WEBVTT - Stephen Schork's Oil Outlook 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.560 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:31.840 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Yes, tesla. 0:00:32.240 --> 0:00:37.040 Great example for our next topic, which is oil and gasoline. 0:00:37.080 --> 0:00:39.239 And here to help us understand more about what's going 0:00:39.280 --> 0:00:41.839 on is Steven Shork. He is the president of the 0:00:41.920 --> 0:00:45.040 Short Group. Stephen always a pleasure. Happy fourth of July 0:00:45.200 --> 0:00:48.040 to you. Uh, let's start. Where do you want to start? 0:00:48.280 --> 0:00:52.640 We could do gasoline prices comparing those to two thousand five, 0:00:52.840 --> 0:00:55.880 or maybe you want to talk about natural gas and kutar. 0:00:56.040 --> 0:00:59.720 Where would you like to begin? Well, I think let's 0:00:59.720 --> 0:01:02.680 start him. What's near and dear to everyone's heart listening, 0:01:02.720 --> 0:01:06.960 and that is gasolene prices. Of course, of course, gasolene 0:01:07.000 --> 0:01:11.200 prices are a function of crude oil prices, So every 0:01:11.240 --> 0:01:14.000 one dollar move in the barrel of crude oil, you 0:01:14.120 --> 0:01:16.600 typically get a lag of about two or three weeks. 0:01:16.760 --> 0:01:19.480 Did knock on to guess lene on the pump is 0:01:19.560 --> 0:01:22.480 usually between two and two and a half cents, So 0:01:22.600 --> 0:01:26.160 given where guest lane prices war when crude prices began 0:01:26.200 --> 0:01:30.119 to tank back right around Memorial Day, we're looking at 0:01:30.160 --> 0:01:33.399 probably another ten cent fall in the price of gasoline. 0:01:33.840 --> 0:01:36.600 So on the triple A survey, that would get guest 0:01:36.680 --> 0:01:39.680 line down to about two ten cents, which is more 0:01:39.760 --> 0:01:42.320 or less the bottom of what we saw last year. 0:01:42.840 --> 0:01:46.520 So from a consumer standpoint, the gasolene prices through the 0:01:46.520 --> 0:01:50.800 remainder of the holiday season this summer looks very favorable. 0:01:51.360 --> 0:01:55.680 So what industries or businesses that depend on consumer spending 0:01:55.800 --> 0:01:59.480 with that spending than translate into better business for those 0:02:00.000 --> 0:02:02.560 lines of sectors, or is there something else that you 0:02:02.640 --> 0:02:07.600 can point us to. Well, When we had the sharp 0:02:07.720 --> 0:02:11.040 sell off in oil prices that began back at the 0:02:11.160 --> 0:02:15.240 end of the concern I had was that it wasn't 0:02:15.280 --> 0:02:18.480 just in the oil markets. It was in the steel 0:02:18.560 --> 0:02:20.640 wea bar market, it was in the lumber market, it 0:02:20.680 --> 0:02:23.840 was in all of the heavy industrial metal markets. So 0:02:24.000 --> 0:02:27.240 clearly the sell off in oil was more endemic of 0:02:27.280 --> 0:02:30.000 what was happening in the general border commodity. Given that 0:02:30.120 --> 0:02:34.280 industrial metals are are clear telltale of potential economic growth 0:02:35.000 --> 0:02:38.800 this time around. The industrial metals complex has had a 0:02:39.160 --> 0:02:43.160 bump from the the the current administration. When we look 0:02:43.200 --> 0:02:45.200 at the charts of what these prices have been doing 0:02:45.240 --> 0:02:48.239 since November, you had a big spike, then you had 0:02:48.280 --> 0:02:51.360 a corrective pull back, but prices have been holding steady. 