Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Jill Wisenthal and I'm Tracy Alloway.
Speaker 1: Tracy, obviously, one of the best things of doing odd
Speaker 1: loss is just all the random fun things that we learned.
Speaker 1: I mean that you know, that we learn over the
Speaker 1: course of the year, or that we learn in any
Speaker 1: given episode.
Speaker 3: Yeah.
Speaker 2: I don't know of many other jobs where you can
Speaker 2: just kind of look into anything that you think might
Speaker 2: be interesting, but this is one of them. And on
Speaker 2: all thloughts, I suppose we do have a reputation nowadays
Speaker 2: for covering a wide variety of topics, so things that
Speaker 2: are going on right now, things that may have happened
Speaker 2: in the past, And it means that we learn a
Speaker 2: lot about a wide variety of.
Speaker 1: Subjects, and some of them, of course are you know,
Speaker 1: we learn about them, and the you know, what we
Speaker 1: learned is interesting but also sort of straightforward. So for example,
Speaker 1: you know, I'm not surprised that an increase in steel costs,
Speaker 1: although that's interesting, makes it harder to build offshore wind
Speaker 1: but I was surprised to learn, for example, that the
Speaker 1: Jones Act, perpetual oddlote topic was also an impediment also interesting,
Speaker 1: also very surprising in a way I was definitely not anticipating.
Speaker 2: Yes, it all comes back to the Jones Act. This
Speaker 2: is sort of a classic all thoughts thing where we
Speaker 2: discover one aspect of the world or the economy, and
Speaker 2: then we keep discovering it in other conversations. It keeps
Speaker 2: coming up. But it is the end of the year
Speaker 2: and we are both in a reflective mood, and so
Speaker 2: we've gone over all the conversations that we had in
Speaker 2: twenty twenty three and we've picked out our top ten
Speaker 2: most interesting and most surprising things that we have learned
Speaker 2: this year.
Speaker 3: Yep.
Speaker 1: So let's kick it straight off with an episode with
Speaker 1: a Josh Younger on the origin of euro dollars.
Speaker 4: So the first the definition of the euro dollar being
Speaker 4: deployed off sure is fairly specific, and the question is
Speaker 4: when did that start, and we don't really know. We
Speaker 4: know roughly in the late forties to declassified CIA documents.
Speaker 4: After the war ended, the Russians were moving money around
Speaker 4: because they were worried about a subsequent land war in
Speaker 4: Europe and they didn't want their funds to be frozen.
Speaker 4: Never mind the weirdness of like a Soviet invasion where
Speaker 4: they need dollars. I'm not sure why that would be necessary,
Speaker 4: but they were uncomfortable leaving money in New York and
Speaker 4: so there were a handful.
Speaker 2: Title of this episode should be the Communist origins of
Speaker 2: euro dollars area.
Speaker 4: Yeah, and so there were a sanctions which which connects
Speaker 4: somewhat to today, and they moved their money from New
Speaker 4: York banks to a handful of banks to specifically in France, London,
Speaker 4: and Belgium, because the local regulations allowed those banks to
Speaker 4: issue non local currency deposits. Your local regular has to
Speaker 4: allow this in the first instance. And in Paris in particular,
Speaker 4: there was a bank called basically the Commercial Bank of
Speaker 4: Northern Europe. I'm not going to try to pronounce it
Speaker 4: in French, but it was called Bison. Bison was run
Speaker 4: by a notorious Communist sympathizer who had relationships in Moscow,
Speaker 4: and so they were comfortable with that particular bank, and
Speaker 4: they grew its assets from seven million dollars to two
Speaker 4: hundred million dollars over a few years. The first recorded
Speaker 4: use of those euro dollars was possibly, although it's hard
Speaker 4: to say, replacing the salaries of striking French coal miners
Speaker 4: forty eight. So there's some evidence of that, But that's
Speaker 4: not really a euro dollar in the definition that I
Speaker 4: just described, because it doesn't really have a use because
Speaker 4: I didn't say anything about the asset side of the equation.
Speaker 2: So where did the asset side come from? This is
Speaker 2: just going to be one of those episodes where we
Speaker 2: ask you, like, how did this happen?
Speaker 4: So it was tied basically to trade because trade was
Speaker 4: denominated in dollars, but when it's all Communist dollars, it
Speaker 4: has to be east west trades. So trade crossing the
Speaker 4: Iron Curtain, which was small because both the Russians and
Speaker 4: the Americans were not terribly comfortable with a large volume
Speaker 4: of trade, and the Russians in particular had a policy
Speaker 4: of self reliance, so they said, we don't want to
Speaker 4: need imports from the West to run our economy or
Speaker 4: a society. We don't know how big that was. It
Speaker 4: was actually, as of nineteen forty seven, illegal to talk
Speaker 4: about economic data in the Soviet Union. It was a
Speaker 4: lot passed. It said, this is like punishable by some
Speaker 4: extreme measure. Oh wow, So we don't actually know the
Speaker 4: volume of this trade, but there's some evidence that it
Speaker 4: was there, that it was funded in part by like
Speaker 4: trade finance was facilitated by BSEN to some extent. It's
Speaker 4: unclear when it started, but it's a very small market.
Speaker 2: The surprising communist origins of euro dollars, that's sort of
Speaker 2: not only a classic Old Blots topic, but a sort
Speaker 2: of classic line from one of our favorite guests, Josh Younger.
