WEBVTT - Markets Absorb Earnings and Oil Shock 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.840 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.000 or watch us live on YouTube. 0:00:27.040 --> 0:00:29.720 Amanda Line, I'm chief credit strategist for Golden Sacks joint 0:00:29.760 --> 0:00:31.479 us here in studio Manni, thanks so much for joining 0:00:31.560 --> 0:00:34.760 us here. What's your how's your market? How's the credit 0:00:34.800 --> 0:00:38.120 market behaving over the last you know, six seven, eight weeks? 0:00:38.520 --> 0:00:41.440 I would say, if I had to frame the credit market, 0:00:41.479 --> 0:00:44.720 it's it's generally resilient, but I think with an expectation 0:00:44.800 --> 0:00:48.839 of some volatility through midyear. But even so, we're not 0:00:48.960 --> 0:00:52.879 expecting spreads to really underperform in any material way. We 0:00:52.960 --> 0:00:55.680 have a forecast for wider spreads, but it's basically putting 0:00:55.720 --> 0:00:57.760 the market around the three or averages. I think, to 0:00:57.840 --> 0:01:01.320 your point, Paul, what's most interesting in this market is 0:01:01.400 --> 0:01:03.360 kind of this paradigm shift that we're seeing in terms 0:01:03.400 --> 0:01:06.679 of various pockets of the credit market, so pockets in 0:01:06.720 --> 0:01:10.200 liquid credit, pockets in private credit, even in infrastructure funding 0:01:10.240 --> 0:01:12.400 this AI build out. It's just driven by the size 0:01:12.400 --> 0:01:15.280 and the magnitude of the opportunity. But by our estimates, 0:01:15.319 --> 0:01:19.080 there's already been four hundred billion of AI related supply 0:01:19.240 --> 0:01:21.800 since the middle of twenty twenty five, most of that 0:01:21.840 --> 0:01:25.039 in investment grade. But the needs are here are so 0:01:25.240 --> 0:01:29.280 large that we expect US markets to participate euro Swiss, 0:01:29.319 --> 0:01:31.840 Sterling private markets. And then even in what we wrote 0:01:31.840 --> 0:01:33.800 about last night is in the investment grade market, the 0:01:33.800 --> 0:01:36.360 traditional investment grade market, we're seeing more of these kind 0:01:36.400 --> 0:01:39.720 of complex JV structures that are being used to finance 0:01:39.800 --> 0:01:40.800 data centers. 0:01:41.280 --> 0:01:45.320 Amanda want to talk private credit and whether or not 0:01:45.560 --> 0:01:47.920 what we're seeing in the private credit market right now 0:01:48.040 --> 0:01:52.160 is really is systemic risk. I mean, is this market 0:01:52.400 --> 0:01:56.640 underestimating a credit market downturn that could possibly be worse 0:01:56.680 --> 0:01:57.240 than expected. 0:01:57.360 --> 0:01:59.480 We don't believe it is. That doesn't mean that there 0:01:59.520 --> 0:02:04.160 can't besion, however, across managers and vintages and funds. The 0:02:04.200 --> 0:02:06.200 reason that we don't view it as a systemic risk 0:02:06.240 --> 0:02:08.880 it's a couple of fold But most importantly, there's not 0:02:09.080 --> 0:02:12.360 an asset liability mismatch like we saw in the financial 0:02:12.400 --> 0:02:15.119 crisis in certain pockets of the financial system that would 0:02:15.120 --> 0:02:18.480 allow for the kind of run on the bank. Moreover, actually, 0:02:18.520 --> 0:02:21.040 there's not a lot of leverage in these vehicles, and 0:02:21.120 --> 0:02:22.920 if there's a lot of noise right now on kind 0:02:22.960 --> 0:02:25.400 of BDC redemption activity. But if you use a very 0:02:25.480 --> 0:02:28.560 conservative estimate about the size of the private credit market, 0:02:28.800 --> 0:02:31.799 retail is around fifteen percent, and so there's a lot 0:02:31.840 --> 0:02:35.440 of concern from investors that because retail investors are requesting 0:02:35.480 --> 0:02:38.880 more redemptions than normal, that that behavior will feed over 0:02:38.960 --> 0:02:41.840 to the institutional community. But actually, I think one of 0:02:41.880 --> 0:02:44.600 the important points to raise is that in