Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moven news.
Speaker 3: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
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Speaker 3: Another deal in the energy space, this time Chesapeake Energy.
Speaker 3: I'm going to buy Southwestern Energy for seven point four
Speaker 3: billion dollars in an all stock deal.
Speaker 1: So I mean crazy, which means we get the opportunity
Speaker 1: to speak to our good friend Vince Piazza, senior industry
Speaker 1: analysts covering all the energy space for Bloomberg Intelligence. Of course,
Speaker 1: the highlight of his career, former sportscaster, talk show host
Speaker 1: at the famed WFUV radio station at Fordham University, which
Speaker 1: has launched so many legendary broadcasting careers, particularly in the
Speaker 1: sports biz. Vince, we'll talk radio at another time. Let's
Speaker 1: talk about this deal here. What's going on in your business?
Speaker 4: Here?
Speaker 1: It is the consolidation is fast and furious, isn't it?
Speaker 4: It really is?
Speaker 5: And we talked about this in our outlook for twenty
Speaker 5: twenty four, the consolidation continues. You know, we have reached
Speaker 5: a maturity phase in this industry. We had the shakeout
Speaker 5: and now you have established players looking for increased scale
Speaker 5: and concentration. You're selling a commodity, there's little differentiation. The
Speaker 5: only way you can differentiate is by having more of
Speaker 5: it so that you can gain efficiencies, economies of scale,
Speaker 5: better productivity. And this is a prime example, Paul. Right,
Speaker 5: So you have two very large players getting together to
Speaker 5: form the third largest natural gas producer behind Chevron and Exxon.
Speaker 5: So this is a globally relevant producer that will have
Speaker 5: access via its exposure to the Hainesville shale, to Gulf
Speaker 5: Coast markets, Seaborn markets, and being able to push those
Speaker 5: flows out there in the international marketplace, which allows for
Speaker 5: greater diversification of selling hubs. You know, they're going to
Speaker 5: be exposed roughly twenty twenty five percent to that Seaborn market.
Speaker 5: They're going to have various selling hubs that they can
Speaker 5: push product through something like over two dozen. So the
Speaker 5: deal makes sense on paper. What I don't think most
Speaker 5: folks are really focusing on, and I invite you all
Speaker 5: to touch base with the Jennifer Reesho's our anti trust specialist.
Speaker 5: This deal will get lots of scrutiny. I think a
Speaker 5: deal like EQT buying up Quantum assets for about four
Speaker 5: and a half billion, that deal took about a year
Speaker 5: to close. So this is a much larger deal. It's
Speaker 5: much more concentrated in two very important specific plays, and
Speaker 5: so I think that's going to get a lot more scrutiny.
Speaker 5: So this isn't a done deal, but on paper, it
Speaker 5: is a very rational approach to a commoditized marketplace.
Speaker 6: Yeah, you read my mind, Vince, because I was going
Speaker 6: to ask you what does FTC think on these you know,
Speaker 6: large large gas and oil deals. I got to talk
Speaker 6: about this whole trend of consolidation. Are we going to
Speaker 6: see this continue into twenty twenty four? I mean, is
Speaker 6: this going to be a big part of all these
Speaker 6: companies gaining scale.
Speaker 5: Yeah. As part of our outlook, we looked at gas
Speaker 5: in general relative to oil, and we have we have
Speaker 5: had all of these deals in the Permian, but gas
Speaker 5: deals have been rather quiet in twenty twenty three, and
Speaker 5: that's because of the way the benchmarks performed in twenty
Speaker 5: twenty three. We think that that gas the worst is
Speaker 5: the worst is passed that gas, we could see better
Speaker 5: improvement in tighter markets for twenty twenty four. We think
Speaker 5: the market tightness will show itself in the second half,
Speaker 5: so we think we will have more consolidation in a
Speaker 5: natural gas space. This will likely set things off. How
Speaker 5: EQT responds, which was the largest producer, still is the
Speaker 5: largest producer until this deal closes. How they respond will
Speaker 5: be very important. And Taro and CNX have been relatively
Speaker 5: absent from the M and A game. How they respond
Speaker 5: will be very important as well. So it will likely
Speaker 5: set off a mini way of decisions that many of
Speaker 5: these operators will have to make in order to gain
Speaker 5: that scale. The scale and concentration is very important when
Speaker 5: you're selling a commoditized asset.
Speaker 1: So Vince, I see the stock of Chesapeake Energy is
Speaker 1: actually up about six percent. You don't often or always
Speaker 1: see that when you Acquier makes a deal here because
Speaker 1: there might be some delution concerns. Why do you think
Speaker 1: this stock is up here? Is just a good good
Speaker 1: valuation aside from the strategic side to it.
Speaker 5: I think it's exclusively about the strategic rationale behind the deal.
Speaker 5: And when you think about the twenty twenty five strip,
Speaker 5: things should look better for natural gas, natural gas market,
Speaker 5: natural gas sentiment in general. So I think it's a
Speaker 5: vote of confidence about the deal, and I think it's
Speaker 5: a voted confidence for nat gas going forward. You want
Speaker 5: to have more assets in concentrated hands and more solid hands.
Speaker 1: How fragmented vince Er does this natural gas and still
Speaker 1: remain Are there private players out there that can be
Speaker 1: rolled up? Or are we looking at a handful of
Speaker 1: public companies that just have to figure out who's going
Speaker 1: to go with who?
Speaker 5: Yeah, So if you think about where Chesapeake came from
Speaker 5: and where Southwestern came from, even EQT, you saw public
Speaker 5: buying private as the pe firms monetize their legacy investments
Speaker 5: to regenerate that capital. What we're going to see now,
Speaker 5: I think is still a good amount of public buying private.