Speaker 1: Not that I'm thinking about it, were other Remember we
Speaker 1: learned that there was euro dollars gum?
Speaker 2: Oh yeah, yeah, I went looking for a foot well.
Speaker 2: I went on eBay to see if anyone was selling
Speaker 2: gum from the nineteen seventies with this packaging. I could
Speaker 2: not find it.
Speaker 1: But that was a great episode for many new and
Speaker 1: surprising things.
Speaker 2: Yes, now, speaking of new and surprising things, another thing
Speaker 2: we learned had to do with the sort of hidden
Speaker 2: connection within economies and how economies evolve. And we spoke
Speaker 2: to Ricardo Housman of the Center for International Developments Growth
Speaker 2: Lab at Harvard University, and we talked to him about
Speaker 2: how economies actually develop their complexity. He gave us a
Speaker 2: really unexpected example of how that works. Take a listen.
Speaker 3: A lot of increase in complexity in Japan and Korea
Speaker 3: did not happen because new companies were created to do
Speaker 3: more things, but because established companies, these chiballs in Korea,
Speaker 3: these k etsuos in Japan, divers fight internally into more things.
Speaker 3: So a company like Samson started in sugar trading, and
Speaker 3: you know now they are the largest producer of semiconductors
Speaker 3: and sgrams and TV screens and smartphones. That process of
Speaker 3: transformation happened inside the company, and it happened by adding
Speaker 3: capabilities to their capability. So for example, you'd say Finland
Speaker 3: is a country that had a lot of trees, and
Speaker 3: traditional development economists would have said, cut those trees and
Speaker 3: sell wood. And then they would say, no, don't sell wood.
Speaker 3: Make furniture with that wood, or make paper with that wood.
Speaker 3: Add value to your raw materials. But that's not where
Speaker 3: the story really went. It's sort of like Finland had
Speaker 3: a lot of trees, so they have to cut the trees.
Speaker 3: But to cut the trees, you need tools to cut trees.
Speaker 3: You need machines to cut trees. So they became good
Speaker 3: at tools and machines that cut wood, and from there
Speaker 3: they moved to tools and machines that cut because not
Speaker 3: everything is made out of wood. And from there they
Speaker 3: made they went to automated machines that cut, because cutting
Speaker 3: everything by hand can be either boring or imprecise. And
Speaker 3: then they said, you know, from automated machines that cut,
Speaker 3: they want to just automated machines. Why do we need
Speaker 3: to cut? There's more to life than just cutting, right,
Speaker 3: And then from automated machines they ended up in Nokia.
Speaker 3: So the process is a process of adding capabilities to
Speaker 3: their capabilities, because once you know how to do something,
Speaker 3: there is something in that cognitive vicinity that you could do.
Speaker 1: There's more to life than just cutting. It's got to
Speaker 1: be like a great it's true, right, I never thought
Speaker 1: about it, but it's definitely true. There's more to life
Speaker 1: than just cutting.
Speaker 2: Also, Ricardo's analogy of monkeys swinging from trees as an
Speaker 2: economic metaphor that lives, that imagery lives free in my
Speaker 2: head for all time.
Speaker 1: But yeah, that was a great conversation, and thinking about
Speaker 1: how economies actually develop in terms as opposed to how
Speaker 1: you might expect them to develop on paper was really great.
Speaker 1: All right, speaking of the sort of you know, I
Speaker 1: guess we're going to speak on the complexity theme for
Speaker 1: the moment. So with Ricardo, we talked about complexity in
Speaker 1: terms of it's good that countries get more complex with
Speaker 1: their economic development, but complexity it can also be bad
Speaker 1: in some respects. And one area is that sort of
Speaker 1: famously complex is any time we're dealing with government soft
Speaker 1: and so. On this episode we spoke with Jennifer Palka
Speaker 1: and Dave Guarino, who at longtime veterans working on government software.
Speaker 1: I think anyone who knows about government software government websites
Speaker 1: probably no feels intuitively that they're more frustrating than to say,
Speaker 1: you know, the website that you might use for a
Speaker 1: bank or buying an airline ticket or something like that.
Speaker 1: So we're going to hear the story of a software
Speaker 1: system that was so bad even the designer didn't believe
Speaker 1: or couldn't believe it wasn't working.
Speaker 5: When we were at California, State of California working on
Speaker 5: unemployment insurance, they were actually about to put out a
Speaker 5: Business System Modernization RFP. Actually I think about it to
Speaker 5: award it to a vendor, and I think it had
Speaker 5: seven six seven hundred requirements. We can check that, but
Speaker 5: it's in that's really a normal number of requirements, and
Speaker 5: so they do all these things that where you can
Speaker 5: check a box, but what they don't do is actually
Speaker 5: check that it works. So I mean, maybe I'll just
Speaker 5: tell a quick story from the book. And you know,
Speaker 5: there was famously this application for veterans' healthcare benefits at
Speaker 5: the VA that didn't work outside the building and they
Speaker 5: couldn't see it. So basically, somewhere in the specs it
Speaker 5: had that this form needed to work on a very
Speaker 5: specific and outdated combination of Internet Explorer and Adobe Reader.