institutional funds 0:02:44.880 --> 0:02:47.040 there was never the option in the first place to 0:02:47.120 --> 0:02:50.919 withdraw and la redemptions, and so that capital is very 0:02:51.000 --> 0:02:53.799 much in draw down kind of locked up facilities, And 0:02:53.840 --> 0:02:58.200 if anything, our conversations with institutional investors would use a 0:02:58.240 --> 0:03:00.840 disruption in the credit markets as an oppertunity to deploy 0:03:00.880 --> 0:03:01.880 the significant dry. 0:03:01.680 --> 0:03:02.519 Powder that they have. 0:03:02.880 --> 0:03:05.120 I would say the other point that's raised a lot 0:03:05.120 --> 0:03:07.800 of software, I think it's far too early to write 0:03:07.840 --> 0:03:09.720 off the entire sector. You know, we're very close in 0:03:09.760 --> 0:03:12.000 coordination with our equity analysts on kind of their views 0:03:12.040 --> 0:03:14.320 on this sector. But at a very high level, if 0:03:14.360 --> 0:03:17.120 there's a disruption in software for private credit. There's also 0:03:17.160 --> 0:03:19.120 going to be a disruption in software in the syndicated 0:03:19.200 --> 0:03:22.520 leverage loan market, and there again, private credit is probably 0:03:22.560 --> 0:03:25.240 in a position to deploy capital into that dislocation, like 0:03:25.240 --> 0:03:27.320 we've seen in other periods of time, like twenty twenty two. 0:03:27.720 --> 0:03:30.680 I'm a risk taker. I'm ready to take some high 0:03:30.720 --> 0:03:36.080 yield risk clos leverage loans. How's that part of the market. 0:03:36.360 --> 0:03:39.240 That part of the market is actually holding in well, 0:03:39.320 --> 0:03:42.120 although I would say probably since the last time I 0:03:42.200 --> 0:03:45.000 saw you a little more cautious on kind of the 0:03:45.120 --> 0:03:48.440 lower end of that quality spectrum, so we're fine reaching 0:03:48.520 --> 0:03:51.280 into the high end of high yield. We would prefer 0:03:51.360 --> 0:03:54.200 high yield over leverage loans. You were talking about kind 0:03:54.200 --> 0:03:56.520 of the path for FED policy, you know, is a 0:03:56.600 --> 0:03:58.360 it is a somewhat of a tailwind if the FED 0:03:58.440 --> 0:04:01.160 stays on hold. That's better for the yield backdrop of 0:04:01.240 --> 0:04:04.040 leverage loans. But I think you have this overhang of 0:04:04.120 --> 0:04:06.920 software that will be hard to disprove in the near term, 0:04:06.960 --> 0:04:09.120 and so we prefer highyield bonds over loans. I would 0:04:09.120 --> 0:04:11.080 say for investors that are looking to kind of take 0:04:11.160 --> 0:04:13.840 more complexity or earn more yield. We actually like parts 0:04:13.840 --> 0:04:17.280 of mezzanine colos a bit of a niche topic. So 0:04:17.360 --> 0:04:19.600 what is so those are so basically, if you're looking 0:04:19.640 --> 0:04:21.720 for floating rate risk, if two options, you could kind 0:04:21.720 --> 0:04:24.360 of own the leverage loans outright, you could own it as. 0:04:24.240 --> 0:04:25.000 Part of a structure. 0:04:25.120 --> 0:04:28.560 The COLO structure introduces kind of some protection, some structure 0:04:28.600 --> 0:04:30.680 in the in subordination, and so that's something that for 0:04:30.760 --> 0:04:32.919 the investors that play in structured products, we like that. 0:04:33.080 --> 0:04:35.320 But to answer your question, Paul, we're not shying away 0:04:35.320 --> 0:04:37.240 from taking credit risk in this environment. We're seeing a 0:04:37.240 --> 0:04:38.360 little bit more thoughtful. 0:04:39.040 --> 0:04:42.159 Where are you seeing the most appetite right now for 0:04:42.200 --> 0:04:42.799 fixed income? 