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China's Didi Crackdown, Controlling Data · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Well, first it was
• 0:22
  Speaker 1: Ali Baba, Jack Mars Ali Baba and his aunti financial
• 0:26
  Speaker 1: Chinese regulators blocking that I p O, sending shivers through
• 0:30
  Speaker 1: the big Chinese technology sector. Then d D China's crackdown
• 0:33
  Speaker 1: on the ride hailing service UM just days after d
• 0:37
  Speaker 1: D went public again in the US, really sending again
• 0:42
  Speaker 1: chills through the entire tech sector, particularly those Chinese domacile
• 0:46
  Speaker 1: companies that are listed in the West. And people are
• 0:48
  Speaker 1: really trying to get a sense of what is behind
• 0:51
  Speaker 1: the Chinese government and their crackdown seemingly on these companies. Yeah, absolutely, um,
• 0:57
  Speaker 1: you know, really getting you know, list in the West.
• 1:01
  Speaker 1: So we have questions about anything China, we go to
• 1:04
  Speaker 1: Leland Miller. He's the CEO of China Beach Book International.
• 1:07
  Speaker 1: Leland Again, at first I thought it was just Jack
• 1:09
  Speaker 1: mob mismanaging or misreading his relationship with the Chinese regulators.
• 1:14
  Speaker 1: But it seems to be something much broader than that.
• 1:16
  Speaker 1: What's going on. Well, that's the interesting thing about this issue.
• 1:20
  Speaker 1: You've got a whole bunch of different sub jobs playing
• 1:23
  Speaker 1: out across the Chinese text fhere and and the listing
• 1:27
  Speaker 1: the listing universe. We have jack ma and and financial
• 1:31
  Speaker 1: and you've got all these stories that's developing on DED
• 1:34
  Speaker 1: and how they ignored regulators. I think the broader story
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  Speaker 1: here is that China is really forcing a paradigm shift.
• 1:43
  Speaker 1: There's a lot of worry that these these firms are
• 1:45
  Speaker 1: going to go list abroad and they're going to be
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  Speaker 1: subject to US rules or foreign rules, and they're not
• 1:50
  Speaker 1: going to be safeguarding their data which should be in
• 1:53
  Speaker 1: China and subject to Chinese rules. So what what Beijing
• 1:56
  Speaker 1: is doing right now is in four seeing Beijing's view
• 2:01
  Speaker 1: on this this these data are are these are Chinese companies,
• 2:05
  Speaker 1: this will be Chinese data, this will be stored in China,
• 2:08
  Speaker 1: and uh, I think this is this is finally the
• 2:10
  Speaker 1: lesson that that foreign investors need to hear in terms
• 2:13
  Speaker 1: of realizing that what the Chinese government has been saying
• 2:16
  Speaker 1: it's real, they mean what they're saying, and that they're
• 2:18
  Speaker 1: real long term implications here. Yeah, to me, it makes
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  Speaker 1: perfect sense. I mean, if I were China, I feel
• 2:26
  Speaker 1: like I would do it too. If I were the US,
• 2:29
  Speaker 1: I would wonder what what to do about this. UM.
• 2:31
  Speaker 1: We had a great Bloomberg story overnight that UM showed
• 2:36
  Speaker 1: somebody has been circulating a couple of charts illustrating traffic
• 2:41
  Speaker 1: at the Ministry of Public Security was really busy on
• 2:44
  Speaker 1: a certain day while UM the Anti Corruption Agency wasn't
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  Speaker 1: using any cars. And it just flipped the switch for me.
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  Speaker 1: You can use big data to really track some stuff
• 2:55
  Speaker 1: that gets that that that the country might want to
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  Speaker 1: keep secret. You know, not just with DED but also
• 3:01
  Speaker 1: probably you can do the same with TikTok. You know
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  Speaker 1: where all the teenagers are, what they're doing, you know
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  Speaker 1: what they're buying what It just seems like you would
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  Speaker 1: want to get a handle on this and not let
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  Speaker 1: foreign investors access it, right And and you know, when
• 3:17
  Speaker 1: you're talking about big data, there are insights you can
• 3:20
  Speaker 1: glean from big data, and then there are ways to
• 3:23
  Speaker 1: use data to influence certain populations. That's of course what
• 3:27
  Speaker 1: we were talking about with TikTok the potential there for
• 3:29
  Speaker 1: them to send political messages subtenly or not through into
• 3:32
  Speaker 1: the into the Western environments. But yeah, look the risk
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  Speaker 1: with big data are are just developing, and China is
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  Speaker 1: very cognizant of what it doesn't want to be, uh,
• 3:43
  Speaker 1: you know, a face that doesn't want to be showing
• 3:45
  Speaker 1: the rest of the world. So so again, this this
• 3:47
  Speaker 1: is just a gigantic issue going forward. So Leland, you know,
• 3:50
  Speaker 1: we love to have you acause you help us really
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  Speaker 1: see the big picture as it relates to US and
• 3:55
  Speaker 1: China relations as we pull back here and think about it.