Speaker 5: And the reason no one knew that it didn't work
Speaker 5: inside the building is that's how all the computers in
Speaker 5: there were set up. But if you were outside the
Speaker 5: building and had any other possible combination of those two
Speaker 5: pieces of software, it literally wouldn't load. And so they
Speaker 5: had very very few people applying for these benefits online,
Speaker 5: and you know, veterans were really, really, really frustrated, and
Speaker 5: it took a team going out there recording a veteran
Speaker 5: who had tried to do this dozens and dozens of times,
Speaker 5: bringing that video back and showing it to the Deputy
Speaker 5: secretary for them to be able to say, oh, okay,
Speaker 5: actually there is something to be fixed here. Okay, you know,
Speaker 5: you can go ahead and make a new form. But
Speaker 5: up to them, they said, sorry, it's fine, we're looking
Speaker 5: at the requirements. The requirements have been met. There's technically
Speaker 5: nothing wrong.
Speaker 2: That's amazing. It's also kind of crazy to think that
Speaker 2: people would have been looking at that and just been like, oh, well,
Speaker 2: I guess demand for veterans benefits is lower than we
Speaker 2: thought it would be. But actually it was a tech issue.
Speaker 5: I think what they said was demand for them doing
Speaker 5: it online is low. These veterans must not have access,
Speaker 5: which is absolutely not true, or they can't figure out
Speaker 5: the computer when in factive. Yeah, I mean the other
Speaker 5: telling them didn't figure out the software. They would tell them,
Speaker 5: And they told this guy Dominic, the veteran that they interviewed,
Speaker 5: they kept telling him it's user error. There's something wrong
Speaker 5: with you.
Speaker 2: That is still such a funny story. There are so
Speaker 2: many layers to it, so including the idea of people
Speaker 2: having to go out and shoot a video of a
Speaker 2: veteran trying to access this form and then bringing it
Speaker 2: back to someone who would watch it and be like, oh, okay,
Speaker 2: I see there is in fact a problem. But also
Speaker 2: that anecdote at the beginning about designing one piece of
Speaker 2: software for unemployment insurance with six thousand, seven hundred requirements, Like,
Speaker 2: how long does it take you to physically tick six thousand,
Speaker 2: seven hundred boxes? Is there an actual form where you
Speaker 2: have to go and like click every one of them?
Speaker 1: And how do you prove? Yeah, how do you prove
Speaker 1: that you did every single one? To the to the
Speaker 1: lawmakers that made that rule.
Speaker 2: Yeah, it sounds like, to your point, a very complex process. Say,
Speaker 2: this might be a little bit more simple, but I
Speaker 2: think it's generally accepted that in the world of commodities
Speaker 2: there is a fraud problem, and I think having lots
Speaker 2: of physical things that you're moving around poses an opportunity
Speaker 2: for criminals to take advantage of that process. We like
Speaker 2: to talk about financial fraud and crime on this podcast,
Speaker 2: and we saw a lot of instances recently of frauds
Speaker 2: happening in the commodity space, and specifically with one commodity
Speaker 2: in particular, and that is Nickel. So we wanted to
Speaker 2: know what is it about Nickel that makes it prone
Speaker 2: to fraud? And we brought on Anton Posner and Margo Brock,
Speaker 2: the CEO and president respectively of Mercury Group, and they
Speaker 2: came on and explained why there is so much financial
Speaker 2: crime tied to Nickel.
Speaker 1: It just to be clear on Nickel, and I think
Speaker 1: this is something Terry Duffy when we talk to him,
Speaker 1: he's like, there's something about nickel. It's that it's in bags, right,
Speaker 1: Like some metal is like stacked, you see it, and
Speaker 1: so everything What would be an ideal form of auditing.
Speaker 1: I can imagine like you open every bag, but like
Speaker 1: what is okay?
Speaker 6: Yeah, again, it becomes that randomized audit, that randomized sampling,
Speaker 6: and you do have to you have to look and
Speaker 6: you have to go in and say, let's you know,
Speaker 6: it's all stacked in the warehouse, let's break some down,
Speaker 6: let's pull it out, and let's just at a minimum
Speaker 6: open the top of the bags and look in.
Speaker 7: Also is going to say two Nichol is a much
Speaker 7: more higher value metal versus aluminum or zinc. So it's
Speaker 7: like counterfeiting. If you're going to counterfeit bills, you can
Speaker 7: probably counterfeit if taking the time to do it, you're
Speaker 7: going to be doing one hundred dollars bills, right, Rather
Speaker 7: than focusing on counterfeiting dollar bills, right, Nickel.
Speaker 6: So in bags high value, and there's really been two
Speaker 6: different types of fraud on it, and one is the
Speaker 6: Indian one that traffic Wor is involved in is during shipment,
Speaker 6: so by the time it lands where it's headed, the
Speaker 6: last containers are already afloat and everything, all the documents
Speaker 6: are presented and everyone's been paid, so they haven't had
Speaker 6: the opportunity to open doors on that very first container
Speaker 6: that's shipped to even look and find their fraud.
Speaker 2: So that fraud you have to.
Speaker 6: Really concentrate on combating at load. And then there's the
Speaker 6: fraud of the rocks that were in the nickel bags,
Speaker 6: and that was in warehouse for years and years, but
Speaker 6: again nobody, nobody opened up the bags there. So there's
Speaker 6: you know, like Anton said, it's a system as old
Speaker 6: as time, and there's so many points within that system
Speaker 6: where fraud can happen and theft happens, and the opportunities
Speaker 6: present themselves.
