WEBVTT - Market Rally and Warnings 0:00:00.040 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.800 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app, 0:00:22.320 --> 0:00:25.640 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.760 --> 0:00:31.160 Alicia Levine is far too young to remember this. Your 0:00:31.160 --> 0:00:35.080 mother would throw at you a book called The Intelligent Investor. 0:00:35.760 --> 0:00:38.400 And one of the great themes of The Intelligent Investor 0:00:38.560 --> 0:00:40.239 is if you're not in the game, you don't get 0:00:40.320 --> 0:00:43.920 to win. And there's this whole modern disease of market 0:00:43.960 --> 0:00:46.559 timing where that if you're not in the game, you 0:00:46.640 --> 0:00:49.480 don't get to win. She's b Andy. Can we just say, 0:00:49.520 --> 0:00:55.320 Paul Jeffrey you Elisia Levine Solidine, It's like the mathematics 0:00:55.320 --> 0:00:59.880 involved your folks is prodigious, Alicia, what's the damage to 0:01:00.120 --> 0:01:02.840 people who aren't enjoying this bull market? 0:01:03.440 --> 0:01:09.679 So like permanent, it's not permanent, but you can't make 0:01:09.760 --> 0:01:13.080 up what you've lost. One of the most important statistics 0:01:13.880 --> 0:01:18.119 is that the best month of the year always follows 0:01:18.360 --> 0:01:21.920 the worst month of the year, and so we show 0:01:21.959 --> 0:01:25.040 our clients in various ways, like you try to time 0:01:25.120 --> 0:01:30.120 the market. You're likely to miss that massive rally like 0:01:30.240 --> 0:01:33.600 we had yesterday because you were so fearful of what 0:01:33.680 --> 0:01:38.280 was going on. From June and July, the favorites were underperforming, 0:01:39.400 --> 0:01:42.000 Tech was over. I mean essentially, if you go back 0:01:42.080 --> 0:01:44.920 thirty years and you missed the best month of the year, 0:01:45.760 --> 0:01:49.600 you're underperformed by five hundred bases on. 0:01:49.640 --> 0:01:51.760 I go to a Capitol group out in Los Angeles 0:01:51.800 --> 0:01:53.520 who've done great studies on this. You got to be 0:01:53.560 --> 0:01:55.760 in the market. We all know that. But you were 0:01:55.760 --> 0:01:59.400 weaned to Chicago, the land of Fama and French where 0:01:59.440 --> 0:02:01.680 you off to play. 0:02:01.840 --> 0:02:05.800 You discuss that, discuss as my three male children would 0:02:05.800 --> 0:02:08.520 tell me, you miss all the shots you don't take, 0:02:09.240 --> 0:02:12.680 and I think it there is there. As you say 0:02:12.760 --> 0:02:14.919 it's a disease of trying to time the market, I'll 0:02:14.960 --> 0:02:18.680 say this, people can be pretty good at selling more 0:02:18.760 --> 0:02:22.320 or less near Like you know, local peaks right well, 0:02:22.360 --> 0:02:24.960 you can see deterioration. You can see it per set 0:02:25.000 --> 0:02:28.200 of SMP advanced to client linzing. You can kind of 0:02:28.240 --> 0:02:30.560 see you could be headed into a nice little sell 0:02:30.600 --> 0:02:32.960 off or consolidation phase wherever you want to call it, 0:02:34.080 --> 0:02:36.520 and then you never get back in and that's the 0:02:36.560 --> 0:02:39.840 issue because the lows are ugly. If you think about 0:02:39.919 --> 0:02:42.799 last Thursday, it just looked like the apocalypse. Actually it 0:02:42.840 --> 0:02:46.200 turned out to be a clearing event, and you know, 0:02:46.320 --> 0:02:48.400 Citadel did great on that, but I'm sure a lot 0:02:48.400 --> 0:02:50.520 of people were selling right into it. And it's just 0:02:50.919 --> 0:02:53.240 it's too emotional. It doesn't matter how many years you've 0:02:53.240 --> 0:02:55.440 been doing this, but people fall for it. The same time. 0:02:55.520 --> 0:02:57.640 You're not going to save yourself anything. You're going to 0:02:57.720 --> 0:03:02.800 damage your forward returns. The only time you really want 0:03:02.840 --> 