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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 CEOs, 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: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. A couple of my

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Speaker 1: favorite people just walking the studio. No, I mean it's

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Speaker 1: this is this is killer. I mean for Bloomberg Markets.

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Speaker 1: I think this panel tops all panels that we've had

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Speaker 1: in terms of I'm excited. We have Neil Grossman in

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Speaker 1: the studio, one of my best friends, I'll say, and

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Speaker 1: also the co founder and former c IO of t

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Speaker 1: k n G Capital Markets. Um, we've been talking about

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Speaker 1: the FED and rates for I don't know twenty years now. Um.

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Speaker 1: Daniel D. Martino Booth just uh walked in the studio

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Speaker 1: from Quill Investment Strategy. He also used to uh sorry,

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Speaker 1: Quill Intelligence. She also used to advise the Federal Bank

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Speaker 1: Federal Reserve Bank of Dallas, and her book on the

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Speaker 1: FED is one of my favorite titles, called fed Up. Yes.

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Speaker 1: So when you say we love the FED. We love

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Speaker 1: talking about the FED. We might not love the FED.

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Speaker 1: We're not telling you how we feel personally emotionally about

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Speaker 1: the Federal Reserve. And Priamisra. She was a long time

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Speaker 1: UH guest, a regular guest on Bloomberg Rewind, which I'm

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Speaker 1: gonna say is probably one of the top three shows

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Speaker 1: that Bloomberg has ever produced television shows, and it's great

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Speaker 1: to have her here. She's the managing director and global

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Speaker 1: head of rate strategy for t D Securities. All right, guys, um,

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Speaker 1: what do we expect Danie? I'll start with you, what

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Speaker 1: do we expect from j Powell today? Obviously fifty basis points?

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Speaker 1: But what is he gonna say about the path forward,

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Speaker 1: um after after the rate decision. So I think what's

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Speaker 1: critical to focus on is if Powell UH sites year

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Speaker 1: over year inflation as opposed to the dissipation in monthly

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Speaker 1: increases in inflation, one of them is going to get

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Speaker 1: him license to say, we've got to get rates higher,

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Speaker 1: and we've got to keep and maintain them until we

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Speaker 1: see this year over year pace come down. If he emphasizes,

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Speaker 1: you know the fact that he's seen in his core

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Speaker 1: services X shelter absolutely favorite inflation metric that that itself

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Speaker 1: is coming down and coming down quickly over the last

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Speaker 1: three months. I think markets will love him. I love it.

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Speaker 1: You know, when you think about this Federal Reserve this year,

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Speaker 1: you know, just been very aggressively raising rates. As you

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Speaker 1: look back on this year, what's your view of the Fed?

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Speaker 1: Have they gone far enough fast enough? Have they are

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Speaker 1: they still behind? What have they done? What have they done?

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Speaker 1: And when you talk to institutional clients, what do they

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Speaker 1: tell you. I mean, there's a lot of frustration on

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Speaker 1: the FED. I think the reaction function changed multiple times

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Speaker 1: this year. I mean I think that you know, was

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Speaker 1: that a credibility issue with the Fed at the start

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Speaker 1: of the year, the start of the hiking cycle, and

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Speaker 1: I know front looading was their favorite word for six months.

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Speaker 1: I think it was a catch up trade um where

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Speaker 1: they were, you know, really trying to catch up for

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Speaker 1: the fact that they started late. I think the question

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Speaker 1: now is the threshold. The threshold to slow down the

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Speaker 1: pace of hikes is different from the threshold to stop hiking,

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Speaker 1: and it's very different from the threshold to ease. And

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Speaker 1: the market is trying to figure out what these thresholds

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Speaker 1: are now to your question, have they gone too far?

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Speaker 1: I think on rate hikes, our view is they may

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Speaker 1: actually go more than what the markets pricing in at

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Speaker 1: the end of the day, because I think inflation is

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Speaker 1: going to be particularly cost services a little sticky on

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Speaker 1: the way down. So I think they may have more

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Speaker 1: to do. Where I think they've overdone it is on

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Speaker 1: QT and they don't talk much about it, but it's

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Speaker 1: you know, it's the reason why long and real rates

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Speaker 1: have risen. I think that's slowing the economy down. We

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Speaker 1: think a recession is almost a done deal at this

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Speaker 1: point in twenty three, so they've done a lot um.

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Speaker 1: I think they have a little bit more to do,

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Speaker 1: and then it's going to be really tricky for them

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Speaker 1: next year. So some of the frustration with the FAT

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Speaker 1: I think remains next year because we're gonna look for

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Speaker 1: the FAT two ease and I think they're going to

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Speaker 1: struggling to ease with inflation still high. Next, speaking of

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Speaker 1: frustration with the FED, let me bring a Neil Grossman here,

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Speaker 1: and first let me say you've got to differentiate between

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Speaker 1: how you feel about the FED, with the FED should

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Speaker 1: be doing in your take, and what you expect the

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Speaker 1: fed actually to do. Oh, you're right, I am very

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Speaker 1: fed up. And then a couple of things. First of all,

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Speaker 1: as you know, I don't think they've been hawkish. Um,

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Speaker 1: they've barely done anything in the way they should have

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Speaker 1: because I call it, as you know, infinitesimal incrementalism. They

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Speaker 1: haven't even done one Vulcan yet, as far as I'm concerned.

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Speaker 1: Paul Vulcan raised rates four inter meeting on a weekend.

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Speaker 1: That would have been something. And I'm sorry for you,

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Speaker 1: but they don't. Haven't done quantitative tightening either. Letting something

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Speaker 1: slowly drip drip away after they bought a hundred and

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Speaker 1: thirty billion a month for ten years is not tightening.

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Speaker 1: So I mean, yes, there are effects, but to be

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Speaker 1: honest with you, I would stop tightening now and announced

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Speaker 1: this afternoon that I'm going to start selling bonds at

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Speaker 1: a clip of fifty to a hundred billion a month.

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Speaker 1: That would be effective per se. Now, what what are

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Speaker 1: they going to do or not? I'm not going to

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Speaker 1: disagree too much other than I think the thing you

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Speaker 1: need to watch or consider is the liquidity. I think

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Speaker 1: if he focuses on acknowledging financial liquidity is easier now

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Speaker 1: that I believe it was in March or very close

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Speaker 1: to it. Leaving aside the housing market, but interest rates,

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Speaker 1: the dollars weeken ten percent, stocks have risen. I mean,

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Speaker 1: the risk here to me is we don't know where

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Speaker 1: all this is going to come out of the back end.

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Speaker 1: Daniel last time we were on, said clearly, and I

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Speaker 1: agree with her, that inflation is coming down. I thought

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Speaker 1: it was gonna come a little slower. She's been very right.

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Speaker 1: But at some point in the middle of next year,

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Speaker 1: the comparisons are going to start to become very easy,

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Speaker 1: and we will then settle into where the ambient inflation

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Speaker 1: ray is. And if it's three to five, we have

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Speaker 1: a problem in and reflating now only raises the possibility

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Speaker 1: or likelihood down the road. So I think that's what

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Speaker 1: I'd be focused. I'm going to push back as hard

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Speaker 1: as I possibly can about quantitative tightening not taking place. Now.

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Speaker 1: There's something called the Employee Retention Credit. In the nine

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Speaker 1: months through November, it injected a plus billion dollars into

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Speaker 1: the economy. So there's still stimulus money running around out

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Speaker 1: there that can't take away from the feds H eight

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Speaker 1: that's released every Friday, afternoon after the close. It shows

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Speaker 1: you one of the broadest measures of money supply in

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Speaker 1: a real time week to week on a real time

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Speaker 1: week to week basis, because we don't get money supply

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Speaker 1: indicators very often and they're lagged. And we've seen six

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Speaker 1: consecutive weeks of year over year declines in what we

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Speaker 1: call other deposits liabilities. Never, never in the history of

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Speaker 1: the United States have we seen six consecutive weeks of

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Speaker 1: year over year declines. Try pricing a commercial mortgage back

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Speaker 1: secure a spot plus six forty. A lot of things

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Speaker 1: are screeching to a halt in terms of financing that

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Speaker 1: are beyond residential real estate, but there are other sources

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Speaker 1: of liquidity that, of course make it appear that it's

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Speaker 1: as abundant as it is. Quantitative tightening is working. I'm

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Speaker 1: crossing fingers the second time I've said it public Adday

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Speaker 1: Mike McKee asked him if he is going to increase

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Speaker 1: treasury roll off to make up for the fact that

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Speaker 1: they're so far behind schedule with mortgage backed securities. I

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Speaker 1: do look at the FED balance sheet on the Bloomberg

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Speaker 1: and it really hasn't come down that much. I know

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Speaker 1: you're talking about uh F E D SPACE b A

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Speaker 1: l GO, FED boal GO. I know you're talking about

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Speaker 1: broader measures, but in terms of the balance sheet, they've

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Speaker 1: gone from eight and a half trillion to eight point

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Speaker 1: two trillion. It's not a lot, but if you think

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Speaker 1: about they're only fifteen billion dollars ten years ago, we're

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Speaker 1: going to be at eight more than eight trillion dollars.

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Speaker 1: You would have said, no way, we just did that

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Speaker 1: for the Great Financial Crisis. We're not gonna do that again. Right.

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Speaker 1: We're looking at a stock versus flow thing here, and

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Speaker 1: the fact is we're doing it at a much more

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Speaker 1: aggressive pace then we've even attempted in two thousand eighteen.

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Speaker 1: I'd love to hear thought on this pre you jump in,

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Speaker 1: so you know, I think they are doing qt they

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Speaker 1: you know, meaning that the balance sheet is slowing, it's

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Speaker 1: declining slowly. I mean they've only ramped up in September

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Speaker 1: to the full balance sheet gaps on treasuries. I agree

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Speaker 1: mortgages are not running off as fast because they're not preeping,

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Speaker 1: but look at the mortgage market, look at the housing market.

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Speaker 1: I don't think they can sell mbs as a market

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Speaker 1: functioning issue. I think there's a market functioning issue in treasuries,

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Speaker 1: so extend increasing QT and treasuries will worsen the liquidity

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Speaker 1: in the treasury market, which you know, we need this

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Speaker 1: market to function if the fixed income market has to

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Speaker 1: exist and and price and we have to find price discovery.

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Speaker 1: So I think they're doing the max in terms of QT.

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Speaker 1: I struggle a little bit in terms of how do

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Speaker 1: they think of the two tools that they have to

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Speaker 1: tighten policy between QT and rate hikes. We haven't heard

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Speaker 1: much from the Fed on this front, like what is

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Speaker 1: x billion in QT worth? And it's a nonlinear response,

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Speaker 1: meaning the early part of QT I think is not

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Speaker 1: a big deal because the liquidity was there was enough liquidity.

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Speaker 1: Going down a live from very excess to excess is

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Speaker 1: not a big deal. As you start getting to scarce

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Speaker 1: level of reserves, which I think we're six months away from,

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Speaker 1: but we're getting there, and as the supply starts to uh,

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Speaker 1: you know, increase. There's no martial buyer of duration in

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Speaker 1: the US, not with an inverted curve, not with the

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Speaker 1: fact that may still have to keep raising rates. I

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Speaker 1: think that's the issue on the supply front. And you know,

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Speaker 1: we talked about the data is okay right now, but

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Speaker 1: there are I mean, we've all talked about these long

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Speaker 1: and variable lags. I just struggle, Like the middle of

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Speaker 1: next year, the savings buffer goes down, and now QT

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Speaker 1: is starting to have an impact. Level of rates is

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Speaker 1: starting to have an impact when the economy slows down.

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Speaker 1: How quickly can the FED turn? Do they stop QUT?