Speaker 1: To your point, Tracy introducing that, you know, I think
Speaker 1: one thing with commodities too, and something we talked about
Speaker 1: with Javier Blass, like it really does feel like the
Speaker 1: Last Wild West part. Yes, fine, it I mean I
Speaker 1: guess crypto kind of too. Also also a place where
Speaker 1: there's been some fraud I've heard, but any you know,
Speaker 1: it feels like, you know, a rock is a rock
Speaker 1: in a way that in a way that a digital
Speaker 1: claim to a company's cash flow is just much more
Speaker 1: easier to track.
Speaker 2: There's something almost pleasingly old fashioned about someone like taking
Speaker 2: a bag of rocks and painting them and then putting
Speaker 2: them back in the bag and tricking auditors that way.
Speaker 2: It's kind of it's satisfying in its simplicity, and.
Speaker 1: It still works in twenty twenty three because people still
Speaker 1: need bags of nickel and they can't check every bag.
Speaker 1: All right, let's pivot a little bit. So obviously, you know,
Speaker 1: we talk about finance of all different swords. We talk
Speaker 1: about real estate a lot on the show. One area
Speaker 1: that we haven't we've started talking about it more, but
Speaker 1: we want to do more on is insurance and just
Speaker 1: the explosion that a lot of real estate developers have
Speaker 1: seen in their insurance costs over the last year. Often
Speaker 1: a lot of it related to climate, but other factors
Speaker 1: also the law. Take a listen to David O'Reilly. He's
Speaker 1: the CEO of Howard Hughes, major real estate developer, with
Speaker 1: some shocking statistics about the price of insurance.
Speaker 8: Rates have taken off over the past year at ways
Speaker 8: that we've never experienced, and I've never seen in twenty years,
Speaker 8: and I'm told there's a lot of reasons for that. Yeah,
Speaker 8: the reinsurance market is drying up. People are reluctant to
Speaker 8: take risk, have been more and more natural disasters, making
Speaker 8: it harder and harder to price insurance appropriately, and there's
Speaker 8: just fewer and fewer risk takers on the other side
Speaker 8: of the table to meet the demand of folks that
Speaker 8: need insurance on this side of the table.
Speaker 1: When you say rates are taking off like the way
Speaker 1: you've never seen, can you like put some numbers behind
Speaker 1: it in terms of just like how different, how crazy
Speaker 1: is the market or the movement the rate of change
Speaker 1: in the market in twenty twenty three versus a period
Speaker 1: that it might be.
Speaker 8: Most risk managers would define insurance markets as either hardening
Speaker 8: or softening okay, worse or getting better.
Speaker 9: Okay.
Speaker 8: Every year they always tell me it's hardening, okay, and
Speaker 8: I say, one of these days it's going to soften,
Speaker 8: and sometimes it'll soften, but they always manage my expectations
Speaker 8: by saying it's hardening. Okay, So this year they said
Speaker 8: it's hardening, and I kind of rolled my eyes and
Speaker 8: shrugged and said, okay, here we go again, and we'll suck.
Speaker 8: You know, we'll take it. We'll take a three to
Speaker 8: five percent increase.
Speaker 9: Yeah, it'll be all right.
Speaker 8: And we came back with twenty five percent. Oh wait,
Speaker 8: maybe it's forty percent. And then some of our peers
Speaker 8: and some of those that I've talked to in the
Speaker 8: industry have seen a fifty percent And it's just there's
Speaker 8: not as much availability as there used to be, and
Speaker 8: then therefore certain pieces of the insurance stack gets more
Speaker 8: expensive for a company like Howard to use. With six
Speaker 8: billion of total insurable value. We do what's called the
Speaker 8: shared and layer program like most people do, which is
Speaker 8: think of a CMBs loan or an ABS loan, where
Speaker 8: you take the whole loan and you slice it by risk,
Speaker 8: and then you have this tetris like grid and you
Speaker 8: fill it up with insurers. Those that want to take
Speaker 8: the most risk at the top get the highest rate,
Speaker 8: and then all of a sudden, at the end of
Speaker 8: the year, when you go to get your policy there's
Speaker 8: a big gap in the middle, or you can't fill
Speaker 8: a couple of layers, and then the cost of filling
Speaker 8: those incremental layers are so pricey that it impacts the
Speaker 8: pricing of every layer around it. And it's just that
Speaker 8: there's not enough supply to meet the demand.
Speaker 2: So the insurance conversation is interesting on so many levels.
Speaker 2: So not only are rates increasing, so the costs are
Speaker 2: being passed on, making real estate more expensive for normal people,
Speaker 2: but there's also the pricing of financial risk and event risk,
Speaker 2: So how do you actually put a number on something
Speaker 2: like a flood or a hurricane. That is always fascinating.
Speaker 2: There's the distribution of risk, which David was talking about,
Speaker 2: the idea that okay, you can sell some tranches of risk.
Speaker 2: There's certain demand for like the lowest level of risk
Speaker 2: or the highest level of risk, but sometimes the in
Speaker 2: between spaces are becoming more difficult. And then there's also
Speaker 2: this big question which I think Joe, you and I
Speaker 2: have spoken about this before, but in a world where
Speaker 2: one off events are happening more often, where stuff in
Speaker 2: general is just perceived to be riskier than it was previously,
Speaker 2: the insurance companies kind of become the arbiters of accepted
Speaker 2: behavior and normality. They're the ones kind of putting standards
Speaker 2: in place by deciding whether or not they're going to
Speaker 2: ensure those particular practices. And I just that completely fascinating, totally.
