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Markets, Trump’s Taxes, and Energy (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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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. All right, let's forget
0:22
Speaker 1: about two. That's my theme for the last few weeks.
0:25
Speaker 1: Let's look forward to. Let's talk to some professionals who
0:28
Speaker 1: do this stuff for living. See what we can look
0:30
Speaker 1: forward to. Joe Gilbert, Integrity Asset Management. He's a portfolio manager. There. Uh, Joe,
0:35
Speaker 1: it says you're based in Moreland Hills. I'm just gonna
0:37
Speaker 1: take a guess and say that's Cleveland, correct, Faul, Good morning,
0:43
Speaker 1: Thanks for having me on. Yeah, we're we're on. I'm
0:44
Speaker 1: on the east side of Cleveland. All right, good stuff. Hey, Joe,
0:47
Speaker 1: you know i'd love to get your thoughts. What are
0:50
Speaker 1: you telling your clients right here? What's in your year
0:52
Speaker 1: ahead outlook letter to your clients? You know? Um, Paul,
0:57
Speaker 1: so similar to you. Um, we're just kind of thrown
1:00
Speaker 1: away to playbook for two and looking forward to three,
1:05
Speaker 1: and so what we're telling clients is that it pays
1:08
Speaker 1: to being more constructive for three. I mean, I think
1:11
Speaker 1: it's applega laid out um. You know, equity markets down
1:15
Speaker 1: and bear market territory, even some fixed income sectors and
1:19
Speaker 1: down bear market territory. And that end will end this year.
1:23
Speaker 1: So we think looking forward to set up for next year,
1:26
Speaker 1: three will be a lutch greater and we just basically
1:29
Speaker 1: see inflation will come down, um, the Fed will stop
1:32
Speaker 1: raising rates, um as earnings inestiments will go down, and
1:36
Speaker 1: earnings multiples will go up, and we think that will
1:38
Speaker 1: lead to a strong equity performance next year. What's been
1:41
Speaker 1: interesting is the only places to hide Joe have been oil. Energy.
1:45
Speaker 1: Commodity is actually having a really stell a year, but
1:47
Speaker 1: also the dollar. And I'm interested is to whether that
1:50
Speaker 1: dollar trade, whether that sort of headwind for earnings as
1:53
Speaker 1: well if you're a global related company, is that going
1:56
Speaker 1: to dull back in any sorts as we see perhaps
1:58
Speaker 1: the FED tickets foot off the gas and maybe other
2:00
Speaker 1: central banks keep on pushing by the ECB. You know,
2:04
Speaker 1: I think that's a great point, Caroline. I think that
2:06
Speaker 1: if as we look, the dollar is actually weekend since September.
2:10
Speaker 1: I think we kind of hit the peak UM in September,
2:13
Speaker 1: and so this last quarter, I think we're kind of
2:15
Speaker 1: getting a preview of how we think the market is
2:17
Speaker 1: going to play out next year. UM investor the starting
2:21
Speaker 1: position that the fedtest towards the end of his his
2:23
Speaker 1: rate hiking cycle. I think this year really has been
2:26
Speaker 1: about the Fed UM and you sprinkle in a little
2:29
Speaker 1: bit of a Ukraine war and UH China COVID zero
2:34
Speaker 1: COVID policy. So I think that we get to a
2:36
Speaker 1: point that investors are looking forward that the FED will
2:39
Speaker 1: no longer be such a head win for the market,
2:42
Speaker 1: and then the dollars just kind of showing you that.
2:44
Speaker 1: Then that's why you've seen a lot of weakness here
2:46
Speaker 1: in the last quarter. So you know, I'm an equity guy,
2:50
Speaker 1: but I look at the UH fixed income returns this
2:53
Speaker 1: year again, the Bloomberg aggregate total return the next off
2:55
Speaker 1: twelve three or something like that. People and a fixed
2:59
Speaker 1: income BIS will say that historic lost, historic performance under performance.
3:04
Speaker 1: So being the simple guy that I am, I just
3:06
Speaker 1: say I'm gonna jump in both feet and buy some
3:08
Speaker 1: bonds here. What do you think about that strategy. You know,
3:12
Speaker 1: it's hard to disagree with that. I think that there's
3:15
Speaker 1: you know, similar as I said, the set up, it
3:17
Speaker 1: looks good for both fixed income and for equities. But
3:20
Speaker 1: next year, you know, as an equity guy, I'm a
3:22
Speaker 1: little more biased because I think that UM, a lot
3:25
Speaker 1: of the bad news for equities has definitely been priced
3:28
Speaker 1: and UM as far as and and granted, there will
3:30
Speaker 1: be different sectors that I'll perform at different points in
3:33
Speaker 1: times next year. Unlike fixed income, I think fixed income
3:36
Speaker 1: obviously will basically as soon as to fit you know,
3:40
Speaker 1: intimates that they're going to be done or they're pausing.
3:43
Speaker 1: I think you're gonna have a huge rally and fixed income,
3:46
Speaker 1: but they're gonna bring equities along with them. As an
3:49
Speaker 1: equity guy, then can you go as broad brush as
3:52
Speaker 1: industry groups you like? Are you having to be? Look
3:54
Speaker 1: as stock picker is kind of a market at the moment,
3:56
Speaker 1: given as we head into you know, I think that
4:01
Speaker 1: really that that there are some winners and losers. You know.
