Green Investing, The Fed, and Real Estate

Published Sep 20, 2023, 4:53 PM

Jeff Chamberlain, CEO at Volta, joins to discuss EV battery development, energy technologies, storage, and investments, and the historic shift in energy that he believes is on the horizon. Danielle DiMartino Booth, Chief Strategist and CEO at QI Research, joins to preview Jay Powell’s presser on Fed Day. Joanna Gallegos, co-founder of BondBloxx, discusses ETF flows and investing strategies. Kyle Kazan CEO at Glass House (OTC: GLASF), joins to talk the marijuana industry and his company. Selma Hepp, Chief Economist at CoreLogic, discusses recent real estate data and outlook for the housing market. Ian Simm, CEO at Impax Asset Management, joins to discuss how record heat is affecting physical asset and which sectors and companies that are most at risk. Hosted by Paul Sweeney and Matt Miller.

Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.

Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moven news.

Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. All right, Matt, we're going to elect electric vehicles. Matt, it's happening. I mean, you were so kind to let fired me up with the Bloomberg I mean with the Ford f one fifty.

That was awesome.

But I'm not going there unless there's like the batteries are better into charging stations everywhere we got gas stations.

I'm not going to be a first adopter. Number of reasons I'm not going to be a first adopter there about it.

Yes, call it that, but sorry my mic was off. Thank you, Ken.

There are a number of reasons to be tentative about it. But how fun was it to drive the fifty light?

Yeah, it's a beast. I have to admit that was pretty cool. Jeff Chramberlin joins us. He's the CEO of Volta Energy technology. He joined just live here in our Bloomberg Interactive Broker studio.

Appreciate that.

See, when it's a climate, we can get people coming into New York. When it's un week, people come into New York, you get them in studio. Jeff, tell us about your company, Vaulta Energies Technologies. What do you guys do here in this EV space?

We invest in battery and associated tech technologies, including the kind of infrastructure you were talking about, charging stations, et cetera. A whole bunch of new technology requirements there that will be and RB are being adopted. And so our whole goal is to invest in companies at that inflection point when they come out of science and they're all ready for scale, and we're industrialists and we're investors by training and by experience, And ultimately I ran all the battery work at Ragon National Laboratory for ten years, got to see supply chains developing around the entire world and what the customer's needs were, so that we believe we can place capital more effectively than most.

So unlike Paul, I am there.

I'm ready, and I've got my eye on a few evs that I think are just amazing in terms of the powertrain. And my one concern is that I buy something and it becomes obsolete by the time it gets delivered.

Do you see the same kind.

Of what's it called Moore's law, you know in batteries that we famously saw in chips. Do they just double in capacity every year or have in price?

Yeah? Thanks for the question, Matt, and by the way, thanks for having me on. I appreciate it. I come from the chip industry, and so we have tried to design or declare what a More's law looks like. But no, in Moore's law, it's double the density of transistors on a way for every twelve to eighteen months. What's happened in the battery industry is they were first commercialized lit the Mind batteries first commercialized in nineteen ninety two for cam quarters. So thirty years have progressed. The average is something like in the low single digits, maybe low double digits percentage improvements year over year as opposed to a doubling. So there is a kind of Moore's law for battery, but it's not as extreme as what you're describing me. But I do want to say one thing in two thousand and four when Tesla started the battery costs the unit of meritage dollars per killo what hour they were at about four to six thousand dollars per kilo what hour? Parody with gas powered vehicles, you need to be about one hundred to one hundred and fifty dollars a killo what hour. So they had the hubrit the hubris to believe economies of scale and better engineering could get you there. And guess what it did. The costs are down over ninety five percent since they were very close to parody with gas.

So what are we looking at now for killo what hour?

It's depending on the supplier. It ranges between eighty and one hundred and eighty dollars a kilo one hour. So we're essentially there.

Okay, because the ones I like, well, GM has these massive two hundred and ten kilowat hour battery packs. I don't know how efficient they are, but I just like it's like a big block V eight, you know in the truck they get four hundred and fifty miles of range.

The new Escalade EQ I think it's called or Escalate IQ, can't remember anyway, The.

New EV Escalade does zer to sixty and five seconds and it weighs damn near ten thousand pounds. It's just unbelievable the amount of thrust you get from these electric motors. What do you think about the obsolescence of the battery though over a few years, Like, you can't just swap out a battery from these the way you could with an ice engine.

You can swap them out. I mean you could if you wanted to keep your truck and put a more modern battery in it. There are ways to do that, But my guess is it'll be less costly for you as a consumer to buy a new vehicle. I don't think obsolescens going to move that quickly. And the battery tech, the key that they're aiming for is cost and range today. But there's another key that Paul mentioned it that's the infrastructure surrounding it. Where can I go to charge my vehicle quickly? What is potentially more important than range is ubiquitous fast charging. Can I fill my vehicle with energy to go three four, five hundred miles in five to twenty minutes. That technology is on the rise, It's being adopted right now.

What do we know at this stage of development of the evs and batteries, about the supply chain, the raw materials need. I've heard from some people that that's going to be a gating issue. What do you know about that from your.

Yeah, there's a lot of folks out there that talk about lithium being a resource. Lithium is the key, let's start there. In fact, I was hoping to talk today about a comparison with oil. The last time the human race has experienced an energy transition like the one that has started was a shift from whale oil to rock oil. And this transition is on the scale of that transition. By rock oil, I mean petroleum.

