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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 2: my co host Matt Miller.
Speaker 1: Every business day we bring you interviews from CEOs, market pros,
Speaker 1: and Bloomberg experts, along with essential market movin news.
Speaker 2: I'm the Bloomberg Markets podcast called Apple Podcasts or wherever
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Speaker 3: Malloy Smith Paul Sweeney live.
Speaker 2: Here in our Bloomberg Interactive Broker's studio, streaming live on
Speaker 2: YouTube as well. We've been talking about SpaceX today, primarily
Speaker 2: about this potential tender offer that might value the company
Speaker 2: in one hundred and seventy five billion dollars. We touched
Speaker 2: on that earlier with Ed Ludlow Bloomberg News out in
Speaker 2: San Francisco. I want to talk about the actual rocket
Speaker 2: stuff that SpaceX is doing. SpaceX Starship sets the pace
Speaker 2: in race to build larger rockets. Elon Musk's latest rocket,
Speaker 2: the most powerful ever built, would offer better economics than
Speaker 2: conventional crash. We'll get into the nuts and bolts the
Speaker 2: space stuff here, and we do that with Lauren Grush.
Speaker 2: She's actually a space reporter. I can't you got to
Speaker 2: get that on your business cards and the coolest job.
Speaker 3: Hey, Lauren, thanks so much for joining us here.
Speaker 2: Talk to us about the actual rocket stuff that Elon
Speaker 2: Musk is setting up. Talk to us about these new
Speaker 2: rockets here.
Speaker 4: Well, really, it's just the one rocket that they're sending
Speaker 4: up in a space it's the Falcon nine, their workforce rocket,
Speaker 4: and what I touched on in our article is that
Speaker 4: it's really kind of the go to rocket at the moment.
Speaker 4: A lot of analysts have been sounding the alarm about
Speaker 4: there being a simple a monopoly by SpaceX on the
Speaker 4: launch market right now, just because other rockets have been
Speaker 4: taken offline, or other rockets that we're supposed to be
Speaker 4: ready have suffered from delays. So at the moment, the
Speaker 4: Falcon nine is really the only working rocket, mostly for
Speaker 4: customers of its size. But SpaceX is also famously working
Speaker 4: on it Starship rocket, which has had a couple of
Speaker 4: launches so far, but it's not ready to take satellites
Speaker 4: to orbit yet, but everyone's kind of bracing for when
Speaker 4: that day will come.
Speaker 5: Yeah, Lauren tell us about the competition in this market, Like,
Speaker 5: surely there've got to be other players out here who
Speaker 5: are making rockets, admittedly not successfully, not as successfully as SpaceX.
Speaker 5: But SpaceX is still a relatively new company, right I mean,
Speaker 5: we're still calling it a startup. There's got to be
Speaker 5: other ones out there.
Speaker 4: I was reading today the term startup being used for SpaceX,
Speaker 4: but it is such a wild thing to say for
Speaker 4: the company because it is such a backbone.
Speaker 6: For our space program.
Speaker 4: I mean, SpaceX is one of, if not the biggest
Speaker 4: partner for NASA right now. The company is responsible for
Speaker 4: taking astronauts to and from the International Space Station, and
Speaker 4: Boeing is trying to do that as well.
Speaker 6: But they're not there yet. So yeah, it's to.
Speaker 4: Call space a SpaceX a startup sounds counterintuitive, but I
Speaker 4: do understand.
Speaker 5: You know, they're still private, but especially with that evaluation,
Speaker 5: it's apparently like worth about as much as like what
Speaker 5: AT and T is worth. I mean, that's just crazy,
Speaker 5: these numbers. So it's I mean, how long has the
Speaker 5: company been around now you think it's time to retire
Speaker 5: that startup word.
Speaker 6: It hasn't been that has been about two decades.
Speaker 4: So I don't consider it a startup personally, but you know,
Speaker 4: like I said, they are still private, so I do
Speaker 4: understand that impulse. But yeah, I mean, it doesn't surprise
Speaker 4: me that their valuation is so high because of all
Speaker 4: the things I listen, you know they are. They are
Speaker 4: pretty much holding up the entire U commercial launch industry
Speaker 4: right now, and like I said, that nassaualize on them
Speaker 4: quite heavily for many of its space programs and for
Speaker 4: its deep space ambitions such as sending astronauts to the
Speaker 4: Moon this decade. So you know, it is a high valuation,
Speaker 4: but like I said, it does seem warranted.
Speaker 2: So Lauren, where are we with this uh starship rocket?
Speaker 2: Because I'm reading your reporting here it says it could
Speaker 2: you know, send up you know potentially you know, huge
Speaker 2: amount of cargo three hundred and thirty one pounds. Where
Speaker 2: are we in the development of that, because that seems
Speaker 2: like it would be a pretty big breakthrough, right.
Speaker 4: So, just recently they had their second test flight of
Speaker 4: Starship where they tried to send it to near orbit
Speaker 4: and it did get it get pretty far, especially compared
Speaker 4: to their first test flight of the vehicle, which cleared
Speaker 4: the pad but started spinning out of control and then
Speaker 4: SpaceX had to blow up the rocket. This time, the
Speaker 4: launch cleared the pad, all of its engines were working properly,
Speaker 4: and it did break apart as planned, a process known
Speaker 4: as stage separation.
Speaker 6: That didn't happen the first time.
Speaker 4: But Starship did blow up when it was embarking out over.
Speaker 6: The Gulf of Mexico.
Speaker 4: Did make it to space, but didn't reach those near
Speaker 4: orbital speeds as planned.
Speaker 6: But for SpaceX, that's just how they test, right.
Speaker 4: They weren't necessarily expecting a perfect launch. They'd just like
Speaker 4: to launch, see if they can get farther than they
Speaker 4: did before, and then use those lessons learned when they
Speaker 4: go on to the next flight. So for them, it
Speaker 4: was a victory because they had improved upon the first flight.
