WEBVTT - Oil reports are very Normal : Stephen Schork

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<v Speaker 1>Welcome to the Bloomberg p m L Podcast. I'm pim

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<v Speaker 1>Fox along with my co host Lisa Bramowitz. Each day

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<v Speaker 1>we bring you the most important, noteworthy, and useful interviews

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<v Speaker 1>for you and your money, whether you're at the grocery

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<v Speaker 1>store or the trading floor. Find the Bloomberg p m

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<v Speaker 1>L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.

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<v Speaker 1>Crude oil inventories fell by more than four million barrels

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<v Speaker 1>this according to the e i A. This took the

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<v Speaker 1>market by surprise. We're seeing oil reverse earlier declines and

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<v Speaker 1>surge on the heels of this, I want to bring

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<v Speaker 1>in Stephen Shork, president of the Short Group, coming to

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

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<v Speaker 1>reaction first to this in light of some of the

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<v Speaker 1>concerns that there have been about whether or not OPEC

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<v Speaker 1>will agree to sort of reduce seeing some of the

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<v Speaker 1>some of the production caps that they've had on. Does

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<v Speaker 1>this come as a surprise to you the inventories fell. No, No,

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<v Speaker 1>it does not come as a surprise. And anyone who

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<v Speaker 1>seriously watches this market on a week week basis, uh

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<v Speaker 1>this should not come as a surprise to you. Uh,

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<v Speaker 1>the expectation cording of Bloomberg coming in today's report was

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<v Speaker 1>a build include all stocks of two point one million barrels. Uh.

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<v Speaker 1>That's just idiocy, Lisa, because some how you really feel

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<v Speaker 1>and not absolutely because I just it's just it sticks

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<v Speaker 1>in my craw that that people look at these weekly

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<v Speaker 1>numbers as if it's actually possible to gauge the inflow

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<v Speaker 1>outflow of something like oil and so many different variables

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<v Speaker 1>of it and so many different market airs, and if

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<v Speaker 1>you really think that you can call this market uh

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<v Speaker 1>plus minds on any given week. Din didn't go with

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<v Speaker 1>God all right, because it is absolutely impossible. So Lisa,

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<v Speaker 1>what you have to do is you have to look

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<v Speaker 1>at the statistics. You have to look at the seasonality.

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<v Speaker 1>Are the markets are inventors moving in the correct direction. So,

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<v Speaker 1>for instance, last week, inventories reportedly rose by two point

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<v Speaker 1>one million barrels. This week they reportedly fell by four

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<v Speaker 1>point one million barrels. Okay, so that's about two million,

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<v Speaker 1>I met two million barrel draw over the last two weeks.

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<v Speaker 1>You know what, at this time of the year, anything

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<v Speaker 1>in between a four point four million barrel draw to

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<v Speaker 1>a one point when one million barrel build is normal.

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<v Speaker 1>So what we're getting out of this leasas this is

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<v Speaker 1>a very normal report, same that goes with gasoline and

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<v Speaker 1>disilate inventories. So this should give no sort of bearing

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<v Speaker 1>on what OPEC might or might not do in the

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<v Speaker 1>weeks ahead. So I will let everybody who does want

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<v Speaker 1>to prognosticate on the barrel counts um go with God,

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<v Speaker 1>and I want to shift our pretention to the OPEC

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<v Speaker 1>meeting UM and just try to get a sense of

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<v Speaker 1>how this sort of factors into their views. Not necessarily

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<v Speaker 1>this reading, but just in general the backdrop for oil,

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<v Speaker 1>but is the i A also put out a report

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<v Speaker 1>earlier today saying that I ran in Venezuela oil output

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<v Speaker 1>could slump by nearly thirty percent. What are you expecting

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<v Speaker 1>from the meeting, the OPEC meeting, uh? And you know,

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<v Speaker 1>do you think that it will materially lower oil prices?

