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Speaker 2: So this is about either Lily, it is buying another
Speaker 2: company called hang On, let me get my notes.
Speaker 3: Thank you.
Speaker 2: This is why I love Paul Morphic parent. It's going
Speaker 2: to help your gi track, which everybody really needs. Let's
Speaker 2: be honest. Sam Zelli, Bloomberg Intelligence, Director of Research for
Speaker 2: Global Industries and Senior Pharmaceuticals, joins us from London.
Speaker 3: Hey Sam, what is Morphic? Do we like this deal?
Speaker 4: What are your thoughts?
Speaker 5: Yeah, so, Alex, thanks for having me back on it's
Speaker 5: been a little while. So this deal is about adding
Speaker 5: to their immunology franchise. Of course, everybody knows Lily for
Speaker 5: the endless thing headlines that are related to GLP ones
Speaker 5: and obesity and cancer. Today we have apparently ten cancers
Speaker 5: that are not cured, but risk is reduced with those
Speaker 5: types of drugs. But the reality is there's a lot
Speaker 5: more to this company before the GLP one business ballooned
Speaker 5: with regards to obesity, and one of the areas there
Speaker 5: in is immunology or otherwise known as immunology and inflammation
Speaker 5: or inflammation and immunology I and I and I and
Speaker 5: I is also a very attractive area because these are
Speaker 5: areas where we all have issues with arthritissoriasis, Crow's disease,
Speaker 5: if elamentary bowel disease.
Speaker 6: All these things are stuff that we have been suffering
Speaker 6: from for years.
Speaker 5: Obesity probably increases their risk too, so and there've been
Speaker 5: a very active company in that space with three drugs
Speaker 5: four drugs on the market already and they've been doing
Speaker 5: deals adding to it.
Speaker 7: SAM three point two billion dollars is not a big
Speaker 7: big deal for Lily, But is this typical of what
Speaker 7: we see at a big pharma companies in terms of
Speaker 7: if they see a therapeutic or just a piece of
Speaker 7: science as interesting to them, it's better to buy than
Speaker 7: develop internally.
Speaker 5: Yeah, So I would say they're around thirty to forty
Speaker 5: percent of pharmaceutical companies. Pipelines comes from this type of interaction,
Speaker 5: either at.
Speaker 6: An M and a deal I e.
Speaker 5: Bought the whole thing lock Stock and Barrel, or I
Speaker 5: license a specific product in this case.
Speaker 6: So I'm looking at Lily. We have a database.
Speaker 5: Of course, we have the MAA function in the Bloomberg terminal,
Speaker 5: but we've taken that and dissected a little bit more
Speaker 5: and added on the bi dashboard and detail about the
Speaker 5: types of drugs that are in.
Speaker 6: Those deals, and MNA is one of that.
Speaker 5: So I'm looking at twelve deals that Lily has done
Speaker 5: in the past five years, and I'd say that only
Speaker 5: like three or three of them are in the cardiovascular
Speaker 5: metabolic space. I either diabetes OBS, the rest are oncology CNS,
Speaker 5: and of course two are inflammation and immunology, and this
Speaker 5: is one of them. So now it becomes three, right,
Speaker 5: because that's not quite updated yet. And they're all in
Speaker 5: the sort of range eight billion for locksow one point
Speaker 5: one eight hundred and eighty million, two point four billion.
Speaker 5: So we've got a good bunch of deals, and they're
Speaker 5: all in that level which the Farmer company is called
Speaker 5: Bolton Acquisitions, and that's their sweet spot of M and A.
Speaker 4: See Alex.
Speaker 7: Everybody thinks that the smart people in bi pharma healthcare
Speaker 7: researcher guys people like Sam Fazelliot.
Speaker 4: That's not really the case. It's this young lady named.
Speaker 7: Grace and she's in Princeton and she maintains a world
Speaker 7: class model that tracks the millions of drugs that are
Speaker 7: in various stages of you know, reviews around the world,
Speaker 7: and clients put huge value on that work that she does,
Speaker 7: and that allows Sam and some of the other anamals
Speaker 7: to go out there and talk about these drugs.
Speaker 4: So Grace a great job.
Speaker 2: As always love Paul shout out that was awesome, so true.
Speaker 5: And he needs to This particular shout out goes to
Speaker 5: another great lady who's called Mila, Mila Bankoskaya, who's also
Speaker 5: part of our team.
Speaker 6: But nobody matches up to Grace.
Speaker 5: Of course, Grace has been in the Catalyst calendar that
Speaker 5: year and I don't match up to her.
Speaker 6: Nobody matches up to her.
Speaker 2: Okay, So based on that, what are some of the
Speaker 2: cool things that are out there, like cool drugs that
Speaker 2: we should be talking about. We never get to talk
Speaker 2: to you when there's no crisis, really, so what are
Speaker 2: some cool things out there?
Speaker 6: Yeah?
Speaker 5: So obviously the OBC space, there's there's breakneck evolution of
Speaker 5: different modalities being combined trying to make it much more
Speaker 5: focused on fat, preserving some muscle, making it work better
Speaker 5: for the liver part.
Speaker 6: Of the disease.
Speaker 5: And that's all going to come to fruition over the
Speaker 5: next two or three years. On colog years, I've been
Speaker 5: saying all along is seeing amazing developments.
Speaker 6: You know, we're developing.
Speaker 5: These disease hubs, as you might know, and just for
Speaker 5: lung cancer, we're developing almost thirteen different subgroupings of lung cancer.
Speaker 5: And it just shows you where treatment of these diseases
Speaker 5: have got to. And the same applies in inflammation and imminology,
Speaker 5: and in that space we're dealing with technology that is
Speaker 5: really cool. This particular acquisition and the one that they
Speaker 5: recently did its almost exactly a year ago, called dice therapeutics,
Speaker 5: are all about dealing with proteins that are very intractable
Speaker 5: to inhibition and normal drug discovery, and these two companies
Speaker 5: have developed oral drugs small molecules that interact with these targets.
Speaker 6: And the beauty of this, of course is do you
Speaker 6: remember all that worry.
Speaker 5: That when people were having about what happens with the
Speaker 5: IRA inflation reduction acts and its impact on small molecule development,
Speaker 5: because it specifically puts them out, saying, after nine years,
Speaker 5: irrespective of your patterns, we're.
Speaker 6: Going to come back in and negotiate prices.
