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U.S. Oil Supply Glut Poised To Tighten in 6-9 Mos.: Canary CEO · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
0:06
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
0:10
Speaker 1: along with essential market moving news. Kind the Bloomberg Markets
0:13
Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot Com. We're gonna take a look
0:20
Speaker 1: at the energy business, Vonnie. You know, we talked to
0:23
Speaker 1: so many portfolio managers Vonnie about you know, is it
0:27
Speaker 1: time to get into energy stocks? And I haven't found
0:31
Speaker 1: too many that are brave enough to do so. But
0:32
Speaker 1: maybe in the private equity business they view it a
0:34
Speaker 1: little bit differently. Dan Eberhart, CEO of Canary LLLC, based
0:38
Speaker 1: in Denver, Colorado. Dan, thanks so much for joining us here.
0:42
Speaker 1: You know a lot of folks here, particularly in the
0:44
Speaker 1: public equity markets and obviously in the credit markets, are
0:48
Speaker 1: really down on energy, particularly uh, the oil field services
0:52
Speaker 1: guys that are really filling the brunt of lower oil prices.
0:55
Speaker 1: What's your view, Well, I think it really depends on
0:59
Speaker 1: your time. If you're a short term investor and looking
1:02
Speaker 1: to the end for weeks, I think you you know,
1:04
Speaker 1: you've got to be very careful that the bloodbath continues,
1:06
Speaker 1: and particularly with a lot of the smaller e m
1:09
Speaker 1: p s and with the oil service companies, I think
1:11
Speaker 1: you've got to be on bankruptcy watch and really just
1:14
Speaker 1: invest in. If you're investing in the sector, invest in
1:17
Speaker 1: things have liquidity first and foremost, uh, and then and
1:20
Speaker 1: then look at how good they're operating businesses. But if
1:22
Speaker 1: you're investing for the long term, I think that look this,
1:25
Speaker 1: this downturn is the we're seeing the seeds planned for
1:28
Speaker 1: the you know, for an eventual boom, and you know,
1:32
Speaker 1: it's it's all about supplying demand. And as you know,
1:34
Speaker 1: demand contracted. Everybody shut the doors, everybody stopped kind of
1:38
Speaker 1: constructing air quotes for new oil. But what we're really
1:42
Speaker 1: looking for here going forward is the supply demand picture
1:46
Speaker 1: is going to completely change. So you know, production has
1:48
Speaker 1: fallen from thirteen million barrels a day to nine point seven,
1:51
Speaker 1: kind of rebounded to about eleven. But as uh, you know,
1:55
Speaker 1: oil and gas deman comes back to where it was,
1:59
Speaker 1: We're going to have a shortage of oil, a shortage
2:01
Speaker 1: of natural gas, and you're really going to see an
2:03
Speaker 1: inflection point. I think in Q four Q one sometime
2:07
Speaker 1: when these shale wells, which traditionally are you know, twelve
2:11
Speaker 1: month that's really run dry, and the industry is going
2:14
Speaker 1: to need to drop oil and you're gonna see the
2:17
Speaker 1: service sector and smaller MPs really you know, take take
2:20
Speaker 1: up and take off and and shoot up on on
2:23
Speaker 1: evaluation run how far can they go though, because there's
2:28
Speaker 1: a limit to what people will be able to spend
2:30
Speaker 1: on energy in this environment at any rate. Down right,
2:36
Speaker 1: I think it is. But I also think a large
2:38
Speaker 1: amount of the demand is fixed, and I think that
2:41
Speaker 1: we've overcut supply. Look typically in a in a recession,
2:43
Speaker 1: we see demand falls of one to three maximum. To
2:47
Speaker 1: see the demand fall kind of freaked everyone out, and
2:51
Speaker 1: the sector is gonna suffer from chronic under investment. And
2:55
Speaker 1: that's really going to lead to you know, demand is
2:59
Speaker 1: gonna rise a win or two percent and the supply
3:01
Speaker 1: is going to fall at the same time, and that
3:03
Speaker 1: that in that way, it's going to become a lot
3:05
Speaker 1: of pricing power for the local service companies in particular,
3:08
Speaker 1: and for some of the smaller EPs to make quite
3:10
Speaker 1: a bit of money. Again, this is this is if
3:13
Speaker 1: you've got a time frame of you know, nine months,
3:15
Speaker 1: eighteen months. If you've got a time frame three weeks,
3:18
Speaker 1: I think you need to battle liquidity. So what are
3:20
Speaker 1: you doing right now? From a private equities perspective here,
3:22
Speaker 1: because I guess from your perspective, evaluations are very attractive.
