1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:22,080 Speaker 1: at Bloomberg dot com slash podcast. I want to get 7 00:00:22,120 --> 00:00:24,360 Speaker 1: to our next guest, Tim Line. He's the CEO of 8 00:00:24,520 --> 00:00:27,040 Speaker 1: on Terrius Capital. On Terris the folks that are a 9 00:00:27,120 --> 00:00:31,160 Speaker 1: lender to middle market pe owned company. So it's always 10 00:00:31,160 --> 00:00:32,800 Speaker 1: a good chat with Tim to get a sense of 11 00:00:32,840 --> 00:00:34,319 Speaker 1: what's going on with some of these small and mid 12 00:00:34,360 --> 00:00:38,559 Speaker 1: cap companies out there as they deal with higher inflation, uh, 13 00:00:38,640 --> 00:00:42,680 Speaker 1: the backside of a pandemic, potential recession. Uh. Tim gives 14 00:00:42,720 --> 00:00:44,839 Speaker 1: us some good thoughts there. Tim, thanks so much for 15 00:00:44,960 --> 00:00:47,400 Speaker 1: joining us here. And I'd love just to get kind 16 00:00:47,440 --> 00:00:49,800 Speaker 1: of word of time of flux here. We've got rising inflation, 17 00:00:49,840 --> 00:00:53,280 Speaker 1: we've got rising interest rates, we've got potential for a recession. 18 00:00:53,720 --> 00:00:56,040 Speaker 1: As you talk to some of these smaller and mid 19 00:00:56,120 --> 00:01:01,160 Speaker 1: sized companies, what are they generally seeing, how are they adapting? Sure? 20 00:01:01,920 --> 00:01:04,759 Speaker 1: Good morning, pauling creedy and pleasure to be here. So 21 00:01:04,959 --> 00:01:08,920 Speaker 1: we have almost five hundred middle market portfolio companies, and 22 00:01:09,040 --> 00:01:13,240 Speaker 1: what I'm hearing from them is that demand drivers remain favorable, 23 00:01:14,520 --> 00:01:18,240 Speaker 1: Revenue growth is still quite strong, and while there's certainly 24 00:01:18,360 --> 00:01:23,039 Speaker 1: some inflation concern, our borrowers have managed cost inflation with 25 00:01:23,080 --> 00:01:27,959 Speaker 1: price increases. The most significant challenge for these portfolio companies 26 00:01:28,040 --> 00:01:31,800 Speaker 1: is navigating this tight, tight labor market. So it's kind 27 00:01:31,800 --> 00:01:34,360 Speaker 1: of how do I retain my best people? Where do 28 00:01:34,480 --> 00:01:38,520 Speaker 1: I find new talent? And this hiring issues impacting almost 29 00:01:38,560 --> 00:01:43,319 Speaker 1: all industries and it's across all personnel levels. You made 30 00:01:43,360 --> 00:01:46,679 Speaker 1: a key point. They're offsetting costs with price increases, and 31 00:01:46,760 --> 00:01:48,960 Speaker 1: to your point, it has worked quite well, not just 32 00:01:49,000 --> 00:01:51,520 Speaker 1: for middle market companies as you're focusing on, but I 33 00:01:51,560 --> 00:01:55,480 Speaker 1: would like to say broader sp companies as well. But 34 00:01:55,520 --> 00:01:57,920 Speaker 1: I'm curious how long that can actually last. At what 35 00:01:58,000 --> 00:02:01,080 Speaker 1: point do price increases become so dicky that it ends 36 00:02:01,120 --> 00:02:05,840 Speaker 1: up leading to demand destruction. Sure, it's a very good question, 37 00:02:06,000 --> 00:02:09,160 Speaker 1: and I would say it's not sustainable. I mean, we've 38 00:02:09,240 --> 00:02:13,680 Speaker 1: we've seen companies in our portfolio implement a ten percent 39 00:02:13,720 --> 00:02:17,440 Speaker 1: price increase followed by a twelve percent price increase, and 40 00:02:17,480 --> 00:02:21,200 Speaker 1: at some point there's going to be the customers are 41 00:02:21,240 --> 00:02:23,960 Speaker 1: going to resist and just say I'm not willing to 42 00:02:24,000 --> 00:02:27,160 Speaker 1: do that. But what's so interesting right now is the 43 00:02:27,320 --> 00:02:31,160 Speaker 1: customers need the product, so because of all the supply 44 00:02:31,240 --> 00:02:34,600 Speaker 1: chain disruption, they're willing to pay the extra price to 45 00:02:34,680 --> 00:02:36,680 Speaker 1: get the product to then be able to meet the 46 00:02:36,720 --> 00:02:41,440 Speaker 1: demand from their customers. So what I love to just 47 00:02:41,480 --> 00:02:45,160 Speaker 1: get your sense of a small mid market, MidCap kind 48 00:02:45,160 --> 00:02:48,040 Speaker 1: of M and A activity the last few years. Much 49 00:02:48,080 --> 00:02:52,000 Speaker 1: to my surprise, we're generally very strong despite the pandemic 50 00:02:52,000 --> 00:02:55,320 Speaker 1: and challenges there. Um, what's the M and A activity 51 00:02:55,400 --> 00:03:00,000 Speaker 1: this year? Sure, so we did experience a frenzy of activity, 52 00:03:00,960 --> 00:03:04,920 Speaker 1: one with record deal volume. LBO volume is certainly down 53 00:03:04,960 --> 00:03:08,720 Speaker 1: this year. But notwithstanding this, what we've seen it's very 54 00:03:08,760 --> 00:03:13,680 Speaker 1: strong add on acquisition activity in so our private equity 55 00:03:13,720 --> 00:03:17,399 Speaker 1: sponsors are always looking for opportunities to grow their portfolio 56 00:03:17,480 --> 00:03:21,960 Speaker 1: companies through new services or new product lines. And we 57 00:03:22,000 --> 00:03:25,720 Speaker 1: really expect this strong add on acquisition activity to continue 58 00:03:26,600 --> 00:03:29,280 Speaker 1: for the remainder of this year and and maybe into 59 00:03:29,880 --> 00:03:36,160 Speaker 1: as well. But how is that financed? Exactly? How are 60 00:03:36,160 --> 00:03:41,520 Speaker 1: they financed? Is we? So we and other lenders provide 61 00:03:41,520 --> 00:03:47,000 Speaker 1: that financing. So sponsor buys a company, Uh, the deal 62 00:03:47,160 --> 00:03:50,280 Speaker 1: is capitalized with equity and debt, and when they have 63 00:03:50,560 --> 00:03:55,360 Speaker 1: add on acquisitions, assuming the capital structure is right sized, 64 00:03:55,840 --> 00:03:59,960 Speaker 1: will be able to provide a financing for those acquisition 65 00:04:00,000 --> 00:04:02,920 Speaker 1: Sans if it's a really large acquisition, the sponsor may 66 00:04:02,960 --> 00:04:06,520 Speaker 1: need to step up with additional equity as well. So 67 00:04:06,920 --> 00:04:11,080 Speaker 1: talk to us about the private debt marketplace. It's been 68 00:04:11,120 --> 00:04:13,720 Speaker 1: a area of good growth. That's where you guys play. 69 00:04:14,160 --> 00:04:16,800 Speaker 1: Talk to us about that market in terms of, uh, 70 00:04:16,839 --> 00:04:19,839 Speaker 1: you know, the capital that's available, the rates that you'll lend, 71 00:04:19,960 --> 00:04:22,359 Speaker 1: the liquidity in that marketplace. Gives a sense of overall 72 00:04:22,400 --> 00:04:26,960 Speaker 1: health of that private debt market. Sure, Uh, there's good 73 00:04:27,000 --> 00:04:30,720 Speaker 1: reason for private debt rapid growth. So the industry has 74 00:04:30,760 --> 00:04:35,720 Speaker 1: demonstrated resiliency through numerous