Speaker 5: Well, here's Lily who's done two deals that are specifically
Speaker 5: small molecule deals. When the biology is interesting, when the
Speaker 5: drugs are interesting, I think the deals happen. Now, whether
Speaker 5: these will get to market or not, who knows. I mean,
Speaker 5: farmer isn't infallible when it comes to these deals. But
Speaker 5: this shows that when they have they see something interesting,
Speaker 5: they go for it, irrespective of small or big.
Speaker 7: Molecule sam People for better or worse, are living longer
Speaker 7: and longer lives, which makes every family it seems like
Speaker 7: it's dealing with some type of dementia, Alzheimer's and things
Speaker 7: like that. How does the farmer, the farmer industry, healthcare adustry,
Speaker 7: how do they think about that? How are they kind
Speaker 7: of getting ready for that?
Speaker 6: Yeah, so you know the beginnings. Can I just give
Speaker 6: you an example.
Speaker 5: An analogue for Alzheimer's disease is obesity. We've been at
Speaker 5: this obesity game for a year, ten years, fifteen years,
Speaker 5: twenty years. I remember one of the old drugs from
Speaker 5: Rush Pharmaceuticals that are that's still around called ally that
Speaker 5: reduced the amount of fat.
Speaker 6: You absorb as you eat.
Speaker 5: Of course, what does that create fat left in your
Speaker 5: stomach lubrication. I'm going to leave the rest of it
Speaker 5: your imagination, right, So, that was the idea that was
Speaker 5: going to be helping you lose weight, maybe three percent,
Speaker 5: four percent, five percent. And then it took a lot
Speaker 5: of time before somebody started discovering these things saying, oh gosh,
Speaker 5: we can get to fifteen twenty percent. If you're a
Speaker 5: two hundred and fifty pounds person, we can help you
Speaker 5: drop seventy pounds. That happened in obesity, I'm hopeful that
Speaker 5: the same happens in dementia and neurodegeneratic diseases.
Speaker 6: It's very much tougher.
Speaker 5: I mean, all biology is tough, but CNS is tougher
Speaker 5: because it's a black box. It's a disease that evolves
Speaker 5: over twenty years, thirty years, and by the time you
Speaker 5: your disease manifests, you've already had a lot of organic
Speaker 5: change to your brain. But there is the first products
Speaker 5: that are approved. With the first products approved, you do
Speaker 5: get a bit more incentive to develop the next one.
Speaker 5: Go better, Go another mile further, and that's where I'm
Speaker 5: hoping at the very least in Alzheimer's disease and Parkinson's
Speaker 5: we're going to be going there.
Speaker 6: Other diseases are a bit tougher. Still, do you.
Speaker 2: Think that we'll ever have a preventative drug for Alzheimer's
Speaker 2: or just a treatment.
Speaker 5: To delay well, the I think it's very tough to
Speaker 5: prevent because how do you know who's going to get it?
Speaker 5: That means you and I especially I, because you guys
Speaker 5: are much longer than me, younger than me. Paul is
Speaker 5: he's just coming out of school, right, So my thing
Speaker 5: is that at what point do you start taking these drugs?
Speaker 8: Right?
Speaker 6: How do I do that? So that becomes difficult? Who
Speaker 6: pays for it?
Speaker 5: And if they're preventative, how long do I have to
Speaker 5: take them before I know? I mean, how do you
Speaker 5: even do a trial there? So don't forget though, Now
Speaker 5: that's disease. You can go into the early mild dementia
Speaker 5: and try and slow down the disease, but step at
Speaker 5: the time, at a step at the time, and nothink
Speaker 5: will we'll have something, might take a decade or two,
Speaker 5: but hopefully will have them.
Speaker 7: And Sam again, are these is this something if we
Speaker 7: see announcements on this front will likely be, you know,
Speaker 7: the big form of companies that you cover making and
Speaker 7: acquisitions of some of these smaller companies that are just
Speaker 7: focused on this one particular thing.
Speaker 5: Probably, and don't forget that also the large farmer companies.
Speaker 5: I mean then the two drugs that we have on
Speaker 5: the market today that can be and I forget what
Speaker 5: Dunana maps caol has just been approved, so I can't
Speaker 5: remember it a branded name.
Speaker 6: I'm sorry, Iliy.
Speaker 5: They both came from within either the farmer company or
Speaker 5: the a Japanese partner. However, in the case of the
Speaker 5: can be that came from a Scandinavian biotech, So both
Speaker 5: of these are true.
Speaker 6: The question is who's got the firepower.
Speaker 5: The money to spend the billions required to develop these
Speaker 5: and that's often ends up being the farmer companies.
Speaker 6: It's the large farmer companies.
Speaker 2: Do you feel like, no matter who gets to be
Speaker 2: president in here in November, here in the US, are
Speaker 2: we going to see massive drug pushback? Like I realized,
Speaker 2: it's probably a campaign tactic. But President Biden coming out
Speaker 2: last week and talking about how all the things were
Speaker 2: so expensive and really blaming like Novo Nordos. He wrote
Speaker 2: an app that with Bernie Sanders in USA today, what
Speaker 2: do you.
Speaker 5: Think I think this is a hot potato, which hand
Speaker 5: them are going to? I think it is a I
Speaker 5: don't think they are aiming their guns at the right
Speaker 5: group of companies. I think you could always argue that
Speaker 5: drug pricing because it's the easiest thing. It's a drug
Speaker 5: that people have to buy, and it says Lily on
Speaker 5: it right, is difficult for some people.
Speaker 6: A lot of people can't afford them.
Speaker 5: But there's a lot of middlemen that need to be
Speaker 5: looked at to where the where the increasing cost comes from.
Speaker 5: And you know what, the best way to entice people
Speaker 5: to develop obcity drugs, to bring down the price, to
Speaker 5: bring up competition is to allow the market to do
Speaker 5: his job. The market will do it already. These things
Speaker 5: are not costing ten one thousand dollars a month. We're
Speaker 5: more closer to five hundred net. Let the market to
Speaker 5: the job, bring more drugs. On the volume goes up,
Speaker 5: you can drop the price.
Speaker 4: Hey, Sam, thanks so much for joining us.
Speaker 7: As always expansive discussion, like we like to have a
Speaker 7: san Fazelo in all things. A big farmer in biotech Sanfazeli.
Speaker 7: He's he runs up Bloomberg Intelligencing over there in your force,
Speaker 7: and his day job is being one of the top
Speaker 7: healthcare parmer analysts in the city of London. Eli Lilly
Speaker 7: back at a bus. I've said it before, I'll say
Speaker 7: it again in my next life. I'm coming back. I
Speaker 7: think as a healthcare m and a banker, because everywhere
Speaker 7: every Monday, it seems thinking to wake up and boom,
Speaker 7: there you go, Illely buying us biotech Morphic three point
Speaker 7: two billion dollars.