Speaker 3: You know.
Speaker 1: The other thing that's interesting is we always talk about
Speaker 1: financial conditions and financial conditions tightening, loosening and higher rates
Speaker 1: and higher spreads, et cetera. But you never really hear
Speaker 1: insurance rates folded into the financial conditions convo. But you
Speaker 1: just have to assume that when insurance prices for certain
Speaker 1: projects jump thirty forty fifty percent in a year, they're
Speaker 1: just going to be many things that don't pencil out.
Speaker 1: So it feels to me like that's probably a massive
Speaker 1: tightening at least in twenty twenty three, or parts of
Speaker 1: twenty twenty three and twenty twenty two, tightening of financial
Speaker 1: conditions that perhaps wasn't captured in a lot of the metrics.
Speaker 2: Yeah, that's a good point, and Bloomberg does have a
Speaker 2: financial conditions index, so maybe we should suggest that they
Speaker 2: incorporate it somehow. Anyway, Speaking of costs going up in
Speaker 2: real estate, another surprising thing that happened this year at
Speaker 2: least to many people who perhaps didn't listen to all
Speaker 2: blots in twenty twenty two is that the housing market
Speaker 2: was pretty resilient. There are lots of people out there
Speaker 2: who thought that mortgage rates going up spectacularly meant that
Speaker 2: housing prices would inevitably have to go down. But as
Speaker 2: our guest Jim Egan, a strategist at Morgan Stanley, has
Speaker 2: pointed out repeatedly, that is not necessarily the case. Instead,
Speaker 2: we've seen, you know, basically a freeze in the market.
Speaker 2: Jim in general is full of interesting facts and figures
Speaker 2: and stats about US real estate, and whenever he comes
Speaker 2: on the show, he sort of throws out all these
Speaker 2: really interesting numbers. One of the most interesting numbers he
Speaker 2: told us this year has to do with the number
Speaker 2: of houses currently owned by baby boomers.
Speaker 10: I think the reason that we haven't been as focused
Speaker 10: on older age cohorts as an industry is because historically
Speaker 10: they just haven't been that large. The boomer generation moving
Speaker 10: into this age cohort is really driving kind of differentiated
Speaker 10: housing dynamics. If we look at the percentage of homes
Speaker 10: that are owned by people over sixty five from nineteen
Speaker 10: eighty to twenty twelve, it is a very consistent twenty
Speaker 10: five percent. The oscillations are really small. As I mentioned
Speaker 10: a little bit earlier, it's gone up to thirty three
Speaker 10: percent from twenty twelve to today. Given some of the
Speaker 10: demographic forecasts from our economics team, it's only going to
Speaker 10: move higher right now. And that trend has been aging
Speaker 10: in place. While older homeowners do move from time to time,
Speaker 10: when they do move, they tend to move to very
Speaker 10: similar places Florida, Arizona, South Carolina. For the most part,
Speaker 10: they do stay where they are. They age in place.
Speaker 10: They are the least mobile age cohort in our population.
Speaker 10: I talked about listings being at the lowest levels we've
Speaker 10: seen in forty years. The truth is in twenty eighteen
Speaker 10: twenty nineteen they were close to forty year lows. And
Speaker 10: one of the reasons behind that, we think, is this
Speaker 10: aging boomer population. What share of housing they're taking up
Speaker 10: Now from twenty twenty to now, it has dramatically fallen
Speaker 10: in and very much you set those lows. But this
Speaker 10: was a conversation when we're having pre.
Speaker 1: COVID, So Tracy, you know, one thing that just sort
Speaker 1: of strikes me in general, there is that a there's
Speaker 1: no imminent relief coming from the housing market for demographic reasons.
Speaker 1: And also like it just feels like many things are
Speaker 1: becoming kind of less cyclical about the economy, whether it's
Speaker 1: real estate because a bunch of people are just in
Speaker 1: their homes, not exposed to raids, government spending on a
Speaker 1: domestic investment, et cetera. Like a big story feels to
Speaker 1: me there are just many slow moving trains that are
Speaker 1: not going to be affected by the short term ups
Speaker 1: and downs.
Speaker 2: Yeah, that's a really good way of putting it. There's
Speaker 2: also the inequality to this point, the inequality issue, right,
Speaker 2: any baby boomer who owns a house at this point
Speaker 2: is probably mortgage free, and they've seen the value of
Speaker 2: their houses go up. Maybe they're even using some of
Speaker 2: those profits to like buy additional houses, vacation homes, rental homes, whatever.
Speaker 2: It's a very two track housing at the moment where
Speaker 2: the people who don't have houses yet, obviously, the affordability
Speaker 2: statistics just keep getting worse and worse. And meanwhile, anyone
Speaker 2: who's lucky enough to have bought a home before interest
Speaker 2: rates went up spectacularly is probably doing reasonably well.
Speaker 3: All right.
Speaker 1: So one way in theory to satisfy more demand for housing.