4:04
Speaker 1: The way we see it is, you know, we've had
4:06
Speaker 1: you know, the rolling corrections, and we think we're kind
4:09
Speaker 1: of going to see the rolling recession that will come
4:11
Speaker 1: play through next year, and so I think within that, UM,
4:15
Speaker 1: the way we're looking at is is kind of a
4:16
Speaker 1: first and first out Carolina. So it's more of the
4:19
Speaker 1: way we think about it is the companies and the
4:22
Speaker 1: sectors that have underperformed dramatically, UM, the earlier cycle companies,
4:26
Speaker 1: those are where we're actually really looking for opportunities in.
4:29
Speaker 1: So that looks like more of consumer discretionary names, which
4:33
Speaker 1: are trading still pretty cheaply, pretty close to price the book. UM.
4:36
Speaker 1: We're actually contrariantly and looking at home builders here because
4:40
Speaker 1: we think that the one again it's a it's a
4:42
Speaker 1: short cycle, it's early cycle, UM. And so if well,
4:45
Speaker 1: if we're right UM, and if FED does cut start
4:49
Speaker 1: raising rates and actually eventually we think they will probably
4:51
Speaker 1: cut toward the end of next year, those are UM
4:53
Speaker 1: sectors that will do well as well as industrials that
4:56
Speaker 1: have very limited inventory. Hey, Joe of you were slash
5:00
Speaker 1: listener just kind of message me and said, hey, how
5:03
Speaker 1: can stocks perform this year? If we've still got some
5:06
Speaker 1: pretty significant earnings risk out there? How do you kind
5:08
Speaker 1: of factor that in? Well, I think that UM, the
5:12
Speaker 1: way we think about it is stocks went down this
5:16
Speaker 1: year or more depending on where you were, and they
5:19
Speaker 1: went down because you know, stocks discounted forward outlook, so
5:22
Speaker 1: they discounted earnings coming down, and so we think that
5:25
Speaker 1: a lot of that has been pricing. We this year
5:28
Speaker 1: was really about repricing risk and repricing expectations. So I
5:32
Speaker 1: think that's where we really are and think and most
5:35
Speaker 1: of the time stocks generally rally is you know, close
5:38
Speaker 1: to the last estimate cut, and so we don't know
5:40
Speaker 1: exactly when that will be, but we've presumed that it
5:43
Speaker 1: will be early and early three and that will basically
5:47
Speaker 1: be kind of the clearing event for equities to outperform. Joe,
5:51
Speaker 1: talk to us about what you're going to be taking
5:52
Speaker 1: your cues from. Is it fundamental data? Are you going
5:56
Speaker 1: to be looking at the big broadbrush data dumps that
5:58
Speaker 1: we get the jobs market, whether it's inflation, shouldn read that,
6:00
Speaker 1: that's what's going to be dictating you. Are you going
6:02
Speaker 1: to be looking more on the individual names, the earnings releases.
6:05
Speaker 1: What's going to be sort of your fuel, your catalyst
6:08
Speaker 1: to be getting in and out of market. Well, we're
6:11
Speaker 1: fundamental investors, so first you know, firstly, we're gonna always
6:15
Speaker 1: look at what company managements are telling us, and so
6:18
Speaker 1: we we use that as a guide post this year.
6:21
Speaker 1: As far as you know, companies that have been less
6:23
Speaker 1: constructive or you know, most management teams are bullish about
6:27
Speaker 1: their prospects, but on the margin they've gotten a little
6:30
Speaker 1: less constructive. So we're gonna look towards that. But obviously
6:33
Speaker 1: on a macro sense, we have to have inflation continue
6:36
Speaker 1: to come down. So those are the CPI and the
6:38
Speaker 1: pc reports. Next week is actually gonna be pretty big
6:40
Speaker 1: because we have a payroll number that we think we'll
6:43
Speaker 1: still will show average hourly earnings declining again and probably
6:48
Speaker 1: less added to payroll. Important you know, what we think
6:51
Speaker 1: there really is going to be. The key is that
6:53
Speaker 1: that will probably make next year not as negative on
6:55
Speaker 1: economics standpoint is that payrolls are probably not going to
6:58
Speaker 1: go negative U because there's a lot of job boarding.
7:02
Speaker 1: As far as company managements have been you know, once
7:05
Speaker 1: been twice shy, they don't want to release workers. They're
7:08
Speaker 1: gonna probably just trying to find a way to keep
7:09
Speaker 1: their payrolls not um in a traditional recession where they
7:13
Speaker 1: will reduce them, they're gonna probably try to keep on flat.
7:15
Speaker 1: And so I think that We're going to really have
7:17
Speaker 1: to take cues from the inflation data points that come
7:20
Speaker 1: in our hourly earnings and service inflation. All right, Joe,
7:24
Speaker 1: great stuff. Really appreciate you taking the time here on
7:26
Speaker 1: New Year's Eve Eve. Joe Gilbert Integrity Asset Management. He's
7:30
Speaker 1: a portfolio there there in Moreland Hills, Ohio. I just
7:33
Speaker 1: google mapp that it's just kind of like and that
7:35
Speaker 1: the eastern part is Joe saying of Cleveland right near
7:37
Speaker 1: the lake, so pretty cool part of the country. Appreciate
7:40
Speaker 1: checking in with Joe Gilbert. There's still a lot going
7:46
Speaker 1: on in Washington even today, talk about a data dump
7:49
Speaker 1: on a day before major holiday. Uh, the taxes for
7:54
Speaker 1: former President Donald Trump have been released. We want to
7:57
Speaker 1: get the latest with Lard Davison. It just happened just
8:00
Speaker 1: us to tape recently. Lard Davidson from Bloomberg News joints
8:02
Speaker 1: us here all right. I know it's early moments of
8:05
Speaker 1: everybody sifting through, uh, the released tax reforms from former
8:09
Speaker 1: President Donald Trump. Any takeaways at this point, yeah, really,
8:13
Speaker 1: I mean one, he has an incredibly complex financial picture.