Speaker 4: This is Bloomberg.
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Speaker 7: A lot of folks are getting concerned about this marketplace.
Speaker 7: Is equity market's been higher, there's evaluation concerns. There's headwinds
Speaker 7: about when or if this FED is going to cut rates.
Speaker 7: There's concentration risk is probably ranks pretty highly with me.
Speaker 7: Let's check in with a professional and see how they're
Speaker 7: thinking about it. Shelby McFadden Investment analyst, Motley Full Asset
Speaker 7: Management joining us from Zoom via Zoom from Alexandria, Virginia. Shelby,
Speaker 7: how concerned are you about this marketplace? How do you
Speaker 7: feel about this market? Are you confident that this equity
Speaker 7: market can continue to move higher?
Speaker 4: Where are you these days?
Speaker 1: You know?
Speaker 3: I would say this sort of confidence and concern is
Speaker 3: sort of a two pronged issue, right. So the confidence,
Speaker 3: who can say, right, we all kind of wish we
Speaker 3: had a crystal ball, especially as active managers. But the
Speaker 3: sort of confidence, I would say, is rooted in the
Speaker 3: fact that this is the precise sort of market where
Speaker 3: you can sort of find those opportunities. They may not
Speaker 3: necessarily pay the dividend right away, and that sort of
Speaker 3: goes to the issue of concentration that you had mentioned
Speaker 3: in the introduction, where you know, to look for those winners,
Speaker 3: those diamonds in the rough that may not be sort
Speaker 3: of paying off right now, But when that return of
Speaker 3: breath comes back, that's when we sort of get to
Speaker 3: see the fruits of our labor. And that is right
Speaker 3: there the crux of active management so valuations they're rich.
Speaker 3: That can be concerning. It's never exciting to have to
Speaker 3: sit and wait for that golden opportunity that we've been
Speaker 3: watching out for, but it absolutely pays off from the end,
Speaker 3: and that's why we stick to that high quality strategy.
Speaker 2: Do you care about breath? Do you care about the
Speaker 2: seventeen hundred stats that I read today about how you
Speaker 2: know the top seven stocks reported x amount of the
Speaker 2: gain in the S and P so far this year?
Speaker 2: I say it glibly because I feel like we've been
Speaker 2: talking about this for like nine months, So how much
Speaker 2: do you care about that now?
Speaker 3: I would say that breath does still matter to us,
Speaker 3: and I even say that given the fact that we
Speaker 3: have what are considered more concentrated portfolio. So you may
Speaker 3: be thinking, how does that even make sense? It makes
Speaker 3: sense in the concept rather in the realm that compared
Speaker 3: to the SM compared to what we consider the broad market,
Speaker 3: we are more concerned with finding opportunities that are not
Speaker 3: necessarily just all concentrated in one space. So when we
Speaker 3: do look at our active ETFs, they're not always going
Speaker 3: to reflect the main stocks that are moving the market.
Speaker 3: There are going to be some more sort of niche
Speaker 3: concepts in there that underlie some of the main processes
Speaker 3: that keep our economy going. So when we look from
Speaker 3: a portfolio management perspective, breath is increasingly important to us.
Speaker 7: Shelby, how do you think about earning season. We're going
Speaker 7: to kick it off Thursday with some of the airlines
Speaker 7: and then of course the big banks kicking off on Friday.
Speaker 4: What are you looking for this quarter?
Speaker 3: I would say, going into early earning season, you know,
Speaker 3: we're not expecting anything to earth shaking from the big
Speaker 3: banks for the most part, they've already gotten all of
Speaker 3: their shakeouts going. We might hear about a little bit
Speaker 3: of M and A activity, and you know, mainly following
Speaker 3: the regionals after the big banks. As we go further
Speaker 3: into earning season, I think one of the key things
Speaker 3: that we're looking out for is going to be back
Speaker 3: office spend, those sorts of budgets on any sort of
Speaker 3: CRM technology advertising, all of those sorts of software platforms
Speaker 3: that made a lot of revenue in the past couple
Speaker 3: of years. So we're looking to see where corporate budgets
Speaker 3: are going, but also in the retail space, how is
Speaker 3: the consumer holding up? The summer is a little bit
Speaker 3: more dry in terms of promotional activity around holidays. You've
Speaker 3: got Memorial Day for Labor Day, so there's a lot
Speaker 3: of those really big chunks of weeks where there's not
Speaker 3: as much promotional activity, and that's where we're going to
Speaker 3: get a truer sense of how the consumer is doing.
Speaker 3: So we'll be having a good lookout for that sort
Speaker 3: of easter to end of Q two.
Speaker 2: Chunk for the back of the office spend are you
Speaker 2: watching specifically, like if that budget grows or just that
Speaker 2: budget stays versus shrinks, or like where it's going to
Speaker 2: actually be going and how the money is diverted.
Speaker 3: It's a sort of all of the above, right, because
Speaker 3: that's all going to tell us a different story. So
Speaker 3: if it is shrinking, that starts to tell us that
Speaker 3: potentially companies are in a spot where they're so concerned
Speaker 3: about their coffers that they are now less concerned about efficiency.
Speaker 3: We think that's a little bit less likely because when
Speaker 3: you've got shareholders, you tend to need to focus on efficiency.
Speaker 3: So we're sort of looking for that stable to growing
Speaker 3: for a number of companies there, their own sort of
Speaker 3: projections are depending on a return to growth. So a
Speaker 3: return of company's desires to have more efficiency. So I
Speaker 3: would if I had to put money on it, I
Speaker 3: would probably say, we're expecting to see on the whole
Speaker 3: plot to growth in that area.
Speaker 4: Shelby.
Speaker 7: Earlier today, we were speaking with the head economists at
Speaker 7: MasterCard to get a sense of kind of how the consumer.
Speaker 3: Is behave shell Meyer.
Speaker 9: Yes, love her, excellent, excellent, We love you too, and
Speaker 9: she she's saying, just the data that they see, the
Speaker 9: consumer is still spending and the consumer looks pretty healthy.
Speaker 4: How do you think about it?
Speaker 3: You know, it's interesting because some of the recent pieces
Speaker 3: that I've read have pointed to the fact that there's
Speaker 3: a big cohort of millennials and young or older rather
Speaker 3: gen z that are coming into the stage of their
Speaker 3: lives where they have to purchase certain necessities. The amount
Speaker 3: of money in life that they spend is just growing
Speaker 3: because it has to. And then when you put on
Speaker 3: top of that the sort of economy that we're in
Speaker 3: where things are more inflationary. We know that we're fighting that.
