Latest / Bloomberg Intelligence / Tellurian's Souki Expects Higher LNG Prices Globally in Two Years

Transcript

Tellurian's Souki Expects Higher LNG Prices Globally in Two Years · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg pim L Podcast. I'm pim Fox
0:08
Speaker 1: along with my co host Lisa A. Bramowitz. Each day
0:11
Speaker 1: we bring you the most important, noteworthy, and useful interviews
0:15
Speaker 1: for you and your money, whether you're at the grocery
0:17
Speaker 1: store or the trading floor. Find the Bloomberg p and
0:20
Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Yes,
0:32
Speaker 1: we're gonna talk about liquefied natural gas now because we've
0:35
Speaker 1: got a pioneer when it comes to the energy industry.
0:39
Speaker 1: My guest is Sharif Suki. He is the co founder
0:41
Speaker 1: and the chairman of Tullurian and he is the founder,
0:45
Speaker 1: former founder and former chief executive of Shanir and Sharif
0:48
Speaker 1: joins us in our studio here in UH. Great to
0:52
Speaker 1: have you with us, sir, Thanks for coming in. Thank
0:54
Speaker 1: you very much. You're the only trail blazing energy pioneer
0:59
Speaker 1: that I can think of. It is also run a
1:01
Speaker 1: chain of restaurants UH and managed to have a Hollywood
1:05
Speaker 1: Um the film colorization company already in your past. Maybe
1:10
Speaker 1: just give people a little snippet of how you came
1:13
Speaker 1: to create Shaneer and the world of liquefied natural gas. Well,
1:17
Speaker 1: I guess it's a lesson and always keeping your options
1:20
Speaker 1: open and learning as much as you can as you
1:22
Speaker 1: go along, so you never know what's going to prepare
1:25
Speaker 1: you for what. But I think in the mid nineties
1:27
Speaker 1: I was looking for a niche to invest in and
1:32
Speaker 1: to raise money, which is the scale that I hand
1:36
Speaker 1: into a sector there would be changed by technology. That's
1:39
Speaker 1: how I end up ended up being at the energy business.
1:42
Speaker 1: And slowly I learned and um Chanel was founded in
1:47
Speaker 1: nineteen ninety six and um I had twenty years and
1:52
Speaker 1: there huntil two thousan fifteen and then sure if you
1:57
Speaker 1: left Shaneer last year after carl Icon had some issues
2:02
Speaker 1: with the company, and now you've started this new venture
2:04
Speaker 1: to Laurian talld Us about that, what a what are
2:07
Speaker 1: you trying to do with Tolaian? Well, I think the
2:08
Speaker 1: major disagreement with garn at the time was simply whether
2:11
Speaker 1: you would pay dividends out or whether you read invest
2:14
Speaker 1: the money to continue the growth of the company. So
2:17
Speaker 1: I had the view that the market has just been
2:20
Speaker 1: started and that although it didn't look so good for
2:24
Speaker 1: a couple of years, it would come back, and that
2:27
Speaker 1: we needed to continue to go to a company. Carl
2:30
Speaker 1: had a different opinion and we agreed to separate, to
2:34
Speaker 1: go out separate ways Solan. So when they freed me,
2:38
Speaker 1: I had the opportunity to create to Louian In February
2:41
Speaker 1: of two thousand and sixteen. About three months after that,
2:43
Speaker 1: I was fired functioner and to pick up where the
2:47
Speaker 1: things that she Knew did not want to pursue at
2:50
Speaker 1: the time. So we founded a company, found another site
2:55
Speaker 1: that took a team that we were funding, a Chineer,
2:58
Speaker 1: but that j Knew decided to continue the funding led
3:02
Speaker 1: by Martin Houston, and Martin has become my partner. We
3:05
Speaker 1: found it two looking together and we identified a good side,
3:10
Speaker 1: took our old team back, both BECTORL and ge t
3:14
Speaker 1: to collaborate with us again and developed a pretty good
3:18
Speaker 1: site for a plant for a big processing for a
3:22
Speaker 1: big processing plant, a big liquefaction facility in Louisiana with
3:26
Speaker 1: the capacity to export twenty six million tons, which is
3:30
Speaker 1: really replicating the success that I had antinue with the
3:33
Speaker 1: twenty four million tons plant at Sebin Pass. Can you
3:37
Speaker 1: speak a little bit about the supply and demand that
3:40
Speaker 1: currently exists in natural gas because to turn it into
3:43
Speaker 1: liquefied natural gas requires this major investment in process. Uh.