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Speaker 1: I don't. I don't think they stop QUT until they

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Speaker 1: start to cut rates and that inflation and if it

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Speaker 1: starts to get to me, I'm a little nervous when

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Speaker 1: I hear four or five percent. We were thinking three percent,

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Speaker 1: even three is well north of you know that two

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Speaker 1: percent target, and the FED respond and we've been used

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Speaker 1: to Every market has been used to the FED responding

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Speaker 1: to slow down, and I just think this time around

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Speaker 1: the FED might have to be resolute in their words.

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Speaker 1: And then how does the market respond to that we

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Speaker 1: need no monetary help, but no fie still help by

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Speaker 1: the pre Let me step in a couple of things.

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Speaker 1: Of having traded an enormous amount of treasuries over generations. Um,

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Speaker 1: the only reason liquidity is so bad is you have

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Speaker 1: a central bank that destroyed the system at the end

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Speaker 1: of the day and the curve and its representation is

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Speaker 1: in large part due to the fact that they own everything.

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Speaker 1: If you really want liquidity and markets, tell them to

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Speaker 1: sell the entire balance sheet. You'll get a quick adjustment

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Speaker 1: and then there will be plenty of bonds around to

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Speaker 1: play with and do what you need to do. But

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Speaker 1: if you're going to ask somebody to, as you said,

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Speaker 1: you know, nobody wants to buy the ration. Nobody wants

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Speaker 1: to buy ration because a three and a half percent

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Speaker 1: long bond and seven or eight or eight percent inflation

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Speaker 1: rate is, to be honest with you, stupidity. Long long bonds.

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Speaker 1: If they were where they should have been relative to

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Speaker 1: FED funds, everyone would be buying them. Let's wait. You

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Speaker 1: know what did Daniel Mark did? Did you work with Priya?

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Speaker 1: Did you guys? Were you freshmen together? Yeah? I was

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Speaker 1: saying this during the break, Pria that when we were

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Speaker 1: when we were both starting out in the industry, when

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Speaker 1: we were teenagers and you were a Bank of America

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Speaker 1: and I was at the FED, that you were one

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Speaker 1: of my my closest contacts. So it could be on

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Speaker 1: with you. I've enjoyed lots of FED conversations with Danielle.

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Speaker 1: So let me Priya ask you about something that Danielle

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Speaker 1: mentioned during the break which I wasn't really thinking about.

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Speaker 1: But all of the big hawks on this FED are

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Speaker 1: rotating out and they're gonna be replaced with either doves

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Speaker 1: or cash kry and like who knows which way he's

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Speaker 1: gonna go depending on the politics. But um, what do

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Speaker 1: you think that means for February one? Are we gonna

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Speaker 1: see another fifty basis point hike after this or are

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Speaker 1: they gonna step down? A? Yeah? And the market I

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Speaker 1: think was like it was about fift priced for it.

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Speaker 1: I think it's actually fair because we've had two CPI misses.

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Speaker 1: So if we get another week cp another point two

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Speaker 1: or point three, I think they can step down. I

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Speaker 1: do think then they can keep going at twenty five

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Speaker 1: for a few more meetings. But it's interesting. I think

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Speaker 1: the divisions at the FED will sound they will sound

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Speaker 1: less unified. Um. And whether it's because of the rotating

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Speaker 1: members to your point, or the fact that I think

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Speaker 1: inflation and growth will point in different directions next year

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Speaker 1: much more than this year. This year it was one

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Speaker 1: trade high inflation, so they were all very unified. But

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Speaker 1: next year as inflation goes down but not all the

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Speaker 1: way to two percent, and growth starts to slow down

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Speaker 1: and the labor market more importantly starts to weaken, I

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Speaker 1: think you'll see the FED sounding a lot more divided,

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Speaker 1: and the voting members won't help either. So yeah, I

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Speaker 1: think it's going to become a odd harder to call

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Speaker 1: the FED next year. When do they stop? When do

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Speaker 1: the ease? What happens to QT? And the Fed will

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Speaker 1: sound I think more divided on this, Daniel, We've got

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Speaker 1: a function on the Bloomberg terminal d O t s

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Speaker 1: the whole dot plot thing, Madging. I don't know what

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Speaker 1: the heck it means, but um, it looks like it's

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Speaker 1: going down starting in twenty three. Is that? Does that

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Speaker 1: make sense to you? And and again as you raise

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Speaker 1: the issue of the makeup of the FED, does that

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Speaker 1: make sense to you? Hang on the dots median rises

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Speaker 1: in twenty three, There are a lot of settings on

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Speaker 1: your Oh yeah, after three then it goes down to yeah.

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Speaker 1: And I think what you can actually see today in

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Speaker 1: the dot plot is that some some of those dots

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Speaker 1: might move down in twenty three, So you might see

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Speaker 1: a shift onto the devas spectrum. In fact, what I'll

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Speaker 1: be looking for today is maybe the widest disparity that

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Speaker 1: we've ever seen to pre as point, it's going to

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Speaker 1: be much more more contentious. I think that Powell is

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Speaker 1: going to be facing multiple descents. One of the things

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Speaker 1: that has been on his side, which has been surprising

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Speaker 1: to me, given John Williams came from the San Francisco

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Speaker 1: FED and has traditionally been adove, is that John Williams

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Speaker 1: has been so loyal to Powell throughout this and I

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Speaker 1: think that's gonna be critical next year because between between

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Speaker 1: bar Bar being one of them, uh Williams, Powell, and Waller,

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Speaker 1: He's not going to have that many more voters in

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Speaker 1: his camp. We forget that Powell suffered full blown mutiny

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Speaker 1: in the very end with not a single person until

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Speaker 1: Wayne Angel changed his vote back years and years ago.

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Speaker 1: But I think it's going to be a much more

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Speaker 1: contentious FED, and I think the dot plots are going

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Speaker 1: to widen out a lot. I think I'm looking at

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Speaker 1: four sixty two right now on the dot plot, so

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Speaker 1: basically four seventy five is the upper range, and I'm

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Speaker 1: gonna take the other side of that that Danielle I

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Speaker 1: think they're going to for eight or five. Well, I

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Speaker 1: think that's possible. But I think the other interesting question

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Speaker 1: is going to become again it's the lower the ultimate

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Speaker 1: peak rate, the longer I think they're gonna end up

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Speaker 1: having to maintain that level, because I think again it's

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Speaker 1: going to become a question of of of sort of

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Speaker 1: tug of war between the stimulative effects of not doing

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Speaker 1: enough and the potential impact on prices and their ability

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Speaker 1: to ultimately push prices down low enough. You know, again,

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Speaker 1: one of the things you might ask yourself, as we

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Speaker 1: just went through two years, well, as of next month

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Speaker 1: will have gone through two years over seven percent inflation.

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Speaker 1: So we've already started a you know, sort of a

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Speaker 1: process of of of of of wave process of pushing

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Speaker 1: the consequences out. And so if it's going to take you,

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Speaker 1: for example, you're here're hearing people talking we'll get to

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Speaker 1: two percent at the end of next year, I find

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Speaker 1: that hard to believe. But if it takes five years

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Speaker 1: or eight years to get you to two percent, it's

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Speaker 1: very different than if you can get the two percent,

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Speaker 1: say and two and a half years. And keep in mind,

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Speaker 1: Mr Volker, even with rates it took it functionally took

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Speaker 1: a generation to get to an ambient level has been done.

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Speaker 1: I mean, I mean I put together a four and

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Speaker 1: f one fifty and I'm looking at ninety dollars for

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Speaker 1: an American pickup truck. That's just not that's the most

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Speaker 1: repossessed vehicle in America. And it's the twenty one and

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Speaker 1: twenty two models that they're repossessing the most quickly mats

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Speaker 1: because everybody has big payments and they got a friend

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Speaker 1: who goes to auction. If you're ever interested, yeah, I'm

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Speaker 1: definitely interested, So I'll tag along. What do you think?

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Speaker 1: I mean the terminal rate, I guess is important. And

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Speaker 1: I think Neil brings up a great point. If they

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Speaker 1: don't get higher quick enough, they're going to have to

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Speaker 1: be stuck at their relatively lowly rate for longer, right.

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Speaker 1: And I do think that next year, despite the market

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Speaker 1: really begging for the fair two ease, I think they're

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Speaker 1: going to sound very resolute and not ease or even

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Speaker 1: pushback again some of the market pricing of cuts. And

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Speaker 1: I wonder I hope Jepal was asked about that. If

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Speaker 1: you can lobby in a question too to Mr McKee

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Speaker 1: to ask about the rate cuts is the market in

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Speaker 1: the last month has priced in a lot more rate

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Speaker 1: cuts in late twenty three twenty four. And while I

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Speaker 1: think they're going to have to cut in twenty four

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Speaker 1: because the unemployment rate will rise a lot, I struggled

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Speaker 1: with the cuts in twenty three. Now on the dots,

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Speaker 1: I think the median is going to move up for

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Speaker 1: twenty three. It's a fair point that, you know, I

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Speaker 1: wish we had a mid twenty three dots because I

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Speaker 1: would be a clear median or or clear estimate of terminal.

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Speaker 1: But we don't have a mid twenty three. I don't

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Speaker 1: think the FED wants to signal that they might get

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Speaker 1: to terminal by the middle of the year and then

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Speaker 1: cut rates. So I'm going to be looking at that

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Speaker 1: end twenty three as their estimate of terminal, and importantly

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Speaker 1: the distribution of those dots, because the medium might be

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Speaker 1: at five, but if you have a bunch of FED

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Speaker 1: officials at five and a quarter or five and a half,

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Speaker 1: the market is not priced for that. And this risk

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Speaker 1: rally that's pricing in the FED terminal around five or

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Speaker 1: below and then the FED quickly cutting rates. I think

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Speaker 1: that is at risk. If the distribution of dots in

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Speaker 1: twenty three is high, and then twenty four. I think

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Speaker 1: the market, the FED can keep saying that they're not

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Speaker 1: going to cut too much, the market is going to

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Speaker 1: all their bluff on it because the market is now

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Speaker 1: increasingly pricing in a recession as the base case for

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Speaker 1: the end of twenty three twenty four, and then if

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Speaker 1: inflation comes down, the FED can justify some rate cuts.

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Speaker 1: But we know if they got hundred, the next hundred

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Speaker 1: it looks a lot easier, and if unemployment goes up,

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Speaker 1: they're going to have to I mean, does any of

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Speaker 1: us really feel that the FED is independent? Danielle, Who

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Speaker 1: did you work with in Dallas? I worked with Richard

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Speaker 1: Fisher and he was He was different than most works. Okay,

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Speaker 1: but this fan was congenial and reluctant to descent. If

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Speaker 1: we get five five and a half percent, if we

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Speaker 1: get six percent unemployment, if we get people who can't

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Speaker 1: put food on their families tables, I think this feed

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Speaker 1: is really going to have resolved. And that's that's your question.

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Speaker 1: We're seeing um small business closing. There's a website called

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Speaker 1: daily job cuts dot com. At the fastest pace I

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Speaker 1: spoke to the person who runs this website at the

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Speaker 1: fastest pace since two thousand and nine. There's there's actual

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Speaker 1: pain out there in the economy, and there's a reason

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Speaker 1: that you're seeing such disparity between the establishment and the

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Speaker 1: household surveys in the in the jobs data, and that's

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Speaker 1: because one of them is not telling you the true

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Speaker 1: state of unemployment in America. One's playing catch up to

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Speaker 1: the other. The thing is, again going back, the FED

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Speaker 1: has a dual mandate, which is price stability basically zero,

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Speaker 1: and full employment. And it's a two factory zero, right,

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Speaker 1: I mean, I guess they've decided it's two percent, and

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Speaker 1: now some of them are thinking it could be three

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Speaker 1: or four. But there's a reason for it. Well, now

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Speaker 1: three for four a different issue, but the two percent,

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Speaker 1: and I think it should they had it lower than

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Speaker 1: that with low low unemployment. But the bottom line is

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Speaker 1: it's a two factor optimization because as as as unemployment

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Speaker 1: drops too low, price pressures rise. At five and a

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Speaker 1: half to six percent, the optimization model will give them

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Speaker 1: plenty of room if they really feel that they have

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Speaker 1: to cut depending on inflation, but a three and a

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Speaker 1: half percent inflation rate with six percent unemployments is going

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Speaker 1: to give them room three and a six unemployment rate

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Speaker 1: with six or seven percent on flip inflation, which is

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Speaker 1: basically stagflation at that point. Now they have a problem.

