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Speaker 2: So the FTC suding to block Amgin's twenty seven point
Speaker 2: eight billion dollar acquisition today. You know, it's just amazing.
Speaker 2: There's a lot of stuff that's coming out of the FTC.
Speaker 2: So let's get right to it because we have a
Speaker 2: blockbuster duo of Jennifer Ree, Bloomberg Intelligence Senior Litigation analyst
Speaker 2: here in a Bloomberg Interactive Brokers studio. Also with us
Speaker 2: is Bloomberg News Anti trust reporter leaet Nyland. She's on
Speaker 2: camp from our DC bureau. Lea, I do want to
Speaker 2: just start with you, just lay out the news of
Speaker 2: what the FTC said and did.
Speaker 3: Yeah.
Speaker 4: So, the FTC suit today it's a block anjen from
Speaker 4: buying Horizon Therapeutics. It filed a lawsuit in Illinois federal
Speaker 4: court asking for a preliminary injunction. That just means that
Speaker 4: it's asking the court to pause the deal while the
Speaker 4: FTC would go through this in house process on whether
Speaker 4: the deal is anti competitive. People were pretty shocked because
Speaker 4: for the past ten years, the FTC is routinely okay
Speaker 4: deals like this just by requiring pharmaceutical companies to divest
Speaker 4: any overlapping drugs they had, and instead, here they're moving
Speaker 4: for an outright block of the deal, something they haven't
Speaker 4: done since two thousand and nine.
Speaker 2: So Jen, come on in on this. Were you shocked
Speaker 2: that they did this?
Speaker 5: You know, I really was. I mean, Leah got it
Speaker 5: exactly right. She really knows this stuff. I did expect
Speaker 5: a suit like this, sort of non traditional, but I
Speaker 5: thought it would be Pheiser Segan, which is pending right now.
Speaker 5: I didn't expect it to be this one because really
Speaker 5: they have absolutely no horizontal overlap, at least in their
Speaker 5: marketed drugs. So it's surprising because the theory is just
Speaker 5: so speculative. Yeah, I mean, thinking about what Amgen might
Speaker 5: do in the future with respect to bundling once it
Speaker 5: has horizons products.
Speaker 2: So what's up with the FDC, you know.
Speaker 6: Is just like a limit, like if any deal is
Speaker 6: more than twenty billion dollars, we're going to suit it
Speaker 6: lock it because they just don't want any big deals done.
Speaker 2: So AI program that goes off and right exactly.
Speaker 5: Well, you know, at the end of the day, it
Speaker 5: is kind of like that. I mean, they view most
Speaker 5: industries as overly consolidated today. And if you start with
Speaker 5: the view that we've already had too much consolidation, then
Speaker 5: your position is I want to stop further consolidation. And
Speaker 5: pharmaceuticals is a really sensitive area. I mean, prices are high.
Speaker 5: We have a problem with that, and in particular, that's
Speaker 5: what anti trust is trying to avoid, you know, high
Speaker 5: prices and increased innovation, and they believe that the consolidation
Speaker 5: has reduced innovation and increased prices, and so they're trying
Speaker 5: to do the best they can to stem the tide.
Speaker 5: So at the end of the day, you know, it
Speaker 5: is a little bit of a default. If it's a
Speaker 5: big deal, if it's an in an industry that's consolidated, yeah,
Speaker 5: it's likely they're going to challenge.
Speaker 2: I just feel like, you know, even though there is
Speaker 2: consolidation that goes on, but isn't that where regulators supposed
Speaker 2: to come in and kind of regulate and make sure
Speaker 2: that things are being done, right, Leah, come on in,
Speaker 2: So what's next here for Amjet.
Speaker 6: And tell us. Also about the state of antitrust. I mean,
Speaker 6: this used to be a good thing. We were all
Speaker 6: for monopoly busting. We want antitrust to spur innovation and competition.
Speaker 6: It seems like, I don't know, the public is bummed
Speaker 6: out every time the FTC sues to block a giant,
Speaker 6: mega deal. Shouldn't we be cheering them on?
Speaker 4: Well, I guess it depends who you ask. BUTTC is
Speaker 4: moving to block this, it'll have to go through a
Speaker 4: court challenge, so this will be an Illinois federal court
Speaker 4: in Chicago, Amjhen and Horizon so that they remain committed
Speaker 4: to the deal, which means that they're willing to litigate this.
Speaker 4: It is sort of, as Jen was saying, a little
Speaker 4: bit of a speculative theory. But some of the stuff
Speaker 4: that the FTC has been moving forward with is a
Speaker 4: lot of concerns about innovation. You see this in their
Speaker 4: block of Microsoft Activision, which really focused on this cloud
Speaker 4: gaming market, which is a very nascent market that's not
Speaker 4: used by a lot of people.
Speaker 2: Yet again, a lot of stuff we don't know yet.
