July 10, 2025 • 47 mins
Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
MP Materials rose as much as 60%, the most intraday since the company’s IPO in 2020, after the firm struck a multibillion dollar public-private deal with the US Department of Defense to build a new magnet plant and expand rare earth capabilities, backed by $400 million in equity and a $1 billion loan commitment.
Bloomberg Intelligence sees the company's public-private partnership with the Pentagon not only providing capital but also setting a price floor of $110 per kilogram for MP's NdPr products for the next 10 years, significantly higher than the current market price of $63. It's effective 4Q25. The pact includes an offtake agreement for 7,000 metric tons of additional magnets produced following MP's 10X expansion, from 1,000 currently, reducing market-demand risk. This partnership accelerates MP's build-out of a fully integrated value chain, from mines to permanent magnets.
Today's show features:
- James Litinsky, Founder, Chairman and Chief Executive Officer of MP Materials Corp. and Bloomberg News Economic Statecraft Reporter Joe Deaux on MP’s supply chain deal with the US Defense Department
- Sheila Kahyaoglu, Managing Director in Equity Research at Jefferies, on Delta’s quarterly results and the outlook for major US airlines heading into earnings season
- Bloomberg News Senior Technology Reporter Kurt Wagner on Elon Musk’s Grok chatbot and Linda Yaccarino’s departure from X
- Veronica Willis, Global Investment Strategist with the Wells Fargo Investment Institute on the market and economic outlook for the rest of 2025 into 2026.
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:08):
This is Bloomberg Business Week Daily reporting from the magazine
that helps global leaders stay ahead with insight on the people, companies,
and trends shaping today's complex economy. Plus global business finance
and tech news as it happens. The Bloomberg Business Weekdaily
Podcast with Carol Masser and Tim Stenebek on Bloomberg Radio.
Speaker 1 (00:32):
All right, we're going to switch gears a little bit.
Shares a rare earth magnet producer NP Material soaring in
today's session up as much as sixty percent right now,
up about fifty percent, so just off its highs of
the session. This is after securing a four hundred million
dollar equity investment from the US Department of Defense to
build a new plant with a one billion dollar financing
(00:52):
commitment from JP Morgan Chase and Goldman Sachs. So we
wanted to talk about the deal and what this really
means in terms of usk abilities of rare earth magnets.
We welcome back Jim Litinski. He's founder, chairman and CEO
of the seven point two billion dollar market cap MP Materials.
He is with us from Las Vegas, Nevada, and we
also have.
Speaker 3 (01:13):
With us our own Joe Do.
Speaker 1 (01:14):
He's Bloomberg News Economic statecraft reporter who first introduced us
to Jim just a few months ago. So thank you
for doing that, Joe. Joe is with us in studio.
Welcome to both of you. Hey, Jim, we want to
kick it off with you. Welcome, Welcome.
Speaker 4 (01:26):
Hey.
Speaker 1 (01:26):
Laid out for us, what exactly does this investment do
for you? And what will it do for rare earth
magnet production in the US and when will we feel
that impact here in the United States.
Speaker 5 (01:37):
Absolutely so, there are three pillars to DoD's investment today.
Speaker 4 (01:41):
DOOD made an investment in MP.
Speaker 5 (01:43):
They also provided us with a long term, a ten
year price floor contract that allows us to earn a
fair return on the commodity. And then they also provided
one hundred percent off take for a new magnet facility
that we're building that will significantly expand.
Speaker 4 (02:00):
It will ten x our magnet capacity.
Speaker 5 (02:02):
What's so important about this is that with the supply chain,
as you may have heard me say, if we have
all the rarests in the world, if we don't have
the downstream, if we don't have the magnet production, or
vice versa, if we have magnet production, but don't have
the rare oaths, then you know it's all for naught.
And so it's really important to look at this supply
chain on a vertical basis. And so you really have
(02:22):
to credit President Trump and hit his administration and of
course our partners at the Pentagon for sort of looking
at this challenge and recognizing that, you know, MP has
put together a vertically integrated champion, and the best solution
to kind of catalyze this supply chain is making a
substantial commitment to us, which they've done.
Speaker 4 (02:42):
We're very excited about that.
Speaker 5 (02:43):
And lastly, I would just say that this is this
is a huge win for taxpayers because the structure of
the deal is such that not only is DoD now
economically our largest shareholder, but they have upside participation in
both the commodity and in the magnet business.
Speaker 6 (02:58):
Hey, Joe, come on in here, because you understand this
like pretty much nobody else. Talk to us about what
you see as significant about an investment such as this,
especially from a position of economic stakecraft.
Speaker 7 (03:07):
Well, I wanted to ask Jim about that. Jim, I
feel like you're underplaying what has come out today. Can
you give us size and scope, put into context why
this is such a big deal in your industry and
what's unique about it.
Speaker 4 (03:24):
Thanks, Jo, it's good to see you. Well.
Speaker 5 (03:26):
I think not to get too wonky, but I would recommend,
since we are on Bloomberg, for those is in our
investor relations. We obviously put out a deck for this
morning's call, and I really encourage people to look at that,
and we go through a lot of the economics, but
I'll give you this summary, which is that we have
totally transformed MP's business overnight. We've gone from the challenge show.
(03:50):
As you know, is that the Chinese historically have sold
rare earth set a substantial loss because they use it
mercantilistically as a strategic source of control of the downstream.
Speaker 7 (04:00):
Which is a way of saying that they'll flood, which
is a way of saying, Jim, that they will flood
the market to take market share, which is one of
the things that has always scared investors away from your
company and other companies in this space.
Speaker 4 (04:13):
Correct.
Speaker 5 (04:14):
And so if you look at the math, we basically
have transformed MP where we can earn We have long
term contracted cash hosts, so we have ten year agreements
where essentially if you kind of look out normalized, you know,
we believe we can do six hundred and fifty million
plus of ebadah and this is you know, and again
look at the various parts, but this is this has
taken our business from what was sort of a volatile
(04:36):
commodity business to a long term, contracted economic platform which
enables us to make further investments downstream and both and
those investments downstream, we now have one hundred percent off
take in DoD as a customer. And if I can't, Joe,
let me add one more point that I think is
so important because you hit the nail on the head
about the Chinese flooding the market.
Speaker 4 (04:55):
The Chinese very thoughtfully realize.
Speaker 5 (04:58):
That, particularly with when we think about physical AI and
the future of warfare, robotics, drones, the Chinese are willing
to lose billions to play for trillions of dollars of
downstream market cap.
Speaker 4 (05:09):
And when we think about you.
Speaker 5 (05:11):
Know, our great leaders in technology, whether it's Jensen Wong
or Elon Musk talking about robotics being potentially the largest
industry in the history of the world, where earth magnets
are important, very important, extremely critical feedstock to that, and
so we've got to preserve that trillions of dollars of
downstream enterprise value, and that obviously is what we're about
(05:32):
at MP, is making sure that our downstream industry has
that feedstock, and obviously today's announcement ensures that we can
make those investments.
Speaker 7 (05:40):
Jim, the Defense Department is famously not splashy about anything.
It's hard to argue that this was not flashy four
hundred million dollar equity investment in a publicly traded company.
Have they ever done this before?
Speaker 5 (06:00):
But I think it's a pretty unprecedented situation, and I
think that this is obviously a very unique circumstance, and obviously,
you know, we are honored and humbled by it, Joe,
And as you know, since we've been talking for many years,
I guess there's the old expression of it takes a
lifetime of hard work to become an overnight success. We've
been at this for ten years at MP, and actually,
(06:23):
interestingly enough, today is the eight year anniversary of my
co founder and I bought the mount Pass Mountain Pass
assets out of bankruptcy eight years ago, where we began
the turnaround to restore this full supply chain and I
think that DOOD and the administration realize that we've got
to look at the supply chain holistically, and you know,
(06:45):
hopefully this is a model for future other scenarios where
we have strategic industries that we have to return and
we've got to figure out a way to take on
mercantilist economics, and so this is I think hopefully a
good model in doing so.
Speaker 6 (07:00):
Jim to that point, you operate in a specific portion
of sort of the rare earth space when it comes
to these magnets. In your view, because you're in this space,
where does the US still lag and where where does
the US need to invest in order to try to
catch up if even possible.
Speaker 5 (07:17):
Well, we're vertically integrated, so we at MP and there's
nobody like this, But I.
Speaker 6 (07:22):
Just mean from the materials and processing perspective, I understand
you are vertically integrated, But what about for all of
the rare earths that that will be in demand in
the near future.
Speaker 5 (07:32):
Sure, well, so there are two major categories that are
the light and the heavies, and is part of this announcement,
DoD is actually also committing some capital for US to
build out samarium separation at Mountain Pass samarium is a
feedstock into a different kind of magnet that's actually really
critical for military purposes as well. And so essentially, tim
(07:54):
if you want to refine, if you want to refine
rareth so forget the ore bodies around the world. If
you want to refine and separate them to then become
feedstock to magnets.
Speaker 4 (08:03):
There are two places to do it.
Speaker 5 (08:04):
There's sort of the Chinese sphere of influence or Mound Pass, California.
And so I think this basically catalyzes us to move
downstream and really be able to have MP as an
economic platform that can encourage additional investment really in all
spheres in mining and across the stream, all the way
down to magnets.
Speaker 1 (08:24):
You know, Jim, I think people are listening and they're like, yeah,
you know, if we're thinking about developing our supply chains
here and making and creating national security for things that
are so important to so many different aspects of our
lives here in the United States, people are gonna say, yeah.
Speaker 3 (08:37):
This makes sense.
Speaker 1 (08:38):
But do you feel like this is potentially a step
towards you becoming a state owned enterprise?
Speaker 4 (08:45):
Oh not at all, not at all.
Speaker 5 (08:47):
In fact, you know, I think it's actually the opposite,
which is, for the first time we see an actual
data point of how we in the West, with free
market capitalism, can take on mercantilism, but doing so in
a way that is is along with our value system.
So let's be very clear about this. U D O
(09:07):
D is becoming economically our largest shareholder. But they they
are you know, they will vote with our board and
they expect us to be a thriving public company. They
want us to continue to run the company for shareholders,
and obviously their interest will will be a benefit for
taxpayers to the extent that they, you know, are we
continue to compound, which we expect, and then they also
(09:28):
have upside sharing. And so I want to I want to,
you know, really remind people that if you look at
this deal, it was a win win win.
Speaker 4 (09:35):
Obviously, you know, the market likes it.
Speaker 5 (09:37):
I think there's our our economic platform has totally changed,
but we're serving a key national security initiative enabling trillions
of dollars of downstream enterprise value to be more secure.
But the taxpayer also has upside in this, and so
I think that this is sort of again, it's it's
a new model. It's unprecedented in a sense, but it's
of course because we're facing a challenge that we haven't
(09:58):
faced before.
Speaker 7 (09:59):
Yeah, I guess on some level, Jim. The upside the
taxpayer has is if your stock goes up, the investment
that the DoD hasn't it goes up. I was talking
to an investor today asking about this, and I said, well,
what what does it mean for the taxpayer? And they said, really,
all it means is a better bet on national security issues.
Speaker 5 (10:15):
So I might push back if I may, Yeah, if
I may push back, because if you look at the
structure of the deal, it's not just the shareholding. There
are three pillars. It's the shareholding, there's then upside participation
in the commodity, and then there's also upside participation in
our magnet business. So there's actually three different mechanisms of
(10:36):
upside sharing for the taxpayer.
Speaker 7 (10:37):
And can you clarify one thing in the details the agreement.
The it's one hundred and thirty dollars floor right, or
is one hundred and ten sorry one, And it's one
hundred and ten dollars floor That is just for the
actual concentrate refined in metal. That is not batteries. Right, Sorry,
that is not permanent magnets.
Speaker 5 (10:59):
That's all NDPR products, So you're right, concentrate oxide and metal.
Speaker 4 (11:03):
And then we're on a downstream though.