3:26
Speaker 1: Right here is it's simply a case if you've got
3:28
Speaker 1: capital and you're smart with your capital, you can make
3:31
Speaker 1: some some big bets. Here. Is that work? How you
3:33
Speaker 1: guys are approaching it? Yeah, we're we're nibbling. But I
3:36
Speaker 1: think there's a huge valuation goals and people remember what
3:39
Speaker 1: their businesses were in you know, valued that in February,
3:42
Speaker 1: and people are wanting close to that. I think the
3:43
Speaker 1: new reality is quite different. And again it really depends
3:47
Speaker 1: on your time time frame. But the short term profits
3:49
Speaker 1: are basically mil particularly in the local service sector, so
3:53
Speaker 1: I think you you've really got to have a long
3:54
Speaker 1: time rise and to put money on the space. Now,
3:57
Speaker 1: what you're really seeing is kind of this Jamie Diamond
3:59
Speaker 1: uh um uh. You know Totra's balance sheet type mentality
4:03
Speaker 1: where you're seeing marathons seal it's gas stations to seven
4:06
Speaker 1: eleven to buy liquidity and um, you're seeing Noble run
4:10
Speaker 1: into the arms of Chevron. You've seen about eighteen I
4:12
Speaker 1: think public EMP companies to clear bankruptcy. The sector has
4:15
Speaker 1: moved from about eight percent of the SMP five two
4:18
Speaker 1: point five. So really you're seeing a flight to quality
4:22
Speaker 1: and a flight to the stronger getting stronger and the
4:24
Speaker 1: weaker getting weaker. And that's that's really the tail to
4:27
Speaker 1: tape and oil gas right now? Where would that have
4:31
Speaker 1: you betting? Whether it be by stage, by company, by
4:34
Speaker 1: oil patch, so you know, the costs are higher in
4:39
Speaker 1: the baking and lower in the Permian if you're trying
4:42
Speaker 1: to bet on the geography. But I think you're going
4:44
Speaker 1: to see those with bigger balance sheets, so exs on Chevron,
4:49
Speaker 1: people like this gets stronger, You're gonna see the medium
4:51
Speaker 1: sized people get brought out, and then you're going to
4:54
Speaker 1: see the people with over the leverage balance sheets like Apache,
4:57
Speaker 1: you know fall by the wayside, or like you know,
4:59
Speaker 1: White and UM Chesapeake Barty fouled bankruptcy. And then I
5:03
Speaker 1: think I would I would really be short the oil
5:06
Speaker 1: cold service sector, particularly names like Superior and UM Neighbors
5:12
Speaker 1: that have impaired balance sheets. You're they're they're really under
5:15
Speaker 1: a lot of stress right now. How about the concern
5:19
Speaker 1: Dan that maybe twenty nineteen was peak oil um? Is
5:23
Speaker 1: that a concern that you think that's valid? I do
5:28
Speaker 1: think it's a concerns valid, although you know, history is
5:30
Speaker 1: literally with people trying to call peak oil. UM. I
5:33
Speaker 1: think we will be back to kind of this never
5:36
Speaker 1: ending worldwide economic growth in the you know, one to
5:39
Speaker 1: three range. I think we're gonna get back to a
5:41
Speaker 1: half of that when this pandemic gets out. And I
5:44
Speaker 1: think that you know, renewables get a way bigger market
5:48
Speaker 1: share and depressed than what they're actually capable of, and
5:51
Speaker 1: kind of the three five six year range in terms
5:53
Speaker 1: of producer in terms of demand destruction for oil and gas,
5:57
Speaker 1: and again, you know, natural gas is one of the
5:59
Speaker 1: three main feed stocks for power plants. So I think
6:02
Speaker 1: the industry has got a long way to go, and
6:03
Speaker 1: I think we're gonna keep being consumers. And you know,
6:05
Speaker 1: as people ahead in the emerging markets, as people hit
6:08
Speaker 1: ten thousand dollars in GDP per capital, they want to
6:11
Speaker 1: buy a car, and that's just the way it is.
6:13
Speaker 1: And I think that those cars are going to be
6:15
Speaker 1: internal combustion engines for quite a long time. To come.
6:17
Speaker 1: So I think demand is going to be relatively and
6:20
Speaker 1: elastic withinside a narrow band, and that augurs well for
6:25
Speaker 1: oil and gas. Where I really would be short is offshore.
6:29
Speaker 1: I think those are higher costs and longer term projects,
6:32
Speaker 1: and you're going to see onshore, particularly US shale um
6:36
Speaker 1: received more of the capital because it's short cycle capital
6:39
Speaker 1: that can be turned on and all dependently commodic Brint.
