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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEO's, market pros and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast

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Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. Yes you're just dark.

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Speaker 1: Eric Schatzker is in the studio. I guess Paul Singer

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Speaker 1: is an active guy, right, But I always thought of

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Speaker 1: Elliott as a distressed investor because Hans Humes like cut

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Speaker 1: his teeth there with Argentina. Elliott certainly started out that way.

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Speaker 1: I'd say Elliott is highly opportunistic more than anything else.

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Speaker 1: They make long only bets as well. Yes, they function,

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Speaker 1: they have an activist profile. They certainly throw their weight around.

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Speaker 1: But yes, I would say that bare knuckled distressed investing

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Speaker 1: is one of their specialties. It's not why you're in here, though,

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Speaker 1: It's not. It's not you got something else to talk about. So,

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Speaker 1: Ray Dalio, you broke the story when he officially announced

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Speaker 1: he was back in October. Yes, Ray Dalio, after twelve

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Speaker 1: years of trying finally let go of the rains at Bridgewater.

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Speaker 1: And we've been waiting for five months to find out

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Speaker 1: what the new generation of leadership under the CEO near Bardaa,

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Speaker 1: former Israeli military guy, really was going to do. And

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Speaker 1: now we know. So what are the details? Let us in.

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Speaker 1: There is a lot happening, and it is happening on

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Speaker 1: a very accelerated timetable. The first thing people are going

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Speaker 1: to notice and find surprising is that Bridgewater is cutting

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Speaker 1: some jobs. The firm employees about thirteen hundred people and

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Speaker 1: it's getting rid of about one hundred and not all

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Speaker 1: of those people are junior folks. That will be some

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Speaker 1: senior people as well. Why because it wants to deploy

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Speaker 1: those resources. There isn't an infinite amount of money, even

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Speaker 1: though Bridgewater is a big and very profitable firm, into

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Speaker 1: new initiatives and we'll talk about those. The other thing

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Speaker 1: that's really worth mentioning is that Bridgewater is capping the

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Speaker 1: size of its so called flagship hedge fund strategy. This

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Speaker 1: is it has a name Pure Alpha, and it is

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Speaker 1: the product, the hedge fund product that Bridgewater offers its clients.

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Speaker 1: The idea is that it will over time generate excess

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Speaker 1: return in other words alpha hence pure alpha. Bridgewater for

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Speaker 1: so many years defied the laws of hedge fund gravity.

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Speaker 1: The conventional wisdom was always that strategies outside of equities

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Speaker 1: were capacity constrained. Some strategies and things like distressed credit

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Speaker 1: are very capacity constrained. There just isn't that much to do.

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Speaker 1: So that macroso pretty big, but too much money. They

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Speaker 1: can't put it to work. They can't generate high enough returns. Yet,

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Speaker 1: as I say, Bridgewater defied gravity because it's two principled strategies,

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Speaker 1: pure alpha and the risk parity strategy called all Weather.

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Speaker 1: Hoovered up assets at an unbelievable pace. In two eleven

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Speaker 1: it crossed one hundred billion dollars in total assets, and

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Speaker 1: then more recently it has been north of one hundred

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Speaker 1: and fifty. Wow, and now you know, the natural laws

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Speaker 1: of the universe appear to be taking hold. Bridgewater's performance

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Speaker 1: during the twenty tens was you know, this is an understatement, uninspiring,

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Speaker 1: and they've gone back to the well look, gave themselves

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Speaker 1: a hard look in the mirror and recognize that things

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Speaker 1: had to change. The inference I can draw from my

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Speaker 1: reporting is that it was harder to change. While Ray

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Speaker 1: was still there. He'd built the firm, He'd created its unusual,

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Speaker 1: some would say odd culture, transparency, and he was, as

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Speaker 1: any founder would be, very attached to a certain way

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Speaker 1: of doing things. Now he's gone, a much younger generation

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Speaker 1: of leadership is in charge, and you can also infer

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Speaker 1: that they've been chomping at the bit because here are

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Speaker 1: some things that they're doing that it would have been

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Speaker 1: very difficult to see Bridgewater do if Ray were still

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Speaker 1: in command. All right, Eric, so we have, as you mentioned,

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Speaker 1: the new chief executive officer near Bardea. That's correct, former

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Speaker 1: Israeli military guys I mentioned he was a contoon leader. Interesting,

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Speaker 1: what does a new team? What are they looking to

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Speaker 1: do in terms of new initiatives changes? Yes, we need

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Speaker 1: to get into this. There's four areas they're pushing ahead.

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Speaker 1: In one is Asia. They want a bigger footprint in Asia.

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Speaker 1: They're adding people. In Singapore, they want to get closer

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Speaker 1: to some of the institutional clients there. You can draw

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Speaker 1: some conclusions about who those might be. Gic, for example,

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Speaker 1: Tamask both like in love with China as well. Ray

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Speaker 1: said some controversial things about China and I talked to

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Speaker 1: Near about China. Their position on China is not ideological.

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Speaker 1: They want to be able to invest in China and

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Speaker 1: to be able to offer clients exposure to Asia. Why

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Speaker 1: because half of the world's economy is driven by Chinese

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Speaker 1: monetary policy in Chinese credit creation and China and Asia

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Speaker 1: more broadly are generating are adding to global GDP at

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Speaker 1: double the rate the US and Europe are. So it's

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Speaker 1: a place to simply have to be. Forget about anything

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Speaker 1: that Ray may have said or things that people might

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Speaker 1: believe have believed about his views on China. So Asia

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Speaker 1: is number one. They want to be much bigger in equities,

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Speaker 1: specifically long only equities. This is something their clients want

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Speaker 1: and it's not a long short equity fund. What they're

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Speaker 1: doing is taking their macro views. This is the specialty

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Speaker 1: at Bridgewater, the so called compounded understanding that they've built

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Speaker 1: over forty seven years and expressing it through equities. So

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Speaker 1: if pure alpha again the flagship strategy would have shorted bonds,

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Speaker 1: shorted treasuries in if it anticipated a rising rate environment,

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Speaker 1: a long only equity strategy would have minimized its exposure

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Speaker 1: to interest rate sensitive stocks or similarly, if pure alpha

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Speaker 1: was going to go long copper because it believed copper

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Speaker 1: prices were going to rise and industrial production was going

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Speaker 1: to boom, the long only equity strategy, again expressing a

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Speaker 1: macro view, would buy copper miners. The third area machine

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Speaker 1: learning and artificial intelligence. This is not a chat GBT thing.

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Speaker 1: Bridgewater has been experimented for a decade with these tools,

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Speaker 1: but it now wants to build them out, engineer something

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Speaker 1: that it can put to work making investment decisions. Again,

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Speaker 1: humans still part of the picture. And finally, sustainability. You'll

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Speaker 1: recall that Karen Carnial Tambour, only thirty seven years old,

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Speaker 1: was recently elevated from co chief of Sustainability to co

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Speaker 1: CIO at Bridgewater, and clearly you know her hand. Her

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Speaker 1: fingerprints are on some of this. Bridgewater is has to

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Speaker 1: respond to client demand for more products and sustainability, and

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Speaker 1: they want to do sustainability and equities and they want

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Speaker 1: to generate. Up until now, their sustainability product has been

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Speaker 1: BEATA driven. They they want alpha strategies in sustainability and

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Speaker 1: they want to express their views on sustainability. Similarly, inequities

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Speaker 1: four areas in which Bridgewater believes it can amass billions

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Speaker 1: upon billions of dollars, and if it's successful, they'll ultimately

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Speaker 1: be less reliant on what we were talking about before

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Speaker 1: pure Alpha and always that's interesting. Vanguard just did a

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Speaker 1: study on its ESG products and showed they had no

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Speaker 1: outperformance versus I guess, well, Vanguard is let's not forget

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Speaker 1: apart from the subadvised funds at Vanguard, Vanguard is a

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Speaker 1: beta shop, right. Vanguard is the pioneer of indexing, and

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Speaker 1: I'm not disputing Vanguard's conclusions right. What I am saying,

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Speaker 1: and what's clear to me is that clients, for better

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Speaker 1: or for worse, want Bridgewater to offer them more in sustainability.

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Speaker 1: The clients might be wrong, that's for us. It doesn't matter.

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Speaker 1: That's fascinating that people want to put their money there. Still,

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Speaker 1: after the backlash that we've seen, you know against uh,

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Speaker 1: you know, Larry Fink and black Rock, what about the

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Speaker 1: radical transparency that to me defined Bridgewater's culture. I only

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Speaker 1: know it obviously through reading your reporting for the most part.

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Speaker 1: But that's changed. Is that going to change? Because it

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Speaker 1: seems like they weren't terribly transparent about Dahlia's fight for

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Speaker 1: more money on his way out. Well, there are people

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Speaker 1: in Bridgewater who would dispute the account that you've you're

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Speaker 1: referring to in another publication. Yes, but the culture is changing,

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Speaker 1: of Horse, it's changing. They're younger people in charge now.

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Speaker 1: They're no longer so attached to the pain buttons that

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Speaker 1: you know, these these these apps, if you will, that

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Speaker 1: Bridgewater developed under Ray the baseball cards that you know,

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Speaker 1: tried to capture, you know, somebody's entire personality in every

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Speaker 1: decision he might make in the years ahead. Those things

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Speaker 1: still exist. Are they as popular as as frequently utilized today?

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Speaker 1: Hard for me to know. I'm not inside the firm,

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Speaker 1: But the distinct impression I get is that Bridgewater has

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Speaker 1: moved on from some of that stuff, and they were

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Speaker 1: definitely softening the approach that they took to designing things

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Speaker 1: like the baseball cards even before Ray left the firm.

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Speaker 1: All right, Eric, great, great stuff. One of the top

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Speaker 1: red stories on the Bloomberg terminal will be for the

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Speaker 1: entire day, I predict Eric Schatzker, Bloomberg News. Excellent reporting Greenby.

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Speaker 1: For those who know about Bridge Ray Dalio, the changes,

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Speaker 1: they're good stuff. We appreciate Eric being in on our studio.

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Speaker 1: All right, we want to get into the private equity space,

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Speaker 1: one of my favorite spaces. And quite frankly, I've been

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Speaker 1: on Wall Street for thirty years. I kind of feel

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Speaker 1: like it's the last place where you can make outsized returns.

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Speaker 1: That's just my personal opinion. Hedge fund business game over

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Speaker 1: traditional Wall Street game over in terms of making outsized returns.

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Speaker 1: And that's why I like it. If I were a

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Speaker 1: young person, I'd be going into private equity right away.

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Speaker 1: Andrea Auerback joins us. She's head of private Investments at

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Speaker 1: Cambridge Associates. She gets a gold star because she is

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Speaker 1: Live and our Bloomberg Interactive Brooker's studio. Andrea talked to

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Speaker 1: us about the last I don't know, three or four years.

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Speaker 1: The whole world's been upside down, markets all over the place.

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Speaker 1: Now we've got a Federal Reserve raising rates and all

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Speaker 1: this kind of stuff from the private equity space. Just

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Speaker 1: give us when you go talk to clients, how do

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Speaker 1: you frame up the last few years? Wonderful question typically,

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Speaker 1: and good morning, by the way, big question, good morning

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Speaker 1: to you as well. Typically, when folks are asking us

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Speaker 1: about what's happening in the private equity space. I kind

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Speaker 1: of roll it back a few decades, okay, right, So,

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Speaker 1: as you started out with your morning comments, private equity

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Speaker 1: has only been institutionalizing since the eighties. It's basically forty

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Speaker 1: years old. I wish I were forty years old again,

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Speaker 1: and so it's constantly evolving, and so what you've been

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Speaker 1: seeing in the last couple of years is really building

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Speaker 1: off of a lot of phases that the industry has

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Speaker 1: already moved through. Leveraged buyouts are now referred to fondly

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Speaker 1: as private equity, and right, little euphemism twists there, but

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Speaker 1: part of the reasons for that is that private equity

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Speaker 1: isn't just about applying a lot of leverage to a

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Speaker 1: company anymore. It's immensely diversified space and ecosystem. So it's

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Speaker 1: not just the one thing people tend to think about. Well,

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Speaker 1: one thing I think about, and I've spent the last

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Speaker 1: six years going to the super Return conference in Berlin,

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Speaker 1: is just how much money private equity has a mass.

