COVID-19 Impact on the Lending Market with Charles Neirick

Charles Neirick of PropCap Advisors shares his insight on the lending market and how it has been affected by COVID-19.
Charles Neirick of PropCap Advisors offer his industry expertise in this episode of Non-Beta Alpha by sharing his insight on the lending market and how it has been affected by COVID-19. Prior to the crisis the market was flush with money, and lenders struggled to find opportunities to deploy capital. Once March 2019 came around, forced redemptions and unnatural exits exasperated the real estate market and had a cascading effect into other asset classes.

While there is little that can be predicted in the months following the pandemic, Neirick believes that the economy will not reach the lows experienced after 1929 as long as the American people maintain confidence, balance sheets are leveraged, and liquidity is maintained in the global financial system.

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Ryan Morfin:                    Welcome to Non-Beta Alpha. I’m Ryan Morfin. And on today’s episode, we have Charles Neirick, Managing Partner and Chief Investment Officer of PropCap Advisors, a LA-based debt management firm that has its eye on the capital markets. We’ll be talking to him about how COVID has gapped out spreads and changed the lending market. And he’ll give us some insights of what we can expect going forward. This is Non-Beta Alpha.

                                           Charles, welcome to the show. Thanks for joining us.

Charles Neirick:               Thank you, Ryan. It’s a pleasure to be here today.

Ryan Morfin:                    So we’re really excited to have you on. I think the way you look at real estate and the way you look at debt is fascinating. And I’d love to maybe paint the picture of what happened before the exogenous shock. Where was your head January, February of 2020? What did you think about the real estate market and the real estate lending market in general before we had this disruption?

Charles Neirick:               A rational, exuberance, over rich, and we were struggling to find opportunities to deploy our capital on.

Ryan Morfin:                    And so the long bull market in real estate that had a lot of people cautious, but people thought there was going to be a bridge built, but then this exogenous shock comes in and tremendous demand destruction occurs. What’s been happening in the capital markets because a lot of our viewers maybe don’t have Bloomberg terminals or aren’t watching the debt markets, but how did the month of March play out in front of you?

Charles Neirick:               The month of March was substantially driven by forced redemptions, unnatural exits, and also margin calls of highly levered, institutional investors, fast money, tight money managers. That pile on effect, certainly exasperated the marketplace and valuations for tradable credit. And it has had a spill over effect into other asset classes. At the same time, of course, you had the phenomenon of the equity markets turning substantially downward with sharp declines realized in every asset class. Meanwhile, you also had a substantial rally in the treasury markets as people were initially rotating into fixed income instruments for safety and sleep at night. However, midway through the month of March, people started abandoning those strategies as well and rotating into cash. And you saw assets that are typical safe haven such as gold actually declining in value as people were pulling money out of every market.

                                           Now, I think we’re at the earliest stages of a post recovery mode. A lot of this of course was also driven towards quarter-end related phenomenons of redemptions. And those are to us short term phenomenon that will help the economy settle down a little bit. At the same time however, there’s a lot of headline risks that are causing a much deeper, fundamental shift in operating capacity of companies to pay their staff, to employ people in general, as well as to pay their rents. So stage one was the shock margin calls, forced liquidations, punishing mortgage REITs such as Angela Gordon, Annaly, TPG, Ramco, Invesco, PennyMac. Stage two now I think is going to be more fundamentally driven, relating to occupancy, ability to pay rent, rationalization of businesses, survival, et cetera.

Ryan Morfin:                    And so how is the property sector? Is it over leveraged in your opinion? Or I mean if there’s… Well, we’ll call it the implied values that were given in the last round of appraisals versus what we might think of as a normalized valuation in today’s market. Are we over leveraged in the property sector, given where a real value should be?

Charles Neirick:               It’s too soon to tell whether we in fact are or not. I would say that high grade institutionally-owned assets have generally been more moderately leveraged the cycle stage to date than they were entering into the global financial crisis. The mid market has seen a very substantial flow of capital into non-bank hands. And there has been a substantial risk on, into the middle market transitional lending business. And we did see that margins were substantially compressed, covenants were substantially eased at the same time as credit was leaking out. So you may see that the middle market assets are more over levered than one would like. But it’s too soon to tell whether the correlation between leveraging operating fundamentals and ability to pay rent are blown out. Now, certainly more volatile asset classes, such as retail and hotels are going to be enduring pain in the coming years.

Ryan Morfin:                    No doubt. And what’s your view on office loans? Given that the economy is virtually shut down globally for the most part, there’s pockets like in Africa and South America that haven’t, but the under-preparedness, if you will, or the pandemic response is giving the hospital system some time to breathe and catch up, but it’s coming at a dramatic cost of demand destruction. How long do you think this will take to creep through the system?

Charles Neirick:               That’s the billion, or actually now trillion dollar question. Stepping back, I think I would look at it as, what is it that’s going on at the headline? We have substantial government intervention globally. We have central banks flooding the system with liquidity and virtually every asset class, including junk bonds and other assets that historically have not been favored in the financial system through the regulatory chains. I think that going forward, while I don’t think that that’s necessarily the best thing, I do believe that there’s a lot of structural relief and regulatory relief that has been brought into the system, both at the retail level, meaning at the residential level, through Freddie and Fannie, at the governmental level, in states such as New York mandating a no eviction for a mandatory forbearance period for tenants. And there’s a spill over into the commercial sector as well that’s taking place, more or less nationally.

                                           In fact, the system is mandating that everybody lockups and work through this, but there’s a bunch of unknowns yet as to how, for example, a commercial lender will engage with its borrower to provide forbearance relief on paying its mortgage and how that trickles down from the landlord to the tenant and how long people will have to be able to make hold their committed obligations. People are not going to be able to work in some places perhaps until August. That means their businesses aren’t generating any revenue. They may have five months of a cruel left to service. The question of course, is, how do they ever catch up? Are their businesses so fundamentally impaired that they aren’t able to catch up? What will those circumstances be? The legal system, its ability to process everything that is going on here will also be severely challenged. So there’s a paradigm of unknowns here that could lead to very horrible consequences through the system.

Ryan Morfin:                    Yeah. No, I think it’s interesting. I think corporate credit, although you’re primarily a real estate lender, right, you look at commercial credit, pretty draconianly and you’re very diligent about it. But the corporate credit market has gapped out and there was perhaps an over lending in terms of commercial credit to MNFRP in the middle market. And I think you’re starting to see that a lot of the loans and a lot of these private debt funds are severely underwater across the portfolio. And those tend to be tenants, they have landlords and what I’m starting to worry about is the scale. We’ve seen a tremendous uptick in these non-bank loans. And so the companies, the underlying tenants have a lot of leverage. And so maybe the buildings, this cycle may be different. They’re not as levered, but the underlying revenue streams are maybe over-leveraged. And I don’t know what your thoughts are about that.

