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Good Time To Sell Oil Into Rally: Cantor's Cecchini · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg PENL podcast. I'm Paul swing you.
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Speaker 1: Along with my co host Lisa Brahma Waits. Each day
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Speaker 1: we bring you the most noteworthy and useful interviews for
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Speaker 1: you and your money. Whether at the grocery store or
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Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple
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Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Right now, we are looking at
0:23
Speaker 1: markets that are slightly down, not perhaps down as much
0:26
Speaker 1: as someone expected, after oil prices surged and continue to
0:30
Speaker 1: surge even higher, the most on record in the wake
0:34
Speaker 1: of the Saudi Arabian attacks on the attacks on the
0:37
Speaker 1: Saudi Arabian oil production facilities. Joining US now Peter Checchini,
0:41
Speaker 1: Global Market try to Global Chief Market strategistic Canter Fitzgerald. Peter,
0:46
Speaker 1: thank you so much for taking the time. Let's just
0:49
Speaker 1: start with are you surprised that there isn't a more
0:52
Speaker 1: market sell off in US equities in the wake of
0:55
Speaker 1: this disruption oil production in the Middle East? Yes, good morning,
0:59
Speaker 1: and thanks for having me. Um. You know, the reaction
1:02
Speaker 1: I think is is about right. The broader markets are
1:06
Speaker 1: obviously uh off overall. Um somewhat frankly offset by the
1:11
Speaker 1: benefit to UH energy companies with the with the spike
1:15
Speaker 1: and oil prices. UM. The spike and oil prices itself
1:18
Speaker 1: doesn't really come as much of a surprise to us,
1:20
Speaker 1: so our our target for oil this year has been
1:22
Speaker 1: fifty to fifty five dollars on w T I UM.
1:25
Speaker 1: But we wrote recently that we expected UH geopolitical risk
1:30
Speaker 1: to come into play with spikes and oil between sixty
1:33
Speaker 1: and sixty five, and in fact, quite frankly, I think
1:35
Speaker 1: UH this would be a time to sell oil rather
1:39
Speaker 1: than to buy it. I think UH around a COO
1:42
Speaker 1: in particular, has an incentive to to cure this problem
1:45
Speaker 1: as quickly as possible. May not be easy, but obviously
1:48
Speaker 1: UH they don't want to delay their I p O
1:50
Speaker 1: any longer than they have to. So market action seems
1:53
Speaker 1: to be about right in response to this attack. But
1:56
Speaker 1: for us, you know, more broadly, UM, we think, as
1:59
Speaker 1: we've been saying, we're in the red zone for US
2:01
Speaker 1: equities for other reasons. So, Peter, I know last week
2:04
Speaker 1: you wrote a note suggesting that the credit markets might
2:08
Speaker 1: be getting a little bit frothy. Give us your sense
2:10
Speaker 1: of what you're thinking. There. Yeah, you know, we've we've
2:13
Speaker 1: been careful not to overstate this because one of the
2:17
Speaker 1: things that's been going on, UH is the capital flows
2:21
Speaker 1: into US high yield really because there's there are very
2:25
Speaker 1: few people places in the rest of the world that
2:27
Speaker 1: on a risk adjusted basis, you can get the kind
2:29
Speaker 1: of return that you can get in US high yield.
2:31
Speaker 1: Default rates have been relatively low, about two point one
2:34
Speaker 1: percent UH for trailing twelve months. And you know, with
2:37
Speaker 1: with seventeen trillion dollars of negative yielding dead about to
2:41
Speaker 1: trillion of that being in corporates, the flows into high
2:43
Speaker 1: yield in the US have been have been pretty pretty
2:47
Speaker 1: strong UM and a couple that with the low default rates.
2:51
Speaker 1: Until one sees cash flows starting to roll over UH,
2:55
Speaker 1: it's difficult to get barish of high yield. However, the
2:59
Speaker 1: signs of FRA are there where we're seeing UH pictoggle
3:03
Speaker 1: deals come coming out like the corn Main deal recently.
3:06
Speaker 1: We haven't seen very many of those. I think there
3:08
Speaker 1: are one or two last year, but that tends to
3:11
Speaker 1: be a very market topy kind of event, especially when
3:14
Speaker 1: they go to pay UH dividends to LBO sponsors UM.
