Big Take: The Amazon Approaches Point Of No Return

awesome reporting, awesome journalism. There's some big takes and then there's some really big takes. In this story today is a really big steak. It's a big topic. Uh, the Amazon, the rainforest. We know about the risk to that rainforest. I thought I did until I started reading this story. Jessica Bryce joins us. She's a senior editor for Latin American News from the South. Paulo joining us on the phone. Jessica, Alright, the Amazon rainforest, nearest point of no return in Brazil

land grab. Can you just let us step us step out thirty feet and just frame the issue for us. I think most of our listeners have a sense that Okay, the rainforest is at risk, but how at risk? Hi, thanks for having me on the show. Um. Yeah, So the rainforest, Uh, deforestation has been an issue for decades UM. It's been a crisis in the making for decades UM. But recently, what we're seeing is that it's reaching this

point where it's this. The rainforest, in many ways is sort of one giant organism organism, it's this, it's this ecosystem that depends on other parts of the ecosystem. And what we're seeing is that as the burns worsen, uh, not only is our large parts of the Amazon no longer pulling greenhouse gases from the air, but they're actually contributing and accelerating climate change. And we're nearing a point where the Amazon will no longer be a be a rainforest.

It will turn into a savannah. And that's important because not only because of its role, as you know, in cleaning the air that we breathe, but also because it regulates the weather for South America, and South America is a huge producer of food for the globe, and so you know, losing the Amazon going over that point, it's a very serious problem for everyone. So, first of all, Jessica, I learned so much reading this story and I just

think it's a fantastic piece of journalism. Um. There must have been my numbing amounts of research that went into this document and interviews, and I just thought it was so good. Um. One of the one of the central um themes that I took from this is we all benefit from the Amazon rainforest, but um, Brazil wants to be somehow compensated for that by the rest of the world, or they threaten they will go and take the value

out of it themselves. And you know, you interviewed so many people who were just so poor, they didn't have shoes and went into this rainforest in order to make a living. I mean, what else are they gonna do, right, unless the rest of the world steps in and helps Brazil do something, because it's not it doesn't seem really fair if we all enjoy a resource that, um, you know they have to foot the bill or carry the

debt or however you want to see it. Absolutely, and that's that's the key part of the argument and sort of the culture in the mindset down here in Brazil. Brazil DeFore station has been UM tragic. Brazil has lost a lot of its Amazon, it still has eight percent or so of its natural vegetation, which covers three uh two thirds of the land in Brazil. The government's argument is that there's no other country in the world that really has that much rainforest and has preserved that much

of its natural forest. And it's not wrong, right. However, it is a an incredibly important resource in to in terms of you know, cleaning the air, but also in the commodities it holds. And yet Brazil and the million people who live around the Amazon are incredibly poor. Right.

What you're seeing, however, is that this argument of we need to help the poor is being manipulated in a way, and of course right, and so that the poor are being you know, they do they do go in there, and they are driving a lot of this deforestation, but that land often ends up into you know, it turns into sort of industrial um farming operation. Well, and they'd

probably be poor no matter what. I think. It's a lot like the Middle East, right, and that you know, most of the world's oil reserves are there and we have to all pay to use them. And as a result, there are so many billionaire Saudi princes um in this case, it is as if though we're all getting that oil for free. And that's I think the good part of Bowls Narrow's argument. Of course, the bad part is he doesn't really care about this resource, it seems from the story,

and um, he's willing to just shred it, right. And and you know one of the arguments, the Bolson our Boson out of government has really pushed for payments to private property owners in order to preserve their force. A

system like that would be incredibly problematic. Uh, not only because Brazil government, Brazil has a history of corruption, just terrible corruption down here, but also like the forest that's being preserved is not as efficient in cleaning our air and and you know, uh, producing the rains that we need um as the native forest. And by that I mean that these forests, the the Amazon has these magnificent hardwoods that are just you know, hundreds of years old

and their um you know, eleven feet in diameter. And even if you're preserving the force the private property owners are preserving that force, they're still cutting down those trees because there's demand in global export markets for those streets. And so it's the system in which they're posing the

solution in which they're proposing is very problematic. Is there any solution that is being embraced by the world's economy, some of the world governing bodies to perhaps is there a solution out there that some people can call us around. You know, I think that the narrative, the solution that the world is talking about, that narrative needs to change.

