WEBVTT - Good Time To Sell Oil Into Rally: Cantor's Cecchini 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg PENL podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor, find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:23.000 at Bloomberg dot com. Right now, we are looking at 0:00:23.079 --> 0:00:26.520 markets that are slightly down, not perhaps down as much 0:00:26.520 --> 0:00:30.120 as someone expected, after oil prices surged and continue to 0:00:30.160 --> 0:00:34.040 surge even higher, the most on record in the wake 0:00:34.200 --> 0:00:37.960 of the Saudi Arabian attacks on the attacks on the 0:00:37.960 --> 0:00:41.680 Saudi Arabian oil production facilities. Joining US now Peter Checchini, 0:00:41.720 --> 0:00:46.680 Global Market try to Global Chief Market strategistic Canter Fitzgerald. Peter, 0:00:46.920 --> 0:00:48.960 thank you so much for taking the time. Let's just 0:00:49.000 --> 0:00:52.280 start with are you surprised that there isn't a more 0:00:52.360 --> 0:00:55.360 market sell off in US equities in the wake of 0:00:55.400 --> 0:00:59.080 this disruption oil production in the Middle East? Yes, good morning, 0:00:59.120 --> 0:01:02.680 and thanks for having me. Um. You know, the reaction 0:01:02.720 --> 0:01:06.080 I think is is about right. The broader markets are 0:01:06.080 --> 0:01:11.280 obviously uh off overall. Um somewhat frankly offset by the 0:01:11.319 --> 0:01:14.920 benefit to UH energy companies with the with the spike 0:01:15.000 --> 0:01:18.600 and oil prices. UM. The spike and oil prices itself 0:01:18.680 --> 0:01:20.600 doesn't really come as much of a surprise to us, 0:01:20.600 --> 0:01:22.560 so our our target for oil this year has been 0:01:22.560 --> 0:01:25.800 fifty to fifty five dollars on w T I UM. 0:01:25.920 --> 0:01:30.440 But we wrote recently that we expected UH geopolitical risk 0:01:30.840 --> 0:01:33.240 to come into play with spikes and oil between sixty 0:01:33.240 --> 0:01:35.600 and sixty five, and in fact, quite frankly, I think 0:01:35.840 --> 0:01:39.120 UH this would be a time to sell oil rather 0:01:39.200 --> 0:01:42.000 than to buy it. I think UH around a COO 0:01:42.080 --> 0:01:45.959 in particular, has an incentive to to cure this problem 0:01:45.959 --> 0:01:48.480 as quickly as possible. May not be easy, but obviously 0:01:48.880 --> 0:01:50.320 UH they don't want to delay their I p O 0:01:50.360 --> 0:01:53.040 any longer than they have to. So market action seems 0:01:53.080 --> 0:01:56.040 to be about right in response to this attack. But 0:01:56.120 --> 0:01:59.200 for us, you know, more broadly, UM, we think, as 0:01:59.200 --> 0:02:01.200 we've been saying, we're in the red zone for US 0:02:01.240 --> 0:02:04.320 equities for other reasons. So, Peter, I know last week 0:02:04.560 --> 0:02:08.240 you wrote a note suggesting that the credit markets might 0:02:08.280 --> 0:02:10.560 be getting a little bit frothy. Give us your sense 0:02:10.560 --> 0:02:13.600 of what you're thinking. There. Yeah, you know, we've we've 0:02:13.639 --> 0:02:17.280 been careful not to overstate this because one of the 0:02:17.360 --> 0:02:21.640 things that's been going on, UH is the capital flows 0:02:21.720 --> 0:02:25.560 into US high yield really because there's there are very 0:02:25.600 --> 0:02:27.679 few people places in the rest of the world that 0:02:27.760 --> 0:02:29.560 on a risk adjusted basis, you can get the kind 0:02:29.560 --> 0:02:31.320 of return that you can get in US high yield. 0:02:31.600 --> 0:02:34.040 Default rates have been relatively low, about two point one 0:02:34.040 --> 0:02:37.320 percent UH for trailing twelve months. And you know, with 0:02:37.320 --> 0:02:41.000 with seventeen trillion dollars of negative yielding dead about to 0:02:41.160 --> 0:02:43.840 trillion of that being in corporates, the flows into high 0:02:43.880 --> 0:02:47.359 yield in the US have been have been pretty pretty 0:02:47.360 --> 0:02:50.880 strong UM and a couple that with the low default rates. 