3:19
Speaker 1: And so we're seeing that and even just the issue
3:21
Speaker 1: wance volumes of late have been gigantic, with I think
3:25
Speaker 1: last week probably the third or fourth highest on record,
3:29
Speaker 1: depending on whose data you look at. So so I
3:32
Speaker 1: think the signs in terms of issue and volumes, as
3:35
Speaker 1: well as the form of the deals are are sort
3:38
Speaker 1: of singing to that that's froth, uh, and it's just
3:42
Speaker 1: really to me a question of how much longer it
3:44
Speaker 1: can last. So then there is sort of a flip
3:46
Speaker 1: side to this, which is when you see froth and
3:48
Speaker 1: credit markets in a real robust demand, uh, that typically
3:52
Speaker 1: is a positive for US equities, at least to the
3:54
Speaker 1: short term. So do you view this as being potentially
3:57
Speaker 1: constructive even if in the longer term not great. Yeah,
4:02
Speaker 1: that's that's an interesting point least, and I and I
4:04
Speaker 1: would generally tend to agree with it. I think in
4:06
Speaker 1: most cycles, when you look at the history of credit cycles,
4:09
Speaker 1: credit actually tends to to to lead equities in the
4:12
Speaker 1: hig yield market in particular, tends to be pretty important
4:15
Speaker 1: to that. I think there are some interesting differences this cycle,
4:19
Speaker 1: one of which is the dependence of equity markets uh,
4:23
Speaker 1: less so on high yield and more so on the
4:26
Speaker 1: levered loan market in particular in my view, and we're
4:29
Speaker 1: we're seeing some some real signs of frosth there as well.
4:32
Speaker 1: You know, for example, of the of the names in
4:36
Speaker 1: the levered loan index are are now demonstrating interest coverage
4:40
Speaker 1: ratios below one and a half, in leverage above seven times,
4:44
Speaker 1: which is which is really quite something. And we're starting
4:47
Speaker 1: to see a trend in cash flows for those same companies. Uh.
4:51
Speaker 1: Really the growth and cash flows for those companies is
4:53
Speaker 1: close to zero at this point. So so yes, I
4:56
Speaker 1: would agree with you. In the near term, I would
4:59
Speaker 1: say over all credit markets are still providing support, but um,
5:03
Speaker 1: I think in particular equities are going to be very
5:06
Speaker 1: sensitive to a turning cash flows, especially for some of
5:09
Speaker 1: those levered names. Uh. And we're starting, at least in
5:12
Speaker 1: the form of the second derivative of cash flow, is
5:14
Speaker 1: starting to see that that rate of growth slow considerably. Peter,
5:18
Speaker 1: thanks so much for joining us. Peter Stini, Global Chief
5:21
Speaker 1: market Strategist for Cantor Fitzgerald joining us on the phone. Well,
5:38
Speaker 1: the United Auto Workers Union is leading its first strike
5:41
Speaker 1: against General Motors in twelve years, digging in for a
5:43
Speaker 1: fight over jobs and benefits that could cost the Carmaker
5:46
Speaker 1: deally for an indefinite period of time to get some
5:49
Speaker 1: more details. We welcome David Welch. David is a Detroit
5:52
Speaker 1: bureau chief for Bloomberg News located in our Detroit bureau
5:56
Speaker 1: right now. David, thanks so much for joining us. Just
5:58
Speaker 1: give us a sense of how far apart you think
6:01
Speaker 1: the union and GM are right now. There's a key
6:04
Speaker 1: issue here that I think really has them apart by
6:08
Speaker 1: quite a bit, and that is the use of temporary workers.
6:11
Speaker 1: GM wants more of them because they get paid less,
6:14
Speaker 1: they have weaker benefits that they do cut their labor
6:16
Speaker 1: costs overall, but you can also get rid of them
6:19
Speaker 1: much more easily if there's a downturns that kind of
6:22
Speaker 1: makes the workforce flexible. They want fewer are them, say
6:26
Speaker 1: they want more um and the a W wants not
6:29
Speaker 1: only few of them, but they want a path to
6:30
Speaker 1: make those people permanent employees. So there's not a lot
6:34
Speaker 1: of middle ground there. Someone's going to have to give
6:36
Speaker 1: on that one. Uh GM had made an offer over
6:39
Speaker 1: the weekend that had pretty hefty raises and I signing bonus.
6:42
Speaker 1: They're going to hire more than five thousand new workers.
