Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. In
Speaker 1: the past week, as people fretted over trade wars and
Speaker 1: the decline in tech shares, ten year treasury yields quietly
Speaker 1: but very steadily moved back toward that two point nine threshold,
Speaker 1: getting back toward that three line in the sand at
Speaker 1: which many investors said they would pile back into the debt.
Speaker 1: Joining us now to figure out what's behind this move,
Speaker 1: what does it mean about the global economy, and where
Speaker 1: should investors take their money? As Dave Lafferty, chief market Strategist,
Speaker 1: and it takes this investment manager, as he joins us
Speaker 1: here in our eleven three oh studios, Dave, thank you
Speaker 1: so much for being here. I'm trying to make sense
Speaker 1: of this. We're talking about a flattening yield curve and
Speaker 1: we're also talking about a steadily climbing ten year treasure yield.
Speaker 1: Are we looking at stagflation? I don't think we're there yet, certainly,
Speaker 1: I do think inflation is part of the story that
Speaker 1: we've seen in the yield curve UM, I should say,
Speaker 1: in terms of ten years backing up UH. We've seen
Speaker 1: that the correlation between things like the price of oil
Speaker 1: UH and inflation break evens have been fairly consistent. So
Speaker 1: as oils backed up, it seems like inflation expectations are
Speaker 1: backing up. We've seen a little bit of the risk
Speaker 1: off trade that we've seen around geopolitics FADE. I think
Speaker 1: that's allowing yields at the long end to back up
Speaker 1: a little bit, and there's still the the underlying strength
Speaker 1: and the global economy. I still think that the equilibrium
Speaker 1: rate for interest rates out the yield curve is still
Speaker 1: higher UH if we look at nominal rates versus nominal growth,
Speaker 1: which should be related at something like the five year
Speaker 1: tenor in the long run. I don't think we're gonna
Speaker 1: get anywhere near this in the short run, but in
Speaker 1: the long run, the five year treasury is probably seventy
Speaker 1: basis points below where it probably ought to be in
Speaker 1: the long run. UH. Nominal growth versus nominal yield, meaning
Speaker 1: the yield is much lower than nominal growth is. Right now,
Speaker 1: David Macro in your note, you're right about the macro
Speaker 1: peak reached in January with quote synchronized global growth and
Speaker 1: tax cut euphoria. Right, If that's correct, Why would you
Speaker 1: want to be buying into a market that has those
Speaker 1: kinds of headlines. Why wouldn't you want to just sit
Speaker 1: and wait for everything to go as they say, you know,
Speaker 1: pair shape and then buy assets. What do you want
Speaker 1: to buy assets when you're at the top or near
Speaker 1: the top of a cycle. Yeah, it's a great point.
Speaker 1: So this is why I think I've been a little
Speaker 1: bit more cautious, because at the end of the day,
Speaker 1: we tend to be more value investors in the long run.
Speaker 1: Um And, as I mentioned, sort of you had that
Speaker 1: macro euphoria. If you went back and read everybody's two
Speaker 1: thousand eighteen outlooks that we all wrote in two thousand seventeen,
Speaker 1: it was all about that quote synchronized global growth. The
Speaker 1: global economy was priced to perfection in the fourth quarter
Speaker 1: and into January. Uh. And I think that makes it.
Speaker 1: That makes it for both the equity markets and for
Speaker 1: the global economy a very high bar to get over.
Speaker 1: So again, the underlying fundamentals, we like the long term trend.
Speaker 1: It's not uh, it's not that we were telling people
Speaker 1: to get out of the market, but I think you
Speaker 1: have to be a little bit more cautious given how
Speaker 1: much euphoria had been priced into the market. When was
Speaker 1: the last time that you changed to your recommended allocation? Uh?
Speaker 1: Interestingly enough, it hasn't changed much. I've been sort of
Speaker 1: in this low beta camp for a few years. Uh.
Speaker 1: Going back to uh, you know, we we had been
Speaker 1: fairly fairly bullish. I'm sorry to interrupt you, but I
Speaker 1: mean with respect to the bonds, the stocks, the cash,
Speaker 1: that's what I'm talking about. The ratios. Uh. Well, again,
Speaker 1: it depends on the client. But for an over let's
Speaker 1: say a plane, Jane, it really hasn't changed that much
Speaker 1: in a couple of years. What would make you change it?