0:02:51.280 --> 0:02:55.160 Until one sees cash flows starting to roll over UH, 0:02:55.200 --> 0:02:59.280 it's difficult to get barish of high yield. However, the 0:02:59.320 --> 0:03:02.959 signs of FRA are there where we're seeing UH pictoggle 0:03:03.080 --> 0:03:06.560 deals come coming out like the corn Main deal recently. 0:03:06.960 --> 0:03:08.800 We haven't seen very many of those. I think there 0:03:08.800 --> 0:03:11.280 are one or two last year, but that tends to 0:03:11.320 --> 0:03:14.960 be a very market topy kind of event, especially when 0:03:14.960 --> 0:03:18.799 they go to pay UH dividends to LBO sponsors UM. 0:03:19.040 --> 0:03:21.440 And so we're seeing that and even just the issue 0:03:21.440 --> 0:03:25.880 wance volumes of late have been gigantic, with I think 0:03:25.960 --> 0:03:29.600 last week probably the third or fourth highest on record, 0:03:29.639 --> 0:03:32.160 depending on whose data you look at. So so I 0:03:32.200 --> 0:03:35.200 think the signs in terms of issue and volumes, as 0:03:35.200 --> 0:03:38.640 well as the form of the deals are are sort 0:03:38.680 --> 0:03:42.400 of singing to that that's froth, uh, and it's just 0:03:42.480 --> 0:03:44.360 really to me a question of how much longer it 0:03:44.400 --> 0:03:46.760 can last. So then there is sort of a flip 0:03:46.800 --> 0:03:48.880 side to this, which is when you see froth and 0:03:48.920 --> 0:03:52.400 credit markets in a real robust demand, uh, that typically 0:03:52.440 --> 0:03:54.680 is a positive for US equities, at least to the 0:03:54.720 --> 0:03:57.040 short term. So do you view this as being potentially 0:03:57.040 --> 0:04:01.840 constructive even if in the longer term not great. Yeah, 0:04:02.040 --> 0:04:04.240 that's that's an interesting point least, and I and I 0:04:04.240 --> 0:04:06.040 would generally tend to agree with it. I think in 0:04:06.080 --> 0:04:09.200 most cycles, when you look at the history of credit cycles, 0:04:09.240 --> 0:04:12.440 credit actually tends to to to lead equities in the 0:04:12.520 --> 0:04:15.800 hig yield market in particular, tends to be pretty important 0:04:15.840 --> 0:04:18.720 to that. I think there are some interesting differences this cycle, 0:04:19.080 --> 0:04:23.679 one of which is the dependence of equity markets uh, 0:04:23.839 --> 0:04:26.240 less so on high yield and more so on the 0:04:26.320 --> 0:04:29.320 levered loan market in particular in my view, and we're 0:04:29.400 --> 0:04:32.440 we're seeing some some real signs of frosth there as well. 0:04:32.480 --> 0:04:36.120 You know, for example, of the of the names in 0:04:36.160 --> 0:04:40.800 the levered loan index are are now demonstrating interest coverage 0:04:40.880 --> 0:04:43.400 ratios below one and a half, in leverage above seven times, 0:04:44.000 --> 0:04:47.040 which is which is really quite something. And we're starting 0:04:47.080 --> 0:04:50.920 to see a trend in cash flows for those same companies. Uh. 0:04:51.040 --> 0:04:53.280 Really the growth and cash flows for those companies is 0:04:53.640 --> 0:04:56.800 close to zero at this point. So so yes, I 0:04:56.800 --> 0:04:59.440 would agree with you. In the near term, I would 0:04:59.440 --> 0:05:03.560 say over all credit markets are still providing support, but um, 0:05:03.600 --> 0:05:06.279 I think in particular equities are going to be very 0:05:06.320 --> 0:05:09.120 sensitive to a turning cash flows, especially for some of 0:05:09.120 --> 0:05:12.360 those levered names. Uh. And we're starting, at least in 0:05:12.600 --> 0:05:14.560 the form of the second derivative of cash flow, is 0:05:14.560 --> 0:05:18.039 starting to see that that rate of growth slow considerably. Peter, 0:05:18.080 --> 0:05:20.960 thanks so much for joining us. Peter Stini, Global Chief 0:05:21.040 --> 0:05:38.480 market Strategist for Cantor Fitzgerald joining us on the phone. Well, 0:05:38.520 --> 0:05:41.320 the United Auto Workers Union is leading its first strike 0:05:41.360 --> 0:05:43.599 against General Motors in twelve years, digging in for a 0:05:43.640 --> 0:05:46.480 fight over jobs and benefits that could cost the Carmaker 0:05:46.600 --> 0:05:49.159 deally for an indefinite period of time to get some 0:05:49.200 --> 0:05:52.200 more details. We welcome David Welch. David is a Detroit 0:05:52.320 --> 0:05:56.279 bureau chief for Bloomberg News located in our Detroit bureau 0:05:56.440 --> 0:05:58.560 right now. David, thanks so much for joining us. Just 0:05:58.600 --> 0:06:01.159 give us a sense of how far apart you think 0:06:01.200 --> 0:06:04.880 the union and GM are right now. There's a key 0:06:04.880 --> 0:06:08.200 issue here that I think really has them apart by 0:06:08.240 --> 0:06:10.680 quite a bit, and that is the use of temporary workers. 0:06:11.320 --> 0:06:14.040 GM wants more of them because they get paid less, 0:06:14.040 --> 0:06:16.520 they have weaker benefits that they do cut their labor 0:06:16.560 --> 0:06:19.880 costs overall, but you can also get rid of them 0:06:19.960 --> 0:06:22.159 much more easily if there's a downturns that kind of 0:06:22.160 --> 0:06:25.960 makes the workforce flexible. They want fewer are them, say 0:06:26.000 --> 0:06:29.039 they want more um and the a W wants not 0:06:29.120 --> 0:06:30.919 only few of them, but they want a path to 0:06:30.960 --> 0:06:34.240 make those people permanent employees. So there's not a lot 0:06:34.240 --> 0:06:36.160 of middle ground there. Someone's going to have to give 0:06:36.160 --> 0:06:39.160 on that one. Uh GM had made an offer over 0:06:39.200 --> 0:06:42.159 the weekend that had pretty hefty raises and I signing bonus. 0:06:42.160 --> 0:06:45.520 They're going to hire more than five thousand new workers. 0:06:45.960 --> 0:06:48.080 So there's some job security and there. It was a 0:06:48.080 --> 0:06:50.520 pretty nice offer to start with, but that that one issue, 0:06:51.120 --> 0:06:52.920 I think it's going to be a big sticking point 0:06:52.960 --> 0:06:56.000 for them. You know, I'm looking right now General Motors 0:06:56.320 --> 0:06:59.679 share price down three per cent and I'm wondering why 0:07:00.400 --> 0:07:03.400 the union is doing this now. I mean, sort of 0:07:03.400 --> 0:07:07.560 what what what catalyzed this strike? Well, you know, the 0:07:07.560 --> 0:07:11.760 the labor agreement expired over the weekend, and this is 0:07:11.840 --> 0:07:13.480 kind of the one shot in four years they have 0:07:13.680 --> 0:07:15.760 to go out on strike and get a really good deal. 0:07:16.120 --> 0:07:19.320 There's a lot of pent up anger over the plant 0:07:19.360 --> 0:07:23.440 closing is that GM announced back in November. That's for plants, 0:07:23.440 --> 0:07:26.240 including a very big one in Lordstown, Ohio that President 0:07:26.280 --> 0:07:29.400 Trump has taken a personal interest in. So there was 0:07:29.400 --> 0:07:31.840 a lot of anger there, especially when you have GM 0:07:31.880 --> 0:07:34.840 putting out near record profits three years in a row 0:07:35.440 --> 0:07:37.840 and actually affirming guidance that they might hit that number 0:07:38.520 --> 0:07:40.680 something close to that profit number again this year's you 0:07:40.760 --> 0:07:45.239 have a prosperous GM plant closings, and and the workers 0:07:45.240 --> 0:07:49.520 are already pretty angry. They want a piece of of 0:07:49.600 --> 0:07:52.360 the record profits, even if we are possibly headed into 0:07:52.360 --> 0:07:55.280 a downturn um and and this is there one chance 0:07:55.320 --> 0:07:57.240 to get a piece of those profits while the company 0:07:57.280 --> 0:08:00.640 still has a lot of money. So that that's that's 0:08:00.680 --> 0:08:03.320 the weather they're pulling at this point in time. So, David, 0:08:03.360 --> 0:08:07.240 what's the sense here early days of this strike. Is 0:08:07.240 --> 0:08:09.560 this something that is expected to drag on for a 0:08:09.600 --> 0:08:11.920 long period of time or can this be a relatively 0:08:12.000 --> 0:08:16.920 quick issue? Um? Honestly, I think this will last maybe 0:08:16.960 --> 0:08:20.120 a week. Because