Latest / Bloomberg Intelligence / Venezuela Bondholders Shouldn't Abet Bad Regime, Hausmann Says

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Venezuela Bondholders Shouldn't Abet Bad Regime, Hausmann Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. It
• 0:31
  Speaker 1: is my honor to bring in Ricardo Houseman, director of
• 0:34
  Speaker 1: the Center for International Development at the Harvard Kennedy School.
• 0:37
  Speaker 1: He also was the head of Planning in Venezuela previously
• 0:42
  Speaker 1: UH and has a really good window into a situation
• 0:45
  Speaker 1: that is devastating to watch unfold. And UH, I was
• 0:49
  Speaker 1: reading through your recent essay for Project Syndicate, which is
• 0:52
  Speaker 1: called the Hunger Bonds, and you're talking about really the
• 0:55
  Speaker 1: ethics of investing in Valis Venezuelan debt at a time
• 1:01
  Speaker 1: of such a humanitarian crisis, and you said, if you
• 1:03
  Speaker 1: are a decent human being, investing in Venezuelan bonds should
• 1:06
  Speaker 1: make you feel mildly nauseous, borrowing phrase from UH former
• 1:10
  Speaker 1: FBI director James Coming. Why, Well, because essentially you have
• 1:15
  Speaker 1: a country that is imploding imports have declined by between
• 1:21
  Speaker 1: two thousand and twelve and two thousand sixteen. There further
• 1:25
  Speaker 1: percent down in two thousand seventeen. That means that there's
• 1:28
  Speaker 1: no food, there's no medicine, there's no intermediate inputs for production,
• 1:33
  Speaker 1: there's no anything. So the economy is imploding. The capital
• 1:38
  Speaker 1: stock of the country is dwindling, it's being you know, yes,
• 1:42
  Speaker 1: But the thing that I'm trying to connect is if
• 1:45
  Speaker 1: a situation is so dire, wouldn't you think that putting
• 1:49
  Speaker 1: more money into it would actually help it? Well, right now,
• 1:55
  Speaker 1: markets think that Venezuela is going to go broke, and
• 1:58
  Speaker 1: so the guield on on Venezuelan bonds is upwards of
• 2:03
  Speaker 1: so markets are pricing in a very very high likelihood
• 2:07
  Speaker 1: of default. The government has decided not to default, and
• 2:11
  Speaker 1: in order not to default, it has compressed imports. So
• 2:14
  Speaker 1: when news comes out that imports are down, bonds rally,
• 2:20
  Speaker 1: which means that the more Venezuela's go hungry, the better
• 2:24
  Speaker 1: you feel about your bonds, because the more dollars are
• 2:26
  Speaker 1: left to service your debt. So that service in Venezuela's
• 2:30
  Speaker 1: costing around fourteen billion dollars and total imports this year
• 2:35
  Speaker 1: are unlikely to reach sixteen billion dollars. So essentially you're
• 2:40
  Speaker 1: you're in order to service the debt, you need not
• 2:43
  Speaker 1: to import food, medicine inputs, and that is what is
• 2:48
  Speaker 1: keeping the government paying the debt. So are you saying
• 2:51
  Speaker 1: that if investors stopped putting money allocating money to Venezuela,
• 2:57
  Speaker 1: that eventually the government wouldn't be able to ring an
• 3:00
  Speaker 1: anything more out of imports and would be forced to default.
• 3:05
  Speaker 1: The yes, that that is that when the markets have
• 3:10
  Speaker 1: closed Venezuela out already. So all we're talking about is
• 3:13
  Speaker 1: trading old debt. So if you hold this old debt,
• 3:17
  Speaker 1: what you're now asking is, so this old debt was
• 3:20
  Speaker 1: issued at the time and the money was wasted, corrupted, etcetera,
• 3:24
  Speaker 1: and got us into this mess. So if you hold
• 3:26
  Speaker 1: Venezuela that you're hoping maybe that a better government comes
• 3:30
  Speaker 1: up and the economy recovers, and the recovery is used
• 3:33
  Speaker 1: not to recover Venezuela and income levels, but to pay you.
• 3:38
  Speaker 1: So you're again placed in a situation where you're in
• 3:42
  Speaker 1: well being, the return on your assets depends on bad
• 3:46
  Speaker 1: things happening to Venezuelans, and you don't want to do that.