8:16
Speaker 1: You know, more than a thousand pages worth of documents
8:19
Speaker 1: that were released about an hour ago um detailing both
8:22
Speaker 1: his personal returns as well as his businesses. The businesses
8:26
Speaker 1: themselves were losing money for a lot of these years
8:28
Speaker 1: from um UM. Parts of those were actual losses, but
8:32
Speaker 1: some of those are all these tax breaks appreciation deductions
8:36
Speaker 1: that are very favorable to real estates. Who was really
8:38
Speaker 1: able to minimize any tax bill that he might have
8:40
Speaker 1: to pay, including in one year when he paid no
8:43
Speaker 1: personal income taxes, And of course we've had him same
8:46
Speaker 1: time and time again that that's a smart thing to do,
8:48
Speaker 1: to use the tax codes as they stand to your advantage.
8:51
Speaker 1: What about the structure of the tax codes? What will
8:54
Speaker 1: next year bring do you think in anyway? Yeah, so
8:56
Speaker 1: this is the point that Democrats are really raising about this, saying, look,
8:59
Speaker 1: you know, this shows that the tax code is broken.
9:01
Speaker 1: The fact that there are legal tax breaks for people
9:04
Speaker 1: who are very wealthy to be able to basically have
9:06
Speaker 1: a separate tax code from those that you know, normal
9:09
Speaker 1: wage earners might pay is a problem. Unfortunately for Democrats
9:13
Speaker 1: is they're about to lose their House majority going into
9:15
Speaker 1: next year. The Democrats will retain control of the Senate,
9:19
Speaker 1: Republicans will control the House, which really just spells out
9:21
Speaker 1: gridlock for any sort of tax legislation. It's it's highly
9:24
Speaker 1: unlikely that the two parties will come together on any uh,
9:27
Speaker 1: and any legislation that would come result in raising taxes,
9:31
Speaker 1: particularly if this legislation were the result of some of
9:34
Speaker 1: the findings from Trump's tax returns. So, Laura, these tax
9:38
Speaker 1: returns being released that will provide some data on the
9:41
Speaker 1: former president's personal income, the income of his businesses, will
9:45
Speaker 1: give observers analysts any sense of his net worth and
9:49
Speaker 1: maybe not really Um. The problem with tax returns is
9:53
Speaker 1: there really just a snapshot in time of um earnings
9:57
Speaker 1: for a particular year. Um, you know, because of Trump's
10:00
Speaker 1: uh net worth is so tied um into real estate
10:02
Speaker 1: and other deals that is all not really reflected on
10:05
Speaker 1: on these tax returns in terms of valuations and things
10:08
Speaker 1: like that. Uh, that data just isn't there. So in
10:10
Speaker 1: terms of, you know, whether Trump is as rich as
10:12
Speaker 1: he says he is, whether he gained or lost a
10:16
Speaker 1: bunch of his net worth while he was in office,
10:18
Speaker 1: we can't say from these documents. Of course, you're busy
10:22
Speaker 1: coming on with us rather than having to pull through
10:25
Speaker 1: the thousands of pages. But just talk to us as
10:27
Speaker 1: a report of what you're going to be doing, where
10:28
Speaker 1: are you going to be looking. What do you hope
10:30
Speaker 1: to glean from all of this? Yeah, So the real
10:32
Speaker 1: key question here, um is you know, so how much
10:35
Speaker 1: did Trump benefit from his own tax law? Um? He
10:38
Speaker 1: with the help of Republicans and Congress, passed a big
10:40
Speaker 1: tax cut in seventeen. These documents give us a perfect
10:43
Speaker 1: example to look at, you know, a couple of years
10:45
Speaker 1: before that law change, after that law change, how we're
10:48
Speaker 1: taxpayers like Trump able to benefit from these law What
10:51
Speaker 1: deductions were he able to claim? And which things where
10:53
Speaker 1: he was he not able to claim? You know, one
10:55
Speaker 1: of the key things was this passed through deduction. Um.
10:58
Speaker 1: That was a key centerpiece of the bill. Helped LLC's
11:01
Speaker 1: partnerships pastors right off a bunch of their income. Trump
11:04
Speaker 1: actually wasn't able to claim that one because he actually
11:06
Speaker 1: lost money on his businesses those years. But you know,
11:09
Speaker 1: going forward, if he were to make money, he would
11:11
Speaker 1: be able to to take that deduction. Laura, great to
11:14
Speaker 1: have some time with the Thank you so much. We'll
11:15
Speaker 1: let you get back to the realms of documents. A
11:18
Speaker 1: data dump. Indeed, as we have the last day of
11:20
Speaker 1: trade here in New York. We thank Laura Davison over
11:23
Speaker 1: there in Washington for all things Trump taxes. We dig
11:29
Speaker 1: in a little bit more into the commodity space on
11:31
Speaker 1: Josh Young, chief investment Officer of Decent Interests. Of course
11:35
Speaker 1: you're focused on all on gas on public equities in particular, Josh,
11:39
Speaker 1: just talk to us about in particular the China reopening story.
