Welcome to the Bloomberg Penl Podcast. I'm Paul swing you, along with my co host Lisa Brahma wits. Each day we bring you the most noteworthy and useful interviews for you and your money, whether at the grocery store or the trading floor. Find a Bloomberg Penl podcast on Apple
podcast or wherever you listen to podcasts. As well as that, Bloomberg dot Com Pacific guests and Electric got a little bit of some good news yesterday's California cleared it of responsibility for one of the deadliest fires in two thousand seventeen. To give us a sense of how important that is to the company, let's bring in Kite. Kid is a senior industrials and utilities analysts for Bloomberg Intelligence. He joins
us in the Bloomberg Interactive Broker studio here in New York. So, Kit, does this reprieve at least or at least an exhoneration of that seventeen fire that the liability associated with that? Does that protect the company or save the company from bankruptcy? I don't think it does, Paul. I think, uh, we're gonna see it be worth about ten bill in in
in less exposure. They still have twenty billion left of exposure. Uh. And maybe most important, UH, they have the concern that any future wildfire could lead rapidly to very large liabilities similar to what they have on the books. Now. One thing that I'm struck by, kid, is that this comes with a backdrop of several reading agencies saying that they could downgrade Californian utilities, possibly even to junk as a result of the liability kind of policies that they have.
In other words, that utilities can be found liable for damages from some of these wildfires. How much does that ratchet up the pressure? I think it It puts pressure on California officials, but you wouldn't know it so far. Let's put it that way. The governor yesterday expressed um some sensitivity to these issues, and he said he was indicated he was trying to move things along faster. But faster in the California means maybe in six months will
start to see some results. So it's moving slow. And and the problem is pg n E says we're running
out of cash. So uh, they feel like on a liquidity basis, they need to get something done right away, and also in order to basically hold the feet to the fire of all the parties in California and get something done about As Paul mentioned, this long term issue of what happens the next time there's a fire and everybody sues them again, Well, what happens being a homeowner in California myself and a customer of Pennie, what happens when this company does go into bankruptcy? Do the lights
go out in California? Oh? No, everything, everything runs along just fine. They just got five and a half billion in UH debt or in possession financing, so if anything, their liquidity has improved in the near term. Ike, I think it's fair to say neither the company in nor California governor, or the regulators and other officials. Nobody is
going to be interested in operations not going well. And in fact, the company has indicated one of the things they'll do in bankruptcy is increased spending for safety UH and for capital investment in the UH type of capital
spending for green projects that California always wants. So they're trying to say and do the right things that at least in California people should be saying, Oh good, they're spending money where I want it, uh, and they want to come out of it, of course with people saying, by the way, here's the revenues for what you spent.
So going back to the decision yesterday that PGNI is not responsible for the deadly two seventeen fires, does that set any precedent for what their potential liability could be in wildfires? I don't think it does, Lisa, because in that case, UH, in the Tubs fire, what we had was the company did say a while ago, months ago, that they didn't think they were responsible, and that turned
out to be accurate. In the case of the eighteen fire, the company has indicated, well, we did have some wires that were down and some UH equipment that looked in bad shape. So if anything, that's indicating, I think that the potential for some real major liability is still there. Do we have this issue where there's you know, real in the West. There seems to be fires all throughout the West every year. Do we have other utilities that are at risk like PGANI, I haven't seen it. I
think it it really looked. Utilities are UH creatures of regulators, right, I mean the regulator monopolies. If their revenues are higher than their costs, then they're fine. If the regulator don't raise their revenues to cover their costs, then you get this kind of situation. And the other states, so far we seem to have had the regulators on board with the idea that if you have costs, even extreme costs for fires and so on, obviously we have to reimburse
the utility for for what happened. It gets tricky when there are real issues of liability, as there might be in the case of PG and E. Kick contledge, has ever been so exciting to cover utilities? Well, it's it's a low bar, but I would I would say no. And how many years have been? Twenty five, twenty seven
years and now around the block it's been. It's been a while, and this is the apex of this is the big time Kick Cottledge senior Industrials and Utilities analysts for Bloomberg Intelligence joining us here in our Bloomberg Interactive Brokers studios. Certainly, utilities have become an incredibly hot spot.
