Latest / Bloomberg Intelligence / A Look At Markets, ESG Investing, And The Economy

Transcript

A Look At Markets, ESG Investing, And The Economy · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. We have the bond
• 0:22
  Speaker 1: markets close to the equity markets are open. That means
• 0:25
  Speaker 1: we are here at Bloomberket and that means Kate L.
• 0:28
  Speaker 1: Hillo is also their global Chief Investment Officer for Russell Investments,
• 0:32
  Speaker 1: and Kate, I want to thanks so much for joining
• 0:34
  Speaker 1: us here on this quasi day on day off for
• 0:36
  Speaker 1: the markets. I want to get your thoughts about E
• 0:40
  Speaker 1: s G investing. That's a part of the investment process
• 0:44
  Speaker 1: that's getting a lot more attraction, it seems on a
• 0:47
  Speaker 1: yearly basis. How do you guys at Russell incorporate E
• 0:51
  Speaker 1: s G into your investing framework? Yeah? Great, thanks for
• 0:55
  Speaker 1: having me. It is um an increasing focus of clients
• 1:00
  Speaker 1: and just with our approach, which is to customize for
• 1:03
  Speaker 1: particular client kind of principles and values which is unique
• 1:06
  Speaker 1: to E s G. Amounts of way. Um, we are
• 1:09
  Speaker 1: working on both getting in the data and processes set
• 1:13
  Speaker 1: up to be able to make some of those new
• 1:16
  Speaker 1: investment decisions, but probably more importantly is really developing the
• 1:22
  Speaker 1: way that we're accessing the market and really targeting particular
• 1:26
  Speaker 1: types of emphasistic clients are looking for. So, just to
• 1:31
  Speaker 1: put some of a finer point on that, our platform
• 1:34
  Speaker 1: is a bit unique because it's open architecture, so we
• 1:36
  Speaker 1: work with a lot of external managers globally, and so
• 1:41
  Speaker 1: we have the benefit of really understanding how different investors
• 1:45
  Speaker 1: are trying to tackle this investment objective, and some of
• 1:48
  Speaker 1: them are integrating it into their investment process, others are
• 1:52
  Speaker 1: leaning more in to make sure that all of their
• 1:54
  Speaker 1: investments have a direct link to impacting a particular outcome,
• 1:59
  Speaker 1: whether that's on the environment, um, your social objectives, or governance.
• 2:04
  Speaker 1: And so with that you can really you think through
• 2:07
  Speaker 1: the best ways to invest for particular types of objectives
• 2:12
  Speaker 1: depending on how much a client might want to dial
• 2:13
  Speaker 1: up or down that particular outcome. Our clients leaning into
• 2:19
  Speaker 1: E s G in order to provoke change or are
• 2:23
  Speaker 1: they hoping that returns will will come. Yeah, it's a
• 2:27
  Speaker 1: bit of both. And some are are doing it because
• 2:30
  Speaker 1: of regulatory requirements to ensure that their assets are aligning
• 2:35
  Speaker 1: with particular requirements, maybe particularly on climate, and we're seeing
• 2:40
  Speaker 1: that in certain regions, particularly Europe being more of a focus.
• 2:43
  Speaker 1: I think that the direct linkage in the short term
• 2:46
  Speaker 1: in terms of financial impact is a bit harder to
• 2:49
  Speaker 1: prove out um, you know, just because the data is
• 2:51
  Speaker 1: not there and we haven't fully seen you the shift
• 2:54
  Speaker 1: of the impact of regulatory and policy changes in spending
• 2:58
  Speaker 1: will start to have in your just the environment as
• 3:00
  Speaker 1: we look to shift to a more greener energy source.
• 3:03
  Speaker 1: And so I believe that most clients are realistic in
• 3:07
  Speaker 1: your understanding that there's, you know, this dual mandates that
• 3:10
  Speaker 1: exist between your financial outcomes and then the E s
• 3:14
  Speaker 1: G objectives they're trying to meet and trying to get
• 3:16
  Speaker 1: that balance right, and so making sure that you're being
• 3:20
  Speaker 1: thoughtful about how much risks or allocating to some of
• 3:22
  Speaker 1: these strategies relative to be able to achieve your overall
• 3:25
  Speaker 1: goals is still a balance that I think everyone's trying
• 3:28
  Speaker 1: to get right. But it's a bit of both. Give
• 3:31
  Speaker 1: us a sense of just returns. If I'm going to
• 3:34
  Speaker 1: really embrace E s G investing, Do I make any
• 3:38
  Speaker 1: investment return? You know, give give ups? I mean, is
• 3:41
  Speaker 1: it is it a either or or? How are the
• 3:43
  Speaker 1: return has been for E s G investors generally? Yeah, Well,
• 3:47
  Speaker 1: if you look at just the past five years, and
• 3:49
  Speaker 1: this is partially driven by how some sectors have done.
