Latest / Bloomberg Intelligence / Nick Colas Says Public Equity Market May Be a Broken Concept

Transcript

Nick Colas Says Public Equity Market May Be a Broken Concept · Bloomberg Intelligence

• 0:04
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:14
  Speaker 1: you and your money, whether at the grocery store or
• 0:16
  Speaker 1: the trading floor. Find the Bloomberg P and L Podcast
• 0:20
  Speaker 1: on iTunes, SoundCloud and at Bloomberg dot com. Well recently,
• 0:29
  Speaker 1: David Einhorn, who is well respected hedge fund manager frequently
• 0:34
  Speaker 1: gets calls right, suggested that General Motors should divide its
• 0:39
  Speaker 1: shares into two classes, one that would be for capital
• 0:43
  Speaker 1: appreciation and the other which would be for its hefty dividend.
• 0:46
  Speaker 1: His goal to unlock value in these shares. This raised
• 0:51
  Speaker 1: a lot of questions for Nick Cholas, who joins us
• 0:53
  Speaker 1: right now. He's chief market strategistic converge x UH and
• 0:56
  Speaker 1: wrote a fascinating piece about how this highlights some of
• 0:59
  Speaker 1: the broken aspects of the public equity market. Nick, Yeah,
• 1:04
  Speaker 1: that's exactly right, because as I started thinking about iron
• 1:07
  Speaker 1: Horn's proposal, I realized that it's really part of a continuum,
• 1:10
  Speaker 1: and that you've seen other kind of little chips away
• 1:13
  Speaker 1: at the classical equity market structure over the past decade
• 1:16
  Speaker 1: or so. So you look at Snap with its recent
• 1:18
  Speaker 1: I p O not offering voting shares, You see dual
• 1:21
  Speaker 1: classes of stock, and a lot of the most successful
• 1:23
  Speaker 1: tech companies Google, Facebook and so forth, and you begin
• 1:26
  Speaker 1: to realize that there's something going on much bigger than
• 1:29
  Speaker 1: just GM iron horning in one company and a debate
• 1:32
  Speaker 1: about cyclical companies and valuations. Right, and you point to
• 1:34
  Speaker 1: also initial public offerings and how much uh, the total
• 1:38
  Speaker 1: volume of i p O s in any given year
• 1:40
  Speaker 1: has gone down dramatically over the past a few decades.
• 1:43
  Speaker 1: And this is also an issue that Jay Clayton, who
• 1:45
  Speaker 1: has been nominated to be SEC chair, raised in front
• 1:48
  Speaker 1: of Congress when he testified, saying that this is one
• 1:51
  Speaker 1: area that he wants to address. Why do you think
• 1:54
  Speaker 1: that there is a sort of structural flaw that is
• 1:57
  Speaker 1: increasingly prevalent in public equity markets? Yeah, this is the
• 2:00
  Speaker 1: single most important question nobody really talks about very much,
• 2:03
  Speaker 1: because the key issue is that public equity shareholders must
• 2:07
  Speaker 1: have access to the very best companies that a society
• 2:10
  Speaker 1: can create. The reason is if they don't have access
• 2:13
  Speaker 1: to that, they're just stuck with the losing companies because
• 2:15
  Speaker 1: the nature of disruption is such that the new companies
• 2:18
  Speaker 1: started out in California go on to grow and really
• 2:21
  Speaker 1: impinge on the growth of other companies that are publicly
• 2:23
  Speaker 1: held currently. So you have to be able to buy
• 2:25
  Speaker 1: the new ones to basically benefit from society's innovation. If
• 2:29
  Speaker 1: you don't have access to them, then over time investors
• 2:31
  Speaker 1: and take their money and go away because they don't
• 2:33
  Speaker 1: want to own just the losers, they want to own
• 2:35
  Speaker 1: the winners as well. Matt Levin and Bloomberg view columnists
• 2:37
  Speaker 1: here and I were talking about this extensively last week,
• 2:40
  Speaker 1: and we were talking about, you know, how the public
• 2:43
  Speaker 1: equity markets have been part of the American dream of
• 2:47
  Speaker 1: you know, sharing in dynamism and getting a part of
• 2:50
  Speaker 1: the fastest growing companies. But you know, I would argue,
• 2:54
  Speaker 1: couldn't you say that public equity markets haven't gotten worse
• 2:57
  Speaker 1: but that private debt mark it's have just gotten so
• 3:01
  Speaker 1: much better private debt and equity, and you know, you
• 3:04
  Speaker 1: have this incredible ground swell in the amount of debt
• 3:07
  Speaker 1: that has been issued, You have cheaper rates thanks to
• 3:10
  Speaker 1: the Fed and Frank's thanks to also changing dynamic in demographics. Um,
• 3:16
  Speaker 1: couldn't investors just participate through the debt markets. Um, they
• 3:20
  Speaker 1: could do it degree, but ultimately the way you get
• 3:23
  Speaker 1: upside an investment is owning the equity piece of the
• 3:25
  Speaker 1: balance sheet, because that's why all the residual cash flows go.
• 3:28
  Speaker 1: I think you raised the right points, though, and that
• 3:30
  Speaker 1: VC has gotten a lot bigger, a lot deeper, and
• 3:32
  Speaker 1: a lot better. And there's a lot of really smart
• 3:34
  Speaker 1: investors out there in VC land that's just do venture
• 3:37
  Speaker 1: capital investment. Additionally, we're going through this big macro stage
• 3:41
  Speaker 1: in the economy where there's a lot of disruption. Disruption
• 3:44
  Speaker 1: takes a long time to invest in and see the
• 3:46
  Speaker 1: benefits of that. And I think one other reason why
• 3:48
  Speaker 1: there's not a lot of I p o S is
• 3:50
  Speaker 1: venture capital is reluctant to give voting control or even
• 3:53
  Speaker 1: voting input to public equity investors for projects that might
• 3:57
  Speaker 1: be still five or ten years down the road, and
• 4:00
  Speaker 1: so they keep them private instead of taking them public.