This is the industry that's thought of as boring, the staple, the safe haven, and now we have this being the fodder for distressed investors such as Kenyon Capital, which is now diving in a lot of question marks around California's utility complex. If Venezuela could get even messier, it has.
We now have two presidents in the nation, with Juan Guido uh the thirty five year old opposition who has risen up getting a sign off from legislation to be the president, Nicholas Maduto, who is the current or was the president, saying he is still the president. All of this is raising the specter of regime change, which is something that the U. S. President Trump has supported. The question is how much does this really mean that the
situation in Venezuela is about to shift? Joining us now, I'm very pleased to say in our Bloomberg Interactive Broger Studios is Yakov Arnapolon, portfolio manager focused on emerging markets at PIMCO, normally in London, but he is here with us in New York. Hopefully good luck getting out uh Jacova.
So let's start with Venezuela. Do you think that this is the moment that we are finally going to see regime change that will allow the Venezuelan economy to regrow a bit well, i'd say, taking taking a step back. Let's just remember what is going on in the country.
It's a humanitarian crisis, if you're called. There was a story a little while ago saying that over the past year, an average Venezuela lost twenty four pounds in weight because one of the three Venezuelans is facing starvations a nation of thirty plus million people, that's Tamuline people in starvation. So let's say we're all hoping for a gene change, and it's all very heavy stuff, and we certainly would, you know, would love to see the back of Maduro.
But despite the recent developments, UM, the base cases resolution is not necessarily in hand. The army still supports him, and their international communities is fairly split. So although that we've had this big spike in Venezuela's like you said, the international community is fairly space right. So you've got the U S, You've got Columbia, You've got some of the other nations nearby Venezuela, but then you have Russia and China, right, And I think Mexico has come out
in favor of Madura as well. MLOs. I think we went on record supporting the current administration. So I think the point is it's it's it will take a while to resolve this, and even assuming we do, if and when we see regime change, there's probably still going to be conflicting claimants, you know, the bond holders, some of the sovereign creditors like Russian China, So you know that. I think that's one of the reasons we've seen volatility
um but you know it's in margine markets. We see volatility in other places and and even to the extent Venezuela. I mean maybe there's been some u f and AS prices. There have been other spots in em where we do you think some of this optimism year to date is justified. If regime change does not take place in the streets, how does the country resolve the fact that it has two presidents? Is this a legal proceeding that needs to take place? What are next steps? I'm not sure there
are many precedents for that. I think it'll take That's another you know, I'd say it was fairly complex, and now it's even more complex. It probably will take a while to sort out, and you know, I guess the two sides just won't recognize each other. So you just said that perhaps there are other areas and emerging markets where the optimism is more warranted. First is so that means the optimism that we've seen of late in Venezuela
and assets you think is unwarranted. Yeah, I think that some of this you four year round regime change, you know, to extend this drags on, and the stand of drags on. You know, maybe we do see bond prices come off once again, so the rally perhaps has gone too far there. So where are the other places in emerging markets where
you think the optimism is warranted? You know? Well, well, I'd say Egypt is one good example, very compliant with the IMF program, will continue to like the currency, continue to like the bonds, um significant economy, hugely important on Arab street. And that's one example. And we're watching very closely countries that to have elections this Yere, Argentina and Ukraine,
single bee credits. It's kind of hairy. Let's obviously because of these political developments and and markets are fairly worried about what's going to happen. But to the extent they're able as their sense thread the needle and to extend, we see positive outcome, So to extend the incumbents succeed to stay in place in both countries, that could be a significant boost to asset prices. Taking look at China, do the trade talks which seem to be coming back
to the fore a little bit? See the activity level seems to be a little bit better than maybe it was for the last several months. Does that how do you view that? You are you? How constructive are you that any type of meaningful trade agreements can be made between China and you US? I'd say we're a skeptical there as well. The anticipation is there will be a true there will be the ton that's going to happen next couple of weeks, So what sorry, a couple of
I guess a couple of months. Maybe it won't be by March first, Let's say it's another there will be an extension, but but we'll probably see something. How meaningful is that? Beyond the headlines? I think that's where we'll have a lot of questions and and you know, we do anticipate a resumption of conflict later in the year now, simply because a lot of the issues around I P haven't been dealt with. And and also you know what the data point that is important that we saw overnight
is the PBOC balance it expansion. Right, so they basically announced, uh, the ability for local banks to issue more perps, more eight year eighty one bonds and that in turn should be actually quite a boost for the economy. Right, so we should see a pickup and credit, we should see a slow down in the deleveraging process. So that's actually a pretty pretty decent near term boost. Would you be
a buyer of perpetual bonds sold? It's for a local it's for local markets, it's by you know, by Chinese banks for local investors you know, will pick our spots with the will will pick our spots. That's not going to be you know, but but look, if you if you look across, there are some other large scale and international banks with a significant presence in China and Asia whose um asset prises, who's whose bonds and stocks are
trading at up on the back of this. Okay, so a question for you, how much of your time do you spend traveling if they're if they're a bit and look at it. It helps to have a twenty five strong team. It helps that. So we'd cover fifty to sixty countries a year, among among the among us um and some of it is obviously China. We've been to
China twice so far this year. Someone has come down to going to d C as much as possible, given that we have the FED, I, m F and the White House which increasingly is dictating the path of asset prices and Venezuela as we just discussed in China and Russia with sanctions in Mexico with a lovely U S m c A. So just real quickly, how did your portfolio perform in December and January? Just broadly, I mean I can look like a relatively calm person. I can
imagine last two months as an emerging market strategist. Well, that's that's that's emerging markets here. There's a scene that emerging markets give you the opportunity of a lifetime every quarter. Right, So you know, there's we're used to that. There's comportunities of many, many many, But you know we've been we've been picking our spots and I think that's going to continue to be the theme. Broadly speaking. Still like EM think this is a good environment for EM in twenty
nineteen after the swoon of twenty eighteen. But we have to pick our spots and again as always, going to walk between the rain drops. Ten seconds local currency or hard currency, em bonds, three months outlook local currency, twelve month heard currency Yahko of Arnipole, and thank you so much for being with us. Thanks. That was very interesting.
It's interesting. It's so many places around the world that emerging market um UH strategist and investors can place their money, but the management net risk on a global scale is is just mind boggling. Yak of on a pull in portfolio manage emerging markets from Pimco joining us in a Bloomberg eleven thirty UH studio in New York. Thank you so much. Remember, Paul, we used to talk about bitcoin.
Those days kind of ended. Huh. Yeah. I'm looking at the five year chart of the Bitcoin index and it's just extraordinary, going from you know, a couple of hundred bucks early two and then here we are back down at Yeah, and now JP Morgan is saying that it costs more to mine bitcoin than the actual value itself.
Joining us Mike mclogan, commodity strategist for Bloomberg Intelligence here in our Bloomberg directive Broker Studios Mike, what's your take on this JP morgan assessment that it now costs more to mine bitcoin? Does this mean essentially, is this a good thing or bad thing for their cryptocurency. I think JP Morgan has been very good about pointing out one of the key things about bitcoin mining is the number
one factor to really effect mining it's price. When the price goes down, if it's not really the mining that matters. And they put out a report this time last year that I read three times, and they pointed that out. And a lot most of the mining occurs in China, and good luck really trying to measure what that costs because there's connections with you know, political connections or whatever, and there a lot of it's happening in Russia, so
it's hard to measure. But overall in those parts of the world, I suspect they're probably making a profit and they're getting what they want out of it, but that's really insignificant for the price of being coined. The price. To me that what really matters is currently it's taking back the speculative frenzy that should continue. It's not I think it's getting towards the end of the ball game. But I always looking at it versus gold, and I think it's going close back to the price of the
parounced price of gold, which is actually up today. So I think that convergent is happening, will continue and probably meet this year. So you had a great call on gold, by the way, you which I remember from a couple of months ago. So well, well done there. So bitcoin, I mean give it. It's the volatility, said some of them. You think a lot of speculaive volatility has come out of the currency. What do you think the future is of bitcoin? Well, that's the key thing. I think it's important.
Is I really believe that bitcoin is becoming digital gold. We published on that today, and by digital gold, is I look at it ten years from now. If it's not, if we don't have some form of technology like cryptocurrency, which is probably bitcoin, that is not a better form of global currency, I'd be surprised. But it's happening fast. And one thing we noted is it's been acting like gold as an inverse factor to the dollar, which is
what you want to see. Bitcoin peaked in you know, twenty thousand and right, about the time the dollar bottom depending on how you measure, and the recent bottom in bitcoin was when the dollar peaked, So it still has more excesses that come out, but it's also just a more modern version. I think it's getting there, and I don't know what's going to replace it. People say there's other coins, maybe it's going to go the way a whale. Well, but it has the hash power. It has to come
compy patient power. You can't do a fift attack in bitcoin, so to me, that's happened. It's just still too expensive. The problem with the idea of bitcoin as digital gold, in my mind, is that gold's price is determined not just from its haven quality, but also from the fact that people actually wear gold and use gold in uh in a variety of ways. So how does crypto How does bitcoin sort of get past that hurdle and having the same kind of store of value reputation among investors, well,
also not having the other purpose transportation. It's the key thing. It's hard to We all have gold in our bodies, most of its jewelry, and you get that's in them. One form for gold and gold historically has been a store value, which you know, I view is still positive in dollars speaking, but with bitcoin you can transport it with a click of the button. You can you're in Venezuela and Argentina or Turkey. You can diversify your doll or your currency assets, which is this deflating paper into
something that is a little more stable. And then from there, with gold you have to physically move and there's restrictions. Historically you can put basically, you can move move millions of dollars or value on a thumb drive, and you can't do with gold. And to me, that's where it's going in the future. Right, I'm sorry, go ahead now, it's just gonna ask. I love putting Mike on the spot. I think we all do because he can handle it. How do you think, how does one really value bitcoin?
It's not supplying demand, there's not the present value of future cash flows. How do you value this thing? That's the key thing? And I look at it more right now, it's gonna be at some point transactions and I look at it very similar to gold. So that's why I'm thinking, what's going to happen this year? I'll be able to get a better value on it when I see how it reacts to what I expect is going to happen than dollar peaking, and gold is obviously going to really
but actually valuing it. It's based on the demand. Now historically do you think transactions, But it's really not a currency. It's like gold is not based on transaccidents, based on the desire to hold that and put in the vault and put it away and diversify your portfolios. And to me, that's what's going to be happening. But actually value it. So I look at one way of value is looking at volume trading, which is speculation and volumes way down. So that means Bitcoin to me right now should go
down just based on the latest volume figures. But I see it's it's it's just it's it's should find a foundation at some point this year. Very interesting. Thanks Mike again putting them on a spot. He can handle it. That's Mike mcgloan. Mike's a commodity strategist for Bloomberg Intelligence. When you think about asset classes that are experiencing extraordinary growth,
ETFs are absolutely at the top of that list. Uh. To give us some color on what is going on in the E t F marketplace today is Martin Kremenstein. Martin's ahead of exchange traded funds at Nuvine Investments, which I just learned is today is a subsidiary of t I double a CREFT about nine seventy billion total assets under management, of which about I think twenty billion of those are e t s roughly, UM so it's about in responsible investing assets of that about five million dollars
as ETFs. So what are they? What are you seeing in fun flows right now on E t F s? What what's hot? What's not? Um? So, we're seeing starting to see quite a lot of investors interest and flow into our responsible investing E t F A E S G ones UM. We launched them a couple of years ago, and we started see towards the back end of the ear as they were getting towards the two year track record, flows start to pick up and investors start to come in.
So E s G, which, for those who don't know, was environment, Social and governance, right, and so that has and I know it's always been fairly important metric or or investment concern for European investors, not so much in US. Are you sensing that E s G focused investing is really gaining a popularity or or interest. I think so.
I mean, there's there's been a ton of kind of news and kind of hot air about it it um, but now we're actually starting to see investors come to the market, and really it's because these products are now the ones that are out there. The new ones are starting to show that you don't have to give up
performance in order to have a responsible investing mandate. The problem for me with wrapping my head around s G funds is I don't totally understand what the standards are to be an environmental, social, and governmental governmentally responsible company. So how do you even measure these things? They seems brother fuzzy. Yes, so I think you're right. It is a little fuzzy, and it's certainly on the industry to do a better job of explaining that. I think though.
