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SpaceX Spinoff and Rates Outlook · Bloomberg Intelligence

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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
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Speaker 2: Let's go back out to the West Coast to San Francisco.
0:59
Speaker 2: Space Discuss is spinning off Starlink via IPO as soon
1:04
Speaker 2: as twenty twenty four. I don't know what's going on there,
1:07
Speaker 2: but Ed Ludlow does. He's the host of Bloomberg Technology.
1:09
Speaker 2: He's out there somewhere in California, I don't know where.
1:11
Speaker 2: Sometimes he's in the desert for these rocket launches.
1:13
Speaker 1: Dude, as soon as late twenty twenty four, that's not
1:16
Speaker 1: soon at all, exactly.
1:17
Speaker 2: I'm not putting that in mind.
1:19
Speaker 1: As far away as late twenty twenty four, that's like
1:22
Speaker 1: one hundred years from now, exactly.
1:24
Speaker 2: What's happening with our good friends at SpaceX.
1:26
Speaker 3: Yeah, all good points and sources tell us that this IPO,
1:31
Speaker 3: which is a spin off as Starlink as a separate unit,
1:33
Speaker 3: could happen towards the end of twenty twenty four, the
1:36
Speaker 3: end of twenty twenty four. We have an election to
1:38
Speaker 3: bear that in mind, and if not twenty twenty four
1:40
Speaker 3: to twenty twenty five, And Matt, you're completely right, that
1:43
Speaker 3: is distant. But this is highly anticipated, right, you know,
1:48
Speaker 3: given the recent news flow must confirming that Starlink, which
1:51
Speaker 3: is SpaceX's satellite consolation based internet service, has reached cash
1:57
Speaker 3: flow break even. That is what he has said pretty
2:00
Speaker 3: consistently over the years, would be the trigger to work
2:03
Speaker 3: towards a listing spinning off through a listing, and what
2:06
Speaker 3: my colleagues and I are reporting is that even though
2:09
Speaker 3: that is far away, they're taking really material steps towards
2:14
Speaker 3: doing that. So, for example, one source told me that
2:17
Speaker 3: they're already shifting Starlink's assets, it's business assets, it's people,
2:23
Speaker 3: to a new wholly owned subsidiary to prepare it to
2:26
Speaker 3: be a sort of standalone unit ahead of an IPO.
2:29
Speaker 1: The amazing thing to me, you write this in your
2:33
Speaker 1: story with Gillian Tan and a couple of other Bloomberg
2:37
Speaker 1: News reporters. They're expecting starlink to generate ten billion dollars
2:41
Speaker 1: in revenue next year, which eclipses that of the rocket
2:44
Speaker 1: launch business at SpaceX. So it's essentially a bigger It's
2:48
Speaker 1: essentially their core business at SpaceX, right, at least judging by.
2:52
Speaker 3: Sales, exactly right, it's essentially their core business. So what
2:56
Speaker 3: we reported was that revenues due to significantly next year
3:02
Speaker 3: to around fifteen billion dollars.
3:04
Speaker 4: This year, overall it will.
3:05
Speaker 3: Be about nine billion dollars, with a pretty even split
3:09
Speaker 3: between Launch and Starlink, But next year Starlink will be
3:12
Speaker 3: the vast majority, more than ten billion.
3:15
Speaker 4: Guys.
3:15
Speaker 3: I just want to say for sheer transparency with the
3:18
Speaker 3: audience that as soon as we publish the story. Elon
3:22
Speaker 3: Musk responded to a user on X, the platform formerly
3:25
Speaker 3: known as Twitter, who had posted a screen grab of
3:29
Speaker 3: the story and image of it, and musk response was
3:32
Speaker 3: one single word, which was false.
3:34
Speaker 4: So on the.
3:34
Speaker 3: Face of it, Musk is denying the accuracy of our report.
3:38
Speaker 3: But I would also tell our audience this is not
3:41
Speaker 3: the first time Musk has replied or posted on x
3:44
Speaker 3: about something I've reported saying it's false that in the
3:47
Speaker 3: end is proved completely true by regulatory or legal filings
3:51
Speaker 3: or otherwise.
3:52
Speaker 2: I mean, this sounds like a really you know, cool business,
3:55
Speaker 2: admirable business, you know, connecting parts of the world that
3:59
Speaker 2: you know can't get you know, I guess internet connectivity.
4:03
Speaker 2: Besides it, are their competitors to Starlink out there.
4:07
Speaker 3: Well, the legacy into a space based internet company is
4:12
Speaker 3: like Viasat, for example, But they've just not been able
4:15
Speaker 3: to make this a business in the way or the
4:18
Speaker 3: speed that Stalink has. You remember, Paul, when I was
4:21
Speaker 3: in New York last week, we talked about Starlink's revenues
4:25
Speaker 3: and the reason that it's worth discussing and reporting the
4:28
Speaker 3: stepping stones towards an IPO is that this is the
4:33
Speaker 3: mainstay of SpaceX's future. Right, everyone kind of wants an
4:36
Speaker 3: association or investment into an Elon Musk company. SpaceX is
4:41
Speaker 3: a private company, and although there is some liquidity in
4:44
Speaker 3: the trading of its shares on the secondaries market and
4:47
Speaker 3: from time to time a tender offer where employees can
4:50
Speaker 3: sell shares, there isn't really much opportunity to have ownership
4:54
Speaker 3: of it. So there's a lot of interest here. But
4:57
Speaker 3: Starlink has been a game changer for people to access
5:00
Speaker 3: the Internet around the world where they otherwise have not
5:03
Speaker 3: been able to because of the satellite and ground receiver
5:06
Speaker 3: based technology.
5:07
Speaker 1: Well, and a lot of people first heard about Starlink
5:10
Speaker 1: because of Russia's invasion of Ukraine, the Ukrainians using Starlink
5:14
Speaker 1: to defend themselves. There there is a competitor from Jeff Bezos, right,
5:20
Speaker 1: it can't pronounce it, but it's like Project.