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Speaker 1: You know, every year that I went it was a

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Speaker 1: new impossible to understand figure like one point seven trillion,

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Speaker 1: and then it was two point three trillion, and just

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Speaker 1: so much dry powder that I always wondered, you know,

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Speaker 1: with that much money chasing the same assets, is it

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Speaker 1: possible to get a decent price? Is that still the

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Speaker 1: case that private equity has so much cash and is

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Speaker 1: just impossible for them to put it to work. So

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Speaker 1: the answer to that, so the big, the big headline

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Speaker 1: number that you just mentioned is immense, but it breaks

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Speaker 1: down pretty quickly into different categories. Right. So, as we mentioned,

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Speaker 1: private equity has been evolving over decades, and so there

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Speaker 1: are five thousand gps walking around who have raised some

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Speaker 1: part of that one point trillion number that you gave us,

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Speaker 1: and they're trying to deploy it within the space that

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Speaker 1: they're occupying. Right. So when you break down that overhang

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Speaker 1: that you talk about and we define that, i'd like

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Speaker 1: to think we're the first to define it actually being honest.

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Speaker 1: Amage Associates, Yes, many moons ago. Half of that belongs

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Speaker 1: to funds that have five million or more in capital

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Speaker 1: under management, right, And so a lot of the larger

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Speaker 1: funds have the big money, the more money more problem problem,

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Speaker 1: which is they're all maybe looking for a smaller group

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Speaker 1: of assets, whereas there's another cohort which might have less

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Speaker 1: than a billion in capital, under management and they have

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Speaker 1: a broader ecosystem to play in and go find a company,

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Speaker 1: and don't forget there's something like six million private businesses

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Speaker 1: in the US. They're not all private, private equity owned yet, right,

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Speaker 1: all right, So twenty twenty two, the sixty forty portfolio

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Speaker 1: for most investors crushed. He couldn't make money anywhere this year. Well,

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Speaker 1: you could make money if you owned oil in alternative assets. Well,

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Speaker 1: Welisha Brahmas has apartment. Yeah, I mean there's there were

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Speaker 1: places where people knocked it out of the park, right, yeah,

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Speaker 1: but most sixty forty folks, most it did not. So

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Speaker 1: tough times. You come here to twenty twenty three. Now

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Speaker 1: we've got a FED reserve kind of reversing raising ray.

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Speaker 1: People are concerned, what's the private equity market like today?

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Speaker 1: What are you telling clients? What are you hearing from

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Speaker 1: your clients? As you'd asked, right now, the private equity

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Speaker 1: market is sort of on pause, right, just like most markets.

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Speaker 1: Most folks who want to do a transaction, like I

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Speaker 1: don't know how to forecast what's about to happen and

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Speaker 1: it's impact on the companies I want to buy, and

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Speaker 1: if I can't, if I can't forecast. I can't come

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Speaker 1: up with an accurate valuation that I'm willing to pay.

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Speaker 1: And I also don't know how these companies are going

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Speaker 1: to perform because a lot of unknowns just became known

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Speaker 1: over the last year or so, right, And so the

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Speaker 1: market itself, transaction volumes have been on pause, waiting to

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Speaker 1: sort of sort itself out. I think there's a lot

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Speaker 1: of pent up transaction volume that will start to come

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Speaker 1: to market once folks decide and settle out like this

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Speaker 1: is our go forward operating environment. So it's been on

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Speaker 1: pause right now, and it's sort of like, you know,

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Speaker 1: you check your belongings. Do I have my wallet, my keys?

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Speaker 1: Are the companies that I own currently? Are they performing okay?

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Speaker 1: Given a lot of the changes that have been coming

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Speaker 1: at us all right, higher inflation, higher interest rates, you know,

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Speaker 1: difficulty finding good labor, difficulty getting your supply chain moving,

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Speaker 1: all those things. So I think the industry itself has

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Speaker 1: been a little bit on pause. Check your belongings before

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Speaker 1: maybe moving forward into this environment with a plan. But

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Speaker 1: sixty forty people for the most part are like you know,

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Speaker 1: me and Eric, retail guys who until recently haven't had

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Speaker 1: access to alternative assets. Paul is probably an incredited investor,

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Speaker 1: so he could. We've had more and more guests on

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Speaker 1: their giving access to private investments to retail investors in

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Speaker 1: various ways, with various platforms. Is that growing in private

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Speaker 1: equity as well? Yes. And one of the reasons for

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Speaker 1: this is there's a long term there's a long term trend. Right.

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Speaker 1: So when my dad, if you will, was actively working,

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Speaker 1: he was receiving a pension right now, lucky I know exactly,

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Speaker 1: and a lot of pensions because they were more institutionally

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Speaker 1: managed by a centralized, centralized tea. They were pursuing private investments,

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Speaker 1: and so a lot of our dads, I guess and

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Speaker 1: moms could benefit from having some exposure to alts in

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Speaker 1: their retirement program. Now I'm of a different generation. I'm

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Speaker 1: in the four o one K class, right, and so

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Speaker 1: four oh one k's typically don't have access to privates.

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Speaker 1: One of the classic k I want some of that

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Speaker 1: is the returns of privates have stood the test of

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Speaker 1: time over a forty year period, still a very productive

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Speaker 1: returning asset class. And I think a lot of folks

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Speaker 1: who don't have access to pensions anymore would like some

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Speaker 1: access to the sasset class and then enter stage left

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Speaker 1: private equity firms and others trying to figure out how

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Speaker 1: to provide exposure to private investments in an appropriate way

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Speaker 1: to a four oh one K investor or to a

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Speaker 1: retail investor. And that's regulators must and regulators must want

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Speaker 1: to help out as well, because it's just really not

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Speaker 1: fair if you're a Now we're a whole generation of

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Speaker 1: four oh one k people, right, so all of a

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Speaker 1: sudden that exposure is gone for retirement accounts, meaning the

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Speaker 1: returns are going to be smaller for us than they

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Speaker 1: were maybe for pension people. I wonder if you'll see

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Speaker 1: changes in regulation or new products that allow retail investors

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Speaker 1: to get in in a safe way. It's been interesting

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Speaker 1: to watch this. So at Cambridge Associates, we're globally focused, right,

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Speaker 1: so we're glad explain to us, really what Cambridge Associates does.

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Speaker 1: I mean, you've been there for quite a while, yes,

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Speaker 1: quite a while. Thank you, Thank you for being gracious

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Speaker 1: there Cambridge Associates. So we advise and manage capital on

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Speaker 1: behalf of endowments and foundations, pensions, sovereign wealth funds, and families.

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Speaker 1: So we really advise and invest on behalf of a

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Speaker 1: broad swath of family office people. Yeah, family offices, and

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Speaker 1: we operate globally. One of the fun things about being

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Speaker 1: able to operate globally is you can watch to your

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Speaker 1: retail exposure to private equity in different parts of the world.

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Speaker 1: They're trying to crack this not themselves, in different ways,

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Speaker 1: and so depending on where you are, there is opportunity

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Speaker 1: to participate in publicly traded private equity funds or be

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Speaker 1: able to participate in a slice of private equity as

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Speaker 1: provided to you by a government entity. So they're interesting

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Speaker 1: things that I think US investors are looking at for

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Speaker 1: ways to innovate and bring that here or to sort

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Speaker 1: it out in a way that's American. Can you talk

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Speaker 1: to just briefly about private credit, Matt, and I hear

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Speaker 1: a lot more about that than we did. It's just

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Speaker 1: so hot, yeah, yeah, yeah. Private So private credit. As

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Speaker 1: you're probably aware, the area exploded after the GFC right

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Speaker 1: and really became quite significant, and the amount of direct

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Speaker 1: private direct lending exploded tenfold. I think it was one

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Speaker 1: hundred and thirty billion in volume back into eight it's

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Speaker 1: now upwards of one point three trillion in volume today,

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Speaker 1: so it's definitely a blooming space, right And one of

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Speaker 1: the reasons for that is because of the GFC, you

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Speaker 1: had some of the changes in the regulations that really

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Speaker 1: had to move lending out of banks into where into

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Speaker 1: private credit and here comes the growth of that particular

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Speaker 1: swath of industry. So private credit has been around for

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Speaker 1: a while, it's gotten much more interesting right now, obviously

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Speaker 1: because interest rates. Yep. Right, all right, Andrea, thank you

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Speaker 1: so much for joining us. Really appreciate that very fascinating story.

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Speaker 1: Andrea our backhead of private Investments at Cambridge Associates, joining

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Speaker 1: us live here in our Bloomberg Interactive, a broker studio.

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Speaker 1: We welcome now our Bloomberg TV viewers and radio listeners

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Speaker 1: on Shinnali Bathik. And joining me now is Brian Armstrong

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Speaker 1: coin Base, the CEO. Brian, thank you so much for

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Speaker 1: joining us. You recently made this big interesting bet as

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Speaker 1: a centralized exchange on decentralization a year or so ago.

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Speaker 1: You know, decentralization was a big worry for traditional financial players,

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Speaker 1: but more so now there are a lot of concerns

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Speaker 1: about the space. So what is the case for traditional

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Speaker 1: financial players to care about Defy. Yeah, well, we're definitely

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Speaker 1: excited about a coin base, and we want to make

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Speaker 1: sure we help build the future of this technology here

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Speaker 1: in America. Actually, a lot of traditional financial services firms

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Speaker 1: are integrating this technology. I mean everybody from you know, JP, Morgan,

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Speaker 1: Visa and MasterCard, Franklin, Templeton, They're all they have projects

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Speaker 1: and teams internally working on how to integrate crypto into

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Speaker 1: their services. And I think the reason for that is that,

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Speaker 1: you know, eighty percent of Americans are not happy with

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Speaker 1: the current financial system as it is today. They think

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Speaker 1: it's it's too slow, the fees are too high, it

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Speaker 1: doesn't serve everybody equally, and a lot of the technology

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Speaker 1: was built forty years ago. The laws we're one hundred

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Speaker 1: years ago, and so people are really excited about how

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Speaker 1: crypto as a technology can help improve and update the

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Speaker 1: financial system, and that's why that's why we're here at

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Speaker 1: coin base. We want to make sure that we enable

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Speaker 1: that as well. But there are still near term challenges

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Speaker 1: and which are the biggest among them. Are they the

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Speaker 1: idea of hacks and any vulnerabilities in the system, or

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Speaker 1: is it the regulatory environment in the United States. Yeah,

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Speaker 1: I mean, my number one priority this year is the

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Speaker 1: policy environment, so we need to make sure that gets

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Speaker 1: to a good place in the US. You know, the

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Speaker 1: rest of the world has actually embraced crypto. We've seen

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Speaker 1: all the your financial hubs Singapore and Hong Kong and London,

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Speaker 1: and you know, the EU just passed comprehensive crypto legislation.

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Speaker 1: So really, what I believe should happen in the United

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Speaker 1: States is that we need a clear rule book so

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Speaker 1: that this industry can be built here. You know, we

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Speaker 1: don't want it to be like five G or semiconductors

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Speaker 1: that went offshore. It's actually a matter of national security.

