July 17, 2021 • 30 mins
This week, Binance.US CEO Brian Brooks joined along with Bloomberg Wall Street correspondent Sonali Basak to talk about hiring ex-regulator Manuel Alvarez and why regulation does not have to be a bad thing for the crypto space. Alyse Killeen, the founding managing partner at StillMark, the first Bitcoin-specific venture capital firm, discussed investing in bitcoin. Rick Palacios, principal and director of research at John Burns Real Estate Consulting, came on to talk about the housing market and why it's still so difficult to find building materials. Then Octahedron Capital Management founder Ram Parameswaran, who has been a very consistent bull on the Chinese tech sector, discussed whether Beijing's crackdown has made him rethink that stance.
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Episode Transcript
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Speaker 1 (00:08):
Welcome to Would You Miss This Week? I'm Joe Wisenthal.
This podcast has some of our favorite interviews from the
Daily Market Clothes show that I co anchor along with
Romaine Bostick and Caroline Hyde. What Do you Miss? It's
the perfect way to kick off your weekend. Crypto platforms
are having to adjust to the prospect of regulation, and
Finance dot Us is staffing up accordingly. The Cryptocurrency Exchange
(00:30):
just hired Manuel Alvarez as its chief administrative officer. Elvas
previously served as the commissioner of the California Department of
Financial Protection and Innovation. So we got some insight into
the decision from Finance dot Us CEO Brian Brooks, who
is a former bank regulator himself. Bloomberg Wall Street correspondent
Sinali Bosti joined us for the interview, and we started
(00:50):
by asking Brian how he is looking to maneuver the
regulatory concerns that exist both in the US and globally.
First of all, thanks so much for having me. These
are really really important questions, and I guess I quibble
a little bit with the premise, and the premise seems
to be the regulations bad for crypto or it's scary
for crypto. Truth is, we're in a transition point where
(01:10):
the number of people participating in this market has gotten
so big that you need basic frameworks, and that's actually
a sign of the maturity and the growth of the
market more than it is a sign of something bad.
What I think it does mean, though, is the exchanges
like ours, you know, the biggest exchanges in the world,
need to be very sophisticated about how do you allow
antualization to occur, how do you bring these assets to
(01:31):
the market while ensuring good risk management, compliance with law,
the disclosure of what you're selling to your customers, and
those kinds of things. And that's why we're so excited
about bringing the former California Financial Institutions Commissioner Many Algoras
on board. We need people with those kinds of backgrounds
who have been policymakers and senior roles to help us
navigate these shoals. And I think the successful companies are
(01:52):
going to see that and try to compete for that
kind of talent. Brian, can you clarify the relationship for
viewers between Finance US and Binance globally, which is the
world's biggest crypto exchange by far. I know that this
sort of uh, it's a um, there's there's separate legal entities,
but can you explain, like, how are you owned by
(02:13):
them or what is the what is the relationship? Yeah,
so we're not owned by them at all. Binance dot
Com hasn't known as single share of Finance US. We
share a common founder, and historically Finance US licensed the
name and some technology from Finance dot Com. The way
to think about it really is that a couple of
years ago it was clear that the world was segmenting
into two basic kinds of markets. You had most of
(02:35):
the world, which was still learning about crypto, didn't have
crypto you know, licenses or requirements, and then you had
an emerging part of the developed world that started putting
crypto within a regulatory framework. We were founded precisely to
be a regulatorially compliant licensed exchange. So we've got forty
three U S States that allow us to trade in
their borders based on licenses and other other legal compliance
(02:58):
mechanics that we have will eventually have all fifty state licenses.
And then of course there are other parts of the
world served by a different company. But other than licensing
the name and licensing the technology, operate independently. We have
a separate board of directors, we have a separate ownership.
And uh, you know, you might think about US as
essentially a finance branded exchange that's doing our own business here.
They're the biggest in the world. We're the eighth biggest
(03:19):
in the world. Different companies, all right, So we got
the brand here in the US. Now, Brian, Uh, when
we talk about the US regulation or lack of it,
and I'm curious as your thoughts as to why it's
moved been so slow. Uh, to see something a little
bit more formative out of the SEC and the other
regulators here, whether it's setting up guard rails, whether it's
(03:39):
approving e T s. They there just doesn't seem to
be any real momentum, at least not I can see publicly.
But Romane, that is a great comment, and I think,
honestly it says more about the U S regulatory system
than it says about crypto, to be honest. Part of
it is, you know, in this country we set up
a lot of different regulators and gave them each their
share of turf. So the issue is and I know
(04:01):
this having having run one of these agencies. There's a
little bit of inherent turf conflict between you know, the
FED and the o c C, or the SEC and
the CFTC. Everybody's trying to grab a little bit of turf,
and because of that, it's hard to get clarity. If
you look at a country like the United Kingdom, where
there's basically a single regulator for the entire financial system,
that's the Financial Conduct Authority, it's a lot easier to
(04:22):
get clarity. Over here, you've got competition among agencies, there's
overlap in their jurisdiction, and so at some level it's
tough to deal with. But I will say we're not
as far behind as people might think. I mean, at
the end of the last administration, all of the major regulators,
myself included, got together through the President's Working Group on
Financial Markets and started providing some clarity on certain crypto
assets like stable coins. And I think that's an example
(04:44):
of how our regulatory system can adapt if all the
regulators work together and question about decentralized finance, defied tokens
and so forth. Are some of these de facto equities
and are trading as such? Yeah, it's it's hard to say.
I mean, they're certainly there are decentralized exchanges that are
selling crypto tokens, you know, without the intermediary of a broker.
(05:07):
And you know, some crypto tokens, to Romain's point, are
classified as securities and some are not classified as securities,
so it depends a little bit on what's being traded.
I think the main takeaway for DEFIED, for people who
are new to the concept, is just the idea that
usually in this country we're used to paying middleman a
fee for the privilege of buying stocks and bonds or
saving in a savings account or whatever. Right, so we
(05:28):
pay a fee to a bank or a fee to
our stockbroker to do that for us. And the purpose
of defied is to eliminate the middleman and make this
stuff cheaper. But if the underlying thing is regulated, as
I've said before, the underlying activities should be regulated as well. Brian,
you were a primary banking regulator in the United States
and now your company that is more on the defied
(05:49):
side of things, right, So how concerned should the banking
industry be concerned about defy At the end of the day,
At what point, Uh, does it start to be a threat? Well,
you know, to me, it depends on whether the banking
industry adapts as it always has, or whether somehow it
treats This is different if you think about it. If
(06:09):
you go back thirty years, banks used to be really
threatened by money market mutual funds. Later they were very
concerned about index funds that paid higher rates of return
than savings accounts did. At one time, banks were really
scared of computers because of the idea they could maintain
ledgers faster than the old You know that the bank
employees themselves could, and the banks always managed to adapt
to those kinds of environments. So my belief is, and
(06:30):
what I tried to do with the O c C
is to make sure that banks understand what's coming, that
they understand that Defy and other crypto projects are competing
for the same kind of financial services banks typically served,
and to adapt right. Banks have the customers they are,
as you know, the bank robber once said, where the
money is. They have an ability to succeed in this
(06:51):
environment if instead of resisting it, they understand it and
adapt to it. And I think that's very doable. Bryan,
You've been in this role for really a number of
weeks now, right, it's a pretty new job. But also
what I'm wondering what your most immediate plans for expansion
are to improve customer service, get past regulators, and ultimately
(07:11):
get ready for a potential public listing. Well suddly that
that is a great question, and that the first thing
you do anytime you step into a job like that
is think about what are the four things I need
to do to make this company a wild success. So
the first thing is we're not going to get around
or evade or or you know, otherwise get by regulators.