• 4:02
  Speaker 1: And just to give some numbers behind that, as you
• 4:04
  Speaker 1: highlighted in your recent report, in a late ninety nineties,
• 4:07
  Speaker 1: there were often thirty eight i p o s per month.
• 4:11
  Speaker 1: Now that number is more like ten to twenty time
• 4:14
  Speaker 1: twenty I p O s per month. So, Nick, you
• 4:17
  Speaker 1: raise a good, quite good point with voting rights. Do
• 4:21
  Speaker 1: you think that we're going to see more companies stripping
• 4:24
  Speaker 1: away voting rights in their I p o s and
• 4:27
  Speaker 1: frankly stock buyers being okay with that? Yeah, absolutely, I
• 4:31
  Speaker 1: think that's definitely the way of the future, because ultimately
• 4:33
  Speaker 1: the goal is to get these companies out into the
• 4:35
  Speaker 1: public domain. Let investors investors they want, or if they don't,
• 4:39
  Speaker 1: then they don't have to. But whatever it takes to
• 4:41
  Speaker 1: connect the public equity investor to this tremendous growth engine
• 4:45
  Speaker 1: that's going on in Silicon Valley and in sand Hill
• 4:48
  Speaker 1: Road an adventure capital around the world, that's the most
• 4:50
  Speaker 1: critical thing that can happen for equity markets in the
• 4:52
  Speaker 1: next five to ten years. How much of mom and
• 4:54
  Speaker 1: pop investors lost out by not being able to participate
• 4:57
  Speaker 1: in these early stages of these Silicon val companies. Well,
• 5:00
  Speaker 1: let's think about Ubert, for example, still private worth by
• 5:03
  Speaker 1: any estimate sixty seventy billion dollars. It would have been
• 5:07
  Speaker 1: great if public equity investors could have bought that company.
• 5:10
  Speaker 1: Was when it was twenty or five billion dollars, still
• 5:12
  Speaker 1: a very viable market cap for a public company something
• 5:16
  Speaker 1: they could have done and benefited from that. So that's
• 5:19
  Speaker 1: just one example. I'm sure there's many others. Yeah, but
• 5:21
  Speaker 1: couldn't somebody argue that there also were a lot of
• 5:23
  Speaker 1: flops that managed to go bankrupt and squander a lot
• 5:27
  Speaker 1: of money that public equity investors were saved from. Yeah,
• 5:33
  Speaker 1: there's two ancillary points that. The first is that you
• 5:35
  Speaker 1: still need all the right disclosures, financial disclosures, risk disclosures,
• 5:39
  Speaker 1: good investment banking, due diligence, the whole nine yards on that.
• 5:42
  Speaker 1: But on top of that, you do ultimately have to
• 5:45
  Speaker 1: take some risk in order to make a return, and
• 5:47
  Speaker 1: that includes potentially buying some flops along the way, And
• 5:50
  Speaker 1: that's okay as long as you're invested in broadly diversified portfolio.
• 5:54
  Speaker 1: How much do the sort of regulatory burdens that Jake
• 5:58
  Speaker 1: Clayton highlighted as being owners for a lot of companies,
• 6:02
  Speaker 1: how much does that factor into corporations decision to or
• 6:07
  Speaker 1: not to have an I p O. You know, ultimately
• 6:09
  Speaker 1: there is definitely some issue with all the regulations, our
• 6:12
  Speaker 1: bins Oxley and disclosures and what happens if you get
• 6:15
  Speaker 1: it wrong and having corporate officers signed off on on statements,
• 6:19
  Speaker 1: all of which are kind of post crisis developments, But
• 6:22
  Speaker 1: the overwhelming issue seems to be that venture capital is
• 6:25
  Speaker 1: really reluctant to let go of their babies. They think
• 6:27
  Speaker 1: they have really figured out the next week of disruption,
• 6:30
  Speaker 1: and they don't want to have a lot of outside
• 6:31
  Speaker 1: investors having to vote on who the new CEO is
• 6:35
  Speaker 1: or if this company is going to emerge earlier or later.
• 6:37
  Speaker 1: They want to maintain that control because they feel they
• 6:40
  Speaker 1: understand the landscape better. So, worst case scenario, if this
• 6:43
  Speaker 1: trend continues of only the losers remaining in the public
• 6:47
  Speaker 1: equity market, what do you think will happen? You know, ultimately,
• 6:50
  Speaker 1: in the worst case scenario, people start to invest less. So,
• 6:54
  Speaker 1: for example, we all know Amazon has really killed it
• 6:57
  Speaker 1: and driven a lot of bricks and mortar companies and
• 6:59
  Speaker 1: the tubes. What if Amazon had never gone public, we
• 7:02
  Speaker 1: wouldn't have access to that company, it wouldn't have grown
• 7:05
  Speaker 1: as it has, and more importantly, would only be stuck
• 7:07
  Speaker 1: owning the department stores, which are now really struggling against
• 7:10
  Speaker 1: the Amazon threat. So it's super critical to have the
• 7:13
  Speaker 1: winners in the market as well as the losers so
• 7:16
  Speaker 1: you know, it's interesting to me. I find that often
• 7:19
  Speaker 1: when markets are entering a kind of boring state or
• 7:22
  Speaker 1: one that is neither one of incredible upside or downside,
• 7:25
  Speaker 1: is a time when people get deeply philosophical about the
• 7:27
  Speaker 1: meaning of of these markets. I mean, it's part of
• 7:30
  Speaker 1: the reason why we're seeing some of these existential questions emerged,
• 7:33
  Speaker 1: because the FED is kind of managing things well and
• 7:37
  Speaker 1: everything is just kind of chugging along, and nobody can
• 7:39
  Speaker 1: really make a much more of a dramatic statement than that.
