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Speaker 1: Bloomberg dot com. For a long time, biotech was a
Speaker 1: hot investment, as venture capital firms and investors really generally
Speaker 1: poured tons of money to startups in the industry. Tim,
Speaker 1: it's a bit different today, Yeah, this especially as VC
Speaker 1: investments are on track for the sharpest drop in more
Speaker 1: than two decades, surpassing the declines of the dot com
Speaker 1: crash and the financial crisis. So the question is what's
Speaker 1: a biotech startup to do. This story in the upcoming
Speaker 1: issue of Bloomberg Business Week. It's on newstands tomorrow, already
Speaker 1: online at Bloomberg dot com, slash Business week and on
Speaker 1: the Bloomberg with more, We've got Bloomberg News health care
Speaker 1: reporter Angelica Peoples on Zoom from Boston, along with the
Speaker 1: editor of the magazine, Joe Webber. He's right here in
Speaker 1: our Bloomberg Interactive, a broker's studio. So, Joel, we saw
Speaker 1: a VC investment really dry up compared to one the
Speaker 1: biotech UH in biotech VC investment in the US and
Speaker 1: the UK UH really dried up as well. So what
Speaker 1: is and here comes exactly that's the question. What's what's
Speaker 1: a biotech to do? Yet? Uh? Hoard your cash and uh,
Speaker 1: you know, Ben hoarded some more and find ways to
Speaker 1: make that cash grow if you can. Um So confession.
Speaker 1: I reached out while Angelica was at the JP Morgan
Speaker 1: Healthcare conference in San Francisco recently, and my thesis was, boy,
Speaker 1: the tech industry going through some stuff. Maybe maybe biotech
Speaker 1: is gonna be the big winner winner here And UH
Speaker 1: turns out no, right, Angelica, what'd you learn while you're
Speaker 1: out there? That's exactly right, Joel. Unfortunately biotech is taking
Speaker 1: a pretty big hit, just like tech stucks and other
Speaker 1: risky assets in this environment where we are um looking
Speaker 1: for safe Havens and this really started last year. U
Speaker 1: ushered in this huge wave of euphoria. Everyone was looking
Speaker 1: for the next Maderna UM and trying to invest in
Speaker 1: a hot new biotech company, and unfortunately that changed last year.
Speaker 1: We saw a steep drop in UM adventure funding and
Speaker 1: we're of seeing it in the public markets to where
Speaker 1: the stocks are down pretty significantly and everyone's just looking
Speaker 1: for ways to spend their money wisely. And that means
Speaker 1: that companies are having to get creative on what they
Speaker 1: do with their money. So what's the conversation like with
Speaker 1: with vcs, like when you were there and what's put
Speaker 1: your finger on the pulse? What what's the vibe? So
Speaker 1: it's interesting because I speak to a lot of specialist
Speaker 1: vcs and they say that nothing has changed fundamentally UM.
Speaker 1: There's still a lot of great companies. There's a lot
Speaker 1: of great science out there, and that actually we kind
Speaker 1: of needed a reset because there were so many companies
Speaker 1: that we're getting started and easily finding money, and then
Speaker 1: it led to sort of this overheated market where anyone
Speaker 1: could get UM. You could fund a company based on
Speaker 1: a dream rather than data. So they're not really upset
Speaker 1: to see this. Of course, if you're a company, UM
Speaker 1: that can't find money, that's a bigger problem for you.
Speaker 1: And there's always the risk that even the good companies
Speaker 1: won't be able to fundraise in this environment. So I
Speaker 1: like the idea that you know this is there's a
Speaker 1: silver lining to this, that there's an opportunity here. I'm
Speaker 1: wondering if you got the sense from some of these
Speaker 1: folks you talked to out at the JP Morgan conference
Speaker 1: in San Francisco that this is part of a normal
Speaker 1: economic cycle, or or if this downturn is any different. Yeah,
Speaker 1: that's what a lot of people say, especially the vcs.
Speaker 1: They've been through these cycles before. It typically happens where
Speaker 1: there's a boom and a bust and it's nothing new. However,
Speaker 1: there are some differences this time around. There's this big
Speaker 1: new law, the Inflation Reduction Reduction Act, that could cap
Speaker 1: drug prices in a few years, and people are wondering
Speaker 1: what exactly that will mean. UM. We're ready hearing from
Speaker 1: some pharma companies that they are looking at um potentially
Speaker 1: less lucrative evaluations for companies that they might invest in,
Speaker 1: partner with, or eventually acquire. So that's an unknown and
Speaker 1: also coming off this period where evaluations were so hot,
Speaker 1: and you know, how will companies go moving forward? One
Speaker 1: person I talked to describe it as this sugar rush
Speaker 1: and now that sugar rush is over and and it's
Speaker 1: really a new playbook. Yeah, that's definitely not a good thing.
Speaker 1: Maybe there maybe there needs to be some sort of
Speaker 1: like pharmaceutical to prevent desire for sugar. I don't know, Angelica.
