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Speaker 1: This is Wall Street Week. I'm David Weston bringing you

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Speaker 1: stories of capitalism. The message in the jobs numbers last

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Speaker 1: month was disappointing and surprising, so President Trump fired the

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Speaker 1: messenger doesn't have a point and is his approach the

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Speaker 1: right one to make sure we can trust those jobs numbers. Plus,

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Speaker 1: we go to Australia to see the effects of soaring

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Speaker 1: goal prices on mining there and what miners are going

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Speaker 1: to do with all those profits. And we bring you

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Speaker 1: the story of the huge Indian retail derivatives market that

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Speaker 1: got Jane Street into trouble. What does it tell us

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Speaker 1: about the Indian capital markets overall, and what does India's

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Speaker 1: real economy need from those markets. But we start with

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Speaker 1: the continuing battle over the Federal Reserve, as President Trump

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Speaker 1: insists that Governor Lisa Cook must go and ms Cook

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Speaker 1: refuses to leave, even as the President's nomin need to

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Speaker 1: replace another governor heads towards Senate confirmation. Our special contributor

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Speaker 1: Larry Summers has consistently expressed his concerns about FED independence,

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Speaker 1: but so far the markets have been calm, so Larry

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Speaker 1: continued focus on the Federal Reserve as their proceedings of

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Speaker 1: respect to Governor Cook, Lisa Cook as president, trups tried

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Speaker 1: to fire even as they try to appoint Stephen Myron

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Speaker 1: to come in. What is the significance of what's going

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Speaker 1: on right now with the Federal Reserve.

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Speaker 2: I think we're on the foothills of a credibility crisis.

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Speaker 2: We're not there yet because people believe that ultimately US

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Speaker 2: institutions endure and succeed. But between the President's demand the

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Speaker 2: interest rates be cut by three percentage points, which no

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Speaker 2: economist anywhere has endorsed any idea of that kind, between

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Speaker 2: the harshness of the President's rhetoric vis a vis Chairman Powell,

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Speaker 2: between the extraordinary efforts to fire a sitting FED governor

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Speaker 2: with no kind of due process surrounding the fore cause provision,

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Speaker 2: between the ominous rhetoric about hijacking the process for choosing

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Speaker 2: local presidents of the regional federal reserves, between rumors about

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Speaker 2: other members of the Fed Board. We are in completely

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Speaker 2: unprecedented territory. There hasn't yet been a dramatic market reaction.

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Speaker 2: There are some concerning things in markets, not just one

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Speaker 2: year ahead, but one year one year ahead. Inflation expectations

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Speaker 2: are trending up a bit. The spread between the thirty

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Speaker 2: year bond and the ten year bond is larger than

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Speaker 2: any time since COVID, but we haven't seen substantial reactions

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Speaker 2: in markets yet. But this could turn very quickly if

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Speaker 2: the psychology changes, and so frankly, I think we are

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Speaker 2: playing with fire in terms of inflation expectations, a situation

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Speaker 2: made much worse by the fact that the United States,

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Speaker 2: unless we get a big break in terms of artificial

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Speaker 2: intelligence or other technology, really has a very problematic fiscal picture.

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Speaker 1: One of the questions some accounts is is does it

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Speaker 1: make that much of a difference have one person on

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Speaker 1: the FED or two people on the FED. Part of

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Speaker 1: the strength of the institution is the FMC is a

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Speaker 1: group of people, and so one or two people alone

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Speaker 1: cannot really change the direction.

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Speaker 2: That may be right, But what the President is talking about,

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Speaker 2: what he's explicitly scheming about on his truth social account

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Speaker 2: and in some of his rhetoric, is getting a majority

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Speaker 2: of the Board of Governors and using that majority on

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Speaker 2: the Board of Governors to force a majority on the

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Speaker 2: Federal Open Market Committee by controlling the appointment of regional feds.

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Speaker 2: So this is not a one and done thing involving

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Speaker 2: just the chairman. This is an attack on the governance

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Speaker 2: of the institution. Part of what is really disturbing to me,

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Speaker 2: there have been a long tradition of distinguished Republican leaders

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Speaker 2: who have stood up for the importance of inflation credibility,

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Speaker 2: who have stood up for the independence of the FED.

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Speaker 2: I particularly admired Senator Pat Toomey when he was on

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Speaker 2: the Banking Committee for his efforts, but there were others.

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Speaker 2: There was an effort made to deny a nomination when

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Speaker 2: President Obama made it to Nobel Prize winner Peter Diamond

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Speaker 2: because he wasn't steeped enough in monetary policy and respect

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Speaker 2: for the independence of the Federal of the Federal Reserve.

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Speaker 2: And yet here when we're talking about the wholesale politicization

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Speaker 2: of the FED, there is no response from concerned Republicans.

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Speaker 2: And I have to say that I have been struck

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Speaker 2: that the prominent members of the financial community have had

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Speaker 2: more to say being critical of Zoron Randani's bad ideas

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Speaker 2: about grocery stores in New York than they have the

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Speaker 2: wholesale takeover of the FED, which is a major threat

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Speaker 2: to the financial system as we have it. So I

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Speaker 2: am very worried that highly irresponsible behavior are being normalized

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Speaker 2: by what the President is doing and by the failure

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Speaker 2: of the establishment and of the traditional voices to find

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Speaker 2: the courage to resist and call out what President Trump

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Speaker 2: is doing. If disagreements can't be stated openly or asked

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Speaker 2: on or acted on, that's really a very chilling thing.

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Speaker 1: One of the major driving forces behind the Trump administration

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Speaker 1: and dealing with the Fed is trying to get rates

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Speaker 1: down too, you things like mortgage rates, rates on car loans.

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Speaker 1: Last time the Fed cut, actually the yield went up.

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Speaker 1: It's expected right now that the Fed is likely to

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Speaker 1: cut this month again. What is the administration's options if,

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Speaker 1: in fact, the Fed does cut this month of September

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Speaker 1: and actually yields go up.

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Speaker 2: Well, first of all, David, I think you said the

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Speaker 2: important thing. Markets are already pricing in cuts in rates.

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Speaker 2: So if a rate cut is delivered as expected, I

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Speaker 2: would be surprised if that had a substantial impact on

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Speaker 2: long term rates. I think what markets will be watching

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Speaker 2: is less what happens in September than the signals that

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Speaker 2: are sent with regard to the future. And I think

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Speaker 2: there is a sense that if the Fed is moving

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Speaker 2: towards the President's line easy rates over everything else. I

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Speaker 2: think the likelihood is that in such an environment, long

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Speaker 2: term rates would rise and take more GOODE rates up

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Speaker 2: with them. That's the kind of pattern we saw with

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Speaker 2: the politicized nineteen seventies Federal Reserve. It's the kind of

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Speaker 2: pattern we avoided during the times of Chairman of Vulgar

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Speaker 2: and Chairman Greenspan. So I think that's something very much

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Speaker 2: to worry about, and it's why I'm not sure the

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Speaker 2: President is proceeding wisely, even in his own terms of

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Speaker 2: aspiring towards lower rates that people see. I suppose if

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Speaker 2: long term rates go up, there are, of course options

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Speaker 2: to bring back, in some form or other, the quantitative

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Speaker 2: easing that the President and his people have largely condemned,

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Speaker 2: where the Fed goes in and buys up or somebody

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Speaker 2: goes in and buys up large quantities of long term bonds,

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Speaker 2: or in which pressures are applied to banks and pension

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Speaker 2: funds that force them to buy long term bonds. But

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Speaker 2: if you start down that road, you are really, I think,

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Speaker 2: very severely compromising the integrity of our financial system in

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Speaker 2: ways that we'll have far reaching consequences.

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Speaker 1: Coming up. President Trump claims that the Bureau of Labor

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Speaker 1: Statistics has been misleading the markets with its jobs numbers.

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Speaker 1: What will it take to make sure we have numbers

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Speaker 1: that we can trust? That's next on Wall Street Week.

