Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim
Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
Speaker 1: we bring you the most important, noteworthy, and useful interviews
Speaker 1: for you and your money, whether you're at the grocery
Speaker 1: store or the trading floor. Find the Bloomberg p m
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Speaker 1: Crude oil inventories fell by more than four million barrels
Speaker 1: this according to the e i A. This took the
Speaker 1: market by surprise. We're seeing oil reverse earlier declines and
Speaker 1: surge on the heels of this, I want to bring
Speaker 1: in Stephen Shork, president of the Short Group, coming to
Speaker 1: us from Pennsylvania. Steve, and I'd love to get your
Speaker 1: reaction first to this in light of some of the
Speaker 1: concerns that there have been about whether or not OPEC
Speaker 1: will agree to sort of reduce seeing some of the
Speaker 1: some of the production caps that they've had on. Does
Speaker 1: this come as a surprise to you the inventories fell. No, No,
Speaker 1: it does not come as a surprise. And anyone who
Speaker 1: seriously watches this market on a week week basis, uh
Speaker 1: this should not come as a surprise to you. Uh,
Speaker 1: the expectation cording of Bloomberg coming in today's report was
Speaker 1: a build include all stocks of two point one million barrels. Uh.
Speaker 1: That's just idiocy, Lisa, because some how you really feel
Speaker 1: and not absolutely because I just it's just it sticks
Speaker 1: in my craw that that people look at these weekly
Speaker 1: numbers as if it's actually possible to gauge the inflow
Speaker 1: outflow of something like oil and so many different variables
Speaker 1: of it and so many different market airs, and if
Speaker 1: you really think that you can call this market uh
Speaker 1: plus minds on any given week. Din didn't go with
Speaker 1: God all right, because it is absolutely impossible. So Lisa,
Speaker 1: what you have to do is you have to look
Speaker 1: at the statistics. You have to look at the seasonality.
Speaker 1: Are the markets are inventors moving in the correct direction. So,
Speaker 1: for instance, last week, inventories reportedly rose by two point
Speaker 1: one million barrels. This week they reportedly fell by four
Speaker 1: point one million barrels. Okay, so that's about two million,
Speaker 1: I met two million barrel draw over the last two weeks.
Speaker 1: You know what, at this time of the year, anything
Speaker 1: in between a four point four million barrel draw to
Speaker 1: a one point when one million barrel build is normal.
Speaker 1: So what we're getting out of this leasas this is
Speaker 1: a very normal report, same that goes with gasoline and
Speaker 1: disilate inventories. So this should give no sort of bearing
Speaker 1: on what OPEC might or might not do in the
Speaker 1: weeks ahead. So I will let everybody who does want
Speaker 1: to prognosticate on the barrel counts um go with God,
Speaker 1: and I want to shift our pretention to the OPEC
Speaker 1: meeting UM and just try to get a sense of
Speaker 1: how this sort of factors into their views. Not necessarily
Speaker 1: this reading, but just in general the backdrop for oil,
Speaker 1: but is the i A also put out a report
Speaker 1: earlier today saying that I ran in Venezuela oil output
Speaker 1: could slump by nearly thirty percent. What are you expecting
Speaker 1: from the meeting, the OPEC meeting, uh? And you know,
Speaker 1: do you think that it will materially lower oil prices?
Speaker 1: I don't know about materially lowering oil prices, because what
Speaker 1: the issue that OPEC really has to contend with is
Speaker 1: to your point, Venezuela, their their production has swollen, because
Speaker 1: this is what socialism and inevitably gets you too. So
Speaker 1: as that economy swirls down that socialist cess pool that
Speaker 1: it is in right now. Yes, those barrels will continue
Speaker 1: to be pulled off of the market, and that's the
Speaker 1: concern for the other members of OPEC because crudal demand
Speaker 1: has never been stronger. Guest line demand here in the
Speaker 1: United States. I know everyone hears wringing their hands that
Speaker 1: guestlne prices are high, high, high. Well you know, just
Speaker 1: the for inflation, guestling prices are not high. Hence why
Speaker 1: guest line demanding that it has never been stronger right now,
Speaker 1: and they've never been stronger right now because the economy
Speaker 1: leads commodity prices and the economy is strong. Well, well,
Speaker 1: actually I'm the oil guy. I've got a plug in
Speaker 1: uh electric hybrid. Absolutely, this is the wave of the future.
Speaker 1: And this is something that old packet and that's a
Speaker 1: great lead in Lisa, thank you. This is anything next
Speaker 1: Old Peck has to take into consideration because so the
Speaker 1: first time ever this is substitute in the market. So
Speaker 1: there are two variables that changes consumer behaviors, a price
Speaker 1: shocks and a substitute. We've never we've always had the
Speaker 1: price shocks up and down. We never had the substitute.