0:02:51.440 --> 0:02:55.080 And I take that as a positive sign given the 0:02:55.120 --> 0:02:59.519 potential of the demand for for these industrial commodities. If when, when, 0:02:59.520 --> 0:03:01.760 and if we ever see some sort of infrastructure plan 0:03:01.840 --> 0:03:05.760 from this administration. Um So, oil prices have decoupled, and 0:03:05.800 --> 0:03:09.760 the decoupled for a very uh you know, basic good reason, 0:03:10.240 --> 0:03:13.200 and that is essentially, we are producing a lot of oil. 0:03:13.639 --> 0:03:16.240 And this is where Wall Street really made a core 0:03:16.400 --> 0:03:19.400 decision back in November and December in the realm of 0:03:19.680 --> 0:03:23.519 the OPEC decision. That is to say, Wall Street was 0:03:23.560 --> 0:03:28.239 putting too much emphasis on OPEC dwindling power to dictate 0:03:28.280 --> 0:03:32.520 prices and paid little heed to the growing fact that 0:03:32.600 --> 0:03:35.280 the United States in this current environment is now the 0:03:35.320 --> 0:03:38.600 globe's swing producer when it comes to oil. So when 0:03:38.600 --> 0:03:41.560 we look at US production at it over two year high, 0:03:41.800 --> 0:03:45.560 the oil recount up hundred and when we look at 0:03:45.560 --> 0:03:49.080 the hedges produces are well hedged. Also when we look 0:03:49.120 --> 0:03:51.840 at the produces, what's really interesting PIM is when we 0:03:51.920 --> 0:03:56.160 disaggregate the data, we can surmise that the oil producer, 0:03:56.440 --> 0:03:59.680 the only person in the world who must sell oil, 0:04:00.320 --> 0:04:03.640 likes to sell oil that is hedge forward production when 0:04:03.720 --> 0:04:06.800 spot oil prices are between forty seven dollars and fifty 0:04:06.800 --> 0:04:09.320 four dollars a barrel. So I don't think I'm going 0:04:09.360 --> 0:04:11.600 out on the limb to suggest that is the top 0:04:11.640 --> 0:04:14.400 of the market. Now, what is the other interesting part 0:04:14.400 --> 0:04:17.000 of that PIM is when we look at the other side, 0:04:17.120 --> 0:04:21.039 the guys who must sell oil excuse, we must buy oil, 0:04:21.080 --> 0:04:22.760 and there's only one person in the world who has 0:04:22.800 --> 0:04:25.400 to buy oil, and that is an oil refinery. When 0:04:25.400 --> 0:04:28.640 we look at their hedging activity, they've been rather quiet 0:04:28.720 --> 0:04:31.160 over the past year and a half. So even though 0:04:31.200 --> 0:04:34.680 we've had oil prices yell yelling between the mid forties 0:04:34.720 --> 0:04:38.240 mid fifties, the oil refinery, again I emphasized, the only 0:04:38.279 --> 0:04:41.240 person who has to buy kudol doesn't see a need 0:04:41.320 --> 0:04:44.800 to hedge oil prices at these levels. So clearly this 0:04:44.880 --> 0:04:47.279 is telling us that this continues to be a buyer's 0:04:47.400 --> 0:04:51.080 market in the oil realm and now today is effectively 0:04:51.160 --> 0:04:54.600 the first trading day of the third quarter, first trading 0:04:54.680 --> 0:04:57.080 day of the second half of the year. What does 0:04:57.120 --> 0:04:59.839 that mean, Well, it means that kudal demand, which has 0:05:00.000 --> 0:05:02.799 and record strong here due the start of the summer 0:05:02.920 --> 0:05:06.440 driving season, that's going to peak rather soon and by 0:05:06.440 --> 0:05:08.559 the end of this quarter, we're going to take about 0:05:08.560 --> 0:05:11.560 a million barrels of demand out of the market as 0:05:11.600 --> 0:05:13.800 we go into the fall and we we we drive 0:05:13.920 --> 0:05:17.400 fewer miles, so that has to be concerned if you 0:05:17.440 --> 0:05:21.880 are a crude bullish investor. That's a great uh, sort 0:05:21.880 --> 0:05:25.360 of summation of what is going on. And uh, Steve 0:05:25.440 --> 0:05:28.560 and I maybe just give you, you know, another forty 0:05:28.640 --> 0:05:31.560 seconds or so. So what should people be looking for 0:05:31.800 --> 0:05:34.080 right now? What's the most important thing? You know, they're 0:05:34.120 --> 0:05:37.640 listening to you, they're hearing this. What's the next you know, 0:05:37.800 --> 0:05:41.240 guide post along the way? Yeah, well absolutely, the next 0:05:41.279 --> 0:05:44.159 guide post is, well, we've had a we had a 0:05:44.279 --> 0:05:48.440 nice corrective rebound in oil prices going into last week 0:05:48.800 --> 0:05:50.599 and that was a function of the market that was 0:05:50.880 --> 0:05:53.400 that was really over sold, so wall speak to risk 0:05:53.440 --> 0:05:56.599 appetite for lower oil prices had really ballooned over the 0:05:56.640 --> 0:05:59.120 past two months, a lot of that money has been 0:05:59.160 --> 0:06:01.520 exercised at a lot of profit was taking and now 0:06:01.560 --> 0:06:04.400 that we're into the second half, we probably are lower. 