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Speaker 1: This is a story about trust, maybe the most important

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Speaker 1: thing underlying the markets. Last December, we told you about

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Speaker 1: major problems facing the Bureau of Labor Statistics, the body

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Speaker 1: that publishes those all important jobs numbers each month. Problems

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Speaker 1: got much worse when Donald Trump fired the agency's head

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Speaker 1: last month. Our colleague Molly Smith reports on what it

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Speaker 1: could mean for the system and for private businesses looking

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Speaker 1: to get a foot in the door.

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Speaker 3: In a shared office space in downtown Manhattan, a group

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Speaker 3: of economists see an opportunity.

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Speaker 4: As you can see, the BLS revisions are quite large.

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Speaker 3: You might not have heard of Vellio Labs, but they

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Speaker 3: know an awful lot about the US economy. Benz Wig

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Speaker 3: is the company's CEO.

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Speaker 4: We're a workforce data company, so we collect data from

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Speaker 4: the public web, so anything that's online and that could

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Speaker 4: be public professional profiles, online job postings. We gathered that data.

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Speaker 4: We curate it, we standardize it, we enrich it. And

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Speaker 4: then we ultimately sell that data.

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Speaker 3: Revellio's main audience is hedge funds and private firms looking

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Speaker 3: for another perspective on the economy beyond what's offered by

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Speaker 3: government agencies. But things changed after an ugly July.

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Speaker 5: Jobs We got a very disappointing number here, and this

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Speaker 5: is going to get Wall Street's attention, seventy three thousand

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Speaker 5: jobs created.

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Speaker 3: President Donald Trump claimed without evidence that the numbers were

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Speaker 3: biased and ousted the head of the Bureau of Labor Statistics.

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Speaker 2: I believe the numbers were phony, just like there were

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Speaker 2: before the election, and there were other times.

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Speaker 6: So you know what I did, I fired her, and

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Speaker 6: you know what, I did the right things.

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Speaker 2: We need people that we could trust.

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Speaker 4: We were really really shocked when this happened. This happened

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Speaker 4: on Jobs Friday, of course, and then over the weekend.

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Speaker 4: I remember making some calls. You know, I called our

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Speaker 4: chief economists and you know, a few other people on

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Speaker 4: the team, and we were all kind of thinking the

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Speaker 4: same thing. We were like, all right, we gotta publish

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Speaker 4: macro statistics. There's some concern that the BLS may become politicized,

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Speaker 4: either institutionally or just through the incentives they face. You know,

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Speaker 4: maybe there's some concern that whoever leads it gets the

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Speaker 4: message that, you know, if the numbers don't match a

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Speaker 4: certain narrative, they might be out of job. So there

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Speaker 4: are some distorted incentives, and you know, there's there's some

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Speaker 4: concern that this that this data might not be trusted

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Speaker 4: in the way that it has been, and it's time

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Speaker 4: for us to step up.

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Speaker 5: There's nothing to report that says that there's been actual

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Speaker 5: political interference. Now I know there was a charge and

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Speaker 5: that was the reason for the firing, that the data

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Speaker 5: for the revisions were politically manipulated, and that is absolutely

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Speaker 5: one untrue.

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Speaker 3: Mike Horrigan is president of the Upjohn Institute, a think

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Speaker 3: tank focused on labor markets. He also spent over thirty

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Speaker 3: years at the BLS, at one point leading the Employment

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Speaker 3: Statistics Division.

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Speaker 5: I've served under many commissioners, whether they be nominated by

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Speaker 5: a Republican president or a Democratic president. I got to

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Speaker 5: say all of my experiences will as at the Bureau

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Speaker 5: was that of collaboration, collegiality, understanding. I personally think all

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Speaker 5: the business leaders I talk to still have trust in it.

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Speaker 5: I think what they're looking for is whether or not

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Speaker 5: a new commissioner is going to come in and interfere

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Speaker 5: with that trust. I think that's the next big test.

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Speaker 3: After ousting Rika mcintarford, President Trump tapped to EJ. Antoni

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Speaker 3: to head up the Bureau of Labor Statistics. Antoni is

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Speaker 3: the chief economist at the Heritage Foundation, a conservative think tank,

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Speaker 3: and was a contributor to the controversial Project twenty twenty

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Speaker 3: five plan. He faces Senate confirmation before he can step

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Speaker 3: into the new role at BLS. We spoke with former

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Speaker 3: Commissioner Bill Beach about the politics of the role. Beach

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Speaker 3: served under both President Trump and Biden.

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Speaker 7: Whether the president's Republican or Democrat, They're going to find

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Speaker 7: someone who has maybe demonstrated or at least could demonstrate

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Speaker 7: that they support the general drift of the policy portfolio

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Speaker 7: of the president has laid out. So EJ definitely qualifies

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Speaker 7: on that.

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Speaker 8: So EJ and Toni has been pretty vocal about his

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Speaker 8: critiques of BLS, including the.

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Speaker 3: Job's data the revisions. He suggested before he was named

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Speaker 3: to the role that the BLS should suspend the monthly

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Speaker 3: jobs report until the data issues are quote corrected. Do

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Speaker 3: you think that that's a viable solution? For a problem

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Speaker 3: that BLS is facing.

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Speaker 7: It's not viable at all. The monthly reports coming out

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Speaker 7: of BLS, particularly the Job's Report, are watched by financial

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Speaker 7: movers and shakers all over the world, by policy people

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Speaker 7: all over the world. Their biggest impact is here in

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Speaker 7: this country. And I can't imagine a situation more deleterious

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Speaker 7: to the economy that a statistical agency could do than

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Speaker 7: to suspend or stop or delay one of their reports.

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Speaker 7: I mean, it would cause a lot of problems. So no,

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Speaker 7: it's not viable, and I think EJ will quickly see

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Speaker 7: that if he's confirmed.

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Speaker 3: The reports suggests Antoni has since backed off from the

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Speaker 3: idea of suspending the monthly jobs report. But regardless of

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Speaker 3: whether Trump's new BLS chief makes the agency better or worse,

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Speaker 3: the issue remains that there's room for improvement. The agency's

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Speaker 3: problems are twofold, the budget needed to get the numbers

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Speaker 3: right and the people to make sense of those numbers.

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Speaker 3: Its resources haven't kept up with the scope of the

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Speaker 3: challenge it faces. Adjusted for inflation, BLS funding has slumped

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Speaker 3: about twenty percent since twenty ten, and President Trump's fiscal

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Speaker 3: twenty twenty six budget proposal would shave off an additional

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Speaker 3: eight percent, but Horigan says that the BLS has already

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Speaker 3: been making the most of its tight budget.

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Speaker 5: The Bureau gets about fifty eight percent of their reports

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Speaker 5: now from this thing called EDI. So for example, with Internet,

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Speaker 5: where it's more like a say a single firm or

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Speaker 5: smaller firm will go into the Internet or the Web

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Speaker 5: data collection facility and enter their answers into that format,

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Speaker 5: that's probably about twenty to twenty five percent of the sample.

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Speaker 5: There are other forms in which the data are collected.

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Speaker 5: So for example, CADDY is a computer assisted telephone interview.

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Speaker 5: So a lot of these innovations were introduced well before

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Speaker 5: I came on board, but over its history in those

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Speaker 5: different innovative data collection techniques have been increasing over time.

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Speaker 3: Changes in the BLS's methods of collecting data wouldn't be

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Speaker 3: without precedent its statistical The Census Bureau is already working

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Speaker 3: with private partners to get creative in its data collection.

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Speaker 5: In terms of that next step, I mean that's really

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Speaker 5: kind of a function of resources. Census Bureau, for example,

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Speaker 5: is doing some innovative research right now with Intel and

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Speaker 5: Amazon to take a look at how you could use

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Speaker 5: the firm's data in its own format and then use

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Speaker 5: a large language model to basically fill out a survey form.

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Speaker 5: That's the kind of innovative thinking that the Bureau and

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Speaker 5: cs have done for years, and with more resources, they

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Speaker 5: would be capable of doing that kind of innovation.

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Speaker 3: Innovation at the agency can also come through changing processes

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Speaker 3: that no longer work as well as they once did.

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Speaker 3: Nancy Podok was the Chief Statistician of the US at

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Speaker 3: the Office of Management and Budget and is currently CEO

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Speaker 3: of Knapax Consulting.