6:45
Speaker 1: So there's some job security and there. It was a
6:48
Speaker 1: pretty nice offer to start with, but that that one issue,
6:51
Speaker 1: I think it's going to be a big sticking point
6:52
Speaker 1: for them. You know, I'm looking right now General Motors
6:56
Speaker 1: share price down three per cent and I'm wondering why
7:00
Speaker 1: the union is doing this now. I mean, sort of
7:03
Speaker 1: what what what catalyzed this strike? Well, you know, the
7:07
Speaker 1: the labor agreement expired over the weekend, and this is
7:11
Speaker 1: kind of the one shot in four years they have
7:13
Speaker 1: to go out on strike and get a really good deal.
7:16
Speaker 1: There's a lot of pent up anger over the plant
7:19
Speaker 1: closing is that GM announced back in November. That's for plants,
7:23
Speaker 1: including a very big one in Lordstown, Ohio that President
7:26
Speaker 1: Trump has taken a personal interest in. So there was
7:29
Speaker 1: a lot of anger there, especially when you have GM
7:31
Speaker 1: putting out near record profits three years in a row
7:35
Speaker 1: and actually affirming guidance that they might hit that number
7:38
Speaker 1: something close to that profit number again this year's you
7:40
Speaker 1: have a prosperous GM plant closings, and and the workers
7:45
Speaker 1: are already pretty angry. They want a piece of of
7:49
Speaker 1: the record profits, even if we are possibly headed into
7:52
Speaker 1: a downturn um and and this is there one chance
7:55
Speaker 1: to get a piece of those profits while the company
7:57
Speaker 1: still has a lot of money. So that that's that's
8:00
Speaker 1: the weather they're pulling at this point in time. So, David,
8:03
Speaker 1: what's the sense here early days of this strike. Is
8:07
Speaker 1: this something that is expected to drag on for a
8:09
Speaker 1: long period of time or can this be a relatively
8:12
Speaker 1: quick issue? Um? Honestly, I think this will last maybe
8:16
Speaker 1: a week. Because GM did with their first offer that
8:20
Speaker 1: the union really won't talk about yet. The GM made public,
8:23
Speaker 1: they didn't address a lot of the issues, and those
8:26
Speaker 1: issues things like pay, things like investing a lot of
8:31
Speaker 1: money and plants that GM announced as part of this
8:33
Speaker 1: that they're gonna invest seven billion dollars in their US
8:36
Speaker 1: plants over the next four years. That the Lordstown plant
8:40
Speaker 1: will not get a vehicle to build, but they would
8:42
Speaker 1: make a battery plant. They would build a battery and
8:45
Speaker 1: wint vehicle battery plant in Wordstown and that would hire
8:47
Speaker 1: some of the workers who have not transferred out of
8:49
Speaker 1: there already. And the plan in Detroit that was at
8:52
Speaker 1: risk of being closed is also going to get a
8:53
Speaker 1: vehicle to build, so that there were a few bones
8:55
Speaker 1: in there for the workers who were waiting to see
8:57
Speaker 1: what their fate is going to be, but the other
9:00
Speaker 1: issues could take some time. And look, there's also a
9:02
Speaker 1: bit of vaudeville here. The union negotiators have to show
9:05
Speaker 1: the rank and file, who, by the way, they have
9:08
Speaker 1: to vote to ratify the deal. They got to show
9:10
Speaker 1: them that they're putting up a good fight in a story,
9:12
Speaker 1: because the way to do that. Yeah, and it's so
9:15
Speaker 1: I thought that part of the story was pretty interesting
9:17
Speaker 1: that the piece that you wrote. I do have to wonder,
9:20
Speaker 1: though it's been twelve years, right, this comes up every
9:23
Speaker 1: four years that they have to negotiate a new contract,
9:25
Speaker 1: this time is different, and they're going to dig their
9:28
Speaker 1: heels in. And you said that part of what the
9:31
Speaker 1: backdrop here is the record profits and the fact that
9:34
Speaker 1: General Motors has been closing some plants. But you also
9:37
Speaker 1: in the story pointed to a corruption scandal plaguing the
9:41
Speaker 1: U a W as part of what is sort of
9:45
Speaker 1: setting this setting the stage here. Can you give us
9:47
Speaker 1: more color on that? Sure, So there's been a corruption
9:50
Speaker 1: scandal at the union that's gone back for well over
9:54
Speaker 1: the past year, and it started at theat Chrysler. On
9:58
Speaker 1: both sides, Union and man manishment people have been indicted
10:01
Speaker 1: and convicted basically giving union leaders graft out of a
10:05
Speaker 1: union training fund in exchange for giving Fiat karist or
10:08
Speaker 1: a more lenient contract. That investigation has moved a GM.
10:12
Speaker 1: It's slightly different in that the union leaders and including
10:15
Speaker 1: past president Dennis Williams and current president Gary Jones, are
10:20
Speaker 1: being accused of stealing money from union charity funds and
10:26
Speaker 1: community activism funds and the general fund for this lavish
10:30
Speaker 1: lifestyle they woven in uh, Palm Springs, California, for renting
10:34
Speaker 1: villas for a month or two, expensive cigars, expensive scotch.
10:38
Speaker 1: Is kind of crazy stuff. So the union and everybody,
10:42
Speaker 1: even some of the was called analysts wh watched the
10:45
Speaker 1: unions say that they won't really play into this, but
10:48
Speaker 1: I think it does. I think when members don't trust you,
10:50
Speaker 1: you've got to drive a hard bargain uh to get
10:53
Speaker 1: a deal ratified, because the membership is going to be
10:56
Speaker 1: looking at any deal really scrutinizing it, saying, Okay, we
10:59
Speaker 1: try these people. They're they're stealing our money to buy
11:02
Speaker 1: mccalen eighteen and some good cigars. Why would I trust
11:08
Speaker 1: them to give me a good deal. They've got to
11:10
Speaker 1: drive a really hard bargain here. David Welch, thank you
11:12
Speaker 1: so much for being with us. David Welch's Bloombergs Detroit
11:15
Speaker 1: bureau chief. Talking about that GM news the first strike
11:19
Speaker 1: of the labor Union in twelve years. There is that
11:41
Speaker 1: surge in oil prices that we're seeing today in Brent crude.
11:44
Speaker 1: At one point it was the most on record as
11:48
Speaker 1: reaching the highest levels since May, but jumping more than
11:52
Speaker 1: eleven percent. The question is how long will this disruption
11:56
Speaker 1: oil production out of Saudi Arabia last what will be
11:59
Speaker 1: the implications for the Middle East in terms of Iranian
12:01
Speaker 1: relationships with the US and Saudi Arabia. To help us understand,
12:05
Speaker 1: let's bring in John Killed, a founding partner of Again Capital.
12:08
Speaker 1: So John, let's just first get your impression of how
12:11
Speaker 1: much oil prices are rising. Do you view this as
12:13
Speaker 1: a temporary blip or something that has longer lasting legs
12:18
Speaker 1: and potentially even a higher leg up. Well, I think
12:22
Speaker 1: the response has been um somewhat measured, even though it
12:25
Speaker 1: was the biggest jump since the invasion of Kuwait bi
12:29
Speaker 1: Iraq back in the day. Um, We're gonna have to
12:33
Speaker 1: see how quickly the Saudis can get the situation under control.
12:37
Speaker 1: You know, they're claiming that they can get a good
12:39
Speaker 1: portion of the production back online UM, and they're also
12:42
Speaker 1: claiming that they'll be able to supply everyone as needed
12:45
Speaker 1: out of available inventories that are in the country. The
12:49
Speaker 1: big thing to watch from here really is what the
12:51
Speaker 1: response is going to be. It seems now that the
12:53
Speaker 1: US and a few moments ago the Saudis themselves are
12:56
Speaker 1: accusing Iran of having uh done this, and it's hard
13:01
Speaker 1: to believe that the Saddies won't respond or the US
13:04
Speaker 1: won't help them respond. But if they don't, you're gonna
13:07
Speaker 1: look incredibly, incredibly weak. So it seems to me that
13:10
Speaker 1: they'll be vulnerable to more attacks and that the security
13:13
Speaker 1: premium and prices is only going to inflate. John. You know,
13:17
Speaker 1: as someone who follows these markets closely, are you surprised
13:21
Speaker 1: at how much this facility, again, one of the largest
13:25
Speaker 1: facilities and we're not maybe the largest facility in the world.
13:28
Speaker 1: How susceptible it was to attack? UM? Yes, and no,
13:35
Speaker 1: uh look to the extent it was it was cruise
13:38
Speaker 1: missiles coming from Iran. If that's the case, UM, you
13:41
Speaker 1: would have think they should have been picked up by
13:43
Speaker 1: some kind of anti missile defense that the Saddi's have
13:45
Speaker 1: purchased from the US. Drones are almost impossible to stop,
13:50
Speaker 1: and um, the Saddies are particularly bad at it. This
13:53
Speaker 1: is not the first drone attack I think, as most
13:56
Speaker 1: people know on Saudi infrastructure, UM that has occurred. It's
14:01
Speaker 1: been going on for months, and the Satti's have really
14:03
Speaker 1: done nothing about it, which I have found remarkable. Um.
14:07
Speaker 1: They tried to put more pressure on the Hoothies and
14:09
Speaker 1: Yemen and and do other things, but for the most part,
14:12
Speaker 1: as far as the direct response goes, you know, there's
14:14
Speaker 1: been nothing. So this day was almost inevitable. But if
14:18
Speaker 1: you look at the satellite imagery, you can see there
14:21
Speaker 1: is unbelievable precision in in where these uh these round
14:26
Speaker 1: tanks that they have there that store the oil got
14:29
Speaker 1: penetrated almost the exact same spot in each tank that
14:32
Speaker 1: are in a row together. So um, high level sophistication.
14:36
Speaker 1: And certainly for roll of money the Sadie's spent on
14:39
Speaker 1: their defense, they should have had some kind of anti
14:41
Speaker 1: missile technology uh AT in place here. So it's it's
14:44
Speaker 1: it's a remarkable failing on their part. So, John, I
14:47
Speaker 1: want to go back to what you were saying about
14:49
Speaker 1: how the response in markets has been somewhat muted, especially
14:52
Speaker 1: given the backdrop you were just talking about, which is
14:55
Speaker 1: sort of a lack of protection on the part of
14:58
Speaker 1: Saudi Arabia against an attack like this. I'm just trying
15:02
Speaker 1: to understand the counter argument to that that there's loss
15:05
Speaker 1: of production that can be increased elsewhere, and that you know,
15:10
Speaker 1: the US can increase shell production, this will offset any
15:14
Speaker 1: decline in production out of Saudi Arabia. What do you
15:16
Speaker 1: say to that. I think that's partly right. I mean,
15:20
Speaker 1: as far as there being any kind of you know,
15:23
Speaker 1: spur of the moment US shell response that, I don't
15:25
Speaker 1: buy that at all. I mean, they're not built that way.
15:28
Speaker 1: We don't. Our guys don't necessarily e gals don't necessarily
15:31
Speaker 1: dial up and down the production in reaction to price.
15:34
Speaker 1: As we all know. They just plot along pump as
15:36
Speaker 1: much as they can, and and and deal with the
15:38
Speaker 1: prices as best they can. There is spirit capacity out there, though,
15:41
Speaker 1: because of what OPEC and Russia have done to try
15:43
Speaker 1: to um curtail the price slide. So we know Russia
15:48
Speaker 1: has spirit capacity. You a some of the other countries. Also,
15:51
Speaker 1: two of the other levers that are out there arguing
15:53
Speaker 1: against the greater price increases is certainly the existence of
15:56
Speaker 1: all the strategic petroleum reserves around the world, and China
16:00
Speaker 1: in particular, which has almost two years worth of supply
16:03
Speaker 1: to cover a complete cutoff of STATI supply to China.
16:07
Speaker 1: So um, you know, we we're sort of well banked
16:10
Speaker 1: in terms of oil supplies for now. The problem you
16:14
Speaker 1: have though, is that this turns into any kind of
16:16
Speaker 1: sort of hot war. And it's also remarkablelives if I
16:19
Speaker 1: could just stay quick. Um, the fact that these prices
16:21
Speaker 1: aren't up as much much more in light of the
16:24
Speaker 1: fact that we have already lost I ran in Venezuela
16:26
Speaker 1: oil to the global market as well, So it shows
16:29
Speaker 1: you just how sloppy the situation has become supply wise
16:33
Speaker 1: in the face of diminishing demand. As we were speaking
16:35
Speaker 1: about a few weeks ago. Yeah, John, that's kind of
16:37
Speaker 1: where I wanted to go. It seems like when we
16:38
Speaker 1: talk about crude oil, it's obviously trying to get a
16:42
Speaker 1: handle on the supplied to demand dynamics and what had
16:44
Speaker 1: been driving price. It seems to have been the demand
16:47
Speaker 1: side of the equation, and investors concerns that the trade
16:50
Speaker 1: wars and other issues would be slowing down demand for crude.
16:54
Speaker 1: But this news coming out of the Middle East brings
16:56
Speaker 1: the supply story right back into focus. Here, How what
16:59
Speaker 1: do you think will be the driver of oil over
17:01
Speaker 1: the next several weeks, the supply or the demand or
17:04
Speaker 1: some combination of the two, if the situation at all
17:08
Speaker 1: calms down, and we're in the situation looked like it
17:11
Speaker 1: was gonna be calming down, just generally with the overtures
17:13
Speaker 1: that were being made to the Iranians by President Trump
17:16
Speaker 1: over the past couple of weeks, you know, we're gonna
17:17
Speaker 1: slide right back down lower. There's really no no two
17:20
Speaker 1: ways about that. The key economic data that we're all
17:22
Speaker 1: waiting for at a China last night, for example, was
17:25
Speaker 1: horrific again, seventeen year low on industrial production growth goes
17:29
Speaker 1: right to the heart of the matter in terms of
17:30
Speaker 1: energy demand growth. I mean, it's just continuing to slip.
17:33
Speaker 1: The U. S. China trade war is really rereaking havoc
17:36
Speaker 1: on these manufacturing intensive economies in Asia, and and that's
17:39
Speaker 1: oil demand. Uh so, um, you know, to the extent
17:43
Speaker 1: this doesn't break out into a war, and it looks
17:46
Speaker 1: like my sense of it is that it's not going
17:48
Speaker 1: to It's not going to break out into a war.
17:50
Speaker 1: The Trump administration wants to avoid it at all costs.
17:52
Speaker 1: They're gonna take this one too. I guess, um and um,
17:56
Speaker 1: you know it'll it'll stabilize and and head lower until
17:58
Speaker 1: something else more horrific happens. So, John, I just wanna
18:02
Speaker 1: wrap up with the idea of gas prices in the
18:04
Speaker 1: US and the bleed through effects on the economy. Do
18:07
Speaker 1: you think that if prices were to stay where they
18:10
Speaker 1: are or go materially higher, that will translate into higher
18:15
Speaker 1: gas prices in the United States? Yes, I mean then
18:18
Speaker 1: I mix. Today gasoline prices are up about over ten
18:21
Speaker 1: per center, up seventeen cents a gallon. Um. You'll see
18:25
Speaker 1: some of that ripped through to the to the retail
18:27
Speaker 1: pump over the course the next couple of days. It'll
18:29
Speaker 1: take longer for that to go through. We're still at
18:31
Speaker 1: a relatively low price at the pump, but to the
18:33
Speaker 1: extent consumers start to get anxious and if or if
18:36
Speaker 1: the price goes you know, even higher, Um, you'll see
18:38
Speaker 1: another You'll see a hit to consumer confidence, and you'll
18:41
Speaker 1: see a hit to UH freight rates and other industries
18:44
Speaker 1: that rely obviously on fuel for transportation, but also with
18:47
Speaker 1: the grocery store, you'll see the price of veggies whether
18:49
Speaker 1: things that start decline. John Kildo, thank you so much
18:52
Speaker 1: for joining us. John is the founding partner of Again Capital,
18:54
Speaker 1: joining us to discuss what's going on in the energy market.
18:57
Speaker 1: Certainly an eventful day. Well. The ongoing trade dispute between
19:15
Speaker 1: the US and China is whips on currency markets around
19:18
Speaker 1: the globe, presenting hedging challenges for a whole host of companies.
19:22
Speaker 1: To get a sense of how some of these companies
19:23
Speaker 1: are managing that currency risk as well as their cash overall,
19:26
Speaker 1: we welcome our next guest, Wolfgang Coaster. Wolfgang is a
19:29
Speaker 1: senior strategy officer at Kirrieba based in Phoenix, Arizona, but
19:33
Speaker 1: joining us here in our Bloomberg Interact their broker studio.
19:35
Speaker 1: So Wolfgang, thanks so much for joining us again. You know,
19:38
Speaker 1: one of the issues with this the uncertainty presented by
19:41
Speaker 1: the U S and China trade issues is currencies. Give
19:45
Speaker 1: us a sense of how well you think companies are
19:48
Speaker 1: managing their currencies at the currency risk. Yeah, so I
19:52
Speaker 1: think that one of the things that we're seeing is
19:54
Speaker 1: unfortunately it's all over them what map, Right, You have
19:56
Speaker 1: some companies who do a really good job, and the
19:59
Speaker 1: key thing is to actually understanding your exposures, really having
20:02
Speaker 1: a good grasp around where are my exposures, how am
20:05
Speaker 1: I exposed not just on the revenue side on the
20:07
Speaker 1: but on the expense sides, and what's the net impact
20:10
Speaker 1: of that? And then what do I do to manage
20:12
Speaker 1: that properly? That's really the gist of it. The execution
20:16
Speaker 1: of that strategy then of actually putting hedges on, etcetera,
20:19
Speaker 1: isn't as hard. So as we see these companies doing
20:22
Speaker 1: it the once we're doing it well are the ones
20:24
Speaker 1: who are ahead of the game. I want to talk
20:26
Speaker 1: a little bit about your company because I find it
20:28
Speaker 1: really interesting and it sort of builds on what we've
20:31
Speaker 1: been hearing a lot. Basically, you do liquidity management for companies,
20:35
Speaker 1: right um, and what that means is helping them manage
20:39
Speaker 1: their cash and risk as well as just in general operations.
20:43
Speaker 1: And it's the software, uh that you that you provide
20:47
Speaker 1: And I'm just wondering, why is this such a growth
20:50
Speaker 1: area that companies are increasingly outsourcing some of the basic
20:53
Speaker 1: functioning of the way they run their businesses to software
20:57
Speaker 1: such as yours. Yeah, I think that it's an evolution
21:00
Speaker 1: and really over time of how things are going. And
21:03
Speaker 1: quite frankly, treasury and finance are often the later partists
21:06
Speaker 1: to the stages than sales organizations and marketing organizations are.
21:10
Speaker 1: So you've seen this, like you said, exactly like a salesforce.
21:12
Speaker 1: There typically in the forefront finance more conservative and a
21:16
Speaker 1: little bit difficult and more difficult to open up to
21:18
Speaker 1: that because what you have to do when you help
21:21
Speaker 1: companies at the very basis of it, you have to
21:23
Speaker 1: help them get at their data and that's a really
21:26
Speaker 1: tough thing to do. They have these enterprise systems like
21:29
Speaker 1: these Earpie systems like an Oracle, or they have you know,
21:33
Speaker 1: an s A P. But now they have both on.
21:35
Speaker 1: So they have tursury management systems as one of our
21:38
Speaker 1: offerings that we also have that help them manage that
21:41
Speaker 1: in the pre trade and the post trade era, so
21:44
Speaker 1: raw data to decision. Then they'll make some decision and
21:47
Speaker 1: actually execute on that, and then they need to book
21:50
Speaker 1: that and track those transactions as well, and automating that
21:54
Speaker 1: was not easy, and quite frankly, being able to be
21:56
Speaker 1: cloud driven made that a lot easier because installing those
22:00
Speaker 1: soft wars was a very difficult prospect and quite frankly
22:03
Speaker 1: is a very difficult business prospect. So we're purely cloud
22:06
Speaker 1: driven and that's why all of a sudden, this incredible
22:08
Speaker 1: growth because all you do is you hook up your
22:11
Speaker 1: API as we do it for you, you implement, and
22:13
Speaker 1: you're ready, ready to go, and all of a sudden,
22:15
Speaker 1: year impacts are major. So you mean, we see thirty
22:19
Speaker 1: to fifty percent risk reductions on the currency side, We're
22:22
Speaker 1: seeing much more efficient use of capitals. So the our
22:26
Speaker 1: eyes on that are pretty significant. But you know, sometimes
22:28
Speaker 1: it's harder for people to say, well, my my great
22:31
Speaker 1: Excel spreadsheets or my this process is good. But that's
22:34
Speaker 1: when it kind of that's that's kind of where I
22:36
Speaker 1: wanted to go. Like if I think about you know
22:38
Speaker 1: that you know the world is becoming a smaller place,
22:41
Speaker 1: arguably through technology global trade, despite some of the moves
22:44
Speaker 1: against globe global trade. So even small and mid sized
22:47
Speaker 1: companies have international exposures. Um, how do you find some
22:51
Speaker 1: of these mid sized companies do they know what they're
22:53
Speaker 1: doing and when they're hedging. I mean, but I think
22:55
Speaker 1: a Microsoft, I'm sure that's got a hundred people thinking
22:57
Speaker 1: about hedging in their finance department. But I think somebod
22:59
Speaker 1: these small and mid sized companies, it's probably a black
23:02
Speaker 1: box for them. What do you what's your experience been there?
23:04
Speaker 1: You're absolutely right, And the difficulty for these mid sized companies,
23:07
Speaker 1: and we see there as a major growth area for
23:10
Speaker 1: ourselves as well, is you really have you need? You
23:13
Speaker 1: require all these different um disciplines. So from it, let's
23:16
Speaker 1: say a risk management on the finance on the form
23:19
Speaker 1: exchange side A, you need really understanding purely accounting. Then
23:24
Speaker 1: from that you go to really financial risk management, and
23:27
Speaker 1: then you need to understand the markets. You need to
23:29
Speaker 1: understand how to actually execute those things. And technology facilitates
23:32
Speaker 1: that because typically small to mid sized company doesn't even
23:35
Speaker 1: have you know, they're not going to hire three people
23:37
Speaker 1: to do this. It's not very cost effective, for example.
23:41
Speaker 1: But we help the largest companies in the world, like
23:43
Speaker 1: the one you just mentioned, do the same thing because
23:45
Speaker 1: for them, it's we're all over the world. We may
23:48
Speaker 1: have two hundred and thirty currency payers. You're gonna stick
23:50
Speaker 1: to the currencies. They all interact and even if they
23:53
Speaker 1: hired a hundred people to do it, the technology tells
23:56
Speaker 1: to split a second. If you have a hundred people
23:58
Speaker 1: doing it, it it will still take you four or five
23:59
Speaker 1: six hours to do. Now you're right at the pulse
24:02
Speaker 1: of it. So, as we do talk about the currency
24:05
Speaker 1: fluctuations and which companies are sort of able to better
24:09
Speaker 1: weather some of the less predictable fluctuations that we see
24:13
Speaker 1: emanating from tweets, which companies to sort of hone in
24:16
Speaker 1: on as the as the potential benefactors frankly of a
24:19
Speaker 1: lack of altility in the wake of that. Yes, so
24:21
Speaker 1: I think you have a few different categories. Let's start
24:24
Speaker 1: with as an investor, I first of all, if I
24:26
Speaker 1: want to stay out of this, I'm gonna look at
24:28
Speaker 1: companies that are not very international, big companies like a
24:31
Speaker 1: General Mills. You say, listen, you know I don't want
24:32
Speaker 1: to I don't understand this stuff, don't know how good
24:34
Speaker 1: they are. Why don't understay in the area where they're
24:37
Speaker 1: much more focused on growth. They only have eleven percent
24:40
Speaker 1: of their sales are international. So that's an interesting one
24:44
Speaker 1: that's very stable that's that's kind of an interesting strategy
24:48
Speaker 1: to just stay out of it. Quite frankly, okay, But
24:50
Speaker 1: then you go into companies UM like an Apple or
24:53
Speaker 1: a Boeing or Texas instrument, they're really struggling with this, right,
24:57
Speaker 1: they have macroeconomic moves, they have all these sort of things,
25:00
Speaker 1: and what they have to do they have to go
25:02
Speaker 1: in there and say, okay, like a like a UM
25:05
Speaker 1: Texas instrument of their revenues out of China, that's a
25:10
Speaker 1: major impact, what do I do with that? So you know,
25:13
Speaker 1: some companies like a General Motors, they've gone really good
25:17
Speaker 1: at figuring out what their exposures are both on the
25:19
Speaker 1: revenue and their expense set, and they try to match
25:22
Speaker 1: it as close as possible so they're not exposed to
25:24
Speaker 1: the terrorists. But then what they do, they'll actually take
25:27
Speaker 1: part of it, like the Apples, etcetera doing or Flextronics
25:30
Speaker 1: for example, is doing really well. They're actually looking to
25:32
Speaker 1: go somewhere else. They're going to Cambodia, They're going to Vietnam.
25:35
Speaker 1: We all know that's big. The currency therefore strength things significantly.
25:39
Speaker 1: So what this whole trade war does, it does, whether
25:43
Speaker 1: one likes it or not, disrupt the supply chain of China,
25:48
Speaker 1: and that's the intention of this whole thing at the
25:50
Speaker 1: end of the day. And as investors do you have
25:52
Speaker 1: to look at a are they going to be impacted
25:55
Speaker 1: like a General Mills, No B. If they are going
25:57
Speaker 1: to be impacted, how good are they manage gen that risk?
26:01
Speaker 1: And quite frankly, if you read their ten cues and
26:03
Speaker 1: ten caves and you can actually figure some of that
26:06
Speaker 1: stuff out. Thank you so much for being with us.
26:08
Speaker 1: My pleasure. Well for having me, it's really interesting. Wolfgang Coaster,
26:12
Speaker 1: Senior strategy officer of Cariba based in Phoenix, Arizona, for
26:15
Speaker 1: joining us here in our BLOOMBERGUNNA active broker's studios talking
26:18
Speaker 1: about what he is seeing out of companies in terms
26:21
Speaker 1: of how they are planning ahead for their currency risk
26:24
Speaker 1: amid the trade wars. Thanks for listening to the Bloomberg
26:28
Speaker 1: P and L podcast. You can subscribe and listen to
26:30
Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.
26:34
Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
26:36
Speaker 1: abram Woyds. I'm on Twitter at Lisa abram Woit's one
26:39
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26:42
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