6:41
Speaker 1: Can I just say then that the name of your
6:44
Speaker 1: private equity company, Canary, does send shivers down this line.
6:48
Speaker 1: It does seem like it's a little bit of a
6:51
Speaker 1: portentous name. Can I very briefly ask you what percentage
6:54
Speaker 1: of portfolio companies for private equity in this space will
6:57
Speaker 1: go to zero? Um, I think you're going to see
7:02
Speaker 1: an awful lot of private equity companies take a blood math,
7:04
Speaker 1: particularly once and have shorter time horizons. So those with
7:07
Speaker 1: eighteen twenty four month time horizons are going to be
7:10
Speaker 1: really stressed to get out and be main whole or
7:14
Speaker 1: make some money on their portfolio. Well, we will follow
7:19
Speaker 1: the story, no doubt it will unfold of the next
7:21
Speaker 1: few months. We were already talking earlier about a nearly
7:23
Speaker 1: a hundred thousand job losses in this space already and
7:26
Speaker 1: their permanent pretty much job losses done. Abraheart, CEO of
7:30
Speaker 1: Canary based in Denver, private equity investor and UH Canary
7:34
Speaker 1: of course oil field services firm, thank you so much
7:38
Speaker 1: for joining us. It is ten forty eight on the
7:42
Speaker 1: Wall Street. Time for Bloomberg Opinion. We are pleased to
7:44
Speaker 1: be welcome by daniel D. Martino, Booth, CEO and Director
7:48
Speaker 1: of Intelligence at Quill Intelligence, former advisor at the Dallas
7:52
Speaker 1: Federal Reserve. Any Bloomberg Opinion columnists, Danielle, thanks so much
7:55
Speaker 1: for joining us here. You have a fascinating column out
7:58
Speaker 1: on the travel business, and I guess no industry has
8:01
Speaker 1: been hit harder than the broad travel business by this pandemic.
8:04
Speaker 1: But your thoughts are this thing is not going to
8:06
Speaker 1: come back very quickly. What are your key points there? Well,
8:11
Speaker 1: I think it has to do with two things demographics
8:14
Speaker 1: and businesses right sizing their cost structures. Um, if you
8:19
Speaker 1: think about older Americans fifty five plus, we account it
8:22
Speaker 1: for eighty percent of luxury travel last year. UH, that's
8:25
Speaker 1: been a growing trend. And separately, the business traveler accounted
8:31
Speaker 1: for here in North America of the spend, if you will,
8:36
Speaker 1: even though they were they were only twenty percent, but
8:38
Speaker 1: the actual travelers, so your business travel traveler always was
8:42
Speaker 1: the one in business class, in in on the airlines,
8:45
Speaker 1: and they occupied nicer hotels for longer periods of time
8:49
Speaker 1: because it was of course on on the company's dine.
8:52
Speaker 1: A lot of a lot of CEOs I speak with today,
8:54
Speaker 1: a lot of people learning large staffs are saying that
8:57
Speaker 1: they don't know when they're traveling. Expense budgets are going
9:00
Speaker 1: going to return because they've learned how to meet and
9:03
Speaker 1: can be differently. Just from from a personal standpoint, I've
9:08
Speaker 1: had speaking engagements at a dozen UH conferences canceled since
9:12
Speaker 1: this whole thing started, And the trend does not seem
9:15
Speaker 1: to be dissipating, because the virus, of course, continues to
9:18
Speaker 1: ping pong all over the country and the world. Danielle. Yes,
9:23
Speaker 1: everyone's got a little bit more used to zoom and
9:25
Speaker 1: so on. But at some point, you know, assuming that
9:28
Speaker 1: there is a vaccine or some kind of treatment for this,
9:32
Speaker 1: won't people want to congregate again, and won't people to
9:35
Speaker 1: want to go on business trips? Of course? Of course,
9:40
Speaker 1: of course this is going to come back to a
9:42
Speaker 1: certain extent. One of the things one of the points
9:45
Speaker 1: that I tried to make in the column was that
9:47
Speaker 1: over the past decade or so, unfortunately fis deep per
9:51
Speaker 1: cent of the commercial mortgage backed securities that are tied
9:55
Speaker 1: to lodging loans hotel loans for in the full service sector.