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Speaker 9: There's no question that we need improvement. We need investment,

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Speaker 9: we need more research, and we need to update methodologies.

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Speaker 9: The agencies have been starved of resources for a long time.

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Speaker 9: I think a healthy discussion within the administration is a

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Speaker 9: great thing. I'd love to see it, and I think

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Speaker 9: it should involve people outside the system as well. The users,

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Speaker 9: you know, people who are really relying on the numbers

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Speaker 9: to make decisions, need to provide input into that as

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Speaker 9: well as methodologists.

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Speaker 5: I'm not telling the Bureau what to do, but they

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Speaker 5: collect the data through the Friday before the release of

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Speaker 5: the data on Employment Situation Day. So one option to

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Speaker 5: consider is if you want more reports coming in. Before

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Speaker 5: you introduce any additional innovation in terms of data collection techniques,

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Speaker 5: maybe consider extending the time period for that first closing.

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Speaker 3: But processes and innovative partnerships need people to shepherd them.

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Speaker 3: People it's been losing. The agency has roughly two thousand employees,

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Speaker 3: and a third of its top positions are now vacant.

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Speaker 5: One of the concerns I have is, even if you

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Speaker 5: throw more resources at a time when we've lost so

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Speaker 5: many talented members of the statistical community because of the

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Speaker 5: fork in the road, because of firing all the folks

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Speaker 5: that have less than two years of tenure, and all

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Speaker 5: the senior executives that have decided to retire, you've got

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Speaker 5: a people problem.

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Speaker 8: It's just amazing looking at like the magnitude here, the

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Speaker 8: green ones again, thels and the blue ones are yours.

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Speaker 4: Pretty much what you get the first time is going

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Speaker 4: to be very close to what you get a month

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Speaker 4: later and a month after that.

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Speaker 3: The private sector thinks it can lend to HA and

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Speaker 3: to solve the government's data problem. An idea that's come

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Speaker 3: up in the context of improving federal statistics is this

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Speaker 3: idea of blended data, so incorporating private or alternative data

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Speaker 3: sources on top of what the government collects. Is that

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Speaker 3: something that you have explored with BLS or other statistical agencies,

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Speaker 3: or something.

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Speaker 4: You want to do, Yeah, I mean we would love

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Speaker 4: to do that. It hasn't come up. You know, no

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Speaker 4: one has asked us if we'd like to.

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Speaker 3: Would you ask them?

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Speaker 6: Yeah?

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Speaker 4: I think so. I mean, I think they know about us.

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Speaker 4: You know, we're very much in the same circles. You know,

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Speaker 4: it's the small world of laborconnuts and we all know

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Speaker 4: each other. And and I think you know, certainly within

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Speaker 4: financial markets, we're well known as the kind of go

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Speaker 4: to source for labor market information. So I think they

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Speaker 4: know that we're doing this. My sense, and granted I'm

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Speaker 4: not in the room when these discussions happen, is that

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Speaker 4: the BLS has not been able to just defy funding

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Speaker 4: for these new initiatives, and they've had their funding cut

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Speaker 4: again and again. And this is something like a wish

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Speaker 4: that has never really.

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Speaker 10: Gotten traction.

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Speaker 4: So not holding my breath for it, and I'd love

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Speaker 4: if it would happen. In the meantime, We're just going

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Speaker 4: to put it out there as a public service.

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Speaker 3: The science of statistics is empirical, but under the hard

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Speaker 3: data lies the immeasurable but important quality of trust in

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Speaker 3: those numbers and in the entities responsible for collecting and

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Speaker 3: reporting them.

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Speaker 7: This is not a trivial matter. The trust in BLS

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Speaker 7: is connected to trust in their product. The two are

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Speaker 7: the same. And if you don't trust the product, then,

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Speaker 7: for example, you're making a big merger with another company

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Speaker 7: and you use data from BLS, it has to be

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Speaker 7: pretty believable in order for your hurdle rates for the

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Speaker 7: investment to be believable. Well, now you don't quite believe it,

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Speaker 7: so you begin to hedge a little bit more uncertainty

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Speaker 7: around that hurdle rate than there was before, and uncertainty

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Speaker 7: produces higher costs than the acquisition process. I'm using a

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Speaker 7: very small slice, but that's repeated every day, thousands of times.

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Speaker 7: So I think losing trust in a bedrock institution is

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Speaker 7: highly consequential, highly difficult, and very expensive for an economy.

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Speaker 7: Does it reduce the growth rate? Yes? Over time it

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Speaker 7: could actually reduce the growth rate in economy. Not to

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Speaker 7: know the economy is operating at a certain level because

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Speaker 7: you distrust the data means you don't know how the

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Speaker 7: economy is operating, and how can you function efficiently and

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Speaker 7: use your resources at their highest and best use if

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Speaker 7: you really can't see the economy the way you think

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Speaker 7: you should.

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Speaker 3: Nancy Podock says that today, as Trump's BLS pick prepares

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Speaker 3: for the Senate confirmation process, the country sits at acrossroads.

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Speaker 3: Will leadership continue to prioritize the best, most impartial data

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Speaker 3: or will it fall into a familiar trap that other

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Speaker 3: countries know too well, in which numbers aren't used to

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Speaker 3: learn about the economy, but to tell an approved story

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Speaker 3: about it.

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Speaker 9: We really need people to get excited about the whole system,

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Speaker 9: not just the firing of the BLS commissioner, but knowing

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Speaker 9: that that's a keystone in a larger system that is

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Speaker 9: in peril. We're going to go one way or the

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Speaker 9: other at this point. I don't think there's a status

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Speaker 9: quo option. I think it's either going to get very

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Speaker 9: political or people are going to really strengthen the system.

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Speaker 9: We've got to choose as a nation which way we're

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Speaker 9: going to.

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Speaker 1: Go up next. There's gold in them. They are Australian

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Speaker 1: outback minds and firms are reaping the benefits from higher

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Speaker 1: gold prices. But what are they going to do with

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Speaker 1: all that money? This is a story about money burning

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Speaker 1: a hole in your pocket. The price of gold has

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Speaker 1: been on our rocket right up. Our colleague Paul Allen

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Speaker 1: tells us about what this means for gold mining in

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Speaker 1: Australia and both the risks and the opportunities.

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Speaker 11: In the Australian outback, scrub and red dust stretches as

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Speaker 11: far as the eye can see. It's desolate out here

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Speaker 11: and it's dry, but beneath the dust there's a bounty

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Speaker 11: that miners are willing to dig a long way for.

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Speaker 12: How many ounces of gold would be in a typical truck,

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Speaker 12: So the beare and five hundred grams of gold and

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Speaker 12: the tripe. So we've got a line of trucks slowly

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Speaker 12: making their way out of the pit here. How long

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Speaker 12: does it take to get from the bottom to.

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Speaker 10: The top, Yeah, it's well over an hour.

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Speaker 11: The Kelgooli super Pit in Western Australia is a sight

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Speaker 11: to behold. More than six hundred meters deep would covery

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Speaker 11: in Manhattan's tallest skyscrapers. It's so vast it swallows Central Park.

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Speaker 13: This project is going to be an important one for

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Speaker 13: our business. And our shareholders A Zabaham.

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Speaker 11: Stuart Tonkin as CEO of Northern Star, Australia's the biggest gold.

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Speaker 13: Miner, probably around three to f one a million dollars

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Speaker 13: per annum being spent moving material from the southern part

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Speaker 13: of this pit, gaining access to over six million ounces.

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Speaker 10: Of gold in the bottom of the southern part of

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Speaker 10: this pit.

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Speaker 11: The price of gold has been on a tear. It's

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Speaker 11: up nearly tenfold since two thousand and more than doubling

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Speaker 11: over the last five years. Tolkien's company and many others

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Speaker 11: around Carl Guli are cashing in. But the gold industry

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Speaker 11: has been here before.

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Speaker 13: There's probably more failure stories than success stories where people

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Speaker 13: can point to in the gold sector, and so repairing

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Speaker 13: a lot of that trust with investors as we go

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Speaker 13: into another cycle has been really important for our company

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Speaker 13: and I think for many Australian companies to get that

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Speaker 13: investor trust.