Speaker 1: What would make me change it is if I thought
Speaker 1: the global economy was beginning to falter more than what
Speaker 1: we've already seen. We don't see the underlying trends changing
Speaker 1: that much. Uh. So I do think there may come
Speaker 1: a time to get bearish. We're not there yet. I will, however,
Speaker 1: say that the gap, this idea that equities were the
Speaker 1: only game in town. If you went back a year
Speaker 1: and a half ago, you had stocks that weren't that expensive,
Speaker 1: you had all this global QUEI, the gap, the the
Speaker 1: the equity risk premium had gotten extremely wide. Well, now
Speaker 1: yields have started to back up, so bonds look a
Speaker 1: little bit more attractive. Peas have gone up, so earnings
Speaker 1: yields on the equity market have come down. There's still
Speaker 1: a big gap between fixed income and equity, but it's
Speaker 1: not nearly as big as it was before. But we
Speaker 1: were never that massively optimistic in the first place. I
Speaker 1: think that market timing is pretty hard. So it's better
Speaker 1: to be slightly de risk going into a risk off
Speaker 1: environment than hoping that your clients are gonna be able
Speaker 1: to time the markets correctly, which never seems to be
Speaker 1: the case. Right, So if that's never the case, why
Speaker 1: not take some money off the table when everybody is
Speaker 1: trying to figure out reasons to be bullish. You've got earnings.
Speaker 1: You take a look at the global economy. As you
Speaker 1: just said, oil prices, even though you get tweets from
Speaker 1: the President, oil prices barely move. You got oil at
Speaker 1: around sixty seven dollars a barrel. If all things are
Speaker 1: benign and sanguine, why not take a little money off
Speaker 1: that's able and then wait when everybody else is panicking
Speaker 1: and hitting the sell button. Yeah. I still think the
Speaker 1: global economy is strong enough where uh, if the implications
Speaker 1: take some money off or be mildly defensive, that makes
Speaker 1: sense to us. But it's not a scenario where you
Speaker 1: want to be bailing out. The global economy is still
Speaker 1: probably growing at almost a three and a half to
Speaker 1: four percent run rate, I think three point eight three.
Speaker 1: But I mean you can at least take some of
Speaker 1: the profits and then you let the money that you
Speaker 1: made move and you take out your original investment, so
Speaker 1: at least you have some dry powder if in case
Speaker 1: you end up with a scenario where people say I'm
Speaker 1: getting out and then you get to get back in. Yeah,
Speaker 1: And this is the sort of the notion I was
Speaker 1: mentioning before. It isn't really our view of jumping out
Speaker 1: of the market. It's staying in the market, but being
Speaker 1: more defensive in terms of doing it. So those could
Speaker 1: be things like option hedging or low vall or minimum
Speaker 1: beta low, low variant strategies are our advices? Are there
Speaker 1: ways to be in the market without sticking your neck
Speaker 1: out too far? Thanks very much for being with us.
Speaker 1: Dave Laherty is the chief market strategist for Natixis Investment Managers.
Speaker 1: What is it like to be a value investor? Well,
Speaker 1: that's why we ask Scott and Black. He is the
Speaker 1: president of Delphi Management to be our guest. He joins
Speaker 1: us from Boston, home to Bloomberg one or six one
Speaker 1: Boston New Report and in Metro West in the South Shore.
Speaker 1: Scott Black always a pleasure. How do you define value investor?
Speaker 1: Really a value investor? There's somebody either sticks to a
Speaker 1: discipline throughout all cycles and buys absolutely low peas or
Speaker 1: buy consistently at a price to break up that's close
Speaker 1: below theoretical value of where the breakup value is, and
Speaker 1: so it's you know the all Benjamin Graham, the idea
Speaker 1: has get that margin of safety by not paying up.
Speaker 1: How difficult has it been to maintain that disposition of
Speaker 1: being a value investor in the last let's say twelve
Speaker 1: to twenty four months, how about in the last ten years?
