WEBVTT - Markets may be facing disrespectful tweet fatigue : Paulsen 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. 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 --> 0:00:33.080 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. So, 0:00:33.159 --> 0:00:36.320 now that companies are earning so much money and the 0:00:36.400 --> 0:00:39.479 cash that they have is slashing around their balance sheets, 0:00:39.920 --> 0:00:43.159 how much are they paying down that debt that they 0:00:43.159 --> 0:00:45.800 have been borrowing, the trillions of dollars of debt that 0:00:45.840 --> 0:00:48.920 they've been incurring over the past eight years. Here to 0:00:48.960 --> 0:00:51.839 answer that question, Joel Levington, see your credit analyst for 0:00:52.000 --> 0:00:55.480 Bloomberg Intelligence. He writes amazing reports. He joined us here 0:00:55.760 --> 0:00:58.640 in our eleven three oh studios. Joel, you did a 0:00:58.680 --> 0:01:02.320 study looking at lover ratios among companies. Basically, this is 0:01:02.360 --> 0:01:04.840 the amount of death that they have relative to the 0:01:04.880 --> 0:01:09.040 income that they have. How do things look right now? Uh? Well, 0:01:09.040 --> 0:01:13.040 I'll tell you, Lisa, not that great. It's um uh. 0:01:13.160 --> 0:01:16.720 You know, metrics continue to remain elevated. We've done nine 0:01:16.840 --> 0:01:20.040 studies over the last five years, and we're right or 0:01:20.080 --> 0:01:23.160 at the highest point for all the major reading classes 0:01:23.200 --> 0:01:25.880 except for the junkiest class, the single B T here, 0:01:26.120 --> 0:01:29.000 which has slightly improved. Okay, to be clear. In other words, 0:01:29.200 --> 0:01:34.520 corporate leverage has increased to the highest levels in data 0:01:34.600 --> 0:01:37.320 going back four years. Right, that's right, uh, and it 0:01:37.360 --> 0:01:41.399 has steadily increased even though the cash flows have increased 0:01:41.440 --> 0:01:46.240 profits have increased. That has not offset the rapid Uh, 0:01:46.880 --> 0:01:49.960 the rapid selling of debt. That's exactly right. And earnings 0:01:49.960 --> 0:01:54.559 are are robust and healthy. However, tables have turned towards 0:01:55.040 --> 0:01:59.280 capital allocation plans where it's share repurchases, dividends and acquisitions, 0:01:59.440 --> 0:02:02.600 and the can that's being used for those three items 0:02:02.640 --> 0:02:05.840 are at least exceeding cash that is being generated, and 0:02:05.880 --> 0:02:10.359 therefore leverage can't improve. Alright, So let's dig into here 0:02:10.360 --> 0:02:12.800 a little bit. I mean, you're starting to see investors 0:02:12.800 --> 0:02:16.240 express concern at all about leverage increasing or are they 0:02:16.240 --> 0:02:19.360 still pretty much in a free for all? Take my money, 0:02:19.639 --> 0:02:24.760 you care. It's a great question. The beyond just the 0:02:24.800 --> 0:02:29.000 individual company specific items, where I hear at the most 0:02:29.600 --> 0:02:32.720 is in the triple B category, which has increased a 0:02:32.760 --> 0:02:35.360 lot over the last few years. Uh, and what I 0:02:35.400 --> 0:02:38.520 find it's very bifurcated. You could look at subsectors and 0:02:39.080 --> 0:02:41.799 I would say it. My thirty second takeaway on it 0:02:41.919 --> 0:02:46.480 is that insectors that the reading agencies view as stable, 0:02:46.960 --> 0:02:50.760 like consumer cyclical excuse me, consumer stables, as well as healthcare. 0:02:51.360 --> 0:02:54.840 The reading agencies have allowed the companies to level up 0:02:55.240 --> 0:02:59.640 much more than you would traditionally find, sometimes to even 0:02:59.680 --> 0:03:03.120 six times leverage, with the hope that a deal will 0:03:03.160 --> 0:03:05.600 pan out well and that cash flow will pay down 0:03:05.680 --> 0:03:08.560 debt over the next couple of years. Having been around 0:03:08.600 --> 0:03:11.200 the business for a long time, that never really happens 0:03:11.240 --> 0:03:14.080 exactly the way people plan. This is such an important 0:03:14.080 --> 0:03:17.760 conversation because