• 7:42
  Speaker 1: I think there's a piece of it, but I think
• 7:43
  Speaker 1: we're also I think there's a lot of people, I'm
• 7:45
  Speaker 1: sure everybody in this building deeply intrigued by artificial intelligence,
• 7:48
  Speaker 1: autonomous driving, new technologies generally, and I think everybody understands
• 7:53
  Speaker 1: it's important that investors have access to those technologies as
• 7:56
  Speaker 1: they go through development and become public companies, because other
• 8:00
  Speaker 1: wise you could have a situation where venture capital continues
• 8:02
  Speaker 1: to own all the disruption and what gets disrupted is
• 8:05
  Speaker 1: still in the public markets, and you don't want to
• 8:07
  Speaker 1: see that happen because capital will stop circulating as well
• 8:10
  Speaker 1: as it has before. Nikki used to work in the
• 8:11
  Speaker 1: auto industry. Right, So have you talked with anyone about
• 8:16
  Speaker 1: David Idhorn's proposal. Yeah. I spent ten years covering the
• 8:18
  Speaker 1: autos at the old First Boston Credit Suites, and I
• 8:21
  Speaker 1: have been in contact with several former CEO s CFOs treasurers.
• 8:26
  Speaker 1: To a person, they don't like the idea very much,
• 8:29
  Speaker 1: but I will tell you that they also understand the
• 8:31
  Speaker 1: frustration because they've all lived through multiple cycles of this
• 8:35
  Speaker 1: group never outperforming from cyclotrough to CycL trough. Several lived
• 8:39
  Speaker 1: through the bankruptcies during the financial crisis, and they get
• 8:42
  Speaker 1: that there's a problem. They're just reluctant to try to
• 8:44
  Speaker 1: fix it aggressively at this point in the cycle. Well,
• 8:47
  Speaker 1: how could they fix it? You know, on horse proposals
• 8:50
  Speaker 1: and intriguing one because at least addresses the issue of who,
• 8:53
  Speaker 1: you know, maintaining a shareholder base that is explicitly loyal
• 8:56
  Speaker 1: to your financial structure. So if you're a dividend investor,
• 8:59
  Speaker 1: you buy the dividends stock if you just want the
• 9:00
  Speaker 1: bio back by the buy back stock. So it's an
• 9:03
  Speaker 1: attempt to answer answering that question, but I think it's
• 9:05
  Speaker 1: not the final word. Just to sort of dovetail into
• 9:09
  Speaker 1: the FED. I mean, do you think that a FED,
• 9:13
  Speaker 1: a few more FED rate hikes or a possible announcement
• 9:16
  Speaker 1: of the unwinding of its four point five trillion dollar
• 9:19
  Speaker 1: balance sheet will upend stocks in any way, or that
• 9:23
  Speaker 1: you know, this will become a major disruption that is
• 9:26
  Speaker 1: not on the radar right now. Yeah, And the context
• 9:28
  Speaker 1: of the market that we see right now, in the
• 9:30
  Speaker 1: economy that we see right now, the answer is no.
• 9:32
  Speaker 1: I think everybody has a fairly good feeling that we're
• 9:34
  Speaker 1: going to grow one and a half to two two
• 9:37
  Speaker 1: and a half percent this year in terms of GDP,
• 9:39
  Speaker 1: that inflation is going to get back to two percent
• 9:41
  Speaker 1: and kind of stay there, and the FED is going
• 9:43
  Speaker 1: to raise twice more. And that's the playbook everybody's using.
• 9:46
  Speaker 1: And so as long as we sort of follow that
• 9:48
  Speaker 1: playbook and everything else, the two rate increases is probably fine.
• 9:52
  Speaker 1: The unwinding of the balance sheets a more complex issue,
• 9:55
  Speaker 1: and it's much about how the FED chooses to do
• 9:57
  Speaker 1: that and at what pace and how they give guidance
• 9:59
  Speaker 1: of about it. And I doubt they'll do that until
• 10:01
  Speaker 1: the back half of the year. So we have a
• 10:03
  Speaker 1: few more months of just thinking about June as an
• 10:05
  Speaker 1: ax creating increase, and then I think they'll start talking
• 10:08
  Speaker 1: about not just the pace of the unwind, but the
• 10:10
  Speaker 1: mechanics of the unwind. What do you make between the
• 10:13
  Speaker 1: divergence between soft economic data and hard economic data? Boy,
• 10:19
  Speaker 1: you know it's it's it's it's like a viral cat video.