Speaker 1: I do wonder though, you know, a lot of money
Speaker 1: sometimes it gets used recklessly when there's what it's really
Speaker 1: kind of loose and money is cheap. But at the
Speaker 1: same time, it also provides the open opportunities I feel
Speaker 1: like for developments that really can change the way we're treated,
Speaker 1: whether it's health care or modalities. And I do wonder
Speaker 1: if the money isn't so easy, does it mean biotech
Speaker 1: really has to think hard about what they're going to
Speaker 1: work on, And maybe that's not great for innovation. Definitely.
Speaker 1: We saw this boom of platform companies as they like
Speaker 1: to call themselves, so companies that were working on many
Speaker 1: different diseases or um all kinds of areas as opposed
Speaker 1: to just one drug for one disease. And that was
Speaker 1: sort of the hot beam of one and this year
Speaker 1: already we're seeing the theme is prioritized. So one company Atitas,
Speaker 1: they're based here in Boston, the Boston area, and they
Speaker 1: said that they would stop the work that they've been
Speaker 1: doing on eye diseases and instead focus on blood disorders.
Speaker 1: And they're seeing that across the board, whether they're public
Speaker 1: companies are private, people are focusing on only the most
Speaker 1: important diseases or the drugs that have the biggest probability
Speaker 1: of success. And of course that means that those other diseases,
Speaker 1: those other patients who are waiting for medicines for their
Speaker 1: diseases are going to have to wait. Okay, so things
Speaker 1: not good here? How uh what do they look like
Speaker 1: in the UK compared to here or anywhere else, just
Speaker 1: to get a sense of, uh what, you know, what
Speaker 1: the industry feels like around the world. Across the board,
Speaker 1: we saw funding dip this year or compared to one UM.
Speaker 1: So it's not only the US, but of course the
Speaker 1: US and a lot of the companies I cover are
Speaker 1: focused here and so that's why particularly we're focused on
Speaker 1: and what's happening in this this part of the world. Okay,
Speaker 1: So Angelica if you know, the dominant theme over the
Speaker 1: last few years has been vaccines. What's what's kind of
Speaker 1: the most exciting thing to come out of or that
Speaker 1: biotech companies are thinking about right now. There's a lot
Speaker 1: of exciting stuff out there, so it's hard to pick
Speaker 1: exactly UM specific areas. But some of the ones that
Speaker 1: we have been talking to a lot of people about
Speaker 1: our obesity people are really really focused on that. I mean,
Speaker 1: you think about how many people are out there, UM.
Speaker 1: That could be a have a huge impact on public
Speaker 1: health and of course could be a very lucrative area
Speaker 1: for drugmakers. So we heard a lot of companies focused
Speaker 1: on obesity at the conference this year. UM an area
Speaker 1: that I'm really interested in, as well as gene therapy,
Speaker 1: so taking genetic diseases and actually potentially curing them UM
Speaker 1: by making permanent changes to someone's DNA. It sounds a
Speaker 1: little bit like science fiction, but it's actually reality UM.
Speaker 1: And then we're also seeing a lot of new technologies
Speaker 1: and cancer UM. So we spoke to one company, Siegeon,
Speaker 1: that's been at the forefront um of a type of
Speaker 1: cancer drug called an a d C and UM we
Speaker 1: spoke to their new CEO who said that they're going
Speaker 1: to keep working on that, and they're also looking for
Speaker 1: lots of new technologies, so it's it's a busy time
Speaker 1: out there. I actually think that the sector as a
Speaker 1: whole is again just like you know, one little big
Speaker 1: hit away from like everybody feeling like, you know, it's great,
Speaker 1: let's go back in and and you know, the big
Speaker 1: difference here versus like tech is it's so solutions, like
Speaker 1: all these things are people things that affect millions of people. Right,
Speaker 1: it's just ends up being a little bit of a
Speaker 1: crap shoot in terms of, um, what the r O
Speaker 1: I can look like. I totally agree, right, like these developments, Um,
Speaker 1: such great reporting, such great insight, Angelica, Thank you so much.
Speaker 1: Angelica Peebles, healthcare reporter, Bloomberg News via zoom from Boston.
Speaker 1: Check out this story in the upcoming issue of Bloomberg
Speaker 1: Business Week on newstands tomorrow, online already and on the
Speaker 1: Bloomberg terminal. Our thanks. Ohay's to Joe Webber, editor of
Speaker 1: Bloomberg Business Week. This is Bloomberg Radio. These sees Bloomberg
Speaker 1: Business Week with Carol Messer and Tim Stanovic on Bloomberg Radio. Well,
Speaker 1: as you know, the World Economic Forum's annual meeting at Davos.
Speaker 1: It continues. We've heard from a lot of politicians, well,
Speaker 1: not too many, because a lot of them I think
Speaker 1: held back because it concerns about the war and some
Speaker 1: of the political stories going on around the world. But
Speaker 1: also executives, investors, bankers, corporate types, academics, even former US
Speaker 1: Treasury Secretary Larry Summers. Yeah ye highlighted branding aspects for
Speaker 1: the global economy, but also warned us political battles over
Speaker 1: the debt ceiling are concern also, they're lots of corporate
Speaker 1: executives and Bloomberg Quick Take correspondent Madison Mills joins us
Speaker 1: now via zoom from Davos. Madison, good to have you
Speaker 1: with us this afternoon, for us, this evening for you.
