1
00:00:02,720 --> 00:00:19,520
Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to

2
00:00:19,560 --> 00:00:23,120
Speaker 1: another episode of The Odd Laws podcast. I'm Joe Wisenthal and.

3
00:00:23,040 --> 00:00:24,040
Speaker 2: I'm Tracy Alloway.

4
00:00:24,239 --> 00:00:26,960
Speaker 1: Tracy, isn't it you who's said for a long time

5
00:00:27,200 --> 00:00:29,920
Speaker 1: that whenever the government does some of these deals, like

6
00:00:29,960 --> 00:00:33,320
Speaker 1: with Chips or maybe the early backing of Tesla, et cetera,

7
00:00:33,760 --> 00:00:36,200
Speaker 1: aren't you always like, why didn't the government get equity

8
00:00:36,240 --> 00:00:38,440
Speaker 1: stakes in these companies? Why are we just getting back

9
00:00:38,680 --> 00:00:40,599
Speaker 1: sort of loans that are more or less the same

10
00:00:40,600 --> 00:00:41,680
Speaker 1: amount of money we put in?

11
00:00:41,800 --> 00:00:42,080
Speaker 3: Yeah?

12
00:00:42,159 --> 00:00:44,600
Speaker 2: I think I have said that. Yeah, I mean it

13
00:00:44,680 --> 00:00:47,040
Speaker 2: seems like this weird sort of half ground where you

14
00:00:47,120 --> 00:00:51,120
Speaker 2: are investing in a company without asking anything in return.

15
00:00:51,320 --> 00:00:55,040
Speaker 1: Yeah, to be fair, they do have milestones and provisions

16
00:00:55,120 --> 00:00:57,520
Speaker 1: and so forth. But yes, it does feel like some

17
00:00:57,600 --> 00:01:00,160
Speaker 1: of these funding structures have been i would say, at

18
00:01:00,240 --> 00:01:04,080
Speaker 1: least incomplete, to say the least, and the effectiveness has

19
00:01:04,080 --> 00:01:08,440
Speaker 1: been inconsistent. All that being said, the Trump administration, apparently

20
00:01:08,560 --> 00:01:11,479
Speaker 1: big fan of yours, listening to you over the years

21
00:01:11,480 --> 00:01:14,240
Speaker 1: on the podcast, with some recent deals, is sort of

22
00:01:14,240 --> 00:01:16,880
Speaker 1: getting into the equity business in some way.

23
00:01:17,040 --> 00:01:20,440
Speaker 2: Yeah. So I've seen people describing this as more activist

24
00:01:21,000 --> 00:01:25,240
Speaker 2: industrial policy or state interventionist industrial policy. One thing I

25
00:01:25,280 --> 00:01:29,040
Speaker 2: will say, for a president who seems to like calling

26
00:01:29,080 --> 00:01:32,280
Speaker 2: other people communists quite a lot, he sure does enjoy

27
00:01:32,480 --> 00:01:33,680
Speaker 2: owning the means of production.

28
00:01:34,000 --> 00:01:36,559
Speaker 1: Yeah, there's certainly some scrambling, right.

29
00:01:36,640 --> 00:01:39,640
Speaker 2: Well, this is the other thing. The ideological scrambling has

30
00:01:39,680 --> 00:01:42,520
Speaker 2: been interesting to watch because you had people like Bernie

31
00:01:42,560 --> 00:01:45,280
Speaker 2: Sanders who were saying, well, the Intel deal is a

32
00:01:45,319 --> 00:01:48,160
Speaker 2: great return for the American people, And then you had

33
00:01:48,240 --> 00:01:50,400
Speaker 2: I can't remember the name, but you had a Republican

34
00:01:50,600 --> 00:01:53,040
Speaker 2: going like, oh, this is the end of capitalism. So

35
00:01:53,080 --> 00:01:54,240
Speaker 2: it's kind of funny to watch.

36
00:01:54,400 --> 00:01:57,800
Speaker 1: It's super interesting, super confusing time. I'm not personally as

37
00:01:57,840 --> 00:02:00,600
Speaker 1: bothered by the lack of quote, taxpayer return on this stuff,

38
00:02:00,640 --> 00:02:04,080
Speaker 1: mostly because I view the goal or failure is is

39
00:02:04,080 --> 00:02:05,560
Speaker 1: there going to be a public benefit? Are we going

40
00:02:05,640 --> 00:02:08,280
Speaker 1: to have security because we could produce chips? Are we

41
00:02:08,320 --> 00:02:12,400
Speaker 1: going to have security because we financed domestically mining of

42
00:02:12,480 --> 00:02:15,400
Speaker 1: rare earth minerals and so forth? But these are like

43
00:02:15,440 --> 00:02:18,440
Speaker 1: the big questions, and I think we should learn more

44
00:02:18,480 --> 00:02:21,079
Speaker 1: about this sort of new approach and what's a continuation

45
00:02:21,160 --> 00:02:23,400
Speaker 1: of what we saw under Biden? What's different et cetera.

46
00:02:23,639 --> 00:02:26,080
Speaker 1: Whether any of this will work. Of course, by the way,

47
00:02:26,280 --> 00:02:29,480
Speaker 1: you know, we're talking about an Intel, so Intel specifically,

48
00:02:29,560 --> 00:02:31,680
Speaker 1: the government has taken some sort of warrant or something

49
00:02:31,680 --> 00:02:33,040
Speaker 1: I'm not totally sure on.

50
00:02:33,080 --> 00:02:35,600
Speaker 2: They took shares I think almost a ten percent stick.

51
00:02:35,760 --> 00:02:38,840
Speaker 1: Yeah, and also MP, which is of course the great

52
00:02:38,919 --> 00:02:42,079
Speaker 1: hope for whether the US could also mine rare earth

53
00:02:42,080 --> 00:02:45,280
Speaker 1: metals such as China. So pretty big deals and I

54
00:02:45,320 --> 00:02:46,520
Speaker 1: think we should talk about them.

55
00:02:46,680 --> 00:02:48,640
Speaker 2: Can I just say? If you look at the HDS

56
00:02:48,680 --> 00:02:52,200
Speaker 2: function on Bloomberg, you can see that the United States

57
00:02:52,200 --> 00:02:54,880
Speaker 2: government is now listed as a top shareholder and if

58
00:02:54,919 --> 00:02:57,480
Speaker 2: you click into it, it says US Department of Commerce.

59
00:02:57,800 --> 00:02:59,840
Speaker 2: I don't know why. I just find that so crazing.

60
00:03:00,040 --> 00:03:01,080
Speaker 1: I had not looked at that.

61
00:03:01,280 --> 00:03:03,440
Speaker 2: Yeah, it's kind of funny, And I don't know. I

62
00:03:03,520 --> 00:03:06,000
Speaker 2: just have this vision of like Howard Lutnik, like checking

63
00:03:06,080 --> 00:03:07,440
Speaker 2: on his portfolio.

64
00:03:07,000 --> 00:03:08,840
Speaker 1: Of it, we're going to get well, you know, we're

65
00:03:08,840 --> 00:03:12,560
Speaker 1: gonna get an eatif actually on ironically, our old friend

66
00:03:12,840 --> 00:03:15,239
Speaker 1: Lukawa and sure what, he had a really good post

67
00:03:15,320 --> 00:03:18,880
Speaker 1: yesterday pointing out the fact that it's very important the

68
00:03:18,960 --> 00:03:21,480
Speaker 1: shares of Intel and MP and one other one have

69
00:03:21,560 --> 00:03:23,639
Speaker 1: done very well. So a lot of people are sort

70
00:03:23,680 --> 00:03:26,240
Speaker 1: of making this trade of why would you not be

71
00:03:26,320 --> 00:03:28,960
Speaker 1: in the same trade as the US government If the

72
00:03:29,000 --> 00:03:31,880
Speaker 1: government does long Intel in some respects and the MP,

73
00:03:32,320 --> 00:03:34,280
Speaker 1: and given they're going to want to support their investment

74
00:03:34,360 --> 00:03:36,600
Speaker 1: and see a return, why would you as a shareholder

75
00:03:36,680 --> 00:03:38,520
Speaker 1: not want to sort of get ahead of that trainer

76
00:03:38,600 --> 00:03:39,360
Speaker 1: be on the same side.

77
00:03:39,360 --> 00:03:41,280
Speaker 2: Oh wow, I'm looking at the Intel charge right now.

78
00:03:41,360 --> 00:03:42,520
Speaker 2: It's gone up a lot.

79
00:03:42,600 --> 00:03:44,720
Speaker 1: It's gone up a lot. So this is a meaty

80
00:03:44,840 --> 00:03:47,480
Speaker 1: subject that we have to talk about further. So I'm

81
00:03:47,560 --> 00:03:49,520
Speaker 1: very excited to say we have the perfect guest, someone

82
00:03:49,560 --> 00:03:52,440
Speaker 1: who's been talking about this, someone who even recently contributed

83
00:03:52,840 --> 00:03:55,920
Speaker 1: something to the Odd Loot's newsletter specifically about the MP deal.

84
00:03:56,200 --> 00:03:58,080
Speaker 1: We are going to be speaking with Peter Harrow. He's

85
00:03:58,120 --> 00:04:01,840
Speaker 1: a non resident fellow at the Carnegie Endowment for International Peace.

86
00:04:02,120 --> 00:04:04,320
Speaker 1: He was also serving in the Biden White House, a

87
00:04:04,480 --> 00:04:08,360
Speaker 1: National Security Council, Economic Council, and he's gonna talk us

88
00:04:08,400 --> 00:04:10,280
Speaker 1: through these deals. So, Peter, thank you so much for

89
00:04:10,280 --> 00:04:11,360
Speaker 1: coming on odd Lots.

90
00:04:12,000 --> 00:04:13,840
Speaker 3: That's great to be on. Thanks for having me.

91
00:04:14,000 --> 00:04:15,720
Speaker 1: Why don't you just sort of give us a very

92
00:04:15,720 --> 00:04:19,400
Speaker 1: brief background or your background or your work and why

93
00:04:19,400 --> 00:04:22,880
Speaker 1: you're particularly interested in these deals the arrangement.

94
00:04:23,279 --> 00:04:25,760
Speaker 3: So I served at the Biden White House for the

95
00:04:25,800 --> 00:04:30,440
Speaker 3: first two years or so of the administration doing industrial policy,

96
00:04:30,480 --> 00:04:33,200
Speaker 3: and you know, it's interesting I'd actually gotten into the

97
00:04:33,440 --> 00:04:37,240
Speaker 3: industrial policy file for the White House because back during

98
00:04:37,920 --> 00:04:41,320
Speaker 3: the campaign in twenty twenty I was advising the Biden

99
00:04:41,400 --> 00:04:45,120
Speaker 3: campaign and Brian Diese, who was with the campaign then

100
00:04:45,200 --> 00:04:47,760
Speaker 3: later became the National Economic Council Director, came to me

101
00:04:47,800 --> 00:04:50,000
Speaker 3: and was like, you know, it's COVID times. We have

102
00:04:50,040 --> 00:04:53,200
Speaker 3: all these supply chain issues. You know, their podcasts talk

103
00:04:53,240 --> 00:04:57,240
Speaker 3: about the supply issues. Maybe we should do something about this.

104
00:04:57,320 --> 00:04:59,880
Speaker 3: And so I actually on the campaign had put to

105
00:05:00,000 --> 00:05:05,280
Speaker 3: together what was a campaign pledge that then candidate Biden

106
00:05:05,400 --> 00:05:09,360
Speaker 3: rolled out in mid twenty twenty on how you could

107
00:05:09,360 --> 00:05:12,440
Speaker 3: strengthen American supply chains and the downside of doing that

108
00:05:12,600 --> 00:05:14,479
Speaker 3: is then you get to you win the life. President

109
00:05:14,520 --> 00:05:16,800
Speaker 3: wins the election and Brian East calls you back up

110
00:05:16,839 --> 00:05:18,760
Speaker 3: and says, hey, you remember that thing you did last summer,

111
00:05:18,800 --> 00:05:20,719
Speaker 3: how would you like to come in and start getting

112
00:05:20,760 --> 00:05:23,160
Speaker 3: industrial policy along with a whole huge team of other

113
00:05:23,200 --> 00:05:25,200
Speaker 3: people going in this country again.