What the shift from foil from whale oil? Which no, no, but now what's comparable now to the shift from oil?

The shift from oil to renewable power and electric transportation is on par in terms of the size of the shift and the overall impacts on a wide variety of industries. As oil was. Oil was started for lanterns right look at where it ended up.

So I'm wondering actually about that in terms of you know, how much lithium there is in the ground, how easy it's going to be. I guess it's going to get easier and easier to get it out of the ground. You know, is it as reliable as oil has.

Been for the last century.

Short answer is yes. I think there's a lot of handwringers that are telling us so there's not enough lithium and there's crust there. Definitely is. Your point's a good one. Though some is economic today in terms of extracting and refining it, some is not. One of the things we invest in, and we're not the only ones. Is new technology to make the extraction of lithium more economic, and so that getting back to the supply chain issue, you know, there's the headline is China controls a lot of the materials, but in the case of lithium, the vast majority of lithium that's ready to use in batteries comes out of China. But it's process there, it's not mind there. And this is something I was hoping to talk about, getting back to the supply chain, where is in mind the primary resources the so called cone in South America. Chile has a massive resource, so does Bolivia. In Argentina, that's where the biggest resources are. There's some in Australia, there's some in China, there's a lot in the US there And this is really what I'm saying. We're at the early stages of this. It's like finding a new you know, it started with spindletop oil oil did in Texas. Then we found oil, humans found oil in Saudi Arabia. This same thing is going to be happening with lithium.

So are you you know, at Volta, are you investing in or are you involved in other companies investing in the processing of.

These materials here because we don't want it to all be.

Absolutely, we absolutely are including new technologies to process them more efficiently and less costly. So this and that is something I want to say. The supply chain movement is evidence of the maturity state of this industry. And what I mean by that is a guy from the chip industry. We'd been preaching to anyone that would listen, investors in the government up in Capitol Hill for fifteen years. The supply chains are going to move out of China. And here's why. In the chip industry it makes sense to have centralized manufacturing. The mass of microchips versus their value. Their value is massive compared to their mass. So you can get economies of scale, centralized manufacturing and Taiwan shipping around the world. You can't do that with the battery technology. And you don't have to look any further than the automotive industry itself to believe me that by units, the largest manufacturer of cars in the US is Toyota. They don't make their cars in Japan for the American customers. It's the same thing with battery tech. Those supply chains are moving right now.

And by the way, in terms of the change in technology, what you're saying reminds me of something that Gary Shilling, who's a famous eighty six year old economist, He tells me when he was a kid, people were wringing their hands and worried that there wasn't enough copper in the Earth's crust for the telecoms industry.

And obviously we've moved on from that piece.

Yes, in the fiber. And there's another thing. There are New York Times articles in the nineteen thirties when the horseless carriage was really taken off, that there's not enough lead in there is crust. And this is an important point as well regarding movement of supply chains. Lead is recycled lead acid batteries out of vehicles. It's like ninety eight point seven percent of those are recycled. The same thing is going to happen here. So we may not have access to cobalt in those batteries that comes out of the congo, but we will because we're going to move to so called urban mining waste materials to get copper, cobalt, lithium, et cetera.

Fascinating, So cool it is.

I mean, I mean, I guess you get bachelor's in chemistry from Wake Forest, and what are youna do with that? So you triple down you get a PhD in physical chemistry from Georgia Tech. I mean, those are some serious engineering geeks down there in Georgia Tech.

So he means that in a good way.

Yeah, in a good way, some really big ones. So anyway, then you go into the electric car business, why not? Jeff Chamberlain, CEO Volta Energy Technologies, thanks so much for joining us, coming into the Bloomberg Interactive Broker's studio. So again, it is a climate week in New York, and so we get a lot of smart people coming through here talking to us about what's happening out there in the evolution of the energy space.

You're listening to the Team Ken's are Live program Bloomberg Markets weekdays at ten am East ding on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your.

Podcast, Matt.

Instead of buying the latest car with a scat pack or whatever it is, you could put your money into your treasure.

You can get five points zero six percent today. How about that?

I mean, it's probably a smart idea, which is why I won't be doing it, but a lot of others are not. Just in the twos, right, the fives hit the highest level since two thousand and seven. The tens hit the highest levels since two thousand and seven, and a reminder, you.

Know that was sixteen years ago. So these rates are incredible.

And keep in mind, right, prices move in the opposite direction. So when we see these high prices, that mean rates, It means that the prices are low. Why is everybody selling off treasuries right now? Let's ask Joanna Diegos. She's the co founder of bond Blocks and she joins us right now in the Interactive Brokers studio. So Joanna, I know you well from our ETF show or you're a frequent guest, and I also know from that show that everyone's been getting long in treasuries and they've been losing money on that big bet.

Why yeah, over the last three months that that trade is down ten percent if you're going long treasuries twenty plus. I think that this is a trend that the treasury flow into the long end has been probably the biggest percentage of flow into treasuries year on year, So the twelve months trailing it's the biggest. It's a thirty percent of flows into treasuries for twenty twenty three. I think people are just taking a really really big view on trying to call the bottom and they're sticking with it, which is pretty fascinating that they're doing that. I think the good sign is that.

Today it makes sense, right because we haven't seen yields this high and as we just said, sixteen years.

Yes, yeah.

