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A
Bloomberg Audio Studios podcasts Radio News this is Bloomberg Business Week Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg businessweek daily podcast with Carol Massar and Tim Stanweck on Bloomberg Radio.
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B
Alphabet shares, which were down 1. 2% now up about down to 7.
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D
And a half percent.
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B
All right, right at its low. Sorry, that was the last trade. But now they're up actually more than 2% here. So quite a swing. Back to the upside here.
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D
Okay, the company said it will spend 175 billion, 285 billion this year. That's the headline compared with the 119 billion that analysts expected. Fourth quarter sales for Alphabet, excluding those traffic, acquisition costs, those partner payouts, 97.23 billion. It surpassed 90 to 95.2 billion expected on average by analysts. I want to bring in Bloomberg Intelligence senior global head the numbers as we speak. I saw him running into the studio. He's here in our Bloomberg Interactive Brokers studio. We have so many questions for you. First, I just want to start with the Capex. This number is so much bigger than analysts thought they would see. We're talking 175 billion to 185 billion in 2026, 119 and a half billion was expected. Why?
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E
And when you think about the year over year growth rate for 2026, we are talking about almost a doubling of the CapEx. They were around 95 billion for 2025. So at the high end we are, you know, talking about doubling.
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D
Look, that's huge. After we thought 2025 was a.
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E
After the meta print, it became obvious that these companies are going to step up in terms of their capex spend. So, but this is.
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D
But as you've reminded, this is different than meta because Google can use this capex to then sell to other companies.
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E
For Google Cloud, which actually saw a pretty nice sequential acceleration.
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D
Meta platforms doesn't do that.
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E
Meta platforms doesn't do that. But these companies also consume a lot of the GPU and the AI infrastructure capacity in house. And look, they gave a token count number again, which I always look for the 10 billion tokens per minute for their APIs. So that just goes to show the trained LLMs are being used in the real world. And in the case of Meta, yes, there is a higher uncertainty around how their GPUs are being used. But in the case of Alphabet, you see it in the print in terms of Gemini Maus going up to 750 million, the API token count going up. So cloud revenues accelerating search growing 17%. That's all AI overviews. Only thing that disappointed was YouTube and.
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B
I just don't know that was a disappointment.
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E
There was. And look, meta just came up with a quarter where they grew 25% and they raised the guy to 30% next quarter. So from that perspective, YouTube was light and I don't know the reason why.
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B
Okay, so that's certainly a question that that's got to be pushed on the, on the call. Going back to search, I mean, they talked about exceeding $400 billion for the first time annual RE in total and you talked about some of the other usage points. So the payoff, the ROI we're clearly seeing when it comes to Alphabet.
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E
I mean for a business that's a $225 billion run rate to grow 17%, is that at an incremental margins of 70% or 80%? I mean, search margins are probably the envy of the world in terms of, you know, how much money they print from search ads.
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B
How come my Google home is so slow though? Because since they added AI, it takes forever to get an answer.
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D
Well, I mean, you need a new Google home. Yeah, you need to update that connection.
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B
Hey, it's pretty good.
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D
Mandeep. Fourth Quarter Gemini App Monthly Active Users 750 million the estimates for 650 million monthly active users, what does that exactly measure? Is that people using the standalone Gemini app or is that me who's never used that app and instead just using mobile Google Search? But Gemini within Google Search, no.
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E
So they do bundle Gemini with their Google One subscriptions. So if you are a paid user, then you could buy their bundle where they will sell you cloud storage and other things as well. But these are standalone Gemini users.
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D
So we should look at this as compared to monthly active users for ChatGPT. Yeah.
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E
900 million versus 750.
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D
What if we. What, what do we know about people who use Google's products the way that I use them, which is like recently I started using Chat, GPT and cloud less because I've realized that the AI function within Google Search has gotten pretty, pretty good when you look at it from like an LLM perspective.
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E
And they just released this personalized intelligence which basically connects their family of apps, you know, Gmail, Google Search, Chrome usage to Gemini. So they can personalize a lot of things for you than just you know, you searching based on a prompt, which is what you are doing on ChatGPT. And that's the advantage that Google has is their family of apps. And that's why Meta is really building their AI data center capacity. Because if you want a personalized agent, you want to give them the context around what you are doing and how you are spending your time. Google knows that because of gmail, because of YouTube and all the family of apps they have.