• 3:53
  Speaker 1: E s G strategies have done well. Um, where energy
• 3:57
  Speaker 1: just use that as an example, has been more challenged.
• 4:00
  Speaker 1: You know, it's interesting as you head into this period
• 4:02
  Speaker 1: and we think about some of the energy challenges that
• 4:05
  Speaker 1: we're going through right now, like what that will mean
• 4:08
  Speaker 1: for particular companies where demands um, you know, which was
• 4:12
  Speaker 1: tailing off in capital ocation, it was tailing off for
• 4:14
  Speaker 1: some of the fossil fuel companies, and and might say
• 4:17
  Speaker 1: the old economy you know, start to maybe get a
• 4:20
  Speaker 1: little bit more focused. But you know, and to sit
• 4:23
  Speaker 1: to put a number on you know, the drag, it's
• 4:25
  Speaker 1: it's really difficult to do. So we try to do
• 4:27
  Speaker 1: it more in risk space, where we think about kind
• 4:30
  Speaker 1: of how much risk you're taking by either excluding certain
• 4:33
  Speaker 1: parts of the market or leaning into them. Um. Because
• 4:37
  Speaker 1: maybe a way to put it to is that a
• 4:39
  Speaker 1: lot of the E s G oriented sectors tend to
• 4:42
  Speaker 1: be more value oriented companies, at least as they're defined
• 4:45
  Speaker 1: right now, and so you can end up designing your
• 4:47
  Speaker 1: portfolio that the s G focused that might be quite
• 4:50
  Speaker 1: underweight certain sectors, and so you can start to put
• 4:53
  Speaker 1: numbers around that, and there's reason to compensate for it.
• 4:56
  Speaker 1: But I'd say that the way right now that we're
• 4:58
  Speaker 1: trying to deal with it's more through your awful risk
• 5:00
  Speaker 1: allocation risk budgeting, just to make sure that that um,
• 5:03
  Speaker 1: that risk doesn't get too high in the portfolio relative
• 5:06
  Speaker 1: to let's just say a market cap waited approach. What
• 5:09
  Speaker 1: do you see as the biggest winner among the three letters?
• 5:13
  Speaker 1: I mean most people probably think of the environment first
• 5:19
  Speaker 1: when talking e. S G investment, you know, green investments,
• 5:22
  Speaker 1: battery manufacturers, electric cars, et cetera. But um, there's also
• 5:29
  Speaker 1: the social end um well, the social issue I guess
• 5:33
  Speaker 1: we talk about more as well. But the governmental issue
• 5:35
  Speaker 1: we never talk about, right well, I would say governance,
• 5:40
  Speaker 1: which is what the G sorry governance right for Yeah,
• 5:43
  Speaker 1: it is about like some good corporate governance and boards
• 5:47
  Speaker 1: and how they're interracting and you know, whether it's compensation
• 5:50
  Speaker 1: related items or relates to your labor laws and things
• 5:54
  Speaker 1: like that, and so that always has been quite integrated
• 5:58
  Speaker 1: into you know, equity, your research and and how people
• 6:01
  Speaker 1: are kind of valuing kind of different companies. And so
• 6:04
  Speaker 1: maybe that is why, because there's probably more data around
• 6:06
  Speaker 1: that UM and more kind of processed around that. There's
• 6:10
  Speaker 1: like dual dual share holder classes. People don't like that, right,
• 6:15
  Speaker 1: chairman and CEO being one and the same. That's not okay,
• 6:18
  Speaker 1: is it? I mean, are these are things that we're
• 6:20
  Speaker 1: talking about? Oh for sure. Yeah. And that's where engaging
• 6:23
  Speaker 1: through proxy voting, for example, is a great way to
• 6:26
  Speaker 1: influence that. And you know you would have seen it
• 6:29
  Speaker 1: with some of the oil company Dexon in particular, you know,
• 6:32
  Speaker 1: where you have a very small kind of investor actually
• 6:34
  Speaker 1: changed the board composition. Uh, And so that that often
• 6:37
  Speaker 1: gets handled through proxy voting. And there's a pretty well
• 6:39
  Speaker 1: established and growing investment process or try to tackle that.
• 6:43
  Speaker 1: The E and S part are a bit newer, and
• 6:46
  Speaker 1: that's where define more work that needs to be done.
• 6:49
  Speaker 1: All right, Kate, Thanks very much, Kate L. Hillo talking
• 6:52
  Speaker 1: to us about E S G investing. This is Bloomberg.
• 7:00
  Speaker 1: Let's get back to UM the economy. I think Greg
• 7:03
  Speaker 1: was also talking about the payroll disappointment on Friday. I
• 7:06
  Speaker 1: was shocked to see this happen again. Marcus Schomer joins us.