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Speaker 1: All right, guys, great stuff. Really appreciate it. Uh, this

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Speaker 1: was a historic get together, some smart people kind of

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Speaker 1: previewing what we might hear from our federal reserve today later.

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Speaker 1: Dana Washington d C, Neil Grossman, former c I O

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Speaker 1: at t k n G Capital, and Daniel D. Martimo Booth,

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Speaker 1: a CEO and Chief Strategist at Quill Intelligence, joining us

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Speaker 1: here in our Bloomberg Interactive Broker studio and on the phone,

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Speaker 1: Priam Isra, global head of Rate Strategy Managing director with

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Speaker 1: t D Security has given a sense of what we

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Speaker 1: may hear later this afternoon. Of course, Michael McKee is

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Speaker 1: Dana Washington d C. He'll have live reporting and the

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Speaker 1: Bloomerk Surveillance team will have their show at one thirty

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Speaker 1: Wall Street time. Million ways to go with our next

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Speaker 1: guest here, George Ferguson. He's a senior aerospace, defense and

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Speaker 1: airline analysts for Bloomberg Intelligence. UH Penn State graduate, former

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Speaker 1: military intelligence officer in the U. S Army, So we

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Speaker 1: thank them as always for his service. George, There's a

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Speaker 1: lot of stuff going on in your space here today.

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Speaker 1: We I want to start just with the airline's real quick,

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Speaker 1: because just in the last couple of days, we had

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Speaker 1: Delta take some numbers up that kind of surprised me. Uh.

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Speaker 1: Number two, we had United saying they're gonna buy a

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Speaker 1: bunch of Boeing jets. Uh, that sounds pretty positive to me.

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Speaker 1: Just give us the state of the airline business today.

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Speaker 1: Where are we? Kind of visa VI Yeah, so thanks

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Speaker 1: for me on, thanks for kind words. Um, where are we?

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Speaker 1: So we actually just published a report this morning on airfares,

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Speaker 1: and I think where we are is that the markets

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Speaker 1: that have been opened the longest, which are going to

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Speaker 1: be domestic US I'm talking to US carriers, and uh,

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Speaker 1: Latin America routes were starting to see fair start to

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Speaker 1: tick over, meaning they're they're um, they're starting to fall,

431
00:22:02,160 --> 00:22:06,639
Speaker 1: especially we compare them to levels. And the markets that

432
00:22:06,720 --> 00:22:11,679
Speaker 1: are just reopening are still seeing this, uh you know,

433
00:22:11,760 --> 00:22:18,040
Speaker 1: this increased demand and and fair increases and so Europe

434
00:22:18,080 --> 00:22:23,120
Speaker 1: is in that is in that class, Canada and then

435
00:22:23,520 --> 00:22:26,080
Speaker 1: and Asia, and so I think you know, I think

436
00:22:26,720 --> 00:22:31,600
Speaker 1: Delta and United will obviously they have bigger international footprints

437
00:22:31,600 --> 00:22:34,920
Speaker 1: and internationals what's opening. So I think that's gonna be

438
00:22:34,960 --> 00:22:38,280
Speaker 1: a bit of a tail one for them into but

439
00:22:38,359 --> 00:22:40,280
Speaker 1: you are going to see I think the domestic market

440
00:22:41,240 --> 00:22:44,480
Speaker 1: cool off for the carriers. I think that's a little

441
00:22:44,480 --> 00:22:48,040
Speaker 1: bit again behind United going for all these seven eight sevens.

442
00:22:48,080 --> 00:22:50,840
Speaker 1: I think they probably got a really nice price from Boeing.

443
00:22:51,000 --> 00:22:55,040
Speaker 1: Right now, Bowing really needs to rebuild some backlogs, and

444
00:22:55,080 --> 00:22:56,879
Speaker 1: I think they're looking forward and seeing some of that

445
00:22:56,960 --> 00:23:00,000
Speaker 1: strength in international markets. They have the old seven six

446
00:23:00,080 --> 00:23:02,840
Speaker 1: D seven fleet out there forty five and then they're

447
00:23:02,840 --> 00:23:06,520
Speaker 1: twenty plus years old. They gotta go anyways, and so

448
00:23:06,560 --> 00:23:08,480
Speaker 1: I think they said, look a good time, we'll get

449
00:23:08,520 --> 00:23:11,320
Speaker 1: some good prices on seven eight seven has been a

450
00:23:11,359 --> 00:23:14,080
Speaker 1: really strong performer for Boeing. I should add that's a

451
00:23:14,240 --> 00:23:16,439
Speaker 1: great airplane. By the way, love flight and that thing.

452
00:23:17,000 --> 00:23:20,320
Speaker 1: I mean it's coming off, you know, being um waiting

453
00:23:20,320 --> 00:23:22,840
Speaker 1: on f A approval for a fix on it, which meant,

454
00:23:23,200 --> 00:23:25,400
Speaker 1: you know, deliveries have been stacking up and not going

455
00:23:25,440 --> 00:23:29,160
Speaker 1: out to customers, and Boeing still printed this order. I'm

456
00:23:29,200 --> 00:23:30,960
Speaker 1: sure they looked at the three fifty as well, So

457
00:23:31,000 --> 00:23:33,560
Speaker 1: I think it was it was a nice endorsement for

458
00:23:33,640 --> 00:23:36,920
Speaker 1: that seven. But again I think International will look better

459
00:23:36,960 --> 00:23:40,040
Speaker 1: in but I think it will tap out two a

460
00:23:40,080 --> 00:23:44,920
Speaker 1: little bit. And George, in terms of fairs, um, we've

461
00:23:44,920 --> 00:23:49,560
Speaker 1: seen obviously a lot of fluctuation throughout the pandemic. What

462
00:23:49,640 --> 00:23:53,240
Speaker 1: about when you look at fairs, you know, the averaged

463
00:23:53,280 --> 00:23:56,880
Speaker 1: out I guess, you know, remove the pandemic outlier compared

464
00:23:56,920 --> 00:23:58,880
Speaker 1: to ten years ago or twenty years ago, had they

465
00:23:58,920 --> 00:24:02,240
Speaker 1: really been able to increase prices as much as they

466
00:24:02,520 --> 00:24:06,679
Speaker 1: you know, have seen costs rise. So I'll tell you

467
00:24:06,720 --> 00:24:09,720
Speaker 1: that's really really hard to do, right, because you always

468
00:24:09,760 --> 00:24:15,000
Speaker 1: have to adjust fares by the underlying fuel prices. We

469
00:24:15,119 --> 00:24:17,960
Speaker 1: built a model that looked at this for a while.

470
00:24:18,320 --> 00:24:22,160
Speaker 1: You know, it's called we called it a pricing power model, right,

471
00:24:22,160 --> 00:24:24,480
Speaker 1: And so you either want to be not giving back

472
00:24:24,480 --> 00:24:27,520
Speaker 1: as much as lower fuel prices are giving you, or

473
00:24:28,040 --> 00:24:31,680
Speaker 1: taking more than fuel prices are are taking from you. Uh,

474
00:24:31,720 --> 00:24:33,840
Speaker 1: and and we find it really hard. And so that

475
00:24:34,000 --> 00:24:37,159
Speaker 1: the fairs I was I was just quoting to you,

476
00:24:37,520 --> 00:24:39,960
Speaker 1: we're based off at twenty nineteen levels, so we're watching

477
00:24:39,960 --> 00:24:42,359
Speaker 1: twenty nineteen levels closely. And I think one of the

478
00:24:42,400 --> 00:24:46,879
Speaker 1: interesting things. You know, Delta's talking their their performers today

479
00:24:46,880 --> 00:24:51,720
Speaker 1: talking three today, UM telling telling us how strong the businesses.

480
00:24:52,200 --> 00:24:55,200
Speaker 1: But if you can't give me twenty nineteen level margins

481
00:24:55,480 --> 00:24:57,280
Speaker 1: and the best margins we saw in this business, we're

482
00:24:57,280 --> 00:25:01,720
Speaker 1: probably actually you can't give me twenty nineteen level margins.

483
00:25:01,960 --> 00:25:03,720
Speaker 1: I'm going to tell you the business isn't as strong

484
00:25:03,760 --> 00:25:07,520
Speaker 1: as you're telling me it is, George we Earlier this morning,

485
00:25:07,560 --> 00:25:10,160
Speaker 1: Tom Key and I were talking to Mary Schlangenstein. She

486
00:25:10,160 --> 00:25:12,760
Speaker 1: she's an airlines reporter for Bloomberg News based in Dallas,

487
00:25:12,800 --> 00:25:15,760
Speaker 1: and she was saying, the companies are still having real

488
00:25:15,880 --> 00:25:19,680
Speaker 1: problems with getting pilots. I mean a baggage handlers. Yeah,

489
00:25:19,680 --> 00:25:22,840
Speaker 1: that's that's an issue of gated tendants. Okay, but pilots

490
00:25:22,920 --> 00:25:25,240
Speaker 1: is still an issue. Can you explain what's going on there?

491
00:25:25,760 --> 00:25:28,639
Speaker 1: Why don't we have enough pilots? Yeah? I mean so,

492
00:25:29,280 --> 00:25:33,280
Speaker 1: you know, for years, I think we've US airlines have

493
00:25:33,359 --> 00:25:37,240
Speaker 1: enjoyed taking some of those pilots out of the U. S. Military.

494
00:25:37,520 --> 00:25:40,640
Speaker 1: UM military is training less and less pilots and they're

495
00:25:40,640 --> 00:25:43,760
Speaker 1: having a problem I think staffing reading rooms as well.

496
00:25:44,520 --> 00:25:46,320
Speaker 1: So a little bit of that. I think it is,

497
00:25:46,359 --> 00:25:49,919
Speaker 1: you know, less training there. Uh. What we've seen is

498
00:25:49,960 --> 00:25:52,840
Speaker 1: during times of high oil prices, there's just less training,

499
00:25:53,560 --> 00:25:56,800
Speaker 1: uh you know going on in the civilian side. Uh.

500
00:25:56,840 --> 00:25:59,000
Speaker 1: And there was just a big bulge of pilots in

501
00:25:59,000 --> 00:26:02,479
Speaker 1: the system that uh, you know, we're Vietnam War trained,

502
00:26:02,680 --> 00:26:06,800
Speaker 1: military trained. They're aging out at six. But I'll tell

503
00:26:06,800 --> 00:26:09,880
Speaker 1: you the noise. So the noise we're here and um,

504
00:26:10,200 --> 00:26:13,760
Speaker 1: you know from like Southwest had investor day last week

505
00:26:14,400 --> 00:26:17,280
Speaker 1: and Southwest said, look, we don't have a problem getting

506
00:26:17,359 --> 00:26:21,920
Speaker 1: pilots right now, we have a problem getting them through training. Right.