Speaker 1: I am getting fifty seven miles to the gallon in
Speaker 1: an suv. So therefore, ten years ago I had to
Speaker 1: fill up my guest doesn't su fifty seven times a year.
Speaker 1: This time I have to fill up my suv maybe
Speaker 1: eleven times a year. So that is a considerable drop
Speaker 1: in demand. Now I get it, it's just an anecdote,
Speaker 1: but look around. I used to live in Grandage, Connecticut.
Speaker 1: What was the status car and Puttnam Avenue twenty years ago?
Speaker 1: It was the hummer that car got three yards to
Speaker 1: the gallon. Today the status car tooling up Grinnage Avenue
Speaker 1: is the Tesla. So absolutely there is a change, and
Speaker 1: this is something OPEC has to consider because they continue
Speaker 1: to artificially drive prices higher. They're pushing people away from
Speaker 1: their market into the elon musk market, and this is
Speaker 1: something that you have to keep prices low enough that
Speaker 1: you don't cannibalize your current market share, but high enough
Speaker 1: where you can make a decent return. And right now,
Speaker 1: oil in that sixty five dollar range is an optimal level.
Speaker 1: So OPEC has to contend with keeping prices A lit
Speaker 1: on prices right now seven just forty five seconds left
Speaker 1: I'd love your take on President Trump tweeting that oil
Speaker 1: prices are too high. OPEC is added again not good
Speaker 1: this morning. Does OPEC care? We absolutely look at President
Speaker 1: just that's justing Trudeau for crying out loud. Yes, they
Speaker 1: should care what President tweet is tweeting out every single minute,
Speaker 1: because what what's the what's the veil um A message here?
Speaker 1: Hey guys, I'm the United States. I have over six
Speaker 1: million barrels sit in the Strategic Petroleum Reserve, two hundred
Speaker 1: million bars suite oil, which I don't really have a
Speaker 1: lot of use for. So get get get, get, get
Speaker 1: on board, or I'm gonna I'm gonna pull the plug
Speaker 1: on the sp R and flood the market. That's the
Speaker 1: message being set to Saudi, and the Saudis are hearing
Speaker 1: loud and clear. Stephen Short, thank you so much for
Speaker 1: being with me today. A really interesting Stephen Schork, president
Speaker 1: of the Short Group, coming to us from Pennsylvania. The
Speaker 1: labor market is getting tight. If you talk to a
Speaker 1: lot of chief executives, they say it is hard to
Speaker 1: hire qualified workers. Our next guest is one of the
Speaker 1: fastest growing companies in day Moyne, Iowa, and we have
Speaker 1: the chief executive officer here with us, Roger Hargins. Uh.
Speaker 1: It is that the company is acum Old, and he
Speaker 1: joins us here in our eleven three oh studios. Thank
Speaker 1: you so much for being here. Roger. You've hired a
Speaker 1: tremendous number of people eighty four percent staff increase from
Speaker 1: fourteen through two thousand and seventeen. Has it been difficult
Speaker 1: to find qualified employees? Finding the right employees is always
Speaker 1: a challenge, but we've We've been very fortunate because we
Speaker 1: have a good brand in our marketplace, we have a
Speaker 1: good culture, and we have good referrals from existing employees.
Speaker 1: But we decided to start our own program years ago,
Speaker 1: twelve years ago with the De Moin Area Community College
Speaker 1: with the acum Old Scholarship Program. We determined at that
Speaker 1: time that what we were going to have to do
Speaker 1: was grow our own so to speak, kids coming around
Speaker 1: of high school that wanted to go to college to
Speaker 1: get a degree and to one I making or robotics
Speaker 1: and automation. We started sponsoring that and funding the tuition
Speaker 1: for that, and it's been a very successful program. So
Speaker 1: can you give us a sense of what acum old
Speaker 1: does and Uh? And it sort of goes against the
Speaker 1: grain that it's a manufacturing company in the US, it
Speaker 1: has not been exported. What does it do. Yeah, we're
Speaker 1: a high tech manufacturer of thermoplastic injection molding micro sized
Speaker 1: components for the medical device, microelectronics, and micro optics industry primarily,
Speaker 1: and we design and build our own tooling to produce
Speaker 1: customers specific components, usually critical components that make their assemblies work,
Speaker 1: and we ship all over the world. We shipp the
Speaker 1: twenty three countries. We've been a net exporter almost for
Speaker 1: fifteen sixteen years. Okay, So, as a manufacturer in the US,
Speaker 1: have you been tempted to move any of your operations
Speaker 1: overseas due to a cheaper workforce or more potential employees.