• 3:58
  Speaker 1: Is this just, guess, another example of a building tech
• 4:03
  Speaker 1: cold war between the US and China. Yeah. Look, every
• 4:08
  Speaker 1: time anyone uses a term like that, there's a thousand
• 4:11
  Speaker 1: academics that rush in and say, no, no, look, it's
• 4:13
  Speaker 1: not a cold war. It's different than the last one,
• 4:15
  Speaker 1: you know, decoupling. There's not a real US China financial
• 4:19
  Speaker 1: decoupling and the broadest sense. But sure, I mean, look,
• 4:21
  Speaker 1: if you're if you're just trying to get an understanding
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  Speaker 1: of directionality here, yes, you're seeing all these uh you know,
• 4:27
  Speaker 1: you're seeing this, this this this cold war esque environment
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  Speaker 1: developed and you are seeing some elements of financial decoupling.
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  Speaker 1: The US has an enormous amount of leverage, particularly because
• 4:37
  Speaker 1: Chinese companies like the list in the US, and it
• 4:39
  Speaker 1: has used that leverage, not not always and not enough,
• 4:43
  Speaker 1: you know, in the case of audits, for instance, but
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  Speaker 1: it is used for for its compliance regime to be
• 4:49
  Speaker 1: the default. And what China is saying is no, our
• 4:51
  Speaker 1: companies will not be subject to that. They will be
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  Speaker 1: subject to a Chinese compliance regime overall at the top layer.
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  Speaker 1: And the problem with this is it's not entirely clear
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  Speaker 1: that a lot of companies who who operate in China
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  Speaker 1: and the United States and other places can actually adhere
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  Speaker 1: to the law that is both Chinese law and the
• 5:10
  Speaker 1: U s law. Something has to give, and it's not
• 5:12
  Speaker 1: clear at all what that's going to be. You know,
• 5:16
  Speaker 1: this all happened right around the same time we saw
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  Speaker 1: yield start to um drop in the US for six
• 5:24
  Speaker 1: days in a row, seven days in a row, eight
• 5:25
  Speaker 1: days in a row. And then Jim O'Neill was on
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  Speaker 1: Bloomberg Television I think it was yesterday morning, telling Francine
• 5:32
  Speaker 1: Lacroix that um that China is really the catalyst for
• 5:38
  Speaker 1: the flight to safety, maybe not the data issue or
• 5:43
  Speaker 1: the d D issue specifically, but concerns about growth, concerns
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  Speaker 1: about what's happening post one year anniversary, Um, what's going
• 5:51
  Speaker 1: on there? Do do we do? We do? We know
• 5:54
  Speaker 1: enough about Chinese growth and how strong it is the
• 5:57
  Speaker 1: recovery from COVID. Sure, we know a lot about it,
• 6:03
  Speaker 1: Chinese growth. And the problem is that not enough people
• 6:05
  Speaker 1: are listening and you know a lot about it. We
• 6:07
  Speaker 1: don't know. That's why we have you on. Well, you know,
• 6:10
  Speaker 1: look the the issues since China emerged, you know that
• 6:13
  Speaker 1: with with with quotations around emerged from from the coronavirus
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  Speaker 1: uh and and and it's you know, into this very
• 6:18
  Speaker 1: impressive recovery was that Beijing announced this recovery as way
• 6:24
  Speaker 1: more intense than it actually was. They did a great job,
• 6:27
  Speaker 1: that did better anyone else. That's fine, but it was
• 6:29
  Speaker 1: never a soaring recovery. What they did is pull growth
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  Speaker 1: forward from one and announced year and year growth and
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  Speaker 1: basically signal that there is a return to normalcy because
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  Speaker 1: the party conquered the virus. And what the real story
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  Speaker 1: was is that yes, they got stimulus out there and
• 6:44
  Speaker 1: they did a good crackdown to to to take out outbreaks,
• 6:48
  Speaker 1: but there was never a durable recovery. On the consumption side,
• 6:51
  Speaker 1: services has been treading water. Retail has been doing very poorly.
