Latest / Bloomberg Intelligence / Big Take: The Amazon Approaches Point Of No Return

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Big Take: The Amazon Approaches Point Of No Return · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. All right, Matt, I
• 0:21
  Speaker 1: mean you and I've talked about this before. The big
• 0:23
  Speaker 1: take stories that coming out of Bloomberg News are just awesome,
• 0:26
  Speaker 1: awesome reporting, awesome journalism. There's some big takes and then
• 0:30
  Speaker 1: there's some really big takes. In this story today is
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  Speaker 1: a really big steak. It's a big topic. Uh, the Amazon,
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  Speaker 1: the rainforest. We know about the risk to that rainforest.
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  Speaker 1: I thought I did until I started reading this story.
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  Speaker 1: Jessica Bryce joins us. She's a senior editor for Latin
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  Speaker 1: American News from the South. Paulo joining us on the phone. Jessica, Alright,
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  Speaker 1: the Amazon rainforest, nearest point of no return in Brazil
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  Speaker 1: land grab. Can you just let us step us step
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  Speaker 1: out thirty feet and just frame the issue for us.
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  Speaker 1: I think most of our listeners have a sense that Okay,
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  Speaker 1: the rainforest is at risk, but how at risk? Hi,
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  Speaker 1: thanks for having me on the show. Um. Yeah, So
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  Speaker 1: the rainforest, Uh, deforestation has been an issue for decades UM.
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  Speaker 1: It's been a crisis in the making for decades UM.
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  Speaker 1: But recently, what we're seeing is that it's reaching this
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  Speaker 1: point where it's this. The rainforest, in many ways is
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  Speaker 1: sort of one giant organism organism, it's this, it's this
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  Speaker 1: ecosystem that depends on other parts of the ecosystem. And
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  Speaker 1: what we're seeing is that as the burns worsen, uh,
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  Speaker 1: not only is our large parts of the Amazon no
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  Speaker 1: longer pulling greenhouse gases from the air, but they're actually
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  Speaker 1: contributing and accelerating climate change. And we're nearing a point
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  Speaker 1: where the Amazon will no longer be a be a rainforest.
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  Speaker 1: It will turn into a savannah. And that's important because
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  Speaker 1: not only because of its role, as you know, in
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  Speaker 1: cleaning the air that we breathe, but also because it
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  Speaker 1: regulates the weather for South America, and South America is
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  Speaker 1: a huge producer of food for the globe, and so
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  Speaker 1: you know, losing the Amazon going over that point, it's
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  Speaker 1: a very serious problem for everyone. So, first of all, Jessica,
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  Speaker 1: I learned so much reading this story and I just
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  Speaker 1: think it's a fantastic piece of journalism. Um. There must
• 2:23
  Speaker 1: have been my numbing amounts of research that went into
• 2:26
  Speaker 1: this document and interviews, and I just thought it was
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  Speaker 1: so good. Um. One of the one of the central
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  Speaker 1: um themes that I took from this is we all
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  Speaker 1: benefit from the Amazon rainforest, but um, Brazil wants to
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  Speaker 1: be somehow compensated for that by the rest of the world,
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  Speaker 1: or they threaten they will go and take the value
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  Speaker 1: out of it themselves. And you know, you interviewed so
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  Speaker 1: many people who were just so poor, they didn't have
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  Speaker 1: shoes and went into this rainforest in order to make
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  Speaker 1: a living. I mean, what else are they gonna do, right,
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  Speaker 1: unless the rest of the world steps in and helps
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  Speaker 1: Brazil do something, because it's not it doesn't seem really
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  Speaker 1: fair if we all enjoy a resource that, um, you
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  Speaker 1: know they have to foot the bill or carry the
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  Speaker 1: debt or however you want to see it. Absolutely, and
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  Speaker 1: that's that's the key part of the argument and sort
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  Speaker 1: of the culture in the mindset down here in Brazil.
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  Speaker 1: Brazil DeFore station has been UM tragic. Brazil has lost
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  Speaker 1: a lot of its Amazon, it still has eight percent
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  Speaker 1: or so of its natural vegetation, which covers three uh
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  Speaker 1: two thirds of the land in Brazil. The government's argument
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  Speaker 1: is that there's no other country in the world that
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  Speaker 1: really has that much rainforest and has preserved that much
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  Speaker 1: of its natural forest. And it's not wrong, right. However,
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  Speaker 1: it is a an incredibly important resource in to in
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  Speaker 1: terms of you know, cleaning the air, but also in
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  Speaker 1: the commodities it holds. And yet Brazil and the million
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  Speaker 1: people who live around the Amazon are incredibly poor. Right.