• 7:08
  Speaker 1: He's chief economists at pine Bridge Investments out of New York. Marcus,
• 7:13
  Speaker 1: we have seen yet another disappointment on jobs. We've seen
• 7:18
  Speaker 1: Goldman Sacks cutting, albeit only by a little bit, their
• 7:22
  Speaker 1: growth expectations, and we've seen central banks, at least some
• 7:27
  Speaker 1: central bankers start to freak out a little bit. Maybe
• 7:30
  Speaker 1: freak out is too strong a term about inflation. But
• 7:33
  Speaker 1: are you worried at all about stagflation here? Well, not really.
• 7:39
  Speaker 1: I think that's taken it too far, too fast, right.
• 7:43
  Speaker 1: I mean, we obviously have an inflation problem, but you know,
• 7:46
  Speaker 1: stack inflation would be an economy where growth is slowing,
• 7:51
  Speaker 1: you know, almost towards zero. That is stackflation, And I
• 7:54
  Speaker 1: don't think that's the economy we're in. And it's it's
• 7:57
  Speaker 1: usually also describes an economy as a demand the problem
• 8:00
  Speaker 1: that to supply problem. It's very different and a very
• 8:03
  Speaker 1: different environment when growth slows because of supply issues. When
• 8:05
  Speaker 1: everybody's standing there with that wallets wanting to spend but
• 8:08
  Speaker 1: can't spend, that's a very different start of economy as
• 8:11
  Speaker 1: opposed to one. You know, the last time we talked
• 8:13
  Speaker 1: about stack flation the previous business cycle, when basically people
• 8:17
  Speaker 1: didn't want to open their wallets, and you mean we
• 8:19
  Speaker 1: needed more demand stimulus. That's not really the world we're
• 8:21
  Speaker 1: living in right now. So I think stack flation is
• 8:24
  Speaker 1: is an overblown, overused term. Right now, I don't use it. So, Marcus,
• 8:29
  Speaker 1: how do you feel about the economic outlook here? I mean,
• 8:33
  Speaker 1: again as you know, as we're talking about it, you
• 8:35
  Speaker 1: know on Friday obviously the jobs report. I mean, you
• 8:38
  Speaker 1: have to get a stronger job market to get this
• 8:40
  Speaker 1: economy presumably to get some legs to it in terms
• 8:43
  Speaker 1: of recovery. We have the delta variant. Uh, some mixed
• 8:46
  Speaker 1: messages on the pandemic. From a global perspective, we've got
• 8:49
  Speaker 1: supply chain issues. How do you put that all in
• 8:52
  Speaker 1: the pot into your model if you will, and kind
• 8:55
  Speaker 1: of come out with a concise economic outlook. Oh, it's
• 8:59
  Speaker 1: it's it's very complicated because there's so many things going
• 9:02
  Speaker 1: on that we typically as economists, so as forecasters, don't
• 9:06
  Speaker 1: really use in our models. Right. Uh, there's stuff going
• 9:09
  Speaker 1: on that sort of exaginous to the way we typically
• 9:12
  Speaker 1: look at the economy or an economic outlook. So it's
• 9:15
  Speaker 1: really really complicated, but so very broadly, you know, we're
• 9:19
  Speaker 1: still in a world where we're coming down from the
• 9:24
  Speaker 1: peak recovery pace right where we're rolling. We rolled over
• 9:27
  Speaker 1: in the summer. Everything is now basically slowing down. But
• 9:30
  Speaker 1: I think that's slow down will take a while into
• 9:33
  Speaker 1: two before we get to a point where the question
• 9:37
  Speaker 1: becomes obvious slowing towards of the long term growth potential
• 9:42
  Speaker 1: or obvious slowing below. And I get it. Markets look
• 9:46
  Speaker 1: at changes and made of changes. I get it. Slowdown
• 9:50
  Speaker 1: is always a bad word, but if you're slowing down
• 9:52
  Speaker 1: from six to five, that to me is a different world.
• 9:55
  Speaker 1: And slowing down, let say, from tow to one. As
• 9:58
  Speaker 1: long as economic growth broadly is still above long term averages,
• 10:02
  Speaker 1: that's still the world in which I'll put gaps close
• 10:05
  Speaker 1: on employment rates fall. And that's a good environment for
• 10:09
  Speaker 1: for for any kind of asset class in the market
• 10:12
  Speaker 1: that's exposed to growth, as opposed to a world that
• 10:15
  Speaker 1: we slowed below these long term averages. And I don't
• 10:18
  Speaker 1: think that's where we're in right now or where we're
• 10:21
  Speaker 1: heading in the next six months. That's something that we're
• 10:23
  Speaker 1: going to talk about maybe during the course of next year.