507
00:26:22,000 --> 00:26:24,359
Speaker 1: So training is a bottleneck. It's going to be the

508
00:26:24,359 --> 00:26:27,640
Speaker 1: same for Delta American. The place where we're seeing pilots

509
00:26:27,960 --> 00:26:30,520
Speaker 1: absolutely run away from uh A is gonna have a

510
00:26:30,520 --> 00:26:32,800
Speaker 1: big problem next year is gonna be the regional airlines.

511
00:26:33,119 --> 00:26:37,000
Speaker 1: But it's training, that's that's the choke point. But Southwest

512
00:26:37,040 --> 00:26:40,200
Speaker 1: said they're having a problem getting employees across the board.

513
00:26:40,600 --> 00:26:44,040
Speaker 1: They're finally feeling staff they're a bit overstaffed. Now they're

514
00:26:44,040 --> 00:26:46,639
Speaker 1: get to get people trained because they're inefficient. Right, these

515
00:26:46,680 --> 00:26:49,360
Speaker 1: are people new to the industry. UM, so I think

516
00:26:49,400 --> 00:26:51,520
Speaker 1: training is going to be the biggest year across the board,

517
00:26:51,680 --> 00:26:53,840
Speaker 1: and pilots again are gonna come in with a nice

518
00:26:54,160 --> 00:26:58,200
Speaker 1: a increase. Right. We saw Delta pilots in the first year,

519
00:26:58,240 --> 00:27:01,280
Speaker 1: I think it was five percent tem present right away

520
00:27:01,560 --> 00:27:05,159
Speaker 1: gains and you know, salary in the first year, and

521
00:27:05,160 --> 00:27:07,800
Speaker 1: then it got a four and a four. They're gonna

522
00:27:07,840 --> 00:27:09,960
Speaker 1: have to build this into their cost structure. That's going

523
00:27:10,000 --> 00:27:13,199
Speaker 1: to make margins. That's gonna pressure margins as well. A George,

524
00:27:13,200 --> 00:27:15,119
Speaker 1: I want to switch gears because you also cover the

525
00:27:15,160 --> 00:27:17,600
Speaker 1: defense space, and I haven't heard that much about it,

526
00:27:17,600 --> 00:27:19,760
Speaker 1: but we've got a bunch of bills in front of

527
00:27:19,800 --> 00:27:22,639
Speaker 1: Congress here. What's the foot view on some of the

528
00:27:22,680 --> 00:27:26,840
Speaker 1: defense contractors you follow? Yeah, so, I mean, you know, defense,

529
00:27:26,880 --> 00:27:30,359
Speaker 1: it sounds like there's a lot of support for higher

530
00:27:30,400 --> 00:27:33,840
Speaker 1: defense spend right the threat environment, as we say, you know,

531
00:27:33,960 --> 00:27:36,080
Speaker 1: it is heightened right now. So so you can see

532
00:27:36,119 --> 00:27:39,040
Speaker 1: that there's some wrangling going on in Congress right now.

533
00:27:39,160 --> 00:27:41,679
Speaker 1: Right we're still in a contending resolution that makes it

534
00:27:41,720 --> 00:27:44,800
Speaker 1: really hard for the defense companies to get money rout

535
00:27:44,840 --> 00:27:49,280
Speaker 1: into their newer programs um and so there's some wrangling

536
00:27:49,320 --> 00:27:51,639
Speaker 1: going on now here. Year end as they look at

537
00:27:51,680 --> 00:27:54,840
Speaker 1: lifting the government debt feeling and everything. Uh, they're talking

538
00:27:54,840 --> 00:27:59,400
Speaker 1: about how much money we spend on the domestic side

539
00:27:59,440 --> 00:28:02,240
Speaker 1: as well, and and there's always that, right, and so

540
00:28:02,760 --> 00:28:04,480
Speaker 1: I think that's going to be a challenge going forward

541
00:28:04,520 --> 00:28:06,760
Speaker 1: as we try to go to higher defense budgets. There's

542
00:28:06,760 --> 00:28:08,520
Speaker 1: always gonna be that side of Congress is gonna want

543
00:28:08,560 --> 00:28:11,680
Speaker 1: more money spent for domestic initiatives as well. Hey, as

544
00:28:11,720 --> 00:28:16,080
Speaker 1: an aside, who makes the Patriot missile? Patriots think is

545
00:28:16,359 --> 00:28:19,560
Speaker 1: gonna be a Lockheed and raceeon. I believe that's correct,

546
00:28:19,840 --> 00:28:22,359
Speaker 1: because we're sending some of those over to Ukraine. So

547
00:28:22,400 --> 00:28:25,520
Speaker 1: that's interesting, all right. George Ferguson the fourth, by the way,

548
00:28:25,640 --> 00:28:29,280
Speaker 1: so there's three before him. He gets George Ferguson, senior Aerospace,

549
00:28:29,359 --> 00:28:32,720
Speaker 1: Defense and Airline analyst for Bloomberg Intelligence. He falls that

550
00:28:32,920 --> 00:28:35,840
Speaker 1: entire space there for Bloomberg Intelligence to be doing that

551
00:28:35,880 --> 00:28:38,920
Speaker 1: for decades, and appreciate getting his thoughts here. And it

552
00:28:38,960 --> 00:28:42,640
Speaker 1: seems like, I don't know, every plan I'm on is packed, Um,

553
00:28:42,680 --> 00:28:44,680
Speaker 1: you know, so I don't know, But I guess the

554
00:28:44,720 --> 00:28:48,080
Speaker 1: real question mat is like business travel, where are we there?

555
00:28:48,200 --> 00:28:50,400
Speaker 1: You know? Is that coming back? I think people here traveling.

556
00:28:50,440 --> 00:28:53,280
Speaker 1: I'm sure I think business travel is coming back. Um,

557
00:28:53,280 --> 00:28:55,880
Speaker 1: it just took a little bit longer than leisure travel.

558
00:28:56,600 --> 00:28:59,200
Speaker 1: But the question I always have is about fairs. You know,

559
00:28:59,240 --> 00:29:02,400
Speaker 1: can they continue you to get pricing power? Yeah, and

560
00:29:02,440 --> 00:29:04,840
Speaker 1: again George Ferguson had that research report on b I

561
00:29:04,920 --> 00:29:07,360
Speaker 1: go out this morning saying and a lot of the U.

562
00:29:07,440 --> 00:29:10,760
Speaker 1: S markets fairs are starting to come down. Uh. So

563
00:29:10,800 --> 00:29:12,560
Speaker 1: that's good news for those of us looking to book.

564
00:29:12,600 --> 00:29:18,680
Speaker 1: Some bad news for investors. You know, we got these

565
00:29:18,760 --> 00:29:21,640
Speaker 1: Bloomberg's opinion column things beat then they think about with

566
00:29:21,680 --> 00:29:25,120
Speaker 1: some really good stuff bo you know, Bloomberg Opinion O

567
00:29:25,240 --> 00:29:27,000
Speaker 1: p I n go O p I n go and

568
00:29:27,000 --> 00:29:31,320
Speaker 1: then Bloomberg dot com slash opinion on uh, you know,

569
00:29:31,440 --> 00:29:34,320
Speaker 1: on that intraweb thing that works pretty well. So let's

570
00:29:34,320 --> 00:29:37,000
Speaker 1: bring in editor in chief Emeritus Matt Winkler to talk

571
00:29:37,040 --> 00:29:40,840
Speaker 1: about his latest column. Um, the headline companies thrive where

572
00:29:40,880 --> 00:29:45,600
Speaker 1: abortion is protected and no offense. But I would say

573
00:29:45,640 --> 00:29:47,360
Speaker 1: this is n I N S S. I mean, it

574
00:29:47,400 --> 00:29:51,120
Speaker 1: makes perfect and that is what obvious sense. I can't

575
00:29:51,720 --> 00:29:55,000
Speaker 1: give you the meaning of the acronym, but it's clear

576
00:29:55,240 --> 00:29:58,280
Speaker 1: right that women are gonna want to work in states

577
00:29:58,320 --> 00:30:02,760
Speaker 1: where they have uh the ability to make their own

578
00:30:02,880 --> 00:30:08,360
Speaker 1: choices concerning their health. Always great to be with you,

579
00:30:08,480 --> 00:30:15,680
Speaker 1: Matt and Paul Um. Yes, Uh. Intuition is a wonderful thing.

580
00:30:16,600 --> 00:30:21,320
Speaker 1: But here at Bloomberg, it's always about the data. And

581
00:30:21,600 --> 00:30:24,880
Speaker 1: this is a subject that is so if you will,

582
00:30:24,960 --> 00:30:33,080
Speaker 1: clouded by opinion. UM. Interestingly enough people's opinion and very

583
00:30:33,160 --> 00:30:38,000
Speaker 1: little about UM the data that relates to economic performance.

584
00:30:38,000 --> 00:30:42,120
Speaker 1: And so what my colleague schinpay and I decided to do, say,

585
00:30:42,320 --> 00:30:45,560
Speaker 1: all right, UH, let's try to see what the data

586
00:30:45,600 --> 00:30:50,080
Speaker 1: shows us about companies that are based in states that

587
00:30:50,160 --> 00:30:55,160
Speaker 1: have criminalized abortions. Now this is interesting because Texas is

588
00:30:55,160 --> 00:30:58,880
Speaker 1: a big state and it's one of them. Uh and UH.

589
00:30:59,040 --> 00:31:03,280
Speaker 1: It turns out that the states that since two thousand

590
00:31:03,280 --> 00:31:09,040
Speaker 1: and twenty have UH guaranteed reproductive rights anticipating the repeal

591
00:31:09,040 --> 00:31:14,040
Speaker 1: of Roe v. Wade have outperformed. The companies have outperformed

592
00:31:14,280 --> 00:31:17,360
Speaker 1: in those states, not only the national average. And we're

593
00:31:17,360 --> 00:31:19,760
Speaker 1: looking at the Russell three thousand group of companies, So

594
00:31:19,760 --> 00:31:24,000
Speaker 1: this is big companies and small companies alike. They've outperformed

595
00:31:24,080 --> 00:31:30,760
Speaker 1: in numerous ways. UH. If you like total return, profitability, UH,

596
00:31:30,800 --> 00:31:35,160
Speaker 1: employee per sales, those kinds of measures of performance, they're

597
00:31:35,160 --> 00:31:40,360
Speaker 1: obviously more diverse as you would expect, more women in

598
00:31:40,400 --> 00:31:46,160
Speaker 1: these companies and management positions, more women employees. Um. And

599
00:31:46,280 --> 00:31:48,840
Speaker 1: if you put it all together, it just says that

600
00:31:49,040 --> 00:31:53,959
Speaker 1: economically speaking, we're better off. Companies are better off. Corporate

601
00:31:54,000 --> 00:31:59,160
Speaker 1: America is better off where reproductive rights are guaranteed. Corporate

602
00:31:59,360 --> 00:32:05,160
Speaker 1: corporate Rica has an inferior performance where reproductive rights are

603
00:32:05,440 --> 00:32:10,160
Speaker 1: limited or negligent or non existent. Somebody, I know you, uh,

604
00:32:10,800 --> 00:32:12,400
Speaker 1: you know some of this is you spoke with Common

605
00:32:12,480 --> 00:32:15,880
Speaker 1: Secretary Gina Romundo. Uh, and that she knows that businesses

606
00:32:15,920 --> 00:32:18,480
Speaker 1: are performing states where we put up to rights of preserve.

