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You're listening to Bloomberg Intelligence Radio, where we bring you all the top analysts proving all our top analysis. They cover two thousand companies, one hundred and thirty industries all around the world, and we're going to bring all that for you live. We also top our newsroom for the amazing information sourcing storytelling that they provide, and the latest to do so will be Alex Longley, Bloomberg Oil Trader Reporter is standing by to talk about what's going on
with oil. So Brent is up by over two percent, WTI crewed up three percent. Almost Brent is going to be the thing you look at if you're looking at international geopolitical risk. WTI will track it, but it's really a little bit lower because that more of a domestic pricing. I'll Alex explain that from Ali Smith.
She asked, so I did, She asked, So that's why I feel so if I wanted to know, surely someone in the audience wants that's.
What I was thinking. That's what I was thinking.
A voice for the people.
That's my ale explain. Let's get to the next alexplain. Alex talk us through the recent spike and why we're seeing it.
It's been a sort of a three pronged rally. Obviously today there's extremely high geopolitical risk given the news surrounding Israel and Iran, and that's been the kind of final catalyst that's pushed Brent crude, as you said, four above ninety dollars a barrel. But this also was a broader rally in the making. We've had stronger than expected demand in the first quarter according to the traders, although we had a report from the International Energy Agency today which
cast that into slight doubt. We've had tighter supplies as OPEC keeps its keeps its production relatively low, reduced by.
Two million barrels a day through until June.
And we also have globally a reflation trade in which some traders are getting back into the oil market who left they were looking for portfolio hedges.
So when you throw in the geopolitical tumult.
On top of that, you have an oil price that's heading well into the nineties barrel and in which traders are kind of afraid to short the market heading into the weekend.
And that's why we get rallies like we're seeing.
Today, is the concern that this is going to be like that there's more upside risk here, that we're going to stay at this ninety ish level. I mean, what's the kind of sentiment right now about the outlook for oil prices.
Yeah, and we've just had a big commodities conference here in Europe with all the kind of top traders from the independent trading houses so Vitol, Traffic gur or a gun for And one of the interesting themes coming away from that wasn't so much the more bullish outlook per se, which I think is everyone's become accustomed to very quickly,
but it's actually the speed with which that's changed. We had IP week here in London in February and everyone was rarely relatively downbeat, was fairly confident that prices would remain range bound, and in a little more than six weeks since then, this has become a rampantly bullish market. We had Vitol talking this week about a kind of
eighty to one hundred dollars range. As prices move higher, you will continue to run into the types of issues you do when you have high oil prices, things like demand destruction, things like incentivizing US supplies to produce more, or US producers to produce more, I should say, and
also slip it from within OPEK itself. That said, there's also not much conviction that if price is wor to for which feels very unlikely today, that they're going to fall very far because OPEC producers are willing to protect that downside.
Well, exactly, I have to think, at what point do the studies use that spare capacity. So they have a lot of it, they've been unwilling to use it. Is it like a ninety five dollars thing because they're going to be very worried about demand destruction.
Yeah, for sure.
And I think this is part of the bind of the meeting that we're going to have in June is And it's not just Saudi Arabia, don't forget, it's the UAE as well. There's been aggressively ramping up its production capacity in recent years, and it's kind of itching to use some of those barrels. That's kind of a question for two months down the line. I think for now, what opt producers will be looking to see as inn
the of stability in this higher price level. We haven't actually been at ninety dollars a barrow that long in the scheme of oil pricing, right, So I think between now and then, the question is going to be how does the market look, how does do political side of the equation look, which you know, even from here to Monday, it's pretty hard to have a concrete view on what the market's going to do in the next few days, and so casting all the way ahead to June and
having a sort of purity of whether or not there'll be bowers being produced either in the Atlantic basin, in the US for various reasons, and also in the Middle East. I think we have such a widespread of outcomes that it's more a case, as Opek said in our own report yesterday, of monitoring and then judging closer to the time how the market's looking and whether it needs extra barrows.
As you're talking about the traders like Vita, Traffic, Gura, et cetera. They're the guys that move things around. What are they talking about in terms of moving oil. Is it hard to move oil now because of the disruptions that we've seen in the Red Sea, et cetera, Or are things okay?