114
00:05:25,160 --> 00:05:27,800
Speaker 2: So just to sort of set the scene before we

115
00:05:27,839 --> 00:05:31,680
Speaker 2: talk about why these deals are unusual in some respects,

116
00:05:31,839 --> 00:05:35,120
Speaker 2: can you talk about how government support of industry has

117
00:05:35,160 --> 00:05:37,719
Speaker 2: happened in the past, because I'm thinking about something like

118
00:05:37,760 --> 00:05:41,000
Speaker 2: the Chips Act. I don't remember equity stakes ever being

119
00:05:41,200 --> 00:05:44,360
Speaker 2: mentioned in that. What was the quid pro quo in

120
00:05:44,440 --> 00:05:46,839
Speaker 2: these sorts of previous government deals.

121
00:05:47,400 --> 00:05:49,920
Speaker 3: Yeah, and Tracey, I appreciated the comment you made in

122
00:05:49,960 --> 00:05:52,920
Speaker 3: your opening about, you know how you've talked previous about

123
00:05:52,960 --> 00:05:56,039
Speaker 3: maybe there should be some government upside in when the

124
00:05:56,080 --> 00:05:59,919
Speaker 3: government is investing money in some technology or some development

125
00:06:00,040 --> 00:06:03,680
Speaker 3: of some industrial capacity. That is very, very unusual in

126
00:06:03,839 --> 00:06:06,719
Speaker 3: American history if you look at the history in the

127
00:06:06,839 --> 00:06:11,760
Speaker 3: United States of government ownership of private sector companies and

128
00:06:11,880 --> 00:06:17,040
Speaker 3: has almost always only been in the context of bailouts.

129
00:06:17,080 --> 00:06:19,200
Speaker 3: You know. So in the nineteen thirties, a bunch of

130
00:06:19,240 --> 00:06:22,800
Speaker 3: banks are failing some of the New Deal programs. In particular,

131
00:06:22,920 --> 00:06:27,560
Speaker 3: something called the Reconstruction Finance Corporation takes stakes in at

132
00:06:27,600 --> 00:06:30,280
Speaker 3: least forty percent or so of America's banks again in

133
00:06:30,360 --> 00:06:33,479
Speaker 3: nineteen thirties, but that's really fundamentally a bailout program for

134
00:06:33,520 --> 00:06:37,440
Speaker 3: the banks because the banks are going under similarly famous

135
00:06:37,520 --> 00:06:40,479
Speaker 3: examples in more recent history in nineteen seventy nine, nineteen eighty,

136
00:06:40,640 --> 00:06:44,120
Speaker 3: Chrysler's going bankrupt. It's part of a bailout of Chrysler.

137
00:06:44,200 --> 00:06:48,279
Speaker 3: The government takes warrants in Chrysler. Then during two thousand

138
00:06:48,279 --> 00:06:50,359
Speaker 3: and eight and the financial crisis, as part of the

139
00:06:50,360 --> 00:06:54,240
Speaker 3: bailouts of AIG and some of the other financial companies,

140
00:06:54,279 --> 00:06:56,920
Speaker 3: as well as some of the bailouts of automakers back then,

141
00:06:57,360 --> 00:07:01,560
Speaker 3: government takes equity, but historically we've only done it during

142
00:07:02,200 --> 00:07:04,880
Speaker 3: kind of bailouts, and the government when it has taken

143
00:07:04,920 --> 00:07:07,520
Speaker 3: these equity stakes as part of bailouts, has always made

144
00:07:07,560 --> 00:07:09,320
Speaker 3: clear our goal was to own this for as short

145
00:07:09,360 --> 00:07:10,280
Speaker 3: a time as possible.

146
00:07:10,400 --> 00:07:12,720
Speaker 2: Yeah, because I think I remember from the two thousand

147
00:07:12,720 --> 00:07:16,080
Speaker 2: and eight auto bailouts, those were warrants, right, The goal

148
00:07:16,160 --> 00:07:20,520
Speaker 2: was always to like eventually get out of that position exactly.

149
00:07:20,560 --> 00:07:22,280
Speaker 3: It was very clear, you know, you go back, you

150
00:07:22,360 --> 00:07:25,240
Speaker 3: read both the Treasury Department guidance at the time, you

151
00:07:25,280 --> 00:07:27,120
Speaker 3: read the press at the time, you read the statute,

152
00:07:27,120 --> 00:07:28,600
Speaker 3: and it was kind of we're going to take this

153
00:07:28,800 --> 00:07:32,160
Speaker 3: as a security interest for the bailout, you know, for

154
00:07:32,480 --> 00:07:35,320
Speaker 3: as short a time as possible, and the Treasury Department

155
00:07:35,400 --> 00:07:38,840
Speaker 3: exited most of those positions within a couple of years,

156
00:07:38,880 --> 00:07:42,280
Speaker 3: certainly as soon as commercially feasible. And I think what

157
00:07:42,320 --> 00:07:45,320
Speaker 3: the Trump administration is doing now is really quite different,

158
00:07:45,320 --> 00:07:47,560
Speaker 3: where they seem to be seeing themselves seeing the US

159
00:07:47,640 --> 00:07:53,160
Speaker 3: government as a long term investor in a set of sectors,

160
00:07:53,160 --> 00:07:56,120
Speaker 3: in a set of companies where they think having that

161
00:07:56,200 --> 00:08:00,480
Speaker 3: government capital as a long term investor will help a

162
00:08:01,240 --> 00:08:04,880
Speaker 3: strengthen the company and the sector and be potentially give

163
00:08:04,920 --> 00:08:06,480
Speaker 3: some upside to the US government.

164
00:08:06,560 --> 00:08:09,200
Speaker 1: So what do you with Intel and p What do

165
00:08:09,280 --> 00:08:12,560
Speaker 1: you give the sort of broad as you understand them,

166
00:08:12,880 --> 00:08:16,520
Speaker 1: the broad stroke structure of these arrangements. What is the

167
00:08:16,680 --> 00:08:19,240
Speaker 1: nature of these investments, What are the obligations of the

168
00:08:19,240 --> 00:08:21,280
Speaker 1: companies and so forth? Give us the sort of outline

169
00:08:21,280 --> 00:08:21,560
Speaker 1: of them.

170
00:08:21,880 --> 00:08:24,040
Speaker 3: Yeah, and Joe, to pick up on a point you

171
00:08:24,080 --> 00:08:27,760
Speaker 3: had made during your introduction, It's not that the idea

172
00:08:27,760 --> 00:08:31,080
Speaker 3: of government support for chip manufacturing in the US or

173
00:08:31,080 --> 00:08:33,520
Speaker 3: for rare earths in the US is new. I mean,

174
00:08:33,760 --> 00:08:37,080
Speaker 3: there was a chips program under the Biden administration. There have,

175
00:08:37,200 --> 00:08:39,719
Speaker 3: going back for more than a decade now, been programs

176
00:08:39,760 --> 00:08:45,120
Speaker 3: to try to get US rare earths processing. Historically, those

177
00:08:45,160 --> 00:08:47,920
Speaker 3: things have been done through grants and loans, not equity,

178
00:08:48,000 --> 00:08:50,640
Speaker 3: you know. So there is a grant to Intel to

179
00:08:50,760 --> 00:08:54,400
Speaker 3: pay basically fifteen percent. This is prior to the Trump administration.

180
00:08:54,440 --> 00:08:57,840
Speaker 3: There's a grantee Intel to pay basically fifteen percent one

181
00:08:57,960 --> 00:09:01,080
Speaker 3: five percent of the cost that Intel was going to

182
00:09:01,120 --> 00:09:04,400
Speaker 3: incur to build four sets of fabs here in the

183
00:09:04,520 --> 00:09:07,720
Speaker 3: United States. There were grants again prior to the Trump

184
00:09:07,760 --> 00:09:13,400
Speaker 3: administration to MP Materials to help subsidize MP Materials building

185
00:09:14,000 --> 00:09:17,360
Speaker 3: a rare earth's mine and processing facility. So we've historically

186
00:09:17,440 --> 00:09:20,720
Speaker 3: done this through grants and loans, and as you say,

187
00:09:21,200 --> 00:09:24,120
Speaker 3: the idea was the public return was what we have

188
00:09:24,200 --> 00:09:26,720
Speaker 3: chip manufacturing in the US or we have rare earth's

189
00:09:26,720 --> 00:09:30,760
Speaker 3: processing in the US. What the Trump administration has done

190
00:09:30,920 --> 00:09:36,360
Speaker 3: is converted what were grant and loan programs into programs

191
00:09:36,920 --> 00:09:40,720
Speaker 3: whereas part of the grant or loan, the government is

192
00:09:40,800 --> 00:09:43,760
Speaker 3: taking an equity stake. In the Intel case, it is

193
00:09:43,800 --> 00:09:48,240
Speaker 3: taking a nine point nine percent equity stake in exchange

194
00:09:48,400 --> 00:09:53,680
Speaker 3: for transferring the unallocated, the unspent part of that previous

195
00:09:53,760 --> 00:09:56,280
Speaker 3: Intel grant to Intel. So they instead of doing it

196
00:09:56,280 --> 00:09:58,360
Speaker 3: out over years as Intel built the fab They have

197
00:09:58,679 --> 00:10:01,840
Speaker 3: now transferred just under six billion dollars in cash to

198
00:10:02,400 --> 00:10:06,480
Speaker 3: Intel and gotten equity in return. And they've also actually

199
00:10:06,520 --> 00:10:09,880
Speaker 3: relieved Intel of some of its legal obligations to build

200
00:10:10,120 --> 00:10:12,720
Speaker 3: the fabs, so sort of converting this grant into an

201
00:10:12,760 --> 00:10:16,839
Speaker 3: equity purchase. Similar with MP. That the MP deal is

202
00:10:16,920 --> 00:10:19,960
Speaker 3: extremely complicated. You know, I wrote a four thousand word

203
00:10:20,000 --> 00:10:23,520
Speaker 3: piece for you along with my colleague Garnob Dutta on this,

204
00:10:24,040 --> 00:10:29,520
Speaker 3: But basically, DoD has contracted with MP Materials. The Department

205
00:10:29,520 --> 00:10:32,040
Speaker 3: of Defense, or maybe we call it Department of Warnow

206
00:10:32,200 --> 00:10:36,760
Speaker 3: has contracted with MP Materials to scale up a mine

207
00:10:36,960 --> 00:10:39,719
Speaker 3: in California to mine for rare earth, and then to

208
00:10:39,760 --> 00:10:44,040
Speaker 3: scale up in both California and Texas a processing facility

209
00:10:44,080 --> 00:10:46,760
Speaker 3: to turn those rare earths into magnets which are used

210
00:10:46,760 --> 00:10:49,440
Speaker 3: in all kinds of industrial applications. And as part of

211
00:10:49,480 --> 00:10:54,040
Speaker 3: this very large contract to pay MP Materials to scale

212
00:10:54,120 --> 00:10:57,880
Speaker 3: up the mining and processing operations, the government MP has

213
00:10:57,920 --> 00:11:02,000
Speaker 3: given the government to fifteen percent stake in MP Defense

214
00:11:02,040 --> 00:11:04,000
Speaker 3: departments now the largest shareholder there.

215
00:11:04,840 --> 00:11:08,280
Speaker 2: Just on the Intel deal, you mentioned that the grants

216
00:11:08,280 --> 00:11:11,199
Speaker 2: and loans that were previously given under the Chips Act.

