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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim

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Speaker 1: Fox along with my co host Lisa Bramowitz. Each day

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Speaker 1: we bring you the most important, noteworthy, and useful interviews

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Speaker 1: for you and your money, whether you're at the grocery

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Speaker 1: store or the trading floor. Find the Bloomberg p m

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Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.

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Speaker 1: Crude oil inventories fell by more than four million barrels

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Speaker 1: this according to the e i A. This took the

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Speaker 1: market by surprise. We're seeing oil reverse earlier declines and

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Speaker 1: surge on the heels of this, I want to bring

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Speaker 1: in Stephen Shork, president of the Short Group, coming to

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Speaker 1: us from Pennsylvania. Steve, and I'd love to get your

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Speaker 1: reaction first to this in light of some of the

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Speaker 1: concerns that there have been about whether or not OPEC

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Speaker 1: will agree to sort of reduce seeing some of the

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Speaker 1: some of the production caps that they've had on. Does

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Speaker 1: this come as a surprise to you the inventories fell. No, No,

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Speaker 1: it does not come as a surprise. And anyone who

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Speaker 1: seriously watches this market on a week week basis, uh

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Speaker 1: this should not come as a surprise to you. Uh,

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Speaker 1: the expectation cording of Bloomberg coming in today's report was

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Speaker 1: a build include all stocks of two point one million barrels. Uh.

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Speaker 1: That's just idiocy, Lisa, because some how you really feel

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Speaker 1: and not absolutely because I just it's just it sticks

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Speaker 1: in my craw that that people look at these weekly

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Speaker 1: numbers as if it's actually possible to gauge the inflow

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Speaker 1: outflow of something like oil and so many different variables

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Speaker 1: of it and so many different market airs, and if

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Speaker 1: you really think that you can call this market uh

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Speaker 1: plus minds on any given week. Din didn't go with

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Speaker 1: God all right, because it is absolutely impossible. So Lisa,

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Speaker 1: what you have to do is you have to look

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Speaker 1: at the statistics. You have to look at the seasonality.

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Speaker 1: Are the markets are inventors moving in the correct direction. So,

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Speaker 1: for instance, last week, inventories reportedly rose by two point

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Speaker 1: one million barrels. This week they reportedly fell by four

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Speaker 1: point one million barrels. Okay, so that's about two million,

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Speaker 1: I met two million barrel draw over the last two weeks.

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Speaker 1: You know what, at this time of the year, anything

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Speaker 1: in between a four point four million barrel draw to

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Speaker 1: a one point when one million barrel build is normal.

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Speaker 1: So what we're getting out of this leasas this is

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Speaker 1: a very normal report, same that goes with gasoline and

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Speaker 1: disilate inventories. So this should give no sort of bearing

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Speaker 1: on what OPEC might or might not do in the

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Speaker 1: weeks ahead. So I will let everybody who does want

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Speaker 1: to prognosticate on the barrel counts um go with God,

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Speaker 1: and I want to shift our pretention to the OPEC

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Speaker 1: meeting UM and just try to get a sense of

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Speaker 1: how this sort of factors into their views. Not necessarily

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Speaker 1: this reading, but just in general the backdrop for oil,

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Speaker 1: but is the i A also put out a report

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Speaker 1: earlier today saying that I ran in Venezuela oil output

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Speaker 1: could slump by nearly thirty percent. What are you expecting

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Speaker 1: from the meeting, the OPEC meeting, uh? And you know,

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Speaker 1: do you think that it will materially lower oil prices?