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Speaker 11: But before we get to that, let's set the scene.

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Speaker 11: There was eighteen ninety three when a group of prospectors

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Speaker 11: on horseback quite literally struck gold in Calgooley. Russian sued

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Speaker 11: and the precious metal has dominated the Western Australian town

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Speaker 11: of thirty thousands ever since. And the other Ashok Pereka

403
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Speaker 11: is the local accountant and chairman of mid tier gold

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Speaker 11: producer Horizon Minerals.

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Speaker 14: I've been involved in the mining industry for over forty

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Speaker 14: years in Calgooley and I happened to in the pub

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Speaker 14: as well. When I came here, gold was probably one

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Speaker 14: hundred and fifty dollars an aunts. Today it's over five

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Speaker 14: thousand dollars in aunts. It has been great for everybody

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Speaker 14: in Australia and cayl Gooley win the biggest goal mining town.

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Speaker 14: Other is in Australia and Carl Gooley is different.

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Speaker 15: You can come to Carl Gooley, you can walk into

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Speaker 15: a pub, you've got no job, nowhere to live and

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Speaker 15: no money, and by the time you walk out you've

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Speaker 15: had a meal, you've got a place to stay and

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Speaker 15: you've got a job.

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Speaker 11: There's plenty more people finding jobs and places to mine.

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Speaker 11: With the price of gold booming.

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Speaker 10: We're currently mining. It's all a great goal price environment.

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Speaker 16: What those high goal prices do for is this, we

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Speaker 16: can actually produce gold now pay a little more through

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Speaker 16: processing through third party infrastructure, so use other people's infrastructure.

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Speaker 10: What it does is as actually.

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Speaker 16: Closed, as that funding gap will need to refurbish our

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Speaker 16: own plants.

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Speaker 13: Now I call them pop up shops around the gold

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Speaker 13: fields here, just the amount of flurry and activity of

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Speaker 13: things that weren't economic six months ago that suddenly become economic.

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Speaker 11: Australia produces about three hundred tons of gold each year,

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Speaker 11: that's about eight percent of global production. It's a costly exercise.

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Speaker 11: The process involves breaking down vast amounts of ore extracted

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Speaker 11: from the mind. Each truck can carry about two hundred

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Speaker 11: and fifty tons of material, which is typically five hundred

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00:27:52,280 --> 00:27:56,120
Speaker 11: grams of that is gold. That materials then broken down

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Speaker 11: and processed by crushes before being melted.

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Speaker 17: The melting point of gold is ony twenty four degrees,

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Speaker 17: so we then hate the furnace up to roughly twelve

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Speaker 17: hundred degrees as we go through the poor process. The

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Speaker 17: first material comes out is all of that slag off

440
00:28:12,840 --> 00:28:16,120
Speaker 17: the top of the in creacible. Then when the gold

441
00:28:16,200 --> 00:28:19,359
Speaker 17: comes out, the color chained actually goes from a yellow

442
00:28:19,440 --> 00:28:22,440
Speaker 17: almost or greeny color, and that's the gold coming out

443
00:28:22,600 --> 00:28:26,359
Speaker 17: of the process. Probably one of the good things about

444
00:28:26,400 --> 00:28:29,480
Speaker 17: this site is that we have a relatively nice or

445
00:28:29,600 --> 00:28:32,040
Speaker 17: body coming into it. We don't have a great deal

446
00:28:32,200 --> 00:28:34,800
Speaker 17: of impurities coming through. So these are some of the

447
00:28:34,880 --> 00:28:37,480
Speaker 17: nicest bars that I've seen in my time in industry,

448
00:28:38,280 --> 00:28:38,760
Speaker 17: and with.

449
00:28:38,760 --> 00:28:42,640
Speaker 11: A surgeon prices, Australia's gold miners are cashing in and

450
00:28:42,760 --> 00:28:47,080
Speaker 11: setting themselves up for long term success. Lorie Conway is

451
00:28:47,240 --> 00:28:48,800
Speaker 11: CEO of Evolution Mining.

452
00:28:49,400 --> 00:28:51,800
Speaker 18: So back in June twenty three, we made the decision

453
00:28:51,880 --> 00:28:54,360
Speaker 18: to invest two hundred and fifty million dollars building this

454
00:28:54,520 --> 00:28:57,560
Speaker 18: plant expansion and seventy five million dollars to open up

455
00:28:57,560 --> 00:29:00,720
Speaker 18: a new mining center into the North heat Feur the plant,

456
00:29:01,000 --> 00:29:03,680
Speaker 18: taking it from two million tons to four point two

457
00:29:03,720 --> 00:29:07,520
Speaker 18: million tons. And in twenty three it was pretty difficult.

458
00:29:07,840 --> 00:29:09,760
Speaker 18: The market was high, it was hard to get people,

459
00:29:09,760 --> 00:29:10,680
Speaker 18: hard to get equipment.

460
00:29:10,880 --> 00:29:13,520
Speaker 10: I think we were very fortunate when we did that.

461
00:29:13,640 --> 00:29:16,600
Speaker 16: But gold price was only two four hundred two five

462
00:29:16,640 --> 00:29:19,640
Speaker 16: hundred dollars an ounce when the board approved this, and

463
00:29:19,720 --> 00:29:22,120
Speaker 16: it had very good economics. I mean bringing it in

464
00:29:22,240 --> 00:29:25,600
Speaker 16: right now at two hundred dollars an ounce is a

465
00:29:25,600 --> 00:29:26,280
Speaker 16: perfect time.

466
00:29:26,160 --> 00:29:27,440
Speaker 10: To be commissioning it.

467
00:29:27,600 --> 00:29:30,160
Speaker 16: I think that the difference this time is what's going

468
00:29:30,200 --> 00:29:33,160
Speaker 16: on around Central Banks and that shift of we need

469
00:29:33,200 --> 00:29:36,360
Speaker 16: to have gold in our reserves a lot more, whereas

470
00:29:36,440 --> 00:29:39,320
Speaker 16: back in the last cycle it was it was really

471
00:29:39,360 --> 00:29:42,400
Speaker 16: around the whole mining boom and therefore what was going

472
00:29:42,440 --> 00:29:45,080
Speaker 16: on in low inflation, low interest rates that pushed the

473
00:29:45,120 --> 00:29:47,520
Speaker 16: price of gold up, and so that was will being

474
00:29:47,560 --> 00:29:49,320
Speaker 16: driven by an economic standpoint.

475
00:29:49,320 --> 00:29:50,040
Speaker 12: This time it's.

476
00:29:49,920 --> 00:29:53,400
Speaker 16: Really being driven by geopolitical tensions and the shift in

477
00:29:53,760 --> 00:29:56,680
Speaker 16: the way that governments are handling their reserves. And so

478
00:29:56,760 --> 00:29:59,840
Speaker 16: that's why you sort of see that structural shift that

479
00:30:00,120 --> 00:30:04,280
Speaker 16: that the governments are driving this price whereas the economy

480
00:30:04,320 --> 00:30:06,320
Speaker 16: was driving the other one. And that's why in the

481
00:30:06,360 --> 00:30:09,080
Speaker 16: long term, yes, the goal price will come down a bit,

482
00:30:09,160 --> 00:30:11,720
Speaker 16: but it structurally shifted higher because of what central banks

483
00:30:11,720 --> 00:30:12,120
Speaker 16: are doing.

484
00:30:12,120 --> 00:30:13,440
Speaker 10: Versus the last last boom.

485
00:30:14,200 --> 00:30:18,120
Speaker 11: In twenty nineteen, Evolution reported adjusted gross profit of about

486
00:30:18,160 --> 00:30:21,320
Speaker 11: two hundred and seventy million US dollars or about four

487
00:30:21,440 --> 00:30:25,240
Speaker 11: hundred and ten million Australian dollars. That's now jump to

488
00:30:25,280 --> 00:30:28,680
Speaker 11: about one billion. It's expected to grow even further to

489
00:30:28,760 --> 00:30:30,440
Speaker 11: almost two billion next year.

