Latest / Bloomberg Intelligence / Banks, Jack Dorsey, India, and Gene Editing (Podcast)

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Banks, Jack Dorsey, India, and Gene Editing (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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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. All right, I've been
0:21
Speaker 1: looking to talk to this guy for a couple of days. Here.
0:23
Speaker 1: I need some perspective. I need a little bit of cynicism,
0:27
Speaker 1: maybe even a little bit of snark, and for that
0:29
Speaker 1: I go to Cameron christ Our Macroman. He's a Bloomberg
0:32
Speaker 1: News Cameron, you're out with the note today saying the
0:36
Speaker 1: yield curve says rate cuts are nearly a certainty. What
0:39
Speaker 1: do you mean by that, Well, I look at the
0:42
Speaker 1: front end of the old curve. I mean the two
0:44
Speaker 1: year note has obviously gone crazy ballistic since the Silicon
0:49
Speaker 1: Valley bank stuff hit the tape, and the inversion between
0:54
Speaker 1: the three months sector and the two year sector is now,
0:58
Speaker 1: you know, kinda hit one hundred basis points earlier earlier today.
1:04
Speaker 1: That's only the second time that's happened in the last
1:06
Speaker 1: forty years. The other one was the very beginning of
1:09
Speaker 1: two thousand and one, which is when the FED actually
1:11
Speaker 1: cut rates kind of on the first real trading day
1:15
Speaker 1: of the year. And if you look at all times
1:19
Speaker 1: when three months two year was inverted by at least
1:21
Speaker 1: fifty basis points, the FED is cut rates within six
1:25
Speaker 1: months on like ninety three percent of those occasions. So statistically,
1:30
Speaker 1: we only get pricing like this when the FED is
1:33
Speaker 1: about to make a pretty swift turn. I guess one
1:37
Speaker 1: question though for you, is inflation under control? I mean,
1:41
Speaker 1: we've had rate cuts from the ECP, from the Bank
1:43
Speaker 1: of England and obviously from the FED. You know, are
1:46
Speaker 1: they pretty much done? Is inflation under control at the moment? No?
1:54
Speaker 1: But in the future who knows? And that's really the
1:59
Speaker 1: issue with all those banking sector stress is you just
2:03
Speaker 1: don't know what the impact is going to be. Um.
2:07
Speaker 1: I mean, I think we can we can pretty clearly
2:09
Speaker 1: say it's not a two thousand and eight situation because
2:11
Speaker 1: there's not all this toxic you know, toxic waste on
2:16
Speaker 1: bank balance sheets. There's other kinds of waste, which is
2:20
Speaker 1: you know, which is government issued or government guaranteed UH
2:26
Speaker 1: debt UM. But that's a slightly ket different kind of
2:29
Speaker 1: fish because it's held in holding maturity UM buckets, and
2:33
Speaker 1: there are liquidity uh measures in place so that banks
2:38
Speaker 1: can can obviously meet the needs of depositors UM who
2:42
Speaker 1: want their money. But I think the issue that mister
2:44
Speaker 1: Powell raised on Wednesday is the right one, which is
2:47
Speaker 1: that if we get this sort of significant tightening and
2:50
Speaker 1: credit conditions that seems likely as a result of all
2:54
Speaker 1: of this banking kerfuffle, and essentially it's going to take
2:57
Speaker 1: the place of r of rate hikes in in in UM,
3:02
Speaker 1: restraining the growth of credit and ultimately UM ultimately demand.
3:08
Speaker 1: So it does make sense that the Fed has kind
3:11
Speaker 1: of shifted its perspective UM. The market, I think is
3:15
Speaker 1: sort of obviously leaning very very very very heavily towards
3:20
Speaker 1: this is a big deal uh, and the economy is
3:24
Speaker 1: going to enter a recession sort of post haste UM,
3:27
Speaker 1: which then raises the question of why the equity market
3:30
Speaker 1: hasn't done more poorly on on a broader basis UH.
3:35
Speaker 1: And then we get to a more philosophical question. Yeah,
3:38
Speaker 1: philosophical question of you know, who's who's at the vanguard
3:43
Speaker 1: of economic analysis and who's sort of in the caboose um.
3:47
Speaker 1: You know, i'd remind you and listeners that the stock
3:50
Speaker 1: market reached new highs after the FED first cut rates
3:53
Speaker 1: in two thousand and seven, um, and that obviously went
3:56
Speaker 1: pretty horridly wrong in the end. Even you know what,
4:00
Speaker 1: the provider that this is not a sort of a
4:02
Speaker 1: two thousand and eight situation. And Cameron on the recession discussion,
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Speaker 1: I have a hard time kind of getting to a recession,
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Speaker 1: like a lot of folks are talking about. I've got,
4:10
Speaker 1: you know, still pretty darn your full employment. We had
4:13
Speaker 1: a good jobs print today still this week below two
4:16
Speaker 1: hundred thousand. We get the pm I numbers today coming
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Speaker 1: in much stronger than expected. I don't know, I kind
4:22
Speaker 1: of feel like we can soft land this thing. What
4:25
Speaker 1: do you think. I think it's become a lot more
4:27
Speaker 1: difficult given the stress in the banking sector. Okay, I
4:31
Speaker 1: think what we're probably going to see. And again this
4:35
Speaker 1: is something I've written, I think Powell alluded to it
4:37
Speaker 1: on Wednesday, is some of the cumuloultive impact of tightening
4:41
Speaker 1: generally and credit tightening in particular, is nonlinear. It kind
4:46
Speaker 1: of has no impact, no impact, no impact. And then
4:48
Speaker 1: an animal falls on your foot. It's I can use
4:52
Speaker 1: sort of a Warner Brothers well, a wily coyote type
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Speaker 1: metaphor there, And I think that's the It's certainly he
5:00
Speaker 1: looks like there's an enhanced risk that that's what's going
5:03
Speaker 1: to happen. Um, we don't know, uh, And so I
5:07
Speaker 1: think it makes sense to keep one's options open and
5:11
Speaker 1: maintain analytical flexibility and not be dogmatic about what the
5:15
Speaker 1: future looks like, have a little humility about the outlook. Um. Well,
5:19
Speaker 1: I think we can say though, is that the market,
5:22
Speaker 1: the market pricing as it stands now in the sixth
5:24
Speaker 1: income market is one that is not a stable equilibriate.
5:29
Speaker 1: Either the Fed's going to have to deliver rate cuts
5:33
Speaker 1: um and short rates are going to drop fairly soon,
5:37
Speaker 1: or the market's going to have to recalibrate the yield
5:40
Speaker 1: curve UM and the two year yield's gonna have to
5:42
Speaker 1: go quite a bit higher again because this sort of
5:45
Speaker 1: spread between the very short rate and the two year
5:49
Speaker 1: treasury is just not somewhere that it can can it
5:52
Speaker 1: can last for very long um For no other reason
5:54
Speaker 1: that leverage owners of the two year yield have to
5:57
Speaker 1: pay the shorts, you have to pay the REPO rate
5:59
Speaker 1: to finance their positions, and that's a big negative carry trade.
6:02
Speaker 1: And the one thing we know about fixed income operators
6:04
Speaker 1: is there's nothing they hate more than negative care to
6:09
Speaker 1: one thing, though, I mean, you've made the point about
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Speaker 1: you know, you've got the FED tightening conditions as well,
6:14
Speaker 1: but I mean you go back to banks tightening conditions,
6:17
Speaker 1: and so I look ahead to the second half of
6:18
Speaker 1: the year, you can see these two paths kind of
6:22
Speaker 1: diverging or converging rather onto the American spender, and then
6:25
Speaker 1: there's going to be a lot of reason for people
6:28
Speaker 1: to pull back their purse strings, not to mention the
6:31
Speaker 1: fact that the employment market could start looking really, very
6:33
Speaker 1: very tricky. So I mean, looking ahead to that, do
6:37
Speaker 1: you see that you know there's a substantial potential for
6:39
Speaker 1: things to be a lot tougher and for fixingtom to
6:42
Speaker 1: get a lot more expensive later on. Yeah, absolutely, there's
6:46
Speaker 1: the potential for things to get a lot tougher. And
6:49
Speaker 1: if that happens, then yeah, the pricing that's already in
6:52
Speaker 1: placent in the yield curve will come to pass. But
6:55
Speaker 1: then you have to ask the question of what's the
6:57
Speaker 1: you know, what's the stock markets still doing? Up on
6:59
Speaker 1: the air? Um, you know, in an environment where things
7:03
Speaker 1: are bad enough and people sort of retrench quickly enough
7:08
Speaker 1: that these rate cuts that are in the price are merited.
