June CPI and Kevin Warsh

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Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. We start strong constant hunter with us, with EIU and the Chief Economist. Constance Paul just saved me with the warship lines. My head is spinning. I'm using Ask B.A.I. I'm Bloomberg and I can't keep up. Do you feel that way? Oh yeah, every day. And if you layer on what's happening in the Gulf with the Middle East, which is a big reason why we saw this pullback last month and a potential reason why the July CPI may not be as favorable. You wake up every morning and there's something new. So let's just walk through this CPI day to here. It looks like it's energy really impacted here. What's your takeaway here? We had arguably elevated higher inflation last month. Energy impacted. Kind of a little bit reversal here this month. It seems like. And that's great. But when we look forward, it really depends upon, is the straight of hormones going to be open or not? And if we look internally within Iran, right, a lot of the actions that have been taken have really reversed some of that anti-government sentiment. We saw it at the turn of the year. So now there's more support amongst the people of Iran for being the hardliners against the US. And it just doesn't bode well for a settling of that situation. This deflationary tendency in one report four minutes ago. Can you extrapolate that globally as you do at EIU and say that we're misjudging the inflation? And there could be a dampening of prosperity, a dampening of nominal GDP that drives inflation lower? So the way I would look at this report is figuring out what part of it is going to be forward looking, what part of it is signal for what is coming ahead. And if we look down at some of the commodities where prices are softening. So we look at new vehicles, assuming I'm reading this right, new vehicles are flat. You see used cars and trucks down 0.2% on the month, year-over-year, down 1.8. You see a peril falling, you see medical care commodities falling. So when we look at things like a peril, when we look at things like vehicles, what we're seeing is softening demand. And so we'll get more information later this week about retail sales. But if we just consider globally the impact of higher energy prices, of course, coming back to your question, it dampens demand. It subtracts from demand and for other things in the economy. Well, here's a wash headline at 10 o'clock. This is a Paul Swini headline. Job creation has kept pace with the workforce. Yeah, I mean, that's what you were talking about earlier. Yeah, it's interesting. I mean, reading some of the prepared remarks from Kevin Warsh, you know, really resolute about getting inflation down. But at the end of the day, the geopolitics are out of his control and out of the Fed's control. And we see that whipsawed in global energy prices, which are now the upswing yet again with WTI crude oil over $80 a barrel. I mean, there's not what you can do sitting at the fund reserve about that. And of course, while we had relief last month on gas prices, we're still looking at up over 25% year-over-year. And we know that people attached what we call salient prices, things that they buy frequently, even if it's not the largest part of their consumption basket, they overweight it in their estimates of future inflation. So what's happening with gas prices definitely matters for inflation expectations, which matters for the Fed. I mean, that's something Warsh spoke about yesterday is that when inflation expectations are anchored, the Fed has to do much less when inflation rears its head. When inflation expectations are unanchored, they have to do more. Let me get to Sena. I got to go to IBM here and some really important perspective. One final question I want to go to your wheelhouse. Do you frame that if Warsh does X, Y, or Z, that the governors and presidents have the ability to rebel against him like what we saw at the Bank of England years ago? I think that the governors and presidents are going to do what they think is best for monetary policy. And if that works out to use your word rebellion, then that's how the cookie crumbles. I do think that they are all committed to central bank independence and to fulfilling their congressional obliged mandate. Gosh, he nailed that. She didn't even have to read that off the card. She's got a thousand or so. Constance under thank you. Thank you. With EI, you Robert Schiff and publishes on IBM. I don't know how he does this. He says first of all buckle up. Oh, okay. He makes real clear that this is not just an IBM thing. He says it's too early to write off IBM despite poor second quarter. That's his reaction. He says quote will be an interesting day as a sky is falling theme builds that in technology. We continue on the state of the American economy. Francis Donald joins his chief economist, RBC capital