9:59
Speaker 1: Mike concern is that there is so much over supply
10:02
Speaker 1: and so much over capacity that that is why we're
10:05
Speaker 1: seeing lodging default rapes for those loans higher even than
10:08
Speaker 1: what we're seeing in the retail sector. It's because of
10:11
Speaker 1: the of the concentration of luxury that I'm not sure
10:16
Speaker 1: can be people filled for some time to come. Of course,
10:18
Speaker 1: the desire and the wherewithal is there. And I just
10:22
Speaker 1: came back from a week long script myself. The highways
10:25
Speaker 1: are full of people. It's just a matter of whether
10:27
Speaker 1: or not the guys are going to recover quickly. Well, Danielle,
10:31
Speaker 1: this also has when we think about the you know,
10:32
Speaker 1: the global leisure business, this is a big uh employment
10:36
Speaker 1: sector as well as we think about the consumer economy here,
10:39
Speaker 1: how do you factor that into kind of your calculations
10:42
Speaker 1: for job growth or unemployment? And as we kind of
10:45
Speaker 1: try to dig out on the other side of this well,
10:48
Speaker 1: and I think that's one of the least understood things
10:50
Speaker 1: that I learned the most researching this column is that
10:53
Speaker 1: thirty million people worldwide we're employed by traveling tourism. At
10:57
Speaker 1: the end of twenty nineteen, one intend job again all
11:00
Speaker 1: around the globe, and in the last five years the
11:04
Speaker 1: sector was responsible for one in five jobs created. So
11:08
Speaker 1: the more protracted, uh, the weight is in terms of
11:12
Speaker 1: getting to a vaccine where there's full confidence for everybody
11:15
Speaker 1: to travel the world, the longer the permanent damage is
11:18
Speaker 1: that we're going to be seeing in that travel tourism sector.
11:21
Speaker 1: There's a good chart in the Bloomberg the Bloomberg column
11:25
Speaker 1: this up on the terminal that kind of exemplifies that
11:27
Speaker 1: permanent employment and traveling tourism here in the United States
11:30
Speaker 1: is getting hit harder than it is in other sectors. Danielle,
11:36
Speaker 1: is there anything that can be done to mitigate I mean,
11:38
Speaker 1: there was talk of bailouts and so on, and particular
11:40
Speaker 1: sector is getting more helps than others. I guess that's
11:43
Speaker 1: sort of gone by the wayside now with PPP and
11:45
Speaker 1: so on. It has and you know, if the Federal
11:49
Speaker 1: Reserve was to be prompted to step in, they would
11:52
Speaker 1: they were going into similar challenges as what they had
11:55
Speaker 1: when they were asked to step in, specifically for the
11:57
Speaker 1: energy industry. And that's that DODGS frank includes their ability
12:01
Speaker 1: to address individual industries. And as we know from major announcements,
12:05
Speaker 1: whether it the American airlines are united, the layoffs are
12:07
Speaker 1: very much in place come September. Uh And as far
12:11
Speaker 1: as ourselves go, just this morning on the wires, we've
12:13
Speaker 1: got Marriott that had a big miss to its earnings,
12:15
Speaker 1: its top and bottom line. So again, I'm not sure
12:18
Speaker 1: how much can be addressed. Some of these are massive,
12:21
Speaker 1: massive companies that employ thousands upon thousands of people. I'm
12:26
Speaker 1: not sure what what what fiscal stimulus or monetary stimulus
12:29
Speaker 1: can do at this juncture. So, Danielle, as you think
12:32
Speaker 1: about just a broader economy, how important is it to
12:34
Speaker 1: get some fiscal stimulus out of Washington at this point
12:36
Speaker 1: it seems to be uh, not as clear cut as
12:39
Speaker 1: as the last round. Well, you know, it's interesting you
12:42
Speaker 1: ask it, certainly isn't Let's say that there's four hundred
12:45
Speaker 1: dollars and it arrived yesterday. It seems that there's obviously
12:48
Speaker 1: going to be very red tape delays, et cetera. You
12:51
Speaker 1: would still see, according to the Moody's Analytics recent study,
12:55
Speaker 1: you would still see an increase of six centered and
12:57
Speaker 1: sixty thousand in permanently employed. You would still see g
13:00
Speaker 1: peak take a hit at point eight three just from
13:02
Speaker 1: having that six hundred a week go to four hundred
13:05
Speaker 1: a week again, because we do have this growth in
13:08
Speaker 1: permanent employment. In Friday's jobs report, we saw that out
13:12
Speaker 1: of work want people who want to be working but
13:15
Speaker 1: it's been out of work for fifteen weeks or more,
13:17
Speaker 1: grew from eighteen point seven percent in June to forty
13:20
Speaker 1: eight point eight percent in July. So it looks like
13:24
Speaker 1: there's more sclerosis out there in the labor force, and
13:26
Speaker 1: that stimulus dollars need to get out there as soon
13:29
Speaker 1: as possible. Yeah, I mean, there's another fascinating story on
13:32
Speaker 1: the Roomberg today about them all of America and Bourbon
13:35
Speaker 1: Street and all of these places that are just you know,
13:38
Speaker 1: at levels of maybe fifteen percent of what they were
13:43
Speaker 1: a year ago. However, golf courses are humming again, and
13:47
Speaker 1: so are the nation's nonprofit food banks. So there's really
13:51
Speaker 1: a huge gap in this economy right now, more than
13:54
Speaker 1: we've ever seen possibly before. Danielle Right, it is the
13:59
Speaker 1: inequality divid you just give me goose stumps, Bohnny. It's
14:02
Speaker 1: the inequality divide that has been laid bare by this
14:05
Speaker 1: crisis is just enormous. I mean, obviously, the well heard
14:09
Speaker 1: going where the wealth it can go. They can easily
14:11
Speaker 1: socially distance on a golf course, and that's an easy
14:13
Speaker 1: enough thing to do. Um And you hear about certain
14:15
Speaker 1: kinds of super luxury travel that are doing well. But
14:18
Speaker 1: if you think about a restaurant's business model, restaurants tend
14:20
Speaker 1: to have maybe a week to two weeks of cash
14:22
Speaker 1: law on hand, and their business models are in the
14:24
Speaker 1: French quarter for example. That was a great story that
14:27
Speaker 1: was on the Bloomberg. Their their business models are predicated
14:30
Speaker 1: on having a line around the door, not having fifteen capacity.
