WEBVTT - We’re Probably All Wrong About Interest Rates 0:00:01.320 --> 0:00:05.680 This is Bloomberg business Week Inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.440 --> 0:00:13.640 global business, finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:18.600 Podcast with Carol Masser and Tim stinebec from Bloomberg Radio. 0:00:20.400 --> 0:00:22.200 We're going to stay with the economy. Get to a 0:00:22.320 --> 0:00:24.279 story that is among the most read on the Bloomberg 0:00:24.320 --> 0:00:27.520 about how it's frequently argued that once our economy gets 0:00:27.520 --> 0:00:30.280 past this burst of inflation, interest rates will in fact 0:00:30.560 --> 0:00:33.040 fall back to their pre pandemic lowse kind of just 0:00:33.080 --> 0:00:35.800 talking about that and perhaps go lower in the future. 0:00:36.120 --> 0:00:39.159 What if that is wrong? This is in a new 0:00:39.159 --> 0:00:43.120 Bloomberg opinion column by Alison Schrager. She covers economics. She's 0:00:43.120 --> 0:00:45.519 a senior fellow at the Manhattan Institute, author of An 0:00:45.520 --> 0:00:48.800 Economist Walks Into a Brothel and Other Unexpected Places to 0:00:48.880 --> 0:00:52.000 Understand Risk. She's with us via zoom uh in New 0:00:52.080 --> 0:00:54.800 York City. Alison, I'm so glad you're here. Wanted to 0:00:54.840 --> 0:00:58.160 talk to you. Um, let's get to this assumption we 0:00:58.160 --> 0:00:59.840 were just talking about with Mike and Creed. There is 0:00:59.840 --> 0:01:03.520 a assumption that j you know, j Pal keep saying 0:01:03.560 --> 0:01:07.280 we're gonna get back to two percent um. That's our backdrop, 0:01:07.319 --> 0:01:11.200 but it could be wrong. Yeah, I mean, I think 0:01:11.240 --> 0:01:13.400 there are two assumptions. One that inflation is going to 0:01:13.480 --> 0:01:16.400 go back to two person and to that there was 0:01:16.480 --> 0:01:18.800 this just sort of natural interest rate that was near 0:01:18.920 --> 0:01:23.039 zero and once we get through inflation, that's where interest 0:01:23.120 --> 0:01:24.840 rates are going to go back to. And you know 0:01:25.040 --> 0:01:28.280 that might not be true either. Well, talk to us 0:01:28.280 --> 0:01:31.320 about why you wrote this column and what you know. 0:01:31.440 --> 0:01:35.199 You you sign a couple of different economists or macro economists. 0:01:35.240 --> 0:01:38.600 Olivia Blanchard ken rogue Off talked to us about some 0:01:38.640 --> 0:01:43.280 of the thinking about maybe why uh two percent isn't 0:01:43.319 --> 0:01:48.240 it and you you also write about natural interest rates. Yeah. So, 0:01:48.320 --> 0:01:51.240 I mean I've always been struck that whenever you read 0:01:51.320 --> 0:01:55.600 any big financial institutions reports their outlooks on the economy 0:01:55.640 --> 0:01:58.440 for years, they've been saying that interest rates are trending 0:01:58.440 --> 0:02:02.240 down because of an aging relation. It's always in the methods, 0:02:02.240 --> 0:02:03.960 always in the world. Thank, it's always in every central bank, 0:02:04.000 --> 0:02:06.880 it's and banks, it's everywhere. And you know, I've always 0:02:06.880 --> 0:02:09.840 sort of like never quite understood why. I've understood the 0:02:09.840 --> 0:02:13.560 economic reasoning, but it never seemed quite right to me, 0:02:13.800 --> 0:02:16.800 But everyone would have jumped on this bandwagon because really, 0:02:16.800 --> 0:02:19.000 over the last thirty years, the population did age and 0:02:19.080 --> 0:02:21.440 interest rates went down, and everyone sort of just blamed 0:02:21.520 --> 0:02:25.880 on an aging population. Um. But really, you know, it 0:02:25.919 --> 0:02:28.560 struck me most recently when Illevia Blanchard said, don't worry, 0:02:28.560 --> 0:02:31.120 interest rates will go back because the population is aging, 0:02:31.680 --> 0:02:33.400 and I just, I guess I felt compelled to dig 0:02:33.400 --> 0:02:35.520 a little deeper. And it just so happened that kenn 0:02:35.560 --> 0:02:38.399 roll Goff had sent me this paper where he looked 0:02:38.440 --> 0:02:41.960 at interest rates going back seven hundred years and found 0:02:42.120 --> 0:02:45.000 that while interest rates have been trending down, not as 0:02:45.080 --> 0:02:48.360 much as we think, and actually the last fifteen years 0:02:48.400 --> 0:02:50.320 at least might not have been part of a trend. 