second economic cycles over the last 75 00:04:35,720 --> 00:04:38,960 Speaker 1: twenty years. If you think about it, for the investor, 76 00:04:39,080 --> 00:04:43,240 Speaker 1: private debt really offers more favorable risk adjusted returns than 77 00:04:43,320 --> 00:04:48,360 Speaker 1: many other asset classes. Importantly, right now, with the increasing 78 00:04:48,440 --> 00:04:51,880 Speaker 1: interest grates, it offers an inflation hedge because our loans 79 00:04:51,880 --> 00:04:54,320 Speaker 1: are floating rate instruments. So you ask, like, what would 80 00:04:54,360 --> 00:04:57,240 Speaker 1: be a rate we've moved from library to sofa, so 81 00:04:57,839 --> 00:05:02,240 Speaker 1: might be sofur plus five fifty so for plus six 82 00:05:02,320 --> 00:05:05,640 Speaker 1: fifty um. And we don't really see the current economic 83 00:05:05,720 --> 00:05:10,560 Speaker 1: environment changing. Private debts appealed for investors. As a matter 84 00:05:10,560 --> 00:05:14,240 Speaker 1: of fact, private debt assets under management are projected to 85 00:05:14,279 --> 00:05:17,599 Speaker 1: grow at double digit rates over the next five years. 86 00:05:18,760 --> 00:05:22,040 Speaker 1: Over the next five years double digit rates, well um, 87 00:05:22,080 --> 00:05:26,479 Speaker 1: double digit rates per year. Yes, And so where where 88 00:05:26,480 --> 00:05:28,320 Speaker 1: where does that capital come from? Is that coming from 89 00:05:28,400 --> 00:05:33,599 Speaker 1: pension funds, endowments, that types of thing exactly so? Uh, 90 00:05:33,640 --> 00:05:36,400 Speaker 1: And it's from all around the world, right, So it's 91 00:05:36,800 --> 00:05:40,520 Speaker 1: a lot of pensions, sovereign wealth funds and others looking 92 00:05:40,600 --> 00:05:43,479 Speaker 1: for they need yield. So they need yield to be 93 00:05:43,520 --> 00:05:47,160 Speaker 1: able to pay to their pensioneers on a current basis. 94 00:05:47,640 --> 00:05:51,880 Speaker 1: And private debt offers that. Uh. It's an attractive product 95 00:05:52,160 --> 00:05:56,719 Speaker 1: because you're investing in an instrument that provides a current 96 00:05:56,800 --> 00:06:00,440 Speaker 1: yield and an attractive yield. So it's investors all around 97 00:06:00,440 --> 00:06:05,360 Speaker 1: the world, pension sovereign wealth funds, and dowments, etcetera. All right, Tim, 98 00:06:05,360 --> 00:06:07,880 Speaker 1: great stuff, Always a fascinating discussion. Tim Line, CEO of 99 00:06:07,880 --> 00:06:10,160 Speaker 1: in Terris Capital, get a good sense when we talked 100 00:06:10,160 --> 00:06:12,839 Speaker 1: to Tim about the state of small you know, midsize, 101 00:06:13,040 --> 00:06:14,880 Speaker 1: M and A out there, not just the big blockbuster 102 00:06:14,960 --> 00:06:17,400 Speaker 1: deals that are on the Bloomberg terminal every day. We 103 00:06:17,480 --> 00:06:20,000 Speaker 1: also get a good sense of the private debt market, 104 00:06:20,040 --> 00:06:24,200 Speaker 1: which again is a a growing source of capital for UM. 105 00:06:24,240 --> 00:06:26,480 Speaker 1: You know, companies that are looking for growth capital, private 106 00:06:26,520 --> 00:06:28,920 Speaker 1: equity firms that are looking for growth capital. You don't 107 00:06:28,960 --> 00:06:36,080 Speaker 1: just need to go to your local bank. The S 108 00:06:36,120 --> 00:06:38,800 Speaker 1: and P five hundreds still down almost fourteen percent on 109 00:06:38,839 --> 00:06:40,680 Speaker 1: a year to day basis. And then I looked at 110 00:06:40,720 --> 00:06:43,240 Speaker 1: the foot see one, d are good friends over in 111 00:06:43,279 --> 00:06:45,960 Speaker 1: the UK It's up one point three pc. I did 112 00:06:45,960 --> 00:06:47,800 Speaker 1: not know that, so I said, we need to check 113 00:06:47,800 --> 00:06:50,240 Speaker 1: in with Tim craig. Hetty's a director of research, senior 114 00:06:50,279 --> 00:06:56,000 Speaker 1: European strategist for Bloomberg Intelligence and the Pride of Southwest Virginia. Tim, 115 00:06:56,040 --> 00:06:58,440 Speaker 1: thanks for joining us. What do you guys get right 116 00:06:58,480 --> 00:07:00,799 Speaker 1: over there that we're not doing. We're here's a pretty 117 00:07:00,839 --> 00:07:05,279 Speaker 1: good relative performance for the foot see Paul, thanks for 118 00:07:05,320 --> 00:07:07,080 Speaker 1: having me on. Look, I think there are a couple 119 00:07:07,160 --> 00:07:11,480 Speaker 1: of things to consider. UM. One is the makeup of 120 00:07:11,600 --> 00:07:14,440 Speaker 1: the foot see. Remember it doesn't have any tech which 121 00:07:14,440 --> 00:07:17,480 Speaker 1: has gotten tumbled in the US, you know, notwithstanding the 122 00:07:17,480 --> 00:07:21,760 Speaker 1: bounce that we've had back over the last six weeks. Um, 123 00:07:21,800 --> 00:07:26,120 Speaker 1: it's got a big chunk of it is is consumer 124 00:07:26,560 --> 00:07:30,400 Speaker 1: global brands that are also benefiting from a week pound 125 00:07:30,480 --> 00:07:34,960 Speaker 1: because they get to translate back strong dollars into the UK. 126 00:07:35,680 --> 00:07:38,880 Speaker 1: And it's got a big chunk of energy with high 127 00:07:39,000 --> 00:07:42,400 Speaker 1: energy prices, and a big chunk of financials with rising 128 00:07:42,440 --> 00:07:46,840 Speaker 1: interest rates, and all this coalesces to a foot. See 129 00:07:46,880 --> 00:07:51,360 Speaker 1: that's doing really well by trading water. Now. The caveat 130 00:07:51,440 --> 00:07:54,720 Speaker 1: in the off set is it all depends on your 131 00:07:54,720 --> 00:07:59,120 Speaker 1: currency reference point. If you look at uh, the S 132 00:07:59,160 --> 00:08:04,840 Speaker 1: and P five hundred in pounds where I'm sitting, Um, 133 00:08:04,920 --> 00:08:09,920 Speaker 1: it's down a half a percentum. So you've got to 134 00:08:10,000 --> 00:08:12,840 Speaker 1: keep that one in mind. Two, give us a sense 135 00:08:12,880 --> 00:08:14,560 Speaker 1: to him just kind of I'd love to just get 136 00:08:14,600 --> 00:08:16,560 Speaker 1: your thoughts of kind of what you're seeing and hearing 137 00:08:16,600 --> 00:08:19,720 Speaker 1: from companies over in Europe. How tough is it and 138 00:08:19,800 --> 00:08:23,200 Speaker 1: from an economic perspective, and boy, how tough could it 139 00:08:23,240 --> 00:08:24,800 Speaker 1: be when if you guys really are going to have 140 00:08:24,840 --> 00:08:29,040 Speaker 1: this really challenging winter from an energy perspective, Yeah, well, 141 00:08:29,160 --> 00:08:31,920 Speaker 1: fingers calls for a mild winter, that's for sure. And 142 00:08:33,400 --> 00:08:36,880 Speaker 1: you know it's it's interesting because you know, inflation being 143 00:08:37,360 --> 00:08:41,200 Speaker 1: the bug bear that it is for all markets right now, 144 00:08:42,000 --> 00:08:47,520 Speaker 1: it's different in