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Speaker 3: Thirty year yield starting about five percent sign a dimming
Speaker 3: investor demand.
Speaker 4: We've been talking about this a lot.
Speaker 3: We saw the move equities came down, but it came
Speaker 3: after that treasury auction, sixteen billion dollar treasury sale. Lackluster
Speaker 3: demand moving yields up along the yield curve. But it
Speaker 3: turns out, Tim, investors are worried about a ballooning deficit.
Speaker 5: Yeah, look no further than what's happening on the long
Speaker 5: end as we speak with yield hire by ten basis
Speaker 5: points right now. Michael McKenzie is rates reporter for Bloomberg News.
Speaker 5: He joins us here in the Bloomberg BusinessWeek Studio. You
Speaker 5: were in here on Monday when we spoke about the
Speaker 5: ten year briefly or the thirty or rather briefly heading
Speaker 5: five percent. We've blown past that. What's the signal that's sending.
Speaker 5: Is it about the spending bill? It's about the tax bill.
Speaker 5: A lot of it's due to that.
Speaker 6: I think it's really interesting on a day when stocks
Speaker 6: start to take a hit, you don't see really any
Speaker 6: pullback in the celloff in treasuries. The other reason you
Speaker 6: think to observe today is that the ten year briefly
Speaker 6: got above fall sixty. If you think back to last
Speaker 6: month when Scott Besson stepped in and told Trump, hey,
Speaker 6: let's do a ninety day delay on tariffs because we're
Speaker 6: just hitting close to fall sixty on tens. We edged
Speaker 6: above that just now and again. You know, you can
Speaker 6: jaw burn the market once, but if you then step
Speaker 6: back from all the tariff chaos of last month and
Speaker 6: the highs we saw then today it's about the deficit. Today,
Speaker 6: it's about a Congress that really doesn't think it needs
Speaker 6: to be fiscally disciplined here, and the bomb market is
Speaker 6: telling you that. You know, and it's not just the
Speaker 6: US story. Japan had a twenty year sale this week,
Speaker 6: very badly received. You're seeing thirty year yields in the US, Japan,
Speaker 6: UK Netherlands all pushing higher. And this is a global
Speaker 6: revolt that's beginning to take shape here where investors are saying,
Speaker 6: if I don't need to own long dated bonds, I'm
Speaker 6: not going to own them. And that's why when I
Speaker 6: was talking to investors today and yesterday, they like being
Speaker 6: in the front end of the curve. They like being
Speaker 6: between twos to tens. They don't really like the thirty
Speaker 6: year at all. So if they can they know, if
Speaker 6: they have mandates to say, please buy these bonds, they
Speaker 6: try not to, but they do buy some. By the
Speaker 6: end of the day, they're negative on the long bond,
Speaker 6: and they probably have these steepener trades on where it's
Speaker 6: they're basically earning twos and fives and selling the thirty year.
Speaker 3: So does this have to do with you know, I
Speaker 3: kind of always go back to this, you know, Michael,
Speaker 3: certainly yourself, A lot of folks at Bloomberg, a lot
Speaker 3: of people on last kind of get the treasury trade
Speaker 3: right when things are happening. But I do think about
Speaker 3: the world at large and like what it means, is
Speaker 3: it us non investable? Is it just a sign of
Speaker 3: concerns about the ballooning debt and what it means maybe
Speaker 3: for the government and spending and entitlements, and how it
Speaker 3: plays out in the economy, what it does to economic
Speaker 3: growth if there aren't is in government money to commit
Speaker 3: to programs to kind of help.
Speaker 6: So that's that's that's what we're beginning to look at here,
Speaker 6: because I think what you're seeing here is if you
Speaker 6: look at developed world countries, they have aging populations. There
Speaker 6: is a much greater need now for fun for retirement
Speaker 6: and medical costs. If you look at a lot of
Speaker 6: the issue with the US budget at the moment, they
Speaker 6: don't really want to start attacking and reducing the entitlement
Speaker 6: spending now because it's just such a huge vote loser.
Speaker 6: You can understand why Congress doesn't want to do this.
Speaker 6: But at some point, you know, taxes will have to
Speaker 6: go up. You can't say, oh, yes, we're looking for
Speaker 6: sources of revenue. This administration is looking for tarots. They're
Speaker 6: simply not going to get enough revenue from taros that
Speaker 6: can sort of offset the plans for cutting taxes in
Speaker 6: the future. Then we're already starting at one hundred percent
Speaker 6: that you know, you know, the federal debt is one
Speaker 6: hundred percent of the economy. It's the same in the UK,
Speaker 6: it's two hundred percent in Japan. So again, investors are
Speaker 6: looking at the world and going, well, I would rather
Speaker 6: lend to triple A rated corporates. I'd rather lend to
Speaker 6: companies that actually don't really need to borrow and probably
Speaker 6: only really boring in order to fund buybacks, rather than
Speaker 6: to really well established countries like the UK, like Japan,
Speaker 6: and certainly the US falls into that boat unfortunately. I mean,
Speaker 6: this is and I think the other thing that's concerning
Speaker 6: is that when I was asking people this week, okay,
Speaker 6: we get thirties above five percent, is that worth the trade?
Speaker 6: Not necessarily anymore, because again, you know, there's this real
Speaker 6: trepidation now in the bomb market of the margins. They're
Speaker 6: saying this, this conquerors deal on the budget just isn't
Speaker 6: really making any stems. It's not going to alleviate the problem.
Speaker 6: So do we need to send a bigger message to Washington?
Speaker 6: Yes there's an issue. And you guys are kind of
Speaker 6: walking past the graveyard and just whistling along.
Speaker 3: We Askir Eric Wahlson, Congressional reporter up on the hill
Speaker 3: watching this big, massive, big, beautiful Bell make its way
Speaker 3: through Congress.
Speaker 4: He said, you know, despite what you might be hearing
Speaker 4: from the.
Speaker 3: White House, it's a defit deficit increasing package, and so
Speaker 3: netnet folks, it's going to add to the deficit. Michael,
Speaker 3: thank you really appreciate it. Checking in on that treasury
Speaker 3: trade are on. Michael mackenzie follows the rates market here
Speaker 3: at Bloomberg News.
Speaker 4: Joining us here in studio.
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Speaker 3: The worries that we are seeing play out once again
Speaker 3: along the treasury market, the treasury curve.
Speaker 4: We had an auction that didn't go so well.
Speaker 3: Demand was weak there and so you are looking at
Speaker 3: really the longer end of the year curve bopping up
Speaker 3: in a big way. We hit about four point six
Speaker 3: percent on that ten year note. Got a two year
Speaker 3: note that has been trading around four percent as well,
Speaker 3: and so there are concerns again about this massive spending
Speaker 3: that's making its way through Congress has some ways to go,
Speaker 3: but it also will add to the deficit, and so
Speaker 3: deficit hawks are not happy about it. Investors on Wall
Speaker 3: Street aren't happy about it as well. They're concerned.