As as you say, what we're going to try and
(07:32):
be is the most transparent partner to regulators we can
possibly be. So we're gonna be in plain sight. Everything
we do is going to be well described and well disclosed,
and I'd start with that. But in terms of the
other things we needed to be successful, the first thing
is we need to grow our exchange business, and that
means making sure we serve all fifty states New York
and Texas and the other states were not in need
(07:52):
to be added to our list, and we'll get there
by the end of the year. Is our is our plan.
The second thing we need to make sure we're doing
is bringing as many assets to market as people find valuable.
And right now you can buy fifty four or fifty
fifty six assets on our exchange, but I think they're
easily sixty five or seventy that are legal and that
people find valuable that need to be added to our platform.
So you'll be seeing us adding assets starting next week,
(08:15):
two or three a week for the next several weeks,
as soon as they pass our our listing process, and
that will allow us to grow. The third thing we
need to do is we need to transition uh Sinale
from being an exchange to being a product company. If
you think about it, you know, in the early days
of the Internet, there was a o l who offered
little more than a portal and email, and then along
came Google and figured out all of the valuable products
(08:36):
that could be added to the Internet. We're going to
do that for crypto in a whole bunch of ways
that you'll hear about in the coming months. And then finally,
we need to you know, enrich the financial ecosystem in
which crypto exists, and that means finding us compliant ways
of bringing derivatives to market. We need to work with
our partners to make sure that a bitcoin ETF eventually
does come out because it's safer and it's better disclosed
(08:58):
and easier for people to access than primary products and
neist today and I expect will be the portal for
a lot of those innovations. So at the end of
the day, it's adding assets, it's adding states, it's being
more useful to people. And we got some more perspective
on investing in the crypto space with Elise Kaleen, who
is the founding managing partner at still Mark, the first
(09:19):
bitcoin specific venture capital from We started by asking Elise
about how people want to do other things with cryptocurrencies,
like say, for example, by n f t s, and
we asked her if this will all eventually be done
via bitcoin and why isn't it being done vi a
bitcoin right now? Well? Sure, Well, first, thank you for
having me, Joe. We do I expect that all of
(09:42):
what we're seeing find popularity in other spaces and other
protocols will migrate or at least be represented in a
bitcoin environment as well, and we're already seen that today. So,
for instance, if you'd like to do n f t
s and Bitcoin. You can in fact do that with
block streams um bitcoin side chain called liquid network, so
(10:04):
it's not just n f t s. So my expectation
is that developers will sort of observe the activity that
gains popularity and adoption in other protocol spaces and then
will rEFInd ways to represent that in a Bitcoin environment,
because of course, in Bitcoin the advantage is the network
effect as well as the security and stability that's differentiate
(10:28):
this network. Let's go back to basics for a minute
at least, and so smart contracts were really where it
was at when it came to a theorem. They've obviously
had scaling issues to a certain degree, but we've seen
other protocols, other underlying crypto born. Why hasn't it thus
far got really popular to do some sort of smart
contracts acron across the Bitcoin practical That's right, So well,
(10:54):
first we should start off by remembering that bitcoin has
always had smart contracting capabilities. So when you turns that
bitcoin is programmable money, and so you've always been able
to require multiple signatures, for example, in a transaction, or
to require that a certain amount of time or a
certain date pass before a transaction is triggered and what
(11:16):
and Bitcoin has slowly but surely been advancing um more
sort of multiplex smart contracting capabilities. But in a bitcoin
development environment, what's most important for foremost is that the
environment is secure and stable. And so what that means
is that or the benefit of that is that Bitcoin
(11:37):
has never seen a breach or a hack at the
poor protocol level. We've also seen very limited downtime. So
in the past sort of over a decade that bitcoin
has been in existence, we've had something like twelve hours
of downtime, And of course that's a critical importance when
we're talking about a financial technology that folds billions of
dollars of wealth um. You know, for folks across the
(12:00):
socio economic um status spectrum. We the developers and space
and the founders building on top of the points for
protocol entire layers take all that very seriously and optimized
for that first. Alright, so the is that function like
smart contracts, tends to trail um but but it certainly
catch us up. So okay, so at least then when
(12:22):
we get into sort of the broader issues here of uh,
the centralized finance or whatever we're calling it these days.
I mean you talk about the safety and security. Obviously,
trust is a big part of this. In order for
that to function, in order for that to operate, at
least as it's being pitched by a lot of the
true believers out there, you have to have that. Is
there a general sense here that while we haven't had
(12:42):
these breaches yet at the protocol level here, that what's
being built and the interconnected interconnectedness of it will be
secure enough and trustworthy enough that we can sort of
move to whatever the next thing. This is going to
be right, That's exactly right. So that's happening now. So
for exact ample, we just had something called tap root
(13:03):
Bitcoin Core Protocol Level Advancement activate UM or excuse me,
lock in and that will activate in November. And something
that tap root enables is sort of a more efficient
connection between higher layer protocols built on Bitcoin and the
core protocol itself, and so that creates efficiencies for the
end users of bitcoins payment protocol Lightning network. And there's
(13:29):
an interesting sort of auspicious convergence of trends happening here right,
which is that the advancements happening with Bitcoin protocols UM
further enable use of lightning networks of the payments network
at the same time as we're seeing emerging markets begin
to adopt bitcoin through the lightning network or these payment networks.
(13:49):
And I expect, in fact, that when we see emerging
markets adopt Bitcoin, it will not be through Bitcoin the
core protocol, but through these higher layer networks with lightning
lead eating. And so it's exciting to me to see
um technology adnouncements that sort of create increased privacy and
efficiency and functionality at that level real quickly. Just have
(14:11):
a few seconds left. Obviously, um you know, there's so
much money being thrown at other protocols, cash, VC money, etcetera.
Does that make it hard to attract developers? Does it
cause a sort of talent challenge? So I don't think so.