0:02:50.360 --> 0:02:53.160 It might have been an anomaly. And also when he 0:02:53.560 --> 0:02:56.480 did sort of more aggressions in a longer period of time, 0:02:56.760 --> 0:02:59.200 he didn't find that an aging population brings down interest 0:02:59.280 --> 0:03:01.880 rates at all, so in fact, the opposite might be true. 0:03:02.360 --> 0:03:04.359 I also think about we talk a lot about and 0:03:04.360 --> 0:03:06.640 I'm assuming this comes on your radar as well, you know, 0:03:06.720 --> 0:03:10.519 just these kind of changing macro ideas, whether it's the 0:03:10.520 --> 0:03:15.440 pushback against globalization, you know, the move towards localization when 0:03:15.440 --> 0:03:18.800 it comes to manufacturing supply chains, you know, maybe continuing 0:03:18.880 --> 0:03:21.280 to be disrupted and being more local and what that 0:03:21.360 --> 0:03:24.720 does for costs, and move towards climate change alternative energy, like, 0:03:24.760 --> 0:03:28.440 all of this has some costs to what we are doing. Um, 0:03:28.960 --> 0:03:32.840 is that part of it? Yeah? I mean, I think 0:03:32.840 --> 0:03:34.840 it's also wishful thinking that we have a lot of 0:03:34.840 --> 0:03:37.720 big physical plans and they rely on us having very 0:03:37.960 --> 0:03:40.960 low costs of borrowing. So I I you know, I 0:03:41.000 --> 0:03:43.720 think all these sort of sort of conventional macro wisdoms 0:03:43.720 --> 0:03:45.839 sort of get tied up together and we get maybe 0:03:45.880 --> 0:03:49.200 a little over invested in them. But you know, I 0:03:49.600 --> 0:03:52.000 think that the struggle for a macro economist is always 0:03:52.000 --> 0:03:55.000 how much can you separate out what cyclical and temporary 0:03:55.000 --> 0:03:58.160 and what's really structurally changing? And that's always a challenge, 0:03:58.160 --> 0:04:00.280 I think for everyone. I also like this thing, you 0:04:00.280 --> 0:04:02.280 know where you talk about the demographics and an older 0:04:02.280 --> 0:04:05.440 population that if it ultimately is a younger is it 0:04:05.480 --> 0:04:12.240 a younger population that ultimately helps keep rates lower? Well, Um, 0:04:12.640 --> 0:04:15.920 we've been thinking that the argument has been for since 0:04:15.960 --> 0:04:19.000 a couple of decades. Now, then older population lowers rates 0:04:19.040 --> 0:04:22.479 and it's partially this idea that, as you like, people 0:04:22.480 --> 0:04:25.760 anticipate this long retirement, so they save a lot, so 0:04:25.800 --> 0:04:28.200 you build up a huge stock of savings. And you know, 0:04:28.400 --> 0:04:30.559 interest rates are ultimately a function of supply and demand 0:04:30.640 --> 0:04:33.640 of savings, so the idea is that there's this huge 0:04:33.680 --> 0:04:38.560 demand for savings and that effectively lowers interest rates. Um. 0:04:38.680 --> 0:04:41.280 Of course, Um, you know, it might not work out 0:04:41.320 --> 0:04:44.360 that way, even the I ME points out that, you know, 0:04:44.440 --> 0:04:46.679 we really haven't saved enough for retirement, and in fact, 0:04:46.760 --> 0:04:48.520 the government is probably gonna have to borrow a lot 0:04:48.560 --> 0:04:50.320 to fund our retirement. I mean, just look at the 0:04:50.360 --> 0:04:53.080 State of the Union the other day where Joe Biden 0:04:53.160 --> 0:04:56.200 was quite strident that we will never cut entitlements, and 0:04:56.279 --> 0:04:59.240 I guess the Republicans agreed with that. So I mean, okay, 0:04:59.480 --> 0:05:01.920 I mean, if that's what we want to do, I mean, 0:05:02.320 --> 0:05:04.680 we're going to have to borrow to pay for people's retirements, 0:05:04.680 --> 0:05:06.960 and that puts more bonds on the market, which you 0:05:06.960 --> 0:05:10.680 think would increase interest rates. So um, I think we've 0:05:10.720 --> 0:05:12.520 just sort of been assuming that we would have this 0:05:12.680 --> 