This is Bloomberg Business Week. I'm Charle Masser and I'm Bloomberg Quick Takes Tim Stanabek. We're here every day bringing you the latest news from the world of business and finance, plus technology, politics, economics, all furnessing the power of Business Week reporters and editors, not to mention our journalists and analyst in more than one and twenty countries. You can download Bloomberg Business Week and iTunes, SoundCloud, or Bloomberg dot Com.
You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. Let's get our daily check on COVID. Dr Jacob B. Kraft is a biologist. He's CEO and co founder the privately held biopharma company Strand Therapeutics, and he joins us on the phone in Cambridge, Massachusetts. Jake, nice to have you here with Tim and myself. How are you doing, Jimmy L It's good to be here. UM, I'm doing fantastic. UM. You know I think that um.
It is a it is a it is a challenging bud, a rewarding time to be in the bio sex sector. Why so and tell us specifically about the work that you guys are doing, because you're in this whole world of something that we've all become, UM not quite an expert on, but we know a lot more, and that is messenger RNA. Yeah. So myself as a scientist that I did my PhD and m I T focused on messenger RNA therapeutics. Going back to u UM and really even back then we were we were sitting around talking
about the potential of what this technology could do. UM. Luckily, some some visionary people UM at DARTHA back then Dan Lattendorf actually um AT at the DODS Research Division DARTHA UM chose to start backing companies and research groups like my own UM to begin researching this mrn A technology as a as a therapeutic UM. That funded a lot of Maderna's work. UM, that funded work that ended up going into violent tech, and that funded the work that
ended up ultimately becoming my company Strand therapeutic UM. And so it's it's a rewarding time really to see I think the power of biotech innovation, I think the power of this technology that those of us who are champions of this of this field have been promising for a long time, UM, and it's you know, it's rewarding to UH in a in a year that has been just
absolutely awful. UH. I think it's it's the silver lining to see, UM, just what can happen when private industry along with the public UH and public funding can come together UH and deploy these therapeutics. Jacob, can you talk a little bit about what mRNA does to the human body, because I think there has been a lot of questions about it because it's it's perceived as being a new technology, at least for use in humans, despite the fact that
it has been being researched for years. Absolutely. So the first thing to to say is that m RNA is a molecule that our bodies use all the time. UM. So inside if your nucleus is your is where your genome is kept, and that that's all made of d N A UM and so on your you, You of all of these genes, and those genes code for proteins and protein is really what life is. It's what makes up the substance of what we are, of what every organism is. And in order for the DNA genes to
get out and become proteins out in your body. They have to be sent on on this information molecule UM, and that's what messenger RNA is. And so every day your body is turning on genes by creating messenger RNA from the DNA and using those messages to to actually actuate themselves. What messenger RNA therapeutics are are just creating that same messenger rna UM and using it to deliver different sorts of of genes that are only temporary. Right,
This isn't this isn't genal modification. This actually never touches any part of your of your DNA whatsoever. But you can you can use these instructions, these messenger RNA instructions to temporarily deliver instructions into the body, and that could be used to create a vaccine. Right, that could be used to help your body train up to to learn what a virus might look like without actually delivering the
virus into the body. And in the broader field of messenger RNA therapeutics, what my company Strand has been focused on is further in that technology for the use in fighting cancer, fighting rare diseases, fighting autoimmune diseases, UM, all of that can be augmented in this much safer platform than general engineering as well. So it just says we're not touching the DNA helix or double helix, we're not
doing playing around with that. But what is it? And unfortunately you have to come back and talk some more because this is stuff we love to talk about. But in a minute or so, what is it that we don't know about messenger RNA that maybe puts people still on edge a little bit? And again, just got about fifty seconds. I think new technology is always, uh is always can can be a little startling to to see at first, especially when it's when it's run out um,
you know, fairly fast in the public. Suye, I wouldn't say that we have a lot left to learn about um messenger RNA itself. Um, it's really I think right now about giving vaccines in the arms of people to make sure that we're not rolling the dice on you know, what are the long terms effect of a COVID infection.