• 3:48
  Speaker 1: There is a story on the Bloomberg a couple of
• 3:50
  Speaker 1: months ago talking about how autocratic UH dictatorships end up
• 3:56
  Speaker 1: being fantastic investments for bondholders, and it saying, you know,
• 4:00
  Speaker 1: just because you know, honestly, investing isn't necessarily moral, it's
• 4:04
  Speaker 1: dollars and cents, and these autocratic leaders end up paying well,
• 4:08
  Speaker 1: that that's not really true. I mean, the reason why
• 4:10
  Speaker 1: there's impact investment is because people care about doing well,
• 4:14
  Speaker 1: but they also care about doing good. I mean, would
• 4:16
  Speaker 1: you put money into a company that is selling guns
• 4:19
  Speaker 1: to drug traffickers? Would you invest in in so would
• 4:23
  Speaker 1: you have bought Hitler bonds? So there is we are
• 4:28
  Speaker 1: moral beings and we want to do well, and we
• 4:31
  Speaker 1: also want to do good and and because of that,
• 4:36
  Speaker 1: people choose what they're willing to invest in. You know,
• 4:39
  Speaker 1: it's interesting that this is coming up at a time
• 4:42
  Speaker 1: when emerging markets debt is on fire. There is billion
• 4:45
  Speaker 1: billions of dollars going into emerging markets credit, in particular
• 4:49
  Speaker 1: through funds that seek to track the JP Market Emerging
• 4:52
  Speaker 1: Market Bond Index. And you talk about how even though
• 4:55
  Speaker 1: Venezuela only represents five percent of the index, it accounts
• 4:58
  Speaker 1: for about of the total yield. Uh. You know, so
• 5:01
  Speaker 1: anyone who's going into emerging markets debt right now is
• 5:04
  Speaker 1: contributing to this exactly. And I want, I want to
• 5:07
  Speaker 1: save them. I think that all the other emerging markets
• 5:09
  Speaker 1: are doing fine. I want just to take Venezuela out
• 5:12
  Speaker 1: of the index so people are not forced into buying
• 5:14
  Speaker 1: Venezuelan bonds, so people are not forced into these moral clones. Well,
• 5:18
  Speaker 1: so are there people who are demanding the JP Morgan
• 5:20
  Speaker 1: remove Venezuela debt from this benchmark index that is the
• 5:25
  Speaker 1: gold standard for emerging markets credit investing. Well, I just
• 5:28
  Speaker 1: put it out today, so let's see hear what you know.
• 5:31
  Speaker 1: It's it's it's a tricky thing because at the end
• 5:32
  Speaker 1: of the day, investors are responsible for doing well by
• 5:35
  Speaker 1: their by their clients right now, and and they and
• 5:38
  Speaker 1: you know, the managers don't want to be their their
• 5:42
  Speaker 1: bonus to be dependent on getting the Venezuela called right
• 5:46
  Speaker 1: because so, you know you Venezuela, everybody thought that was
• 5:51
  Speaker 1: going to default. It didn't default, and that was good
• 5:54
  Speaker 1: for the bonds. Why did it not default? Because it's starved.
• 5:57
  Speaker 1: It's people you don't want to be rejoicing in those situations.
• 6:00
  Speaker 1: Thank you so much for joining us. Really an important discussion.
• 6:03
  Speaker 1: Ricardo Houseman is the director of the Center for International
• 6:06
  Speaker 1: Development at Harvard's Kennedy School, which is based in Boston,
• 6:09
  Speaker 1: but he is here in on Bloomberg eleven three oh studio.
• 6:12
  Speaker 1: He also is the former Minister of Planning for Venezuela
• 6:15
  Speaker 1: and former Chief Economists of the INTERN Inter American Development Bank.
