WEBVTT - Investing, Energy, China, and SCOTUS (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.920 at Bloomberg dot com slash podcast. Katie, I'm not sure 0:00:21.920 --> 0:00:24.840 if you're aware of my market moving called here, but 0:00:24.880 --> 0:00:27.080 I just kind of feel like all the bad news 0:00:27.080 --> 0:00:28.680 is are kind of in the market. I know, rates 0:00:28.680 --> 0:00:32.000 are going up, that's in the market. Our names you're 0:00:32.000 --> 0:00:35.520 coming down, that's kind of in the market. So don't 0:00:35.520 --> 0:00:37.600 I just buy stocks and buy bonds and stuff like 0:00:37.640 --> 0:00:40.839 that now so that I could sit in cash? You 0:00:40.880 --> 0:00:43.239 could sit in cash. I guess now I'm getting you know, 0:00:43.320 --> 0:00:45.360 on the two year, I'm getting four point four nine 0:00:45.360 --> 0:00:47.520 percent on my two years. So who knows? Phil Ta's 0:00:47.600 --> 0:00:50.440 he's the CEO of T'sset Management. He has to do 0:00:50.479 --> 0:00:53.560 this for a living. That got a couple of bill 0:00:53.760 --> 0:00:57.040 under management. Phil, what are you doing in this marketplace? 0:00:57.040 --> 0:00:59.480 Because I know you and your team you had been 0:00:59.600 --> 0:01:03.320 real a long cash for a while. Um, what are 0:01:03.320 --> 0:01:05.440 you doing these days. Yeah, so we were almost nine 0:01:05.959 --> 0:01:09.399 cash for the majority of this year. You can do that. 0:01:09.520 --> 0:01:12.679 We can, In fact, we manage funds and ets that 0:01:12.720 --> 0:01:15.520 are able to go fully defensive in cash or be 0:01:15.600 --> 0:01:19.360 fully headed with options. But we were driven partially back 0:01:19.360 --> 0:01:21.320 into the market into high yield bonds last week, and 0:01:21.360 --> 0:01:24.480 that represents about fifty percent of our business. But you know, 0:01:24.560 --> 0:01:26.680 I don't I wouldn't say that we're optimistic, but I 0:01:26.720 --> 0:01:28.520 think that there's a possibility that we can continue to 0:01:28.560 --> 0:01:30.120 move higher. I mean, you said, go ahead and just 0:01:30.200 --> 0:01:33.520 put money in stocks and bonds. I feel like there's 0:01:33.560 --> 0:01:37.959 such a recency bias towards declines being very short term, 0:01:38.240 --> 0:01:40.120 like we saw in the pandemic, that we're all just 0:01:40.160 --> 0:01:42.839 expecting this to be over. But I kind of doubt 0:01:42.880 --> 0:01:45.080 that it is. And I think maybe looking at the 0:01:45.120 --> 0:01:47.800 Internet double burst where it happened two thousand, two thousand, 0:01:48.040 --> 0:01:50.720 two thousand, two to two and a half years, is 0:01:50.760 --> 0:01:52.800 the kind of market that we're going to be looking 0:01:52.840 --> 0:01:56.000 forward to. I want to talk about junk bonds. That's 0:01:56.080 --> 0:02:01.040 really interesting. I call them high yield. I'm sorry, let 0:02:01.040 --> 0:02:04.360 me use the government name. So those high yield bond 0:02:04.400 --> 0:02:06.720 funds I track e t f s. That's my day 0:02:06.800 --> 0:02:10.280 job here at Bloomberg News. Influence into high yield debt. 0:02:10.280 --> 0:02:12.359 E t f s have been on fire, So it's 0:02:12.360 --> 0:02:14.560 interesting to hear you say that. Tell us a little 0:02:14.560 --> 0:02:17.600 more about that flip. What triggered it to co out 0:02:17.600 --> 0:02:20.920 of cash into junk debt? I said it. Well, so 0:02:21.000 --> 0:02:23.440 it could be it could be managers like us. Certainly 0:02:23.440 --> 0:02:26.480 we came in with around seven million dollars last week. 0:02:27.040 --> 0:02:29.399 But what if you look at high yeld bonds seven 0:02:29.840 --> 0:02:32.679 dollars to work last week? Yes, that's real money. Yeah, 0:02:32.760 --> 0:02:36.560 write that down? Could you do that? Like? How did you? 0:02:37.000 --> 0:02:38.800 How did you just tell us? How? Like how a 0:02:38.880 --> 0:02:41.480 manager does that? So you know, the market is so 0:02:41.600 --> 0:02:45.120 liquid for places like high yield bonds and and certainly 0:02:45.560 --> 0:02:47.760 you know stocks if you look at the major blend indices, 0:02:48.000 --> 0:02:49.880 so it's not a problem to come into the market 0:02:49.880 --> 0:02:52.120 and not really move it and take that type of 0:02:52.120 --> 0:02:54.640 a position. But it could be traitors like us, because 0:02:54.680 --> 0:02:56.600 if you look at the history of high yield bonds, 0:02:57.280 --> 0:02:59.720 they tend to not move that much per day on average, 0:02:59.720 --> 0:03:02.519 they move about maybe twenty basis points, So you don't 0:03:02.520 --> 0:03:04.119 get whipsode if you have to come in and out. 0:03:04.520 --> 0:03:06.520 You know, we're driven by trend following algorithms. So it's 0:03:06.560 --> 0:03:08.280 possible that we came in last week and we could 0:03:08.320 --> 0:03:11.840 be out again this week. But look, there's a potential 0:03:11.840 --> 0:03:14.720 here with yielded around nine and a half percent. Uh, 0:03:14.760 --> 0:03:18.079 if markets move up this fourth quarter and we get 0:03:18.080 --> 0:03:19.840 that kind of yield plus a little bit of appreciation, 0:03:19.840 --> 0:03:21.800 that could be a decent trade. I think. All right, 0:03:22.040 --> 0:03:25.720 just just kind of for giggles here, Elon Musk is 0:03:25.720 --> 0:03:28.359 refinancing his Twitter debt today. Do you buy any of 0:03:28.520 --> 0:03:30.600 any of his new debt come into the market? Would 0:03:30.639 --> 0:03:35.640 you be interested in and Elon musk debt package for Twitter? 0:03:35.760 --> 0:03:37.720 Not what you know about Twitter. I would love to 0:03:37.720 --> 0:03:41.920 answer that question with authority and with knowledge, but I don't. Unfortunately, 0:03:41.960 --> 0:03:44.360 when we buy how yield bonds were buying just looking 0:03:44.360 --> 0:03:48.840 at in disease and I guess when you're buying high yield, 0:03:49.120 --> 0:03:52.880 you have to have a call on a recession, how deep, 0:03:53.400 --> 0:03:55.880 how long it will be? Are you concerned about that 0:03:55.920 --> 0:03:58.440 as you go into some higher yielding paper. Yeah, So 0:03:58.480 --> 0:04:01.320 when we come in because we've follow trends and they 0:04:01.320 --> 0:04:03.480 can move lower and have us out again, this week. 0:04:03.480 --> 0:04:06.840 We're not so worried about that. What we like though, 0:04:07.040 --> 0:04:09.800 is positions that come in after we've had a decline 0:04:09.840 --> 0:04:11.839 like we've had of around fifteen percent and high yield bonds, 0:04:11.840 --> 0:04:14.720 so that potentially produces opportunity. Look back to the financial 0:04:14.720 --> 0:04:17.120 crisis there we saw high yield bonds move around down 0:04:17.120 --> 0:04:21.080 around twenty you know, eight the following year they advanced 0:04:21.120 --> 0:04:24.200 fifty percent. So the opportunity is there, we just don't 0:04:24.240 --> 0:04:28.480 know if it's right now or maybe sometime in or later. 0:04:29.200 --> 0:04:32.479 So given that you are trend following, how often do 0:04:32.560 --> 0:04:35.760 you make these sort of big allocation shifts that you 0:04:35.880 --> 0:04:38.440 just made from cash into high yield for example. Yeah, 0:04:38.480 --> 0:04:40.760 So so we manage six funds and two e t 0:04:41.080 --> 0:04:43.800 s and they and they make up equities and high 0:04:43.839 --> 0:04:47.839 yield bonds on average across our whole platform. We're buying 0:04:47.920 --> 0:04:50.520 or and selling, maybe making two to three round turns 0:04:50.560 --> 0:04:53.040 for a year, so not a lot. It's some people 0:04:53.080 --> 0:04:55.160 refer to it as turtle trading, so we're not. We're 0:04:55.200 --> 0:04:57.279 not speculating and trying to make it take advantage of 0:04:57.360 --> 0:04:59.680 just any one day move. We're really trying to take 0:04:59.720 --> 0:05:02.560 advant page of moves that that lasts over several months. 