• 6:55
  Speaker 1: Consumption more broadly has been doing very poorly, particularly in
• 6:58
  Speaker 1: the latest China Beja book data. Our credit data are
• 7:02
  Speaker 1: shockingly tight right now. You know, our our investment data down.
• 7:06
  Speaker 1: So yes, he were seeing some of these numbers early
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  Speaker 1: on that suggested that, you know, China's back. China's not
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  Speaker 1: back in the sense that it it's where it was before.
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  Speaker 1: And now you're seeing people finally get the worries and
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  Speaker 1: realize that, look, getting up factories up and running and
• 7:20
  Speaker 1: exports up and running is good, but I's not sustainable
• 7:23
  Speaker 1: if they can't get the consumption inside of the economy
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  Speaker 1: back working again. This is why it's great to get
• 7:28
  Speaker 1: you on the program, Leland. We should have you on
• 7:30
  Speaker 1: more often because I think you know, for for a while,
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  Speaker 1: markets kind of lost sight um the last few weeks,
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  Speaker 1: the last few months of what was going on in China,
• 7:39
  Speaker 1: and then all of a sudden got wind of it,
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  Speaker 1: and as a result, we saw a tenure yield um
• 7:45
  Speaker 1: in US treasuries at so Leland. Miller is the CEO
• 7:49
  Speaker 1: of China beige Book International, talking to us about the
• 7:53
  Speaker 1: big data, the control of big data, and UM the
• 7:57
  Speaker 1: growth situation post pandemic. We have been asking I've been
• 8:05
  Speaker 1: asking the same question for days and days and days.
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  Speaker 1: And I know that we've seen things turn around a
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  Speaker 1: little bit now, but Paul, treasuries are still very Yeah,
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  Speaker 1: and in the ten year I mean, yes, it's a
• 8:20
  Speaker 1: bounce back from yesterday. We were down. What was the
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  Speaker 1: lowest we hit? Like one was the body tick UM.
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  Speaker 1: In any case, it's still a conundrum to me. Just heard, uh,
• 8:29
  Speaker 1: just heard Muhammad al Arian talk about it. Let's bring
• 8:32
  Speaker 1: in Jordan Jackson to ask him. He's vice president and
• 8:34
  Speaker 1: global market strategist for JP Morgan Asset Management. Jordan's you know,
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  Speaker 1: I don't just ask these questions. I was up past
• 8:43
  Speaker 1: midnight reading people's theories online, not just you know, crazy
• 8:47
  Speaker 1: people on Reddit, but you know smart market technicians. I
• 8:52
  Speaker 1: still don't get it. It doesn't seem to jibe with
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  Speaker 1: UM a view that the economy is strong and picking
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  Speaker 1: up and we're going to see real growth for the
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  Speaker 1: next couple of years. Yeah, it's it's I if anyone
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  Speaker 1: tells says that they are absolutely a hundred percent accurate,
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  Speaker 1: and why yields are where they are, I think, I
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  Speaker 1: think that's a long shot. But I think there's a
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  Speaker 1: confluence of things that are happening that are causing or
• 9:19
  Speaker 1: that have caused this this reversal in yields. And you know,
• 9:23
  Speaker 1: one is the supply side of the equation. If we
• 9:26
  Speaker 1: think about what's happened over pretty much the course of
• 9:29
  Speaker 1: the first half of the year, you've seen a significant
• 9:32
  Speaker 1: draw down in the Treasury General Account. So the Treasury
• 9:36
  Speaker 1: Department has not been funding additional fiscal stimulus by way
• 9:40
  Speaker 1: of issuing new treasury bonds. It's by way of drawing
• 9:43
  Speaker 1: down the Treasury General the Treasury General account. And what
• 9:47
  Speaker 1: that does is that increases bank reserves in the system,
• 9:50
  Speaker 1: just that mechanical aspect. And so what we actually have
• 9:54
  Speaker 1: seen is, you know, from from banks. You know, as
• 9:57
  Speaker 1: as reserves have increased in the banking system, that money
