Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Applecarplay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Now Every week around this time, we also bring your research from Bloomberg and EF. It is new Energy finance and it's powered by data sets and models, and it looks at things like commodities, power, transport, industry, buildings, AG sectors and talks about how businesses and governments can finance and navigate change and as we transition to a green energy future. And so today we're going to take a look at US oil supply and basically global oil supply.
Really there is a falling rig count and the question is does that mean we're going to see falling oil production? And if not why Joining us now at the Interactive Broker Studio is Tylou, global oil supply specialist over at Bloomberg BNF. So Ty walk us through sort of the picture when it comes to how many wells we have just at this stage for US.
Yeah, yeah, So I think the declining recont in the US that we've seen, it's not going to have that much that bigger for an impact as it seems as
much as the headline number suggests. And part of the reasons that is because like if you look at the Permian, where we have the biggest all production region in the US the world, completions is only done about four and a half percent compared to the recount which is done about fifteen percent, and so and on top of that, you have a lot of efficiency gains in the sector, so you are able to complete a lot more wells
with much fewer freight crews across the industry. So I think the recon number could be a little bit misceeding if you're focusing too much on that.
So I'm spres just just looking at your report here and seeing how production in the US continues to increase, but maybe at the slower rate.
I don't know.
I got WTI coroyal seventy seven bucks. Why don't I drill some more? I can make money. I mean, it only costs those guys for the bucks to get it out of the ground.
Right, Yeah, yeah, for sure. Yeah, So when we look at brick evens, especially in the Perman it's probably around in the low to mid forties for their Miden basin, and then for the Darrow basins probably even lower than that because they produce a lot more gas. But part of the reason is because the us L patch has really pivoted and transformed itself in the past couple of years. Now, before the pandemic, all producers were very much focused on
production growth. But after the pandemic, the industry has changed and now they're focusing on financial returns. Now, in order to improve the financial returns, they have to become more efficient. So in the past few years you have seen a lot of cost cutting initiatives, a lot of optimizations on logistics and supply chains, a lot of investments in infrastructures. So the entire industry has become a lot more efficient
in the past couple of years. And on top of that, they have also become a lot more resident And what that means is that nowadays the USL industry can produce a lots more oil with much lower capital investments compared to like just five years ago.
Also, what are the cool things that oil companies are doing to extract more oil out of rock. At the end of the day, I mean I went to a conference but a year ago and everyone was like, ooh, three mile laterals. And what that means is that you basically drill a pipe down and then you drill it across the rock basically lateral, and you fracture it. And the longer you go, in theory, the more rock you'll be able to access, and then in theory, the more
oil you'll get out of that rock. Wow, is that too nerdy?
No?
Okay, cool, I've learned that frackening is short for fracturing. Yes, I didn't know that.
Good job, we learned things here at Boomberg Intelligence. So based on that, what are the cool technologies that are coming up that's going to enable even more oil to come out of the rock?
Yeah, So during these longer letters, it's definitely like a big part of these efficiency games because you're reducing a lot of the service costs when you're during longer letters, and like you said, Alex, you're making a lot more contact with the source rock, so you can pull out a lot more resources from the same well. Had some of these, like I guess, better practices would be having a lot more building out the water handling infrastructure. Some
of them will be optimizing your frag designs. Some of them would be let me see what else, I'm optimizing your spacing between the wells. So a lot of these like see many small things on individually, when they act together, they can have a big impact, especially over time. For example, one of the big producers in the perman I was looking at the data and they were able to reduce them costs per the well cause per letter foot by about thirty percent between twenty yes, between twenty nineteen and
twenty twenty four. So there's a huge gains in terms of percentage.
All right, So I thought, if you go into like you find some shale somewhere, don't you do you? Don't you do your good wells, your easy wells first, and then shouldn't the productivity decline over time?
Yeah?
That's exactly pretty muchre what we've seen, like you said, in the US, the oil and gas companies. So they do is they drew their best say which first, because they want to realize that that person why you have better weals. And when we look at the data for the past five years, what we're seeing is that all production on a well level basis has been declining every year for the past three or four years, pretty much
across the board. But what's interesting is that in twenty twenty four, the data that are coming in so far is they're looking different.