GM did with their first offer that 0:08:20.160 --> 0:08:22.720 the union really won't talk about yet. The GM made public, 0:08:23.000 --> 0:08:26.160 they didn't address a lot of the issues, and those 0:08:26.200 --> 0:08:31.160 issues things like pay, things like investing a lot of 0:08:31.200 --> 0:08:33.480 money and plants that GM announced as part of this 0:08:33.559 --> 0:08:36.120 that they're gonna invest seven billion dollars in their US 0:08:36.200 --> 0:08:40.200 plants over the next four years. That the Lordstown plant 0:08:40.200 --> 0:08:42.160 will not get a vehicle to build, but they would 0:08:42.160 --> 0:08:45.079 make a battery plant. They would build a battery and 0:08:45.120 --> 0:08:47.680 wint vehicle battery plant in Wordstown and that would hire 0:08:47.720 --> 0:08:49.640 some of the workers who have not transferred out of 0:08:49.640 --> 0:08:52.200 there already. And the plan in Detroit that was at 0:08:52.280 --> 0:08:53.800 risk of being closed is also going to get a 0:08:53.880 --> 0:08:55.720 vehicle to build, so that there were a few bones 0:08:55.720 --> 0:08:57.920 in there for the workers who were waiting to see 0:08:57.920 --> 0:09:00.240 what their fate is going to be, but the other 0:09:00.280 --> 0:09:02.640 issues could take some time. And look, there's also a 0:09:02.640 --> 0:09:05.880 bit of vaudeville here. The union negotiators have to show 0:09:05.920 --> 0:09:08.480 the rank and file, who, by the way, they have 0:09:08.520 --> 0:09:10.720 to vote to ratify the deal. They got to show 0:09:10.760 --> 0:09:12.320 them that they're putting up a good fight in a story, 0:09:12.320 --> 0:09:14.720 because the way to do that. Yeah, and it's so 0:09:15.400 --> 0:09:17.760 I thought that part of the story was pretty interesting 0:09:17.760 --> 0:09:20.360 that the piece that you wrote. I do have to wonder, 0:09:20.400 --> 0:09:23.079 though it's been twelve years, right, this comes up every 0:09:23.120 --> 0:09:25.480 four years that they have to negotiate a new contract, 0:09:25.840 --> 0:09:28.360 this time is different, and they're going to dig their 0:09:28.400 --> 0:09:31.120 heels in. And you said that part of what the 0:09:31.160 --> 0:09:33.960 backdrop here is the record profits and the fact that 0:09:34.559 --> 0:09:37.480 General Motors has been closing some plants. But you also 0:09:37.559 --> 0:09:41.160 in the story pointed to a corruption scandal plaguing the 0:09:41.240 --> 0:09:45.000 U a W as part of what is sort of 0:09:45.040 --> 0:09:47.120 setting this setting the stage here. Can you give us 0:09:47.120 --> 0:09:50.480 more color on that? Sure, So there's been a corruption 0:09:50.600 --> 0:09:54.079 scandal at the union that's gone back for well over 0:09:54.120 --> 0:09:58.320 the past year, and it started at theat Chrysler. On 0:09:58.480 --> 0:10:01.400 both sides, Union and man manishment people have been indicted 0:10:01.800 --> 0:10:05.400 and convicted basically giving union leaders graft out of a 0:10:05.480 --> 0:10:08.199 union training fund in exchange for giving Fiat karist or 0:10:08.280 --> 0:10:12.520 a more lenient contract. That investigation has moved a GM. 0:10:12.559 --> 0:10:15.679 It's slightly different in that the union leaders and including 0:10:15.760 --> 0:10:20.320 past president Dennis Williams and current president Gary Jones, are 0:10:20.360 --> 0:10:25.400 being accused of stealing money from union charity funds and 0:10:26.400 --> 0:10:30.280 community activism funds and the general fund for this lavish 0:10:30.320 --> 0:10:34.320 lifestyle they woven in uh, Palm Springs, California, for renting 0:10:34.400 --> 0:10:37.800 villas for a month or two, expensive cigars, expensive scotch. 0:10:38.520 --> 0:10:42.439 Is kind of crazy stuff. So the union and everybody, 0:10:42.480 --> 0:10:45.400 even some of the was called analysts wh watched the 0:10:45.480 --> 0:10:48.280 unions say that they won't really play into this, but 0:10:48.320 --> 0:10:50.920 I think it does. I think when members don't trust you, 0:10:50.920 --> 0:10:53.800 you've got to drive a hard bargain uh to get 0:10:53.800 --> 0:10:56.160 a deal ratified, because the membership is going to be 0:10:56.200 --> 0:10:59.559 looking at any deal really scrutinizing it, saying, Okay, we 0:10:59.760 --> 0:11:02.880 try these people. They're they're stealing our money to buy 0:11:02.960 --> 0:11:08.079 mccalen eighteen and some good cigars. Why would I trust 0:11:08.080 --> 0:11:10.400 them to give me a good deal. They've got to 0:11:10.520 --> 0:11:12.960 drive a really hard bargain here. David Welch, thank you 0:11:12.960 --> 0:11:15.240 so much for being with us. David Welch's Bloombergs Detroit 0:11:15.280 --> 0:11:18.960 bureau chief. Talking about that GM news the first strike 0:11:19.160 --> 0:11:40.840 of the labor Union in twelve years. There is that 0:11:41.040 --> 0:11:44.440 surge in oil prices that we're seeing today in Brent crude. 0:11:44.480 --> 0:11:48.079 At one point it was the most on record as 0:11:48.200 --> 0:11:52.040 reaching the highest levels since May, but jumping more than 0:11:52.160 --> 0:11:56.559 eleven percent. The question is how long will this disruption 0:11:56.640 --> 0:11:59.240 oil production out of Saudi Arabia last what will be 0:11:59.240 --> 0:12:01.720 the implications for the Middle East in terms of Iranian 0:12:01.760 --> 0:12:05.480 relationships with the US and Saudi Arabia. To help us understand, 0:12:05.720 --> 0:12:08.840 let's bring in John Killed, a founding partner of Again Capital. 0:12:08.880 --> 0:12:11.480 So John, let's just first get your impression of how 0:12:11.559 --> 0:12:13.840 much oil prices are rising. Do you view this as 0:12:13.880 --> 0:12:17.720 a temporary blip or something that has longer lasting legs 0:12:18.000 --> 0:12:22.440 and potentially even a higher leg up. Well, I think 0:12:22.440 --> 0:12:25.719 the response has been um somewhat measured, even though it 0:12:25.800 --> 0:12:29.880 was the biggest jump since the invasion of Kuwait bi 0:12:29.880 --> 0:12:33.200 Iraq back in the day. Um, We're gonna have to 0:12:33.240 --> 0:12:37.240 see how quickly the Saudis can get the situation under control. 0:12:37.320 --> 0:12:39.040 You know, they're claiming that they can get a good 0:12:39.040 --> 0:12:42.440 portion of the production back online UM, and they're also 0:12:42.480 --> 0:12:45.000 claiming that they'll be able to supply everyone as needed 0:12:45.200 --> 0:12:49.440 out of available inventories that are in the country. The 0:12:49.480 --> 0:12:51.599 big thing to watch from here really is what the 0:12:51.679 --> 0:12:53.800 response is going to be. It seems now that the 0:12:53.920 --> 0:12:56.400 US and a few moments ago the Saudis themselves are 0:12:56.440 --> 0:13:01.200 accusing Iran of having uh done this, and it's hard 0:13:01.240 --> 0:13:04.400 to believe that the Saddies won't respond or the US 0:13:04.480 --> 0:13:07.240 won't help them respond. But if they don't, you're gonna 0:13:07.280 --> 0:13:10.240 look incredibly, incredibly weak. So it seems to me that 0:13:10.280 --> 0:13:13.120 they'll be vulnerable to more attacks and that the security 0:13:13.120 --> 0:13:17.040 premium and prices is only going to inflate. John. You know, 0:13:17.280 --> 0:13:21.320 as someone who follows these markets closely, are you surprised 0:13:21.559 --> 0:13:25.280 at how much this facility, again, one of the largest 0:13:25.280 --> 0:13:27.520 facilities and we're not maybe the largest facility in the world. 0:13:28.240 --> 0:13:34.400 How susceptible it was to attack? UM? Yes, and no, 0:13:35.040 --> 0:13:38.000 uh look to the extent it was it was cruise 0:13:38.040 --> 0:13:41.120 missiles coming from Iran. If that's the case, UM, you 0:13:41.120 --> 0:13:43.079 would have think they should have been picked up by 0:13:43.120 --> 0:13:45.320 some kind of anti missile defense that the Saddi's have 0:13:45.400 --> 0:13:50.120 purchased from the US. Drones are almost impossible to stop, 0:13:50.840 --> 0:13:53.480 and um, the Saddies are particularly bad at it. This 0:13:53.559 --> 0:13:56.120 is not the first drone attack I think, as most 0:13:56.120 --> 0:14:01.160 people know on Saudi infrastructure, UM that has occurred. It's 0:14:01.160 --> 0:14:03.360 been going on for months, and the Satti's have really 0:14:03.360 --> 0:14:07.120 done nothing about it, which I have found remarkable. Um. 0:14:07.160 --> 0:14:09.080 They tried to put more pressure on the Hoothies and 0:14:09.160 --> 0:14:12.120 Yemen and and do other things, but for the most part, 0:14:12.160 --> 0:14:14.680 as far as the direct response goes, you know, there's 0:14:14.720 --> 0:14:18.040 been nothing. So this day was almost inevitable. But if 0:14:18.080 --> 0:14:21.040 you look at the satellite imagery, you can see there 0:14:21.200 --> 0:14:26.000 is unbelievable precision in in where these uh these round 0:14:26.080 --> 0:14:29.000 tanks that they have there that store the oil got 0:14:29.000 --> 0:14:32.720 penetrated almost the exact same spot in each tank that 0:14:32.800 --> 0:14:36.560 are in a row together. So um, high level sophistication. 0:14:36.680 --> 0:14:39.200 And certainly for roll of money the Sadie's spent on 0:14:39.240 --> 0:14:41.440 their defense, they should have had some kind of anti 0:14:41.480 --> 0:14:44.760 missile technology uh AT in place here. So it's it's 0:14:44.800 --> 0:14:47.200 it's a remarkable failing on their part. So, John, I 0:14:47.280 --> 0:14:48.920 want to go back to what you were saying about 0:14:49.440 --> 0:14:52.280 how the response in markets has been somewhat muted, especially 0:14:52.280 --> 0:14:55.400 given the backdrop you were just talking about, which is 0:14:55.440 --> 0:14:58.160 sort of a lack of protection on the part of 0:14:58.160 --> 0:15:02.560 Saudi Arabia against an attack like this. I'm just trying 0:15:02.600 --> 0:15:05.360 to understand the counter argument to that that there's loss 0:15:05.400 --> 0:15:09.960 of production that can be increased elsewhere, and that you know, 0:15:10.000 --> 0:15:14.520 the US can increase shell production, this will offset any 0:15:14.560 --> 0:15:16.720 decline in production out of Saudi Arabia. What do you 0:15:16.760 --> 0:15:20.600 say to that. I think that's partly right. I mean, 0:15:20.640 --> 0:15:22.680 as far as there being any kind of you know, 0:15:23.040 --> 0:15:25.880 spur of the moment US shell response that, I don't 0:15:25.960 --> 0:15:28.680 buy that at all. I mean, they're not built that way. 0:15:28.840 --> 0:15:31.560 We don't. Our guys don't necessarily e gals don't necessarily 0:15:31.600 --> 0:15:34.200 dial up and down the production in reaction to price. 0:15:34.240 --> 0:15:36.480 As we all know. They just plot along pump as 0:15:36.560 --> 0:15:38.560 much as they can, and and and deal with the 0:15:38.600 --> 0:15:41.760 prices as best they can. There is spirit capacity out there, though, 0:15:41.760 --> 0:15:43.920 because of what OPEC and Russia have done to try 0:15:43.960 --> 0:15:48.200 to um curtail the price slide. So we know Russia 0:15:48.240 --> 0:15:51.480 has spirit capacity. You a some of the other countries. Also, 0:15:51.520 --> 0:15:53.440 two of the other levers that are out there arguing 0:15:53.440 --> 0:15:56.760 against the greater price increases is certainly the existence of 0:15:56.760 --> 0:15:59.920 all the strategic petroleum reserves around the world, and China 0:16:00.040 --> 0:16:03.720 in particular, which has almost two years worth of supply 0:16:03.880 --> 0:16:07.120 to cover a complete cutoff of STATI supply to China. 