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<v Speaker 1>I don't know about materially lowering oil prices, because what

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<v Speaker 1>the issue that OPEC really has to contend with is

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<v Speaker 1>to your point, Venezuela, their their production has swollen, because

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<v Speaker 1>this is what socialism and inevitably gets you too. So

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<v Speaker 1>as that economy swirls down that socialist cess pool that

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<v Speaker 1>it is in right now. Yes, those barrels will continue

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<v Speaker 1>to be pulled off of the market, and that's the

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<v Speaker 1>concern for the other members of OPEC because crudal demand

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<v Speaker 1>has never been stronger. Guest line demand here in the

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<v Speaker 1>United States. I know everyone hears wringing their hands that

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<v Speaker 1>guestlne prices are high, high, high. Well you know, just

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<v Speaker 1>the for inflation, guestling prices are not high. Hence why

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<v Speaker 1>guest line demanding that it has never been stronger right now,

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<v Speaker 1>and they've never been stronger right now because the economy

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<v Speaker 1>leads commodity prices and the economy is strong. Well, well,

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<v Speaker 1>actually I'm the oil guy. I've got a plug in

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<v Speaker 1>uh electric hybrid. Absolutely, this is the wave of the future.

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<v Speaker 1>And this is something that old packet and that's a

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<v Speaker 1>great lead in Lisa, thank you. This is anything next

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<v Speaker 1>Old Peck has to take into consideration because so the

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<v Speaker 1>first time ever this is substitute in the market. So

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<v Speaker 1>there are two variables that changes consumer behaviors, a price

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<v Speaker 1>shocks and a substitute. We've never we've always had the

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<v Speaker 1>price shocks up and down. We never had the substitute.

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<v Speaker 1>I am getting fifty seven miles to the gallon in

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<v Speaker 1>an suv. So therefore, ten years ago I had to

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

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<v Speaker 1>This time I have to fill up my suv maybe

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<v Speaker 1>eleven times a year. So that is a considerable drop

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<v Speaker 1>in demand. Now I get it, it's just an anecdote,

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<v Speaker 1>but look around. I used to live in Grandage, Connecticut.

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<v Speaker 1>What was the status car and Puttnam Avenue twenty years ago?

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<v Speaker 1>It was the hummer that car got three yards to

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<v Speaker 1>the gallon. Today the status car tooling up Grinnage Avenue

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<v Speaker 1>is the Tesla. So absolutely there is a change, and

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<v Speaker 1>this is something OPEC has to consider because they continue

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<v Speaker 1>to artificially drive prices higher. They're pushing people away from

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<v Speaker 1>their market into the elon musk market, and this is

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<v Speaker 1>something that you have to keep prices low enough that

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<v Speaker 1>you don't cannibalize your current market share, but high enough

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<v Speaker 1>where you can make a decent return. And right now,

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<v Speaker 1>oil in that sixty five dollar range is an optimal level.

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<v Speaker 1>So OPEC has to contend with keeping prices A lit

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<v Speaker 1>on prices right now seven just forty five seconds left

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<v Speaker 1>I'd love your take on President Trump tweeting that oil

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<v Speaker 1>prices are too high. OPEC is added again not good

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<v Speaker 1>this morning. Does OPEC care? We absolutely look at President

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

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<v Speaker 1>should care what President tweet is tweeting out every single minute,

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<v Speaker 1>because what what's the what's the veil um A message here?

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<v Speaker 1>Hey guys, I'm the United States. I have over six

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<v Speaker 1>million barrels sit in the Strategic Petroleum Reserve, two hundred

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<v Speaker 1>million bars suite oil, which I don't really have a

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<v Speaker 1>lot of use for. So get get get, get, get

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<v Speaker 1>on board, or I'm gonna I'm gonna pull the plug

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<v Speaker 1>on the sp R and flood the market. That's the

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<v Speaker 1>message being set to Saudi, and the Saudis are hearing

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<v Speaker 1>loud and clear. Stephen Short, thank you so much for

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<v Speaker 1>being with me today. A really interesting Stephen Schork, president

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<v Speaker 1>of the Short Group, coming to us from Pennsylvania. The

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<v Speaker 1>labor market is getting tight. If you talk to a

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<v Speaker 1>lot of chief executives, they say it is hard to

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<v Speaker 1>hire qualified workers. Our next guest is one of the

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<v Speaker 1>fastest growing companies in day Moyne, Iowa, and we have

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<v Speaker 1>the chief executive officer here with us, Roger Hargins. Uh.