Speaker 1: Has been very difficult? To be frank with you. I mean,
Speaker 1: even though our companies come through with earnings that don't
Speaker 1: seem to get much respect, the bottom line is systematically,
Speaker 1: especially with the emergence of the e t f S,
Speaker 1: value has systematically trailed growth over the last five and
Speaker 1: ten year period. Scott, I know that you recommend to
Speaker 1: your clients to target companies that pay high dividends. I
Speaker 1: wonder at what point those companies will look less attractive
Speaker 1: to you when you can actually start earning something on cash. No,
Speaker 1: the bottom line is that we own a panoply of
Speaker 1: companies that are low p There's some that have divd
Speaker 1: in yields, which I was going to suggest a few
Speaker 1: to your readership so they don't have to buy junk bonds.
Speaker 1: It's not necessary that we have companies with divid in yields,
Speaker 1: but we like companies that generate lots are free cash.
Speaker 1: So I mean, I can give you a couple of it.
Speaker 1: Go ahead, give us some example. Okay, here's one high crush.
Speaker 1: It's an lp UM. It's basically one of the largest
Speaker 1: producers of frack sand in the United States. It's a
Speaker 1: eleven dollar ninety cents stock and they're gonna earn about
Speaker 1: two forty. It's a five p selling at one point
Speaker 1: three times booked, and they just bumped the diving in
Speaker 1: again to ninety cents annualized. You get the seven point
Speaker 1: six percent yield, and the earnings are exploding this year
Speaker 1: UM last year they get about a dollar one. They'll
Speaker 1: do two forty two forty five. And as you know
Speaker 1: you've been watching, UM fracking has done one just for
Speaker 1: Americans oil production. We're up to ten and a half
Speaker 1: million barrels a day. Last year at nine point three million,
Speaker 1: and you need to use a lot of this fine
Speaker 1: sand to frackt and they have roughly a thirteen share
Speaker 1: of the whole United States market. So you have the
Speaker 1: wind tear back, plus you're getting paid while you wait,
Speaker 1: and the stock is ridiculously cheap. How did you find
Speaker 1: high crush? Did you go to Houston? You know what
Speaker 1: we do oftentimes we do a lot of mathematical screening,
Speaker 1: initially PIM and then if it looks attracted, we call
Speaker 1: and visit the company. So we've talked to the management
Speaker 1: on this company, you know several times. We never buy anything,
Speaker 1: as they say, off the shots or on a whim.
Speaker 1: We always talk to management to see you know, if
Speaker 1: they're really they're under control, and whether they have certain
Speaker 1: targets for returns on capital and growth and revenue and
Speaker 1: earnings per share. All right, let's talk about another one.
Speaker 1: Give us another name, because high car symbol hc LP,
Speaker 1: as you said, based in Houston, paint about a six
Speaker 1: or seven point six percent dive. And then right now, okay,
Speaker 1: Now another one that I like is part of the
Speaker 1: Aries group is the b d C. The business development
Speaker 1: corp is Aries Capital ai c C. The stock is
Speaker 1: rough the fifteen nineties six. It sells below tangible books
Speaker 1: cents on the book, the dividends of dollar fifty two
Speaker 1: or the nine and a half percent yield, and about
Speaker 1: six point eight billion market cap, and they'll learn this
Speaker 1: year about a dollar sixty, So it's a MP selling
Speaker 1: below book um. They make very few mistakes, and their
Speaker 1: portfolio less than one percent historically, and the company will
Speaker 1: grow its organic portfolio about five or six percent. But
Speaker 1: this is one company that benefits from rising rates. They
Speaker 1: asked that sensitive not liability sense of for example, of
Speaker 1: the portfolio loans float, so rates go up, but eighty
Speaker 1: two percent of their funding is fixed. And so for
Speaker 1: each hundred basis points in library at sixteen cents to share,
Speaker 1: so as interest rates rise they benefit very nicely. And uh, well,
Speaker 1: what if it turn has been like on these cash
Speaker 1: rich companies well over time, um probably areas with the
Speaker 1: dividend has probably done about double digits between your growth
Speaker 1: and the stock price over time, and in the dividend
Speaker 1: high Crush is a relatively new company, so it doesn't
Speaker 1: have a long history, but I mean relative of to
Speaker 1: say the broad index. As I say, you can't look
Speaker 1: at it on that basis because I'm buying it now
Speaker 1: on a statistical basis that they are achieved. You know,
Speaker 1: there are certain times, you know, let's say after the
Speaker 1: market crash in a way I'll give you an example.
