1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:33,199 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. In 7 00:00:33,240 --> 00:00:36,800 Speaker 1: the past week, as people fretted over trade wars and 8 00:00:36,880 --> 00:00:41,400 Speaker 1: the decline in tech shares, ten year treasury yields quietly 9 00:00:41,440 --> 00:00:46,400 Speaker 1: but very steadily moved back toward that two point nine threshold, 10 00:00:46,479 --> 00:00:49,879 Speaker 1: getting back toward that three line in the sand at 11 00:00:49,920 --> 00:00:52,960 Speaker 1: which many investors said they would pile back into the debt. 12 00:00:53,080 --> 00:00:56,000 Speaker 1: Joining us now to figure out what's behind this move, 13 00:00:56,160 --> 00:00:59,560 Speaker 1: what does it mean about the global economy, and where 14 00:00:59,600 --> 00:01:03,360 Speaker 1: should investors take their money? As Dave Lafferty, chief market Strategist, 15 00:01:03,640 --> 00:01:06,160 Speaker 1: and it takes this investment manager, as he joins us 16 00:01:06,160 --> 00:01:08,480 Speaker 1: here in our eleven three oh studios, Dave, thank you 17 00:01:08,520 --> 00:01:11,199 Speaker 1: so much for being here. I'm trying to make sense 18 00:01:11,240 --> 00:01:13,880 Speaker 1: of this. We're talking about a flattening yield curve and 19 00:01:13,880 --> 00:01:17,480 Speaker 1: we're also talking about a steadily climbing ten year treasure yield. 20 00:01:17,680 --> 00:01:23,319 Speaker 1: Are we looking at stagflation? I don't think we're there yet, certainly, 21 00:01:23,440 --> 00:01:26,080 Speaker 1: I do think inflation is part of the story that 22 00:01:26,080 --> 00:01:29,399 Speaker 1: we've seen in the yield curve UM, I should say, 23 00:01:29,520 --> 00:01:32,759 Speaker 1: in terms of ten years backing up UH. We've seen 24 00:01:32,760 --> 00:01:35,919 Speaker 1: that the correlation between things like the price of oil 25 00:01:36,720 --> 00:01:40,679 Speaker 1: UH and inflation break evens have been fairly consistent. So 26 00:01:40,760 --> 00:01:44,040 Speaker 1: as oils backed up, it seems like inflation expectations are 27 00:01:44,080 --> 00:01:47,160 Speaker 1: backing up. We've seen a little bit of the risk 28 00:01:47,240 --> 00:01:50,760 Speaker 1: off trade that we've seen around geopolitics FADE. I think 29 00:01:50,800 --> 00:01:53,240 Speaker 1: that's allowing yields at the long end to back up 30 00:01:53,280 --> 00:01:56,880 Speaker 1: a little bit, and there's still the the underlying strength 31 00:01:56,880 --> 00:02:00,960 Speaker 1: and the global economy. I still think that the equilibrium 32 00:02:01,080 --> 00:02:04,360 Speaker 1: rate for interest rates out the yield curve is still 33 00:02:04,480 --> 00:02:08,680 Speaker 1: higher UH if we look at nominal rates versus nominal growth, 34 00:02:08,680 --> 00:02:12,160 Speaker 1: which should be related at something like the five year 35 00:02:12,240 --> 00:02:14,440 Speaker 1: tenor in the long run. I don't think we're gonna 36 00:02:14,440 --> 00:02:16,440 Speaker 1: get anywhere near this in the short run, but in 37 00:02:16,480 --> 00:02:20,000 Speaker 1: the long run, the five year treasury is probably seventy 38 00:02:20,320 --> 00:02:22,520 Speaker 1: basis points below where it probably ought to be in 39 00:02:22,560 --> 00:02:27,320 Speaker 1: the long run. UH. Nominal growth versus nominal yield, meaning 40 00:02:27,520 --> 00:02:30,360 Speaker 1: the yield is much lower than nominal growth is. Right now, 41 00:02:31,440 --> 00:02:34,799 Speaker 1: David Macro in your note, you're right about the macro 42 00:02:35,000 --> 00:02:39,400 Speaker 1: peak reached in January with quote synchronized global growth and 43 00:02:39,600 --> 00:02:44,760 Speaker 1: tax cut euphoria. Right, If that's correct, Why would you 44 00:02:44,800 --> 00:02:47,480 Speaker 1: want to be buying into a market that has those 45 00:02:47,560 --> 00:02:50,399 Speaker 1: kinds of headlines. Why wouldn't you want to just sit 46 00:02:50,440 --> 00:02:53,760 Speaker 1: and wait for everything to go as they say, you know, 47 00:02:54,080 --> 00:02:57,160 Speaker 1: pair shape and then buy assets. What do you want 48 00:02:57,160 --> 00:02:59,040 Speaker 1: to buy assets when you're at the top or near 49 00:02:59,080 --> 00:03:01,280 Speaker 1: the top of a cycle. Yeah, it's a great point. 50 00:03:01,280 --> 00:03:02,960 Speaker 1: So this is why I think I've been a little 51 00:03:02,960 --> 00:03:06,320 Speaker 1: bit more cautious, because at the end of the day, 52 00:03:06,360 --> 00:03:09,919 Speaker 1: we tend to be more value investors in the long run. 53 00:03:10,560 --> 00:03:12,440 Speaker 1: Um And, as I mentioned, sort of you had that 54 00:03:12,520 --> 00:03:15,880 Speaker 1: macro euphoria. If you went back and read everybody's two 55 00:03:15,960 --> 00:03:19,160 Speaker 1: thousand eighteen outlooks that we all wrote in two thousand seventeen, 56 00:03:19,480 --> 00:03:22,640 Speaker 1: it was all about that quote synchronized global growth. The 57 00:03:22,760 --> 00:03:26,080 Speaker 1: global economy was priced to perfection in the fourth quarter 58 00:03:26,160 --> 00:03:29,400 Speaker 1: and into January. Uh. And I think that makes it. 59 00:03:29,440 --> 00:03:32,240 Speaker 1: That makes it for both the equity markets and for 60 00:03:32,280 --> 00:03:35,240 Speaker 1: the global economy a very high bar to get over. 61 00:03:35,520 --> 00:03:39,240 Speaker 1: So again, the underlying fundamentals, we like the long term trend. 62 00:03:39,720 --> 00:03:42,200 Speaker 1: It's not uh, it's not that we were telling people 63 00:03:42,200 --> 00:03:43,880 Speaker 1: to get out of the market, but I think you 64 00:03:43,920 --> 00:03:46,440 Speaker 1: have to be a little bit more cautious given how 65 00:03:46,520 --> 00:03:49,480 Speaker 1: much euphoria had been priced into the market. When was 66 00:03:49,520 --> 00:03:54,400 Speaker 1: the last time that you changed to your recommended allocation? Uh? 67 00:03:54,480 --> 00:03:57,240 Speaker 1: Interestingly enough, it hasn't changed much. I've been sort of 68 00:03:57,280 --> 00:04:01,640 Speaker 1: in this low beta camp for a few years. Uh. 69 00:04:01,800 --> 00:04:04,320 Speaker 1: Going back to uh, you know, we we had been 70 00:04:04,360 --> 00:04:07,240 Speaker 1: fairly fairly bullish. I'm sorry to interrupt you, but I 71 00:04:07,280 --> 00:04:11,520 Speaker 1: mean with respect to the bonds, the stocks, the cash, 72 00:04:11,880 --> 00:04:14,960 Speaker 1: that's what I'm talking about. The ratios. Uh. Well, again, 73 00:04:15,000 --> 00:04:17,080 Speaker 1: it depends on the client. But for an over let's 74 00:04:17,080 --> 00:04:22,520 Speaker 1: say a plane, Jane, it really hasn't changed that much 75 00:04:22,640 --> 00:04:25,080 Speaker 1: in a couple of years. What would make you change it? 76 00:04:25,960 --> 00:04:28,279 Speaker 1: What would make me change it is if I thought 77 00:04:28,360 --> 00:04:31,720 Speaker 1: the global economy was beginning to falter more than what 78 00:04:31,800 --> 00:04:36,279 Speaker 1: we've already seen. We don't see the underlying trends changing 79 00:04:36,440 --> 00:04:40,720 Speaker 1: that much. Uh. So I do think there may come 80 00:04:40,720 --> 00:04:45,440 Speaker 1: a time to get bearish. We're not there yet. I will, however, 81 00:04:45,520 --> 00:04:48,599 Speaker 1: say that the gap, this idea that equities were the 82 00:04:48,640 --> 00:04:50,440 Speaker 1: only game in town. If you went back a year 83 00:04:50,480 --> 00:04:53,599 Speaker 1: and a half ago, you had stocks that weren't that expensive, 84 00:04:53,839 --> 00:04:58,359 Speaker 1: you had all this global QUEI, the gap, the the 85 00:04:58,360 --> 00:05:04,320 Speaker 1: the equity risk premium had gotten extremely wide. Well, now 86 00:05:04,400 --> 00:05:06,800 Speaker 1: yields have started to back up, so bonds look a 87 00:05:06,800 --> 00:05:10,520 Speaker 1: little bit more attractive. Peas have gone up, so earnings 88 00:05:10,600 --> 00:05:13,400 Speaker 1: yields on the equity market have come down. There's still 89 00:05:13,440 --> 00:05:16,200 Speaker 1: a big gap between fixed income and equity, but it's 90 00:05:16,200 --> 00:05:19,160 Speaker 1: not nearly as big as it was before. But we 91 00:05:19,160 --> 00:05:23,240 Speaker 1: were never that massively optimistic in the first place. I 92 00:05:23,720 --> 00:05:27,000 Speaker 1: think that market timing is pretty hard. So it's better 93 00:05:27,080 --> 00:05:30,000 Speaker 1: to be slightly de risk going into a risk off 94 00:05:30,080 --> 00:05:32,600 Speaker 1: environment than hoping that your clients are gonna be able 95 00:05:32,600 --> 00:05:35,240 Speaker 1: to time the markets correctly, which never seems to be 96 00:05:35,279 --> 00:05:37,680 Speaker 1: the case. Right, So if that's never the case, why 97 00:05:37,720 --> 00:05:40,160 Speaker 1: not take some money off the table when everybody is 98 00:05:40,200 --> 00:05:43,440 Speaker 1: trying to figure out reasons to be bullish. You've got earnings. 99 00:05:43,720 --> 00:05:45,960 Speaker 1: You take a look at the global economy. As you 100 00:05:46,040 --> 00:05:49,960 Speaker 1: just said, oil prices, even though you get tweets from 101 00:05:50,000 --> 00:05:52,760 Speaker 1: the President, oil prices barely move. You got oil at 102 00:05:52,800 --> 00:05:56,160 Speaker 1: around sixty seven dollars a barrel. If all things are 103 00:05:56,440 --> 00:05:59,720 Speaker 1: benign and sanguine, why not take a little money off 104 00:05:59,720 --> 00:06:02,599 Speaker 1: that's able and then wait when everybody else is panicking 105 00:06:02,640 --> 00:06:05,240 Speaker 1: and hitting the sell button. Yeah. I still think the 106 00:06:05,240 --> 00:06:09,360 Speaker 1: global economy is strong enough where uh, if the implications 107 00:06:09,520 --> 00:06:12,400 Speaker 1: take some money off or be mildly defensive, that makes 108 00:06:12,400 --> 00:06:15,040 Speaker 1: sense to us. But it's not a scenario where you 109 00:06:15,080 --> 00:06:17,360 Speaker 1: want to be bailing out. The global economy is still 110 00:06:17,400 --> 00:06:20,159 Speaker 1: probably growing at almost a three and a half to 111 00:06:20,200 --> 00:06:22,360 Speaker 1: four percent run rate, I think three point eight three. 112 00:06:22,440 --> 00:06:23,839 Speaker 1: But I mean you can at least take some of 113 00:06:23,839 --> 00:06:25,760 Speaker 1: the profits and then you let the money that you 114 00:06:25,880 --> 00:06:29,520 Speaker 1: made move and you take out your original investment, so 115 00:06:29,560 --> 00:06:31,680 Speaker 1: at least you have some dry powder if in case 116 00:06:31,800 --> 00:06:34,200 Speaker 1: you end up with a scenario where people say I'm 117 00:06:34,240 --> 00:06:36,320 Speaker 1: getting out and then you get to get back in. Yeah, 118 00:06:36,400 --> 00:06:38,400 Speaker 1: And this is the sort of the notion I was 119 00:06:38,440 --> 00:06:41,279 Speaker 1: mentioning before. It isn't really our view of jumping out 120 00:06:41,279 --> 00:06:43,520 Speaker 1: of the market. It's staying in the market, but being 121 00:06:43,640 --> 00:06:46,360 Speaker 1: more defensive in terms of doing it. So those could 122 00:06:46,400 --> 00:06:50,799 Speaker 1: be things like option hedging or low vall or minimum 123 00:06:50,920 --> 00:06:54,840 Speaker 1: beta low, low variant strategies are our advices? Are there 124 00:06:54,839 --> 00:06:57,400 Speaker 1: ways to be in the market without sticking your neck 125 00:06:57,440 --> 00:06:59,680 Speaker 1: out too far? Thanks very much for being with us. 126 00:06:59,760 --> 00:07:04,279 Speaker 1: Dave Laherty is the chief market strategist for Natixis Investment Managers. 127 00:07:19,720 --> 00:07:22,280 Speaker 1: What is it like to be a value investor? Well, 128 00:07:22,360 --> 00:07:24,440 Speaker 1: that's why we ask Scott and Black. He is the 129 00:07:24,480 --> 00:07:27,320 Speaker 1: president of Delphi Management to be our guest. He joins 130 00:07:27,360 --> 00:07:29,840 Speaker 1: us from Boston, home to Bloomberg one or six one 131 00:07:29,880 --> 00:07:33,520 Speaker 1: Boston New Report and in Metro West in the South Shore. 132 00:07:33,560 --> 00:07:37,760 Speaker 1: Scott Black always a pleasure. How do you define value investor? 133 00:07:39,240 --> 00:07:41,920 Speaker 1: Really a value investor? There's somebody either sticks to a 134 00:07:42,000 --> 00:07:46,400 Speaker 1: discipline throughout all cycles and buys absolutely low peas or 135 00:07:46,480 --> 00:07:49,880 Speaker 1: buy consistently at a price to break up that's close 136 00:07:50,440 --> 00:07:54,560 Speaker 1: below theoretical value of where the breakup value is, and 137 00:07:54,680 --> 00:07:57,720 Speaker 1: so it's you know the all Benjamin Graham, the idea 138 00:07:57,760 --> 00:08:00,600 Speaker 1: has get that margin of safety by not paying up. 139 00:08:00,680 --> 00:08:04,320 Speaker 1: How difficult has it been to maintain that disposition of 140 00:08:04,400 --> 00:08:07,200 Speaker 1: being a value investor in the last let's say twelve 141 00:08:07,280 --> 00:08:11,239 Speaker 1: to twenty four months, how about in the last ten years? 