Speaker 5: But I think now we're going to see public on
Speaker 5: public mergers, mergers of equals, low premium consolidation as well,
Speaker 5: because I think the next step is investors still want
Speaker 5: to see free cash flow. They want to see the
Speaker 5: return of excess cash. We had all this investment in
Speaker 5: the space during shale one point zero, where a lot
Speaker 5: of capital was sunk in the ground to prove up
Speaker 5: the assets. We now have these assets proved up. It
Speaker 5: is a manufacturing process now, and now we've hit the
Speaker 5: point of maturity where there's not a lot of growth capital.
Speaker 5: So it's really sucking out that excess cash, growing at
Speaker 5: a more modest space, controlling your expenses because you have
Speaker 5: that scale, because you have that concentration, and generating that
Speaker 5: free cash flow that right now in general is in
Speaker 5: the high to high a single digits to low team
Speaker 5: for the industry, and giving back that capital to the
Speaker 5: investor base. That is not really an issue, and a
Speaker 5: lot of the maturities have been pushed out, so leverage
Speaker 5: isn't merely a concern.
Speaker 6: Haven's before you go, I have to ask APA's kal
Speaker 6: on purchase.
Speaker 1: I read j aricle.
Speaker 6: You said, it's not all it's cracked.
Speaker 1: Up to be.
Speaker 5: Yeah. So it's interesting because usually when you consolidate, and
Speaker 5: you consolidate for scale, you are buying up near acreage
Speaker 5: or near assets. In this case, the assets seem to
Speaker 5: be somewhat diffuse from where APA is historically located. So
Speaker 5: I think this that deal was done to generate cash flow.
Speaker 5: As a cash flow bridge for APA to get past
Speaker 5: this period of uncertainty when their longer term, their longer
Speaker 5: cycle assets come online.
Speaker 1: Evin's always going to talk to you. That's a deal
Speaker 1: flow in your space. We appreciate you giving us some
Speaker 1: time here as we try to piece it all together.
Speaker 1: Vince Piazza, he's a senior energy analyst at Bloomberg Intelligence.
Speaker 1: Another deal in the natural gas space, the shale space.
Speaker 1: So we stay on top of it. The good analysts,
Speaker 1: the research channels go and keep on top of it
Speaker 1: as well.
Speaker 4: You're listening to the team.
Speaker 7: Ken's our live program, Bloomberg Markets weekdays at ten am
Speaker 7: Eastern on Bloomberg dot com, the iHeartRadio app and the
Speaker 7: Bloomberg Business app, or listen on demand wherever you get
Speaker 7: your podcasts.
Speaker 1: James Safer joins us here and this is the guy
Speaker 1: to speak to. He, along with Eric baltunis at Bloomberg Intelligence,
Speaker 1: the leading research on ETF's period for as long as
Speaker 1: we've been doing this at Bloomberg Intelligence, these are the
Speaker 1: folks that really are on top of it, and they've
Speaker 1: been on top of this Bitcoin ETF because it's such
Speaker 1: a big deal in the world of ETFs. James, thanks
Speaker 1: so much for joining us. I know you're super busy
Speaker 1: here today. When we have eleven new bitcoin ETFs hit
Speaker 1: the market, I don't know what to look at. Which
Speaker 1: one should I look at? Which ones are important? What
Speaker 1: are you guys looking at?
Speaker 8: So I'm looking at all of them, Okay, I want
Speaker 8: to see how all of them are doing. The thing
Speaker 8: is everyone's going to try to figure out what happened
Speaker 8: with flows right problem is we don't know what's happening
Speaker 8: with flows right now. I'm sure there's some trading desks
Speaker 8: and the authorized participants in the banks, that these brokerages,
Speaker 8: they know what's happening with flows, but we won't see
Speaker 8: it till after market clothes today that said, what we
Speaker 8: can watch is volume, and that's what I'm watching. We're
Speaker 8: right around two billion dollars already and traded in all
Speaker 8: eleven of these ETFs. It's being led by GBDC from Grayscale,
Speaker 8: and then I BIT from black Rock, and then you
Speaker 8: have Fidelity and ARC are following suit. Now I think
Speaker 8: there's no what like I said, there's no way to
Speaker 8: know which way the flows are going in this volume.
Speaker 8: It's significant, this is a huge launch, but I have
Speaker 8: my guesses.
Speaker 1: And the guess is we'll pay for the guests.
Speaker 8: Yeah. Yeah, I'm fairly confident that this money. GBDC, they
Speaker 8: are trading with the tightest spread too. That's something else
Speaker 8: I'm watching, trying to see who's trading the tightest on
Speaker 8: that bidass spread. GBDC is trading very tight, So we're
Speaker 8: most of these other ones, there's no there's no one
Speaker 8: really trading out of line. But I think GVTC is
Speaker 8: seeing significant outflows. I've called for GVTC to see outflows
Speaker 8: in my research because they left their fee at one
Speaker 8: point five percent. All these other guys are at zero,
Speaker 8: So there's significant capital in there. Might be locked up
Speaker 8: with cap gains, but there's a lot of it that's
Speaker 8: going to be leaving because they don't want to be
Speaker 8: paying that fee anymore.
Speaker 6: So how much money are these eleven likely to generate?
Speaker 8: How much money generate is in flows or it generates
Speaker 8: in revenue?
Speaker 4: Yeah?
Speaker 1: Coming in, I mean like we don't. Yeah, Like, are
Speaker 1: they gonna all go out there and start buying bitcoin
Speaker 1: kind of thing?
Speaker 9: Yeah, I mean.
Speaker 8: That's exactly what's happening, right, They are going to be
Speaker 8: They're gonna be buying bitcoin. This money that's coming in.
