Bloomberg BusinessweekWatch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
Josh Weinstein, CEO of Carnival, shares his thoughts on the cruise-line operator's earnings and brands driving growth. Bloomberg News Higher-Education Finance Reporter Janet Lorin provides the details of her Big Take s story Harvard Endowment Paid Out a Fortune and Lost Its Investing Edge. Bloomberg Businessweek Columnist Max Chafkin explains the SoftBank Vision Fund's plan to invest $500 million in OpenAI. Randall Atkins, CEO of Ramaco Resources, talks about alternative uses for coal. And we Drive to the Close with Cole Smead, CEO at Smead Capital Management.
Hosts: Carol Massar and Tim Stenovec. Producer: Paul Brennan.
Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Hey, we want to get to one company, definitely on our radar. We're talking about Carnival. Shares were down as much as six and a half percent, the most intra day since early August. The cruise line operator forecasted adjusted EBIT up for the fourth quarter of about one point fourteen billion, slightly below consensus estimates of one point fifteen billion. Earning support also reflected a weaker outlook for netfields in the current quarter, although I will say analysts seem pretty upbeat about the outlook for this company, and I should say shares of Carnival right now, Tim just down about one point two percent.
Well, great to be back with us.
Josh Weinstein, President CEO, Chief Climate Officer of Carnival Corporation with us from Carnival HQ down in Miami. Josh, good to have you with us this afternoon. I want to talk about the bottom line. Eighth quarter of bottom line beats for you all, investors, still focusing on that slightly blow consensus outlook for adjusted IBAD stock not as down, not down as much now as it was earlier in the day. As Carol just mentioned, tell us about the quarter that was and perhaps most importantly, the outlook.
What are you seeing?
Yeah, hi, thanks for thanks for having me. I don't usually follow the fit chairman. This is a big this is a big thrill home to go check out Jack White, White and Nashville.
Thank you for your patience. We so appreciate it.
That always interesting.
Well, we'll talk about the third quarter first, and as I've been able to say for the last several quarters, it's record you know, we just hit a record for revenues, for revenue, yields, for operating income, customer deposits, bookings two years out, so right up and down our business. It's it's records and strong demand. So we ended the third quarter up about eight point seven percent in our yield year over year, which was strong. And the same time, we held our cost flat, which was which is also good to note, and that resulted in, like I said, a record quarter. And as we were able to adjust our full year guidance. We did that for the third time this year, and it's going to take us up to about six billion dollars of EBITDA, which again, to use a broken record word, it's a record, and so we're expecting much more as we get into the fourth quarter and then beyond.
You know, Ja.
Powell Fed chair obviously that you just listened to. I am curious, Josh if in terms of macro, what matters in terms of FED policy for you and what's going on in terms of the interest rate environment. He did also talk about the savings rate, suggesting consumers can continue spending, which we want to get into too in terms of it seems like consumers are certainly still spending on cruises. But give us macro, give us consumer spending. How you would describe it all?
Well, for us, the word's going to be robust, you know. I mean, we've been living through this cycle with everybody else. We've lived through the high inflation, We've lived in the high interest rate environment, and now we see inflation down, we see the FED taking action to start reducing that interest rate environment. And through all of it, what we've been seeing is robust demand, and because of our business. You know, first of all, it's a global business. As you know, we have a portfolio of brands that are really world class all over the all over the world. And what we see is strong demand depending no matter how you slice it, whether it's geographic, whether it's contemporary versus more premium. We're seeing that strength and we see it in the results. We see it in the on board spending levels. You know, as part of our third quarter results. It's not just about the ticket revenue which was taken anywhere from you know, six months to up to two years in advance, but what's the actual on board spending environment, which is much more real time.
And the fact is our onboard spending.
For this past quarter was up over six percent year over year, and that's actually an acceleration because in the second quarter it was up closer to four percent year over year.
So what we're.
Seeing is is consumers that are healthy, that still want to spend on experiences.
And as you've probably heard me say before, we.
Are an unparalleled value, right, we are a better value to land. I remember being in the offices with you in December talking about my hotel stay. Not only are we unparalleled in the value. We are unparalleled in the experience that we give to people. You get value for what you pay for, and we deliver on that guest experience like nobody else.
So, Josh, are you seeing any weakness across any part of the portfolio of brands right now from any segment.
Of the consumer?
Now, we're really not no pullback whatsoever now, you know. I mean, as a matter of fact, if you look at our twenty twenty five booked position, it's higher in price and occupancy than it's ever been at the same point in time. When you look at twenty twenty five, we're higher in every single quarter price and occupancy. So things are moving in continuing to move in the right direction.
And I think it's I think you know, cruise is cruises tiny.