I think in terms of the Red Sea, it's there in the background, but it's not the disruptive force that it was. Again, casting back to IP week in February, that was a big talking point. Then when the market at the front end was super strong, we saw big backwardation at the front of the curve, like strong demand for immediate barrels and prices trading higher as a result
of that. We do still have a big backwardation at the front of the curve, but I think the feeling is that the Red Sea isn't as big of a driver there because that was a kind of a three to four week shift in supply chain that's now being allowed for. So I think on the delivery side you don't see that much worry. I think where people are talking a lot of the moment is on the demand
side and on revisions upward, revisions to numbers. Even here in Europe, where we're supposedly are kind of a flat line oil demand region, if not falling oil demand region. But you look at some of the gasoline demand numbers, particularly in the Mediterranean, and you're seeing double digit ear on your percentage growth, and that kind of runs counterintuitive to the idea that demand should be falling in Europe. And that's before you get into the real demand powerhouses
like China. Certainly, again talking to the traders, looking at some of the figures in the first quarter of the year, lots of numbers were coming in fairly strong, and that's partly what's driven this sort of this rampant move higher that we've seen in recent weeks.
So, Alex, the question then that I would have from the economy perspective is when you have oil prices that are staying at this ninety dollars range, and of course remains to be seen of how long that's going to be the case for, But when does that start to filter it through to consumer prices, whether it's through other transit and logistics costs, jet fuel, you know, things of that nature. When do we start to feel it?
And there's a couple of reasons that there's a time lag. Right.
We often many of the world's biggest consumers will hedge their suppliers and Therefore that part that ripple through effect to consumers takes months to filter through. I think you can make an argument that you are already seeing it to an extent. The CPI data this week, for example, had a higher filter through from energy prices, and I think you'll probably continue to see that in the coming months.
As as I said before, you know, if we think, if we assume there's a two to three month lag and we think back to where we were earlier in the year, we're now tens of fifteen dollars higher and with a sort of a related knock on a onto things as you said, like gasoline and jet fuel prices to Alex's earlier point, The question is what happens then, do we do we hold in the nineties as political risks simmers for a few months or dold we have
a market that moves higher. And I think, you know, as we shift from a kind of I think traders are kind of getting used to this idea that inflation might be slightly stickier than expected this year. The question then is going to be, okay, well, how long is it going to be stickier than expected? For and if crude prices and by association refined product prices sort of flatline at a higher level, perhaps the inflationary impact starts
to die off. On the other side, if we see big expansions in refining margins or higher crude prices, then that's going to continue well into the rest of Tiety twenty four.
Alex Longley joining us a Bloomberg Oil trader reporter. Thank you so much. You were like double al explained.
Yes, I love that side. It was really nice. So you guys just really told so much.
I love that. Okay, we're looking at is real potentially bracing for a direct and unprecedent attack by Iran and government targets as soon as Saturday. Of course, that moving to the upside when it comes to crude prices to the highest level.
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Mollie Smith in with me up for the next two hours. I've never angered with you before, but I'm really looking forward to.
Yeah, We've got such a treat I'm so excited, especially our first guest coming right out of the University of Michigan, where I normally would be writing up this report, but we get to talk to Joanne Shoe herself today.
That's why we love this. So not only do we give you all the great analysts, but we also bring you int an analysis with the data crosses at the ten o'clock hours, So the University of Michigan sentiment coming in a bit lighter current conditions, also a bit lighter expectations get where I'm going, a bit lighter and one year in five to ten year inflation expectations guess what, a bit higher. So let's get more to it with Joeann Hue. She heads up all the daddy here from
University of Michigan. She is University of Michigan Surveys of Consumer Director. All right, joe Ane, great to chat with you. What did you make? What's your takeaway?
Essentially, consumers didn't really see any sort of changes in the economy, not just in this month but actually since January.
They're in their.
Income expectations, labor market expectations, their their views of their personal finances. Everything has been remarkably stable since January. The one exception is this month there was a slight uptick in inflation expectations, consistent with what we saw in the CPI report earlier this week. Consumers have internalized that information and bumped up their expectations for inflation.
Accordingly Johann, how much of this is too to rising gasoline prices versus broader inflation.