7:11
Speaker 1: That's not a situation where the earnings outlook is anything
7:14
Speaker 1: but awful. Would I would think, So there is this
7:17
Speaker 1: sort of dissonance between what's being priced across various aspects
7:22
Speaker 1: of you know, of the financial market universe. Cameras spent
7:26
Speaker 1: thirty seconds and how concerned are you about the US
7:28
Speaker 1: banking system? A lot more so than a couple of
7:34
Speaker 1: weeks ago. I think if everyone agrees that it's healthy,
7:38
Speaker 1: then it's healthy. But if everyone thinks that it's in trouble,
7:42
Speaker 1: then the nature of facts fractional reserve banking means that
7:47
Speaker 1: it kind of almost becomes a self fulfilling prophecy, particularly
7:50
Speaker 1: in this environment of social media where people can sort
7:53
Speaker 1: of fan the flames of fear without facts really intruding
7:57
Speaker 1: on then earth. Okay, camera christ Macro Strategy, Bloomberg News
8:01
Speaker 1: and most notably on his CV. He's a graduate of
8:04
Speaker 1: Duke University. What happened to our hoops team this year? Dude?
8:09
Speaker 1: You're listening to the Team Cancer Live program Bloomberg Markets
8:12
Speaker 1: weekdays at ten am easting on Bloomberg dot Com, the
8:16
Speaker 1: I Heard Radio app, and the Bloomberg Business app. We're
8:18
Speaker 1: listening on demand wherever you get your podcast block. Obviously.
8:24
Speaker 1: In the news this week, Hindenburg Research out with a
8:27
Speaker 1: short seller report on this company. The company vows to fight.
8:30
Speaker 1: I need the latest on this name and do that.
8:33
Speaker 1: We turn to Jenny Sreen, finance reporter with Bloomberg News.
8:37
Speaker 1: I believe she's in London somewhere. I'm not really sure
8:39
Speaker 1: she's over there. Jennifer During Thanks, Yeah, okay, all right,
8:42
Speaker 1: so Jenny Sreen, thanks, So what for joining us? Give
8:44
Speaker 1: us the latest here? Because Block Jack Dorsey all that
8:47
Speaker 1: kind of stuff. They're going to fight this thing, aren't they. Yeah, No,
8:50
Speaker 1: that's exactly right. They're out with I mean a relatively
8:54
Speaker 1: concise statement, given the length of the Hindenburg Research report
8:58
Speaker 1: that was put out on them. But yeah, they've vowed
9:00
Speaker 1: to fight it. They've said they'll work with the SEC
9:02
Speaker 1: to do so, and they seem pretty ready to dispute
9:05
Speaker 1: the claims that we're brought against them. Can you just
9:07
Speaker 1: summarize for us what are the claims. What's the thesis
9:10
Speaker 1: of this short? Yeah, absolutely, So, you know, it's interesting.
9:14
Speaker 1: I think there was a lot of stuff that the
9:17
Speaker 1: investors likely already knew in the report, and so I
9:21
Speaker 1: think the biggest new piece was really just the idea
9:25
Speaker 1: that a lot of fraud and a lot of criminal
9:27
Speaker 1: activity could be going over the cash app network specifically.
9:30
Speaker 1: So this is like a person to person payments app
9:33
Speaker 1: that you know, rivals the likes of Venmo or Zell
9:36
Speaker 1: and Hindenburg, and you know, a bunch of public records
9:40
Speaker 1: requests and a lot of other deep dive research says
9:43
Speaker 1: that they've found evidence of a widespread fraud on this network.
9:46
Speaker 1: And so that that's really I think when investors are
9:48
Speaker 1: worried about and really keying in on. I mean, the
9:50
Speaker 1: thing I really want to know about this is where
9:52
Speaker 1: the regulators are on this, and what they're thinking is
9:54
Speaker 1: because you know, we've certainly seen concerns raised about Zell
9:57
Speaker 1: for example, and you know, you wonder if these these
10:02
Speaker 1: new payment systems, these new ways of transferring money super
10:04
Speaker 1: quickly from one to another. It's they've been around for
10:07
Speaker 1: a little while. So I feel like the regulators really
10:09
Speaker 1: have gotten a bit flat footed on this. Yeah, it's
10:13
Speaker 1: interesting because I think, um, you know, with sell, a
10:15
Speaker 1: lot of the complaints and consumer criticism is that UM
10:19
Speaker 1: fraudsters have seized it and convinced consumers to send money
10:22
Speaker 1: to the wrong person essentially, and so in that instance,
10:25
Speaker 1: you know, it's really UM a fraudster says, hey, you know,
10:28
Speaker 1: send me this, and a person might think it's their
10:30
Speaker 1: aunt or their uncle or their friend, and and it
10:32
Speaker 1: turns out to be a scammer. So that's one area, UM.
10:35
Speaker 1: But really what this report shows is UM that there
10:39
Speaker 1: was UM, you know, use of this network by UM
10:43
Speaker 1: sexual traffickers and and just all sorts of really a
10:46
Speaker 1: criminal CD underbelly that that's really being alleged here. And
10:49
Speaker 1: so I think there's very different kinds of fraud and
10:51
Speaker 1: mouthfee sense that could be occurring. And regulators, I have
10:54
Speaker 1: to imagine, are are looking closely at this and kind
10:56
Speaker 1: of um taking a closer look because I think, um,
11:00
Speaker 1: you know a lot of these FinTechs have popped up
11:01
Speaker 1: and you know, and unfortunately oftentimes see bad actors really
11:05
Speaker 1: looking to see a lot of new technologies. Have we
11:08
Speaker 1: heard from any big shareholders for block here, because the
11:12
Speaker 1: stock has obviously been under significant pressure since this report
11:15
Speaker 1: came out. That's actually a good point. We haven't um
11:20
Speaker 1: no one has swept into their defense just yet. You know,
11:22
Speaker 1: I think a lot of the analyst community, at the
11:24
Speaker 1: very least, they're really trying to draw lines between what
11:28
Speaker 1: is a known issue and what block has been publicly
11:30
Speaker 1: out there trying to fix. You know, they're one of
11:32
Speaker 1: many payment providers that have seen a slowdown in volumes,
11:35
Speaker 1: for instance, and then they've got different strategies in place
11:37
Speaker 1: to fix that, and then what is the new stuff?
11:40
Speaker 1: And I think a lot of this, you know, potential
11:42
Speaker 1: criminal activity and then the allegations there. That's really what
11:45
Speaker 1: I think analysts and in the investor community more broadly
11:47
Speaker 1: is trying to understand maybe before sticking their neck out right.
11:51
Speaker 1: I'm just looking at the a n R functional on
11:53
Speaker 1: the Bloomberg terminal for analyst rating recommendations forty buys, eleven
11:58
Speaker 1: holds and two cells, which it looks like they're still
12:01
Speaker 1: kind of supporting the name. Yeah, they haven't got the
12:03
Speaker 1: news yet maybe or are they so? Jenny? I mean,
12:06
Speaker 1: I guess what are next steps here for the company?
12:10
Speaker 1: I mean, I imagine that we um I guess we
12:13
Speaker 1: hope we've reached out for additional comment and really had
12:16
Speaker 1: to have them address some of these allegations more directly.
12:19
Speaker 1: The statement that we got last night was really, I
12:23
Speaker 1: would say, you know, obviously very forceful in terms of
12:26
Speaker 1: promising legal action and then really trying to take a
12:28
Speaker 1: stand against it, but not really addressing the specific claims.