Speaker 3: Right now, you switsh those two things together and we
Speaker 3: get a picture that looks like a very healthy consumer
Speaker 3: on the top. You know, the superficial most level, and
Speaker 3: as we sort of drill down, we see a sort
Speaker 3: of obligation to spend when we look at the fact
Speaker 3: that retailers of things like shoes, shoes are broadly pretty
Speaker 3: weak right now, and so we think about the fact
Speaker 3: that people are not wanting to pick up those little
Speaker 3: things in the store, those little articles of clothing, you know,
Speaker 3: extra pairs of socks, things like that that you used
Speaker 3: to kind of use to comfort yourself. You drill down
Speaker 3: to that you realize a lot of the spending is
Speaker 3: not so discretionary and healthy in the sense that money
Speaker 3: is being spent, but the discretionary spend not as much.
Speaker 3: So I think we have to really drill down to
Speaker 3: see what the consumer is feeling. How do you play it?
Speaker 3: I think the way to play it is one as
Speaker 3: you meant, there's a way to play it with MasterCard,
Speaker 3: which is they're a toll taker, so you go ahead
Speaker 3: and just frankly take advantage of the fact that cars
Speaker 3: are going to be swite. Another way to play it
Speaker 3: is taking the premium end of the consumer. So when
Speaker 3: we think about companies like Costco, they're offering value, but
Speaker 3: they're offering really sticky value in the way that they're
Speaker 3: a little bit higher on the income schedule. Another way
Speaker 3: to play it is Amazon. You look at the fact
Speaker 3: that they are retail, They've got a strong retail base,
Speaker 3: and then they've also got their aws space, so they
Speaker 3: really rooted themselves pretty deeply inconvenience for both corporate and consumer.
Speaker 3: So I think it really comes down to one companies
Speaker 3: that have deeply rooted themselves across the cycle, and two
Speaker 3: premiumization and three toll takers.
Speaker 4: So I see you you've got cost go there.
Speaker 7: So that kind of to me says you have, you know,
Speaker 7: kind of a fairly constructive call on the consumer. What's
Speaker 7: the feeling behind your costco name?
Speaker 3: Well, one of the things we love about the costco
Speaker 3: business and why it's in TFC and a number of
Speaker 3: our portfolios, is that they really generate a sort of
Speaker 3: annuity type structure. Their primary earnings are really or their
Speaker 3: most stable earnings I should say, are coming from those memberships,
Speaker 3: and they've really figured out a perfect timing on those
Speaker 3: membership increases in such a way that it's almost gentle
Speaker 3: to the customer. They've established a relationship and so when
Speaker 3: it comes people aren't really you know, running for the fences,
Speaker 3: and then on top of that, they've got the best
Speaker 3: cost position in the industry. So we have actually seen
Speaker 3: over the past eighteen months or so when we listen
Speaker 3: in for the calls, they lower prices when they can.
Speaker 3: And I'll even say anecdotally, when I go to Costco,
Speaker 3: I have pointed out to my husband had said, that's
Speaker 3: lower than it was.
Speaker 6: A quarter ago.
Speaker 3: So they are holding up on those promises and being
Speaker 3: able to do that is really really important, and being
Speaker 3: able to sure the consumer who can afford that executive
Speaker 3: membership further solidifies their place in their peer market.
Speaker 2: You also like Amazon, but that's less of a retail play, right,
Speaker 2: that's more of a cloud play.
Speaker 3: A bit, yes, so we do know that they've sort
Speaker 3: of solidified that position in retail, but the cloud play
Speaker 3: is right now in terms of valuation, of course, what's
Speaker 3: really most sensitive for them. And that's also where at
Speaker 3: this point our thesis is sort of tipping towards. So
Speaker 3: the additional growth that we are hinging any sort of
Speaker 3: investment on for Amazon comes from the cloud space rather
Speaker 3: than retail, and so that's what we're predominantly looking out for.
Speaker 3: We're looking for operational leverage there as well as continuing
Speaker 3: to solidify their reputation and continue with innovation. So, you know,
Speaker 3: retail is always going to be a little bit wobbly
Speaker 3: in terms of, you know, any sort of regulations that
Speaker 3: are coming things like that, But on the whole, it
Speaker 3: does seem like the balance between what they do for
Speaker 3: the consumer and their competitive position seems to be sort
Speaker 3: of leveling out. So really the thesis hinges on aws.
Speaker 7: Hey Shelby, who is a typical investor or customer of
Speaker 7: Motley Full Asset Management.
Speaker 3: Yeah, I would say a typical investor would be someone
Speaker 3: that is looking to access high growth names in of
Speaker 3: course you know, global but primarily US markets, but looking
Speaker 3: to do so by stepping outside of the concentration of
Speaker 3: the US market. So even though the portfolio itself and
Speaker 3: an average portfolio for US is going to be fifteen
Speaker 3: to thirty stocks, it's someone who's looking to beat the
Speaker 3: market over the long term, over ten to fifteen years,
Speaker 3: go ahead and build that wealth by making choices outside
Speaker 3: of the sort of status quo. And that doesn't necessarily
Speaker 3: mean that we're just choosing really really niche sectors that
Speaker 3: no one's heard of, but we are looking for those
Speaker 3: high quality companies that are going to focus on cash
Speaker 3: flow and be a bit more resilient to the cycle
Speaker 3: and therefore deliver focusing really on upside capture especially.
Speaker 2: So then to that point, do you not care who
Speaker 2: wins the White House in November? That could definitely influence policy,
Speaker 2: particularly when it comes to climate and environmental laws. But
Speaker 2: in general, are you able to look through that or
Speaker 2: how do you manage it?
Speaker 3: I would say in the short term, it's not something
Speaker 3: that we're integrating into our strategy because it's not something
Speaker 3: that we have control over. In the long term view,
Speaker 3: we understand that there could be some sweeping changes, but
Speaker 3: we do also know that that legislature will take some time.
Speaker 3: So we keep our monitors out. We have our various
Speaker 3: lists and various contacts that we are in touch with,
Speaker 3: calls that we will tune into so that we can
Speaker 3: be on top of things to adjust our models appropriately.
Speaker 3: So I would say that in terms of our strategy,
Speaker 3: we have to sort of be a bit agnostic.
Speaker 6: I can't.
Speaker 3: I don't know that I would say we can care
Speaker 3: because that may do a disservice to our investors to
Speaker 3: say it has to be this for us to succeed.