Speaker 8: It's the question is figuring out how much of it
Speaker 8: is new money buying bitcoin versus shifting around like we're
Speaker 8: seeing likely right now with greyscale, money's pouring out. As
Speaker 8: far as how much money's being made, most the only
Speaker 8: one making real money right now is greys Scale, who's
Speaker 8: are charging I fee, but they're seeing money pour out
Speaker 8: everyone else for the most part, most of them are
Speaker 8: offering zero fee waivers, so it's literally free to hold
Speaker 8: these things for the next six months. So there everyone's
Speaker 8: doing everything they can to get assets for the long
Speaker 8: term play to keep those assets and then earn fees
Speaker 8: on them. And even the fees of the long term
Speaker 8: they're really low. They're competitive with other ETFs in the
Speaker 8: US landscape.
Speaker 1: How big is this for I mean you guys, you
Speaker 1: and Eric and your team, they have a team. I'm like,
Speaker 1: we have to have a team for ETFs and they're like, yeah, yes,
Speaker 1: so we built a team.
Speaker 9: How big is this.
Speaker 1: Bitcoin thing in the overall scheme of kind of ETFs.
Speaker 8: So we we like to look at this and we
Speaker 8: like the media tends to cover like ninety five percent
Speaker 8: of what is in your Sorry, let me restart.
Speaker 9: Yeah, the media tends to look at stuff.
Speaker 8: It's five percent of your portfolio, but the media spends
Speaker 8: ninety five percent of it.
Speaker 9: And that's what's happening here with bitcoin, right.
Speaker 8: Like we think these bitcoin ETFs could get to something
Speaker 8: like one to two percent of overall ETF assets four
Speaker 8: or five years from now crypto ETFs in general. But
Speaker 8: that's it. That said, this is really interesting, it is fascinating.
Speaker 8: There's politics at play, there's a lot of money at play.
Speaker 8: There's a lot of big names at play. I mean
Speaker 8: I just mentioned black Rock my shares in Vesco.
Speaker 1: Well, like one of the things that we've been talking about,
Speaker 1: like gold, how many gold atfs are there?
Speaker 9: I mean gold is gold is gold?
Speaker 1: How he differentiate one ETF versus another? So how many
Speaker 1: goldietfs are there? I don't know the exact number of
Speaker 1: the top of my head. It's somewhere around eight or nine, okay,
Speaker 1: so you'd be surprised.
Speaker 9: And a lot of them.
Speaker 8: So State Street is the main one they offer GLD,
Speaker 8: but Blackrock also one has one IAU and each of
Speaker 8: those have a sibling that charges a quarter of what
Speaker 8: the other one charges. So GLDM mini shares and IAU
Speaker 8: M also mini shares essentially, and they just undercut themselves
Speaker 8: because they have enough liquidity in the other products. And
Speaker 8: then they offer this cheaper portfolio diversifire that people can
Speaker 8: use and only charge like ten bases points to hold it.
Speaker 6: My mind is blown, right, So the SEC approval, this
Speaker 6: is not the SEC giving that, you know, stamp of
Speaker 6: approval to bitcoin.
Speaker 1: Correct?
Speaker 4: Yes?
Speaker 9: Correct?
Speaker 8: I mean if you read the letters from some of
Speaker 8: the Democratic Commissioners yesterday after they approved this thing, and
Speaker 8: Chairman Gary Gensler he kind of approved this thing tongue
Speaker 8: in cheeks that the courts were forcing us. But at
Speaker 8: the end of the day, what they were saying is true.
Speaker 8: It's the reason why we've been saying the SEC shouldn't
Speaker 8: have been denying the Bitcoin ETFs in the most recent
Speaker 8: denials because the SEC is not a merit regulator. Their
Speaker 8: job is not to say whether an investment has merit.
Speaker 8: Their job is to make sure that the proper disclosures
Speaker 8: are made and let investors decide whether it has merits.
Speaker 8: So they aren't supposed to be the ones dictating whether
Speaker 8: there's value here. Let the end investors choose, which is
Speaker 8: what's happening here and why I think it's right that
Speaker 8: these things are now trading.
Speaker 1: So just to be clear, because Rich Truman, my intrepid producer,
Speaker 1: pointed out earlier, what did Gary Ginstler do from a
Speaker 1: vote perspective that Gary Ginster the chairman of the SEC.
Speaker 1: Did he vote for this against us? Did he vote
Speaker 1: for it with like a big asterisk next to it
Speaker 1: or what happened?
Speaker 8: Yeah, I guess the way to think about it what
Speaker 8: he's voted with an asterisk. So the way that the
Speaker 8: SEC is set up is it's by a five member commission, right,
Speaker 8: so typically it's two Democrats, two Republicans and a chairman
Speaker 8: and the person who appoints the chairman as the president.
Speaker 8: So typically, right now, it's run by the Democrats. Okay,
Speaker 8: so what happened here is the two Democrats dissented on
Speaker 8: this decision, the two Republicans agreed with it, and Gary
Speaker 8: Gensler was the deciding vote that got this pushed through.
Speaker 9: I think it was all a political move.
Speaker 8: The Democrats didn't want to have to do this, They
Speaker 8: didn't really have much of a choice as far as unconcerned,
Speaker 8: so by Gary being the siding vote saying yeah, I
Speaker 8: know we have to do this based in the courts
Speaker 8: and these other things, but we really don't like it.
Speaker 9: We didn't want to do it.
Speaker 1: I hate to get into politics when we're talking money,
Speaker 1: which is my preferred thing to talk about. But why
Speaker 1: would the Democrats not want this?
Speaker 5: Yeah?
Speaker 8: They, I mean Elizabeth Warren specifically is since she's raising
Speaker 8: an anti crypto army, she hates that.