0:16:07.560 --> 0:16:10.040 So um, you know, we we're sort of well banked 0:16:10.320 --> 0:16:14.080 in terms of oil supplies for now. The problem you 0:16:14.120 --> 0:16:16.120 have though, is that this turns into any kind of 0:16:16.400 --> 0:16:19.000 sort of hot war. And it's also remarkablelives if I 0:16:19.000 --> 0:16:21.320 could just stay quick. Um, the fact that these prices 0:16:21.360 --> 0:16:24.320 aren't up as much much more in light of the 0:16:24.360 --> 0:16:26.800 fact that we have already lost I ran in Venezuela 0:16:26.840 --> 0:16:29.240 oil to the global market as well, So it shows 0:16:29.280 --> 0:16:33.200 you just how sloppy the situation has become supply wise 0:16:33.360 --> 0:16:35.360 in the face of diminishing demand. As we were speaking 0:16:35.360 --> 0:16:37.280 about a few weeks ago. Yeah, John, that's kind of 0:16:37.280 --> 0:16:38.880 where I wanted to go. It seems like when we 0:16:38.960 --> 0:16:42.080 talk about crude oil, it's obviously trying to get a 0:16:42.080 --> 0:16:44.920 handle on the supplied to demand dynamics and what had 0:16:44.960 --> 0:16:47.920 been driving price. It seems to have been the demand 0:16:47.960 --> 0:16:50.880 side of the equation, and investors concerns that the trade 0:16:50.880 --> 0:16:54.040 wars and other issues would be slowing down demand for crude. 0:16:54.040 --> 0:16:56.600 But this news coming out of the Middle East brings 0:16:56.640 --> 0:16:59.680 the supply story right back into focus. Here, How what 0:16:59.720 --> 0:17:01.560 do you think will be the driver of oil over 0:17:01.520 --> 0:17:04.440 the next several weeks, the supply or the demand or 0:17:04.520 --> 0:17:08.400 some combination of the two, if the situation at all 0:17:08.520 --> 0:17:11.240 calms down, and we're in the situation looked like it 0:17:11.280 --> 0:17:13.560 was gonna be calming down, just generally with the overtures 0:17:13.560 --> 0:17:15.960 that were being made to the Iranians by President Trump 0:17:16.280 --> 0:17:17.880 over the past couple of weeks, you know, we're gonna 0:17:17.920 --> 0:17:20.480 slide right back down lower. There's really no no two 0:17:20.480 --> 0:17:22.959 ways about that. The key economic data that we're all 0:17:22.960 --> 0:17:25.320 waiting for at a China last night, for example, was 0:17:25.400 --> 0:17:29.200 horrific again, seventeen year low on industrial production growth goes 0:17:29.280 --> 0:17:30.840 right to the heart of the matter in terms of 0:17:30.960 --> 0:17:33.439 energy demand growth. I mean, it's just continuing to slip. 0:17:33.680 --> 0:17:36.240 The U. S. China trade war is really rereaking havoc 0:17:36.280 --> 0:17:39.680 on these manufacturing intensive economies in Asia, and and that's 0:17:39.720 --> 0:17:43.640 oil demand. Uh so, um, you know, to the extent 0:17:43.720 --> 0:17:46.119 this doesn't break out into a war, and it looks 0:17:46.160 --> 0:17:48.399 like my sense of it is that it's not going 0:17:48.440 --> 0:17:50.360 to It's not going to break out into a war. 0:17:50.400 --> 0:17:52.720 The Trump administration wants to avoid it at all costs. 0:17:52.760 --> 0:17:55.960 They're gonna take this one too. I guess, um and um, 0:17:56.040 --> 0:17:58.879 you know it'll it'll stabilize and and head lower until 0:17:58.920 --> 0:18:02.000 something else more horrific happens. So, John, I just wanna 0:18:02.359 --> 0:18:04.439 wrap up with the idea of gas prices in the 0:18:04.520 --> 0:18:07.879 US and the bleed through effects on the economy. Do 0:18:07.920 --> 0:18:10.479 you think that if prices were to stay where they 0:18:10.520 --> 0:18:14.960 are or go materially higher, that will translate into higher 0:18:15.000 --> 0:18:18.560 gas prices in the United States? Yes, I mean then 0:18:18.640 --> 0:18:21.920 I mix. Today gasoline prices are up about over ten 0:18:21.920 --> 0:18:25.080 per center, up seventeen cents a gallon. Um. You'll see 0:18:25.160 --> 0:18:27.240 some of that ripped through to the to the retail 0:18:27.280 --> 0:18:29.520 pump over the course the next couple of days. It'll 0:18:29.560 --> 0:18:31.359 take longer for that to go through. We're still at 0:18:31.359 --> 0:18:33.480 a relatively low price at the pump, but to the 0:18:33.520 --> 0:18:36.000 extent consumers start to get anxious and if or if 0:18:36.000 --> 0:18:38.760 the price goes you know, even higher, Um, you'll see 0:18:38.760 --> 0:18:41.680 another You'll see a hit to consumer confidence, and you'll 0:18:41.760 --> 0:18:44.800 see a hit to UH freight rates and other industries 0:18:44.800 --> 0:18:47.560 that rely obviously on fuel for transportation, but also with 0:18:47.640 --> 0:18:49.680 the grocery store, you'll see the price of veggies whether 0:18:49.800 --> 0:18:52.239 things that start decline. John Kildo, thank you so much 0:18:52.280 --> 0:18:54.600 for joining us. John is the founding partner of Again Capital, 0:18:54.720 --> 0:18:57.320 joining us to discuss what's going on in the energy market. 0:18:57.400 --> 0:19:15.520 Certainly an eventful day. Well. The ongoing trade dispute between 0:19:15.560 --> 0:19:18.800 the US and China is whips on currency markets around 0:19:18.840 --> 0:19:22.040 the globe, presenting hedging challenges for a whole host of companies. 0:19:22.080 --> 0:19:23.800 To get a sense of how some of these companies 0:19:23.840 --> 0:19:26.920 are managing that currency risk as well as their cash overall, 0:19:26.960 --> 0:19:29.800 we welcome our next guest, Wolfgang Coaster. Wolfgang is a 0:19:29.840 --> 0:19:33.240 senior strategy officer at Kirrieba based in Phoenix, Arizona, but 0:19:33.320 --> 0:19:35.600 joining us here in our Bloomberg Interact their broker studio. 0:19:35.640 --> 0:19:38.480 So Wolfgang, thanks so much for joining us again. You know, 0:19:38.720 --> 0:19:41.679 one of the issues with this the uncertainty presented by 0:19:41.760 --> 0:19:44.960 the U S and China trade issues is currencies. Give 0:19:45.000 --> 0:19:48.640 us a sense of how well you think companies are 0:19:48.800 --> 0:19:52.639 managing their currencies at the currency risk. Yeah, so I 0:19:52.680 --> 0:19:54.639 think that one of the things that we're seeing is 0:19:54.720 --> 0:19:56.639 unfortunately it's all over them what map, Right, You have 0:19:56.680 --> 0:19:59.040 some companies who do a really good job, and the 0:19:59.200 --> 0:20:02.440 key thing is to actually understanding your exposures, really having 0:20:02.480 --> 0:20:05.439 a good grasp around where are my exposures, how am 0:20:05.480 --> 0:20:07.600 I exposed not just on the revenue side on the 0:20:07.720 --> 0:20:10.400 but on the expense sides, and what's the net impact 0:20:10.440 --> 0:20:12.520 of that? And then what do I do to manage 0:20:12.560 --> 0:20:16.199 that properly? That's really the gist of it. The execution 0:20:16.240 --> 0:20:19.680 of that strategy then of actually putting hedges on, etcetera, 0:20:19.720 --> 0:20:22.320 isn't as hard. So as we see these companies doing 0:20:22.359 --> 0:20:23.960 it the once we're doing it well are the ones 0:20:24.000 --> 0:20:26.680 who are ahead of the game. I want to talk 0:20:26.720 --> 0:20:28.439 a little bit about your company because I find it 0:20:28.480 --> 0:20:31.120 really interesting and it sort of builds on what we've 0:20:31.160 --> 0:20:35.160 been hearing a lot. Basically, you do liquidity management for companies, 0:20:35.280 --> 0:20:39.120 right um, and what that means is helping them manage 0:20:39.160 --> 0:20:43.760 their cash and risk as well as just in general operations. 0:20:43.920 --> 0:20:47.120 And it's the software, uh that you that you provide 0:20:47.400 --> 0:20:50.639 And I'm just wondering, why is this such a growth 0:20:50.680 --> 0:20:53.800 area that companies are increasingly outsourcing some of the basic 0:20:53.840 --> 0:20:57.359 functioning of the way they run their businesses to software 0:20:57.480 --> 0:20:59.960 such as yours. Yeah, I think that it's an evolution 0:21:00.080 --> 0:21:02.679 and really over time of how things are going. And 0:21:03.040 --> 0:21:06.600 quite frankly, treasury and finance are often the later partists 0:21:06.640 --> 0:21:09.919 to the stages than sales organizations and marketing organizations are. 0:21:10.160 --> 0:21:12.880 So you've seen this, like you said, exactly like a salesforce. 0:21:12.880 --> 0:21:16.240 There typically in the forefront finance more conservative and a 0:21:16.320 --> 0:21:18.639 little bit difficult and more difficult to open up to 0:21:18.800 --> 0:21:20.960 that because what you have to do when you help 0:21:21.040 --> 0:21:23.399