0:04:43.279 --> 0:04:47.320 By far, Alexis the yield based investor has kind of 0:04:47.400 --> 0:04:50.280 been a very strong anchor for spreads, and so this 0:04:50.400 --> 0:04:54.080 kind of quiet rise in treasury yields has allowed investors 0:04:54.160 --> 0:04:56.880 kind of deploy capital into the corporate credit market even 0:04:56.880 --> 0:05:00.200 those spreads are still on paper. A bit snug that 0:05:00.240 --> 0:05:02.239 could change is if the bond market starts to behave 0:05:02.279 --> 0:05:05.159 in a disorderly way. We've seen that around for example, 0:05:05.240 --> 0:05:08.880 the yen carry trade, the budget negotiations, debt ceilings, So 0:05:08.960 --> 0:05:10.640 that's something to watch but so long as this is 0:05:10.720 --> 0:05:14.599 kind of a gradual rise in yields for okay reasons 0:05:14.640 --> 0:05:18.120 meaning you know, sticky but not terrible inflation or maybe 0:05:18.160 --> 0:05:21.919 improving growth, that's actually a great backdrop for allocators in credit. 0:05:21.960 --> 0:05:24.680 And that's by far been the strongest support. I would 0:05:24.680 --> 0:05:26.560 say foreign demand is also it was a record in 0:05:26.600 --> 0:05:28.960 twenty twenty five. There was a lot of concern about 0:05:29.000 --> 0:05:31.800 waning appetite for US credit from foreign investors. We did 0:05:31.839 --> 0:05:32.600 not see that at all. 0:05:33.000 --> 0:05:34.960 Man, Thank you so much for joining us as always 0:05:34.960 --> 0:05:37.440 a man to line them. She's a chief credit strategist 0:05:37.480 --> 0:05:40.320 at Goldman Sachs. Stay with us or from Bloomberg Surveillance. 0:05:40.360 --> 0:05:41.640 Coming up after this. 0:05:47.480 --> 0:05:51.080 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:05:51.120 --> 0:05:54.279 weekday afternoons from seven to ten am Eastern Listen on 0:05:54.360 --> 0:05:58.080 Applecarplay and Android Otto with the Bloomberg Business app, or 0:05:58.200 --> 0:05:59.680 watch us live on YouTube. 0:06:00.200 --> 0:06:03.400 Going on in terms of economic data, this week, we 0:06:03.440 --> 0:06:05.720 also had a big FED meeting. We're going to get 0:06:05.720 --> 0:06:07.839 a new chair of the FED that seems to be 0:06:07.920 --> 0:06:10.680 moving along after a long delay. Sprink it all down 0:06:10.680 --> 0:06:13.480 with our next guest, Ken Kim, senior economists at k 0:06:13.880 --> 0:06:17.839 p mg Ken, what did you make of the FED 0:06:17.960 --> 0:06:22.920 and announcement this week, the press conference from J pal 0:06:23.440 --> 0:06:25.159 and what looks to be like a changing of the 0:06:25.160 --> 0:06:27.360 guard here? How do you think about the FED these days? 0:06:27.680 --> 0:06:31.400 So, yeah, the biggest news was, you know, the four descents, 0:06:32.080 --> 0:06:35.080 although one of the descents was to be expected with 0:06:35.200 --> 0:06:38.599 Stephen Moran advocating for a twenty five. 0:06:38.480 --> 0:06:39.440 Base point cut. 0:06:40.000 --> 0:06:43.000 But the three other descents from the Reserve Bank presidents, 0:06:43.920 --> 0:06:48.039 you know, they indicate unease with the perhaps the inflation 0:06:48.120 --> 0:06:52.599 outlook because of the Middle East situation. Oil prices sharply higher, 0:06:53.040 --> 0:06:55.600 home meeting oil, diesel, jet fuel, you name it, all 0:06:55.640 --> 0:07:02.599 the above. So that's an indication that going forward, you know, 0:07:02.640 --> 0:07:07.160 the FEDS we think more concerned about inflation rather than 0:07:07.160 --> 0:07:10.320 a labor market for the time being. We didn't get 0:07:10.320 --> 0:07:12.760 one d and seventy eight thousand new jobs created in March, 0:07:13.720 --> 0:07:17.880 which gives the FEDS some latitude in our opinion to 0:07:18.080 --> 0:07:22.480 lean against inflation for the time being. And the other 0:07:22.600 --> 0:07:28.280 notable thing about the press conference was J Powell the 0:07:28.360 --> 0:07:33.040 current FET chair, but only for another few weeks, indicating 0:07:33.160 --> 0:07:35.640 that he's going to remain on the board as a 0:07:35.800 --> 0:07:39.960 governor so we didn't know that until the press contract. 