Speaker 1: I was able to bi Oracle and Microsoft. They saw
Speaker 1: that our types of p s there are opportunities. It's
Speaker 1: not that we're going to put them away forever. You know,
Speaker 1: our longest term holdings have been things like Berkshire half
Speaker 1: the Way, which we've going forever. But these are just
Speaker 1: opportunistic as the valuations are so cheap at this current time. Scott,
Speaker 1: what's the biggest mistake? Give you thirty seconds. What's the
Speaker 1: biggest mistake investors make when they think that they are
Speaker 1: a value investor, but they're not. Well, they think if
Speaker 1: a company used to sell it and it's now an
Speaker 1: eighteen multiple, that somehow it's value. That's a relative value,
Speaker 1: because that's roughly the market multiple. The idea of your
Speaker 1: value investor is really to stick to absolute valuation, and
Speaker 1: the other thing is to stay away from the downs.
Speaker 1: Forget about technical analysis. You have to have your own
Speaker 1: conviction about the company, and if if something's out of
Speaker 1: stab or oftentimes, that's the time to buy it, because
Speaker 1: when the consensus is good, to be buying stocks off
Speaker 1: the high, not off the low. Scott Black, thank you
Speaker 1: so much for joining us. Scott Black, president of Delphi Management,
Speaker 1: overseeing about a billion dollars from Boston, and uh disregard
Speaker 1: technical analysis. I'm sure some people him. We're really lucky
Speaker 1: to have our next guests hitting a very hot topic
Speaker 1: right now, and that is medical marijuana, in particular the
Speaker 1: shifting tides of major politicians who have previously opposed marijuana use,
Speaker 1: even on the medical front, but are changing their tune.
Speaker 1: I want to offer a warm welcome to the former
Speaker 1: Massachusetts Governor William Weld, as well as Kevin Murphy, chief
Speaker 1: executive officer of Acreage Holdings, which is the medical marijuana
Speaker 1: business that has garnered support from a former governor at Weld,
Speaker 1: as well as from John Byner, the former Republican Speaker
Speaker 1: of the House who once said he was quote unilaterally
Speaker 1: opposed to decriminalizing marijuana laws. I want to start with you,
Speaker 1: Kevin Um, yourself, as a former alternative money manager for
Speaker 1: Stanfield Capital Partners, what drew you to this business and
Speaker 1: what do you attribute the shifting tide right now in sentiment? Well,
Speaker 1: first and foremost, thanks so much for having me on
Speaker 1: the program. Uh, my shift really had come in two thousand,
Speaker 1: two thousand eleven when I was introduced to the space
Speaker 1: by a friend and I was very skeptical about marijuana
Speaker 1: in general. Didn't have a strong working relationship with the
Speaker 1: plant UM, so it really wasn't for me. But when
Speaker 1: I had done further due diligence on the business itself
Speaker 1: and having run a multi billion dollar money management firm,
Speaker 1: understanding business and the operating leverage in that business, UM,
Speaker 1: it was that coupled with UM, the medicinal value of
Speaker 1: this plant could potentially be the silver bullet um for
Speaker 1: the medical community over the next twenty to thirty years.
Speaker 1: It is simply remarkable what this plant can do for
Speaker 1: children with epilepsy, um people with cancer, and the list
Speaker 1: goes on and on. I want to focus for just
Speaker 1: a second, not on the medicinal potential for cannabis, but
Speaker 1: on the financial potential for cannabis. UH. William Weld, former
Speaker 1: governor of the state of Massachusetts from you have a
Speaker 1: bit of experience when it comes to state UH finances.
Speaker 1: What do you leave to be the main obstacles for
Speaker 1: lawmakers to approve the legal sale of cannabis. Forget the
Speaker 1: medical part of it for just a moment. When you have,
Speaker 1: for many years already had the legal sale and taxation
Speaker 1: of tobacco products, the legal sale and taxation of alcohol products, Uh,
Speaker 1: we don't necessarily have a prohibition on substances that we
Speaker 1: know can create health issues, if indeed they exist. What
Speaker 1: about the financial implications of taxing cannabis and using that
Speaker 1: money to fill all of these budget holes? Well, nothing
Speaker 1: is holding back legislators in any state from doing that,
Speaker 1: absolutely nothing, not fiscal policy, not criminal law. Nothing. That's
Speaker 1: why that's why nine states have already legalized so called
Speaker 1: adult reck adult recreational use. I I supported the Question
Speaker 1: four in Massachusetts, my state, back into two thousand and
Speaker 1: sixteen elections in that past, despite being opposed by almost
Speaker 1: all the politicians in the state except this former politician.
