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Speaker 3: You're listening to Bloomberg Intelligence Radio, where we bring you

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Speaker 3: all the top analysts proving all our top analysis. They

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Speaker 3: cover two thousand companies, one hundred and thirty industries all

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Speaker 3: amazing information sourcing storytelling that they provide, and the latest

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Speaker 3: to do so will be Alex Longley, Bloomberg Oil Trader

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Speaker 3: Reporter is standing by to talk about what's going on

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Speaker 3: with oil. So Brent is up by over two percent,

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Speaker 3: WTI crewed up three percent. Almost Brent is going to

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Speaker 3: be the thing you look at if you're looking at

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Speaker 3: international geopolitical risk. WTI will track it, but it's really

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Speaker 3: a little bit lower because that more of a domestic pricing.

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Speaker 3: I'll Alex explain that from Ali Smith.

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Speaker 4: She asked, so I did, She asked, So that's why

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Speaker 4: I feel so if I wanted to know, surely someone

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Speaker 4: in the audience wants that's.

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Speaker 3: What I was thinking. That's what I was thinking.

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Speaker 5: A voice for the people.

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Speaker 3: That's my ale explain. Let's get to the next alexplain.

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Speaker 3: Alex talk us through the recent spike and why we're

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Speaker 3: seeing it.

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Speaker 6: It's been a sort of a three pronged rally. Obviously

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Speaker 6: today there's extremely high geopolitical risk given the news surrounding

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Speaker 6: Israel and Iran, and that's been the kind of final

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Speaker 6: catalyst that's pushed Brent crude, as you said, four above

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Speaker 6: ninety dollars a barrel. But this also was a broader

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Speaker 6: rally in the making. We've had stronger than expected demand

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Speaker 6: in the first quarter according to the traders, although we

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Speaker 6: had a report from the International Energy Agency today which

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Speaker 6: cast that into slight doubt. We've had tighter supplies as

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Speaker 6: OPEC keeps its keeps its production relatively low, reduced by.

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Speaker 7: Two million barrels a day through until June.

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Speaker 6: And we also have globally a reflation trade in which

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Speaker 6: some traders are getting back into the oil market who

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Speaker 6: left they were looking for portfolio hedges.

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Speaker 7: So when you throw in the geopolitical tumult.

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Speaker 6: On top of that, you have an oil price that's

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Speaker 6: heading well into the nineties barrel and in which traders

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Speaker 6: are kind of afraid to short the market heading into

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Speaker 6: the weekend.

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Speaker 7: And that's why we get rallies like we're seeing.

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Speaker 4: Today, is the concern that this is going to be

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Speaker 4: like that there's more upside risk here, that we're going

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Speaker 4: to stay at this ninety ish level. I mean, what's

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Speaker 4: the kind of sentiment right now about the outlook for

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Speaker 4: oil prices.

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Speaker 6: Yeah, and we've just had a big commodities conference here

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Speaker 6: in Europe with all the kind of top traders from

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Speaker 6: the independent trading houses so Vitol, Traffic gur or a

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Speaker 6: gun for And one of the interesting themes coming away

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Speaker 6: from that wasn't so much the more bullish outlook per se,

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Speaker 6: which I think is everyone's become accustomed to very quickly,

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Speaker 6: but it's actually the speed with which that's changed. We

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Speaker 6: had IP week here in London in February and everyone

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Speaker 6: was rarely relatively downbeat, was fairly confident that prices would

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Speaker 6: remain range bound, and in a little more than six

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Speaker 6: weeks since then, this has become a rampantly bullish market.

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Speaker 6: We had Vitol talking this week about a kind of

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Speaker 6: eighty to one hundred dollars range. As prices move higher,

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Speaker 6: you will continue to run into the types of issues

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Speaker 6: you do when you have high oil prices, things like

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Speaker 6: demand destruction, things like incentivizing US supplies to produce more,

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Speaker 6: or US producers to produce more, I should say, and

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Speaker 6: also slip it from within OPEK itself. That said, there's

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Speaker 6: also not much conviction that if price is wor to

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Speaker 6: for which feels very unlikely today, that they're going to

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Speaker 6: fall very far because OPEC producers are willing to protect

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Speaker 6: that downside.

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Speaker 3: Well, exactly, I have to think, at what point do

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Speaker 3: the studies use that spare capacity. So they have a

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Speaker 3: lot of it, they've been unwilling to use it. Is

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Speaker 3: it like a ninety five dollars thing because they're going

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Speaker 3: to be very worried about demand destruction.

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Speaker 7: Yeah, for sure.

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Speaker 6: And I think this is part of the bind of

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Speaker 6: the meeting that we're going to have in June is

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Speaker 6: And it's not just Saudi Arabia, don't forget, it's the

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Speaker 6: UAE as well. There's been aggressively ramping up its production

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Speaker 6: capacity in recent years, and it's kind of itching to

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Speaker 6: use some of those barrels. That's kind of a question

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Speaker 6: for two months down the line. I think for now,

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Speaker 6: what opt producers will be looking to see as inn

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Speaker 6: the of stability in this higher price level. We haven't

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Speaker 6: actually been at ninety dollars a barrow that long in

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Speaker 6: the scheme of oil pricing, right, So I think between

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Speaker 6: now and then, the question is going to be how

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Speaker 6: does the market look, how does do political side of

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Speaker 6: the equation look, which you know, even from here to Monday,

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Speaker 6: it's pretty hard to have a concrete view on what

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Speaker 6: the market's going to do in the next few days,

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Speaker 6: and so casting all the way ahead to June and

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Speaker 6: having a sort of purity of whether or not there'll

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Speaker 6: be bowers being produced either in the Atlantic basin, in

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Speaker 6: the US for various reasons, and also in the Middle East.

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Speaker 6: I think we have such a widespread of outcomes that

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Speaker 6: it's more a case, as Opek said in our own

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Speaker 6: report yesterday, of monitoring and then judging closer to the

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Speaker 6: time how the market's looking and whether it needs extra barrows.

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Speaker 3: As you're talking about the traders like Vita, Traffic, Gura,

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Speaker 3: et cetera. They're the guys that move things around. What

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Speaker 3: are they talking about in terms of moving oil. Is

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Speaker 3: it hard to move oil now because of the disruptions

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Speaker 3: that we've seen in the Red Sea, et cetera, Or

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Speaker 3: are things okay?

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Speaker 6: I think in terms of the Red Sea, it's there

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Speaker 6: in the background, but it's not the disruptive force that

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Speaker 6: it was. Again, casting back to IP week in February,

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Speaker 6: that was a big talking point. Then when the market

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Speaker 6: at the front end was super strong, we saw big

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Speaker 6: backwardation at the front of the curve, like strong demand

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Speaker 6: for immediate barrels and prices trading higher as a result

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Speaker 6: of that. We do still have a big backwardation at

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Speaker 6: the front of the curve, but I think the feeling

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Speaker 6: is that the Red Sea isn't as big of a

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Speaker 6: driver there because that was a kind of a three

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Speaker 6: to four week shift in supply chain that's now being

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Speaker 6: allowed for. So I think on the delivery side you

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Speaker 6: don't see that much worry. I think where people are

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Speaker 6: talking a lot of the moment is on the demand

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Speaker 6: side and on revisions upward, revisions to numbers. Even here

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Speaker 6: in Europe, where we're supposedly are kind of a flat

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Speaker 6: line oil demand region, if not falling oil demand region.

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Speaker 6: But you look at some of the gasoline demand numbers,

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Speaker 6: particularly in the Mediterranean, and you're seeing double digit ear

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Speaker 6: on your percentage growth, and that kind of runs counterintuitive

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Speaker 6: to the idea that demand should be falling in Europe.

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Speaker 6: And that's before you get into the real demand powerhouses

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Speaker 6: like China. Certainly, again talking to the traders, looking at

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Speaker 6: some of the figures in the first quarter of the year,

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Speaker 6: lots of numbers were coming in fairly strong, and that's

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Speaker 6: partly what's driven this sort of this rampant move higher

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Speaker 6: that we've seen in recent weeks.

