Speaker 1: This is Bloomberg business Week Inside from the reporters and
Speaker 1: editors who bring you America's most trusted business magazine, plus
Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio.
Speaker 1: Remember the movie Damian. I don't know if you remember this.
Speaker 1: The day after it was nineteen eighty three. ABCTV streaming
Speaker 1: wasn't even on our narrative day after a nuclear war,
Speaker 1: god forbid. Today, very different scale, but it does kind
Speaker 1: of feel like the day after. We've had twenty four
Speaker 1: more hours to kind of think about what happened over
Speaker 1: the weekend, and it does feel like some calmness has
Speaker 1: come in, has come in, has come back to the market. Yeah,
Speaker 1: but I think, you know, the whole episode is definitely
Speaker 1: revealing puddles in the US economy right now. We're seeing
Speaker 1: some things deep down. You know. I'm really excited to
Speaker 1: get Johnson of JP Morgan in later in the show.
Speaker 1: He's going to tell us what's going on in US housing.
Speaker 1: I mean, for me, that is the key element here.
Speaker 1: If you talk about SVB, you talk about you know,
Speaker 1: what went wrong there. It wasn't necessarily that they were
Speaker 1: lending to venture It was that they had stuff on
Speaker 1: their balance sheet they shouldn't have. Well, speaking of venture,
Speaker 1: we've got a great knowing perspective with us from the
Speaker 1: venture capital world. Longtime venture capitalist Alan Patricof, chairperson co
Speaker 1: founder at Primetime Partners, author of No Red Lights Reflections
Speaker 1: on life fifty years in venture capital and Never Driving Alone.
Speaker 1: Great book, He joins us via zoom from New York City.
Speaker 1: I can say great because Alan joined us to talk
Speaker 1: about it before. Alan, good to have you here with
Speaker 1: Damian myself. It is twenty four hours you got. You
Speaker 1: were gracious enough to join some of our colleagues on
Speaker 1: TV yesterday as you're thinking about Silicon Valley and the
Speaker 1: impact the venture world and capital raising fundraising world four
Speaker 1: startups changed at all. Well, clearly it's got to change
Speaker 1: somebody after what happened yesterday. And you know, as you
Speaker 1: just said a second ago, that the full wasn't really
Speaker 1: in with the venture capitalis. It was the full with
Speaker 1: the bank itself. And as far as I can tell emails,
Speaker 1: I've been getting the bank is back in business again.
Speaker 1: Uh and and based on their own words or lending
Speaker 1: money and I've gotten an email from another bank besides SVB,
Speaker 1: and they are lending money. And the big question over
Speaker 1: the weekend, which you know, unnerved everybody, including me, even
Speaker 1: though I frankly had very little exposure, thank god, so
Speaker 1: I had a little bit less less violent weekend and
Speaker 1: some but it was the concern over the deposits, and
Speaker 1: and I you know, said this broadly over the weekend.
Speaker 1: There was no way the banking system, the stock market
Speaker 1: could open on Monday without solving the problem. And I
Speaker 1: think the government did a great job in solving the
Speaker 1: deposit problem and taking over a couple of banks, and
Speaker 1: so no worry about contagion. Do you think we're done?
Speaker 1: Uh well, no, yes, I think contagion a sense you're
Speaker 1: thinking of. I think the contagion is how it's going
Speaker 1: to affect loans and draw downs from banks and what
Speaker 1: kind of lending they're going to do, and how that
Speaker 1: will affect the industry going forward, because venture lending has
Speaker 1: been a you know, on the edge of the traditional
Speaker 1: banking system and now you know, all of these loans
Speaker 1: and people's nervousness about being able to draw down loans
Speaker 1: in an appropriate fashion timely and whether they really existed
Speaker 1: the bigger The first question was deposits. The second moment
Speaker 1: was if you had a line, are you gonna be
Speaker 1: able to draw down? And obviously they are drawing down
Speaker 1: on all their deposits axsume me and all their lines
Speaker 1: and have made a point of setting we're open for business.
Speaker 1: So I would say that we're back. We can't be
Speaker 1: back to normal. People have to have some second thoughts now.
Speaker 1: Is so how they go forward and basically in terms
Speaker 1: of lending lines and how much they could depend on it.
Speaker 1: I'm surely wanted to. I mean, Alan, look, you've had
Speaker 1: an unbelievable career, right, I mean in your autobiography entitled
Speaker 1: No Red Lights, which released last year, you discussed not
Speaker 1: only the successes of your career but also the failures.
Speaker 1: And one that stood out for me was your that
Speaker 1: you didn't make an investment in Starbucks. I want you
Speaker 1: to take that forward to Chair Powell when he writes
Speaker 1: his autobiography and he has to discuss his failures. Is
Speaker 1: he going to have to state that he was late
Speaker 1: to the game on inflation and that the FED is
Speaker 1: behind the curve or do you think that you know
Speaker 1: they can manage through this and we can achieve that
Speaker 1: soft landing. Well, you really are stretching the point of
Speaker 1: of my making mistake of not investing in a coffee
Speaker 1: chap like that one with the strengths that affect the world. Yeah. Probably,
Speaker 1: You know, the acceleration of rate increasing rates didn't help
Speaker 1: the situation, but you have to understand that did not
Speaker 1: have an impact on the venture business per se, or
Speaker 1: that were outstanding. I think that that didn't topple anything.