• 10:23
  Speaker 1: You know, it's it's sometimes it's not that exciting. Actually,
• 10:27
  Speaker 1: it's one of those themes that just feels like it
• 10:29
  Speaker 1: exploded out of nowhere and it will be gone again
• 10:31
  Speaker 1: in two days. I think it's an important notion, but
• 10:34
  Speaker 1: I think it speaks to your point that people don't
• 10:36
  Speaker 1: have much else to talk about at the moment, and
• 10:39
  Speaker 1: as a result, trying to parse the data even more
• 10:41
  Speaker 1: finally than before. The bottom line is are we growing
• 10:44
  Speaker 1: or not growing? The answers, yes, we're growing. Are we overheating? No,
• 10:47
  Speaker 1: we're not overheating. I love that, By the way, I
• 10:50
  Speaker 1: love the idea of the difference between soft and hard
• 10:52
  Speaker 1: data being a viral cat video. Anything that we should
• 10:57
  Speaker 1: be talking about real quick that we aren't. No, that's definitely.
• 11:00
  Speaker 1: This to me was like the most important topic that
• 11:02
  Speaker 1: I could come up with was what is actually what
• 11:04
  Speaker 1: is a vote? Of what is a share supposed to
• 11:06
  Speaker 1: do not only for the investor, but for society as
• 11:08
  Speaker 1: a whole. Honestly, a super important topic and a very
• 11:12
  Speaker 1: very good report that you did, Nicholas, thank you so
• 11:14
  Speaker 1: much for joining us. Nic Cholas his chief markets I
• 11:17
  Speaker 1: just at converge x talking about why public equity markets
• 11:22
  Speaker 1: are deeply flawed right now and how this could potentially
• 11:26
  Speaker 1: really badly affect the future of where people put their
• 11:29
  Speaker 1: money and how much they invest. Thanks so much, Nick, Well,
• 11:44
  Speaker 1: I want to turn the attention to marijuana. Actually, um,
• 11:48
  Speaker 1: not the actual plant, but real estate that is involved
• 11:52
  Speaker 1: with the cannabis industry. And here to speak about that
• 11:55
  Speaker 1: is down is don Sandoval. She's chief operating officer of
• 11:59
  Speaker 1: kal X Development Incorporated, which is based in New York City.
• 12:03
  Speaker 1: And Donn I was reading about your background. You were
• 12:06
  Speaker 1: on Wall Street for a long time, You're a graduate
• 12:08
  Speaker 1: of Wharton. Uh, how did you find yourself in the
• 12:11
  Speaker 1: cannabis industry. Well, at LESTA, the cannabis industry and my
• 12:16
  Speaker 1: interests there really began about seven years ago. Uh as
• 12:20
  Speaker 1: developments began in Colorado and we're continuing develop in California.
• 12:25
  Speaker 1: And it was quite clear to me that the efficacy
• 12:28
  Speaker 1: of the plant and all the various uses that have
• 12:30
  Speaker 1: really just garnered increased exposure as research has increasingly better
• 12:35
  Speaker 1: research has come online was a trend in my opinion,
• 12:38
  Speaker 1: that was going to continue. And so as I started
• 12:42
  Speaker 1: to look at various verticals in the cannabis space, it
• 12:45
  Speaker 1: was quite clear to me that real estate was a
• 12:48
  Speaker 1: sector that was both scalable and somewhat protective in the
• 12:52
  Speaker 1: sense that you have bricks and mortar assets as well
• 12:56
  Speaker 1: as an opportunity for diversification across the country that could
• 12:59
  Speaker 1: provide us strong buffer should the cannabis experiment across the
• 13:03
  Speaker 1: country be repealed or simply rolled back in a particular jurisdiction.
• 13:08
  Speaker 1: With the cannabis experiment, I like that way of describing it.
• 13:11
  Speaker 1: Can that can you dovetail that into present day dynamics
• 13:15
  Speaker 1: and sort of the political rhetoric that we hear uh
• 13:18
  Speaker 1: from Jeff's sessions about potentially cracking down on marijuana and
• 13:23
  Speaker 1: rebuffing attempts to make it legal. I mean, has this
• 13:27
  Speaker 1: resulted in a plateau ing of opportunities for your business
• 13:30
  Speaker 1: and for cannabis in general in the US? I would say,
• 13:33
  Speaker 1: to date, Uh, the comments out of Jeff's sessions as
• 13:37
  Speaker 1: well as Sean Spicer on behalf of the administration. UH
• 13:40
  Speaker 1: is really saber rattling and certainly a far cry from
• 13:45
  Speaker 1: any legislative action. And we know frankly behind closed doors
• 13:49
  Speaker 1: that Jeff has has made some of his lieutenants in
• 13:55
  Speaker 1: the Republican Party somewhat more comfortable that we know immediate
• 13:59
  Speaker 1: act and in terms of greater federal enforcement as it
• 14:03
  Speaker 1: results as it relates to recreational cannabis. So in terms
• 14:07
  Speaker 1: of the opportunity set for Kalx and the cannabis industry
• 14:11
  Speaker 1: in general, I would say the opportunity set is is
• 14:15
  Speaker 1: unimpacted at this stage. How big is the cannabis real
• 14:19
  Speaker 1: estate market? Well, it's a difficult question because it's such
• 14:25
  Speaker 1: a fractured industry and as you move from state to state,
• 14:30
  Speaker 1: their local and regional jurisdictions that have very very high
• 14:35
  Speaker 1: degree of differentiation between zoning laws and licensing practices, such
• 14:41
  Speaker 1: at the actual building count on a per state basis,
• 14:45
  Speaker 1: depending on how you want to divvy up those zoning
• 14:49
