The Supply Chain, Batteries, And Market Outlook

whole by the dip mentality. Let's bring it a professional to get a good view of what maybe we can think about for the last few trading weeks of one more importantly into next year. We do that with Brett Shouty, chief investment strategist at Northwestern Mutual Wealth Management Company. So, Brett, when we have sell off days and you hear from your clients, do you tell them to just steady the at the helm and keep looking forward and this is

market that will continue to move higher. How do you think about this market as we head into Yeah, I do think the market will continue to push higher in two because the economy will continue to push higher. And so if you think about the underlying fundamols these economy. They still remain strong. Sure, there are some bottlenecks, there are some oddities that have happened because of COVID, and we can take you through those, But in general, we

think the economy will lurch back towards whatever normal. Maybe if you think about that commentary, some of the oddities that have occurred will continue to go back towards where they were. So we've had this enormous amount of goods demand that has really changed the trend from what it was pre COVID. It was more towards the services. That has caused the ports to be uh, you know, clogged

because goods rising in container ships services don't. But we think as you move in two you're going to see some of those historical trends returned towards normal or what it was pre COVID. I think that's going to alleviate from the inflation fears. I think the labor market is going to heal because the oddities of the labor market were caused by pandemic unemployment insurance, which is now we're off.

And I think as you have those things happen, you're going to have a market that moves higher because the economy was higher, but with different leadership. Well so those which leadership caused audities in the market. Yeah. So I think if you think of the past few years and some of those oddities, I mean, the stay at home trade has been in vogue, I think the world becomes more back into public UM. You've had people been up hopes, dreams, themes and memes because real rates have been so negative,

liquidity has been so large. UM liquidity will start to drain up that from the system in and I think people are going to focus on valuation more rather than games. And I think that means things like small caps which are cheap have a good backdrop value stocks and perhaps even international stocks do better in twenty twenty two. I like that hopes, dreams, themes, and memes and it's not I should pause. You could add crypto to that too,

for sure. For sure crypto goes into that box. So, but you think we're getting back to UM a more normal market. I wonder what you think about the UM active versus passive discussion, because we've had some really big voices way in or going to a weigh and I'll give you a little tease. Peter Lynch on a Bloomberg radio program tonight is saying, Um, he thinks you're losing out if you're going all in on passive. He says he beat the market forever and he's got a bunch

of guys that do it. Where do you Where do you fall in this discussion? I agree with Peter, and I think it's um. I've I've kind of compared this time period. There there are many comparisons to other differences. Uh, And the debate on active versus passive is also cyclical. And so to me, people forget that sometimes active management is not about just what you own, but what you don't own. And so to me, there are parts of

the markets that are very odd. The SMPI is as concentrated as aspen since and before that's the nifty uh, the nifty fifties stocks to the salviaties. I think in the future there's gonna be some active management opportunities, just some my evaluation perspective, from a popularity perspective, I just feel that as you move forward, it's going to look a lout. Get did from two thousand to two thousand and five six seven, which is actually a good period

of time for active management. Brent, you got your NBA from the University of Chicago. That means you're probably one of those numbers geeks. What are some of the inflation numbers? Water? I know when I applied to business school, trust me, I did not apply the Universe Chicago. I didn't think that would be a good fit. But Brett, what are some of the inflation data that you're looking at and

you think the FED is looking at? To me, the FED looks at the five year five year forward, So so what does the market believe that the inflation will be five years from now? And that number has not skyrocketed. Sure, it's above where it was in the last time period from like fourteen to nineteen, but it's still well belower. It wasn't the more normal inflationary periods that we had, oh four or five or six or seven through maybe other time of eleven. To me, that's one key indicator

I don't first much we talked about it. The market doesn't believe that inflation is going to be an issue. The other part of it I mentioned as a shift that's spending from services to goods. If you look at where inflation has been over the past few months. Keep in mind, we've had inflation for a total of stuff and months now, UM, so it's awful odd that we're calling it permanent. Now. You have seen a fifteen point four percent jump in good spending during the pandemic. Services

has yet to return to its pre COVID levels. If I break inflation down into goods inflation versus services inflation, you've had goods inflation which from two thousand and nine twenty was basically zero. In other words, it didn't inflate. It's up I believe it seven and a half percent on the annual basis. If I take goods inflation just

one more number, because I do love them. If you take good inflation apart, and you say durables versus non durables, durables are things like furnishings, things like UH air conditioners, things like cars. Durable goods inflation from to two thousand and twenty deflated. It is up eight point eight percent year over a year. Because we've had that shift that has really stressed, um, the sports system, has really stressed

our infrastructure, our supply chains. I think that as that alleviates in two you will see good in flesh and pull back services maybe a bit more sticky, but I think those numbers will start coming down and that will give us that the impetus to be able to stick around longer than what people imagine. All Right, Brett, thanks so much for joining us. Really appreciate it, really appreciate the numbers, which is what we expect from an MBA

from Chicago. Bret Truty, Chief investment strategist, Northwestern Mutual. All right, let's talk about the housing market, the real estate housing market, Rip Warring, red hot, however you want to phrase it, very very hot right now, and Matt knows that firsthand. He's just was in the market place. We're joined today by Annabelle Fernandez, interim chief financial Officer and treasure of

dream Finder's Homes. It's a publicly traded company on the NSA d f H one public in January of this year at thirteen dollars a share of trades today eighteen dollars fifteen uh. Since it's got a market cap about one point seven billion dollars. So, Annabelle hot market, give us your thirty thousand foot view of the residential real estate market today. Sure, thanks for having me. First of

all Um will remain really positive about the outlook. We have had strong economic growth in post pandemic and we think that will continue into low inventory levels persist, especially in the m s a S in which we operate in the states of Florida, in Denver, Colorado, in Texas, and historically low mortgage rates. Even if the FED is prepared to take action and unwind their program, we still

believe rates are historically low and very compelling. We have millennials entering the home buyaneers um and we just have observed in the m s a S in which we operate a positive demographic pattern with an influx of individuals moving into the suburbs post pandemic, and that has also benefited certain areas of the market. So we remain relatively up cautious, but very optimistic. Well, how much are you building?

I mean, you're as you point out, you operate in Denver, in Orlando, you also build houses in Jacksonville and Austin, Savannah, UM, as well as the Carolinas in Virginia. How much are you putting up there? Because we know there's huge demand. There's definitely very strong demand. In my history in home building, I've never seen this um this market where every house

you put in the house on the floor, you you sell. Uh. Normally we are a builder that likes to have speculatory inventory on the ground because people need to move into a market and buy a house right away, and normally we like to keep a certain level of inventory. Well, we can't keep up ninety percent of inventory world building is already pre sold, so it's unprecedented and more excited to see what it gets to in the next year. And just definitely working through our backlob to deliver the

homes as quickly as we can for our customers. And about one of the things we've heard about kind of the new home construction business is the industry is just not building enough new buyer home, first time buyer homes they're buying, they're they're building kind of the McMansion because obviously higher price, higher margin for the builder. Where in the marketplace are you uh, in terms of the types

of homes you build, Uh, that's a great question. We are focused on the entry level and first time move up market segments. We were build in the active adult sector and second time move up, but of what we do is entry level and first time move up so those millennials and affordability is a concern. Mortgage rates are a concern, of course. Told the affordability component and building an efficient home that can just um serve that piece of the market is our main focus. Paul is a

very active adult. That is exactly market Jacksonville, Paul, I'm thinking about it. My question is um stealing heights. I can't stand in new builds how low the ceilings are. You know. That's why I always when I'm looking in New York, I want to find a pre war building. Can I choose my ceiling height? If I go to dream Finders, you can. You can. We have the sign no level homes where you can choose that, and you

have ten eleven food ceilings. So yes, absolutely, depending on on the right neighborhood, the right product, we can accommodate for that. Because Matt is about I don't know six four or something like that. Anyway, I would go to Denver. I like Denver. Yeah, asolutely be my choice of the

dream Finders areas all right. And about Fernandez, thank you so much for joining us, really appreciate And about Fernandez, she's interim chief financial officer and treasurer for Dream Finders Home d f H is the symbol for that building new homes. And again and trying to hear that focus on some entry level housing. So yeah, yeah, but but not in the Tri State area. Now why would you? I mean, the castes is too high. So I think they've got a pretty good strategy there. Pivot a little

bit right here. Let's talk about the electric vehicle business, the renewable business, the clean energy business. All that is really dependent in part on good battery performance. Tom Jensen, CEO and co founder of Friar Battery is an n y s e UH listed stock. F r e Y is the symbol to Norway based developer of clean batteries for energy storage market EVS and the marine industry, when public this past winter through Spack transaction with Alosa Energy. Tom,

thanks so much for joining us here. Give us a sense of what your company does, what is your focus, what are you guys up to? So well, thank you for that. And and so we are developing um world

leading clean battery solutions for all market verticals. So we're going to build initial capacity in the Norwegian UH or in Norway, leveraging Norway's surplus renewable energy which is also more cost effective than than most energy sources globally, and in our opinion, batteries form, as you pointed out, the

most important catalyst for the energy transistion. It's kind of obvious to the carbonized transportation through electric vehicles, but it's equally important as a catalyst for de carbonizing energy systems globally. So we're going to give batteries using an American technology.

So we licensed in twenty four end Technologies, which we believe it's next generation listing mind battery technology that offers step changing performance, step changing costs, and also has potential to dramatically improve further moving forward by building larger and

thicker essentially electrodes into the batteries. So if you look at the international energy agencies predictions of staying sort of roughly within the Paris Agreement and one and a half degree uh sort of addition, batteries are included, so to speak, in half of the investment needing to go into the

energy transisition. So we're very happy to be in New York today participating in an event on the New Stock Exchange, and I'm going back there together with His Royal Highness the Crown Prince of Norway basically talk about how to finance the energy transition. So for US, batteries is part of the future. We think the decade we're in is going to be the decade of the battery. This is

a solution that is here today. It's commercially available, the cost points are already competitive with the alternatives, and anybody that will be you know, produced, will be sold and demand is going through the roof, and then you're going

to go down there with hawk on correct. So His Royal Highness, the Crown Prince is a very good um sort of custodian of Norwegian interests, so he he participates in in promoting Norwegian interests abroad and Norway obviously has deep interests and relations with the United States and therefore sort of collaborating around the energy transition and US actually taking a US technology to scale in Norway, but also coming back to the US through our partnership with Coke

strategic platforms and developing clean battery solutions also in the American market is something that we are now actively pursuing together with COPE. So so we're super excited about the partnership opportunity that we have developing the blueprint in Norway and then replicating that rapidly here in the US to sort of be a relevant participant in the energy transition.

It's very cool. So you get basically the the genius from m I T, you bring it to Norway where they have to know how to put these things together, and then you build out or solid state or lithium ion batteries. What what what is the actual battery technology that you're focused on. So so twenty f M Technologies and m I T spin off, as you pointed out, a very clever sort of solution. They've developed something they labeled the semi solid platform, and that's really not sort

of a pun on solid state batteries. It's war to do with the structure of the battery themselves. So they are instead of these slurry like mix that you use to to create conventional batteries which you coat onto the aluminium and corporate foil, twenty four M essentially creates a thicker slurry, almost like a clay like structure for the electrodes which are casting onto the current collectors and hence

the semi solid connotation. So this is a production process and a battery designed that is dramatically better in terms of cost performance and also can allow you to put more energy carrying material into the same volumetric unit of

final products. As a number of sort of technical sort of jargons here, But the point is ultimately, if we want to have batteries move into all the vehicles and all the stationary storage applications and sort of storing sunlight and wind and all the rest of it, we need to put more energy carrying material into smaller and smaller compartments and basically drive up energy density and reduce costs.

And that is what provides the promise of It's a dramatically simplified production process, significantly reducing capital expenditure, significantly reducing footprint, lowering the energy bill, dramatically lowering number of employees required, and more importantly allowing for further optimization while staying in the same raw material supply chain as conventionally in mind batteries had. So for us, this is next generation happening now, and the only sort of focus we have is how

fast can we build how much capacity? And the demand is as I said, it's it's skyrocketing, as everyone is now jumping onto the energy transition energy transition. Absolutely. Tom Jensen, thank you so much for joining us. Really appreciate it. Tom Jensen, he's the CEO and co founder of Friar Battery. It's an n y S listed stock. F r e Y is the symbol one is. Tom was mentioning um.

You know, as you move towards this renewable energy UH usages and applications, one of the key key drivers here is the quality UH and performance of the batteries, and that's where Friar Battery looks to make its mark. And Matt, let's continue our discussion of battery technology because as we think about the electrification of many industries, most notably the auto industry, it's coming down in large part to battery technology. Permit, president,

CEO and co founder of Transform, UH joins us. Permit, thanks so much for joining us here. You know, Matt in particular is fascinated with electric vehicles and then the evolution of the auto business towards e VS. Talk to us about your company, Transform and kind of how you're

thinking about battery technology. Thanks so much, and it's a pleasure to be here, so Transform t g A n We are a pioneer and leading provider of galier nitride semicon power devices which are now widely used in power conversion. And mind you, gallium nitride has been around for LEDs

for lighting RF transistors for more than two decades. Now it's making its way into power conversion, which will be its biggest application and market YETS and particularly with high growing applications like five G and electric vehicles, with the demonstrated capability to completely disrupt power conversion and displace the

traditional silicon device technology. And and what does gallium nitride do and what is power conversion and how is it related to the EVS Right, So, whether you're charging your phone or an EVY battery, charging or driving an electric vehicle motor, or powering even your cryptomning or data center power supplies. Across this gamut of application, there is electrical energy conversion going on, which is inherently lossy and it

wastes electricity. Gallium nitride offers superior efficiency, which is low energy wasted farm factor, being compact, lightweight, better than any other power conversion semi co and tectra material today and Transform tries to do it in the best possible manner. What do you do with magneti Morelli. That's a brand I've been using for twenty years on all my do Cardi motorcycles. Excellent, excellent. So Morelli now Magnetio Morelli is Morelli.

It's an integration of two large companies. Calconic Cancer in Morelli's Magnetio Morelli. So it's a Morelli is an investor in Transform and a long term partner for us in electric vehicles, the application of gallium nitrate product in electric vehicles, and they see their vision is matched with our vision. Morelli is also for our for our purpose. Morelli is also a provider, one of the leading O E M

providers to top tier auto manufacturers. So we work with them on a long term roadmap for insertion of gallium nitrate into electric vehicles, inverters, chargers for electric vehicles, making them more efficient, improving the range of electric vehicles using the battery more efficiently and improving the charging time of the batteries and in general making all the power electronics

compact and lightweight. Well. Your company, Transform is a public company t g A N is the symbol that kind of market cap about three nine million dollars a year to date. So we talked to us about kind of where what are the key growth drivers for your company over the next couple of years. Yes, no, that's accurate, Thank you. So for Transform, p g A and right the gallium nitrate power itself. GAN is emerging to be a very large market opportunity in the world of power conversion.

More than three billion dollars of gan cam as we call it in the near to mid term three time frame and more than a ten billion available total market GANTAM by the end of the decade, with a very strong cager more than double that of the general power symblic conductor market, which itself is very healthy. So we see gallium nitrate power growth. Our focuses on execution over the next several years, just like you know in the

two thousand decades. Again, LED had a hypergrowth for five, ten, fifteen years and all of the companies and Transform is one of the pioneers with strong technology, intellectual property products manufacturing will enjoy market groups for a long time. For us, our goal is to build a multi hundred million dollar business over the next few years and Transform and make gallium nitride a standard for power conversion. I'm looking at

the at the SUPERGAN technology products on your website. Amazing that they can work for twenty billion field hours or more than that and only have it looks like I guess zero point four failures per billion hours. So this is an incredible technology. How hard is it to get? Right? Now? We all hear so much about the semi conductor shortage, We talk about it on this program a lot. How difficult are you? How much difficulty are you having in killing orders? You just hit about the two important points

for Transform. First, you recognize the reliability on quality, which is paramount. So we have now been supplying gallium nitr in the field and statistically we have that fit rate zero point four per billion hours of operation with significant amount of penetration in the field. Quality and relablity is paramount for any semiconductors technology, and we have shown that gallium nitride can be no different than silicon which is widely used long term in quality and reliability. Now, that's

one of the key advantages and strength of Transform. Our p plus our quality and relability. Now other one of the other strength of Transform is also that we are vertically integrated. I call it our asset light vertically integrated model, where we make the most important part of the gallium nitride,

the gallium nitrate wavefors themselves. We hundred percent make it our stuff and part of our strong part of our manufacturing is right here in Galata, California, where we are headquarters for the gallium nitride, the main gallium nitride material. So we do control our own destiny in that sense making the galium nitride material, which is an advantage for

transforming these times of troubled supply chains. We are also that said, we are also in the general semi conductor industry, so we do rely on standard components, packages, etcetera for and supply chain, just like a standard semi conductor industry. So we have to grapple with that and manage carefully and plan ahead. What sorry, what's what's it look like

right now? I mean, I get that you have to do a lot of your own work in house if you have if you want to make a million parts with less than one defect per million, you've got to oversee that yourself. But you still count on others um for components that get shipped in. So what what's the lag time right now? How hard has the pandemic been for you? Yeah? Absolutely, the panto I think not has been easy, but thanks to our phenomenal worldwide team right

our manufacturing operations. Yes, there have been some delays, but we were Actually we are very fortunate and blessed and thanks to the hard work of our team, our manufacturing operations worldwide here in California. We have operations in Japan, some operations in Asia. None of them have been down in the pandemic. So we make our own gallium night ride lead times. We have to plan in advance. That is very important for us, but our team has been managed to deal with it. Hey, Permit, thank you so

much for joining us. Really appreciate it. Permit Permit Parik, President, CEO and co found of Transform. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller. Yet Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.