Well.
Production again, sorry i'm aill. Production on a well level basis is actually better for the weals the camera line in twenty twenty four compared to those last year. So what that means is that technology improvements could be turning back to tide. For this production declined on a well level.
Basis, which is why it's so cool when you when you talk about laterals. Now we're talking about three miles. That's all lot, and a lot can go wrong in three miles.
Now.
Just about five years ago, the talk was like, oh, well, if you frag here, then you're gonna hurt the rock over here, and then it's gonna mess up the oil distribution and all that kind of stuff. What are the problems that are emerging the longer out we go in these rocks.
I think one of the biggest risk rep factors, Like, like you said, if something goes wrong on Alex, you lose production from three mile worths worth of flattro. So that's going to be a big opportunity. Opportunity costs for you. But at the same time, if things go right, you can save potentially save a lot of money. I think
not only during longer ladros. Some of these companies they're actually making U turns under the ground so they can yeah, so they can stay within the acreage and so they can make more contact with the source rock.
So if you do that, do they you turn into another layer of the rock or do they you turn in the same layer.
The you turn in the same layer.
Oh my god, that feels like a lot can go wrong there. Yeah, well what companies are doing that?
Remember method of resources in the permit is doing our U turns on the letters, and there are a couple other ones. I don't be on top of my head.
Oh man, is this nerdy enough for you?
Yeah, it's really cool.
Well, here's my dumb question of today, never other than shale oil coming from shale? Do we still drill old fashioned rigs and produce oil that way?
We do?
We do?
We do.
We still do that quite a bit. But the but if you're talking about on shore the productivities of these wells, it is probably like ten percent or maybe twenty percent of these horizontal wells, so the impact is probably it is definitely a lot smaller than the horizontal ones.
Really confused, Well, No, I'm just saying, if I'm jab Clampe and you start drilling under my property.
See I doesn't get that reference.
Can I like, can you do that? Can you go under my property with your what?
Yeah?
You can pay for it?
No, But I'm just saying, can a big oil company go under my lane?
You for it?
They have to pay, yes, but actually also makes shale.
But that's what makes shales so unique in the US is because they have to pay you. Like other areas of the world, the people don't make the money, they don't own the mineral rights, and therefore they don't have the same kind of investment in making shale developed versus you. You're like, yeah, you can have it, but you got to pay me, and then you're actually invested in it. But I digress.
All right, clamp it was from Feberleyfieldville.
Like still thanks a lot, Tyler. We appreciate it being at a global oil supply specialist joining us on US oil production.
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So all right, we've got that brank crude here. We've been calling it out this morning. Eight one dollars and fifty cents here up about three point one percent, So a big move. So whenever we see big moves and commodities we like, you got to get Mike mcgloan on the phone. He's a senior commodity strategist for Bloomberg Intelligence. Mike, again, like a lot of us, we woke up this morning and we had to read up and read in on
what's happening in Libya. How much is the Libya situation responsible here for this move in global crude?
It's much more positions. Libya exports about a million barrels a day. Their average since two thousand was less than that. If they shut off completely its way offset what what Alex meant and mentioned earlier, massive oversupply of spare capacity and OPEC and just look at the US and Canada, our excess of liquid fuels supply over demand, which is six million barrels a day I was compared to two thousand and eight was ten million deficits. So it's in significant.
It's positions that matter, So I look at it as manage money net positions, futures positions, Kruda which drives at market. We're at least a week ago the most sold out in our database going back at least ten years. I mean, brank crude hardly ever gets short and it was so there's no room for anything but those positions that go up from buyers to go higher. So to me, that's much more significant. What's happening is we're just kind of
normalizing the positions a little bit. And the reason they're sold out is because it's a bear market, and it's just a bear market that's reading I think, a short term bottom.