Speaker 1: But so why do they oppose it? Well, I think
Speaker 1: it's a cultural thing. You know, it takes a little
Speaker 1: getting used to some people. Probably they're they're buried. Antipathy
Speaker 1: towards cannabis goes all the way back to the nineteen
Speaker 1: thirties when the you know, the movie Reefer Madness and
Speaker 1: the federal government really came down hard on it. It's
Speaker 1: almost like the panic that beset everybody in the nineteen
Speaker 1: eighties about crack cocaine. They thought it was gonna, you know,
Speaker 1: take over our streets, and it's simply not true. One
Speaker 1: thing both Speaker Bayner and I think is right on
Speaker 1: the table now is a legal issue, is to deschedule
Speaker 1: cannabis as a Class one narcotic in Washington d C.
Speaker 1: I mean, that is supposed to be for drugs with
Speaker 1: absolutely no redeeming medicinal value whatsoever. We already know that's
Speaker 1: not true. I mean I endorsed medical marijuana back in
Speaker 1: nineteen ninety two, my second year in office, for relief
Speaker 1: from nausea from chemotherapy and glaucoma, And even then it
Speaker 1: was known that the drug was helpful in treating those. UH.
Speaker 1: We know more now than we used to. People have
Speaker 1: focused on the fact that there are other cannabinoids besides
Speaker 1: th HC in the cannabis plant. There's uh CBD, which
Speaker 1: has none of the potentially negative effects of th HC
Speaker 1: and is enormously helpful in UH treating pain anxiety. UM.
Speaker 1: So you know, I I got into this. In fact,
Speaker 1: I jumped at the chance because I spent a couple
Speaker 1: of hours with Murph, Kevin Murphy, and I could see
Speaker 1: his passion about doing something on the medical side. Most
Speaker 1: of his acquisitions were on the medical side. We're not
Speaker 1: opposed to adult wreck, but we think that's that's up
Speaker 1: to the States. And you know, I note with approval
Speaker 1: that candidate Trump during the election said adult wreck, that's
Speaker 1: the States rights issue. And he has now said we
Speaker 1: want to hear comments to the f d A by
Speaker 1: April on de scheduling cannabis as a Class one narcotic.
Speaker 1: Those are two very hopeful sign is from the President. Yeah, Kevin,
Speaker 1: I want to get your sense. Um Acreage Holdings operates
Speaker 1: currently in eleven states. It's headquartered in New York. I
Speaker 1: just want to know, given the backing of Governor Murphy,
Speaker 1: governor here, who is joining us now as well as
Speaker 1: John Bayner, do you expect to expand much more or
Speaker 1: do you think that it's gonna be tepid? And what
Speaker 1: about financing? We do anticipate expanding, having UM again been
Speaker 1: in the financial services business. UM this is much like cable,
Speaker 1: this is much like cellular. This is a business that
Speaker 1: has started out as a fragmented business. Uh. You can
Speaker 1: look back five years the cable industry, the cellular industry
Speaker 1: had thousands of players. Today there's five to ten players
Speaker 1: in both sector. UM Acreage being the largest footprint in
Speaker 1: the country today, we anticipate maintaining that pole position. So
Speaker 1: what we're here to do is bring the finest operators
Speaker 1: we can with the best people we can. And no
Speaker 1: better place to start then with the Speaker and the governor.
Speaker 1: Governor world, I just want to get your sons in
Speaker 1: twenty seconds, do you foresee a lot more support coming,
Speaker 1: particularly from the Republican delegation in Congress? I do of
Speaker 1: the country wants adult wreck. UH wants medical marijuana, wants
Speaker 1: adult reck. It's it's coming and Uh, Acreage Holdings, you know,
Speaker 1: I'll let the cout out of the bag. We want
Speaker 1: to be a consolidator in the industry. The management is
Speaker 1: blue chip Wall Street background. That's a good combination with
Speaker 1: the passion that Kevin Murphy also brings to the table.