0:03:07.440 to think about next twelve months possibly being lower is 0:03:07.440 --> 0:03:09.960 if you think a recession's coming. We haven't had a 0:03:10.000 --> 0:03:13.000 proper recession since two thousand and eight. The one in 0:03:13.040 --> 0:03:15.720 twenty twenty was man made. It was man made, Okay, 0:03:15.840 --> 0:03:20.240 that's stunning the market. The market since twenty ten is 0:03:20.400 --> 0:03:25.560 up fourteen percent annualize. Okay, that includes the twenty five 0:03:25.600 --> 0:03:28.680 percent sell off in twenty twenty two. That includes the 0:03:28.720 --> 0:03:33.240 down six percent in twenty eighteen. So trying to time 0:03:33.280 --> 0:03:36.800 it is it's fruitless. It's from a different era when 0:03:36.800 --> 0:03:40.400 you actually had recessions every five to seven years, and 0:03:40.520 --> 0:03:43.120 coming out of the market perhaps saved you some losses. 0:03:43.160 --> 0:03:45.520 So you know, the most important thing is is their 0:03:45.560 --> 0:03:49.880 recession looming? This market, this economy, there's no recession. And 0:03:49.880 --> 0:03:52.520 by the way, the banks are doing terrific. When banks 0:03:52.560 --> 0:03:55.000 do great, you're not going into recession. They're the forward 0:03:55.080 --> 0:03:56.400 leading indicator. 0:03:56.400 --> 0:04:00.680 Technology AI focusing on returns on AI capfex. 0:04:01.160 --> 0:04:03.480 How do you guys think about that theme right now? 0:04:03.720 --> 0:04:05.760 So I think that's the most important theme in the market. 0:04:05.800 --> 0:04:07.800 And that, of course was the clearing was the earnings 0:04:07.800 --> 0:04:09.840 that we had from some of the hyper scalers, you know, 0:04:09.880 --> 0:04:12.440 even where the market was disappointed in some of the others, 0:04:13.600 --> 0:04:16.760 the revenue was going much higher on the cloud business. 0:04:17.279 --> 0:04:20.839 And what we saw was the one question. There are 0:04:20.839 --> 0:04:26.160 two questions, ken kind of equities rally with the four 0:04:26.200 --> 0:04:30.520 point five percent bogie on the tenuere being breached, right, 0:04:30.880 --> 0:04:32.640 And the answer was like, yeah, actually it was kind 0:04:32.640 --> 0:04:36.719 of fine. It was fine. Okay, So that question was answered. 0:04:36.800 --> 0:04:39.200 So look, Yalds probably could get to five percent here 0:04:39.400 --> 0:04:42.840 simply because between the inflation numbers and you know, from 0:04:42.880 --> 0:04:46.640 the questioning of the FED reaction function and the uncertainty 0:04:46.640 --> 0:04:49.599 in Iran, they ran. So that's number one. But equities 0:04:49.640 --> 0:04:52.880 are fine. The second big question is new ROI on spending, 0:04:53.120 --> 0:04:55.880 and that could have killed the entire market. You would 0:04:55.880 --> 0:04:59.880 have wound up with healthcare, you know, utilities and staples working. 0:05:00.520 --> 0:05:04.719 And the answer is, actually, the business model is working, 0:05:04.800 --> 0:05:06.880 even if free cash flow is going negative in the 0:05:06.880 --> 0:05:09.400 short term, even if they have to sell debt to 0:05:09.600 --> 0:05:13.760 fund it, they're reaccelerating the core business, which is cloud 0:05:13.920 --> 0:05:16.600 and so it's working. And once you answer that question, 0:05:16.680 --> 0:05:18.760 you're off to the race. It's the whole complex can rally. 0:05:19.040 --> 0:05:21.800 Alicia Levine with this B and y thrilled with us 0:05:21.800 --> 0:05:25.400 today across America, around the world. Futures Up twenty eight. 0:05:26.000 --> 0:05:28.040 Paul asked a question because I got to go nerd 0:05:28.120 --> 0:05:30.800 here in a moment, Paul Sweeney with Alisia Levine. 