0:05:15.359 huge stock of savings to push down rates. But maybe 0:05:15.360 --> 0:05:17.359 that's not how it's going to work. You know, and 0:05:17.400 --> 0:05:19.119 you also just point out and just got about forty 0:05:19.120 --> 0:05:21.479 seconds left here. I mean it's you say we should 0:05:21.480 --> 0:05:23.600 also be concerned because interest rates are largely function of 0:05:23.680 --> 0:05:26.080 risk in the market, not just some abstract natural rate. 0:05:26.120 --> 0:05:27.919 I mean, this is something we talk about about what 0:05:28.000 --> 0:05:30.240 the markets and what the traders are saying about kind 0:05:30.240 --> 0:05:33.040 of where rates land versus what we keep hearing from J. Powell, 0:05:33.320 --> 0:05:36.560 and that certainly plays a partner thinking. Yeah, I mean, 0:05:36.560 --> 0:05:38.440 the risk premium is super important, and I think risk 0:05:38.440 --> 0:05:40.960 premium has got very low because inflation have been so stable. 0:05:41.279 --> 0:05:43.240 But you know if that cuts out of the bag 0:05:43.279 --> 0:05:46.040 now and you know we have a more volatile inflation environment, 0:05:46.040 --> 0:05:48.640 then there's a higher risk premium, certainly on bonds that 0:05:48.680 --> 0:05:51.000 are longer term, and that will mean rates are higher 0:05:51.000 --> 0:05:53.120 for a long time too. Well, it's certainly something that's 0:05:53.120 --> 0:05:55.560 so relevant to the conversation right now, especially if you 0:05:55.600 --> 0:05:57.719 watch I'm looking at yields certainly take a little bit 0:05:57.760 --> 0:06:01.640 higher on this Thursday. Alison, thank you as always. Alison Schreeger. 0:06:01.640 --> 0:06:04.120 She's senior Fellow at the Manhattan Institute. She's a Bloomberg 0:06:04.120 --> 0:06:06.680 Opinion columnist. You can check her out on Twitter at 0:06:06.680 --> 0:06:10.080 Allison Schreeger. She's also, as we've mentioned, an author of 0:06:10.080 --> 0:06:13.240 an economist walks into a brothel, So UH love her 0:06:13.279 --> 0:06:15.120 take on this. And this is, as I said, such 0:06:15.120 --> 0:06:17.159 a relevant conversation right now as we try to figure 0:06:17.160 --> 0:06:22.880 out ultimately where rates land. This is Bloomberg business Week 0:06:23.240 --> 0:06:26.480 Inside from the reporters and editors who bring you America's 0:06:26.520 --> 0:06:31.080 most trusted business magazine, plus Blombo Business Finance and tech news. 0:06:31.279 --> 0:06:35.440 The Bloomberg Business Week Podcast with Carol Masser and Tim 0:06:35.440 --> 0:06:40.279 stinebec from Bloomberg Radio. So what does it take for 0:06:40.440 --> 0:06:42.480 a big billionaire to see about a hundred billion dollars 0:06:42.480 --> 0:06:45.479 in counting be lost from his empire? Help out a 0:06:45.520 --> 0:06:48.320 little research firm? Will That big billionaire we're talking about 0:06:48.400 --> 0:06:51.880 is Guanta Madonni, head of the Adani Group conglomerate in India. 0:06:52.000 --> 0:06:55.960 The little research firm is Nate Anderson's Hindburg Research. Well, 0:06:56.000 --> 0:06:58.240 with more on that little research firm that came up 0:06:58.240 --> 0:07:00.560 with a big short on a donny, we got Bloomberg 0:07:00.600 --> 0:07:04.440 Business Week editor um Pat regne Or he's actually Finance 0:07:04.520 --> 0:07:07.160 editor Pat Regneer and Bloomberg News Wealth for Port and 0:07:07.360 --> 0:07:10.480 as unders Mill, and we caught up with them earlier 0:07:10.520 --> 0:07:13.680 and Papigan by setting the stage about who is exactly 0:07:13.760 --> 0:07:16.520 guantam Annady. He may not be a household name in 0:07:16.560 --> 0:07:18.880 the United States, but he is absolutely a household name 0:07:18.920 --> 0:07:21.400 in India. Um. He's probably one of the most important 0:07:21.440 --> 0:07:25.320 businessmen in modern India. Um uh. Unders can talk about 0:07:25.360 --> 0:07:27.440 this a little bit, but almost anything that you might 0:07:27.480 --> 0:07:31.200 do in India, his businesses will touch your life. So 0:07:31.440 --> 0:07:34.760 he's built this enormous empire. UM. But a lot of 0:07:34.800 --> 0:07:40.560 the the the growth in its value really came during 0:07:40.800 --> 0:07:45.160 the global everything rally that began with the snap back 0:07:45.280 --> 0:07:48.800 from the COVID crash. But it just kept going even 0:07:48.840 --> 0:07:51.280 through two You just like when you when you do 0:07:51.320 --> 0:07:53.720 a chart, you just see it just going like hockey stick. 