Speaker 4: But still it's going to be a minute before they're
Speaker 4: ready to actually take those satellites to orbit, like I mentioned.
Speaker 5: Yeah, you also mentioned Lauren, So this is I mean
Speaker 5: SpaceX being a huge partner to NASA here and getting
Speaker 5: up to the International Space Station. But if you ever
Speaker 5: see this could be a ship that a rocket ship
Speaker 5: that is that like a regular consumer could go on.
Speaker 6: Well, yeah, that's the plans.
Speaker 4: So obviously, you know, the things that get headlines are
Speaker 4: all of the big ambitions that SpaceX has for starships,
Speaker 4: so sending people to the Moon and Mars and things that,
Speaker 4: you know, sending tourists on deep space missions around the Moon.
Speaker 4: But the truth is, you know, SpaceX does have plans
Speaker 4: for it as simply an orbital rocket. I mean, one
Speaker 4: of the big things that they're going to use Starship
Speaker 4: for is to launch their next their bigger, next generation
Speaker 4: Starlink Starlink satellites. But the idea is also that it
Speaker 4: could be a vehicle for other customer satellites. So you know,
Speaker 4: Elon has talked about eventually just using Starship as a
Speaker 4: replacement for the Falcon nine and having it be the
Speaker 4: the go to rocket for SpaceX.
Speaker 6: We'll see if that actually happens.
Speaker 4: But there is plans beyond just making it a deep
Speaker 4: space vehicle there. They would hopefully make it, you know,
Speaker 4: an orbital vehicle as well. Whether or not custom will
Speaker 4: want that vehicle, whether or not it'll be as cheap
Speaker 4: and flying as rapidly as SpaceX says, you know, those
Speaker 4: are all variables that remain to be seen. But given
Speaker 4: the promises that SpaceX has made, it could be a
Speaker 4: bit of a game changer for the launch market.
Speaker 6: But like I said, we just we have to get there.
Speaker 2: Just to see where is and what is Boca Chica.
Speaker 4: Boca Chica is a town on the southern tip of Texas.
Speaker 6: Have been there a few times.
Speaker 4: It's where Starship is being built at SpaceX's star based facility.
Speaker 4: It's a great location for a company like SpaceX because
Speaker 4: it's right on the water. It's closer to the equator,
Speaker 4: which is helpful when you're launching rockets in terms of
Speaker 4: getting the right speed you need to get to orbit. So,
Speaker 4: uh yeah, it's definitely become a bit of a go
Speaker 4: to destination for SpaceX enthusiasts because you can.
Speaker 3: Does one get the rocket right there in front of
Speaker 3: Let's say I'm coming from New York.
Speaker 2: How do we get the Boca Chica.
Speaker 4: Well, you fly into either Dallas or Houston, and then
Speaker 4: you can either drive or take a small plane down
Speaker 4: to Brownsville and then drive.
Speaker 5: Sounds like you could maybe expense that.
Speaker 2: I can expense that I've got a new corporate card and.
Speaker 5: Just tell us Lauren as well, what are like the
Speaker 5: big space goals right now? I mean we've already you know,
Speaker 5: put people on the Moon, We've got, you know, a
Speaker 5: few rovers that have been to Mars. Like, what are
Speaker 5: like the big targets out there right now?
Speaker 6: Sure?
Speaker 4: Well, just a touch on you know, part of the
Speaker 4: article we're discussing too. You know, one of the big
Speaker 4: goals right now is to kind of break up SpaceX's
Speaker 4: dominance in the launch market right now, So a lot
Speaker 4: of companies, launch startups are either pivoting away from small
Speaker 4: launchers and building larger rockets to compete with the Falcon nine.
Speaker 4: Other companies have been trying to develop their Falcon nine
Speaker 4: competitors for a while, but have suffered from delays. So
Speaker 4: there's a hope that maybe that kind of vehicle will
Speaker 4: capture a good chunk of the launch market that SpaceX
Speaker 4: isn't servicing right now. And then you know there's all
Speaker 4: the real exciting stuff that NASA is working on with
Speaker 4: its commercial partners. You know, NASA has its Artemis mission
Speaker 4: to the Moon, which is hoping to send humans back
Speaker 4: to the learner's lunar service for the first time.
Speaker 6: In nearly or more than half a century.
Speaker 4: And SpaceX is a part of that. Jeff Besis is
Speaker 4: Blue Origin is part of that as well. So it's
Speaker 4: a very exciting time. And then you've got all these
Speaker 4: other industries that are starting up as well, you know,
Speaker 4: commercial habitats and lowerth orbit satellite servicing.
Speaker 6: Being able to fix satellites while they're in orbit already.
Speaker 6: There's there's a lot.
Speaker 4: Going on, and you know, work prices coming down, hopefully
Speaker 4: they can be achieved.
Speaker 3: And fortune.
Speaker 2: We have a space reporter, Lauren Brush. She has our
Speaker 2: space reporter Bloomberg News. She's based down in Texas, a
Speaker 2: great place to be.
Speaker 7: You're listening to the team Ken's are Live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot com,
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Speaker 7: on demand wherever you get your podcasts.
Speaker 3: We got this guy, John Author's in.
Speaker 2: He's smart, He's British, so he sounds probably a little
Speaker 2: bit smarter than he might be. But at the end
Speaker 2: of the day, my New York Yankees got Je Soto,
Speaker 2: John Ars. What did your Boston Red Sox do this offseason?
Speaker 8: You're talking about this in the past ten still the
Speaker 8: last I checked, there's another three months to go. We
Speaker 8: have a brilliant new GM who has the you know,
Speaker 8: intestines of steel necessary for his first big trade to
Speaker 8: be with the Yankees. So let's let's see where he
Speaker 8: goes with the Red Sox are not going to be
Speaker 8: competing for a championship next year. We do have quite
Speaker 8: a number of good prospects coming through. If you can
Speaker 8: make two or three deals, keeping a laser focus on
Speaker 8: getting good starting pitching, we will be fine. And those
Speaker 8: of us, because we've won four championships, we have in
Speaker 8: this century, more than anyone else, and we're not as
Speaker 8: entitled as certain fan bases one city. We can be patients.
