Latest / Bloomberg Intelligence / Trump Visa Crackdown Could Ship Work Offshore, Anurag Rana Says

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Trump Visa Crackdown Could Ship Work Offshore, Anurag Rana Says · Bloomberg Intelligence

• 0:04
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether at the grocery store or
• 0:16
  Speaker 1: the trading floor. Find the Bloomberg P L Podcast on iTunes,
• 0:20
  Speaker 1: SoundCloud and at Bloomberg dot com. While the trucks began
• 0:29
  Speaker 1: arriving before daybreak on Monday outside of Federal Building in
• 0:34
  Speaker 1: Orange County, the trucks were carrying thousands and thousands of
• 0:39
  Speaker 1: applications for H one B VISs. Well, this year it
• 0:43
  Speaker 1: might be just slightly different for many of the companies
• 0:45
  Speaker 1: seeking to hire people under the H one B VISA program.
• 0:48
  Speaker 1: And here to tell us about it is A rag Rana,
• 0:51
  Speaker 1: our senior analyst of Software and I T Services for
• 0:54
  Speaker 1: Bloomberg Intelligence. On a rag Let's begin with a definition
• 0:58
  Speaker 1: of what the H one B one VISA program is
• 1:01
  Speaker 1: designed to do and then tell us about some of
• 1:04
  Speaker 1: the confrontations around this program. Yeah, the basic premises that
• 1:09
  Speaker 1: if you are looking for a highly skilled person and
• 1:12
  Speaker 1: you are not able to find it locally, then you
• 1:15
  Speaker 1: would use this program to bring somebody from outside. Now
• 1:18
  Speaker 1: this is also used for students extensively. It's all and
• 1:22
  Speaker 1: but the biggest controversy I would say is that the
• 1:26
  Speaker 1: opponents of this plan are saying that this these visas
• 1:29
  Speaker 1: are being used by i T services companies from India
• 1:33
  Speaker 1: to bring largely from India and other areas, also to
• 1:36
  Speaker 1: bring um, you know, engineers at a much lower cost
• 1:39
  Speaker 1: and displaced workers. So that's really the controversy or the
• 1:43
  Speaker 1: or the issue around it. So that so just to
• 1:47
  Speaker 1: put this into perspectives of the use of administration under
• 1:50
  Speaker 1: President Trump just made a change to basically double check essentially,
• 1:55
  Speaker 1: if I'm understanding this correctly, applicants to get h one
• 1:59
  Speaker 1: P visas. How much does this shift change the game?
• 2:04
  Speaker 1: This one does not change you know, a whole lot
• 2:06
  Speaker 1: in my view. If when we looked at this thing
• 2:09
  Speaker 1: after the elections, we thought there would be a lot
• 2:11
  Speaker 1: more stricter regulations, maybe on the you know, on the
• 2:15
  Speaker 1: on the salary minimums or possibly you know, something which
• 2:19
  Speaker 1: we saw a couple of years ago. There was a
• 2:22
  Speaker 1: there was a clock call called the class called the
• 2:24
  Speaker 1: outplacement clause, which prevented companies I T outsourcing companies to
• 2:29
  Speaker 1: bring in people and then put it at somebody else's
• 2:32
  Speaker 1: site to work. But none of those things have happened.
• 2:34
  Speaker 1: And in fact, UM, you know, perhaps they're still working on,
• 2:38
  Speaker 1: you know, coming up with a new order for the
• 2:40
  Speaker 1: next filing season, but for this filing season, which you
• 2:44
  Speaker 1: know is ongoing right now, it doesn't look like it's
• 2:46
  Speaker 1: going to have that big of an effect. Just to
• 2:48
  Speaker 1: put it into context, sixty five thousand, h one b
• 2:53
  Speaker 1: visas are available to workers that have bachelor's degrees. Twenty
• 2:58
  Speaker 1: thousand additional visas are available with those with master's degrees.