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B
Let's just remind everybody where we are Alphabet blowing past past investor expectations when it comes to spending. Reported fourth quarter revenue too. That beat expectations not typically a good thing.
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D
No, go past those.
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F
Yes.
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B
The Google parent saying it will spend 175 to $185 billion this year, compared with the 119.5 billion that analysts had expected. Fourth quarter sales excluding partner payouts were 97.23 billion, surpassing the 95.2 billion expected on average by analysts. And I'm looking at the stock in the aftermarket, as Tim reminded me, doubt as as 7% initially it was also though rallying and now it's just down about 7. 10 of a percent. We're talking with our own Mandeep Singh. We want to bring also into the conversation Dan Ives, global head of tech research over at Wedbush Securities. He also has the Dan Ives Wedbush Revolution ETF Alphabet by the way is the fund's third biggest holding. Dan is with us from Miami. Good to have you here Dan. With Tim and Mandeep. Your reaction to Alphabet.
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G
Look, I mean I think it's just further, I think solidifies what's happened in this AI revolution. I mean look at the spending, look at the monetization and look it goes back to look at this tech earnings season Palantir. Look at hyperscalers last week as Mandeep talked about. I think to some extent in terms like this white knuckle, this nervousness that we're seeing, it just further solidifies the spending, the monetization, the cloud, the moves that enterprises are making.
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D
Why did we see shares move all over the place, Dan? Seven and a half percent was the, the initial reaction to the downside and then you saw shares turn positive, unchanged. Well what's going on with the instant.
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G
I think these knee jerk reactions, you know, especially when you look in right after the print sometimes I think a lot of times they're misguided. I mean you got to listen to the conference call. You guys see ultimately what you know when you kind of peel away the onion in terms of guidance as well as Capex. But look I think it's one. It's very easy to get caught up in days like today. Right. In terms of just even so far we've seen in terms of the last few weeks in tech, I think it's very important. Mandeep obviously talks about a ton what's the narrative? Is spending there? Yes. Is Capex accelerating? Yes. Are enterprises moving full steam ahead? Yeah, look, and I think that's, that's keys to the puzzle.
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D
Is this how great in your view is this increased expectation, increased Capex versus expectations for Nvidia and Broadcom?
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G
It's look, it speaks to the narrative that we saw with Microsoft that we've seen with matter we've seen across the board just further speaks to this arms race that's playing out across a. And then when it comes to Capex obviously AMD stock sold off but again this is like room wasn't built in a day. You got to think about this is multiple years, 3, 4 trillion that's going to be spent. And I think that's look, that's the one thing where you know, and I've seen it being at cs, being in Davos, Mandeep and I were there. It, the spending is unlike anything I've ever seen. You know going back to late 90s in terms of spending.
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B
Hey, I just want to point out shares of Alphabet because they have been bouncing around here in the aftermarket. They are now down about 1.3%. Nvidia by the way, is up 1.7% in the aftermarket. You've been listening to Dan. Listen, everybody says these guys have to spend these hyperscalers, right, in order to compete. Is there some truth to that, some reality to that? Because I feel like as these guys have reported, we get different market reactions.
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E
I mean in the case of Alphabet, not only have they trained their own model, but the anthropics model is trained on Google TPU's. And now you have got Apple saying they will use Google's chips. So three out of the big players are. I mean we talk about applications and how good alpha is in search. This is about their chip prowess and the fact that three Frontier Labs or companies are using Google's chips. That's a testament to their mode and how well they have integrated vertically. And the chat, the Apple thing is huge. I think that's why they are really ramping up the capex here, right? Because they can see the demand just from one company. I mean imagine if Apple wants to roll out Siri powered by Google.
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B
I mean that's what they're relying on, right?
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E
I do think there is a lot of embedded business that's coming from Apple in that CapEx guide.
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D
Broadcom up by 7% after hours as a result of this print. Mandeep, you were doing some multitasking, you were looking at your terminal. What else sticks out to you from this print? What are we missing?
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E
I think after the Microsoft print I thought maybe there were concerns around the cloud growth and Microsoft talked about allocating some of their capacity to first party. This is a supply constrained environment and everyone is trying to be very careful how they allocate that capacity. Every hyperscaler has that challenge. And that's where an Alphabet really is going big. Because they have $150 billion in free cash flow, they can afford to go up to 180 billion in terms of capex companies that don't have that operational cash flow, they are the ones who have to think about okay, how much do I raise my CapEx? But Alphabet has that $150 billion operating cash flow.