Charles Neirick:               The United States over the last five years has been on the leveraged finance boom. The entire collateralized loan obligation market has exploded. As Wall Street fueled a specialty finance investors to acquire increasingly covenant light paper for structured finance products that they were distributing. So it’s unknown how the CLO market is going to fully react to this. The CLO structures are pretty rigorous. There’s a sequential pay structure, meaning the AAA rated at the top get paid first and whatever’s left over, gets distributed and so on. But in the CLO market, there’s also gates that prohibit distributions below the AAA classes to subordinate bond holders, and they start accruing their interest. So you hyper amortize the top of the capital structure and then work your way down. But a lot of investors have been in those structures and the default rates that they assume are likely understated in this scenario that you’ve painted.

                                           However, Ryan, I think it’s important to underscore that this is a week by week type phenomenon. And depending on what happens in terms of stay at home mandates being lifted in different parts of the country will change that landscape, I believe. And there are also parts of the country where there isn’t necessarily the same degree of need to have stay at home edicts remain in place. Less populated states, for example, be it Kansas, be it Utah, et cetera. They may get back to work sooner. And so there’s the potential for the economic system to ignite quicker. And also there may be very tough choices for the governmental branch to have to make as to the wellbeing of the overall populous to the detriment of some. Those are tough, painful choices, and a lot of people are going to be suffering through this. No doubt.

Ryan Morfin:                    Yeah, there will be some cold mathematics solved for in the coming months ahead. No doubt. What’s interesting too, is where rates are and where they might go, I know in the CLO market, there’s some talk already chatter about potentially what could be a conundrum that if an interest rates and credit rates go negative, some of the below investment grade classes may actually have to actually pay money to the trust versus take distributions out. I don’t know if you’ve got any thoughts on that, but it seems to be completely unchartered territory for some of the structured finance folks.

Charles Neirick:               No doubt. I don’t think anybody ever contemplated that they were actually going to be in a passive financial investor and have to pay back in. The enforceability of that is a coin toss. I don’t know.

Ryan Morfin:                    Well, yeah, I could assume people are just going to put the bonds back or liquidate them. It’s going to be interesting to see what happens. In CMBS world, and I know you do some work in buying different positions and different structures, what happened to the spread for CMBS and what are we seeing in terms of new issuance? Is it all on pause or were there any deals priced over the last few weeks?

Charles Neirick:               Simply stated, there’s no new origination issuance bid, especially in structured products, such as CMBS. For ultra high grade borrowers and ultra high grade assets with longterm predictable cash flow streams, there is new loan origination that’s taking place by balance sheet lenders, such as banks, such as life insurance companies. However, that is substantially work product that was originated January, February, and perhaps the very beginning of March. If a borrower were to come to market today looking for liquidity, I would suggest there’s no bid anywhere. You can’t price risk, no transparency into the operating fundamentals to be able to underwrite credit, and as a result of that, you can’t price risk. We’ve been asked to participate in loan capital structures that were conceived in January, February, that closed in early March and are now looking to fill the pockets of the capital structure up and that are unspoken for. And those conversations are going to be really painful because the way we think of things today there’s a lack of clarity as to whether or not an asset will be able to sustain its payment profile or engage in lease up in the future and what market rents may be. The whole demand driver phenomenon that you were talking about earlier, Ryan.

                                           So right now, the primary origination market is seized up by and large. However, in the liquid tradable rated form of mortgage backed securities, there’s been a lot of activity over the course of March as these redemptions forced the unnatural disgorgement of assets into the hands of investors such as us. We were active during the month of March, investing in assets we otherwise passed on at origination because they did not hit the risk return thresholds that we saw or were outbid by others who had a substantially lower threshold for risk than we did. We, for example, invested in a 50% loan to value ratio piece of credit with a 2.5 times debt service coverage ratio with an occupancy profile of investment grade tenants and an average life of approximately 10 years of the lease stream that remains in the building. It’s fully leased. It’s in a gateway city. It’s owned by, amongst others, a publicly traded real estate operating company and other institutional money.

                                           In my circumstance, there’s one of the largest pension plans in the United States, also has a mezzanine class that is junior to our investment. We bought that investment with a 36-month investment horizon return of 20% by example of what’s been going on in the capital markets. There’s a lot of [inaudible 00:17:12] assets in town.

Ryan Morfin:                    That’s interesting. Was that a financial institutional bank that wanted to that closed on something for relationship purposes and needed to recalibrate the syndication or?

Charles Neirick:               No, that happened to be a mortgage backed security that we bought. That was [crosstalk 00:17:29].

Ryan Morfin:                    Yeah, got it. Got it.

Charles Neirick:               And money manager was forced to sell its entire portfolio of mortgage backed securities, commercial mortgage backed securities that is, and we were offered the opportunity to acquire part of that class of investments.

Ryan Morfin:                    So you got to feel pretty great about where you are in that cap structure. There’s a lot of margin of safety. Yeah, that’s great.

Charles Neirick:               There’s a lot of margin of safety. So we feel very fortunate about that. On the other hand, we’ve been asked to participate in along those closed in March. And there’s a piece of the capital structure that has not been spoken for, where we think that the originator is unfortunately going to have to make some very tough choices. It’s part of a syndicated loan structure. So there’s no mortgage backed security structure here. There’s contemplated to be a senior mortgage syndication, and there are three classes of mezzanine that are part of this capital structure. The junior most class and the senior most class of the mezzanine debt are spoken for. The middle within capital structure is not. The mortgage loan itself is not yet syndicated. And we’ve been asked to fill the void in the belly of the capital structure, is the term is used in our industry, the middle piece.

Ryan Morfin:                    Were the price… I was going to say, so that first example you just gave us, there’s no way that that piece of paper would price at 20% three months ago. That would have priced maybe at like what 4% or 5% yield?

Charles Neirick:               Yeah.

Ryan Morfin:                    So you’re looking at about a four to five times shift in credit pricing to get people to to transact. And it will probably converge down. Yeah.

Charles Neirick:               Just count and comparatively speaking to the spread of issuance, risk premia have gapped out four to five times. That’s correct.

Ryan Morfin:                    Interesting.

Charles Neirick:               However, Ryan-

Ryan Morfin:                    You’re-

Charles Neirick:               I was going to say that compared to the precedent of the global financial crisis, the risk premium gap that you’ve just identified is less than it was at the needle of the global financial crisis by quite a substantial amount. During the financial crisis, AAA rated multi-buyer or CMBS the needle or the bottom of the market was a discount margin of 1400 over or thereabouts. I personally don’t know anyone that actually was able to secure assets at that deep of a discount. These were assets that at issuance were 20 to 25 basis points for the class risk premium to the risk free rate. So AAAs, this go around on multi-buyer or conduit gapped out to approximately 400 area, depending on name, maybe it was 450, maybe it was 375. That compares to add issuance from the window of call it 2017 to present in the magnitude of 90 to 100 over. Lower down in the debt capital structure, BBB rated securities on multi borrower conduits, those have gone from same period of time at issuance, 2017 to present in the low to mid 300 area to today being talked in the 1200 to 1400 over area.

