This week, we go to US companies that are cutting costs and regaining control by reshoring production and restructuring their global supply chain. And, Former Treasury Secretary Lawrence H. Summers weighs in on the Fed’s decision to hold steady as President Trump calls for deep rate cuts. Plus, a look at the low Earth orbit satellite market. Later, how voluntary carbon markets are creating investment products to move the needle on climate change.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:20):
This is Wall Street Week. I'm David Weston, bringing you
stories of capitalism. President Trump's visit to the FED did
not influence the Fed's decision. Our special contributor Larry Summers
gives us his take on the difference between what the
White House and the Central Bank think the economy needs.
Plus the Battle for the Sky one thousand miles up.
(00:40):
Elon Musk is way ahead in launching his network of
low earth orbital satellites to connect the globe. Can anyone
catch him? And looking to markets to help address climate change,
Tom Montag of Rubicon Carbon explains his big deal with
Microsoft and his high hopes for voluntary carbon markets. But
(01:01):
we start with the question on everyone's mind on Wall
Street this week, just how bad might these tariffs turn
out to be? On the August first deadline? John Dedario
is CEO of the music company founded by his grandfather
that bears his name.
Speaker 3 (01:17):
We're dealing with it right now in a big way.
So for example, last year we estimate that the total
amount on tariffs that we paid for both raw materials
and finished goods that were imported in the US to
the tune of roughly about seven hundred thousand dollars. Based
on the incremental tariffs that we're dealing with this year,
that's going to triple. It's going to be close to
two point two million, is what we're estimating by the
end of the year will be paying in incremental.
Speaker 4 (01:38):
Tariffs, So that's a big threat to us.
Speaker 2 (01:41):
Didario is the largest company in the world specializing in
the design, manufacture, and distribution of accessories for musical instruments,
everything from strings for guitars and violins, to drumsticks and
drumheads and snare wires for drums, to reads and mouthpieces
for woodwinds.
Speaker 5 (01:59):
The factory, we're producing seven hundred and fifty thousand strings
per day on average. We use a wide range of materials,
both for the core or the foundation of the string,
as well as rap wires, which include nickel plated steel,
fot for bronze, titanium, silver, and in some cases gold.
Speaker 2 (02:14):
The company traces its origins to seventeenth century Italy, moving
to the United States at the start of the twentieth century.
Speaker 3 (02:22):
In nineteen oh five, there was an earthquake in the
town of Sally, and my great grandfather, Charles Dario emigrated
to the US at that time, and what he did
is he imported strings from his family and sent money
home to help them rebuild their homes literally. And then
when World War II came about it because of all
the trade embargoes, he had forced his hand to start
making strings himself in his basement in the Story of Queens.
(02:44):
And my family's been making strings in the US ever since.
Speaker 2 (02:47):
So how big is your company in terms of employees.
Speaker 3 (02:50):
In terms of employees, it's eleven hundred globally, majority of
which are here in Farmingdale, New York. Roughly about eight
hundred of those eleven hundred based here in New York.
And as far as the revenues can, we are roughly
about two hundred and forty million annually.
Speaker 2 (03:03):
So tell us about the inputs. First of all, as
you manufacture strings, drumsticks, drumheads, reads, where do you get
the materials?
Speaker 3 (03:13):
It comes from a wide variety of location. So starting
with the read business, we literally import the raw material
from our own plantations, which are based in the south
of France and in Argentina. So what we do is
we harvest cane from our own fields in those countries
and we pross them down into what we call splits,
(03:34):
and then we ship those splits to here into New
York where we pross them into finished reads. And then
when you look at the string business, we actually manufacture
the majority of our own raw materials. We source steal
rod from a variety of US sources, and then we
draw them down to find sizes that we subsequently used
to make strings. And then, of course, you know, there's
(03:57):
a very small percentage of our business. In fact, about
five percent of our business represents finished goods that we
source from overseas.
Speaker 4 (04:04):
Ninety five percent is what we make is in the States.
Speaker 3 (04:07):
But what we do source, of course, is predominantly from China,
and it ranges from a variety of accessories like tuners
and capos and instrument cables, and so that that's again
a small part of our business, but a very important
part of our business.
Speaker 2 (04:20):
That's on the input side. What are the outputs? How
much of your product do you sell in the United States?
How much overseas?
Speaker 3 (04:27):
So roughly fifty to fifty US and international. And what
we do internationally is we actually distribute our products in
over one hundred and thirty countries around the world, and
many of those markets we actually have our own distribution
company established, where we have sales marketing people on the
ground and we have our own logistics operations. So in fact,
our own distribution companies internationally control about fifty percent of
(04:50):
our international business and totality.
Speaker 2 (04:52):
Given to Dario's dependence on imports and exports, it's no
surprise that dealing with new tariffs can have a profound
fact done its business. But John Dedario and his colleagues
are figuring out ways to cope with the changes.
Speaker 3 (05:07):
Fortunately, though, we've done some hard work on onshoring a
lot of products.
Speaker 4 (05:11):
That we previously sourced overseas.
Speaker 3 (05:13):
So for example, just before the pandemic, we started our
own injection molding factory here in New York, and ever
since we've been gradually bringing products back from China to
the States.
Speaker 4 (05:23):
So we did that before COVID.
Speaker 3 (05:25):
During COVID, because of all the supply chain disruptures, it
actually forced us to accelerate the onshoring of things and
that's continued until now. So it's this onshoing initiative that
we've embarked on has really served us well, both through
COVID as well as now through the trade war. Certainly,
we're still running up against tariffs on products and raw
materials that we still source, but definitely to a lesser extent.
Speaker 2 (05:48):
One of the goals stated by the Trump administration of
tariffs is to increase more onshoring, as it's called, really
production here in the United States. What percentage of that
tripling that you talked about in your cost do you
think you can take care of by onshowing?
Speaker 3 (06:03):
I definitely think there's more opportunities to ensure additional products
and additional parts. I think we could pretty much cut
that tariff bill in half if we put our minds
to it. The thing is, though most companies don't think
that's possible. And what we've done is we've taken a
hard look at the total cost of ownership of actually
being in control of the manufacturing here, and at the
(06:24):
end of the day, it really makes a lot more
sense for us to do it here in terms of
control and in terms of quality and of course costsentertainment.
Speaker 2 (06:33):
That reminds me of what happened I think during the
pandemic when companies. US companies had to redo their supply
chains and in some ways may have come out stronger.
Do you think you may come out stronger because of
the terror pressures.
Speaker 3 (06:47):
I totally think so. I mean, we looked at COVID
not as a threat, but as an opportunity. As a company,
we're fortunate to have a very strong balance sheet, so
it served us well in getting through COVID and made
us a stronger company. And I definitely see this is
an opportunity to do the same. And as I mentioned before,
it's motivating us even more to ensure things that we
can control and of course then mitigate tariffs as a result.
Speaker 2 (07:09):
Are you feeling margin pressure? Are you able to raise prices?
How do you accommodate that?
Speaker 3 (07:14):
It really depends because we go to market with such
a wide variety of products, So in some cases we
could get away with a price increase to mitigate the
impact of tariffs. In other cases, it's just too competitive
for us to do that, so we sacrifice margin to
retain our market share.
Speaker 2 (07:29):
In those examples, we've been talking about the effective tariffs
on inputs. What about exports? Because you do export, as
you say, about fifty percent of your product. How might
the trade disruptions actually affect your ability to export?
Speaker 3 (07:41):
Well, you know, China is really a great example. Ten
years ago, we start our own distribution company in Shanghai.
The original objective of that distribution company was to help
us mitigate counterfeiting of our strings. So we have a
team of about a dozen people on the ground there
that keep their eyes in the years open for counterfeits
that are in market and really do a great job
(08:02):
of controlling that.
Speaker 4 (08:04):
And so by also another reason why we.
Speaker 3 (08:06):
Start our own distribution company there is to be more
competitive against Chinese brands. So when China imposed retaliatory tariffs
on our products going into China, it was a major
threat to our Chinese business. I mean, we're talking about
a business that's anywhere between five and ten million dollars
in an annual basis that suddenly is in jeopardy and
it made its difficult to compete with Chinese brands in market.
Speaker 2 (08:27):
You have a successful business by all descriptions. It's not
the biggest business in the United States. There are big
PUBLICA traded companies. How do you think your ability to
respond to chairs are different from some of the big
public traded companies, Maybe better, maybe worse.
Speaker 3 (08:43):
Well, you know, as a family business, one of the
great things about it is we can be very nimble
we're not interested in the short term, you know, financial benefit,
where our goal as a family is to have a sustainable,
successful business for many generations. So having that mindset allows
us to stay flexible and we can pivot when we
need to when the market conditions change.
Speaker 2 (09:05):
The Dario is just one example of a global company
coming to terms with the Trump Administration's new approach to trade.
Speaker 6 (09:13):
Companies are trying to cope with the impact of the trade.
Speaker 2 (09:16):
Will Maxim Darmay is a senior economist at Alliance Trade,
which recently surveyed four five hundred companies across China, the EU,
the UK, and the US about how they are adapting
to tariff uncertainty.
Speaker 6 (09:31):
US films are absorbing the cost into their markings, so
we're not really see the impact on inflation. That being said,
I think it's going to take very soon before we
start to see some impact on US inflation. I think
it's going to come very soon, by the fall at
the latest, because now inventories are running superlow, so you know,
at some points, I think US retailios, US host STOs
(09:55):
are going to start to pass on the cost of
the tariffs onto the consumer all the more so.
Speaker 2 (10:01):
But now we have.
Speaker 6 (10:02):
You know, turfs are pretty much being settled with bu,
with Japan, perhaps soon with Korea. So now businesses start
to know more or less what is going to be
the you know, the set turffs fifteen percent for the U,
fifteen percent for Japan, ten percent for the UK. So
now companies are more visibility, so they will start to
really pass on slowly into the prices the tips.
Speaker 2 (10:27):
So as firms look to adjust their supply chains. Is
one of the alternatives actually manufacturing on shore in the
United States, which was after our President Trump's.
Speaker 6 (10:36):
Goal, it is yeah, well it's really up to set
this point whether this goal will will succeed, right, it
would take many years. Well I can say is you know,
businesses tend to make the decisions, their investment decision over a.
Speaker 4 (10:50):
Long time horizons.
Speaker 6 (10:51):
So who knows is going to be after President Trump.
Maybe all these tarists are going to be removed or
some mystarius will be removed by the next president or
the next administration. So I'm quite skeptical, you know, but
you know, a full blow and restowing will happen into
the United States. That being said, potentially I think we
could see a couple of sectors starting to wishore a
(11:13):
little bit, so we could see some success happening in
the next couple of years.
Speaker 2 (11:18):
As companies rerout their supply change, particularly when it comes
from China through a third country in the United States.
Does that mean some countries are benefiting actually from the
tariffs because they're getting more business.
Speaker 6 (11:28):
China is going to remain central stage to the supply chain,
to the manufacturing supply chains. But other countries in Southeast Asia,
Southeast Asia, perhaps a little bit in Europe as well,
and North Africa as well, could benefit, could really get
a little bit of value added, if it makes sense.
Speaker 2 (11:47):
Coming up, the FED is watching for the effects of
President Trump's policies. Our special contributor Larry Summers tells us
what the Central Bank's decision means for the economy. This
is a story about pressure. This week, the FED held
its July meeting, just a week after President Trump visited
(12:07):
Chair J. Powell at his office to tell him what
he thinks the Central Bank should do.
Speaker 4 (12:12):
Too late, Too late, Pale, because he's always too late.
Speaker 7 (12:15):
My I allowed to appoint myself at the FED.
Speaker 2 (12:16):
I do a much better job than these people.