Speaker 8: We can just enjoy progress, enjoy the excitement of the
Speaker 8: analysis that goes into building a great team and laugh
Speaker 8: at people who waste money on people like gen College
Speaker 8: and God, yes, there we go.
Speaker 2: Yep, there we get a good, good comeback companies, companies,
Speaker 2: you're not going to win on that one exactly, so
Speaker 2: too will be very good for you. Yeah, we're gonna
Speaker 2: have fun with him. Companies are going broke gradually, not suddenly.
Speaker 2: That says John Author's like a US recession or China's
Speaker 2: post COVID rebound. A wave of corporate defaults was anticipated
Speaker 2: this year but didn't happen. That doesn't mean it won't.
Speaker 2: What are we waiting for here? Rates are going up,
Speaker 2: I mean, I gotta make bond payments, I gotta make interest.
Speaker 8: Rates are actually beginning to go down, been going up
Speaker 8: steadily for two years, and there is still no particular
Speaker 8: wave of defaults. We also had a banking crisis, you know,
Speaker 8: not a major one, but a pretty significant one in
Speaker 8: the spring, which led to very sharp tightening of bank
Speaker 8: lending standards, which has you know, has always in the
Speaker 8: past been a good leading indicator for trouble ahead for credit.
Speaker 8: It's very surprising. I think the single biggest reason we
Speaker 8: don't have significant defaults to date is that is as
Speaker 8: we all know, rates stayed too low for too long.
Speaker 8: It's part of the argument for higher for longer. That
Speaker 8: leaving them down throughout twenty twenty one, which we I
Speaker 8: think everybody, including j. Powell now agrees with a mistake,
Speaker 8: made it much easier for people to lock in a
Speaker 8: very long term finance at low levels, which means that
Speaker 8: things are not coming to a head as quickly as
Speaker 8: they once would now.
Speaker 5: As mentioned then all the stimulus too rolled out in
Speaker 5: March twenty twenty.
Speaker 8: Yes, that is still there in the system. So when
Speaker 8: you look at the actual cash flows that companies are generating,
Speaker 8: you would think they would be moving towards zombie status
Speaker 8: or of needing to contemplate default. And thanks to the
Speaker 8: fact that they still have very very cheap, very unusually
Speaker 8: low debt service charges, they can get away with it.
Speaker 8: I do think. I cited one chart from Jim Reid
Speaker 8: of Deutscher in that column with the average age of
Speaker 8: all the high yield bonds all the junk bonds in
Speaker 8: circulation over time, So you know, if you take all
Speaker 8: the bonds out there, what is the average amount of
Speaker 8: time before they mature? And I was quite startled quite
Speaker 8: how short, it was, this is by far the shortest
Speaker 8: amount of time before people have to refinance that there's
Speaker 8: ever been.
Speaker 6: How much time.
Speaker 8: I think the average is now downcing like five years.
Speaker 8: I don't don't. The other thing that surprised me the Europe.
Speaker 8: At Europe is much more dependent on its banks, which
Speaker 8: is why it the you know why a less aggressive
Speaker 8: tightening there has had much more of a response because
Speaker 8: the banks are much more of a critical part of
Speaker 8: the transmission mechanism.
Speaker 3: There.
Speaker 8: The trend is actually even sharper in Europe. Like absolutely
Speaker 8: nobody in Europe has wanted to take on any new
Speaker 8: debt over the last couple of years, again exaggerating for EVCT,
Speaker 8: but nobody is. And the result is that the that
Speaker 8: there really is not much time at all if you've
Speaker 8: got a speculative loan, a speculative bond on your hands
Speaker 8: in the Europe before you need to refinance it, let's
Speaker 8: keep it in the US.
Speaker 5: You're saying here that this that this corporate wave of
Speaker 5: default still could happen, but as you just said, braids
Speaker 5: are now about to go down more likely than yep.
Speaker 5: Spreads are still pretty tired. I mean, Triple C's has
Speaker 5: probably been the best part of the market to be
Speaker 5: in in So where is this, uh, where could this
Speaker 5: wave of defaults come?
Speaker 8: I mean that that that latter factoid chill. It's true,
Speaker 8: it sends chills up and down.
Speaker 5: My doesn't get you excited to go buy some triple
Speaker 5: Sea bonds.
Speaker 9: No.
Speaker 8: I maybe I may be over applying the lessons from
Speaker 8: covering the credit credit crisis. But no, that that reminds
Speaker 8: me so vividly of what people were convincing themselves about
Speaker 8: about some subprime model. Yeah, but primal and sub primorgage.
Speaker 8: That that that sounds like it's certainly not as big
Speaker 8: as subprime was. But there's no way the scale of
Speaker 8: the problem is that great. But the underlying physics of
Speaker 8: what's going on are alarmingly similar. I think what we need.
Speaker 8: It ultimately comes back to the tired, over done debate
Speaker 8: about soft versus hard landing. If you genuinely get a
Speaker 8: very soft landing in which rates can come down without
Speaker 8: there being a recession, then companies will moddel through. If
Speaker 8: you don't, then you are going to have a lot
Speaker 8: of smaller company defaults. This is another thing. Instantly, if
Speaker 8: you're there is no problem with credit quality for the
Speaker 8: bigger companies like absolutely none. They're about as healthy as
Speaker 8: they've ever been. It's in high yield too, yes, but
Speaker 8: in high yield we're talking serious problems that you would
Speaker 8: normally associate with with a recession. If you have a
Speaker 8: wave of relatively small companies defaulting, that doesn't necessarily create
Speaker 8: severe losses for the for the markets, for financial mine,
Speaker 8: it's because they're not very big, as they tend disproportionately
Speaker 8: to employ more people. So you know, the magnificent tech
Speaker 8: stocks per unit of market cap don't employ many people
Speaker 8: your average high yield lender. Each time one of those
Speaker 8: goes bust. That really the possibility that this becomes a
Speaker 8: rolling effect on the economy is very serious, is very real,
Speaker 8: and I think that is one of the best reasons
Speaker 8: why the Fed might want to take some risks on
Speaker 8: letting inflation go take off again to ease earlier than
Speaker 8: they otherwise might.