Speaker 1: It was a big topic and the media and the
Speaker 1: industry is office to residential conversions, which sound very nice
Speaker 1: because we know there's a lot of empty office space,
Speaker 1: there's demand for housing, so why can't you just turn
Speaker 1: the offices into apartments? And so there has been some
Speaker 1: of that, but it's very challenging. And our guests here,
Speaker 1: Joey Khalily, managing director at the Van Barton Group, described
Speaker 1: to us why sometimes to do it, you just have
Speaker 1: to cut a big hole down the middle of a building.
Speaker 2: So I think one of your famous conversions is downtown
Speaker 2: one eighty Water Street, and you solve that depth problem
Speaker 2: by basically creating a sort of like inner atrium courtyard.
Speaker 9: Is that right?
Speaker 11: Yeah, we ended up cutting a thirty foot forty foot
Speaker 11: hole in the center of the building. Wow, twenty something
Speaker 11: stories went all the way and that created a courtyard
Speaker 11: essentially for light and air to come down on the inside.
Speaker 11: And then there were studios and two or three bedrooms
Speaker 11: that had their bedrooms up against that.
Speaker 1: What was it that made that plausible?
Speaker 12: So?
Speaker 1: Okay, so you see it's called the floor plate. Is
Speaker 1: the term and this is like sort of yeah, okay, so.
Speaker 11: You if we're on the sixth floor or second floor
Speaker 11: of a building, Yeah, that's the floor plate.
Speaker 1: The horizontal slice of the building. So this what it
Speaker 1: was One eighty Water Street. Okay, so one eighty Water
Speaker 1: Street in its previous version did not have like a
Speaker 1: suitable floor plate, but you understood the that there was
Speaker 1: an opportunity to cut a hole in.
Speaker 11: It, correct it it had a suitable floor plate at
Speaker 11: one point in time for office use, right right, For
Speaker 11: residential it did not, And evaluating that, yeah, came up
Speaker 11: with the plan of cutting that hole in the center.
Speaker 1: Can you just talk a little bit more about that
Speaker 1: hole cutting, Like how did you sort of righte recognize that, Yes,
Speaker 1: it's only it's currently only capable for offices, but actually
Speaker 1: we can make the math work if we cut a
Speaker 1: giant hole down the center of a building. Talk a
Speaker 1: little bit about that evaluation.
Speaker 11: So with with a lot of things, just about everything
Speaker 11: is possible, but it would cost a lot of money. Yeah,
Speaker 11: so you have to valuate the structural modifications that it
Speaker 11: would take to create that and ultimately what you're going
Speaker 11: to do with that building at the end of the day. Yeah,
Speaker 11: create the residence is how much money you're going to
Speaker 11: get on the rent and then eventually sell that building
Speaker 11: one day. And so when you evaluate that, especially in
Speaker 11: that courtyard area, what's the spacing of the column days
Speaker 11: from column to column and does it allow for enough
Speaker 11: space to be able to cut that in without really
Speaker 11: cutting out any other structural steel columns or our supports,
Speaker 11: which when we cut that out, we still had to
Speaker 11: reinforce the rest of the structure and and do quite.
Speaker 2: A bit of that, you know, joe I think about
Speaker 2: a month after we released that episode, New York did
Speaker 2: unveil a new plan to make office to residential conversions
Speaker 2: a little bit easier, and I think a major part
Speaker 2: of that was maybe simplifying some zoning processes. But to
Speaker 2: Joey's point, it's not just the zoning, it's not just
Speaker 2: the regulation. There are these physical impediments to converting these
Speaker 2: giant office buildings into apartments that people are going to
Speaker 2: see as desirable and livable.
Speaker 1: We got to take up Joey. He made an offer
Speaker 1: us to do like a field trip to the latest
Speaker 1: building they're working on. So for twenty twenty four, let's
Speaker 1: remember to take them up.
Speaker 4: On it.
Speaker 2: Yeah, let's do that. I look good in a hard hat.
Speaker 2: We must do that, all right? Coming up next this
Speaker 2: This is one of my favorite episodes of the year,
Speaker 2: mostly because I think it was maybe a cathartic experience
Speaker 2: for both of us, seeing as we were both blocked
Speaker 2: on social media by this particular guest. I am, of
Speaker 2: course talking about Nassim Nicholas Taleb, the author of many
Speaker 2: books including Black Swan, a prolific online presence, and someone
Speaker 2: who is known for blocking other people online, and in
Speaker 2: this episode we finally got a chance to ask him
Speaker 2: how he decides who to block, and his answer was
Speaker 2: very surprising.
Speaker 1: Why did you.
Speaker 2: Block me and Joe and why have we been unblocked?
Speaker 9: Uh?
Speaker 12: I think a largely a lot of my blocking is
Speaker 12: not done by me the boss. You had to understand
Speaker 12: that I got besieged by finance people, and you know
Speaker 12: that time don't get along general finance ground and by
Speaker 12: the crypto people, particularly after the positions that are not
Speaker 12: very favorable to the crypto people. So you do block
Speaker 12: and clean up my feet, just block things. And I
Speaker 12: had someone who happened to be in Ukraine at the
Speaker 12: time helping me. You know, do automatic blocking. I believe,
Speaker 12: believe it or not, the best thing to do with
Speaker 12: your Twitter feed is block groups because then then things
Speaker 12: become cleaned.
Speaker 2: Oh I believe it for sure.
Speaker 12: So so unfortunately that you guys. But then I up
Speaker 12: block people when I realized went too far.
Speaker 1: Thank you.
Speaker 12: So the first reaction is what I called the gativa.