everyone talks about how much earnings are increasing, 0:03:18.080 --> 0:03:20.639 but the other side of the balance sheet is also inflating, 0:03:20.680 --> 0:03:22.959 and frankly inflating at a faster pace. And I feel 0:03:22.960 --> 0:03:25.400 like this is a really important thing to realize. I 0:03:25.440 --> 0:03:27.320 want to shift gears a little bit because you highlighted 0:03:27.360 --> 0:03:30.040 another research piece that you put out that auto bonds 0:03:30.080 --> 0:03:33.240 have been among the worst performers of the year, and 0:03:33.440 --> 0:03:37.600 given what you've seen, you don't necessarily think that will change. 0:03:37.880 --> 0:03:42.360 That's right, you know, statistically, auto demand hinges on about 0:03:42.400 --> 0:03:46.200 three factors. It's the price of the vehicle that you're buying, 0:03:46.680 --> 0:03:50.680 It's the loan rate uh that that you have, and 0:03:50.880 --> 0:03:54.120 uh it's gas prices. As they rise, it makes it 0:03:54.160 --> 0:03:57.240 tougher to bank that payment. And then so when you 0:03:57.240 --> 0:04:00.440 look at those three things, they're all working again to us. 0:04:00.440 --> 0:04:03.800 If you're a car company, right, prices are already at 0:04:03.840 --> 0:04:08.040 the highest on record. That's a mixed change of people 0:04:08.080 --> 0:04:13.160 moving out of auto passenger cars and into cuvs and SUVs, 0:04:13.160 --> 0:04:17.159 So the prices working against you. Loan rates are already 0:04:17.200 --> 0:04:20.440 at their highs for the last five years, and of 0:04:20.480 --> 0:04:24.200 course you are expecting another like three hikes going forward. 0:04:24.240 --> 0:04:27.200 Can you give us a sense of which specific companies 0:04:27.200 --> 0:04:29.960 have been the worst performers in the bond world? Well, 0:04:30.000 --> 0:04:34.040 forward in investment grade has been very very poor. UM. 0:04:34.440 --> 0:04:36.680 I mean, do you think that investors might be pricing 0:04:36.760 --> 0:04:40.120 in a pretty substantial downgrade for Ford, because there's their 0:04:40.160 --> 0:04:43.400 stocks have been down substantially as well, they've had turnover. Uh, 0:04:43.440 --> 0:04:46.440 they've really struggled to increase the profits. I don't think so. 0:04:46.560 --> 0:04:48.800 I think if you look at the forward bonds or 0:04:48.839 --> 0:04:53.039 g M bonds, uh, they trade as uh wide to 0:04:53.920 --> 0:04:56.240 their peers in consumer discretionary. But you can find a 0:04:56.240 --> 0:04:58.839 lot of retailers in that area too that have the 0:04:58.839 --> 0:05:02.080 wherewithal to down debt and may have less leverage and 0:05:02.120 --> 0:05:04.760 maybe more cash flow. So I'm not sure that they've 0:05:04.800 --> 0:05:08.240 priced in a severe downturn or decline. I think what 0:05:08.279 --> 0:05:10.560 they see is that maybe they were priced too tight 0:05:10.640 --> 0:05:14.400 to begin with and are trying to reset valuation. You know, 0:05:14.400 --> 0:05:16.760 one thing I'm struck by is you're talking about the 0:05:16.760 --> 0:05:20.359 pressures on automakers and it includes higher costs for this 0:05:20.520 --> 0:05:23.000 the goods that they purchase. And I'm wondering, especially as 0:05:23.640 --> 0:05:26.880 we just finished that eventful G seven meeting, and that 0:05:27.040 --> 0:05:30.000 it seems like tariffs are going to be an ongoing theme. 0:05:30.680 --> 0:05:34.000 You know, are they going to be the prime losers 0:05:34.120 --> 0:05:36.800 from this because their input costs are gonna increase? And 0:05:36.920 --> 0:05:39.440 what other sectors are people not thinking about that also 0:05:39.480 --> 0:05:41.680 could be big losers. Well, I think you're totally right, Li. 0:05:41.760 --> 0:05:45.360 So when you think of raw material inflation, the auto 0:05:45.480 --> 0:05:48.440 market is so competitive, it's very very hard to pass 0:05:48.480 --> 0:05:51.000 these costs on. And when you think of rising rates 0:05:51.040 --> 0:05:54.120 and they have huge finance companies, many of them, Uh, 0:05:54.279 --> 0:05:57.880 you can't really pass that cost onto the consumer. You 0:05:57.960 --> 0:06:00.799 have rising steel inflation. We were just talk about it earlier, 0:06:00.839 --> 0:06:05.920 how addie auto suppliers down about sixteen seventent today because 0:06:05.960 --> 0:06:08.680 they can pass UH raw material inflation through. So I 0:06:08.720 --> 0:06:10.560 think these are the kinds of events that you could 0:06:10.560 --> 0:06:13.400 start seeing pop up more frequently, and clearly that will 0:06:13.440 --> 0:06:16.760 not have a great impact on credit risk or bonds. 