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Speaker 1: I don't know about materially lowering oil prices, because what

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Speaker 1: the issue that OPEC really has to contend with is

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Speaker 1: to your point, Venezuela, their their production has swollen, because

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Speaker 1: this is what socialism and inevitably gets you too. So

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Speaker 1: as that economy swirls down that socialist cess pool that

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Speaker 1: it is in right now. Yes, those barrels will continue

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Speaker 1: to be pulled off of the market, and that's the

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Speaker 1: concern for the other members of OPEC because crudal demand

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Speaker 1: has never been stronger. Guest line demand here in the

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Speaker 1: United States. I know everyone hears wringing their hands that

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Speaker 1: guestlne prices are high, high, high. Well you know, just

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Speaker 1: the for inflation, guestling prices are not high. Hence why

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Speaker 1: guest line demanding that it has never been stronger right now,

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Speaker 1: and they've never been stronger right now because the economy

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Speaker 1: leads commodity prices and the economy is strong. Well, well,

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Speaker 1: actually I'm the oil guy. I've got a plug in

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Speaker 1: uh electric hybrid. Absolutely, this is the wave of the future.

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Speaker 1: And this is something that old packet and that's a

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Speaker 1: great lead in Lisa, thank you. This is anything next

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Speaker 1: Old Peck has to take into consideration because so the

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Speaker 1: first time ever this is substitute in the market. So

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Speaker 1: there are two variables that changes consumer behaviors, a price

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Speaker 1: shocks and a substitute. We've never we've always had the

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Speaker 1: price shocks up and down. We never had the substitute.

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Speaker 1: I am getting fifty seven miles to the gallon in

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Speaker 1: an suv. So therefore, ten years ago I had to

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Speaker 1: fill up my guest doesn't su fifty seven times a year.

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Speaker 1: This time I have to fill up my suv maybe

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Speaker 1: eleven times a year. So that is a considerable drop

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Speaker 1: in demand. Now I get it, it's just an anecdote,

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Speaker 1: but look around. I used to live in Grandage, Connecticut.

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Speaker 1: What was the status car and Puttnam Avenue twenty years ago?

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Speaker 1: It was the hummer that car got three yards to

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Speaker 1: the gallon. Today the status car tooling up Grinnage Avenue

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Speaker 1: is the Tesla. So absolutely there is a change, and

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Speaker 1: this is something OPEC has to consider because they continue

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Speaker 1: to artificially drive prices higher. They're pushing people away from

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Speaker 1: their market into the elon musk market, and this is

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Speaker 1: something that you have to keep prices low enough that

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Speaker 1: you don't cannibalize your current market share, but high enough

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Speaker 1: where you can make a decent return. And right now,

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Speaker 1: oil in that sixty five dollar range is an optimal level.

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Speaker 1: So OPEC has to contend with keeping prices A lit

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Speaker 1: on prices right now seven just forty five seconds left

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Speaker 1: I'd love your take on President Trump tweeting that oil

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Speaker 1: prices are too high. OPEC is added again not good

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Speaker 1: this morning. Does OPEC care? We absolutely look at President

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Speaker 1: just that's justing Trudeau for crying out loud. Yes, they

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Speaker 1: should care what President tweet is tweeting out every single minute,

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Speaker 1: because what what's the what's the veil um A message here?

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Speaker 1: Hey guys, I'm the United States. I have over six

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Speaker 1: million barrels sit in the Strategic Petroleum Reserve, two hundred

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Speaker 1: million bars suite oil, which I don't really have a

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Speaker 1: lot of use for. So get get get, get, get

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Speaker 1: on board, or I'm gonna I'm gonna pull the plug

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Speaker 1: on the sp R and flood the market. That's the

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Speaker 1: message being set to Saudi, and the Saudis are hearing

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Speaker 1: loud and clear. Stephen Short, thank you so much for

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Speaker 1: being with me today. A really interesting Stephen Schork, president

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Speaker 1: of the Short Group, coming to us from Pennsylvania. The

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Speaker 1: labor market is getting tight. If you talk to a

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Speaker 1: lot of chief executives, they say it is hard to

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Speaker 1: hire qualified workers. Our next guest is one of the

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Speaker 1: fastest growing companies in day Moyne, Iowa, and we have

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Speaker 1: the chief executive officer here with us, Roger Hargins. Uh.