217
00:11:11,200 --> 00:11:14,720
Speaker 2: Those came with milestones that Intel had to meet right

218
00:11:14,800 --> 00:11:18,480
Speaker 2: in terms of building fabs and actually expanding manufacturing of

219
00:11:18,480 --> 00:11:22,720
Speaker 2: semiconductors in the US. But under this new deal, those

220
00:11:22,800 --> 00:11:26,480
Speaker 2: are now delinked from the equity stake. I guess do

221
00:11:26,559 --> 00:11:30,679
Speaker 2: we have any sense of what the Trump Administration's actual

222
00:11:30,760 --> 00:11:33,600
Speaker 2: goals are in this deal, because I could understand, you know,

223
00:11:33,679 --> 00:11:35,400
Speaker 2: if they give a company money and they say you

224
00:11:35,440 --> 00:11:38,400
Speaker 2: have to do the following things to expand production, that

225
00:11:38,400 --> 00:11:41,680
Speaker 2: would make sense. But if they say have some money

226
00:11:41,880 --> 00:11:44,800
Speaker 2: and make sure you give us a shareholder return, that

227
00:11:44,840 --> 00:11:45,880
Speaker 2: seems a little bit different.

228
00:11:46,440 --> 00:11:49,719
Speaker 3: It is a different deal. As you say, Tracy, the

229
00:11:50,160 --> 00:11:54,880
Speaker 3: original deal between the Commerce Department and Intel was planning

230
00:11:54,920 --> 00:11:58,960
Speaker 3: to dole out about eight billion dollars over a number

231
00:11:58,960 --> 00:12:02,280
Speaker 3: of years with the payments to Intel at that time

232
00:12:02,320 --> 00:12:07,480
Speaker 3: grant payments made to Intel as Intel met certain greed

233
00:12:07,880 --> 00:12:11,200
Speaker 3: milestones for how they were building out four sets of

234
00:12:11,240 --> 00:12:16,240
Speaker 3: fabs Ohio, Arizona, New Mexico, and Oregon. According to the

235
00:12:16,280 --> 00:12:20,439
Speaker 3: SEC filings that Intel has made, Intel is now, as

236
00:12:20,480 --> 00:12:24,480
Speaker 3: we discussed, relieved of those milestone obligations. Now, I think

237
00:12:24,480 --> 00:12:29,960
Speaker 3: the Trump Administration's view is that well, by injecting capital

238
00:12:30,040 --> 00:12:34,720
Speaker 3: into Intel, by taking an equity stake in Intel, we

239
00:12:35,000 --> 00:12:38,240
Speaker 3: the US government are sending a very strong signal of

240
00:12:38,280 --> 00:12:41,680
Speaker 3: support to Intel. Both gives them some capital upfront, but

241
00:12:41,720 --> 00:12:45,040
Speaker 3: it also gives them this very strong signal of support

242
00:12:45,120 --> 00:12:49,839
Speaker 3: that will help Intel go around and get customers, get

243
00:12:49,880 --> 00:12:52,600
Speaker 3: other investors to come in. They are now They also

244
00:12:52,640 --> 00:12:54,920
Speaker 3: now have Nvidia coming in as an investor, so there's

245
00:12:54,920 --> 00:12:57,559
Speaker 3: a little bit of a record already to suggest that

246
00:12:57,640 --> 00:13:00,160
Speaker 3: might be happening. But it's kind of rather than and

247
00:13:00,400 --> 00:13:02,160
Speaker 3: here are things we want you to do, we will

248
00:13:02,160 --> 00:13:04,200
Speaker 3: pay you for milestones. It is more of an approach

249
00:13:04,200 --> 00:13:05,440
Speaker 3: if we are going to bet on you as a

250
00:13:05,480 --> 00:13:08,600
Speaker 3: company and hope that our bet on you helps you

251
00:13:08,920 --> 00:13:12,320
Speaker 3: succeed over time. As you said, they're actually up. The

252
00:13:12,360 --> 00:13:15,040
Speaker 3: government's stake is up I think sixty percent, So it's

253
00:13:15,559 --> 00:13:17,720
Speaker 3: cash wise turned out okay for them so far. Yeah.

254
00:13:17,720 --> 00:13:19,920
Speaker 1: I was gonna say it's been a good trade. And

255
00:13:20,000 --> 00:13:23,280
Speaker 1: maybe some of the reason that the stock has rallied.

256
00:13:23,440 --> 00:13:26,280
Speaker 1: Maybe it's just the sort of pure logic as you expressed,

257
00:13:26,679 --> 00:13:28,920
Speaker 1: or it could just be sort of like it could

258
00:13:28,960 --> 00:13:32,440
Speaker 1: be sort of memestock traders people are excited about here's

259
00:13:32,480 --> 00:13:34,480
Speaker 1: a thing that's going on. We're just want to be

260
00:13:34,559 --> 00:13:37,960
Speaker 1: in on the trade. From your perspective, though, do you

261
00:13:38,120 --> 00:13:43,280
Speaker 1: see something about the structure of this deal such that, frankly,

262
00:13:43,320 --> 00:13:46,520
Speaker 1: that there's reason to be more hopeful about Intel's future

263
00:13:46,880 --> 00:13:50,360
Speaker 1: in this arrangement, just on a fundamental basis.

264
00:13:51,200 --> 00:13:54,920
Speaker 3: So I think of this as a very high risk

265
00:13:55,400 --> 00:13:58,480
Speaker 3: bet in the following ways. If you go and talk

266
00:13:58,520 --> 00:14:02,600
Speaker 3: to pretty much anyone in the semiconductor industry, and if

267
00:14:02,600 --> 00:14:04,640
Speaker 3: you've talked to them, and you guys have talked to

268
00:14:04,679 --> 00:14:08,280
Speaker 3: them over the last couple of years, you hear a

269
00:14:08,480 --> 00:14:12,520
Speaker 3: lot of concern about Intel's health. You know, Intel made

270
00:14:12,520 --> 00:14:16,719
Speaker 3: a couple of huge strategic missteps. They decided in two

271
00:14:16,760 --> 00:14:18,760
Speaker 3: thousand and seven that they did not want to produce

272
00:14:18,920 --> 00:14:22,640
Speaker 3: chips for the iPhone, you know, huge strategic misstep. They

273
00:14:22,680 --> 00:14:25,560
Speaker 3: decided in the mid twenty tens, but they were not

274
00:14:25,760 --> 00:14:29,600
Speaker 3: going to bet on something called EUV lithography, which is

275
00:14:29,720 --> 00:14:33,880
Speaker 3: advanced lithography that TSMC uses to make what are today

276
00:14:34,040 --> 00:14:37,160
Speaker 3: hands down the world's most advanced chips. And over the

277
00:14:37,200 --> 00:14:40,560
Speaker 3: last couple of years, Intel has been playing a huge

278
00:14:41,120 --> 00:14:44,920
Speaker 3: catch up game, and there've been very deep doubts across

279
00:14:44,960 --> 00:14:48,640
Speaker 3: the industry about whether Intel can actually do this catch

280
00:14:48,720 --> 00:14:51,840
Speaker 3: up game. I think the government's theory here is, well,

281
00:14:51,840 --> 00:14:58,240
Speaker 3: if we show support for Intel, we can encourage you know,

282
00:14:58,360 --> 00:15:02,080
Speaker 3: other investors to come in. We can encourage the potential

283
00:15:02,120 --> 00:15:05,280
Speaker 3: customers of Intel chips to come in, you know, Apple

284
00:15:05,400 --> 00:15:08,240
Speaker 3: and Nvidia. We can encourage customers to come in, and

285
00:15:08,280 --> 00:15:11,680
Speaker 3: we can really bet on this company and help get

286
00:15:11,760 --> 00:15:14,720
Speaker 3: them not just the capital but also the customers and

287
00:15:14,760 --> 00:15:17,680
Speaker 3: other things they need to turn it around. That's the bet.

288
00:15:33,280 --> 00:15:35,440
Speaker 1: Something you pointed out in your piece for us on

289
00:15:35,600 --> 00:15:38,720
Speaker 1: MP and other people have talked about this as well.

290
00:15:39,040 --> 00:15:41,720
Speaker 1: But that deal provides like an order book, the government

291
00:15:41,800 --> 00:15:43,800
Speaker 1: is going to buy more. And we've talked about this

292
00:15:44,000 --> 00:15:46,800
Speaker 1: with other guests that it's not just enough in some

293
00:15:46,840 --> 00:15:49,920
Speaker 1: of these cases to subsidize supply or make it easier

294
00:15:49,920 --> 00:15:52,239
Speaker 1: to build, but it also helps to have that guaranteed

295
00:15:52,280 --> 00:15:55,040
Speaker 1: buyer for several years out et cetera, and so that

296
00:15:55,080 --> 00:15:57,960
Speaker 1: when something is produced there is knowledge of an end customer.

297
00:15:58,200 --> 00:16:01,960
Speaker 1: Is there any such provision relation in the Intel deal

298
00:16:02,320 --> 00:16:04,960
Speaker 1: in terms of if they build X, that there will

299
00:16:05,000 --> 00:16:06,000
Speaker 1: be a buyer for X.

300
00:16:06,480 --> 00:16:09,160
Speaker 3: No, so in the Intel deal there's no kind of

301
00:16:09,720 --> 00:16:14,760
Speaker 3: guaranteed end customer government support for the end customer. With

302
00:16:14,800 --> 00:16:17,600
Speaker 3: one exception, I mean, going back to the Biden administration days,

303
00:16:17,640 --> 00:16:20,240
Speaker 3: there's there's been a little piece of this deal that

304
00:16:20,400 --> 00:16:22,760
Speaker 3: is actually not with the commerce departments, with the Defense

305
00:16:22,800 --> 00:16:28,000
Speaker 3: Department to build highly secure chips for the Pentagon. Like there,

306
00:16:28,040 --> 00:16:30,560
Speaker 3: there is obviously a guaranteed customer, but that's a small

307
00:16:30,600 --> 00:16:31,320
Speaker 3: piece of this deal.

308
00:16:31,800 --> 00:16:36,480
Speaker 2: Could you argue that Intel's main problem isn't necessarily cash

309
00:16:36,520 --> 00:16:38,480
Speaker 2: in the first place. I think it has something like

310
00:16:38,520 --> 00:16:40,840
Speaker 2: ten billion in cash on its balance sheet, which is

311
00:16:40,840 --> 00:16:43,560
Speaker 2: probably a drop in the ocean if you're building fabs.

312
00:16:43,560 --> 00:16:45,400
Speaker 2: But on the other hand, you know, there is a

313
00:16:45,400 --> 00:16:50,080
Speaker 2: lot of capital crowding into the semiconductor space, and it seems,

314
00:16:50,480 --> 00:16:53,680
Speaker 2: given some of the missteps that the company has made previously,

315
00:16:53,960 --> 00:16:58,600
Speaker 2: maybe the issue is more management than actual balance sheet health.

316
00:16:59,120 --> 00:17:01,840
Speaker 3: Yeah, so when I look Intel, I think it's biggest

317
00:17:01,920 --> 00:17:05,080
Speaker 3: problems aren't really access to capital, as you said. I mean,

318
00:17:05,119 --> 00:17:07,280
Speaker 3: even prior to the government investment, it's one hundred billion

319
00:17:07,320 --> 00:17:10,119
Speaker 3: dollar market cap company. It could raise money in the

320
00:17:10,160 --> 00:17:14,000
Speaker 3: debt markets. The biggest problems were can it do the

321
00:17:14,240 --> 00:17:18,360
Speaker 3: engineering to build advanced chips, Like, that's problem number one.

322
00:17:18,440 --> 00:17:20,600
Speaker 2: Got to actually do the thing it says it's going

323
00:17:20,680 --> 00:17:22,200
Speaker 2: to do exactly.