0:05:30.880 --> 0:05:35.760 Alicie, you say industrials attractive entry point and we had 0:05:35.880 --> 0:05:38.000 great numbers out of Catapillar yesterday, So boy, that's a 0:05:38.000 --> 0:05:38.400 great time. 0:05:38.680 --> 0:05:41.680 So you have, like it's a perfect storm. You have 0:05:41.920 --> 0:05:45.479 the capex incentives from the one big beautiful Bill which 0:05:45.560 --> 0:05:49.719 are rolling through the economy and are definitely helping hard 0:05:49.800 --> 0:05:55.480 assets that's industrials, as well as the funding from the hyperscalers. 0:05:55.560 --> 0:05:57.360 So if you think about what you need to build 0:05:57.360 --> 0:06:00.160 a data center or what you need to kind of 0:06:00.320 --> 0:06:03.960 to build out the AI. On the hard asset side, 0:06:04.440 --> 0:06:08.320 the projections for next year is one trillion dollars in 0:06:08.440 --> 0:06:12.039 spending that is going directly into the P and L 0:06:12.440 --> 0:06:15.320 of twenty percent of the S and P. So that's 0:06:15.360 --> 0:06:17.640 why we like it. I mean, industrials have been actually 0:06:17.680 --> 0:06:20.240 the best, the best sector of the year, so we 0:06:20.240 --> 0:06:21.360 think that continued. 0:06:21.000 --> 0:06:22.800 To give us your targets here quickly. 0:06:22.640 --> 0:06:26.320 Okay, eight thousand with risks, but risk to the upside 0:06:26.320 --> 0:06:29.240 here right Okay? Forward earnings are growing at thirty percent. 0:06:29.360 --> 0:06:30.080 Okay, cheez. 0:06:30.680 --> 0:06:32.760 The multiples lower than it was June second, with the 0:06:32.800 --> 0:06:33.599 market peak before. 0:06:33.800 --> 0:06:36.240 If I look at two sets of different equations on 0:06:36.279 --> 0:06:39.600 the X axis and I look at all this capex 0:06:39.640 --> 0:06:43.200 all these tech companies are spending and matched against, that 0:06:43.360 --> 0:06:47.760 is the same timeline of their huge cash flows and profitability. 0:06:48.360 --> 0:06:50.559 I say, they've only got to go out one quarter, 0:06:50.640 --> 0:06:54.960 two quarters, three quarters, four quarters after the CAPEX expense 0:06:55.080 --> 0:06:56.039 to be made whole. 0:06:56.240 --> 0:06:58.000 Yes, Is that in the zeitgeist now? 0:06:58.320 --> 0:06:59.200 I don't think so. 0:06:59.200 --> 0:07:01.000 So we've been running my models on it, and it 0:07:01.040 --> 0:07:04.679 looks like they return to cash flow positive in about 0:07:04.720 --> 0:07:06.159 eighteen to twenty four months. 0:07:06.360 --> 0:07:09.040 Okay, so that's six quarters. 0:07:08.800 --> 0:07:11.760 And then it explodes again. Then it explodes, Then they 0:07:11.800 --> 0:07:16.560 become the bond will positively, it explodes, the cash flow 0:07:17.120 --> 0:07:21.560 becomes positive, and then it explodes to the upsidecause they're 0:07:21.600 --> 0:07:22.840 monetizing the investment. 0:07:22.960 --> 0:07:25.000 This is the first one who's done this. Thank you. 0:07:25.360 --> 0:07:30.840 What's the fan distribution of outcomes twenty four quarters or whatever? 0:07:30.920 --> 0:07:33.480 Okay, let's call it. Let's call it. We're in twenty 0:07:33.480 --> 0:07:35.920 twenty six, let's call it twenty twenty nine. So you're 0:07:35.960 --> 0:07:38.920 looking at about flat twenty eight to twenty nine, and 0:07:38.960 --> 0:07:43.120 then it explodes by twenty thirty, okay, because you're monetizing it, 0:07:43.200 --> 0:07:45.720 because cloud is necessary to build this out. 0:07:45.920 --> 0:07:48.440 I mean, Paul, this is this is like nascent. I 0:07:48.480 --> 0:07:51.080 would say, it's sort of like the China dominance in ay, 0:07:51.280 --> 0:07:52.880 we don't really know, give one. 0:07:52.720 --> 0:07:56.880 More, yeah, exactly. So what are you thinking about valuation here? 0:07:56.920 --> 0:07:59.280 I mean, the earnings are coming through so strong for 0:07:59.320 --> 0:08:00.920 the past several quarters. 0:08:01.480 --> 0:08:02.880 Valuation we're okay here. 0:08:02.960 --> 0:08:06.480 I think we're okay. You know, Sunday night, exceptter Friday's close, 0:08:07.080 --> 0:08:09.800 the tech sector was trading at twenty times forward earnings. 