1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg P and L 6 00:00:20,840 --> 00:00:33,120 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Roger McNamee, 7 00:00:33,240 --> 00:00:36,199 Speaker 1: co founder Elevation Partners, also one of the leaders of 8 00:00:36,200 --> 00:00:39,120 Speaker 1: the band Moon Alice, and he joins us here in 9 00:00:39,200 --> 00:00:43,000 Speaker 1: our eleven three oh studios based in Menlo Park, California. 10 00:00:43,120 --> 00:00:46,120 Speaker 1: Roger Pleasure, thanks for being here him. It is always 11 00:00:46,120 --> 00:00:48,559 Speaker 1: fun to be on Bloomberg Radio. All right, are you 12 00:00:48,600 --> 00:00:52,800 Speaker 1: addicted to the Internet. Well, I'm definitely addicted to social 13 00:00:52,800 --> 00:00:56,560 Speaker 1: media and my smartphone. In fact, the realization of that 14 00:00:56,680 --> 00:01:00,880 Speaker 1: fact was one of those incredibly disapp pointing things where 15 00:01:00,880 --> 00:01:02,960 Speaker 1: I went, oh, my gosh, you know, I think of 16 00:01:03,000 --> 00:01:06,480 Speaker 1: myself as self disciplined. I think of myself this being 17 00:01:06,560 --> 00:01:12,920 Speaker 1: fitness oriented and ah. The realization that that this thing 18 00:01:13,000 --> 00:01:17,520 Speaker 1: was controlling my life was not my finest heart. When 19 00:01:17,520 --> 00:01:20,000 Speaker 1: when was this? Uh? And I should also note that 20 00:01:20,000 --> 00:01:22,160 Speaker 1: you're you know, you've got an iPad it in your 21 00:01:22,200 --> 00:01:25,199 Speaker 1: hands right now. I do, and in fact so I. 22 00:01:25,200 --> 00:01:27,959 Speaker 1: I have spent thirty five years as an investor in 23 00:01:27,959 --> 00:01:31,080 Speaker 1: the technology industry, and I've always been an early adopter, 24 00:01:31,400 --> 00:01:36,160 Speaker 1: and I've always felt that technology was a thing, that 25 00:01:36,240 --> 00:01:38,000 Speaker 1: it was a tool, but it was a tool that 26 00:01:38,120 --> 00:01:40,319 Speaker 1: could make my life better in a lot of ways. 27 00:01:40,520 --> 00:01:45,080 Speaker 1: And that has been consistently true. I mean, notwithstanding all 28 00:01:45,120 --> 00:01:47,280 Speaker 1: of the aggravation. If you think thirty five years, you've 29 00:01:47,280 --> 00:01:51,040 Speaker 1: gone back, that's the very beginning of personal computers. And 30 00:01:51,200 --> 00:01:53,520 Speaker 1: God knows a lot of the products along the way 31 00:01:53,600 --> 00:01:57,680 Speaker 1: have delivered less than than their initial promise. The challenge 32 00:01:57,680 --> 00:02:00,520 Speaker 1: that we have with internet platforms on smart phones is that, 33 00:02:00,680 --> 00:02:03,360 Speaker 1: for the first time, we have a device in a 34 00:02:03,400 --> 00:02:08,240 Speaker 1: smartphone that can really deliver any kind of content more 35 00:02:08,320 --> 00:02:12,840 Speaker 1: or less anywhere, Lucien, every moment that you're awake, and 36 00:02:13,360 --> 00:02:18,160 Speaker 1: you know, like everyone else, I did not anticipate how 37 00:02:18,240 --> 00:02:21,040 Speaker 1: that was going to change my life. I mean, the 38 00:02:21,320 --> 00:02:26,720 Speaker 1: good parts were obvious immediately. The dark side became clear, only, 39 00:02:27,000 --> 00:02:29,680 Speaker 1: shall we say, with a lag, and sadly that leg 40 00:02:29,800 --> 00:02:33,120 Speaker 1: was well passed the point at which I was largely 41 00:02:33,360 --> 00:02:36,639 Speaker 1: unable to modify my behavior. So, Roger, you are an 42 00:02:36,639 --> 00:02:40,720 Speaker 1: early investor with both Google and Facebook, and you've been 43 00:02:40,720 --> 00:02:44,560 Speaker 1: writing columns basically bashing them for the past years, so 44 00:02:44,880 --> 00:02:48,720 Speaker 1: basically saying that Facebook and Google threatened public health and democracy. 45 00:02:49,320 --> 00:02:53,160 Speaker 1: I invested early in Google and Facebook. Now they terrify me. 46 00:02:53,680 --> 00:02:56,160 Speaker 1: Have you heard any response from me there of the company? 47 00:02:56,200 --> 00:02:59,519 Speaker 1: I have not. And so the important thing to understand 48 00:02:59,639 --> 00:03:02,080 Speaker 1: is that before I went public on this, I spent 49 00:03:02,200 --> 00:03:07,720 Speaker 1: four months appealing to Facebook directly, starting with Mark Zuckerberg 50 00:03:07,720 --> 00:03:11,760 Speaker 1: and Cheryl Sandberg and then working with other executives that 51 00:03:11,840 --> 00:03:15,840 Speaker 1: they had delegated to deal with this, beginning in October 52 00:03:16,720 --> 00:03:21,600 Speaker 1: before the election UH, and accelerating dramatically on November nine, 53 00:03:22,520 --> 00:03:25,000 Speaker 1: where I tried for four months as a friend of 54 00:03:25,000 --> 00:03:28,160 Speaker 1: the firm to persuade them that I thought that the 55 00:03:28,320 --> 00:03:31,360 Speaker 1: things that we were seeing with respect to Brexit, with 56 00:03:31,400 --> 00:03:35,520 Speaker 1: respect to the U S election, with respect to UM firm, 57 00:03:35,680 --> 00:03:40,080 Speaker 1: financial firms using Facebook tools to discriminate in housing, UH, 58 00:03:40,240 --> 00:03:42,320 Speaker 1: some of the things related to Black Lives Matter, some 59 00:03:42,360 --> 00:03:44,520 Speaker 1: of things that were going on overseas, that I thought 60 00:03:44,600 --> 00:03:47,320 Speaker 1: all of those things had a common route, which was 61 00:03:47,400 --> 00:03:49,920 Speaker 1: to say that the business model of Facebook, the advertising 62 00:03:49,960 --> 00:03:53,120 Speaker 1: business model and the way the algorithms were set up 63 00:03:53,760 --> 00:03:59,200 Speaker 1: created um incentives for bad actors to use the platform, 64 00:03:59,320 --> 00:04:01,560 Speaker 1: and that really terrified me. You know, I just have 65 00:04:01,640 --> 00:04:04,760 Speaker 1: to say we did get Jana Partners and cal Stars, 66 00:04:04,840 --> 00:04:07,840 Speaker 1: the second biggest public pension in the US coming out 67 00:04:07,920 --> 00:04:11,480 Speaker 1: putting a letter out appealing as investors in Apple, appealing 68 00:04:11,480 --> 00:04:16,040 Speaker 1: that they study the effect of iPhones on children. Apple responds, 69 00:04:16,320 --> 00:04:18,719 Speaker 1: We're fine, We're good. We have the protections that we 70 00:04:18,760 --> 00:04:21,599 Speaker 1: need and we're looking at it. I mean, since this 71 00:04:21,720 --> 00:04:25,679 Speaker 1: behavior has gotten so rooted, is there any financial reason 72 00:04:26,440 --> 00:04:30,880 Speaker 1: for Facebook, Google, or Apple to modify anything about their businesses? 