Speaker 3: We are determined to make sure that we adjust accordingly
Speaker 3: with any regulations or policies that change to make sure
Speaker 3: that we can serve the active investor as best we can.
Speaker 4: All Right, Shelby, thank you so much for joining us.
Speaker 4: Shelby McFadden.
Speaker 7: She's an investment analyst at Motley fool Asset Management. Joining
Speaker 7: us from Alexandria, Virginia.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: This Monday, though, we're going to go outside the Bloomberg
Speaker 2: Intelligence world and take a look at what's going on
Speaker 2: with ETFs. Joining us now is Sean O'Hara, president of Pacer.
Speaker 2: ETFs has forty five billion dollars assets under management. He
Speaker 2: joins us from Pennsylvania. So Sean, we love this topic,
Speaker 2: like who's buying, what, where are the flows? Where are
Speaker 2: they coming out of We just ended the second quarter,
Speaker 2: we're kind of kicking off the back half of the year.
Speaker 2: What's the setup.
Speaker 10: Well, it's the same setup as it's been for the
Speaker 10: last six months to eighteen months, and that is that
Speaker 10: you know, essentially five to seven stocks are really responsible
Speaker 10: for all of the performance. So I just read an
Speaker 10: article this morning that said I Shares had one of
Speaker 10: its biggest NetFlow periods over six months, and I think
Speaker 10: that's mostly driven by people buying the outright the S
Speaker 10: and P five hundred. Obviously, the cues continue to take
Speaker 10: in a lot of money. The one word of caution
Speaker 10: I would say though, is that you know, mostly those
Speaker 10: ETFs to track those broad indexes are meant to be
Speaker 10: diversified portfolios, and what's going on today is the opposite
Speaker 10: of diversification. So although the ETF industry continues to take
Speaker 10: in almost record flows across the board, in these big
Speaker 10: broad market market cap weighted ETFs, I think investors need
Speaker 10: to be a little bit wary of the exposures. You have,
Speaker 10: forty something percent of the cues is like seven names,
Speaker 10: and so as it goes up, we could just as
Speaker 10: easily see things come down as people start to view
Speaker 10: some of these big tech names and these big AI
Speaker 10: players as more closely or more close to fairly valued.
Speaker 7: So how concerned are you about this market and the
Speaker 7: concentration in this market.
Speaker 10: Well, you know, I'm a believer in AI. I think
Speaker 10: you don't have to be all in one way or
Speaker 10: the other. I think, you know, perhaps from my perspective,
Speaker 10: I'd rather be a little more balanced. I have exposure
Speaker 10: to the AI trade in various different forms, but I
Speaker 10: also have some lower PE, high higher quality stuff that
Speaker 10: you know is kicking off nice dividends, and so you
Speaker 10: can sort of wait and see what happens, and you're
Speaker 10: less susceptible to a big drawdown. If let's say the
Speaker 10: FED decides not to cut, or we get to the
Speaker 10: third quarter earnings reports and those numbers have now been
Speaker 10: adjusted high and higher, and somebody stubs their toe. You
Speaker 10: could see a big reaction to that. So one of
Speaker 10: the things that I think makes sense for people for
Speaker 10: part of their portfolio is to lower the overall portfolios
Speaker 10: PE before the market ultimately does it to them, which
Speaker 10: it will at some point. You know, the SMP is
Speaker 10: still trading at twenty two to twenty four times earnings,
Speaker 10: in the nasty is over thirty five times earnings, and
Speaker 10: those numbers, although they make us all feel happy as
Speaker 10: we're riding them up, eventually the market is sort of
Speaker 10: going to revert back to that mean, And those numbers
Speaker 10: are somewhere between twenty and thirty percent above the historical
Speaker 10: long term averages. So I think it just makes sense
Speaker 10: maybe to be a little bit more barbelled as opposed
Speaker 10: to all in on one trade.
Speaker 2: So does that imply then that if you're going to
Speaker 2: barbel at two, do you need to barbel it across
Speaker 2: as a class? As we've seen a lot of money
Speaker 2: contine to flow into bond ETFs, what are you noticing there?
Speaker 10: Well, barbelling, for example, you could just as easily buy
Speaker 10: the equal weighted version of the S and P five
Speaker 10: hundred next to the cap weighted and that sort of
Speaker 10: would give you that barbelle right, You'd have more exposure
Speaker 10: to the bottom half of the S and P five
Speaker 10: hundred and less exposure to the top half. And there's
Speaker 10: an equal weighted version of the queues as well. In
Speaker 10: fixed income land, I think people are mostly pretty satisfied
Speaker 10: just sort of sitting in short term treasuries at five percent.
Speaker 10: There's been a lot of money going into those types
Speaker 10: of vehicles. I don't think on the fixed income side
Speaker 10: that we're doing sort of what we've been doing on
Speaker 10: the equity side, and that is we're underpricing risk. I mean,
Speaker 10: spreads are fairly narrow on a historic basis, and so
Speaker 10: you're not getting paid what you might normally get paid
Speaker 10: to go out the credit scale, maybe to you know,
Speaker 10: high grade corporates or to high yield and so I
Speaker 10: think if you can just collect five percent in the
Speaker 10: short run for that money that you maybe ultimately will deploy,
Speaker 10: makes a little bit of sense. We're seeing some flows
Speaker 10: into international and global. I think that's really just a
Speaker 10: rebalancing trade. The last five years have been dominated so
Speaker 10: much by large cap us that I think investors' portfolios
Speaker 10: have gotten out of balance a little bit. And so
Speaker 10: I think people are starting to push more money into
Speaker 10: global and international. And then we've seen quite a bit
Speaker 10: of money go into small cap for the same reason
Speaker 10: that and that is that you know, if because of
Speaker 10: this massive performance advantage of large cap us versus everything else,
Speaker 10: portfolios have gotten out of whack, and I think people
Speaker 10: are wise to sort of rebalance their portfolios that are
Speaker 10: more in line with what a longer term objective might dictate.
Speaker 4: Twenty twenty four is an election year. How concerned. Are
Speaker 4: you about that?
Speaker 7: From a I guess a stability or volatility perspective for
Speaker 7: markets and maybe how to position yourself.
Speaker 10: Well, you have two different agendas, right You have one
Speaker 10: agenda that you know is going to be more government
Speaker 10: and higher taxes theoretically, and you have another agenda that's
Speaker 10: sort of less regulatory oversight and lower taxes. And I
Speaker 10: think the market will be volatile between now an election day,
Speaker 10: as you know, these candidate surge and fall in the polling,
Speaker 10: and so it'll be interesting to see. I don't think
Speaker 10: that now is the time to start really putting on
Speaker 10: those election type vets into a portfolio, because there's so
Speaker 10: much time between now and November. But I think as
Speaker 10: we get closer to November and people start to really
Speaker 10: develop a clear view of who they believe will ultimately
Speaker 10: win the election, I think investors will start to position
Speaker 10: portfolios accordingly.