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Speaker 1: It is that the company is acum Old, and he

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Speaker 1: joins us here in our eleven three oh studios. Thank

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Speaker 1: you so much for being here. Roger. You've hired a

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Speaker 1: tremendous number of people eighty four percent staff increase from

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Speaker 1: fourteen through two thousand and seventeen. Has it been difficult

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Speaker 1: to find qualified employees? Finding the right employees is always

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Speaker 1: a challenge, but we've We've been very fortunate because we

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Speaker 1: have a good brand in our marketplace, we have a

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Speaker 1: good culture, and we have good referrals from existing employees.

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Speaker 1: But we decided to start our own program years ago,

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Speaker 1: twelve years ago with the De Moin Area Community College

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Speaker 1: with the acum Old Scholarship Program. We determined at that

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Speaker 1: time that what we were going to have to do

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Speaker 1: was grow our own so to speak, kids coming around

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Speaker 1: of high school that wanted to go to college to

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Speaker 1: get a degree and to one I making or robotics

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Speaker 1: and automation. We started sponsoring that and funding the tuition

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Speaker 1: for that, and it's been a very successful program. So

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Speaker 1: can you give us a sense of what acum old

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Speaker 1: does and Uh? And it sort of goes against the

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Speaker 1: grain that it's a manufacturing company in the US, it

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Speaker 1: has not been exported. What does it do. Yeah, we're

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Speaker 1: a high tech manufacturer of thermoplastic injection molding micro sized

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Speaker 1: components for the medical device, microelectronics, and micro optics industry primarily,

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Speaker 1: and we design and build our own tooling to produce

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Speaker 1: customers specific components, usually critical components that make their assemblies work,

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Speaker 1: and we ship all over the world. We shipp the

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Speaker 1: twenty three countries. We've been a net exporter almost for

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Speaker 1: fifteen sixteen years. Okay, So, as a manufacturer in the US,

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Speaker 1: have you been tempted to move any of your operations

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Speaker 1: overseas due to a cheaper workforce or more potential employees.

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Speaker 1: That's that's a great question. We get asked that a lot. Uh.

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Speaker 1: The answers. No. The thing that we have found is, uh,

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Speaker 1: the I he for our customers is very important. Their

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Speaker 1: critical component designs are very important. We made it intellectual

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Speaker 1: property and they made We made a decisions stay in

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Speaker 1: the US. Were very competitive, We're highly innovative, and we've

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Speaker 1: been able to attract the right kind of employee that

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Speaker 1: we want for the longer term. That helps solve the

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Speaker 1: problems for producing components for our customers. So when you

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Speaker 1: said that you're you're helping to finance the education of

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Speaker 1: specific individuals who you think will be good employees. What

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Speaker 1: is sort of the most important thing skill UH for

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Speaker 1: your prospective employees to to learn in a college type setting.

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Speaker 1: They need to really start grasping what the technical challenges

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Speaker 1: on micro sized parts are from designing, of tooling and automation.

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Speaker 1: They need to understand where a culture of problem solving,

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Speaker 1: and they need to really understand that they can work

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Speaker 1: well in teams. We take a team approach internally as

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Speaker 1: we solve problems for our customers. UM. One thing that

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Speaker 1: I'm wondering, you said that you're an exporter, a pretty

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Speaker 1: big exporter. Are you concerned or have you been affected

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Speaker 1: at all by some of the tariff discussions or uh

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Speaker 1: tensor trade discussions We have not. Are you concerned about that? UM?

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Speaker 1: We're always concerned about any trade barriers that are out there.

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Speaker 1: We have not seen that have and I don't believe

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Speaker 1: we'll have any really any big effect on our type

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Speaker 1: components that we produce. Given the fact that people are

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Speaker 1: talking about the tight labor market. UM. Have you found

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Speaker 1: that you've had to increase salaries more than you had

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Speaker 1: previously in order to attract talent. Yes, you know, it's

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Speaker 1: like the market conditions. We want to continually attract the

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Speaker 1: best and brightest. So absolutely pay has to go up somewhat.

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Speaker 1: How much has it gone up in the past few years? Uh?

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Speaker 1: And certain skilled trades that's gone up more than others.

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Speaker 1: Certain things whether you're robotics, automation person or a tool

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Speaker 1: eye person, it's it's gone up faster than maybe somebody

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Speaker 1: with out those skills that's doing regular production. So can

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Speaker 1: you just explain what if you go into one of

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Speaker 1: the plants, what will you see? What you'll see at

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Speaker 1: acum Old is uh. First off, we have a team

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Speaker 1: working together to design tools, to build products, to build

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Speaker 1: the tools and automation, and then run the products and

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Speaker 1: validate them in our plant. What you'll be able to

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Speaker 1: see as a teamwork of people, we have lots of

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Speaker 1: areas that are proprietary, that are off limits that only

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Speaker 1: our employees and certain employees can be in those particular

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Speaker 1: areas to produce these critical components for our customers. So

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Speaker 1: their components, Uh, I mean just trying to even wrap

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Speaker 1: my head around some of these nearly microscopic parts that

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Speaker 1: determine whether or not your phone, whether or not the

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Speaker 1: you know, surgical arm that goes in and does the

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Speaker 1: laparoscopic surgery, whatever it is. Uh, these crucial parts that

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Speaker 1: the design of them is make it or break it?

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Speaker 1: Is that right? I mean? Am I understanding that's right?

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Speaker 1: The customer typically will design what they want. We work

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Speaker 1: with them and help them make sure the design is

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Speaker 1: ready for manufacturing. So there's always a compromise making sure

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Speaker 1: that it works well in a production environment for us

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Speaker 1: to produce at a at a rate that makes sense

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Speaker 1: for them. So we then produced the parts and ship

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Speaker 1: them to our customers all over the world for assembly

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Speaker 1: until it can be meta device. It can be, uh,

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Speaker 1: life sciences, it can be and like in blood glucose

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Speaker 1: monitoring or different things that that's a big area eye surgery.

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Speaker 1: We're big into surgical components for the eyes. Okay. So

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Speaker 1: we've been talking a lot by about smaller private businesses

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Speaker 1: and how business confidence has been surging. Do you feel

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Speaker 1: that as well? Yes, very much. So. We see the

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Speaker 1: competitiveness today, uh, and we've been competitive over the years,

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Speaker 1: but today it's even more so because through innovation and automation,

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Speaker 1: we've been able to remain very competitive the world stage.

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Speaker 1: Is the reason we're shipping to other countries on a

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Speaker 1: regular basis. Are there competitors in the US or there's

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Speaker 1: a few smaller ones, yes, mom and pop type chops. Okay, so, uh,

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Speaker 1: you know, some people talk about how there seems to

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Speaker 1: be a bifurcation in the economy where wealthier individuals are

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Speaker 1: making more money and then there's a whole host of

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Speaker 1: people left out. Do you see that or do you

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Speaker 1: not see that? And we don't. We don't really see that.

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Speaker 1: We will see anybody that truly wants to work and

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Speaker 1: learn can get a job. Iowa has, as you know,

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Speaker 1: one of the lowest unemployment rates at two point nine percent.

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Speaker 1: I think is where we're at today. So we're working

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Speaker 1: number one to keep every employee, to grow their skill

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Speaker 1: set and attract new ones. Do you think that, Uh,

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Speaker 1: kids require a four year education in college in certain

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Speaker 1: areas if that's what they want to go into. Yes,

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Speaker 1: we don't require. What we're looking for is people that

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Speaker 1: have those skill sets of really wanting to work in manufacturer,

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Speaker 1: whether it's production or if they want to go into

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Speaker 1: tool and I robotics and automation. Those two year degree

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Speaker 1: is is a very good, very good start for us.

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Speaker 1: And you certainly also are financing the accum Old Scholarship

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Speaker 1: program um which is really interesting, basically paying college tuition

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Speaker 1: uh and a part time paid job to scholars who

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Speaker 1: then graduate and begin a full time position at the company.

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Speaker 1: Roger Hargins, thank you so much for being here. Really interesting.