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D
Do you have a calculation Mandeep, for how much of the infrastructure spend a company like Alphabet uses for its own services versus selling to third parties?
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E
I mean you can model it based on the cloud revenues that they are generating. And that cloud business is close to a $70 billion business.
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D
Yeah, fourth quarter cloud revenue 17.66 billion beating estimates of 16.2.
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E
Yeah. So $70 billion annual run rate. Compare that to an azure which is $100 billion plus run rate. So. And you can see all these companies were spending cape to each other. Microsoft obviously was spending more because they had that open air partnership. But I mean about, I would say 30 to 40% capacity in the case of Alphabet is getting allocated to cloud and they are using a lot for AI overviews and their internal family of apps. And then the training component is huge when it comes to these labs as well.
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B
Yeah, go ahead, continue to watch Alphabet here in the aftermarket now down about 2.3%. Dan, as you continue to look at this quarter, listening to Mandeep, you know, what is it that you want to know more about when it comes to Alphabet's business right now?
- [13:45]
G
Look, it's all about cloud. I mean this arms race going on between Microsoft, between Google, between Amazon. It's really trying to get a sense to what customers are going after like strategically what are they seeing the monetization that that's really front and center. Well, because as you said is Tim talked about, it's not just about Alphabet. It's about the ripple effects across the sector to what we're seeing. You're putting, you try to put pieces together in the puzzle. Looking so far, you look at the last few weeks, it's basically telling you spending's accelerating.
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D
Dan, I'm looking at the Ives US Equity. It's the Dan Ives wedbush AI Revolution etf. The third biggest holding is Alphabet. Are you, you wear a lot of hats and you have a lot of positions. So I don't know if this is something that you do day to day, but would you add to Alphabet after this print?
- [14:41]
G
Yeah, look, I mean it's in the Ives 30 in terms of our winner list. And look, and I think it obviously, you know, it speaks to our view. You can just look at these things over 24, 48 hours. It's our view, we look at the winners and that's one of the core winners that we've identified. And it's our view, like tech stocks are going to continue to move, you know, a lot higher this year, but we're hitting a white knuckle period. But you got to look at the spending and the spending. You look at every single aspect of it. Alphabet's one go back a year ago, year ago, no one would touch us. Right. DOJ breakup search is going to get ruined from AI. Look at today.
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B
Yeah, it's just Kind of interesting. I keep just thinking over the last week or so and how the different I trade. We've had some ups and downs here. You know, it's. The race is on, right. In terms of. We've talked about that there could be and there will be multiple big players in this Mandeep. Is it safe to assume that the companies that we talk about, the Mag 7 and these big hyperscalers, they are all going to be a big part of this going forward? Or could, I don't know, could, could someone like an Alphabet be one of the leaders here?
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E
I think right now they are positioned to be one of the leaders simply because of the vertical integration. And that chip aspect is huge. I mean there will be a time when the focus will be on CapEx efficiency. How much revenue are you generating from the CapEx? And for a company like Alphabet that is not paying the Nvidia premium in terms of buying their chips, you know, at such a high price it will be an advantage. You know, they will have a much bigger infrastructure with a much higher ROI just because they are doing their own job.
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B
Are they not using any Nvidia chips?
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E
They are getting Nvidia chips but more for their cloud business. Okay, the external facing for all their training, that's why they point about anthropic training their models on Google, Google themselves training their model and probably now Apple doing some custom version, it's all trained on Google's chips. That's a huge advantage.
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D
When is it, when is capex enough? When are they going to say because the efficiency question comes into, comes into play here. When are they going to say we have enough capacity because we've become more efficient? Does that, does that.
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E
That's a demand supply question. And look, everyone has so far who has reported has said they are supply constrained. Microsoft would have grown faster had they gotten more supply. So from that perspective, until unless we read some sort of an equilibrium, I think these guys will continue to step up and it comes down to your operating cash flow. Like yes, there is a cap. I don't think they will go beyond let's say $200 billion because of that operating cash flow that they have. And that's where a meta. Yes, they have a phenomenal business but they can only go so far. So the luxury that these companies have is their core business generates so much cash.