It is partially to do with higher gas prices, but typically gas prices tend to affect sentiment more than they affect inflation expectations alone. So you know, I think consumers are very much preserving judgment about the medium and longer term trajectory of the economy. A lot of them are mentioning uncertainty over the election, so they are taking some
signal from gas prices. But you know, they have noticed that this inflation slow down is has accelerated, and they're not terribly pleased with the pace of disinflation.
A walkers through the great stuff that you guys do of Democrats versus Republicans is a sentiment sort of on the same wavelength for both.
It's a little too early to tell at mid month. We'll know more at the end of the month, but what we are seeing so far is that, as usual, consumers who are who belong with the party that's in the White House tend to have higher levels of sentiment than consumers in the party not in the White House. So right now Democrats have higher levels of sentiment than Republicans. Independence are right in the middle. And for all of these groups, there just weren't There haven't been that many
changes since January. It's been four months of remarkable stability and how people view the economy.
So we've seen generally, when you're looking along party lines that there have been for the most part, sentiment among Democrats and Republicans have been generally rising in recent months, while Independents have really been lagging a lot. Can you speak to how that you know, what that means for the mindset of somebody who perhaps is an undecided voter, if that's like how you would make that takeaway.
It's a little bit hard to say, because even among independence there are some that lean Republican and some that lean.
That lean Democrat.
So it's really hard to say from our data how many people are actually undecided at this point. You know, overall, you know, independence have been in the middle the rising tide that we saw towards the end of twenty twenty three in which sentiments searched, that was something we saw, you know, across all three political groups and across the
all three footal groups. They're all I wouldn't say holding their breath, but they are really reserving judgment and waiting for the election at the end of this year because they do see that a lot of the economy is going to hinge on that.
Well the molly did we see that in the CPI report? Butter prices are down belt to basis right, what pastries and cereals so like, I don't know your breakfast croissants that you're gonna make, It's could be worse.
I mean, chicken prices were really high though, I don't know if you saw that. The poultry market though these days, that's crazy.
My musand makes too much chicken. I'm like, it's not but the chicken anything. Yeah, now I can tell them why we'll get the CPI exactly get there before I let you go, Joanne. If I'm the fed I'm looking at this, Is there a takeaway for me? Is there a signal.
I think the signal that that policy maker should take from this is that not only has you know, did the CPI come in hot earlier this month, earlier this week, but consumers have incorporated that into their expectations for the future. They are expecting a little bit more inflation in the year in the next five years than they were expecting just last month. So that's definitely not the trend that.
That you want to see.
And so consumers have noticed.
All right, Joan, Thanks Lott. We really appreciate. It's always going to get their perspective instid analysis, right, we get the data, we get Joanne, we have you covered on all fronts. Joann Shu, University of Michigan, Surveys of Consumer Director. Was that cool for you?
Oh my god?
Yeah, super fun?
I feel you got to interview a superstar.
Oh nice?
Okay, what a great start to Friday.
Okay, we like to make my Molly's man happy. Here.
Next you're going to bring in a tennis star. Then you really see me just like fly off.
The seat because you're like a pro tennis player.
I mean maybe on the Bloomberg tennis team, but you know, no one's looking for breaking points.
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So let's get to the other part of the market today, and that's what's happening with banks. So JP Morgan is down by almost five percent, Wells Fargo is up by one tenth, and City Group now down by about three tenths of one percent. Granted, it's a tough tape. It's definitely sort of going to a safe haven flight to say if you don't want to take on that equity risk into the weekend. But nonetheless, let's dig through what
we learned here. There is literally no other person that you want to talk to but Alison Williams, Bloomberg Intelligence, Senior Analyst, Global Banks and Asset Managers. She joins us. Now, all right, Allison, what was okay? Two questions? Is there a macro takeaway for me? And if not, what is the takeaway?
So there is a macro takeaway which is positive, which is the fact that credit costs are coming in much better than expected, and that's because the reserve builds are either coming in lower than expected, such as a city group and we actually got releases at JP Morgan and wels fargetting.
Things may not be as bad as me meaning that.