490
00:30:31,240 --> 00:30:33,720
Speaker 10: And how harry about on the costs front, what's that like?

491
00:30:33,760 --> 00:30:36,120
Speaker 16: At the moment, power will go up because we're obviously

492
00:30:36,160 --> 00:30:38,640
Speaker 16: doubling the processing and the processing uses power.

493
00:30:38,840 --> 00:30:40,840
Speaker 10: Fifty percent of our costs are labor.

494
00:30:41,120 --> 00:30:44,000
Speaker 11: And investors are keeping a keen eye on costs this

495
00:30:44,160 --> 00:30:49,160
Speaker 11: time around. When gold prices last jumped, Australia's gold miners underperformed,

496
00:30:49,520 --> 00:30:52,760
Speaker 11: falling sixteen percent of the three years from twenty ten,

497
00:30:53,200 --> 00:30:56,560
Speaker 11: while the price of the metal itself rose fifty two percent.

498
00:30:58,280 --> 00:31:01,160
Speaker 11: Kate McCutcheon covers Australia's gold miners for City.

499
00:31:02,080 --> 00:31:05,480
Speaker 6: So last cycle, we definitely saw a lot of transformative

500
00:31:05,640 --> 00:31:08,360
Speaker 6: m and E which was very value destructive. So that

501
00:31:08,480 --> 00:31:11,280
Speaker 6: last cycle from two thousand to twenty twelve, the ten

502
00:31:11,320 --> 00:31:14,960
Speaker 6: biggest gold stocks in our coverage universe cumulatively burnt ten

503
00:31:15,040 --> 00:31:16,840
Speaker 6: billion dollars in free cash.

504
00:31:17,400 --> 00:31:19,880
Speaker 16: As an industry, we made those missteps because when the

505
00:31:19,920 --> 00:31:23,160
Speaker 16: price did come off and that cycle changed, shareholders went, well,

506
00:31:23,160 --> 00:31:26,360
Speaker 16: where's the cash, And all the industry said is, well,

507
00:31:26,400 --> 00:31:28,840
Speaker 16: we reinvested it in the projects or we went in

508
00:31:28,880 --> 00:31:32,680
Speaker 16: board assets, and therefore we've reinvested that money for you.

509
00:31:32,720 --> 00:31:34,560
Speaker 16: And the shareholders were like, well, we would have liked

510
00:31:34,560 --> 00:31:37,480
Speaker 16: some of that, and we didn't see that. It hasn't

511
00:31:37,560 --> 00:31:39,400
Speaker 16: changed too much, I mean, other than that we're putting

512
00:31:39,440 --> 00:31:41,400
Speaker 16: more cash in the bank, which is why our shareholders

513
00:31:41,440 --> 00:31:42,040
Speaker 16: want to see it.

514
00:31:42,720 --> 00:31:44,720
Speaker 12: So it's interesting you say you've got more cash in

515
00:31:44,760 --> 00:31:48,840
Speaker 12: the bank. Has this changed your approach to reserve management

516
00:31:49,040 --> 00:31:50,400
Speaker 12: and long term planning as well?

517
00:31:50,800 --> 00:31:53,160
Speaker 16: You know, you've got to see it as a stained price

518
00:31:53,200 --> 00:31:55,239
Speaker 16: at these levels before, because you can't just change your

519
00:31:55,240 --> 00:31:58,200
Speaker 16: mind plans overnight. So what it does mean we look

520
00:31:58,200 --> 00:32:00,440
Speaker 16: at our reserve pricing, We look at what the costs

521
00:32:01,000 --> 00:32:04,000
Speaker 16: have changed, because you do see costs generally follow the

522
00:32:04,040 --> 00:32:06,960
Speaker 16: goal price. And then we look at all what projects

523
00:32:07,240 --> 00:32:10,840
Speaker 16: become more economic in a higher price environment, and then

524
00:32:10,880 --> 00:32:13,080
Speaker 16: we apply the normal discipline of when do you bring

525
00:32:13,120 --> 00:32:13,520
Speaker 16: those on.

526
00:32:14,920 --> 00:32:16,280
Speaker 13: I think it's important that you look at a lot

527
00:32:16,320 --> 00:32:19,240
Speaker 13: of these things in hindsight, some things like hedging, you know,

528
00:32:19,280 --> 00:32:22,720
Speaker 13: hedge book legacy, at prices that people had never never

529
00:32:22,760 --> 00:32:25,680
Speaker 13: thought that they would see exposure to. You know, when

530
00:32:25,680 --> 00:32:28,680
Speaker 13: people had a high equity price, they probably tried to

531
00:32:28,800 --> 00:32:31,520
Speaker 13: use that currency by raising lots of money on the

532
00:32:31,520 --> 00:32:35,160
Speaker 13: back of an elevated equity price and then potentially dropping

533
00:32:35,160 --> 00:32:38,920
Speaker 13: money out of their balance sheet, return capital to shareholders

534
00:32:38,920 --> 00:32:42,080
Speaker 13: that then wasn't retained for its own sustainability inside the business.

535
00:32:42,120 --> 00:32:45,000
Speaker 13: So there are very many different disciplines of what people

536
00:32:45,040 --> 00:32:46,320
Speaker 13: do at different times.

537
00:32:46,320 --> 00:32:48,120
Speaker 12: And do you feel lessons have been learned? Do you

538
00:32:48,120 --> 00:32:49,920
Speaker 12: feel like the approach is different this time.

539
00:32:50,320 --> 00:32:51,040
Speaker 10: I feel that the.

540
00:32:51,440 --> 00:32:53,360
Speaker 13: Heat has come out of some of that, but I've

541
00:32:53,400 --> 00:32:57,280
Speaker 13: found a foundation discipline of true capital management across a

542
00:32:57,360 --> 00:33:01,280
Speaker 13: variety of things. So, you know, dividend gold companies was

543
00:33:01,360 --> 00:33:03,920
Speaker 13: never really heard of. There's a lot of good track

544
00:33:03,960 --> 00:33:07,560
Speaker 13: record of gold companies paying dividends, doing share buybacks, compressing

545
00:33:07,560 --> 00:33:10,280
Speaker 13: registers that they had raised equity on the back of.

546
00:33:11,080 --> 00:33:12,520
Speaker 10: Those are the type of capital.

547
00:33:12,160 --> 00:33:15,840
Speaker 13: Management measures that aren't typical to a gold company are

548
00:33:15,880 --> 00:33:16,320
Speaker 13: this time.

549
00:33:16,440 --> 00:33:19,959
Speaker 6: Investors want to see more tuck in acquisitions or bolt

550
00:33:19,960 --> 00:33:22,280
Speaker 6: on acquisitions close to infrastructure.

551
00:33:22,600 --> 00:33:23,600
Speaker 10: It's very very.

552
00:33:23,400 --> 00:33:25,920
Speaker 6: Hard in a bull gold market to do a deal

553
00:33:26,000 --> 00:33:28,479
Speaker 6: that's a creative and I think the gold companies are

554
00:33:28,480 --> 00:33:34,040
Speaker 6: realizing that. Secondly, what's not different this time is delivery

555
00:33:34,080 --> 00:33:38,120
Speaker 6: on operational guidance. So the three biggest stocks in our

556
00:33:38,120 --> 00:33:42,560
Speaker 6: coverage Universe, Evolution, Northern Star in Neumont actually up until

557
00:33:42,600 --> 00:33:46,520
Speaker 6: the SFY hadn't delivered on guidance for between four to

558
00:33:46,560 --> 00:33:50,120
Speaker 6: seven years. The third thing that's different this cycle is

559
00:33:50,160 --> 00:33:53,840
Speaker 6: also hedgebooks. So now we're seeing gold miners opt for

560
00:33:54,040 --> 00:33:57,800
Speaker 6: no hedging policy, so that exposure to spot prices and

561
00:33:57,840 --> 00:34:01,719
Speaker 6: putting in place and put options to protect the downside.

562
00:34:01,480 --> 00:34:02,880
Speaker 10: And this cycle as well.

