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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 2: my co host Matt Miller.

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Speaker 1: Every business day we bring you interviews from CEOs, market pros,

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Speaker 3: Malloy Smith Paul Sweeney live.

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Speaker 2: Here in our Bloomberg Interactive Broker's studio, streaming live on

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Speaker 2: YouTube as well. We've been talking about SpaceX today, primarily

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Speaker 2: about this potential tender offer that might value the company

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Speaker 2: in one hundred and seventy five billion dollars. We touched

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Speaker 2: on that earlier with Ed Ludlow Bloomberg News out in

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Speaker 2: San Francisco. I want to talk about the actual rocket

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Speaker 2: stuff that SpaceX is doing. SpaceX Starship sets the pace

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Speaker 2: in race to build larger rockets. Elon Musk's latest rocket,

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Speaker 2: the most powerful ever built, would offer better economics than

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Speaker 2: conventional crash. We'll get into the nuts and bolts the

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Speaker 2: space stuff here, and we do that with Lauren Grush.

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Speaker 2: She's actually a space reporter. I can't you got to

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Speaker 2: get that on your business cards and the coolest job.

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Speaker 3: Hey, Lauren, thanks so much for joining us here.

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Speaker 2: Talk to us about the actual rocket stuff that Elon

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Speaker 2: Musk is setting up. Talk to us about these new

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Speaker 2: rockets here.

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Speaker 4: Well, really, it's just the one rocket that they're sending

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Speaker 4: up in a space it's the Falcon nine, their workforce rocket,

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Speaker 4: and what I touched on in our article is that

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Speaker 4: it's really kind of the go to rocket at the moment.

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Speaker 4: A lot of analysts have been sounding the alarm about

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Speaker 4: there being a simple a monopoly by SpaceX on the

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Speaker 4: launch market right now, just because other rockets have been

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Speaker 4: taken offline, or other rockets that we're supposed to be

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Speaker 4: ready have suffered from delays. So at the moment, the

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Speaker 4: Falcon nine is really the only working rocket, mostly for

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Speaker 4: customers of its size. But SpaceX is also famously working

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Speaker 4: on it Starship rocket, which has had a couple of

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Speaker 4: launches so far, but it's not ready to take satellites

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Speaker 4: to orbit yet, but everyone's kind of bracing for when

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Speaker 4: that day will come.

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Speaker 5: Yeah, Lauren tell us about the competition in this market, Like,

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Speaker 5: surely there've got to be other players out here who

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Speaker 5: are making rockets, admittedly not successfully, not as successfully as SpaceX.

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Speaker 5: But SpaceX is still a relatively new company, right I mean,

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Speaker 5: we're still calling it a startup. There's got to be

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Speaker 5: other ones out there.

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Speaker 4: I was reading today the term startup being used for SpaceX,

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Speaker 4: but it is such a wild thing to say for

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Speaker 4: the company because it is such a backbone.

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Speaker 6: For our space program.

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Speaker 4: I mean, SpaceX is one of, if not the biggest

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Speaker 4: partner for NASA right now. The company is responsible for

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Speaker 4: taking astronauts to and from the International Space Station, and

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Speaker 4: Boeing is trying to do that as well.

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Speaker 6: But they're not there yet. So yeah, it's to.

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Speaker 4: Call space a SpaceX a startup sounds counterintuitive, but I

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Speaker 4: do understand.

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Speaker 5: You know, they're still private, but especially with that evaluation,

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Speaker 5: it's apparently like worth about as much as like what

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Speaker 5: AT and T is worth. I mean, that's just crazy,

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Speaker 5: these numbers. So it's I mean, how long has the

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Speaker 5: company been around now you think it's time to retire

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Speaker 5: that startup word.

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Speaker 6: It hasn't been that has been about two decades.

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Speaker 4: So I don't consider it a startup personally, but you know,

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Speaker 4: like I said, they are still private, so I do

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Speaker 4: understand that impulse. But yeah, I mean, it doesn't surprise

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Speaker 4: me that their valuation is so high because of all

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Speaker 4: the things I listen, you know they are. They are

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Speaker 4: pretty much holding up the entire U commercial launch industry

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Speaker 4: right now, and like I said, that nassaualize on them

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Speaker 4: quite heavily for many of its space programs and for

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Speaker 4: its deep space ambitions such as sending astronauts to the

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Speaker 4: Moon this decade. So you know, it is a high valuation,

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Speaker 4: but like I said, it does seem warranted.

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Speaker 2: So Lauren, where are we with this uh starship rocket?

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Speaker 2: Because I'm reading your reporting here it says it could

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Speaker 2: you know, send up you know potentially you know, huge

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Speaker 2: amount of cargo three hundred and thirty one pounds. Where

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Speaker 2: are we in the development of that, because that seems

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Speaker 2: like it would be a pretty big breakthrough, right.

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Speaker 4: So, just recently they had their second test flight of

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Speaker 4: Starship where they tried to send it to near orbit

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Speaker 4: and it did get it get pretty far, especially compared

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Speaker 4: to their first test flight of the vehicle, which cleared

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Speaker 4: the pad but started spinning out of control and then

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Speaker 4: SpaceX had to blow up the rocket. This time, the

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Speaker 4: launch cleared the pad, all of its engines were working properly,

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Speaker 4: and it did break apart as planned, a process known

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Speaker 4: as stage separation.

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Speaker 6: That didn't happen the first time.

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Speaker 4: But Starship did blow up when it was embarking out over.

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Speaker 6: The Gulf of Mexico.

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Speaker 4: Did make it to space, but didn't reach those near

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Speaker 4: orbital speeds as planned.

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Speaker 6: But for SpaceX, that's just how they test, right.

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Speaker 4: They weren't necessarily expecting a perfect launch. They'd just like

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Speaker 4: to launch, see if they can get farther than they

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Speaker 4: did before, and then use those lessons learned when they

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Speaker 4: go on to the next flight. So for them, it

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Speaker 4: was a victory because they had improved upon the first flight.

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Speaker 4: But still it's going to be a minute before they're

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Speaker 4: ready to actually take those satellites to orbit, like I mentioned.

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Speaker 5: Yeah, you also mentioned Lauren, So this is I mean

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Speaker 5: SpaceX being a huge partner to NASA here and getting

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Speaker 5: up to the International Space Station. But if you ever

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Speaker 5: see this could be a ship that a rocket ship

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Speaker 5: that is that like a regular consumer could go on.

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Speaker 6: Well, yeah, that's the plans.

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Speaker 4: So obviously, you know, the things that get headlines are

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Speaker 4: all of the big ambitions that SpaceX has for starships,

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Speaker 4: so sending people to the Moon and Mars and things that,

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Speaker 4: you know, sending tourists on deep space missions around the Moon.

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Speaker 4: But the truth is, you know, SpaceX does have plans

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Speaker 4: for it as simply an orbital rocket. I mean, one

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Speaker 4: of the big things that they're going to use Starship

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Speaker 4: for is to launch their next their bigger, next generation

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Speaker 4: Starlink Starlink satellites. But the idea is also that it

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Speaker 4: could be a vehicle for other customer satellites. So you know,

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Speaker 4: Elon has talked about eventually just using Starship as a

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Speaker 4: replacement for the Falcon nine and having it be the

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Speaker 4: the go to rocket for SpaceX.

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Speaker 6: We'll see if that actually happens.

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Speaker 4: But there is plans beyond just making it a deep

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Speaker 4: space vehicle there. They would hopefully make it, you know,

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Speaker 4: an orbital vehicle as well. Whether or not custom will

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Speaker 4: want that vehicle, whether or not it'll be as cheap

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Speaker 4: and flying as rapidly as SpaceX says, you know, those

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Speaker 4: are all variables that remain to be seen. But given

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Speaker 4: the promises that SpaceX has made, it could be a

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Speaker 4: bit of a game changer for the launch market.

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Speaker 6: But like I said, we just we have to get there.

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Speaker 2: Just to see where is and what is Boca Chica.

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Speaker 4: Boca Chica is a town on the southern tip of Texas.

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Speaker 6: Have been there a few times.

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Speaker 4: It's where Starship is being built at SpaceX's star based facility.

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Speaker 4: It's a great location for a company like SpaceX because

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Speaker 4: it's right on the water. It's closer to the equator,

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Speaker 4: which is helpful when you're launching rockets in terms of

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Speaker 4: getting the right speed you need to get to orbit. So,

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Speaker 4: uh yeah, it's definitely become a bit of a go

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Speaker 4: to destination for SpaceX enthusiasts because you can.

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Speaker 3: Does one get the rocket right there in front of

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Speaker 3: Let's say I'm coming from New York.