73 00:04:31,240 --> 00:04:33,760 Speaker 1: So that is a, I think a great question. Now 74 00:04:33,800 --> 00:04:36,799 Speaker 1: I want to come a little bit to Apple's defense. Apple, 75 00:04:36,960 --> 00:04:41,320 Speaker 1: as the the maker of the iPhone, has an unusual 76 00:04:41,680 --> 00:04:45,920 Speaker 1: market power here, and to their credit, they've exercised that 77 00:04:46,279 --> 00:04:52,120 Speaker 1: very constructively over the last year without any external stimuli. 78 00:04:52,400 --> 00:04:55,839 Speaker 1: The most important thing they did was they've upgraded the 79 00:04:55,839 --> 00:04:59,760 Speaker 1: operating systems over the last few months and they eliminated 80 00:05:00,360 --> 00:05:03,880 Speaker 1: auto play in Internet applications. This is really important for 81 00:05:04,040 --> 00:05:07,320 Speaker 1: video on the Internet, and they essentially made it impossible 82 00:05:07,360 --> 00:05:13,080 Speaker 1: for Facebook and Netflix to have AutoPlay b the default thing, 83 00:05:13,760 --> 00:05:18,120 Speaker 1: and that was a very consumer friendly thing. They've also 84 00:05:18,320 --> 00:05:21,520 Speaker 1: been very good at enabling things like ad blockers and 85 00:05:21,600 --> 00:05:25,719 Speaker 1: tracking blockers to protect your privacy. There's a lot more 86 00:05:25,760 --> 00:05:30,720 Speaker 1: Apple can do, and I welcome shareholders taking a role here. 87 00:05:30,720 --> 00:05:34,600 Speaker 1: I do think shareholder activism is going to matter a 88 00:05:34,600 --> 00:05:39,240 Speaker 1: lot because I'm very concerned that there is no appetite 89 00:05:39,240 --> 00:05:43,280 Speaker 1: for regulation of this in the United States. And realistically, 90 00:05:43,320 --> 00:05:47,159 Speaker 1: we're so early in the process of educating consumers about 91 00:05:47,160 --> 00:05:49,840 Speaker 1: what's going on that it's going to take years. And 92 00:05:50,279 --> 00:05:52,400 Speaker 1: you know, we have an election coming up in November. 93 00:05:52,880 --> 00:05:56,320 Speaker 1: There will for sure be massive attempts to manipulate, just 94 00:05:56,520 --> 00:05:59,880 Speaker 1: as there were in probably coming from people both inside 95 00:05:59,880 --> 00:06:03,640 Speaker 1: the US and outside, left right center, all over the place. 96 00:06:03,680 --> 00:06:06,200 Speaker 1: I mean, essentially, the Russians showed you that you can 97 00:06:06,279 --> 00:06:09,880 Speaker 1: use those tools to produce the outcome of your dreams. 98 00:06:10,240 --> 00:06:11,880 Speaker 1: And we're going to see a lot of people try. 99 00:06:11,960 --> 00:06:14,040 Speaker 1: Many of them will fail, but we're going to see 100 00:06:14,040 --> 00:06:16,839 Speaker 1: a lot of people try. Because it is inherent in 101 00:06:16,880 --> 00:06:23,440 Speaker 1: the design of Facebook that the way they talk about 102 00:06:23,520 --> 00:06:25,760 Speaker 1: bringing people together, but in fact what the product does 103 00:06:26,279 --> 00:06:30,839 Speaker 1: is it it polarizes. It basically tries to um in 104 00:06:30,960 --> 00:06:34,080 Speaker 1: order to service its business models. Business models based on advertising. 105 00:06:34,120 --> 00:06:37,880 Speaker 1: Advertising is based on engagement. Engagement is based on emotion. 106 00:06:38,200 --> 00:06:41,000 Speaker 1: The emotions that cause the highest engagement are the ones 107 00:06:41,080 --> 00:06:44,440 Speaker 1: we call the lizard brain emotions, things like fear and anger. 108 00:06:45,120 --> 00:06:48,479 Speaker 1: And the problem with fear and anger, obviously, is that 109 00:06:48,520 --> 00:06:52,560 Speaker 1: they're asymmetric, and people who want to do harm can 110 00:06:52,640 --> 00:06:54,840 Speaker 1: use fear and anger a lot more effectively than people 111 00:06:54,880 --> 00:06:57,880 Speaker 1: want to do good. And I first observed that during Brexit, 112 00:06:58,080 --> 00:07:00,719 Speaker 1: So when the UK was voting whether to leave the 113 00:07:00,760 --> 00:07:07,640 Speaker 1: European Union, there was the campaign to leave was based 114 00:07:07,720 --> 00:07:11,040 Speaker 1: on two kind of outrageous emotional appeals. One they were 115 00:07:11,040 --> 00:07:13,760 Speaker 1: going to take all the savings and bail out the 116 00:07:13,880 --> 00:07:18,000 Speaker 1: National Health Service, and the one they really focused on 117 00:07:18,040 --> 00:07:21,760 Speaker 1: was terrifying people about the role that immigrants were playing 118 00:07:21,800 --> 00:07:24,880 Speaker 1: in the economy and in the culture. And the leave 119 00:07:25,320 --> 00:07:28,000 Speaker 1: or Sorry the Remain campaign the other side, had a 120 00:07:28,280 --> 00:07:34,360 Speaker 1: very sedate kind of, you know, stay the course, unemotional appeal. 121 00:07:34,680 --> 00:07:37,760 Speaker 1: They were doomed. And we don't know exactly, but we 122 00:07:37,840 --> 00:07:42,240 Speaker 1: suspect that the economic advantage to the leave campaign of 123 00:07:42,400 --> 00:07:45,960 Speaker 1: using products like Facebook was roughly twenty to one. That is, 124 00:07:46,040 --> 00:07:48,800 Speaker 1: if you had a negative you know, tear it down 125 00:07:48,920 --> 00:07:51,239 Speaker 1: kind of thing. I think that appealed to anger and fear. 126 00:07:51,880 --> 00:07:55,120 Speaker 1: You get roughly twenty times the reach for every dollar 127 00:07:55,240 --> 00:07:59,240 Speaker 1: you invest, and that is a prohibitive advantage. And it's 128 00:07:59,280 --> 00:08:01,920 Speaker 1: a symmetric. There is nothing that the people with the 129 00:08:01,960 --> 00:08:06,200 Speaker 1: positive campaign can do because Facebook isn't structured to emphasize 130 00:08:06,240 --> 00:08:11,160 Speaker 1: the positive, is structured to emphasize the negative. That's a choice. 131 00:08:11,240 --> 00:08:14,800 Speaker 1: Real quick twenty seconds. Do you still own any steak 132 00:08:14,920 --> 00:08:17,160 Speaker 1: in Google and Facebook? I do own a steak in 133 00:08:17,200 --> 00:08:19,400 Speaker 1: Facebook because I'm trying to help them get this right. 134 00:08:19,600 --> 00:08:21,480 Speaker 1: I want to work with them. But would you sell 135 00:08:21,520 --> 00:08:24,520 Speaker 1: it if they didn't do it right eventually? Yes, of course, 136 00:08:24,600 --> 00:08:27,520 Speaker 1: but I hold hope. I mean, I think these are 137 00:08:27,520 --> 00:08:29,120 Speaker 1: smart people. I think they're good people. I don't think 138 00:08:29,120 --> 00:08:32,240 Speaker 1: they intended to do this. Roger mcnameee, thank you so 139 00:08:32,360 --> 00:08:34,920 Speaker 1: much for joining us. Always always a pleasure speaking with you. 140 00:08:35,160 --> 00:08:39,840 Speaker 1: Roger McNamee is co founder of Elevation Partners in Menlo Park, California. 