Speaker 7 (12:19):
Well, I'd love him to lower interest rates.
Speaker 1 (12:22):
Other than that, what.
Speaker 7 (12:23):
Can I tell you?
Speaker 2 (12:23):
But the President's visit did not persuade FED Chair Poal
to lower rates, at least not yet. Today, the Federal
Open Market Committee decided to leave our policy.
Speaker 8 (12:33):
Interest rate unchanged.
Speaker 2 (12:35):
We have made no decisions about September.
Speaker 8 (12:37):
We don't do that in advance.
Speaker 2 (12:39):
Special contributor Larry Summers joins us with what he expects
for the US economy. With President Trump and the FED
Chair on opposite sides.
Speaker 7 (12:48):
There certainly are some risks of a downturn. There are
also some inflationary risks coming from the tariffs, coming from
general economic strength, and so he decided not to commit
but to preserve flexibility. I think that was the right
course of action for him to take. If the economy
(13:12):
turns down, there's the scope to cut rates very rapidly,
But if inflation's a problem, there's a risk of a
loss of credibility. If you're a responsible FED official, you've
got to remember that you got nervous about the economy
last September. You cut rates by fifty basis points, and
(13:32):
the upshot was a seventy five basis point increase in
the subsequent two months. In the tenure rate, which fed
through into a major increase in mortgage rates. So I
think what the Fed did was the prudent thing under
the circumstances. I wouldn't be wouldn't surprise me greatly if
(13:56):
it turned out that the economy had slow and we
wish we had cut rage now. But if that error
has been made, it's an easily correctable error, Whereas if
you made the opposite error and sacrificed credibility by moving excessively,
(14:17):
that would be a much more damaging and difficult to
reverse error. I think the other thing that needs to
be said here is you can argue both sides, as
I just did, about whether we should have a quarter
point rate cut in July, whether we should have two
rate cuts this year or three rates cuts this year.
(14:38):
I don't know of any economist who sees merit in
the president's idea that rates should be cut to the
one percent range, and I would want to hear what
his colleagues in the administration give as a rationale for
(14:59):
that kind of theory of interest rate setting, which, given
the current rather happy state of markets and rather strong economy,
seems to me to be a very very dangerous one.
That would course a major loss of credibility.
Speaker 2 (15:21):
Perhaps Cherrpwell got it right, but he had at least
two of his colleagues who disagreed with him. He had
two dissenters for the first time since nineteen ninety three.
It's been a long time. So we had two dissenters,
and they weren't asking for a three hundred basis point
right cut. Maybe the twenty five basis point cut. But
what do you think that they're seeing. We're not.
Speaker 7 (15:38):
I think they I don't think it's a complete coincidence
that who they were appointed by and in what context
that may not be a complete coincidence in terms of
understanding what's going on. Look, I think their argument is
that under the surface there's substantial economic weakness and it's
(16:03):
important to get ahead of the weakness. And my reaction is,
if that comes to be a prevailing judgment, the market
will do it do that itself, and it's the two
year rate and the five year rate and the ten
year rate that's more important for the behavior of demand,
(16:25):
and that to the extent the market doesn't do it itself,
the Fed will be able to do it six weeks
from now and be able to be more energetic if
that proved necessary. So I don't think there's any kind
of urgent need for the cut, and I think we
(16:45):
are a bit playing with fire. We have a central
bank that missed the last inflation badly. We have increased
politicization of everything finance. We have tariffs that are pushing
up prices, we have epic budget deficits. We've had a
(17:10):
period when the dollar has declined substantially. So a moment
like that seems to me to be a moment to
err on the side of preserving credibility rather than take
chances that could put a credibility risk. And that's why
(17:31):
I disagree with the judgments of Governor's Waller and Bowman.
Speaker 2 (17:39):
One of the reasons for the Fed not to act
right now is uncertainty because of tariffs and tar Palla
address that that is taking some time to really be
reflected in the real economy. What everyone thinks of those tariffs,
and you've talked about it in this program before. We
have to admit President Trump has gotten a lot of
tariff deals done in a fairly short time.
Speaker 7 (17:57):
Yeah, But the difficulty, David, from my perspective, is that
they're mostly self inflicted wounds. They're mostly putting taxes on
that raise the prices that American consumers pay, not just
on imported goods, but on the goods that compete with
(18:18):
imported goods. Affordability is the most important economic issue is
judged by American families, and tariffs are a direct attack
on the affordability of things that bought people buy. Tariffs
are also a blow to American manufacturing, because we're tariffing
(18:42):
the inputs on which our manufacturers depend. When we raise
the price of steel or aluminum, we make it more
costly to make cars. We make constructing homes more costly
at a time when we have a housing shortage. So
(19:02):
it seems to me that this idea that tariffs are
going to be somehow the salvation of the manufacturing sector
is not an idea that is seriously supported by analytical
work or by real evidence, And most of the economists
(19:26):
with expertise in this area who study it conclude that
probably it's as likely that this program will hurt manufacturing
as that it will help manufacturing, and that the one
thing that is certain is that it will raise prices
and reduce affordability, whether that increase in prices will be
(19:48):
a spiral of continuing inflation or one off. That's a
hard thing to judge, and it may well be only
a one off. But why would we want to have
of the major objective of American negotiation with our closest
allies be to impose something on them that they hate
(20:11):
in order to raise the prices of the goods that
American families buy. So I just don't get it.
Speaker 2 (20:20):
President Trump has made no secret the fact that we
should expect a different FED chair come next May at
the expiration of Chair Pal's term. That raises the question
whether Chair Powell will stay on, because he has another
two years to remain on the board if he chooses.
Secretary Vessent has made no secret the fact that he
thinks it would be appropriate or even you would encourage
(20:40):
him to leave the board. Secretary Defenser was asked that
the news comfortability, he just refused to address it. What
do you think about that issue?
Speaker 7 (20:47):
I don't understand why anybody would who was involved in
a complex set of negotiations and bargains would give up
any flexibility by making any prior commitments to people who
are bashing them every day. So I don't know what
(21:11):
Chair Powell will do. I suspect Chair Powell doesn't know
what he will do. It'll depend upon aspects of his life,
I imagine, and it will depend on who the next
FED chair is and what the sense is of how
the FED is going to operate going forward. But I
don't see any reason at all for why he should
(21:34):
prejudge that question anymore than you should prejudge the question
of how long you're going to do Wall Street Week,
or I should prejudge the question of how long I'm
going to be a professor At Harvard.
Speaker 2 (21:49):
We had the one big beautiful bill, the one thousand
dollars setting aside investment for each new child born. You
and I've talked about that before, about whether that's enough
money and what the administrative costs are. But we now
have Secuary Bestent suggesting. I think he called it perhaps
a backdoor way of shoring up retirement savings and earnings
(22:09):
for people in the out years. What do you think
about that at a time when social security is under
increasing pressure.
Speaker 7 (22:15):
I was surprised that Secretary Investment made the comment. I
was not surprised that having made the comment, he has
been backing off it since then. By trying to suggest
that it all goes together. But I think he got
the thinking right the first time. There's a philosophy of
(22:38):
individualism that believes in just making people take responsibility for
their own security and rejects the idea of public cooperation
for old age insurance. And that's something that Republicans have
always flirted with, and I think he was seeing another
(23:01):
example of that. I am very nervous about this program.
My prediction is that when somebody doesn't accounting five years
from now, the level of payments made to various financial
firms and information technology companies to keep track of these
(23:22):
accounts is going to be very large relative to the
amount of spending or the amount of support that American
families received. And that's always been the achilles heel of
social security privatization.
Speaker 2 (23:43):
Coming up the latest space race. This time it's covering
the globe and Elon Musk is way out in front.
That's next on Wall Street Week. This is a story
about a space race, not the one to be first
to put a man on the Moon nearly fifty years ago,
(24:07):
not even the one Elon Musk is running now to
put humans on Mars in the next few years.
Speaker 9 (24:13):
Just over two years, we'll be selling our first uncrude
starship Surmis.
Speaker 10 (24:17):
Then we'll send humans two years after that.
Speaker 2 (24:24):
This is a space race much closer to Earth one,
just a few hundred miles over our heads. It's being
run in the world of Low Earth Orbit or LEO,
and what's at stake is potentially connecting everyone on the planet,
including hard to reach bit and.
Speaker 11 (24:41):
Lift Go SpaceX Go Darling. The stack of sixty Starling
satellites have successfully deployed from second stage.
Speaker 12 (24:51):
This is just a providing connectivity again in places where
you don't get it to other means.
Speaker 13 (24:57):
It's a much better solution than trying to bring fiber
to really really remote locations.
Speaker 6 (25:03):
It's exciting.
Speaker 11 (25:04):
You never know what the next big thing is.
Speaker 2 (25:06):
The battle for Leo's satellite supremacy is on for private
companies and governments. Goldman Sachs values the market at fifteen
billion dollars but expects it to grow to one hundred
eight billion dollars by twenty thirty five. And though it
may be a competition right now, it looks like a
race between several tortoises and one hair way out in front.
(25:29):
That hare is named Starlink. And it's owned by Elon
Musk's SpaceX.
Speaker 13 (25:34):
It's seventy six hundred satellites today, they're expecting to get
to as many as forty eight thousand satellites.
Speaker 2 (25:40):
Craig Moffitt is the co founder and senior analyst at
Moffat Nathanson. He says Musk is so far ahead it
might be difficult for anyone to close the gap.
Speaker 13 (25:50):
Starlink is probably the biggest part of SpaceX at the moment,
and a part that investors seem to value the most highly.
But it is integraally tied to the rest of the
SpaceX business, which is the rockets and launches and all
that sort of thing. The starlink business itself, providing Internet
access primarily to rural areas and again obviously not just
(26:13):
the United States but globally, is enormously benefited by the
fact that it's connected to a satellite launch business.
Speaker 14 (26:21):
Making one of.
Speaker 13 (26:22):
These satellites costs quarter of a million to half a
million dollars. Launching them adds another quarter to half a
million dollars of costs to each individual satellite.
Speaker 2 (26:33):
If the goal is connecting the world, why are LEO
satellites the best way to get there, we travel to
MIT's Aeronautics and Astronautics Department to find out from Professor
Kerry Kahoy, whose specialty is satellite engineering and communications.
Speaker 11 (26:49):
Most people refer to orbit as orbits that are closer
to Earth. You need to be above about three hundred
kilometers to stay in orbit without dropping out due to
atmosphere drag right away, so it can go higher. It
goes up to about one thousand kilometers to twelve hundred
kilometers when you're in lower th orbit. If you're looking
at a satellite go across the sky, it takes about
(27:11):
ten minutes to go from horizon to horizon, and then
if you go high enough up it's geostationary orbit, where
the speed of the satellite going around the Earth is
actually the same as the rotation of the Earth, and
so they're always overhead in the same spot, which has
a lot of advantages for communications because you never have
to worry about where they are. They're always right where
you left them above you. They're much further away than
(27:34):
lowerth orbits. One of the things that is a benefit
for lower orbit is it's so much closer to the Earth.
It only takes like one hundred milliseconds or less to
get a signal from the satellite down to the Earth,
or a round trip time. When you're talking about going
up to geostationary orbit, that's often large fractions of a second.
Speaker 2 (27:56):
It's not just the size and proximity to Earth that
makes leos special, it's also the cost. A single GEO
satellite can be up to one thousand times more expensive
than a LEO satellite to manufacture. On the other hand,
it costs a lot more over time to keep those
LEO satellites up there.