12:31
Speaker 1: And I think you know, in the cases in the
12:32
Speaker 1: past where you've seen these big short Siller reports, you
12:34
Speaker 1: often do see company responses that are you know, tens
12:37
Speaker 1: of pages long and very detailed, and so I feel
12:41
Speaker 1: like that's we hope that's what we'll get, you know.
12:45
Speaker 1: Notwithstanding that, I think they have earnings coming up in
12:47
Speaker 1: a couple of weeks and they'll absolutely have to address
12:49
Speaker 1: it then. So you know, I think we're just going
12:52
Speaker 1: to have to wait and see how the company wants
12:54
Speaker 1: to respond from here. Do you see any other knock
12:56
Speaker 1: on impact into any other sectors of the financial services
12:59
Speaker 1: industry from this? I definitely think, you know, especially with
13:03
Speaker 1: players like Sell and Venmo, this just ratchets up the
13:06
Speaker 1: scrutiny on those guys even more because I think, you know,
13:09
Speaker 1: there's always a concern that would you know, where there's
13:12
Speaker 1: one issue, there's many, and so you'll probably see regulators
13:15
Speaker 1: looking more closely at all of these e money providers
13:18
Speaker 1: and looking for ways that they can make sure that
13:20
Speaker 1: you know, there is criminal activity, that they can catch
13:22
Speaker 1: it and tamp down on it, and that these providers
13:25
Speaker 1: do have systems in place to catch it. You know, Jenny,
13:28
Speaker 1: we don't read too much about short selling in successful
13:31
Speaker 1: short saying bad I guess we have. Recently, these Hindenburg
13:34
Speaker 1: folks have been kind of busy. They I guess the
13:36
Speaker 1: most notable short report and short action they've taken this
13:40
Speaker 1: against Adani an Indian companies. So can you tell us
13:42
Speaker 1: a little about Hindenburg Research and kind of what their
13:46
Speaker 1: business is. Yeah, I mean, I think it's it's exactly
13:51
Speaker 1: like you said. They usually write these really big reports
13:54
Speaker 1: and then use social media and other ways to kind
13:57
Speaker 1: of distribute them and promote their ideas. But they're betting
14:00
Speaker 1: against the stocks fall, so you have to kind of
14:02
Speaker 1: keep that in mind as you're reporting on them and
14:05
Speaker 1: reading these research that they definitely have an angle and
14:07
Speaker 1: have a financial incentive to cause this type of decline
14:10
Speaker 1: that we've seen in blocks stock this week. But You're
14:14
Speaker 1: absolutely right, Donnie. Was their other big report that they
14:16
Speaker 1: did this year. A couple of years ago they had
14:19
Speaker 1: went out on Lordstown. They had a lot on the
14:22
Speaker 1: ev market just a few years ago. So I think,
14:24
Speaker 1: you know, they're relatively new player, but definitely have caused
14:27
Speaker 1: quite a stir every time they do take one of
14:29
Speaker 1: these very public formal positions. I'm very interested in your
14:32
Speaker 1: point that you know they're putting this all out on
14:34
Speaker 1: social media. It seems like these kinds of the kinds
14:37
Speaker 1: of angles on these stories move very very quickly. I mean,
14:40
Speaker 1: do you have a sense that it moves a little
14:42
Speaker 1: bit too quickly? Um? I mean I think, Um, I
14:46
Speaker 1: guess as a journalist, you know, we cover the stocks
14:49
Speaker 1: drop and try to explain that for readers. But yeah,
14:53
Speaker 1: I mean, I think everybody reading any research, you know,
14:55
Speaker 1: even if it's a you know, someone who's not a
14:58
Speaker 1: short seller, sometimes there's folks who of uh invested in
15:01
Speaker 1: the stock who put out their ideas and they want
15:03
Speaker 1: to see the stock go up, so they would have
15:04
Speaker 1: a bias too in some ways. So um, yeah, I
15:06
Speaker 1: think it's important whenever we're reading any research to kind
15:09
Speaker 1: of take into account what financial incentives the author might have.
15:12
Speaker 1: And Jenny following up on that, how's the track record
15:15
Speaker 1: of Hindenburg Research been? I mean, I you know, they
15:18
Speaker 1: were relatively unknown to me until the Donnie news broke,
15:23
Speaker 1: because I was always think of Carson Block at whatever
15:25
Speaker 1: firm he's at as a prominent short seller. Um, what's
15:29
Speaker 1: the track record for Hindenburg? Um, it's a good question.
15:33
Speaker 1: I mean, I feel like, especially with something like a Donnie,
15:35
Speaker 1: I guess, you know, obviously they want to see the
15:37
Speaker 1: stock drop and then the Donni case, it absolutely dropped
15:40
Speaker 1: in the days and weeks following that report. Um, but
15:43
Speaker 1: I think and ultimately it depends on when Endiburg decides
15:47
Speaker 1: to sell their position and how much they're really hoping
15:49
Speaker 1: to net and so. UM. You know, it's always a
15:52
Speaker 1: long term, you know discussion, like if if Donnie seems
15:55
Speaker 1: to turn things around or is able to back back
15:57
Speaker 1: these allegations sufficiently. Um, it'll be I'm interested to see
16:00
Speaker 1: if I think it's still probably too a little bit
16:02
Speaker 1: too early to tell. All Right, Jenny, thank you so much.
16:05
Speaker 1: We appreciate that. Jenny Serene she is a financial reporter
16:09
Speaker 1: for Bloomberg News. Checking her out, She's based in New York,
16:11
Speaker 1: but she's spent in a few months over in the
16:13
Speaker 1: London studio. You're listening to the tape cans are our
16:17
Speaker 1: live program Bloomberg Markets weekdays at ten am Eastern on
16:20
Speaker 1: Bloomberg Radio, the tune in app, Bloomberg dot Com, and
16:24
Speaker 1: the Bloomberg Business App. You can also listen live on
16:26
Speaker 1: Amazon Alexa from our flagship New York station. Just say
16:30
Speaker 1: Alexa play Bloomberg eleven thirty. All right, let's get the
16:35
Speaker 1: kind of an overlay. What's you know? What are the
16:38
Speaker 1: stock pickers thinking these days? I mean, good luck to them.
16:41
Speaker 1: Scott Harrison, he does this stuff for a living. He's
16:43
Speaker 1: a portfolio manager for Argent Capital Management. Scott Harrison, you
16:48
Speaker 1: sit out there, You've got a lot of cross currents
16:50
Speaker 1: out there. We just finished up earnings, waft some more
16:52
Speaker 1: earnings kicking off in a few weeks. He got that
16:54
Speaker 1: earnings probably at risk, and you got central bankers whippin'
16:58
Speaker 1: rates all over the place, and then you out a
17:00
Speaker 1: little bit of a bank. I'm not going to call
17:01
Speaker 1: it a crisis, but some angst out there about the
17:04
Speaker 1: global banking space. Your portfolio management, you get paid to
17:07
Speaker 1: put money to work. How do you put it all together? Yeah,
17:10
Speaker 1: thank you. I appreciate that, and I think the word
17:13
Speaker 1: you use their angst is very appropriate for what we're
17:16
Speaker 1: seeing in the market today. And for us, we start
17:19
Speaker 1: thinking about crisis well before it, so we think about
17:24
Speaker 1: risk and our portfolio is a constant part of our
17:27
Speaker 1: investment process. But what I like to remind investors is
17:31
Speaker 1: that while the financial sector is getting all the attention
17:34
Speaker 1: for the right reasons, if the stock market itself goes down,
17:38
Speaker 1: there might be opportunities outside of financials that really we
17:41
Speaker 1: should be looking for. And ultimately, regardless of what's going
17:46
Speaker 1: on in the environment, there are going to be companies
17:48
Speaker 1: that can continue to compound cash flows and that come
17:52
Speaker 1: out of whatever is going on today come out in
17:54
Speaker 1: a stronger position going forward. So that's really what we're doing.
