WEBVTT - Markets, Trump’s Taxes, and Energy (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.439 at Bloomberg dot com slash podcast. All right, let's forget 0:00:22.440 --> 0:00:25.079 about two. That's my theme for the last few weeks. 0:00:25.160 --> 0:00:28.480 Let's look forward to. Let's talk to some professionals who 0:00:28.560 --> 0:00:30.280 do this stuff for living. See what we can look 0:00:30.320 --> 0:00:35.560 forward to. Joe Gilbert, Integrity Asset Management. He's a portfolio manager. There. Uh, Joe, 0:00:35.560 --> 0:00:37.800 it says you're based in Moreland Hills. I'm just gonna 0:00:37.840 --> 0:00:43.040 take a guess and say that's Cleveland, correct, Faul, Good morning, 0:00:43.040 --> 0:00:44.839 Thanks for having me on. Yeah, we're we're on. I'm 0:00:44.880 --> 0:00:47.280 on the east side of Cleveland. All right, good stuff. Hey, Joe, 0:00:47.840 --> 0:00:50.239 you know i'd love to get your thoughts. What are 0:00:50.280 --> 0:00:52.720 you telling your clients right here? What's in your year 0:00:52.800 --> 0:00:57.560 ahead outlook letter to your clients? You know? Um, Paul, 0:00:57.640 --> 0:01:00.520 so similar to you. Um, we're just kind of thrown 0:01:00.520 --> 0:01:05.240 away to playbook for two and looking forward to three, 0:01:05.240 --> 0:01:08.360 and so what we're telling clients is that it pays 0:01:08.400 --> 0:01:11.280 to being more constructive for three. I mean, I think 0:01:11.520 --> 0:01:15.000 it's applega laid out um. You know, equity markets down 0:01:15.680 --> 0:01:19.480 and bear market territory, even some fixed income sectors and 0:01:19.680 --> 0:01:23.600 down bear market territory. And that end will end this year. 0:01:23.840 --> 0:01:26.080 So we think looking forward to set up for next year, 0:01:26.920 --> 0:01:29.600 three will be a lutch greater and we just basically 0:01:29.640 --> 0:01:32.880 see inflation will come down, um, the Fed will stop 0:01:32.959 --> 0:01:35.680 raising rates, um as earnings inestiments will go down, and 0:01:36.040 --> 0:01:38.120 earnings multiples will go up, and we think that will 0:01:38.240 --> 0:01:41.119 lead to a strong equity performance next year. What's been 0:01:41.160 --> 0:01:45.279 interesting is the only places to hide Joe have been oil. Energy. 0:01:45.280 --> 0:01:47.720 Commodity is actually having a really stell a year, but 0:01:47.840 --> 0:01:50.160 also the dollar. And I'm interested is to whether that 0:01:50.360 --> 0:01:53.720 dollar trade, whether that sort of headwind for earnings as 0:01:53.720 --> 0:01:56.200 well if you're a global related company, is that going 0:01:56.240 --> 0:01:58.600 to dull back in any sorts as we see perhaps 0:01:58.720 --> 0:02:00.840 the FED tickets foot off the gas and maybe other 0:02:00.840 --> 0:02:04.360 central banks keep on pushing by the ECB. You know, 0:02:04.560 --> 0:02:06.600 I think that's a great point, Caroline. I think that 0:02:06.680 --> 0:02:10.240 if as we look, the dollar is actually weekend since September. 0:02:10.400 --> 0:02:13.560 I think we kind of hit the peak UM in September, 0:02:13.560 --> 0:02:15.720 and so this last quarter, I think we're kind of 0:02:15.760 --> 0:02:17.919 getting a preview of how we think the market is 0:02:17.919 --> 0:02:20.960 going to play out next year. UM investor the starting 0:02:21.040 --> 0:02:23.520 position that the fedtest towards the end of his his 0:02:23.639 --> 0:02:26.880 rate hiking cycle. I think this year really has been 0:02:26.919 --> 0:02:29.960 about the Fed UM and you sprinkle in a little 0:02:29.960 --> 0:02:33.920 bit of a Ukraine war and UH China COVID zero 0:02:34.000 --> 0:02:36.400 COVID policy. So I think that we get to a 0:02:36.440 --> 0:02:39.519 point that investors are looking forward that the FED will 0:02:39.560 --> 0:02:41.840 no longer be such a head win for the market, 0:02:42.080 --> 0:02:44.320 and then the dollars just kind of showing you that. 0:02:44.320 --> 0:02:46.120 Then that's why you've seen a lot of weakness here 0:02:46.160 --> 0:02:50.240 in the last quarter. So you know, I'm an equity guy, 0:02:50.280 --> 0:02:53.280 but I look at the UH fixed income returns this 0:02:53.360 --> 0:02:55.919 year again, the Bloomberg aggregate total return the next off 0:02:55.960 --> 0:02:59.080 twelve three or something like that. People and a fixed 0:02:59.080 --> 0:03:03.920 income BIS will say that historic lost, historic performance under performance. 