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  Speaker 1: What you're seeing, however, is that this argument of we
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  Speaker 1: need to help the poor is being manipulated in a way,
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  Speaker 1: and of course right, and so that the poor are
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  Speaker 1: being you know, they do they do go in there,
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  Speaker 1: and they are driving a lot of this deforestation, but
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  Speaker 1: that land often ends up into you know, it turns
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  Speaker 1: into sort of industrial um farming operation. Well, and they'd
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  Speaker 1: probably be poor no matter what. I think. It's a
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  Speaker 1: lot like the Middle East, right, and that you know,
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  Speaker 1: most of the world's oil reserves are there and we
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  Speaker 1: have to all pay to use them. And as a result,
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  Speaker 1: there are so many billionaire Saudi princes um in this case,
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  Speaker 1: it is as if though we're all getting that oil
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  Speaker 1: for free. And that's I think the good part of
• 4:50
  Speaker 1: Bowls Narrow's argument. Of course, the bad part is he
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  Speaker 1: doesn't really care about this resource, it seems from the story,
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  Speaker 1: and um, he's willing to just shred it, right. And
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  Speaker 1: and you know one of the arguments, the Bolson our
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  Speaker 1: Boson out of government has really pushed for payments to
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  Speaker 1: private property owners in order to preserve their force. A
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  Speaker 1: system like that would be incredibly problematic. Uh, not only
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  Speaker 1: because Brazil government, Brazil has a history of corruption, just
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  Speaker 1: terrible corruption down here, but also like the forest that's
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  Speaker 1: being preserved is not as efficient in cleaning our air
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  Speaker 1: and and you know, uh, producing the rains that we
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  Speaker 1: need um as the native forest. And by that I
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  Speaker 1: mean that these forests, the the Amazon has these magnificent
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  Speaker 1: hardwoods that are just you know, hundreds of years old
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  Speaker 1: and their um you know, eleven feet in diameter. And
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  Speaker 1: even if you're preserving the force the private property owners
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  Speaker 1: are preserving that force, they're still cutting down those trees
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  Speaker 1: because there's demand in global export markets for those streets.
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  Speaker 1: And so it's the system in which they're posing the
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  Speaker 1: solution in which they're proposing is very problematic. Is there
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  Speaker 1: any solution that is being embraced by the world's economy,
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  Speaker 1: some of the world governing bodies to perhaps is there
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  Speaker 1: a solution out there that some people can call us around.
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  Speaker 1: You know, I think that the narrative, the solution that
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  Speaker 1: the world is talking about, that narrative needs to change.
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  Speaker 1: What's happening is that there's a there's a problem with
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  Speaker 1: the land policy and in here in Brazil and this
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  Speaker 1: you know, the government incentives that really push people to
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  Speaker 1: drive the to to DeForest the Amazon. The world values
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  Speaker 1: is valuing that deforestation because they're buying all of the
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  Speaker 1: products that come from the Amazon region, um soybeans and
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  Speaker 1: soy products. I believe the experts in out of Brazil
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  Speaker 1: that we're valued at thirty billion dollars um. Nuts that
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  Speaker 1: kind out of Brazil, which can be produced sustainably, it
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  Speaker 1: was only a hundred million dollars. So there's there's just
• 7:05
  Speaker 1: no you know, I think the world it's very important
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  Speaker 1: that the world has put a lot of pressure on
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  Speaker 1: beef companies and I think you're seeing some changes. I
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  Speaker 1: think that some of the beef companies are taking it seriously.
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  Speaker 1: But I think you also need to the you know,
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  Speaker 1: international governments also need to look at okay, we're buying
• 7:23
  Speaker 1: this stuff. You know, maybe we need to rethink our
• 7:27
  Speaker 1: demands and because the world does have great power in
• 7:31
  Speaker 1: in making those sort of demands if they wanted. But
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  Speaker 1: it's not like we're gonna ever not want to buy
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  Speaker 1: as much beef as we can or Brazilian mahogany. I
• 7:38
  Speaker 1: think it seems to me eventually we're gonna have to
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  Speaker 1: pay up um. But the story is incredible and I
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  Speaker 1: so want to see these rainforests. It sounds just unbelievably beautiful.