I think that's a much more kind of serious thing, um that we need to protect ourselves against getting these vaccines out and really you know, continuing to invest in technology like this so we can be protected from future you know, pandemic outperak right or cancer, and I know that's something we barely scratched the service, So I hope
you'll come back so we can continue this conversation. We've been talking to Dr Jacob B. Kraft, to CEO and co founder of Strand Therapeutics, with us on the phone in Cambridge, Massachusetts. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic from Bloomberg Radio. It is, without a doubt the financial story of the week.
It will turn out to be one of the stories of the year about the private investment firm that continues to be at the center of one of the biggest margin calls of all time. And a member of our Bloomberg News team that broke the story is Bloomberg News Finance reporter Shrina Rajan. He's with us on the phone in New York City reporting for Business Week along with Bloomberg Business Week editor Joel Weber. He's on the access
line in Brooklyn. Joel, this is a story that we are continually finding out more and more kind of every hour about it. And one of the angles that Tree is dealing with is kind of what was happening at you know, some of the big banks, like Credit Sweets, Like you had to wonder last week, what were the phone calls and conversations that were going on among the big Wall Street banks. Yeah, I think we've just all
been um in awe of the story. And you know, we we first start to trickle out Friday, and then over the weekend Bloomberg News was just all over it. Um And the most surprising part that has come from Freeze letters reporting today that I saw was that the banks were all talking about this this time last week, So so sweet, kind of take us inside those conversations, like how did they begin and how did they how
did they go? Oh, Joe, you're absolutely right. For all of us and the outside, you really started trickling out mid to late Friday, over the weekend, and of course to the first days of this week. But for those who have been dealing with Bill Huang and his family office, they were starting to get worried and alarmed by the middle of the week as some of his big positions were moving in the other direction, and very soon by the middle of the week, the banks did realize they
had a big problem on their hands. The Risk Department that a number of Wall three banks, European banks, and even Japanese banks were starting to get worried, so they all decided to get together in an eastily arranged call that included some of the top lawyers from all of these firms, also included Bill Hong to find a solution, to figure out how to untie and unwind these positions
in a tidy manner. From our reporting, we understand the Cradles in fact, was the one that was pushing for this idea of a stand still agreement, asking everyone to cool down, back off for a little bit, let's see how the price action moved and look at it again on Monday, because they did not want to see an
immediate force liquidation. Well, the clearly regional agreement they were all in it for themselves by Friday was clear because they're all broken rank And now as we see the consequence of that action, we see the big U, S Bank, Long of Stanley, Government, sax Well Sago appear to have
emerged from this largely unscathed. But that is not true for an mm U of j which overnight told us that their losses could be about three million mura Al would says that has a two billion dollar claim without actually saying what its actual hit could be from this, and Credit Swift, which has still not provided a bigger what estimates on that are heading into multibillion dollars And that sort of starts to explain Swiss stance on that faithful called Last Those Day tree. What what could have
been a tidier way to unwind this? You you know, you said the banks were looking for a tidier way to do this, But but how could these losses have been prevent it when the stock started moving lower? No to me, You're absolutely right. So we're still trying to piece together that part of the puzzle. But one possibility very well could be instead of the banks moving to says collateral and force some sort of liquidation event, perhaps the strategy was wait and see if the staff rebounds.