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<v Speaker 1>It is that the company is acum Old, and he

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<v Speaker 1>joins us here in our eleven three oh studios. Thank

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<v Speaker 1>you so much for being here. Roger. You've hired a

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<v Speaker 1>tremendous number of people eighty four percent staff increase from

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<v Speaker 1>fourteen through two thousand and seventeen. Has it been difficult

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<v Speaker 1>to find qualified employees? Finding the right employees is always

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<v Speaker 1>a challenge, but we've We've been very fortunate because we

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<v Speaker 1>have a good brand in our marketplace, we have a

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<v Speaker 1>good culture, and we have good referrals from existing employees.

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<v Speaker 1>But we decided to start our own program years ago,

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<v Speaker 1>twelve years ago with the De Moin Area Community College

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<v Speaker 1>with the acum Old Scholarship Program. We determined at that

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<v Speaker 1>time that what we were going to have to do

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<v Speaker 1>was grow our own so to speak, kids coming around

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<v Speaker 1>of high school that wanted to go to college to

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<v Speaker 1>get a degree and to one I making or robotics

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<v Speaker 1>and automation. We started sponsoring that and funding the tuition

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

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<v Speaker 1>can you give us a sense of what acum old

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<v Speaker 1>does and Uh? And it sort of goes against the

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<v Speaker 1>grain that it's a manufacturing company in the US, it

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

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<v Speaker 1>a high tech manufacturer of thermoplastic injection molding micro sized

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<v Speaker 1>components for the medical device, microelectronics, and micro optics industry primarily,

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<v Speaker 1>and we design and build our own tooling to produce

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<v Speaker 1>customers specific components, usually critical components that make their assemblies work,

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<v Speaker 1>and we ship all over the world. We shipp the

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<v Speaker 1>twenty three countries. We've been a net exporter almost for

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<v Speaker 1>fifteen sixteen years. Okay, So, as a manufacturer in the US,

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<v Speaker 1>have you been tempted to move any of your operations

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<v Speaker 1>overseas due to a cheaper workforce or more potential employees.

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<v Speaker 1>That's that's a great question. We get asked that a lot. Uh.

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<v Speaker 1>The answers. No. The thing that we have found is, uh,

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<v Speaker 1>the I he for our customers is very important. Their

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<v Speaker 1>critical component designs are very important. We made it intellectual

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<v Speaker 1>property and they made We made a decisions stay in

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

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<v Speaker 1>been able to attract the right kind of employee that

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<v Speaker 1>we want for the longer term. That helps solve the

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<v Speaker 1>problems for producing components for our customers. So when you

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<v Speaker 1>said that you're you're helping to finance the education of

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<v Speaker 1>specific individuals who you think will be good employees. What

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<v Speaker 1>is sort of the most important thing skill UH for

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<v Speaker 1>your prospective employees to to learn in a college type setting.

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<v Speaker 1>They need to really start grasping what the technical challenges

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<v Speaker 1>on micro sized parts are from designing, of tooling and automation.

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<v Speaker 1>They need to understand where a culture of problem solving,

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<v Speaker 1>and they need to really understand that they can work

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<v Speaker 1>well in teams. We take a team approach internally as

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<v Speaker 1>we solve problems for our customers. UM. One thing that

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<v Speaker 1>I'm wondering, you said that you're an exporter, a pretty

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<v Speaker 1>big exporter. Are you concerned or have you been affected

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<v Speaker 1>at all by some of the tariff discussions or uh

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

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

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<v Speaker 1>We have not seen that have and I don't believe

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<v Speaker 1>we'll have any really any big effect on our type

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<v Speaker 1>components that we produce. Given the fact that people are

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<v Speaker 1>talking about the tight labor market. UM. Have you found

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<v Speaker 1>that you've had to increase salaries more than you had

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

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<v Speaker 1>like the market conditions. We want to continually attract the

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<v Speaker 1>best and brightest. So absolutely pay has to go up somewhat.