0:06:04.680 --> 0:06:06.720 Now I put I need to put the caveat out there, 0:06:06.760 --> 0:06:10.279 PIM that everything I've stated is already well known in 0:06:10.320 --> 0:06:12.840 the market, So that means if it's well known, that 0:06:12.920 --> 0:06:16.680 means it is priced in. So that said, this is 0:06:16.720 --> 0:06:19.159 a very telling first day of the second half of 0:06:19.160 --> 0:06:21.040 the year because we're down at dollars six five. As 0:06:21.080 --> 0:06:24.000 I look at my Bloomberg that's a very barished tell tale. 0:06:24.160 --> 0:06:27.719 We gotta, we gotta. That was perfect. I want to 0:06:27.720 --> 0:06:30.240 thank you very much as always, Stephen Shorky is the 0:06:30.240 --> 0:06:33.360 president of the Short Group, giving us a detailed information 0:06:33.360 --> 0:06:47.480 about the oil and energy markets. Well, we turn our 0:06:47.480 --> 0:06:50.400 attention now to China. But in order to help us 0:06:50.480 --> 0:06:53.600 understand what's going on, I want to bring in Eric Valcunas, 0:06:53.920 --> 0:06:57.640 our senior et F analyst for Bloomberg Intelligence. Eric, a 0:06:57.720 --> 0:07:00.920 pleasure always to have you. Maybe you could begin by 0:07:01.000 --> 0:07:02.560 just know I'm going to put you in a tough 0:07:02.600 --> 0:07:07.200 spot here because explain what has happened recently to markets 0:07:07.200 --> 0:07:12.600 in Asia and Uh, I'm referring obviously to the launch 0:07:12.720 --> 0:07:16.679 of a missile by the North Koreans, and we saw 0:07:16.720 --> 0:07:19.120 a tumble of about three quarters of a percent in 0:07:19.160 --> 0:07:27.520 the Japanese stock market yesterday when most Americans were on holiday. Yeah. Look, 0:07:27.560 --> 0:07:29.960 I mean this is part of international investing and in 0:07:29.960 --> 0:07:33.600 particular emerging markets. UM. You know, there's a lot of opportunity, 0:07:33.640 --> 0:07:36.600 but there's also a lot of risk. In geopolitical risk 0:07:36.800 --> 0:07:39.920 is part of that risk. UM. But on the flip side, 0:07:39.960 --> 0:07:41.120 you know, you look at some of the countries you 0:07:41.160 --> 0:07:43.400 just mentioned. In particular, we focused on China and our 0:07:43.480 --> 0:07:49.680 last research report, especially mainland shares. They are basically have 0:07:49.840 --> 0:07:53.360 no correlation to the US market. So while they do 0:07:53.480 --> 0:07:55.840 have these times where they go down and the US 0:07:55.880 --> 0:07:58.600 could go up or um. There that break of link 0:07:58.640 --> 0:08:03.240 of correlation is something it's valuable as a portfolio diversifier, UM, 0:08:03.280 --> 0:08:06.000 and something that's underrated, especially again when it comes to 0:08:06.040 --> 0:08:09.360 the mainland China shares, which investors can now get pretty 0:08:09.400 --> 0:08:12.320 easily through E T S. I want you to just 0:08:12.440 --> 0:08:16.560 compose a little UH sort of offering in your head, 0:08:16.600 --> 0:08:20.520 you know, to explain what has changed in the Chinese 0:08:20.560 --> 0:08:27.640 market to allow UH this new participation by non Chinese participants. 0:08:28.080 --> 0:08:30.600 Yeah sure, I call it the Great Wall of isolation, 0:08:30.800 --> 0:08:34.360 and in China cross the board. That wall is crumbling. 