Speaker 1: That's that's a great question. We get asked that a lot. Uh.
Speaker 1: The answers. No. The thing that we have found is, uh,
Speaker 1: the I he for our customers is very important. Their
Speaker 1: critical component designs are very important. We made it intellectual
Speaker 1: property and they made We made a decisions stay in
Speaker 1: the US. Were very competitive, We're highly innovative, and we've
Speaker 1: been able to attract the right kind of employee that
Speaker 1: we want for the longer term. That helps solve the
Speaker 1: problems for producing components for our customers. So when you
Speaker 1: said that you're you're helping to finance the education of
Speaker 1: specific individuals who you think will be good employees. What
Speaker 1: is sort of the most important thing skill UH for
Speaker 1: your prospective employees to to learn in a college type setting.
Speaker 1: They need to really start grasping what the technical challenges
Speaker 1: on micro sized parts are from designing, of tooling and automation.
Speaker 1: They need to understand where a culture of problem solving,
Speaker 1: and they need to really understand that they can work
Speaker 1: well in teams. We take a team approach internally as
Speaker 1: we solve problems for our customers. UM. One thing that
Speaker 1: I'm wondering, you said that you're an exporter, a pretty
Speaker 1: big exporter. Are you concerned or have you been affected
Speaker 1: at all by some of the tariff discussions or uh
Speaker 1: tensor trade discussions We have not. Are you concerned about that? UM?
Speaker 1: We're always concerned about any trade barriers that are out there.
Speaker 1: We have not seen that have and I don't believe
Speaker 1: we'll have any really any big effect on our type
Speaker 1: components that we produce. Given the fact that people are
Speaker 1: talking about the tight labor market. UM. Have you found
Speaker 1: that you've had to increase salaries more than you had
Speaker 1: previously in order to attract talent. Yes, you know, it's
Speaker 1: like the market conditions. We want to continually attract the
Speaker 1: best and brightest. So absolutely pay has to go up somewhat.
Speaker 1: How much has it gone up in the past few years? Uh?
Speaker 1: And certain skilled trades that's gone up more than others.
Speaker 1: Certain things whether you're robotics, automation person or a tool
Speaker 1: eye person, it's it's gone up faster than maybe somebody
Speaker 1: with out those skills that's doing regular production. So can
Speaker 1: you just explain what if you go into one of
Speaker 1: the plants, what will you see? What you'll see at
Speaker 1: acum Old is uh. First off, we have a team
Speaker 1: working together to design tools, to build products, to build
Speaker 1: the tools and automation, and then run the products and
Speaker 1: validate them in our plant. What you'll be able to
Speaker 1: see as a teamwork of people, we have lots of
Speaker 1: areas that are proprietary, that are off limits that only
Speaker 1: our employees and certain employees can be in those particular
Speaker 1: areas to produce these critical components for our customers. So
Speaker 1: their components, Uh, I mean just trying to even wrap
Speaker 1: my head around some of these nearly microscopic parts that
Speaker 1: determine whether or not your phone, whether or not the
Speaker 1: you know, surgical arm that goes in and does the
Speaker 1: laparoscopic surgery, whatever it is. Uh, these crucial parts that
Speaker 1: the design of them is make it or break it?
Speaker 1: Is that right? I mean? Am I understanding that's right?
Speaker 1: The customer typically will design what they want. We work
Speaker 1: with them and help them make sure the design is
Speaker 1: ready for manufacturing. So there's always a compromise making sure
Speaker 1: that it works well in a production environment for us
Speaker 1: to produce at a at a rate that makes sense
Speaker 1: for them. So we then produced the parts and ship
Speaker 1: them to our customers all over the world for assembly
Speaker 1: until it can be meta device. It can be, uh,
Speaker 1: life sciences, it can be and like in blood glucose
Speaker 1: monitoring or different things that that's a big area eye surgery.
Speaker 1: We're big into surgical components for the eyes. Okay. So
Speaker 1: we've been talking a lot by about smaller private businesses
Speaker 1: and how business confidence has been surging. Do you feel
Speaker 1: that as well? Yes, very much. So. We see the
Speaker 1: competitiveness today, uh, and we've been competitive over the years,
Speaker 1: but today it's even more so because through innovation and automation,
Speaker 1: we've been able to remain very competitive the world stage.