  Speaker 1: requirements can vary quite substantially. Well, how big is Calex
• 14:53
  Speaker 1: Calyx is currently nine properties, we manage over six fifty
• 14:59
  Speaker 1: thousand square feet. Our buildings are spread across four states,
• 15:03
  Speaker 1: primarily out West Colorado, Washington, Oregon, and Arizona, and we
• 15:09
  Speaker 1: currently house twenty one tenants. So what's the difference between
• 15:12
  Speaker 1: a cannabis related building and a regular building? So a
• 15:16
  Speaker 1: cannabis building is subject to very strict guidelines with respect
• 15:21
  Speaker 1: to zoning and sighting, as well as it has very
• 15:25
  Speaker 1: specific infrastructure requirements power, water, lighting, UH. And it is
• 15:33
  Speaker 1: exactly these types of unique characteristics, both from a regulatory
• 15:37
  Speaker 1: perspective and a facilities perspective, that create what we like
• 15:42
  Speaker 1: to call it Calyx, a new vertical within the commercial
• 15:46
  Speaker 1: real estate space. Has it been harder for you to
• 15:48
  Speaker 1: drum up interest with investors just because of UH, some
• 15:51
  Speaker 1: of Jeff's Sessions comments and Sean Spicer's comments, even if
• 15:56
  Speaker 1: in back room conversations they're sort of poo pooing any
• 15:59
  Speaker 1: potential imminent and repeal of some of the local UH
• 16:03
  Speaker 1: legalization legalization of marijuana. I think with certainty the new
• 16:08
  Speaker 1: administration and the comments that we have had out of
• 16:11
  Speaker 1: it as well as it comments from Jeff Sessions in particular,
• 16:14
  Speaker 1: have given investors pause to a certain extent um but again,
• 16:19
  Speaker 1: it is clear that the administration, whether it's tax reform, immigration,
• 16:24
  Speaker 1: or healthcare, has much larger issues, UH it intends to
• 16:29
  Speaker 1: deal with before I believe getting to cannabis. Well, I
• 16:32
  Speaker 1: guess we'll see, right, Um, what about up north? Do
• 16:35
  Speaker 1: you look in Canada at all? We do watch what's
• 16:38
  Speaker 1: going on in the Canadian markets, for sure, we don't
• 16:40
  Speaker 1: own any property there, but it's certainly tremendous growth and
• 16:44
  Speaker 1: the capital markets there have really experienced some exponential growth
• 16:50
  Speaker 1: with respect to cannabis companies of late. Well, yeah, and
• 16:52
  Speaker 1: in the past couple of weeks, didn't Um, wasn't there
• 16:56
  Speaker 1: some legislation that was signed that would sort of expand
• 16:58
  Speaker 1: the legalization of maria on a in Canada and it
• 17:01
  Speaker 1: led to some kind of complete boom and share is
• 17:04
  Speaker 1: tied to that industry. Right. There is expected legislation later
• 17:10
  Speaker 1: this month to be brought to the floor whereby UH
• 17:13
  Speaker 1: continued expansion of marijuana in Canada on a legalized basis
• 17:19
  Speaker 1: could have a much more developed framework as early as
• 17:24
  Speaker 1: July of next year. So what's the biggest opportunity for
• 17:26
  Speaker 1: you going forward in the next year. So, the biggest
• 17:29
  Speaker 1: opportunity for calxes to continue to build its real estate platform.
• 17:34
  Speaker 1: We're looking quite aggressively at new opportunities more towards the
• 17:38
  Speaker 1: East Coast. We're looking at acquisitions in Florida, Maryland, Massachusetts.
• 17:44
  Speaker 1: To be to be clear, real quick, what are your
• 17:47
  Speaker 1: conversations like with your colleagues, your former colleagues on Well Street.
• 17:52
  Speaker 1: It's interesting. Everyone wants to know if the green rush
• 17:55
  Speaker 1: is for real, and what I say is, uh, it's
• 17:58
  Speaker 1: a nascent industry ripe with risk, but a lot of opportunity.
• 18:03
  Speaker 1: If you're willing to spend the time and do the work,
• 18:05
  Speaker 1: I'm sure you have a lot of fascinating conversations. Thank
• 18:07
  Speaker 1: you so much for keeping us up to date and
• 18:09
  Speaker 1: what's going on in the cannabis real estate industry. Don
• 18:13
  Speaker 1: Sandoval's cheap chief operating officer, I can't speak today. It's Friday,
• 18:17
  Speaker 1: chief operating officer at Klex Development Incorporated in New York City,
• 18:21
  Speaker 1: talking about all the opportunities for cannabis related properties. I
• 18:37
  Speaker 1: want to turn to energy, uh, and not just the
• 18:40
  Speaker 1: production of energy, but using waste from energy production to
• 18:45
  Speaker 1: create more energy. I want to bring in Steven Jones,
• 18:48
  Speaker 1: President and Chief executive Officer of Covanta Holding Corporation, which
• 18:52
  Speaker 1: is based in New Jersey. Uh, Steven, I want to
• 18:55
  Speaker 1: start first with the business model here. What is waste
• 18:59
  Speaker 1: to enter g Yeah, high Lisa, thanks for having me
• 19:02
  Speaker 1: on for first starters. Uh. Waste energy is basically taking
• 19:06
  Speaker 1: waste um from either people's homes or special waste from corporations, uh,
• 19:12
  Speaker 1: and putting through a combustion process in order to reclaim
• 19:16
  Speaker 1: or capture the b two us that are that are
• 19:19
  Speaker 1: still contained in that waste and and based on that
• 19:22
  Speaker 1: recapturing or combustion to produce energy. And you can produce
• 19:26
  Speaker 1: steam um and or power um from the from the steam.