• 6:19
  Speaker 1: Really appreciate your comments right now, I want to try
• 6:34
  Speaker 1: and focus where there is a lot going on, which
• 6:36
  Speaker 1: is the G seven meeting that is going on in
• 6:39
  Speaker 1: Sicily this weekend, and we are going to UH here
• 6:43
  Speaker 1: from President Trump as well as other world leaders about
• 6:46
  Speaker 1: issues ranging from trade negotiations, to the to the environment,
• 6:51
  Speaker 1: UH to potentially how to fight terrorism. I want to
• 6:54
  Speaker 1: bring in for some more perspective Arial Cohen, who is
• 6:56
  Speaker 1: a Senior Fellow at the Atlantic Council. He's also director
• 7:00
  Speaker 1: the Center for Energy, Natural Resources and Geopolitics at the
• 7:03
  Speaker 1: Institute for Analysis of Global Security based in Washington, d c. Arial,
• 7:08
  Speaker 1: thank you so much for joining us today. I would
• 7:10
  Speaker 1: love to get your thoughts before we move into what
• 7:12
  Speaker 1: to expect during the G seven summit. What's your evaluation
• 7:16
  Speaker 1: so far President Trump, when he was at NATO and
• 7:20
  Speaker 1: during this world tour, well, let's talk with the good news.
• 7:24
  Speaker 1: The world tour went when went well until he got
• 7:28
  Speaker 1: to Europe. He did well in Saudi Arabia, the historic
• 7:32
  Speaker 1: one hunting and ten billion dollar arms deal hopefully will
• 7:36
  Speaker 1: not hurt our ally. Israel. He did okay in Israel,
• 7:41
  Speaker 1: although there was no clarity on how to proceed on
• 7:46
  Speaker 1: the suggested talks with the Palestinians. The Palestinians are not
• 7:51
  Speaker 1: doing their fair share in terms of stopping incitement to
• 7:56
  Speaker 1: violence and controlling terror. But when he hit Europe, the
• 8:00
  Speaker 1: rock UH don'ald Tom has very strong ideas about how
• 8:05
  Speaker 1: our allies should behave. I was reading his book, The
• 8:11
  Speaker 1: Art of the Deal that he co authored, and he
• 8:15
  Speaker 1: is clearly even back then, So that's UH what thirty
• 8:20
  Speaker 1: years ago believe that the Japanese and the Europeans are
• 8:25
  Speaker 1: not paying UH their fair shriff for defense, that they
• 8:28
  Speaker 1: have unequal trade deals that have heard of Americans. But
• 8:33
  Speaker 1: with all that, NATA is one of the most successful
• 8:37
  Speaker 1: military and political alliances of his of all the history. UH.
• 8:42
  Speaker 1: NATA has been in existence since nine UH and UH
• 8:47
  Speaker 1: it provided a lot of security. It's not rent a cop.
• 8:51
  Speaker 1: It's not that you pay a monthly fee and we
• 8:54
  Speaker 1: provide you with our missile defenses or our soldiers. So
• 8:59
  Speaker 1: they there's a very steep learning curve in the Trump
• 9:03
  Speaker 1: White House. And yes, do you think that anything that
• 9:06
  Speaker 1: he said jeopardized that very strong alliance. I just came
• 9:10
  Speaker 1: back from Europe. I was in a high level conference
• 9:12
  Speaker 1: with the Germans UH, primarily looking at frustra there's a
• 9:15
  Speaker 1: lot of disappointment now. I would say there was a
• 9:19
  Speaker 1: lot of disappointment with some of Barack Obama's foreign policy,
• 9:24
  Speaker 1: including in the Middle East. So uh, you know, we're
• 9:28
  Speaker 1: grown ups. It's not very easy to satisfy each other
• 9:33
  Speaker 1: all the time. But I would not push the Germans
• 9:37
  Speaker 1: and the other Europeans in open forms as harshly as
• 9:42
  Speaker 1: Donald Trump is doing right now. But I think his
• 9:46
  Speaker 1: main issue that they need UH to pay in more
• 9:50
  Speaker 1: into defense, that the fair the fair share UH is
• 9:54
  Speaker 1: not there. You know, they're not paying enough for for
• 9:57
  Speaker 1: the defense. That is a valid point, very valid. Okay, Well,
• 10:02
  Speaker 1: Ariel moving on to the summit that is upcoming, the
• 10:05
  Speaker 1: G seven summit that is happening in Sicily this year.