324
00:17:22,520 --> 00:17:25,719
Speaker 3: And related to that, are there going to be customers

325
00:17:25,760 --> 00:17:28,800
Speaker 3: to buy Intel's chips? And those two things are obviously

326
00:17:29,240 --> 00:17:32,359
Speaker 3: totally linked because if it can't do the engineering, there

327
00:17:32,400 --> 00:17:35,680
Speaker 3: won't be customers, and if it can't do the engineering,

328
00:17:35,680 --> 00:17:38,119
Speaker 3: there probably will be customers. I mean, I think the

329
00:17:38,160 --> 00:17:41,440
Speaker 3: big risk with the Intel deal is that we definitely

330
00:17:41,520 --> 00:17:45,760
Speaker 3: have an instance here of the government picking a winner. Right,

331
00:17:45,760 --> 00:17:50,000
Speaker 3: they are petty placing a huge bet on Intel and

332
00:17:50,080 --> 00:17:54,200
Speaker 3: not on TSMC and not on you know, startup semiconductor

333
00:17:54,200 --> 00:17:58,360
Speaker 3: companies that might actually be more innovative in this space,

334
00:17:58,600 --> 00:18:00,320
Speaker 3: and that is something you know, the government is not

335
00:18:00,480 --> 00:18:03,159
Speaker 3: historically done. You know, historically we've kind of said we

336
00:18:03,200 --> 00:18:05,680
Speaker 3: want to let companies go out and compete in the marketplace,

337
00:18:05,720 --> 00:18:07,280
Speaker 3: and we're not going to put a very heavy thumb

338
00:18:07,359 --> 00:18:10,600
Speaker 3: on the scale in favor of one particular kind of

339
00:18:10,640 --> 00:18:13,600
Speaker 3: you know, champion company here. And we are very much

340
00:18:13,600 --> 00:18:17,080
Speaker 3: seeing the government, even though it's not a formal contract here,

341
00:18:17,520 --> 00:18:20,960
Speaker 3: Clearly the impetus now is for the government to be

342
00:18:21,040 --> 00:18:22,840
Speaker 3: putting a thumb on the scale here for Intel and

343
00:18:22,840 --> 00:18:25,040
Speaker 3: I hope that helps them get customers and engineers in

344
00:18:25,080 --> 00:18:25,440
Speaker 3: the Like.

345
00:18:25,960 --> 00:18:29,359
Speaker 2: What legal authority does the Trump administration actually have to

346
00:18:29,400 --> 00:18:32,240
Speaker 2: do this? So we spoke about the Chips Act. Pretty

347
00:18:32,280 --> 00:18:34,960
Speaker 2: sure the Chips Act doesn't say anything about taking equity

348
00:18:35,000 --> 00:18:38,040
Speaker 2: stakes in return for grants and loans. Could it be

349
00:18:38,119 --> 00:18:42,520
Speaker 2: something like the Defense Production Act or some other act

350
00:18:42,640 --> 00:18:45,159
Speaker 2: that I am unaware of that might be in the making.

351
00:18:45,760 --> 00:18:47,520
Speaker 3: Well, you know, we talked about how there isn't a

352
00:18:47,520 --> 00:18:50,800
Speaker 3: lot of history for the US government taking equity stakes,

353
00:18:50,840 --> 00:18:54,879
Speaker 3: and there's not really any law out there that authorizes

354
00:18:54,960 --> 00:18:58,480
Speaker 3: the government to take equity stakes in private companies with

355
00:18:58,520 --> 00:19:01,280
Speaker 3: a handful of accept and the Chips Act is not

356
00:19:01,680 --> 00:19:04,359
Speaker 3: one of them. I think the Trump administration's legal theory

357
00:19:04,840 --> 00:19:10,000
Speaker 3: here basically boils down to two things. You know, First is, well,

358
00:19:10,000 --> 00:19:12,080
Speaker 3: the Chips Act may not say we can take an

359
00:19:12,119 --> 00:19:15,439
Speaker 3: equity steak, but it doesn't forbid us from taking an

360
00:19:15,440 --> 00:19:18,280
Speaker 3: equity steak, so why not? And then thing two on

361
00:19:18,280 --> 00:19:20,520
Speaker 3: their legal theory is who's going to sue us anyway?

362
00:19:20,560 --> 00:19:22,360
Speaker 3: I mean, Intel's not going to sue us, right, They

363
00:19:22,400 --> 00:19:25,560
Speaker 3: just agreed to this deal, and it's it's not clear

364
00:19:25,600 --> 00:19:30,160
Speaker 3: that anyone else really has legal standing to go into

365
00:19:30,200 --> 00:19:32,640
Speaker 3: court to sue over this. So, you know, like much

366
00:19:32,640 --> 00:19:34,840
Speaker 3: of the Trump administration, I think we are seeing a

367
00:19:34,880 --> 00:19:37,639
Speaker 3: lot of novel interpretive approaches to the law, but it

368
00:19:37,640 --> 00:19:40,200
Speaker 3: really does boil down to I think at its core,

369
00:19:40,359 --> 00:19:43,320
Speaker 3: there's no they have a very flexible authority. Legally speaking,

370
00:19:43,320 --> 00:19:45,680
Speaker 3: they have a very flexible grant authority. It was clearly

371
00:19:45,760 --> 00:19:49,520
Speaker 3: intended as a grant authority, not an equity authority. But

372
00:19:49,600 --> 00:19:52,679
Speaker 3: if you read the details of the grant authority, it

373
00:19:52,680 --> 00:19:56,600
Speaker 3: doesn't say you cannot take equity as a part of this.

374
00:19:56,720 --> 00:19:59,560
Speaker 3: It just says you can give grants, and they've interpreted

375
00:19:59,600 --> 00:20:02,000
Speaker 3: that as a allowing them to take equity as part

376
00:20:02,000 --> 00:20:02,440
Speaker 3: of the grant.

377
00:20:02,920 --> 00:20:05,920
Speaker 1: I want to go back to the question about whether

378
00:20:05,960 --> 00:20:10,439
Speaker 1: the engineering capacity actually exists for Intel to become a

379
00:20:10,600 --> 00:20:12,920
Speaker 1: top flight producer of semiconductors.

380
00:20:13,080 --> 00:20:13,359
Speaker 3: Again.

381
00:20:13,480 --> 00:20:17,159
Speaker 1: You know, you mentioned the quote strategic missteps, whether it

382
00:20:17,240 --> 00:20:20,000
Speaker 1: was choosing not to build the chips for the iPhone

383
00:20:20,440 --> 00:20:25,080
Speaker 1: or to get into advanced UV lithography. But again, they

384
00:20:25,080 --> 00:20:28,359
Speaker 1: could have chosen to do those things and not execute

385
00:20:28,359 --> 00:20:31,080
Speaker 1: on them, like they could have made different strategic choices

386
00:20:31,200 --> 00:20:34,159
Speaker 1: and just not done them as well as TSMC. And

387
00:20:34,240 --> 00:20:38,320
Speaker 1: this also gets back to the MP deal because Okay,

388
00:20:38,520 --> 00:20:41,080
Speaker 1: like there is this big mine out in California that's

389
00:20:41,200 --> 00:20:43,520
Speaker 1: very rich in rare earths and so forth, But a

390
00:20:43,520 --> 00:20:45,120
Speaker 1: lot of the question is not whether you could dig

391
00:20:45,119 --> 00:20:47,400
Speaker 1: it out of the ground, but whether you can refine

392
00:20:47,440 --> 00:20:51,359
Speaker 1: these metals at a cost competitive price, especially compared to

393
00:20:51,400 --> 00:20:53,240
Speaker 1: the Chinese, who have invested a ton of this and

394
00:20:53,280 --> 00:20:55,840
Speaker 1: are clearly far and away the leader and the most

395
00:20:55,880 --> 00:20:59,840
Speaker 1: advanced infrastructure, et cetera. They're like, I'm curious with that deal.

396
00:20:59,880 --> 00:21:03,600
Speaker 1: Like with MP, do you perceive them as having the

397
00:21:03,680 --> 00:21:07,280
Speaker 1: same questions hanging over them about whether, Okay, they get

398
00:21:07,320 --> 00:21:10,520
Speaker 1: this money and they have this mind, can they create

399
00:21:10,560 --> 00:21:13,359
Speaker 1: these magnets at a market competitive price.

400
00:21:14,040 --> 00:21:16,639
Speaker 3: Well, I think that the MP materials deal sort of

401
00:21:16,720 --> 00:21:19,560
Speaker 3: ensures that they are not going to create these magnets

402
00:21:19,560 --> 00:21:22,200
Speaker 3: at a market competitive price. But at some level that

403
00:21:22,280 --> 00:21:26,520
Speaker 3: doesn't matter because the government has agreed both to purchase

404
00:21:27,119 --> 00:21:29,439
Speaker 3: all of the off take of the magnet. So part

405
00:21:29,480 --> 00:21:31,359
Speaker 3: of this steal, the government is buying one hundred percent

406
00:21:31,400 --> 00:21:33,800
Speaker 3: of the magnets. Now, it could resell some of these

407
00:21:33,840 --> 00:21:36,560
Speaker 3: magnets to private parties, but it's a guaranteed purchaser of

408
00:21:36,600 --> 00:21:40,640
Speaker 3: all of them, and on top of being the guaranteed

409
00:21:40,680 --> 00:21:44,560
Speaker 3: purchaser of the magnets, it has also guaranteed profit margin

410
00:21:44,640 --> 00:21:46,679
Speaker 3: for MP. So I actually kind of get why private

411
00:21:46,720 --> 00:21:49,240
Speaker 3: investors are crowding into MP because it's sort of a

412
00:21:49,320 --> 00:21:52,199
Speaker 3: no loose business proposition at this point. But I do

413
00:21:52,280 --> 00:21:55,600
Speaker 3: think the reality to your point, Joe, is that China

414
00:21:55,840 --> 00:21:59,080
Speaker 3: is the low cost producer of rare earth magnets. It

415
00:21:59,200 --> 00:22:02,040
Speaker 3: just is. It has this scale and has multiple companies

416
00:22:02,080 --> 00:22:04,560
Speaker 3: that do it, and the best it has, the engineering,

417
00:22:04,600 --> 00:22:06,720
Speaker 3: it has no you know, low environmental regula. It is

418
00:22:06,760 --> 00:22:10,440
Speaker 3: the low cost producer. If we, as the United States,

419
00:22:10,640 --> 00:22:13,600
Speaker 3: do not want to be dependent on China for rare

420
00:22:13,720 --> 00:22:16,840
Speaker 3: earth magnets, we are going to have, at least in

421
00:22:16,880 --> 00:22:19,400
Speaker 3: the you know, near and mid term, to pay more

422
00:22:19,400 --> 00:22:21,760
Speaker 3: for those magnets. And so that subsidy is either going

423
00:22:21,800 --> 00:22:24,320
Speaker 3: to have to be a direct subsidy from the US

424
00:22:24,400 --> 00:22:27,200
Speaker 3: government like the MP materials deal, or it's going to

425
00:22:27,280 --> 00:22:29,840
Speaker 3: have to be an indirect subsidy like tariffs or something

426
00:22:29,840 --> 00:22:34,200
Speaker 3: else that forces US manufacturers to you know, pay US

427
00:22:34,320 --> 00:22:37,480
Speaker 3: producers because the foreign they're protected from foreign competition. And

428
00:22:37,480 --> 00:22:40,000
Speaker 3: that's just the reality of this market, and then you

429
00:22:40,040 --> 00:22:41,840
Speaker 3: get into this whole debate of you know, are the

430
00:22:41,920 --> 00:22:45,720
Speaker 3: national security needs? Are the economic security needs so great

431
00:22:45,760 --> 00:22:49,200
Speaker 3: that it is worth paying what will be a subsidy

432
00:22:49,240 --> 00:22:51,240
Speaker 3: to have that production here in the US.

