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Eli Lilly to Purchase Morphic, Green Hydrogen · Bloomberg Intelligence

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  Speaker 2: So this is about either Lily, it is buying another
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  Speaker 2: company called hang On, let me get my notes.
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  Speaker 3: Thank you.
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  Speaker 2: This is why I love Paul Morphic parent. It's going
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  Speaker 2: to help your gi track, which everybody really needs. Let's
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  Speaker 2: be honest. Sam Zelli, Bloomberg Intelligence, Director of Research for
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  Speaker 2: Global Industries and Senior Pharmaceuticals, joins us from London.
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  Speaker 3: Hey Sam, what is Morphic? Do we like this deal?
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  Speaker 4: What are your thoughts?
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  Speaker 5: Yeah, so, Alex, thanks for having me back on it's
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  Speaker 5: been a little while. So this deal is about adding
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  Speaker 5: to their immunology franchise. Of course, everybody knows Lily for
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  Speaker 5: the endless thing headlines that are related to GLP ones
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  Speaker 5: and obesity and cancer. Today we have apparently ten cancers
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  Speaker 5: that are not cured, but risk is reduced with those
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  Speaker 5: types of drugs. But the reality is there's a lot
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  Speaker 5: more to this company before the GLP one business ballooned
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  Speaker 5: with regards to obesity, and one of the areas there
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  Speaker 5: in is immunology or otherwise known as immunology and inflammation
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  Speaker 5: or inflammation and immunology I and I and I and
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  Speaker 5: I is also a very attractive area because these are
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  Speaker 5: areas where we all have issues with arthritissoriasis, Crow's disease,
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  Speaker 5: if elamentary bowel disease.
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  Speaker 6: All these things are stuff that we have been suffering
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  Speaker 6: from for years.
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  Speaker 5: Obesity probably increases their risk too, so and there've been
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  Speaker 5: a very active company in that space with three drugs
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  Speaker 5: four drugs on the market already and they've been doing
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  Speaker 5: deals adding to it.
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  Speaker 7: SAM three point two billion dollars is not a big
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  Speaker 7: big deal for Lily, But is this typical of what
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  Speaker 7: we see at a big pharma companies in terms of
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  Speaker 7: if they see a therapeutic or just a piece of
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  Speaker 7: science as interesting to them, it's better to buy than
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  Speaker 7: develop internally.
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  Speaker 5: Yeah, So I would say they're around thirty to forty
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  Speaker 5: percent of pharmaceutical companies. Pipelines comes from this type of interaction,
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  Speaker 5: either at.
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  Speaker 6: An M and a deal I e.
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  Speaker 5: Bought the whole thing lock Stock and Barrel, or I
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  Speaker 5: license a specific product in this case.
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  Speaker 6: So I'm looking at Lily. We have a database.
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  Speaker 5: Of course, we have the MAA function in the Bloomberg terminal,
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  Speaker 5: but we've taken that and dissected a little bit more
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  Speaker 5: and added on the bi dashboard and detail about the
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  Speaker 5: types of drugs that are in.
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  Speaker 6: Those deals, and MNA is one of that.
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  Speaker 5: So I'm looking at twelve deals that Lily has done
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  Speaker 5: in the past five years, and I'd say that only
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  Speaker 5: like three or three of them are in the cardiovascular
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  Speaker 5: metabolic space. I either diabetes OBS, the rest are oncology CNS,
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  Speaker 5: and of course two are inflammation and immunology, and this
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  Speaker 5: is one of them. So now it becomes three, right,
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  Speaker 5: because that's not quite updated yet. And they're all in
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  Speaker 5: the sort of range eight billion for locksow one point
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  Speaker 5: one eight hundred and eighty million, two point four billion.
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  Speaker 5: So we've got a good bunch of deals, and they're
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  Speaker 5: all in that level which the Farmer company is called
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  Speaker 5: Bolton Acquisitions, and that's their sweet spot of M and A.
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  Speaker 4: See Alex.
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  Speaker 7: Everybody thinks that the smart people in bi pharma healthcare
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  Speaker 7: researcher guys people like Sam Fazelliot.
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  Speaker 4: That's not really the case. It's this young lady named.
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  Speaker 7: Grace and she's in Princeton and she maintains a world
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  Speaker 7: class model that tracks the millions of drugs that are
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  Speaker 7: in various stages of you know, reviews around the world,
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  Speaker 7: and clients put huge value on that work that she does,
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  Speaker 7: and that allows Sam and some of the other anamals
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  Speaker 7: to go out there and talk about these drugs.
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  Speaker 4: So Grace a great job.
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  Speaker 2: As always love Paul shout out that was awesome, so true.
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  Speaker 5: And he needs to This particular shout out goes to
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  Speaker 5: another great lady who's called Mila, Mila Bankoskaya, who's also
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  Speaker 5: part of our team.
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  Speaker 6: But nobody matches up to Grace.
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  Speaker 5: Of course, Grace has been in the Catalyst calendar that
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  Speaker 5: year and I don't match up to her.
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  Speaker 6: Nobody matches up to her.
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  Speaker 2: Okay, So based on that, what are some of the
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  Speaker 2: cool things that are out there, like cool drugs that
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  Speaker 2: we should be talking about. We never get to talk
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  Speaker 2: to you when there's no crisis, really, so what are
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  Speaker 2: some cool things out there?
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  Speaker 6: Yeah?
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  Speaker 5: So obviously the OBC space, there's there's breakneck evolution of
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  Speaker 5: different modalities being combined trying to make it much more
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  Speaker 5: focused on fat, preserving some muscle, making it work better
• 4:40
  Speaker 5: for the liver part.
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  Speaker 6: Of the disease.
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  Speaker 5: And that's all going to come to fruition over the
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  Speaker 5: next two or three years. On colog years, I've been
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  Speaker 5: saying all along is seeing amazing developments.
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  Speaker 6: You know, we're developing.
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  Speaker 5: These disease hubs, as you might know, and just for
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  Speaker 5: lung cancer, we're developing almost thirteen different subgroupings of lung cancer.
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  Speaker 5: And it just shows you where treatment of these diseases
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  Speaker 5: have got to. And the same applies in inflammation and imminology,
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  Speaker 5: and in that space we're dealing with technology that is
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  Speaker 5: really cool. This particular acquisition and the one that they
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  Speaker 5: recently did its almost exactly a year ago, called dice therapeutics,
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  Speaker 5: are all about dealing with proteins that are very intractable
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  Speaker 5: to inhibition and normal drug discovery, and these two companies
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  Speaker 5: have developed oral drugs small molecules that interact with these targets.
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  Speaker 6: And the beauty of this, of course is do you
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  Speaker 6: remember all that worry.
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  Speaker 5: That when people were having about what happens with the
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  Speaker 5: IRA inflation reduction acts and its impact on small molecule development,
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  Speaker 5: because it specifically puts them out, saying, after nine years,
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  Speaker 5: irrespective of your patterns, we're.
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  Speaker 6: Going to come back in and negotiate prices.
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  Speaker 5: Well, here's Lily who's done two deals that are specifically
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  Speaker 5: small molecule deals. When the biology is interesting, when the
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  Speaker 5: drugs are interesting, I think the deals happen. Now, whether
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  Speaker 5: these will get to market or not, who knows. I mean,
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  Speaker 5: farmer isn't infallible when it comes to these deals. But
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  Speaker 5: this shows that when they have they see something interesting,
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  Speaker 5: they go for it, irrespective of small or big.
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  Speaker 7: Molecule sam People for better or worse, are living longer
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  Speaker 7: and longer lives, which makes every family it seems like
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  Speaker 7: it's dealing with some type of dementia, Alzheimer's and things
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  Speaker 7: like that. How does the farmer, the farmer industry, healthcare adustry,
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  Speaker 7: how do they think about that? How are they kind
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  Speaker 7: of getting ready for that?
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  Speaker 6: Yeah, so you know the beginnings. Can I just give
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  Speaker 6: you an example.
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  Speaker 5: An analogue for Alzheimer's disease is obesity. We've been at
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  Speaker 5: this obesity game for a year, ten years, fifteen years,
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  Speaker 5: twenty years. I remember one of the old drugs from
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  Speaker 5: Rush Pharmaceuticals that are that's still around called ally that
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  Speaker 5: reduced the amount of fat.