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B
Is it still questionable? I mean I just look at what this stock has done, down 7%. Then it rallied a few percentage points, still down. I mean what does that trade tell you though? Does it Tell you anything.
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E
Well, I think right now people are just trying to make up their mind on that capex. Okay, to your point, how big is too big? Are they really stretching themselves? Because now they are going beyond their operating cash flow and they will have to raise some money despite the cash cow search business that they have. They may have to raise an extra money from somewhere.
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B
I mean, increasingly we've seen these big tech guys, right, go to the, to the debt market. Yeah, we've seen that trade and we want to broaden out and talk a little bit about Qualcomm as well. Dan, we're looking at Qualcomm shares. You cover this as well. They are tanking in the aftermarket. And we've seen this stock under pressure, down about 9% here. The Qualcomm story, they gave a tepid forecast, sign of a shaky phone market. They see second quarter revenue, 10.2 billion to 11 billion. The estimate on the street is 11.18 billion. So kind of pulling that forecast in Qualcomm. What's the narrative here? What's the theme here? What's the story?
- [18:52]
G
Look, I think, I mean, does you continue to focus more on data center. Yeah, revolution. That's when you look at smartphone market and you look what we see, look around the edges, there's weakness. I mean we've talked about in terms of Asia checks and now obviously, you know, this is something that's going to be a focus in terms of, you know, can they navigate it, how long the sort of softness will be there.
- [19:16]
B
Book.
- [19:16]
G
I think it just speaks to overall what we're seeing in this market. Like you're going to, you're going to have winners and losers. It's a stock pickers market and it's one where I think you hit on it before when you told Mandy you're now starting to see separation in different pockets. And I think that's what's happened during earnings, Houston.
- [19:37]
B
I mean, Qualcomm is also like a lot of companies, you know, looking to increase their AI exposure. They're trying to figure that out. Right.
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D
Have they figured that out?
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B
Well, that's, I mean, you know, they've been offering up some products. They announced some products late last year to go up against Nvidia. I mean, what's, is that real in your view?
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G
Look, there's one chip in the world fueling the AI revolution and that's right. And it's led by Godfather. And the reality is like Jensen, they're years ahead of anyone else. I mean, if you look look, a third rate Nvidia chip, H200 restricted in China, still above Huawei. Now okay, like demand supply we've talked about continues to be 10 to 1, 12 to 1. But look it's just like AMD intel or Google's. I mean this is an arms race playing out but obviously Nvidia is playing another game.
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D
What about when it comes to inference? Because there have been concerns that you don't need the same capacity or same type of capacity for inference and other chips could be just as sufficient. Google's own for example. What's the story there?
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G
Look on the edges. Yeah, I mean I go to reality is like when you look at Meta, they need more chips, like they can't get enough from Nvidia. So I get there, I mean Google is sort of coop petition on that area. But the reality is like others are going to play when it comes to inference. They'll get that market. But it also just shows like everyone right now is going 100 miles an hour trying to make sure they're in a position to gain on the chip side, on the software side and on the build out because we're still early days in the build out. I mean think about where we are right now, like monetization just starting to happen. Enterprise consumer now starting to come through. They have physical AI and every chip player, everyone in the supply chain, the memory players, everyone trying to make sure they're in the right spot.
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B
So Dan, you know watching the trade, Alphabet's been bouncing around a lot in video is up about 1 1/2% post market following Alphabet's earnings. Broadcom is up almost 6%. Is there a trade, a playoff of here? Are you buying potentially shares of Alphabet on any kind of weakness? Like walk us through, is there an investable trade off of all of this?
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G
Oh yeah, look, I mean to me use continuing the hyperscalers from Alphabet to Microsoft.
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B
All of them. All of them you.
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G
Because look, I don't view it as like it's not a winner take off. Yeah, like it's one that they're all going to benefit. You play the memory as we've talked about, you play the chips. Is everyone, you know that we've talked from Micron, you know obviously to Nvidia to AMD and others. And look, and then you're trying to focus on who the second, third, fourth derivatives are. But the one thing is like you can get too caught up and look we've talked, you know mean we've talked about the show for years. You cannot get caught up in some of these like weekly or sort of daily gyrations. You got to understand where the story's going and the story solidified.