• 3:02
  Speaker 1: But I like the number of people that applied last year,
• 3:06
  Speaker 1: two hundred and thirty six thousand people applied for what
• 3:11
  Speaker 1: are arguably eighty five thousand places. Yeah, one of the
• 3:15
  Speaker 1: things I think this will happen this time would be
• 3:17
  Speaker 1: kind of a mixed shift in the in the kind
• 3:20
  Speaker 1: of applications that go in UM. In the prior years,
• 3:24
  Speaker 1: a large portion of these applications were made by I
• 3:26
  Speaker 1: T services companies, but this time they have said themselves
• 3:30
  Speaker 1: that they're not going to be filing for a lot
• 3:32
  Speaker 1: of these visas UM, which will give let's say that
• 3:35
  Speaker 1: the you know, the likes of Microsoft, Apple, Google, uh,
• 3:40
  Speaker 1: you know, more visas to file from, so their portion
• 3:42
  Speaker 1: of this whole pool may increase into this season compared
• 3:45
  Speaker 1: to the last several seasons. Do we have visibility into
• 3:49
  Speaker 1: just how dominant with respect to H one visas the
• 3:52
  Speaker 1: lower wage kind of more road to workers are in
• 3:57
  Speaker 1: other words, how much how many of these jobs, how
• 4:00
  Speaker 1: many of these visas are going to people who are
• 4:01
  Speaker 1: doing work that isn't as specialized as you would think
• 4:05
  Speaker 1: given the parameters set out by by the idea. At least,
• 4:08
  Speaker 1: you know, the salary minimum is about sixty dollars or so,
• 4:12
  Speaker 1: so it's not really anything a below that. Usually a
• 4:15
  Speaker 1: lot of them have technology background or a science background,
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  Speaker 1: so you would have you know, some kind of a
• 4:20
  Speaker 1: bachelor's degree for sure. Now it could be people with finance,
• 4:23
  Speaker 1: or it could be actually any degree. But one of
• 4:26
  Speaker 1: the things that happens, and I don't think people realize
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  Speaker 1: this when you're when you're filing for an h N and
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  Speaker 1: and B, you have to go through a labor certification process,
• 4:33
  Speaker 1: which means for that particular job posting, you have to
• 4:36
  Speaker 1: go to the Department of Labors database to see how
• 4:39
  Speaker 1: much is that person getting paid, and you have to
• 4:42
  Speaker 1: make sure it's not below that certain amount. Now, let's
• 4:45
  Speaker 1: say that you know, I'm just making this up. Let's
• 4:47
  Speaker 1: say software engineer one is getting paid somewhere between seventy
• 4:50
  Speaker 1: five and eighty five thou dollars. The company might decide
• 4:53
  Speaker 1: to pay that person on the lower end, but they
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  Speaker 1: can't just pay them twenty dollars and you know completely,
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  Speaker 1: you know, bypass the whole system. That's not possible. And
• 5:03
  Speaker 1: for a lot of the I T services companies, even
• 5:05
  Speaker 1: if they pay at the lower end, let's say between
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  Speaker 1: this band, if you add the visa application cost and
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  Speaker 1: the cost to bring them from an offshore location to
• 5:13
  Speaker 1: the US, the net cost is the same. The big
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  Speaker 1: issue over here is, at least for engineering and science,
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  Speaker 1: we have a massive shortage of those people in the US.
• 5:22
  Speaker 1: You also have a shortage of those people in research institutions. Correct, absolutely,
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  Speaker 1: But there are certain nonprofits and other areas they can
• 5:31
  Speaker 1: actually fall into a different visa category, so they might
• 5:34
  Speaker 1: not be, you know, part of that same pool. Top
• 5:36
  Speaker 1: recipients of these visas are Tata Consultancy Services, Infosis, and
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  Speaker 1: whip Pro, all based in India. Although I will say
• 5:46
  Speaker 1: it's very hard to know who the real beneficiaries are
• 5:48
  Speaker 1: because those are outsourcing companies and it's unclear where exactly
• 5:51
  Speaker 1: they're going to place some of their staff. Correct. I
• 5:55
  Speaker 1: mean they could end up at a big bank or
• 5:57
  Speaker 1: you know somewhere or something like that. So there are
• 5:59
  Speaker 1: two pieces of it. One is large banks have been
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  Speaker 1: outsourcing their ID divisions for multiple yers for fifteen twenty
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  Speaker 1: years now, so they're skeleton you know, they're on I
• 6:08
  Speaker 1: T departments on a skeleton basis, and some of these
• 6:12
  Speaker 1: companies are working on their behalf. Second thing, there is
• 6:16
  Speaker 1: a ratio of what we call an onshore offshore ratio,
• 6:19
  Speaker 1: where if you have a legacy I T project, that
• 6:24
  Speaker 1: work is done in an in a low cost country
• 6:26
  Speaker 1: and thirty in the high cost One of the unintended
• 6:30
  Speaker 1: consequence of something like this could be you could ship
• 6:33
  Speaker 1: all of that work off shore because with communications with
• 6:36
  Speaker 1: high connectivity, you really don't need to be sitting at
• 6:39
  Speaker 1: that client's location to do some work. Now, if you're
• 6:42
  Speaker 1: looking at some emerging technology work, whether cloud or analytics,
• 6:46
  Speaker 1: you would still require a high on site presence. But
• 6:50
  Speaker 1: if pressure like this continues, I expect a lot portion
• 6:54
  Speaker 1: of some legacy work to go more offshore. Than then
• 6:58
  Speaker 1: then what's intended to so may have unintended consequences, maybe
• 7:02
  Speaker 1: the exact opposite of what the current administration is hoping
• 7:05
  Speaker 1: to do with the H one b vs A program. Yes,
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  Speaker 1: because I don't think any bank is going to spend
• 7:09
  Speaker 1: more money on it than they are currently doing right now,
• 7:12
  Speaker 1: that that growth rate is not going to be very
• 7:14
  Speaker 1: good operate, But just to be clear, to reiterate your
• 7:16
  Speaker 1: point from earlier, this particular change won't necessarily move the
• 7:21
  Speaker 1: needle that much, but it's sort of proceeds. What could
• 7:24
  Speaker 1: be something that would be more substantial, substantive and have
• 7:27
  Speaker 1: a more significant effect. Correct, Yeah, that could be. That's possible.