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Speaker 4: So, Alex, the question then that I would have from

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Speaker 4: the economy perspective is when you have oil prices that

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Speaker 4: are staying at this ninety dollars range, and of course

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Speaker 4: remains to be seen of how long that's going to

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Speaker 4: be the case for, But when does that start to

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Speaker 4: filter it through to consumer prices, whether it's through other

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Speaker 4: transit and logistics costs, jet fuel, you know, things of

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Speaker 4: that nature. When do we start to feel it?

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Speaker 7: And there's a couple of reasons that there's a time lag. Right.

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Speaker 6: We often many of the world's biggest consumers will hedge

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Speaker 6: their suppliers and Therefore that part that ripple through effect

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Speaker 6: to consumers takes months to filter through. I think you

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Speaker 6: can make an argument that you are already seeing it

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Speaker 6: to an extent. The CPI data this week, for example,

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Speaker 6: had a higher filter through from energy prices, and I

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Speaker 6: think you'll probably continue to see that in the coming months.

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Speaker 6: As as I said before, you know, if we think,

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Speaker 6: if we assume there's a two to three month lag

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Speaker 6: and we think back to where we were earlier in

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Speaker 6: the year, we're now tens of fifteen dollars higher and

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Speaker 6: with a sort of a related knock on a onto

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Speaker 6: things as you said, like gasoline and jet fuel prices

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Speaker 6: to Alex's earlier point, The question is what happens then,

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Speaker 6: do we do we hold in the nineties as political

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Speaker 6: risks simmers for a few months or dold we have

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Speaker 6: a market that moves higher. And I think, you know,

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Speaker 6: as we shift from a kind of I think traders

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Speaker 6: are kind of getting used to this idea that inflation

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Speaker 6: might be slightly stickier than expected this year. The question

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Speaker 6: then is going to be, okay, well, how long is

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Speaker 6: it going to be stickier than expected? For and if

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Speaker 6: crude prices and by association refined product prices sort of

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Speaker 6: flatline at a higher level, perhaps the inflationary impact starts

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Speaker 6: to die off. On the other side, if we see

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Speaker 6: big expansions in refining margins or higher crude prices, then

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Speaker 6: that's going to continue well into the rest of Tiety

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Speaker 6: twenty four.

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Speaker 3: Alex Longley joining us a Bloomberg Oil trader reporter. Thank

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Speaker 3: you so much. You were like double al explained.

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Speaker 5: Yes, I love that side. It was really nice. So

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Speaker 5: you guys just really told so much.

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Speaker 3: I love that. Okay, we're looking at is real potentially

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Speaker 3: bracing for a direct and unprecedent attack by Iran and

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Speaker 3: government targets as soon as Saturday. Of course, that moving

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Speaker 3: to the upside when it comes to crude prices to

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Speaker 3: the highest level.

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Speaker 8: Now since October, you're listening to the Bloomberg Intelligence Podcast.

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Speaker 1: Catch us live weekdays at ten am Eastern on applecar

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Speaker 1: Play and Android Auto with the Bloomberg Business app. You

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Speaker 1: can also listen live on Amazon Alexa from our flagship

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Speaker 1: New York station Just Say Alexa playing Bloomberg eleven thirty.

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Speaker 3: Mollie Smith in with me up for the next two hours.

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Speaker 3: I've never angered with you before, but I'm really looking

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Speaker 3: forward to.

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Speaker 4: Yeah, We've got such a treat I'm so excited, especially

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Speaker 4: our first guest coming right out of the University of Michigan,

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Speaker 4: where I normally would be writing up this report, but

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Speaker 4: we get to talk to Joanne Shoe herself today.

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Speaker 3: That's why we love this. So not only do we

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Speaker 3: give you all the great analysts, but we also bring

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Speaker 3: you int an analysis with the data crosses at the

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Speaker 3: ten o'clock hours, So the University of Michigan sentiment coming

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Speaker 3: in a bit lighter current conditions, also a bit lighter

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Speaker 3: expectations get where I'm going, a bit lighter and one

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Speaker 3: year in five to ten year inflation expectations guess what,

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Speaker 3: a bit higher. So let's get more to it with

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Speaker 3: Joeann Hue. She heads up all the daddy here from

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Speaker 3: University of Michigan. She is University of Michigan Surveys of

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Speaker 3: Consumer Director. All right, joe Ane, great to chat with you.

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Speaker 3: What did you make? What's your takeaway?

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Speaker 9: Essentially, consumers didn't really see any sort of changes in

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Speaker 9: the economy, not just in this month but actually since January.

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Speaker 5: They're in their.

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Speaker 9: Income expectations, labor market expectations, their their views of their

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Speaker 9: personal finances. Everything has been remarkably stable since January. The

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Speaker 9: one exception is this month there was a slight uptick

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Speaker 9: in inflation expectations, consistent with what we saw in the

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Speaker 9: CPI report earlier this week. Consumers have internalized that information

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Speaker 9: and bumped up their expectations for inflation.

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Speaker 4: Accordingly Johann, how much of this is too to rising

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Speaker 4: gasoline prices versus broader inflation.

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Speaker 9: It is partially to do with higher gas prices, but

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Speaker 9: typically gas prices tend to affect sentiment more than they

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Speaker 9: affect inflation expectations alone. So you know, I think consumers

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Speaker 9: are very much preserving judgment about the medium and longer

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Speaker 9: term trajectory of the economy. A lot of them are

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Speaker 9: mentioning uncertainty over the election, so they are taking some

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Speaker 9: signal from gas prices. But you know, they have noticed

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Speaker 9: that this inflation slow down is has accelerated, and they're

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Speaker 9: not terribly pleased with the pace of disinflation.

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Speaker 3: A walkers through the great stuff that you guys do

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Speaker 3: of Democrats versus Republicans is a sentiment sort of on

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Speaker 3: the same wavelength for both.

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Speaker 9: It's a little too early to tell at mid month.

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Speaker 9: We'll know more at the end of the month, but

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Speaker 9: what we are seeing so far is that, as usual,

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Speaker 9: consumers who are who belong with the party that's in

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Speaker 9: the White House tend to have higher levels of sentiment

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Speaker 9: than consumers in the party not in the White House.

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Speaker 9: So right now Democrats have higher levels of sentiment than Republicans.

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Speaker 9: Independence are right in the middle. And for all of

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Speaker 9: these groups, there just weren't There haven't been that many

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Speaker 9: changes since January. It's been four months of remarkable stability

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Speaker 9: and how people view the economy.

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Speaker 4: So we've seen generally, when you're looking along party lines

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Speaker 4: that there have been for the most part, sentiment among

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Speaker 4: Democrats and Republicans have been generally rising in recent months,

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Speaker 4: while Independents have really been lagging a lot. Can you

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Speaker 4: speak to how that you know, what that means for

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Speaker 4: the mindset of somebody who perhaps is an undecided voter,

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Speaker 4: if that's like how you would make that takeaway.

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Speaker 9: It's a little bit hard to say, because even among

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Speaker 9: independence there are some that lean Republican and some that lean.

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Speaker 3: That lean Democrat.

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Speaker 9: So it's really hard to say from our data how

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Speaker 9: many people are actually undecided at this point. You know, overall,

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Speaker 9: you know, independence have been in the middle the rising

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Speaker 9: tide that we saw towards the end of twenty twenty

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Speaker 9: three in which sentiments searched, that was something we saw,

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Speaker 9: you know, across all three political groups and across the

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Speaker 9: all three footal groups. They're all I wouldn't say holding

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Speaker 9: their breath, but they are really reserving judgment and waiting

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Speaker 9: for the election at the end of this year because

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Speaker 9: they do see that a lot of the economy is

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Speaker 9: going to hinge on that.

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Speaker 3: Well the molly did we see that in the CPI report?