• 10:00
  Speaker 1: it's got to find itself somewhere. Typically it finds its
• 10:02
  Speaker 1: way at the front end of the curve. But what
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  Speaker 1: we have been observing more recently is that those flows
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  Speaker 1: have actually been making their way to the back end
• 10:09
  Speaker 1: of the curve as well. So there's there's this have
• 10:11
  Speaker 1: been some strong demand from banks as well as from
• 10:13
  Speaker 1: from foreign investors as well. I talked about how the
• 10:16
  Speaker 1: rolldown of the treasury general account at the same time
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  Speaker 1: the FED is still purchasing eighty billion dollars a month
• 10:23
  Speaker 1: and treasuries. You've actually seen net negative supply of treasury
• 10:26
  Speaker 1: issuance come to the market as well. So you can
• 10:29
  Speaker 1: sort of paint yourself with supply and demand demand picture
• 10:32
  Speaker 1: in which you've got potentially demand outpacing pacing supply that's
• 10:36
  Speaker 1: put down with pressure and yield. I think there was
• 10:39
  Speaker 1: sort of a self fulfilling prophecy to the first half
• 10:41
  Speaker 1: of the first quarter of the year that yields were
• 10:43
  Speaker 1: going to rise in the back half. Growth is going
• 10:45
  Speaker 1: to be stronger in the second half of the year
• 10:48
  Speaker 1: than it was going to be in the first half
• 10:49
  Speaker 1: of the year. Until you have this this this this
• 10:52
  Speaker 1: broad market narrative of a Stephen and yield curve, and
• 10:55
  Speaker 1: I think folks were positioned as such um and so
• 10:58
  Speaker 1: you have some shorts come onto the market. I think
• 11:00
  Speaker 1: some of those shorts have to unwound themselves as yields
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  Speaker 1: started to grind lower UM and so a lot of
• 11:06
  Speaker 1: these factors kind of funneling into the move lower from
• 11:09
  Speaker 1: a technical perspective, the move lower in bond yields. All right, George,
• 11:13
  Speaker 1: given where we are in the yield market, what are
• 11:17
  Speaker 1: you telling your clients in terms if they're looking for
• 11:19
  Speaker 1: a return here and they just gotta go the equity markets,
• 11:22
  Speaker 1: don't they? What are you hearing from your clients? That's
• 11:26
  Speaker 1: that's pretty much what what we're seeing. I mean, the
• 11:29
  Speaker 1: reality is the fixed income landscape. It's kind of like
• 11:32
  Speaker 1: trying to look for um, the cheapest house on a
• 11:35
  Speaker 1: really expensive block, um, and we're trying to generate output.
• 11:38
  Speaker 1: It's it's we don't want to trick ourselves into trying
• 11:40
  Speaker 1: to pick up pennies in front of a steam roller.
• 11:42
  Speaker 1: I mean, that's just where credit spreads are at um UM.
• 11:46
  Speaker 1: Given the impact of that, everyone searching for yield, there's
• 11:49
  Speaker 1: a lot of cash out there are not enough bonds
• 11:51
  Speaker 1: UM and so look, if you do have to sort
• 11:53
  Speaker 1: of start to look towards the equity market for for
• 11:57
  Speaker 1: for yields UM hedge type of strategies to sort of
• 12:00
  Speaker 1: mitigate some of some of the downside risk UM and
• 12:03
  Speaker 1: and even looking at some of the sort of hybrid securities,
• 12:06
  Speaker 1: may think preferredsum given bank stocks are the primary issuers
• 12:10
  Speaker 1: of preferred stocks. Uh C CAR results came out a
• 12:13
  Speaker 1: couple of weeks ago those where those are very encouraging.
• 12:16
  Speaker 1: We're going to get some reports coming through. From an
• 12:18
  Speaker 1: earnings perspective, we think bank balaciets are are very very strong,
• 12:22
  Speaker 1: so preferred preferred to look like they could be a
• 12:24
  Speaker 1: good spot for for income income as well. And then
• 12:27
  Speaker 1: on the convertible side, we do think some of the
• 12:29
  Speaker 1: more UM equity like convertibles or those things, they have
• 12:33
  Speaker 1: run up pretty significantly UM over over the past twelve
• 12:37
  Speaker 1: months or so. UM we still think there are some
• 12:39
  Speaker 1: some interesting opportunities in that space as well. Is UM
• 12:44
  Speaker 1: the US going to continue to outperform? Do you do
• 12:47
  Speaker 1: you start to put more of your bets on in,
• 12:51
  Speaker 1: for example, emerging markets as they start to well, as
• 12:54
  Speaker 1: they eventually will reopen and recover. So it's it's it's interesting.
• 13:00
  Speaker 1: It's kind of like, if I'm going to think about
• 13:03
  Speaker 1: global equity markets, where is the baton going to be passed?