• 7:30
  Speaker 1: An Grana, thank you so much for joining us. Always
• 7:32
  Speaker 1: a pleasure on our Granda is senior analyst of software
• 7:35
  Speaker 1: and I T Services here at Bloomberg Intelligence. A battle
• 7:51
  Speaker 1: against Amazon in the vending machine business. Tom Mern is
• 7:55
  Speaker 1: the founder and the chief executive of Via Touch Media,
• 7:59
  Speaker 1: and he joins us now to explain his effort to
• 8:03
  Speaker 1: push Amazon aside. Tom Urin, thanks very much for being
• 8:06
  Speaker 1: with us. Thank you, good morning, good morning. You know,
• 8:09
  Speaker 1: I was looking at some information about vending machines because
• 8:11
  Speaker 1: this is the topic at hand, and I noted. You know,
• 8:14
  Speaker 1: Japan of course has this love of vending machines, and
• 8:18
  Speaker 1: you can buy Umbrella's eggs, surgical masks, you can even
• 8:22
  Speaker 1: buy puppies from a vending machine. Now, I know you're
• 8:25
  Speaker 1: not gonna go this far, but okay, right headline, right headline,
• 8:32
  Speaker 1: tell us about your your business and how you put
• 8:36
  Speaker 1: this together and what you're trying to accomplish. Oh sure,
• 8:39
  Speaker 1: so we You know, we're a local New York company
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  Speaker 1: doing Manhattan and Connecticut and Long Island UM for years,
• 8:47
  Speaker 1: so a lot of experience in major companies City Bank, Goldman, Sachs,
• 8:52
  Speaker 1: Home Depot, Costco UM. So you know, we get a
• 8:55
  Speaker 1: lot of feedback from what people wanted and the old
• 9:00
  Speaker 1: experience and vending where you kind of have to bend
• 9:02
  Speaker 1: down put your hand through a door. Uh, that's not
• 9:05
  Speaker 1: what people liked anymore. They were looking more for the
• 9:09
  Speaker 1: experience they get every day they can open a door,
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  Speaker 1: pick up a product, look at it, then decide if
• 9:14
  Speaker 1: they want to buy it, you know, not have to
• 9:15
  Speaker 1: be stuck with what you know, they pushed the button.
• 9:18
  Speaker 1: So we developed technology where through biometrics, through your thumb
• 9:25
  Speaker 1: or Apple pay, you can open the door, look at
• 9:27
  Speaker 1: the item, decide if you like it. If you close
• 9:30
  Speaker 1: the door, you've now purchased it. And then we also
• 9:33
  Speaker 1: added media where when you pick up an item, we
• 9:36
  Speaker 1: deliver content about the item in your hand. So you're
• 9:39
  Speaker 1: not seeing media about things you don't care about, your
• 9:41
  Speaker 1: seeing media about the item you've picked up. So, Tom,
• 9:43
  Speaker 1: I mean, is this is this what's old is new again?
• 9:46
  Speaker 1: I mean, is this sort of like a return of
• 9:48
  Speaker 1: the automat where all of a sudden there's this future
• 9:52
  Speaker 1: of the new real world of just you know these
• 9:54
  Speaker 1: doors line wall to wall doors that you could open
• 9:57
  Speaker 1: up and get stuff. Uh, I mean, I guess in
• 10:00
  Speaker 1: one respect, yes, you know, sometimes returning to old is
• 10:04
  Speaker 1: what what works. But when we take the Internet of
• 10:07
  Speaker 1: Things and bring technology and today to it. So the
• 10:11
  Speaker 1: difference between that on this one, if you use your thumb,
• 10:14
  Speaker 1: we know it's you. We say like two would say hi,
• 10:17
  Speaker 1: it does say. It says hi hi Tom, when I
• 10:18
  Speaker 1: opened the door, and then it kind of remembers over
• 10:21
  Speaker 1: time which you buy and it makes different offers based
• 10:24
  Speaker 1: on it. It's an IoT device, so it's connected all
• 10:27
  Speaker 1: the time. And that's our lease of version, our Vicky version,
• 10:30
  Speaker 1: which comes out in August, has artificial intelligence in it
• 10:34
  Speaker 1: where as you pick, but you can have a two
• 10:36
  Speaker 1: way conversation about the item. So I don't think the
• 10:38
  Speaker 1: automats did that give us a little detail of how
• 10:41
  Speaker 1: much the machines cost and how they're all networked and
• 10:45
  Speaker 1: connected to your supply chain. Okay, so, uh, they are
• 10:49
  Speaker 1: all network there on the you know, the web based,
• 10:52
  Speaker 1: so they do communicate to each other. Um, they retail
• 10:57
  Speaker 1: for seven thousand. If somebody bought one, and I am
• 11:00
  Speaker 1: they dropped a little five thousand. How much interest have
• 11:03
  Speaker 1: you got? How many? How big is your business? Um? Well,
• 11:07
  Speaker 1: my present vending business is about forty million in sales
• 11:10
  Speaker 1: UM in this category. Um, it's we're getting calls worldwide. Um,
• 11:16
  Speaker 1: there's no one that we brought it to. In the
• 11:18
  Speaker 1: prototype version, we sold a quarter million of prototypes and
• 11:21
  Speaker 1: we didn't even want to sell them. UM. Quarter million dollars,
• 11:24
  Speaker 1: not a quarter million units and just gathering information, research
• 11:28
  Speaker 1: and development, um and any when we've brought it, they
• 11:33
  Speaker 1: want it food as a vending machine item, specifically coffee.
