Latest / Bloomberg Intelligence / PG&E’s 2017 Verdict Doesn’t Ensure The Same For 2018 (Podcast)

Transcript

PG&E’s 2017 Verdict Doesn’t Ensure The Same For 2018 (Podcast) · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money, whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts. As well as that,
• 0:18
  Speaker 1: Bloomberg dot Com Pacific guests and Electric got a little
• 0:23
  Speaker 1: bit of some good news yesterday's California cleared it of
• 0:26
  Speaker 1: responsibility for one of the deadliest fires in two thousand seventeen.
• 0:30
  Speaker 1: To give us a sense of how important that is
• 0:32
  Speaker 1: to the company, let's bring in Kite. Kid is a
• 0:35
  Speaker 1: senior industrials and utilities analysts for Bloomberg Intelligence. He joins
• 0:39
  Speaker 1: us in the Bloomberg Interactive Broker studio here in New York. So, Kit,
• 0:43
  Speaker 1: does this reprieve at least or at least an exhoneration
• 0:47
  Speaker 1: of that seventeen fire that the liability associated with that?
• 0:50
  Speaker 1: Does that protect the company or save the company from bankruptcy?
• 0:54
  Speaker 1: I don't think it does, Paul. I think, uh, we're
• 0:57
  Speaker 1: gonna see it be worth about ten bill in in
• 1:00
  Speaker 1: in less exposure. They still have twenty billion left of exposure. Uh.
• 1:07
  Speaker 1: And maybe most important, UH, they have the concern that
• 1:10
  Speaker 1: any future wildfire could lead rapidly to very large liabilities
• 1:16
  Speaker 1: similar to what they have on the books. Now. One
• 1:19
  Speaker 1: thing that I'm struck by, kid, is that this comes
• 1:20
  Speaker 1: with a backdrop of several reading agencies saying that they
• 1:25
  Speaker 1: could downgrade Californian utilities, possibly even to junk as a
• 1:29
  Speaker 1: result of the liability kind of policies that they have.
• 1:32
  Speaker 1: In other words, that utilities can be found liable for
• 1:36
  Speaker 1: damages from some of these wildfires. How much does that
• 1:38
  Speaker 1: ratchet up the pressure? I think it It puts pressure
• 1:43
  Speaker 1: on California officials, but you wouldn't know it so far.
• 1:46
  Speaker 1: Let's put it that way. The governor yesterday expressed um
• 1:52
  Speaker 1: some sensitivity to these issues, and he said he was
• 1:55
  Speaker 1: indicated he was trying to move things along faster. But
• 1:59
  Speaker 1: faster in the California means maybe in six months will
• 2:02
  Speaker 1: start to see some results. So it's moving slow. And
• 2:08
  Speaker 1: and the problem is pg n E says we're running
• 2:11
  Speaker 1: out of cash. So uh, they feel like on a
• 2:15
  Speaker 1: liquidity basis, they need to get something done right away,
• 2:19
  Speaker 1: and also in order to basically hold the feet to
• 2:23
  Speaker 1: the fire of all the parties in California and get
• 2:28
  Speaker 1: something done about As Paul mentioned, this long term issue
• 2:32
  Speaker 1: of what happens the next time there's a fire and
• 2:34
  Speaker 1: everybody sues them again, Well, what happens being a homeowner
• 2:38
  Speaker 1: in California myself and a customer of Pennie, what happens
• 2:42
  Speaker 1: when this company does go into bankruptcy? Do the lights
• 2:44
  Speaker 1: go out in California? Oh? No, everything, everything runs along
• 2:47
  Speaker 1: just fine. They just got five and a half billion
• 2:51
  Speaker 1: in UH debt or in possession financing, so if anything,
• 2:55
  Speaker 1: their liquidity has improved in the near term. Ike, I
• 2:58
  Speaker 1: think it's fair to say neither the company in nor
• 3:00
  Speaker 1: California governor, or the regulators and other officials. Nobody is
• 3:07
  Speaker 1: going to be interested in operations not going well. And
• 3:11
  Speaker 1: in fact, the company has indicated one of the things
• 3:13
  Speaker 1: they'll do in bankruptcy is increased spending for safety UH
• 3:18
  Speaker 1: and for capital investment in the UH type of capital
• 3:23
  Speaker 1: spending for green projects that California always wants. So they're
• 3:27
  Speaker 1: trying to say and do the right things that at
• 3:31
  Speaker 1: least in California people should be saying, Oh good, they're
• 3:34
  Speaker 1: spending money where I want it, uh, and they want
• 3:37
  Speaker 1: to come out of it, of course with people saying,
• 3:40
  Speaker 1: by the way, here's the revenues for what you spent.