Not to get too nerdy, but what about differentials? So Libya has a lot of light sweet crude, and there's also dark, and there's medium and all that stuff. They have light sweet, right, so are we going to see some differential movement in terms of Libya? Like I appreciate the fact that OPEC plus has a lot of spare capacity, et cetera. But what do you think we're going to see there?
So, Alex, you know that area a lot better than I do. To me, it's more the macro and the light or heavy doesn't make much difference. I mean, one thing that's been significant is that narrowing spread between BRENT and WTI. That's one thing that's news. Brent positions are way sold out. In WTI. Pieces are normal ten percent of open interest, our net lungs and those are specs. So to me, it's much more the macro, and the macro, to me, is overwhelming, and I'll bring in an uber
big macros. What's happening in China. We've seen declining demand and their bond yilds are just plunging for a reason.
So if this move in, if this move and crude feels a little bit more technical, when did the fundamentals reassert themselves?
Good question. I don't know. I think it's a matter of time it falls. Natural gas. Natural gas got to that low price cure a level that was first traded in nineteen ninety in futures. Now it's around two. That's just hovering there. Corn's there now. Front corn at three point sixty two is first traded in nineteen seventy three, seventy four. It's getting plowed. It's got to shut off that access supply. It's coming out. Copper's probably tilting lower. I don't know how long, and when it takes I'm
surprised it's lasted this long. But one thing that's the bottom line palls the US stock market has to go up. And that's one thing we've noticed about Crudel in the last maybe ten years or so. When we have a normal correction in beta, crude all goes down a lot harder. It's just much more correlated with the stock market now, particularly what's happening in China. So I look at it as a risk as to the downside. It's a matter of time right now. We have to offset these positions.
But the headlines are just overwhelming lead tilting now towards the opposite they were two years. One is recently oil's hot summer's ending, posing risks for majors in opek. Those are macro, which the big shifts, it's the big pendulum shift and commodities is unfamble for Crudell, and it's on the back of the high price cure.
So when you say that the stock market has to go up. Do you mean that it just will go up, or you're saying in order for oil to catch a bit, it has to go up exactly.
So prerequisite I started writing about this a few years ago, is it's the inordinate burden on commodities for stocks go up because the correlations are just going up and up and up, and at least historically they are. So though, I look at right now, if you're managing Crudell, if you have positions on Crudell, you know, okay, this is our short It's okay to be I don't want to run a positions are sold out. I can be long here a little bit, but you have to look over
in your value at risk model. You have to say, okay, as long as the SMB five hundred stay stable, I'll stay stable. If you get a little ten five percent correction. Crude oil dropped twenty percent. Now it didn't done that last thing in October fifth because they were sold out. But now it's starting to normalize. So it's just the way markets work. Now.
Hey, Mike kew about gold. Earlier this morning, we were speaking with Dennis Gartman, the former editor the Gartman Letter, and an a vowed gold bull for a long period of time. Here give us your gold call here, which I'm sure is gonna be very consistent with what I've known you for for these many years.
I would consider Dennis a friend, and I do appreciate in the past you remember one of the few things I've been getting right, and that's gold. The problem is, and so I'm still quite bullish gold. It's the only major commodity go up. And I think the notable mention is a Bloomberg commodity index is down thirty percent since it's peaking twenty twenty two, and gold's up thirty percent over the same frame. But it's the fundamentals that are
still very bullish for gold. Deepest pockets on the planet. Central banks are still buying ETFs, which events significant outflows are STI just starting to turn upward. And then you just look at the very expensive US stock market and US debt to GDP. It's just fiscal spending is off off the charts, and neither of the candidates are dressing that. So to me, gold is that trade that's looking for
the normal recession to kick in. The eield curve, the US eel curve, that's disinvert at some point, just the normal cycles unemployment going up, and gold's kind of just ahead of that trade.
You know, when I was covering gold back in the day, though, it was very much of a inflation goes up, you want to buy gold, it goes down, you want to sell gold. Es Central banks are buying not because of the macro, but because they have like a percentage they need to diversify, which is not necessarily based on macro headwinds or tailwinds. Is that still true.