I think I think the encouraging thing is that we've seen less of than twenty twenty three or recently is all of more flow into the short short end, so three months, six months and more flow balanced across US one one plus years into three, five ten, just as you described. I think that's encouraging and people are trying to just have feather in more duration into their into their portfolio.

Now, just tell us quickly about your products at bond Blocks, because there are some very popular ETFs that people use to make these trades.

Yeah, So for that very reason, we observe that you can't actually trade exact duration in the current and in the current ETF offering. So we launched eight duration specific treasury funds. So if you want one your duration to your duration three it duration, you can use our products more precisely for exactly the trades I think people are trying to put on. If you broadly put on duration in your portfolio, you may have you may you may overallocate to that duration. And so we want people in these markets to be able to be very very prescriptive and selective where they go into into high yield.

Given rates where they are. Are you seeing flows? I mean it seems like you're perfectly positioned for where the market is today at bond Blocks. I mean are you seeing flows come in and if so, kind of where are they going?

With a really cool trade this week in our double b high yield fund. We have a credit rating a series, and I think that's acknowledging the strength that you're seeing corporate balance sheets and the resiliency that has been in the economy this year. So I think I think people are taking on very measured risk and to see a trade like that is really compelling.

Interesting.

So for bond blocks, I mean, again, what are some of the products that are kind of most popular these days in your ETF portfolio.

Yeah, we're starting to see increase interest across duration as I mentioned, like moving out a little bit into the duration trade, and as well, we're seeing interest in some of the corporate products that we have out. We have a really robust offering in high yield. We have over ten products in high yold. So you can trade sectors with bomb blocks, the bond blocks, you can trade credit ratings, as I mentioned, and I think Matt would be happy to hear that. In the summer, we saw a lot of interest in our triple C product.

It's one of my favorite. So you just picked my favorite. Yeah, but they're.

Tight, right, Yeah, So obviously they do what they say they're going to do. They track their indexes, they give you that exact exposure. Also, what I think is interesting is people are starting to realize that the fundamentals in high yield are really strong, and if you think about it, relative the other risks that are in your portfolios, those high coupon rates are providing you a ton of cushion for any relativity that might come going forward in fixed income plus relative to equities, which over the last ten or fifteen years portfolios have been heavily heavily allocated to eke out more return. These are great protocols to look for exposure to to get you to those levels of return seven ten percent a year, whatever you're looking for, with less risk. In fact, the broad high yield category has over less than half the risk of the S and P five hundred. Yet you're getting all this yield and all this cushion and strength and the balance.

That's interesting.

So high yield in general, which is what triple b's and lower.

So no triple B is investment grade, so it's double B B and triple.

C double B and lower.

Yeah, that general category has less risk than buying the S and P five hundred.

Yeah.

From a Volatiley perspective, over the last ten years, you just don't think that you really have to reintroduce yourself to some of these categories and fixed income and remind yourself of the characteristics of them.

You know.

Also, this isn't the same credit cycle we've seen in the past. The defaults haven't shown up in past any kind of historical highs that they should be. They should be. The distressed names in the overall category is pretty low. It's only about seven and a half percent. So it's an interesting thing if you get familiar with the corporate issuers and the corporate categories investment grade two. There's a lot of relative risk and reward here that you haven't been able to deploy in your portfolio for a long time.

Do you see demand for up and quality over high yield?

Now up and quality over high yield like getting getting some of these? Yeah, so that's the thing. You can be really selective within these categories. With you know, at bomb blocks we have, you were able to choose the categories very very precisely, and so yeah, you can go seek out quality high yield and you can go seek out quality corporate exposure. And it sounds like those two things aren't supposed to go together, but there's just a lot of misconceptions about the category and what's going on with them right now.

Yeah, I'm looking at ETFO on the Bloomberg terminal x c c C, the CC triple C rated US A dollar high yield corporate bond up twelve percent trailing twel month basis.

Yeah, Yeah, that's that's that yield that is just really hard to look away from, especially with as I mentioned, the different level of volatility that that gives you in your portfolio. And you know, it's twenty twenty three, We're almost at the end of twenty twenty three at bomb blocks. If we don't see a recession or any downturn half through the end of this year or even into the beginning of next year, and you're going on your second almost third year of this market environment with yields at these levels, which are double where they were before the Fed started hiking rates. And really, if we think things are higher for longer with ja bomb blocks we do and we don't see these hard landings, you really need to think about what's going on with your portfolio for the next two to three years.

All right, Joanna, always great stuff to chat with you. Joanna Diego's co founder of bond Blocks.

You're listening to the tape cans are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.

Danielle di Martino Booth made it here.

To the studio. She's the CEO, Chief Strategistic QI Research. You came in from LaGuardia. Not a quick trip today.

You need a police escort.

Yeah, you need to dissk like in a helicopter press. Well, we know a guy that could help us out next.

This is not the right time to like break a leg. Really, this is not the right time to need an ambulance in Matt.

Forget about it, particularly on the East side. All right, Danielle, you were just talking about housing market. Give us some of those stats you were talking about, because Matt and I both now are real estate moguls.

Home.

Oh, yes, we own property. We own property.

Exactly what are you seeing in the real estate market?

Does that mean you topped the market?

You know what?