0:03:04.480 --> 0:03:06.160 So being the simple guy that I am, I just 0:03:06.200 --> 0:03:08.040 say I'm gonna jump in both feet and buy some 0:03:08.080 --> 0:03:12.720 bonds here. What do you think about that strategy. You know, 0:03:12.880 --> 0:03:15.640 it's hard to disagree with that. I think that there's 0:03:15.760 --> 0:03:17.639 you know, similar as I said, the set up, it 0:03:17.680 --> 0:03:20.640 looks good for both fixed income and for equities. But 0:03:20.760 --> 0:03:22.880 next year, you know, as an equity guy, I'm a 0:03:22.880 --> 0:03:25.200 little more biased because I think that UM, a lot 0:03:25.320 --> 0:03:28.600 of the bad news for equities has definitely been priced 0:03:28.600 --> 0:03:30.720 and UM as far as and and granted, there will 0:03:30.760 --> 0:03:33.720 be different sectors that I'll perform at different points in 0:03:33.800 --> 0:03:36.840 times next year. Unlike fixed income, I think fixed income 0:03:36.880 --> 0:03:39.840 obviously will basically as soon as to fit you know, 0:03:40.360 --> 0:03:43.680 intimates that they're going to be done or they're pausing. 0:03:43.880 --> 0:03:46.200 I think you're gonna have a huge rally and fixed income, 0:03:46.200 --> 0:03:49.000 but they're gonna bring equities along with them. As an 0:03:49.040 --> 0:03:52.440 equity guy, then can you go as broad brush as 0:03:52.480 --> 0:03:54.880 industry groups you like? Are you having to be? Look 0:03:54.920 --> 0:03:56.680 as stock picker is kind of a market at the moment, 0:03:56.760 --> 0:04:01.000 given as we head into you know, I think that 0:04:01.160 --> 0:04:04.320 really that that there are some winners and losers. You know. 0:04:04.440 --> 0:04:06.200 The way we see it is, you know, we've had 0:04:06.480 --> 0:04:09.160 you know, the rolling corrections, and we think we're kind 0:04:09.160 --> 0:04:11.320 of going to see the rolling recession that will come 0:04:11.440 --> 0:04:14.800 play through next year, and so I think within that, UM, 0:04:15.160 --> 0:04:16.800 the way we're looking at is is kind of a 0:04:16.839 --> 0:04:19.520 first and first out Carolina. So it's more of the 0:04:19.720 --> 0:04:22.159 way we think about it is the companies and the 0:04:22.240 --> 0:04:26.320 sectors that have underperformed dramatically, UM, the earlier cycle companies, 0:04:26.320 --> 0:04:29.480 those are where we're actually really looking for opportunities in. 0:04:29.680 --> 0:04:33.159 So that looks like more of consumer discretionary names, which 0:04:33.160 --> 0:04:36.840 are trading still pretty cheaply, pretty close to price the book. UM. 0:04:36.839 --> 0:04:40.480 We're actually contrariantly and looking at home builders here because 0:04:40.520 --> 0:04:42.280 we think that the one again it's a it's a 0:04:42.320 --> 0:04:45.679 short cycle, it's early cycle, UM. And so if well, 0:04:45.720 --> 0:04:49.040 if we're right UM, and if FED does cut start 0:04:49.160 --> 0:04:51.599 raising rates and actually eventually we think they will probably 0:04:51.640 --> 0:04:53.840 cut toward the end of next year, those are UM 0:04:53.880 --> 0:04:56.760 sectors that will do well as well as industrials that 0:04:56.920 --> 0:05:00.880 have very limited inventory. Hey, Joe of you were slash 0:05:00.920 --> 0:05:03.320 listener just kind of message me and said, hey, how 0:05:03.360 --> 0:05:05.919 can stocks perform this year? If we've still got some 0:05:06.000 --> 0:05:08.720 pretty significant earnings risk out there? How do you kind 0:05:08.760 --> 0:05:12.440 of factor that in? Well, I think that UM, the 0:05:12.440 --> 0:05:16.400 way we think about it is stocks went down this 0:05:16.480 --> 0:05:19.280 year or more depending on where you were, and they 0:05:19.320 --> 0:05:22.560 went down because you know, stocks discounted forward outlook, so 0:05:22.839 --> 0:05:25.839 they discounted earnings coming down, and so we think that 0:05:25.920 --> 0:05:28.240 a lot of that has been pricing. We this year 0:05:28.320 --> 0:05:32.839 was really about repricing risk and repricing expectations. So I 0:05:32.839 --> 0:05:35.320 think that's where we really are and think and most 0:05:35.320 --> 0:05:38.000 of the time stocks generally rally is you know, close 0:05:38.080 --> 0:05:40.919 to the last estimate cut, and so we don't know 0:05:40.960 --> 0:05:43.000 exactly when that will be, but we've presumed that it 0:05:43.000 --> 0:05:47.240 will be early and early three and that will basically 0:05:47.320 --> 0:05:50.560 be kind of the clearing event for equities to outperform. Joe, 0:05:51.040 --> 0:05:52.599 talk to us about what you're going to be taking 0:05:52.600 --> 0:05:56.039 your cues from. Is it fundamental data? Are you going 0:05:56.080 --> 0:05:58.080 to be looking at the big broadbrush data dumps that 0:05:58.120 --> 0:06:00.520 we get the jobs market, whether it's inflation, shouldn read that, 0:06:00.600 --> 0:06:02.600 that's what's going to be dictating you. Are you going 0:06:02.640 --> 0:06:05.679 to be looking more on the individual names, the earnings releases. 0:06:05.920 --> 0:06:08.000 What's going to be sort of your fuel, your catalyst 0:06:08.120 --> 0:06:11.240 to be getting in and out of market. Well, we're 0:06:11.320 --> 0:06:15.440 fundamental investors, so first you know, firstly, we're gonna always 0:06:15.480 --> 0:06:18.080 look at what company managements are telling us, and so 0:06:18.600 --> 0:06:20.920 we we use that as a guide post this year. 0:06:21.000 --> 0:06:23.400 As far as you know, companies that have been less 0:06:23.440 --> 0:06:27.360 constructive or you know, most management teams are bullish about 0:06:27.360 --> 0:06:30.200 their prospects, but on the margin they've gotten a little 0:06:30.360 --> 0:06:33.440 less constructive. So we're gonna look towards that. But obviously 0:06:33.440 --> 0:06:36.440 on a macro sense, we have to have inflation continue 0:06:36.480 --> 0:06:38.120 to come down. So those are the CPI and the 0:06:38.200 --> 0:06:40.880 pc reports. Next week is actually gonna be pretty big 0:06:40.920 --> 0:06:43.440 because we have a payroll number that we think we'll 0:06:43.440 --> 0:06:48.719 still will show average hourly earnings declining again and probably 0:06:48.880 --> 0:06:51.599 less added to payroll. Important you know, what we think 0:06:51.600 --> 0:06:53.599 there really is going to be. The key is that 0:06:53.600 --> 0:06:55.880 that will probably make next year not as negative on 0:06:55.960 --> 0:06:58.800 economics standpoint is that payrolls are probably not going to 0:06:58.880 --> 0:07:01.640 go negative U because there's a lot of job boarding. 0:07:02.120 --> 0:07:04.920 As far as company managements have been you know, once 0:07:05.000 --> 0:07:08.000 been twice shy, they don't want to release workers. They're 0:07:08.000 --> 0:07:09.920 gonna probably just trying to find a way to keep 0:07:09.960 --> 0:07:13.080 their payrolls not um in a traditional recession where they 0:07:13.080 --> 0:07:15.680 will reduce them, they're gonna probably try to keep on flat. 0:07:15.920 --> 0:07:17.400 And so I think that We're going to really have 0:07:17.480 --> 0:07:20.080 to take cues from the inflation data points that come 0:07:20.080 --> 0:07:24.120 in our hourly earnings and service inflation. All right, Joe, 0:07:24.120 --> 0:07:26.520 great stuff. Really appreciate you taking the time here on 0:07:26.640 --> 0:07:30.560 New Year's Eve Eve. Joe Gilbert Integrity Asset Management. He's 0:07:30.560 --> 0:07:33.280 a portfolio there there in Moreland Hills, Ohio. I just 0:07:33.320 --> 0:07:35.160 google mapp that it's just kind of like and that 0:07:35.240 --> 0:07:37.800 the eastern part is Joe saying of Cleveland right near 0:07:37.840 --> 0:07:40.280 the lake, so pretty cool part of the country. Appreciate 0:07:40.360 --> 