WEBVTT - SpaceX, Private Credit, and COP28 0:00:00.120 --> 0:00:04.360 Bloomberg is now on your dashboard with Apple CarPlay and 0:00:04.360 --> 0:00:08.160 Android Auto. It gives you access to every Bloomberg podcast, 0:00:08.280 --> 0:00:11.560 live audio feeds from Bloomberg Radio, print stories from Bloomberg 0:00:11.640 --> 0:00:14.920 News in audio form, and the latest headlines of the 0:00:14.920 --> 0:00:18.640 click of a button with Bloomberg News. Now it's free 0:00:18.680 --> 0:00:21.439 with the latest version of the Bloomberg Business App. That's 0:00:21.680 --> 0:00:24.400 the Bloomberg Business App. Get it on your phone in 0:00:24.440 --> 0:00:27.760 the Apple App Store or on Google Play. Just download 0:00:27.800 --> 0:00:30.560 the app, connect your phone to your car and get started, 0:00:30.960 --> 0:00:34.400 and it's all presented by our sponsor, Interactive Brokers. 0:00:35.400 --> 0:00:38.600 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:38.640 --> 0:00:39.800 my co host Matt Miller. 0:00:40.200 --> 0:00:44.159 Every business day we bring you interviews from CEOs, market pros, 0:00:44.320 --> 0:00:48.200 and Bloomberg experts, along with essential market movin news. 0:00:48.720 --> 0:00:51.839 I'm the Bloomberg Markets podcast called Apple Podcasts or wherever 0:00:51.960 --> 0:00:55.080 you listen to podcasts, and at Bloomberg dot Com slash podcast. 0:00:55.560 --> 0:00:56.880 Malloy Smith Paul Sweeney live. 0:00:56.760 --> 0:01:00.120 Here in our Bloomberg Interactive Broker's studio, streaming live on 0:01:00.160 --> 0:01:03.080 YouTube as well. We've been talking about SpaceX today, primarily 0:01:03.120 --> 0:01:05.440 about this potential tender offer that might value the company 0:01:05.440 --> 0:01:07.640 in one hundred and seventy five billion dollars. We touched 0:01:07.640 --> 0:01:10.600 on that earlier with Ed Ludlow Bloomberg News out in 0:01:11.000 --> 0:01:13.319 San Francisco. I want to talk about the actual rocket 0:01:13.440 --> 0:01:18.479 stuff that SpaceX is doing. SpaceX Starship sets the pace 0:01:18.600 --> 0:01:22.360 in race to build larger rockets. Elon Musk's latest rocket, 0:01:22.560 --> 0:01:26.080 the most powerful ever built, would offer better economics than 0:01:26.160 --> 0:01:28.760 conventional crash. We'll get into the nuts and bolts the 0:01:28.800 --> 0:01:31.640 space stuff here, and we do that with Lauren Grush. 0:01:31.800 --> 0:01:35.000 She's actually a space reporter. I can't you got to 0:01:35.040 --> 0:01:37.840 get that on your business cards and the coolest job. 0:01:37.880 --> 0:01:39.479 Hey, Lauren, thanks so much for joining us here. 0:01:39.520 --> 0:01:42.800 Talk to us about the actual rocket stuff that Elon 0:01:42.920 --> 0:01:45.240 Musk is setting up. Talk to us about these new 0:01:45.319 --> 0:01:45.840 rockets here. 0:01:46.360 --> 0:01:48.680 Well, really, it's just the one rocket that they're sending 0:01:48.720 --> 0:01:52.040 up in a space it's the Falcon nine, their workforce rocket, 0:01:53.040 --> 0:01:55.480 and what I touched on in our article is that 0:01:55.560 --> 0:01:59.040 it's really kind of the go to rocket at the moment. 0:01:59.080 --> 0:02:02.200 A lot of analysts have been sounding the alarm about 0:02:02.440 --> 0:02:06.480 there being a simple a monopoly by SpaceX on the 0:02:06.560 --> 0:02:09.760 launch market right now, just because other rockets have been 0:02:09.919 --> 0:02:13.440 taken offline, or other rockets that we're supposed to be 0:02:13.480 --> 0:02:16.520 ready have suffered from delays. So at the moment, the 0:02:16.560 --> 0:02:20.320 Falcon nine is really the only working rocket, mostly for 0:02:20.400 --> 0:02:24.960 customers of its size. But SpaceX is also famously working 0:02:24.960 --> 0:02:27.600 on it Starship rocket, which has had a couple of 0:02:27.639 --> 0:02:31.480 launches so far, but it's not ready to take satellites 0:02:31.520 --> 0:02:34.079 to orbit yet, but everyone's kind of bracing for when 0:02:34.120 --> 0:02:35.000 that day will come. 0:02:35.560 --> 0:02:39.840 Yeah, Lauren tell us about the competition in this market, Like, 0:02:39.880 --> 0:02:42.040 surely there've got to be other players out here who 0:02:42.040 --> 0:02:47.160 are making rockets, admittedly not successfully, not as successfully as SpaceX. 