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D
Well, I'm wondering if this is a daily gyration or if this is a generational shift, Dan. And that has to do with the, the story around software and the decline in software companies that we've seen just in recent days after Claude Anthropics. Claude was said to have this ability to do to legal docs analysis that would affect companies like LegalZoom for example. And it opened this whole can of worms that wait a second. We're not going to need to pay Salesforce per seat because we can get some of these AI companies to build this old model for us and, and we won't have to pay a subscription fee. Is that overblown?
- [23:26]
G
Look, I think it's over. Look is a headwind for software in some areas. Yeah, but is this overblown? Yeah, I mean like no one, you're not replacing Salesforce with a model like this. And I think that's something where you know, you see that narrative really creating a black cloud over the sector. But then to some extent now it's in the hands of Benioff, Salesforce, McDermott Service. Now to prove it right, you got to prove the monetization. I think that that's the opportunity and challenge for software. But look right now it's you going back over the decades. I mean we're seeing something really unprecedented in terms of sell off.
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B
Would you. Are you have you been buying or selling any of those software?
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D
You have a buy on Salesforce but the way.
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G
Okay, so yeah, and Salesforce is like look, it's an example like Mandeep and.
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E
I have talked about.
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G
It's like is a headwind for Benioff and Salesforce. Yeah, but is that changing when the biggest install base in the world, an agent force and the monetization that they're going to be able to do, are they going through a patch of so yeah but so I think you have to separate out reality from fiction. But it also comes down to like for investors it's not just about talk show.
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D
It Stay with us. More from Bloomberg Businessweek Daily coming up after this.
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A
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- [27:13]
B
We're going to start global and kind of drill down on this Wednesday. First up, President Trump out on social at around 10.40am this morning saying he, quote, just completed an excellent telephone conversation with President Xi of China. Long and thorough, he said. The call was he said they talked about a lot of different things. They discussed trade, they discussed military, they discussed the upcoming April trip that the President will be making to China. This is again what President Trump said on social earlier today. He also said they talked about Taiwan, the war between Russia, Ukraine, Iran, Chinese consideration of purchase of more agricultural products. So a lot going on there. That was earlier today.
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D
Okay, then. China's President Xi has also been talking with Russian President Vladimir Putin. A video call marking their first direct talks of the year. They praised ties between their countries as, quote, exemplary. The two leaders discussed various topics, including the Kremlin's war in Ukraine, increasing tension between the US And Iran. Putin also accepted Xi's invitation to visit China in the first half of the year.
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B
Okay, there's a lot. China is out and about, no doubt about it. We've seen that a lot already. Hey. With more on what it feels like increasingly the new world order, something we talked about even at the end of last year. Bloomberg Economics chief Geo Economics analyst Jenny Welch, she's with us from The Bloomberg Washington, D.C. bureau. Jenny, great to have you back with us. All right, first up, the call between President Trump and President Xi this morning expected important. Why did it happen now? What do we need to know?
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H
So a lot of details are still to come out about why this call happened and what exactly they discussed. But historically, the US has been the one to initiate and propose these calls. There's nothing that seems impossible immediately urgent from the call readout that we received from President Trump. But what I would hazard a guess is the call is largely about Iran or maybe driven by events in Iran that President Trump was, for example, trying to press China to do more to drive Tehran to the negotiating table to limit its purchase of Iranian oil. And she was probably taking the opportunity to raise concerns about U.S. actions in the region that could put those oil flows it so heavily depends on it. Right. Risk.
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D
Well, we're just getting a headline now. The president says Iran's supreme leader should be very worried. Now, the president also actually weighing in some stuff about the Fed, but we'll save that for a little bit later. The President, though, saying Iran's supreme leader should be very worried right now. How does that. That fit in to the China equation, Jenny? How does that fit into this new sort of not new, but new ish alliance that the president is trying to kind of disentangle?
- [29:49]
H
So I think what President Trump is aiming for, and he talks about this when he talks about Xi as well as President Putin. He sees these two as great powers and he tries to treat them with respect and, you know, at least acknowledge, as he would put it, their concerns in other areas. And so especially with China, we've heard him reference this G2 concept and what we think he means by that is trying to work with China to deal with some of these larger international issues, issues like Russia, Ukraine, Like Iran. I think from Beijing's perspective, it's not interested in playing that sort of role with Washington, whether it's on Russia, which it sees as its strategic partner. It's not going to try and push it to the negotiating table on Ukraine or with Iran, where Iran is a major source of oil for China. More broadly, China is extremely dependent on the Middle east for energy. It doesn't want to see instability there. It doesn't want to see conflict that could, could put those energy supplies at risk and its broader economy as a result, at risk.