5:22
Speaker 4: Creeper Kuiper Kuiper.
5:24
Speaker 1: Yeah, well, because it's kui.
5:27
Speaker 3: Well exactly so, and what they're trying to do is
5:30
Speaker 3: the same thing. Jeff Bezos has a rocket company. It's
5:33
Speaker 3: called Blue Origin, but in the first instance, they're relying
5:36
Speaker 3: on United Launch Alliance to put and other carriers sort
5:40
Speaker 3: of legacy rocket companies to put Kuyper satellite constellations into space.
5:45
Speaker 3: They have a very small, like single digit number of
5:48
Speaker 3: early prototypes. But it's this idea that you know, you can.
5:52
Speaker 1: Have whereas starlink has five thousand, right.
5:54
Speaker 3: Ed exactly, And not only does Stalink have five thousand
5:58
Speaker 3: or in the thousands that you know, these are satellites
6:01
Speaker 3: which go in lower orbit, and from time to time
6:03
Speaker 3: they have to be decommissioned or they get broken. But
6:06
Speaker 3: the other success of SpaceX is that it kind of
6:09
Speaker 3: feeds itself, right. You and I cover so many launches
6:12
Speaker 3: so regularly, and SpaceX has a rocket launch company where
6:16
Speaker 3: it's able to put its own constellation or maintain its
6:19
Speaker 3: own constellation with constant launching. And so let's fast forward
6:23
Speaker 3: just a little bit real quick. This Friday, we might
6:25
Speaker 3: see Starship attempt to second full launch. It's big, shiny,
6:29
Speaker 3: pointy rocket you may have seen. And the significance of
6:32
Speaker 3: that is not just that that technology has the long
6:36
Speaker 3: term goal.
6:36
Speaker 4: Of getting humans to Mars.
6:38
Speaker 3: I can hear Paul's eyes rolling and increasing, but actually,
6:42
Speaker 3: if they can get starship to be successful. It's the
6:46
Speaker 3: most powerful rocket ever designed and made. Then they can
6:49
Speaker 3: even ramp up Starlink even further and take that five
6:52
Speaker 3: thousand constellation to ten thousand, fifteen thousand, thirty thousand. And
6:57
Speaker 3: actually at Bloomberg Intelligence they've crunched numbers on that and
7:00
Speaker 3: it basically helps you dominate connectivity worldwide.
7:04
Speaker 2: So to date ed has has Elon been funding SpaceX
7:07
Speaker 2: just out of his own pocket?
7:09
Speaker 4: Well, I love that story.
7:11
Speaker 3: You know, you guys have been at Bloomberg a long
7:14
Speaker 3: time right on the news side, and we historically have
7:17
Speaker 3: not covered private companies as closely as we cover public
7:20
Speaker 3: companies for obvious reasons. But the cap table SpaceX is fascinating.
7:25
Speaker 3: You have names like Fidelity and Sequoia on there. You
7:29
Speaker 3: have high networth individuals. You have Elon Musk and gwin
7:32
Speaker 3: Shotwell who Elon Musk being the CEO, gwinshot Well being
7:35
Speaker 3: the president and CEO of that company. There have been
7:39
Speaker 3: tender offers again, that's where staff can sell their stock
7:44
Speaker 3: units that they receive as compensation to buyers on the
7:47
Speaker 3: secondary market for simply liquidity. But when that opportunity comes
7:51
Speaker 3: abound sort of traditional asset or investment managers, high networth individuals,
7:55
Speaker 3: even retail investors clamor to get a piece of that.
7:58
Speaker 3: Partly because of what we've reported. There might be a
8:01
Speaker 3: Starlink IPO soon at the end of next year, but
8:04
Speaker 3: also you just want to own something because of elon
8:06
Speaker 3: musk track record. So the cat table is really interesting.
8:09
Speaker 1: Yeah, there's a great new podcast, Elon Inc. Have you
8:12
Speaker 1: been listening to right now? That's from Bloomberg Business Week. Yeah,
8:14
Speaker 1: David Papadopolis. I never realized that he has such a
8:18
Speaker 1: good voice for radio. I mean I've heard him, you know,
8:21
Speaker 1: yammering at me in the newsroom and it's not the same.
8:24
Speaker 1: But Elon Inc. What a cool podcast, which covers obviously
8:28
Speaker 1: all of the you know, the whole empire. So starlink
8:31
Speaker 1: SpaceX boring Tesla Twitter, which some people insist on calling
8:36
Speaker 1: X and it's it's such a cool, cool thing. So
8:40
Speaker 1: Starlink maybe at the end of next year, but we
8:43
Speaker 1: won't be able to get ahold of the launch business
8:47
Speaker 1: of SpaceX as a public company.
8:51
Speaker 3: My understanding and the understanding of my colleagues who reported
8:54
Speaker 3: the stories is that once if Starlink spins off into
8:58
Speaker 3: a public company space X. The remainder, which is largely
9:01
Speaker 3: the launch business, remains a private company, you know, and
9:06
Speaker 3: the transaction, based on past precedent is, you know, every
9:10
Speaker 3: SpaceX shareholder of nottal record would receive receive an equivalent
9:15
Speaker 3: volume of Starlink shares. Obviously their value would be changed
9:20
Speaker 3: relative to whatever they held the private SpaceX stock at.
9:23
Speaker 3: So that will be interesting. And just on that, there's
9:26
Speaker 3: only so much money you can make sending things into orbit, right,
9:29
Speaker 3: the per launch margin is much lower than the databased business.
9:34
Speaker 4: So MOSCA said in the.
9:35
Speaker 3: Past that it could cap out at like three billion
9:38
Speaker 3: dollars of sales a year. Actually i'd heard that this
9:40
Speaker 3: year it's more like four billion, four and a half billion.