• 3:42
  Speaker 1: So going back to the decision yesterday that PGNI is
• 3:46
  Speaker 1: not responsible for the deadly two seventeen fires, does that
• 3:50
  Speaker 1: set any precedent for what their potential liability could be
• 3:55
  Speaker 1: in wildfires? I don't think it does, Lisa, because in
• 4:00
  Speaker 1: that case, UH, in the Tubs fire, what we had
• 4:04
  Speaker 1: was the company did say a while ago, months ago,
• 4:08
  Speaker 1: that they didn't think they were responsible, and that turned
• 4:11
  Speaker 1: out to be accurate. In the case of the eighteen fire,
• 4:16
  Speaker 1: the company has indicated, well, we did have some wires
• 4:19
  Speaker 1: that were down and some UH equipment that looked in
• 4:23
  Speaker 1: bad shape. So if anything, that's indicating, I think that
• 4:28
  Speaker 1: the potential for some real major liability is still there.
• 4:32
  Speaker 1: Do we have this issue where there's you know, real
• 4:36
  Speaker 1: in the West. There seems to be fires all throughout
• 4:38
  Speaker 1: the West every year. Do we have other utilities that
• 4:40
  Speaker 1: are at risk like PGANI, I haven't seen it. I
• 4:45
  Speaker 1: think it it really looked. Utilities are UH creatures of regulators, right,
• 4:52
  Speaker 1: I mean the regulator monopolies. If their revenues are higher
• 4:56
  Speaker 1: than their costs, then they're fine. If the regulator don't
• 5:00
  Speaker 1: raise their revenues to cover their costs, then you get
• 5:03
  Speaker 1: this kind of situation. And the other states, so far
• 5:06
  Speaker 1: we seem to have had the regulators on board with
• 5:09
  Speaker 1: the idea that if you have costs, even extreme costs
• 5:14
  Speaker 1: for fires and so on, obviously we have to reimburse
• 5:18
  Speaker 1: the utility for for what happened. It gets tricky when
• 5:21
  Speaker 1: there are real issues of liability, as there might be
• 5:25
  Speaker 1: in the case of PG and E. Kick contledge, has
• 5:28
  Speaker 1: ever been so exciting to cover utilities? Well, it's it's
• 5:31
  Speaker 1: a low bar, but I would I would say no.
• 5:34
  Speaker 1: And how many years have been? Twenty five, twenty seven
• 5:40
  Speaker 1: years and now around the block it's been. It's been
• 5:42
  Speaker 1: a while, and this is the apex of this is
• 5:45
  Speaker 1: the big time Kick Cottledge senior Industrials and Utilities analysts
• 5:50
  Speaker 1: for Bloomberg Intelligence joining us here in our Bloomberg Interactive
• 5:54
  Speaker 1: Brokers studios. Certainly, utilities have become an incredibly hot spot.
• 5:59
  Speaker 1: This is the industry that's thought of as boring, the staple,
• 6:03
  Speaker 1: the safe haven, and now we have this being the
• 6:06
  Speaker 1: fodder for distressed investors such as Kenyon Capital, which is
• 6:09
  Speaker 1: now diving in a lot of question marks around California's
• 6:13
  Speaker 1: utility complex. If Venezuela could get even messier, it has.
• 6:32
  Speaker 1: We now have two presidents in the nation, with Juan
• 6:36
  Speaker 1: Guido uh the thirty five year old opposition who has
• 6:40
  Speaker 1: risen up getting a sign off from legislation to be
• 6:44
  Speaker 1: the president, Nicholas Maduto, who is the current or was
• 6:47
  Speaker 1: the president, saying he is still the president. All of
• 6:51
  Speaker 1: this is raising the specter of regime change, which is
• 6:54
  Speaker 1: something that the U. S. President Trump has supported. The
• 6:58
  Speaker 1: question is how much does this really mean that the
• 7:00
  Speaker 1: situation in Venezuela is about to shift? Joining us now,
• 7:03
  Speaker 1: I'm very pleased to say in our Bloomberg Interactive Broger
• 7:05
  Speaker 1: Studios is Yakov Arnapolon, portfolio manager focused on emerging markets
• 7:10
  Speaker 1: at PIMCO, normally in London, but he is here with
• 7:13
  Speaker 1: us in New York. Hopefully good luck getting out uh Jacova.
• 7:18
  Speaker 1: So let's start with Venezuela. Do you think that this
• 7:20
  Speaker 1: is the moment that we are finally going to see
• 7:22
  Speaker 1: regime change that will allow the Venezuelan economy to regrow
• 7:27
  Speaker 1: a bit well, i'd say, taking taking a step back.
• 7:31
  Speaker 1: Let's just remember what is going on in the country.
• 7:33
  Speaker 1: It's a humanitarian crisis, if you're called. There was a
• 7:36
  Speaker 1: story a little while ago saying that over the past year,
• 7:40
  Speaker 1: an average Venezuela lost twenty four pounds in weight because
• 7:43
  Speaker 1: one of the three Venezuelans is facing starvations a nation
• 7:46
  Speaker 1: of thirty plus million people, that's Tamuline people in starvation.
• 7:49
  Speaker 1: So let's say we're all hoping for a gene change,
• 7:52
  Speaker 1: and it's all very heavy stuff, and we certainly would,
• 7:54
  Speaker 1: you know, would love to see the back of Maduro.