607
00:32:18,520 --> 00:32:20,000
Speaker 1: Tell us how that when and what are some of

608
00:32:20,000 --> 00:32:21,520
Speaker 1: her views? Well, she's glad to get a look at

609
00:32:21,520 --> 00:32:23,480
Speaker 1: the data as well, right, she said she wishes she

610
00:32:23,520 --> 00:32:25,960
Speaker 1: had it when she was governor. Well, I mean she

611
00:32:26,040 --> 00:32:29,320
Speaker 1: actually is very well aware of this. Maybe she hasn't

612
00:32:29,400 --> 00:32:33,640
Speaker 1: gone to compile it the way we have. But don't

613
00:32:33,640 --> 00:32:38,360
Speaker 1: forget Gina Romundo, if you will, comes right out of

614
00:32:38,640 --> 00:32:42,560
Speaker 1: corporate America in the sense that after being a Rhodes

615
00:32:42,560 --> 00:32:46,280
Speaker 1: scholar and economist with degrees from Harvard, Yale and Oxford

616
00:32:46,520 --> 00:32:50,760
Speaker 1: and a law degree from Yale University. Uh. She worked

617
00:32:50,800 --> 00:32:54,800
Speaker 1: actually um in the inner city UM, and then became

618
00:32:54,840 --> 00:32:59,200
Speaker 1: the first ventured capitalist in Rhode Island. And because of

619
00:32:59,280 --> 00:33:04,960
Speaker 1: Rhode island failing fiscal outlook, she became treasurer, was elected

620
00:33:04,960 --> 00:33:07,480
Speaker 1: treasure and did something nobody was able to do, which

621
00:33:07,560 --> 00:33:10,280
Speaker 1: is fixed a broken pension system, and then did a

622
00:33:10,280 --> 00:33:13,600
Speaker 1: lot of other things to fix the infrastructure of Rhode Island,

623
00:33:13,880 --> 00:33:17,920
Speaker 1: but more important fix uh the well being of Rhode Island.

624
00:33:18,000 --> 00:33:23,960
Speaker 1: And that meant doing things like pre k kindergarten uh,

625
00:33:24,000 --> 00:33:30,040
Speaker 1: you know everywhere um and improving the outlook for young

626
00:33:30,120 --> 00:33:35,320
Speaker 1: people by forgiving students in deadness. UM. So now she's

627
00:33:35,360 --> 00:33:37,760
Speaker 1: the Secretary of Commerce, and she, by the way, took

628
00:33:37,800 --> 00:33:41,360
Speaker 1: her state from being one of the laggards in the

629
00:33:41,440 --> 00:33:44,920
Speaker 1: US economically to one of the better performers. Now she's

630
00:33:44,920 --> 00:33:47,880
Speaker 1: Secretary of Commerce, she knows a thing or two about

631
00:33:48,240 --> 00:33:52,040
Speaker 1: how economies work, what gets c e o s to

632
00:33:52,160 --> 00:33:54,840
Speaker 1: do their best work. And so she knows c e

633
00:33:54,960 --> 00:33:57,560
Speaker 1: o s in particular because she recruited something like thirty

634
00:33:57,560 --> 00:34:00,360
Speaker 1: of them to Rhode Island. So when she sees this data,

635
00:34:00,640 --> 00:34:03,880
Speaker 1: she isn't surprised at all. Actually, she says it may.

636
00:34:04,000 --> 00:34:07,760
Speaker 1: It does make sense because she says, the best CEOs

637
00:34:07,840 --> 00:34:11,480
Speaker 1: who recruit and developed talent are making all kinds of

638
00:34:11,520 --> 00:34:15,960
Speaker 1: other decisions that are equally beneficial to their bottom line.

639
00:34:16,719 --> 00:34:20,080
Speaker 1: UM well being is obviously front and center. If you

640
00:34:20,120 --> 00:34:27,080
Speaker 1: have a workforce that is is liberated, UM, that workforce

641
00:34:27,160 --> 00:34:29,719
Speaker 1: is probably going to do better. I imagine if you,

642
00:34:29,920 --> 00:34:32,480
Speaker 1: I mean, you could extrapolated out to a number of

643
00:34:32,480 --> 00:34:36,640
Speaker 1: other health issues, for example, maternity leave. If a company

644
00:34:36,719 --> 00:34:40,080
Speaker 1: offers better maternity leave, aren't they likely to attract better

645
00:34:40,120 --> 00:34:43,319
Speaker 1: talent if a company offers childcare or some kind of

646
00:34:43,360 --> 00:34:46,320
Speaker 1: fixed to that very expensive. So here's your answer, Matt.

647
00:34:46,400 --> 00:34:52,520
Speaker 1: You know, our profession has repeatedly belittled California for its

648
00:34:52,600 --> 00:34:57,200
Speaker 1: high taxes and high regulation. California is precisely the state

649
00:34:57,560 --> 00:35:00,600
Speaker 1: that does more for women and men. Are these then

650
00:35:00,640 --> 00:35:05,160
Speaker 1: probably any other and corporate California over two years, five years,

651
00:35:05,440 --> 00:35:09,560
Speaker 1: ten years, pick any period you like, crushes the performance

652
00:35:09,640 --> 00:35:14,319
Speaker 1: of corporate Texas or any other state, because corporate California

653
00:35:14,440 --> 00:35:18,359
Speaker 1: itself is more diverse and inclusive than anywhere else. So

654
00:35:18,400 --> 00:35:21,400
Speaker 1: that's your answer. That's why you know we're seeing the

655
00:35:21,480 --> 00:35:24,719
Speaker 1: data that we're seeing by the way on Texas. Um,

656
00:35:24,760 --> 00:35:27,520
Speaker 1: it's interesting because Gina Amando talks about going to other

657
00:35:27,560 --> 00:35:29,960
Speaker 1: states and like trying to recruit because she has this

658
00:35:30,080 --> 00:35:35,560
Speaker 1: data now and um, clearly, states uh that offer choice

659
00:35:35,680 --> 00:35:41,719
Speaker 1: also have better performance economically. Does it look like Texas though,

660
00:35:41,800 --> 00:35:43,560
Speaker 1: could be one of those states that goes from red

661
00:35:43,600 --> 00:35:46,320
Speaker 1: to blue? I mean, as more companies moved to Austin,

662
00:35:46,400 --> 00:35:50,160
Speaker 1: Austin becomes a much more progressive city. Uh, well, it's

663
00:35:50,200 --> 00:35:55,160
Speaker 1: too early to say. And Texas is jerrymandered. Um. If

664
00:35:55,200 --> 00:36:01,520
Speaker 1: you like Democrats out of political position to gain any

665
00:36:01,520 --> 00:36:07,200
Speaker 1: time soon in the legislature for one thing. Um, And uh,

666
00:36:07,400 --> 00:36:10,279
Speaker 1: you know that's a that's a prevailing problem. Um. As

667
00:36:10,360 --> 00:36:13,239
Speaker 1: for you know what the makeup of corporate Texas is,

668
00:36:13,360 --> 00:36:18,920
Speaker 1: it's still something like two thirds in the ground. Um.

669
00:36:18,960 --> 00:36:21,880
Speaker 1: What comes out of corporate Texas is two thirds in

670
00:36:21,880 --> 00:36:26,280
Speaker 1: the ground. It's fossil fuel. They're making strides with alternative energy.

671
00:36:26,880 --> 00:36:29,839
Speaker 1: But it's a very twentieth century or nineteenth century state

672
00:36:29,880 --> 00:36:33,600
Speaker 1: in that respect. Corporate California, two thirds of corporate California

673
00:36:33,760 --> 00:36:36,960
Speaker 1: is between your ears, So it's very much twenty one century.

674
00:36:37,400 --> 00:36:40,239
Speaker 1: All right, Matt, good stuff as always Matt Winkler. He's

675
00:36:40,239 --> 00:36:44,560
Speaker 1: an editor in chief emeritus uh founder of Bloomberg News

676
00:36:44,640 --> 00:36:46,960
Speaker 1: back in the day. We appreciate getting to check in

677
00:36:47,000 --> 00:36:48,880
Speaker 1: with him. You can find his columns and all the

678
00:36:48,880 --> 00:36:52,720
Speaker 1: other good Bloomberg opinion stuff on the bloom Bloomberg terminal

679
00:36:52,800 --> 00:36:56,239
Speaker 1: O p I n go is uh the ticker, and

680
00:36:56,320 --> 00:36:58,360
Speaker 1: you can do it on that intra web thing Bloomberg

681
00:36:58,440 --> 00:37:00,919
Speaker 1: dot com slash Opinion that they've got all that stuff

682
00:37:01,000 --> 00:37:03,439
Speaker 1: up there as well, So we appreciate getting that from

683
00:37:03,440 --> 00:37:08,800
Speaker 1: Matt Energy. You know, I'm looking at w T A

684
00:37:08,880 --> 00:37:11,399
Speaker 1: crude oil. It's up a couple of bucks. It's still

685
00:37:11,400 --> 00:37:14,560
Speaker 1: at seventy seven dollars. My gasoline prices three. That's crazy

686
00:37:15,160 --> 00:37:18,200
Speaker 1: because w T I was trading for seventy dollars on

687
00:37:18,239 --> 00:37:20,799
Speaker 1: Monday morning. I know it's moving all around. Because let's

688
00:37:20,800 --> 00:37:23,760
Speaker 1: talk energy. Let's round table this thing. Jonathan Maxwell, CEO

689
00:37:23,840 --> 00:37:27,760
Speaker 1: and co founder of Sustainable Development Capital and Jay Halfields,

690
00:37:27,800 --> 00:37:30,160
Speaker 1: CEO of Infrastructure Capital Management. They joined us both here

691
00:37:30,160 --> 00:37:32,919
Speaker 1: in a Bloomberg Interactive broker studio two for two. How

692
00:37:32,920 --> 00:37:36,279
Speaker 1: good is that the world is coming back? Baby? Um So, John,

693
00:37:36,440 --> 00:37:40,440
Speaker 1: let's start with you. I think first time talking to you, right, yes, okay,

694
00:37:40,440 --> 00:37:42,920
Speaker 1: so tell us about what you guys are doing at

695
00:37:42,960 --> 00:37:44,920
Speaker 1: your fund. Yeah, well thanks for having me on. So

696
00:37:45,200 --> 00:37:48,480
Speaker 1: we um, we're in the middle of a global energy crisis.

697
00:37:49,000 --> 00:37:51,080
Speaker 1: But for the last ten fifteen years, we we had

698
00:37:51,200 --> 00:37:55,680
Speaker 1: st Seattle Sustainable Development Capital has been developing an investing

699
00:37:55,719 --> 00:38:01,080
Speaker 1: institutions to save energy. UM the Lawrence Living More National Laboratory,

700
00:38:01,520 --> 00:38:06,520
Speaker 1: famous as an institution, even more famous yesterday for I

701
00:38:06,560 --> 00:38:08,960
Speaker 1: want to ask you about that stuff coming on, but

702
00:38:09,000 --> 00:38:11,640
Speaker 1: actually going back to the seventies, have been calculating how

703
00:38:11,680 --> 00:38:15,400
Speaker 1: much energy is wasted in the United States. About seventy

704
00:38:15,960 --> 00:38:20,480
Speaker 1: gets lost through extraction, conversion, and generation and transmission and distributions.

705
00:38:20,560 --> 00:38:22,320
Speaker 1: Just wonder why I see the flames burning out and

706
00:38:22,360 --> 00:38:24,799
Speaker 1: the you know, the oil refineries and stuff like that

707
00:38:24,880 --> 00:38:27,279
Speaker 1: isn't what's going on. It's one of the features. So

708
00:38:28,000 --> 00:38:31,360
Speaker 1: we've we've designs and investment strategy that invests in solutions

709
00:38:31,360 --> 00:38:35,160
Speaker 1: to that problem. And that's so effectively delivering energy, lower costs,

710
00:38:35,160 --> 00:38:38,920
Speaker 1: more reliable, another carbon straight to the end user and

711
00:38:38,960 --> 00:38:43,040
Speaker 1: also helping end users seventy of energies in buildings, industry,

712
00:38:43,040 --> 00:38:45,840
Speaker 1: and transport, so helping those end users reduce the amount

713
00:38:45,840 --> 00:38:47,879
Speaker 1: of energy that they need to do the same job.