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Speaker 1: Roger Hargins is chief executive officer of acum Old, which

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Speaker 1: is based in Des Moines, Iowa. It is actually one

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Speaker 1: of the largest and fastest growing companies in Des Moines.

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Speaker 1: Uh so really interesting. Well, the NASDAC in particular keeps

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Speaker 1: climbing to new highs every day, which leaves investors with

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Speaker 1: a big question does it have more room to run

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Speaker 1: or is this sort of the peak of the cycle.

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Speaker 1: Joining me now is Jim Key. He is president in

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Speaker 1: chief economist for South Texas Money Management, which oversees about

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Speaker 1: three point three billion dollars and is based in San Antonio, Texas.

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Speaker 1: But he joins me here in our eleven three oh studios. Jim,

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Speaker 1: thank you so much for being here. Let's just start

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Speaker 1: with those tech stocks, because that's been a big question

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Speaker 1: mark for a lot of people. Is this time to

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Speaker 1: take some profits, sell the facebooks, the apples, etcetera that

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Speaker 1: are at record highs and invest in something else. Well,

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Speaker 1: I think you should always control your sector exposure, and

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Speaker 1: that's something we do at South Texas Money Management. But

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Speaker 1: within that, business investment spending is one of the things

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Speaker 1: driving technology. And when you have the interaction at tax

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Speaker 1: cuts and deregulation which we've had this year, a lot

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Speaker 1: of the business investment spending takes the way of information technology.

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Speaker 1: So um, I think it probably has room to run,

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Speaker 1: but I would watch, I would watch my exposure to

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Speaker 1: tech in general, tanny sector in general. Okay, So I

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Speaker 1: was looking it's some of your ideas for what you liked,

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Speaker 1: and I found them interesting. There was some contrarian place

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Speaker 1: here Ford. I want to start there because Ford has

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Speaker 1: been a real underperformer and there are a lot of

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Speaker 1: question marks about that company. Why are you bullish on them?

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Speaker 1: It is it's what we call an ugly baby, and

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Speaker 1: you know and we own value stocks and gross it

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Speaker 1: is that's a genie y at our CEO original but uh,

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Speaker 1: the value growth differential, as you probably know, it's kind

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Speaker 1: of at an all time high. It's it's hit there

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Speaker 1: a few times before, and usually that gap closes with

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Speaker 1: growth underperforming. So it's a good time to look at

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Speaker 1: value and forward. You know, they've they're behind their peers

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Speaker 1: and operating. They've they've been behind in the electric vehicle

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Speaker 1: UH initiatives, and they've had a change a churning. They've

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Speaker 1: they've got a new CEO, they've got a team Edison

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Speaker 1: for the electric initiative. They're obsessed with costs UH and

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Speaker 1: they're contracting assets and focusing on our O I s.

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Speaker 1: That's just what a value stock should do. Nothing's priced in,

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Speaker 1: and the dividend yields pretty high, about five percent, So

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Speaker 1: it's a it's a good ugly baby value stock for US.

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Speaker 1: Ugly baby. I hope that I I mean, I guess

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Speaker 1: that you kind of want to be an ugly baby

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Speaker 1: at this market, but I don't know that I would

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Speaker 1: really want that Delta shares down more than one percent.

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Speaker 1: You like this, you like this company we do. This

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Speaker 1: is a business investment. You know, at any firm this

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Speaker 1: one included, I'm sure you know when business slows, it's

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Speaker 1: you know, pull in travel and don't use the color copier.

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Speaker 1: But I think we're seeing the opposite. Business optimism is high. Uh,

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Speaker 1: Delta has more exposure to business class travel than a

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Speaker 1: lot of its piers. It's a best in class operator.