• 7:56
  Speaker 1: But despite the recent developments, UM, the base cases resolution
• 8:02
  Speaker 1: is not necessarily in hand. The army still supports him,
• 8:06
  Speaker 1: and their international communities is fairly split. So although that
• 8:11
  Speaker 1: we've had this big spike in Venezuela's like you said,
• 8:14
  Speaker 1: the international community is fairly space right. So you've got
• 8:17
  Speaker 1: the U S, You've got Columbia, You've got some of
• 8:19
  Speaker 1: the other nations nearby Venezuela, but then you have Russia
• 8:23
  Speaker 1: and China, right, And I think Mexico has come out
• 8:26
  Speaker 1: in favor of Madura as well. MLOs. I think we
• 8:29
  Speaker 1: went on record supporting the current administration. So I think
• 8:33
  Speaker 1: the point is it's it's it will take a while
• 8:35
  Speaker 1: to resolve this, and even assuming we do, if and
• 8:37
  Speaker 1: when we see regime change, there's probably still going to
• 8:41
  Speaker 1: be conflicting claimants, you know, the bond holders, some of
• 8:45
  Speaker 1: the sovereign creditors like Russian China, So you know that.
• 8:49
  Speaker 1: I think that's one of the reasons we've seen volatility
• 8:52
  Speaker 1: um but you know it's in margine markets. We see
• 8:54
  Speaker 1: volatility in other places and and even to the extent Venezuela.
• 8:58
  Speaker 1: I mean maybe there's been some u f and AS prices.
• 9:01
  Speaker 1: There have been other spots in em where we do
• 9:03
  Speaker 1: you think some of this optimism year to date is justified.
• 9:07
  Speaker 1: If regime change does not take place in the streets,
• 9:11
  Speaker 1: how does the country resolve the fact that it has
• 9:13
  Speaker 1: two presidents? Is this a legal proceeding that needs to
• 9:17
  Speaker 1: take place? What are next steps? I'm not sure there
• 9:20
  Speaker 1: are many precedents for that. I think it'll take That's
• 9:24
  Speaker 1: another you know, I'd say it was fairly complex, and
• 9:26
  Speaker 1: now it's even more complex. It probably will take a
• 9:28
  Speaker 1: while to sort out, and you know, I guess the
• 9:30
  Speaker 1: two sides just won't recognize each other. So you just
• 9:33
  Speaker 1: said that perhaps there are other areas and emerging markets
• 9:36
  Speaker 1: where the optimism is more warranted. First is so that
• 9:39
  Speaker 1: means the optimism that we've seen of late in Venezuela
• 9:42
  Speaker 1: and assets you think is unwarranted. Yeah, I think that
• 9:45
  Speaker 1: some of this you four year round regime change, you know,
• 9:48
  Speaker 1: to extend this drags on, and the stand of drags on.
• 9:50
  Speaker 1: You know, maybe we do see bond prices come off
• 9:53
  Speaker 1: once again, so the rally perhaps has gone too far there.
• 9:55
  Speaker 1: So where are the other places in emerging markets where
• 9:58
  Speaker 1: you think the optimism is warranted? You know? Well, well,
• 10:01
  Speaker 1: I'd say Egypt is one good example, very compliant with
• 10:05
  Speaker 1: the IMF program, will continue to like the currency, continue
• 10:08
  Speaker 1: to like the bonds, um significant economy, hugely important on
• 10:11
  Speaker 1: Arab street. And that's one example. And we're watching very
• 10:16
  Speaker 1: closely countries that to have elections this Yere, Argentina and Ukraine,
• 10:20
  Speaker 1: single bee credits. It's kind of hairy. Let's obviously because
• 10:25
  Speaker 1: of these political developments and and markets are fairly worried
• 10:28
  Speaker 1: about what's going to happen. But to the extent they're
• 10:30
  Speaker 1: able as their sense thread the needle and to extend,
• 10:32
  Speaker 1: we see positive outcome, So to extend the incumbents succeed
• 10:37
  Speaker 1: to stay in place in both countries, that could be
• 10:39
  Speaker 1: a significant boost to asset prices. Taking look at China,
• 10:43
  Speaker 1: do the trade talks which seem to be coming back
• 10:46
  Speaker 1: to the fore a little bit? See the activity level
• 10:49
  Speaker 1: seems to be a little bit better than maybe it
• 10:51
  Speaker 1: was for the last several months. Does that how do
• 10:53
  Speaker 1: you view that? You are you? How constructive are you
• 10:56
  Speaker 1: that any type of meaningful trade agreements can be made
• 10:59
  Speaker 1: between China and you US? I'd say we're a skeptical
• 11:02
  Speaker 1: there as well. The anticipation is there will be a
• 11:05
  Speaker 1: true there will be the ton that's going to happen
• 11:07
  Speaker 1: next couple of weeks, So what sorry, a couple of
• 11:08
  Speaker 1: I guess a couple of months. Maybe it won't be
• 11:11
  Speaker 1: by March first, Let's say it's another there will be
• 11:14