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<v Speaker 1>How much has it gone up in the past few years? Uh?

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<v Speaker 1>And certain skilled trades that's gone up more than others.

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<v Speaker 1>Certain things whether you're robotics, automation person or a tool

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<v Speaker 1>eye person, it's it's gone up faster than maybe somebody

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<v Speaker 1>with out those skills that's doing regular production. So can

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<v Speaker 1>you just explain what if you go into one of

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<v Speaker 1>the plants, what will you see? What you'll see at

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<v Speaker 1>acum Old is uh. First off, we have a team

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<v Speaker 1>working together to design tools, to build products, to build

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<v Speaker 1>the tools and automation, and then run the products and

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<v Speaker 1>validate them in our plant. What you'll be able to

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<v Speaker 1>see as a teamwork of people, we have lots of

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<v Speaker 1>areas that are proprietary, that are off limits that only

0:11:32.040 --> 0:11:35.280
<v Speaker 1>our employees and certain employees can be in those particular

0:11:35.320 --> 0:11:39.920
<v Speaker 1>areas to produce these critical components for our customers. So

0:11:39.960 --> 0:11:42.800
<v Speaker 1>their components, Uh, I mean just trying to even wrap

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<v Speaker 1>my head around some of these nearly microscopic parts that

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<v Speaker 1>determine whether or not your phone, whether or not the

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<v Speaker 1>you know, surgical arm that goes in and does the

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<v Speaker 1>laparoscopic surgery, whatever it is. Uh, these crucial parts that

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<v Speaker 1>the design of them is make it or break it?

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<v Speaker 1>Is that right? I mean? Am I understanding that's right?

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<v Speaker 1>The customer typically will design what they want. We work

0:12:07.640 --> 0:12:09.719
<v Speaker 1>with them and help them make sure the design is

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<v Speaker 1>ready for manufacturing. So there's always a compromise making sure

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<v Speaker 1>that it works well in a production environment for us

0:12:15.800 --> 0:12:18.679
<v Speaker 1>to produce at a at a rate that makes sense

0:12:18.720 --> 0:12:22.040
<v Speaker 1>for them. So we then produced the parts and ship

0:12:22.080 --> 0:12:24.319
<v Speaker 1>them to our customers all over the world for assembly

0:12:24.559 --> 0:12:27.400
<v Speaker 1>until it can be meta device. It can be, uh,

0:12:27.720 --> 0:12:30.600
<v Speaker 1>life sciences, it can be and like in blood glucose

0:12:30.679 --> 0:12:33.960
<v Speaker 1>monitoring or different things that that's a big area eye surgery.

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<v Speaker 1>We're big into surgical components for the eyes. Okay. So

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<v Speaker 1>we've been talking a lot by about smaller private businesses

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<v Speaker 1>and how business confidence has been surging. Do you feel

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<v Speaker 1>that as well? Yes, very much. So. We see the

0:12:49.520 --> 0:12:53.600
<v Speaker 1>competitiveness today, uh, and we've been competitive over the years,

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

0:12:58.000 --> 0:13:00.880
<v Speaker 1>we've been able to remain very competitive the world stage.

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<v Speaker 1>Is the reason we're shipping to other countries on a

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<v Speaker 1>regular basis. Are there competitors in the US or there's

0:13:06.520 --> 0:13:11.080
<v Speaker 1>a few smaller ones, yes, mom and pop type chops. Okay, so, uh,

0:13:11.320 --> 0:13:14.000
<v Speaker 1>you know, some people talk about how there seems to

0:13:14.000 --> 0:13:18.160
<v Speaker 1>be a bifurcation in the economy where wealthier individuals are

0:13:18.400 --> 0:13:20.800
<v Speaker 1>making more money and then there's a whole host of

0:13:20.840 --> 0:13:23.240
<v Speaker 1>people left out. Do you see that or do you

0:13:23.240 --> 0:13:25.120
<v Speaker 1>not see that? And we don't. We don't really see that.

