Oil reports are very Normal : Stephen Schork

market by surprise. We're seeing oil reverse earlier declines and surge on the heels of this, I want to bring in Stephen Shork, president of the Short Group, coming to us from Pennsylvania. Steve, and I'd love to get your reaction first to this in light of some of the concerns that there have been about whether or not OPEC will agree to sort of reduce seeing some of the some of the production caps that they've had on. Does this come as a surprise to you the inventories fell. No, No,

it does not come as a surprise. And anyone who seriously watches this market on a week week basis, uh this should not come as a surprise to you. Uh, the expectation cording of Bloomberg coming in today's report was

a build include all stocks of two point one million barrels. Uh. That's just idiocy, Lisa, because some how you really feel and not absolutely because I just it's just it sticks in my craw that that people look at these weekly numbers as if it's actually possible to gauge the inflow outflow of something like oil and so many different variables of it and so many different market airs, and if you really think that you can call this market uh plus minds on any given week. Din didn't go with

God all right, because it is absolutely impossible. So Lisa, what you have to do is you have to look at the statistics. You have to look at the seasonality. Are the markets are inventors moving in the correct direction. So, for instance, last week, inventories reportedly rose by two point one million barrels. This week they reportedly fell by four point one million barrels. Okay, so that's about two million, I met two million barrel draw over the last two weeks.

You know what, at this time of the year, anything in between a four point four million barrel draw to a one point when one million barrel build is normal. So what we're getting out of this leasas this is a very normal report, same that goes with gasoline and disilate inventories. So this should give no sort of bearing on what OPEC might or might not do in the

weeks ahead. So I will let everybody who does want to prognosticate on the barrel counts um go with God, and I want to shift our pretention to the OPEC meeting UM and just try to get a sense of how this sort of factors into their views. Not necessarily this reading, but just in general the backdrop for oil, but is the i A also put out a report earlier today saying that I ran in Venezuela oil output could slump by nearly thirty percent. What are you expecting

from the meeting, the OPEC meeting, uh? And you know, do you think that it will materially lower oil prices? I don't know about materially lowering oil prices, because what the issue that OPEC really has to contend with is to your point, Venezuela, their their production has swollen, because this is what socialism and inevitably gets you too. So as that economy swirls down that socialist cess pool that

it is in right now. Yes, those barrels will continue to be pulled off of the market, and that's the concern for the other members of OPEC because crudal demand has never been stronger. Guest line demand here in the United States. I know everyone hears wringing their hands that guestlne prices are high, high, high. Well you know, just

the for inflation, guestling prices are not high. Hence why guest line demanding that it has never been stronger right now, and they've never been stronger right now because the economy leads commodity prices and the economy is strong. Well, well, actually I'm the oil guy. I've got a plug in uh electric hybrid. Absolutely, this is the wave of the future. And this is something that old packet and that's a

great lead in Lisa, thank you. This is anything next Old Peck has to take into consideration because so the first time ever this is substitute in the market. So there are two variables that changes consumer behaviors, a price shocks and a substitute. We've never we've always had the price shocks up and down. We never had the substitute. I am getting fifty seven miles to the gallon in an suv. So therefore, ten years ago I had to fill up my guest doesn't su fifty seven times a year.

This time I have to fill up my suv maybe eleven times a year. So that is a considerable drop in demand. Now I get it, it's just an anecdote, but look around. I used to live in Grandage, Connecticut. What was the status car and Puttnam Avenue twenty years ago? It was the hummer that car got three yards to the gallon. Today the status car tooling up Grinnage Avenue is the Tesla. So absolutely there is a change, and this is something OPEC has to consider because they continue

to artificially drive prices higher. They're pushing people away from their market into the elon musk market, and this is something that you have to keep prices low enough that you don't cannibalize your current market share, but high enough where you can make a decent return. And right now, oil in that sixty five dollar range is an optimal level.

So OPEC has to contend with keeping prices A lit on prices right now seven just forty five seconds left I'd love your take on President Trump tweeting that oil prices are too high. OPEC is added again not good this morning. Does OPEC care? We absolutely look at President just that's justing Trudeau for crying out loud. Yes, they should care what President tweet is tweeting out every single minute, because what what's the what's the veil um A message here?

Hey guys, I'm the United States. I have over six million barrels sit in the Strategic Petroleum Reserve, two hundred million bars suite oil, which I don't really have a lot of use for. So get get get, get, get on board, or I'm gonna I'm gonna pull the plug on the sp R and flood the market. That's the message being set to Saudi, and the Saudis are hearing loud and clear. Stephen Short, thank you so much for being with me today. A really interesting Stephen Schork, president

of the Short Group, coming to us from Pennsylvania. The labor market is getting tight. If you talk to a lot of chief executives, they say it is hard to hire qualified workers. Our next guest is one of the fastest growing companies in day Moyne, Iowa, and we have the chief executive officer here with us, Roger Hargins. Uh. It is that the company is acum Old, and he joins us here in our eleven three oh studios. Thank

you so much for being here. Roger. You've hired a tremendous number of people eighty four percent staff increase from fourteen through two thousand and seventeen. Has it been difficult to find qualified employees? Finding the right employees is always a challenge, but we've We've been very fortunate because we have a good brand in our marketplace, we have a good culture, and we have good referrals from existing employees.