We're seeing is is kind of this this supply over supply bloodbath that we've been worried about for a few years on the apartment side finally coming to fruition. So before the pandemic, you might have had eighty two eighty three thousand units absorbed a month. This the last month, we had like forty six I want to say a thousand, don't quote me, but about about half of what was pre pandemic normal from the one hundred and nine thousand units that came online out of the pipeline. So you're not even getting fifty percent of what's being produced you had. You've had one point two million units come on in the last three years, and there's another one million units in the pipeline. So we saw multi family permits yesterday really get hit hard. But you've still got to work through a pipeline of another million units.

Are going to take out a mortgage at seven and a half percent to well someday they will, right. It looks bad compared to a couple of years ago, but not so bad compared to twenty years ago.

Refinancings were up like thirteen percent in this morning's Mortgage Bankers Association dated. Somebody's taking cash out of their homes at these mortgage rates.

Wow, So does this is this what the FED wanted or does this make the transition transmission mechanism slower?

It makes it a lot slower. Yeah, And I think that's exactly what we've seen.

And because some people say, you know, when we talked to Danny Blanchflower, he says it takes eighteen to twenty four months for these great hikes to work their way through the economy. But other people like jan Hatzias say, actually, the lags are much quicker than they had been the past, which is why he thinks that they've worked their way through the coom.

They could have been quicker, could have been, but the fiscal impulse kicked right back up. So that's not normally what you see when you're when your economy is slowing, when you're getting to the end of the cycle. You don't normally see the government re up completely re up as if we're at war, fiscal spending along with the employee retention credit which is now on hold, thank you god.

But no one talks about the fiscal side.

But if we were either when it comes to a driver of inflation, nor when it comes to the economy, everyone talks.

In the month of July, the employer retention credit pumped out twenty nine point eight billion dollars in one month in cash directly deposited into people's check just like the stimulus checks were those one two three stimulus checks. It's the same exact thing that bypasses monetary policy and the fed'sibility to try and slow the economy.

Now the plug's been pulled on.

That, so you know, and student loans, people are preemptively getting out there and paying their student loans. Who would have predicted this, that we would have seen this spike and fiscal in government revenues in the month of August. People are like, hey, interest is going to start back up. This is just a fact of life. My budget's going to take a hit. I might as well just start paying right now in August.

And they did, all right, putting all the millions of pieces of data that you look at and your team of QI research look at, what's your recession call.

I think that the reason we're seeing some for lack of a better way to describe it, preemptive Chapter eleven filings, some stores just up. I mean, we're seeing massive amounts of stores closing, closing, closing, closing. I think we're seeing it because they know that the holidays are not going to save them, So I think we're I think I think we're finally getting to the hard part of the landing as opposed to where we've.

Been, because I'm not buying it to that soft landing rhetoric.

No, it's certainly not.

With the UAW on.

Strike, Okay, the government shutdown, and the government shutdown, u aw on strike, Student loan payments getting ready to resume.

I've got a whole list I can't do. I don't have it.

Uprate crisis as high as they are, people are substituting out things.

Credit card debt rising, credit card delinquencies rising, auto load delinquencies rising.

And where is it.

It's in that sweet spot the thirty to thirty nine year old who has the biggest student loan payment. That's where you're seeing credit card delinquencies the highest, according to New York Fed data. Same thing with auto loan delinquencies the highest. Auto Finance weekly it's kind of a trade trade weekly. They said that repossessions this year are tracking at two million for the year, and there repossessions right now are just a factor of how many cars per day can the repo men get. There's literally it's capacity constrained.

I have Danielle di Martino, booth fan, who always writes in when you're on he He has sent me like eight questions so far, but I'll state I'll just suppose one, which I think is really interesting. Do you fear the whoe home data is lulling investors into lazy risk adding, which makes sense to me.

I do, especially because you have to understand that going into the Great Financial Crisis, we didn't have like a trillion plus dollar fixed income exchange trade at fund Universe, but now we do. So the structure of the financial system has changed, and what we see reflected in kind of high yield spreads, and that's where you're like danger, danger. We're not seeing it reflected in spreads because of the ETF structure, So you're just seeing spreads reflect inflows and redemptions from these gigantic fixed income ETFs and the super liquid names that trade when there's redemptions and when there's inflows, So you don't see the ninety percent of the garbage that's trading by appointment only reflected in spreads, So that gives investors, I think another this this air of confidence that they should not have.

Al Right, that's fascinating.

Does the FED share your sense of caution? Do you think such that they will just settle down and stop?

I would have to say no, given how sanguine John Williams is, and that he runs the New York FED, where the market's desk is housed, and that's where they get their markets intelligence throughout the Federal Reserve system, So I would have to say absolutely not.

So when's the when's the cliff risk?

Here?

Is it when unemployment jumps? Is it when we don't get a great holiday shopping season?

Is it's?

I think it's both of those things. Remember Yellow trucking had severance. Okay, so we didn't see that thirty thousand hit.

The truck bankers initial jobs. A lot of people lost jobs.

But thirty thousand people lost their jobs, but we didn't see that hit because of severance. So we've only got three states left that don't rising continuing jobless claims Oklahoma, Kansas, and Alaska. That's it. We had zero states with rising continuing jobs claimed last September. Now we have forty seven, fifty one forty seven.

So you think the FED should sit stop raising rates and or should they actually cut rates?

Where are you?

I don't think we're necessarily at the juncture of cutting rates. But even when we get there in twenty twenty four, keep shrinking the balance sheet?

And is the FED doing that?

Oh yeah, okay, it's slowed a little.

Bit and a half trillion now for eight and a half billion. It slowed a.