different places in Europe. Um, the key 145 00:08:47,559 --> 00:08:51,679 Speaker 1: issue is is energy um in terms of driving inflation, 146 00:08:51,840 --> 00:08:54,880 Speaker 1: and it's also a key risk factor from the standpoint 147 00:08:54,880 --> 00:08:58,439 Speaker 1: of economic growth. Um. You know our calculations are for 148 00:08:58,520 --> 00:09:03,720 Speaker 1: rush it does cut off the gas and industry is 149 00:09:03,760 --> 00:09:07,160 Speaker 1: what's going to be affected from the standpoint of potential 150 00:09:07,200 --> 00:09:11,640 Speaker 1: shutdowns in terms of energy consumption. You've got to keep 151 00:09:11,640 --> 00:09:16,240 Speaker 1: people's houses warm. Um. You could see for example, the 152 00:09:16,320 --> 00:09:20,920 Speaker 1: docks the main your the main German index with with 153 00:09:21,040 --> 00:09:25,600 Speaker 1: consensus expectations cut by something on the order of from 154 00:09:25,640 --> 00:09:28,080 Speaker 1: where we are right now for two thousand twenty three, 155 00:09:28,200 --> 00:09:32,240 Speaker 1: so the profit impact could be quite significant relative to 156 00:09:32,280 --> 00:09:36,479 Speaker 1: what baked in at this point. In Germany is definitely 157 00:09:36,520 --> 00:09:38,880 Speaker 1: the poster child from the standpoint of where the most 158 00:09:38,920 --> 00:09:41,880 Speaker 1: impact is. And to your point, Tim, as we look 159 00:09:41,880 --> 00:09:44,360 Speaker 1: at what the docks is doing in particular, the negative 160 00:09:44,360 --> 00:09:47,000 Speaker 1: correlation between the docks and natural gas prices is just 161 00:09:47,160 --> 00:09:49,800 Speaker 1: building is getting stronger and stronger. It really shows you 162 00:09:49,840 --> 00:09:51,640 Speaker 1: that even on an inter day basis, you do start 163 00:09:51,679 --> 00:09:54,280 Speaker 1: to see that reaction to the energy prices you're speaking about. 164 00:09:54,320 --> 00:09:58,040 Speaker 1: I'm curious though about what changes it is the idea 165 00:09:58,080 --> 00:10:02,160 Speaker 1: of a recession kind of this in ability that investors 166 00:10:02,160 --> 00:10:04,680 Speaker 1: have to kind of get past to really be foolish 167 00:10:04,720 --> 00:10:09,520 Speaker 1: on Europe again. Um. Yeah, I think that's probably accurate, 168 00:10:09,559 --> 00:10:14,160 Speaker 1: and frankly in ways I think it's true globally. Um, 169 00:10:14,200 --> 00:10:20,680 Speaker 1: you know, evaluations are mawed down into the low teens. 170 00:10:20,760 --> 00:10:23,840 Speaker 1: You're looking at the eurostocks fifty, which is kind of 171 00:10:23,840 --> 00:10:26,960 Speaker 1: our equivalent of the dal Jones index, right, and it's 172 00:10:27,000 --> 00:10:30,760 Speaker 1: now at eleven times forward earnings. You know, the SMP 173 00:10:30,960 --> 00:10:36,000 Speaker 1: sitting it eighteen and change. So evaluation is such where 174 00:10:36,040 --> 00:10:39,000 Speaker 1: a lot is already baked in from the standpoint of 175 00:10:39,040 --> 00:10:43,640 Speaker 1: the expectations of risk. Um. I think the biggest issue 176 00:10:43,720 --> 00:10:47,960 Speaker 1: is when do we see peak inflation and you know, 177 00:10:48,040 --> 00:10:53,680 Speaker 1: the peak in monetary policy tightening and the bad news 178 00:10:53,800 --> 00:10:56,120 Speaker 1: is going to continue in terms of economic growth for 179 00:10:56,160 --> 00:10:59,120 Speaker 1: a while. But when we when we sense that we're 180 00:10:59,160 --> 00:11:03,000 Speaker 1: at that inflection that we don't see it yet, Um, 181 00:11:03,040 --> 00:11:05,160 Speaker 1: that's when you can start to think ahead from the 182 00:11:05,160 --> 00:11:08,360 Speaker 1: standpoint of when valuation will be more important. Right now, 183 00:11:08,400 --> 00:11:10,520 Speaker 1: we think earnings for the rest of the year are 184 00:11:11,280 --> 00:11:14,320 Speaker 1: going to be the big thing, and we see earnings 185 00:11:14,400 --> 00:11:18,720 Speaker 1: risk right now. So as sloppy market outlook. Tim Marcus 186 00:11:18,720 --> 00:11:21,360 Speaker 1: Ashworth from Bloomberg Opinion based in London, we have him 187 00:11:21,360 --> 00:11:24,640 Speaker 1: on pretty often. He is not afraid to show his 188 00:11:24,760 --> 00:11:28,679 Speaker 1: disdain for the e c B UM and its approach. Here, 189 00:11:28,720 --> 00:11:31,160 Speaker 1: what's the market feel like in terms of or what's 190 00:11:31,160 --> 00:11:33,240 Speaker 1: the market discounting in terms of the ECB and its 191 00:11:33,280 --> 00:11:38,040 Speaker 1: ability to flight to fight inflation going forward? Yeah, it's 192 00:11:38,040 --> 00:11:42,320 Speaker 1: it's it's a good question, Paul. And you know Marcus 193 00:11:42,120 --> 00:11:47,160 Speaker 1: has some degree views central banks regardless of where they 194 00:11:47,160 --> 00:11:49,720 Speaker 1: are there between a rock and hart rock and a 195 00:11:49,760 --> 00:11:54,600 Speaker 1: hard place. They can't ease the energy crisis by um 196 00:11:55,320 --> 00:11:59,120 Speaker 1: by supplying more oil um. The only thing they can 197 00:11:59,160 --> 00:12:04,160 Speaker 1: do is accelerate or decelerate economic growth. And so it's 198 00:12:04,160 --> 00:12:09,040 Speaker 1: the best an indirect um sworks tool. And you know, 199 00:12:09,280 --> 00:12:11,959 Speaker 1: maybe they are late to the game. We can talk 200 00:12:12,000 --> 00:12:14,720 Speaker 1: about that all day long. But if they want to 201 00:12:14,760 --> 00:12:17,000 Speaker 1: have an impact on what's going on with inflation, they're 202 00:12:17,080 --> 00:12:20,360 Speaker 1: only option is to slow economic growth by raising interest rates. 203 00:12:20,360 --> 00:12:22,760 Speaker 1: And lord knows whether they're late to it or not. 204 00:12:22,960 --> 00:12:25,800 Speaker 1: That's where they're headed now, and they seem the beginning 205 00:12:25,800 --> 00:12:28,120 Speaker 1: all that bus um, and certainly the b o E 206 00:12:28,280 --> 00:12:31,200 Speaker 1: is and it's here in England, and obviously the FED 207 00:12:31,280 --> 00:12:33,400 Speaker 1: is more here and more on this. As you guys 208 00:12:33,400 --> 00:12:36,000 Speaker 1: said at Jackson Home, Tim, give us a sense. So 209 00:12:36,000 --> 00:12:37,719 Speaker 1: you've been in London now a long time. I mean 210 00:12:37,720 --> 00:12:40,160 Speaker 1: you're born and raised in southwestern Virginia. But you in 211 00:12:40,200 --> 00:12:42,800 Speaker 1: your career on Wall Street and at Bloomberg, you've been 212 00:12:42,840 --> 00:12:45,960 Speaker 1: all over the world. You run business businesses for Bloomberg 213 00:12:46,000 --> 00:12:49,360 Speaker 1: in Hong Kong and New York and now London. What's 214 00:12:49,360 --> 00:12:51,559 Speaker 1: it like in in England these days? In the UK? 215 00:12:51,640 --> 00:12:55,400 Speaker 1: How are