142 00:08:11,280 --> 00:08:14,280 Speaker 1: Has been very difficult? To be frank with you. I mean, 143 00:08:14,280 --> 00:08:16,960 Speaker 1: even though our companies come through with earnings that don't 144 00:08:17,000 --> 00:08:20,400 Speaker 1: seem to get much respect, the bottom line is systematically, 145 00:08:20,560 --> 00:08:22,880 Speaker 1: especially with the emergence of the e t f S, 146 00:08:23,400 --> 00:08:26,600 Speaker 1: value has systematically trailed growth over the last five and 147 00:08:26,640 --> 00:08:29,960 Speaker 1: ten year period. Scott, I know that you recommend to 148 00:08:30,040 --> 00:08:34,120 Speaker 1: your clients to target companies that pay high dividends. I 149 00:08:34,160 --> 00:08:37,880 Speaker 1: wonder at what point those companies will look less attractive 150 00:08:37,920 --> 00:08:41,880 Speaker 1: to you when you can actually start earning something on cash. No, 151 00:08:42,120 --> 00:08:45,320 Speaker 1: the bottom line is that we own a panoply of 152 00:08:45,360 --> 00:08:47,920 Speaker 1: companies that are low p There's some that have divd 153 00:08:48,000 --> 00:08:49,800 Speaker 1: in yields, which I was going to suggest a few 154 00:08:50,000 --> 00:08:52,600 Speaker 1: to your readership so they don't have to buy junk bonds. 155 00:08:52,880 --> 00:08:56,319 Speaker 1: It's not necessary that we have companies with divid in yields, 156 00:08:56,320 --> 00:08:58,960 Speaker 1: but we like companies that generate lots are free cash. 157 00:08:59,679 --> 00:09:01,160 Speaker 1: So I mean, I can give you a couple of it. 158 00:09:01,280 --> 00:09:05,360 Speaker 1: Go ahead, give us some example. Okay, here's one high crush. 159 00:09:05,679 --> 00:09:09,480 Speaker 1: It's an lp UM. It's basically one of the largest 160 00:09:09,480 --> 00:09:12,160 Speaker 1: producers of frack sand in the United States. It's a 161 00:09:12,520 --> 00:09:16,040 Speaker 1: eleven dollar ninety cents stock and they're gonna earn about 162 00:09:16,040 --> 00:09:18,920 Speaker 1: two forty. It's a five p selling at one point 163 00:09:18,960 --> 00:09:21,360 Speaker 1: three times booked, and they just bumped the diving in 164 00:09:21,440 --> 00:09:25,040 Speaker 1: again to ninety cents annualized. You get the seven point 165 00:09:25,120 --> 00:09:27,960 Speaker 1: six percent yield, and the earnings are exploding this year 166 00:09:28,400 --> 00:09:30,480 Speaker 1: UM last year they get about a dollar one. They'll 167 00:09:30,480 --> 00:09:33,280 Speaker 1: do two forty two forty five. And as you know 168 00:09:33,720 --> 00:09:37,079 Speaker 1: you've been watching, UM fracking has done one just for 169 00:09:37,120 --> 00:09:39,400 Speaker 1: Americans oil production. We're up to ten and a half 170 00:09:39,440 --> 00:09:42,720 Speaker 1: million barrels a day. Last year at nine point three million, 171 00:09:42,960 --> 00:09:44,600 Speaker 1: and you need to use a lot of this fine 172 00:09:44,720 --> 00:09:48,000 Speaker 1: sand to frackt and they have roughly a thirteen share 173 00:09:48,280 --> 00:09:51,040 Speaker 1: of the whole United States market. So you have the 174 00:09:51,080 --> 00:09:53,560 Speaker 1: wind tear back, plus you're getting paid while you wait, 175 00:09:53,800 --> 00:09:56,679 Speaker 1: and the stock is ridiculously cheap. How did you find 176 00:09:56,920 --> 00:10:00,719 Speaker 1: high crush? Did you go to Houston? You know what 177 00:10:00,840 --> 00:10:04,040 Speaker 1: we do oftentimes we do a lot of mathematical screening, 178 00:10:04,120 --> 00:10:07,400 Speaker 1: initially PIM and then if it looks attracted, we call 179 00:10:07,559 --> 00:10:10,040 Speaker 1: and visit the company. So we've talked to the management 180 00:10:10,080 --> 00:10:13,160 Speaker 1: on this company, you know several times. We never buy anything, 181 00:10:13,240 --> 00:10:15,360 Speaker 1: as they say, off the shots or on a whim. 182 00:10:15,679 --> 00:10:17,679 Speaker 1: We always talk to management to see you know, if 183 00:10:17,679 --> 00:10:20,920 Speaker 1: they're really they're under control, and whether they have certain 184 00:10:21,000 --> 00:10:23,839 Speaker 1: targets for returns on capital and growth and revenue and 185 00:10:23,880 --> 00:10:26,240 Speaker 1: earnings per share. All right, let's talk about another one. 186 00:10:26,280 --> 00:10:29,360 Speaker 1: Give us another name, because high car symbol hc LP, 187 00:10:29,640 --> 00:10:32,720 Speaker 1: as you said, based in Houston, paint about a six 188 00:10:32,880 --> 00:10:36,160 Speaker 1: or seven point six percent dive. And then right now, okay, 189 00:10:36,240 --> 00:10:38,360 Speaker 1: Now another one that I like is part of the 190 00:10:38,480 --> 00:10:41,320 Speaker 1: Aries group is the b d C. The business development 191 00:10:41,400 --> 00:10:44,839 Speaker 1: corp is Aries Capital ai c C. The stock is 192 00:10:44,920 --> 00:10:48,520 Speaker 1: rough the fifteen nineties six. It sells below tangible books 193 00:10:49,200 --> 00:10:52,040 Speaker 1: cents on the book, the dividends of dollar fifty two 194 00:10:52,160 --> 00:10:54,880 Speaker 1: or the nine and a half percent yield, and about 195 00:10:54,920 --> 00:10:57,760 Speaker 1: six point eight billion market cap, and they'll learn this 196 00:10:57,920 --> 00:11:01,160 Speaker 1: year about a dollar sixty, So it's a MP selling 197 00:11:01,240 --> 00:11:04,760 Speaker 1: below book um. They make very few mistakes, and their 198 00:11:04,840 --> 00:11:10,360 Speaker 1: portfolio less than one percent historically, and the company will 199 00:11:10,400 --> 00:11:14,040 Speaker 1: grow its organic portfolio about five or six percent. But 200 00:11:14,200 --> 00:11:18,000 Speaker 1: this is one company that benefits from rising rates. They 201 00:11:18,040 --> 00:11:22,679 Speaker 1: asked that sensitive not liability sense of for example, of 202 00:11:22,760 --> 00:11:26,520 Speaker 1: the portfolio loans float, so rates go up, but eighty 203 00:11:26,559 --> 00:11:29,480 Speaker 1: two percent of their funding is fixed. And so for 204 00:11:29,600 --> 00:11:33,040 Speaker 1: each hundred basis points in library at sixteen cents to share, 205 00:11:33,480 --> 00:11:38,920 Speaker 1: so as interest rates rise they benefit very nicely. And uh, well, 206 00:11:39,120 --> 00:11:41,640 Speaker 1: what if it turn has been like on these cash 207 00:11:41,800 --> 00:11:48,000 Speaker 1: rich companies well over time, um probably areas with the 208 00:11:48,120 --> 00:11:51,920 Speaker 1: dividend has probably done about double digits between your growth 209 00:11:52,360 --> 00:11:55,280 Speaker 1: and the stock price over time, and in the dividend 210 00:11:55,360 --> 00:11:57,880 Speaker 1: high Crush is a relatively new company, so it doesn't 211 00:11:57,880 --> 00:12:00,240 Speaker 1: have a long history, but I mean relative of to 212 00:12:00,280 --> 00:12:06,320 Speaker 1: say the broad index. As I say, you can't look 213 00:12:06,720 --> 00:12:09,360 Speaker 1: at it on that basis because I'm buying it now 214 00:12:09,480 --> 00:12:12,040 Speaker 1: on a statistical basis that they are achieved. You know, 215 00:12:12,080 --> 00:12:14,920 Speaker 1: there are certain times, you know, let's say after the 216 00:12:15,000 --> 00:12:16,840 Speaker 1: market crash in a way I'll give you an example. 