markets. David, all of eight minutes, Francis to digest the CPI report. Is it a one off disinflationary tendency? Or do you detect a trend? Well, facetiously when I saw the core CPI come in flat, I thought, Oh, Kevin Worsh was the most successful Fed share ever. He's done it in a matter of weeks. He's solved for the inflation challenge in play except that to your point. What we're seeing this month is entirely the energy drag explaining the headline decline. And there's enough going on in course CPI to tell us that these are probably some volatile components like motor vehicle insurance and wireless telephones. And we just have dragged on course CPI underneath the surface. I am still concerned. And firstly, I don't know that we should be saying inflation is totally solved when core inflation in America is still at 2.6%. We are over five years of inflation above target. And we still have some pretty serious issues in the areas that matter most to consumers like food, which is up 3% and still likely to accelerate ahead. And an extremely tight labor market that reminds me of the good old fashioned demand led inflation, which is still in the system as well. So I think two things can be true. We can celebrate that we've had some reprieve here this month in many areas of the report. This is good news for chair Worsh as he heads into testimony. But it is too early to take our eye off the ball. Francis, would I get thrown out of the Federal Reserve if I walked in and said, you know what, in today's world order, 2.5% core CPI, that's fine. I mean, in a world where there's globalization is going by the highway here and it's all, you know, every man for himself, costs are going to be higher. That's just the way it is. What happens then? Would you get thrown out? No, but you'd probably be relegated to the basement with a few other colleagues who share the view and you'd have to be really quiet about it. I suspect that the way we have to think about inflation now is really comes down to this idea of what is supply led inflation and what is demand led inflation. And the San Francisco Fed actually breaks this out and what they spy on right now is that it's about half supply given and that's everything from AI to tariffs to the straight of form, moose coming through and created blockages. But half of it is demand led and this is the area that the Federal Reserve can control and should control. So while we continue to focus on these big structural trends that are meaningful to price levels and price growth, I think this Federal Reserve is really going to struggle more with the old fashioned types of inflation. And that's because Tom of you've highlighted many times this morning, nominal growth is very strong in America. The labor market is extraordinarily tight. There is a massive infrastructure build coming out. It is the golden age 2.0 and you have an exceptionally wealthy top 1% consumer. Those are the types of things that drive demand led inflation. So the Fed can be excused and all central banks globally can be excused for wanting to look through supply led inflation that maybe be excess above 2%. But they have to stay focused on demand side and that's where my concern in the second half of the year is much more so than are we seeing energy coming up or down in a month to month. So from a I'm looking at the work function here still looking for almost two rate hikes this year. Does that seem reasonable to you? Leave the Fed on hold and of course it's now natural to say, okay, well, what is this number made for the Fed? But I look at this number now from a different lens, which is what does this inflation mean for the consumer and tell us about the consumer? Because at the end of the day, what will matter for most businesses for anyone picking stocks? For those who are trying to serve is what is this telling us about the consumer? It's telling us that the consumer is not struggling under the same gasoline prices that they were last month. It's telling us there are certain items that they'll get some reprieve on, but it's still telling us that prices are too high for most consumers. And when you combine the CPI number with the fact that we no longer have tax refunds that we have seen savings eroded, this is a consumer that may have had some reprieve now, but if we see another price shock in the second half of the year, whether energy prices rise again, whether food prices rise or reprieve, I don't believe this is a consumer that can withstand that and you'll see pricing powers eroded. >> Francis, one final question. I think just to get us through the year and on into tooth, I haven't said this yet. 2027, are you ready for that? >> No. >> I mean, Francis, I look at all the uncertainties, all the different threads and narratives. Off your desk, is there a confidence to be in the markets given the economic confusion? >> It's not too early for 2027. We just had a meeting