consumers feeling? Um? You know? And I guess 216 00:12:55,400 --> 00:12:59,200 Speaker 1: there's this I'm sure there's this tremendous concern about energy security, 217 00:12:59,240 --> 00:13:01,480 Speaker 1: come come this win. But how's the consumer over there 218 00:13:01,520 --> 00:13:05,920 Speaker 1: in the UK and Europe? Um? You know, it's an 219 00:13:05,920 --> 00:13:11,920 Speaker 1: interesting sort of juxtaposition. Um. If I go to the 220 00:13:11,960 --> 00:13:16,000 Speaker 1: local restaurants, there's plenty of people there. There's still crowds 221 00:13:16,000 --> 00:13:18,959 Speaker 1: in the pubs, you know, Lord knows. On the nice 222 00:13:19,000 --> 00:13:22,360 Speaker 1: sunny afternoon, especially a Wednesday or Thursday, Thursday now being 223 00:13:22,400 --> 00:13:27,520 Speaker 1: the new Friday, you know, the pubs are packed outside 224 00:13:27,559 --> 00:13:30,040 Speaker 1: as you know we do here. Um. And if you 225 00:13:30,040 --> 00:13:35,160 Speaker 1: go to the Regent Street, Um, there's plenty of activity. Um. 226 00:13:35,200 --> 00:13:39,800 Speaker 1: That said, UM, you know, that's only one element. And 227 00:13:40,080 --> 00:13:44,080 Speaker 1: clearly there's an awful lot of press reports about especially 228 00:13:44,200 --> 00:13:48,319 Speaker 1: those on lower income. They are really struggling. And so 229 00:13:48,480 --> 00:13:51,520 Speaker 1: I think that there's a real dichotomy right now. But 230 00:13:51,679 --> 00:13:55,480 Speaker 1: boots on the ground, actually things feel pretty normal. Retail 231 00:13:55,520 --> 00:13:58,200 Speaker 1: sales look pretty good. Yep, yep, good stuff, all right. 232 00:13:58,240 --> 00:14:02,680 Speaker 1: Tim craig Head always appreciate the euro perspective from Tim. Uh. 233 00:14:02,679 --> 00:14:05,240 Speaker 1: Tim's based in London for Bloomberg Intelligence. He's a director 234 00:14:05,240 --> 00:14:07,680 Speaker 1: of Research, senior strategist over there. He's been on the 235 00:14:07,679 --> 00:14:11,719 Speaker 1: Wall Street for well over thirty years. Goldman Sachs, Bloomberg 236 00:14:12,400 --> 00:14:14,679 Speaker 1: Wealth of Experience. We appreciate getting some of his time 237 00:14:14,679 --> 00:14:21,120 Speaker 1: from London later this week. Uh, some economic nerds are 238 00:14:21,160 --> 00:14:24,280 Speaker 1: gonna get together Jackson Hall, Wyoming. I've been there. It's beautiful, 239 00:14:24,360 --> 00:14:26,040 Speaker 1: you can do fly fishing, you can see all these 240 00:14:26,280 --> 00:14:29,080 Speaker 1: crazy animals that you'd never see. Bison elk I mean, 241 00:14:29,160 --> 00:14:32,400 Speaker 1: I mean bison are huge. Um. Any who they're gonna 242 00:14:32,400 --> 00:14:33,880 Speaker 1: get together, I'm not really sure what they're gonna do. 243 00:14:33,920 --> 00:14:35,360 Speaker 1: But our next guest can help us figure that out. 244 00:14:35,440 --> 00:14:39,000 Speaker 1: Janelle Marte, economics and Federal Reserve reporter for Bloomberg News. 245 00:14:39,000 --> 00:14:42,640 Speaker 1: All right, Joannelle, we're sending out Michael McKee, Bloomberg's Economic School. 246 00:14:42,640 --> 00:14:46,080 Speaker 1: We're gonna send out the surveillance team, Uh, Tom, John 247 00:14:46,200 --> 00:14:49,440 Speaker 1: and Lisa out to Jackson Hole. Can you tell us 248 00:14:49,440 --> 00:14:52,960 Speaker 1: and tell me and our listeners what is this Jackson 249 00:14:52,960 --> 00:14:54,960 Speaker 1: Hole get together? Who goes and what do they do 250 00:14:55,000 --> 00:14:58,560 Speaker 1: and what's the purpose? So, as you said, it's a 251 00:14:58,600 --> 00:15:02,640 Speaker 1: big deal, especially for economic nerds. Um. They go out 252 00:15:02,680 --> 00:15:07,840 Speaker 1: to enjoy nature, but also to talk about what's happening 253 00:15:07,840 --> 00:15:11,920 Speaker 1: in the economy, and not just here but globally. And 254 00:15:11,960 --> 00:15:15,000 Speaker 1: it's often a chance or a good place for fat 255 00:15:15,040 --> 00:15:20,840 Speaker 1: officials or fat presidents too. You know, they'll they usually 256 00:15:20,920 --> 00:15:23,440 Speaker 1: use it like as a chance to unveil some big 257 00:15:23,520 --> 00:15:27,880 Speaker 1: policy change. Um. But this year, I think what people 258 00:15:27,920 --> 00:15:31,720 Speaker 1: are looking for is any guidance from the Fed as 259 00:15:31,800 --> 00:15:35,480 Speaker 1: to when they might slow rate increases or if they're 260 00:15:35,480 --> 00:15:38,720 Speaker 1: planning to do so on any your term, you know, Janelle, 261 00:15:38,720 --> 00:15:40,840 Speaker 1: I think it's so funny that Paul Sweeney creeps calling 262 00:15:40,880 --> 00:15:46,640 Speaker 1: them nerds and clearly in school. But I mean they're 263 00:15:46,640 --> 00:15:48,640 Speaker 1: the smart folks. That's put it that way. They are 264 00:15:48,680 --> 00:15:51,480 Speaker 1: the smart folks, Janelle, I'm curious about how much of 265 00:15:51,480 --> 00:15:54,680 Speaker 1: this could be anticlimatic. To some extent, it almost seems like, 266 00:15:54,680 --> 00:15:56,280 Speaker 1: at least this week for the markets, a lot of 267 00:15:56,280 --> 00:15:58,200 Speaker 1: this is going to be in wait and see mode 268 00:15:58,240 --> 00:16:01,080 Speaker 1: to see if indeed Chairman Powell and by ascension, the 269 00:16:01,080 --> 00:16:04,320 Speaker 1: Federal Reserve is as hawkish as the market is expecting 270 00:16:04,560 --> 00:16:09,240 Speaker 1: what happens if this becomes a huge nothing burger. I mean, 271 00:16:09,920 --> 00:16:13,200 Speaker 1: listen anytime that power speaks, especially when he speaks at 272 00:16:13,280 --> 00:16:17,720 Speaker 1: Jackson Hall, everyone is, everyone listens, right. Last year he 273 00:16:18,120 --> 00:16:21,280 Speaker 1: made a big speech trying to defend the idea that 274 00:16:21,400 --> 00:16:25,040 Speaker 1: inflation was going to be transitory. Of course, he's since 275 00:16:25,520 --> 00:16:29,240 Speaker 1: canceled that word and said, um, inflation is here, we 276 00:16:29,320 --> 00:16:32,120 Speaker 1: need to get it, get it under control. So when 277 00:16:32,160 --> 00:16:35,400 Speaker 1: he speaks on on Friday morning, everyone everyone's going to 278 00:16:35,480 --> 00:16:37,880 Speaker 1: be listening to just to hear what he has to say, 279 00:16:38,080 --> 00:16:41,520 Speaker 1: you know, especially given what he said last year. Um, 280 00:16:41,640 --> 00:16:44,000 Speaker 1: and yeah, maybe we won't get a big signal. I mean, 281 00:16:44,040 --> 00:16:46,080 Speaker 1: he's not very likely to give us a hand as 282 00:16:46,120 --> 00:16:49,560 Speaker 1: to what they're going to do exactly in September, for example, 283 00:16:49,680 --> 00:16:53,000 Speaker 1: because he's already said they're moving away from that specific 284 00:16:53,080 --> 00:16:55,480 Speaker 1: for guidance. They're