Right at the end of the day, we're the biggest cruise company in the world, but if you take the whole cruise industry, it's only about two percent of the overall vacation market.
So we are a.
Very tiny segment in a huge market with a lot of room to grow. Because we're getting the word out, we are being more effective in communicating the value and communicating the experience and really differentiating our brands so that they get a cut through and it means something to people, and that's paying dividends.
Talk to us about the cost side of the equation, as you just said, and I read too that nearly half of twenty twenty five bookings are done at record ticket prices. The cost equation. You guys are a floating city once you're at on the water, are food you know, meals labor. Tell us what you're seeing in terms of the cost side of the equation.
Josh, yeah, So it's good news there too. You know, we are seeing that deacceleration of deceleration part of me of inflation, and we're actually just today able to take our cost guidance for the full year down from up four and a half percent on a unit basis to up three and a half percent on a unit basis, So we're making good progress there. We are seeing the benefit of a lot of hundreds and hundreds of activities that we're doing across our brands, taking little bits of efficiency, better sourcing savings when we can, and it adds up given our scale, So all things are starting to move in the right direction on the cost side, which is very different, obviously than what we've been experiencing along with everybody else as we went through that inflationary cycle.
Speaking of the inflationary cycle, I'm wondering about the pricing power from your perspective. If you're going to be able to continue to raise prices in your view next year and year after year.
You know, that's certainly the goal. You know, at the beginning of this year, when we were talking about our guidance for the first time, there were a lot of folks that were saying, oh, yeah, but you know, when you get to the fourth quarter of twenty twenty four. You took your pricing up in twenty twenty three ten and a half percent. That was our results last fourth quarter. You're not going to be able to top that. And we just came out with guidance today for the fourth quarter where our yields are going to be up five percent, the majority of which is more price. So we feel very good about what we're doing in our ability to manage the booking curve, increase our demand profile, and ultimately deliver on board as we always do.
What keeps you up at night, barring another global pandemic, No, but seriously, you've been rosy for a while, and I'm just curious. It does sound like some really strong metrics, And I said, reading some of the analysts commentary, they feel the same way. But I'm just curious, what's the difficult part of what you guys do. I mean, you're ordering new ships, you're adding to that. Tell us, Josh, like, where is it that you get concerns? Is it the election outcome? I'm just curious.
No, I think those types of things are temporal.
And you know, I mean, truthfully, after living through what we lived through in twenty twenty and twenty twenty one and getting getting back from literally a pause to where we are today, there's really not much that that keeps me up at night. Truthfully, that's within our control. I mean, at the end of the day, you know, in a two year period we went from negative ibadata up over six billion in EVA da Son. I don't see much within our control that we can't we can't push forward, and you know that's showing. I mean, just just in this year alone, we came out with guidance in December for the first time and we said our yields will be up about eight and a half percent. Now we're saying up close to ten and a half percent. We said costs would be up four and a half percent, now they're going to be up three and a half percent. We said our return on investing capital will be up nine percent, and now we're saying, no, it's ten and a half percent, which is a five improvement year over year. So I think we're making real good decisions. We've got an amazing team all over the world with all of our world class brands really driving the business forward, and you know, I just think we're just starting to scratch that potential. We are really focused on just doing the basics better and better, and it's working.
Hey, Josh, you're also chief Climate Officer at Carnival Corporation. You mentioned things that we're in your control. One thing that's not in your control is the weather. Is the climate. The connection between weather and climate. The two are not the same, but the two are certainly linked. Many Americans, millions of Americans are still cleaning up after Helene in multiple states. It's killed more than one hundred people. Many are still missing at this point. How do you think about climate change in your role? How do you think about planning for an uncertain future.
Well, first of all, our heart, our sympathy goes out to all those impacted by Helene. I mean, it is a tragedy unfolding, and we have a lot of connections to a lot of those local communities.
So that's first and foremost.
As far as the bigger picture goes, you know, we understand that the world is evolving rapidly. We need to do our part, and we need to plan for the future. And when it comes to doing our part, we are we are steadfast in our in our in our drive to reduce our own carbon footprint and do what we can to make the world.
A better place.
We have We are thirty five percent bigger today than we were in twenty eleven, and we admit this year we will emit ten percent less absolute greenhouse gas emissions than we did in twenty eleven. Even though we are thirty five percent bigger today, it's because we understand the importance of doing what we can to drive that sustainability agenda. And as far as preparing for the future, that goes into all of our decision making. You know, when we're talking about the ships that we're building, when we're talking about the destinations that we develop, how can we develop them in a way that they can deal with whatever that environmental landscape is not five years from now, but twenty years from now, in thirty years from now, And keep leaning into technology, keep doing our part to figure out how we can we can we can reduce our consumption every single year.