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Speaker 3: Butter prices are down belt to basis right, what pastries

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Speaker 3: and cereals so like, I don't know your breakfast croissants

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Speaker 3: that you're gonna make, It's could be worse.

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Speaker 4: I mean, chicken prices were really high though, I don't

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Speaker 4: know if you saw that. The poultry market though these days,

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Speaker 4: that's crazy.

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Speaker 3: My musand makes too much chicken. I'm like, it's not

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Speaker 3: but the chicken anything. Yeah, now I can tell them

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Speaker 3: why we'll get the CPI exactly get there before I

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Speaker 3: let you go, Joanne. If I'm the fed I'm looking

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Speaker 3: at this, Is there a takeaway for me? Is there

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Speaker 3: a signal.

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Speaker 9: I think the signal that that policy maker should take

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Speaker 9: from this is that not only has you know, did

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Speaker 9: the CPI come in hot earlier this month, earlier this week,

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Speaker 9: but consumers have incorporated that into their expectations for the future.

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Speaker 9: They are expecting a little bit more inflation in the

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Speaker 9: year in the next five years than they were expecting

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Speaker 9: just last month. So that's definitely not the trend that.

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Speaker 3: That you want to see.

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Speaker 5: And so consumers have noticed.

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Speaker 3: All right, Joan, Thanks Lott. We really appreciate. It's always

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Speaker 3: going to get their perspective instid analysis, right, we get

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Speaker 3: the data, we get Joanne, we have you covered on

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Speaker 3: all fronts. Joann Shu, University of Michigan, Surveys of Consumer Director.

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Speaker 3: Was that cool for you?

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Speaker 5: Oh my god?

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Speaker 3: Yeah, super fun?

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Speaker 5: I feel you got to interview a superstar.

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Speaker 3: Oh nice?

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Speaker 5: Okay, what a great start to Friday.

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Speaker 3: Okay, we like to make my Molly's man happy. Here.

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Speaker 4: Next you're going to bring in a tennis star. Then

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Speaker 4: you really see me just like fly off.

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Speaker 3: The seat because you're like a pro tennis player.

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Speaker 4: I mean maybe on the Bloomberg tennis team, but you know,

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Speaker 4: no one's looking for breaking points.

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Speaker 1: There fair enough, you're listening to the Bloomberg Intelligence podcast.

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Speaker 1: Catch us Live weekdays at ten am Eastern on fo

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Speaker 1: card Playing and Broyd Auto with the Bloomberg Business app.

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Speaker 1: Listen on demand wherever you get your podcasts, want us

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Speaker 1: Live on YouTube.

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Speaker 3: So let's get to the other part of the market today,

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Speaker 3: and that's what's happening with banks. So JP Morgan is

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Speaker 3: down by almost five percent, Wells Fargo is up by

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Speaker 3: one tenth, and City Group now down by about three

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Speaker 3: tenths of one percent. Granted, it's a tough tape. It's

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Speaker 3: definitely sort of going to a safe haven flight to

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Speaker 3: say if you don't want to take on that equity

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Speaker 3: risk into the weekend. But nonetheless, let's dig through what

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Speaker 3: we learned here. There is literally no other person that

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Speaker 3: you want to talk to but Alison Williams, Bloomberg Intelligence,

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Speaker 3: Senior Analyst, Global Banks and Asset Managers. She joins us. Now,

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Speaker 3: all right, Allison, what was okay? Two questions? Is there

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Speaker 3: a macro takeaway for me? And if not, what is

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Speaker 3: the takeaway?

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Speaker 10: So there is a macro takeaway which is positive, which

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Speaker 10: is the fact that credit costs are coming in much

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Speaker 10: better than expected, and that's because the reserve builds are

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Speaker 10: either coming in lower than expected, such as a city

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Speaker 10: group and we actually got releases at JP Morgan and

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Speaker 10: wels fargetting.

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Speaker 3: Things may not be as bad as me meaning that.

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Speaker 10: Their outlook right. So the reserves are really all about

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Speaker 10: what they expect for losses, you know, they're meant to

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Speaker 10: look at losses over the life of the loan. What

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Speaker 10: we've seen over the past you know, a year or

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Speaker 10: so is just a change I think in the waiting

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Speaker 10: of the scenario, So moving more towards an expectation for

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Speaker 10: the goldilocks type of scenario versus the expectations for a recession.

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Speaker 10: The you know, JP Morgan is trading down today clearly

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Speaker 10: on the net interest income guidance disappointment. I would make

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Speaker 10: the point that they have beaten an interest income and

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Speaker 10: raised guidance for several quarters in a row. They kept

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Speaker 10: their overall guidance for net interest income steady and their

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Speaker 10: core net interest income, which we think is the metric

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Speaker 10: to focus on, that's actually better. So we think that's

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Speaker 10: a good thing, but still might not have been you know,

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Speaker 10: enough for some of the bullish investors. But we do

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Speaker 10: think that they could just be saving all the good

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Speaker 10: stuff for their investor day. So they have investor Day

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Speaker 10: coming up in.

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Speaker 4: One of the under promise over to yes, and they

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Speaker 4: love to see that in the corporate world.

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Speaker 10: Well, and they will be you know, they they will

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Speaker 10: be telling their full story at investor Day. We expect

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Speaker 10: to hear more about, you know, their expectations for returns

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Speaker 10: or expectations for capital, their expectations for costs. The costs

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Speaker 10: did come in higher at JP Morgan, but that was

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Speaker 10: really due to the fdi C special assessment, which is

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Speaker 10: something we'd expecting. We're expecting, so we think, you know

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Speaker 10: that that's sort of fine. I guess just the one

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Speaker 10: off well too, Yeah, so we would not make too

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Speaker 10: much out of that. I mean, the bigger banks, the

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Speaker 10: more deposits you have, the more you're gonna have to pay.

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Speaker 10: And so JP Morgan all the other banks are making

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Speaker 10: those payments. We saw those charges at Wells in City

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Speaker 10: as well.

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Speaker 4: So with this net interest income, I mean, this really

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Speaker 4: what is going to be like the big item to

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Speaker 4: look for in the bank earnings. We had a great

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Speaker 4: story out earlier this week talking about that. You know

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Speaker 4: how much this relates to the outlook for the FED

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Speaker 4: path and this net interest income. For you guys who

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Speaker 4: aren't as familiar with bank bound sheets like myself, this

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Speaker 4: is how we described the difference between what banks earned

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Speaker 4: on assets and what they pay on debts. So it's

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Speaker 4: in their interest to see interest rates stay high and

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Speaker 4: it makes that net interest income go higher. So you're

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Speaker 4: telling us, then, Alison, that the guidance that they've zield

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Speaker 4: been doing this under promise hopefully later over delivered situation,

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Speaker 4: and that the guidance has still been pretty weak.

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Speaker 10: Well, I think, you know, keep in mind that we're

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Speaker 10: looking at guidance for the year, and I think, well

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Speaker 10: that interesting income was the focus coming into the quarter,

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Speaker 10: Like the credit class I think are are really kind

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Speaker 10: of the they the surprise of the quarter, if you will,

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Speaker 10: like sort of the key takeaway coming out of the quarter. So,

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Speaker 10: you know, net interest income, everyone can see that. The

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Speaker 10: last time these banks reported, we there were you know,

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Speaker 10: six to seven cuts expected. As of today there's three,

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Speaker 10: and so I think investors were looking for that change.

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Speaker 10: But keep in mind a lot of those cuts were

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Speaker 10: awaited in the second half. Again, we saw how quickly

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Speaker 10: things change the last three months, so we don't think

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Speaker 10: it's crazy. In fact, we think it's conservative and the

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Speaker 10: right thing to do that these banks would be conservative

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Speaker 10: and wait before they change around those expectations, right, instead

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Speaker 10: of just jumping things all over the place. So I

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Speaker 10: think it's right to be conservative. It doesn't mean that

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Speaker 10: we're not going to get a change. And really, like

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Speaker 10: as pointed out by City Group, the big change is

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Speaker 10: going to be to next year. It's really twenty twenty

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Speaker 10: five that as we get the changes in these expectations,

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Speaker 10: that's where it'll play out.