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  Speaker 1: Jessica Bryce, Senior editor for Latin American News, This is Bloomberg.
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  Speaker 1: You know, this is really I think one of the
• 8:00
  Speaker 1: themes of this year has been meme stocks and robin Hood.
• 8:04
  Speaker 1: We've seen hearings on Capitol Hill. Pretty much everybody knows
• 8:09
  Speaker 1: what it is. I feel like it's kind of like
• 8:12
  Speaker 1: the new TikTok um, the new Snapchat in a sense,
• 8:15
  Speaker 1: because this is what the kids are doing. And by kids,
• 8:17
  Speaker 1: I mean you know, like middle aged white men sitting
• 8:21
  Speaker 1: in their parents basements. Let's bring in Crystal see you
• 8:23
  Speaker 1: right now? She is Um Bloomberg News reporter who has
• 8:27
  Speaker 1: been covering the story from the get go for us.
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  Speaker 1: She joins us in the interactive broker studio here at
• 8:33
  Speaker 1: one Lexington Avenue. So Crystal thirty eight dollars. That's the
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  Speaker 1: indication right now. Not so great, is it? It isn't
• 8:41
  Speaker 1: so great On an ip O day on the first
• 8:43
  Speaker 1: that you usually expect a deal to pop a little bit.
• 8:47
  Speaker 1: Some deals go up to a D so for now
• 8:51
  Speaker 1: they're looking flat. We all see a couple of hours
• 8:54
  Speaker 1: imagined away from the actual trade, so it could go up,
• 8:57
  Speaker 1: but it's looking like the first trade wouldn't be significantly
• 9:01
  Speaker 1: higher than when they priced it. We we've been talking
• 9:03
  Speaker 1: to uh I p O specialists over the past couple
• 9:06
  Speaker 1: of days who say the sweet spot would be a
• 9:09
  Speaker 1: pop of something like right, if it doubles on the
• 9:13
  Speaker 1: first day, lad left a ton of money on the table,
• 9:17
  Speaker 1: And if it doesn't do anything, then there's no hype.
• 9:20
  Speaker 1: So you do want to see a pop, but you
• 9:22
  Speaker 1: don't want to see it too. I mean, Paul knows
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  Speaker 1: this probably better than anybody because he's priced IPOs for
• 9:27
  Speaker 1: a living. Yeah, I mean that's exactly right. And I
• 9:28
  Speaker 1: think one of the wild cards here is there is
• 9:31
  Speaker 1: higher than typical retail allocation. So I wonder how that's
• 9:36
  Speaker 1: going to affect kind of not only the opening of
• 9:38
  Speaker 1: the stock, but maybe the you know, the early days
• 9:40
  Speaker 1: of trading. Yeah, it's an interesting experiment. I don't think
• 9:43
  Speaker 1: anybody has allocated this many shas to retail investors from
• 9:47
  Speaker 1: sources we are, we've reported that they're actually don't they
• 9:50
  Speaker 1: actually allocated of the entire I p O to retail investors.
• 9:56
  Speaker 1: And that's not it there. They have extremely high volume
• 9:59
  Speaker 1: on of for stay. Also because they relaxed the lock up,
• 10:02
  Speaker 1: so if you're an inside that you can sell, is
• 10:06
  Speaker 1: that right? Yeah, and on the day of pricing off
• 10:09
  Speaker 1: the first first day, whereas to the traditional lock up
• 10:12
  Speaker 1: might be six months. Right. So yeah, so this is
• 10:15
  Speaker 1: actually a huge flood of shares that could come in potential, right.
• 10:20
  Speaker 1: I mean, if you're an insider who believes in the company,
• 10:24
  Speaker 1: then you're not going to do that, well, I thinkainly
• 10:27
  Speaker 1: not before the pop, right, yeah, hopefully. I mean so,
• 10:31
  Speaker 1: I mean it is the expectation here that the underwriters,
• 10:33
  Speaker 1: I mean, it's you know, I guess your sauce just
• 10:35
  Speaker 1: coming across the Bloomberg terminal, maybe twelve thirty one pm
• 10:38
  Speaker 1: Wall Street times when it may open, and even that
• 10:40
  Speaker 1: feels a little bit late relative to some other deals.