0:07:40.000 --> 0:07:42.400 We haven't seen that happen in decades, in decades, and 0:07:42.480 --> 0:07:44.840 the last time it happens like nineteen forty eight, all right, 0:07:44.880 --> 0:07:47.000 I was talking about it back into the archives for 0:07:47.080 --> 0:07:49.960 that one. GDP numbers we got a first look this week. 0:07:50.440 --> 0:07:54.720 Two percent growth. Pretty impressive there for the first quarter, 0:07:54.800 --> 0:07:57.760 but the war had just sort of begun, right, What 0:07:58.120 --> 0:07:59.480 do you think the impact is going to be here 0:07:59.520 --> 0:08:03.560 if there's war continues, When does GDP really get dented 0:08:03.640 --> 0:08:04.120 because of it? 0:08:04.880 --> 0:08:08.280 Yeah, I mean the GDP figures were pretty solid as 0:08:08.360 --> 0:08:12.520 you indicate, we could see it impacted, you know, for 0:08:12.640 --> 0:08:16.360 second quarter. Pretty much going on right from here on out. 0:08:17.520 --> 0:08:21.960 Consumers as well as businesses are dealing with higher energy prices, 0:08:22.560 --> 0:08:24.480 and you know, they're paying it out of their wallet 0:08:24.600 --> 0:08:28.240 or pocketbooks, and that means less spending for other, you know, 0:08:28.440 --> 0:08:34.400 discretionary items. You're right, there was momentum at the end 0:08:34.400 --> 0:08:36.679 of the first quarter, and some of that, you know, 0:08:36.840 --> 0:08:40.720 the tax refunds did provide the impetus for the consumer 0:08:40.800 --> 0:08:44.160 to spend it on new vehicles and martch Retail sales 0:08:44.280 --> 0:08:49.000 was pretty solid as well. But you know, it's been 0:08:49.040 --> 0:08:51.480 a long time. Get consumers have been having to deal 0:08:51.559 --> 0:08:55.360 with cumulative inflation, so this is just you know, another 0:08:55.840 --> 0:08:56.439 shock to that. 0:08:57.200 --> 0:08:59.840 Is there a recession call in your outlook at all 0:09:00.120 --> 0:09:00.719 or is it not. 0:09:01.720 --> 0:09:06.360 It's some low probability calls. So we do have different scenarios. 0:09:07.440 --> 0:09:12.679 We think recession probably is thirty percent, but that is 0:09:12.800 --> 0:09:16.280 elevated because on any other you know, given day in 0:09:16.360 --> 0:09:20.360 the normal economy, recessions are usually in the low teens, 0:09:20.440 --> 0:09:24.400 you know, eleven, twelve, fourteen percent, So we think they 0:09:24.480 --> 0:09:27.120 have picked up, but still, you know, you have to 0:09:27.720 --> 0:09:30.440 have we frame it is seventy percent that that doesn't occur. 0:09:30.600 --> 0:09:32.679 Yeah, there's been a lot of talk about disconnecting this 0:09:32.840 --> 0:09:36.079 market between what's going on in stocks, and yet we've 0:09:36.120 --> 0:09:38.679 got the backdrop of a lot of uncertainty, changing of 0:09:38.720 --> 0:09:40.760 the guard of the FED, the war with the run. 0:09:40.880 --> 0:09:43.679 But historically markets have done well during wartime. 0:09:43.760 --> 0:09:47.920 No, yeah, I mean, certainly the markets are showing resiliency 0:09:48.280 --> 0:09:51.760 just like the overall US economy and the consumer. So 0:09:52.240 --> 0:09:57.280 that's ongoing despite the pickup and uncertainty with the breakout 0:09:57.320 --> 0:09:58.800 of the Iran US war. 0:09:59.520 --> 0:10:02.680 So not surprised, but what you're seeing in the equity 0:10:02.720 --> 0:10:03.360 markets right now. 0:10:03.960 --> 0:10:06.760 Well, certainly AI is you know on the back of 0:10:07.000 --> 0:10:10.720 the recent rally, so there is you know, more investment 0:10:10.800 --> 0:10:14.960 going into AI initiatives. And in the first quarter GDP report, 0:10:16.440 --> 0:10:20.920 non residential business investment that was up quite strong, up 0:10:21.160 --> 0:10:26.040 ten point four percent, and equipment spending capital spending was 0:10:26.120 --> 0:10:30.040 up seventeen point two percent on the annualized basis, the 0:10:30.160 --> 0:10:34.280 largest in like three years. So there certainly is you 0:10:34.320 --> 0:10:36.400 know a lot of tail wind for AI which is 0:10:36.480 --> 0:10:40.280 helping equity markets withstand what's happening in the energy markets. 0:10:41.280 --> 0:10:45.840 Are you surprised that the US consumer continues to spend money? 