of when we were going to put out our 2027 outlook just July. And we have to contribute forecast for 2027. And when we look into 2027, what we see is it is still really hard to bet against the American economy. And that is because of the structural support coming from non-residential builds. That's infrastructure. You still have a wealthy top consumer and there's a lot of government money inside. There's productivity growth that is helping the American economy stay at or above 2% growth for the next 12 to 18 months. And as we head into 2027, I think what will be the biggest challenge for markets to digest is that you're going to get what I'm calling for two of this math, which is base effects are going to bring inflation in the second quarter down next year into as low as 1.3%. Core inflation will not be that low. It'll be in the mid to high twos. But we're going to have to digest some pretty serious base effects. But if you combine those two stories together, as I continue to say, it's real hard to bet against the US economy. - Friends, as people are slowing down in IA80 right now across America, do you know how much our listeners hate base effects that go to the grocery store? And the base effect is when did I pay $7 for oranges? They used to be three dollars. - Exactly. - Very amber. - Prices are up 30% in five years. Consumers care way less about year over years. They don't care about what FedWorch is going to do. They care about the real economy. And that's what numbers like this morning CPI tell us. They tell us there's a short-term reprieve. But prices are too high and consumers. The mass consumer is still struggling under the weight of higher prices in the cost of living. - Francis, thank you so much. Francis Donald, RBC. To wait for you, folks, welcome across the nation. Constance Hunter, where this from EIU and then Francis Donald from RBC, we've done really pretty much everything we can in an hour and 15 minutes away from Chairman Worsh. It was a moment to Europe earlier with Isabel Mateo St. Lagos, let's do it again and get a different perspective. The conversation's so important on this huge day. Maria Vettmane joins us head of US equity strategy State Street here on a stock market reaction. Just the earnings season that State Street sets up, Maria. I mean, it's just gotta be price to perfection and a buoyancy of earnings and revenue growth. - Yeah, hello, thanks for having me. I mean, I agree for lots of sectors, for lots of companies, as a market pricing has been tough. I'll particularly worry about European equities where we really haven't seen a lot of earnings growth but a lot of price appreciation. So definitely price for perfection. US, we're a little bit more optimistic and usual and tech sector tends to provide majority of earnings growth and we see very little sign of that slowing. - So, Maria, again, we got a lot of data points this morning from the big US global banks here. Boy, this seems pretty darn good. What do you make of it? - Yeah, I mean bank earnings, I mean, the sense is they usually come out first and they usually come out like, come out swinging. I mean, the numbers are very substantial, very strong earnings. I mean, I, for banks, I mean, the thing I really focus on is the quality of earnings. So I'd like to look at what proportion of earnings come from interest and non-interesting come. And I mean, we're beginning to detect quite war in science. I mean, yes, of course financial market, I mean, financial markets are booming and banks make a lot of money in non-interesting come. I mean, in theory, market should not really reprise based on that. You really reprise based on underlying kind of corporate profitability, interesting kind of like lending demand and all that. So that's maybe, I mean, potentially one kind of weaker point we've seen so far. I mean, obviously we're looking to see more, more bank reports, but that's something I'm watching out the quality of earnings. - We saw some inflation data today, Maria, that suggests that, you know, the markets are kind of reacting. Maybe the, I'm looking at the work function, the, I guess the expectation for two rate cuts is now back down to closer to one, I'm sorry, rate hike, to one maybe so far this year. How does that impact kind of how you think about just equities in general? - I mean, yeah, I mean, like the numbers came out, I mean, CPI numbers came out fairly weak. I mean, we expected weaker numbers, maybe not as weak as we got, but kind of looking at transcendent inflation kind of our suspicion was that some science of weakness we haven't seen kind of a lot of transmission into core when oil price was coming up. So it was fairly insulated. So that has been to be honest, a little bit of a concern for us that companies were not able to pass higher input costs to the end consumers. So I mean, we're somewhat concerned about like consumer stocks. So that's kind of where