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Speaker 5: Expectations for the FED.

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Speaker 10: Expectations for the FED. Yes, I should have clarified that.

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Speaker 10: And you know, so keep in mind that most of

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Speaker 10: the banks are positioned for higher rates, and I think

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Speaker 10: that's really what investors are watching. The other side of

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Speaker 10: that are the you know, trends in deposit pricing. If

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Speaker 10: we do get lower rates, we could get a benefit

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Speaker 10: in terms of the deposit pricing.

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Speaker 3: Because they raised it so much before. I'm kidding because

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Speaker 3: I didn't do that at all. I mean, I think

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Speaker 3: I think my city account is like zero point eight

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Speaker 3: nine percent, please please.

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Speaker 10: Right, And so the interesting dynamic, right is that you know,

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Speaker 10: rates went up immediately they adjusted the prices to the loans,

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Speaker 10: but on the deposit side they were slower to adjust.

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Speaker 10: And in part, you know, we were at zero percent

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Speaker 10: for a long time the pandemic. They were making no money,

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Speaker 10: so in part things had to balance out a little bit.

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Speaker 10: But you know, once you get to a certain point,

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Speaker 10: which is where we are now, you expect that to

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Speaker 10: sort of catch up. And so you know that point

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Speaker 10: eight nine is up from zero Alex Gosh, I mean,

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Speaker 10: aren't you so excited?

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Speaker 9: You know?

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Speaker 10: But the thing is like, if if rates keep, you know,

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Speaker 10: stay where they are, keep going up, you're going to say, hey,

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Speaker 10: you know where you know, show me the money.

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Speaker 3: Right, oh I am? And don't think that I didn't

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Speaker 3: miss when Marcus cut their high old savings rate by

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Speaker 3: ten bases points like last week. I was like, you

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Speaker 3: got to be kidding me anyway, Allison, thanks very much,

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Speaker 3: Alison Williams. She has all of our bank coverage credit

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Speaker 3: card coverage as a management coverage here for Bloomberg Intelligence

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Speaker 3: Senior Banks analyst. We very much appreciate that.

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Speaker 1: say Alexa playing Bloomberg eleven thirty.

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00:20:28,840 --> 00:20:30,800
Speaker 3: So definitely say haven bid into the market. But we

441
00:20:30,840 --> 00:20:33,080
Speaker 3: did learn a lot about the economy this week. The latest,

442
00:20:33,080 --> 00:20:35,280
Speaker 3: of course, of those you miss data with expectations and

443
00:20:35,280 --> 00:20:38,960
Speaker 3: current conditions coming in light, while those inflation expectation numbers

444
00:20:39,000 --> 00:20:41,480
Speaker 3: were revised higher. So let's get the broader read here

445
00:20:41,560 --> 00:20:45,359
Speaker 3: with Hasaan Naji. He's CEO of Marcus and Millichap. He

446
00:20:45,440 --> 00:20:48,240
Speaker 3: joins us now in the Interactior Broker studio right here

447
00:20:48,280 --> 00:20:50,720
Speaker 3: in Manhattan. I bet you miss California right now.

448
00:20:50,760 --> 00:20:52,960
Speaker 8: Huh, good morning, But I love being in New York.

449
00:20:53,080 --> 00:20:56,040
Speaker 3: You do, Okay, even the rain and the whole thing. Okay,

450
00:20:56,680 --> 00:20:59,040
Speaker 3: what did we learn this week about where the US

451
00:20:59,080 --> 00:20:59,679
Speaker 3: economy is?

452
00:21:00,320 --> 00:21:03,120
Speaker 8: I was actually attending the Urban Land Institute conference, which

453
00:21:03,119 --> 00:21:05,920
Speaker 8: is a very important trade group for commercial real estate.

454
00:21:06,359 --> 00:21:08,960
Speaker 8: There were literally thousands of our clients here over the

455
00:21:09,040 --> 00:21:14,560
Speaker 8: last several days. Everybody's very enthusiastic about the economy. The

456
00:21:14,600 --> 00:21:16,960
Speaker 8: fact that jobs are coming in hotter than expected, and

457
00:21:17,000 --> 00:21:20,359
Speaker 8: even consumer strength is coming in hotter than expected, and

458
00:21:20,440 --> 00:21:23,119
Speaker 8: even some of the inflation readings that are pushing the

459
00:21:23,160 --> 00:21:26,200
Speaker 8: FED out in terms of their timing. Is all good

460
00:21:26,280 --> 00:21:29,280
Speaker 8: news for demand for various types of space, whether it's

461
00:21:29,320 --> 00:21:32,560
Speaker 8: shopping centers, even office buildings are starting to see more

462
00:21:32,600 --> 00:21:37,120
Speaker 8: of a recovery, apartment building, self storage, even mobile home

463
00:21:37,200 --> 00:21:40,840
Speaker 8: parks and student housing. So the demand side of the

464
00:21:40,840 --> 00:21:45,240
Speaker 8: equation is a reason for optimism. The fact that the

465
00:21:45,359 --> 00:21:50,600
Speaker 8: interest rate spikes have really impacted valuations and the fact

466
00:21:50,640 --> 00:21:54,920
Speaker 8: that banks have pulled back from lending or creating huge

467
00:21:55,000 --> 00:21:58,000
Speaker 8: challenges on the transactional side of the equation, both in

468
00:21:58,480 --> 00:22:02,040
Speaker 8: underwriting what the value should be and in securing financing.

469
00:22:02,320 --> 00:22:05,080
Speaker 8: Commercial real estate is very interest rate sensitive. Of course,

470
00:22:05,480 --> 00:22:07,120
Speaker 8: that's where the concerns are.

471
00:22:07,320 --> 00:22:07,480
Speaker 7: Well.

472
00:22:07,520 --> 00:22:09,760
Speaker 4: Tell us about your clients and if what kind of

473
00:22:09,840 --> 00:22:12,160
Speaker 4: challenges they're facing right now, if this is a really

474
00:22:12,520 --> 00:22:15,800
Speaker 4: tough environment to get a loan right now, perhaps to

475
00:22:15,880 --> 00:22:19,080
Speaker 4: be expanding, and just generally how they view the landscape

476
00:22:19,119 --> 00:22:19,800
Speaker 4: as well.

477
00:22:19,840 --> 00:22:23,200
Speaker 8: I would say the biggest challenge is securing financing. And

478
00:22:23,280 --> 00:22:26,359
Speaker 8: the proceeds from a lender were as high as sixty

479
00:22:26,359 --> 00:22:29,399
Speaker 8: five or seventy percent of the price of an acquisition,

480
00:22:29,960 --> 00:22:32,760
Speaker 8: that's down to maybe fifty percent. So not only have

481
00:22:32,840 --> 00:22:37,000
Speaker 8: interest rates gone up, the lender's willingness to finance more

482
00:22:37,080 --> 00:22:40,000
Speaker 8: of the acquisition has declined, and that is creating a

483
00:22:40,080 --> 00:22:43,440
Speaker 8: huge challenge. But more than anything else, now that we're

484
00:22:43,520 --> 00:22:47,200
Speaker 8: two years into this tightening cycle, we're starting to see

485
00:22:47,200 --> 00:22:52,240
Speaker 8: clients recognize the price adjustments that have already occurred becoming

486
00:22:52,280 --> 00:22:55,840
Speaker 8: an opportunity. Blackstone had declared the bottom about a month ago.

487
00:22:56,359 --> 00:22:58,280
Speaker 8: Just a few days ago, they announced a ten billion

488
00:22:58,280 --> 00:23:02,080
Speaker 8: dollar acquisition of a publicly trade rate that they're taking private.