• 13:06
  Speaker 1: Two next sort of started started to start the conversation
• 13:09
  Speaker 1: that folks generally thought that growth was going to be
• 13:12
  Speaker 1: particularly exceptional in the second half of the year. We
• 13:15
  Speaker 1: actually may be looking at peak growth in the second
• 13:17
  Speaker 1: quarter of this year, particularly here in the US. Now,
• 13:20
  Speaker 1: we still are expecting above trend growth in the second half,
• 13:23
  Speaker 1: but at certain deceleration from sort of a ten percent
• 13:27
  Speaker 1: quarter a quarter pace that we're expecting here in in
• 13:30
  Speaker 1: in the second quarter. Now, where does the baton get
• 13:33
  Speaker 1: passed too? I do think that the next sort of
• 13:36
  Speaker 1: of of of equity market, global equity market is going
• 13:39
  Speaker 1: to be sort of your Europe and Japan um, you know,
• 13:42
  Speaker 1: as they get over there their their COVID curves. Over
• 13:45
  Speaker 1: the next few months here you should start to see
• 13:47
  Speaker 1: some that cyclical trade, that reflation trade bring itself back
• 13:51
  Speaker 1: into the market. Hey, Jordan, thanks so much for joining us.
• 13:53
  Speaker 1: Really appreciated. Jordan Jackson, vice president, Global market Strategist at
• 13:56
  Speaker 1: JP Morgan Asset Manager. All Right, you've heard a venture capital,
• 14:01
  Speaker 1: You've heard maybe even a venture equity, but how about
• 14:04
  Speaker 1: venture debt. Dan divorcets CE IO and executive vice president
• 14:08
  Speaker 1: for Horizon Technology Fans. They're based in Brookfield, Connecticut. He
• 14:12
  Speaker 1: joins us. Dan, thanks so much for taking the time.
• 14:14
  Speaker 1: What is venture debt Matt and Paul, first of all,
• 14:18
  Speaker 1: thanks for having me pleasure to be here. Venture debt
• 14:22
  Speaker 1: is a non dilutive source of capital for these same
• 14:24
  Speaker 1: venture capital backed companies that you were referring to UM,
• 14:29
  Speaker 1: their development and growth stage companies that are backed by
• 14:33
  Speaker 1: really world class VC and P investors. And venture debt
• 14:36
  Speaker 1: is secured loans to these companies that provide non dilutive
• 14:41
  Speaker 1: capital to get them to their next valuation point and
• 14:44
  Speaker 1: raise additional equity at much higher evaluations. We provide UH
• 14:47
  Speaker 1: an option for for for equity. I think it's really
• 14:51
  Speaker 1: fascinating because Matt Levin just UM a couple of days ago,
• 14:55
  Speaker 1: was writing about how important vcs are not just as
• 15:00
  Speaker 1: a source of capital, but also as a source of advice.
• 15:03
  Speaker 1: You know, these young kids or I guess old people
• 15:06
  Speaker 1: could start companies to UM, you know, just get getting
• 15:10
  Speaker 1: into the into the market. They need to know how
• 15:13
  Speaker 1: before the I p O to a bunch of strangers,
• 15:15
  Speaker 1: right or before they sell debt to a bunch of strangers.
• 15:18
  Speaker 1: So I wonder how how much you not only loan
• 15:22
  Speaker 1: these companies money, but take them by the hand the
• 15:24
  Speaker 1: hand and lead them along. So we provide we've certainly
• 15:27
  Speaker 1: provided advice in terms of their financial path. We don't
• 15:31
  Speaker 1: claim we I'm not a technologist, I'm not a I'm
• 15:33
  Speaker 1: not a scientist, So I'm not going to tell them
• 15:34
  Speaker 1: how to how to do their clinical trials, but I
• 15:36
  Speaker 1: will certainly will certainly help them with advice on financing alternatives.
• 15:42
  Speaker 1: UM and and venture debt is one that that sometimes
• 15:45
  Speaker 1: sometimes entrepreneurs need need um education on that you can
• 15:49
  Speaker 1: you can raise equity and and uh sell off. You know,
• 15:54
  Speaker 1: Let's say let's say you're you're developing the next great
• 15:56
  Speaker 1: drug and your companies valued at a hundred million dollars
• 16:00
  Speaker 1: and it's gonna take thirty million dollars of new capital
• 16:03
  Speaker 1: to get to that next valuation point when you're when
• 16:05
  Speaker 1: you when you get approval, you can sell thirty million
• 16:07
  Speaker 1: dollars of equity and sell thirty percent of your of
• 16:10
  Speaker 1: your shares, or you can sell twenty million dollars of equity,
• 16:13
  Speaker 1: take a ten million dollar venture loan, and when you
• 16:15
  Speaker 1: hit that next valuation inflection point, you'll have preserved tens
• 16:18
  Speaker 1: of millions of dollars for your management team and your investors.