0:10:46.200 --> 0:10:49.520 I mean, inflation has been there, it's ramped up because 0:10:49.520 --> 0:10:52.760 of the war in terms of gasoline and some other costs. 0:10:52.800 --> 0:10:54.559 Are you surprised that the consumer is still hanging in 0:10:54.640 --> 0:10:56.120 there or are you one of those people that says, hey, 0:10:56.240 --> 0:10:58.520 never underestimate the strength of the US consumer. 0:10:59.360 --> 0:11:02.120 No, we have been surprised. You know, last year, we 0:11:02.200 --> 0:11:06.959 certainly thought the tariffs would impact consumer spending with you know, 0:11:07.120 --> 0:11:11.800 rising inflation. We did get rising inflation, but again, the consumer, 0:11:12.120 --> 0:11:15.160 you know, remains resilient and we're still seeing the same 0:11:15.280 --> 0:11:18.560 behavior in twenty in the early part of twenty twenty six, 0:11:19.160 --> 0:11:21.439 and you know a lot of that has to do 0:11:21.600 --> 0:11:25.319 with you know, fomo fear of missing out. You know, 0:11:25.480 --> 0:11:29.559 they want to continue to spend it on experiences. We 0:11:29.720 --> 0:11:33.880 have seen some weakness in good spending, but spending on 0:11:34.040 --> 0:11:37.080 going out, whether it's the concerts. Say now we're talking 0:11:37.080 --> 0:11:41.679 about right, that's right, right, that's happening in France. But 0:11:41.880 --> 0:11:43.640 you know, certainly that's an impact too. 0:11:44.280 --> 0:11:48.520 Can when do gas prices really become a problem for 0:11:48.600 --> 0:11:50.719 the consumer, because you've got six dollars a gallon gas 0:11:50.840 --> 0:11:55.920 in California, we've got it averaging about four forty here nationwide. 0:11:56.760 --> 0:11:58.679 At what level does it really become an issue? 0:12:00.200 --> 0:12:03.319 Well, we think it's already a problem. But again, you 0:12:03.400 --> 0:12:06.319 know there's always offsets. So the offset is the labor 0:12:06.400 --> 0:12:10.440 market still remains pretty good for the most part, even 0:12:10.480 --> 0:12:14.559 though Fetcher Pow did characterize it as weak. You know, 0:12:14.640 --> 0:12:18.920 you have that low hiring, low firing kind of phenomena 0:12:19.000 --> 0:12:23.040 going on, but the most part, in the first three months, 0:12:23.720 --> 0:12:27.640 the US did create on average close to seventy thousand jobs, 0:12:28.720 --> 0:12:31.720 so you know that is helping to support consumer spending. 0:12:32.520 --> 0:12:35.400 Wages are growing at three and a half percent, still 0:12:36.120 --> 0:12:40.720 slightly above inflation, so you still have a positive spread 0:12:40.800 --> 0:12:45.800 there or carry purchasing power, so those factors are helping 0:12:45.880 --> 0:12:46.640 for the time being. 0:12:47.440 --> 0:12:50.559 George Ken thank you so much. Ken Kim, senior economist 0:12:50.640 --> 0:12:53.480 at KPMG. During us here, stay with us. More from 0:12:53.480 --> 0:12:55.559 Bloomberg Surveillance coming up after this. 0:13:01.600 --> 0:13:05.120 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:13:05.240 --> 0:13:08.200 weekday afternoons from seven to ten am E's durn Listen 0:13:08.320 --> 0:13:11.800 on Applecarplay and Android Auto with the Bloomberg Business app, 0:13:12.040 --> 0:13:13.760 or watch US live on YouTube. 0:13:13.960 --> 0:13:18.000 Our next guest, Barbara Hampton, CEO of us A Rare Earth. Barbara, 0:13:18.000 --> 0:13:20.280 thank you so much for joining us here. What is 0:13:20.480 --> 0:13:24.520 USA rare earth and what do you guys? What are 0:13:24.520 --> 0:13:25.319 you guys focusing on? 0:13:26.240 --> 0:13:26.560 USA? 0:13:26.760 --> 0:13:29.800 Rare Earth is the global leader in rare earths. 