0:07:46.800 checking in with Joe Gilbert. There's still a lot going 0:07:46.800 --> 0:07:49.880 on in Washington even today, talk about a data dump 0:07:49.960 --> 0:07:54.480 on a day before major holiday. Uh, the taxes for 0:07:54.480 --> 0:07:57.880 former President Donald Trump have been released. We want to 0:07:57.920 --> 0:07:59.840 get the latest with Lard Davison. It just happened just 0:08:00.080 --> 0:08:02.480 us to tape recently. Lard Davidson from Bloomberg News joints 0:08:02.520 --> 0:08:05.280 us here all right. I know it's early moments of 0:08:05.320 --> 0:08:09.040 everybody sifting through, uh, the released tax reforms from former 0:08:09.080 --> 0:08:13.160 President Donald Trump. Any takeaways at this point, yeah, really, 0:08:13.200 --> 0:08:16.200 I mean one, he has an incredibly complex financial picture. 0:08:16.280 --> 0:08:19.360 You know, more than a thousand pages worth of documents 0:08:19.360 --> 0:08:22.840 that were released about an hour ago um detailing both 0:08:22.840 --> 0:08:25.960 his personal returns as well as his businesses. The businesses 0:08:26.000 --> 0:08:28.360 themselves were losing money for a lot of these years 0:08:28.360 --> 0:08:32.680 from um UM. Parts of those were actual losses, but 0:08:32.720 --> 0:08:36.079 some of those are all these tax breaks appreciation deductions 0:08:36.160 --> 0:08:38.319 that are very favorable to real estates. Who was really 0:08:38.360 --> 0:08:40.800 able to minimize any tax bill that he might have 0:08:40.840 --> 0:08:43.640 to pay, including in one year when he paid no 0:08:43.720 --> 0:08:46.560 personal income taxes, And of course we've had him same 0:08:46.600 --> 0:08:48.800 time and time again that that's a smart thing to do, 0:08:48.920 --> 0:08:51.479 to use the tax codes as they stand to your advantage. 0:08:51.520 --> 0:08:53.600 What about the structure of the tax codes? What will 0:08:54.040 --> 0:08:56.840 next year bring do you think in anyway? Yeah, so 0:08:56.880 --> 0:08:59.520 this is the point that Democrats are really raising about this, saying, look, 0:08:59.559 --> 0:09:01.640 you know, this shows that the tax code is broken. 0:09:01.679 --> 0:09:04.200 The fact that there are legal tax breaks for people 0:09:04.200 --> 0:09:06.280 who are very wealthy to be able to basically have 0:09:06.480 --> 0:09:09.160 a separate tax code from those that you know, normal 0:09:09.200 --> 0:09:13.280 wage earners might pay is a problem. Unfortunately for Democrats 0:09:13.320 --> 0:09:15.800 is they're about to lose their House majority going into 0:09:15.840 --> 0:09:19.040 next year. The Democrats will retain control of the Senate, 0:09:19.240 --> 0:09:21.559 Republicans will control the House, which really just spells out 0:09:21.559 --> 0:09:24.640 gridlock for any sort of tax legislation. It's it's highly 0:09:24.679 --> 0:09:27.880 unlikely that the two parties will come together on any uh, 0:09:27.920 --> 0:09:31.520 and any legislation that would come result in raising taxes, 0:09:31.559 --> 0:09:34.880 particularly if this legislation were the result of some of 0:09:34.920 --> 0:09:38.160 the findings from Trump's tax returns. So, Laura, these tax 0:09:38.240 --> 0:09:41.200 returns being released that will provide some data on the 0:09:41.200 --> 0:09:45.680 former president's personal income, the income of his businesses, will 0:09:45.840 --> 0:09:49.760 give observers analysts any sense of his net worth and 0:09:49.800 --> 0:09:53.840 maybe not really Um. The problem with tax returns is 0:09:53.840 --> 0:09:57.200 there really just a snapshot in time of um earnings 0:09:57.200 --> 0:09:59.959 for a particular year. Um, you know, because of Trump's 0:10:00.120 --> 0:10:02.280 uh net worth is so tied um into real estate 0:10:02.280 --> 0:10:05.800 and other deals that is all not really reflected on 0:10:05.800 --> 0:10:08.160 on these tax returns in terms of valuations and things 0:10:08.160 --> 0:10:10.560 like that. Uh, that data just isn't there. So in 0:10:10.679 --> 0:10:12.760 terms of, you know, whether Trump is as rich as 0:10:12.760 --> 0:10:16.600 he says he is, whether he gained or lost a 0:10:16.600 --> 0:10:18.439 bunch of his net worth while he was in office, 0:10:18.559 --> 0:10:22.839 we can't say from these documents. Of course, you're busy 0:10:22.920 --> 0:10:24.959 coming on with us rather than having to pull through 0:10:25.000 --> 0:10:27.040 the thousands of pages. But just talk to us as 0:10:27.040 --> 0:10:28.560 a report of what you're going to be doing, where 0:10:28.559 --> 0:10:30.160 are you going to be looking. What do you hope 0:10:30.160 --> 0:10:32.840 to glean from all of this? Yeah, So the real 0:10:32.960 --> 0:10:35.320 key question here, um is you know, so how much 0:10:35.320 --> 0:10:38.280 did Trump benefit from his own tax law? Um? He 0:10:38.800 --> 0:10:40.760 with the help of Republicans and Congress, passed a big 0:10:40.800 --> 0:10:43.800 tax cut in seventeen. These documents give us a perfect 0:10:43.840 --> 0:10:45.360 example to look at, you know, a couple of years 0:10:45.400 --> 0:10:48.120 before that law change, after that law change, how we're 0:10:48.559 --> 0:10:51.360 taxpayers like Trump able to benefit from these law What 0:10:51.480 --> 0:10:53.680 deductions were he able to claim? And which things where 0:10:53.679 --> 0:10:55.280 he was he not able to claim? You know, one 0:10:55.320 --> 0:10:58.319 of the key things was this passed through deduction. Um. 0:10:58.320 --> 0:11:01.040 That was a key centerpiece of the bill. Helped LLC's 0:11:01.080 --> 0:11:04.400 partnerships pastors right off a bunch of their income. Trump 0:11:04.400 --> 0:11:06.800 actually wasn't able to claim that one because he actually 0:11:06.880 --> 0:11:09.400 lost money on his businesses those years. But you know, 0:11:09.480 --> 0:11:11.120 going forward, if he were to make money, he would 0:11:11.160 --> 0:11:14.079 be able to to take that deduction. Laura, great to 0:11:14.120 --> 0:11:15.760 have some time with the Thank you so much. We'll 0:11:15.800 --> 0:11:18.040 let you get back to the realms of documents. A 0:11:18.120 --> 0:11:20.760 data dump. Indeed, as we have the last day of 0:11:20.800 --> 0:11:23.440 trade here in New York. We thank Laura Davison over 0:11:23.480 --> 0:11:29.440 there in Washington for all things Trump taxes. We dig 0:11:29.440 --> 0:11:31.760 in a little bit more into the commodity space on 0:11:31.880 --> 0:11:35.200 Josh Young, chief investment Officer of Decent Interests. Of course 0:11:35.240 --> 0:11:38.720 you're focused on all on gas on public equities in particular, Josh, 0:11:39.160 --> 0:11:42.160 just talk to us about in particular the China reopening story. 0:11:42.360 --> 0:11:44.600 It's sort of good. Everyone scratching their heads, and in 0:11:44.640 --> 0:11:47.720 the immediate focus, it feels that everyone's a little bit nervous. 0:11:47.720 --> 0:11:49.880 We're worried about the spread of COVID and how they're 0:11:49.920 --> 0:11:52.080 going to manage the short term. But in the longer term, 0:11:52.160 --> 0:11:55.840 does this mean that commodities could out perform once again? Yeah? 0:11:56.000 --> 0:11:58.679 I mean I think if you define longer term in 0:11:59.000 --> 0:12:01.080 terms of more than the two or three months, it 0:12:01.120 --> 0:12:05.360 looks great. Um. It looks like China is setting a 0:12:05.440 --> 0:12:08.440 target for a really high return in terms of flights, 0:12:08.640 --> 0:12:12.640 and we're starting to see congestion essentially traffic on the 0:12:12.640 --> 0:12:15.640 streets and big cities start to rebound in cities as 0:12:15.679 --> 0:12:18.160 they're on the tail end of their COVID waves. So yeah, 0:12:18.280 --> 0:12:21.160 I think it looks great from a short to medium 0:12:21.240 --> 0:12:25.120 term perspective, and as China turns back on they also 0:12:25.200 --> 0:12:28.800 start to turn back on oil demand in other East 0:12:28.840 --> 0:12:31.240 and Southeast Asian countries, and so there could be a 0:12:31.240 --> 0:12:33.640 step up in terms of multiple millions of barrels a 0:12:33.720 --> 0:12:35.920 day of demand relative to where we've been