So what we're seeing exactly is that folks are using
the top talent, are using other protocols as sort of
(14:33):
test nets, and so they're exploring projects and even sometimes
seeking funding there and then moving over to Bitcoin as
the programming language advances at in the bitcoin field, and
so I expect we'll see that continue, and we we
can't forget that adoption is really accelerating for bitcoin. In fact,
the pace of adoption with bitcoin is exceeding a similar
(14:56):
stage UM for the Internet. So we're seeing a quicker
pace of a option, and developers tend to follow the best.
Developers tend to follow opportunity and want to build in
a way UM allows their work to have long term impact.
And then we switched gears and got a check on
the housing market. Tremendous demand has sent building materials surging.
(15:18):
As we've talked about, lumber skyrocketed earlier this year, but
now it's rolling over and it's raised a lot of
those games. But the same camp be said for all
of the other materials that homebuilders need to buy. We
spoke about this with Rick Pelacio's Jr. Principal and director
of Research at the John Burns real estate consulting firm,
who just came out with a survey detailing how everything
from windows to dishwashers are impossible to find. And Rick
(15:41):
told us why it's only getting worse, Why it could
take six months to get a garage door. No, it's
it's not easy, and I think you guys are touching
on lumbers. So lumber definitely has come off, but that's
been a bit of a relief, but it's really pick
your poison on all the other input costs and supply
by all necks and shortages and lead time delays. And
(16:02):
so we survey almost three builders every single month. We
just published our survey for June results and that, I mean,
that was the overwhelming takeaway is that we are still
having just a lot of issues here. I mean, I
was talking to a builder yesterday. The lead time on
garage doors, believe it or not, usually forty five days
is stretched to six months, So that maybe the extreme
(16:24):
I think that's that's just a little bit of a
flavor for what builders are having to deal with. I mean,
it's not never been an easy industry, but it's it's
even tougher right now. I'm curious. So what do they do?
I mean, do they sort of wait till they get
all of these uh components, the doors and the trim
and everything else and then start the construction or are
they just gonna go go along as they can and
then you know, you know, pop whatever and when once
(16:46):
they get it. Yeah. So so builders are are very scrappy,
and they're they are slowly starting to figure this out.
I mean, one of the ways appliance has been a headache,
massive headache throughout all of this, And I've heard on
builders where they are just buying them in bulk way
ahead of when they usually need them, and then just
warehousing them so that when they need them they're close
(17:08):
by and then they could just pop them into the home.
So I mean, these are some of the things that
builders are doing. I think the other thing too, because
the lead times are so unpredictable, the cost create is
so consistent, they're starting to price homes later in the
construction cycle once some of the bigger components have hit
and they've got some you know, guard rails around the
(17:30):
big parts of what actually matters for pricing the home,
and then they'll go to price the home versus day one,
and so that allows them to capture not only the
price appreciation throughout, but really priced the homes accordingly. But
then also just like put your consumer hat on. To
have to go to a consumer and tell them, hey,
we're pushing out the delivery on your home two months,
(17:52):
three months, four months like that is not an easy conversation.
So it is a win win for both the builder
as well as being able to have some consistent timelines
for the consumer buying a home, what about consistent prices
and how much is there the build is worried about
a bias strike because I mean just anecdotally, like we've
just bought a house and we were able to push
(18:12):
back on the price because the builder was in a
bit of a bind because they're still building other houses
and they mean the money to be able to put
up for the rest. Yeah. So so we're starting to
hear a rumbling of a buyer pushback. I would stay.
I would say though the market is still really strong buyers.
Builders are having to go a little bit deeper into
their buyer lists. They're qualified buyer lists, sometimes creating new
(18:36):
interest lists from scratch, because yeah, home prices per our survey.
On the new home side, we're up your rear in June.
Construction costs and this is labor and materials for builders
up nationally your rear. So the pricing situation has gotten
pretty tough, and we've started to hear more builders say, hey,
(18:57):
we're starting to touch or sc match the surface on
this kind of price ceiling that we've all feared. Recently,
talk a little bit more about the build. A response
from a planning perspective. You mentioned that pricing is now
frequently done later in the cycle, so the builder has
more of visibility, can capture some of that. How else
does this uncertainty six months to get a garage door?
(19:20):
How else is it affecting the planning of the home
builders as they look at, you know, say the rest
of the year and two. Yeah, I think one is
just going to be a very rough year in terms
of predictability for for the builders. But there's there's this
same you know, time heals all wounds, and I think
that that is going to be a big um solver here,
(19:43):
is that over time, some of these issues should just
resolve themselves. And so for us, that's probably not story.
It's probably more of a story because I mean, really
every industry across the board is trying to do. I
mean basically the same thing. Demand is snapped back, they
(20:04):
don't have the supply and people are just scrambling trying
to figure it all out. And it is going to
take time for all that stuff to resolve itself. With
regards of some of the structural shifts that we've been
seen in demand, Rick, I mean, the idea here is
that even though prices have gone up. Even though lead
times like getting a home built have gone up here,
it doesn't seem to have scared away buyers at least
not enough and mass that it's had a significant effect
(20:26):
at all. No. I mean, one of the things that
we track in our survey every month is cancelation rate.
So buyers that are canceling, I mean, cancelations are basically
nil right now. And if a buyer canceled, builder can say, Okay,
I'm gonna take this house, and now I can hand
it to another buyer and actually I can probably raise
the price versus what this this buyer had initially. UM
(20:48):
traffic ratings are still healthy, you know. I think one
of the things that we all forgot about in the
nuttiness of you know, peak housing and sanity during COVID,
when really all we could do was think about our
home and maybe want to improve our home or buy
a home. Right, so that that that kind of captive
audience I touched on this last time we spoke a
few months ago. For housing has started to kind of
(21:10):
come off a bit, and there's now some seasonality to housing.
It is June, we're going into summer, and there was
no seasonality in housing last year, I mean all the
way through housing was top of mind and we saw
it in all the numbers, and so now people are
actually taking vacations, getting out and seeing the world, doing
some fun stuff like that's a good thing. I think
(21:30):
we all need that, and you're gonna see it in
the housing numbers, and we're seeing it in the sales
numbers two particularly although there was a rush to get
your home ready for school starts in September, ready for
your new office stop. But as you suddenly get more clarton,
whether you're coming back, how much is the buyer going
to be well, companies that want to buy and then
(21:51):
rent out as well, because all I can see is
rental prices going ever northwards. Yeah, so it is very neatue.