563
00:34:02,960 --> 00:34:04,760
Speaker 6: Most of the gold miners in our coverage are in

564
00:34:04,800 --> 00:34:07,840
Speaker 6: a net cash position or running at peak net data

565
00:34:07,880 --> 00:34:11,040
Speaker 6: fifteen percent, so balance sheets are very different this time.

566
00:34:11,560 --> 00:34:14,439
Speaker 11: And investors appear to be liking what they're seeing. Since

567
00:34:14,480 --> 00:34:16,600
Speaker 11: the start of twenty twenty two, the gold price is

568
00:34:16,680 --> 00:34:20,680
Speaker 11: up eighty five percent. Australia's gold miners are up ninety

569
00:34:20,719 --> 00:34:24,440
Speaker 11: eight percent, with both Northern Star and Evolution balancing share

570
00:34:24,480 --> 00:34:27,520
Speaker 11: buyback programs with new investments in recent months.

571
00:34:28,040 --> 00:34:30,560
Speaker 12: Do you feel like investors now buy the idea that

572
00:34:30,600 --> 00:34:33,000
Speaker 12: the gold industry is more disciplined than it has been

573
00:34:33,000 --> 00:34:33,560
Speaker 12: in the past.

574
00:34:33,880 --> 00:34:34,080
Speaker 1: Yeah.

575
00:34:34,120 --> 00:34:36,040
Speaker 16: I think if we can continue that over the next

576
00:34:36,080 --> 00:34:40,319
Speaker 16: sort of twelve eighteen months through increasing dividends, making sure

577
00:34:40,360 --> 00:34:42,920
Speaker 16: that some companies do buybacks that they do see that,

578
00:34:43,680 --> 00:34:46,280
Speaker 16: as well as reinvesting in the business, because the shaholders

579
00:34:46,320 --> 00:34:47,880
Speaker 16: still want us to reinvest.

580
00:34:47,520 --> 00:34:48,000
Speaker 10: In the business.

581
00:34:48,080 --> 00:34:51,120
Speaker 16: They want us to make it sustainable over the long term,

582
00:34:51,120 --> 00:34:52,399
Speaker 16: but they do want to share in that.

583
00:34:52,520 --> 00:34:54,279
Speaker 10: As we're going through this cycle.

584
00:34:54,800 --> 00:34:57,120
Speaker 19: Just spent a couple of weeks in the US meeting

585
00:34:57,120 --> 00:34:59,560
Speaker 19: with investors because there's a lot more interest in the

586
00:34:59,680 --> 00:35:02,640
Speaker 19: US in Australian doll stops at the moment, and so

587
00:35:02,719 --> 00:35:04,799
Speaker 19: it was good to go and talk to them and

588
00:35:05,000 --> 00:35:07,440
Speaker 19: explain what we're doing here at Evolution, but also what

589
00:35:07,480 --> 00:35:10,560
Speaker 19: the gold industry in Australia is doing, and they're certainly

590
00:35:10,600 --> 00:35:11,560
Speaker 19: going to be more interest.

591
00:35:12,400 --> 00:35:16,320
Speaker 11: The big question is where to next. Gold is plataued

592
00:35:16,360 --> 00:35:20,080
Speaker 11: in recent months, but in an increasingly uncertain macro environment,

593
00:35:20,560 --> 00:35:21,760
Speaker 11: is the room to go higher.

594
00:35:22,400 --> 00:35:25,000
Speaker 13: It's a really exciting time for gold and it's been

595
00:35:25,040 --> 00:35:28,440
Speaker 13: elevated for some time, but there doesn't seem any signs

596
00:35:28,440 --> 00:35:31,799
Speaker 13: that this is going to fall back. We think it's

597
00:35:31,800 --> 00:35:34,360
Speaker 13: possibly the new norm and if anything, the start of

598
00:35:34,400 --> 00:35:36,400
Speaker 13: another continuing ball run for gold.

599
00:35:37,360 --> 00:35:38,000
Speaker 10: Yeah certainly.

600
00:35:38,000 --> 00:35:41,239
Speaker 16: I mean gold started back in the eighteen fifty so

601
00:35:41,320 --> 00:35:43,520
Speaker 16: it's been around and been a part of Australia for

602
00:35:43,560 --> 00:35:45,880
Speaker 16: a very long time, and I think as we go

603
00:35:45,960 --> 00:35:48,880
Speaker 16: through the boom and bust of economies, gold has had

604
00:35:48,880 --> 00:35:51,560
Speaker 16: a significant role to play. It now has a more

605
00:35:51,600 --> 00:35:54,480
Speaker 16: important role to play because we are a top ten producer,

606
00:35:55,040 --> 00:35:57,759
Speaker 16: we're low cost producer, We're a great jurisdiction in which

607
00:35:57,800 --> 00:36:01,880
Speaker 16: to operate and therefore makes it important to the Australian economy.

608
00:36:01,880 --> 00:36:04,319
Speaker 16: But it also means it makes it attractive for people to.

609
00:36:04,320 --> 00:36:05,280
Speaker 10: Invest in the sector.

610
00:36:05,920 --> 00:36:08,640
Speaker 11: Whether it does make it attractive for people to invest

611
00:36:08,680 --> 00:36:11,439
Speaker 11: in is going to depend on some big decisions being

612
00:36:11,440 --> 00:36:14,799
Speaker 11: made by companies like Evolution and Northern Star. Is a

613
00:36:14,840 --> 00:36:17,880
Speaker 11: time to double down on the gold mining bet or

614
00:36:18,320 --> 00:36:20,160
Speaker 11: is it time to take some money off the table

615
00:36:20,320 --> 00:36:21,880
Speaker 11: and give it back to investors?

616
00:36:26,520 --> 00:36:30,160
Speaker 1: Coming up, millions of Indians put billions of dollars into

617
00:36:30,200 --> 00:36:33,759
Speaker 1: equity derivatives and lost most of it. We take a

618
00:36:33,760 --> 00:36:36,640
Speaker 1: look at Indian capital markets and their role in driving

619
00:36:36,719 --> 00:36:50,359
Speaker 1: growth and innovation. That's next on Wall Street Week. This

620
00:36:50,480 --> 00:36:53,839
Speaker 1: is a story about walking a tight rope. India Prime

621
00:36:53,840 --> 00:36:57,440
Speaker 1: Minister Modi is committed to making India and economic power

622
00:36:57,680 --> 00:37:00,640
Speaker 1: and capital markets are what provide businesses with the money

623
00:37:00,680 --> 00:37:03,480
Speaker 1: they need to start and to grow. But to do

624
00:37:03,520 --> 00:37:06,879
Speaker 1: that they need to encourage investors to take risks, enough

625
00:37:06,960 --> 00:37:10,360
Speaker 1: risk but not too much, a fine balance. We recently

626
00:37:10,400 --> 00:37:15,760
Speaker 1: saw lost in India's equity derivatives market. As a market

627
00:37:15,800 --> 00:37:19,800
Speaker 1: maker with a unique model, Jane Street's business makes bets

628
00:37:19,920 --> 00:37:24,160
Speaker 1: on inefficiencies in markets. Bloomberg reporter Catherine Doherty has been

629
00:37:24,200 --> 00:37:26,200
Speaker 1: reporting on its business in India.

630
00:37:27,080 --> 00:37:30,960
Speaker 20: Jane Street has kept its trading secrets close to their chest,

631
00:37:31,360 --> 00:37:34,000
Speaker 20: but it was really the Millennium lawsuit.

632
00:37:34,640 --> 00:37:38,400
Speaker 1: Jane Street saw an opportunity in India's equity markets, engaging

633
00:37:38,400 --> 00:37:41,400
Speaker 1: in a strategy called index arbitrage.

634
00:37:42,040 --> 00:37:45,799
Speaker 20: So the firm was essentially placing these large bets that

635
00:37:45,880 --> 00:37:49,680
Speaker 20: were then impacting the other side, and they were profiting

636
00:37:49,800 --> 00:37:53,040
Speaker 20: from the way that these markets were moving. So the

637
00:37:53,560 --> 00:37:57,680
Speaker 20: regulators in India have identified this as a manipulative trade,

638
00:37:58,000 --> 00:38:00,920
Speaker 20: and the firm has said it was a arbitrage trade

639
00:38:00,920 --> 00:38:02,200
Speaker 20: and not market manipulation.