weaknesses, I think your previous guest was talking about this kind of 1% total 1% have a lot of money. What about the bottom 99% so that's where the stresses are. So I think this kind of divergence that we've seen in equities companies with strong margins, strong earnings, doing a lot better than the one without. - Thank you so much, Maria Vemene, to sort of visit the state treatment. Stay with us more from Bloomberg surveillance coming up after this. - This week on Leaders with me, Franzi Lacqua, I speak to tennis legend Rafa Nadal about how he stayed competitive despite injury. - I was able to enjoy the victory is probably more than if I will not have this issue. - One iconic match. - In my mind was I am almost dead. - And whether he misses playing. - I don't miss tennis because it was nothing else to offer. - Listen and watch Leaders with me, Franzi Lacqua, on Bloomberg Television or wherever you get your podcasts. (upbeat music) - You're listening to the Bloomberg surveillance podcast. Catch us live weekday afternoons from seven to 10 a.m. Eastern. - Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. - Damn Tobin joins us at City Brain. Does Jane Frazier call you up and say, what's a dollar gonna do? (laughs) - You know, it's actually been kind of quiet the past year despite all the hype about the collapse of the dollar. - You nailed the biggest. - All of the negative stuff. - You and Hollinhorse nailed this. You know, he had a higher regime. You had a strong dollar regime. Now what? - Yeah, now that everybody's come on board to our side of things, we actually think that view might be getting a little bit crowded. It might be time to actually be thinking about a more neutral dollar outlook from here after the appreciation that we've gotten. And I think today reinforces the reason for that, which is that we've got a lot priced in for the Fed. They're probably not gonna deliver on it this year, unless we get some real, you know, escalation again in the conflict. And so if the Fed kind of stays where they are, we're gonna have to take some of that hawkish premium out. That might see the dollar bump, but you can see a little bit of a bump but we're seeing that right now. We don't really think we're gonna get a major dollar to climb from that, but ultimately, it is hard for the dollar to keep rallying if the Fed doesn't actually deliver those hikes this year. - So speaking for a friend, it's gonna be in Europe in October. I got the, am I gonna get your parity again? Or what's the realest of call for the euro? 'Cause we had 120 down to 114 here. Where did we go here? - Yeah, sadly no, you're not gonna get that opportunity for this summer. Yeah, it's been, you're probably gonna have a better trip to Japan if you're gonna go anywhere. - My share, no, yeah. - Yeah, there you go. That's sort of the credit card statement server. - Yes. So no, unfortunately not, you know, part of that is just that in order to get a move to parity, you really need to see the ECB in the Fed diverging. That is the ECB is gonna be cutting, the Fed's gonna be hiking. While we have some cuts, our economists expect some cuts from the Fed and some hikes from the ECB for FX, we're basically keeping them both neutral. We assume the ECB is not gonna do anything this year. We assume the Fed's not gonna do anything this year. And if that's right, we're probably not gonna get any big moves now from here. - So, alright, so we think about, you mentioned the yen. I mean, when, we were all, I was kind of on almost a 165 watch there for a while here. We're sitting at just under 162 to the end. What's the bank in Japan think in these days? Well, I'm sure they're wondering how they can get this currency a bit stronger without necessarily destabilizing the economy and hiking too much. The reality is at this point, the main issue for Japan and the yen is fiscal, not just rates. And so, even if the bank of Japan were to hike a little bit more than is currently expected, it's not going to be a game changer. We need to see the fiscal pressure. Ease in Japan, JGB markets to stabilize. That's, and the rotation of the JGB is that's what will get you in appreciation. We're all looking for it, but the timing is uncertain and it might be longer than we want. Dan Tobin with the Society Group, we continue here on what the litmus paper of the global system, the dollar tells us Alexis Christoffer's in a bit than rich hill on real estate is, well, a couple of the worries coming up later in the hour. The inter, oh, Jess Metton will be with us. Solid. Schedule. Solid. Guest of the day. So, Dan, what I love is when they send in research and they give a chart just for me. I mean, I get Miss D. So, it's DXY, the blended traditional dollar index, 54% euro, whatever it is. China's not in it, EMS not in it. And Dan, you say everybody's looking to short-termism and you go back to when O8 trend. And the bottom line is