Speaker 9: She hates the cryptocrowd. I mean, I understand some of it.
Speaker 8: There's been a lot of fraud, a lot of manipulation,
Speaker 8: a lot of bad okay bad at space, So I
Speaker 8: get why they don't like it, but that's not the
Speaker 8: entire space. And like I said, the SEC shouldn't be
Speaker 8: a merit regular that they shouldn't be deciding whether there's
Speaker 8: merit and an investment. They should worry.
Speaker 1: The SEC was also saying we regulate securities and we
Speaker 1: don't think this is a security right. It's also one
Speaker 1: of their arguments.
Speaker 8: Correct, but we have I mean, gold is not a
Speaker 8: security either, it's a commodity. So bitcoin technically is going
Speaker 8: to be regulated, is regulard by the CFTC. But still
Speaker 8: the bitcoin ETFs are regulated by the SEC because ETFs
Speaker 8: are securities.
Speaker 9: Which brings me to another point.
Speaker 8: One of the reasons why these are so important is
Speaker 8: many of these institutions they can't hold anything but securities
Speaker 8: or bonds, what have you.
Speaker 9: This puts them in rapper.
Speaker 8: That now institutions, advisors and more people can can play
Speaker 8: with bitpoint, they can't touch the underlying stuff for the
Speaker 8: most part.
Speaker 1: All right, So you and Eric are gonna come out
Speaker 1: with some research tonight after the close that I have
Speaker 1: what what are you guys like really tracking what's going
Speaker 1: to be? I don't know what what's your call here?
Speaker 1: We're ten forty eight am. It's just been a good
Speaker 1: day for DTF biz and crypto.
Speaker 9: It's been an obscenely good day.
Speaker 8: I mean, we're probably I mean I haven't been at
Speaker 8: my desk for a while looking at the volumes, but
Speaker 8: I'm guessing we're over two billion in trading volume at
Speaker 8: this point. I mean, that is a monster day. That's
Speaker 8: not something you really.
Speaker 1: That's a monster day for an ETF launch kind of
Speaker 1: how you're phrasing it.
Speaker 8: Yes, exactly, it even still like for a brand new ETF.
Speaker 8: It's it's exceptionally well. I mean, even if you take
Speaker 8: GBTC out which is trust that was trading over the
Speaker 8: counter is now a ETF. These are still having very
Speaker 8: big trading days. Like even if these things were only
Speaker 8: trading this number two billion for the entire day after
Speaker 8: we take out Gradescale, I would say that's a successful day.
Speaker 8: I said, if they get over over a billion, over
Speaker 8: two billion, I think that's a pretty successful day.
Speaker 9: We're only uh, we're only an hour and change into
Speaker 9: this day, so all.
Speaker 1: Right, see how it goes. All right, we'll follow your
Speaker 1: research folks, big on the terminal for terminal users, get
Speaker 1: the research all on the EETF business James Seifert ETF
Speaker 1: research channels for Bloomberg Intelligence. Thanks for taking the time,
Speaker 1: but coming into our studio again. Some big ones I'm following, Grayscale,
Speaker 1: Bitcoin Trust, GBTC, the I shares one ib it. That's
Speaker 1: what I'm looking at.
Speaker 5: This is Bloomberg.
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Speaker 1: Let's talk about this market here. We're just talking with
Speaker 1: Jess mettin there, but let's think about kind of where
Speaker 1: we go in twenty twenty four after that stellar you know,
Speaker 1: ten eleven week run there. At the end of twenty
Speaker 1: twenty three, we got a professional in the Bloomberg Interactive
Speaker 1: Broker studio. Joe Mazzoli's a managing director of trader Education
Speaker 1: at Charles Schwab. Joe, again, that last finish we had
Speaker 1: there in twenty twenty three, I haven't seen anything. I've
Speaker 1: been doing this a long time. I haven't seen anything
Speaker 1: like that in a while. What did you guys at
Speaker 1: Schwab make of that performance? You're so both in the
Speaker 1: equity markets and in the fixed income market.
Speaker 4: You know, for me, there's one word rotation.
Speaker 10: I think that that was a big change from what
Speaker 10: we saw basically all at twenty twenty three. When you
Speaker 10: think about the fact that in March of twenty twenty
Speaker 10: three yet you know, the financial meltdown if you will,
Speaker 10: that's when megacap just really caught a bit right. Everybody said,
Speaker 10: we want to move into companies that have high free
Speaker 10: cash flow. We feel a little bit more comfortable with that.
Speaker 10: I mean people are looking at these megacaps as almost
Speaker 10: like a I don't want to say a hedge, but
Speaker 10: maybe a safe haven. And then as you get towards
Speaker 10: the end of the year, what happens. You get a
Speaker 10: dubbish fed if you will, you get CPI that's come
Speaker 10: down quite a bit, and then people say, hey, we
Speaker 10: can feel more comfortable rolling back into maybe some of
Speaker 10: the sectors that hadn't performed as well. And that's exactly
Speaker 10: what we saw from our clients.
Speaker 6: Now, new Year, new things that you guys are launching.
Speaker 6: I want to get into that Schwab Trading Activity index.
Speaker 6: So what exactly does this offer?
Speaker 1: What data comes out for December?
Speaker 10: Yeah, it's a it's a cool name, stacks Y, right,
Speaker 10: people remember that one, stacks.
Speaker 4: I like that one.
Speaker 10: Basically, stacks is it's a behavioral index, right. So we're
Speaker 10: looking at kind of what our clients are doing. They're
Speaker 10: trading activity in their accounts. So what's interesting is we
Speaker 10: use like a you know, we have millions of clients, right,
Speaker 10: so we look at a sample size and we say
Speaker 10: where are the net buys versus what are the nets cells?