But we decided to start our own program years ago, twelve years ago with the De Moin Area Community College with the acum Old Scholarship Program. We determined at that time that what we were going to have to do was grow our own so to speak, kids coming around of high school that wanted to go to college to get a degree and to one I making or robotics and automation. We started sponsoring that and funding the tuition

for that, and it's been a very successful program. So can you give us a sense of what acum old does and Uh? And it sort of goes against the grain that it's a manufacturing company in the US, it

has not been exported. What does it do. Yeah, we're a high tech manufacturer of thermoplastic injection molding micro sized components for the medical device, microelectronics, and micro optics industry primarily, and we design and build our own tooling to produce customers specific components, usually critical components that make their assemblies work, and we ship all over the world. We shipp the twenty three countries. We've been a net exporter almost for

fifteen sixteen years. Okay, So, as a manufacturer in the US, have you been tempted to move any of your operations overseas due to a cheaper workforce or more potential employees. That's that's a great question. We get asked that a lot. Uh. The answers. No. The thing that we have found is, uh, the I he for our customers is very important. Their critical component designs are very important. We made it intellectual property and they made We made a decisions stay in

the US. Were very competitive, We're highly innovative, and we've been able to attract the right kind of employee that we want for the longer term. That helps solve the problems for producing components for our customers. So when you said that you're you're helping to finance the education of specific individuals who you think will be good employees. What is sort of the most important thing skill UH for your prospective employees to to learn in a college type setting.

They need to really start grasping what the technical challenges on micro sized parts are from designing, of tooling and automation. They need to understand where a culture of problem solving, and they need to really understand that they can work well in teams. We take a team approach internally as we solve problems for our customers. UM. One thing that I'm wondering, you said that you're an exporter, a pretty

big exporter. Are you concerned or have you been affected at all by some of the tariff discussions or uh tensor trade discussions We have not. Are you concerned about that? UM? We're always concerned about any trade barriers that are out there. We have not seen that have and I don't believe we'll have any really any big effect on our type components that we produce. Given the fact that people are

talking about the tight labor market. UM. Have you found that you've had to increase salaries more than you had previously in order to attract talent. Yes, you know, it's like the market conditions. We want to continually attract the best and brightest. So absolutely pay has to go up somewhat. How much has it gone up in the past few years? Uh? And certain skilled trades that's gone up more than others.

Certain things whether you're robotics, automation person or a tool eye person, it's it's gone up faster than maybe somebody with out those skills that's doing regular production. So can you just explain what if you go into one of the plants, what will you see? What you'll see at acum Old is uh. First off, we have a team working together to design tools, to build products, to build the tools and automation, and then run the products and

validate them in our plant. What you'll be able to see as a teamwork of people, we have lots of areas that are proprietary, that are off limits that only our employees and certain employees can be in those particular areas to produce these critical components for our customers. So their components, Uh, I mean just trying to even wrap my head around some of these nearly microscopic parts that determine whether or not your phone, whether or not the you know, surgical arm that goes in and does the

laparoscopic surgery, whatever it is. Uh, these crucial parts that the design of them is make it or break it? Is that right? I mean? Am I understanding that's right? The customer typically will design what they want. We work with them and help them make sure the design is ready for manufacturing. So there's always a compromise making sure that it works well in a production environment for us to produce at a at a rate that makes sense

for them. So we then produced the parts and ship them to our customers all over the world for assembly until it can be meta device. It can be, uh, life sciences, it can be and like in blood glucose monitoring or different things that that's a big area eye surgery. We're big into surgical components for the eyes. Okay. So we've been talking a lot by about smaller private businesses and how business confidence has been surging. Do you feel

that as well? Yes, very much. So. We see the competitiveness today, uh, and we've been competitive over the years, but today it's even more so because through innovation and automation, we've been able to remain very competitive the world stage. Is the reason we're shipping to other countries on a regular basis. Are there competitors in the US or there's

a few smaller ones, yes, mom and pop type chops. Okay, so, uh, you know, some people talk about how there seems to be a bifurcation in the economy where wealthier individuals are making more money and then there's a whole host of people left out. Do you see that or do you not see that? And we don't. We don't really see that. We will see anybody that truly wants to work and learn can get a job. Iowa has, as you know, one of the lowest unemployment rates at two point nine percent.

I think is where we're at today. So we're working number one to keep every employee, to grow their skill set and attract new ones. Do you think that, Uh, kids require a four year education in college in certain areas if that's what they want to go into. Yes, we don't require. What we're looking for is people that have those skill sets of really wanting to work in manufacturer, whether it's production or if they want to go into

tool and I robotics and automation. Those two year degree is is a very good, very good start for us. And you certainly also are financing the accum Old Scholarship program um which is really interesting, basically paying college tuition uh and a part time paid job to scholars who then graduate and begin a full time position at the company. Roger Hargins, thank you so much for being here. Really interesting. Roger Hargins is chief executive officer of acum Old, which

is based in Des Moines, Iowa. It is actually one of the largest and fastest growing companies in Des Moines. Uh so really interesting. Well, the NASDAC in particular keeps climbing to new highs every day, which leaves investors with a big question does it have more room to run or is this sort of the peak of the cycle.