Speaker 5: Yeah, also checking out what's happening. As you peel back
Speaker 5: the layers of the S and P five hundred, you
Speaker 5: actually see Apple as the biggest drag on the S
Speaker 5: and P five hundred right now, followed by Nvidia down
Speaker 5: one point eight percent, Microsoft, Amazon, Tesla, United Health Group
Speaker 5: among the biggest decliners as well. I want to bring
Speaker 5: in Sandy Villary, portfolio manager for Villary and Co. Joining
Speaker 5: us from New Orleans. This is a four generation family
Speaker 5: run firm.
Speaker 7: Carol.
Speaker 5: We speak with Sandy all the time. Sandy, good to
Speaker 5: have you with us. How are you good?
Speaker 8: Thanks Jim, Thanks Carol. Good to hear from you.
Speaker 5: Yeah, good to have you join us today. I just
Speaker 5: want to get your thoughts on how you're looking at
Speaker 5: what's happening in Washington, because that's really what we're seeing
Speaker 5: with the market reaction today, at least with that bond auction,
Speaker 5: that tencent equities tumbling today. What's your view there?
Speaker 9: Yeah, I mean very we're very stock focused, but I
Speaker 9: will say it's impossible not to pay attention to it
Speaker 9: because just you look at what happened in twenty twenty
Speaker 9: five so far, all about the tariffs. Now we've got
Speaker 9: the new bill that's going to certainly increase deficits a
Speaker 9: little bit. And to your point, we had a you know,
Speaker 9: the twenty year auction was certainly weaker, and now we're
Speaker 9: seeing yields back to where we started the year on
Speaker 9: a four to sixty.
Speaker 8: So it's hard to start.
Speaker 9: To avoid a lot of what's going on and trying
Speaker 9: to focus on individual names.
Speaker 3: Yeah, exactly. And you've got your villary equity fund. I'm
Speaker 3: looking at it up about one point six percent on
Speaker 3: the year. If I look at your balanced fun it
Speaker 3: is up about three point four percent year to date.
Speaker 3: How much movement have you guys been making in and
Speaker 3: out at this point.
Speaker 9: Yeah, we started the year very defensive after a really
Speaker 9: good twenty three and twenty four, especially for the S
Speaker 9: and P. It's so tech heavy, so we were more
Speaker 9: defensively positioned. We had some cash, and then when we
Speaker 9: got into the lows, those early April lows, we started
Speaker 9: to buy and we got about twenty percent through what
Speaker 9: we wanted to before the market just v shaped and
Speaker 9: went right back up. So now we're back to where
Speaker 9: we started the year, and we're getting more defensive again.
Speaker 9: And I think if I look at the SMP and
Speaker 9: how it may end the year, I see about fifty
Speaker 9: five hundred or so on the SMP, and I think
Speaker 9: it's going to be carried down by a lot of
Speaker 9: the larger cap tech names. So I think defense is
Speaker 9: going to win championships in the rest of twenty twenty five.
Speaker 3: All Right, so let's talk about kind of where you
Speaker 3: are committing money. And I'm assuming these picks are something
Speaker 3: that have been recent buys, but you can correct me
Speaker 3: if I'm wrong or right on that. Republic Services, we're
Speaker 3: talking about a seventy eight billion dollar market cap company.
Speaker 4: We're talking about waste management.
Speaker 3: Stock has had quite a run this year, twenty six
Speaker 3: percent recent buy adding to it lay it out for us.
Speaker 8: Yeah, I would still buy it.
Speaker 9: This is an incredible business that just as long as
Speaker 9: people continue to get their garbage collected, we feel good
Speaker 9: about it.
Speaker 8: A mid single digit free cash flow compounder.
Speaker 9: They just had a great quarter and they're getting more
Speaker 9: into recycling. They've got two polymer centers, so fundamentally they're.
Speaker 8: Doing everything right.
Speaker 9: And it's where I want to be, which is you know,
Speaker 9: larger cap defensive. So I think it's going to I
Speaker 9: think it's going to do well throughout the duration of
Speaker 9: twenty twenty five.
Speaker 3: Another name that you like on holding, I own their footwear,
Speaker 3: their sneakers full disclosure. Full disclosure is not where I'm
Speaker 3: talking about there, you know, SEEFO like we've had them on,
Speaker 3: We've talked with them. This stock has been on a
Speaker 3: tear you're talking about, up about fifty seven percent twenty
Speaker 3: twenty three, up about one hundred and three percent in
Speaker 3: twenty twenty four. This year it's up to shy of
Speaker 3: nine percent. Here again, how long have you owned it?
Speaker 3: Have you been adding to the position?
Speaker 4: Have you where? What are you doing on this one?
Speaker 9: Yeah, we bought it frankly, not much longer after the IPO,
Speaker 9: which is all the way back in twenty twenty one,
Speaker 9: So we've had it for some time and that's kind
Speaker 9: of our styles to buy and hold, you know, over time.
Speaker 9: We did add to it not too long ago, and
Speaker 9: we still think it's going to do well.
Speaker 10: Now.
Speaker 9: If you do have a choppy market and things are weaker,
Speaker 9: this is a great name to add on any weakness.
Speaker 9: They're just getting started still, in my opinion, probably grow
Speaker 9: earnings at twenty five percent over the next three years,
Speaker 9: and they're starting to get into a pail. They're getting
Speaker 9: more stores out there, probably closer to one hundred, and
Speaker 9: if you're worried about supply chains, they get about eighty
Speaker 9: percent through.
Speaker 8: Vietnam as opposed to China.
Speaker 9: So I just feel like it's still going to be
Speaker 9: moving in the right direction. And if you get some weakness,
Speaker 9: you get an opportunity to add to it.
Speaker 3: And I would did you buy in early April after
Speaker 3: it was hit?
Speaker 8: This wasn't one that we bought in April, unfortunately, but we.
Speaker 3: It's up about sixty percent since there. I didn't either,
Speaker 3: so I'm with you, but yeah, okay, you didn't.
Speaker 8: Yeah we did.
Speaker 9: We bought two other names. But what an opportunity anytime
Speaker 9: you can buy a great company like this, there's still
Speaker 9: just running on all cylinders. And you know, in our opinions,
Speaker 9: you just you just you buy it on on weakness.
Speaker 8: We just we had other names we wanted to add
Speaker 8: at the time.
Speaker 3: What you said, you added two other names off of
Speaker 3: the April sell off? What what were they? I'm just curious.
Speaker 8: It's interesting.
Speaker 9: One one is a company called Pinnacle Financial that is, uh,
Speaker 9: you know, a bank in Nashville that we really like,
Speaker 9: and our intention was to take a larger position. We
Speaker 9: just never got the opportunity to do so. Unfortunately, just
Speaker 9: because of the V shape, all of a sudden it
Speaker 9: was traded, you know, just got to a multiple it
Speaker 9: was a little bit too high, and we added to
Speaker 9: a little bit of Striker, just knee replacement, hip replacement,
Speaker 9: probably on the safer side of what was going on
Speaker 9: at the time. So liked both names, but unfortunately didn't
Speaker 9: get a chance to fill uh, at.