Speaker 1: I would personally say that this would not be the
Speaker 1: best time to increase rates again next week. I would
Speaker 1: let the market settle down a little bit here and
Speaker 1: get used to what's happened. But I think the whole
Speaker 1: the real challenge the industry is thinking about venture banking,
Speaker 1: the venture at the sdpiece of the world, which there's
Speaker 1: more at least a dozen or two dozen like that.
Speaker 1: How what role are they going to play going forward?
Speaker 1: How much are you going to depend on those kind
Speaker 1: of lines. The government has clearly done a great job,
Speaker 1: and the fact not just that all the deposits are safe,
Speaker 1: but the fact that they're telling everybody go forward and
Speaker 1: keep lending on the same basis is really a very
Speaker 1: strong sign that the government is standing behind these banks
Speaker 1: and does not want to see well you know, well Alan,
Speaker 1: not just the government, cosal Ventures is going to be
Speaker 1: backstopping pay for some of its impacted companies. Is that
Speaker 1: going to be a role that you know, VC funds
Speaker 1: are going to have to take on in the future,
Speaker 1: you know, being that sort of backstop is something should
Speaker 1: go wrong with the bank and should they Yeah, you know,
Speaker 1: it's misleading to say banks their backstop. They're not doing that.
Speaker 1: If they're an investor in a company as we are,
Speaker 1: and you you depended on a line and all of
Speaker 1: a sudden the lines not there, you got to figure
Speaker 1: out how we got to replace it. And the easiest way,
Speaker 1: of course is to get the existing investors to put
Speaker 1: up additional capital, whether it's at an interim or a
Speaker 1: long term basis. But they're not doing to, you know,
Speaker 1: act as a backstop for lending their act act is
Speaker 1: a backstop to you know, the alternative to these loans
Speaker 1: was going out and raising more actuate capital. So I
Speaker 1: think if anything but this is going to do is
Speaker 1: to put some pressure on companies to build up their
Speaker 1: equity positions and they in the process. It would not
Speaker 1: surprise me if there were some britdowns and some reef
Speaker 1: or financings to build up these balance sheets at lower
Speaker 1: prices than we saw. I mean, the market was very
Speaker 1: very strong in twenty one and twenty two for a
Speaker 1: lot of venture financing, whether it startup or even later stage.
Speaker 1: And I think that to the extent that companies want
Speaker 1: to improve their overall balance sheet position, even if they
Speaker 1: have these lines, they would probably want to build their
Speaker 1: equity and that may be at a lower price in
Speaker 1: the last round. Possibly so Alan in terms of longer
Speaker 1: lasting impact, you know, how does it? I think you
Speaker 1: know the doomsday is like, oh, it's going to affect innovation,
Speaker 1: and you know the startup community is that overblown. There's
Speaker 1: money to be made. Investors will find a way. I
Speaker 1: know it started to wind away. I will not use
Speaker 1: the vernacular, but I don't believe that it is going
Speaker 1: to have very very little impact. I will tell you
Speaker 1: a specific I am involved with one company that had
Speaker 1: a large deposit of one of these banks not named,
Speaker 1: and had a line not used that they had not
Speaker 1: drawn down upon, and they were encouraged on Monday to
Speaker 1: draw down that line, and they did, and the money
Speaker 1: transferred into the bank account of the company. So clearly
Speaker 1: the banks are back providing capital again. But if you
Speaker 1: don't have a line at this time, I don't know
Speaker 1: what the attitude is going to be to put on
Speaker 1: new lines at the moment. And I would think it
Speaker 1: will be prudent for a company to build up its
Speaker 1: equity base that may come at a discount from the
Speaker 1: last round, because a lot of these last rounds were
Speaker 1: very very high prices in retrospect and then they cause
Speaker 1: some uh, you know, some type of markdowns. But other
Speaker 1: than that, the business is so healthy and innovation is
Speaker 1: not going to be stopped. Well, Alan, I mean you
Speaker 1: you're now with Primetime Partners, right, you founded that along
Speaker 1: with Addy Levy, who's with the former SVP of Soul Cycle.
Speaker 1: Your goal, your mandate as a word, is to invest
Speaker 1: in early stage startups that bring products and services to
Speaker 1: individuals above the age of sixty, which of course is
Speaker 1: twenty five percent of the world's population. My question for
Speaker 1: you is those early stage startups that you're investing in,
Speaker 1: would you tell them to bank at some you know,
Speaker 1: made and small sized regional banks going forward, or you
Speaker 1: encourage them to be banking at you know, the big ones,
Speaker 1: the JP Morgan's The City Groups of the World, and
Speaker 1: Alan just got about thirty thirty five seconds unfortunately. Yeah,
Speaker 1: I don't want to answer that question directly, but I
Speaker 1: would say that for the moment, I think they continue
Speaker 1: banking as usual. But remember, for these early early stage deals,
Speaker 1: they're not doing too much banking. They're really relying almost
Speaker 1: entirely on equity stage. All right, Gonna leave it on
Speaker 1: that note. Alan. Always good to get some time with
Speaker 1: you and so appreciated. Alan Patrikof is your person and
Speaker 1: co founder at Prime Time Partners, showing us via new
Speaker 1: zoom excuse me in New York City, and his book
Speaker 1: is No Red Lights Reflections on life fifty years in
Speaker 1: venture capital and never driving alone. Did you know he
Speaker 1: really likes music, Carol? Did you know Alan ran at
Speaker 1: eighty eight years old in New York City Marathon last
Speaker 1: year and he finished and he finished. He's pretty remarkable,
Speaker 1: unbelievable and so delighted to have him here. And just
Speaker 1: you know, I feel like calm right, like it's not
Speaker 1: like the good. It's not good. It's I feel better now.