0:06:17.320 --> 0:06:20.440 Is there another Is there another UH industry that could 0:06:20.480 --> 0:06:23.560 also see UH sort of declines or pressure as a 0:06:23.600 --> 0:06:28.040 result of these increasing commodity prices. Well, in the industrial world, 0:06:28.160 --> 0:06:30.880 you do have a lot of use of oil and energy, 0:06:30.960 --> 0:06:33.120 so as those prices rise, I think you could see 0:06:33.160 --> 0:06:36.880 maybe in the machinery space where steel uses is also 0:06:37.040 --> 0:06:40.320 quite high, so I could see margin compression happen over there, 0:06:40.360 --> 0:06:42.600 and maybe not the amount of expansion and that people 0:06:42.640 --> 0:06:44.760 are expecting, and so that might be a place where 0:06:44.800 --> 0:06:48.040 you could see some problemats. Joel Livington, thank you so 0:06:48.160 --> 0:06:50.679 much for spending the time here. Joel Livington, senior credit 0:06:50.680 --> 0:06:54.440 analyst for Bloomberg Intelligence, joining us here in our eleven 0:06:54.560 --> 0:06:58.040 three oh studios. This study that they did on leverage 0:06:58.080 --> 0:07:02.440 trends really fascinating, showing just how much people have been 0:07:02.600 --> 0:07:20.840 borrowing despite the increases in their earnings. Well, the market 0:07:21.120 --> 0:07:24.840 is pretty much flat, despite the fact that we've had 0:07:25.040 --> 0:07:28.360 quite a few pretty sensational headlines coming out over the 0:07:28.400 --> 0:07:32.360 weekend and we expect more throughout the week. Why our 0:07:32.400 --> 0:07:36.560 investors not responding at all to the escalating trade tensions 0:07:36.640 --> 0:07:41.160 to the possible accord in Korea. Let's get some thoughts 0:07:41.160 --> 0:07:43.560 on that from James Paulson, chief investment strategist at the 0:07:43.640 --> 0:07:47.400 Louth Whole Group in Minneapolis, Minnesota, and he joins us 0:07:47.440 --> 0:07:49.760 now by phone. James, thank you so much for being 0:07:49.800 --> 0:07:51.680 with us. I'd love to get your sense, just to 0:07:51.680 --> 0:07:53.560 get this out of the way. You know, it feels 0:07:53.560 --> 0:07:57.120 a little bit like the world is up in uh 0:07:57.280 --> 0:08:00.480 in a in a roar of potential trade tensions and 0:08:00.720 --> 0:08:05.040 people battling each other in with words and markets shrug 0:08:05.280 --> 0:08:10.240 they do not care why. Well, it might be uh, 0:08:10.440 --> 0:08:16.120 disrespectful tweet fatigue. I don't know, disrespectful tweet fatigue? Is that? 0:08:16.280 --> 0:08:19.560 Is that like going to be a thing? D TF? 0:08:19.760 --> 0:08:23.520 It's just t ts. I just think you know that 0:08:23.560 --> 0:08:27.920 we've we've seen this story quite a bit in the 0:08:28.000 --> 0:08:32.400 last almost two years now. A lot of rhetoric, a 0:08:32.400 --> 0:08:36.680 lot of tough rhetoric even among countries now, but little 0:08:36.840 --> 0:08:41.080 really happens. And so that there has been market moves 0:08:41.120 --> 0:08:44.640 in the past has been fairly significant on news like 0:08:44.760 --> 0:08:48.520 we've had lately, and to no avail, and if you 0:08:48.720 --> 0:08:52.880 sold out, you lost out because the markets sort of recovered. 0:08:52.920 --> 0:08:57.360 And so I do think that the marketplace is becoming 0:08:57.400 --> 0:09:00.320 a little less sensitive to that, reducing their eat it 0:09:00.360 --> 0:09:03.439 to that type of flow of news. Now, if something 0:09:03.520 --> 0:09:07.600 really happened fundamentally, um, certainly there'd be a different response. 