0:08:34.480 --> 0:08:37.560 And while China has taken some steps to open up 0:08:37.600 --> 0:08:41.160 its a share market by issuing quota having a connect 0:08:41.280 --> 0:08:44.280 between Hong Kong and China, it's really M s C 0:08:44.440 --> 0:08:47.520 I who's come around a lot. M s c I 0:08:47.559 --> 0:08:50.719 recently has said they're gonna allow two stocks that are 0:08:50.960 --> 0:08:54.000 mainly in China shares into their Emerging Markets index. This 0:08:54.040 --> 0:08:56.920 has covered pretty heavily two weeks ago. What we did 0:08:57.000 --> 0:08:59.600 is we looked at E t F that most hold 0:08:59.600 --> 0:09:02.800 those two twenty two stocks because there's so much money 0:09:02.840 --> 0:09:05.839 benchmarked to the M s C Emerging Markets and exit 0:09:05.920 --> 0:09:09.800 that once that they reach full inclusion in about five years, 0:09:09.840 --> 0:09:12.400 that's gonna equal about four hundred billion dollars in by 0:09:12.559 --> 0:09:15.640 orders of these two d and twenty two stocks, and 0:09:15.800 --> 0:09:17.960 the ETS that holds the most of those on a 0:09:18.000 --> 0:09:21.480 percentage basis is a s hr UM that holds seventy 0:09:21.720 --> 0:09:24.480 percent on a weighted basis of those two two stocks, 0:09:24.800 --> 0:09:26.320 K B A. There's a few other ones. We have 0:09:26.320 --> 0:09:28.520 a diagram on B I, E t F, but basically 0:09:28.800 --> 0:09:30.120 a lot of the r et F s are a 0:09:30.120 --> 0:09:32.920 great way to get ahead of that money. However, you 0:09:33.000 --> 0:09:35.360 do have to accept some volatility, like some of the 0:09:35.360 --> 0:09:37.440 things you just mentioned um and a lot of people 0:09:37.480 --> 0:09:39.840 are a little skittish because the a share market um 0:09:39.840 --> 0:09:44.120 in went gangbusters up and down. It was a sort 0:09:44.120 --> 0:09:46.480 of a mini spike and crash, and I think a 0:09:46.520 --> 0:09:48.679 lot of people are a little scared. But again, this 0:09:48.720 --> 0:09:51.360 is a long term play to try to get ahead 0:09:51.360 --> 0:09:54.439 of all the all those uh foreign investment investment dollars 0:09:54.480 --> 0:09:57.480 that are headed towards mainland China. I'm wondering if you 0:09:57.520 --> 0:10:01.640 could just repeat that specific part of what you were describing, 0:10:01.760 --> 0:10:05.880 because this is something that is already being set in motion. 0:10:06.320 --> 0:10:10.920 We just have not seen the effects and necessarily really 0:10:10.960 --> 0:10:17.040 even seen the actual activity of the investment. That's right. 0:10:17.800 --> 0:10:20.560 I mean you can almost imagine that the China share 0:10:20.600 --> 0:10:23.320 markets a new country, and it's like the MSc Emerging 0:10:23.360 --> 0:10:26.560 Markets just identified it as an emerging market, so you're 0:10:26.600 --> 0:10:29.720 basically and it's such a big country, um it's seven 0:10:29.720 --> 0:10:32.760 trillion dollar market that it will ultimately be seventeen percent 0:10:32.840 --> 0:10:36.600 of the Emerging Markets Index, which along with the offshore shares, 0:10:36.640 --> 0:10:39.840 would make China about of that index. That's how big 0:10:39.880 --> 0:10:43.640 China is, and so what people are the reason they're 0:10:43.679 --> 0:10:46.719 noticing and excited about this is that that's seventent of 0:10:46.760 --> 0:10:49.079 the emerging markets. There's two trillion benchmark to it. So 0:10:49.760 --> 0:10:52.600 um though, that money will go and buy those stocks 0:10:52.640 --> 0:10:55.839 because people are there's passive um ets and inexpens the 0:10:55.880 --> 0:10:58.880 track MSc Emerging Markets, but it's also active managers who 0:10:58.960 --> 0:11:00.720 are trying to beat it. So order to beat the 0:11:00.720 --> 0:11:02.959 Emerging Markets Index, you're gonna have to buy some A 0:11:03.080 --> 0:11:06.400 shares to make sure you don't lag. And so that's 0:11:06.440 --> 0:11:10.160 why this opening up, especially with m c I is 0:11:10.200 --> 0:11:13.200 such a big deal in terms of opening up that market. 