• 19:30
  Speaker 1: So is this a no waste process or is this
• 19:33
  Speaker 1: just sort of trying to strip out anything that's left
• 19:37
  Speaker 1: over in a less efficient energy production process, uh, and
• 19:41
  Speaker 1: using it again. Yeah, so it's it's the latter. So effectively,
• 19:44
  Speaker 1: what you want to do, and we're certainly in favor
• 19:47
  Speaker 1: of this, is go through the recycling process. And after
• 19:49
  Speaker 1: the recycling process, there's still waste that's left over and
• 19:53
  Speaker 1: it has be to you value to it. And so
• 19:55
  Speaker 1: rather than uh putting it in the your surface, so
• 19:58
  Speaker 1: putting it into a landfill, the alternative is to put
• 20:01
  Speaker 1: it through a combustion process and reclaim that energy. Can
• 20:04
  Speaker 1: you just give me a visual here, I mean, do
• 20:06
  Speaker 1: you go to landfills and just uh pick up big
• 20:10
  Speaker 1: portions of garbage and feed it through a machine. I
• 20:13
  Speaker 1: feel like it's like a Doctor Seuss book where you
• 20:16
  Speaker 1: sort of put it in a machine and it comes
• 20:18
  Speaker 1: out in a box and you have some more energy. Yeah.
• 20:20
  Speaker 1: We actually we actually run forty two energy from waste
• 20:23
  Speaker 1: facilities around the US and also internationally. So we have
• 20:27
  Speaker 1: a big project we're building in downtown Dublin right now.
• 20:31
  Speaker 1: So these facilities actually are in and around population centers,
• 20:34
  Speaker 1: so their critical infrastructure to population centers. And actually, um,
• 20:38
  Speaker 1: we don't pick up waste. Uh. There's companies out there
• 20:41
  Speaker 1: that that you know, that go and pick the waste
• 20:43
  Speaker 1: up from the curb from from your house. Uh. And
• 20:45
  Speaker 1: then they're alternatives are either take it to a landfill
• 20:48
  Speaker 1: to uh to dump it or tip it or take
• 20:52
  Speaker 1: it to one of our facilities. And again, um, when
• 20:54
  Speaker 1: they take it to a landfill, uh, it decomposes over
• 20:57
  Speaker 1: about a fifty year period and produces methane and methanes
• 21:01
  Speaker 1: um about eighty times worse than than C O two
• 21:04
  Speaker 1: is a greenhouse gas. So UM, there's a lot of
• 21:07
  Speaker 1: people and then particularly a lot of companies in the
• 21:09
  Speaker 1: US who don't really want to take their waste to
• 21:11
  Speaker 1: landfills any longer, and we would rather have to go
• 21:13
  Speaker 1: through what's a more sustainable process, which is an energy
• 21:15
  Speaker 1: from waste plant. So how many waste energy facilities does
• 21:19
  Speaker 1: Covanta have, So we own or operate forty two. So
• 21:22
  Speaker 1: we're the largest in the world. Our next closest competitors
• 21:26
  Speaker 1: about half the size of US UH and UH. Generally
• 21:30
  Speaker 1: we UH we process about twenty million tons a year
• 21:34
  Speaker 1: of waste and that's about five percent of the waste
• 21:37
  Speaker 1: in the US. The US still has a lot of
• 21:38
  Speaker 1: landfills that that we that that are utilized for waste disposal.
• 21:42
  Speaker 1: It's enough we produce enough electricity to power one million homes.
• 21:46
  Speaker 1: And the other interesting thing is that we also reclaim
• 21:49
  Speaker 1: metal from the waste. There's an enormous amount of metal
• 21:51
  Speaker 1: that goes through the through the waste stream, and so
• 21:54
  Speaker 1: we reclaim or recycle approximately five thousand tons of metal
• 21:59
  Speaker 1: metal annually and that's enough to build five Golden Gate
• 22:02
  Speaker 1: bridges a year, which a lot of people find UH
• 22:05
  Speaker 1: find interesting. A lot of metal in there. I'm just
• 22:08
  Speaker 1: sitting here, sitting here trying to think about the economics
• 22:11
  Speaker 1: of this, how this works, because I would guess that
• 22:13
  Speaker 1: it's fairly expensive to build the equipment to sift through
• 22:16
  Speaker 1: mountains and mountains mountains of garbage. Yeah. So again, the
• 22:20
  Speaker 1: waste comes to us, just like it would so we
• 22:22
  Speaker 1: don't either. Yeah, but even processing it. Yes, so we
• 22:26
  Speaker 1: get paid for the waste. Um. From from an economic
• 22:29
  Speaker 1: stan point you to think about it, we get paid
• 22:31
  Speaker 1: for the waste that we take in um, just like
• 22:33
  Speaker 1: we just like a landfill, gets paid for that. But
• 22:36
  Speaker 1: then we're able to put it through the combustion process
• 22:38
  Speaker 1: and produce energy, and then we get paid for the
• 22:40
  Speaker 1: energy and also for the metals that we recycle. So um,
• 22:43
  Speaker 1: it's a system that's got a number of inputs and
• 22:46
  Speaker 1: outputs and we get paid for all those. It's very
• 22:49
  Speaker 1: attractive underlying economics. We have high adjusted a bit on
• 22:53
  Speaker 1: margins greater than and our free cashual conversions in about
• 22:57
  Speaker 1: the range. So uh, these these plants have a high
• 23:00
  Speaker 1: degree of free cash flow conversion. Do you deal a
• 23:03
  Speaker 1: lot with nimby with people not wanting to have these uh? Not?
