Saudi Pricing Power To Trigger Shale Patch Carnage

yesterday's twenty four point five decline. Just extraordinary, the biggest decline since one the golf. For to get a sense of what's going on in the world of global crew, we welcome John Kilduff, founding partner for Again Capital. John's based in New York City. So John, I want to go back just a couple of days ago and ask my fundamental question about global oil. What were the saluities thinking the Saudi's uh, you know, I knows that out

of joint or however you want to put this. I mean they were quite exercised about the Russian position at the OPEC meeting, uh, and when the Russians sort of stuck it to them and said, you know what, everybody can pump whatever they want come April first, because that's when the steel ends. The Sattie's quickly came together and decided to show the world what the price landscape looks

like if Saudi Arabia can pump whatever it wants. And they unleashed a thermonuclear bomb on the on the oil market with several uh positions, provisions, uh, slashing mightily their uh, their their pricing scheme. They they cut their uh cost of cruder offered price to their customers by over ten dollars a barrel. You've heard how they are ramping up mightily. Uh. The latest this morning is that they're gonna go to

tve point three million barrels a day next month. So that means they're gonna be taking oil out of storage. I mean, it is just they throw down by them of the first order. We're in a thermonuclear fish and throw down the explosion of I know, I love it. Uh. You know, given what we're dealing with in terms of both the knockdown in demand as well as the increase in supply, why have we seemed to have found a

bottom if you view yesterday today's action as anything. Well, you know, first, I think, first of all, um, there's still some hope in the market that cooler heads will in fact prevail. UH. There's some talk that the Russians are regrouping themselves to maybe do a reproach mont with Saudi Arabia and try to maybe get cobbled back together some kind of deal. Also, too, there was a pretty swift reaction from several of the US oil producers, ranging

from Diamondback Energy to Exxon Mobile and UH. As a result of that, you know, we we should be seeing some demand or production response here in the US RIGG cuts, production cuts, UH, pull back on investment going forward. So, um, the market you found a bottom down around twenty seven dollars UH and bounced off that. And I think that that's sort of the skirched scorched Earth number for now. So, John, in this throwdown between Saudi Arabia and Russia, who's got

the stronger hand? Do you think Saudi Arabia by far? First of all, that they have the low lowest cost of production of any country by far, uh, single digits, low, single digits that was in their RAMCO I p O disclosures. Um, as you've been seeing from some of the UH palace intrigued to over the weekend. Uh, there's a consolidation of power there. Uh. The king and Mohammed and Salmon are firmly in charge with an iron grip. UH. I'm not

so sure you can say that about Russia. If there's an extended low price environment for oil, it's but not the Soviet Union off. It's blocked back in the day. And UM, you know, Vladimir Putin and his government will start to feel pressure if the price stays low for long. So logically it doesn't seem like a benefits anyone, and it would seem to behoove everyone to come to the table, shake hands, pull that flag back up that was tipped over in the OPEC meeting on Friday, and call it

a day and get back to negotiating. That said, this is not that, and it doesn't seem like that's going to happen, at least in the next few days. What do you think it's going to take. What's the tipping point when it comes to either the price of oil or the magnitude the length of time before they come to the table, it will probably seven several months. Uh. You know, this was the ultimate lever for Saudi Arabia to pull. I mean, I've talked about this in the

past or over the years. This trimming output only served to support really the US producers and another higher cost

producers they needed to get shaken out. The corollary for this is back in uh when pre Hugo Chavez Venezuela tried to compete for US oil market share, and the Staudis taught them and the market a lesson back then and created oil prices down to eight bucks of our The US oil industry in particular was hammered, and there was a lost decade or so or more of US production that was really moribund, and what helped to ultimately generate the ninety and a hundred dollar barrel oil that

we had lived through there for a while, which then finally encouraged the frackers to to roll the bones again and get back in there. So, you know, this is gonna take some time and it's gonna wait for a response, but it's certainly what the Russians wanted to have happened, because they have their eye on the US producers. Uh, keep pointing to this weekly inventory report from last week that the government puts that it's ten thirty every Wednesday,