So I mean we we touch on the research side
all of housing, the whole housing ecosystem for sale for rent,
and it's a very unique backdrop where you've got the
for sale side of housing just firing on all Cylinder's
bit of buyer hesitancy, pushback on price like we talked about,
(22:13):
but on the rental side, and we're very close to
the single family rental part of the world build for
rent as well, I mean that space is red hot,
and I tweeted out something earlier today. For the first time,
we actually survey, So we do a survey of building
product manufacturers and distributors every month, and for the first
time we tucked in a category for them to tell us, Hey,
(22:33):
tell us about demand from some of these groups that
are building rental communities, single family rental communities, and that
was the strongest part of demand for them. So that
tells you how there's there's these other categories now that
are programmatically building homes that are taking up some of
the supply too. And we finished this week by diving
(22:57):
into Beijing's crackdown on this tech sector and four in listings,
and we asked what it means for investing in the
space with Ram parashwar On, the founder of Octahedron Capital Management.
We started by asking Ram, who's been very consistently bullish
on the Chinese tech sector, what we've seen with DD
since it's I p O has changed his view at
all about the tech investing opportunity in China. Oh Joe,
(23:20):
thank you for having me. Um. Yeah, listen, you know,
it's all about observing facts and the facts to not
proved to be warm and fuzzy right now. So we've
been thinking a lot about, you know, how do we
position ourselves. We're still very bullish on the fundamental Chinese
consumer and fundamentally on China, but we've come to the
conclusion that, um, you know, not everything is made equal,
(23:45):
and what's happening now, in my opinion, is a bit
of a stop because dream. Because if you can start
distinguishing between companies that actually have actually have structural issues
like d D in this shock you have right now,
are a couple of other of like more narrower areas
like education, um were, but because the entire world is
(24:05):
now completely suffered on China and internally a lot of
like tension within companies in China as well. Based on
our conversations, UM, my belief is if we can correctly
identify the winners and losers either set us a specific companies,
there's actually maybe a phenomenal time to invest in China
again on a longer term horizon. So that's where we
(24:26):
are right now. The winners and news is primarily going
to be dictated by the government from your perspective or
something different. How much of a surprise, if ever, is
it when they weigh in like this. You know, this
thing was a real surprise. This is a doozy. I
don't think anybody expected this, and we did not expect
it for sure. Uh, you've got to understand that. You know,
(24:49):
the focus on regulation has been an ongoing process for
almost two and a half years now. But you know,
as we all know, when the event hits, you know,
stocks are never perfectly priced in. So you know, again,
I think we're now in a new regime. I think
we had to recognize were new regime because over the
last fifteen years, Chinese companies have you know, taken advantage
of Western expertise in Western capital, and now there is
(25:12):
a belief that China is relatively self sufficient. So they
want to have their destiny in their own hands as
as you would have it. So I think the way
you want to think about this is this is a
new normal. Uh. Companies will have to be much more
transparent with their data sharing back to the government. Companies
will have to, uh, in quotes, kiss the ring in
(25:32):
many ways. They had to be cognizant of their actions
on people, and they have to make sure that they
focus on productivity off the country, They focus on natural
strength and the well being of consumers. And if you
can do those three things, then you have a real
business that will not be in the eye of Beijing.
And if you don't and if you behave badly, you
(25:53):
are you will be regulated and your profit potentials will
be curtailed. Well, it's a new normal. Yeah, one swers
round or talk about the idea of self sufficiency here.
I mean, one of the reasons why we were seeing
these I p O s in the U s here,
whether it's from d d or Ding Dong or any
of these other stocks, it was the idea that a
lot of these companies needed the capital in order to
expand here, and there was a reason why they were
(26:14):
looking outside of China. I am curious is if that
need for capital is still there. Do we have a
sense that they're going to be able to find it
in China, in Hong Kong, in that Asia region? Yeah,
I think that will be Uh, there's plenty of access
in China. And the reality is even if they don't
get access to China, VI the a d R market
in the US, many of us are set up to
(26:35):
trade Hong Kong, so the capital will find ultimately capitalism
minces my opinion, and yeah, it's just a function of
how they find it. You know, do we have to
keep our capital on shore in Hong Kong and invest
in a Hong Kong I p O or will it
be easy? And the a d R is just a
frictionless way to buy in a Chinese company via the
v I in structure, and so by census the capital
(26:58):
will still find its way into Chinese companies. This is
only a question of you know, how much control The
Chinese government wants to have all the best end capital
at their national champions, so obviously you know this. This
concern is about what big companies can do with data
and whether um the interests of large companies are in
line with Beijing's priorities. You hear rumblings about it too,
(27:21):
and we you know in the US, I mean, and
there are obviously, uh, people are always lawsuits being filed
against the big companies here for various reasons. Their actions
aren't as extreme or aren't as fast. But of course
we know the political wins, at least in d C
have changed. Is there any concern do you think there
will be a further escalation of that in the US
towards US champions, or you know, are the fangs so
(27:44):
to speak, or is it just gonna be a lot
of sort of like lawsuits another talk that doesn't really
go anywhere. Um, it's tough to see what's gonna happen
in the US. I I would assume it'll be a
lot more noise and maybe there is some Again, it's
again the at all difficult questions to answer, Joe, I
think and I've come on a previous podcast, and basically
(28:04):
my conclusion is just pragmatic, which is all this reflects
in lower multiples. So if you are an investorment in
Chinese companies, or you're an investor in a larger company
that could be in the purview of antitrust, assume, at
least we're assuming for now that the go go dayfel
how multiples are kind of done. We just have be
much more sober and therefore entry prices matter. But if
(28:27):
you're bus is on an empty prices and you kind
of have a view that in the longer term the
business fundamentals remain okay and you can make a good
I R R even under sober expectations, you know, three
or four years out, then I think that are really
good investable businesses right now, even in China, and we
are taking advantage of it. M how are you taking
advantage of it? If I were just looking at trying
(28:49):
to bite downs there now, you know Whisperings that is
gonna be delaying its initial public offering likely not to
be looking at the US market in the near term.
How do you play getting into China aless moment? Well,
on the private markets as long as the as long
as we have some belief that the company will list
in Hong Kong within a reasonable time frame, which is
(29:11):
typically one to three years. Now we can just invest
in those companies. And again it's just a Hong Kong
a d R versus a China a d R. Sorry,
a u S A d R. So that's trivial, like
you can totally do that. The challenge right now with
the public markets are the stock The stocks are just
fundamentally cheap on an absolute and relative basis. There's no
argument there. The question is when does this cloud clear?
(29:36):
And it's so driven by announcements and media and sentiment changes.
And for the average portfolio manager, I can I can
see why nobody wants to touch China right now because
it's a bit toxic. And so, you know, again, the
hot part is it. I think China maybe dead money
for the foreseeable future, uh till this kind of cloud clears,
(29:56):
and then fundamentals come back. People move earnings to next year,
Companies keep executing quarter out the quarter for the next
few quarters, and then the confidence comes back and at
some point, you know, these stocks come back as well. Now,
I've been through China peak paint many times in my career.
Each time is different and so and that's the beauty
of missing in China. This time is peak pain again.