Speaker 2: What's the one where we let you go, what's like
Speaker 2: a risk that no one's talking about or not a
Speaker 2: lot of people are talking about that you see in
Speaker 2: the market right now?
Speaker 10: Well, I said what I think is the biggest risk
Speaker 10: in the market, and that is that we're highly, highly
Speaker 10: concentrated and this happens from time to time. It just
Speaker 10: never lasts. We don't know how long this will last,
Speaker 10: but it's not going to last for five years. It's
Speaker 10: been almost two years worth of this massive imbalance in
Speaker 10: terms of the weight in portfolios across the broad market indexes.
Speaker 10: And I think that's one risk that Look, we're human beings, right,
Speaker 10: and so we get ephic, and when things are going
Speaker 10: well and we're making money on investments, we sort of
Speaker 10: ignore some of the potential pitfalls. And so I think
Speaker 10: the big risk is that we don't get as an
Speaker 10: aggressive fed approach, and that we get into the third
Speaker 10: quarter in the fourth quarter as those tech names are
Speaker 10: sort of running uphill right. Their earnings have been growing,
Speaker 10: but their forecasted earnings are supposed to be higher, and
Speaker 10: if somewhere along the way and by the way, it's
Speaker 10: much more difficult for them to make those increase earnings
Speaker 10: numbers because of the massive size of these companies. That
Speaker 10: could potentially be a risk that people are ignoring right now.
Speaker 7: All right, Sean, thank you so much for joining us.
Speaker 7: Really appreciated. Sean O'Hara, president of pacer ETFs. They're out
Speaker 7: there on the main line of Philadelphia, Malvern. Beautiful part
Speaker 7: of the world out there, right across the road from
Speaker 7: the Home Vanguard Complex. All that kind of index money
Speaker 7: is all out. There's smart folks down there in great
Speaker 7: Affhilly area.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa play Bloomberg eleven thirty Alex.
Speaker 7: You know me, There's very few places in the world
Speaker 7: that would get me away from my beloved Jersey Shore. True,
Speaker 7: but the low country of South Carolina is definitely in
Speaker 7: the running. It is beautiful down there, nice people, beautiful
Speaker 7: part of the world. And that's our next guest is
Speaker 7: Jared Dillion. He's the founder of The Daily Dirt NP.
Speaker 7: Jared main ways to go on this thing. I think
Speaker 7: for a lot of investors as they look at these
Speaker 7: stock markets, they look at their four to one k
Speaker 7: they're doing pretty well. But boy, there's a lot of
Speaker 7: headwines out there, and for me, maybe the biggest one
Speaker 7: is the concentration risk in this market. It gets me
Speaker 7: nervous when I pull out those Magnificent seven that my
Speaker 7: market's not doing a whole lot.
Speaker 4: How do you think about that?
Speaker 11: Yeah, I think about it the same way as you
Speaker 11: do if you look at Actually, you know, funny you mentioned.
Speaker 11: I was on Twitter a couple of weeks ago and
Speaker 11: somebody had posted a paragraph from an interview with Stan Druckenmiller,
Speaker 11: and this was about the crash of nineteen eighty seven,
Speaker 11: and Stan Druckenmiller had cited a couple of reasons why
Speaker 11: he got bearish before the crash of nineteen eighty seven,
Speaker 11: and one of them was the constant creation at the
Speaker 11: time was the fact that the market was being led
Speaker 11: by just a handful of names. And if you go
Speaker 11: back in history at all these major tops, that usually
Speaker 11: co occurs with the top is that you do have
Speaker 11: extreme concentration, and we're certainly having that today.
Speaker 2: So what does that then mean? I mean, just because
Speaker 2: history doesn't always repeat at rhymes that whole thing, which
Speaker 2: like I also roll my eyes at that too, And
Speaker 2: what that looks like. No one's going to doubt that
Speaker 2: we're in some kind of bubble, but no one knows
Speaker 2: what the bubble winds up looking like and how it bursts,
Speaker 2: and that puts people in a really big buying if
Speaker 2: they're trying to make money.
Speaker 11: Well, the way I look at this is that the
Speaker 11: cost to protect a portfolio that looks like the S
Speaker 11: and P five hundred is the lowest that it has
Speaker 11: been since twenty nineteen. If you go back towards the
Speaker 11: end of twenty nineteen, options became very cheap, and then
Speaker 11: you had the pandemic in twenty twenty and they exploded
Speaker 11: in value. You this is the cheapest that protection has
Speaker 11: been in the last five years. So you know, a
Speaker 11: day that I think about in particular is February twenty seventh,
Speaker 11: two thousand and seven. That was the day that China
Speaker 11: raised reserve requirements and the ABX dropped by ten points
Speaker 11: and the VICS exploded from ten to twenty in a day.
Speaker 11: Usually when you transition out of low ball regimes into
Speaker 11: a high ball regimes, it is a very violent move.
Speaker 7: So, Jared, we're going to be starting earnings at the
Speaker 7: end of this week. We have the some of the
Speaker 7: airlines and then the big banks on Friday. Is this
Speaker 7: earning season a catalyst or a potential risk for this market?
Speaker 6: Do you think.
Speaker 11: I don't think it's much of a risk. You know,
Speaker 11: it's it's funny we've gotten we've gotten a slowdown in
Speaker 11: the economic data that has happened for the last month
Speaker 11: or so. Really, the only strong piece of economic data
Speaker 11: we've gotten in a while was last month's payroll report,
Speaker 11: which came in at two hundred and seventy thousand, which
Speaker 11: then was revised lower this month. J Powell last week
Speaker 11: was commenting on how he's seeing disinflationary forces. I think
Speaker 11: earnings are a lagging indicator, and I think that the
Speaker 11: economy is slowing down, but it's I don't think it's
Speaker 11: going to show up in this quarter's earnings.
Speaker 2: Do you think that for investors it's going to matter
Speaker 2: more how when the Fed starts cutting, what the results
Speaker 2: of the presidential election are, or what earnings, particularly from
Speaker 2: the AI names deliver this quarter.