Little bit during the debt ceiling showdown, which was very that was very clever.

Fed space bowl go okay, Fed space Baal, go on the Bloomberg terminal.

But what are you not going to hear asked at the press conference today. Nobody's going to ask them about the balance sheet. It's like the press is gagged.

Why is that horedible?

Because Neil Grosman comes in here, he calls it QD quantitative drip.

Well again, but the first time they tried QT, they were trying to empty out a lake. Now every central bank in the world jumped in after the pandemic. So now QT is working where they're trying to empty out an ocean. So it's it's a it's a different dynamic, but that does not mean that it's not happening. And by the way, it's global, right, and it wasn't.

It was a ton of supply.

This is what we're just talking about with Ira Jersey right at the same time we're getting one and a half trillion.

I think he said, yep, supply maybe through And I.

Mean, you know, for the moment. You know, if you if you dig deep pension funds, life insurance companies, they're delighted. They don't know what to do with themselves with these yields. They're like, oh my gosh, I can do this weird thing called asset liability matching, which I haven't been able to do for years. I've been stuck in private equity paying god knows what fees for diversification that I you know, all of a sudden, I can't get why are we seeing CIOs of public pensions falling quickly one after another like dominoes.

All right, Jess saying I'm glad you made it to the studio. It was worth every minute.

Danielle di Martino Booth, she's the CEO and chief strategistic QI Research, one of our favorite folks I talked to about these markets, about the Federal Reserve. She did spend some time at the Federal Reserve Bank of Dallas, so she knows of what she speaks. Again, we're gonna hear from the Fed today. We'll get those minutes at two pm Wall Street Time. Bloomberg Surveillance TV coverage starts at one thirty. That's gonna be simulcast on radio.

I believe the FED decide FED sides well full cover.

You're listening to the team Ken's her live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.

It's not working in New York City the way I thought it was, which is city approved dispensaries and nice shops and all every block has two or these, two or three of these, you know, kind of I don't know, under the table kind of.

I mean, the road to hell is paid with good intentions. I think the cannabis management in New York State wanted to do the right thing and then just ended up making a mess of it because there's only a few legal well there's only a few licensed dispensaries around here, but you can't get any of the products that everybody wants, so they go to everywhere else.

All right, Kyle Kasen joins as he's the CEO of Glasshouse. Over the counter, ghbf WF is the ticker GHBWF. Yes, GHBWF is the ticker.

Thank you.

He joined us live here in our Bloomberg Interactive Broker studio.

Kyle, you're in the city here today. You've seen it all. What did New York City?

Well, what does Glasshouse do?

What does glass House do?

Let's go there, so thank you for having me on.

Glasshouse Brands is a vertically integrated company in California. We own the largest greenhouse facility or cultivation facility in the history of man mankind. It's five point five billion square feet. Coupled with our other two greenhouses, if we have six million square feet of cultivation. We have ten stores throughout the state, and we have a manufacturing facility. So we're only in California and we're basically the largest seller of cannabis in the biggest state in the country.

How is that business rolling out in the state of California.

You know, it has been very, very difficult. The industry is littered with just carnage and lots of lost money and things like that. We are of cash flow positive, maybe the only company in the state of California is cashul a positive and we pay our two ade which without getting wonky. It just we can't deduct a lot of our expenses because it's federally illegal. So it is the craziest industry I've ever been in. But I love being in it, and we grow cheaper and better than anyone else in the country.

But you can't.

Your brands are not allowed to be sold in New York State and I imagine a number of other states because of the way the regulation works. Is there any potential for that to change?

Yes.

So the cause of that is the federal government. The federal government has absolutely done zero's we're a schedule on drug which is the most dangerous and right now checked I checked that the ticker just where I came in. The total number of overdose deaths in the history of human beings from cannabis is still at zero. So it is absolutely ridiculous what's happening. But we're starting to see some federal relief potentially coming.

You have a number of brands. One of your brands is the Plus Gummies. Yes, And someone I know very.

Well who hadn't smoked weed in years was given a box of those and thought nothing of it until he just decided to take it one day, and the experience was, I think different than he imagined.

He ended up.

Reorganizing his filing cabinet, cleaning out, you know, the dressing room, and it just was was something that was different than he may he may have expected.

Do you hear that kind of story a lot all the time.

And the one that I would tell you people that are of an older age, they go with the sleep gummies because they don't like ambien, they don't like, you know, some of the other things that are available pharmaceutically, and they can just take a five miligram gummy.

And they sleep like a baby.

There's no bad effects.

It's a plant.

And so that and then the next question from somebody like my eighty year old aunt and uncle that when they go on their RV they always have to have their Plus gummies is can I do something and maybe take the edge off, drink a little less wine?

And we and we absolutely have those in the gummies as.

Well, I mean I know a lot of people who quit drinking completely. Thanks in Part two plus gummies.

I love that, And yes, I think cannabis is much more benign than alcohol.

All right, competing, what's it like to compete in the state of California. Who are your competitors?

Oh my goodness, you've got to compete against Kana, You've got Camino, Well, you've got Stizzy. I mean, you've got a lot of big name brands that you have to go up against.

I was not expecting to hear a California expert.

You are absolutely right.

I have friends in California.