Speaker 4: Yeah, and I'm this the complaint is not yet unsealed
Speaker 4: it'll be unsealed later today, so we'll see a little
Speaker 4: bit more about some of the exact allegations. I had
Speaker 4: thought that there might be a little bit more about
Speaker 4: overlaps in the pipeline, because both Horizon and Amjen are
Speaker 4: working on some deals related to lupus and Exima that
Speaker 4: have some promise but are still pretty early on in
Speaker 4: the process. But so far, what the FTC has said
Speaker 4: is that they're just really concerned about bundling all of
Speaker 4: these orphan drugs. Those are drugs that are for rare
Speaker 4: diseases and sort of the FDA has given monopoly too
Speaker 4: specific companies to encourage them to develop these drugs for
Speaker 4: rare diseases. They're very concerned about having so many orphan
Speaker 4: drugs in the hands of one company.
Speaker 7: Jen.
Speaker 2: For someone who really studies the law here and tries
Speaker 2: to understand, you know, what's going on and make sense
Speaker 2: of it all, I mean, how much of what you're
Speaker 2: looking at it feels like politics in you know, with
Speaker 2: another administration who's watching healthcare generally and what it means,
Speaker 2: pecially as we see private equity increasingly buying up medical practices.
Speaker 5: There's a lot of stuff.
Speaker 2: Going on where I think some would argue consumers are
Speaker 2: getting hurt, no doubt about it. So how do you
Speaker 2: see Is it much more politics in this one or
Speaker 2: is it a case of where the law we need
Speaker 2: to be careful here.
Speaker 5: You know, when I think about it as politics, I
Speaker 5: think of it more as a position.
Speaker 1: Right.
Speaker 5: The current regulators, the heads of the anti trust divisions
Speaker 5: at DOJ and FDC, have a position that has been
Speaker 5: encouraged by the Biden administration, and that is that consumers
Speaker 5: are being harmed and they're on a mission to fix that.
Speaker 7: Right.
Speaker 5: You know, you were talking about deals that people might
Speaker 5: be happy to see. Challenge to the Department of Justice
Speaker 5: is challenging Jeff Blue's acquisition of spirit, and I think
Speaker 5: there are a lot of people that might be happy
Speaker 5: about that that have had really awful experiences flying. You know,
Speaker 5: they are trying to do the best they can for consumers,
Speaker 5: and their position is that the last twenty thirty years
Speaker 5: of anti trust enforcement has been.
Speaker 6: Two lacks and we have this result.
Speaker 2: Do you agree?
Speaker 5: You know, I tend to agree in some industries, but
Speaker 5: not in all. You know, I agree that a new
Speaker 5: position needs to be taken. I think where I have
Speaker 5: a little bit of trouble is that I think it
Speaker 5: needs to be taken with nuance maybe rather than sort
Speaker 5: of with a sledgehammer, because I think if you want
Speaker 5: to make strare, so if you want to push the
Speaker 5: anti trust law, I think it needs to be done carefully.
Speaker 5: And you know they're going to be in front of
Speaker 5: a judge that is I see appointed by Trump and
Speaker 5: was often on a member of the Federalist Society, and
Speaker 5: just at least superficially, that doesn't seem very good for
Speaker 5: the FTC on this one, and they're going to have
Speaker 5: a hard time.
Speaker 6: On the other hand, Look, Leah, Microsoft is a two
Speaker 6: point three trillion dollar company. Do they really need to
Speaker 6: own the biggest and most played video game in the
Speaker 6: whole world?
Speaker 2: I mean, if you're an investor and it's going to
Speaker 2: bring about growth, you're gonna say, yeah, maybe they do.
Speaker 6: Of course, Well, monopolies are really helpful too, So for
Speaker 6: your investor, you'd probably love to have a huge monopoly.
Speaker 6: I'm sure if you're an investor you would love to
Speaker 6: break all the rules. But for the consumer, it's not
Speaker 6: necessarily healthy to give the biggest company in the world
Speaker 6: even bigger size, is it.
Speaker 2: Yeah?
Speaker 4: I mean That's a bit why the FTC has had
Speaker 4: a big focus on some of the large tech mergers.
Speaker 4: I mean, if you look, two of the things that
Speaker 4: they've challenged over the past year have been the Microsoft activision,
Speaker 4: and then they challenged one by Facebook over It was
Speaker 4: a very small sort of startup I deal over Within,
Speaker 4: which makes a virtual reality fitness app that probably a
Speaker 4: lot of people had never even heard of. But this
Speaker 4: idea of like innovation wanting to make sure that there's
Speaker 4: still a lot of innovation across the economy is one
Speaker 4: that we keep seeing come up over and over again
Speaker 4: in a lot of the suits that the Justice Department,
Speaker 4: in particularly the FTC is filing. You know, the meta
Speaker 4: within challenges. I mentioned. They were really worried that, you know,
Speaker 4: Facebook was buying up this small competitor, sort of like
Speaker 4: it did with Instagram back in the day. And they said,
Speaker 4: you know, Facebook is a huge company. If it really
Speaker 4: wanted to move into virtual reality, it could build some
Speaker 4: of these programs itself. That seems like maybe an argument
Speaker 4: that they're making here. You know, Amjen is not a
Speaker 4: small company. This is one of the largest acquisitions it
Speaker 4: has ever done. You know, maybe if it put that
Speaker 4: money towards developing a drug on its own, it could
Speaker 4: have some success.
Speaker 6: Changens one hundred and twenty billion dollar company. They're making
Speaker 6: a thirty billion dollar acquisition.