217 00:12:16,880 --> 00:12:18,959 Speaker 1: I was able to bi Oracle and Microsoft. They saw 218 00:12:19,000 --> 00:12:22,240 Speaker 1: that our types of p s there are opportunities. It's 219 00:12:22,280 --> 00:12:24,280 Speaker 1: not that we're going to put them away forever. You know, 220 00:12:24,400 --> 00:12:26,959 Speaker 1: our longest term holdings have been things like Berkshire half 221 00:12:27,040 --> 00:12:29,280 Speaker 1: the Way, which we've going forever. But these are just 222 00:12:29,440 --> 00:12:33,960 Speaker 1: opportunistic as the valuations are so cheap at this current time. Scott, 223 00:12:34,040 --> 00:12:36,240 Speaker 1: what's the biggest mistake? Give you thirty seconds. What's the 224 00:12:36,280 --> 00:12:39,240 Speaker 1: biggest mistake investors make when they think that they are 225 00:12:39,280 --> 00:12:43,280 Speaker 1: a value investor, but they're not. Well, they think if 226 00:12:43,320 --> 00:12:46,480 Speaker 1: a company used to sell it and it's now an 227 00:12:46,520 --> 00:12:50,439 Speaker 1: eighteen multiple, that somehow it's value. That's a relative value, 228 00:12:50,440 --> 00:12:53,480 Speaker 1: because that's roughly the market multiple. The idea of your 229 00:12:53,559 --> 00:12:57,480 Speaker 1: value investor is really to stick to absolute valuation, and 230 00:12:57,559 --> 00:13:00,480 Speaker 1: the other thing is to stay away from the downs. 231 00:13:00,520 --> 00:13:03,679 Speaker 1: Forget about technical analysis. You have to have your own 232 00:13:03,760 --> 00:13:06,959 Speaker 1: conviction about the company, and if if something's out of 233 00:13:07,040 --> 00:13:09,959 Speaker 1: stab or oftentimes, that's the time to buy it, because 234 00:13:10,240 --> 00:13:12,920 Speaker 1: when the consensus is good, to be buying stocks off 235 00:13:12,960 --> 00:13:15,480 Speaker 1: the high, not off the low. Scott Black, thank you 236 00:13:15,520 --> 00:13:19,360 Speaker 1: so much for joining us. Scott Black, president of Delphi Management, 237 00:13:19,800 --> 00:13:24,400 Speaker 1: overseeing about a billion dollars from Boston, and uh disregard 238 00:13:24,520 --> 00:13:44,680 Speaker 1: technical analysis. I'm sure some people him. We're really lucky 239 00:13:44,760 --> 00:13:47,680 Speaker 1: to have our next guests hitting a very hot topic 240 00:13:47,840 --> 00:13:51,160 Speaker 1: right now, and that is medical marijuana, in particular the 241 00:13:51,280 --> 00:13:56,800 Speaker 1: shifting tides of major politicians who have previously opposed marijuana use, 242 00:13:56,920 --> 00:13:59,920 Speaker 1: even on the medical front, but are changing their tune. 243 00:14:00,200 --> 00:14:02,079 Speaker 1: I want to offer a warm welcome to the former 244 00:14:02,160 --> 00:14:06,000 Speaker 1: Massachusetts Governor William Weld, as well as Kevin Murphy, chief 245 00:14:06,080 --> 00:14:10,000 Speaker 1: executive officer of Acreage Holdings, which is the medical marijuana 246 00:14:10,080 --> 00:14:14,520 Speaker 1: business that has garnered support from a former governor at Weld, 247 00:14:14,559 --> 00:14:17,680 Speaker 1: as well as from John Byner, the former Republican Speaker 248 00:14:17,760 --> 00:14:20,600 Speaker 1: of the House who once said he was quote unilaterally 249 00:14:20,720 --> 00:14:25,120 Speaker 1: opposed to decriminalizing marijuana laws. I want to start with you, 250 00:14:25,520 --> 00:14:29,840 Speaker 1: Kevin Um, yourself, as a former alternative money manager for 251 00:14:29,880 --> 00:14:33,240 Speaker 1: Stanfield Capital Partners, what drew you to this business and 252 00:14:33,400 --> 00:14:38,800 Speaker 1: what do you attribute the shifting tide right now in sentiment? Well, 253 00:14:38,840 --> 00:14:40,920 Speaker 1: first and foremost, thanks so much for having me on 254 00:14:41,160 --> 00:14:46,120 Speaker 1: the program. Uh, my shift really had come in two thousand, 255 00:14:46,240 --> 00:14:50,160 Speaker 1: two thousand eleven when I was introduced to the space 256 00:14:50,320 --> 00:14:55,479 Speaker 1: by a friend and I was very skeptical about marijuana 257 00:14:55,480 --> 00:14:58,680 Speaker 1: in general. Didn't have a strong working relationship with the 258 00:14:58,760 --> 00:15:03,320 Speaker 1: plant UM, so it really wasn't for me. But when 259 00:15:03,360 --> 00:15:06,360 Speaker 1: I had done further due diligence on the business itself 260 00:15:06,640 --> 00:15:10,440 Speaker 1: and having run a multi billion dollar money management firm, 261 00:15:10,920 --> 00:15:15,320 Speaker 1: understanding business and the operating leverage in that business, UM, 262 00:15:15,480 --> 00:15:19,120 Speaker 1: it was that coupled with UM, the medicinal value of 263 00:15:19,200 --> 00:15:24,400 Speaker 1: this plant could potentially be the silver bullet um for 264 00:15:24,760 --> 00:15:28,240 Speaker 1: the medical community over the next twenty to thirty years. 265 00:15:28,560 --> 00:15:32,200 Speaker 1: It is simply remarkable what this plant can do for 266 00:15:32,920 --> 00:15:38,160 Speaker 1: children with epilepsy, um people with cancer, and the list 267 00:15:38,280 --> 00:15:41,000 Speaker 1: goes on and on. I want to focus for just 268 00:15:41,160 --> 00:15:44,760 Speaker 1: a second, not on the medicinal potential for cannabis, but 269 00:15:44,920 --> 00:15:49,560 Speaker 1: on the financial potential for cannabis. UH. William Weld, former 270 00:15:49,640 --> 00:15:54,440 Speaker 1: governor of the state of Massachusetts from you have a 271 00:15:54,800 --> 00:15:58,040 Speaker 1: bit of experience when it comes to state UH finances. 272 00:15:59,160 --> 00:16:03,360 Speaker 1: What do you leave to be the main obstacles for 273 00:16:03,600 --> 00:16:09,520 Speaker 1: lawmakers to approve the legal sale of cannabis. Forget the 274 00:16:09,600 --> 00:16:13,000 Speaker 1: medical part of it for just a moment. When you have, 275 00:16:13,240 --> 00:16:16,200 Speaker 1: for many years already had the legal sale and taxation 276 00:16:16,640 --> 00:16:22,360 Speaker 1: of tobacco products, the legal sale and taxation of alcohol products, Uh, 277 00:16:22,800 --> 00:16:27,400 Speaker 1: we don't necessarily have a prohibition on substances that we 278 00:16:27,600 --> 00:16:31,800 Speaker 1: know can create health issues, if indeed they exist. What 279 00:16:31,920 --> 00:16:36,160 Speaker 1: about the financial implications of taxing cannabis and using that 280 00:16:36,320 --> 00:16:39,280 Speaker 1: money to fill all of these budget holes? Well, nothing 281 00:16:39,480 --> 00:16:42,520 Speaker 1: is holding back legislators in any state from doing that, 282 00:16:42,640 --> 00:16:46,760 Speaker 1: absolutely nothing, not fiscal policy, not criminal law. Nothing. That's 283 00:16:46,800 --> 00:16:50,360 Speaker 1: why that's why nine states have already legalized so called 284 00:16:50,400 --> 00:16:54,880 Speaker 1: adult reck adult recreational use. I I supported the Question 285 00:16:54,960 --> 00:16:58,120 Speaker 1: four in Massachusetts, my state, back into two thousand and 286 00:16:58,200 --> 00:17:02,440 Speaker 1: sixteen elections in that past, despite being opposed by almost 287 00:17:02,480 --> 00:17:05,639 Speaker 1: all the politicians in the state except this former politician. 