433
00:22:51,640 --> 00:22:54,480
Speaker 2: Well, talk to us about the corporate governance angle in

434
00:22:54,560 --> 00:22:57,280
Speaker 2: all of this. So with Intel, the US government is

435
00:22:57,280 --> 00:22:59,720
Speaker 2: getting a nine point nine percent stake. They also I

436
00:22:59,720 --> 00:23:01,639
Speaker 2: think have a golden share like they do in the

437
00:23:01,720 --> 00:23:05,520
Speaker 2: Knepond deal. Again, that's something that we tend to associate

438
00:23:05,600 --> 00:23:09,920
Speaker 2: with China's state interventionist style, and we should talk about

439
00:23:09,920 --> 00:23:13,080
Speaker 2: that a little bit later. But is Howard Lutnik going

440
00:23:13,160 --> 00:23:16,920
Speaker 2: to be showing up to Intel agms and participating in

441
00:23:17,240 --> 00:23:17,720
Speaker 2: the votes?

442
00:23:18,600 --> 00:23:22,720
Speaker 3: This is another thing that worries me Tracy about the

443
00:23:22,760 --> 00:23:27,560
Speaker 3: government taking equity in companies without kind of a clear

444
00:23:27,600 --> 00:23:31,200
Speaker 3: statutory basis for it, because there isn't really any federal

445
00:23:31,840 --> 00:23:36,320
Speaker 3: set of regulations or laws about how the government should

446
00:23:36,480 --> 00:23:40,879
Speaker 3: manage its investments and what its role in corporate governance

447
00:23:41,119 --> 00:23:44,199
Speaker 3: should be. So we're sort of seeing ad hoc approaches

448
00:23:44,240 --> 00:23:46,440
Speaker 3: as the government does these deals. In the Intel case,

449
00:23:47,040 --> 00:23:50,840
Speaker 3: if you read the SEC filings, the government has basically

450
00:23:50,880 --> 00:23:55,439
Speaker 3: agreed to vote the shares the way the board recommends

451
00:23:55,480 --> 00:23:58,760
Speaker 3: the shares be voted, except in a couple of major

452
00:23:58,800 --> 00:24:01,920
Speaker 3: types of transactions, can overall change control, you know, change

453
00:24:01,920 --> 00:24:04,640
Speaker 3: in ownership of control transaction. So that's a great deal

454
00:24:04,640 --> 00:24:07,200
Speaker 3: for the board because actually now the board of the

455
00:24:07,280 --> 00:24:09,760
Speaker 3: Intel knows it has ten percent or nine point nine

456
00:24:09,800 --> 00:24:11,439
Speaker 3: percent of the shares to do whatever it wants. A

457
00:24:11,440 --> 00:24:14,400
Speaker 3: great deal for the board. But that's unique to the

458
00:24:14,400 --> 00:24:17,600
Speaker 3: Intel deal, and it will be interesting to see as

459
00:24:17,640 --> 00:24:21,160
Speaker 3: these play out, do we see more and more kind

460
00:24:21,200 --> 00:24:25,760
Speaker 3: of direct government, you know, involvement in the management of

461
00:24:25,960 --> 00:24:27,040
Speaker 3: the companies.

462
00:24:27,400 --> 00:24:30,520
Speaker 1: It's interesting. One of the things that I think about sometimes.

463
00:24:30,640 --> 00:24:33,280
Speaker 1: So the corporate income tax rate in the United States

464
00:24:33,400 --> 00:24:36,440
Speaker 1: is twenty one percent. Now, if I own twenty one

465
00:24:36,480 --> 00:24:39,640
Speaker 1: percent of a private company, right, I'm in theory entitled

466
00:24:39,680 --> 00:24:42,399
Speaker 1: to twenty one percent of their income. It's kind of

467
00:24:42,440 --> 00:24:44,720
Speaker 1: one way to think about it. In a sense, the

468
00:24:44,840 --> 00:24:47,479
Speaker 1: US government already owns about a fifth of every private

469
00:24:47,520 --> 00:24:50,960
Speaker 1: company in America, right, because you have your profits, and

470
00:24:50,960 --> 00:24:53,639
Speaker 1: then seventy nine percent goes to the normal shareholders, then

471
00:24:53,680 --> 00:24:56,159
Speaker 1: twenty one percent goes to the government. There is a

472
00:24:56,200 --> 00:24:58,840
Speaker 1: sense in which the government already owns a fifth of

473
00:24:58,880 --> 00:25:03,120
Speaker 1: every company for taxation. The difference is, however, exactly what

474
00:25:03,200 --> 00:25:06,680
Speaker 1: you just identified, which is this is a very passive

475
00:25:06,760 --> 00:25:09,880
Speaker 1: equity stake that the government sort of has in every company.

476
00:25:10,240 --> 00:25:13,639
Speaker 1: So what's really changing is this potential not that the

477
00:25:13,680 --> 00:25:16,760
Speaker 1: government is going to collect income from the profits, but

478
00:25:16,920 --> 00:25:20,960
Speaker 1: this potential for new ways for sort of activist involvement

479
00:25:21,119 --> 00:25:25,640
Speaker 1: in the private sector beyond the sort of traditional regulatory

480
00:25:25,840 --> 00:25:27,640
Speaker 1: or legal environment that exists.

481
00:25:28,560 --> 00:25:30,840
Speaker 3: Yeah, and it is both that this is going to

482
00:25:30,880 --> 00:25:34,760
Speaker 3: give potentially the government a way of meddling much more

483
00:25:35,080 --> 00:25:38,639
Speaker 3: specifically and with much more detail individual companies, and it

484
00:25:38,720 --> 00:25:42,480
Speaker 3: also is much more of the government potentially picking winners

485
00:25:42,520 --> 00:25:44,879
Speaker 3: within an industry. I mean, let's take the MP. You know,

486
00:25:45,000 --> 00:25:48,240
Speaker 3: MP is one of it's not the only company in

487
00:25:48,280 --> 00:25:51,399
Speaker 3: the US that is trying to get rares mining and

488
00:25:51,480 --> 00:25:54,320
Speaker 3: manufacturing going. Again, there are a number of other companies

489
00:25:54,320 --> 00:25:58,080
Speaker 3: that are doing this with mining operations elsewhere in the US.

490
00:25:58,080 --> 00:26:00,439
Speaker 3: And there are also some companies that are in the

491
00:26:00,480 --> 00:26:02,480
Speaker 3: technology space that are saying, you know what, we might

492
00:26:02,480 --> 00:26:06,600
Speaker 3: be able to create magnets that do what rare earth

493
00:26:06,640 --> 00:26:09,560
Speaker 3: magnets do, but without using any rare earths. You know,

494
00:26:09,560 --> 00:26:13,920
Speaker 3: we're developing new materials and the government here rather than

495
00:26:13,920 --> 00:26:16,200
Speaker 3: sort of saying, you know what, we have a program.

496
00:26:16,200 --> 00:26:20,040
Speaker 3: We're giving a tax incentive to anybody who qualifies to

497
00:26:20,200 --> 00:26:22,600
Speaker 3: kind of let all of these ideas flourish, the government

498
00:26:22,640 --> 00:26:25,639
Speaker 3: is saying, you know what, we're guaranteeing that MP's going

499
00:26:25,680 --> 00:26:28,840
Speaker 3: to make the money here without actually knowing is MP

500
00:26:29,160 --> 00:26:33,240
Speaker 3: like the most cost efficient, the best technological bet. It

501
00:26:33,320 --> 00:26:35,760
Speaker 3: is very much a picking winners and losers rather than

502
00:26:35,800 --> 00:26:37,840
Speaker 3: seeing what flourishes in the market approach.

503
00:26:38,480 --> 00:26:41,760
Speaker 2: Do we have any sense of how foreign governments and

504
00:26:41,800 --> 00:26:44,840
Speaker 2: foreign businesses are reacting to this? So I'm aware that

505
00:26:44,920 --> 00:26:48,600
Speaker 2: Intel put out a statement that basically warned that having

506
00:26:48,600 --> 00:26:52,200
Speaker 2: the US government as a major shareholder could be problematic

507
00:26:52,280 --> 00:26:55,359
Speaker 2: for the company. It could lead to maybe additional regulations

508
00:26:55,480 --> 00:26:59,880
Speaker 2: or obligations or restrictions abroad. Have you picked up any

509
00:27:00,160 --> 00:27:04,400
Speaker 2: I guess scuttle butt on how scuttle butt too weird

510
00:27:04,400 --> 00:27:04,720
Speaker 2: a word?

511
00:27:04,800 --> 00:27:05,920
Speaker 1: No, it's great, it's a great word.

512
00:27:06,000 --> 00:27:10,080
Speaker 2: All right, all right, any scuttle butt on how foreign

513
00:27:10,280 --> 00:27:11,480
Speaker 2: entities are reacting.

514
00:27:12,000 --> 00:27:17,880
Speaker 3: So I do think foreign governments are worried about what

515
00:27:18,000 --> 00:27:21,960
Speaker 3: it means that the US government is investing in specific companies,

516
00:27:21,960 --> 00:27:24,800
Speaker 3: and they're worried about it in two ways. One of

517
00:27:24,840 --> 00:27:28,120
Speaker 3: which is, just like the classic governments, worry about what

518
00:27:28,240 --> 00:27:30,399
Speaker 3: other government subsidies are going to do. You know, if

519
00:27:30,400 --> 00:27:32,440
Speaker 3: there's more subsidies for Intel, how is that going to

520
00:27:32,480 --> 00:27:36,400
Speaker 3: affect European manufacturing? Also, we Intel in particular had been

521
00:27:36,440 --> 00:27:39,920
Speaker 3: planning to build fabs in Europe. Actually, prior to the

522
00:27:40,000 --> 00:27:43,399
Speaker 3: US government buy in, had canceled those fabs in Europe.

523
00:27:43,400 --> 00:27:46,280
Speaker 3: But there's worry like would Intel still be a reliable

524
00:27:46,320 --> 00:27:49,480
Speaker 3: partner if it is investing overseas or is it just

525
00:27:49,520 --> 00:27:51,680
Speaker 3: going to invest in the US now that it's US

526
00:27:51,760 --> 00:27:53,959
Speaker 3: government owned. And then the other one is I do

527
00:27:54,040 --> 00:27:57,240
Speaker 3: think that for companies, particularly technology companies, you know, we

528
00:27:57,320 --> 00:27:59,720
Speaker 3: are in this era of geopolitics where we worry a

529
00:27:59,760 --> 00:28:02,680
Speaker 3: lot of about Chinese companies, or Chinese companies worry about

530
00:28:03,119 --> 00:28:06,800
Speaker 3: the security issue issues around American companies. I think European

531
00:28:06,840 --> 00:28:09,920
Speaker 3: companies are increasingly getting worried about, you know, is American

532
00:28:10,000 --> 00:28:13,200
Speaker 3: tech safe to be used? And the closer the US

533
00:28:13,359 --> 00:28:17,840
Speaker 3: government gets to a company, I think the more you're

534
00:28:17,880 --> 00:28:22,320
Speaker 3: going to see foreign governments wonder about those security risks.

535
00:28:22,320 --> 00:28:24,159
Speaker 3: I mean, I just look at what Microsoft had to

536
00:28:24,160 --> 00:28:27,000
Speaker 3: do a couple of months ago where they actually said,

537
00:28:27,000 --> 00:28:32,679
Speaker 3: in response to European privacy concerns about Microsoft products in Europe,

538
00:28:32,800 --> 00:28:36,080
Speaker 3: that Microsoft would be prepared to sue the US government

539
00:28:36,200 --> 00:28:40,160
Speaker 3: if the US government started putting unfair privacy requests on

540
00:28:40,240 --> 00:28:43,800
Speaker 3: Microsoft about European customers. I don't think anyone would believe

541
00:28:43,840 --> 00:28:46,040
Speaker 3: that Intel's going to sue the US government at this

542
00:28:46,120 --> 00:29:02,800
Speaker 3: point to protect the privacy rights of its customers.