• 23:07
  Speaker 1: In my backyard, not not wanting your plants near them. Yeah,
• 23:10
  Speaker 1: it's interesting. In the US, there's there's a lot of nimby.
• 23:13
  Speaker 1: I would tell you new plant, new plant. UH developments
• 23:17
  Speaker 1: in the US are few and far between, UM because
• 23:21
  Speaker 1: the US has a lot of landfills and so UH
• 23:23
  Speaker 1: that tends to be the route that waste goes. But
• 23:26
  Speaker 1: if you go UH to any other international jurisdiction, So
• 23:32
  Speaker 1: so they think about the EU, UM Ireland for example,
• 23:35
  Speaker 1: where we're building a big plant. Even a lot of
• 23:37
  Speaker 1: places in Asia, there's a lot more acceptance of energy
• 23:40
  Speaker 1: from waste. I think the citizens there have UH and
• 23:44
  Speaker 1: the governments there have become um more UH inclined to
• 23:49
  Speaker 1: not put their waste in the landfill and have the
• 23:50
  Speaker 1: greenhouse gas impact occur. They'd rather have a go to
• 23:54
  Speaker 1: an energy from waste plant. And then in the energy
• 23:56
  Speaker 1: from waste plant, there's a controlled combustion process. So if
• 24:00
  Speaker 1: you think about the capital we spend on these plants around,
• 24:03
  Speaker 1: the capital goes into the air pollution control systems on
• 24:06
  Speaker 1: the back end, so it's a much more controlled process
• 24:09
  Speaker 1: rather than a landfill where the where the waste decomposes
• 24:12
  Speaker 1: over you know, roughly fifty year period. This is so
• 24:15
  Speaker 1: fascinating to me. Steven Jones, President and Chief executive Officer
• 24:18
  Speaker 1: of Covanta Hold Incorporation, Thank you so much. One thing
• 24:22
  Speaker 1: that this just raises in my mind as the US
• 24:24
  Speaker 1: has so much more land and empty land than a
• 24:27
  Speaker 1: place like the European Union, where there needs to be
• 24:29
  Speaker 1: more of a premium put on consolidating space and making
• 24:33
  Speaker 1: sure that it is all used efficiently. Fascinating topic energy
• 24:37
  Speaker 1: waste energy. I want to turn to a story that's
• 24:51
  Speaker 1: getting a lot of attention today by Bloomberg's Laura Keller,
• 24:54
  Speaker 1: financial news reporter here at Bloomberg, and it's about how
• 24:59
  Speaker 1: traders are shifting the way they try to communicate out
• 25:03
  Speaker 1: of the eyes of their employers. Laura joins us here
• 25:07
  Speaker 1: in our Bloomberg eleven three oh studio. Laura, can you
• 25:09
  Speaker 1: just tell us a little bit about what you're finding
• 25:12
  Speaker 1: about how traders are communicating with each other. Yes, so, Lisa,
• 25:15
  Speaker 1: we talked with I think probably a half to two
• 25:18
  Speaker 1: dozen different people about this and more over the years
• 25:20
  Speaker 1: and really just looking at why they're turning to these things.
• 25:24
  Speaker 1: So it's these things being WhatsApp and other types of
• 25:27
  Speaker 1: encrypted uh sort of chat vehicles exactly, and I message
• 25:31
  Speaker 1: apples I Message counts as well because that does have
• 25:34
  Speaker 1: some encryption as well. UM. So essentially using these different
• 25:37
  Speaker 1: communication devices, these text based messaging services to talk about work,
• 25:41
  Speaker 1: to talk about things they don't want anyone to see.
• 25:44
  Speaker 1: So we kind of found a range. You know. It's
• 25:46
  Speaker 1: some things just sort of jokes, things that you would share,
• 25:49
  Speaker 1: you know, like email chains used to be. Other things
• 25:53
  Speaker 1: are a little bit more you know, maybe it's a
• 25:55
  Speaker 1: work thing that's happening that you don't really want any
• 25:57
  Speaker 1: much to know about, complaining about work. But it also
• 26:00
  Speaker 1: is us to this level of legally dubious information, which
• 26:03
  Speaker 1: is you know, talking about client positions. UM. And we
• 26:06
  Speaker 1: also even you know, have some examples too of actual
• 26:09
  Speaker 1: bribery and securities fraud being talked about UM on these
• 26:12
  Speaker 1: different apps. Okay, so just to be clear, the reason,
• 26:15
  Speaker 1: one reason why this is so front and center for
• 26:17
  Speaker 1: so many people is that just this week a former
• 26:20
  Speaker 1: Jeffreys banker was fined in the UK for sharing confidential
• 26:23
  Speaker 1: data on WhatsApp. UM. This sort of brings to for
• 26:26
  Speaker 1: the issue. But banks are trying to crack down on this.
• 26:29
  Speaker 1: I mean, this has been going on for a while.
• 26:31
  Speaker 1: Banks have certainly cracked down on mobile phone usage and texting. Um,
• 26:35
  Speaker 1: what are they doing to combat this? Right? So, banks,
• 26:38
  Speaker 1: as you say, you know, each and every time there's
• 26:40
  Speaker 1: a new place that people are going offline to talk,
• 26:43
  Speaker 1: they've It's like cat and mouse. They always find a way.
• 26:45
  Speaker 1: Emails used to be something that we didn't have ingested
• 26:47
  Speaker 1: into these big bank compliance forms, and now we do.