141 00:08:39,920 --> 00:08:43,120 Speaker 1: He's also in a band, Muna Alice. He's got the 142 00:08:43,120 --> 00:08:44,920 Speaker 1: callouses on his fingers to show it. We were going 143 00:08:44,960 --> 00:08:47,440 Speaker 1: to ask him to freestyle and he was prepared, So 144 00:08:47,600 --> 00:08:50,080 Speaker 1: maybe the rest of the show will be just that, 145 00:08:50,280 --> 00:09:08,920 Speaker 1: thank you so much for joining us. Tesla the company 146 00:09:08,960 --> 00:09:12,599 Speaker 1: that continues to defy calls for its demise. Tesla is 147 00:09:12,640 --> 00:09:16,240 Speaker 1: burning through about a billion dollars of cash each quarter, 148 00:09:16,520 --> 00:09:20,920 Speaker 1: and now it's having trouble meeting its goals with respect 149 00:09:21,000 --> 00:09:24,439 Speaker 1: to production meeting it's probably going to have to raise 150 00:09:24,679 --> 00:09:27,720 Speaker 1: more money. Here with us to talk about its debt 151 00:09:27,800 --> 00:09:30,959 Speaker 1: profile and how it might meet its financing needs is 152 00:09:31,080 --> 00:09:34,920 Speaker 1: Joel Levington, senior credit analyst for Bloomberg Intelligence who joins 153 00:09:35,000 --> 00:09:38,240 Speaker 1: us at our eleven three oh studios. Joel, Tesla has 154 00:09:38,280 --> 00:09:42,679 Speaker 1: already issued debt. It has fallen in price with yields 155 00:09:42,920 --> 00:09:46,360 Speaker 1: rising since issue ends. What are its options at this 156 00:09:46,440 --> 00:09:49,640 Speaker 1: point for raising money in the debt market? Sure, well, 157 00:09:49,679 --> 00:09:52,000 Speaker 1: I think they have a few options. They've issued both 158 00:09:52,000 --> 00:09:55,320 Speaker 1: senior unsecured notes. They can always go back to that market. UH. 159 00:09:55,400 --> 00:09:57,679 Speaker 1: To me, I think they would be smarter to use 160 00:09:57,840 --> 00:10:01,360 Speaker 1: a convertible instrument. They have several UH convertible bonds that 161 00:10:01,400 --> 00:10:04,640 Speaker 1: are outstanding. Mainly because at this point in time, when 162 00:10:04,720 --> 00:10:07,959 Speaker 1: cash flow is weak, to put on a fixed layer 163 00:10:08,000 --> 00:10:11,120 Speaker 1: of interest EXPANSE on top of that UH really puts 164 00:10:11,200 --> 00:10:13,080 Speaker 1: extra pressure on the on the P and L, and 165 00:10:13,120 --> 00:10:16,120 Speaker 1: also on the balance sheet. So does this also include 166 00:10:16,160 --> 00:10:19,320 Speaker 1: the depth that was incurred by the purchase of Solar City. 167 00:10:19,800 --> 00:10:21,959 Speaker 1: That's exactly right. And one of the interesting things about 168 00:10:21,960 --> 00:10:25,880 Speaker 1: how the rating agencies look at Tesla is that none 169 00:10:25,880 --> 00:10:29,400 Speaker 1: of that Solar City debt is guaranteed, so essentially Tesla 170 00:10:29,400 --> 00:10:31,720 Speaker 1: could walk away from it if they chose to. But 171 00:10:31,760 --> 00:10:34,520 Speaker 1: the rating agencies included in all their calculations as if 172 00:10:34,520 --> 00:10:37,200 Speaker 1: they would never walk away from it. Uh. I find 173 00:10:37,200 --> 00:10:39,920 Speaker 1: that to be interesting simply because the Solar City bonds, 174 00:10:39,920 --> 00:10:42,200 Speaker 1: like you get a twenty nineteen Solar City bond at 175 00:10:42,200 --> 00:10:44,439 Speaker 1: about five and a half percent, not all that different 176 00:10:44,480 --> 00:10:47,400 Speaker 1: than the seven year bond UH the Tesla bond that 177 00:10:47,640 --> 00:10:50,400 Speaker 1: is in the index, So clearly there's some liquidity there, 178 00:10:50,960 --> 00:10:53,720 Speaker 1: but you're also cutting down your term risk by about 179 00:10:53,720 --> 00:10:57,400 Speaker 1: seven years. So I'm looking right now at Tesla bonds, 180 00:10:57,480 --> 00:11:03,040 Speaker 1: the ones that are due in August, currently yielding about 181 00:11:03,280 --> 00:11:06,480 Speaker 1: six percent, priced under don any six cents on the 182 00:11:06,520 --> 00:11:09,640 Speaker 1: dollar on the dollar, and I have to wonder, um, 183 00:11:09,760 --> 00:11:13,679 Speaker 1: this is well below other companies in the high yeal 184 00:11:13,760 --> 00:11:16,360 Speaker 1: bond market as far as the price goes higher yield 185 00:11:16,960 --> 00:11:20,400 Speaker 1: UM our bon us is going to buy this. I mean, honestly, 186 00:11:20,440 --> 00:11:23,800 Speaker 1: Tesla has not proven that they can be profitable or 187 00:11:23,960 --> 00:11:29,719 Speaker 1: come through on its promises. Right, Well, investors will buy 188 00:11:29,720 --> 00:11:31,640 Speaker 1: it because they did buy it. They did buy it, 189 00:11:31,679 --> 00:11:34,280 Speaker 1: and they they punished for it, and they haven't punished 190 00:11:34,320 --> 00:11:36,880 Speaker 1: for it. I think the thing is is that you 191 00:11:36,920 --> 00:11:40,600 Speaker 1: know that the company is very polarizing. People either feel 192 00:11:40,679 --> 00:11:44,760 Speaker 1: very strongly that it's gonna change the world and you know, 193 00:11:44,760 --> 00:11:46,520 Speaker 1: like that would be great if it doesn't. Other people 194 00:11:46,520 --> 00:11:49,760 Speaker 1: feel like it's miserable and will never achieve its goals, 195 00:11:49,880 --> 00:11:53,000 Speaker 1: and a senior unsecured piece of paper doesn't really work 196 00:11:53,040 --> 00:11:55,800 Speaker 1: for either of those cases. If you are feeling strong 197 00:11:55,840 --> 00:11:59,079 Speaker 1: about the company, that's a place where you're saying, I 198 00:11:59,120 --> 00:12:01,280 Speaker 1: should be bullish and that like look to clip a 199 00:12:01,320 --> 00:12:03,560 Speaker 1: five point three percent coupon. I should be in the equity. 200 00:12:04,160 --> 00:12:06,920 Speaker 1: If you feel very against the company, then there then 201 00:12:06,960 --> 00:12:09,080 Speaker 1: you wouldn't be in the bonds or the or the equity. Right. 