Speaker 8: Least the Pinnacle.
Speaker 3: Oh okay, So in other words, you did buy Striker
Speaker 3: at the low, but Pinnacle you saw.
Speaker 4: It, wish you had, but hadn't bought it. You didn't
Speaker 4: buy it.
Speaker 9: So not to get into doing but we bought about
Speaker 9: twenty percent of our position, and then by the time
Speaker 9: it V shaped, we were sort of boxed out from
Speaker 9: finishing it.
Speaker 8: Okay, So we actually kind of sold.
Speaker 9: What we had and we looked at it if we
Speaker 9: do get more choppiness in the next month or two.
Speaker 5: Pool Corporation, you know, I pulled up the dees page
Speaker 5: on the Bloomberg terminal. It's down a little more than
Speaker 5: ten percent this year. I actually was expecting it to
Speaker 5: be lower because I recall late last month the company
Speaker 5: reported earnings that they essentially said, fiscally, your earnings per
Speaker 5: share will come in just about what analysts saw. But
Speaker 5: they did report first quarter earnings per share that came
Speaker 5: in shy of estimates, in first quarter net sales that
Speaker 5: came in shy of estimates. This one was surprising for
Speaker 5: me to see on your list of stocks that you're
Speaker 5: bullish on, because isn't the concern the company essentially said
Speaker 5: the environment was weighing on new pools, So, you know,
Speaker 5: not necessarily a name that you would want to own
Speaker 5: in an environment where consumers aren't spending money.
Speaker 10: No.
Speaker 9: Yeah, So what happened in twenty twenty three they were
Speaker 9: about about seventy to seventy five thousand new pools built,
Speaker 9: and now we're down to about sixty two thousand as
Speaker 9: you closed out twenty twenty four. So about fifteen percent
Speaker 9: of their business is new pool construction. It does carry
Speaker 9: higher margins and it's a great part of their business,
Speaker 9: but two thirds of their business is just repair and maintenance.
Speaker 8: Of your swimming pool.
Speaker 9: So this is a true, you know, long term hold
Speaker 9: where as long as people are putting chemicals and chlorine
Speaker 9: into their swimming pools, they're remodeling and every you know,
Speaker 9: basically every ten to twelve years, you might have to replaster.
Speaker 9: These guys are as big as their top ten competitors combined.
Speaker 9: And so when you get weakness in one little part
Speaker 9: of their business new pool construction, which is important, and
Speaker 9: that kind of pushes the stock down to a reasonable evaluation.
Speaker 9: To us, it's a great opportunity to add if you
Speaker 9: get any strength and new pool construction. And look, today's
Speaker 9: interest rates aren't helping, right, people aren't going out and
Speaker 9: trying to borrow money to put in a new pool.
Speaker 9: But in general, you get you get any sort of
Speaker 9: strength already, you know, diminished expectations from analysts already that
Speaker 9: have taken their numbers down. I think it's got you know,
Speaker 9: it could be a three hundred and fifty dollars stock
Speaker 9: in my opinion.
Speaker 3: Hey, one thing I'm curious stand at this point are
Speaker 3: you hire in terms of your cash allocations and your
Speaker 3: funds right now?
Speaker 4: Kind of keeping some powder dry?
Speaker 3: Lack of a better expression, but often used right in
Speaker 3: environments where we're not quite sure what's happening next. Are
Speaker 3: you keeping more money handy and ready to put to
Speaker 3: work than you normally do.
Speaker 9: Yeah, we do have higher cash levels, and we sort
Speaker 9: of came into twenty twenty five like that, and then
Speaker 9: we tried to We tried to invest what we could.
Speaker 9: We just didn't have long enough. We didn't think the
Speaker 9: whole market malaise would be you know, three days, and
Speaker 9: so we didn't have enough time to put it to work.
Speaker 9: But now we we did raise a little bit more cash,
Speaker 9: and so we are cash heavier than we have been.
Speaker 9: And it wasn't necessarily that we were worried about valuation
Speaker 9: or things like that. We couldn't find new stocks to
Speaker 9: buy that then really met our investment criteria being cheap.
Speaker 8: So we go to the sidelines.
Speaker 9: We will get a little bit over four percent in
Speaker 9: money market and just wait for those opportunities and.
Speaker 8: Ideally we see him, you know, maybe over a week
Speaker 8: or summer.
Speaker 7: I've heard Warren Buffett say the same thing.
Speaker 9: Yeah, no, that's right, and uh it's funny talking about
Speaker 9: Pool Berkshire Hathway digits. Yeah, I saw there's their position
Speaker 9: you know, middle of May by about nine hundred thousand shares,
Speaker 9: so they've become a top five year old.
Speaker 8: So good company with those guys.
Speaker 5: But yeah, what are your well, what are your you know,
Speaker 5: people really try to parse through every single thing Warren
Speaker 5: Buffett has to say at annual meetings and whenever he
Speaker 5: opens his mouth to try to figure out what exactly
Speaker 5: he's going to buy next, what are your you know,
Speaker 5: as a value investor, what are your what's your what
Speaker 5: are your parameters in an environment such as this to say, okay,
Speaker 5: I'm ready to get off the sidelines and buy this
Speaker 5: individual company.
Speaker 9: Yeah, and that's where we were, and that those April lows.
Speaker 9: We've got a laundry list of ten names that that
Speaker 9: really meet our criteria, which are just having a company
Speaker 9: that just absolutely dominates their niche and Pool certainly fits that.
Speaker 9: Build on Semi Republic being the next, you know, the
Speaker 9: number two player behind waste management, but a really dominant franchise.
Speaker 8: That's what we're looking for.
Speaker 9: And many times you have to pay up for those
Speaker 9: types of businesses. But if you get a if you
Speaker 9: get you know, market uncertainty and things that are going
Speaker 9: wrong from a macro or a DC standpoint, and you
Speaker 9: can you can get into one of those businesses.
Speaker 8: That's what we always look for if you.
Speaker 3: Get we've gotten that sandy market uncertainty, questions.
Speaker 4: About the outlook.
Speaker 3: I am curious in a day where we're all, you know,
Speaker 3: seeing nervousness, risk off come back into the equity trade
Speaker 3: and seeing those yields move up again. An argument that
Speaker 3: you know, go back ten twenty years. We had concerns
Speaker 3: about the US federal deficit. So I am curious how
Speaker 3: that factors into I understand your top stock picker looking
Speaker 3: for valuations. Are you anticipating an environment where stocks are
Speaker 3: going to get beaten down even more, maybe we even
Speaker 3: go into recession and that that's an opportunity for you
Speaker 3: or are you a little bit more worried that it's
Speaker 3: something more problematic, or are you saying, you know what,
Speaker 3: this will turn around.
Speaker 9: Yeah, I do think as yields pick up, I mean,
Speaker 9: if yields keep climbing, and you know, I do think
Speaker 9: that's at the end of the day going to dampen
Speaker 9: equity returns as those go a little bit higher. You know,
Speaker 9: I think there's when you look at terrorists and everything
Speaker 9: else that are going on. I think that causes you know,
Speaker 9: boards of directors of publicly traded companies to sort of
Speaker 9: pause on some of the things they may have been doing.
Speaker 9: And I'm not calling for a recession, but I am
Speaker 9: calling for a little bit of a slowdown. And I
Speaker 9: think there's going to be better opportunities as we get
Speaker 9: further into the year than maybe we have right now.
Speaker 9: I mean, it's pretty amazing that the SMP was down
Speaker 9: almost eighteen percent and now we're back to break even.
Speaker 8: I'm sort of looking, you know, towards the end of
Speaker 8: the year where I.
Speaker 9: Think that that if you looked at a Vanguard value index,
Speaker 9: I think it could outperform say Vanguard Growth And if
Speaker 9: you look over the last decade, growth has outperformed value
Speaker 9: by about seven percent annualized.
Speaker 8: I'm also looking for some reversion to the means.
Speaker 9: So in general, I'm trying to find those cheaper dominant
Speaker 9: companies in the market and trying to avoid some of
Speaker 9: the larger cap expensive you know, mag seven names.
Speaker 5: What portion of your assets under management right now do
Speaker 5: you have in cash?
Speaker 9: I'd say in general what probably like fourteen or fifteen percent,
Speaker 9: And what do you typically higher than we normally are
Speaker 9: you so what's your normal?
Speaker 8: We're probably closer to four or five percent.
Speaker 5: Okay, do you anticipate going Look, you can't see the future,
Speaker 5: none of us can. But just in terms of the
Speaker 5: way you're thinking about this market environment, do you anticipate
Speaker 5: getting to that four or five percent level this year?
Speaker 5: Are you willing to stay on the sidelines until next year?
Speaker 2: Now?
Speaker 8: We do not like to be this cash heavy.
Speaker 9: And again it's not that it's more of a buyer strike, right,
Speaker 9: we just can't find those companies that are cheap because
Speaker 9: they've just this rallied on this as V.
Speaker 8: Shape or covery that we just had.
Speaker 9: So I hope to be, you know, ninety seven percent invested.
Speaker 9: You know, as we get through the year, we just
Speaker 9: need to find those those names and put that cash
Speaker 9: to work. So a bit of an anomaly to be
Speaker 9: this cash heavy.
Speaker 3: Frankly, Sandy, really quickly thirty seconds anywhere along the US
Speaker 3: Treasury curve that you find attractive or you just staying.
Speaker 4: Away at this point.
Speaker 3: I know you're in corporates and other things, but I'm
Speaker 3: just curious when it comes to US treasuries.
Speaker 9: Yeah, I would say if we if maybe they rallied
Speaker 9: a little bit further, maybe we'd get more interested in
Speaker 9: and picking up some we do have, you know, about
Speaker 9: twenty five percent of our of our balance fund in
Speaker 9: corporate bonds.
Speaker 8: We like to buy you know, triple B sentle O.
Speaker 3: But I mean in terms of treasuries anything in terms
Speaker 3: of US sovereign Are you just staying away?
Speaker 9: No, we're staying away, you know, in our opinion, just
Speaker 9: looking at corporate versus treasuries, we think you get paid
Speaker 9: a lot more in corporates versus versus you know, what
Speaker 9: tends to be risk free, and so we'd like to
Speaker 9: pick up a little bit more yield by doing a
Speaker 9: little bit of research and buying some you know, maybe
Speaker 9: some you know on the lower end of investment grade,
Speaker 9: you know, corporate debt.
Speaker 5: This is exactly what Michael mackenzie told us earlier in
Speaker 5: our program, like why buy treasuries when you can go
Speaker 5: and buy from companies?
Speaker 3: Totally totally, like it makes sense, right, Hey, Sandy b Well,
Speaker 3: Sandy Villary, portfolio manager for Villary and Company, Joenning us
Speaker 3: from New Orleans.
Speaker 2: This is the Bloomberg Business Week Daily podcast. Listen live
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Speaker 11: Well.
Speaker 5: We last checked in with Jenny Rook in February of
Speaker 5: this year. It was in Take Your Time Machine.
Speaker 7: Okay.
Speaker 5: This was in the midst of a lot of the
Speaker 5: news about federal money being fooled from universities, a pullback
Speaker 5: in spending that traditionally goes to research. And what we've
Speaker 5: heard since then, and what I've noticed since then reading books,
Speaker 5: reading articles, reading about innovations is a lot of what
Speaker 5: I've read about is this whatever X can trace its
Speaker 5: roots back to public funding.
Speaker 3: Yeah, it's really important, right, the early development starting in
Speaker 3: so many federally funded projects. Let's get into it, because
Speaker 3: you know she's got some thoughts on this. We've talked
Speaker 3: about this, Jenny, of course. Jenny Brook, founder and managing
Speaker 3: director of Genoa Ventures. It's a VC firm that investments,
Speaker 3: as she says, the quote next generation of companies at
Speaker 3: the convergence of technology and biology. So much going on
Speaker 3: when you think about that and layer in AI. She
Speaker 3: joins us here in our Bloomberg Interactive Broker studio. It
Speaker 3: is good to have you back with us. What's amazing
Speaker 3: is somebody said to me, what is about February March April.
Speaker 4: I got to use my finger life three months, but
Speaker 4: a lot has happened.
Speaker 3: It's crazy in the administration and especially things that when
Speaker 3: we think about funding that goes to universities, different projects,
Speaker 3: and IH, like, I'm just thinking about it. We're so
Speaker 3: how much can come out of it that we take
Speaker 3: for granted today but also creates companies, adds to the economy.
Speaker 3: Tell us how you are kind of taking all of
Speaker 3: this in and then your world in terms of investing it.
Speaker 10: Now, you're quite right, Thanks for having me back. It's
Speaker 10: such an important topic, and it does sound like you've
Speaker 10: been looking into it since I was here last and
Speaker 10: finding just how much of what gets to market started
Speaker 10: as basic research funded by the federal government, sometimes decades
Speaker 10: before it became something that we can benefit from as consumers,
Speaker 10: as patients, as just regular citizens. So as I've been
Speaker 10: talking to we talked last time about large well funded universities,
Speaker 10: are they really going to be hit by this? And
Speaker 10: certainly the numbers are quite large for those But what's
Speaker 10: important to know is that these kinds of discoveries can
Speaker 10: come from anywhere. They're often a passionate researcher in a
Speaker 10: university that might be in a college town that might
Speaker 10: be the only end street in that town. And so
Speaker 10: not only the funding that drives their particular projects looking into,
Speaker 10: for example, the mechanisms of a cancer gene, but also
Speaker 10: the dollars that then go through the indirect funding to
Speaker 10: that university or college so that it gets to keep
Speaker 10: running as a business and keep supporting its local ecosystem.
Speaker 10: So I'm seeing kind of up and down the chain,
Speaker 10: regardless of whether you're Stanford or a college you haven't
Speaker 10: heard of. It's really resetting how people are thinking about
Speaker 10: what they can get done in their labs and in
Speaker 10: their institutions.
Speaker 5: I know I've talked about this book quite a bit
Speaker 5: over the last couple of weeks, Carol, but we're hoping
Speaker 5: to get the authors on the program Abundance, Derek Thompson
Speaker 5: and as reclined. And one thing that I learned in
Speaker 5: that book was that the inventors of the mRNA vaccine,
Speaker 5: who won the Nobel Prize in twenty twenty three for mRNA.
Speaker 7: Their work in m RNA, they.
Speaker 5: Essentially toiled in obscurity for decades. Yes, and that story
Speaker 5: is more than norm that's right. Then it is the outlier,
Speaker 5: it seems, and that was something that kind of blew
Speaker 5: my mind because you have this research being done and
Speaker 5: it doesn't seem like it's going to amount to anything
Speaker 5: until it does.
Speaker 6: That's right.
Speaker 7: That's kind of the world that you live in.
Speaker 10: That's kind of the vibe. Yeah, it's why we call
Speaker 10: it discovery. Development is another thing when now you have
Speaker 10: something it kind of works, you want to turn it
Speaker 10: into a product. That's a great place for venture capital
Speaker 10: to step in. We love to engage early with those companies.
Speaker 10: But the discovery portion, you often don't know what you're
Speaker 10: looking for. You're just curious. You're picking things apart, you're
Speaker 10: turning over rocks.
Speaker 5: So how patient are your investors when it comes to
Speaker 5: this stuff, because you're not you know, investing in an
Speaker 5: app that has high margins and is going to you know,
Speaker 5: be a game. If we're thinking about this, like in
Speaker 5: the last fifteen years of venture capital and what the
Speaker 5: winners have been, you're not investing in a social media
Speaker 5: company that Presta has to go viral and become a
Speaker 5: top app in the app store for example.
Speaker 10: Well, certainly the journey for a bio or science based company,
Speaker 10: a deep tech company being venture backed and then becoming
Speaker 10: a great exit for LPs, those are very different, and
Speaker 10: the kind of capital you need and weather regulatory matters,
Speaker 10: which is another thing we could talk about. Right, those
Speaker 10: are pretty different versus an app, as you say, but
Speaker 10: the rules of venture capital are still the same. In
Speaker 10: seven to ten years, you need to give your LPs
Speaker 10: back three x net. Now, very few vcs managed to
Speaker 10: do that, but you can. You can still find winning
Speaker 10: playbooks in the sciences that work for that journey, and
Speaker 10: that's that's what we're trying to do, and other life
Speaker 10: sciences vcs do.
Speaker 3: Hey, one thing I want to ask you, So I
Speaker 3: just want to rehash for everyone who's listening at this point,
Speaker 3: because we are seeing markets pretty much.
Speaker 4: Hover near their lows of the session.
Speaker 3: So we're still down about almost one point eight percent
Speaker 3: on the S and P five hundred down, about one
Speaker 3: hundred and five points down, two percent on the Dow
Speaker 3: Jones Industrial Average. Now's TEK one hundred down about one
Speaker 3: point six percent down, three hundred and forty three points this,
Speaker 3: As we've said, really the focus is on the treasury
Speaker 3: trades we see and yields move up A ten year
Speaker 3: in it with yield of four fifty eight, so just
Speaker 3: shy a four point six so that we hit that earlier.
Speaker 3: But really at the longer end of the yelk curve
Speaker 3: we've seen also yields move up. You know, when we
Speaker 3: think about the volatility within the market environment, for you
Speaker 3: as an investor, are you going to be more cautious
Speaker 3: in an environment like this or are you able to
Speaker 3: maybe make a bigger investment in something because there is
Speaker 3: stress out there. I'm just curious how that plays into
Speaker 3: your world.
Speaker 10: I think most early stage vcs, ourselves included, are already
Speaker 10: taking a lot of risk, and that is our job
Speaker 10: right right, well characterized risk that in the long term
Speaker 10: can deliver outsize returns, and so temporary volatility doesn't change
Speaker 10: our day to day strategy. Typically, what it does change
Speaker 10: is the availability of capital to deploy against that strategy.
Speaker 10: So investors LPs who are thinking about all of their
Speaker 10: asset classes, who are dealing with so much volatility and uncertainty,
Speaker 10: it can be very challenging to have the long term
Speaker 10: discipline to say now is a great time. Don't put
Speaker 10: money in a ten year illiquid asset with the hopes
Speaker 10: of upside. Even if they have that discipline, it can
Speaker 10: be hard to even just create the bandwidth to find
Speaker 10: no great venture opportunities. So it's a tough time to
Speaker 10: do the next venture thing.
Speaker 4: I would say it makes it tough. Jenny Brook we're
Speaker 4: talking with.
Speaker 3: She is the founder managing director of Genera Adventures, a
Speaker 3: FEC firm that invests in as. We talked about life
Speaker 3: sciences companies looking at that cross section between technology and biology.
Speaker 4: We talked about the volatility in.
Speaker 3: The markets and how it's impacting perhaps you, Jenny, there's
Speaker 3: a headline that crossed coming from the Wall Street Journal
Speaker 3: that RFK Junior, of course key in terms of health
Speaker 3: and human services for the government, chief advisor to the President,
Speaker 3: expected to criticize vaccines. We saw some movement this week
Speaker 3: in terms of vaccines that was seen by vaccine makers,
Speaker 3: Maderna and others that maybe it wasn't as bad as
Speaker 3: everybody thought it might be in terms of approving vaccines
Speaker 3: for some folks. I'm just curious how policy out of Washington.
Speaker 3: Regulatory environment and so on also factors into how.
Speaker 4: You are investing where you are investing.
Speaker 10: This is a really important question because regulatory of course,
Speaker 10: is critical to making sure that safe, effective medicines, interventions,
Speaker 10: foods are regulated get to the public in a timely manner.
Speaker 10: And so venture capitalists often surprisingly actually embrace regulatory because
Speaker 10: it's a way to make sure that something gets to
Speaker 10: market in a way that will be accepted and effective
Speaker 10: with patients, for example. And so what's important is to
Speaker 10: have kind of clear rules of the game, what is
Speaker 10: required to show safety and efficacy on what timeline will
Speaker 10: a regulatory body review those data. That's what's so important,
Speaker 10: and that's where we're really seeing a challenging set of
Speaker 10: headwinds as venture investors, where we're often funding a company
Speaker 10: enough or maybe just slightly less than enough to get
Speaker 10: to the next milestones, which may be regulatory approval, and
Speaker 10: if that's going to take an extra six months, that
Speaker 10: can kill a company they don't have the funds to
Speaker 10: get through that.