Speaker 7: That there is a.
Speaker 8: Possibility that credit wants it bites will have quite a
Speaker 8: significant effect on the economy, even if it doesn't have
Speaker 8: that big an effect on the assets in the first instance.
Speaker 8: In the assets, we look at the asset prices, we
Speaker 8: look at.
Speaker 3: So you've got a good chart in here.
Speaker 2: It's from Fathom Consulting, where you kind of got bankruptcy candidates,
Speaker 2: companies that are bankruptcy candidates, companies that are borderline bankruptcy,
Speaker 2: and then companies that are strong slash healthy, And I'll
Speaker 2: just describe it for our listeners. The trending good. No,
Speaker 2: So is there a I guess the question is, are
Speaker 2: some of those bankruptcy candidates do we need a recession
Speaker 2: for them to be tripped into bankruptcy?
Speaker 8: You would think you didn't. Generally when there are more
Speaker 8: of them around, you know, a given percentage will hit
Speaker 8: the wall even in moderately good economic times. The big
Speaker 8: point to make about that that's based on Altzman scores,
Speaker 8: which is a model that's been used for some decades.
Speaker 5: Does the score yes, yeah, yeah.
Speaker 8: The issue with it is how will it accept how
Speaker 8: will it deals with intangibles. Intangibles are intangible. You can't
Speaker 8: actually measure them, but that doesn't mean they don't exist,
Speaker 8: So it may overstate the issue now that certain intangible
Speaker 8: issues matter more. However, the number of companies that are
Speaker 8: truly strong credits is tiny now, basically because so many
Speaker 8: have borrowed so much at low rates that affects the
Speaker 8: Altman's E scores. What are they going to do when
Speaker 8: they have to when the only way to refinance will
Speaker 8: be at significantly greater interest costs. That is a very
Speaker 8: legitimate concern that does come from that chart. Even if
Speaker 8: they don't go bust, it's going to affect their business
Speaker 8: model badly.
Speaker 5: A lot of companies have taken on that debt because
Speaker 5: there hasn't been that huge of a penalty. I mean,
Speaker 5: when you look at like the difference in spreads going
Speaker 5: from you know, single A to triple B, it's like,
Speaker 5: all right, who cares? You know, it's like a couple
Speaker 5: base points them as well.
Speaker 8: I think it's a little bit. I wrote a column
Speaker 8: about this a couple of years ago. One of my
Speaker 8: favorite pieces of classical music is Barely os is the
Speaker 8: Damnation of Faust, and there's the final scene is when
Speaker 8: Faust is taking is being taken by Mephistopheles to Hell,
Speaker 8: and the beat gets hot, what tiny, tiny little drum
Speaker 8: beats early on and it gets unauda And I think
Speaker 8: that's where we're the kind of themeboard in the credit model.
Speaker 3: We'll go with that.
Speaker 2: John Authurs, thank you so much for that literary musical
Speaker 2: reference Senior Editor Bloomberg Opinions.
Speaker 7: You're listening to the tape Cat's are live program Bloomberg
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Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 2: I want to bring in Mark Drman. He's a reporter
Speaker 2: obviously on the West Coast for Bloomberg News. Got some
Speaker 2: breaking news on Tesla, Mark.
Speaker 3: What do you got for us?
Speaker 9: Yes, So, Tesla has been working on a supercomputer code
Speaker 9: named Dojo. In this computer as a processor, it's very advanced.
Speaker 9: It competes with the high and processors that a lot
Speaker 9: of the companies like Apple, amb Nvidia, et cetera are
Speaker 9: working on right now. And this is allowing them to
Speaker 9: train the AI data necessary to repair the autonomous car
Speaker 9: functionality as they've been working on for their Tesla cars
Speaker 9: and adding over the past several years. And so the
Speaker 9: head of that program, someone who is a chip industry
Speaker 9: legend so to speak, named Ganesh Than Caironamon. He has
Speaker 9: left they have parted ways with him. They have put
Speaker 9: a new person in charge named Peter Bannon. He was
Speaker 9: a former mid level chip executive at Apple. He's now
Speaker 9: leading the program. And obviously when the head of the
Speaker 9: program leaves, that means there is some sort of strategy
Speaker 9: rethink going on, and it is a bit of a
Speaker 9: blow to the effort. So this is extraordinarily significant news,
Speaker 9: both within Tesla as well as in the modern processor
Speaker 9: and AI community.
Speaker 5: Yeah, this sounds like a very high level role here.
Speaker 5: I mean, what are your thoughts then, Mark on Peter
Speaker 5: Bannon and if he's going to be maybe just an
Speaker 5: interim position on lead this project or you really need
Speaker 5: to start winding the scope and look for somebody new
Speaker 5: to come in.
Speaker 9: Yeah, that's exactly right. This is an extraordinarily senior position.
Speaker 9: Not only the future of Tesla, but the future of
Speaker 9: all these car companies and all these technology companies we've
Speaker 9: been talking about is artificial intelligence and machine learning, and
Speaker 9: more so at this level, powered by what are essentially
Speaker 9: supercomputers based on the fundamental technologies that you're getting in
Speaker 9: chips and phones and tablets and computers at this point,
Speaker 9: laptops and stuff. So Peter Bannon is an expert in
Speaker 9: these ARM based processors, these custom by performance, low power
Speaker 9: AI driven chips, and so that Ban in my view,
Speaker 9: will be the long term fit here. He has an
Speaker 9: excellent reputation in both the chip and AI communities. He
Speaker 9: has the experience needed. Will they miss a beat in
Speaker 9: the short term, I would assume so, But in the
Speaker 9: long term I think this is a fitting replacement for Ganesh.