0:13:25.240 --> 0:13:27.280
<v Speaker 1>We will see anybody that truly wants to work and

0:13:27.360 --> 0:13:29.960
<v Speaker 1>learn can get a job. Iowa has, as you know,

0:13:30.040 --> 0:13:33.360
<v Speaker 1>one of the lowest unemployment rates at two point nine percent.

0:13:33.480 --> 0:13:35.640
<v Speaker 1>I think is where we're at today. So we're working

0:13:35.800 --> 0:13:38.400
<v Speaker 1>number one to keep every employee, to grow their skill

0:13:38.440 --> 0:13:41.040
<v Speaker 1>set and attract new ones. Do you think that, Uh,

0:13:41.760 --> 0:13:45.520
<v Speaker 1>kids require a four year education in college in certain

0:13:45.559 --> 0:13:47.520
<v Speaker 1>areas if that's what they want to go into. Yes,

0:13:47.640 --> 0:13:50.600
<v Speaker 1>we don't require. What we're looking for is people that

0:13:50.720 --> 0:13:53.880
<v Speaker 1>have those skill sets of really wanting to work in manufacturer,

0:13:53.880 --> 0:13:56.120
<v Speaker 1>whether it's production or if they want to go into

0:13:56.160 --> 0:13:59.840
<v Speaker 1>tool and I robotics and automation. Those two year degree

0:14:00.160 --> 0:14:03.360
<v Speaker 1>is is a very good, very good start for us.

0:14:03.720 --> 0:14:07.840
<v Speaker 1>And you certainly also are financing the accum Old Scholarship

0:14:07.920 --> 0:14:12.080
<v Speaker 1>program um which is really interesting, basically paying college tuition

0:14:12.640 --> 0:14:16.400
<v Speaker 1>uh and a part time paid job to scholars who

0:14:16.440 --> 0:14:19.840
<v Speaker 1>then graduate and begin a full time position at the company.

0:14:20.080 --> 0:14:22.600
<v Speaker 1>Roger Hargins, thank you so much for being here. Really interesting.

0:14:23.000 --> 0:14:26.120
<v Speaker 1>Roger Hargins is chief executive officer of acum Old, which

0:14:26.160 --> 0:14:28.800
<v Speaker 1>is based in Des Moines, Iowa. It is actually one

0:14:28.800 --> 0:14:32.680
<v Speaker 1>of the largest and fastest growing companies in Des Moines.

0:14:33.040 --> 0:14:50.280
<v Speaker 1>Uh so really interesting. Well, the NASDAC in particular keeps

0:14:50.400 --> 0:14:54.440
<v Speaker 1>climbing to new highs every day, which leaves investors with

0:14:54.560 --> 0:14:57.720
<v Speaker 1>a big question does it have more room to run

0:14:58.360 --> 0:15:01.480
<v Speaker 1>or is this sort of the peak of the cycle.

0:15:01.600 --> 0:15:04.520
<v Speaker 1>Joining me now is Jim Key. He is president in

0:15:04.560 --> 0:15:09.320
<v Speaker 1>chief economist for South Texas Money Management, which oversees about

0:15:09.320 --> 0:15:13.440
<v Speaker 1>three point three billion dollars and is based in San Antonio, Texas.

0:15:13.480 --> 0:15:16.400
<v Speaker 1>But he joins me here in our eleven three oh studios. Jim,

0:15:16.440 --> 0:15:19.200
<v Speaker 1>thank you so much for being here. Let's just start

0:15:19.240 --> 0:15:21.760
<v Speaker 1>with those tech stocks, because that's been a big question

0:15:21.840 --> 0:15:24.640
<v Speaker 1>mark for a lot of people. Is this time to

0:15:24.720 --> 0:15:28.600
<v Speaker 1>take some profits, sell the facebooks, the apples, etcetera that

0:15:28.640 --> 0:15:31.880
<v Speaker 1>are at record highs and invest in something else. Well,

0:15:31.960 --> 0:15:34.800
<v Speaker 1>I think you should always control your sector exposure, and

0:15:34.840 --> 0:15:37.320
<v Speaker 1>that's something we do at South Texas Money Management. But

0:15:37.640 --> 0:15:41.840
<v Speaker 1>within that, business investment spending is one of the things

0:15:41.920 --> 0:15:44.640
<v Speaker 1>driving technology. And when you have the interaction at tax

0:15:44.720 --> 0:15:48.600
<v Speaker 1>cuts and deregulation which we've had this year, a lot

0:15:48.640 --> 0:15:51.920
<v Speaker 1>of the business investment spending takes the way of information technology.