A, it's lovely, B, it's well contained. When we go down one log standard deviation on DXY, which is where we are right now, why do we bounce up stronger dollar? At the end of the day, it comes down to relative growth. The U.S. is still the world's growth engine. That has not changed. Money flows to us. It comes down. The flow, this sounds like Babsich 101 from ages ago. Money comes in, it flows up and up goes down. Where does your money get treated the best? The U.S., it from a big picture perspective remains the place. I mean, it's like a ready folks from 2008, one-ish rumor, but one, two, three, four times Paul, we've come back dollar, weakness, OMG, the world's coming doing in. Boom, we get a damn Tobin left. Dan, what do you see? Value out there in the currency markets. You know, I think right now one of the more interesting places is actually a very small country, some more like New Zealand, where there's been a lot of negative expectations, a lot of migration, a lot of Kiwis left their own country and you're starting to see people come back. It can often be a sign that things are starting to improve. More tactically, we're looking at places like Brazil. Great carry. Yes, there's some uncertainty on the election later on this year, but with real rates where they are, it's just so attractive. Paul's so polite. You guys see, what is your best idea? What's your single best idea? Right now, we're short Aussie against Brazil. So we like the real against the Australian dollar. How does Brazil? So it takes out, they have very similar commodities. This is like losers in the World Cup trade. Well, maybe losers in the World Cup, but a lot of carry. So you can earn a lot while sitting in that trade. You reduce your exposure to the S&P, because both Aussie and Brazil move similarly to the S&P, they move similar to the dollar, they move similar to commodity price changes. So you hedge out a ton of risk and you're just picking up the carry. And if it goes nowhere, you're earning a nice little coupon while you wait for more clarity in the future. Brands, that was beautiful. Go to the straight on. Bill Gross is never described, "Pay so carry that glue." That was beautiful. Dan Tobin, thank you so very much, Frazier with you next time. When you show up, he's had a FX for a city group. Gain insight on the innovators, disruptors, and tech-driven trends shaping today's complex economy. I'm Carol Masser. And I'm Tim Steneveck. Wrap up your work day with the Bloomberg Business Week Daily Podcast. We bring you deeper dives into the story shaping your world from the evolution of AI to the shifting priorities of global business. Plus Silicon Valley power players and the latest tech trends. Catch up on the conversations you missed during the day. Subscribe to the Bloomberg Business Week Daily Podcast on Apple, Spotify, or anywhere you listen. You're listening to the Bloomberg Surveillance Podcast. Catch us live week-day afternoons from seven to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. So what we're going to do is fly in the man from LA. And this is on Apple. Mark German flat out drives a conversation at Worldwide. He joins us at Chief Correspondent on Technology and Apple at Bloomberg News. How's Tim Cook doing? I mean, the litigation in all whether like tantrums and arguments over the last two weeks is Apple one after Sam and Open AI. I have to tell you they're dealing with so much right now. They have this big management transition, right? Tim Cook stepping down at the beginning of September, John Ternis taking over. They're dealing with the memory shortage, dealing with global politics, Trump, tariffs, you name it. Right. But like it feels like the biggest thing they've been dealing with over the last year is actually Open AI. Tim Cook, the executive team over there, they've been beside themselves. They've lost 400 people. 400 people. And in their mind, they needed to do something to stop the bleeding. How can they stop people from leaving? Well, the lawsuit. The lawsuit. Okay, but the lawsuit every day, everybody leaves. We lose people, a Bloomberg, we gain people. Yes, but what's so what here? We don't lose, you know, another company, right? A competitor, 10% of that company isn't made up of Bloomberg employees, right? It's 400 people leaving one company for another company. And it's in Apple's history completely unprecedented. Open AI probably made up between 5 and 10% of that company is made up of people who came from Apple. It's in Apple's view, it's absurd. Apple believes there was some shady behavior going on. They couldn't prove it, of course, until they caught this kid, this iPhone engineer named Chang Liu, who hacked into Apple servers after he left the company and was able to pull engineering presentations and all sorts of other material. And so they were able to build a case around that. But one thing I'll tell you is even so, the lawsuit is kind of