Speaker 2: It's a lot. It's a lot if you do the
Speaker 2: percentages there. So, Jen, how do you see what is
Speaker 2: kind of the balance? How do you think about it
Speaker 2: in terms of the law versus innovation, you know, and
Speaker 2: companies looking potentially for growth here.
Speaker 5: We know there's a lot of question about innovation and
Speaker 5: how innovation's impacted. I mean, there are some that would
Speaker 5: argue a lot that would argue that we don't have
Speaker 5: enough competition, and competition spurs innovation, and that's certainly the
Speaker 5: FTC's position, as Leah outlined. But there are others that say, well,
Speaker 5: innovation will be slowed because if a startup is basing
Speaker 5: their model, you know, starting their product with the idea
Speaker 5: that it's going to be able to sell out for
Speaker 5: a lot of money to a bigger company down the road,
Speaker 5: and they see that they can't do that, they're not
Speaker 5: going to start to begin with.
Speaker 2: Although Uber, look what Uber is exactly, So I mean,
Speaker 2: I think that there's a debate and really, you know,
Speaker 2: there's no right answer.
Speaker 5: But the bottom line is that there there is some
Speaker 5: evidence and economists have done studies showing that the rate
Speaker 5: of innovation has slowed down, particularly in pharma and in
Speaker 5: tech and the United States, and so it could be
Speaker 5: into the view is that it's part and parcel the
Speaker 5: lack of competition.
Speaker 6: Interesting, got anything else there, buddy, Well, I'm just thinking
Speaker 6: about you know, the innovation that spurred the mRNA vaccines, right,
Speaker 6: didn't come from big pharma. That came from smaller players.
Speaker 6: Of course, they probably also.
Speaker 2: Came with government backing. It came with government backing initially.
Speaker 2: Remember that, yes, messenger RNA technology was initially funded in
Speaker 2: part by government. I did not it was out there
Speaker 2: for four or five years.
Speaker 5: And that's part of the FTC's theory here, because what
Speaker 5: they're concerned about is that amjen is going to thwart
Speaker 5: a foreclosed smaller rivals to push them out by being
Speaker 5: able to have a lot of money to give huge
Speaker 5: rebates to favor its drugs.
Speaker 2: Although Big Farmer looks at those smaller rivals in a
Speaker 2: big way in terms of ultimately buying them up. And
Speaker 2: it's a tough, complicated anyway, we'll have more.
Speaker 6: It is complicated and tough.
Speaker 2: It is Jennry Love Love Love, senior litigation analyst at
Speaker 2: Bloomberg Intelligence Love Leoniland. She's anti trust reporter a Blomberg News.
Speaker 2: Check her out on the terminal and on Twitter.
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Speaker 2: So we know earlier this morning we got to read
Speaker 2: on US retail sales. Right up, it is a bad
Speaker 2: read steady consumer spending.
Speaker 6: Why was it bad Home Depot?
Speaker 7: Oh?
Speaker 6: I thought you were talking about home Depot.
Speaker 2: I'm so glad you listened to me.
Speaker 6: Well, we did get a read on consumer sales from
Speaker 6: home Depot and it was bad.
Speaker 2: Well, we got economic data right from the government retail sales.
Speaker 6: Oh yeah, I trust that less than home deepo Okay.
Speaker 2: And then we got where we saw most of the
Speaker 2: categories showing firmer sales in the month of April. And
Speaker 2: then we got Home Depot coming out and cutting us
Speaker 2: out look for the first.
Speaker 6: Yes for the air, And that's like worrying. I think
Speaker 6: more worrying than because the economy numbers. Of course we
Speaker 6: wait and people trade on them. But the Home Depot
Speaker 6: forecast shows you what Corporate America sees go going forward, right,
Speaker 6: and it's not a pretty.
Speaker 2: Picture, all right, So let's see what our guests has
Speaker 2: to say about it. Mary Luke Gardner is Associate partner
Speaker 2: for CpG Retail and Logistics at Emphasis Consulting. She drews
Speaker 2: us on zoom from Naples, Florida. Hey, Mary Luke, good
Speaker 2: to have you here with Matt and myself. So all right,
Speaker 2: tell us what's more important retail sales, the data or
Speaker 2: home depot or you can say both, or you can
Speaker 2: see me either.
Speaker 8: Well, home depot is its own problem. So retail sales
Speaker 8: were really kind of just in line with the Consumer
Speaker 8: Price Index. There wasn't anything, you know, the expectations. They
Speaker 8: didn't quite meet, you know, they didn't meet the Wall
Speaker 8: Street expectations, but I don't think that they were not surprising.
Speaker 8: Home Depot on the other example, on the other side,
Speaker 8: is they really missed their estimates.
Speaker 7: Right.
Speaker 8: Their revenue dropped four point two percent. They did beat earnings,
Speaker 8: but their comp store growth was down. But that isn't
Speaker 8: that is a result of if you think about year
Speaker 8: over year, when people were stuck in their homes and
Speaker 8: they were, you know, looking around and saying, I need
Speaker 8: to make improvements, and people were spending more on big
Speaker 8: ticket items like appliances and grills and patio sets because
Speaker 8: they were home a little bit more. So there was
Speaker 8: a lot of spending that you wouldn't necessarily repeat year
Speaker 8: over year. And there's also you know, while inflation is
Speaker 8: still very much on the mindes of consumers, lumber hit
Speaker 8: costs have gone down pretty significantly. So the combination of
Speaker 8: those two, those two and then triangulate it with the
Speaker 8: weather extremes on the West Coast really impacted some of
Speaker 8: home depot's sales. So it'll be interesting to see. I
Speaker 8: know they took their guidance down, but it'll be interesting
Speaker 8: to see how long that new kind of that trend.