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  Speaker 6: You absorb as you eat.
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  Speaker 5: Of course, what does that create fat left in your
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  Speaker 5: stomach lubrication. I'm going to leave the rest of it
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  Speaker 5: your imagination, right, So, that was the idea that was
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  Speaker 5: going to be helping you lose weight, maybe three percent,
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  Speaker 5: four percent, five percent. And then it took a lot
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  Speaker 5: of time before somebody started discovering these things saying, oh gosh,
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  Speaker 5: we can get to fifteen twenty percent. If you're a
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  Speaker 5: two hundred and fifty pounds person, we can help you
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  Speaker 5: drop seventy pounds. That happened in obesity, I'm hopeful that
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  Speaker 5: the same happens in dementia and neurodegeneratic diseases.
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  Speaker 6: It's very much tougher.
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  Speaker 5: I mean, all biology is tough, but CNS is tougher
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  Speaker 5: because it's a black box. It's a disease that evolves
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  Speaker 5: over twenty years, thirty years, and by the time you
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  Speaker 5: your disease manifests, you've already had a lot of organic
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  Speaker 5: change to your brain. But there is the first products
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  Speaker 5: that are approved. With the first products approved, you do
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  Speaker 5: get a bit more incentive to develop the next one.
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  Speaker 5: Go better, Go another mile further, and that's where I'm
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  Speaker 5: hoping at the very least in Alzheimer's disease and Parkinson's
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  Speaker 5: we're going to be going there.
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  Speaker 6: Other diseases are a bit tougher. Still, do you.
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  Speaker 2: Think that we'll ever have a preventative drug for Alzheimer's
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  Speaker 2: or just a treatment.
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  Speaker 5: To delay well, the I think it's very tough to
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  Speaker 5: prevent because how do you know who's going to get it?
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  Speaker 5: That means you and I especially I, because you guys
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  Speaker 5: are much longer than me, younger than me. Paul is
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  Speaker 5: he's just coming out of school, right, So my thing
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  Speaker 5: is that at what point do you start taking these drugs?
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  Speaker 8: Right?
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  Speaker 6: How do I do that? So that becomes difficult? Who
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  Speaker 6: pays for it?
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  Speaker 5: And if they're preventative, how long do I have to
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  Speaker 5: take them before I know? I mean, how do you
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  Speaker 5: even do a trial there? So don't forget though, Now
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  Speaker 5: that's disease. You can go into the early mild dementia
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  Speaker 5: and try and slow down the disease, but step at
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  Speaker 5: the time, at a step at the time, and nothink
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  Speaker 5: will we'll have something, might take a decade or two,
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  Speaker 5: but hopefully will have them.
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  Speaker 7: And Sam again, are these is this something if we
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  Speaker 7: see announcements on this front will likely be, you know,
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  Speaker 7: the big form of companies that you cover making and
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  Speaker 7: acquisitions of some of these smaller companies that are just
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  Speaker 7: focused on this one particular thing.
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  Speaker 5: Probably, and don't forget that also the large farmer companies.
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  Speaker 5: I mean then the two drugs that we have on
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  Speaker 5: the market today that can be and I forget what
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  Speaker 5: Dunana maps caol has just been approved, so I can't
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  Speaker 5: remember it a branded name.
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  Speaker 6: I'm sorry, Iliy.
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  Speaker 5: They both came from within either the farmer company or
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  Speaker 5: the a Japanese partner. However, in the case of the
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  Speaker 5: can be that came from a Scandinavian biotech, So both
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  Speaker 5: of these are true.
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  Speaker 6: The question is who's got the firepower.
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  Speaker 5: The money to spend the billions required to develop these
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  Speaker 5: and that's often ends up being the farmer companies.
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  Speaker 6: It's the large farmer companies.
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  Speaker 2: Do you feel like, no matter who gets to be
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  Speaker 2: president in here in November, here in the US, are
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  Speaker 2: we going to see massive drug pushback? Like I realized,
• 9:58
  Speaker 2: it's probably a campaign tactic. But President Biden coming out
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  Speaker 2: last week and talking about how all the things were
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  Speaker 2: so expensive and really blaming like Novo Nordos. He wrote
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  Speaker 2: an app that with Bernie Sanders in USA today, what
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  Speaker 2: do you.
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  Speaker 5: Think I think this is a hot potato, which hand
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  Speaker 5: them are going to? I think it is a I
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  Speaker 5: don't think they are aiming their guns at the right
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  Speaker 5: group of companies. I think you could always argue that
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  Speaker 5: drug pricing because it's the easiest thing. It's a drug
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  Speaker 5: that people have to buy, and it says Lily on
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  Speaker 5: it right, is difficult for some people.
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  Speaker 6: A lot of people can't afford them.
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  Speaker 5: But there's a lot of middlemen that need to be
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  Speaker 5: looked at to where the where the increasing cost comes from.
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  Speaker 5: And you know what, the best way to entice people
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  Speaker 5: to develop obcity drugs, to bring down the price, to
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  Speaker 5: bring up competition is to allow the market to do
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  Speaker 5: his job. The market will do it already. These things
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  Speaker 5: are not costing ten one thousand dollars a month. We're
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  Speaker 5: more closer to five hundred net. Let the market to
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  Speaker 5: the job, bring more drugs. On the volume goes up,
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  Speaker 5: you can drop the price.
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  Speaker 4: Hey, Sam, thanks so much for joining us.
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  Speaker 7: As always expansive discussion, like we like to have a
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  Speaker 7: san Fazelo in all things. A big farmer in biotech Sanfazeli.
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  Speaker 7: He's he runs up Bloomberg Intelligencing over there in your force,
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  Speaker 7: and his day job is being one of the top
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  Speaker 7: healthcare parmer analysts in the city of London. Eli Lilly
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  Speaker 7: back at a bus. I've said it before, I'll say
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  Speaker 7: it again in my next life. I'm coming back. I
• 11:29
  Speaker 7: think as a healthcare m and a banker, because everywhere
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  Speaker 7: every Monday, it seems thinking to wake up and boom,
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  Speaker 7: there you go, Illely buying us biotech Morphic three point
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  Speaker 7: two billion dollars.
• 11:40
  Speaker 4: This is Bloomberg.
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  Speaker 7: A lot of folks are getting concerned about this marketplace.
• 12:03
  Speaker 7: Is equity market's been higher, there's evaluation concerns. There's headwinds
• 12:08
  Speaker 7: about when or if this FED is going to cut rates.
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  Speaker 7: There's concentration risk is probably ranks pretty highly with me.
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  Speaker 7: Let's check in with a professional and see how they're
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  Speaker 7: thinking about it. Shelby McFadden Investment analyst, Motley Full Asset
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  Speaker 7: Management joining us from Zoom via Zoom from Alexandria, Virginia. Shelby,
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  Speaker 7: how concerned are you about this marketplace? How do you
• 12:27
  Speaker 7: feel about this market? Are you confident that this equity
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  Speaker 7: market can continue to move higher?
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  Speaker 4: Where are you these days?
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  Speaker 1: You know?
• 12:34
  Speaker 3: I would say this sort of confidence and concern is
• 12:37
  Speaker 3: sort of a two pronged issue, right. So the confidence,
• 12:40
  Speaker 3: who can say, right, we all kind of wish we
• 12:41
  Speaker 3: had a crystal ball, especially as active managers. But the
• 12:45
  Speaker 3: sort of confidence, I would say, is rooted in the
• 12:47
  Speaker 3: fact that this is the precise sort of market where
• 12:49
  Speaker 3: you can sort of find those opportunities. They may not
• 12:52
  Speaker 3: necessarily pay the dividend right away, and that sort of
• 12:55
  Speaker 3: goes to the issue of concentration that you had mentioned
• 12:57
  Speaker 3: in the introduction, where you know, to look for those winners,
• 13:01
  Speaker 3: those diamonds in the rough that may not be sort
• 13:04
  Speaker 3: of paying off right now, But when that return of
• 13:06
  Speaker 3: breath comes back, that's when we sort of get to
• 13:09
  Speaker 3: see the fruits of our labor. And that is right
• 13:12
  Speaker 3: there the crux of active management so valuations they're rich.