Their outlook right. So the reserves are really all about what they expect for losses, you know, they're meant to look at losses over the life of the loan. What we've seen over the past you know, a year or so is just a change I think in the waiting of the scenario, So moving more towards an expectation for the goldilocks type of scenario versus the expectations for a recession. The you know, JP Morgan is trading down today clearly
on the net interest income guidance disappointment. I would make the point that they have beaten an interest income and raised guidance for several quarters in a row. They kept their overall guidance for net interest income steady and their core net interest income, which we think is the metric to focus on, that's actually better. So we think that's a good thing, but still might not have been you know,
enough for some of the bullish investors. But we do think that they could just be saving all the good stuff for their investor day. So they have investor Day coming up in.
One of the under promise over to yes, and they love to see that in the corporate world.
Well, and they will be you know, they they will be telling their full story at investor Day. We expect to hear more about, you know, their expectations for returns or expectations for capital, their expectations for costs. The costs did come in higher at JP Morgan, but that was really due to the fdi C special assessment, which is something we'd expecting. We're expecting, so we think, you know that that's sort of fine. I guess just the one off well too, Yeah, so we would not make too
much out of that. I mean, the bigger banks, the more deposits you have, the more you're gonna have to pay. And so JP Morgan all the other banks are making those payments. We saw those charges at Wells in City as well.
So with this net interest income, I mean, this really what is going to be like the big item to look for in the bank earnings. We had a great story out earlier this week talking about that. You know how much this relates to the outlook for the FED path and this net interest income. For you guys who aren't as familiar with bank bound sheets like myself, this is how we described the difference between what banks earned
on assets and what they pay on debts. So it's in their interest to see interest rates stay high and it makes that net interest income go higher. So you're telling us, then, Alison, that the guidance that they've zield been doing this under promise hopefully later over delivered situation, and that the guidance has still been pretty weak.
Well, I think, you know, keep in mind that we're looking at guidance for the year, and I think, well that interesting income was the focus coming into the quarter, Like the credit class I think are are really kind of the they the surprise of the quarter, if you will, like sort of the key takeaway coming out of the quarter. So, you know, net interest income, everyone can see that. The last time these banks reported, we there were you know,
six to seven cuts expected. As of today there's three, and so I think investors were looking for that change. But keep in mind a lot of those cuts were awaited in the second half. Again, we saw how quickly things change the last three months, so we don't think it's crazy. In fact, we think it's conservative and the right thing to do that these banks would be conservative and wait before they change around those expectations, right, instead of just jumping things all over the place. So I
think it's right to be conservative. It doesn't mean that we're not going to get a change. And really, like as pointed out by City Group, the big change is going to be to next year. It's really twenty twenty five that as we get the changes in these expectations, that's where it'll play out.
Expectations for the FED.
Expectations for the FED. Yes, I should have clarified that. And you know, so keep in mind that most of the banks are positioned for higher rates, and I think that's really what investors are watching. The other side of that are the you know, trends in deposit pricing. If we do get lower rates, we could get a benefit in terms of the deposit pricing.
Because they raised it so much before. I'm kidding because I didn't do that at all. I mean, I think I think my city account is like zero point eight nine percent, please please.
Right, And so the interesting dynamic, right is that you know, rates went up immediately they adjusted the prices to the loans, but on the deposit side they were slower to adjust. And in part, you know, we were at zero percent for a long time the pandemic. They were making no money, so in part things had to balance out a little bit. But you know, once you get to a certain point, which is where we are now, you expect that to
sort of catch up. And so you know that point eight nine is up from zero Alex Gosh, I mean, aren't you so excited?
You know?
But the thing is like, if if rates keep, you know, stay where they are, keep going up, you're going to say, hey, you know where you know, show me the money.
Right, oh I am? And don't think that I didn't miss when Marcus cut their high old savings rate by ten bases points like last week. I was like, you got to be kidding me anyway, Allison, thanks very much, Alison Williams. She has all of our bank coverage credit card coverage as a management coverage here for Bloomberg Intelligence Senior Banks analyst. We very much appreciate that.
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So definitely say haven bid into the market. But we did learn a lot about the economy this week. The latest, of course, of those you miss data with expectations and current conditions coming in light, while those inflation expectation numbers were revised higher. So let's get the broader read here with Hasaan Naji. He's CEO of Marcus and Millichap. He joins us now in the Interactior Broker studio right here in Manhattan. I bet you miss California right now.
Huh, good morning, But I love being in New York.
You do, Okay, even the rain and the whole thing. Okay, what did we learn this week about where the US economy is?
I was actually attending the Urban Land Institute conference, which is a very important trade group for commercial real estate. There were literally thousands of our clients here over the last several days. Everybody's very enthusiastic about the economy. The fact that jobs are coming in hotter than expected, and even consumer strength is coming in hotter than expected, and even some of the inflation readings that are pushing the
FED out in terms of their timing. Is all good news for demand for various types of space, whether it's shopping centers, even office buildings are starting to see more of a recovery, apartment building, self storage, even mobile home parks and student housing. So the demand side of the
equation is a reason for optimism. The fact that the interest rate spikes have really impacted valuations and the fact that banks have pulled back from lending or creating huge challenges on the transactional side of the equation, both in underwriting what the value should be and in securing financing. Commercial real estate is very interest rate sensitive. Of course, that's where the concerns are.
Well.
Tell us about your clients and if what kind of challenges they're facing right now, if this is a really tough environment to get a loan right now, perhaps to be expanding, and just generally how they view the landscape as well.
I would say the biggest challenge is securing financing. And the proceeds from a lender were as high as sixty five or seventy percent of the price of an acquisition, that's down to maybe fifty percent. So not only have interest rates gone up, the lender's willingness to finance more of the acquisition has declined, and that is creating a
huge challenge. But more than anything else, now that we're two years into this tightening cycle, we're starting to see clients recognize the price adjustments that have already occurred becoming an opportunity. Blackstone had declared the bottom about a month ago. Just a few days ago, they announced a ten billion dollar acquisition of a publicly trade rate that they're taking private.
Those kinds of signals really jive with what we're hearing from institutional product clients on the prices being much lower than replacement cost. It's getting more expensive and more difficult to add new space of any type of product, and the replacement cost equation now makes commercial real estate a lot more attractive than it was just two years ago.
So then for the broader back or read on rates, does it matter then that rates haven't been cut. Does it matter that we're at almost five percent the two year or is it just a time I just needed time to readjust to a higher for longer world.
It's a combination of both. Interest rates matter a lot at quarter basis point fifty basis point on your financing rate makes a big difference, especially on the smaller price points for private investors, which make up the bulk of
the market. By the way, eighty percent of the market and the commercial real estate world is priced under ten million dollars, So those microcap private client deals are very interest rate sensitive, as are the larger acquisitions, of course, but time has brought the price adjustments a little bit more time will bring more price adjustments, and the Fed's lowering, whether it's you know, once or twice, isn't so much the mathematical solution people are looking for. It's the psychological
confirmation that the tightening is over. We're going to start to get out of a restrictive zone, which is where the FED has had us. I don't think they want to keep us in that restrictive zone a minute longer than they have to. But unfortunately, inflation is proving to be sticky and the time timeline keeps getting pushed out.
So coming back to replacement costs for just a minute, here, I just went through buying a home.
Oh you did regulation, thank you so much.
Your rate Oh it thankfully no mortgage on this, But there is, thank you so much. But when I was going through this process, so obviously this is on the residential side, but when I think of replacement costs, I'm just thinking of man going through getting an insurance policy and how much more expensive that was. Thinking of all of how these costs are rising for both the material
and labors. God forbid, you should ever need this policy to help you, So tell us if that's also what you're seeing on the commercial side in terms of ensuring some of these properties too.
That is undoubtedly.
Next to interest rates, the second most talked about issue is insurance across all property types, especially in regions that are more sensitive to natural disasters Florida, for example, California, But across the board, insurance is skyrocketed. So on top of the interest rate factor and the increased cost of debt, you have inflationary operating costs and then insurance. So that's
another challenge that the industry is facing. But I have to tell you your strategy of paying all cash brilliant and then putting financing on it later is very commonly used, especially by private investors that now see opportunity to buy what they want to buy and at the right price point and then figure out the financing a little bit
down the road. And we're seeing a lot of short term financing solutions with the student investors that know that interest rates are going to come in at some point and they don't want to, you know, sort of tie up. They're financing for much longer than they have to in order to take advantage of rates coming at some point.
I suppose I am in a stute investor. Then in some way she's.
Like, I didn't mean it like that, but okay, sounds that you are. Yeah, but then yes, absolutely, like because then you have it free clear right, and then when you need it you have the ability to and you can wait until we get down.