• 10:27
  Speaker 1: That's three issue. But I don't think that's something that's
• 10:30
  Speaker 1: plaguing the economy right now, noting the fact that the
• 10:33
  Speaker 1: numbers could be volatile quarter by quarter, but the trend
• 10:37
  Speaker 1: is not that that week yet. Well, we've had um
• 10:42
  Speaker 1: a drop in consumer expectation indexes from the Conference Board
• 10:48
  Speaker 1: and from the University of Michigan UM. And we had
• 10:52
  Speaker 1: a report out from Danny Blanche Flower of Dartmouth and
• 10:56
  Speaker 1: Alex Bryson of the University College of London saying, you know,
• 11:01
  Speaker 1: they think we're in entering a recession now. Downward movements
• 11:05
  Speaker 1: this is a direct quote. Downward movements and consumer expectations
• 11:08
  Speaker 1: the last six months suggest the economy in the US
• 11:11
  Speaker 1: is entering recession now. It's an outlier opinion, I think.
• 11:16
  Speaker 1: But we're gonna talk to Danny next. What would you
• 11:18
  Speaker 1: how would you counter that argument? I always love the
• 11:22
  Speaker 1: people who want to be out there first going for
• 11:24
  Speaker 1: a recession. I mean, we barely a year of the
• 11:26
  Speaker 1: last one and the first people are really calling for
• 11:29
  Speaker 1: a recession. Brilliant. But because those are the people who
• 11:31
  Speaker 1: get the headlines right is classics though no, we're not
• 11:35
  Speaker 1: in a recession. I mean a recessions of recession is
• 11:38
  Speaker 1: a very different kind of environment from an economy that
• 11:42
  Speaker 1: could conceivably see a negative quote over quote of growth
• 11:46
  Speaker 1: with if you suddenly have, for example, of sharp decline
• 11:49
  Speaker 1: in inventories, a sharp upward turn, a sharp declan in
• 11:53
  Speaker 1: the contribution from trade because we can't get anything out
• 11:56
  Speaker 1: of our ports, or exports may collapse and that may
• 11:59
  Speaker 1: be negative for GDP growth. We could have a world
• 12:02
  Speaker 1: where we have a negative h one negative quarter of
• 12:05
  Speaker 1: consumer spending, but you know, savings rates are so high,
• 12:08
  Speaker 1: people are sitting on a lot of money that want
• 12:10
  Speaker 1: to spend, that cannot spend because of supply constraints. That's
• 12:14
  Speaker 1: not a recession. So I think it's ridiculous for anybody
• 12:17
  Speaker 1: to talk to start to talk about this right now.
• 12:19
  Speaker 1: A supplied a supplied chain, the supply constraint, the climate.
• 12:24
  Speaker 1: GDP is a very very different animal than a demand
• 12:27
  Speaker 1: constrained economy that goes with negative growth. Very different stuff,
• 12:30
  Speaker 1: very different animal, very different all right, Marcus, thank you
• 12:33
  Speaker 1: so much for joining us. Marcus Showmer, chief economists for
• 12:36
  Speaker 1: Prime Bridge Investments, based in New York City. Room now,
• 12:41
  Speaker 1: let's talk about what's going on in these markets and
• 12:44
  Speaker 1: what we can expect. With Ted Oakley's managing partner at
• 12:47
  Speaker 1: Oxbow Advisors. Um, it's interesting. Ted. On the one hand,
• 12:52
  Speaker 1: I'm reading the words stagflation more and more. On the
• 12:57
  Speaker 1: other hand, our buddy Neil data over Renaissance Macro says
• 13:02
  Speaker 1: the home building sector is on fire. Um, you know,
• 13:05
  Speaker 1: gasoline is is up, consumer discretionary is rising, transports are gaining.
• 13:10
  Speaker 1: He says, this isn't stagflation, this is an inflationary boom.
• 13:14
  Speaker 1: What's happening. Well, I'm not certain what they're looking at
• 13:19
  Speaker 1: on that because if you look at a lot of
• 13:21
  Speaker 1: the a lot of what I would consider that group.
• 13:24
  Speaker 1: You know, if you look just I'm taking from the
• 13:26
  Speaker 1: highs now, but if you look at home delders or
• 13:29
  Speaker 1: since this is since February, they're down about you know,
• 13:33
  Speaker 1: consumer duo rolls are down about twelve, machineries down about
• 13:36
  Speaker 1: ten percent, a lot of that stuff rolling over. Now.
• 13:39
  Speaker 1: I know, it still feels like it's really strong and
• 13:43
  Speaker 1: in it. In it it is relative to maybe two
• 13:45
  Speaker 1: years ago, but on a on a just rate of
• 13:48
  Speaker 1: change basis, it's not as strong as it was. Ted
• 13:52
  Speaker 1: we gotta you know, our folks down in Washington, d C.