11:42
Speaker 1: It's sort of good. Everyone scratching their heads, and in
11:44
Speaker 1: the immediate focus, it feels that everyone's a little bit nervous.
11:47
Speaker 1: We're worried about the spread of COVID and how they're
11:49
Speaker 1: going to manage the short term. But in the longer term,
11:52
Speaker 1: does this mean that commodities could out perform once again? Yeah?
11:56
Speaker 1: I mean I think if you define longer term in
11:59
Speaker 1: terms of more than the two or three months, it
12:01
Speaker 1: looks great. Um. It looks like China is setting a
12:05
Speaker 1: target for a really high return in terms of flights,
12:08
Speaker 1: and we're starting to see congestion essentially traffic on the
12:12
Speaker 1: streets and big cities start to rebound in cities as
12:15
Speaker 1: they're on the tail end of their COVID waves. So yeah,
12:18
Speaker 1: I think it looks great from a short to medium
12:21
Speaker 1: term perspective, and as China turns back on they also
12:25
Speaker 1: start to turn back on oil demand in other East
12:28
Speaker 1: and Southeast Asian countries, and so there could be a
12:31
Speaker 1: step up in terms of multiple millions of barrels a
12:33
Speaker 1: day of demand relative to where we've been over the
12:36
Speaker 1: last few months. Josh, you're based in Houston, as I recall, Um,
12:41
Speaker 1: you know you've got the energy stacks up almost six
12:44
Speaker 1: year to date. How good is life in Houston right now?
12:48
Speaker 1: So so it's interesting, Uh, employments actually not up that
12:51
Speaker 1: much on the oil and gas space, capital expenditures are
12:54
Speaker 1: not up that much on the oil and gas space,
12:56
Speaker 1: and the small cap stocks have lagged materially like in
13:00
Speaker 1: past recoveries. So what it's setting up for is, even
13:03
Speaker 1: though those stocks are up a lot from their lows,
13:06
Speaker 1: it's setting up for a multi year bowl market where
13:09
Speaker 1: we could see maybe XL E and sort of the
13:11
Speaker 1: other like large and majors don't have as much upside
13:14
Speaker 1: here after their significant out performance, but the small caps
13:17
Speaker 1: and oil services stocks, I mean, there's there's real potential there,
13:21
Speaker 1: and there's also a real potential for the revitalization of
13:24
Speaker 1: Texas and Houston. We we're doing great, but there's real
13:27
Speaker 1: it's not the same as it was in the sort
13:29
Speaker 1: of time frame where Houston was booming. And a lot
13:32
Speaker 1: of that, of course, has to do with federal policymaking,
13:35
Speaker 1: has to do with a pivot in terms of this
13:37
Speaker 1: economy trying to focus it on climate change there as well.
13:41
Speaker 1: How much are we likely to see the smaller caps
13:43
Speaker 1: that you say in particular maybe start to turn on again,
13:46
Speaker 1: maybe we start to see all output increasing a little
13:48
Speaker 1: bit more in the United States, because that has been
13:50
Speaker 1: this interesting tension between the all producers in the United
13:54
Speaker 1: States and indeed the US government. Yeah, I think we
13:57
Speaker 1: need much higher oil prices to get oil production and
14:00
Speaker 1: growth to be anywhere close to where people were expecting.
14:03
Speaker 1: So coming into this year, we expected oil production to
14:05
Speaker 1: grow by a few hundred thousand barrels a day, and
14:08
Speaker 1: the consensus was I think it was one point two
14:10
Speaker 1: million barrels a day. That consensus has come down a lot,
14:13
Speaker 1: and we've gotten production a lot closer to our expectation.
14:16
Speaker 1: And so what I think is actually going to drive
14:18
Speaker 1: the small cap rey rate is not going to be
14:20
Speaker 1: substantial production growth. It's going to be buyouts where we're
14:23
Speaker 1: seeing large caps by private companies at let's say three
14:27
Speaker 1: to four times EBITDA, and many of the small caps
14:30
Speaker 1: are trading as low as two times EBITDA. So there's
14:32
Speaker 1: real potential for a re rate through uh through acquisitions,
14:36
Speaker 1: and then also just when you trade that cheap, you
14:39
Speaker 1: have the potential to pay off debt, buy backstock, pay
14:42
Speaker 1: a dividend, and sort of force ely rate, which is
14:44
Speaker 1: not something you've seen from small cap oil and gas
14:46
Speaker 1: companies in the last decade. Josh, how do you guys
14:49
Speaker 1: in the energy business think about the big picture of
14:53
Speaker 1: I'm in the fossil fuel business. The world seems to
14:56
Speaker 1: be going green. It's probably gonna take a lot longer
14:59
Speaker 1: than people thought, you know, how do you manage your business?
15:03
Speaker 1: How when you mean, when you talk to these companies,
15:04
Speaker 1: how do they think about the five to ten year timeframe?