Wild would be Wild, would be seriously upset. I don't know if you just mentioned Wild, But what I would tell you is the future of cannabis. If you're an investor and you say, hey, I want to look at investing in a multi state operator, first go to California to see on our stores. Again, we're vertically integrated, but in our stores we sell twenty five to thirty percent of our own products. We have to carry all these other brands that you mentioned because the consumer is very discerning in California and they want a selection, and so the trader Joe's model that you might see in a lot of the other states. We don't get that. We have to run it like we just have to run it straight and get the best products, and hopefully there are ours as well. And so yes, our cell throughout a lot of other stores that are also vertically integrated.

So it's it's a very interesting Well, it's like beer.

I mean, this is the problem I have with the New York City or New York State o CM Brooklyn Lauger is a fine beverage. But if I want Sierra Nevada, I don't want it to be illegal for me to buy it somewhere.

Right. Why is it illegal?

Well, because in New York.

They can only sell products that are grown in state, so any of the California brands can't be sold here.

Go on.

But I mean, you're you know you're gonna go to You're gonna end up going to an unlicensed vender, is what's gonna happen, obviously, And then there are problems because you could get something that's counterfeit, and you could get something that's more dangerous than a typical marijuana product is in the first place.

When I just want to sit and listen, because you're making the argument better than I could.

All Right, when you walk down the streets here in New York City and you see all these unlicensed places, what's the city doing?

How did they screw this up?

What's amazing to me is and I would agree with the initial quote of you know, the road to Hell's paid with good intentions. All they had to do is look at look at the city of Los Angeles, who did this some time ago. We have illicit market and illicit market that's huge in California, and if you don't properly regulate the market, they will own it. And we have one store in the city of Los Angeles. It's our worst performing store because there's ten illegal stores around us. So when I saw what New York was doing, I thought it was crazy. And what's interesting is, you know you're gonna end up. They're gonna grow cannabis in the Hudson Valley. It's going to be far more expensive than what we grow in California.

And so what's.

Interesting is I think you're gonna just unless they decide they're going to take a harder line and regulate this market properly, you're gonna see California products continually sold.

Yeah, because also maybe not as good, right, Hudson versus Humbled. It's a big delta. Do you expect the DA to make a decision this year.

I expect them to make a decision. I've been told it'll probably before the end of the calendar year, and it will likely be a schedule three and go with the recommendation from the Health and Human Services Secretary.

All Right, Kyle, we spent a lot more time, a lot more to talk, but I also want to talk about the real estate business in southern California. So we'll get in touch with you again. And of course, the next summer in New York, let us know, Kyle casn he's to see a glasshouse talking about the cannabis industry. More and more states are going there, but some more successfully than others.

You're listening to the tape catch are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and.

The Bloomberg Business App.

You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa, Play Bloomberg eleven thirty.

All right, let's talk real estate here. Some he joins us.

She's a chief economist at Core Logic, So some give.

Us a sense.

Here, we got mortgage rates just continuing to climb higher. Here, how's that impacting the real estate market?

Yeah, it's been really bad for the housing market. It continues the housing market down to continues to drag home sales activity, particularly for existing homes because you know, there's inventory issue there that continues with elevated mortgage rates. So existing market is just crushed with higher mortgage rates.

Sema, we cannot but notice in your zoom there's nobody in your office.

There is does it work from home day?

No?

This is my back.

Oh, it's your back.

Okay.

By the way, for listeners who aren't aware, you can go to YouTube dot com and search Bloomberg Radio and watch US streaming. You can see Selma there as well. Selma, how uh how bad is it in terms of you know, the drop in transactions, especially with previously owned homes, and when do you expect that to change?

What's going to be the breaking point?

Right? So home sales, existing home sales are trending some twenty three percent a year to date. I'll compare to a year before twenty twenty two, and decline is shrinking because home sales dropped off in latter part of last year, so because of the base effect, that is shrinking. But we are still expecting some twenty percent decline in existing home sales compared to twenty twenty two now that you know historically looking that lines up where we were in twenty fourteen. So it is pretty low and I don't see it improving anytime soon, unfortunately, because of high mortgage rates. I mean, I think really we'd have to see mortgage rates come down to closer to that six percent handle on the lower end, like six point two before we see any significant pickup in home sales activity and inventory for that matter, because inventory is really a huge constraint in addition to lack of affordability.

Isn't there a little bit of a timing or I don't know, any point where mortgage rates are, whether it's three percent, whether it's six percent or seven point five percent, if they stay there for a while, don't people kind of get used to it that if nothing else, people start just doing deals again.

Yeah, yeah, no, I mean that's definitely true, and we do see people moving for family reasons. So we you know, people are people that were going to move, that have to move anyways.

You know, there's life events that happen and make people move.

So you know, because of that, we're not seeing a larger decline in home sales activities. So if people were just staying put, I think that that decline would be even larger. But people do move every year because of family reason, job reasons, and these are now the major reasons that are driving those moves.

You know, I look, I'm looking at the stocks of the homebuilders and are all up fifty percent kind of this year alone, up more than that on a trailing twelve month basis. So it's good to be in the homebuilding business. How much longer they can they enjoy this kind of demand?

Well, I mean, I think we have a lot of pent up demand.

And when you think about that housing shortage that we keep talking about for many years now, we are down you know, anywhere between two and five million homes. And you know, while the number of home news starts has increased, well not in the latest reading, but you know, with the permits being uh and we do expect home sales to pick up again. You know, I think we still have years to go because before we can, uh, you know, make up for that that loss or that inventory.

That wasn't built. So we do have a lot of paint of demand.