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Speaker 2: How do we get the Boca Chica.

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Speaker 4: Well, you fly into either Dallas or Houston, and then

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Speaker 4: you can either drive or take a small plane down

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Speaker 4: to Brownsville and then drive.

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Speaker 5: Sounds like you could maybe expense that.

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Speaker 2: I can expense that I've got a new corporate card and.

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Speaker 5: Just tell us Lauren as well, what are like the

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Speaker 5: big space goals right now? I mean we've already you know,

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Speaker 5: put people on the Moon, We've got, you know, a

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Speaker 5: few rovers that have been to Mars. Like, what are

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Speaker 5: like the big targets out there right now?

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Speaker 6: Sure?

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Speaker 4: Well, just a touch on you know, part of the

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Speaker 4: article we're discussing too. You know, one of the big

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Speaker 4: goals right now is to kind of break up SpaceX's

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Speaker 4: dominance in the launch market right now, So a lot

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Speaker 4: of companies, launch startups are either pivoting away from small

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Speaker 4: launchers and building larger rockets to compete with the Falcon nine.

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Speaker 4: Other companies have been trying to develop their Falcon nine

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Speaker 4: competitors for a while, but have suffered from delays. So

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Speaker 4: there's a hope that maybe that kind of vehicle will

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Speaker 4: capture a good chunk of the launch market that SpaceX

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Speaker 4: isn't servicing right now. And then you know there's all

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Speaker 4: the real exciting stuff that NASA is working on with

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Speaker 4: its commercial partners. You know, NASA has its Artemis mission

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Speaker 4: to the Moon, which is hoping to send humans back

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Speaker 4: to the learner's lunar service for the first time.

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Speaker 6: In nearly or more than half a century.

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Speaker 4: And SpaceX is a part of that. Jeff Besis is

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Speaker 4: Blue Origin is part of that as well. So it's

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Speaker 4: a very exciting time. And then you've got all these

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Speaker 4: other industries that are starting up as well, you know,

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Speaker 4: commercial habitats and lowerth orbit satellite servicing.

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Speaker 6: Being able to fix satellites while they're in orbit already.

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Speaker 6: There's there's a lot.

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Speaker 4: Going on, and you know, work prices coming down, hopefully

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Speaker 4: they can be achieved.

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Speaker 3: And fortune.

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Speaker 2: We have a space reporter, Lauren Brush. She has our

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Speaker 2: space reporter Bloomberg News. She's based down in Texas, a

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Speaker 2: great place to be.

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Speaker 7: You're listening to the team Ken's are Live program Bloomberg

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Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot com,

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Speaker 7: the iHeartRadio app, and the Bloomberg Business app or listen

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Speaker 7: on demand wherever you get your podcasts.

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Speaker 3: We got this guy, John Author's in.

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Speaker 2: He's smart, He's British, so he sounds probably a little

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Speaker 2: bit smarter than he might be. But at the end

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Speaker 2: of the day, my New York Yankees got Je Soto,

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Speaker 2: John Ars. What did your Boston Red Sox do this offseason?

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Speaker 8: You're talking about this in the past ten still the

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Speaker 8: last I checked, there's another three months to go. We

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Speaker 8: have a brilliant new GM who has the you know,

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Speaker 8: intestines of steel necessary for his first big trade to

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Speaker 8: be with the Yankees. So let's let's see where he

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Speaker 8: goes with the Red Sox are not going to be

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Speaker 8: competing for a championship next year. We do have quite

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Speaker 8: a number of good prospects coming through. If you can

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Speaker 8: make two or three deals, keeping a laser focus on

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Speaker 8: getting good starting pitching, we will be fine. And those

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Speaker 8: of us, because we've won four championships, we have in

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Speaker 8: this century, more than anyone else, and we're not as

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Speaker 8: entitled as certain fan bases one city. We can be patients.

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Speaker 8: We can just enjoy progress, enjoy the excitement of the

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Speaker 8: analysis that goes into building a great team and laugh

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Speaker 8: at people who waste money on people like gen College

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Speaker 8: and God, yes, there we go.

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Speaker 2: Yep, there we get a good, good comeback companies, companies,

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Speaker 2: you're not going to win on that one exactly, so

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Speaker 2: too will be very good for you. Yeah, we're gonna

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Speaker 2: have fun with him. Companies are going broke gradually, not suddenly.

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Speaker 2: That says John Author's like a US recession or China's

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Speaker 2: post COVID rebound. A wave of corporate defaults was anticipated

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Speaker 2: this year but didn't happen. That doesn't mean it won't.

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Speaker 2: What are we waiting for here? Rates are going up,

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Speaker 2: I mean, I gotta make bond payments, I gotta make interest.

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Speaker 8: Rates are actually beginning to go down, been going up

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Speaker 8: steadily for two years, and there is still no particular

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Speaker 8: wave of defaults. We also had a banking crisis, you know,

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Speaker 8: not a major one, but a pretty significant one in

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Speaker 8: the spring, which led to very sharp tightening of bank

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Speaker 8: lending standards, which has you know, has always in the

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Speaker 8: past been a good leading indicator for trouble ahead for credit.

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Speaker 8: It's very surprising. I think the single biggest reason we

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Speaker 8: don't have significant defaults to date is that is as

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Speaker 8: we all know, rates stayed too low for too long.

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Speaker 8: It's part of the argument for higher for longer. That

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Speaker 8: leaving them down throughout twenty twenty one, which we I

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Speaker 8: think everybody, including j. Powell now agrees with a mistake,

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Speaker 8: made it much easier for people to lock in a

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Speaker 8: very long term finance at low levels, which means that

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Speaker 8: things are not coming to a head as quickly as

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Speaker 8: they once would now.

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Speaker 5: As mentioned then all the stimulus too rolled out in

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Speaker 5: March twenty twenty.

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Speaker 8: Yes, that is still there in the system. So when

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Speaker 8: you look at the actual cash flows that companies are generating,

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Speaker 8: you would think they would be moving towards zombie status

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Speaker 8: or of needing to contemplate default. And thanks to the

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Speaker 8: fact that they still have very very cheap, very unusually

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Speaker 8: low debt service charges, they can get away with it.

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Speaker 8: I do think. I cited one chart from Jim Reid

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Speaker 8: of Deutscher in that column with the average age of

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Speaker 8: all the high yield bonds all the junk bonds in

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Speaker 8: circulation over time, So you know, if you take all

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Speaker 8: the bonds out there, what is the average amount of

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Speaker 8: time before they mature? And I was quite startled quite

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Speaker 8: how short, it was, this is by far the shortest

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Speaker 8: amount of time before people have to refinance that there's

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Speaker 8: ever been.

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Speaker 6: How much time.

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Speaker 8: I think the average is now downcing like five years.

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Speaker 8: I don't don't. The other thing that surprised me the Europe.

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Speaker 8: At Europe is much more dependent on its banks, which

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Speaker 8: is why it the you know why a less aggressive

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Speaker 8: tightening there has had much more of a response because

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Speaker 8: the banks are much more of a critical part of

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Speaker 8: the transmission mechanism.

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Speaker 3: There.

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Speaker 8: The trend is actually even sharper in Europe. Like absolutely

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Speaker 8: nobody in Europe has wanted to take on any new

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Speaker 8: debt over the last couple of years, again exaggerating for EVCT,

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Speaker 8: but nobody is. And the result is that the that

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Speaker 8: there really is not much time at all if you've

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Speaker 8: got a speculative loan, a speculative bond on your hands

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Speaker 8: in the Europe before you need to refinance it, let's

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Speaker 8: keep it in the US.

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Speaker 5: You're saying here that this that this corporate wave of

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Speaker 5: default still could happen, but as you just said, braids

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Speaker 5: are now about to go down more likely than yep.

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Speaker 5: Spreads are still pretty tired. I mean, Triple C's has

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Speaker 5: probably been the best part of the market to be

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Speaker 5: in in So where is this, uh, where could this

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Speaker 5: wave of defaults come?

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Speaker 8: I mean that that that latter factoid chill. It's true,

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Speaker 8: it sends chills up and down.

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Speaker 5: My doesn't get you excited to go buy some triple

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Speaker 5: Sea bonds.

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Speaker 9: No.

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Speaker 8: I maybe I may be over applying the lessons from

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Speaker 8: covering the credit credit crisis. But no, that that reminds

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Speaker 8: me so vividly of what people were convincing themselves about

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Speaker 8: about some subprime model. Yeah, but primal and sub primorgage.

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Speaker 8: That that that sounds like it's certainly not as big

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Speaker 8: as subprime was. But there's no way the scale of

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Speaker 8: the problem is that great. But the underlying physics of

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Speaker 8: what's going on are alarmingly similar. I think what we need.