0:07:54.080 --> 0:07:56.720 You know, this, this, this, this, this, so many right 0:07:56.800 --> 0:07:59.640 during the pandemic. Yeah. Um, but then but then also 0:07:59.720 --> 0:08:02.960 just two is like global markets were falling, this one's 0:08:02.960 --> 0:08:06.480 still just going up, up, up and up. So uh, 0:08:06.560 --> 0:08:09.560 you know, he's he's become sort of this like very 0:08:09.680 --> 0:08:12.840 visible global success story, you know, and he starts, you know, 0:08:13.160 --> 0:08:15.600 you know, he starts coming on the radar of even people, 0:08:16.160 --> 0:08:17.720 you know outside of India. He may not be a 0:08:17.720 --> 0:08:21.680 consumer household name. But if you're like watching as Andrews does, uh, 0:08:21.920 --> 0:08:25.160 who's who's wealthy? Uh? He is now beginning to like, 0:08:25.240 --> 0:08:27.240 you know, top every league table that you can see. 0:08:27.280 --> 0:08:30.120 I mean, this was Asia's richest man, India's richest man. 0:08:30.480 --> 0:08:32.800 He was one of the richest people in the world. 0:08:33.240 --> 0:08:35.160 Anders come on in on it because he was also 0:08:35.240 --> 0:08:37.839 a man who seemed to like his privacy and kind 0:08:37.840 --> 0:08:39.520 of stay out of the limelight. Talk to us a 0:08:39.520 --> 0:08:42.439 little bit more about his empire and then the allegations 0:08:42.440 --> 0:08:49.040 by Hindenburg. Yeah, he definitely has tended to stable of 0:08:49.120 --> 0:08:55.800 the radar until recent years. Um, and his empire really is, 0:08:56.160 --> 0:09:00.920 like that said, it's it's one that touches a lot 0:09:01.160 --> 0:09:04.400 of citizens in India every day. He owns a series 0:09:04.440 --> 0:09:09.400 of infrastructure companies that that all hang together in when 0:09:09.480 --> 0:09:12.760 one conglomerate. So everything from coal mines to power plants, 0:09:12.800 --> 0:09:19.360 to power lines to um cements, production facilities and data 0:09:19.440 --> 0:09:22.160 storage centers. And he's getting into media and he owns 0:09:22.440 --> 0:09:28.960 food companies. So it's things that touch lots of Indian 0:09:29.000 --> 0:09:33.680 citizens every day. And he sort of came onto the 0:09:33.720 --> 0:09:38.720 scene internationally. For those who don't necessarily watch India that 0:09:38.840 --> 0:09:42.280 closely really, like pet said, two and during the covid 0:09:42.400 --> 0:09:47.040 rally and in two and things started falling. He just 0:09:47.120 --> 0:09:50.560 really went off the church that shares of his companies 0:09:50.600 --> 0:09:53.080 just went up, up, up, and all of a sudden, 0:09:53.080 --> 0:09:55.520 he was the second richest man in the world in 0:09:55.559 --> 0:09:59.640 September last year, which was just quite surprising to see. 0:09:59.720 --> 0:10:03.640 The as the rise was was so incredibly it was 0:10:03.679 --> 0:10:08.480 just so incredibly baffling, especially for infrastructure companies, which don't 0:10:08.520 --> 0:10:12.040 really tend to have those kinds of rich valuations. And 0:10:12.080 --> 0:10:15.520 that piqued a lot of interest among people who said, 0:10:15.840 --> 0:10:18.880 this just doesn't make sense. It's too good to be true. 0:10:18.960 --> 0:10:23.079 These financials just can't be they can't be real. And 0:10:23.960 --> 0:10:29.320 there's been whispers and news reports in India for quite 0:10:29.320 --> 0:10:33.400 a few years about various aspects of the finances of 0:10:33.559 --> 0:10:39.440 his companies, um but nothing really had happened. But that 0:10:39.559 --> 0:10:43.040 obviously changed a couple of weeks ago when Hindenberg Research 0:10:43.679 --> 0:10:47.960 put out their honor Page note sort of aggregating a 0:10:47.960 --> 0:10:50.040 lot of what I've been out there already and then 0:10:50.120 --> 0:10:54.680 dove deeper into certain aspects. And most people in India, 0:10:54.720 --> 0:10:57.240 i think it's safe to say, expected that nothing would 0:10:57.280 --> 0:11:01.559 really happen. But the shares of his companies started falling, 0:11:01.640 --> 0:11:04.360 and then they just fell and fell and fell, and 0:11:04.640 --> 0:11:08.839 the company is look at Lunia value has been about 0:11:08.840 --> 0:11:11.400 cut in half since in the Birst report came out. 0:11:11.960 --> 0:11:14.480 Andrews we uh as we were preparing this story and 0:11:14.480 --> 0:11:16.800 it comes it comes through so well. In your piece, 0:11:17.120 --> 0:11:19.440 UM talked a lot about kind of a culture clash 0:11:19.600 --> 0:11:24.840 between UM Corporate India and UM sort of it's suddenly 0:11:25.200 --> 0:11:28.320 it got big enough that it met the markets and 0:11:28.600 --> 0:11:33.280 the end of the way that people operate in uh 0:11:33.559 --> 0:11:36.880 New York and London and other financial markets, and it 0:11:36.960 --> 0:11:41.840 suddenly met this kind of brass knuckles culture of shorts UM, 0:11:41.960 --> 0:11:44.760 And Uh, can you just talk a little bit about 0:11:44.880 --> 0:11:47.480 sort of like how how that, how that, how that's 0:11:47.480 --> 0:11:53.160 played out. Yeah. So one of the unique aspects with 0:11:53.840 --> 0:11:59.200 kut Madonni's group of companies is that it's it's built 0:11:59.240 --> 0:12:02.880 sort of like a traditional Indian family conglomerate, which is 0:12:04.000 --> 0:12:08.600 a series of businesses that a family that it's sort 0:12:08.600 --> 0:12:12.439 of a a group of businesses that a family builds 0:12:12.480 --> 0:12:16.680 over time, and they tied together sometimes in some ways, 0:12:16.760 --> 0:12:20.439 and and you can help support each other financially when needed, 0:12:20.520 --> 0:12:24.280 and you can move personnel between them. Um And this 0:12:24.360 --> 0:12:27.480 has been it has a long storied history in the 0:12:27.559 --> 0:12:31.079 Indian business culture. In the United States, they used to 0:12:31.160 --> 0:12:33.880 be common back in the day. They are much less 0:12:33.880 --> 0:12:38.880 so now. And one thing that people that I talked 0:12:38.920 --> 0:12:41.680 to ahead of writing the story pointed out to me 0:12:42.000 --> 0:12:47.120 was that within these conglomerates, historically there has tended to 0:12:47.160 --> 0:12:52.440 be quite a bit of really related party transactions and 0:12:52.520 --> 0:12:57.400 money being moved between different parts of of the conglomerate. 0:12:57.800 --> 0:13:01.520 And sometimes that might have been done in ways that 0:13:01.720 --> 0:13:05.480 others would not pick up on, or that security lawyers 0:13:05.520 --> 0:13:07.840 maybe would frown upon because it was sort of a 0:13:08.000 --> 0:13:13.240 family affair. And um and that's something that some people 0:13:13.240 --> 0:13:17.319 are told to stressed that here you have a certain 0:13:17.480 --> 0:13:20.160 culture of doing business, a certain way of doing business 0:13:20.160 --> 0:13:23.400 that has worked extremely well for the country over a 0:13:23.520 --> 0:13:29.720 really long time that is now clashing with how things 0:13:29.760 --> 0:13:34.440 are done in the financial centers of capital like New 0:13:34.480 --> 0:13:38.199 York and London, where the culture is very different. Most 0:13:38.200 --> 0:13:41.080 companies tend to have a really broad shareholder base and 0:13:41.120 --> 0:13:44.200 not be controlled by a family. Boards tend to not 0:13:44.280 --> 0:13:47.840 be stacked by family members, Executive roles tend to not 0:13:47.920 --> 0:13:52.120 be stacked by family members UM and a lot of 0:13:52.160 --> 0:13:56.240 people in India are feeling a sense of frustration, I 0:13:57.840 --> 0:14:01.960 think because they feel like people in the West just 0:14:02.280 --> 0:14:05.800 look at this kind of corporate structure and think that 0:14:05.840 --> 0:14:10.120 there's something inherently suspicious with it, when in reality it's 0:14:10.160 --> 0:14:12.840 it's just a it's a slightly different way of just 0:14:13.040 --> 