• 13:15
  Speaker 3: That can be concerning. It's never exciting to have to
• 13:19
  Speaker 3: sit and wait for that golden opportunity that we've been
• 13:22
  Speaker 3: watching out for, but it absolutely pays off from the end,
• 13:25
  Speaker 3: and that's why we stick to that high quality strategy.
• 13:27
  Speaker 2: Do you care about breath? Do you care about the
• 13:29
  Speaker 2: seventeen hundred stats that I read today about how you
• 13:32
  Speaker 2: know the top seven stocks reported x amount of the
• 13:35
  Speaker 2: gain in the S and P so far this year?
• 13:37
  Speaker 2: I say it glibly because I feel like we've been
• 13:39
  Speaker 2: talking about this for like nine months, So how much
• 13:42
  Speaker 2: do you care about that now?
• 13:45
  Speaker 3: I would say that breath does still matter to us,
• 13:47
  Speaker 3: and I even say that given the fact that we
• 13:49
  Speaker 3: have what are considered more concentrated portfolio. So you may
• 13:52
  Speaker 3: be thinking, how does that even make sense? It makes
• 13:55
  Speaker 3: sense in the concept rather in the realm that compared
• 13:59
  Speaker 3: to the SM compared to what we consider the broad market,
• 14:03
  Speaker 3: we are more concerned with finding opportunities that are not
• 14:06
  Speaker 3: necessarily just all concentrated in one space. So when we
• 14:10
  Speaker 3: do look at our active ETFs, they're not always going
• 14:14
  Speaker 3: to reflect the main stocks that are moving the market.
• 14:18
  Speaker 3: There are going to be some more sort of niche
• 14:20
  Speaker 3: concepts in there that underlie some of the main processes
• 14:24
  Speaker 3: that keep our economy going. So when we look from
• 14:27
  Speaker 3: a portfolio management perspective, breath is increasingly important to us.
• 14:31
  Speaker 7: Shelby, how do you think about earning season. We're going
• 14:33
  Speaker 7: to kick it off Thursday with some of the airlines
• 14:35
  Speaker 7: and then of course the big banks kicking off on Friday.
• 14:38
  Speaker 4: What are you looking for this quarter?
• 14:41
  Speaker 3: I would say, going into early earning season, you know,
• 14:44
  Speaker 3: we're not expecting anything to earth shaking from the big
• 14:47
  Speaker 3: banks for the most part, they've already gotten all of
• 14:50
  Speaker 3: their shakeouts going. We might hear about a little bit
• 14:52
  Speaker 3: of M and A activity, and you know, mainly following
• 14:56
  Speaker 3: the regionals after the big banks. As we go further
• 14:58
  Speaker 3: into earning season, I think one of the key things
• 15:01
  Speaker 3: that we're looking out for is going to be back
• 15:03
  Speaker 3: office spend, those sorts of budgets on any sort of
• 15:07
  Speaker 3: CRM technology advertising, all of those sorts of software platforms
• 15:11
  Speaker 3: that made a lot of revenue in the past couple
• 15:14
  Speaker 3: of years. So we're looking to see where corporate budgets
• 15:16
  Speaker 3: are going, but also in the retail space, how is
• 15:18
  Speaker 3: the consumer holding up? The summer is a little bit
• 15:22
  Speaker 3: more dry in terms of promotional activity around holidays. You've
• 15:26
  Speaker 3: got Memorial Day for Labor Day, so there's a lot
• 15:29
  Speaker 3: of those really big chunks of weeks where there's not
• 15:31
  Speaker 3: as much promotional activity, and that's where we're going to
• 15:33
  Speaker 3: get a truer sense of how the consumer is doing.
• 15:35
  Speaker 3: So we'll be having a good lookout for that sort
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  Speaker 3: of easter to end of Q two.
• 15:40
  Speaker 2: Chunk for the back of the office spend are you
• 15:45
  Speaker 2: watching specifically, like if that budget grows or just that
• 15:48
  Speaker 2: budget stays versus shrinks, or like where it's going to
• 15:51
  Speaker 2: actually be going and how the money is diverted.
• 15:54
  Speaker 3: It's a sort of all of the above, right, because
• 15:56
  Speaker 3: that's all going to tell us a different story. So
• 15:58
  Speaker 3: if it is shrinking, that starts to tell us that
• 16:00
  Speaker 3: potentially companies are in a spot where they're so concerned
• 16:04
  Speaker 3: about their coffers that they are now less concerned about efficiency.
• 16:08
  Speaker 3: We think that's a little bit less likely because when
• 16:11
  Speaker 3: you've got shareholders, you tend to need to focus on efficiency.
• 16:15
  Speaker 3: So we're sort of looking for that stable to growing
• 16:17
  Speaker 3: for a number of companies there, their own sort of
• 16:21
  Speaker 3: projections are depending on a return to growth. So a
• 16:24
  Speaker 3: return of company's desires to have more efficiency. So I
• 16:29
  Speaker 3: would if I had to put money on it, I
• 16:31
  Speaker 3: would probably say, we're expecting to see on the whole
• 16:34
  Speaker 3: plot to growth in that area.
• 16:37
  Speaker 4: Shelby.
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  Speaker 7: Earlier today, we were speaking with the head economists at
• 16:41
  Speaker 7: MasterCard to get a sense of kind of how the consumer.
• 16:44
  Speaker 3: Is behave shell Meyer.
• 16:46
  Speaker 9: Yes, love her, excellent, excellent, We love you too, and
• 16:49
  Speaker 9: she she's saying, just the data that they see, the
• 16:53
  Speaker 9: consumer is still spending and the consumer looks pretty healthy.
• 16:57
  Speaker 4: How do you think about it?
• 17:00
  Speaker 3: You know, it's interesting because some of the recent pieces
• 17:03
  Speaker 3: that I've read have pointed to the fact that there's
• 17:05
  Speaker 3: a big cohort of millennials and young or older rather
• 17:10
  Speaker 3: gen z that are coming into the stage of their
• 17:12
  Speaker 3: lives where they have to purchase certain necessities. The amount
• 17:15
  Speaker 3: of money in life that they spend is just growing
• 17:18
  Speaker 3: because it has to. And then when you put on
• 17:21
  Speaker 3: top of that the sort of economy that we're in
• 17:23
  Speaker 3: where things are more inflationary. We know that we're fighting that.
• 17:25
  Speaker 3: Right now, you switsh those two things together and we
• 17:28
  Speaker 3: get a picture that looks like a very healthy consumer
• 17:31
  Speaker 3: on the top. You know, the superficial most level, and
• 17:35
  Speaker 3: as we sort of drill down, we see a sort
• 17:37
  Speaker 3: of obligation to spend when we look at the fact
• 17:40
  Speaker 3: that retailers of things like shoes, shoes are broadly pretty
• 17:44
  Speaker 3: weak right now, and so we think about the fact
• 17:46
  Speaker 3: that people are not wanting to pick up those little
• 17:48
  Speaker 3: things in the store, those little articles of clothing, you know,
• 17:52
  Speaker 3: extra pairs of socks, things like that that you used
• 17:54
  Speaker 3: to kind of use to comfort yourself. You drill down
• 17:56
  Speaker 3: to that you realize a lot of the spending is
• 17:58
  Speaker 3: not so discretionary and healthy in the sense that money
• 18:02
  Speaker 3: is being spent, but the discretionary spend not as much.
• 18:06
  Speaker 3: So I think we have to really drill down to
• 18:08
  Speaker 3: see what the consumer is feeling. How do you play it?
• 18:12
  Speaker 3: I think the way to play it is one as
• 18:14
  Speaker 3: you meant, there's a way to play it with MasterCard,
• 18:16
  Speaker 3: which is they're a toll taker, so you go ahead
• 18:19
  Speaker 3: and just frankly take advantage of the fact that cars
• 18:23
  Speaker 3: are going to be swite. Another way to play it
• 18:25
  Speaker 3: is taking the premium end of the consumer. So when
• 18:27
  Speaker 3: we think about companies like Costco, they're offering value, but
• 18:31
  Speaker 3: they're offering really sticky value in the way that they're
• 18:33
  Speaker 3: a little bit higher on the income schedule. Another way
• 18:36
  Speaker 3: to play it is Amazon. You look at the fact
• 18:38
  Speaker 3: that they are retail, They've got a strong retail base,
• 18:41
  Speaker 3: and then they've also got their aws space, so they
• 18:44
  Speaker 3: really rooted themselves pretty deeply inconvenience for both corporate and consumer.