0:09:07.679 --> 0:09:11.160 But but just tough talk. It's kind of we're getting 0:09:11.240 --> 0:09:15.479 used to tough talk. That's been the modus opera for 0:09:15.480 --> 0:09:17.440 for the last couple years, even leading up to the election. 0:09:17.520 --> 0:09:20.320 I think we're we're sort of adjusting how much we 0:09:20.360 --> 0:09:23.360 move markets on the basis of that. And then the 0:09:23.400 --> 0:09:25.680 other thing least, there's just such a good fundamental story 0:09:25.720 --> 0:09:29.120 under this right now, you know, with with just strong 0:09:29.200 --> 0:09:32.280 economy here in the United States and high confident, strong 0:09:32.320 --> 0:09:37.000 earnings UM, and I think there's also a growing abolishness 0:09:37.080 --> 0:09:41.079 out there optimism about markets breaking out to the upside. 0:09:41.080 --> 0:09:44.800 So all those I think are factors keeping this market, uh, 0:09:44.840 --> 0:09:48.360 pretty healthy. In the face of some pretty striking headline news. 0:09:48.960 --> 0:09:52.600 One thing that I've foundishesting is that big tech has 0:09:52.640 --> 0:09:55.920 continued to lead the rally. And I'm looking at the NASDAC, 0:09:55.960 --> 0:09:59.520 which is just off a record high and has continued 0:09:59.559 --> 0:10:01.960 to climb to about the year, out performing the other indiceason. 0:10:02.000 --> 0:10:04.880 I'm just wondering, you know, given some of the concerns 0:10:04.920 --> 0:10:08.199 around Facebook, given the incredible amount of debt that Netflix 0:10:08.240 --> 0:10:11.360 is incurring to finance the entire business model, I mean, 0:10:11.400 --> 0:10:13.000 do you think that this has gone too far? Do 0:10:13.040 --> 0:10:16.199 you think that this is just the beginning? Well, that's 0:10:16.200 --> 0:10:18.720 a good question. I uh throde a piece a little 0:10:18.760 --> 0:10:23.600 bit called dot com deja vu uh here late last week. Uh. 0:10:23.640 --> 0:10:28.640 There's certainly some you know, evidence that the movement of 0:10:28.679 --> 0:10:31.760 tech stocks relatively overall market is is a little bit 0:10:32.320 --> 0:10:35.280 uh like dot com here in the late ninety nines. 0:10:36.120 --> 0:10:41.400 Over the last five years UM, for example, UH, technology 0:10:41.440 --> 0:10:45.120 stocks within the SP five hundred of outperformed UM the 0:10:45.240 --> 0:10:49.199 overall market by more than two to one UM at 0:10:49.280 --> 0:10:52.520 the x Tech SMP five. If you look at the 0:10:52.600 --> 0:10:55.600 last two or three years, tech stocks have outperformed the 0:10:55.800 --> 0:10:58.680 x Tech SMP five hundred more by more than three 0:10:58.679 --> 0:11:03.040 to one, and the last year UH text docs ab 0:11:03.040 --> 0:11:05.720 outperformed the S and B X tech by more than 0:11:05.800 --> 0:11:09.439 four to one. Uh and even year to date roughly 0:11:09.840 --> 0:11:13.400 tech stocks are up around the FO and X tech 0:11:13.520 --> 0:11:17.680 is roughly flat. So UM there's a quite a dominance 0:11:17.720 --> 0:11:21.360 here of of tech stocks being the only game in 0:11:21.440 --> 0:11:24.079 town that's leading. Much like the five years the let 0:11:24.160 --> 0:11:28.760 up to two thousand. On a relative basis, Lisa S 0:11:28.840 --> 0:11:33.760 and P five x technology to the overall SP has 0:11:33.840 --> 0:11:36.319 fallen about half as much on a relative basis in 0:11:36.360 --> 0:11:39.440 the last five years than it did during the dot 0:11:39.480 --> 0:11:41.960 com So you could argue on a performance basis that 0:11:42.000 --> 0:11:45.360 we've been experiencing almost a half a dot com type 0:11:45.360 --> 0:11:49.880 of environment. I do think it's uh, it's a warning 0:11:49.960 --> 0:11:54.520 sign of of concentration in a in a few popular names, 0:11:54.559 --> 0:11:58.280 that all the flows are going into UM and ignoring 0:11:58.440 --> 0:12:01.200 some of the potential risk that come with that. But 0:12:01.280 --> 0:12:04.120 who knows how long that can continue. We we've you 0:12:04.160 --> 0:12:07.360 could see that in and it continued to go on 0:12:07.480 --> 0:12:09.920 as well. But I do think it's a growing risk. Well, 0:12:09.920 --> 0:12:11.920 can