0:13:30.040 --> 0:13:30.280 Nice. 0:13:30.800 --> 0:13:34.360 We have been building a mind to magnet value chain, 0:13:35.400 --> 0:13:38.079 and that value chain people ask me, wait, it's not 0:13:38.160 --> 0:13:41.720 a supply chain. You're not trying to get the all 0:13:41.840 --> 0:13:44.360 the expense out of a supply chain that goes from 0:13:44.360 --> 0:13:46.360 the ground all the way to the production of magnets. No, 0:13:47.080 --> 0:13:50.599 what we have to do is break China's stranglehold on 0:13:50.800 --> 0:13:55.199 this industry for decades. China set it as a strategy 0:13:55.600 --> 0:13:59.040 to own this space, and this space is critical to 0:13:59.160 --> 0:14:03.560 every sector of the economy. Permanent magnets and rare earths 0:14:03.679 --> 0:14:07.120 are in everything from semiconductors to jet fighters to frankly, 0:14:07.200 --> 0:14:11.960 our communication devices, and so the fact that at moments 0:14:12.080 --> 0:14:15.960 notice China could cut that off puts US at extreme risk. 0:14:16.440 --> 0:14:18.880 And what we're doing at USA rare earth is strengthening 0:14:19.160 --> 0:14:24.080 mining processing, metal making, and magnet making so that we 0:14:24.200 --> 0:14:26.960 can break that stranglehold and supply the world. 0:14:27.360 --> 0:14:30.480 Does this country sort of in house if you will 0:14:30.840 --> 0:14:34.240 have enough to do that in the country itself, we 0:14:34.400 --> 0:14:38.240 have access to the minerals that are needed. Yes, you've 0:14:38.320 --> 0:14:42.200 seen MP come to market with light rare earths. You 0:14:42.360 --> 0:14:45.120 may have seen US announce our intent to build a 0:14:45.200 --> 0:14:46.840 mine and round top mountain in. 0:14:46.920 --> 0:14:50.720 Texas that is rich in heavy rare earths. Between those two, 0:14:50.920 --> 0:14:55.240 the US has domestic supplies that would fuel this marketplace. 0:14:55.560 --> 0:14:58.240 But the fact is we can and should work with 0:14:58.440 --> 0:15:01.560 allies to make sure or that we make use of 0:15:01.640 --> 0:15:05.520 other deposits around the world build a resilient and a 0:15:05.600 --> 0:15:09.640 supply chain for actual magnet production that takes advantage of 0:15:10.360 --> 0:15:12.360 a value chain with optionality. 0:15:12.680 --> 0:15:14.800 Who are some of those partners? 0:15:15.240 --> 0:15:18.160 Some of those partners are fantastic places like Brazil. 0:15:18.280 --> 0:15:18.880 You may have seen. 0:15:18.920 --> 0:15:22.800 We've just announced our intent to acquire Sarah Verde. Sarah 0:15:22.880 --> 0:15:27.200 Verde is a company that has opened the Pella Ma 0:15:27.360 --> 0:15:32.080 mine in Brazil, producing all four magnetic rare earths, light 0:15:32.240 --> 0:15:35.080 rare earths as well as heavy rare earths and the 0:15:35.280 --> 0:15:39.600 mind there has a fifteen year, one hundred percent off 0:15:39.680 --> 0:15:45.160 take agreement with a special purpose vehicle funded by multiple 0:15:45.280 --> 0:15:49.239 government agencies, US government agencies as well as private investors. 0:15:49.680 --> 0:15:53.080 So here we have a producing mine in Brazil that 0:15:53.440 --> 0:15:59.880 can bring those essential elements into our economic and defense interests. 0:16:00.920 --> 0:16:04.360 So what is the goal for the US do you 0:16:04.400 --> 0:16:06.200 think in terms of rare Earth? Is it to become 0:16:06.880 --> 0:16:09.840 Is it a realistic goal to become completely independent of 0:16:10.440 --> 0:16:15.240 China and maybe some other nefarious actors or non allies. 0:16:15.280 --> 0:16:17.640 I guess I should frame it is that even possible? 0:16:17.760 --> 0:16:21.359 It is possible, Okay, it is possible, in fact necessary. 0:16:21.920 --> 0:16:25.480 The founders of USA Rare Earth actually recognized well before 0:16:25.600 --> 0:16:30.520 China's disruptions that with the growth of technology physical AI, 0:16:31.280 --> 0:16:34.640 China may very well consume all of their resources and 0:16:34.840 --> 0:16:37.640 might not be able to supply those to the rest 0:16:37.680 --> 0:16:40.720 of the world. Therefore, the folks who invested in the 0:16:40.800 --> 0:16:44.360 pelam Min and Brazil over well over a decade, as 0:16:44.440 --> 0:16:47.080 well as the board of USA Rare Earth, said this 0:16:47.440 --> 0:16:51.680 is a great investment opportunity. So we do have the 0:16:51.720 --> 0:16:55.240 capacity outside, but more importantly, we need to do this. 0:16:55.440 --> 0:16:58.280 You'll see this as well as other segments of our 0:16:58.360 --> 0:17:02.560 economy where we've allowed out China to take a leadership role, 0:17:03.000 --> 0:17:04.480 and frankly, it's dangerous. 