288 00:17:05,800 --> 00:17:08,480 Speaker 1: But so why do they oppose it? Well, I think 289 00:17:08,520 --> 00:17:10,440 Speaker 1: it's a cultural thing. You know, it takes a little 290 00:17:10,480 --> 00:17:14,920 Speaker 1: getting used to some people. Probably they're they're buried. Antipathy 291 00:17:15,040 --> 00:17:17,879 Speaker 1: towards cannabis goes all the way back to the nineteen 292 00:17:17,960 --> 00:17:20,960 Speaker 1: thirties when the you know, the movie Reefer Madness and 293 00:17:21,040 --> 00:17:23,720 Speaker 1: the federal government really came down hard on it. It's 294 00:17:23,720 --> 00:17:26,639 Speaker 1: almost like the panic that beset everybody in the nineteen 295 00:17:26,640 --> 00:17:29,159 Speaker 1: eighties about crack cocaine. They thought it was gonna, you know, 296 00:17:29,320 --> 00:17:32,560 Speaker 1: take over our streets, and it's simply not true. One 297 00:17:32,600 --> 00:17:35,159 Speaker 1: thing both Speaker Bayner and I think is right on 298 00:17:35,280 --> 00:17:38,840 Speaker 1: the table now is a legal issue, is to deschedule 299 00:17:39,040 --> 00:17:42,720 Speaker 1: cannabis as a Class one narcotic in Washington d C. 300 00:17:43,280 --> 00:17:45,159 Speaker 1: I mean, that is supposed to be for drugs with 301 00:17:45,320 --> 00:17:50,320 Speaker 1: absolutely no redeeming medicinal value whatsoever. We already know that's 302 00:17:50,359 --> 00:17:52,960 Speaker 1: not true. I mean I endorsed medical marijuana back in 303 00:17:53,080 --> 00:17:56,719 Speaker 1: nineteen ninety two, my second year in office, for relief 304 00:17:56,800 --> 00:18:00,680 Speaker 1: from nausea from chemotherapy and glaucoma, And even then it 305 00:18:00,840 --> 00:18:04,960 Speaker 1: was known that the drug was helpful in treating those. UH. 306 00:18:05,359 --> 00:18:07,200 Speaker 1: We know more now than we used to. People have 307 00:18:07,280 --> 00:18:09,919 Speaker 1: focused on the fact that there are other cannabinoids besides 308 00:18:10,000 --> 00:18:14,440 Speaker 1: th HC in the cannabis plant. There's uh CBD, which 309 00:18:14,840 --> 00:18:17,480 Speaker 1: has none of the potentially negative effects of th HC 310 00:18:17,960 --> 00:18:23,199 Speaker 1: and is enormously helpful in UH treating pain anxiety. UM. 311 00:18:24,160 --> 00:18:26,520 Speaker 1: So you know, I I got into this. In fact, 312 00:18:26,560 --> 00:18:28,800 Speaker 1: I jumped at the chance because I spent a couple 313 00:18:28,840 --> 00:18:31,359 Speaker 1: of hours with Murph, Kevin Murphy, and I could see 314 00:18:31,920 --> 00:18:34,920 Speaker 1: his passion about doing something on the medical side. Most 315 00:18:34,960 --> 00:18:37,000 Speaker 1: of his acquisitions were on the medical side. We're not 316 00:18:37,080 --> 00:18:41,119 Speaker 1: opposed to adult wreck, but we think that's that's up 317 00:18:41,160 --> 00:18:43,800 Speaker 1: to the States. And you know, I note with approval 318 00:18:43,960 --> 00:18:47,440 Speaker 1: that candidate Trump during the election said adult wreck, that's 319 00:18:47,480 --> 00:18:49,760 Speaker 1: the States rights issue. And he has now said we 320 00:18:49,840 --> 00:18:52,680 Speaker 1: want to hear comments to the f d A by 321 00:18:53,040 --> 00:18:57,760 Speaker 1: April on de scheduling cannabis as a Class one narcotic. 322 00:18:57,880 --> 00:19:01,920 Speaker 1: Those are two very hopeful sign is from the President. Yeah, Kevin, 323 00:19:02,080 --> 00:19:05,840 Speaker 1: I want to get your sense. Um Acreage Holdings operates 324 00:19:05,920 --> 00:19:09,359 Speaker 1: currently in eleven states. It's headquartered in New York. I 325 00:19:09,480 --> 00:19:13,320 Speaker 1: just want to know, given the backing of Governor Murphy, 326 00:19:13,800 --> 00:19:16,639 Speaker 1: governor here, who is joining us now as well as 327 00:19:16,800 --> 00:19:21,560 Speaker 1: John Bayner, do you expect to expand much more or 328 00:19:21,640 --> 00:19:24,040 Speaker 1: do you think that it's gonna be tepid? And what 329 00:19:24,119 --> 00:19:31,080 Speaker 1: about financing? We do anticipate expanding, having UM again been 330 00:19:31,119 --> 00:19:36,840 Speaker 1: in the financial services business. UM this is much like cable, 331 00:19:37,240 --> 00:19:40,760 Speaker 1: this is much like cellular. This is a business that 332 00:19:41,160 --> 00:19:45,000 Speaker 1: has started out as a fragmented business. Uh. You can 333 00:19:45,040 --> 00:19:49,960 Speaker 1: look back five years the cable industry, the cellular industry 334 00:19:50,000 --> 00:19:54,440 Speaker 1: had thousands of players. Today there's five to ten players 335 00:19:54,760 --> 00:19:58,399 Speaker 1: in both sector. UM Acreage being the largest footprint in 336 00:19:58,480 --> 00:20:03,840 Speaker 1: the country today, we anticipate maintaining that pole position. So 337 00:20:03,960 --> 00:20:07,720 Speaker 1: what we're here to do is bring the finest operators 338 00:20:07,800 --> 00:20:11,760 Speaker 1: we can with the best people we can. And no 339 00:20:11,960 --> 00:20:15,840 Speaker 1: better place to start then with the Speaker and the governor. 340 00:20:16,680 --> 00:20:18,639 Speaker 1: Governor world, I just want to get your sons in 341 00:20:18,880 --> 00:20:22,560 Speaker 1: twenty seconds, do you foresee a lot more support coming, 342 00:20:22,600 --> 00:20:27,600 Speaker 1: particularly from the Republican delegation in Congress? I do of 343 00:20:27,680 --> 00:20:33,440 Speaker 1: the country wants adult wreck. UH wants medical marijuana, wants 344 00:20:33,480 --> 00:20:37,200 Speaker 1: adult reck. It's it's coming and Uh, Acreage Holdings, you know, 345 00:20:37,280 --> 00:20:39,000 Speaker 1: I'll let the cout out of the bag. We want 346 00:20:39,040 --> 00:20:41,560 Speaker 1: to be a consolidator in the industry. The management is 347 00:20:42,400 --> 00:20:45,440 Speaker 1: blue chip Wall Street background. That's a good combination with 348 00:20:45,520 --> 00:20:48,160 Speaker 1: the passion that Kevin Murphy also brings to the table. 