0:14:17.280 looking at how business is done and how priorities are set. 0:14:17.559 --> 0:14:19.920 The other thing I just want to us, and we 0:14:20.000 --> 0:14:22.000 just have about a minute left here is I think 0:14:22.040 --> 0:14:24.880 another layer that you do so well when you're reporting 0:14:25.800 --> 0:14:30.600 is the connection between India, the country, India, the Prime 0:14:30.640 --> 0:14:38.320 Minister and a Donnie Right, the relationship just seems very close. Yes, 0:14:39.400 --> 0:14:43.000 Donnie and Prime Minister and Rundromody have known each other 0:14:43.080 --> 0:14:48.200 for twenty years and people that knowing me a well, 0:14:48.280 --> 0:14:51.120 they say that these two are are quite close and 0:14:51.440 --> 0:14:54.680 their goals are aligned and they have benefited from each other. 0:14:54.920 --> 0:14:58.640 And in that vein, Donnie has especially in recent years 0:14:59.280 --> 0:15:04.080 taking on a really strong UM profile of trying to 0:15:04.160 --> 0:15:09.160 link himself and his company with the future UM and 0:15:09.280 --> 0:15:13.520 the success of India. And that's also something that he's 0:15:13.560 --> 0:15:15.720 pushed really hard on. Now that the company is under 0:15:15.720 --> 0:15:19.280 attacked by the New York short seller that last voice 0:15:19.280 --> 0:15:24.600 Bloomberg News Wealth reporter on under Melon along with Bloomberg 0:15:24.600 --> 0:15:27.080 Business Week Markets and Finance editor Pat Ragneer. Now, this 0:15:27.120 --> 0:15:29.760 story is the cover story of Bloomberg Business Week. We 0:15:29.760 --> 0:15:31.520 caught up with them a little bit earlier for our 0:15:31.560 --> 0:15:36.920 weekend broadcast. UM, but really gets into what Gautamadanni the 0:15:36.920 --> 0:15:39.480 tough year he's certainly having. And we continuen to see 0:15:39.480 --> 0:15:44.640 the pressure in UH shares of the Donni empire overnight again, 0:15:44.720 --> 0:15:47.880 so it continues to be certainly on investors radar. UM. 0:15:47.920 --> 0:15:50.000 Coming up, we're gonna more on the story, including the 0:15:50.000 --> 0:15:52.640 little research company that came up with that big short 0:15:53.080 --> 0:15:55.680 on a Donnie. That's coming up next with our Joel 0:15:55.680 --> 0:15:59.720 Weber and Ed Ludlow. We're talking about the research firm 0:15:59.800 --> 0:16:02.920 that is run by Nate Anderson and his Hindenburg Research. 0:16:03.480 --> 0:16:07.320 You might remember Nicola when he ran after that company. UM, 0:16:07.400 --> 0:16:10.280 so it's interesting to hear about the fourner pages plus 0:16:10.320 --> 0:16:12.760 if you will, that he put together on a Donnie. 0:16:13.800 --> 0:16:17.320 You're listening to the Bloomberg Business Week Podcast. Catch us 0:16:17.400 --> 0:16:20.040 live week days from two to five pm Eastern on 0:16:20.120 --> 0:16:23.320 Bloomberg Radio, The Bloomberg Business A B and you too. 0:16:23.560 --> 0:16:26.320 You can also listen live to our flagship New York 0:16:26.360 --> 0:16:30.040 station Just Say Alexa play Bloomberg, E Love and Dierdi 0:16:31.960 --> 0:16:34.920 well As. We just heard from pat Rick near Bloomberg 0:16:35.040 --> 0:16:39.880 and Under's Melon his cover stories about billionaire Guatamadnni having 0:16:39.880 --> 0:16:44.080 a rough start to three. The Indian industrial tycoon's empire 0:16:44.080 --> 0:16:45.880 has taken a roughly a hundred billion dollar hit in 0:16:45.880 --> 0:16:49.240 a matter of days following accusations of financial wrongdoing from 0:16:49.240 --> 0:16:52.840 an American activist short seller. We wanted to share more 0:16:52.960 --> 0:16:56.560 on that activist short seller, and that is Nate Anderson 0:16:56.800 --> 0:16:58.880 and as Hindenburg Research with more on that in a 0:16:58.960 --> 0:17:01.640 story in the upcoming new issue of Bloomberg Business Week 0:17:01.640 --> 0:17:05.199 magazine out on newsstands. On the Bloomberg and Bloomberg dot 0:17:05.240 --> 0:17:08.240 COM's last Business Business Week, Let's bring in Bloomberg Business 0:17:08.240 --> 0:17:10.960 Week editor Joel Webber and Bloomberg Technology co host ed 0:17:11.040 --> 0:17:13.760 Ludlow Joel here in our Bloomberg Into Factor Broker studio 0:17:14.000 --> 0:17:17.800 ed in our nine sixties studio in San Francisco. All right, Joel, 0:17:17.880 --> 0:17:20.200 so we did hear from Patton Andrews. We just played 0:17:20.240 --> 0:17:23.359 that for our audience. Um, but this story, it's an 0:17:23.400 --> 0:17:25.560 interesting one. Yes, So we had that that main bar 0:17:25.640 --> 0:17:27.960 sort of in motion, and you know, the other big 0:17:28.040 --> 0:17:30.840 question and all of this was more about the short, 0:17:30.920 --> 0:17:34.720 and so we reached out to ed because well, you know, 0:17:35.000 --> 0:17:39.280 as ed knows, um, you know very well Nicola story, um, 0:17:39.320 --> 0:17:41.159 which was a huge one. And when that he was 0:17:41.200 --> 0:17:45.439 instrumental in in our coverage of uh, Nate Anderson figured 0:17:45.440 --> 0:17:48.240 into that, and you know, everything was kind of quiet, 0:17:48.280 --> 0:17:51.639 and then everybody was like, oh my gosh, Nate Anderson 0:17:51.720 --> 0:17:54.320 and Hindburg is suddenly became the story of the moment 0:17:54.359 --> 0:17:58.600 with this short on the Donning group. Um, there's still 0:17:58.680 --> 0:18:01.800 kind of shrouded in mystery, but are tasked at Edwards 0:18:01.840 --> 0:18:04.359 sort of figure out as much as you can figure out. So, Edward, 0:18:04.560 --> 0:18:06.960 what were you able to figure out? Yeah? You know, 0:18:07.000 --> 0:18:09.960 I'm hesitant to call it a David and Goliath story, right, 0:18:09.960 --> 0:18:12.000 but that's kind of what it's like. You know, Hindenberg 0:18:12.119 --> 0:18:15.280 researches this sort of merry how about I do it? 0:18:15.320 --> 0:18:16.920 And then you don't have to do it. So this 0:18:17.000 --> 0:18:20.159 is a great Devid Glaire's story, right, go ahead, Well, 0:18:20.200 --> 0:18:22.480 it's just gonna say you know, it's this merry band 0:18:22.560 --> 0:18:26.320 of fewer than a dozen analysts journalists, and we know 0:18:26.760 --> 0:18:29.560 very little about them, and yet they take on Asia's 0:18:29.600 --> 0:18:31.679 what was Asia's richest man at the time, in this 0:18:31.760 --> 0:18:35.120 massive conglomerate, and you know, to the outside world, they're 0:18:35.200 --> 0:18:37.160 short sellers right there in it to make a profit, 0:18:37.520 --> 0:18:39.560 as all short sellers are when the value of a 0:18:39.600 --> 0:18:44.040 security tied to the company they targets declined. But you 0:18:44.080 --> 0:18:46.760 know it's more than that, you know, they see themselves 0:18:46.800 --> 0:18:49.719 as being this kind of really important function of a 0:18:49.720 --> 0:18:54.360 healthy financial market, which is to make investors and regulators 0:18:54.400 --> 0:18:57.240 aware of what they allege is a fraud. And then 0:18:57.359 --> 0:18:59.680 once they've done their report and the market's done its thing, 0:19:00.040 --> 0:19:02.280 they leave us in the media to cover the story 0:19:02.720 --> 0:19:05.919 and leave the market to make their own conclusion, because 0:19:05.920 --> 0:19:09.560 that is what an activist short seller is to their mind. Well, 0:19:09.560 --> 0:19:12.679 and you know, it's not just about unveiling you know, 0:19:12.800 --> 0:19:17.520 possible fraud or what have you. In you know, various 0:19:17.520 --> 0:19:20.480 situations are various companies, and again these are allegations because 0:19:20.520 --> 0:19:22.520 the company has come out and said very differently and 0:19:22.560 --> 0:19:24.400 come out with its own I think four hundred page 0:19:24.440 --> 0:19:32.280 report as a take that um. Having said that, tell 0:19:32.320 --> 0:19:34.560 us about the dynamics in terms of who trades on 0:19:34.560 --> 0:19:38.359 this ultimately, because people do make money off of this. Yeah, 0:19:38.400 --> 0:19:41.639 so I think the mechanics of Hindenburg are interesting. You know, 0:19:41.840 --> 0:19:44.400 put the sort of loftier goals to one side. Their 0:19:44.440 --> 0:19:47.159 business model is based on making profit from a short 0:19:47.240 --> 0:19:50.080 and actually another part of their business model