• 18:48
  Speaker 3: So I think it really comes down to one companies
• 18:51
  Speaker 3: that have deeply rooted themselves across the cycle, and two
• 18:54
  Speaker 3: premiumization and three toll takers.
• 18:58
  Speaker 4: So I see you you've got cost go there.
• 19:01
  Speaker 7: So that kind of to me says you have, you know,
• 19:04
  Speaker 7: kind of a fairly constructive call on the consumer. What's
• 19:07
  Speaker 7: the feeling behind your costco name?
• 19:11
  Speaker 3: Well, one of the things we love about the costco
• 19:13
  Speaker 3: business and why it's in TFC and a number of
• 19:15
  Speaker 3: our portfolios, is that they really generate a sort of
• 19:19
  Speaker 3: annuity type structure. Their primary earnings are really or their
• 19:24
  Speaker 3: most stable earnings I should say, are coming from those memberships,
• 19:26
  Speaker 3: and they've really figured out a perfect timing on those
• 19:29
  Speaker 3: membership increases in such a way that it's almost gentle
• 19:32
  Speaker 3: to the customer. They've established a relationship and so when
• 19:35
  Speaker 3: it comes people aren't really you know, running for the fences,
• 19:38
  Speaker 3: and then on top of that, they've got the best
• 19:40
  Speaker 3: cost position in the industry. So we have actually seen
• 19:42
  Speaker 3: over the past eighteen months or so when we listen
• 19:44
  Speaker 3: in for the calls, they lower prices when they can.
• 19:47
  Speaker 3: And I'll even say anecdotally, when I go to Costco,
• 19:49
  Speaker 3: I have pointed out to my husband had said, that's
• 19:51
  Speaker 3: lower than it was.
• 19:52
  Speaker 6: A quarter ago.
• 19:53
  Speaker 3: So they are holding up on those promises and being
• 19:56
  Speaker 3: able to do that is really really important, and being
• 19:59
  Speaker 3: able to sure the consumer who can afford that executive
• 20:01
  Speaker 3: membership further solidifies their place in their peer market.
• 20:06
  Speaker 2: You also like Amazon, but that's less of a retail play, right,
• 20:08
  Speaker 2: that's more of a cloud play.
• 20:11
  Speaker 3: A bit, yes, so we do know that they've sort
• 20:13
  Speaker 3: of solidified that position in retail, but the cloud play
• 20:16
  Speaker 3: is right now in terms of valuation, of course, what's
• 20:19
  Speaker 3: really most sensitive for them. And that's also where at
• 20:23
  Speaker 3: this point our thesis is sort of tipping towards. So
• 20:26
  Speaker 3: the additional growth that we are hinging any sort of
• 20:30
  Speaker 3: investment on for Amazon comes from the cloud space rather
• 20:33
  Speaker 3: than retail, and so that's what we're predominantly looking out for.
• 20:36
  Speaker 3: We're looking for operational leverage there as well as continuing
• 20:39
  Speaker 3: to solidify their reputation and continue with innovation. So, you know,
• 20:45
  Speaker 3: retail is always going to be a little bit wobbly
• 20:47
  Speaker 3: in terms of, you know, any sort of regulations that
• 20:49
  Speaker 3: are coming things like that, But on the whole, it
• 20:52
  Speaker 3: does seem like the balance between what they do for
• 20:53
  Speaker 3: the consumer and their competitive position seems to be sort
• 20:57
  Speaker 3: of leveling out. So really the thesis hinges on aws.
• 21:01
  Speaker 7: Hey Shelby, who is a typical investor or customer of
• 21:06
  Speaker 7: Motley Full Asset Management.
• 21:09
  Speaker 3: Yeah, I would say a typical investor would be someone
• 21:12
  Speaker 3: that is looking to access high growth names in of
• 21:17
  Speaker 3: course you know, global but primarily US markets, but looking
• 21:20
  Speaker 3: to do so by stepping outside of the concentration of
• 21:24
  Speaker 3: the US market. So even though the portfolio itself and
• 21:28
  Speaker 3: an average portfolio for US is going to be fifteen
• 21:30
  Speaker 3: to thirty stocks, it's someone who's looking to beat the
• 21:33
  Speaker 3: market over the long term, over ten to fifteen years,
• 21:36
  Speaker 3: go ahead and build that wealth by making choices outside
• 21:40
  Speaker 3: of the sort of status quo. And that doesn't necessarily
• 21:43
  Speaker 3: mean that we're just choosing really really niche sectors that
• 21:46
  Speaker 3: no one's heard of, but we are looking for those
• 21:48
  Speaker 3: high quality companies that are going to focus on cash
• 21:50
  Speaker 3: flow and be a bit more resilient to the cycle
• 21:53
  Speaker 3: and therefore deliver focusing really on upside capture especially.
• 21:57
  Speaker 2: So then to that point, do you not care who
• 22:00
  Speaker 2: wins the White House in November? That could definitely influence policy,
• 22:04
  Speaker 2: particularly when it comes to climate and environmental laws. But
• 22:08
  Speaker 2: in general, are you able to look through that or
• 22:10
  Speaker 2: how do you manage it?
• 22:13
  Speaker 3: I would say in the short term, it's not something
• 22:15
  Speaker 3: that we're integrating into our strategy because it's not something
• 22:19
  Speaker 3: that we have control over. In the long term view,
• 22:23
  Speaker 3: we understand that there could be some sweeping changes, but
• 22:26
  Speaker 3: we do also know that that legislature will take some time.
• 22:30
  Speaker 3: So we keep our monitors out. We have our various
• 22:32
  Speaker 3: lists and various contacts that we are in touch with,
• 22:36
  Speaker 3: calls that we will tune into so that we can
• 22:38
  Speaker 3: be on top of things to adjust our models appropriately.
• 22:40
  Speaker 3: So I would say that in terms of our strategy,
• 22:44
  Speaker 3: we have to sort of be a bit agnostic.
• 22:46
  Speaker 6: I can't.
• 22:47
  Speaker 3: I don't know that I would say we can care
• 22:49
  Speaker 3: because that may do a disservice to our investors to
• 22:52
  Speaker 3: say it has to be this for us to succeed.
• 22:55
  Speaker 3: We are determined to make sure that we adjust accordingly
• 22:58
  Speaker 3: with any regulations or policies that change to make sure
• 23:00
  Speaker 3: that we can serve the active investor as best we can.
• 23:03
  Speaker 4: All Right, Shelby, thank you so much for joining us.
• 23:05
  Speaker 4: Shelby McFadden.
• 23:05
  Speaker 7: She's an investment analyst at Motley fool Asset Management. Joining
• 23:09
  Speaker 7: us from Alexandria, Virginia.
• 23:12
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 23:16
  Speaker 1: weekdays at ten am Eastern on Apple Card, play in
• 23:19
  Speaker 1: Android auto with the Bloomberg Business app, Listen on demand
• 23:22
  Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
• 23:26
  Speaker 2: This Monday, though, we're going to go outside the Bloomberg
• 23:29
  Speaker 2: Intelligence world and take a look at what's going on
• 23:31
  Speaker 2: with ETFs. Joining us now is Sean O'Hara, president of Pacer.
• 23:34
  Speaker 2: ETFs has forty five billion dollars assets under management. He
• 23:38
  Speaker 2: joins us from Pennsylvania. So Sean, we love this topic,
• 23:42
  Speaker 2: like who's buying, what, where are the flows? Where are
• 23:44
  Speaker 2: they coming out of We just ended the second quarter,
• 23:48
  Speaker 2: we're kind of kicking off the back half of the year.
• 23:50
  Speaker 2: What's the setup.