0:11:13.400 --> 0:11:16.480 Um and there's other countries that might be promoted, like 0:11:16.520 --> 0:11:19.200 Taiwan and South Korea. So ultimately you could be looking 0:11:19.240 --> 0:11:23.000 at an Emerging Markets index that's China in five to 0:11:23.080 --> 0:11:27.440 seven years. Wow, that's something to take in. So all 0:11:27.520 --> 0:11:30.199 right now, so give us the detail then on the 0:11:30.240 --> 0:11:34.640 differences between the various exchange traded funds, because you know, 0:11:34.679 --> 0:11:37.280 there are a lot of acronyms and and a lot 0:11:37.320 --> 0:11:40.360 of fancy uh sort of names to these things, and 0:11:40.559 --> 0:11:44.959 you you actually take a look inside yeah, So China 0:11:45.120 --> 0:11:47.520 is so complicated. I call it's like an alphabet suit 0:11:47.559 --> 0:11:50.080 because because of the regulation, there's all these different share 0:11:50.120 --> 0:11:52.960 classes A shares, eight shares, red chips. I'll make it 0:11:53.000 --> 0:11:56.600 easy if an investor just wants to make a play 0:11:56.679 --> 0:11:59.960 on that foreign investment that's coming over. A s HR 0:12:00.000 --> 0:12:02.680 are the Deutsche Bank A share e TF is probably 0:12:02.679 --> 0:12:05.200 the best bet. K B A, which is the crane 0:12:05.200 --> 0:12:07.920 shares A share E t F would also work. Well, 0:12:08.040 --> 0:12:11.480 those are they already own those two two stocks. For 0:12:11.559 --> 0:12:15.959 investors who want, say, uh, like a wide a diverse 0:12:16.120 --> 0:12:18.800 China E t F that includes A shares, there's not 0:12:18.880 --> 0:12:21.280 that many. You sort of have to pick your your 0:12:21.320 --> 0:12:23.960 share class, and that's why it's difficult. So a lot 0:12:24.000 --> 0:12:25.959 of people might use m CHI m c h I, 0:12:26.080 --> 0:12:29.400 which holds every other share class, in combination with a 0:12:29.520 --> 0:12:32.760 s HR, which is a shares. There's one that tracks 0:12:32.800 --> 0:12:35.000 all of them with the ticker c N. Doesn't have 0:12:35.040 --> 0:12:36.760 a lot of assets yet, but that gives you everything 0:12:36.760 --> 0:12:39.840 in one shot. Alternatively, if you're looking for an emerging 0:12:39.920 --> 0:12:43.760 markets index or e t F, there's one out there 0:12:43.800 --> 0:12:46.360 that's designed already to be like where M s C 0:12:46.440 --> 0:12:48.120 I will be in those five to seven years, it's 0:12:48.120 --> 0:12:51.480 already China and that's the ticker on that KEMP. It 0:12:51.559 --> 0:12:55.720 was specifically designed look like k E m P the 0:12:55.720 --> 0:12:58.240 Crane Shares emerging market, and it was designed to look 0:12:58.280 --> 0:13:01.080 like what MSCI emerging markets will look like in seven years. 0:13:01.080 --> 0:13:02.760 So that's sort of skating to where the puck will be. 0:13:03.559 --> 0:13:07.200 I gotta say that's a really helpful guide that you've provided, Eric, 0:13:07.240 --> 0:13:13.920 Thank you. The composition of these various e t fsh 0:13:14.440 --> 0:13:19.160 and their volume of trading will sometimes well, let's just say, 0:13:19.240 --> 0:13:21.680 you'll be in a in conflict. Where do you see 0:13:22.000 --> 0:13:25.640 the most liquidity for these e t f s. Who's 0:13:25.640 --> 0:13:28.320 going to be the most liquid, who's on the most platforms, 0:13:28.360 --> 0:13:30.880 and who's going to be able to take this and 0:13:30.960 --> 0:13:35.280 run with it. Yeah, So for a shares E T S, 0:13:35.320 --> 0:13:38.400 a s HR is by far the most liquid distinct trade. 0:13:38.520 --> 0:13:40.600 It has four million dollars, which isn't a ton, but 0:13:40.920 --> 0:13:42.680 it's liquid enough you could probably just put in a 0:13:42.720 --> 0:13:45.920 market order and be fine. Just to let you know, 0:13:46.000 --> 0:13:50.320 the current volume is a hundred and thirty eight thousand shares. Yeah, 0:13:50.400 --> 0:13:52.760 I mean that's that spreads one or two cents and 0:13:52.840 --> 0:13:56.240 correct it's liquid enough, it's not spy no and no 0:13:56.440 --> 0:13:59.640 and and you know, no leverage, no swap based, nothing 0:13:59.720 --> 0:14:03.000 like that. This literally tracks China shares. I am shocked 0:14:03.000 --> 0:14:06.680 more people aren't buying the China share market again. It's 0:14:06.679 --> 0:14:09.400 like they discovered a new country that has seven trillion 0:14:09.440 --> 0:14:12.160 dollars worth of market cap and nobody owns it um 0:14:12.200 --> 0:14:14.240 but ultimately people are going to own it. So it's 0:14:14.240 --> 0:14:15.920 a way to get ahead of it. Like I said, 0:14:16.280 --> 0:14:19.680 China A shares are largely you know, only two percent 0:14:19.760 --> 0:14:22.720 of that market is four and owned. So these there's 0:14:22.720 --> 0:14:26.200 a couple a share ets that do track those those stocks, 0:14:26.320 --> 0:14:29.240 and a s HR is the most liquid one of 0:14:29.320 --> 0:14:31.400 the group, and it's the it's the one that has 0:14:31.440 --> 0:14:36.080 the most waiting overlap with the foreign investment that's coming in. Uh, 0:14:36.280 --> 0:14:38.800 those two stocks that will ultimately be in the M 0:14:38.840 --> 0:14:40.880 s c I emerging markets. Well, I gotta say, this 0:14:41.080 --> 0:14:44.000 is wonderful for you, for us to have you tell 0:14:44.080 --> 0:14:47.600 us all this. Eric Vaucina, senior et F analyst for 0:14:47.880 --> 0:14:52.400 Bloomberg Intelligence. He knows everything about the E t F market. 0:15:05.000 --> 0:15:07.000 You know, one of the things to always focus on 0:15:07.320 --> 0:15:12.080 the strategies that money managers employ and uh, I'm looking 0:15:12.240 --> 0:15:15.240 at things such as low debt with strong cash flow, 0:15:15.520 --> 0:15:19.080 low price to earnings ratio, multi caap, maybe with a 0:15:19.200 --> 0:15:22.120 small to MidCap focus, and also the idea of trying 0:15:22.160 --> 0:15:24.960 to dominate a niche in the market that has a 0:15:25.080 --> 0:15:27.920 high barrier to entry. And here to tell us a 0:15:27.920 --> 0:15:30.880 little bit more about these ideas in the strategy is 0:15:30.920 --> 0:15:34.160 George Young. He is a partner and portfolio manager at 0:15:34.240 --> 0:15:37.400 a Villary Funds and he joins us on the phone. 0:15:37.920 --> 0:15:40.080 Greg George, great to have you with us, Thanks for 0:15:40.160 --> 0:15:42.600 being here and belated happy fourth of July to you. 0:15:43.800 --> 0:15:45.720 Thank you very much, glad to be here. All right, 0:15:45.800 --> 0:15:48.800 let's start off. I want to get this idea looking 0:15:48.880 --> 0:15:52.480 at your your strategy because I know that you've got 0:15:52.600 --> 0:15:57.000 the Villary Equity Fund v l e q X and 0:15:57.200 --> 0:16:00.040 this is solely focused on equities and it emphasize this 0:16:00.120 --> 0:16:04.680 is the potential in small and mid sized companies. What 0:16:04.760 --> 0:16:06.960 are you some of your criterias and maybe just give 0:16:07.040 --> 0:16:11.480 us an example, sure be glad to do that is 0:16:11.560 --> 0:16:14.680 something that has a low pe ratio, something that has 0:16:14.720 --> 0:16:17.280 a moat built around it, somewhat unassailable, and that's either 0:16:17.320 --> 0:16:19.880 by patents or some sort of service that they're able 0:16:19.880 --> 0:16:23.000 to provide that others aren't able to do. So. A 0:16:23.080 --> 0:16:25.600 couple of examples of that. One would be a software 0:16:25.680 --> 0:16:29.960 company epics UM that is a MidCap company. Their insurance software. 0:16:30.000 --> 0:16:31.840 So if you think about it right now, Lloyd's London 0:16:31.960 --> 0:16:34.800 is an example, is still paper based. A lot of 0:16:34.920 --> 0:16:39.880 criteria for meeting insurance and analyzing insurance risks are done 0:16:39.920 --> 0:16:42.600 by paper, by people meeting and deciding what to do. 0:16:43.160 --> 0:16:46.400 All that can be digitized, it can be stored properly 0:16:46.880 --> 0:16:49.640 and it's something that can be analyzed on a more 0:16:49.680 --> 0:16:52.920 efficient basis. That's where edex comes into play. They link 0:16:53.000 --> 0:16:55.840 brokers and agents to try and assess risk. They've got 0:16:55.920 --> 0:16:59.120 eighty percent recurring revenue. That's very important in our world 0:16:59.200 --> 0:17:01.920 because you want some predictability in any investment you're gonna make. 0:17:02.440 --> 0:17:06.159 How did how did you find epics and have you 0:17:06.280 --> 0:17:11.760 visited them? In John's Creek, Georgia. We've met with management before. 0:17:12.160 --> 0:17:15.240 They've got a CEO that owns ten percent of the company. 0:17:15.359 --> 0:17:17.680 That's very important to us that we have board and 0:17:17.760 --> 0:17:24.040 management who are engaged. Robin Robin exactly exactly. Uh. He 0:17:24.160 --> 0:17:26.359 takes a very strong interest in what's going on in 0:17:26.600 --> 0:17:29.000 what is his company? Even though it's a publicly owned company, 0:17:29.040 --> 0:17:31.760 he founded it, so he takes it very personally. That's 0:17:31.800 --> 0:17:35.120 exactly want. We want fellow investors to be investing alongside 0:17:35.160 --> 0:17:38.399 of us, and we want to engage management and board members. 0:17:39.160 --> 0:17:42.600 How did you find Evis Was that a screening process? 0:17:42.760 --> 0:17:46.000 Was that a personal effort on the part of one 0:17:46.040 --> 0:17:50.280 of your analysts or colleagues. Yes, good question. We depend 0:17:50.320 --> 0:17:52.840 on analysts to introduce us to different ideas and then 0:17:52.920 --> 0:17:56.240 we follow through. We worked with a number of analysts 0:17:56.320 --> 0:17:59.040 and brokers for over twenty five years, so they know 0:17:59.160 --> 0:18:01.959 the type of companies it we like and they are 0:18:02.119 --> 0:18:04.800 very focused on the type of companies of fitting into 0:18:04.880 --> 0:18:08.040 our portfolios. They know we want investments for a long term, 0:18:08.480 --> 0:18:11.400 stocks that we can hold for three, five, ten plus 0:18:11.560 --> 0:18:15.199 years and our turnover reflects on our turnovers about fifteen 0:18:15.280 --> 0:18:19.880 percent per year, meaning we don't want to have any 0:18:19.920 --> 0:18:23.440 of our clients exposed unnecessarily to taxes. We want to 0:18:23.480 --> 0:18:26.080 buy investments that we believe can work for a long 0:18:26.160 --> 0:18:28.280 period of time, even though there may be some volatility. 0:18:28.640 --> 0:18:31.600 Our clients understand that over the long period our investments 0:18:31.640 --> 0:18:34.639 have generally rung true. Well, you know, it's interesting looking 0:18:34.880 --> 0:18:38.159 at e bix because it seems to fit in the 0:18:38.280 --> 0:18:43.359 narrative that you just described. What do you go through 0:18:43.720 --> 0:18:47.280 when the stock, let's say, is you know, in the sixties, 0:18:47.400 --> 0:18:50.639 sixty four was the high back in h I believe 0:18:50.760 --> 0:18:54.399 March of this year, what do you say or how 0:18:54.440 --> 0:18:56.600 do you react to the fact that, Okay, it was 0:18:56.640 --> 0:19:00.679 sixty four in March, it's fifty three now. But there 0:19:00.720 --> 0:19:03.000 are reasons why you want want it and may want 0:19:03.040 --> 0:19:06.320 even more of it. Sure. What we try to do 0:19:06.480 --> 0:19:08.639 is to try and make an assessment of what the 0:19:08.680 --> 0:19:11.920 company's value is based on what their potential earnings may be. 0:19:12.680 --> 0:19:16.399 Uh So that means that we're buying something for longer 0:19:16.560 --> 0:19:19.480 term growth. This is company we just start buying about 0:19:19.560 --> 0:19:21.879 three weeks ago, and we're buying it right now as 0:19:21.920 --> 0:19:25.920 we speak. It's a great company that offers that long 0:19:26.040 --> 0:19:30.080 term potential. And in terms of a pricing scenario, we're 0:19:30.080 --> 0:19:33.600 not overly concerned about where it was. We're more concerned 0:19:33.600 --> 0:19:36.200 about where it's going to be. So in that case, 0:19:36.680 --> 0:19:40.360 from a pe standpoint, relatively cheap, we think it's only 0:19:40.400 --> 0:19:44.280 trading in fifteen times next year's earnings and we try 0:19:44.320 --> 0:19:46.960 to look forward three years out and feel that it 0:19:47.040 --> 0:19:50.399 can grow. It's up like per year. Well, the symbol 0:19:50.440 --> 0:19:54.280 there is e B I X for this particular stock, 0:19:54.840 --> 0:19:59.000 Epics based in John's Creek and Georgia. Stock is down 