543
00:29:05,440 --> 00:29:09,080
Speaker 1: So you mentioned the issue of picking winners, which of

544
00:29:09,120 --> 00:29:12,200
Speaker 1: course is an issue that precedes any equity stake. Every

545
00:29:12,280 --> 00:29:16,560
Speaker 1: industrial policy in the world always has to think about

546
00:29:16,640 --> 00:29:20,520
Speaker 1: this risk or possibility, and traditionally the way it sometimes

547
00:29:20,640 --> 00:29:24,120
Speaker 1: quote works in the context of sort of developing economies

548
00:29:24,600 --> 00:29:27,240
Speaker 1: is they might have that sort of export test. And

549
00:29:27,280 --> 00:29:29,680
Speaker 1: we've talked about that a bunch on the show. Our

550
00:29:29,720 --> 00:29:32,560
Speaker 1: customers in foreign markets buying your thing, and if so,

551
00:29:32,720 --> 00:29:35,280
Speaker 1: that's a sign that you're building something competitive and we're

552
00:29:35,280 --> 00:29:37,200
Speaker 1: going to keep backing you. And if not, this is

553
00:29:37,200 --> 00:29:39,560
Speaker 1: a sign that you're not working out. And so there's

554
00:29:39,600 --> 00:29:43,720
Speaker 1: this mechanism. If we're concerned about the idea that the

555
00:29:43,760 --> 00:29:47,480
Speaker 1: government is picking winners with Mper, picking winners with Intel

556
00:29:47,840 --> 00:29:51,320
Speaker 1: let's say again with MP, should the direction be that

557
00:29:51,680 --> 00:29:54,200
Speaker 1: not that we get rid of the equity components, but

558
00:29:54,240 --> 00:29:56,640
Speaker 1: that we just sort of build out the program so

559
00:29:56,640 --> 00:29:59,600
Speaker 1: that any entity at any stage could theoretically make the

560
00:29:59,680 --> 00:30:03,880
Speaker 1: US government a partner, and that partnership is contingent on

561
00:30:04,000 --> 00:30:06,320
Speaker 1: its success in some market measure.

562
00:30:06,960 --> 00:30:09,600
Speaker 3: Well, I guess I look at that as Joe, you know,

563
00:30:09,640 --> 00:30:12,480
Speaker 3: you talked about taxes earlier. Isn't that what a tax

564
00:30:12,520 --> 00:30:14,480
Speaker 3: credits for? I mean, if you look at the Chips Act,

565
00:30:14,960 --> 00:30:17,280
Speaker 3: the original Chips Act, we all focused on the grant

566
00:30:17,320 --> 00:30:19,080
Speaker 3: part of the Chips Act, and this is the grant

567
00:30:19,120 --> 00:30:21,080
Speaker 3: part of the Chips Act that we're talking about now.

568
00:30:21,120 --> 00:30:23,320
Speaker 3: But actually, I think the more important part of the

569
00:30:23,400 --> 00:30:25,800
Speaker 3: Chips Act is there was a twenty five percent investment

570
00:30:25,800 --> 00:30:28,880
Speaker 3: tax credit that lets anybody building a fab in the

571
00:30:29,040 --> 00:30:32,040
Speaker 3: US take twenty five percent of the cost of that

572
00:30:32,120 --> 00:30:36,000
Speaker 3: fab as a fully refundable tax credit. So I mean,

573
00:30:36,000 --> 00:30:38,400
Speaker 3: it's just a very great deal. I guess. I actually,

574
00:30:38,520 --> 00:30:43,160
Speaker 3: as a general, bias would prefer relatively more neutral approaches

575
00:30:43,720 --> 00:30:47,960
Speaker 3: that let companies thrive and succeed in the marketplace. And

576
00:30:48,000 --> 00:30:50,840
Speaker 3: where you do have grant programs, and there will always

577
00:30:50,840 --> 00:30:53,960
Speaker 3: be a place for grant programs. I think you want

578
00:30:54,000 --> 00:30:58,080
Speaker 3: to do it in a fairly broad based way and

579
00:30:58,280 --> 00:31:02,640
Speaker 3: seed multiple differents. I mean, I've been talking just recently

580
00:31:02,640 --> 00:31:05,560
Speaker 3: with Jiggershaw previous guests when your podcast of his time

581
00:31:05,600 --> 00:31:09,200
Speaker 3: at at LPO, and he, you know, he had this approach.

582
00:31:09,240 --> 00:31:11,480
Speaker 3: He's like, I wanted to say yes to everybody, you know,

583
00:31:11,520 --> 00:31:14,680
Speaker 3: anybody who could fit the criteria of getting a loan.

584
00:31:14,880 --> 00:31:16,680
Speaker 3: I wanted to say yes to because we want to

585
00:31:16,720 --> 00:31:19,080
Speaker 3: place a bunch of different nets, on a bunch of

586
00:31:19,080 --> 00:31:22,640
Speaker 3: different technologies, on a bunch of different investments. And you know,

587
00:31:22,760 --> 00:31:24,920
Speaker 3: I think there's a lot to be said for that,

588
00:31:25,120 --> 00:31:29,080
Speaker 3: which is also historically how we have come now. Maybe

589
00:31:29,080 --> 00:31:32,040
Speaker 3: there are rare cases if there's a market failure, there's

590
00:31:32,240 --> 00:31:33,600
Speaker 3: some sort of market where there's going to be a

591
00:31:33,680 --> 00:31:38,080
Speaker 3: natural monopoly. Maybe in those cases it does make sense.

592
00:31:38,640 --> 00:31:40,880
Speaker 3: You know, there's natural monopoly or some kind of market

593
00:31:40,880 --> 00:31:43,200
Speaker 3: failure and you're only going to have one or two

594
00:31:43,200 --> 00:31:46,480
Speaker 3: potentially successful companies, maybe you do want the government to

595
00:31:46,520 --> 00:31:49,720
Speaker 3: take a stake there, because if it's kind of guaranteeing

596
00:31:50,240 --> 00:31:53,880
Speaker 3: the market and some upside for the taxpayer makes sense.

597
00:31:53,880 --> 00:31:55,840
Speaker 3: But I generally think that should be a pretty rare

598
00:31:56,520 --> 00:31:58,960
Speaker 3: instance in our in our capitalist system.

599
00:31:59,320 --> 00:32:02,920
Speaker 2: So there is irony here that an administration which has

600
00:32:03,200 --> 00:32:06,760
Speaker 2: been very critical of China and you know, criticize them

601
00:32:06,880 --> 00:32:10,520
Speaker 2: for manipulating their market or cheating on global trade rules,

602
00:32:10,640 --> 00:32:13,600
Speaker 2: or doing illegal subsidies and all of that kind of stuff,

603
00:32:13,920 --> 00:32:18,400
Speaker 2: is now pursuing a more interventionist approach that does seem

604
00:32:18,760 --> 00:32:22,520
Speaker 2: very reminiscent of what happens in China. Can you compare

605
00:32:22,560 --> 00:32:26,200
Speaker 2: and contrast those two systems and maybe talk about how

606
00:32:26,320 --> 00:32:30,120
Speaker 2: US policymakers are thinking about Chinese industrial policy at the moment.

607
00:32:31,000 --> 00:32:32,720
Speaker 3: I mean, there is kind of an element here, right,

608
00:32:32,920 --> 00:32:36,560
Speaker 3: we're looking a little bit like state capitalism with American characteristics.

609
00:32:36,920 --> 00:32:39,800
Speaker 3: I think we should be you know, open and direct

610
00:32:39,800 --> 00:32:41,880
Speaker 3: about that. There are actually some differences. I mean, if

611
00:32:41,920 --> 00:32:46,880
Speaker 3: you look at the Chinese industrial policy kind of approach,

612
00:32:46,960 --> 00:32:49,400
Speaker 3: there are both similarities and differences. I think one big

613
00:32:49,440 --> 00:32:54,080
Speaker 3: difference is actually when it comes to equity stakes in China,

614
00:32:54,120 --> 00:32:55,800
Speaker 3: a lot of the equity is actually done at the

615
00:32:55,800 --> 00:32:57,840
Speaker 3: provincial government level. You know, it's sort of an see

616
00:32:58,040 --> 00:33:02,200
Speaker 3: that's owned by a particular province, relatively less at the

617
00:33:02,280 --> 00:33:05,680
Speaker 3: central government level. In China, the central government does tend

618
00:33:05,720 --> 00:33:07,840
Speaker 3: to do a bunch of you know, grants and R

619
00:33:07,880 --> 00:33:09,680
Speaker 3: and D programs and that kind of thing, but they

620
00:33:09,680 --> 00:33:12,600
Speaker 3: have a very heavy provincial level element to these. The

621
00:33:12,640 --> 00:33:15,680
Speaker 3: other thing that I think China does, frankly pretty well

622
00:33:15,840 --> 00:33:17,760
Speaker 3: kind of to where we just were talking Tracy and

623
00:33:17,840 --> 00:33:21,000
Speaker 3: Joe is China does tend to bet on multiple companies.

624
00:33:21,120 --> 00:33:23,920
Speaker 3: If you look at why they have a very successful

625
00:33:24,000 --> 00:33:26,920
Speaker 3: EV sector right now, it is in part because you

626
00:33:26,960 --> 00:33:30,560
Speaker 3: had lots of provinces investing in lots of companies, plus

627
00:33:30,600 --> 00:33:34,360
Speaker 3: a tremendous amount of central government support on the demand

628
00:33:34,440 --> 00:33:36,560
Speaker 3: side as well as on the supply side of the equation.

629
00:33:37,040 --> 00:33:40,520
Speaker 3: So you have dozens of EV companies there out in

630
00:33:40,600 --> 00:33:44,640
Speaker 3: the marketplace battling every week to build better technology and

631
00:33:44,640 --> 00:33:47,040
Speaker 3: to sell it to customers. So they've kind of created

632
00:33:47,080 --> 00:33:50,960
Speaker 3: this state capitalism, but state capitalism that is actually in

633
00:33:51,000 --> 00:33:53,920
Speaker 3: some of these sectors quite competitive in a way that

634
00:33:54,000 --> 00:33:56,880
Speaker 3: spurs innovation. And I think if we're going to do

635
00:33:56,960 --> 00:33:59,080
Speaker 3: more of that, we need to make sure we are

636
00:33:59,160 --> 00:34:02,120
Speaker 3: also focused on how do we keep this competitive just

637
00:34:02,160 --> 00:34:04,800
Speaker 3: spur innovation and don't just kind of, you know, back

638
00:34:04,840 --> 00:34:09,120
Speaker 3: a bunch of flabby nineteen seventies European style national champions,

639
00:34:09,120 --> 00:34:11,320
Speaker 3: which you know didn't turn out too well in the past.

640
00:34:11,640 --> 00:34:14,399
Speaker 2: Now's the time to start a lean and mean fab joke.

641
00:34:14,680 --> 00:34:18,359
Speaker 1: We've Oh, have I ever told you my you have

642
00:34:18,600 --> 00:34:22,279
Speaker 1: family semiconductor fab apostrophe, Although that wouldn't be with a fan,

643
00:34:22,480 --> 00:34:23,680
Speaker 1: but I do think that'd be a good name for

644
00:34:23,680 --> 00:34:27,919
Speaker 1: a chip's company, semi fabula anyway. Actually, we've never talked

645
00:34:27,920 --> 00:34:31,279
Speaker 1: about those nineteen seventies European champions too much on this show.

646
00:34:31,320 --> 00:34:32,919
Speaker 1: What's the story there? I don't know anything about them.

647
00:34:33,400 --> 00:34:35,640
Speaker 3: Well, I'm being a little bit buzzed. But you did

648
00:34:35,640 --> 00:34:37,279
Speaker 3: see and that you're you know, in Europe in the

649
00:34:37,320 --> 00:34:39,520
Speaker 3: nineteen seventies you saw a state ownership and a number

650
00:34:39,560 --> 00:34:44,239
Speaker 3: of industrial firms. You saw fairly heavily state management in

651
00:34:44,239 --> 00:34:45,919
Speaker 3: a way that I think a lot of economists looking

652
00:34:45,920 --> 00:34:48,920
Speaker 3: at that thought did not make for economic you know,

653
00:34:49,000 --> 00:34:53,880
Speaker 3: sort of the most dynamic, over time innovative industrial programs

654
00:34:53,880 --> 00:34:54,520
Speaker 3: in Europe.