349 00:20:48,760 --> 00:20:50,359 Speaker 1: I want to thank you both for joining us. So 350 00:20:50,440 --> 00:20:54,200 Speaker 1: William Wells, he is the former governor of Massachusetts, joining 351 00:20:54,280 --> 00:20:56,720 Speaker 1: us here in studio with Kevin Murphy. He's the chief 352 00:20:56,800 --> 00:21:01,720 Speaker 1: executive of Acreage Holdings, the largest multi state cannabis operator 353 00:21:01,880 --> 00:21:06,080 Speaker 1: in the country. And just a note that just today 354 00:21:06,880 --> 00:21:10,080 Speaker 1: opening in New York City, that the Los Angeles based 355 00:21:10,160 --> 00:21:15,280 Speaker 1: cannabis retailer MEDMN is launching its first dispensary in New 356 00:21:15,400 --> 00:21:18,680 Speaker 1: York City and it will be open for on site 357 00:21:18,760 --> 00:21:22,920 Speaker 1: consultations with pharmacists to determine best fit remedies for chronic 358 00:21:23,080 --> 00:21:27,439 Speaker 1: pain and other ailments diagnosed by doctors. Competition heating up, 359 00:21:27,920 --> 00:21:46,040 Speaker 1: could be President tweeting today on oil and opeque looks 360 00:21:46,160 --> 00:21:48,879 Speaker 1: like OPEC is at it again, he wrote, with record 361 00:21:48,920 --> 00:21:51,480 Speaker 1: amounts of oil all over the place, including the fully 362 00:21:51,560 --> 00:21:55,280 Speaker 1: loaded ships at sea. Oil prices are artificially very high, 363 00:21:55,800 --> 00:21:58,879 Speaker 1: no good and will not be accepted. Joining US now, 364 00:21:59,160 --> 00:22:03,800 Speaker 1: Joe Carroll, US energy reporter and Houston Bureau chief. Joe, 365 00:22:03,880 --> 00:22:05,720 Speaker 1: we've gotten so much news on oil in the past 366 00:22:05,760 --> 00:22:09,400 Speaker 1: twenty four hours, with OPEC deciding to continue cutting production 367 00:22:09,440 --> 00:22:15,320 Speaker 1: despite declines in the stockpiles, President Trump tweeting shale production 368 00:22:15,400 --> 00:22:19,320 Speaker 1: facing challenges. What should traders focus on as to the 369 00:22:19,400 --> 00:22:22,840 Speaker 1: direction of crude? You know, the real fundamental issue out 370 00:22:22,880 --> 00:22:25,960 Speaker 1: there and and and it's it's what's it's what really 371 00:22:26,040 --> 00:22:28,320 Speaker 1: drove the the rise and prices as OPEC has been 372 00:22:29,040 --> 00:22:34,040 Speaker 1: uh un characteristically you know, disciplined in imposing these these 373 00:22:34,080 --> 00:22:38,600 Speaker 1: cuts since late and they've if what we found this 374 00:22:38,640 --> 00:22:41,160 Speaker 1: week is they they've pretty much wiped out the glut 375 00:22:41,400 --> 00:22:44,800 Speaker 1: that that led to the to the collapse and fifteen 376 00:22:45,240 --> 00:22:49,480 Speaker 1: in the first place. So supplies are definitely tightening overseas 377 00:22:49,760 --> 00:22:53,040 Speaker 1: and here in the US, and we're just seeing that 378 00:22:53,080 --> 00:22:56,320 Speaker 1: reflected in prices. Joe, if you were to take us 379 00:22:56,359 --> 00:22:59,880 Speaker 1: on a trip to the Permian basin in West Texas 380 00:23:00,240 --> 00:23:04,960 Speaker 1: and New Mexico, what would we find, Well, we'd find 381 00:23:05,000 --> 00:23:07,280 Speaker 1: the roads are clogged, um and a little bit and 382 00:23:07,320 --> 00:23:09,879 Speaker 1: crumbling a bit, just because there's so much heavy truck traffic. 383 00:23:10,680 --> 00:23:13,720 Speaker 1: We might find it hard to get served at a restaurant, 384 00:23:14,240 --> 00:23:16,879 Speaker 1: and you'd find hotel prices that would compete with what 385 00:23:17,000 --> 00:23:20,240 Speaker 1: you'd pay there in in Midtown Manhattan. There is just 386 00:23:20,359 --> 00:23:24,240 Speaker 1: so much activity in the Permian. Uh. You know, the 387 00:23:24,320 --> 00:23:26,159 Speaker 1: unemployment rate in Midland, which is sort of the the 388 00:23:26,240 --> 00:23:29,280 Speaker 1: unofficial capital of the Permian base, and the unemployment there 389 00:23:29,440 --> 00:23:33,080 Speaker 1: right there is around around two um were the rest 390 00:23:33,119 --> 00:23:35,720 Speaker 1: of the state of Texas is around four. Uh. It's 391 00:23:35,760 --> 00:23:38,600 Speaker 1: just it's a classic boom story and they just can't 392 00:23:38,640 --> 00:23:42,240 Speaker 1: get enough get enough people there to fill the jobs. Okay, 393 00:23:42,520 --> 00:23:44,359 Speaker 1: while I was going, was the idea that if you 394 00:23:44,520 --> 00:23:47,480 Speaker 1: have this increased output, and I believe output is projected 395 00:23:47,520 --> 00:23:52,040 Speaker 1: to climb to four million barrels a day within two years, 396 00:23:52,119 --> 00:23:56,440 Speaker 1: that's three million barrels, is that going to be enough 397 00:23:56,560 --> 00:24:01,560 Speaker 1: to offset whatever production cuts get from OPEC? You know, 398 00:24:01,760 --> 00:24:04,480 Speaker 1: it's it's it's an interesting question because the Permian just 399 00:24:04,600 --> 00:24:07,240 Speaker 1: continues to grow. It grew right through the bus as well. 400 00:24:07,880 --> 00:24:11,280 Speaker 1: The Permian didn't require sixty or seventy dollar oil for 401 00:24:11,400 --> 00:24:14,440 Speaker 1: folks to ramp up drilling activity. They were making money 402 00:24:14,480 --> 00:24:18,480 Speaker 1: when oil was was forty uh So the question is 403 00:24:19,119 --> 00:24:21,280 Speaker 1: the question really isn't about these opex sort of self 404 00:24:21,320 --> 00:24:23,879 Speaker 1: imposed limits. It's what's going to happen to places like Venezuela, 405 00:24:24,200 --> 00:24:27,200 Speaker 1: which has this one of the richest oil endowments in 406 00:24:27,200 --> 00:24:30,400 Speaker 1: the world, but the country is spiraling down almost faster 407 00:24:30,440 --> 00:24:32,680 Speaker 1: than we can chronicle it. And so if and when 408 00:24:32,800 --> 00:24:35,720 Speaker 1: Venezuela sort of drops out of the oil market for 409 00:24:35,800 --> 00:24:38,720 Speaker 1: all intents and purposes, then you're really going to see 410 00:24:38,960 --> 00:24:41,600 Speaker 1: really see a squeeze. And the other end, the other 411 00:24:41,680 --> 00:24:44,240 Speaker 1: side of that would be uh, you know, if next 412 00:24:44,320 --> 00:24:48,640 Speaker 1: month the Trump administration decides to reimpose sanctions on iran Um, 413 00:24:48,960 --> 00:24:51,200 Speaker 1: you know, and cuts off some of those oil supplies 414 00:24:51,280 --> 00:24:53,600 Speaker 1: that men, you probably see another big jump in prices. 415 00:24:53,920 --> 00:24:57,399 Speaker 1: So this sort of is the swing factor the shale producers. 416 00:24:57,640 --> 00:24:59,919 Speaker 1: And you know, there are all of these massive players. 