0:08:10.120 --> 0:08:12.080 So it's trading exactly where the market is. That's the 0:08:12.120 --> 0:08:17.560 lowest relative value in fifteen years, So I think valuations 0:08:17.560 --> 0:08:20.800 are fine. Actually, non tech is trading at higher valuations 0:08:21.080 --> 0:08:24.520 than tech because people were hiding in other areas feeling 0:08:24.560 --> 0:08:28.400 it was a concentrated market. Like hello, folks, there's one trade. 0:08:28.480 --> 0:08:31.880 The entire market is AI. It's about fifty percent of 0:08:31.920 --> 0:08:37.719 the market. Very hard to hide anywhere here. Again, the 0:08:37.720 --> 0:08:40.760 fear will be expressed in you know, staples, which have 0:08:40.760 --> 0:08:43.720 been moribund because the economy is good enough and is 0:08:43.840 --> 0:08:46.960 growing and the labor market is stable. So that's where 0:08:46.960 --> 0:08:49.400 you go to hide. Everywhere else it's it's an AI trade. 0:08:49.400 --> 0:08:51.880 But do you hold meetings in the Hamptons during the week? 0:08:51.920 --> 0:08:54.320 Do you just drive out to the Hamptons to hang 0:08:54.360 --> 0:08:55.120 out with people? 0:08:55.400 --> 0:08:58.360 We do not. We go to our offices in Midtown. 0:08:58.440 --> 0:08:59.920 We take from office. 0:09:00.720 --> 0:09:01.640 We were from office. 0:09:01.880 --> 0:09:02.280 Very good. 0:09:02.320 --> 0:09:03.480 We have meetings in office. 0:09:03.559 --> 0:09:06.760 We do very That's a good thing. People know where 0:09:06.760 --> 0:09:09.600 I stand on this. Alicia Levigne, thank you. Back to 0:09:09.640 --> 0:09:13.520 your office. Cio b ny Wealth. Stay with us. More 0:09:13.640 --> 0:09:16.559 from Bloomberg Surveillance coming up after this. 0:09:23.800 --> 0:09:27.400 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:09:27.440 --> 0:09:30.600 weekday afternoons from seven to ten am Eastern. Listen on 0:09:30.679 --> 0:09:34.360 Applecarplay and Android Otto with the Bloomberg Business app, or 0:09:34.520 --> 0:09:35.959 watch us live on YouTube. 0:09:36.240 --> 0:09:39.080 Ben Cook with Us with Hennessy. He's got just a 0:09:39.120 --> 0:09:43.800 brilliant acuity here on American oil, in our oil independence. 0:09:43.800 --> 0:09:45.840 But I got to digress here. I just did a 0:09:45.880 --> 0:09:49.800 thing on Ned Johnson and Justin Bearer's wonderful book on fidelity. 0:09:50.120 --> 0:09:52.560 One of my heroes was a guy named William H. Miller, 0:09:52.800 --> 0:09:55.680 the Third who came out of Washington Lee and Johns 0:09:55.679 --> 0:09:59.240 Hopkins and did better than good at Legg Mason and 0:09:59.320 --> 0:10:02.080 you darkened the door at Johns Hopkins, where he just 0:10:02.200 --> 0:10:07.199 committed a ginormous amount of money to physics and astronomy. 0:10:07.240 --> 0:10:11.440 It's amazing what Bill Miller's done for the school. Explain 0:10:11.679 --> 0:10:14.920 why we need fifty million dollars to go to physics 0:10:14.920 --> 0:10:18.120 and astronomy, to nonscience America. 0:10:18.920 --> 0:10:22.120 I'll tell you Johns Hopkins is a great institution, tom 0:10:22.160 --> 0:10:24.280 and obviously a great history. But I think you know, 0:10:24.320 --> 0:10:27.319 going forward, we need to be competitive as an economy, 0:10:27.360 --> 0:10:30.640 and that's where we're building the next generation of experts 0:10:30.679 --> 0:10:32.400 to compete on a global scale. 