9:42
Speaker 3: But it has a limit.
9:44
Speaker 1: I know that because I read ed Ludlow's reporting do
9:46
Speaker 1: you look at you? And I watch and listened to
9:48
Speaker 1: him on Bloomberg radio and television.
9:51
Speaker 2: SpaceX ways spinning off Starlink via IPO as soon as
9:54
Speaker 2: twenty twenty four, but following Bloomberg, ship work must called it.
9:57
Speaker 2: Quote Foss in a post on ex social media platform
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Speaker 2: he owns without elaborating, ed, Ludlow, thanks so much. We
10:04
Speaker 2: appreciate it. Ed Ludlow, he's a host of Bloomberg Technology.
10:07
Speaker 4: He's wired in.
10:10
Speaker 5: You're listening to the team can'shur live program Bloomberg Markets
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Speaker 5: demand wherever you get your podcasts.
10:24
Speaker 2: Jay Heffel joins us. He's a CEO, founder and portfolio
10:26
Speaker 2: manager of Infrastructural Capital Managers ADVISORCY joins us here live
10:30
Speaker 2: in the studio. He doesn't phone it in. Folks, Jay,
10:33
Speaker 2: there's no inflation out there. You've been saying this for
10:35
Speaker 2: a long time. Inflation has been coming down. CPI dated
10:38
Speaker 2: this week, PPI dated this week. That surprised you at
10:40
Speaker 2: all because it seems like some positive surprise for the market.
10:45
Speaker 6: Thanks Paul and Matt. Well, we've been pretty public. We
10:48
Speaker 6: put out a piece on October thirty first, and we
10:50
Speaker 6: said this on National TV last week that this the
10:56
Speaker 6: CPI and PPI would print cool. But that's not because
11:00
Speaker 6: we speak to God or anything. It's simply that we
11:03
Speaker 6: focus on oil prices and energy prices as a leading indicator,
11:08
Speaker 6: and what's not appreciated even by our Federal Reserve, which
11:12
Speaker 6: is hard to believe, is there's a substantial bleed through
11:16
Speaker 6: of energy prices to core and we did see that.
11:21
Speaker 6: If you think about it, there is no business in
11:23
Speaker 6: the United States it doesn't use energy, but some use
11:26
Speaker 6: a gigantic amount of energy. So food is forty percent
11:29
Speaker 6: energy airline fares, so you get both an immediate bleed
11:33
Speaker 6: throup to goin airline, our airline fares eventually to food.
11:37
Speaker 6: And so that's one reason we've been bullish and thought
11:41
Speaker 6: the rates were too high at five percent. We thought
11:43
Speaker 6: they'd come down to kind of this range and might
11:45
Speaker 6: stall out around here. But I would focus on energy.
11:49
Speaker 6: And then also the other strange point about this report
11:53
Speaker 6: is we kind of already know next month's report, so
11:56
Speaker 6: you don't have TOPI yes, because what happened, which is
12:00
Speaker 6: pretty unusual, is that it was sort of like a
12:02
Speaker 6: bell went off the first day of October and gasoline
12:06
Speaker 6: latively dropped ten percent during the month.
12:09
Speaker 5: YEP.
12:09
Speaker 6: So guess what, Only five percent was reflected in October,
12:13
Speaker 6: and there's gonna be another five next month and we're
12:15
Speaker 6: already halfway through the month, so it's unlikely to skyrocket.
12:19
Speaker 6: And also retail is lagged.
12:20
Speaker 2: And just to that point, the daily national average gasoline
12:23
Speaker 2: price regular unleaded three dollars and thirty four cents today.
12:27
Speaker 2: It was three dollars and ninety cents just back in
12:29
Speaker 2: mid septem.
12:30
Speaker 6: Right, And we kind of know that that will decline
12:33
Speaker 6: for the rest of the month because what happens is
12:35
Speaker 6: when wholesale comes down, there's a lag because you have
12:38
Speaker 6: inventory in the channel. So the chances we kind of
12:42
Speaker 6: already know that we're going to have a cool CPI
12:45
Speaker 6: and PPI both headline and core for next month as well.
12:49
Speaker 6: So that's pretty bullish.
12:50
Speaker 1: But now now the core is what really counts, right,
12:53
Speaker 1: because the energy price is really our transitory. The swings
12:57
Speaker 1: that we've seen just in the last year show you
12:59
Speaker 1: that I quote your CPI R index quite often, which
13:05
Speaker 1: is your own proprietary index. I find it on the
13:07
Speaker 1: infracap Funds dot com page, and it's come down substantially
13:13
Speaker 1: compared to what the BLS gives us. Their core CPI
13:16
Speaker 1: right now is four spot one to three, right, and
13:19
Speaker 1: yours is, oh sorry, this is September, but it was
13:22
Speaker 1: four point one three and yours was one point three
13:24
Speaker 1: percent after having come down below one. Yours was also
13:28
Speaker 1: higher than the highest core CPI back in June of
13:32
Speaker 1: last year, so it was higher, it's been much lower.
13:36
Speaker 1: Do you think it's possible that inflation resurges again, Well, I.
13:41
Speaker 6: Wouldn't totally ignore the energy price dynamic because that does
13:45
Speaker 6: feed through to the whole economy.
13:46
Speaker 4: It has knock on effects.
13:47
Speaker 6: And keep in mind that we have an eighty percent
13:50
Speaker 6: cost advantage on natural gas too, because we're the Saudi
13:54
Speaker 6: Arabia of natural gas and that affects electricity. So it
13:57
Speaker 6: is a long term bull factor that we have low
14:00
Speaker 6: energy prices in the US. But with regard to the
14:05
Speaker 6: potential for a resurgence, yes, the answer is there's a
14:09
Speaker 6: little bit of a sign of that, and that's why
14:11
Speaker 6: it's better to look at case Shiller than the ridiculous
14:14
Speaker 6: stuff that the BLS puts out. So we actually have
14:17
Speaker 6: had like for instance, we just marked oart. We didn't
14:19
Speaker 6: update our website yet, but we just put out a
14:22
Speaker 6: lease yesterday that now our measures up to two. So
14:25
Speaker 6: because case Shiller is actually ticking up now, I would
14:28
Speaker 6: still see.