Speaker 1: If you're talking to Alan, yeah, yeah, it's good. You're
Speaker 1: listening to the Bloomberg Business Week podcast. Catch us live
Speaker 1: week afternoons from three to six Eastern Listen on Bloomberg
Speaker 1: dot com, the Ihart Radio app, and the Bloomberg Business App,
Speaker 1: or watch us live on YouTube. Really looking forward to
Speaker 1: this next guest courtesy of Damian Sashower because I do
Speaker 1: feel like when you're trying to figure out what's going
Speaker 1: on in the outlook, you have to talk to CEOs,
Speaker 1: have to talk to all kinds of companies and all
Speaker 1: kinds of market watchers, especially when there's so many things
Speaker 1: and so much volatility, I think, even in the rate environment.
Speaker 1: So let's get to it. Because one of the things
Speaker 1: that was key in the CPI report today had to
Speaker 1: do with housing specifically right big time, underlying consumer price
Speaker 1: growth accelerating in February, Americans continued to experience the sting
Speaker 1: of rising rates and sticky prices for services over the
Speaker 1: past year. Key housing category, which includes everything from actual
Speaker 1: rents to what a homeowner would charge and rent to
Speaker 1: hotel stays, climbed Damien to a record eight point two percent.
Speaker 1: You want to do the honors and bring in our guests.
Speaker 1: I'm going to do that. John sim head of Securitized
Speaker 1: Products Research at JP Morgan. Welcome to the program. John.
Speaker 1: Housing demand is weak. Existing home sales declined thirty four
Speaker 1: point four percent year over year in January two, an
Speaker 1: all time low. What will it take for housing demand
Speaker 1: to rebound here in the US? So, hey, guys, thank
Speaker 1: you so much for having me on. It's a real pleasure. Yeah,
Speaker 1: you already hit the nail on the head with the CPI.
Speaker 1: I mean, I think the good news is that if
Speaker 1: the Fed officials at least are getting that it's sticky. Um,
Speaker 1: you know, the owner equivalent rent number which which was
Speaker 1: just over eight percent, as you mentioned, it's about a
Speaker 1: third of the CPI number index that comes out. So,
Speaker 1: I mean, the good news is that we're already seeing
Speaker 1: rent growth the climb, and that's that's measured say by
Speaker 1: other factors, say like look at ZILLO is a good
Speaker 1: index one of the ones we use rather than the
Speaker 1: oear measure, which is really lagged, which has kind of
Speaker 1: been the burden I think for for a lot of
Speaker 1: us is watching how slow Um it's like watching paint
Speaker 1: dry almost and then you know, so we do think
Speaker 1: that ZILLO moderation that we're seeing well will hit into
Speaker 1: the low single digits by by the end of the year.
Speaker 1: But the un bad news to that is that that
Speaker 1: oear measure really isn't going to probably reflect that into
Speaker 1: well into twenty twenty four. Um, so it's a it's
Speaker 1: a very slow process. But I guess if you're going
Speaker 1: to look at the good side, is how much could
Speaker 1: it take off of the headline CPI number by the
Speaker 1: time you get to that low single digits, you know,
Speaker 1: into twenty twenty four, it's probably about one and a half,
Speaker 1: maybe even two points. So it will help, but it's
Speaker 1: going to be slow to get there. John, You know,
Speaker 1: I wonder if you could talk to us, I mean,
Speaker 1: a lot of our audience here. You know, we're based
Speaker 1: here in New York City. You know we're only getting
Speaker 1: a small piece of the pie. But I wonder if
Speaker 1: you could talk about, you know, the United States of America,
Speaker 1: the dispersion and housing performance across the major regions. It
Speaker 1: seems to me that some of the biggest you know,
Speaker 1: housing prices appreciation clients have occurred out West. I'm talking Seattle,
Speaker 1: San Francisco, while other regions and I'm thinking Florida, I'm thinking,
Speaker 1: you know, Miami, Tampa, I'm thinking Charlotte, Dallas, Atlanta have
Speaker 1: only seen a fraction of those losses. Talk to us,
Speaker 1: can those regions hold onto those pandemic induced gains? Oh?
Speaker 1: Some of them? I mean that's the that's the definitely
Speaker 1: the story with the clients to spend region without questions.