• 10:42
  Speaker 1: Is that also maybe a red flag here? Not necessarily
• 10:46
  Speaker 1: a red flag, but when you have someone volume, I
• 10:48
  Speaker 1: think it makes sense that it's taking longer. But I
• 10:50
  Speaker 1: think overall Wall Street has been taking this sweet time
• 10:53
  Speaker 1: with opening I p O S. Lately we have seen
• 10:55
  Speaker 1: deals open after one pm, so we could be sitting
• 10:58
  Speaker 1: here for a while. Even on the d Y s C.
• 11:00
  Speaker 1: I mean, Paul and I were talking about, you know,
• 11:04
  Speaker 1: we remember back in the day when they would open
• 11:06
  Speaker 1: things in an hour and a half after the bell um.
• 11:11
  Speaker 1: It feels to me like it's Nasdaq that takes this long. Well,
• 11:14
  Speaker 1: they actually bowls take a while, and I think there
• 11:17
  Speaker 1: is a regulation. There's a requirement you can't actually open
• 11:20
  Speaker 1: it within the first two hours. They want to have
• 11:22
  Speaker 1: a proper kind of market discovery period on the first trade. Um.
• 11:27
  Speaker 1: I mean, it's it's kind of the same system. One
• 11:29
  Speaker 1: is the electronic and the other one you have like
• 11:31
  Speaker 1: actual people market makers running around. So we actually saw
• 11:35
  Speaker 1: on the live stream that there is someone um J.
• 11:38
  Speaker 1: Heller at NaSTA he's the person sitting there opening the trade.
• 11:42
  Speaker 1: So yeah, I think it's really up to him. We
• 11:43
  Speaker 1: can I mean it could be it could be another
• 11:46
  Speaker 1: five minutes, it could be another hour, all right. So, um,
• 11:50
  Speaker 1: this was a traditional i PO as opposed to a
• 11:52
  Speaker 1: direct listing, as opposed to merging with the spack. What
• 11:55
  Speaker 1: did the company say about why they chose an ip O.
• 11:59
  Speaker 1: So there is I would say, still a little bit
• 12:01
  Speaker 1: of a stigma with going to a SPAC, especially when
• 12:04
  Speaker 1: you're very, very large company, you have a lot of
• 12:06
  Speaker 1: vcs in it. Um. The stigma is so that you know,
• 12:10
  Speaker 1: the spack used to be some thing's done by second
• 12:13
  Speaker 1: tier thirtier companies and you don't want to do that. Um.
• 12:17
  Speaker 1: But I was talked as back also it's tough but
• 12:21
  Speaker 1: not unheard of, um grab when public get over forty
• 12:25
  Speaker 1: billion through a spack. Um. But what I would say
• 12:28
  Speaker 1: is actually the direct listing and the I p O
• 12:31
  Speaker 1: have actually blurred a lot, especially with relaxed lock up
• 12:36
  Speaker 1: measures like the like. So with all of that, it
• 12:41
  Speaker 1: actually kind of looks a little bit like a direct listing.
• 12:44
  Speaker 1: Are you one of the ten million, seven hundred thousand
• 12:47
  Speaker 1: degenerates on Wall Street? Bets. I am not, but I
• 12:52
  Speaker 1: pay attention. I've just looked. I was just scrolling through
• 12:55
  Speaker 1: Wall Street bets to see there's not a lot of
• 12:57
  Speaker 1: positive um D D about beIN Hood. I would have
• 13:01
  Speaker 1: thought that this crew was going to get behind it,
• 13:04
  Speaker 1: but they don't really seem that amped on buying robin
• 13:07
  Speaker 1: Hood chairs. Yeah, it seems like the retail investors, at
• 13:10
  Speaker 1: least some of them have beef with robin Hood after
• 13:12
  Speaker 1: the whole game stops saga and they true good point.
• 13:16
  Speaker 1: You didn't understand why they couldn't trade at the high
• 13:18
  Speaker 1: they couldn't sell they were welcomed to buy. All right, Crystal,
• 13:22
  Speaker 1: thank you so much for joining us. Crystal see us deals.
• 13:25
  Speaker 1: I p O reporter covers all that good stuff for
• 13:27
  Speaker 1: Bloomberg News. Alright, active investing, passive investing, we've been having
• 13:33
  Speaker 1: that discussion for a long time. Is more and more
• 13:35
  Speaker 1: money goes passive index investing. We've been having that discussion.
• 13:39
  Speaker 1: But how about you know, introducing a thematic element since
• 13:43
  Speaker 1: Jack basically exactly right, Um, it's it's a thing. I guess,
• 13:49
  Speaker 1: as the kids would say, ra who send Sharma joint
• 13:51
  Speaker 1: us R, who is a managing partner at index Roll.
• 13:54
  Speaker 1: Thanks so much for joining us here and love to
• 13:56
  Speaker 1: get your thoughts on thematic indexing. What is it and
• 14:00
  Speaker 1: kind of give us a sense of where it is
• 14:03
  Speaker 1: in the in the marketplace right now. Absolutely thanks for
• 14:06
  Speaker 1: having me on guys. So, at a very high level,
• 14:08
  Speaker 1: thematic indexing is building an index that gains exposure or
• 14:13
  Speaker 1: targets a particular theme. Um, So you can look at
• 14:16
  Speaker 1: a theme like cloud computing, for example, or cybersecurity, or
• 14:20
  Speaker 1: robotics or clean energy. These are examples of thematic indexes
• 14:24
  Speaker 1: that we built that have been popular and that have
• 14:26
  Speaker 1: been licensed for typically et s here the US and overseas,
• 14:29
  Speaker 1: that have gained a lot of aascets over the last
• 14:32
  Speaker 1: few years and really reached a tipping point. So it's
• 14:35
  Speaker 1: bringing factors just like a step further basically and allowing everybody,
• 14:39
  Speaker 1: not just hedge funds, to get in, right. I mean,
• 14:43
  Speaker 1: we were one of the early kind of innovators in
• 14:45
  Speaker 1: the thematic indexing space, and what we realized was it's
• 14:49
  Speaker 1: not a very easy space to access. Like with factors,
• 14:51
  Speaker 1: the factors, I mean, there are screens that you can
• 14:53
  Speaker 1: easily run to identify factors and to identify companies that qualify.
• 14:58
  Speaker 1: Themes often cut a cross sectors and industries on a
• 15:01
  Speaker 1: global basis. A good example of that would be five
• 15:05
  Speaker 1: G technology or again UM cybersecurity. So what you need
• 15:09
  Speaker 1: to do there when you're accessing a theme is you
• 15:11
  Speaker 1: need to cast a global net. You need to identify,
• 15:14
  Speaker 1: um what is really relevant to that theme, and then
• 15:17
  Speaker 1: you've got to go a company by company to identify
• 15:19
  Speaker 1: companies that are generating typically a majority of their revenue
• 15:23
  Speaker 1: from a theme like cloud computing or cybersecurity or robotics.
• 15:27
  Speaker 1: May I UM. So it is different than factor, but
• 15:29
  Speaker 1: it is kind of a logical extension there, and it
• 15:31
  Speaker 1: does solve a problem, right. I Mean, you hear all
• 15:34
  Speaker 1: the time about people who are very interested in looking
• 15:36
  Speaker 1: at or gaining exposure of particular concept, but they don't
• 15:40
  Speaker 1: really know where to start, right. They might have one
• 15:41
  Speaker 1: company that they know or a few companies, But when
• 15:44
  Speaker 1: it comes to a thematic index, we've really done the
• 15:46
  Speaker 1: research for them and they can gain exposure to an
• 15:49
  Speaker 1: entire theme and the companies within that theme through through
• 15:52
  Speaker 1: an index and through a through an ETS. All right,
• 15:54
  Speaker 1: so well, here's the dumb question of this segment. What's
• 15:58
  Speaker 1: the difference between thematic indexing and buying an e T
• 16:02
  Speaker 1: F Well, you cannot invest directly in an index. So
• 16:07
  Speaker 1: the way it typically works is we will build an
• 16:09
  Speaker 1: index and then we will license it to an e
• 16:12
  Speaker 1: T f issuer, and the e T f issuer will
• 16:14
  Speaker 1: launch a fund that tracks the index. Now, a very
• 16:17
  Speaker 1: simple example that most of you guys would know would be, um,
• 16:21
  Speaker 1: the S ANDB five hundred with s P Y or IVP.