17:58
Speaker 1: We're a fundamental invest we are looking at company fundamentals,
18:02
Speaker 1: We're rolling up our sleeves, and we're really looking for
18:05
Speaker 1: those opportunities today that can compound cash flows as we
18:08
Speaker 1: look out over the next three to five years. So
18:11
Speaker 1: what are your favorite sectors now at this point? Sure,
18:15
Speaker 1: I look at last year and the two hardest hit
18:18
Speaker 1: areas of the stock market last year, consumer discretion and
18:21
Speaker 1: information technology. I view the weakness of last year is
18:25
Speaker 1: potentially presenting opportunities today. So semiconductors, for instance, we're one
18:31
Speaker 1: of the hardest hit areas in technology last year, and
18:34
Speaker 1: that's an area that we've been increasing our exposure to
18:37
Speaker 1: this year. In a company like Texas Instruments, for instance,
18:41
Speaker 1: is a name recently that's correct, and you know we've
18:46
Speaker 1: we've added to that to our investment strategy over the
18:49
Speaker 1: last several months. And ultimately, what we're looking for all
18:53
Speaker 1: those companies that can offer attractive dividends, that can compound
18:57
Speaker 1: cash flows over time, and that management to speaks our language.
19:00
Speaker 1: They believe that growing free cash flow per share is
19:04
Speaker 1: the best way to create value for shareholders, and that's
19:07
Speaker 1: exactly what we believe in. So there are opportunities like
19:10
Speaker 1: Texas Instruments tractor supply company. I'm guessing the company is
19:16
Speaker 1: basically what the name says it is, but I don't
19:19
Speaker 1: think we have any tractor supply stores here in Manhattan.
19:21
Speaker 1: Tell us about this company, okay? Sure that that's another
19:25
Speaker 1: great opportunity and that that fits in the consumer discretionary
19:28
Speaker 1: sector that I mentioned earlier, Tractor Supply actually started around
19:32
Speaker 1: a great depression in the thirties and they started out
19:35
Speaker 1: offering exactly what the name says, supplies for tractors. But
19:40
Speaker 1: it's evolved into a leading retailer and today about half
19:44
Speaker 1: of the company's business comes from livestock or pets. More
19:48
Speaker 1: than eighty percent of the sales of the company has
19:51
Speaker 1: to do with immediate use products, and they are the
19:55
Speaker 1: dominant leader in rural markets. So we can think of
19:59
Speaker 1: home depot and lows and those types of retailers and
20:02
Speaker 1: urban markets. Tractor Supply is the equivalent for the rural
20:07
Speaker 1: community and they have a strong following. They supply and
20:13
Speaker 1: really target the rancher community, and there is no company
20:17
Speaker 1: that comes close to them in terms of market share
20:19
Speaker 1: and what they're able to do. Scott, I got to
20:21
Speaker 1: get out in New York City more often. This is
20:23
Speaker 1: a twenty five billion dollar market cap stock, and you
20:26
Speaker 1: put it up on the comp functional in the Bloomberg Trauma,
20:29
Speaker 1: I get a five year look at this stock. Over
20:31
Speaker 1: five years, this stock has compounded thirty two percent a
20:35
Speaker 1: year versus S ANDP of eleven percent. Scott, how about that,
20:38
Speaker 1: I've never heard of this thing? Well, that's you know,
20:42
Speaker 1: you just said our favorite word there, which was compounding.
20:45
Speaker 1: We believe the compounding cash flows is the greatest forces investing,
20:49
Speaker 1: and Tractor Supply has done just that through the pandemic.
20:53
Speaker 1: Alan They've increased sales by over seventy percent. There is
20:57
Speaker 1: no competitor that's close to them in their markets. Strong barriers,
21:02
Speaker 1: strong brand, and just a company that continues to execute
21:06
Speaker 1: um and just the hallmark to them. While other retailers
21:09
Speaker 1: have struggled coming out of the pandemic and dealing with
21:13
Speaker 1: that transition, they have just executed phenomenally and continue to
21:17
Speaker 1: target that high single digit growth rate. And compounding is
21:21
Speaker 1: exactly the right word that I would use when I
21:24
Speaker 1: think of Tractor Supply, I think the closest one Jennifer
21:27
Speaker 1: to hear, I'm looking at it Middletown, New Jersey. John.
21:31
Speaker 1: I have been in that store numerous times, so I'm like,
21:34
Speaker 1: are you like a hobby farmer dude? Um? No, I
21:38
Speaker 1: mean they have dog food and stuff like that. I
21:42
Speaker 1: needed supplies for my chainsaw. Of course, who doesn't need supplies?
21:46
Speaker 1: I mean the Tractors Supply would describe it's sort of
21:48
Speaker 1: like a less crowded home depot lights. Okay, I'm gonna
21:52
Speaker 1: check it out this weekend, all right, But with the
21:54
Speaker 1: with the hobby farmers, this is the question that fascinates
21:57
Speaker 1: me because genuine question and food inflation in this country
22:02
Speaker 1: pretty out of hand, I mean, egg prices. So my
22:05
Speaker 1: question to Scott is do you see that there's a
22:09
Speaker 1: upticking interest in the products of this company with company
22:11
Speaker 1: with people saying, you know, I think I'm going to
22:13
Speaker 1: start growing my own food. Um, you know, that's a
22:17
Speaker 1: great question, and you're exactly right. An interesting fact about
22:21
Speaker 1: Trackers supply about twenty percent of their customers own chickens,
22:26
Speaker 1: and so we certainly have witnessed inflation when it comes
22:30
Speaker 1: to eggs. And so this is what started out is
22:33
Speaker 1: a niche market many years ago is taking on greater
22:37
Speaker 1: and greater importance. And that's just one example of where
22:40
Speaker 1: it's showing up. All right, the over under on tom
22:42
Speaker 1: Keene ever being within one hundred miles of a tractor
22:44
Speaker 1: supply company store. I'm gonna take take taking the undernet
22:47
Speaker 1: real quick, thirty seconds. Garment, they were the leaders in
22:50
Speaker 1: that mapping thing back in the day, but now I
22:52
Speaker 1: got Google Maps. Garment still thing, that's right, m You're
22:56
Speaker 1: exactly right. Garment has transitioned itself completely different company than
23:01
Speaker 1: the one that we would have known from ten years ago.
23:04
Speaker 1: R and D has increased from ten percent of sales
23:06
Speaker 1: to twenty percent, and they have products ranging from everything
23:10
Speaker 1: from your smart watches, so your auto infotainment, but even
23:15
Speaker 1: into the cockpits of airplanes. Garment is just a dominant
23:19
Speaker 1: leader there. R and D is second to none, and
23:22
Speaker 1: it's another one of those great companies. Three percent dividend
23:25
Speaker 1: yield compounding annually and for shareholders, this is a company
23:29
Speaker 1: that offers attractive returns that we can own for the
23:32
Speaker 1: long term thirteen percent compounded and your return over the
23:35
Speaker 1: last five years again, S ANDP about ten ten point six.
23:38
Speaker 1: So another APT performer. There's Scott great stuff. Really appreciate
23:41
Speaker 1: you throwing out some names. There's some really interesting one.
23:43
Speaker 1: Scott Harrison, portfolio manager, Argent Capital Management. I'm going to
23:47
Speaker 1: this tractor supply store. It's on Root thirty five in Middletown.
23:49
Speaker 1: I can I can hit that. Yeah, I'll see what
23:51
Speaker 1: they got in there. That's the staples. I think, do
23:53
Speaker 1: a little store walk down there. You're listening to the
23:56
Speaker 1: team Ken's are live program, Bloomberg Markets, Jayson ten Am
24:01
Speaker 1: staring Bloomberg dot Com, the I Heard Radio app, and
24:04
Speaker 1: the Bloomberg Business App. We're listening on demand wherever you
24:07
Speaker 1: get your podcast. We only have some banking turmoil out
24:13
Speaker 1: there in the marketplace. I'm not calling a crisis, but
24:15
Speaker 1: clearly there's some turmoil punctuated by you know, small number
24:19
Speaker 1: of banks actually failing. Um, you know, most notably probably
24:22
Speaker 1: a Silicon Valley bank, And of course that raises questions about,
24:26
Speaker 1: you know, the availability of capital for companies and growing
24:30
Speaker 1: companies and get a sense of what that all means
24:32
Speaker 1: and how that might play out. We check to our
24:34
Speaker 1: next guest, Rania set Home, managing partner of the set
24:37
Speaker 1: Home Law Group. Rania, thanks so much for joining us here. Um,
24:41
Speaker 1: there's a I guess a growing concern out there as
24:43
Speaker 1: we see some of the stress and the banking system
24:46
Speaker 1: that the availability of capital and maybe the cost of capital,
24:50
Speaker 1: is it going to become more difficult, particularly for smaller companies.