Speaker 5: What in your view, would is the long term implication
Speaker 5: of this FDA this AHHS under Secretary.
Speaker 10: Kennedy, Well, if I knew that would be.
Speaker 7: A different capitalist. So you are supposed to know the future.
Speaker 10: Yeah, We're supposed to take important and risky bets. So
Speaker 10: I don't know again what the journey will be. But
Speaker 10: perhaps one of the upsides to taking these very long
Speaker 10: term bets is when I think about a company we
Speaker 10: might invest in today, do I believe we will have
Speaker 10: a functioning FDA that is science driven and looks at
Speaker 10: novel medicines and tries to get them to the public
Speaker 10: in seven to ten years?
Speaker 12: I do?
Speaker 10: I do we will still have that, right. Will the
Speaker 10: timelines be different, Will the requirements be different?
Speaker 4: Could be? Could be?
Speaker 10: One of the things I love about science is that
Speaker 10: it invites inquery, it invites being tested, It invites discussion
Speaker 10: amongst people who are trying to work for the same outcomes.
Speaker 10: So I'm a long term optimist.
Speaker 3: Let's say, hey, Jenny, one last question, because one thing
Speaker 3: that has become a narrative and a trend is investors
Speaker 3: looking outside the United States for opportunities.
Speaker 4: Is that something you are increasingly doing as well?
Speaker 12: This is real.
Speaker 10: We always look at general, we look globally for the
Speaker 10: very best opportunities. As you were describing, at this unusual
Speaker 10: convergence of biointech, and we look broadly outside of healthcare,
Speaker 10: food industrials. But what I am seeing I just came
Speaker 10: back from a meeting in Paris focused on industrial bio,
Speaker 10: which is making industrials like chemicals through bio routes. What
Speaker 10: I'm seeing is a couple of things. The mood there
Speaker 10: is lighter than here. For one thing, they're not wrapped
Speaker 10: up in our drama and.
Speaker 4: Shares, not the wine and the good food because everything and.
Speaker 10: The cheese and particulous. But there is less willingness to
Speaker 10: deploy their capital in US companies which had been in
Speaker 10: the startup space the darlings of the venture capital community.
Speaker 10: So we're seeing capital shift. And this is true, as
Speaker 10: you well know, in the public markets as well, up
Speaker 10: and down, whether it's a startup or a publicly traded
Speaker 10: leader to Europe.
Speaker 4: People have been said it's a rebalance. Everybody was too
Speaker 4: overexposed to the US. Do you think it's a rebalance
Speaker 4: or they're saying I'm not so sure. I like the
Speaker 4: US environment just got about thirty seconds.
Speaker 10: I think it's the latter, and I think it's going
Speaker 10: to make It's a great opportunity for European investors. And
Speaker 10: European companies to attract some US capital that perhaps wouldn't
Speaker 10: have looked out outside.
Speaker 4: Great perspective, So glad you stop by.
Speaker 10: Aganna, thanks for having me.
Speaker 4: Always good to have you here.
Speaker 3: Jenny Brook, founder and Managing director at Genera Adventures, joining
Speaker 3: us here in our Bloomberg Interactive Broker Studio.
Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch
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Speaker 3: The world is diced and sliced in so many different ways,
Speaker 3: So you want to know something about rare earth minerals,
Speaker 3: you just kind of type.
Speaker 7: In ani rare earth would you find when you did that?
Speaker 3: Okay, there's a store in the terminal, Russia's largest oil
Speaker 3: producer buying a giant Siberian rare earth deposit, which may
Speaker 3: become an area of cooperation with the United States. I
Speaker 3: think that's kind of cool. That's for jo Rosneff, obviously,
Speaker 3: the state run energy oil company over there. But I
Speaker 3: just think about there's a lot of jockeying going on
Speaker 3: right now when it comes to rare earth minerals.
Speaker 4: We're seeing that happen in a big way.
Speaker 5: Yeah, I think that's fair to say, and that's exactly
Speaker 5: why we want to bring back Joe Doe. We talk extraction,
Speaker 5: we talk refining, we talk manufacturing. When it comes to
Speaker 5: rare earth minerals, the next company knows all about it
Speaker 5: from A to Z, and it's happening right here, Carol,
Speaker 5: in the US.
Speaker 3: It is, indeed. So let's get to our guest. James
Speaker 3: Littiski is here. He's co founder, chairman and CEO. It's
Speaker 3: a three point three billion dollar rare earth companies called
Speaker 3: MP Materials. It's up about thirty percent year to date,
Speaker 3: so we just wanted to lay that out. Also with
Speaker 3: us is Bloomberg News Metal Mining Heavy Machinery reporter Joe Dough.
Speaker 3: I'm rushing because I want to get to you. I
Speaker 3: want to get to the guest. Whenever you jump in
Speaker 3: the studio, I want to rush to you.
Speaker 2: Joe.
Speaker 4: It's great to have you here.
Speaker 3: You said to us, we've talked with you a lot
Speaker 3: about rare minerals, and he said, we got to talk
Speaker 3: to this guy.
Speaker 4: Tell us why we have to talk to James.
Speaker 12: Well, so Jim James Liatinsky, Jim Jim Litinski. He has
Speaker 12: been running imped Materials now for years. Basically Jim took
Speaker 12: the old Mountain Pass Molly Corp. Company that had gone
Speaker 12: to bankruptcy and has turned it into something investable. Jim
Speaker 12: can kind of give you his you know, one two
Speaker 12: on everything. But basically they're right at the center of
Speaker 12: so much of what Donald Trump is focusing on critical minerals,
Speaker 12: rare earths. Where are we going to get it? How
Speaker 12: are we going to rely less on China, the processing,
Speaker 12: the magnets, everything right, the whole of it right right,
Speaker 12: And and it's a lot of questions that I have
Speaker 12: for Jim too, like, hey, what do you think when
Speaker 12: the President of United States is looking at people like
Speaker 12: you and saying do it all?
Speaker 7: Jim?
Speaker 4: What do you think?
Speaker 11: Well, Hi, nice to see you guys, Joe, good to
Speaker 11: see you again. Yeah, it's certainly a very exciting time
Speaker 11: for us. As you mentioned, you know, we're the only
Speaker 11: company in the world, and that includes Chinese industry that
Speaker 11: has the expertise from the resource all the way through
Speaker 11: to the magnet. And what I stress again and again
Speaker 11: when we think about rare earths because it's very topical.
Speaker 11: A lot of times people talk about extraction. You know,
Speaker 11: you hear Ukraine, greenland deep sea mining, or even today
Speaker 11: with the President of South Africa getting you know, a
Speaker 11: stern dress down in the Oval Office talking about how.
Speaker 7: He has rare oaths too.
Speaker 11: We could have all the rarests in the world, but
Speaker 11: if you can't refine them and turn them into magnets,
Speaker 11: you don't have a solution for the issue.
Speaker 5: So, Jim, do you have that solution right now? Because
Speaker 5: we spoke with Joe a little earlier this year, he
Speaker 5: reminded us that it kind of doesn't matter if you
Speaker 5: can extract it here in the US, you've got to
Speaker 5: be able to refine it. And in some cases, with
Speaker 5: some of these elements, ninety percent of that is happening
Speaker 5: in China. What exactly can you do on the refining
Speaker 5: level here in the US?
Speaker 4: So great question.
Speaker 11: There are two places in the world that you can
Speaker 11: refine at scale, the Chinese sphere of influence predominantly China,
Speaker 11: a little bit Malaysia, and then in California in Mount Pass, California,
Speaker 11: which is our site. We actually, I think some people
Speaker 11: would be surprised by this, but we refine today more
Speaker 11: than half of the concentrate that we produce. So we
Speaker 11: are refining at scale as we speak, and expanding that rapidly.
Speaker 11: So we have brought this capability back to the United
Speaker 11: States of America, and we're the second largest producer of
Speaker 11: rare materials in the world today.
Speaker 3: So one thing I just want to follow, because I
Speaker 3: think you guys know this world so well, Jiminto, But
Speaker 3: I mean, when you say refine at scale, what exactly
Speaker 3: are you talking about.
Speaker 4: I'm just saying if people are listening, like, okay, what
Speaker 4: does that mean?
Speaker 8: You know?
Speaker 11: A simple analogy, Carol would be think of oil and gasoline.
Speaker 9: Right.
Speaker 11: You could get an oil out of the ground, but
Speaker 11: you can't put it in your car until it's in
Speaker 11: the form of gasoline. Right, you refine it. In this case,
Speaker 11: you basically take an ore out of the ground, you
Speaker 11: concentrate it so it's it's a highly concentrated ore with
Speaker 11: the rareth in it. But then to get the separated
Speaker 11: rare earth that you would then turn into a magnet,
Speaker 11: you refine that concentrated ore into an oxide. And then
Speaker 11: not to lose the audience, but you take that oxide,
Speaker 11: you turn it into a metal and alloy and then
Speaker 11: a magnet and so and just last point on that
Speaker 11: that I think is really critical. At Mountain Pass today
Speaker 11: we not only mine and refine, but we now send
Speaker 11: that ore to a magnet factory that we built from
Speaker 11: scratch at Greenfield in Fort Worth, Texas. I'm actually talking
Speaker 11: to you today from our factory and it's on a
Speaker 11: street called Independence, So we called Independence, but we are
Speaker 11: making auto grade magnets here at our factory in Independence
Speaker 11: in Texas, with material that we mine and refine in California.
Speaker 11: And we're in the process of scaling up this facility.
Speaker 11: We have a foundational contract with General Motors, and so
Speaker 11: we will be providing General Motors with magnets at scale
Speaker 11: at the end of the year, with material that is
Speaker 11: mined and refined in California.
Speaker 12: Jim, I want to kind of get away from the
Speaker 12: nerdy science. I know you and I can talk about
Speaker 12: that all day, but I do want to talk about
Speaker 12: what does matter to the average person here in the US,
Speaker 12: which is, you can't do all of this on your own.
Speaker 12: You cannot. While you might have the full supply chain,
Speaker 12: you cannot be the sole supplier of critical materials, specifically
Speaker 12: rare earths and the magnets. You've said that to me
Speaker 12: for years. One of the things you said to me
Speaker 12: years ago was listen, the point is not overnight being
Speaker 12: the sole provider to yourself domestically, it is slowly pulling
Speaker 12: market share away from China. What are the kind of
Speaker 12: conversations you're having right now on this front, on the
Speaker 12: statecraft front, and maybe you could tell us a little
Speaker 12: bit about the MoU you signed with Madden, the Saudi
Speaker 12: Aribbian mind company just last week on this front.
Speaker 8: Yeah, sure, thanks, Joe.
Speaker 11: Well, it's a great question. We've said all along our
Speaker 11: mission is to restore the full supply chains to the
Speaker 11: United States. We've obviously done that in small scale and
Speaker 11: we're scaling that up, but we really want to be
Speaker 11: part of a broader solution to eliminate the single point
Speaker 11: of failure. As you mentioned, I was in Riad last
Speaker 11: week as part of the delegation of business leaders from
Speaker 11: the United States with the President and in the presence
Speaker 11: of the President and Crown Prince MBS, we signed an
Speaker 11: MoU with Modern, which is the Saudi mining company, to
Speaker 11: explore the process of essentially building a vertically integrated rare
Speaker 11: earth magnetics business in Saudi Arabia, and so what that
Speaker 11: would mean is we would mine, refine, and make magnets
Speaker 11: in the Kingdom. And I think from their standpoint, it's
Speaker 11: a really exciting opportunity to be to create a Mid
Speaker 11: East hub that could receive feedstock from there certainly, but
Speaker 11: also Africa and some other places and really position them
Speaker 11: well geopolitically. But more importantly, I would also say that,
Speaker 11: you know, it really solidifies what we've been saying we
Speaker 11: are and I think, you know, each step of the
Speaker 11: way are showing is that we are America's national champion.
Speaker 11: We're the only company in the world that can provide
Speaker 11: a solution in house to mine, refine, and make magnets.
Speaker 11: And so I think the vertically integrated approach that we've
Speaker 11: had is starting to be recognized by the world as
Speaker 11: you know, something pretty extraordinary that we've built inside MP
Speaker 11: And so it was nice that the President and the
Speaker 11: Crown Prince recognize that.
Speaker 8: So, yeah, you know, we'll run that.
Speaker 12: I mean, I mean, it's interesting, you're you're you're very
Speaker 12: much saying it's partners. We don't go it alone. It's
Speaker 12: not just the United States figuring it out. We'll work
Speaker 12: with the trade partners to figure it out. I think
Speaker 12: another question I have as you came out of the
Speaker 12: gates guns a blazing on your earnings call recently with investors,
Speaker 12: and you pointed out, listen, it is very important that
Speaker 12: we work with the administration to figure out the solutions
Speaker 12: to basically getting a hold of these rarers and these
Speaker 12: permanent magnets that are domestically or or friendshored produced. Can
Speaker 12: you tell us a little bit about the kind of
Speaker 12: conversations you're having with the administration or even the Defense Department.
Speaker 11: Sure, so, a really important just background context, if we
Speaker 11: go back about a month ago to Switzerland with the
Speaker 11: trade talks with China. At that point, we were and
Speaker 11: a lot of people don't know this or maybe don't
Speaker 11: appreciate this because you know, we're they're not in necessarily
Speaker 11: the rare magnetics niche, but we were weeks away, in
Speaker 11: my opinion, from a shutdowns across our economy in aerospace
Speaker 11: and in auto because the Chinese had essentially stopped shipping
Speaker 11: rare magnets and our supply chains were really starting to
Speaker 11: break down. And so obviously, fortunately we came away with
Speaker 11: a deal there and we're not gonna see those kinds
Speaker 11: of shutdowns, but we were really close, and that is
Speaker 11: a leverage point that the Chinese have in any negotiation.
Speaker 11: And again, whatever your view is on the relationship with China,
Speaker 11: whether it's you know, sort of going to be a
Speaker 11: collaborative relationship moving forward that gets reset or something much worse,
Speaker 11: we need to take this leverage point off the table,
Speaker 11: you know. That's our view at MP. That's what our
Speaker 11: mission has been. We've been at this for years. Is
Speaker 11: let's make sure that the United States of America can
Speaker 11: produce our own rare magnetics. And the reason Joe, that
Speaker 11: that is so important and you mentioned DD is because,
Speaker 11: as we've seen around the world, physical AI is the
Speaker 11: future of warfare. We're talking robotics and drones, and I
Speaker 11: think we see that from whether it's Elon Musk or
Speaker 11: Jensen Wong talking about the scale of robotics and how
Speaker 11: large that industry is going to be. It is not
Speaker 11: acceptable for American companies downstream. We're talking about trillions of
Speaker 11: dollars of enterprise value, our great leading companies, as well
Speaker 11: as our Department of Defense, to be relying on a
Speaker 11: single point of failure in the Chinese supply chain, and
Speaker 11: so we serve a critical role in alleviating that risk.
Speaker 3: All right, So it sounds like you're making the argument
Speaker 3: for why the US government should be involved, But is
Speaker 3: the government US government? Is there appetite for the US
Speaker 3: government to be a partner in rare earth projects and
Speaker 3: doing it from A to Z, from mining to processing
Speaker 3: to permanent magnet production.
Speaker 11: There is no question that the United States government recognizes this,
Speaker 11: and I think I think that these things take time,
Speaker 11: but there's no question that they recognize. And Joe was
Speaker 11: referencing our perspective on the earnings call, which is this
Speaker 11: is actually very doable. We are, you know, in a
Speaker 11: very short period of time away from solving this challenge
Speaker 11: in a large scale, and frankly, MP can lead that effort.
Speaker 11: And what we said is that MP, you know, we've
Speaker 11: been at this for a number of years. We've invested
Speaker 11: over a billion dollars of private capital, and you know,
Speaker 11: since we went public and then prior to that, we
Speaker 11: we had the good fortune, I guess of taking control
Speaker 11: of several billion dollars of previously invested capital. So we
Speaker 11: have billions of dollars of invested capital. And what we've
Speaker 11: said is we'll lead this solution, but it's not fair
Speaker 11: on our shareholders to expect them to take the risk.
Speaker 11: We're going to need to do this in a capital
Speaker 11: light way for MP right, it should be very rewarding
Speaker 11: for our shareholders for being in this position. So to
Speaker 11: answer your question, you know there will be movement forward.
Speaker 11: In my opinion, I think it's a question of getting
Speaker 11: these solutions don't happen overnight, but there's no question that
Speaker 11: there are a lot of conversations happening with government and industry,
Speaker 11: and we're leading those.
Speaker 3: Okay, so it sounds like government's involved, they're listening, and
Speaker 3: we should maybe stay tuned for news. What kind of
Speaker 3: money is needed to be committed to do the proper
Speaker 3: buildout in your view, whether it's public private partnership, and
Speaker 3: just about thirty seconds on that.
Speaker 11: Yeah, the really simple answer is we're talking single digit billions.
Speaker 11: This is a really simple problem to solve. Actually, I
Speaker 11: jokingly say for the coffee budget on the F thirty five,
Speaker 11: we probably could have solved the rarer issue.
Speaker 7: This is really small.
Speaker 11: Wow, And so I do think that the United States
Speaker 11: government is going to step up. I think you're going
Speaker 11: to see industry players step up as well, because this
Speaker 11: is just it's an issue that affects our national security
Speaker 11: and trillions of dollars of enterprise value, and it's actually
Speaker 11: a small problem.
Speaker 5: You mentioned that we could do this in a short
Speaker 5: period of time, give us years or some sort of timeline,
Speaker 5: that we could actually move away from a single point
Speaker 5: of failure when it comes to this problem.
Speaker 11: Well, we're bringing that online now in Texas, right So
Speaker 11: where I'm sitting is a factory. You all are welcome
Speaker 11: to come see it, and so we'll be making magnets
Speaker 11: at scale here at the end of the year. And
Speaker 11: then the question is what percentage of the industry do
Speaker 11: we need to satisfy to remove this single point of
Speaker 11: failure risk, Because we don't need to solve one hundred percent,
Speaker 11: but we need to do a material percentage.
Speaker 8: And so I think the.
Speaker 11: Next step would be for us to lead a solution
Speaker 11: where we're building, you know, something significantly larger and then rinse,
Speaker 11: repeat to add a number of facilities both here and
Speaker 11: as we announce with the MoU, potentially in the Saudi
Speaker 11: Arabia and other places.
Speaker 7: So it really is not a huge issue.
Speaker 11: It's just an issue that requires capital and execution, right, And.
Speaker 12: I think on that point, like it's not just going
Speaker 12: to be you, it does still require a lot of
Speaker 12: other actors to come into the space. And I guess
Speaker 12: the quick follow up again is what are we going
Speaker 12: to see from the government this year in terms of
Speaker 12: commitments to help this space, your company and others build
Speaker 12: out the supply chain on rare earths and permanent magnets.
Speaker 11: Well, just to be crystal clear, as we all know,
Speaker 11: the capital markets can satisfy this problem if the existential
Speaker 11: issue of the industry is off the table, and the
Speaker 11: existential issue is Chinese mercantilism, right, is pricing. We've got
Speaker 11: to get proper functioning economics, proper functioning market economics for
Speaker 11: the price of these materials and the price of the
Speaker 11: downstream products. And so those are a variety of ways
Speaker 11: that the government can force that solution. You've heard a
Speaker 11: lot of them in the news, and certainly we're working
Speaker 11: on them. I think you'll see a variety of things
Speaker 11: across investments, tariffs, tax credits, and so there isn't you know,
Speaker 11: sort of one fits all solution. It's really going to
Speaker 11: be a question of you know, the preferences of government,
Speaker 11: and certainly you'd have to get some of them on
Speaker 11: here to ask them directly or stay tuned for, you know,
Speaker 11: a solution that you see us present one day. But
Speaker 11: I do think we're going to see something, you know,
Speaker 11: sooner than later, because we've got to solve this problem.
Speaker 3: Yeah, no doubt about it. Jim really cool. I know
Speaker 3: we're going to be coming back to Jim Litinski. He's
Speaker 3: co founder, chairman, CEO of the We're Earth Mining company,
Speaker 3: so much more than mining, as we know MP materials
Speaker 3: and of course are thanks always to Joe Doe, Bloomberg
Speaker 3: News Metal Mining, Heavy Machinery reporter, so we had to
Speaker 3: talk to him.
Speaker 4: We did good stuff.
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