To three yes, yeah, more hope again, this idea being that this will be a you know, an if matter than or rather, sorry, it's going to be a question of when rather than an if.
Yes.
So that's got to be something that you guys are looking at now too, of just like counting, you know, biding your time of like is it two cuts this year?
Is it three?
One?
Zero?
Is it this year?
Is we expect two cuts? Even back in October November of last year, when people talking about four to six cuts. We never bought into that the economy was too strong, inflation was too high, and so far that has proven to be accurate. But again, it's more of a psychological
factor than it is a mathematical factor. What I think is really important to also keep in mind is that as we move forward into the next cycle, the tax advantages of commercial owning commercial real estate, especially through direct ownership, don't get talked about enough as an asset class. Not only do you have an adjusting price point, you have a strong economy. Hopefully the economy won't get so weak to justify even more of a sort of a reduction
in rates than we expect. The fact that the economy is holding up is good news, and you combine a strong economy with the tax benefits and adjusted pricing, I think the next cycle is actually gonna be pretty robust for commercial real estate, but we're.
Let you go.
Wells Fargo also had lower commercial real estate charge offs predominantly in the this portfolio that they had. So do we feel really confident that we've hit the bottom?
I absolutely feel strongly that we've hit the bottom.
How do we kind of bounce along there?
That depends on the psychological factor of the FED and how well the economy holds up. But I will say that there is more room to go on the price adjustments. We're saying anything that's basically readjusted in valuations since March of twenty twenty two by anywhere from fifteen percent on the low end twenty five percent on the higher end, getting multiple offers from very aggressive buyers. There's record capital on the sideline waiting to come back into the market.
And as we get clarity on the distress not being a wave of fire sales by banks, which I don't anticipate will happen, that's another reason why capital will come back into the market place time.
We just need time. I feel like we heard a lot about that over the last few years, and we're like, no, we're a journalist, we need data now, but we just don't want to need the time for that. All right, Thank you so much, We really appreciate it. Thanks for having Hasama Najia adjoining us CEO of Marcus and Millichap.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
This is Bloomberg Intelligence Radio, where we give you all the news, all the analysis with our great Bloomberg Intelligence team. They cover two thousand companies in one hundred and thirty industries all around the world. We also like to bring you kind of boots on the ground scenario with some CEOs that's in the trenches. They do the stuff, they know the things on a deep level. And one of those companies that we want to focus on is Generak.
It's basically a generator company, but it's going to be so much more than that in the world of the energy transition. It is an eight billion dollar company. The stock is down by about one and a half percent today, but it's a tough tape. Previously it has been on a tear. It's an interesting company. It's a leading global energy technology company that provides backup and prime power products and energy storage. And if you follow the energy transition like I do, you know stuff like this is key
to making all of this work well. The CEO joins us now in studio Aaron Yogfeld is a CEO of Generak, and he joins us in the Bloomberg Interactive Studio. Thank you for being here, Aaron really appreciated. Thanks for having me so on a basic, basic question. When we look for the energy transition, so as we look to decarbonize, where do you sit in that journey?
Yeah, so you know, there's a lot of things to unpack even in that statement.
No, I know, That's why I asked it.
The transition itself, right, is it grid one point oh to two point zero? We like to refer to it as old grid to new grid. And so the challenges that grid operators and utilities face today is is being
compounded by the fact that we're retiring. On the sources side, we're retiring a lot of the traditional thermal assets like coal plants and gas plants in favor of renewable, which is great, but those are in and sources so a lot more difficult to plan for and not available as by the very nature of the word intermitt and not available all the time. And then on the demand side, we are seeing inflection points in demand. After decades of relative kind of flatness in energy demand, we're now seeing
increases in demand with ev adoption. We're seeing of course AI with data center buildouts, cryptocurrency mining, and so the pressure that's being put on grid operators and utilities is creating a situation where it's manifesting itself in poorer reliability. So as Americans, we're experiencing more and more hours in the dark every year, so on average about eight hours
a year, and that's the average. So our products and our company have been serving this need, the need for resiliency for a long time for homeowners and business owners. And so where we sit today is those products are in high demand and have been over the last several decades, and we're now starting to look at some of the other trends that are manifesting from this. The macro theme here of a new grid really going to be focused
on cost. I think the untold story here going forward, and we're starting to see evidence of it in certain markets like California where energy prices. Electricity prices have really skyrocketed in the US, They've gone up about fifty percent over the last two decades. They're projected to double in the next two decades. So I think this is the thing that as we invest in this transition of the grid and as we try to deal with some of
the some of the challenges that are coming here. The combination of less reliability while you're paying more for that service is not a great combination. We think we have products and services that can help with that.