14:29
Speaker 1: So it was one point three in September. In the
14:32
Speaker 1: month before that, it was like zero point eighty nine. Uh,
14:35
Speaker 1: and now it's at two, so your index is indeed
14:39
Speaker 1: coming back.
14:40
Speaker 6: Up, right. So I mean, if the FED was ever
14:43
Speaker 6: looked at it, of course they might start to be worried,
14:45
Speaker 6: but they're worried about what it was like a year
14:47
Speaker 6: and a half ago. So but I would still say
14:50
Speaker 6: that the chances of rate skyrocketing with the FED having
14:56
Speaker 6: short term rates above five and mortgage rates almost almost
14:59
Speaker 6: a day eight percent, is pretty low. It's not impossible,
15:04
Speaker 6: but it's pretty low. So we're not really concerned about that.
15:07
Speaker 6: We think it's kind of just normalizing. And also rents
15:10
Speaker 6: do matter, and there are a lot of apartments coming
15:13
Speaker 6: online in the next year, so the chances of a
15:16
Speaker 6: big resurgence in housing costs are pretty low. And then
15:22
Speaker 6: it's not really going to affect FED policy because it
15:23
Speaker 6: would take them eighteen months to figure out that it
15:25
Speaker 6: was actually happening.
15:27
Speaker 2: So what are we doing here? I know you're still
15:30
Speaker 2: bullish on bonds here, So how are you guys kind
15:32
Speaker 2: of positioning yourselves these days?
15:34
Speaker 6: Well, you know, we're we sort of are the self
15:37
Speaker 6: proclaimed preferred stock kings, so we love it is self proclaimed,
15:43
Speaker 6: by the way, but we'd love preferred stocks if you
15:46
Speaker 6: really look at it, particularly funds like ours have actually
15:49
Speaker 6: outperformed like almost all other fixed income so they have
15:53
Speaker 6: higher coupons, which means they have lower duration. You can
15:57
Speaker 6: look all this up in the terminal because duration is
15:59
Speaker 6: kind of hard to calculate. And what also happens with
16:02
Speaker 6: preferreds a lot of retail investors sell them in downturns,
16:06
Speaker 6: so you can buy them well below par. And then
16:08
Speaker 6: the final thing is very unusual about the asset class.
16:11
Speaker 6: It has a lot of fixed to floating. So our
16:14
Speaker 6: fund's about over fifty percent fixed to floating. And why
16:18
Speaker 6: that's important is that all these rates were set when
16:21
Speaker 6: FED funds is at two. They're bumping up the five,
16:23
Speaker 6: so you're getting a three percent bump in a good
16:27
Speaker 6: portion of it. So we would urge investors to take
16:30
Speaker 6: a look at that. You can buy funds like ours,
16:32
Speaker 6: or you can do it directly. If you do it directly,
16:34
Speaker 6: you might want to get a terminal though, beause it's
16:35
Speaker 6: pretty complicated.
16:36
Speaker 1: You have to look up all the Yes, you should
16:38
Speaker 1: get a terminal.
16:38
Speaker 6: Yeah.
16:39
Speaker 7: Thanks.
16:39
Speaker 1: You can use the infracap funds dot com website for
16:42
Speaker 1: your inflation data. Everything else on the Bloomberg terminal. Jay,
16:46
Speaker 1: we called you in here because the EU says that
16:49
Speaker 1: the Euro Area and its biggest economies are going to
16:52
Speaker 1: avoid a recession. You've been bearish on the European Union.
16:56
Speaker 1: What do you think is going to happen in that economy.
16:58
Speaker 6: Well, we prefer real time data as opposed to like
17:03
Speaker 6: econometric models, and so if you follow the recent data,
17:06
Speaker 6: even this morning on eco Eurozone, there was a terrible
17:12
Speaker 6: industrial production report that came out forgot I think it's
17:15
Speaker 6: over down over one percent. But also you can access
17:19
Speaker 6: on the web the equivalent of the Atlanta GDP now
17:24
Speaker 6: and so the Eurozone GDP now is tracking at a
17:28
Speaker 6: negative one point two percent annualized rate. And mean the
17:32
Speaker 6: quarters early on to be fair, but that was also
17:36
Speaker 6: you know, presaging that we would have a recession last
17:39
Speaker 6: quarter too, and then all that's just the individual data
17:42
Speaker 6: is terrible and there's no bowl case because we had
17:44
Speaker 6: two rate increases last quarter. And keep in mind that
17:48
Speaker 6: forty five percent of mortgages are floating rate in Europe,
17:52
Speaker 6: so those those increases haven't even yet shown up in
17:55
Speaker 6: retail sales, so there's and they of course don't have
17:59
Speaker 6: the energy costs advantag They don't have any of the
18:01
Speaker 6: advantage of us. They don't have a shortge of housing,
18:03
Speaker 6: they don't have countercyclical infrastructure spending. Their natural gas prices
18:09
Speaker 6: are five times ours, so we have a big gun.
18:11
Speaker 6: So they're really kind of a disaster in our data shows.
18:16
Speaker 6: And I wouldn't be too focused on your official forecast
18:20
Speaker 6: because they update them every y're a little bit like
18:23
Speaker 6: the BLS. They updated every six months, so it's you be.
18:27
Speaker 1: The last industrial production in the Eurozone fell one point
18:29
Speaker 1: one percent. That was worse and expected. That data just
18:32
Speaker 1: out about ten hours ago, and industrial production year over
18:37
Speaker 1: year was down six point.