Speaker 5 (11:05):
We also have one hundred percent off take for the
new facility that we're going to build called ten X,
and as part of that off take, we'll have a
minimum EBITDAG guarantee and then there'll be a catch up
for DoD and then we'll share. We're fifty to fifty
partners and so again, Joe, this is this is a
transformational public private partnership, right, But the tax payer was
(11:25):
really really what well represented in the structure.
Speaker 7 (11:28):
But Jim, one thing, you probably will be getting a
lot of pushback from investors, from media whoever, saying what
we just brought up, which is your biggest stockholder will
be the Defense Department. And doesn't that bring a concern
that the federal government has so much say in what
is supposed to be a publicly traded private company.
Speaker 5 (11:50):
Well, actually, interestingly, as part of our deal, d D
will be voting their shares with our board.
Speaker 4 (11:57):
And so I really think that this is again and
it's a new.
Speaker 5 (12:00):
Structure that contemplates the fact that we need to be
a successful public company.
Speaker 4 (12:06):
So this is very different.
Speaker 1 (12:08):
You know.
Speaker 5 (12:08):
I know that maybe there's you know, historical examples of
where the government needed to come in and rescue an industry.
Speaker 4 (12:15):
It's actually the opposite of what's happening here.
Speaker 5 (12:17):
The government wants to achieve an important national security objective
and we at MP are able to help them achieve
that objective.
Speaker 4 (12:26):
And so they are going to help support us.
Speaker 5 (12:29):
In accelerating investment in our space, and they're going to
create the conditions that allow us to invest with a
fair return on capital and not be a tax sort
of speak by mercantilism. And in exchange for that, they're
going to expect some upside. And so again I think
this is hopefully it's a new model that we can
utilize across some of these verticals that are really challenging
(12:50):
for us where we've been unable to fully reshore industries
because we're facing competition that he is thinking differently again.
Speaker 6 (12:59):
We yeah, Oh go ahead, Sorry, we only have a
minute left, and I just want to hear from you
how this deal came together. In the timeline here, who
did you speak to who first reached out? Trips to
Washington trips to you know, Chicago or Nevada. Like, how
did it all come together and when did the discussions
first start.
Speaker 5 (13:18):
Well, we've been we've been having a great active dialogue
with the Pentagon, going back to the first Trump administration
and through the Biden administration and now obviously the Trump administration.
And obviously this is a non partisan issue getting this
supply chain back. Suffice to say that what we have been,
as you know, in our mission, we've been focused on
this single point of failure since the inception of the
(13:39):
company post Liberation Day, as we saw the Chinese utilized
rareth magnets in the trade disputes that that basically the
cutoff of rareth magnets had the threat of sending our
economy into a deep tail spin and so that really
certainly accelerated some of this discussion.
Speaker 1 (13:58):
Got to ask you, though, did you actually talk with
Sident Trump about this, Like who finally said got to
do it? Signed it?
Speaker 5 (14:05):
Well, well, I think you can look at the transaction
documents which which we're signed to the top levels of
the Pentagon. So this was this was a conversation from
the very top levels of the Pentagon.
Speaker 3 (14:16):
Is that a yes?
Speaker 1 (14:16):
On mister, is that a yes on the president?
Speaker 5 (14:20):
So this is this is again I don't I don't
want to specifically name names of who we spoke to
and how the conversations went about. But again the how
about this, I will I will tell you that the
President has directly mandated that we fixed this supply chain
and so that is that is public.
Speaker 4 (14:37):
You can see that.
Speaker 5 (14:38):
And so the President mandated the secretary on down to
fix this supply chain. And I think that this is
this is really bold and decisive action to make that happen.
Speaker 1 (14:46):
Well, investors certainly taking investor certainly taking note, as we said,
your stock up fifty percent. I'm going to say thank you,
thank you, thank you, because there's three of us, and
we really appreciated your time and getting having a conversation
with you on this because it does sound like it's
pretty significant in terms of what happens with rare earths
here in the United States. Jim, thank you, thank you.
(15:07):
Stay in touch, you bet Jim Litinski. He's founder, chairman
and CEO of MP Materials, and of course our own
Joe Doe Bloomberg News Economic Statecraft reporter. He's going to
be back with us in the next hour. Joe, thank
you so much.
Speaker 2 (15:19):
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Speaker 1 (15:33):
Airlines definitely in focus on this Thursday rallying.
Speaker 3 (15:36):
So too are many stocks in.
Speaker 1 (15:38):
The travel and leisure space trading up thanks to Delta Airlines,
which reinstated a profit outlook for the year and said
travelers are coming back, prompting it stock to surge him
ad a first sense of confidence in the beaten down
US consumer. Just one number I want to throw out
at you, SMP Supercomposite Airlines subindustry index ralling close to
twelve percent today. It's still down five percent year to date,
(16:00):
so a little bit of perspective. Up a lot today,
but still down for the year.
Speaker 6 (16:03):
Well here with the look at the airline space. Great
to have back with us. Sheila Kayalu. She's managing director
in equity research at Jeffrey. She joins us here in
the Bloomberg BusinessWeek studio. Sheila, three months ago we would
have been sitting here talking about Delta being the first
major carrier pull its guidance. Perhaps a couple of days
later we'd be talking about United coming out with those
two different scenarios. A lot has changed in just three
(16:24):
months what happened.
Speaker 3 (16:25):
A lot has.
Speaker 8 (16:25):
Changed, but I also think it hasn't, so I'm not
really buying this burst with the airline performance. Delta did
be in state guidance the midpoints about fifty cents higher
than what the street expected, but I think trends are stable,
so they're taking up estimates about ten percent, and that's
what's moving all the airlines. But I still think it's
haves and have nots. So if you look at Delta's numbers,
(16:46):
main cabin was down five percent in terms of pricing, Like,
what do you see that's down five percent and you
think that's a stock that should be up fifteen percent,
especially when you look at American and Southwest performance.
Speaker 6 (16:56):
So is the main cabin issue? And that's I was
going to ask you about that because there was some
positivity and optimism at the front of the plane and
for premium international and for loyalty stuff. But if you're
not filling the main cabin, then that's a sign of
a consumer that's not at the extreme high end not
doing so well.
Speaker 9 (17:13):
Right, Yeah, I think.
Speaker 8 (17:14):
The low end consumer is still in the same position
it was three months ago, and we could see that
with a down five, But Delta's adamant that they're going
to exit the year probably in the positive territory, and
I think that's a still show me story. But I
think for some of the other airlines that are seeing
the same performance as Delta is today, with the exception
of United that had an ak out last night just
(17:34):
to steal some of Delta's thunder because that's the way
they work. Is American and Southwestern love that up about
the same amount, and Southwest is delaying some of its initiatives,
which means there's probably book away. They have an activist
involved who wants them to do assigned seats, etc. Chart
for bagbees, and they're delaying some of those initiatives to
Q four. So I think it still shows that the
(17:55):
consumer soft and Delta's guidance is fine, but it's still
reflects the second half that's improving from what we saw
in Q two.
Speaker 1 (18:03):
Consumer's soft because of you know, it's interesting. Let me
go back for a second, because Delta's CEO ed Bastian
said travel in the US is recovering, corporate travels strengthening,
with consumers booming becoming excuse me, a little numb to
ongoing trade disputes. So you say a little bit softness
in consumers. Is it because of trade? Is it because of.
Speaker 3 (18:22):
Main cab cost of the main cabin.
Speaker 8 (18:24):
But one of the things they did say that was
interesting was July was one of their best cash days ever.
So they're still they're seeing some advanced bookings come in. Okay,
so the consumer is becoming immune because they're seeing some visibility,
they're finally booking their holiday. Whereas although Q two cash
flow free cash flow was good, they said they missed
out about five hundred million of free cash flow because
people didn't book vacations yet, so they weren't putting the
(18:45):
ticket price so.
Speaker 1 (18:46):
They were holding back.
Speaker 8 (18:47):
Yeah, so they have some you know, green shoots of confidence.
But I still think it's mainly because the premium is
really solid.
Speaker 1 (18:54):
Like I think of some of our business travel, we've
done a lot in the last I feel like four
to six weeks and some West coast trips and stuf
up and some of the flights. The tickets were a lot,
some of them not so much. Yeah, like it was
quite a range and it was all business class.
Speaker 6 (19:09):
I guess it's I guess it's has a lot to
do with it. I mean it has to do with
the competition on the routes and the dynamic pricing and
how many people about tickets, et cetera. One thing that
I'm still surprised about is business travel still hasn't completely
recovered to pre pandemic levels.
Speaker 8 (19:22):
No, and even air traffic is only at four percent
versus twenty nineteen levels at the end of last year,
So we're still we've lost out on five years of traffic,
which I think is surprising for most.
Speaker 6 (19:31):
So Ed Bashan at Delta said that business travel is
down fifteen to twenty percent since pre pandemic.
Speaker 8 (19:38):
Yeah, I think it might be at ninety percent recovery.
So it's a little bit less than that, and it's
better for the Delta than it is for others.
Speaker 9 (19:44):
Does it ever come back completely?
Speaker 3 (19:46):
I think so.
Speaker 8 (19:46):
I think people want to do in person, you know,
at jeffrees we I think we have a four day
man date or five day man date. I forget I
think I obliged to it. But in general I think
it's in person. You know, I was in three different
countries in the last four so lots of business travel
on our end too.
Speaker 1 (20:03):
How does geopolitics impact any of it or how do
you factor that into some of your research.
Speaker 3 (20:06):
I think we're seeing some of that.
Speaker 8 (20:08):
So one of the interesting things about Transatlantic for Delta,
there Atlantic has been really strong, tough comps with the
yields because everybody wants to go to Europe, but what
were they're seeing is europe point of sale, So consumers
in Europe are hesitant to book and have trips into
the US. And we'll hear from like Air Canada that
I cover, if you know, Canadian consumers are not necessarily
(20:29):
coming to the US, whether that's a currency issue or
whether it's just you know, political stigma. So that's that's
one of the things to keep an eye out on
as well.
Speaker 6 (20:37):
United's actually outperforming Delta today at more than fifteen and
a half percent.
Speaker 9 (20:40):
Why is that?
Speaker 3 (20:42):
A few things?
Speaker 8 (20:43):
I think the book away with the Newark issues was
only around like one third of a point, so thirty
to forty million, even though I did book away from United.
Speaker 6 (20:51):
So did we We canceled United tickets to fly out
at JFK instead.
Speaker 8 (20:55):
So I think it's some credits that are like waiting
to be it's a very small percentage.
Speaker 3 (21:00):
I think there's some relief rally there.
Speaker 8 (21:01):
I think second United is the most exposed premium in
addition to Delta. That being up five is giving some positivity.
But most importantly, they paid some debt down. They're delevering
like Delta, as Delta also raised, they're driven in twenty
five percent, and their cash guide cash implied cash with
their in the EK was seven hundred and thirty million
free cash flowing Q two for United. We consensus thought
(21:24):
it would be a loss of about a billion, so
big way and so United numbers look good based on that.
Speaker 1 (21:31):
AK anything we could you know, we get the Delta results,
We're going to start to get a lot more coming out.
We've got you know, American Southwest of Life, twenty fourth
Jet Blue. In August, we talked about United officially coming
out with their numbers next week. Is there anything like
we can kind of play against the industry based on
what Delta is. I know they're not all the same,
So how do you look at that?
Speaker 8 (21:51):
In terms of Delta, we only have a BUI on United,
but we're definitely more negative the lower cost carriers, so
Southwest we just upgraded from a celebrating a hold a
few weeks ago, but still we're a little bit more
pessimistic on the lower end consumer. And I think American
as like the third network carrier, especially on the Atlantic side,
they tend to do a lot more discounting to get
(22:12):
that transatlantic yield as well. So I still think United
and Delta are the way to play it. We're long
United because they seem extremely confident, put out an AK
before your biggest competitor just to steal something of their thunder.
Speaker 3 (22:25):
It's like kind of amazing that they.
Speaker 6 (22:27):
Did that front Did they front run results? Essentially it was.