Speaker 12: It's like you close the door and then you let
Speaker 12: in those who think that were excluded or will not
Speaker 12: degrade the feed.
Speaker 1: That's a great answer.
Speaker 12: Does have anything to do with with disagreements. It has
Speaker 12: to do with the styles, right then. But I think
Speaker 12: the people that that annoy the most other liticks because
Speaker 12: of divers conversation and lip pickers are I mean trolls.
Speaker 12: You can see in the trolls littickers, people don't notice
Speaker 12: the liitpickers.
Speaker 2: Joe knows that one of the things I hate online
Speaker 2: is people who sort of pick out like the tiniest,
Speaker 2: tiniest thing in a tweet, like why didn't you label
Speaker 2: your ex access properly? And things like that. It drives
Speaker 2: me crazy. So Teleb and I share that opinion about nitpickers,
Speaker 2: and I'm glad to say Joe that at the end
Speaker 2: of twenty twenty three. We remain both of us, I think,
Speaker 2: unblocked by TELEB.
Speaker 1: But it is funny to me, Tracy that you implicitly
Speaker 1: by having been blocked at one point, did get lumped
Speaker 1: in with crypto trolls and nitpickers in the eyes of
Speaker 1: Teleb or whoever he does, is blocking for him.
Speaker 2: It's true.
Speaker 1: Moving on, obviously, major topic and are sort of major
Speaker 1: source of interest is what is going on with the
Speaker 1: Chinese economy. How do we understand the Chinese policy making
Speaker 1: choices better. There's so much more to do on it,
Speaker 1: but we did do a few episodes, including this episode
Speaker 1: with a songwind Zoelou from the Council on Foreign Relations,
Speaker 1: where she talked a little bit about the story, and
Speaker 1: Tracy loves the story of the Idiot sunflower seed seller
Speaker 1: and what it says about sort of early early market
Speaker 1: reforms under former Chinese premieer doing showpeg.
Speaker 9: This rich person apparently he was one of the if
Speaker 9: not the earliest. He was one of the earliest Chinese
Speaker 9: entrepreneur to make one hundred million UM. He was the
Speaker 9: founder of this sunflower seed company called Shads Goads or
Speaker 9: Idiot sunflower Seed. When Idiot sunflower seeds, yes or fo
Speaker 9: sunflower seeds, shats gods and name. So at that time,
Speaker 9: out of jealousy or some or other reasons, there were
Speaker 9: some voices among China the people or policy makers to say,
Speaker 9: this guy becomes so rich, we need to take him down.
Speaker 9: And in his speech don't some things that I'm aware of,
Speaker 9: these kind of recommendations, but we cannot do that. He
Speaker 9: stracked it down. And the reason he also explained why
Speaker 9: he the party cannot do that. He said, if we
Speaker 9: punished him, that would send a terrible signal. It would
Speaker 9: make people think that we changed our policy of reform
Speaker 9: and open up. And there are so many instances that
Speaker 9: we can do things and make people think we changed
Speaker 9: our policies, and we cannot do that. So from his perspective,
Speaker 9: you know, the part, the big risk, as he charakrized,
Speaker 9: it is to make mistakes to make people think that
Speaker 9: we changed our policy.
Speaker 2: Joe's right. I love that story, idiot. Sunflower Seeds is
Speaker 2: my new favorite company, not just for the name, but
Speaker 2: also because it ends up really contrasting differences in policy
Speaker 2: between Dung Chao Ping and maybe she Shinping nowadays, where
Speaker 2: he's you know, instituted a whole bunch of crackdowns on
Speaker 2: private industry, and he has kicked off this conversation in
Speaker 2: China about well, is it worth even trying anymore? If
Speaker 2: you know you could become a billionaire and like the
Speaker 2: next day you're in trouble with the government and it
Speaker 2: all comes crashing down. It's still a very relevant anecdote,
Speaker 2: even though it comes to us from the past. I
Speaker 2: really want to do an episode just on this company.
Speaker 1: I've you know, I've seen some translations, so obviously she said,
Speaker 1: it's also been it's called fool sunflower seeds. I've seen
Speaker 1: translations that called it simpletons sunflower seeds. I really but
Speaker 1: idiot's sunflower seeds. I hope that's the best one.
Speaker 2: Yeah, I mean, I suspect it. It can be all
Speaker 2: of those things at once. But if you're wondering why
Speaker 2: it was called that, my understanding is it was kind
Speaker 2: of like a little bit like crazy Eddie in that
Speaker 2: the idea is, like, our prices for sunflower seeds are
Speaker 2: so stupidly or idiotically low. What are we thinking by
Speaker 2: our sunflower seeds? That was kind of the origins of it.
Speaker 2: I love it so if you've stayed with us for
Speaker 2: this long, then you've already gotten a preview of our
Speaker 2: tenth and final surprising thing we learned this year. It is,
Speaker 2: of course, the Jones Act and its impact on the
Speaker 2: offshore wind industry. We spoke with one of our colleagues
Speaker 2: here at Bloomberg benef analyst Chelsea Jean Michelle, and even
Speaker 2: though we weren't necessarily expecting to encounter this one hundred
Speaker 2: year old law, yet again, we just can't get away
Speaker 2: from it. The Jones Act is with us everywhere, so
Speaker 2: here it is.
Speaker 13: Yeah, so the US has essentially this law called the
Speaker 13: Jones Act. I'm not sure you guys familiar.