24:54
Speaker 1: What are you hearing from your clients. I mean, everyone
24:57
Speaker 1: has a concern about it, and most concerns are valid.
25:00
Speaker 1: Interest rates are increasing, they're inching higher. They were just
25:04
Speaker 1: raised this week in fact, and I think there will
25:07
Speaker 1: continue to be raised. So everything is more expensive, and
25:11
Speaker 1: it's causing the clients to burn through their money even
25:15
Speaker 1: quicker than anticipated. I mean, what do you see is
25:19
Speaker 1: the next likely move for a startup that's looking to
25:22
Speaker 1: raise some money. I think they're going to have to
25:25
Speaker 1: go searching for debt financing with companies that have relationships
25:32
Speaker 1: with multiple banks and trying their best. I mean, I
25:36
Speaker 1: think banks aren't going to be as aggressive as they
25:39
Speaker 1: were in the past. I was just speaking to a
25:41
Speaker 1: couple of banks. I can't, you know, say their names
25:44
Speaker 1: on the radio, but they said they're putting all debt
25:47
Speaker 1: financing on hold right now. So some banks are out
25:51
Speaker 1: of that game, the smaller regional ones. So I guess
25:55
Speaker 1: the issue for you know, we've seen a lot of
25:58
Speaker 1: depositors just pull the money on put it into money
26:00
Speaker 1: market funds. But that doesn't do me any good if
26:02
Speaker 1: I'm looking to open up a new store or start
26:05
Speaker 1: a new business. Do you think this could become a
26:09
Speaker 1: real issue or is this something that maybe you know
26:13
Speaker 1: is kind of specific to a handful of banks. No.
26:17
Speaker 1: I think this is a real issue. I mean, one
26:19
Speaker 1: of the problems that startup space is not. When they
26:23
Speaker 1: do look for funding through banks like SVB or any
26:26
Speaker 1: other banks, they're required to maintain a majority of their
26:30
Speaker 1: money with that bank. It's sort of like collateral. It's
26:34
Speaker 1: not exactly a collateral, but it's like collateral. And then
26:37
Speaker 1: they're left putting all their eggs in one basket. And
26:40
Speaker 1: so what I've been suggesting is to work with a
26:43
Speaker 1: bank that can offer you an insured cash slop or
26:48
Speaker 1: an insured bank deposit. And what that allows you to
26:51
Speaker 1: do is have a single bank relationship, but that bank
26:55
Speaker 1: then moves your money around to various banks within the network,
27:00
Speaker 1: so that no single bank is holding more than the
27:03
Speaker 1: FDIC insurance maximum. But I believe that maximum needs to
27:07
Speaker 1: go up. Two hundred and fifty thousand dollars maybe a
27:10
Speaker 1: lot for the average person, but it's not for a startup,
27:14
Speaker 1: and it's not for an average business. Do you have
27:16
Speaker 1: a sense that regulators would you take your advice and
27:20
Speaker 1: start looking at raising that If regulators took my advice,
27:24
Speaker 1: the world to be a very different place. I don't
27:26
Speaker 1: think they're going to take my advice right now. You know,
27:29
Speaker 1: the government has been spending a lot of money since
27:33
Speaker 1: twenty twenty the world and the global economy was essentially
27:37
Speaker 1: shut down. And we can all argue about whether or
27:40
Speaker 1: not that was a good idea, But when you stop
27:44
Speaker 1: the economy from working and then put an influx of
27:48
Speaker 1: money into the world so people can survive, it's sort
27:52
Speaker 1: of like an IOU that's coming due. And I think
27:54
Speaker 1: that's what we're finding. And there was really no information
27:59
Speaker 1: available to the banks about the increase of the interest
28:03
Speaker 1: rates until it was close in time, and so banks
28:07
Speaker 1: like SBB that purchased you know, long term bonds with
28:10
Speaker 1: low interest rates, they were in a lot of hurt.
28:14
Speaker 1: They had to sell it at a loss and that
28:16
Speaker 1: you know, accelerated their demise. The ones that didn't hedge
28:20
Speaker 1: well and ones that didn't manage the duration are in trouble.
28:23
Speaker 1: But so RNIA. If you have a client who's making
28:27
Speaker 1: a small business and maybe they're feeling, you know, a
28:31
Speaker 1: little bit of angst about kind of access to capital,
28:34
Speaker 1: cost of capital, what are you telling them to do
28:37
Speaker 1: during these times? I'm telling them to work with wealth
28:42
Speaker 1: managers that have relationships at institutions that they may not
28:48
Speaker 1: even know about. You know, some you know, venture capital
28:52
Speaker 1: firms that may not be famous in their space, because
28:56
Speaker 1: you know, you look at places like why Combinator, and
28:59
Speaker 1: I think they shut down an entire division. So a
29:02
Speaker 1: lot of what's happening also is all of these companies
29:05
Speaker 1: are going to the same let's say ten players, and
29:09
Speaker 1: those ten players are exhausted now they have no cash
29:12
Speaker 1: and they can't support the demand. So you have to
29:16
Speaker 1: diversify not just with her banking relationships by using these
29:20
Speaker 1: i CSS, but also diversify your relationships with banking professionals
29:26
Speaker 1: so you have access to capital from other companies. One
29:30
Speaker 1: thing I wonder is you know a startup can consider
29:33
Speaker 1: a new strategy bit do you have any insight in
29:36
Speaker 1: how easy it is for a startup to execute a
29:39
Speaker 1: new funding strategy? For example, you know around the real
29:43
Speaker 1: worries about SVB, when we saw lines of customers out
29:46
Speaker 1: on the streets. You know, we were hearing that banks
29:49
Speaker 1: weren't able to take phone calls from their wire transfer
29:52
Speaker 1: departments because they were just so completely overloaded. Have you
29:55
Speaker 1: seen the mechanics of the banking system ease up a
29:58
Speaker 1: little bit or are you still hearing there's a bunch
30:00
Speaker 1: of strain. I think it's still strained. Everybody is being
30:05
Speaker 1: extremely reactive. I mean, who can blame them, but reactivity
30:09
Speaker 1: never works in anybody's favor. And it looks like, at
30:13
Speaker 1: least in the short term, the large institutional banks that
30:17
Speaker 1: we all know, the ones that have a bank on
30:20
Speaker 1: every block or every other block, are the safe that's
30:23
Speaker 1: right now. And in fact, some of them, you know,
30:26
Speaker 1: are purchasing parts of these banks that are that have
30:29
Speaker 1: gone under. So, Rinia, you know, we've heard about some
30:33
Speaker 1: of the challenges out on the West Coast and Silicon
30:36
Speaker 1: Valley with some of those funds, some of those VC
30:39
Speaker 1: funded companies and their relationships with SUVVVB. Do you think
30:43
Speaker 1: there's similar kind of exposure here on the East Coast
30:45
Speaker 1: and other parts of the country that have a big
30:48
Speaker 1: VC community. I think yeah. I think this is a
30:52
Speaker 1: problem nationwide, and in some cases some of the banks
30:56
Speaker 1: that I think collapsed, like Signature, it was also due
31:00
Speaker 1: to their investment portfolios. They invested differently, but it was
31:05
Speaker 1: still the investment portfolio that brought them to this place.