That's the goal.
And I'm assuming that's incorporated to when you guys build out, whether it was Grand Turk or I'm thinking about Celebration Key right that opens up in summer of twenty twenty five. Just the revenue and cost impact of that debut tell us attle bit about the dynamics around that one.
Yeah, it is going to be It is going to be pretty special, you know, twenty twenty five. We open up in July of twenty twenty five, and then we atause. You go through a ramp up phase as we as we learn and we figure out what works, what doesn't work, and how we tweak and it really is going to bear fruit in a significant way in twenty twenty six when we have nineteen Carnival Cruise Line ships that are going to be a reaching celebration key from I think about ten different homeports in the Night States, so not only is that going to be a boost to our ticket revenue, is going to be a boost to the spending and the destination.
And then to the point we were just talking about, you know.
The proximity to the United States is phenomenal from a fuel spend and carbon emission standpoint. Because it's so close, we can go slower and shorter distances to get there. So we are very much looking forward to its introduction.
All right, great stuff. As always, you're a gem for being so patient, So appreciate it, Josh, look forward to next time. Josh Weinstein. He's the president, CEO, and chief Climate Officer of Carnival Corporation, joining us from Carnival's headquarters in Miami.
Okay, well from a Carnival too, well Harvard, because right now we got a conversation about Harvard's endowment. It's a kind of in house hedge fund. It's been long revered, envied, and at fifty point seven billion dollars that's as of June of last year, it remains the biggest and higher ed, but it may not be for long. A big reason why carol It's money managers have under performed and lost its investing.
Edge all right, so let's get to this Bloomberg exclusive. It also is today's Bloomberg Big Take. It's among the most read on the Bloomberg terminal as we speak. Let's get into it. Bloomberg News Higher education finance reporter Janet Louren. She is with us in studio. Jenet, great story. First step though, the Harvard Endowment. It's place among university endowments historically. Let's just set the scene. I mean, this has been a big one, an iconic one.
Yes, it's definitely an iconic one. It's still the largest college fund in America and it will be probably for a bit. It was built up with donations that started at the founding of Harvard, and it goes back to sixteen thirty six. You think of the principle of compounding interests. You know, they've had these gifts for hundreds of years. They've you know, accumulated and grown. And in nineteen seventy four, Harvard decided to create a separate management company called the Harvard Management Company or HMC, that runs the endowment. They're in the Boston fed it's actually a few isles from campus. And really when they started thinking about how should we invest our money. It traditionally had always been stocks and bonds, and they really weren't the envy of the world at all. They were just sort of kind of playing vanilla. And later a guy by the name of Jack Meyer decided, you know, we had this very long term horizon, we could invest in things that are a little bit more risky and a liquid and they built up a staff. He hired the best managers. They had outstanding performance, and they paid them for this outstanding performance. In some years, you know, managers were paid twenty five million dollars because you know, they were beating everybody. Yeah, and then there were some complaints that this is unseemly for a nonprofit university, and the class of sixty nine famously complained, and Jack Meyer ended up leaving a lot of people left. They created their own spinoffs, and it really hasn't been the same since then.
We can't talk about Ivy League endowments without talking about Yale's endowment and the legendary David Swinson, who died back in twenty twenty one. Talk a little bit about the differences between the Yale Endowment and the Harvard Endowment and why you illustrate that in the piece.
So Harvard hired their own staff and the more than two hundred traders worked there, and they did amazing. They were amazing investors. And Yale, David Swinson came around in eighty six. Jack came in nineteen ninety, and David Swinson had it at a different model. They didn't have hundreds of employees. They had a small number of employees, but they farmed their money out to outside managers and they were paying those fees you've heard the famous two and twenty, but they weren't paying them to their staff. And they built these long relationships with outside investment firms and they seeded some of them. And as you know, private equity takes a long time to make money. Not going to put money in a fund and expect a huge return next year. There's this thing called the Jay curve where you're not going to be making money for years and years. And then you know LinkedIn. Yale had this famous LinkedIn investment where they put in eight million dollars and they earned like eighty four million dollars. But it takes time. And while Yale was doing their thing, Harvard was doing their thing. And Harvard changed their model and now in some ways, they've adopted what Yale and Princeton and MIT have has did for years and years and years before, and they're kind of playing catch up. And now they've increased their allocation to private equity. It was sixteen percent around twenty seventeen. Today in the most recent report thirty nine percent. We know it's not a great time to be expecting returns from private equity, right, So and at the same time, Harvard decreased their allocation to us you know, to public equities.