• 23:52
  Speaker 10: Well, it's the same setup as it's been for the
• 23:54
  Speaker 10: last six months to eighteen months, and that is that
• 23:57
  Speaker 10: you know, essentially five to seven stocks are really responsible
• 23:59
  Speaker 10: for all of the performance. So I just read an
• 24:02
  Speaker 10: article this morning that said I Shares had one of
• 24:04
  Speaker 10: its biggest NetFlow periods over six months, and I think
• 24:07
  Speaker 10: that's mostly driven by people buying the outright the S
• 24:11
  Speaker 10: and P five hundred. Obviously, the cues continue to take
• 24:14
  Speaker 10: in a lot of money. The one word of caution
• 24:16
  Speaker 10: I would say though, is that you know, mostly those
• 24:19
  Speaker 10: ETFs to track those broad indexes are meant to be
• 24:22
  Speaker 10: diversified portfolios, and what's going on today is the opposite
• 24:27
  Speaker 10: of diversification. So although the ETF industry continues to take
• 24:30
  Speaker 10: in almost record flows across the board, in these big
• 24:34
  Speaker 10: broad market market cap weighted ETFs, I think investors need
• 24:38
  Speaker 10: to be a little bit wary of the exposures. You have,
• 24:43
  Speaker 10: forty something percent of the cues is like seven names,
• 24:46
  Speaker 10: and so as it goes up, we could just as
• 24:50
  Speaker 10: easily see things come down as people start to view
• 24:53
  Speaker 10: some of these big tech names and these big AI
• 24:55
  Speaker 10: players as more closely or more close to fairly valued.
• 25:00
  Speaker 7: So how concerned are you about this market and the
• 25:03
  Speaker 7: concentration in this market.
• 25:05
  Speaker 10: Well, you know, I'm a believer in AI. I think
• 25:08
  Speaker 10: you don't have to be all in one way or
• 25:10
  Speaker 10: the other. I think, you know, perhaps from my perspective,
• 25:13
  Speaker 10: I'd rather be a little more balanced. I have exposure
• 25:15
  Speaker 10: to the AI trade in various different forms, but I
• 25:19
  Speaker 10: also have some lower PE, high higher quality stuff that
• 25:23
  Speaker 10: you know is kicking off nice dividends, and so you
• 25:25
  Speaker 10: can sort of wait and see what happens, and you're
• 25:28
  Speaker 10: less susceptible to a big drawdown. If let's say the
• 25:31
  Speaker 10: FED decides not to cut, or we get to the
• 25:34
  Speaker 10: third quarter earnings reports and those numbers have now been
• 25:38
  Speaker 10: adjusted high and higher, and somebody stubs their toe. You
• 25:41
  Speaker 10: could see a big reaction to that. So one of
• 25:45
  Speaker 10: the things that I think makes sense for people for
• 25:48
  Speaker 10: part of their portfolio is to lower the overall portfolios
• 25:51
  Speaker 10: PE before the market ultimately does it to them, which
• 25:54
  Speaker 10: it will at some point. You know, the SMP is
• 25:57
  Speaker 10: still trading at twenty two to twenty four times earnings,
• 25:59
  Speaker 10: in the nasty is over thirty five times earnings, and
• 26:02
  Speaker 10: those numbers, although they make us all feel happy as
• 26:05
  Speaker 10: we're riding them up, eventually the market is sort of
• 26:09
  Speaker 10: going to revert back to that mean, And those numbers
• 26:12
  Speaker 10: are somewhere between twenty and thirty percent above the historical
• 26:15
  Speaker 10: long term averages. So I think it just makes sense
• 26:17
  Speaker 10: maybe to be a little bit more barbelled as opposed
• 26:19
  Speaker 10: to all in on one trade.
• 26:21
  Speaker 2: So does that imply then that if you're going to
• 26:24
  Speaker 2: barbel at two, do you need to barbel it across
• 26:26
  Speaker 2: as a class? As we've seen a lot of money
• 26:27
  Speaker 2: contine to flow into bond ETFs, what are you noticing there?
• 26:31
  Speaker 10: Well, barbelling, for example, you could just as easily buy
• 26:35
  Speaker 10: the equal weighted version of the S and P five
• 26:37
  Speaker 10: hundred next to the cap weighted and that sort of
• 26:39
  Speaker 10: would give you that barbelle right, You'd have more exposure
• 26:41
  Speaker 10: to the bottom half of the S and P five
• 26:43
  Speaker 10: hundred and less exposure to the top half. And there's
• 26:45
  Speaker 10: an equal weighted version of the queues as well. In
• 26:49
  Speaker 10: fixed income land, I think people are mostly pretty satisfied
• 26:52
  Speaker 10: just sort of sitting in short term treasuries at five percent.
• 26:55
  Speaker 10: There's been a lot of money going into those types
• 26:57
  Speaker 10: of vehicles. I don't think on the fixed income side
• 27:00
  Speaker 10: that we're doing sort of what we've been doing on
• 27:02
  Speaker 10: the equity side, and that is we're underpricing risk. I mean,
• 27:05
  Speaker 10: spreads are fairly narrow on a historic basis, and so
• 27:09
  Speaker 10: you're not getting paid what you might normally get paid
• 27:12
  Speaker 10: to go out the credit scale, maybe to you know,
• 27:15
  Speaker 10: high grade corporates or to high yield and so I
• 27:19
  Speaker 10: think if you can just collect five percent in the
• 27:21
  Speaker 10: short run for that money that you maybe ultimately will deploy,
• 27:25
  Speaker 10: makes a little bit of sense. We're seeing some flows
• 27:27
  Speaker 10: into international and global. I think that's really just a
• 27:30
  Speaker 10: rebalancing trade. The last five years have been dominated so
• 27:34
  Speaker 10: much by large cap us that I think investors' portfolios
• 27:36
  Speaker 10: have gotten out of balance a little bit. And so
• 27:39
  Speaker 10: I think people are starting to push more money into
• 27:41
  Speaker 10: global and international. And then we've seen quite a bit
• 27:44
  Speaker 10: of money go into small cap for the same reason
• 27:46
  Speaker 10: that and that is that you know, if because of
• 27:49
  Speaker 10: this massive performance advantage of large cap us versus everything else,
• 27:54
  Speaker 10: portfolios have gotten out of whack, and I think people
• 27:56
  Speaker 10: are wise to sort of rebalance their portfolios that are
• 27:59
  Speaker 10: more in line with what a longer term objective might dictate.
• 28:04
  Speaker 4: Twenty twenty four is an election year. How concerned. Are
• 28:07
  Speaker 4: you about that?
• 28:07
  Speaker 7: From a I guess a stability or volatility perspective for
• 28:11
  Speaker 7: markets and maybe how to position yourself.
• 28:15
  Speaker 10: Well, you have two different agendas, right You have one
• 28:18
  Speaker 10: agenda that you know is going to be more government
• 28:20
  Speaker 10: and higher taxes theoretically, and you have another agenda that's
• 28:24
  Speaker 10: sort of less regulatory oversight and lower taxes. And I
• 28:28
  Speaker 10: think the market will be volatile between now an election day,
• 28:31
  Speaker 10: as you know, these candidate surge and fall in the polling,
• 28:36
  Speaker 10: and so it'll be interesting to see. I don't think
• 28:38
  Speaker 10: that now is the time to start really putting on
• 28:41
  Speaker 10: those election type vets into a portfolio, because there's so
• 28:45
  Speaker 10: much time between now and November. But I think as
• 28:48
  Speaker 10: we get closer to November and people start to really
• 28:51
  Speaker 10: develop a clear view of who they believe will ultimately
• 28:54
  Speaker 10: win the election, I think investors will start to position
• 28:57
  Speaker 10: portfolios accordingly.
• 28:59
  Speaker 2: What's the one where we let you go, what's like
• 29:01
  Speaker 2: a risk that no one's talking about or not a
• 29:03
  Speaker 2: lot of people are talking about that you see in
• 29:05
  Speaker 2: the market right now?
• 29:07
  Speaker 10: Well, I said what I think is the biggest risk
• 29:09
  Speaker 10: in the market, and that is that we're highly, highly
• 29:11
  Speaker 10: concentrated and this happens from time to time. It just
• 29:15
  Speaker 10: never lasts. We don't know how long this will last,
• 29:17
  Speaker 10: but it's not going to last for five years. It's
• 29:20
  Speaker 10: been almost two years worth of this massive imbalance in
• 29:24
  Speaker 10: terms of the weight in portfolios across the broad market indexes.
• 29:27
  Speaker 10: And I think that's one risk that Look, we're human beings, right,
• 29:32
  Speaker 10: and so we get ephic, and when things are going
• 29:35
  Speaker 10: well and we're making money on investments, we sort of
• 29:38
  Speaker 10: ignore some of the potential pitfalls. And so I think
• 29:41
  Speaker 10: the big risk is that we don't get as an
• 29:43
  Speaker 10: aggressive fed approach, and that we get into the third
• 29:46
  Speaker 10: quarter in the fourth quarter as those tech names are
• 29:49
  Speaker 10: sort of running uphill right. Their earnings have been growing,
• 29:53
  Speaker 10: but their forecasted earnings are supposed to be higher, and
• 29:56
  Speaker 10: if somewhere along the way and by the way, it's
• 29:58
  Speaker 10: much more difficult for them to make those increase earnings
• 30:01
  Speaker 10: numbers because of the massive size of these companies. That
• 30:04
  Speaker 10: could potentially be a risk that people are ignoring right now.
• 30:07
  Speaker 7: All right, Sean, thank you so much for joining us.
• 30:09
  Speaker 7: Really appreciated. Sean O'Hara, president of pacer ETFs. They're out
• 30:13
  Speaker 7: there on the main line of Philadelphia, Malvern. Beautiful part
• 30:17
  Speaker 7: of the world out there, right across the road from
• 30:19
  Speaker 7: the Home Vanguard Complex. All that kind of index money
• 30:23
  Speaker 7: is all out. There's smart folks down there in great
• 30:25
  Speaker 7: Affhilly area.
• 30:32
  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 30:36
  Speaker 1: weekdays at ten am Eastern on applecar Play and Android
• 30:39
  Speaker 1: Auto with the Bloomberg Business app. You can also listen
• 30:42
  Speaker 1: live on Amazon Alexa from our flagship New York station.
• 30:46
  Speaker 1: Just say Alexa play Bloomberg eleven thirty Alex.
• 30:50
  Speaker 7: You know me, There's very few places in the world
• 30:52
  Speaker 7: that would get me away from my beloved Jersey Shore. True,
• 30:55
  Speaker 7: but the low country of South Carolina is definitely in
• 30:59
  Speaker 7: the running. It is beautiful down there, nice people, beautiful
• 31:02
  Speaker 7: part of the world. And that's our next guest is
• 31:04
  Speaker 7: Jared Dillion. He's the founder of The Daily Dirt NP.
• 31:07
  Speaker 7: Jared main ways to go on this thing. I think
• 31:10
  Speaker 7: for a lot of investors as they look at these
• 31:13
  Speaker 7: stock markets, they look at their four to one k
• 31:15
  Speaker 7: they're doing pretty well. But boy, there's a lot of
• 31:18
  Speaker 7: headwines out there, and for me, maybe the biggest one
• 31:20
  Speaker 7: is the concentration risk in this market. It gets me
• 31:23
  Speaker 7: nervous when I pull out those Magnificent seven that my
• 31:26
  Speaker 7: market's not doing a whole lot.
• 31:27
  Speaker 4: How do you think about that?
• 31:29
  Speaker 11: Yeah, I think about it the same way as you
• 31:31
  Speaker 11: do if you look at Actually, you know, funny you mentioned.
• 31:37
  Speaker 11: I was on Twitter a couple of weeks ago and
• 31:39
  Speaker 11: somebody had posted a paragraph from an interview with Stan Druckenmiller,
• 31:46
  Speaker 11: and this was about the crash of nineteen eighty seven,
• 31:49
  Speaker 11: and Stan Druckenmiller had cited a couple of reasons why
• 31:54
  Speaker 11: he got bearish before the crash of nineteen eighty seven,
• 31:58
  Speaker 11: and one of them was the constant creation at the
• 32:00
  Speaker 11: time was the fact that the market was being led
• 32:03
  Speaker 11: by just a handful of names. And if you go
• 32:07
  Speaker 11: back in history at all these major tops, that usually
• 32:11
  Speaker 11: co occurs with the top is that you do have
• 32:14
  Speaker 11: extreme concentration, and we're certainly having that today.
• 32:18
  Speaker 2: So what does that then mean? I mean, just because
• 32:20
  Speaker 2: history doesn't always repeat at rhymes that whole thing, which
• 32:23
  Speaker 2: like I also roll my eyes at that too, And
• 32:27
  Speaker 2: what that looks like. No one's going to doubt that
• 32:29
  Speaker 2: we're in some kind of bubble, but no one knows
• 32:30
  Speaker 2: what the bubble winds up looking like and how it bursts,
• 32:32
  Speaker 2: and that puts people in a really big buying if
• 32:34
  Speaker 2: they're trying to make money.
• 32:37
  Speaker 11: Well, the way I look at this is that the
• 32:39
  Speaker 11: cost to protect a portfolio that looks like the S
• 32:44
  Speaker 11: and P five hundred is the lowest that it has
• 32:47
  Speaker 11: been since twenty nineteen. If you go back towards the
• 32:52
  Speaker 11: end of twenty nineteen, options became very cheap, and then
• 32:55
  Speaker 11: you had the pandemic in twenty twenty and they exploded
• 32:59
  Speaker 11: in value. You this is the cheapest that protection has
• 33:03
  Speaker 11: been in the last five years. So you know, a
• 33:07
  Speaker 11: day that I think about in particular is February twenty seventh,
• 33:10
  Speaker 11: two thousand and seven. That was the day that China
• 33:15
  Speaker 11: raised reserve requirements and the ABX dropped by ten points
• 33:19
  Speaker 11: and the VICS exploded from ten to twenty in a day.
• 33:23
  Speaker 11: Usually when you transition out of low ball regimes into
• 33:26
  Speaker 11: a high ball regimes, it is a very violent move.
• 33:31
  Speaker 7: So, Jared, we're going to be starting earnings at the
• 33:33
  Speaker 7: end of this week. We have the some of the
• 33:35
  Speaker 7: airlines and then the big banks on Friday. Is this
• 33:39
  Speaker 7: earning season a catalyst or a potential risk for this market?
• 33:43
  Speaker 6: Do you think.
• 33:44
  Speaker 11: I don't think it's much of a risk. You know,
• 33:46
  Speaker 11: it's it's funny we've gotten we've gotten a slowdown in
• 33:52
  Speaker 11: the economic data that has happened for the last month
• 33:54
  Speaker 11: or so. Really, the only strong piece of economic data
• 33:57
  Speaker 11: we've gotten in a while was last month's payroll report,
• 34:01
  Speaker 11: which came in at two hundred and seventy thousand, which
• 34:04
  Speaker 11: then was revised lower this month. J Powell last week
• 34:09
  Speaker 11: was commenting on how he's seeing disinflationary forces. I think
• 34:13
  Speaker 11: earnings are a lagging indicator, and I think that the
• 34:17
  Speaker 11: economy is slowing down, but it's I don't think it's
• 34:20
  Speaker 11: going to show up in this quarter's earnings.
• 34:23
  Speaker 2: Do you think that for investors it's going to matter
• 34:27
  Speaker 2: more how when the Fed starts cutting, what the results
• 34:31
  Speaker 2: of the presidential election are, or what earnings, particularly from
• 34:34
  Speaker 2: the AI names deliver this quarter.
• 34:37
  Speaker 11: I think the biggest factor out of the three that
• 34:39
  Speaker 11: you mentioned is the presidential election. I mean that's going
• 34:42
  Speaker 11: to determine the path for monetary policy going forward in
• 34:46
  Speaker 11: twenty twenty five, in twenty twenty six, and if if
• 34:51
  Speaker 11: Trump gets re elected in November, then I think what
• 34:56
  Speaker 11: you're going to see is probably a rate cut cycle
• 35:00
  Speaker 11: that lasts throughout twenty twenty five. You might see one
• 35:04
  Speaker 11: hundred to one hundred and fifty basis points of great cuts.