over the 0:12:36.000 --> 0:12:41.199 last few months. Josh, you're based in Houston, as I recall, Um, 0:12:41.240 --> 0:12:43.440 you know you've got the energy stacks up almost six 0:12:44.040 --> 0:12:46.520 year to date. How good is life in Houston right now? 0:12:48.080 --> 0:12:51.520 So so it's interesting, Uh, employments actually not up that 0:12:51.640 --> 0:12:54.640 much on the oil and gas space, capital expenditures are 0:12:54.679 --> 0:12:56.520 not up that much on the oil and gas space, 0:12:56.880 --> 0:13:00.360 and the small cap stocks have lagged materially like in 0:13:00.440 --> 0:13:03.560 past recoveries. So what it's setting up for is, even 0:13:03.559 --> 0:13:06.320 though those stocks are up a lot from their lows, 0:13:06.360 --> 0:13:09.040 it's setting up for a multi year bowl market where 0:13:09.280 --> 0:13:11.520 we could see maybe XL E and sort of the 0:13:11.600 --> 0:13:14.360 other like large and majors don't have as much upside 0:13:14.400 --> 0:13:17.320 here after their significant out performance, but the small caps 0:13:17.320 --> 0:13:20.720 and oil services stocks, I mean, there's there's real potential there, 0:13:21.040 --> 0:13:24.160 and there's also a real potential for the revitalization of 0:13:24.200 --> 0:13:27.040 Texas and Houston. We we're doing great, but there's real 0:13:27.360 --> 0:13:29.040 it's not the same as it was in the sort 0:13:29.040 --> 0:13:32.920 of time frame where Houston was booming. And a lot 0:13:32.960 --> 0:13:35.679 of that, of course, has to do with federal policymaking, 0:13:35.760 --> 0:13:37.680 has to do with a pivot in terms of this 0:13:37.720 --> 0:13:41.080 economy trying to focus it on climate change there as well. 0:13:41.200 --> 0:13:43.880 How much are we likely to see the smaller caps 0:13:43.920 --> 0:13:46.160 that you say in particular maybe start to turn on again, 0:13:46.240 --> 0:13:48.600 maybe we start to see all output increasing a little 0:13:48.640 --> 0:13:50.959 bit more in the United States, because that has been 0:13:50.960 --> 0:13:53.959 this interesting tension between the all producers in the United 0:13:54.000 --> 0:13:56.920 States and indeed the US government. Yeah, I think we 0:13:57.000 --> 0:14:00.080 need much higher oil prices to get oil production and 0:14:00.120 --> 0:14:02.840 growth to be anywhere close to where people were expecting. 0:14:03.120 --> 0:14:05.880 So coming into this year, we expected oil production to 0:14:05.880 --> 0:14:08.120 grow by a few hundred thousand barrels a day, and 0:14:08.160 --> 0:14:10.280 the consensus was I think it was one point two 0:14:10.320 --> 0:14:13.160 million barrels a day. That consensus has come down a lot, 0:14:13.280 --> 0:14:16.040 and we've gotten production a lot closer to our expectation. 0:14:16.400 --> 0:14:18.400 And so what I think is actually going to drive 0:14:18.440 --> 0:14:20.280 the small cap rey rate is not going to be 0:14:20.640 --> 0:14:23.600 substantial production growth. It's going to be buyouts where we're 0:14:23.600 --> 0:14:27.400 seeing large caps by private companies at let's say three 0:14:27.440 --> 0:14:30.200 to four times EBITDA, and many of the small caps 0:14:30.200 --> 0:14:32.360 are trading as low as two times EBITDA. So there's 0:14:32.400 --> 0:14:36.600 real potential for a re rate through uh through acquisitions, 0:14:36.800 --> 0:14:39.280 and then also just when you trade that cheap, you 0:14:39.320 --> 0:14:42.120 have the potential to pay off debt, buy backstock, pay 0:14:42.120 --> 0:14:44.560 a dividend, and sort of force ely rate, which is 0:14:44.600 --> 0:14:46.800 not something you've seen from small cap oil and gas 0:14:46.880 --> 0:14:49.520 companies in the last decade. Josh, how do you guys 0:14:49.600 --> 0:14:53.080 in the energy business think about the big picture of 0:14:53.880 --> 0:14:56.440 I'm in the fossil fuel business. The world seems to 0:14:56.440 --> 0:14:59.440 be going green. It's probably gonna take a lot longer 0:14:59.480 --> 0:15:03.040 than people thought, you know, how do you manage your business? 