(30:16):
We feel it, but it's different, and so we just
have to figure out, you know, when this cloud passes.
And that's it for what you missed this week. If
you like the show, make sure to subscribe and rate
us as Apple Podcast or wherever you listen to podcast.
You can catch our show every weekday from three thirty
to five pm on Bloomberg TV and from quarter to
(30:38):
five pm on Twitter. Thanks for listening and have a
great week.
Welcome to Would You Miss This Week? I'm Joe Wisenthal.
This podcast has some of our favorite interviews from the
Daily Market Clothes show that I co anchor along with
Romaine Bostick and Caroline Hyde. What Do you Miss? It's
the perfect way to kick off your weekend. Crypto platforms
are having to adjust to the prospect of regulation, and
Finance dot Us is staffing up accordingly. The Cryptocurrency Exchange
(00:30):
just hired Manuel Alvarez as its chief administrative officer. Elvas
previously served as the commissioner of the California Department of
Financial Protection and Innovation. So we got some insight into
the decision from Finance dot Us CEO Brian Brooks, who
is a former bank regulator himself. Bloomberg Wall Street correspondent
Sinali Bosti joined us for the interview, and we started
(00:50):
by asking Brian how he is looking to maneuver the
regulatory concerns that exist both in the US and globally.
First of all, thanks so much for having me. These
are really really important questions, and I guess I quibble
a little bit with the premise, and the premise seems
to be the regulations bad for crypto or it's scary
for crypto. Truth is, we're in a transition point where
(01:10):
the number of people participating in this market has gotten
so big that you need basic frameworks, and that's actually
a sign of the maturity and the growth of the
market more than it is a sign of something bad.
What I think it does mean, though, is the exchanges
like ours, you know, the biggest exchanges in the world,
need to be very sophisticated about how do you allow
antualization to occur, how do you bring these assets to
(01:31):
the market while ensuring good risk management, compliance with law,
the disclosure of what you're selling to your customers, and
those kinds of things. And that's why we're so excited
about bringing the former California Financial Institutions Commissioner Many Algoras
on board. We need people with those kinds of backgrounds
who have been policymakers and senior roles to help us
navigate these shoals. And I think the successful companies are
(01:52):
going to see that and try to compete for that
kind of talent. Brian, can you clarify the relationship for
viewers between Finance US and Binance globally, which is the
world's biggest crypto exchange by far. I know that this
sort of uh, it's a um, there's there's separate legal entities,
but can you explain, like, how are you owned by
(02:13):
them or what is the what is the relationship? Yeah,
so we're not owned by them at all. Binance dot
Com hasn't known as single share of Finance US. We
share a common founder, and historically Finance US licensed the
name and some technology from Finance dot Com. The way
to think about it really is that a couple of
years ago it was clear that the world was segmenting
into two basic kinds of markets. You had most of
(02:35):
the world, which was still learning about crypto, didn't have
crypto you know, licenses or requirements, and then you had
an emerging part of the developed world that started putting
crypto within a regulatory framework. We were founded precisely to
be a regulatorially compliant licensed exchange. So we've got forty
three U S States that allow us to trade in
their borders based on licenses and other other legal compliance
(02:58):
mechanics that we have will eventually have all fifty state licenses.
And then of course there are other parts of the
world served by a different company. But other than licensing
the name and licensing the technology, operate independently. We have
a separate board of directors, we have a separate ownership.
And uh, you know, you might think about US as
essentially a finance branded exchange that's doing our own business here.
They're the biggest in the world. We're the eighth biggest
(03:19):
in the world. Different companies, all right, So we got
the brand here in the US. Now, Brian, Uh, when
we talk about the US regulation or lack of it,
and I'm curious as your thoughts as to why it's
moved been so slow. Uh, to see something a little
bit more formative out of the SEC and the other
regulators here, whether it's setting up guard rails, whether it's
(03:39):
approving e T s. They there just doesn't seem to
be any real momentum, at least not I can see publicly.
But Romane, that is a great comment, and I think,
honestly it says more about the U S regulatory system
than it says about crypto, to be honest. Part of
it is, you know, in this country we set up
a lot of different regulators and gave them each their
share of turf. So the issue is and I know
(04:01):
this having having run one of these agencies. There's a
little bit of inherent turf conflict between you know, the
FED and the o c C, or the SEC and
the CFTC. Everybody's trying to grab a little bit of turf,
and because of that, it's hard to get clarity. If
you look at a country like the United Kingdom, where
there's basically a single regulator for the entire financial system,
that's the Financial Conduct Authority, it's a lot easier to
(04:22):
get clarity. Over here, you've got competition among agencies, there's
overlap in their jurisdiction, and so at some level it's
tough to deal with. But I will say we're not
as far behind as people might think. I mean, at
the end of the last administration, all of the major regulators,
myself included, got together through the President's Working Group on
Financial Markets and started providing some clarity on certain crypto
assets like stable coins. And I think that's an example
(04:44):
of how our regulatory system can adapt if all the
regulators work together and question about decentralized finance, defied tokens
and so forth. Are some of these de facto equities
and are trading as such? Yeah, it's it's hard to say.
I mean, they're certainly there are decentralized exchanges that are
selling crypto tokens, you know, without the intermediary of a broker.
(05:07):
And you know, some crypto tokens, to Romain's point, are
classified as securities and some are not classified as securities,
so it depends a little bit on what's being traded.
I think the main takeaway for DEFIED, for people who
are new to the concept, is just the idea that
usually in this country we're used to paying middleman a
fee for the privilege of buying stocks and bonds or
saving in a savings account or whatever. Right, so we
(05:28):
pay a fee to a bank or a fee to
our stockbroker to do that for us. And the purpose
of defied is to eliminate the middleman and make this
stuff cheaper. But if the underlying thing is regulated, as
I've said before, the underlying activities should be regulated as well. Brian,
you were a primary banking regulator in the United States
and now your company that is more on the defied
(05:49):
side of things, right, So how concerned should the banking
industry be concerned about defy At the end of the day,
At what point, Uh, does it start to be a threat? Well,
you know, to me, it depends on whether the banking
industry adapts as it always has, or whether somehow it
treats This is different if you think about it. If
(06:09):
you go back thirty years, banks used to be really
threatened by money market mutual funds. Later they were very
concerned about index funds that paid higher rates of return
than savings accounts did. At one time, banks were really
scared of computers because of the idea they could maintain
ledgers faster than the old You know that the bank
employees themselves could, and the banks always managed to adapt
to those kinds of environments. So my belief is, and
(06:30):
what I tried to do with the O c C
is to make sure that banks understand what's coming, that
they understand that Defy and other crypto projects are competing
for the same kind of financial services banks typically served,
and to adapt right. Banks have the customers they are,
as you know, the bank robber once said, where the
money is. They have an ability to succeed in this
(06:51):
environment if instead of resisting it, they understand it and
adapt to it. And I think that's very doable. Bryan,
You've been in this role for really a number of
weeks now, right, it's a pretty new job. But also
what I'm wondering what your most immediate plans for expansion
are to improve customer service, get past regulators, and ultimately
(07:11):
get ready for a potential public listing. Well suddly that
that is a great question, and that the first thing
you do anytime you step into a job like that
is think about what are the four things I need
to do to make this company a wild success. So
the first thing is we're not going to get around
or evade or or you know, otherwise get by regulators.