Speaker 11 (28:14):
And working in lower thorbit unless you have a lot
of propulsion on board and ways to keep yourself fighting
atmosphere drive. So lower thorbit is above the atmosphere, but
there's just enough that it starts to slow you down
and decrease your orbit energy and pull you in until
you re enter and burn up. Unless they're higher and
have bigger fuel tanks on board and more propellant to
(28:36):
keep them up for longer. You know, the heavier you
make them, the more it costs to launch them, and liptop.
Speaker 13 (28:42):
You have to be launching as many as twenty five
percent of your satellites every year just to maintain the
replacement cost of the constellation. So you're talking about launching
twelve thousand satellites a year just to keep the existing
constellation operating. That's those kinds of costs are staggering.
Speaker 2 (29:02):
Starlink has what looks like an overwhelming lead in LEO satellites,
but it's not the only horse in the race. Jeff
Bezos Project Kuiper is trying at least to get on
the track, though it's had to deal with manufacturing issues
and launch delays earlier this year, currently leaving its constellation
with fewer than eighty satellites in orbit compared with Musk's
(29:24):
six hundred plus.
Speaker 13 (29:27):
When you see someone like Amazon's Project Kuyper planning a
second US centered started constellation that will occupy very much
the same competitive niche as Starlink, it's really hard to
see why that makes any sense and why there are
any returns available to Amazon.
Speaker 2 (29:47):
A STARLEK competitor that's much further along than Kuyper comes
from Europe. One Web launched its first operational LEO satellite
the same year as Starlink. European satellite operator Utlesat acquired
one Web in twenty twenty three and currently operates its
own constellation of about six hundred and forty satellites, and
one web is pursuing a strategy that goes beyond LEO
(30:09):
satellites alone.
Speaker 12 (30:11):
We are the only satellite that has both the GEO
and the LEO, and in fact quite a number of them,
because we have thirty five in GEO and over six
hundred in LEO.
Speaker 2 (30:22):
Jean Ubert Lenat is the chief strategy and Resources officer
at UTLESAD, and it's not just the combination of GEO
and LEO satellites that he thinks sets his company on
a different path from Starlink. It's also the market they serve.
Speaker 12 (30:38):
Starling does address the consumer market, meaning that they do
need much more capacity to actually serve all those customers.
We are providing very basic but important connectivity to businesses,
to government. What is very important to understand this, we
are not in the consumer market.
Speaker 8 (30:56):
We have right now just north of five.
Speaker 12 (30:59):
Billion in total globally of connectivity in B to B
and this is going to grow at least three times
between now and basically twenty thirty three, where it should
be close to fifteen billion at by the time. But
more importantly, the LEO connectivity is really what is going
(31:19):
to drive this market. So the LEO connectivity right now
in B to B is only around two billion as
we speak this year expected to be there whereas we
do expect it will be north of ten billion pro
eleven or twelve billion by the same year of twenty
to thirty three, meaning that it will just multiplier be
multiplied fivefold for that period.
Speaker 2 (31:41):
One Web, a subsidiary of Budle SAD, manages its constellation
out of its London office.
Speaker 10 (31:47):
I lead a team that has one main objective, which
is uptime, so guaranteeing that our customers are actually always
able to connect to the service that we provide wherever
they are. And the role of the team here is
actually to guarantee that the system works at the top
performance and in the leivers a high speed and the
low latency that the constellation is supposed to provide.
Speaker 2 (32:10):
One Web also differs from starlink in the way it
gets its satellites into orbit. One Web has no rockets
of its own, so it relies instead on other firms
for its launches, including you guessed it, Musk's SpaceX.
Speaker 11 (32:24):
One, Web SAD, Delta two and Delta six. Separation confirmed.
Speaker 2 (32:27):
In fact, it is SpaceX's advances in reusable rockets that
have transformed the industry.
Speaker 11 (32:34):
Launch costs used to be very high and it used
to be very difficult to get things into orbit. So
the reduction in cost of launch partly driven by the
reusable launch vehicles that SpaceX has developed with you know,
for example Falcon nine.
Speaker 2 (32:48):
Both SpaceX and one Web have close relations with governments,
SpaceX through US government contracts and one Web through partial
government ownership. In mid June, the UK government announced plans
to invest one hundred and sixty three million euros in Utelsat,
joining France and other investors in a major funding round,
(33:08):
bringing the total rays to one point five billion euros
or one point eight billion dollars. What are your capital
needs going forward as you see it, We.
Speaker 12 (33:18):
Have, indeed our plans to invest four billion euros of
CAPEX between now and twenty twenty nine, and those four
billion disease essentially a large part to replace our current
LEO constellation. LEO satellites have a smaller lifetime of around
seven years, so we'll have to replace those ones by
(33:38):
twenty twenty eight, so bulk of that CAPEX is precisely
for that replacement.
Speaker 2 (33:46):
The LEO satellite race is on and Starlink is way
out in front. But how big is the prize for
winning the race? How good a business is this? Even
for the leader Starlink, It looks like it might not
be as profitable as Musk originally thought.
Speaker 13 (34:01):
Roughly half of the cost is in the rocketry segment.
The original concept was that they would have a big
leg up because they could put these satellites into the
payloads of rockets that were going up for other customers,
whether it's NASA or other governments, and then they could
add their own satellites cheaply to these payloads. It hasn't
(34:22):
worked out that way. Virtually every single rocket launch thus
far has been a dedicated rocket launch solely for the
purpose of launching Starlink satellites. So the cost structure is
quite a bit higher than you might have imagined it
was going to be m lipped off.
Speaker 2 (34:39):
And in the end, how much room at the finish
line is there for competitors in the LEO space race.
Is there room for more than one or is it
a natural monopoly given the capital investment required and the
limited market to be served.
Speaker 12 (34:53):
We do believe that in the future they will be
probably four or five, maybe six players, not more. There
is clearly room for those players because precisely the demand
for connectivity, as you and I can experience every day,
is just growing and growing.
Speaker 13 (35:10):
The revenue opportunity is almost certainly going to keep being
divided up because of all of these quasi economic logic
that's more geopolitical and military logic instead, and ultimately it
means you'll always have more competitors in this business than
the economics would dictate, makes any sense.
Speaker 11 (35:28):
It's very exciting to see it growing like this, to
see remote access without terrestrial infrastructure needed, that is a
very interesting and exciting growth area.
Speaker 2 (35:41):
We've come a long way since the days of Sputnik
and Gemini and the Space Shuttle, days when we waited
months for each launch, days when only governments could compete.
Now there are launches nearly every day from private and
government players, making the question not who will win, but
what trophy the winner will take home. Up next, we
(36:05):
turn from satellites to adapting to climate change. Tom Montag
of Rubicon Carbon makes his case for liquid and transparent,
voluntary carbon markets making the difference. This is a story
about carrots and sticks, and whether we need both if
we're to make real progress on climate change. Various governments
(36:29):
have tried their hand at reducing carbon emissions, from setting
limits to providing billions of dollars in incentives to go green,
but President Trump's return of the Oval Office has put
climate change on something of a back burner for the
US government.
Speaker 7 (36:43):
I terminated the ridiculous green news scam.
Speaker 4 (36:47):
I withdrew from the unfair Paris Climate.
Speaker 10 (36:50):
Accord, which was costing US trillions of dollars.
Speaker 2 (36:55):
While governments try their various approaches and adjust them from
time to time, the challenges from climate change just keep increasing,
with the world sending over thirty five billion tons of
carbon into the atmosphere every year and the average global
surface temperature in twenty twenty four two point three degrees
fahrenheit above the twentieth century average, which raises the question
(37:18):
whether private markets may help the situation, with or without
active government support.
Speaker 14 (37:24):
It's about financing climate and that's a complicated problem because
it's going to take trillions of dollars.
Speaker 2 (37:31):
After serving as vice chair of Bank of America and
Venucan is now chair of Rubicon Carbon, a carbon credit
management firm run by TPG.
Speaker 14 (37:41):
So it's a piece of the puzzle. I think it's
an effective one. It could be a lot more effective
than it's been. But I think as European market matures,
as the American market matures, and I know there are
issues read at the moment, but nonetheless I think that
we will see it as a component and an important
component in the capital stack that will underwrite this change.
Speaker 2 (38:05):
Lambert Schneider has studied carbon credit markets at the UKO
Institute in Freiberg, Germany, and is co author of an
OECD paper on the interplay between voluntary and compliance carbon markets.
Speaker 9 (38:18):
Carbon credits is an instrument where someone a private entity
or public entity can invest in mitigation projects and climate
and then claim the emission reductions like A practical example
would be if a company invests in an upforestation project
somewhere the trees go, they absorb SU two, and then
(38:41):
for each ton of U two that is absorbed, a
ton of carbon credit is being issued. And then these
carbon credits can, for example, be used to achieve voluntary
climate goals. Prominent examples is avoiding deforestations. And then there
are projects which burn greenhouse gasses waste, greenose gases, their
(39:01):
projects which use renewal energies, and there are also projects
who suck se you two out of the atmosphere, like
for example, direct air capture and carbon sequestration in geological reservoirs.
So you take ze two out of the atmosphere and
then you store it underground. So many companies have set
(39:23):
voluntary mitigation targets. They have said, we want to do
action beyond reducing our own emissions, to do beyond value
chain mitigation and compliance markets are markets that are established
by governments or multilateral organizations where companies have an obligation
to meet certain targets or quotas. The most prominent example
(39:45):
for a compliance market is international aviation. Under the International
Civil Aviation Organization, airline operators must compensate part of their emissions,
and so each airline needs to purchase a certain number
of carbon credits.
Speaker 2 (40:00):
Despite the promise of carbon credit markets, they have yet
to live up to their full potential.
Speaker 8 (40:05):
I would say they have not developed the way that
we had hoped. It's been pretty flat market quite frankly,
for the last four years or so.
Speaker 2 (40:13):
Tom Montag was a colleague of Antonukan as COO of
Bank of America and President of Global Banking and Markets.
Since twenty twenty two, he has been the CEO of
TPG's Rubicon Carbon, working with the firm's Rise Climate Fund,
chaired by former Treasury Secretary Hank Paulson and with Chief
Science Officer and Nobel Prize winner doctor Jennifer Jenkins.
Speaker 8 (40:36):
When you do a carbon project, David, you go to
registries and get They give you carbon credits based on
their read of your project and where it is and
what it's doing, and in retrospect some of the projects
US baselines that weren't so good and other things like
that that led to them being overstated, too many credits
being issued.
Speaker 14 (40:56):
The early days of carbon credits were there were problems.
There are problems with verification of what the project was.
The project itself may have had some issues, and those
that were validating it, developing it, and selling it may
have had some issues. A few years ago, it was
imagined that it could be two hundred billion dollars. It's
(41:16):
a fraction of that, a very small fraction of that,
and we need to do some things to make a change.
We need to have standards, We need to have rating
agencies in the same way you would have any financial market,
you have to have a developer or manufacturer of the product.
You have to have a broker, you have to have
a rating agency. Governments will get involved, and then you
(41:38):
have to create a larger market. But those things are
happening on a small scale now. And I mentioned Europe.
Europe is going to require it, and in requiring it,
where they sort of did the stick not the carrot,
they're beginning to think about what's the carrot here.
Speaker 9 (41:52):
There's a new mechanism and that standard is really more
ambitious than anything that we had before. Tries to draw
on the lessons learned from the past and to avoid
the mistakes that will be made in the voluntary cam
market and set a higher bar.
Speaker 2 (42:09):
So what does rubicon carbon bring to this that's needed.
Speaker 8 (42:13):
We came a kind of an institutional backing with you know,
an Finucan and I coming from Bank of America and
TPG funding it. We have a filter. Everything we show
and do go through our science team gets a score.
So we bring the quality and the transparency that people
need to invest in the markets. One of the things
we're trying to do is to develop a product that
(42:34):
makes it more liquid and transparent for people that don't
have the infrastructure or need to understand these projects and
where the risk of these projects and where they are.
It isn't like a stock where you can get a
prospectus and just read it and they're in. You know,
these are very complex areas with different systems and new technologies,
and so we kind of developed two new projects to
(42:55):
do that. One is we call the rubicon carbon ton.
It's like an ETF. If you buy tons of the
rubicon carbon ton and we have them in nature or
we call super pollutants or removals, then you get a
portfolio of curated tons underneath that that were always managing
as we go. We just did an the other first
of its kind of rubicon rated ton, and that was
(43:17):
a ton of a portfolio of credits that are rated
not only by our guys, but by B zero, which
is kind of the moodies of rating carbon projects.
Speaker 2 (43:28):
In order to create a market for trading carbon credits,
there has to be some way to translate the climate
effects across a wide array of activities, all of which
can reduce carbon released into the atmosphere, but in very
different ways.
Speaker 8 (43:42):
There's a whole list of different kinds of projects and
things that can range from literally filtering out of the
filters that take carbon out of the environment, which is expensive,
to what they call biochar, which is high temperature burning
of biomass that is stored in the ground instead of
decaying into the environment. There's a reforestation where we're replanting
(44:03):
degraded land, and there's methane capture or gas capture its
source and destruction. So that wide range and the prices
of those david can be from anywhere from you know,
five dollars to hundreds of dollars.
Speaker 2 (44:17):
Do you at rubicon carbon yourself or do you pay
somebody else to go back and audit to see whether
the farmer planted the tree and the trees there.
Speaker 8 (44:25):
We do a lot of work. You know, satellite imagery
is amazing these days, so you can really get granular
in what you can see. So we do a combination
of site visits and also we buy the best satellite
imagery you can possibly find to check on the trees
and what the tree cover is, have they been planted,
are they still there? All those types of things.
Speaker 2 (44:44):
There has been some changes in various governments, including the
United States and some of the governments seem to backing
off some of the commitments on climate. Is that hurting
your business?
Speaker 8 (44:54):
I think it would help our business at the end
of the day, because people will realize the government's not
going to do it for them.
Speaker 2 (45:00):
To its credit, Rubicon Carbon has not one very significant
deal a Microsoft purchase of carbon removal credits.
Speaker 14 (45:08):
A big deal like Microsoft really matters because first of all,
it's huge. It's eighteen million tons in five hundred square
miles of carbon sequestration and reduction, and it's called an
off take deal where they're buying it over a series
of years. I also think that there is an appreciation that,
particularly with technology companies, but not just technology companies, we
(45:31):
need more energy and we need all energy. So the
idea that we would incentivizing those to do more production
and clean energy along with perhaps more traditional energy seems
like we're tying a hand behind the American back. I
do think we are capitalists and there is a market
opportunity we would not want to miss, and we surely
(45:53):
don't want China to go ahead of us.
Speaker 2 (45:56):
Carbon markets need transparency, standards and depth, but even then
they're only as good as the difference they make in
the real world, and Rubicon Carbon already has some projects
starting to make a difference in reducing net carbon emissions.
Speaker 14 (46:11):
You're taking barren land and creating a nature based solution,
so imagine something that has gone to waste that is
now productive again. Or direct air capture is the idea
of that you're capturing the carbon emissions. So either of
those are certainly a creative. I think that you're going
to see work on farmland where they will work with
(46:34):
farmers in the years to come, particularly in Europe, of
generating carbon credits by farming a little bit differently in
a regenerative way and measuring the soil and how the
better use of soil, the better use of less water
is going to be a creative. But we have a
project called spec Boom that we're working on. It's in
South Africa. It's three forestation of an area. Spec Boom
(46:58):
is actually a plant we along with a couple of
other funders, are putting capital in so that they can
build and grow this. I'd like to just say one
thing about climate change. It's about clean energy, it's about
enough water for the world, and it's about being able
to breathe clean air. This isn't about politicizing anything. It's
(47:18):
just the reality that the science community tells us. We're capitalists,
so we like to take advantage of something that could
have capital returns. And I think this will.
Speaker 2 (47:28):
Coming up next. What does it take to put your
work into outer space? They often say it doesn't take
a rocket scientist, but what if it does. What does
it take to make a career in launching vehicles into
outer space? Aero astro professor Kerry Kahoy of MIT tells
(47:50):
her story of what got her started and what she
finds most exciting.
Speaker 11 (47:55):
So I was working in college and I there on
federal work study, so you know, had to get funding
to go to college and didn't didn't have another way
to do it. And so I'd been working in the
libraries and I saw this advertisement for somebody need an
undergraduate researcher to help with a Mars rover program. And
(48:18):
that turned out to be professor Steve Squire's at Cornell,
who ended up launching the Mars rovers. So I started
interning with him and was working on Mars rovers with
Steve Squires for a while. And then I was in
electrical engineering and got into satellites, went to grad.
Speaker 10 (48:33):
School on that.
Speaker 11 (48:34):
So that's kind of how I got involved. It was
it seemed like a cooler job. I love being in
the library. Don't get me wrong, I'm book room in
My first word was book but like, but the rovers
were a lot of fun.
Speaker 2 (48:44):
But you love this, you love satellites.
Speaker 11 (48:46):
Why it is challenging. It is one of the most
mentally challenging, toughest fields I've ever been in, because when
it breaks, it is gone, and it is really hard
to obtain funding, get funding to do it, get the
hardware built, have it working, get it to the rocket,
(49:08):
have it to survive the rocket launch, get up to orbit,
and then you're able to do things and get perspectives
that really there's no other way to do it. And
you're also able to answer science questions like for astronomers
and astrophysicists or people who are doing remote sensing on Earth,
that you can't get that data any other way, And
that part's really rewarding. Watching a rocket launch is worth
(49:31):
a good five years of working your butt off. I
would say, like if I had to give the trade,
like just having old rocket launched, feeling the last and
watching knowing that you know your spacecraft is on there,
and then you have to run back and make sure
it works. But like that it's on there and it's
going up is like one of the coolest feelings ever.
So there's a lot of joy and pride and skill
(49:52):
building and challenge in the field. So that that's one
of the reasons why I love it.
Speaker 2 (49:58):
As you do your work here at MIT, can you
see what the next big thing is likely to be?
Speaker 11 (50:03):
It's exciting. You never know what the next big thing is.
That Some of the things that I think are exciting
are the ability of satellites to communicate directly to cell phones.
Speaker 7 (50:12):
Now.
Speaker 11 (50:12):
I know iridium and the iridium phones have been a
thing for a while, but directing connecting directly to existing
consumer electronics without modification your iPhone is happening, and so
they're essentially showing There are multiple companies now who are
starting to show that you can actually take the technology
that are normal cell towers on the ground and put
(50:35):
them in lower orbit and they will work with your phone.
And so we have some search and rescue signals and
partnerships between companies like Apple, Global Star, and there are
a few other companies that are working in this space
to do direct to cell phone. I think that's going
to be really interesting as time evolves, especially as we
have more autonomous vehicles and people are you know, needing
(50:57):
entertainment and data and in different places because they have
more time to use it. I think also on orbit
getting to the point where we have more compute on orbit.
Right now, satellites mostly are run by not very sophisticated computers.
They're they're getting better and they're starting to use more
commercial technology, more of the Nvidia chips and md chips
(51:21):
on orbit. But when we're developing, it's really hard to
only just take pictures and then send them all down
to the ground. So you have a lot of data
that the normal mode of operations, you take a lot
of data and you communicate it by radio usually because
of weather, all down to the ground, and then you
process it on the ground and then you tell your
(51:43):
title it's what to do next. So there's a cycle
of getting data down to the ground, and it's hard
to get data down to the ground. Getting frequency lescenses
is difficult, it's expensive, requires a lot of management, requires
a lot of power on board. So putting computers on
board that can serve on board and running now some
of the new AI models, so you can take the
(52:06):
picture on board. You have a model that can decide
whether or not what you wanted in the picture is
in the picture. If it's in the picture, it prioritizes it.
If it's not in the picture, it throws it out.
If it's a cloudy picture, it throws it out and
saves only the things you really wanted and then sends
it back down. Also, getting the satellites to communicate between
each other so that they can tell each other, hey,
(52:26):
I finished this task, here's the next, and in the
task lists passed back to you, kind of like playing
tag instead of waiting for that satellite to tell the
ground and the ground to tell everybody what the new
plan is. So being able to replan, retask, and to
be able to make decisions about what is good and
bad data dynamically will be new and exciting.
Speaker 2 (52:45):
One of the things Professor Klhoy and her team of
grad students are working on is a sort of robot
that can be launched into orbit and then assemble satellites
in space to avoid the rough and tumble of the
launch itself.
Speaker 11 (52:59):
All right, So this is a project that's called orbital locker.
One of the challenges about space is that you have
to get everything to orbit, and to get to orbit
has to go in a rocket, and rockets are very vibrating, dynamic, loud,
they shake everything a lot. So the launch, during the launch, yeah,
(53:19):
it's for those first couple it's only a couple of minutes,
but they're very important minutes. And so everything we do
about satellites we pack them in tight. We glue everything down.
Everything's tied down, latched down, you know, locked in, so
that nothing breaks most of the time when it's going
up in the rocket. And then when we get to orbit,
(53:41):
the you know, firing opens. We get to orbit, the
satellite is deployed, it's in orbit, the solar panels will unfurl,
but you basically have the thing you built on the ground.
What we were thinking is, wouldn't it be great if
you could put a platform in orbit that was packed
(54:02):
with things that don't break when they're on a rocket,
So very simple components that you can just stow away,
and you have these kind of robust robots that can
unpack it themselves. But then they can build whatever they
want once they get up on orbit. There's no shaking.
Once you're on orbit, it's very quiet.
Speaker 2 (54:19):
So you have a kit.
Speaker 11 (54:20):
Yeah, it's like a kit. It's a kit where the
only thing that has to survive the rocket launch are
these xyz so three axis robots that move around and
an arm that snaps everything together. And as long as
these elements are robust enough to not get destroyed or
damaged in the launch, you can go up to orbit
(54:41):
and build something as big as you want.
Speaker 2 (54:43):
But you have to program in advance with the robot
has to assemble in what ordering things trying.
Speaker 11 (54:47):
Yes, so there's a lot of algorithm work and software work.
But the nice part about this is the platform on
orbit you can still talk to you can reprogram things
on orbit, you can give it different directions if you
want to. You just to make sure you kind of
know what's in your warehouse. So it's kind of like
almost a warehouse of hardware that you could use on
(55:07):
orbit to assemble things and deploy them and make them
as big and as complicated as you want without having
to fit in the you know, the couple meters I think,
you know, if we get starship up to six meters
of space that you have in a rocket, you could
go well beyond that and not have to pre plan
everything to unfurl and deploy. You could just build it
(55:29):
the way you wanted it as big as you wanted.
Speaker 4 (55:32):
Once you get up there, is this a prototype?
Speaker 11 (55:34):
Is this actually a prototype? So this this has been
used so this recently in May, it was on a
zero gravity launch, so the graduate students James and Lila
who are working on it to get on one of
those planes that do the parabolic flights and so you
have micro gravity for you know, a few seconds thirty
seconds at a time, and so they had the robot
(55:54):
working there and they actually learned a lot about cord management.
So wires don't behave they don't lay down like this
when they're in gravity, like they're kind of held down,
but when they're on orbit they move around a lot more.
And so we had to update our wire management systems.
And then we'd like to get this to be a
prototype on orbit on the space station, so it could
(56:16):
be inside the station and we could start to demonstrate
it or on a free flyer on its own satellite later.
So that that's kind of what we're.
Speaker 2 (56:22):
Hoping that does it for us here at Wall Street Week,
I'm David Weston. See you next week for more stories
of capitalism.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:20):
This is Wall Street Week. I'm David Weston, bringing you
stories of capitalism. President Trump's visit to the FED did
not influence the Fed's decision. Our special contributor Larry Summers
gives us his take on the difference between what the
White House and the Central Bank think the economy needs.
Plus the Battle for the Sky one thousand miles up.
(00:40):
Elon Musk is way ahead in launching his network of
low earth orbital satellites to connect the globe. Can anyone
catch him? And looking to markets to help address climate change,
Tom Montag of Rubicon Carbon explains his big deal with
Microsoft and his high hopes for voluntary carbon markets. But
(01:01):
we start with the question on everyone's mind on Wall
Street this week, just how bad might these tariffs turn
out to be? On the August first deadline? John Dedario
is CEO of the music company founded by his grandfather
that bears his name.
Speaker 3 (01:17):
We're dealing with it right now in a big way.
So for example, last year we estimate that the total
amount on tariffs that we paid for both raw materials
and finished goods that were imported in the US to
the tune of roughly about seven hundred thousand dollars. Based
on the incremental tariffs that we're dealing with this year,
that's going to triple. It's going to be close to
two point two million, is what we're estimating by the
end of the year will be paying in incremental.
Speaker 4 (01:38):
Tariffs, So that's a big threat to us.
Speaker 2 (01:41):
Didario is the largest company in the world specializing in
the design, manufacture, and distribution of accessories for musical instruments,
everything from strings for guitars and violins, to drumsticks and
drumheads and snare wires for drums, to reads and mouthpieces
for woodwinds.
Speaker 5 (01:59):
The factory, we're producing seven hundred and fifty thousand strings
per day on average. We use a wide range of materials,
both for the core or the foundation of the string,
as well as rap wires, which include nickel plated steel,
fot for bronze, titanium, silver, and in some cases gold.
Speaker 2 (02:14):
The company traces its origins to seventeenth century Italy, moving
to the United States at the start of the twentieth century.
Speaker 3 (02:22):
In nineteen oh five, there was an earthquake in the
town of Sally, and my great grandfather, Charles Dario emigrated
to the US at that time, and what he did
is he imported strings from his family and sent money
home to help them rebuild their homes literally. And then
when World War II came about it because of all
the trade embargoes, he had forced his hand to start
making strings himself in his basement in the Story of Queens.
(02:44):
And my family's been making strings in the US ever since.
Speaker 2 (02:47):
So how big is your company in terms of employees.
Speaker 3 (02:50):
In terms of employees, it's eleven hundred globally, majority of
which are here in Farmingdale, New York. Roughly about eight
hundred of those eleven hundred based here in New York.
And as far as the revenues can, we are roughly
about two hundred and forty million annually.
Speaker 2 (03:03):
So tell us about the inputs. First of all, as
you manufacture strings, drumsticks, drumheads, reads, where do you get
the materials?
Speaker 3 (03:13):
It comes from a wide variety of location. So starting
with the read business, we literally import the raw material
from our own plantations, which are based in the south
of France and in Argentina. So what we do is
we harvest cane from our own fields in those countries
and we pross them down into what we call splits,
(03:34):
and then we ship those splits to here into New
York where we pross them into finished reads. And then
when you look at the string business, we actually manufacture
the majority of our own raw materials. We source steal
rod from a variety of US sources, and then we
draw them down to find sizes that we subsequently used
to make strings. And then, of course, you know, there's
(03:57):
a very small percentage of our business. In fact, about
five percent of our business represents finished goods that we
source from overseas.
Speaker 4 (04:04):
Ninety five percent is what we make is in the States.
Speaker 3 (04:07):
But what we do source, of course, is predominantly from China,
and it ranges from a variety of accessories like tuners
and capos and instrument cables, and so that that's again
a small part of our business, but a very important
part of our business.
Speaker 2 (04:20):
That's on the input side. What are the outputs? How
much of your product do you sell in the United States?
How much overseas?
Speaker 3 (04:27):
So roughly fifty to fifty US and international. And what
we do internationally is we actually distribute our products in
over one hundred and thirty countries around the world, and
many of those markets we actually have our own distribution
company established, where we have sales marketing people on the
ground and we have our own logistics operations. So in fact,
our own distribution companies internationally control about fifty percent of
(04:50):
our international business and totality.
Speaker 2 (04:52):
Given to Dario's dependence on imports and exports, it's no
surprise that dealing with new tariffs can have a profound
fact done its business. But John Dedario and his colleagues
are figuring out ways to cope with the changes.
Speaker 3 (05:07):
Fortunately, though, we've done some hard work on onshoring a
lot of products.
Speaker 4 (05:11):
That we previously sourced overseas.
Speaker 3 (05:13):
So for example, just before the pandemic, we started our
own injection molding factory here in New York, and ever
since we've been gradually bringing products back from China to
the States.
Speaker 4 (05:23):
So we did that before COVID.
Speaker 3 (05:25):
During COVID, because of all the supply chain disruptures, it
actually forced us to accelerate the onshoring of things and
that's continued until now. So it's this onshoing initiative that
we've embarked on has really served us well, both through
COVID as well as now through the trade war. Certainly,
we're still running up against tariffs on products and raw
materials that we still source, but definitely to a lesser extent.
Speaker 2 (05:48):
One of the goals stated by the Trump administration of
tariffs is to increase more onshoring, as it's called, really
production here in the United States. What percentage of that
tripling that you talked about in your cost do you
think you can take care of by onshowing?
Speaker 3 (06:03):
I definitely think there's more opportunities to ensure additional products
and additional parts. I think we could pretty much cut
that tariff bill in half if we put our minds
to it. The thing is, though most companies don't think
that's possible. And what we've done is we've taken a
hard look at the total cost of ownership of actually
being in control of the manufacturing here, and at the
(06:24):
end of the day, it really makes a lot more
sense for us to do it here in terms of
control and in terms of quality and of course costsentertainment.
Speaker 2 (06:33):
That reminds me of what happened I think during the
pandemic when companies. US companies had to redo their supply
chains and in some ways may have come out stronger.
Do you think you may come out stronger because of
the terror pressures.
Speaker 3 (06:47):
I totally think so. I mean, we looked at COVID
not as a threat, but as an opportunity. As a company,
we're fortunate to have a very strong balance sheet, so
it served us well in getting through COVID and made
us a stronger company. And I definitely see this is
an opportunity to do the same. And as I mentioned before,
it's motivating us even more to ensure things that we
can control and of course then mitigate tariffs as a result.
Speaker 2 (07:09):
Are you feeling margin pressure? Are you able to raise prices?
How do you accommodate that?
Speaker 3 (07:14):
It really depends because we go to market with such
a wide variety of products, So in some cases we
could get away with a price increase to mitigate the
impact of tariffs. In other cases, it's just too competitive
for us to do that, so we sacrifice margin to
retain our market share.
Speaker 2 (07:29):
In those examples, we've been talking about the effective tariffs
on inputs. What about exports? Because you do export, as
you say, about fifty percent of your product. How might
the trade disruptions actually affect your ability to export?
Speaker 3 (07:41):
Well, you know, China is really a great example. Ten
years ago, we start our own distribution company in Shanghai.
The original objective of that distribution company was to help
us mitigate counterfeiting of our strings. So we have a
team of about a dozen people on the ground there
that keep their eyes in the years open for counterfeits
that are in market and really do a great job
(08:02):
of controlling that.
Speaker 4 (08:04):
And so by also another reason why we.
Speaker 3 (08:06):
Start our own distribution company there is to be more
competitive against Chinese brands. So when China imposed retaliatory tariffs
on our products going into China, it was a major
threat to our Chinese business. I mean, we're talking about
a business that's anywhere between five and ten million dollars
in an annual basis that suddenly is in jeopardy and
it made its difficult to compete with Chinese brands in market.
Speaker 2 (08:27):
You have a successful business by all descriptions. It's not
the biggest business in the United States. There are big
PUBLICA traded companies. How do you think your ability to
respond to chairs are different from some of the big
public traded companies, Maybe better, maybe worse.
Speaker 3 (08:43):
Well, you know, as a family business, one of the
great things about it is we can be very nimble
we're not interested in the short term, you know, financial benefit,
where our goal as a family is to have a sustainable,
successful business for many generations. So having that mindset allows
us to stay flexible and we can pivot when we
need to when the market conditions change.
Speaker 2 (09:05):
The Dario is just one example of a global company
coming to terms with the Trump Administration's new approach to trade.
Speaker 6 (09:13):
Companies are trying to cope with the impact of the trade.
Speaker 2 (09:16):
Will Maxim Darmay is a senior economist at Alliance Trade,
which recently surveyed four five hundred companies across China, the EU,
the UK, and the US about how they are adapting
to tariff uncertainty.
Speaker 6 (09:31):
US films are absorbing the cost into their markings, so
we're not really see the impact on inflation. That being said,
I think it's going to take very soon before we
start to see some impact on US inflation. I think
it's going to come very soon, by the fall at
the latest, because now inventories are running superlow, so you know,
at some points, I think US retailios, US host STOs
(09:55):
are going to start to pass on the cost of
the tariffs onto the consumer all the more so.
Speaker 2 (10:01):
But now we have.
Speaker 6 (10:02):
You know, turfs are pretty much being settled with bu,
with Japan, perhaps soon with Korea. So now businesses start
to know more or less what is going to be
the you know, the set turffs fifteen percent for the U,
fifteen percent for Japan, ten percent for the UK. So
now companies are more visibility, so they will start to
really pass on slowly into the prices the tips.
Speaker 2 (10:27):
So as firms look to adjust their supply chains. Is
one of the alternatives actually manufacturing on shore in the
United States, which was after our President Trump's.
Speaker 6 (10:36):
Goal, it is yeah, well it's really up to set
this point whether this goal will will succeed, right, it
would take many years. Well I can say is you know,
businesses tend to make the decisions, their investment decision over a.
Speaker 4 (10:50):
Long time horizons.
Speaker 6 (10:51):
So who knows is going to be after President Trump.
Maybe all these tarists are going to be removed or
some mystarius will be removed by the next president or
the next administration. So I'm quite skeptical, you know, but
you know, a full blow and restowing will happen into
the United States. That being said, potentially I think we
could see a couple of sectors starting to wishore a
(11:13):
little bit, so we could see some success happening in
the next couple of years.
Speaker 2 (11:18):
As companies rerout their supply change, particularly when it comes
from China through a third country in the United States.
Does that mean some countries are benefiting actually from the
tariffs because they're getting more business.
Speaker 6 (11:28):
China is going to remain central stage to the supply chain,
to the manufacturing supply chains. But other countries in Southeast Asia,
Southeast Asia, perhaps a little bit in Europe as well,
and North Africa as well, could benefit, could really get
a little bit of value added, if it makes sense.
Speaker 2 (11:47):
Coming up, the FED is watching for the effects of
President Trump's policies. Our special contributor Larry Summers tells us
what the Central Bank's decision means for the economy. This
is a story about pressure. This week, the FED held
its July meeting, just a week after President Trump visited
(12:07):
Chair J. Powell at his office to tell him what
he thinks the Central Bank should do.
Speaker 4 (12:12):
Too late, Too late, Pale, because he's always too late.
Speaker 7 (12:15):
My I allowed to appoint myself at the FED.
Speaker 2 (12:16):
I do a much better job than these people.
Speaker 7 (12:19):
Well, I'd love him to lower interest rates.
Speaker 1 (12:22):
Other than that, what.
Speaker 7 (12:23):
Can I tell you?
Speaker 2 (12:23):
But the President's visit did not persuade FED Chair Poal
to lower rates, at least not yet. Today, the Federal
Open Market Committee decided to leave our policy.
Speaker 8 (12:33):
Interest rate unchanged.
Speaker 2 (12:35):
We have made no decisions about September.
Speaker 8 (12:37):
We don't do that in advance.
Speaker 2 (12:39):
Special contributor Larry Summers joins us with what he expects
for the US economy. With President Trump and the FED
Chair on opposite sides.
Speaker 7 (12:48):
There certainly are some risks of a downturn. There are
also some inflationary risks coming from the tariffs, coming from
general economic strength, and so he decided not to commit
but to preserve flexibility. I think that was the right
course of action for him to take. If the economy
(13:12):
turns down, there's the scope to cut rates very rapidly,
But if inflation's a problem, there's a risk of a
loss of credibility. If you're a responsible FED official, you've
got to remember that you got nervous about the economy
last September. You cut rates by fifty basis points, and
(13:32):
the upshot was a seventy five basis point increase in
the subsequent two months. In the tenure rate, which fed
through into a major increase in mortgage rates. So I
think what the Fed did was the prudent thing under
the circumstances. I wouldn't be wouldn't surprise me greatly if
(13:56):
it turned out that the economy had slow and we
wish we had cut rage now. But if that error
has been made, it's an easily correctable error, Whereas if
you made the opposite error and sacrificed credibility by moving excessively,
(14:17):
that would be a much more damaging and difficult to
reverse error. I think the other thing that needs to
be said here is you can argue both sides, as
I just did, about whether we should have a quarter
point rate cut in July, whether we should have two
rate cuts this year or three rates cuts this year.
(14:38):
I don't know of any economist who sees merit in
the president's idea that rates should be cut to the
one percent range, and I would want to hear what
his colleagues in the administration give as a rationale for
(14:59):
that kind of theory of interest rate setting, which, given
the current rather happy state of markets and rather strong economy,
seems to me to be a very very dangerous one.
That would course a major loss of credibility.
Speaker 2 (15:21):
Perhaps Cherrpwell got it right, but he had at least
two of his colleagues who disagreed with him. He had
two dissenters for the first time since nineteen ninety three.
It's been a long time. So we had two dissenters,
and they weren't asking for a three hundred basis point
right cut. Maybe the twenty five basis point cut. But
what do you think that they're seeing. We're not.
Speaker 7 (15:38):
I think they I don't think it's a complete coincidence
that who they were appointed by and in what context
that may not be a complete coincidence in terms of
understanding what's going on. Look, I think their argument is
that under the surface there's substantial economic weakness and it's
(16:03):
important to get ahead of the weakness. And my reaction is,
if that comes to be a prevailing judgment, the market
will do it do that itself, and it's the two
year rate and the five year rate and the ten
year rate that's more important for the behavior of demand,
(16:25):
and that to the extent the market doesn't do it itself,
the Fed will be able to do it six weeks
from now and be able to be more energetic if
that proved necessary. So I don't think there's any kind
of urgent need for the cut, and I think we
(16:45):
are a bit playing with fire. We have a central
bank that missed the last inflation badly. We have increased
politicization of everything finance. We have tariffs that are pushing
up prices, we have epic budget deficits. We've had a
(17:10):
period when the dollar has declined substantially. So a moment
like that seems to me to be a moment to
err on the side of preserving credibility rather than take
chances that could put a credibility risk. And that's why
(17:31):
I disagree with the judgments of Governor's Waller and Bowman.
Speaker 2 (17:39):
One of the reasons for the Fed not to act
right now is uncertainty because of tariffs and tar Palla
address that that is taking some time to really be
reflected in the real economy. What everyone thinks of those tariffs,
and you've talked about it in this program before. We
have to admit President Trump has gotten a lot of
tariff deals done in a fairly short time.
Speaker 7 (17:57):
Yeah, But the difficulty, David, from my perspective, is that
they're mostly self inflicted wounds. They're mostly putting taxes on
that raise the prices that American consumers pay, not just
on imported goods, but on the goods that compete with
(18:18):
imported goods. Affordability is the most important economic issue is
judged by American families, and tariffs are a direct attack
on the affordability of things that bought people buy. Tariffs
are also a blow to American manufacturing, because we're tariffing
(18:42):
the inputs on which our manufacturers depend. When we raise
the price of steel or aluminum, we make it more
costly to make cars. We make constructing homes more costly
at a time when we have a housing shortage. So
(19:02):
it seems to me that this idea that tariffs are
going to be somehow the salvation of the manufacturing sector
is not an idea that is seriously supported by analytical
work or by real evidence, And most of the economists
(19:26):
with expertise in this area who study it conclude that
probably it's as likely that this program will hurt manufacturing
as that it will help manufacturing, and that the one
thing that is certain is that it will raise prices
and reduce affordability, whether that increase in prices will be
(19:48):
a spiral of continuing inflation or one off. That's a
hard thing to judge, and it may well be only
a one off. But why would we want to have
of the major objective of American negotiation with our closest
allies be to impose something on them that they hate
(20:11):
in order to raise the prices of the goods that
American families buy. So I just don't get it.
Speaker 2 (20:20):
President Trump has made no secret the fact that we
should expect a different FED chair come next May at
the expiration of Chair Pal's term. That raises the question
whether Chair Powell will stay on, because he has another
two years to remain on the board if he chooses.
Secretary Vessent has made no secret the fact that he
thinks it would be appropriate or even you would encourage
(20:40):
him to leave the board. Secretary Defenser was asked that
the news comfortability, he just refused to address it. What
do you think about that issue?
Speaker 7 (20:47):
I don't understand why anybody would who was involved in
a complex set of negotiations and bargains would give up
any flexibility by making any prior commitments to people who
are bashing them every day. So I don't know what
(21:11):
Chair Powell will do. I suspect Chair Powell doesn't know
what he will do. It'll depend upon aspects of his life,
I imagine, and it will depend on who the next
FED chair is and what the sense is of how
the FED is going to operate going forward. But I
don't see any reason at all for why he should
(21:34):
prejudge that question anymore than you should prejudge the question
of how long you're going to do Wall Street Week,
or I should prejudge the question of how long I'm
going to be a professor At Harvard.
Speaker 2 (21:49):
We had the one big beautiful bill, the one thousand
dollars setting aside investment for each new child born. You
and I've talked about that before, about whether that's enough
money and what the administrative costs are. But we now
have Secuary Bestent suggesting. I think he called it perhaps
a backdoor way of shoring up retirement savings and earnings
(22:09):
for people in the out years. What do you think
about that at a time when social security is under
increasing pressure.
Speaker 7 (22:15):
I was surprised that Secretary Investment made the comment. I
was not surprised that having made the comment, he has
been backing off it since then. By trying to suggest
that it all goes together. But I think he got
the thinking right the first time. There's a philosophy of
(22:38):
individualism that believes in just making people take responsibility for
their own security and rejects the idea of public cooperation
for old age insurance. And that's something that Republicans have
always flirted with, and I think he was seeing another
(23:01):
example of that. I am very nervous about this program.
My prediction is that when somebody doesn't accounting five years
from now, the level of payments made to various financial
firms and information technology companies to keep track of these
(23:22):
accounts is going to be very large relative to the
amount of spending or the amount of support that American
families received. And that's always been the achilles heel of
social security privatization.
Speaker 2 (23:43):
Coming up the latest space race. This time it's covering
the globe and Elon Musk is way out in front.
That's next on Wall Street Week. This is a story
about a space race, not the one to be first
to put a man on the Moon nearly fifty years ago,
(24:07):
not even the one Elon Musk is running now to
put humans on Mars in the next few years.
Speaker 9 (24:13):
Just over two years, we'll be selling our first uncrude
starship Surmis.
Speaker 10 (24:17):
Then we'll send humans two years after that.
Speaker 2 (24:24):
This is a space race much closer to Earth one,
just a few hundred miles over our heads. It's being
run in the world of Low Earth Orbit or LEO,
and what's at stake is potentially connecting everyone on the planet,
including hard to reach bit and.
Speaker 11 (24:41):
Lift Go SpaceX Go Darling. The stack of sixty Starling
satellites have successfully deployed from second stage.
Speaker 12 (24:51):
This is just a providing connectivity again in places where
you don't get it to other means.
Speaker 13 (24:57):
It's a much better solution than trying to bring fiber
to really really remote locations.
Speaker 6 (25:03):
It's exciting.
Speaker 11 (25:04):
You never know what the next big thing is.
Speaker 2 (25:06):
The battle for Leo's satellite supremacy is on for private
companies and governments. Goldman Sachs values the market at fifteen
billion dollars but expects it to grow to one hundred
eight billion dollars by twenty thirty five. And though it
may be a competition right now, it looks like a
race between several tortoises and one hair way out in front.
(25:29):
That hare is named Starlink. And it's owned by Elon
Musk's SpaceX.
Speaker 13 (25:34):
It's seventy six hundred satellites today, they're expecting to get
to as many as forty eight thousand satellites.
Speaker 2 (25:40):
Craig Moffitt is the co founder and senior analyst at
Moffat Nathanson. He says Musk is so far ahead it
might be difficult for anyone to close the gap.
Speaker 13 (25:50):
Starlink is probably the biggest part of SpaceX at the moment,
and a part that investors seem to value the most highly.
But it is integraally tied to the rest of the
SpaceX business, which is the rockets and launches and all
that sort of thing. The starlink business itself, providing Internet
access primarily to rural areas and again obviously not just
(26:13):
the United States but globally, is enormously benefited by the
fact that it's connected to a satellite launch business.
Speaker 14 (26:21):
Making one of.
Speaker 13 (26:22):
These satellites costs quarter of a million to half a
million dollars. Launching them adds another quarter to half a
million dollars of costs to each individual satellite.
Speaker 2 (26:33):
If the goal is connecting the world, why are LEO
satellites the best way to get there, we travel to
MIT's Aeronautics and Astronautics Department to find out from Professor
Kerry Kahoy, whose specialty is satellite engineering and communications.
Speaker 11 (26:49):
Most people refer to orbit as orbits that are closer
to Earth. You need to be above about three hundred
kilometers to stay in orbit without dropping out due to
atmosphere drag right away, so it can go higher. It
goes up to about one thousand kilometers to twelve hundred
kilometers when you're in lower th orbit. If you're looking
at a satellite go across the sky, it takes about
(27:11):
ten minutes to go from horizon to horizon, and then
if you go high enough up it's geostationary orbit, where
the speed of the satellite going around the Earth is
actually the same as the rotation of the Earth, and
so they're always overhead in the same spot, which has
a lot of advantages for communications because you never have
to worry about where they are. They're always right where
you left them above you. They're much further away than
(27:34):
lowerth orbits. One of the things that is a benefit
for lower orbit is it's so much closer to the Earth.
It only takes like one hundred milliseconds or less to
get a signal from the satellite down to the Earth,
or a round trip time. When you're talking about going
up to geostationary orbit, that's often large fractions of a second.
Speaker 2 (27:56):
It's not just the size and proximity to Earth that
makes leos special, it's also the cost. A single GEO
satellite can be up to one thousand times more expensive
than a LEO satellite to manufacture. On the other hand,
it costs a lot more over time to keep those
LEO satellites up there.
Speaker 11 (28:14):
And working in lower thorbit unless you have a lot
of propulsion on board and ways to keep yourself fighting
atmosphere drive. So lower thorbit is above the atmosphere, but
there's just enough that it starts to slow you down
and decrease your orbit energy and pull you in until
you re enter and burn up. Unless they're higher and
have bigger fuel tanks on board and more propellant to
(28:36):
keep them up for longer. You know, the heavier you
make them, the more it costs to launch them, and liptop.