0:02:47.160 --> 0:02:50.320 But SpaceX is still a relatively new company, right I mean, 0:02:50.360 --> 0:02:52.480 we're still calling it a startup. There's got to be 0:02:52.520 --> 0:02:53.399 other ones out there. 0:02:54.880 --> 0:02:57.960 I was reading today the term startup being used for SpaceX, 0:02:58.000 --> 0:03:00.520 but it is such a wild thing to say for 0:03:00.560 --> 0:03:03.919 the company because it is such a backbone. 0:03:03.440 --> 0:03:05.000 For our space program. 0:03:05.040 --> 0:03:08.280 I mean, SpaceX is one of, if not the biggest 0:03:08.360 --> 0:03:11.480 partner for NASA right now. The company is responsible for 0:03:11.600 --> 0:03:15.240 taking astronauts to and from the International Space Station, and 0:03:15.600 --> 0:03:17.880 Boeing is trying to do that as well. 0:03:17.919 --> 0:03:20.840 But they're not there yet. So yeah, it's to. 0:03:20.840 --> 0:03:24.120 Call space a SpaceX a startup sounds counterintuitive, but I 0:03:24.160 --> 0:03:24.840 do understand. 0:03:24.919 --> 0:03:28.400 You know, they're still private, but especially with that evaluation, 0:03:28.600 --> 0:03:31.600 it's apparently like worth about as much as like what 0:03:31.760 --> 0:03:34.480 AT and T is worth. I mean, that's just crazy, 0:03:34.520 --> 0:03:37.120 these numbers. So it's I mean, how long has the 0:03:37.200 --> 0:03:39.360 company been around now you think it's time to retire 0:03:39.400 --> 0:03:40.240 that startup word. 0:03:42.040 --> 0:03:44.240 It hasn't been that has been about two decades. 0:03:44.280 --> 0:03:47.440 So I don't consider it a startup personally, but you know, 0:03:47.640 --> 0:03:49.400 like I said, they are still private, so I do 0:03:49.560 --> 0:03:53.160 understand that impulse. But yeah, I mean, it doesn't surprise 0:03:53.240 --> 0:03:55.200 me that their valuation is so high because of all 0:03:55.200 --> 0:03:57.600 the things I listen, you know they are. They are 0:03:57.680 --> 0:04:01.680 pretty much holding up the entire U commercial launch industry 0:04:01.920 --> 0:04:04.720 right now, and like I said, that nassaualize on them 0:04:04.800 --> 0:04:08.200 quite heavily for many of its space programs and for 0:04:08.640 --> 0:04:11.360 its deep space ambitions such as sending astronauts to the 0:04:11.400 --> 0:04:15.280 Moon this decade. So you know, it is a high valuation, 0:04:15.440 --> 0:04:18.200 but like I said, it does seem warranted. 0:04:18.800 --> 0:04:23.480 So Lauren, where are we with this uh starship rocket? 0:04:23.480 --> 0:04:25.919 Because I'm reading your reporting here it says it could 0:04:26.200 --> 0:04:29.839 you know, send up you know potentially you know, huge 0:04:29.880 --> 0:04:34.000 amount of cargo three hundred and thirty one pounds. Where 0:04:34.040 --> 0:04:35.679 are we in the development of that, because that seems 0:04:35.720 --> 0:04:38.719 like it would be a pretty big breakthrough, right. 0:04:38.800 --> 0:04:42.080 So, just recently they had their second test flight of 0:04:42.200 --> 0:04:46.080 Starship where they tried to send it to near orbit 0:04:47.000 --> 0:04:51.080 and it did get it get pretty far, especially compared 0:04:51.120 --> 0:04:53.719 to their first test flight of the vehicle, which cleared 0:04:53.760 --> 0:04:56.520 the pad but started spinning out of control and then 0:04:56.560 --> 0:04:59.520 SpaceX had to blow up the rocket. This time, the 0:05:00.360 --> 0:05:03.680 launch cleared the pad, all of its engines were working properly, 0:05:04.480 --> 0:05:08.840 and it did break apart as planned, a process known 0:05:08.880 --> 0:05:09.839 as stage separation. 