714
00:38:48,560 --> 00:38:51,600
Speaker 1: So you know, J J J. You're an investor, right,

715
00:38:51,640 --> 00:38:55,040
Speaker 1: so what you do is focused on obviously making money,

716
00:38:55,080 --> 00:38:59,000
Speaker 1: but you're also in the energy space and to some

717
00:38:59,120 --> 00:39:05,880
Speaker 1: extent um interested in sustainability. Correct. Yes, so I was

718
00:39:05,920 --> 00:39:11,560
Speaker 1: actually the first investment banker to do renewables, which doesn't

719
00:39:11,560 --> 00:39:13,239
Speaker 1: really get you much because I was thirty years ago

720
00:39:13,239 --> 00:39:16,040
Speaker 1: so at the head of my time. But um, so

721
00:39:16,200 --> 00:39:18,440
Speaker 1: I've always been an environmentalist. But now we do have

722
00:39:18,480 --> 00:39:21,919
Speaker 1: a pipeline fund, which I think is an environmental fund

723
00:39:21,920 --> 00:39:24,000
Speaker 1: because we have natural gas which is the plant's coal,

724
00:39:24,080 --> 00:39:28,400
Speaker 1: which is really the the near term way to reduce submissions.

725
00:39:28,440 --> 00:39:31,040
Speaker 1: So we have a pipeline et F. So that's and

726
00:39:31,080 --> 00:39:34,840
Speaker 1: also co founded an energy company and based in Oklahoma

727
00:39:34,920 --> 00:39:38,160
Speaker 1: that my friend my Crumble runs. All right, So, Jonathan,

728
00:39:38,200 --> 00:39:40,480
Speaker 1: you mentioned this fusion thing. Um, I kind of read

729
00:39:40,480 --> 00:39:42,160
Speaker 1: about it a little bit over the last couple of days,

730
00:39:42,520 --> 00:39:45,120
Speaker 1: but I'm still putting regular unleaded in my in my car,

731
00:39:45,160 --> 00:39:47,520
Speaker 1: so I'm not really sure what happened that it's not

732
00:39:47,560 --> 00:39:52,560
Speaker 1: a flux capacitator exactly what happened at the little More facility.

733
00:39:53,040 --> 00:39:59,280
Speaker 1: So I'm for years, the idea of fusion has been

734
00:40:00,280 --> 00:40:04,160
Speaker 1: a long way away. I think what happened yesterday was

735
00:40:04,200 --> 00:40:06,000
Speaker 1: that you can get more energy out of fusion than

736
00:40:06,120 --> 00:40:08,719
Speaker 1: it takes then you put into it. And this is

737
00:40:08,760 --> 00:40:12,279
Speaker 1: a major, major breakthrough. The idea really is that at

738
00:40:12,280 --> 00:40:15,080
Speaker 1: some point over the next ten thirty years, were able

739
00:40:15,160 --> 00:40:20,520
Speaker 1: to generate energy, largely electricity, in much the same way frankly,

740
00:40:20,560 --> 00:40:23,480
Speaker 1: that the Sun does. So this is the breakthrough, the

741
00:40:23,520 --> 00:40:27,240
Speaker 1: technological breakthrough. I think the challenge with it and many

742
00:40:27,280 --> 00:40:31,320
Speaker 1: other ways of adding new energy into the system is

743
00:40:31,360 --> 00:40:34,640
Speaker 1: it takes a lot of time, and you know well,

744
00:40:34,680 --> 00:40:38,640
Speaker 1: and also because we already have a Sun and we

745
00:40:38,680 --> 00:40:40,600
Speaker 1: don't have to put any energy into it and it

746
00:40:40,680 --> 00:40:44,400
Speaker 1: constantly gives us energy back, we just need to harness that. Yeah,

747
00:40:44,440 --> 00:40:46,200
Speaker 1: there are ways of harnessing it today, and I think

748
00:40:46,200 --> 00:40:48,560
Speaker 1: the two ways that we look at fundamentally is making

749
00:40:48,600 --> 00:40:50,600
Speaker 1: sure that we don't waste most of the energy in

750
00:40:50,640 --> 00:40:53,080
Speaker 1: the system in the first place, which is frankly how

751
00:40:53,400 --> 00:40:56,200
Speaker 1: Europe and North America is operating today. And then second

752
00:40:56,239 --> 00:40:58,479
Speaker 1: of all, exactly the point you just made, actually using

753
00:40:58,719 --> 00:41:03,560
Speaker 1: technologies have made up absolutely today like solar solar power

754
00:41:03,600 --> 00:41:07,120
Speaker 1: installed directly on your roof, on the ground, connected to buildings.

755
00:41:07,400 --> 00:41:10,360
Speaker 1: These are the types of technologies that we can deploy

756
00:41:10,440 --> 00:41:13,279
Speaker 1: today if you decide, if you decide to go ahead today,

757
00:41:13,320 --> 00:41:15,560
Speaker 1: you could probably have it implemented within a year or so.

758
00:41:16,320 --> 00:41:19,120
Speaker 1: And it's that speed of execution over the course of

759
00:41:19,120 --> 00:41:21,359
Speaker 1: the twenties twenties which is going to be crucial for

760
00:41:21,360 --> 00:41:24,760
Speaker 1: for three reasons, one of which is energy security, second

761
00:41:24,760 --> 00:41:28,600
Speaker 1: of which is decobanization rapidly. We can't wait until until

762
00:41:28,600 --> 00:41:31,320
Speaker 1: a lot of these new technologies are available at scale.

763
00:41:31,719 --> 00:41:33,799
Speaker 1: And then the third is energy cost. Energy costs are

764
00:41:33,840 --> 00:41:36,080
Speaker 1: incredibly high where I come from. They've gone up three,

765
00:41:36,080 --> 00:41:39,400
Speaker 1: four or five times in the UK, in Europe, that's

766
00:41:39,520 --> 00:41:43,160
Speaker 1: a feature of what's happening in the global commodities market. Russia,

767
00:41:43,239 --> 00:41:47,399
Speaker 1: Ukraine hasn't helped that. But unfortunately the United States now

768
00:41:47,520 --> 00:41:51,320
Speaker 1: energy independence since is still going to be subject to

769
00:41:51,360 --> 00:41:54,400
Speaker 1: global markets and energy. So energy costs are high and

770
00:41:54,440 --> 00:41:56,640
Speaker 1: are rising in the United States. So for those three

771
00:41:56,680 --> 00:42:01,360
Speaker 1: reasons cost carbon and and and an energy secure getting

772
00:42:01,440 --> 00:42:04,799
Speaker 1: this stuff done on site generation, stopping wasting so much

773
00:42:04,920 --> 00:42:07,960
Speaker 1: energy in the system, being more productive, that's exactly what

774
00:42:08,040 --> 00:42:09,600
Speaker 1: we need to be doing. That one kill a lot

775
00:42:09,640 --> 00:42:14,960
Speaker 1: hour at tea time on Monday in London was two thousand,

776
00:42:15,080 --> 00:42:20,680
Speaker 1: six hundred pounds. That is just nuts, um je, what

777
00:42:20,719 --> 00:42:23,719
Speaker 1: do you think we need to be doing here now

778
00:42:24,239 --> 00:42:27,920
Speaker 1: in order to make sure that doesn't happen to us? Well,

779
00:42:29,239 --> 00:42:33,080
Speaker 1: electricity prices are driven almost directly by natural gas prices,

780
00:42:33,880 --> 00:42:36,880
Speaker 1: and so natural gas can go to kind of infinity

781
00:42:36,920 --> 00:42:40,480
Speaker 1: because there's an infinite demand for electricity in this modern economy.

782
00:42:40,600 --> 00:42:42,880
Speaker 1: So the United in the United States, we kind of

783
00:42:42,880 --> 00:42:46,560
Speaker 1: solved the problem just by being lucky because we have

784
00:42:46,880 --> 00:42:49,200
Speaker 1: the most natural gas by far, and we can drill

785
00:42:49,239 --> 00:42:51,440
Speaker 1: for way more than we're drilling right now. We do

786
00:42:51,520 --> 00:42:57,239
Speaker 1: need pipelines, which the administration is apparently not in favor of.

787
00:42:57,560 --> 00:43:03,120
Speaker 1: For instance, um gas in what's called Waha Hub, Western

788
00:43:03,160 --> 00:43:07,600
Speaker 1: Texas is trading for zero, but while in California it's

789
00:43:07,640 --> 00:43:11,560
Speaker 1: spiking to you know, to unsustainably high levels because there's

790
00:43:11,560 --> 00:43:15,560
Speaker 1: no pipeline from Waha to California. So, um we do

791
00:43:15,680 --> 00:43:17,600
Speaker 1: need to develop our infrastructure a little bit. But we

792
00:43:17,719 --> 00:43:21,719
Speaker 1: have tremendous natural gas resources and that's why we have

793
00:43:21,760 --> 00:43:25,680
Speaker 1: a cost advantage on natural gas. So our natural gas

794
00:43:25,800 --> 00:43:29,080
Speaker 1: right now is is right around six dollars. In Europe,

795
00:43:29,239 --> 00:43:32,279
Speaker 1: as you were indicating to let high electricity prices, it's

796
00:43:32,320 --> 00:43:35,440
Speaker 1: forty dollars, you know, So it's whatever that multiple is

797
00:43:35,440 --> 00:43:38,920
Speaker 1: about eight times and forty dollars, as we discussed before,

798
00:43:39,080 --> 00:43:42,560
Speaker 1: is two fifty dollars equivalent of oil. So it's just

799
00:43:42,680 --> 00:43:45,600
Speaker 1: uneconomic and terrible. So but in the US we have

800
00:43:45,760 --> 00:43:48,160
Speaker 1: the natural resources. We can drill for it. We just

801
00:43:48,200 --> 00:43:49,799
Speaker 1: have to make sure we can. But you see that

802
00:43:49,960 --> 00:43:53,319
Speaker 1: you see natural gas as a stop gap solution, not

803
00:43:54,200 --> 00:43:58,120
Speaker 1: six month stop gap solution, but maybe what a six

804
00:43:58,200 --> 00:44:02,000
Speaker 1: year stop gas? So I think that's the tragedy of

805
00:44:02,080 --> 00:44:08,000
Speaker 1: extreme environmentalist um policy is we've restricted natural gas and

806
00:44:08,040 --> 00:44:10,800
Speaker 1: so we haven't have it. For instance, there's a shortage

807
00:44:10,800 --> 00:44:13,799
Speaker 1: in Boston, so we burn fuel oil, which is dirty. Year.

808
00:44:14,239 --> 00:44:16,319
Speaker 1: We should in the next five years get rid of

809
00:44:16,360 --> 00:44:19,000
Speaker 1: all of our coal. We could subsidize people who need

810
00:44:19,040 --> 00:44:23,279
Speaker 1: to be subsidized through carbon tax or other taxes, but

811
00:44:23,520 --> 00:44:25,239
Speaker 1: we need to get rid of all the coal right away,

812
00:44:25,320 --> 00:44:28,880
Speaker 1: not just for carbon. It's just an abomination. Coal plants

813
00:44:28,960 --> 00:44:31,799
Speaker 1: are just horrendous if you ever been to one, And

814
00:44:34,120 --> 00:44:39,240
Speaker 1: because it's not just carbon, it socks knocks, ash ash pits.