we just dig in a little bit as to 0:12:12.360 --> 0:12:14.680 how that risk could play out? Is the risk that 0:12:14.720 --> 0:12:18.360 There could be, say, a big regulatory push with Facebook 0:12:18.400 --> 0:12:21.000 and all of a sudden that brings down the entire 0:12:21.080 --> 0:12:23.600 market just because they've become so dominant. Or is it 0:12:23.920 --> 0:12:27.400 you know, the whole uh smartphone supercycle and then to 0:12:27.480 --> 0:12:29.440 decline there? I mean that the kind of kind of 0:12:29.440 --> 0:12:31.000 thing that could trigger this or would it be sort 0:12:31.000 --> 0:12:35.360 of more wholesale Well, um, there could be a number 0:12:35.400 --> 0:12:38.559 of things. I think what the risk suggests is just 0:12:38.600 --> 0:12:44.280 the vulnerability is increasing, and if it increases enough, oftentimes 0:12:44.280 --> 0:12:47.320 it could be any one of a number of different catalysts, 0:12:48.280 --> 0:12:51.120 each of each of which individually might not even be 0:12:51.160 --> 0:12:53.920 that important. But if you've got a vulnerable enough market, 0:12:53.960 --> 0:12:56.480 it could be the straw that breaks the camel's back. 0:12:56.840 --> 0:12:59.959 It could be something, as you say, direct, some new 0:13:00.040 --> 0:13:04.240 is item directly related to the technology space itself. I 0:13:04.320 --> 0:13:07.400 have noted earlier this year that there's a big difference 0:13:07.400 --> 0:13:11.040 if you took the Fang plus index New York stage 0:13:11.200 --> 0:13:14.160 fang plus index has about ten of those stocks most popular, 0:13:14.679 --> 0:13:17.439 and you divide them up to those that are regulated 0:13:17.559 --> 0:13:20.120 versus those that they're not. And I don't mean they 0:13:20.120 --> 0:13:24.040 are regulated, but that those that rely more on social 0:13:24.760 --> 0:13:29.160 uh reselling customer information for advertising purposes versus those of 0:13:29.200 --> 0:13:33.840 selling actual product. Um, you already see quite a divergence. 0:13:33.920 --> 0:13:37.360 The non regulated quote unquote are doing far better than 0:13:37.400 --> 0:13:40.480 the regulated fangs, so the markets already discounting that risk. 0:13:40.800 --> 0:13:43.640 If there was something official that came out, that certainly 0:13:44.120 --> 0:13:47.199 could be a tipping point for tech leadership, but it 0:13:47.280 --> 0:13:50.560 might also just happen because the tenure yield reaches a 0:13:50.600 --> 0:13:53.360 point that starts to scare people, or inflation picks up, 0:13:53.840 --> 0:13:57.280 and since everyone's in those areas, if if they do 0:13:57.400 --> 0:13:59.640 start to sell, they're going to see the most selling 0:13:59.640 --> 0:14:03.400 pressure as well. Just before I let you go, what 0:14:03.600 --> 0:14:09.360 is the highest conviction trade you have right now? You know? Uh, Lisa, 0:14:09.440 --> 0:14:15.400 I would I would add a little cash and maybe 0:14:15.400 --> 0:14:18.360 a commod of the E T f uh in my 0:14:18.440 --> 0:14:21.120 equity portfolio that stay in equities, but I'd sort of 0:14:21.920 --> 0:14:25.480 change up how I'm writing them. Maybe have a little 0:14:25.520 --> 0:14:27.240 cash if we do hit an air pocket, you can 0:14:27.280 --> 0:14:29.160 go back in. And I like the commod of the 0:14:29.240 --> 0:14:32.160 E T f UH. Commodities I think are going to 0:14:32.200 --> 0:14:34.240 continue to go up. So those would be two things 0:14:34.240 --> 0:14:37.680 I throw out as a possibility. Not have everything in 0:14:37.680 --> 0:14:40.920 in in the current momentum of technology right now, and 0:14:40.960 --> 0:14:43.200 just real quick, what would you sell in order to 0:14:43.280 --> 0:14:46.120 raise more cash and invest I'd sell some of those 0:14:46.120 --> 0:14:49.440 popular tech names right now. I pat myself in the 0:14:49.480 --> 0:14:54.240 back for owning them. Well happen and shure that I 0:14:54.480 --> 0:14:57.040 made a great decision and I give some of that 0:14:57.120 --> 0:14:59.280 away to somebody that wants them real bad right now. 0:15:00.000 --> 0:15:02.080 And Paulson, thank you so