• 11:39
  Speaker 1: Is that the high margin business you want to be in? Uh, well,
• 11:43
  Speaker 1: we're looking to change it. It's like autal retail. So
• 11:45
  Speaker 1: it's a great question. Coffee is definitely something we're interested in,
• 11:48
  Speaker 1: like selling curis and things like that, so people can
• 11:52
  Speaker 1: UM swipe their card or again, like I said, you'll
• 11:54
  Speaker 1: be able to UM look at the machine and it
• 11:58
  Speaker 1: will recognize your eye believe or not. The door open,
• 12:01
  Speaker 1: So we want to we want to be able to
• 12:03
  Speaker 1: open it during let the let the supplier decide what
• 12:06
  Speaker 1: they want to sell. UM. You know curates disappear in
• 12:09
  Speaker 1: our machine. They would not because as you take it out,
• 12:12
  Speaker 1: you paid for it. So the things that get left
• 12:15
  Speaker 1: out in the past UM will be now counted. It
• 12:18
  Speaker 1: Autal inventories itself through cameras and sensors, so it virtually
• 12:23
  Speaker 1: eliminates stuff. So Tom, how big do you think this
• 12:26
  Speaker 1: business could get? UM in the billions? So it's not
• 12:30
  Speaker 1: going to take on Amazon, but it might be a
• 12:33
  Speaker 1: way for some investors to or some some retailers to
• 12:37
  Speaker 1: at least uh cater to people's wish to just get
• 12:41
  Speaker 1: stuff on demand to and sort of be able to
• 12:43
  Speaker 1: pull it out and not have to deal with a
• 12:44
  Speaker 1: human being. Yes, it's it's that, or you can it
• 12:48
  Speaker 1: can take on Amazon in a way that the unit.
• 12:51
  Speaker 1: Since they're online, you can see what inventories wear and
• 12:54
  Speaker 1: we can direct you so you don't have to wait overnight.
• 12:57
  Speaker 1: You don't have to wait till the next day. Do
• 12:58
  Speaker 1: I have it? What's the close unit? Where can I
• 13:01
  Speaker 1: pick it up? Um? Not? Not? You know, not everybody
• 13:04
  Speaker 1: can get a package delivered to them they're not home.
• 13:08
  Speaker 1: You know, there's a large population. Even New York City
• 13:10
  Speaker 1: doesn't have dormant um. So it opens a whole new
• 13:14
  Speaker 1: market of um. You know, maybe I want to pick
• 13:17
  Speaker 1: up something and not, you know, not everybody know I'm
• 13:20
  Speaker 1: getting it. It's a surprise gift or something. So uh,
• 13:23
  Speaker 1: it enables the small guy to go into business, you know.
• 13:27
  Speaker 1: Tom Martin, thank you so much for joining us, founder
• 13:30
  Speaker 1: and chief executive officer of via Touch Media based in
• 13:33
  Speaker 1: New York City. Talking about the vending machine and we're
• 13:35
  Speaker 1: all going to see automats springing up all of it.
• 13:38
  Speaker 1: I just like the name, Lisa tam you said. Now
• 13:54
  Speaker 1: you know. In December, then President Barack Obama he signed
• 13:57
  Speaker 1: legislation that ended in nearly forty year ban on the
• 14:01
  Speaker 1: export of crude oil from the United States. The US
• 14:04
  Speaker 1: currently produces over nine million barrels of oil a day.
• 14:08
  Speaker 1: And here tell us more about the oil and energy
• 14:10
  Speaker 1: sector is John Grotten. He is a director of equity
• 14:13
  Speaker 1: research at a thrive Vent asset Management, helping to manage
• 14:17
  Speaker 1: more than fifteen billion dollars. He's based in Minneapolis, but
• 14:20
  Speaker 1: he joins us here in our studio. John, thank you
• 14:23
  Speaker 1: very much for being with us. Give people the picture
• 14:26
  Speaker 1: of the US oil production and how it fits in
• 14:29
  Speaker 1: to the different refinery It's parts of the story because
• 14:34
  Speaker 1: it's different kinds of crude require different kinds of refining processes.