815
00:44:39,960 --> 00:44:42,239
Speaker 1: It's just really and also we're breathing it in here

816
00:44:42,320 --> 00:44:44,800
Speaker 1: because we're on the east coast, so we get them

817
00:44:45,120 --> 00:44:48,640
Speaker 1: that comes to our way. So it's hugely economic to

818
00:44:48,719 --> 00:44:51,640
Speaker 1: do that in the short run. And so really which

819
00:44:51,640 --> 00:44:54,200
Speaker 1: you need is a carbon tax, which would really make

820
00:44:54,280 --> 00:44:58,000
Speaker 1: coal have a huge disadvantage and natural gas would naturally

821
00:44:58,040 --> 00:44:59,640
Speaker 1: take its place in the short run, and then in

822
00:44:59,680 --> 00:45:02,279
Speaker 1: the long your term, you can get renewable as they're

823
00:45:02,320 --> 00:45:05,759
Speaker 1: slow to be developed, as indicated by my thirty two

824
00:45:05,840 --> 00:45:09,520
Speaker 1: years of experience of doing it, and still not that big. So, Jonathan,

825
00:45:09,560 --> 00:45:12,600
Speaker 1: what do you think about I mean, in extreme environmentalist

826
00:45:12,719 --> 00:45:17,040
Speaker 1: j says have made perfect the enemy of good. I

827
00:45:17,080 --> 00:45:19,800
Speaker 1: think it's important not to make a sacrifice good on

828
00:45:19,840 --> 00:45:22,200
Speaker 1: the altar of the perfect. But let's try. That's that's

829
00:45:22,280 --> 00:45:24,680
Speaker 1: chart the journey at the molecule. This is what the

830
00:45:24,719 --> 00:45:28,560
Speaker 1: Lawrence Live a more national poetry also does. Around ten

831
00:45:28,600 --> 00:45:32,279
Speaker 1: percent of molecules that's gas or crude is lost in

832
00:45:32,360 --> 00:45:36,080
Speaker 1: converting it once it's in. When it gets the generation

833
00:45:36,160 --> 00:45:40,719
Speaker 1: systems typically large turbines, about of the primary energy, and

834
00:45:40,760 --> 00:45:44,200
Speaker 1: that molecule is lost through heat. Another ten percent is

835
00:45:44,239 --> 00:45:46,719
Speaker 1: lost through transmission and distribution. So if we're going to

836
00:45:46,800 --> 00:45:49,080
Speaker 1: use natural gas, let's use it which we need to.

837
00:45:49,440 --> 00:45:52,000
Speaker 1: Let's use it efficiently. Let's make sure that we capture

838
00:45:52,000 --> 00:45:54,640
Speaker 1: the heat that means generating energy close or right at

839
00:45:54,719 --> 00:45:57,480
Speaker 1: the point where you where you use it. You can

840
00:45:57,560 --> 00:45:59,840
Speaker 1: use the rejected heat instead of dumping it, which is

841
00:45:59,840 --> 00:46:01,719
Speaker 1: what happening by a large to day. You can use

842
00:46:01,760 --> 00:46:05,160
Speaker 1: it for heating hot water steam. So this is the

843
00:46:05,560 --> 00:46:07,640
Speaker 1: if you like the transition on the revolution that we

844
00:46:07,680 --> 00:46:10,839
Speaker 1: need to see. It's actually about decentralization on the one hand,

845
00:46:10,840 --> 00:46:13,040
Speaker 1: bringing energy close to the point of views, and the

846
00:46:13,120 --> 00:46:16,839
Speaker 1: second point is making sure it's not wasted. Your beautiful building, Hey,

847
00:46:16,880 --> 00:46:21,520
Speaker 1: I use LED lights, censors, heating, ventilation, air conditioning. Most buildings, industry,

848
00:46:21,560 --> 00:46:25,200
Speaker 1: and transport systems waste of the energy that they use.

849
00:46:26,000 --> 00:46:28,719
Speaker 1: The energy transition, it's not gonna be measured in months

850
00:46:28,760 --> 00:46:31,560
Speaker 1: or even years, but many, many years probably. So we

851
00:46:31,640 --> 00:46:33,719
Speaker 1: always like to get back to that story with our

852
00:46:33,800 --> 00:46:36,600
Speaker 1: energy discussion. We did that today with Jonathan Maxwell, CEO

853
00:46:36,680 --> 00:46:40,280
Speaker 1: and co found or Sustainable Development Capital and j Halfel's

854
00:46:40,280 --> 00:46:45,120
Speaker 1: CEO of Infrastructure Capital Management managing the transition to a

855
00:46:45,239 --> 00:46:48,080
Speaker 1: greener energy grid. We're gonna more on all of that.

856
00:46:50,560 --> 00:46:56,920
Speaker 1: Let's hoplead the good idea, good idea. Why not Anthony Conniglio,

857
00:46:57,080 --> 00:46:59,600
Speaker 1: he's the CEO of New Lake Capital Partners Are this

858
00:46:59,640 --> 00:47:03,400
Speaker 1: thing is a read real estate investment trust. I didn't

859
00:47:03,400 --> 00:47:06,719
Speaker 1: know there was a weed real estate investment trust thing

860
00:47:06,800 --> 00:47:09,120
Speaker 1: out there. So Anthony, you got to give us the

861
00:47:09,120 --> 00:47:12,600
Speaker 1: thirty foot level. Why am I doing a reat on

862
00:47:13,080 --> 00:47:16,560
Speaker 1: the cannabis business? Well, thank you so much for having me. Um.

863
00:47:16,840 --> 00:47:19,960
Speaker 1: Because cannabis is illegal at the federal level. It's a

864
00:47:20,000 --> 00:47:23,600
Speaker 1: state regulated industry, and companies that operate in the cannabis

865
00:47:23,680 --> 00:47:27,280
Speaker 1: industry need to replicate their infrastructure from state to state

866
00:47:27,320 --> 00:47:30,160
Speaker 1: because you can't transport across state lines. Wow, I never

867
00:47:30,160 --> 00:47:32,959
Speaker 1: thought of that. So, for instance, if you grow like

868
00:47:33,280 --> 00:47:36,920
Speaker 1: the kindest bud in Humble County, you can't sell it

869
00:47:36,960 --> 00:47:39,680
Speaker 1: in New York. No, you cannot, even though it's legal

870
00:47:39,840 --> 00:47:43,440
Speaker 1: in California and New York. Correct federal law or restricts

871
00:47:43,520 --> 00:47:46,560
Speaker 1: interstate commerce by weed in New York. It's got to

872
00:47:46,600 --> 00:47:49,200
Speaker 1: be a New York grown correct New York weeds not

873
00:47:49,239 --> 00:47:51,040
Speaker 1: as good as California. Not that I know anything about this,

874
00:47:51,760 --> 00:47:54,880
Speaker 1: but is there are certain states by the WAUL doesn't

875
00:47:54,960 --> 00:47:58,000
Speaker 1: know anything about this. Yeah, I don't so, um, but

876
00:47:58,040 --> 00:47:59,160
Speaker 1: you put a t does in front of me, were

877
00:47:59,160 --> 00:48:02,640
Speaker 1: in good shape? But so is there different quality and

878
00:48:02,680 --> 00:48:06,680
Speaker 1: states whether there there's different quality in each state regulates

879
00:48:06,719 --> 00:48:09,000
Speaker 1: the industry a little bit differently. So you will have

880
00:48:09,040 --> 00:48:12,040
Speaker 1: some states that restrict the form factor, so they may

881
00:48:12,080 --> 00:48:14,439
Speaker 1: say that no edibles are allowed, or they may say

882
00:48:14,480 --> 00:48:19,040
Speaker 1: no flowers allowed. Some states restrict th HC content. Um,

883
00:48:19,120 --> 00:48:21,719
Speaker 1: So this industry really does vary state by state and

884
00:48:21,760 --> 00:48:25,680
Speaker 1: requires you to understand the dynamics that exists in each

885
00:48:25,680 --> 00:48:28,440
Speaker 1: one of those states. But also, I mean when we

886
00:48:28,440 --> 00:48:32,680
Speaker 1: were kids, um, it was all about the sun and

887
00:48:32,760 --> 00:48:37,399
Speaker 1: the earth. Now I assume most big grow ups are

888
00:48:37,480 --> 00:48:42,040
Speaker 1: hydroponic and you know, controlled in greenhouses, so you can

889
00:48:42,200 --> 00:48:47,360
Speaker 1: easily replicate you know whatever tie stick or Maui gold

890
00:48:47,600 --> 00:48:51,040
Speaker 1: in upstate New York. Dating you're you're absolutely right. And

891
00:48:51,080 --> 00:48:53,720
Speaker 1: as you would think about it, Um, if you're selling

892
00:48:53,719 --> 00:48:56,080
Speaker 1: in Michigan or you're selling in Pennsylvania, you wouldn't have

893
00:48:56,120 --> 00:48:59,000
Speaker 1: the growing conditions you may have in California. And so

894
00:48:59,040 --> 00:49:00,680
Speaker 1: if you look at our property is we own thirty

895
00:49:00,680 --> 00:49:04,080
Speaker 1: two properties. Half of them are cultivation facilities and these

896
00:49:04,120 --> 00:49:08,040
Speaker 1: are indoor facilities that are highly complex, often medical grade

897
00:49:08,080 --> 00:49:13,200
Speaker 1: facilities with light, humidity control, temperature control that allow the

898
00:49:13,280 --> 00:49:18,080
Speaker 1: operators to control the environment and grow high quality product,

899
00:49:18,120 --> 00:49:21,080
Speaker 1: but also allows them to turn the crop quicker. So

900
00:49:21,120 --> 00:49:24,160
Speaker 1: you can get six turns in an indoor facility, whereas

901
00:49:24,160 --> 00:49:26,160
Speaker 1: in an outdoor you mainly get two turns a year.

902
00:49:26,280 --> 00:49:28,440
Speaker 1: So this all sounds I've never even thought of. This

903
00:49:28,480 --> 00:49:33,680
Speaker 1: all sounds great, But let me ask how hard it

904
00:49:33,760 --> 00:49:37,239
Speaker 1: is to do business. I mean, you're not just a

905
00:49:37,280 --> 00:49:40,560
Speaker 1: New York company just to California company, Right, You've got

906
00:49:40,560 --> 00:49:44,480
Speaker 1: to do business across state lines. Um, You've got investors

907
00:49:44,560 --> 00:49:47,439
Speaker 1: all over the country, probably all over the world. Um,

908
00:49:47,719 --> 00:49:51,560
Speaker 1: how hard is that with the current federal legislation. Yeah,

909
00:49:51,600 --> 00:49:54,799
Speaker 1: it's very difficult because of the current federal legislation. And

910
00:49:54,800 --> 00:49:57,759
Speaker 1: we do own thirty two properties across twelve states with

911
00:49:57,840 --> 00:50:01,399
Speaker 1: thirteen tenants, and so managing those state rules and making

912
00:50:01,440 --> 00:50:05,440
Speaker 1: sure we understand everything that's going on in those particular states, um,

913
00:50:05,480 --> 00:50:08,600
Speaker 1: requires a lot of focus. And from an investor perspective,

914
00:50:08,640 --> 00:50:11,839
Speaker 1: the biggest issue for us where a public company at

915
00:50:11,840 --> 00:50:15,080
Speaker 1: New Lake, and the biggest issue for US is custody

916
00:50:15,120 --> 00:50:18,400
Speaker 1: because of the banking laws, and because of the federal classification,

917
00:50:18,880 --> 00:50:22,200
Speaker 1: many of the prime brokers and custody agents won't custody

918
00:50:22,200 --> 00:50:24,560
Speaker 1: the asset um and so that puts a chill on

919
00:50:24,600 --> 00:50:28,080
Speaker 1: the ability for institutional investors to invest in the space.