much for being with us. 0:15:02.080 --> 0:15:04.360 Always a pleasure speaking with you. Jim Paulson is chief 0:15:04.400 --> 0:15:07.680 investment strategist at the louth Hole Group. Coming to us 0:15:07.720 --> 0:15:27.520 from Minneapolis, Minnesota, with its beautiful lakes. There's a lot 0:15:27.560 --> 0:15:30.720 of focus on where people are putting their money, on 0:15:30.760 --> 0:15:35.000 whether it is responsible UH. And our next guest wants 0:15:35.080 --> 0:15:43.120 to responsibly build UH. He builds homes offices using containers, 0:15:43.120 --> 0:15:47.840 the containers, shipping containers that are no longer being circulated. 0:15:47.840 --> 0:15:50.760 I want to welcome Paul Galavin, Chairman and chief executive 0:15:50.800 --> 0:15:55.480 officer of SG Blocks. Paul, your company is fastenating. Can 0:15:55.480 --> 0:15:57.800 you just give us a rundown? What does it do so? 0:15:58.080 --> 0:16:01.720 S G Blocks is a premier provider of modular construction 0:16:01.920 --> 0:16:07.120 premised on the repurposing of shipping containers into internationally approved 0:16:07.320 --> 0:16:12.840 instruments of construction. The value proposition is a safer building 0:16:13.280 --> 0:16:16.080 in half the time at a better price. And so 0:16:16.200 --> 0:16:20.760 are they pretty? Though? There's they're pretty? I mean, do 0:16:20.800 --> 0:16:23.160 you have to keep the shape of the container? No, 0:16:23.240 --> 0:16:28.240 there's design flexibility, there's cladding flexibility. You can go anywhere 0:16:28.320 --> 0:16:30.400 from a kind of a high end clad it finish 0:16:30.480 --> 0:16:33.840 with limestone or brown stone or hardy board, and all 0:16:33.840 --> 0:16:37.600 the way to celebrating the raw container as an urban 0:16:37.600 --> 0:16:40.600 look and feel, which a lot of millennials and developers 0:16:40.600 --> 0:16:44.160 and cities like. So what's the sort of value proposition 0:16:44.200 --> 0:16:47.720 from your perspective? Given the fact that I imagine there 0:16:47.800 --> 0:16:49.960 was a glut of containers at one point, the shipping 0:16:50.000 --> 0:16:52.520 industry took a pretty big hit. You know, how how 0:16:52.600 --> 0:16:57.240 much were they discounted for you? Our pricing is arranged 0:16:57.320 --> 0:17:00.000 on a sort of permanent basis with a partner we've 0:17:00.040 --> 0:17:04.479 had since inception conglobal industries who have fifteen locations and 0:17:04.560 --> 0:17:09.120 manage the overwhelming domestic inventory. So pricing is not normally 0:17:09.720 --> 0:17:12.959 an issue for US. Even now with the tariffs and 0:17:13.160 --> 0:17:16.720 the increase in steel prices, etcetera. Know that we don't 0:17:16.760 --> 0:17:19.560 anticipate that being a problem for US. Conglobal has an 0:17:19.640 --> 0:17:22.880 enormous inventory in the States already. Okay, so you don't 0:17:22.880 --> 0:17:25.880 think that that's going to increase the demand for UH 0:17:26.080 --> 0:17:30.200 for even used metal products, and no, we're not anticipating 0:17:30.240 --> 0:17:32.840 that at that moment. All right. Um, And you guys 0:17:32.920 --> 0:17:36.640 went public last year, right correct? About a year ago? 0:17:36.680 --> 0:17:39.159 About a year ago? And what was that experience like? 0:17:40.600 --> 0:17:48.399 It was an extremely invigorating, enthusiastic, exhausting experience. The I 0:17:48.520 --> 0:17:52.720 p O itself was conducted over about twenty eight days 0:17:52.760 --> 0:17:56.399 and we met with well over a hundred good investors, 0:17:56.480 --> 0:18:00.480 qualified investors. And every time you speak with the investment community, 0:18:01.320 --> 0:18:04.280 you hopefully make them smarter, they hopefully make you smarter, 0:18:04.359 --> 0:18:06.399 and the dialogue can continue. So what did you learn? 