• 16:22
  Speaker 1: So we provide that certainly provide that type of advice
• 16:24
  Speaker 1: to our to our companies. All right, Dan, Back in
• 16:27
  Speaker 1: the day, I was a corporate finance banker at the
• 16:29
  Speaker 1: Chase Manhattan Bank. We lost deals to nobody back in
• 16:32
  Speaker 1: the day had swagger. But we lent against either assets
• 16:36
  Speaker 1: like property, plant, equipment, or inventory or cash flow, the
• 16:40
  Speaker 1: good stuff that actually pays you back. VC companies don't
• 16:43
  Speaker 1: have any of that stuff. So what's the collateral for
• 16:45
  Speaker 1: some of this debt? Cash? So I don't know what
• 16:47
  Speaker 1: cash flow is gonna We have cash flow, but it's
• 16:52
  Speaker 1: going it's going out of the company. Our companies are
• 16:54
  Speaker 1: cash burn companies. Uh So we are lending against the
• 16:59
  Speaker 1: enterprise value of the company. We take a senior secured
• 17:01
  Speaker 1: position in all assets of the of the company. Certainly
• 17:04
  Speaker 1: cash is a big piece of it. But but as
• 17:07
  Speaker 1: I said, that is draining. We are looking at the
• 17:10
  Speaker 1: intellectual property, we're looking at at the franchise value. We're
• 17:13
  Speaker 1: looking at growing exactly exactly. Yeah, but you never got
• 17:19
  Speaker 1: that kind of opportunity then, right, what kind of yield
• 17:23
  Speaker 1: we are we are lending so we have premium yields
• 17:26
  Speaker 1: in the in the loan terms, we get interest rates
• 17:29
  Speaker 1: as well as fees that are in the eleven. Then
• 17:33
  Speaker 1: we take small small exactly. Then we take small warrant
• 17:36
  Speaker 1: positions um in all of our companies, so as they
• 17:40
  Speaker 1: do succeed, we can we can get some capital appreciation
• 17:44
  Speaker 1: on the success stories. That's the trade off right there.
• 17:47
  Speaker 1: That's the look at the look at what the guy's
• 17:49
  Speaker 1: got who lent money to corectly on the wireless side.
• 17:56
  Speaker 1: I lost that. Can you repeat that? I apologize? No, No,
• 17:59
  Speaker 1: We're all good anyway, Dan, thanks so much for joining us.
• 18:01
  Speaker 1: We really appreciated. We're just at a time Dan divorcets,
• 18:04
  Speaker 1: uh from you know, giving us some thoughts here on
• 18:06
  Speaker 1: this Venture technology Horizon Technology Financi. Yeah, back in the day, um,
• 18:12
  Speaker 1: it was either you gotta have some assets and you
• 18:14
  Speaker 1: gotta have some cash flowmat of course, of course, but
• 18:16
  Speaker 1: you weren't getting thirteen Well maybe you were depending I
• 18:20
  Speaker 1: guess in the eighties that that was at the time
• 18:23
  Speaker 1: my parents were paying a mortgage. Um, all right, this
• 18:28
  Speaker 1: is Bloomberg. There's been a lot of talk about bitcoin
• 18:35
  Speaker 1: today on CNBC. Scott Miners said it's in a crash
• 18:39
  Speaker 1: right now and he sees no reason to own it. Um,
• 18:43
  Speaker 1: And our next guest says, it is an ecological disaster.