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Speaker 8: It ultimately comes back to the tired, over done debate

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Speaker 8: about soft versus hard landing. If you genuinely get a

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Speaker 8: very soft landing in which rates can come down without

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Speaker 8: there being a recession, then companies will moddel through. If

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Speaker 8: you don't, then you are going to have a lot

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Speaker 8: of smaller company defaults. This is another thing. Instantly, if

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Speaker 8: you're there is no problem with credit quality for the

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Speaker 8: bigger companies like absolutely none. They're about as healthy as

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Speaker 8: they've ever been. It's in high yield too, yes, but

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Speaker 8: in high yield we're talking serious problems that you would

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Speaker 8: normally associate with with a recession. If you have a

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Speaker 8: wave of relatively small companies defaulting, that doesn't necessarily create

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Speaker 8: severe losses for the for the markets, for financial mine,

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Speaker 8: it's because they're not very big, as they tend disproportionately

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Speaker 8: to employ more people. So you know, the magnificent tech

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Speaker 8: stocks per unit of market cap don't employ many people

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Speaker 8: your average high yield lender. Each time one of those

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Speaker 8: goes bust. That really the possibility that this becomes a

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Speaker 8: rolling effect on the economy is very serious, is very real,

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Speaker 8: and I think that is one of the best reasons

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Speaker 8: why the Fed might want to take some risks on

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Speaker 8: letting inflation go take off again to ease earlier than

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Speaker 8: they otherwise might.

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Speaker 7: That there is a.

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Speaker 8: Possibility that credit wants it bites will have quite a

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Speaker 8: significant effect on the economy, even if it doesn't have

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Speaker 8: that big an effect on the assets in the first instance.

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Speaker 8: In the assets, we look at the asset prices, we

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Speaker 8: look at.

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Speaker 3: So you've got a good chart in here.

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Speaker 2: It's from Fathom Consulting, where you kind of got bankruptcy candidates,

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Speaker 2: companies that are bankruptcy candidates, companies that are borderline bankruptcy,

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Speaker 2: and then companies that are strong slash healthy, And I'll

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Speaker 2: just describe it for our listeners. The trending good. No,

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Speaker 2: So is there a I guess the question is, are

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Speaker 2: some of those bankruptcy candidates do we need a recession

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Speaker 2: for them to be tripped into bankruptcy?

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Speaker 8: You would think you didn't. Generally when there are more

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Speaker 8: of them around, you know, a given percentage will hit

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Speaker 8: the wall even in moderately good economic times. The big

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Speaker 8: point to make about that that's based on Altzman scores,

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Speaker 8: which is a model that's been used for some decades.

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Speaker 5: Does the score yes, yeah, yeah.

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Speaker 8: The issue with it is how will it accept how

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Speaker 8: will it deals with intangibles. Intangibles are intangible. You can't

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Speaker 8: actually measure them, but that doesn't mean they don't exist,

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Speaker 8: So it may overstate the issue now that certain intangible

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Speaker 8: issues matter more. However, the number of companies that are

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Speaker 8: truly strong credits is tiny now, basically because so many

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Speaker 8: have borrowed so much at low rates that affects the

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Speaker 8: Altman's E scores. What are they going to do when

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Speaker 8: they have to when the only way to refinance will

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Speaker 8: be at significantly greater interest costs. That is a very

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Speaker 8: legitimate concern that does come from that chart. Even if

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Speaker 8: they don't go bust, it's going to affect their business

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Speaker 8: model badly.

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Speaker 5: A lot of companies have taken on that debt because

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Speaker 5: there hasn't been that huge of a penalty. I mean,

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Speaker 5: when you look at like the difference in spreads going

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Speaker 5: from you know, single A to triple B, it's like,

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Speaker 5: all right, who cares? You know, it's like a couple

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Speaker 5: base points them as well.

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Speaker 8: I think it's a little bit. I wrote a column

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Speaker 8: about this a couple of years ago. One of my

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Speaker 8: favorite pieces of classical music is Barely os is the

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Speaker 8: Damnation of Faust, and there's the final scene is when

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Speaker 8: Faust is taking is being taken by Mephistopheles to Hell,

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Speaker 8: and the beat gets hot, what tiny, tiny little drum

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Speaker 8: beats early on and it gets unauda And I think

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Speaker 8: that's where we're the kind of themeboard in the credit model.

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Speaker 3: We'll go with that.

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Speaker 2: John Authurs, thank you so much for that literary musical

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Speaker 2: reference Senior Editor Bloomberg Opinions.

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Speaker 7: You're listening to the tape Cat's are live program Bloomberg

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Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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00:20:29,960 --> 00:20:33,160
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

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00:20:33,240 --> 00:20:36,040
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00:20:36,080 --> 00:20:40,440
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

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Speaker 2: I want to bring in Mark Drman. He's a reporter

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Speaker 2: obviously on the West Coast for Bloomberg News. Got some

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Speaker 2: breaking news on Tesla, Mark.

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Speaker 3: What do you got for us?

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Speaker 9: Yes, So, Tesla has been working on a supercomputer code

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Speaker 9: named Dojo. In this computer as a processor, it's very advanced.

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Speaker 9: It competes with the high and processors that a lot

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Speaker 9: of the companies like Apple, amb Nvidia, et cetera are

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Speaker 9: working on right now. And this is allowing them to

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Speaker 9: train the AI data necessary to repair the autonomous car

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Speaker 9: functionality as they've been working on for their Tesla cars

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Speaker 9: and adding over the past several years. And so the

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Speaker 9: head of that program, someone who is a chip industry

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Speaker 9: legend so to speak, named Ganesh Than Caironamon. He has

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Speaker 9: left they have parted ways with him. They have put

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Speaker 9: a new person in charge named Peter Bannon. He was

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Speaker 9: a former mid level chip executive at Apple. He's now

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Speaker 9: leading the program. And obviously when the head of the

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Speaker 9: program leaves, that means there is some sort of strategy

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Speaker 9: rethink going on, and it is a bit of a

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Speaker 9: blow to the effort. So this is extraordinarily significant news,

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Speaker 9: both within Tesla as well as in the modern processor

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Speaker 9: and AI community.

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Speaker 5: Yeah, this sounds like a very high level role here.

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Speaker 5: I mean, what are your thoughts then, Mark on Peter

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Speaker 5: Bannon and if he's going to be maybe just an

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Speaker 5: interim position on lead this project or you really need

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Speaker 5: to start winding the scope and look for somebody new

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Speaker 5: to come in.

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Speaker 9: Yeah, that's exactly right. This is an extraordinarily senior position.

409
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Speaker 9: Not only the future of Tesla, but the future of

410
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Speaker 9: all these car companies and all these technology companies we've

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Speaker 9: been talking about is artificial intelligence and machine learning, and

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Speaker 9: more so at this level, powered by what are essentially

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Speaker 9: supercomputers based on the fundamental technologies that you're getting in

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Speaker 9: chips and phones and tablets and computers at this point,

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Speaker 9: laptops and stuff. So Peter Bannon is an expert in

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Speaker 9: these ARM based processors, these custom by performance, low power

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Speaker 9: AI driven chips, and so that Ban in my view,

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Speaker 9: will be the long term fit here. He has an

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Speaker 9: excellent reputation in both the chip and AI communities. He

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Speaker 9: has the experience needed. Will they miss a beat in

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Speaker 9: the short term, I would assume so, But in the

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Speaker 9: long term I think this is a fitting replacement for Ganesh.

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Speaker 2: Do we know why this person left Tesla.

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Speaker 9: We are not reporting at this point the circumstances surrounding

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Speaker 9: his departure. You know, there has been some strategy rethink

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Speaker 9: in terms of where they're going to place the data

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Speaker 9: centers that are pounding the back end of these chips.

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Speaker 9: It's possible there was some sort of disagreement regarding the

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Speaker 9: direction there. The chip has been running behind. This was

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Speaker 9: originally introduced a few years ago. The first version was

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Speaker 9: supposed to come to market. As with many things we've

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Speaker 9: been Fintesla in the last few years, they promise certain

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Speaker 9: timelines that have under delivered. This chip has been part

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Speaker 9: of that. Certainly, this is super core to the future

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Speaker 9: of the company, so certainly I think it has been

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Speaker 9: you know, there has been some shakingess around in the project.

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Speaker 9: And anytime they're shaking this around a project of the significance,

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Speaker 9: you know, you may be in for some sort of

439
00:23:46,359 --> 00:23:47,280
Speaker 9: leadership trancision.

