May 21, 2025 • 47 mins
Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
Wall Street’s worries about a ballooning deficit that threatens America’s status as a safe haven were reflected in a $16 billion Treasury sale that saw lackluster demand - with stocks, bonds and the dollar falling.
Treasuries got hit after a weak auction of 20-year bonds, whose 5% coupon rate was the highest since the tenor was reintroduced in 2020. Long-term debt bore the brunt of the selling, with 30-year yields jumping over 10 basis points. The equity market saw its worst session in a month, with the S&P 500’s slide topping 1.5%.
The greenback dropped against most major currencies. Bitcoin pared its advance, but was still set for a record.
Traders have been piling into bets that long-term bond yields would surge on concerns over the US’s swelling debt and deficits, with Moody’s Ratings on Friday lowering the nation’s credit score below the top triple-A level. For many, the message was: Unless America gets its finances in order, the perceived risks of lending to the government will rise.
The White House amped up the pressure on Republicans on Wednesday urging lawmakers to quickly approve President Donald Trump’s signature tax bill, adding that a failure to do so would be the “ultimate betrayal.”
Today's show features:
- Bloomberg News Rates Reporter Rates Reporter Michael Mackenzie
- Sandy Villere, Portfolio Manager for Villere & Co.
- Jenny Rooke, PhD, Founder and Managing Director of Genoa Ventures
- MP Materials Co-Founder, Chairman and CEO Jim Litinsky with Bloomberg News metals and mining reporter Joe Deaux
See omnystudio.com/listener for privacy information.
Mark as Played
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 Week
Daily Podcast with Carol Masser and Tim Stenebek on Bloomberg Radio.
Speaker 3 (00:32):
Thirty year yield starting about five percent sign a dimming
investor demand.
Speaker 4 (00:36):
We've been talking about this a lot.
Speaker 3 (00:37):
We saw the move equities came down, but it came
after that treasury auction, sixteen billion dollar treasury sale. Lackluster
demand moving yields up along the yield curve. But it
turns out, Tim, investors are worried about a ballooning deficit.
Speaker 5 (00:49):
Yeah, look no further than what's happening on the long
end as we speak with yield hire by ten basis
points right now. Michael McKenzie is rates reporter for Bloomberg News.
He joins us here in the Bloomberg BusinessWeek Studio. You
were in here on Monday when we spoke about the
ten year briefly or the thirty or rather briefly heading
five percent. We've blown past that. What's the signal that's sending.
(01:10):
Is it about the spending bill? It's about the tax bill.
A lot of it's due to that.
Speaker 6 (01:13):
I think it's really interesting on a day when stocks
start to take a hit, you don't see really any
pullback in the celloff in treasuries. The other reason you
think to observe today is that the ten year briefly
got above fall sixty. If you think back to last
month when Scott Besson stepped in and told Trump, hey,
let's do a ninety day delay on tariffs because we're
(01:34):
just hitting close to fall sixty on tens. We edged
above that just now and again. You know, you can
jaw burn the market once, but if you then step
back from all the tariff chaos of last month and
the highs we saw then today it's about the deficit. Today,
it's about a Congress that really doesn't think it needs
to be fiscally disciplined here, and the bomb market is
(01:56):
telling you that. You know, and it's not just the
US story. Japan had a twenty year sale this week,
very badly received. You're seeing thirty year yields in the US, Japan,
UK Netherlands all pushing higher. And this is a global
revolt that's beginning to take shape here where investors are saying,
if I don't need to own long dated bonds, I'm
(02:17):
not going to own them. And that's why when I
was talking to investors today and yesterday, they like being
in the front end of the curve. They like being
between twos to tens. They don't really like the thirty
year at all. So if they can they know, if
they have mandates to say, please buy these bonds, they
try not to, but they do buy some. By the
end of the day, they're negative on the long bond,
and they probably have these steepener trades on where it's
(02:39):
they're basically earning twos and fives and selling the thirty year.
Speaker 3 (02:43):
So does this have to do with you know, I
kind of always go back to this, you know, Michael,
certainly yourself, A lot of folks at Bloomberg, a lot
of people on last kind of get the treasury trade
right when things are happening. But I do think about
the world at large and like what it means, is
it us non investable? Is it just a sign of
concerns about the ballooning debt and what it means maybe
(03:04):
for the government and spending and entitlements, and how it
plays out in the economy, what it does to economic
growth if there aren't is in government money to commit
to programs to kind of help.
Speaker 6 (03:14):
So that's that's that's what we're beginning to look at here,
because I think what you're seeing here is if you
look at developed world countries, they have aging populations. There
is a much greater need now for fun for retirement
and medical costs. If you look at a lot of
the issue with the US budget at the moment, they
don't really want to start attacking and reducing the entitlement
(03:34):
spending now because it's just such a huge vote loser.
You can understand why Congress doesn't want to do this.
But at some point, you know, taxes will have to
go up. You can't say, oh, yes, we're looking for
sources of revenue. This administration is looking for tarots. They're
simply not going to get enough revenue from taros that
can sort of offset the plans for cutting taxes in
(03:56):
the future. Then we're already starting at one hundred percent
that you know, you know, the federal debt is one
hundred percent of the economy. It's the same in the UK,
it's two hundred percent in Japan. So again, investors are
looking at the world and going, well, I would rather
lend to triple A rated corporates. I'd rather lend to
companies that actually don't really need to borrow and probably
only really boring in order to fund buybacks, rather than
(04:18):
to really well established countries like the UK, like Japan,
and certainly the US falls into that boat unfortunately. I mean,
this is and I think the other thing that's concerning
is that when I was asking people this week, okay,
we get thirties above five percent, is that worth the trade?
Not necessarily anymore, because again, you know, there's this real
trepidation now in the bomb market of the margins. They're
(04:39):
saying this, this conquerors deal on the budget just isn't
really making any stems. It's not going to alleviate the problem.
So do we need to send a bigger message to Washington?
Yes there's an issue. And you guys are kind of
walking past the graveyard and just whistling along.
Speaker 3 (04:54):
We Askir Eric Wahlson, Congressional reporter up on the hill
watching this big, massive, big, beautiful Bell make its way
through Congress.
Speaker 4 (05:01):
He said, you know, despite what you might be hearing
from the.
Speaker 3 (05:03):
White House, it's a defit deficit increasing package, and so
netnet folks, it's going to add to the deficit. Michael,
thank you really appreciate it. Checking in on that treasury
trade are on. Michael mackenzie follows the rates market here
at Bloomberg News.
Speaker 4 (05:16):
Joining us here in studio.
Speaker 1 (05:18):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five eas during
this listen on Apple Karplay and Android Auto with the
Bloomberg Business app, or watch.
Speaker 4 (05:30):
Us live on YouTube.
Speaker 3 (05:34):
The worries that we are seeing play out once again
along the treasury market, the treasury curve.
Speaker 4 (05:40):
We had an auction that didn't go so well.
Speaker 3 (05:43):
Demand was weak there and so you are looking at
really the longer end of the year curve bopping up
in a big way. We hit about four point six
percent on that ten year note. Got a two year
note that has been trading around four percent as well,
and so there are concerns again about this massive spending
that's making its way through Congress has some ways to go,
(06:03):
but it also will add to the deficit, and so
deficit hawks are not happy about it. Investors on Wall
Street aren't happy about it as well. They're concerned.
Speaker 5 (06:11):
Yeah, also checking out what's happening. As you peel back
the layers of the S and P five hundred, you
actually see Apple as the biggest drag on the S
and P five hundred right now, followed by Nvidia down
one point eight percent, Microsoft, Amazon, Tesla, United Health Group
among the biggest decliners as well. I want to bring
in Sandy Villary, portfolio manager for Villary and Co. Joining
(06:33):
us from New Orleans. This is a four generation family
run firm.
Speaker 7 (06:40):
Carol.
Speaker 5 (06:41):
We speak with Sandy all the time. Sandy, good to
have you with us. How are you good?
Speaker 8 (06:45):
Thanks Jim, Thanks Carol. Good to hear from you.
Speaker 5 (06:47):
Yeah, good to have you join us today. I just
want to get your thoughts on how you're looking at
what's happening in Washington, because that's really what we're seeing
with the market reaction today, at least with that bond auction,
that tencent equities tumbling today. What's your view there?
Speaker 9 (07:04):
Yeah, I mean very we're very stock focused, but I
will say it's impossible not to pay attention to it
because just you look at what happened in twenty twenty
five so far, all about the tariffs. Now we've got
the new bill that's going to certainly increase deficits a
little bit. And to your point, we had a you know,
the twenty year auction was certainly weaker, and now we're
(07:25):
seeing yields back to where we started the year on
a four to sixty.
Speaker 8 (07:28):
So it's hard to start.
Speaker 9 (07:31):
To avoid a lot of what's going on and trying
to focus on individual names.
Speaker 3 (07:37):
Yeah, exactly. And you've got your villary equity fund. I'm
looking at it up about one point six percent on
the year. If I look at your balanced fun it
is up about three point four percent year to date.
How much movement have you guys been making in and
out at this point.
Speaker 9 (07:53):
Yeah, we started the year very defensive after a really
good twenty three and twenty four, especially for the S
and P. It's so tech heavy, so we were more
defensively positioned. We had some cash, and then when we
got into the lows, those early April lows, we started
to buy and we got about twenty percent through what
we wanted to before the market just v shaped and
went right back up. So now we're back to where
(08:15):
we started the year, and we're getting more defensive again.
And I think if I look at the SMP and
how it may end the year, I see about fifty
five hundred or so on the SMP, and I think
it's going to be carried down by a lot of
the larger cap tech names. So I think defense is
going to win championships in the rest of twenty twenty five.
Speaker 3 (08:32):
All Right, so let's talk about kind of where you
are committing money. And I'm assuming these picks are something
that have been recent buys, but you can correct me
if I'm wrong or right on that. Republic Services, we're
talking about a seventy eight billion dollar market cap company.
Speaker 4 (08:44):
We're talking about waste management.
Speaker 3 (08:46):
Stock has had quite a run this year, twenty six
percent recent buy adding to it lay it out for us.
Speaker 8 (08:53):
Yeah, I would still buy it.
Speaker 9 (08:56):
This is an incredible business that just as long as
people continue to get their garbage collected, we feel good
about it.
Speaker 8 (09:02):
A mid single digit free cash flow compounder.
Speaker 9 (09:05):
They just had a great quarter and they're getting more
into recycling. They've got two polymer centers, so fundamentally they're.
Speaker 8 (09:11):
Doing everything right.
Speaker 9 (09:12):
And it's where I want to be, which is you know,
larger cap defensive. So I think it's going to I
think it's going to do well throughout the duration of
twenty twenty five.
Speaker 3 (09:22):
Another name that you like on holding, I own their footwear,
their sneakers full disclosure. Full disclosure is not where I'm
talking about there, you know, SEEFO like we've had them on,
We've talked with them. This stock has been on a
tear you're talking about, up about fifty seven percent twenty
twenty three, up about one hundred and three percent in
(09:43):
twenty twenty four. This year it's up to shy of
nine percent. Here again, how long have you owned it?
Have you been adding to the position?
Speaker 4 (09:50):
Have you where? What are you doing on this one?
Speaker 9 (09:53):
Yeah, we bought it frankly, not much longer after the IPO,
which is all the way back in twenty twenty one,
So we've had it for some time and that's kind
of our styles to buy and hold, you know, over time.
We did add to it not too long ago, and
we still think it's going to do well.
Speaker 10 (10:09):
Now.
Speaker 9 (10:09):
If you do have a choppy market and things are weaker,
this is a great name to add on any weakness.
They're just getting started still, in my opinion, probably grow
earnings at twenty five percent over the next three years,
and they're starting to get into a pail. They're getting
more stores out there, probably closer to one hundred, and
if you're worried about supply chains, they get about eighty
(10:30):
percent through.
Speaker 8 (10:31):
Vietnam as opposed to China.
Speaker 9 (10:33):
So I just feel like it's still going to be
moving in the right direction. And if you get some weakness,
you get an opportunity to add to it.
Speaker 3 (10:40):
And I would did you buy in early April after
it was hit?
Speaker 8 (10:45):
This wasn't one that we bought in April, unfortunately, but we.
Speaker 3 (10:49):
It's up about sixty percent since there. I didn't either,
so I'm with you, but yeah, okay, you didn't.
Speaker 8 (10:55):
Yeah we did.
Speaker 9 (10:56):
We bought two other names. But what an opportunity anytime
you can buy a great company like this, there's still
just running on all cylinders. And you know, in our opinions,
you just you just you buy it on on weakness.
Speaker 8 (11:09):
We just we had other names we wanted to add
at the time.
Speaker 3 (11:11):
What you said, you added two other names off of
the April sell off? What what were they? I'm just curious.
Speaker 8 (11:18):
It's interesting.
Speaker 9 (11:19):
One one is a company called Pinnacle Financial that is, uh,
you know, a bank in Nashville that we really like,
and our intention was to take a larger position. We
just never got the opportunity to do so. Unfortunately, just
because of the V shape, all of a sudden it
was traded, you know, just got to a multiple it
was a little bit too high, and we added to
a little bit of Striker, just knee replacement, hip replacement,
(11:41):
probably on the safer side of what was going on
at the time. So liked both names, but unfortunately didn't
get a chance to fill uh, at.
Speaker 8 (11:52):
Least the Pinnacle.
Speaker 3 (11:53):
Oh okay, So in other words, you did buy Striker
at the low, but Pinnacle you saw.
Speaker 4 (11:58):
It, wish you had, but hadn't bought it. You didn't
buy it.
Speaker 9 (12:01):
So not to get into doing but we bought about
twenty percent of our position, and then by the time
it V shaped, we were sort of boxed out from
finishing it.
Speaker 8 (12:08):
Okay, So we actually kind of sold.
Speaker 9 (12:11):
What we had and we looked at it if we
do get more choppiness in the next month or two.
Speaker 5 (12:16):
Pool Corporation, you know, I pulled up the dees page
on the Bloomberg terminal. It's down a little more than
ten percent this year. I actually was expecting it to
be lower because I recall late last month the company
reported earnings that they essentially said, fiscally, your earnings per
share will come in just about what analysts saw. But
they did report first quarter earnings per share that came
(12:37):
in shy of estimates, in first quarter net sales that
came in shy of estimates. This one was surprising for
me to see on your list of stocks that you're
bullish on, because isn't the concern the company essentially said
the environment was weighing on new pools, So, you know,
not necessarily a name that you would want to own
in an environment where consumers aren't spending money.
Speaker 10 (12:57):
No.
Speaker 9 (12:59):
Yeah, So what happened in twenty twenty three they were
about about seventy to seventy five thousand new pools built,
and now we're down to about sixty two thousand as
you closed out twenty twenty four. So about fifteen percent
of their business is new pool construction. It does carry
higher margins and it's a great part of their business,
but two thirds of their business is just repair and maintenance.
Speaker 8 (13:20):
Of your swimming pool.
Speaker 9 (13:21):
So this is a true, you know, long term hold
where as long as people are putting chemicals and chlorine
into their swimming pools, they're remodeling and every you know,
basically every ten to twelve years, you might have to replaster.
These guys are as big as their top ten competitors combined.
And so when you get weakness in one little part
of their business new pool construction, which is important, and
(13:43):
that kind of pushes the stock down to a reasonable evaluation.
To us, it's a great opportunity to add if you
get any strength and new pool construction. And look, today's
interest rates aren't helping, right, people aren't going out and
trying to borrow money to put in a new pool.
But in general, you get you get any sort of
strength already, you know, diminished expectations from analysts already that
(14:05):
have taken their numbers down. I think it's got you know,
it could be a three hundred and fifty dollars stock
in my opinion.
Speaker 3 (14:11):
Hey, one thing I'm curious stand at this point are
you hire in terms of your cash allocations and your
funds right now?
Speaker 4 (14:21):
Kind of keeping some powder dry?
Speaker 3 (14:23):
Lack of a better expression, but often used right in
environments where we're not quite sure what's happening next. Are
you keeping more money handy and ready to put to
work than you normally do.
Speaker 9 (14:35):
Yeah, we do have higher cash levels, and we sort
of came into twenty twenty five like that, and then
we tried to We tried to invest what we could.
We just didn't have long enough. We didn't think the
whole market malaise would be you know, three days, and
so we didn't have enough time to put it to work.
But now we we did raise a little bit more cash,
and so we are cash heavier than we have been.
(14:56):
And it wasn't necessarily that we were worried about valuation
or things like that. We couldn't find new stocks to
buy that then really met our investment criteria being cheap.
Speaker 8 (15:06):
So we go to the sidelines.
Speaker 9 (15:07):
We will get a little bit over four percent in
money market and just wait for those opportunities and.
Speaker 8 (15:12):
Ideally we see him, you know, maybe over a week
or summer.
Speaker 7 (15:15):
I've heard Warren Buffett say the same thing.
Speaker 9 (15:19):
Yeah, no, that's right, and uh it's funny talking about
Pool Berkshire Hathway digits. Yeah, I saw there's their position
you know, middle of May by about nine hundred thousand shares,
so they've become a top five year old.
Speaker 8 (15:29):
So good company with those guys.
Speaker 5 (15:31):
But yeah, what are your well, what are your you know,
people really try to parse through every single thing Warren
Buffett has to say at annual meetings and whenever he
opens his mouth to try to figure out what exactly
he's going to buy next, what are your you know,
as a value investor, what are your what's your what
are your parameters in an environment such as this to say, okay,
(15:54):
I'm ready to get off the sidelines and buy this
individual company.
Speaker 9 (15:58):
Yeah, and that's where we were, and that those April lows.
We've got a laundry list of ten names that that
really meet our criteria, which are just having a company
that just absolutely dominates their niche and Pool certainly fits that.
Build on Semi Republic being the next, you know, the
number two player behind waste management, but a really dominant franchise.
Speaker 8 (16:18):
That's what we're looking for.
Speaker 9 (16:19):
And many times you have to pay up for those
types of businesses. But if you get a if you
get you know, market uncertainty and things that are going
wrong from a macro or a DC standpoint, and you
can you can get into one of those businesses.
Speaker 8 (16:32):
That's what we always look for if you.
Speaker 3 (16:35):
Get we've gotten that sandy market uncertainty, questions.
Speaker 4 (16:39):
About the outlook.
Speaker 3 (16:40):
I am curious in a day where we're all, you know,
seeing nervousness, risk off come back into the equity trade
and seeing those yields move up again. An argument that
you know, go back ten twenty years. We had concerns
about the US federal deficit. So I am curious how
that factors into I understand your top stock picker looking
for valuations. Are you anticipating an environment where stocks are
(17:04):
going to get beaten down even more, maybe we even
go into recession and that that's an opportunity for you
or are you a little bit more worried that it's
something more problematic, or are you saying, you know what,
this will turn around.
Speaker 9 (17:17):
Yeah, I do think as yields pick up, I mean,
if yields keep climbing, and you know, I do think
that's at the end of the day going to dampen
equity returns as those go a little bit higher. You know,
I think there's when you look at terrorists and everything
else that are going on. I think that causes you know,
boards of directors of publicly traded companies to sort of
pause on some of the things they may have been doing.
(17:39):
And I'm not calling for a recession, but I am
calling for a little bit of a slowdown. And I
think there's going to be better opportunities as we get
further into the year than maybe we have right now.
I mean, it's pretty amazing that the SMP was down
almost eighteen percent and now we're back to break even.
Speaker 8 (17:56):
I'm sort of looking, you know, towards the end of
the year where I.
Speaker 9 (17:59):
Think that that if you looked at a Vanguard value index,
I think it could outperform say Vanguard Growth And if
you look over the last decade, growth has outperformed value
by about seven percent annualized.
Speaker 8 (18:09):
I'm also looking for some reversion to the means.
Speaker 9 (18:11):
So in general, I'm trying to find those cheaper dominant
companies in the market and trying to avoid some of
the larger cap expensive you know, mag seven names.
Speaker 5 (18:21):
What portion of your assets under management right now do
you have in cash?
Speaker 9 (18:28):
I'd say in general what probably like fourteen or fifteen percent,
And what do you typically higher than we normally are
you so what's your normal?
Speaker 8 (18:36):
We're probably closer to four or five percent.
Speaker 5 (18:38):
Okay, do you anticipate going Look, you can't see the future,
none of us can. But just in terms of the
way you're thinking about this market environment, do you anticipate
getting to that four or five percent level this year?
Are you willing to stay on the sidelines until next year?
Speaker 2 (18:51):
Now?
Speaker 8 (18:51):
We do not like to be this cash heavy.
Speaker 9 (18:53):
And again it's not that it's more of a buyer strike, right,
we just can't find those companies that are cheap because
they've just this rallied on this as V.
Speaker 8 (19:00):
Shape or covery that we just had.
Speaker 9 (19:01):
So I hope to be, you know, ninety seven percent invested.
You know, as we get through the year, we just
need to find those those names and put that cash
to work. So a bit of an anomaly to be
this cash heavy.
Speaker 3 (19:13):
Frankly, Sandy, really quickly thirty seconds anywhere along the US
Treasury curve that you find attractive or you just staying.
Speaker 4 (19:20):
Away at this point.
Speaker 3 (19:21):
I know you're in corporates and other things, but I'm
just curious when it comes to US treasuries.
Speaker 9 (19:25):
Yeah, I would say if we if maybe they rallied
a little bit further, maybe we'd get more interested in
and picking up some we do have, you know, about
twenty five percent of our of our balance fund in
corporate bonds.
Speaker 8 (19:37):
We like to buy you know, triple B sentle O.
Speaker 3 (19:40):
But I mean in terms of treasuries anything in terms
of US sovereign Are you just staying away?
Speaker 9 (19:46):
No, we're staying away, you know, in our opinion, just
looking at corporate versus treasuries, we think you get paid
a lot more in corporates versus versus you know, what
tends to be risk free, and so we'd like to
pick up a little bit more yield by doing a
little bit of research and buying some you know, maybe
some you know on the lower end of investment grade,
you know, corporate debt.
Speaker 5 (20:06):
This is exactly what Michael mackenzie told us earlier in
our program, like why buy treasuries when you can go
and buy from companies?
Speaker 3 (20:13):
Totally totally, like it makes sense, right, Hey, Sandy b Well,
Sandy Villary, portfolio manager for Villary and Company, Joenning us
from New Orleans.
Speaker 2 (20:23):
This is the Bloomberg Business Week Daily podcast. Listen live
each weekday starting at two pm Eastern on Applecar 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 11 (20:42):
Well.
Speaker 5 (20:42):
We last checked in with Jenny Rook in February of
this year. It was in Take Your Time Machine.
Speaker 7 (20:47):
Okay.
Speaker 5 (20:48):
This was in the midst of a lot of the
news about federal money being fooled from universities, a pullback
in spending that traditionally goes to research. And what we've
heard since then, and what I've noticed since then reading books,
reading articles, reading about innovations is a lot of what
I've read about is this whatever X can trace its
(21:10):
roots back to public funding.
Speaker 3 (21:13):
Yeah, it's really important, right, the early development starting in
so many federally funded projects. Let's get into it, because
you know she's got some thoughts on this. We've talked
about this, Jenny, of course. Jenny Brook, founder and managing
director of Genoa Ventures. It's a VC firm that investments,
as she says, the quote next generation of companies at
the convergence of technology and biology. So much going on
when you think about that and layer in AI. She
(21:36):
joins us here in our Bloomberg Interactive Broker studio. It
is good to have you back with us. What's amazing
is somebody said to me, what is about February March April.