So just got that forty five seconds left here. So, I mean, is it a case of because you contrast what happened at Yale that David Swenson was there for such a long time, Harvard had a lot of different managers popping in and out. I mean, what's our net takeaway or like what happens next?
Now?
Well, what are you watching for?
We're waiting for their returns when they come out in a few weeks and we'll see. I mean, they're very dependent on the endowment. About thirty seven percent of their budget comes from the endowment, and we're expecting, you know, potentially lower fundraising this year.
Yeah, it's pretty fascinating. I feel like all of the financial The finance is really of universities right now on everybody's radar in a big way. We'd even get into the role of politics because.
How much a cost to go there factor? Yeah, well, that's.
That's what kind of blows my mind when it's almost forty percent of the endowment is for the budget, and yet we know costs in terms of tuition keep going up and up and up. So it's just, you know, the math on all of this is kind of mind blowing. Jet Lauren Killer story again, higher education financial reporter at Bloomberg News. As we said, it's the Bloomberg Big Take. It's among our most read on the Bloomberg terminal on this Monday. It's also a Bloomberg exclusive.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple, card Play and and Brout Auto with a Bloomberg Business act or watch us live on YouTube.
How think you can say this every day?
Right?
Lots going on in the world today, Yeah, just a little bit. I think it's fair to say SoftBank's Vision Fund planning to invest five hundred million dollars in open Ai. This is part of a larger funding round. This is according to the information citing a person familiar with the deal, that's part of a rays of six point five billion dollars. It would value open Ai at one hundred and fifty billion dollars of Bloomberg previously reported. Also, California Governor Gavin Newsom has vetoed what would have become one of the most comprehensive policies governing the safety of AI in the US. For all Things AI and technology, we turned to Max chafter.
His name Max Aichapter.
He is really he knows it all. He's Bloomberg Business Week columnist. He's also contributed to the Elinink podcast. He's the author of the contrarian Peter Teel and Silicon Valley's Pursuit of Power. He's here in the Bloomberg Interactive Brokers studio. I'll go back to Carol's comment on our planning call a little earlier today, when Paul said, our producer, Paul said six point five billion dollars.
She said, what six point five billion dollars.
We're not talking about evaluation, We're talking about actual cash that they're going to be using.
That's the money that they are trying to raise, and they need it. And that is what is so interesting about both about this business and about the field in general. It's this is in a situation where open a I mean part of the situations investors really want wanted in on this company. But this is a company that's burning huge amounts of cash to run CHATCHYPT and to and to create the models that they are you know that that will be in their mind, the next generation model. So the company really needs money and and quickly. Frankly, because because these the servers and the chips that these things run on are so expensive and use so much power to run.
I'm laughing because I use chat GPT for the dumbest, dumbest things. Last night I was like, uh Chat, I opened chat CHIPTM like uh marinad for chicken breast, literally something I can google. But I'm like, you know what, I'm gonna do it on chat gipt and I'm gonna cost them money.
Well, and we don't know the exact numbers, I don't off the top of my head, but but it's definitely a much more expensive search on chat gipt than it is on Google. So like that, you know, the decision to do that is you know, if and if you're doing it regularly, like you are probably not a money maker for for open Ai. And there are many, many, many people in this position now. The company, the plan is basically twofold find ways to do what they're doing cheaper and get people to pay more. So right now Chat Gipt costs like twenty dollars a month for their you know, paid membership. I think the plan is to slowly get the price up because.
They need to.
Frankly, and the same thing is gonna happen with a lot of these generative AI tools. You're gonna see price increases in the coming years because you know, with the current price of energy and the current price of GPUs the chips that are used to train and run these models, it cannot be done profitably at the current Well that's what.
As I'm listening, like, so is there a business model that works going forward?
You know?
I think if you ask the people who are investing in this, Masa's son Masi Yoshi Sun or Thrive Capital, which is another one of the companies that is a rumor to be in on this deal. Also, people talking about Microsoft and video. The people who believe in open AI and in this field think that you're going to get cheaper models, you're going to get cheaper chips, and you're going to get so much demand. This is gonna be such a crucial part of business, right that people are going to pay for it. And I think that the jury is out on that to some extent. It's it's not clear that you're going to want to pay you know, like ten twenty thirty forty dollars more a month for like Microsoft Word if it has generative IAI features than you are now. But that is like the bull case is that it's so valuable that that's what people are doing.
Is it so valuable?
Those like is it so valuable? Like do we yet know the payoff?
No?