Speaker 8 (22:30):
Implied, so it's hard to back into what their cash is.
But I mean, that's a big, big swing that they
put up positive free cash low and so.
Speaker 3 (22:37):
But cash at.
Speaker 8 (22:38):
Delta was also good. And they're both deleveraging. They're both
trying to say, listen, we shouldn't be ten times stocks,
ten times earnings. We could give out dividends. Their Delta
talked about it's diven and Field being sub two percent yield,
which is better than the market.
Speaker 9 (22:52):
Are the challenges at Newark behind United.
Speaker 8 (22:55):
Yeah, June for Newark was the best performing airport, So
it still seems like air traffic controllers need to get in.
But now that the runway issue has been fixed, Newark
is coming back and Newark, for context, is about ten
percent of United's capacity.
Speaker 3 (23:10):
Wow, so it's a lot.
Speaker 1 (23:12):
Hey listen, No, it's just interesting. Well, you know, I
was going to just follow on that that, Like, I
keep thinking about my husband used to fly a small
plane and he's constantly looking at how crowded the skies are, Like,
are we getting to a point where it is too
crowded in terms of the traffic that is up there
and that we'll have to kind of adjust or No.
Speaker 8 (23:29):
I think we need more air traffic controllers. You know,
retirement ages fifty five and right takes two to three years.
The attrition rate is quite high, and so we do
need more support. So one of the things that's interesting
with the Big Beautiful Bill is there's twelve billion, twelve
point five billion of additional funding for the FAA, So
that could be seen as positive push modernization forward. We
(23:49):
think we think the FAA budget is about twenty two billion,
so it would be doubling the budget. We don't know
if that's all in one year, right, It's hard to
quite see that, but yeah, there's we definitely need a
push towards modernization and using AI to help us fly better.
Speaker 6 (24:04):
Speaking of flying, let's talk a little bit about embra
Air and what's going on.
Speaker 9 (24:08):
With shares today or ADRs today are lower.
Speaker 6 (24:10):
This after the President said yesterday more tariffs or new
tariffs rather on Brazil. What is the economic impact in
your view on Embraer of these tariffs.
Speaker 3 (24:19):
You have a no doubt on this. I don't know
if I believe these tariffs in the first place. Really, yeah,
let's assume they actually happen.
Speaker 8 (24:25):
It would be most impactful to Embryer, but most positive
for a company called textron I Cover that makes small cessnas.
And here's why it's actually negative for American airlines too.
So twofold issue. So Embryer is a manufacturer of commercial aircraft.
They make smaller aircraft than Boeing an airbus. And the
biggest backlog associated with that is basically American. American has
(24:46):
ninety two Embryer jets that Embryer has in its backlog
out of the two fifty. So with a fifty percent tariff,
it would increase American's CAPBAX by about fifteen percent, so
obviously they would they might reconsider that order. So negative
from that perspective. I was actually in Sa Pollo seeing
Embryer's facility really neat last month. But obviously they ship
(25:08):
it back to the US, so it would be a
tariff product, and it doesn't seem excluded. The second impact
is Embryer's executive jets, and Embreyer h sixty percent of
their jets go to US customers.
Speaker 3 (25:21):
Although they made a facture some.
Speaker 8 (25:22):
Of it in Florida, there could be a tariff there,
so we thought some book away goes to a company
like Techtron.
Speaker 6 (25:27):
We can't they get around some of these tariffs the
way that airlines have tried to get around airbuses tariffs
by essentially flying the plane. And I look, forgive me,
I don't know the accounting, but I've read stories about
how they're able to, like, you know, buy the plane
from another country and then the tariffs don't aren't as high.
Speaker 8 (25:44):
Yeah, I think we're yet to see it. You know,
we don't know how they'll do it. But one of
the workarounds is potentially flying an aircraft to they, you know,
a non tariff country, and then you register it there
and then.
Speaker 3 (25:55):
You fly it back into US. We'll see. I mean,
on the private jet industry, it's a lot easier to
do that.
Speaker 8 (26:00):
But if you have if you're a high networth individual
that could buy a Latitude for twenty million and a
prader for twenty million, and now your prayterer's more expensive,
do you really need to think about that? So that's
why texture on shares are up today off the Embryer.
Speaker 1 (26:16):
No, you're right, because it was in our right through too,
off of your note because of the selling that we're
seeing Inmbryer. Just get thirty seconds. Unfortunately, we can go
through more airlines. What is it that you think in
the airline space is really interesting that we're not talking about?
And forgive me because I only do have about thirty
thirty five seconds.
Speaker 3 (26:33):
Ooh, airline space.
Speaker 8 (26:34):
I think premium, like, the premium offerings are getting really good,
whether it's Delta one or United Polaris.
Speaker 3 (26:39):
Delta is sort of.
Speaker 8 (26:40):
Sneak previewing a even higher end business class that they
might launch. They just open their fourth Delta one lounge
in Seattle. So lots of new upgrades to come, and
that's making it a better travel experience, but only for
the premium customer, the main cabins.
Speaker 1 (26:54):
It's like a shaped economy in flying right, like the
haves and the kind of havenots. Was gonna say, Chilia,
thank you so much, Chila Cayo Alu. She is, of course,
managing director and equity research over at Jeffrey's.
Speaker 3 (27:07):
Joining us here.
Speaker 2 (27:09):
This is the Bloomberg Business Week Daily Podcast. Listen live
each weekday starting at two pm Eastern on Apple car
Play and Android Auto with the Bloomberg Business App. You
can also listen live on Amazon Alexa from our flagship
New York station, Just Say Alexa played Bloomberg eleven thirty.
Speaker 6 (27:27):
Lots of news in the Elon Musk Universe, The Billionaire, World,
richest persons.
Speaker 1 (27:33):
Ever going on in the Elon Universe every day.
Speaker 9 (27:36):
I think I could say that every day. I know
he makes it like that.
Speaker 1 (27:40):
I feel like there's something every day.
Speaker 6 (27:41):
Sometimes I go on and look for tweets that he
wrote to cite them, and then it's like you have
to scroll thirty tweets to find the one that he
wrote like an hour ago.
Speaker 1 (27:48):
And then Elon was with me on my train when
I got stuck.
Speaker 9 (27:51):
The train wasn't.
Speaker 1 (27:51):
Literally no, not literally literally courtesy of x.
Speaker 6 (27:54):
Well, you were watching that because the AI startup XAI
is rolling out Grock four, just months after releasing its
previous iteration, underscoring the frenetic pace of AI development.
Speaker 9 (28:04):
You were all.
Speaker 6 (28:05):
Over that earlier this morning, Carol. The news coming the
same day though, yesterday that Lindi Akarino announced she was
leaving the social.
Speaker 9 (28:11):
Media company x.
Speaker 6 (28:13):
Kurt Wagner is the guide answer all of these questions
about these things. He's Bloomberg News Senior technology reporter. He
covers all things social media. He's also the author of
Battle for the Bird, Jack Door c Elon Musk, and
the forty four billion dollar Fight for Twitter Soul. We'll
talk about the company formerly known as Twitter in a second,
but first off, I want to talk about GROC and
really what Grock four is and how you compare it
(28:33):
to what else is out there on the market.
Speaker 10 (28:36):
Kurt, Yeah, I mean part of this is that we're
going to have to wait and see. Right, we've heard
Elon talk about GROC four and how great it's going
to be, and how you know, it's equivalent of every
PhD student ever in the world combined and smarter than that, right,
But until you really get your hands on these things, it's.
Speaker 9 (28:55):
Hard to say.
Speaker 10 (28:55):
What I will say is the timing is interesting.
Speaker 9 (28:58):
You saw this week.
Speaker 10 (28:59):
That the version of Groc that we have right now,
Rock three was viewing this anti semitic stuff, and I
think what that tells me is that no matter how
good these chatbots get in terms of the technology, it
still really depends on how they're trained and who is
sort of filling the information into these bots. Right, Because
(29:22):
GROC four could be the most advanced thing of all time,
if it's spewing anti semitic comments to users on X,
it really doesn't matter, right, And so to me, we
need to sort of wait and see. I realized that's
a bit of an unfulfilling answer to this question, but
it's just too early, and all we have right now
is sort of Elon's praise for the bot.
Speaker 1 (29:40):
To go off of Groc also coming to a Tesla
soon near you. This is what Elon Musk said too.
So what is that like? Is that just yeah, giving
more data to GROC. I don't know what's that connection.
I guess I get it on some level because you're
the Elon universe.
Speaker 10 (29:56):
But what is that I was going to say, Like,
the Elon universe is like this ever morphine melding thing
we've talked about, the three of us have talked about
this before. But like this idea that one corner of
his universe just kind of gets pulled into the other.
This is pretty common, so I'm not surprised, but this
is how I'm thinking of it. And again, you know,
new information like this can all evolve, but hands free, right,
(30:19):
Like the idea that you maybe you're already using self driving,
but let's pretend you're doing it the old fashioned way.
You're driving yourself around and you want to safely, you know,
figure out the best route to where you're headed. You
need to ask about a headline you thought about earlier.
You want to make a call, like you want a
voice assistant that is ultimately high quality, that's going to
(30:41):
be able to do all those things safely. Right, So
maybe in a perfect world, you know, Grock serves as
your co passenger, your co pilot here on a trip,
so that you're not like pulling out your phone or
tinkering with the screen in the tesla. Now, I think
a lot of this is sort of idealistic because we
need to see how this is implemented. And also again
like how good is GROC is it Is it reliable
(31:03):
enough to do those types of things? But I think
in the perfect world, imagine it as the hands free
co pilot there for you in your in your car.
Speaker 6 (31:09):
Well, if you know, you bring up the point about
some of the challenges that Grock three has had that
has been well documented in terms of coming up with
anti semitic posts and the like on on X and
sort of what we've seen shared out there. Kurt, how
how do we know if GROC four or how does
how does X A I solve this? If it hasn't
really solved this for GROCK three.
Speaker 10 (31:31):
Yeah, And I think that's sort of the challenge. And
I think the issue too is like the anti semitic
comments that came out of GROC three, those happened just
over the last couple of days. GROK three has been
out for months before that, right, But there was a tweak,
you know, Elon was talking about, like a tweak to
the chatbot, and all of a sudden it's now, you know,
sharing these really horrible posts, and so these things can
(31:54):
evolve very quickly depending on again what type of information
is put into it, what type of guardrails are in
place for how these spots should or should not respond.
So I'm certainly not in a position where I'm like, oh,
they fixed it. Grock four is going to go off
without a hitch. I think the timing of the incidents
they had with GROC three right before this rollout actually
(32:14):
make me much more skeptical about Grock four. But again,
we sort of need to wait and see. They clearly
at the very least acknowledged that that was a problem.
Speaker 9 (32:23):
Right.
Speaker 10 (32:23):
Sometimes they've had issues and they just kind of refuse
to even acknowledge the issue. In this case, they acknowledged, Hey,
this was inappropriate. These types of answer should not have
been coming. I know that the bar is incredibly low, guys,
but I take that as a good sign.
Speaker 1 (32:38):
I am wondering, Kurt, that Elon's time in the government
endge how much like can we make any assumption that
there was information and data that he had access to
that is kind of going into GROC. Will we ever
question we even know?
Speaker 10 (32:55):
It's a great question, is one we've been all asking
about Actually for months there was this I did. You
may remember, you know, when he asked employees of the
government to basically say, hey, here are the five things
I did this week, right like, just basically justify your job.
Send us an email with what you did. There was
speculation around that time that, you know, the only way
to really sift through thousands and thousands of emails of
(33:19):
a list of five accomplishments was to rely on AI. Now,
as far as I know, there was no reporting that
sort of confirmed, hey, GROCK was being used or that's
certainly sensitive government information was being you know, put into GROC,
or that GROC was being trained on that.
Speaker 4 (33:37):
Type of stuff.
Speaker 10 (33:38):
But again, there was a lot of speculation, given what
Elon does, given his his focus on this AI, that
maybe it was used behind the scenes to sort of,
you know, help with some of these tasks, maybe help
with where cuts should be coming from or not coming from.
I don't recall again that ever being confirmed with reporting.
But I think you're asking the question that a lot
(34:00):
of us have been asking for months now. Was there
a relationship there beyond you know, just the way anyone
could use it publicly?
Speaker 4 (34:07):
Right?
Speaker 1 (34:09):
Yeah, exactly, I want to talk about X.
Speaker 6 (34:11):
Carol, let's go there, Kurt, your morning newsletter that I
read earlier today about your view on Lindy Akarino leaving
the company formerly known as Twitter X. I think you
were like many people who thought she wouldn't actually last
two years at the company, given the history of high
profile people at some of these companies and sort of
(34:33):
just the what was happening at X in the early days.
What do we know about her exit, why she's leaving,
and sort of what this means for the social media
platform moving forward.
Speaker 10 (34:46):
So we don't know a ton beyond I can tell
you that this has been in the works since well
before this most recent GROC thing, as far as I know.
I don't want to say that that wasn't a factor necessarily,
but it was like she was all in five days
ago and suddenly she's all out. I think that this
was something that had been in the works coming before this. Now,
(35:06):
whether the Grock incidents, you know, expedited a timeline or not,
I can't say for certain, but I think this is
something she was planning to do before. Now, what this
signals to me and what I tried to get across
in that newsletter is that this might not just be
a change of leadership at the company, it could be
a change of identity at the company, right because when
(35:27):
Lindy Akarina was hired, he is a well known or
was a well known media executive advertising executive, and so
this was a signal that, hey, advertising is sort of
the bread and butter. This is how we'll continue to
make money. That's where the person in charge of this
company has her time, energy and focus. If that, if
Yakarino was replaced by someone with an AI background or
(35:50):
an engineer, a product person who's not focused on advertising
in the same way, I think we could be witnessing
sort of a transition of X as an ADS platform
to ex says something completely different. It may be that
fighting with advertisers for you know, zero point five percent
of the global advertising market is no longer worth their
(36:11):
time and attention, and instead this platform becomes a data
provider for groc or other AI products in the future.
And so that was sort of what I was getting
at in this newsletter, is like, this might not just
be the end of her time there, this might also
be the end of us thinking of this as like
an ADS business, and maybe we need to start thinking
about what X can become in a different way, like.
Speaker 1 (36:30):
A media company being used for some other end. Some
of it, you know, might be for folks who want
to have, you know, a mouthpiece or so on and
so forth, or like, I don't know, it's just kind
of interesting.
Speaker 6 (36:40):
That makes me concern about the data that X is
getting or that XAI would get, because it's not great data. Yeah,
Like I mean what they say, Kurt garbage in, garbage out.
Speaker 9 (36:48):
I mean my feed.
Speaker 6 (36:49):
I'm sure it's my fault, but there's a lot of
stuff on there that's not necessarily the correct answer to things.
Speaker 10 (36:57):
Well, Grock's already been trained on X data, and that
might explain in some ways why we saw what we saw,
you know, with this antisemitic posts on the over the
last couple of days, right, is that it has to
be trained to think that way or say those types
of things. And if you are taking the fire hose
of posts from X and putting them into GROC, that
might be the outcome that that you get in some instances.
(37:19):
And so it's not new this idea that you know,
GROC is suddenly going to be trained on XT like
this is already happening. I think for me, it's more like,
is that kind of the sole purpose of why.
Speaker 4 (37:30):
X exists moving forward?
Speaker 10 (37:31):
Is it sort of like Elon Musk's personal sort of
megaphone playground plus the training fuel for AI stuff that
makes the real money down the line. That feels to
me like where we might be headed now. They could
surprise us. They could replace Lindy Akarino with some other
major advertising executive and all of a sudden, I'll come
back and talk with you about it and say, hey,
(37:52):
you know, my take was certainly wrong, But I think
her stepping aside sort of paves the way for them
to leave advertising behind a little bit and move in
a different direction.
Speaker 1 (38:02):
Kurt, just quickly twenty five seconds though our advertiser is
really going to come back in a big way as
long as Elon is somehow political in whatever format.
Speaker 3 (38:11):
Is just quickly.
Speaker 10 (38:12):
I mean, this has been the This has been the
achilles co for this company since he took over, is
that you have a brand advertising business, but you have
an owner who constantly does and posts things that are
not necessarily brand friendly or brand safe. And so that's
been the rub and until he sort of changes the
way he behaves on X. I just don't see that
(38:33):
really being settled anytime soon.
Speaker 1 (38:35):
All right, Tesla shares that we should pointing out up
about four percent in today's trade. Hey, Kurt Wagner, so
appreciate it. Bloomberg News senior technology reporter covering social media.
Speaker 2 (38:45):
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
live weekday afternoons from two to five pm Eastern. Listen
on Apple CarPlay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 9 (39:01):
I'll bet you let me drive. Oh no, no, no no,
this is not a toy.
Speaker 7 (39:05):
Please to drive any please?
Speaker 9 (39:08):
How the gravels?
Speaker 4 (39:10):
Let's wait, I want to drive.
Speaker 2 (39:11):
It's a good question.
Speaker 1 (39:18):
This is the drive to the clothes puns.
Speaker 9 (39:21):
A mere thing.
Speaker 4 (39:21):
We'll drive.
Speaker 9 (39:22):
Run on Bloomberg Radio.
Speaker 1 (39:25):
All right, TikTok, everybody, just coming up on about eighteen
minutes to go until we wrap up the trade on
this Thursday, Carol Master Tims Stanovic live in our Bloomberg
Interactive Broker studio. You heard both Bill and Charlie breaking
down the trade, and we are hovering near our highs
of this session. We'll see if ultimately we can get
another record close here on the S and P five
hundred buck. Quite a run and quite a bounce back
(39:45):
from that mirror Was it beer bear market correction?
Speaker 3 (39:51):
I know, always do that.
Speaker 9 (39:52):
You are going on vacation soon, so I don't even.
Speaker 3 (39:54):
Drink a lot of beer bear beer.
Speaker 9 (39:57):
Yeah, we're twenty percent roughly April second, I know, so quite.
Speaker 1 (40:01):
A bounce back, right, So let's see what Veronica Willis
has to say about all of it. She's a global
investment strategist at Wells Fargo Investment Institute. They've got about
forty four billion in assets under management, and she is
joining us from New York. Hey, Veronica, good to have
you here with us. It's been an interesting market year
and it's yeah, we're about halfway through. Talk to us
(40:23):
about what's kind of top of mind for you as
we get ready for another earning season. We continue to
digest trade tariff news that seems to continue to come
out of the White House. What's top of mind about
the investment environment for you?
Speaker 11 (40:37):
Yeah, I think top of mind right now is to
expect a little bit more volatility for the rest of
the year.
Speaker 4 (40:43):
The market's seen.
Speaker 11 (40:44):
A really impressive rally from those lows earlier this year
maybe has gotten a little bit ahead of itself. There's
still some uncertainties related to trade. We've got you know,
earning season coming up, which could start to see some
of those packs around that uncertainty around prices and uncertainty
around tariffs. So it could be you know, a little
(41:05):
bit more volatility to come for the rest of the year, a.
Speaker 6 (41:07):
Little bit more or maybe a lot more if these
tariffs stay in effect come August.
Speaker 4 (41:12):
First.
Speaker 11 (41:13):
It's really dependent on, you know, what we see ultimately
for the in state for the tariffs, and that's where
all of the uncertainty is, so we don't really know
what those are going to look like. You know, the
worst case scenario is going to cause a lot of volatility.
Speaker 4 (41:27):
For the markets.
Speaker 11 (41:28):
If they're not as aggressive as what they've currently been announced.
If we're able to get some negotiations between the US
and some of the trading partners, then we could see
a little bit less volatility.
Speaker 1 (41:38):
So I am curious, you guys have a bunch of strategists,
a bunch of analysts. I can only imagine some of
the conversations you're having back and forth, and I do
wonder if you feel like you have more questions about
the outlook or more answers. Do you feel like there
is more things that you can kind of cross off
your list.
Speaker 11 (41:57):
There are definitely a lot of questions and a lot
of scenarios as the answers for those questions. So that's
a lot of what we're talking about. Are you know
the different tariff scenarios and how that might impact the economy.
With the signing of the One Big Beautiful Bill Act,
that takes one uncertainty off of the table, so we
know what the fiscal policy is, we don't know quite
(42:19):
what the full impact is going to be to the economy,
so that's still a question as well. So it's a
really interesting time with a lot of questions.
Speaker 6 (42:28):
Yeah, I feel like more questions than answers for a
lot of investors out there. We've spoken to some people
this week who have said, hey, that August first deadline
for tariffs. We see that as serious in the sense
that we don't think the President is going to extend
that deadline again like he did from July ninth. Remember,
yesterday was supposed to be the day that the extension expired,
but it was extended this week to August first, what's your.
Speaker 9 (42:51):
View on that.
Speaker 11 (42:54):
I think there's always the possibility that it will continue
to be extended, whether the President says that it will
be or not. So that's exactly what we saw with
the July ninth debtline, So that's always one of the possibilities.
Then there's always that possibility that we start to see
some agreements and some negotiations happening and get some more
clarity before that August first debtline. So there's really just
(43:17):
a lot up in the air, all right.
Speaker 1 (43:20):
So there's a lot coming out investors, And yet we
talked about this with our Gena Martin Adams of our
Bloomberg Intelligence team. She follows and covers and directs US
Equity Universe coverage for US here at Bloomberg Intelligence. Turstan
Slockover at Apollo also has a note and noting the
concentration extreme concentration. The S and P five hundred returning
(43:43):
to extreme levels, with the top ten companies accounting for
forty percent of the index's market capitalization and a record
high share of earnings. And Gina talked to about some
of the mag seven names that the outperformances, big tech
names and Vidia hitting four trillion in market cap yesterday.
Investors are really moving into those names and maybe it's
not as much of a broadening out. Is that a
(44:06):
dangerous sign for you? What's your read on that and
what it says about the investment environment? And once again
see that concentration.
Speaker 11 (44:14):
That is a concern, and you know, we've seen it
play out throughout the past couple of years where you know,
the mag seven was pretty much the only thing driving
performance for the S and P five hundred as a whole.
And if we return to that type of environment, you know,
any kind of shocks in any of those big names,
(44:35):
that's going to be what drives the market down and
it can happen really quickly. And so we'd like to
see that performance broaden out a little bit to believe
that we're in a more sustainable rally. So that's part
of why we're thinking there's still going to be some
volatility throughout the year. We're not necessarily buying into, you know,
the belief that we're just straight up from here. We
(44:57):
need to see that performance broaden out of it.
Speaker 6 (45:00):
What about when it comes to geographical performance, there was
a big narrative at the beginning of the year and
even toward the middle of this most recent quarter really
focused on the our performance of equities outside of the
United States, specifically European equities. What are your views geographically
for the second half of the year.
Speaker 11 (45:20):
So we do think that that global diversification, having that
exposure to the international equities is important as part of
a diversified portfolio. So that's played out really well this year.
We think it will still play out well throughout the
rest of this year. But we do think eventually when
US economic growth starts to recover later in this year
(45:41):
early twenty twenty six, that will start to see that
US outperformance resume.
Speaker 1 (45:46):
One thing I want to ask you before we wrap
up here on this Thursday earnings. Bank earnings kickoff next week,
JP Morgan coming out along with the other big banks.
I'm looking at the KBW Bank index. It is up
almost well, it's up about thirty eight percent year to date.
I was going to say almost forty percent, not year
to date, forgive me from that April fourth low. So
(46:07):
we have seen a tremendous rally overall. The index is
up thirteen percent year to date, and that easily is
about double what we've seen in terms of the return
for the S and P five hundred, so some mega
out performance. What do we need to see in terms
of earnings to justify the moves that we've seen already
or do you think there is room to continue moving higher?
(46:30):
And again just got about thirty forty seconds.
Speaker 11 (46:32):
Yeah, I do think there is still some room to
move higher. The market's expecting some deregulation that should benefit
the banks, and so I think that's driven a lot
of that performance in you know, financials overall. I think
with earnings next week, we'll need to see some kind
of follow through. So we need to see some good
earnings reports from these banks to buy into that rally.
(46:54):
So it'll be really important to watch.
Speaker 1 (46:56):
All Right, We're gonna leave it on that note. Hey, Rodica,
thank you so much, appreciate you. Veronica willis global investment
strategist at Wells Fargo Investment Institute. They've got roughly forty
four billion in assets as of February of this year,
so good to get her view.
Speaker 2 (47:12):
This is the Bloomberg Business Week Daily podcast, available on Apple,
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Speaker 2 (00:08):
This is Bloomberg Business Week Daily reporting from the magazine
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Speaker 1 (00:32):
All right, we're going to switch gears a little bit.
Shares a rare earth magnet producer NP Material soaring in
today's session up as much as sixty percent right now,
up about fifty percent, so just off its highs of
the session. This is after securing a four hundred million
dollar equity investment from the US Department of Defense to
build a new plant with a one billion dollar financing
(00:52):
commitment from JP Morgan Chase and Goldman Sachs. So we
wanted to talk about the deal and what this really
means in terms of usk abilities of rare earth magnets.
We welcome back Jim Litinski. He's founder, chairman and CEO
of the seven point two billion dollar market cap MP Materials.
He is with us from Las Vegas, Nevada, and we
also have.
Speaker 3 (01:13):
With us our own Joe Do.
Speaker 1 (01:14):
He's Bloomberg News Economic statecraft reporter who first introduced us
to Jim just a few months ago. So thank you
for doing that, Joe. Joe is with us in studio.
Welcome to both of you. Hey, Jim, we want to
kick it off with you. Welcome, Welcome.
Speaker 4 (01:26):
Hey.
Speaker 1 (01:26):
Laid out for us, what exactly does this investment do
for you? And what will it do for rare earth
magnet production in the US and when will we feel
that impact here in the United States.
Speaker 5 (01:37):
Absolutely so, there are three pillars to DoD's investment today.
Speaker 4 (01:41):
DOOD made an investment in MP.
Speaker 5 (01:43):
They also provided us with a long term, a ten
year price floor contract that allows us to earn a
fair return on the commodity. And then they also provided
one hundred percent off take for a new magnet facility
that we're building that will significantly expand.
Speaker 4 (02:00):
It will ten x our magnet capacity.
Speaker 5 (02:02):
What's so important about this is that with the supply chain,
as you may have heard me say, if we have
all the rarests in the world, if we don't have
the downstream, if we don't have the magnet production, or
vice versa, if we have magnet production, but don't have
the rare oaths, then you know it's all for naught.
And so it's really important to look at this supply
chain on a vertical basis. And so you really have
(02:22):
to credit President Trump and hit his administration and of
course our partners at the Pentagon for sort of looking
at this challenge and recognizing that, you know, MP has
put together a vertically integrated champion, and the best solution
to kind of catalyze this supply chain is making a
substantial commitment to us, which they've done.
Speaker 4 (02:42):
We're very excited about that.
Speaker 5 (02:43):
And lastly, I would just say that this is this
is a huge win for taxpayers because the structure of
the deal is such that not only is DoD now
economically our largest shareholder, but they have upside participation in
both the commodity and in the magnet business.
Speaker 6 (02:58):
Hey, Joe, come on in here, because you understand this
like pretty much nobody else. Talk to us about what
you see as significant about an investment such as this,
especially from a position of economic stakecraft.
Speaker 7 (03:07):
Well, I wanted to ask Jim about that. Jim, I
feel like you're underplaying what has come out today. Can
you give us size and scope, put into context why
this is such a big deal in your industry and
what's unique about it.
Speaker 4 (03:24):
Thanks, Jo, it's good to see you. Well.
Speaker 5 (03:26):
I think not to get too wonky, but I would recommend,
since we are on Bloomberg, for those is in our
investor relations. We obviously put out a deck for this
morning's call, and I really encourage people to look at that,
and we go through a lot of the economics, but
I'll give you this summary, which is that we have
totally transformed MP's business overnight. We've gone from the challenge show.
(03:50):
As you know, is that the Chinese historically have sold
rare earth set a substantial loss because they use it
mercantilistically as a strategic source of control of the downstream.
Speaker 7 (04:00):
Which is a way of saying that they'll flood, which
is a way of saying, Jim, that they will flood
the market to take market share, which is one of
the things that has always scared investors away from your
company and other companies in this space.
Speaker 4 (04:13):
Correct.
Speaker 5 (04:14):
And so if you look at the math, we basically
have transformed MP where we can earn We have long
term contracted cash hosts, so we have ten year agreements
where essentially if you kind of look out normalized, you know,
we believe we can do six hundred and fifty million
plus of ebadah and this is you know, and again
look at the various parts, but this is this has
taken our business from what was sort of a volatile
(04:36):
commodity business to a long term, contracted economic platform which
enables us to make further investments downstream and both and
those investments downstream, we now have one hundred percent off
take in DoD as a customer. And if I can't, Joe,
let me add one more point that I think is
so important because you hit the nail on the head
about the Chinese flooding the market.
Speaker 4 (04:55):
The Chinese very thoughtfully realize.
Speaker 5 (04:58):
That, particularly with when we think about physical AI and
the future of warfare, robotics, drones, the Chinese are willing
to lose billions to play for trillions of dollars of
downstream market cap.
Speaker 4 (05:09):
And when we think about you.
Speaker 5 (05:11):
Know, our great leaders in technology, whether it's Jensen Wong
or Elon Musk talking about robotics being potentially the largest
industry in the history of the world, where earth magnets
are important, very important, extremely critical feedstock to that, and
so we've got to preserve that trillions of dollars of
downstream enterprise value, and that obviously is what we're about
(05:32):
at MP, is making sure that our downstream industry has
that feedstock, and obviously today's announcement ensures that we can
make those investments.
Speaker 7 (05:40):
Jim, the Defense Department is famously not splashy about anything.
It's hard to argue that this was not flashy four
hundred million dollar equity investment in a publicly traded company.
Have they ever done this before?
Speaker 5 (06:00):
But I think it's a pretty unprecedented situation, and I
think that this is obviously a very unique circumstance, and obviously,
you know, we are honored and humbled by it, Joe,
And as you know, since we've been talking for many years,
I guess there's the old expression of it takes a
lifetime of hard work to become an overnight success. We've
been at this for ten years at MP, and actually,
(06:23):
interestingly enough, today is the eight year anniversary of my
co founder and I bought the mount Pass Mountain Pass
assets out of bankruptcy eight years ago, where we began
the turnaround to restore this full supply chain and I
think that DOOD and the administration realize that we've got
to look at the supply chain holistically, and you know,
(06:45):
hopefully this is a model for future other scenarios where
we have strategic industries that we have to return and
we've got to figure out a way to take on
mercantilist economics, and so this is I think hopefully a
good model in doing so.
Speaker 6 (07:00):
Jim to that point, you operate in a specific portion
of sort of the rare earth space when it comes
to these magnets. In your view, because you're in this space,
where does the US still lag and where where does
the US need to invest in order to try to
catch up if even possible.
Speaker 5 (07:17):
Well, we're vertically integrated, so we at MP and there's
nobody like this, But I.
Speaker 6 (07:22):
Just mean from the materials and processing perspective, I understand
you are vertically integrated, But what about for all of
the rare earths that that will be in demand in
the near future.
Speaker 5 (07:32):
Sure, well, so there are two major categories that are
the light and the heavies, and is part of this announcement,
DoD is actually also committing some capital for US to
build out samarium separation at Mountain Pass samarium is a
feedstock into a different kind of magnet that's actually really
critical for military purposes as well. And so essentially, tim
(07:54):
if you want to refine, if you want to refine
rareth so forget the ore bodies around the world. If
you want to refine and separate them to then become
feedstock to magnets.
Speaker 4 (08:03):
There are two places to do it.
Speaker 5 (08:04):
There's sort of the Chinese sphere of influence or Mound Pass, California.
And so I think this basically catalyzes us to move
downstream and really be able to have MP as an
economic platform that can encourage additional investment really in all
spheres in mining and across the stream, all the way
down to magnets.
Speaker 1 (08:24):
You know, Jim, I think people are listening and they're like, yeah,
you know, if we're thinking about developing our supply chains
here and making and creating national security for things that
are so important to so many different aspects of our
lives here in the United States, people are gonna say, yeah.
Speaker 3 (08:37):
This makes sense.
Speaker 1 (08:38):
But do you feel like this is potentially a step
towards you becoming a state owned enterprise?
Speaker 4 (08:45):
Oh not at all, not at all.
Speaker 5 (08:47):
In fact, you know, I think it's actually the opposite,
which is, for the first time we see an actual
data point of how we in the West, with free
market capitalism, can take on mercantilism, but doing so in
a way that is is along with our value system.
So let's be very clear about this. U D O
(09:07):
D is becoming economically our largest shareholder. But they they
are you know, they will vote with our board and
they expect us to be a thriving public company. They
want us to continue to run the company for shareholders,
and obviously their interest will will be a benefit for
taxpayers to the extent that they, you know, are we
continue to compound, which we expect, and then they also
(09:28):
have upside sharing. And so I want to I want to,
you know, really remind people that if you look at
this deal, it was a win win win.
Speaker 4 (09:35):
Obviously, you know, the market likes it.
Speaker 5 (09:37):
I think there's our our economic platform has totally changed,
but we're serving a key national security initiative enabling trillions
of dollars of downstream enterprise value to be more secure.
But the taxpayer also has upside in this, and so
I think that this is sort of again, it's it's
a new model. It's unprecedented in a sense, but it's
of course because we're facing a challenge that we haven't
(09:58):
faced before.
Speaker 7 (09:59):
Yeah, I guess on some level, Jim. The upside the
taxpayer has is if your stock goes up, the investment
that the DoD hasn't it goes up. I was talking
to an investor today asking about this, and I said, well,
what what does it mean for the taxpayer? And they said, really,
all it means is a better bet on national security issues.
Speaker 5 (10:15):
So I might push back if I may, Yeah, if
I may push back, because if you look at the
structure of the deal, it's not just the shareholding. There
are three pillars. It's the shareholding, there's then upside participation
in the commodity, and then there's also upside participation in
our magnet business. So there's actually three different mechanisms of
(10:36):
upside sharing for the taxpayer.
Speaker 7 (10:37):
And can you clarify one thing in the details the agreement.
The it's one hundred and thirty dollars floor right, or
is one hundred and ten sorry one, And it's one
hundred and ten dollars floor That is just for the
actual concentrate refined in metal. That is not batteries. Right, Sorry,
that is not permanent magnets.
Speaker 5 (10:59):
That's all NDPR products, So you're right, concentrate oxide and metal.
Speaker 4 (11:03):
And then we're on a downstream though.
Speaker 5 (11:05):
We also have one hundred percent off take for the
new facility that we're going to build called ten X,
and as part of that off take, we'll have a
minimum EBITDAG guarantee and then there'll be a catch up
for DoD and then we'll share. We're fifty to fifty
partners and so again, Joe, this is this is a
transformational public private partnership, right, But the tax payer was
(11:25):
really really what well represented in the structure.
Speaker 7 (11:28):
But Jim, one thing, you probably will be getting a
lot of pushback from investors, from media whoever, saying what
we just brought up, which is your biggest stockholder will
be the Defense Department. And doesn't that bring a concern
that the federal government has so much say in what
is supposed to be a publicly traded private company.
Speaker 5 (11:50):
Well, actually, interestingly, as part of our deal, d D
will be voting their shares with our board.
Speaker 4 (11:57):
And so I really think that this is again and
it's a new.
Speaker 5 (12:00):
Structure that contemplates the fact that we need to be
a successful public company.
Speaker 4 (12:06):
So this is very different.
Speaker 1 (12:08):
You know.
Speaker 5 (12:08):
I know that maybe there's you know, historical examples of
where the government needed to come in and rescue an industry.
Speaker 4 (12:15):
It's actually the opposite of what's happening here.
Speaker 5 (12:17):
The government wants to achieve an important national security objective
and we at MP are able to help them achieve
that objective.
Speaker 4 (12:26):
And so they are going to help support us.
Speaker 5 (12:29):
In accelerating investment in our space, and they're going to
create the conditions that allow us to invest with a
fair return on capital and not be a tax sort
of speak by mercantilism. And in exchange for that, they're
going to expect some upside. And so again I think
this is hopefully it's a new model that we can
utilize across some of these verticals that are really challenging
(12:50):
for us where we've been unable to fully reshore industries
because we're facing competition that he is thinking differently again.
Speaker 6 (12:59):
We yeah, Oh go ahead, Sorry, we only have a
minute left, and I just want to hear from you
how this deal came together. In the timeline here, who
did you speak to who first reached out? Trips to
Washington trips to you know, Chicago or Nevada. Like, how
did it all come together and when did the discussions
first start.
Speaker 5 (13:18):
Well, we've been we've been having a great active dialogue
with the Pentagon, going back to the first Trump administration
and through the Biden administration and now obviously the Trump administration.
And obviously this is a non partisan issue getting this
supply chain back. Suffice to say that what we have been,
as you know, in our mission, we've been focused on
this single point of failure since the inception of the
(13:39):
company post Liberation Day, as we saw the Chinese utilized
rareth magnets in the trade disputes that that basically the
cutoff of rareth magnets had the threat of sending our
economy into a deep tail spin and so that really
certainly accelerated some of this discussion.
Speaker 1 (13:58):
Got to ask you, though, did you actually talk with
Sident Trump about this, Like who finally said got to
do it? Signed it?
Speaker 5 (14:05):
Well, well, I think you can look at the transaction
documents which which we're signed to the top levels of
the Pentagon. So this was this was a conversation from
the very top levels of the Pentagon.
Speaker 3 (14:16):
Is that a yes?
Speaker 1 (14:16):
On mister, is that a yes on the president?
Speaker 5 (14:20):
So this is this is again I don't I don't
want to specifically name names of who we spoke to
and how the conversations went about. But again the how
about this, I will I will tell you that the
President has directly mandated that we fixed this supply chain
and so that is that is public.
Speaker 4 (14:37):
You can see that.
Speaker 5 (14:38):
And so the President mandated the secretary on down to
fix this supply chain. And I think that this is
this is really bold and decisive action to make that happen.
Speaker 1 (14:46):
Well, investors certainly taking investor certainly taking note, as we said,
your stock up fifty percent. I'm going to say thank you,
thank you, thank you, because there's three of us, and
we really appreciated your time and getting having a conversation
with you on this because it does sound like it's
pretty significant in terms of what happens with rare earths
here in the United States. Jim, thank you, thank you.
(15:07):
Stay in touch, you bet Jim Litinski. He's founder, chairman
and CEO of MP Materials, and of course our own
Joe Doe Bloomberg News Economic Statecraft reporter. He's going to
be back with us in the next hour. Joe, thank
you so much.
Speaker 2 (15:19):
You are listening to the Bloomberg Business Weekdaily Podcast. Catch
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Listen on Applecarplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 1 (15:33):
Airlines definitely in focus on this Thursday rallying.
Speaker 3 (15:36):
So too are many stocks in.
Speaker 1 (15:38):
The travel and leisure space trading up thanks to Delta Airlines,
which reinstated a profit outlook for the year and said
travelers are coming back, prompting it stock to surge him
ad a first sense of confidence in the beaten down
US consumer. Just one number I want to throw out
at you, SMP Supercomposite Airlines subindustry index ralling close to
twelve percent today. It's still down five percent year to date,
(16:00):
so a little bit of perspective. Up a lot today,
but still down for the year.
Speaker 6 (16:03):
Well here with the look at the airline space. Great
to have back with us. Sheila Kayalu. She's managing director
in equity research at Jeffrey. She joins us here in
the Bloomberg BusinessWeek studio. Sheila, three months ago we would
have been sitting here talking about Delta being the first
major carrier pull its guidance. Perhaps a couple of days
later we'd be talking about United coming out with those
two different scenarios. A lot has changed in just three
(16:24):
months what happened.
Speaker 3 (16:25):
A lot has.
Speaker 8 (16:25):
Changed, but I also think it hasn't, so I'm not
really buying this burst with the airline performance. Delta did
be in state guidance the midpoints about fifty cents higher
than what the street expected, but I think trends are stable,
so they're taking up estimates about ten percent, and that's
what's moving all the airlines. But I still think it's
haves and have nots. So if you look at Delta's numbers,
(16:46):
main cabin was down five percent in terms of pricing, Like,
what do you see that's down five percent and you
think that's a stock that should be up fifteen percent,
especially when you look at American and Southwest performance.
Speaker 6 (16:56):
So is the main cabin issue? And that's I was
going to ask you about that because there was some
positivity and optimism at the front of the plane and
for premium international and for loyalty stuff. But if you're
not filling the main cabin, then that's a sign of
a consumer that's not at the extreme high end not
doing so well.
Speaker 9 (17:13):
Right, Yeah, I think.
Speaker 8 (17:14):
The low end consumer is still in the same position
it was three months ago, and we could see that
with a down five, But Delta's adamant that they're going
to exit the year probably in the positive territory, and
I think that's a still show me story. But I
think for some of the other airlines that are seeing
the same performance as Delta is today, with the exception
of United that had an ak out last night just
(17:34):
to steal some of Delta's thunder because that's the way
they work. Is American and Southwestern love that up about
the same amount, and Southwest is delaying some of its initiatives,
which means there's probably book away. They have an activist
involved who wants them to do assigned seats, etc. Chart
for bagbees, and they're delaying some of those initiatives to
Q four. So I think it still shows that the
(17:55):
consumer soft and Delta's guidance is fine, but it's still
reflects the second half that's improving from what we saw
in Q two.
Speaker 1 (18:03):
Consumer's soft because of you know, it's interesting. Let me
go back for a second, because Delta's CEO ed Bastian
said travel in the US is recovering, corporate travels strengthening,
with consumers booming becoming excuse me, a little numb to
ongoing trade disputes. So you say a little bit softness
in consumers. Is it because of trade? Is it because of.
Speaker 3 (18:22):
Main cab cost of the main cabin.
Speaker 8 (18:24):
But one of the things they did say that was
interesting was July was one of their best cash days ever.
So they're still they're seeing some advanced bookings come in. Okay,
so the consumer is becoming immune because they're seeing some visibility,
they're finally booking their holiday. Whereas although Q two cash
flow free cash flow was good, they said they missed
out about five hundred million of free cash flow because
people didn't book vacations yet, so they weren't putting the
(18:45):
ticket price so.
Speaker 1 (18:46):
They were holding back.
Speaker 8 (18:47):
Yeah, so they have some you know, green shoots of confidence.
But I still think it's mainly because the premium is
really solid.
Speaker 1 (18:54):
Like I think of some of our business travel, we've
done a lot in the last I feel like four
to six weeks and some West coast trips and stuf
up and some of the flights. The tickets were a lot,
some of them not so much. Yeah, like it was
quite a range and it was all business class.
Speaker 6 (19:09):
I guess it's I guess it's has a lot to
do with it. I mean it has to do with
the competition on the routes and the dynamic pricing and
how many people about tickets, et cetera. One thing that
I'm still surprised about is business travel still hasn't completely
recovered to pre pandemic levels.
Speaker 8 (19:22):
No, and even air traffic is only at four percent
versus twenty nineteen levels at the end of last year,
So we're still we've lost out on five years of traffic,
which I think is surprising for most.
Speaker 6 (19:31):
So Ed Bashan at Delta said that business travel is
down fifteen to twenty percent since pre pandemic.
Speaker 8 (19:38):
Yeah, I think it might be at ninety percent recovery.
So it's a little bit less than that, and it's
better for the Delta than it is for others.
Speaker 9 (19:44):
Does it ever come back completely?
Speaker 3 (19:46):
I think so.
Speaker 8 (19:46):
I think people want to do in person, you know,
at jeffrees we I think we have a four day
man date or five day man date. I forget I
think I obliged to it. But in general I think
it's in person. You know, I was in three different
countries in the last four so lots of business travel
on our end too.
Speaker 1 (20:03):
How does geopolitics impact any of it or how do
you factor that into some of your research.
Speaker 3 (20:06):
I think we're seeing some of that.
Speaker 8 (20:08):
So one of the interesting things about Transatlantic for Delta,
there Atlantic has been really strong, tough comps with the
yields because everybody wants to go to Europe, but what
were they're seeing is europe point of sale, So consumers
in Europe are hesitant to book and have trips into
the US. And we'll hear from like Air Canada that
I cover, if you know, Canadian consumers are not necessarily
(20:29):
coming to the US, whether that's a currency issue or
whether it's just you know, political stigma. So that's that's
one of the things to keep an eye out on
as well.
Speaker 6 (20:37):
United's actually outperforming Delta today at more than fifteen and
a half percent.
Speaker 9 (20:40):
Why is that?
Speaker 3 (20:42):
A few things?
Speaker 8 (20:43):
I think the book away with the Newark issues was
only around like one third of a point, so thirty
to forty million, even though I did book away from United.
Speaker 6 (20:51):
So did we We canceled United tickets to fly out
at JFK instead.
Speaker 8 (20:55):
So I think it's some credits that are like waiting
to be it's a very small percentage.
Speaker 3 (21:00):
I think there's some relief rally there.
Speaker 8 (21:01):
I think second United is the most exposed premium in
addition to Delta. That being up five is giving some positivity.
But most importantly, they paid some debt down. They're delevering
like Delta, as Delta also raised, they're driven in twenty
five percent, and their cash guide cash implied cash with
their in the EK was seven hundred and thirty million
free cash flowing Q two for United. We consensus thought
(21:24):
it would be a loss of about a billion, so
big way and so United numbers look good based on that.
Speaker 1 (21:31):
AK anything we could you know, we get the Delta results,
We're going to start to get a lot more coming out.
We've got you know, American Southwest of Life, twenty fourth
Jet Blue. In August, we talked about United officially coming
out with their numbers next week. Is there anything like
we can kind of play against the industry based on
what Delta is. I know they're not all the same,
So how do you look at that?
Speaker 8 (21:51):
In terms of Delta, we only have a BUI on United,
but we're definitely more negative the lower cost carriers, so
Southwest we just upgraded from a celebrating a hold a
few weeks ago, but still we're a little bit more
pessimistic on the lower end consumer. And I think American
as like the third network carrier, especially on the Atlantic side,
they tend to do a lot more discounting to get
(22:12):
that transatlantic yield as well. So I still think United
and Delta are the way to play it. We're long
United because they seem extremely confident, put out an AK
before your biggest competitor just to steal something of their thunder.
Speaker 3 (22:25):
It's like kind of amazing that they.
Speaker 6 (22:27):
Did that front Did they front run results? Essentially it was.
Speaker 8 (22:30):
Implied, so it's hard to back into what their cash is.
But I mean, that's a big, big swing that they
put up positive free cash low and so.
Speaker 3 (22:37):
But cash at.
Speaker 8 (22:38):
Delta was also good. And they're both deleveraging. They're both
trying to say, listen, we shouldn't be ten times stocks,
ten times earnings. We could give out dividends. Their Delta
talked about it's diven and Field being sub two percent yield,
which is better than the market.
Speaker 9 (22:52):
Are the challenges at Newark behind United.
Speaker 8 (22:55):
Yeah, June for Newark was the best performing airport, So
it still seems like air traffic controllers need to get in.
But now that the runway issue has been fixed, Newark
is coming back and Newark, for context, is about ten
percent of United's capacity.
Speaker 3 (23:10):
Wow, so it's a lot.
Speaker 1 (23:12):
Hey listen, No, it's just interesting. Well, you know, I
was going to just follow on that that, Like, I
keep thinking about my husband used to fly a small
plane and he's constantly looking at how crowded the skies are, Like,
are we getting to a point where it is too
crowded in terms of the traffic that is up there
and that we'll have to kind of adjust or No.
Speaker 8 (23:29):
I think we need more air traffic controllers. You know,
retirement ages fifty five and right takes two to three years.
The attrition rate is quite high, and so we do
need more support. So one of the things that's interesting
with the Big Beautiful Bill is there's twelve billion, twelve
point five billion of additional funding for the FAA, So
that could be seen as positive push modernization forward. We
(23:49):
think we think the FAA budget is about twenty two billion,
so it would be doubling the budget. We don't know
if that's all in one year, right, It's hard to
quite see that, but yeah, there's we definitely need a
push towards modernization and using AI to help us fly better.
Speaker 6 (24:04):
Speaking of flying, let's talk a little bit about embra
Air and what's going on.
Speaker 9 (24:08):
With shares today or ADRs today are lower.
Speaker 6 (24:10):
This after the President said yesterday more tariffs or new
tariffs rather on Brazil. What is the economic impact in
your view on Embraer of these tariffs.
Speaker 3 (24:19):
You have a no doubt on this. I don't know
if I believe these tariffs in the first place. Really, yeah,
let's assume they actually happen.
Speaker 8 (24:25):
It would be most impactful to Embryer, but most positive
for a company called textron I Cover that makes small cessnas.
And here's why it's actually negative for American airlines too.
So twofold issue. So Embryer is a manufacturer of commercial aircraft.
They make smaller aircraft than Boeing an airbus. And the
biggest backlog associated with that is basically American. American has
(24:46):
ninety two Embryer jets that Embryer has in its backlog
out of the two fifty. So with a fifty percent tariff,
it would increase American's CAPBAX by about fifteen percent, so
obviously they would they might reconsider that order. So negative
from that perspective. I was actually in Sa Pollo seeing
Embryer's facility really neat last month. But obviously they ship
(25:08):
it back to the US, so it would be a
tariff product, and it doesn't seem excluded. The second impact
is Embryer's executive jets, and Embreyer h sixty percent of
their jets go to US customers.
Speaker 3 (25:21):
Although they made a facture some.
Speaker 8 (25:22):
Of it in Florida, there could be a tariff there,
so we thought some book away goes to a company
like Techtron.
Speaker 6 (25:27):
We can't they get around some of these tariffs the
way that airlines have tried to get around airbuses tariffs
by essentially flying the plane. And I look, forgive me,
I don't know the accounting, but I've read stories about
how they're able to, like, you know, buy the plane
from another country and then the tariffs don't aren't as high.
Speaker 8 (25:44):
Yeah, I think we're yet to see it. You know,
we don't know how they'll do it. But one of
the workarounds is potentially flying an aircraft to they, you know,
a non tariff country, and then you register it there
and then.
Speaker 3 (25:55):
You fly it back into US. We'll see. I mean,
on the private jet industry, it's a lot easier to
do that.
Speaker 8 (26:00):
But if you have if you're a high networth individual
that could buy a Latitude for twenty million and a
prader for twenty million, and now your prayterer's more expensive,
do you really need to think about that? So that's
why texture on shares are up today off the Embryer.
Speaker 1 (26:16):
No, you're right, because it was in our right through too,
off of your note because of the selling that we're
seeing Inmbryer. Just get thirty seconds. Unfortunately, we can go
through more airlines. What is it that you think in
the airline space is really interesting that we're not talking about?
And forgive me because I only do have about thirty
thirty five seconds.
Speaker 3 (26:33):
Ooh, airline space.
Speaker 8 (26:34):
I think premium, like, the premium offerings are getting really good,
whether it's Delta one or United Polaris.
Speaker 3 (26:39):
Delta is sort of.
Speaker 8 (26:40):
Sneak previewing a even higher end business class that they
might launch. They just open their fourth Delta one lounge
in Seattle. So lots of new upgrades to come, and
that's making it a better travel experience, but only for
the premium customer, the main cabins.
Speaker 1 (26:54):
It's like a shaped economy in flying right, like the
haves and the kind of havenots. Was gonna say, Chilia,
thank you so much, Chila Cayo Alu. She is, of course,
managing director and equity research over at Jeffrey's.
Speaker 3 (27:07):
Joining us here.
Speaker 2 (27:09):
This is the Bloomberg Business Week Daily Podcast. Listen live
each weekday starting at two pm Eastern on Apple car
Play and Android Auto with the Bloomberg Business App. You
can also listen live on Amazon Alexa from our flagship
New York station, Just Say Alexa played Bloomberg eleven thirty.
Speaker 6 (27:27):
Lots of news in the Elon Musk Universe, The Billionaire, World,
richest persons.
Speaker 1 (27:33):
Ever going on in the Elon Universe every day.
Speaker 9 (27:36):
I think I could say that every day. I know
he makes it like that.
Speaker 1 (27:40):
I feel like there's something every day.
Speaker 6 (27:41):
Sometimes I go on and look for tweets that he
wrote to cite them, and then it's like you have
to scroll thirty tweets to find the one that he
wrote like an hour ago.
Speaker 1 (27:48):
And then Elon was with me on my train when
I got stuck.
Speaker 9 (27:51):
The train wasn't.
Speaker 1 (27:51):
Literally no, not literally literally courtesy of x.
Speaker 6 (27:54):
Well, you were watching that because the AI startup XAI
is rolling out Grock four, just months after releasing its
previous iteration, underscoring the frenetic pace of AI development.
Speaker 9 (28:04):
You were all.
Speaker 6 (28:05):
Over that earlier this morning, Carol. The news coming the
same day though, yesterday that Lindi Akarino announced she was
leaving the social.
Speaker 9 (28:11):
Media company x.
Speaker 6 (28:13):
Kurt Wagner is the guide answer all of these questions
about these things. He's Bloomberg News Senior technology reporter. He
covers all things social media. He's also the author of
Battle for the Bird, Jack Door c Elon Musk, and
the forty four billion dollar Fight for Twitter Soul. We'll
talk about the company formerly known as Twitter in a second,
but first off, I want to talk about GROC and
really what Grock four is and how you compare it
(28:33):
to what else is out there on the market.
Speaker 10 (28:36):
Kurt, Yeah, I mean part of this is that we're
going to have to wait and see. Right, we've heard
Elon talk about GROC four and how great it's going
to be, and how you know, it's equivalent of every
PhD student ever in the world combined and smarter than that, right,
But until you really get your hands on these things, it's.
Speaker 9 (28:55):
Hard to say.
Speaker 10 (28:55):
What I will say is the timing is interesting.
Speaker 9 (28:58):
You saw this week.
Speaker 10 (28:59):
That the version of Groc that we have right now,
Rock three was viewing this anti semitic stuff, and I
think what that tells me is that no matter how
good these chatbots get in terms of the technology, it
still really depends on how they're trained and who is
sort of filling the information into these bots. Right, Because
(29:22):
GROC four could be the most advanced thing of all time,
if it's spewing anti semitic comments to users on X,
it really doesn't matter, right, And so to me, we
need to sort of wait and see. I realized that's
a bit of an unfulfilling answer to this question, but
it's just too early, and all we have right now
is sort of Elon's praise for the bot.
Speaker 1 (29:40):
To go off of Groc also coming to a Tesla
soon near you. This is what Elon Musk said too.
So what is that like? Is that just yeah, giving
more data to GROC. I don't know what's that connection.
I guess I get it on some level because you're
the Elon universe.
Speaker 10 (29:56):
But what is that I was going to say, Like,
the Elon universe is like this ever morphine melding thing
we've talked about, the three of us have talked about
this before. But like this idea that one corner of
his universe just kind of gets pulled into the other.
This is pretty common, so I'm not surprised, but this
is how I'm thinking of it. And again, you know,
new information like this can all evolve, but hands free, right,
(30:19):
Like the idea that you maybe you're already using self driving,
but let's pretend you're doing it the old fashioned way.
You're driving yourself around and you want to safely, you know,
figure out the best route to where you're headed. You
need to ask about a headline you thought about earlier.
You want to make a call, like you want a
voice assistant that is ultimately high quality, that's going to
(30:41):
be able to do all those things safely. Right, So
maybe in a perfect world, you know, Grock serves as
your co passenger, your co pilot here on a trip,
so that you're not like pulling out your phone or
tinkering with the screen in the tesla. Now, I think
a lot of this is sort of idealistic because we
need to see how this is implemented. And also again
like how good is GROC is it Is it reliable
(31:03):
enough to do those types of things? But I think
in the perfect world, imagine it as the hands free
co pilot there for you in your in your car.
Speaker 6 (31:09):
Well, if you know, you bring up the point about
some of the challenges that Grock three has had that
has been well documented in terms of coming up with
anti semitic posts and the like on on X and
sort of what we've seen shared out there. Kurt, how
how do we know if GROC four or how does
how does X A I solve this? If it hasn't
really solved this for GROCK three.
Speaker 10 (31:31):
Yeah, And I think that's sort of the challenge. And
I think the issue too is like the anti semitic
comments that came out of GROC three, those happened just
over the last couple of days. GROK three has been
out for months before that, right, But there was a tweak,
you know, Elon was talking about, like a tweak to
the chatbot, and all of a sudden it's now, you know,
sharing these really horrible posts, and so these things can
(31:54):
evolve very quickly depending on again what type of information
is put into it, what type of guardrails are in
place for how these spots should or should not respond.
So I'm certainly not in a position where I'm like, oh,
they fixed it. Grock four is going to go off
without a hitch. I think the timing of the incidents
they had with GROC three right before this rollout actually
(32:14):
make me much more skeptical about Grock four. But again,
we sort of need to wait and see. They clearly
at the very least acknowledged that that was a problem.
Speaker 9 (32:23):
Right.
Speaker 10 (32:23):
Sometimes they've had issues and they just kind of refuse
to even acknowledge the issue. In this case, they acknowledged, Hey,
this was inappropriate. These types of answer should not have
been coming. I know that the bar is incredibly low, guys,
but I take that as a good sign.
Speaker 1 (32:38):
I am wondering, Kurt, that Elon's time in the government
endge how much like can we make any assumption that
there was information and data that he had access to
that is kind of going into GROC. Will we ever
question we even know?
Speaker 10 (32:55):
It's a great question, is one we've been all asking
about Actually for months there was this I did. You
may remember, you know, when he asked employees of the
government to basically say, hey, here are the five things
I did this week, right like, just basically justify your job.
Send us an email with what you did. There was
speculation around that time that, you know, the only way
to really sift through thousands and thousands of emails of
(33:19):
a list of five accomplishments was to rely on AI. Now,
as far as I know, there was no reporting that
sort of confirmed, hey, GROCK was being used or that's
certainly sensitive government information was being you know, put into GROC,
or that GROC was being trained on that.
Speaker 4 (33:37):
Type of stuff.
Speaker 10 (33:38):
But again, there was a lot of speculation, given what
Elon does, given his his focus on this AI, that
maybe it was used behind the scenes to sort of,
you know, help with some of these tasks, maybe help
with where cuts should be coming from or not coming from.
I don't recall again that ever being confirmed with reporting.
But I think you're asking the question that a lot
(34:00):
of us have been asking for months now. Was there
a relationship there beyond you know, just the way anyone
could use it publicly?
Speaker 4 (34:07):
Right?
Speaker 1 (34:09):
Yeah, exactly, I want to talk about X.
Speaker 6 (34:11):
Carol, let's go there, Kurt, your morning newsletter that I
read earlier today about your view on Lindy Akarino leaving
the company formerly known as Twitter X. I think you
were like many people who thought she wouldn't actually last
two years at the company, given the history of high
profile people at some of these companies and sort of
(34:33):
just the what was happening at X in the early days.