• 13:55
  Speaker 1: Lots on their plate right now in terms of debt ceiling,
• 13:59
  Speaker 1: fiscal stimulus, US, you know, spending bills, tax law changes.
• 14:03
  Speaker 1: How do you kind of incorporated all of that Washington
• 14:07
  Speaker 1: stuff into your outlook? Well? What what what we're looking Chris?
• 14:12
  Speaker 1: Nobody knows. And I think the problem people have today
• 14:15
  Speaker 1: is they've they've got all these things that come out
• 14:17
  Speaker 1: and say, hey, capital gains are gonna be X, and
• 14:20
  Speaker 1: they're going to go back to September and no, maybe
• 14:23
  Speaker 1: they'll go to October. People are really really confused about
• 14:26
  Speaker 1: that side. I think the biggest problem with all of
• 14:29
  Speaker 1: that is it affects private business, and private business has
• 14:33
  Speaker 1: to look at everything that's going to come through that
• 14:36
  Speaker 1: not only the taxes they'll have to pay on ordinary income,
• 14:39
  Speaker 1: but what's going to happen on capital gains, and a
• 14:41
  Speaker 1: lot of companies will probably elect not to sell. They
• 14:43
  Speaker 1: might have sold the companies and reinvested or done something different.
• 14:47
  Speaker 1: I think that's the problem you have, and I really
• 14:50
  Speaker 1: do believe that, Uh, they probably have more of a
• 14:55
  Speaker 1: consensus on the pro business side than they realize they do,
• 14:59
  Speaker 1: but they're a very very small group of people, uh
• 15:02
  Speaker 1: control what's going on there, and I think that's really
• 15:05
  Speaker 1: causing people a lot of heartburn right now. So you
• 15:09
  Speaker 1: put those two things together in a sense, market sentiment
• 15:12
  Speaker 1: rolling over and what I hear you're saying is, um,
• 15:17
  Speaker 1: you know, Washington doing the wrong thing for markets. How
• 15:20
  Speaker 1: does the rest of the year, how does two look
• 15:23
  Speaker 1: to you? Well, I would say that the rest of
• 15:26
  Speaker 1: the year probably is in you know, in decent shape.
• 15:30
  Speaker 1: I know this much. The SMP is losing, it's losing momentum,
• 15:33
  Speaker 1: and so it's probably okay for the rest of the year.
• 15:36
  Speaker 1: We always found that if you have these big numbers
• 15:39
  Speaker 1: up through July or August, you know, of up eighteen
• 15:41
  Speaker 1: or you usually rarely add on a lot to that.
• 15:45
  Speaker 1: I've done studies on that. You don't add a lot
• 15:47
  Speaker 1: onto that. However, I would see when you get into
• 15:50
  Speaker 1: twenty two, I think you're going to uh somewhere in
• 15:54
  Speaker 1: twenty two, I think you're going to run into some trouble.
• 15:57
  Speaker 1: And I see that because by that time all of
• 16:00
  Speaker 1: this stuff will have taken place. They have to live
• 16:03
  Speaker 1: in the real world. Uh. If we if this inflation
• 16:06
  Speaker 1: uh we have now doesn't go away. Then one of
• 16:10
  Speaker 1: those quarters, either second or third quarter, probably really runs
• 16:13
  Speaker 1: into market weakness. So do you hedge against that? Now? Well,
• 16:17
  Speaker 1: we have and that we uh Number one, we don't
• 16:20
  Speaker 1: have anything that's very inexpensive, and so I mean we
• 16:23
  Speaker 1: would everything was on a bye side for us right now,
• 16:26
  Speaker 1: was in the place where we like the evaluations, we'd
• 16:29
  Speaker 1: be a hundred percent invested. But we're twenty five percent cash,
• 16:33
  Speaker 1: cash and stocks or so about in our high income accounts,
• 16:36
  Speaker 1: an aggressive income account. It's one of our other strategy
• 16:39
  Speaker 1: of about thirty thirty one. Um. It's not because we
• 16:43
  Speaker 1: wouldn't use it. We're not trying to time the market.
• 16:45
  Speaker 1: It's just that what we put on the valuation that
• 16:48
  Speaker 1: we want to buy, the type of thing we want
• 16:50
  Speaker 1: to own is not fit right now. What is the
• 16:54
  Speaker 1: type of thing that that you guys like to own? Typically,
• 16:59
  Speaker 1: well to two things I would tell you we have,
• 17:02
  Speaker 1: we only have were very simple. We have three strategies
• 17:04
  Speaker 1: of real conservative income strategy which is bulletproof and we
• 17:07
  Speaker 1: really never lose any money there. But you don't make
• 17:09
  Speaker 1: a lot. But on the stock side, if you look
• 17:12
  Speaker 1: at the stock side, we're looking for companies that can
• 17:15
  Speaker 1: grow at year in and year out. There's not that
• 17:18
  Speaker 1: may that have that kind of growth. And they have
• 17:21
  Speaker 1: low debt a lot of cash. But you know, we
• 17:24
  Speaker 1: we look at digital advertising, the cloud services, the payment side,
• 17:28
  Speaker 1: you know, use the mass car and PayPal and the
• 17:30
  Speaker 1: software side. Those can do that. They can even do
• 17:33
  Speaker 1: that through tougher times. That's what we're looking for on
• 17:36
  Speaker 1: the on the aggressive income side. We we right now,
• 17:40
  Speaker 1: we don't. We're very large and energy probably close to
• 17:45
  Speaker 1: and we own oil, natural gas. Everything we own there
• 17:50
  Speaker 1: is paying a lot of cash flow. Uh. We we
• 17:53
  Speaker 1: like the reachs they've they've they've they've come back a
• 17:56
  Speaker 1: little bit in here because I think it's just everything
• 17:58
  Speaker 1: that's going on, ted, let's not breathe. Let's not breathe
• 18:02
  Speaker 1: over oil and natural gas. I mean, okay, what we're
• 18:04
  Speaker 1: seeing here is almost the perfect storm, um, certainly for
• 18:10
  Speaker 1: natural gas. You know, I'm in Berlin. Uh, prices in
• 18:15
  Speaker 1: Europe have just been off the hook. Everywhere else there's
• 18:18
  Speaker 1: they're they're on fire as well. And we see oil
• 18:21
  Speaker 1: up over eighty dollars of barrel. How does this all, um?
• 18:24
  Speaker 1: How does this all work out? Well? You know, we've
• 18:28
  Speaker 1: said for some time and we were saying this last year,
• 18:31
  Speaker 1: really in the fall, that we thought oil this year
• 18:34
  Speaker 1: would go over eighty dollars and I thought we were
• 18:36
  Speaker 1: crazy then, uh, And we had a big position in
• 18:39
  Speaker 1: oil and natural gas then and still do. We've actually
• 18:41
  Speaker 1: added to it in the early part of this year.
• 18:44
  Speaker 1: But we see natural gas. I'm not trying to be
• 18:47
  Speaker 1: an alarmist or anything, but just from a supply to
• 18:49
  Speaker 1: man standpoint, it wouldn't surprise us for gas to go
• 18:53
  Speaker 1: to eight or ten dollars in m c f U s,
• 18:55
  Speaker 1: which would mean higher in Europe. Obviously they're much higher
• 18:58
  Speaker 1: than we are, but we'd see that. On the natural
• 19:01
  Speaker 1: gas side, I think it'll go higher than people expect
• 19:04
  Speaker 1: it will, and people are using it, and we really
• 19:08
  Speaker 1: we're not drilling it up as much as people think.
• 19:10
  Speaker 1: You know, the rig count is still only half of
• 19:12
  Speaker 1: what it was four years ago, so we're not pushing
• 19:16
  Speaker 1: that button to try to get that supply back on.
• 19:19
  Speaker 1: And it has a lot to do with this green
• 19:21
  Speaker 1: energy push, but but the timing is not gonna work
• 19:24
  Speaker 1: between those two, and I think people don't understand that
• 19:27
  Speaker 1: all right, So Ted, you're down in Texas, right, Austin
• 19:29
  Speaker 1: or Corpus Austin. How's the local economy down there? You've
• 19:33
  Speaker 1: got oil at eighty dollars, But generally speaking, how's the
• 19:35
  Speaker 1: economy down there? Economy is in Texas is generally really good.
• 19:41
  Speaker 1: If you look at the what I call the four
• 19:43
  Speaker 1: main spots, which are Dallas, Houston, Austin, and San Antonio. UM,
• 19:48
  Speaker 1: they're all really good there. We have a lot of
• 19:50
  Speaker 1: people moving here. We have a lot of tech businesses
• 19:55
  Speaker 1: which are are really growing. They're moving not only just
• 19:59
  Speaker 1: to uh Ultimate a lot typed Dallas as well. And
• 20:02
  Speaker 1: then you have so many companies that are moving here,
• 20:05
  Speaker 1: not just from California, but other places that want to
• 20:07
  Speaker 1: be in the middle of the country. So generally our
• 20:10
  Speaker 1: economy is good. Don't forget Formula one and Moto g P.
• 20:13
  Speaker 1: Mark Marquez won his seventh in a row last weekend.
• 20:18
  Speaker 1: That was a pretty amazing race. Hey, Ted, Unfortunately it's
• 20:21
  Speaker 1: always have time for but I really appreciate you joining us.
• 20:24
  Speaker 1: UM great to get your thoughts on these markets and
• 20:29
  Speaker 1: to get your take on what's going on with commodities
• 20:32
  Speaker 1: as well. Ted Oakley, Uh, they're joining us from Oxbo Advisors.
• 20:42
  Speaker 1: Now let's get to the world of uh, crypto, but
• 20:47
  Speaker 1: also UM commodities. James Ross is here see I OWE
• 20:50
  Speaker 1: and founding partner Coast Capital. He can talk about the
• 20:52
  Speaker 1: whole gamut. I want to ask first though, about the
• 20:55
  Speaker 1: moves behind Bitcoin and you know, the US the crypto space.
• 21:01
  Speaker 1: It's not all moving in the same direction. I see
• 21:03
  Speaker 1: still a lot of random I scream when I look
• 21:05
  Speaker 1: at crypto and someone tweeted to me, you know, why
• 21:09
  Speaker 1: isn't riot mimicking bitcoin? Um, why aren't we see this
• 21:15
  Speaker 1: rising tide lifting all boats? James, Um, you know, really
• 21:22
  Speaker 1: interesting question. I think that we could um speak about
• 21:25
  Speaker 1: it until we're blue in the face and not really
• 21:27
  Speaker 1: reach a conclusion. That's the fate of crypto, I think.
• 21:31
  Speaker 1: I think, Look, here's the problem. I think that UM
• 21:35
  Speaker 1: tetheringe things to Bitcoin, expecting one thing or another to
• 21:39
  Speaker 1: become the next Bitcoin. I think would be correct because
• 21:43
  Speaker 1: any given cryptocurrency that we look at has technical flaws
• 21:47
  Speaker 1: and shortcomings, which means that following generations will be better,
• 21:52
  Speaker 1: will offset those shortcomings, and in a weird way, and
• 21:55
  Speaker 1: without getting into too much technical detail, the more we
• 21:58
  Speaker 1: offset the security concerns, or the more we address the
• 22:02
  Speaker 1: security concerns around certain crypt or for for a given cryptocurrency,
• 22:06
  Speaker 1: the less usable it might become. So there's there's almost
• 22:09
  Speaker 1: like a it's very very difficult to get any one
• 22:13
  Speaker 1: cryptocurrency to become, you know, a monetary unit. That's why
• 22:18
  Speaker 1: the adoptable and by the usable. Never mind the fact
• 22:21
  Speaker 1: the governments around the world, I'm never gonna let that
• 22:23
  Speaker 1: happen to begin with. So I very respectfully view the
• 22:26
  Speaker 1: whole cryptocurrency phase as or cryptocurrency universe, as being full
• 22:32
  Speaker 1: of various iterations of bitcoins, some of which should be
• 22:35
  Speaker 1: trading at a notable premium to bitcoin technical based on
• 22:38
  Speaker 1: their technical merits, some of which less. But the whole
• 22:41
  Speaker 1: thing is probably gonna be worthless over time, I just
• 22:43
  Speaker 1: you know, or much of it I expect. Before we
• 22:46
  Speaker 1: get to everything else, though, um James, let me ask
• 22:49
  Speaker 1: you about tether. We we had a great cover story
• 22:52
  Speaker 1: on this week's edition of Boomberg Business Week, and what
• 22:56
  Speaker 1: concerns me is without um uh, without enough um of
• 23:04
  Speaker 1: ideas of an idea of what's backing each tether coin.
• 23:08
  Speaker 1: You know, it's supposed to be one dollar. We thought
• 23:10
  Speaker 1: it was cash, then we heard it was cash equivalent.
• 23:12
  Speaker 1: Now here it could also be loans to companies related
• 23:15
  Speaker 1: to Tether, and I have to wonder if it's also
• 23:19
  Speaker 1: a commercial paper in Chinese developers like that seems to
• 23:23
  Speaker 1: be the possibility that seems to have the makings of
• 23:25
  Speaker 1: the house of cards, doesn't it It is a house
• 23:31
  Speaker 1: of cards, it doesn't have Your story was brilliant and
• 23:36
  Speaker 1: I think somewhat courageous because these bitcoin bros, you know,
• 23:39
  Speaker 1: with with lasers coming either out of the rise like
• 23:42
  Speaker 1: that dead Walkers out of Game of Throws, you know,
• 23:45
  Speaker 1: really don't like facts and don't like facts that contradate
• 23:48
  Speaker 1: their enthusiasm. But I understand the idea of morning to
• 23:51
  Speaker 1: get rich quick and not doing a whole lot of work,
• 23:53
  Speaker 1: and on top of its feeling like your movement whatever
• 23:56
  Speaker 1: that means, you know. But I think that the BS
• 23:59
  Speaker 1: has to stall, and where it stops and how, I
• 24:01
  Speaker 1: don't know, And to be candid, it's not going to
• 24:04
  Speaker 1: be terribly interesting because I've seen this before, just the
• 24:07
  Speaker 1: arrogance associated with these cryptos, I haven't really felt before.
• 24:10
  Speaker 1: Tether was supposed to have one dollar of currency for
• 24:14
  Speaker 1: everych other issue. That was the premise, and by the way,
• 24:17
  Speaker 1: it was invented because you could not as an American
• 24:20
  Speaker 1: come in by bitcoin, you know directly, you have to
• 24:22
  Speaker 1: buy something else because of the because of security concerns
• 24:27
  Speaker 1: and because of money laundering concerns around around bitcoin. So
• 24:30
  Speaker 1: tether was invented with that very specific assumption and statement,
• 24:35
  Speaker 1: you know, one dollar for everyone tether and then lo
• 24:37
  Speaker 1: and behold the number of years later there's not a
• 24:40
  Speaker 1: dollar per every per every tether. There could be a
• 24:42
  Speaker 1: lot less. And by the way, it's not a dollar occurrency.
• 24:45
  Speaker 1: It could be as you say, in in in in
• 24:47
  Speaker 1: launch too, you know, Chinese bitcoin farms. It could be
• 24:50
  Speaker 1: in you know, Chinese education companies listed on not that
• 24:53
  Speaker 1: you have no idea, and the fact that why you know,
• 24:59
  Speaker 1: who knows, there's probably be worse. But the fact what
• 25:01
  Speaker 1: amazes me is how far the authorities have a lot
• 25:04
  Speaker 1: all of this your nonsense to go, you know, and
• 25:08
  Speaker 1: and and and how little oversight they've exerted so far.
• 25:11
  Speaker 1: I just I am very concerned that globally speaking, for securities,
• 25:15
  Speaker 1: were entering a period where the rule of law is
• 25:18
  Speaker 1: not making itself felt, and people are feeling emboldened to
• 25:21
  Speaker 1: carry out, you know, uh, things that that would not
• 25:25
  Speaker 1: have been allowed even ten years ago. All right, James,
• 25:27
  Speaker 1: let's move from crypto to crude oil. W T A
• 25:32
  Speaker 1: crude oil north of eighty one barrel. What's your call
• 25:35
  Speaker 1: and what's happening here with crude? Well, look, I mean,
• 25:40
  Speaker 1: I mean, I think that there's, uh, there's a lot
• 25:43
  Speaker 1: of different forces at play in and in any major market,
• 25:47
  Speaker 1: there always will be. But I do think that, um,
• 25:49
  Speaker 1: you know, we basically have gone through a pretty important
• 25:52
  Speaker 1: period of under investment. I think that this past year
• 25:55
  Speaker 1: exacerbated that period. And I think that now that we
• 25:58
  Speaker 1: have you know, increasing demand for oil, you know, coinciding
• 26:01
  Speaker 1: with under investment, coinciding with you know, shortage in in
• 26:05
  Speaker 1: in in in shipping containers, which I think does add
• 26:08
  Speaker 1: to all of it because if if things get stuck,
• 26:11
  Speaker 1: you know, you still burn energy to maintain these ships,
• 26:14
  Speaker 1: but if you use a lot more, it becomes a
• 26:16
  Speaker 1: more energy intensive business to be short to medium term.
• 26:19
  Speaker 1: And so I I just think that, you know, we
• 26:24
  Speaker 1: had a period a year and a half ago, as
• 26:26
  Speaker 1: you might have called out, where you know, uh, you know,
• 26:30
  Speaker 1: a barrel of oil had an important negative valuation on
• 26:33
  Speaker 1: some markets, we might have queeze up. That would be frightening,
• 26:36
  Speaker 1: you know, uh and and and it's very it's not
• 26:39
  Speaker 1: a sensible market in the short to medium term. Longer,
• 26:43
  Speaker 1: we have more than enough supply around the world to
• 26:45
  Speaker 1: meet our demand. That's certainly in North America with the
• 26:47
  Speaker 1: non conventional poil that we have, should be in a
• 26:49
  Speaker 1: really good place. I say it still gives me goose
• 26:51
  Speaker 1: bumps to think of that day. James Ross Day, ce
• 26:53
  Speaker 1: IO and founding partner at Coast Capital, Thanks very much
• 26:56
  Speaker 1: for your inside Thanks for listening to the Bloomberg Markets podcast.
• 27:00
  Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
• 27:03
  Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
• 27:07
  Speaker 1: on Twitter at Matt Miller nine seventy three. Put on
• 27:11
  Speaker 1: fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast.
• 27:14
  Speaker 1: You can always catch us worldwide at Bloomberg Radio.