0:15:03.040 --> 0:15:04.520 How when you mean, when you talk to these companies, 0:15:04.520 --> 0:15:07.680 how do they think about the five to ten year timeframe? 0:15:08.840 --> 0:15:11.600 So so that's a great question. And one of the 0:15:11.640 --> 0:15:16.000 really interesting things is that institutional allocators are actually still 0:15:16.040 --> 0:15:18.560 divesting from the oil and gas space. So even though 0:15:18.600 --> 0:15:20.520 it's done really well over the last couple of years. 0:15:20.640 --> 0:15:23.440 I've noted Goldman and others have talked about this as well, 0:15:23.520 --> 0:15:27.040 there's still actually funds leaving the space from an institutional 0:15:27.080 --> 0:15:31.000 allocation perspective, so it's very hard to see capital formation, 0:15:31.360 --> 0:15:35.560 new companies and new projects funded and uh, you know 0:15:35.720 --> 0:15:39.320 oil production growth when you actually see divestment, and a 0:15:39.360 --> 0:15:42.560 lot of that divestment appears to be ideological not economic. 0:15:42.840 --> 0:15:44.680 So what I think is going to happen is over 0:15:44.720 --> 0:15:47.640 the next year or two Goldman's estimate is the next year, 0:15:47.800 --> 0:15:50.080 we'll see maybe it takes two more years, money will 0:15:50.120 --> 0:15:54.960 start to flow back into the space from institutional allocators, 0:15:55.000 --> 0:15:58.040 who again are still pulling capital. Private equity funds are 0:15:58.040 --> 0:16:01.920 still divesting, insurance companies are still pulling their insurance coverage. 0:16:01.960 --> 0:16:04.160 When that flips and you start to see capital come 0:16:04.200 --> 0:16:06.280 back in, I think that's going to be the starting 0:16:06.360 --> 0:16:10.280 point for the recovery of production. And the really interesting 0:16:10.280 --> 0:16:13.480 thing is it takes many years to restore the oil 0:16:13.560 --> 0:16:17.720 services UH supply base, the ability to supply services to 0:16:17.840 --> 0:16:20.160 then be able to go drill enough wells to get 0:16:20.280 --> 0:16:22.960 enough supply to get into an oversupplied situation. So I 0:16:22.960 --> 0:16:25.440 think we're set up very nicely for a multi year 0:16:25.480 --> 0:16:27.840 oil bowl market. And it really comes back to this 0:16:27.880 --> 0:16:31.120 investment like you're talking about from the space, partly economically 0:16:31.160 --> 0:16:33.760 because it tasted badly over the last ten years, and 0:16:33.840 --> 0:16:37.040 partly ideologically, where you know, it's real hard for investment 0:16:37.080 --> 0:16:40.880 committees at endowments and foundations and family offices to allocate 0:16:40.920 --> 0:16:43.360 even though it's profitable, and even though other sectors are 0:16:43.360 --> 0:16:47.120 doing poorly, there's just this big ideological obstacle to investing. 0:16:48.000 --> 0:16:50.680 Some have, of course, sort of thought the turning towards 0:16:50.760 --> 0:16:53.320 natural gas as supply of energy in the US is 0:16:53.480 --> 0:16:56.560 more funny towards the environment. Natural gas has just been 0:16:56.600 --> 0:16:59.760 the most extraordinary commodity to follow this year for reasons 0:16:59.800 --> 0:17:01.200 we well known, and a lot of it to do 0:17:01.240 --> 0:17:03.360 with Europe and across the Atlantic. But to hit a 0:17:03.440 --> 0:17:05.600 high and excessive nine dollars to be back down to 0:17:05.680 --> 0:17:09.800 now four door, how do you see that part of 0:17:10.000 --> 0:17:14.600 your world looking for Yeah, so I think I think 0:17:14.680 --> 0:17:18.000 natural gas is oversupplied actually right now in North America 0:17:18.400 --> 0:17:21.399 and we will see sort of more normal temperature. So 0:17:21.440 --> 0:17:24.920 it's been a relatively warm winter so far other than 0:17:24.960 --> 0:17:28.040 this recent winter storm um and so weather has been 0:17:28.119 --> 0:17:32.160 uncooperating and supply has been higher than expectations. My view 0:17:32.200 --> 0:17:34.080 has been that natural gas would stay in this sort 0:17:34.119 --> 0:17:36.719 of four