202 00:12:09,120 --> 00:12:11,599 Speaker 1: So basically you're getting none of the upside with the 203 00:12:11,640 --> 00:12:13,679 Speaker 1: bond and all of the downside risk with the senior 204 00:12:13,720 --> 00:12:16,839 Speaker 1: unsecured bond, whereas convertible you kind of are mixing the two, 205 00:12:16,840 --> 00:12:19,520 Speaker 1: you're giving them financing. You're not diluding shareholders, but you're 206 00:12:19,520 --> 00:12:23,840 Speaker 1: also getting some steak in the potential upside um. So 207 00:12:23,880 --> 00:12:28,200 Speaker 1: you're saying that it's likely or it would be appropriate 208 00:12:28,400 --> 00:12:31,719 Speaker 1: for Tesla to look at convertible bonds for financing. Does 209 00:12:31,720 --> 00:12:35,840 Speaker 1: this mean that the unsecured bond market is I don't 210 00:12:35,840 --> 00:12:38,520 Speaker 1: want to say close to them, but only available to 211 00:12:38,559 --> 00:12:40,240 Speaker 1: them if they're willing to pay up a lot more 212 00:12:40,280 --> 00:12:42,679 Speaker 1: than they did last time around. Right, well, as you 213 00:12:42,920 --> 00:12:45,520 Speaker 1: as you can see now that their bonds are you know, 214 00:12:45,559 --> 00:12:48,760 Speaker 1: somewhere about five and three quarters to six percent, so 215 00:12:48,800 --> 00:12:50,720 Speaker 1: they could issue new bonds. I don't think that would 216 00:12:50,720 --> 00:12:53,520 Speaker 1: be a problem issuing more unsecured bonds if they wanted to. 217 00:12:53,640 --> 00:12:55,800 Speaker 1: I just think strategically it doesn't make a lot of 218 00:12:55,840 --> 00:12:58,920 Speaker 1: sense to go that route, especially when you're equity price 219 00:12:59,000 --> 00:13:01,480 Speaker 1: is so high. Now is the time to you know, 220 00:13:01,520 --> 00:13:05,320 Speaker 1: like worry about getting your business operations together as opposed 221 00:13:05,320 --> 00:13:09,800 Speaker 1: to layer layering in additional financial risk through an unsecured issue. 222 00:13:10,679 --> 00:13:13,040 Speaker 1: I understand that they've got what about four hundred and 223 00:13:13,160 --> 00:13:16,280 Speaker 1: eighteen million that in bond principle that is due this year. 224 00:13:16,600 --> 00:13:18,640 Speaker 1: That's right, and at least based on my math, it 225 00:13:18,679 --> 00:13:21,200 Speaker 1: looks like they'll be free cash flow negative by about 226 00:13:21,200 --> 00:13:24,120 Speaker 1: a billion eight. So, you know, like if they went 227 00:13:24,200 --> 00:13:26,040 Speaker 1: back to the market for somewhere between two and two 228 00:13:26,080 --> 00:13:29,600 Speaker 1: and a half billion dollars this year, I wouldn't be unsurprised. Wait, 229 00:13:29,679 --> 00:13:32,040 Speaker 1: just back up. So in other words, they're going to 230 00:13:32,160 --> 00:13:35,960 Speaker 1: be negative. They're going to earn negative one point eight 231 00:13:35,960 --> 00:13:39,920 Speaker 1: billion dollars this year. In other words, their their capital 232 00:13:39,960 --> 00:13:42,680 Speaker 1: expenditure should be somewhere in the three three three point 233 00:13:42,679 --> 00:13:45,439 Speaker 1: two billion dollars, or their cash flow should be you know, 234 00:13:45,480 --> 00:13:47,679 Speaker 1: about a billion four. So that would give you about 235 00:13:47,920 --> 00:13:51,559 Speaker 1: negative a billion eight, which is not that surprising for 236 00:13:51,600 --> 00:13:54,600 Speaker 1: a company that's in a rapid growth mode. But companies 237 00:13:54,600 --> 00:13:57,559 Speaker 1: in rapid growth modes really shouldn't be playing with unsecured 238 00:13:57,600 --> 00:14:00,720 Speaker 1: debt or or you know, and in either case, whether 239 00:14:00,760 --> 00:14:03,120 Speaker 1: you go to a senior secured piece of paper that 240 00:14:03,160 --> 00:14:06,120 Speaker 1: will prime your bond that's outstanding that's in the Bloomberg 241 00:14:06,160 --> 00:14:11,000 Speaker 1: Barkley's index, or alternatively, if you're doing more converts, uh, 242 00:14:11,040 --> 00:14:12,560 Speaker 1: you know, like that would be a kind of along 243 00:14:12,559 --> 00:14:15,680 Speaker 1: the lines where you're getting a lower coupon issue. If 244 00:14:16,080 --> 00:14:18,680 Speaker 1: TESLA lower to issue a two point two billion dollar 245 00:14:18,760 --> 00:14:23,160 Speaker 1: convertible bond offering. That would be a massive, massive convertible issuance. 246 00:14:23,520 --> 00:14:25,480 Speaker 1: Do you anticipate that they could do the whole thing 247 00:14:25,560 --> 00:14:28,400 Speaker 1: in the convertible bond? They might, And you know, I 248 00:14:28,440 --> 00:14:30,960 Speaker 1: would say that's something that's interesting if you look back 249 00:14:31,000 --> 00:14:32,920 Speaker 1: at the past issue once as the stock has actually 250 00:14:32,960 --> 00:14:36,560 Speaker 1: gone up when they've issued convertible debt, the stock has 251 00:14:36,560 --> 00:14:39,960 Speaker 1: actually gone up because there's the liquidity fear that's in there. 252 00:14:40,600 --> 00:14:42,640 Speaker 1: That's that's bakeing into Tesla. Right, it's a it's a 253 00:14:42,720 --> 00:14:44,600 Speaker 1: very hit or hit or miss. You're either going to 254 00:14:44,680 --> 00:14:47,120 Speaker 1: have a moon shot and it's going to be unbelievably awesome, 255 00:14:48,040 --> 00:14:50,960 Speaker 1: or you have a heavy financial risk so that the 256 00:14:51,000 --> 00:14:54,520 Speaker 1: stock market is actually approved of them issuing converts. Well, 257 00:14:54,560 --> 00:14:57,200 Speaker 1: I mean liquidity risk saying basically, they're burning through cash. 258 00:14:57,240 --> 00:14:58,720 Speaker 1: They're not gonna be able to keep in business if 259 00:14:58,760 --> 00:15:00,680 Speaker 1: they can't raise money. So if they and raise money 260 00:15:00,880 --> 00:15:04,080 Speaker 1: without diluting shareholders and without incurring huge interest payments, that's 261 00:15:04,080 --> 00:15:08,320 Speaker 1: a good thing. That's true. Well, there you go. I 262 00:15:08,320 --> 00:15:10,000 Speaker 1: don't know where to go with this except that they're 263 00:15:10,000 --> 00:15:12,480 Speaker 1: going to have to raise some money pretty quickly, I 264 00:15:12,520 --> 00:15:15,280 Speaker 1: would think. So, you know, if what's the clock on 265 00:15:15,320 --> 00:15:20,080 Speaker 1: this four and eighteen million repayment, Well, the four eighteen 266 00:15:20,120 --> 00:15:22,840 Speaker 1: million dollars shouldn't be that troubling to them. They do. 267 00:15:23,000 --> 00:15:24,560 Speaker 1: They did have three and a half billion dollars of 268 00:15:24,600 --> 00:15:28,000 Speaker 1: cash on the on the balance sheet September. It's really 269 00:15:28,040 --> 00:15:31,120 Speaker 1: more of you know, like, if I'm thinking more strategically 270 00:15:31,240 --> 00:15:33,360 Speaker 1: out for a couple of years, how do I need 271 00:15:33,400 --> 00:15:37,440 Speaker 1: to finance this company until it moves going from a 272 00:15:37,520 --> 00:15:41,320 Speaker 1: cash user, a high growth company, cash