• 10:08
  Speaker 1: Where world leaders, major world leaders get together. Not Russia, however,
• 10:12
  Speaker 1: of course, Um, what do you think is the most
• 10:15
  Speaker 1: important thing that will be discussed and what do you
• 10:18
  Speaker 1: expect and come out of this meeting? I think European
• 10:22
  Speaker 1: grows is anemic. They will be talking about how to
• 10:27
  Speaker 1: get Europe beyond their one point nine grows. The global
• 10:31
  Speaker 1: growth is projected three point five, which is okay, but
• 10:35
  Speaker 1: you know, we probably could do better in the emerging markets.
• 10:38
  Speaker 1: I don't think they have a lot in terms of solutions.
• 10:42
  Speaker 1: I think that between the Europeans will be a talk
• 10:45
  Speaker 1: about how to heal Brexit. There are some harsh statements
• 10:48
  Speaker 1: on both sides. The Europeans said, you owe us what
• 10:52
  Speaker 1: two billions? Uh? The Brits retaliated and responded with their number.
• 11:00
  Speaker 1: But overall, as usual, interest rate, deficit, taxation, things like that.
• 11:07
  Speaker 1: They are always on the G seven agenda. You're absolutely right,
• 11:10
  Speaker 1: Russia is not there. Why Russia was a part of
• 11:13
  Speaker 1: what used to be G eight. Russia is not there
• 11:16
  Speaker 1: because of their aggression in Ukraine. So do you think
• 11:18
  Speaker 1: that Russia is going to be a conversation That is
• 11:21
  Speaker 1: going to be a difficult one for President Trump to
• 11:23
  Speaker 1: wait into the Europeans indicated that with the exception of
• 11:27
  Speaker 1: the sanctions, that they differ on Russia. But Europe is split.
• 11:32
  Speaker 1: As I said, I just came back from Europe. There
• 11:35
  Speaker 1: was I was a part of the conversation on Russia
• 11:39
  Speaker 1: between US and Germany. UM. I think if Chancellor Merco
• 11:44
  Speaker 1: wins re election as is widely expected, not just the
• 11:49
  Speaker 1: sanctions will continue. The perception that Russia is a threat
• 11:53
  Speaker 1: to Europe will persist in Europe, and the Trump administration
• 11:58
  Speaker 1: is split. The leaders of our defense and foreign policy
• 12:03
  Speaker 1: establishments understand the Russia is a threat, with the White
• 12:07
  Speaker 1: House maybe not so much so. One other point that
• 12:11
  Speaker 1: is probably going to come up and loom large at
• 12:14
  Speaker 1: the G seven summit is the environment and the Paris
• 12:18
  Speaker 1: Climate Accord and environmental protections. What do you think will
• 12:22
  Speaker 1: come out with respect to that? Uh? This is sixty
• 12:26
  Speaker 1: four billion dollar questions because the Trump White House is
• 12:32
  Speaker 1: very climate skeptic. Uh. They are thinking seriously about pooling, um,
• 12:38
  Speaker 1: the US out of the Paris Accords. Of course, the
• 12:41
  Speaker 1: accords of volunteer accords, and the question is how enforceable
• 12:47
  Speaker 1: are they? And I think the big divide among other
• 12:51
  Speaker 1: things among besides the trade. Besides the Europeans not paying
• 12:56
  Speaker 1: their fair share for defense is also climate and I
• 13:00
  Speaker 1: would hate to see our relationship with Europe deteriorating further.
• 13:05
  Speaker 1: But Mr Trump and his electorate have a very strong
• 13:10
  Speaker 1: view on climate which is very different than our bi
• 13:15
  Speaker 1: coastal elites. The West Coast and the East coast elites
• 13:19
  Speaker 1: are of course pro climate change and recognize it as
• 13:22
  Speaker 1: a major issue. And so do the European elite. So
• 13:26
  Speaker 1: this is one of the serious folk lins when we're
• 13:29
  Speaker 1: not staring into the abyss of the threat of the
• 13:34
  Speaker 1: radical Islamist terrorism. Alright, real quick, Ariel, On a scale
• 13:37
  Speaker 1: from one to ten, how would you create his international
• 13:39
  Speaker 1: trip so far? Uh? Saudi Arabia, A, Israel B plus Europe.
• 13:45
  Speaker 1: See Ariel Coh and thank you so much for joining us.
• 13:48
  Speaker 1: Aero Cohen is Senior Fellow at the Atlantic Council. Also
• 13:52
  Speaker 1: he is the director of the Center for Energy, Natural
• 13:54
  Speaker 1: Resources and Geopolitics at the Institute for Analysis of Global
• 13:59
  Speaker 1: Security in Washington, d C. We want to take a
• 14:11
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• 14:39
  Speaker 1: at Bloomberg dot com slash lens. Right now, I want
• 14:51
  Speaker 1: to talk about getting to the beach or the pub,
• 14:54
  Speaker 1: particularly in a car or a truck or perhaps a
• 14:57
  Speaker 1: I don't know, a diesel train after they exist, I
• 15:00
  Speaker 1: don't know. Anyway, I want to bring in someone who
• 15:03
  Speaker 1: knows a lot more about all things oil, Vincent Piazza.
• 15:06
  Speaker 1: He is a senior equity energy Analystic Global sector leader
• 15:10
  Speaker 1: for Bloomberg Intelligence, UH focusing on oil, focusing on Opaque,
• 15:15
  Speaker 1: which just is completing their meeting and UH yesterday create
• 15:20
  Speaker 1: values fell out of bed? What happened? So? If I
• 15:23
  Speaker 1: recall my Jesuit high school English class, what's the Shakespeare play?
• 15:28
  Speaker 1: Much Ado about? Nothing? So look, I think in order
• 15:32
  Speaker 1: to extend confidence for price there needed to be something
• 15:38
  Speaker 1: more than just the extension of the cuts um they needed.
• 15:42
  Speaker 1: I think what the market was looking for. We're deeper cuts. Right,
• 15:46
  Speaker 1: you can curtail production, but actually exports rose higher throughout
• 15:53
  Speaker 1: this period of time, So you still had this overflow
• 15:57
  Speaker 1: of petroleum out there in the marketplace. So if I
• 16:00
  Speaker 1: think about just here in the US, still a major importer,
• 16:05
  Speaker 1: you had uh patrolling, We had crude oil volumes, crude
• 16:08
  Speaker 1: oil stockpiles quite high, roughly above the five year average.
• 16:14
  Speaker 1: That's over a hundred million barrels of extra storage that
• 16:18
  Speaker 1: we need to flush out. And so you have this
• 16:21
  Speaker 1: range bound market. You know, OPEC during the during their
• 16:26
  Speaker 1: first agreement to curtail output last year, set a floor
• 16:30
  Speaker 1: for US and that floor is round forty. Okay, what
• 16:34
  Speaker 1: US output and the ascendency of US output does is
• 16:38
  Speaker 1: it puts a ceiling on that price rise because now
• 16:42
  Speaker 1: those barrels can flow out into the global marketplace as well.
• 16:46
  Speaker 1: And we've heard from four Q earnings calls and one
• 16:49
  Speaker 1: Q earnings calls management teams suggesting that in that fifty
• 16:54
  Speaker 1: dollar range they can push on that accelerator, complete those wells,
• 16:59
  Speaker 1: and bring that put online. In that sixty range, we're
• 17:03
  Speaker 1: talking about a resurgence of growth and new wells being drilled.
• 17:07
  Speaker 1: So there you have that price range. You didn't really
• 17:10
  Speaker 1: hear anything different the last day or so about deepening
• 17:14
  Speaker 1: cuts to help push well dilution of the although stock piles,
• 17:20
  Speaker 1: both in the US and also more broadly, just to
• 17:23
  Speaker 1: put some numbers to this, So on on Wednesday, the
• 17:28
  Speaker 1: price of crewed was fifty one, a little more than
• 17:30
  Speaker 1: fifty one barrel, uh next day tumbling four point almost
• 17:35
  Speaker 1: to forty a barrel in the wake of the expected
• 17:42
  Speaker 1: prolonged output cuts, but not necessarily deeper output cuts. I mean,
• 17:46
  Speaker 1: could you argue that if they had had deeper output
• 17:51
  Speaker 1: cuts that I wouldn't have done anything because the higher
• 17:53
  Speaker 1: prices go, the more shale producers just stick on the accelerator.
• 17:57
  Speaker 1: And that's the conundrum. What's the eggit strategy? Right? So
• 18:00
  Speaker 1: this this output cut, this this this strategy is likely
• 18:04
  Speaker 1: more transitory. Um it's been engineered to prosecute other means.
• 18:09
  Speaker 1: So for example, Saudias I p O okay, and boosting
• 18:14
  Speaker 1: the price of oil, which boost sentiment, which would boost
• 18:17
  Speaker 1: the reception for that I P O. But you're still
• 18:21
  Speaker 1: in this range, and we've talked about this for several months,
• 18:24
  Speaker 1: several quarters every time month on the show. It's consistent. Right,
• 18:27
  Speaker 1: You have this tight range because you have this output
• 18:30
  Speaker 1: from the US that can respond more quickly than perceived
• 18:34
  Speaker 1: to any price signal. So what could break us out
• 18:38
  Speaker 1: of this range? Because you know, we remember running into
• 18:40
  Speaker 1: you getting a cup of coffee and you said, you
• 18:43
  Speaker 1: know a lot of people haven't lived through a true cycle.
• 18:45
  Speaker 1: This is not the cycle high and lower in a range,
• 18:49
  Speaker 1: but it does break out eventually and it can go
• 18:51
  Speaker 1: way higher or way lower. And it's it's demand centric.
• 18:54
  Speaker 1: It's sustained demand centric. You know the Chinese filling their
• 18:58
  Speaker 1: spr that is on a sustained demand trajectory. Right, And
• 19:02
  Speaker 1: if you think about the broader scope, if you think
• 19:05
  Speaker 1: about car efficiencies, um, better better mileage, right, that reduces
• 19:10
  Speaker 1: that that demand cadence. So in a way, so if
• 19:14
  Speaker 1: I'm hearing you correctly, given that the move is toward
• 19:18
  Speaker 1: electric vehicles, is towards being less uh less focused on
• 19:22
  Speaker 1: oil as a use for and a motive of getting energy.
• 19:27
  Speaker 1: Given that, I mean, isn't demand only going to go
• 19:30
  Speaker 1: down from here? I would say the demand growth will
• 19:33
  Speaker 1: be more curtailed, and so that price range will be more,
• 19:38
  Speaker 1: will be tighter and to the longer and longer, and
• 19:41
  Speaker 1: likely to so lower relative to where we were in
• 19:45
  Speaker 1: two thousand and fourteen and where we were in two
• 19:47
  Speaker 1: thousand and seven relative to that period, Yes, it will
• 19:51
  Speaker 1: be lower, but that but that tighter range, that forty
• 19:53
  Speaker 1: is safety tight range really speaks to the paradigm shift
• 19:57
  Speaker 1: that we've been seeing so real quick, I know we
• 20:00
  Speaker 1: are heading into Memorial Day weekend, and does does gas
• 20:04
  Speaker 1: demand really pick up that much? So again we talk
• 20:07
  Speaker 1: about this this this this concept of more fuel efficient vehicles, right,
• 20:12
  Speaker 1: and if you just think about the mild winter and
• 20:15
  Speaker 1: the mount winter, actually we've seen of vehicle miles traveled
• 20:20
  Speaker 1: tracking above the five year high. Okay, I'm sorry the
• 20:24
  Speaker 1: five year average. Right, so more folks in the road. Now,
• 20:27
  Speaker 1: consumption for the summertime will likely rise, maybe about one percent,
• 20:32
  Speaker 1: but you have many more vehicles on the road, So
• 20:35
  Speaker 1: that does speak to the fuel efficiency. Now that mix,
• 20:38
  Speaker 1: and I talked to our autos analyst, Kevin Tynan, and
• 20:42
  Speaker 1: he suggests that that new sales mix, that new vehicle
• 20:45
  Speaker 1: mix is tilted more toward the light light truck side,
• 20:50
  Speaker 1: so there could be some additional fuel consumption, but again
• 20:54
  Speaker 1: relative to where you were in prior periods, it's a
• 20:57
  Speaker 1: much more fuel efficient vehicle, and so consumption is likely
• 21:01
  Speaker 1: not to budge that much, but it should be higher
• 21:04
  Speaker 1: relative year a weear just because the mild winter that
• 21:06
  Speaker 1: the mild winter we had, and also the outlook for
• 21:08
  Speaker 1: the summertime. Vincent Piazza, thank you so much for joining us.
• 21:11
  Speaker 1: Always a wonderful thing to talk with you. Vincent Piazza,
• 21:14
  Speaker 1: senior equity energy analysts and global sector leader for Bloomberg Intelligence. Well,
• 21:30
  Speaker 1: you know, I've got to say I was kind of
• 21:32
  Speaker 1: surprised to realize just how big the market for auctioning
• 21:36
  Speaker 1: off heavy industrial equipment is. Robbie Telegram joins us now.
• 21:40
  Speaker 1: He's chief executive officer for Richie Brothers, which is the
• 21:44
  Speaker 1: leading auctioneer of this equipment UH in the world. Robbie
• 21:49
  Speaker 1: joins us now from Burnaby, Canada, which is a suburb
• 21:52
  Speaker 1: of Vancouver. Robbie, thank you so much for joining us. First, congratulations,
• 21:56
  Speaker 1: I know that you just recently announced that you would
• 22:00
  Speaker 1: be going ahead and acquiring Iron Planet for almost a
• 22:03
  Speaker 1: billion dollars eight point five million dollars UH. And now
• 22:07
  Speaker 1: that you rank is a fifty tough fifty e commerce company.
• 22:10
  Speaker 1: I would love you just give me a sense of
• 22:12
  Speaker 1: how big this market is for auctioning off heavy industrial equipment. Lisa,
• 22:16
  Speaker 1: thank you so much. The auction market is about three
• 22:21
  Speaker 1: hundred sixty billion dollars globally and it encompasses um sectors
• 22:28
  Speaker 1: such as construction, transportation which is over their own trucks, agriculture,
• 22:32
  Speaker 1: oil and gas, and mining. And there are different channels
• 22:35
  Speaker 1: through which used equipment and the three and sixty billion
• 22:39
  Speaker 1: is used equipment that gets sold through these channels, so
• 22:42
  Speaker 1: very large. So how do these how do these auctions work?
• 22:46
  Speaker 1: I mean I was joking with with my producer earlier
• 22:48
  Speaker 1: that I think of like pond stars, you know, people
• 22:50
  Speaker 1: coming with their tractors up to a of to of
• 22:53
  Speaker 1: to a window and saying, hey, you know, how much
• 22:55
  Speaker 1: can you get for this? But has it work? Really? No,
• 23:00
  Speaker 1: think it's actually a little bit more sophisticated than that.
• 23:03
  Speaker 1: So we um uh Richie Brothers has been the pioneer
• 23:07
  Speaker 1: in what is called us an unreserved auction, which is
• 23:09
  Speaker 1: that everything will sell no matter what. And we have
• 23:14
  Speaker 1: auction yards around the world. We have forty four yards
• 23:17
  Speaker 1: and these auctions are unique in the sense that they're
• 23:19
  Speaker 1: both live as well as online, so they integrated and
• 23:24
  Speaker 1: people can call from all over the world or book
• 23:27
  Speaker 1: our make purchases online as well as bid on site.
• 23:33
  Speaker 1: So we've got that unique integrated model, and we merchandise
• 23:37
  Speaker 1: our equipment on our yards. It's like a Picasso picture.
• 23:40
  Speaker 1: Are people do a beautiful job. There's like ten thousand pieces,
• 23:44
  Speaker 1: So think about it as dozers and tractors all over
• 23:48
  Speaker 1: the yard and buyers, potential buyers come kick that ours
• 23:51
  Speaker 1: look at the equipment. We also provide information so people
• 23:55
  Speaker 1: can look at it online and then an auctioneer m
• 23:59
  Speaker 1: much like any other UH industry, will auction off those
• 24:02
  Speaker 1: items and we could sell potentially a three million dollar
• 24:04
  Speaker 1: crane in less than sixty seconds. Wow. So what is
• 24:08
  Speaker 1: the most popular item to get sold? Well, construction is
• 24:14
  Speaker 1: our sweet spot. We do things like excavators and UH wheeloaders,
• 24:21
  Speaker 1: UH dozers, so the gamut of it and all things
• 24:25
  Speaker 1: that going to really bridge building, roadworks and so in
• 24:30
  Speaker 1: many ways we think of Richie Brothers as enabling building
• 24:32
  Speaker 1: of the world, but also with agricultural equipment farming. So
• 24:37
  Speaker 1: so it's really a company that we feel very good
• 24:39
  Speaker 1: about that our people are enabling commas. So I'm trying
• 24:43
  Speaker 1: to understand whether your business stands to gain during periods
• 24:48
  Speaker 1: of ramped up infrastructure or if, uh, you know, when
• 24:52
  Speaker 1: when your company does best. We're part of the cycle.