Speaker 11: I think the biggest factor out of the three that
Speaker 11: you mentioned is the presidential election. I mean that's going
Speaker 11: to determine the path for monetary policy going forward in
Speaker 11: twenty twenty five, in twenty twenty six, and if if
Speaker 11: Trump gets re elected in November, then I think what
Speaker 11: you're going to see is probably a rate cut cycle
Speaker 11: that lasts throughout twenty twenty five. You might see one
Speaker 11: hundred to one hundred and fifty basis points of great cuts.
Speaker 11: I think if Biden gets re elected, I think it's
Speaker 11: more of the same. I think it's more of a
Speaker 11: higher for longer trade. So yeah, for sure, the election
Speaker 11: is going to be the biggest catalyst there.
Speaker 4: Jared, what do you again?
Speaker 7: We've talked about the concentration risk here and if I
Speaker 7: don't know, I guess somebody wants to be brave enough
Speaker 7: to try to break away from that and look to
Speaker 7: other areas of the market. Do you see opportunities in
Speaker 7: other areas of the market, whether it be a valuation
Speaker 7: entry point or whether it's just some parts of the
Speaker 7: market are just kind of mispriced.
Speaker 1: Well, I think I think the.
Speaker 11: Biggest opportunity is some kind of reversion in the style
Speaker 11: box trade. If you know, we've had large cap growth
Speaker 11: outperforming small cap value for the last twenty years, and
Speaker 11: you know, I started my career in nineteen ninety nine
Speaker 11: and that was also a time with large growth was
Speaker 11: outperforming small cap value. But when small cap value turned
Speaker 11: around two thousand and one or two thousand and two.
Speaker 11: That was a really big move and it made the
Speaker 11: careers of a lot of investors. So I think if
Speaker 11: you can time that right, if you can catch that,
Speaker 11: then that's a really big opportunity.
Speaker 2: I mean, I feel like, yes, how like what are
Speaker 2: the sign I mean, mister, are both of you guys
Speaker 2: who've been in the market for a while, like, how
Speaker 2: do you time that? Because I feel like everyone's waiting
Speaker 2: for small caps to have their moment, slash value to
Speaker 2: have their moment, and that moment.
Speaker 3: Is like fleeting.
Speaker 2: It's like, here's a week and then see you later.
Speaker 11: Yeah, that's exactly what it's been. You've had these You've
Speaker 11: had these sort of blips along the way where value
Speaker 11: outperforms and then it goes back to getting killed again.
Speaker 11: I don't really have the answer to that, although you know,
Speaker 11: I will say that the average stock in the S
Speaker 11: and P five hundred is not super expensive. The median
Speaker 11: stock in the SMP is about in eighteen pe, which
Speaker 11: you know is pretty reasonable over time. It's really a
Speaker 11: handful of stocks on the high end that have gotten
Speaker 11: really expensive.
Speaker 7: So Jared Alex and I were just discussing a story
Speaker 7: in the Bloomberg Turmoil about how younger people are beginning
Speaker 7: to trade at a much younger age. So, for example,
Speaker 7: gen Z started investing when they're nineteen on average, that's
Speaker 7: according to Charles Schwab. That compares to thirty two for
Speaker 7: gen X and thirty five for baby boomers. So people
Speaker 7: are getting into the market a lot younger. Are you
Speaker 7: seeing that in your business, in your newsletter business and
Speaker 7: your commentaries.
Speaker 5: Well, it's funny.
Speaker 11: Because in my spare time, I'm also an adjunct professor
Speaker 11: at Coastal Carolina University, and I teach these young people,
Speaker 11: and I would say that jibes with my experience. I've
Speaker 11: you know, in my last class, I would say about
Speaker 11: forty to fifty percent of the class had brokerage accounts.
Speaker 11: They had no idea what they were doing. I mean,
Speaker 11: they were just screwing around, but they but they and
Speaker 11: a lot of them tradeto by the way. Yeah, so
Speaker 11: it's a mixture of crypto and in video and stuff
Speaker 11: like that. But yeah, they are starting at a younger age.
Speaker 2: Is this like a good thing or a bad thing?
Speaker 2: We were debating this earlier, Like, I mean, it's a
Speaker 2: good way to lose money, but isn't it also good
Speaker 2: to kind of make money and be and take control
Speaker 2: of your finances. Like, what do you think about that?
Speaker 11: Well, I think it's a I think it's a good thing.
Speaker 11: But I don't think anybody's taking control over their finances.
Speaker 11: I think what they're doing is learning. I think they're
Speaker 11: learning how to invest, and they're making mistakes in early
Speaker 11: age when they can afford to make mistakes. If they
Speaker 11: lose eight hundred bucks on video or some crypto token,
Speaker 11: there really are no consequences. The consequences are if you
Speaker 11: start investing later and you're investing real money and you
Speaker 11: make mistakes, then then that's that's hard to reverse.
Speaker 4: All right, Jared, thanks so much for joining us. Jared Dillon.
Speaker 7: He's the founder of the Daily Dirt nep, a financial
Speaker 7: column and or money letter that goes out.
Speaker 4: It's been doing that for quite some time.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: We take it to Bloomberg n EF that research is
Speaker 2: also awesome. They cover commodities, power, transport, industry, buildings, AG
Speaker 2: sectors as well as cost cutting technologies and sustainability issues
Speaker 2: and the goal is to help business, finance, and governments
Speaker 2: navigate the change as we move towards a green future.
Speaker 2: Speaking of let's go to green. Martin Tangler is head
Speaker 2: of green Hydrogen over at Bloomberg and EF and he
Speaker 2: joins us. Now, Martin, I'm just asking for Paul, what's
Speaker 2: green hydrogen?
Speaker 8: So just to give you a correction, I'm the head
Speaker 8: of hydrogen research, not just green hydrogen.
Speaker 2: Okay, good to know.
Speaker 6: We like that.
Speaker 8: Green hydrogen is one way of producing hydrogen via electrolysis.
Speaker 8: So that's splitting water into oxygen and hydrogen using green electricity.
Speaker 8: So that's what green hydroen is.
Speaker 7: So explain to us where this technology green hydrogen? Where
Speaker 7: are we in terms of the development of this technology.
Speaker 6: Yeah, so this is a really.