• 16:23
  Speaker 1: That's an ETS that tracks met tracks from index. We
• 16:26
  Speaker 1: do the same with other E T f issures. What's
• 16:29
  Speaker 1: some of the It's basically screening, right. The hard part
• 16:33
  Speaker 1: is screening these things. So what you're saying is when, Um,
• 16:36
  Speaker 1: when when when you look at E T S E
• 16:39
  Speaker 1: S G I mean, or when you look at space
• 16:41
  Speaker 1: for example. It's not so easy to screen as profitability
• 16:46
  Speaker 1: or buy backs or something where you can just super
• 16:49
  Speaker 1: easily use the Bloomberg to do it. And um, there's
• 16:52
  Speaker 1: a lot of choice out there, do you do you
• 16:54
  Speaker 1: have uh, you know, difficulty making those choices when you're
• 16:58
  Speaker 1: looking at certain things, because I imagine you could cast
• 17:01
  Speaker 1: the net wide and you could also be for example space,
• 17:05
  Speaker 1: you could just do rockets and satellites. But you could
• 17:07
  Speaker 1: also look at telecoms and lidar and a whole bunch
• 17:10
  Speaker 1: of other things. That's exactly you're hitting the nail on
• 17:14
  Speaker 1: the head. So it's it's really a multipart problem. The
• 17:16
  Speaker 1: first is how do you define that theme? And UM,
• 17:20
  Speaker 1: like you said, do we look at rockets, do we
• 17:21
  Speaker 1: look at satellites, we look at other types of trajectory technology,
• 17:26
  Speaker 1: So that's part one UM, it's defining the theme and
• 17:29
  Speaker 1: our research team does that UM. And then part two
• 17:31
  Speaker 1: is of course identifying the companies that are generating typically
• 17:35
  Speaker 1: revenue and ideally a majority of their revenue from that theme.
• 17:38
  Speaker 1: Because you don't want a company that's generating negligible amount
• 17:42
  Speaker 1: of revenue from a theme, because that's not really the
• 17:45
  Speaker 1: exposure that you're looking for, right. You want a company
• 17:47
  Speaker 1: that really is tied to that concept UM. And that's
• 17:49
  Speaker 1: what we've been doing for for six plus years now,
• 17:51
  Speaker 1: and it typically as a revenue focused target. We have
• 17:55
  Speaker 1: a dedicated team of analysts spread across a couple of
• 17:57
  Speaker 1: offices globally. Uh I do this and have done this
• 18:01
  Speaker 1: for for six years now. What are some of the
• 18:03
  Speaker 1: more popular indexes that you've recently worked on worth of
• 18:08
  Speaker 1: demand from the marketplace. Well, I would say it's in
• 18:12
  Speaker 1: a couple of different areas. The first is of course technology. UM.
• 18:16
  Speaker 1: I think people get technology because it's something that they
• 18:18
  Speaker 1: interact with on a daily basis. So are five G
• 18:22
  Speaker 1: Technology Index has done quite well. We licensed that here
• 18:26
  Speaker 1: to an issueer called first Trust for any TF that's
• 18:28
  Speaker 1: raised over a billion dollars. UM Robotics and Artificial Intelligence
• 18:33
  Speaker 1: is another one of our early themes that has also
• 18:35
  Speaker 1: been quite successful. That's where ANYTF here with global x
• 18:39
  Speaker 1: Funds that's raised over two and a half billion dollars.
• 18:42
  Speaker 1: And then, of course another one UM that has been
• 18:44
  Speaker 1: in the news a lot lately has been infrastructure. So
• 18:46
  Speaker 1: we have a US Infrastructure Index that we've built probably
• 18:49
  Speaker 1: around five years ago now UM that is recently taken
• 18:52
  Speaker 1: off and again has a few billion dollars in it.
• 18:54
  Speaker 1: UM and healthcare healthcare as well, working from home, cloud computing,
• 18:58
  Speaker 1: and now we've also seen clean energy really I think
• 19:01
  Speaker 1: start to hit a critical masterroom business perspective, and as
• 19:03
  Speaker 1: a result, people are starting to look at it more
• 19:05
  Speaker 1: from an investment perspective as well. By the way, infrastructure
• 19:08
  Speaker 1: is that is the perfect example of something that would
• 19:11
  Speaker 1: be difficult to define because you know, fifty percent of
• 19:15
  Speaker 1: Americans think of it as just rhoades, bridges and airports,
• 19:19
  Speaker 1: and uh fifty I'm thinking basically as a Republican Democrats
• 19:22
  Speaker 1: split right Democrats would think of it as child care
• 19:27
  Speaker 1: and nutrition and fascinating stuff. Rahul, great having you on,
• 19:32
  Speaker 1: hoping get you back. Rahoul san Charma there. He's a
• 19:34
  Speaker 1: managing partner at Index and as he's been explaining to us,
• 19:38
  Speaker 1: UM they put together thematic indexes and license them out
• 19:41
  Speaker 1: to um A t F companies. And that's really the
• 19:45
  Speaker 1: way the kids love to invest these days. And you
• 19:48
  Speaker 1: can understand why this is Bloomberg. I want to bring
• 19:55
  Speaker 1: in Bill Smith. He's a managing director at cb I
• 19:58
  Speaker 1: z M h M S National Tag Office. And Um,
• 20:02
  Speaker 1: we got this infrastructure deal voted on late last night. Um,
• 20:05
  Speaker 1: they're gonna seems like they're gonna work it out now
• 20:08
  Speaker 1: and make it happen. Um, what do we know about
• 20:11
  Speaker 1: the tax changes? This is what the market seems to
• 20:14
  Speaker 1: care about. David costing from Goldman taxes on the other day.