is eventually 0:19:50.119 --> 0:19:53.440 making money from whistleblower payouts. But my understanding is they've 0:19:53.480 --> 0:19:56.920 never actually been paid one. Um. But what's so interesting 0:19:56.920 --> 0:20:00.320 here is that in the past Hindenberg basically makes deal 0:20:00.520 --> 0:20:03.200 with a group of passive investors or one single big 0:20:03.240 --> 0:20:05.639 passive investor and says, hey, if you take on the 0:20:05.680 --> 0:20:08.360 short position on our behalf, we will let you look 0:20:08.400 --> 0:20:11.240 at the research before we publish it, and in exchange, 0:20:11.600 --> 0:20:14.640 you give us Hindenburg a share of the profits. That way, 0:20:14.720 --> 0:20:17.680 Hindenburg doesn't have to kind of reach into its own pockets, 0:20:17.920 --> 0:20:21.159 and it's kind of a small group anyway. Right. But again, 0:20:21.320 --> 0:20:23.520 this is the biggest question, and you know, these stories 0:20:23.520 --> 0:20:25.920 are actually some of the most fascinating where you don't 0:20:25.960 --> 0:20:28.639 find the answer. What the market wants to know right 0:20:28.680 --> 0:20:31.840 now is is this short position closed or is it 0:20:31.840 --> 0:20:35.040 still open. We don't know the answer to that. And 0:20:35.040 --> 0:20:37.920 the reason it's important is because if they ride the 0:20:37.960 --> 0:20:39.679 shot or the way to a lower value, there will 0:20:39.720 --> 0:20:43.080 be more profitable. But now the markets trading on uncertainty 0:20:43.359 --> 0:20:46.480 in both directions, and that's not just in equities markets. 0:20:46.520 --> 0:20:48.560 But as we've learned in this case, all we know 0:20:48.600 --> 0:20:50.760 about the short is that it was in dollar bonds 0:20:50.800 --> 0:20:54.560 and non Indian listed derivatives tied to those companies within 0:20:54.640 --> 0:20:57.800 the Adane group. So it's a fascinating market dynamic where 0:20:57.960 --> 0:21:02.000 the market doesn't know so and you know, obviously will 0:21:02.040 --> 0:21:05.560 be choosing everything that we can to figure out you know, when, 0:21:05.560 --> 0:21:07.440 when and if it if it's open or a closure 0:21:07.520 --> 0:21:09.840 or whatever. It's just ongoing mystery, what other what other 0:21:09.880 --> 0:21:14.080 kind of mysteries remain here? Ed that that's your way 0:21:14.119 --> 0:21:17.320 boss of saying, nudge, nudge, get on with it. We 0:21:17.359 --> 0:21:22.199 can wrap. Yeah, yeah, yeah. Look. So so core to 0:21:22.240 --> 0:21:24.560 the Danny story was like, what is the goal here? 0:21:24.720 --> 0:21:27.119 You know, India is a very different market to the 0:21:27.119 --> 0:21:30.240 ones that Hindenberg's targeted in the past. They've largely been 0:21:30.359 --> 0:21:33.760 small US listed companies that Hindenberg has gone after the 0:21:33.800 --> 0:21:37.119 regulatory situation in India is completely different. It's not clear 0:21:37.160 --> 0:21:39.920 what kind of action could or hypothetically will be taken 0:21:39.920 --> 0:21:42.640 against a DANI. So what is it that Hindenberg's trying 0:21:42.640 --> 0:21:45.760 to achieve the FPO or that the follow on primary 0:21:45.760 --> 0:21:49.560 offering was scrapped, their their activity in the bond market 0:21:49.600 --> 0:21:52.960 or debt markets has been scrapped. Is that satisfaction enough 0:21:53.160 --> 0:21:55.320 for Hindenberg? When it goes back to the core question 0:21:55.359 --> 0:21:57.879 in the story, why is it that Hindenberg does what 0:21:57.960 --> 0:22:00.639 it does? And the answer you get and again is 0:22:00.880 --> 0:22:03.800 a very lofty goal. We expose fraud because it's the 0:22:03.880 --> 0:22:06.040 right thing to do and it's part of the healthy 0:22:06.040 --> 0:22:11.000 functioning financial market globally. So alright, so these activists, short sellers, researchers, 0:22:11.000 --> 0:22:14.160 they bring attention to companies that might not necessarily beyond 0:22:14.280 --> 0:22:17.080 anybody's radar. At the same time, sometimes the short sellers 0:22:17.080 --> 0:22:20.040 are these activists um that are doing the research, they 0:22:20.080 --> 0:22:23.240