As as you say, what we're going to try and
(07:32):
be is the most transparent partner to regulators we can
possibly be. So we're gonna be in plain sight. Everything
we do is going to be well described and well disclosed,
and I'd start with that. But in terms of the
other things we needed to be successful, the first thing
is we need to grow our exchange business, and that
means making sure we serve all fifty states New York
and Texas and the other states were not in need
(07:52):
to be added to our list, and we'll get there
by the end of the year. Is our is our plan.
The second thing we need to make sure we're doing
is bringing as many assets to market as people find valuable.
And right now you can buy fifty four or fifty
fifty six assets on our exchange, but I think they're
easily sixty five or seventy that are legal and that
people find valuable that need to be added to our platform.
So you'll be seeing us adding assets starting next week,
(08:15):
two or three a week for the next several weeks,
as soon as they pass our our listing process, and
that will allow us to grow. The third thing we
need to do is we need to transition uh Sinale
from being an exchange to being a product company. If
you think about it, you know, in the early days
of the Internet, there was a o l who offered
little more than a portal and email, and then along
came Google and figured out all of the valuable products
(08:36):
that could be added to the Internet. We're going to
do that for crypto in a whole bunch of ways
that you'll hear about in the coming months. And then finally,
we need to you know, enrich the financial ecosystem in
which crypto exists, and that means finding us compliant ways
of bringing derivatives to market. We need to work with
our partners to make sure that a bitcoin ETF eventually
does come out because it's safer and it's better disclosed
(08:58):
and easier for people to access than primary products and
neist today and I expect will be the portal for
a lot of those innovations. So at the end of
the day, it's adding assets, it's adding states, it's being
more useful to people. And we got some more perspective
on investing in the crypto space with Elise Kaleen, who
is the founding managing partner at still Mark, the first
(09:19):
bitcoin specific venture capital from We started by asking Elise
about how people want to do other things with cryptocurrencies,
like say, for example, by n f t s, and
we asked her if this will all eventually be done
via bitcoin and why isn't it being done vi a
bitcoin right now? Well? Sure, Well, first, thank you for
having me, Joe. We do I expect that all of
(09:42):
what we're seeing find popularity in other spaces and other
protocols will migrate or at least be represented in a
bitcoin environment as well, and we're already seen that today. So,
for instance, if you'd like to do n f t
s and Bitcoin. You can in fact do that with
block streams um bitcoin side chain called liquid network, so
(10:04):
it's not just n f t s. So my expectation
is that developers will sort of observe the activity that
gains popularity and adoption in other protocol spaces and then
will rEFInd ways to represent that in a Bitcoin environment,
because of course, in Bitcoin the advantage is the network
effect as well as the security and stability that's differentiate
(10:28):
this network. Let's go back to basics for a minute
at least, and so smart contracts were really where it
was at when it came to a theorem. They've obviously
had scaling issues to a certain degree, but we've seen
other protocols, other underlying crypto born. Why hasn't it thus
far got really popular to do some sort of smart
contracts acron across the Bitcoin practical That's right, So well,
(10:54):
first we should start off by remembering that bitcoin has
always had smart contracting capabilities. So when you turns that
bitcoin is programmable money, and so you've always been able
to require multiple signatures, for example, in a transaction, or
to require that a certain amount of time or a
certain date pass before a transaction is triggered and what
(11:16):
and Bitcoin has slowly but surely been advancing um more
sort of multiplex smart contracting capabilities. But in a bitcoin
development environment, what's most important for foremost is that the
environment is secure and stable. And so what that means
is that or the benefit of that is that Bitcoin
(11:37):
has never seen a breach or a hack at the
poor protocol level. We've also seen very limited downtime. So
in the past sort of over a decade that bitcoin
has been in existence, we've had something like twelve hours
of downtime, And of course that's a critical importance when
we're talking about a financial technology that folds billions of
dollars of wealth um. You know, for folks across the
(12:00):
socio economic um status spectrum. We the developers and space
and the founders building on top of the points for
protocol entire layers take all that very seriously and optimized
for that first. Alright, so the is that function like
smart contracts, tends to trail um but but it certainly
catch us up. So okay, so at least then when
(12:22):
we get into sort of the broader issues here of uh,
the centralized finance or whatever we're calling it these days.
I mean you talk about the safety and security. Obviously,
trust is a big part of this. In order for
that to function, in order for that to operate, at
least as it's being pitched by a lot of the
true believers out there, you have to have that. Is
there a general sense here that while we haven't had
(12:42):
these breaches yet at the protocol level here, that what's
being built and the interconnected interconnectedness of it will be
secure enough and trustworthy enough that we can sort of
move to whatever the next thing. This is going to
be right, That's exactly right. So that's happening now. So
for exact ample, we just had something called tap root
(13:03):
Bitcoin Core Protocol Level Advancement activate UM or excuse me,
lock in and that will activate in November. And something
that tap root enables is sort of a more efficient
connection between higher layer protocols built on Bitcoin and the
core protocol itself, and so that creates efficiencies for the
end users of bitcoins payment protocol Lightning network. And there's
(13:29):
an interesting sort of auspicious convergence of trends happening here right,
which is that the advancements happening with Bitcoin protocols UM
further enable use of lightning networks of the payments network
at the same time as we're seeing emerging markets begin
to adopt bitcoin through the lightning network or these payment networks.
(13:49):
And I expect, in fact, that when we see emerging
markets adopt Bitcoin, it will not be through Bitcoin the
core protocol, but through these higher layer networks with lightning
lead eating. And so it's exciting to me to see
um technology adnouncements that sort of create increased privacy and
efficiency and functionality at that level real quickly. Just have
(14:11):
a few seconds left. Obviously, um you know, there's so
much money being thrown at other protocols, cash, VC money, etcetera.
Does that make it hard to attract developers? Does it
cause a sort of talent challenge? So I don't think so.
So what we're seeing exactly is that folks are using
the top talent, are using other protocols as sort of
(14:33):
test nets, and so they're exploring projects and even sometimes
seeking funding there and then moving over to Bitcoin as
the programming language advances at in the bitcoin field, and
so I expect we'll see that continue, and we we
can't forget that adoption is really accelerating for bitcoin. In fact,
the pace of adoption with bitcoin is exceeding a similar
(14:56):
stage UM for the Internet. So we're seeing a quicker
pace of a option, and developers tend to follow the best.