  Speaker 1: an extension, but but we'll probably see something. How meaningful
• 11:18
  Speaker 1: is that? Beyond the headlines? I think that's where we'll
• 11:20
  Speaker 1: have a lot of questions and and you know, we
• 11:22
  Speaker 1: do anticipate a resumption of conflict later in the year now,
• 11:26
  Speaker 1: simply because a lot of the issues around I P
• 11:28
  Speaker 1: haven't been dealt with. And and also you know what
• 11:32
  Speaker 1: the data point that is important that we saw overnight
• 11:35
  Speaker 1: is the PBOC balance it expansion. Right, so they basically announced, uh,
• 11:41
  Speaker 1: the ability for local banks to issue more perps, more
• 11:44
  Speaker 1: eight year eighty one bonds and that in turn should
• 11:47
  Speaker 1: be actually quite a boost for the economy. Right, so
• 11:49
  Speaker 1: we should see a pickup and credit, we should see
• 11:52
  Speaker 1: a slow down in the deleveraging process. So that's actually
• 11:55
  Speaker 1: a pretty pretty decent near term boost. Would you be
• 11:59
  Speaker 1: a buyer of perpetual bonds sold? It's for a local
• 12:02
  Speaker 1: it's for local markets, it's by you know, by Chinese
• 12:05
  Speaker 1: banks for local investors you know, will pick our spots
• 12:09
  Speaker 1: with the will will pick our spots. That's not going
• 12:11
  Speaker 1: to be you know, but but look, if you if
• 12:13
  Speaker 1: you look across, there are some other large scale and
• 12:17
  Speaker 1: international banks with a significant presence in China and Asia
• 12:20
  Speaker 1: whose um asset prises, who's whose bonds and stocks are
• 12:23
  Speaker 1: trading at up on the back of this. Okay, so
• 12:26
  Speaker 1: a question for you, how much of your time do
• 12:28
  Speaker 1: you spend traveling if they're if they're a bit and
• 12:32
  Speaker 1: look at it. It helps to have a twenty five
• 12:34
  Speaker 1: strong team. It helps that. So we'd cover fifty to
• 12:37
  Speaker 1: sixty countries a year, among among the among us um
• 12:40
  Speaker 1: and some of it is obviously China. We've been to
• 12:43
  Speaker 1: China twice so far this year. Someone has come down
• 12:45
  Speaker 1: to going to d C as much as possible, given
• 12:48
  Speaker 1: that we have the FED, I, m F and the
• 12:50
  Speaker 1: White House which increasingly is dictating the path of asset
• 12:53
  Speaker 1: prices and Venezuela as we just discussed in China and
• 12:56
  Speaker 1: Russia with sanctions in Mexico with a lovely U S
• 13:00
  Speaker 1: m c A. So just real quickly, how did your
• 13:02
  Speaker 1: portfolio perform in December and January? Just broadly, I mean
• 13:06
  Speaker 1: I can look like a relatively calm person. I can
• 13:08
  Speaker 1: imagine last two months as an emerging market strategist. Well,
• 13:12
  Speaker 1: that's that's that's emerging markets here. There's a scene that
• 13:14
  Speaker 1: emerging markets give you the opportunity of a lifetime every quarter. Right,
• 13:19
  Speaker 1: So you know, there's we're used to that. There's comportunities
• 13:21
  Speaker 1: of many, many many, But you know we've been we've
• 13:25
  Speaker 1: been picking our spots and I think that's going to
• 13:27
  Speaker 1: continue to be the theme. Broadly speaking. Still like EM
• 13:29
  Speaker 1: think this is a good environment for EM in twenty
• 13:32
  Speaker 1: nineteen after the swoon of twenty eighteen. But we have
• 13:36
  Speaker 1: to pick our spots and again as always, going to
• 13:38
  Speaker 1: walk between the rain drops. Ten seconds local currency or
• 13:40
  Speaker 1: hard currency, em bonds, three months outlook local currency, twelve
• 13:44
  Speaker 1: month heard currency Yahko of Arnipole, and thank you so
• 13:47
  Speaker 1: much for being with us. Thanks. That was very interesting.
• 13:49
  Speaker 1: It's interesting. It's so many places around the world that
• 13:52
  Speaker 1: emerging market um UH strategist and investors can place their money,
• 13:56
  Speaker 1: but the management net risk on a global scale is
• 13:58
  Speaker 1: is just mind boggling. Yak of on a pull in
• 14:01
  Speaker 1: portfolio manage emerging markets from Pimco joining us in a
• 14:03
  Speaker 1: Bloomberg eleven thirty UH studio in New York. Thank you
• 14:06
  Speaker 1: so much. Remember, Paul, we used to talk about bitcoin.
• 14:25
  Speaker 1: Those days kind of ended. Huh. Yeah. I'm looking at
• 14:27
  Speaker 1: the five year chart of the Bitcoin index and it's
• 14:30
  Speaker 1: just extraordinary, going from you know, a couple of hundred
• 14:33
  Speaker 1: bucks early two and then here we are back down
• 14:37
  Speaker 1: at Yeah, and now JP Morgan is saying that it
• 14:40
  Speaker 1: costs more to mine bitcoin than the actual value itself.