• 20:17
  Speaker 1: So the only things that matter for the market right
• 20:18
  Speaker 1: now are rates and tax policy. Well, well, we don't
• 20:25
  Speaker 1: know is virtually anything about taxes, because we've got the
• 20:29
  Speaker 1: two bills going, and there's no guarantee that the one
• 20:34
  Speaker 1: tee that has been agreed upon, the Biparisan one, is
• 20:38
  Speaker 1: going anywhere because essentially all they did was agree to
• 20:43
  Speaker 1: bring it up for debate. It had been blocked for debate,
• 20:45
  Speaker 1: so it couldn't go anywhere. So now it's up for
• 20:48
  Speaker 1: debate on the Senate floor. Hopefully they get it past.
• 20:52
  Speaker 1: We don't really have tax provisions in that one. The
• 20:55
  Speaker 1: one that will contain the tax provisions most likely is
• 20:59
  Speaker 1: the fall targeted three point five trillion dollar bill that
• 21:03
  Speaker 1: they're going to try and push through using reconciliation, meaning
• 21:06
  Speaker 1: they don't have to get their sixty votes in the Senate,
• 21:09
  Speaker 1: they only need the all the Democrats and the Vice
• 21:12
  Speaker 1: President to get that through. So there they are right
• 21:16
  Speaker 1: now debating on what the pay fors for that will be,
• 21:20
  Speaker 1: meaning how are they going to pay for that bill
• 21:22
  Speaker 1: because reconciliation doesn't allow you to increase the deficit over
• 21:26
  Speaker 1: the tenure budget window. So we have what I like
• 21:29
  Speaker 1: to call the wish list, which is the green book
• 21:32
  Speaker 1: put out by Treasury that puts some flesh on the
• 21:35
  Speaker 1: bones of the Biden tax plans, but everything seems to
• 21:39
  Speaker 1: be up for debate. The scariest part of that perhaps
• 21:44
  Speaker 1: was the reference to the increase in capital gains to
• 21:48
  Speaker 1: ordinary income rates if you're over a million dollars was
• 21:51
  Speaker 1: going to be effective as of the quote unquote announcement date,
• 21:54
  Speaker 1: which wasn't defined but could have been pushed back as
• 21:57
  Speaker 1: late as April. So we think that there's probably going
• 22:02
  Speaker 1: to be no retroactivity because the bill has gone so
• 22:06
  Speaker 1: deep into the year. So I think we're probably safe
• 22:09
  Speaker 1: that we're not going to have that retroactive capital gains increase,
• 22:14
  Speaker 1: but we really don't know what's going to go in
• 22:16
  Speaker 1: because there's going to be a lot of fighting. The
• 22:18
  Speaker 1: Republicans bounced the increase to the I R. S budget alt,
• 22:22
  Speaker 1: we'll see if that sneaks back in. That has a
• 22:25
  Speaker 1: very large return on investments that would be a huge
• 22:28
  Speaker 1: pay for If that's out, it's going to put pressure
• 22:31
  Speaker 1: on the Democrats to put tax increases into that three
• 22:36
  Speaker 1: point five trillion dollar infrastructure bill that is supposed to
• 22:39
  Speaker 1: go through in the fall. At some point. Bill. There's
• 22:43
  Speaker 1: a lot of folks out there that say, hey, we
• 22:45
  Speaker 1: don't necessarily need to raise tax rates. What we need
• 22:48
  Speaker 1: to do is tighten the loopholes for the tax laws
• 22:52
  Speaker 1: that are already on the books. Is that a viable
• 22:55
  Speaker 1: argument or is that a political talking point? Well, considering
• 22:59
  Speaker 1: that I have been doing this for forty plus years
• 23:01
  Speaker 1: and that's talked about every single year, I would say
• 23:06
  Speaker 1: that it's it's easier said than done. Let's put it
• 23:10
  Speaker 1: that way. So it's much easier to know and understand
• 23:15
  Speaker 1: that you're going to bring in a hundred billion dollars
• 23:17
  Speaker 1: if you raise the corporate rate by one per cent.