Speaker 13 (28:42):
You have to be launching as many as twenty five
percent of your satellites every year just to maintain the
replacement cost of the constellation. So you're talking about launching
twelve thousand satellites a year just to keep the existing
constellation operating. That's those kinds of costs are staggering.
Speaker 2 (29:02):
Starlink has what looks like an overwhelming lead in LEO satellites,
but it's not the only horse in the race. Jeff
Bezos Project Kuiper is trying at least to get on
the track, though it's had to deal with manufacturing issues
and launch delays earlier this year, currently leaving its constellation
with fewer than eighty satellites in orbit compared with Musk's
(29:24):
six hundred plus.
Speaker 13 (29:27):
When you see someone like Amazon's Project Kuyper planning a
second US centered started constellation that will occupy very much
the same competitive niche as Starlink, it's really hard to
see why that makes any sense and why there are
any returns available to Amazon.
Speaker 2 (29:47):
A STARLEK competitor that's much further along than Kuyper comes
from Europe. One Web launched its first operational LEO satellite
the same year as Starlink. European satellite operator Utlesat acquired
one Web in twenty twenty three and currently operates its
own constellation of about six hundred and forty satellites, and
one web is pursuing a strategy that goes beyond LEO
(30:09):
satellites alone.
Speaker 12 (30:11):
We are the only satellite that has both the GEO
and the LEO, and in fact quite a number of them,
because we have thirty five in GEO and over six
hundred in LEO.
Speaker 2 (30:22):
Jean Ubert Lenat is the chief strategy and Resources officer
at UTLESAD, and it's not just the combination of GEO
and LEO satellites that he thinks sets his company on
a different path from Starlink. It's also the market they serve.
Speaker 12 (30:38):
Starling does address the consumer market, meaning that they do
need much more capacity to actually serve all those customers.
We are providing very basic but important connectivity to businesses,
to government. What is very important to understand this, we
are not in the consumer market.
Speaker 8 (30:56):
We have right now just north of five.
Speaker 12 (30:59):
Billion in total globally of connectivity in B to B
and this is going to grow at least three times
between now and basically twenty thirty three, where it should
be close to fifteen billion at by the time. But
more importantly, the LEO connectivity is really what is going
(31:19):
to drive this market. So the LEO connectivity right now
in B to B is only around two billion as
we speak this year expected to be there whereas we
do expect it will be north of ten billion pro
eleven or twelve billion by the same year of twenty
to thirty three, meaning that it will just multiplier be
multiplied fivefold for that period.
Speaker 2 (31:41):
One Web, a subsidiary of Budle SAD, manages its constellation
out of its London office.
Speaker 10 (31:47):
I lead a team that has one main objective, which
is uptime, so guaranteeing that our customers are actually always
able to connect to the service that we provide wherever
they are. And the role of the team here is
actually to guarantee that the system works at the top
performance and in the leivers a high speed and the
low latency that the constellation is supposed to provide.
Speaker 2 (32:10):
One Web also differs from starlink in the way it
gets its satellites into orbit. One Web has no rockets
of its own, so it relies instead on other firms
for its launches, including you guessed it, Musk's SpaceX.
Speaker 11 (32:24):
One, Web SAD, Delta two and Delta six. Separation confirmed.
Speaker 2 (32:27):
In fact, it is SpaceX's advances in reusable rockets that
have transformed the industry.
Speaker 11 (32:34):
Launch costs used to be very high and it used
to be very difficult to get things into orbit. So
the reduction in cost of launch partly driven by the
reusable launch vehicles that SpaceX has developed with you know,
for example Falcon nine.
Speaker 2 (32:48):
Both SpaceX and one Web have close relations with governments,
SpaceX through US government contracts and one Web through partial
government ownership. In mid June, the UK government announced plans
to invest one hundred and sixty three million euros in Utelsat,
joining France and other investors in a major funding round,
(33:08):
bringing the total rays to one point five billion euros
or one point eight billion dollars. What are your capital
needs going forward as you see it, We.
Speaker 12 (33:18):
Have, indeed our plans to invest four billion euros of
CAPEX between now and twenty twenty nine, and those four
billion disease essentially a large part to replace our current
LEO constellation. LEO satellites have a smaller lifetime of around
seven years, so we'll have to replace those ones by
(33:38):
twenty twenty eight, so bulk of that CAPEX is precisely
for that replacement.
Speaker 2 (33:46):
The LEO satellite race is on and Starlink is way
out in front. But how big is the prize for
winning the race? How good a business is this? Even
for the leader Starlink, It looks like it might not
be as profitable as Musk originally thought.
Speaker 13 (34:01):
Roughly half of the cost is in the rocketry segment.
The original concept was that they would have a big
leg up because they could put these satellites into the
payloads of rockets that were going up for other customers,
whether it's NASA or other governments, and then they could
add their own satellites cheaply to these payloads. It hasn't
(34:22):
worked out that way. Virtually every single rocket launch thus
far has been a dedicated rocket launch solely for the
purpose of launching Starlink satellites. So the cost structure is
quite a bit higher than you might have imagined it
was going to be m lipped off.
Speaker 2 (34:39):
And in the end, how much room at the finish
line is there for competitors in the LEO space race.
Is there room for more than one or is it
a natural monopoly given the capital investment required and the
limited market to be served.
Speaker 12 (34:53):
We do believe that in the future they will be
probably four or five, maybe six players, not more. There
is clearly room for those players because precisely the demand
for connectivity, as you and I can experience every day,
is just growing and growing.
Speaker 13 (35:10):
The revenue opportunity is almost certainly going to keep being
divided up because of all of these quasi economic logic
that's more geopolitical and military logic instead, and ultimately it
means you'll always have more competitors in this business than
the economics would dictate, makes any sense.
Speaker 11 (35:28):
It's very exciting to see it growing like this, to
see remote access without terrestrial infrastructure needed, that is a
very interesting and exciting growth area.
Speaker 2 (35:41):
We've come a long way since the days of Sputnik
and Gemini and the Space Shuttle, days when we waited
months for each launch, days when only governments could compete.
Now there are launches nearly every day from private and
government players, making the question not who will win, but
what trophy the winner will take home. Up next, we
(36:05):
turn from satellites to adapting to climate change. Tom Montag
of Rubicon Carbon makes his case for liquid and transparent,
voluntary carbon markets making the difference. This is a story
about carrots and sticks, and whether we need both if
we're to make real progress on climate change. Various governments
(36:29):
have tried their hand at reducing carbon emissions, from setting
limits to providing billions of dollars in incentives to go green,
but President Trump's return of the Oval Office has put
climate change on something of a back burner for the
US government.
Speaker 7 (36:43):
I terminated the ridiculous green news scam.
Speaker 4 (36:47):
I withdrew from the unfair Paris Climate.
Speaker 10 (36:50):
Accord, which was costing US trillions of dollars.
Speaker 2 (36:55):
While governments try their various approaches and adjust them from
time to time, the challenges from climate change just keep increasing,
with the world sending over thirty five billion tons of
carbon into the atmosphere every year and the average global
surface temperature in twenty twenty four two point three degrees
fahrenheit above the twentieth century average, which raises the question
(37:18):
whether private markets may help the situation, with or without
active government support.
Speaker 14 (37:24):
It's about financing climate and that's a complicated problem because
it's going to take trillions of dollars.
Speaker 2 (37:31):
After serving as vice chair of Bank of America and
Venucan is now chair of Rubicon Carbon, a carbon credit
management firm run by TPG.
Speaker 14 (37:41):
So it's a piece of the puzzle. I think it's
an effective one. It could be a lot more effective
than it's been. But I think as European market matures,
as the American market matures, and I know there are
issues read at the moment, but nonetheless I think that
we will see it as a component and an important
component in the capital stack that will underwrite this change.
Speaker 2 (38:05):
Lambert Schneider has studied carbon credit markets at the UKO
Institute in Freiberg, Germany, and is co author of an
OECD paper on the interplay between voluntary and compliance carbon markets.
Speaker 9 (38:18):
Carbon credits is an instrument where someone a private entity
or public entity can invest in mitigation projects and climate
and then claim the emission reductions like A practical example
would be if a company invests in an upforestation project
somewhere the trees go, they absorb SU two, and then
(38:41):
for each ton of U two that is absorbed, a
ton of carbon credit is being issued. And then these
carbon credits can, for example, be used to achieve voluntary
climate goals. Prominent examples is avoiding deforestations. And then there
are projects which burn greenhouse gasses waste, greenose gases, their
(39:01):
projects which use renewal energies, and there are also projects
who suck se you two out of the atmosphere, like
for example, direct air capture and carbon sequestration in geological reservoirs.
So you take ze two out of the atmosphere and
then you store it underground. So many companies have set
(39:23):
voluntary mitigation targets. They have said, we want to do
action beyond reducing our own emissions, to do beyond value
chain mitigation and compliance markets are markets that are established
by governments or multilateral organizations where companies have an obligation
to meet certain targets or quotas. The most prominent example
(39:45):
for a compliance market is international aviation. Under the International
Civil Aviation Organization, airline operators must compensate part of their emissions,
and so each airline needs to purchase a certain number
of carbon credits.
Speaker 2 (40:00):
Despite the promise of carbon credit markets, they have yet
to live up to their full potential.
Speaker 8 (40:05):
I would say they have not developed the way that
we had hoped. It's been pretty flat market quite frankly,
for the last four years or so.
Speaker 2 (40:13):
Tom Montag was a colleague of Antonukan as COO of
Bank of America and President of Global Banking and Markets.
Since twenty twenty two, he has been the CEO of
TPG's Rubicon Carbon, working with the firm's Rise Climate Fund,
chaired by former Treasury Secretary Hank Paulson and with Chief
Science Officer and Nobel Prize winner doctor Jennifer Jenkins.
Speaker 8 (40:36):
When you do a carbon project, David, you go to
registries and get They give you carbon credits based on
their read of your project and where it is and
what it's doing, and in retrospect some of the projects
US baselines that weren't so good and other things like
that that led to them being overstated, too many credits
being issued.
Speaker 14 (40:56):
The early days of carbon credits were there were problems.
There are problems with verification of what the project was.
The project itself may have had some issues, and those
that were validating it, developing it, and selling it may
have had some issues. A few years ago, it was
imagined that it could be two hundred billion dollars. It's
(41:16):
a fraction of that, a very small fraction of that,
and we need to do some things to make a change.
We need to have standards, We need to have rating
agencies in the same way you would have any financial market,
you have to have a developer or manufacturer of the product.
You have to have a broker, you have to have
a rating agency. Governments will get involved, and then you
(41:38):
have to create a larger market. But those things are
happening on a small scale now. And I mentioned Europe.
Europe is going to require it, and in requiring it,
where they sort of did the stick not the carrot,
they're beginning to think about what's the carrot here.
Speaker 9 (41:52):
There's a new mechanism and that standard is really more
ambitious than anything that we had before. Tries to draw
on the lessons learned from the past and to avoid
the mistakes that will be made in the voluntary cam
market and set a higher bar.
Speaker 2 (42:09):
So what does rubicon carbon bring to this that's needed.
Speaker 8 (42:13):
We came a kind of an institutional backing with you know,
an Finucan and I coming from Bank of America and
TPG funding it. We have a filter. Everything we show
and do go through our science team gets a score.
So we bring the quality and the transparency that people
need to invest in the markets. One of the things
we're trying to do is to develop a product that
(42:34):
makes it more liquid and transparent for people that don't
have the infrastructure or need to understand these projects and
where the risk of these projects and where they are.
It isn't like a stock where you can get a
prospectus and just read it and they're in. You know,
these are very complex areas with different systems and new technologies,
and so we kind of developed two new projects to
(42:55):
do that. One is we call the rubicon carbon ton.
It's like an ETF. If you buy tons of the
rubicon carbon ton and we have them in nature or
we call super pollutants or removals, then you get a
portfolio of curated tons underneath that that were always managing
as we go. We just did an the other first
of its kind of rubicon rated ton, and that was
(43:17):
a ton of a portfolio of credits that are rated
not only by our guys, but by B zero, which
is kind of the moodies of rating carbon projects.
Speaker 2 (43:28):
In order to create a market for trading carbon credits,
there has to be some way to translate the climate
effects across a wide array of activities, all of which
can reduce carbon released into the atmosphere, but in very
different ways.
Speaker 8 (43:42):
There's a whole list of different kinds of projects and
things that can range from literally filtering out of the
filters that take carbon out of the environment, which is expensive,
to what they call biochar, which is high temperature burning
of biomass that is stored in the ground instead of
decaying into the environment. There's a reforestation where we're replanting
(44:03):
degraded land, and there's methane capture or gas capture its
source and destruction. So that wide range and the prices
of those david can be from anywhere from you know,
five dollars to hundreds of dollars.
Speaker 2 (44:17):
Do you at rubicon carbon yourself or do you pay
somebody else to go back and audit to see whether
the farmer planted the tree and the trees there.
Speaker 8 (44:25):
We do a lot of work. You know, satellite imagery
is amazing these days, so you can really get granular
in what you can see. So we do a combination
of site visits and also we buy the best satellite
imagery you can possibly find to check on the trees
and what the tree cover is, have they been planted,
are they still there? All those types of things.
Speaker 2 (44:44):
There has been some changes in various governments, including the
United States and some of the governments seem to backing
off some of the commitments on climate. Is that hurting
your business?
Speaker 8 (44:54):
I think it would help our business at the end
of the day, because people will realize the government's not
going to do it for them.
Speaker 2 (45:00):
To its credit, Rubicon Carbon has not one very significant
deal a Microsoft purchase of carbon removal credits.
Speaker 14 (45:08):
A big deal like Microsoft really matters because first of all,
it's huge. It's eighteen million tons in five hundred square
miles of carbon sequestration and reduction, and it's called an
off take deal where they're buying it over a series
of years. I also think that there is an appreciation that,
particularly with technology companies, but not just technology companies, we
(45:31):
need more energy and we need all energy. So the
idea that we would incentivizing those to do more production
and clean energy along with perhaps more traditional energy seems
like we're tying a hand behind the American back. I
do think we are capitalists and there is a market
opportunity we would not want to miss, and we surely
(45:53):
don't want China to go ahead of us.
Speaker 2 (45:56):
Carbon markets need transparency, standards and depth, but even then
they're only as good as the difference they make in
the real world, and Rubicon Carbon already has some projects
starting to make a difference in reducing net carbon emissions.
Speaker 14 (46:11):
You're taking barren land and creating a nature based solution,
so imagine something that has gone to waste that is
now productive again. Or direct air capture is the idea
of that you're capturing the carbon emissions. So either of
those are certainly a creative. I think that you're going
to see work on farmland where they will work with
(46:34):
farmers in the years to come, particularly in Europe, of
generating carbon credits by farming a little bit differently in
a regenerative way and measuring the soil and how the
better use of soil, the better use of less water
is going to be a creative. But we have a
project called spec Boom that we're working on. It's in
South Africa. It's three forestation of an area. Spec Boom
(46:58):
is actually a plant we along with a couple of
other funders, are putting capital in so that they can
build and grow this. I'd like to just say one
thing about climate change. It's about clean energy, it's about
enough water for the world, and it's about being able
to breathe clean air. This isn't about politicizing anything. It's
(47:18):
just the reality that the science community tells us. We're capitalists,
so we like to take advantage of something that could
have capital returns. And I think this will.
Speaker 2 (47:28):
Coming up next. What does it take to put your
work into outer space? They often say it doesn't take
a rocket scientist, but what if it does. What does
it take to make a career in launching vehicles into
outer space? Aero astro professor Kerry Kahoy of MIT tells
(47:50):
her story of what got her started and what she
finds most exciting.
Speaker 11 (47:55):
So I was working in college and I there on
federal work study, so you know, had to get funding
to go to college and didn't didn't have another way
to do it. And so I'd been working in the
libraries and I saw this advertisement for somebody need an
undergraduate researcher to help with a Mars rover program. And
(48:18):
that turned out to be professor Steve Squire's at Cornell,
who ended up launching the Mars rovers. So I started
interning with him and was working on Mars rovers with
Steve Squires for a while. And then I was in
electrical engineering and got into satellites, went to grad.
Speaker 10 (48:33):
School on that.
Speaker 11 (48:34):
So that's kind of how I got involved. It was
it seemed like a cooler job. I love being in
the library. Don't get me wrong, I'm book room in
My first word was book but like, but the rovers
were a lot of fun.
Speaker 2 (48:44):
But you love this, you love satellites.
Speaker 11 (48:46):
Why it is challenging. It is one of the most
mentally challenging, toughest fields I've ever been in, because when
it breaks, it is gone, and it is really hard
to obtain funding, get funding to do it, get the
hardware built, have it working, get it to the rocket,
(49:08):
have it to survive the rocket launch, get up to orbit,
and then you're able to do things and get perspectives
that really there's no other way to do it. And
you're also able to answer science questions like for astronomers
and astrophysicists or people who are doing remote sensing on Earth,
that you can't get that data any other way, And
that part's really rewarding. Watching a rocket launch is worth
(49:31):
a good five years of working your butt off. I
would say, like if I had to give the trade,
like just having old rocket launched, feeling the last and
watching knowing that you know your spacecraft is on there,
and then you have to run back and make sure
it works. But like that it's on there and it's
going up is like one of the coolest feelings ever.
So there's a lot of joy and pride and skill
(49:52):
building and challenge in the field. So that that's one
of the reasons why I love it.
Speaker 2 (49:58):
As you do your work here at MIT, can you
see what the next big thing is likely to be?
Speaker 11 (50:03):
It's exciting. You never know what the next big thing is.
That Some of the things that I think are exciting
are the ability of satellites to communicate directly to cell phones.
Speaker 7 (50:12):
Now.
Speaker 11 (50:12):
I know iridium and the iridium phones have been a
thing for a while, but directing connecting directly to existing
consumer electronics without modification your iPhone is happening, and so
they're essentially showing There are multiple companies now who are
starting to show that you can actually take the technology
that are normal cell towers on the ground and put
(50:35):
them in lower orbit and they will work with your phone.
And so we have some search and rescue signals and
partnerships between companies like Apple, Global Star, and there are
a few other companies that are working in this space
to do direct to cell phone. I think that's going
to be really interesting as time evolves, especially as we
have more autonomous vehicles and people are you know, needing
(50:57):
entertainment and data and in different places because they have
more time to use it. I think also on orbit
getting to the point where we have more compute on orbit.
Right now, satellites mostly are run by not very sophisticated computers.
They're they're getting better and they're starting to use more
commercial technology, more of the Nvidia chips and md chips
(51:21):
on orbit. But when we're developing, it's really hard to
only just take pictures and then send them all down
to the ground. So you have a lot of data
that the normal mode of operations, you take a lot
of data and you communicate it by radio usually because
of weather, all down to the ground, and then you
process it on the ground and then you tell your
(51:43):
title it's what to do next. So there's a cycle
of getting data down to the ground, and it's hard
to get data down to the ground. Getting frequency lescenses
is difficult, it's expensive, requires a lot of management, requires
a lot of power on board. So putting computers on
board that can serve on board and running now some
of the new AI models, so you can take the
(52:06):
picture on board. You have a model that can decide
whether or not what you wanted in the picture is
in the picture. If it's in the picture, it prioritizes it.
If it's not in the picture, it throws it out.
If it's a cloudy picture, it throws it out and
saves only the things you really wanted and then sends
it back down. Also, getting the satellites to communicate between
each other so that they can tell each other, hey,
(52:26):
I finished this task, here's the next, and in the
task lists passed back to you, kind of like playing
tag instead of waiting for that satellite to tell the
ground and the ground to tell everybody what the new
plan is. So being able to replan, retask, and to
be able to make decisions about what is good and
bad data dynamically will be new and exciting.
Speaker 2 (52:45):
One of the things Professor Klhoy and her team of
grad students are working on is a sort of robot
that can be launched into orbit and then assemble satellites
in space to avoid the rough and tumble of the
launch itself.
Speaker 11 (52:59):
All right, So this is a project that's called orbital locker.
One of the challenges about space is that you have
to get everything to orbit, and to get to orbit
has to go in a rocket, and rockets are very vibrating, dynamic, loud,
they shake everything a lot. So the launch, during the launch, yeah,
(53:19):
it's for those first couple it's only a couple of minutes,
but they're very important minutes. And so everything we do
about satellites we pack them in tight. We glue everything down.
Everything's tied down, latched down, you know, locked in, so
that nothing breaks most of the time when it's going
up in the rocket. And then when we get to orbit,
(53:41):
the you know, firing opens. We get to orbit, the
satellite is deployed, it's in orbit, the solar panels will unfurl,
but you basically have the thing you built on the ground.
What we were thinking is, wouldn't it be great if
you could put a platform in orbit that was packed
(54:02):
with things that don't break when they're on a rocket,
So very simple components that you can just stow away,
and you have these kind of robust robots that can
unpack it themselves. But then they can build whatever they
want once they get up on orbit. There's no shaking.
Once you're on orbit, it's very quiet.
Speaker 2 (54:19):
So you have a kit.
Speaker 11 (54:20):
Yeah, it's like a kit. It's a kit where the
only thing that has to survive the rocket launch are
these xyz so three axis robots that move around and
an arm that snaps everything together. And as long as
these elements are robust enough to not get destroyed or
damaged in the launch, you can go up to orbit
(54:41):
and build something as big as you want.
Speaker 2 (54:43):
But you have to program in advance with the robot
has to assemble in what ordering things trying.
Speaker 11 (54:47):
Yes, so there's a lot of algorithm work and software work.
But the nice part about this is the platform on
orbit you can still talk to you can reprogram things
on orbit, you can give it different directions if you
want to. You just to make sure you kind of
know what's in your warehouse. So it's kind of like
almost a warehouse of hardware that you could use on
(55:07):
orbit to assemble things and deploy them and make them
as big and as complicated as you want without having
to fit in the you know, the couple meters I think,
you know, if we get starship up to six meters
of space that you have in a rocket, you could
go well beyond that and not have to pre plan
everything to unfurl and deploy. You could just build it
(55:29):
the way you wanted it as big as you wanted.
Speaker 4 (55:32):
Once you get up there, is this a prototype?
Speaker 11 (55:34):
Is this actually a prototype? So this this has been
used so this recently in May, it was on a
zero gravity launch, so the graduate students James and Lila
who are working on it to get on one of
those planes that do the parabolic flights and so you
have micro gravity for you know, a few seconds thirty
seconds at a time, and so they had the robot
(55:54):
working there and they actually learned a lot about cord management.
So wires don't behave they don't lay down like this
when they're in gravity, like they're kind of held down,
but when they're on orbit they move around a lot more.
And so we had to update our wire management systems.
And then we'd like to get this to be a
prototype on orbit on the space station, so it could
(56:16):
be inside the station and we could start to demonstrate
it or on a free flyer on its own satellite later.
So that that's kind of what we're.
Speaker 2 (56:22):
Hoping that does it for us here at Wall Street Week,
I'm David Weston. See you next week for more stories
of capitalism.
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