• 35:08
  Speaker 11: I think if Biden gets re elected, I think it's
• 35:10
  Speaker 11: more of the same. I think it's more of a
• 35:11
  Speaker 11: higher for longer trade. So yeah, for sure, the election
• 35:16
  Speaker 11: is going to be the biggest catalyst there.
• 35:19
  Speaker 4: Jared, what do you again?
• 35:20
  Speaker 7: We've talked about the concentration risk here and if I
• 35:23
  Speaker 7: don't know, I guess somebody wants to be brave enough
• 35:24
  Speaker 7: to try to break away from that and look to
• 35:26
  Speaker 7: other areas of the market. Do you see opportunities in
• 35:29
  Speaker 7: other areas of the market, whether it be a valuation
• 35:31
  Speaker 7: entry point or whether it's just some parts of the
• 35:34
  Speaker 7: market are just kind of mispriced.
• 35:37
  Speaker 1: Well, I think I think the.
• 35:39
  Speaker 11: Biggest opportunity is some kind of reversion in the style
• 35:44
  Speaker 11: box trade. If you know, we've had large cap growth
• 35:48
  Speaker 11: outperforming small cap value for the last twenty years, and
• 35:53
  Speaker 11: you know, I started my career in nineteen ninety nine
• 35:57
  Speaker 11: and that was also a time with large growth was
• 36:00
  Speaker 11: outperforming small cap value. But when small cap value turned
• 36:05
  Speaker 11: around two thousand and one or two thousand and two.
• 36:08
  Speaker 11: That was a really big move and it made the
• 36:10
  Speaker 11: careers of a lot of investors. So I think if
• 36:14
  Speaker 11: you can time that right, if you can catch that,
• 36:17
  Speaker 11: then that's a really big opportunity.
• 36:19
  Speaker 2: I mean, I feel like, yes, how like what are
• 36:21
  Speaker 2: the sign I mean, mister, are both of you guys
• 36:23
  Speaker 2: who've been in the market for a while, like, how
• 36:24
  Speaker 2: do you time that? Because I feel like everyone's waiting
• 36:26
  Speaker 2: for small caps to have their moment, slash value to
• 36:29
  Speaker 2: have their moment, and that moment.
• 36:31
  Speaker 3: Is like fleeting.
• 36:32
  Speaker 2: It's like, here's a week and then see you later.
• 36:35
  Speaker 11: Yeah, that's exactly what it's been. You've had these You've
• 36:38
  Speaker 11: had these sort of blips along the way where value
• 36:41
  Speaker 11: outperforms and then it goes back to getting killed again.
• 36:43
  Speaker 11: I don't really have the answer to that, although you know,
• 36:47
  Speaker 11: I will say that the average stock in the S
• 36:50
  Speaker 11: and P five hundred is not super expensive. The median
• 36:54
  Speaker 11: stock in the SMP is about in eighteen pe, which
• 36:57
  Speaker 11: you know is pretty reasonable over time. It's really a
• 37:01
  Speaker 11: handful of stocks on the high end that have gotten
• 37:03
  Speaker 11: really expensive.
• 37:06
  Speaker 7: So Jared Alex and I were just discussing a story
• 37:09
  Speaker 7: in the Bloomberg Turmoil about how younger people are beginning
• 37:13
  Speaker 7: to trade at a much younger age. So, for example,
• 37:16
  Speaker 7: gen Z started investing when they're nineteen on average, that's
• 37:19
  Speaker 7: according to Charles Schwab. That compares to thirty two for
• 37:22
  Speaker 7: gen X and thirty five for baby boomers. So people
• 37:24
  Speaker 7: are getting into the market a lot younger. Are you
• 37:27
  Speaker 7: seeing that in your business, in your newsletter business and
• 37:30
  Speaker 7: your commentaries.
• 37:31
  Speaker 5: Well, it's funny.
• 37:32
  Speaker 11: Because in my spare time, I'm also an adjunct professor
• 37:37
  Speaker 11: at Coastal Carolina University, and I teach these young people,
• 37:42
  Speaker 11: and I would say that jibes with my experience. I've
• 37:45
  Speaker 11: you know, in my last class, I would say about
• 37:49
  Speaker 11: forty to fifty percent of the class had brokerage accounts.
• 37:52
  Speaker 11: They had no idea what they were doing. I mean,
• 37:54
  Speaker 11: they were just screwing around, but they but they and
• 37:59
  Speaker 11: a lot of them tradeto by the way. Yeah, so
• 38:02
  Speaker 11: it's a mixture of crypto and in video and stuff
• 38:06
  Speaker 11: like that. But yeah, they are starting at a younger age.
• 38:09
  Speaker 2: Is this like a good thing or a bad thing?
• 38:10
  Speaker 2: We were debating this earlier, Like, I mean, it's a
• 38:13
  Speaker 2: good way to lose money, but isn't it also good
• 38:15
  Speaker 2: to kind of make money and be and take control
• 38:17
  Speaker 2: of your finances. Like, what do you think about that?
• 38:20
  Speaker 11: Well, I think it's a I think it's a good thing.
• 38:22
  Speaker 11: But I don't think anybody's taking control over their finances.
• 38:25
  Speaker 11: I think what they're doing is learning. I think they're
• 38:27
  Speaker 11: learning how to invest, and they're making mistakes in early
• 38:31
  Speaker 11: age when they can afford to make mistakes. If they
• 38:34
  Speaker 11: lose eight hundred bucks on video or some crypto token,
• 38:38
  Speaker 11: there really are no consequences. The consequences are if you
• 38:42
  Speaker 11: start investing later and you're investing real money and you
• 38:45
  Speaker 11: make mistakes, then then that's that's hard to reverse.
• 38:48
  Speaker 4: All right, Jared, thanks so much for joining us. Jared Dillon.
• 38:51
  Speaker 7: He's the founder of the Daily Dirt nep, a financial
• 38:56
  Speaker 7: column and or money letter that goes out.
• 38:58
  Speaker 4: It's been doing that for quite some time.
• 39:02
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• 39:06
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• 39:12
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• 39:19
  Speaker 2: We take it to Bloomberg n EF that research is
• 39:22
  Speaker 2: also awesome. They cover commodities, power, transport, industry, buildings, AG
• 39:27
  Speaker 2: sectors as well as cost cutting technologies and sustainability issues
• 39:31
  Speaker 2: and the goal is to help business, finance, and governments
• 39:34
  Speaker 2: navigate the change as we move towards a green future.
• 39:38
  Speaker 2: Speaking of let's go to green. Martin Tangler is head
• 39:41
  Speaker 2: of green Hydrogen over at Bloomberg and EF and he
• 39:45
  Speaker 2: joins us. Now, Martin, I'm just asking for Paul, what's
• 39:48
  Speaker 2: green hydrogen?
• 39:51
  Speaker 8: So just to give you a correction, I'm the head
• 39:53
  Speaker 8: of hydrogen research, not just green hydrogen.
• 39:55
  Speaker 2: Okay, good to know.
• 39:56
  Speaker 6: We like that.
• 39:58
  Speaker 8: Green hydrogen is one way of producing hydrogen via electrolysis.
• 40:03
  Speaker 8: So that's splitting water into oxygen and hydrogen using green electricity.
• 40:08
  Speaker 8: So that's what green hydroen is.
• 40:10
  Speaker 7: So explain to us where this technology green hydrogen? Where
• 40:16
  Speaker 7: are we in terms of the development of this technology.
• 40:20
  Speaker 6: Yeah, so this is a really.
• 40:24
  Speaker 8: It's an old technology. At its core, we've used it
• 40:27
  Speaker 8: for more than one hundred years. We've done electrolysis of
• 40:30
  Speaker 8: breaking up water molecules into hydrogen oxygen. What's new though,
• 40:35
  Speaker 8: is that this time we want to use green electricity
• 40:40
  Speaker 8: in order to reduce the emissions from the production of
• 40:44
  Speaker 8: what's called gray hydrogen. Gray hydrogen being hydrogen made from
• 40:48
  Speaker 8: fossil fuels without any capturing of the resulting CO two,
• 40:53
  Speaker 8: which is how we might make the vast majority of
• 40:55
  Speaker 8: the hydrogen today, and many countries, many governments have been
• 40:59
  Speaker 8: incentive devising the production of green and sometimes also so
• 41:03
  Speaker 8: called blue hydrogen that's gray with carbon capture and storage
• 41:06
  Speaker 8: attached to that, so that we can decarbonize a deproduction
• 41:11
  Speaker 8: of the gray hydrogen that we already produced today one
• 41:14
  Speaker 8: hundred million tons. It's a lot of hydrogen we make,
• 41:17
  Speaker 8: and also to use hydrogen in some other sectors to
• 41:20
  Speaker 8: decarbonize things like steel production, for example, or shipping where
• 41:24
  Speaker 8: it's really hard to do electrification.