14:34
Speaker 1: They could only hold on for so long, which is
14:37
Speaker 1: why I think we're seeing a lot of the survey
14:38
Speaker 1: data from Yelp and other providers show that they're expecting
14:41
Speaker 1: permanent closures in the restaurant industry, which is another huge employer.
14:45
Speaker 1: These are all such difficult, difficult things to read and
14:48
Speaker 1: hear about all right, Danielle, It's always wonderful to speak
14:50
Speaker 1: with you. That is Danielle new Martineau Booths, of course
14:53
Speaker 1: of Quill Intelligence, former Dallas advisor. Just repeat warding about
15:01
Speaker 1: Eastman Kodak. I pulled up the twelve months of trailing
15:03
Speaker 1: chart for the stock and it's in order to past
15:05
Speaker 1: twelve months, is traded between two three, maybe four dollars,
15:08
Speaker 1: and then just in the past a couple of weeks
15:10
Speaker 1: it shot up to about thirty four dollars per share. Uh,
15:14
Speaker 1: it's now down to ten point ten dollars and thirty
15:17
Speaker 1: eight cents per share. Just extraordinary volatility in the last
15:21
Speaker 1: couple of weeks. It's got a sense of what is
15:23
Speaker 1: going on there. We can do that with Eric newcomer
15:25
Speaker 1: Bloomberg Tech politics reporters. So Eric just set the stage
15:29
Speaker 1: force what caused the surge in this stock and then
15:34
Speaker 1: following up on that what calls it's big plunge here.
15:37
Speaker 1: You know, the Trump administration sort of came out of
15:40
Speaker 1: nowhere and said we're going to give Kodak a seven
15:44
Speaker 1: sixty five million dollar alone to transition this sort of
15:49
Speaker 1: camera printer company into a pharmaceutical manufacturing company. And so
15:55
Speaker 1: you know, we had Trump, we had Governor Cuomo, and work,
16:00
Speaker 1: we have Peter Navarro all coming out and saying, Okay,
16:02
Speaker 1: there's gonna be a big thing. And so then the
16:05
Speaker 1: stock takes off, you know, with the idea, oh, maybe
16:08
Speaker 1: there's this future for Kodak. We see a ton of
16:10
Speaker 1: excitement from the Wall Street that's type crowd, you know,
16:13
Speaker 1: it's just sort of a hot stock. And then all
16:16
Speaker 1: of a sudden there were questions about you know, share
16:19
Speaker 1: purchases from insiders, and then we got uh investigations out
16:24
Speaker 1: of Congress and the SEC. And now we have the
16:27
Speaker 1: agency that granted the loan saying actually, we're gonna put
16:31
Speaker 1: everything on hold until we get to the bottom. You know,
16:33
Speaker 1: everyone gets to the bottom of what want on here.
16:36
Speaker 1: So then the thing that pumped the stock up is
16:39
Speaker 1: now sort of not not looking to happen. So are
16:43
Speaker 1: there any actual workers at Kodak, you know, even if
16:47
Speaker 1: they're working remotely or from home at the moment, And
16:50
Speaker 1: if so, what are they doing? I Mean, Kodak has
16:53
Speaker 1: said that one to three percent of what they do
16:58
Speaker 1: their revenue right now comes from this pharmaceutical names. Actually,
17:02
Speaker 1: I mean that's from them, and i it's hard to say,
17:06
Speaker 1: you know, with coronavirus, especially sort of where that is. So,
17:10
Speaker 1: you know, I think it's a good question. Sort of
17:15
Speaker 1: we don't know a lot about sort of their capacity
17:17
Speaker 1: to produce these materials and sort of where they are
17:20
Speaker 1: to stay. But but that's sort of the stubt we
17:22
Speaker 1: have in terms of, you know, the share of revenue.