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B
I got to say, you know, it always makes me think about, Jenny, what is China's role in this world? Are they becoming more powerful, more significant allies that maybe were normally of the US Are they increasingly looking at China? Help me put it in context. What has really changed? Because at the same time we had a story about the EU is going to pitch the US Progress on a critical minerals partnership to curb China's influence, looking to shape the Trump administration's push to strike global agreements this week. There's a lot going on globally, so there's a lot. You have to take it together. So what is the pecking order and where is the US And China in all of this?
- [31:23]
H
So I think Beijing certainly sees itself as having a unique moment of opportunity now, in large part in reflection of US Policies globally and especially as it relates to, to US Allies and partners. Right. For example, Beijing looks at US Tensions with Europe over Greenland as a huge moment of opportunity for it to try and strengthen its ties with Europe or take advantage of that moment, drive a wedge between them. At the same time, I think there's a larger debate happening about what is the role of the United States in the world. Does it still want to kind of be the linchpin in global order that it has been? Does it have the capacity to, to serve that role anymore? And I think even in Washington, there's questions about that and questions about trade offs, and that's reflected in the Trump administration's national security strategy, where they talk about refocusing in on the Western Hemisphere and sort of shepherding or stewarding US Resources more carefully in recognition that the United States cannot play the same global role that it used to play anymore. On your point about critical minerals, yeah. All this is happening at a time in which the United States is taking a number of major actions on critical minerals. And yet that didn't seem to come up in the call with Xi Jinping, even though all those moves are aimed at reducing US Reliance on China and by extension, US Ally and partner Reliance on China.
- [32:38]
D
Stay with us. More from Bloomberg Businessweek Daily Coming up after this.
- [32:46]
C
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- [35:00]
B
Gold dipping below $5,000 an ounce amid a lack of fresh air catalysts to support the market following a historic price plunge late last week. Precious metal, though, is up nearly 13% year to date and Tim 56% gain last year alone.
- [35:14]
D
4,942 for ounce of gold as we speak. Silver went into a bear market dropping some 32% from Friday to Monday. Rallied yesterday. Little changed today. Meantime, a substack post from Michael Burry who correctly called the 2008 housing crisis is writing about Bitcoin and its impact on precious metals.
- [35:32]
B
Man, we are like all over this and have lots of questions. Let's get to a view on the precious metals, gold and silver. Axel Merck is back with us. He's president Chief Investment Officer of Merck investments. They've got 4.4 billion in assets under management. Check this out. A little perspective. Aum 1 year ago $1.8 billion. Axel joins us from Palo Alto, California. How are you and Happy New Year. I don't think we've had a chance to speak. How are you?
- [36:00]
F
Happy New Year. And just for the record, we also caution about the financial crisis. Wasn't just Michael.
- [36:06]
B
Well then you are the perfect person on many levels. But first I want to ask you about a Because as we were prepping early this morning on our show Call your AUM has soared. Is that just because of the rise in gold prices or is that about new investment money coming in? Because that's quite a jump in one year.
- [36:25]
F
It's both. We have one product that's an open end product. We've had inflows and the price of gold has appreciated substantially. The other one is a closed end product and it's all internal performance. So both. It's just a sign of the environment that we're in.
- [36:40]
A
Right.
- [36:40]
F
We've been talking about this and views that have been on the fringes are moving more towards mainstream and this market isn't so huge and so you have some outside returns.
- [36:50]
B
How much though are the flows increasing? I'm curious how much of it is flows? How much is it a price appreciation?
- [36:56]
F
Much of it is appreciation. Very notable. We had some significant inflows at the end of last week when we had this downdraft and this was one of the signs that the long term investor considered this a buying opportunity. I'm not going to predict what the price of gold is going to do tomorrow but we clearly had some some outstanding returns on the upside. But there seem to be cooler heads in some places and we tend to attract them a long term investor. Let's keep that in mind as well. The speculators tend to go to other products.
- [37:26]
D
So let's get to your warning and to Also to Michael Burry's warning. The, the interesting part that we're pointing out from the Michael Burry piece on the Bloomberg terminal, he's warning that Bitcoin's plunge could deepen into a self reinforcing, quote, death spiral, inflicting lasting damage on companies that have spent the past year stockpiling the token. He argues that Bitcoin has been exposed as a purely speculative asset failing to take off as a debasement hedge similar to precious metals. He cited the fall in the crypto is particularly to blame for the recent collapse in gold and silver as corporate treasurers and speculators needed to de risk by selling profitable positions in tokenized gold and silver futures. Do you, do you agree with that assessment and that connection between silver and gold and Bitcoin?
- [38:11]
F
Well, some of it. Clearly when, quote unquote, everything is levered and you have a deleveraging going on, quote unquote, everything is coming down. The one thing I don't, I framed Bitcoin as something that still wants to decide what it wants to be when it grows up. And part of the reason why I've said that is that unlike gold, crypto has consistently been highly correlated with risk asset with the S and P5. So when risk is off, when the S and P goes down, crypto goes down. Obviously not any every day, but quite a bit consistently. Whereas precious metals have a long term correlation of zero towards risk assets. Correlation phases in and out. And so sure in a downdraft when, when there are speculators in gold or silver, it can be taken down. But I think gold has shown that, that it has a different dynamic. And so, but, but at the other end of the spectrum, sure, if, if Bitcoin continues to plunge, those who have levered up on crypto, including those, those special purpose companies, they can, can suffer disproportionately to, to put it kindly.
- [39:17]
B
But the impact on these tokenized gold and silver futures, I mean a small role in the pullback or is it just a case of gold and silver axle running up so much and so a pullback of some sorts was in, it was, was to be expected.
- [39:32]
F
Well, when a product is based on derivatives and a lot of attention has been focused on this Chinese silver etf, the Chinese don't have many investment options and so they tend to pile into a product and when that product is based on derivatives, it's a recipe for disaster. And in the US we have margin requirements, they tend to increase when volatility goes up. That's a healthy method Mechanism for correction. Remember, the purpose of these rules be that from the regulator, from exchange is not to prevent you from making a stupid decision, but that your stupid decision doesn't wreck the system as a whole. And so I mention that because the fallout is limited if the system is well designed. Now, clearly on the crypto side, a lot of unregulated products, but we've seen a natural selection there. And so, yes, there may be some spillover because the speculator might be active in one. One more than one area. And last year, speculators have, have kind of gotten back to precious metals where they used to be before they were meme stocks. But overall, I think we see. See it unfold here. Right? There's increased volatility, but gold bounced back. We are just around 5,000. And so that's much healthier than in the crypto side where, where the animal spirits are the beginning at the end of every thing.
- [40:50]
D
So you. I'm a little biased toward crypto in this discussion. We'll get back to gold in a second. But you said that bitcoin is still trying to figure out what it wants to be when it grows up. Is this proof that it is not digital gold?
- [41:05]
F
Well, it's different. It's clearly different. I think there's amazing value in the underlying technology. But bitcoin themselves remains to be seen. Now, clearly, I know all the arguments that are in favor of it, and at the end of the day, though, it is about mass psychology. And the track record of bitcoin is just very short. And I'm not saying that the dynamics cannot change over time once it gets more mature. But for the time being, the jury is very clear that it is a risk asset, whereas gold is a defensive asset. And defensive has to be taken with a grain of salt, of course, because it's also very volatile. But the dynamics are very, very distinct. And as such, I think they attract different investors. But clearly there, there is this, this tension between the two groups, and it's good that there's a choice for investors ultimately.
- [41:58]
D
Right, so just 30 seconds left. You said you don't predict the price of gold tomorrow, but with a 65% increase last year, 27% increase in 2024, a 13% increase in 2023, has it gotten ahead of itself?
- [42:14]
F
Well, we have the king of debt as president. We have geopolitical tensions happening. We have. We have a deficit that's not sustainable, and we have more and more people think about what they might be doing about it. And because that space is small, it's just very difficult to say what gold is going to do and I let so say I'm very happy that I have substantial gold holdings. I bought them long time ago and I'm not too concerned about them.
- [42:43]
A
This is the Bloomberg businessweek Daily Podcast, available on Apple, Spotify and anywhere else you get. Your podcasts listen live weekday afternoons from 2 to 5pm Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.
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