0:05:10.240 --> 0:05:11.719 That didn't happen the first time. 0:05:12.400 --> 0:05:17.200 But Starship did blow up when it was embarking out over. 0:05:17.040 --> 0:05:17.880 The Gulf of Mexico. 0:05:18.000 --> 0:05:20.520 Did make it to space, but didn't reach those near 0:05:20.680 --> 0:05:21.919 orbital speeds as planned. 0:05:22.520 --> 0:05:25.159 But for SpaceX, that's just how they test, right. 0:05:25.920 --> 0:05:29.640 They weren't necessarily expecting a perfect launch. They'd just like 0:05:29.720 --> 0:05:32.120 to launch, see if they can get farther than they 0:05:32.120 --> 0:05:35.159 did before, and then use those lessons learned when they 0:05:35.240 --> 0:05:37.600 go on to the next flight. So for them, it 0:05:37.640 --> 0:05:40.960 was a victory because they had improved upon the first flight. 0:05:41.400 --> 0:05:43.360 But still it's going to be a minute before they're 0:05:43.400 --> 0:05:47.440 ready to actually take those satellites to orbit, like I mentioned. 0:05:47.520 --> 0:05:49.880 Yeah, you also mentioned Lauren, So this is I mean 0:05:49.960 --> 0:05:53.119 SpaceX being a huge partner to NASA here and getting 0:05:53.200 --> 0:05:56.159 up to the International Space Station. But if you ever 0:05:56.240 --> 0:05:59.680 see this could be a ship that a rocket ship 0:05:59.680 --> 0:06:02.159 that is that like a regular consumer could go on. 0:06:03.400 --> 0:06:04.679 Well, yeah, that's the plans. 0:06:04.720 --> 0:06:08.280 So obviously, you know, the things that get headlines are 0:06:08.560 --> 0:06:11.960 all of the big ambitions that SpaceX has for starships, 0:06:12.040 --> 0:06:14.960 so sending people to the Moon and Mars and things that, 0:06:15.240 --> 0:06:18.760 you know, sending tourists on deep space missions around the Moon. 0:06:19.160 --> 0:06:22.120 But the truth is, you know, SpaceX does have plans 0:06:22.120 --> 0:06:24.680 for it as simply an orbital rocket. I mean, one 0:06:24.720 --> 0:06:26.640 of the big things that they're going to use Starship 0:06:26.720 --> 0:06:29.799 for is to launch their next their bigger, next generation 0:06:29.960 --> 0:06:33.960 Starlink Starlink satellites. But the idea is also that it 0:06:34.000 --> 0:06:37.800 could be a vehicle for other customer satellites. So you know, 0:06:38.120 --> 0:06:41.560 Elon has talked about eventually just using Starship as a 0:06:41.600 --> 0:06:45.640 replacement for the Falcon nine and having it be the 0:06:45.640 --> 0:06:48.160 the go to rocket for SpaceX. 0:06:48.440 --> 0:06:50.720 We'll see if that actually happens. 0:06:50.240 --> 0:06:54.120 But there is plans beyond just making it a deep 0:06:54.120 --> 0:06:57.400 space vehicle there. They would hopefully make it, you know, 0:06:57.480 --> 0:07:01.039 an orbital vehicle as well. Whether or not custom will 0:07:01.080 --> 0:07:04.599 want that vehicle, whether or not it'll be as cheap 0:07:04.760 --> 0:07:08.039 and flying as rapidly as SpaceX says, you know, those 0:07:08.080 --> 0:07:11.600 are all variables that remain to be seen. But given 0:07:11.640 --> 0:07:13.960 the promises that SpaceX has made, it could be a 0:07:14.000 --> 0:07:16.080 bit of a game changer for the launch market. 0:07:16.640 --> 0:07:18.600 But like I said, we just we have to get there. 0:07:18.520 --> 0:07:24.720 Just to see where is and what is Boca Chica. 0:07:25.240 --> 0:07:28.920 Boca Chica is a town on the southern tip of Texas. 0:07:28.960 --> 0:07:30.000 Have been there a few times. 0:07:30.200 --> 0:07:35.280 It's where Starship is being built at SpaceX's star based facility. 0:07:36.000 --> 0:07:39.240 It's a great location for a company like SpaceX because 0:07:39.240 --> 0:07:41.760 it's right on the water. It's closer to the equator, 0:07:42.520 --> 0:07:44.800 which is helpful when you're launching rockets in terms of 0:07:44.840 --> 0:07:48.040 getting the right speed you need to get to orbit. So, 0:07:48.520 --> 0:07:50.920 uh yeah, it's definitely become a bit of a go 0:07:51.000 --> 0:07:54.760 to destination for SpaceX enthusiasts because you can. 0:07:54.960 --> 0:07:57.680 Does one get the rocket right there in front of 0:07:57.720 --> 0:07:58.840 Let's say I'm coming from New York. 0:07:58.840 --> 0:07:59.960 How do we get the Boca Chica. 0:08:01.920 --> 0:08:05.160 Well, you fly into either Dallas or Houston, and then 0:08:05.200 --> 0:08:07.760 you can either drive or take a small plane down 0:08:07.800 --> 0:08:09.040 to Brownsville and then drive. 0:08:09.080 --> 0:08:10.360 Sounds like you could maybe expense that. 0:08:10.440 --> 0:08:13.960 I can expense that I've got a new corporate card and. 0:08:14.000 --> 0:08:16.040 Just tell us Lauren as well, what are like the 0:08:16.080 --> 0:08:19.600 big space goals right now? I mean we've already you know, 0:08:19.680 --> 0:08:21.960 put people on the Moon, We've got, you know, a 0:08:21.960 --> 0:08:23.800 few rovers that have been to Mars. Like, what are 0:08:23.840 --> 0:08:25.480 like the big targets out there right now? 0:08:26.520 --> 0:08:26.800 Sure? 0:08:26.880 --> 0:08:28.960 Well, just a touch on you know, part of the 0:08:29.160 --> 0:08:31.600 article we're discussing too. You know, one of the big 0:08:31.600 --> 0:08:34.280 goals right now is to kind of break up SpaceX's 0:08:34.320 --> 0:08:36.240 dominance in the launch market right now, So a lot 0:08:36.280 --> 0:08:41.040 of companies, launch startups are either pivoting away from small 0:08:41.160 --> 0:08:44.640 launchers and building larger rockets to compete with the Falcon nine. 0:08:44.960 --> 0:08:47.679 Other companies have been trying to develop their Falcon nine 0:08:47.720 --> 0:08:50.760 competitors for a while, but have suffered from delays. So 0:08:51.080 --> 0:08:53.480 there's a hope that maybe that kind of vehicle will 0:08:53.480 --> 0:08:56.400 capture a good chunk of the launch market that SpaceX 0:08:56.440 --> 0:08:59.360 isn't servicing right now. And then you know there's all 0:08:59.400 --> 0:09:02.560 the real exciting stuff that NASA is working on with 0:09:02.600 --> 0:09:05.839 its commercial partners. You know, NASA has its Artemis mission 0:09:06.000 --> 0:09:08.520 to the Moon, which is hoping to send humans back 0:09:08.559 --> 0:09:10.960 to the learner's lunar service for the first time. 0:09:10.920 --> 0:09:13.599 In nearly or more than half a century. 0:09:13.720 --> 0:09:16.120 And SpaceX is a part of that. Jeff Besis is 0:09:16.120 --> 0:09:18.719 Blue Origin is part of that as well. So it's 0:09:18.720 --> 0:09:20.880 a very exciting time. And then you've got all these 0:09:20.920 --> 0:09:23.200 other industries that are starting up as well, you know, 0:09:23.240 --> 0:09:28.000 commercial habitats and lowerth orbit satellite servicing. 0:09:27.679 --> 0:09:30.920 Being able to fix satellites while they're in orbit already. 0:09:30.960 --> 0:09:31.880 There's there's a lot. 0:09:31.760 --> 0:09:35.400 Going on, and you know, work prices coming down, hopefully 0:09:35.480 --> 0:09:36.240 they can be achieved. 0:09:36.280 --> 0:09:36.800 And fortune. 0:09:36.840 --> 0:09:39.000 We have a space reporter, Lauren Brush. She has our 0:09:39.000 --> 0:09:41.400 space reporter Bloomberg News. She's based down in Texas, a 0:09:41.400 --> 0:09:42.040 great place to be. 0:09:43.520 --> 0:09:46.920 You're listening to the team Ken's are Live program Bloomberg 0:09:46.960 --> 0:09:50.320 Markets weekdays at ten am Eastern on Bloomberg dot com, 0:09:50.400 --> 0:09:53.560 the iHeartRadio app, and the Bloomberg Business app or listen 0:09:53.640 --> 0:09:55.760 on demand wherever you get your podcasts. 