Speaker 5: Yes, we love it.
Speaker 1: It always comes back.
Speaker 2: It always comes back to the Jones Act.
Speaker 9: No, we've done.
Speaker 2: I've done a couple episodes.
Speaker 1: Had no idea this is going to turn into a
Speaker 1: Jones Act episode. I'm really excited.
Speaker 13: So I have my own personal feelings about it. But
Speaker 13: that aside, I've noticed.
Speaker 1: By the way, like on social media, that's one of
Speaker 1: the most hot button topics that you can talk about.
Speaker 1: So you never never say anything about the Jones Act
Speaker 1: online whatever. People have a really strong opinion. Okay, sorry, worries.
Speaker 13: I mean, it's a hot button topic. So essentially, basically,
Speaker 13: if you are traveling between two points in the US,
Speaker 13: then that ship has to be US built, US crewed,
Speaker 13: US flagged, And what that means for offshore wind is
Speaker 13: that that offshore wind farm counts as a point. And
Speaker 13: so the US has you know, I mentioned seven turbines
Speaker 13: currently installed, two projects currently under construction. But what happens is,
Speaker 13: because of the Jones Act, you either have to have
Speaker 13: a Jones Act compliant vessel that can do that transportation.
Speaker 13: That doesn't exist in the US right now. Currently, there's
Speaker 13: only one wind turbine installation vessel that Dominion is building
Speaker 13: right now.
Speaker 2: I'm getting dredging.
Speaker 1: Yeah, oh my god, this is so amazing. It all
Speaker 1: comes full circle.
Speaker 13: So, yeah, there's only one vessel currently under construction right now,
Speaker 13: and that's not going to be ready until a few
Speaker 13: years from now, and Dominion's planning on using that on
Speaker 13: their two point six giga Coastal Virginia offshore wind projects,
Speaker 13: sets set to be the largest in the US when
Speaker 13: it commissions, one of the largest in the world, which
Speaker 13: is great for them, but for other projects.
Speaker 8: Orstead was actually.
Speaker 13: Hoping to use this for their Sunrise Wind and Revolution
Speaker 13: Wind projects. But now that the vessel has been delayed,
Speaker 13: they are no longer able to use that Jones Act
Speaker 13: compliant winterbine installation vessel. So another thing that you can
Speaker 13: consider doing is using a European wind turbine installation vessel
Speaker 13: and then using a kind of like feeder barge method.
Speaker 13: And so this is what a lot of US offsho
Speaker 13: wind projects are hoping to do. Essentially, the feeder barges
Speaker 13: are Jones Act compliant and you feed in the components
Speaker 13: to the European vessel that stays at the offshore wind site.
Speaker 13: So the Jones Act has essentially created a situation where
Speaker 13: so many vessels involved in the offshore wind installation process
Speaker 13: need to be built here and right now there's only one.
Speaker 13: So that's a huge constraint.
Speaker 2: Joe, I dare you to tweet that the Jones Act
Speaker 2: causes pollution and adds to the US's carbon load by
Speaker 2: denying when energy.
Speaker 1: I'll tweet it from my outlocked alta account that nobody
Speaker 1: knows about. It's true. On my secret all Twitter account,
Speaker 1: I tweet all the time about dredging and the Jones EG.
Speaker 1: But I would never express my views publicly on the
Speaker 1: main because it's just too too hot button of a topic.
Speaker 2: Wait, I'm going to have to go look for your
Speaker 2: all account now. I bet I can find it.
Speaker 1: I briefly mentioned what it's called. Oh really, and then
Speaker 1: I deleted the tweet that. So if you're looking at
Speaker 1: that one moment, Oh okay.
Speaker 2: Well, listeners, here's something I want to learn for twenty
Speaker 2: twenty four. What Joe's alt account is on Twitter slash
Speaker 2: x Well. I have to say that was a really
Speaker 2: fun list to put together. It kind of gave us
Speaker 2: an opportunity to go over a lot of our episodes
Speaker 2: for the year, revisit what we've learned, what's surprising. I
Speaker 2: still cannot get over some of the nuggets in those stories.
Speaker 2: Six seven hundred requirements for a piece of government software,
Speaker 2: idiot sunflower seeds, the Jones Act and wind, the communist
Speaker 2: origins of euro dollars. There's so much in.
Speaker 1: There, and I'm looking forward to all the fascinating things
Speaker 1: we learned in twenty twenty four.
Speaker 2: Yes, absolutely, shall we leave it there.
Speaker 1: Let's leave it there.
Speaker 2: This has been another episode of the Authoughts podcast. I'm
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 1: I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 1: Follow our producers Carmen Rodriguez at Carmen Arman, dash O
Speaker 1: Bennett at Dashbot and Kelbrooks at Kelbrooks. Thank you to
Speaker 1: our producer Moses onm. For more Oddlots content, go to
Speaker 1: Bloomberg dot com slash odd Lots, where we have a blog,
Speaker 1: transcripts and a newsletter and you can chat about all
Speaker 1: these ten topics and more with fellow listeners in the
Speaker 1: discord twenty four to seven discord dot ggen slash.
Speaker 2: Outline And if you enjoy ad Lots, if you like
Speaker 2: it when we compile these kind of lists, then please
Speaker 2: leave us a positive review on your favorite podcast platform.
Speaker 2: Thanks for listening.