burner, into more 273 00:15:41,320 --> 00:15:43,400 Speaker 1: of a cash cow. They kind of get that model 274 00:15:43,480 --> 00:15:45,480 Speaker 1: three out there in the public. Thanks very much for 275 00:15:45,560 --> 00:15:48,440 Speaker 1: joining us. Joel Levington is our senior credit analyst for 276 00:15:48,600 --> 00:16:07,480 Speaker 1: Bloomberg Intelligence telling us all about Tesla. We consult Ira 277 00:16:07,640 --> 00:16:12,120 Speaker 1: Jersey are interest rate strategist for Bloomberg Intelligence for details 278 00:16:12,200 --> 00:16:15,320 Speaker 1: about the economy and interest rates. Ira. I want you 279 00:16:15,400 --> 00:16:17,240 Speaker 1: to begin, if you can, all the way at the 280 00:16:17,280 --> 00:16:19,840 Speaker 1: back end of your latest report, because I found it 281 00:16:19,960 --> 00:16:23,960 Speaker 1: very interesting about household growth in the United States and 282 00:16:24,120 --> 00:16:26,600 Speaker 1: if you could enlighten us a little bit about what 283 00:16:26,680 --> 00:16:30,840 Speaker 1: has happened to household growth and who's actually living at home. Yeah, 284 00:16:30,920 --> 00:16:34,840 Speaker 1: so household growth has been very slow since the sense 285 00:16:34,880 --> 00:16:37,720 Speaker 1: of global financial crisis a couple of almost a decade 286 00:16:37,720 --> 00:16:40,840 Speaker 1: ago now and um and one of the big reasons 287 00:16:40,840 --> 00:16:43,600 Speaker 1: for that. So so we always focus on retirees, and 288 00:16:43,640 --> 00:16:46,560 Speaker 1: we know that there's an aging population in general, but 289 00:16:46,760 --> 00:16:50,400 Speaker 1: that's not necessarily what's holding household growth back. What's holding 290 00:16:50,440 --> 00:16:54,360 Speaker 1: household growth back is young workers. That these are people 291 00:16:54,960 --> 00:16:57,040 Speaker 1: to thirty four who are living at home in the 292 00:16:57,080 --> 00:17:00,400 Speaker 1: greatest numbers ever. And also as a percentage of that 293 00:17:00,520 --> 00:17:04,440 Speaker 1: age group, Uh, it's now six of that age group 294 00:17:04,480 --> 00:17:07,040 Speaker 1: living at home, when it used to be and historically 295 00:17:07,040 --> 00:17:10,240 Speaker 1: between eight and eleven percent. So you're talking about more 296 00:17:10,960 --> 00:17:13,640 Speaker 1: young workers living at home and that has major impacts 297 00:17:13,640 --> 00:17:16,440 Speaker 1: on the economy because these folks aren't buying houses, they're 298 00:17:16,440 --> 00:17:19,679 Speaker 1: not renting apartments, they're not buying refrigerators, they're not getting 299 00:17:19,680 --> 00:17:25,160 Speaker 1: household services. They're basically using the household services um for 300 00:17:25,160 --> 00:17:27,280 Speaker 1: for their parents at their parents house. So so that 301 00:17:27,440 --> 00:17:29,719 Speaker 1: is a constraint on growth right now. And you know 302 00:17:29,760 --> 00:17:31,840 Speaker 1: that's kind of this fiscal situation. That's the kind of 303 00:17:31,840 --> 00:17:35,960 Speaker 1: thing monetary policy can't fix. So ira, can you bring 304 00:17:36,440 --> 00:17:40,680 Speaker 1: that sort of reality into into the market right now 305 00:17:40,960 --> 00:17:43,760 Speaker 1: and what we're seeing with ten uere yields trying to 306 00:17:43,840 --> 00:17:47,359 Speaker 1: break out of this two point six threshold that a 307 00:17:47,400 --> 00:17:49,359 Speaker 1: lot of people say is sort of the tipping point. 308 00:17:50,119 --> 00:17:55,080 Speaker 1: How does this relate, Well, it's not necessarily relating to 309 00:17:55,560 --> 00:17:57,399 Speaker 1: you know, the mood that we're seeing today, or some 310 00:17:57,480 --> 00:18:00,760 Speaker 1: of the um UH or or some of the kind 311 00:18:00,760 --> 00:18:02,520 Speaker 1: of day to day moves. But I think it shows 312 00:18:02,560 --> 00:18:05,479 Speaker 1: that one of the reasons why inflation has been and 313 00:18:05,520 --> 00:18:08,600 Speaker 1: continues to be a bit lower than um people would 314 00:18:08,640 --> 00:18:11,600 Speaker 1: like it to be. It's just that there's a various 315 00:18:11,600 --> 00:18:15,359 Speaker 1: socio economic and demographic factors that are driving inflation to 316 00:18:15,480 --> 00:18:17,760 Speaker 1: be somewhat lower. Now that being said, when you look 317 00:18:17,800 --> 00:18:20,200 Speaker 1: at things like what's going on with oil prices recently 318 00:18:20,680 --> 00:18:24,159 Speaker 1: UM and how high they're going, that's increased helping increase 319 00:18:24,200 --> 00:18:27,440 Speaker 1: inflation expectations at least at the headline level, even even 320 00:18:27,520 --> 00:18:30,080 Speaker 1: if core inflation isn't necessarily going up. So you look 321 00:18:30,119 --> 00:18:32,879 Speaker 1: at what's happened, UM just in the last couple of months, 322 00:18:32,960 --> 00:18:35,120 Speaker 1: the last couple of weeks, I should say, and you've 323 00:18:35,160 --> 00:18:37,560 Speaker 1: seen a good you know, ten basis point move in 324 00:18:37,600 --> 00:18:40,879 Speaker 1: things like five year inflation break even so so the 325 00:18:41,200 --> 00:18:44,399 Speaker 1: Marcus expectation of what inflation is going to average over 326 00:18:44,440 --> 00:18:47,760 Speaker 1: the next five years, and that's coincided quite closely with 327 00:18:48,160 --> 00:18:51,040 Speaker 1: the uptick and oil prices. So I think that's a 328 00:18:51,520 --> 00:18:54,639 Speaker 1: that's one of the several drivers of yields in the 329 00:18:54,720 --> 00:18:57,520 Speaker 1: near term. So the idea that there are all of 330 00:18:57,520 --> 00:19:00,960 Speaker 1: these younger people living at home, is there any evidence 331 00:19:01,040 --> 00:19:03,480 Speaker 1: out there that anything would push them out of their 332 00:19:03,480 --> 00:19:06,440 Speaker 1: parents basements and into their own homes or is it 333 00:19:06,560 --> 00:19:09,480 Speaker 1: just going to be a new a new reality. Yeah, 334 00:19:09,520 --> 00:19:11,760 Speaker 1: that's a good question. UM. I think for that for 335 00:19:11,880 --> 00:19:14,080 Speaker 1: the time being, it has to be. It's probably a 336 00:19:14,080 --> 00:19:16,640 Speaker 1: new reality. I think part of it ends up being 337 00:19:16,680 --> 00:19:20,359 Speaker 1: what happens when, um, you do get more retirees actually 338 00:19:20,400 --> 00:19:24,120 Speaker 1: retiring and creating new new jobs. I think wage pressures 339 00:19:24,119 --> 00:19:25,960 Speaker 1: and wage growth has to pick up. I think once 340 00:19:26,000 --> 00:19:29,879 Speaker 1: you see