Speaker 8: And you know how people the consumers are spending in
Speaker 8: that particular sex.
Speaker 6: So essentially, consumers are spending least on projects that require
Speaker 6: them to buy lumber, and lumber prices have fallen, so
Speaker 6: home depots fat margins are now a lot skinnier than
Speaker 6: they were before. Correct, Yes, what does the consumer look
Speaker 6: like to you right now. This is another thing that
Speaker 6: Carol and I have been talking about. We saw, obviously
Speaker 6: the savings rate has just plummeted to nothing, and we've
Speaker 6: seen credit card debt balloon. What I can't get a
Speaker 6: handle on his bank balance is when we listen to
Speaker 6: people like Jamie Diamond, he says, they're still high, but
Speaker 6: surely they've come off. Otherwise consumers wouldn't need to be
Speaker 6: putting things on plastic.
Speaker 8: Well, but yeah, exactly, and credit has gone through the roof,
Speaker 8: and now the challenges around that. They're going to be
Speaker 8: higher interest rates, we're going to be tightening credit limits
Speaker 8: and so and there's a weaker job market. So you
Speaker 8: comminate all those things, consumers are starting to say, oh,
Speaker 8: you know, I need to be careful, and then you've
Speaker 8: got this, you know, you know, if we don't solve
Speaker 8: the debt ceiling problem, which hopefully we will, the news
Speaker 8: over the last hour at least appeared to be a
Speaker 8: little bit better that they're looking for a bipartisan solution,
Speaker 8: that if they don't, then we're in for an economic disaster.
Speaker 8: So I think consumers right now are just waiting and
Speaker 8: making sure that you know that they're not going to
Speaker 8: be losing their four oh one k on top of
Speaker 8: their you know, whatever savings they might have left that
Speaker 8: they had accumulated, you know, during the COVID time.
Speaker 2: So, Marri Lou, it's a big week for retail earnings,
Speaker 2: right We're going to hear from a bunch of companies
Speaker 2: throughout the week and then some But every retailer isn't
Speaker 2: the same, and we know that. So who do you
Speaker 2: think is best positioned considering the economic backdrop? Uh, you know,
Speaker 2: and if you look at individuals, you know, balance sheets,
Speaker 2: as Matt was just talking about, who do you think
Speaker 2: are the best positions? Who are not?
Speaker 8: My bet is on Walmart. I think that you know,
Speaker 8: there's a lot of consensus out there that Walmart versus Target,
Speaker 8: the you know, their their orientation towards delivering value, plus
Speaker 8: the fact that they're a grocery retailer, so you have
Speaker 8: to go in there. There's you're more there's more traffic
Speaker 8: driving through the Walmart door than the Target door. And
Speaker 8: so if you look at the Walmart Target debate right now,
Speaker 8: they've done a better job recovering from their problems that
Speaker 8: they had, you know, in the past year with inventory
Speaker 8: issues than Target has. So my bet would be in
Speaker 8: the Walmart that that they will come out hopefully with
Speaker 8: you know, better earnings, and then Target's got some work
Speaker 8: to do, I think, to regain that consumer and figure out,
Speaker 8: you know, what are they going to do? Particularly if
Speaker 8: there is this you know they're they they're seen as
Speaker 8: the high end of the Walmart.
Speaker 6: Yeah, I was gonna I was going to ask that
Speaker 6: merrily because I mean, we see we have Targets here
Speaker 6: in New York, so I get to go into at
Speaker 6: least smaller versions of I guess they must be bigger
Speaker 6: in the middle of the country, but there's no Walmarts
Speaker 6: around here. Is is Walmart a better bet if you're
Speaker 6: headed into a recession? Do they have lower prices? Is
Speaker 6: that one of those stores that consumers can go to
Speaker 6: if they can no longer afford the prices say at
Speaker 6: a Target? Or are they on a similar level.
Speaker 2: Because it's interesting Walmart and Target if you look at
Speaker 2: their share prices are both up about five percent this year.
Speaker 8: They are. But my bet right now is next we've bet?
Speaker 8: I think was it Walmart tomorrow or Target tomorrow?
Speaker 2: Target tomorrow and then Walmart the day after.
Speaker 8: I knew that they were with that that I think
Speaker 8: we're going to see that Walmart is winning that play
Speaker 8: right now. Target. Right the problem with Target is, you know,
Speaker 8: they haven't invested as heavily in private label and private label.
Speaker 8: We're seeing a lot of trade down from know the
Speaker 8: CpG companies, I mean P and G had earnings that
Speaker 8: really showed that they were losing the private label in
Speaker 8: this past year. And Walmart's done a really good job
Speaker 8: expanding their private label offerings. And well, Target has up
Speaker 8: and up and they've got their their brand. I don't
Speaker 8: think they've done as good of a job there, and
Speaker 8: I don't think they've done a good job just with
Speaker 8: their their brand equity as it relates to value. And
Speaker 8: so right now when we're looking at that you know,
Speaker 8: value proposition in certain markets, I think, well Walmart is
Speaker 8: going to win.