0:05:02.600 --> 0:05:06.320 But that sounds like trying to market time, which I've 0:05:06.320 --> 0:05:09.200 thought as a tough business. Yeah, so it's really tough 0:05:09.240 --> 0:05:11.960 business until you see the market move down and you 0:05:11.960 --> 0:05:14.000 don't participate. That's what you really want to do. But 0:05:14.400 --> 0:05:17.919 market timing is an interesting phrase, and it refers technically 0:05:17.960 --> 0:05:19.720 to people that are out there trying to predict what's 0:05:19.760 --> 0:05:22.080 going to happen in the markets, which we don't do 0:05:22.120 --> 0:05:26.080 and we don't recommend uh historically. However, though, if you 0:05:26.360 --> 0:05:28.479 are able to just follow trends and be out in 0:05:28.480 --> 0:05:31.960 the early phase of declines before they move down significantly, 0:05:32.440 --> 0:05:35.120 and then just right out and be in cash as 0:05:35.120 --> 0:05:38.080 we have been a lot this year, and then attempt 0:05:38.080 --> 0:05:40.320 to come in the very early stage of advances, it 0:05:40.360 --> 0:05:43.600 can be very favorable. Look, even if you don't return 0:05:43.680 --> 0:05:46.599 what the markets return, if your investors are participating in 0:05:46.640 --> 0:05:48.600 that big move lower, that can be a huge benefit 0:05:48.640 --> 0:05:52.039 to them. All right, great stuff. Really appreciate getting your 0:05:52.040 --> 0:05:53.840 points of view. It's a different point of view, and 0:05:53.880 --> 0:05:56.599 we appreciate hearing that. Phil Taste, he's the CEO of 0:05:56.640 --> 0:06:01.080 Ta's asset management. He joins us Live and Bloomberg Interactive 0:06:01.120 --> 0:06:06.359 broker studio. And you always appreciate that we're at the 0:06:06.400 --> 0:06:10.000 time of the year where university endowments are reporting the 0:06:10.120 --> 0:06:13.440 returns on their endowments for the trailing twelve months and 0:06:13.560 --> 0:06:16.440 in June of this year, and you think back a 0:06:16.520 --> 0:06:21.560 year ago, they were talking fifty fifty positive returns, just 0:06:21.680 --> 0:06:25.280 extraordinary numbers. But as we all know, two has been 0:06:25.279 --> 0:06:27.120 the other side of that coin. We've got equity markets down, 0:06:27.960 --> 0:06:31.039 fixed income markets down load of mid teens, so you'd 0:06:31.040 --> 0:06:33.840 expect to see some returns like that, but we're not. 0:06:34.400 --> 0:06:37.600 We're seeing kind of flat minus two, minus four, minus five. 0:06:38.000 --> 0:06:40.919 What's going on here? Let's check in with Gabrov Patankar. 0:06:41.040 --> 0:06:44.599 He covers all that stuff for Bloomberg Intelligence, and he 0:06:44.680 --> 0:06:47.640 joins us here in a Bloomberg Interactive broker studio because 0:06:47.680 --> 0:06:49.800 he does not phone it, and he comes in, uh, 0:06:49.839 --> 0:06:53.320 in line. Here, here's my concern or here's my guess. 0:06:53.640 --> 0:06:56.760 They're not marketing their private equity investments to market. Is 0:06:56.800 --> 0:06:59.800 that the case? That's a that's a very very good, 0:07:00.160 --> 0:07:02.080 very very good and very well informed gas. But I 0:07:02.080 --> 0:07:03.760 think there's much more to it. So if you just 0:07:03.800 --> 0:07:06.480 peel the onion a little bit, all the university pension 0:07:06.480 --> 0:07:08.520 plans have done extremely well over the years. As we 0:07:08.560 --> 0:07:11.800 all know, they followed the Yale model and really took 0:07:11.840 --> 0:07:14.200 on a liquid risk, which conceptual is not such a 0:07:14.200 --> 0:07:17.360 bad thing. If your liabilities are are over the long term, 0:07:17.360 --> 0:07:20.040 you should be investing over the long term. Having said that, 0:07:20.800 --> 0:07:23.480 a lot of the private managers the mark to markets 0:07:23.760 --> 0:07:26.760 in this particular situation is very subjective. It's about when 0:07:26.760 --> 0:07:30.080 your auditor comes in and and literally goes through asset 0:07:30.080 --> 0:07:32.760 by asset. There's a one or two or three or 0:07:32.760 --> 0:07:35.280 even a four quarter delay from time to time. There's 0:07:35.320 --> 0:07:39.480 also inconsistencies but on how different managers mark the same 0:07:39.520 --> 0:07:42.840 investment for different investors based on different mandates, or how 0:07:43.240 --> 0:07:46.360 different managers mark the same investment in different investors portfolio. 