Speaker 1: I want to thank you both for joining us. So
Speaker 1: William Wells, he is the former governor of Massachusetts, joining
Speaker 1: us here in studio with Kevin Murphy. He's the chief
Speaker 1: executive of Acreage Holdings, the largest multi state cannabis operator
Speaker 1: in the country. And just a note that just today
Speaker 1: opening in New York City, that the Los Angeles based
Speaker 1: cannabis retailer MEDMN is launching its first dispensary in New
Speaker 1: York City and it will be open for on site
Speaker 1: consultations with pharmacists to determine best fit remedies for chronic
Speaker 1: pain and other ailments diagnosed by doctors. Competition heating up,
Speaker 1: could be President tweeting today on oil and opeque looks
Speaker 1: like OPEC is at it again, he wrote, with record
Speaker 1: amounts of oil all over the place, including the fully
Speaker 1: loaded ships at sea. Oil prices are artificially very high,
Speaker 1: no good and will not be accepted. Joining US now,
Speaker 1: Joe Carroll, US energy reporter and Houston Bureau chief. Joe,
Speaker 1: we've gotten so much news on oil in the past
Speaker 1: twenty four hours, with OPEC deciding to continue cutting production
Speaker 1: despite declines in the stockpiles, President Trump tweeting shale production
Speaker 1: facing challenges. What should traders focus on as to the
Speaker 1: direction of crude? You know, the real fundamental issue out
Speaker 1: there and and and it's it's what's it's what really
Speaker 1: drove the the rise and prices as OPEC has been
Speaker 1: uh un characteristically you know, disciplined in imposing these these
Speaker 1: cuts since late and they've if what we found this
Speaker 1: week is they they've pretty much wiped out the glut
Speaker 1: that that led to the to the collapse and fifteen
Speaker 1: in the first place. So supplies are definitely tightening overseas
Speaker 1: and here in the US, and we're just seeing that
Speaker 1: reflected in prices. Joe, if you were to take us
Speaker 1: on a trip to the Permian basin in West Texas
Speaker 1: and New Mexico, what would we find, Well, we'd find
Speaker 1: the roads are clogged, um and a little bit and
Speaker 1: crumbling a bit, just because there's so much heavy truck traffic.
Speaker 1: We might find it hard to get served at a restaurant,
Speaker 1: and you'd find hotel prices that would compete with what
Speaker 1: you'd pay there in in Midtown Manhattan. There is just
Speaker 1: so much activity in the Permian. Uh. You know, the
Speaker 1: unemployment rate in Midland, which is sort of the the
Speaker 1: unofficial capital of the Permian base, and the unemployment there
Speaker 1: right there is around around two um were the rest
Speaker 1: of the state of Texas is around four. Uh. It's
Speaker 1: just it's a classic boom story and they just can't
Speaker 1: get enough get enough people there to fill the jobs. Okay,
Speaker 1: while I was going, was the idea that if you
Speaker 1: have this increased output, and I believe output is projected
Speaker 1: to climb to four million barrels a day within two years,
Speaker 1: that's three million barrels, is that going to be enough
Speaker 1: to offset whatever production cuts get from OPEC? You know,
Speaker 1: it's it's it's an interesting question because the Permian just
Speaker 1: continues to grow. It grew right through the bus as well.
Speaker 1: The Permian didn't require sixty or seventy dollar oil for
Speaker 1: folks to ramp up drilling activity. They were making money
Speaker 1: when oil was was forty uh So the question is
Speaker 1: the question really isn't about these opex sort of self
Speaker 1: imposed limits. It's what's going to happen to places like Venezuela,
Speaker 1: which has this one of the richest oil endowments in
Speaker 1: the world, but the country is spiraling down almost faster
Speaker 1: than we can chronicle it. And so if and when
Speaker 1: Venezuela sort of drops out of the oil market for
Speaker 1: all intents and purposes, then you're really going to see
Speaker 1: really see a squeeze. And the other end, the other
Speaker 1: side of that would be uh, you know, if next
Speaker 1: month the Trump administration decides to reimpose sanctions on iran Um,
Speaker 1: you know, and cuts off some of those oil supplies
Speaker 1: that men, you probably see another big jump in prices.
Speaker 1: So this sort of is the swing factor the shale producers.