Speaker 2: Do we know why this person left Tesla.
Speaker 9: We are not reporting at this point the circumstances surrounding
Speaker 9: his departure. You know, there has been some strategy rethink
Speaker 9: in terms of where they're going to place the data
Speaker 9: centers that are pounding the back end of these chips.
Speaker 9: It's possible there was some sort of disagreement regarding the
Speaker 9: direction there. The chip has been running behind. This was
Speaker 9: originally introduced a few years ago. The first version was
Speaker 9: supposed to come to market. As with many things we've
Speaker 9: been Fintesla in the last few years, they promise certain
Speaker 9: timelines that have under delivered. This chip has been part
Speaker 9: of that. Certainly, this is super core to the future
Speaker 9: of the company, so certainly I think it has been
Speaker 9: you know, there has been some shakingess around in the project.
Speaker 9: And anytime they're shaking this around a project of the significance,
Speaker 9: you know, you may be in for some sort of
Speaker 9: leadership trancision.
Speaker 5: Yeah, tell us Mark a little bit more about this
Speaker 5: Dojo supercomputer project. This is what's behind the self driving efforts, right, Yes.
Speaker 9: This is behind the self driving efforts. This is to
Speaker 9: catch sure data using camera sensors on cars and other
Speaker 9: Tesla equipment. And then what this processor does. It inputs
Speaker 9: that information into the chips as well as selfware algorithms
Speaker 9: in cloud based data centers. It sort of chops that
Speaker 9: all up, mixes it together, so to speak, and creates
Speaker 9: training data for the cars to be able to understand
Speaker 9: what it has seen and be able to operate autonomously.
Speaker 9: So this is at the very core of that system.
Speaker 3: All right, Mark Dermin, thank you so much. We really
Speaker 3: appreciate it.
Speaker 2: Mark irmerann technology reporter for Bloomberg News on the West
Speaker 2: Coast bringing us this news. Tesla's Dojo supercomputer head exits
Speaker 2: in blow two efforts, so we'll keep on top of
Speaker 2: this story and bring you any additional reporting.
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Speaker 7: from our flagship New York station. Just say Alexa play
Speaker 7: Bloomberg eleven thirty.
Speaker 2: COP twenty eight Dubai just ended, I believe yesterday day before.
Speaker 2: But that's where they all the folks, banks and companies
Speaker 2: and government folks get together and talk about sustainable energy
Speaker 2: on a global scale. Jonathan Maxwell was there. He's the
Speaker 2: CEO and co founder of Sustainable Development Capital. Jonathan, what
Speaker 2: was your takeaway from the COP twenty eight conference there?
Speaker 2: My takeaway with just one of them was the President
Speaker 2: of Biden did not attend, and I thought that was odd.
Speaker 2: Where other world leaders were there? What was your takeaway
Speaker 2: from your perspective?
Speaker 10: I think there are two main headlines this year which
Speaker 10: are a big deal. One of which is kind of
Speaker 10: what we've heard for many years, triple the renewable energy investing.
Speaker 11: I think.
Speaker 10: But what's interesting about this COP is a UN conference
Speaker 10: that happens every year. It happens a couple of weeks.
Speaker 10: Most private sector people go over the weekend that just
Speaker 10: happened because it's energy finance. But the big news was
Speaker 10: actually something that I've been here to talk about before,
Speaker 10: which is energy efficiency. So there were two headline objectives.
Speaker 10: They said, we've got a triple the rate of renew
Speaker 10: and double the rate of energy efficiency. And that's really
Speaker 10: important because this is this cop was being held in
Speaker 10: a petro state. Really, this is really the oil and
Speaker 10: gas industry, the big oil and gas industry saying to
Speaker 10: I think the renewable energy and the clean energy community
Speaker 10: you need us. We're here for the next two, three
Speaker 10: four decades, right, So how are we going to transition?
Speaker 10: How are we going to make and so efficiency became
Speaker 10: a big deal. As far as President Biden's concerned efficiency
Speaker 10: and renewables, He's put up what three hundred and seventy
Speaker 10: billion dollars of US YE incentives and capital. There is
Speaker 10: a question pulled about what more he can do right
Speaker 10: a year away from a contentious election. So I don't
Speaker 10: know what he would have done had he gotten there.
Speaker 10: I mean, John Carrey was there, yep. Bloomberg Green actually
Speaker 10: held an event on when was it on Monday, which
Speaker 10: John Kerry was superbly setting out. I think how important
Speaker 10: you know the transition is, but I think it's a
Speaker 10: reality check.
Speaker 2: You know, got all about you guys are I know
Speaker 2: a big focus of you guys is all about energy efficiency, inefficiency.
Speaker 2: And here's the day when I think of what you
Speaker 2: guys are doing. The world is wasting some seventy five
Speaker 2: percent of its energy, around half of its fuel and
Speaker 2: a third of its water.
Speaker 3: That's kind of that's that.
Speaker 2: When I first heard it, I was like, whoa.
Speaker 5: Yeah, where is all that going?
Speaker 7: Then?
Speaker 10: It's so crazy. It's such an extraordinary, huge dysfunction. I
Speaker 10: had to write a book about it. That's why it
Speaker 10: called the Edge. You know, instead of how we're pushing
Speaker 10: the world and its climate to the brink and what
Speaker 10: we do about it, where does it all go? In
Speaker 10: a nutshell? Right, about ten percent of energy gets lost
Speaker 10: just in producing it. It leaks and then you know
Speaker 10: you have to extract it and about it. The biggest
Speaker 10: piece of it is the way is because we build
Speaker 10: big energy centers in the middle of nowhere and we
Speaker 10: feed communities, industry and town a lot of it gets
Speaker 10: lost just in generating it because there's nothing you can
Speaker 10: do with the heat. If you put a gas molecule
Speaker 10: in which is how we make most energy. Half of
Speaker 10: that gas molecule's energy goes to electricity, the other turns
Speaker 10: into heat. And if there's nothing you can do with it,
Speaker 10: it just goes up in the air into space. They
Speaker 10: don't need it in space. And then the next section
Speaker 10: is once their electricity, say, is out of the power station,
Speaker 10: you've already lost sixty percent of the primary energy. You
Speaker 10: leads another ten percent getting it to the point of use.