Speaker 10: And we use that to come up with a medium
Speaker 10: a median excuse me, sample, and that gives us a number,
Speaker 10: generates a number. So right now, for December, we generated
Speaker 10: number forty four and a half and the range traditionally
Speaker 10: is around thirty to seventy thirty five to seventy, so
Speaker 10: it's actually a moderately low end, but it is a
Speaker 10: step up from what we saw in November. And interestingly enough,
Speaker 10: you know, you might have thought that given the strength
Speaker 10: that we saw in December, that would be higher. But
Speaker 10: I think when you look at the equities that were
Speaker 10: bought and that were sold, it makes it makes it different.
Speaker 10: So we had net buyer, excuse me, we had net buyers,
Speaker 10: but the equities that were bought were Pfizer, Ali Baba
Speaker 10: really okay video and the ones that were sold, you know,
Speaker 10: these were the ones that were a little bit that
Speaker 10: had already moved up your apples, your metas you know
Speaker 10: these are, and even Tesla.
Speaker 4: So there was a rotation.
Speaker 10: And like I said, the rotation that we saw within
Speaker 10: our clients kind of mimicked what you saw in the
Speaker 10: overall market.
Speaker 1: So what are you telling your clients these days? I mean,
Speaker 1: you know, Tom King has a nice expression.
Speaker 9: The courage to be in the markets.
Speaker 1: You know, what do you see from your retail clients?
Speaker 1: Are they in the market? You feel like they're fully
Speaker 1: invested their cash? I hear nothing I hear about is
Speaker 1: there's six train dollars of cash on the sidelines. What
Speaker 1: do you see at your place?
Speaker 10: Is now you know we had you know, the old saying,
Speaker 10: right time in the market versus timing the market.
Speaker 4: Yep.
Speaker 10: That's hard for me because I'm a trader, right and
Speaker 10: for me, you know, I like to look at different indicators,
Speaker 10: and that's kind of how I look at the stacks.
Speaker 4: Right.
Speaker 10: If you're if you're a short term trader or you know,
Speaker 10: a day trader, stacks probably doesn't help you a lot
Speaker 10: by looking at sentiment. But if you're an investor and
Speaker 10: you think about, what are all the tools that I
Speaker 10: have in my toolbox? Right, you got your fundamental analysis,
Speaker 10: you got your technical analysis, Well now you have that
Speaker 10: sentiment analysis that helps. So you know what we're what
Speaker 10: we're telling clients right now is you know, be patient.
Speaker 10: I think we expect some volatility throughout the year, and
Speaker 10: I think a lot of that has to do with
Speaker 10: the fact that you know, in the in the fixed
Speaker 10: income market send five or six cuts. We don't see
Speaker 10: that many. We see about three to four. So as
Speaker 10: you get closer to that March date, what's going to
Speaker 10: happen if it.
Speaker 4: Doesn't look like the Fed's going to cut.
Speaker 10: Does that start to creep volatility back into the fixed
Speaker 10: income market, which you saw last year in turn, you know,
Speaker 10: created equity volatility as well.
Speaker 6: Joe, I got to touch on CPI on that came ount.
Speaker 6: Do you think from the from the figures that came
Speaker 6: out from it, I mean, is that showing that it's
Speaker 6: going to take a little bit longer for these rate.
Speaker 9: Cuts to happen.
Speaker 10: Yeah, well, I mean, in my opinion, think about it
Speaker 10: this way. I don't think anybody ever thought that it
Speaker 10: was going to be a straight lined, down right straight
Speaker 10: line down to two percent.
Speaker 4: It's a bumpy road, but we've.
Speaker 10: Made a lot of progress, I think instead of you know,
Speaker 10: we're not talking deflation, we're talking disinflation. But it's gonna
Speaker 10: take some time. I noticed that on the FED watch tool,
Speaker 10: you know, you went from about a sixty five percent
Speaker 10: chance of a cut in March down to fifty nine
Speaker 10: percent or sixty percent. They're still pricing in a lot
Speaker 10: of cuts, and I just I just don't know if
Speaker 10: you're gonna get that. Maybe you get that in March,
Speaker 10: but I think that the Fed's probably gonna say, if
Speaker 10: we make this cut in March, let's play wait and
Speaker 10: see and let's see what happens from there.
Speaker 1: So the story today, Joe for us here at Bloomberg
Speaker 1: Radio and TV is the Bitcoin ETFs.
Speaker 9: Yeah.
Speaker 1: So as now there's eleven ETFs that if people want
Speaker 1: to get exposure to. I'm going to call it this
Speaker 1: asset class. I'm not sure what Gary Gensel would agree,
Speaker 1: but and ETFs have been such a growth story. I mean,
Speaker 1: nobody knows it better than the good folks at Schwab.
Speaker 1: How does what are your clients? How do you think
Speaker 1: they're going to react to this opportunity, this investment opportunity.
Speaker 4: Yeah, I mean I think they'll be demand. I do.
Speaker 10: I think they'll be demand for the ETF, especially when
Speaker 10: you think about client accounts. Right, if you want to
Speaker 10: trade futures, you have to have a certain level of
Speaker 10: you know, we call it level three, right, that gives
Speaker 10: you permission to trade futures. So if you have the
Speaker 10: ability to do that through an ETF. It opens up
Speaker 10: a lot more possibilities for IRA accounts, you know, for
Speaker 10: clients who don't have margin trading ability, So I think
Speaker 10: there will be demand there. What I also question is, also,
Speaker 10: you know, where does bitcoin fit within an investment portfolio.
Speaker 10: I think this idea that in twenty two and twenty
Speaker 10: three it was meant to be, you know, a hedge,
Speaker 10: or it was meant to be an alternative asset. I mean,
Speaker 10: basically what it did was it became a levered asset
Speaker 10: of the Nasdaq. Right, So I don't know exactly where
Speaker 10: it fits, but you know, that's up to the clients
Speaker 10: to decide.
Speaker 6: So speaking of where things fit, I mean, so we
Speaker 6: talk about CPI, we talk about bitcoin. We can't forget
Speaker 6: jobless claims came out today lower than expected. So where
Speaker 6: does the labor or get fit into the picture.
Speaker 10: Well, it's interesting because even though you got a good
Speaker 10: print on last Friday for non farm payrolls, even though
Speaker 10: you got jobless claims below, look at the revisions. The
Speaker 10: revisions are actually moving in the wrong direction. So I
Speaker 10: think that's something to kind of keep an eye on.
Speaker 10: You know, you can look at that headline flash number
Speaker 10: and it and it paints a rosy picture. But when
Speaker 10: you look at the revisions and when you look at
Speaker 10: kind of the the the we don't look at just
Speaker 10: that number. We look at the momentum, and we look
Speaker 10: at you know, what's happening over the last six months
Speaker 10: or so. You're starting to see the jolts. Numbers come down, right,
Speaker 10: job openings are less uh even, and even though you're
Speaker 10: getting jobless claims that are better than expected, it's still
Speaker 10: moving in a different direction. One thing I would keep
Speaker 10: an eye on. I'd absolutely watch this is the you know,
Speaker 10: the low, the low tick that we saw in unemployment
Speaker 10: with three point four percent. If it gets to three
Speaker 10: point nine percent, when you get that, that that half
Speaker 10: a percent move, that's that that that trough to peak
Speaker 10: or peak to trough, whoever however you want to look
Speaker 10: at it, that's an indicator that maybe things aren't as
Speaker 10: rosy as we believe.
Speaker 1: How about volatility? Real quick, I got the VIX here
Speaker 1: at thirteen. Are you surprised by the low vall shot? Yeah?
Speaker 10: I mean it's interesting because with everything that we've seen
Speaker 10: in the market in twenty three and heading into twenty four,
Speaker 10: I would think, you know, given tomorrow you know, being
Speaker 10: kind of the big day for the bank earnings. Ye,
Speaker 10: you would have seen a lot more hedging in some
Speaker 10: of those names, or even in the XLF. Well, one
Speaker 10: of the things that I'm looking at right now is
Speaker 10: that XLF is trading at an implied volatility in like
Speaker 10: the tenth percentile, meaning ninety percent of the time it
Speaker 10: trades at a higher ball. There's just not a lot
Speaker 10: of hedger stepping into the market. Could that have something
Speaker 10: to do with the zero DTE options. It's a possibility.
Speaker 1: Yeah. Interesting. All right, I got to ask you, Loan Tree, Colorado.
Speaker 1: Are you based in loan.
Speaker 10: Tree com Now I'm a Bay Area guy, you're a
Speaker 10: Bay Area A Bay Area guy live in Danville, California.
Speaker 1: Okay, because I looked at it's just on the bio.
Speaker 1: Did they there's a schwab way in Loan Tree, Colorado?
Speaker 4: There's a schwab way.
Speaker 9: Yeah, so did they?
Speaker 1: The SHWUB relocate some people from the Bay Area to
Speaker 1: Denver area.
Speaker 10: So there's a big group in Denver. There's a big
Speaker 10: group down in Fort Worth. And you know, we still
Speaker 10: have our office in San Francisco.
Speaker 1: That how San Francisco these days.
Speaker 4: San Francisco.
Speaker 10: San Francisco, you know, you're just not getting a lot
Speaker 10: of people come downtown anymore.
Speaker 4: It's a little sad.
Speaker 1: Yeah, I mean, just you know, when people still a
Speaker 1: beautiful city and it's a great city. And I'm thinking,
Speaker 1: at some point, man, it's gonna turn. I don't know
Speaker 1: when that's gonna be, but I know there's a lot
Speaker 1: of issues there. But I always tell my friends that
Speaker 1: are coming in from overseas, you know, we're gonna come
Speaker 1: in for with the family for four or five weeks
Speaker 1: to see us. I say, Okay, you can go to
Speaker 1: New York and go to Bigas, go to mi Own, whatever.
Speaker 1: Have to go to San Francisco and have to go
Speaker 1: to the Bay Area. Yeah, I still think that's a case.
Speaker 1: But it's amazing what happened there. I mean, so the
Speaker 1: commercial real estate, Like, we have issues here in New
Speaker 1: York City, but there's a lot of other states. But
Speaker 1: if you're in the Bay Area downtown, it's pretty dead.
Speaker 10: Right, it's pretty dead. And it also depends upon what
Speaker 10: time you go down there. Right, I'm working market hours.
Speaker 10: I'm getting in at four thirty five in the morning.
Speaker 10: It's a different site than maybe you know, seven or
Speaker 10: eight when everybody else is getting in, so it looks
Speaker 10: a little bit different. You know, I have hopes. I
Speaker 10: have hopes for the Bay Area. You know, like I said,
Speaker 10: I live out there. It's beautiful area. It's just it
Speaker 10: it needs we need an influx of people. Promise people
Speaker 10: are leaving California. Yeah, exactly.
Speaker 1: Well you can dump a snow up in Tahoe, so
Speaker 1: I'm sure you're hitting up there all right, jims Ohl,
Speaker 1: thanks so much, thanks for joining. Sarah Jomzol is a
Speaker 1: managing director of Trader Education at Charles Schwab. They've got
Speaker 1: the Schwab Trading Activity Index stacks. It's launching this week
Speaker 1: and Schwap clients can access it under stacks on the
Speaker 1: Think or Swim platform.
Speaker 5: How cool is that.
Speaker 7: You're listening to the tape Canser live program Bloomberg Markets
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Speaker 7: thirty domin Equity.
Speaker 1: So I'm very optimistic and I think the stock's always
Speaker 1: going up in that kind of thing. But I make
Speaker 1: a big exception to that with our next guest, Jody Lorii.
Speaker 1: She's a credit analyso Bloomberg Intelligence. She writes great research,
Speaker 1: good stuff, cool sector she covers, and we're glad to
Speaker 1: get a few minutes of her time. Hey, Jody Hurts,
Speaker 1: I did not see this coming. They say they're going
Speaker 1: to sell twenty thousand evs in a shift back to
Speaker 1: guess powered cars. What's going on there? What's it mean for.
Speaker 4: The credit.
Speaker 11: I'm so glad that you like me as an exception
Speaker 11: to credit analysts. So, yeah, Hurts is a name speaking
Speaker 11: of like dislike. I feel like Hurts is a name
Speaker 11: that people either love or love to hate. And so
Speaker 11: it really just depends on which side of the coin
Speaker 11: you're on. That said, it's sort of an interesting scenario.
Speaker 11: So you have a relatively new CEO who came in.
Speaker 11: They take a big stance of we're gonna buy a
Speaker 11: ton of electric vehicles to outfit our fleet. We're going
Speaker 11: to invest in charging stations, we're going to make you know,
Speaker 11: the rental car system work for EV and you know,
Speaker 11: they had very aggressive sort of plans with that and
Speaker 11: hummed along, and then third quarter happened and they said, well, actually,
Speaker 11: the damage and collision related to EV isn't as efficient
Speaker 11: as your traditional internal combustion engine cars. And so now
Speaker 11: they're backpedaling and they're saying, all right, we're going to
Speaker 11: sell off a third of our fleet, a global fleet.
Speaker 11: They didn't necessarily say from where, but we're going to
Speaker 11: sell it off over the next year, and we are
Speaker 11: going to take that money and put a portion of
Speaker 11: it into internal combustion engine. So it is a little
Speaker 11: bit of a backtrack, kind of an interesting scenario, to
Speaker 11: say the least, not necessarily something that gives as much
Speaker 11: confidence from a bond perspective.
Speaker 6: Now they're talking about because of elevated costs. That's a reasoning,
Speaker 6: but dig into to some of those costs and what
Speaker 6: are we talking about.
Speaker 11: Sure, So they talked a little bit about it on
Speaker 11: the third quarter call, and then they mentioned it a
Speaker 11: little bit in their press release today that the damage
Speaker 11: and collision is a little bit higher than they expected,
Speaker 11: and so it's eating into and cash flows, and so
Speaker 11: to benefit from the cash flow generation that they're seeing
Speaker 11: because guess what, used car prices are still in general
Speaker 11: relatively high as compared to what they were a few
Speaker 11: years ago. They aren't getting that same value when it
Speaker 11: comes to ev right, and I think part of that
Speaker 11: speaks to the fact that the EV market is so
Speaker 11: much younger. We don't really know how to model out
Speaker 11: appreciation the same way that we do for cars that
Speaker 11: have been around for fifty sixty years. And so I
Speaker 11: think that's really what it comes down to, is that
Speaker 11: they have this element of growing pains as a result
Speaker 11: of the fact that it's still relatively new industry. They
Speaker 11: took a bold stance related to it, and something that
Speaker 11: we like to highlight. Both Hurts and Evis have been
Speaker 11: doing this over the past few years, more a function
Speaker 11: of their counterparties than necessarily them, but they've taken on
Speaker 11: more of what you call risk vehicles as opposed to
Speaker 11: program vehicles. What risk vehicles are is the companies go
Speaker 11: and buy vehicles and take the risk of selling them
Speaker 11: in the aftermarket, as compared to program vehicles, where they
Speaker 11: work with a GM, a forward, you name it. They
Speaker 11: buy a certain amount of vehicles and then they have
Speaker 11: a commitment to basically put those vehicles back at a
Speaker 11: declared price, and so you don't have that put element
Speaker 11: as much for their fleet as they used to have.
Speaker 11: We've seen that sort of a road over time for
Speaker 11: both companies.
Speaker 1: So what's the meaning for the credit here? I mean,
Speaker 1: I'm looking at the FA function quite frankly, the data
Speaker 1: is a little wacky. I'm not sure kind of give
Speaker 1: us a sense of where the leverage is and kind of,
Speaker 1: you know, kind of what the forecast is. What are
Speaker 1: the credit folks think about hurts credit?
Speaker 11: Sure, So leverage is actually relatively low if you look
Speaker 11: at it as a company leverage or corporate leverage standpoint,
Speaker 11: you have to when you look at these companies, it's
Speaker 11: it's sort of complicated because they have their vehicles which
Speaker 11: are financed with asset b X securities, right, and then
Speaker 11: you have the corporate leverage which is financing other operations
Speaker 11: and other elements of business. And so Hertz's leverage is
Speaker 11: relatively low, much lower than it was historically. It's blow
Speaker 11: two times, but it has been creeping up each quarter.
Speaker 11: And so you know, they come out of bankruptcy, they
Speaker 11: wipe the slate clean, they have a nice balance sheet,
Speaker 11: and they taped the det markets. They started to give
Speaker 11: back to shareholders and they did all this all the
Speaker 11: while that the used car market was particularly good, and
Speaker 11: they had all these tremendous tailwinds. Now, used car prices
Speaker 11: have been going down, not two levels what they were
Speaker 11: in twenty twenty or earlier, but they have been going down.