The questions out of sam Alex, the answers have changed. And in terms of any other currency, I think that was initially from Einstein coupling one time ago, but it's it's the in terms of any melting currency. Sure, goal is a great place to park your wealth, but in terms of you as dollars, it's the world's shifting now and it has a high correlation between that rising debt to GDP. I just published that tomorrow this morning. And key thing I'm concerned about is the number six forty three,
six hundred and forty three, here's one for you. Is the number of bushels of corn equal to an ounce of gold. That's the highest ever that's where we are right now, So goals getting the expensive. But it's showing you what happens with the store of value global liquid assets going upward, and that's gold and elastic commodities like crudel and corn going down because humans can create more
of it with less of it every day. So gold to me is running ahead of what I see happening with Ira Jersey says, a hard landing, lower US interest rates, probably falling China, and at some point a little bit of back and fill US stock market, which used to happen in bull markets.
All right, here's the dumb question you get of the day, No question, how do you value a commodity? Like on a stock, I can say price to earnings ratio, on a bond, I can say relative to treasuries?
Is gold?
When are you say gold's expensive or gold's cheap?
So gold's different from all most commodities of use stocks to use. What are the stocks versus the use? So stock's the use for all the grains and particularly crudels very high. There's a lot of stocks, there's more and more creative. What's that trend? Gold typically sticks with the more macroeconomic I like to use to me right now, it's interest rates, US interests, the trend in interest rates, debt to GDP, and much more. How is it relative to the stock market. And here's what I like to
end with. One of my most enduring charts I've looked at free decades is that S and P five hundred divided by the pronouncis prices of gold. Historically, gold's just very cheap, and historically when you go to recessions that fedieses un deployment goes up. That why this parriage just kind of narrows a little bit. And that's the thing.
It hasn't narrow too much because gold's catching up. And actually it is narrowing a little bit because gold on a one, two and three year basis is outperforming the S and P five hundred total return. The risk is it just catches.
Up more bitcoin.
How you feeling, it's the end. It's the last big trade and it's not the next big trade. So the LBT is no longer the NBT. It's Bitcoin is overdone. It's stretched. Everything that's happening in bigcoin where things we're hoping would happen, that is, it's into the mainstream. We have a former president who has embraced it because he wants to get elected. We have the ETFs and now
everybody it's in the mainstream. The thing is also it's showing divergent weakness versus what it should versus beta since it made its peak in March, it's declining versus gold versus stock market. So that's the problem. I think the fastest horse in the race is telling us by showing divergent weakness is a race might be over. So I'm somewhat more defensive on bitcoin. A key thing I think to remember of bitcoin it trades three times of voltuli
of gold and the SCDB five hundred. When the people tell you that, oh, when the stock mark goes down and we have a recession, bitcoin of our performance, well, it usually doesn't work that way with very high voltuli assets that are very speculative.
All right, Bitcoin to cold to corn, corn to gold ratio. Oh okay, yeah, you got it. Just it's a it's a lot, Hey, Mike, we appreciate it. Thank you so much. Mike mcglohon Bloomberg Intelligence, a senior commodity strategist joining us on all the things commodity related.
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All right, let's go back to the trade situation here. So the latest news is that Canada is going to hit China with tariffs on EV's and steal Brian Platt, Government News, Canadian Government Reporter, Bloomberg News, Canadian Government reporter. I got that is joining us now on that from Ottawa. Hey, Brian, what is this about? Is this about Canada wanting to compete more in evs and steel or is this about making sure that those things can't come through Canada into the US.
Honestly, I would say it's about both. Canada has put a lot of effort into attracting EV manufacturing and so for sure Prime Minister Justin Trudeau's government wants to make sure that those factories and investments and what they want to attract in the future is not undermined by China.
But absolutely this is about Canada's relationship with the US as well, and the last thing Canada wants is for the US to see Canada as a weak point, right, as a potential side door for Chinese evs, and so I think it's really about both things, but especially that Canada US relationship.