655
00:34:54,760 --> 00:34:58,799
Speaker 2: Two quick questions. So, so far these deals seem to

656
00:34:58,800 --> 00:35:02,920
Speaker 2: be sort of ad hoc, individualized one offs, right, And

657
00:35:02,960 --> 00:35:06,680
Speaker 2: I'm curious if you have a sense that we're building

658
00:35:06,760 --> 00:35:10,200
Speaker 2: towards something that's much more broad, a much more sustained

659
00:35:10,239 --> 00:35:14,840
Speaker 2: model of I guess us interventionist involvement in the sphere

660
00:35:14,880 --> 00:35:19,120
Speaker 2: of strategically important companies. And then secondly, what happens to

661
00:35:19,160 --> 00:35:21,680
Speaker 2: these stakes if we get a new administration and the

662
00:35:21,719 --> 00:35:23,560
Speaker 2: Democrats come in or something like that.

663
00:35:24,280 --> 00:35:26,880
Speaker 3: Yeah, So I think when this administration came into when

664
00:35:26,880 --> 00:35:30,400
Speaker 3: the Trump administration came into office, I think they actually

665
00:35:30,920 --> 00:35:35,200
Speaker 3: fairly early had identified a handful of areas where they

666
00:35:35,239 --> 00:35:39,120
Speaker 3: thought equity was appropriate. I think critical minerals is one

667
00:35:39,160 --> 00:35:42,239
Speaker 3: of those. And I think that that is guided in

668
00:35:42,360 --> 00:35:45,279
Speaker 3: part by a view that we aren't going to have

669
00:35:45,440 --> 00:35:50,440
Speaker 3: a domestic competitive market in critical minerals without either subsidies

670
00:35:50,560 --> 00:35:52,759
Speaker 3: or without a tariff wall, because China just is the

671
00:35:52,800 --> 00:35:55,000
Speaker 3: low cost producer. So I think there was kind of

672
00:35:55,000 --> 00:35:56,640
Speaker 3: a strategic view if we're going to do a lot

673
00:35:56,680 --> 00:35:59,440
Speaker 3: of investing in critical minerals, we're going to do a

674
00:35:59,480 --> 00:36:03,080
Speaker 3: lot of protect or other kinds of subsidies for these guys.

675
00:36:03,320 --> 00:36:06,120
Speaker 3: But because we as the government are creating this market

676
00:36:06,360 --> 00:36:09,520
Speaker 3: and it's not really a free market, we as the

677
00:36:09,520 --> 00:36:11,920
Speaker 3: government should also take some equity and have some upsides.

678
00:36:11,920 --> 00:36:14,600
Speaker 3: So I think there was a strategic view in that sector.

679
00:36:15,200 --> 00:36:17,959
Speaker 3: I think what we are seeing now is the Trump

680
00:36:18,040 --> 00:36:24,440
Speaker 3: administration is drastically broadening out its views of what sectors

681
00:36:24,600 --> 00:36:26,919
Speaker 3: the government should get involved in. You know, we see

682
00:36:26,920 --> 00:36:29,520
Speaker 3: that with the Intel deal. I'd also note just last

683
00:36:29,560 --> 00:36:33,600
Speaker 3: week the Chips Office, Chip's office at the Commerce Department

684
00:36:33,640 --> 00:36:37,040
Speaker 3: put out a notice of a new grant program for

685
00:36:37,080 --> 00:36:39,799
Speaker 3: semiconductor R and D, so not to build fabs, but

686
00:36:39,880 --> 00:36:43,560
Speaker 3: to do R and D program for semiconductors. And that

687
00:36:43,680 --> 00:36:47,080
Speaker 3: notice says right in it that bidders for these grants

688
00:36:47,120 --> 00:36:49,960
Speaker 3: may be expected to offer the government warrants or equity

689
00:36:50,000 --> 00:36:52,640
Speaker 3: as a piece of it. So they are clearly looking

690
00:36:53,120 --> 00:36:56,000
Speaker 3: to build this out. We obviously also earlier this year

691
00:36:56,040 --> 00:36:59,680
Speaker 3: when Nippon Steele bought into US Steals, saw the non

692
00:36:59,680 --> 00:37:03,120
Speaker 3: ecnomic golden share that Knepon Steel got. I think we're

693
00:37:03,120 --> 00:37:05,960
Speaker 3: going to see more of that in the Scifius context.

694
00:37:06,000 --> 00:37:07,960
Speaker 3: So I think they had a vision early on of

695
00:37:08,000 --> 00:37:10,400
Speaker 3: a couple of discrete areas. I take it to the

696
00:37:10,440 --> 00:37:14,360
Speaker 3: President and Secretary Lutnik and others just really like this concept,

697
00:37:14,360 --> 00:37:16,239
Speaker 3: and they are now in the process of broadening it

698
00:37:16,280 --> 00:37:19,320
Speaker 3: out quite a bit across a number of other sectors.

699
00:37:19,840 --> 00:37:22,080
Speaker 3: And they are probably broadening it out ahead of any

700
00:37:22,120 --> 00:37:24,640
Speaker 3: strategic vision. So I'm a little worried we're going to

701
00:37:24,640 --> 00:37:27,040
Speaker 3: see more of this and then they'll have to try

702
00:37:27,040 --> 00:37:30,160
Speaker 3: to back end some strategic vision after they have a

703
00:37:30,239 --> 00:37:33,680
Speaker 3: number number of these deals in the in the ladder.

704
00:37:33,800 --> 00:37:37,200
Speaker 1: Well, let's say they expanded, or let's say, okay, maybe

705
00:37:37,200 --> 00:37:40,440
Speaker 1: we want to have multiple stakes in the same industry

706
00:37:40,520 --> 00:37:43,080
Speaker 1: such that there is some competition, et cetera. How much

707
00:37:43,120 --> 00:37:46,800
Speaker 1: firepower does the government have, how much capacity via the

708
00:37:46,880 --> 00:37:48,960
Speaker 1: Chips Act? Does it have to make deals like this?

709
00:37:49,400 --> 00:37:52,000
Speaker 1: Would it at some point need to get a fresh

710
00:37:52,280 --> 00:37:56,560
Speaker 1: allocation from Congress to spend more on this? How much

711
00:37:56,800 --> 00:37:57,160
Speaker 1: can it do?

712
00:37:57,719 --> 00:38:00,680
Speaker 3: Yeah? Well, because of their legal theory is kind of

713
00:38:01,320 --> 00:38:04,240
Speaker 3: no one says we can't do this. When we spend money,

714
00:38:04,239 --> 00:38:07,760
Speaker 3: We're going to do it. I think there are ways

715
00:38:07,800 --> 00:38:10,839
Speaker 3: in which they could argue what we could We could

716
00:38:10,840 --> 00:38:14,360
Speaker 3: try to demand equity alongside lots of government spending and

717
00:38:14,440 --> 00:38:18,479
Speaker 3: grants programs, and we've even seen Secretary Lutnik talk about, well,

718
00:38:18,480 --> 00:38:21,440
Speaker 3: maybe the defense contractors should give us equity. The problem

719
00:38:21,480 --> 00:38:24,640
Speaker 3: they're going to run into is at some point, you know,

720
00:38:24,719 --> 00:38:27,160
Speaker 3: the amount of cash they're putting on the table for

721
00:38:27,200 --> 00:38:29,799
Speaker 3: a particular deal, a company is going to decide, you

722
00:38:29,800 --> 00:38:32,080
Speaker 3: know what, that's not worth it to me. Right, if

723
00:38:32,080 --> 00:38:36,120
Speaker 3: you're offering some company, you know, a major multinational fifty

724
00:38:36,120 --> 00:38:39,040
Speaker 3: million dollars to in grant money to you know, do

725
00:38:39,120 --> 00:38:41,040
Speaker 3: something you want them to do, but you also want

726
00:38:41,120 --> 00:38:42,440
Speaker 3: three percent, they're just going to say no.

727
00:38:42,600 --> 00:38:44,520
Speaker 1: But like when we you know, when we talked about

728
00:38:44,560 --> 00:38:47,160
Speaker 1: the LPO back in the day, you know, there was

729
00:38:47,200 --> 00:38:50,560
Speaker 1: a fixed amount of money that had been allocated to

730
00:38:51,200 --> 00:38:54,640
Speaker 1: these various programs, and same with Chips et cetera. Like

731
00:38:54,719 --> 00:38:57,520
Speaker 1: how deep is that? Well, if the government wants to

732
00:38:57,560 --> 00:39:00,480
Speaker 1: do a lot more chips deals, not only nov it does,

733
00:39:00,480 --> 00:39:02,680
Speaker 1: maybe it just wants to pick a winner. Does it

734
00:39:02,760 --> 00:39:04,360
Speaker 1: have the sort of I guess they would say, in

735
00:39:04,360 --> 00:39:07,600
Speaker 1: the private sector context, dry powder to do more of

736
00:39:07,640 --> 00:39:08,240
Speaker 1: these deals.

737
00:39:08,600 --> 00:39:10,920
Speaker 3: So you'd have to I'd actually have to ladder that

738
00:39:11,040 --> 00:39:13,360
Speaker 3: up and think about what are the different pots of

739
00:39:13,480 --> 00:39:17,280
Speaker 3: money they could potentially use. Here, they clearly have another

740
00:39:17,960 --> 00:39:21,600
Speaker 3: probably on the order of ten billion dollars of unallocated

741
00:39:21,680 --> 00:39:25,600
Speaker 3: JIPS money. LPO mostly a lending facility, but they still

742
00:39:25,640 --> 00:39:29,920
Speaker 3: have lots of unallocated lending power out of LPO now

743
00:39:30,040 --> 00:39:33,480
Speaker 3: because that's a lending facility, not a grant facility. Kind

744
00:39:33,480 --> 00:39:35,680
Speaker 3: of whether a company wants to give equity as part

745
00:39:35,680 --> 00:39:37,640
Speaker 3: of the loan, that's a complicated commercial view.

746
00:39:37,640 --> 00:39:39,520
Speaker 1: But there is they say it's a convert, right they

747
00:39:39,520 --> 00:39:41,880
Speaker 1: could say they could say it's a convert and this

748
00:39:42,080 --> 00:39:45,239
Speaker 1: counts as lending. But right they because again under the theory, note,

749
00:39:45,280 --> 00:39:46,200
Speaker 1: who's going to stop them?

750
00:39:46,239 --> 00:39:47,960
Speaker 3: Right? I mean that is their theory.

751
00:39:48,440 --> 00:39:52,879
Speaker 2: Yeah, does the Intel have basically a shadow mandate? Now?

752
00:39:52,920 --> 00:39:56,520
Speaker 2: Because if I think about companies in the US, the

753
00:39:56,560 --> 00:40:00,440
Speaker 2: goal is to maximize shareholder value and that's been pretty

754
00:40:00,520 --> 00:40:03,600
Speaker 2: explicit over time, but now you're adding in, you know,

755
00:40:03,800 --> 00:40:08,760
Speaker 2: strategic ambitions and the public good aspect. To Joe's point,

756
00:40:09,080 --> 00:40:11,640
Speaker 2: is there a potential tension there? I?