Speaker 11: And those tailwinds that they benefited from in twenty twenty two,
Speaker 11: where they have record EBITAH levels, it's sort of eroding
Speaker 11: and so we don't necessarily see the top line activities.
Speaker 11: So the revenue element, the consumer piece of rental cars
Speaker 11: being negative. We actually see that as a relatively big
Speaker 11: tailwind this year, particularly as there's more business travel at
Speaker 11: the same time. It's the sort of functions related to
Speaker 11: outfitting your fleet, getting rid of your fleet, rotating your fleet.
Speaker 11: That's always the piece that that can bring some troubles.
Speaker 6: Now, I want to take this to the Paul. You're
Speaker 6: you're a travel guy in your jet setter, so I
Speaker 6: want to take this to the lead your outlook for travel.
Speaker 6: Have you ever done a cruisewall?
Speaker 9: No, No, he's okay.
Speaker 6: But apparently the rise in leading dire activity is helping
Speaker 6: the cruise market. Is that is that correct?
Speaker 11: That is very correct? That is spot on. So you know,
Speaker 11: people like to joke rising tides lift all boats, but
Speaker 11: here I would say it's true. You know, the cruise
Speaker 11: lines are the names that I think there are a
Speaker 11: lot of people who sort of wrote them off for
Speaker 11: dead a few years ago. They've been this tremendous turnaround story,
Speaker 11: repaying their debt load, bringing you know, improving their balance sheets,
Speaker 11: focusing on credit quality and you know, ratings improvements, and
Speaker 11: and they've been saying all the right things. They've been
Speaker 11: trying to time the market as they can. Some have
Speaker 11: been a little bit more successful than others in terms
Speaker 11: of pricing. But that said, they're all committed to deleveraging
Speaker 11: into this year, and we're seeing that booking rates are
Speaker 11: also still pretty positive. Consumers are latching onto the narrative
Speaker 11: around cruises, and so I think it's still there's still
Speaker 11: a lot of momentum around the cruise industry, at least
Speaker 11: going into this year.
Speaker 1: Yeah, one of my clearest memories of the early days
Speaker 1: of the pandemic was the cruise companies rushing out to
Speaker 1: the corporate bond market, and because they knew probably better
Speaker 1: than anybody that their business was going to be shut down,
Speaker 1: they probably didn't know what, we'd shut down for this long,
Speaker 1: but they needed the cash does to survive. So just
Speaker 1: take for example, I'm looking at Royal Caribbean aid at
Speaker 1: the end of nineteen eleven point seven billion dollars a
Speaker 1: total debt. By the end of twenty twenty h was
Speaker 1: twenty billion of total debts, almost double their debtload as
Speaker 1: they kind of loaded up. Where's the leverage of this
Speaker 1: cruise industry? Where is it now? Where are you guys
Speaker 1: in the credit space kind of think it should.
Speaker 11: Be right, So where it should be. It's always you know,
Speaker 11: as a credit alland as you say, the lowest possible
Speaker 11: you can do while while being a good level of
Speaker 11: investment grade. So but that said, outside of that, I mean,
Speaker 11: you know, if you look at a name like Royal
Speaker 11: Caribbean or like a Carnival. So Carnival, they had their
Speaker 11: peak debt level was about thirty five thirty six billion.
Speaker 11: They've now brought it down to below thirty billion, and
Speaker 11: so that's a tremendous you know, sort of cut into
Speaker 11: their debt load. And so it's less of an issue
Speaker 11: related to refinancing their debt to push out the maturities
Speaker 11: more so actually bringing down the debtload because what they
Speaker 11: have currently is not sustainable even with their large fleet.
Speaker 11: That said, you know, I think management is looking to
Speaker 11: get somewhere below three seventy five if I had to guess.
Speaker 11: The only reason why I say that is because that's
Speaker 11: where the raiders have guided historically what they need to
Speaker 11: stay investment grade. Both Royal and Carnival have communicated that
Speaker 11: they want to be investment grade Royal by twenty twenty five,
Speaker 11: Carnival by twenty twenty six.
Speaker 4: I think, you know, we've.
Speaker 11: Modeled out all scenarios where they could make it there.
Speaker 11: They could take a little longer to get there. I
Speaker 11: think it's really dependent on a few things. Number one,
Speaker 11: the fact that the consumer still has an apptite to
Speaker 11: go on cruises. But more so, you know, geopolitical risks
Speaker 11: different sort of ways that there can be a monkey
Speaker 11: wrench in this whole process. And so provided they can
Speaker 11: still sort of maneuver these regional issues such as Russia.
Speaker 11: You know, Saint Petersburg was a big port, and then
Speaker 11: you had Tel Aviv, which was a big port in Haifa,
Speaker 11: and so they had to sort of design around those
Speaker 11: situations and are constantly adjusting I mean they adjust for
Speaker 11: weather all the time, but now they're adjusting for weather
Speaker 11: and geopolitical risk.
Speaker 1: Jody, always a pleasure to speak with you. Jody Lori
Speaker 1: credit analysts of Bloomberg Intelligence. She follows to travel, the
Speaker 1: leisure lodgeing, gaming restaurants from the fixed income perspective. She
Speaker 1: knows those industries backwards and forward. So we love chatting
Speaker 1: with her. And again, that news that kind of jumped
Speaker 1: out at a lot of people this morning was Hurts
Speaker 1: to sell one third of their EV fleet in a
Speaker 1: shift back to Guess powered cards.
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 1: And I'm Faul Sweeney. I'm on Twitter at pt Sweeney.
Speaker 1: Before the podcast, you can always catch us worldwide at
Speaker 1: Bloomberg Radio