15:08
Speaker 1: So so that's a great question. And one of the
15:11
Speaker 1: really interesting things is that institutional allocators are actually still
15:16
Speaker 1: divesting from the oil and gas space. So even though
15:18
Speaker 1: it's done really well over the last couple of years.
15:20
Speaker 1: I've noted Goldman and others have talked about this as well,
15:23
Speaker 1: there's still actually funds leaving the space from an institutional
15:27
Speaker 1: allocation perspective, so it's very hard to see capital formation,
15:31
Speaker 1: new companies and new projects funded and uh, you know
15:35
Speaker 1: oil production growth when you actually see divestment, and a
15:39
Speaker 1: lot of that divestment appears to be ideological not economic.
15:42
Speaker 1: So what I think is going to happen is over
15:44
Speaker 1: the next year or two Goldman's estimate is the next year,
15:47
Speaker 1: we'll see maybe it takes two more years, money will
15:50
Speaker 1: start to flow back into the space from institutional allocators,
15:55
Speaker 1: who again are still pulling capital. Private equity funds are
15:58
Speaker 1: still divesting, insurance companies are still pulling their insurance coverage.
16:01
Speaker 1: When that flips and you start to see capital come
16:04
Speaker 1: back in, I think that's going to be the starting
16:06
Speaker 1: point for the recovery of production. And the really interesting
16:10
Speaker 1: thing is it takes many years to restore the oil
16:13
Speaker 1: services UH supply base, the ability to supply services to
16:17
Speaker 1: then be able to go drill enough wells to get
16:20
Speaker 1: enough supply to get into an oversupplied situation. So I
16:22
Speaker 1: think we're set up very nicely for a multi year
16:25
Speaker 1: oil bowl market. And it really comes back to this
16:27
Speaker 1: investment like you're talking about from the space, partly economically
16:31
Speaker 1: because it tasted badly over the last ten years, and
16:33
Speaker 1: partly ideologically, where you know, it's real hard for investment
16:37
Speaker 1: committees at endowments and foundations and family offices to allocate
16:40
Speaker 1: even though it's profitable, and even though other sectors are
16:43
Speaker 1: doing poorly, there's just this big ideological obstacle to investing.
16:48
Speaker 1: Some have, of course, sort of thought the turning towards
16:50
Speaker 1: natural gas as supply of energy in the US is
16:53
Speaker 1: more funny towards the environment. Natural gas has just been
16:56
Speaker 1: the most extraordinary commodity to follow this year for reasons
16:59
Speaker 1: we well known, and a lot of it to do
17:01
Speaker 1: with Europe and across the Atlantic. But to hit a
17:03
Speaker 1: high and excessive nine dollars to be back down to
17:05
Speaker 1: now four door, how do you see that part of
17:10
Speaker 1: your world looking for Yeah, so I think I think
17:14
Speaker 1: natural gas is oversupplied actually right now in North America
17:18
Speaker 1: and we will see sort of more normal temperature. So
17:21
Speaker 1: it's been a relatively warm winter so far other than
17:24
Speaker 1: this recent winter storm um and so weather has been
17:28
Speaker 1: uncooperating and supply has been higher than expectations. My view
17:32
Speaker 1: has been that natural gas would stay in this sort
17:34
Speaker 1: of four to seven dollar price range, and I think
17:36
Speaker 1: there might be a little bit of downside to that
17:38
Speaker 1: in three, but over time supply and demand should balance out,
17:42
Speaker 1: and by there are a number of different elergy export
17:46
Speaker 1: facilities that should finish construction and come on and at
17:49
Speaker 1: that point I think we're set up for a meaningful
17:51
Speaker 1: move higher. But again, it could be pretty rough on
17:54
Speaker 1: the natural gas side, Josh. If I want to go
17:56
Speaker 1: down to Corpus Corpus Christie or Galveston and build a refinery,
18:00
Speaker 1: could I do that? Could I get regulatory approval? Could
18:03
Speaker 1: I raise capital? Is that even possible in this day
18:05
Speaker 1: and age. Yeah, that's a good question. Honestly. I don't
18:08
Speaker 1: think that refineries are undersupplied, and I think that's been
18:11
Speaker 1: one of the big stories in two where there have
18:14
Speaker 1: been a couple of points where the crack spread so
18:17
Speaker 1: the refiner margin has been really high, and there's been
18:21
Speaker 1: this story about an insufficient supply of refining capacity. There
18:25
Speaker 1: may be an insufficient supply in a few years. The
18:28
Speaker 1: reality was that that was mostly driven by China lockdowns
18:31
Speaker 1: and millions of barrels a day of Chinese refining capacity,
18:35
Speaker 1: particularly the teapot, the smaller independent informal refiners going offline,
18:40
Speaker 1: and so as those are back online, um, there's actually
18:43
Speaker 1: plentiful refining capacity, and we see that with refining margins
18:47
Speaker 1: getting closer to normal levels. So yeah, it's really hard
18:49
Speaker 1: to build them. But frankly, we don't really need them
18:53
Speaker 1: talking a lot about us supply demand dynamics in all
18:56
Speaker 1: the natural gas. Just talk to us about OPEC plas
18:59
Speaker 1: or what you're expecting from the next year. In terms
19:00
Speaker 1: of the geopolitical risks around oil, yeah, I think OPEC
19:05
Speaker 1: plus has been sort of undertold story, partly because there
19:09
Speaker 1: have been a couple of different price wars in the
19:11
Speaker 1: last ten years. UM, it does appear that many of
19:15
Speaker 1: the OPEC plus countries are hitting their peak production capacity
19:18
Speaker 1: and have actually had to produce materially less than their
19:23
Speaker 1: than their production quotas, and so there are a few
19:26
Speaker 1: countries that still have some excess UH production capacity versus
19:30
Speaker 1: their quotas. But overall it does appear that there is
19:34
Speaker 1: limited spare capacity, and so as China demand comes back
19:37
Speaker 1: on and as Russian barrels may be restricted from the market,
19:41
Speaker 1: we could be in a situation where there's a call
19:43
Speaker 1: on OPEC oil and where OPEC is actually not able
19:46
Speaker 1: to deliver. So this is a really sort of contentious call,
19:50
Speaker 1: but it should be less contentious, I think because even
19:52
Speaker 1: senior executives from Aramco and various OPEC countries, um, they've
19:58
Speaker 1: talked about limited spirit coup. So you know, I think
20:01
Speaker 1: I think this is potentially three story, potentially story, but
20:05
Speaker 1: I think there's going to be a point where the
20:07
Speaker 1: world wants more oil from OPEC and where OPEC is
20:11
Speaker 1: just not able to deliver. All right, Josh, great stuff,
20:14
Speaker 1: you know what you're talking about, Josh Young Bison interest
20:16
Speaker 1: ce IO given us the latest on the global energy space.