and then you guys cover it. Um that last week's report record US production their teen point one million barrels a day and record US crude oil exports of over four million barrels a day. The numbers were astounding right as they were heading into the OPEC meeting. I really still feel that was the trigger point for the Russian position. So John, just roll cookie thirty seconds. Um, how bad you think this is going to get for the U

s show patch. It's gonna get. It's gonna get rather bad. Uh. You know there's going to be a host of bankruptcies and consolidations. Uh. And we'll even have to keep our eye on on some of the majors in terms of their ability to continue with the stock buybacks. It looks like capital investments is going to go by the boars first, and that's gonna end up lowering US output and achieving the ultimate goal here Up Saudi Arabia and even Russia for that matter, deal with some short term pain for

some longer term gain. John killed off, Thank you so much. For being with us. We really appreciate it. John Killed, a founding partner of Again Capital, joining us as Oil tries to stage somewhat of a rebound, although off earlier highs, and after a absolutely an epic day for oil, absolutely terrible day, a record day when you saw the sell off, particularly when it comes to energy stocks. We've been talking a lot about the coronavirus, the effect on markets, the

effect on businesses. What about the effect on the health care system? And this is an important topic and we're lucky to have Susan Duvore, chief executive officer of Premiere UH Incorporated, joining us on the phone. Susan, you are in a Premiere place to actually see the issues here. You're discussing with the government the potential vulnerabilities in the health care system. What are you finding. Yeah, we just

briefed and Administrative task Force and Premiere. You know, we're working seven We've got four thousand hospitals and seventy five thousand non acute care providers. And what we're seeing is everybody is worrying about the current supply. The demand is three or four times what normal demand would be, and

because we have a fragmented system. What we're hearing is federal, state governments and private health care systems really trying to figure out how to work together so as not to hoard supplies and to be able to get the supplies where they're needed. So, at this early stage here in the US, where are the bottlenecks, Where are the problems? Where the areas that you're focusing on in other folks in the industry are focusing on. Yeah, so premier to the survey of all of our health care systems to

to ask that very question. And and what we're hearing and seeing in the data, uh, and in the responses is that people are most worried about the protective attire the mass the gowns. There is essentially a two week supply of that. There are um longer term supplies of some of the other stuff. But the protective attire um that really protects the healthcare workers, protects the people who don't have the coronavirus um, that is where very significant

a short term challenges exist. I think longer term, UH, there are real challenges for nursing homes and non acute care providers, and there are real challenges in the pharmacy supply chain, But in the short term, it's it's centered around right now a lot of the protective equipment and attire. Susan, what's the historical precedent for this period for the health care system and the potential stress we may see there.

You know, we have seen as a health care system a variety of you know, H one, N one viruses and other kinds of of challenges. The spread of this one is creating, um what many people think will be a significant demand. And when you couple that with our dependence on China and Southeast Asia for a lot of these products, we have sort of, um, the perfect storm, will have very increased demand for these products and will have limited supply of the products because they're coming from

places that you know, have shut down that exportation. So we as a US healthcare industry have to figure out how to optimize the use of the supplies we have. We've got to follow the CDC guidelines to conserve it, and we've got to figure out how we're gonna get from what is a normal million masks used a year to a supply of five hundred million. So that is the magnitude of the challenge that we have. This is one of the problems for investors certainly, but probably consumers

in generals. Again, you kind of a mixed message out of Washington, out of the administration and other entities about kind of the extent of this, the severity of this, how we should prepare within the medical community. And again you mentioned but on some conference calls with interested parties,

what's kind of the scenario analysis. The scenario analysis for premier healthcare systems and providers is that ninety plus percent of them are worrying about the supply and demand and with the ability for this virus to spread, um, are they going to be able to protect their healthcare workers and are we going to have enough supply for um everybody that needs this protective attire. So I would say that healthcare systems are initiating policies to protect their employees.