• 14:44
  Speaker 1: Joining us Mike mclogan, commodity strategist for Bloomberg Intelligence here
• 14:48
  Speaker 1: in our Bloomberg directive Broker Studios Mike, what's your take
• 14:52
  Speaker 1: on this JP morgan assessment that it now costs more
• 14:56
  Speaker 1: to mine bitcoin? Does this mean essentially, is this a
• 14:59
  Speaker 1: good thing or bad thing for their cryptocurency. I think
• 15:02
  Speaker 1: JP Morgan has been very good about pointing out one
• 15:05
  Speaker 1: of the key things about bitcoin mining is the number
• 15:08
  Speaker 1: one factor to really effect mining it's price. When the
• 15:10
  Speaker 1: price goes down, if it's not really the mining that matters.
• 15:14
  Speaker 1: And they put out a report this time last year
• 15:16
  Speaker 1: that I read three times, and they pointed that out.
• 15:18
  Speaker 1: And a lot most of the mining occurs in China,
• 15:20
  Speaker 1: and good luck really trying to measure what that costs
• 15:23
  Speaker 1: because there's connections with you know, political connections or whatever,
• 15:26
  Speaker 1: and there a lot of it's happening in Russia, so
• 15:28
  Speaker 1: it's hard to measure. But overall in those parts of
• 15:32
  Speaker 1: the world, I suspect they're probably making a profit and
• 15:34
  Speaker 1: they're getting what they want out of it, but that's
• 15:35
  Speaker 1: really insignificant for the price of being coined. The price.
• 15:38
  Speaker 1: To me that what really matters is currently it's taking
• 15:40
  Speaker 1: back the speculative frenzy that should continue. It's not I
• 15:44
  Speaker 1: think it's getting towards the end of the ball game.
• 15:46
  Speaker 1: But I always looking at it versus gold, and I
• 15:48
  Speaker 1: think it's going close back to the price of the
• 15:51
  Speaker 1: parounced price of gold, which is actually up today. So
• 15:53
  Speaker 1: I think that convergent is happening, will continue and probably
• 15:56
  Speaker 1: meet this year. So you had a great call on gold,
• 15:59
  Speaker 1: by the way, you which I remember from a couple
• 16:01
  Speaker 1: of months ago. So well, well done there. So bitcoin,
• 16:04
  Speaker 1: I mean give it. It's the volatility, said some of them.
• 16:07
  Speaker 1: You think a lot of speculaive volatility has come out
• 16:09
  Speaker 1: of the currency. What do you think the future is
• 16:12
  Speaker 1: of bitcoin? Well, that's the key thing. I think it's important.
• 16:15
  Speaker 1: Is I really believe that bitcoin is becoming digital gold.
• 16:18
  Speaker 1: We published on that today, and by digital gold, is
• 16:20
  Speaker 1: I look at it ten years from now. If it's not,
• 16:22
  Speaker 1: if we don't have some form of technology like cryptocurrency,
• 16:25
  Speaker 1: which is probably bitcoin, that is not a better form
• 16:28
  Speaker 1: of global currency, I'd be surprised. But it's happening fast.
• 16:31
  Speaker 1: And one thing we noted is it's been acting like
• 16:34
  Speaker 1: gold as an inverse factor to the dollar, which is
• 16:37
  Speaker 1: what you want to see. Bitcoin peaked in you know,
• 16:40
  Speaker 1: twenty thousand and right, about the time the dollar bottom
• 16:42
  Speaker 1: depending on how you measure, and the recent bottom in
• 16:44
  Speaker 1: bitcoin was when the dollar peaked, So it still has
• 16:47
  Speaker 1: more excesses that come out, but it's also just a
• 16:49
  Speaker 1: more modern version. I think it's getting there, and I
• 16:52
  Speaker 1: don't know what's going to replace it. People say there's
• 16:54
  Speaker 1: other coins, maybe it's going to go the way a whale. Well,
• 16:57
  Speaker 1: but it has the hash power. It has to come
• 16:59
  Speaker 1: compy patient power. You can't do a fift attack in bitcoin,
• 17:03
  Speaker 1: so to me, that's happened. It's just still too expensive.
• 17:06
  Speaker 1: The problem with the idea of bitcoin as digital gold,
• 17:10
  Speaker 1: in my mind, is that gold's price is determined not
• 17:14
  Speaker 1: just from its haven quality, but also from the fact
• 17:17
  Speaker 1: that people actually wear gold and use gold in uh
• 17:22
  Speaker 1: in a variety of ways. So how does crypto How
• 17:26
  Speaker 1: does bitcoin sort of get past that hurdle and having
• 17:29
  Speaker 1: the same kind of store of value reputation among investors, well,
• 17:34
  Speaker 1: also not having the other purpose transportation. It's the key thing.
• 17:37
  Speaker 1: It's hard to We all have gold in our bodies,
• 17:38
  Speaker 1: most of its jewelry, and you get that's in them.