• 23:20
  Speaker 1: Then to tighten the so called loopholes. Now, if you
• 23:23
  Speaker 1: want to talk about tightening a loophole, the so called
• 23:27
  Speaker 1: minimum tax on corporations, and the Biden Plan would be
• 23:31
  Speaker 1: just that, because you have corporations with lots and lots
• 23:35
  Speaker 1: of book income and no taxable income. So that would
• 23:38
  Speaker 1: be the same people who say we want to tighten
• 23:40
  Speaker 1: loopholes are generally going to be opposed to that minimum
• 23:43
  Speaker 1: corporate tax that is proposed in the Biden Plan. So
• 23:46
  Speaker 1: that's that's often a political talking point and a very
• 23:50
  Speaker 1: difficult thing to implement. I can understand that. I mean,
• 23:55
  Speaker 1: why is the federal government trying to influence behavior with
• 23:57
  Speaker 1: tax policy? Why are there any loop holes? To begin with? Um,
• 24:02
  Speaker 1: wouldn't it be better if we just had a straight
• 24:05
  Speaker 1: tax that you knew you had to pay. I mean, frankly,
• 24:08
  Speaker 1: I don't understand why there's a corporate tax because you know,
• 24:12
  Speaker 1: owners of those companies already pay tax on profits, dividends, um,
• 24:18
  Speaker 1: capital gains, So why tax the company again? On the
• 24:22
  Speaker 1: corporate structure? Well, as I've said for years and years
• 24:25
  Speaker 1: and years, we have moved to a system where all
• 24:29
  Speaker 1: social policies enacted through the tax code, which isn't perhaps
• 24:33
  Speaker 1: the best way to do it, but that seems to
• 24:35
  Speaker 1: be where we are. And the problem is, once you
• 24:37
  Speaker 1: get things in that benefit a certain group, it's very
• 24:41
  Speaker 1: difficult to get them out because you're going to have
• 24:43
  Speaker 1: people fighting very hard to leave them the way they are. So, uh,
• 24:49
  Speaker 1: should we enact social policy through the tax code. That's
• 24:51
  Speaker 1: for someone to higher than my pay grade. But it
• 24:54
  Speaker 1: seems like we're certainly doing it, and have been doing
• 24:57
  Speaker 1: it for years and years and years and years. And
• 24:59
  Speaker 1: on the corporate tax, why why is there a corporate tax?
• 25:03
  Speaker 1: I think it's because it's an easy revenue raiser for
• 25:09
  Speaker 1: one thing, and you have all the pass through entities
• 25:12
  Speaker 1: where a majority of small businesses conducted, so that's only
• 25:15
  Speaker 1: one level of tax. If you're in an LLC, you're
• 25:18
  Speaker 1: an S corporation. The owners, as you know, pay the tax,
• 25:21
  Speaker 1: not the entity generally. But with corporations, and particularly with
• 25:26
  Speaker 1: large corporations, you have a much broader base of ownership
• 25:30
  Speaker 1: of mom and pops, so they're extracting the whole athlete
• 25:34
  Speaker 1: corporate level. Hey, Bill, thanks so much for joining us
• 25:36
  Speaker 1: to really appreciate it. Bill Smith, Managing Director, C B
• 25:39
  Speaker 1: I Z M h M S National Tax Office. Taxes
• 25:43
  Speaker 1: are going up, but still a lot of work to
• 25:45
  Speaker 1: be done in Washington on those details. Well, more coming up.
• 25:49
  Speaker 1: This is Bloomberg. Thanks for listening to the Bloomberg Markets podcast.
• 25:54
  Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
• 25:57
  Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller, I'm
• 26:01
  Speaker 1: on Twitter at Matt Miller vy three, and I'm Fall
• 26:05
  Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
• 26:07
  Speaker 1: you can always catch us worldwide at Bloomberg Radio.