The barecase against all of these things is number one, it's not clear outside of like writing spam emails, doing kind of marketing, maybe like certain kinds of very quick news story like a handful of areas where baking PowerPoint presentations of like a handful of areas where it's clearly helpful, but beyond that, it's not clear that it's super helpful or super useful, and it's also not clear that these AI companies have enough differentiation because there are lots of competitors. Opening I can't just raise its prices, it can't just double its prices. Because you have Facebook essentially giving away it's its algorithms. You have a bunch of different players all offering very very similar products.
Help us understand Microsoft's relationship with open ai because they're the company's largest investor, but they're also working on their own products that could be competitors to what open ai is doing.
I mean, I think Microsoft has a very big interest in open ai both as as the biggest investor. You know, they have a big equity stake. They've also put a ton of money into this company already, you know, more than ten billion dollars and you know, if this round closes, probably more than that. But you know, Microsoft obviously this is it's they need to hedge their betch. They think this is an important field. They also have like a gigantic AI research arm already, so it's not like they're gonna sit still, but they are very much, you know, working closely with open ai like this is probably the most important part of their AI strategy.
Is the AI are the AI tools that you get within Microsoft's suite of products are those built by open ai or powered by open ai, or those separate completely.
You have to look at exactly what Microsoft says, because they've at times have made it sort of hard to tell. My sense is that they are mostly offering products that are powered by open Ai and the importantly, they are also reselling open AI's technology to companies. Now that for a while seemed like a big important differentiator that Microsoft ha but now open ai is also, as I believe we and others have reported, they are also selling their sort of like corporate offering directly. So there is a sense that there's some competition. But again, these companies are their their fortunes are very closely tied together. I don't think they both need each other. It's not like they're going to turn into like cut through competitors overnight.
Max Any chance that this is just a bust when all of a sudden done as we continue to figure out, I mean, I understand the uses of generative AI, but I just wonder we focus so much on this one company, you know, I'm just curious what you're hearing with in the industry.
Yes, it definitely could be a bust. You're you're seeing people on Wall Street, including some sophisticated people. Uh, start to start to point out like some of the issues that I'm bringing up, which is that you know, the economics just aren't there yet. Also, you know, anytime you're in a competitive situation in a hot market with a lot of smart players, like it isn't it's never like a sure thing that the market leader, which is open Ai at the moment, is going to be the ultimate winner. So both the market needs to prove out. And this is a competitive market with a lot of people with a lot of resources who are also playing.
The names for our audience to keep an eye on Microsoft, Meta Anthropic, open aim I, who am I missing?
Google?
Yeah?
And X Frankly, and if you're looking to tell a story about what the challenges are for with open ai, you could start with X which is Elon Musk's thing. You know, x ai did not exist eighteen months ago, and he and in a very short amount of time Elon Musk has built essentially like a credible competitor. Now maybe maybe there's some differences, but but again it shows you just how competitive it is, how small the moat is that these companies have you.
Rock Max Chafkin, Bloomberg BusinessWeek columnist. You are listening and watching Bloomberg Business Week.
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General Assembly in session, lots of global leaders in town. We spent a lot of time last week talking to individuals about climate change, and even with the focus on renewables and green energy, coal is still the biggest source of electricity, accounting for a thirty five percent of the world's generation in twenty twenty three last year. That is according to the climate think tank ember. I think we pointed this out last time we had this guest done great to have back with us in this time in studio. Randall Atkins, Founder, chairman CEO Ramco Resources. It's a publicly held company, six hundred and four million dollar market camp company that produces metallurgical coal that's the type of coal used in steelmaking and as we talked about last time, the company is exploring domestic production of rare earth elements, something we talk about a lot. Welcome, welcome back, Great to have you in studio, Glad.
To be here.
How are you.
I'm fine for a Monday.
That's kind of what we say. Hey, listen, we made a point. I want to start here just because we made a point last time of talking about the coal that is used for electric electrical generation electricity generation. We talked about thermal coal. You produce metallurgical coal. So just before we get into it, remind everybody of the difference, because I think it's important.
So we kind of view coal as having sort of three legs to a stool. One is for energy, which is thermal coal, one is for steel making, which is metallurgic coal. And the third, which is kind of an emerging field we call coal to products are cold critical minerals. And that's, frankly, the route that we've sort of trail blazed a bit by working on things like rare earth elements and critical minerals and use of coal to make carbon products.
What's the connection between coal and rare earths?
Well before we were able to discover a large deposit, and ioming it was theoretically possible that rare earth would be contained within coal in some different types of concentrations.
Meaning you'd find a depositive coal inside that depositive coal would be.
Rare earth, correct in higher concentrations that will normally be found just as a base context within the Earth's crust. The trick is with rare earth, they're everywhere. They're not frankly so rare, but the concentration level is what makes it commercially feasible. And we have found frankly higher concentrations in our coal of heavy and medium rare earths magnetic rare earths than have been found, according to our friends at the Department of Energy, any place outside of Western China. So that's what's the unique part about our particular deposit.