a significant amount of wage growth, UM, you 341 00:19:29,880 --> 00:19:32,280 Speaker 1: can wind up seeing, um, some of these people move 342 00:19:32,280 --> 00:19:34,240 Speaker 1: out of their their parents homes. I think a big 343 00:19:34,280 --> 00:19:36,640 Speaker 1: part of it is is that that age group now 344 00:19:36,760 --> 00:19:39,879 Speaker 1: as a as a share of income compared to people 345 00:19:39,920 --> 00:19:42,840 Speaker 1: twenty years older than them, their wages are lower than 346 00:19:42,880 --> 00:19:46,199 Speaker 1: they have been UM historically speaking. So I think that 347 00:19:46,320 --> 00:19:49,200 Speaker 1: has to catch up, So it's kind of this distribution 348 00:19:49,320 --> 00:19:52,119 Speaker 1: of of of wages, if you will, that winds up 349 00:19:52,280 --> 00:19:54,919 Speaker 1: mattering somewhat, I think for the market today, though, you know, 350 00:19:54,960 --> 00:19:58,000 Speaker 1: we're looking at things like monetary policy overseas, so things 351 00:19:58,000 --> 00:20:01,240 Speaker 1: like the Bank of Japan hinting that might scale back 352 00:20:01,280 --> 00:20:03,840 Speaker 1: their purchases. UH. The e c B we know is 353 00:20:03,920 --> 00:20:08,040 Speaker 1: Star is already starting to um to buy less bonds 354 00:20:08,080 --> 00:20:10,960 Speaker 1: out there, and that's a non trivial reason why we 355 00:20:10,960 --> 00:20:13,480 Speaker 1: we're seeing some of today's market action with you know, 356 00:20:13,680 --> 00:20:16,199 Speaker 1: thirty year yields back up six basis points, which is 357 00:20:16,440 --> 00:20:20,639 Speaker 1: a relatively substantial moves these days. So if if a 358 00:20:20,680 --> 00:20:23,160 Speaker 1: client were to call and say, why is there this 359 00:20:23,200 --> 00:20:25,000 Speaker 1: big sell off at the long end, why are we 360 00:20:25,040 --> 00:20:27,320 Speaker 1: down one and eight thirty seconds? What's up at that 361 00:20:27,359 --> 00:20:30,480 Speaker 1: two point eight seven yield on the thirty year, what's 362 00:20:30,480 --> 00:20:33,840 Speaker 1: your answer? Yeah, that's all about the the Bank of 363 00:20:33,920 --> 00:20:37,480 Speaker 1: Japan action firstly, and then secondly, just um, you know, 364 00:20:37,640 --> 00:20:40,240 Speaker 1: we we saw the most recent take ups and the 365 00:20:40,320 --> 00:20:43,720 Speaker 1: last two basis points in um in yield moves higher 366 00:20:43,760 --> 00:20:47,000 Speaker 1: after we got the Jolts job opening report at UH 367 00:20:47,040 --> 00:20:49,399 Speaker 1: just a couple of minutes ago, and that showed that 368 00:20:49,520 --> 00:20:52,600 Speaker 1: labor market tightness seems to still be uh still be 369 00:20:52,640 --> 00:20:55,800 Speaker 1: the case. So you have, you know, between monetary policy actions, 370 00:20:55,840 --> 00:20:59,720 Speaker 1: so basically less bond buying globally by central banks, and 371 00:20:59,760 --> 00:21:02,720 Speaker 1: then on top of that an economy that at worst 372 00:21:02,880 --> 00:21:06,480 Speaker 1: is in a steady state of of modest improvement. All 373 00:21:06,520 --> 00:21:10,720 Speaker 1: of those things should lead for to somewhat better some 374 00:21:10,840 --> 00:21:13,520 Speaker 1: of better inflation and UH and growth outcomes, and that 375 00:21:13,560 --> 00:21:16,080 Speaker 1: should mean somewhat higher yields. I think one of the 376 00:21:16,119 --> 00:21:18,920 Speaker 1: things that's that's not likely to persist is the curve stepening, 377 00:21:18,920 --> 00:21:22,479 Speaker 1: because I do think that eventually the Federal reserve um 378 00:21:22,520 --> 00:21:25,800 Speaker 1: if if this continues and we start to get higher inflation, 379 00:21:25,840 --> 00:21:29,040 Speaker 1: the Federal reserve will actually um meet the dot plot, 380 00:21:29,080 --> 00:21:32,200 Speaker 1: which the market isn't yet pricing. And because of that, 381 00:21:32,240 --> 00:21:35,320 Speaker 1: you wind up with with today's stepening probably being on wound, 382 00:21:35,320 --> 00:21:38,560 Speaker 1: and actually additional flattening to two occur later in the year. 383 00:21:38,680 --> 00:21:41,000 Speaker 1: In other words, we're going to get faster rate hikes 384 00:21:41,000 --> 00:21:43,880 Speaker 1: in response. Yeah, well, faster rate hikes than the market 385 00:21:43,960 --> 00:21:46,080 Speaker 1: is currently pricing. The market is still only pricing about 386 00:21:46,160 --> 00:21:48,600 Speaker 1: two rate hikes, and the Fed still thinks that they're 387 00:21:48,600 --> 00:21:50,000 Speaker 1: going to go three. So if the FED worre to 388 00:21:50,040 --> 00:21:52,960 Speaker 1: go three um, that would mean that that the market 389 00:21:52,960 --> 00:21:55,959 Speaker 1: would have to catch up to the FED. Jersey thank 390 00:21:56,000 --> 00:21:58,080 Speaker 1: you so much for joining us. Always a pleasure speaking 391 00:21:58,119 --> 00:22:01,760 Speaker 1: with you. Jersey is chief US interest rate strategist for 392 00:22:01,960 --> 00:22:20,920 Speaker 1: Bloomberg Intelligence. Now that Congress has passed a tax bill, 393 00:22:21,040 --> 00:22:23,639 Speaker 1: are they going to move on to infrastructure and what 394 00:22:23,840 --> 00:22:27,760 Speaker 1: is needed with respect to the infrastructure of the United States. 395 00:22:27,840 --> 00:22:30,119 Speaker 1: Here to talk about that with us is Susan's Story, 396 00:22:30,240 --> 00:22:34,280 Speaker 1: President and chief executive officer of American Waterworks Company, which 397 00:22:34,320 --> 00:22:37,280 Speaker 1: is based in for Key, New Jersey. It is the 398 00:22:37,359 --> 00:22:41,120 Speaker 1: largest publicly traded water utility in the country. Susan, thank 399 00:22:41,160 --> 00:22:43,560 Speaker 1: you so much for joining us. I just want to 400 00:22:43,600 --> 00:22:47,760 Speaker 1: start with asking you about the tax plan. UM. I 401 00:22:47,800 --> 00:22:51,160 Speaker 1: know that you had noted that the extra money that 402 00:22:51,240 --> 00:22:54,320 Speaker 1: you get you will put back into your infrastructure. Do 403 00:22:54,320 --> 00:22:57,320 Speaker 1: you view this as possibly being a little bit of 404 00:22:57,359 --> 00:23:00,480 Speaker 1: an infrastructure plan in the fact that you get more money. Well, 405 00:23:00,480 --> 00:23:03,280 Speaker 1: thank you, Lisa, first of all for the invitation to participate, 406 00:23:03,600 --> 00:23:08,080 Speaker 1: and absolutely the interesting thing for regulated utilities is that 407 00:23:08,160 --> 00:23:11,960 Speaker 1: this tax cuts and Job Acts actually is an infrastructure plan. 408 00:23:12,040 --> 00:23:15,879 Speaker 1: And let me explain that just quickly. In the regulatory environment. 