                                           So the relationship that you highlighted is sustained. Call it up four to five times widening and risk premium. However, during the financial crisis, BBBs were talked to magnitude four to 5,000 over relative to a hundred over. So far the central bank’s work of stimulus packages is helping to stabilize the credit markets much quicker and much more broadly. So the lessons that they learned the last go around are being applied.

Ryan Morfin:                    Well, I think we’re blessed to have a treasury secretary who really lived through that and profited handsomely I’m sure from the last credit crisis. And so he knew, I think, what he needed to do to step into to bridge the chasm on risk premium. Would you agree with that?

Charles Neirick:               Question about how the commercial real estate debt markets are trading, there’s still a lot of awakening yet to come. A lot of the leveraged specialty finance originators have yet to do anything but give relief to their borrowers. But as the timeline extends and their business plans aren’t able to be effectuated, they may have to accept a higher degree of pain to realize the liquidity they may be needed by their senior lenders. So there’s a very intricate relationship here between the money center banks and life insurance companies and the non-bank lending community and the institutional bond buyer marketplace. It’s symbiotic, everybody’s locked arms to one degree or another as the marketplace has customized various classes of risk for different consumers.

Ryan Morfin:                    Yeah. I think the impact though to transactions and clearing out some of these real estate deals that aren’t going to work. And I think we’re in the early innings of seeing what’s going on, how this demand destruction really starts to ripple through the economy. But the lack of financing, I think, to new buyers or people who are traders of property is going to, I think, slow down and maybe further compound the loss curves. Would you agree with that?

Charles Neirick:               Transaction volume will grind to a halt, which means that there’s going to be a spillover effect in the industry as to its wherewithal to process. JP Morgan, for example, has been overwhelmed with home loan refinance requests. They are only providing loans to existing customers. The care on PPP programs, which government has announced are not being able to be processed due to the overwhelming volume of applicants. So if you’re a small company and you’re trying to get in queue to process these loans in order to have your business survive, there isn’t the infrastructure to service it. If the system shrinks or contracts, there won’t be the infrastructure to process the loans going forward. Right now, the relationship remains the same across the entire commercial real estate industry. People can’t price risk. They can’t affect their transactions, whether they be leasing transactions, sales transactions, and related finance transactions. Real estate, of course, naturally being a fairly levered business has an operating model.

Ryan Morfin:                    So going to some of these different property types ,hotels seem to be the most dangerous. And you’ve said in the past hotels and operating company with some real estate. What are your thoughts about how severe this is going to get for the hotel industry and what people who are holding hotel loans or hold hotel investments should be thinking about?

Charles Neirick:               We thought about that a lot. Hotels are essentially shut down, but their fixed cost overhead hasn’t gone away. Setting aside utilities, there’s fundamental infrastructure costs and goods and services that have an overhead to them. Inventory of food, for example, for the food and beverage departments has to be paid for, the products that were in refrigeration maybe lost, staff in many instances are union labor, and as such are protected to receive some form of payment. But if a hotel is closed for operations, there’s no revenue to sustain it. As we come out of this, we don’t know yet how the psychological patterns of behavior may change as a result of CV 19. We don’t know if people will immediately start to travel, immediately start to congregate, and so on. I do think in a year or two, people behaviors will revert back to norm and commercial travel will be back if not to the levels that it has been proceeding this last month, maybe to 80% of it, and then by extension, the same can apply to the hotel sector.

                                           People will be going and taking vacations again, there is life after COVID. No doubt. However, do you think that you’ll go back to average occupancies of 80% in hotels and having enjoyed seven or eight years of five, 6% compound annual growth rate in average daily rate, do you think you can sustain that and sustain occupancy? We think not. We think that there’s going to be a cutback in the amount of commercial and leisure travel that occurs. So that affects the occupancy side of it. And in order to insent them, there will have to be rate erosion as well to some degree. The cost structure of hotels doesn’t have as much downside in it. So that means that the operating margins of these hotels will be substantially compressed, which in turn affects their ability to service their debt. And so on.

                                           There’s an organic process that we’ll have to unfold, but it’s going to take time. A lot of the capital structures in the leisure sector are floating rate structures with extension options. And leading up to the period of January and February, the conditions relating to extensions were substantially relieved. Meaning there weren’t tests to speak of. If you were a large institutional borrower, by way of example, you could get a floating rate instrument of a primary term of 24 months and have 3, 12-month extension periods thereafter without having to satisfy any operating tests. So that could mean that there’s a little bit of leeway for the industry to ramp back up at the same time as lenders will work to modify their loan structures to give their borrowers relief. But the headline is, it could be very difficult for values to be upheld in that environment.

Ryan Morfin:                    Yeah. I can see people playing that card, amended and extended and amend and pretend so they could keep status quo in place. But if this continues to August or we have the second season coming up in the fall and we haven’t made progress in terms of testing or therapies or vaccines, I don’t think most of these cap structures can withstand that much of a compiling and occurring expense structure before. At some point, the destruction of value is going to force the lenders to have to take enforcement actions.

Charles Neirick:               I’m not willing to buy off on the dystopian demise of the financial system quite yet. It’s possible. We saw it during the financial crisis. We’ve seen it back in the early 2000s and the lodging sector was substantially dislocated. No doubt every week that goes by, Ryan, the conceptual commercial malays the financial system grows. but I do think the administration is trying to figure out how people can be brought back to work safely and in the process of doing so give hope to the economy not falling into a great recession, 2.0 or worse.

Ryan Morfin:                    Yeah, no. And I think the hotel industry, is one of those industries that is going to be hypersensitive to the situation. And I’m just trying to figure out at what point does a bank say, “You know what, we’ve got to protect our position. We believe you’ve burned through all of your equity value. We need to step in and protect our capital.” And I’m wondering at what point that from a lender standpoint, if you had a portfolio hotel loans right now, at what point would you allow them to amend and extend? I guess it would depend on the balance sheet, but when you say, “I’ve got to take this portfolio back and try to transact at some point to get some type of residual value here.”