Which talk to us about your emphasis and stress in terms of the business that you want to focus on.
Sure, well, we've right now got a you know, our primary business across metallurgic coal, that's our bread and butter. We kind of stumbled into the rare earth business, so to speak, accidentally. But now that we have been advised that we've got such a significant deposit, which might have, you know, very important strategic implications, certainly for the US that we have now decided to swing into that with as much emphasis as we can.
What aide you get from the government US government in all of this when they sometimes look at something like this, I mean, we talk about this with semiconductors, you know, national security. I'm just curious if you get an assist or what's the conversations on that level?
So they started different levels. So you know, we originally actually found the rare Earth because we provided samples to one of the Department of Energy's national labs that was trying to do an assessment for the Defense Department, and that's how we discovered we had a significant deposit. We have got various grants and partnerships with various labs of the national of the Department of Energy. Actually today we announced we've hired as our director of Technology a gentleman who joins us from the research arm of the Defense Department called DARPA. And so we would expect as we go further and basically add more dimension to what we're doing, that we very conceivably will be working with the government in a number of different capacities.
What are the rare earths that you found in the deposit, and how do you extract them from the coal?
How do you separate them?
What's the cost of doing that?
Those are three great questions. So the rare earths that we've found are as I said, the heavy and medium magnetic rare earths, which have wonderful Latin names that I will probably butcher. But the other two elements that we found, which aren't really rare earth, they're critical minerals called germanium and gallium. They're very important frankly for defense related technologies, semiconductors, etc. How do you extract the rar ears from coal? That is the process that you actually engage in when you go beyond the initial throwing your hat in the air that you've actually found them. We're in the middle of that now, which is arduous because they're majored in parts per million, so it's like almost trying to find things the size of a blood cell.
Wait, so have you done it yet or no? Done what separate out the We.
Have separated them out in various sizes right now. But what we're doing we actually have engaged a company called floor which is a major engineering group that also has a large critical materials group to actually help us determine the right process to use and then prove up the economics, which we expect to have back by the end of this year. So there are all sorts of different routes that you can take, depending upon not only the chemistry but the metallurgic and the metellergic mineral behind the actual rare.
At the deposit.
Would you would would it involve burning the coal and then what's left after the coal burns or is there a different process.
Help us take us back to geology class.
Sure, no perfect idea. So it will involve some form of either combustion or paralysis of the coal, because you need to separate the rare earth from being commingled within the carbon within the coal. And how that's done on what scale dependence on really where the deposits are, because we may be dealing in concentrations of rare earth which might not be huge in terms of material mass, but might be large in terms of the quantity of rare earth. So it's not like we would be creating enough coal that we power a power planet something like that. It would be much more confined.
Two things I'm curious about, so there is a business case to be made for doing it. You guys have figured out that it's not going to cost so much that it doesn't make sense to do so I'm curious little bit more about that. What's also the impact on the environment.
Sure, so the business case is one that I said, we're developing the precise techno economic study, or they call it a scoping study, which will be available by the end of the year.
You're working on it.
We're working on it. But the interesting thing from a business standpoint, from an overall dimension, the Chinese have been trying to put anybody out of business that gets into the rare earth business. They have a monopoly. They ruthlessly fight to maintain that monopoly and have done predatory pricing all over the world to try to drive anybody else.
It boost a lot of production. We actually have a Bloomberg opinion piece that gets into cobalt and lithium specifically the same ideal. Yeah, that we've seen prices plunged by more than seventy five percent because the Chinese miners have boosted production.
Sure, and even today, actually DARP is putting a conference on that involves how the United States could assist in creating sort of almost a pricing index that would stabilize the rare earth market, which is clearly not happening today.
So okay, so you're studying the cost the business equation. You're kind of figuring it out in terms of the economic and not the environmental impact.
Sure, the environmental impact I had a thing too, sure will be will be very limited. I mean, the nice thing about coal, even if.
You're burning it and stuff, that's limited.
Well, here's here's the here's the trick there on rare earth. Most rare earths are found in hard minerals cobalt, lithium, uranium, et cetera, which are number one radioactive. So that creates issues in terms of mining it, but more importantly in terms of processing it, which is why most rare earths are shipped to China to be processed, which needless to say, is not helpful for the United States. So by virtue of using coal as the feedstock, that in itself is much more environmentally benign, and we are not going to be burning it in sufficient quantity that would create a sort of a smokestack effect, if you will. We'll be doing it almost like a kiln type operation. And the interesting thing is a lot of the carbon that would be thrown off from the coal we intend to try to use to make carbon products like synthetic graph height and graphene and carbon fiber precursors. These are things that we were working on with the government way before we ever got involved in the rarer space.