And you know, it's not just millennials, it's it's baby boomers who are now retiring and moving to other areas. People are still moving because they can work some some areas. You know, you still can work from home, and you're moving for that reason too. So I think we still have a lot of paint of demand.

I wonder in terms of the FED activity or the FED uh you know, rate rising cycle, when this comes to an end, do you think, uh, and when we know it, do you think, you know, seven percent mortgages are going to look slightly less terrifying or are people going to wait for them to cut rates?

Well?

Right, So the knowing part is the critical part because I think that would introduce some certainty into the market.

And we've talked about mortgage spread being.

High before and it still remains high because of that uncertainty around what the FED is going to do and what inflation. You know, inflation seems to be an issue again now with rising gas prices and food prices. So all of that uncertainty introduces some risks that investors are not happy with or not not not you know, they want to account for that. So until we do have that more of that certainty, that's where when the spread is going to come down. And I think that's when people are going to come back in so, you know, and then.

Obviously federal reserve cutting rates will help as well.

Well.

When I was a kid, a lot of people used arms and post financial crisis rate mortgages and post financial crisis, nobody except for Paul Sweeney has done so is that going to change.

Well, we've seen pickup in arms over the last year, but honestly, even arms have gotten more expensive, so the share of arm or origination has gone down.

As a result.

But people, I mean people are trying in any way anyway that it can to save some money.

So if a buyer finds something, h what is the mortgage market like, can I get a mortgage?

Can I can of a competitive out there? What is the more banks rolling back? Are they much more cautious?

Yeah, I mean I think there are particularly in that jumble market, you know, in the markets that is anyway, more uncertainty we've had more price reductions, there's less inventory. I mean, the markets that are suffering, they suffer too in terms of availability of lending. But overall, an interesting thing that I recently saw from HAMDA data is just how MU originations went to higher income households. So higher income households don't have as part of a time getting a loan as much as a lower income households.

So so you know, that's that's really the concern here with lack of affordability. And then on top of that you can't even get a mortgage.

So what's the what is your expectation of Core Logic? You know, a year from now, where do you think mortgage rates will be?

Oh my crystal ball is not working these days. But you know, I think I'm hoping closer to six again. You know, our forecast for the end of this year six point seven. I think by the middle of next year we could be down to that six point to six point three.

All right, Salma, thanks so much for joining us.

Some a heaps chief economists at core Logic talking about the real estate biz.

You're listening to the tape Cats are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business app. You can also listen live on Amazon and Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.

Boy, what perfect timing? UK delayed ban on sale of new petrol diesel cars until twenty thirty five, pushing it back.

Our next guest probably hasn't.

It's the worst timing. Why would they announce this during Climate Week?

I don't know, That's my point.

So I'm thinking what is going on there? Ian sim joins us. He's the CEO of Impacts Asset Management and the reasons this is irrelevant?

Ian? How what's your investment strategy at Impacts? What do you guys do?

So we're investing in the transition to a more sustainable economy, which essentially is the industrial revolution around clean energy.

So your UK Prime Minister during Climate Week says we're going to slow it down a little bit.

Well, the UK had become an outlier in the sense of banning or announcing a ban on internal combustion engine vehicles new sales by twenty thirty and just about everyone else that's got that twenty thirty five, how the European Union had committed to something five years later. So this is just an alignment with what the rest, all right.

The other thing that blew me away just from chatting earlier, like environmental investing here has lost the momentum in the United States, and I know it's way different in Europe, particularly Northern Europe. But you got fifty billion dollars in assets under management. You're making big bets here.

Yeah.

So we've been going for twenty five years since I started the business in nineteen ninety eight, So we're running money for about one hundred institutional investors around the world, including many in the US. So actually, this is not about environmental investing. This is the industrial revolution, around renewable energy, around energy efficiency, around electric vehicles. These are producing better products for consumers, cheaper products, and this is good for everybody.

Talk to us about like what might be a couple of the big areas where.

You guys have invested in. Give us a sense of kind of how that works for.

You, And I mean to sort of build on the idea that this is a revolution. We were talking a little bit earlier with someone who's invested in battery technology, and he told us this is like the shift from whale oil to petrocarbons, Like it's that big of a deal.

Yeah, I mean, solar power has come down and cost by ninety five percent over the last twenty years. It's cheaper than.

As has the price per kilo at hour for batteries precisely.

Yeah, so that means that that you can get cheaper transportation, cheaper electrons when you plug a device into to the grid. So what are we investing in? What we're investing in large scale wind projects, We're investing in building's energy projects. If you just taken the average office building, you can typically reduce the energy use by thirty percent just by putting it a better building management system, better software, better sensors. So these are global opportunities, massive markets.

Well, and I think it's nice that you highlight the office investment case because Paul and I we talk about us a lot, right, we like to talk about ourselves. But this isn't about as much consumer adoption as it is CapX. At least that's what corporate capex. That's what Jeff Chamberlain was telling us. He's the CEO of Vaulta Energy Technologies used to run Argon National Laboratory, and he said that's why he got into this business. Because you're going to see large multinational conglomerates really shifting spend into this transition.

Yeah. I mean, this essentially is a game around strengthed assets or avoiding them. Because if you're an auto manufacturer and you've got a plant that's producing thousands of vehicles a year with internal combustion engines, but twenty thirty five, you're not going to have a market in Europe, so you need to pivot that manufacturing process to an electric vehicle process, and that's not easy. So this is where the investment capital comes in, because what we're trying to do is find for companies that are going to be winners over the next five to ten years. And those are the companies have got strategies that are going to be successful with twenty thirties.