440
00:23:47,480 --> 00:23:49,320
Speaker 5: Yeah, tell us Mark a little bit more about this

441
00:23:49,720 --> 00:23:57,160
Speaker 5: Dojo supercomputer project. This is what's behind the self driving efforts, right, Yes.

442
00:23:57,080 --> 00:23:59,000
Speaker 9: This is behind the self driving efforts. This is to

443
00:23:59,640 --> 00:24:02,960
Speaker 9: catch sure data using camera sensors on cars and other

444
00:24:03,040 --> 00:24:06,080
Speaker 9: Tesla equipment. And then what this processor does. It inputs

445
00:24:06,160 --> 00:24:09,080
Speaker 9: that information into the chips as well as selfware algorithms

446
00:24:09,200 --> 00:24:11,680
Speaker 9: in cloud based data centers. It sort of chops that

447
00:24:11,720 --> 00:24:15,439
Speaker 9: all up, mixes it together, so to speak, and creates

448
00:24:15,760 --> 00:24:18,399
Speaker 9: training data for the cars to be able to understand

449
00:24:18,440 --> 00:24:21,399
Speaker 9: what it has seen and be able to operate autonomously.

450
00:24:21,560 --> 00:24:23,399
Speaker 9: So this is at the very core of that system.

451
00:24:24,200 --> 00:24:26,200
Speaker 3: All right, Mark Dermin, thank you so much. We really

452
00:24:26,200 --> 00:24:26,680
Speaker 3: appreciate it.

453
00:24:26,720 --> 00:24:29,320
Speaker 2: Mark irmerann technology reporter for Bloomberg News on the West

454
00:24:29,359 --> 00:24:34,680
Speaker 2: Coast bringing us this news. Tesla's Dojo supercomputer head exits

455
00:24:35,280 --> 00:24:38,040
Speaker 2: in blow two efforts, so we'll keep on top of

456
00:24:38,119 --> 00:24:40,480
Speaker 2: this story and bring you any additional reporting.

457
00:24:41,400 --> 00:24:43,879
Speaker 7: You're listening to the tape can to our live program

458
00:24:43,960 --> 00:24:47,920
Speaker 7: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,

459
00:24:48,119 --> 00:24:50,800
Speaker 7: the tune in app, Bloomberg dot Com, and the Bloomberg

460
00:24:50,880 --> 00:24:53,919
Speaker 7: Business App. You can also listen live on Amazon Alexa

461
00:24:54,000 --> 00:24:57,320
Speaker 7: from our flagship New York station. Just say Alexa play

462
00:24:57,440 --> 00:24:58,720
Speaker 7: Bloomberg eleven thirty.

463
00:25:00,160 --> 00:25:04,439
Speaker 2: COP twenty eight Dubai just ended, I believe yesterday day before.

464
00:25:04,560 --> 00:25:07,680
Speaker 2: But that's where they all the folks, banks and companies

465
00:25:07,760 --> 00:25:11,280
Speaker 2: and government folks get together and talk about sustainable energy

466
00:25:11,320 --> 00:25:13,200
Speaker 2: on a global scale. Jonathan Maxwell was there. He's the

467
00:25:13,280 --> 00:25:17,280
Speaker 2: CEO and co founder of Sustainable Development Capital. Jonathan, what

468
00:25:17,440 --> 00:25:20,399
Speaker 2: was your takeaway from the COP twenty eight conference there?

469
00:25:20,720 --> 00:25:22,840
Speaker 2: My takeaway with just one of them was the President

470
00:25:22,880 --> 00:25:25,320
Speaker 2: of Biden did not attend, and I thought that was odd.

471
00:25:25,600 --> 00:25:28,119
Speaker 2: Where other world leaders were there? What was your takeaway

472
00:25:28,119 --> 00:25:28,840
Speaker 2: from your perspective?

473
00:25:29,600 --> 00:25:33,040
Speaker 10: I think there are two main headlines this year which

474
00:25:33,080 --> 00:25:35,560
Speaker 10: are a big deal. One of which is kind of

475
00:25:35,640 --> 00:25:39,400
Speaker 10: what we've heard for many years, triple the renewable energy investing.

476
00:25:39,280 --> 00:25:39,640
Speaker 11: I think.

477
00:25:39,680 --> 00:25:44,440
Speaker 10: But what's interesting about this COP is a UN conference

478
00:25:44,480 --> 00:25:46,399
Speaker 10: that happens every year. It happens a couple of weeks.

479
00:25:46,480 --> 00:25:48,840
Speaker 10: Most private sector people go over the weekend that just

480
00:25:48,880 --> 00:25:51,879
Speaker 10: happened because it's energy finance. But the big news was

481
00:25:51,920 --> 00:25:54,359
Speaker 10: actually something that I've been here to talk about before,

482
00:25:54,359 --> 00:25:57,760
Speaker 10: which is energy efficiency. So there were two headline objectives.

483
00:25:57,800 --> 00:25:59,879
Speaker 10: They said, we've got a triple the rate of renew

484
00:26:00,680 --> 00:26:03,920
Speaker 10: and double the rate of energy efficiency. And that's really

485
00:26:04,000 --> 00:26:07,240
Speaker 10: important because this is this cop was being held in

486
00:26:07,320 --> 00:26:11,080
Speaker 10: a petro state. Really, this is really the oil and

487
00:26:11,240 --> 00:26:14,280
Speaker 10: gas industry, the big oil and gas industry saying to

488
00:26:15,119 --> 00:26:18,120
Speaker 10: I think the renewable energy and the clean energy community

489
00:26:19,160 --> 00:26:21,280
Speaker 10: you need us. We're here for the next two, three

490
00:26:21,359 --> 00:26:24,600
Speaker 10: four decades, right, So how are we going to transition?

491
00:26:24,840 --> 00:26:27,800
Speaker 10: How are we going to make and so efficiency became

492
00:26:27,880 --> 00:26:31,760
Speaker 10: a big deal. As far as President Biden's concerned efficiency

493
00:26:32,119 --> 00:26:35,320
Speaker 10: and renewables, He's put up what three hundred and seventy

494
00:26:35,440 --> 00:26:39,639
Speaker 10: billion dollars of US YE incentives and capital. There is

495
00:26:39,720 --> 00:26:42,120
Speaker 10: a question pulled about what more he can do right

496
00:26:42,320 --> 00:26:45,800
Speaker 10: a year away from a contentious election. So I don't

497
00:26:45,800 --> 00:26:47,240
Speaker 10: know what he would have done had he gotten there.

498
00:26:47,280 --> 00:26:51,119
Speaker 10: I mean, John Carrey was there, yep. Bloomberg Green actually

499
00:26:51,160 --> 00:26:54,600
Speaker 10: held an event on when was it on Monday, which

500
00:26:54,680 --> 00:26:59,480
Speaker 10: John Kerry was superbly setting out. I think how important

501
00:26:59,640 --> 00:27:01,399
Speaker 10: you know the transition is, but I think it's a

502
00:27:01,440 --> 00:27:02,120
Speaker 10: reality check.

503
00:27:02,800 --> 00:27:05,200
Speaker 2: You know, got all about you guys are I know

504
00:27:05,440 --> 00:27:09,439
Speaker 2: a big focus of you guys is all about energy efficiency, inefficiency.

505
00:27:09,440 --> 00:27:11,359
Speaker 2: And here's the day when I think of what you

506
00:27:11,440 --> 00:27:14,120
Speaker 2: guys are doing. The world is wasting some seventy five

507
00:27:14,160 --> 00:27:17,359
Speaker 2: percent of its energy, around half of its fuel and

508
00:27:17,480 --> 00:27:18,480
Speaker 2: a third of its water.

509
00:27:18,640 --> 00:27:19,920
Speaker 3: That's kind of that's that.

510
00:27:20,040 --> 00:27:21,680
Speaker 2: When I first heard it, I was like, whoa.

511
00:27:21,880 --> 00:27:23,480
Speaker 5: Yeah, where is all that going?

512
00:27:23,600 --> 00:27:23,760
Speaker 7: Then?