417 00:25:00,080 --> 00:25:03,040 Speaker 1: They could come on or offline shell producers though, could 418 00:25:03,200 --> 00:25:06,560 Speaker 1: ramp up production more than they currently have. Correct. Yeah, 419 00:25:06,640 --> 00:25:09,360 Speaker 1: what's really holding back the shale folks, especially in West 420 00:25:09,400 --> 00:25:12,040 Speaker 1: Texas and New Mexico. It's not an inability to find 421 00:25:12,080 --> 00:25:14,520 Speaker 1: the oil or or to or to you know, get 422 00:25:14,560 --> 00:25:16,240 Speaker 1: it out of the ground, so that they just don't 423 00:25:16,240 --> 00:25:19,800 Speaker 1: have enough pipeline capacity or truck capacity or railroad capacity 424 00:25:20,280 --> 00:25:22,600 Speaker 1: to move at ports. You know, the nearest port or 425 00:25:22,680 --> 00:25:25,200 Speaker 1: refinery is five hundred miles away from from most of 426 00:25:25,240 --> 00:25:27,879 Speaker 1: the Permian, So so they need to lay more pipes. 427 00:25:28,240 --> 00:25:30,040 Speaker 1: Where I wanted to go with this is that Schlumberg 428 00:25:30,760 --> 00:25:33,720 Speaker 1: said today that shell drillers are facing quote production challenges 429 00:25:33,800 --> 00:25:35,800 Speaker 1: that will stunt their ability to fill the impending gap 430 00:25:35,840 --> 00:25:38,600 Speaker 1: between supply and demand. Uh what do you make of that? 431 00:25:38,800 --> 00:25:40,760 Speaker 1: Is it something we should pay attention to. Yeah, and 432 00:25:40,800 --> 00:25:43,520 Speaker 1: that's exactly what he was talking about. That that Uh, 433 00:25:44,080 --> 00:25:45,879 Speaker 1: you know, because the main driver is West Texas and 434 00:25:45,920 --> 00:25:52,160 Speaker 1: New Mexico. It's about pipe capacity and truck drivers and railroads. Um, 435 00:25:52,560 --> 00:25:56,199 Speaker 1: the challenges they're facing is it's one of they're all 436 00:25:56,200 --> 00:25:58,520 Speaker 1: above ground, that that you just can't move the oil 437 00:25:58,560 --> 00:26:02,520 Speaker 1: out fast enough. Joe, you mentioned Venezuela. Give you thirty seconds. 438 00:26:02,560 --> 00:26:04,480 Speaker 1: I want your thoughts on pemm X and what's going 439 00:26:04,560 --> 00:26:08,280 Speaker 1: on in Mexico. You know, the Mexican opening has been 440 00:26:08,480 --> 00:26:14,160 Speaker 1: has been amazing. Uh. They managed to attract the pickiest 441 00:26:14,480 --> 00:26:18,680 Speaker 1: of the of the giant international oil explorers Uh, it 442 00:26:18,920 --> 00:26:21,399 Speaker 1: only took them about two tries to get their contract 443 00:26:21,480 --> 00:26:23,880 Speaker 1: structure right. You know, they succeeded in a way say 444 00:26:23,960 --> 00:26:29,680 Speaker 1: Iraq has not in enticing the you know, these the 445 00:26:29,760 --> 00:26:32,320 Speaker 1: excellents on the shelves of the world to really come 446 00:26:32,359 --> 00:26:35,840 Speaker 1: in aggressively. I want to thank you very much for 447 00:26:35,960 --> 00:26:39,159 Speaker 1: joining us. Joe Carroll, our u S Energy reporter, Houston 448 00:26:39,280 --> 00:26:43,800 Speaker 1: Bureau Chief. You can follow Joe on Twitter at Jay 449 00:26:44,320 --> 00:26:49,000 Speaker 1: Carol and get this. Uh I C H G O. 450 00:26:49,800 --> 00:26:52,639 Speaker 1: Gotta add that all together? All right, So this is 451 00:26:52,680 --> 00:26:55,600 Speaker 1: fascinating and frankly, the implications of this are massive with 452 00:26:55,760 --> 00:26:58,760 Speaker 1: respect to where oil prices go from here. They go higher, 453 00:26:59,000 --> 00:27:02,399 Speaker 1: hired gas price is more inflation. Is that a good thing? 454 00:27:03,320 --> 00:27:21,800 Speaker 1: Not clear? There? You go at j Carrol h g O. Bam, 455 00:27:21,920 --> 00:27:24,359 Speaker 1: he's here in the studio with us. Joe Maisock, editor 456 00:27:24,560 --> 00:27:28,720 Speaker 1: for the Bloomberg Brief for municipal markets, and Joe, I 457 00:27:28,920 --> 00:27:30,719 Speaker 1: don't know. Let's start with the idea that there are 458 00:27:30,840 --> 00:27:38,040 Speaker 1: six million, six million investors who now claimed tax exempt interest. 459 00:27:38,680 --> 00:27:41,280 Speaker 1: This is a pretty high number, isn't it. This is 460 00:27:41,359 --> 00:27:45,479 Speaker 1: a big deal. The uh, the municipal market has been 461 00:27:45,520 --> 00:27:49,359 Speaker 1: experiencing declines in the number of investors who claimed tax 462 00:27:49,440 --> 00:27:54,440 Speaker 1: exempt interest for almost a decade, and this was the 463 00:27:54,600 --> 00:27:59,560 Speaker 1: first major increase over six million. You know, that's not 464 00:27:59,680 --> 00:28:02,160 Speaker 1: a bad number. The peak was six and a half million. 465 00:28:02,680 --> 00:28:05,919 Speaker 1: And Uh, if I had to guess, I would say, uh, 466 00:28:06,240 --> 00:28:09,480 Speaker 1: we're heading more back in that direction as people appreciate 467 00:28:09,640 --> 00:28:13,240 Speaker 1: the benefits of tax exempt income. That's I want to say, why, 468 00:28:13,400 --> 00:28:19,119 Speaker 1: especially after the tax cuts. Well, uh, the in the 469 00:28:19,359 --> 00:28:23,760 Speaker 1: investors who live in the states where the state and 470 00:28:23,840 --> 00:28:30,120 Speaker 1: local tax has been killed or negated, if you will, Uh, 471 00:28:30,520 --> 00:28:35,040 Speaker 1: they're going to look for someplace to hide their income, 472 00:28:35,520 --> 00:28:37,920 Speaker 1: and the tax examp market is one of the few 473 00:28:38,600 --> 00:28:42,480 Speaker 1: shelters left. So it also because of the convenience, because 474 00:28:42,520 --> 00:28:44,360 Speaker 1: you know, you can always do the math and say, well, 475 00:28:44,480 --> 00:28:46,280 Speaker 1: you know, if you invest in this, it's going to 476 00:28:46,360 --> 00:28:49,360 Speaker 1: give you a higher after tax income. You do this 477 00:28:49,480 --> 00:28:51,680 Speaker 1: also with immunees. You know, you figure out what the 478 00:28:51,920 --> 00:28:54,760 Speaker 1: taxable equivalent yield is and so on. But is there 479 00:28:54,840 --> 00:28:58,200 Speaker 1: also just a convenience factor of having tax exempt income 480 00:28:58,800 --> 00:29:02,200 Speaker 1: m interest thing? You know, I'm I'm I'm not sure 481 00:29:02,240 --> 00:29:06,400 Speaker 1: about that. Because the municipal market has long battled the 482 00:29:08,360 --> 00:29:14,480 Speaker 1: negative ease of access, meaning municipal bonds are available in 483 00:29:14,600 --> 00:29:18,440 Speaker 1: five thousand dollar minimum denominations, and generally speaking, your broker 484 00:29:18,480 --> 00:29:20,200 Speaker 1: doesn't want to talk to you unless you're are going 485 00:29:20,240 --> 00:29:23,479 Speaker 1: to order twenty five dollars. Yeah, that's why. That's why 486 00:29:23,480 --> 00:29:26,280 Speaker 