• 18:48
  Speaker 1: James ross A joins a c i O and founding
• 18:50
  Speaker 1: partner at Coast Capital. UM. So, James, your take on this,
• 18:55
  Speaker 1: I mean it's from the mining point of view, a
• 18:58
  Speaker 1: very dirty business. UM. And but you also think that
• 19:01
  Speaker 1: gold is a much cleaner alternative. UM. I think cleaner
• 19:07
  Speaker 1: alternative is not nice to be with you. Cleaner alternative
• 19:09
  Speaker 1: is not Look, any human endeavor results in carbon emission
• 19:14
  Speaker 1: and an erosion in the environment if not offset property. Right,
• 19:17
  Speaker 1: So there's nothing you can do literally that doesn't have
• 19:19
  Speaker 1: an environmental impact, and that can be described as having
• 19:22
  Speaker 1: a negative environmental impact. The problem that we have with bitcoin,
• 19:26
  Speaker 1: and why we think the value is zero, although the
• 19:28
  Speaker 1: price maybe what it is, is that not only is
• 19:31
  Speaker 1: it an ecological disaster, I think it's a monetary disaster
• 19:34
  Speaker 1: and it is bound to fail. The reason why we
• 19:37
  Speaker 1: think bitcoin is bound to fail is because, well, first
• 19:40
  Speaker 1: of all, you can't it's very difficult to conduct transactions
• 19:44
  Speaker 1: with cryptocurrencies. And we were told by the bitcoin profits,
• 19:49
  Speaker 1: who you know, I must admit to sound a lot
• 19:51
  Speaker 1: less like profits and like um promoters of a product
• 19:54
  Speaker 1: that no one can has figured out how to use. UM.
• 19:57
  Speaker 1: You know, we were taught that it would become a
• 19:59
  Speaker 1: basically functiable with money, that it would become an monetary instrument,
• 20:03
  Speaker 1: and it has failed to do that. And then we
• 20:05
  Speaker 1: were told it's not gonna be money. It's too cumbersome
• 20:07
  Speaker 1: to use. It takes thirty minutes to expect payment from
• 20:10
  Speaker 1: a testla using bitcoin. But it's a store of value,
• 20:13
  Speaker 1: and it's going to appreciate, you know, at inflationary times,
• 20:16
  Speaker 1: which we certainly aren't. Now. If you look at concerns
• 20:20
  Speaker 1: about it, you can't deny that it's appreciated. I meant
• 20:27
  Speaker 1: it certainly has. But when you look at when inflation
• 20:29
  Speaker 1: began to make itself out, which was you know, three
• 20:32
  Speaker 1: or four months ago, Bitcoin has half since then it
• 20:35
  Speaker 1: was supposed to react, you're just looking at a very
• 20:37
  Speaker 1: short window though, I mean, you know, moment. Sure. Look,
• 20:43
  Speaker 1: time will tell where this thing ends. But here's one
• 20:46
  Speaker 1: thing that I think is difficult to argue against. Bitcoin
• 20:50
  Speaker 1: will be superseded by another cryptocurrency, or by a by
• 20:54
  Speaker 1: a by a more attractive one. That um does not
• 20:57
  Speaker 1: have some of the flaws that bitcoin has, and that
• 21:00
  Speaker 1: the ethereum, and in fact, it looks like a hysterium
• 21:03
  Speaker 1: itself will be unseated by another cryptocurrency that will not
• 21:07
  Speaker 1: have solved the short comings that eithereum has, and so
• 21:10
  Speaker 1: why would I commit my saving stupid coin. You know,
• 21:13
  Speaker 1: so I hear, I hear this argument. I think it's
• 21:16
  Speaker 1: it's a fair argument for sure. So James, I guess
• 21:19
  Speaker 1: you know I'm not in the in the big bitcoin believer, right.
• 21:22
  Speaker 1: I think you know, my colleague Matt has really been
• 21:24
  Speaker 1: covering it since the absolute beginning here. But my understanding
• 21:28
  Speaker 1: is it's a commodity, and it's a commodity with a
• 21:31
  Speaker 1: fixed supply and presumably ever increasing demand from more use cases.
• 21:38
  Speaker 1: For that argument suggests that's the we can go higher argument.
• 21:42
  Speaker 1: I mean, I think James has a great point that
• 21:44
  Speaker 1: we were told at the beginning um that it was
• 21:47
  Speaker 1: going to be fungible with any other currencies, and that
• 21:51
  Speaker 1: definitely didn't pan out. Now there are people saying that
• 21:54
  Speaker 1: they're working on the use cases and it can evolve,
• 21:57
  Speaker 1: but it's pretty big and cumbersome, that's true. Yeah, Well,
• 22:01
  Speaker 1: the commodity has value by definition. The one commodity that
• 22:05
  Speaker 1: people say may may or may not have value as gold, right,
• 22:07
  Speaker 1: And that's where we think actually investors should be investing into,
• 22:10
  Speaker 1: and by the way, gold miners are from our perspective,
• 22:13
  Speaker 1: the place to be on the fact that nobody is
• 22:15
  Speaker 1: interested in gold miners and that capitals scarce as can
• 22:18
  Speaker 1: be in this in this most profitable of industries. It's like,
• 22:23
  Speaker 1: is pretty laughable from my perspective. So what we've done
• 22:25
  Speaker 1: is we've put together an advisory board that's made up
• 22:28
  Speaker 1: of some of the beating geologists and mine engineers and
• 22:30
  Speaker 1: gold miners in the world to attract to identify the
• 22:33
  Speaker 1: most attractive opportunities in that space. That's what we're betting on.