Speaker 10: So this is what's happening just in getting energy into
Speaker 10: buildings like this in Manhattan. This is an excellent building.
Speaker 10: Mister Bloomberg's had this nailed for a really long time.
Speaker 5: You see the London office, right, it's.
Speaker 10: Amazing, But you know not not all buildings like that, right,
Speaker 10: So on average they waste twenty thirty percent of the
Speaker 10: energy they use. So that's how you get from seventy
Speaker 10: to seventy five percent. This is huge, it's catastrophic. We're
Speaker 10: we're fighting over this energy all over the world. It's
Speaker 10: costing a fortune. We've got cost of living crisis. We're building,
Speaker 10: by the way, for trillions of dollars. We spent six
Speaker 10: trillion dollars on renewables over the last twenty years, three
Speaker 10: trillion dollars on the grid and meanwhile we're.
Speaker 3: Wasting three quarters of the world's energy.
Speaker 10: I think it's a call out. And this is why
Speaker 10: I say we're wasting the energy. By the way, we're
Speaker 10: wasting half the food and the third of the water.
Speaker 2: And that's a problem I'm fully understood. And it is
Speaker 2: that a focus of action from the folks at Cup
Speaker 2: twenty eight.
Speaker 10: All right, So it depends who you are. So the
Speaker 10: fact that it's actually on now on the headlines. If
Speaker 10: you think about the clean energy train coming down the track,
Speaker 10: it's only really been one lamp on the front renewables.
Speaker 10: Right now you've got two lamps. It says you can't
Speaker 10: can't get there with renewables on its own. You have
Speaker 10: to be more efficient. So the UNNA sees this. I
Speaker 10: think the Department of Energy in the US at least
Speaker 10: twenty percent of the Inflation Reduction Act has gone into it.
Speaker 10: I think it should be.
Speaker 8: At least half.
Speaker 10: And in Europe there's a policy it's called and if
Speaker 10: it happened when Russia invaded Ukraine and we got cut
Speaker 10: off of gas in the Europe, as the forty percent.
Speaker 10: The Europeans came up with a policy. It's got three
Speaker 10: words energy efficiency first, not second, third, tomorrow maybe one day,
Speaker 10: energy efficiency first because they said, look for every unit
Speaker 10: of gas we don't use, it's two and a half.
Speaker 10: We don't need to buy from Russia. Why because we're
Speaker 10: wasting two thirds of it. So I think we've got
Speaker 10: We've been in the in the sort of business of producing, supplying.
Speaker 10: Now I think we're in the business of reducing. Being
Speaker 10: more official. I don't mean de growth, I just mean
Speaker 10: doing more with less. It's more competitive, more productive, it's
Speaker 10: better for security.
Speaker 5: So in these geopolitical risks, and you just mentioned Russian
Speaker 5: and Ukraine, I was wondering if at all that Israel
Speaker 5: came up during this. I know, like when the war
Speaker 5: first started, there was you know, some concern of the
Speaker 5: gas lines that go leaving out of Egypt and if
Speaker 5: those would be impacted, and of course the greater concern
Speaker 5: if the war would escalate involve Iran, what that would
Speaker 5: mean for oil. If you could tell us if that
Speaker 5: it all came up in the conference.
Speaker 10: Did you read my substack three weeks ago, It's exactly
Speaker 10: what it was. Well, I want you to tell me, yeah,
Speaker 10: it's a point. I mean, you know, I think this
Speaker 10: is the point. I mean, the Russia Ukraine nexus is
Speaker 10: really a lot about not all about, but a lot
Speaker 10: about energy, right, and Russia was using Ukraine to gas
Speaker 10: pipe gas into Europe. That game has come to an.
Speaker 3: Now in Israel.
Speaker 10: Israel had done a deal about a year ago with
Speaker 10: the European Union, and that was to send gas, which
Speaker 10: it's been exporting to Egypt, but liquefy it and send
Speaker 10: it to Europe. Europe needed that gas because of the
Speaker 10: Rush Ukraine invasion. And I'm not saying for one moment
Speaker 10: that's a cause of the Israel Hamas conflict, but it's
Speaker 10: definitely a match in the match box. I mean that
Speaker 10: Peymar gas field that exports gas from Israel to Egypt
Speaker 10: is off the coast of Gaza. The Leviathan gas field
Speaker 10: was actually decommissioned. It's now been restarted, but decommissioned because
Speaker 10: of security concerns from Hesbela. So there's no question that
Speaker 10: if you're the Israel and you're since twenty nineteen been
Speaker 10: exporting natural gas, clearly this is not going to be
Speaker 10: great news for Hamas or for Hezbula and Iran, who
Speaker 10: will look on with a dim view. Now I'm not
Speaker 10: saying that this is the cause of the war, but
Speaker 10: i am I'm saying that competition for resources looks beneath
Speaker 10: the Rush Ukraine crisis, it looks beneath the Israel Hamas crisis,
Speaker 10: and it's going to look unfortunately behind some other military conflicts,
Speaker 10: zones and flash points. And that's one of the points
Speaker 10: I make in my book. Look at the Arctic, look
Speaker 10: at the South China. See these are serious resource competition arena.
Speaker 2: At Cup twenty eight, what was the sense of global
Speaker 2: progress towards you know, the original Parish agreement of twenty fifteen.
Speaker 3: Where are we?
Speaker 2: Where's the industry? Where's the world in terms of kind
Speaker 2: of getting to where we need to be?
Speaker 10: All right, I start with the bad news.
Speaker 3: Okay, goodness, So the bad news.