How much what's the support level amongst Canadians for just tariffs in general, because a lot of folks will tell you, hey, this is just a tax on consumers.
Yeah, there will be some pushback on this, but I think I think generally there's a political consensus that these tariffs are necessary. And again it's for both reasons, right. I mean, you know, Canada wants its own manufacturing sector, especially that that share of the auto manufacturing sector in especially electorally important regions around Toronto in southern Ontario. That's where those factories tend to be, and so I think
there's a lot of support for protecting those jobs. But Canadians also understand that Canada's got to make sure it doesn't get too far offside with the US. I'm sure there will be some people who are concerned that this will make evs more expensive at a time when it's hard to get to Consumer adoption of EV's is not as high as as a lot of environmentalists especially would want it to be. But I think generally you'll see a lot of consensus in support of this.
Do Canada Does Canada buy a lot of China EV's.
At the end of the day, though, right now it's basically Tesla's being manufactured in Shanghai. That's at the moment that is the only significant inflow of Chinese made evs into Canada. I suspect Tesla will move that production to other factories to avoid these tariffs, but we know that that byd in particular, the giant Chinese automaker is looking around. They have They've hired lobbyists in Ottawa to look at possible opportunities to build and or sell in Canada. So
Canada is trying to get ahead of that. But at the moment, it's basically just Tesla's.
Brian, what is just in terms of the EV what's the adoption been like in Canada? Because here in the US it seems to have hit a kind of a rough patch, a little bump in the road here in terms of adoption. How is it in Canada?
It's pretty similar, I would say to the US. You know, Canadians, the really the very popular vehicles here tend to be SUVs and trucks, and I don't think that from what I've seen, there's not a lot of EV adoption in that space yet. It's pretty similar to the US. I will say there are a couple of provinces, Quebec and British Columbia who EV adoption is is higher in those provinces because those provinces are pretty early at rolling out
consumer incentives and sales mandates. So some regions of the country have seen higher adoption than others.
That's interesting. Is there going to be more? Is this the beginning or is this the end?
I do think this is the beginning, and in fact, today they Trudeau announced there will also be a consultation on other products, basically again sort of following with the US what US President Joe Biden announced earlier. So I think the consultation that will start now on other potential tariffs will focus on solar cells, semiconductors, critical minerals. I think I suspect we will see more tariffs in the near future.
All Right, Brian, thank you so much for joining us. Brian Platt, he's a Canadian government reporter for Bloomberg News, joining us from Canas. We appreciate getting the boots on the ground perspective there. But again it seems like, as Brian was reporting there, that this is as much a political move from Canada to maintain, you know, a lockstep policy with that of the US has released to China.
Right, because if you think about it, the US can have all the tariffs that they want, but if there are no tariffs between Canada and China and Mexico and China, there's no reason they just can't move into those countries and then they don't get the tariffs when they come to the US. So this avoids it. Now Mexico kind of has to do the same thing or else we run that risk as well.
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We also love talking about ETF flows. Eric Beltunas is probably on vacation. Although I saw a license plate, we've not he's here.
Yeah, we had him in this morning.
I saw a license plate yesterday. We're playing the license plate game. Came back from Connecticut and had etf in it, and I was like, who is.
That Eric car?
I mean, maybe it could also be Sean O'Hara's car. He's president of pacer ETFs and he's joining us. How to talk some more about flows? Hey, Sean, does your license plate have et finite?
No? It does not. It might be might have cal Z cowz nice.
Okay, So I've been reading a lot about where the flows are going, where the funds are going. There's still record amounts of money and money market funds just sitting there in cash. Are you noticing any of that coming into ETFs and wear are the flows?
Well?
Thanks for having me. It's been a little bit slow here for August, I think, you know, and talking to some of my friends around the industry, I think things have slowed down. I would expect that, you know, once we get past this weekend, things will pick back up. A lot of the flows earlier in the year were to the big broad market cap weighted indexes. You know.
The big risk there I think you guys were talking about coming up is that there's such a high concentration of the return on the S and P five hundred for example, or the NASDAQ one hundred that is attributable to five to seven names, and that happens from time to time, but it never really lasts. And so I think you're seeing, you know, going to see flows away from traditional market cap as this market develops a little bit of breadth into different waiting schemes.
Sean, we had an eventful day, certainly on Friday, BET chairman j Palout and Jackson Hole in his speech. What did you make of that speech and what do you think it means for the markets?
Well, I think what I'm hopeful it means is that they're going to stay true to their word. I mean, they have not really deviated from what their message is. I think they're indicating now that they're going to have a cutout expected to be twenty five basis points, and then I would expect another cut perhaps later this year, to sort of deal with a little bit of the
slowdown that's occurring. Hopefully. You know, they're able to engineer a soft landing as opposed to a crash landing, and so their strategy has been all along to be very very tight on money until they felt like inflation was under control. I think they feel like that's the case now and we're starting to see a little bit of a crack here and there in the labor market, and so that's their secondary concern, which is why I think they'll in cut rates just a little. And I think
the market depending on what their message is. And I for example, they did fifty basis points, I think it would scare the market. So if they do twenty five, I think that the market will view that as a positive and continue to go up and forward from here.
So based on that, then do you see the flows into more of the let me go buy super cool tech on it dip flows or is it let's just rotate into some defensives in case the FAD's going to have to cut fifty basis points.
Yeah, I mean, I think you've seen some of that. I mean, you know, our big calling card is value. We think we redefined value with our cash Cow series and we've had a terrific year there. We have a growth strategy that we just launched Friday, a Nasdaq one hundred growth strategy that it takes a bit of a
different take for that side of the equation. We use free cash flow margin, which this is a measure of how much free cash flow company generates based on the sales that they make and so, and we're optimistic that, you know, the success we've had on the value side, we can have on the growth side with a couple of those ETFs out there right now. And then one more important point is some of the flows we've been
seeing here recently have been into risk management strategies. I think people are starting to get a little bit more position to if it's not a soft landing and the economy really does go into a recession, how do I position my portfolio manage to downside.
Gold higher yet again?
Today?
Sean, how do you see that extraordinary performance of gold in your TF world?
Well, I mean the big ETFs there are taken in some money, for sure. I think traditional gold investors would rather you know, stack it, as they say, right, keep it in a safe or store it somewhere in a
safety box. You know, I don't really think gold as an investment is a good long term investment in true you know, it hasn't been historically a very high returning asset, although it goes through periods when you have a lot of uncertainty where a disc does tend to move a bit, and so I think that what's going on with the gold trade has been driven primarily by two things. One is people see it as an inflation hedge, and then there are also people that see it as a hedge against sort of a.
Disaster, right, and that which brings us to bitcoin too. What kind of flows are we noticing into the ETFs right now in the crypto space?
Yeah, well, we don't have anything in the crypto space. I'm not sure we're big believers in it, Okay, but I will tell you, just if you're from a market observer, there's been enormous flows into bitcoin e, which again I don't think makes any sense. I mean, if you're going to hold bitcoin, you don't need to hold it in a wrapper that charges you extra money on an average daily basis like an ETF and has a management fee. But there's been a great deal of money flowing into
these ETFs. I think that was a lot of anticipation waiting for them to finally get launched, and I think eventually what you'll see in the bitcoin space is what we've seen in the broad market space, Like when you look at the several different versions of the S and P five hundred you can own. They're really all the same, and so I think eventually we're going to wind up seeing a fee war on the bitcoin side.
Interesting, So the ETF business, Sean, I mean, I'm just looking at some of the research from Eric Balchunas from Bloomberg Intelligence showing, you know, the big, big players just dominating in terms of total assets, the vanguards of the world. Is that a healthy market structure for any market?
Well, I think generally is big and it's not a bad thing. I think, you know, the bulk of the ETFs so far have been in what we would call cheat beta replication strategies, taking and existing broad index and just putting it in the ETF wrapper. So it adds some utility if you will, you can own the whole market for example, like the S and P pive hundred.