640
00:38:03,280 --> 00:38:06,720
Speaker 1: India's market regulator, the Securities in Exchange Board of India

641
00:38:06,920 --> 00:38:10,440
Speaker 1: or SEB, banned Jane Street from the country's securities markets.

642
00:38:10,760 --> 00:38:13,960
Speaker 1: Jane Street has filed an appeal alleging that SEB denied

643
00:38:14,200 --> 00:38:20,319
Speaker 1: access to documents it needs to defend against market manipulation accusations. Ironically,

644
00:38:20,560 --> 00:38:24,080
Speaker 1: the problem with India's capital markets historically has not been

645
00:38:24,200 --> 00:38:27,800
Speaker 1: encouraging too much risk but too little. Nil As Shah

646
00:38:28,040 --> 00:38:31,120
Speaker 1: has watched the evolution of the country's capital markets as

647
00:38:31,120 --> 00:38:34,680
Speaker 1: the Managing Director of Kotak Mahindra Asset Management.

648
00:38:35,440 --> 00:38:39,960
Speaker 21: The Indian savings location is more tilted to its physical

649
00:38:40,000 --> 00:38:43,000
Speaker 21: as sets. We are one of the largest buyers of

650
00:38:43,080 --> 00:38:47,000
Speaker 21: gold in the world, putting anywhere between fifty to seventy

651
00:38:47,040 --> 00:38:50,840
Speaker 21: billion dollars annually. We also have love for real estate.

652
00:38:51,840 --> 00:38:55,319
Speaker 21: Capital market or financial savings itself is taken off in

653
00:38:55,440 --> 00:38:59,560
Speaker 21: recent times, but thanks to mutual funds, insurance industry and

654
00:38:59,600 --> 00:39:04,560
Speaker 21: bens funds, slowly and steadily a location to capital markets

655
00:39:04,640 --> 00:39:07,759
Speaker 21: both debt and equity is increasing rapidly.

656
00:39:08,560 --> 00:39:12,600
Speaker 1: India's transition to retail investing is still in its early stages,

657
00:39:12,920 --> 00:39:16,440
Speaker 1: but it is moving fast. One in five households today

658
00:39:16,520 --> 00:39:21,480
Speaker 1: whole shares are from one in fourteen. Just five years ago.

659
00:39:21,960 --> 00:39:25,960
Speaker 21: We launched an investor awareness program called Mutual Funds Sahih

660
00:39:26,400 --> 00:39:30,399
Speaker 21: Mutual funds are right thing to do and that has

661
00:39:30,440 --> 00:39:34,080
Speaker 21: helped us in mobilizing more and more retail savings into

662
00:39:34,200 --> 00:39:39,320
Speaker 21: mutual fund Our industry is growing at a phenetic pace

663
00:39:40,080 --> 00:39:43,240
Speaker 21: and I believe the najis from the regulator. The work

664
00:39:43,280 --> 00:39:47,080
Speaker 21: done by the regulator is laying the foundation. Now it

665
00:39:47,160 --> 00:39:49,840
Speaker 21: is up to us as an industry to carry forward.

666
00:39:49,920 --> 00:39:53,640
Speaker 1: The work. One measure of the expansion of Indian capital

667
00:39:53,680 --> 00:39:56,840
Speaker 1: markets is the success of its IPO market, which is

668
00:39:56,880 --> 00:39:58,600
Speaker 1: among the biggest in the world.

669
00:39:59,320 --> 00:40:04,120
Speaker 22: Last year, IPOs in India accounted for about twenty more

670
00:40:04,160 --> 00:40:07,320
Speaker 22: than twenty billion dollars US dollars. It was the number

671
00:40:07,440 --> 00:40:10,200
Speaker 22: two IPO market in the entire world.

672
00:40:10,719 --> 00:40:14,760
Speaker 1: Josh Felman is the principle at JH Consulting and advised

673
00:40:14,760 --> 00:40:18,200
Speaker 1: the Indian government on economic and financial matters during his

674
00:40:18,320 --> 00:40:22,239
Speaker 1: time as the Director of the IMF's India office. To date,

675
00:40:22,440 --> 00:40:27,239
Speaker 1: regulators have encouraged retail participation in IPOs, helping contribute to

676
00:40:27,360 --> 00:40:30,080
Speaker 1: overall retail participation in markets.

677
00:40:30,640 --> 00:40:34,800
Speaker 22: One thing that they've been fantastically successful in as opposed

678
00:40:34,840 --> 00:40:41,080
Speaker 22: to say China, is they've managed to get household participation

679
00:40:41,400 --> 00:40:42,640
Speaker 22: in the capital markets.

680
00:40:43,400 --> 00:40:46,880
Speaker 1: It's not all roses. Under the surface of India's blossoming

681
00:40:46,880 --> 00:40:51,080
Speaker 1: capital markets is a risk that threatens its stability derivatives.

682
00:40:51,880 --> 00:40:57,359
Speaker 22: About forty percent of derivative transactions are conducted by households

683
00:40:57,719 --> 00:41:00,600
Speaker 22: in India, which is an incredibly large number. So if

684
00:41:00,640 --> 00:41:04,440
Speaker 22: you take the derivatives market in particular, the regulator SEBI

685
00:41:04,840 --> 00:41:09,640
Speaker 22: did a study They found that last year about ninety

686
00:41:09,760 --> 00:41:14,319
Speaker 22: percent of the participants in the market lost money, and

687
00:41:14,760 --> 00:41:19,279
Speaker 22: they found that again about forty percent of them were

688
00:41:19,560 --> 00:41:23,480
Speaker 22: under thirty. Three quarters of them earned less than six

689
00:41:23,600 --> 00:41:24,879
Speaker 22: thousand dollars per year.

690
00:41:25,719 --> 00:41:29,120
Speaker 1: The growth in derivatives has caused a liquidity problem.

691
00:41:29,480 --> 00:41:31,840
Speaker 22: It is a fact that there are a large number

692
00:41:31,840 --> 00:41:36,279
Speaker 22: of unsophisticated investors. It is a fact that they have

693
00:41:36,560 --> 00:41:43,480
Speaker 22: very poor cash buffers. But what to do about it.

694
00:41:43,719 --> 00:41:46,360
Speaker 22: You don't want to push these people completely out of

695
00:41:46,400 --> 00:41:49,640
Speaker 22: the market. On the same time, you don't want to

696
00:41:49,760 --> 00:41:56,360
Speaker 22: unduly restrict the professional participants in the market, because they're

697
00:41:56,400 --> 00:42:01,319
Speaker 22: the ones who iron out the market inefficienties. So far,

698
00:42:01,520 --> 00:42:07,560
Speaker 22: it has not had any adverse impact on the ability

699
00:42:07,680 --> 00:42:09,920
Speaker 22: to raise money through the equity market.

700
00:42:10,800 --> 00:42:14,000
Speaker 1: Even if the ill liquidity in markets hasn't affected raising

701
00:42:14,120 --> 00:42:18,040
Speaker 1: capital to date, it has introduced a different kind of risk.

702
00:42:18,920 --> 00:42:23,120
Speaker 20: So in India, the options market is quite liquid, the

703
00:42:23,120 --> 00:42:28,080
Speaker 20: most liquid active market really across the globe. In the

704
00:42:28,200 --> 00:42:31,319
Speaker 20: US you also have a very liquid options market, but

705
00:42:31,440 --> 00:42:34,839
Speaker 20: the cash market, the equity market is also liquid. It's

706
00:42:34,880 --> 00:42:37,680
Speaker 20: also trading at high volumes, and it's moving very efficiently,

707
00:42:38,160 --> 00:42:42,000
Speaker 20: and the regulators really have a sense of the big

708
00:42:42,040 --> 00:42:45,319
Speaker 20: players and if there's any manipulation or if there's any

709
00:42:45,400 --> 00:42:48,560
Speaker 20: large moves, they're able to identify it very quickly.