0:15:52.000 --> 0:15:54.120
<v Speaker 1>So um, I think it probably has room to run,

0:15:54.160 --> 0:15:57.000
<v Speaker 1>but I would watch, I would watch my exposure to

0:15:57.040 --> 0:15:59.600
<v Speaker 1>tech in general, tanny sector in general. Okay, So I

0:15:59.600 --> 0:16:03.000
<v Speaker 1>was looking it's some of your ideas for what you liked,

0:16:03.920 --> 0:16:06.480
<v Speaker 1>and I found them interesting. There was some contrarian place

0:16:06.560 --> 0:16:09.280
<v Speaker 1>here Ford. I want to start there because Ford has

0:16:09.320 --> 0:16:11.960
<v Speaker 1>been a real underperformer and there are a lot of

0:16:12.040 --> 0:16:14.440
<v Speaker 1>question marks about that company. Why are you bullish on them?

0:16:14.600 --> 0:16:17.160
<v Speaker 1>It is it's what we call an ugly baby, and

0:16:17.200 --> 0:16:20.560
<v Speaker 1>you know and we own value stocks and gross it

0:16:20.680 --> 0:16:23.640
<v Speaker 1>is that's a genie y at our CEO original but uh,

0:16:24.480 --> 0:16:27.480
<v Speaker 1>the value growth differential, as you probably know, it's kind

0:16:27.480 --> 0:16:29.400
<v Speaker 1>of at an all time high. It's it's hit there

0:16:29.400 --> 0:16:31.720
<v Speaker 1>a few times before, and usually that gap closes with

0:16:31.760 --> 0:16:34.600
<v Speaker 1>growth underperforming. So it's a good time to look at

0:16:34.680 --> 0:16:38.120
<v Speaker 1>value and forward. You know, they've they're behind their peers

0:16:38.120 --> 0:16:41.160
<v Speaker 1>and operating. They've they've been behind in the electric vehicle

0:16:41.440 --> 0:16:46.880
<v Speaker 1>UH initiatives, and they've had a change a churning. They've

0:16:47.120 --> 0:16:49.440
<v Speaker 1>they've got a new CEO, they've got a team Edison

0:16:49.520 --> 0:16:53.000
<v Speaker 1>for the electric initiative. They're obsessed with costs UH and

0:16:53.040 --> 0:16:55.680
<v Speaker 1>they're contracting assets and focusing on our O I s.

0:16:55.760 --> 0:16:58.760
<v Speaker 1>That's just what a value stock should do. Nothing's priced in,

0:16:58.840 --> 0:17:01.520
<v Speaker 1>and the dividend yields pretty high, about five percent, So

0:17:01.560 --> 0:17:04.000
<v Speaker 1>it's a it's a good ugly baby value stock for US.

0:17:04.280 --> 0:17:07.520
<v Speaker 1>Ugly baby. I hope that I I mean, I guess

0:17:07.560 --> 0:17:09.160
<v Speaker 1>that you kind of want to be an ugly baby

0:17:09.160 --> 0:17:10.680
<v Speaker 1>at this market, but I don't know that I would

0:17:10.680 --> 0:17:13.479
<v Speaker 1>really want that Delta shares down more than one percent.

0:17:13.800 --> 0:17:16.080
<v Speaker 1>You like this, you like this company we do. This

0:17:16.119 --> 0:17:18.560
<v Speaker 1>is a business investment. You know, at any firm this

0:17:18.600 --> 0:17:21.080
<v Speaker 1>one included, I'm sure you know when business slows, it's

0:17:21.160 --> 0:17:24.080
<v Speaker 1>you know, pull in travel and don't use the color copier.

