speaker 1: you know, how will his response determine the success of
• 26:48
  Speaker 1: this company. I think that's exactly right. The stunner here
• 26:51
  Speaker 1: to me is not so much the hack, although now
• 26:55
  Speaker 1: repeated breaches of personal information on Uber that is serious
• 26:59
  Speaker 1: and worrying. But you're right, it's the fact that they
• 27:01
  Speaker 1: didn't disclose this until for a year and and honestly,
• 27:05
  Speaker 1: based on some of the reporting I've seen today, they
• 27:08
  Speaker 1: might not have ever disclosed it except that Uber is
• 27:11
  Speaker 1: currently negotiating to sell billions of dollars in stock to
• 27:14
  Speaker 1: soft Bank, and the board believed that this was material
• 27:17
  Speaker 1: information that people who might sell shares to soft Bank
• 27:21
  Speaker 1: might want to know about, so we might not have
• 27:23
  Speaker 1: never known, And and the the techniques they used to
• 27:26
  Speaker 1: kind of cover this up raise more and more questions
• 27:29
  Speaker 1: about both the current and the former leadership at UPER,
• 27:33
  Speaker 1: which is why my column um yesterday was basically about,
• 27:37
  Speaker 1: you know, we need to know what. Travis Kallinik, the
• 27:39
  Speaker 1: CEO who got kind of pushed out over the summer,
• 27:42
  Speaker 1: What did he know about the cyber attack and the
• 27:44
  Speaker 1: cover up and why didn't he disclose it? Did he
• 27:46
  Speaker 1: tell the board? Did he tell the incoming CEO? Um,
• 27:51
  Speaker 1: There's just so many unanswered questions about his role in
• 27:54
  Speaker 1: this breach and his continued role of the company going forward.
• 27:57
  Speaker 1: Sure over Day, thank you so much for joining us.
• 28:00
  Speaker 1: As always, sure Oviday Bloomberg gad Fly columnists covering all
• 28:03
  Speaker 1: things tech. Her columns are great. You should read them
• 28:06
  Speaker 1: at Ni gad Fly on the Bloomberg or Bloomberg dot
• 28:09
  Speaker 1: com slash goad Fly on the web. Thanks for listening
• 28:16
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 28:19
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 28:22
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
• 28:26
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
• 28:30
  Speaker 1: one before the podcast. You can always catch us worldwide
• 28:33
  Speaker 1: on Bloomberg Radio.