757
00:40:12,040 --> 00:40:15,400
Speaker 3: You know, I think Intel has obviously tried to protect

758
00:40:15,400 --> 00:40:19,279
Speaker 3: itself from that tension by negotiating this provision where by

759
00:40:19,320 --> 00:40:22,000
Speaker 3: and large the government has agreed to vote it shares

760
00:40:22,120 --> 00:40:24,839
Speaker 3: at the board's direction. I think you can see they

761
00:40:24,880 --> 00:40:28,759
Speaker 3: were trying to minimize political influence. There is another part

762
00:40:28,800 --> 00:40:31,360
Speaker 3: of the Intel deal where where actually there's kind of

763
00:40:31,400 --> 00:40:35,919
Speaker 3: a poison pill if against Intel splitting a part its

764
00:40:36,600 --> 00:40:40,000
Speaker 3: fab manufacturing part and its chip design part. There's been

765
00:40:40,040 --> 00:40:42,880
Speaker 3: a long debate around Intel about whether it should split

766
00:40:42,920 --> 00:40:45,680
Speaker 3: itself up or not, and the government did negotiate kind

767
00:40:45,680 --> 00:40:48,560
Speaker 3: of a poison pill against a split, so that that

768
00:40:48,680 --> 00:40:52,360
Speaker 3: is incorporated fully in the documents. But beyond that, Intel

769
00:40:52,400 --> 00:40:55,400
Speaker 3: I think has tried to, you know, minimize government influence

770
00:40:55,400 --> 00:40:58,440
Speaker 3: in stay to day operations. That this is a government

771
00:40:58,680 --> 00:41:02,080
Speaker 3: that wants to get involved in day to day corporate operations. Right.

772
00:41:02,080 --> 00:41:06,839
Speaker 3: We see the President talking about individual executives at individual companies,

773
00:41:07,440 --> 00:41:10,040
Speaker 3: and a Commerce secretary is very clear he thinks companies

774
00:41:10,080 --> 00:41:11,840
Speaker 3: should be doing things in the public interest. And I

775
00:41:11,840 --> 00:41:14,960
Speaker 3: think the board is clearly probably going to feel some

776
00:41:15,000 --> 00:41:17,800
Speaker 3: pressure that not just the government, but also the government

777
00:41:17,840 --> 00:41:20,719
Speaker 3: and its largest shareholder, one of its largest shareholders, are

778
00:41:20,760 --> 00:41:23,879
Speaker 3: going to be prodding it to do things that might

779
00:41:23,960 --> 00:41:27,160
Speaker 3: be in what they see as the Commerce Department or

780
00:41:27,200 --> 00:41:30,520
Speaker 3: the country's interest, even if those aren't in shareholder interest.

781
00:41:30,560 --> 00:41:32,319
Speaker 3: I think we are going to see that tension over

782
00:41:32,360 --> 00:41:34,960
Speaker 3: the next couple of years, even if Intel has tried

783
00:41:34,960 --> 00:41:36,600
Speaker 3: to insulate itself from that all.

784
00:41:36,680 --> 00:41:39,920
Speaker 1: Right, Oh, Peter Harold, this was a fantastic overview. I

785
00:41:40,000 --> 00:41:43,560
Speaker 1: definitely have a much I feel like I understand these

786
00:41:43,560 --> 00:41:46,320
Speaker 1: deals much better than before. Really appreciate you coming on outlook.

787
00:41:46,440 --> 00:41:48,200
Speaker 3: That was great to be on. Thanks so much for having.

788
00:41:48,120 --> 00:42:03,000
Speaker 1: Me, you know, Tracy, I think the point that you

789
00:42:03,120 --> 00:42:05,560
Speaker 1: asked about how might do this change under, say, a

790
00:42:05,600 --> 00:42:08,560
Speaker 1: democratic administration, is to my mind one of the most

791
00:42:08,680 --> 00:42:12,359
Speaker 1: interesting questions because, like I said, the government already gets

792
00:42:12,400 --> 00:42:16,040
Speaker 1: a fifth of corporate profits. The government already can establish

793
00:42:16,160 --> 00:42:19,839
Speaker 1: rules and regulations via the regulatory process or the legislative

794
00:42:19,840 --> 00:42:23,600
Speaker 1: process about how companies work. What's new really to me

795
00:42:23,840 --> 00:42:26,960
Speaker 1: is the specificity this is about one company in particular,

796
00:42:27,320 --> 00:42:30,200
Speaker 1: and the ability to sort of circumvent Congress in the

797
00:42:30,239 --> 00:42:34,160
Speaker 1: management of individual companies, and that it's not easy to

798
00:42:34,239 --> 00:42:38,520
Speaker 1: change regulation or law with each administration. But if equity

799
00:42:38,600 --> 00:42:41,400
Speaker 1: stakes allow you to change how you interact with the

800
00:42:41,400 --> 00:42:44,800
Speaker 1: specific company, then you could really have very fast shifts

801
00:42:44,880 --> 00:42:46,640
Speaker 1: from one presidency to another.

802
00:42:46,800 --> 00:42:49,160
Speaker 2: Yeah, I mean, I think there's also an optics element

803
00:42:49,239 --> 00:42:51,640
Speaker 2: in here, where if the administration said we're going to

804
00:42:51,680 --> 00:42:54,880
Speaker 2: raise the corporate tax rate, that would be unpopular, But

805
00:42:54,920 --> 00:42:57,359
Speaker 2: if they say we're going to create shareholder value for

806
00:42:57,440 --> 00:43:02,280
Speaker 2: the US citizens fair exactly, it plays a little bit differently.

807
00:43:02,840 --> 00:43:05,880
Speaker 2: I do think, you know, my last question about the

808
00:43:05,960 --> 00:43:11,480
Speaker 2: tension between being a strategic asset for the US government

809
00:43:11,680 --> 00:43:15,200
Speaker 2: and the wider US population versus being a company that's

810
00:43:15,200 --> 00:43:18,680
Speaker 2: all about profits and maximizing shareholder value. I think that's

811
00:43:18,719 --> 00:43:21,160
Speaker 2: a really interesting one because again I think back to

812
00:43:21,400 --> 00:43:25,640
Speaker 2: China and China the compromise there seems to be that

813
00:43:25,680 --> 00:43:30,040
Speaker 2: you have a very state interventionist system. But on the

814
00:43:30,080 --> 00:43:34,160
Speaker 2: other hand, no one seems to expect companies to be

815
00:43:34,360 --> 00:43:37,480
Speaker 2: massively profitable. Right. We spoke it down long about this,

816
00:43:37,680 --> 00:43:40,760
Speaker 2: Like maybe the Chinese system is, you know, we build

817
00:43:40,800 --> 00:43:44,680
Speaker 2: lots of stuff, we innovate and don't make that much money,

818
00:43:45,280 --> 00:43:47,920
Speaker 2: and I just don't know like how that works in

819
00:43:47,960 --> 00:43:48,399
Speaker 2: the US.

820
00:43:48,600 --> 00:43:50,719
Speaker 1: No, it's a great question. I mean, think about it.

821
00:43:50,960 --> 00:43:55,200
Speaker 1: You know, from Intel's perspective, had it not been for

822
00:43:55,840 --> 00:43:59,080
Speaker 1: the Chips Act, or had it not been for all

823
00:43:59,120 --> 00:44:03,120
Speaker 1: of the concern learn about national security and US production,

824
00:44:03,560 --> 00:44:06,200
Speaker 1: at some point, the company might have decided, you know what,

825
00:44:06,239 --> 00:44:09,200
Speaker 1: we're going to be fabulous too, Like Nvidia is, whose

826
00:44:09,280 --> 00:44:12,000
Speaker 1: market cap is you know whatever, forty times as much,

827
00:44:12,360 --> 00:44:15,160
Speaker 1: And it could have been very much the case that

828
00:44:15,560 --> 00:44:18,719
Speaker 1: Intel today would be worth more as a company. Speak

829
00:44:18,760 --> 00:44:21,440
Speaker 1: of strategic missteps, could be worth more as a company

830
00:44:21,480 --> 00:44:23,279
Speaker 1: if it had never got into the fab game at all.

831
00:44:23,400 --> 00:44:24,960
Speaker 1: That if they just decided, you know what, we're going

832
00:44:25,040 --> 00:44:27,040
Speaker 1: to have all of our chips be made overseaed by

833
00:44:27,080 --> 00:44:30,120
Speaker 1: TSMC and others. So there is this thing that maybe

834
00:44:30,120 --> 00:44:33,400
Speaker 1: the company is worth less today because they've had this concern,

835
00:44:33,640 --> 00:44:36,560
Speaker 1: they've had this national security obligation that they've played along with.

836
00:44:36,840 --> 00:44:39,319
Speaker 2: We should leave it there. I'm starting to get PTSD

837
00:44:39,440 --> 00:44:42,719
Speaker 2: flashbacks to my dad complaining about paying his taxes in

838
00:44:42,840 --> 00:44:45,800
Speaker 2: order to bail out his competitor airlines.

839
00:44:45,840 --> 00:44:46,520
Speaker 3: Oh, that's funny.

840
00:44:46,560 --> 00:44:49,480
Speaker 2: You always used to complain about that. He worked at Southwest,

841
00:44:49,480 --> 00:44:51,760
Speaker 2: which is one of the few airlines that never actually

842
00:44:51,920 --> 00:44:52,560
Speaker 2: went bankrupt.

843
00:44:52,719 --> 00:44:55,640
Speaker 1: All right, I do wonder like when Peter talked about

844
00:44:55,680 --> 00:45:00,719
Speaker 1: standing to sue competitors plausibly, right, couldn't like a Samsung

845
00:45:00,840 --> 00:45:03,600
Speaker 1: US or an AMD or whatever. I don't know.

846
00:45:03,719 --> 00:45:07,799
Speaker 2: I think an ambitious lawyer would probably be interested in

847
00:45:07,840 --> 00:45:08,280
Speaker 2: that case.

848
00:45:08,320 --> 00:45:11,839
Speaker 1: But I think probably an ambitious CEO does not want

849
00:45:11,880 --> 00:45:15,839
Speaker 1: to get on the badity they clashing out. I want

850
00:45:15,880 --> 00:45:18,040
Speaker 1: to take a feed of the trough two one day,

851
00:45:18,080 --> 00:45:20,640
Speaker 1: and so maybe they let this one slide.

852
00:45:20,800 --> 00:45:21,719
Speaker 2: All right, shall we leave it there.

853
00:45:21,800 --> 00:45:22,480
Speaker 1: Let's leave it there.

854
00:45:22,680 --> 00:45:24,880
Speaker 2: This has been another episode of the Odd Lots podcast.

855
00:45:24,960 --> 00:45:27,680
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.

856
00:45:27,719 --> 00:45:30,360
Speaker 1: And I'm Joe Wisenthal. You can follow me at the Stalwart.

857
00:45:30,560 --> 00:45:33,720
Speaker 1: Follow our guesst Peter Harold. He's at Peter Harrel. Follow

858
00:45:33,760 --> 00:45:37,080
Speaker 1: our producers Carmen Rodriguez at Carman armand Dashill Bennett a

859
00:45:37,200 --> 00:45:40,640
Speaker 1: Dashbod and Keil Brooks and Kilbrooks. From our odd Laws content,

860
00:45:40,719 --> 00:45:42,880
Speaker 1: go to Bloomberg dot com slash odd Lots with the

861
00:45:43,000 --> 00:45:45,759
Speaker 1: daily newsletter and all of our episodes, and you can

862
00:45:45,840 --> 00:45:47,839
Speaker 1: chat about all of these topics twenty four to seven

863
00:45:47,960 --> 00:45:51,520
Speaker 1: in our discord Discord dot gg slash on lots.

864
00:45:51,640 --> 00:45:53,839
Speaker 2: And if you enjoy Oddlots, if you like it when

865
00:45:53,840 --> 00:45:56,799
Speaker 2: we dig into deals made by the US government, then

866
00:45:56,840 --> 00:46:00,279
Speaker 2: please leave us a positive review on your favorite podcast platform.

867
00:46:00,480 --> 00:46:03,279
Speaker 2: And remember, if you are a Bloomberg subscriber, you can

868
00:46:03,320 --> 00:46:06,600
Speaker 2: listen to all of our episodes absolutely ad free. All

869
00:46:06,640 --> 00:46:09,000
Speaker 2: you need to do is find the Bloomberg channel on

870
00:46:09,080 --> 00:46:12,840
Speaker 2: Apple Podcasts and follow the instructions there. Thanks for listening