1 00:00:05,800 --> 00:00:08,719 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,560 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg P M L 6 00:00:20,880 --> 00:00:32,840 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Well, 7 00:00:32,840 --> 00:00:35,920 Speaker 1: we've gotten a lot of news having to do peripherally 8 00:00:35,960 --> 00:00:40,560 Speaker 1: with President Trump. Michael Cohen, former attorney to the President, 9 00:00:41,159 --> 00:00:46,640 Speaker 1: pleaded guilty to a number of charges including campaign finance misuse, 10 00:00:47,320 --> 00:00:51,080 Speaker 1: lack of reporting, as well as tax fraud. We also 11 00:00:51,159 --> 00:00:54,960 Speaker 1: are hearing about Paul Manafort, who was convicted of a 12 00:00:55,040 --> 00:00:58,560 Speaker 1: number of different things, including also tax fraud but also 13 00:00:58,640 --> 00:01:03,160 Speaker 1: potentially money laundering. Paul Manafort was former campaign campaign advisor 14 00:01:03,200 --> 00:01:05,320 Speaker 1: to President Trump. Joining us down to break this all 15 00:01:05,319 --> 00:01:08,880 Speaker 1: down as Joe Marino Partner, White Collar Defense and Investigations 16 00:01:09,080 --> 00:01:12,600 Speaker 1: Group member at Cadwalader in Washington, d C. He also 17 00:01:12,760 --> 00:01:16,760 Speaker 1: is a former prosecutor with the Department of Justice working 18 00:01:16,760 --> 00:01:20,240 Speaker 1: for the United States in the National Security Division. Also 19 00:01:20,440 --> 00:01:24,360 Speaker 1: a decorated veteran and a former law attorney with the 20 00:01:24,400 --> 00:01:27,120 Speaker 1: Securities and Exchange Commission. Joe, I want to start just 21 00:01:27,319 --> 00:01:30,240 Speaker 1: giving you a pretty a pretty broad question, which is, 22 00:01:30,680 --> 00:01:33,479 Speaker 1: you've seen the coverage of both Paul Manaford as well 23 00:01:33,520 --> 00:01:36,880 Speaker 1: as Michael Cohen. What are people getting wrong or what 24 00:01:36,959 --> 00:01:39,800 Speaker 1: are we focusing on, uh that we shouldn't be and 25 00:01:40,080 --> 00:01:43,680 Speaker 1: what should we be focusing on? Hey, Belisa, Hey, thanks, thanks, 26 00:01:43,800 --> 00:01:46,280 Speaker 1: thanks for having me on. Really appreciate it. And uh, 27 00:01:46,520 --> 00:01:48,480 Speaker 1: just one caveat, I was actually not with the Securities 28 00:01:48,480 --> 00:01:50,400 Speaker 1: and Exchange Commission, but the rest of that interest had 29 00:01:50,440 --> 00:01:53,040 Speaker 1: absolutely right. Just want to put that out there. But 30 00:01:53,040 --> 00:01:55,640 Speaker 1: but you're right, I mean a lot happened yesterday afternoon 31 00:01:55,680 --> 00:01:59,160 Speaker 1: in terms of Paul Manafort, Michael Cohen, and even Duncan Hunter, 32 00:01:59,280 --> 00:02:03,040 Speaker 1: a Republican wristman from California being indicted. So to kind 33 00:02:03,040 --> 00:02:06,360 Speaker 1: of mix through what to focus on going forward and 34 00:02:06,400 --> 00:02:08,760 Speaker 1: what is sort of gonna you know, is significant, but 35 00:02:08,800 --> 00:02:12,120 Speaker 1: it's going to blow past us. Uh. Paul Manifests trial 36 00:02:12,280 --> 00:02:15,280 Speaker 1: generated a lot of attention. I mean, I'm here in Washington, 37 00:02:15,400 --> 00:02:18,320 Speaker 1: d C. Alexandria is five miles away, and people have 38 00:02:18,360 --> 00:02:20,919 Speaker 1: been waiting, waiting with bated breath to figure out what's 39 00:02:20,919 --> 00:02:24,520 Speaker 1: going to happen. So now we know. But the reality is, 40 00:02:25,000 --> 00:02:29,440 Speaker 1: aside from Mr Manafort's probably potentially significant sentence and his 41 00:02:29,520 --> 00:02:32,640 Speaker 1: second trial in DC on money laundering charges next month, 42 00:02:33,080 --> 00:02:35,920 Speaker 1: he may not have a lot of impact on the 43 00:02:35,960 --> 00:02:38,839 Speaker 1: White House directly. It does not seem like he's going 44 00:02:38,880 --> 00:02:42,040 Speaker 1: to crack. He might not have anything that's helpful to 45 00:02:42,080 --> 00:02:45,000 Speaker 1: the Special Counsel in terms of Russia collusion. So while 46 00:02:45,120 --> 00:02:48,560 Speaker 1: it's headline generating and it's fascinating to see the fall 47 00:02:48,600 --> 00:02:52,120 Speaker 1: of this person um, in terms of the longer picture 48 00:02:52,160 --> 00:02:56,200 Speaker 1: and impact on the administration, it might not be that significant. Now. 49 00:02:56,280 --> 00:02:59,880 Speaker 1: Michael Collen, on the other hand, could be very potentially significant, 50 00:03:00,120 --> 00:03:01,799 Speaker 1: and you honed in on it in your intro, which 51 00:03:01,840 --> 00:03:05,160 Speaker 1: is that he's facing well, he's pled now to several 52 00:03:05,240 --> 00:03:09,080 Speaker 1: different charges, but the ones that really have the potential 53 00:03:09,160 --> 00:03:12,360 Speaker 1: for some further impact have to do with campaign finance 54 00:03:12,440 --> 00:03:15,799 Speaker 1: violations and specifically the fact that he indicated that he 55 00:03:16,040 --> 00:03:22,200 Speaker 1: he he conducted these offenses at the behest of another person, 56 00:03:22,360 --> 00:03:24,680 Speaker 1: and the you know, the implication is that person was 57 00:03:24,720 --> 00:03:28,320 Speaker 1: the candidate for presidency, Donald Trump. So wait, wait, you're 58 00:03:28,360 --> 00:03:31,080 Speaker 1: absolutely glossing over this one. If you read the the 59 00:03:31,160 --> 00:03:34,960 Speaker 1: actual charging documents, you know, with person number one who 60 00:03:35,040 --> 00:03:37,840 Speaker 1: was candidate for president of the United States, it's pretty 61 00:03:37,880 --> 00:03:41,360 Speaker 1: clear cut that is talking about President Trump. Yes, yes, 62 00:03:41,400 --> 00:03:44,360 Speaker 1: it could be no one else. So while you know, 63 00:03:44,400 --> 00:03:46,960 Speaker 1: the while the president is not not indicated by names, 64 00:03:47,000 --> 00:03:49,880 Speaker 1: certainly that's you know, that's the exposures here. And so 65 00:03:49,920 --> 00:03:52,119 Speaker 1: the question will be very focused now in those two 66 00:03:52,240 --> 00:03:54,800 Speaker 1: charges count seven and eight, that Michael Cohen has now 67 00:03:54,800 --> 00:03:58,280 Speaker 1: pled guilty to, and what are the implications for other people, 68 00:03:58,360 --> 00:04:01,600 Speaker 1: specifically the president. And so this goes to, you know, 69 00:04:01,640 --> 00:04:04,680 Speaker 1: what exactly was the offense. And it's not the kind 70 00:04:04,680 --> 00:04:08,120 Speaker 1: of campaign finance violation we often think of right where 71 00:04:08,120 --> 00:04:11,200 Speaker 1: we have donations from individuals that are meant to be 72 00:04:11,280 --> 00:04:14,640 Speaker 1: used for legitimate campaign expenses and instead they're used for 73 00:04:15,200 --> 00:04:18,800 Speaker 1: vacations or personal kind of use, or sports cars or 74 00:04:18,839 --> 00:04:22,600 Speaker 1: completely inappropriate things. That's the case that's being built against 75 00:04:22,680 --> 00:04:26,360 Speaker 1: Duncan Hunter. In this case, it's not so much use 76 00:04:26,440 --> 00:04:32,320 Speaker 1: of campaign funds. It's a contribution allegedly to the campaign 77 00:04:32,560 --> 00:04:35,880 Speaker 1: that was used to benefit the campaign and so and 78 00:04:35,880 --> 00:04:39,480 Speaker 1: it was done in this circuitous way of going through 79 00:04:39,560 --> 00:04:45,119 Speaker 1: Michael Cohen reimbursed in a kind of a strange way 80 00:04:45,480 --> 00:04:50,200 Speaker 1: through invoices to the Trump a Trump organization compensated as 81 00:04:50,279 --> 00:04:54,200 Speaker 1: lawyers fees, when instead it appears that this was money 82 00:04:54,240 --> 00:04:58,239 Speaker 1: paid to advance the campaign by keeping individual silent about 83 00:04:58,279 --> 00:05:03,160 Speaker 1: information negative information about candidate Trump. So the scheme that 84 00:05:03,200 --> 00:05:05,640 Speaker 1: Michael Cohen has pled to is a little unusual and 85 00:05:05,640 --> 00:05:08,560 Speaker 1: it could be a little complicated, and there are experts 86 00:05:08,560 --> 00:05:10,800 Speaker 1: on both sides that would argue whether or not this 87 00:05:10,880 --> 00:05:13,960 Speaker 1: in fact is a violation because the campaign finance rules 88 00:05:14,240 --> 00:05:17,599 Speaker 1: and the laws are complicated, and this is not a 89 00:05:17,640 --> 00:05:20,359 Speaker 1: case that's been brought in the past. So there's a 90 00:05:20,400 --> 00:05:22,800 Speaker 1: bit of a leap here. But in terms of what 91 00:05:22,960 --> 00:05:26,320 Speaker 1: the president's legal team is hunkering down now to think about, 92 00:05:26,400 --> 00:05:28,719 Speaker 1: this has got to be their focus and it'll be 93 00:05:28,800 --> 00:05:31,360 Speaker 1: really instructive in the coming days. And we've already seen 94 00:05:31,360 --> 00:05:34,799 Speaker 1: some tweets this morning about how the president's legal team 95 00:05:34,839 --> 00:05:36,880 Speaker 1: is going to address this. Are they going to take 96 00:05:36,880 --> 00:05:39,200 Speaker 1: it head on and say Michael Cohen is just he's 97 00:05:39,240 --> 00:05:42,520 Speaker 1: out of his mind, he's lying it didn't happen, or 98 00:05:42,640 --> 00:05:45,359 Speaker 1: are they going to take a more nuanced approach and say, well, 99 00:05:46,760 --> 00:05:49,520 Speaker 1: maybe it didn't go down exactly this way, but even 100 00:05:49,560 --> 00:05:53,600 Speaker 1: if it did it's a technicality, and that seems clear violation. 101 00:05:53,680 --> 00:05:55,400 Speaker 1: To be honest. That seems to be the tax that 102 00:05:55,440 --> 00:05:57,159 Speaker 1: they're taking, based in the fact that he said that 103 00:05:57,200 --> 00:05:59,760 Speaker 1: this was not breaking the law, President Trump, I'm talking 104 00:05:59,760 --> 00:06:01,600 Speaker 1: about in a Twitter post today, So that seems to 105 00:06:01,600 --> 00:06:03,560 Speaker 1: be the tax, sort of honing in on the fact 106 00:06:03,560 --> 00:06:06,600 Speaker 1: that this is a non traditional, uh and non usual 107 00:06:07,440 --> 00:06:11,440 Speaker 1: sort of use of this particular provision. Correct, correct, And 108 00:06:11,520 --> 00:06:13,520 Speaker 1: so you know, that's the approach I would take, right, 109 00:06:13,800 --> 00:06:17,120 Speaker 1: I would. It's gonna be hard to say it didn't 110 00:06:17,160 --> 00:06:20,320 Speaker 1: happen if, in fact, Michael Cohen has tapes and and 111 00:06:20,440 --> 00:06:22,880 Speaker 1: his one testimony and other evidence he may or may 112 00:06:22,920 --> 00:06:26,000 Speaker 1: not have. So to kind of take the nuanced approach 113 00:06:26,000 --> 00:06:28,800 Speaker 1: and say, well, it's not quite a clear violation, and 114 00:06:28,839 --> 00:06:32,000 Speaker 1: even if it is, it's a technicality at the slap 115 00:06:32,000 --> 00:06:34,720 Speaker 1: on the wrist. Others done this. You point to other 116 00:06:34,760 --> 00:06:37,599 Speaker 1: cases like John Edwards and say, you know, it's not 117 00:06:37,640 --> 00:06:42,279 Speaker 1: a clear violation, and hope that that flies both with 118 00:06:42,320 --> 00:06:44,599 Speaker 1: the American people and with Congress. Well, Joe, you know, 119 00:06:44,680 --> 00:06:46,640 Speaker 1: there's one aspect of this whole thing that I find 120 00:06:46,680 --> 00:06:50,840 Speaker 1: incredibly confusing, and that is that Michael Cohen is pleaded 121 00:06:50,880 --> 00:06:53,800 Speaker 1: to a non cooperation agreement. In other words, he hasn't 122 00:06:54,000 --> 00:06:58,200 Speaker 1: he hasn't been recognized for his cooperation with federal prosecutors. 123 00:06:58,279 --> 00:07:00,320 Speaker 1: This is confusing to me because he's out there and 124 00:07:00,360 --> 00:07:02,840 Speaker 1: his attorneys are out there basically begging to give as 125 00:07:02,880 --> 00:07:05,720 Speaker 1: much information as they can to whoever will listen. What 126 00:07:05,880 --> 00:07:08,440 Speaker 1: how did you interpret that? Well, you're not the only 127 00:07:08,440 --> 00:07:10,600 Speaker 1: one who's confused. This is this is a kind of 128 00:07:10,640 --> 00:07:13,240 Speaker 1: a nuance in the Southern District of New York. There's 129 00:07:13,240 --> 00:07:15,840 Speaker 1: effectively two ways he could have pled. One was what 130 00:07:15,920 --> 00:07:18,680 Speaker 1: he did, which was a straight plea. Basically, he says, 131 00:07:18,760 --> 00:07:20,800 Speaker 1: I'm owning up to it. I'm not going to fight 132 00:07:20,840 --> 00:07:24,720 Speaker 1: the charges. I take responsibility for these counts, and I 133 00:07:24,800 --> 00:07:27,080 Speaker 1: plead guilty, and I throw myself at the mercy of 134 00:07:27,120 --> 00:07:29,320 Speaker 1: the court. The other one would have been through a 135 00:07:29,360 --> 00:07:33,280 Speaker 1: cooperation agreement where he was obligated to give to give 136 00:07:33,400 --> 00:07:36,160 Speaker 1: some kind of assistance to the FBI and the prosecutors 137 00:07:36,160 --> 00:07:37,960 Speaker 1: in New York. Now, there could be a couple of 138 00:07:38,000 --> 00:07:41,040 Speaker 1: reasons why he didn't go that route. One could be 139 00:07:41,160 --> 00:07:44,840 Speaker 1: that he doesn't have anything that's particularly helpful to them. 140 00:07:44,880 --> 00:07:47,400 Speaker 1: Either he's not credible or what he said to them 141 00:07:47,600 --> 00:07:51,080 Speaker 1: was not especially helpful. Uh, the other possibilities, they have 142 00:07:51,240 --> 00:07:54,440 Speaker 1: what they need. They you know, the SDN Y was 143 00:07:54,520 --> 00:07:58,160 Speaker 1: looking at Michael Cohen specifically. They built their case around him. 144 00:07:58,240 --> 00:08:00,880 Speaker 1: They had with the evidence that they needed, and they're 145 00:08:00,880 --> 00:08:06,040 Speaker 1: not really concerned about ancillary people. And so the person 146 00:08:06,080 --> 00:08:08,800 Speaker 1: who could be concerned about ancillary people, of course the 147 00:08:08,880 --> 00:08:12,720 Speaker 1: Special Counsel Mueller. So that's why there's certainly a possibility 148 00:08:12,840 --> 00:08:15,480 Speaker 1: and this has been sort of intimated by Michael Collen's 149 00:08:15,520 --> 00:08:18,960 Speaker 1: lawyer already that he is eager to help Special Council 150 00:08:19,000 --> 00:08:23,160 Speaker 1: Muller anyway he can. So, yeah, perhaps that will be 151 00:08:23,200 --> 00:08:24,840 Speaker 1: the way for him to get a deal. Unfortunately, have 152 00:08:24,840 --> 00:08:26,520 Speaker 1: to leave it there. Joe Moreno, thank you so much 153 00:08:26,520 --> 00:08:29,600 Speaker 1: for taking the time. Joe Moreno is partner with Goodwalader 154 00:08:29,680 --> 00:08:33,520 Speaker 1: in the White Collar Defense and Investigations Group, former federal prosecutor, 155 00:08:33,800 --> 00:08:50,720 Speaker 1: also a veteran of the United States Army. Well, today, 156 00:08:50,840 --> 00:08:54,440 Speaker 1: aside from the Washington d C drama, you are seeing 157 00:08:54,559 --> 00:08:58,520 Speaker 1: a little bit of drama in oil markets among others, 158 00:08:58,520 --> 00:09:02,280 Speaker 1: where you are seeing uh significant gain after the US 159 00:09:02,360 --> 00:09:05,120 Speaker 1: government report showed the biggest decline in crede inventories since 160 00:09:05,200 --> 00:09:07,600 Speaker 1: late July Hugh Johnson joining US now chairman and chief 161 00:09:07,600 --> 00:09:11,080 Speaker 1: investment officer of Hugh Johnson Advisers. I want to start 162 00:09:11,120 --> 00:09:15,440 Speaker 1: with oil because my sense is, uh that your life 163 00:09:15,520 --> 00:09:18,240 Speaker 1: is not being very significantly impacted by what's going on 164 00:09:18,280 --> 00:09:21,840 Speaker 1: with Washington. D c AM. I correct, Yeah, you're absolutely correct. 165 00:09:21,840 --> 00:09:24,480 Speaker 1: On we're not paying attention to what Washington. D see 166 00:09:24,480 --> 00:09:26,839 Speaker 1: what's going on there, and it doesn't appear is so 167 00:09:27,000 --> 00:09:29,520 Speaker 1: it's going to impact the things that really tried the markets, 168 00:09:29,520 --> 00:09:32,360 Speaker 1: which of course are interest rates and earnings. Since so 169 00:09:32,600 --> 00:09:35,880 Speaker 1: right now we're not we're we're not completely ignoring it, 170 00:09:35,920 --> 00:09:38,959 Speaker 1: but we're not changing our investment strategy because of what's 171 00:09:39,000 --> 00:09:41,440 Speaker 1: going on in Washington. All right, So given that, I 172 00:09:41,480 --> 00:09:43,560 Speaker 1: do want to just home in a little bit on oil, 173 00:09:43,679 --> 00:09:46,959 Speaker 1: just because commodity markets have had kind of an uncertain 174 00:09:47,080 --> 00:09:49,880 Speaker 1: outlook for the past couple of weeks, in particular with 175 00:09:49,960 --> 00:09:54,319 Speaker 1: the plunge in metals oil also declining UM, but now 176 00:09:54,360 --> 00:09:56,840 Speaker 1: you're seeing a little bit of a gain. I'm curious 177 00:09:56,920 --> 00:09:59,120 Speaker 1: about how much you think about the price of oil 178 00:09:59,160 --> 00:10:01,800 Speaker 1: and how that factor into what you what you buy. 179 00:10:02,040 --> 00:10:04,719 Speaker 1: We think about oil all the time, and it's very 180 00:10:04,800 --> 00:10:07,240 Speaker 1: volatile and it would be grandiose of me Lesa to 181 00:10:07,320 --> 00:10:09,920 Speaker 1: say that I could forecast what's going to happen to 182 00:10:09,960 --> 00:10:13,160 Speaker 1: the price of oil, but quite frankly, we do work 183 00:10:13,200 --> 00:10:16,240 Speaker 1: hard on forecasting it. In a price for West Texas 184 00:10:16,320 --> 00:10:21,959 Speaker 1: intermediate around sixty five dollars, prepare more accurately reflects global 185 00:10:22,000 --> 00:10:24,600 Speaker 1: supply and demand conditions, but you'll get a lot of 186 00:10:24,679 --> 00:10:28,080 Speaker 1: volatility around that, so you get a decline from sixty 187 00:10:28,080 --> 00:10:31,520 Speaker 1: dollars down to fifty dollars. Paths very unusual, but not 188 00:10:31,600 --> 00:10:35,160 Speaker 1: in a volatile environment. Most of that decline, in fact, 189 00:10:35,200 --> 00:10:37,480 Speaker 1: I would say just about all of that decline is 190 00:10:37,559 --> 00:10:40,440 Speaker 1: largely a function of the fact that the dollar has 191 00:10:40,480 --> 00:10:43,959 Speaker 1: been so strong, which really means to every other country 192 00:10:43,960 --> 00:10:46,560 Speaker 1: around the world, the price of oil has gone up 193 00:10:46,600 --> 00:10:49,680 Speaker 1: and gone up significantly as a result of that, and 194 00:10:49,720 --> 00:10:52,559 Speaker 1: it's not in today's report, but as a result of that, 195 00:10:53,040 --> 00:10:57,800 Speaker 1: over time, what we've seen is a significant increase in inventories, 196 00:10:57,920 --> 00:11:00,760 Speaker 1: and basically what that has done is has caused a 197 00:11:00,880 --> 00:11:04,640 Speaker 1: very sharp decline below with the sixty five dollars or 198 00:11:04,720 --> 00:11:08,280 Speaker 1: equilibrium level, which you know, I think we're going to 199 00:11:08,440 --> 00:11:12,079 Speaker 1: return to that level even when we get the sanctions 200 00:11:12,160 --> 00:11:16,440 Speaker 1: on oil and around in November, but it's it looks 201 00:11:16,480 --> 00:11:18,440 Speaker 1: like we're headed in that direction. So I think oil 202 00:11:18,559 --> 00:11:21,560 Speaker 1: is very undervalued right now. Okay, but I'm looking right 203 00:11:21,559 --> 00:11:24,520 Speaker 1: now at a sixty seven dollars and thirty barrel for 204 00:11:24,559 --> 00:11:27,080 Speaker 1: oil and w c I barrel of oils. So I'm 205 00:11:27,080 --> 00:11:28,520 Speaker 1: just wondering. I mean, you're saying it's going to go 206 00:11:28,600 --> 00:11:31,840 Speaker 1: down to sixty five barrel. Yeah, well, I think it's 207 00:11:31,920 --> 00:11:34,760 Speaker 1: I think it's gonna Basically, if we're at sixty sixty 208 00:11:34,800 --> 00:11:38,480 Speaker 1: seven today, then I think it will probably stabilize around 209 00:11:38,600 --> 00:11:43,640 Speaker 1: current current levels. But believe me, I think that more 210 00:11:43,679 --> 00:11:47,800 Speaker 1: accurately reflects supply and demand conditions as they exist today. 211 00:11:47,920 --> 00:11:50,400 Speaker 1: All right, So given that, how do you use that 212 00:11:50,520 --> 00:11:54,920 Speaker 1: thesis in your investments? Mean, do you buy equities in 213 00:11:55,000 --> 00:11:58,559 Speaker 1: the big oil companies? Do you look for shell opportunities 214 00:11:58,559 --> 00:12:02,040 Speaker 1: and MLPs? What's what sort of your strategy there? Okay? 215 00:12:02,040 --> 00:12:04,600 Speaker 1: The strategy and energy is, first of all, I think 216 00:12:04,640 --> 00:12:07,160 Speaker 1: I balanced either market weight maybe even a little bit 217 00:12:07,840 --> 00:12:11,920 Speaker 1: overweighted in a sector, in the energy sector in a portfolio. Remember, 218 00:12:11,960 --> 00:12:14,080 Speaker 1: you want to be diversified. You want to exposure to 219 00:12:14,520 --> 00:12:17,120 Speaker 1: all eleven sectors of the market. And then within the 220 00:12:17,240 --> 00:12:20,120 Speaker 1: energy sector, you want to have things that work well 221 00:12:20,160 --> 00:12:22,600 Speaker 1: when the price of oil goes up and things that 222 00:12:22,640 --> 00:12:24,920 Speaker 1: work well when the price of oil goes down. That 223 00:12:24,960 --> 00:12:28,439 Speaker 1: means you want to own production companies. We own production 224 00:12:28,520 --> 00:12:31,640 Speaker 1: companies conticles an example, but you also want to own 225 00:12:31,679 --> 00:12:34,599 Speaker 1: companies like Valero and again we own that one, and 226 00:12:34,640 --> 00:12:38,040 Speaker 1: the Valerios of course a refiner, and that really benefits 227 00:12:38,040 --> 00:12:40,760 Speaker 1: from a decline in the price of oil. So it's 228 00:12:40,840 --> 00:12:43,760 Speaker 1: not just owning energy. You want to have a market 229 00:12:43,760 --> 00:12:47,120 Speaker 1: weight or a slight overweight, but also within the oil sector, 230 00:12:47,200 --> 00:12:50,440 Speaker 1: make sure you have a sensibly put together portfolio, and 231 00:12:50,480 --> 00:12:55,160 Speaker 1: that means production companies and also refiners. How much does 232 00:12:55,360 --> 00:12:59,679 Speaker 1: the price of oil, in your view, hinge on an 233 00:12:59,760 --> 00:13:04,600 Speaker 1: escal leastion of trade tensions or a lack thereof. You know, 234 00:13:05,200 --> 00:13:08,360 Speaker 1: that largely depends on the dollar and what happens to 235 00:13:08,400 --> 00:13:11,640 Speaker 1: the dollar as a result of trade tensions and what 236 00:13:11,800 --> 00:13:14,680 Speaker 1: we've seen more recently. And it's important because what the 237 00:13:14,720 --> 00:13:17,760 Speaker 1: dollar has been doing is very important. And we've seen 238 00:13:17,760 --> 00:13:20,839 Speaker 1: the dollar go up and we've seen foreign currencies go down, 239 00:13:20,880 --> 00:13:24,040 Speaker 1: and that's got good news for it because it attracts 240 00:13:24,040 --> 00:13:26,000 Speaker 1: a lot of capital to our markets, which in my 241 00:13:26,120 --> 00:13:29,920 Speaker 1: judgment is very important because domestic money conditions are are 242 00:13:30,000 --> 00:13:32,959 Speaker 1: are really not that good. We're not getting enough growth 243 00:13:32,960 --> 00:13:35,679 Speaker 1: and the money supply to drive the economy and earnings. 244 00:13:35,720 --> 00:13:39,800 Speaker 1: And fortunately the dollar has been strong attacted attracted foreign 245 00:13:39,880 --> 00:13:42,400 Speaker 1: capital to our markets, and that's all set the domestic 246 00:13:42,440 --> 00:13:46,000 Speaker 1: liquidity shortfall. So sort of, kind of indirectly, I would 247 00:13:46,040 --> 00:13:50,600 Speaker 1: say that the escalation of trade tensions has to some 248 00:13:50,760 --> 00:13:54,480 Speaker 1: extent benefit us, and thankfully we've got a stronger dollar, 249 00:13:54,640 --> 00:13:58,320 Speaker 1: and thankfully we've got uh the international flow of capital 250 00:13:58,360 --> 00:14:01,160 Speaker 1: to to our markets and off set at that domestic 251 00:14:01,160 --> 00:14:04,920 Speaker 1: liquidity shortfall. It's a little technical leasa. I's apologized for that, 252 00:14:05,200 --> 00:14:08,719 Speaker 1: but at the same time it's an extremely important concept. 253 00:14:08,800 --> 00:14:12,200 Speaker 1: So I'm not worried too much about the trade trade 254 00:14:12,240 --> 00:14:16,000 Speaker 1: problem right now. One one last thing just quickly here. 255 00:14:16,240 --> 00:14:18,320 Speaker 1: President Trump has come out and said that he wishes 256 00:14:18,360 --> 00:14:21,080 Speaker 1: that the dollar we're weaker, also accused China and the 257 00:14:21,080 --> 00:14:24,240 Speaker 1: European Union of manipulating their currencies. I'm wondering, how much 258 00:14:24,320 --> 00:14:28,200 Speaker 1: is it, portfolio manager, do you care? You know? Um 259 00:14:28,280 --> 00:14:30,600 Speaker 1: right now? And I'd say it's really right now. And 260 00:14:30,600 --> 00:14:33,720 Speaker 1: that's where I would emphasize is right now because of 261 00:14:33,760 --> 00:14:38,720 Speaker 1: the domestic liquidity shortfall, a strong dollar is extremely important. 262 00:14:38,720 --> 00:14:42,040 Speaker 1: It's important for the reasons that I just mentioned attracting 263 00:14:42,080 --> 00:14:44,880 Speaker 1: foreign capital to our markets when we need it the most. 264 00:14:45,280 --> 00:14:47,760 Speaker 1: So a week dollar young. I know that's supposed to 265 00:14:47,840 --> 00:14:51,320 Speaker 1: help a lot of US companies compete in international markets, 266 00:14:51,880 --> 00:14:54,160 Speaker 1: and and there are times when you have to have that, 267 00:14:54,440 --> 00:14:57,440 Speaker 1: but not right now. Right now, with liquidity conditions as 268 00:14:57,480 --> 00:15:00,720 Speaker 1: weak as they are, a strong dollar is extreme, really important, 269 00:15:00,760 --> 00:15:03,600 Speaker 1: and we all ought to be very thankful we've got it. 270 00:15:03,840 --> 00:15:05,800 Speaker 1: Hugh Johnson, thank you so much for being here. It's 271 00:15:05,800 --> 00:15:07,920 Speaker 1: really interesting to speak with you. Hugh H. Johnson is 272 00:15:08,000 --> 00:15:12,440 Speaker 1: chairman and chief investment officer and Hugh Johnson Advisers, which 273 00:15:12,440 --> 00:15:16,040 Speaker 1: overseas more than a billion dollars from Albany, New York. 274 00:15:16,640 --> 00:15:20,680 Speaker 1: Talking about that dollar, which actually is weakening a little 275 00:15:20,680 --> 00:15:24,120 Speaker 1: bit today. Mexican pasto climbing is there are there is 276 00:15:24,160 --> 00:15:43,720 Speaker 1: speculation that a NAFTA agreement will come up shortly. If 277 00:15:43,720 --> 00:15:46,240 Speaker 1: you haven't gotten your Tesla fix today, have no fear 278 00:15:46,280 --> 00:15:49,000 Speaker 1: we're gonna be talking about that company right now, because 279 00:15:49,000 --> 00:15:52,040 Speaker 1: it is the drama that just keeps on giving. But 280 00:15:52,080 --> 00:15:54,320 Speaker 1: We're gonna take a little bit different of attack here. 281 00:15:54,360 --> 00:15:57,360 Speaker 1: We're gonna take a look at the debt aspect of 282 00:15:57,440 --> 00:16:02,440 Speaker 1: this story. The company has basically financed itself with a 283 00:16:02,680 --> 00:16:05,320 Speaker 1: debt and I guess to some degree equity, but more 284 00:16:05,400 --> 00:16:09,040 Speaker 1: debt as it burns through cash. And there's a question 285 00:16:09,120 --> 00:16:12,080 Speaker 1: if this company does go private, as Elon Musk seems 286 00:16:12,080 --> 00:16:15,440 Speaker 1: to want to see it do. So what happens to 287 00:16:15,480 --> 00:16:18,280 Speaker 1: all that debt? And joining us now is Joel Lovington, 288 00:16:18,320 --> 00:16:22,120 Speaker 1: senior credit analyst for Bloomberg Intelligence and just general credit guru. 289 00:16:22,200 --> 00:16:25,560 Speaker 1: If you have a question about credit, you called Joel Lovington. Joel, So, 290 00:16:25,600 --> 00:16:27,440 Speaker 1: what's your take on this? I mean, what could potentially 291 00:16:27,440 --> 00:16:30,160 Speaker 1: happen to this debt? Not a lot. I think it's 292 00:16:30,400 --> 00:16:34,080 Speaker 1: gonna be sticking out there, particularly the bonds, the senior 293 00:16:34,120 --> 00:16:35,960 Speaker 1: insecure bonds that we often talk about that are in 294 00:16:35,960 --> 00:16:38,600 Speaker 1: the Bloomberg indussees. I think it becomes a game of 295 00:16:38,640 --> 00:16:42,360 Speaker 1: will they be structurally subordinated and to what degree will 296 00:16:42,400 --> 00:16:44,760 Speaker 1: be the issue, and that will determine where the bonds 297 00:16:44,760 --> 00:16:47,640 Speaker 1: are going. Okay, so today we had a story on 298 00:16:47,720 --> 00:16:52,560 Speaker 1: the Bloomberg Tesla bonds may see doomsday and private deal, 299 00:16:52,800 --> 00:16:55,200 Speaker 1: don't don't And it was sort of. It was citing 300 00:16:55,320 --> 00:16:58,600 Speaker 1: this UM blog post by twenty four Asset Management chief 301 00:16:58,600 --> 00:17:01,800 Speaker 1: executive Mark Coleman say, secure debt funding to take Tesla 302 00:17:01,840 --> 00:17:07,760 Speaker 1: private may become practically impossible. Do you agree? Well, taking 303 00:17:07,800 --> 00:17:09,960 Speaker 1: a private and putting a lot of debt on it 304 00:17:10,000 --> 00:17:13,919 Speaker 1: our two different things cannot be taken private? Yes. I 305 00:17:13,920 --> 00:17:16,320 Speaker 1: think the math in my models tell me that you 306 00:17:16,320 --> 00:17:19,119 Speaker 1: need roughly about sixty billion dollars of equity to have 307 00:17:19,240 --> 00:17:22,639 Speaker 1: that done, meaning that you can at a at a 308 00:17:22,720 --> 00:17:26,359 Speaker 1: maximum probably put about ten billion dollars of additional debt 309 00:17:26,400 --> 00:17:29,800 Speaker 1: on the company today and I take private scenario and 310 00:17:29,840 --> 00:17:33,480 Speaker 1: still make it work. Um, you know, from a rational 311 00:17:33,880 --> 00:17:39,040 Speaker 1: uh capital structure standpoint. Okay, I guess that one question 312 00:17:39,040 --> 00:17:41,880 Speaker 1: that I have is we talk about Tesla and going private. 313 00:17:42,160 --> 00:17:46,639 Speaker 1: Morgan Stanley perhaps coming in on this, UM, I have 314 00:17:46,720 --> 00:17:48,720 Speaker 1: to wonder when does the Tesla run out of cash? 315 00:17:48,760 --> 00:17:51,720 Speaker 1: When are we sort of done with this? Uh sort 316 00:17:51,760 --> 00:17:53,840 Speaker 1: of when will they do? What will they do? Kind 317 00:17:53,840 --> 00:17:57,880 Speaker 1: of discussion to how long can they survive? Discussion? Right, well, 318 00:17:57,960 --> 00:18:01,800 Speaker 1: that might be never ending until they go p of it. Um. 319 00:18:01,840 --> 00:18:04,000 Speaker 1: You know, the company had said that it would be 320 00:18:04,080 --> 00:18:06,000 Speaker 1: as early as the third quarter, where they would be 321 00:18:06,000 --> 00:18:09,480 Speaker 1: free cash flow neutral. Uh, the mathematics that I do 322 00:18:09,600 --> 00:18:12,040 Speaker 1: tell me that it would be really, really difficult for 323 00:18:12,080 --> 00:18:14,320 Speaker 1: that to happen in the third quarter or in the 324 00:18:14,320 --> 00:18:17,800 Speaker 1: fourth quarter. And you know, with all of the challenges 325 00:18:17,800 --> 00:18:20,399 Speaker 1: that are going on now with Elon Musk and the 326 00:18:20,480 --> 00:18:23,320 Speaker 1: issues that I'm sure are taking up much more of 327 00:18:23,359 --> 00:18:26,520 Speaker 1: his time than he ever imagined. Uh, the odds are 328 00:18:26,520 --> 00:18:28,640 Speaker 1: they're probably taking the ball, their eye off the ball 329 00:18:28,640 --> 00:18:31,440 Speaker 1: a little bit, and uh, I think they'll struggle into 330 00:18:32,680 --> 00:18:36,760 Speaker 1: which may eventually be a mechanism which will preclude them 331 00:18:36,760 --> 00:18:40,399 Speaker 1: from going into a private scenario. All right, So you know, 332 00:18:40,400 --> 00:18:42,760 Speaker 1: I want to use Tesla as an example of the 333 00:18:42,800 --> 00:18:47,440 Speaker 1: broader phile debt market because right now we talk about Tesla, 334 00:18:47,800 --> 00:18:51,160 Speaker 1: it's burning through cash, it has an erotic CEO, their 335 00:18:51,240 --> 00:18:54,919 Speaker 1: questions about executive leadership, their questions about the board oversight, 336 00:18:55,440 --> 00:18:57,160 Speaker 1: especially with some of the tweets that are now being 337 00:18:57,160 --> 00:19:01,000 Speaker 1: investigated by the SEC for possible market manipulation, and Tesla 338 00:19:01,040 --> 00:19:04,480 Speaker 1: bonds that are doing certainly trying to get a discounted 339 00:19:04,720 --> 00:19:07,879 Speaker 1: a little bit more than eighty seven cents on the dollar. 340 00:19:08,240 --> 00:19:10,359 Speaker 1: But that isn't that much. I mean the yield to 341 00:19:10,359 --> 00:19:13,560 Speaker 1: maturity there is seven point six, not as much as 342 00:19:13,600 --> 00:19:16,159 Speaker 1: you would think, given the fact that over the past 343 00:19:16,160 --> 00:19:19,080 Speaker 1: two decades that's been very average, if not below the 344 00:19:19,119 --> 00:19:21,720 Speaker 1: average of high out bonds. I mean, just in general, 345 00:19:21,800 --> 00:19:25,080 Speaker 1: when you look around the speculative grade universe, do you 346 00:19:25,119 --> 00:19:28,840 Speaker 1: feel like things are really overvalued at this point or 347 00:19:28,920 --> 00:19:30,600 Speaker 1: you think that it sort of is in line with 348 00:19:30,640 --> 00:19:32,960 Speaker 1: what we've seen elsewhere. Well, I think for the broader 349 00:19:33,040 --> 00:19:35,480 Speaker 1: universe that I cover, which are industrials and autos, I 350 00:19:35,520 --> 00:19:39,280 Speaker 1: don't particularly think that it's overvalued. I think, um, in 351 00:19:39,359 --> 00:19:42,200 Speaker 1: many cases, it becomes hard to find an upside case 352 00:19:42,240 --> 00:19:43,800 Speaker 1: for some of these bonds. That doesn't mean that they're 353 00:19:43,840 --> 00:19:47,359 Speaker 1: going down. I just think, particularly on the auto side, 354 00:19:47,400 --> 00:19:49,560 Speaker 1: it's hard to make cases that autos are going to 355 00:19:49,640 --> 00:19:52,280 Speaker 1: get better in any way. So I think there are 356 00:19:52,280 --> 00:19:55,040 Speaker 1: definitely spots where it becomes more challenging to find a 357 00:19:55,080 --> 00:19:59,640 Speaker 1: balanced upside downside case. UM. But in aggregate, I think 358 00:19:59,680 --> 00:20:02,479 Speaker 1: you're you're fine because there's very low default risk. If 359 00:20:02,520 --> 00:20:05,200 Speaker 1: you're talking about the foot level, yeah, so from the 360 00:20:05,760 --> 00:20:08,320 Speaker 1: foot level, it doesn't seem like you're gonna necessarily see 361 00:20:08,359 --> 00:20:11,199 Speaker 1: some kind of wave of bankruptcies. But that said, if 362 00:20:11,200 --> 00:20:13,280 Speaker 1: you've got very little upside, does that mean that people 363 00:20:13,280 --> 00:20:16,240 Speaker 1: are just basically buying for for the carry and that's 364 00:20:16,240 --> 00:20:18,479 Speaker 1: basically the trade at this point? I think so. I 365 00:20:18,480 --> 00:20:21,199 Speaker 1: think so in many cases, is the carry enough to 366 00:20:21,240 --> 00:20:25,400 Speaker 1: justify especially as treasuries gets treasure yields get higher. Uh, Well, 367 00:20:25,440 --> 00:20:29,479 Speaker 1: you know, treasuries and high yield don't necessarily correlate all 368 00:20:29,520 --> 00:20:31,760 Speaker 1: that well together. If you think about, you know, why 369 00:20:31,880 --> 00:20:35,600 Speaker 1: reachs would be rising to slow growth? Uh, that implies 370 00:20:35,680 --> 00:20:38,480 Speaker 1: that growth is pretty good and smaller companies, when you 371 00:20:38,560 --> 00:20:43,359 Speaker 1: have smaller numbers like EBNAH and sales, they go up 372 00:20:43,400 --> 00:20:48,480 Speaker 1: exponentially relative to large caps. So in some ways, uh, 373 00:20:48,840 --> 00:20:52,160 Speaker 1: a rising rate environment is indicative of a strong economic 374 00:20:52,200 --> 00:20:55,879 Speaker 1: backdrop for the for high yield monds to perform well. 375 00:20:56,400 --> 00:20:59,720 Speaker 1: And one thing that I'm wondering is, you know, are 376 00:21:00,000 --> 00:21:01,520 Speaker 1: do you think that there could be a substantial hit 377 00:21:01,560 --> 00:21:04,399 Speaker 1: to some of these companies if borrowing costs rise? You know, 378 00:21:04,440 --> 00:21:06,600 Speaker 1: if you do see treasure yields continue to rise, because 379 00:21:06,600 --> 00:21:08,760 Speaker 1: that people haven't been talking about that that much since 380 00:21:08,880 --> 00:21:11,320 Speaker 1: treasure yields haven't risen all that much in the past 381 00:21:11,320 --> 00:21:13,199 Speaker 1: few months. But I'm just wondering, you know, is that 382 00:21:13,240 --> 00:21:15,120 Speaker 1: still on the radar here? Yeah. I mean I don't 383 00:21:15,119 --> 00:21:16,959 Speaker 1: think it's a twenty nineteen event, but I think if 384 00:21:16,960 --> 00:21:19,879 Speaker 1: you look at to twenty let's say one, as a 385 00:21:19,960 --> 00:21:23,399 Speaker 1: spot where debt maturities will start to elevat again and 386 00:21:23,400 --> 00:21:26,120 Speaker 1: you'll be resetting at higher rates. I definitely do think 387 00:21:26,119 --> 00:21:27,880 Speaker 1: that there is risk, but I think there's been enough 388 00:21:28,400 --> 00:21:31,040 Speaker 1: refinancing activity that's taken place over the last couple of 389 00:21:31,119 --> 00:21:32,679 Speaker 1: years that the cand has been kicked down the road 390 00:21:32,720 --> 00:21:35,560 Speaker 1: a little bit longer. Joel Levington, thank you so much 391 00:21:35,600 --> 00:21:37,760 Speaker 1: for being with me. I love speaking with you. Joel Lovington, 392 00:21:37,840 --> 00:21:41,240 Speaker 1: senior credit analyst for Bloomberg Intelligence, joining us here in 393 00:21:41,240 --> 00:21:43,800 Speaker 1: our eleven three oh studios. Just want to bring you 394 00:21:43,880 --> 00:21:46,639 Speaker 1: up to speed on the markets. Sp NAZDAC both have 395 00:21:46,760 --> 00:21:51,560 Speaker 1: turned green since a somewhat saggy open Dow Jones still down, 396 00:21:51,640 --> 00:21:54,360 Speaker 1: but just barely less than one tenth of one percent. 397 00:21:54,880 --> 00:21:56,280 Speaker 1: If we switch up the boards and we get a 398 00:21:56,280 --> 00:21:58,680 Speaker 1: sense of what's going on in the bond market, well 399 00:21:58,720 --> 00:22:01,359 Speaker 1: you're getting a little bit of actually uh decline in 400 00:22:01,640 --> 00:22:04,639 Speaker 1: yield so rally there as well as people try to 401 00:22:04,760 --> 00:22:08,439 Speaker 1: understand what the political implications are from a too close 402 00:22:08,600 --> 00:22:14,440 Speaker 1: uh close contacts with President Trump face legal consequences to 403 00:22:14,560 --> 00:22:16,399 Speaker 1: a number of actions that may or may not have 404 00:22:16,520 --> 00:22:19,160 Speaker 1: had anything to do with him. We're gonna be speaking 405 00:22:19,240 --> 00:22:22,199 Speaker 1: about that more coming op. We're always gonna be speaking 406 00:22:22,600 --> 00:22:26,119 Speaker 1: just in general about how much investment managers care because 407 00:22:26,119 --> 00:22:44,120 Speaker 1: so far markets kind of aren't reacting that much. Let's 408 00:22:44,119 --> 00:22:46,440 Speaker 1: talk safe havens at a time when the SMP five 409 00:22:46,480 --> 00:22:50,080 Speaker 1: hundred is reaching a new record high and is climbing 410 00:22:50,720 --> 00:22:54,119 Speaker 1: to a new record with respect to a bowlmarket length. 411 00:22:54,200 --> 00:22:57,399 Speaker 1: Joining us now, John Bartlett, vice President, co portfolio manager 412 00:22:57,440 --> 00:23:01,200 Speaker 1: of the Reeves Utilities e t F for Reeves Asset Management, 413 00:23:01,200 --> 00:23:04,200 Speaker 1: overseeing more than three billion dollars. Based in New Jersey, 414 00:23:04,240 --> 00:23:06,639 Speaker 1: he joins me here in New York. John, thank you 415 00:23:06,680 --> 00:23:09,159 Speaker 1: so much for being here. I'm wondering, is it a 416 00:23:09,200 --> 00:23:12,159 Speaker 1: hard sell right now to convince investors to try to 417 00:23:12,200 --> 00:23:14,439 Speaker 1: even look for a haven at a time when the 418 00:23:14,440 --> 00:23:17,720 Speaker 1: best bet has been just US equities. Well, it really 419 00:23:17,760 --> 00:23:20,760 Speaker 1: depends on the investor um and I would say that 420 00:23:20,880 --> 00:23:23,040 Speaker 1: utilities offer a lot of different things to a lot 421 00:23:23,080 --> 00:23:25,639 Speaker 1: of different types of of of folks out there, you know, 422 00:23:25,720 --> 00:23:28,159 Speaker 1: generally speaking utilities have been having a great summer. The 423 00:23:28,160 --> 00:23:30,960 Speaker 1: weather is warm. We've been making making more power and 424 00:23:32,040 --> 00:23:36,960 Speaker 1: generous disgusting go on. But anyway, you know, utilities earnings 425 00:23:36,960 --> 00:23:39,280 Speaker 1: have been coming through UM and we expect earnings to 426 00:23:39,320 --> 00:23:41,119 Speaker 1: be growing in the five to six percent range for 427 00:23:41,160 --> 00:23:43,679 Speaker 1: these for these companies, and the dividend in the in 428 00:23:43,720 --> 00:23:46,119 Speaker 1: the three to five sorry, in the in the dividend 429 00:23:46,200 --> 00:23:48,520 Speaker 1: yield in the three and a half percent range UM. 430 00:23:48,600 --> 00:23:52,200 Speaker 1: But to your question, you know, there are When we 431 00:23:52,280 --> 00:23:56,400 Speaker 1: started UM the Reeves Utility e t F about three 432 00:23:56,480 --> 00:23:58,520 Speaker 1: years ago, there were lots of different concerns then and 433 00:23:58,560 --> 00:24:01,920 Speaker 1: there maybe some different cerns now. And you know, the 434 00:24:02,040 --> 00:24:05,440 Speaker 1: question we always get is really about interest rates. Now. Clearly, 435 00:24:05,640 --> 00:24:09,679 Speaker 1: utilities are wonderful because their safe haven for you know, 436 00:24:09,840 --> 00:24:12,800 Speaker 1: geopolitical risk and things like that. You need to pay 437 00:24:12,840 --> 00:24:16,080 Speaker 1: your bills. That's absolutely right, and these companies can be 438 00:24:16,080 --> 00:24:18,120 Speaker 1: counted on to grow their earnings year in and year 439 00:24:18,160 --> 00:24:21,240 Speaker 1: out UM. But by and large, you know, if you 440 00:24:21,320 --> 00:24:24,280 Speaker 1: kind of go back those last three years, everybody was 441 00:24:24,320 --> 00:24:26,879 Speaker 1: convinced that that interest rates were going to go up 442 00:24:26,920 --> 00:24:29,520 Speaker 1: and they were all absolutely right. Um. You know, if 443 00:24:29,520 --> 00:24:31,840 Speaker 1: you look back, the Fed is raised rates by a 444 00:24:31,920 --> 00:24:34,480 Speaker 1: hundred and seventy five basis points the ten years gone 445 00:24:34,520 --> 00:24:37,920 Speaker 1: from to fifteen to eighty five. But our little level 446 00:24:38,000 --> 00:24:40,320 Speaker 1: e t F is chugged along at fourteen point two 447 00:24:40,400 --> 00:24:43,960 Speaker 1: percent a year. And yeah, and that's actually even versus 448 00:24:44,000 --> 00:24:46,320 Speaker 1: the index has been up about twelve point two. So 449 00:24:46,640 --> 00:24:49,679 Speaker 1: the question is how does that happen? And the answer 450 00:24:49,680 --> 00:24:52,280 Speaker 1: really lies in the steady growth of these companies and 451 00:24:52,280 --> 00:24:55,879 Speaker 1: the very conservative revenue trajectory that they all have. Alright, 452 00:24:55,920 --> 00:24:59,680 Speaker 1: So steady growth is this? What kind of utilities are these? 453 00:24:59,680 --> 00:25:02,560 Speaker 1: I mean, they're more study growth in particular types that 454 00:25:02,600 --> 00:25:05,240 Speaker 1: rely on different types of energy and different locations around 455 00:25:05,280 --> 00:25:09,000 Speaker 1: the country. How do you identify the the best utilities? Well, 456 00:25:09,080 --> 00:25:11,080 Speaker 1: it's you know, it's a it's a great question because 457 00:25:11,080 --> 00:25:13,480 Speaker 1: it's so important to remember that every utility is different. 458 00:25:13,520 --> 00:25:16,760 Speaker 1: We've got fifty one different regulatory jurisdictions in the country, 459 00:25:16,760 --> 00:25:18,520 Speaker 1: one of which being the federal government, the rest being 460 00:25:18,600 --> 00:25:22,440 Speaker 1: the states, and so start you have to start with regulation, um, 461 00:25:22,480 --> 00:25:24,639 Speaker 1: but you also have to look at the you know, 462 00:25:25,359 --> 00:25:28,320 Speaker 1: utilities need to earn the right to grow, and the 463 00:25:28,359 --> 00:25:32,480 Speaker 1: ability to grow is really a very important component in this. 464 00:25:32,720 --> 00:25:36,160 Speaker 1: And I would say that utilities are really the only, um, 465 00:25:36,240 --> 00:25:38,960 Speaker 1: the only segment of industrial America where investors tend to 466 00:25:39,040 --> 00:25:41,760 Speaker 1: underpay for growth. And the answer the reason for that 467 00:25:41,840 --> 00:25:44,480 Speaker 1: is they tend to overpay for yield and they think 468 00:25:44,520 --> 00:25:47,639 Speaker 1: that they're you know, getting a compelling total return story 469 00:25:47,720 --> 00:25:50,040 Speaker 1: by buying. You know that the companies with the highest yield. 470 00:25:50,040 --> 00:25:52,119 Speaker 1: But what we found is the companies that have been 471 00:25:52,119 --> 00:25:55,000 Speaker 1: able to deliver consistent earnings growth continue to be able 472 00:25:55,040 --> 00:25:57,399 Speaker 1: to do so. Although in fairness, I mean, if if 473 00:25:57,440 --> 00:26:01,040 Speaker 1: a utility is growing profits too quickly, then because of 474 00:26:01,160 --> 00:26:04,520 Speaker 1: the fifty one different regulatory regime, you're gonna have an 475 00:26:04,560 --> 00:26:08,080 Speaker 1: outcry and the regulators are going to swoop in and say, hey, whoa, whoa, whoa, 476 00:26:08,160 --> 00:26:10,240 Speaker 1: lower those bills. People shouldn't be paying as much if 477 00:26:10,240 --> 00:26:12,679 Speaker 1: you're being that profitable. That's right. And you know, we 478 00:26:12,760 --> 00:26:15,040 Speaker 1: look for we look for companies that can provide their regulator, 479 00:26:15,119 --> 00:26:19,119 Speaker 1: their regulators political victories. And you know, you have to, 480 00:26:19,280 --> 00:26:20,960 Speaker 1: like I said, you have to earn the right to grow. 481 00:26:21,119 --> 00:26:23,919 Speaker 1: Earning the right to grow doesn't mean um, you know, 482 00:26:24,000 --> 00:26:27,719 Speaker 1: growing having uh really ridiculous profits. What it means is 483 00:26:28,320 --> 00:26:31,320 Speaker 1: being able to grow your investment base, you know, give 484 00:26:31,520 --> 00:26:34,040 Speaker 1: give customers something a little bit better for the spending. 485 00:26:34,040 --> 00:26:36,440 Speaker 1: All right, So let's talk specific regions. I mean, right now, 486 00:26:36,440 --> 00:26:39,639 Speaker 1: we're dealing with California's wildfires. Uh that I don't know 487 00:26:39,680 --> 00:26:41,520 Speaker 1: if that's good or bad for utilities because it could 488 00:26:41,520 --> 00:26:43,199 Speaker 1: take them out and cause a lot of problems they 489 00:26:43,240 --> 00:26:45,720 Speaker 1: then have to rebuild. But you are dealing with the 490 00:26:45,800 --> 00:26:49,200 Speaker 1: heat wave that is leaving people absolutely begging for air conditioning, 491 00:26:49,240 --> 00:26:52,240 Speaker 1: certainly on the on the East coast. So where are 492 00:26:52,240 --> 00:26:54,840 Speaker 1: you seeing the opportunities? Well, I think it's worth talking 493 00:26:54,840 --> 00:26:57,359 Speaker 1: about California for a second, because California really is its 494 00:26:57,359 --> 00:26:59,840 Speaker 1: own unique animal um. And it's important to remember that 495 00:26:59,840 --> 00:27:02,400 Speaker 1: the lines that you see about utilities in California really 496 00:27:02,400 --> 00:27:05,760 Speaker 1: don't affect utilities in the other states. The the California 497 00:27:05,840 --> 00:27:09,240 Speaker 1: utilities right now are really in a tangle um regarding 498 00:27:09,240 --> 00:27:13,680 Speaker 1: the liability from all of these wildfires in California, Pacific 499 00:27:13,720 --> 00:27:15,720 Speaker 1: Gas and Electric has caused the most damage. They have 500 00:27:15,720 --> 00:27:17,879 Speaker 1: a potential liability that could be as much as fifteen 501 00:27:17,880 --> 00:27:21,960 Speaker 1: billion dollars UM. And in California, no matter what happens 502 00:27:22,560 --> 00:27:26,399 Speaker 1: um as a consequence of you know, an act of God, 503 00:27:26,600 --> 00:27:29,080 Speaker 1: if it's if the fire is caused by utility equipment. 504 00:27:29,160 --> 00:27:31,200 Speaker 1: If somebody runs their car off the road and into 505 00:27:31,200 --> 00:27:33,800 Speaker 1: a utility poll, knocks the utility poll over and it 506 00:27:33,800 --> 00:27:35,919 Speaker 1: starts to fire. The utilities on the hook for the 507 00:27:36,280 --> 00:27:38,960 Speaker 1: for for for the liability. Now, they are supposed to 508 00:27:39,040 --> 00:27:42,000 Speaker 1: be able to collect that in rates, but the California 509 00:27:42,000 --> 00:27:45,560 Speaker 1: Commission has to this point said that they don't have 510 00:27:45,640 --> 00:27:49,640 Speaker 1: the legal authority to pass those costs along. So authority 511 00:27:49,640 --> 00:27:53,040 Speaker 1: who does? That's correct? Um, Well, it's that's what's getting 512 00:27:53,119 --> 00:27:55,879 Speaker 1: getting worked right now right now. So again, you have 513 00:27:55,920 --> 00:27:58,359 Speaker 1: to be very cognizant of what's going on with regulation. 514 00:27:58,440 --> 00:28:01,320 Speaker 1: You we try to avoid really some of the hot points. 515 00:28:01,320 --> 00:28:05,600 Speaker 1: That's a bad pun in this case. But u um anyway, 516 00:28:05,720 --> 00:28:07,639 Speaker 1: uh So again it's it's something that we we we 517 00:28:07,680 --> 00:28:10,080 Speaker 1: pay a lot of attention to. All right, So, um, 518 00:28:10,080 --> 00:28:12,520 Speaker 1: I'm just wondering just here, we've got a little bit 519 00:28:12,600 --> 00:28:14,439 Speaker 1: less in a minute. What are the biggest risks to 520 00:28:14,480 --> 00:28:16,679 Speaker 1: your thesis right now? Well, you know, everybody has to 521 00:28:16,680 --> 00:28:19,520 Speaker 1: take their own counsel um on on where interest rates 522 00:28:19,520 --> 00:28:21,040 Speaker 1: are going. That's what I quote sort of see is 523 00:28:21,119 --> 00:28:23,520 Speaker 1: as as as the biggest quote unquote risk to these 524 00:28:23,520 --> 00:28:25,880 Speaker 1: companies that's really more of a statement of how low 525 00:28:25,960 --> 00:28:29,320 Speaker 1: risk they are as opposed to anything else. Frankly, UM, 526 00:28:29,440 --> 00:28:31,879 Speaker 1: I personally believe that we've been in a fairly benign 527 00:28:31,920 --> 00:28:33,840 Speaker 1: interest rate environment and we're going to to kind of 528 00:28:33,840 --> 00:28:37,160 Speaker 1: stay that way for the foreseeable future. Um. The good 529 00:28:37,160 --> 00:28:39,880 Speaker 1: news is that utilities remain better than bonds. Right, So 530 00:28:39,920 --> 00:28:41,880 Speaker 1: if you have a long duration bond and interest rates 531 00:28:41,880 --> 00:28:44,800 Speaker 1: really move against you, there's really no way to catch up. Um. 532 00:28:44,840 --> 00:28:46,480 Speaker 1: You know, we're in an environment where people are buying 533 00:28:46,480 --> 00:28:49,560 Speaker 1: corporate bonds. You can't buy corporate bonds below par anymore 534 00:28:49,560 --> 00:28:51,880 Speaker 1: and hope for some sort of price reset, right, and 535 00:28:52,040 --> 00:28:54,720 Speaker 1: utilities you have at least the tailwind of five percent 536 00:28:54,760 --> 00:28:57,600 Speaker 1: earnings growth. John Bartlett, really interesting. Thank you so much 537 00:28:57,640 --> 00:29:00,560 Speaker 1: for being with us today. John Bartlet, Vice Press president 538 00:29:00,560 --> 00:29:03,760 Speaker 1: and co portfolio manager of the Reeves Utilities E t 539 00:29:03,960 --> 00:29:06,600 Speaker 1: F trades under the ticker u T e S. It's 540 00:29:06,680 --> 00:29:09,520 Speaker 1: up five point four percent so far year to date. 541 00:29:09,960 --> 00:29:12,920 Speaker 1: Reeves Asset Management overseas more than three billion dollars based 542 00:29:12,960 --> 00:29:16,120 Speaker 1: in New Jersey. Interesting to think about that fifty one 543 00:29:16,360 --> 00:29:20,200 Speaker 1: state and federal government regulatory web overseeing just how much 544 00:29:20,200 --> 00:29:23,120 Speaker 1: you pay every month to have that blessed air conditioning. 545 00:29:26,200 --> 00:29:28,760 Speaker 1: Thanks for listening to the Bloomberg p m L podcast. 546 00:29:29,080 --> 00:29:33,000 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 547 00:29:33,120 --> 00:29:36,560 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 548 00:29:36,600 --> 00:29:40,600 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 549 00:29:40,720 --> 00:29:43,320 Speaker 1: It's one before the podcast. You can always catch us 550 00:29:43,360 --> 00:29:44,920 Speaker 1: worldwide on Bloomberg Radio