Speaker 1: Is the reason we're shipping to other countries on a
Speaker 1: regular basis. Are there competitors in the US or there's
Speaker 1: a few smaller ones, yes, mom and pop type chops. Okay, so, uh,
Speaker 1: you know, some people talk about how there seems to
Speaker 1: be a bifurcation in the economy where wealthier individuals are
Speaker 1: making more money and then there's a whole host of
Speaker 1: people left out. Do you see that or do you
Speaker 1: not see that? And we don't. We don't really see that.
Speaker 1: We will see anybody that truly wants to work and
Speaker 1: learn can get a job. Iowa has, as you know,
Speaker 1: one of the lowest unemployment rates at two point nine percent.
Speaker 1: I think is where we're at today. So we're working
Speaker 1: number one to keep every employee, to grow their skill
Speaker 1: set and attract new ones. Do you think that, Uh,
Speaker 1: kids require a four year education in college in certain
Speaker 1: areas if that's what they want to go into. Yes,
Speaker 1: we don't require. What we're looking for is people that
Speaker 1: have those skill sets of really wanting to work in manufacturer,
Speaker 1: whether it's production or if they want to go into
Speaker 1: tool and I robotics and automation. Those two year degree
Speaker 1: is is a very good, very good start for us.
Speaker 1: And you certainly also are financing the accum Old Scholarship
Speaker 1: program um which is really interesting, basically paying college tuition
Speaker 1: uh and a part time paid job to scholars who
Speaker 1: then graduate and begin a full time position at the company.
Speaker 1: Roger Hargins, thank you so much for being here. Really interesting.
Speaker 1: Roger Hargins is chief executive officer of acum Old, which
Speaker 1: is based in Des Moines, Iowa. It is actually one
Speaker 1: of the largest and fastest growing companies in Des Moines.
Speaker 1: Uh so really interesting. Well, the NASDAC in particular keeps
Speaker 1: climbing to new highs every day, which leaves investors with
Speaker 1: a big question does it have more room to run
Speaker 1: or is this sort of the peak of the cycle.
Speaker 1: Joining me now is Jim Key. He is president in
Speaker 1: chief economist for South Texas Money Management, which oversees about
Speaker 1: three point three billion dollars and is based in San Antonio, Texas.
Speaker 1: But he joins me here in our eleven three oh studios. Jim,
Speaker 1: thank you so much for being here. Let's just start
Speaker 1: with those tech stocks, because that's been a big question
Speaker 1: mark for a lot of people. Is this time to
Speaker 1: take some profits, sell the facebooks, the apples, etcetera that
Speaker 1: are at record highs and invest in something else. Well,
Speaker 1: I think you should always control your sector exposure, and
Speaker 1: that's something we do at South Texas Money Management. But
Speaker 1: within that, business investment spending is one of the things
Speaker 1: driving technology. And when you have the interaction at tax
Speaker 1: cuts and deregulation which we've had this year, a lot
Speaker 1: of the business investment spending takes the way of information technology.
Speaker 1: So um, I think it probably has room to run,
Speaker 1: but I would watch, I would watch my exposure to
Speaker 1: tech in general, tanny sector in general. Okay, So I
Speaker 1: was looking it's some of your ideas for what you liked,
Speaker 1: and I found them interesting. There was some contrarian place
Speaker 1: here Ford. I want to start there because Ford has
Speaker 1: been a real underperformer and there are a lot of
Speaker 1: question marks about that company. Why are you bullish on them?
Speaker 1: It is it's what we call an ugly baby, and
Speaker 1: you know and we own value stocks and gross it
Speaker 1: is that's a genie y at our CEO original but uh,
Speaker 1: the value growth differential, as you probably know, it's kind
Speaker 1: of at an all time high. It's it's hit there
Speaker 1: a few times before, and usually that gap closes with
Speaker 1: growth underperforming. So it's a good time to look at
Speaker 1: value and forward. You know, they've they're behind their peers
Speaker 1: and operating. They've they've been behind in the electric vehicle
Speaker 1: UH initiatives, and they've had a change a churning. They've
Speaker 1: they've got a new CEO, they've got a team Edison
Speaker 1: for the electric initiative. They're obsessed with costs UH and
Speaker 1: they're contracting assets and focusing on our O I s.
Speaker 1: That's just what a value stock should do. Nothing's priced in,
Speaker 1: and the dividend yields pretty high, about five percent, So
Speaker 1: it's a it's a good ugly baby value stock for US.
Speaker 1: Ugly baby. I hope that I I mean, I guess
Speaker 1: that you kind of want to be an ugly baby
Speaker 1: at this market, but I don't know that I would
Speaker 1: really want that Delta shares down more than one percent.