Speaker 1: So our national headline number is is we think home
Speaker 1: prices well declined by ten percent. A lot of that
Speaker 1: has to do with affordability. I think one thing when
Speaker 1: we're talking regions is to look at a very interesting
Speaker 1: statistic around um the percentage of mussas where it's cheaper
Speaker 1: to rent than it is to buy. And it's right now,
Speaker 1: it's saying ninety nine percent of all ms says it's
Speaker 1: actually cheaper to rent. So that speaks well to the
Speaker 1: rent growth narrative we were saying earlier about why that's positive.
Speaker 1: But well, yeah, well we think home prices will decline
Speaker 1: because I think we get that confusion at times where
Speaker 1: people look at rent say, how could rents go up?
Speaker 1: At home prices go down? Well, because it's actually better
Speaker 1: to rent. But the regions say, like Seattle, you mentioned,
Speaker 1: you know what, They're down fifteen percent already from the peak.
Speaker 1: San Francisco down eleven, San Diego down nine, Denver down eight.
Speaker 1: But then you see places like New York Florida only
Speaker 1: down one percent. So there I think you have the
Speaker 1: little bit of tech, a little bit of work from home,
Speaker 1: probably from the Denver side, and then unwinding there also
Speaker 1: had just big run ups. But then you look at
Speaker 1: areas like Florida, where I think actually benefited a lot
Speaker 1: from the migrations and work from home. It's just a
Speaker 1: lot easier to work from the beach, right. But in
Speaker 1: New York everyone loves to live here, so I think
Speaker 1: that that holds up a little bit, and then we
Speaker 1: are more back in the office. I think hasn't hit
Speaker 1: as hard in New York as it has versus other areas. John,
Speaker 1: can we start to do you start to model that
Speaker 1: I understand it rent a place, you're stuck into that
Speaker 1: cost right for a while, and that plays into the
Speaker 1: inflationary metric. But can you start to model I don't
Speaker 1: know whether it's a year from now or two years
Speaker 1: where you get a better understanding of kind of where
Speaker 1: inflation ultimately will be. Because shelter is such a big
Speaker 1: part of this component, can you start to think about
Speaker 1: when people are renegotiating some of this or a softer
Speaker 1: housing market, that it's a different, a very different picture. Yeah,
Speaker 1: so we got to the one part which is just
Speaker 1: the lag. So we already think that you know, you
Speaker 1: already have one and a half to two percent coming off,
Speaker 1: you know, in twenty twenty four, with all is being equal.
Speaker 1: But then you start getting into potential negotiations of where
Speaker 1: rents could actually get a little too frothy and home
Speaker 1: prices continue to decline, where you could continue even push
Speaker 1: that headline inflation number lower. For sure, we start to
Speaker 1: try to model that out. It's it's pretty tricky, but
Speaker 1: certainly as you start to see a lot of the
Speaker 1: renegotiation for rents, you can even see it locally in
Speaker 1: New York City where you know, the concessions are coming
Speaker 1: in the one month, three, the one half month through
Speaker 1: the free gym membership and whatnot to try to lower
Speaker 1: lower the dynamics of getting you into the property. John.
Speaker 1: You know, mortgage borrows from my perspective, appeared to be
Speaker 1: in a pretty solid position. Right. We know about the
Speaker 1: equity build up, you know, we know about the low
Speaker 1: fixed mortgage rates that they locked into. You know, some
Speaker 1: years back. But it's not all roses now, is it.
Speaker 1: I mean, if you look further down the curve, I
Speaker 1: mean fh borrow delinquencies, you know, subprime auto delinquencies. I
Speaker 1: wonder if you could talk to us about some of
Speaker 1: the more some of these more high frequency data points
Speaker 1: and what they're telling you. Yeah, that's really been a
Speaker 1: key for us to watch, and we've been highlighting that
Speaker 1: really even as the tone prices we're still going up.
Speaker 1: We're saying, look, look for things to crack on the
Speaker 1: low end, and that is low FLICO, high DTI, high
Speaker 1: LTV borrowing, and that typically happens in the fh A programs.
Speaker 1: The DTIs in those programs are around fifty five percent,
Speaker 1: so they're they're basically spending more than half of their
Speaker 1: income on their mortgage payment. So when things start to crack,
Speaker 1: the crack they're going to happen there, and you are
Speaker 1: seeing delinquencies build up in that program and really in
Speaker 1: low FLCO in general. So I think that really speaks
Speaker 1: to stress on the low end of the consumer range,
Speaker 1: and you will probably start to see modification programs come
Speaker 1: in to try to help save them, just like we
Speaker 1: had through the last cycle and through COVID, we've got
Speaker 1: a really good playbook for modifying modifying barros when they
Speaker 1: get into trouble. The other side of it is that
Speaker 1: we watch is around subprime auto. Really what you're seeing
Speaker 1: there is the delinquency sixty plus day delinquencies in the
Speaker 1: autosector for subprime, so we're talking low end again is
Speaker 1: actually as high as what we saw during the Financial crisis.