0:09:57.960 --> 0:09:59.320 We got this guy, John Author's in. 0:09:59.520 --> 0:10:02.640 He's smart, He's British, so he sounds probably a little 0:10:02.640 --> 0:10:05.400 bit smarter than he might be. But at the end 0:10:05.400 --> 0:10:09.640 of the day, my New York Yankees got Je Soto, 0:10:09.840 --> 0:10:14.119 John Ars. What did your Boston Red Sox do this offseason? 0:10:15.360 --> 0:10:19.360 You're talking about this in the past ten still the 0:10:19.480 --> 0:10:22.720 last I checked, there's another three months to go. We 0:10:22.800 --> 0:10:27.200 have a brilliant new GM who has the you know, 0:10:27.360 --> 0:10:31.320 intestines of steel necessary for his first big trade to 0:10:31.320 --> 0:10:37.679 be with the Yankees. So let's let's see where he 0:10:37.720 --> 0:10:39.680 goes with the Red Sox are not going to be 0:10:39.679 --> 0:10:44.160 competing for a championship next year. We do have quite 0:10:44.160 --> 0:10:46.280 a number of good prospects coming through. If you can 0:10:46.800 --> 0:10:50.920 make two or three deals, keeping a laser focus on 0:10:51.160 --> 0:10:55.600 getting good starting pitching, we will be fine. And those 0:10:55.640 --> 0:11:00.320 of us, because we've won four championships, we have in 0:11:00.320 --> 0:11:04.559 this century, more than anyone else, and we're not as 0:11:04.720 --> 0:11:10.599 entitled as certain fan bases one city. We can be patients. 0:11:10.679 --> 0:11:14.560 We can just enjoy progress, enjoy the excitement of the 0:11:14.640 --> 0:11:18.440 analysis that goes into building a great team and laugh 0:11:18.520 --> 0:11:20.720 at people who waste money on people like gen College 0:11:20.800 --> 0:11:23.000 and God, yes, there we go. 0:11:23.200 --> 0:11:26.920 Yep, there we get a good, good comeback companies, companies, 0:11:27.360 --> 0:11:30.240 you're not going to win on that one exactly, so 0:11:30.400 --> 0:11:32.000 too will be very good for you. Yeah, we're gonna 0:11:32.000 --> 0:11:34.920 have fun with him. Companies are going broke gradually, not suddenly. 0:11:34.960 --> 0:11:38.440 That says John Author's like a US recession or China's 0:11:38.480 --> 0:11:41.760 post COVID rebound. A wave of corporate defaults was anticipated 0:11:41.800 --> 0:11:45.280 this year but didn't happen. That doesn't mean it won't. 0:11:45.440 --> 0:11:48.120 What are we waiting for here? Rates are going up, 0:11:48.240 --> 0:11:50.600 I mean, I gotta make bond payments, I gotta make interest. 0:11:51.040 --> 0:11:55.000 Rates are actually beginning to go down, been going up 0:11:55.040 --> 0:11:59.960 steadily for two years, and there is still no particular 0:12:00.200 --> 0:12:04.320 wave of defaults. We also had a banking crisis, you know, 0:12:04.480 --> 0:12:07.240 not a major one, but a pretty significant one in 0:12:07.280 --> 0:12:11.520 the spring, which led to very sharp tightening of bank 0:12:11.600 --> 0:12:17.280 lending standards, which has you know, has always in the 0:12:17.320 --> 0:12:21.200 past been a good leading indicator for trouble ahead for credit. 0:12:22.080 --> 0:12:26.679 It's very surprising. I think the single biggest reason we 0:12:26.800 --> 0:12:32.839 don't have significant defaults to date is that is as 0:12:32.840 --> 0:12:36.840 we all know, rates stayed too low for too long. 0:12:36.880 --> 0:12:39.600 It's part of the argument for higher for longer. That 0:12:40.120 --> 0:12:44.840 leaving them down throughout twenty twenty one, which we I 0:12:44.840 --> 0:12:48.160 think everybody, including j. Powell now agrees with a mistake, 0:12:48.800 --> 0:12:52.000 made it much easier for people to lock in a 0:12:52.559 --> 0:12:57.840 very long term finance at low levels, which means that 0:12:58.040 --> 0:13:00.760 things are not coming to a head as quickly as 0:13:00.800 --> 0:13:02.000 they once would now. 0:13:02.040 --> 0:13:04.319 As mentioned then all the stimulus too rolled out in 0:13:04.559 --> 0:13:05.439 March twenty twenty. 