Speaker 1: You like this, you like this company we do. This
Speaker 1: is a business investment. You know, at any firm this
Speaker 1: one included, I'm sure you know when business slows, it's
Speaker 1: you know, pull in travel and don't use the color copier.
Speaker 1: But I think we're seeing the opposite. Business optimism is high. Uh,
Speaker 1: Delta has more exposure to business class travel than a
Speaker 1: lot of its piers. It's a best in class operator.
Speaker 1: It's it's CEO Ed Bastions, you know, definitely played a
Speaker 1: win guy. So yeah, we like Delta a lot. So
Speaker 1: one thing that I'm struck by is how do you
Speaker 1: bet on an airline company when their profits hinge so
Speaker 1: directly on the price of oil, which we have learned
Speaker 1: time and again is incredibly fickle in subject to all
Speaker 1: sorts of forces. You it's very difficult to predict. It
Speaker 1: is airlines. You know, Delta itself has its own refinery business,
Speaker 1: so sensibly that leads it a little less exp it shares. Absolutely,
Speaker 1: they plunge in tandem with all the other airlines whenever
Speaker 1: oil prices go up. So here's the difference, I think,
Speaker 1: and I agree with you. In general, it's a tough business.
Speaker 1: But airlines are earning return on investment above the costs
Speaker 1: of capital. Some of them, like Delta, have been ratcheting
Speaker 1: up every year, so they're about double what they were
Speaker 1: through there in their longer term pass they used to
Speaker 1: be cost of capital businesses and they and they haven't
Speaker 1: been in the last five or six years, and that's
Speaker 1: with high and low oil prices. All right, So let's
Speaker 1: move on to some of your other stock picks. Raytheon
Speaker 1: this one's interesting to me, uh, for a lot of reasons.
Speaker 1: Why do you like this one? Well, you know, I'm
Speaker 1: glad to see the North Korea talks, but I don't
Speaker 1: think we're heading into a peace dividend era anytime soon.
Speaker 1: So airspace defense, you know, hold on a second, Were
Speaker 1: you hoping for some kind of military conflict so that
Speaker 1: your shares rise? No, it's more of a military spending
Speaker 1: and this was something prior to the election. Whether you
Speaker 1: like both Clinton and Trump both we're likely to spend
Speaker 1: more on on defense than than the previous administration. So
Speaker 1: I think missiles and missile defense is still a pretty
Speaker 1: good business going forward in this world. And that's what
Speaker 1: Rayeon desk, and it's less expensive than some of them. Right. Okay,
Speaker 1: So just on a general basis, do you sort of
Speaker 1: buy into our play into any of these trades when
Speaker 1: people start to worry about trade tensions and then they
Speaker 1: sell certain shares, do you do that at all? Well? We, uh,
Speaker 1: we don't. We haven't yet. Trade tensions, though, I think
Speaker 1: are starting to affect x US growth. I think a
Speaker 1: lot of cross business plans and spending are kind of sideline.
Speaker 1: A lot of people are kind of taking a weight
Speaker 1: and see attitude. So and I think that's showing up
Speaker 1: in some of the global the global growth pause that
Speaker 1: we've seen. So it is important. Um, but yeah, we
Speaker 1: you know trade effect. We have exposure to most asset
Speaker 1: classes all the time. So in this case, it's hurts
Speaker 1: some of the global multinationals with Laddie International sales, but
Speaker 1: it's helped some of the small gaps and we have
Speaker 1: exposure to both. Just real quick, are you holding more cash?
Speaker 1: We are not. We always try to stay fully invested
Speaker 1: to our target. Uh. Markets aren't cheap right now, but
Speaker 1: they're not outside of a normal range of valuation. Evaluation
Speaker 1: tells you very little about what returns to expect over
Speaker 1: the next twelve months. It tells you a lot about
Speaker 1: what to expect over maybe the next ten years or so.
Speaker 1: Jim Key, thank you so much for being here. Really fun.
Speaker 1: Thank you. Jim Key, President, chief economist at South Texas
Speaker 1: Money Management, based in Santonio, San Antonio, Texas. But here
Speaker 1: in our eleven three studios with us really interesting to
Speaker 1: hear the bull case for Ford and for Delta. Thank
Speaker 1: you so much. Thanks for listening to the Bloomberg P
Speaker 1: and L podcast. You can subscribe and listen to interviews
Speaker 1: that app, podcasts, SoundCloud or whatever podcast platform you prefer.
Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa abramowits one before the podcast. You
Speaker 1: can always catch us worldwide on Bloomberg Radio