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Speaker 1: We get the future of the financial system built here

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Speaker 1: inside the United States. And so I've been spending more

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Speaker 1: time in DC here in New York, but in DC

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Speaker 1: in particular, we're trying to meet with the relevant folks

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Speaker 1: that could help draft legislation so Congress can come in

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Speaker 1: and pass comprehensive legislation before we get to the Washington

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Speaker 1: of it all. I want to still look out five

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Speaker 1: years from now, because there are a lot of financial players,

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Speaker 1: as you say, that are looking at tokenization. A lot

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Speaker 1: of it's happening in the private markets to the extent

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Speaker 1: that you think traditional securities can be tokenized five years

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Speaker 1: from now. Are you working with collaborating with any banks

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Speaker 1: to get to that point. Yeah, So crypto is many

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Speaker 1: different things. Right There are crypto securities, which we believe

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Speaker 1: there should be a robust market for that in the US.

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Speaker 1: In fact, we acquired a broker dealer license that it's

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Speaker 1: still dormant right now, but we'd like to work with

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Speaker 1: the sec to activate that and create a healthy market

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Speaker 1: structure to trade crypto securities. Now, you know, of the

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Speaker 1: thousand assets we've looked at coin base, you know, eight

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Speaker 1: hundred of them we've rejected. We don't think we have

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Speaker 1: maybe their securities. Two hundred or so of them we

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Speaker 1: have listed on our platform. We believe those are commodities,

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Speaker 1: and so we're going to continue to build that piece

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Speaker 1: of our business. We're regulated by the CFTC for instance,

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Speaker 1: and make sure we grow that piece as well. But

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Speaker 1: cryptos many things. It's commodities, it's securities, it's stable coins,

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Speaker 1: it's artwork, it's decentralized identity systems, and so it's tough

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Speaker 1: for people to wrap their head around, but it's ultimately

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Speaker 1: going to have many different regulators, you know, before we

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Speaker 1: get to the regulatory part of this too, we were

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Speaker 1: talking kind of about traditional financial players and what role

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Speaker 1: they have in this place, in this system. What kind

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Speaker 1: of relationship do you have to high frequency trading firms

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Speaker 1: prior to the implosion of FTX, who saw them working,

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Speaker 1: for example, with IEX. Have you had any conversations with

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Speaker 1: them or any others. Well, we're always talking with different

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Speaker 1: firms out there and other exchanges that may want to

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Speaker 1: trade crypto in various ways. You know, we can act

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Speaker 1: as a brokerage or exchange, a custodian. We can play

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Speaker 1: different roles in different market structures and in financial services.

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Speaker 1: You often see, you know, a company that may compete

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Speaker 1: on one product, they're actually collaborators on another product. And

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Speaker 1: so we want to make sure that we're helping integrate

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Speaker 1: crypto and all aspects of the financial system so we

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Speaker 1: can update the financial system. So you were talking about

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Speaker 1: the SEC, the CFTC, the SEC's crackdowns as of late.

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Speaker 1: In particular, you work with a lot of institutions. Hedge

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Speaker 1: funds had been very much getting into crypto prior to

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Speaker 1: last year. I'm wondering if the SEC's crackdown is starting

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Speaker 1: to scare any of them away. Well in a way, actually,

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Speaker 1: I think Coinbase has been a net beneficiary of this

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Speaker 1: because there's essentially a flight to quality, you know, a

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Speaker 1: coin Base. We're a public company, we have audited financial statements,

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Speaker 1: we're a qualified custodian. I mean, we're basically d choice

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Speaker 1: you know, based here in the US that hedge funds

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Speaker 1: are going to want to work with. And so in

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Speaker 1: Q four I mentioned this on our earnings call, actually

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Speaker 1: that we saw an increase in the number of institutions

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Speaker 1: onboarding to coin Base. Now a lot of them have

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Speaker 1: haven't deployed substantial capital to crypto yet in this market environment,

427
00:23:03,200 --> 00:23:05,119
Speaker 1: they're kind of waiting and seeing. But it's great to

428
00:23:05,160 --> 00:23:07,280
Speaker 1: see them onboarding, and that's kind of a coiled spring

429
00:23:07,320 --> 00:23:10,199
Speaker 1: that I think could unleash a lot of potential in

430
00:23:09,480 --> 00:23:13,720
Speaker 1: the next market change. Hedge funds still flocking too, crypto. Listen,

431
00:23:13,880 --> 00:23:17,160
Speaker 1: we are resetting here just really quickly here with Brian Armstrong,

432
00:23:17,200 --> 00:23:19,480
Speaker 1: the CEO of coin based for our Bloomberg television and

433
00:23:19,600 --> 00:23:24,879
Speaker 1: radio listeners. Getting into the complicated regulatory environment now stable coins.

434
00:23:25,400 --> 00:23:27,800
Speaker 1: You were talking about how there are multiple regulators for

435
00:23:27,840 --> 00:23:31,040
Speaker 1: the crypto industry. But who should be the primary regulator

436
00:23:31,080 --> 00:23:33,600
Speaker 1: for stable coins and is there a case for them

437
00:23:33,640 --> 00:23:36,760
Speaker 1: to be overseen more like money market funds. Well, I

438
00:23:36,840 --> 00:23:39,520
Speaker 1: think Congress ultimately is the one that's going to create

439
00:23:39,520 --> 00:23:41,240
Speaker 1: the laws in the United States, right, and so we

440
00:23:41,280 --> 00:23:45,240
Speaker 1: could probably use new legislation, new laws around how stable

441
00:23:45,280 --> 00:23:48,400
Speaker 1: coins should be regulated. I don't presume to tell them

442
00:23:48,440 --> 00:23:50,199
Speaker 1: how to do that, but I think some of the

443
00:23:50,280 --> 00:23:52,880
Speaker 1: key things are uncontroversial. I mean, we need to have

444
00:23:53,359 --> 00:23:56,000
Speaker 1: one to one backing of assets behind these stable coins.

445
00:23:56,000 --> 00:23:58,760
Speaker 1: We need to have audited financial statements to make sure

446
00:23:58,760 --> 00:24:01,240
Speaker 1: the firms issuing these are are doing a good job.

447
00:24:01,320 --> 00:24:03,199
Speaker 1: So these are just kind of basic good practices, and

448
00:24:03,240 --> 00:24:05,159
Speaker 1: I think a stable coin bill is one of the

449
00:24:05,160 --> 00:24:08,639
Speaker 1: first things that could really help you get consensus and

450
00:24:08,640 --> 00:24:11,439
Speaker 1: move things forward in DC to VISA. You still have

451
00:24:11,480 --> 00:24:13,919
Speaker 1: concerns around the stable coin industry, what would they be?

452
00:24:15,440 --> 00:24:17,639
Speaker 1: I mean, as broadly as a concept, I don't have

453
00:24:17,720 --> 00:24:20,280
Speaker 1: concerns about it. There may be individual stable coins which

454
00:24:20,280 --> 00:24:22,919
Speaker 1: are better or worse. I mean, we actually recently delisted

455
00:24:23,840 --> 00:24:26,080
Speaker 1: you know, busd as an example, and the reason we

456
00:24:26,119 --> 00:24:28,760
Speaker 1: did that was, you know, Paxos had gotten who's the

457
00:24:28,760 --> 00:24:30,960
Speaker 1: issue of of BUSD had been kind of ordered to

458
00:24:30,960 --> 00:24:33,520
Speaker 1: stop minting it, so we were concerned about liquidity issues

459
00:24:33,560 --> 00:24:36,200
Speaker 1: for our customers. But you know, we're always evaluating through

460
00:24:36,200 --> 00:24:40,280
Speaker 1: our internal processes different stable coins, different assets, and updating

461
00:24:40,280 --> 00:24:42,159
Speaker 1: when we see new information that comes to light. I'm

462
00:24:42,160 --> 00:24:45,520
Speaker 1: curious about your own way of using stable coins. Recently,

463
00:24:45,560 --> 00:24:47,960
Speaker 1: in the fourth quarter, it's showed that in your filings,

464
00:24:47,960 --> 00:24:51,280
Speaker 1: it's showed that USDC has doubled in your holdings prior

465
00:24:51,320 --> 00:24:56,520
Speaker 1: to the quarter before. Why is that the case? Well, okay,

466
00:24:56,520 --> 00:24:58,679
Speaker 1: so usdc is is growing quite a lot, and I

467
00:24:58,680 --> 00:25:02,280
Speaker 1: think actually USDC is it's the best answer to a

468
00:25:02,280 --> 00:25:05,120
Speaker 1: stable coin in the United States right. Um, it's it's

469
00:25:05,119 --> 00:25:08,240
Speaker 1: issued by Circle, which is a US based company. We're

470
00:25:08,240 --> 00:25:10,439
Speaker 1: in partnership with them, and we want to see that grow.

471
00:25:11,240 --> 00:25:13,639
Speaker 1: It's also been a really nice source of subscription and

472
00:25:13,680 --> 00:25:16,800
Speaker 1: services revenue for US, which is, you know, in contrast

473
00:25:16,840 --> 00:25:19,800
Speaker 1: to trading fees, which are quite volatile. We've seen in

474
00:25:19,800 --> 00:25:22,480
Speaker 1: our Q for earnings that our subscription and services revenue

475
00:25:22,520 --> 00:25:24,600
Speaker 1: is now forty seven percent of coin is the revenue

476
00:25:24,600 --> 00:25:26,879
Speaker 1: almost half, and so that's allowing us to build a

477
00:25:26,920 --> 00:25:29,800
Speaker 1: more predictable business with a diversified set of revenue streams.

478
00:25:29,800 --> 00:25:32,760
Speaker 1: So yeah, I'm quite bullish on USD coin, and I

479
00:25:32,800 --> 00:25:35,080
Speaker 1: feel like that's a good solution for the US. Does

480
00:25:35,119 --> 00:25:39,000
Speaker 1: that look a lot more like traditional banking? Not necessarily no,

481
00:25:39,040 --> 00:25:41,919
Speaker 1: I mean in traditional there's many differences, you know, in

482
00:25:41,960 --> 00:25:44,800
Speaker 1: traditional banking, they you know, there's fractional reserve, they have

483
00:25:44,840 --> 00:25:48,879
Speaker 1: banking licenses, there's capital requirements. Everything in USD coin is

484
00:25:48,880 --> 00:25:52,040
Speaker 1: backed one percent. There's no fractional reserve. So I think

485
00:25:52,040 --> 00:25:54,480
Speaker 1: of USD coin as a really important tool to help

486
00:25:54,480 --> 00:25:58,080
Speaker 1: payments be more efficient globally. It's helping provide you know,

487
00:25:58,119 --> 00:26:00,720
Speaker 1: access to you know, something like a bank account, but

488
00:26:00,800 --> 00:26:02,920
Speaker 1: it could be self custodial for many people around the

489
00:26:02,920 --> 00:26:05,639
Speaker 1: world who don't have access to a stable currency. It

490
00:26:05,680 --> 00:26:08,280
Speaker 1: can improve even you know, a lot of defy, which

491
00:26:08,280 --> 00:26:12,040
Speaker 1: you mentioned at the beginning. The trading pairs are denominated

492
00:26:12,080 --> 00:26:14,520
Speaker 1: in usdcoins. So these are all good things which are

493
00:26:14,640 --> 00:26:17,520
Speaker 1: an important part of the ecosystem. So let's move to

494
00:26:17,600 --> 00:26:20,480
Speaker 1: the staking part of the business here. Because you have

495
00:26:20,680 --> 00:26:23,040
Speaker 1: been concerned, you have voice concerns you and your colleagues

496
00:26:23,080 --> 00:26:26,360
Speaker 1: about the SEC's definition of staking and how they've approached staking.