Speaker 1: Beginning to see stress there as well. Well. As you mentioned,
Speaker 1: it's not all doom and gloom. I think when you
Speaker 1: look at those things that looks scary. You kind of
Speaker 1: mentioned it before that borrowers are in a really really
Speaker 1: good position. You know, they about eighty percent of them
Speaker 1: of locked in a four percent mortgage rate or lower,
Speaker 1: and I think that means that they're going to fight
Speaker 1: to stay in their property. The other side of it
Speaker 1: is just the accumulated equity that they've built up in
Speaker 1: the property themselves. Like just to put it in context,
Speaker 1: the dea that was built up in the mortgage market
Speaker 1: just post the Financial crisis around ten trillion overall for
Speaker 1: like the mortgage market the equity at that time just
Speaker 1: post GFC. So as the home prices were going down
Speaker 1: was about eight trillions, so there was two trillion underwater
Speaker 1: like in the properties, and that's why you saw all
Speaker 1: these exits. People just enp mailing the keys back in.
Speaker 1: But now the equities around thirty trillion and the debt
Speaker 1: is only fourteen so so you know, you can have
Speaker 1: a pretty big correction and these guys are going to stay.
Speaker 1: They're not going anywhere, which is you kind of have
Speaker 1: a frozen market now. Effectively the no one really I
Speaker 1: don't see no one, but it's really hard to afford
Speaker 1: to buy given where mortgage rates are. But there's not
Speaker 1: a lot of supply coming in and not a lot
Speaker 1: of supply pressure because even from the delinquencies that we
Speaker 1: mentioned earlier, the mod programs will start to keep them
Speaker 1: from hitting the markets, so homebuilders don't start building. In
Speaker 1: your view, I think they're already started to slow down
Speaker 1: their builds, so you start you're seeing that in some
Speaker 1: of the construction data back to at one point the
Speaker 1: peak was all control units coming in, the mark was
Speaker 1: about one point seven million. I think you've got the
Speaker 1: total now down to like one point to three so
Speaker 1: now I think you're back to underbuilding again. John one
Speaker 1: one more question while I have you twenty seconds here.
Speaker 1: You know, look securitized products. You know we're hearing about
Speaker 1: you know, some of the stressed in these delinquencies. Is
Speaker 1: that filtering through into the secondary market for structured credit?
Speaker 1: Are you seeing any of that showing up in you know,
Speaker 1: some of these low quality credits and just got about
Speaker 1: thirty seconds. Yeah, not in UM, not at all. In
Speaker 1: the residential sector, You're not seeing that stress there yet.
Speaker 1: The stressor seeing is more coming stress for broader credit
Speaker 1: off right now. You are seeing stress in CMBs though
Speaker 1: from that's a different whole different topic. But yeah, listen,
Speaker 1: great vantage point, John, Thank you so much. Johnson, Managing
Speaker 1: director ahead of Securitized Products Research over at JP Morgan
Speaker 1: jutting us on the phone in New York City. You're
Speaker 1: listening to the Bloomberg Business Week podcast. Catch us live
Speaker 1: weekday afternoons from three to six Eastern on Bloomberg Radio,
Speaker 1: the Bloomberg Business app and YouTube. You can also listen
Speaker 1: live on Amazon All So from our flagship New York station,
Speaker 1: jo Say Alexa playing Bloomberg eleven thirty while the world
Speaker 1: is focused on a ship to EVS at the same time,
Speaker 1: startups around the globe there continuing to work on developing
Speaker 1: and refining the technology behind what the industry calls EVE
Speaker 1: tolls or electrical vertical takeoff and landing aircraft in that
Speaker 1: mix is our next gas Beta. It's a builder of
Speaker 1: EVE toll aircraft and charging systems to move both people
Speaker 1: and cargo around. They count the Amazon Climate Pledge Fund,
Speaker 1: TPG and Fidelity among its investors. So with us to
Speaker 1: tell us what they're up to and the outlook is
Speaker 1: Kyle Clark, founder and CEO at Beta. He's also a
Speaker 1: pilot and he joins us via zoom from Burlington, Vermont. Kyle,
Speaker 1: nice to have you here with Damien and myself, So
Speaker 1: tell us a little bit more about your company. I'm
Speaker 1: kind of obsessed with your website and for those who
Speaker 1: are watching on YouTube and our streaming service Bloomberg originals
Speaker 1: will get to see a little bit. But tell us
Speaker 1: about Beta. Hey guys, great to be here. Yeah. Beta,
Speaker 1: we're a small aerospace company up here in Snowy, Vermont
Speaker 1: today and we've been focused on developing electric propulsion systems,
Speaker 1: initially for EV toll aircraft, but as you know, we've
Speaker 1: we've now introduced a fixed wing electric cargo aircraft and
Speaker 1: are launching that commercially. So talk to us. I mean,
Speaker 1: how far away are we from seeing electric airlines really
Speaker 1: penetrating the market A cargo passenger, you name it. Yeah. So,
Speaker 1: I mean on the technical front, we've been flying up
Speaker 1: here in the northeast. We've flown halfway across the country.
Speaker 1: The technology exists to move cargo and people all over
Speaker 1: the country with electric propulsion. Our longest range flights are
Speaker 1: three hundred and thirty six nautical miles, and we just
Speaker 1: have to work through certification, which is kind of the
Speaker 1: essence of launching a fixed wing aircraft where the certification
Speaker 1: path is more known than what a lot of folks
Speaker 1: are talking about, which is an electric vertical takeoff and
Speaker 1: landing aircraft. So tell us what's involved, what's the infrastructure need?