Joining me now is Jim Key. He is president in chief economist for South Texas Money Management, which oversees about three point three billion dollars and is based in San Antonio, Texas. But he joins me here in our eleven three oh studios. Jim, thank you so much for being here. Let's just start with those tech stocks, because that's been a big question mark for a lot of people. Is this time to take some profits, sell the facebooks, the apples, etcetera that

are at record highs and invest in something else. Well, I think you should always control your sector exposure, and that's something we do at South Texas Money Management. But within that, business investment spending is one of the things driving technology. And when you have the interaction at tax cuts and deregulation which we've had this year, a lot of the business investment spending takes the way of information technology.

So um, I think it probably has room to run, but I would watch, I would watch my exposure to tech in general, tanny sector in general. Okay, So I was looking it's some of your ideas for what you liked, and I found them interesting. There was some contrarian place here Ford. I want to start there because Ford has been a real underperformer and there are a lot of question marks about that company. Why are you bullish on them?

It is it's what we call an ugly baby, and you know and we own value stocks and gross it is that's a genie y at our CEO original but uh, the value growth differential, as you probably know, it's kind of at an all time high. It's it's hit there a few times before, and usually that gap closes with growth underperforming. So it's a good time to look at value and forward. You know, they've they're behind their peers and operating. They've they've been behind in the electric vehicle

UH initiatives, and they've had a change a churning. They've they've got a new CEO, they've got a team Edison for the electric initiative. They're obsessed with costs UH and they're contracting assets and focusing on our O I s. That's just what a value stock should do. Nothing's priced in, and the dividend yields pretty high, about five percent, So it's a it's a good ugly baby value stock for US.

Ugly baby. I hope that I I mean, I guess that you kind of want to be an ugly baby at this market, but I don't know that I would really want that Delta shares down more than one percent. You like this, you like this company we do. This is a business investment. You know, at any firm this one included, I'm sure you know when business slows, it's you know, pull in travel and don't use the color copier.

But I think we're seeing the opposite. Business optimism is high. Uh, Delta has more exposure to business class travel than a lot of its piers. It's a best in class operator. It's it's CEO Ed Bastions, you know, definitely played a win guy. So yeah, we like Delta a lot. So one thing that I'm struck by is how do you bet on an airline company when their profits hinge so directly on the price of oil, which we have learned time and again is incredibly fickle in subject to all

sorts of forces. You it's very difficult to predict. It is airlines. You know, Delta itself has its own refinery business, so sensibly that leads it a little less exp it shares. Absolutely, they plunge in tandem with all the other airlines whenever oil prices go up. So here's the difference, I think, and I agree with you. In general, it's a tough business. But airlines are earning return on investment above the costs

of capital. Some of them, like Delta, have been ratcheting up every year, so they're about double what they were through there in their longer term pass they used to be cost of capital businesses and they and they haven't been in the last five or six years, and that's with high and low oil prices. All right, So let's move on to some of your other stock picks. Raytheon this one's interesting to me, uh, for a lot of reasons.

Why do you like this one? Well, you know, I'm glad to see the North Korea talks, but I don't think we're heading into a peace dividend era anytime soon. So airspace defense, you know, hold on a second, Were you hoping for some kind of military conflict so that your shares rise? No, it's more of a military spending and this was something prior to the election. Whether you like both Clinton and Trump both we're likely to spend

more on on defense than than the previous administration. So I think missiles and missile defense is still a pretty good business going forward in this world. And that's what Rayeon desk, and it's less expensive than some of them. Right. Okay, So just on a general basis, do you sort of buy into our play into any of these trades when people start to worry about trade tensions and then they sell certain shares, do you do that at all? Well? We, uh,

we don't. We haven't yet. Trade tensions, though, I think are starting to affect x US growth. I think a lot of cross business plans and spending are kind of sideline. A lot of people are kind of taking a weight and see attitude. So and I think that's showing up in some of the global the global growth pause that we've seen. So it is important. Um, but yeah, we you know trade effect. We have exposure to most asset

classes all the time. So in this case, it's hurts some of the global multinationals with Laddie International sales, but it's helped some of the small gaps and we have exposure to both. Just real quick, are you holding more cash? We are not. We always try to stay fully invested to our target. Uh. Markets aren't cheap right now, but they're not outside of a normal range of valuation. Evaluation tells you very little about what returns to expect over

the next twelve months. It tells you a lot about what to expect over maybe the next ten years or so. Jim Key, thank you so much for being here. Really fun. Thank you. Jim Key, President, chief economist at South Texas Money Management, based in Santonio, San Antonio, Texas. But here in our eleven three studios with us really interesting to hear the bull case for Ford and for Delta. Thank you so much. Thanks for listening to the Bloomberg P

and L podcast. You can subscribe and listen to interviews that app, podcasts, SoundCloud or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio