Latest / Bloomberg Intelligence / Banks Are Still Reducing Energy Exposure: BlackGold’s Honari

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Banks Are Still Reducing Energy Exposure: BlackGold’s Honari · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg pm L Podcast. I'm Pim Fox.
0:08
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
0:11
Speaker 1: bring you the most important, noteworthy, and useful interviews for
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Speaker 1: you and your money, whether you're at the grocery store
0:17
Speaker 1: or the trading floor. Find the Bloomberg p m L
0:20
Speaker 1: podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We
0:32
Speaker 1: are seeing UH oil prices slump, the worst route UH
0:37
Speaker 1: in two years. Here to speak with us about what
0:40
Speaker 1: we can expect going forward and how investors are kind
0:43
Speaker 1: of positioning around this from a credit perspective. Sharam Honari,
0:46
Speaker 1: she's he's partner of black Gold Capital Management, which overseas
0:50
Speaker 1: one point to billion dollars from Houston, Texas. But he
0:53
Speaker 1: joins us from our eleven three oh studios in New York. Sharon,
0:56
Speaker 1: thank you so much for joining us. I want to
0:59
Speaker 1: get your perspective, if from you know, a credit investor standpoint,
1:03
Speaker 1: as you see oil prices dip lower, what's our biggest concern? Well,
1:08
Speaker 1: I think from our perspective, you know, we've actually had
1:10
Speaker 1: a viewpoint that the commodity would be range bound forty
1:14
Speaker 1: to sixty dollars. UH. You know, we invest up and
1:16
Speaker 1: down the capital structure of energy companies, and and from
1:19
Speaker 1: that perspective, the you know, the daily swings in oil
1:22
Speaker 1: prices don't really impact our credits as much as they
1:25
Speaker 1: probably did when oil went from a hundred ten uh,
1:27
Speaker 1: you know, just twenty six dollars a barrel. As we've seen,
1:31
Speaker 1: you know, after kind of this history doric dislocation in
1:33
Speaker 1: the in the credit markets, we've obviously seen uh, you know,
1:36
Speaker 1: rebound and in crude prices about fifty nine dollars a barrel.
1:39
Speaker 1: Companies have really been focusing on their balance sheets. They've
1:42
Speaker 1: been cutting distributions, selling assets, increasing their efficiencies. Really those
1:46
Speaker 1: are all credit positive type of actions. So from our perspective,
1:50
Speaker 1: if you look at the market today, it's obviously very
1:52
Speaker 1: challenging for energy equities in particular. Energy equities were down
1:55
Speaker 1: last year, they're down this year again. Uh. There continues
1:58
Speaker 1: to obviously be a lot of stress, uh in the
2:00
Speaker 1: energy arena, But investors at this point of really demanding
2:04
Speaker 1: you know, return on invested capital, and it's really forcing
2:07
Speaker 1: companies again to improve their balance sheets. And I think
2:09
Speaker 1: that's really a positive for credit. What is the collateral
2:12
Speaker 1: to most of this energy credit. Well, I think it
2:15
Speaker 1: depends on obviously the the type of company. But if
2:18
Speaker 1: you're you're looking at you know e, m p S,
2:20
Speaker 1: obviously it's the the assets of PDP value and oil
2:23
Speaker 1: field services a different type of dynamic. Uh. And obviously
2:26
Speaker 1: the midstream we really like the midstream space that a
2:28
Speaker 1: lot of the infrastructure that's in the ground, we really
2:30
Speaker 1: think that can't re replaced. So you're talking about the
2:33
Speaker 1: actual refineries and the pipelines or or or the assets
2:39
Speaker 1: you set assets in the ground. So is that the
2:41
Speaker 1: natural gas and the oil in the ground. Just trying
2:43
Speaker 1: to understand. Yeah, it depends on again what subsector. If
2:46
Speaker 1: you're looking at the midstream space, we're talking about process
2:48
Speaker 1: and gathering. If you're looking to exploration companies, that's really
2:51
Speaker 1: the oil and gas in the ground. So sure you
2:53
Speaker 1: were saying, uh in a note of that you put
2:56
Speaker 1: out earlier, that you think that there is an opportunity
2:59
Speaker 1: and offering financing to high yield companies, specutive great companies. Uh,
3:04
Speaker 1: that's within them one hundred to three hundred million dollar range.
3:07
Speaker 1: Can you talk a little bit about that. Yeah, I
3:09
Speaker 1: think that's really a part of the dynamic that's really
3:12
Speaker 1: changed over the last couple of years. Again, if you
3:14
Speaker 1: look at the energy space from two thousand fourteen on, obviously,
3:17
Speaker 1: you know we had two plus bankruptcies in the space.
3:20
Speaker 1: There was really a survivorship bias. Again, companies focused on
3:23
Speaker 1: their balance sheets, but a lot of banks had a
3:24
Speaker 1: tremendous amount of exposure to the energy space, and the
3:27
Speaker 1: Office of the Controller has basically forced a lot of
3:30
Speaker 1: the banks to continue to decrease their exposure. So if,
3:33
Speaker 1: for example, you look at the e MP space right now,
3:35
Speaker 1: companies there are three times plus levered. Banks really can't
3:38
Speaker 1: lend to those type of entities. And for folks like us,
3:41
Speaker 1: there's an aspect of the market where I would say
3:43
Speaker 1: hundred to three hundred million dollar type of range. There
3:46
Speaker 1: really is a scarcity of capital for those type of companies,
3:49
Speaker 1: and we're trying to fill that void. Then the beauty
3:51
Speaker 1: I think of of that smaller kind of subsid is
3:53
Speaker 1: you know, you go three hundred million above that's where
3:55
Speaker 1: people have access to the high yield markets or leverage
3:57
Speaker 1: loan market, but below that that's not really the case.
4:00
Speaker 1: Are you doing that with direct lending or with bespoke
4:03
Speaker 1: bond offerings or yeah, for us, I'll give you an example.
4:06
Speaker 1: I mean, we actually just did a direct lending deal
4:09
Speaker 1: to a company called Atlas Sands and the Permian. It's
4:12
Speaker 1: actually a company that was started by a Bud Brigham
4:15
Speaker 1: who's very well known in the energy space. They put
4:17
Speaker 1: in about two hundred million dollars worth of equally, we
4:20
Speaker 1: provided them with a hundred fifty million dollar first lane
4:22
Speaker 1: and really the success there on our part was, you know,
4:24
Speaker 1: we've we're based in Houston, we've known but in his
4:27
Speaker 1: team for ten fifteen plus years. Uh, they decided to
4:30
Speaker 1: do the deal with us rather than with other folks.
4:32
Speaker 1: So can you tell us what is the interest rate
4:35
Speaker 1: on a hundred and fifty million that you loaned that
4:37
Speaker 1: particular thing? I cannot actually share that with you. That's
4:40
Speaker 1: kind of a private transaction, but it will give us
4:42
Speaker 1: an idea then of what would be the cost to
4:45
Speaker 1: that kind of borrower and what kind of duration are
4:48
Speaker 1: we talking about? Yeah, I think for we're looking at
4:50
Speaker 1: kind of double digit type of returns. That's actually actually
4:53
Speaker 1: a five year loan for this particular transaction. So firstly,
4:57
Speaker 1: in a piece of paper, I thought it was really
4:59
Speaker 1: interesting that you're saying that regulators are still correcting down
5:01
Speaker 1: on banks and having them reduce their exposure to energy.
5:04
Speaker 1: Uh is that continuing today or that was just throughout
5:07
Speaker 1: last year. No, it's actually continuing today. I mean our
5:10
Speaker 1: offices in Houston, we have bankers coming through all all
5:12
Speaker 1: the time. You know, they're looking to partner with us
5:16
Speaker 1: to basically liquidate some of the assets that they just
5:18
Speaker 1: can't hold on their books. At what price level does
5:22
Speaker 1: it become a real problem to maintain these credits or
5:26
Speaker 1: to lend even more money to the industry. Well, I
5:30
Speaker 1: think you looked at one of one of the aspects
5:31
Speaker 1: I think that's really been changing in this industry overall
5:34
Speaker 1: is if you look at, for example, energy equities, they've
5:36
Speaker 1: been underperforming for a decade. I think a lot of
5:38
Speaker 1: investors are also taking a step back. You're seeing it also,
5:42
Speaker 1: you know New York State Pension here, the suing Exxon
5:45
Speaker 1: and the like, and they're actually divesting their assets. So
5:47
Speaker 1: I think that's part of the aspect of scarcity of
5:50
Speaker 1: capital going forward. Where there's a need, there continues to
5:54
Speaker 1: be a need. Banker stepping back. Obviously, there's a lot
5:55
Speaker 1: of private equity firms folks like US that are trying
5:58
Speaker 1: to ultimately fill that void in the market place. Thanks
6:01
Speaker 1: very much, Sharram Jnari. He's the partner of black Gold
6:04
Speaker 1: Capital Management, talking about credit and the energy markets. We
6:21
Speaker 1: are broadcasting live from the Golden Sacks ten thousand Small
6:25
Speaker 1: Business Summit at the Washington Hilton in Washington, d C.
6:28
Speaker 1: It is brought to you by Sage Business Cloud Financials,
6:32
Speaker 1: a powerful cloud accounting solution built on the Salesforce platform
6:35
Speaker 1: to empower businesses to scale without complexity. More at Sage
6:39
Speaker 1: dot com slash Financials. Uh So, I'm we're very lucky
6:44
Speaker 1: to have Katie Coach here with us. She's Global head
6:46
Speaker 1: of Fundamental Equity Client Portfolio Management at Goldman Sachs Asset Management.
6:50
Speaker 1: And Katie, before we sort of dig into what's been
6:53
Speaker 1: going on in the markets, why are you here? Um? So,
6:56
Speaker 1: First of all, thank you so much for having me
6:58
Speaker 1: on the program. Um We are here. This is the
7:00
Speaker 1: largest gathering ever in the US for small businesses. Um
7:04
Speaker 1: And we're here because at Goldman Sacks we think that
7:07
Speaker 1: it is incredibly important to support small businesses as a
7:11
Speaker 1: way to increase the overall economic health of the economy.
7:14
Speaker 1: It's a program that we've had for eight years, We've
7:16
Speaker 1: reached sixty d businesses. We're bringing those business owners and
7:20
Speaker 1: entrepreneurs education, um, and we're also giving them connections and
7:24
Speaker 1: access to capital. So Katie, I guess, um, it would
7:28
Speaker 1: be good to connect this to what we're seeing in markets.
7:31
Speaker 1: We're seeing a lot more volatility. We're seeing the specter
7:35
Speaker 1: for rising interest rates, with even so much gold in
7:37
Speaker 1: success Management predicting that UH tenure treasure YELD could go
7:40
Speaker 1: up to three point five percent in the next six months.
7:44
Speaker 1: When does this bleed into consume business small business confidence?
7:48
Speaker 1: What does this bleed into the real economy? Right? So, Um,
7:51
Speaker 1: I think we we should really separate what's happening in markets,
7:55
Speaker 1: which is about volatility. Um I would argue that actually
7:58
Speaker 1: volatility needed to normalize. No one promised that was going
8:01
Speaker 1: to be an orderly process that rarely rarely is, but
8:04
Speaker 1: it is good to get to more normal levels of
8:06
Speaker 1: volatility in markets. UM. And what I would say is
8:09
Speaker 1: that you need to separate that from what you referred
8:12
Speaker 1: to as the real economy. When we look at the markets,
8:15
Speaker 1: they're volatile, yes, but it needs to normalize. When we
8:17
Speaker 1: look at the real economy, it actually continues to be
8:19
Speaker 1: incredibly healthy. Um. And when I'm out there talking to
8:21
Speaker 1: these small business owners, they feel incredibly optimistic about the
8:25
Speaker 1: opportunities set in front of them. And that is anecdotal
8:28
Speaker 1: to these business owners. But actually the n f IB,
8:31
Speaker 1: the National Federation for Independent Businesses, came out with some
8:34
Speaker 1: data overnight where they're looking at a very broad population
8:37
Speaker 1: of small business owners and asking them the question, what
8:40
Speaker 1: you know, what is your level of optimism and is
8:42
Speaker 1: this a good time to expand businesses? And what what
8:44
Speaker 1: you see in that survey data is that we're at
8:46
Speaker 1: record high levels. Uh So Main Street is actually roaring
8:49
Speaker 1: in the US. That's extremely good news for the economy.
8:52
Speaker 1: It doesn't mean it's going to translate into perfect equity markets.
8:54
Speaker 1: There's gonna be ups and downs, as we've seen. But
8:56
Speaker 1: if you actually feel pretty good about the underlying economic
8:59
Speaker 1: trajectory here over time, that should be good for risk
9:02
Speaker 1: assets as well, Katie. Earlier today I got the chance
9:06
Speaker 1: to speak with one of the attendees here. UM. The
9:08
Speaker 1: Debka sen is the owner and operator of a classic
9:13
Speaker 1: tours collection. They're based in Redonda Beach, California, and she
9:17
Speaker 1: told me that one of the things that she has
9:19
Speaker 1: learned from these Goldman Sachs events is not just how
9:24
Speaker 1: to operate her business in her industry, but how to
9:28
Speaker 1: operate her business in her community and how she had
9:32
Speaker 1: not necessarily understood that role. And I'm wondering if you
9:36
Speaker 1: could just maybe twin that with something that Goldman Sachs
9:40
Speaker 1: is doing with the online lender Marcus, because one of
9:45
Speaker 1: the points that she made is not everything is a
9:47
Speaker 1: sales call, and that it is sometimes difficult to remember
9:52
Speaker 1: that as a small business, the sales cycle can be
9:55
Speaker 1: long and you don't know where that next sale is
9:57
Speaker 1: going to come from, right so income when we work
10:01
Speaker 1: with these businesses, it's great that she has the learned
10:04
Speaker 1: that from the ten thousand Small Business program, that she
10:06
Speaker 1: has to be a successful business but also has to
10:08
Speaker 1: be thoughtful about um how she interacts and works with
10:11
Speaker 1: the community. And I would say that that is on
10:13
Speaker 1: two levels. The first is, of course, many of these
10:15
Speaker 1: businesses are sourcing from the community for their talent, and
10:18
Speaker 1: so they're hiring locally. And one of when we look
10:20
Speaker 1: at the challenges that these small business owners point to,
10:23
Speaker 1: there's really three main ones and and and the first
10:25
Speaker 1: amongst those is attracting and retaining employees, which they're usually
10:28
Speaker 1: sourcing from the community. And so one of the solutions
10:31
Speaker 1: that we're putting forward in this program is to help
10:33
Speaker 1: people we train them on how to to find the
10:35
Speaker 1: right talent locally. But then we also think the government
10:37
Speaker 1: should step in and help give, for example, tax credits
10:41
Speaker 1: for people in terms of training employees, because when we
10:43
Speaker 1: invest in employees, were ultimately investing in the economy. So
10:46
Speaker 1: that's one thing about interacting with the community locally is
10:49
Speaker 1: about hiring. The second thing, which you pointed to, is
10:52
Speaker 1: about access to credit and capital, which continues to be
10:54
Speaker 1: a major challenge um for these small business owners. And
10:57
Speaker 1: the regulation that we've had since the financial crisis means
11:00
Speaker 1: that it's actually been more challenging for these small business
11:03
Speaker 1: owners to tap credit and capital um because they're often
11:06
Speaker 1: actually having to do that off of a personal balance
11:08
Speaker 1: sheet and that's become much more restrict credit card yes exactly.
11:12
Speaker 1: So really when you talk to these business owners, their
11:14
Speaker 1: credit cards have been their working capital, right and so
11:17
Speaker 1: the rates are high and also we've had less access
11:19
Speaker 1: to credit coming out of the crisis, and that's been
11:21
Speaker 1: a real challenge for people in scaling their businesses and
11:23
Speaker 1: so connecting it to to what we're trying to do here.
11:26
Speaker 1: We work with a lot of local organizations, UM and
11:28
Speaker 1: helping those organizations extend and make loans to small businesses
11:32
Speaker 1: because it is about retaining people. And then the other
11:35
Speaker 1: challenge which you brought up is also about access to
11:37
Speaker 1: credit to keep the business going and be able to
11:39
Speaker 1: scale it. So just really quickly, at what point will
11:42
Speaker 1: treasure yields rise enough that it will become restrictive for
11:46
Speaker 1: small businesses to borrow? Yeah, so, UM, listen, we're I
11:49
Speaker 1: think it's important to recognize we're coming off of incredibly
11:52
Speaker 1: low rates here, so three and a half percent, I
11:55
Speaker 1: get it. That sounds high to us, but in the
11:57
Speaker 1: context of a long history of the US, we've had
11:59
Speaker 1: a lot of small business development at multiples of that.
12:02
Speaker 1: So I'm actually not that worried about the treasury yields
12:05
Speaker 1: being restrictive for barring too small business owners going back
12:07
Speaker 1: to capital markets when we have a backup and yields. Obviously,
12:10
Speaker 1: that could cause a sell off not just in the
12:12
Speaker 1: bond market, but also the equity markets. So that's something
12:14
Speaker 1: to watch as it relates to to capital markets. Thank
12:17
Speaker 1: you very much for being with us. Katie Cotch is
12:19
Speaker 1: the global head of Fundamental Equity client portfolio Management for
12:23
Speaker 1: Goldman Sacks Asset Management, and I want to thank you
12:26
Speaker 1: very much for being here. As you can hear in
12:41
Speaker 1: the background, we are here with more than well, it
12:44
Speaker 1: seems like ten thousand small businesses, and one of them
12:47
Speaker 1: joins us now is Sarah Cows. She is the founder
12:50
Speaker 1: and the chief executive of Swell that's s apostrophe uh
12:56
Speaker 1: W E l L. And she's described herself as a
12:59
Speaker 1: recovering countant, but now known for her double walled, copper
13:04
Speaker 1: coated stainless steel vessels. Sarah, thanks very much for being
13:07
Speaker 1: with us. Thanks for having me today. Tell us a
13:09
Speaker 1: little bit about how you started this business. I believe
13:12
Speaker 1: thirty thou dollars and an idea that you wanted to
13:16
Speaker 1: change the way, well, the way people consume any kind
13:20
Speaker 1: of liquid, any kind of beverage, you know. I had
13:22
Speaker 1: the idea of myself as the customer and then the
13:24
Speaker 1: market from there. I thought that the world needed less
13:27
Speaker 1: single use plastic water bottles and something that looked better
13:30
Speaker 1: and worked better to carry our drinks in. Now I
13:32
Speaker 1: understand that this really came to you when you were
13:34
Speaker 1: hiking in Arizona with your mother. That's correct. I was
13:38
Speaker 1: drinking out of a water bottle that was single walls.
13:40
Speaker 1: It was hot out. My water was hot instantly, and
13:43
Speaker 1: I had this aha moment that if only I could
13:45
Speaker 1: have cold water while I was hiking and something that
13:48
Speaker 1: actually looked beautiful too, I could convert people to really
13:51
Speaker 1: using my product. So, Sarah, we talked a lot about
13:54
Speaker 1: the manufacturing process, where things are made, the whole supply change.
13:59
Speaker 1: Can you talk us through that from your business and
14:01
Speaker 1: what the challenges have been to scale up your business
14:04
Speaker 1: as you do enter more than sixty different countries exactly.
14:07
Speaker 1: I think that's one of the hardest things about scale.
14:09
Speaker 1: You know, if I was making making software or service,
14:11
Speaker 1: I might be able to have product a lot faster, um.
14:14
Speaker 1: But but honestly, our product is made in Asia. UM.
14:17
Speaker 1: The packaging has also made in Asia. It's put together there,
14:20
Speaker 1: and it's it's shipped to the US or to the
14:22
Speaker 1: point of distribution. And as you mentioned, sixty five different countries. UM,
14:26
Speaker 1: we also have about two hundred different skews in stock
14:29
Speaker 1: at any given time. So it really comes down to
14:31
Speaker 1: having a very smart analytical planning team to understanding what
14:35
Speaker 1: colors and sizes are going to be hot in what
14:37
Speaker 1: markets at what time. And I just want to mention
14:39
Speaker 1: that I believe you can spend anywhere from twenty five
14:41
Speaker 1: dollars to even hundred dollars for one of your vessels,
14:45
Speaker 1: one of your bottles, because if you like the Schowski crystals,
14:50
Speaker 1: you could probably get one of Marcus. I believe that
14:52
Speaker 1: is correct. That was a special edition that we did
14:54
Speaker 1: where the proceeds went back to charity where mission driven companies.
14:58
Speaker 1: We work with all different kinds of charities. But I
14:59
Speaker 1: have to say I was surprised at how popular those
15:02
Speaker 1: bottles were. Well, can I ask you just about how
15:05
Speaker 1: quickly trends change and how much you do have to adjust?
15:10
Speaker 1: I mean in water bottles, how how how much can
15:12
Speaker 1: things change? That's a great question. You know our original colors,
15:16
Speaker 1: so we bought some core colors, you know, our ocean blue,
15:18
Speaker 1: which was the color I started with, the teak would
15:20
Speaker 1: bottle that looks like would. Those are our course best
15:23
Speaker 1: sellers and they really do make up the bulk of
15:25
Speaker 1: our business. But what our customers love about us is
15:28
Speaker 1: we're always innovating and Oftentimes our customers become collectors. They
15:32
Speaker 1: buy the bigger one because they hold a bottle of wine,
15:35
Speaker 1: or they buy the Lily Pulletzer collaboration because it matches
15:38
Speaker 1: their handbag or maybe their sweater. Um. We have found
15:41
Speaker 1: that customers have multiples at home, they take them to work,
15:44
Speaker 1: the gym, to school, and because we're always coming out
15:46
Speaker 1: with something that's on trend or something that our customers
15:50
Speaker 1: really cove, it that we can have these collections that
15:52
Speaker 1: come in and out all the time, even though those
15:54
Speaker 1: core best sellers are really driving the business forward. Now
15:57
Speaker 1: there's some estimates that you're doing at least if that
16:00
Speaker 1: more than a hundred million dollars in sales a year.
16:03
Speaker 1: Customers include Starbucks, Whole Foods, Jay Crew. But your first
16:08
Speaker 1: customer was the Harvard Business School. That's correct. I was
16:11
Speaker 1: an alumni and I really was hoping that I would
16:14
Speaker 1: able to convince them to use my bottles and go
16:16
Speaker 1: a little plastic free on campus. And they took up
16:19
Speaker 1: your offer. Yes, and even to this day they buy
16:21
Speaker 1: a bottle for every student. Now that's all great, but
16:25
Speaker 1: there was an Oprah moment that really kind of change things.
16:28
Speaker 1: Can you tell us about that sure so UM. In
16:31
Speaker 1: the early days when I was the only employee, I
16:32
Speaker 1: was also doing PR so I marched myself to the
16:35
Speaker 1: post office with a bottle in a box and addressed
16:38
Speaker 1: it to Oprah win Free, Chicago, Illinois. It made it
16:40
Speaker 1: to her senior editor, who actually took the bottle on
16:43
Speaker 1: her family vacation to Peru. She called me and said,
16:46
Speaker 1: I love this thing. It really works. I want to
16:48
Speaker 1: put it in a magazine. And really from there, I
16:51
Speaker 1: think that was the day we turned from a project
16:53
Speaker 1: into a business. So can you talk a little bit
16:56
Speaker 1: about how you got the capital to start with the manufacturing.
17:00
Speaker 1: Who were talking earlier about the challenges of credit for
17:04
Speaker 1: small businesses, So how did you start with that? Well,
17:07
Speaker 1: you know, Beim mentioned that I was recovering accountants, so
17:10
Speaker 1: I really did care a lot in the early days
17:12
Speaker 1: about immunity economics, and I used my personal savings, so
17:15
Speaker 1: I was very careful, even though it's making a small
17:18
Speaker 1: salary as an accountant, to always put money away, and
17:21
Speaker 1: it was my nest egg. It was my my future
17:23
Speaker 1: retirement savings that I was able to use to start
17:25
Speaker 1: manufacturing UM. But my first run of of product was
17:29
Speaker 1: only three thousand pieces. Um. I had a very small
17:32
Speaker 1: apartment and that's where the inventory was kept under my
17:34
Speaker 1: kitchen table um and really part of the reason, um,
17:38
Speaker 1: you know, I didn't raise money in the beginning. I
17:40
Speaker 1: was very careful about where the product was going to
17:42
Speaker 1: be sold. Part of it was for brand, and part
17:44
Speaker 1: of it was because I just didn't have very much
17:46
Speaker 1: inventory because I couldn't afford to buy more until I
17:49
Speaker 1: sold that first batch. When you open, you opened the boutique,
17:52
Speaker 1: I believe in Palm Beach, I did what was behind
17:56
Speaker 1: that because you've gone from that single boutique now I
17:59
Speaker 1: know you just did a deal I believe with Married
18:01
Speaker 1: International and their Elements hotel chain to put the bottles
18:07
Speaker 1: in the hotel business. You know. In the early days,
18:10
Speaker 1: I wanted to get as close to the customers as
18:12
Speaker 1: I could, so having a small store, it was a
18:14
Speaker 1: bit of a pop up store for six months, just
18:16
Speaker 1: listening to customers. What do they think about the product,
18:18
Speaker 1: what colors and finishes were they looking for. But to
18:21
Speaker 1: really scale the business, I had to start thinking about
18:23
Speaker 1: those big corporate partners and understanding are they looking for
18:27
Speaker 1: sustainability In the case of Marriott and in their elements
18:31
Speaker 1: brand or you know, are they really thinking about merchandise
18:33
Speaker 1: in the case of what we're doing with Starbucks. So
18:35
Speaker 1: it's it's great to have those small independent accounts. It's
18:39
Speaker 1: really how we built the business. I'm still in about
18:41
Speaker 1: two thousand small stores in the U S. And they
18:43
Speaker 1: just like the small businesses here at the conference, they
18:45
Speaker 1: really are the backbone of our business. But to really scale,
18:49
Speaker 1: I wanted to go with some of those bigger brands, Sarah,
18:52
Speaker 1: real quick, which country have you found to be the
18:55
Speaker 1: most fertile ground outside of the US for your business
19:00
Speaker 1: right now? It's Canada if you believe that, UM. But
19:02
Speaker 1: some of the countries that we're starting to move into,
19:04
Speaker 1: for example, we're just getting started in Japan. UM they're
19:07
Speaker 1: super interested in design and they love the design that
19:11
Speaker 1: UM that we have on the bottle. So if for me,
19:13
Speaker 1: it's a bit of a surprise if if a country
19:15
Speaker 1: is either looking for us for the sustainability angle, the
19:18
Speaker 1: fashion angle, or even the design angle, everybody seems to
19:21
Speaker 1: have something else that they sort of lean into UM.
19:23
Speaker 1: And luckily with well we have so many different messages.
19:26
Speaker 1: Sarah House, thank you so much for being with us.
19:28
Speaker 1: Sarak House chief executive officer of swell s Apostrophe W
19:32
Speaker 1: E l L. Talking about how she started that business
19:36
Speaker 1: and grew it to where it is today. Talking about
19:53
Speaker 1: financials and financial markets. Right now we are seeing uh,
19:56
Speaker 1: some declines across the board in US equity markets. And
20:00
Speaker 1: to understand uh, sort of how investors ought to be
20:03
Speaker 1: thinking about this volatility and navigating it is Jack Avalin,
20:06
Speaker 1: founding partner and chief investment officer at Crescent Wealth Advisers. Jack,
20:10
Speaker 1: thank you so much for joining us. I'd love to
20:13
Speaker 1: get your take on a on a key question today,
20:15
Speaker 1: which is the economic backdrop looks good? Pretty much everybody
20:19
Speaker 1: says that at least in the short term, Um, at
20:22
Speaker 1: what point is this just evaluation story? And how long
20:26
Speaker 1: if it is, can mis continue with stocks just overpriced
20:29
Speaker 1: where they were and uh needing to reprice a bit
20:32
Speaker 1: more before they seem fair. Yeah. Everything that I've seen
20:37
Speaker 1: so far this year, at least related to this volatility
20:41
Speaker 1: is pretty much technical evaluation related. I took comfort in
20:46
Speaker 1: in seeing that, um, you know, credit conditions uh pretty
20:51
Speaker 1: much remained intact throughout the entire downdraft. So that suggests
20:57
Speaker 1: to me that you know, this isn't sickle, This isn't
20:59
Speaker 1: anything at least related to the business cycle yet. Uh,
21:03
Speaker 1: this is just simply a repricing as you as you
21:06
Speaker 1: described Jack, there are You've written that there are three
21:10
Speaker 1: types of reversals. Right, there's the technical, which you just
21:15
Speaker 1: kind of alluded to, there's the cyclical, and then there's
21:18
Speaker 1: the systemic. Right yeah, okay, so when do we know
21:23
Speaker 1: which is which? Sure? So the the cyclical it relates
21:30
Speaker 1: to the business cycle. For example, one of the things
21:33
Speaker 1: I'm a little bit concerned about now is that we're
21:36
Speaker 1: running our economy faster than our potential GDP growth. So
21:43
Speaker 1: we're essentially beating a two percent race two percent donkey
21:47
Speaker 1: into a three percent or so racehorse, and that we
21:50
Speaker 1: can do for a while until we start running out
21:54
Speaker 1: of capacity. One of the things I loved about this recovery,
21:57
Speaker 1: while it was certainly slow, it is really steady, and
22:01
Speaker 1: one that we were growing consistently at a potential GDP
22:06
Speaker 1: which is about two. When when we start ramping higher
22:09
Speaker 1: than that, then we could see excesses. And then then
22:13
Speaker 1: what we'll see in a downturn would be things like
22:15
Speaker 1: credit conditions tighten up, maybe as lenders decide that their
22:20
Speaker 1: borrowers are less likely to repay their loans. We may
22:23
Speaker 1: see a yield curve in version. We could see some
22:27
Speaker 1: inflation as we run out of capacity for either production
22:31
Speaker 1: for labor. We're already starting to see a little of
22:34
Speaker 1: that in trucking. UH. And so those are the clues
22:37
Speaker 1: that we would be looking for to say, you know what,
22:38
Speaker 1: this is now a circle called downturn, one that typically
22:43
Speaker 1: lasts a few years, not just a couple of days. So, Jack,
22:47
Speaker 1: one thing that a lot of people have been saying
22:49
Speaker 1: has driven the sell off and equities has been the
22:52
Speaker 1: increase in benchmark US treasury yields. UH. Goldman's Access Management
22:57
Speaker 1: came out overnight was talking about out seeing that yield
23:01
Speaker 1: go to three and a half percent within the next
23:03
Speaker 1: six months. Do you agree, Yeah, Unfortunately, I don't know.
23:07
Speaker 1: I don't know about timing, but I do agree. I mean,
23:10
Speaker 1: if you think about stocks and bonds, they're just generally
23:13
Speaker 1: competing for capital um. If you you know you want
23:16
Speaker 1: steady income with low risk, you want typically gravitate the bogs.
23:21
Speaker 1: If you want higher return expectations with a little more risk,
23:25
Speaker 1: then you'd go to equities. And since two thousand nine,
23:28
Speaker 1: UM bods have been tugging, you know, tugging at this
23:31
Speaker 1: tug of war against equities with one arm time behind
23:35
Speaker 1: it's back, because yields were just held artificially. ROW. One
23:40
Speaker 1: of the ways I look at that is historically the
23:43
Speaker 1: tenure treasury yield tends to track nominal GDP. Nominal GDP
23:48
Speaker 1: right now is four percent tenure treasury two point eight,
23:51
Speaker 1: So there is some more room UH for UM yields
23:55
Speaker 1: to rise. And as a result of that, equities have
23:59
Speaker 1: been winning a tug of war and has and has
24:02
Speaker 1: have commanded a premium that they would normally not enjoy
24:07
Speaker 1: if fields were higher. Jack, you got any how much
24:10
Speaker 1: cash do you have on hand for your for your investors. UM.
24:14
Speaker 1: We have not raised cash during this UH downturn, largely
24:18
Speaker 1: because again we are looked at it as more of
24:21
Speaker 1: a technical bump than anything more serious than that. So
24:25
Speaker 1: we were pretty fully invested going into two thousand and eighteen.
24:29
Speaker 1: PIM and like I said, didn't use this as an
24:32
Speaker 1: excuse to maybe get some sideline cash in, but not
24:35
Speaker 1: an excuse to get out of the market. So are
24:37
Speaker 1: you actually buying now? Yeah? When if we have opportunity
24:42
Speaker 1: to buy. We will. Uh. It's in other words, you
24:45
Speaker 1: don't see it having come already. No, I think that,
24:49
Speaker 1: you know, I will use these down drafts as buying
24:52
Speaker 1: opportunities because, like I said, I'm not seeing much follow
24:56
Speaker 1: through to any other markets yet. UM. And if you
24:59
Speaker 1: now strip away UM valuations and look at them, look
25:04
Speaker 1: at the market relative to UM, the earnings and yield
25:08
Speaker 1: I'm sorry, earnings and dividends markets about five percent over valued.
25:13
Speaker 1: I mean to me that statistical noise, We're actually back
25:16
Speaker 1: to fair value, whereas we started the first couple of
25:19
Speaker 1: days of the year between fifteen and over valued. Jack,
25:24
Speaker 1: what kind of stocks would get you interested in buying? Uh,
25:27
Speaker 1: like Apple or Facebook or what kind of stocks? Yeah?
25:32
Speaker 1: I think that. UM. You know, I'm not a stock picker,
25:34
Speaker 1: but I would say that, you know, if you're looking
25:37
Speaker 1: to trade, certainly that's where the action is on the
25:42
Speaker 1: on the downside and of course on the upside. UM.
25:45
Speaker 1: So as a long term investment, I would say, as
25:49
Speaker 1: economic growth tends to broaden out, UH, these large cap
25:54
Speaker 1: growth companies will kind of fall behind some of the
25:58
Speaker 1: more broader names like financials UH and industrials and basic
26:03
Speaker 1: materials UM. So from a sector basis, I would say
26:07
Speaker 1: that probably plays pretty well over the next four to
26:11
Speaker 1: six quarters, but over you know, as as a trade
26:14
Speaker 1: as a hunch. Uh, These large cap growth names like
26:18
Speaker 1: the you know, Amazon, Facebook, Apple, and so forth, there
26:21
Speaker 1: are interesting plays. All Right, I'm going to leave it there,
26:25
Speaker 1: but I want to thank you very much for joining us.
26:27
Speaker 1: Jack Ablin is the founding partner and the chief investment
26:30
Speaker 1: officer at Crescent Wealth Advisors. Thanks for listening to the
26:37
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
26:40
Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
26:44
Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
26:49
Speaker 1: I'm on Twitter at Lisa Abramo wits one. Before the podcast,
26:52
Speaker 1: you can always catch us worldwide on Bloomberg Radio.