513
00:27:24,440 --> 00:27:29,320
Speaker 10: It's so crazy. It's such an extraordinary, huge dysfunction. I

514
00:27:29,400 --> 00:27:31,000
Speaker 10: had to write a book about it. That's why it

515
00:27:32,000 --> 00:27:34,280
Speaker 10: called the Edge. You know, instead of how we're pushing

516
00:27:34,280 --> 00:27:35,720
Speaker 10: the world and its climate to the brink and what

517
00:27:35,760 --> 00:27:37,399
Speaker 10: we do about it, where does it all go? In

518
00:27:37,480 --> 00:27:40,640
Speaker 10: a nutshell? Right, about ten percent of energy gets lost

519
00:27:40,720 --> 00:27:44,359
Speaker 10: just in producing it. It leaks and then you know

520
00:27:44,520 --> 00:27:46,840
Speaker 10: you have to extract it and about it. The biggest

521
00:27:46,920 --> 00:27:49,320
Speaker 10: piece of it is the way is because we build

522
00:27:49,359 --> 00:27:51,520
Speaker 10: big energy centers in the middle of nowhere and we

523
00:27:51,680 --> 00:27:55,160
Speaker 10: feed communities, industry and town a lot of it gets

524
00:27:55,240 --> 00:27:57,320
Speaker 10: lost just in generating it because there's nothing you can

525
00:27:57,359 --> 00:27:59,080
Speaker 10: do with the heat. If you put a gas molecule

526
00:27:59,160 --> 00:28:01,480
Speaker 10: in which is how we make most energy. Half of

527
00:28:01,560 --> 00:28:04,560
Speaker 10: that gas molecule's energy goes to electricity, the other turns

528
00:28:04,640 --> 00:28:06,840
Speaker 10: into heat. And if there's nothing you can do with it,

529
00:28:06,840 --> 00:28:08,479
Speaker 10: it just goes up in the air into space. They

530
00:28:08,520 --> 00:28:11,240
Speaker 10: don't need it in space. And then the next section

531
00:28:11,440 --> 00:28:14,440
Speaker 10: is once their electricity, say, is out of the power station,

532
00:28:14,560 --> 00:28:17,159
Speaker 10: you've already lost sixty percent of the primary energy. You

533
00:28:17,280 --> 00:28:19,560
Speaker 10: leads another ten percent getting it to the point of use.

534
00:28:20,040 --> 00:28:22,320
Speaker 10: So this is what's happening just in getting energy into

535
00:28:22,359 --> 00:28:25,840
Speaker 10: buildings like this in Manhattan. This is an excellent building.

536
00:28:25,920 --> 00:28:28,040
Speaker 10: Mister Bloomberg's had this nailed for a really long time.

537
00:28:28,080 --> 00:28:30,440
Speaker 5: You see the London office, right, it's.

538
00:28:30,280 --> 00:28:32,800
Speaker 10: Amazing, But you know not not all buildings like that, right,

539
00:28:32,880 --> 00:28:34,920
Speaker 10: So on average they waste twenty thirty percent of the

540
00:28:35,040 --> 00:28:36,920
Speaker 10: energy they use. So that's how you get from seventy

541
00:28:36,960 --> 00:28:40,200
Speaker 10: to seventy five percent. This is huge, it's catastrophic. We're

542
00:28:40,360 --> 00:28:43,360
Speaker 10: we're fighting over this energy all over the world. It's

543
00:28:43,440 --> 00:28:47,840
Speaker 10: costing a fortune. We've got cost of living crisis. We're building,

544
00:28:47,960 --> 00:28:50,360
Speaker 10: by the way, for trillions of dollars. We spent six

545
00:28:50,440 --> 00:28:52,920
Speaker 10: trillion dollars on renewables over the last twenty years, three

546
00:28:53,000 --> 00:28:55,080
Speaker 10: trillion dollars on the grid and meanwhile we're.

547
00:28:54,920 --> 00:28:56,480
Speaker 3: Wasting three quarters of the world's energy.

548
00:28:56,680 --> 00:28:58,440
Speaker 10: I think it's a call out. And this is why

549
00:28:58,480 --> 00:29:01,000
Speaker 10: I say we're wasting the energy. By the way, we're

550
00:29:01,040 --> 00:29:02,840
Speaker 10: wasting half the food and the third of the water.

551
00:29:03,240 --> 00:29:05,960
Speaker 2: And that's a problem I'm fully understood. And it is

552
00:29:06,040 --> 00:29:09,720
Speaker 2: that a focus of action from the folks at Cup

553
00:29:09,760 --> 00:29:10,160
Speaker 2: twenty eight.

554
00:29:10,200 --> 00:29:11,840
Speaker 10: All right, So it depends who you are. So the

555
00:29:11,920 --> 00:29:14,920
Speaker 10: fact that it's actually on now on the headlines. If

556
00:29:14,960 --> 00:29:17,520
Speaker 10: you think about the clean energy train coming down the track,

557
00:29:17,600 --> 00:29:20,080
Speaker 10: it's only really been one lamp on the front renewables.

558
00:29:20,160 --> 00:29:23,040
Speaker 10: Right now you've got two lamps. It says you can't

559
00:29:23,160 --> 00:29:25,760
Speaker 10: can't get there with renewables on its own. You have

560
00:29:25,960 --> 00:29:29,040
Speaker 10: to be more efficient. So the UNNA sees this. I

561
00:29:29,120 --> 00:29:32,040
Speaker 10: think the Department of Energy in the US at least

562
00:29:32,120 --> 00:29:34,800
Speaker 10: twenty percent of the Inflation Reduction Act has gone into it.

563
00:29:34,840 --> 00:29:35,480
Speaker 10: I think it should be.

564
00:29:35,480 --> 00:29:36,120
Speaker 8: At least half.

565
00:29:36,480 --> 00:29:38,880
Speaker 10: And in Europe there's a policy it's called and if

566
00:29:38,880 --> 00:29:41,520
Speaker 10: it happened when Russia invaded Ukraine and we got cut

567
00:29:41,600 --> 00:29:43,840
Speaker 10: off of gas in the Europe, as the forty percent.

568
00:29:44,200 --> 00:29:46,320
Speaker 10: The Europeans came up with a policy. It's got three

569
00:29:46,400 --> 00:29:50,840
Speaker 10: words energy efficiency first, not second, third, tomorrow maybe one day,

570
00:29:51,280 --> 00:29:53,920
Speaker 10: energy efficiency first because they said, look for every unit

571
00:29:54,000 --> 00:29:55,880
Speaker 10: of gas we don't use, it's two and a half.

572
00:29:55,960 --> 00:29:58,520
Speaker 10: We don't need to buy from Russia. Why because we're

573
00:29:58,520 --> 00:30:02,040
Speaker 10: wasting two thirds of it. So I think we've got

574
00:30:02,080 --> 00:30:05,680
Speaker 10: We've been in the in the sort of business of producing, supplying.

575
00:30:06,280 --> 00:30:08,880
Speaker 10: Now I think we're in the business of reducing. Being

576
00:30:08,960 --> 00:30:11,640
Speaker 10: more official. I don't mean de growth, I just mean

577
00:30:11,720 --> 00:30:15,000
Speaker 10: doing more with less. It's more competitive, more productive, it's

578
00:30:15,040 --> 00:30:15,920
Speaker 10: better for security.

579
00:30:16,240 --> 00:30:19,000
Speaker 5: So in these geopolitical risks, and you just mentioned Russian

580
00:30:19,000 --> 00:30:22,040
Speaker 5: and Ukraine, I was wondering if at all that Israel

581
00:30:22,520 --> 00:30:24,760
Speaker 5: came up during this. I know, like when the war

582
00:30:25,160 --> 00:30:27,400
Speaker 5: first started, there was you know, some concern of the

583
00:30:27,760 --> 00:30:30,680
Speaker 5: gas lines that go leaving out of Egypt and if

584
00:30:30,720 --> 00:30:33,600
Speaker 5: those would be impacted, and of course the greater concern

585
00:30:33,640 --> 00:30:36,400
Speaker 5: if the war would escalate involve Iran, what that would

586
00:30:36,440 --> 00:30:38,960
Speaker 5: mean for oil. If you could tell us if that

587
00:30:39,120 --> 00:30:40,280
Speaker 5: it all came up in the conference.

588
00:30:40,320 --> 00:30:42,640
Speaker 10: Did you read my substack three weeks ago, It's exactly

589
00:30:42,680 --> 00:30:45,000
Speaker 10: what it was. Well, I want you to tell me, yeah,

590
00:30:45,280 --> 00:30:47,160
Speaker 10: it's a point. I mean, you know, I think this

591
00:30:47,280 --> 00:30:49,160
Speaker 10: is the point. I mean, the Russia Ukraine nexus is

592
00:30:49,240 --> 00:30:51,239
Speaker 10: really a lot about not all about, but a lot

593
00:30:51,280 --> 00:30:56,000
Speaker 10: about energy, right, and Russia was using Ukraine to gas

594
00:30:56,440 --> 00:30:59,960
Speaker 10: pipe gas into Europe. That game has come to an.

595
00:31:00,200 --> 00:31:02,000
Speaker 3: Now in Israel.