20:19
Speaker 1: I'm looking at w t A crude oil right here
20:21
Speaker 1: as we end the year, seventy eight dollars eighty cents.
20:24
Speaker 1: Remember earlier we're up aw abowers, so big pullback in
20:27
Speaker 1: crude supply and demand. You have to have a call
20:30
Speaker 1: there when you're thinking about global energy right now, Okay,
20:36
Speaker 1: we've got one efan devil where that stiff used to
20:38
Speaker 1: welcome Minetta, Chief Investment Officer, and we want to sort
20:40
Speaker 1: of discuss even what an extraordinary year two has been,
20:44
Speaker 1: but set us up into the next year. As we
20:46
Speaker 1: put that behind us, are we going to see any
20:49
Speaker 1: of these asset classes. Let's start with equities. Managed to
20:52
Speaker 1: push through some of these loads, I think we will.
20:55
Speaker 1: It's going to be very segmented um in terms of equities.
20:58
Speaker 1: That tech contagious that we mentioned earlier that we're seeing,
21:01
Speaker 1: not helped by all of the bitcoin to battle the
21:04
Speaker 1: FTX investigation, that's all going to contaminate bitcoin and anything
21:08
Speaker 1: adjacent to digital assets. So I'm not optimistic about the
21:11
Speaker 1: the outlet protec At the moment. Of course, those innovation
21:13
Speaker 1: trends are still continuing. Nothing is changing there, but that's
21:16
Speaker 1: going to be very long term play. We are going
21:18
Speaker 1: to see some recovery and equities simply because everyone's been
21:21
Speaker 1: talking about horror versus Tina. Is there an alternative or
21:24
Speaker 1: are there reasonable alternatives? At the end of the day,
21:26
Speaker 1: for a high growth portfolio, you still need to be
21:29
Speaker 1: exposed to equities. So I'll see some pick up in
21:31
Speaker 1: those value names, healthcare industrials, and just in general, just
21:35
Speaker 1: a very broad base of old economy stops we'll see recovering.
21:38
Speaker 1: I look at consumer staples. The consumer is still spending
21:41
Speaker 1: on staples very much. There's an overhang, whether it's revenge
21:44
Speaker 1: tourism or picking up on what they couldn't do during
21:47
Speaker 1: the COVID years. I do expect the holiday season to
21:50
Speaker 1: have shown some very strong retail sales. Of course, when
21:53
Speaker 1: we look though at January February, that's going to be dismal.
21:55
Speaker 1: There will have been a lot of borrowing from this
21:57
Speaker 1: first quarter in the fourth quarter, and we're going to
22:00
Speaker 1: see that coming through and earnings. But if we learned
22:02
Speaker 1: anything from two is that people are getting very good
22:04
Speaker 1: at telegraphing bad news. They get it out of the
22:07
Speaker 1: system early, and then they can only surprise on the upside.
22:10
Speaker 1: We've seen the FED telegraphing its intentions, but clearly companies
22:14
Speaker 1: are telegraphing that too. Even talk to us about earnings risk.
22:17
Speaker 1: That is certainly a risk that a lot of people
22:19
Speaker 1: are calling out as it relates to the three outlook,
22:22
Speaker 1: how do you think about that? How do you how
22:23
Speaker 1: do you quantify it? And how much is it kind
22:25
Speaker 1: of in your calculus. Well, if you get back to
22:28
Speaker 1: that telegraphing point I made earlier, what we saw very
22:30
Speaker 1: much in two was actually earning surprise on the upside
22:33
Speaker 1: because they've been worked down so much in terms of expectations.
22:37
Speaker 1: So when the company gets the bad news out of
22:39
Speaker 1: the way. The expectations are low. When you're on the floor,
22:42
Speaker 1: it's not it's easy to surprise on the upside, and
22:45
Speaker 1: we still saw companies beat expectations. So the key is
22:49
Speaker 1: where expectations get set. So I actually am not that
22:52
Speaker 1: pessimistic about earnings surprises on the negative side coming in
22:57
Speaker 1: three simply because companies know how to play this game now.