17:26
Speaker 1: So what do we know? Like Eric, how did this
17:28
Speaker 1: thing all come about? It was a shock to everybody
17:31
Speaker 1: here got a company. I mean, if you're gonna give
17:33
Speaker 1: a loan to a company to you know, create a
17:36
Speaker 1: vaccine or ppe, presumably the company is in that business already.
17:41
Speaker 1: So this seemed like a complete shock when had happened.
17:43
Speaker 1: Do we know where this idea emanated from? Who was
17:46
Speaker 1: pushing for it? Yeah? So, I mean it really came
17:50
Speaker 1: out of Peter Navarro's office, you know, in trade Um,
17:55
Speaker 1: and so he brought it to the International develop the
18:00
Speaker 1: Finance Corporation, which is a sort of new body that's
18:03
Speaker 1: mostly focused or pretty much exclusively focused on international development loans.
18:08
Speaker 1: But then as part of the Defense Production Act, was
18:12
Speaker 1: granted the ability to do some domestic loans to build
18:14
Speaker 1: up the pharmaceutical supply chain. So I mean, I think
18:18
Speaker 1: in the Trump administration's defense here, it was always going
18:22
Speaker 1: to be sort of a weird thing because the idea
18:25
Speaker 1: is to get the United States to do something it
18:26
Speaker 1: hasn't done. You know, it's how can we find a
18:28
Speaker 1: company that could perhaps get better pharmaceutical manufacturing so the
18:32
Speaker 1: US could have a better position. And then you look
18:34
Speaker 1: at Kodak, and it's just company with a great history,
18:37
Speaker 1: it works in chemicals, and to maybe sort of act
18:40
Speaker 1: and pivot that was that was sort of the idea.
18:42
Speaker 1: But but certainly there are a lot of questions about
18:44
Speaker 1: whether that's really something that could materialize. What can we
18:49
Speaker 1: tell about insider trading and by that I mean trading
18:54
Speaker 1: by people that are directors or management of the company. Yeah,
18:58
Speaker 1: so there were disclosures um around this deal with insiders,
19:04
Speaker 1: some board members buying shares right, so buying shares when
19:08
Speaker 1: the price was low and then obviously it's skyrocketed when
19:11
Speaker 1: they had this steal. And it seemed like in a
19:14
Speaker 1: period where it was quite possible that they would have
19:16
Speaker 1: known that this might happen um And you know, Kodak
19:21
Speaker 1: hasn't come out and said anything like that. They had
19:24
Speaker 1: a regular share purchase program. So there's certainly questions around,
19:28
Speaker 1: you know, what they knew and where they should have
19:30
Speaker 1: been buying shares. And then there were also disclosers around
19:35
Speaker 1: grants for some insiders that they could have, you know
19:41
Speaker 1: that it seemed like the board was saying, Okay, we
19:44
Speaker 1: sort of agreed to these grands, but now we're filing
19:46
Speaker 1: about it that obviously it seemed more valuable after the
19:52
Speaker 1: share price explodes because of the snaps. It's really a
19:56
Speaker 1: phenomenal story, Paul. I mean, the day that the headlines crossed,
20:00
Speaker 1: you know that suddenly it was going to become, yeah,
20:02
Speaker 1: pharmaceutic company. Even in part I know, it definitely reminded
20:05
Speaker 1: me of the days when when companies were becoming suddenly
20:09
Speaker 1: cryptocurrency companies. And so, yeah, the first thing I did
20:11
Speaker 1: when I saw the news, I went to the f
20:13
Speaker 1: A function or the PGeo function that gives you kind
20:16
Speaker 1: of breakdown by revenue, and I said, I didn't even
20:18
Speaker 1: know these guys were in the you know, pharmaceutical bass.
20:20
Speaker 1: It turns out they really aren't give well exactly, chemicals
20:24
Speaker 1: and pharmaceuticals are sometimes not the same thing. Our thanks
20:27
Speaker 1: to Eric Newcomer, Tech and Politics startup reporter here from
20:29
Speaker 1: Bloomberg News. A lot of stuff going on in the
20:34
Speaker 1: real estate spaces you can imagine here we're having you know,
20:37
Speaker 1: we had the retail industry bricks and mortar in secular
20:40
Speaker 1: decline prior to the pandemic. Then the pandemic just accelerated
20:43
Speaker 1: all of those trends and really rereaking havoc throughout the
20:47
Speaker 1: entire uh kind of space of a commercial real estate.
20:50
Speaker 1: Let's get some latest on that. We can do that
20:52
Speaker 1: with Iman, Rivan Low Rivan Lou, I'm sorry, the portfolio
20:55
Speaker 1: manager of High Income Equities and Global Rates for tc W. Iman,
20:59
Speaker 1: thanks so much for joining us here. There's some news that,
21:02
Speaker 1: for example, mall operator Simon Property Group is in talks
21:06
Speaker 1: with Amazon maybe turn some of their empty store space, um,
21:09
Speaker 1: you know into a fulfillment center. What's going on in
21:12
Speaker 1: the big malls and and and trying to deal with
21:14
Speaker 1: the uh, the outbreak of the pandemic and the impact
21:17
Speaker 1: on their business. Yeah, sure, thank you very much first
21:20
Speaker 1: for having me, Paul and Vanni. So, um, it's a
21:23
Speaker 1: very interesting phenomenon, you know, that that that you're referring to. So,
21:28
Speaker 1: you know, if we just take a step back and
21:29
Speaker 1: remember that these malls were built, you know, about forty
21:32
Speaker 1: or fifty years ago, and you know, at the time,
21:35
Speaker 1: you know, shops like Sears and J. C. Penny there
21:38
Speaker 1: were the premier retailers in the country, right. So the
21:41
Speaker 1: idea was that, you know, you would build the mall,
21:42
Speaker 1: you would bring you know, one of these great retailers,
21:45
Speaker 1: and you would generate some kind of network effect. You
21:49
Speaker 1: would attract other retailers along with put traffic, and you know,
21:52
Speaker 1: would have this virtual virtuous circle or cycle of shopping
21:58
Speaker 1: and and and a great experience. And you know, as
22:00
Speaker 1: you mentioned, you know, with e commerce and consumer preferences
22:04
Speaker 1: essentially moving away you know, from these retailers, we're beginning
22:07
Speaker 1: to see the online of that network effect. And so
22:10
Speaker 1: you know what I find stunning is, you know, originally
22:13
Speaker 1: the mall's response to to this, you know, to this
22:17
Speaker 1: loss was to try to convert or transform the space
22:20
Speaker 1: into something more of an experiential um uh you know
22:24
Speaker 1: um factor for the visitors, the traffic. So they would
22:28
Speaker 1: for example, they would shift the restaurants or theaters. And
22:31
Speaker 1: you know, now we're seeing that essentially with COVID, perhaps
22:34
Speaker 1: that equation is changing and perhaps they're throwing in a
22:36
Speaker 1: towel on that idea, and you know seeking you know,
22:40
Speaker 1: seeking other types of usage, specifically industrial and with Amazon
22:45
Speaker 1: coming in, so presumably Amazon will strike serious deals here.
22:50
Speaker 1: I mean, if they know that J. C. Penny sears
22:53
Speaker 1: they're not going to be filled with you know, their
22:56
Speaker 1: own items, then Amazon and used them for probably pennies
23:01
Speaker 1: on the dollar. Now, yes, funny, I think that's that's
23:05
Speaker 1: a very good deduction, you know, I think, um, when
23:08
Speaker 1: you think about it, from Amazon advantage. You know, the
23:10
Speaker 1: bottleneck in their operations has been the last mail delivery, right,
23:15
Speaker 1: so they've been seeking you know these great a you know,
23:17
Speaker 1: excellent locations and and let's face it, these malls, you know,
23:20
Speaker 1: many of them are are very well located, their near
23:23
Speaker 1: population centers. You know, they're close to freeways, very easily accessible. Um,
23:28
Speaker 1: so in some ways that they're kind of perfect, you know,
23:30
Speaker 1: for for a fulfilment center, distribution center. Now, you know,
23:34
Speaker 1: many of the boxes are a little bit smaller than
23:36
Speaker 1: then your typical um Amazon box or you know, Amazon
23:40
Speaker 1: I think likes to have somewhere in the vicinity of
23:43
Speaker 1: you know, eight hundred thousands, even a million, you know,
23:46
Speaker 1: square feet many of these J. C. Pennier series boxes
23:49
Speaker 1: are closer to a hundred and fifty or two hundred
23:51
Speaker 1: thousand square feet. But still, you know, in a in
23:53
Speaker 1: an area that is very supply limited, supply constraint, having
23:57
Speaker 1: access to these locations is really you know, going to
24:00
Speaker 1: benefit Amazon. And I think that your guests that they're
24:03
Speaker 1: going to get great economic side of these is probably
24:06
Speaker 1: a very good one because you know, what is the
24:08
Speaker 1: alternative from the advantage point of Simon and the mall owners.
24:12
Speaker 1: So yeah, I think it could be very lucutive for them.
24:14
Speaker 1: So give us just kind of overview of kind of
24:18
Speaker 1: you know, just commercial real estate. Um, you know, whether
24:21
Speaker 1: it's from the Reeds perspective. I mean, it just seems
24:23
Speaker 1: like the trends that we saw prior to the pandemic
24:26
Speaker 1: are just on an accelerated mode right now. And it's
24:29
Speaker 1: hard to paint a bullish call here, is it. No.
24:33
Speaker 1: I think you're right, Paul. You know, it's it really
24:36
Speaker 1: does depend on the specific stuff stuff factor within commercial
24:39
Speaker 1: real estates. Um. You know, there are certainly those those
24:42
Speaker 1: parts of it that I've prived. You know, we were
24:45
Speaker 1: talking about the industrial space. You know, we should remember
24:48
Speaker 1: that those landlords have done quite well. You know, companies
24:51
Speaker 1: like pologists, um, you know, that entire ecosystem. Additionally, uh,
24:56
Speaker 1: you know, data centers, powers, you know, as as work
24:59
Speaker 1: from home models have been successful. You know, those companies
25:01
Speaker 1: have thrived, and it has really come at the expanse
25:04
Speaker 1: of you know, those that are more central being located
25:07
Speaker 1: near the epicenter of the you know, of the pandemic.
25:10
Speaker 1: You know, things like retail um you know, things like hotels,
25:13
Speaker 1: lodging and so on that that have really been been
25:16
Speaker 1: pressured and we envisioned that that pressure is going to continue.
25:19
Speaker 1: By the way, and I think that these are parts
25:21
Speaker 1: of as you mentioned, longer term secular trends that have
25:24
Speaker 1: been impacting real estate that are not being accelerated because
25:27
Speaker 1: of Yeah, I mean, what do you do when you
25:31
Speaker 1: invest in these things and what is the next thing
25:34
Speaker 1: that might replace you know, these investment dollars for you
25:39
Speaker 1: you know, it's it's a great question, and we spend
25:41
Speaker 1: a lot of time, you know, thinking about these trends.
25:43
Speaker 1: You know, we find that real estate, like like all
25:47
Speaker 1: of the sectors, does evolve, you know, even those perceived
25:50
Speaker 1: to be very stable. You know, that's part of the
25:52
Speaker 1: draw of it is you're supposed to have very stable
25:54
Speaker 1: rents and you know, and and high visibility, and yet
25:58
Speaker 1: you know, what you're seeing on folds here is fantastically opposite, right.
26:01
Speaker 1: I mean, those those owners of our shareholders in fiement
26:05
Speaker 1: or the retail reads thought that had visible rents and
26:08
Speaker 1: and sure enough now you see the disruption. So we
26:10
Speaker 1: spend a lot of time in thinking about the secular trends,
26:13
Speaker 1: you know, that are that are hitting the market. You know,
26:15
Speaker 1: so two of the easy ones are the ones that
26:17
Speaker 1: we're experiencing right now. E commerce, we touched on a
26:21
Speaker 1: big data and mobility, you know, that's the work from
26:23
Speaker 1: home success, you know, things like data centers and towers.
26:26
Speaker 1: But what are the secular trends that are perhaps in
26:29
Speaker 1: their nacency right now, you know, we we spend sometimes
26:32
Speaker 1: thinking about those. What will the impact of driver realist
26:35
Speaker 1: technology be? UM Artificial intelligence is a very large trend
26:39
Speaker 1: that is impacting other segments of the market. You know,
26:41
Speaker 1: what would the impact of that on on real estate be?
26:44
Speaker 1: And it's oftentimes we find that these are the forces
26:47
Speaker 1: that really shape you know, the winners and losers of
26:49
Speaker 1: you know, ten years from now and it's only you know, manifested,
26:53
Speaker 1: you know, in a couple of years. Well, we're definitely
26:56
Speaker 1: going to follow that story. Amen, Thank you for coming
26:58
Speaker 1: on and giving us your intelligence. Emon Rivan Lully's pm
27:02
Speaker 1: PIE Income Equities and Global Rates. Thanks for listening to
27:06
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
27:10
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. I'm
27:14
Speaker 1: Bonnie Quinn. I'm on Twitter at Bonnie Quinn. And Paul
27:17
Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
27:20
Speaker 1: you can always catch us worldwide at Bloomberg Radio