What you can do is you can take an industry, say like technology, and you can mark each company according to the material s G factors for that industry. So for technology, it's can be things like data privacy, data security under the social environmental is less important to them. And then if you do like we do, you compare tech companies to each other and you select just within
a sector, the best performing companies. You're able to give a market exposure within a product and and and then be able to enhance the s G characterists of that portfolio. And over time we've seen that actually can give you better returns. So it returns. So let's just talk about over time, how have returns been for E s G funds or companies that score highly on E s G. Has there been a tight correlation in terms of our
performance or under performance? So what we've seen, so we have a two year track record now for our first E s G products, and we've seen strong out performance for the two value products are large cap value product a MidCap value product. They're both in the top quartile of their peer group, right, and that includes active managers as well as index funds. So that's that's a good performance for an index product. Our small cap product is
in the top six percent for its peer group. And it makes sense because when you look at what you're scoring on E s G, right, do you waste material resources? Um? Do you have good do you pollute? Do you have good relationships with your customers, with your client, with your workers, with the regulators? And then do you have a good good governance structure, those oral markers of kind of well on companies, and so it can be looked at as another way of defining quality um and quality goes very
very strongly with value. We know that it also goes very strongly with small caps. Yeah, but I just push back a little bit. Do you talk about privacy with big tech? And I'm just wondering. Facebook shares did phenomenally well before they were sort of illuminated as potentially having privacy issues, and then their shares crashed. I mean, how how much at risks are you with some of these metrics following the trend of picking up on news and then uh and then punishing the start after the fact.
So we never held Facebook in our large cap growth portfolio from the start because it's big privacy issue. Last year it wasn't the first time that had issues in hence the agreement that had with the ftc UM. And so I think when you're an investor, even if you don't believe in the principle of response to investing, you should actually look at a company's s G score if you can get hold of it, and if it changes drastically, you should want to know why look at the underlying
reason and have they fixed that issue. If they haven't, then that it would not be in your UH, in your your category for s G. I'm just wondering how much have e SG funds outperformed of late UM SO. I think last year our large cap value portfolio outperformed the Russell one K value by about four hundred basis points UM, our large cap growth portfolio outperformed the Russell
one K growth by a hundred basis points. Hundred basis points out performance in small cap UM and then I think we were on on kind of with the benchmark of for MidCap growth and value. So do CEOs care about E s G? Do they recognize that it's becoming a bigger part of investors, certainly retail investors and maybe institutional investors in their investment process. Have you do you
think CEOs care? They do UM and I think it's been driven because this is this is something that's relatively new for the retail space, but the institutional space it's been a big deal for a while. The endowments of foundations UM you've seen kind of some of them been removing fossil fuels from their portfolio. Is removing cold companies. UM. This is a conversation that's been going on for a while. It's only now kind of you know, percolating down to
the retail level. This is something that I think you can see more and more compliance on because it is starting to move stock prices. I think, So, how do you market this to whom? UM? So really we we market it to financial advisors, a lot of whom are having clients coming to them saying what do you know about responsible investing, particularly when they do succession planning with
the spouses and and the children of their clients. But honestly, when you see the performance from our small cap portfolio from our large cap value, UM, we can go out and say, you know what, if you're looking at using value in your portfolio, you should look at an E s G quality set of factors with it. When you're looking at small caps, you should really look at look at it through as an E s G lens as well. There's a question I'm really looking for it which which
sectors score poorly on E s G. UM. So the traditional old school response social responsible investing, where you just stripped out sectors UM that were kind of poor performing. You'd always just remove energy and you remove utilities, and that's why a lot of the older products were essentially just growth portfolios, because once you remove those, it's very
hard to build value. UM from our perspective, we want to have all sectors represented within an asset class because we want to give asset class representation because if you're if you're building portfolios and these five products are part of an overall suite, you can build full ass allocation portfolios. We need the products to actually perform particularly stress environments like their asset classes. Just real quickly in in thirty seconds.
I'm wondering, I've frankly heard some surprise that there hasn't been more money going into E s G. What's your sense of that it takes time. We we have a two year track record for our domestic products. Our international products only have eighteen months of coll fix income is a little less than that. When we're more of these products have three year track records, they get their their
star rankings and you can see the benefit out there. UM, I think you'll see more money come in and advised and investors a skeptical of back tests, right, they all look beautiful. We need to show them that it works out in the market, and that's what we're doing at the moment. Martin Crenstein, thank you so much for being with us, for having it. Thank you very much. Martin Crenstein has head of exchange traded Funds at Uvene Investments, which is a subsidiary of t I A. Kraft overseeing
nine and seventy billion dollars here in New York. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa A. Bram Wits. I'm on Twitter at Lisa A. Bram Wits. One Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio.