WEBVTT - PGIM Plans to Reduce Credit Risk In This Year’s Rallies (Podcast) 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul swing you 0:00:05.360 --> 0:00:07.760 along with my co host Lisa Brahmas. Each day we 0:00:07.880 --> 0:00:10.440 bring you the most noteworthy and useful interviews for you 0:00:10.520 --> 0:00:12.640 and your money, whether at the grocery store or the 0:00:12.640 --> 0:00:15.960 trading floor. Find a Bloomberg Penl podcast on Apple podcast 0:00:16.120 --> 0:00:18.080 or wherever you listen to podcasts, as well as at 0:00:18.079 --> 0:00:24.680 Bloomberg dot com. On Wednesday, we heard from the Federal 0:00:24.760 --> 0:00:27.720 Reserve there on holds they are going to be patient. 0:00:27.840 --> 0:00:30.880 Today we get a job's report that on many accounts 0:00:31.040 --> 0:00:34.000 blew all expectations out of the water and port trade. 0:00:34.280 --> 0:00:37.839 A very strong US economy, So go figure try to 0:00:37.880 --> 0:00:39.840 square those two. I know that Mike Collins is trying 0:00:39.840 --> 0:00:41.400 to do that, and he's joining us here in our 0:00:41.440 --> 0:00:44.040 Bloombergetter Active Broker studio as Mike Collins, of course, senior 0:00:44.080 --> 0:00:47.720 investment Officer and senior portfolio manager at PGIM Fixed Income, 0:00:47.880 --> 0:00:52.440 which oversees about seven hundred and thirty billion dollars of assets. Mike, 0:00:52.760 --> 0:00:55.960 thank you so much for being here with us. What 0:00:56.120 --> 0:01:00.480 does today's blockbuster jobs number mean for the Federal Reserve? Yeah, 0:01:00.520 --> 0:01:02.920 good morning at Lisa and Paul it's uh, in our 0:01:02.960 --> 0:01:05.080 mind not to get too esoteric right off the start, 0:01:05.080 --> 0:01:07.360 but it's a it's a curve flattener, right because it 0:01:07.480 --> 0:01:11.120 blew out expectations in terms of the number of jobs, 0:01:11.200 --> 0:01:14.600 but the wage gains were more muted than expect and 0:01:14.640 --> 0:01:17.120 that continues to be the trend. Not to sound like 0:01:17.200 --> 0:01:20.360 Larry Cardlow, but it sounds like we're getting growth without 0:01:20.400 --> 0:01:24.040 the inflation, which is kind of panacea for the Federal Reserve. 0:01:24.040 --> 0:01:27.400 It means that they can continue to be patient um 0:01:27.440 --> 0:01:31.360 and they can continue to um stay on hold, probably 0:01:31.400 --> 0:01:36.760 indefinitely until either the economic data really picks up again 0:01:37.440 --> 0:01:40.760 or the markets continue to take off, right. I mean, 0:01:40.800 --> 0:01:43.440 if the stock markets up another ten percent and spreads 0:01:43.440 --> 0:01:47.119 are snapping tighter, and the Fed is meeting in March, uh, 0:01:47.120 --> 0:01:50.000 they're gonna have to deal with the financial stability issues. 0:01:50.080 --> 0:01:53.240 And I wouldn't be surprised to see them do another 0:01:53.320 --> 0:01:56.360 one eight or start pivoting at some point later this 0:01:56.440 --> 0:01:59.400 year and talking again about maybe trying to get another 0:01:59.520 --> 0:02:02.040 hike or two off before the end of the year. 0:02:02.080 --> 0:02:04.480 And that's not priced in it at all right now. Alright, So, 0:02:04.520 --> 0:02:07.360 given the devish FED, given the good numbers we saw today. 0:02:07.440 --> 0:02:10.120 Does that just give the markets the flashing green light 0:02:10.200 --> 0:02:12.960 to take on risk? Yeah, and that and that's the problem, right. 0:02:13.000 --> 0:02:17.000 I think the Fed has unwittingly given the market this 0:02:17.000 --> 0:02:20.160 this green light by saying we are on hold uh 0:02:20.200 --> 0:02:23.560 indefinitely right now. And they're even talking about, you know, 0:02:23.919 --> 0:02:26.840 slowing the pace of their balance sheet reduction and maybe 0:02:26.919 --> 0:02:28.880 ending you know, by the end of this year. So 0:02:28.919 --> 0:02:32.160 that's kind of a second green light. And that's something 0:02:32.200 --> 0:02:35.120 that UM worried us several years ago when they kept 0:02:35.160 --> 0:02:38.080 monetary policy really easy for a long time, we saw 0:02:38.120 --> 0:02:40.880 some of the speculative excess is starting to build. The 0:02:41.000 --> 0:02:44.840 leverage in the system was building, UM, the construction markets 0:02:44.840 --> 0:02:47.919 were maybe getting overheated in some areas, and and we 0:02:47.960 --> 0:02:50.519 worry that, you know, and maybe six or twelve months 0:02:50.520 --> 0:02:53.000 you could be back in that mode, and then the 0:02:53.000 --> 0:02:54.840 Fed's going to have to have to focus on the 0:02:54.840 --> 0:02:58.640 financial stability mandate uh to try to try to nip 0:02:58.720 --> 0:03:02.720 that in the bud. But now we're now, it's not 0:03:02.760 --> 0:03:06.359 six months from now, and we're long term investors. Okay, well, 0:03:06.480 --> 0:03:09.640 but here's my question, So your long term investors, what 0:03:09.680 --> 0:03:12.560 do you do in response to this? So, so what 0:03:12.600 --> 0:03:15.920 we're doing is we are trying to focus on the 0:03:16.000 --> 0:03:20.440 long term outlook, which is really for probably slowing growth 0:03:20.639 --> 0:03:23.280 over the next two or three years. We really think 0:03:23.320 --> 0:03:25.320 growth is going to go from three to two and 0:03:25.320 --> 0:03:27.480 a half to two to probably one and a half 0:03:27.560 --> 0:03:29.720 over the next few years in the U S. That's 0:03:29.720 --> 0:03:33.480 just the natural trend, I think. Um, so focus on that, 0:03:33.520 --> 0:03:37.240 but take advantage of near term opportunities. So right now 0:03:37.320 --> 0:03:40.200 that the technicals are really good in the credit markets, 0:03:40.240 --> 0:03:43.280 the reach for yield is back in vogue, right with 0:03:43.320 --> 0:03:45.600 the with the ECB and the pank of Japan sitting 0:03:45.640 --> 0:03:50.400 on their hands and and a relatively benign fed people 0:03:50.400 --> 0:03:52.320 are there's a food fight right now for bonds again. 0:03:52.360 --> 0:03:56.040 So we're riding that. We're overweight credit risk, taking advantage 0:03:56.040 --> 0:03:59.120 of those trends, taking advantage of the reasonably robust economy. 0:03:59.600 --> 0:04:03.360 Um Uh, pairing back risk on rallies are our m 0:04:03.400 --> 0:04:07.080 O here is to sell credit risk down on these 0:04:07.120 --> 0:04:11.160 big rallies. And we've seen retracement in the high shield 0:04:11.560 --> 0:04:14.600 Uh index. Okay, I'm sorry, my my head's my head's 0:04:14.640 --> 0:04:17.400 kind of spinning a little bit. So uh build go 0:04:17.560 --> 0:04:21.360 long credit exposure and sell it when it rallies. So 0:04:21.600 --> 0:04:27.040 I guess, uh what, Yes, selling to strength selling. I 0:04:27.040 --> 0:04:29.040 think selling to strength has been our our mode, right. 0:04:29.080 --> 0:04:31.719 But but then when there's any bit of a weakness 0:04:31.839 --> 0:04:34.080 build up more, you know, I mean we took advantage 0:04:34.080 --> 0:04:37.680 of it late last year. I think that was an overreaction. Uh. 0:04:37.680 --> 0:04:40.200 In credit, you saw some dislocations, You saw a lot 0:04:40.240 --> 0:04:43.000 of outflows from places like the bank loan market. There 0:04:43.080 --> 0:04:46.000 was an opportunity to add risk on the margin at 0:04:46.040 --> 0:04:49.200 that time. But I think a lot of that um rally, 0:04:49.279 --> 0:04:51.760 the markets move really fast, right, The markets always moved 0:04:51.760 --> 0:04:54.240 faster than you think. And it feels like the markets 0:04:54.240 --> 0:04:57.760 are pricing in now a fed on hold indefinitely. Um So, 0:04:57.760 --> 0:04:59.760 So if you continue to see spreads tighten in here, 0:05:00.000 --> 0:05:02.560 our our next move would be to cut credit risk alright. 0:05:02.600 --> 0:05:05.719 So it sounds a little bit like a trading mentality 0:05:05.720 --> 0:05:08.200 in this context of Prudential being one of the longest 0:05:08.279 --> 0:05:11.920 term investors I can think of. But have you, maybe 0:05:11.920 --> 0:05:14.839 even just in December, or are you generally rotating some 0:05:14.880 --> 0:05:18.120 of your portfolio out of investment grade into high yield 0:05:18.120 --> 0:05:20.760 for example? So, so the big trade we've done over 0:05:20.760 --> 0:05:24.679 the last year or two is already upgrade the quality 0:05:24.720 --> 0:05:28.479 of the portfolio significantly. All Right, again taking that, putting 0:05:28.520 --> 0:05:30.880 that long term hat on, and knowing that, you know, 0:05:30.920 --> 0:05:32.679 I don't know if it's in a year or five years, 0:05:32.800 --> 0:05:34.480 but you're gonna have a slowdown the economy and you're 0:05:34.480 --> 0:05:36.599 gonna have an increase in default rates. The leverage that 0:05:36.640 --> 0:05:39.480 has built up in the in the corporate sector, investment 0:05:39.520 --> 0:05:42.200 grade high yield to some extent the bank loan markets 0:05:42.279 --> 0:05:44.760 is disconcerting and that will come home to roost and 0:05:44.800 --> 0:05:47.720 result in more defaults. We know that. So what we've 0:05:47.760 --> 0:05:51.160 done is we've we've reduced our high yeld exposure, reduced 0:05:51.160 --> 0:05:55.520 pretty significantly our exposure investment grade industrials, investment grade corporate 0:05:55.520 --> 0:05:58.359 bonds globally, and moved up in the capital structure. We 0:05:58.400 --> 0:06:01.520 have a big position in very high quality, mostly triple 0:06:01.520 --> 0:06:03.800 A rated asset back securities, which gives you as much 0:06:03.800 --> 0:06:06.400 spread as you get in the corporate market without any 0:06:06.440 --> 0:06:10.280 of that idiosyncratic UH credit risk or event risk or 0:06:10.320 --> 0:06:13.559 default risk. And that's a really great opportunistic REALTI value 0:06:13.560 --> 0:06:15.839 trade that we've we've had on for a while now. 0:06:15.920 --> 0:06:17.560 All Right, so I'm going to hand you a crystal 0:06:17.600 --> 0:06:19.400 ball and I want you to look into it and 0:06:19.440 --> 0:06:22.080 tell us in two years or three years or whatever 0:06:22.120 --> 0:06:24.960 you see the next downturn, how bad will it be. 0:06:25.440 --> 0:06:27.040 It's not going to be bad. I mean, that's that's 0:06:27.120 --> 0:06:30.320 the other challenge here, right, This is never easy our 0:06:30.400 --> 0:06:33.880 base case because this cycle has been a lot different. Right. 0:06:33.880 --> 0:06:37.160 The regulatory response to the financial crisis was such that 0:06:37.440 --> 0:06:41.000 a lot of the normal relevering that you see hasn't happened. Right. 0:06:41.040 --> 0:06:44.120 The banks have delevered aggressively. Right. The banks are in 0:06:44.160 --> 0:06:46.880 the best financial condition they've been in our lives, and 0:06:46.920 --> 0:06:49.320 I was a bank analyst many years ago. They've never 0:06:49.400 --> 0:06:52.200 had so much capital and liquidity. Consumers on average in 0:06:52.200 --> 0:06:55.560 good shape, small business on average have not relevered. Right, So, 0:06:55.560 --> 0:06:57.760 so this is not going to be a big downturn. 0:06:57.800 --> 0:07:00.440 If we get when you're probably asset price correction, maybe 0:07:00.480 --> 0:07:03.599 growth slows to one percent or kind of bounces between 0:07:03.720 --> 0:07:06.520 zero and two percent for a few years um. But 0:07:06.600 --> 0:07:09.440 it's it's hard to really envision a big collapse in 0:07:09.520 --> 0:07:12.720 economic activity, at least in the US. Interesting. So I 0:07:12.760 --> 0:07:15.000 guess if I were to just summarize where you guys are, 0:07:15.200 --> 0:07:17.480 that's it's a and when I think a potential you 0:07:17.480 --> 0:07:19.760 guys are monstrous and you're thinking about long term your 0:07:19.840 --> 0:07:22.840 your policy holders. You're using this rally here to kind 0:07:22.880 --> 0:07:25.480 of just trade up in quality get position for what 0:07:25.520 --> 0:07:27.320 could be a software two or three year view. Is 0:07:27.360 --> 0:07:29.320 that a fair assessment? That that's fair? I mean the 0:07:29.600 --> 0:07:32.640 markets are actually giving us the opportunity right now, which 0:07:32.640 --> 0:07:36.600 is very unusual, to buy really high quality defensive assets 0:07:36.640 --> 0:07:38.560 like senior debt of banks and like these triple A 0:07:38.520 --> 0:07:42.320 asset BacT securities at really attractive spreads. So the markets 0:07:42.320 --> 0:07:46.560 are mispricing the limited amount of credit risk in those securities. 0:07:47.120 --> 0:07:50.840 Um and there there's probably overpricing or underpricing the credit 0:07:50.920 --> 0:07:53.280 risk in the corporate sector. So so you don't have 0:07:53.360 --> 0:07:56.080 to give up yield today to actually do this up 0:07:56.080 --> 0:07:58.440 in quality rotation. So that's a that's that trade is 0:07:58.480 --> 0:08:01.040 gonna work in the near term and in the term. 0:08:01.080 --> 0:08:03.240 Michael Collins, thank you very much for joining us. I 0:08:03.280 --> 0:08:04.680 think I learned a lot here about and if I 0:08:04.760 --> 0:08:07.040 were a prudential policy holder, I think I'd be feeling 0:08:07.040 --> 0:08:10.160 pretty comfortable. Mike Collins is a senior investment officer and 0:08:10.280 --> 0:08:13.400 senior portfolio manager at p G I M fixed income 0:08:30.120 --> 0:08:33.720 well over at Deutsche Bank, Christians saving the CEO chairman 0:08:34.040 --> 0:08:37.520 has very few options, it seems, for turning around Deutsche Bank. 0:08:37.720 --> 0:08:40.760 After an eighth straight quarter of declining revenue, reaction from 0:08:40.760 --> 0:08:43.680 investors and analysts suggested that the cost cutting at the 0:08:43.720 --> 0:08:46.319 heart of the CEO strategy won't be enough to keep 0:08:46.360 --> 0:08:48.839 markets at bay. To help us kind of dive a 0:08:48.880 --> 0:08:52.640 little bit deeper into this once Beheamoth of Global Banking 0:08:52.720 --> 0:08:55.640 is Jonathan Tyson. Jonathan is a senior banks analyst at 0:08:55.640 --> 0:08:58.080 Bloomberg Intelligence. He's on the phone with us from London. 0:08:58.520 --> 0:09:01.600 So Jonathan, thanks very much for joys. What do you 0:09:01.720 --> 0:09:04.280 think is the future of Deutsche Bank? Can it survive 0:09:04.360 --> 0:09:10.599 as a standalone entity? Um morning, not in his current form. No. 0:09:10.920 --> 0:09:13.120 I mean to put this very simply. If you go 0:09:13.200 --> 0:09:16.600 back a year, let's say um Consensus was expecting about 0:09:16.640 --> 0:09:20.240 thirty billion of revenue for the bank in twenties and 0:09:20.600 --> 0:09:25.679 about twenty billion of costs. Consensus is now expecting the 0:09:25.679 --> 0:09:29.240 same for costs, but twenty six billion of revenue. UM. 0:09:29.600 --> 0:09:32.640 The bank is targeting a returnal equity of four percent 0:09:32.800 --> 0:09:35.400 next year, and for that it is acknowledged that it's 0:09:35.440 --> 0:09:38.160 actually hoping that client activity picks up the market gets 0:09:38.160 --> 0:09:42.959 a bit better. So it's just unsustainable in the current form. 0:09:43.000 --> 0:09:46.679 And unfortunately, the damage to the franchise and the revenue 0:09:46.679 --> 0:09:49.839 outlook the more you cut costs and the growth in 0:09:49.920 --> 0:09:53.559 things like customer and all of the investment and expenses 0:09:53.600 --> 0:09:56.959 for things like anti money laundering means that there's very 0:09:57.040 --> 0:09:59.640 very little they can do in the current form. Okay, 0:09:59.640 --> 0:10:01.560 So give and that given the fact that Deutsche Bank 0:10:01.760 --> 0:10:06.320 probably will not remain independent according to your assessment, what's 0:10:06.360 --> 0:10:11.280 the likelihood that Commerce Bank is the likely merger candidate here? 0:10:11.440 --> 0:10:14.240 And is that a good thing? Well, when you look 0:10:14.240 --> 0:10:17.240 at Europe, I mean, it's understandable why European Commission, the 0:10:17.240 --> 0:10:20.520 ECB um, they're saying we need some champions over here, 0:10:20.760 --> 0:10:24.120 sort of supernational to take on the JP, Morgan's, etcetera. 0:10:24.320 --> 0:10:26.600 But just putting a Deutsch amount together with I don't 0:10:26.600 --> 0:10:30.040 know what Barclays or a new credit in itself doesn't 0:10:30.080 --> 0:10:33.040 really solve anything. So to start with, you do need 0:10:33.120 --> 0:10:36.240 to write size, you do need to get efficiencies, and 0:10:36.720 --> 0:10:40.120 for that reason you are looking at further domestic consolidation 0:10:40.160 --> 0:10:42.640 in Germany. So the reason that people keep coming out 0:10:42.640 --> 0:10:45.560 of the commerce Bank is again that's trading at points 0:10:45.559 --> 0:10:48.880 three times tangible. Just like Deutsche. They need to take 0:10:49.120 --> 0:10:51.760 an awful of cost base and out close more branches, 0:10:52.320 --> 0:10:55.840 get more synergies. So yes, I think the reason we 0:10:55.920 --> 0:10:58.080 keep arriving at the same conclusion is there's nothing that 0:10:58.120 --> 0:11:00.600 either bank can do top line. They've done it all 0:11:00.679 --> 0:11:02.880 that they can independently. So you need to create the 0:11:02.920 --> 0:11:05.880 bad will. Deutsch is the acquirer. They need to raise 0:11:05.920 --> 0:11:09.160 some capitals to do a deal. Then you need, for example, 0:11:09.200 --> 0:11:11.679 another couple of billion of synergies. When you put the 0:11:11.720 --> 0:11:14.280 two together, bear in mind that they're already targeting nine 0:11:14.679 --> 0:11:19.160 million for folding their domestic mortgage banks together would past 0:11:19.200 --> 0:11:22.640 bank in Deutsche. So yes, Unfortunately you've got to start 0:11:22.679 --> 0:11:26.400 domestically and then you can then have a sensible conversation 0:11:26.400 --> 0:11:31.720 about creating a big international merger. So where elsked Jonathan, 0:11:31.840 --> 0:11:34.640 would you expect to see consolidation besides Germany? Is it 0:11:34.679 --> 0:11:38.080 required in France for example, or the UK? What is 0:11:38.120 --> 0:11:39.800 just kind of the overall m and a outlook and 0:11:39.800 --> 0:11:44.440 consolidation outlook for European banking. Well, in the UK we've 0:11:44.480 --> 0:11:48.280 had a few of the smaller Challenger Banks UM coming together, 0:11:48.800 --> 0:11:52.319 CYBG and Metro's in trouble at the moment, so I 0:11:52.320 --> 0:11:54.080 think we'll see a little bit more over here in 0:11:54.120 --> 0:11:57.360 the UK. Italy you'll definitely see further consolidation, and a 0:11:57.400 --> 0:12:00.760 little bit more in Spain. But to to be honest, 0:12:00.920 --> 0:12:03.959 Germany is a pretty special market because it has a 0:12:04.000 --> 0:12:07.160 lot of spark Caster and Lander's Bank unlisted banks, and 0:12:07.200 --> 0:12:09.320 the reason that it's so unprofitable in Germany is because 0:12:09.360 --> 0:12:12.360 of these banks. So there can be there will be 0:12:12.360 --> 0:12:16.040 more consolidation in names that you've probably never heard of UM. 0:12:16.080 --> 0:12:18.640 And I think overall we will we have one or 0:12:18.640 --> 0:12:21.400 two big deals within the next eighteen months. Yes, I 0:12:21.440 --> 0:12:23.679 mean for us things like UNI credit to see at 0:12:24.200 --> 0:12:26.520 L makes an awful lot of sense. Maybe a bar 0:12:26.640 --> 0:12:29.400 plays and something like a BMP that could make sense 0:12:29.400 --> 0:12:31.760 as well. But I don't think, um, we're going to 0:12:31.800 --> 0:12:35.319 see anything big quite yet. But I do think over 0:12:35.400 --> 0:12:37.600 the next two to three years, in the absence of 0:12:37.640 --> 0:12:40.280 anything that's sort of exciting top line for these banks 0:12:40.480 --> 0:12:43.520 and they can't keep cutting costs, you need the mergers 0:12:43.600 --> 0:12:47.440 to create proper synergies. So here's a question, and this 0:12:47.520 --> 0:12:49.920 is kind of in the weeds a little bit. But 0:12:50.480 --> 0:12:53.079 one thing that I do when I look at Deutsche 0:12:53.080 --> 0:12:56.400 Bank's future is I look at their contingent capital bonds 0:12:56.400 --> 0:12:59.719 are convertible capital bonds, basically their tier one capital that 0:13:00.280 --> 0:13:04.679 is dead until they don't have enough capital raised to 0:13:04.720 --> 0:13:07.439 meet with regulations. So then all of a sudden they 0:13:07.440 --> 0:13:11.040 could potentially not pay interest on these bonds, or even 0:13:11.080 --> 0:13:13.800 these bonds could get wiped out in a worst case scenario. 0:13:14.400 --> 0:13:16.600 They're kind of all over the place today. Some are up, 0:13:16.640 --> 0:13:19.080 some are down. That is surprising to me. I would 0:13:19.080 --> 0:13:21.319 think that they would be plunging given the fact that 0:13:21.360 --> 0:13:25.120 Deutsche Bank got bad results essentially and that there's talk 0:13:25.200 --> 0:13:27.760 that it will not be existing as they standalone bank 0:13:28.000 --> 0:13:31.480 within the next three months. Can you explain the two 0:13:31.480 --> 0:13:33.280 things they're one, don't forget that a lot of these 0:13:33.280 --> 0:13:36.040 things are trading in a fair discounter face. And also 0:13:36.120 --> 0:13:38.520 if you go back to early two thousands and sixteen, 0:13:38.559 --> 0:13:41.920 that's when the eight ones plunged to about seventy something 0:13:42.000 --> 0:13:45.720 sent in in the euro Uh, it's all about your MDA, 0:13:45.760 --> 0:13:48.520 your maximum just description of the amount and can you 0:13:48.520 --> 0:13:53.040 honor coupons, can you pay um your bonuses et cetera. 0:13:53.360 --> 0:13:55.319 They talked about that on the care They've got a 0:13:55.360 --> 0:13:58.120 little bit of headroom. So I don't think anybody thinks 0:13:58.160 --> 0:14:01.160 because capital is still about thirteen and these things aren't 0:14:01.160 --> 0:14:03.959 going to get triggered um and at the moment because 0:14:03.960 --> 0:14:06.319 they've pretty much got a handle on cost now, I 0:14:06.360 --> 0:14:09.160 think we've got enough visibility that they can honor the coupons. 0:14:09.559 --> 0:14:12.120 It isn't really an issue. I mean, a lot of 0:14:12.120 --> 0:14:15.080 the European at ones are trading at a discount now, 0:14:15.200 --> 0:14:17.200 and we're seeing clients talking to us saying, well, why 0:14:17.240 --> 0:14:19.880 don't we just go short the equity along the eighty 0:14:19.960 --> 0:14:21.960 one because we know that we're going to get paid. 0:14:22.360 --> 0:14:24.200 I would sort of be in that camp in so 0:14:24.360 --> 0:14:27.560 much as I think the Deutsche and a lot of 0:14:27.560 --> 0:14:30.280 other banks will pay the coupon. We have seen one bank, 0:14:30.640 --> 0:14:32.640 a Greek bank, so that it's not paying the coupon 0:14:32.680 --> 0:14:34.880 this Yeah, but that's Greece, all right. Jonathan Tyson, thank 0:14:34.920 --> 0:14:37.680 you so much, really interesting analysis. Jonathan Tyes, senior banks 0:14:37.840 --> 0:15:00.600 analysts for Bloomberg Intelligence, joining us from London. Meanwhile, a 0:15:00.600 --> 0:15:03.800 big wild card for markets is also the price of oil, 0:15:03.880 --> 0:15:06.880 which plunged in the last three months of last year 0:15:07.120 --> 0:15:10.000 by forty percent by my measure, and has had an 0:15:10.040 --> 0:15:13.320 amazing rally so far year to date. What is going on? 0:15:13.360 --> 0:15:16.360 How much more does there is there for this uh, 0:15:16.440 --> 0:15:19.280 this commodity to rally? John Kilduff joining US now founding 0:15:19.320 --> 0:15:22.480 partner of Again Capital based in New York. John, you 0:15:22.520 --> 0:15:25.160 have been prescient when it comes to the price of oil. 0:15:25.480 --> 0:15:28.480 Where are we in this crude rally? Does it have 0:15:28.640 --> 0:15:31.160 more upside? Or is this basically the peak for a while? 0:15:32.520 --> 0:15:35.840 You guys are too kind with that. I have to say, um, 0:15:35.880 --> 0:15:40.640 at this point, if given the really the lack of 0:15:40.640 --> 0:15:44.560 a rally on the chaos that's going on in Venezuela here, 0:15:45.160 --> 0:15:49.320 and you know the continued uh negative data points coming 0:15:49.320 --> 0:15:51.560 out of Asia in particular in terms of the economy, 0:15:51.960 --> 0:15:55.560 it is my sense that prices appear to be peaking here. 0:15:56.880 --> 0:16:00.280 So peaking oil? What so? What is really so you're 0:16:00.280 --> 0:16:03.920 supplying demand? Are you suggesting there that generally in balance 0:16:03.960 --> 0:16:08.600 here at the moment. I think the Saudi Arabian particular 0:16:08.800 --> 0:16:12.680 is struggling and working hard to try to get it 0:16:12.720 --> 0:16:15.040 into balance. But we got a data point out of 0:16:15.040 --> 0:16:17.680 the US government yesterday. Now it's backward looking it's it's 0:16:17.760 --> 0:16:21.440 from November, but US production in November hit eleven point 0:16:21.560 --> 0:16:24.280 nine million barrels a day, a record. I have to 0:16:24.280 --> 0:16:26.560 believe we got higher than that in December, and it 0:16:26.560 --> 0:16:28.680 will be even higher number here for January when it 0:16:28.760 --> 0:16:33.160 finally gets uh tallied up. So the wave of oil 0:16:33.240 --> 0:16:35.920 keeps coming at this market. Uh. You saw x on 0:16:36.000 --> 0:16:41.080 Mobiles earnings this morning reference their own increase UH in production, 0:16:41.560 --> 0:16:43.440 and that's a trend that's going to continue this. The 0:16:43.480 --> 0:16:46.080 saddis really have their work cut out for them. It's 0:16:46.240 --> 0:16:49.360 really becoming harder for them with the slowdown that we're 0:16:49.360 --> 0:16:51.560 seeing in China. Well, John, I guess that. Then it 0:16:51.680 --> 0:16:54.640 raises a question if oil prices are peaking here, are 0:16:54.680 --> 0:16:56.520 they kind of kind of remain range bound or we 0:16:56.640 --> 0:17:03.200 headed for another oil plunge. I remind myself that in 0:17:03.200 --> 0:17:05.640 the bond market, the guys and gals keep always say 0:17:05.680 --> 0:17:07.439 don't fight the FED, and in the oil market you 0:17:07.480 --> 0:17:09.840 have to say, don't fight Saudi Arabia because they do 0:17:09.920 --> 0:17:13.679 have a lot of hefft still and power. So I 0:17:13.720 --> 0:17:16.600 do think we're gonna be uh somewhat range bound. But 0:17:16.600 --> 0:17:20.120 it returned back down to sub fifty dollar a barrel oil, Uh, 0:17:20.280 --> 0:17:23.200 you know isn't out of the question. And another interesting 0:17:23.240 --> 0:17:25.720 point that x On made today is that they're profitable 0:17:25.720 --> 0:17:28.920 in their Permian operations. That at thirty five dollars a 0:17:28.960 --> 0:17:32.480 barrel is remarkable revelation by them. So it shows you 0:17:32.520 --> 0:17:35.720 how sticky that that production is going to be. So 0:17:35.800 --> 0:17:38.119 that's part of the problem here for the for the 0:17:38.160 --> 0:17:41.600 oil market. So, John, you mentioned earnings Royal Dutch Shell 0:17:41.680 --> 0:17:45.160 reported last night. Uh, x On mobile this morning, Chevron 0:17:45.200 --> 0:17:48.560 this morning. Anything in those numbers that really stood out 0:17:48.600 --> 0:17:50.680 for you as it relates to your call for kind 0:17:50.720 --> 0:17:54.800 of you know, range bound oil, Well, I need that 0:17:54.840 --> 0:17:58.359 they did remarkably well. Um, I think surprised most folks 0:17:58.400 --> 0:18:01.520 because the headline, of course was that oil rightly crashed 0:18:01.600 --> 0:18:03.800 during the quarter. But the fact of the matter is 0:18:03.840 --> 0:18:07.439 oil prices actually you know, maintain themselves above fifty dollars 0:18:07.480 --> 0:18:10.840 a barrel right up until mid December. They were above 0:18:11.280 --> 0:18:15.320 sixty bucks of barrel through October, and we're you know, 0:18:15.600 --> 0:18:18.720 pushing sixty bucks through most of November. So it was 0:18:18.760 --> 0:18:21.800 a pretty good quarter price wise for the majors on 0:18:21.840 --> 0:18:24.479 that basis, and particularly the exposure a lot of them 0:18:24.480 --> 0:18:27.360 have to the international market and attack another ten dollars 0:18:27.359 --> 0:18:29.320 on top of that for the for the Brent uh 0:18:29.400 --> 0:18:32.800 mark or the international marker. So I think what I've 0:18:32.840 --> 0:18:35.160 been talking about when I've been on with you guys previously, 0:18:35.920 --> 0:18:38.280 you should get an exposure to these companies. Make sure 0:18:38.320 --> 0:18:43.160 there's an international aspect to them, because the relative tightness 0:18:43.200 --> 0:18:47.239 in the market and other issues that don't affect um 0:18:47.400 --> 0:18:51.600 them is that obviously in the U s there's a 0:18:51.680 --> 0:18:55.720 surfeed of production, there's bottlenecks, there's there's localized downward pressure 0:18:55.760 --> 0:18:58.000 on prices. You don't have that internationally, So you want 0:18:58.000 --> 0:19:01.720 to have that portfolio. UH Refining did great demand all 0:19:01.800 --> 0:19:05.239 quarter for refined products, jet fuel, diesel fuel, gasoline here 0:19:05.320 --> 0:19:09.240 United States remarkably strong. So they all seem to capitalize 0:19:09.240 --> 0:19:11.640 on that. The big guys that is, so we're talking 0:19:11.640 --> 0:19:13.159 about the big guys, let's talk about some of the 0:19:13.200 --> 0:19:17.480 little guys. Yesterday, Blackstones g s O unit reported a 0:19:17.520 --> 0:19:21.919 really poor earning, particularly tied to some distressed companies in 0:19:21.960 --> 0:19:24.240 the oil patch. And I'm wondering, if we do get 0:19:24.320 --> 0:19:27.760 sub fifty dollar oil for any sort of prolonged period, 0:19:27.760 --> 0:19:30.800 do you expect the insolvencies to sort of return in 0:19:30.880 --> 0:19:35.880 that industry. I do they for the most part, despite 0:19:35.920 --> 0:19:38.760 what Exambo said about thirty five dollar barrel oil, uh, 0:19:38.840 --> 0:19:41.320 the oil in costs for most of these companies, they 0:19:41.359 --> 0:19:45.720 start to struggle when we're under fifty dollars um. The banks, 0:19:45.840 --> 0:19:48.399 you know, the last go around on this, the banks 0:19:48.440 --> 0:19:50.399 didn't necessarily force a lot of them as many of 0:19:50.480 --> 0:19:52.600 them out of business as I thought they would. That 0:19:52.720 --> 0:19:56.560 sort of pretend and extent type of uh you know 0:19:56.760 --> 0:19:59.960 actions went on. I think this time, though, the gig 0:20:00.119 --> 0:20:01.880 be up and you will see a lot of consolidation. 0:20:02.080 --> 0:20:04.760 The thing to remember is that though that that oil 0:20:04.800 --> 0:20:07.520 production and that infrastructure doesn't go away, it just gets 0:20:07.800 --> 0:20:13.959 sold to somebody at a at a firesale price. So um. 0:20:14.080 --> 0:20:17.280 What what interesting thing I saw is that for Excen Mobile, 0:20:17.320 --> 0:20:19.480 the CEO will be on the earnings call for the 0:20:19.520 --> 0:20:24.600 first time in fifteen years. What's going on there? I 0:20:24.600 --> 0:20:26.239 think they've had a real wake up call there at 0:20:26.240 --> 0:20:28.840 Exon Mobile, you know, for so long, you know, they 0:20:28.840 --> 0:20:33.240 were considered sort of the you know class of the industry, 0:20:33.280 --> 0:20:36.800 and they stumbled. They brought a natural gas company at 0:20:37.119 --> 0:20:41.640 the heights of the natural gas uh you know, price structure. Um. 0:20:41.720 --> 0:20:43.560 And you know, they've been criticized for a lot of 0:20:43.600 --> 0:20:46.760 other different things and they're finally getting their act together. Um. 0:20:46.800 --> 0:20:48.800 And it's could finally be I think, returning to the 0:20:48.880 --> 0:20:51.000 kind of company that we all admired and it was 0:20:51.040 --> 0:20:53.359 so fantastic and still is to a large degree, don't 0:20:53.359 --> 0:20:55.159 get me wrong, but I think they realized that they 0:20:55.200 --> 0:20:57.560 can't hide in the shell anymore and they have to 0:20:57.600 --> 0:21:01.200 be more uh out there and and pressing their case. 0:21:01.240 --> 0:21:02.800 I mean, I saw a couple of interviews with the 0:21:02.840 --> 0:21:05.960 gentleman already this morning, and he was fantastic. It was 0:21:06.160 --> 0:21:08.600 shed a lot of light on the operations. Wasn't cag 0:21:08.800 --> 0:21:11.200 like they had been historically. It's it's a new company 0:21:11.240 --> 0:21:14.720 and I think there it's worth a look at this 0:21:14.760 --> 0:21:18.120 point for sure for investors. John Kildoff, thanks so much. 0:21:18.200 --> 0:21:21.240 John killed Off as a founding partner of Again Capital, 0:21:21.440 --> 0:21:23.400 joining us on the phone here in our bloombog leven 0:21:23.400 --> 0:21:41.560 three oh studios. Boy, we are right smack in the 0:21:41.600 --> 0:21:44.840