Speaker 1: First of all, what are you seeing, what are you
Speaker 1: hearing on the ground at Davos. Hey, guys, thank you
Speaker 1: so much for having me. Great to chat with you. Uh,
Speaker 1: you know, it's a lot of the same things that
Speaker 1: are always on the agenda here at Davos. I was
Speaker 1: lucky enough to come here over the summer and it's
Speaker 1: eerily similar. Talking about, of course, that war in Ukraine,
Speaker 1: the Russian invasion there and the big economy question, right,
Speaker 1: are we going to have a recession in One thing
Speaker 1: that's been really interesting is hearing how cautiously optimistic people are.
Speaker 1: Cities CEO Jane Fraser talk with David weston are very
Speaker 1: Own yesterday and she said she's very optimistic about the
Speaker 1: recession being short and not that deep because she's really
Speaker 1: betting on us households maintaining their own balance sheets in
Speaker 1: the face of that high services inflation that we are seeing.
Speaker 1: So interesting to hear that kind of positive tone from
Speaker 1: a lot of the CEOs at Davos, while you know,
Speaker 1: we report all the time on individuals back in the
Speaker 1: US who are still struggling with those incredibly high prices
Speaker 1: on things like um, eggs. You know, I was at
Speaker 1: the grocery store here in Davos tonight and noticed that
Speaker 1: eggs are actually the only thing that's cheaper in Switzerland
Speaker 1: that I can are yelling hitting it's I mean, the
Speaker 1: prices here, Carol would blow your mind. It's it's incredibly expensive,
Speaker 1: but eggs, I think because of I'm not acent on this,
Speaker 1: but I think because the Avian flu impact is lower
Speaker 1: in Europe than it is in the US only five
Speaker 1: dollars for a dozen eggs in Switzerland's the only thing
Speaker 1: I could find that's cheaper here. You know, I do
Speaker 1: feel like Maddie like some of these big events that
Speaker 1: brings UH leaders from different walks of life, politicians, UM,
Speaker 1: the corporate community, you know, all kinds of you know,
Speaker 1: think tanks, academics, just like something like a milk in
Speaker 1: or some other events. UM. I do wonder, you know,
Speaker 1: what the major trends are beyond the overall mood and thought.
Speaker 1: You know, what do you picking up on your someone
Speaker 1: who really like, you know, kind of seizes on some
Speaker 1: of the interesting innovations that are going on there. What
Speaker 1: are you seeing? Yeah, you know one story that I
Speaker 1: feel like isn't necessarily making headlines that I'm hearing a
Speaker 1: lot of the c e O s and UM decision
Speaker 1: makers talk about sort of off the record, is this
Speaker 1: idea and sort of this anger towards younger employees and
Speaker 1: the people who are a little bit hesitant to get
Speaker 1: back to work are Yeah, we heard from our Bloomberg
Speaker 1: Opinions Alison Schrager. She's moderating a ton of panels this week,
Speaker 1: and she also told me that um. She was speaking
Speaker 1: with executives from Sony yesterday who all just said, you know,
Speaker 1: even in in countries where high work ethic across all
Speaker 1: age ranges is really valued, they're starting to have a
Speaker 1: lot of trouble getting younger employees in the office. And
Speaker 1: they're also experiencing a lot of ghosting. So gen Z
Speaker 1: employees will sign contracts at these companies and then just
Speaker 1: won't show up for the their first day of work
Speaker 1: and we'll never contact the company again. So I'm really
Speaker 1: hearing a lot of anger from CEO is about younger
Speaker 1: employees not getting back to work and not necessarily working
Speaker 1: as hard. But does that lead to a shift, Maddie
Speaker 1: in the way that that companies are thinking about compensation
Speaker 1: or the way the companies are thinking about work. I mean,
Speaker 1: certainly that that's not the theme of Davos this year,
Speaker 1: but getting people back to the office is certainly a
Speaker 1: theme here in the United States, and we're seeing it
Speaker 1: from a lot of individual companies. Is that discussion happening
Speaker 1: at all? I think it's critical, and I feel like
Speaker 1: quiet quitting is also something that's coming up a lot.
Speaker 1: But what's interesting is at the same time they're talking
Speaker 1: about the struggles with younger employees, but then they talk
Speaker 1: about also needing to source the on employees, and in
Speaker 1: this kind of dichotomy of like, I'm struggling to get
Speaker 1: them in the office, but I also genuinely want to
Speaker 1: hire younger people and want to involve them. So, um,
Speaker 1: it's interesting to kind of hear that struggle there. I
Speaker 1: spoke with the CEO of ernst In earlier today, Carmine
Speaker 1: de Cibio, and one thing that he pointed out that
Speaker 1: that was a lesson to me was that, um, he
Speaker 1: not necessarily seen a huge amount of talent emerging from
Speaker 1: all of those big tech layoffs that we talked about.