Speaker 6: Target, by the way, is out tomorrow before the market,
Speaker 6: before the bell, and then Walmart is out on Thursday
Speaker 6: morning before the bell correct And there's, like you mentioned,
Speaker 6: a ton of other tjmax Is out tomorrow, we get
Speaker 6: Bath and body Works on Thursday, raw stores on Thursday,
Speaker 6: so there's a lot of retail coming out. Do you
Speaker 6: think we're headed for a recession, Mary Lou, or are
Speaker 6: consumers girding for that?
Speaker 8: I think, you know, people are so nervous about it,
Speaker 8: but hopefully we can stave it off. I'm not one
Speaker 8: hundred percent convinced we can. But the other interesting thing,
Speaker 8: you know, you're talking about all those retailers that and
Speaker 8: you were saying. You know, you're in the city, so
Speaker 8: you see target in their small formats, but the retail
Speaker 8: traffic in the cities has gone down significantly versus the
Speaker 8: suburban areas. So there is this whole other dynamic happening
Speaker 8: right now because people aren't commuting into the cities at
Speaker 8: least not five days a week. You know, they're doing
Speaker 8: true a combination. So there's this whole other dynamic influencing
Speaker 8: retail right now, particularly in the urban markets where they
Speaker 8: do it's significant amount of volume where you've got retailers
Speaker 8: that are starting to pull out of certain markets or
Speaker 8: close stores.
Speaker 6: So there's just on that. On that note, Mary Lou,
Speaker 6: I heard someone today say Low's is better positioned in
Speaker 6: terms of where they are. Do you think that's true
Speaker 6: as well? And we only got about twenty seconds here.
Speaker 8: Ooh, I don't actually know Lowe's footprint as well as
Speaker 8: I know home Depots footprint, but they're different.
Speaker 6: They'll come back to you on that one because they
Speaker 6: are in different places.
Speaker 2: Home deepos down about ten percent this year. Low's has
Speaker 2: just called it flat. But I think from what I understand,
Speaker 2: home Depot plays a lot more to the contractor market.
Speaker 2: I have two brothers who are contractors, and that's a
Speaker 2: big business for them, and it's something that home depots specifically.
Speaker 2: So that's why maybe the lumber story.
Speaker 6: Is really brothers on. Well, they come on, we John Vall.
Speaker 2: Come on in. You know, we could do that. In
Speaker 2: the meantime, we do appreciate Mary Lou Gardner for coming on.
Speaker 2: She's associate partner for Considered Package Goods Retail Logistics of
Speaker 2: It Emphasis Consulting. Joining us via zoom from Naples, Florida.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 2: All right, let's get to it. Let's switch gears a
Speaker 2: little bit. We want to get to a story that's
Speaker 2: in the upcoming new issue of Bloomberg Business Week. It
Speaker 2: talks about how the world we know needs more copper
Speaker 2: for batteries and electro grizz as it transitions away from
Speaker 2: fossil fuels. Chili is the world's number one copper producer,
Speaker 2: and yet there's some issues, some problems with it trying
Speaker 2: to do that. So let's get to it with James Attwood,
Speaker 2: Bloomberg News senior Commodities reporter on Zoom from Santiago, Chile.
Speaker 2: Also here the editor of Bloomberg Business We Jill Weber
Speaker 2: here in our Bloomberg Interactive Brokers studio. I mean, Joel,
Speaker 2: you read the story the green energy transition. It should
Speaker 2: be good for Chili and yet not that straightforward.
Speaker 9: Well, I think I've known for a while how important
Speaker 9: copper is to the Chilian economy, but I don't know
Speaker 9: if I appreciated just how instrumental it is. And Matt,
Speaker 9: you were talking about this earlier. Half the tax revenue
Speaker 9: in this economy comes from copper. But James, what was
Speaker 9: really frightening about the story is that copper is not
Speaker 9: exactly coming out of the ground at the rate that
Speaker 9: it was.
Speaker 7: What's going on, that's right, Well, copper production in Chile
Speaker 7: has basically stagnated, so you know, basically in mining and
Speaker 7: copper specifically, you have to invest in minds to targets
Speaker 7: richer veins of the deposit. So a combination of under
Speaker 7: investment in the case of Kadelco, which is the big
Speaker 7: state owned copper producer here in Chile and it accounts
Speaker 7: for about a half of production, and the fact that
Speaker 7: it's just getting more difficult, more expensive, slower to build
Speaker 7: new mines means that it's a tough task just to
Speaker 7: maintain production to learn, let alone increase it significantly.
Speaker 6: And you kick off the story, by the way, talking
Speaker 6: about the chief engineer that saved those miners who were
Speaker 6: stuck underground for two months. It just illustrates the problems
Speaker 6: they faced. Right, some of these mines are over one
Speaker 6: hundred and what over one hundred and seventeen years old
Speaker 6: or something, So what is the problem. Is it the
Speaker 6: age of the minds, or is it that the actual
Speaker 6: supply of copper and the earth there is more scarce.