0:17:24.440 --> 0:17:28.119
<v Speaker 1>But I think we're seeing the opposite. Business optimism is high. Uh,

0:17:28.400 --> 0:17:31.320
<v Speaker 1>Delta has more exposure to business class travel than a

0:17:31.320 --> 0:17:34.080
<v Speaker 1>lot of its piers. It's a best in class operator.

0:17:34.119 --> 0:17:37.000
<v Speaker 1>It's it's CEO Ed Bastions, you know, definitely played a

0:17:37.040 --> 0:17:39.600
<v Speaker 1>win guy. So yeah, we like Delta a lot. So

0:17:39.800 --> 0:17:41.520
<v Speaker 1>one thing that I'm struck by is how do you

0:17:41.680 --> 0:17:47.080
<v Speaker 1>bet on an airline company when their profits hinge so

0:17:47.160 --> 0:17:50.520
<v Speaker 1>directly on the price of oil, which we have learned

0:17:50.600 --> 0:17:52.959
<v Speaker 1>time and again is incredibly fickle in subject to all

0:17:53.000 --> 0:17:55.679
<v Speaker 1>sorts of forces. You it's very difficult to predict. It

0:17:55.840 --> 0:17:59.280
<v Speaker 1>is airlines. You know, Delta itself has its own refinery business,

0:17:59.320 --> 0:18:03.040
<v Speaker 1>so sensibly that leads it a little less exp it shares. Absolutely,

0:18:03.080 --> 0:18:05.240
<v Speaker 1>they plunge in tandem with all the other airlines whenever

0:18:05.320 --> 0:18:08.840
<v Speaker 1>oil prices go up. So here's the difference, I think,

0:18:08.880 --> 0:18:11.240
<v Speaker 1>and I agree with you. In general, it's a tough business.

0:18:11.240 --> 0:18:15.240
<v Speaker 1>But airlines are earning return on investment above the costs

0:18:15.240 --> 0:18:18.120
<v Speaker 1>of capital. Some of them, like Delta, have been ratcheting

0:18:18.200 --> 0:18:20.400
<v Speaker 1>up every year, so they're about double what they were

0:18:20.960 --> 0:18:22.960
<v Speaker 1>through there in their longer term pass they used to

0:18:22.960 --> 0:18:25.879
<v Speaker 1>be cost of capital businesses and they and they haven't

0:18:25.920 --> 0:18:28.240
<v Speaker 1>been in the last five or six years, and that's

0:18:28.280 --> 0:18:31.520
<v Speaker 1>with high and low oil prices. All right, So let's

0:18:31.520 --> 0:18:34.160
<v Speaker 1>move on to some of your other stock picks. Raytheon

0:18:35.160 --> 0:18:39.120
<v Speaker 1>this one's interesting to me, uh, for a lot of reasons.

0:18:39.640 --> 0:18:42.960
<v Speaker 1>Why do you like this one? Well, you know, I'm

0:18:43.040 --> 0:18:45.400
<v Speaker 1>glad to see the North Korea talks, but I don't

0:18:45.400 --> 0:18:48.760
<v Speaker 1>think we're heading into a peace dividend era anytime soon.

0:18:49.400 --> 0:18:52.280
<v Speaker 1>So airspace defense, you know, hold on a second, Were

0:18:52.280 --> 0:18:55.040
<v Speaker 1>you hoping for some kind of military conflict so that

0:18:55.080 --> 0:18:59.120
<v Speaker 1>your shares rise? No, it's more of a military spending

0:18:59.160 --> 0:19:01.760
<v Speaker 1>and this was something prior to the election. Whether you

0:19:01.840 --> 0:19:05.560
<v Speaker 1>like both Clinton and Trump both we're likely to spend

0:19:05.560 --> 0:19:09.200
<v Speaker 1>more on on defense than than the previous administration. So

0:19:09.640 --> 0:19:12.160
<v Speaker 1>I think missiles and missile defense is still a pretty

0:19:12.160 --> 0:19:14.679
<v Speaker 1>good business going forward in this world. And that's what