to seven dollar price range, and I think 0:17:36.760 --> 0:17:38.639 there might be a little bit of downside to that 0:17:38.720 --> 0:17:42.600 in three, but over time supply and demand should balance out, 0:17:42.840 --> 0:17:46.040 and by there are a number of different elergy export 0:17:46.080 --> 0:17:49.920 facilities that should finish construction and come on and at 0:17:49.960 --> 0:17:51.880 that point I think we're set up for a meaningful 0:17:51.920 --> 0:17:54.720 move higher. But again, it could be pretty rough on 0:17:54.760 --> 0:17:56.840 the natural gas side, Josh. If I want to go 0:17:56.920 --> 0:18:00.640 down to Corpus Corpus Christie or Galveston and build a refinery, 0:18:00.760 --> 0:18:03.080 could I do that? Could I get regulatory approval? Could 0:18:03.080 --> 0:18:05.400 I raise capital? Is that even possible in this day 0:18:05.400 --> 0:18:08.560 and age. Yeah, that's a good question. Honestly. I don't 0:18:08.600 --> 0:18:11.720 think that refineries are undersupplied, and I think that's been 0:18:11.760 --> 0:18:14.680 one of the big stories in two where there have 0:18:14.760 --> 0:18:17.600 been a couple of points where the crack spread so 0:18:17.680 --> 0:18:21.639 the refiner margin has been really high, and there's been 0:18:21.640 --> 0:18:25.800 this story about an insufficient supply of refining capacity. There 0:18:25.840 --> 0:18:28.199 may be an insufficient supply in a few years. The 0:18:28.240 --> 0:18:31.520 reality was that that was mostly driven by China lockdowns 0:18:31.720 --> 0:18:35.000 and millions of barrels a day of Chinese refining capacity, 0:18:35.280 --> 0:18:40.480 particularly the teapot, the smaller independent informal refiners going offline, 0:18:40.520 --> 0:18:43.520 and so as those are back online, um, there's actually 0:18:43.600 --> 0:18:46.920 plentiful refining capacity, and we see that with refining margins 0:18:47.200 --> 0:18:49.880 getting closer to normal levels. So yeah, it's really hard 0:18:49.920 --> 0:18:53.480 to build them. But frankly, we don't really need them 0:18:53.480 --> 0:18:56.800 talking a lot about us supply demand dynamics in all 0:18:56.840 --> 0:18:58.840 the natural gas. Just talk to us about OPEC plas 0:18:59.000 --> 0:19:00.880 or what you're expecting from the next year. In terms 0:19:00.880 --> 0:19:05.200 of the geopolitical risks around oil, yeah, I think OPEC 0:19:05.240 --> 0:19:09.640 plus has been sort of undertold story, partly because there 0:19:09.640 --> 0:19:11.439 have been a couple of different price wars in the 0:19:11.520 --> 0:19:15.000 last ten years. UM, it does appear that many of 0:19:15.040 --> 0:19:18.800 the OPEC plus countries are hitting their peak production capacity 0:19:18.840 --> 0:19:22.400 and have actually had to produce materially less than their 0:19:23.080 --> 0:19:26.320 than their production quotas, and so there are a few 0:19:26.320 --> 0:19:30.879 countries that still have some excess UH production capacity versus 0:19:30.920 --> 0:19:33.920 their quotas. But overall it does appear that there is 0:19:34.040 --> 0:19:37.600 limited spare capacity, and so as China demand comes back 0:19:37.640 --> 0:19:41.159 on and as Russian barrels may be restricted from the market, 0:19:41.640 --> 0:19:43.840 we could be in a situation where there's a call 0:19:43.920 --> 0:19:46.800 on OPEC oil and where OPEC is actually not able 0:19:46.840 --> 0:19:49.720 to deliver. So this is a really sort of contentious call, 0:19:50.119 --> 0:19:52.600 but it should be less contentious, I think because even 0:19:52.640 --> 0:19:58.600 senior executives from Aramco and various OPEC countries, um, they've 0:19:58.640 --> 0:20:01.200 talked about limited spirit coup. So you know, I think 0:20:01.240 --> 0:20:05.720 I think this is potentially three story, potentially story, but 0:20:05.800 --> 0:20:07.679 I think there's going to be a point where the 0:20:07.760 --> 0:20:11.200 world wants more oil from OPEC and where OPEC is 0:20:11.280 --> 0:20:13.959 just not able to deliver. All right, Josh, great stuff, 0:20:14.080 --> 0:20:16.240