Speaker 1: And you know, there are all of these massive players.
Speaker 1: They could come on or offline shell producers though, could
Speaker 1: ramp up production more than they currently have. Correct. Yeah,
Speaker 1: what's really holding back the shale folks, especially in West
Speaker 1: Texas and New Mexico. It's not an inability to find
Speaker 1: the oil or or to or to you know, get
Speaker 1: it out of the ground, so that they just don't
Speaker 1: have enough pipeline capacity or truck capacity or railroad capacity
Speaker 1: to move at ports. You know, the nearest port or
Speaker 1: refinery is five hundred miles away from from most of
Speaker 1: the Permian, So so they need to lay more pipes.
Speaker 1: Where I wanted to go with this is that Schlumberg
Speaker 1: said today that shell drillers are facing quote production challenges
Speaker 1: that will stunt their ability to fill the impending gap
Speaker 1: between supply and demand. Uh what do you make of that?
Speaker 1: Is it something we should pay attention to. Yeah, and
Speaker 1: that's exactly what he was talking about. That that Uh,
Speaker 1: you know, because the main driver is West Texas and
Speaker 1: New Mexico. It's about pipe capacity and truck drivers and railroads. Um,
Speaker 1: the challenges they're facing is it's one of they're all
Speaker 1: above ground, that that you just can't move the oil
Speaker 1: out fast enough. Joe, you mentioned Venezuela. Give you thirty seconds.
Speaker 1: I want your thoughts on pemm X and what's going
Speaker 1: on in Mexico. You know, the Mexican opening has been
Speaker 1: has been amazing. Uh. They managed to attract the pickiest
Speaker 1: of the of the giant international oil explorers Uh, it
Speaker 1: only took them about two tries to get their contract
Speaker 1: structure right. You know, they succeeded in a way say
Speaker 1: Iraq has not in enticing the you know, these the
Speaker 1: excellents on the shelves of the world to really come
Speaker 1: in aggressively. I want to thank you very much for
Speaker 1: joining us. Joe Carroll, our u S Energy reporter, Houston
Speaker 1: Bureau Chief. You can follow Joe on Twitter at Jay
Speaker 1: Carol and get this. Uh I C H G O.
Speaker 1: Gotta add that all together? All right, So this is
Speaker 1: fascinating and frankly, the implications of this are massive with
Speaker 1: respect to where oil prices go from here. They go higher,
Speaker 1: hired gas price is more inflation. Is that a good thing?
Speaker 1: Not clear? There? You go at j Carrol h g O. Bam,
Speaker 1: he's here in the studio with us. Joe Maisock, editor
Speaker 1: for the Bloomberg Brief for municipal markets, and Joe, I
Speaker 1: don't know. Let's start with the idea that there are
Speaker 1: six million, six million investors who now claimed tax exempt interest.
Speaker 1: This is a pretty high number, isn't it. This is
Speaker 1: a big deal. The uh, the municipal market has been
Speaker 1: experiencing declines in the number of investors who claimed tax
Speaker 1: exempt interest for almost a decade, and this was the
Speaker 1: first major increase over six million. You know, that's not
Speaker 1: a bad number. The peak was six and a half million.
Speaker 1: And Uh, if I had to guess, I would say, uh,
Speaker 1: we're heading more back in that direction as people appreciate
Speaker 1: the benefits of tax exempt income. That's I want to say, why,
Speaker 1: especially after the tax cuts. Well, uh, the in the
Speaker 1: investors who live in the states where the state and
Speaker 1: local tax has been killed or negated, if you will, Uh,
Speaker 1: they're going to look for someplace to hide their income,
Speaker 1: and the tax examp market is one of the few
Speaker 1: shelters left. So it also because of the convenience, because
Speaker 1: you know, you can always do the math and say, well,
Speaker 1: you know, if you invest in this, it's going to
Speaker 1: give you a higher after tax income. You do this
Speaker 1: also with immunees. You know, you figure out what the
Speaker 1: taxable equivalent yield is and so on. But is there
Speaker 1: also just a convenience factor of having tax exempt income
Speaker 1: m interest thing? You know, I'm I'm I'm not sure
Speaker 1: about that. Because the municipal market has long battled the
Speaker 1: negative ease of access, meaning municipal bonds are available in
Speaker 1: five thousand dollar minimum denominations, and generally speaking, your broker
Speaker 1: doesn't want to talk to you unless you're are going
Speaker 1: to order twenty five dollars. Yeah, that's why. That's why
Speaker 1: I brought that up. Okay, can we turn to the
Speaker 1: actual supply of municipal bonds? Smiling you like this top,
Speaker 1: we can. It's great. You know, this week we broke
Speaker 1: thirteen billion for the first time all year, for the
Speaker 1: first time since back in December. And you know, at
Speaker 1: that point, we were coming off of a record volume month. Um.