• 14:39
  Speaker 1: That's right, Pam, thank you for having me. US production
• 14:42
  Speaker 1: is incredibly important right now to global balances. During the
• 14:45
  Speaker 1: down cycle that started in two thousand fourteen and continue
• 14:49
  Speaker 1: through two thousand and sixteen, production dropped off over one
• 14:51
  Speaker 1: million barrels per day. That is now starting to rebound.
• 14:55
  Speaker 1: Demand globally is robust. It's up one point for million
• 14:58
  Speaker 1: barrels per day, and we expect that to go for ward.
• 15:00
  Speaker 1: In the US, supply is an important component to make
• 15:03
  Speaker 1: sure that demand is is adequately compensated for. There is
• 15:08
  Speaker 1: some concern amongst investors, and this is one reason why
• 15:10
  Speaker 1: energy stocks have not been terrific so far this year
• 15:13
  Speaker 1: is that we're growing production too fast. We'll see how
• 15:16
  Speaker 1: that goes. Some of the data that's been shared so
• 15:19
  Speaker 1: far from the Department of Energy it doesn't look to
• 15:21
  Speaker 1: be as robust as some of the companies are talking about.
• 15:24
  Speaker 1: So we do have demand growth that will continue. We
• 15:28
  Speaker 1: can talk about OPEC separately, but to your question directly,
• 15:32
  Speaker 1: the US supply is very, very important. You do bring
• 15:34
  Speaker 1: up an important point also, though there's different kinds of cruise,
• 15:37
  Speaker 1: there's actually dozens of different varieties and they have different characteristics.
• 15:42
  Speaker 1: Our refining system is optimized to to burn and distill
• 15:46
  Speaker 1: more complicated, heavier crudes, whereas most of our new production
• 15:50
  Speaker 1: is like crudes. And that's one reason why we are
• 15:52
  Speaker 1: exporting for the first time in decades is that we
• 15:56
  Speaker 1: produced the wrong kind of crude for what our refineries you.
• 16:00
  Speaker 1: So it's a little bit of an odd dynamic that
• 16:02
  Speaker 1: we're both an importer and an exporter at the same time.
• 16:05
  Speaker 1: And that's the key reason why that the difference in
• 16:07
  Speaker 1: crude that that our refiners require. Yeah, Jason Shanker of
• 16:12
  Speaker 1: Prestige Economics actually wrote a column for bloom Review on
• 16:15
  Speaker 1: exactly this issue, that perhaps we're looking at the wrong
• 16:17
  Speaker 1: inventory data because of just what you're talking about. That
• 16:20
  Speaker 1: people overestimate just how much the stockpiles have grown and
• 16:24
  Speaker 1: aren't considering exactly what you're talking about, which is the
• 16:27
  Speaker 1: light crude um. You know you oversee about fifteen billion
• 16:30
  Speaker 1: dollars of assets at thrive in right um. How are
• 16:34
  Speaker 1: you positioning and how have you changed your position with
• 16:37
  Speaker 1: respect to energy related companies in the wake of some
• 16:41
  Speaker 1: of the bouncing around of the oil price this year,
• 16:43
  Speaker 1: as well as so such diverse speculation with some people
• 16:47
  Speaker 1: saying it's poised for another crash and other people saying
• 16:49
  Speaker 1: we're headed toward eighty dollars a barrel. To be precise,
• 16:52
  Speaker 1: the fifteen billion dollars is for a mutual fine group
• 16:55
  Speaker 1: Thriving Financial and total has over one billion dollars in
• 16:57
  Speaker 1: asset under management. As far as what we're doing an
• 17:00
  Speaker 1: energy we are positively biased towards it. We are an
• 17:04
  Speaker 1: investment organization. We look out two and three years, not
• 17:07
  Speaker 1: two in three months, and with that especially our view
• 17:10
  Speaker 1: of where supply demand will be in twenties favorable. Having
• 17:14
  Speaker 1: said that, we don't get too far away from our benchmarks.
• 17:17
  Speaker 1: So most of our work. Especially in some of our
• 17:20
  Speaker 1: our balanced funds. We tend to stay close to sector
• 17:23
  Speaker 1: neutral and we fancy ourselves stock stock pickers, and our
• 17:27
  Speaker 1: own attribution show that's that's where we've done bestins picking stocks.
• 17:31
  Speaker 1: So we do have a positive energy view. But having
• 17:33
  Speaker 1: said that, we don't make a massive bet in any sector.
• 17:37
  Speaker 1: That's just our how we managed funds regardless of the sector.
• 17:42
  Speaker 1: Increases in production in this high quality crew that you're
• 17:45
  Speaker 1: talking about comes mainly where from Texas, from the Permian
• 17:48
  Speaker 1: and the Eagle Forward basin. If you're an investor and
• 17:51
  Speaker 1: you want to participate, what do you do? That's correct.
• 17:54
  Speaker 1: The biggest increases are from the Permian basin. Activity will
• 17:57
  Speaker 1: pick up in the Eagleford in South Texas as well
• 17:59
  Speaker 1: as the Box in Shail in North Dakota, close to
• 18:01
  Speaker 1: our hometown. But the Permian really is a driver, and
• 18:04
  Speaker 1: the reason for that is it's been around for fifty
• 18:07
  Speaker 1: plus years, but it's a layer cake of different geologic
• 18:10
  Speaker 1: formations that are still being explored. So we still have
• 18:12
  Speaker 1: the upside for companies that operate there. That's less of
• 18:15
  Speaker 1: the case in Eagleford and Baking. Every oil play has
• 18:18
  Speaker 1: a life cycle, whether it's ontore offshore conventional unconventional baking.
• 18:23
  Speaker 1: Eagle Ford are further along in that life cycle, but
• 18:25
  Speaker 1: Permian it's still early. So two of our favorite exploration
• 18:27
  Speaker 1: companies do operate in the Permian. One Pioneer Natural Resources,
• 18:31
  Speaker 1: second Parsley Energy. Curious thing is the CEO of Parsley
• 18:35
  Speaker 1: Energy is the son of the chairman of Pioneer Natural
• 18:37
  Speaker 1: Resources and the family has been working in the basin
• 18:40
  Speaker 1: for literally since nineteen sixty six. Predecessor organizations a Pioneer,
• 18:44
  Speaker 1: so they have an advantage in that they have worked there,
• 18:47
  Speaker 1: they know the rocks better, they have cheap releases. Some
• 18:50
  Speaker 1: other companies are paying thirty to thirty five thou dollars
• 18:53
  Speaker 1: per acre for rights to drill. Pioneer doesn't have an
• 18:56
  Speaker 1: issue because they've already been there, so they have a
• 18:58
  Speaker 1: permanent advantage and there's a key reason why that's one
• 19:01
  Speaker 1: of our favorite companies. John, you know you live, you
• 19:04
  Speaker 1: said near North Dakota and some of the drilling boom
• 19:07
  Speaker 1: that we we here talk about, how has the area
• 19:10
  Speaker 1: changed in the past ten years? Um Western North Dakota,
• 19:13
  Speaker 1: it's completely different. UM rigcount went from twenty riggs drilling
• 19:18
  Speaker 1: for oil to two back to twenty, so it was
• 19:21
  Speaker 1: a Western boom town. Unfortunately, this industry always cycles. Some
• 19:26
  Speaker 1: people talk about new normals of lower prices. We don't
• 19:29
  Speaker 1: accept that argument. Energy is all as a cyclical industry,
• 19:32
  Speaker 1: and now we're coming out of one of those down cycles.
• 19:36
  Speaker 1: So the backing will pick up from where it is currently.
• 19:39
  Speaker 1: Recounts are increasing, but that one, like I said, the
• 19:43
  Speaker 1: life cycle of what's available in the backing is a
• 19:46
  Speaker 1: little bit longer in the tooth, and when that happens,
• 19:49
  Speaker 1: the rocks can only give you so much oil. It
• 19:51
  Speaker 1: doesn't matter how much better the technology gets. The industry
• 19:55
  Speaker 1: is fantastic. The engineers are brilliant, the scientists are brilliant.
• 19:59
  Speaker 1: Even the guys out the rake hands, drilling wheels, they're
• 20:02
  Speaker 1: always getting better and better. But there's you can't squeeze
• 20:04
  Speaker 1: blood from a turn up, and you're running out of
• 20:06
  Speaker 1: time with um in the back in particularly what opportunity
• 20:10
  Speaker 1: remains there. You can't squeeze a blood out of a
• 20:13
  Speaker 1: sugar beet. I used to live in farther North Dakota,
• 20:15
  Speaker 1: and I've heard a lot from my former co workers
• 20:18
  Speaker 1: how much it has changed. So it's interesting. I wonder
• 20:20
  Speaker 1: how the boom and the bust and you know, has
• 20:23
  Speaker 1: has affected the whole area. Really fascinating stuff. Thank you
• 20:26
  Speaker 1: so much for joining us, John Grotten, director of equity
• 20:29
  Speaker 1: researcher Thrive into Asset Management. We're spending a lot of
• 20:43
  Speaker 1: time talking about US and job growth there and political
• 20:46
  Speaker 1: developments here in South Africa. There is a and has
• 20:50
  Speaker 1: been a pretty dramatic situation unfolding with a quite a
• 20:53
  Speaker 1: bit of political turmoil going on there and SMP downgrading
• 20:57
  Speaker 1: that nation to junk. This matter are is tremendously to
• 21:01
  Speaker 1: the global bond markets, since this country has one point
• 21:04
  Speaker 1: seven trillion dollars of outstanding obligations. To get better perspective
• 21:07
  Speaker 1: on what the implications are, I want to bring in
• 21:09
  Speaker 1: Damien Sassaur, who is a fixed income strategist for Bloomberg
• 21:12
  Speaker 1: Intelligence and is here with us. Uh Damien, what do
• 21:15
  Speaker 1: you make of this? I mean, do you do you
• 21:17
  Speaker 1: think that the market was just surprised by some of
• 21:20
  Speaker 1: the political turmoil? Why? Why was there such a rapid
• 21:22
  Speaker 1: sell off in the bonds and uh as a pretty
• 21:26
  Speaker 1: substantial move in the currency as well. Yeah no, I mean,
• 21:29
  Speaker 1: thank you lie so well. Um, I don't think the
• 21:31
  Speaker 1: markets with that surprise. Quite frankly, I think a lot
• 21:33
  Speaker 1: of this was priced in. I think what did surprise
• 21:35
  Speaker 1: UM bond investors, certainly hard currency Emerging market bond investors,
• 21:39
  Speaker 1: is that SMP maintained its negative outlook and then just
• 21:42
  Speaker 1: today this morning, Moody's UM put put the country on
• 21:45
  Speaker 1: review for they put them on negative credit watch. So
• 21:49
  Speaker 1: that implies that at some point of the next one
• 21:51
  Speaker 1: to three months Moody's as well maybe downgrading UM the
• 21:54
  Speaker 1: country's UM issue or ratings. So so, yeah, I think
• 21:58
  Speaker 1: markets are trying to digest the at that, you know, fundamentally,
• 22:01
  Speaker 1: the economic situation in South Africa's deteriorating. The President of
• 22:05
  Speaker 1: South Africa, Jacob Zuma, fired the finance minister, Prava Gord him.
• 22:13
  Speaker 1: Why did that take place and what are the implications? Sure, well,
• 22:16
  Speaker 1: I mean Gordon UM and Zuma had been feuding for
• 22:20
  Speaker 1: some time UM. I think, you know, more recently it
• 22:24
  Speaker 1: was over the management of state owned companies and quite
• 22:26
  Speaker 1: frankly the affordability of nuclear power plants. UM. But far
• 22:31
  Speaker 1: be it from me to kind of comment on that.
• 22:32
  Speaker 1: I think what is sort of you know, being kind
• 22:35
  Speaker 1: of pushed under the rug is the replacement. Melussy Gegaba
• 22:39
  Speaker 1: was the former Home Affairs minister and she has very
• 22:41
  Speaker 1: little experience in finance. And so now it's about, you know,
• 22:45
  Speaker 1: the credibility of the South African government and of the
• 22:49
  Speaker 1: the finest ministry to you know, implement policy, you know,
• 22:53
  Speaker 1: Davy And I'm struck by this sort of divergence, divergence
• 22:57
  Speaker 1: in sentiment between what's going on right now in South
• 22:59
  Speaker 1: after Africa and the repercussions in the nation's securities, paired
• 23:04
  Speaker 1: with the incredible rush to emerging market stat which we've
• 23:07
  Speaker 1: seen pretty dramatically this year. It's been a record quarter
• 23:10
  Speaker 1: of issuance for emerging markets debt selling dollar bonds this quarter.
• 23:15
  Speaker 1: Can you square the two? I mean, our people just
• 23:17
  Speaker 1: overly exuberant right now. Um, well, yeah, March was a
• 23:21
  Speaker 1: blowout month. Um on the hard currency side. I think
• 23:23
  Speaker 1: you saw something on the order of ninety billion in
• 23:26
  Speaker 1: hard currency indexceligible new issues come to market. I mean
• 23:29
  Speaker 1: that is a record I think was the previous record.
• 23:33
  Speaker 1: But by and large, yeah, I mean it's just been
• 23:35
  Speaker 1: demand has been their risk sentiment is uh is on.
• 23:38
  Speaker 1: Animal spirits are are there, But is this gonna scare
• 23:41
  Speaker 1: it is this going to scare people away? Um, you know,
• 23:44
  Speaker 1: as SNP and the rating agencies take it, they give
• 23:47
  Speaker 1: it as well. Um, just this morning they upgraded Argentina
• 23:50
  Speaker 1: from B minus to single B. I think there's talk
• 23:52
  Speaker 1: now with tax amnesty that Indonesia's UM perhaps going to
• 23:55
  Speaker 1: be upgraded by SNP and the Nazi distant futures. So
• 23:58
  Speaker 1: you know, I think, you know, you out a kind
• 24:00
  Speaker 1: of um differentiate between certain countries where fundamentals are weakening
• 24:04
  Speaker 1: and others where they're improving. They mean, one of the
• 24:07
  Speaker 1: pictures that we look at is the bank stocks in
• 24:10
  Speaker 1: South Africa they got killed earlier today declined based on
• 24:14
  Speaker 1: this S and P global ratings cut. Is there a
• 24:18
  Speaker 1: bargain perhaps because I understand that the capital cushion that
• 24:22
  Speaker 1: the banks have is substantial. Well, the problem, I guess, um,
• 24:27
  Speaker 1: in terms of from a from a fixed income investor
• 24:30
  Speaker 1: standpoint is you just have to look back with African Bank,
• 24:35
  Speaker 1: which was, you know, one of the largest issuers of
• 24:37
  Speaker 1: credit to low and middle income households in South Africa,
• 24:40
  Speaker 1: and when they went bankrupt, that left a lot of
• 24:42
  Speaker 1: foreign investors with a bad taste in their mouth. I
• 24:44
  Speaker 1: think and so Standard Bank, ned Bank, Ran Merchant. I
• 24:48
  Speaker 1: mean they're all some wonderful, you know, very conservative, high,
• 24:52
  Speaker 1: highly regarded banks in South Africa and that sector. I
• 24:56
  Speaker 1: mean I haven't looked. I'm sure there is value there, um,
• 24:58
  Speaker 1: but you know, from a fundamental standpoint, you know, household
• 25:03
  Speaker 1: leverage has gone down, but public debt in South Africa
• 25:06
  Speaker 1: is at the highest point since the turn of the century.
• 25:08
  Speaker 1: It's fifty percent of GDP. So speaking about that, I mean,
• 25:12
  Speaker 1: is there a potential opportunity uh in South African local
• 25:16
  Speaker 1: currency debt with yields above nine point two percent that's
• 25:19
  Speaker 1: up from eight point five percent earlier in March. Um, Yeah, no,
• 25:24
  Speaker 1: so I mean yields have definitely um rocketed higher. Uh
• 25:28
  Speaker 1: you know the ten ure I think it's forty pct
• 25:30
  Speaker 1: over where it was just five trading days ago. It's
• 25:32
  Speaker 1: almost half a percentage point. Yeah, yeah, I mean at
• 25:34
  Speaker 1: almost nine percent, and I think at a touch nine
• 25:36
  Speaker 1: percent at some point. So, so certainly there was opportunity,
• 25:40
  Speaker 1: but not without its fair share of risk. Well that risk.
• 25:43
  Speaker 1: Also it should take into account what the gold industry,
• 25:46
  Speaker 1: because isn't that really what underpins South Africa's Uh, that
• 25:49
  Speaker 1: is an excellent point. The a a depreciating rand, which
• 25:53
  Speaker 1: is what we're seeing right now, is actually good for
• 25:56
  Speaker 1: South African mining companies, right because they export you know,
• 25:59
  Speaker 1: platinum dissold in dollars and their costs are in rand.
• 26:04
  Speaker 1: So you're talking about the many idiosyncratic stories. Are there
• 26:06
  Speaker 1: any other flashpoints for political risk that you're seeing right
• 26:09
  Speaker 1: now that you're kind of watching more closely in the
• 26:12
  Speaker 1: wake of South Africa's issues? So within South Africa, I
• 26:16
  Speaker 1: mean I think you I mean, my goodness, you've had
• 26:18
  Speaker 1: some of the large labor unions calling on Zooma to resign. Um,
• 26:21
  Speaker 1: you've had the former president you know, calling for that
• 26:23
  Speaker 1: as well. Um, you've got labor strikes, you've got power outages. Um,
• 26:27
  Speaker 1: you've got South African corporates which quite frankly or finding
• 26:30
  Speaker 1: more opportunities abroad just because the operating conditions locally are
• 26:33
  Speaker 1: so challenging. And so look, you know it's going to
• 26:36
  Speaker 1: take some time for you know, whoever is in power
• 26:39
  Speaker 1: to right the ship. And I think we have in December. Um.
• 26:41
  Speaker 1: I think that, in fact, is what zoom is kind
• 26:43
  Speaker 1: of priming for by sort of surrounding himself with people
• 26:46
  Speaker 1: that he trusts hence the outsting of Gordon. But yeah,
• 26:50
  Speaker 1: you know, we'll see, we'll see how things kind of
• 26:51
  Speaker 1: play through the end of the year. UM. The a
• 26:53
  Speaker 1: n C is not altogether happy with um where things
• 26:56
  Speaker 1: are at right now, though. I want to thank you
• 26:58
  Speaker 1: very much for spending time with us. Staying and Sassaur
• 27:00
  Speaker 1: is a fixed income strategist for Bloomberg Intelligence, providing a
• 27:05
  Speaker 1: unique in real time research and context for a variety
• 27:08
  Speaker 1: of industries, also markets and government factors that affect business.
• 27:17
  Speaker 1: Thanks for listening to the Bloomberg pen L podcast. You
• 27:20
  Speaker 1: can subscribe and listen to interviews at iTunes, SoundCloud, or
• 27:24
  Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm out
• 27:28
  Speaker 1: there on Twitter at pim Fox. I'm out there on
• 27:31
  Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You
• 27:35
  Speaker 1: can always catch us worldwide on Bloomberg Radio.