Speaker 1: Give us an idea. And to Damien's question, I mean,
Speaker 1: is there in the near future point where we see
Speaker 1: a significant ramp up? Yeah? Absolutely, I mean we're going
Speaker 1: to see electric on the ranges that make sense for
Speaker 1: regional cargo, regional passenger twenty twenty twenty six, and then
Speaker 1: it'll ramp as batteries improve every year five to eight
Speaker 1: percent the ranges will improve commensurately, and then and then
Speaker 1: we'll get to get on the nipping of the heels
Speaker 1: of the regional kind of single aisle airlines. And in
Speaker 1: the twenty thirties we'll start doing things in half the
Speaker 1: United States, and by the end of the twenty thirties
Speaker 1: twenty forties, we're going across the country in sustainable aircraft.
Speaker 1: Is it a different type of infrastructure that's needed. Yeah. Absolutely, Look,
Speaker 1: we know that there's a lot of charging networks that
Speaker 1: are required to be put in place. We'd put a
Speaker 1: charging network that reaches from here in Vermont down through
Speaker 1: New York out to Arkansas. We are putting in systems
Speaker 1: about fifty five of them down the East Coast and
Speaker 1: across to Texas, mostly at airports right now, a few
Speaker 1: of them off airports. But you know, from a from
Speaker 1: an infrastructure perspective, air aircraft carry a lot more energy
Speaker 1: than cars, and to get their charging time down into
Speaker 1: the sub hour regionum, the charging power levels have to
Speaker 1: be significantly higher. So we have to bring in new
Speaker 1: charging technologies, higher rate charging, kind of like a supercharger
Speaker 1: on steroids, and we place those at airports, and and
Speaker 1: then there's some amount of infrastructure within the air traffic
Speaker 1: control system, especially as we move into the vertical takeoff
Speaker 1: and landing domain, to manage increased traffic, especially in urban environments. Kyle,
Speaker 1: do you think that you know, um, the like similar
Speaker 1: to cars, they have hybrid models where they run on
Speaker 1: you know, on gasoline as well as electric. I mean,
Speaker 1: is that an option going forward for the industry to
Speaker 1: try and get you know, those passenger miles up and
Speaker 1: get those cargoes you know, those cargo planes you know
Speaker 1: further along. Yeah. Absolutely, Um, there will be hybrid aircraft.
Speaker 1: There's kits that we can put onto our aircraft that
Speaker 1: we're using that our hybrid Um, those will be stop
Speaker 1: gaps to get to all electric. I mean, look, aviation
Speaker 1: is a huge contributor to climate change right now, and
Speaker 1: if we don't do anything about it, all other forms
Speaker 1: of transportation of gone electric. As you noted in the
Speaker 1: interim introduction, you know, bikes, car, scooters, trucks, trains, marine
Speaker 1: and it's aviation's turn. And we operate, you know, kind
Speaker 1: of in a cognitive dissidence, in the sense that we
Speaker 1: are operating in nineteen sixties technology that prioritize performance over efficiency,
Speaker 1: and therefore our carbon emissions in aviation is kind of disgusting.
Speaker 1: So there's this huge bow wave of technology and opportunity
Speaker 1: that electric aviation can overcome. So hybrid will get us close.
Speaker 1: But the reality is is working through the regulatory challenges
Speaker 1: and the introduction of this new technology, it's not a
Speaker 1: technological challenge, and to introduce hybridization, you're inducing two new
Speaker 1: technologies at once. Here, it's actually easier to just go
Speaker 1: straight to electric. Well, Kyle, you know, I just have
Speaker 1: to say this, you know, and I do you want
Speaker 1: to focus on the fact that you know, this is
Speaker 1: electric aircraft talking that here, but the fact that it
Speaker 1: takes off and lands vertically to me is just awesome
Speaker 1: and fascinating. And the impact of that on for example,
Speaker 1: airports right and runways an amount of land that you
Speaker 1: need in order to you know, kind of have one.
Speaker 1: I mean, do you see that being a structural change
Speaker 1: over the next few years into the future. Yeah, absolutely,
Speaker 1: I mean, it's just fundamentally transformative of how we access
Speaker 1: the Z dimension in our world. Right right now, we
Speaker 1: have to go through an airport predominantly to go up.
Speaker 1: Electric propulsion is very very powered, dense. The electric motors
Speaker 1: are small and powerful relative to their gas kind of brothers.