I think there's a very very good use case for that in people's portfolios, and it presents a challenge for folks like us, which you know, we're right across the street from Vanguard, who are fully aware of who they are. We tend to build product that we think is innovative, disruptive, or unique, and I think there's plenty of room for
folks like us in this business. We always focus on an outcome in mind or a customer in mind, like is this something that would be useful in their portfolio that's not out there, and we either try to design ets that are stretching for extra return or creating alpha or managing risk to the downside. And there's a place for that in people's portfolios as well. So I think
the ecosystem in general has been very, very healthy. I think that you know that if you're not in that trillion dollar plus category, then you're in the bottom eighty five percent of issues in terms of dollars. But I think as an etf issuore, I think we're almost forty seven billion dollars today. We've grown almost nine or ten billion so far yere to date, which puts US at like six or seven in terms of year to date netflows.
I think we can continue to chug along alongside of those folks and add value for financial advisors and investors going forward.
Before I let you go with like thirty seconds, have you seen anything in terms of people betting on election outcomes or anything like that, or any ETFs that you see there, I have not seen anything.
Yet, I think what you'll see is as we get closer, I think you'll see people trying to play that angle, if you will. I mean there's a pretty diverse philosophy between the two candidates, if you will. One is a little more less regulation, less tax, one is more government. And so I think we get closer to the investment to the election date and we see whether and people start to feel like whether or not there's going to be a clear winner. You may see some people betting
with sector exposures for example. Yeah, as a way to play the election odds.
All right, we appreciate that. Thanks so much, John Shan O'Hara, President of pacer ETFs.
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All right, let's go macro here. So every once in a while, I love checking in with the real economy folks. So the companies that move the things all around the world, and to me, they're such a great indicator of what's happening in the supply and demand front. For that, we're going to start with Gene Soroka, Executive director of the Port of Los Angeles. Hey, Geene, just on a basic question here. You know, last week I was really struck with the two rail lines coming off line because of strikes.
Operations have kicked back once the Canadian government came in. There are still some that are striking. Now have you noticed anything, Has anything been diverted to you guys.
Good morning Alex and good to have you on the radio side today. No, we haven't seen much. The cargil that's moving from the Transpacific theater in through Canada will pretty much stay in that lane, even with the.
Short disruption we saw last week.
The bigger issue for American economy is the cargo that moves north south. So whether it be autoparts that you uses the USMCA agreement to go back and forth, grain, agriculture products, steel, that's what's impacted the most. You may see a couple of shippers in Asia try to book on Transpacific vessels coming down to LA but it will be very small amounts in an already over capacity over demand situation versus the capacity.
Geene, I would think seasonally right here, we have retailers, you know, starting to build their inventories for the holiday season. What the traffic going through your poor what does it look like today versus some prior years.
Yeah, Paul, great to hear from you. We're up eighteen percent year on year off of very modest comps. But we just crossed the five hundred thousand container unit mark last month and it's only the fourth time in our history we've had more than half a million imports coming through Los Angeles. Big number for US, and it continues the trend that we've seen thus far this year. In addition, exports are now up fourteen consecutive months year on year.
So the volume as a whole is really great, based mainly on a strong economy and then some geopolitical issues around the around the world that I'm sure we'll talk about.
Yeah, So, Gin, I'm curious how much are your customers talking about the geopolitics abroad? But also here in the US Anecdotally, I keep hearing that certain companies are just holding back on investments until we get clarity on who's going to be in the White House. Are you seeing any.
Of that.
In just about every conversation, alex It is an election year and folks are looking to see and try to hedge as to what type of policies will be in place after inauguration.
You've got a protracted labor.
Negotiation on the East Coast with the Dock Workers and Employers Association that's coming up for expiry at the end of September. The Panama Canal drought issues have been in the news for well over a year and a half, and the ongoing security concerns in the Red Sea have steymied crossings at the Suez Canal for more than a
year as well. All of that put together fractionally, you see cargo coming to the West coast of the United States and specifically Los Angeles in addition to the strength of that economy.