• 41:27
  Speaker 2: Why do we want hydrogen? It is very expensive to split.
• 41:31
  Speaker 2: It is more expensive if you are going to split
• 41:33
  Speaker 2: a hydrogen and oxygen using renewable energy.
• 41:37
  Speaker 3: So why do we want it?
• 41:38
  Speaker 2: What's the end product? So awesome?
• 41:42
  Speaker 8: Yeah, So we want it, as I've said, in order
• 41:45
  Speaker 8: to reduce emissions. That's the only reason honestly. Today, making
• 41:49
  Speaker 8: green hydrogen, as you said, Alex, is more expensive than
• 41:53
  Speaker 8: making gray hydrogen, and in turn making gray hydrogen is
• 41:56
  Speaker 8: more expensive than using fossil fuels because hydrogen is made
• 41:59
  Speaker 8: gray hydrogen is made from those fossil fuels. So we
• 42:01
  Speaker 8: only use hydrogen in sectors where it is required for
• 42:04
  Speaker 8: the chemical properties of it today, So that's production of fertilizers,
• 42:08
  Speaker 8: things like ammonia NH three. You cannot make NH three
• 42:12
  Speaker 8: without putting H in there.
• 42:13
  Speaker 6: Right.
• 42:14
  Speaker 8: Same goes for all refining. You need hydrogen and for
• 42:18
  Speaker 8: future as I've said, we're going to need it for
• 42:20
  Speaker 8: sectors that are going to be really hard to decarbonize
• 42:24
  Speaker 8: using electrification. For example, it's really hard to run a
• 42:27
  Speaker 8: ship that runs across half the world on batteries. You
• 42:31
  Speaker 8: just don't have enough batteries. Batteries are too heavy, they
• 42:33
  Speaker 8: take up too much space. We need something denser, and
• 42:36
  Speaker 8: one way we could do that, for example, is to
• 42:39
  Speaker 8: combine hydrogen and nitrogen into ammonia, or hydrogen carbon and
• 42:43
  Speaker 8: oxygen into methanol and use those to power the ship
• 42:47
  Speaker 8: instead as a more energy dense fuel.
• 42:50
  Speaker 7: Martin Which countries or which parts of the world are
• 42:53
  Speaker 7: leading in this green hydrogen move.
• 42:57
  Speaker 8: This is a really hard one to say. If you
• 43:00
  Speaker 8: asked people five years ago, they tell you, it's totally
• 43:02
  Speaker 8: Japan that's leading. Japan is the first country that had
• 43:06
  Speaker 8: a hydrogen strategy way back when in twenty fourteen, when
• 43:09
  Speaker 8: nobody has even thought about hygien to the extent that
• 43:12
  Speaker 8: many people are today. But now you could say the
• 43:16
  Speaker 8: real leaders are the US and European Union and its
• 43:21
  Speaker 8: member states. In the US, as you're probably aware, the
• 43:24
  Speaker 8: Inflation Reduction Act was passed back in August twenty twenty two.
• 43:28
  Speaker 8: There were some pretty generous tax credits for the production
• 43:32
  Speaker 8: of green and blue hydrogen, and we're seeing especially the
• 43:36
  Speaker 8: blue hygiene projects in the US now coming through because
• 43:39
  Speaker 8: the economics could actually work out on green. It's a
• 43:42
  Speaker 8: bit more difficult because companies are still waiting on guidance
• 43:46
  Speaker 8: as to the rules under which they could claim these credits.
• 43:49
  Speaker 8: In Europe, there's a lot of excitement. Europe is the
• 43:52
  Speaker 8: one place since probably the most sincere desire to decarbonize
• 43:56
  Speaker 8: and the strongest policies to do that. We have carbon prices,
• 44:00
  Speaker 8: mandates to use hydrogen. There's very few other places where
• 44:03
  Speaker 8: you have actual mandates that require use of hydrogen for
• 44:07
  Speaker 8: for example, shipping or aviation. That's what we're seeing in Europe.
• 44:12
  Speaker 2: They have a question that I keep hearing about is
• 44:14
  Speaker 2: you know, the IRA, for example, did a great job
• 44:17
  Speaker 2: in incentivizing production of it, helping bring down the cost.
• 44:20
  Speaker 2: But where it looks like things are falling short is
• 44:23
  Speaker 2: the demand side. So despite those subsidies, the buyer and
• 44:26
  Speaker 2: the seller costs for hydrogen is still very far apart,
• 44:29
  Speaker 2: and that's creating a difficulty in securing that demand. Where
• 44:32
  Speaker 2: is that gap right now? And how do you see
• 44:34
  Speaker 2: that evolving?
• 44:37
  Speaker 8: Yeah, that's actually the key issue, Alex. You really hit
• 44:41
  Speaker 8: the nail on the head. There's so many projects out there,
• 44:44
  Speaker 8: and we have a database for that at BNF, So
• 44:47
  Speaker 8: for those of you who have access, definitely do come
• 44:49
  Speaker 8: and check it out if you haven't already. We have
• 44:51
  Speaker 8: a database of production projects. So that's all the projects
• 44:55
  Speaker 8: or all the companies with all their projects that would
• 44:57
  Speaker 8: want to produce hydrogen. And we're talking tens of millions
• 45:01
  Speaker 8: of tons, sixty million tons by twenty thirty, So that's
• 45:04
  Speaker 8: compared to hundred that we already make today with the
• 45:06
  Speaker 8: gray hygroens. It's a vast, vast increase that we could
• 45:09
  Speaker 8: see if only there was actually someone who would kindly
• 45:12
  Speaker 8: want to buy that green hydrogen or that blue hydrogen,
• 45:17
  Speaker 8: and why don't they want to buy it because it's expensive,
• 45:20
  Speaker 8: like I've said at the beginning, and what's needed to
• 45:23
  Speaker 8: bridge that well. First, ideally the cost of renewables should
• 45:27
  Speaker 8: come down, and they will be coming down, as benf
• 45:29
  Speaker 8: keeps writing, that's great, because the key input into the
• 45:33
  Speaker 8: production of green hydrogen is the cost of green electricity.
• 45:36
  Speaker 8: Then we need to see the cost of electrolyzers, so
• 45:39
  Speaker 8: that's the machines that split the water into oxygen and hydrogen.
• 45:43
  Speaker 8: They'd need to get cheaper. That's going to happen, but
• 45:47
  Speaker 8: so far we've seen the opposite. The costs have actually
• 45:50
  Speaker 8: gone up. The supply chain issues with hydrogen with electrolyizers
• 45:54
  Speaker 8: have been quite challenging. And finally we need to see policy,
• 45:57
  Speaker 8: and we see a lot of policy on the supply side.
• 46:01
  Speaker 8: So the US, for example, forty five v forty five
• 46:03
  Speaker 8: q credits for the from the IRA for the production
• 46:07
  Speaker 8: of green or blue hydrogen. That's great, but that's probably
• 46:11
  Speaker 8: not enough, maybe enough for blue, but not enough for
• 46:13
  Speaker 8: green to want somebody to buy it. So that's where
• 46:16
  Speaker 8: the European Union comes in with things like quote as
• 46:19
  Speaker 8: mandates that a certain sector must use a certain amount
• 46:22
  Speaker 8: of hydrogen by a certain date. And that's a pretty
• 46:26
  Speaker 8: crude way of enforcing hydrogen demand. And there's many, many
• 46:31
  Speaker 8: pros and cons of that, but that's one way to
• 46:33
  Speaker 8: get it done.
• 46:33
  Speaker 4: All right, Martin, thank you so much for joining us.
• 46:35
  Speaker 7: Martin Tangler, head of hydrogen Research at DNEPP.
• 46:40
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