Speaker 1: He was saying he's still struggling to get coders and
Speaker 1: engineers in the door, and he feels like if the
Speaker 1: layoffs were as bad as they potentially seem like they are,
Speaker 1: he wouldn't be struggling as much to get that talent.
Speaker 1: So I thought that was also really really interesting. All right, everybody,
Speaker 1: we're talking to blueber Crick Take correspondent Madison Mills. She
Speaker 1: is in Davo, Switzerland for the World Economic Forum annual meeting,
Speaker 1: which is being held again in the winter for the
Speaker 1: first time was it, Mattie three years that this is
Speaker 1: because of the pandemic. It's a long time. Um. One
Speaker 1: thing I want to get to and it's something you
Speaker 1: guys at Quick take cover a lot. I know Tim
Speaker 1: covers it, loves it and that has to be anything
Speaker 1: to do with space. And you caught up with a
Speaker 1: particular CEO. Give us a little bit of background about
Speaker 1: Dylan Taylor and his company. Yeah, Dylan Taylor is and Tim,
Speaker 1: I can't wait to talk to you about this mind back,
Speaker 1: because I feel like you would love this guy. Uh.
Speaker 1: Dylan Taylor runs space Voyager. They do a lot of
Speaker 1: investment and get investment in the future of commercial space travel.
Speaker 1: And he really believes something that some people push back
Speaker 1: against here at Davos, the idea that commercial space travel
Speaker 1: is just as good for the climate as anything we
Speaker 1: can do on Earth. UM. He was lucky enough to
Speaker 1: be able to go to space as part of one
Speaker 1: of Jeff Bezos Blue Origin trips, and he said that
Speaker 1: that overview effect is really critical and real that when
Speaker 1: you're able to look down at at planet Earth, it
Speaker 1: can just change your life and change your perspective and
Speaker 1: make you realize the importance of climate. I think we
Speaker 1: have some sound from Dylan Taylor that I I want
Speaker 1: us to take a listen to. I think the biggest
Speaker 1: space story in three uh, you know, just to pick
Speaker 1: a couple. I think will likely get another all private
Speaker 1: astronaut mission to the Space Station, so that'll be an
Speaker 1: important milestone. But probably the most important would be SpaceX
Speaker 1: making orbit, hopefully with their new Starship, which is their
Speaker 1: new generation rocket, which if it works and if it
Speaker 1: makes orbit, which I believe it will, it could completely
Speaker 1: change the game and reduce the launch costs by another
Speaker 1: order of magnitude. So, of course, my follow up question
Speaker 1: was are you concerned at all about Elon Musk and
Speaker 1: the impact he could have on the potential of future
Speaker 1: space travel coming out of SpaceX, And he said he's
Speaker 1: not concerned at all. That there are a lot of
Speaker 1: executives at SpaceX doing a lot of great work who
Speaker 1: are not related to you On Musk in anyway. So
Speaker 1: he's he's really optimistic about SpaceX and the impact SpaceX
Speaker 1: could have on space travel heading into this year. Yeah,
Speaker 1: I mean, what has shown, Maddie is that private companies
Speaker 1: can now do what governments were only able to do
Speaker 1: just a few years ago, and I think it's remarkable
Speaker 1: to see the private investment in the industry. Of course,
Speaker 1: these companies, we should remember, still rely on government contracts
Speaker 1: for much of the funding, so it is still taxpayer
Speaker 1: money that is supporting many of these launches. At the
Speaker 1: same time, it's remarkable to see, Carol, what the private
Speaker 1: sector has done. Yeah, I think about it. You know,
Speaker 1: you guys have heard it. I just when my dad
Speaker 1: was involved in the sixties, you know, in the space program,
Speaker 1: it was all government run and government initiatives, and it's
Speaker 1: really I think he'd be fascinated to see, you know,
Speaker 1: the role of the private sector so aggressively and so successfully, Maddie,
Speaker 1: you know, really carrying the baton if you will. Um.
Speaker 1: And I think it's a good thing, you know, moving
Speaker 1: out of the government sector in the public sector. Yeah,
Speaker 1: it's so interesting. He wants to fund and build the
Speaker 1: first commercial space station, and he really believes in the
Speaker 1: ability for that to exist alongside a government funded space
Speaker 1: station as well. His point is like why I not
Speaker 1: have multiple going on up there, you know. So it's
Speaker 1: it's really interesting to see and um, something that I'm
Speaker 1: excited for us to continue to cover all right, Uh, Mattie,
Speaker 1: Before we let you go, I want to talk a
Speaker 1: little crypto. We did report the Bloomberg News team that
Speaker 1: the crypto firm Genesis is said to plant bankruptcy filing
Speaker 1: could come sometime this week, according to our team here
Speaker 1: at bloom Broke News. What are you hearing on the
Speaker 1: ground there about crypto regulation just in the last minute
Speaker 1: that we have with you, you know, Tim, I can't
Speaker 1: tell if it's just kind of talk because it's something
Speaker 1: that people can agree on. It's not a superpartisan topic.
Speaker 1: But um, everyone seems really excited to talk about crypto
Speaker 1: regulation and agree on the idea that regulation is needed.
Speaker 1: But I haven't heard anyone talk about crypto being dead. Um.
Speaker 1: I was able to speak with the chief policy officer
Speaker 1: of coin Base, and he met with the congressional delegation
Speaker 1: of d C lawmakers who are here at Davos and
Speaker 1: pitched the same thing to them that it was you know,
Speaker 1: a bad actor in sam Maigmund freedom f t X,
Speaker 1: that the industry is not bad and so he's really
Speaker 1: hopeful that crypto is going to have a rebound in
Speaker 1: All right, what's a cup of coffee cost? Cost? Come on?
Speaker 1: I got nice coffee when I landed with Carol was
Speaker 1: nine dollars, nine dollars, nine dollars. It is Switzerland. I
Speaker 1: am saving those receipts, guys, it is it is when
Speaker 1: your boss is like, come on, Maddie, what is this? Um?
Speaker 1: Sorry to my boss is in advance. All right, looking
Speaker 1: forward to more of your reporting. Of course, our Maddie
Speaker 1: Mills and Bloomberg cricktake on the ground in Davos, Switzerland
Speaker 1: at the World Economic Form. You can catch all of
Speaker 1: our coverage just head to Bloomberg dot com. These sees
Speaker 1: Bloomberg Business Week with Carol Messer and Tim Stanovic on
Speaker 1: Bloomberg Radio. We've got a great guest with us, well
Speaker 1: known voice for the investment community and certainly the Bloomberg audience.
Speaker 1: Howard Marks is with us, the co chairman co founder
Speaker 1: of oak Tree Capital Group, known for his investing in
Speaker 1: distressed securities. The firm has some one hundred sixty three
Speaker 1: billion dollars in assets under management and joints. Tim and
Speaker 1: myself here in our interactive broker's studio. How are you.
Speaker 1: I'm very good, Thank you. How are you doing well?
Speaker 1: Looking at your research? We looked over it and I've
Speaker 1: got to say, it's all about sea change. I'm a
Speaker 1: sailor and I know, and I have been for years.
Speaker 1: See change it can be a good thing and it
Speaker 1: can be a bad thing. Tell us about your thinking here. Well,
Speaker 1: the point is that the sea change is something more
Speaker 1: fundamental than a minor cyclical fluctuation. UH. It suggests a
Speaker 1: total transformation that will be somewhat long lasting. And the
Speaker 1: does and by definition it doesn't happen often. UH. But
Speaker 1: the point of the memo was that ever since the
Speaker 1: global financial crisis, the FED put in emergency measures direct
Speaker 1: rescue the economy and the markets. UH, and they worked,
Speaker 1: but they were continued for a long time. Zero rates
Speaker 1: were the rule for seven years, which I was stunned
Speaker 1: to find out when I researched it. UH and UH
Speaker 1: that kind of conditioned the markets to depend on ultra
Speaker 1: low rates, which was unrealistic. And then when they tried
Speaker 1: in sixteen seventeen eighteen to raise rates, they got a
Speaker 1: lot of pushback. The fourth quarter of eighteen, you may
Speaker 1: recall they took a ten year to UH, the FED
Speaker 1: funds rate hit three and a quarter and the fourth
Speaker 1: quarter of eighteen was the worst fourth quarter in history
Speaker 1: as a consequence, So, uh, they were in a low
Speaker 1: return trap. And lenders likewise were in a low return trap.
Speaker 1: You know. I I gave a speech for eight years
Speaker 1: entitled investing in a low return World, and and it
Speaker 1: wasn't fun because how do you get a good return
Speaker 1: in a low return world? You either, uh, you either
Speaker 1: accept the low returns or you take on more risk
Speaker 1: to try to get a high return. And that may
Speaker 1: not be a great idea either. So there is no
Speaker 1: easy out. And and we labored in the in the
Speaker 1: wilderness for a decade with low yields prevalent, and I
Speaker 1: think that that's not going to be the case to
Speaker 1: the same degree going forward. It's not just you know,
Speaker 1: low yields not being prevalent as being part of this
Speaker 1: sea change. What else do you see, which, by the way,
Speaker 1: you are this is only the third sea change you've
Speaker 1: seen in your career? Yes, well, in the in the
Speaker 1: the seventies, I saw the adoption of risk return thinking.
Speaker 1: You know, before that a professional money manager of fiduciary,
Speaker 1: the rules were this is okay to do, this is
Speaker 1: not okay to do. But with the advent of hyo
Speaker 1: bond issuance, in the late seventies, people started to think, well,
Speaker 1: it may be risky, but I'm well paid to do it,
Speaker 1: so I'm gonna do it. It makes sense And that
Speaker 1: has become the rule and been the rule ever since.
Speaker 1: And I think that was a very good change. Most
Speaker 1: of the things that we see in the financial world
Speaker 1: today are the result of that calculus. Then in the
Speaker 1: early eighties, of course, to UH to fight the UH,
Speaker 1: the inflation that was prevalent in the US reaching mid teens, UH,
Speaker 1: Vulker took the Fed funds rate to twenty and that
Speaker 1: that UH, you know, eventually killed off UH inflation and
Speaker 1: inflationary expectation. It kind of killed the economy UH in
Speaker 1: the process. UH. But then you know, I had a
Speaker 1: rate loan outstanding from a bank in eight and I
Speaker 1: got a slip saying the rate is now two and
Speaker 1: a quarter. Uh. Forty years later, I was able to
Speaker 1: borrow money at two and a quarter. So we had
Speaker 1: a two thousand basis point decline and interest rates And
Speaker 1: that was a major event. That was probably the biggest
Speaker 1: single financial event of the last half century. But nobody
Speaker 1: talks about it. How when do you want to ask
Speaker 1: you and it's in your research. Note. You know you
Speaker 1: talk about you know, when you see both rising asset
Speaker 1: values as well as a very low rate environment, and
Speaker 1: what that does in terms of leverage. Um, tell us
Speaker 1: how that maybe creates ultimately I'm assuming opportunities for you ultimately,
Speaker 1: we hope. But you know, look, the government doesn't make anything.
Speaker 1: It doesn't add to GDP, It doesn't create anything. Oh
Speaker 1: it does is takes money in and puts money out,
Speaker 1: and it policy benefits some hurts others. So the policies
Speaker 1: of the last fourteen years that I'm talking about benefited
Speaker 1: asset owners and borrowers and penalized uh lenders and savers
Speaker 1: um and uh. But it was a boon for anybody
Speaker 1: who owned assets and for anybody who borrowed. And what
Speaker 1: about people who did both, who owned assets on borrowed money,
Speaker 1: a double bonanza, um and um. You know the problem
Speaker 1: is that a the success of that depends somewhat on
Speaker 1: the persistence of that environment. And number two, Uh, environments
Speaker 1: that produced high profits usually encourage people to push the
Speaker 1: limits further and to go out and do riskier things
Speaker 1: because of the absence of of risk aversion which usually
Speaker 1: ends up badly. Uh. So you know, we've gone through
Speaker 1: an easy period for the last fourteen years different and
Speaker 1: I believe that the coming period will be a harder period,
Speaker 1: not a cataclysm, not a depression. But you know, I
Speaker 1: think that people don't recognize that the last fourteen years
Speaker 1: have been unusually easy and that I have to believe
Speaker 1: that the coming years will not be similarly easy. So
Speaker 1: it opens up the question about where specifically you would
Speaker 1: see opportunities for distress, debt and beyond. Sure. Well, uh,
Speaker 1: first of all, I think we might see something, and
Speaker 1: that would be a change you know in the in
Speaker 1: the very benevolent environment that we had. Uh over that period,
Speaker 1: it was very hard to default. It was very hard
Speaker 1: to go bankrupt. In fact, you had to have something
Speaker 1: seriously wrong to do that, because most companies that just
Speaker 1: burned money every quarter could borrow more. We just talked
Speaker 1: about the biotech sectors. Yes, so so, but when when
Speaker 1: risk aversion rears its head and you go into it
Speaker 1: more now, somebody might say, you know what, you're just
Speaker 1: burning money. We're not going to give anymore. So we're
Speaker 1: and I think it was November you talked with our
Speaker 1: team and you said, great bargains coming as recession looms,
Speaker 1: So we're specifically I know we've been you know, is
Speaker 1: it energy, is it real estate? Is it where is it? Well?
Speaker 1: You know, uh, I'd never get down to that granular level.
Speaker 1: And uh we our activities are kind of not planned. Uh.
Speaker 1: And we're opportunistic. When something pops up and we and
Speaker 1: and and some company has to roll over its debt
Speaker 1: and suddenly is unable, you know, we mobilize. Uh. So
Speaker 1: you know the point is we're not we're not laying
Speaker 1: plans in advance. Well, do we do we take something
Speaker 1: like Elon Musk and all the debt he took on
Speaker 1: for Twitter? Do we take a bed bath and beyond?
Speaker 1: Another retailer fall into the wayside. I'm trying to think party,
Speaker 1: party City. Um, I feel like you could name any
Speaker 1: crypto firm over the last and these these signs that
Speaker 1: are you're talking, Well, let me let me just say
Speaker 1: without getting too specific, which I always try to avoid,
Speaker 1: that's okay, Um, that our our mantra is good company,
Speaker 1: bad balance sheet, a company a good company that has
Speaker 1: gotten over levered and that leverage level has turned out
Speaker 1: to be excessive for the environment that has unfolded. Uh,
Speaker 1: you can fix that by delivering the company. Maybe you
Speaker 1: take it through a bankruptcy in which you reject a
Speaker 1: lot of debt. But it's easy too. If you can
Speaker 1: delever a good company, it goes on to success or,
Speaker 1: or certainly it's it's reinstated. Uh. Bad companies are hard
Speaker 1: to fix as opposed to a good company with bad
Speaker 1: balance sheet. So you you you propose a list, you
Speaker 1: figure out which companies on that list you know are
Speaker 1: are important to stay in business for the next ten years.
Speaker 1: You mentioned a couple of retailers, Carol, which makes me
Speaker 1: question if you're any industries or sectors you would avoid historically. UM,
Speaker 1: we're okay with retail, although one has to be cognizant
Speaker 1: of the changing business model. Uh. You know, we're we're
Speaker 1: mostly active in in what I would call the basic industries,
Speaker 1: the traditional industries. Uh, the ones with assets like energy,
Speaker 1: like like energy, yes, manufacturing, distribution, transportation, Uh, even retail
Speaker 1: under the right circumstances. Uh. You know where we historically
Speaker 1: have not been active has been, for example, technology, because
Speaker 1: there you need a higher level of expertise with regard
Speaker 1: to the subject matter, UM, intellectual property, style, fashion, things
Speaker 1: like that. Um, this environment. This see change. We only
Speaker 1: have about thirty seconds left. How long does it stay
Speaker 1: with us? In your view? Because as you say, these
Speaker 1: don't happen a lot, but they do stick. Well. You know,
Speaker 1: I don't make forecasts, and I don't believe forecasts, especially
Speaker 1: my own. Having said that, you know, I'm not talking
Speaker 1: about six months or a year, and I don't ever
Speaker 1: venture a thought to ten years. So I would say
Speaker 1: something in between, but I mean, this is material, and
Speaker 1: I would say a few or several years. Well, And
Speaker 1: I do feel like it mirrors some of the conversations
Speaker 1: we've had that this low rate environment of a generation
Speaker 1: who has never seen anything. But could we see a
Speaker 1: fourth sea change in your career? I hope I live
Speaker 1: long enough. We hope you too. To thank you, Howard Marks,
Speaker 1: thank you so much for finding times, the co chairman
Speaker 1: of Oaktree Capital Management. I'm bro journal. Yeah, but you
Speaker 1: let me drive? Oh no, no, no, no, who's going home?
Speaker 1: All right? Please? I'll do the right gravels. I want
Speaker 1: to drive. It's good question. Drive. This is the drive
Speaker 1: to the clothes. Bloomberg Radio TikTok, everybody. Seventeen minutes left
Speaker 1: in today's trading session, It's been an interesting day, certainly
Speaker 1: on the equity front. Charlie Chriss breaking down the markets.
Speaker 1: But really I think the story largely, and we've talked
Speaker 1: about this, is the disappointing economic news tim and certainly
Speaker 1: the pressure that we've seen when it comes to rates.
Speaker 1: I mean ten year, three thirty seven right now to
Speaker 1: your note with the yield of four oh eight, So
Speaker 1: we've really seen him move down. Uh, and when it
Speaker 1: comes to the rate picture. Yeah, and it was kind
Speaker 1: of green until we saw that economic data hit at ties. Right, Yeah,
Speaker 1: that's right, all right, So let's talk about it. Let's
Speaker 1: get to the drive to the clothes. Brian Frank is
Speaker 1: back with U s c i O at Frank Capital
Speaker 1: Partners here in our Bloomberg Interactive Broker studio. The Frank
Speaker 1: Value Fund up nearly eight percent in the past month,
Speaker 1: putting it in the nine percentile according to our data.
Speaker 1: In the past one year, the fund games six and
Speaker 1: a half percent, so beating just about all of its peers.
Speaker 1: For the past five years, the fund has returned on
Speaker 1: average annually about five percent, again according to our data.
Speaker 1: As you know, it's not been easy being a value guy,
Speaker 1: has it it's never easy. But the last five years
Speaker 1: where like fire and Brimstone, Happy new Year, Happy New Year.
Speaker 1: Is it going to be a happy year for value?
Speaker 1: Howard Marks talking about sea changes in the investment environment
Speaker 1: don't happen often, but he's saying this low rate environment,
Speaker 1: people loading up on leverage, you know, could potentially mean
Speaker 1: opportunities for him in the distressed area. What does it
Speaker 1: mean for value? Yeah, certainly. I mean to hear someone
Speaker 1: of Howard Marks cyliber say that, because that's what we've
Speaker 1: been thinking in the value shop as well. Um, like
Speaker 1: you said, it's been a miserable environment for value investors
Speaker 1: over the last few years, But in the early two thousands,
Speaker 1: two thousand one, two thousand two, it was the golden age.