0:10:32.120 --> 0:10:36.760 Am I right that physics is what made American oil 0:10:37.000 --> 0:10:42.800 independence in that we took physical mathematics and technology and 0:10:42.880 --> 0:10:47.240 brought it over law help me Landman season two? Help 0:10:47.320 --> 0:10:49.880 me here, that we brought it over to fracking and 0:10:49.920 --> 0:10:53.360 all that all came from stuff like what Bill Miller's 0:10:53.400 --> 0:10:56.560 funding at Johns Hopkins. That's absolutely right, Tom. 0:10:56.600 --> 0:11:00.720 You know, we're seeing increased improved technology increase the output 0:11:00.760 --> 0:11:03.640 the efficiency of the industry. Industry is able to do 0:11:03.720 --> 0:11:07.040 more with less. That's in turn translating to good financial 0:11:07.040 --> 0:11:09.280 results from many of the companies that we invest in, 0:11:09.840 --> 0:11:13.080 and we expect that to continue as AI becomes a 0:11:13.080 --> 0:11:15.320 bigger part of the drilling and completion process. 0:11:15.679 --> 0:11:18.800 You guys think about AI as it overlay to all 0:11:18.840 --> 0:11:21.400 your energy investments, because it just seems like to me, 0:11:21.440 --> 0:11:24.040 at least, as I think about and here, all these 0:11:24.080 --> 0:11:26.080 people talk about data centers here, data centers there, we're 0:11:26.080 --> 0:11:28.240 going to need so much power power, so gaining issue. 0:11:28.520 --> 0:11:30.520 It just feels like we're going to need every source 0:11:30.520 --> 0:11:33.400 of energy going forward, whether it's fossil fuels, renewables. 0:11:33.400 --> 0:11:34.400 How do you guys think about it? 0:11:34.760 --> 0:11:37.360 Yeah, you know, as part of our repeatable investment process 0:11:37.360 --> 0:11:40.280 and managing the Hennessy Energy Transition Fund. We're looking at 0:11:40.440 --> 0:11:43.720 natural gas really as a primary beneficiary and really the 0:11:43.760 --> 0:11:47.360 bridge fuel to nuclear as being a major contributor to 0:11:47.400 --> 0:11:51.040 the baseload power that's required to fuel these data centers 0:11:51.080 --> 0:11:54.880 on a twenty four hour basis. So from an investors standpoint, 0:11:54.920 --> 0:11:57.440 the opportunity to invest in many of these names across 0:11:57.480 --> 0:12:00.840 the hydrocarbon value chain is attractive to us today because 0:12:00.840 --> 0:12:04.040 of the demand drivers for that power going forward, and 0:12:04.080 --> 0:12:06.719 we'll see a lot of opportunity emerge as the need 0:12:06.800 --> 0:12:08.160 for energy continues to grow. 0:12:08.760 --> 0:12:12.320 So talk to us about Texas. You're in Dallas. You 0:12:12.360 --> 0:12:14.920 guys have your own grid. I mean, Texas is unto itself. 0:12:14.960 --> 0:12:17.200 We know that you guys are like you do your 0:12:17.240 --> 0:12:17.600 own thing. 0:12:18.160 --> 0:12:19.200 How is that grid set up? 0:12:19.200 --> 0:12:22.520 Because every day I hear about a new company relocating 0:12:22.559 --> 0:12:24.320 to Texas. Do you guys have the grid to deal 0:12:24.360 --> 0:12:24.800 with all that? 0:12:25.240 --> 0:12:25.920 You know? We do? 0:12:26.240 --> 0:12:29.360 You know, as a byproduct of the major winter storm 0:12:29.520 --> 0:12:32.280 ury several years ago, Urkott did a lot to shore 0:12:32.360 --> 0:12:35.840 up additional capacity to ensure that we didn't have future outages. 0:12:35.880 --> 0:12:39.080 And we're benefiting from that today. You know, the AI 0:12:39.280 --> 0:12:41.600 race as many are calling it today, you know, is 0:12:41.679 --> 0:12:45.200 requiring a build out of power gen faster than the 0:12:45.320 --> 0:12:48.280 utility sector can provide. So we're seeing a ton of 0:12:48.320 --> 0:12:52.360 behind the meter of power generation projects. So the industry 0:12:52.400 --> 0:12:55.920 is solving its power needs by pursuing these power projects 0:12:56.160 --> 0:12:57.800 on a co located basis. 0:12:58.080 --> 0:13:00.160 I saw this just I'm so sorry, folks. I don't 0:13:00.240 --> 0:13:02.560 have it here in front of me to site. But 0:13:02.679 --> 0:13:06.640 somebody said we're getting AI wrong and that mostly it's 0:13:06.679 --> 0:13:09.760 an energy bottleneck. Discuss that. 0:13:10.640 --> 0:13:12.760 Yeah, you know, if you think about the demand trend 0:13:12.800 --> 0:13:16.000 associated with AI compute, we're going to need a tremendous 0:13:16.000 --> 0:13:19.000 amount of electricity and to generate those electrons, we're going 0:13:19.040 --> 0:13:21.199 to need a lot of natural gas and other fuel 0:13:21.240 --> 0:13:25.000 sources to generate that power. So the bottleneck as many 0:13:25.000 --> 0:13:28.319 see it today, really is the ability to produce the electrons. 