• 24:56
  Speaker 1: But interestingly, Lisa, it's we do well in good times
• 25:01
  Speaker 1: and do well not so good times as well. And
• 25:04
  Speaker 1: in good times when the economy is doing well, when
• 25:06
  Speaker 1: there's infrastructure spending, new equipment production is at a peak
• 25:10
  Speaker 1: and people like to buy new. Eventually that convert gets
• 25:14
  Speaker 1: converted to used equipment, so we benefit from that. When
• 25:17
  Speaker 1: times like we had the oil and gas crisis last
• 25:20
  Speaker 1: few years, we were the beneficiaries because the people get
• 25:24
  Speaker 1: dislocated and they want to sell their equipment, and we
• 25:29
  Speaker 1: then are able to help our customers dispose of their
• 25:33
  Speaker 1: equipment and get the best values. And we get the
• 25:35
  Speaker 1: best best values because of our knowledge of pricing. Were
• 25:39
  Speaker 1: known as the foremost authority or used equipment pricing, and
• 25:42
  Speaker 1: that helps us get the best deals. Despite the fact
• 25:45
  Speaker 1: that we're an unreserved auction Who are the sellers. The
• 25:49
  Speaker 1: sellers are the majority for Richie Brothers end users. These
• 25:53
  Speaker 1: are people who are general contractors who might be in
• 25:56
  Speaker 1: bridge building, roadworks. So the s are people that are
• 26:01
  Speaker 1: entrepreneurs and we have tremendous respect for them. Many of
• 26:04
  Speaker 1: them have grown with us and we've grown with them.
• 26:07
  Speaker 1: Say yeah, I'm just trying to understand why they want
• 26:10
  Speaker 1: to sell their equipment, right, I mean, like, what would
• 26:12
  Speaker 1: drive them to have too much and then I don't
• 26:14
  Speaker 1: want to offload some of it? Well, I think UM
• 26:16
  Speaker 1: contractors like to optimize their fleets. So after a certain
• 26:21
  Speaker 1: number of hours, or let's say the equipment is three
• 26:23
  Speaker 1: years old, they want to get in new equipment. Or
• 26:26
  Speaker 1: they've finished a job and there's a lot between the
• 26:28
  Speaker 1: next job, so they don't want to build up inventories.
• 26:31
  Speaker 1: So that's why they want to dispose it off So
• 26:34
  Speaker 1: it's replacement, and you know they can also take it
• 26:37
  Speaker 1: into a dealer and trade it in. But Richie Brothers
• 26:40
  Speaker 1: has trusted relationships and because of our ability to give
• 26:43
  Speaker 1: them great values, they come to us. Thank you so
• 26:47
  Speaker 1: much for joining me. It's a fascinating industry and one
• 26:50
  Speaker 1: that is much bigger than I had imagined it to
• 26:52
  Speaker 1: be three and sixty billion dollars globally. Rabbi Telegram. He
• 26:56
  Speaker 1: is the chief executive officer of Richie Brothers. Coming to
• 27:00
  Speaker 1: us from Burnaby, Canada, that is a suburb of Vancouver,
• 27:03
  Speaker 1: and Richie Brothers just got clearance from the Department of
• 27:07
  Speaker 1: Justice for their seven fifty eight point five million dollar
• 27:10
  Speaker 1: acquisition of Iron Planet uh and it is one of
• 27:13
  Speaker 1: the top fifty e commerce companies in the world. Really
• 27:16
  Speaker 1: interesting industry. Thanks for listening to the Bloomberg P and
• 27:24
  Speaker 1: L podcast. You can subscribe and listen to interviews at
• 27:27
  Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm
• 27:31
  Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on
• 27:35
  Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You
• 27:38
  Speaker 1: can always catch us worldwide on Bloomberg Radio.