What happens if the rareerfs don't pan out? What happens if you can't figure out a way to make it work financially if.
The rarers don't pan out? Actually, as I said, we'll go back to what our original intent was, which was to use coal as a feedstock to make carbon products. Because the Chinese have also basically put an export stop on synthetic graph height in regular graph height. So there's a great demand for graph fight right now, which is ninety five percent of the anodes and batteries. So that's our next product, if you will that we'll be working in respective.
So what do you anticipate rendall that in. I don't know whether it's twelve months, whether it's two years, what the product mix is for your company, because it sounds like you guys are still kind of figuring out some things. We've got about a minute or so less.
You've bet so very shortly.
We will still be at least in terms of cash flow dominantly a metallurgic coal company. We're actually growing. We're probably one of the few coal companies that actually has of last year, we will double in size between now in the next say three years. That's the metallurgic side and the rarer side. As you said, we're sort of figuring it out as we go along. Our Our hope is to basically be in a position to start a demonstration facility this coming spring, and that will then prove out the economics and the techniques that we can use to then take it into a larger commercial venture. I think as soon as we start that will be probably getting a lot of assistance along the way because it will have such a potentially strategic impact on the United States.
Does just forgive me twenty twenty five seconds the election outcome? Does it matter for you guys as a business the election outcome? Who's in the White House?
I fix from from the standpoint of critical minerals and rare earth, it does not, because again, it has such strategic national security significance that you've seen both the Democrats and the Republicans almost in tandem, try to push for more legislation encouraging development.
Of those All right, well, so appreciate gatting more time with you. We were fascinating the first time around. So really great to have you in studio. Rind Atkins, Founder chairman CEO Aramico Resources joining us right here in studio, Mac.
The journal.
How about you let me drive?
No, no, no, honey, please, I'll.
I want to try.
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This is the drive to the globes dot com effect.
Well, Dan on Bloomberg Radio, it's Bloomberg Business Week and Carol, can you believe it?
It's that time?
Yeah, quarter, I'm so ready to be done with.
Done with the quarter. Read to be done with the quarter.
I'm done to be I'm ready to be done with the court. Although I like the summer quarter.
Yeah, just making sure I'm rarely done with the quarter.
Twelve months a year, defeated by four three months makes quarter.
It's a quarter to date for the S and P five hundred five percent.
Well done, well done quarter. All right, let's see what our next guest has to say back with This is called speed CEO and portfolio manager it's Meed Capital Management, joining us from Phoenix. The SMEED Value Fund, by the way, has returned fourteen percent on average annually, putting it in the ninety fourth percentile according to our data. Hey, how are you good?
To see you guys?
How are you.
Yeah, we're doing okay. Just kind of going from day to day data point to data point. Tell us little bit about flows. What are you seeing? What does it tell you about the investment environment?
Yeah, I think I think there's much ado about nothing for most investors is what we've seen. Most people are very much happy and comfortable in whatever they're doing already. And I think the only problem with that is if you look at two data points that really stand out to US, household ownership of stocks as reported by the Saint Louis Federal Reserve or what they call the FRED data, it's never been higher, and the only problem with that is that bodes very poorly for forward returns. The other thing I would mention that I was just in Asia for two weeks visiting with investors, and when I go to Thailand and the institutional investors there own seventy percent of their total equities in US equities, it shows as the FED has been reporting that the foreign ownership of US equities has never been higher as well, that those are just contrary indicators relative to history.
Why are those contra indicators?
Yeah, if you use the household data as an example to him, the correlation coefficient between that ownership and the forwarder turns the S and P is like negative point eight two to negative point eight five, depending on when you're looking at the data. So it shows you it's negatively correlated at this level of ownership. The last time we had this was ninety nine, was anywhere near this, and it was negative one percent for ten years. Nominally, that doesn't count inflation, you know, in that it was negative real returns for the S and P five hundred and So I find it interesting that the households are comfortable owning a lot of their equity or learning a lot a lot of their assets and equities, while they foreign institutions, foreign owners, you name it, are doing the same thing at the same time. How differentiated is that globally? And I would argue that's not good for global equity investors.
Interesting, Okay, So then what are you anticipating in terms of the US market for the rest of the year we've got We talked about being in the fourth quarter here, do you anticipate that we just kind of mark time a little bit or or what?