0:13:28.679 --> 0:13:31.760 I was out in West Texas just recently drove out 0:13:31.800 --> 0:13:36.360 through Abilene and ultimately Amarillo and up towards Colorado. A 0:13:36.480 --> 0:13:40.920 number of major projects being developed alongside renewable power sources, 0:13:41.000 --> 0:13:44.280 wind farms that we're generating electricity for the grid are 0:13:44.280 --> 0:13:47.240 going to be dedicated to generating power for data centers. 0:13:47.280 --> 0:13:48.479 It's an amazing trend. 0:13:48.480 --> 0:13:51.600 Talk about nuclear I hear a lot more about that. 0:13:51.600 --> 0:13:55.920 I'm old enough to remember Three Mile Island they sent 0:13:56.000 --> 0:13:59.600 us home school. Then how much how does nuclear player 0:13:59.640 --> 0:14:01.920 role here going forward? Because it's been so out of 0:14:01.920 --> 0:14:02.679 the picture. 0:14:02.400 --> 0:14:03.640 For so long it has. 0:14:03.559 --> 0:14:05.240 Been you know, it's been a year since the Trump 0:14:05.280 --> 0:14:09.439 administration issued in executive order to mandate the acceleration of 0:14:09.520 --> 0:14:13.760 developing additional nuclear resources in this country. You know, we 0:14:13.840 --> 0:14:18.480 have you know, a proven concept in AP one thousand 0:14:18.600 --> 0:14:22.240 by Westinghouse that'll be the primary model for large scale 0:14:22.320 --> 0:14:25.960 nuclear development. There's a lot of science projects underway with 0:14:26.000 --> 0:14:30.479 small scale modular reactors. We'll start to see some contribution 0:14:30.600 --> 0:14:33.040 from those those models here over the next five to 0:14:33.080 --> 0:14:35.440 six years. But on a larger scale, it's. 0:14:35.280 --> 0:14:36.000 Going to take time. 0:14:36.080 --> 0:14:38.680 It takes a significant amount of capital in ten plus years. 0:14:38.760 --> 0:14:44.280 So there's upstream drilling, old school, downstream refineries, distill it's 0:14:44.280 --> 0:14:47.680 and all that, and this thing I really don't understand midstream. 0:14:48.120 --> 0:14:52.880 Where's the investible future among those three categories of oil? 0:14:53.040 --> 0:14:56.000 Yeah, you know, the in terms of the value chain, 0:14:56.080 --> 0:14:58.520 really we see a lot of potential in all of 0:14:58.560 --> 0:15:03.200 the areas. I think midstream is a natural base. Midstream 0:15:03.360 --> 0:15:06.680 is the really the connection of the source of supply 0:15:06.840 --> 0:15:07.800 to the end users. 0:15:07.840 --> 0:15:11.640 Oh it's no, it's pipes. I think it's like the pipelines. 0:15:11.960 --> 0:15:18.280 It is the pipe hundred thirty six, Okay, gathering, storage, transportation, 0:15:18.800 --> 0:15:21.680 ultimately liquefaction the operators of the AKA. 0:15:21.920 --> 0:15:23.840 So you've got a data center in the middle of 0:15:23.840 --> 0:15:27.320 nowhere west to Abilene. It sounds like, you know, sleep 0:15:27.360 --> 0:15:29.840 at the wheels song. Sure, So you got a data 0:15:29.880 --> 0:15:33.240 center out west to Abilenehos, Dallas, grows up to Oklahoma. 0:15:33.760 --> 0:15:36.640 They need net gas. It's just pipelines, right. 0:15:36.880 --> 0:15:40.080 Just pipelines, absolutely, And you know, the West Texas region 0:15:40.080 --> 0:15:42.840 of the Permian Basin is a logical source of supply 0:15:42.920 --> 0:15:45.920 of that energy. In a lot of cases, natural gas 0:15:45.960 --> 0:15:48.480 is still being flared as a biproductive. 0:15:48.480 --> 0:15:51.000 But what about a data center outside Washington, d C. 0:15:51.720 --> 0:15:55.240 Twelve miles you know, not twelve twenty miles. There's dulles. 