0:17:05.480 --> 0:17:09.439 Talking to Barbara Hampton, CEO at USA Rare Earth, got 0:17:09.480 --> 0:17:11.840 to talk about the role of the federal government here, 0:17:11.920 --> 0:17:14.840 the US government taking a ten percent stake in the company. 0:17:15.400 --> 0:17:18.359 How does that change things, if at all, in your 0:17:18.440 --> 0:17:22.480 mission or how you're getting to attain your mission. 0:17:22.920 --> 0:17:25.360 Well, and actually I should clarify, but when the deal 0:17:25.560 --> 0:17:29.680 is completed signed, it'll be less than a ten percent stake, okay. 0:17:30.080 --> 0:17:32.240 And by the way, this is with the Department of Commerce. 0:17:32.320 --> 0:17:35.399 The USA Rare Earth worked with the Chips Program Office 0:17:35.840 --> 0:17:40.400 Secretary Lutenek had recognized this absolute imperative that we've got 0:17:40.560 --> 0:17:46.000 to solve this the geopolitical issue, and discovered that yes, 0:17:46.160 --> 0:17:50.080 USA Rare Earth has these very strategic assets. So the 0:17:50.160 --> 0:17:55.040 team did incredible due diligence, understood the business plan, believe 0:17:55.119 --> 0:17:58.080 in the thesis, and said this is investable from the 0:17:58.240 --> 0:18:02.480 Chips Program Office. Now, the stake the government will take 0:18:02.720 --> 0:18:07.359 is not a governance stake. It's a solely and economic 0:18:07.480 --> 0:18:10.840 interest in the company. What this means is that as 0:18:10.920 --> 0:18:14.920 we build this domestic capacity and take advantage of the 0:18:15.040 --> 0:18:19.800 domestic resource of Roundtop, the US taxpayer will benefit from 0:18:19.840 --> 0:18:22.000 that government investment. I think it's a win win. 0:18:22.920 --> 0:18:27.680 I'm looking at your publicet traded company, yes, and tickers 0:18:27.800 --> 0:18:30.560 USAAR has a market cap. You guys have a market 0:18:30.600 --> 0:18:33.359 a five point six percent. Stock is up one hundred 0:18:33.359 --> 0:18:35.520 and eighty filly percent. I'm sorry, five point six percent. 0:18:35.640 --> 0:18:38.440 Thank you very much, thank you. We've been throwing around 0:18:38.520 --> 0:18:40.560 terms with all this AI spending that are just crazy. 0:18:40.680 --> 0:18:43.240 I know, we tind to stock's up one hundred and 0:18:43.240 --> 0:18:45.120 eighteen percent this year. It's up one hundred and seventy 0:18:45.119 --> 0:18:47.520 percent over the trailing of twelve months. What's kind of 0:18:47.560 --> 0:18:51.880 the what's the investment story you tell your shareholders these days? 0:18:52.200 --> 0:18:55.399 What we want shareholders to pay attention to is the 0:18:55.520 --> 0:18:59.640 growing value chain. What we're building as a platform where 0:18:59.840 --> 0:19:05.679 this fragmented market can actually come together and help reduce friction. 0:19:06.160 --> 0:19:08.480 If you were to go around this marketplace today outside 0:19:08.480 --> 0:19:11.840 of China, what you would find is the survivors who 0:19:11.920 --> 0:19:15.360 live through all of decades of disruption by China. They 0:19:15.400 --> 0:19:18.199 are gritty, they are tenacious, but most of them are 0:19:18.280 --> 0:19:22.040 rather small and many have been starved for investment. I'll 0:19:22.040 --> 0:19:27.720 take less Common Metals, the only scaled producer of heavy 0:19:27.840 --> 0:19:32.160 Rare Earth Metals, alloys and strip cast outside of China, USA. 0:19:32.320 --> 0:19:36.280 Rare Earth acquired them last fall and this premise of 0:19:36.600 --> 0:19:40.200 now they have surety of off take because we need 0:19:40.280 --> 0:19:44.160 their materials to make magnets and they also have our 0:19:44.280 --> 0:19:48.440 help in finding sources of oxides for their metal making. 0:19:48.960 --> 0:19:52.159 Once we can work across the value chain, have the 0:19:52.240 --> 0:19:57.520 business leaders of these value chain businesses, the segments, the 0:19:57.640 --> 0:20:01.080 links in the chain. Once they can understand here's how 0:20:01.160 --> 0:20:04.480 we see the marketplace scaling, they can have the confidence 0:20:04.840 --> 0:20:08.679 to invest and grow their businesses. So we've been working 0:20:08.800 --> 0:20:12.840 with people, sometimes in m and A, sometimes in partnerships, 0:20:13.359 --> 0:20:18.679 supply agreements, off take agreements. We've got to align ourselves 0:20:18.920 --> 0:20:21.200 for a growing supply chain outside of China. 0:20:21.359 --> 0:20:22.320 I feel a little better now. 0:20:22.600 --> 0:20:23.640 I do too, and I've learned. 0:20:23.880 --> 0:20:25.280 I think I've learned a lot. I feel like we've 0:20:25.320 --> 0:20:29.280 got a path forward for some of these access to 0:20:29.359 --> 0:20:31.800 rare earths on a long term basis, because they are 0:20:32.080 --> 0:20:34.320 probably more products than we even know about. Barbara, thank 0:20:34.359 --> 0:20:36.560 you so much for joining us. Appreciate that, Barbara Hompton, 0:20:36.600 --> 0:20:40.480 she's the CEO of US, a rare earth publicly traded company. 0:20:40.600 --> 0:20:43.320 I did not know that USAAR is the ticker to stocks. 0:20:43.359 --> 0:20:46.719 Been at document mendus performer, So that reflects the kind 0:20:46.720 --> 0:20:48.960 of the importance I guess that the market is certainly 0:20:49.000 --> 0:20:51.680 placing upon rare earths. I think as investors we learn 0:20:51.760 --> 0:20:54.760 more and more how important these things are every day 0:20:54.800 --> 0:20:56.800 and kind of the supply chain associated with that. So 0:20:56.880 --> 0:20:58.720 we've learned a lot to that. We appreciate that and 0:20:58.760 --> 0:21:01.760 stay with us. More from bloom Surveillance coming up after this. 0:21:07.800 --> 0:21:11.360 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:21:11.480 --> 0:21:14.600 weekday afternoons from seven to ten am Eastern Listen on 0:21:14.720 --> 0:21:18.320 Applecarplay and Android Auto with the Bloomberg Business app, or 0:21:18.520 --> 0:21:19.919 watch us live on YouTube. 0:21:20.000 --> 0:21:24.080 I'm looking at the Mortgage Bankers Association thirty year fixed 0:21:24.200 --> 0:21:28.320 mortgage YEP six point three seven percent. I mean it's 0:21:28.359 --> 0:21:30.280 better than it was, you know, like a year ago, 0:21:30.760 --> 0:21:33.920 just touching seven. But I'm not sure it's where it 0:21:34.000 --> 0:21:34.679 needs to be for. 0:21:34.800 --> 0:21:37.280 For buyers to come off the sidelines and right sellers. 0:21:37.040 --> 0:21:38.919 To say, Okay, I'll put my house on the market 0:21:39.200 --> 0:21:41.600 and I'll move to Florida or whatever and downsize because 0:21:41.760 --> 0:21:44.239 I'm sitting on a three or four percent mortgage. Then 0:21:44.240 --> 0:21:47.119 i go buy something in Florida at six Yeah, where's 0:21:47.119 --> 0:21:49.880 the incentive exactly? That goes to the whole affordability issue. 0:21:49.880 --> 0:21:51.679 I'm not just not sure where we are right now. 0:21:51.760 --> 0:21:56.680 Odetta Kushy, she knows. Deputy Chief Economists at First American ODEBDA, 0:21:56.720 --> 0:21:58.840 can you give us a sense of kind of where 0:21:59.000 --> 0:22:02.440 the residential housing market is these days? I mean we're 0:22:02.480 --> 0:22:05.320 now getting right into the spring selling season. What's what's 0:22:05.359 --> 0:22:06.040 the market look like? 0:22:07.560 --> 0:22:07.760 Yeah? 0:22:07.960 --> 0:22:11.520 Thanks, It's been a soft start to the spring housing market. 0:22:11.640 --> 0:22:15.440 The existing home sales number has really struggled to get 0:22:15.640 --> 0:22:19.760 meaningfully above four million annualized sales. Consider that pre pandemic, 0:22:19.880 --> 0:22:22.560