Speaker 4 (21:44):
I got to use my finger life three months, but
a lot has happened.
Speaker 3 (21:48):
It's crazy in the administration and especially things that when
we think about funding that goes to universities, different projects,
and IH, like, I'm just thinking about it. We're so
how much can come out of it that we take
for granted today but also creates companies, adds to the economy.
Tell us how you are kind of taking all of
(22:09):
this in and then your world in terms of investing it.
Speaker 10 (22:12):
Now, you're quite right, Thanks for having me back. It's
such an important topic, and it does sound like you've
been looking into it since I was here last and
finding just how much of what gets to market started
as basic research funded by the federal government, sometimes decades
before it became something that we can benefit from as consumers,
as patients, as just regular citizens. So as I've been
(22:37):
talking to we talked last time about large well funded universities,
are they really going to be hit by this? And
certainly the numbers are quite large for those But what's
important to know is that these kinds of discoveries can
come from anywhere. They're often a passionate researcher in a
university that might be in a college town that might
(22:59):
be the only end street in that town. And so
not only the funding that drives their particular projects looking into,
for example, the mechanisms of a cancer gene, but also
the dollars that then go through the indirect funding to
that university or college so that it gets to keep
running as a business and keep supporting its local ecosystem.
So I'm seeing kind of up and down the chain,
(23:20):
regardless of whether you're Stanford or a college you haven't
heard of. It's really resetting how people are thinking about
what they can get done in their labs and in
their institutions.
Speaker 5 (23:30):
I know I've talked about this book quite a bit
over the last couple of weeks, Carol, but we're hoping
to get the authors on the program Abundance, Derek Thompson
and as reclined. And one thing that I learned in
that book was that the inventors of the mRNA vaccine,
who won the Nobel Prize in twenty twenty three for mRNA.
Speaker 7 (23:52):
Their work in m RNA, they.
Speaker 5 (23:53):
Essentially toiled in obscurity for decades. Yes, and that story
is more than norm that's right. Then it is the outlier,
it seems, and that was something that kind of blew
my mind because you have this research being done and
it doesn't seem like it's going to amount to anything
until it does.
Speaker 6 (24:13):
That's right.
Speaker 7 (24:13):
That's kind of the world that you live in.
Speaker 10 (24:15):
That's kind of the vibe. Yeah, it's why we call
it discovery. Development is another thing when now you have
something it kind of works, you want to turn it
into a product. That's a great place for venture capital
to step in. We love to engage early with those companies.
But the discovery portion, you often don't know what you're
looking for. You're just curious. You're picking things apart, you're
turning over rocks.
Speaker 5 (24:35):
So how patient are your investors when it comes to
this stuff, because you're not you know, investing in an
app that has high margins and is going to you know,
be a game. If we're thinking about this, like in
the last fifteen years of venture capital and what the
winners have been, you're not investing in a social media
company that Presta has to go viral and become a
top app in the app store for example.
Speaker 10 (24:58):
Well, certainly the journey for a bio or science based company,
a deep tech company being venture backed and then becoming
a great exit for LPs, those are very different, and
the kind of capital you need and weather regulatory matters,
which is another thing we could talk about. Right, those
are pretty different versus an app, as you say, but
the rules of venture capital are still the same. In
(25:21):
seven to ten years, you need to give your LPs
back three x net. Now, very few vcs managed to
do that, but you can. You can still find winning
playbooks in the sciences that work for that journey, and
that's that's what we're trying to do, and other life
sciences vcs do.
Speaker 3 (25:35):
Hey, one thing I want to ask you, So I
just want to rehash for everyone who's listening at this point,
because we are seeing markets pretty much.
Speaker 4 (25:41):
Hover near their lows of the session.
Speaker 3 (25:43):
So we're still down about almost one point eight percent
on the S and P five hundred down, about one
hundred and five points down, two percent on the Dow
Jones Industrial Average. Now's TEK one hundred down about one
point six percent down, three hundred and forty three points this,
As we've said, really the focus is on the treasury
trades we see and yields move up A ten year
in it with yield of four fifty eight, so just
shy a four point six so that we hit that earlier.
(26:05):
But really at the longer end of the yelk curve
we've seen also yields move up. You know, when we
think about the volatility within the market environment, for you
as an investor, are you going to be more cautious
in an environment like this or are you able to
maybe make a bigger investment in something because there is
stress out there. I'm just curious how that plays into
(26:28):
your world.
Speaker 10 (26:29):
I think most early stage vcs, ourselves included, are already
taking a lot of risk, and that is our job
right right, well characterized risk that in the long term
can deliver outsize returns, and so temporary volatility doesn't change
our day to day strategy. Typically, what it does change
is the availability of capital to deploy against that strategy.
(26:50):
So investors LPs who are thinking about all of their
asset classes, who are dealing with so much volatility and uncertainty,
it can be very challenging to have the long term
discipline to say now is a great time. Don't put
money in a ten year illiquid asset with the hopes
of upside. Even if they have that discipline, it can
be hard to even just create the bandwidth to find
(27:12):
no great venture opportunities. So it's a tough time to
do the next venture thing.
Speaker 4 (27:16):
I would say it makes it tough. Jenny Brook we're
talking with.
Speaker 3 (27:19):
She is the founder managing director of Genera Adventures, a
FEC firm that invests in as. We talked about life
sciences companies looking at that cross section between technology and biology.
Speaker 4 (27:29):
We talked about the volatility in.
Speaker 3 (27:30):
The markets and how it's impacting perhaps you, Jenny, there's
a headline that crossed coming from the Wall Street Journal
that RFK Junior, of course key in terms of health
and human services for the government, chief advisor to the President,
expected to criticize vaccines. We saw some movement this week
in terms of vaccines that was seen by vaccine makers,
(27:55):
Maderna and others that maybe it wasn't as bad as
everybody thought it might be in terms of approving vaccines
for some folks. I'm just curious how policy out of Washington.
Regulatory environment and so on also factors into how.
Speaker 4 (28:12):
You are investing where you are investing.
Speaker 10 (28:15):
This is a really important question because regulatory of course,
is critical to making sure that safe, effective medicines, interventions,
foods are regulated get to the public in a timely manner.
And so venture capitalists often surprisingly actually embrace regulatory because
it's a way to make sure that something gets to
market in a way that will be accepted and effective
(28:37):
with patients, for example. And so what's important is to
have kind of clear rules of the game, what is
required to show safety and efficacy on what timeline will
a regulatory body review those data. That's what's so important,
and that's where we're really seeing a challenging set of
headwinds as venture investors, where we're often funding a company
(29:00):
enough or maybe just slightly less than enough to get
to the next milestones, which may be regulatory approval, and
if that's going to take an extra six months, that
can kill a company they don't have the funds to
get through that.
Speaker 5 (29:14):
What in your view, would is the long term implication
of this FDA this AHHS under Secretary.
Speaker 10 (29:22):
Kennedy, Well, if I knew that would be.
Speaker 7 (29:25):
A different capitalist. So you are supposed to know the future.
Speaker 10 (29:29):
Yeah, We're supposed to take important and risky bets. So
I don't know again what the journey will be. But
perhaps one of the upsides to taking these very long
term bets is when I think about a company we
might invest in today, do I believe we will have
a functioning FDA that is science driven and looks at
novel medicines and tries to get them to the public
(29:51):
in seven to ten years?
Speaker 12 (29:52):
I do?
Speaker 10 (29:53):
I do we will still have that, right. Will the
timelines be different, Will the requirements be different?
Speaker 4 (29:58):
Could be? Could be?
Speaker 10 (30:00):
One of the things I love about science is that
it invites inquery, it invites being tested, It invites discussion
amongst people who are trying to work for the same outcomes.
So I'm a long term optimist.
Speaker 3 (30:12):
Let's say, hey, Jenny, one last question, because one thing
that has become a narrative and a trend is investors
looking outside the United States for opportunities.
Speaker 4 (30:20):
Is that something you are increasingly doing as well?
Speaker 12 (30:23):
This is real.
Speaker 10 (30:23):
We always look at general, we look globally for the
very best opportunities. As you were describing, at this unusual
convergence of biointech, and we look broadly outside of healthcare,
food industrials. But what I am seeing I just came
back from a meeting in Paris focused on industrial bio,
which is making industrials like chemicals through bio routes. What
(30:45):
I'm seeing is a couple of things. The mood there
is lighter than here. For one thing, they're not wrapped
up in our drama and.
Speaker 4 (30:54):
Shares, not the wine and the good food because everything and.
Speaker 10 (30:57):
The cheese and particulous. But there is less willingness to
deploy their capital in US companies which had been in
the startup space the darlings of the venture capital community.
So we're seeing capital shift. And this is true, as
you well know, in the public markets as well, up
(31:17):
and down, whether it's a startup or a publicly traded
leader to Europe.
Speaker 4 (31:21):
People have been said it's a rebalance. Everybody was too
overexposed to the US. Do you think it's a rebalance
or they're saying I'm not so sure. I like the
US environment just got about thirty seconds.
Speaker 10 (31:30):
I think it's the latter, and I think it's going
to make It's a great opportunity for European investors. And
European companies to attract some US capital that perhaps wouldn't
have looked out outside.
Speaker 4 (31:41):
Great perspective, So glad you stop by.
Speaker 10 (31:43):
Aganna, thanks for having me.
Speaker 4 (31:44):
Always good to have you here.
Speaker 3 (31:45):
Jenny Brook, founder and Managing director at Genera Adventures, joining
us here in our Bloomberg Interactive Broker Studio.
Speaker 1 (31:50):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five ease During
that listen on Applecarplay and Android Otto with the Blow
of Work Business Up, or watch us live on YouTube.
Speaker 3 (32:05):
The world is diced and sliced in so many different ways,
So you want to know something about rare earth minerals,
you just kind of type.
Speaker 7 (32:10):
In ani rare earth would you find when you did that?
Speaker 3 (32:13):
Okay, there's a store in the terminal, Russia's largest oil
producer buying a giant Siberian rare earth deposit, which may
become an area of cooperation with the United States. I
think that's kind of cool. That's for jo Rosneff, obviously,
the state run energy oil company over there. But I
just think about there's a lot of jockeying going on
(32:34):
right now when it comes to rare earth minerals.
Speaker 4 (32:36):
We're seeing that happen in a big way.
Speaker 5 (32:37):
Yeah, I think that's fair to say, and that's exactly
why we want to bring back Joe Doe. We talk extraction,
we talk refining, we talk manufacturing. When it comes to
rare earth minerals, the next company knows all about it
from A to Z, and it's happening right here, Carol,
in the US.
Speaker 3 (32:51):
It is, indeed. So let's get to our guest. James
Littiski is here. He's co founder, chairman and CEO. It's
a three point three billion dollar rare earth companies called
MP Materials. It's up about thirty percent year to date,
so we just wanted to lay that out. Also with
us is Bloomberg News Metal Mining Heavy Machinery reporter Joe Dough.
I'm rushing because I want to get to you. I
want to get to the guest. Whenever you jump in
(33:13):
the studio, I want to rush to you.
Speaker 2 (33:14):
Joe.
Speaker 4 (33:14):
It's great to have you here.
Speaker 3 (33:15):
You said to us, we've talked with you a lot
about rare minerals, and he said, we got to talk
to this guy.
Speaker 4 (33:21):
Tell us why we have to talk to James.
Speaker 12 (33:22):
Well, so Jim James Liatinsky, Jim Jim Litinski. He has
been running imped Materials now for years. Basically Jim took
the old Mountain Pass Molly Corp. Company that had gone
to bankruptcy and has turned it into something investable. Jim
can kind of give you his you know, one two
on everything. But basically they're right at the center of
(33:45):
so much of what Donald Trump is focusing on critical minerals,
rare earths. Where are we going to get it? How
are we going to rely less on China, the processing,
the magnets, everything right, the whole of it right right,
And and it's a lot of questions that I have
for Jim too, like, hey, what do you think when
the President of United States is looking at people like
you and saying do it all?
Speaker 7 (34:05):
Jim?
Speaker 4 (34:06):
What do you think?
Speaker 11 (34:09):
Well, Hi, nice to see you guys, Joe, good to
see you again. Yeah, it's certainly a very exciting time
for us. As you mentioned, you know, we're the only
company in the world, and that includes Chinese industry that
has the expertise from the resource all the way through
to the magnet. And what I stress again and again
when we think about rare earths because it's very topical.
(34:30):
A lot of times people talk about extraction. You know,
you hear Ukraine, greenland deep sea mining, or even today
with the President of South Africa getting you know, a
stern dress down in the Oval Office talking about how.
Speaker 7 (34:44):
He has rare oaths too.
Speaker 11 (34:46):
We could have all the rarests in the world, but
if you can't refine them and turn them into magnets,
you don't have a solution for the issue.
Speaker 5 (34:54):
So, Jim, do you have that solution right now? Because
we spoke with Joe a little earlier this year, he
reminded us that it kind of doesn't matter if you
can extract it here in the US, you've got to
be able to refine it. And in some cases, with
some of these elements, ninety percent of that is happening
in China. What exactly can you do on the refining
(35:16):
level here in the US?
Speaker 4 (35:18):
So great question.
Speaker 11 (35:19):
There are two places in the world that you can
refine at scale, the Chinese sphere of influence predominantly China,
a little bit Malaysia, and then in California in Mount Pass, California,
which is our site. We actually, I think some people
would be surprised by this, but we refine today more
than half of the concentrate that we produce. So we
are refining at scale as we speak, and expanding that rapidly.
(35:43):
So we have brought this capability back to the United
States of America, and we're the second largest producer of
rare materials in the world today.
Speaker 3 (35:50):
So one thing I just want to follow, because I
think you guys know this world so well, Jiminto, But
I mean, when you say refine at scale, what exactly
are you talking about.
Speaker 4 (35:58):
I'm just saying if people are listening, like, okay, what
does that mean?
Speaker 8 (36:02):
You know?
Speaker 11 (36:02):
A simple analogy, Carol would be think of oil and gasoline.
Speaker 9 (36:06):
Right.
Speaker 11 (36:06):
You could get an oil out of the ground, but
you can't put it in your car until it's in
the form of gasoline. Right, you refine it. In this case,
you basically take an ore out of the ground, you
concentrate it so it's it's a highly concentrated ore with
the rareth in it. But then to get the separated
rare earth that you would then turn into a magnet,
you refine that concentrated ore into an oxide. And then
(36:28):
not to lose the audience, but you take that oxide,
you turn it into a metal and alloy and then
a magnet and so and just last point on that
that I think is really critical. At Mountain Pass today
we not only mine and refine, but we now send
that ore to a magnet factory that we built from
scratch at Greenfield in Fort Worth, Texas. I'm actually talking
to you today from our factory and it's on a
(36:50):
street called Independence, So we called Independence, but we are
making auto grade magnets here at our factory in Independence
in Texas, with material that we mine and refine in California.
And we're in the process of scaling up this facility.
We have a foundational contract with General Motors, and so
we will be providing General Motors with magnets at scale
(37:12):
at the end of the year, with material that is
mined and refined in California.
Speaker 12 (37:17):
Jim, I want to kind of get away from the
nerdy science. I know you and I can talk about
that all day, but I do want to talk about
what does matter to the average person here in the US,
which is, you can't do all of this on your own.
You cannot. While you might have the full supply chain,
you cannot be the sole supplier of critical materials, specifically
rare earths and the magnets. You've said that to me
for years. One of the things you said to me
(37:38):
years ago was listen, the point is not overnight being
the sole provider to yourself domestically, it is slowly pulling
market share away from China. What are the kind of
conversations you're having right now on this front, on the
statecraft front, and maybe you could tell us a little
bit about the MoU you signed with Madden, the Saudi
(37:59):
Aribbian mind company just last week on this front.
Speaker 8 (38:03):
Yeah, sure, thanks, Joe.
Speaker 11 (38:04):
Well, it's a great question. We've said all along our
mission is to restore the full supply chains to the
United States. We've obviously done that in small scale and
we're scaling that up, but we really want to be
part of a broader solution to eliminate the single point
of failure. As you mentioned, I was in Riad last
week as part of the delegation of business leaders from
the United States with the President and in the presence
(38:26):
of the President and Crown Prince MBS, we signed an
MoU with Modern, which is the Saudi mining company, to
explore the process of essentially building a vertically integrated rare
earth magnetics business in Saudi Arabia, and so what that
would mean is we would mine, refine, and make magnets
(38:46):
in the Kingdom. And I think from their standpoint, it's
a really exciting opportunity to be to create a Mid
East hub that could receive feedstock from there certainly, but
also Africa and some other places and really position them
well geopolitically. But more importantly, I would also say that,
you know, it really solidifies what we've been saying we
(39:09):
are and I think, you know, each step of the
way are showing is that we are America's national champion.
We're the only company in the world that can provide
a solution in house to mine, refine, and make magnets.
And so I think the vertically integrated approach that we've
had is starting to be recognized by the world as
(39:29):
you know, something pretty extraordinary that we've built inside MP
And so it was nice that the President and the
Crown Prince recognize that.
Speaker 8 (39:37):
So, yeah, you know, we'll run that.
Speaker 12 (39:39):
I mean, I mean, it's interesting, you're you're you're very
much saying it's partners. We don't go it alone. It's
not just the United States figuring it out. We'll work
with the trade partners to figure it out. I think
another question I have as you came out of the
gates guns a blazing on your earnings call recently with investors,
and you pointed out, listen, it is very important that
we work with the administration to figure out the solutions
(39:59):
to basically getting a hold of these rarers and these
permanent magnets that are domestically or or friendshored produced. Can
you tell us a little bit about the kind of
conversations you're having with the administration or even the Defense Department.
Speaker 11 (40:15):
Sure, so, a really important just background context, if we
go back about a month ago to Switzerland with the
trade talks with China. At that point, we were and
a lot of people don't know this or maybe don't
appreciate this because you know, we're they're not in necessarily
the rare magnetics niche, but we were weeks away, in
my opinion, from a shutdowns across our economy in aerospace
(40:38):
and in auto because the Chinese had essentially stopped shipping
rare magnets and our supply chains were really starting to
break down. And so obviously, fortunately we came away with
a deal there and we're not gonna see those kinds
of shutdowns, but we were really close, and that is
a leverage point that the Chinese have in any negotiation.
And again, whatever your view is on the relationship with China,
(41:00):
whether it's you know, sort of going to be a
collaborative relationship moving forward that gets reset or something much worse,
we need to take this leverage point off the table,
you know. That's our view at MP. That's what our
mission has been. We've been at this for years. Is
let's make sure that the United States of America can
produce our own rare magnetics. And the reason Joe, that
(41:20):
that is so important and you mentioned DD is because,
as we've seen around the world, physical AI is the
future of warfare. We're talking robotics and drones, and I
think we see that from whether it's Elon Musk or
Jensen Wong talking about the scale of robotics and how
large that industry is going to be. It is not
acceptable for American companies downstream. We're talking about trillions of
(41:44):
dollars of enterprise value, our great leading companies, as well
as our Department of Defense, to be relying on a
single point of failure in the Chinese supply chain, and
so we serve a critical role in alleviating that risk.
Speaker 3 (41:57):
All right, So it sounds like you're making the argument
for why the US government should be involved, But is
the government US government? Is there appetite for the US
government to be a partner in rare earth projects and
doing it from A to Z, from mining to processing
to permanent magnet production.
Speaker 11 (42:14):
There is no question that the United States government recognizes this,
and I think I think that these things take time,
but there's no question that they recognize. And Joe was
referencing our perspective on the earnings call, which is this
is actually very doable. We are, you know, in a
very short period of time away from solving this challenge
(42:34):
in a large scale, and frankly, MP can lead that effort.
And what we said is that MP, you know, we've
been at this for a number of years. We've invested
over a billion dollars of private capital, and you know,
since we went public and then prior to that, we
we had the good fortune, I guess of taking control
of several billion dollars of previously invested capital. So we
(42:55):
have billions of dollars of invested capital. And what we've
said is we'll lead this solution, but it's not fair
on our shareholders to expect them to take the risk.
We're going to need to do this in a capital
light way for MP right, it should be very rewarding
for our shareholders for being in this position. So to
answer your question, you know there will be movement forward.
(43:15):
In my opinion, I think it's a question of getting
these solutions don't happen overnight, but there's no question that
there are a lot of conversations happening with government and industry,
and we're leading those.
Speaker 3 (43:26):
Okay, so it sounds like government's involved, they're listening, and
we should maybe stay tuned for news. What kind of
money is needed to be committed to do the proper
buildout in your view, whether it's public private partnership, and
just about thirty seconds on that.
Speaker 11 (43:40):
Yeah, the really simple answer is we're talking single digit billions.
This is a really simple problem to solve. Actually, I
jokingly say for the coffee budget on the F thirty five,
we probably could have solved the rarer issue.
Speaker 7 (43:54):
This is really small.
Speaker 11 (43:55):
Wow, And so I do think that the United States
government is going to step up. I think you're going
to see industry players step up as well, because this
is just it's an issue that affects our national security
and trillions of dollars of enterprise value, and it's actually
a small problem.
Speaker 5 (44:11):
You mentioned that we could do this in a short
period of time, give us years or some sort of timeline,
that we could actually move away from a single point
of failure when it comes to this problem.
Speaker 11 (44:23):
Well, we're bringing that online now in Texas, right So
where I'm sitting is a factory. You all are welcome
to come see it, and so we'll be making magnets
at scale here at the end of the year. And
then the question is what percentage of the industry do
we need to satisfy to remove this single point of
failure risk, Because we don't need to solve one hundred percent,
but we need to do a material percentage.
Speaker 8 (44:43):
And so I think the.
Speaker 11 (44:43):
Next step would be for us to lead a solution
where we're building, you know, something significantly larger and then rinse,
repeat to add a number of facilities both here and
as we announce with the MoU, potentially in the Saudi
Arabia and other places.
Speaker 7 (45:00):
So it really is not a huge issue.
Speaker 11 (45:02):
It's just an issue that requires capital and execution, right, And.
Speaker 12 (45:06):
I think on that point, like it's not just going
to be you, it does still require a lot of
other actors to come into the space. And I guess
the quick follow up again is what are we going
to see from the government this year in terms of
commitments to help this space, your company and others build
out the supply chain on rare earths and permanent magnets.
Speaker 11 (45:26):
Well, just to be crystal clear, as we all know,
the capital markets can satisfy this problem if the existential
issue of the industry is off the table, and the
existential issue is Chinese mercantilism, right, is pricing. We've got
to get proper functioning economics, proper functioning market economics for
the price of these materials and the price of the
(45:47):
downstream products. And so those are a variety of ways
that the government can force that solution. You've heard a
lot of them in the news, and certainly we're working
on them. I think you'll see a variety of things
across investments, tariffs, tax credits, and so there isn't you know,
sort of one fits all solution. It's really going to
be a question of you know, the preferences of government,
(46:08):
and certainly you'd have to get some of them on
here to ask them directly or stay tuned for, you know,
a solution that you see us present one day. But
I do think we're going to see something, you know,
sooner than later, because we've got to solve this problem.
Speaker 3 (46:22):
Yeah, no doubt about it. Jim really cool. I know
we're going to be coming back to Jim Litinski. He's
co founder, chairman, CEO of the We're Earth Mining company,
so much more than mining, as we know MP materials
and of course are thanks always to Joe Doe, Bloomberg
News Metal Mining, Heavy Machinery reporter, so we had to
talk to him.
Speaker 4 (46:39):
We did good stuff.
Speaker 1 (46:41):
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live weekday
afternoons from two to five pm Eastern on Bloomberg dot Com,
the iHeartRadio app, tune In, and the Bloomberg Business App.
You can also watch us live every weekday on YouTube
(47:02):
and always on the Bloomberg terminal
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 Week
Daily Podcast with Carol Masser and Tim Stenebek on Bloomberg Radio.
Speaker 3 (00:32):
Thirty year yield starting about five percent sign a dimming
investor demand.
Speaker 4 (00:36):
We've been talking about this a lot.
Speaker 3 (00:37):
We saw the move equities came down, but it came
after that treasury auction, sixteen billion dollar treasury sale. Lackluster
demand moving yields up along the yield curve. But it
turns out, Tim, investors are worried about a ballooning deficit.
Speaker 5 (00:49):
Yeah, look no further than what's happening on the long
end as we speak with yield hire by ten basis
points right now. Michael McKenzie is rates reporter for Bloomberg News.
He joins us here in the Bloomberg BusinessWeek Studio. You
were in here on Monday when we spoke about the
ten year briefly or the thirty or rather briefly heading
five percent. We've blown past that. What's the signal that's sending.
(01:10):
Is it about the spending bill? It's about the tax bill.
A lot of it's due to that.
Speaker 6 (01:13):
I think it's really interesting on a day when stocks
start to take a hit, you don't see really any
pullback in the celloff in treasuries. The other reason you
think to observe today is that the ten year briefly
got above fall sixty. If you think back to last
month when Scott Besson stepped in and told Trump, hey,
let's do a ninety day delay on tariffs because we're
(01:34):
just hitting close to fall sixty on tens. We edged
above that just now and again. You know, you can
jaw burn the market once, but if you then step
back from all the tariff chaos of last month and
the highs we saw then today it's about the deficit. Today,
it's about a Congress that really doesn't think it needs
to be fiscally disciplined here, and the bomb market is
(01:56):
telling you that. You know, and it's not just the
US story. Japan had a twenty year sale this week,
very badly received. You're seeing thirty year yields in the US, Japan,
UK Netherlands all pushing higher. And this is a global
revolt that's beginning to take shape here where investors are saying,
if I don't need to own long dated bonds, I'm
(02:17):
not going to own them. And that's why when I
was talking to investors today and yesterday, they like being
in the front end of the curve. They like being
between twos to tens. They don't really like the thirty
year at all. So if they can they know, if
they have mandates to say, please buy these bonds, they
try not to, but they do buy some. By the
end of the day, they're negative on the long bond,
and they probably have these steepener trades on where it's
(02:39):
they're basically earning twos and fives and selling the thirty year.
Speaker 3 (02:43):
So does this have to do with you know, I
kind of always go back to this, you know, Michael,
certainly yourself, A lot of folks at Bloomberg, a lot
of people on last kind of get the treasury trade
right when things are happening. But I do think about
the world at large and like what it means, is
it us non investable? Is it just a sign of
concerns about the ballooning debt and what it means maybe
(03:04):
for the government and spending and entitlements, and how it
plays out in the economy, what it does to economic
growth if there aren't is in government money to commit
to programs to kind of help.
Speaker 6 (03:14):
So that's that's that's what we're beginning to look at here,
because I think what you're seeing here is if you
look at developed world countries, they have aging populations. There
is a much greater need now for fun for retirement
and medical costs. If you look at a lot of
the issue with the US budget at the moment, they
don't really want to start attacking and reducing the entitlement
(03:34):
spending now because it's just such a huge vote loser.
You can understand why Congress doesn't want to do this.
But at some point, you know, taxes will have to
go up. You can't say, oh, yes, we're looking for
sources of revenue. This administration is looking for tarots. They're
simply not going to get enough revenue from taros that
can sort of offset the plans for cutting taxes in
(03:56):
the future. Then we're already starting at one hundred percent
that you know, you know, the federal debt is one
hundred percent of the economy. It's the same in the UK,
it's two hundred percent in Japan. So again, investors are
looking at the world and going, well, I would rather
lend to triple A rated corporates. I'd rather lend to
companies that actually don't really need to borrow and probably
only really boring in order to fund buybacks, rather than
(04:18):
to really well established countries like the UK, like Japan,
and certainly the US falls into that boat unfortunately. I mean,
this is and I think the other thing that's concerning
is that when I was asking people this week, okay,
we get thirties above five percent, is that worth the trade?
Not necessarily anymore, because again, you know, there's this real
trepidation now in the bomb market of the margins. They're
(04:39):
saying this, this conquerors deal on the budget just isn't
really making any stems. It's not going to alleviate the problem.
So do we need to send a bigger message to Washington?
Yes there's an issue. And you guys are kind of
walking past the graveyard and just whistling along.
Speaker 3 (04:54):
We Askir Eric Wahlson, Congressional reporter up on the hill
watching this big, massive, big, beautiful Bell make its way
through Congress.
Speaker 4 (05:01):
He said, you know, despite what you might be hearing
from the.
Speaker 3 (05:03):
White House, it's a defit deficit increasing package, and so
netnet folks, it's going to add to the deficit. Michael,
thank you really appreciate it. Checking in on that treasury
trade are on. Michael mackenzie follows the rates market here
at Bloomberg News.
Speaker 4 (05:16):
Joining us here in studio.
Speaker 1 (05:18):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five eas during
this listen on Apple Karplay and Android Auto with the
Bloomberg Business app, or watch.
Speaker 4 (05:30):
Us live on YouTube.
Speaker 3 (05:34):
The worries that we are seeing play out once again
along the treasury market, the treasury curve.
Speaker 4 (05:40):
We had an auction that didn't go so well.
Speaker 3 (05:43):
Demand was weak there and so you are looking at
really the longer end of the year curve bopping up
in a big way. We hit about four point six
percent on that ten year note. Got a two year
note that has been trading around four percent as well,
and so there are concerns again about this massive spending
that's making its way through Congress has some ways to go,
(06:03):
but it also will add to the deficit, and so
deficit hawks are not happy about it. Investors on Wall
Street aren't happy about it as well. They're concerned.
Speaker 5 (06:11):
Yeah, also checking out what's happening. As you peel back
the layers of the S and P five hundred, you
actually see Apple as the biggest drag on the S
and P five hundred right now, followed by Nvidia down
one point eight percent, Microsoft, Amazon, Tesla, United Health Group
among the biggest decliners as well. I want to bring
in Sandy Villary, portfolio manager for Villary and Co. Joining
(06:33):
us from New Orleans. This is a four generation family
run firm.
Speaker 7 (06:40):
Carol.
Speaker 5 (06:41):
We speak with Sandy all the time. Sandy, good to
have you with us. How are you good?
Speaker 8 (06:45):
Thanks Jim, Thanks Carol. Good to hear from you.
Speaker 5 (06:47):
Yeah, good to have you join us today. I just
want to get your thoughts on how you're looking at
what's happening in Washington, because that's really what we're seeing
with the market reaction today, at least with that bond auction,
that tencent equities tumbling today. What's your view there?
Speaker 9 (07:04):
Yeah, I mean very we're very stock focused, but I
will say it's impossible not to pay attention to it
because just you look at what happened in twenty twenty
five so far, all about the tariffs. Now we've got
the new bill that's going to certainly increase deficits a
little bit. And to your point, we had a you know,
the twenty year auction was certainly weaker, and now we're
(07:25):
seeing yields back to where we started the year on
a four to sixty.
Speaker 8 (07:28):
So it's hard to start.
Speaker 9 (07:31):
To avoid a lot of what's going on and trying
to focus on individual names.
Speaker 3 (07:37):
Yeah, exactly. And you've got your villary equity fund. I'm
looking at it up about one point six percent on
the year. If I look at your balanced fun it
is up about three point four percent year to date.
How much movement have you guys been making in and
out at this point.
Speaker 9 (07:53):
Yeah, we started the year very defensive after a really
good twenty three and twenty four, especially for the S
and P. It's so tech heavy, so we were more
defensively positioned. We had some cash, and then when we
got into the lows, those early April lows, we started
to buy and we got about twenty percent through what
we wanted to before the market just v shaped and
went right back up. So now we're back to where
(08:15):
we started the year, and we're getting more defensive again.
And I think if I look at the SMP and
how it may end the year, I see about fifty
five hundred or so on the SMP, and I think
it's going to be carried down by a lot of
the larger cap tech names. So I think defense is
going to win championships in the rest of twenty twenty five.
Speaker 3 (08:32):
All Right, so let's talk about kind of where you
are committing money. And I'm assuming these picks are something
that have been recent buys, but you can correct me
if I'm wrong or right on that. Republic Services, we're
talking about a seventy eight billion dollar market cap company.
Speaker 4 (08:44):
We're talking about waste management.
Speaker 3 (08:46):
Stock has had quite a run this year, twenty six
percent recent buy adding to it lay it out for us.
Speaker 8 (08:53):
Yeah, I would still buy it.
Speaker 9 (08:56):
This is an incredible business that just as long as
people continue to get their garbage collected, we feel good
about it.
Speaker 8 (09:02):
A mid single digit free cash flow compounder.
Speaker 9 (09:05):
They just had a great quarter and they're getting more
into recycling. They've got two polymer centers, so fundamentally they're.
Speaker 8 (09:11):
Doing everything right.
Speaker 9 (09:12):
And it's where I want to be, which is you know,
larger cap defensive. So I think it's going to I
think it's going to do well throughout the duration of
twenty twenty five.
Speaker 3 (09:22):
Another name that you like on holding, I own their footwear,
their sneakers full disclosure. Full disclosure is not where I'm
talking about there, you know, SEEFO like we've had them on,
We've talked with them. This stock has been on a
tear you're talking about, up about fifty seven percent twenty
twenty three, up about one hundred and three percent in
(09:43):
twenty twenty four. This year it's up to shy of
nine percent. Here again, how long have you owned it?
Have you been adding to the position?
Speaker 4 (09:50):
Have you where? What are you doing on this one?
Speaker 9 (09:53):
Yeah, we bought it frankly, not much longer after the IPO,
which is all the way back in twenty twenty one,
So we've had it for some time and that's kind
of our styles to buy and hold, you know, over time.
We did add to it not too long ago, and
we still think it's going to do well.
Speaker 10 (10:09):
Now.
Speaker 9 (10:09):
If you do have a choppy market and things are weaker,
this is a great name to add on any weakness.
They're just getting started still, in my opinion, probably grow
earnings at twenty five percent over the next three years,
and they're starting to get into a pail. They're getting
more stores out there, probably closer to one hundred, and
if you're worried about supply chains, they get about eighty
(10:30):
percent through.
Speaker 8 (10:31):
Vietnam as opposed to China.
Speaker 9 (10:33):
So I just feel like it's still going to be
moving in the right direction. And if you get some weakness,
you get an opportunity to add to it.
Speaker 3 (10:40):
And I would did you buy in early April after
it was hit?
Speaker 8 (10:45):
This wasn't one that we bought in April, unfortunately, but we.
Speaker 3 (10:49):
It's up about sixty percent since there. I didn't either,
so I'm with you, but yeah, okay, you didn't.
Speaker 8 (10:55):
Yeah we did.
Speaker 9 (10:56):
We bought two other names. But what an opportunity anytime
you can buy a great company like this, there's still
just running on all cylinders. And you know, in our opinions,
you just you just you buy it on on weakness.
Speaker 8 (11:09):
We just we had other names we wanted to add
at the time.
Speaker 3 (11:11):
What you said, you added two other names off of
the April sell off? What what were they? I'm just curious.
Speaker 8 (11:18):
It's interesting.
Speaker 9 (11:19):
One one is a company called Pinnacle Financial that is, uh,
you know, a bank in Nashville that we really like,
and our intention was to take a larger position. We
just never got the opportunity to do so. Unfortunately, just
because of the V shape, all of a sudden it
was traded, you know, just got to a multiple it
was a little bit too high, and we added to
a little bit of Striker, just knee replacement, hip replacement,
(11:41):
probably on the safer side of what was going on
at the time. So liked both names, but unfortunately didn't
get a chance to fill uh, at.
Speaker 8 (11:52):
Least the Pinnacle.
Speaker 3 (11:53):
Oh okay, So in other words, you did buy Striker
at the low, but Pinnacle you saw.
Speaker 4 (11:58):
It, wish you had, but hadn't bought it. You didn't
buy it.
Speaker 9 (12:01):
So not to get into doing but we bought about
twenty percent of our position, and then by the time
it V shaped, we were sort of boxed out from
finishing it.
Speaker 8 (12:08):
Okay, So we actually kind of sold.
Speaker 9 (12:11):
What we had and we looked at it if we
do get more choppiness in the next month or two.
Speaker 5 (12:16):
Pool Corporation, you know, I pulled up the dees page
on the Bloomberg terminal. It's down a little more than
ten percent this year. I actually was expecting it to
be lower because I recall late last month the company
reported earnings that they essentially said, fiscally, your earnings per
share will come in just about what analysts saw. But
they did report first quarter earnings per share that came
(12:37):
in shy of estimates, in first quarter net sales that
came in shy of estimates. This one was surprising for
me to see on your list of stocks that you're
bullish on, because isn't the concern the company essentially said
the environment was weighing on new pools, So, you know,
not necessarily a name that you would want to own
in an environment where consumers aren't spending money.
Speaker 10 (12:57):
No.
Speaker 9 (12:59):
Yeah, So what happened in twenty twenty three they were
about about seventy to seventy five thousand new pools built,
and now we're down to about sixty two thousand as
you closed out twenty twenty four. So about fifteen percent
of their business is new pool construction. It does carry
higher margins and it's a great part of their business,
but two thirds of their business is just repair and maintenance.
Speaker 8 (13:20):
Of your swimming pool.
Speaker 9 (13:21):
So this is a true, you know, long term hold
where as long as people are putting chemicals and chlorine
into their swimming pools, they're remodeling and every you know,
basically every ten to twelve years, you might have to replaster.
These guys are as big as their top ten competitors combined.
And so when you get weakness in one little part
of their business new pool construction, which is important, and
(13:43):
that kind of pushes the stock down to a reasonable evaluation.
To us, it's a great opportunity to add if you
get any strength and new pool construction. And look, today's
interest rates aren't helping, right, people aren't going out and
trying to borrow money to put in a new pool.
But in general, you get you get any sort of
strength already, you know, diminished expectations from analysts already that
(14:05):
have taken their numbers down. I think it's got you know,
it could be a three hundred and fifty dollars stock
in my opinion.
Speaker 3 (14:11):
Hey, one thing I'm curious stand at this point are
you hire in terms of your cash allocations and your
funds right now?
Speaker 4 (14:21):
Kind of keeping some powder dry?
Speaker 3 (14:23):
Lack of a better expression, but often used right in
environments where we're not quite sure what's happening next. Are
you keeping more money handy and ready to put to
work than you normally do.
Speaker 9 (14:35):
Yeah, we do have higher cash levels, and we sort
of came into twenty twenty five like that, and then
we tried to We tried to invest what we could.
We just didn't have long enough. We didn't think the
whole market malaise would be you know, three days, and
so we didn't have enough time to put it to work.
But now we we did raise a little bit more cash,
and so we are cash heavier than we have been.
(14:56):
And it wasn't necessarily that we were worried about valuation
or things like that. We couldn't find new stocks to
buy that then really met our investment criteria being cheap.
Speaker 8 (15:06):
So we go to the sidelines.
Speaker 9 (15:07):
We will get a little bit over four percent in
money market and just wait for those opportunities and.
Speaker 8 (15:12):
Ideally we see him, you know, maybe over a week
or summer.
Speaker 7 (15:15):
I've heard Warren Buffett say the same thing.
Speaker 9 (15:19):
Yeah, no, that's right, and uh it's funny talking about
Pool Berkshire Hathway digits. Yeah, I saw there's their position
you know, middle of May by about nine hundred thousand shares,
so they've become a top five year old.
Speaker 8 (15:29):
So good company with those guys.
Speaker 5 (15:31):
But yeah, what are your well, what are your you know,
people really try to parse through every single thing Warren
Buffett has to say at annual meetings and whenever he
opens his mouth to try to figure out what exactly
he's going to buy next, what are your you know,
as a value investor, what are your what's your what
are your parameters in an environment such as this to say, okay,
(15:54):
I'm ready to get off the sidelines and buy this
individual company.
Speaker 9 (15:58):
Yeah, and that's where we were, and that those April lows.
We've got a laundry list of ten names that that
really meet our criteria, which are just having a company
that just absolutely dominates their niche and Pool certainly fits that.
Build on Semi Republic being the next, you know, the
number two player behind waste management, but a really dominant franchise.
Speaker 8 (16:18):
That's what we're looking for.
Speaker 9 (16:19):
And many times you have to pay up for those
types of businesses. But if you get a if you
get you know, market uncertainty and things that are going
wrong from a macro or a DC standpoint, and you
can you can get into one of those businesses.
Speaker 8 (16:32):
That's what we always look for if you.
Speaker 3 (16:35):
Get we've gotten that sandy market uncertainty, questions.
Speaker 4 (16:39):
About the outlook.
Speaker 3 (16:40):
I am curious in a day where we're all, you know,
seeing nervousness, risk off come back into the equity trade
and seeing those yields move up again. An argument that
you know, go back ten twenty years. We had concerns
about the US federal deficit. So I am curious how
that factors into I understand your top stock picker looking
for valuations. Are you anticipating an environment where stocks are
(17:04):
going to get beaten down even more, maybe we even
go into recession and that that's an opportunity for you
or are you a little bit more worried that it's
something more problematic, or are you saying, you know what,
this will turn around.
Speaker 9 (17:17):
Yeah, I do think as yields pick up, I mean,
if yields keep climbing, and you know, I do think
that's at the end of the day going to dampen
equity returns as those go a little bit higher. You know,
I think there's when you look at terrorists and everything
else that are going on. I think that causes you know,
boards of directors of publicly traded companies to sort of
pause on some of the things they may have been doing.
(17:39):
And I'm not calling for a recession, but I am
calling for a little bit of a slowdown. And I
think there's going to be better opportunities as we get
further into the year than maybe we have right now.
I mean, it's pretty amazing that the SMP was down
almost eighteen percent and now we're back to break even.
Speaker 8 (17:56):
I'm sort of looking, you know, towards the end of
the year where I.
Speaker 9 (17:59):
Think that that if you looked at a Vanguard value index,
I think it could outperform say Vanguard Growth And if
you look over the last decade, growth has outperformed value
by about seven percent annualized.
Speaker 8 (18:09):
I'm also looking for some reversion to the means.
Speaker 9 (18:11):
So in general, I'm trying to find those cheaper dominant
companies in the market and trying to avoid some of
the larger cap expensive you know, mag seven names.
Speaker 5 (18:21):
What portion of your assets under management right now do
you have in cash?
Speaker 9 (18:28):
I'd say in general what probably like fourteen or fifteen percent,
And what do you typically higher than we normally are
you so what's your normal?
Speaker 8 (18:36):
We're probably closer to four or five percent.
Speaker 5 (18:38):
Okay, do you anticipate going Look, you can't see the future,
none of us can. But just in terms of the
way you're thinking about this market environment, do you anticipate
getting to that four or five percent level this year?
Are you willing to stay on the sidelines until next year?
Speaker 2 (18:51):
Now?
Speaker 8 (18:51):
We do not like to be this cash heavy.
Speaker 9 (18:53):
And again it's not that it's more of a buyer strike, right,
we just can't find those companies that are cheap because
they've just this rallied on this as V.
Speaker 8 (19:00):
Shape or covery that we just had.
Speaker 9 (19:01):
So I hope to be, you know, ninety seven percent invested.
You know, as we get through the year, we just
need to find those those names and put that cash
to work. So a bit of an anomaly to be
this cash heavy.
Speaker 3 (19:13):
Frankly, Sandy, really quickly thirty seconds anywhere along the US
Treasury curve that you find attractive or you just staying.
Speaker 4 (19:20):
Away at this point.
Speaker 3 (19:21):
I know you're in corporates and other things, but I'm
just curious when it comes to US treasuries.
Speaker 9 (19:25):
Yeah, I would say if we if maybe they rallied
a little bit further, maybe we'd get more interested in
and picking up some we do have, you know, about
twenty five percent of our of our balance fund in
corporate bonds.
Speaker 8 (19:37):
We like to buy you know, triple B sentle O.
Speaker 3 (19:40):
But I mean in terms of treasuries anything in terms
of US sovereign Are you just staying away?
Speaker 9 (19:46):
No, we're staying away, you know, in our opinion, just
looking at corporate versus treasuries, we think you get paid
a lot more in corporates versus versus you know, what
tends to be risk free, and so we'd like to
pick up a little bit more yield by doing a
little bit of research and buying some you know, maybe
some you know on the lower end of investment grade,
you know, corporate debt.
Speaker 5 (20:06):
This is exactly what Michael mackenzie told us earlier in
our program, like why buy treasuries when you can go
and buy from companies?
Speaker 3 (20:13):
Totally totally, like it makes sense, right, Hey, Sandy b Well,
Sandy Villary, portfolio manager for Villary and Company, Joenning us
from New Orleans.
Speaker 2 (20:23):
This is the Bloomberg Business Week Daily podcast. Listen live
each weekday starting at two pm Eastern on Applecar 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 11 (20:42):
Well.
Speaker 5 (20:42):
We last checked in with Jenny Rook in February of
this year. It was in Take Your Time Machine.
Speaker 7 (20:47):
Okay.
Speaker 5 (20:48):
This was in the midst of a lot of the
news about federal money being fooled from universities, a pullback
in spending that traditionally goes to research. And what we've
heard since then, and what I've noticed since then reading books,
reading articles, reading about innovations is a lot of what
I've read about is this whatever X can trace its
(21:10):
roots back to public funding.
Speaker 3 (21:13):
Yeah, it's really important, right, the early development starting in
so many federally funded projects. Let's get into it, because
you know she's got some thoughts on this. We've talked
about this, Jenny, of course. Jenny Brook, founder and managing
director of Genoa Ventures. It's a VC firm that investments,
as she says, the quote next generation of companies at
the convergence of technology and biology. So much going on
when you think about that and layer in AI. She
(21:36):
joins us here in our Bloomberg Interactive Broker studio. It
is good to have you back with us. What's amazing
is somebody said to me, what is about February March April.
Speaker 4 (21:44):
I got to use my finger life three months, but
a lot has happened.
Speaker 3 (21:48):
It's crazy in the administration and especially things that when
we think about funding that goes to universities, different projects,
and IH, like, I'm just thinking about it. We're so
how much can come out of it that we take
for granted today but also creates companies, adds to the economy.
Tell us how you are kind of taking all of
(22:09):
this in and then your world in terms of investing it.
Speaker 10 (22:12):
Now, you're quite right, Thanks for having me back. It's
such an important topic, and it does sound like you've
been looking into it since I was here last and
finding just how much of what gets to market started
as basic research funded by the federal government, sometimes decades
before it became something that we can benefit from as consumers,
as patients, as just regular citizens. So as I've been
(22:37):
talking to we talked last time about large well funded universities,
are they really going to be hit by this? And
certainly the numbers are quite large for those But what's
important to know is that these kinds of discoveries can
come from anywhere. They're often a passionate researcher in a
university that might be in a college town that might
(22:59):
be the only end street in that town. And so
not only the funding that drives their particular projects looking into,
for example, the mechanisms of a cancer gene, but also
the dollars that then go through the indirect funding to
that university or college so that it gets to keep
running as a business and keep supporting its local ecosystem.
So I'm seeing kind of up and down the chain,
(23:20):
regardless of whether you're Stanford or a college you haven't
heard of. It's really resetting how people are thinking about
what they can get done in their labs and in
their institutions.
Speaker 5 (23:30):
I know I've talked about this book quite a bit
over the last couple of weeks, Carol, but we're hoping
to get the authors on the program Abundance, Derek Thompson
and as reclined. And one thing that I learned in
that book was that the inventors of the mRNA vaccine,
who won the Nobel Prize in twenty twenty three for mRNA.
Speaker 7 (23:52):
Their work in m RNA, they.
Speaker 5 (23:53):
Essentially toiled in obscurity for decades. Yes, and that story
is more than norm that's right. Then it is the outlier,
it seems, and that was something that kind of blew
my mind because you have this research being done and
it doesn't seem like it's going to amount to anything
until it does.
Speaker 6 (24:13):
That's right.
Speaker 7 (24:13):
That's kind of the world that you live in.
Speaker 10 (24:15):
That's kind of the vibe. Yeah, it's why we call
it discovery. Development is another thing when now you have
something it kind of works, you want to turn it
into a product. That's a great place for venture capital
to step in. We love to engage early with those companies.
But the discovery portion, you often don't know what you're
looking for. You're just curious. You're picking things apart, you're
turning over rocks.
Speaker 5 (24:35):
So how patient are your investors when it comes to
this stuff, because you're not you know, investing in an
app that has high margins and is going to you know,
be a game. If we're thinking about this, like in
the last fifteen years of venture capital and what the
winners have been, you're not investing in a social media
company that Presta has to go viral and become a
top app in the app store for example.
Speaker 10 (24:58):
Well, certainly the journey for a bio or science based company,
a deep tech company being venture backed and then becoming
a great exit for LPs, those are very different, and
the kind of capital you need and weather regulatory matters,
which is another thing we could talk about. Right, those
are pretty different versus an app, as you say, but
the rules of venture capital are still the same. In
(25:21):
seven to ten years, you need to give your LPs
back three x net. Now, very few vcs managed to
do that, but you can. You can still find winning
playbooks in the sciences that work for that journey, and
that's that's what we're trying to do, and other life
sciences vcs do.
Speaker 3 (25:35):
Hey, one thing I want to ask you, So I
just want to rehash for everyone who's listening at this point,
because we are seeing markets pretty much.
Speaker 4 (25:41):
Hover near their lows of the session.
Speaker 3 (25:43):
So we're still down about almost one point eight percent
on the S and P five hundred down, about one
hundred and five points down, two percent on the Dow
Jones Industrial Average. Now's TEK one hundred down about one
point six percent down, three hundred and forty three points this,
As we've said, really the focus is on the treasury
trades we see and yields move up A ten year
in it with yield of four fifty eight, so just
shy a four point six so that we hit that earlier.
(26:05):
But really at the longer end of the yelk curve
we've seen also yields move up. You know, when we
think about the volatility within the market environment, for you
as an investor, are you going to be more cautious
in an environment like this or are you able to
maybe make a bigger investment in something because there is
stress out there. I'm just curious how that plays into
(26:28):
your world.
Speaker 10 (26:29):
I think most early stage vcs, ourselves included, are already
taking a lot of risk, and that is our job
right right, well characterized risk that in the long term
can deliver outsize returns, and so temporary volatility doesn't change
our day to day strategy. Typically, what it does change
is the availability of capital to deploy against that strategy.
(26:50):
So investors LPs who are thinking about all of their
asset classes, who are dealing with so much volatility and uncertainty,
it can be very challenging to have the long term
discipline to say now is a great time. Don't put
money in a ten year illiquid asset with the hopes
of upside. Even if they have that discipline, it can
be hard to even just create the bandwidth to find
(27:12):
no great venture opportunities. So it's a tough time to
do the next venture thing.
Speaker 4 (27:16):
I would say it makes it tough. Jenny Brook we're
talking with.
Speaker 3 (27:19):
She is the founder managing director of Genera Adventures, a
FEC firm that invests in as. We talked about life
sciences companies looking at that cross section between technology and biology.
Speaker 4 (27:29):
We talked about the volatility in.
Speaker 3 (27:30):
The markets and how it's impacting perhaps you, Jenny, there's
a headline that crossed coming from the Wall Street Journal
that RFK Junior, of course key in terms of health
and human services for the government, chief advisor to the President,
expected to criticize vaccines. We saw some movement this week
in terms of vaccines that was seen by vaccine makers,
(27:55):
Maderna and others that maybe it wasn't as bad as
everybody thought it might be in terms of approving vaccines
for some folks. I'm just curious how policy out of Washington.
Regulatory environment and so on also factors into how.
Speaker 4 (28:12):
You are investing where you are investing.
Speaker 10 (28:15):
This is a really important question because regulatory of course,
is critical to making sure that safe, effective medicines, interventions,
foods are regulated get to the public in a timely manner.
And so venture capitalists often surprisingly actually embrace regulatory because
it's a way to make sure that something gets to
market in a way that will be accepted and effective
(28:37):
with patients, for example. And so what's important is to
have kind of clear rules of the game, what is
required to show safety and efficacy on what timeline will
a regulatory body review those data. That's what's so important,
and that's where we're really seeing a challenging set of
headwinds as venture investors, where we're often funding a company
(29:00):
enough or maybe just slightly less than enough to get
to the next milestones, which may be regulatory approval, and
if that's going to take an extra six months, that
can kill a company they don't have the funds to
get through that.
Speaker 5 (29:14):
What in your view, would is the long term implication
of this FDA this AHHS under Secretary.
Speaker 10 (29:22):
Kennedy, Well, if I knew that would be.
Speaker 7 (29:25):
A different capitalist. So you are supposed to know the future.
Speaker 10 (29:29):
Yeah, We're supposed to take important and risky bets. So
I don't know again what the journey will be. But
perhaps one of the upsides to taking these very long
term bets is when I think about a company we
might invest in today, do I believe we will have
a functioning FDA that is science driven and looks at
novel medicines and tries to get them to the public
(29:51):
in seven to ten years?
Speaker 12 (29:52):
I do?
Speaker 10 (29:53):
I do we will still have that, right. Will the
timelines be different, Will the requirements be different?
Speaker 4 (29:58):
Could be? Could be?
Speaker 10 (30:00):
One of the things I love about science is that
it invites inquery, it invites being tested, It invites discussion
amongst people who are trying to work for the same outcomes.
So I'm a long term optimist.
Speaker 3 (30:12):
Let's say, hey, Jenny, one last question, because one thing
that has become a narrative and a trend is investors
looking outside the United States for opportunities.
Speaker 4 (30:20):
Is that something you are increasingly doing as well?
Speaker 12 (30:23):
This is real.
Speaker 10 (30:23):
We always look at general, we look globally for the
very best opportunities. As you were describing, at this unusual
convergence of biointech, and we look broadly outside of healthcare,
food industrials. But what I am seeing I just came
back from a meeting in Paris focused on industrial bio,
which is making industrials like chemicals through bio routes. What
(30:45):
I'm seeing is a couple of things. The mood there
is lighter than here. For one thing, they're not wrapped
up in our drama and.
Speaker 4 (30:54):
Shares, not the wine and the good food because everything and.
Speaker 10 (30:57):
The cheese and particulous. But there is less willingness to
deploy their capital in US companies which had been in
the startup space the darlings of the venture capital community.
So we're seeing capital shift. And this is true, as
you well know, in the public markets as well, up
(31:17):
and down, whether it's a startup or a publicly traded
leader to Europe.
Speaker 4 (31:21):
People have been said it's a rebalance. Everybody was too
overexposed to the US. Do you think it's a rebalance
or they're saying I'm not so sure. I like the
US environment just got about thirty seconds.
Speaker 10 (31:30):
I think it's the latter, and I think it's going
to make It's a great opportunity for European investors. And
European companies to attract some US capital that perhaps wouldn't
have looked out outside.
Speaker 4 (31:41):
Great perspective, So glad you stop by.
Speaker 10 (31:43):
Aganna, thanks for having me.
Speaker 4 (31:44):
Always good to have you here.
Speaker 3 (31:45):
Jenny Brook, founder and Managing director at Genera Adventures, joining
us here in our Bloomberg Interactive Broker Studio.
Speaker 1 (31:50):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five ease During
that listen on Applecarplay and Android Otto with the Blow
of Work Business Up, or watch us live on YouTube.
Speaker 3 (32:05):
The world is diced and sliced in so many different ways,
So you want to know something about rare earth minerals,
you just kind of type.
Speaker 7 (32:10):
In ani rare earth would you find when you did that?
Speaker 3 (32:13):
Okay, there's a store in the terminal, Russia's largest oil
producer buying a giant Siberian rare earth deposit, which may
become an area of cooperation with the United States. I
think that's kind of cool. That's for jo Rosneff, obviously,
the state run energy oil company over there. But I
just think about there's a lot of jockeying going on
(32:34):
right now when it comes to rare earth minerals.
Speaker 4 (32:36):
We're seeing that happen in a big way.
Speaker 5 (32:37):
Yeah, I think that's fair to say, and that's exactly
why we want to bring back Joe Doe. We talk extraction,
we talk refining, we talk manufacturing. When it comes to
rare earth minerals, the next company knows all about it
from A to Z, and it's happening right here, Carol,
in the US.
Speaker 3 (32:51):
It is, indeed. So let's get to our guest. James
Littiski is here. He's co founder, chairman and CEO. It's
a three point three billion dollar rare earth companies called
MP Materials. It's up about thirty percent year to date,
so we just wanted to lay that out. Also with
us is Bloomberg News Metal Mining Heavy Machinery reporter Joe Dough.
I'm rushing because I want to get to you. I
want to get to the guest. Whenever you jump in
(33:13):
the studio, I want to rush to you.
Speaker 2 (33:14):
Joe.
Speaker 4 (33:14):
It's great to have you here.
Speaker 3 (33:15):
You said to us, we've talked with you a lot
about rare minerals, and he said, we got to talk
to this guy.
Speaker 4 (33:21):
Tell us why we have to talk to James.
Speaker 12 (33:22):
Well, so Jim James Liatinsky, Jim Jim Litinski. He has
been running imped Materials now for years. Basically Jim took
the old Mountain Pass Molly Corp. Company that had gone
to bankruptcy and has turned it into something investable. Jim
can kind of give you his you know, one two
on everything. But basically they're right at the center of
(33:45):
so much of what Donald Trump is focusing on critical minerals,
rare earths. Where are we going to get it? How
are we going to rely less on China, the processing,
the magnets, everything right, the whole of it right right,
And and it's a lot of questions that I have
for Jim too, like, hey, what do you think when
the President of United States is looking at people like
you and saying do it all?
Speaker 7 (34:05):
Jim?
Speaker 4 (34:06):
What do you think?
Speaker 11 (34:09):
Well, Hi, nice to see you guys, Joe, good to
see you again. Yeah, it's certainly a very exciting time
for us. As you mentioned, you know, we're the only
company in the world, and that includes Chinese industry that
has the expertise from the resource all the way through
to the magnet. And what I stress again and again
when we think about rare earths because it's very topical.
(34:30):
A lot of times people talk about extraction. You know,
you hear Ukraine, greenland deep sea mining, or even today
with the President of South Africa getting you know, a
stern dress down in the Oval Office talking about how.
Speaker 7 (34:44):
He has rare oaths too.
Speaker 11 (34:46):
We could have all the rarests in the world, but
if you can't refine them and turn them into magnets,
you don't have a solution for the issue.
Speaker 5 (34:54):
So, Jim, do you have that solution right now? Because
we spoke with Joe a little earlier this year, he
reminded us that it kind of doesn't matter if you
can extract it here in the US, you've got to
be able to refine it. And in some cases, with
some of these elements, ninety percent of that is happening
in China. What exactly can you do on the refining
(35:16):
level here in the US?
Speaker 4 (35:18):
So great question.
Speaker 11 (35:19):
There are two places in the world that you can
refine at scale, the Chinese sphere of influence predominantly China,
a little bit Malaysia, and then in California in Mount Pass, California,
which is our site. We actually, I think some people
would be surprised by this, but we refine today more
than half of the concentrate that we produce. So we
are refining at scale as we speak, and expanding that rapidly.
(35:43):
So we have brought this capability back to the United
States of America, and we're the second largest producer of
rare materials in the world today.
Speaker 3 (35:50):
So one thing I just want to follow, because I
think you guys know this world so well, Jiminto, But
I mean, when you say refine at scale, what exactly
are you talking about.
Speaker 4 (35:58):
I'm just saying if people are listening, like, okay, what
does that mean?
Speaker 8 (36:02):
You know?
Speaker 11 (36:02):
A simple analogy, Carol would be think of oil and gasoline.
Speaker 9 (36:06):
Right.
Speaker 11 (36:06):
You could get an oil out of the ground, but
you can't put it in your car until it's in
the form of gasoline. Right, you refine it. In this case,
you basically take an ore out of the ground, you
concentrate it so it's it's a highly concentrated ore with
the rareth in it. But then to get the separated
rare earth that you would then turn into a magnet,
you refine that concentrated ore into an oxide. And then
(36:28):
not to lose the audience, but you take that oxide,
you turn it into a metal and alloy and then
a magnet and so and just last point on that
that I think is really critical. At Mountain Pass today
we not only mine and refine, but we now send
that ore to a magnet factory that we built from
scratch at Greenfield in Fort Worth, Texas. I'm actually talking
to you today from our factory and it's on a
(36:50):
street called Independence, So we called Independence, but we are
making auto grade magnets here at our factory in Independence
in Texas, with material that we mine and refine in California.
And we're in the process of scaling up this facility.
We have a foundational contract with General Motors, and so
we will be providing General Motors with magnets at scale
(37:12):
at the end of the year, with material that is
mined and refined in California.
Speaker 12 (37:17):
Jim, I want to kind of get away from the
nerdy science. I know you and I can talk about
that all day, but I do want to talk about
what does matter to the average person here in the US,
which is, you can't do all of this on your own.
You cannot. While you might have the full supply chain,
you cannot be the sole supplier of critical materials, specifically
rare earths and the magnets. You've said that to me
for years. One of the things you said to me
(37:38):
years ago was listen, the point is not overnight being
the sole provider to yourself domestically, it is slowly pulling
market share away from China. What are the kind of
conversations you're having right now on this front, on the
statecraft front, and maybe you could tell us a little
bit about the MoU you signed with Madden, the Saudi
(37:59):
Aribbian mind company just last week on this front.
Speaker 8 (38:03):
Yeah, sure, thanks, Joe.
Speaker 11 (38:04):
Well, it's a great question. We've said all along our
mission is to restore the full supply chains to the
United States. We've obviously done that in small scale and
we're scaling that up, but we really want to be
part of a broader solution to eliminate the single point
of failure. As you mentioned, I was in Riad last
week as part of the delegation of business leaders from
the United States with the President and in the presence
(38:26):
of the President and Crown Prince MBS, we signed an
MoU with Modern, which is the Saudi mining company, to
explore the process of essentially building a vertically integrated rare
earth magnetics business in Saudi Arabia, and so what that
would mean is we would mine, refine, and make magnets
(38:46):
in the Kingdom. And I think from their standpoint, it's
a really exciting opportunity to be to create a Mid
East hub that could receive feedstock from there certainly, but
also Africa and some other places and really position them
well geopolitically. But more importantly, I would also say that,
you know, it really solidifies what we've been saying we
(39:09):
are and I think, you know, each step of the
way are showing is that we are America's national champion.
We're the only company in the world that can provide
a solution in house to mine, refine, and make magnets.
And so I think the vertically integrated approach that we've
had is starting to be recognized by the world as
(39:29):
you know, something pretty extraordinary that we've built inside MP
And so it was nice that the President and the
Crown Prince recognize that.
Speaker 8 (39:37):
So, yeah, you know, we'll run that.
Speaker 12 (39:39):
I mean, I mean, it's interesting, you're you're you're very
much saying it's partners. We don't go it alone. It's
not just the United States figuring it out. We'll work
with the trade partners to figure it out. I think
another question I have as you came out of the
gates guns a blazing on your earnings call recently with investors,
and you pointed out, listen, it is very important that
we work with the administration to figure out the solutions
(39:59):
to basically getting a hold of these rarers and these
permanent magnets that are domestically or or friendshored produced. Can
you tell us a little bit about the kind of
conversations you're having with the administration or even the Defense Department.
Speaker 11 (40:15):
Sure, so, a really important just background context, if we
go back about a month ago to Switzerland with the
trade talks with China. At that point, we were and
a lot of people don't know this or maybe don't
appreciate this because you know, we're they're not in necessarily
the rare magnetics niche, but we were weeks away, in
my opinion, from a shutdowns across our economy in aerospace
(40:38):
and in auto because the Chinese had essentially stopped shipping
rare magnets and our supply chains were really starting to
break down. And so obviously, fortunately we came away with
a deal there and we're not gonna see those kinds
of shutdowns, but we were really close, and that is
a leverage point that the Chinese have in any negotiation.
And again, whatever your view is on the relationship with China,
(41:00):
whether it's you know, sort of going to be a
collaborative relationship moving forward that gets reset or something much worse,
we need to take this leverage point off the table,
you know. That's our view at MP. That's what our
mission has been. We've been at this for years. Is
let's make sure that the United States of America can
produce our own rare magnetics. And the reason Joe, that
(41:20):
that is so important and you mentioned DD is because,
as we've seen around the world, physical AI is the
future of warfare. We're talking robotics and drones, and I
think we see that from whether it's Elon Musk or
Jensen Wong talking about the scale of robotics and how
large that industry is going to be. It is not
acceptable for American companies downstream. We're talking about trillions of
(41:44):
dollars of enterprise value, our great leading companies, as well
as our Department of Defense, to be relying on a
single point of failure in the Chinese supply chain, and
so we serve a critical role in alleviating that risk.
Speaker 3 (41:57):
All right, So it sounds like you're making the argument
for why the US government should be involved, But is
the government US government? Is there appetite for the US
government to be a partner in rare earth projects and
doing it from A to Z, from mining to processing
to permanent magnet production.
Speaker 11 (42:14):
There is no question that the United States government recognizes this,
and I think I think that these things take time,
but there's no question that they recognize. And Joe was
referencing our perspective on the earnings call, which is this
is actually very doable. We are, you know, in a
very short period of time away from solving this challenge
(42:34):
in a large scale, and frankly, MP can lead that effort.
And what we said is that MP, you know, we've
been at this for a number of years. We've invested
over a billion dollars of private capital, and you know,
since we went public and then prior to that, we
we had the good fortune, I guess of taking control
of several billion dollars of previously invested capital. So we
(42:55):
have billions of dollars of invested capital. And what we've
said is we'll lead this solution, but it's not fair
on our shareholders to expect them to take the risk.
We're going to need to do this in a capital
light way for MP right, it should be very rewarding
for our shareholders for being in this position. So to
answer your question, you know there will be movement forward.
(43:15):
In my opinion, I think it's a question of getting
these solutions don't happen overnight, but there's no question that
there are a lot of conversations happening with government and industry,
and we're leading those.
Speaker 3 (43:26):
Okay, so it sounds like government's involved, they're listening, and
we should maybe stay tuned for news. What kind of
money is needed to be committed to do the proper
buildout in your view, whether it's public private partnership, and
just about thirty seconds on that.
Speaker 11 (43:40):
Yeah, the really simple answer is we're talking single digit billions.
This is a really simple problem to solve. Actually, I
jokingly say for the coffee budget on the F thirty five,
we probably could have solved the rarer issue.
Speaker 7 (43:54):
This is really small.
Speaker 11 (43:55):
Wow, And so I do think that the United States
government is going to step up. I think you're going
to see industry players step up as well, because this
is just it's an issue that affects our national security
and trillions of dollars of enterprise value, and it's actually
a small problem.
Speaker 5 (44:11):
You mentioned that we could do this in a short
period of time, give us years or some sort of timeline,
that we could actually move away from a single point
of failure when it comes to this problem.
Speaker 11 (44:23):
Well, we're bringing that online now in Texas, right So
where I'm sitting is a factory. You all are welcome
to come see it, and so we'll be making magnets
at scale here at the end of the year. And
then the question is what percentage of the industry do
we need to satisfy to remove this single point of
failure risk, Because we don't need to solve one hundred percent,
but we need to do a material percentage.
Speaker 8 (44:43):
And so I think the.
Speaker 11 (44:43):
Next step would be for us to lead a solution
where we're building, you know, something significantly larger and then rinse,
repeat to add a number of facilities both here and
as we announce with the MoU, potentially in the Saudi
Arabia and other places.
Speaker 7 (45:00):
So it really is not a huge issue.
Speaker 11 (45:02):
It's just an issue that requires capital and execution, right, And.
Speaker 12 (45:06):
I think on that point, like it's not just going
to be you, it does still require a lot of
other actors to come into the space. And I guess
the quick follow up again is what are we going
to see from the government this year in terms of
commitments to help this space, your company and others build
out the supply chain on rare earths and permanent magnets.
Speaker 11 (45:26):
Well, just to be crystal clear, as we all know,
the capital markets can satisfy this problem if the existential
issue of the industry is off the table, and the
existential issue is Chinese mercantilism, right, is pricing. We've got
to get proper functioning economics, proper functioning market economics for
the price of these materials and the price of the
(45:47):
downstream products. And so those are a variety of ways
that the government can force that solution. You've heard a
lot of them in the news, and certainly we're working
on them. I think you'll see a variety of things
across investments, tariffs, tax credits, and so there isn't you know,
sort of one fits all solution. It's really going to
be a question of you know, the preferences of government,
(46:08):
and certainly you'd have to get some of them on
here to ask them directly or stay tuned for, you know,
a solution that you see us present one day. But
I do think we're going to see something, you know,
sooner than later, because we've got to solve this problem.
Speaker 3 (46:22):
Yeah, no doubt about it. Jim really cool. I know
we're going to be coming back to Jim Litinski. He's
co founder, chairman, CEO of the We're Earth Mining company,
so much more than mining, as we know MP materials
and of course are thanks always to Joe Doe, Bloomberg
News Metal Mining, Heavy Machinery reporter, so we had to
talk to him.
Speaker 4 (46:39):
We did good stuff.
Speaker 1 (46:41):
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live weekday
afternoons from two to five pm Eastern on Bloomberg dot Com,
the iHeartRadio app, tune In, and the Bloomberg Business App.
You can also watch us live every weekday on YouTube
(47:02):
and always on the Bloomberg terminal
Hosts And Creators
Tim Stenovec
Carol Massar
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
Ridiculous History
History is beautiful, brutal and, often, ridiculous. Join Ben Bowlin and Noel Brown as they dive into some of the weirdest stories from across the span of human civilization in Ridiculous History, a podcast by iHeartRadio.