0:15:55.480 --> 0:15:58.000 Yeah, there's an ocean of gas in Appalachia that's a 0:15:58.080 --> 0:16:00.600 waiting for end use markets, including. 0:16:00.360 --> 0:16:01.880 What about not in my backyard? 0:16:02.520 --> 0:16:05.080 You know, you know, there are some issues pushback on 0:16:05.240 --> 0:16:08.640 data centers and communities that the reality is scarce. Resources 0:16:08.680 --> 0:16:11.240 like land and water are an issue. First, we need 0:16:11.280 --> 0:16:11.800 local policy. 0:16:11.840 --> 0:16:13.600 We need pipelines to get the new England, Tom, because 0:16:13.640 --> 0:16:16.040 you you can't get your games there. 0:16:16.120 --> 0:16:21.000 Quebec saves us, like you know every I mean, just 0:16:21.360 --> 0:16:24.520 what's your signal best buy? Is it Excellon? We like Exxon. 0:16:24.600 --> 0:16:27.600 The integrated business model of Fords flexibility and a commodity 0:16:27.840 --> 0:16:31.000 environment is volatile. You've got a refining asset footprint on 0:16:31.040 --> 0:16:32.000 a global stap. 0:16:32.080 --> 0:16:35.200 Do they have a new attitude about distributing cash to shareholders? 0:16:35.360 --> 0:16:38.280 They the old days they do. This is a group 0:16:38.320 --> 0:16:41.480 that is returning cash to investors and spades, and it 0:16:41.520 --> 0:16:44.560 will continue as the commodity price environment continues to be buoyant. 0:16:44.680 --> 0:16:46.880 In our view, I'm going down to West Texas, Tom, 0:16:46.880 --> 0:16:49.640 I'm going to bring a drill. I'm just just make money. 0:16:49.720 --> 0:16:52.160 I mean, because these oil companies they won't drill. They 0:16:52.160 --> 0:16:52.800 have discipline. 0:16:52.800 --> 0:16:55.920 Now they want to return cash shareholders. I'm going down 0:16:55.920 --> 0:16:58.240 and be a wildcatters how to do it? 0:16:59.720 --> 0:17:01.800 I Steve don't even know where to go. You just 0:17:01.840 --> 0:17:03.360 want to go meet the angelin Norris. 0:17:03.440 --> 0:17:06.359 Yes, you darn right, absolutely. 0:17:06.400 --> 0:17:10.400 Cook I have no idea who angelin Norris is, Paul does. 0:17:10.640 --> 0:17:15.240 Ben Cook with Hennessy Energy Transitions funds in from Dalla's week, 0:17:15.280 --> 0:17:18.360 thank come on home, stay with us. More from Bloomberg 0:17:18.520 --> 0:17:20.560 Surveillance coming up after this. 0:17:27.800 --> 0:17:31.359 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:17:31.440 --> 0:17:34.600 weekday afternoons from seven to ten am Eastern Listen on 0:17:34.680 --> 0:17:38.359 Applecarplay and Android Otto with the Bloomberg Business app, or 0:17:38.480 --> 0:17:39.920 watch us live on YouTube. 0:17:40.040 --> 0:17:41.520 Nisha Mittels, she knows what I'm talking about. 0:17:41.560 --> 0:17:44.280 SMA, portfolio manager of Parametric, talk to us about the 0:17:44.320 --> 0:17:46.720 muni space. Shirk is one of the things that's it 0:17:47.359 --> 0:17:49.800 seems like a headwind for the muni spaces. There's a 0:17:49.880 --> 0:17:51.879 ton of issuance out there. I mean, twenty four was 0:17:51.920 --> 0:17:54.400 a record year, twenty five was a record year. How's 0:17:54.400 --> 0:17:57.160 twenty six looking for new issuance in your municipal bond market. 0:17:57.400 --> 0:18:01.639 Yes, that's that's completely right, Paul. So we've seen a 0:18:01.760 --> 0:18:04.080 surge of issuance this year too. So this is almost 0:18:04.119 --> 0:18:09.200 the third year. We're on pace to actually break last 0:18:09.240 --> 0:18:11.400 year's record. So we almost are looking at about three 0:18:11.440 --> 0:18:14.720 hundred billion UH in the first half. If you analyze that, 0:18:14.880 --> 0:18:16.960 you know, kind of street estimates are close to six 0:18:17.080 --> 0:18:21.639 hundred billion, so that has been a major headwind. But 0:18:21.680 --> 0:18:24.480 I think the difference this year now, keep in mind, 0:18:24.520 --> 0:18:28.040 