Developers tend to follow opportunity and want to build in
a way UM allows their work to have long term impact.
And then we switched gears and got a check on
the housing market. Tremendous demand has sent building materials surging.
(15:18):
As we've talked about, lumber skyrocketed earlier this year, but
now it's rolling over and it's raised a lot of
those games. But the same camp be said for all
of the other materials that homebuilders need to buy. We
spoke about this with Rick Pelacio's Jr. Principal and director
of Research at the John Burns real estate consulting firm,
who just came out with a survey detailing how everything
from windows to dishwashers are impossible to find. And Rick
(15:41):
told us why it's only getting worse, Why it could
take six months to get a garage door. No, it's
it's not easy, and I think you guys are touching
on lumbers. So lumber definitely has come off, but that's
been a bit of a relief, but it's really pick
your poison on all the other input costs and supply
by all necks and shortages and lead time delays. And
(16:02):
so we survey almost three builders every single month. We
just published our survey for June results and that, I mean,
that was the overwhelming takeaway is that we are still
having just a lot of issues here. I mean, I
was talking to a builder yesterday. The lead time on
garage doors, believe it or not, usually forty five days
is stretched to six months, So that maybe the extreme
(16:24):
I think that's that's just a little bit of a
flavor for what builders are having to deal with. I mean,
it's not never been an easy industry, but it's it's
even tougher right now. I'm curious. So what do they do?
I mean, do they sort of wait till they get
all of these uh components, the doors and the trim
and everything else and then start the construction or are
they just gonna go go along as they can and
then you know, you know, pop whatever and when once
(16:46):
they get it. Yeah. So so builders are are very scrappy,
and they're they are slowly starting to figure this out.
I mean, one of the ways appliance has been a headache,
massive headache throughout all of this, And I've heard on
builders where they are just buying them in bulk way
ahead of when they usually need them, and then just
warehousing them so that when they need them they're close
(17:08):
by and then they could just pop them into the home.
So I mean, these are some of the things that
builders are doing. I think the other thing too, because
the lead times are so unpredictable, the cost create is
so consistent, they're starting to price homes later in the
construction cycle once some of the bigger components have hit
and they've got some you know, guard rails around the
(17:30):
big parts of what actually matters for pricing the home,
and then they'll go to price the home versus day one,
and so that allows them to capture not only the
price appreciation throughout, but really priced the homes accordingly. But
then also just like put your consumer hat on. To
have to go to a consumer and tell them, hey,
we're pushing out the delivery on your home two months,
(17:52):
three months, four months like that is not an easy conversation.
So it is a win win for both the builder
as well as being able to have some consistent timelines
for the consumer buying a home, what about consistent prices
and how much is there the build is worried about
a bias strike because I mean just anecdotally, like we've
just bought a house and we were able to push
(18:12):
back on the price because the builder was in a
bit of a bind because they're still building other houses
and they mean the money to be able to put
up for the rest. Yeah. So so we're starting to
hear a rumbling of a buyer pushback. I would stay.
I would say though the market is still really strong buyers.
Builders are having to go a little bit deeper into
their buyer lists. They're qualified buyer lists, sometimes creating new
(18:36):
interest lists from scratch, because yeah, home prices per our survey.
On the new home side, we're up your rear in June.
Construction costs and this is labor and materials for builders
up nationally your rear. So the pricing situation has gotten
pretty tough, and we've started to hear more builders say, hey,
(18:57):
we're starting to touch or sc match the surface on
this kind of price ceiling that we've all feared. Recently,
talk a little bit more about the build. A response
from a planning perspective. You mentioned that pricing is now
frequently done later in the cycle, so the builder has
more of visibility, can capture some of that. How else
does this uncertainty six months to get a garage door?
(19:20):
How else is it affecting the planning of the home
builders as they look at, you know, say the rest
of the year and two. Yeah, I think one is
just going to be a very rough year in terms
of predictability for for the builders. But there's there's this
same you know, time heals all wounds, and I think
that that is going to be a big um solver here,
(19:43):
is that over time, some of these issues should just
resolve themselves. And so for us, that's probably not story.
It's probably more of a story because I mean, really
every industry across the board is trying to do. I
mean basically the same thing. Demand is snapped back, they
(20:04):
don't have the supply and people are just scrambling trying
to figure it all out. And it is going to
take time for all that stuff to resolve itself. With
regards of some of the structural shifts that we've been
seen in demand, Rick, I mean, the idea here is
that even though prices have gone up. Even though lead
times like getting a home built have gone up here,
it doesn't seem to have scared away buyers at least
not enough and mass that it's had a significant effect
(20:26):
at all. No. I mean, one of the things that
we track in our survey every month is cancelation rate.
So buyers that are canceling, I mean, cancelations are basically
nil right now. And if a buyer canceled, builder can say, Okay,
I'm gonna take this house, and now I can hand
it to another buyer and actually I can probably raise
the price versus what this this buyer had initially. UM
(20:48):
traffic ratings are still healthy, you know. I think one
of the things that we all forgot about in the
nuttiness of you know, peak housing and sanity during COVID,
when really all we could do was think about our
home and maybe want to improve our home or buy
a home. Right, so that that that kind of captive
audience I touched on this last time we spoke a
few months ago. For housing has started to kind of
(21:10):
come off a bit, and there's now some seasonality to housing.
It is June, we're going into summer, and there was
no seasonality in housing last year, I mean all the
way through housing was top of mind and we saw
it in all the numbers, and so now people are
actually taking vacations, getting out and seeing the world, doing
some fun stuff like that's a good thing. I think
(21:30):
we all need that, and you're gonna see it in
the housing numbers, and we're seeing it in the sales
numbers two particularly although there was a rush to get
your home ready for school starts in September, ready for
your new office stop. But as you suddenly get more clarton,
whether you're coming back, how much is the buyer going
to be well, companies that want to buy and then
(21:51):
rent out as well, because all I can see is
rental prices going ever northwards. Yeah, so it is very neatue.
So I mean we we touch on the research side
all of housing, the whole housing ecosystem for sale for rent,
and it's a very unique backdrop where you've got the
for sale side of housing just firing on all Cylinder's
bit of buyer hesitancy, pushback on price like we talked about,
(22:13):
but on the rental side, and we're very close to
the single family rental part of the world build for
rent as well, I mean that space is red hot,
and I tweeted out something earlier today. For the first time,
we actually survey, So we do a survey of building
product manufacturers and distributors every month, and for the first
time we tucked in a category for them to tell us, Hey,
(22:33):
tell us about demand from some of these groups that
are building rental communities, single family rental communities, and that
was the strongest part of demand for them. So that
tells you how there's there's these other categories now that
are programmatically building homes that are taking up some of
the supply too. And we finished this week by diving
(22:57):
into Beijing's crackdown on this tech sector and four in listings,
and we asked what it means for investing in the
space with Ram parashwar On, the founder of Octahedron Capital Management.