Speaker 10: We're not doing great, right, We just had a This
Speaker 10: year is a record year for fossil fuels, carbon emissions
Speaker 10: are going up. It's not going well well. Temperatures, global
Speaker 10: temperatures record year. I mean, there is, by the way,
Speaker 10: all Nina. So let's just make sure that we understand
Speaker 10: that this is a five year cycle and we've got
Speaker 10: a particularly hot yeah, but all of these things are contributing,
Speaker 10: so we're not doing great. And the most important number
Speaker 10: for me is eighty two percent. Eighty two percent of
Speaker 10: the proportion of the world's energy that's all gas and coal,
Speaker 10: and that's hostantially hasn't changed since Paris, so use it.
Speaker 10: So I'm going to come onto the good news, the
Speaker 10: good news, and with a little bit of reference to
Speaker 10: the bad news. The good news is renewables are accelerating exponentially,
Speaker 10: which is fantastic, but they're not the bad news. They're
Speaker 10: not displacing fossil fuels yet. So you're just adding into
Speaker 10: this system, right, And that's why I've been advocating for
Speaker 10: fifteen years for energy efficiency, because it adding into this
Speaker 10: system isn't helping as much as not using so much
Speaker 10: energy to do the same job. But what happens if
Speaker 10: you don't use the energy. We don't need to waste
Speaker 10: all this energy, either at the point of views or
Speaker 10: getting it there. So if we do better, if we
Speaker 10: cut the amount of energy we need to do the
Speaker 10: same job, it has three huge, incredible benefits. I'm going
Speaker 10: to start with the economy because I'm here in the
Speaker 10: United States best one. Cutting energy cuts costs, you have
Speaker 10: to pay less for it. It's the biggest source of
Speaker 10: competitiveness and productivity. This country has the most incredible endowment
Speaker 10: for the next decade. It's energy independent. This wasn't the
Speaker 10: case before twenty nineteen. But don't waste it, right, use
Speaker 10: that energy, export it, use it here, but don't waste it.
Speaker 10: So that's the first point on cost and compressiveness. And
Speaker 10: if we do that in the United States, we're in
Speaker 10: a much better position. So second component is carbon By
Speaker 10: not using energy in the first place, that's the largest, fastest,
Speaker 10: cheapest source of greenhouse gas emissions. And then the third
Speaker 10: point coming back to energy security, is that there are
Speaker 10: military conflicts arising and they have been since the Second
Speaker 10: World War. Overall and gas and other resources. Going forward,
Speaker 10: I'm afraid we need lots of metals and minerals for
Speaker 10: the trick for the clean energy transition. We need to
Speaker 10: be more efficient by using them because competition for coveted
Speaker 10: resources creates conflict. So for those reasons, energy efficiency, resource
Speaker 10: efficiency is critical. I've only talked about energy today and food.
Speaker 10: How do we make food with energy?
Speaker 5: Time?
Speaker 2: For then you're nothing it's not passionate about this, so
Speaker 2: I think that is works for a positive outcome hopefully.
Speaker 2: Jonathan Maxwell, CEO and co founder Sustainable Development and Capital,
Speaker 2: and we appreciate getting some of his time.
Speaker 7: You're listening to the tape. Cat's are live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business app.
Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 3: Tim Line. He's the CEO of in Terra's Capitol.
Speaker 2: I want to get right to him. He's in our
Speaker 2: Bloomberg Interactive Broker studio and Teris Capital is based in Chicago.
Speaker 2: One of my favorite talents anywhere, and he's now here
Speaker 2: in New York because why not because this is the
Speaker 2: global capital of the world.
Speaker 5: Because we got to be in the studio exactly.
Speaker 3: Hey, Tim, thanks much for joining us here.
Speaker 2: Sixty seven billion of assets on their management, that's what
Speaker 2: you guys have.
Speaker 8: Yes, we do, Paul, That is awesome, dude.
Speaker 2: All right, So talk to us about the private credit business.
Speaker 2: What's a typical type of deal. You guys like the
Speaker 2: look at like to invest.
Speaker 11: In sure so antires. We finance middle market North American businesses,
Speaker 11: So middle market would be companies generally twenty to one
Speaker 11: hundred and fifty million in EBITDA. We like companies that
Speaker 11: are recession resistant, companies that truly have a reason to exist,
Speaker 11: so there's something that they do that's proprietary, recurring revenue businesses.
Speaker 11: We love software businesses, a lot of healthcare businesses, business
Speaker 11: service it, some manufacturing businesses, but generally higher margin companies
Speaker 11: fifteen to twenty percent EBITDA margin and above and highly diversified.
Speaker 11: So we don't finance companies that have a major customer concentration.
Speaker 2: For example, does your deal flow come in from the
Speaker 2: private equity space and they're looking for a debt piece
Speaker 2: for the transactions, that's typically how your deal flow comes.
Speaker 11: In, exactly, Paul. So the idea is the company's been
Speaker 11: in existent. We started the company in nineteen ninety six,
Speaker 11: so we've been calling on these private equity sponsors for
Speaker 11: I mean, really twenty seven years, the ones that have
Speaker 11: been around that long, but we've established those relationships. We
Speaker 11: financed numerous companies for these sponsors over time, so it's
Speaker 11: kind of that long term relationship. We have the ability
Speaker 11: to source a lot of transactions and it allows us
Speaker 11: to be highly selective. So we only finance four percent
Speaker 11: of the deals that we see.
Speaker 5: Tell us about your portfolio right now and how these
Speaker 5: companies are doing in this higher rate environment.
Speaker 11: Sure, so we have four hundred and eighty five companies
Speaker 11: in the portfolio. Once again, the largest sectors would be software, healthcare,
Speaker 11: and business services. That's about fifty percent of the portfolio.