31:10
Speaker 1: And it's all about lack of diversification really when you
31:13
Speaker 1: get down to it. Okay, Rinia set Home, thanks so
31:16
Speaker 1: much for joining us. Rinia set Home managing partner set
31:18
Speaker 1: Home Law Group. You're listening to the tape cancer our
31:21
Speaker 1: live program Bloomberg Markets weekdays at ten am Eastern on
31:25
Speaker 1: Bloomberg Radio, tune in app, Bloomberg dot Com, and the
31:28
Speaker 1: Bloomberg Business App. You can also listen live on Amazon
31:32
Speaker 1: Alexa from our flagship New York station, Just say Alexa
31:35
Speaker 1: play Bloomberg eleven thirty. A lot of my friends been
31:39
Speaker 1: telling me the next ten years is the decade for India,
31:43
Speaker 1: and that kind of came into focus a little bit
31:46
Speaker 1: when we saw China just kind of shut down and
31:48
Speaker 1: then not really figure out their COVID policy Jennifer So
31:51
Speaker 1: amongst other reasons. But that just kind of came into
31:53
Speaker 1: focus when China kind of shut down a little bit.
31:55
Speaker 1: And we are very fortunate today to have a wonderful
31:58
Speaker 1: voice to kind of get us to that story. Sunji Sanyo.
32:01
Speaker 1: He's an economist, he's an author, and he's a principal
32:04
Speaker 1: economic advisor to the Indian government and Prime Minister Mody
32:08
Speaker 1: and he joins us here in a Bloomberg Interactive Broker studio. Sunjie,
32:11
Speaker 1: thanks so much for joining us. We appreciate you coming in.
32:14
Speaker 1: If you were to give me the elevator pitch for India. Okay,
32:19
Speaker 1: what would it be? Well, it's by some margin, the
32:23
Speaker 1: fastest growing major economy in the world. It's financial system
32:27
Speaker 1: and like what's happening in much of the world is
32:29
Speaker 1: rock solid. And you know, if the world was not
32:35
Speaker 1: going through so much stone oil, it could easily be
32:37
Speaker 1: growing at eight percent plus. I guess one thing I'm
32:41
Speaker 1: very interested to hear you talk about is India's manufacturing policy,
32:44
Speaker 1: because this has been a very big focus for a
32:46
Speaker 1: very long time. Do you feel that you're getting to
32:49
Speaker 1: where you need to be with that? I think you
32:50
Speaker 1: were targeting twenty five percent of GDP. Do I have
32:53
Speaker 1: that right? Well, if you take if you're looking at manufacturing,
32:58
Speaker 1: we would be looking at something in the early twenties, guests.
33:00
Speaker 1: But I think rather than take the percentage, the problem
33:03
Speaker 1: here is the following. India has an extremely competitive services sector,
33:07
Speaker 1: and we probably the first economy ever which has gone
33:10
Speaker 1: directly from agriculture to services in the sense that almost
33:14
Speaker 1: sixty plus percent of their economy is services more our
33:19
Speaker 1: exports and are more than half of it is services.
33:22
Speaker 1: Probably the only developing country in the world where that
33:25
Speaker 1: is the case. So we are very oriented towards services,
33:28
Speaker 1: very competitive technology of various kinds, but other things as well.
33:34
Speaker 1: What's happening is that that creates a disbalance in our
33:37
Speaker 1: economy in that you have a decent sized manufacturing sector
33:41
Speaker 1: but has while it has transformed itself over the last decade.
33:45
Speaker 1: And we do have some areas where we are very competitive,
33:48
Speaker 1: like automobiles, pharmaceuticals. Many of the farm generic pharmaceuticals are
33:52
Speaker 1: bar here are from India. But in a general principle
33:56
Speaker 1: we have not been as visible in the supply chains
34:00
Speaker 1: as say China is, and so we want to correct
34:03
Speaker 1: this imbalance. You know, a large economy needs to have
34:06
Speaker 1: all cylinders firing, and manufacturing hasn't quite been an area
34:11
Speaker 1: that's done quite so well. What are the major areas
34:14
Speaker 1: of focus for development for India from this government? What
34:17
Speaker 1: is it really focusing on over the next over the
34:20
Speaker 1: longer term. So the first thing is, given the turbulence,
34:25
Speaker 1: make sure there's no macroeconomic stress on the system. So
34:28
Speaker 1: we are conservative or macroeconomic stress. You know, we can
34:32
Speaker 1: easily grow this economy at eight percent. We'd be quite
34:34
Speaker 1: happy with six and a half right now, given what's
34:36
Speaker 1: going on in the world. Meanwhile, we are building out,
34:40
Speaker 1: doing a massive build out of infrastructure. We did not
34:44
Speaker 1: blow out our budgets during the COVID crisis. We're quite restrained.
34:49
Speaker 1: But since then we have dramatically expanded out our infrastructure budgets.
34:56
Speaker 1: This year we are going to see a thirty three
34:58
Speaker 1: percent increase in our structure spending, and this is on
35:02
Speaker 1: top of several years or increase. What type of infrastructure
35:05
Speaker 1: are you focusing on a lot of physical infrastructure, so
35:08
Speaker 1: roads and highways, airports, stuff like that. If you take
35:13
Speaker 1: Mumbai for example, it's probably right now the largest concentration
35:16
Speaker 1: of cranes in the world. It's basically a construction site.
35:21
Speaker 1: Not a pleasant place to live, right, I can assure you,
35:23
Speaker 1: because everything is dug up. But in a couple of
35:26
Speaker 1: years time, it will have a completely brand new metro system,
35:30
Speaker 1: it will have a completely new airport, links to the mainland,
35:35
Speaker 1: coastal road, blah blah blah. And that's happening to many
35:38
Speaker 1: other cities in India as well. One thing I'm wondering
35:42
Speaker 1: about this great construction push that you have, in this
35:44
Speaker 1: great infrastructure push, is how much of that are you
35:47
Speaker 1: looking towards the outside world for investment. How much inward
35:51
Speaker 1: investment are you looking for? And one thing I want
35:53
Speaker 1: you to talk particularly about if you don't mind, is
35:56
Speaker 1: also the semiconductor push that has been a great feature
35:59
Speaker 1: of talks between India and the US. So the infrastructures
36:04
Speaker 1: push itself is largely domestically driven. Of course, we do
36:07
Speaker 1: have large investors from the rest of the world, especially
36:11
Speaker 1: sovereign wealth funds investing into it, but mostly funded domestically
36:15
Speaker 1: and executed domestically. We have the engineering capacities large companies
36:19
Speaker 1: like Large and two bro etc. Which can do it.
36:22
Speaker 1: So this is not where we are really looking at
36:26
Speaker 1: the foreign companies coming in. We really want, as I said,
36:30
Speaker 1: to insert ourselves into the global supply chains. And many
36:35
Speaker 1: of the companies, large international companies already have something in India,
36:39
Speaker 1: partly for the domestic market or because they have the
36:42
Speaker 1: services outsourcing where it's a design or their accounts department,
36:46
Speaker 1: et cetera. They're already in India. So what we want
36:49
Speaker 1: them to do is now to add their manufacturing bit.
36:52
Speaker 1: And that's the point we are making earlier, is to
36:54
Speaker 1: come and do that in India. So we design the chips.
36:57
Speaker 1: Whether you don't actually manufacture them. So we want that
37:01
Speaker 1: to move now. Of course, for a variety of reasons.
37:03
Speaker 1: Some of it is moving out of China. We want
37:05
Speaker 1: some of it to come to India. One because it
37:08
Speaker 1: puts US in the map, in the supply chain, but
37:10
Speaker 1: it also for another reason. One of the things we
37:13
Speaker 1: discovered during the COVID crisis is that if you rely
37:17
Speaker 1: entirely on a single foreign source, it can suddenly shut
37:22
Speaker 1: down for all kinds of reasons. It could be a pandemic,
37:24
Speaker 1: it could be geopolitical reasons, whatever it is, you've got
37:27
Speaker 1: to be careful about this. And so we are very
37:30
Speaker 1: keen that at least some basic things like chips do
37:33
Speaker 1: get manufactured in India. For example, in twenty twenty one,
37:38
Speaker 1: we discovered we have this huge automobiles industry, very competitive,
37:42
Speaker 1: but can't get chips, so the whole thing shuts down effectively.