489
00:23:02,600 --> 00:23:06,200
Speaker 8: Those kinds of signals really jive with what we're hearing

490
00:23:06,240 --> 00:23:10,920
Speaker 8: from institutional product clients on the prices being much lower

491
00:23:10,920 --> 00:23:14,120
Speaker 8: than replacement cost. It's getting more expensive and more difficult

492
00:23:14,160 --> 00:23:18,600
Speaker 8: to add new space of any type of product, and

493
00:23:19,160 --> 00:23:22,480
Speaker 8: the replacement cost equation now makes commercial real estate a

494
00:23:22,520 --> 00:23:24,880
Speaker 8: lot more attractive than it was just two years ago.

495
00:23:25,160 --> 00:23:27,240
Speaker 3: So then for the broader back or read on rates,

496
00:23:27,680 --> 00:23:30,439
Speaker 3: does it matter then that rates haven't been cut. Does

497
00:23:30,480 --> 00:23:33,760
Speaker 3: it matter that we're at almost five percent the two

498
00:23:33,840 --> 00:23:36,320
Speaker 3: year or is it just a time I just needed

499
00:23:36,359 --> 00:23:39,040
Speaker 3: time to readjust to a higher for longer world.

500
00:23:39,560 --> 00:23:42,960
Speaker 8: It's a combination of both. Interest rates matter a lot

501
00:23:43,080 --> 00:23:47,000
Speaker 8: at quarter basis point fifty basis point on your financing

502
00:23:47,080 --> 00:23:49,960
Speaker 8: rate makes a big difference, especially on the smaller price

503
00:23:50,040 --> 00:23:52,840
Speaker 8: points for private investors, which make up the bulk of

504
00:23:52,840 --> 00:23:55,440
Speaker 8: the market. By the way, eighty percent of the market

505
00:23:55,760 --> 00:23:58,919
Speaker 8: and the commercial real estate world is priced under ten

506
00:23:58,960 --> 00:24:03,640
Speaker 8: million dollars, So those microcap private client deals are very

507
00:24:03,680 --> 00:24:06,920
Speaker 8: interest rate sensitive, as are the larger acquisitions, of course,

508
00:24:07,440 --> 00:24:11,520
Speaker 8: but time has brought the price adjustments a little bit

509
00:24:11,520 --> 00:24:14,960
Speaker 8: more time will bring more price adjustments, and the Fed's lowering,

510
00:24:15,080 --> 00:24:18,080
Speaker 8: whether it's you know, once or twice, isn't so much

511
00:24:18,119 --> 00:24:21,240
Speaker 8: the mathematical solution people are looking for. It's the psychological

512
00:24:21,840 --> 00:24:25,359
Speaker 8: confirmation that the tightening is over. We're going to start

513
00:24:25,359 --> 00:24:27,520
Speaker 8: to get out of a restrictive zone, which is where

514
00:24:27,520 --> 00:24:29,920
Speaker 8: the FED has had us. I don't think they want

515
00:24:29,960 --> 00:24:31,960
Speaker 8: to keep us in that restrictive zone a minute longer

516
00:24:32,000 --> 00:24:35,000
Speaker 8: than they have to. But unfortunately, inflation is proving to

517
00:24:35,040 --> 00:24:37,920
Speaker 8: be sticky and the time timeline keeps getting pushed out.

518
00:24:38,160 --> 00:24:40,720
Speaker 4: So coming back to replacement costs for just a minute, here,

519
00:24:41,240 --> 00:24:42,560
Speaker 4: I just went through buying a home.

520
00:24:42,760 --> 00:24:45,120
Speaker 3: Oh you did regulation, thank you so much.

521
00:24:45,640 --> 00:24:49,600
Speaker 4: Your rate Oh it thankfully no mortgage on this, But

522
00:24:49,880 --> 00:24:53,320
Speaker 4: there is, thank you so much. But when I was

523
00:24:53,680 --> 00:24:55,840
Speaker 4: going through this process, so obviously this is on the

524
00:24:55,880 --> 00:24:59,480
Speaker 4: residential side, but when I think of replacement costs, I'm

525
00:24:59,480 --> 00:25:02,520
Speaker 4: just thinking of man going through getting an insurance policy

526
00:25:02,840 --> 00:25:06,120
Speaker 4: and how much more expensive that was. Thinking of all

527
00:25:06,160 --> 00:25:08,360
Speaker 4: of how these costs are rising for both the material

528
00:25:08,440 --> 00:25:11,560
Speaker 4: and labors. God forbid, you should ever need this policy

529
00:25:11,640 --> 00:25:14,399
Speaker 4: to help you, So tell us if that's also what

530
00:25:14,440 --> 00:25:16,960
Speaker 4: you're seeing on the commercial side in terms of ensuring

531
00:25:17,240 --> 00:25:18,440
Speaker 4: some of these properties too.

532
00:25:19,119 --> 00:25:20,360
Speaker 1: That is undoubtedly.

533
00:25:20,760 --> 00:25:25,119
Speaker 8: Next to interest rates, the second most talked about issue

534
00:25:25,400 --> 00:25:29,480
Speaker 8: is insurance across all property types, especially in regions that

535
00:25:29,520 --> 00:25:34,800
Speaker 8: are more sensitive to natural disasters Florida, for example, California,

536
00:25:35,640 --> 00:25:39,160
Speaker 8: But across the board, insurance is skyrocketed. So on top

537
00:25:39,200 --> 00:25:42,640
Speaker 8: of the interest rate factor and the increased cost of debt,

538
00:25:42,840 --> 00:25:48,320
Speaker 8: you have inflationary operating costs and then insurance. So that's

539
00:25:48,359 --> 00:25:52,040
Speaker 8: another challenge that the industry is facing. But I have

540
00:25:52,080 --> 00:25:54,879
Speaker 8: to tell you your strategy of paying all cash brilliant

541
00:25:55,359 --> 00:25:59,080
Speaker 8: and then putting financing on it later is very commonly used,

542
00:25:59,160 --> 00:26:03,240
Speaker 8: especially by private investors that now see opportunity to buy

543
00:26:03,240 --> 00:26:05,680
Speaker 8: what they want to buy and at the right price

544
00:26:05,720 --> 00:26:08,239
Speaker 8: point and then figure out the financing a little bit

545
00:26:08,280 --> 00:26:09,920
Speaker 8: down the road. And we're seeing a lot of short

546
00:26:10,000 --> 00:26:12,560
Speaker 8: term financing solutions with the student investors that know that

547
00:26:12,600 --> 00:26:14,280
Speaker 8: interest rates are going to come in at some point

548
00:26:14,720 --> 00:26:16,840
Speaker 8: and they don't want to, you know, sort of tie up.

549
00:26:17,359 --> 00:26:19,800
Speaker 8: They're financing for much longer than they have to in

550
00:26:19,880 --> 00:26:21,960
Speaker 8: order to take advantage of rates coming at some point.

551
00:26:22,119 --> 00:26:24,359
Speaker 5: I suppose I am in a stute investor. Then in

552
00:26:24,400 --> 00:26:25,280
Speaker 5: some way she's.

553
00:26:25,119 --> 00:26:26,920
Speaker 3: Like, I didn't mean it like that, but okay, sounds

554
00:26:27,520 --> 00:26:30,359
Speaker 3: that you are. Yeah, but then yes, absolutely, like because

555
00:26:30,400 --> 00:26:32,280
Speaker 3: then you have it free clear right, and then when

556
00:26:32,280 --> 00:26:34,280
Speaker 3: you need it you have the ability to and you

557
00:26:34,320 --> 00:26:35,720
Speaker 3: can wait until we get down.

558
00:26:35,560 --> 00:26:38,960
Speaker 4: To three yes, yeah, more hope again, this idea being

559
00:26:39,040 --> 00:26:41,639
Speaker 4: that this will be a you know, an if matter

560
00:26:41,720 --> 00:26:44,280
Speaker 4: than or rather, sorry, it's going to be a question

561
00:26:44,320 --> 00:26:45,480
Speaker 4: of when rather than an if.

562
00:26:45,760 --> 00:26:46,080
Speaker 3: Yes.

563
00:26:46,200 --> 00:26:47,760
Speaker 4: So that's got to be something that you guys are

564
00:26:47,800 --> 00:26:50,159
Speaker 4: looking at now too, of just like counting, you know,

565
00:26:50,240 --> 00:26:52,400
Speaker 4: biding your time of like is it two cuts this year?

566
00:26:52,480 --> 00:26:52,960
Speaker 5: Is it three?

567
00:26:53,440 --> 00:26:53,680
Speaker 9: One?

568
00:26:54,000 --> 00:26:54,400
Speaker 5: Zero?

569
00:26:55,640 --> 00:26:56,200
Speaker 3: Is it this year?

570
00:26:56,240 --> 00:27:00,000
Speaker 8: Is we expect two cuts? Even back in October November

571
00:27:00,080 --> 00:27:02,639
Speaker 8: of last year, when people talking about four to six cuts.

572
00:27:02,800 --> 00:27:05,439
Speaker 8: We never bought into that the economy was too strong,

573
00:27:05,520 --> 00:27:09,280
Speaker 8: inflation was too high, and so far that has proven

574
00:27:09,320 --> 00:27:11,840
Speaker 8: to be accurate. But again, it's more of a psychological

575
00:27:11,880 --> 00:27:14,560
Speaker 8: factor than it is a mathematical factor. What I think

576
00:27:14,640 --> 00:27:17,480
Speaker 8: is really important to also keep in mind is that

577
00:27:18,160 --> 00:27:21,879
Speaker 8: as we move forward into the next cycle, the tax

578
00:27:21,920 --> 00:27:26,240
Speaker 8: advantages of commercial owning commercial real estate, especially through direct ownership,

579
00:27:27,359 --> 00:27:30,880
Speaker 8: don't get talked about enough as an asset class. Not

580
00:27:30,920 --> 00:27:34,040
Speaker 8: only do you have an adjusting price point, you have

581
00:27:34,200 --> 00:27:37,640
Speaker 8: a strong economy. Hopefully the economy won't get so weak

582
00:27:38,000 --> 00:27:41,280
Speaker 8: to justify even more of a sort of a reduction

583
00:27:41,359 --> 00:27:44,000
Speaker 8: in rates than we expect. The fact that the economy

584
00:27:44,040 --> 00:27:47,639
Speaker 8: is holding up is good news, and you combine a

585
00:27:47,720 --> 00:27:51,040
Speaker 8: strong economy with the tax benefits and adjusted pricing, I

586
00:27:51,080 --> 00:27:53,040
Speaker 8: think the next cycle is actually gonna be pretty robust

587
00:27:53,080 --> 00:27:54,480
Speaker 8: for commercial real estate, but we're.

588
00:27:54,480 --> 00:27:54,800
Speaker 4: Let you go.

589
00:27:55,400 --> 00:27:58,480
Speaker 3: Wells Fargo also had lower commercial real estate charge offs

590
00:27:58,480 --> 00:28:02,399
Speaker 3: predominantly in the this portfolio that they had. So do

591
00:28:02,440 --> 00:28:04,800
Speaker 3: we feel really confident that we've hit the bottom?

592
00:28:05,760 --> 00:28:08,680
Speaker 8: I absolutely feel strongly that we've hit the bottom.

593
00:28:08,680 --> 00:28:10,080
Speaker 3: How do we kind of bounce along there?

594
00:28:10,840 --> 00:28:13,520
Speaker 8: That depends on the psychological factor of the FED and

595
00:28:13,560 --> 00:28:15,720
Speaker 8: how well the economy holds up. But I will say

596
00:28:15,720 --> 00:28:18,879
Speaker 8: that there is more room to go on the price adjustments.

597
00:28:19,240 --> 00:28:24,240
Speaker 8: We're saying anything that's basically readjusted in valuations since March

598
00:28:24,280 --> 00:28:27,560
Speaker 8: of twenty twenty two by anywhere from fifteen percent on

599
00:28:27,600 --> 00:28:29,840
Speaker 8: the low end twenty five percent on the higher end,

600
00:28:30,600 --> 00:28:34,280
Speaker 8: getting multiple offers from very aggressive buyers. There's record capital

601
00:28:34,280 --> 00:28:36,880
Speaker 8: on the sideline waiting to come back into the market.

602
00:28:37,240 --> 00:28:40,160
Speaker 8: And as we get clarity on the distress not being

603
00:28:40,400 --> 00:28:42,960
Speaker 8: a wave of fire sales by banks, which I don't

604
00:28:42,960 --> 00:28:46,200
Speaker 8: anticipate will happen, that's another reason why capital will come

605
00:28:46,200 --> 00:28:47,520
Speaker 8: back into the market place time.

606
00:28:47,640 --> 00:28:49,160
Speaker 3: We just need time. I feel like we heard a

607
00:28:49,160 --> 00:28:51,960
Speaker 3: lot about that over the last few years, and we're like, no,

608
00:28:52,040 --> 00:28:54,320
Speaker 3: we're a journalist, we need data now, but we just

609
00:28:54,360 --> 00:28:56,000
Speaker 3: don't want to need the time for that. All right,

610
00:28:56,080 --> 00:28:57,800
Speaker 3: Thank you so much, We really appreciate it. Thanks for

611
00:28:57,800 --> 00:29:02,400
Speaker 3: having Hasama Najia adjoining us CEO of Marcus and Millichap.

612
00:29:04,880 --> 00:29:08,760
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

613
00:29:08,840 --> 00:29:12,360
Speaker 1: weekdays at ten am Eastern on applecar Play and Android

614
00:29:12,400 --> 00:29:15,160
Speaker 1: Auto with the Bloomberg Business app. You can also listen

615
00:29:15,280 --> 00:29:18,360
Speaker 1: live on Amazon Alexa from our flagship New York station.

616
00:29:18,760 --> 00:29:21,520
Speaker 1: Just say Alexa play Bloomberg eleven thirty.

617
00:29:22,760 --> 00:29:24,880
Speaker 3: This is Bloomberg Intelligence Radio, where we give you all

618
00:29:24,880 --> 00:29:28,800
Speaker 3: the news, all the analysis with our great Bloomberg Intelligence team.

619
00:29:29,040 --> 00:29:31,320
Speaker 3: They cover two thousand companies in one hundred and thirty

620
00:29:31,320 --> 00:29:33,920
Speaker 3: industries all around the world. We also like to bring

621
00:29:33,920 --> 00:29:36,440
Speaker 3: you kind of boots on the ground scenario with some

622
00:29:36,600 --> 00:29:39,920
Speaker 3: CEOs that's in the trenches. They do the stuff, they

623
00:29:39,960 --> 00:29:43,040
Speaker 3: know the things on a deep level. And one of

624
00:29:43,080 --> 00:29:45,480
Speaker 3: those companies that we want to focus on is Generak.

625
00:29:45,800 --> 00:29:48,520
Speaker 3: It's basically a generator company, but it's going to be

626
00:29:48,560 --> 00:29:50,280
Speaker 3: so much more than that in the world of the

627
00:29:50,400 --> 00:29:54,200
Speaker 3: energy transition. It is an eight billion dollar company. The

628
00:29:54,240 --> 00:29:56,080
Speaker 3: stock is down by about one and a half percent today,

629
00:29:56,080 --> 00:29:58,280
Speaker 3: but it's a tough tape. Previously it has been on

630
00:29:58,360 --> 00:30:02,520
Speaker 3: a tear. It's an interesting company. It's a leading global

631
00:30:02,600 --> 00:30:06,360
Speaker 3: energy technology company that provides backup and prime power products

632
00:30:06,360 --> 00:30:08,800
Speaker 3: and energy storage. And if you follow the energy transition

633
00:30:08,880 --> 00:30:11,520
Speaker 3: like I do, you know stuff like this is key

634
00:30:11,560 --> 00:30:13,960
Speaker 3: to making all of this work well. The CEO joins

635
00:30:14,000 --> 00:30:17,840
Speaker 3: us now in studio Aaron Yogfeld is a CEO of Generak,

636
00:30:17,840 --> 00:30:20,360
Speaker 3: and he joins us in the Bloomberg Interactive Studio. Thank

637
00:30:20,400 --> 00:30:22,640
Speaker 3: you for being here, Aaron really appreciated. Thanks for having

638
00:30:22,640 --> 00:30:26,080
Speaker 3: me so on a basic, basic question. When we look

639
00:30:26,120 --> 00:30:28,960
Speaker 3: for the energy transition, so as we look to decarbonize,

640
00:30:29,000 --> 00:30:31,080
Speaker 3: where do you sit in that journey?

641
00:30:31,640 --> 00:30:34,080
Speaker 2: Yeah, so you know, there's a lot of things to

642
00:30:34,160 --> 00:30:35,600
Speaker 2: unpack even in that statement.

643
00:30:35,800 --> 00:30:37,120
Speaker 3: No, I know, That's why I asked it.

644
00:30:37,160 --> 00:30:39,840
Speaker 2: The transition itself, right, is it grid one point oh

645
00:30:39,880 --> 00:30:41,560
Speaker 2: to two point zero? We like to refer to it

646
00:30:41,600 --> 00:30:45,000
Speaker 2: as old grid to new grid. And so the challenges

647
00:30:45,040 --> 00:30:49,040
Speaker 2: that grid operators and utilities face today is is being

648
00:30:49,080 --> 00:30:52,080
Speaker 2: compounded by the fact that we're retiring. On the sources side,

649
00:30:52,080 --> 00:30:55,640
Speaker 2: we're retiring a lot of the traditional thermal assets like

650
00:30:55,760 --> 00:30:58,520
Speaker 2: coal plants and gas plants in favor of renewable, which

651
00:30:58,560 --> 00:31:01,200
Speaker 2: is great, but those are in and sources so a

652
00:31:01,200 --> 00:31:04,239
Speaker 2: lot more difficult to plan for and not available as

653
00:31:04,480 --> 00:31:06,160
Speaker 2: by the very nature of the word intermitt and not

654
00:31:06,200 --> 00:31:08,440
Speaker 2: available all the time. And then on the demand side,

655
00:31:08,480 --> 00:31:12,520
Speaker 2: we are seeing inflection points in demand. After decades of

656
00:31:12,600 --> 00:31:16,080
Speaker 2: relative kind of flatness in energy demand, we're now seeing

657
00:31:16,240 --> 00:31:19,840
Speaker 2: increases in demand with ev adoption. We're seeing of course

658
00:31:19,880 --> 00:31:24,360
Speaker 2: AI with data center buildouts, cryptocurrency mining, and so the

659
00:31:24,400 --> 00:31:28,160
Speaker 2: pressure that's being put on grid operators and utilities is

660
00:31:28,240 --> 00:31:31,800
Speaker 2: creating a situation where it's manifesting itself in poorer reliability.

661
00:31:32,200 --> 00:31:34,920
Speaker 2: So as Americans, we're experiencing more and more hours in

662
00:31:34,960 --> 00:31:37,600
Speaker 2: the dark every year, so on average about eight hours

663
00:31:37,640 --> 00:31:40,880
Speaker 2: a year, and that's the average. So our products and

664
00:31:40,960 --> 00:31:44,160
Speaker 2: our company have been serving this need, the need for

665
00:31:44,200 --> 00:31:46,840
Speaker 2: resiliency for a long time for homeowners and business owners.

666
00:31:47,160 --> 00:31:50,360
Speaker 2: And so where we sit today is those products are

667
00:31:50,360 --> 00:31:53,200
Speaker 2: in high demand and have been over the last several decades,

668
00:31:53,600 --> 00:31:55,200
Speaker 2: and we're now starting to look at some of the

669
00:31:55,200 --> 00:31:58,240
Speaker 2: other trends that are manifesting from this. The macro theme

670
00:31:58,280 --> 00:32:00,760
Speaker 2: here of a new grid really going to be focused

671
00:32:00,760 --> 00:32:04,040
Speaker 2: on cost. I think the untold story here going forward,

672
00:32:04,640 --> 00:32:06,400
Speaker 2: and we're starting to see evidence of it in certain

673
00:32:06,440 --> 00:32:11,320
Speaker 2: markets like California where energy prices. Electricity prices have really

674
00:32:11,320 --> 00:32:14,640
Speaker 2: skyrocketed in the US, They've gone up about fifty percent

675
00:32:14,640 --> 00:32:17,720
Speaker 2: over the last two decades. They're projected to double in

676
00:32:17,760 --> 00:32:19,880
Speaker 2: the next two decades. So I think this is the

677
00:32:19,920 --> 00:32:22,760
Speaker 2: thing that as we invest in this transition of the

678
00:32:22,800 --> 00:32:24,440
Speaker 2: grid and as we try to deal with some of

679
00:32:24,480 --> 00:32:26,760
Speaker 2: the some of the challenges that are coming here. The

680
00:32:26,840 --> 00:32:30,320
Speaker 2: combination of less reliability while you're paying more for that

681
00:32:30,640 --> 00:32:33,200
Speaker 2: service is not a great combination. We think we have

682
00:32:33,240 --> 00:32:34,760
Speaker 2: products and services that can help with that.

683
00:32:35,000 --> 00:32:37,720
Speaker 4: Well, let's get into the cost because you know, we've

684
00:32:37,760 --> 00:32:39,840
Speaker 4: been looking at this from you know, I think I

685
00:32:39,880 --> 00:32:41,920
Speaker 4: was telling you to cover the US economy for the

686
00:32:41,920 --> 00:32:44,080
Speaker 4: most part. This is my little side hustle in here.

687
00:32:44,120 --> 00:32:46,800
Speaker 4: But on the outside when we're looking at you know,

688
00:32:46,840 --> 00:32:50,440
Speaker 4: what all of these costs to consumers are. Electricity utilities

689
00:32:50,480 --> 00:32:52,960
Speaker 4: broadly have really been going up, especially if you're in

690
00:32:53,000 --> 00:32:56,960
Speaker 4: an area where you're affected by climate in natural disasters.

691
00:32:57,000 --> 00:32:58,840
Speaker 5: So how is this transition?

692
00:32:59,320 --> 00:33:01,200
Speaker 4: I mean, it sounds like it's going to be probably

693
00:33:01,200 --> 00:33:04,600
Speaker 4: more expensive and then hopefully be you know, a cheaper

694
00:33:04,640 --> 00:33:05,840
Speaker 4: alternative in the long run.

695
00:33:05,840 --> 00:33:07,120
Speaker 5: How do you see that planning out?

696
00:33:07,680 --> 00:33:10,800
Speaker 2: You know, from from our vantage point, certainly costs are

697
00:33:10,800 --> 00:33:13,080
Speaker 2: going up, and I as far as if it works

698
00:33:13,120 --> 00:33:14,600
Speaker 2: out cheaper in the long run, I think it'll be

699
00:33:14,840 --> 00:33:16,520
Speaker 2: cleaner in the long run. I think that, you know,

700
00:33:16,920 --> 00:33:19,520
Speaker 2: I think the effort here that is driving a lot

701
00:33:19,520 --> 00:33:21,520
Speaker 2: of the costs. There's a couple of things. One, the

702
00:33:21,520 --> 00:33:23,640
Speaker 2: grid is just old right when you you know, if

703
00:33:23,680 --> 00:33:25,920
Speaker 2: you take a walk and you go anywhere in most

704
00:33:25,920 --> 00:33:28,600
Speaker 2: places in the US, the grid is above ground. There's polls,

705
00:33:28,600 --> 00:33:31,400
Speaker 2: there's transformers, there's power lines. A lot of that equipment

706
00:33:31,440 --> 00:33:34,160
Speaker 2: has been there for fifty plus years. So it's it's

707
00:33:34,200 --> 00:33:36,080
Speaker 2: like a rod or a bridge. At some point it

708
00:33:36,160 --> 00:33:39,440
Speaker 2: has to be refreshed. And so there's an infrastructure spend. Anyway,

709
00:33:39,440 --> 00:33:42,800
Speaker 2: if you set aside the entire you know, discussion around

710
00:33:42,880 --> 00:33:46,280
Speaker 2: climate change, there still was a big bill coming in

711
00:33:46,400 --> 00:33:49,760
Speaker 2: terms of needing the infrastructure rebuild. Now, on top of that,

712
00:33:49,920 --> 00:33:52,960
Speaker 2: as we decarbonize and we move towards renewables and we

713
00:33:53,040 --> 00:33:55,719
Speaker 2: have to deal with this idea that these these sources

714
00:33:55,720 --> 00:33:57,520
Speaker 2: are going to be intermittent and harder to plan for,

715
00:33:58,040 --> 00:34:00,880
Speaker 2: and we need more of that power. You've got this

716
00:34:01,120 --> 00:34:03,840
Speaker 2: unique setup that says, okay, we've got to invest in

717
00:34:04,000 --> 00:34:07,240
Speaker 2: technology in a way that we haven't had to invest before.