What's happening is that there's a there's a problem with the land policy and in here in Brazil and this you know, the government incentives that really push people to drive the to to DeForest the Amazon. The world values is valuing that deforestation because they're buying all of the products that come from the Amazon region, um soybeans and soy products. I believe the experts in out of Brazil

that we're valued at thirty billion dollars um. Nuts that kind out of Brazil, which can be produced sustainably, it was only a hundred million dollars. So there's there's just no you know, I think the world it's very important that the world has put a lot of pressure on beef companies and I think you're seeing some changes. I think that some of the beef companies are taking it seriously. But I think you also need to the you know, international governments also need to look at okay, we're buying

this stuff. You know, maybe we need to rethink our demands and because the world does have great power in in making those sort of demands if they wanted. But it's not like we're gonna ever not want to buy as much beef as we can or Brazilian mahogany. I think it seems to me eventually we're gonna have to pay up um. But the story is incredible and I so want to see these rainforests. It sounds just unbelievably beautiful. Jessica Bryce, Senior editor for Latin American News, This is Bloomberg.

You know, this is really I think one of the themes of this year has been meme stocks and robin Hood. We've seen hearings on Capitol Hill. Pretty much everybody knows what it is. I feel like it's kind of like the new TikTok um, the new Snapchat in a sense, because this is what the kids are doing. And by kids, I mean you know, like middle aged white men sitting in their parents basements. Let's bring in Crystal see you

right now? She is Um Bloomberg News reporter who has been covering the story from the get go for us. She joins us in the interactive broker studio here at one Lexington Avenue. So Crystal thirty eight dollars. That's the indication right now. Not so great, is it? It isn't so great On an ip O day on the first that you usually expect a deal to pop a little bit. Some deals go up to a D so for now

they're looking flat. We all see a couple of hours imagined away from the actual trade, so it could go up, but it's looking like the first trade wouldn't be significantly higher than when they priced it. We we've been talking to uh I p O specialists over the past couple of days who say the sweet spot would be a pop of something like right, if it doubles on the first day, lad left a ton of money on the table, And if it doesn't do anything, then there's no hype.

So you do want to see a pop, but you don't want to see it too. I mean, Paul knows this probably better than anybody because he's priced IPOs for a living. Yeah, I mean that's exactly right. And I think one of the wild cards here is there is higher than typical retail allocation. So I wonder how that's going to affect kind of not only the opening of the stock, but maybe the you know, the early days

of trading. Yeah, it's an interesting experiment. I don't think anybody has allocated this many shas to retail investors from sources we are, we've reported that they're actually don't they actually allocated of the entire I p O to retail investors. And that's not it there. They have extremely high volume on of for stay. Also because they relaxed the lock up, so if you're an inside that you can sell, is

that right? Yeah, and on the day of pricing off the first first day, whereas to the traditional lock up might be six months. Right. So yeah, so this is actually a huge flood of shares that could come in potential, right. I mean, if you're an insider who believes in the company, then you're not going to do that, well, I thinkainly

not before the pop, right, yeah, hopefully. I mean so, I mean it is the expectation here that the underwriters, I mean, it's you know, I guess your sauce just coming across the Bloomberg terminal, maybe twelve thirty one pm Wall Street times when it may open, and even that feels a little bit late relative to some other deals. Is that also maybe a red flag here? Not necessarily a red flag, but when you have someone volume, I

think it makes sense that it's taking longer. But I think overall Wall Street has been taking this sweet time with opening I p O S. Lately we have seen deals open after one pm, so we could be sitting here for a while. Even on the d Y s C. I mean, Paul and I were talking about, you know, we remember back in the day when they would open things in an hour and a half after the bell um. It feels to me like it's Nasdaq that takes this long. Well, they actually bowls take a while, and I think there

is a regulation. There's a requirement you can't actually open it within the first two hours. They want to have a proper kind of market discovery period on the first trade. Um. I mean, it's it's kind of the same system. One is the electronic and the other one you have like actual people market makers running around. So we actually saw on the live stream that there is someone um J. Heller at NaSTA he's the person sitting there opening the trade.

So yeah, I think it's really up to him. We can I mean it could be it could be another five minutes, it could be another hour, all right. So, um, this was a traditional i PO as opposed to a direct listing, as opposed to merging with the spack. What did the company say about why they chose an ip O. So there is I would say, still a little bit of a stigma with going to a SPAC, especially when you're very, very large company, you have a lot of

vcs in it. Um. The stigma is so that you know, the spack used to be some thing's done by second tier thirtier companies and you don't want to do that. Um. But I was talked as back also it's tough but not unheard of, um grab when public get over forty billion through a spack. Um. But what I would say is actually the direct listing and the I p O have actually blurred a lot, especially with relaxed lock up

measures like the like. So with all of that, it actually kind of looks a little bit like a direct listing. Are you one of the ten million, seven hundred thousand degenerates on Wall Street? Bets. I am not, but I pay attention. I've just looked. I was just scrolling through Wall Street bets to see there's not a lot of positive um D D about beIN Hood. I would have thought that this crew was going to get behind it, but they don't really seem that amped on buying robin