we just gave back a good amount of performance in July, right, 0:18:28.119 --> 0:18:30.920 so the kind of the broad MUNI index was down, 0:18:31.119 --> 0:18:36.000 you know about uh, we're slightly positive now for the year, 0:18:36.320 --> 0:18:38.120 so we gave a lot of it back. A lot 0:18:38.119 --> 0:18:39.919 of that had to do though, with the treasury rate 0:18:40.000 --> 0:18:42.240 volatility right in the movement there, so this was not 0:18:42.280 --> 0:18:45.760 a credit issue. And then again treasury rate volatility couple 0:18:45.800 --> 0:18:51.360 with supply, that's what's really kind of created this negative 0:18:52.440 --> 0:18:55.360 overlay for munis. But again, I think when you look 0:18:55.359 --> 0:18:59.720 at the technicals, it's about supply, but it's about can 0:18:59.760 --> 0:19:02.920 that be absorbed, So then it's also demand. So demand 0:19:03.040 --> 0:19:06.439 has actually been fairly robust this year, so if we 0:19:06.480 --> 0:19:09.600 see that trend continue, that can help absorb some of 0:19:09.640 --> 0:19:12.080 this supply, which is very different than what we saw 0:19:12.160 --> 0:19:14.160 last year where demand wasn't keeping up with the amount 0:19:14.160 --> 0:19:15.160 of supply of the market saw. 0:19:15.400 --> 0:19:19.840 But all that being said, though absolute yields are on 0:19:19.880 --> 0:19:22.520 a taxi just the basis are really attractive for a 0:19:22.600 --> 0:19:23.720 lot of people right. 0:19:23.640 --> 0:19:26.440 Like, yes, high take high exercisions. 0:19:28.200 --> 0:19:32.399 Yes, that's exactly right. So we were seeing that already 0:19:32.520 --> 0:19:37.840 before this recent repricing. Now where we see you know, 0:19:37.880 --> 0:19:40.760 I would say the curve remains very steep, right, especially 0:19:40.760 --> 0:19:43.160 relative the treasury market, So you're getting paid to take 0:19:43.200 --> 0:19:46.680 on duration. The belly of the curve, though, particularly has 0:19:46.680 --> 0:19:49.000 sold off the most so far this year. So think 0:19:49.000 --> 0:19:50.639 about that as a ten year part of the curve. 0:19:51.480 --> 0:19:53.960 A lot of the issuance has been in that part 0:19:53.960 --> 0:19:56.560 of the curve, so that part of the curve has 0:19:56.600 --> 0:19:59.600 sold off even more than the long end. So now 0:20:00.200 --> 0:20:02.639 before you had to maybe go out fifteen twenty years 0:20:02.680 --> 0:20:04.560 to get you know, I think getting I don't want 0:20:04.560 --> 0:20:06.320 to take get paid for a duration, but to really 0:20:06.320 --> 0:20:08.800 find that relative value, you don't have to go out 0:20:08.800 --> 0:20:11.640 that far. So your ten year bond New Jersey, let's 0:20:11.640 --> 0:20:15.200 say roughly three and a half percent yield, high tax state, 0:20:15.320 --> 0:20:16.920 you're looking at, you know, kind of six and a 0:20:16.920 --> 0:20:20.320 half seven percent all in, which is extremely attractive. So 0:20:20.359 --> 0:20:24.560 as we talk about this equity melt up, tom seven 0:20:24.600 --> 0:20:29.640 percent locked in high quality bonds that looks very attractive 0:20:29.680 --> 0:20:31.200 on a risk reward basis. In my view. 0:20:31.440 --> 0:20:34.640 How is parametric different from the big houses in mini bonds? 0:20:34.800 --> 0:20:36.320 What are you people doing it? Exactly? 0:20:37.200 --> 0:20:42.560 So two things we manage separately, severally manage accounts. So 0:20:42.680 --> 0:20:45.280 what that means is each of our accounts are customized. 0:20:45.320 --> 0:20:48.560 We manage roughly ninety thousand different accounts. So, Tom, you 0:20:48.560 --> 0:20:50.639 give us an account, Paul, you give us an account, 0:20:50.720 --> 0:20:52.679 You give us a parameters round what you want us 0:20:52.680 --> 0:20:54.920 to invest in? So being New Jersey for you, you. 0:20:54.880 --> 0:20:56.200 Go Tom for bonds. 0:20:56.200 --> 0:20:59.000