not going to tell us they're going 285 00:16:55,520 --> 00:16:58,840 Speaker 1: to do it meeting by meeting. Um, However, you know 286 00:16:58,920 --> 00:17:01,840 Speaker 1: if he if he's end the message that you know 287 00:17:02,240 --> 00:17:05,000 Speaker 1: apparently you know from the from the July meeting, the 288 00:17:05,240 --> 00:17:09,920 Speaker 1: takeaway that a lot of investors um grabbed was that 289 00:17:09,960 --> 00:17:12,560 Speaker 1: the Fed what might soon slow down the pace of 290 00:17:12,680 --> 00:17:16,840 Speaker 1: rat increases, and officials have really pushed back against that. So, UM, 291 00:17:16,880 --> 00:17:19,680 Speaker 1: we'll see if he sends like a really clear message now, 292 00:17:19,720 --> 00:17:22,760 Speaker 1: and you're right, he might not, but certainly that is 293 00:17:22,800 --> 00:17:27,240 Speaker 1: what people are looking for. You know, based on your reporting, 294 00:17:28,400 --> 00:17:32,040 Speaker 1: what's the consensus here about recession? Are we in one? 295 00:17:32,480 --> 00:17:35,400 Speaker 1: Are we going to get into one? If so this year, 296 00:17:35,600 --> 00:17:37,480 Speaker 1: next year? How deep? What are you? What are you 297 00:17:37,480 --> 00:17:40,359 Speaker 1: hearing and seeing? So I would say that there is 298 00:17:40,440 --> 00:17:44,159 Speaker 1: no consensus. We're in a really unique and challenging time 299 00:17:44,960 --> 00:17:48,480 Speaker 1: in that, you know, some economic data is pointing to 300 00:17:48,560 --> 00:17:51,840 Speaker 1: a slow down, as we've seen the GDP numbers, but 301 00:17:51,920 --> 00:17:55,880 Speaker 1: then we have some really strong indicators like what happened 302 00:17:55,880 --> 00:17:58,920 Speaker 1: with jobs, for example, where we saw twice as many 303 00:17:59,000 --> 00:18:02,960 Speaker 1: jobs I did last month as anticipated. So you know, 304 00:18:03,000 --> 00:18:05,439 Speaker 1: I think FED officials are looking at this trying to 305 00:18:05,520 --> 00:18:07,960 Speaker 1: figure it out. There are some people saying that we 306 00:18:08,040 --> 00:18:12,239 Speaker 1: might actually see GDP revised upward later and that that 307 00:18:12,320 --> 00:18:15,640 Speaker 1: might help to close the gap. But really people are 308 00:18:15,720 --> 00:18:18,360 Speaker 1: just waiting to see and figure it and figure it out. 309 00:18:18,440 --> 00:18:20,600 Speaker 1: And I think that as we learn more that that's 310 00:18:20,640 --> 00:18:24,400 Speaker 1: what's going to inform policymakers as to what the what 311 00:18:24,440 --> 00:18:28,760 Speaker 1: the eventually end up doing with rates, Because you know, 312 00:18:29,240 --> 00:18:33,120 Speaker 1: economic data is not perfect. It is often revised. Some 313 00:18:33,160 --> 00:18:35,560 Speaker 1: people have some officials have already blamed that as to 314 00:18:35,640 --> 00:18:39,720 Speaker 1: why they were a little bit slow to respond into 315 00:18:41,000 --> 00:18:45,160 Speaker 1: or twenty one rather as inflation continued to soar and 316 00:18:45,280 --> 00:18:48,919 Speaker 1: so um. I think we'll just have to continue to 317 00:18:48,920 --> 00:18:51,120 Speaker 1: look at the data and see how all the pieces 318 00:18:51,160 --> 00:18:53,639 Speaker 1: fall into place, do you know, on the market scale. 319 00:18:53,640 --> 00:18:55,880 Speaker 1: And one of the big conversations and markets has been 320 00:18:55,880 --> 00:18:59,400 Speaker 1: that the FED is constantly behind the curve and has 321 00:18:59,440 --> 00:19:02,600 Speaker 1: been for years. I'm curious though, if they have actually 322 00:19:02,720 --> 00:19:05,560 Speaker 1: caught up around the cusp of doing so, given that 323 00:19:05,600 --> 00:19:08,880 Speaker 1: we've now had to seventy five bases point hikes and 324 00:19:09,240 --> 00:19:13,240 Speaker 1: fifty and before that as well, So how much further 325 00:19:13,320 --> 00:19:16,080 Speaker 1: do they have to go before they can say, well, 326 00:19:16,119 --> 00:19:19,560 Speaker 1: the Fed is now on top of things. Really good 327 00:19:19,600 --> 00:19:23,120 Speaker 1: point there. The Fed was behind the curve earlier. They've 328 00:19:23,119 --> 00:19:26,119 Speaker 1: said so themselves. But at this point, I mean, they've 329 00:19:26,520 --> 00:19:30,879 Speaker 1: really aggressively raised interest rates and they're at a point 330 00:19:30,960 --> 00:19:34,840 Speaker 1: now where the rates might be considered neutral, which is 331 00:19:34,840 --> 00:19:37,120 Speaker 1: an area that people are not really sure where that is. 332 00:19:37,200 --> 00:19:41,120 Speaker 1: But the point being that they've said they're not going 333 00:19:41,160 --> 00:19:44,719 Speaker 1: to move into restrictive so continuing to increase rates to 334 00:19:44,760 --> 00:19:48,960 Speaker 1: the point where that is intentionally meant to slow economic 335 00:19:49,000 --> 00:19:53,840 Speaker 1: growth and cool demand and bring prices, bring price gains down, 336 00:19:53,920 --> 00:19:57,480 Speaker 1: bring inflation down. So they've said where they're going, you 337 00:19:57,520 --> 00:20:00,280 Speaker 1: know where that endpoint is. It's hard to you know, 338 00:20:00,480 --> 00:20:04,800 Speaker 1: they don't know themselves. They're trying to engauge clues or 339 00:20:04,840 --> 00:20:07,720 Speaker 1: get clues from what happens with inflation and what happens 340 00:20:08,320 --> 00:20:12,040 Speaker 1: with the economy. But we the level of tightening that 341 00:20:12,080 --> 00:20:15,359 Speaker 1: we've seen in the past few months is really the 342 00:20:15,880 --> 00:20:19,560 Speaker 1: highest that we've seen in decades from the FAD. So 343 00:20:20,240 --> 00:20:23,920 Speaker 1: um they're they're they're taking strong action. Uh they are, 344 00:20:23,960 --> 00:20:26,840 Speaker 1: and will certainly pay attention to the news coming out 345 00:20:26,840 --> 00:20:29,399 Speaker 1: of Jackson Hole later this week. Friday is kind of 346 00:20:29,440 --> 00:20:32,200 Speaker 1: the big day. Uh. And again the surveillance team will 347 00:20:32,240 --> 00:20:35,400 Speaker 1: have full coverage from Jackson Hole. Why. I'm sure they're 348 00:20:35,400 --> 00:20:38,120 Speaker 1: gonna have a really cool set up out there, uh, 349 00:20:38,160 --> 00:20:40,399 Speaker 1: in the middle of nowhere, but it is beautiful out there. 