Hood chairs. Yeah, it seems like the retail investors, at least some of them have beef with robin Hood after the whole game stops saga and they true good point. You didn't understand why they couldn't trade at the high they couldn't sell they were welcomed to buy. All right, Crystal, thank you so much for joining us. Crystal see us deals. I p O reporter covers all that good stuff for Bloomberg News. Alright, active investing, passive investing, we've been having

that discussion for a long time. Is more and more money goes passive index investing. We've been having that discussion. But how about you know, introducing a thematic element since Jack basically exactly right, Um, it's it's a thing. I guess, as the kids would say, ra who send Sharma joint us R, who is a managing partner at index Roll. Thanks so much for joining us here and love to get your thoughts on thematic indexing. What is it and kind of give us a sense of where it is

in the in the marketplace right now. Absolutely thanks for having me on guys. So, at a very high level, thematic indexing is building an index that gains exposure or targets a particular theme. Um, So you can look at a theme like cloud computing, for example, or cybersecurity, or

robotics or clean energy. These are examples of thematic indexes that we built that have been popular and that have been licensed for typically et s here the US and overseas, that have gained a lot of aascets over the last few years and really reached a tipping point. So it's bringing factors just like a step further basically and allowing everybody,

not just hedge funds, to get in, right. I mean, we were one of the early kind of innovators in the thematic indexing space, and what we realized was it's not a very easy space to access. Like with factors, the factors, I mean, there are screens that you can easily run to identify factors and to identify companies that qualify. Themes often cut a cross sectors and industries on a global basis. A good example of that would be five

G technology or again UM cybersecurity. So what you need to do there when you're accessing a theme is you need to cast a global net. You need to identify, um what is really relevant to that theme, and then you've got to go a company by company to identify companies that are generating typically a majority of their revenue from a theme like cloud computing or cybersecurity or robotics. May I UM. So it is different than factor, but it is kind of a logical extension there, and it

does solve a problem, right. I Mean, you hear all the time about people who are very interested in looking at or gaining exposure of particular concept, but they don't really know where to start, right. They might have one company that they know or a few companies, But when it comes to a thematic index, we've really done the research for them and they can gain exposure to an entire theme and the companies within that theme through through an index and through a through an ETS. All right,

so well, here's the dumb question of this segment. What's the difference between thematic indexing and buying an e T F Well, you cannot invest directly in an index. So the way it typically works is we will build an index and then we will license it to an e T f issuer, and the e T f issuer will launch a fund that tracks the index. Now, a very simple example that most of you guys would know would be, um, the S ANDB five hundred with s P Y or IVP. That's an ETS that tracks met tracks from index. We

do the same with other E T f issures. What's some of the It's basically screening, right. The hard part is screening these things. So what you're saying is when, Um, when when when you look at E T S E S G I mean, or when you look at space for example. It's not so easy to screen as profitability or buy backs or something where you can just super

easily use the Bloomberg to do it. And um, there's a lot of choice out there, do you do you have uh, you know, difficulty making those choices when you're looking at certain things, because I imagine you could cast the net wide and you could also be for example space, you could just do rockets and satellites. But you could also look at telecoms and lidar and a whole bunch of other things. That's exactly you're hitting the nail on the head. So it's it's really a multipart problem. The

first is how do you define that theme? And UM, like you said, do we look at rockets, do we look at satellites, we look at other types of trajectory technology, So that's part one UM, it's defining the theme and our research team does that UM. And then part two is of course identifying the companies that are generating typically revenue and ideally a majority of their revenue from that theme.

Because you don't want a company that's generating negligible amount of revenue from a theme, because that's not really the exposure that you're looking for, right. You want a company that really is tied to that concept UM. And that's what we've been doing for for six plus years now, and it typically as a revenue focused target. We have a dedicated team of analysts spread across a couple of offices globally. Uh I do this and have done this

for for six years now. What are some of the more popular indexes that you've recently worked on worth of demand from the marketplace. Well, I would say it's in a couple of different areas. The first is of course technology. UM. I think people get technology because it's something that they interact with on a daily basis. So are five G Technology Index has done quite well. We licensed that here to an issueer called first Trust for any TF that's

raised over a billion dollars. UM Robotics and Artificial Intelligence is another one of our early themes that has also been quite successful. That's where ANYTF here with global x Funds that's raised over two and a half billion dollars. And then, of course another one UM that has been in the news a lot lately has been infrastructure. So we have a US Infrastructure Index that we've built probably around five years ago now UM that is recently taken off and again has a few billion dollars in it.