596
00:31:02,400 --> 00:31:04,840
Speaker 10: Israel had done a deal about a year ago with

597
00:31:05,000 --> 00:31:09,560
Speaker 10: the European Union, and that was to send gas, which

598
00:31:09,600 --> 00:31:12,440
Speaker 10: it's been exporting to Egypt, but liquefy it and send

599
00:31:12,520 --> 00:31:14,800
Speaker 10: it to Europe. Europe needed that gas because of the

600
00:31:14,920 --> 00:31:19,880
Speaker 10: Rush Ukraine invasion. And I'm not saying for one moment

601
00:31:20,000 --> 00:31:24,440
Speaker 10: that's a cause of the Israel Hamas conflict, but it's

602
00:31:24,600 --> 00:31:27,200
Speaker 10: definitely a match in the match box. I mean that

603
00:31:27,880 --> 00:31:32,440
Speaker 10: Peymar gas field that exports gas from Israel to Egypt

604
00:31:32,960 --> 00:31:36,960
Speaker 10: is off the coast of Gaza. The Leviathan gas field

605
00:31:37,440 --> 00:31:41,360
Speaker 10: was actually decommissioned. It's now been restarted, but decommissioned because

606
00:31:41,360 --> 00:31:45,200
Speaker 10: of security concerns from Hesbela. So there's no question that

607
00:31:45,400 --> 00:31:48,840
Speaker 10: if you're the Israel and you're since twenty nineteen been

608
00:31:48,920 --> 00:31:53,520
Speaker 10: exporting natural gas, clearly this is not going to be

609
00:31:53,560 --> 00:31:56,200
Speaker 10: great news for Hamas or for Hezbula and Iran, who

610
00:31:56,200 --> 00:31:57,960
Speaker 10: will look on with a dim view. Now I'm not

611
00:31:58,080 --> 00:31:59,640
Speaker 10: saying that this is the cause of the war, but

612
00:31:59,720 --> 00:32:04,000
Speaker 10: i am I'm saying that competition for resources looks beneath

613
00:32:04,040 --> 00:32:09,080
Speaker 10: the Rush Ukraine crisis, it looks beneath the Israel Hamas crisis,

614
00:32:09,400 --> 00:32:12,720
Speaker 10: and it's going to look unfortunately behind some other military conflicts,

615
00:32:13,400 --> 00:32:15,680
Speaker 10: zones and flash points. And that's one of the points

616
00:32:15,680 --> 00:32:18,200
Speaker 10: I make in my book. Look at the Arctic, look

617
00:32:18,240 --> 00:32:22,520
Speaker 10: at the South China. See these are serious resource competition arena.

618
00:32:22,960 --> 00:32:26,560
Speaker 2: At Cup twenty eight, what was the sense of global

619
00:32:26,640 --> 00:32:30,600
Speaker 2: progress towards you know, the original Parish agreement of twenty fifteen.

620
00:32:30,680 --> 00:32:31,560
Speaker 3: Where are we?

621
00:32:32,320 --> 00:32:34,480
Speaker 2: Where's the industry? Where's the world in terms of kind

622
00:32:34,480 --> 00:32:36,080
Speaker 2: of getting to where we need to be?

623
00:32:36,440 --> 00:32:37,600
Speaker 10: All right, I start with the bad news.

624
00:32:37,920 --> 00:32:40,320
Speaker 3: Okay, goodness, So the bad news.

625
00:32:40,400 --> 00:32:42,480
Speaker 10: We're not doing great, right, We just had a This

626
00:32:42,680 --> 00:32:45,680
Speaker 10: year is a record year for fossil fuels, carbon emissions

627
00:32:45,720 --> 00:32:49,120
Speaker 10: are going up. It's not going well well. Temperatures, global

628
00:32:49,120 --> 00:32:51,400
Speaker 10: temperatures record year. I mean, there is, by the way,

629
00:32:51,440 --> 00:32:54,000
Speaker 10: all Nina. So let's just make sure that we understand

630
00:32:54,000 --> 00:32:55,600
Speaker 10: that this is a five year cycle and we've got

631
00:32:55,640 --> 00:32:58,120
Speaker 10: a particularly hot yeah, but all of these things are contributing,

632
00:32:58,400 --> 00:33:00,520
Speaker 10: so we're not doing great. And the most important number

633
00:33:00,560 --> 00:33:02,840
Speaker 10: for me is eighty two percent. Eighty two percent of

634
00:33:02,880 --> 00:33:05,280
Speaker 10: the proportion of the world's energy that's all gas and coal,

635
00:33:05,720 --> 00:33:09,200
Speaker 10: and that's hostantially hasn't changed since Paris, so use it.

636
00:33:09,280 --> 00:33:10,840
Speaker 10: So I'm going to come onto the good news, the

637
00:33:10,920 --> 00:33:12,840
Speaker 10: good news, and with a little bit of reference to

638
00:33:12,840 --> 00:33:15,800
Speaker 10: the bad news. The good news is renewables are accelerating exponentially,

639
00:33:16,200 --> 00:33:19,000
Speaker 10: which is fantastic, but they're not the bad news. They're

640
00:33:19,000 --> 00:33:21,640
Speaker 10: not displacing fossil fuels yet. So you're just adding into

641
00:33:21,680 --> 00:33:25,280
Speaker 10: this system, right, And that's why I've been advocating for

642
00:33:25,440 --> 00:33:29,840
Speaker 10: fifteen years for energy efficiency, because it adding into this

643
00:33:29,960 --> 00:33:33,960
Speaker 10: system isn't helping as much as not using so much

644
00:33:34,080 --> 00:33:36,320
Speaker 10: energy to do the same job. But what happens if

645
00:33:36,320 --> 00:33:39,200
Speaker 10: you don't use the energy. We don't need to waste

646
00:33:39,200 --> 00:33:40,960
Speaker 10: all this energy, either at the point of views or

647
00:33:41,000 --> 00:33:43,640
Speaker 10: getting it there. So if we do better, if we

648
00:33:43,800 --> 00:33:45,440
Speaker 10: cut the amount of energy we need to do the

649
00:33:45,480 --> 00:33:48,520
Speaker 10: same job, it has three huge, incredible benefits. I'm going

650
00:33:48,560 --> 00:33:50,080
Speaker 10: to start with the economy because I'm here in the

651
00:33:50,160 --> 00:33:55,000
Speaker 10: United States best one. Cutting energy cuts costs, you have

652
00:33:55,120 --> 00:33:57,640
Speaker 10: to pay less for it. It's the biggest source of

653
00:33:57,720 --> 00:34:02,280
Speaker 10: competitiveness and productivity. This country has the most incredible endowment

654
00:34:02,360 --> 00:34:05,480
Speaker 10: for the next decade. It's energy independent. This wasn't the

655
00:34:05,520 --> 00:34:08,799
Speaker 10: case before twenty nineteen. But don't waste it, right, use

656
00:34:08,880 --> 00:34:12,600
Speaker 10: that energy, export it, use it here, but don't waste it.

657
00:34:12,719 --> 00:34:15,400
Speaker 10: So that's the first point on cost and compressiveness. And

658
00:34:15,480 --> 00:34:17,400
Speaker 10: if we do that in the United States, we're in

659
00:34:17,440 --> 00:34:21,279
Speaker 10: a much better position. So second component is carbon By

660
00:34:21,400 --> 00:34:24,360
Speaker 10: not using energy in the first place, that's the largest, fastest,

661
00:34:24,480 --> 00:34:27,600
Speaker 10: cheapest source of greenhouse gas emissions. And then the third

662
00:34:27,680 --> 00:34:30,279
Speaker 10: point coming back to energy security, is that there are

663
00:34:30,400 --> 00:34:33,600
Speaker 10: military conflicts arising and they have been since the Second

664
00:34:33,640 --> 00:34:37,399
Speaker 10: World War. Overall and gas and other resources. Going forward,

665
00:34:37,440 --> 00:34:39,320
Speaker 10: I'm afraid we need lots of metals and minerals for

666
00:34:39,360 --> 00:34:42,840
Speaker 10: the trick for the clean energy transition. We need to

667
00:34:42,880 --> 00:34:46,080
Speaker 10: be more efficient by using them because competition for coveted

668
00:34:46,160 --> 00:34:51,480
Speaker 10: resources creates conflict. So for those reasons, energy efficiency, resource

669
00:34:51,560 --> 00:34:55,880
Speaker 10: efficiency is critical. I've only talked about energy today and food.

670
00:34:56,440 --> 00:34:58,359
Speaker 10: How do we make food with energy?

671
00:34:58,920 --> 00:34:59,120
Speaker 5: Time?

672
00:34:59,280 --> 00:35:02,680
Speaker 2: For then you're nothing it's not passionate about this, so

673
00:35:02,960 --> 00:35:05,920
Speaker 2: I think that is works for a positive outcome hopefully.