Many companies, healthcare and otherwise are canceling travel UH and limiting large group meetings and those kinds of things. So we're trying to slow the or suppress the the spread of this. And at the same time, Premiere is trying to unite all of these healthcare providers and work with the federal estate governments to to really try to ensure we have adequate supply of the of the products that

are needed. Susan, thanks so much for joining us. We know you're incredibly busy in your team at Premiere kind of working through this as the healthcare communities in general. Susan Divore, chief executive officer for healthcare services company Premier that based in Charlotte, North Carolina. Right now, let's get a sense of what's going on in Italy. More news coming out there as they extend, expand the travel band to or lockdown if you will, to the entire country.

Fernando Giuliano is an editor for Bloomberg Opinion based in Milan. Fernando, thanks so much for joining us. It just seems to be no end in sight in Italy. Can you give us the latest on what's going on in Italy? Well, the latest is that the Prime Minister decided to extend this lockdown which we've had in the region of Lombardy around Milan and did a number of other northern provinces through the whole of the country. Now, that doesn't mean that people can't leave their home. This is not like

one in China. You're allowed to leave your house, but only for work. Related health related reasons, or if you need to go and do some food shopping. On top of that, there are a number of sick restrictions on For example, you know, things like Kim's swimming pools, ski slopes are all closed. Football matches have been canceled together with any supporting activities, and you've had the schools are closed until the start of April, and the government doesn't

want people to do even small gatherings outside. In parts, they're really trying very hard to enforce uh you know, this social distance as they call because they think this is the only way to stop this outbreak. Fernando. There is the immediate concern just stopping the spread of the coronavirus Italy seeing the cases explode, and they're trying to prevent that. They're also getting some other countries in Europe closing their borders to Italy, trying to stave off the

spread in their nations. There's also a larger question if you take a step back and not take away from the humanitarian issue of people getting very ill and dying um, but taking a step back, is democracy equipped to handle this as well as say, an authoritarian regime like what we've saw in China, where they just basically shut down entire cities and had the authority to throw people in jail if they didn't comply. Well, that's the question which I tried to, you know, pose in a column recently.

Now clearly is harder. I mean, here the government really has to convince people to stick by the rules. Yes, there are policemen going around, and you need to prove to the policeman that you're going to work. There are fines and even small chandel terms for people to break the rooms. But you know, it's incredibly hard to enforce this.

It's sold down to really persuasion and conviction. And now the good news I find is that South Korea seems to be at last, you know, containing the virus quite effectively. South Korea is a democracy, of course, is an Asian democracy. They have different traditions, different culture, and they had the experience of stars which really taught them an important lesson. But I think, you know, I still think Western democracies

can do it. I just think they need to take measures, and I don't see other countries across Europe or even the United States during the same unfortunately, So Fernando, we we know there's been cases have been generally limited to the north of Italy. How has it has it progressed in the southern part of the country, if so, to what degree? And the expect the folks in the south of all this as well more slowly. I mean, the the big outbreak was here in southern Lamberty, and this

is a big concern for the government. I Mean, what's outstanding, and I'm not sure people are quite grasped, is that the health care system in Lamberti, the region around Milan is one of the best in Europe. You know, access is very easy and free and and the healthcare system is very efficient. And yet they are overwhelmed with the number of patients, particularly people who need intensive care. There's just not enough you know, bed too or around to

help the increasing quantity of people. Now Salvin Italy is poorer and the healthcare system is less effective there. So the government is trying really hard to contain the outbreak now because the theory is if it moves south, you're not going to be able to have the kind of response which are seeing from doctors and nurses here in

regions like Lombardy, which has been just outstanding Fernando. There's this perception out there and it's been edified by a number of stories that people in Italy are are basically not submissive, but they're going out and they're saying, basically, I'll drinks of wine and it'll be fine. Is that the mood when you go out and when you're on the street or are people taking some of the curbs seriously? Look, I mean, I think last weekend there was an issue