710
00:42:49,520 --> 00:42:53,000
Speaker 1: India's financial regulator SEBBI has made an example out of

711
00:42:53,080 --> 00:42:55,759
Speaker 1: Jane Street and drawn a boundary in how far it's

712
00:42:55,800 --> 00:42:58,840
Speaker 1: willing to go to liberalize its markets, but keeping the

713
00:42:58,880 --> 00:43:02,480
Speaker 1: door open to foreign investors will be crucial for the country.

714
00:43:03,320 --> 00:43:06,000
Speaker 21: India is one of the most open economy in terms

715
00:43:06,000 --> 00:43:11,680
Speaker 21: of foreign direct investment. India's largest fmciti company, automobile company,

716
00:43:11,719 --> 00:43:17,600
Speaker 21: telecom company, mutual fund, private sector bank, insurance company. All

717
00:43:17,640 --> 00:43:21,479
Speaker 21: our majority owned by foreigners. There is hardly any other

718
00:43:21,560 --> 00:43:24,520
Speaker 21: country in the world where foreigners will be allowed to

719
00:43:24,560 --> 00:43:29,840
Speaker 21: own such kind of industry. However, can we improve further

720
00:43:30,000 --> 00:43:33,759
Speaker 21: upon this? My favorite example on foreign direct investment is

721
00:43:34,040 --> 00:43:38,319
Speaker 21: Maruti Suzuki. In the eighties, Suzuki came to set up

722
00:43:38,320 --> 00:43:41,759
Speaker 21: an automobile company in India. They have gone through the

723
00:43:41,840 --> 00:43:47,160
Speaker 21: ups and downs of India. Today, Maruti Suzuki, a fifty

724
00:43:47,200 --> 00:43:51,359
Speaker 21: three percent owned subsidiary of Suzuki, sells more automobiles in

725
00:43:51,360 --> 00:43:56,040
Speaker 21: India than what Suzuki sells worldwide, and Marutiya's delivered better

726
00:43:56,160 --> 00:44:03,360
Speaker 21: return than Suzuki Honda Toyota combined in the equity market

727
00:44:03,440 --> 00:44:06,319
Speaker 21: since it's listing in two thousand and three.

728
00:44:06,440 --> 00:44:09,719
Speaker 1: It isn't just equity markets that provide capital companies and

729
00:44:09,800 --> 00:44:12,360
Speaker 1: the debt side of the capital market. Equation may be

730
00:44:12,480 --> 00:44:15,280
Speaker 1: about to get a shot in the arm when Indian

731
00:44:15,360 --> 00:44:18,960
Speaker 1: government bonds are included in several foot Sea Russell bond

732
00:44:19,000 --> 00:44:20,440
Speaker 1: indexes this month.

733
00:44:21,239 --> 00:44:24,480
Speaker 21: Essentially, we have seen that whenever a country becomes part

734
00:44:24,560 --> 00:44:28,879
Speaker 21: of benchmarkt dices, both passive as well as active flow

735
00:44:28,960 --> 00:44:33,759
Speaker 21: starts flowing in. So inclusion infoot Sea government bond and

736
00:44:33,840 --> 00:44:40,040
Speaker 21: dices will undoubtedly increase our location tibets India more importantly

737
00:44:40,160 --> 00:44:43,840
Speaker 21: when you get an alternate source of funding. For example,

738
00:44:43,880 --> 00:44:47,560
Speaker 21: all domestic investors are generally on one side of liquidity

739
00:44:48,160 --> 00:44:52,080
Speaker 21: either it's high or it is low, but global investors

740
00:44:52,120 --> 00:44:53,959
Speaker 21: can bring balancing park.

741
00:44:55,200 --> 00:44:58,200
Speaker 1: Indian markets have come a long way in encouraging risk

742
00:44:58,239 --> 00:45:01,759
Speaker 1: taking among retail investors and offering channels of investment to

743
00:45:01,880 --> 00:45:05,000
Speaker 1: foreign investors, but Sha says that hasn't been enough to

744
00:45:05,000 --> 00:45:08,360
Speaker 1: support the risks inherent in generating the kind of innovation

745
00:45:08,719 --> 00:45:11,839
Speaker 1: that comes from the success and failures of startups.

746
00:45:12,840 --> 00:45:17,719
Speaker 21: Unfortunately, here, Indian capital market has not done a good

747
00:45:17,840 --> 00:45:23,000
Speaker 21: job maturity of our startups, both innovation as well as

748
00:45:23,080 --> 00:45:27,440
Speaker 21: otherwise have been funded by global private equity and venture

749
00:45:27,480 --> 00:45:32,120
Speaker 21: capital funds. It has been to some extent funded by

750
00:45:32,120 --> 00:45:37,040
Speaker 21: family offices and high networth individuals. Like the public market,

751
00:45:37,160 --> 00:45:42,360
Speaker 21: private market has not received encouraging participation from Indian capital.

752
00:45:42,760 --> 00:45:47,720
Speaker 21: The second thing is related to instruments. The private equity

753
00:45:47,840 --> 00:45:52,719
Speaker 21: market unlisted market is not as much regulated as the

754
00:45:52,760 --> 00:45:57,320
Speaker 21: public market is, so the domestic flows, domestic retail flows

755
00:45:57,360 --> 00:46:00,680
Speaker 21: have not moved into unlisted segment as much as it

756
00:46:00,719 --> 00:46:05,800
Speaker 21: should have done. The third and probably which is changing

757
00:46:05,880 --> 00:46:12,040
Speaker 21: rapidly is creation of angel networks. The whole purpose of

758
00:46:12,200 --> 00:46:16,840
Speaker 21: Ventua capital industry is to some extent go from monkey

759
00:46:16,880 --> 00:46:21,840
Speaker 21: to King Kong scenario. You invest in lots of monkeys,

760
00:46:22,120 --> 00:46:24,960
Speaker 21: some of them will grow to become gorilla, and one

761
00:46:25,000 --> 00:46:26,959
Speaker 21: of them will eventually become King Kong.

762
00:46:27,239 --> 00:46:30,719
Speaker 22: There was a lot of financing through venture capital through

763
00:46:30,760 --> 00:46:35,320
Speaker 22: private equity for Indian startups. People wanted to bring this

764
00:46:35,520 --> 00:46:40,120
Speaker 22: sort of it ecosystem that exists in the United States

765
00:46:40,560 --> 00:46:44,000
Speaker 22: into India. So, for example, food delivery firms, which has

766
00:46:44,239 --> 00:46:48,320
Speaker 22: proved to be an enormously big and very successful market

767
00:46:49,480 --> 00:46:56,680
Speaker 22: in India, ride hailing apps. All these things have been

768
00:46:57,000 --> 00:47:00,759
Speaker 22: started in India and have proved very successful. Full a

769
00:47:00,800 --> 00:47:05,959
Speaker 22: lot of them have. Firms have grown and exited through

770
00:47:07,000 --> 00:47:11,879
Speaker 22: the PE, firms have exited through IPOs. But of course,

771
00:47:11,920 --> 00:47:18,279
Speaker 22: more recently, as elsewhere, when interest rates moved off the

772
00:47:18,360 --> 00:47:21,480
Speaker 22: zero level, a lot of that financing has dried up.

773
00:47:22,120 --> 00:47:26,600
Speaker 1: Whether it's reforming taxes on securities transactions, or limiting speculation

774
00:47:26,680 --> 00:47:29,839
Speaker 1: and cash equities and derivative markets, or making sure both

775
00:47:29,880 --> 00:47:34,360
Speaker 1: debt and equities are supporting innovative new companies. India is moving,

776
00:47:34,680 --> 00:47:37,680
Speaker 1: trying to walk that tight rope of risk and stability

777
00:47:37,719 --> 00:47:41,080
Speaker 1: to support its economic growth, and its very motion means

778
00:47:41,160 --> 00:47:45,600
Speaker 1: that it can't come to arrest. That does it for us.

779
00:47:45,600 --> 00:47:48,080
Speaker 1: Here at Wall Street Week, I'm David Weston. See you

780
00:47:48,200 --> 00:48:02,799
Speaker 1: next week for more stories of capitalism