23:00
Speaker 1: There certainly will be a threat to margins though, yes,
23:03
Speaker 1: and a lot of the price pressures maybe we see
23:06
Speaker 1: soothing someone on the producer side of the equation. The
23:08
Speaker 1: big data that we've been getting showing the inflation is
23:10
Speaker 1: moving in the right direction, but the labor side still
23:12
Speaker 1: seems to be very costly. We've got a very tight
23:14
Speaker 1: labor market. What sort of a picture is that going
23:16
Speaker 1: to be painting for you? And indeed what it means
23:18
Speaker 1: for well, not just the Federal Reserve, but global central banks.
23:22
Speaker 1: I do see the labor market is being bit of
23:23
Speaker 1: a lagging indicator. We're seeing it working through already. Bonuses
23:27
Speaker 1: not having been great in twenty two, we saw some
23:29
Speaker 1: massive layoffs at the end of twenty two, certainly among
23:32
Speaker 1: some very select sectors, primarily tech. I think some of
23:35
Speaker 1: the froth is going to come out of the labor market.
23:37
Speaker 1: It'll still be tight, though the participation rate remains low,
23:39
Speaker 1: and that's going to provide a strong underpinning to inflation.
23:43
Speaker 1: As far as far as what the FED is doing, though,
23:45
Speaker 1: we can see all of these transmission mechanisms of its
23:47
Speaker 1: tighter monetary policy already working their way through. We've seen
23:51
Speaker 1: it in consumer prices, commodity prices, We've definitely seen it
23:54
Speaker 1: when it comes to the housing market. That of course
23:56
Speaker 1: is a strong component of people's new purse that they
23:59
Speaker 1: would spend money on. So I think the FED will
24:01
Speaker 1: be assured that much of the inflation that is dampening
24:04
Speaker 1: is moderating. In three perhaps the only issue is employment.
24:08
Speaker 1: But of course the irony is a strong employment means
24:11
Speaker 1: a strong consumer and that's ultimately a stronger economy. So
24:14
Speaker 1: we don't want to see the economy tanking either. We
24:16
Speaker 1: already have all too many recessionary risks on the horizon.
24:20
Speaker 1: Even talk to us about energy, and we've been talking
24:22
Speaker 1: about commodities a lot today, and energy has been such
24:25
Speaker 1: a great story for one of the you know, few
24:30
Speaker 1: areas where investors, equity investors can make real money this year.
24:34
Speaker 1: Is that trade kind of played out or you think
24:36
Speaker 1: there's more room to go there, There will be a
24:39
Speaker 1: little bit of room to go. We're still seeing quite
24:41
Speaker 1: a bit of rhetoric around the energy complex and this
24:43
Speaker 1: energy terrorism. We're seeing some statements coming out of Russia.
24:46
Speaker 1: It does seem though, however, that Europe is getting its
24:48
Speaker 1: supply in shape, at least for this winter for sure,
24:52
Speaker 1: and equally for next winter. We're hearing about some stocks
24:55
Speaker 1: increasing and just finding alternative sources. So we have this
24:58
Speaker 1: energy trilema, energycing, purity, energy, pricing, energy, sustainability that all
25:03
Speaker 1: policymakers are juggling right now. It has seemed that a
25:06
Speaker 1: sustainability piece has been on the back burner this year
25:08
Speaker 1: as we've been focused on pricing and security. But however,
25:11
Speaker 1: the sustainability piece is going to continue to come to
25:13
Speaker 1: the four. So I'm very optimistic about renewable energy sources regardless.
25:17
Speaker 1: If the world is going to continue to grow, our
25:19
Speaker 1: economies will need energy to grow. We'll need to get
25:22
Speaker 1: it from everywhere we can. That mean the wind, solar
25:25
Speaker 1: and other other sources. So I do I'm quite optimistic
25:27
Speaker 1: for that area. It may just have not received the
25:29
Speaker 1: fanfare that it did towards two because of security concerns,
25:33
Speaker 1: and even of course those securities concerns primarily in Europe,
25:36
Speaker 1: good global for us for a moment. We know that
25:38
Speaker 1: the Dacks ended up the year down twelve percent, and
25:42
Speaker 1: we actually saw that's closed early for lunch. The foot
25:44
Speaker 1: See one closed and actually managed to eke out a
25:48
Speaker 1: very small not point nine percent annual gain in dollar terms,
25:51
Speaker 1: it was down, but overall we did managed to see
25:54
Speaker 1: the foots in one hundred keep its head above water.
25:56
Speaker 1: What about the rest of Europe more broadly, positive negative
25:58
Speaker 1: in terms of negative perspect differ because again getting back
26:02
Speaker 1: to expectations, expectations have been so low when it comes
26:05
Speaker 1: to Europe because primarily because of this overhang we've looked at,
26:08
Speaker 1: inflation in Europe has not been demand driven but actually
26:10
Speaker 1: been supplied driven, primarily by energy, so suggesting that the U.
26:14
Speaker 1: S consumer, because of its demand driven inflation, is in
26:16
Speaker 1: a much better state than the European consumer. The Footsie
26:19
Speaker 1: is interesting, you mentioned that because it really has bucked
26:21
Speaker 1: the trend. Much of that it's due to the old
26:23
Speaker 1: economy nature of the foot See as well as the
26:25
Speaker 1: weaker sterling, which has benefited for it some time before
26:27
Speaker 1: it started to cover towards the end of the year.