Speaker 11: The companies that were financed you know, in twenty twenty,
Speaker 11: twenty twenty one and a zero interest rate environment, we're
Speaker 11: done at seven six and a half seven times z
Speaker 11: bit da or more. The interest coverages and the fixed
Speaker 11: charge coverages that are definitely tight. Some of the companies
Speaker 11: have grown into the capital structure, but the ones that
Speaker 11: haven't are going to require and maybe in some cases
Speaker 11: we've already done this. The sponsor is stepping up with
Speaker 11: additional capital to fix the capital structure. Sometimes you know,
Speaker 11: will provide some changes to the deal as well. Some
Speaker 11: of those deals, there's a big opportunity for preferred stock
Speaker 11: to come in to kind of preferred then is used
Speaker 11: to pay down the debt to bring it down so
Speaker 11: that the company's interest coverage is more reasonable.
Speaker 2: So I see in your early in your career ge
Speaker 2: corporate finance, and I did a ton of business with
Speaker 2: those guys back in the day.
Speaker 3: Super good on the credit side.
Speaker 2: You guys knew your numbers back then and your good
Speaker 2: lenders here. What do you look for, Like you have
Speaker 2: a certain leverage threshold that you like the and coverage
Speaker 2: ratios and all those great credit metrics. Or as a
Speaker 2: company by company, sector by sector, how do you guys
Speaker 2: look at it?
Speaker 11: It's absolutely company by company, sector by sector. Now, generally
Speaker 11: in our deals, depending on the sector, the leverage Like
Speaker 11: software companies, you're basically the leverage will be higher because
Speaker 11: those are very much recurring revenue proprietary types of businesses.
Speaker 11: But every deal we analyze on a standalone basis. And
Speaker 11: the great thing is when a company comes in, let's
Speaker 11: say it's a packaging business. Well, we have four hundred
Speaker 11: and eighty five companies in the portfolio, and there might
Speaker 11: be fifteen to twenty other packaging companies, so we can
Speaker 11: immediately look at those companies revenue growth. What's been happening
Speaker 11: with margins what's the EBITDA margin, what's the cappax level?
Speaker 11: And do a quick comparison, which is helpful from a
Speaker 11: diligence standpoint.
Speaker 5: So private credit's been around for a while. I mean
Speaker 5: you just said, and Terry's founded back in ninety seven,
Speaker 5: ninety six, Okay, yeah, so even longer. Why is private
Speaker 5: credit now it seems suddenly becoming like this like the
Speaker 5: hottest asset really just blowing up this year?
Speaker 8: Why now?
Speaker 11: So it's a couple of reasons, mala. It starts with,
Speaker 11: in my mind, there's private equity penetration of US mintal
Speaker 11: market companies. McKinsey s it makes it's maybe twelve or
Speaker 11: thirteen percent of companies in North America. We think that's
Speaker 11: growing and it's going to grow pretty significantly, so more
Speaker 11: companies will be owned by private equity. Combine that with
Speaker 11: banks that have essentially had to exit the business. So
Speaker 11: the banks, with the regulations in place, it makes it
Speaker 11: difficult for them. It just sounds crazy for banks to
Speaker 11: lend money. It's to companies. So a lot of that
Speaker 11: has transferred to private credit. And so while some will say, oh,
Speaker 11: you know, private credit, is it a bubble? Should it
Speaker 11: be more regulated. At the end of the day, private
Speaker 11: credit is the industry that is providing liquidity to North
Speaker 11: American middle market companies.
Speaker 5: Because the banks are not.
Speaker 8: Correct, that is just crazy.
Speaker 3: That's frustrating to me.
Speaker 2: He used to starting my career lending money for a bank,
Speaker 2: and I wouldn't have lost business to you. I just
Speaker 2: weird chased.
Speaker 8: We didn't lose any not to anybody.
Speaker 2: H But now I see, I mean, it's such a
Speaker 2: great business here. So but I do am concerned that
Speaker 2: if one of your portfolio companies blows up. Sure, it's
Speaker 2: the people who pay people that bear that risk. Are
Speaker 2: your institutional investors invested in your funds? Yes, and they
Speaker 2: are all accredited investors.
Speaker 3: They know what they're doing. Sure, So that's kind of
Speaker 3: the self.
Speaker 2: That's the mechanism, right to just I mean, it's not
Speaker 2: really a retail investors, right. So the retail, like I'm
Speaker 2: trying to think, it feels like it should be more
Speaker 2: regulated just because it's been growing so quickly. But in reality,
Speaker 2: it's it's a private, institutional marketplace, correct.
Speaker 11: And that's by the way, the company is sec regulated ready,
Speaker 11: so and we're not taking customer deposits, so we're not
Speaker 11: a bank. We're not taking deposits that are ensured by
Speaker 11: the government. We're taking our capitals coming from We're owned
Speaker 11: by Canadian Pension Plan, which is a huge sovereign for
Speaker 11: five hundred billion a capital under management along with north
Speaker 11: Leaf Capital, another Canadian and management. And then we're raising
Speaker 11: money from very sophisticated institutional investors. I will say on
Speaker 11: the retail side, I think it is a huge opportunity,
Speaker 11: but a huge opportunity for us with high net worth
Speaker 11: and ultra high networth, so again, very sophisticated investors that
Speaker 11: are using a big investment bank to manage their money,
Speaker 11: and we set up a program with them, so it's
Speaker 11: not you know, mom and pop detail.
Speaker 2: Ye, fascinating business. Thanks for coming in. We appreciate it.
Speaker 2: Next Timmer in New York, let us know we'll get
Speaker 2: you back on because we absolutely love this business. It's
Speaker 2: really just a really interesting part of the capital markets
Speaker 2: system that when I started my career wasn't really a thing,
Speaker 2: but boy, it's going to become such a great source
Speaker 2: of capital for a lot of businesses. Timline, he's the
Speaker 2: CEO of and Terry's Capital. They are based in the
Speaker 2: Great City of Chicago.
Speaker 1: Thanks for listening to the Bloomberg Markets podcasts. You can
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Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller nineteen seventy three.
Speaker 2: And I'm Paul Sweeney.
Speaker 3: I'm on Twitter at pt Sweeney.
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