UM and healthcare healthcare as well, working from home, cloud computing, and now we've also seen clean energy really I think start to hit a critical masterroom business perspective, and as a result, people are starting to look at it more

from an investment perspective as well. By the way, infrastructure is that is the perfect example of something that would be difficult to define because you know, fifty percent of Americans think of it as just rhoades, bridges and airports, and uh fifty I'm thinking basically as a Republican Democrats split right Democrats would think of it as child care and nutrition and fascinating stuff. Rahul, great having you on,

hoping get you back. Rahoul san Charma there. He's a managing partner at Index and as he's been explaining to us, UM they put together thematic indexes and license them out to um A t F companies. And that's really the way the kids love to invest these days. And you can understand why this is Bloomberg. I want to bring in Bill Smith. He's a managing director at cb I z M h M S National Tag Office. And Um,

we got this infrastructure deal voted on late last night. Um, they're gonna seems like they're gonna work it out now and make it happen. Um, what do we know about the tax changes? This is what the market seems to care about. David costing from Goldman taxes on the other day. So the only things that matter for the market right

now are rates and tax policy. Well, well, we don't know is virtually anything about taxes, because we've got the two bills going, and there's no guarantee that the one tee that has been agreed upon, the Biparisan one, is going anywhere because essentially all they did was agree to bring it up for debate. It had been blocked for debate, so it couldn't go anywhere. So now it's up for debate on the Senate floor. Hopefully they get it past.

We don't really have tax provisions in that one. The one that will contain the tax provisions most likely is the fall targeted three point five trillion dollar bill that they're going to try and push through using reconciliation, meaning they don't have to get their sixty votes in the Senate, they only need the all the Democrats and the Vice

President to get that through. So there they are right now debating on what the pay fors for that will be, meaning how are they going to pay for that bill because reconciliation doesn't allow you to increase the deficit over the tenure budget window. So we have what I like to call the wish list, which is the green book put out by Treasury that puts some flesh on the bones of the Biden tax plans, but everything seems to

be up for debate. The scariest part of that perhaps was the reference to the increase in capital gains to ordinary income rates if you're over a million dollars was going to be effective as of the quote unquote announcement date, which wasn't defined but could have been pushed back as late as April. So we think that there's probably going to be no retroactivity because the bill has gone so

deep into the year. So I think we're probably safe that we're not going to have that retroactive capital gains increase, but we really don't know what's going to go in because there's going to be a lot of fighting. The Republicans bounced the increase to the I R. S budget alt,

we'll see if that sneaks back in. That has a very large return on investments that would be a huge pay for If that's out, it's going to put pressure on the Democrats to put tax increases into that three point five trillion dollar infrastructure bill that is supposed to go through in the fall. At some point. Bill. There's a lot of folks out there that say, hey, we don't necessarily need to raise tax rates. What we need to do is tighten the loopholes for the tax laws

that are already on the books. Is that a viable argument or is that a political talking point? Well, considering that I have been doing this for forty plus years and that's talked about every single year, I would say that it's it's easier said than done. Let's put it that way. So it's much easier to know and understand that you're going to bring in a hundred billion dollars if you raise the corporate rate by one per cent.

Then to tighten the so called loopholes. Now, if you want to talk about tightening a loophole, the so called minimum tax on corporations, and the Biden Plan would be just that, because you have corporations with lots and lots of book income and no taxable income. So that would be the same people who say we want to tighten loopholes are generally going to be opposed to that minimum corporate tax that is proposed in the Biden Plan. So that's that's often a political talking point and a very

difficult thing to implement. I can understand that. I mean, why is the federal government trying to influence behavior with tax policy? Why are there any loop holes? To begin with? Um, wouldn't it be better if we just had a straight tax that you knew you had to pay. I mean, frankly, I don't understand why there's a corporate tax because you know, owners of those companies already pay tax on profits, dividends, um, capital gains, So why tax the company again? On the

corporate structure? Well, as I've said for years and years and years, we have moved to a system where all social policies enacted through the tax code, which isn't perhaps the best way to do it, but that seems to be where we are. And the problem is, once you get things in that benefit a certain group, it's very difficult to get them out because you're going to have people fighting very hard to leave them the way they are. So, uh, should we enact social policy through the tax code. That's

for someone to higher than my pay grade. But it seems like we're certainly doing it, and have been doing it for years and years and years and years. And on the corporate tax, why why is there a corporate tax? I think it's because it's an easy revenue raiser for one thing, and you have all the pass through entities where a majority of small businesses conducted, so that's only one level of tax. If you're in an LLC, you're an S corporation. The owners, as you know, pay the tax,

not the entity generally. But with corporations, and particularly with large corporations, you have a much broader base of ownership of mom and pops, so they're extracting the whole athlete corporate level. Hey, Bill, thanks so much for joining us to really appreciate it. Bill Smith, Managing Director, C B I Z M h M S National Tax Office. Taxes are going up, but still a lot of work to be done in Washington on those details. Well, more coming up.

This is Bloomberg. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller, I'm on Twitter at Matt Miller vy 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.