Speaker 1: Yet the batteries are relatively low energy dense, so short
Speaker 1: range vertical takeoff and landing aircraft. They kind of get
Speaker 1: us away from the three most annoying things in aviation,
Speaker 1: which is the noise, the fuel, and the airports. Nobody
Speaker 1: likes any of those things. So the market just gets
Speaker 1: really big, really quick. And even in a cargo application
Speaker 1: where you can avoid trucking things in vans and unloading
Speaker 1: and loading them and increasing the time transit in the
Speaker 1: human touch time by just going point to point. It
Speaker 1: is not just a replacement for one tool, it's a
Speaker 1: replacement for multiple tools, right, And that's why everybody is
Speaker 1: so excited about a huge TAM that we open up
Speaker 1: with vertical takeoff and landing electric aircraft. All right, So
Speaker 1: give us an idea. Then that means everybody's not going
Speaker 1: to get your doors to line up orders. So give
Speaker 1: us an idea of who you're partnering with. Major airlines. Yeah,
Speaker 1: I mean so folks like the largest helicopter operating in
Speaker 1: the world, Bristow. They're one of our launch customers for
Speaker 1: both C toll and then V toll aircraft, the Air Force,
Speaker 1: the Army, United Therapeutics, which is a medical company that
Speaker 1: moves organs and tissues and medical products. Ups. We've got
Speaker 1: Air New Zealand that's starting cargo, moving to passenger. They're
Speaker 1: starting with a C toll and we'll go to V
Speaker 1: toll with them. There are airlines that I think can't
Speaker 1: be announced publicly yet that are working with us. But
Speaker 1: you're talking to some of the majors. Oh, absolutely, yeah.
Speaker 1: I mean, look, there is an insatiable desire for sustainable
Speaker 1: aviation and we're trying to get there with SAP sustainable
Speaker 1: Aviation fuels. But everybody who really cares about the world
Speaker 1: in the environment knows that electric is the right step
Speaker 1: for aviation. And all the majors they care about it,
Speaker 1: and they just know that the technology is not quite
Speaker 1: ready for what their main lines run. But they're all
Speaker 1: looking for these secondary kind of introductory points, so when
Speaker 1: it comes to replace their main lines, they have an
Speaker 1: acute knowledge, the training, the infrastructure that you talked about.
Speaker 1: Got it for the airlines. All right, we gotta run, Kyle,
Speaker 1: look forward to future updates. Come join us again. Kyle Clark,
Speaker 1: Founder and chief executive Officer, of Beta Technologies, joining us
Speaker 1: via zoom from Burlington, Vermont, Carol Master Damian sas are
Speaker 1: you ready? Right? So cool? He obviously hasn't been to
Speaker 1: the Nilguardi Airport. I love it. There. You're listening to
Speaker 1: the Bloomberg Business Week podcast. Catch us live week do
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Speaker 1: on Bloomberg Radio. All right, everybody, just about seventeen minutes
Speaker 1: left in today's trading sessions, and he's just giving you
Speaker 1: the lowdown when it comes to the equity and the
Speaker 1: treasury trade. Bouncing around a little bit, definitely off our
Speaker 1: highs of the session when it comes to stocks, and
Speaker 1: we've seen some volatility once again when it comes to
Speaker 1: the treasury trade. Let's get to it, because lucky for us,
Speaker 1: Damian and I have with us Bloomberg Intelligence Chief equity
Speaker 1: Strategist Gina Martin Adams. Gina is on the phone in
Speaker 1: New Jersey. Gina, good, good, Good to have you here.
Speaker 1: I've been thinking about what your rethink has been, if any,
Speaker 1: when it comes to the trade that we saw over
Speaker 1: the past week, on Friday on yesterday, and when it
Speaker 1: comes to the health and overall direction of the equity markets.
Speaker 1: What are you thinking about? What are you studying? Well,
Speaker 1: I think the most important thing, Carol, first, thank you
Speaker 1: for having me, But the most important thing that I'm
Speaker 1: watching really is the market technicals. If you think about it,
Speaker 1: you know, as of two weeks ago, the only thing
Speaker 1: really going for the market in an environment where fundamentals
Speaker 1: were deteriorating and valuations are still quite high considering the
Speaker 1: level of interest rates, is that the technicals were in
Speaker 1: support of some version of recovery. And over the last
Speaker 1: couple of days, we've definitely seen the technicals breakdown. Small
Speaker 1: cap index in particular has weakened materially below some pretty
Speaker 1: key moving averages. The large cap index is hanging on
Speaker 1: barely with its fingernails. It's still hanging onto that two
Speaker 1: hotter day moving average and testing that level with a
Speaker 1: little bit of a bounce back today, so the technical
Speaker 1: pictures not as bad in large caps as it isn't
Speaker 1: small But certainly we're teetering on the brink of testing
Speaker 1: some key technical support levels, and I think those are
Speaker 1: important to watch considering certainly this doesn't improve the fundamental outlook.
Speaker 1: It might change the landscape at the FED, but we
Speaker 1: won't know that until next week. It really is all
Speaker 1: about how does the price trend right now? Geane, I'm
Speaker 1: just reading this new piece of research you co authored
Speaker 1: Taether with Maman Christopher Kane, where you talking about factor investing,
Speaker 1: and you know, we were looking at, you know, which
Speaker 1: strategies performed best and worst in other sort of environments
Speaker 1: where you had elevated interest rate and certainty. What's stands
Speaker 1: out to you there? Yeah, So we run MVP portfolio,
Speaker 1: which combines the factor families of the high momentum, low volatility,
Speaker 1: high value and high profitability stocks. So we want to
Speaker 1: really keep an eye on how that family of stocks
Speaker 1: is going to do in an environment of crisis or
Speaker 1: sort of distress in the financial sector. So we did
Speaker 1: go back and we looked at how those factors performed
Speaker 1: in the Lehman crisis just as a representative example of
Speaker 1: really precipitous conditions in the financial markets. And indeed, the
Speaker 1: fact the performance was pretty decent with the exception of
Speaker 1: the value factor. Value unfortunately is somewhat subject to swing
Speaker 1: given the financial sector exposure that's in the value segment.