• 17:41
  Speaker 1: One form for gold and gold historically has been a
• 17:42
  Speaker 1: store value, which you know, I view is still positive
• 17:45
  Speaker 1: in dollars speaking, but with bitcoin you can transport it
• 17:49
  Speaker 1: with a click of the button. You can you're in
• 17:51
  Speaker 1: Venezuela and Argentina or Turkey. You can diversify your doll
• 17:54
  Speaker 1: or your currency assets, which is this deflating paper into
• 17:58
  Speaker 1: something that is a little more stable. And then from there,
• 18:00
  Speaker 1: with gold you have to physically move and there's restrictions.
• 18:02
  Speaker 1: Historically you can put basically, you can move move millions
• 18:07
  Speaker 1: of dollars or value on a thumb drive, and you
• 18:10
  Speaker 1: can't do with gold. And to me, that's where it's
• 18:11
  Speaker 1: going in the future. Right, I'm sorry, go ahead now,
• 18:14
  Speaker 1: it's just gonna ask. I love putting Mike on the spot.
• 18:16
  Speaker 1: I think we all do because he can handle it.
• 18:18
  Speaker 1: How do you think, how does one really value bitcoin?
• 18:23
  Speaker 1: It's not supplying demand, there's not the present value of
• 18:26
  Speaker 1: future cash flows. How do you value this thing? That's
• 18:29
  Speaker 1: the key thing? And I look at it more right now,
• 18:32
  Speaker 1: it's gonna be at some point transactions and I look
• 18:35
  Speaker 1: at it very similar to gold. So that's why I'm thinking,
• 18:37
  Speaker 1: what's going to happen this year? I'll be able to
• 18:39
  Speaker 1: get a better value on it when I see how
• 18:41
  Speaker 1: it reacts to what I expect is going to happen
• 18:42
  Speaker 1: than dollar peaking, and gold is obviously going to really
• 18:46
  Speaker 1: but actually valuing it. It's based on the demand. Now
• 18:49
  Speaker 1: historically do you think transactions, But it's really not a currency.
• 18:52
  Speaker 1: It's like gold is not based on transaccidents, based on
• 18:55
  Speaker 1: the desire to hold that and put in the vault
• 18:58
  Speaker 1: and put it away and diversify your portfolios. And to me,
• 19:00
  Speaker 1: that's what's going to be happening. But actually value it.
• 19:03
  Speaker 1: So I look at one way of value is looking
• 19:05
  Speaker 1: at volume trading, which is speculation and volumes way down.
• 19:08
  Speaker 1: So that means Bitcoin to me right now should go
• 19:11
  Speaker 1: down just based on the latest volume figures. But I
• 19:14
  Speaker 1: see it's it's it's just it's it's should find a
• 19:18
  Speaker 1: foundation at some point this year. Very interesting. Thanks Mike
• 19:21
  Speaker 1: again putting them on a spot. He can handle it.
• 19:23
  Speaker 1: That's Mike mcgloan. Mike's a commodity strategist for Bloomberg Intelligence.
• 19:39
  Speaker 1: When you think about asset classes that are experiencing extraordinary growth,
• 19:42
  Speaker 1: ETFs are absolutely at the top of that list. Uh.
• 19:45
  Speaker 1: To give us some color on what is going on
• 19:47
  Speaker 1: in the E t F marketplace today is Martin Kremenstein.
• 19:50
  Speaker 1: Martin's ahead of exchange traded funds at Nuvine Investments, which
• 19:53
  Speaker 1: I just learned is today is a subsidiary of t
• 19:56
  Speaker 1: I double a CREFT about nine seventy billion total assets
• 20:00
  Speaker 1: under management, of which about I think twenty billion of
• 20:03
  Speaker 1: those are e t s roughly, UM so it's about
• 20:06
  Speaker 1: in responsible investing assets of that about five million dollars
• 20:10
  Speaker 1: as ETFs. So what are they? What are you seeing
• 20:12
  Speaker 1: in fun flows right now on E t F s?
• 20:15
  Speaker 1: What what's hot? What's not? Um? So, we're seeing starting
• 20:19
  Speaker 1: to see quite a lot of investors interest and flow
• 20:21
  Speaker 1: into our responsible investing E t F A E S
• 20:25
  Speaker 1: G ones UM. We launched them a couple of years ago,
• 20:28
  Speaker 1: and we started see towards the back end of the
• 20:30
  Speaker 1: ear as they were getting towards the two year track record,
• 20:32
  Speaker 1: flows start to pick up and investors start to come in.
• 20:35
  Speaker 1: So E s G, which, for those who don't know,
• 20:37
  Speaker 1: was environment, Social and governance, right, and so that has
• 20:42
  Speaker 1: and I know it's always been fairly important metric or
• 20:46
  Speaker 1: or investment concern for European investors, not so much in US.
• 20:50
  Speaker 1: Are you sensing that E s G focused investing is
• 20:53
  Speaker 1: really gaining a popularity or or interest. I think so.
• 20:55
  Speaker 1: I mean, there's there's been a ton of kind of
• 20:58
  Speaker 1: news and kind of hot air about it it um,
• 21:00
  Speaker 1: but now we're actually starting to see investors come to
• 21:03
  Speaker 1: the market, and really it's because these products are now
• 21:05
  Speaker 1: the ones that are out there. The new ones are
• 21:07
  Speaker 1: starting to show that you don't have to give up
• 21:08
  Speaker 1: performance in order to have a responsible investing mandate. The
• 21:13
  Speaker 1: problem for me with wrapping my head around s G
• 21:15
  Speaker 1: funds is I don't totally understand what the standards are
• 21:19
  Speaker 1: to be an environmental, social, and governmental governmentally responsible company.
• 21:25
  Speaker 1: So how do you even measure these things? They seems
• 21:27
  Speaker 1: brother fuzzy. Yes, so I think you're right. It is
• 21:29
  Speaker 1: a little fuzzy, and it's certainly on the industry to
• 21:31
  Speaker 1: do a better job of explaining that. I think though.
• 21:34
  Speaker 1: What you can do is you can take an industry,
• 21:36
  Speaker 1: say like technology, and you can mark each company according
• 21:40
  Speaker 1: to the material s G factors for that industry. So
• 21:43
  Speaker 1: for technology, it's can be things like data privacy, data
• 21:47
  Speaker 1: security under the social environmental is less important to them.
• 21:50
  Speaker 1: And then if you do like we do, you compare
• 21:52
  Speaker 1: tech companies to each other and you select just within
• 21:55
  Speaker 1: a sector, the best performing companies. You're able to give
• 21:57
  Speaker 1: a market exposure within a product and and and then
• 22:01
  Speaker 1: be able to enhance the s G characterists of that portfolio.
• 22:05
  Speaker 1: And over time we've seen that actually can give you
• 22:07
  Speaker 1: better returns. So it returns. So let's just talk about
• 22:10
  Speaker 1: over time, how have returns been for E s G
• 22:14
  Speaker 1: funds or companies that score highly on E s G.
• 22:17
  Speaker 1: Has there been a tight correlation in terms of our
• 22:20
  Speaker 1: performance or under performance? So what we've seen, so we
• 22:22
  Speaker 1: have a two year track record now for our first
• 22:24
  Speaker 1: E s G products, and we've seen strong out performance
• 22:28
  Speaker 1: for the two value products are large cap value product
• 22:31
  Speaker 1: a MidCap value product. They're both in the top quartile
• 22:34
  Speaker 1: of their peer group, right, and that includes active managers
• 22:36
  Speaker 1: as well as index funds. So that's that's a good
• 22:38
  Speaker 1: performance for an index product. Our small cap product is
• 22:41
  Speaker 1: in the top six percent for its peer group. And
• 22:43
  Speaker 1: it makes sense because when you look at what you're
• 22:45
  Speaker 1: scoring on E s G, right, do you waste material resources? Um?
• 22:49
  Speaker 1: Do you have good do you pollute? Do you have
• 22:50
  Speaker 1: good relationships with your customers, with your client, with your workers,
• 22:55
  Speaker 1: with the regulators? And then do you have a good
• 22:56
  Speaker 1: good governance structure, those oral markers of kind of well
• 23:00
  Speaker 1: on companies, and so it can be looked at as
• 23:01
  Speaker 1: another way of defining quality um and quality goes very
• 23:05
  Speaker 1: very strongly with value. We know that it also goes
• 23:07
  Speaker 1: very strongly with small caps. Yeah, but I just push
• 23:09
  Speaker 1: back a little bit. Do you talk about privacy with
• 23:12
  Speaker 1: big tech? And I'm just wondering. Facebook shares did phenomenally
• 23:15
  Speaker 1: well before they were sort of illuminated as potentially having
• 23:18
  Speaker 1: privacy issues, and then their shares crashed. I mean, how
• 23:22
  Speaker 1: how much at risks are you with some of these
• 23:24
  Speaker 1: metrics following the trend of picking up on news and
• 23:27
  Speaker 1: then uh and then punishing the start after the fact.
• 23:30
  Speaker 1: So we never held Facebook in our large cap growth
• 23:33
  Speaker 1: portfolio from the start because it's big privacy issue. Last
• 23:36
  Speaker 1: year it wasn't the first time that had issues in
• 23:39
  Speaker 1: hence the agreement that had with the ftc UM. And
• 23:42
  Speaker 1: so I think when you're an investor, even if you
• 23:44
  Speaker 1: don't believe in the principle of response to investing, you
• 23:46
  Speaker 1: should actually look at a company's s G score if
• 23:48
  Speaker 1: you can get hold of it, and if it changes drastically,
• 23:51
  Speaker 1: you should want to know why look at the underlying
• 23:53
  Speaker 1: reason and have they fixed that issue. If they haven't,
• 23:55
  Speaker 1: then that it would not be in your UH, in
• 23:58
  Speaker 1: your your category for s G. I'm just wondering how
• 24:01
  Speaker 1: much have e SG funds outperformed of late UM SO.