920
00:50:28,160 --> 00:50:32,319
Speaker 1: So how do you deal with that? And um, are

921
00:50:32,360 --> 00:50:35,280
Speaker 1: you you know, banding together with others in the industry

922
00:50:35,280 --> 00:50:40,279
Speaker 1: to send real funded lobbyists to Washington, d c. To

923
00:50:40,440 --> 00:50:43,560
Speaker 1: buy us some legislation. So the drama going on right

924
00:50:43,560 --> 00:50:46,319
Speaker 1: now in Washington is all around the Safe Banking Bill.

925
00:50:46,680 --> 00:50:49,120
Speaker 1: This is legislation that has passed the House a couple

926
00:50:49,160 --> 00:50:51,919
Speaker 1: of times and continuously stalls in the Senate. And so yes,

927
00:50:52,160 --> 00:50:55,080
Speaker 1: there is a significant industry push to get the Safe

928
00:50:55,080 --> 00:50:58,400
Speaker 1: Banking Bill passed so that we could ease the burden

929
00:50:58,480 --> 00:51:01,759
Speaker 1: upon operators but also hopefully open up the ability for

930
00:51:01,840 --> 00:51:05,200
Speaker 1: banks to custody um those that are public and custody

931
00:51:05,239 --> 00:51:07,560
Speaker 1: investments in the stuff. So how do you handicap that?

932
00:51:07,640 --> 00:51:11,440
Speaker 1: I mean, is it six chance that it passes? Um?

933
00:51:11,480 --> 00:51:13,759
Speaker 1: You know, we've got a lame duck Congress where it

934
00:51:13,760 --> 00:51:17,560
Speaker 1: could possibly go through, But it looks like time is

935
00:51:17,640 --> 00:51:20,960
Speaker 1: ticking away. It certainly is. I'm an optimist By nature.

936
00:51:21,239 --> 00:51:23,319
Speaker 1: But I'm a pessimist on safe being able to bank

937
00:51:23,719 --> 00:51:26,000
Speaker 1: to pass in the lame duck. I just don't think

938
00:51:26,040 --> 00:51:30,440
Speaker 1: that this is an important, important enough topic UM in

939
00:51:30,480 --> 00:51:33,200
Speaker 1: the Senate for enough Senators to be able to get

940
00:51:33,239 --> 00:51:35,520
Speaker 1: this across the finish line. I hope it passes. It

941
00:51:35,520 --> 00:51:38,520
Speaker 1: would be terrific for the industry. UM, I'm just not

942
00:51:38,640 --> 00:51:40,960
Speaker 1: optimistic it will. So where are we in terms of

943
00:51:41,000 --> 00:51:44,000
Speaker 1: the number of states that have legalized of what's next

944
00:51:44,120 --> 00:51:47,120
Speaker 1: up in terms of maybe some more states of note, Yeah,

945
00:51:47,160 --> 00:51:49,920
Speaker 1: this is fascinating. Break it down into three segments. There

946
00:51:49,920 --> 00:51:52,719
Speaker 1: are the states that don't have any real legalized program.

947
00:51:52,760 --> 00:51:55,439
Speaker 1: Those are small, roughly handful of states don't have any

948
00:51:55,480 --> 00:51:59,040
Speaker 1: medical or recreational segment. Two would be the medical states,

949
00:51:59,080 --> 00:52:01,840
Speaker 1: those are buying large red states at this point in time.

950
00:52:02,040 --> 00:52:05,239
Speaker 1: And the first category, which is the recreational states, which

951
00:52:05,320 --> 00:52:09,200
Speaker 1: now number around twenty r I think New York, New Jersey, Connecticut,

952
00:52:09,239 --> 00:52:11,920
Speaker 1: a lot of the East Coast states including California and Colorado,

953
00:52:12,320 --> 00:52:14,680
Speaker 1: and so all of the recreational states tend to be

954
00:52:14,800 --> 00:52:17,719
Speaker 1: more democratic leaning. So the easy stuff has happened, But

955
00:52:17,760 --> 00:52:19,680
Speaker 1: we're pretty excited about what we're seeing in the red

956
00:52:19,719 --> 00:52:22,839
Speaker 1: states to convert medical markets to recreational So what are

957
00:52:22,880 --> 00:52:25,839
Speaker 1: your facilities primarily in those blue states where you can

958
00:52:25,880 --> 00:52:29,759
Speaker 1: get on the recreational it's a mixture. In fact, we've

959
00:52:29,760 --> 00:52:32,880
Speaker 1: got a property and two properties in Missouri with great tenants,

960
00:52:33,080 --> 00:52:35,840
Speaker 1: and Missouri at the ballot box on November eight recently

961
00:52:35,840 --> 00:52:38,680
Speaker 1: approved converting that medical market to an adult use market.

962
00:52:38,719 --> 00:52:41,919
Speaker 1: So again that's a red state that UM just within

963
00:52:41,920 --> 00:52:46,240
Speaker 1: the last month or two approved converting to a recreational market.

964
00:52:46,360 --> 00:52:48,600
Speaker 1: And do you I mean as a recreational business better

965
00:52:48,640 --> 00:52:51,920
Speaker 1: for you. I can imagine a medical grow up is

966
00:52:52,360 --> 00:52:54,640
Speaker 1: a little bit different than a recreation I'll grow up

967
00:52:54,680 --> 00:52:58,759
Speaker 1: because they've got to get things exactly right with the content. Yeah.

968
00:52:58,960 --> 00:53:01,439
Speaker 1: Like like all things cannabis, it comes back to the state.

969
00:53:01,480 --> 00:53:03,399
Speaker 1: As you've heard me say a couple of times, there

970
00:53:03,400 --> 00:53:07,000
Speaker 1: are some recreational states that are not very good states

971
00:53:07,280 --> 00:53:11,040
Speaker 1: from our perspective for for the operator. Too much competition,

972
00:53:11,560 --> 00:53:15,920
Speaker 1: pricing compression, significant pricing compression, like a California or like

973
00:53:16,040 --> 00:53:19,440
Speaker 1: a Michigan. UM. But the stare are some controlled states

974
00:53:19,480 --> 00:53:22,799
Speaker 1: like uh, like a Pennsylvania or a Massachusetts where the

975
00:53:22,840 --> 00:53:25,240
Speaker 1: licenses are more limited. And that's where we like to focus.

976
00:53:25,400 --> 00:53:29,000
Speaker 1: It's a better operating environment for the operator. Um better

977
00:53:29,080 --> 00:53:32,239
Speaker 1: origins and better cash flow means better credit quality because again,

978
00:53:32,239 --> 00:53:34,279
Speaker 1: as a reap, it's good to do deals, but we

979
00:53:34,320 --> 00:53:36,040
Speaker 1: need to be able to collect rent. How do you

980
00:53:36,320 --> 00:53:38,760
Speaker 1: where do you get your I see your publicly traded companies.

981
00:53:38,760 --> 00:53:41,960
Speaker 1: You have some publicly available equity and LCP is the

982
00:53:42,000 --> 00:53:45,080
Speaker 1: ticker New Lake Capital Partners. Yes, and how about on

983
00:53:45,120 --> 00:53:48,200
Speaker 1: the debt side, how do you access debt capital? We

984
00:53:48,320 --> 00:53:51,280
Speaker 1: recently announced that we closed on a ninety million dollar

985
00:53:51,280 --> 00:53:55,200
Speaker 1: credit facility with a couple and a few national banks UM,

986
00:53:55,320 --> 00:53:57,400
Speaker 1: and so that's where we can go to source capital

987
00:53:57,480 --> 00:53:59,920
Speaker 1: right now. Obviously, we can issue capital. We I p

988
00:54:00,000 --> 00:54:03,560
Speaker 1: owed in auguste and raised a hundred million dollars. We've

989
00:54:03,600 --> 00:54:06,920
Speaker 1: deployed that capital with the ninety million dollar credit facility

990
00:54:06,920 --> 00:54:09,360
Speaker 1: and some generate internally generate cash, we have about a

991
00:54:09,400 --> 00:54:11,719
Speaker 1: hundred million dollars to put to work, which we think

992
00:54:11,760 --> 00:54:13,960
Speaker 1: will serve us well for the next six to twelve months,

993
00:54:14,080 --> 00:54:16,640
Speaker 1: and then we'll look to evaluate if we raise more debt.

994
00:54:16,680 --> 00:54:19,640
Speaker 1: We're unlevered today and so you know it's very unusual

995
00:54:19,680 --> 00:54:23,359
Speaker 1: to have a read that's unlevered um like we are today,

996
00:54:23,400 --> 00:54:25,120
Speaker 1: so we have a lot of runway to add some

997
00:54:25,160 --> 00:54:27,880
Speaker 1: debt capacity. One of the next states, UM to go.

998
00:54:27,960 --> 00:54:29,719
Speaker 1: I mean, do you like to try and find a

999
00:54:29,760 --> 00:54:34,400
Speaker 1: property in a state just before it switches to legal um. Again,

1000
00:54:34,400 --> 00:54:37,120
Speaker 1: that's very state specific. Certainly, when we made our investments

1001
00:54:37,120 --> 00:54:39,799
Speaker 1: in Missouri, we were optimistic that it would pass and

1002
00:54:39,840 --> 00:54:42,520
Speaker 1: we spend a lot of time analyzing that legal construct

1003
00:54:42,880 --> 00:54:46,239
Speaker 1: ten Jack that yes, thank you for that, UM. But

1004
00:54:46,360 --> 00:54:48,719
Speaker 1: we also look to a lot of the states that

1005
00:54:48,760 --> 00:54:51,120
Speaker 1: are very, very large, that are fledgling, and maybe you

1006
00:54:51,120 --> 00:54:53,200
Speaker 1: could find a good operator in those states. I'll give

1007
00:54:53,200 --> 00:54:55,640
Speaker 1: you an example. Georgia would be an example as a

1008
00:54:55,680 --> 00:54:57,840
Speaker 1: state that we think has a bright future. Of Texas

1009
00:54:57,880 --> 00:55:00,200
Speaker 1: as a state that will have a bright future. User

1010
00:55:00,200 --> 00:55:02,920
Speaker 1: states where the market is really really small today. UM.

1011
00:55:02,920 --> 00:55:05,600
Speaker 1: We're also looking at Connecticut. Connecticut is expected to go

1012
00:55:05,719 --> 00:55:08,160
Speaker 1: recreation with their first sales in the next month or two,

1013
00:55:08,480 --> 00:55:11,239
Speaker 1: and there's a lot of opportunity with companies getting into

1014
00:55:11,239 --> 00:55:13,600
Speaker 1: that state and building up all right, great stuff. Really

1015
00:55:13,600 --> 00:55:17,080
Speaker 1: appreciate your stopping by Anthony Conniglio. He's the CEO of

1016
00:55:17,120 --> 00:55:19,600
Speaker 1: New Lake Capital Partners that is a reet in the

1017
00:55:19,600 --> 00:55:22,759
Speaker 1: facility side of the cannabis business as we find out

1018
00:55:22,800 --> 00:55:25,640
Speaker 1: more and more about this business that continues to grow

1019
00:55:25,680 --> 00:55:33,279
Speaker 1: across the US. Thanks for listening to the Bloomberg Markets podcast.

1020
00:55:33,680 --> 00:55:36,880
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts

1021
00:55:37,000 --> 00:55:40,919
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm

1022
00:55:40,960 --> 00:55:45,160
Speaker 1: on Twitter at Matt Miller. P On Fall Sweeney I'm

1023
00:55:45,160 --> 00:55:47,799
Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can

1024
00:55:47,840 --> 00:55:50,040
Speaker 1: always catch us worldwide at Bloomberg Radio.