Speaker 1: You know, it was like sixty two plus billion dollars. Uh, so,
Speaker 1: thirteen billion, and you know, things are looking up so
Speaker 1: far this year. The municipal market is off about and that,
Speaker 1: of course is bad news for all the underwriters and
Speaker 1: financial advisors and bond lawyers out there. A little on
Speaker 1: a salesman, so uh talking about the positive edges of
Speaker 1: the bond market, I just want to bring the conversation
Speaker 1: down a little too, a little more depressing place. I
Speaker 1: want to go to Puerto Rico. I want to talk
Speaker 1: about how the power has gone out again in most
Speaker 1: of the island and the fact that, uh that a
Speaker 1: lot of bond investors are actually suddenly profiting in big
Speaker 1: in a big way from their holdings right now is
Speaker 1: rubbing people the wrong way? Can you explain how the
Speaker 1: Puerto Rican government is upgrading its financial expectations giving bonfires? Uh,
Speaker 1: positive feeling? How does that cohere with another blockout and
Speaker 1: the situation on the island deep and dark? Yeah, we're
Speaker 1: just talking. We're gonna we're gonna name our show that
Speaker 1: man Happy Friday, go ahead. Uh. You know, Puerto Rico
Speaker 1: is looking down the line and sees some good days
Speaker 1: ahead because there's going to be so much money invested
Speaker 1: by insurance companies, uh, and reconstruction of the island, So
Speaker 1: they're looking forward to that. Uh. You know, when you
Speaker 1: talk about bond holders profiting, you're talking about a relatively
Speaker 1: small group of speculators who bought in a twenty cents
Speaker 1: in the dollar and the dollar and who are now
Speaker 1: looking at forty cents in the dollar if they wanted
Speaker 1: to sell. I think that the issue here is and
Speaker 1: and you know, you talk to people who buy bonds
Speaker 1: and they say, look, the only reason why this financing
Speaker 1: is available is because of the contracts that govern it, right,
Speaker 1: And if people just feel like those contracts get broken,
Speaker 1: then the borrower is unable to tap markets. Again, that
Speaker 1: is the penalty, right, And so here we have a
Speaker 1: situation where Puerto Rico could decide to just not pay, right,
Speaker 1: I mean and and so then the bonds would not
Speaker 1: be worth even where they're trading right now. Those words
Speaker 1: not pay that you should see the expression on Joe
Speaker 1: my sex face. Well, I'm not and I'm not arguing.
Speaker 1: I'm not arguing for them to do this. I'm just
Speaker 1: raising sort of the political backdrop that this is coming
Speaker 1: at repudiation Confederate States of America, not the uh IN
Speaker 1: and the governor said the debt is not payable, and
Speaker 1: that was the sort of crack of doom. Um, So
Speaker 1: now it's really going to be more of a legal settlement. Uh.
Speaker 1: You know, I'm not sure you could say while we're
Speaker 1: going to write it off to zero. Yes, there have
Speaker 1: been some people who suggest that. But as you pointed out,
Speaker 1: if Puerto Rico is going to have access to the
Speaker 1: markets to raise more capital, at some point they have
Speaker 1: to make some sort of token gesture on the outstanding debt,
Speaker 1: especially the general obligation on the Cofina debt and Just
Speaker 1: to put this in some kind of perspective, the federal
Speaker 1: board that oversees the Commonwealth's finances says, spending cuts improving
Speaker 1: tax collections, you could end up with a surplus over
Speaker 1: the next six years of six point seven billion dollars.
Speaker 1: Thanks very much, Joe Mask, editor for the Bloomberg Brief
Speaker 1: Municipal Markets. Check it out on Briefs, go on the Bloomberg.
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
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