674
00:35:06,000 --> 00:35:10,080
Speaker 2: Jonathan Maxwell, CEO and co founder Sustainable Development and Capital,

675
00:35:10,719 --> 00:35:12,359
Speaker 2: and we appreciate getting some of his time.

676
00:35:12,680 --> 00:35:15,719
Speaker 7: You're listening to the tape. Cat's are live program Bloomberg

677
00:35:15,840 --> 00:35:19,400
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

678
00:35:19,480 --> 00:35:22,680
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business app.

679
00:35:22,760 --> 00:35:25,560
Speaker 7: You can also listen live on Amazon Alexa from our

680
00:35:25,600 --> 00:35:29,960
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

681
00:35:31,600 --> 00:35:33,360
Speaker 3: Tim Line. He's the CEO of in Terra's Capitol.

682
00:35:33,360 --> 00:35:34,440
Speaker 2: I want to get right to him. He's in our

683
00:35:34,440 --> 00:35:37,880
Speaker 2: Bloomberg Interactive Broker studio and Teris Capital is based in Chicago.

684
00:35:37,960 --> 00:35:41,160
Speaker 2: One of my favorite talents anywhere, and he's now here

685
00:35:41,200 --> 00:35:42,719
Speaker 2: in New York because why not because this is the

686
00:35:42,760 --> 00:35:44,280
Speaker 2: global capital of the world.

687
00:35:44,239 --> 00:35:46,000
Speaker 5: Because we got to be in the studio exactly.

688
00:35:46,160 --> 00:35:47,600
Speaker 3: Hey, Tim, thanks much for joining us here.

689
00:35:48,120 --> 00:35:51,320
Speaker 2: Sixty seven billion of assets on their management, that's what

690
00:35:51,480 --> 00:35:51,840
Speaker 2: you guys have.

691
00:35:52,120 --> 00:35:54,160
Speaker 8: Yes, we do, Paul, That is awesome, dude.

692
00:35:54,160 --> 00:35:57,360
Speaker 2: All right, So talk to us about the private credit business.

693
00:35:57,600 --> 00:35:59,880
Speaker 2: What's a typical type of deal. You guys like the

694
00:36:00,040 --> 00:36:01,279
Speaker 2: look at like to invest.

695
00:36:01,000 --> 00:36:07,239
Speaker 11: In sure so antires. We finance middle market North American businesses,

696
00:36:07,320 --> 00:36:11,120
Speaker 11: So middle market would be companies generally twenty to one

697
00:36:11,200 --> 00:36:15,600
Speaker 11: hundred and fifty million in EBITDA. We like companies that

698
00:36:15,719 --> 00:36:20,400
Speaker 11: are recession resistant, companies that truly have a reason to exist,

699
00:36:20,520 --> 00:36:24,960
Speaker 11: so there's something that they do that's proprietary, recurring revenue businesses.

700
00:36:25,040 --> 00:36:28,520
Speaker 11: We love software businesses, a lot of healthcare businesses, business

701
00:36:28,640 --> 00:36:35,040
Speaker 11: service it, some manufacturing businesses, but generally higher margin companies

702
00:36:36,000 --> 00:36:40,839
Speaker 11: fifteen to twenty percent EBITDA margin and above and highly diversified.

703
00:36:41,120 --> 00:36:45,400
Speaker 11: So we don't finance companies that have a major customer concentration.

704
00:36:45,560 --> 00:36:47,239
Speaker 2: For example, does your deal flow come in from the

705
00:36:47,280 --> 00:36:50,719
Speaker 2: private equity space and they're looking for a debt piece

706
00:36:50,760 --> 00:36:53,200
Speaker 2: for the transactions, that's typically how your deal flow comes.

707
00:36:53,040 --> 00:36:56,839
Speaker 11: In, exactly, Paul. So the idea is the company's been

708
00:36:56,880 --> 00:36:59,920
Speaker 11: in existent. We started the company in nineteen ninety six,

709
00:37:00,719 --> 00:37:03,759
Speaker 11: so we've been calling on these private equity sponsors for

710
00:37:04,160 --> 00:37:06,320
Speaker 11: I mean, really twenty seven years, the ones that have

711
00:37:06,360 --> 00:37:10,360
Speaker 11: been around that long, but we've established those relationships. We

712
00:37:10,480 --> 00:37:14,160
Speaker 11: financed numerous companies for these sponsors over time, so it's

713
00:37:14,239 --> 00:37:17,240
Speaker 11: kind of that long term relationship. We have the ability

714
00:37:17,320 --> 00:37:21,080
Speaker 11: to source a lot of transactions and it allows us

715
00:37:21,120 --> 00:37:24,120
Speaker 11: to be highly selective. So we only finance four percent

716
00:37:24,200 --> 00:37:25,319
Speaker 11: of the deals that we see.

717
00:37:25,680 --> 00:37:27,799
Speaker 5: Tell us about your portfolio right now and how these

718
00:37:27,880 --> 00:37:30,120
Speaker 5: companies are doing in this higher rate environment.

719
00:37:30,440 --> 00:37:33,440
Speaker 11: Sure, so we have four hundred and eighty five companies

720
00:37:33,520 --> 00:37:39,280
Speaker 11: in the portfolio. Once again, the largest sectors would be software, healthcare,

721
00:37:39,400 --> 00:37:42,400
Speaker 11: and business services. That's about fifty percent of the portfolio.

722
00:37:43,160 --> 00:37:45,480
Speaker 11: The companies that were financed you know, in twenty twenty,

723
00:37:45,640 --> 00:37:49,040
Speaker 11: twenty twenty one and a zero interest rate environment, we're

724
00:37:49,120 --> 00:37:53,040
Speaker 11: done at seven six and a half seven times z

725
00:37:53,160 --> 00:37:57,200
Speaker 11: bit da or more. The interest coverages and the fixed

726
00:37:57,280 --> 00:38:00,360
Speaker 11: charge coverages that are definitely tight. Some of the companies

727
00:38:00,400 --> 00:38:03,239
Speaker 11: have grown into the capital structure, but the ones that

728
00:38:03,400 --> 00:38:07,160
Speaker 11: haven't are going to require and maybe in some cases

729
00:38:07,239 --> 00:38:10,200
Speaker 11: we've already done this. The sponsor is stepping up with

730
00:38:10,480 --> 00:38:14,840
Speaker 11: additional capital to fix the capital structure. Sometimes you know,

731
00:38:15,000 --> 00:38:18,640
Speaker 11: will provide some changes to the deal as well. Some

732
00:38:18,800 --> 00:38:22,400
Speaker 11: of those deals, there's a big opportunity for preferred stock

733
00:38:22,640 --> 00:38:26,000
Speaker 11: to come in to kind of preferred then is used

734
00:38:26,040 --> 00:38:27,640
Speaker 11: to pay down the debt to bring it down so

735
00:38:27,719 --> 00:38:30,000
Speaker 11: that the company's interest coverage is more reasonable.

736
00:38:30,719 --> 00:38:33,080
Speaker 2: So I see in your early in your career ge

737
00:38:33,160 --> 00:38:34,759
Speaker 2: corporate finance, and I did a ton of business with

738
00:38:34,800 --> 00:38:35,719
Speaker 2: those guys back in the day.

739
00:38:35,960 --> 00:38:37,479
Speaker 3: Super good on the credit side.

740
00:38:38,280 --> 00:38:40,799
Speaker 2: You guys knew your numbers back then and your good

741
00:38:41,200 --> 00:38:43,719
Speaker 2: lenders here. What do you look for, Like you have

742
00:38:43,800 --> 00:38:47,480
Speaker 2: a certain leverage threshold that you like the and coverage

743
00:38:47,719 --> 00:38:50,239
Speaker 2: ratios and all those great credit metrics. Or as a

744
00:38:50,320 --> 00:38:52,480
Speaker 2: company by company, sector by sector, how do you guys

745
00:38:52,520 --> 00:38:52,840
Speaker 2: look at it?

746
00:38:52,920 --> 00:38:56,560
Speaker 11: It's absolutely company by company, sector by sector. Now, generally

747
00:38:57,120 --> 00:38:59,520
Speaker 11: in our deals, depending on the sector, the leverage Like

748
00:38:59,600 --> 00:39:03,280
Speaker 11: software companies, you're basically the leverage will be higher because

749
00:39:03,280 --> 00:39:06,640
Speaker 11: those are very much recurring revenue proprietary types of businesses.