0:19:59.000 --> 0:20:02.359 about seven p so far this year. Uh. You know, 0:20:02.400 --> 0:20:04.920 I'd like to turn your attention, if you can, to 0:20:05.280 --> 0:20:08.359 the visits that you make the company management and the 0:20:08.520 --> 0:20:13.000 interviews that you do with competitors and suppliers. Uh, with 0:20:13.280 --> 0:20:16.879 or without naming names, could you give us an example 0:20:17.119 --> 0:20:20.760 of one of those meetings that maybe turned you against 0:20:21.400 --> 0:20:25.960 making the investment or made you gunshy about it. Sure, sure, 0:20:26.000 --> 0:20:28.119 I've got a great example. There's a company a few 0:20:28.200 --> 0:20:34.280 years ago that had a proprietary interest in tires, manufacturing 0:20:34.320 --> 0:20:38.040 and replacing tires. If you go back about eight years ago, 0:20:38.440 --> 0:20:41.600 tires were very expensive for mining because at that point 0:20:41.680 --> 0:20:46.119 commodities were very expensive. UM. It's interesting because one of 0:20:46.160 --> 0:20:50.520 the founders, who's pretty well respected, made some disparaging comments 0:20:51.920 --> 0:20:56.560 about women and their ability to understand the mining and 0:20:56.680 --> 0:21:01.080 the tire business. UM. We didn't tolerate that, and irrespected 0:21:01.160 --> 0:21:03.920 of whether he's a good leader or not. That reflected 0:21:03.960 --> 0:21:07.600 poorly on on management and we own that for about 0:21:07.600 --> 0:21:09.480 a day and a half and that was it. That's 0:21:09.480 --> 0:21:13.960 a very interesting Uh, that's a very interesting determination obviously, 0:21:14.160 --> 0:21:18.040 something that doesn't even take a balance sheet to figure out. No, 0:21:18.280 --> 0:21:21.320 it doesn't, and sometimes investments can can lend themselves to that. 0:21:22.359 --> 0:21:24.320 You know, none of us are perfect, but we would 0:21:24.400 --> 0:21:30.800 hope that board and management understands the consumer, understands the 0:21:30.840 --> 0:21:34.440 way the world works, and just you know, at least 0:21:34.480 --> 0:21:36.520 some civility. And I dare say we're gonna have a 0:21:36.520 --> 0:21:40.119 little more civility in the world today. Well said speak 0:21:40.160 --> 0:21:42.639 if you can't about any recent changes, whether you've been 0:21:42.680 --> 0:21:47.359 adding to your cash positions, do you feel that having 0:21:47.800 --> 0:21:55.879 something increased liquidity will be useful in the near future. UM, 0:21:56.320 --> 0:21:58.160 that's a very good question. Right now, we are having 0:21:58.160 --> 0:22:00.359 a little bit of a difficult time finding and essence, 0:22:00.400 --> 0:22:03.280 so we're about nine invested, we've got about ten percent 0:22:03.359 --> 0:22:06.240 in cash. So that's a good barometer of how enthusiastic 0:22:06.320 --> 0:22:09.840 we are about the market right now. UM. That being said, 0:22:10.359 --> 0:22:13.680 every day the market offers many opportunities. There's a stock 0:22:13.800 --> 0:22:17.840 that UM ressembles for for for lack of a better word, 0:22:18.160 --> 0:22:21.200 a good example that was I'm sure listeners remember the 0:22:21.320 --> 0:22:24.320 Carnival Cruise Lines reckoned the Mediterranean a few years ago 0:22:24.880 --> 0:22:29.440 with the cost Concordia. That's exactly right. So when we 0:22:29.640 --> 0:22:33.200 looked at that, we had Carnival crews on our our 0:22:33.280 --> 0:22:37.080 radar at the time coincidentally, and realized we could fairly 0:22:37.320 --> 0:22:41.640 quickly assess what the damages were going to be environmental, uh, 0:22:42.040 --> 0:22:44.600 personal injury, et cetera, and those are capped for better 0:22:44.720 --> 0:22:46.720 or worse. So it looked like a great opportunity. We 0:22:46.760 --> 0:22:49.200 bought the stock. It was about ten percent off after 0:22:49.320 --> 0:22:53.560 that accident, and it contrasted with the BP oil spill 0:22:53.640 --> 0:22:57.280 that happened here in the Louisiana area where that was 0:22:57.440 --> 0:22:59.440