1: I brought that up. Okay, can we turn to the 487 00:29:26,520 --> 00:29:30,280 Speaker 1: actual supply of municipal bonds? Smiling you like this top, 488 00:29:30,400 --> 00:29:33,240 Speaker 1: we can. It's great. You know, this week we broke 489 00:29:33,360 --> 00:29:36,480 Speaker 1: thirteen billion for the first time all year, for the 490 00:29:36,520 --> 00:29:39,360 Speaker 1: first time since back in December. And you know, at 491 00:29:39,400 --> 00:29:43,760 Speaker 1: that point, we were coming off of a record volume month. Um. 492 00:29:44,120 --> 00:29:48,000 Speaker 1: You know, it was like sixty two plus billion dollars. Uh, so, 493 00:29:48,360 --> 00:29:52,200 Speaker 1: thirteen billion, and you know, things are looking up so 494 00:29:52,400 --> 00:29:57,440 Speaker 1: far this year. The municipal market is off about and that, 495 00:29:57,640 --> 00:30:01,600 Speaker 1: of course is bad news for all the underwriters and 496 00:30:01,760 --> 00:30:04,880 Speaker 1: financial advisors and bond lawyers out there. A little on 497 00:30:04,960 --> 00:30:09,840 Speaker 1: a salesman, so uh talking about the positive edges of 498 00:30:09,880 --> 00:30:12,120 Speaker 1: the bond market, I just want to bring the conversation 499 00:30:12,200 --> 00:30:13,960 Speaker 1: down a little too, a little more depressing place. I 500 00:30:14,000 --> 00:30:16,080 Speaker 1: want to go to Puerto Rico. I want to talk 501 00:30:16,120 --> 00:30:20,680 Speaker 1: about how the power has gone out again in most 502 00:30:20,840 --> 00:30:25,160 Speaker 1: of the island and the fact that, uh that a 503 00:30:25,240 --> 00:30:28,680 Speaker 1: lot of bond investors are actually suddenly profiting in big 504 00:30:29,320 --> 00:30:31,960 Speaker 1: in a big way from their holdings right now is 505 00:30:32,040 --> 00:30:34,760 Speaker 1: rubbing people the wrong way? Can you explain how the 506 00:30:34,760 --> 00:30:39,880 Speaker 1: Puerto Rican government is upgrading its financial expectations giving bonfires? Uh, 507 00:30:40,200 --> 00:30:44,080 Speaker 1: positive feeling? How does that cohere with another blockout and 508 00:30:44,160 --> 00:30:47,960 Speaker 1: the situation on the island deep and dark? Yeah, we're 509 00:30:48,000 --> 00:30:49,760 Speaker 1: just talking. We're gonna we're gonna name our show that 510 00:30:50,360 --> 00:30:56,400 Speaker 1: man Happy Friday, go ahead. Uh. You know, Puerto Rico 511 00:30:56,720 --> 00:31:00,960 Speaker 1: is looking down the line and sees some good days 512 00:31:01,000 --> 00:31:03,640 Speaker 1: ahead because there's going to be so much money invested 513 00:31:04,600 --> 00:31:09,040 Speaker 1: by insurance companies, uh, and reconstruction of the island, So 514 00:31:09,120 --> 00:31:11,400 Speaker 1: they're looking forward to that. Uh. You know, when you 515 00:31:11,560 --> 00:31:17,000 Speaker 1: talk about bond holders profiting, you're talking about a relatively 516 00:31:17,080 --> 00:31:20,240 Speaker 1: small group of speculators who bought in a twenty cents 517 00:31:20,280 --> 00:31:23,680 Speaker 1: in the dollar and the dollar and who are now 518 00:31:23,760 --> 00:31:27,080 Speaker 1: looking at forty cents in the dollar if they wanted 519 00:31:27,080 --> 00:31:29,640 Speaker 1: to sell. I think that the issue here is and 520 00:31:29,800 --> 00:31:32,000 Speaker 1: and you know, you talk to people who buy bonds 521 00:31:32,040 --> 00:31:34,560 Speaker 1: and they say, look, the only reason why this financing 522 00:31:34,640 --> 00:31:37,520 Speaker 1: is available is because of the contracts that govern it, right, 523 00:31:37,680 --> 00:31:40,480 Speaker 1: And if people just feel like those contracts get broken, 524 00:31:40,760 --> 00:31:44,320 Speaker 1: then the borrower is unable to tap markets. Again, that 525 00:31:44,480 --> 00:31:46,480 Speaker 1: is the penalty, right, And so here we have a 526 00:31:46,520 --> 00:31:53,240 Speaker 1: situation where Puerto Rico could decide to just not pay, right, 527 00:31:53,360 --> 00:31:55,760 Speaker 1: I mean and and so then the bonds would not 528 00:31:55,960 --> 00:31:58,840 Speaker 1: be worth even where they're trading right now. Those words 529 00:31:58,920 --> 00:32:01,760 Speaker 1: not pay that you should see the expression on Joe 530 00:32:01,880 --> 00:32:04,840 Speaker 1: my sex face. Well, I'm not and I'm not arguing. 531 00:32:06,000 --> 00:32:08,400 Speaker 1: I'm not arguing for them to do this. I'm just 532 00:32:08,680 --> 00:32:11,360 Speaker 1: raising sort of the political backdrop that this is coming 533 00:32:11,400 --> 00:32:18,160 Speaker 1: at repudiation Confederate States of America, not the uh IN 534 00:32:19,320 --> 00:32:21,880 Speaker 1: and the governor said the debt is not payable, and 535 00:32:22,520 --> 00:32:26,880 Speaker 1: that was the sort of crack of doom. Um, So 536 00:32:27,080 --> 00:32:30,360 Speaker 1: now it's really going to be more of a legal settlement. Uh. 537 00:32:30,760 --> 00:32:33,160 Speaker 1: You know, I'm not sure you could say while we're 538 00:32:33,160 --> 00:32:36,360 Speaker 1: going to write it off to zero. Yes, there have 539 00:32:36,880 --> 00:32:41,280 Speaker 1: been some people who suggest that. But as you pointed out, 540 00:32:41,680 --> 00:32:45,360 Speaker 1: if Puerto Rico is going to have access to the 541 00:32:45,480 --> 00:32:49,280 Speaker 1: markets to raise more capital, at some point they have 542 00:32:49,440 --> 00:32:53,280 Speaker 1: to make some sort of token gesture on the outstanding debt, 543 00:32:53,440 --> 00:32:57,200 Speaker 1: especially the general obligation on the Cofina debt and Just 544 00:32:57,320 --> 00:32:59,760 Speaker 1: to put this in some kind of perspective, the federal 545 00:32:59,800 --> 00:33:05,120 Speaker 1: board that oversees the Commonwealth's finances says, spending cuts improving 546 00:33:05,200 --> 00:33:08,320 Speaker 1: tax collections, you could end up with a surplus over 547 00:33:08,360 --> 00:33:12,280 Speaker 1: the next six years of six point seven billion dollars. 548 00:33:12,520 --> 00:33:15,480 Speaker 1: Thanks very much, Joe Mask, editor for the Bloomberg Brief 549 00:33:15,640 --> 00:33:20,000 Speaker 1: Municipal Markets. Check it out on Briefs, go on the Bloomberg. 550 00:33:23,720 --> 00:33:26,240 Speaker 1: Thanks for listening to the Bloomberg P and L podcast. 551 00:33:26,600 --> 00:33:30,480 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 552 00:33:30,640 --> 00:33:34,080 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 553 00:33:34,120 --> 00:33:38,120 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 554 00:33:38,240 --> 00:33:40,840 Speaker 1: It's one before the podcast. You can always catch us 555 00:33:40,880 --> 00:33:42,440 Speaker 1: worldwide on Bloomberg Radio.