We started by asking Ram, who's been very consistently bullish
on the Chinese tech sector, what we've seen with DD
since it's I p O has changed his view at
all about the tech investing opportunity in China. Oh Joe,
(23:20):
thank you for having me. Um. Yeah, listen, you know,
it's all about observing facts and the facts to not
proved to be warm and fuzzy right now. So we've
been thinking a lot about, you know, how do we
position ourselves. We're still very bullish on the fundamental Chinese
consumer and fundamentally on China, but we've come to the
conclusion that, um, you know, not everything is made equal,
(23:45):
and what's happening now, in my opinion, is a bit
of a stop because dream. Because if you can start
distinguishing between companies that actually have actually have structural issues
like d D in this shock you have right now,
are a couple of other of like more narrower areas
like education, um were, but because the entire world is
(24:05):
now completely suffered on China and internally a lot of
like tension within companies in China as well. Based on
our conversations, UM, my belief is if we can correctly
identify the winners and losers either set us a specific companies,
there's actually maybe a phenomenal time to invest in China
again on a longer term horizon. So that's where we
(24:26):
are right now. The winners and news is primarily going
to be dictated by the government from your perspective or
something different. How much of a surprise, if ever, is
it when they weigh in like this. You know, this
thing was a real surprise. This is a doozy. I
don't think anybody expected this, and we did not expect
it for sure. Uh, you've got to understand that. You know,
(24:49):
the focus on regulation has been an ongoing process for
almost two and a half years now. But you know,
as we all know, when the event hits, you know,
stocks are never perfectly priced in. So you know, again,
I think we're now in a new regime. I think
we had to recognize were new regime because over the
last fifteen years, Chinese companies have you know, taken advantage
of Western expertise in Western capital, and now there is
(25:12):
a belief that China is relatively self sufficient. So they
want to have their destiny in their own hands as
as you would have it. So I think the way
you want to think about this is this is a
new normal. Uh. Companies will have to be much more
transparent with their data sharing back to the government. Companies
will have to, uh, in quotes, kiss the ring in
(25:32):
many ways. They had to be cognizant of their actions
on people, and they have to make sure that they
focus on productivity off the country, They focus on natural
strength and the well being of consumers. And if you
can do those three things, then you have a real
business that will not be in the eye of Beijing.
And if you don't and if you behave badly, you
(25:53):
are you will be regulated and your profit potentials will
be curtailed. Well, it's a new normal. Yeah, one swers
round or talk about the idea of self sufficiency here.
I mean, one of the reasons why we were seeing
these I p O s in the U s here,
whether it's from d d or Ding Dong or any
of these other stocks, it was the idea that a
lot of these companies needed the capital in order to
expand here, and there was a reason why they were
(26:14):
looking outside of China. I am curious is if that
need for capital is still there. Do we have a
sense that they're going to be able to find it
in China, in Hong Kong, in that Asia region? Yeah,
I think that will be Uh, there's plenty of access
in China. And the reality is even if they don't
get access to China, VI the a d R market
in the US, many of us are set up to
(26:35):
trade Hong Kong, so the capital will find ultimately capitalism
minces my opinion, and yeah, it's just a function of
how they find it. You know, do we have to
keep our capital on shore in Hong Kong and invest
in a Hong Kong I p O or will it
be easy? And the a d R is just a
frictionless way to buy in a Chinese company via the
v I in structure, and so by census the capital
(26:58):
will still find its way into Chinese companies. This is
only a question of you know, how much control The
Chinese government wants to have all the best end capital
at their national champions, so obviously you know this. This
concern is about what big companies can do with data
and whether um the interests of large companies are in
line with Beijing's priorities. You hear rumblings about it too,
(27:21):
and we you know in the US, I mean, and
there are obviously, uh, people are always lawsuits being filed
against the big companies here for various reasons. Their actions
aren't as extreme or aren't as fast. But of course
we know the political wins, at least in d C
have changed. Is there any concern do you think there
will be a further escalation of that in the US
towards US champions, or you know, are the fangs so
(27:44):
to speak, or is it just gonna be a lot
of sort of like lawsuits another talk that doesn't really
go anywhere. Um, it's tough to see what's gonna happen
in the US. I I would assume it'll be a
lot more noise and maybe there is some Again, it's
again the at all difficult questions to answer, Joe, I
think and I've come on a previous podcast, and basically
(28:04):
my conclusion is just pragmatic, which is all this reflects
in lower multiples. So if you are an investorment in
Chinese companies, or you're an investor in a larger company
that could be in the purview of antitrust, assume, at
least we're assuming for now that the go go dayfel
how multiples are kind of done. We just have be
much more sober and therefore entry prices matter. But if
(28:27):
you're bus is on an empty prices and you kind
of have a view that in the longer term the
business fundamentals remain okay and you can make a good
I R R even under sober expectations, you know, three
or four years out, then I think that are really
good investable businesses right now, even in China, and we
are taking advantage of it. M how are you taking
advantage of it? If I were just looking at trying
(28:49):
to bite downs there now, you know Whisperings that is
gonna be delaying its initial public offering likely not to
be looking at the US market in the near term.
How do you play getting into China aless moment? Well,
on the private markets as long as the as long
as we have some belief that the company will list
in Hong Kong within a reasonable time frame, which is
(29:11):
typically one to three years. Now we can just invest
in those companies. And again it's just a Hong Kong
a d R versus a China a d R. Sorry,
a u S A d R. So that's trivial, like
you can totally do that. The challenge right now with
the public markets are the stock The stocks are just
fundamentally cheap on an absolute and relative basis. There's no
argument there. The question is when does this cloud clear?
(29:36):
And it's so driven by announcements and media and sentiment changes.
And for the average portfolio manager, I can I can
see why nobody wants to touch China right now because
it's a bit toxic. And so, you know, again, the
hot part is it. I think China maybe dead money
for the foreseeable future, uh till this kind of cloud clears,
(29:56):
and then fundamentals come back. People move earnings to next year,
Companies keep executing quarter out the quarter for the next
few quarters, and then the confidence comes back and at
some point, you know, these stocks come back as well. Now,
I've been through China peak paint many times in my career.
Each time is different and so and that's the beauty
of missing in China. This time is peak pain again.
(30:16):
We feel it, but it's different, and so we just
have to figure out, you know, when this cloud passes.
And that's it for what you missed this week. If
you like the show, make sure to subscribe and rate
us as Apple Podcast or wherever you listen to podcast.
You can catch our show every weekday from three thirty
to five pm on Bloomberg TV and from quarter to
(30:38):
five pm on Twitter. Thanks for listening and have a
great week.
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