409 00:23:16,160 --> 00:23:19,840 Speaker 1: Whenever we pay taxes, if it's prudently incurred, we get 410 00:23:19,840 --> 00:23:22,440 Speaker 1: a pass through to customers dollar for dollar. So the 411 00:23:22,640 --> 00:23:25,680 Speaker 1: less taxes we pay, the more money then that goes 412 00:23:25,720 --> 00:23:27,919 Speaker 1: back to our customers, the less they have to pay. 413 00:23:28,000 --> 00:23:30,439 Speaker 1: So for every dollar of O and M we saved, 414 00:23:30,520 --> 00:23:33,919 Speaker 1: like taxes or interest, we get to put eight dollars 415 00:23:33,960 --> 00:23:37,480 Speaker 1: of infrastructure in the ground at no impact on the 416 00:23:37,520 --> 00:23:41,520 Speaker 1: customer bills. So when you have decades needs of capital 417 00:23:42,080 --> 00:23:44,400 Speaker 1: and you have a situation where you can take those 418 00:23:44,440 --> 00:23:48,320 Speaker 1: O M dollars and translate those into capital investment, it's 419 00:23:48,320 --> 00:23:52,040 Speaker 1: good for everybody. Um, susan story, And what if you 420 00:23:52,080 --> 00:23:54,879 Speaker 1: could just give us an update on any of the 421 00:23:54,960 --> 00:23:58,720 Speaker 1: active rate cases that you are currently involved And I 422 00:23:58,760 --> 00:24:01,679 Speaker 1: know that at least you were focused on Pennsylvania, New 423 00:24:01,760 --> 00:24:04,560 Speaker 1: Jersey and Missouri. Maybe just give us an update if 424 00:24:04,560 --> 00:24:08,119 Speaker 1: you can. Yes, sure, So Pennsylvania was resolved at the 425 00:24:08,200 --> 00:24:11,360 Speaker 1: end of we are currently in rate cases in New 426 00:24:11,440 --> 00:24:14,800 Speaker 1: Jersey and Missouri and looking to hopefully have those resolved 427 00:24:14,800 --> 00:24:18,480 Speaker 1: this year. And will that effect or is that part 428 00:24:18,640 --> 00:24:21,320 Speaker 1: of your five year strategic plan? I understand that you're 429 00:24:21,320 --> 00:24:24,720 Speaker 1: going to be spending about eight billion dollars. So our 430 00:24:25,040 --> 00:24:27,720 Speaker 1: capital plan is based on the needs of the business, 431 00:24:27,840 --> 00:24:30,200 Speaker 1: and in many of our states we have what's called 432 00:24:30,240 --> 00:24:32,520 Speaker 1: future test years where they look at the capital plans 433 00:24:32,600 --> 00:24:34,760 Speaker 1: up front. But as long as we can show that 434 00:24:34,800 --> 00:24:37,119 Speaker 1: we need to make this investment, which we do. You know, 435 00:24:37,200 --> 00:24:41,800 Speaker 1: in this country, of water pipe is near the end 436 00:24:41,840 --> 00:24:45,800 Speaker 1: of life. Now, our replacement rate is about twice as 437 00:24:45,840 --> 00:24:48,600 Speaker 1: good as a national average. But even we are at 438 00:24:48,600 --> 00:24:51,600 Speaker 1: a replacement of equal to every one d and twenty years. 439 00:24:51,800 --> 00:24:55,440 Speaker 1: So when it comes to pipes, plants, pumps, and cyber 440 00:24:55,520 --> 00:24:59,040 Speaker 1: there's a tremendous need for capital investment, and this tax 441 00:24:59,080 --> 00:25:00,919 Speaker 1: act is going to allow was to do more of 442 00:25:00,960 --> 00:25:03,920 Speaker 1: that while keeping the customer bills low. Susan, what would 443 00:25:03,920 --> 00:25:05,760 Speaker 1: you say to people who say that the tax plan 444 00:25:05,880 --> 00:25:09,600 Speaker 1: as drafted, the fact that it will likely add trillions 445 00:25:09,600 --> 00:25:11,760 Speaker 1: of dollars to the deficit, or more than a trillion 446 00:25:11,800 --> 00:25:14,119 Speaker 1: dollars I should say, to the deficit over the next 447 00:25:14,200 --> 00:25:18,360 Speaker 1: ten years, that that actually reduces the chance that Congress 448 00:25:18,440 --> 00:25:21,160 Speaker 1: is going to pass or or really make progress on 449 00:25:21,280 --> 00:25:25,239 Speaker 1: a real, true infrastructure bill. Are you concerned about that? 450 00:25:25,280 --> 00:25:27,600 Speaker 1: Do you feel like this is maybe one step forward, 451 00:25:27,640 --> 00:25:31,200 Speaker 1: two steps back? You know that that's a great question, Lisa, 452 00:25:31,240 --> 00:25:33,440 Speaker 1: and I think that you know, I've mentioned for regulated 453 00:25:33,520 --> 00:25:36,359 Speaker 1: utilities that they're wanting the same. I do think for 454 00:25:36,440 --> 00:25:40,639 Speaker 1: the country that we need an infrastructure package that fully 455 00:25:40,720 --> 00:25:45,840 Speaker 1: leverages private investment and also partners with public entities. And 456 00:25:46,040 --> 00:25:48,920 Speaker 1: one of the things Price waterhouse Coopers looked at just 457 00:25:48,960 --> 00:25:52,640 Speaker 1: the water utility industry, and what they found is if 458 00:25:52,640 --> 00:25:55,440 Speaker 1: you look at public water, which is of all water, 459 00:25:55,520 --> 00:25:59,199 Speaker 1: for example, that if that we could, by doing some 460 00:25:59,320 --> 00:26:03,440 Speaker 1: simple stuff, unleash forty three to sixty three billion dollars 461 00:26:03,440 --> 00:26:08,159 Speaker 1: in private money, and that if under Wastewater fifteen. And 462 00:26:08,200 --> 00:26:11,840 Speaker 1: these are things like when a municipality decides to sell 463 00:26:11,880 --> 00:26:17,120 Speaker 1: a system, if they have any tax um uh bonds 464 00:26:17,280 --> 00:26:19,960 Speaker 1: that were tax exempt, they have to pay those off 465 00:26:20,000 --> 00:26:22,720 Speaker 1: before they can sell their system. They can't even keep those. 466 00:26:22,760 --> 00:26:26,280 Speaker 1: So there's certain things that we think an infrastructure bill 467 00:26:26,359 --> 00:26:30,520 Speaker 1: can contain that will further leverage private money and not 468 00:26:30,680 --> 00:26:33,760 Speaker 1: require that the federal government fund the entire cost. But 469 00:26:34,119 --> 00:26:37,800 Speaker 1: now you concerned that the prospects for that kind of 470 00:26:37,840 --> 00:26:43,440 Speaker 1: bill are getting dimmer given the passage of the tax legislation. 