350 00:20:40,480 --> 00:20:43,440 Speaker 1: Janelle Marte, Economics and Federal Reserve reporter from Blueberg News 351 00:20:43,520 --> 00:20:50,639 Speaker 1: joints us with some calls there. On the economy. You know, 352 00:20:50,680 --> 00:20:53,960 Speaker 1: we've had oil really pulling back, you know, over the 353 00:20:54,080 --> 00:20:56,520 Speaker 1: last several months. We hit one twenty on w T 354 00:20:56,600 --> 00:20:59,040 Speaker 1: I crued several months back, and then we got down 355 00:20:59,040 --> 00:21:01,200 Speaker 1: here below ninety. A little bit of a spike here today, 356 00:21:01,240 --> 00:21:03,360 Speaker 1: a three percent. I want just to get a sense 357 00:21:03,359 --> 00:21:05,760 Speaker 1: of kind of where the short term trends are. I'm 358 00:21:05,760 --> 00:21:08,880 Speaker 1: really digging this. Blow four dollars or barrel or four 359 00:21:08,920 --> 00:21:11,600 Speaker 1: dollars a gallant gasoline. Um, We'll get a sense where 360 00:21:11,600 --> 00:21:13,600 Speaker 1: the short term trends are and the longer term trends. 361 00:21:13,680 --> 00:21:15,600 Speaker 1: To do that, we check the with the Fernando Valley, 362 00:21:15,760 --> 00:21:19,640 Speaker 1: senior analyst for Bloomberg Intelligence. Fernando, I guess the news 363 00:21:19,680 --> 00:21:22,439 Speaker 1: today is maybe OPEC will be cutting production what do 364 00:21:22,480 --> 00:21:24,080 Speaker 1: you what do you make of the news seeing today 365 00:21:25,600 --> 00:21:29,159 Speaker 1: and Paul, I think it's a very interesting indication of 366 00:21:29,280 --> 00:21:32,520 Speaker 1: where they see the band over the next couple of months. 367 00:21:32,560 --> 00:21:35,879 Speaker 1: And uh, you know, our concern has always been that 368 00:21:36,680 --> 00:21:39,720 Speaker 1: the FED tightening would lead to pain in the emerging markets, 369 00:21:39,720 --> 00:21:42,200 Speaker 1: and I think that's something that we're starting to see 370 00:21:42,320 --> 00:21:45,000 Speaker 1: a lot of emerging markets struggling with a strong dollar, 371 00:21:45,440 --> 00:21:51,000 Speaker 1: with rising food and energy inflation and and low and behold. Uh, 372 00:21:51,040 --> 00:21:55,040 Speaker 1: they're seeing some over supply, especially with China being slower 373 00:21:55,359 --> 00:21:59,040 Speaker 1: to buy some buy crude. And we talked about previously 374 00:21:59,080 --> 00:22:02,080 Speaker 1: about how China I was having issues with lockdowns and 375 00:22:02,119 --> 00:22:04,879 Speaker 1: how that could impact their purchasing and we're starting to 376 00:22:04,920 --> 00:22:08,479 Speaker 1: see that. And you know, the physical market can be 377 00:22:08,600 --> 00:22:11,359 Speaker 1: very different from the financial market, and they're starting to 378 00:22:11,400 --> 00:22:15,000 Speaker 1: see some lag on the Asian side, even though on 379 00:22:15,040 --> 00:22:19,520 Speaker 1: the on the U S side still zee, excuse me, 380 00:22:19,680 --> 00:22:24,480 Speaker 1: a very tight market, Fernando. One of the arguments that 381 00:22:24,520 --> 00:22:26,399 Speaker 1: I believe is how the energy MR had made was 382 00:22:26,440 --> 00:22:29,240 Speaker 1: that liquidity is an issue that there's so many people 383 00:22:29,280 --> 00:22:32,919 Speaker 1: who had hopped into the commodities market. I mean, we 384 00:22:32,960 --> 00:22:35,800 Speaker 1: talked about all the time oil as this big macro 385 00:22:35,960 --> 00:22:40,800 Speaker 1: heade from investors who usually don't actually trade oil or 386 00:22:40,840 --> 00:22:44,159 Speaker 1: trade commodities. I'm curious how much of that is skewing 387 00:22:44,200 --> 00:22:48,360 Speaker 1: the numbers and skewing the price action. Absolutely, and that's 388 00:22:48,400 --> 00:22:53,000 Speaker 1: why we saw in biatigoing negative. It's a lot of 389 00:22:53,040 --> 00:22:56,639 Speaker 1: financial UH speculators and the true definition of the word 390 00:22:57,040 --> 00:22:59,720 Speaker 1: that they don't actually want to take the physical barrels, 391 00:23:00,040 --> 00:23:03,000 Speaker 1: and they can skew that market. UH. The way that 392 00:23:03,080 --> 00:23:05,520 Speaker 1: we tend to look at it is the difference between 393 00:23:05,800 --> 00:23:09,960 Speaker 1: the crude grades themselves and Brent, Brent being the global benchmark, 394 00:23:10,400 --> 00:23:14,040 Speaker 1: and when we see those differentials getting very narrow, it 395 00:23:14,119 --> 00:23:18,280 Speaker 1: typically means that they are competing and there's less of 396 00:23:18,320 --> 00:23:23,320 Speaker 1: a UH. There's a lot less competition between the crude 397 00:23:23,359 --> 00:23:25,879 Speaker 1: sellers and not so much between the crude buyers and 398 00:23:25,920 --> 00:23:28,840 Speaker 1: the opposing is true. So while in the beginning of 399 00:23:28,880 --> 00:23:32,960 Speaker 1: the summer you're seeing the differentials widely significantly, now there's 400 00:23:33,400 --> 00:23:37,480 Speaker 1: they're starting to narrow, especially in Asia, again a sign 401 00:23:37,520 --> 00:23:43,359 Speaker 1: that the activity there is is slower than expected. Fernando Gasoline, 402 00:23:43,359 --> 00:23:46,080 Speaker 1: we're down below three dollars and ninety cents a gallon. 403 00:23:46,160 --> 00:23:48,480 Speaker 1: Good news for the average consumer. It's like getting a 404 00:23:48,560 --> 00:23:51,760 Speaker 1: kind of a tax break, if you will. What's driving 405 00:23:51,840 --> 00:23:55,720 Speaker 1: that is, is more refining capacity coming online, or is 406 00:23:55,800 --> 00:23:57,840 Speaker 1: demand just kind of fading a little bit in the 407 00:23:57,840 --> 00:24:00,000 Speaker 1: face of that some of that higher prices we saw earlier, 408 00:24:01,480 --> 00:24:04,560 Speaker 1: what's the latter. For sure, we are both passed the 409 00:24:04,640 --> 00:24:08,199 Speaker 1: peak demand for the northern hemisphere, so that helps. But 410 00:24:08,280 --> 00:24:12,119 Speaker 1: we also saw weaker demand UH in two then we 411 00:24:12,160 --> 00:24:15,639 Speaker 1: did in twenty one, and and even UH compared to 412 00:24:16,520 --> 00:24:19,600 Speaker 1: were still below five to six percent below those levels. 413 00:24:20,160 --> 00:24:23,560 Speaker 1: But the other part that helps UH is that we're 414 00:24:23,560 --> 00:24:27,159 Speaker 1: actually seeing a bifurcation between gasoline and diesel. Diesel margins 415 00:24:27,160 --> 00:24:29,720 Speaker 1: are fifty seven dollars a barrel, while gasling is a 416 00:24:29,840 --> 00:24:34,120 Speaker 1: thirty two, And because the refiners are chasing diesel, they're 417 00:24:34,160 --> 00:24:38,119 Speaker 1: over supplying gasoline. So that's helping bring the gasoline margin 418 00:24:38,160 --> 00:24:42,640 Speaker 1: down significantly, while diesel remains very high and we expect 419 00:24:42,640 --> 00:24:46,520 Speaker 1: will continue to go higher, especially as we head towards winter. 420 00:24:47,160 --> 00:24:50,040 Speaker 1: We'll stick to the subject of spreads in particular. Point 421 00:24:50,040 --> 00:24:51,479 Speaker 1: of this out earlier in the show. We're looking at 422 00:24:51,480 --> 00:24:53,920 Speaker 1: front crewed with handle w t I with a nine 423 00:24:54,160 --> 00:24:57,800 Speaker 1: three handle. That's a spread of about six dollars and change. 