• 26:51
  Speaker 1: So the banks are trying, I mean they know that
• 26:54
  Speaker 1: this is happening, but a lot of them have these
• 26:56
  Speaker 1: bands on text messages. Period. You know, you can't bring
• 26:59
  Speaker 1: your your cell phone to the trading floor. You're not
• 27:01
  Speaker 1: supposed to be conducting work. There's also different agreements that
• 27:04
  Speaker 1: you sign when you're employed with the bank, saying yes,
• 27:07
  Speaker 1: I attest that I will not conduct any business on
• 27:10
  Speaker 1: any form of communication that you don't already monitor. You know,
• 27:13
  Speaker 1: you know what I'm struck by as as I as
• 27:15
  Speaker 1: I read your article and as I hear you talk
• 27:17
  Speaker 1: about it, Why are people doing this? I mean traders
• 27:21
  Speaker 1: could just meet in person, right, I mean, yes, this
• 27:23
  Speaker 1: is an encryption method and so people could go to this,
• 27:25
  Speaker 1: But I mean it comes down to why are why
• 27:28
  Speaker 1: are traders still trying to do this if they know
• 27:31
  Speaker 1: it's illegal, and their use of these uh encrypted apps
• 27:35
  Speaker 1: just sort of highlights their knowledge of the fact that
• 27:38
  Speaker 1: they're illegal. So I mean, do people talk about that.
• 27:40
  Speaker 1: I mean people could just be meeting in person. It's
• 27:42
  Speaker 1: just highlight how frequent it is that this type of
• 27:44
  Speaker 1: activity goes on, Right, So people do meet in person,
• 27:47
  Speaker 1: they do talk about these things then, or they pick
• 27:49
  Speaker 1: up the phone and they talk about it. They're usually
• 27:50
  Speaker 1: they prefer cell phones obviously rather than a line of work.
• 27:53
  Speaker 1: If used to have personal cell phones, which would go
• 27:55
  Speaker 1: out of the range of their banks, right, But those
• 27:58
  Speaker 1: things can still be subpoenats. So if there's ever any
• 28:00
  Speaker 1: question that could actually be under the purview of some
• 28:03
  Speaker 1: kind of prosecutor, if you have WhatsApp or a signal
• 28:06
  Speaker 1: that deletes and nobody ever is able to subpoena those records,
• 28:09
  Speaker 1: that's better. And I think you're seeing a lot of
• 28:12
  Speaker 1: people in the political space to using confide using signal
• 28:15
  Speaker 1: because they don't want to ever be monitored under any circumstance,
• 28:18
  Speaker 1: even if they're not saying anything that would be a problematic.
• 28:21
  Speaker 1: But is this type of encrypted app preferable even to
• 28:26
  Speaker 1: an in person meeting. I don't think it's preferable. I
• 28:29
  Speaker 1: think it's when more of a convenience standard. So if
• 28:32
  Speaker 1: you are in your same morning sales meeting at the
• 28:35
  Speaker 1: bank floor, you can't really pick up the phone because
• 28:37
  Speaker 1: you're literally in that meeting. You can't go meet someone
• 28:40
  Speaker 1: because you're at work. But if you have something to
• 28:42
  Speaker 1: say to someone about work, um, we we have some
• 28:44
  Speaker 1: examples in here about people talking about you know, the
• 28:47
  Speaker 1: trading desk buys and sells that's happening in text form
• 28:51
  Speaker 1: in these sales meetings when it should probably be happening
• 28:54
  Speaker 1: on you know, Bloomberg, IB on message whatever it is.
• 28:58
  Speaker 1: You know. I have to wonder how often people use
• 29:00
  Speaker 1: these apps more for conversations that might be a little
• 29:03
  Speaker 1: bit racier than compliance would like, less so for the
• 29:06
  Speaker 1: illegal issues, and more for uh, say, you know, cracks
• 29:10
  Speaker 1: about I don't know, pick you're not safe for work topic. Um.
• 29:14
  Speaker 1: But you know, if I imagine, it's more that than
• 29:16
  Speaker 1: it is the other exactly. And I don't want to
• 29:19
  Speaker 1: overstress that there are these sort of you know, dubious
• 29:21
  Speaker 1: things happening all the time, but we certainly found those examples.
• 29:24
  Speaker 1: But you're right, it is a lot of things where
• 29:26
  Speaker 1: I would rather not have my boss look at this.
• 29:29
  Speaker 1: You know it's a complain about work, it's a complain
• 29:31
  Speaker 1: about your boss, or maybe it's also something you know,
• 29:34
  Speaker 1: we don't mean I want to swear on my text.
• 29:37
  Speaker 1: We have so many complaints of banks. Um compliance officers
• 29:40
  Speaker 1: have been so stringent on that that you actually get
• 29:42
  Speaker 1: flagged right away if you use any kind of swear
• 29:45
  Speaker 1: word or tone. Tone is important. So what'sapp is a
• 29:48
  Speaker 1: is a swearing platform. Laura Keyle Keller, thank you so
• 29:50
  Speaker 1: much for joining us. Laura Keller is a financial reporter
• 29:52
  Speaker 1: here at Bloomberg News. Thanks for listening to the Bloomberg
• 30:01
  Speaker 1: pien L podcast. You can subscribe and listen to interviews
• 30:05
  Speaker 1: at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm
• 30:10
  Speaker 1: pim Fox. I'm out there on Twitter at pim Fox.
• 30:13
  Speaker 1: I'm out there on Twitter at Lisa Abramo. It's one
• 30:16
  Speaker 1: before the podcast. You can always catch us worldwide on
• 30:19
  Speaker 1: Bloomberg Radio.