497
00:26:27,119 --> 00:26:29,560
Speaker 1: Are you prepared to fight the SEC on any front

498
00:26:29,560 --> 00:26:32,560
Speaker 1: if you need to when it comes to the staking world. Yeah, so,

499
00:26:32,680 --> 00:26:35,560
Speaker 1: I mean we recently saw there was a settlement with Kraken.

500
00:26:35,800 --> 00:26:38,439
Speaker 1: That's another exchange out there, and they have what they

501
00:26:38,440 --> 00:26:39,960
Speaker 1: called a staking product. It was kind of more of

502
00:26:40,000 --> 00:26:42,800
Speaker 1: a yield product. But you know, in coin basis case,

503
00:26:42,840 --> 00:26:46,320
Speaker 1: our staking product is not a security. There's many differences.

504
00:26:46,320 --> 00:26:48,840
Speaker 1: I mean, we customers never turn over their assets to

505
00:26:48,880 --> 00:26:51,440
Speaker 1: coin base, for instance. They're they're always in the customer's

506
00:26:51,440 --> 00:26:54,040
Speaker 1: possession and we're really just providing a service that passes

507
00:26:54,040 --> 00:26:57,320
Speaker 1: through those coins to help them, you know, participate in staking,

508
00:26:57,320 --> 00:27:01,640
Speaker 1: which is a decentralized protocol. So that's an important part

509
00:27:01,640 --> 00:27:03,600
Speaker 1: of you know, the cryptoeconomy that we want to make

510
00:27:03,600 --> 00:27:06,600
Speaker 1: sure that we ensure that that's out there, and you know,

511
00:27:07,080 --> 00:27:08,960
Speaker 1: we're prepared to defend that in court if we need to,

512
00:27:09,080 --> 00:27:10,880
Speaker 1: but you know, we never we're never looking for a fight.

513
00:27:10,920 --> 00:27:13,480
Speaker 1: We want to work collaboratively with regulators all over the world.

514
00:27:14,119 --> 00:27:15,920
Speaker 1: But you know, we have to follow a rule of law,

515
00:27:15,960 --> 00:27:17,600
Speaker 1: and in this case, I think we're well within the law.

516
00:27:17,880 --> 00:27:21,639
Speaker 1: Given the stance the SEC has been taking regarding defining

517
00:27:21,760 --> 00:27:25,600
Speaker 1: certain assets of securities. Is there anything that you think

518
00:27:25,680 --> 00:27:28,919
Speaker 1: we'll need to get to that point? Well, you know,

519
00:27:28,960 --> 00:27:32,040
Speaker 1: the SEC has expressed their view about what is a security,

520
00:27:32,080 --> 00:27:34,160
Speaker 1: and they've taken kind of an expansive view of that.

521
00:27:34,600 --> 00:27:36,920
Speaker 1: Um I think, you know, coin Base, we've evaluated over

522
00:27:36,920 --> 00:27:39,000
Speaker 1: a thousand different assets, and as I mentioned earlier, eight

523
00:27:39,080 --> 00:27:41,480
Speaker 1: hundred of them we've rejected and we do think they

524
00:27:41,520 --> 00:27:43,440
Speaker 1: have some properties of being a security, so we don't

525
00:27:43,480 --> 00:27:45,919
Speaker 1: trade those today. Another two hundred or so of them

526
00:27:45,960 --> 00:27:48,320
Speaker 1: we do trade today, and we feel that those are commodities.

527
00:27:48,640 --> 00:27:51,040
Speaker 1: So you know, look, I think as a as a CEO,

528
00:27:51,080 --> 00:27:52,960
Speaker 1: we want to basically just have a clear rule book,

529
00:27:53,040 --> 00:27:55,680
Speaker 1: right and if a clear rules are published, we're happy

530
00:27:55,680 --> 00:27:57,359
Speaker 1: to follow it. And if and if those rules change,

531
00:27:57,560 --> 00:28:00,040
Speaker 1: you know, we're happy to follow those. Um But I

532
00:28:00,040 --> 00:28:02,320
Speaker 1: think you know, when we when we became a public company,

533
00:28:02,440 --> 00:28:05,400
Speaker 1: we explained to the SEC and our S one filing

534
00:28:05,440 --> 00:28:08,160
Speaker 1: and in dozens of meetings that we've had with the SEC,

535
00:28:08,240 --> 00:28:11,000
Speaker 1: I think we worked pretty collaboratively with them. We've explained

536
00:28:11,000 --> 00:28:12,800
Speaker 1: our business to them many times, including in our S

537
00:28:12,840 --> 00:28:14,439
Speaker 1: one and you know, they approved us to become a

538
00:28:14,440 --> 00:28:17,480
Speaker 1: public company. So we'll continue working with regulators all over

539
00:28:17,520 --> 00:28:20,399
Speaker 1: the world about where the boundaries are on what's a commodity,

540
00:28:20,440 --> 00:28:22,760
Speaker 1: what's the security, or what is something else we're setting

541
00:28:22,760 --> 00:28:25,240
Speaker 1: once more for our Bloomberg radio and television audiences. In

542
00:28:25,280 --> 00:28:28,600
Speaker 1: conversation with coin base CEO Brian Armstrong, you know we're

543
00:28:28,600 --> 00:28:32,199
Speaker 1: talking about the SEC and state regulators as well. You know,

544
00:28:32,320 --> 00:28:36,040
Speaker 1: in regulatory filings, you've noticed that you've received investigative subpoennuts

545
00:28:36,080 --> 00:28:38,600
Speaker 1: from the SEC and state regulators. How and when do

546
00:28:38,640 --> 00:28:42,360
Speaker 1: you get those resolved? Yeah, Well, subpoenas are really just

547
00:28:42,480 --> 00:28:45,080
Speaker 1: requests for information, right, and so we're in dialogue with

548
00:28:45,280 --> 00:28:47,160
Speaker 1: regulators not only here in the US at the state

549
00:28:47,160 --> 00:28:49,800
Speaker 1: and federal level, but really around the world. I mean

550
00:28:50,360 --> 00:28:53,840
Speaker 1: we're in Europe, European markets, and you know, in Singapore

551
00:28:53,920 --> 00:28:57,680
Speaker 1: and Australia, et cetera, Canada, many different markets around the world.

552
00:28:57,680 --> 00:29:00,200
Speaker 1: So I think subpoenas are an important part of the process.

553
00:28:59,880 --> 00:29:02,360
Speaker 1: That's them asking us a question and saying we'd like

554
00:29:02,440 --> 00:29:04,320
Speaker 1: more information on this, and we're happy to do that.

555
00:29:04,840 --> 00:29:08,480
Speaker 1: It sounds like it sounds like there was a tension

556
00:29:08,480 --> 00:29:10,880
Speaker 1: between the SEC and the industry before. It sounds like

557
00:29:11,160 --> 00:29:13,560
Speaker 1: some of those tensions have boiled up after aft TX.

558
00:29:13,720 --> 00:29:16,640
Speaker 1: I'm wondering if you think that the conversations between coin

559
00:29:16,680 --> 00:29:19,280
Speaker 1: base and the SEC in particular have gotten more or

560
00:29:19,400 --> 00:29:23,080
Speaker 1: less contentious over the years. I think we have a

561
00:29:23,080 --> 00:29:27,040
Speaker 1: good relationship with the SEC commissioners and staff, and you know,

562
00:29:27,040 --> 00:29:29,200
Speaker 1: I've met with the chair as well, and so we're

563
00:29:29,240 --> 00:29:31,760
Speaker 1: going to continue to invest in those relationships. I would

564
00:29:31,760 --> 00:29:33,760
Speaker 1: like us to find a way to bring crypto I

565
00:29:33,760 --> 00:29:36,000
Speaker 1: think this is what they want to Our interests are aligned.

566
00:29:36,240 --> 00:29:39,040
Speaker 1: We want to bring this industry within the regulatory perimeter

567
00:29:39,120 --> 00:29:42,000
Speaker 1: so that we have good consumer protection, but we also

568
00:29:42,160 --> 00:29:44,800
Speaker 1: preserve the innovation potential of this. And as I said earlier,

569
00:29:44,840 --> 00:29:47,000
Speaker 1: you know, eighty percent of Americans want the financial system

570
00:29:47,040 --> 00:29:49,760
Speaker 1: to be updated, and this is the most important technology

571
00:29:49,800 --> 00:29:51,640
Speaker 1: I'm aware of that can help do that. So you

572
00:29:51,680 --> 00:29:53,680
Speaker 1: and your collegues have also voiced a lot of concerns today.

573
00:29:53,680 --> 00:29:55,840
Speaker 1: You've voiced concerns about kind of more of the crypto

574
00:29:55,840 --> 00:29:59,600
Speaker 1: industry moving off shore. Draw us a picture here of

575
00:29:59,640 --> 00:30:03,800
Speaker 1: what happens in five, ten, twenty years if the digital

576
00:30:03,840 --> 00:30:07,480
Speaker 1: asset landscape exists mostly outside of the United States. Yeah,

577
00:30:07,520 --> 00:30:11,000
Speaker 1: and exchanges that are not based here. Yeah, Well, I mean, look,

578
00:30:11,040 --> 00:30:12,800
Speaker 1: I think that would be a terrible mistake for the

579
00:30:12,840 --> 00:30:16,000
Speaker 1: United States. I mean, look at what's happening with AI, right,

580
00:30:16,040 --> 00:30:20,120
Speaker 1: that's an important technology trend where it's becoming a matter

581
00:30:20,160 --> 00:30:22,080
Speaker 1: of national security, right that some of these things are

582
00:30:22,080 --> 00:30:23,480
Speaker 1: built in the US or we saw it in the

583
00:30:23,480 --> 00:30:27,000
Speaker 1: past with five G or with semiconductors. And so if

584
00:30:27,040 --> 00:30:30,680
Speaker 1: we have this really powerful technology, cryptocurrency that has the

585
00:30:30,720 --> 00:30:33,120
Speaker 1: potential to update the financial system and improve it in

586
00:30:33,160 --> 00:30:35,600
Speaker 1: so many ways, how can we sit on the sidelines

587
00:30:35,640 --> 00:30:38,120
Speaker 1: in America and say, oh, okay, well, we're gonna let

588
00:30:38,200 --> 00:30:40,560
Speaker 1: you know, the EU pass comprehensive legislation and so it'll

589
00:30:40,600 --> 00:30:42,880
Speaker 1: be built there, and we're gonna let the UAE and

590
00:30:43,040 --> 00:30:45,720
Speaker 1: you know, London and Singapore and Hong Kong. I mean,

591
00:30:45,920 --> 00:30:48,440
Speaker 1: this is America. We need to be a technology hub,

592
00:30:48,480 --> 00:30:51,440
Speaker 1: we need to be a financial hub, and the future

593
00:30:51,560 --> 00:30:56,560
Speaker 1: of this industry needs to be built right here in America.

594
00:30:57,000 --> 00:30:58,320
Speaker 1: I want to get to the bottom. It's I'm just

595
00:30:58,400 --> 00:31:01,520
Speaker 1: reading the Bloomberg News reporting here and some Chinese economy

596
00:31:01,520 --> 00:31:05,120
Speaker 1: shows strong recovery. Is COVID zero era ends? That's the headline.

597
00:31:05,320 --> 00:31:08,560
Speaker 1: So when we talk China, we talk Leland Miller from

598
00:31:08,600 --> 00:31:12,600
Speaker 1: the China Beije book Absolute expert Our go to source here.

599
00:31:12,640 --> 00:31:17,040
Speaker 1: So Leland we had some manufacturing Purchase Managing Managers index

600
00:31:17,120 --> 00:31:20,280
Speaker 1: rose to fifty two point six last month, the highest

601
00:31:20,320 --> 00:31:22,960
Speaker 1: reading since April of twenty twelve. They had some other

602
00:31:23,000 --> 00:31:27,160
Speaker 1: good data out there. Are you buying it? Well, yeah,

603
00:31:27,600 --> 00:31:32,520
Speaker 1: there the economy is recovering, but very important is understanding

604
00:31:32,560 --> 00:31:34,800
Speaker 1: what your base of comparison is. You know, if you

605
00:31:34,840 --> 00:31:38,720
Speaker 1: look at from year ago levels, everything is still down.