424 00:24:58,080 --> 00:25:00,640 Speaker 1: What does that tell you six dollars if I'm not wrong, 425 00:25:00,680 --> 00:25:03,959 Speaker 1: correct me if I am Fernando, it's historically high when 426 00:25:04,040 --> 00:25:08,280 Speaker 1: it comes to that spread, right, absolutely. Uh. It tells 427 00:25:08,280 --> 00:25:11,840 Speaker 1: me that the spr releases are having that impact because 428 00:25:12,040 --> 00:25:15,280 Speaker 1: you know, w T I is priced in Cushing and 429 00:25:15,320 --> 00:25:18,359 Speaker 1: we're trying to we are continuing to sell more and 430 00:25:18,400 --> 00:25:21,960 Speaker 1: more crude out of Cushing as opposed to Brent that 431 00:25:22,119 --> 00:25:26,600 Speaker 1: is slightly more UM, so we're basically discounting it for 432 00:25:26,760 --> 00:25:29,439 Speaker 1: the transportation costs to take it to foreign markets. So 433 00:25:29,880 --> 00:25:33,320 Speaker 1: it's basically showing us that we are exporting significant portions 434 00:25:33,320 --> 00:25:38,440 Speaker 1: of that Cushing Uh, that Cushing release to oversee markets. 435 00:25:39,000 --> 00:25:41,879 Speaker 1: How are things down into Permian? Those boys down they're 436 00:25:41,880 --> 00:25:45,840 Speaker 1: still making money, they are. It's certainly and you know 437 00:25:45,880 --> 00:25:49,119 Speaker 1: it's not just scrude. Natural gas liquids propane utane are 438 00:25:49,400 --> 00:25:54,359 Speaker 1: are rising very significantly. Natural gas prices as well, very high, 439 00:25:54,400 --> 00:25:57,240 Speaker 1: so they are starting to make money. It's actually been 440 00:25:57,280 --> 00:25:59,960 Speaker 1: allowed for what we call refracts, when you go back 441 00:26:00,040 --> 00:26:04,520 Speaker 1: into an old well and you redo the fracking process 442 00:26:04,560 --> 00:26:07,080 Speaker 1: so that you can get more production out of it. 443 00:26:07,680 --> 00:26:10,639 Speaker 1: So we're starting to see are you rising in those 444 00:26:10,640 --> 00:26:15,400 Speaker 1: refracts um to help produce producing, and that helps bypass 445 00:26:15,440 --> 00:26:18,200 Speaker 1: one of the biggest issues, which is continuing to drill 446 00:26:18,280 --> 00:26:22,240 Speaker 1: wells and continue to have to have the the the 447 00:26:22,240 --> 00:26:26,600 Speaker 1: the the drilling rigs and the other portions that are 448 00:26:27,080 --> 00:26:29,239 Speaker 1: more supplied constraint. I think I'm going to go down 449 00:26:29,280 --> 00:26:32,040 Speaker 1: in Texas, drill a couple of holes in the ground, 450 00:26:32,080 --> 00:26:33,440 Speaker 1: put some wells in there, and see what I can do. 451 00:26:33,480 --> 00:26:37,439 Speaker 1: I mean, they gotta oil just ripping here back above ninety. 452 00:26:37,680 --> 00:26:39,320 Speaker 1: I think I could do that for now. Of Vale 453 00:26:39,480 --> 00:26:42,280 Speaker 1: Senior Analyst or Bloomberg Intelligence, he does it for a living. 454 00:26:42,320 --> 00:26:44,879 Speaker 1: He covers all things energy. He's been doing it for 455 00:26:44,880 --> 00:26:46,440 Speaker 1: a couple of decades, and he is one of our 456 00:26:46,480 --> 00:26:49,879 Speaker 1: go to voices when we get a sense of global oil, 457 00:26:50,040 --> 00:26:55,080 Speaker 1: global energy. All right, let's switch to I'm gonna talk 458 00:26:55,119 --> 00:26:58,840 Speaker 1: electric vehicles because I actually drove an electric vehicle. I 459 00:26:58,880 --> 00:27:01,880 Speaker 1: had a first couple of first month or so ago. 460 00:27:02,080 --> 00:27:04,840 Speaker 1: I drove my first pickup truck ever and drove my 461 00:27:04,880 --> 00:27:09,160 Speaker 1: first electric vehicle ever, the Ford F one fifty Lightning. Uh. 462 00:27:09,200 --> 00:27:11,080 Speaker 1: They were kind enough to loan me for a few 463 00:27:11,160 --> 00:27:14,320 Speaker 1: days and it was awesome. So I was really skeptical 464 00:27:14,320 --> 00:27:17,959 Speaker 1: about that. Totally, totally, I mean everything. It was just 465 00:27:18,160 --> 00:27:21,840 Speaker 1: an awesome vehicle and the electric uh, the EV technology 466 00:27:21,920 --> 00:27:24,800 Speaker 1: was pretty cool. Same of course, he's associate associate portfolio 467 00:27:24,800 --> 00:27:27,840 Speaker 1: management Analysts at ARC Investment Management. That good folks ark 468 00:27:27,960 --> 00:27:31,960 Speaker 1: they have some passing interest in the EV market here, Sam, 469 00:27:32,000 --> 00:27:35,040 Speaker 1: I love to get your thoughts here on the EV 470 00:27:35,280 --> 00:27:39,440 Speaker 1: market as it relates to the competitive landscape because our 471 00:27:39,480 --> 00:27:42,119 Speaker 1: good friends at Tesla had had essentially had the market 472 00:27:42,160 --> 00:27:44,600 Speaker 1: to themselves for a long time, and and wow, what 473 00:27:44,680 --> 00:27:47,199 Speaker 1: an amazing job Elon Musk and the Tesla folks have 474 00:27:47,240 --> 00:27:51,359 Speaker 1: done and effectively creating and commercializing this market. But now 475 00:27:52,320 --> 00:27:55,360 Speaker 1: you got the Ford f one fifty, you got Volkswagen 476 00:27:55,400 --> 00:27:58,240 Speaker 1: go on all Electric, got porschego on Electric. Talk to 477 00:27:58,280 --> 00:28:00,399 Speaker 1: us about how you guys think about this can petitive 478 00:28:00,440 --> 00:28:06,360 Speaker 1: landscape for electric vehicles? Absolutely, And you know, I think, 479 00:28:06,400 --> 00:28:10,160 Speaker 1: as you're saying f one fifty electric, I'm sure once 480 00:28:10,200 --> 00:28:12,800 Speaker 1: you drive that you're not going back to the internal 481 00:28:12,800 --> 00:28:15,439 Speaker 1: combustion engine. So I think really the first place to 482 00:28:15,480 --> 00:28:19,840 Speaker 1: start is what are the competitive dynamics. The competitive dynamics 483 00:28:19,840 --> 00:28:23,359 Speaker 1: are that the internal combustion engine is losing out big time. 484 00:28:24,119 --> 00:28:27,280 Speaker 1: So if you're just looking in the first half of two, 485 00:28:27,680 --> 00:28:32,920 Speaker 1: internal combustion engine vehicles sales down eighteen point four, battery 486 00:28:32,920 --> 00:28:40,240 Speaker 1: electric vehicles up. So the share games are tremendous for 487 00:28:40,640 --> 00:28:44,320 Speaker 1: electric UH. And then when you look into the actual 488 00:28:45,120 --> 00:28:48,600 Speaker 1: UH players, who are who are investing in this, you know, 489 00:28:48,680 --> 00:28:51,880 Speaker 1: that's where things we think start to get interesting. It's 490 00:28:51,880 --> 00:28:58,040 Speaker 1: a growing pie, so they're not necessarily competing with one another, UM. 491 00:28:58,080 --> 00:29:00,280 Speaker 1: But what we what we're looking at for the future 492 00:29:00,360 --> 00:29:05,720 Speaker 1: is who's investing in battery capacity. That's very