Well, let's get into the cost because you know, we've been looking at this from you know, I think I was telling you to cover the US economy for the most part. This is my little side hustle in here. But on the outside when we're looking at you know, what all of these costs to consumers are. Electricity utilities broadly have really been going up, especially if you're in an area where you're affected by climate in natural disasters.
So how is this transition?
I mean, it sounds like it's going to be probably more expensive and then hopefully be you know, a cheaper alternative in the long run.
How do you see that planning out?
You know, from from our vantage point, certainly costs are going up, and I as far as if it works out cheaper in the long run, I think it'll be cleaner in the long run. I think that, you know, I think the effort here that is driving a lot of the costs. There's a couple of things. One, the grid is just old right when you you know, if you take a walk and you go anywhere in most places in the US, the grid is above ground. There's polls,
there's transformers, there's power lines. A lot of that equipment has been there for fifty plus years. So it's it's like a rod or a bridge. At some point it has to be refreshed. And so there's an infrastructure spend. Anyway, if you set aside the entire you know, discussion around climate change, there still was a big bill coming in
terms of needing the infrastructure rebuild. Now, on top of that, as we decarbonize and we move towards renewables and we have to deal with this idea that these these sources are going to be intermittent and harder to plan for, and we need more of that power. You've got this unique setup that says, okay, we've got to invest in technology in a way that we haven't had to invest before.
When you're talking about the power grid and the grid is so central to everything we do as homeowners or business owners, do you.
Think that it's going to be more you providing generators that yeah, is it gonna be more breading generators or providing the grid with storage for like wind and solar.
I think it's going to be both, right, So generators are going to be if you're concerned about a long duration outage, right, You've got if you have hurricanes, ice storms, things like this that can knock out the power for days on end. A generators are great. You know, that's an asset you're going to want to own. The idea though, is that that asset could also be deployed maybe at times when you don't need it, but maybe when the grid does. Right, So there's ideas that the generator could
be part of that solution. Batteries as you say, though, Alex is exactly the you know, I think the newest technology still from a price standpoint, still pretty expensive though, and that's something that I think we've got to deal with. And the cost curve is is it's been coming down, but yet it's still something that you know, is it's not there yet.
So I was in a so I cover energy for for my side hustle, your main hustle, it's semi hustle. And so the data center conversation is huge in terms of how you power it. And we've seen like Amazon buy like a nuclear power center like near where they're going to build stuff. Are you going to be like going to tech companies and be like, hey, I can build you this enormous generator for your data center.
That's not necessarily us. I mean, we're going to stick to smaller installations. We call them behind the meter installation, so managing power, either backing up power or managing it behind the meter so at the customer connection. You know, again Homer business. But the AI conversation has I think, I don't want to say it's caught the utility industry flat footed, but you know, the projections are enormous. It kind of has, I mean the speed at which it's
you know, the adoption of technology. A single chat GPT request takes seventeen times aimes the amount of energy as a typical Google search seventeen times just a single god Chat GPT request. So think about that and you you multiply that across you know, all the places that you can use that technology AI, and it's going to be fantastic and it's awesome, but it's really energy intensive.
Wow, I've never heard that number before. That's scary.
Yeah, and just we got so used to power demand not growing at all, and then all of a sudden, just the trajectory is enormous, and then how you kind of manage that? So, you know, to Molly's question, the way that I look at it is absolutely everything's going to cost more. I think the question is who's actually going to pay for it? Is it the government? And then taxes? Is it?
I got I got news for you. Anything that costs more in the energy world the rate payers.
Yeah, yeah, us like at some point exactly, but we're going to have to raise the rates. Aaron, thanks a lot. That was really fun. You should definitely come back. Aaron Yongfeld joining us. He's CEO of Generic. They're basically a power backup company, so really interesting stuff.
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