0:18:06.480 --> 0:18:09.040 What's the number one thing that you thought was the 0:18:09.040 --> 0:18:13.960 biggest a half moment for you? Um, the consistent experience 0:18:14.000 --> 0:18:17.000 from investors that they do not want to invest in 0:18:17.040 --> 0:18:20.000 small cap companies and then get diluted further down the 0:18:20.080 --> 0:18:23.119 road by other rounds of capital, which is why s 0:18:23.160 --> 0:18:26.400 G Blocks has a negative working capital. With our clients, 0:18:26.520 --> 0:18:30.560 we take deposits and complete on percentage of completion, so 0:18:30.600 --> 0:18:34.480 that while our backlog, which is enormous, is starting to 0:18:34.560 --> 0:18:37.520 unfold into bigger increments of revenue. We don't need to 0:18:37.600 --> 0:18:41.440 raise money to finance those orders, and our company itself 0:18:41.520 --> 0:18:45.399 operates very efficiently. That's really interesting. I hadn't thought about that. 0:18:45.440 --> 0:18:47.240 I thought that there was so much interest in small 0:18:47.280 --> 0:18:52.040 caps right now because they've been outperforming, uh, that you know, 0:18:52.080 --> 0:18:57.399 people wouldn't necessarily ask many questions. Well, for some investors, 0:18:57.400 --> 0:18:59.520 they looked at a company like ours with a market 0:18:59.560 --> 0:19:02.399 cap of about twenty million dollars, and we have i 0:19:02.520 --> 0:19:07.480 P and exclusive inventory and an enormous pipeline of opportunities, 0:19:08.040 --> 0:19:10.200 and for some people it looks like in a six 0:19:10.240 --> 0:19:14.960 trillion dollar vertical, how could things not grow exponentially? For 0:19:15.040 --> 0:19:17.760 other people, investors are on the sideline. They'd like to 0:19:17.800 --> 0:19:20.600 see some more of our backlog unfold into revenue and 0:19:20.640 --> 0:19:24.359 some more of our pipeline into the backlog. We have 0:19:25.880 --> 0:19:30.520 in almost uncountable number of leads and inquiries on a 0:19:30.600 --> 0:19:34.280 daily basis from people from single containers two hundred containers 0:19:34.560 --> 0:19:38.160 trying to unlock the value of their real estate. And 0:19:38.240 --> 0:19:44.120 so we provide them with a cost efficient, time efficient, sustainable, 0:19:44.760 --> 0:19:47.760 better alternative than traditional construction. How much do you pay 0:19:47.840 --> 0:19:52.280 for each container? That varies between the age of use 0:19:52.480 --> 0:19:57.520 and condition. It can range from two thousand to for 0:19:57.560 --> 0:19:59.600 a new one. Do you feel like when there are 0:19:59.720 --> 0:20:05.120 more containers on the market that represents something broader about 0:20:05.119 --> 0:20:06.800 the economy, Because I know people look at the shipping 0:20:06.800 --> 0:20:09.639 the dry bulk index for example, sort of you know, 0:20:09.800 --> 0:20:12.159 the harbinger of doom if it drops too much. And 0:20:12.200 --> 0:20:14.040 I'm just wondering, you know, if you shipping companies start 0:20:14.119 --> 0:20:16.639 to try to sell their containers, does that have a 0:20:16.680 --> 0:20:22.080 similar kind of residence. No, it's a good strategy for 0:20:22.119 --> 0:20:25.639 the shipping companies to monetize assets that have been depreciated, 0:20:26.000 --> 0:20:28.160 in other words, when they don't need them anymore. Yeah, well, 0:20:28.160 --> 0:20:31.240 when the value of the net income isn't as valuable 0:20:31.280 --> 0:20:34.120 to them, and they could sell the commodity and see 0:20:34.160 --> 0:20:36.639 it repurposed in the economy and get a strike price 0:20:36.720 --> 0:20:41.840 for that. From our perspective, the containers are building up 0:20:41.880 --> 0:20:46.680 on our side of the pond because we're not manufacturing 0:20:46.720 --> 0:20:49.879 what we need to. So at s G Blocks, we 0:20:49.960 --> 0:20:53.160 take that container, which is a symbol of our failed 0:20:53.200 --> 0:20:57.720 manufacturing sector, and we use that as a manufactured product 0:20:58.080 --> 0:21:01.439 and We use that for apartments and hotels and stores 0:21:01.480 --> 0:21:05.280 and offices. And at this time we're finishing up a 0:21:05.359 --> 0:21:08.840 school building in the heart of Los Angeles on Wilshire Boulevard, 0:21:09.119 --> 0:21:12.680 and we're working very hard to educate the investor base 0:21:13.240 --> 0:21:17.439 and the consuming base that construction doesn't have to be 0:21:17.760 --> 0:21:22.840 