That shows where the numbers are going.
Hejean.
Just last week, Bloomberg News published a really in depth.
Big Take story. Now look at.
Your world ports around seaports around the world and how some governments are using them as really strategic tools here because they're becoming it's so important for global trade just for the US. Do you feel like our ports are where they need to be in terms of, you know, investments capacity or does the US whether it's a public private partnership, need to invest more.
We absolutely need to invest more, but beginning with the Infrastructure, Investment in Jobs Act, the Inflation Reduction Act, and now applications that are in front of the Environmental Protection Agency, We've seen a focus on ports over the last three and a half years here in the United States we haven't seen in a generation. We'd like to have this type of federal investment budgeted annually.
And I also know that.
The work here in California under Governor Gavin Newsom has the same bent paying attention to these ports, investing not only in the infrastructure, but digitalization as well as clean and green technologies. This has to continue, But I like the trajectory that we're on right now.
Going back to what you were mentioning about customers talking about election uncertainty, what's your best guess as to what happens after that? I'm trying to get a handle on, like, Okay, now I know who wins the White House. Are we going to see a flood of money coming in like a flood of buying or is it just going to be incremental.
Well, Alex take away the politics.
The presumptive Republican nominae and now Republican nominee has said he wants to put a ten percent tariff on all three trillion dollars worth of imports that come to the United States, sixty percent on those emanating from China, and potentially sixty percent on automobiles and other products coming out of Mexico. That would change the landscape here at the Port of Los Angeles forever, and it would create inflation.
On the Democratic side, what we've seen is a continuation of this teriff regime and get tough on China policy, but in very small, targeted ways. What happens to investment after this has to revolve around international and trade aid policy. What are we going to do to stimulate not only the continuation of that government investment federal and state level, but how we can give confidence to the private sector to invest behind us.
Gee, you know, nobody has a better view of China than you guys in the Port of Los Angeles. Are the boats still coming? Are they loaded as much? Because there's real concern about the Chinese economy.
Yeah, A couple things, Paul. When we concluded calendar year twenty twenty two, fifty seven percent of our business portfolio here in Los Angeles was China cargo, imports and exports. Right now it's about forty three percent. Yet we're still growing. We've been nimble enough here in Los Angeles to attract the cargo in Southeast and South Asia. There are more NonStop services being put in place by the shipping lots.
Speed has always been.
Our selling point with cargo coming from Asia and distributing throughout the country. These NonStop services in place, that speed variable remains in our favor.
What's your biggest problem right now, Gene, Like, what keeps you up at night?
Well?
Looking across the board, making sure we keep our costs in place. And we do that with a relatively expensive landscape on how we move cargo. But more volume means our unit cost becomes much more competitive, and we're trending in that direction nicely. We've got a very complex labor landscape. Our dock workers have a contract for another five years, but it's the trucker's warehouses folks in it and manufacturing. We've got to keep trained up and moving with this economy.
And then, lastly, along the regulatory environment. Got to make sure the clean air is a priority, but making sure that we're balanced, because every four containers here in Los Angeles creates a job.
Interesting, So, Gin, you mentioned some of your partners there, whether that are the docks, the warehouses, the transportation, the rails and trucks. How is that supply chain, how is that legit to chain performing in your area these days?
I look at the vital statistics every morning, and after just checking in with you all, I saw that they're at or better than where they were pre COVID, with one exception, are on doc rail cargo sitting a little bit longer than I would like. We're working very closely with both the Union, Pacific Railroad and BNSF to make sure we have railcars, engine power, and crewing to match this surgeon cargo that we have coming now. Nothing sinister
is happening on the ground. Just need to keep that velocity going so the next chips of which we have fifty six on the way from Asia, can be worked expeditiously by our long shore members and then gotten off into the American economy. And that's with all this data, Paul, we see these micro in many spikes or changes in the supply chain data so we can act much quicker than we ever have before.
All Right, Gene, thank you so much for joining us. Gen Roka, Executive director of Port of Los Angeles.
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