18:39
Speaker 6: Nine per It's just awful.
18:40
Speaker 2: It's very bad, all right, Jay, thanks so much for
18:42
Speaker 2: coming in again. Really appreciate taking a walk across town.
18:45
Speaker 2: Jay Hatfield, he's the CEO, he is the founder, and
18:48
Speaker 2: he's a portfolio manager of Infrastructure Capital Advisors. They like
18:53
Speaker 2: preferred stocks. You don't hear that too often.
18:55
Speaker 4: That's pretty cool.
18:56
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19:08
Speaker 5: flagship New York station, just say Alexa playing Bloomberg eleven thirty.
19:15
Speaker 2: Check out our next guest right away, Chris Wellen. He's
19:17
Speaker 2: a chairman of Whalen Global Advisors. Chris, thanks so much
19:20
Speaker 2: for joining us via zoom here. I mean, you look
19:23
Speaker 2: at this market over the past couple of days, it's
19:26
Speaker 2: basically telling you inflation is whipped, we've seen peak rates.
19:31
Speaker 2: What do you take away from some of the data
19:32
Speaker 2: we've received over the past couple of days.
19:35
Speaker 7: Well, the fact that we're looking at data of this
19:38
Speaker 7: maturity tells you something we should take us somewhat more
19:44
Speaker 7: nuanced approach. I think to rates because the volatility has
19:48
Speaker 7: been so enormous one way and another, and also the
19:52
Speaker 7: quality of you know, forward rates. For example, the thirty
19:56
Speaker 7: and sixty day rates in the mortgage market, which is
19:59
Speaker 7: the found of the treasury market, by the way, has
20:03
Speaker 7: been all over the place. So today I would tell
20:05
Speaker 7: you the belly of the curve that contract closest to
20:08
Speaker 7: par is still a six and a half to a seven,
20:12
Speaker 7: So that means to make money they have to be
20:14
Speaker 7: writing seven and three quarter percent mortgages. If not eights,
20:19
Speaker 7: you know what I mean. So things have yet to
20:21
Speaker 7: settle down, even though we rallied a point and yield
20:24
Speaker 7: over the last what week. So the aspirational aspects of
20:30
Speaker 7: this I think cannot be dismissed.
20:33
Speaker 1: So you've got to be writing higher rate mortgages. And
20:39
Speaker 1: how is the mortgage outlook right now, Chris, because the
20:44
Speaker 1: housing market seems to have ground to a halt, at
20:46
Speaker 1: least in terms of existing homes, which means probably very
20:50
Speaker 1: few people are going out and getting those mortgages.
20:54
Speaker 7: Well, it's largely a cash buyer's market today. You're seeing
20:58
Speaker 7: compression above the meat, which is about four hundred and
21:01
Speaker 7: fifty thousand dollars. By the way, the average is three thirty.
21:06
Speaker 7: I think if you look at the mortgage bankers data,
21:09
Speaker 7: so you know, the way I would say it is,
21:11
Speaker 7: we were dragging the you'll curve up. So it's been
21:15
Speaker 7: very hard for lenders to make any premium when they
21:17
Speaker 7: sell their loans into the bond market, and that's changed
21:21
Speaker 7: a bit. You may also see some lenders have a
21:24
Speaker 7: good quarter because of the rate rally we've seen. You know,
21:28
Speaker 7: we had a pretty decent quarter in the second quarter
21:30
Speaker 7: for a lot of publicly traded lenders as well. So
21:34
Speaker 7: when the sunshine they make hey, and I think, you know,
21:37
Speaker 7: we'll just have to see because the next auction we
21:40
Speaker 7: could be having a tough time and you could see
21:43
Speaker 7: rates back up again. So for you know, mortgage lenders,
21:47
Speaker 7: you lost a lot of money on your hedge, but
21:50
Speaker 7: you make a lot of money on the assets that
21:52
Speaker 7: you have.
21:53
Speaker 1: By the way, the last auction or the auction last
21:57
Speaker 1: week that you know, kicked things off before Powell came
22:01
Speaker 1: out and confirmed what looked like a more hawkish bias,
22:06
Speaker 1: was that actually affected by the ICBC hack. That's what
22:09
Speaker 1: the early reports from the ft said. But I just
22:12
Speaker 1: don't get it.
22:14
Speaker 7: I don't know if there's a connection here. I do
22:16
Speaker 7: know that some very smart people whom might have a
22:19
Speaker 7: lot of respect for that run banks, are extremely concerned
22:23
Speaker 7: about that hack, even though it was small, because it
22:26
Speaker 7: implies that they're not sufficiently vigilant in terms of operational risk.
22:33
Speaker 7: At the same time as you saw, I worry that
22:36
Speaker 7: Secretary Yellen was essentially backed off and forced to downsize
22:41
Speaker 7: the long bond auction because the dealers told her it
22:44
Speaker 7: wasn't going to get done. And you still had a
22:47
Speaker 7: spike in rains, Matt, So that worries me. It reminds
22:50
Speaker 7: me of when I was a little younger and we
22:53
Speaker 7: used to worry about the Treasury auctions. We haven't had
22:56
Speaker 7: that worry at twenty years.
22:58
Speaker 1: Yeah, but now it moves market, you know. Now you
23:01
Speaker 1: know we had we had a bad auction and three
23:04
Speaker 1: minutes later you saw the tail and the S and
23:06
Speaker 1: P five hundred sold off. It makes you think maybe
23:11
Speaker 1: yelling and whatever you call that Treasury committee had a
23:14
Speaker 1: point when they decided not to sell you know, one
23:16
Speaker 1: hundred year debt at zero interest.