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Speaker 1: It's it's CEO Ed Bastions, you know, definitely played a

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Speaker 1: win guy. So yeah, we like Delta a lot. So

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Speaker 1: one thing that I'm struck by is how do you

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Speaker 1: bet on an airline company when their profits hinge so

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Speaker 1: directly on the price of oil, which we have learned

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Speaker 1: time and again is incredibly fickle in subject to all

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Speaker 1: sorts of forces. You it's very difficult to predict. It

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Speaker 1: is airlines. You know, Delta itself has its own refinery business,

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Speaker 1: so sensibly that leads it a little less exp it shares. Absolutely,

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Speaker 1: they plunge in tandem with all the other airlines whenever

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Speaker 1: oil prices go up. So here's the difference, I think,

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Speaker 1: and I agree with you. In general, it's a tough business.

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Speaker 1: But airlines are earning return on investment above the costs

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Speaker 1: of capital. Some of them, like Delta, have been ratcheting

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Speaker 1: up every year, so they're about double what they were

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Speaker 1: through there in their longer term pass they used to

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Speaker 1: be cost of capital businesses and they and they haven't

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Speaker 1: been in the last five or six years, and that's

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Speaker 1: with high and low oil prices. All right, So let's

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Speaker 1: move on to some of your other stock picks. Raytheon

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Speaker 1: this one's interesting to me, uh, for a lot of reasons.

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Speaker 1: Why do you like this one? Well, you know, I'm

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Speaker 1: glad to see the North Korea talks, but I don't

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Speaker 1: think we're heading into a peace dividend era anytime soon.

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Speaker 1: So airspace defense, you know, hold on a second, Were

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Speaker 1: you hoping for some kind of military conflict so that

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Speaker 1: your shares rise? No, it's more of a military spending

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Speaker 1: and this was something prior to the election. Whether you

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Speaker 1: like both Clinton and Trump both we're likely to spend

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Speaker 1: more on on defense than than the previous administration. So

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Speaker 1: I think missiles and missile defense is still a pretty

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Speaker 1: good business going forward in this world. And that's what

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Speaker 1: Rayeon desk, and it's less expensive than some of them. Right. Okay,

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Speaker 1: So just on a general basis, do you sort of

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Speaker 1: buy into our play into any of these trades when

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Speaker 1: people start to worry about trade tensions and then they

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Speaker 1: sell certain shares, do you do that at all? Well? We, uh,

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Speaker 1: we don't. We haven't yet. Trade tensions, though, I think

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Speaker 1: are starting to affect x US growth. I think a

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Speaker 1: lot of cross business plans and spending are kind of sideline.

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Speaker 1: A lot of people are kind of taking a weight

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Speaker 1: and see attitude. So and I think that's showing up

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Speaker 1: in some of the global the global growth pause that

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Speaker 1: we've seen. So it is important. Um, but yeah, we

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Speaker 1: you know trade effect. We have exposure to most asset

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Speaker 1: classes all the time. So in this case, it's hurts

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Speaker 1: some of the global multinationals with Laddie International sales, but

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Speaker 1: it's helped some of the small gaps and we have

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Speaker 1: exposure to both. Just real quick, are you holding more cash?

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Speaker 1: We are not. We always try to stay fully invested

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Speaker 1: to our target. Uh. Markets aren't cheap right now, but

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Speaker 1: they're not outside of a normal range of valuation. Evaluation

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Speaker 1: tells you very little about what returns to expect over

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Speaker 1: the next twelve months. It tells you a lot about

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Speaker 1: what to expect over maybe the next ten years or so.

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Speaker 1: Jim Key, thank you so much for being here. Really fun.

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Speaker 1: Thank you. Jim Key, President, chief economist at South Texas

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Speaker 1: Money Management, based in Santonio, San Antonio, Texas. But here

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Speaker 1: in our eleven three studios with us really interesting to

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Speaker 1: hear the bull case for Ford and for Delta. Thank

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Speaker 1: you so much. Thanks for listening to the Bloomberg P

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Speaker 1: and L podcast. You can subscribe and listen to interviews

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Speaker 1: that app, podcasts, SoundCloud or whatever podcast platform you prefer.

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Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm

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Speaker 1: on Twitter at Lisa abramowits one before the podcast. You

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Speaker 1: can always catch us worldwide on Bloomberg Radio