Speaker 6: What's the biggest issue? They face.
Speaker 7: Well, that's right. The actual deposits or that the mines
Speaker 7: have been going from more than one hundred years obviously
Speaker 7: not at the same pace are now. So as mining
Speaker 7: operations mature, typically the ore quality deteriorates. So you start
Speaker 7: off mining the richer parts of the deposit, and then
Speaker 7: your all grades or the quality of the AAR starts falling,
Speaker 7: and that means you have to basically dig out more
Speaker 7: rock to produce the same amount of metal. So unless
Speaker 7: you invest continually in a pretty significant way, then your
Speaker 7: grades will start deteriorating and you'll have to you know,
Speaker 7: basically use more volume to produce the same amount. That's
Speaker 7: what's been happening in Chile the last sort of ten
Speaker 7: years or so.
Speaker 2: Sounds expensive, James.
Speaker 7: It does. Yeah. So Kadelco, which is to say, is
Speaker 7: a state owned company. It's been. It was sort of
Speaker 7: born from a nationalization in the early seventies, and the
Speaker 7: military government continued, you know, didn't privatize again, kept it
Speaker 7: as a national state company, and governments over the last
Speaker 7: couple of decades have used the money from Kadelco and
Speaker 7: the mining industry more broadly to grow its economy and
Speaker 7: develop its economy. Now there's been some under investment as
Speaker 7: a result, so basically the company is playing catch up
Speaker 7: to the tune of about thirty to forty billion dollars
Speaker 7: per decade just to maintain output.
Speaker 9: Okay, So Kudelco, who's in charge.
Speaker 7: There, Well, the CEO's Andrei Sigarette, who did ten sorry,
Speaker 7: thirteen years ago. Oversee, he was the chief engineer on
Speaker 7: the rescue of the thirty three Jillian miners years ago
Speaker 7: twenty ten, I think it will So he's an engineer
Speaker 7: turned manager and now he's in charge. And the chairman
Speaker 7: of the board is a governant of Maximo Pacheco, who
Speaker 7: has he's been an energy minister here in Chile as
Speaker 7: well as an executive for paper companies. So they're both
Speaker 7: very seasoned, capable leaders and so and.
Speaker 6: The president is the most left leading leader they've had
Speaker 6: you wrote since Allende.
Speaker 7: That's right, and that actually could help cause in that
Speaker 7: he's a bit more prepared to give funding to Kadoka
Speaker 7: to grow the business of strengthen it as a big
Speaker 7: states of national champion, So that could actually help the
Speaker 7: cause in terms of maintaining production.
Speaker 6: So James, I thought one of the most interesting things,
Speaker 6: one of the most interesting issues that you covered in
Speaker 6: the story is the funding versus the execution or Pacheco right,
Speaker 6: the chairman says, you could send us six billion dollars additionally,
Speaker 6: but we would just give it back because it's not
Speaker 6: about the money we need to actually execute here. And
Speaker 6: the and the and the twist is that they're kind
Speaker 6: of distracted by also having to look for lithium.
Speaker 7: That's right, I mean on your first point. So Pacheco
Speaker 7: and others will say, it's basically a bottleneck in terms
Speaker 7: of engineering and construction that was made far worse by
Speaker 7: the and then even worse by Russia's invasion the Ukraine.
Speaker 7: So it's just really tough to get the materials you need,
Speaker 7: the talent you need, and to get those big projects
Speaker 7: pushed through. Now Koko is juggling four big project which
Speaker 7: projects within the copper business is a huge task, particularly
Speaker 7: in a small economy like Chili where labor is limited
Speaker 7: and resources. And that's right. So Chile has just announced
Speaker 7: this new public private lithium model and assigned Kadelko to
Speaker 7: be the representative of the state to negotiate with with
Speaker 7: private companies and actually to lead those projects. Now, some
Speaker 7: opposition groups, opposition parliamentarians lawmakers say that that's going to
Speaker 7: DISTRACTO from the primary task of writing the ship. In
Speaker 7: terms of copper, Kodolko says, they have the experience in
Speaker 7: the resources and they won't undermine the excuse the pun
Speaker 7: copper ambitions.
Speaker 9: Welcome, welcome when it's a really good butt that so okay,
Speaker 9: So James step back a little bit. What does all
Speaker 9: this mean for the global economy?
Speaker 7: Well, basically that you know, you know, copper is one
Speaker 7: of the so called battery metals, so you use copper. Basically,
Speaker 7: copper is used for wiring predominantly, So if you're going
Speaker 7: to electrify the economy, you need a whole lot of copper,
Speaker 7: as well as nickel and lithium, graphite and others. So
Speaker 7: there's a lot of copper that goes into a rechargeable
Speaker 7: battery and to an electric car, into all the electric
Speaker 7: infrastructure that the world's trying to build out in a
Speaker 7: fast way. So demand for copper is set to grow
Speaker 7: and supply is looking like it's going to struggle to
Speaker 7: grow at the same pace. Now is by no means
Speaker 7: an outlier. It merely reflects the challenges to the supply
Speaker 7: side to ramp up, and the stakes are a bit
Speaker 7: high with kaixist by far of the biggest what's the
Speaker 7: biggest company, the biggest copa producer, and it has the
Speaker 7: world's biggest reserves. So if it struggles, then it's it's
Speaker 7: a good indication that the whole industry is going to
Speaker 7: struggle to accompanying.
Speaker 9: This story really puts this in uh I think in
Speaker 9: dark terms. It just shows how far and away Chile
Speaker 9: is as a copper producer in the world, producing almost
Speaker 9: twice as more than twice as much as Peru, well
Speaker 9: over China, d R c US all follow there. So
Speaker 9: if Chile is having problems here, it starts to make
Speaker 9: you wonder what this green energy transition actually.
Speaker 1: Could look like.
Speaker 9: Uh and it might require a little a little bit
Speaker 9: more uh more holes a new place.
Speaker 6: In order to transition to green energy, you're gonna have
Speaker 6: to blow the face off the earth, right, Not.
Speaker 2: Funny, Not funny, James, Thank you so much, so appreciate it.
Speaker 2: We know, what's the time difference in Santiago's a couple hours.
Speaker 7: Same time we're on some New York time.
Speaker 2: Okay, so good. We were just hoping we weren't keeping
Speaker 2: you up. Jims Atwood, Senior Commodities reporter at Bloomberg joining
Speaker 2: us as we said from Santiago, Chile, Jill Weber, Edit
Speaker 2: at Bloomberg BusinessWeek here on our Interactor Broker Studary studio.
Speaker 2: This is in the new issue of Bloomberg Business Week
Speaker 2: at our newsstands later this week, on the Bloomberg already
Speaker 2: and at Bloomberg dot com slash BusinessWeek.
Speaker 7: Bromco a journal.
Speaker 6: Now about you, let me drive?
Speaker 7: Oh no, no, no, no, please, honey, please, I'll do the
Speaker 7: driving gravels.
Speaker 1: Let's mate, I want to try it.
Speaker 7: It's a good question time.
Speaker 1: This is the Drive to the Clothes dot Com. I
Speaker 1: think we'll buy around on Bloomberg Radio.
Speaker 2: All right, everybody, just under eighteen minutes left in today's
Speaker 2: trading session. Time to get to the Drive to the
Speaker 2: Clothes and back with us. As Hank Smith, head of
Speaker 2: investment strategy for Haverfrid.
Speaker 6: Jack with us after twenty years for you.
Speaker 2: I talked to Hank all the time.
Speaker 6: I'm excited twenty years. Well back twenty years ago, you
Speaker 6: and I were doing a morning show and we had
Speaker 6: a young Hank Smith on. He was just kicking off
Speaker 6: his career. At har for full of vimen Vigor.
Speaker 2: And now he's on the phone from Radnor, Pennsylvania.
Speaker 5: Hank, how are you?
Speaker 2: Was it really total? Did you tell Matt that you were?
Speaker 2: We were your first interview on television.
Speaker 3: That is correct, on Bloomberg's Morning Call at six oh
Speaker 3: five in the morning. Oh my god, years ago.
Speaker 2: Yeah, a long time ago. Man, what's happened in twenty years?
Speaker 3: But I still have the vimen Vigor, Matt. And also
Speaker 3: I should say, welcome back to the US having done
Speaker 3: a lot.
Speaker 6: Thank you Germany, thank you Vivien Vigor, and you have
Speaker 6: really important experience because we're at a place right now, Hank,
Speaker 6: that we haven't been since at least twenty eleven. Right,
Speaker 6: this debt ceiling debate has gotten worse than any time
Speaker 6: I've covered markets since twenty eleven. And I also think
Speaker 6: about the TARP vote when I think about, you know,
Speaker 6: mister market getting angry and throwing a tantrum and forcing
Speaker 6: Washington to do something. And that's what you talk talk
Speaker 6: to me about this morning.
Speaker 3: You know, that's a that's a great analogy. And you know,
Speaker 3: I remember the Bond of Gilantes back in the early
Speaker 3: Clinton administration. But then the stock market can play the
Speaker 3: Gilante as well as they did in October of eight
Speaker 3: when Congress failed to pass TARP on the first vote,
Speaker 3: and you could just see the Dow declining and the
Speaker 3: acceleration of that decline, and I think it closed the
Speaker 3: day down about eight hundred and fifty points and continued declining.
Speaker 3: And it was the stock market's way of saying, boys
Speaker 3: and girls in Congress, you have not made the right vote,
Speaker 3: and you need to reconvene, which they did a week later,
Speaker 3: and you have that risk happening right now. Is in
Speaker 3: fact again at Yellaen's correct in the X date is
Speaker 3: June first, you could see a collapse in the market
Speaker 3: as a way of the market expressing the Congress and
Speaker 3: the President, let's get this debt ceiling raised. So that
Speaker 3: is a distinct possibility, but it is kind of crazy.
Speaker 2: Listen beyond the point. As somebody treated at me. I
Speaker 2: agree with Matt, Sorry, stop spending future generations money. That's
Speaker 2: a given here. But having said that, I feel like
Speaker 2: we go through this process so many times. I feel
Speaker 2: like we're never going to get it right. I don't know,
Speaker 2: because politicians don't really want to do something differently Having
Speaker 2: said that, Hank, what do you have to do differently
Speaker 2: when it comes to investment strategy in this environment that
Speaker 2: creeps up every few years or is it every year
Speaker 2: that it happens? Yeah, I guess we have a debt
Speaker 2: seiling every year.
Speaker 3: Well, yeah, on the previous administration, they did raise the
Speaker 3: debt ceiling without any strings attached, because that's the Trump
Speaker 3: administration was spending freely and so yeah. And in terms
Speaker 3: of again we have a long term focus. But I
Speaker 3: think in this environment, both with a slowing and the
Speaker 3: risk of you know, breaching the X state, I don't
Speaker 3: like to call it the risk of a default because
Speaker 3: I don't think they ever will default. They have enough
Speaker 3: money to pay interest and bills that are rolling over.
Speaker 3: But in this environment, you want to have some defensive
Speaker 3: holdings that historically hold up in slower economic environments and
Speaker 3: also in more volatile environments. So you know, some of
Speaker 3: the healthcare names like the Johnson and Johnson's, some of
Speaker 3: the consumer names like a Dollar General or a Costco
Speaker 3: or a Pepsi that you know are going to do
Speaker 3: well on an earnings basis regardless of where we are
Speaker 3: in the economic cycle.
Speaker 6: We have seen an earnings recession hank, so back to
Speaker 6: back quarters of a contraction in corporate profits. Do you
Speaker 6: think it's going to get worse throughout twenty twenty three?
Speaker 6: I mean, especially as the interest rate hikes that we've
Speaker 6: already seen and you know, with long and variable lags,
Speaker 6: just start to slam into the economy, the credit crunch
Speaker 6: gets worse. Consumers are spending their bank balances and borrowing
Speaker 6: much more on credit cards.
Speaker 3: Are you concerned, Well, let's start with corporate earnings. I
Speaker 3: think there's some tailwinds to earnings that are underappreciated by
Speaker 3: the market. China reopening, improvement in the supply chain, very
Speaker 3: significant cost cutting as though we're already in the middle
Speaker 3: of a recession. Lean in theories that will ulbimently have
Speaker 3: to be filled and then the dec But is.
Speaker 2: That preemptive the corporate moves kind of preemptive.
Speaker 3: Yeah, it's corporate corporate confidence CEO confidence, and the way
Speaker 3: they're doing cost cutting is really indicative of being in
Speaker 3: a recession. But we're not in a recession right now.
Speaker 2: Right Well, and having and you talked Matt, you said
Speaker 2: about individuals. I mean, we've talked about household balance sheets
Speaker 2: here we are still, you know how much out from
Speaker 2: the pandemic, and we've gotten reports that they're still doing okay. Individuals. Yeah,
Speaker 2: what do you what do you think?
Speaker 6: I mean, if you look at all the data savings,
Speaker 6: bank account levels, credit card debt, how is the consumer
Speaker 6: doing well?
Speaker 3: I think the consumer is doing okay, clearly not as
Speaker 3: in strong position as they were a year ago with
Speaker 3: all the transfer payments from the Cares Act and what
Speaker 3: have you, and the lack of spending. So you're seeing
Speaker 3: more spending, You're seeing a credit card debt go go up,
Speaker 3: but you point out bank savings are still strong, the
Speaker 3: consumer is still spending. The consumer is seventy percent of
Speaker 3: GDP services and consumer spending, but it certainly bears watching them.
Speaker 3: Particularly lending standards continue to tighten to the point where
Speaker 3: we have a we have a credit crunch, but corporate
Speaker 3: balance sheets are pretty strong and spreads really haven't widened out,
Speaker 3: so that's not indicative of a near term of a
Speaker 3: near term recession. And of course, you know, the labor
Speaker 3: market is structurally very very strong, and anyone who wants
Speaker 3: a job can have a job. There's still plenty of
Speaker 3: job openings for those looking for it, and again that's
Speaker 3: not indicative of a recessionary environment. And yet consumer confidence
Speaker 3: is at a level that's more consistent with a recession.
Speaker 3: So there are a lot of dichotomies here that the
Speaker 3: market has to sort out.
Speaker 2: Matt, why you're sick?
Speaker 6: I just think I know a lot of kids right
Speaker 6: now who are changing jobs and finding it more difficult
Speaker 6: than they'd imagine to find another to get a new one.
Speaker 6: And to be fair, they're all all the kids that
Speaker 6: I know in this situation. By kids, I mean people
Speaker 6: in their twenties are under.
Speaker 2: The out of college.
Speaker 6: They're all in tech, so that's a difficult place to
Speaker 6: find a right now. Also, I know that a lot
Speaker 6: of people, especially in their twenties and thirties, are worried
Speaker 6: that their college loans are about to kick back in.
Speaker 6: They've had time off from paying those bills and it's
Speaker 6: about to make their monthly not a little bit bigger.
Speaker 2: Yeah, which means they're not going to have money to
Speaker 2: spend on other things.
Speaker 3: Yeah.
Speaker 2: To be continued. Hank Smith, though, thank you so much,
Speaker 2: head of investment strategy at Howe for Trust Company. As
Speaker 2: you know, someone that we've been talking to.
Speaker 6: For decades, but now, I haven't talked to you enough lately, Hanks,
Speaker 6: so I'm looking forward to getting you back on as
Speaker 6: often as we can.
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