important UM 493 00:29:05,760 --> 00:29:08,280 Speaker 1: and really looking to see who's putting the money where 494 00:29:08,320 --> 00:29:12,160 Speaker 1: their mouth is. I think one of the the classic 495 00:29:13,320 --> 00:29:16,880 Speaker 1: arguments we've heard over time were these large traditional automakers, 496 00:29:17,120 --> 00:29:19,160 Speaker 1: when they decide to go electric, they're going to crush 497 00:29:19,160 --> 00:29:21,920 Speaker 1: any of the startups. But then when we when we 498 00:29:21,960 --> 00:29:24,840 Speaker 1: look at you know, the actual cafex and what these 499 00:29:24,840 --> 00:29:28,840 Speaker 1: companies are planning. You have forward planning seven to eight 500 00:29:28,840 --> 00:29:32,880 Speaker 1: billion dollars a year in cafex UH, and that's combined 501 00:29:33,280 --> 00:29:36,600 Speaker 1: for internal combustion and electric. You have GM in the 502 00:29:36,720 --> 00:29:40,960 Speaker 1: nine billion range. Again that's a combination of traditional gas 503 00:29:41,000 --> 00:29:43,840 Speaker 1: powered vehicles and electric. And then you have Tesla in 504 00:29:43,880 --> 00:29:48,600 Speaker 1: there with seven to ten billion dollars and Cafex over 505 00:29:48,640 --> 00:29:51,560 Speaker 1: the next few years. So you have Tesla who's now 506 00:29:52,560 --> 00:29:57,120 Speaker 1: competing with UH the incumbents, and we actually forecast that 507 00:29:57,160 --> 00:30:01,520 Speaker 1: they're gonna outspend them by sgnificant degree and that's really 508 00:30:01,560 --> 00:30:04,200 Speaker 1: going to allow them to keep market share going forward. 509 00:30:05,000 --> 00:30:07,160 Speaker 1: What does that mean for the challenges when it comes 510 00:30:07,160 --> 00:30:11,000 Speaker 1: to scaling and producing in bulk? How does the likes 511 00:30:11,040 --> 00:30:17,960 Speaker 1: of Tesla Rivian deal with that? Yeah, scaling is it's 512 00:30:18,000 --> 00:30:22,080 Speaker 1: a very difficult problem. And I think the electric vehicle 513 00:30:22,520 --> 00:30:24,880 Speaker 1: industry is in a great position as a whole where 514 00:30:25,240 --> 00:30:29,040 Speaker 1: they do seem to be supply constrained. So it's good 515 00:30:29,080 --> 00:30:31,960 Speaker 1: that they actually have the demand there and so looking 516 00:30:32,000 --> 00:30:35,560 Speaker 1: to scale, um, you have the production side, which is 517 00:30:35,920 --> 00:30:39,760 Speaker 1: quite difficult UH. And this is actually where we think, 518 00:30:39,840 --> 00:30:43,800 Speaker 1: you know, China has UH an advantage here when we 519 00:30:43,840 --> 00:30:48,000 Speaker 1: look at the speed at which these Chinese companies are 520 00:30:48,040 --> 00:30:52,560 Speaker 1: able to scale production and even Tesla in China right 521 00:30:52,600 --> 00:30:56,200 Speaker 1: going from start of construction to a million vehicles produced 522 00:30:56,200 --> 00:31:00,320 Speaker 1: in three and a half years is is pretty heard 523 00:31:00,360 --> 00:31:03,160 Speaker 1: of in the auto industry. And then when we look 524 00:31:03,240 --> 00:31:06,440 Speaker 1: further down the line beyond just you know, the scale 525 00:31:06,920 --> 00:31:09,520 Speaker 1: zero to one, you know, no cars produced to one 526 00:31:09,560 --> 00:31:13,120 Speaker 1: car produced, uh, than getting up to the hundreds of thousands. 527 00:31:13,520 --> 00:31:17,360 Speaker 1: We start to look into the raw materials UH. And 528 00:31:17,440 --> 00:31:20,479 Speaker 1: this is I think where we've seen a lot of 529 00:31:20,480 --> 00:31:24,040 Speaker 1: concern is saying, Okay, now that people are more convinced 530 00:31:24,120 --> 00:31:27,840 Speaker 1: we're going to have an electric vehicle future, where do 531 00:31:27,880 --> 00:31:30,479 Speaker 1: we get all of the raw materials for this? And 532 00:31:30,520 --> 00:31:34,320 Speaker 1: the good news is is that, ah, the raw materials 533 00:31:34,320 --> 00:31:38,600 Speaker 1: exist right there, They're out there in the earth. UM. 534 00:31:38,680 --> 00:31:43,040 Speaker 1: The challenging part is going to be the processing of 535 00:31:43,080 --> 00:31:47,040 Speaker 1: these raw materials UH into what can be used in 536 00:31:48,760 --> 00:31:54,200 Speaker 1: battery packs for electric vehicles. And we're seeing incredible investment 537 00:31:54,320 --> 00:31:57,440 Speaker 1: on this front as well, and we're even seeing a 538 00:31:57,520 --> 00:32:02,040 Speaker 1: shift in the bad mattery chemistry is being used to 539 00:32:02,120 --> 00:32:05,720 Speaker 1: help offset some of these bottlenecks. So a great example 540 00:32:05,840 --> 00:32:08,920 Speaker 1: is if we went back, you know, three to four years, 541 00:32:08,960 --> 00:32:13,920 Speaker 1: everyone was extremely concerned about cobalts and saying, you know, 542 00:32:14,240 --> 00:32:18,960 Speaker 1: cobalt is incredibly difficult and there's you know, big human 543 00:32:19,040 --> 00:32:22,720 Speaker 1: rights implications in cobalt mine. And the battery industry is 544 00:32:22,760 --> 00:32:28,320 Speaker 1: shifted from using battery chemistry that was equal parts nickel 545 00:32:28,560 --> 00:32:34,520 Speaker 1: magnese and cobalt to a new chemistry that had almost 546 00:32:34,560 --> 00:32:37,920 Speaker 1: no cobalts in it. And then there was another constraint 547 00:32:37,960 --> 00:32:40,920 Speaker 1: on nickel. And you know you heard Elon Musk on 548 00:32:41,000 --> 00:32:44,000 Speaker 1: the earnings call saying if you can, if you can mind, 549 00:32:44,080 --> 00:32:46,520 Speaker 1: nickel will buy it. And now we're seeing a shift 550 00:32:46,600 --> 00:32:51,400 Speaker 1: from batteries that are extremely nickel dense two batteries that 551 00:32:51,520 --> 00:32:54,360 Speaker 1: have no nickel at all. So it's a combination of 552 00:32:54,560 --> 00:33:00,560 Speaker 1: supply ramping up and the actual battery manufacturers and vehicle 553 00:33:00,600 --> 00:33:05,840 Speaker 1: manufacturers shifting to different chemistries to avoid those bottlenecks. All right, Sam, 554 00:33:05,880 --> 00:33:09,120 Speaker 1: good stuff, good overview of the e V space there. Sam, course, 555 00:33:09,120 --> 00:33:12,400 Speaker 1: he's associate portfolio manager and analyst at ARC Investment Management 556 00:33:12,400 --> 00:33:16,680 Speaker 1: and ARC. Thanks for listening to the Bloomberg Markets podcast. 557 00:33:17,080 --> 00:33:20,280 Speaker 1: You can subscribe and listen to interviews of Apple podcasts 558 00:33:20,400 --> 00:33:24,320 Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm 559 00:33:24,360 --> 00:33:28,400 Speaker 1: on Twitter at Matt Miller three and on Ball Sweeney 560 00:33:28,400 --> 00:33:31,040 Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you 561 00:33:31,040 --> 00:33:33,720 Speaker 1: can always catch us worldwide at Bloomberg Radio