0:13:05.800 --> 0:13:09.680 Yes, that is still there in the system. So when 0:13:09.760 --> 0:13:14.960 you look at the actual cash flows that companies are generating, 0:13:16.400 --> 0:13:19.679 you would think they would be moving towards zombie status 0:13:22.280 --> 0:13:26.280 or of needing to contemplate default. And thanks to the 0:13:27.520 --> 0:13:31.439 fact that they still have very very cheap, very unusually 0:13:31.520 --> 0:13:34.439 low debt service charges, they can get away with it. 0:13:35.080 --> 0:13:38.040 I do think. I cited one chart from Jim Reid 0:13:38.080 --> 0:13:43.280 of Deutscher in that column with the average age of 0:13:43.559 --> 0:13:46.120 all the high yield bonds all the junk bonds in 0:13:46.240 --> 0:13:50.760 circulation over time, So you know, if you take all 0:13:50.800 --> 0:13:53.120 the bonds out there, what is the average amount of 0:13:53.160 --> 0:13:57.040 time before they mature? And I was quite startled quite 0:13:57.120 --> 0:14:01.600 how short, it was, this is by far the shortest 0:14:01.760 --> 0:14:04.960 amount of time before people have to refinance that there's 0:14:05.000 --> 0:14:05.439 ever been. 0:14:05.760 --> 0:14:06.600 How much time. 0:14:08.080 --> 0:14:10.480 I think the average is now downcing like five years. 0:14:12.240 --> 0:14:16.600 I don't don't. The other thing that surprised me the Europe. 0:14:16.640 --> 0:14:19.280 At Europe is much more dependent on its banks, which 0:14:19.320 --> 0:14:23.520 is why it the you know why a less aggressive 0:14:23.560 --> 0:14:26.120 tightening there has had much more of a response because 0:14:26.200 --> 0:14:29.120 the banks are much more of a critical part of 0:14:29.120 --> 0:14:30.560 the transmission mechanism. 0:14:31.960 --> 0:14:32.200 There. 0:14:33.480 --> 0:14:37.119 The trend is actually even sharper in Europe. Like absolutely 0:14:37.200 --> 0:14:39.800 nobody in Europe has wanted to take on any new 0:14:39.880 --> 0:14:42.760 debt over the last couple of years, again exaggerating for EVCT, 0:14:42.880 --> 0:14:46.120 but nobody is. And the result is that the that 0:14:47.960 --> 0:14:50.040 there really is not much time at all if you've 0:14:50.080 --> 0:14:53.360 got a speculative loan, a speculative bond on your hands 0:14:53.400 --> 0:14:55.720 in the Europe before you need to refinance it, let's 0:14:55.760 --> 0:14:56.600 keep it in the US. 0:14:56.800 --> 0:15:00.360 You're saying here that this that this corporate wave of 0:15:00.440 --> 0:15:03.800 default still could happen, but as you just said, braids 0:15:03.800 --> 0:15:06.880 are now about to go down more likely than yep. 0:15:08.040 --> 0:15:10.480 Spreads are still pretty tired. I mean, Triple C's has 0:15:10.480 --> 0:15:12.560 probably been the best part of the market to be 0:15:12.760 --> 0:15:16.280 in in So where is this, uh, where could this 0:15:16.800 --> 0:15:17.760 wave of defaults come? 0:15:17.880 --> 0:15:23.040 I mean that that that latter factoid chill. It's true, 0:15:23.280 --> 0:15:24.800 it sends chills up and down. 0:15:24.840 --> 0:15:27.360 My doesn't get you excited to go buy some triple 0:15:27.400 --> 0:15:27.960 Sea bonds. 0:15:28.360 --> 0:15:28.400 No. 0:15:29.800 --> 0:15:32.880 I maybe I may be over applying the lessons from 0:15:33.000 --> 0:15:37.320 covering the credit credit crisis. But no, that that reminds 0:15:37.400 --> 0:15:41.120 me so vividly of what people were convincing themselves about 0:15:41.760 --> 0:15:45.720 about some subprime model. Yeah, but primal and sub primorgage. 0:15:46.120 --> 0:15:50.480 That that that sounds like it's certainly not as big 0:15:51.160 --> 0:15:54.400 as subprime was. But there's no way the scale of 0:15:54.440 --> 0:15:58.600 the problem is that great. But the underlying physics of 0:15:58.720 --> 0:16:06.080 what's going on are alarmingly similar. I think what we need. 0:16:06.440 --> 0:16:09.840 It ultimately comes back to the tired, over done debate 0:16:09.880 --> 0:16:14.080 about soft versus hard landing. If you genuinely get a 0:16:14.600 --> 0:16:17.840 very soft landing in which rates can come down without 0:16:17.920 --> 0:16:22.280 there being a recession, then companies will moddel through. If 0:16:22.320 --> 0:16:25.520 you don't, then you are going to have a lot 0:16:25.880 --> 0:16:29.840 of smaller company defaults. This is another thing. Instantly, if 0:16:29.840 --> 0:16:32.160 you're there is no problem with credit quality for the 0:16:32.200 --> 0:16:36.040 bigger companies like absolutely none. They're about as healthy as 0:16:36.080 --> 0:16:40.120 they've ever been. It's in high yield too, yes, but 0:16:40.200 --> 0:16:43.680 in high yield we're talking serious problems that you would 0:16:43.680 --> 0:16:49.760 normally associate with with a recession. If you have a 0:16:49.880 --> 0:16:55.880 wave of relatively small companies defaulting, that doesn't necessarily create 0:16:56.280 --> 0:17:00.000 severe losses for the for the markets, for financial mine, 0:17:00.160 --> 0:17:04.240 it's because they're not very big, as they tend disproportionately 0:17:04.440 --> 0:17:08.680 to employ more people. So you know, the magnificent tech 0:17:08.720 --> 0:17:13.119 stocks per unit of market cap don't employ many people 0:17:14.280 --> 0:17:16.800 your average high yield lender. Each time one of those 0:17:16.880 --> 0:17:22.040 goes bust. That really the possibility that this becomes a 0:17:22.200 --> 0:17:26.359 rolling effect on the economy is very serious, is very real, 0:17:27.160 --> 0:17:29.840 and I think that is one of the best reasons 0:17:30.200 --> 0:17:34.159 why the Fed might want to take some risks on 0:17:34.760 --> 0:17:39.439 letting inflation go take off again to ease earlier than 0:17:39.480 --> 0:17:40.240 they otherwise might. 0:17:40.359 --> 0:17:43.080 That there is a. 0:17:43.119 --> 0:17:46.760 Possibility that credit wants it bites will have quite a 0:17:46.840 --> 0:17:50.119 significant effect on the economy, even if it doesn't have 0:17:50.320 --> 0:17:54.560 that big an effect on the assets in the first instance. 0:17:54.720 --> 0:17:56.520 In the assets, we look at the asset prices, we 0:17:56.600 --> 0:17:57.000 look at. 0:17:57.240 --> 0:17:58.480 So you've got a good chart in here. 0:17:58.960 --> 0:18:03.440 It's from Fathom Consulting, where you kind of got bankruptcy candidates, 0:18:03.480 --> 0:18:07.320 companies that are bankruptcy candidates, companies that are borderline bankruptcy, 0:18:07.840 --> 0:18:10.800 and then companies that are strong slash healthy, And I'll 0:18:10.920 --> 0:18:14.200 just describe it for our listeners. The trending good. No, 0:18:14.800 --> 0:18:17.959 So is there a I guess the question is, are 0:18:18.040 --> 0:18:23.440 some of those bankruptcy candidates do we need a recession 0:18:23.480 --> 0:18:26.040 for them to be tripped into bankruptcy? 0:18:26.119 --> 0:18:29.320 You would think you didn't. Generally when there are more 0:18:29.359 --> 0:18:33.080 of them around, you know, a given percentage will hit 0:18:33.119 --> 0:18:36.920 the wall even in moderately good economic times. The big 0:18:37.400 --> 0:18:40.200 point to make about that that's based on Altzman scores, 0:18:40.480 --> 0:18:43.760 which is a model that's been used for some decades. 0:18:44.080 --> 0:18:45.840 Does the score yes, yeah, yeah. 0:18:45.880 --> 0:18:51.239 The issue with it is how will it accept how 0:18:51.320 --> 0:18:56.160 will it deals with intangibles. Intangibles are intangible. You can't 0:18:56.280 --> 0:18:58.879 actually measure them, but that doesn't mean they don't exist, 0:19:00.480 --> 0:19:04.280 So it may overstate the issue now that certain intangible 0:19:04.320 --> 0:19:10.560 issues matter more. However, the number of companies that are 0:19:10.680 --> 0:19:15.560 truly strong credits is tiny now, basically because so many 0:19:15.640 --> 0:19:18.440 have borrowed so much at low rates that affects the 0:19:18.680 --> 0:19:22.760 Altman's E scores. What are they going to do when 0:19:23.920 --> 0:19:26.680 they have to when the only way to refinance will 0:19:26.720 --> 0:19:30.359 be at significantly greater interest costs. That is a very 0:19:30.480 --> 0:19:33.280 legitimate concern that does come from that chart. Even if 0:19:33.320 --> 0:19:35.639 they don't go bust, it's going to affect their business 0:19:35.680 --> 0:19:36.200 model badly. 