• 24:05
  Speaker 1: I think last year our large cap value portfolio outperformed
• 24:08
  Speaker 1: the Russell one K value by about four hundred basis
• 24:10
  Speaker 1: points UM, our large cap growth portfolio outperformed the Russell
• 24:15
  Speaker 1: one K growth by a hundred basis points. Hundred basis
• 24:18
  Speaker 1: points out performance in small cap UM and then I
• 24:21
  Speaker 1: think we were on on kind of with the benchmark
• 24:23
  Speaker 1: of for MidCap growth and value. So do CEOs care
• 24:28
  Speaker 1: about E s G? Do they recognize that it's becoming
• 24:30
  Speaker 1: a bigger part of investors, certainly retail investors and maybe
• 24:34
  Speaker 1: institutional investors in their investment process. Have you do you
• 24:38
  Speaker 1: think CEOs care? They do UM and I think it's
• 24:41
  Speaker 1: been driven because this is this is something that's relatively
• 24:43
  Speaker 1: new for the retail space, but the institutional space it's
• 24:45
  Speaker 1: been a big deal for a while. The endowments of
• 24:47
  Speaker 1: foundations UM you've seen kind of some of them been
• 24:50
  Speaker 1: removing fossil fuels from their portfolio. Is removing cold companies. UM.
• 24:53
  Speaker 1: This is a conversation that's been going on for a while.
• 24:55
  Speaker 1: It's only now kind of you know, percolating down to
• 24:58
  Speaker 1: the retail level. This is something that I think you
• 25:00
  Speaker 1: can see more and more compliance on because it is
• 25:02
  Speaker 1: starting to move stock prices. I think, So, how do
• 25:05
  Speaker 1: you market this to whom? UM? So really we we
• 25:07
  Speaker 1: market it to financial advisors, a lot of whom are
• 25:10
  Speaker 1: having clients coming to them saying what do you know
• 25:12
  Speaker 1: about responsible investing, particularly when they do succession planning with
• 25:16
  Speaker 1: the spouses and and the children of their clients. But honestly,
• 25:20
  Speaker 1: when you see the performance from our small cap portfolio
• 25:22
  Speaker 1: from our large cap value, UM, we can go out
• 25:24
  Speaker 1: and say, you know what, if you're looking at using
• 25:26
  Speaker 1: value in your portfolio, you should look at an E
• 25:28
  Speaker 1: s G quality set of factors with it. When you're
• 25:30
  Speaker 1: looking at small caps, you should really look at look
• 25:31
  Speaker 1: at it through as an E s G lens as well.
• 25:34
  Speaker 1: There's a question I'm really looking for it which which
• 25:37
  Speaker 1: sectors score poorly on E s G. UM. So the
• 25:41
  Speaker 1: traditional old school response social responsible investing, where you just
• 25:45
  Speaker 1: stripped out sectors UM that were kind of poor performing.
• 25:49
  Speaker 1: You'd always just remove energy and you remove utilities, and
• 25:52
  Speaker 1: that's why a lot of the older products were essentially
• 25:56
  Speaker 1: just growth portfolios, because once you remove those, it's very
• 25:58
  Speaker 1: hard to build value. UM from our perspective, we want
• 26:00
  Speaker 1: to have all sectors represented within an asset class because
• 26:03
  Speaker 1: we want to give asset class representation because if you're
• 26:05
  Speaker 1: if you're building portfolios and these five products are part
• 26:08
  Speaker 1: of an overall suite, you can build full ass allocation portfolios.
• 26:11
  Speaker 1: We need the products to actually perform particularly stress environments
• 26:14
  Speaker 1: like their asset classes. Just real quickly in in thirty seconds.
• 26:17
  Speaker 1: I'm wondering, I've frankly heard some surprise that there hasn't
• 26:20
  Speaker 1: been more money going into E s G. What's your
• 26:23
  Speaker 1: sense of that it takes time. We we have a
• 26:25
  Speaker 1: two year track record for our domestic products. Our international
• 26:28
  Speaker 1: products only have eighteen months of coll fix income is
• 26:31
  Speaker 1: a little less than that. When we're more of these
• 26:33
  Speaker 1: products have three year track records, they get their their
• 26:35
  Speaker 1: star rankings and you can see the benefit out there. UM,
• 26:38
  Speaker 1: I think you'll see more money come in and advised
• 26:40
  Speaker 1: and investors a skeptical of back tests, right, they all
• 26:42
  Speaker 1: look beautiful. We need to show them that it works
• 26:45
  Speaker 1: out in the market, and that's what we're doing at
• 26:46
  Speaker 1: the moment. Martin Crenstein, thank you so much for being
• 26:48
  Speaker 1: with us, for having it. Thank you very much. Martin
• 26:51
  Speaker 1: Crenstein has head of exchange traded Funds at Uvene Investments,
• 26:54
  Speaker 1: which is a subsidiary of t I A. Kraft overseeing
• 26:57
  Speaker 1: nine and seventy billion dollars here in New York. Thanks
• 27:02
  Speaker 1: for listening to the Bloomberg pen L podcast. You can
• 27:04
  Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
• 27:07
  Speaker 1: podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter
• 27:10
  Speaker 1: at pt Sweeney. I'm Lisa A. Bram Wits. I'm on
• 27:13
  Speaker 1: Twitter at Lisa A. Bram Wits. One Before the podcast,
• 27:16
  Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio.