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Speaker 2: Why don't you bring it in? Zuke the map? Oh
Speaker 2: I didn't live over the lake.
Speaker 3: Well, that's a lot of other places.
Speaker 2: It's very zugi okay, very good. Is that how you
Speaker 2: pronounce it? It is zuke okay?
Speaker 3: Close you you got it.
Speaker 4: Tom Anastajia, Amarrossa, chief investment strategists at Partners Group Anastagia, Boy,
Speaker 4: we were just mentioning this that the socks index has
Speaker 4: had such a rip over the last sixteen days of
Speaker 4: games here.
Speaker 2: Indeed, so tech is now back.
Speaker 5: Being the driver for this market. Is that where we
Speaker 5: are these things?
Speaker 3: Yes, you know, I think what's happening.
Speaker 6: Paul's investors can't really figure out when the end of
Speaker 6: the ceasefire, when the end of the conflict is going
Speaker 6: to be in the Middle East, And in the meantime,
Speaker 6: they're focusing on what they can control where they can't observe,
Speaker 6: and that is artificial intelligence, And I will say the
Speaker 6: total addressable market for AI just keeps on expanding this
Speaker 6: year with the move from conversational AI to augentic AI
Speaker 6: to glimpses of physical AI. And what do you need
Speaker 6: for all of that is semiconductors. And so that's why
Speaker 6: investors keep flocking to the space.
Speaker 4: So as we step back, I mean, it looks like,
Speaker 4: I don't know, we're all in the same boat trying
Speaker 4: to figure out what's going to happen in ARAM. But
Speaker 4: I think what we can at least in the near term,
Speaker 4: it's higher for longer energy costs. Yeah, and we're starting
Speaker 4: to say, like a number of companies call that at most,
Speaker 4: notably the airlines and maybe you know they've been calling
Speaker 4: out and really calling out the cost incremental costs for energy.
Speaker 4: How does that factor into kind of your outlook for
Speaker 4: these markets? If we do have a higher energy sector
Speaker 4: for longer.
Speaker 3: That's right.
Speaker 6: I mean, I think the really critical distinction for the
Speaker 6: market is how high and for how long?
Speaker 7: You know?
Speaker 6: I think if oil is at one hundred hundred and
Speaker 6: twenty bar you know, dollars a barrel for a long time,
Speaker 6: then this is going to drive material cost inflation but
Speaker 6: we're talking about oil being at eighty or ninety dollars
Speaker 6: a barrel, which is sort of the new normal.
Speaker 3: I think that's more than manageable for companies.
Speaker 6: And I would say we're in that ladder camp, which
Speaker 6: is look, the conflict will eventually be resolved and the
Speaker 6: straight up Horo moves most likely will be opened up.
Speaker 6: But what will end up with our inventory levels that
Speaker 6: are sufficiently depleted, So that does require a higher cost
Speaker 6: of a barrel, but again eighty or ninety dollars. Now,
Speaker 6: at Partners Group, we have been thinking about what this
Speaker 6: means for a variety of our portfolio companies. And I
Speaker 6: will say, you know, very few of our portfolio companies,
Speaker 6: eight out of sixty five have some sort of commodity
Speaker 6: or oil exposure. But even that exposure, it's minimal and
Speaker 6: it can be mitigated with cost pass throughs and contractual appligations.
Speaker 2: Of sixty five companies in.
Speaker 3: Our private equity direct portfolio.
Speaker 2: That's a hell of a conference call when you're on
Speaker 2: linked up with six. It's like the lights to deserve
Speaker 2: when she does that.
Speaker 4: So, Anastasia, so let's talk about earning share. We're kind
Speaker 4: of got rake smack in the middle of earning season
Speaker 4: right here. Earnings have been really good again, and I've seen,
Speaker 4: you know, analysts take their estimates up, which seems kind
Speaker 4: of strange in environment where there's so muchunsertainy.
Speaker 5: How do you think about the earning picture out there.
Speaker 3: I think it's been stellar. I think it's been a
Speaker 3: rock star earning season.
Speaker 2: I mean, really, you've never seen it's nuts.
Speaker 6: I mean, no matter where you look at, Tom, you know,
Speaker 6: eighty eight percent of the companies are beating expectations.
Speaker 3: A surprise is ten percent.
Speaker 6: And you know we used to slice and dice it
Speaker 6: and say, well, Max even are doing great, the rest
Speaker 6: or not. Now everybody's actually delivering ten percent plus earnings growth,
Speaker 6: and Nvidia is a standout there.
Speaker 3: So I think it's a really robust earning season.
Speaker 6: And it really goes back to the point that companies
Speaker 6: can withstand oil inflation because they've passed that through and
Speaker 6: also they have hedges in place, so at the moment,
Speaker 6: it's back to economic strength.
Speaker 3: That's the message we're doing.
Speaker 2: Psycho it' psych doctor, Tom Folks, it's Boolberg surveillance doctor.
Speaker 2: When you were sitting in a classroom absolutely killing it
Speaker 2: at the University of New Mexico. What was the optimism
Speaker 2: then that you had that you clearly have now is
Speaker 2: you've led in this bull market. I want you to
Speaker 2: talk to the gloom crew and to explain the amoroso
Speaker 2: visceral optimism that was the third row in a finance class.
Speaker 2: I don't even know where the university.
Speaker 6: It's next to Arizona, right it is, And it was
Speaker 6: always the first row.
Speaker 2: It was.
Speaker 3: Always the first row.
Speaker 6: But you know, look, I mean, if we think about,
Speaker 6: you know, the basics of the US economy, the US
Speaker 6: or global stock market, it's about the earnings growth, It's
Speaker 6: about the multiple and what drives that earning growth growth.
Speaker 6: And what I'm excited about today is that you have
Speaker 6: multiple engines of growth playing out in the economy. Maybe
Speaker 6: that's what's really different is this is now a multi
Speaker 6: engine economy unlike we've had for quite so time. You've
Speaker 6: got the consumer side that is really really doing well
Speaker 6: despite the higher gasoline prices. You've got the corporate side,
Speaker 6: tom that we just talked about.
Speaker 3: But also we've got the.
Speaker 6: US economy that's sixty three percent less oil intensive.
Speaker 3: Than it was.
Speaker 6: So that's why it's able to shake it off, and
Speaker 6: then we have the AI capec story, which you know,
Speaker 6: by the way, AI CAPEX investing is driven thirty five
Speaker 6: to forty five percent of economic growth over the last
Speaker 6: couple of quarters or several quarters, and I don't see
Speaker 6: that stopping. So you have a lot of engines that
Speaker 6: are working, and so how can you be, you know,
Speaker 6: overly pessimistic against against that environment.
Speaker 2: What is the.
Speaker 4: AI story from your perspective these days?
Speaker 5: Because initially in.
Speaker 4: The first year or two, it was just whoever's investing
Speaker 4: in it, that's who we're going to go, and whether
Speaker 4: it's the chip names or whatever. Now it seems like
Speaker 4: the market's trying to differentiate between some winners and losers,
Speaker 4: and they threw out some software companies earlier in the
Speaker 4: year of the SaaS companies.
Speaker 5: How do you guys think about it now?
Speaker 6: Yeah, so clearly we've been thinking about AI for a
Speaker 6: number of years. We have a dead catered effort to
Speaker 6: infuse AI into our portfolio companies. In the market, something
Speaker 6: like thirty five percent of CEOs or companies are embedding
Speaker 6: AI adopting AI. For US, ninety percent of our portfolio
Speaker 6: companies have an AI initiative. So, having said that we've
Speaker 6: been thinking about for a while, and you're exactly right.
Speaker 6: It is a bifurcation story. Some companies will absolutely.
Speaker 3: Be disrupted by AI.
Speaker 6: So when we sit in our global Investment committee, that's
Speaker 6: always the question, will this company be helped or heard
Speaker 6: by artificial intelligence? Now pivoting to software, though, you know,
Speaker 6: I think the market through everything out with the bathwater
Speaker 6: and said everything you know software is dead and is dead.
Speaker 3: Now that is not the case. That is not our review.
Speaker 6: I think some software companies will be disproportionately more impacted
Speaker 6: than others. But if you think about software, what does
Speaker 6: software have is profit margin? Gross profit margin for software
Speaker 6: companies is seventy five percent. So do you think these
Speaker 6: companies around the world are sitting there and waiting for
Speaker 6: a gentic AI to come for them and do nothing
Speaker 6: about it?
Speaker 3: Or are they investing?
Speaker 2: I just did this study, This is Bobsige years ago
Speaker 2: at Lara Sterns and Bank of America. Are you ready?
Speaker 2: I did a fibonacci retrace Mellboy from peak of Microsoft
Speaker 2: in August of last year. I guess down to the
Speaker 2: bottom here, which is the gloom of March of this
Speaker 2: year in Anastasia it's perfectly done a Fibonacci retlacement to
Speaker 2: thirty eight percent up from the bottom. I mean it's
Speaker 2: it's not even halfway back through the peak enthusiasm. Is
Speaker 2: that sector still cheap? Is identified by Microsoft, which, yeah,
Speaker 2: it's come back, but it's not even halfway back, you know.
Speaker 6: I think the sector is also seeing divergence and dispersion,
Speaker 6: and I think you have to parse through the hyperscalers.
Speaker 2: You know.
Speaker 6: The areas that I think are doing well is the
Speaker 6: cloud business, whether it's Microsoft, Wather, it's Google, whether it's Amazon.
Speaker 6: You know, that's projected to accelerate twenty three percent or
Speaker 6: more this year and further into next year. So that's
Speaker 6: the part of the business I think we can like,
Speaker 6: you know, the big question for the likes of Microsoft
Speaker 6: is the software. And I was just sitting in a
Speaker 6: break room with your upcoming guest where we're talking about
Speaker 6: the use of Claud and the use of GROC and
Speaker 6: the use of other tools, and how some of those
Speaker 6: applications are great for charts, you know, some of those
Speaker 6: applications are great for formatting and fetching data. So what
Speaker 6: does that do to the traditional you know, database and
Speaker 6: software type applications. So what's to excel, Well, it's supplants.
Speaker 6: It it makes you or it brings up the.
Speaker 2: VBA for dummies like me, so you could dump it
Speaker 2: right in right.
Speaker 3: It allows you to s give ahead.
Speaker 2: Were you completely fluent VBA at fifteen or were you
Speaker 2: flown at seventeen? I was not.
Speaker 3: But you know what, my team now is very ffluent.
Speaker 2: Your team, we don't have a team. So whatever, claude, perplexity, whatever,
Speaker 2: that's the.
Speaker 3: Team right, that is the extended team for.
Speaker 2: It helps you do excel right, to close the loop.
Speaker 6: It helps you to excel at helps you fetch the
Speaker 6: data in a much you know, more timely matter. It
Speaker 6: helps you come up with a charts much quicker than
Speaker 6: you might have done otherwise. It's not a replacement. It
Speaker 6: is an extension. I would say.
Speaker 2: So when you were Duke, was like the entire class
Speaker 2: all VBA and you were like, yes, exactly. I looked
Speaker 2: at VBA and my eyes clazed over. Yeah I was
Speaker 2: not that. I was a guy.
Speaker 8: I just got up and I picked up a can
Speaker 8: of course three two beer and said, okay, let's do this.
Speaker 3: That probably didn't help at the station.
Speaker 4: What screens well, for you guys today, I don't know
Speaker 4: if it's a it's an industry, a sector, a factor.
Speaker 5: What's attractive you guys.
Speaker 6: Yeah, we are thematic investors, so we're constantly thinking of
Speaker 6: themes that are here to stay for the next several years.
Speaker 6: And you know what really does jump out today is
Speaker 6: this theme of energy efficiency, energy independence, energy diversification. And again,
Speaker 6: as we think about the higher price of oil, some
Speaker 6: of our portfolio companies and to benefit from that because
Speaker 6: they're the energy infrastructure business. Longer term, also some of
Speaker 6: our portfolio companies that are likely to benefit maybe provide
Speaker 6: energy efficiency. What if we are in a higher for
Speaker 6: longer energy costs, you need to really focus on that.
Speaker 6: You know, we focus on energy diversification, maybe it's bio
Speaker 6: energy versus regular energy. And we also focus on the
Speaker 6: resiliency and the security of the energy infrastructure. And if
Speaker 6: you think about some of the pipeline businesses, especially in
Speaker 6: the US, Mexico, you know, North America, those are really
Speaker 6: well positioned not only near term to capture the upside
Speaker 6: and volumes, but longer term because clearly security of energy
Speaker 6: supply is paramount to everything we're talking about, including AI.
Speaker 4: So it's interesting here. I mean, are you concerned about
Speaker 4: valuation in this market? Because we hadn't you know, that
Speaker 4: sell off early in the year and people were even
Speaker 4: making a call boy, the market is cheaper. You know,
Speaker 4: it's not cheap, but it's cheaper. But now we've ripped
Speaker 4: right back up again. Is valuation and concern for you?
Speaker 6: Yeah? Look, I'm not overlying erarned about public market valuations.
Speaker 6: I'll tell you why. But I also want to highlight
Speaker 6: the fact that private equity is actually trading. We're pricing
Speaker 6: at a fifteen year low invaluations relative to public markets.
Speaker 6: So just to extend both of those points. You know,
Speaker 6: if you think about public market valuations, if you look
Speaker 6: at MAC seven, what's happened there is in the last
Speaker 6: year or two. It's not actually multiple expansion, but it
Speaker 6: has been earnings growth.
Speaker 3: So for that reason, I'm.
Speaker 6: Not overly worried about the level of valuations there. If
Speaker 6: you look at the rest of the S and P
Speaker 6: five hundred or MSCI all country world, you have seen
Speaker 6: quite a lot of multiple expansion. But the reason I'm
Speaker 6: not concerned about that is because you do have economic
Speaker 6: growth that is doing well, and you do have the
Speaker 6: earnings growth that's accelerating as well, so I think we
Speaker 6: can grow into those valuations. But again back to my
Speaker 6: point on private equity. You know, private equity multiples or
Speaker 6: at about twelve times of so EVIT EBITDA versus about
Speaker 6: fifteen or sixteen, which is the public market comp That
Speaker 6: means you're the lowest level. You have the largest valuation
Speaker 6: discount on private equity in about fifteen years. So you know,
Speaker 6: so I think the complement of the two can be
Speaker 6: really attractive for investors.
Speaker 2: When you're at Zoomer are you at the Park Hotel?
Speaker 2: I mean, are you Jay on air?
Speaker 3: Where it is?
Speaker 2: I'm saying, do you know they have a Shoppers brunch?
Speaker 2: You go get an outrageously priced, fancy breakfast.
Speaker 3: I don't do that.
Speaker 2: Then go shopping.
Speaker 3: I don't do that. I don't have time for that.
Speaker 6: But I will tell you, Tom, we just hosted over
Speaker 6: two hundred and fifty of our clients at the Birkenstock
Speaker 6: in around Lucerne and it was wonderful.
Speaker 3: It was a wonderful venue.
Speaker 6: More than ten million dollars in assets represented in the room,
Speaker 6: and it was a great discussion about AI and the
Speaker 6: transformation potential that it has I don't care.
Speaker 2: We don't care. All we wanted to. They want to
Speaker 2: invest in America, and I don't see that broken. With
Speaker 2: everything out there, Your bull is still intact.
Speaker 6: That is absolutely the sentiment is that the investment commitment
Speaker 6: to America, despite everything that we have out there, has
Speaker 6: not changed.
Speaker 3: It's not changing, there's no wavering on that.
Speaker 6: Having said that, we are global investors, US represents fifty
Speaker 6: or sixty percent of our investment allocations, Europe thirty twenty five,
Speaker 6: thirty percent, and the rest of it is in Asia.
Speaker 3: But that big commitment to the US is not changing.
Speaker 4: So how about when you meet with your clients, are
Speaker 4: they looking to continue to invest in private equity, in
Speaker 4: private assets that you guys manage.
Speaker 6: Yes, And I would say there's you know, there's a
Speaker 6: greater awareness of all of all that private markets have
Speaker 6: to offer.
Speaker 3: So you know, certainly there's the.
Speaker 6: Private equity opportunity and a lot of macro tailwinds for
Speaker 6: private equity right now, a lot of thematic tailwinds for
Speaker 6: private equity, a great opportunity to infuse AI and build
Speaker 6: platforms and scale those. At the same time, more and
Speaker 6: more clients are looking to diversify further into infrastructure, for example,
Speaker 6: and you know, infrastructure is perfectly position to capture the
Speaker 6: AI momentum for example, and also build the next generation
Speaker 6: infrastructure platforms meeting. It's not just one commodity and one
Speaker 6: way to produce electricity, but it's multiple commodities.
Speaker 3: It's maybe a.
Speaker 6: Battery storage that is that is also coupled with that.
Speaker 6: And then you know, private credit, I would say, you know,
Speaker 6: there's a bifurcation story in private credit. There will be
Speaker 6: most likely places of higher defaults, but at the same time,
Speaker 6: there's there are places that will weather this, and there's
Speaker 6: lots of opportunity and institutional investors are certainly not stepping
Speaker 6: away from private credit.
Speaker 2: Anastasia, thank you so much, and am Rosa with Partners
Speaker 2: Group with her enthusiasms. Stay with us. More from Bloomberg
Speaker 2: Surveillance coming up after this.
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Speaker 2: Our interview of the day Paul Sankie Legendary, I'm parsing
Speaker 2: out the hot air of a hydrocarbonage, doing it with
Speaker 2: Adams Suminski years ago at Deutsche Bank. It is sanky research.
Speaker 2: When you watch the TV, what's the biggest myth error,
Speaker 2: stupidity you hear on your world?
Speaker 9: I think that people are unaware of how bad this is,
Speaker 9: you know, certainly at a US level. It's just it's
Speaker 9: just not that much evidence of it. And as you know,
Speaker 9: the gasoline price here is actually relatively cheap globally, American
Speaker 9: incomes O higher, so the impact here is not being felt.
Speaker 9: But what we can see here Tom is a guaranteed
Speaker 9: ongoing deterioration of the situation for at least two months.
Speaker 9: And that's pretty scary for US.
Speaker 2: But the data BRN I look at in a terminal
Speaker 2: was one forty four OMG. And it's come down. Are
Speaker 2: you seeing a lessening of price pressure in the i'll
Speaker 2: call the cash the physical.
Speaker 9: Market, not really if you think about jet fuel and dislate.
Speaker 9: So that's the issue, and that's why the crude price
Speaker 9: has become so difficult to second guess, because you've lost
Speaker 9: probably six million barrels a day of refining capacity here
Speaker 9: almost directly. That's six million barrels a day of crude demand,
Speaker 9: and that, of course is why you've got this massive
Speaker 9: arbitrage between the jet price, the dislate price, and the
Speaker 9: crude price. And so what that you know, what we're
Speaker 9: really looking at.
Speaker 7: Is how jet is doing.
Speaker 9: We hit a high of three hundred dollars a barrel
Speaker 9: for jet in Asia, we come back probably down towards
Speaker 9: two hundred right now, and then you know, in Europe
Speaker 9: you've seen probably a peak of two hundred barrels a
Speaker 9: day and you're back down and holding about let's say
Speaker 9: one seventy. So these are enormous prices. Tom, that you know,
Speaker 9: that's the cutting edge, because obviously what you're really looking
Speaker 9: at the oil price and oil demand is the product.
Speaker 9: The crude is just so complicated by the tanker situation
Speaker 9: and everything else, and it's hard to really decide where
Speaker 9: that crude price should be.
Speaker 4: Why do you say two months, Paul, and I've got
Speaker 4: a president, they're saying the war is won, just at
Speaker 4: days will get peace.
Speaker 5: Why do you suggest that pain may be long term?
Speaker 9: Because of the difference that Tom's referring to, which is
Speaker 9: the physical and the paper. So the paper will act
Speaker 9: crazy and will react to the headlines. But the physical
Speaker 9: is a physical fact, the fact of physics literally, and
Speaker 9: the physics involved tankers, and the tankers are in all
Speaker 9: the wrong places.
Speaker 7: A lot of them are trapped.
Speaker 9: Twenty percent of the capacity that's out is effectively ten
Speaker 9: percent of tankers. Plus the fact that those Middle Eastern
Speaker 9: tankers are baseload tankers. They run all year running, you know,
Speaker 9: around the clock. They're not shadow tankers, they're not you know,
Speaker 9: wobbly tankers. They are the tankers that run the baseload
Speaker 9: and they're trapped. So in that regard, the tanker situation
Speaker 9: is going to take at least four weeks to I
Speaker 9: mean even optimistically four weeks. And then of course you
Speaker 9: have the infrastructure damage that's happened within those huge facilities,
Speaker 9: you know, the LNG damage, the refrainer, any thing about
Speaker 9: that has been valid report. Tell you what's scary is
Speaker 9: if you look at that Katar LNG attack that hit
Speaker 9: two trains, the Iranians hit the two x On trains,
Speaker 9: and I think that was an accident. I think that
Speaker 9: was Russian intelligence. So there's some very scary things out there.
Speaker 5: What can the US do here?
Speaker 4: We've become in that, I guess exporter of oil here,
Speaker 4: can our guys down in Texas and Ohoma just start racking.
Speaker 9: It's actually on a panel New York Energy Format Forum
Speaker 9: this week with Case van to Hoff, the Diamondback CEO,
Speaker 9: one of the best CEOs young CEOs we've got, and
Speaker 9: he was saying, look, the future strip is seventy two
Speaker 9: dollars a barrel for next year? What am I going
Speaker 9: to do with that? I'm going to draw more for
Speaker 9: seventy two? Now that's the that's the margin ory economics.
Speaker 9: Am I going to hedge at seventy two, you know,
Speaker 9: to spend more knowing I'll get seventy two?
Speaker 7: Of course he's not. So the price is really.
Speaker 9: Disincentivizing a solution there. And then I'll just add that,
Speaker 9: you know, unfortunately, the Iranians know what they've got, and
Speaker 9: so you know what they want is a load of
Speaker 9: redline things. You know, it's literally like the US out
Speaker 9: of the US military, out of the Gulf States. I mean,
Speaker 9: these are huge asks and we've heard GCC members saying
Speaker 9: they will not pay a toll. So you got some
Speaker 9: stuff here that's intractable.
Speaker 2: In the time we got left, I really want to
Speaker 2: do this to just parse into this. This is University
Speaker 2: of Manchester years ago before is just incredible career across
Speaker 2: this and this is the chemistry you and I learned.
Speaker 2: So I got C two age six, I got oil,
Speaker 2: and I'm cracking it out to ethane. The Chinese is
Speaker 2: an example, really really really need ethane. They can't get it.
Speaker 2: They're taking it from America. You take C two age six,
Speaker 2: you had some kind of heat to it. You know
Speaker 2: better than me. Boom, you got ethylene C two H
Speaker 2: four and two hydrogens go off into the air. The
Speaker 2: entire media. What I just said, it's Greek. But the
Speaker 2: answer is this is really what matters like to the Chinese,
Speaker 2: to Indonesia, and to cut it right.
Speaker 9: Yeah adds that the China is of a ninety percent
Speaker 9: dependent for ethane ethane on the US. So this came
Speaker 9: out very clearly during tariffs that you know they are
Speaker 9: highly dependent on that US flow, and you're seeing the
Speaker 9: other guys in Asia where they're dependent on NAFTA, which
Speaker 9: gets you the same effect through oil more directly as
Speaker 9: opposed to ethane coming from natural gas, and in NAFTA
Speaker 9: you have sixty percent less supply to Asian petrochemicals. So
Speaker 9: our first move here was one of the very first
Speaker 9: moves we did, was start looking at Taiwan and TSMC.
Speaker 9: But we concluded that because they're a government company, they're
Speaker 9: going to keep going somehow, but they definitely will have
Speaker 9: a helium problem within two months, and that becomes a
Speaker 9: question for the whole ai The latest thing that we're
Speaker 9: seeing from Japan is a solvent issue, and this gets
Speaker 9: into really complicated the you know, sub ethylene products. But
Speaker 9: these solvents are vital for chip making as well, and
Speaker 9: the Japanese chain is very Japanese, so they take the
Speaker 9: NAFTA from abroad and do everything within Japan. Losing the
Speaker 9: NAFTA breaks the chain and seems to mean that you're
Speaker 9: going to have a real struggle making the chips.
Speaker 7: So, yeah, you're right, and these are the supply.
Speaker 9: Chain issues that we're more focused on the demand side,
Speaker 9: because there's not much point inless talking about the.
Speaker 2: Straight How does this redown back to tweets coming out
Speaker 2: at seven am from the President of the United States
Speaker 2: about marijuana. No, I don't mean about marijuana. I mean
Speaker 2: about fane, methyl ethl key tone and the rest of it.
Speaker 2: The real world of chemistry that's flat on its back.
Speaker 9: Well, you know, Tom, I always say that there's only
Speaker 9: one barrier of entry to being an oil analyst, and
Speaker 9: that's units and obviously in physics and frankly the understanding
Speaker 9: you know, through the chain of politicians. If you look
Speaker 9: at I've listed every single major oial CEO in the
Speaker 9: US is an engineer, every single one. And if you
Speaker 9: look at politicians, I don't think you'll find one. Another
Speaker 9: extreme example is Gressa is high school level educated. I
Speaker 9: don't think she could have said what you just said
Speaker 9: about C two, C three. So you know the reality is,
Speaker 9: and ultimately we've seen a story here where the conspiracy
Speaker 9: is in oil is a conspiracy of ignorance.
Speaker 7: People just don't truth.
Speaker 2: Yeah, Professor Bieler organic chemistry, in organic chemistry, physical chemistry.
Speaker 2: The only reason I got through it he sat and
Speaker 2: rolled for at the ice rink. That is the only
Speaker 2: way I got through. Well, I thought you had me
Speaker 2: on the ropes. Then did you have Morson and Boyd
Speaker 2: in organic chemistry.
Speaker 9: I'm a Manchester University history and economic scrat on Nothing.
Speaker 9: I'll tell you, Tom, is that the reason that Manchester
Speaker 9: is it always rains is because it was built in
Speaker 9: a rain shadow of the Pennines for the water mills,
Speaker 9: for the for the mills, and so it's built for
Speaker 9: the factories to run on water, and that's why it
Speaker 9: always rains in Manchester.
Speaker 2: So how cool was man study this week? I mean
Speaker 2: there was really.
Speaker 9: You know, true Mankinians. I'm going to get a lot
Speaker 9: of hate mail for this. True Manchenians typically support City
Speaker 9: and you know they always say there's more Cockney reds
Speaker 9: for United. But now I'm happy for them. It's great,
Speaker 9: you know, it's they already outplayed Arsenal.
Speaker 7: I felt.
Speaker 9: And you know, my family history is from Woolwich, where
Speaker 9: the original arsenal was, where they made the guns that
Speaker 9: are on the my grad my great grandfather, grandfather worked
Speaker 9: at the original arsenal. And if you want to cheer up,
Speaker 9: my father was evacuated from London as a boy because
Speaker 9: the Germans were bombing the arsenal so much that it
Speaker 9: was unsafe. So when people get too depressed about the world,
Speaker 9: I always see, you know, well, we're not at the stage.
Speaker 2: Jay Pharaohs told me about it about Coventry was just leveled.
Speaker 9: Coventry was absolutely leveled, and someone was pointing out I'd
Speaker 9: mentioned in a note that Rottendam was redesigned by the
Speaker 9: Germans in the war, and you know it became the
Speaker 9: biggest container port and obviously a huge focus for oil markets.
Speaker 2: We got to run. Yeah, Paul sank you there on
Speaker 2: a little more than just what's a barrel of oil?
Speaker 2: What's a gallon of gas? He is truly legendary. Stay
Speaker 2: with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern on Applecarplay
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Speaker 2: Michael purvers for us to get us start a strong airy,
Speaker 2: we say good morning in crassination. The way you choose
Speaker 2: to listen to us, particularly on YouTube. Subscribe to Bloomberg Podcast.
Speaker 2: When he's up at his cottage in New Hampshire for
Speaker 2: nine months of the year, he listens on YouTube. Okay,
Speaker 2: good to have you here, Michael. Michael, I'm going to
Speaker 2: play this off Julian Emmanuel over at Evercore Isi, who's
Speaker 2: out with twenty one percent of earnings in I've never
Speaker 2: seen what's in his research note, which is earning's growth up,
Speaker 2: revenue up. Is everything going on now with the backdrop
Speaker 2: forget about all the bloom is just one big stimulus.
Speaker 7: Well, I think it's more than stimulus.
Speaker 10: I think we have to step back and look at
Speaker 10: the fact that there's a lot of factors.
Speaker 7: That are supporting strong earnings growth.
Speaker 10: We have a shift, I think a long term shift
Speaker 10: that started a few years ago towards a higher nominal
Speaker 10: GDB condition. Persistent grow and uh, persistent inflation is pushing
Speaker 10: up nominal revenues. When we go to Starbucks and buy coffee,
Speaker 10: we pay nominal dollars right there, and that flows through
Speaker 10: all the way down to their earnings line.
Speaker 7: So I think that's it.
Speaker 10: But we are we do have late cycle fiscal stimulus
Speaker 10: on top of very low unemployment rates. Uh there, that's
Speaker 10: really particularly unusual here. So yes, you know, we you know,
Speaker 10: the big beautiful bill of four hundred and four hundred
Speaker 10: and fifty billion dollars a year per CBO estimates for
Speaker 10: the next four years late cycle. That's that's that's aggressive, right, Well,
Speaker 10: go back to your wheat for security exactly.
Speaker 8: Rich.
Speaker 2: I've never seen the numbers in Julian Emmanuel's research. I know,
Speaker 2: I know, pretty solid.
Speaker 4: Hey Michael, we had a rotation maybe addas some growth,
Speaker 4: add of some high margin, high multiple stuff last year,
Speaker 4: but that seems to reverse the big time. People are
Speaker 4: running back into tech. The SEMIS, the Socks Index hit
Speaker 4: a record sixteen straight days of gains. The index now thirty.
Speaker 4: Research that I did know it doesn't.
Speaker 2: You're up at four am researching that.
Speaker 4: Dan Curtis in London comes up with the best stats
Speaker 4: that I use every day. I don't know where he
Speaker 4: gets them, but this is the best month for the
Speaker 4: SEMI since two thousand. I mean, people are running back
Speaker 4: into tech.
Speaker 2: It seems like they are.
Speaker 10: And I think one thing that's interesting to note, Paul
Speaker 10: is that if you look at just you know, broad
Speaker 10: earnings estimates like Bloomberg consensus twelve month forward estimates, every
Speaker 10: sector in the S and P is up since the
Speaker 10: attacks began. Right now, the S and P five hundred
Speaker 10: is up, you know, the three month move higher and
Speaker 10: forward estimates is eight percent.
Speaker 2: That's about as high as you get.
Speaker 10: And that's on top of a strong ear What's really
Speaker 10: driving that is tech earnings, tach earning, since the around
Speaker 10: attacks began on February twenty, twenty eighth, are just up
Speaker 10: about eleven percent there. So now every sector is actually
Speaker 10: marked up, even some of the consumer staples and consumer discretionary.
Speaker 10: So look, if earnings are strong and there's not a
Speaker 10: good reason to really categorically exit the equity asset class.
Speaker 7: The index is probably going higher.
Speaker 4: I mean, you know, I'm just looking here again Dan
Speaker 4: Curtis out of London. Got to give them credit, man,
Speaker 4: I use this stuff every day. Tech is outperforming the
Speaker 4: broad index by eight and a half percent this month.
Speaker 4: That's the second biggest since two thousand and three. So
Speaker 4: see a big rotation back. How about on the rate side,
Speaker 4: it feels like we're in a kind of a trading
Speaker 4: range in a ten year four to four and a
Speaker 4: half percent, somewhere in that kind of And that's kind
Speaker 4: of where we.
Speaker 10: Are, and I think we're going to be in a tight,
Speaker 10: tight range for some time to come.
Speaker 7: Here.
Speaker 10: You know what's happened with the rates since and again
Speaker 10: I'm going to start with the attacks breaking out in
Speaker 10: Libruary twenty eighth, is that the entire curve shifted higher.
Speaker 10: It shifted higher why because people were the market was
Speaker 10: repricing FED policy trajectory right, and it was pretty much
Speaker 10: that it wasn't back in inflation. So to get rates
Speaker 10: back down lower you need one of two things things.
Speaker 10: You either need horrible economic data coming in in the
Speaker 10: next few months, or you need the FED to really
Speaker 10: change its messaging on what it's going to be doing
Speaker 10: with cuts. The way I see it is that with
Speaker 10: Warsh presumably coming in at some point in the near
Speaker 10: future as our as our new chair, he's got to
Speaker 10: walk a real uh difficult tightrope balancing a lot of
Speaker 10: things between the guy who nominated of President Trump on
Speaker 10: the one hand, and then his colleagues at the FED there.
Speaker 10: And so if he looks the last you know, f
Speaker 10: OMC meeting it was but for morn it was the
Speaker 10: you know, they kind of circled the wagons, right, I
Speaker 10: mean everyone was on board with a sort of a
Speaker 10: more hawkish position there.
Speaker 7: So for worsh to undo that, it's going to take
Speaker 7: some time.
Speaker 2: You know, I was away for there. I've actually been
Speaker 2: away sort of you know, for three days, but I
Speaker 2: was thunderstruck by the worst testimony. Yours just thoughts on
Speaker 2: his execution at the testimony.
Speaker 10: Well, you know, that's his first test of the tight
Speaker 10: rope walking, right, Yeah, I mean I'll.
Speaker 2: Give him that, that's correct. The first time out is tough.
Speaker 10: Yeah, no, and it's gonna I think it's going to
Speaker 10: be really really tricky. I think he's got one of
Speaker 10: the most difficult jobs you could possibly have, right, I
Speaker 10: mean going forwards there, because he really you know it
Speaker 10: is it is a vote h there.
Speaker 7: It is a consensus building process.
Speaker 10: It's not a you know, he's not a CEO, right,
Speaker 10: I mean where his word is the words.
Speaker 7: So I think that's going to.
Speaker 10: Be really really tricky, and how he how he kind
Speaker 10: of navigates that. I think some of this commentary on
Speaker 10: on where the inflation is going will be make make
Speaker 10: that job even trickier because you know, what we are
Speaker 10: seeing just before around is that producer prices were starting
Speaker 10: to go higher super coorinflation was starting to go higher here,
Speaker 10: and so we can you know, you can always come
Speaker 10: up with a narrative about where inflations. You know, why
Speaker 10: inflation might be going lower here, but if people are
Speaker 10: paying higher food and higher gas prices, that's kind of
Speaker 10: an incertain respects the inflation.
Speaker 7: People are really going to be caring about Michael Purvers.
Speaker 2: For us, we continue with Tabeck and this morning we
Speaker 2: welcome all of you on radio ninety nine one FM,
Speaker 2: Nathan and Hager Radio and one Good Morning ninety two nine.
Speaker 2: Sabers crushed bruins, Really everybody, Sabers, Sabers, Sabers, everybody in
Speaker 2: the airplanes we're in Sabers, you know, merch and all
Speaker 2: that Bruins put them in their place. We have to
Speaker 2: see on that headline out speaking of airlines, Paul, American
Speaker 2: air sees four jillion dollars boost and expense due to
Speaker 2: fuel prices. And this is just Yeah, the actual price
Speaker 2: of stuff on the runway is way higher than the
Speaker 2: prices we.
Speaker 4: Will Yeah, I mean I'm seeing that. You know, they're
Speaker 4: talking about really strong revenue growth here, but obay, the
Speaker 4: costs are going up big time with fuel costs here. So, Michael,
Speaker 4: we we see like a piece of news out of
Speaker 4: like somebody like United Airlines, American Airlines, whatever, you know,
Speaker 4: talking about higher fuel, higher energy costs. This I think
Speaker 4: we are now higher for longer. I think that's the
Speaker 4: world where we now find ourselves in. That's got to
Speaker 4: impact economic growth. That's got to infect the impact inflation expectations, Well.
Speaker 10: It is, it has been, and certainly on the consumer expectations,
Speaker 10: long term inflation expectations per the New York Fed survey
Speaker 10: that came out.
Speaker 7: The other day, we're it had soared a lot.
Speaker 10: What's not happening, you know, really is in the back
Speaker 10: end of the bond of the tips market where you're
Speaker 10: not really seeing back in inflation really move higher there.
Speaker 10: But I think for the near to intermediate term inflation,
Speaker 10: you're going to see it actually realized. And I think,
Speaker 10: you know, we look at these supply shocks as sort
Speaker 10: of one time shifts here, right, But to your point,
Speaker 10: if this is going to be sort of more of
Speaker 10: a higher, longer X axis, if you will, as opposed
Speaker 10: to you know, a surge to one point fifty and
Speaker 10: then assert and then a plummet right back to seventy,
Speaker 10: if it's really more about you know, eighty five to
Speaker 10: one hundred and five for the next several months, and
Speaker 10: it's kind of relentless that there, there's that kind of
Speaker 10: builds into a longer, higher floor for inflation going forwards,
Speaker 10: and there's a lot of knock on effects from you know,
Speaker 10: everything from you know fertilizer prices coming into.
Speaker 7: Food, but it will be pay at the grocery store
Speaker 7: a year from now. Okay, we're gonna have.
Speaker 2: To run here. Mark Champions are gonna be with us
Speaker 2: in London. Michael Purvis, it's mud season up in northern
Speaker 2: New hamp described for our international audience a joy of
Speaker 2: mud season.
Speaker 10: There's the reason why I'm here in New York. No,
Speaker 10: it is it's a it's a it's a it's a
Speaker 10: it's a few weeks out of.
Speaker 7: The out of the year where you really want to avoid.
Speaker 10: Melting snow, melting ice. It's just melting snow, melting ice,
Speaker 10: and a lot of money your food.
Speaker 2: So, Michael Purvis, we hope you survive. I like what
Speaker 2: llll Bean says manage expectations for mud season. Michael Purvis
Speaker 2: tall back in with us this morning. Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: Dysha Patel joins us out SMA fixed and come portfolio manager.
Speaker 2: What is the distinction of parametric right now? What is
Speaker 2: the thing about coupon right now?
Speaker 11: Yes, so I would say at Parametric, our clients are
Speaker 11: coming off of post tax day, A lot of focus
Speaker 11: on tax is tax efficient investing. So if you're a
Speaker 11: high tax bracket client, your first and foremost looking at
Speaker 11: tax equivalent yields that are looking very attractive, right anywhere
Speaker 11: from five and a half to seven percent in the
Speaker 11: municipal bond part of the curve. What's different at parametric,
Speaker 11: I would say, the way we take exposure, you can
Speaker 11: customize it. But again, coming off of tax tax day,
Speaker 11: adding a co opponent of what we call tax hol's harvesting, right,
Speaker 11: So that's where we do it parametric. We can do
Speaker 11: that also in meanicible budy.
Speaker 2: Do people call up on April sixteenth and go help me?
Speaker 2: Is that like the act? Well?
Speaker 11: Yeah, see, well usually call up their financial advisor, and
Speaker 11: then their financial advisor will call us and say, look,
Speaker 11: you know, if we're looking at an allocation, right, how
Speaker 11: can we create possibly more tax free income. And then
Speaker 11: eventually as they're making allocation shifts assessing different parts of
Speaker 11: the market. They will look at an asset class like
Speaker 11: meanis and again where the entry point is attractive, that
Speaker 11: ends up being more of a compelling conversation, especially for clients.
Speaker 11: We've been sitting in cash, right, You've seen cash rates
Speaker 11: come down significantly. If you do see short term rates
Speaker 11: continue to come down over the next six, twelve, eighteen months,
Speaker 11: you can make an argument of stepping out of cash
Speaker 11: adding a little bit of duration, particularly in Muni's quality
Speaker 11: is still very good and fairly resilient. The tax equivalent
Speaker 11: eels are great to lock in.
Speaker 4: But there's been so much supply in the marketplace. I mean,
Speaker 4: twenty four and twenty five record years issuance. I'm being
Speaker 4: told twenty six might also be a record year.
Speaker 7: Picient.
Speaker 2: Does that make it.
Speaker 5: Tough for the bonds reforms? I'm really just clipping coupons here.
Speaker 2: Yes.
Speaker 11: I think that's a great point, Paul, because twenty twenty
Speaker 11: five record year of issuance. And when you look at
Speaker 11: the technical side of me and eas right, it's supply,
Speaker 11: and then the other side of that is demand. And
Speaker 11: twenty twenty five demand wasn't there, right, We had a
Speaker 11: lot of rate volatility post Liberation Day and then you
Speaker 11: slowly had that come together at the end of the year.
Speaker 11: March of this year worst performing month since twenty twenty two.
Speaker 11: Really okay, this was a classic macro rate volatility. Obviously,
Speaker 11: as the war started, oil prices came up ends high supply,
Speaker 11: But I think the difference being is that while they're
Speaker 11: still higher supply, if that's met with higher demand, right,
Speaker 11: you can use that could offset some of that. I
Speaker 11: would say the biggest advantage of leveraging an active manager
Speaker 11: and why we see this as an attractive entry point.
Speaker 4: These new issue.
Speaker 11: Deals in these periers of volatility are coming with very
Speaker 11: attractive concessions. So Tomson, we spoke about, right, you know,
Speaker 11: we're not going out and buying individuals small pieces necessarily,
Speaker 11: if we are buying in the new issue market where
Speaker 11: we can leverage our buying power, right, be able to
Speaker 11: clip off some incredible spread.
Speaker 3: This is a really good way to be.
Speaker 11: Able to put some of that money to work.
Speaker 2: What's what I should say, what's the dumb trade right now?
Speaker 2: Because that also what I'm going to do.
Speaker 7: But what's a.
Speaker 2: Smart trade now? To buy call items, to buy premium bonds,
Speaker 2: to buy a bond at eighty that's going to one
Speaker 2: hundred eventually. What's what's what are the adults doing?
Speaker 11: What are the adults doing? So I would say right now,
Speaker 11: probably buying. You know, the intermediate part of the curve,
Speaker 11: we've seen a little bit of valuations come in a
Speaker 11: little bit to more for more fair value. We're liking
Speaker 11: the five percent coupon structure, right, So I would say
Speaker 11: kind of in that intermediate to long end. I mean
Speaker 11: that's fifteen plus year part of the curve remains to
Speaker 11: be very steep. So if you can stomach a little
Speaker 11: bit more duration, uh, you're going to be holding these
Speaker 11: right kind of closer to maturity. Credit is solid. We're
Speaker 11: really liking that trade out long right again talking about
Speaker 11: tax re yields at.
Speaker 2: Four to four and a half or.
Speaker 8: Continue, Paul, fifteen years you can, yes, So how about
Speaker 8: you don't have to take a lot of credit quality
Speaker 8: risk here, right, So that's that's a beauty about it.
Speaker 4: Yes, So New York City just came. We had a
Speaker 4: guest sitting there a couple of weeks ago in New
Speaker 4: York City. We just came to the market with general
Speaker 4: obligation one point nine billion.
Speaker 2: Yes, the New.
Speaker 4: York City if you were in New York City resident,
Speaker 4: your taxable yield was ten point one.
Speaker 5: Yes.
Speaker 4: Crazy, I'm in a very high tax state, maybe the
Speaker 4: highest tax state in New Jersey.
Speaker 2: Yes, how much do I have credit risk?
Speaker 4: Actually be worried about credit risk in general out there
Speaker 4: in the municipal bond market.
Speaker 3: I think that's a good point.
Speaker 11: So, while while we're saying the bigger story is like
Speaker 11: credit generally across the board is fairly resilient. Tax collections
Speaker 11: have been great, economy has been great, we are seeing
Speaker 11: pockets of bifurcation. So my short answer, Paul would be
Speaker 11: I think active credit over set you to here is important.
Speaker 11: There's certain sectors that have been strained post Medicaid cuts
Speaker 11: and federal cuts right specifically in healthcare. I think you're
Speaker 11: seeing certain trends in higher education. So while you're not
Speaker 11: seeing massive downgrades, I do think active selection is going
Speaker 11: to be key. So in a state like New Jersey,
Speaker 11: plenty of great credits to be able to leverage, and
Speaker 11: it's all about how much risk you're willing to take.
Speaker 11: But you know, again, if you're leveraging the new issue market,
Speaker 11: you've got a lot of great local credits coming to
Speaker 11: where Paul. You know for you specifically, you can lock
Speaker 11: in some great yields.
Speaker 2: Do you want to continue this discussion outside if you
Speaker 2: want to go for another half front.
Speaker 4: I'm the largest private credit at the State of New Jersey.
Speaker 4: The Governor picks up my phone call in the first ring.
Speaker 2: This is great donation. Never enough time, Thank you, thank you,
Speaker 2: I really really appreciate with parametric.
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