What do we know about her exit, why she's leaving,
and sort of what this means for the social media
platform moving forward.
Speaker 10 (34:46):
So we don't know a ton beyond I can tell
you that this has been in the works since well
before this most recent GROC thing, as far as I know.
I don't want to say that that wasn't a factor necessarily,
but it was like she was all in five days
ago and suddenly she's all out. I think that this
was something that had been in the works coming before this. Now,
(35:06):
whether the Grock incidents, you know, expedited a timeline or not,
I can't say for certain, but I think this is
something she was planning to do before. Now, what this
signals to me and what I tried to get across
in that newsletter is that this might not just be
a change of leadership at the company, it could be
a change of identity at the company, right because when
(35:27):
Lindy Akarina was hired, he is a well known or
was a well known media executive advertising executive, and so
this was a signal that, hey, advertising is sort of
the bread and butter. This is how we'll continue to
make money. That's where the person in charge of this
company has her time, energy and focus. If that, if
Yakarino was replaced by someone with an AI background or
(35:50):
an engineer, a product person who's not focused on advertising
in the same way, I think we could be witnessing
sort of a transition of X as an ADS platform
to ex says something completely different. It may be that
fighting with advertisers for you know, zero point five percent
of the global advertising market is no longer worth their
(36:11):
time and attention, and instead this platform becomes a data
provider for groc or other AI products in the future.
And so that was sort of what I was getting
at in this newsletter, is like, this might not just
be the end of her time there, this might also
be the end of us thinking of this as like
an ADS business, and maybe we need to start thinking
about what X can become in a different way, like.
Speaker 1 (36:30):
A media company being used for some other end. Some
of it, you know, might be for folks who want
to have, you know, a mouthpiece or so on and
so forth, or like, I don't know, it's just kind
of interesting.
Speaker 6 (36:40):
That makes me concern about the data that X is
getting or that XAI would get, because it's not great data. Yeah,
Like I mean what they say, Kurt garbage in, garbage out.
Speaker 9 (36:48):
I mean my feed.
Speaker 6 (36:49):
I'm sure it's my fault, but there's a lot of
stuff on there that's not necessarily the correct answer to things.
Speaker 10 (36:57):
Well, Grock's already been trained on X data, and that
might explain in some ways why we saw what we saw,
you know, with this antisemitic posts on the over the
last couple of days, right, is that it has to
be trained to think that way or say those types
of things. And if you are taking the fire hose
of posts from X and putting them into GROC, that
might be the outcome that that you get in some instances.
(37:19):
And so it's not new this idea that you know,
GROC is suddenly going to be trained on XT like
this is already happening. I think for me, it's more like,
is that kind of the sole purpose of why.
Speaker 4 (37:30):
X exists moving forward?
Speaker 10 (37:31):
Is it sort of like Elon Musk's personal sort of
megaphone playground plus the training fuel for AI stuff that
makes the real money down the line. That feels to
me like where we might be headed now. They could
surprise us. They could replace Lindy Akarino with some other
major advertising executive and all of a sudden, I'll come
back and talk with you about it and say, hey,
(37:52):
you know, my take was certainly wrong, But I think
her stepping aside sort of paves the way for them
to leave advertising behind a little bit and move in
a different direction.
Speaker 1 (38:02):
Kurt, just quickly twenty five seconds though our advertiser is
really going to come back in a big way as
long as Elon is somehow political in whatever format.
Speaker 3 (38:11):
Is just quickly.
Speaker 10 (38:12):
I mean, this has been the This has been the
achilles co for this company since he took over, is
that you have a brand advertising business, but you have
an owner who constantly does and posts things that are
not necessarily brand friendly or brand safe. And so that's
been the rub and until he sort of changes the
way he behaves on X. I just don't see that
(38:33):
really being settled anytime soon.
Speaker 1 (38:35):
All right, Tesla shares that we should pointing out up
about four percent in today's trade. Hey, Kurt Wagner, so
appreciate it. Bloomberg News senior technology reporter covering social media.
Speaker 2 (38:45):
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
live weekday afternoons from two to five pm Eastern. Listen
on Apple CarPlay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 9 (39:01):
I'll bet you let me drive. Oh no, no, no no,
this is not a toy.
Speaker 7 (39:05):
Please to drive any please?
Speaker 9 (39:08):
How the gravels?
Speaker 4 (39:10):
Let's wait, I want to drive.
Speaker 2 (39:11):
It's a good question.
Speaker 1 (39:18):
This is the drive to the clothes puns.
Speaker 9 (39:21):
A mere thing.
Speaker 4 (39:21):
We'll drive.
Speaker 9 (39:22):
Run on Bloomberg Radio.
Speaker 1 (39:25):
All right, TikTok, everybody, just coming up on about eighteen
minutes to go until we wrap up the trade on
this Thursday, Carol Master Tims Stanovic live in our Bloomberg
Interactive Broker studio. You heard both Bill and Charlie breaking
down the trade, and we are hovering near our highs
of this session. We'll see if ultimately we can get
another record close here on the S and P five
hundred buck. Quite a run and quite a bounce back
(39:45):
from that mirror Was it beer bear market correction?
Speaker 3 (39:51):
I know, always do that.
Speaker 9 (39:52):
You are going on vacation soon, so I don't even.
Speaker 3 (39:54):
Drink a lot of beer bear beer.
Speaker 9 (39:57):
Yeah, we're twenty percent roughly April second, I know, so quite.
Speaker 1 (40:01):
A bounce back, right, So let's see what Veronica Willis
has to say about all of it. She's a global
investment strategist at Wells Fargo Investment Institute. They've got about
forty four billion in assets under management, and she is
joining us from New York. Hey, Veronica, good to have
you here with us. It's been an interesting market year
and it's yeah, we're about halfway through. Talk to us
(40:23):
about what's kind of top of mind for you as
we get ready for another earning season. We continue to
digest trade tariff news that seems to continue to come
out of the White House. What's top of mind about
the investment environment for you?
Speaker 11 (40:37):
Yeah, I think top of mind right now is to
expect a little bit more volatility for the rest of
the year.
Speaker 4 (40:43):
The market's seen.
Speaker 11 (40:44):
A really impressive rally from those lows earlier this year
maybe has gotten a little bit ahead of itself. There's
still some uncertainties related to trade. We've got you know,
earning season coming up, which could start to see some
of those packs around that uncertainty around prices and uncertainty
around tariffs. So it could be you know, a little
(41:05):
bit more volatility to come for the rest of the year, a.
Speaker 6 (41:07):
Little bit more or maybe a lot more if these
tariffs stay in effect come August.
Speaker 4 (41:12):
First.
Speaker 11 (41:13):
It's really dependent on, you know, what we see ultimately
for the in state for the tariffs, and that's where
all of the uncertainty is, so we don't really know
what those are going to look like. You know, the
worst case scenario is going to cause a lot of volatility.
Speaker 4 (41:27):
For the markets.
Speaker 11 (41:28):
If they're not as aggressive as what they've currently been announced.
If we're able to get some negotiations between the US
and some of the trading partners, then we could see
a little bit less volatility.
Speaker 1 (41:38):
So I am curious, you guys have a bunch of strategists,
a bunch of analysts. I can only imagine some of
the conversations you're having back and forth, and I do
wonder if you feel like you have more questions about
the outlook or more answers. Do you feel like there
is more things that you can kind of cross off
your list.
Speaker 11 (41:57):
There are definitely a lot of questions and a lot
of scenarios as the answers for those questions. So that's
a lot of what we're talking about. Are you know
the different tariff scenarios and how that might impact the economy.
With the signing of the One Big Beautiful Bill Act,
that takes one uncertainty off of the table, so we
know what the fiscal policy is, we don't know quite
(42:19):
what the full impact is going to be to the economy,
so that's still a question as well. So it's a
really interesting time with a lot of questions.
Speaker 6 (42:28):
Yeah, I feel like more questions than answers for a
lot of investors out there. We've spoken to some people
this week who have said, hey, that August first deadline
for tariffs. We see that as serious in the sense
that we don't think the President is going to extend
that deadline again like he did from July ninth. Remember,
yesterday was supposed to be the day that the extension expired,
but it was extended this week to August first, what's your.
Speaker 9 (42:51):
View on that.
Speaker 11 (42:54):
I think there's always the possibility that it will continue
to be extended, whether the President says that it will
be or not. So that's exactly what we saw with
the July ninth debtline, So that's always one of the possibilities.
Then there's always that possibility that we start to see
some agreements and some negotiations happening and get some more
clarity before that August first debtline. So there's really just
(43:17):
a lot up in the air, all right.
Speaker 1 (43:20):
So there's a lot coming out investors, And yet we
talked about this with our Gena Martin Adams of our
Bloomberg Intelligence team. She follows and covers and directs US
Equity Universe coverage for US here at Bloomberg Intelligence. Turstan
Slockover at Apollo also has a note and noting the
concentration extreme concentration. The S and P five hundred returning
(43:43):
to extreme levels, with the top ten companies accounting for
forty percent of the index's market capitalization and a record
high share of earnings. And Gina talked to about some
of the mag seven names that the outperformances, big tech
names and Vidia hitting four trillion in market cap yesterday.
Investors are really moving into those names and maybe it's
not as much of a broadening out. Is that a
(44:06):
dangerous sign for you? What's your read on that and
what it says about the investment environment? And once again
see that concentration.
Speaker 11 (44:14):
That is a concern, and you know, we've seen it
play out throughout the past couple of years where you know,
the mag seven was pretty much the only thing driving
performance for the S and P five hundred as a whole.
And if we return to that type of environment, you know,
any kind of shocks in any of those big names,
(44:35):
that's going to be what drives the market down and
it can happen really quickly. And so we'd like to
see that performance broaden out a little bit to believe
that we're in a more sustainable rally. So that's part
of why we're thinking there's still going to be some
volatility throughout the year. We're not necessarily buying into, you know,
the belief that we're just straight up from here. We
(44:57):
need to see that performance broaden out of it.
Speaker 6 (45:00):
What about when it comes to geographical performance, there was
a big narrative at the beginning of the year and
even toward the middle of this most recent quarter really
focused on the our performance of equities outside of the
United States, specifically European equities. What are your views geographically
for the second half of the year.
Speaker 11 (45:20):
So we do think that that global diversification, having that
exposure to the international equities is important as part of
a diversified portfolio. So that's played out really well this year.
We think it will still play out well throughout the
rest of this year. But we do think eventually when
US economic growth starts to recover later in this year
(45:41):
early twenty twenty six, that will start to see that
US outperformance resume.
Speaker 1 (45:46):
One thing I want to ask you before we wrap
up here on this Thursday earnings. Bank earnings kickoff next week,
JP Morgan coming out along with the other big banks.
I'm looking at the KBW Bank index. It is up
almost well, it's up about thirty eight percent year to date.
I was going to say almost forty percent, not year
to date, forgive me from that April fourth low. So
(46:07):
we have seen a tremendous rally overall. The index is
up thirteen percent year to date, and that easily is
about double what we've seen in terms of the return
for the S and P five hundred, so some mega
out performance. What do we need to see in terms
of earnings to justify the moves that we've seen already
or do you think there is room to continue moving higher?
(46:30):
And again just got about thirty forty seconds.
Speaker 11 (46:32):
Yeah, I do think there is still some room to
move higher. The market's expecting some deregulation that should benefit
the banks, and so I think that's driven a lot
of that performance in you know, financials overall. I think
with earnings next week, we'll need to see some kind
of follow through. So we need to see some good
earnings reports from these banks to buy into that rally.
(46:54):
So it'll be really important to watch.
Speaker 1 (46:56):
All Right, We're gonna leave it on that note. Hey, Rodica,
thank you so much, appreciate you. Veronica willis global investment
strategist at Wells Fargo Investment Institute. They've got roughly forty
four billion in assets as of February of this year,
so good to get her view.
Speaker 2 (47:12):
This is the Bloomberg Business Week Daily podcast, available on Apple,
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