0:19:36.520 --> 0:19:38.440 A lot of companies have taken on that debt because 0:19:38.480 --> 0:19:40.919 there hasn't been that huge of a penalty. I mean, 0:19:40.960 --> 0:19:42.920 when you look at like the difference in spreads going 0:19:42.960 --> 0:19:45.320 from you know, single A to triple B, it's like, 0:19:45.440 --> 0:19:47.640 all right, who cares? You know, it's like a couple 0:19:47.720 --> 0:19:48.880 base points them as well. 0:19:50.000 --> 0:19:52.920 I think it's a little bit. I wrote a column 0:19:52.960 --> 0:19:55.040 about this a couple of years ago. One of my 0:19:55.080 --> 0:19:57.879 favorite pieces of classical music is Barely os is the 0:19:57.960 --> 0:20:01.360 Damnation of Faust, and there's the final scene is when 0:20:01.440 --> 0:20:06.040 Faust is taking is being taken by Mephistopheles to Hell, 0:20:06.600 --> 0:20:10.800 and the beat gets hot, what tiny, tiny little drum 0:20:10.880 --> 0:20:13.800 beats early on and it gets unauda And I think 0:20:14.080 --> 0:20:16.320 that's where we're the kind of themeboard in the credit model. 0:20:16.480 --> 0:20:16.920 We'll go with that. 0:20:17.040 --> 0:20:19.800 John Authurs, thank you so much for that literary musical 0:20:20.040 --> 0:20:22.400 reference Senior Editor Bloomberg Opinions. 0:20:23.160 --> 0:20:26.200 You're listening to the tape Cat's are live program Bloomberg 0:20:26.320 --> 0:20:29.879 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:20:29.960 --> 0:20:33.160 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:20:33.240 --> 0:20:36.040 You can also listen live on Amazon Alexa from our 0:20:36.080 --> 0:20:40.440 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:20:42.119 --> 0:20:44.040 I want to bring in Mark Drman. He's a reporter 0:20:44.119 --> 0:20:46.920 obviously on the West Coast for Bloomberg News. Got some 0:20:47.160 --> 0:20:49.080 breaking news on Tesla, Mark. 0:20:48.960 --> 0:20:49.600 What do you got for us? 0:20:50.840 --> 0:20:53.920 Yes, So, Tesla has been working on a supercomputer code 0:20:53.960 --> 0:20:58.560 named Dojo. In this computer as a processor, it's very advanced. 0:20:58.720 --> 0:21:01.119 It competes with the high and processors that a lot 0:21:01.160 --> 0:21:05.520 of the companies like Apple, amb Nvidia, et cetera are 0:21:05.680 --> 0:21:07.920 working on right now. And this is allowing them to 0:21:08.000 --> 0:21:12.600 train the AI data necessary to repair the autonomous car 0:21:13.000 --> 0:21:15.280 functionality as they've been working on for their Tesla cars 0:21:15.320 --> 0:21:17.639 and adding over the past several years. And so the 0:21:17.760 --> 0:21:21.080 head of that program, someone who is a chip industry 0:21:21.280 --> 0:21:25.360 legend so to speak, named Ganesh Than Caironamon. He has 0:21:25.480 --> 0:21:28.160 left they have parted ways with him. They have put 0:21:28.240 --> 0:21:31.040 a new person in charge named Peter Bannon. He was 0:21:31.080 --> 0:21:33.719 a former mid level chip executive at Apple. He's now 0:21:33.840 --> 0:21:36.200 leading the program. And obviously when the head of the 0:21:36.280 --> 0:21:39.360 program leaves, that means there is some sort of strategy 0:21:39.440 --> 0:21:40.960 rethink going on, and it is a bit of a 0:21:41.040 --> 0:21:44.520 blow to the effort. So this is extraordinarily significant news, 0:21:45.160 --> 0:21:48.560 both within Tesla as well as in the modern processor 0:21:48.640 --> 0:21:49.480