0:19:14.800 --> 0:19:20.280
<v Speaker 1>Rayeon desk, and it's less expensive than some of them. Right. Okay,

0:19:20.320 --> 0:19:23.199
<v Speaker 1>So just on a general basis, do you sort of

0:19:23.240 --> 0:19:26.560
<v Speaker 1>buy into our play into any of these trades when

0:19:26.600 --> 0:19:29.760
<v Speaker 1>people start to worry about trade tensions and then they

0:19:29.800 --> 0:19:33.600
<v Speaker 1>sell certain shares, do you do that at all? Well? We, uh,

0:19:33.640 --> 0:19:36.800
<v Speaker 1>we don't. We haven't yet. Trade tensions, though, I think

0:19:36.840 --> 0:19:40.600
<v Speaker 1>are starting to affect x US growth. I think a

0:19:40.640 --> 0:19:45.200
<v Speaker 1>lot of cross business plans and spending are kind of sideline.

0:19:45.200 --> 0:19:46.840
<v Speaker 1>A lot of people are kind of taking a weight

0:19:46.880 --> 0:19:49.160
<v Speaker 1>and see attitude. So and I think that's showing up

0:19:49.160 --> 0:19:51.480
<v Speaker 1>in some of the global the global growth pause that

0:19:51.520 --> 0:19:57.360
<v Speaker 1>we've seen. So it is important. Um, but yeah, we

0:19:57.680 --> 0:20:02.920
<v Speaker 1>you know trade effect. We have exposure to most asset

0:20:03.000 --> 0:20:06.720
<v Speaker 1>classes all the time. So in this case, it's hurts

0:20:06.720 --> 0:20:09.560
<v Speaker 1>some of the global multinationals with Laddie International sales, but

0:20:09.640 --> 0:20:11.240
<v Speaker 1>it's helped some of the small gaps and we have

0:20:11.320 --> 0:20:14.159
<v Speaker 1>exposure to both. Just real quick, are you holding more cash?

0:20:15.160 --> 0:20:18.520
<v Speaker 1>We are not. We always try to stay fully invested

0:20:18.560 --> 0:20:22.920
<v Speaker 1>to our target. Uh. Markets aren't cheap right now, but

0:20:23.160 --> 0:20:27.440
<v Speaker 1>they're not outside of a normal range of valuation. Evaluation

0:20:27.480 --> 0:20:30.040
<v Speaker 1>tells you very little about what returns to expect over

0:20:30.080 --> 0:20:31.640
<v Speaker 1>the next twelve months. It tells you a lot about

0:20:31.640 --> 0:20:33.600
<v Speaker 1>what to expect over maybe the next ten years or so.

0:20:34.160 --> 0:20:36.400
<v Speaker 1>Jim Key, thank you so much for being here. Really fun.

0:20:36.480 --> 0:20:39.600
<v Speaker 1>Thank you. Jim Key, President, chief economist at South Texas

0:20:39.920 --> 0:20:44.240
<v Speaker 1>Money Management, based in Santonio, San Antonio, Texas. But here

0:20:44.280 --> 0:20:48.040
<v Speaker 1>in our eleven three studios with us really interesting to

0:20:48.160 --> 0:20:51.520
<v Speaker 1>hear the bull case for Ford and for Delta. Thank

0:20:51.600 --> 0:20:56.399
<v Speaker 1>you so much. Thanks for listening to the Bloomberg P

0:20:56.520 --> 0:20:59.480
<v Speaker 1>and L podcast. You can subscribe and listen to interviews

0:20:59.520 --> 0:21:03.560
<v Speaker 1>that app, podcasts, SoundCloud or whatever podcast platform you prefer.

0:21:03.960 --> 0:21:07.560
<v Speaker 1>I'm Pim Fox. I'm on Twitter at pim Fox. I'm

0:21:07.560 --> 0:21:10.960
<v Speaker 1>on Twitter at Lisa abramowits one before the podcast. You

0:21:11.000 --> 0:21:13.520
<v Speaker 1>can always catch us worldwide on Bloomberg Radio