0:07:46.400 --> 0:07:49.160 So it's extremely complex. I think we're just at the 0:07:49.200 --> 0:07:52.400 beginning of these marks beginning to manifest themselves. I think 0:07:52.400 --> 0:07:54.960 the expectation for a lot of managers would have been 0:07:55.000 --> 0:07:57.520 to just wait it out and over a period of 0:07:57.560 --> 0:08:00.440 time the markets might come back and they don't really 0:08:00.440 --> 0:08:02.400 ever have to mark. But as we all know, that 0:08:02.720 --> 0:08:05.640 is not going to happen. I'm emailing your note literally 0:08:05.640 --> 0:08:07.600 as we speak down to my good buddy Neil triple 0:08:07.680 --> 0:08:10.120 It at the Duke University Management Committee. So get his 0:08:10.160 --> 0:08:13.920 thoughts well to that point. I mean, is there a 0:08:14.000 --> 0:08:17.200 period in time where they do have to come out 0:08:17.320 --> 0:08:20.800 with their mark to market returns just and say what 0:08:20.920 --> 0:08:23.560 the raw number is there, Katie. That's a great question, 0:08:23.560 --> 0:08:25.120 and I think this time the canary is going to 0:08:25.200 --> 0:08:26.960 come out of the coal mine. When it comes to 0:08:28.120 --> 0:08:31.840 the smaller pension plans, smaller US public pension plans, as 0:08:31.880 --> 0:08:34.800 you know, the good old state pension plans, there's a 0:08:34.800 --> 0:08:37.000 lot of scrutiny. There's a lot of both the political 0:08:37.040 --> 0:08:40.520 scrutiny as as as well as an investment comedy scrutiny, 0:08:40.760 --> 0:08:44.000 and there's zero incentive to really extend and pretends. I 0:08:44.080 --> 0:08:47.439 think some of the same managers that have also been 0:08:47.520 --> 0:08:49.520 recipients of capital from state plans are going to have 0:08:49.559 --> 0:08:51.920 to be forced to mark their books down. I think 0:08:51.920 --> 0:08:54.120 he has to answer your question. Ear end would be 0:08:54.120 --> 0:08:56.920 a very interesting time when auditors, some of the largest 0:08:56.920 --> 0:08:59.400 auditors in the world, are going to really have to 0:08:59.440 --> 0:09:01.720 come to the table will and think about these private 0:09:01.760 --> 0:09:04.280 assets in a very very objective fashion. And I think 0:09:04.280 --> 0:09:05.959 there could be significant marks. I think some of the 0:09:06.040 --> 0:09:09.880 endowment CEOs, including Navika, have been on record saying that 0:09:09.920 --> 0:09:12.440 there's a bunch of turbulence that lies ahead, and so 0:09:12.920 --> 0:09:14.840 I do expect that the year end is perhaps a 0:09:14.840 --> 0:09:17.320 good time, or early next year is when we start 0:09:17.320 --> 0:09:21.000 seeing distance manifesting. I'm looking at your research note here, 0:09:21.080 --> 0:09:23.400 and you know that Yale, which is kind of the 0:09:23.480 --> 0:09:26.959 leader in university endowment investment in terms of you know, 0:09:27.120 --> 0:09:29.360 kind of really thinking outside the box, maybe becoming very 0:09:29.400 --> 0:09:32.920 aggressive as opposed to the traditional sixty for equity bond portfolio, 0:09:33.320 --> 0:09:38.520 they've got upwards in privates or alternatives. Wow, I didn't 0:09:38.520 --> 0:09:42.080 know it was that high, but I guess that's the 0:09:42.120 --> 0:09:44.000 way they're doing here. That's how that you look for 0:09:44.080 --> 0:09:47.040 yield and what had been a zero interest rate environment. 0:09:47.559 --> 0:09:49.520 But the Yale model has been what it has been 0:09:49.559 --> 0:09:52.400 has been very successful and the gold standard for a 0:09:52.440 --> 0:09:55.400 lot of other smaller endowments and many others. In fact, 0:09:55.400 --> 0:09:57.920 even in the pension world. To follow Having said that 0:09:57.920 --> 0:10:00.760 the forty three number for three percent there might actually 0:10:01.040 --> 0:10:02.959 even be a much lower number than what it could 0:10:03.000 --> 0:10:05.200 be because, as you know, the last three to six months, 0:10:05.400 --> 0:10:07.960 there's a lot of managers that come back to the 0:10:08.320 --> 0:10:12.160 allocators for reapping, come back to the allocators for incremental 0:10:12.280 --> 0:10:14.640 capital calls and things of that nature. Is actually that number, 0:10:14.880 --> 0:10:16.719 if one way to speculate, it could be much not 0:10:16.960 --> 0:10:19.480 of the party three percent as well. Now, that is 0:10:19.520 --> 0:10:23.640 a very very large equity risk that that Yale has 0:10:23.679 --> 0:10:26.400 in the book, and traditionally endowment is supposed to have 0:10:26.440 --> 0:10:29.000 a much higher equity risk. But again, if you add 0:10:29.120 --> 0:10:32.560 liquidity marks that are not being taken and the capital 0:10:32.600 --> 0:10:35.520 commitment calls coming in, this becomes a pretty significant risk. 0:10:36.120 --> 0:10:39.160 So a significant risk. I mean, how worried are you? 0:10:39.240 --> 0:10:42.640 How worried should we be about that? Because all I 0:10:42.760 --> 0:10:45.840 hear right now when it comes to the treasury market, 0:10:45.920 --> 0:10:49.760 the public equity market, liquidity is hard to come by 0:10:49.880 --> 0:10:52.880 when it matters. I mean that's a bit of an exaggeration, 0:10:52.880 --> 0:10:55.920 but we've been hearing about liquidity risks all year long. 0:10:56.000 --> 0:10:59.640 Now we're talking about the liquid markets, actually a liquid markets. 0:10:59.640 --> 0:11:03.520 How can a into you? No, I'm reasonably concerned. I 0:11:03.520 --> 0:11:06.199 mean having said that endowments are not I'm not saying 0:11:06.320 --> 0:11:08.240 there's going to be a run on endowments or endowments 0:11:08.280 --> 0:11:09.600 are going at a business that's not what I'm saying. 0:11:09.600 --> 0:11:11.120 But what I'm saying is there's going to be a 0:11:11.120 --> 0:11:14.120 significant cost for concern because the endowments are sometimes on 0:11:14.240 --> 0:11:17.720 the bigger hands that feeds operating budgets of universities. So 0:11:17.840 --> 0:11:19.560 when you think of cash flows, when you think of 0:11:19.640 --> 0:11:22.960 matching cash flows, I think that there are significant problems 0:11:22.960 --> 0:11:25.600 already based on some of the antidotal conversations we've had 0:11:25.600 --> 0:11:27.960 with managers that are lower in duration that the endowments 0:11:27.960 --> 0:11:29.920 want to fund, but they don't have the liquidity to 0:11:29.920 --> 0:11:31.679 fund those assets. Now, how are they going to get 0:11:31.679 --> 0:11:34.960 that liquidity is by secondarying out some of their private exposure. 0:11:35.160 --> 0:11:37.480 Why are they not secondarying out that exposure at any 0:11:37.480 --> 0:11:39.480 good speed is because they're not getting the marks that 0:11:39.520 --> 0:11:41.360 they want. And why are they not getting the masks? 0:11:41.360 --> 0:11:43.640 Because there is no buyer for this And there's no 0:11:43.679 --> 0:11:46.720 buyer because the next set of buyers where public pensions, 0:11:46.960 --> 0:11:48.480 and they're not going to buy it at at the 0:11:48.559 --> 0:11:51.559 price that the endowments want to sell. All right, are 0:11:51.600 --> 0:11:56.280 good friends up in Cambridge, Massachusetts, Harvard, they've stepped up 0:11:56.280 --> 0:12:00.520 their investments in hedge funds. What's up with that? Yeah, 0:12:01.120 --> 0:12:03.680 that's a great question, Harvard. For the longest period of time, 0:12:03.720 --> 0:12:05.719 while it's the largest endowment, has kind of been a 0:12:05.760 --> 0:12:07.920 laggered when it comes to performance. But over the last 0:12:08.360 --> 0:12:10.920 three to four years, Harvard has really taken a slightly 0:12:11.080 --> 0:12:14.720 different stance for other endowments based on whatever little public 0:12:14.720 --> 0:12:18.000 information we have, and what they have tried to do 0:12:18.120 --> 0:12:21.880 is pivot more around reducing the duration of the alternatives portfolio. 