750
00:39:07,760 --> 00:39:11,360
Speaker 11: But every deal we analyze on a standalone basis. And

751
00:39:11,440 --> 00:39:13,359
Speaker 11: the great thing is when a company comes in, let's

752
00:39:13,360 --> 00:39:16,319
Speaker 11: say it's a packaging business. Well, we have four hundred

753
00:39:16,320 --> 00:39:19,440
Speaker 11: and eighty five companies in the portfolio, and there might

754
00:39:19,520 --> 00:39:22,880
Speaker 11: be fifteen to twenty other packaging companies, so we can

755
00:39:22,960 --> 00:39:27,120
Speaker 11: immediately look at those companies revenue growth. What's been happening

756
00:39:27,200 --> 00:39:30,839
Speaker 11: with margins what's the EBITDA margin, what's the cappax level?

757
00:39:31,160 --> 00:39:34,080
Speaker 11: And do a quick comparison, which is helpful from a

758
00:39:34,120 --> 00:39:35,000
Speaker 11: diligence standpoint.

759
00:39:35,239 --> 00:39:37,440
Speaker 5: So private credit's been around for a while. I mean

760
00:39:37,480 --> 00:39:40,160
Speaker 5: you just said, and Terry's founded back in ninety seven,

761
00:39:40,440 --> 00:39:44,080
Speaker 5: ninety six, Okay, yeah, so even longer. Why is private

762
00:39:44,160 --> 00:39:47,400
Speaker 5: credit now it seems suddenly becoming like this like the

763
00:39:47,480 --> 00:39:50,080
Speaker 5: hottest asset really just blowing up this year?

764
00:39:50,160 --> 00:39:50,520
Speaker 8: Why now?

765
00:39:51,040 --> 00:39:53,279
Speaker 11: So it's a couple of reasons, mala. It starts with,

766
00:39:53,440 --> 00:39:57,879
Speaker 11: in my mind, there's private equity penetration of US mintal

767
00:39:57,920 --> 00:40:01,120
Speaker 11: market companies. McKinsey s it makes it's maybe twelve or

768
00:40:01,160 --> 00:40:05,560
Speaker 11: thirteen percent of companies in North America. We think that's

769
00:40:05,640 --> 00:40:08,920
Speaker 11: growing and it's going to grow pretty significantly, so more

770
00:40:09,000 --> 00:40:11,880
Speaker 11: companies will be owned by private equity. Combine that with

771
00:40:12,120 --> 00:40:15,400
Speaker 11: banks that have essentially had to exit the business. So

772
00:40:16,120 --> 00:40:20,120
Speaker 11: the banks, with the regulations in place, it makes it

773
00:40:20,239 --> 00:40:22,759
Speaker 11: difficult for them. It just sounds crazy for banks to

774
00:40:22,840 --> 00:40:26,160
Speaker 11: lend money. It's to companies. So a lot of that

775
00:40:26,480 --> 00:40:31,400
Speaker 11: has transferred to private credit. And so while some will say, oh,

776
00:40:31,719 --> 00:40:34,040
Speaker 11: you know, private credit, is it a bubble? Should it

777
00:40:34,120 --> 00:40:36,440
Speaker 11: be more regulated. At the end of the day, private

778
00:40:36,520 --> 00:40:41,640
Speaker 11: credit is the industry that is providing liquidity to North

779
00:40:41,680 --> 00:40:43,719
Speaker 11: American middle market companies.

780
00:40:43,640 --> 00:40:44,719
Speaker 5: Because the banks are not.

781
00:40:45,120 --> 00:40:46,400
Speaker 8: Correct, that is just crazy.

782
00:40:47,840 --> 00:40:49,520
Speaker 3: That's frustrating to me.

783
00:40:49,560 --> 00:40:52,680
Speaker 2: He used to starting my career lending money for a bank,

784
00:40:53,719 --> 00:40:56,520
Speaker 2: and I wouldn't have lost business to you. I just

785
00:40:56,760 --> 00:40:57,400
Speaker 2: weird chased.

786
00:40:57,440 --> 00:40:59,400
Speaker 8: We didn't lose any not to anybody.

787
00:40:59,640 --> 00:41:01,200
Speaker 2: H But now I see, I mean, it's such a

788
00:41:01,239 --> 00:41:05,360
Speaker 2: great business here. So but I do am concerned that

789
00:41:05,520 --> 00:41:09,600
Speaker 2: if one of your portfolio companies blows up. Sure, it's

790
00:41:10,560 --> 00:41:13,200
Speaker 2: the people who pay people that bear that risk. Are

791
00:41:13,239 --> 00:41:16,239
Speaker 2: your institutional investors invested in your funds? Yes, and they

792
00:41:16,280 --> 00:41:17,680
Speaker 2: are all accredited investors.

793
00:41:17,800 --> 00:41:19,719
Speaker 3: They know what they're doing. Sure, So that's kind of

794
00:41:19,760 --> 00:41:20,120
Speaker 3: the self.

795
00:41:20,320 --> 00:41:23,120
Speaker 2: That's the mechanism, right to just I mean, it's not

796
00:41:23,200 --> 00:41:26,080
Speaker 2: really a retail investors, right. So the retail, like I'm

797
00:41:26,120 --> 00:41:27,799
Speaker 2: trying to think, it feels like it should be more

798
00:41:27,840 --> 00:41:30,640
Speaker 2: regulated just because it's been growing so quickly. But in reality,

799
00:41:31,520 --> 00:41:34,800
Speaker 2: it's it's a private, institutional marketplace, correct.

800
00:41:34,920 --> 00:41:40,040
Speaker 11: And that's by the way, the company is sec regulated ready,

801
00:41:40,480 --> 00:41:44,160
Speaker 11: so and we're not taking customer deposits, so we're not

802
00:41:44,239 --> 00:41:47,239
Speaker 11: a bank. We're not taking deposits that are ensured by

803
00:41:47,280 --> 00:41:50,359
Speaker 11: the government. We're taking our capitals coming from We're owned

804
00:41:50,440 --> 00:41:53,800
Speaker 11: by Canadian Pension Plan, which is a huge sovereign for

805
00:41:53,880 --> 00:41:56,520
Speaker 11: five hundred billion a capital under management along with north

806
00:41:56,600 --> 00:42:01,400
Speaker 11: Leaf Capital, another Canadian and management. And then we're raising

807
00:42:01,520 --> 00:42:05,480
Speaker 11: money from very sophisticated institutional investors. I will say on

808
00:42:05,600 --> 00:42:09,319
Speaker 11: the retail side, I think it is a huge opportunity,

809
00:42:09,719 --> 00:42:12,600
Speaker 11: but a huge opportunity for us with high net worth

810
00:42:12,640 --> 00:42:16,239
Speaker 11: and ultra high networth, so again, very sophisticated investors that

811
00:42:16,400 --> 00:42:20,440
Speaker 11: are using a big investment bank to manage their money,

812
00:42:20,760 --> 00:42:23,120
Speaker 11: and we set up a program with them, so it's

813
00:42:23,200 --> 00:42:25,640
Speaker 11: not you know, mom and pop detail.

814
00:42:26,000 --> 00:42:29,080
Speaker 2: Ye, fascinating business. Thanks for coming in. We appreciate it.

815
00:42:29,160 --> 00:42:30,600
Speaker 2: Next Timmer in New York, let us know we'll get

816
00:42:30,600 --> 00:42:33,319
Speaker 2: you back on because we absolutely love this business. It's

817
00:42:33,400 --> 00:42:35,800
Speaker 2: really just a really interesting part of the capital markets

818
00:42:36,040 --> 00:42:38,359
Speaker 2: system that when I started my career wasn't really a thing,

819
00:42:38,480 --> 00:42:40,759
Speaker 2: but boy, it's going to become such a great source

820
00:42:40,760 --> 00:42:42,680
Speaker 2: of capital for a lot of businesses. Timline, he's the

821
00:42:42,760 --> 00:42:45,880
Speaker 2: CEO of and Terry's Capital. They are based in the

822
00:42:46,080 --> 00:42:48,120
Speaker 2: Great City of Chicago.

823
00:42:49,120 --> 00:42:52,200
Speaker 1: Thanks for listening to the Bloomberg Markets podcasts. You can

824
00:42:52,239 --> 00:42:55,960
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever

825
00:42:56,120 --> 00:42:59,720
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

826
00:43:00,080 --> 00:43:01,919
Speaker 1: at Matt Miller nineteen seventy three.

827
00:43:02,400 --> 00:43:03,240
Speaker 2: And I'm Paul Sweeney.

828
00:43:03,280 --> 00:43:04,800
Speaker 3: I'm on Twitter at pt Sweeney.

829
00:43:04,920 --> 00:43:07,560
Speaker 2: Before the podcast, you can always catch us worldwide at

830
00:43:07,560 --> 00:43:08,319
Speaker 2: Bloomberg Radio