Speaker 8: It's an old technology. At its core, we've used it
Speaker 8: for more than one hundred years. We've done electrolysis of
Speaker 8: breaking up water molecules into hydrogen oxygen. What's new though,
Speaker 8: is that this time we want to use green electricity
Speaker 8: in order to reduce the emissions from the production of
Speaker 8: what's called gray hydrogen. Gray hydrogen being hydrogen made from
Speaker 8: fossil fuels without any capturing of the resulting CO two,
Speaker 8: which is how we might make the vast majority of
Speaker 8: the hydrogen today, and many countries, many governments have been
Speaker 8: incentive devising the production of green and sometimes also so
Speaker 8: called blue hydrogen that's gray with carbon capture and storage
Speaker 8: attached to that, so that we can decarbonize a deproduction
Speaker 8: of the gray hydrogen that we already produced today one
Speaker 8: hundred million tons. It's a lot of hydrogen we make,
Speaker 8: and also to use hydrogen in some other sectors to
Speaker 8: decarbonize things like steel production, for example, or shipping where
Speaker 8: it's really hard to do electrification.
Speaker 2: Why do we want hydrogen? It is very expensive to split.
Speaker 2: It is more expensive if you are going to split
Speaker 2: a hydrogen and oxygen using renewable energy.
Speaker 3: So why do we want it?
Speaker 2: What's the end product? So awesome?
Speaker 8: Yeah, So we want it, as I've said, in order
Speaker 8: to reduce emissions. That's the only reason honestly. Today, making
Speaker 8: green hydrogen, as you said, Alex, is more expensive than
Speaker 8: making gray hydrogen, and in turn making gray hydrogen is
Speaker 8: more expensive than using fossil fuels because hydrogen is made
Speaker 8: gray hydrogen is made from those fossil fuels. So we
Speaker 8: only use hydrogen in sectors where it is required for
Speaker 8: the chemical properties of it today, So that's production of fertilizers,
Speaker 8: things like ammonia NH three. You cannot make NH three
Speaker 8: without putting H in there.
Speaker 6: Right.
Speaker 8: Same goes for all refining. You need hydrogen and for
Speaker 8: future as I've said, we're going to need it for
Speaker 8: sectors that are going to be really hard to decarbonize
Speaker 8: using electrification. For example, it's really hard to run a
Speaker 8: ship that runs across half the world on batteries. You
Speaker 8: just don't have enough batteries. Batteries are too heavy, they
Speaker 8: take up too much space. We need something denser, and
Speaker 8: one way we could do that, for example, is to
Speaker 8: combine hydrogen and nitrogen into ammonia, or hydrogen carbon and
Speaker 8: oxygen into methanol and use those to power the ship
Speaker 8: instead as a more energy dense fuel.
Speaker 7: Martin Which countries or which parts of the world are
Speaker 7: leading in this green hydrogen move.
Speaker 8: This is a really hard one to say. If you
Speaker 8: asked people five years ago, they tell you, it's totally
Speaker 8: Japan that's leading. Japan is the first country that had
Speaker 8: a hydrogen strategy way back when in twenty fourteen, when
Speaker 8: nobody has even thought about hygien to the extent that
Speaker 8: many people are today. But now you could say the
Speaker 8: real leaders are the US and European Union and its
Speaker 8: member states. In the US, as you're probably aware, the
Speaker 8: Inflation Reduction Act was passed back in August twenty twenty two.
Speaker 8: There were some pretty generous tax credits for the production
Speaker 8: of green and blue hydrogen, and we're seeing especially the
Speaker 8: blue hygiene projects in the US now coming through because
Speaker 8: the economics could actually work out on green. It's a
Speaker 8: bit more difficult because companies are still waiting on guidance
Speaker 8: as to the rules under which they could claim these credits.
Speaker 8: In Europe, there's a lot of excitement. Europe is the
Speaker 8: one place since probably the most sincere desire to decarbonize
Speaker 8: and the strongest policies to do that. We have carbon prices,
Speaker 8: mandates to use hydrogen. There's very few other places where
Speaker 8: you have actual mandates that require use of hydrogen for
Speaker 8: for example, shipping or aviation. That's what we're seeing in Europe.
Speaker 2: They have a question that I keep hearing about is
Speaker 2: you know, the IRA, for example, did a great job
Speaker 2: in incentivizing production of it, helping bring down the cost.
Speaker 2: But where it looks like things are falling short is
Speaker 2: the demand side. So despite those subsidies, the buyer and
Speaker 2: the seller costs for hydrogen is still very far apart,
Speaker 2: and that's creating a difficulty in securing that demand. Where
Speaker 2: is that gap right now? And how do you see
Speaker 2: that evolving?
Speaker 8: Yeah, that's actually the key issue, Alex. You really hit
Speaker 8: the nail on the head. There's so many projects out there,
Speaker 8: and we have a database for that at BNF, So
Speaker 8: for those of you who have access, definitely do come
Speaker 8: and check it out if you haven't already. We have
Speaker 8: a database of production projects. So that's all the projects
Speaker 8: or all the companies with all their projects that would
Speaker 8: want to produce hydrogen. And we're talking tens of millions
Speaker 8: of tons, sixty million tons by twenty thirty, So that's
Speaker 8: compared to hundred that we already make today with the
Speaker 8: gray hygroens. It's a vast, vast increase that we could
Speaker 8: see if only there was actually someone who would kindly
Speaker 8: want to buy that green hydrogen or that blue hydrogen,
Speaker 8: and why don't they want to buy it because it's expensive,
Speaker 8: like I've said at the beginning, and what's needed to
Speaker 8: bridge that well. First, ideally the cost of renewables should
Speaker 8: come down, and they will be coming down, as benf
Speaker 8: keeps writing, that's great, because the key input into the
Speaker 8: production of green hydrogen is the cost of green electricity.
Speaker 8: Then we need to see the cost of electrolyzers, so
Speaker 8: that's the machines that split the water into oxygen and hydrogen.
Speaker 8: They'd need to get cheaper. That's going to happen, but
Speaker 8: so far we've seen the opposite. The costs have actually
Speaker 8: gone up. The supply chain issues with hydrogen with electrolyizers
Speaker 8: have been quite challenging. And finally we need to see policy,
Speaker 8: and we see a lot of policy on the supply side.
Speaker 8: So the US, for example, forty five v forty five
Speaker 8: q credits for the from the IRA for the production
Speaker 8: of green or blue hydrogen. That's great, but that's probably
Speaker 8: not enough, maybe enough for blue, but not enough for
Speaker 8: green to want somebody to buy it. So that's where
Speaker 8: the European Union comes in with things like quote as
Speaker 8: mandates that a certain sector must use a certain amount
Speaker 8: of hydrogen by a certain date. And that's a pretty
Speaker 8: crude way of enforcing hydrogen demand. And there's many, many
Speaker 8: pros and cons of that, but that's one way to
Speaker 8: get it done.
Speaker 4: All right, Martin, thank you so much for joining us.
Speaker 7: Martin Tangler, head of hydrogen Research at DNEPP.
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