Speaker 1: That said, our portfolio when we rebalanced it as of
Speaker 1: December did not have any bank stocks in it, thankfully.
Speaker 1: So the value component of the finish yeah, we got
Speaker 1: really lucky, frankly because they weren't. They weren't particularly positive
Speaker 1: screens on our factors, thank goodness. So the portfolio, once
Speaker 1: against it looks like it's going to perform relatively well
Speaker 1: in this environment of distress. So in terms of the
Speaker 1: technical view, then are you at a point where you're
Speaker 1: like it can go one way or another, Like the
Speaker 1: odds are fifty fifty at this point. In terms of equities,
Speaker 1: it's not clear. I will say, Carol, you know, I'm
Speaker 1: watching some really key levels. You know, I do think
Speaker 1: that October was a massive wash out moment for stocks,
Speaker 1: and we run our own market Pulse index that would
Speaker 1: suggest and confirm that it was a major sentiment low
Speaker 1: for the equity market. That doesn't mean we don't go
Speaker 1: back and retest that low, but it is a critical
Speaker 1: level to watch and we're still nowhere near those levels.
Speaker 1: So that's the good news. The bad news is though,
Speaker 1: that some of the technical improvements that we made over
Speaker 1: the course of the last several months really have been
Speaker 1: washed out over the last couple of days, and especially
Speaker 1: in the small cap index. We're back to testing our
Speaker 1: December lows on small caps again. Still not near those
Speaker 1: October lows or even the major June lows that were
Speaker 1: made in the small cap index. But when the small
Speaker 1: cap chart is deteriorating, it's really tough to get optimistic
Speaker 1: about the outlook for stocks, and small caps have just
Speaker 1: gotten creamed over the course of the last week, so
Speaker 1: we'd like to see some stability emerged there before we
Speaker 1: can get too opportunistic about the market at large. That's it.
Speaker 1: I also think though, that if you are thinking about
Speaker 1: individual equity investments, industry investment sector investments, there are some
Speaker 1: opportunit entities that have emerged in this washout, And you know,
Speaker 1: I think from the standpoint of looking beneath the headline
Speaker 1: market industries, you probably will find some pretty deep values
Speaker 1: that are worth investigating at this time. It's just the
Speaker 1: market itself. The charts still looks so great, So I
Speaker 1: would say I would err on the side of caution
Speaker 1: right now. You know, Gina, you're talking about you're talking
Speaker 1: about value, You're talking about you know, you know some
Speaker 1: of the small caps, you know, the one you know
Speaker 1: talking about the MVP portfolio and all these portfolios. The
Speaker 1: one thing that kind of stands out to me is
Speaker 1: is the banking sector and the exposure they're in. And
Speaker 1: obviously in small caps the KP I mean, regional banks
Speaker 1: are you know, a very healthy portion of that index.
Speaker 1: Hence the reason you know it's down so significantly. You know,
Speaker 1: just a few months ago, Gene, we were talking as
Speaker 1: banks as being, you know, a place you wanted to
Speaker 1: be in this environment, right so exactly so, so how
Speaker 1: has everything changed so very quickly? Well in our so
Speaker 1: in our models, banks actually have not been a place
Speaker 1: you wanted to be. Financials were, but banks were not.
Speaker 1: We do run industry relative models within the sectors themselves,
Speaker 1: and certainly that financials started to pop toward the top
Speaker 1: of our sector allocations. But it wasn't because of banks.
Speaker 1: It's because of the consumer finance company that are at
Speaker 1: the top of our financial sector scorecard. And as I mentioned,
Speaker 1: you know, it was a signal to us that no
Speaker 1: banks or even in the MVP portfolio as of December's rebalance.
Speaker 1: So for us, the banks were not the primary reason
Speaker 1: to get a little bit more excited about financials. The
Speaker 1: reason to get a little more excited about financials are
Speaker 1: the lenders to consumers, where consumers are still borrowing and
Speaker 1: borrowing even more at higher levels of interest rate, but
Speaker 1: yet not likely to default. Those companies are the companies
Speaker 1: that are likely to experience the most upside in that
Speaker 1: kind of climate. So, you know, I think that financials
Speaker 1: is a really big sector and you had definitely right
Speaker 1: now have to look beyond the banks to get excited
Speaker 1: about anything in financials. You know, small caps are exposed,
Speaker 1: but maybe we're overstating how much small caps are exposed.
Speaker 1: I'm actually worried about the smallest of the big cap
Speaker 1: stocks when it comes to the banks, because that's where
Speaker 1: you've seen the deposit growth, That's where you've seen the
Speaker 1: regular boiligion. All right, can leave on that note. Always
Speaker 1: great insight, Gina, Thank you, Thank you, Gina. Mart Adams
Speaker 1: Geef Beck can describe us at Bloomberg Intelligence, joining us
Speaker 1: on the phone from New Jersey. If you're lucky enough,
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