23:20
Speaker 7: No, they should have done it. Come on, you're a
23:22
Speaker 7: fund manager. It doesn't matter if you work with the
23:24
Speaker 7: Treasury or know. You obviously should have done that trade.
23:27
Speaker 7: You should have funded infrastructure when that trade was available.
23:30
Speaker 7: We didn't do it. We just spent the money. So
23:33
Speaker 7: I think there's always second guessing. But today I think
23:37
Speaker 7: Treasury is facing a lot of tactical challenges and that's
23:41
Speaker 7: just the reality, and it will affect stocks, no question.
23:44
Speaker 7: The banks are down. Are they cheap? I don't know?
23:47
Speaker 7: That depends which bank, right exactly?
23:49
Speaker 2: Hey, Chris, what we're not hearing about too much? Recently
23:53
Speaker 2: is the commercial real estate exposure for a lot of
23:56
Speaker 2: these banks. What's the latest on that.
24:00
Speaker 7: Continues. You're not going to see most of it because
24:02
Speaker 7: it's private. This occurs behind closed doors with lawyers and
24:07
Speaker 7: these are professionals on both sides. But if you look
24:10
Speaker 7: at some of the specialty press, like The Real Deal,
24:13
Speaker 7: which I love, by the way, there's a lot of
24:16
Speaker 7: stuff going on. There are assets that are being marked down.
24:20
Speaker 7: You're going to see a whole sale markedown of rent
24:23
Speaker 7: stabilized assets in New York after the FDIC is done
24:27
Speaker 7: selling the signature bank properties to rent controlled properties that
24:31
Speaker 7: frankly are unsaleable. But they're going to try. My fear,
24:36
Speaker 7: and I think a lot of people's fear, is that
24:38
Speaker 7: they're going to hit a very low bid to get out,
24:41
Speaker 7: because ultimately the receivership of the FDIC is not a
24:45
Speaker 7: long term investor. They're there to turn the assets in
24:47
Speaker 7: the cash and try and minimize loss. That's their mandate.
24:52
Speaker 7: So you know, they have retained a majority stake in
24:56
Speaker 7: a lot of these buildings, Matt because nobody wants them
24:59
Speaker 7: given the political environment in New York. Well, I have
25:02
Speaker 7: been reading that in nineteen BNT control legislation has to
25:05
Speaker 7: be repealed or we're going to destroy rental assets in
25:09
Speaker 7: New York as an asset class because the banks can't
25:12
Speaker 7: fund them. They can't, I mean, and.
25:17
Speaker 1: Residential doesn't even look nearly as bad as office, right,
25:21
Speaker 1: because you mentioned the real deal, and I've been reading
25:24
Speaker 1: well that website lately, realdeal dot com, because we had
25:27
Speaker 1: this guy in Igle Namdar, who I think maybe a
25:32
Speaker 1: I think it's fair to call him a billionaire, certainly
25:34
Speaker 1: when we last vetted his holdings he was in twenty
25:37
Speaker 1: twenty one. It's like he and a couple of other
25:40
Speaker 1: guys with whom he works are the only people buying
25:44
Speaker 1: office in New York. No one else is trying to
25:46
Speaker 1: catch these falling knives.
25:49
Speaker 7: Well, you have to have a view of the real
25:52
Speaker 7: estate value that is to say, land, and then the
25:56
Speaker 7: asset that's on it, and whether or not it can
25:58
Speaker 7: be utilized in what's going to be a different business case.
26:02
Speaker 7: You know, I think a lot of people see New
26:04
Speaker 7: York going to a largely residential configuration. But I don't
26:08
Speaker 7: think you can pay for this city unless you have
26:11
Speaker 7: business as a partner. And that's what's going to change.
26:15
Speaker 7: We have got to stop attacking the business community because
26:19
Speaker 7: they'll leak, and they did. But they went down south
26:22
Speaker 7: and built a lot of new buildings, and now we're
26:24
Speaker 7: overbuilt in Texas, We're overbuilt in some other markets. No, seriously,
26:28
Speaker 7: the herd left. They were told to leave, you know,
26:32
Speaker 7: by the Democrats of New York, and they did because
26:35
Speaker 7: the capital is mobile Miami, Matt you'd spent time down there, insane,
26:40
Speaker 7: and then look at around the region, look at the
26:42
Speaker 7: Canal Zone, look at some other cities in the region.
26:45
Speaker 7: They're all getting buried in investment in commercial real estate,
26:50
Speaker 7: residential real estate.
26:51
Speaker 1: I hope what happens in Miami stays in Miami, because
26:53
Speaker 1: I have spent some time.
26:55
Speaker 7: Look at thee look at the Canal Zone, and Panama
26:58
Speaker 7: looks just like Miami, big empty buildings.
27:02
Speaker 1: Yes, okay, Hey, you write a lot for the Institutional
27:05
Speaker 1: Risk Analyst, and one of your posts recently big whate
27:12
Speaker 1: rising debt service and following liquidity. You're writing about, you know,
27:16
Speaker 1: the mortgage and the lending business. But I'm thinking about
27:18
Speaker 1: the US and I wonder what is your take on
27:22
Speaker 1: the fact that we're going to have nine hundred billion
27:24
Speaker 1: dollars in interest rate servicing costs. Next year does that change?
27:29
Speaker 1: Do you see rates coming down and that gets better
27:31
Speaker 1: or is that something that Washington can fix somehow.
27:35
Speaker 7: Well, Washington has got to start reducing the deficit. I
27:39
Speaker 7: know that's not fashionable, but from a tactical perspective, just
27:43
Speaker 7: looking at the cash balances the Treasury has to maintain
27:47
Speaker 7: in order to move payments around, it's a problem. You know.
27:51
Speaker 7: The Fed collateralized is all of that, Matthew. They go
27:55
Speaker 7: out and buy bonds to collateralize the Treasury General account
27:59
Speaker 7: and that's a market moving event too. So the size
28:04
Speaker 7: of the Treasury is becoming an issue in the markets.