37:46
Speaker 1: So we think that at least some basic things, some
37:50
Speaker 1: basic chemicals, basic things like chips, they have we have
37:53
Speaker 1: to have some capacity on shore. I believe the US
37:56
Speaker 1: is doing something similar as well, with because of similar reasons,
37:59
Speaker 1: not geopolitical, but just from a resilience perspective, makes sense.
38:03
Speaker 1: What are the major challenges that India has and the
38:07
Speaker 1: government has been executing their growth plan. You've always had
38:12
Speaker 1: one of the world's largest populationship that population is for
38:15
Speaker 1: the longest time been very young and educating. You've had
38:18
Speaker 1: a lot of wind at your back. What's held India
38:20
Speaker 1: back if you believe it has been held back or
38:22
Speaker 1: and what are some of the challenges going for? So
38:24
Speaker 1: the wind on our back is really taking off. So yes,
38:27
Speaker 1: we have just I think this months gone past China
38:29
Speaker 1: as the world's largest population. But do remember the average
38:32
Speaker 1: Indian is some twenty eight years old, and so it's
38:36
Speaker 1: only now that we are seeing the proportion of population
38:39
Speaker 1: of working age exploding out. And we are still far
38:42
Speaker 1: away from the time when we go into the aging phase.
38:45
Speaker 1: So we have now about twenty five thirty years where
38:48
Speaker 1: a very significant and growing proportion of our population will
38:52
Speaker 1: be a working age And unlike China, which had a
38:55
Speaker 1: very spiky demographic, because the one child policy, ours is
38:58
Speaker 1: much smoother, we will take a good leisurely thirty years
39:02
Speaker 1: over this. So this is an opportunity. It's not a
39:05
Speaker 1: sufficient reason to be to see high growth, but it
39:09
Speaker 1: certainly is a necessary condition for seeing you know, year
39:11
Speaker 1: on year growth without labor market tightening. So we are
39:15
Speaker 1: in that place. We will be there for twenty five
39:17
Speaker 1: thirty years. But what we now need to do is
39:20
Speaker 1: to make sure, as I said, the infrastructure is there.
39:22
Speaker 1: The physical infrastructure. Also, another thing that India is doing
39:26
Speaker 1: somewhat differently from others is because we are going through
39:29
Speaker 1: this transition in the post digital world. Remember everybody else,
39:34
Speaker 1: including the US or China more recently, etc. Happened during
39:39
Speaker 1: or before the digital age. We are going through this
39:43
Speaker 1: in the digital age, so far more than many other countries.
39:46
Speaker 1: We are actually putting everything online in multiple ways. For example,
39:50
Speaker 1: every Indian has got an Adhar number, which is like
39:53
Speaker 1: a social security number, but it is much more sophisticated
39:56
Speaker 1: than that. I mean, you can use your thumbering face
39:59
Speaker 1: recognition et C. Now this means that you can basically
40:02
Speaker 1: use this to get bank accounts, get social security, pay
40:06
Speaker 1: out insurance very quickly. We might even allow you to
40:10
Speaker 1: go through airports using it and so on. So there
40:13
Speaker 1: are many, many such things that we are creating public
40:16
Speaker 1: digital public goods, which allows many people to do things
40:21
Speaker 1: that would have been done up with a country a
40:24
Speaker 1: much later phase on their development. One question. A tailwind
40:28
Speaker 1: in interest in India has been the closing in China,
40:32
Speaker 1: the COVID policy, the pressure on the technology industry as
40:35
Speaker 1: that eases. What do you think that does to interest
40:38
Speaker 1: in India? Well, I mean the issues which about China,
40:43
Speaker 1: and not know about just the closures at that point
40:47
Speaker 1: in time. There are far wider issues relating of course
40:50
Speaker 1: to geostrategic issues, but also to what has been understood
40:55
Speaker 1: I think by many people that you know, there's no
40:59
Speaker 1: rule of law as far as, for example, the treatment
41:02
Speaker 1: of large businesses is concerned what happened to Ali Baba
41:05
Speaker 1: for example, and so on. So you have to understand
41:07
Speaker 1: that we therefore are much more in sync with the
41:10
Speaker 1: rule of law approach. We are world's largest democracy, much
41:14
Speaker 1: more transparent. May look more messy, but in the longer
41:18
Speaker 1: run you get what you see, ye, And so I
41:21
Speaker 1: think this fascination for an authoritararian system has I think
41:26
Speaker 1: somewhat eased off in our sense. This is our opportunity
41:29
Speaker 1: to build on top of that, and that to some
41:33
Speaker 1: extent is happening. We are a member of something called
41:35
Speaker 1: the Quad. You may be aware of that, where there's
41:37
Speaker 1: an alliance between Japan Australia, India, in the US and
41:42
Speaker 1: that is building out to the Indo Pacific area and
41:46
Speaker 1: in the West Asia. There's another group called I to
41:50
Speaker 1: YouTube between India, US, Israel and the UAE. So there
41:54
Speaker 1: are new geostrategic configurations that are emerging out of this
41:58
Speaker 1: and we intend to play on important role in that. Lastly,
42:01
Speaker 1: before we let you go, I think people all around
42:03
Speaker 1: the world learned a lot about their healthcare system during
42:07
Speaker 1: this whole COVID issue. What did India learn about its
42:11
Speaker 1: healthcare system? What are the challenges and what are the opportunities?
42:14
Speaker 1: I guess well, um, obviously, like everybody else, COVID hit
42:19
Speaker 1: us hard, particularly in the second Delta wave. But on
42:22
Speaker 1: the other hand, we also demonstrated that we could create
42:26
Speaker 1: our own vaccines and we could go out and then
42:28
Speaker 1: one point four billion people, that's about a billion of
42:31
Speaker 1: them were eligible they're old enough to get vaccinated, and
42:36
Speaker 1: we delivered a billion vaccines and did it again with
42:40
Speaker 1: the boosters. So you know, we have global level capacities
42:46
Speaker 1: both in terms of production of vaccines but also to
42:48
Speaker 1: delivering it. And importantly we know exactly which day, which
42:53
Speaker 1: particular vaccine was given to everybody because the whole thing is,
42:56
Speaker 1: as I said, is digitally set up, so you don't
42:59
Speaker 1: have those sort of non phone and it's literally written handed.
43:05
Speaker 1: Don't get me started. But anyway, we got it done.
43:07
Speaker 1: We have a digital footed out. We all figured it out.
43:10
Speaker 1: Send Ji San, y'all, thank you so much for joining us.
43:12
Speaker 1: You're listening to the tape cancer our live program Bloomberg
43:15
Speaker 1: Markets weekdays at ten am Eastern on Bloomberg Radio, the
43:19
Speaker 1: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
43:22
Speaker 1: You can also listen live on Amazon Alexa from our
43:25
Speaker 1: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
43:31
Speaker 1: Let's get right to our next guest, Ali er Month,
43:34
Speaker 1: genomic revolution analyst at our investment Not Ali, I've been
43:39
Speaker 1: in research business for more than thirty years. I've managed
43:41
Speaker 1: research departments. I don't think I've ever seen the term
43:44
Speaker 1: genomic revolution analyst. Let's just start there. What do you do? Following?
43:50
Speaker 1: Thanks so much and thanks for having me on. So
43:52
Speaker 1: genomics is really an interdisciplinary approach. It's basically a field
43:57
Speaker 1: of biology and we think about the structure, you know,
44:01
Speaker 1: the evolution and different mappings of how we edit genomes.