Charles Neirick:               As part of the stimulus package, banks have been granted relief on their regulatory capital frameworks. Don’t know how long that lasts. But for the time being, it appears that the banking industry at large and the central banking system are aware of the relationship here and trying not to cause a meltdown. If you’re a lender on a hotel loan today, the first thing you’re doing is giving relief. There’s obvious overlay here that forces beyond anyone’s control that are causing the downdraft in your business model and your inability to pay debts. Without getting too technical on commercial mortgage backed structures, the special servicers’ job in a lot of structured finance transactions is to make the trust whole. That’s the quid pro quo for the investment that they’ve made. They fortify the capital structure as you may remember. However, these are specialty finance, limited partnerships, and they have limited resources to do so potentially if this extends.

                                           So there could be a knock-on effect or domino effect that comes to bear here, Ryan, where the whole system goes into seizure. Lodging being a more volatile operating asset class could be the leading indicator of that. And there could be substantial destruction in value.

Ryan Morfin:                    Yeah. No doubt. I think the government’s played a very active role here in really addressing and trying to build this addressable bridge for the financial system. And I’m hoping, we’re all hoping they’re successful, but I think it’s going to be one of those conundrums that we find is how fast can they move and how fast is consumer confidence erode? It’s a race, I guess, that we’re up against. And it’s also going to depend on who moves first for the kill shot, right? If there’s certain lenders that step in to protect capital that’ll have maybe a cascade effect or avalanche effect [crosstalk 00:34:17].

Charles Neirick:               Very possible. A lot of foreign capital has come to bear into the U.S. commercial real estate debt system. It’s not all very deep pocketed institutional capital. And they may face redemption pressures on their end as they’ve syndicated risk onto constituents in their local domiciles and-

Ryan Morfin:                    That’s interesting.

Charles Neirick:               … articulated that they’ve raised capital as a surrogate to a high yield real estate backed fixed income instrument that is safe and you can sleep at night and you have these great pictures and look at these great owners. Nobody anticipated that we were going to be so quickly going through another financial calamity as the one that’s setting up now. But thinking back to when the financial calamity started and the actions that took place, there was a more prolonged period of time before a realization series unfolded. I’m thinking back to the preamble to Lehman Brothers’ demise. There were a series of other anchor financial services companies that endured substantial pain preceding that.

                                           And after Lehman Brothers’ demise, it was still a period of time before the markets found a floor again. And the workout process is one that isn’t turned on overnight, right? It’s a heavily negotiated process, it’s time consuming, and it’s also structurally consuming. And that involves multiple parties. You have call it the administrative branch or the legal branch of the office of the clerk, right? And then you have the lawyers on both sides. And then you have the sponsors that are having to make these decisions. Getting everybody in sync to react takes time. Just negotiating a reservation of rights letter amongst a borrower and a lender can take a week to 10 days. And then it could be another week to 10 days before the borrower and the lender are positioned to be able to engage with each other. What questions does the lender want to ask? What answers can the borrower give?

                                           Because there’s a framework of rationalization that has to take place amongst the parties. Why are you asking for relief for six months versus a year, versus three months, what’s happening in your cashflow stream? How much cash do you have in hand in your business? Et cetera, et cetera. That relationship carries through from the lender to the borrower, to the landlord and the tenant. So it takes time for all this stuff to work itself out. It’s very complicated and the road ahead is riddled with unknowns.

Ryan Morfin:                    So what are a few things that make you optimistic about where we are right now and some of the things that you’re potentially worried about?

Charles Neirick:               I’m optimistic by the fact that in the end, the planet has been able to cause billions of people to change their normal life patterns in the context of it in pretty short order. We can nitpick, but if you think about how quickly New York went from a vibrant metropolis to a bowling alley, it’s quite remarkable. And now export that around the world. That gives one hope that people have an innate wherewithal to self preserve. It gives me hope that there’s millions of passionate, empathetic professionals that are putting their life on the line to help the system work its way through this. That there are people that are giving freely of their time and their resources to help those that are less advantaged in this time of need.

                                           I worry about things such as food supply and what happens to the distribution chain. I worry about retransmission from needing to turn the economy on, retransmission of COVID-19 to needing to turn the economy back on and I was having a stage two event, as you talked about this fall, or maybe into next year, and what happens. It takes time to develop tests. It takes time to develop vaccines and treatments and procedures for all of this. That’s worrisome. But I think we have to maintain a vigilantly positive attitude that there is light at the end of the tunnel here, and that the system will reignite, however, that there will be many that will suffer in the meanwhile for that to happen.

Ryan Morfin:                    And even if it’s a partial reignite, I think it’ll start to-

Charles Neirick:               [crosstalk 00:39:49]-

Ryan Morfin:                    Yeah. Yeah. I do think there’ll be different pockets where for whatever reason, population density or genetic predispositions start to show a resilience against this virus. And those would be the areas that I think people get to get back to work fastest. But it’s a heavy lift though to reignite the engine. It’s been running pretty consistently, even though if it’s been depressed. I don’t know if it’s ever really been shut off like this in the history of the American economy,

Charles Neirick:               Maybe immediately following 1929. That’s the great calamity that some people have wanted to bring up in the context of what we’re living through and what the downside could be. I don’t know that I believe we’re going to go into that calamitous post-mortem. It appears that the global financial system has evidenced a willingness to play through and stimulate liquidity with unintended consequences, cycles will be sharper to the downside and the upside and will potentially become shorter. Ultimately, this all boils down to confidence in the system. And so far, the global financial community has expressed confidence in the United States leadership here and wherewithal to leverage its balance sheet, to maintain liquidity. And if that continues, then hopefully it flows through to the middle class and enables us to survive this.

Ryan Morfin:                    So when do you think the next CMBS deal is going to print? How many months are we away from that or weeks?

Charles Neirick:               I wouldn’t say another… There’s two different segments of CMBS that could print. You could have… They’re actually three. You can have investment grade or high quality operating companies of assets do some type of a corporate brand securitized transaction. You could have individual assets such as the case that I gave that we’ve invested in come to market because it has a refinancing need. That could happen perhaps in the third or fourth quarter of this year. A multi borrower conduit transaction, I don’t think you’ll see one for the remainder of 2020. Not until the second half of the first quarter of ’21, is my guess.

Ryan Morfin:                    It seems like the CMBS industry has digested all of those refinances that were coming, that wave of refinancings that were coming ’13 to ’15 to ’17. Is there an equal wave coming due… I’ll just call it the 2010 to 2014 vintage. Those ones are going to start coming due and I’m more worried about the 2010 vintage. There wasn’t a lot, I guess, done there. Do you think there’s a refinance risk issue for some of these larger transactions that were done in that period?

Charles Neirick:               2023 is when you start seeing an escalation in that volume.

Ryan Morfin:                    Got it.

Charles Neirick:               I would think that there are, without doubt, are billions of dollars of orphaned assets out there as a result of the 2010 and ’11 type assets. But the system, from a volume standpoint, didn’t really ignite until late 2011, 2012 and write itself.

Ryan Morfin:                    Mm-hmm (affirmative) . So we’ve got some time before that becomes an issue, probably a year and a half. Yeah.

Charles Neirick:               There’s some time. Doesn’t mean it’s going to be pretty. It doesn’t mean the risk premia won’t be gapped out for awhile, but let’s remember also that risk-free rates are substantially relative here. You’re looking at 75 to 80 basis points on the tenure right now with downside in rates. That gives you a lot of breathing room.

Ryan Morfin:                    Yeah. No doubt, the low rate environment’s helping bridge some of these credit issues, but the credit spreads, I think, is what’s going to gap up further and then that’s going to be, I think where the pain is going to be felt.

Charles Neirick:               We have.

Ryan Morfin:                    Yeah.

Charles Neirick:               We have, but-

Ryan Morfin:                    [crosstalk 00:44:46] actually further from where they are. Yeah. Yeah. Well, Charles, we appreciate you joining us for this conversation and would love to revisit it in the weeks and months ahead. And we always look for optimism at the end of every call, but I think your points about we’ll get through this, there’s a light at the end of the tunnel is well taken and there will be pain felt along the way, but it’s to be expected, I guess.

Charles Neirick:               Thank you, Ryan. We appreciate the opportunity to speak with you today.

Ryan Morfin:                    Thanks a lot, Charles. Take care.

Charles Neirick:               You too. Best wishes.



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Ryan Morfin: Welcome to Non-Beta Alpha. I'm Ryan Morfin. On today's episode, we have Pini Althaus, CEO of USA Rare Earth, talking to us about the supply chain glut in rare earth minerals. This is Non-Beta Alpha.

Ryan MorfinPini, Welcome to the show. Thank you for coming on today.

Pini AlthausThank you for having me, Ryan. Good to be here.

Ryan Morfin: So you're an investor and a miner in rare earth minerals. Can you share with our listener base, what are rare earth minerals? Why are they important and why is there a geopolitical race going on globally?

Pini AlthausYeah, I mean, rare earths are an extremely ubiquitous part of all advanced manufacturing or technology manufacturing today's day and age. Several years ago, I had not heard too much about rare earths myself. I was not that familiar with it and being involved in this sector, in this company, for the past few years has given me an education of course. And I mean, I was sad to hear that 50% of all imports into the United States contain are earth elements and it runs the gamut from consumer electronic devices that we use every day. Our cell phones, our laptops, most communication devices, medical equipment. So there's a tie with COVID, which we can touch on at your discretion. Electric vehicles, defense equipment. So pretty much anything or everything high tech today has a rare earth element or critical minerals contained within them.

Ryan MorfinAnd what are some of the names of some of the more important rare earth? I know there's lithium for batteries, but what else is considered in this category, critical?

Pini Althaus: Yeah, so lithium is a separate category to battery material. The rare earths are 17 rare earths. The four, let's call it, key rare earths that we're focused on at our company, the four rare earths that go into the permanent magnets. And these are the magnets that are found, there are a number of them in your back of your cell phone or an iPad. But if you look at an F35 striker jet, you've got about a ton of rare earth magnets in those. And we've got two heavy rare earths and two light rare earths is part of the permanent magnets. You've got dysprosium, ytterbium are the heavies, and then you've got neodymium, praseodymium as the two light rare earths. So those would be key rare earths that are the focus.

Ryan MorfinAnd you use these in, I guess, in military applications as well, but historically, where has the United States sourced the rare earth for supply chain?

Pini AlthausYeah. And that's the shocking part. We've been securing those materials from China. So China controls the rare earth sector and has done so for the past 30 years or so. And it was a significant misstep on the part of the United States, allowing China to have this control. And actually this wasn't a question of China coming in and doing anything nefarious as far as stealing IP or anything. The US government made a conscious decision about 30 years ago to allow China to come to the United States and acquire the processing capabilities for rare earths. So just as part of some background, you've got the rare earth materials containing various mining projects, but once you extract them, you have to then process them and they go through certain phases before they get to the magnet phase. And China, the thought process was let China do the mining, let China do the processing.

Pini AlthausWe don't need to do that here. And we'll buy the materials from China cheaply and the premier of China at the time, Deng Xiaoping made the comment, he said, "The Middle East has oil. China has rare earths." And unfortunately we weren't smart enough to understand what he was saying. And the Chinese understood that the future of manufacturing is going to revolve around control of the rare earth and critical mineral supply chain. So if you think about it today, Ryan, we cannot build... Forget about consumer electronics and medical equipment. We cannot build the equipment that the US Pentagon or the US armed forces require, whether it's F35 fighter jet, Tomahawk cruise missile, communications equipment, without going to China and obtaining those materials. And it's obvious to all that this should be extremely alarming. We've seen China use this as a weapon, if you will, as far as how it interacts with other countries back in 2010, when there was a dispute between China and Japan on the East China Sea.

Pini AlthausSo China cut off rare earth exports from Japan for 40 days. Japan obviously being a significant user of rare earth elements for their high-tech manufacturing sector, that was stopped after 40 days. But in fact, it was President Obama that first made the United States aware of this, formed a division within the Department of Defense to handle this issue, but not much has happened. And we continue to be relying on China for these materials. And what has been made about trade war with China and whether the trade war is really the impetus for China withholding rare earth exports. And that is a huge misnomer. Whilst China had been talking or implying that they would cut off rare earth exports, the truth of the matter is that China, under it's made in China, 2025 mandate, its belt and road initiatives and others. And you seem to control the critical minerals and rare earth supply chain so that it can continue its dominance as a manufacturer or a global supplier of these materials and finished products.

Pini Althaus: It's the backbone of its economy. And in fact, China has become a net importer of rare earths from different countries like Miramar and others. So with that, they are decreasing the exports to countries like the United States, Japan and others.

Ryan Morfin: And was it ever a risk that the Chinese were going to turn off the exports of rare earth to the US during the trade war? How close were we to that? And was that ever some saber rattling that went down during trade negotiations?

Pini AlthausYeah, I think it was saber rattling. I think it would be paramount to an act of war. I can't say with any authority that that would not happen, but it would be probably, aside from war itself, it would be one of the most significant acts of war cutting the United States off from the ability to procure rare earths. But that being said, I mean, if you look at, as an analogy, the oil and gas sector and the reliance of the United States had for many, many years on OPEC countries to supply us with the oil. And we had embargoes and we had price manipulation by OPEC. This is far more significant given the ubiquity of where these rare earths go. And yes, we're always under the threat that China can cut off exports under the guise of a trade war or for any other nefarious reasons.

Pini AlthausBut I think even more importantly, to just as the natural run of the course of things with regards to their business and their desire to maintain themselves as the global leader in manufacturing and exporting of goods, China is in a position now where it actually requires these materials for their own domestic consumption and can legitimately cut off rare earth exports by stating that they need it for manufacturing and that would actually be somewhat correct. So we're in an extremely dangerous position here with this reliance on China. And it wouldn't just be China. If it was another country, it would be similar issues, not to the same extent, but reliance on one country for these materials is dangerous.

Ryan Morfin: And it's been mentioned in the past that in 2010, China flooded the market to really kill all the competitors in the rare earth mining industry. Where was the World Trade Organization during this period? And how did that play out and how does that set the chess board for China to run the tables?

Pini Althaus:

Yeah. So the WTO stepped in when China cut off rare earth exports from Japan, I think it lasted for about 40 days because the US and Japan protested the WTO, and they stepped in and China resumed exports. While I'm not an expert on these trade matters, one thing that I am aware of is that one of the reasons why China had to resume the export of rare earths was it did not legitimately need all the rare earths for domestic consumption. So therefore it was a nefarious act, if you will, to cut off rare earth exports. Now that has changed, which means China have to cut off rare earth exports today, they have a legitimate case to say that they require these materials. There's a shortage of these materials and they require them for their own domestic purposes. It is the backbone of their economy and there's very little we could do about this today, which is why it's becoming an even more urgent issue.

Ryan Morfin:

And the US government started stockpiling some of these after that incident. Can you talk a little bit about what DOD and DOE has done to start making sure that there's not a critical supply shortage going forward, and is it enough?

Pini Althaus:

Yeah, again, there is a national defense stock pile, and there are materials still that the United States needs to procure in order to shore up its stockpile. There are magnets, the finished magnet products as well, the United States government needs to stockpile. Again, there's a limited amount that the United States government has. It requires approval from Congress, whether it's in the NDAA or other approvals from Congress, to allocate monies for the national defense stock pile of these materials. That being said, there's no endless supply of these materials. And unfortunately, the apparatus, the way it's set up right now with the US government, it's going to continue to require having a secure supply chain of those materials for many, many years to come. So it's not a question of stockpiling for 10 or 20 years, and then this complacency and saying, we'll kick the can down the road. But keep in mind as well, Ryan, that US government accounts for low single digits of overall rare earth imports into the United States.

Pini Althaus:

We're talking about defense contractors, we're talking about the manufacturing sector. The direct impact this has on the economy, jobs, the automotive sector, and others is significant. So it's not just limited to the United States government. If you look at over the past couple of weeks, the sanctions that China have put on Raytheon, Boeing, Lockheed, et cetera. I mean, the question is where are they going to get those materials? And if we go beyond that, you need rare earths for the 5G network. Now that Huawei has been banned from installing the network, not only in the US but other countries, we have to have the ability to get a secure supply of these materials as well. Which currently, again, trying to control the hundred percent. So it runs across the board, both for government, defense and manufacturing in this country.

Ryan Morfin:

Well, and so help me paint a picture for our audience. Does China have all the mines for rare earth, or they're the only ones who started mining it? Or are their mines globally dispersed and nobody's been doing the actual infrastructure to do the mining?

Pini Althaus:

Yeah. So finding rare earth projects or rare earth elements is not the difficult part. It's finding them in significant quantities that makes a project economically viable. And part of that consideration are the environmental rigors that companies in the West have to adhere to. And China, even by their own admission, have had a complete disregard for mining these materials and even for processing these materials. And in fact, just the last week or so, the BBC did an expose on this, 60 Minutes has done an expose on this. But the Chinese have not denied this and have talked about cleaning up their act, but it has an effect on the bottom line for what the costs of mining and processing are if you have no environmental standards to adhere to. So China have exploited those rare earth projects they have, primarily in inner Mongolia, and have brought a number of projects online and quite quickly, and in a significant way, with a complete disregard for the environment.

Pini Althaus:

So it was seen as an environmental no-no in the West for many years. Now, what's happened over the past few years is you're starting to see rare earth projects in different parts of the world sprout up. You've got the Mountain World project in Australia owned by Linus, which is a producer of Nd and Pr, neodymium and praseodymium. So two of the light rare earths. They may have some heavy rare earths coming online at some point in time. And you've got Arafura, which is another company in Australia that we're working with to assist them with their processing so they don't have to send the materials to China for processing. But really these are a drop in the bucket for what the requirements are for the United States. And certainly what the requirements are for allied countries, the EU, et cetera. So there is a race, if you will, worldwide to start bringing projects online. The Chinese are very active in trying to secure assets outside of China.

Pini Althaus:

So in Africa. They have ownership of a project in Greenland. So there is somewhat of a race. The Australian government has stepped in and has started limiting the ability for China to own, or have ownership in, or off takes for the Australian rare earth projects. And that's part of the strategic Alliance between Australia and the US. Canada, similar thing as well. There are a number of projects that are looking to come alive, but these projects are, for the most part, will take many, many years to come online. We have to expedite the process. We have to assist with a [inaudible 00:14:41] supply chain and the domestic rare earth sector, because previously investors have been scared off by things like China flooding the market, which is not a possibility at this point in time, given that China can't actually afford to flood the market. They are already very heavily subsidizing their mine to magnet supply chain there.

Pini Althaus:

This is more now a case of being able to get production from non-Chinese sources so that the United States and allies have a viable, secure supply chain of these materials. And it's a concern worldwide. We speak to governments all over the world, and we're all facing the same issue. Some more than others, especially countries like Japan, that don't have their own rare earth projects there and are reliant on Australia where they've made some investments there. And in the United States, they've made an investment recently in Africa. So there is this race, if you will. And I think we've got a five-year window here to at least stand up a few projects worldwide. Otherwise we've lost this race and we will be dependent on China for many, many years to come. And Ryan, it's a bit of a hypocrisy. If you look at it where you've got materials going through clean, green energy applications, like electric vehicles, wind turbines, et cetera.

Pini Althaus:

That we're sourcing these materials from China, where they've, again by their own admission, has been complete environmental devastation to water bodies around these mines and processing facilities, to the communities. People have been getting sick around these projects yet we're putting these materials into our electric vehicles or wind turbines. It makes no sense at all. And people are starting to wake up to this. And that's why the sector is starting to see a lot of support come out of Congress and bi-partisan support. And in fact, it's one of the only bi-partisan issues right now in Washington. And it's good to see that some things decided to move in the right direction.

Ryan Morfin:

And is there a special process? You talk about the expense, is it really difficult to mine these? You have to go through a special chemical process to extract and clean and purify. Is it a lot harder than, say, gold or silver or some of the other, we'll call, more traditional elements?