471 00:26:43,920 --> 00:26:47,240 Speaker 1: I think it's going to be interesting. Given your comment 472 00:26:47,400 --> 00:26:51,040 Speaker 1: about the projections for the deficit and how that will 473 00:26:51,040 --> 00:26:54,439 Speaker 1: play out. I do know, however, that both sides of 474 00:26:54,480 --> 00:26:58,080 Speaker 1: the I'll understand that we have an infrastructure problem in 475 00:26:58,080 --> 00:27:01,439 Speaker 1: this country. I think how what the solutions look like 476 00:27:01,600 --> 00:27:04,239 Speaker 1: will be impacted by that. But I hope for the 477 00:27:04,240 --> 00:27:07,159 Speaker 1: sake of the country that we can come together and 478 00:27:07,240 --> 00:27:11,480 Speaker 1: do something to incentivize the construction of more roads and 479 00:27:11,560 --> 00:27:14,440 Speaker 1: bridges and the replacement of water and wastewater and other 480 00:27:14,480 --> 00:27:17,800 Speaker 1: infrastructure that we so desperately need for the economy. One 481 00:27:17,800 --> 00:27:20,119 Speaker 1: of the big winds I think for your company was 482 00:27:20,240 --> 00:27:24,359 Speaker 1: the Right Patterson Base Air Force Base UH to take 483 00:27:24,440 --> 00:27:29,560 Speaker 1: over their their water, wastewater and the water facilities. How 484 00:27:29,600 --> 00:27:33,719 Speaker 1: long does it usually take after a contract when for 485 00:27:33,840 --> 00:27:37,200 Speaker 1: any changes in rates or predetermination of rates to take 486 00:27:37,200 --> 00:27:41,440 Speaker 1: place PM That's a great question. So with Right Patterson UM, 487 00:27:41,560 --> 00:27:44,840 Speaker 1: we are projected to take over operations in July of 488 00:27:44,920 --> 00:27:48,760 Speaker 1: this year, so typically after two years. As you just said, 489 00:27:49,119 --> 00:27:53,080 Speaker 1: there's price redeterminations that if there are changes in laws, 490 00:27:53,119 --> 00:27:56,040 Speaker 1: that if for example, if there's an environmental law that 491 00:27:56,080 --> 00:27:58,879 Speaker 1: requires more costs, we can increase the amount of O 492 00:27:58,960 --> 00:28:01,800 Speaker 1: and M. The tag changes will eventually over the life 493 00:28:01,840 --> 00:28:05,040 Speaker 1: of these price reydeterminations bring those costs down, but that 494 00:28:05,080 --> 00:28:07,240 Speaker 1: will allow us to do more capital upgrades on the 495 00:28:07,280 --> 00:28:10,119 Speaker 1: military basis that we serve all thirteen of them across 496 00:28:10,160 --> 00:28:13,439 Speaker 1: the country. And just further, if you could speak about 497 00:28:13,520 --> 00:28:17,240 Speaker 1: some of the natural disasters that the country has has 498 00:28:17,280 --> 00:28:20,520 Speaker 1: been hit by in the last twelve months. You've been 499 00:28:20,560 --> 00:28:23,920 Speaker 1: affected not only in California, but in Louisiana and other 500 00:28:24,000 --> 00:28:26,000 Speaker 1: areas of the country. Give us an update if you can. 501 00:28:26,440 --> 00:28:30,200 Speaker 1: That's exactly right. We are spread across the entire country, 502 00:28:30,240 --> 00:28:33,359 Speaker 1: so typically when there's a natural disaster, it affects either 503 00:28:33,480 --> 00:28:38,120 Speaker 1: our regulated business or our market based business. Our focus 504 00:28:38,240 --> 00:28:44,880 Speaker 1: is on building resilience systems that can withstand hurricanes, ice storms, flooding, 505 00:28:45,360 --> 00:28:48,920 Speaker 1: the fires in California, for example. So part of that 506 00:28:49,280 --> 00:28:54,360 Speaker 1: infrastructure investment is on resiliency if critical assets. We've identified 507 00:28:54,440 --> 00:28:57,200 Speaker 1: fifty critical assets that serve eight percent of our country, 508 00:28:57,200 --> 00:29:00,120 Speaker 1: our customers across the country, and we have a plan 509 00:29:00,120 --> 00:29:03,640 Speaker 1: to ensure that we build resiliency. For example, a floodwall 510 00:29:03,800 --> 00:29:06,240 Speaker 1: in a water plant in New Jersey that serves a 511 00:29:06,240 --> 00:29:09,360 Speaker 1: million people. We've just finished a sixty five million dollar 512 00:29:09,400 --> 00:29:12,040 Speaker 1: project that we're protected against a five hundred year flood 513 00:29:12,360 --> 00:29:14,720 Speaker 1: because we had three one hundred year floods in the 514 00:29:14,720 --> 00:29:18,360 Speaker 1: period of seven years. So the issue of resiliency of 515 00:29:18,360 --> 00:29:21,440 Speaker 1: our system is a critical one and again a reason 516 00:29:21,480 --> 00:29:24,280 Speaker 1: that we have to get serious about infrastructure investment in 517 00:29:24,320 --> 00:29:28,240 Speaker 1: this country. Just real quick, Susan. When when analysts come 518 00:29:28,280 --> 00:29:30,800 Speaker 1: on our investors who invest in the stock market come 519 00:29:30,840 --> 00:29:33,880 Speaker 1: on our show, they always talk about utilities as being 520 00:29:33,920 --> 00:29:37,040 Speaker 1: a bond proxy, and utilities are falling now in the 521 00:29:37,080 --> 00:29:40,880 Speaker 1: stock market is a response to falling bond prices rising yields? 522 00:29:41,160 --> 00:29:45,040 Speaker 1: Does that frustrate you? We know, it's interesting and and 523 00:29:45,080 --> 00:29:47,600 Speaker 1: we did fall in eight k in December. That said, 524 00:29:47,640 --> 00:29:50,720 Speaker 1: because we had offered guidance on December eleventh that we 525 00:29:50,800 --> 00:29:53,520 Speaker 1: need to re look at everything that the Tax Act 526 00:29:53,560 --> 00:29:56,080 Speaker 1: will do to make sure that we you know, UM 527 00:29:56,440 --> 00:29:59,720 Speaker 1: can at our year end call a firm not a firm, 528 00:29:59,800 --> 00:30:02,240 Speaker 1: or any changes we need to. But with that said, 529 00:30:02,360 --> 00:30:05,880 Speaker 1: in the past, you know, we've enjoyed an EPs growth 530 00:30:05,880 --> 00:30:09,000 Speaker 1: of seven to ten percent, and we have had a 531 00:30:09,040 --> 00:30:12,320 Speaker 1: dividend yield and a dividend increase that's been above ten 532 00:30:13,080 --> 00:30:16,120 Speaker 1: um over a keger over the past five years. So 533 00:30:16,160 --> 00:30:18,560 Speaker 1: when you talk about a bond proxy. You're talking about 534 00:30:18,640 --> 00:30:22,160 Speaker 1: a return that equivocates a bond and at list for 535 00:30:22,160 --> 00:30:25,000 Speaker 1: American Water, we don't fit that profile. Thank you very 536 00:30:25,080 --> 00:30:27,640 Speaker 1: much for being with us. Susan Story is the chief 537 00:30:27,680 --> 00:30:34,720 Speaker 1: executive of American Water. Thanks for listening to the Bloomberg 538 00:30:34,760 --> 00:30:37,400 Speaker 1: p m L podcast. You can subscribe and listen to 539 00:30:37,400 --> 00:30:41,960 Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 540 00:30:42,360 --> 00:30:45,920 Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm 541 00:30:45,960 --> 00:30:49,280 Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast. 542 00:30:49,320 --> 00:31:00,400 Speaker 1: You can always catch us worldwide on Bloomberg Radio