Yeah, you know what, whether it's marketing time or we you know, as we always do, we go through bool markets and bear markets, you know, whether it's that or starting a nice bear market, it's a it's a harbinger of what's not going to be good going forward. And this is coming right at a time where you know, people are pretty at home with the idea that you know, the FED is kind of quelched inflation at least in the interim. I was actually just having a really fun discussion with Wilbur Ross earlier today because I'm going to be interviewing him in a few weeks, and he's got a really interesting book out called Risks in Return, where you know, the idea being that in the old guns and butter debate, Like Tim, you know, Tim and I my brother, Tim's brother, and I went to college at Women College. In witmen College economics classes, you learned about guns and butter. This is guns and Butter two point zero, And that was some of the discussion I was having with Wilbur Ross. And it makes me very excited to read his book. But I just say that because the idea that the fiscal spending goes on and yet inflation disappears, I think that's adorable. And I don't think it's the Fed's fault. It's the politics fault. But fiscal largesse is a thing of this era.
Okay, you mentioned Wilbur Ross.
We got to talk politics, Cole, because we are You're in a swing state.
You get a lot of ads for I am the swing state. Yeah, you get a lot of ads.
For Harris and Trump in Arizona where you are. You also mentioned Wilbur Ross, who was United States Secretary of Commerce during the Trump administration. How are you thinking about the election in terms of investing, in terms of what you're doing with your portfolios?
Yeah, well, I think the more important short term thing in any discussion is whether in the doubleheader today the Mets or the Braves will lose two games and send my Diamondbacks to the playoffs. But that's a whole separate issue. To your point about elections, it looks very close. It looks like a dead heat. I also think locally, you're going to see a lot of split ticket So for example, you know, Carrie Lake against Reuben Diego in the Senate, she looks like a sheer loser at this point. And so I think it's interesting to see in a swing state like this, where you're not going to see a down the ticket vote really kind of chopping up to who they like as candidates. And I think it also highlights in a state like Arizona how important candidates are. If you have bad candidates, you will lose elections. And I think both part of are losing that and figuring that out across states. So I think Arizona is a pretty good Petri dish for what's going on in the country, which is, we look like we have a dead heat right now. And you know, if you ask me who's going to win, I don't know. I just do know that fiscal spending will be the priority of either candidate, which again I think flows back to, you know, the idea of guns and butter two point Oh it's here to stay, all right.
Let's talk about some names that you like top holdings. I'm looking at your value fund energy names are certainly there. You like Occidental, you continue to like it. Also. Another one is Sonovo's energy.
Yeah, Yeah, the returns on capital we're getting in the space are very attractive. And you know, as we all know, it's a cyclical business, so it moves around with the commodity. But the positive is price regulates supply, and so as price has gone down, you're gonna see less reinvestment in the space. And what I like about it is people build up their ideas of what's going on based on what goes on in markets. And I always tell people they say, well, what's the price of oil telling us about the future, And pardon my cruelty with this, but the answer is nothing, you idiot. It just tells us about where buyers and sellers are meeting today. And so I think there's been a lot of discussion aboute around weak China in the last month, followed by immediately this idea that was posed the ft that the Saudis would be, you know, leaving the idea of one hundred dollars a barrel oil. I think that's completely hearsay. But we like the returns in the business. We like how depressed the multiples are here at this juncture on book multiples, not even looking at free cash, and that's just that's so far away from what people are paying for other stocks, you know, particularly big Captech in the S and P. It's a different game. But again go back to the other ears of guns and butter. Like the seventies, you may double digit and energy and the S and P lost real money. We're just it's a different world, and I don't think people are really thinking about the risks present. There's a lot of risk. That's what the equity investors are missing.
Hey, listen, just got about forty five seconds left here. You kicked it off saying I'm just back from Asia. What was the story around? I guess Asia generally, but more specifically about China, especially coming off of all the stimulus. And forgive me because it's just about thirty seconds here.
Yeah, they don't have any clue what's going on there, more than anybody else in the United States does. They ask me, as a kid from Seattle, Washington, whether the Hong Kong stocks at bottom. That's bizarre. Here's what I will say. I think people are really missing out on what can go on below the serface. The S and P or Go Watch unicredits deal. They're going to close on Commerce Bank and no one cares and money's being made in Europe and banking, and so I think there's just great things to go out and make money. Picking stocks on it's below the service, it's not in the index.
New money coming in, money going out. Ten seconds. Do you see more money come in or people cashing out right now?
Yeah?
But money, money's going to raise because as long as you're doing what's differentiated, you can go raise capital. And that's what we're continuing to see. If you do what the old value people did, you're not going to raise any money.
All right, Gonna leave it there. Hey, Cole, good to check in with you. Cole Smeed, CEO portfolio manager at SMED Capital Management, joining us from Phoenix, PA.
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