26:30
Speaker 1: So across Europe overall, most stock takers I speak to
26:33
Speaker 1: our seeing pockets of interesting opportunities. These multinational companies which
26:37
Speaker 1: have benefited from a weak euro again there they have
26:40
Speaker 1: not seen massive, massive, massive pressure in terms of the
26:43
Speaker 1: pricing margins, and I actually am looking at good upside
26:47
Speaker 1: for Europe also for US investors, primarily because if the
26:50
Speaker 1: dollar starts to weaken now, that's when those non US
26:54
Speaker 1: exposures will start to come to the four Even do
26:56
Speaker 1: I buy bonds here? Yeah, it's such a brutal year
26:59
Speaker 1: in they can't go any lower, can they. Well, they
27:04
Speaker 1: certainly can't have that junk lotory that we've seen that
27:07
Speaker 1: kind of step change. Bonds do look very interesting today,
27:10
Speaker 1: getting back to that, there are reasonable alternatives. As acronym,
27:13
Speaker 1: They've been interesting for some time. Cash is no longer trash.
27:16
Speaker 1: We've heard many commentators say that we've also seen an
27:19
Speaker 1: investment grade high grade. Investment grade bonds looking very interesting
27:22
Speaker 1: from a yield perspective. The question is how much you
27:25
Speaker 1: can get in which you can of your portfolio you
27:27
Speaker 1: can leave in bonds today and a much extra pain
27:29
Speaker 1: you're likely to take because clearly the FED is not
27:31
Speaker 1: done yet, the ECB, the Bank of England, Bank in Japan,
27:34
Speaker 1: nobody has done yet. So there will be a little
27:36
Speaker 1: bit of more. It will get worse before it gets
27:38
Speaker 1: better in terms of bonds, but in terms of the
27:40
Speaker 1: yields and their own when we see yields at four
27:42
Speaker 1: or after inflation um that that actually actually looks very
27:47
Speaker 1: very meaningful, the inflation number of courses eroding what those
27:50
Speaker 1: yields look like in real terms. But as inflation ticks down,
27:53
Speaker 1: which we expected will those bond deals are really interesting today.
27:57
Speaker 1: But again edging in inching in, we've very cautious because
28:01
Speaker 1: clearly we don't see that then that that that As
28:03
Speaker 1: I said, this tightening is done yet. Even you started
28:06
Speaker 1: off the conversation by sort of saying how crypto and
28:09
Speaker 1: had perhaps some correlation effects on dragging down technology. But
28:13
Speaker 1: go more broadly cross asset for us, because you do
28:16
Speaker 1: look at alternatives. If you're looking at a sixty that
28:18
Speaker 1: hasn't worked, are there any areas that you're liking outside
28:22
Speaker 1: the world of bonds and equities? For sure, those clients
28:25
Speaker 1: who have alternatives and diversification in their portfolios have done better.
28:29
Speaker 1: There's been some ballast there, there's been something to take
28:32
Speaker 1: cash away from to re balance into these week equity
28:35
Speaker 1: and bond markets. If you just have sixty four and
28:37
Speaker 1: everything's been falling, there's nothing actually to rebalance with. What
28:40
Speaker 1: we like is private credit again, as certainly as the
28:42
Speaker 1: banks come under pressure, maybe credit ratings start to look
28:46
Speaker 1: look more more severe. When it comes to the company's
28:48
Speaker 1: the corporate side, we will see the need for this
28:51
Speaker 1: lender of last resort and private credit to continue to
28:53
Speaker 1: take up those private credit managers we speak to our
28:56
Speaker 1: seeing very strong opportunity sets about anything less crowding today,
29:00
Speaker 1: so that that suggests there'll be some nice kind of
29:02
Speaker 1: cash flows that will come from that private equity to
29:05
Speaker 1: venture capital. I'm optimistic across the board there. You've run
29:09
Speaker 1: thirty eight marathons. I have no idea why anyone would
29:12
Speaker 1: run twenty six point two miles, but there are people
29:14
Speaker 1: that do that. What's the next one? You're gonna run?
29:17
Speaker 1: Next one? Actually Boston. I I actually got a spot
29:20
Speaker 1: in Boston in April, so I'm excited about that. I've
29:23
Speaker 1: done it before, but I was a lot younger. Then
29:25
Speaker 1: I'm looking forward to that. What's the best marathon you've
29:27
Speaker 1: run around the world. I'm so going to say New
29:31
Speaker 1: York City the first and the best. It is just
29:34
Speaker 1: so diverse in terms of the boroughs that the support
29:37
Speaker 1: from the street is electric. Um that ending in Central
29:40
Speaker 1: Park is just really iconic. And it was my first
29:43
Speaker 1: It wasn't my best time, but it was the first
29:45
Speaker 1: psychological journey I made on that point two miles. That's awesome.
29:49
Speaker 1: Thank you so much. That's good stuff. Efan Devitt Manetta,
29:52
Speaker 1: chief investment officer in Serious marathon runner. Thanks for listening
29:59
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
30:02
Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer.
30:07
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three.
30:12
Speaker 1: On Fall Sweeney, I'm on Twitter at pt Sweeney. Before
30:14
Speaker 1: the podcast, you can always catch us worldwide at Bloomberg Radio.