Which are the most exciting ones. I mean, I love cars, so I always think of battery later vehicles. But you could tell me like new HVAC systems are even more important, I would have no idea.

Well, we're investing across the board. There isn't like a silver bullet here, that's going to be the one to go for. So and it's not just all about energy, right. Look, look what's happened in the water sector this year. We've got a huge contention in the UK around sewage overflows, pollution of rivers. I think there were problems with one of the big athletic events in Paris because people couldn't swim in the River Seine for the triathlon. That this is a major investment opportunity as well. Look at garbage, the amount of money that's just been put into landfill by throwing stuff away. Regulations are trying to tighten up on that. So there's new regulations in France now that are requiring buildings developers, buildings owners to guarantee the use of certain levels of recycled product and also guarantee the removal of waste when they're doing construction.

Wow.

Yeah, So what are some of the where are the new ideas coming from for to manage this transition? Are are there certain parts of the world that are you find the companies are kind of sprouting up.

One of the reasons we opened an office in Hong Kong in two thousand and eight was because we could see that a lot of the technology around this revolution was going to come out of the Asian region. So we've built a very smart investment team in Hong Kong. We've just added some capability in Tokyo as well, so that sort of access from Singapore up to Tokyo via Hong Kong, Greater China, Korea, Japan, that's where a lot of this is coming from. But it's not just an Asian story. There's great technology coming out of the lambs in the US, as out of Europe as well.

In your athas under management are big. I don't know if we said or not, but fifty billion right dollars? What's the trajectory, like, is it growing and where is that money coming from?

So it's been growing rapidly recently, it's been plateaued for the last twelve months or so because we're in quite a fragile market for equity investing in general. So what I've been talking about are the fabulous opportunities in this industrial revolution. But we can't get away from the fact that equity market sentiment is quite weak at the moment. So that's meant that our flows are fairly flat right now. So looking at head eighteen months two years. We're expecting that to pick up again. But we've got distribution now, sales to clients across the world, one hundred sales and marketing people. So we're expecting that new money to come in from pension funds, sovereign wealth funds we're in dialogue with. We just won a mandate a year ago with the Government Pension Fund of Japan. We managed money for calsters out of California. But also the man and woman in the street are really starting to vote with their checkbooks through their money managers in favor of these new industries. There's a lot of private wealth money coming out way.

I think it's interesting that growth in assets has been flat, considering we got over the last twelve months of the IRA. In that period, right, you're starting to see governments put not just millions or billions, but hundreds of millions, approaching trillion trillions of dollars behind this transition. Isn't that like the whistle to get on board?

Yeah, So, the Inflation Reduction Act in the US, the Green Deal in Europe, and similar policies out of China are really propelling corporate investment. That's great for earning's outlook over the next sort of next few years. But we can't get away from the fact that multiples and the equity market are depressed because sentiment is weak as inflation has come through and central banks has been raising rates. But as right starts a plateau and inflation's under control, we can definitely see sentiment improving for equities, and that should be fabulous for growth at a reasonable price, transition to more sustainable garment when the sentiment, when that sentiment improves.

Right, We have a guest that comes on occasionally when when he's in town. His focus is not necessarily new technology. His focus is just kind of capturing the energy that's lost, even like fossil fuels. You know, he's got some crazy number, you know, the the amount of energy that's lost. Me to take a barrel of oil out of the ground and it gets into whatever it's Jonathan Maxwell, right from Sustainable Development Capital. He also wrote the book The Edge, How competition for re sources is pushing the world and its climate to the brink yep And so, how do you guys think about that little part We're not little part, but that part of the whole move towards Green Industrial Revolution.

Well, that's sting waste, I guess, right, mean, that's just money that's sort of lying on the sidewalk to be picked up. It's an absolute no brainer to invest in energy efficiency. The payback periods for many of the things that we're investing in that space for two three years. Another reason that they're not at scale is because I quite often very fragmented. So that's where our insights come in as analysts around the world is looking for these opportunities that can scale quite quickly with the right capital support.

Interesting, it's I mean, I'm glad Climate Week happen because I've been learning a ton about an issue that you know. The problem is, I think for a lot of Americans, they get kind of beaten over the head of this ESG thing and it gets kind of.

Muddied in with the whoe thing complain.

It's become very politicized, and that makes it harder to talk about from an investment from a completely logical point of view.

Yeah, we need to bear at ESG. ESG is an unhelpful, muddy concept. We need to move on from that.

Because I like the way you phrase it, because I could take that message down the Tallahassee, Florida, Austin, Texas, and pitch.

I think the.

Pension funds well. And I wouldn't be physically thrown out of the office. You would be if you said esg right.

But and if you go in and you say, look, if you buy an electric vehicle, it's got forty percent of the parts of an internal combustion engine vehicle. It's more reliable, it's going to be cheaper, it's going to be more fun to drive. Why wouldn't you want to buy one of those rather than the clunky old guests?

Thusiads all right, Ian, thanks so much for joining US.

Ian sim he's the CEO of Impacts Asset Management, joining US live.

Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews on Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.

And I'm fall Sweeney. I'm on Twitter at pt Sweeney.

Before the podcast, you can always catch us worldwide at Bloomberg Radio.

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