Pini Althaus:

Yeah. It's all about the processing to some extent. So if you look at MP Materials in California, which used to be Molycorp before they went through their bankruptcy. They are a miner of Cerium and Lanthanum, which are two of the light rare earths, the lower valued light rare earths. Given that they do not currently have processing technology, they are sending those materials to China for processing where China is tariffing those heavily. Linus is also, they're doing their processing work in Malaysia and elsewhere. So it's really about the processing at this stage. One of the things that we've done, after we put out our PDA last year with our upgraded resource, which now includes a significant amount of lithium. We make a decision that, based on the test work that we had done around our processing methodology, that we were not going to send our materials to China. That it's paramount for us to do this work in the United States and in a collaborative effort as well.

Pini Althaus:

We've been asked by some of our investors, "Well, why would you be looking to help other projects with their processing?" And the answer is simple. There's no one project or one company that's going to put China out of business or make a dent, or somehow be able to take care of the overall demand worldwide for rare earths and critical minerals. And it's very important for us to have processing capability in the West. So that was the impetus for us opening up our own rare earth and critical minerals processing facility earlier this year, which we did in Wheatridge, Colorado. And in fact, we've made some significant progress on the method that we're using for this. And we're starting to collaborate with Australian companies, Canadian companies. We're currently talking to a group over in Europe as well, because this has to be a collaborative effort.

Ryan Morfin:

How does Europe solve for these problems? Do they have this better under control than the US?

Pini Althaus:

No, they're in a far worse position than we are. The EU commission recently put out a report, I think, a couple of months ago that the requirement for rare earths is going to increase tenfold within a short period of time. Lithium 18 times. They don't really have rare earth projects. Again, there are the Greenland projects, which people have heard in the news recently. Those need to further development work so they don't have rare earth projects ready to come online there. There are a couple of lithium projects that are spread around Europe, but for the most part, Europe is in an even more precarious position. If you look at Germany with the auto manufacturers, you look at the big companies like ThyssenKrupp and others, all these countries and companies are looking for alternatives to China, because we've already seen in the news about China withholding or reducing exports of some of these rare earths that are required for these industries.

Ryan Morfin:

And you mentioned earlier the regulatory posture of the US makes it difficult to mine. Is it becoming a more bi-partisan issue that we need to maybe relax some regulation around the mining exercise, to incentivize private sector to come in and start producing this? Or is the Republican party versus the Democratic party on two separate pages of music?

Pini Althaus:

Yeah. Good question, Ryan. I mean traditionally the Republican party is obviously being more pro-mining and in favor of less regulation when it comes to these things. With regards to our project, we're on Texas state land. So we don't trigger federal environmental permitting at this point in time. And obviously Texas being Texas, a mining state and oil and gas state, things are a lot easier in Texas than they are on projects on federal land where the Bureau of Land Management controls the environmental process around that. But the thing is here, and I don't want to step into what other companies are doing, et cetera, but we do need to be reasonable about allowing projects to come online if they're adhering to environmental standards that are acceptable worldwide. And what we do know, is that China is destroying the environment and cities and water bodies around their mines and processing facilities.

Pini Althaus:

We have standards here in the United States, and I think what we need to do is make it easier for companies to mine, while at the same time protecting the environment. And there are ways to do that. And we're definitely seeing buy-in from Congress, from both sides, with regards to looking how we can stand up a secure supply chain. And, obviously under the Obama administration, they had very strict regulations when it comes to mining. And that's changed under the Trump administration. Hopefully what we start to see is some normal middle ground that'll allow other projects to come online.

Ryan Morfin:

And typically in these rare earth mines, is it amalgamation of different minerals that are all consolidated together and you have to separate them out? Or do you ever find pure play, Europium, I can't even pronounce some of these. Gadolinium, Cerium. I mean, are they all mixed together and you've got to filter and sift them through, or are they pure play mines?

Pini Althaus:

No, they're generally they have a mix. So they're polymetallic projects. They have a number of different materials. Some projects, you more to what we call the light rare earths like MP in California or Linus in Australia. Our project is actually on the opposite end of the spectrum. We have a very high concentration of heavy rare earths. That being said, we do have to go through a process of separating these materials. But the case of our project where we've got 30 materials. We're not going to produce 30 materials. We're not going to market 30 materials. So what we're doing is we're focusing on the key materials that are marketable, that we need for permanent magnets, lithium as well, and working on the separation and the optimization of those materials in particular. But we're all faced with the same processing challenges and that is something that can't be set.

Pini Althaus:

There's no easy way to do this. There are different technologies that have been used in different parts of the world. So predominantly there's a process called solvent extraction, but it's big, it's bulky, it's not benign. It's a bespoke solution for one particular project. So it doesn't work for feedstock from other projects. What we've done is we're using a processing technology that's actually been around since the 1940s. It was part of the Manhattan Project. It's called continuous ion exchange. In fact, the Chinese use it to increase the purities from 99.99 to four nines, five nines, and even six nines. So for some applications you require higher purity levels. It's a far easier processing method to scale up and to take feedstock from other projects. In fact, we've demonstrated for the Department of Energy that we can take coal waste from Pennsylvania and do high purity separation of rare earths using our processing methods. So it's not a step that can be skipped unless one needs to send it to China for processing, which is not going to help us with our objectives here.

Ryan Morfin:

How many other, we'll call it, going concerns on any other businesses that are doing this, that are trying to, I guess, start the development of these mines. Are you guys one of a few or are you one of many? And is it an international or just a US game? Who's leading the charge at going after this?

Pini Althaus:

Yeah, well, I'd say the Australians are leading it outside of China right now. You've got some really good projects in Australia. Again, more skewed toward the light rare earths. There's one more heavy rare earth project in Australia, which is not yet producing. The United States, you've got MP Materials, you've got Ucore in Alaska, you've got the Bear Lodge project in Wyoming, which is also another light rare earth project. So as far as a heavy rare earth project that looks like it will come online in the near term, that would be our project. In Canada there are a couple of projects there as well, and again, more skewed toward the light rare earths. But we really need to get as many of these projects online as possible. Because again, I don't see it as competition. We all have a problem doing supply agreements or offtake agreements for our materials.

Pini Althaus:

In fact, one of the things that we're going to have to consider is looking at potentially scaling up our production, based on the demand that we're already starting to see. And I think other companies would find that as well. So it's all about the economics of the project. You have projects that were economically viable back in 2012 or rare earth prices with 35% or so higher than they are today, and are not necessarily viable today. So that's the challenge as well, economically viable projects. And we've got to get as many of them online as possible. It takes many, many years. I mean, our project has had over $70 million put into it to get to where we are today, and we're close to getting to the production scenario. It all revolves around processing at this point in time.

Pini Althaus:

We'd be very happy to see another couple of projects come online, because this is extremely important for national security and for the economy as well. I mean, if you think about it, Ryan, if you've got a billion dollars of rare earth materials, that translates into a trillion dollars or I should say trillions of dollars of finished product. So you've got a magnet in your phone there that's worth a couple of dollars and the cell phone's a thousand dollars. And electric vehicles and defense applications even more.

Ryan Morfin:

Yeah, everyone has one of these iPhones now, and there's tremendous amounts of rare earth on the circuit boards here. And I think people take it for granted that that supply chain is not secure right now. So one question for you, there's talk of this maybe medium term to longterm, but there's talk about mining in space. Do you think that's a feasible option in the longterm, medium term? What are your thoughts on that?

Pini Althaus:

No, that's just ridiculous. I mean, we're trying to find ways to make mining on earth economically viable. I think the cost of going up to space would be more than what our capex will be bringing our entire project into production. I mean, we've got about a 350 to $400 million capex to bring 130 year mine life into production. I'm not an aerospace expert, but I think sending a rocket, building a rocket ship and sending it up, I think maybe on the fuel alone, you could bring a couple of projects into production. So unless we have a fortunate situation or an asteroid lands on earth, and fortunate if it lands somewhere where we don't care, I don't see how that happens. And if it's big enough, it's a problem as well. It's nonsense. And even, options aside of the deep sea mining for rare earths, I mean, you've got all sorts of environmental issues around that as well. I think we need to look at projects that we can bring online, that can be done so in an economic way, that can be done so in an environmentally responsible way.

Pini Althaus:

I mean, one of the things that we've done at our project is we've got in excess of 60% of the materials that have come out around top, will have a clean green energy applicability to them. So we're using the benign processing method. We're going to be using renewable energy on site. In fact, we will likely be putting a solar farm on site as well. We've talked to a couple of companies that have approached us about that, and we'll be a net producer of power for the surrounding area. So there are ways to do it which don't affect the environment. Obviously if there's a project that's situated on a sensitive area, that's a unique situation for that specific project. We've seen it with the Pebble project, which is not a rare earth project. The Pebble project in Alaska where their environmental concerns is we've been recognized by both Republicans and Democrats, but we have to be reasonable about the projects that don't have environmental concerns.

Ryan Morfin:

So Pini, in season two, we ask all of our guests a series of six questions. They're usually, yes, no questions, but trying to take a survey of our conversations. And if you want to add a little context to the yes or no, feel free, but here goes the first question. If there was a COVID vaccine available today, would you take it?

Pini Althaus:


Ryan Morfin:

Who do you think is going to win the election?

Pini Althaus:

Which election?

Ryan Morfin:

The US election.

Pini Althaus:

Well, I think it looks like Joe Biden's going to win it, but I think what happens, if we go past January six from my understanding is that the house will vote on it and it's one vote per state. But I don't know if I see it getting there at this point in time. I really don't have a crystal ball.

Ryan Morfin:

Third question. What type of economic recovery are we in? What type of shape is it taking? A V-shape, W, U, L?

Pini Althaus:

Yeah, I think 2021 is going to be challenging. I think we've been, and rightly so. I mean, we've had no choice as of almost every other country. We've been printing money for the past year because of COVID. And I think we've got to brace ourselves that, at some point in time, the chickens come home to roost. It was a necessary step. People needed it on an individual level. Businesses needed it as well, but I think we've got to do whatever we can to stimulate the economy, give people confidence to go out and work again, employ people. So I think we've got to watch ourselves, especially in 2021. And I have some concerns, but long-term, I think the approach in the United States is a healthy one.

Ryan Morfin:

During lockdown this summer and quarantine, was there anything in particular that you accomplished that you're particularly proud of?

Pini Althaus:

Yeah. A great amount of family time, which, if you would've asked me a few years ago if I could sit at home and be at home for six months, I would have told you absolutely not. I wouldn't be able to do it for six days, but it has... I'm sure it's done this with a lot of families as well. It's brought families together. We had a baby actually last year on Thanksgiving. So I was doing a lot of travel at the time and thought I wouldn't get to see my daughter in her first year or couple of years too often. And being home with her every day is actually been just the most amazing experience. So thankful at least for some silver lining in COVID.

Ryan Morfin:

Are there any silver linings that you see in the economy going into 2021?

Pini Althaus:

Yeah, I think we've gone through an absolute beating and it looks like we've got the ability to come out of it. And I think that's a testament to how strong the economy was built up in the years preceding COVID. So overall I remain an optimist. I mean, we are a country built on opportunity and going out and making it happen. And we're not a socialist country sitting and waiting for people to send us paychecks or wealth distribution or anything like that. I think the American dream still lives on. I think if you go out and you're willing to work and put your head to it and heart in it, I think we do have the ability to climb out of it. So if we look at what the economy is doing over the past few weeks, it looks like it's starting to rebound. And to me, that's assuring because it could go completely one way as well.

Ryan Morfin:

And the last question is, is there anything that you're watching, or listening to, or reading today that has been impactful on your thinking that you'd like to share with our audience?

Pini Althaus:

Yeah, that's a good question. I think it's been more personal stories. The news, I sort of take that in context or with more than a grain of salt. In some cases stay off the news channels for a number of days at a time, it became quite repetitive. But I think on the personal side, talking to friends, my family's all back home in Australia, they've just come out of 110 day lockdown, which we can't relate to that. It's been very trying on them and seeing the fortitude that they've had to come out of that and stay intact. I think the mental health issues that will come out of COVID are going to have a far longer effect than the economic issues. I think we're going to have to focus on mental health issues in this country for a long time to come.

Pini Althaus:

The impact on kids has been significant with regards to lockdown or remote schooling, et cetera. But to see people come through it. I think it's a testament to people in general and to the country and other countries as well, to see got that fortitude and survival instinct to try to get through whatever adversity we can. So hearing the personal stories, the challenges that people have gone through, I think it's made me a lot more aware of things that I have to be thankful for and where we can help out other people as well. I think we have to be united going forward because there are things...

Pini Althaus:

I think one of the things that COVID has shown us is we can get into this complacency and life goes on and we go one day to the next. And all of a sudden we get hit by something that affects everybody equally. I mean, COVID, whilst there were groups of people, whether it was the elderly or people with underlying health conditions, that got hit the worst. I mean, we all got hit in some form or another. So really, this should be something that unites us, not divides us.

Ryan Morfin:

Well, Pini, I appreciate you coming on today to talk to us a little bit about the supply chain crimp on rare earth and we'll definitely keep an eye on it and would love to have you back in the future.

Pini Althaus:

Thank you, Ryan. Thanks for having me.

Ryan Morfin:

Absolutely. Thank you. Bye-bye. Thanks for watching Non-Beta Alpha. And before we go, please remember to like, and subscribe on Apple podcasts and our YouTube channel. This is Non-Beta Alpha, and now you know.


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