Perhaps the strategy was asking some of the banks who had the potential to demand much more margin to give some sort of margin holiday. It isn't clear what the solution could have been, but what is clear is for at least some of those participants on the call, the idea that banks would move into the market by Friday and do a rapid fire sale of a number of these positions was going to be the worst case outcome,
and that's what they're dealing with now. So sweet, What are the big unanswered questions that that remain Why in the now the regulators investor than everyone on the outside is trying to make sure. Is there more to come? Are we going to see more blocks, chunky doc trades happening? Is there a systemic risk? Is the market largely insulated
but without a doubt? As we moved fast this into next weekend beyond in the weeks and months ahead, the big question that will emerge from the saga, and really the big focus point, will likely be around this concept of unknown hidden leverage. How is it that someone could build such concentrated positions in some fairly prominent names. These are Chinese giants, US media conglomerates, and yet no one
knows about it. If you're in the cash equity market, if you build a position that is larger than five percent, that has to be regulatory filing, but appears in this case he was using the swap lines with banks that allowed him to avoid having to make any listing of what peace position and would be so we are not aware of any such disclosure. There's no outside money, so he didn't even have the usual disclosures about the size of the fund that we would get from every other
hedge fund. Right, but clearly was a big, big player in the market, and estimates our ghost exploser could have been good at the fifty sixty billion dollars. That seems like a worry. That seems like an area where there will be demands for are a lot more transparency. I just want to know who's the bankers. Are their bankers on this call that just parted themselves the Steffan because
we just started drink being poor? Just getta say, um, listen, this story is far from over and I'm sure regulators we know that they've been reaching out to the bank. So incredible reporting by Street. Part of the team that broke this story and has been on it from the get go. Shri Nataraja and Financial portrap Bloomberg News on the phone in New York City along with Joel Webber,
editor Rep Bloomberg Business Week on the remote access from Brooklyn. Right, it was a banker right poor to drink it has to be. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Take. Tim Stinovic from Bloomberg Radio. Tough story in our minds today, Tim, no doubt about it President Biden's infrastructure plan. Yeah. Chris Condon is Federal Reserve and US Economy reporter for Bloomberg News, joins us on the phone from Virginia. Chris, it's great to have you
on the show. When we think about what the Biden administration wants to do with its next phase right after this COVID recovery package that was pushed through one point nine trillion dollar plan, what is the priority for the president? Well, Tim, I think there's two overarching motivations here. Number One, they want to bring up the longer run rates of economic growth in the U S which have been historically quite disappointing for for ten or twenty years, you might say.
Also very much tied into this is they want to engineer a more equal distribution of the benefits of that growth, because we do see increasingly, over a number of decades, a greater concentration wealth and income in this country at the higher echelons of that distribution, and the Democrats really would like to attack that well. And before we get into politics, Chris. Let's because this is something several I would say heads of the Federal Reserve have certainly had
on their radar. Do you have and like, listen, there's lots of statistics out there about the gaps in wealth and gaps and income. Um. You lay out a couple of statistics, can you just kind of remind us of what they are? That just kind of sets the scene of where we are and how bad it's got in terms of the inequities, certainly the financial inequities in our society. Sure, sure, I mean I would promise that just a little bit by saying that there's all sorts of disputes over various statistics,
would you know one? But you know, if you just look at basic um distributions of income and net worth, here's a good example, and net worth of the top ten of households in ninety eight nine, that was nine point five excuse me, nine point four times as much as the middle fifth. You know, if you divide everybody up twenty percentage points each, that's nine point four times
as much. That by two seven grew to thirteen times, and by two seventeen seventeen times, and that's before the pandemic hit, and that of course has fallen disproportionately on poor and middle income people. The rich suf financial assets really greater for a while, but they have bounced back uh and more since then, So those multiples will even probably have grown even more since the onset of the pandemic.
And that's a good example, I think, um and that really goes back over forty years, we've seen the deterioration of that kind of both in net worth and in average incomes across the board. So, Chris, let's now get to the politics of this, because this is going to be very political, even just the way the Democrats and Republicans talk differently about inequality and inequity, using terms like structural versus not structural? How does how does? How do
Democrats and Republicans come to some sort of solution? And and right now do they even see the same problems out there? Well, it is a really good question. No, they don't see the same problems. I mean, to a certain exting, yes they do. First of all, we have to say that in the United States, compared to what they're developed economies, there is a much greater tolerance of inequality.
Americans have in our fabric, this idea that if you work harder, you're smarter, you invent something, and you make zillion bucks, good for you. Americans really have a problem with is an inequality of opportunities. So if a kid is smart but just can't get educational opportunities, work opportunities because they come from a poor neighborhood and their schools are crappy, their parents are connected, etcetera. If those things deep in the inequalities, that's something that most Americans have
a serious barble with. Now, how do you address it? Economists, I school on both sides of the philosophical I agree that education and training absolutely deserve more resources and more attention, um so as to create that more equal set of opportunities. But it's not just more right, because it's not just more of it, but the right one that kind of opens the doors to opportunities. Right. Well, this is what
makes it such a complex issue. You know, one economist said, it's not just a matter of throwing money at these things. Are You know, if they were easy to solve, they would have been solved decades ago. And there are loads of theories about how we should go about Just one example Biden wants to make community college tuition free. Conserner economists say, hold on, you're getting it wrong here. You have to incentivize the colleges by time eyeing the assistance
to the outcomes. I think it could getting degrees at community college, are they getting jobs and good jobs? And the ones that do that are should get more assistants at schools at it um. So that's just one example, um. And then, of course is the taxation issue. Massive disagreement about this. Conservatives believe that wealth is being demonized in the US UM and that it's kind of a cheap, populous ploy to go after the rich and say they
must be taxed more. Liverpools will say, look, we've tried to allow corporations and wealthy people to keep more of their income under your theory that this would help the overcomony more by investing job creating adventures, but hasn't really quite worked out that way. Let's get them to pay more a greater share and invest that in education, infrastructure, which to the best of which has dispersed more rightly, great healthcare, which can improve the quality of the labor
about you. So again, as you say, care a huge philosophical difference on this um and we're not like to see those difference in just solved. We're going to see one side pushed through legislation. Hey Chris, justin fifteen seconds, is there a chance that Biden can do this with getting any Republican support unlike what he did at the one point nine trillion dollar stimulus package relief package. I
do not believe. No, not such a large package. If they broke off one piece here, they're like a pure surface transit infrastructure piece that could get maybe some Republican proposal support, but highly skeptically. Well, we're gonna hear more from the President on all of this starting tomorrow, at least we expect to. Hey Chris Connan, thank you so much for breaking it down. He is Federal Reserve and US Economy reporter at Bloomberg News joining us on the
phone from Virginiam. A little bit bomb that this might not go through, especially the infrastructure part. Yeah, Like, like Chris said, there's a agreement on sort of what the problem is, just not on the way to attack it. I'm broad mac a journal Yeah, but you let me drive Oh no, no, no, no, who's going to drive home? Honey, please, I'll do the right rivel let me. I want to drive, just drive baby, the questions trying. This is the drive to the globe commune. Thanks, we'll drive us to dawn
on Bloomberg Radio. All right, folks, just about nine and a half minutes, nine minutes, ten minutes left in today's trading session. Let's get to it with Iria Rothberg, co portfolio manager and managing member of broad Run Investment Management, that is a subadvisor to the Hennessy Focus Fund, which, by the way, uh is that more than so far this year, putting it into the nine percentile according to our data. And he joins us on the phone from Virginia.
Are good to have you here on Bloomberg. How are you? I'm doing well. How are you Carol? Doing okay? Doing okay? Um, why don't you start abroad before we kind of dig a bit into your market, into your fund and it's holding. How do you see this market environment right now? This is an interesting market environments. There are certainly um pockets of exuberance in the market, particularly in high growth and
concept companies. It seems like in this low interest rate, low growth environment of the pandemic that investors are looking to find the next Amazon, They're looking to buy lottery tickets. Everybody's looking for the next trillion dollar market cap company. And as a consequence, you see people routinely paying thirty thirty five times sales for businesses with negative twenty year
negative thirty percent but don margin. And you know, at the same time, the market overall is perfectly reasonably valued, with the sprading at about twenty two times Ford earnings since arts portfolio trading at a discount training at about seven times for earnings, where we see even better growth
in the market. So you know, we think it's possible to find really compelling investment opportunities UM, improven businesses with long growth runways, UM, just not in the hot names or hot sectors that you talked about UM on TV every day. Let's talk about some of those, IRA, because I know one of your picks is restoration Hardware. Why
are you seeing opportunity there? Sure to understand Restoration Hardware, you really need to understand It's chairman and CEO, Gary Friedman, was about of the company, and uh, I through rewind the clock about twenty years. Restoration Hardware Hardware was a nearly bankrupt company before UM Gary came in and turned things around. And today, you know, our age is really the leading UH luxury home furnishings brand in the United States, and we think over time that will become the leading
brand globally. UM. They're really climbing the luxury mountains, mountains mountains. You know, as I mentioned, twenty years ago, they had a m they had a box of laundry detergent on the front of their catalog. And today, you know, if you walk into their New York design gallery ninety thousand square feed, six levels, you know, a rooftop restaurant. UM. You know, it's quite a different experience. UM. And you know, sorry two, they're going to be expanding into England and
into Paris and taking this successful concept globally. And so we think they're in the early inning. It's about a three billion dollars a company with about three billion dollars of revenue today. We think over time they can eclipse of revenue. So UM, very very exciting concept with a talented management team. It's a very different company. You know, if you go back, you're absolutely right, very very different company. UH. And you do think obviously playing into that luxury space.
And especially over the last year, we're seeing everybody just kind of ramp up their plans for their home. They're just kind of tapping into something and so that globally means a lot of growth for them. Sure, and UM, existing home turnover is very strong right now. How the demands very strong, UM, particularly in a million dollar plus home, which you know, their target market, their their target customer
has north of two hundred fifty dollars housefold income. You know, the rule of some is people spend about ten of their homes purchase price on the furniture. UM. And you know, if you're buying a five million dollar home in two and a half million dollar home, that's a lot of business for restoration, hardware. And people have been moving out of cities and and and there's been a robust second home market in the suburbs in beach locations, and that
all has been very good for them. But you know, I think what's the most important here is that they've built this luxury brand and it's continuing to grow. They're gonna invest a hundred and five million dollars and build out really um, you know, a whole suite of solutions in the Aspen, Colorado market. They will have an r H guest house, which is a little bit more private than a hotel concept. They'll have their traditional furniture design gallery.
They're gonna have spas in the restaurant and you know, all this the brand even more aspirational and that gives them pricing power. So again they're in the early innings here. Love me some English wing back chairs. Just gonna say, if you ever walk in one of these galleries, it's just like, can I just move in? Can I just move in? Hey? CarMax is another one that you like. KMX is the tick or what's what's your take on there? We've only got about forty seconds, which is and the
stocks up, so it's already had quite a run. They revolutionized the car buying experience about twenty five years ago with the no haggle, big box format, and they're about to revolutionize in again with their omni channel concept, which has been rolled out nationally and you know, they're starting to put advertising dollars, you know, really behind it where um, you know, you can buy a car from the comfort of your living room sofa, you can arrange for your
trade in, you can arrange financing, and they're really the only one ones that will allow you to do as much or as little of the transaction on store, in store or online if you'd like. And um, we think that this is gonna for them tremendous market share games. There will be a cost efficiencies as well, and it trades at a reasonable multiple about twenty times for so you only have to leave actually to go drive the car ultimately to drive to restoration hardware exactly and pick
up one of those English green back chairs. All right, alright, thank you so much. Ira Rothberg, He's portfolio manager of at Hennessey Funds, on the phone in Virginia. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com. And you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube search Bloomberg Global News