flimsy. Like you said, people transfer between companies all the time. That is commonplace. But what Apple's doing here is they created a narrative to scare their current employees, I think. And if you're an Apple employee right now and you're teetering between staying in Apple and going to open AI. They have been here. Mr. Bloomberg marks by me. Says, if you don't shape up, I'm cutting off coffee. Oh, that's funny. Paul Sweeney with Mark here. What's the what's the intent here of Apple here? Is it maybe as you suggest, maybe to scare existing employees? But if you don't like to be in a position where you have to do that, you want to create an environment where you want to say it Apple because it's Apple. Well, they're okay. How much time do we have? But let's unpack this. So Apple has been dealing with a lot lately. Obviously, the innovation engine has slowed down. There are a lot of people who want it to go to open AI and work on this new technology with the promise of building something revolutionary, thinking we're going to build the next iPhone, right? The other thing you have to know is that open AI is paying three, four, five X. What Apple is paying a more money. They're paying them more money. It's like when I go from the giants to the Dodgers. It's the combination. It's the combination of yeah, there's no salary cap in Silicon Valley, right? You're getting the combination of more money with the promise of working on something far cooler, not doing the same phone or iPad or Apple Watch. Okay. So guys, and they're wearing Bruno Kuchinelli t-shirts. I get it. Like the way you style, Mark. Is there business? I mean, are we going to get a bombshell for them this quarter like we did from IBM this morning? I don't see it. No, that's not going to happen. In fact, if you want to-- And it a record high yesterday. Well, let's turn the conversation into Apple's future. What Apple's going to do over the next two and a half years in terms of new products has never happened before in its history. There are so much stuff coming that I am having a hard time wrapping my hat around it. There's a lot coming. You've never seen anything like this. My credit card is already I can feel it in my pocket. It's shaking. It's it is. I mean, I have a-- Fox, I don't get tweaked nerdy on this, but I'm going to do it with young German. I got an M3 Altru at home. Okay. I have a 2019 Mac Pro, which I'm using as a coffee table to put a martiniac. I didn't know you were that cool. I mean, I knew you were cool, but I didn't know you were like M3 Altru. I have an M3 Altru blah blah. I don't want to get into it because your your conversation is more important than mine. I don't see any innovation slow down here. I got a Neal Alexis. Go with somebody go up. Go up to my man bag at my desk and put off the Neal. Okay. The Neal is incredible. Just so more incredible. It's incredible. My wife just got one last week. Okay. That machine is awesome. Even though they did the $100 price hike at $700, you're not getting anything in that category. So yeah, that is an innovative product and she loves it. Everyone I know who has the Neal absolutely loves it. By the way, there's a new Neal coming next year. They hit a record high yesterday. What was me? Apple, Paul, you got to be kidding. IBM's done 20%. It's ridiculous. These guys are rocking the free world because they're not doing all this AI stuff, right? Right. I mean, it's funny. People say, oh, Apple's the new IBM, Apple's the new Microsoft. And they mean in a negative sense. No, no, no, no, Apple's future the next three years, extraordinarily strong AI wearables. They're working on three AI wearables and they're working on three AI home products. They've got stuff coming that's going to blow your mind from smart glasses to this new smart home device. I'm pumped in. Don't get me started on the iPhone Ultra, the foldable phone. I'm really excited for that. So you think Apple from an investor's perspective can shake the concern that they're kind of missing AI, they're lagging behind AI. Can they change that narrative? Do you think? Have you tried the new Siri AI on the phone? No. So the public beta came out yesterday. I've been using it since the beginning of June, in the developer beta. But the new Siri AI, what they've gone from on Siri, is completely incompetent to competent. I'm not saying it's anywhere near as good as Chatchee PT, but for 95% of people, the Siri in your pocket now will do absolutely what you expect, and it's terrific. >> It'll fall 20. >> Finally. >> I'll talk to you. Finally. >> Yeah, I don't get Siri. 28.7% per year for the last 10 years. This company's a failure. >> Exactly. >> It's terrible that exactly. So what's next stage for this suit here? Because this kind of goes to the heart and soul of any tech company. It's the people. They walk out the door. Your assets walk out the door every day at five o'clock. >> Well, let me just say, well, in some places, five o'clock. But let me tell you this, if you're an Apple employee and you read that lawsuit, you'd have to be a lunatic to not second guess going to OpenAI. The way that Apple frames this, the way Apple talks about how their security is going to go after you if you go to OpenAI, I think Apple employees are going to be very scared to move between companies at this point. >> Do you have winners and losers in your head? You don't have to tell us because I understand it's rude. But if there's like seven players at AI, does Mark German know these two or three aren't going to make it? >> That are not going to make it. Well, I'll tell you this. I guess people are listening in on this one to hear about Apple. Apple's going to make it because Apple is a hardware company at its very core. And they have the models now from Google to do cool hardware stuff. And I think that the six AI products that they're coming out with are going to do an effective job. I think they're going to sell well. And I think the integration of hardware and AI is the next step for the next time. >> Let's get hiding in those again. >> Okay, so we're going to see a few next year and a few the year after. >> Okay. >> You've got smart glasses. You've got AirPods with AI. You've got Appendent. You've got the Smart Home Hub. Basically, Tom Paul, you put this Smart Home Command Center on your desk. You put it in your kitchen. You put it wherever you walk up to it. And it's like, oh, high-poll, right? You're able to pull up your news, your notes, your music. You'll do FaceTime on it. It's going to be a really cool device. It's a game changer. >> If you met Rebecca Ferguson, I mean, a guy as cool as you, like Silo's season three on it, Apple rocking it right now. Are you going to be one of these people at the beginning that's an executive producer? How's that whole thing going for them? For Apple, I talk about the home devices. >> No, I'm talking about Apple TV and Silo's, the new season. >> Oh, there's all these fancy, like, most people. >> I don't think it's a producers. >> It's not a money maker for them, but it is a marketing engine. How many people are falling in love with these shows? And I want to be part of the CPU system. So I think that people ignore that this is part of the marketing budget, even though it's a money loser. But the tide is sort of turning, right? Like a few years ago it felt like, I don't know how much longer they're going to do this for. Now it's feeling like they can do this forever. And they are going to turn a profit on Apple TV at some point. >> And what's so great is we have Gerard Cassidy coming up on Portland, Maine, who's using an iPhone 8. It's like Nixon or something. >> Right, right. >> iPhone 8 2017. It still works. >> It still works. I think it still works. >> It's not fun to have fun. >> Even what's more amazing is Gerard Cassidy still works. Mark German, thank you, thank you so much for joining us. >> Thank you. >> I entered studios, usually I see them at the bar at the sunset tower in LA. But he's here at today, and that's a good thing on Apple. Stay with us more from Bloomberg's surveillance coming up after this. >> Hi, I'm Barry Rittultz inviting you to join me for the Masters in Business Podcast. Every week we bring you conversations with the people who shake markets, investing, and business. I speak with CEOs, Nobel laureates, market innovators, and legendary investors. Whether you own stock bonds, real estate commodities, even crypto, these are discussions you absolutely need to hear. Subscribe to the Masters in Business Podcast on Apple, Spotify, or anywhere you listen. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. >> Or watch us live on YouTube. >> There's a whole other world out there. Matt Seagull's expert at this for years at Bloomberg and then holding courted Veneck in digital asset research where he uses the Bloomberg terminal each and every day because he learned how to do that. Kermann the Laureate is out really doing what I do, which is saying, okay, I don't get Bitcoin. Your point is you don't get Bitcoin, but there's a whole other world out there in the crypto space where you can profit as you massively outperform Bitcoin over the last X number of quarters. >> Yeah, Tom, Bitcoin is the foundational crypto asset and it's one that's obviously gaining adoption by sovereign nations, long-term holders who have excess electricity that they can use to either mind Bitcoin or mind AI tokens. But this ecosystem is now big enough that there's always a bull market somewhere in it. >> For example. >> Well, so our actively managed ETF node has outperformed the Bitcoin price by something like 100 percentage points since inception over the last 13 months or so. We've been focusing on cash flowing companies. Those companies happen to be Bitcoin miners at the moment because they are flush with electricity and power contracts and they've been repurposing some of those data centers to serve the AI market. So one of our holdings, CleanSpark, is up 15% today. They just signed a $6 billion lease in Georgia to repurpose some of these Bitcoin facilities to AI. So these companies have optionality. They're very cheap versus data center reats, at least on our work. And those names have driven the bulk of our returns. But look, what we're trying to do is provide diversified exposure to the entire crypto value chain at a reasonable price, avoid the pitfalls, like over leverage, bad corporate governance. And if you do that, the space is working. >> How quite do you do that? >> Exactly. >> Like actual securities research. >> Exactly. How does the growth of AI in the last three, four years impacted the crypto space? This is a super broad question. So take it anywhere you want. I was impacted to the crypto space. >> At the infrastructure level, it has validated the Bitcoin mining thesis, which is if you can source very low cost electricity oftentimes renewable, you can build ahead of demand. And that's kind of what Bitcoin miners do. They go out and search for the lowest cost power. And now that power ecosystem is being re-rated. So that's been the most concrete example of how crypto and AI are intersecting. But look, they're also competitive because in the end, AI is software and crypto is software. And if you look at the performance of the altcoins, the Ethereum, the Solanas, there's a long tail of millions of these altcoins, which, you know, a lot of them don't have much fundamental value. And AI is competing with some of those, because it's easier to spin up a software platform or a database platform. So there's cross-current. So is node I'm looking at it, you're holding, is it effectively an AI infrastructure play? >> It's become correlated with that theme because some of our highest conviction names are up 4X, 5X over the last year. I don't think that will always be the case. Bitcoin is a cyclical asset. It goes through a four-year cycle. There's no buyer of last resort. So it's either going down or it's going up. This is the down year, historically. We would expect a year from now when we're looking back, you know, our fund may look a little bit different, partially because of performance, partially because of reallocating. >> Don't question of the day. If there are people mining Bitcoin, does that mean there'll be more Bitcoin threatening price? >> Now, the Bitcoin algorithm is fixed. The current inflation rate is about 80 basis points per year. That will be cut in half in about 18 months down to 40 basis points a year, no matter how many miners there are. The same Bitcoin is produced each day. It's just divided among those proportionate to their share of the network. So-called altcoins have under-formed this year as corporations are building their own blockchains to capture so-called or settlement economics previously flowing to open source chains. What is that? >> Yeah, I think the biggest development and surprise since the election, everyone was expecting this deregulatory push and some of the open source coins like the Ethereum and Salinas would outperform. What actually happened is that the deregulation also hit the capital markets and the investment banks are able to underwrite equity capital formation in this sector. And native companies like Circle, for example, are launching their own blockchains that are competing with these open source ones. And they have some more attractive characteristics if you're an enterprise user. >> How did a guy from an English degree at Harvard become tech nerd? >> Well, Tom, I learned by working in financial journalism about fake news pretty early and got pretty disillusioned with this space. Found myself into money markets on the buy side, covering tech. And the thing to cover was the closed source network effect companies like Google and Apple. And cryptography was liberalized by the Clinton administration. They allowed cryptography to be exported to the rest of the world. That ignited a bunch of new applications. Bitcoin was one of them. But all of cryptography has the chance to take margin away from these closed networks. And I see that margin opportunity. I think there's going to be a lot of consumer welfare created. Thank you, thank you. Miss Siegel's been too long. Had a digitalized research at Van Ack. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, tune in, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal. [MUSIC PLAYING] On Bloomberg, these are short audio episodes. Five minutes or less delivered right to your podcast feed. Stockmovers fills you in on the day's winners and losers on Wall Street and tells you about the news and data that's driving those gains and losses. Why spend all day watching tickers scroll across your screen? Subscribe to Stockmovers today, an Apple, Spotify, or anywhere else you listen.