• 22:36
  Speaker 1: That's where central banks, who know a lot more about
• 22:38
  Speaker 1: currency and monetary affairs than we do, are bending on.
• 22:41
  Speaker 1: I don't see anybody other than what you think are
• 22:43
  Speaker 1: the best gold miners out there right now, James, or
• 22:45
  Speaker 1: most of the Well, look, we're actually buying them as
• 22:49
  Speaker 1: we speak. We've launched the fund in October. First of all,
• 22:51
  Speaker 1: there's a number of them we think that we're we're
• 22:54
  Speaker 1: currently buying them, so we don't necessarily want to talk
• 22:57
  Speaker 1: them up and see. But I would say that Jaguar Mining,
• 23:01
  Speaker 1: for example, is a prime example of a company that
• 23:03
  Speaker 1: people aren't paying attention to second largest gold miner in Brazil,
• 23:07
  Speaker 1: training at you know, less than five times normalized cash flows,
• 23:11
  Speaker 1: a lot of attractive deposits that haven't even been explored yet.
• 23:16
  Speaker 1: Really good management team which we spent a lot of
• 23:18
  Speaker 1: time helping to appoint to the board of the company.
• 23:21
  Speaker 1: Really great board. Um has a lot of transformational events
• 23:24
  Speaker 1: ahead of it. What we really like about Jaguars it's
• 23:27
  Speaker 1: ideally place to consolidate the sector. And gold miners are
• 23:30
  Speaker 1: kind of like diamonds. The larger they are, the higher
• 23:33
  Speaker 1: the valuation, you know, and the p multiples that they get,
• 23:36
  Speaker 1: and so consolidating the sector is a very warning event.
• 23:41
  Speaker 1: One thing that an empoties I'm going on and on.
• 23:43
  Speaker 1: One thing we think is super interesting about gold miners
• 23:46
  Speaker 1: that people don't understand is that we're actually running out
• 23:49
  Speaker 1: of gold to produce. Ten years from now, we'll be
• 23:52
  Speaker 1: producing fifty percent less gold paranlem than we do today. Well,
• 23:58
  Speaker 1: it is a bit point argument, but guess what with gold,
• 24:01
  Speaker 1: I can actually see a lot of use for it.
• 24:04
  Speaker 1: There's using jewelry. It's the only stable source of value
• 24:08
  Speaker 1: that central bankers around the world and and people around
• 24:11
  Speaker 1: the world have agreed on as a source of UH savings,
• 24:15
  Speaker 1: as an invasion head for hundreds of years and for millennia,
• 24:18
  Speaker 1: and I think that will continue. Bitcoin, I am a
• 24:21
  Speaker 1: hundred percent confident will be served at best for I
• 24:25
  Speaker 1: think that look when that's what bitcoin thain. When I
• 24:27
  Speaker 1: started looking at it into bitcoin, I thought I have
• 24:29
  Speaker 1: problems with bitcoin, but blockchain actually is a really attractive
• 24:33
  Speaker 1: technology that has merits and uses. You will please have
• 24:36
  Speaker 1: to note that no big tech company has come out
• 24:39
  Speaker 1: with like revolutionary technology using blockchain, and we wrote a
• 24:44
  Speaker 1: people um the European investment banks sold bonds on the blockchain. James,
• 24:49
  Speaker 1: We're gonna have to continue this conversation later because we're
• 24:52
  Speaker 1: running out of time, but I think it's very fascinating.
• 24:54
  Speaker 1: Love hearing your perspective. James ross Day is the chief
• 24:57
  Speaker 1: investment officer and founding partner of Coast Capital. Thanks for
• 25:00
  Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
• 25:03
  Speaker 1: listen to interviews of Apple Podcasts or whatever podcast platform
• 25:08
  Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt
• 25:11
  Speaker 1: Miller three and on Fall Sweeney I'm on Twitter at
• 25:14
  Speaker 1: pt sweeney. Before the podcast, you can always catch us
• 25:17
  Speaker 1: worldwide at Bloomberg Radio,