Speaker 1: And that's what it feels like today, another golden nage
Speaker 1: of value. You have rates going up, you have the
Speaker 1: growth company suffering, and you have phenomenal value companies available
Speaker 1: not only at good valuations, but many of them, at
Speaker 1: least in our fund, are less cyclical as well. Because
Speaker 1: it looks like there's some pretty bad economic data on
Speaker 1: the horizon. So if this is indeed, and you know,
Speaker 1: we talked to Howard Marks earlier about a quote unquote
Speaker 1: see change if that is indeed happening. Uh, do you
Speaker 1: see the era of value continuing? I mean, is this
Speaker 1: a long term bet given that interest rates could be
Speaker 1: high for quite a while. I think so. And even
Speaker 1: without those interest rates, I mean, the bond market clearly
Speaker 1: disagrees with the Fed right now. But I in either direction,
Speaker 1: you're going to have trouble for growth companies. You're seeing
Speaker 1: layoffs at Microsoft today. UM. I think Google and Facebook
Speaker 1: are actually cyclical advertising companies instead of technology companies, and
Speaker 1: the market needs to figure that out and completely revalue
Speaker 1: those companies for what's ahead. But on the other side
Speaker 1: of the coin, Energy, one of the best performers last year,
Speaker 1: is actually priced for a recession. These companies are still
Speaker 1: very cheap, but they have much better balance, it's than
Speaker 1: in the past. I believe energy as a sector is
Speaker 1: going to have net cash pretty soon, if not already,
Speaker 1: And there's still a supply issue out there even if
Speaker 1: we get demand destruction. So yes, I think the golden
Speaker 1: age of value is here and can continue. What kind
Speaker 1: of positioning or reposition have you been doing? Uh? If
Speaker 1: at all, Brian and your portfolio, Um, we've slowly been
Speaker 1: selling some of those energy companies that have become fully valued,
Speaker 1: but we're still very overweight energy. Our best performer last
Speaker 1: year was HNR Block, which certainly is not an exciting
Speaker 1: company several times and we love what he's done with
Speaker 1: the place. Yeah, they've been shifting right too much more
Speaker 1: be kind of a hub for for individuals, and we're
Speaker 1: talking about not necessarily the high end, right. I feel
Speaker 1: like everybody goes aback up to after wealth management, but
Speaker 1: kind of everyday people, right and the services that they need.
Speaker 1: That's right, there's some meat in the middle there, and
Speaker 1: that's what H and R block is going after. But
Speaker 1: it was a tremendous value about a year and a
Speaker 1: half ago. Um, we're up about a hundred and fifty
Speaker 1: percent on it. But we did actually take the game
Speaker 1: last year because not because of strategy or anything like that,
Speaker 1: which we totally agree with. It just became fully valued
Speaker 1: and with a four percent risk free rate. Now there's
Speaker 1: a pretty high hurdle to investing in any kind of
Speaker 1: risk in my opinion, So you have to choose your
Speaker 1: spots well, so fixed income versus equity, Like, are you
Speaker 1: more inclined to play in that fixed income space because
Speaker 1: they yield not so shabby. Now, we also do private
Speaker 1: wealth management, and we've definitely taken clients much towards the
Speaker 1: fixed incomes side as rates have come up. We've still
Speaker 1: kept duration um tight short because there are still some
Speaker 1: pretty smart people out there saying that listen to the
Speaker 1: Fed and don't listen to the bond market. Maybe inflation
Speaker 1: will surprise on the upside um. And with the Value Fund,
Speaker 1: we're about eight percent invested, which is our maximum amount
Speaker 1: of cash largely equity. That right, largely equity. That one.
Speaker 1: That one has to be equities, and that's typically add
Speaker 1: percent invested in equities. But we can hold some cash
Speaker 1: if there aren't opportunities there. And that cash is making
Speaker 1: four percent, which is great. So where are you seeing
Speaker 1: opportunities on the equity side now? Um? We we've recently
Speaker 1: have gotten into the restaurant business. UM. I can't talk
Speaker 1: about a specific name there, but generally with restaurants, inflation
Speaker 1: really bit hard and they weren't able to raise their
Speaker 1: prices fast enough to cover those costs. But I think
Speaker 1: if you get some good operators there and some great
Speaker 1: brand names, they'll eventually catch up and those margins will
Speaker 1: come back. We're actually worried about margins as a whole
Speaker 1: for equities, especially going into a recession, but we think
Speaker 1: maybe the restaurant business can kind of buck that trend.
Speaker 1: Tell us about your number one holding. UM. Our number
Speaker 1: one holding is something called Calumet Specialty Products, which you
Speaker 1: probably won't find in any other mutual fund. UM. This
Speaker 1: is around a two billion dollar company that essentially runs
Speaker 1: a refiner out of Montana, and they're converting their refinery
Speaker 1: to renewable diesel, and then after that they're going to
Speaker 1: convert it to sustainable aviation fuel. So those types of
Speaker 1: green energy investments typically command a big multiple because the
Speaker 1: majors want to buy them for the tax write offs
Speaker 1: and for the carbon write offs. And nobody's recognizing Calumet,
Speaker 1: probably because it's a limited partnership UM. Their actual core
Speaker 1: business is industrial lubricants, which isn't exactly exciting to talk about,
Speaker 1: but necessary. It's certainly and UM again, we're not making
Speaker 1: more of this stuff, We're not making more refineries. Cal
Speaker 1: you Met, as small as it is, is set up
Speaker 1: to be the biggest producer of sustainable aviation fuel over
Speaker 1: the next two years in the US. So It's a nice,
Speaker 1: interesting little market um and the valuations pretty cheap on
Speaker 1: this thing. We love it, really appreciate it. Brian Frank.
Speaker 1: He's chief investment officer at Frank Capital Partners. As we
Speaker 1: mentioned that Frank Value Fund has been beating just about
Speaker 1: all of its peers in the past year, up about
Speaker 1: six point five percent in a year that we know
Speaker 1: Tim not many things. We're showing positive return. Yes, since
Speaker 1: he was last year, you know and change. Thanks for
Speaker 1: listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud,
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