0:12:21.920 --> 0:12:24.720 And I think Um the CEO of Narvika, and Ric's 0:12:24.720 --> 0:12:27.160 Locan the CIO have been on record to talk about that, 0:12:27.280 --> 0:12:29.400 and I think it makes a lot of sense, and 0:12:29.440 --> 0:12:32.360 these kind of turbulent markets where you're collecting some rent 0:12:32.960 --> 0:12:35.800 and reducing the duration of the alternatives portfolio while managing through. 0:12:36.240 --> 0:12:39.080 Not that Harvard does not have a liquid private equity 0:12:39.080 --> 0:12:40.960 exposure where the capital calls may be coming, but they're 0:12:40.960 --> 0:12:43.000 able to manage through a little bit better than some 0:12:43.040 --> 0:12:46.120 of the other endowments like Washington or Yale or Princeton, 0:12:46.200 --> 0:12:49.160 which might have very very high degree of capital calls 0:12:49.200 --> 0:12:52.679 and more liquidly. Illequially, we only have about a minute left, 0:12:52.679 --> 0:12:56.640 but you also write the endowments have outperformed public pension 0:12:56.640 --> 0:12:58.800 funds by about a hundred seventy paces points over the 0:12:58.840 --> 0:13:02.240 past ten years. You say that could converge. What's behind 0:13:02.240 --> 0:13:07.240 that call. Look, that's a very bold call to make, Katie. 0:13:07.240 --> 0:13:08.600 But there are a couple of reasons why I feel 0:13:08.640 --> 0:13:10.840 strongly about this. Endowments have always been the cool kids 0:13:10.840 --> 0:13:13.920 in the block. Public pensions not not so much. Now, 0:13:14.040 --> 0:13:15.840 what is really going to fundamentally change? You know what? 0:13:15.920 --> 0:13:17.880 Because they were not as school, they never really got 0:13:17.920 --> 0:13:21.000 up the liquidity spectrum. What they have is out there 0:13:21.000 --> 0:13:23.800 in the open domain. It's tested every three months. There 0:13:23.800 --> 0:13:29.360 are politicians, investors, um citizens scrutinizing it. And they were 0:13:29.360 --> 0:13:31.160 a little bit behind the curve. And that's gonna come 0:13:31.200 --> 0:13:33.000 back to their rescue. And they are actually going to 0:13:33.040 --> 0:13:35.400 be in a unique situation where they could actually deploy 0:13:35.440 --> 0:13:38.360 to some of these secondaries or distressed funds at a time, 0:13:38.480 --> 0:13:40.920 which is very very interesting to be deploying capital in 0:13:40.920 --> 0:13:44.560 their liquid markets. Alright, some good stuff there as always 0:13:45.200 --> 0:13:48.640 patank car ahead of alternative investments and manager research at 0:13:48.640 --> 0:13:52.280 Bloomberg Intelligence. He's got a really good noe doubt that's 0:13:52.280 --> 0:13:54.040 getting the attention a lot of folks out there, and 0:13:54.080 --> 0:13:57.200 the pension fund business and the endowment business, uh, talking 0:13:57.200 --> 0:13:59.440 about some of those returns and again some just some 0:13:59.559 --> 0:14:01.959 extra in he returns over the last couple of years 0:14:02.240 --> 0:14:04.440 from some of these university endowments, and of course they 0:14:04.480 --> 0:14:06.880 were blowing their own horn, but you might be paying 0:14:06.920 --> 0:14:15.360 for that here in some of these results being reported recently. Katie, 0:14:15.360 --> 0:14:17.960 we got w T I crude oil any seven dollars 0:14:18.000 --> 0:14:20.400 about you know a barrel here? It seems like it's 0:14:20.480 --> 0:14:22.920 kind of settled into that kind of range. But I 0:14:22.920 --> 0:14:25.400 want to talk about the global supply and demand of oil, 0:14:25.440 --> 0:14:27.880 and for that we talked to Fernando Valley. He's a 0:14:27.920 --> 0:14:30.920 senior analyst to Bloomberg Intelligence. He's been covering this energy 0:14:30.960 --> 0:14:34.240 business for like decades, and Katie, he says he knows 0:14:34.480 --> 0:14:39.480 four languages. English, that's debatable, Portuguese. Willias from Brazil's will 0:14:39.480 --> 0:14:41.960 give him that Spanish. It's basically the same thing as Portuguese. 0:14:42.000 --> 0:14:45.360 So you give him that German. I'm not giving him 0:14:45.400 --> 0:14:47.880 credit for that. I need to see him like in 0:14:47.920 --> 0:14:51.040 a conversation with Matt Miller to give him credit for German. Sure, 0:14:51.080 --> 0:14:54.800 the ultimate has exactly Fernando, We'll give you credit for 0:14:54.840 --> 0:14:59.240 knowing the oil business. Um, what's the call here? I 0:14:59.280 --> 0:15:02.520 know you guys Bloomberg intelligence. You have your demand models, 0:15:02.880 --> 0:15:06.240 your supply models. This is a commodity after all, and 0:15:06.240 --> 0:15:08.800 it's supplying demand. What are your models telling you now 0:15:08.800 --> 0:15:13.720 about where CREWD may be going? Well? Hi, Paul and 0:15:14.040 --> 0:15:19.000 first Good and Morrigan and Shodan's montag bones Poita, Uh 0:15:19.040 --> 0:15:25.800 so well schooling exactly. Um. Well, the first thing is 0:15:25.840 --> 0:15:29.160 that the market is as uncertain as you are. And 0:15:29.280 --> 0:15:33.600 if you look at the positions derivatives positions, uh, they 0:15:33.600 --> 0:15:37.560 show a lot of divergence. Uh if we are near 0:15:38.120 --> 0:15:42.280 the highs on the long positions for Brent and for distillance, 0:15:42.720 --> 0:15:49.239 but when you put a UH call, but call options 0:15:49.400 --> 0:15:53.920 were actually towards the lower half of the percentiles. Because 0:15:53.960 --> 0:15:57.000 the market is unsure, what is going to be the 0:15:57.040 --> 0:15:59.640 strongest hold. Will it be the lack of supply that 0:15:59.680 --> 0:16:04.600 we've talked about over time or the economic pressures that 0:16:04.640 --> 0:16:08.040 we're starting to see emerge in Western Europe and now 0:16:08.440 --> 0:16:10.720 with China and the locked ins, And we think for 0:16:10.760 --> 0:16:14.200 the remainder of two those economic pressures are just too 0:16:14.280 --> 0:16:18.400 much for the supply to really make UH inroads. But 0:16:18.800 --> 0:16:21.320 as we go through and we look at the history 0:16:21.360 --> 0:16:25.920 of how recessions and even the pressions have impacted oil demand. Uh, 0:16:26.040 --> 0:16:28.840 they tend to be short lived impact on consumption because 0:16:28.960 --> 0:16:33.480 ultimately energy is what gets us out of the economic slowdown, 0:16:33.560 --> 0:16:36.720 So demand tends to recover relatively quickly, and that's when 0:16:36.760 --> 0:16:40.240 we think that the supply gap will really emerge. And 0:16:40.320 --> 0:16:43.920 so I mean putting that into some numbers, if I see, uh, 0:16:44.280 --> 0:16:46.880 you know, w T I at about eighty seven dollars 0:16:47.320 --> 0:16:49.760 right now, to Paul's point, feels like we've been hanging 0:16:49.760 --> 0:16:53.320 around there for a while, just bumping below ninety. I mean, 0:16:53.880 --> 0:16:58.160 where's the floor, where's the ceiling? Well, I think with 0:16:58.440 --> 0:17:01.720 w T I, there is avential that as we end 0:17:01.840 --> 0:17:06.639 November and a strategic petrol and reserve releases, we're gonna 0:17:06.760 --> 0:17:09.320 get a little bit of a catch up to brent UM. 0:17:09.359 --> 0:17:13.359 But then the two benchmarks may may drop a little 0:17:13.359 --> 0:17:17.080 bit further. And you know, they never fall linearly. So 0:17:17.240 --> 0:17:21.320 could we see seventies It's probably an acceptable range, but 0:17:21.480 --> 0:17:24.359 it could go to fifty depending on how bad the 0:17:24.400 --> 0:17:28.040 economic news are, and especially if we see something uh 0:17:28.280 --> 0:17:32.600 of a renewed lockdown in China or um more austerity 0:17:32.720 --> 0:17:37.080 in Western Europe. Um. But then the ceiling, I mean, 0:17:37.480 --> 0:17:40.520 I think for now we're probably going to be capped 0:17:40.560 --> 0:17:42.360 at a hundred for the remainder of the year, even 0:17:42.400 --> 0:17:46.400 if we have positive news on the economic front um. 0:17:46.440 --> 0:17:49.840 But then when we look at the long term, you know, 0:17:49.880 --> 0:17:51.720 the sky is the limit. When you look at diesel, 0:17:51.760 --> 0:17:55.119 today we near two hundred dollars a barrel for diesel, 0:17:55.240 --> 0:17:57.840 So if you put that into context, that would be 0:17:58.560 --> 0:18:00.720 with typical margins that would be a hundred and fifty 0:18:00.760 --> 0:18:04.520 to a hundred and seventy dollars. Brent A Fornando, we 0:18:04.520 --> 0:18:07.119 we woke up this morning to what looks like a 0:18:07.440 --> 0:18:10.639 change in leadership in Brazil. I pulled up the shares 0:18:10.640 --> 0:18:13.440 of Petro boss uh and they're down five percent today. 0:18:14.240 --> 0:18:18.480 Your view of how the global energy market is looking 0:18:18.600 --> 0:18:23.040 at Brazil with potentially a new leader, Yeah, well it's 0:18:23.080 --> 0:18:28.200 the old leader uh and we've we've known what he's 0:18:28.240 --> 0:18:30.760 done in the past, and there are two fears really. 0:18:31.000 --> 0:18:34.280 One is that he slows down exploration. That's something they did. 0:18:34.359 --> 0:18:38.120 Brazil made the largest discoveries in the world and over 0:18:38.240 --> 0:18:42.240 thirty years during his first term, but they were slow 0:18:42.280 --> 0:18:45.439 to develop it and and then Petro Bras became the 0:18:45.480 --> 0:18:49.159 most indebted oil company in the world during his terms. 0:18:49.280 --> 0:18:53.159 And his his successor dema recess, and the fear is 0:18:53.240 --> 0:18:56.040 he's talked about building refineries again. And we have a 0:18:56.080 --> 0:18:59.960 no doubt that we talked about that because under his terms, 0:19:00.280 --> 0:19:03.879 Petrobiz was supposed to build five refineries. They spent nearly 0:19:04.000 --> 0:19:07.280 forty billion dollars on those five refineries, but only half 0:19:07.320 --> 0:19:10.800 of them half of one was completed. So they were 0:19:10.800 --> 0:19:13.120 supposed to build nearly a million barrels of a day 0:19:13.119 --> 0:19:16.480 of refining capacity, and to this date we only have 0:19:16.600 --> 0:19:19.320 about a hundred fifteen thousand barrels a day. So that's 0:19:19.359 --> 0:19:23.160 the fears that the heat UH returns to those days 0:19:23.200 --> 0:19:28.280 of overspending and not returning capital to shareholders. So does 0:19:28.320 --> 0:19:30.360 that is that I mean, does that spell bad news 0:19:30.440 --> 0:19:36.359 potentially for UH Latin American oil companies broadly beyond just 0:19:36.440 --> 0:19:40.760 the biggest well, I think they they have been following 0:19:40.800 --> 0:19:45.320 their own paths down They have governments that aren't necessarily 0:19:45.359 --> 0:19:48.080 market friendly. You can see Echo Patrol with Gustavo Petro 0:19:48.480 --> 0:19:53.280 in Colombia. He's talked about subsidizing fuel prices directly from 0:19:53.320 --> 0:19:57.640 Echo Petrol, which has its own negative impacts. YEPF obviously 0:19:57.680 --> 0:20:02.040 hamstrung by the massive ramp been inflation in Argentina. Um. 0:20:02.080 --> 0:20:05.320 They continue to grow, but their profitability and cash flow 0:20:05.359 --> 0:20:09.720 has a lagged peers significantly, so they aren't very active 0:20:09.720 --> 0:20:13.560 in Brazil. Eco patrol a little bit more than hitepf UM. 0:20:13.600 --> 0:20:16.560 But you know, I think that silver lining is since 0:20:16.760 --> 0:20:20.919 Lula's last term, there have been changes in regulations in 0:20:21.000 --> 0:20:23.680 Brazil that make it harder for him to interfere. Petro 0:20:23.760 --> 0:20:26.520 Brass has also sold a lot of assets, so he 0:20:26.560 --> 0:20:29.440 doesn't It doesn't have the same impact on the Brazilian 0:20:29.440 --> 0:20:31.680 economy that it did back in the in the early 0:20:31.720 --> 0:20:34.840 two thousand's. Looking at the stock for Petro Boss spoiler, 0:20:34.840 --> 0:20:38.199 the last traveling in twelve months up up like a 0:20:38.240 --> 0:20:40.720 lot of other big oil companies, So we'll have to 0:20:40.720 --> 0:20:42.920 see how that place out and real quickly ten seconds. 0:20:43.920 --> 0:20:46.119 World Cup coming up in a few weeks. Are you 0:20:46.160 --> 0:20:49.000 just picking Brazil? I mean I have to, but I 0:20:49.080 --> 0:20:53.080