28:07
Speaker 7: We're seeing crowding out come back as a novel concept
28:11
Speaker 7: right in economic thinking because it's so obvious. You know,
28:15
Speaker 7: luckily housing is down. The imagine if we were trying
28:18
Speaker 7: to finance four or five trillion dollars this year in
28:20
Speaker 7: housing at the same time Treasury was out raising all
28:24
Speaker 7: this money. We're going to do a trillion five this year?
28:27
Speaker 7: Nothing all right?
28:28
Speaker 1: So Chris, I got to wrap you up there, unfortunately
28:30
Speaker 1: for time. But Chris Whalen love to get your insight
28:33
Speaker 1: on the industry. He is the institutional risk analyst and
28:36
Speaker 1: also chairman of Whalen Global Advisors.
28:40
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28:43
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28:56
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29:00
Speaker 2: The stock market likes biotech. Stock market likes AI. So
29:04
Speaker 2: how about an AI inspired biotech company? And how about
29:08
Speaker 2: an AI inspired biotech company that has a new shareholder
29:10
Speaker 2: disclosed just today? That would be Kathy Woods Arc Funds.
29:14
Speaker 2: You put it all together, Matt stocks up sixteen percent.
29:16
Speaker 2: We're talking about Recursion Pharmaceuticals as symbol as our x
29:20
Speaker 2: r X, and we just happened to have Tina Marriott
29:24
Speaker 2: Larson and president and CEO COO of Recursion Pharmaceuticals with us.
29:28
Speaker 2: So that's that's a coincidence to serendipity. I guess I
29:31
Speaker 2: don't know which you want.
29:31
Speaker 4: That's all it.
29:32
Speaker 1: Face ripping rally, face ripping rally.
29:35
Speaker 2: Tina, what what have you learned about your new shareholder today?
29:42
Speaker 8: Well, thank you. I don't usually use the term face ripping,
29:45
Speaker 8: but I appreciate the introduction. Great to be here, Paul
29:48
Speaker 8: and that, and yeah, like like all of our shareholders,
29:52
Speaker 8: it's great to have these strategic, long term thinking shareholders
29:56
Speaker 8: that really share our vision for the future of where
30:00
Speaker 8: the biotech industry going, the tech industry is going, and
30:03
Speaker 8: really the opportunity to use technology to create the next
30:06
Speaker 8: generation of biopharmaceutical company.
30:09
Speaker 1: So what kind of strides are you making Because you know,
30:14
Speaker 1: it's great to have a very famous and you know,
30:18
Speaker 1: followed shareholder. It's great to see your stock takeoff in
30:23
Speaker 1: double digit gains. But at the end of the day,
30:25
Speaker 1: I imagine your ultimate goal is I guess curing cancer, right.
30:30
Speaker 1: I see that you do a ton of oncology work
30:32
Speaker 1: in partnership with some of the biggest names in the business.
30:35
Speaker 1: So how is adding AI to the mix getting you
30:38
Speaker 1: closer to that goal?
30:41
Speaker 8: Yeah? Absolutely, cancer is a big focus for us, and
30:43
Speaker 8: as you mentioned our partnerships, we recently announced an expansion
30:47
Speaker 8: of our long term partnership with Buyer. We're going to
30:49
Speaker 8: be working on up the seven new oncology programs with them,
30:52
Speaker 8: applying the latest and greatest version of our technology platform.
30:56
Speaker 8: In October, we announced the first milestone and option from
31:00
Speaker 8: our partnership with Rosian Genetech, which was in oncology as well,
31:05
Speaker 8: and so we're definitely focused on oncology as well as
31:08
Speaker 8: other areas like neuroscience and once again with our partners
31:11
Speaker 8: at Genetech Roach. So we're really seeing great progress in
31:14
Speaker 8: implying these technology platforms, this emerging field of tech bio
31:19
Speaker 8: to really improve the outcomes in the way that we
31:22
Speaker 8: do R and D research to discover, well, what are.
31:24
Speaker 1: The most important breakthroughs that you've made, or what are
31:27
Speaker 1: some breakthroughs that you're hoping to make? You know, this
31:30
Speaker 1: is what these are the moon shots that Wall Street
31:33
Speaker 1: bets on. What's yours?
31:36
Speaker 8: Yeah, absolutely, and so we are industrializing drug discovery. So
31:39
Speaker 8: if you think about the way that many small biotech
31:43
Speaker 8: companies maybe they're looking for one or two drugs and
31:45
Speaker 8: very targeted areas of biology or very specific areas, say
31:50
Speaker 8: of cancer, we're actually looking across human biology. Our mission
31:55
Speaker 8: is decoding human biology to radically improve lives, and we're
31:59
Speaker 8: using the technology to do that. And so you see
32:00
Speaker 8: that we have bets in neuroscience. We have bets and oncology.
32:03
Speaker 8: We have our own internal pipeline of molecules in things
32:06
Speaker 8: like rare disease and oncology, and we're actually going to
32:08
Speaker 8: see our first readouts. We're anticipating those next year for
32:12
Speaker 8: our internally developed drugs. But ultimately the goal is to
32:16
Speaker 8: scale and industrialize so that you know, in the same
32:20
Speaker 8: way that other industries have been disrupted by technology, so
32:23
Speaker 8: that we can bring better patients, better medicines to patients,
32:26
Speaker 8: faster and more cost effectively.
32:28
Speaker 2: So specifically for your company, Recursion Pharmaceuticals, what do you
32:32
Speaker 2: guys do, What is your technology? How do you bring
32:35
Speaker 2: AI or just technology brolding tofine to the you know,
32:38
Speaker 2: the pharmaceutical in the biotech space.
32:43
Speaker 8: Yeah, it really starts with data sets. And so I
32:46
Speaker 8: like to use the Google Maps analogy quite a bit.