44:05
Speaker 1: And I think what's really interesting about ARC is that
44:08
Speaker 1: we have analysts that focus on specific areas of expertise
44:13
Speaker 1: rather than strong financial backgrounds. So I can say for myself,
44:17
Speaker 1: I previously conducted cancer research at Sloan Country and Cancer
44:21
Speaker 1: Center and Monteer Medical Center. I then became really interested
44:25
Speaker 1: in the intersection between AI and medicine, and so I
44:30
Speaker 1: went to IBM Watson Health And so being able to
44:33
Speaker 1: have all of this sort of previous knowledge on cancer
44:37
Speaker 1: epidemiology by statistics and artificial intelligence and how those things
44:41
Speaker 1: will propel and change medicine makes me really able to
44:46
Speaker 1: look at companies and decipher sort of which ones maybe
44:50
Speaker 1: win or loser situations within the marketplace. This is fascinating
44:54
Speaker 1: and I have hundreds of questions, but I'm just going
44:56
Speaker 1: to start with one. Going back to what you were
44:59
Speaker 1: saying about your involvement with artificial intelligence, Can you look
45:03
Speaker 1: ahead a little bit for us, What kind of new
45:05
Speaker 1: breakthroughs is AI making possible here? Yeah? So, actually, this
45:11
Speaker 1: is going to be a topic that Kathy and I
45:12
Speaker 1: will be speaking about at a Forbes Women's summit soon.
45:15
Speaker 1: It's a really important topic that you're bringing up. We
45:19
Speaker 1: think that several tools are going to be really important
45:21
Speaker 1: to accelerate drug discovery, and I think AI is really
45:24
Speaker 1: primed to be one of them. So one example that
45:27
Speaker 1: we're seeing now and I think we'll only get better
45:29
Speaker 1: and better with time, so that would be like neural
45:32
Speaker 1: network based algorithms. So that would be things like alpha
45:36
Speaker 1: fold that was announced if you remember a while ago,
45:38
Speaker 1: by alphabet which is a subsidiary of deep Mind, and
45:42
Speaker 1: that can actually predict protein folding, so that was very exciting.
45:46
Speaker 1: It also had an open source database of protein structures
45:49
Speaker 1: that was powered by alpha fol two and based on
45:53
Speaker 1: their amino acid sequences, the database can predict the three
45:56
Speaker 1: dstructor of about you know, almost all all known human proteins.
46:01
Speaker 1: So that's it at three hundred and fifty thousand. So
46:03
Speaker 1: our research really suggests that these neural network based algorithms
46:07
Speaker 1: could reduce these research and development costs, which get very
46:10
Speaker 1: high for our companies, and we know in different macro
46:13
Speaker 1: and difficult macro environment conditions right now and when it's
46:16
Speaker 1: a little bit harder to raise keeping those costs low,
46:19
Speaker 1: but increasing efficiency is really important, so we think that
46:23
Speaker 1: this could increase the value of clinical trial assets we
46:26
Speaker 1: think it could increase the probability of clinical trials phase transition. So,
46:30
Speaker 1: you know, a tactical example of this maybe is that
46:34
Speaker 1: so enabling this technology could probably shorten the average time
46:38
Speaker 1: spend in preclinical experimentation. And so the duration typically in
46:42
Speaker 1: preclinical testing from discovery to phase one is about four years,
46:47
Speaker 1: and based on our model assumptions, that number is going
46:49
Speaker 1: to drop to three years, and then with these sort
46:52
Speaker 1: of AI neural network based algorithms that could drop even
46:55
Speaker 1: further to two years. So we think that would be
46:58
Speaker 1: you know, a major cost and really increase efficiency. Alex,
47:03
Speaker 1: what are some of the companies or types of companies
47:06
Speaker 1: in your ETF and why are they there? Yeah, So
47:11
Speaker 1: one of the things that we focus on, and a
47:14
Speaker 1: lot of the things that I cover are things that
47:16
Speaker 1: are going to be called precision therapies. So precision therapies
47:20
Speaker 1: are these very disruptive novel medicines that are we focus
47:24
Speaker 1: on disruptive innovation, so no real surprise there. We believe
47:28
Speaker 1: that these type of companies are going to impact the
47:31
Speaker 1: way we practice medicine. So one interesting change that I'd
47:34
Speaker 1: love to highlight is that previously before the Human Genome
47:38
Speaker 1: Project before we understood more sort of of our body's mechanics,
47:42
Speaker 1: we focused on creating these chronic therapies, right, so therapies
47:46
Speaker 1: that we would need to continuously take to manage symptoms,
47:50
Speaker 1: but we didn't actually address the specific cause of disease.
47:54
Speaker 1: So with things like one example would be gene editing,
47:57
Speaker 1: where you actually change, modify, add delete some form of
48:02
Speaker 1: your DNA. So gene editing then could address the underlying
48:06
Speaker 1: causes of those diseases, and then it can also be
48:08
Speaker 1: used in the future, sort of like in the changing
48:11
Speaker 1: our healthcare approach, So in an upstream approach, whereas now
48:14
Speaker 1: we have a downstream approach, meaning that you get cancer,
48:17
Speaker 1: we treat your cancer. In an upstream approach, it would
48:20
Speaker 1: mean that before you get cancer, we look to see
48:23
Speaker 1: what genes you have that may cause cancer and how
48:26
Speaker 1: we can address them before you actually even get the cancer.
48:29
Speaker 1: So we also see that, you know, these therapies are
48:32
Speaker 1: being tested more and more in the clinic, so we're
48:35
Speaker 1: seeing that gene editing clinical trials are basically trickling. We
48:39
Speaker 1: think that would happen by the end of the decade,
48:41
Speaker 1: which shows sort of the way medicine is moving. That
48:45
Speaker 1: would also accelerate probably first approvals, and we think that
48:48
Speaker 1: it's possible that the first approval could even come as
48:50
Speaker 1: soon as this year. When you look at where these
48:54
Speaker 1: innovations are coming from, do you have a sense that
48:56
Speaker 1: it comes from big farmers? It more a story for
48:59
Speaker 1: a little We think there's room in both in our
49:04
Speaker 1: portfolio and air KG. We actually do have large cap
49:07
Speaker 1: format as well as these smaller cap companies. We have
49:11
Speaker 1: a long term approach, and so we look at the
49:13
Speaker 1: companies that are most likely to be able to capitalize
49:16
Speaker 1: and create these therapeutics, whether they're a large cap or
49:20
Speaker 1: small caps. One of the ways we do that is
49:22
Speaker 1: we have a fifteen percent cager or hurdle, so all
49:26
Speaker 1: of our companies really had a lot of room to grow.
49:29
Speaker 1: We also have a very rigorous sort of company modeling
49:32
Speaker 1: and frameworks for analyzing our companies. So we focus on
49:36
Speaker 1: this sort of bottoms up in top Stone research process.
49:39
Speaker 1: So all of our research is actually open sourced. We
49:41
Speaker 1: give it away for free, so if you ever want
49:43
Speaker 1: to check out any of our research, you can just
49:45
Speaker 1: go on to ardashonvest dot com. We also do a
49:49
Speaker 1: big ideas deck every year, which is sort of our
49:52
Speaker 1: best ideas of this year, and this year we focused
49:55
Speaker 1: on precision therapies and molecular diagnostics from a healthcare perspective.
50:00
Speaker 1: But going back to our framework that we look at
50:02
Speaker 1: a particular market segment and we figure out we typically
50:05
Speaker 1: use like a right Law cost decline curve and we
50:08
Speaker 1: try to figure out, Okay, how is this company or
50:11
Speaker 1: how is this segment going to decrease costs but still
50:15
Speaker 1: increase productivity, and then we really find the companies that
50:18
Speaker 1: we think are most likely to change the world with
50:20
Speaker 1: the progress. And then we of course always have our
50:23
Speaker 1: score for the companies that we have a framework for
50:26
Speaker 1: that where we look at things like mote, product leadership,
50:30
Speaker 1: you execution, people, management, and culture, etc. Fascinating, fascinating stuff,
50:36
Speaker 1: Ali Erman, thank you so much for joining us. Really
50:38
Speaker 1: appreciate getting your thoughts on this complex issue, but a
50:42
Speaker 1: fascinating issue and certainly an opportunity for investors to do
50:46
Speaker 1: what you can do with the AARKG which is the
50:49
Speaker 1: ARC Fund. There. Thanks for listening to the Bloomberg Markets podcast.
50:54
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
50:57
Speaker 1: or whatever podcast platform you for. I'm Matt Miller. I'm
51:01
Speaker 1: on Twitter at Matt Miller nineteen seventy three, and I'm
51:05
Speaker 1: fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast,
51:08
Speaker 1: you can always catch us worldwide at Bloomberg Radio