606
00:31:39,160 --> 00:31:41,680
Speaker 1: If you look at from the fourth quarter of twenty

607
00:31:41,920 --> 00:31:45,880
Speaker 1: twenty two, everything is up from month on month January

608
00:31:45,920 --> 00:31:48,280
Speaker 1: to February. Some things are up and some things are down.

609
00:31:48,360 --> 00:31:51,120
Speaker 1: So it's telling a very confusing story right now. And

610
00:31:51,160 --> 00:31:53,760
Speaker 1: that's even more convoluted because of course January February is

611
00:31:54,240 --> 00:31:56,400
Speaker 1: difficult with lunar New Year, and people were down with

612
00:31:56,480 --> 00:31:59,000
Speaker 1: COVID and so this has been a very difficult time

613
00:31:59,040 --> 00:32:02,320
Speaker 1: to understand. But yes, you are seeing the beginnings of

614
00:32:02,320 --> 00:32:05,920
Speaker 1: a recovery right now. So it doesn't seem to be

615
00:32:06,000 --> 00:32:08,760
Speaker 1: supporting all the commodities I was hoping to see jump,

616
00:32:09,200 --> 00:32:11,719
Speaker 1: you know, when China reopens. I was like, okay, so

617
00:32:11,880 --> 00:32:14,160
Speaker 1: one point four billion people are now going to go

618
00:32:14,160 --> 00:32:16,480
Speaker 1: to the gas station. But we haven't seen a huge

619
00:32:16,480 --> 00:32:19,560
Speaker 1: gain in oil. Why do you think that is? I

620
00:32:19,560 --> 00:32:22,280
Speaker 1: think people are just trying to understand what this recovery

621
00:32:22,320 --> 00:32:24,480
Speaker 1: is going to look like. Certainly in the second quarter,

622
00:32:24,520 --> 00:32:27,280
Speaker 1: you're going to see, you know, all systems go. You're

623
00:32:27,280 --> 00:32:30,040
Speaker 1: going to see businesses start to reinvest and borrow and hire.

624
00:32:30,280 --> 00:32:33,960
Speaker 1: You're going to see some measure of revenge consumer spending probably,

625
00:32:34,520 --> 00:32:37,560
Speaker 1: and then you know, you also have funds and policy

626
00:32:37,600 --> 00:32:39,880
Speaker 1: support flowing into property for the first time in a

627
00:32:39,880 --> 00:32:42,120
Speaker 1: long while, so things will look better. But I think

628
00:32:42,160 --> 00:32:44,280
Speaker 1: people aren't convinced that this is going to be a

629
00:32:44,360 --> 00:32:47,120
Speaker 1: longer or sustainable recovery. They want to see what the

630
00:32:47,160 --> 00:32:49,800
Speaker 1: policy support looks like. When we look at our data,

631
00:32:49,880 --> 00:32:52,040
Speaker 1: there is credit flowing into the property set of the

632
00:32:52,040 --> 00:32:53,600
Speaker 1: first time in a while, where you know, we are

633
00:32:53,640 --> 00:32:57,400
Speaker 1: seeing policy support to property in particular. So I think

634
00:32:57,440 --> 00:32:59,520
Speaker 1: some of these things will jump in the coming weeks,

635
00:32:59,560 --> 00:33:02,320
Speaker 1: but it's it's it's a story about twenty twenty three,

636
00:33:02,360 --> 00:33:04,400
Speaker 1: and markets aren't convinced yet that that the government's going

637
00:33:04,480 --> 00:33:07,720
Speaker 1: to be behind the economy. Hey, Leland, I don't know

638
00:33:07,760 --> 00:33:09,280
Speaker 1: if you have any data on this, but I have

639
00:33:09,360 --> 00:33:13,560
Speaker 1: seen nothing really definitive about the reopening here. This seems

640
00:33:13,600 --> 00:33:18,520
Speaker 1: to be the best, quickest, least painful reopening of all time.

641
00:33:19,160 --> 00:33:21,560
Speaker 1: Do you have any sense of how bad it got

642
00:33:21,600 --> 00:33:25,400
Speaker 1: in China, if at all as it relates to infections, deaths,

643
00:33:25,560 --> 00:33:27,640
Speaker 1: that type of thing, because it seems to be like

644
00:33:27,840 --> 00:33:30,560
Speaker 1: I think, there's nothing stuffed up hospitals and crematoriums that

645
00:33:31,120 --> 00:33:33,640
Speaker 1: I don't know that's right here. I don't know. Oh yeah,

646
00:33:33,640 --> 00:33:36,840
Speaker 1: of course, I look if they completely glossed over all

647
00:33:36,880 --> 00:33:40,080
Speaker 1: the difficulties from getting from November to hear you know

648
00:33:40,160 --> 00:33:42,200
Speaker 1: that we don't know what the death counts are. Nobody

649
00:33:42,200 --> 00:33:44,680
Speaker 1: knows except the Chinese government. But we do track, you know,

650
00:33:44,720 --> 00:33:48,360
Speaker 1: the COVID COVID spread our and our corporate networks, and

651
00:33:48,360 --> 00:33:50,880
Speaker 1: what we were picking up is a lot more reports

652
00:33:50,880 --> 00:33:53,760
Speaker 1: of COVID spread in February than what the government was

653
00:33:53,760 --> 00:33:56,840
Speaker 1: was letting on. Everyone's obsessed with these subway indicators that they,

654
00:33:56,960 --> 00:34:00,320
Speaker 1: you know, insist made. You know, they showed the economy,

655
00:34:00,400 --> 00:34:03,680
Speaker 1: you know, recovering and peaking and getting back on step

656
00:34:03,760 --> 00:34:08,120
Speaker 1: in January. We saw COVID flow through the economy in December.

657
00:34:08,160 --> 00:34:11,480
Speaker 1: In January, still in February, and so, yes, the recovery

658
00:34:11,520 --> 00:34:14,239
Speaker 1: is coming. Yes, you're already seeing improvement from from the

659
00:34:14,320 --> 00:34:16,480
Speaker 1: end of last year, but the economy is not back

660
00:34:16,600 --> 00:34:19,839
Speaker 1: up the story of the government about peaking last month.

661
00:34:19,960 --> 00:34:22,319
Speaker 1: That's just not what we're seeing. So you know, this

662
00:34:22,400 --> 00:34:24,560
Speaker 1: is a much lower process and it's a lot uglier

663
00:34:24,600 --> 00:34:27,000
Speaker 1: underneath the underneath the hood than they're admitting. But you know,

664
00:34:27,120 --> 00:34:29,520
Speaker 1: it's it's hard to tell when when they're you know,

665
00:34:29,560 --> 00:34:32,439
Speaker 1: not admitting to anything behind the scenes. But I guess

666
00:34:32,480 --> 00:34:34,400
Speaker 1: if I was an emerging market investor, if I was

667
00:34:34,440 --> 00:34:39,000
Speaker 1: a China investor, no matter how it's getting done, don't

668
00:34:39,000 --> 00:34:41,799
Speaker 1: I have to be bullish on China over the next

669
00:34:41,800 --> 00:34:44,080
Speaker 1: sever you want to buy in before everyone else buy exactly,

670
00:34:44,760 --> 00:34:46,640
Speaker 1: I think you need to be bullish on the next

671
00:34:46,640 --> 00:34:49,040
Speaker 1: several months. I wouldn't be bullish on the next several years,

672
00:34:49,080 --> 00:34:52,000
Speaker 1: because what you're seeing right now is a recovery that

673
00:34:52,080 --> 00:34:54,399
Speaker 1: will happen in the second quarter. It could go from

674
00:34:54,400 --> 00:34:58,279
Speaker 1: two to four quarters. You can continue on, but then

675
00:34:58,440 --> 00:35:00,880
Speaker 1: you know this is a cyclical bound spec and the

676
00:35:00,920 --> 00:35:05,279
Speaker 1: cyclical bounce back takes place with the backdrop of a

677
00:35:05,360 --> 00:35:08,640
Speaker 1: long term structural slowdown. None of these problems that we

678
00:35:08,680 --> 00:35:11,480
Speaker 1: saw before are taken care of. None of them are

679
00:35:11,520 --> 00:35:14,480
Speaker 1: being dealt with. You're just seeing a cyclical bounce back

680
00:35:14,520 --> 00:35:17,759
Speaker 1: from a very bad COVID zero recession. So you're going

681
00:35:17,840 --> 00:35:20,160
Speaker 1: to see better data for the most of twenty twenty three.

682
00:35:20,200 --> 00:35:21,799
Speaker 1: But twenty twenty three is going to be a head

683
00:35:21,800 --> 00:35:24,160
Speaker 1: fake in terms of China's growth. We're not going back

684
00:35:24,160 --> 00:35:27,280
Speaker 1: to the status quo anti things are slowing down going forward.

685
00:35:27,440 --> 00:35:30,080
Speaker 1: We had a story yesterday that apple suppliers are moving

686
00:35:30,080 --> 00:35:33,360
Speaker 1: out investing in Vietnam, looking at India. Is that going

687
00:35:33,440 --> 00:35:37,200
Speaker 1: to be a big story across manufacturing for China from

688
00:35:37,840 --> 00:35:40,120
Speaker 1: now forward. Yeah, it's a huge story. I mean, these

689
00:35:40,320 --> 00:35:43,520
Speaker 1: are difficulties there, the supply chains. Some supply chains are

690
00:35:43,560 --> 00:35:45,200
Speaker 1: being pulled out of China. They you know, they have

691
00:35:45,280 --> 00:35:49,960
Speaker 1: had extraordinary manufacturing export growth for years, mostly because of COVID,

692
00:35:50,000 --> 00:35:53,040
Speaker 1: but also because you know, you know a lot of

693
00:35:53,040 --> 00:35:55,399
Speaker 1: people were buying around the world. Now you've got more

694
00:35:55,440 --> 00:35:59,080
Speaker 1: of a global economic recession potentially looming. You know, you've

695
00:35:59,080 --> 00:36:01,880
Speaker 1: got difficulties with supply chains and being pulled out of China.

696
00:36:01,960 --> 00:36:04,480
Speaker 1: So it's gonna be a lot harder sledding in. You know,

697
00:36:04,520 --> 00:36:07,560
Speaker 1: the manufacturing world. The hope from Beijing is that they

698
00:36:07,560 --> 00:36:10,120
Speaker 1: have other sectors of the economy pick up, you know,

699
00:36:10,200 --> 00:36:13,799
Speaker 1: pick up and drive growth. But it's very unclear how

700
00:36:14,040 --> 00:36:16,239
Speaker 1: how domestic consumption is going to do that, because they're

701
00:36:16,280 --> 00:36:19,319
Speaker 1: not doing anything to support domestic consumption being a long

702
00:36:19,400 --> 00:36:22,759
Speaker 1: term structural driver of the economy. All right, Leland, great stuff.

703
00:36:22,800 --> 00:36:25,200
Speaker 1: Really appreciate getting a few minutes of your time. You

704
00:36:25,239 --> 00:36:27,560
Speaker 1: are absolutely one of our go to people as it

705
00:36:27,600 --> 00:36:30,960
Speaker 1: relates to China, both from a geopolitical perspective but also

706
00:36:30,960 --> 00:36:34,680
Speaker 1: obviously from the economic perspective. China Beige Book International, Leland Miller,

707
00:36:34,719 --> 00:36:36,880
Speaker 1: he's a CEO there and the China Base Book folks,

708
00:36:36,920 --> 00:36:40,520
Speaker 1: they have real primary data that they get from their

709
00:36:40,600 --> 00:36:43,680
Speaker 1: network of people on the ground. They don't rely on

710
00:36:43,840 --> 00:36:46,239
Speaker 1: government statistics. And so that's what I think really makes

711
00:36:46,840 --> 00:36:50,160
Speaker 1: China Beage Book and Leland Miller really compelling to chat with.