718
00:34:07,560 --> 00:34:09,319
Speaker 2: When you're talking about the power grid and the grid

719
00:34:09,360 --> 00:34:12,360
Speaker 2: is so central to everything we do as homeowners or

720
00:34:12,360 --> 00:34:13,719
Speaker 2: business owners, do you.

721
00:34:13,800 --> 00:34:18,280
Speaker 3: Think that it's going to be more you providing generators

722
00:34:18,760 --> 00:34:21,480
Speaker 3: that yeah, is it gonna be more breading generators or

723
00:34:21,520 --> 00:34:25,120
Speaker 3: providing the grid with storage for like wind and solar.

724
00:34:25,280 --> 00:34:27,360
Speaker 2: I think it's going to be both, right, So generators

725
00:34:27,360 --> 00:34:30,319
Speaker 2: are going to be if you're concerned about a long

726
00:34:30,400 --> 00:34:34,080
Speaker 2: duration outage, right, You've got if you have hurricanes, ice storms,

727
00:34:34,080 --> 00:34:36,000
Speaker 2: things like this that can knock out the power for

728
00:34:36,080 --> 00:34:38,080
Speaker 2: days on end. A generators are great. You know, that's

729
00:34:38,080 --> 00:34:40,959
Speaker 2: an asset you're going to want to own. The idea though,

730
00:34:41,040 --> 00:34:43,880
Speaker 2: is that that asset could also be deployed maybe at

731
00:34:43,920 --> 00:34:45,799
Speaker 2: times when you don't need it, but maybe when the

732
00:34:45,800 --> 00:34:48,600
Speaker 2: grid does. Right, So there's ideas that the generator could

733
00:34:48,640 --> 00:34:51,279
Speaker 2: be part of that solution. Batteries as you say, though,

734
00:34:51,320 --> 00:34:53,320
Speaker 2: Alex is exactly the you know, I think the newest

735
00:34:53,360 --> 00:34:57,879
Speaker 2: technology still from a price standpoint, still pretty expensive though,

736
00:34:57,920 --> 00:35:00,040
Speaker 2: and that's something that I think we've got to deal with.

737
00:35:00,200 --> 00:35:02,960
Speaker 2: And the cost curve is is it's been coming down,

738
00:35:03,440 --> 00:35:06,040
Speaker 2: but yet it's still something that you know, is it's

739
00:35:06,080 --> 00:35:06,680
Speaker 2: not there yet.

740
00:35:07,040 --> 00:35:09,680
Speaker 3: So I was in a so I cover energy for

741
00:35:09,680 --> 00:35:13,440
Speaker 3: for my side hustle, your main hustle, it's semi hustle.

742
00:35:13,719 --> 00:35:16,640
Speaker 3: And so the data center conversation is huge in terms

743
00:35:16,640 --> 00:35:18,880
Speaker 3: of how you power it. And we've seen like Amazon

744
00:35:18,960 --> 00:35:22,319
Speaker 3: buy like a nuclear power center like near where they're

745
00:35:22,360 --> 00:35:24,600
Speaker 3: going to build stuff. Are you going to be like

746
00:35:24,640 --> 00:35:26,440
Speaker 3: going to tech companies and be like, hey, I can

747
00:35:26,480 --> 00:35:29,080
Speaker 3: build you this enormous generator for your data center.

748
00:35:29,440 --> 00:35:31,600
Speaker 2: That's not necessarily us. I mean, we're going to stick

749
00:35:31,640 --> 00:35:34,640
Speaker 2: to smaller installations. We call them behind the meter installation,

750
00:35:34,760 --> 00:35:38,160
Speaker 2: so managing power, either backing up power or managing it

751
00:35:38,480 --> 00:35:40,920
Speaker 2: behind the meter so at the customer connection. You know,

752
00:35:40,920 --> 00:35:45,439
Speaker 2: again Homer business. But the AI conversation has I think,

753
00:35:46,000 --> 00:35:48,000
Speaker 2: I don't want to say it's caught the utility industry

754
00:35:48,000 --> 00:35:51,000
Speaker 2: flat footed, but you know, the projections are enormous. It

755
00:35:51,080 --> 00:35:53,520
Speaker 2: kind of has, I mean the speed at which it's

756
00:35:53,640 --> 00:35:57,560
Speaker 2: you know, the adoption of technology. A single chat GPT

757
00:35:57,760 --> 00:36:01,799
Speaker 2: request takes seventeen times aimes the amount of energy as

758
00:36:01,800 --> 00:36:05,960
Speaker 2: a typical Google search seventeen times just a single god

759
00:36:06,160 --> 00:36:08,520
Speaker 2: Chat GPT request. So think about that and you you

760
00:36:08,640 --> 00:36:12,239
Speaker 2: multiply that across you know, all the places that you

761
00:36:12,280 --> 00:36:14,520
Speaker 2: can use that technology AI, and it's going to be

762
00:36:14,560 --> 00:36:18,040
Speaker 2: fantastic and it's awesome, but it's really energy intensive.

763
00:36:18,280 --> 00:36:21,320
Speaker 5: Wow, I've never heard that number before. That's scary.

764
00:36:21,440 --> 00:36:23,720
Speaker 3: Yeah, and just we got so used to power demand

765
00:36:23,800 --> 00:36:26,400
Speaker 3: not growing at all, and then all of a sudden,

766
00:36:26,480 --> 00:36:29,480
Speaker 3: just the trajectory is enormous, and then how you kind

767
00:36:29,520 --> 00:36:32,239
Speaker 3: of manage that? So, you know, to Molly's question, the

768
00:36:32,239 --> 00:36:34,759
Speaker 3: way that I look at it is absolutely everything's going

769
00:36:34,800 --> 00:36:36,520
Speaker 3: to cost more. I think the question is who's actually

770
00:36:36,520 --> 00:36:38,000
Speaker 3: going to pay for it? Is it the government? And

771
00:36:38,040 --> 00:36:39,920
Speaker 3: then taxes? Is it?

772
00:36:40,200 --> 00:36:41,960
Speaker 2: I got I got news for you. Anything that costs

773
00:36:41,960 --> 00:36:44,080
Speaker 2: more in the energy world the rate payers.

774
00:36:44,200 --> 00:36:46,960
Speaker 3: Yeah, yeah, us like at some point exactly, but we're

775
00:36:47,000 --> 00:36:48,960
Speaker 3: going to have to raise the rates. Aaron, thanks a lot.

776
00:36:49,000 --> 00:36:50,919
Speaker 3: That was really fun. You should definitely come back. Aaron

777
00:36:50,960 --> 00:36:54,600
Speaker 3: Yongfeld joining us. He's CEO of Generic. They're basically a

778
00:36:54,600 --> 00:36:57,760
Speaker 3: power backup company, so really interesting stuff.

779
00:36:58,000 --> 00:37:02,520
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780
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781
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782
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783
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784
00:37:16,160 --> 00:37:18,000
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