so slow and expensive. S G Blocks modular construction is 0:21:22.880 --> 0:21:25.080 a better way to build. Paul Galvin, thank you so 0:21:25.119 --> 0:21:26.840 much for being with us. Paul Galvin, Chairman and chief 0:21:26.880 --> 0:21:32.879 executive of SG Blocks talking about taking shipping containers and 0:21:32.920 --> 0:21:51.040 making them into buildings and the US has become a 0:21:51.200 --> 0:21:55.119 major player in global oil markets, but there is a 0:21:55.280 --> 0:21:59.439 problem for the nation in its pursuit of dominance in 0:21:59.480 --> 0:22:03.520 the crew industry, and that is the infrastructure. UH is, 0:22:03.840 --> 0:22:06.800 let's say, behind the times when it comes to shipping 0:22:06.840 --> 0:22:10.119 around moving around the oil within the United States. To 0:22:10.200 --> 0:22:13.240 join us and speak about this issue that's caused the 0:22:13.280 --> 0:22:15.720 gap between say Brent and w t I to gap 0:22:15.720 --> 0:22:18.640 out ten dollars or Brent in West Texas to eighteen 0:22:18.720 --> 0:22:23.080 dollars is Tyler Rosenlicht. He's Cod and Steers Senior vice 0:22:23.119 --> 0:22:26.639 president and portfolio manager of Midstream Energy that's focusing on 0:22:27.040 --> 0:22:31.120 MLPs and other energy portfolios as well as nick kotsoft Us. 0:22:31.240 --> 0:22:33.520 He is a senior vice president and portfolio manager of 0:22:33.560 --> 0:22:37.040 Commodities Trading, Commodity Futures, etcetera. Tyler, I want to start 0:22:37.080 --> 0:22:39.399 with you and just talk a little bit about the 0:22:39.440 --> 0:22:43.480 problem that has caused this divergence between the Brent price 0:22:43.520 --> 0:22:46.359 on one hand and w t I on the other. 0:22:46.520 --> 0:22:48.840 Why is this such a problem right now? Yeah, So, 0:22:48.880 --> 0:22:50.359 you know, one of the things that I think the 0:22:50.359 --> 0:22:53.000 market has been surprised by is how robust and quickly 0:22:53.040 --> 0:22:55.400 North American energy production has grown. And when you think 0:22:55.440 --> 0:22:58.680 about the disconnect between getting it to market, having pipelines 0:22:58.680 --> 0:23:00.840 and other infrastructure you need actually get it to where 0:23:00.840 --> 0:23:03.480 it needs to go, versus the production profile. You can 0:23:03.480 --> 0:23:05.880 have these periods in time where you know, maybe it's 0:23:05.880 --> 0:23:07.760 coming out of the ground at a really fast rate, 0:23:07.840 --> 0:23:10.080 but you can't actually fit it on a pipeline, so 0:23:10.119 --> 0:23:12.399 you need to move it by rail or by truck 0:23:12.480 --> 0:23:13.920 or by some other means. That's going to be a 0:23:13.960 --> 0:23:16.639 lot more expensive. So what we're seeing today, you know, 0:23:16.680 --> 0:23:19.240 particularly all the way out in West Texas, is a 0:23:19.280 --> 0:23:22.440 lot of energy production, but we don't have the pipeline 0:23:22.440 --> 0:23:25.080 infrastructure that you need to actually move it to Cushing 0:23:25.200 --> 0:23:27.240 or to the Gulf coast, and so what you see 0:23:27.359 --> 0:23:30.320 is truckers coming in and actually moving that oil by truck, 0:23:30.359 --> 0:23:33.880 and that's a much more expensive way to transport energy commodities. Um. 0:23:33.920 --> 0:23:35.920 You know, our view is it's gonna persist for a 0:23:35.960 --> 0:23:37.800 little while. You know, it takes a while for these 0:23:37.840 --> 0:23:41.119 new pipeline projects to actually be completed, and there's a 0:23:41.119 --> 0:23:43.240 few that we think will stage in sort of second 0:23:43.240 --> 0:23:46.480 half of nineteen early two thousand twenty, So expect to 0:23:46.480 --> 0:23:49.520 see these wide differentials for a while. But midstream businesses 0:23:49.560 --> 0:23:52.560 do have a good history of building infrastructure when these 0:23:52.560 --> 0:23:54.800 sort of arbitrage opportunities exist, and there's a lot of 0:23:54.840 --> 0:23:57.520 projects being worked on. You know, Nick, I'm struck by 0:23:57.520 --> 0:24:00.800 the concept that people are talking about building again in 0:24:00.840 --> 0:24:05.040