712
00:36:53,239 --> 00:36:56,400
Speaker 1: So Paul as an equities guy, right, an investment banker

713
00:36:56,520 --> 00:36:59,720
Speaker 1: from the days of your thinks everyone else is a geek. Yeah,

714
00:37:00,040 --> 00:37:02,480
Speaker 1: but he looks at fixed income. George Patterson, he's a

715
00:37:02,600 --> 00:37:05,800
Speaker 1: CIO of PGIM Quantitative Solutions. George's kind of have to

716
00:37:05,840 --> 00:37:09,280
Speaker 1: join us here in our Bloomberg Interactive Broker studio. George,

717
00:37:09,520 --> 00:37:12,239
Speaker 1: just start us off and tell us how you guys

718
00:37:12,280 --> 00:37:15,960
Speaker 1: at PGIM Quantitative Solutions. How do you guys invest capital

719
00:37:17,120 --> 00:37:19,680
Speaker 1: h So, thank you very much, great to be here. UM.

720
00:37:19,960 --> 00:37:23,480
Speaker 1: Our view is always trying to understand what the client's

721
00:37:23,560 --> 00:37:27,759
Speaker 1: needs are and and really for us, we always think

722
00:37:27,880 --> 00:37:31,720
Speaker 1: longer term and we always think we always think fundamentals driven.

723
00:37:32,040 --> 00:37:34,880
Speaker 1: So you know, what, what are the what are the factors,

724
00:37:34,920 --> 00:37:36,920
Speaker 1: what are the trends that are going to be rewarded

725
00:37:36,920 --> 00:37:39,440
Speaker 1: over the next full cycle, and you know, how are

726
00:37:39,440 --> 00:37:42,400
Speaker 1: we best position for that? UM and really for the

727
00:37:42,440 --> 00:37:44,719
Speaker 1: clients that really you know, there's a lot of from

728
00:37:44,760 --> 00:37:47,759
Speaker 1: our perspective, there's a lot of customization to really build

729
00:37:47,760 --> 00:37:50,360
Speaker 1: a portfolio that meets a clients have a black box

730
00:37:50,480 --> 00:37:55,680
Speaker 1: that spits out equities and fixed income options for you, Well,

731
00:37:55,719 --> 00:37:58,239
Speaker 1: it's actually not a box. It's a triangle. Okay, it's

732
00:37:58,280 --> 00:38:02,600
Speaker 1: a triangle, and it's not black, it's yellow. Okay no,

733
00:38:03,040 --> 00:38:05,719
Speaker 1: So so you know, I'm very uh I love to

734
00:38:05,760 --> 00:38:08,799
Speaker 1: say that. You know, again, from a quantitative perspective, we

735
00:38:08,880 --> 00:38:11,759
Speaker 1: do have a model that's expressed in mathematics, but it is.

736
00:38:12,640 --> 00:38:15,759
Speaker 1: Our model is very fundamentally driven. So the types of

737
00:38:15,840 --> 00:38:18,120
Speaker 1: factors that we look at are going to be very

738
00:38:18,120 --> 00:38:21,760
Speaker 1: fundamentally based, things like earnings, you know, earnings to price,

739
00:38:21,840 --> 00:38:26,160
Speaker 1: or earnings based metrics, ebidom metrics, cash flow, you know,

740
00:38:26,280 --> 00:38:29,840
Speaker 1: quality of the of a board. So we're really looking

741
00:38:29,880 --> 00:38:33,520
Speaker 1: at things that fundamentals, fundamental investors look at, but we're

742
00:38:33,520 --> 00:38:36,279
Speaker 1: doing it in a systematic way and that allows us

743
00:38:36,280 --> 00:38:38,640
Speaker 1: to just be very disciplined. That it allows us to

744
00:38:38,640 --> 00:38:40,720
Speaker 1: be disciplined, it also allows us to take the emotion

745
00:38:40,760 --> 00:38:42,440
Speaker 1: out of the process. I want to get to what

746
00:38:42,480 --> 00:38:47,239
Speaker 1: you're investing in, But before that, how did you get

747
00:38:47,280 --> 00:38:50,120
Speaker 1: to this point in your career? I mean, you went

748
00:38:50,160 --> 00:38:52,160
Speaker 1: to M I T. So I get the math part

749
00:38:52,200 --> 00:38:56,440
Speaker 1: of it, but then you did a PhD in physics.

750
00:38:58,400 --> 00:39:02,040
Speaker 1: How do you get from there to Wall Street? Essentially? Yep.

751
00:39:02,640 --> 00:39:06,279
Speaker 1: So it was it was the mid nineties, and when

752
00:39:06,320 --> 00:39:08,560
Speaker 1: I was graduating from school, it was a it was

753
00:39:08,600 --> 00:39:12,319
Speaker 1: a recession or we were emerging from a recession, and

754
00:39:12,480 --> 00:39:14,400
Speaker 1: I had an opportunity lined up. So I actually, in

755
00:39:14,440 --> 00:39:16,320
Speaker 1: addition to doing those things, I actually worked at the

756
00:39:16,360 --> 00:39:20,560
Speaker 1: Jet Propulsion Laboratory in Pasadena, California, so I can say

757
00:39:20,560 --> 00:39:24,680
Speaker 1: that I'm an honest to goodness rocket scientist. However, at

758
00:39:24,680 --> 00:39:27,839
Speaker 1: the time, I did a lot of soul searching about where,

759
00:39:28,000 --> 00:39:29,719
Speaker 1: you know, what did I want to do? And I

760
00:39:30,200 --> 00:39:32,440
Speaker 1: knew I was not going to do a traditional career,

761
00:39:33,719 --> 00:39:36,440
Speaker 1: and I looked at a couple of different things. But

762
00:39:36,480 --> 00:39:41,560
Speaker 1: I went to a presentation on quantitative investments and there

763
00:39:41,640 --> 00:39:45,280
Speaker 1: was a fellow there who was presenting some of his research,

764
00:39:45,880 --> 00:39:48,399
Speaker 1: and I kept pointing out errors in what he did,

765
00:39:48,960 --> 00:39:52,120
Speaker 1: and we had a chat afterwards and he said, well,

766
00:39:52,120 --> 00:39:54,440
Speaker 1: you know, we're hiring, but this is this is in

767
00:39:54,600 --> 00:39:56,839
Speaker 1: San Francisco. I was in Los Angeles at the time,

768
00:39:57,280 --> 00:40:00,680
Speaker 1: and next thing I know, I was working at bz W.

769
00:40:00,920 --> 00:40:04,279
Speaker 1: Barclay's Global Investors. That is awesome. So and from there too,

770
00:40:04,760 --> 00:40:08,880
Speaker 1: chief investment officer at PGIM Quantitative Solutions. How would you

771
00:40:08,960 --> 00:40:14,600
Speaker 1: differentiate quantitative investing from I think there must not be

772
00:40:14,640 --> 00:40:17,040
Speaker 1: a short leap to AI, which is still popular to

773
00:40:17,080 --> 00:40:20,759
Speaker 1: talk about right now. But you'd basically plug things into

774
00:40:20,760 --> 00:40:23,320
Speaker 1: a model. I guess the model just doesn't learn by itself.

775
00:40:23,840 --> 00:40:26,879
Speaker 1: So it really so the way I like to think

776
00:40:26,880 --> 00:40:28,799
Speaker 1: about it. So, if you think about the world of

777
00:40:28,840 --> 00:40:33,000
Speaker 1: fixed income right, there's people have there's like this segmentation idea.

778
00:40:33,080 --> 00:40:34,960
Speaker 1: There's people who focus on the long end of the curve.

779
00:40:35,000 --> 00:40:36,719
Speaker 1: There's people who focus on the short end of the curve.

780
00:40:36,760 --> 00:40:39,359
Speaker 1: There's people who focus in the middle. Quants are very

781
00:40:39,440 --> 00:40:41,680
Speaker 1: much the same way. There are people who look at

782
00:40:41,800 --> 00:40:45,440
Speaker 1: longer term trends, there's kind of mid horizon trends, and

783
00:40:45,480 --> 00:40:50,000
Speaker 1: then there's ultra high frequency things. So the challenge with

784
00:40:50,120 --> 00:40:54,320
Speaker 1: AI is that you need data to train the models.

785
00:40:54,880 --> 00:40:58,480
Speaker 1: And you know, the great thing about science in general

786
00:40:58,560 --> 00:41:00,279
Speaker 1: is that if you have you can do an experiment,

787
00:41:00,320 --> 00:41:01,920
Speaker 1: and if you don't have enough data, you just do

788
00:41:01,960 --> 00:41:05,600
Speaker 1: the experiment again. Um, and you can generate lots of

789
00:41:05,680 --> 00:41:08,960
Speaker 1: data to train a model. And you can do that

790
00:41:09,040 --> 00:41:11,960
Speaker 1: for short horizon models. It's very hard to do it.

791
00:41:11,960 --> 00:41:13,640
Speaker 1: We just don't have enough data to do it. For

792
00:41:13,800 --> 00:41:16,680
Speaker 1: long horizon models. There's some areas where it makes sense,

793
00:41:16,719 --> 00:41:19,920
Speaker 1: but it really depends where where you're targeting within quant

794
00:41:20,120 --> 00:41:23,399
Speaker 1: quant is kind of like saying, um, you know, you know,

795
00:41:24,080 --> 00:41:26,120
Speaker 1: you know, my boyfriend plays sports, but I don't know

796
00:41:26,120 --> 00:41:28,080
Speaker 1: what sport it is. There's a lot of difference between

797
00:41:28,080 --> 00:41:30,560
Speaker 1: a hockey player and a soccer player and a football player.

798
00:41:30,680 --> 00:41:32,480
Speaker 1: It's the same thing with quant There's a lot of

799
00:41:32,520 --> 00:41:36,000
Speaker 1: different subspecialties within there. So where are you, where's your

800
00:41:36,000 --> 00:41:38,879
Speaker 1: model focused well? And what and what are you coming

801
00:41:38,960 --> 00:41:41,120
Speaker 1: up with? Tell us about some of the ideas that

802
00:41:41,160 --> 00:41:45,439
Speaker 1: you've generated. So so all of our ideas are really

803
00:41:45,480 --> 00:41:48,680
Speaker 1: implemented by buying baskets of securities. We're not buying you know,

804
00:41:48,719 --> 00:41:52,480
Speaker 1: we're not building a concentrated portfolio. We're building a diversified portfolio.

805
00:41:52,960 --> 00:41:55,880
Speaker 1: And for us, everything has to have some sort of

806
00:41:56,000 --> 00:42:04,080
Speaker 1: route in um economic you know, economic or behavioral fundamentals,

807
00:42:04,080 --> 00:42:06,680
Speaker 1: like we need to understand why something works. And the

808
00:42:06,760 --> 00:42:08,560
Speaker 1: reason we do that, and we have a very high

809
00:42:08,640 --> 00:42:12,160
Speaker 1: bar for putting things into our models is because we

810
00:42:12,200 --> 00:42:13,640
Speaker 1: want to be We want to be able to be

811
00:42:13,680 --> 00:42:17,400
Speaker 1: patient when the market is either going against us or

812
00:42:17,440 --> 00:42:20,320
Speaker 1: in times of a crisis, because that's the one time

813
00:42:20,760 --> 00:42:22,600
Speaker 1: you don't want to panic. So we spend a lot

814
00:42:22,640 --> 00:42:25,880
Speaker 1: of time trying to understand why, why do the models

815
00:42:25,920 --> 00:42:29,400
Speaker 1: we have work, what is behind them? And that allows

816
00:42:29,480 --> 00:42:32,319
Speaker 1: us to be patient. It means that you know, like

817
00:42:32,640 --> 00:42:35,640
Speaker 1: we're we are you know, we do use valuation based

818
00:42:35,680 --> 00:42:38,120
Speaker 1: metrics and you've probably heard there was there's a period

819
00:42:38,120 --> 00:42:40,200
Speaker 1: of time that everyone was talking about is value dead?

820
00:42:40,280 --> 00:42:43,040
Speaker 1: Is value dead? And then value comes back? I think

821
00:42:43,040 --> 00:42:44,640
Speaker 1: this is the kind of thing. I can't tell you

822
00:42:44,719 --> 00:42:47,080
Speaker 1: how many times in my career I've seen somebody put

823
00:42:47,120 --> 00:42:49,360
Speaker 1: on a trade and it goes against them, and it

824
00:42:49,360 --> 00:42:51,720
Speaker 1: goes against them, and it goes against them, they decide

825
00:42:51,719 --> 00:42:53,799
Speaker 1: to take the trade off, and the next day it

826
00:42:53,840 --> 00:42:57,280
Speaker 1: starts working. So you have to be patient in this business.

827
00:42:58,440 --> 00:43:00,719
Speaker 1: It is. It is one that test you on a

828
00:43:00,800 --> 00:43:03,960
Speaker 1: daily basis. Are you buying equities here? Are they too rich?

829
00:43:04,000 --> 00:43:07,560
Speaker 1: If you're buying equities, you're buying US equities, international equities,

830
00:43:07,960 --> 00:43:12,080
Speaker 1: So from a multi asset allocation perspective, we're generally much

831
00:43:12,080 --> 00:43:15,520
Speaker 1: more positive outside the US. The US has great fundamentals,

832
00:43:15,520 --> 00:43:18,040
Speaker 1: as we all know, the economy is firing on all cylinders.

833
00:43:18,239 --> 00:43:20,880
Speaker 1: But US equities do look expensive on a number of

834
00:43:20,880 --> 00:43:24,080
Speaker 1: different metrics, so we do tend to favor non US,

835
00:43:24,239 --> 00:43:27,000
Speaker 1: whether it be EFA or EM. A lot of interesting

836
00:43:27,000 --> 00:43:33,239
Speaker 1: opportunities out there In terms of the US. What do

837
00:43:33,280 --> 00:43:38,200
Speaker 1: you see this market telling us about, you know, the economy,

838
00:43:38,239 --> 00:43:42,320
Speaker 1: the possibility of becoming recession. You know, earnings seem to

839
00:43:42,520 --> 00:43:45,960
Speaker 1: paint a far worse picture than the data that we're

840
00:43:46,000 --> 00:43:51,719
Speaker 1: getting from unemployment and prices paid impmiyes. Like everything looks

841
00:43:51,760 --> 00:43:54,080
Speaker 1: so great, and then you look at earnings and they

842
00:43:54,160 --> 00:43:57,080
Speaker 1: not only were disappointing, but expectations are for them to

843
00:43:57,120 --> 00:44:00,759
Speaker 1: disappoint more throughout the year. Yeah, but look look where

844
00:44:00,760 --> 00:44:03,279
Speaker 1: we've come. Look where we come from, right, you know,

845
00:44:03,320 --> 00:44:07,719
Speaker 1: we came from COVID where like literally, you know, unemployment

846
00:44:07,840 --> 00:44:10,000
Speaker 1: you know, was going through the roof. I mean the

847
00:44:10,000 --> 00:44:13,480
Speaker 1: economy came to a stop. Right, Planes basically stopped flying,

848
00:44:13,760 --> 00:44:16,960
Speaker 1: Cruise ships like basically couldn't take paslengers on. So the

849
00:44:17,040 --> 00:44:20,560
Speaker 1: economy literally came to a stop. And we you know,

850
00:44:20,600 --> 00:44:24,960
Speaker 1: the economy was rescued with with stimulus and it it

851
00:44:25,160 --> 00:44:27,320
Speaker 1: there was kind of a very strong rebound, particularly in

852
00:44:27,400 --> 00:44:30,080
Speaker 1: certain sector of the economy, the stay at home, the

853
00:44:30,200 --> 00:44:33,319
Speaker 1: technology stocks, and what you're seeing now is kind of

854
00:44:33,360 --> 00:44:35,920
Speaker 1: like the this is I don't want to say it's

855
00:44:35,960 --> 00:44:38,800
Speaker 1: the hangover, but you know, we're seeing a lot of repercussions.

856
00:44:38,800 --> 00:44:42,320
Speaker 1: You know, so like the US economy is actually very healthy,

857
00:44:42,400 --> 00:44:44,759
Speaker 1: but like we're seeing a bit of a reversal in

858
00:44:44,800 --> 00:44:47,560
Speaker 1: some of the corporate earnings. I don't think it's a surprise.

859
00:44:47,640 --> 00:44:49,840
Speaker 1: I think this is all given. This is what I

860
00:44:49,880 --> 00:44:53,880
Speaker 1: just mean. We're pricing uh eighteen times earnings is great.

861
00:44:54,560 --> 00:44:56,560
Speaker 1: You know, that's not a hangover. This is if No,

862
00:44:56,719 --> 00:44:59,359
Speaker 1: it's not love that kind of hangover. No. No, well

863
00:44:59,400 --> 00:45:02,040
Speaker 1: it was even or during in twenty you know, after

864
00:45:02,160 --> 00:45:04,799
Speaker 1: post COVID, right, I mean when everything was up. I mean,

865
00:45:04,840 --> 00:45:07,280
Speaker 1: just look at the total return of the market post COVID.

866
00:45:07,320 --> 00:45:10,040
Speaker 1: It was phenomenal from the bottom to the top. Was like,

867
00:45:10,080 --> 00:45:12,799
Speaker 1: it was an amazing It was an amazing thing. Now

868
00:45:13,239 --> 00:45:15,320
Speaker 1: there are parts of the economy that move a little slower,

869
00:45:15,400 --> 00:45:18,239
Speaker 1: like housing. Right. Like housing, we saw prices, you know,

870
00:45:18,360 --> 00:45:22,360
Speaker 1: dramatically change over the course of over the course of COVID.

871
00:45:22,560 --> 00:45:24,759
Speaker 1: That's going to take longer. Housing market just does not

872
00:45:24,960 --> 00:45:28,360
Speaker 1: adapt that quickly. But the US economy is very healthy.

873
00:45:28,400 --> 00:45:31,879
Speaker 1: It's just that equities are expensive. I am a little

874
00:45:31,920 --> 00:45:33,880
Speaker 1: concerned that the FED is going to have to continue

875
00:45:33,960 --> 00:45:37,319
Speaker 1: raising rates. As I said, I'm a rocket scientist and

876
00:45:37,800 --> 00:45:41,359
Speaker 1: not an economist by trees training. But every indication we've seen,

877
00:45:41,480 --> 00:45:44,200
Speaker 1: apart from a handful of senior apart from a handful

878
00:45:44,239 --> 00:45:46,879
Speaker 1: of large tech companies that have announced some layoffs, it's

879
00:45:46,920 --> 00:45:49,399
Speaker 1: still hard to find good people. I think companies want

880
00:45:49,400 --> 00:45:52,240
Speaker 1: to hold on to their employees. All right, good stuff,

881
00:45:52,239 --> 00:45:55,719
Speaker 1: George Patterson. We really appreciate getting your thoughts there. George Patterson.

882
00:45:55,760 --> 00:46:01,240
Speaker 1: He's a chief investment officer for PJIM Quantitative Solutions. Joining

883
00:46:01,280 --> 00:46:04,040
Speaker 1: us live here in our Bloomberg Interactive broker's studio. Church

884
00:46:04,120 --> 00:46:08,680
Speaker 1: are based in Boston, Boston and Newark, New Jersey. Here

885
00:46:08,680 --> 00:46:11,359
Speaker 1: we go, boom, all right, Boston, only the nicest, only

886
00:46:11,400 --> 00:46:14,040
Speaker 1: the nicest towns on the East Coast exactly. I love Newark,

887
00:46:14,160 --> 00:46:17,520
Speaker 1: the Iron Bound, all that good stuff, great restaurants. George,

888
00:46:17,520 --> 00:46:21,960
Speaker 1: thanks so much for joining CHERL. I want to get

889
00:46:22,000 --> 00:46:27,000
Speaker 1: over to someone who knows what's going down in commodities

890
00:46:27,480 --> 00:46:32,880
Speaker 1: and from a city that has been historically an amazing

891
00:46:33,000 --> 00:46:37,040
Speaker 1: commodities hub. I'm Goola. Zeidler joins US vice president Investor

892
00:46:37,040 --> 00:46:41,279
Speaker 1: Relations over at Arubis. They are the largest copper producer

893
00:46:41,280 --> 00:46:45,360
Speaker 1: in Europe, the largest copper recycler worldwide, and they're based

894
00:46:45,400 --> 00:46:49,640
Speaker 1: in Hamburg. I'mngola, thanks so much for joining us. First

895
00:46:49,680 --> 00:46:56,240
Speaker 1: of all, is your family historically from Hamburg? Because Seidler

896
00:46:56,480 --> 00:46:58,480
Speaker 1: sounds to me like someone who makes things out of

897
00:46:58,520 --> 00:47:02,840
Speaker 1: silk and I think of Hamburg as this commodities hub.

898
00:47:03,239 --> 00:47:06,319
Speaker 1: So is this is this where it comes from? No?

899
00:47:06,520 --> 00:47:09,560
Speaker 1: Actually not, I'm sorry for bath And actually it's the

900
00:47:09,680 --> 00:47:11,719
Speaker 1: name of my husband, so I don't really know where

901
00:47:11,760 --> 00:47:16,719
Speaker 1: it comes from. As you said, As you said, I'm

902
00:47:16,760 --> 00:47:19,600
Speaker 1: located in Hamburg. It's almost evening here, so good morning

903
00:47:19,640 --> 00:47:23,560
Speaker 1: to you. Ah, yes, yeah, you've you're later in the

904
00:47:23,640 --> 00:47:27,239
Speaker 1: day there. Um, let's talk about the commodities that that

905
00:47:27,400 --> 00:47:32,239
Speaker 1: you move around, make and move around. I would have

906
00:47:32,320 --> 00:47:35,239
Speaker 1: expected the China reopening, and Paul and I have been

907
00:47:35,239 --> 00:47:40,000
Speaker 1: talking about this for months now since the COVID zero

908
00:47:40,480 --> 00:47:43,280
Speaker 1: kind of pivot that they made. I would have expected

909
00:47:43,280 --> 00:47:46,440
Speaker 1: that to drive up commodities prices across the board. What

910
00:47:46,520 --> 00:47:48,879
Speaker 1: does doctor Copper look like right now? What does doctor

911
00:47:48,920 --> 00:47:54,160
Speaker 1: Copper telling us? Well, actually, I think we have to well,

912
00:47:54,440 --> 00:47:56,440
Speaker 1: I first of all want to talk about a Europea

913
00:47:56,560 --> 00:47:59,160
Speaker 1: view another that come to a Chinese view, because of

914
00:47:59,200 --> 00:48:03,480
Speaker 1: course we're looking at the market globally. So the European

915
00:48:03,600 --> 00:48:07,359
Speaker 1: demand for copper is very healthy. You know, we are

916
00:48:07,360 --> 00:48:11,160
Speaker 1: one of the leading copper producers in Europe and globally.