3:48
Speaker 1: And then there is not really a global pricing uh
3:52
Speaker 1: platform for for natural gases there. I mean, it costs
3:55
Speaker 1: different things in different countries. You exactly right. Uh. So
4:01
Speaker 1: there's a number of things that happened that are different
4:04
Speaker 1: from when I started the effort of The first thing
4:07
Speaker 1: is that it has become very clear than the United
4:09
Speaker 1: States is the low cost producer of natural gas and
4:12
Speaker 1: at the same time the low cost manufacturer of liquid
4:16
Speaker 1: faction facilities. So we have a constan advantage compared to
4:20
Speaker 1: the rest of the countries in the world. The second
4:22
Speaker 1: very important thing that has happened is that the natural
4:25
Speaker 1: gas business on a global business is increasingly becoming a
4:28
Speaker 1: very liquid market, thanks in great part to liquid fu
4:32
Speaker 1: natural gas. So we the advent of Australia first and
4:35
Speaker 1: other United States has two major new players into the
4:39
Speaker 1: energy business. You now have twelve cargoes per day available
4:43
Speaker 1: for sale on a global basis, with about forty bcf
4:47
Speaker 1: a day and and by to see if you've got
4:50
Speaker 1: to tell people at the British thermal units in cubic
4:54
Speaker 1: feet cubic feet. So that's why we needed you, so
4:57
Speaker 1: to to put it in perspective, UM, the in two years,
5:04
Speaker 1: when old liquor faction facilities under construction currently will come
5:07
Speaker 1: on the market, the market will be able to produce
5:10
Speaker 1: fifty BCF fifty billion cubic feet of natural gas every day.
5:15
Speaker 1: The entire consumption of the United States is about seventy
5:18
Speaker 1: five billion cubic feet, so two thirds of the market
5:22
Speaker 1: on a global basis that is on the water at
5:24
Speaker 1: any given time. UH. It's two thirds of the size
5:29
Speaker 1: of the American market. It is larger than the European market.
5:34
Speaker 1: So it's a very very significant floating market that is
5:38
Speaker 1: extremely flexible in terms of what direction it can go into.
5:42
Speaker 1: Because those are allowed ships and there's probably two hundred
5:45
Speaker 1: and twenty of those today and in two years there'll
5:49
Speaker 1: be two hundred and fifty loaded with not liquefied natural gas.
5:53
Speaker 1: They can basically go to wherever they need it. And
5:56
Speaker 1: sure if just in our last minute or so here,
5:58
Speaker 1: where do you see prices for UH natural gas and
6:03
Speaker 1: and and liquid natural gas over the next five to
6:06
Speaker 1: ten years, Well, in the United States, I don't see
6:08
Speaker 1: anything different than what we have today. So some workedween
6:11
Speaker 1: two fifty and three donors in m MBTU. On a
6:13
Speaker 1: global basis, the the excess inventory is being solved very
6:18
Speaker 1: very very quickly because low prices generate new demand, so
6:22
Speaker 1: demand year on year for that liquid natural gasses up
6:27
Speaker 1: and on that basis, we're gonna have a very very
6:29
Speaker 1: tight system by two. Thank you. So I see higher
6:33
Speaker 1: prices for global prices very quickly, higher prices for global prices.
6:38
Speaker 1: Thank you very much for joining us. A pleasure. I
6:40
Speaker 1: look forward to having you again because we didn't even
6:41
Speaker 1: get into the whole kind of history of how the
6:44
Speaker 1: liquefied natural gas came about and also some of the
6:47
Speaker 1: challenges that you that you faced. Much appreciated for joining
6:50
Speaker 1: A shriek Tuki. He is the co founder and chairman
6:53
Speaker 1: of Tlaurean. Thank you very much. Our topic is the
7:09
Speaker 1: world of retail and joining us as Bert Flickinger. He
7:12
Speaker 1: is managing director Strategic Resource Group and he can be
7:15
Speaker 1: followed on Twitter at Bert Underscore Flickinger. Bert. Great to
7:20
Speaker 1: have you with us here in the studio. You know, uh,
7:23
Speaker 1: Peter Barnes is in our Bloomberg one oh six one
7:26
Speaker 1: studio in Boston, and maybe you could talk a little
7:30
Speaker 1: bit about the geographical issues that are facing retail because
7:34
Speaker 1: I was reading that in the support area of Boston,
7:38
Speaker 1: for example, it's attracted you. If you want to get
7:41
Speaker 1: retail space, you're gonna end up paying top dollar for that.
7:45
Speaker 1: But a lot of other places are not so hot.
7:47
Speaker 1: To give us the the lowdown precisely, pim Southport, South
7:52
Speaker 1: Street seaports just booming in terms of customer accounts. They
7:57
Speaker 1: got Primark from the UK, which is drawing a lot
8:00
Speaker 1: of customers. They're doing off price full line department stores.
8:04
Speaker 1: Sex Fifth Avenue downtown is one of the great Sex
8:08
Speaker 1: Fifth Avenue stores in Boston is really really one of
8:12
Speaker 1: the birthplaces of retail. Ben Camarada for t j X Incorporated. Um,
8:17
Speaker 1: are you taking me to Fi Leans basement too? But
8:21
Speaker 1: MRV wish to the great Chris Baldwin today at BJ's
8:24
Speaker 1: Wholesale Club and a lot of great retailers, George de
8:28
Speaker 1: Mulis and his Where where did all those great retailers go?
8:31
Speaker 1: Because we got the results all right, Michael Core's stock
8:34
Speaker 1: moves higher because they beat analyst estimates up like Ralph
8:38
Speaker 1: Lauren the same story. But Macy's, J C. Penny Nordstrom,
8:42
Speaker 1: Cole's what what kind of market are they facing? Tailor
8:47
Speaker 1: two cities Nord from is making a lot of on
8:49
Speaker 1: characteristic mistakes, similar to mistakes Target made in Canada, and
8:54
Speaker 1: Canada's turning around to be really tough for Nords of Penn.
8:59
Speaker 1: J C. Penny wins are Frank Blake Retailer Turnaround of
9:03
Speaker 1: the Year Award. Marvin Ellison is doing a great job
9:06
Speaker 1: with Steve set Off, former CEO of Sacks on the board,
9:10
Speaker 1: Mike Alman, who u cleaned up the company when Bill
9:13
Speaker 1: Ackman and Steve Roth left Penny on death store step
9:16
Speaker 1: Penny's got great apparel, great price points five seven nine
9:20
Speaker 1: dollars co exclusive with Disney Nike's coming in Adi DA.
9:24
Speaker 1: But Sophora is the real story at j C. Penny.
9:27
Speaker 1: When we were Paris, Sephora attracts more custos as many
9:31
Speaker 1: customers consumers as the Eiffel Tower and the Eiffel Towers
9:36
Speaker 1: opened more hours per day than Sephoras because they can't
9:39
Speaker 1: control the Saphour crowds on Shaunsliz Sophor Cosmetics for Cosmetics
9:45
Speaker 1: over six million customers a year. Sephora, Shawnsalise, Macy's is
9:51
Speaker 1: doing a lot of exciting things. So we're seeing this
9:54
Speaker 1: accelerating retail ice age consolidation where Barney's, Niemon Marcus Bergdorf
10:01
Speaker 1: could file for bankruptcy, Bonton Group, Macy with its blowing
10:05
Speaker 1: deal's company net consolidators as well, be Northstrom, as well
10:09
Speaker 1: be Hudson Bay Sacks. So while it's tougher time now,
10:13
Speaker 1: as you said, earnings up, sales soft, we see that
10:16
Speaker 1: bouncing back, but they really have to do what's for
10:18
Speaker 1: is doing so well in the UK when we're talking
10:20
Speaker 1: to one of their co directors, what so foreign Harvey
10:23
Speaker 1: Nichols are doing in London in terms of digital special
10:27
Speaker 1: exciting events to your present point before going on air,
10:32
Speaker 1: making clothes that people want to buy, great styles, great fabric,
10:37
Speaker 1: great fit. The leaders are really in London and people
10:41
Speaker 1: need to see that. And as you referenced, they're really
10:45
Speaker 1: really exciting development with young designers too. But Bert, if
10:49
Speaker 1: I'm a retail investor or even an institutional investor, should
10:53
Speaker 1: I just sit on the sidelines for now and wait
10:56
Speaker 1: until these these big big name company these like Macy's
11:00
Speaker 1: and Pennies and Nordstrom's get their act together. Peter, You're
11:04
Speaker 1: completely correct, sit on the sidelines until after Holiday seventeen.
11:09
Speaker 1: The bankruptcy will start when they have to pay their
11:12
Speaker 1: bills when the vendors don't fill up Tin Cup and
11:15
Speaker 1: Tin Cup Week in February of eighteen, and then Macy's
11:19
Speaker 1: and a number of the other son Nords from Hudson
11:22
Speaker 1: Bay Sachs will be the real winners. And that's probably
11:25
Speaker 1: the time to invest off off price. Anytimes a good time,
11:29
Speaker 1: uh particularly with t j Ax. Well I was gonna, well,
11:33
Speaker 1: go ahead, Peter. Well. I was also going to ask about,
11:35
Speaker 1: you know, any specialty retailers that you like. You know,
11:38
Speaker 1: I'm thinking about the foot lockers of the world, or
11:41
Speaker 1: the bed baths and beyond. How are they survive, how
11:44
Speaker 1: are they doing? Are they okay? And are they safe
11:46
Speaker 1: places for investors? These days they're okay, But it really
11:49
Speaker 1: depends on World World Cup and big athletic events in
11:53
Speaker 1: off price what we really like. There was an article
11:55
Speaker 1: in Barance this weekend that the dead on b JS
11:58
Speaker 1: is trading at nine and UH five eighths per cent.
12:02
Speaker 1: Dynamic new leader and Chris Baldwin and uh b J's
12:07
Speaker 1: in the entire southeast and northeastern seaboard of the US
12:11
Speaker 1: is really doing well and saving customers money, both individual
12:15
Speaker 1: as well since institutional or commercial customers. Well, since you
12:19
Speaker 1: mentioned wholesale clubs, I gotta ask you about Costco because
12:22
Speaker 1: I mean that is the you know, that's the leader, right,
12:25
Speaker 1: Costco is the leader. Lost Jeff Bradman, who was even
12:29
Speaker 1: better than Sam Walton in terms of everything Jeff Bradman
12:33
Speaker 1: and his dad did was a winner. They betted a
12:35
Speaker 1: thousand in retail save families at Costco UH five six
12:40
Speaker 1: thousand a year. During the supermarket strike the last decade,
12:44
Speaker 1: Brotman would let about eight to ten Latino families when
12:49
Speaker 1: we were in the market sign up on one Costco
12:51
Speaker 1: membership card. They couldn't shop in the neighborhood supermarkets. Costco
12:55
Speaker 1: has has stores that do up to five six million
12:59
Speaker 1: a week high volume stores anywhere outside our pack and
13:02
Speaker 1: save client in New Zealand and UH. Costco can beat
13:07
Speaker 1: anybody and anything. And my former Procter and Gamble teammate
13:10
Speaker 1: Mike Parrott's doing a great job as their chief merchant.
13:13
Speaker 1: Hey Bert, Let's finish up though on with the online retailers.
13:17
Speaker 1: You know, where do these companies hide in the face
13:21
Speaker 1: of competition from Amazon, I mean, can they survive? Uh?
13:26
Speaker 1: Even the well costco has its special niche obviously, but
13:30
Speaker 1: what about the rest of these retailers. How do they
13:32
Speaker 1: how do they compete against the Amazons of the world.
13:36
Speaker 1: I'm gonna I'm gonna channel Peter. To Macy's credit, they
13:38
Speaker 1: moved from the twentieth largest online retailer. Macy's dot com
13:42
Speaker 1: is now ranked number seven in retail Richard Baker and
13:45
Speaker 1: his team at Hudson Babe but guilt in off price
13:48
Speaker 1: for sex fifth avenue and sex says off fiveth. So
13:51
Speaker 1: a combination of bricks and clicks with I'm your channel's
13:54
Speaker 1: great way to survive. But you're you're right, there's gonna
13:57
Speaker 1: be darwinning destruction for the people that don't to it
14:01
Speaker 1: ouch Darwinnie and destruction. You know, everybody, Let me just
14:05
Speaker 1: focus on Walmart. I know we did. You know we
14:06
Speaker 1: talked a little bit of Amazon. Walmart is serious about
14:09
Speaker 1: online right very stock is up eight eight for Walmart
14:12
Speaker 1: stock is up eighteen percent so far this year. They
14:14
Speaker 1: pay a two and a half percent dividend and they're
14:17
Speaker 1: not going quietly into the night. Not going quietly, and
14:20
Speaker 1: it might be a Peter Barnes good good investment for now.
14:24
Speaker 1: In eighteen Doug McMillan hand picked from Mr Sam Walton
14:27
Speaker 1: out of Jonesboro, Arkansas. Uh, one of the first person
14:31
Speaker 1: in seventeen years, Pim and Peter top merchant top store operators,
14:36
Speaker 1: completely turning the company around. What and Walmart had a
14:40
Speaker 1: lot of nepotism with Sam Walton's son Robbed and brother
14:44
Speaker 1: in law running dot com. Now they have professionals running it,
14:47
Speaker 1: and Walmart will win on land and online. All right,
14:50
Speaker 1: I gotta tell you, I think sometimes my wife is
14:53
Speaker 1: single handedly helping to keep t J Max and Walmart
14:56
Speaker 1: up there because she's that those places all the time.
14:59
Speaker 1: Your wife as smart as their summer interns of Goodbye Anywhere,
15:02
Speaker 1: and they find the best fashions for for ten dollars.
15:05
Speaker 1: This is your great producer, does uh? Sam Lang best
15:08
Speaker 1: bargain's best prices. Peter, thanks very much. Bert Flickinger is
15:12
Speaker 1: managing director Strategic Resource Group, and I want to thank
15:16
Speaker 1: of course Peter Barnes, my guest host today. Let's turn
15:31
Speaker 1: our attention now to yield. How do you get yield
15:33
Speaker 1: in the yield starved environment? For example, the thirty year
15:36
Speaker 1: right now pays two point seven nine the ten year
15:40
Speaker 1: pays well, it doesn't pay very much more pace two
15:42
Speaker 1: point to one percent. And for people that are looking
15:46
Speaker 1: for yield, where are they gonna go? Well, maybe they're
15:49
Speaker 1: gonna stop in Joel Beam's office. He's managing director senior
15:52
Speaker 1: portfolio manager at Salient and the topic is real estate
15:56
Speaker 1: investment trust. Joel, thank you very much for being with us,
15:59
Speaker 1: Thanks for having me give us the lay of the
16:01
Speaker 1: land when it comes to real estate investment trust. Because
16:03
Speaker 1: we know that the income gets passed through untaxed to
16:07
Speaker 1: the recipient, and the recipient pays the tax. But there
16:11
Speaker 1: are a wide variety of reeds out there. Give us
16:14
Speaker 1: some some understanding. Indeed, it's a trillion dollar market cap
16:18
Speaker 1: and the the property exposure that's possible to access through
16:23
Speaker 1: this marketplace is quite diverse, and it really reflects the
16:26
Speaker 1: main street property markets. So there are shopping centers, office buildings, warehouses,
16:32
Speaker 1: specialty um reachs like things that an't like prisons for instance.
16:37
Speaker 1: I mean, there's all manner of commercial property available in
16:39
Speaker 1: that trillion dollar market. What what do you specialize in
16:42
Speaker 1: or what what do you recommending that people pay attention to? Currently,
16:46
Speaker 1: we pay attention to the main food groups. So you
16:48
Speaker 1: know it's largely it's it's uh industrial property, office property, UM,
16:54
Speaker 1: retail hotels, so fairly standard fare um for us, and
16:59
Speaker 1: I think right now they're there's you know, actually there's
17:01
Speaker 1: quite a lot of dispersion that's come back into our market.
17:03
Speaker 1: I mean, the prices have generally been a little bit
17:06
Speaker 1: homogeneous over the last few years, and this year is
17:08
Speaker 1: particularly with the retail sector you see getting knocked out
17:10
Speaker 1: of bed. It's um, it's been a really interesting opportunity
17:13
Speaker 1: to pick up some stock. And Joe Peter here in Boston,
17:17
Speaker 1: you do right, and your most recent research note though
17:20
Speaker 1: that people have to be really careful about the you know,
17:23
Speaker 1: chasing yield here. Uh, you have to be kind of
17:27
Speaker 1: selective can expand on that and so what what is
17:32
Speaker 1: the risk right now in the reach space? Well, there's
17:35
Speaker 1: always risk, um, this is nothing is riskless. And UM,
17:39
Speaker 1: you know our our sector you know, certainly has some yield.
17:43
Speaker 1: The stocks that trade at lower multiples and you know, um,
17:46
Speaker 1: you know, I have a greater opportunity to get more
17:48
Speaker 1: of your return and current yield and less in growth.
17:51
Speaker 1: And if you um aren't careful, you know, sometimes you
17:56
Speaker 1: can get exposed to companies that might have a dividend cut,
17:58
Speaker 1: maybe they're overpaying. So you know, we all want yield,
18:01
Speaker 1: but remember you can't We can't give you, and you
18:03
Speaker 1: can't find what the Earth doesn't provide. And we are
18:06
Speaker 1: in a low yield environment across the investment landscape, so
18:10
Speaker 1: one must always be careful. And um, you know that's
18:14
Speaker 1: my short advice somewhere. Yeah, and as with metals, which
18:16
Speaker 1: we were just talking about in the last segment, Um,
18:19
Speaker 1: your space is very interest rate sensitive and and we
18:22
Speaker 1: have the Fed placed yet again to raise interest rates
18:26
Speaker 1: potentially by the end of the year. How does that
18:29
Speaker 1: play into all this? Well, long term real estate shouldn't
18:32
Speaker 1: and doesn't really correlate with rate changes except that right now,
18:35
Speaker 1: you know, we're living in an extraordinary time where the
18:38
Speaker 1: entire investment landscape seems to be priced at a premium,
18:41
Speaker 1: so as the overall return landscape moves, and that's primarily
18:45
Speaker 1: risk free rates. Right, Um, there are certain sectors that
18:48
Speaker 1: might be susceptible to it from a you know, from
18:51
Speaker 1: a buying and selling in the markets every day point
18:53
Speaker 1: of view. Long term, Um, you know, a bond can't
18:56
Speaker 1: raise the rent um, like we can say on a
18:58
Speaker 1: commercial property that we own. So so there isn't correlation
19:01
Speaker 1: over the long term, but it's extremely important right now
19:04
Speaker 1: where it seems well established that many things are expensive,
19:07
Speaker 1: it's important to have a strategy. Um, you know, I
19:11
Speaker 1: think the passive fad in today's environment is way long
19:13
Speaker 1: in the tooth. Can you speak about one particular read
19:17
Speaker 1: at all, Chatham Lodging Trust. They're based in Palm Beach, Florida,
19:22
Speaker 1: and I think that they kind of quality. I mean,
19:24
Speaker 1: I know they're in your fund, but there are a
19:27
Speaker 1: read that's focused on the hospitality industry. Yeah, we think
19:31
Speaker 1: it's a great company that's been a little bit choppy,
19:34
Speaker 1: you know, performance wise, but the business is plotting along.
19:37
Speaker 1: In our in our strategies, we try to have our
19:40
Speaker 1: common stock hotel investments with limited service hotels because the
19:43
Speaker 1: margins are better. Um so, you know, really great brands
19:46
Speaker 1: like like Marriott Residents In and Hilton Garden In. You know,
19:50
Speaker 1: really nice margins, great business. And in our more credit
19:54
Speaker 1: oriented investments, we like we like more full service hotels,
19:57
Speaker 1: like we have a big investment in Ashford hospit Mentality
20:00
Speaker 1: Prime that you probably saw just to quickly. I just
20:02
Speaker 1: said like that the dividend the yield on on Chatham
20:06
Speaker 1: Lodging Trust symbol is c l dt uh six and
20:10
Speaker 1: a half percent. Right now, Peter and Joel, you are
20:16
Speaker 1: looking at harvesting some gains here, are you not? We
20:19
Speaker 1: do that all the time, sir, so so what but
20:22
Speaker 1: but specifically you're talking about harvesting gains and preferreds. Why? Well,
20:28
Speaker 1: I think it's as I mentioned earlier, it seems well
20:30
Speaker 1: established in the credit space, in particular that you know,
20:33
Speaker 1: valuations are elevated and there seems to be you know,
20:36
Speaker 1: really more you know, really more downside risk than than
20:39
Speaker 1: upside opportunity for a lot of credit instruments. So we
20:41
Speaker 1: are absolutely for years have been in block and tackle
20:44
Speaker 1: mode sort of selling low yield where there's no more
20:47
Speaker 1: upside in the price, and we've been trying to source
20:50
Speaker 1: and buy opportunities for you know, a fair return and
20:53
Speaker 1: some price stability and and upside. I want to thank
20:56
Speaker 1: you very much for spending time of this coming in
20:58
Speaker 1: a very interesting Joel Beam is a managing director senior
21:01
Speaker 1: portfolio manager at Salient. The topic of course is reets
21:05
Speaker 1: and just to mention that they manage the salient reats strategy.
21:09
Speaker 1: It's called the Select Income Fund. Joining us is Eric Lacel.
21:24
Speaker 1: He is the chief economist for URBC Global Asset Management.
21:27
Speaker 1: They've got a mirror three billion dollars under management and
21:31
Speaker 1: joining us from Toronto. And you know, Eric, maybe you
21:35
Speaker 1: could give us a sort of non US perspective of
21:37
Speaker 1: how the US economy looks to you and what is
21:42
Speaker 1: it's uh, what are some of its strengths and some
21:44
Speaker 1: of its weaknesses at the moment, Well, thanks for having
21:48
Speaker 1: me to to me, it looks like it's doing pretty well.
21:51
Speaker 1: I won't say it's necessarily broken, unambiguously clear of that
21:55
Speaker 1: two percent to hurdle that has proven so hard to
21:57
Speaker 1: overcome over the last eight or nine years, but is
22:00
Speaker 1: an economy running towards the top end. I think of
22:02
Speaker 1: what we've grown used to and you can see that
22:04
Speaker 1: demonstrated in quite a lot of measures. Granted, the hard
22:06
Speaker 1: data maybe not quite performing online with the soft data,
22:09
Speaker 1: but overall it looks like there's been a pickup. I
22:11
Speaker 1: don't know if we can attribute all of that back
22:13
Speaker 1: to the election in November, just because there's a global
22:16
Speaker 1: element to this, and there's a part of it that
22:18
Speaker 1: started way back last summer. But I would say moving
22:21
Speaker 1: fairly well right now. And I should say, as as
22:23
Speaker 1: someone living to the north of the U. S. It's
22:25
Speaker 1: something that's been beneficial to Canada as well. It's helped
22:27
Speaker 1: Canada move quite nicely forward to but Erica Peter Barnes here,
22:31
Speaker 1: a lot of the rise in the equity markets has
22:35
Speaker 1: been attributed to the expectation that the new president's agenda
22:40
Speaker 1: will get past and we'll help to stimulate the economy
22:43
Speaker 1: even more if if if that, assuming that's what it needs.
22:47
Speaker 1: But we haven't actually seen much of that agenda move forward,
22:51
Speaker 1: and it looks like the markets are really kind of
22:53
Speaker 1: hanging on tax reform. What about all that? Right Well,
22:55
Speaker 1: I think that's absolutely fair, and I'll circle around to
22:58
Speaker 1: that in a moment, but I would really make the
22:59
Speaker 1: comment at same time that do keep in mind there
23:02
Speaker 1: are some other things that work here. If financial conditions
23:04
Speaker 1: in general are very favorable. There's a bit of a
23:07
Speaker 1: rubber ball bounce effect from a tough start to two
23:09
Speaker 1: thousand sixteen and so on, So there are other things
23:12
Speaker 1: that work. I would say that what's maybe underappreciated by
23:14
Speaker 1: the White House legacy. If I can say that so
23:17
Speaker 1: far is there does seem to be a shift in
23:19
Speaker 1: the deregulation environment. Not a lot of legislation, but a
23:22
Speaker 1: lot of executive orders. They could change in terms of
23:25
Speaker 1: the temperature in the room as well. And when I
23:27
Speaker 1: look at various measures of concern about regulation, those are
23:30
Speaker 1: already coming down. So I think there's been some progress there.
23:32
Speaker 1: There's been that big boost in confidence, and don't make
23:35
Speaker 1: me try and link it back coherently to some sort
23:38
Speaker 1: of policy change, but that seems to have been linked
23:40
Speaker 1: in part to the change of political landscape as well,
23:43
Speaker 1: And then you're absolutely right, will we get tax cuts
23:46
Speaker 1: doesn't look likely this year. I'm still budgeting for something
23:49
Speaker 1: in two thousand eighteen, but that something has slowly been
23:52
Speaker 1: whittled down to a much less exciting something than one
23:54
Speaker 1: might have imagined in the fall of last year. So
23:56
Speaker 1: I think there might be a bit of help in
23:57
Speaker 1: two thousand eighteen. But other factors are and maybe the
24:00
Speaker 1: most important and so far undiscussed one is that perhaps
24:03
Speaker 1: a bit of that secular stagnation is fading, really just
24:06
Speaker 1: for for chronological reasons, if nothing else. And this idea
24:09
Speaker 1: that a negative confidence shock was maybe one of the
24:12
Speaker 1: things that did in the global economy back in two
24:14
Speaker 1: thousand and eight, two thousand nine, and maybe there's been
24:17
Speaker 1: a positive confident shock, and whether it makes sense that
24:19
Speaker 1: it happened or not, it has happened, and that might
24:21
Speaker 1: be helping to pull us out of that secular stagnation
24:24
Speaker 1: as well. And a good and a good point to
24:26
Speaker 1: pivot to the FED with, because you know, obviously the
24:30
Speaker 1: FED helped help this recovery along, most analysts would agree,
24:35
Speaker 1: but now the FED is trying to, you know, reduce
24:38
Speaker 1: its accommodation. What about what's your outlook for FED policy
24:42
Speaker 1: going forward for the rest of the year, right, I
24:45
Speaker 1: wouldn't say I have an overly provocative one. It involves
24:48
Speaker 1: the assumption of probably a rate hike and probably a
24:50
Speaker 1: bit of draw down on the bond side, So fairly
24:53
Speaker 1: in line I would say, with where the market sits
24:55
Speaker 1: right now. But to me that the big question, certainly
24:58
Speaker 1: as investors, is just whether or not this is the
25:00
Speaker 1: right decision, whether it's a policy error or not. And
25:02
Speaker 1: I sit firmly in the camp that thinks this is
25:05
Speaker 1: the right thing to do. Granted, lots of ambiguity about
25:08
Speaker 1: what neutral or natural is and where eventually this all ends.
25:11
Speaker 1: But it does certainly make sense that rates are going up.
25:14
Speaker 1: I don't get too too concerned about the low wage story.
25:16
Speaker 1: It seems to me that this is clearly an economy
25:19
Speaker 1: getting fairly tight, and so it's it's probably the right
25:21
Speaker 1: thing to do in and so far the FED has
25:22
Speaker 1: acted reasonably in the market seems to be judging that
25:25
Speaker 1: as well. Hey, Eric, whatever camp you're in, I'm assuming
25:28
Speaker 1: that it's using Canadian lumber to build the houses, right,
25:32
Speaker 1: to build the cabins. That's right, all right, I'm leading
25:36
Speaker 1: you know where I'm leading you. I'm leading you down
25:38
Speaker 1: the NAFTA path, because you know, everyone thinks NAFTA and
25:41
Speaker 1: then you know, unless the President pays a visit to uh,
25:45
Speaker 1: you know the well. I mean, I guess I was
25:47
Speaker 1: gonna say Wisconsin or northern Michigan in order to uh
25:51
Speaker 1: sort of talk about the timber trade or indeed even
25:55
Speaker 1: the the oil and energy trade from Canada Mexico is
25:58
Speaker 1: always the in the headline, what's your view of any
26:01
Speaker 1: possible renegotiation for for NAFTA and making it actually better? Yeah,
26:06
Speaker 1: I mean, this is a timely subject in the sense
26:08
Speaker 1: that the official negotiations start next week, to my knowledge,
26:11
Speaker 1: and so we will learn much more shortly. We learned
26:14
Speaker 1: a fair chunk last month, of course, when that that
26:16
Speaker 1: big eight teen page report came out of out of
26:19
Speaker 1: the White House proposing various NAFTA changes, And so in
26:22
Speaker 1: terms of how that plays out, I'll confess I'm a
26:25
Speaker 1: little concerned. And it's not that anyone's proposing to tear
26:28
Speaker 1: NAFTA up. It's not that giant new tear ups are
26:30
Speaker 1: being proposed for any particular area. I worry more about
26:33
Speaker 1: almost the foundation of NAFTA and some of the aims there,
26:36
Speaker 1: and in particular some of the subtle changes. You're eliminating
26:40
Speaker 1: a trade resolution panel that that's actually quite important. Right now,
26:43
Speaker 1: disputes are resolved in an impartial way. If disputes instead
26:46
Speaker 1: are resolved by national courts, you get much less predictable
26:49
Speaker 1: and maybe much less free trade oriented outcomes. And similarly,
26:53
Speaker 1: one of the proposals in there is to allow what
26:55
Speaker 1: are called safeguard exclusions, and really what that means is
26:58
Speaker 1: if any sector is hurt by free trade, they can
27:01
Speaker 1: put tariffs on and these basic point of free trade is,
27:04
Speaker 1: isn't the hurt sectors, but sectors do get hurt along
27:07
Speaker 1: the way be a comparative advantage. And so I do
27:10
Speaker 1: worry that NAFTA could continue with no new tariffs but
27:12
Speaker 1: really be substantially defangd So consider me somewhat concerned. And
27:15
Speaker 1: of course that's hugely relevant for both Mexico and Canada.
27:18
Speaker 1: They are number two and three in terms of global
27:21
Speaker 1: trade linkages with the U S right after China. So
27:23
Speaker 1: it is a big deal, and I think that there
27:25
Speaker 1: are some more pernicious changes proposed than maybe the surface
27:27
Speaker 1: would suggest. Yeah, and the president's target is the sixty
27:31
Speaker 1: billion dollar trade deficit with Mexico. So what sectors of
27:36
Speaker 1: trade between the US and Mexico do you think are
27:38
Speaker 1: most at risk? And all of this, I suppose the
27:41
Speaker 1: motor vehicle one is is a side that gets the
27:43
Speaker 1: greatest attention, And indeed Mexico has been hugely successful in
27:47
Speaker 1: terms of picking up a lot of production and manufacturing there.
27:50
Speaker 1: To me, though, I think this will get very complicated
27:53
Speaker 1: very quickly, given the supply chain linkages and the reimporting
27:56
Speaker 1: and re exporting of products that were made in one
27:58
Speaker 1: country and back to the other. It really manufacturing and
28:01
Speaker 1: autos being one of the flagship is the is the
28:04
Speaker 1: obvious one there. But you know, you do worry a
28:06
Speaker 1: little bit though about one of the aims that the
28:08
Speaker 1: US has here, which is that this goal to to
28:10
Speaker 1: achieve a more balanced trade trade balance, and so that
28:13
Speaker 1: that's a noble goal, but it's not clear whether a
28:15
Speaker 1: government can really achieve let me let me break in, Eric,
28:18
Speaker 1: because there's is there there's no evidence that having a
28:21
Speaker 1: trade balance one way or any other necessarily affects whether
28:24
Speaker 1: your economy is doing well or the people in your
28:26
Speaker 1: country are actually living well well. I agree with me,
28:29
Speaker 1: and you know, Barry, I can Green would argue that
28:31
Speaker 1: the exorbitant privilege is if you're the world's reserve currency
28:34
Speaker 1: in the US certainly is then you almost by definition
28:37
Speaker 1: right a trade deficit, and so I think it will
28:39
Speaker 1: be hard to eliminate. And simultaneously, the White House wants
28:41
Speaker 1: more business investment and fiscal stimulus, and of course that
28:44
Speaker 1: means less aggregate national savings, and of course you need
28:47
Speaker 1: to be a national net saver if you're going to
28:49
Speaker 1: run a current account surplus. So I'm not sure they'll
28:51
Speaker 1: be able to achieve that. That worries me a bit
28:52
Speaker 1: as well. Well. I was not asking that Ontario and
28:56
Speaker 1: the linkages in the Ontario economy with the United States,
28:58
Speaker 1: because if you stand at the Acida Bridge, you know,
29:00
Speaker 1: or the Bluewater Bridge with their building, I mean, it's
29:03
Speaker 1: basically a unified economy. It really is, yeah, massively, So
29:07
Speaker 1: that's right. And I can say from the Canadian perspective
29:10
Speaker 1: that three quarters of Canadian exports go to the U S.
29:14
Speaker 1: And gosh, it represents at least a quarter of Canadian GDP,
29:17
Speaker 1: so huge on that side. Not quite as big on
29:19
Speaker 1: the U S side, just because the U S economy
29:21
Speaker 1: is so much bigger, but these are hugely integrated. There
29:24
Speaker 1: would be massive consequences both for the border states in
29:26
Speaker 1: the US and also for Ontario in particular, but some
29:29
Speaker 1: of the other manufacturing and exporting hubs as well. So
29:32
Speaker 1: it's it's a big deal for all of us. It's
29:34
Speaker 1: a middling sized deal I think for all of you.
29:36
Speaker 1: Were slightly reassured that behind the scenes, one hears that
29:39
Speaker 1: Trump isn't focused on Canada. Canada is getting caught up
29:42
Speaker 1: and there's nevertheless, thanks very much. Eric la Cell, chief
29:45
Speaker 1: economist RBC Global Asset Management, joining US from Toronto. Thanks
29:51
Speaker 1: for listening to the Bloomberg P and L podcast. You
29:54
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
29:58
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
30:01
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa
30:05
Speaker 1: abramoids one before the podcast, you can always catch us
30:08
Speaker 1: worldwide on Bloomberg Radio