32:48
Speaker 8: I'm old enough to have navigated around say Washington, DC
32:52
Speaker 8: using a Rand McNally atlas, and that was pretty hard
32:56
Speaker 8: and you know, at night after you'd like land there
32:58
Speaker 8: on a plane and so and what Google Maps revolutionized
33:02
Speaker 8: that part of our lives by both creating great data
33:07
Speaker 8: sets of the Earth of cities of maps and also
33:11
Speaker 8: creating the algorithms and computational technology in order to analyze
33:14
Speaker 8: those large data sets. So the analogy to what Recursion
33:17
Speaker 8: is doing is that we are creating data sets. We
33:20
Speaker 8: have twenty petabytes of data, twenty five petabytes of data. Actually,
33:24
Speaker 8: it grows so fast that we have actually grown in
33:26
Speaker 8: house here in our laboratories. To the right of me,
33:29
Speaker 8: there's a whole bunch of robots doing science right now,
33:32
Speaker 8: creating these in house data sets, modeling the human body
33:36
Speaker 8: right here in the laboratory. And then we add data
33:38
Speaker 8: sets like we recently announced that we have developed a
33:41
Speaker 8: partnership with Tempest, and they have real world data, so
33:44
Speaker 8: we have preferred access now to over twenty petabytes of
33:48
Speaker 8: data from one hundred thousand actual cancer patients and the
33:52
Speaker 8: outcomes of those patients have had out in the real world.
33:55
Speaker 8: So we're constructing these very large data sets and then
33:58
Speaker 8: using tools like machine learning and artificial intelligence in order
34:01
Speaker 8: to use that model of biology to find new medicines
34:05
Speaker 8: for diseases that today are underserved or unserved and have
34:09
Speaker 8: been intractable previously for the industry to find pures.
34:12
Speaker 1: It's hard for a normal person to know what a
34:14
Speaker 1: petabyte is, even even if you Google it, apparently it's
34:19
Speaker 1: a thousand terabytes.
34:22
Speaker 5: I don't.
34:23
Speaker 8: One of the one of the fun analogies we have
34:26
Speaker 8: used here is that every high definition film ever made
34:32
Speaker 8: is a few petabytes, and so we have far, far,
34:34
Speaker 8: far more data than every if you had you streamed
34:37
Speaker 8: every movie ever made in high definition. So these are very,
34:41
Speaker 8: very large.
34:41
Speaker 1: Nice Paul is actually on a mission to do that
34:43
Speaker 1: right now, exactly streaming every single HD movie on the
34:47
Speaker 1: New Jersey Transit transit.
34:49
Speaker 2: So, Tina, I mean like.
34:51
Speaker 8: A thousand years, Paul, I know, I know, I had
34:53
Speaker 8: a long commute.
34:54
Speaker 2: So Tina, talk to us. Is the biotech industry is
34:58
Speaker 2: it open to this type of technology coming into what
35:02
Speaker 2: had been historically, you know, just very I don't know,
35:05
Speaker 2: science y stuff.
35:08
Speaker 8: Yeah, I think the openness is growing. You know my background,
35:13
Speaker 8: I spent decades ago at the revolution of biotechnology. I
35:17
Speaker 8: was at the Genetech, the company that led the biotech
35:19
Speaker 8: revolution of our industry when we hit an R and D.
35:22
Speaker 8: They're one of our biggest partners now and now being
35:25
Speaker 8: at this cutting this leading of the tech bio revolution,
35:28
Speaker 8: and even a few years ago when I joined our
35:32
Speaker 8: co founder and CEO, Chris Gibson Here at Recursion, there
35:34
Speaker 8: was still a lot of skepticism about how AI and
35:37
Speaker 8: technology was going to change things. I think now that
35:40
Speaker 8: artificial intelligence has become so much more broadly impacting our lives,
35:45
Speaker 8: you know, across industries now that that kind of skepticism
35:48
Speaker 8: really has switched to curiosity. And I think now you
35:51
Speaker 8: see large pharmaceutical companies really trying to craft their AI strategies,
35:55
Speaker 8: getting really curious about how this is going to revolutionize
35:59
Speaker 8: the companies. So I think we've kind of transited most
36:02
Speaker 8: of that skepticism as to if technology and computational technology
36:06
Speaker 8: revolutionizes the industry. And now the question is how.
36:10
Speaker 2: Hey, Tina, really fascinating discussion. I really appreciated Tina. Marriotte Larsen,
36:14
Speaker 2: President and Coe of Recursion Pharmaceuticals. Ticker symbols our ex ore, ex'es,
36:19
Speaker 2: and Nastak traded stock. And it was just disclosed today
36:22
Speaker 2: that Kathy Woods our funds have acquired a stake in
36:26
Speaker 2: this company.
36:27
Speaker 1: But our producer, Eric Molo booked Tina for the show
36:31
Speaker 1: before four. We knew that, and in fact he booked
36:34
Speaker 1: Chris the founder back in July. Wow, so he essentially
36:39
Speaker 1: beat Kathy Wood to it.
36:41
Speaker 2: I know now that d he buy any stocked did
36:42
Speaker 2: mister mollel. I'm guessing the fact that he's still back
36:44
Speaker 2: there behind the other side of the glass, that the
36:46
Speaker 2: answer is no. But we appreciate the booking.
36:49
Speaker 1: Nevertheless, thanks for listening to the Bloomberg Markets podcast. You
36:54
Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
36:58
Speaker 1: whatever podcast platform you refer. I'm Matt Miller. I'm on
37:02
Speaker 1: Twitter at Matt Miller nineteen seventy three.
37:05
Speaker 4: And I'm Faul Sweeney.
37:06
Speaker 2: I'm on Twitter at pt Sweeney. Before the podcast, you
37:08
Speaker 2: can always catch us worldwide at Bloomberg Radio