917
00:48:11,520 --> 00:48:16,080
Speaker 1: So here and driven by the energy green energy transition,

918
00:48:16,200 --> 00:48:20,640
Speaker 1: the electronic vehicles and all of this, the copper is

919
00:48:20,719 --> 00:48:24,480
Speaker 1: really copper demand in Europe is really healthy. We see

920
00:48:24,520 --> 00:48:27,879
Speaker 1: today that the copper price again goes went up over

921
00:48:28,040 --> 00:48:32,480
Speaker 1: nine thousand US tolop ton, meaning that the mind supply

922
00:48:32,840 --> 00:48:37,279
Speaker 1: of concentrate materials where we generate our copper from, is

923
00:48:37,680 --> 00:48:41,919
Speaker 1: in a good situation. And also the recycling markets here

924
00:48:42,000 --> 00:48:45,920
Speaker 1: in Europe, where we of course are engaged also all right,

925
00:48:45,960 --> 00:48:49,919
Speaker 1: So when you're when you're when you go to visit

926
00:48:49,960 --> 00:48:54,080
Speaker 1: Oliver Bloomer and Wolfsburg, is he putting in orders for

927
00:48:54,200 --> 00:48:56,399
Speaker 1: copper that he can now afford to pay for because

928
00:48:56,400 --> 00:48:59,320
Speaker 1: he doesn't need to fork out so much cash for gas.

929
00:48:59,400 --> 00:49:01,440
Speaker 1: I mean, there is an expectation that that would be

930
00:49:01,440 --> 00:49:04,960
Speaker 1: a huge problem. Now it's not. And Folkswagen nimes to

931
00:49:05,000 --> 00:49:07,359
Speaker 1: be the biggest maker of electric vehicles in the world.

932
00:49:08,640 --> 00:49:11,000
Speaker 1: I think that that is counting in for them as well.

933
00:49:11,040 --> 00:49:13,800
Speaker 1: But from our point of view, we see that the

934
00:49:14,280 --> 00:49:19,479
Speaker 1: construction industry is demand is increasing, and automotive from our

935
00:49:19,800 --> 00:49:24,240
Speaker 1: today's perspective, is stable. But you are right, energy prices

936
00:49:24,239 --> 00:49:26,720
Speaker 1: are coming down in Europe. We had a mild winter

937
00:49:26,840 --> 00:49:30,560
Speaker 1: here for God's sake, so energy prices are going down

938
00:49:30,600 --> 00:49:34,360
Speaker 1: and this of course will given tailwind to all the

939
00:49:36,520 --> 00:49:43,560
Speaker 1: let's say commodities consuming companies. But on the other hand side,

940
00:49:43,960 --> 00:49:46,799
Speaker 1: if you look at it globally, and we've got a

941
00:49:46,800 --> 00:49:52,799
Speaker 1: lot of customers which which have maybe facing supply chain disruptions.

942
00:49:52,840 --> 00:49:57,719
Speaker 1: So currently we don't see it. But I'm we are

943
00:49:57,760 --> 00:50:01,040
Speaker 1: happy here in our European market. Demand is still a

944
00:50:01,080 --> 00:50:04,680
Speaker 1: stable and healthy For US, situation might be different than

945
00:50:04,680 --> 00:50:07,640
Speaker 1: you mentioned that at the beginning. In China, we see,

946
00:50:07,640 --> 00:50:11,799
Speaker 1: as you mentioned that the demand didn't pick up as

947
00:50:11,840 --> 00:50:16,520
Speaker 1: we earlier the year expected. That that might be because

948
00:50:16,600 --> 00:50:20,320
Speaker 1: of we had a long Chinese New Year and after

949
00:50:20,440 --> 00:50:25,080
Speaker 1: COVID the markets are slowly picking up, but not in

950
00:50:25,160 --> 00:50:29,279
Speaker 1: that direction which we maybe earlier the year expected. I'm

951
00:50:29,320 --> 00:50:32,080
Speaker 1: going to talk to us about the recycling business, the

952
00:50:32,160 --> 00:50:34,759
Speaker 1: copper recycling marketplace, if you could just kind of lay

953
00:50:34,760 --> 00:50:37,839
Speaker 1: out the primers, what that market looks like, kind of

954
00:50:38,239 --> 00:50:43,239
Speaker 1: in kind of how you see that developing. Actually, we

955
00:50:43,600 --> 00:50:47,040
Speaker 1: last year and announced that we are doing a huge

956
00:50:47,160 --> 00:50:50,880
Speaker 1: recycling investment for US and we huge recycling investment in

957
00:50:50,920 --> 00:50:54,239
Speaker 1: the US and Augusta in Georgia. We will invest six

958
00:50:54,320 --> 00:51:00,000
Speaker 1: hundred forty million euros in a big plant of recycling materials,

959
00:50:59,800 --> 00:51:04,080
Speaker 1: and we are doing this not because of the lower

960
00:51:04,200 --> 00:51:07,960
Speaker 1: energy prices in the US. That's nice as well, but

961
00:51:08,040 --> 00:51:12,680
Speaker 1: the market for recycling material is extremely growing in the

962
00:51:12,800 --> 00:51:16,480
Speaker 1: United States and Arugus will be the first recycling company

963
00:51:16,960 --> 00:51:21,520
Speaker 1: investing there and building the first recycling plant in the US.

964
00:51:21,600 --> 00:51:25,960
Speaker 1: So big opportunity for us in a fast growing market.

965
00:51:26,440 --> 00:51:29,560
Speaker 1: What kind of energy usage does it take to recycle

966
00:51:29,640 --> 00:51:37,480
Speaker 1: copper actually doesn't matter. Well, we have different energy. We

967
00:51:37,800 --> 00:51:42,960
Speaker 1: have a gas, we have what everything you can imagine

968
00:51:43,000 --> 00:51:46,840
Speaker 1: we do have and we were facing at the beginning

969
00:51:46,960 --> 00:51:51,600
Speaker 1: of the year high energy increase, especially price increase, especially

970
00:51:51,680 --> 00:51:55,640
Speaker 1: in Germany situation in other European countries where we produce

971
00:51:55,719 --> 00:51:59,000
Speaker 1: as well, we're different. But in the US, of course,

972
00:51:59,320 --> 00:52:02,560
Speaker 1: this is much more competitive for us, the energy situation

973
00:52:02,600 --> 00:52:05,200
Speaker 1: than we have it here because you are using nuclear

974
00:52:05,239 --> 00:52:09,480
Speaker 1: power plants as well, and this is something which you

975
00:52:09,560 --> 00:52:12,640
Speaker 1: know probably don't want to have here in Germany anymore.

976
00:52:13,320 --> 00:52:16,440
Speaker 1: So I'm gona. I know your first quarter earnings profit

977
00:52:16,480 --> 00:52:20,920
Speaker 1: fellos doing part too inflation and higher energy prices. Talk

978
00:52:20,960 --> 00:52:23,680
Speaker 1: to us about the cost side of your business. What

979
00:52:23,719 --> 00:52:26,520
Speaker 1: are the big costs and kind of what are the

980
00:52:26,560 --> 00:52:32,440
Speaker 1: trends there well. Costs, of course is personnel costs is

981
00:52:33,000 --> 00:52:36,520
Speaker 1: the biggest factor here and as we are facing high

982
00:52:36,600 --> 00:52:39,799
Speaker 1: inflation rate even in Germany they announced just that we

983
00:52:39,880 --> 00:52:44,680
Speaker 1: are at eight point seven percent, so all over Europe

984
00:52:45,040 --> 00:52:48,840
Speaker 1: this is something we have to face. But energy costs

985
00:52:48,920 --> 00:52:52,480
Speaker 1: our highest factor. And if you look at last year,

986
00:52:52,520 --> 00:52:57,080
Speaker 1: our fiscal year of September, the energy cost almost doubled.

987
00:52:57,719 --> 00:52:59,840
Speaker 1: We see now that it is coming up and we

988
00:53:00,360 --> 00:53:04,160
Speaker 1: had in our forecast a little bit room here. So

989
00:53:04,880 --> 00:53:08,399
Speaker 1: currently the situation is better and we are very well

990
00:53:08,440 --> 00:53:11,920
Speaker 1: supplied with energy with long term contracts and it is

991
00:53:12,120 --> 00:53:15,440
Speaker 1: not at that with position as we've seen it before.

992
00:53:15,680 --> 00:53:18,040
Speaker 1: And I talked to a lot of investors last year

993
00:53:18,440 --> 00:53:21,000
Speaker 1: about the situation of energy in Germany and I can

994
00:53:21,080 --> 00:53:23,960
Speaker 1: say we are now much more relaxed on that side.

995
00:53:24,800 --> 00:53:27,000
Speaker 1: In China, the reopening we were going to we put

996
00:53:27,000 --> 00:53:29,520
Speaker 1: a pin in that. So let's go back. Is it

997
00:53:29,560 --> 00:53:33,920
Speaker 1: expected to be drive demand in a big way? Actually,

998
00:53:34,239 --> 00:53:37,799
Speaker 1: I would say of course it will. Our Rubis is

999
00:53:37,880 --> 00:53:41,800
Speaker 1: not engaged in any kind of direct business to China,

1000
00:53:41,880 --> 00:53:44,920
Speaker 1: but we are, of course depending because fifty percent of

1001
00:53:44,960 --> 00:53:48,520
Speaker 1: the global demand and copper is in China is coming

1002
00:53:48,560 --> 00:53:51,920
Speaker 1: from China. So the Chinese are of course driving the

1003
00:53:52,040 --> 00:53:56,759
Speaker 1: copper price, and we and the mining industry especially, we

1004
00:53:56,800 --> 00:54:01,400
Speaker 1: don't have any minds. It's if they earn good money

1005
00:54:01,600 --> 00:54:03,680
Speaker 1: by a high copper price, it is good for us.

1006
00:54:03,800 --> 00:54:06,400
Speaker 1: They create a lot of copper concentrate and this is

1007
00:54:06,440 --> 00:54:09,000
Speaker 1: perfect for us on the other hand. Site so we

1008
00:54:09,120 --> 00:54:11,839
Speaker 1: are we are looking at China very closely, have good

1009
00:54:11,840 --> 00:54:16,120
Speaker 1: contact over there, but currently we see that the demand

1010
00:54:16,280 --> 00:54:19,840
Speaker 1: is still weak and the premium before we find copa allow.

1011
00:54:20,160 --> 00:54:22,279
Speaker 1: All right, I'm gla. Thank you so much for joining us.

1012
00:54:22,280 --> 00:54:25,480
Speaker 1: Really appreciate you taking the time. Angola Seidler, vice president

1013
00:54:25,480 --> 00:54:28,360
Speaker 1: of invest Relations for a Rubis. It is the largest

1014
00:54:28,400 --> 00:54:31,520
Speaker 1: copper producer in Europe and the largest copper recycler worldwide.

1015
00:54:31,800 --> 00:54:35,760
Speaker 1: They're based in Hamburg, Germany, so excellent getting the European

1016
00:54:35,960 --> 00:54:41,200
Speaker 1: perspective on that commodities. Thanks for listening to the Bloomberg

1017
00:54:41,239 --> 00:54:44,640
Speaker 1: Markets podcast. You can subscribe and listen to interviews of

1018
00:54:44,719 --> 00:54:49,480
Speaker 1: Apple podcasts or whatever podcast platform you prefer. I'm Matt Miller.

1019
00:54:49,760 --> 00:54:53,480
Speaker 1: I'm on Twitter at Matt Miller nineteen seventy three. I'm

1020
00:54:53,480 --> 00:54:56,560
Speaker 1: fall Sweeney. I'm on Twitter at pt Sweeney before the podcast.

1021
00:54:56,600 --> 00:55:00,320
Speaker 1: You can always catch us worldwide at Bloomberg Radio