with you know, some people. You saw photos of crowds which were gathering outside. You know, there were it was a sunny day and people were making the most of it. Part of it is is natural, you know, you don't think this is going to happen to you. But there's also, if you want a generational problem, young people feel they are kind of immune, you know, from this virus because if you look at the lestality of the virus is mainly for older people and and so they go around

as they think they have very little to fear. Now that's not completely true, because you do see people maybe in their twenties and thirties who who can have serious consequences of the virus. But it creates a problem. Now the government is trying very hard on clumping down this. For example, they shut down the ski slopes, which was one of the images last week, which calls some problem. Let's see whether it walks. Fernando, thank you so much for being with us. Stay safe, stay healthy, and we

appreciate all your reporting and insights. Fernando Giuliano Alber opinion editor, joining us from Italy where there the nation is shut down. Currently, we are seeing the sell off wayne a bit. We had seen gains up over three percent, now in Nasdak

up two point two percent. We are, though getting a sense of just the incredible volatility this wish to buy the dip that we saw yesterday that was the worst one day sell off since the financial crisis in the United States and frankly the world, which raises a question, are we fundamentally in the same place that we were three weeks ago, just with a virus that needs to be dealt with, gotten rid of, and then we can resist whom the rally and to buy everything and that

there is no alternative trade, or are we in a fundamentally new situation that is much more likely poised for a recession? Joining us now, David Kat's chief investment officer at Matrix Asset Advisors based in New York, joining us by phones, so we don't give each other coronavirus. David,

I'd love to get your sense here. I mean, on a day like yesterday, with such violent moves not only in stocks, but very much in bonds, government bonds absolutely surging, yields ripping to new lows, credits selling off, with the high yield energy sector seeing its biggest one day move and spreads since ever. Actually, um, were you buying, were you standing back? What was the mood? So the mood

it's clearly very worrisome. However, if you have been through these before, and unfortunately or fortunately, we've been through them for quite a long time. We've been doing this for about thirty five years. We think we're in a tail end of a panic, uh, significant bear market sell off, and the key to being successful as an investor is not to get caught up in the mania of the moment, So not to lock into thirty year bonds that are paying one percent for thirty years, which is absurd, uh,

And not to get scared out of stocks. You know, we think that the coronavirus ultimately will be able to be handled. Hopefully there will be some sort of treatment. Hopefully the governments will start to do better in terms of containing it. UH. And we think that the economic slowdown that you're going to see in the first and second quarters UH as a result of this, are going to be reversed at least by half in the third

and fourth quarters. And if you look at crisis is historically the market is going to discount the negatives and start to look for the recovery. So the moral of that is take a longer term view. Nine to twelve months are able to buy some great businesses at great prices. Uh. You're gonna feel stupid a day later, a week later, a month later, but there's an enormous likelihood stocks are

gonna be a lot higher twelve months out. So, David, if I do have the courage to look through to the other side, what are some names I should be thinking about here? What are some kind of strategies I should be thinking about? So we're going to give you a list of names that are sort of low risk. They're paying about a four and a half percent income stream,

so you're getting paid while you wait. Compare that to getting points six in a tenure bond, so names like A T and T AB, the uh CBF, Cisco Home Depot, JP Morgan, Murk, p n C, Verizon, Viacom, and Wells Fargo. UH ten great businesses selling at ten times earnings, four and a half percent yield, And interestingly, they're really not going to be negatively impacted by the coronavirus. You know, their business might be down a little bit, but it

definitely is not going to be severely impacted. And these businesses are worth as much today as they were three months ago, and you're getting them in a great price. What's your time horizon. UH, we're looking out nine twelve months. We think things will be a lot higher. I mean quite possibly if there's any sort of relief in terms of the coronavirus. UH have been quicker, but as an investor,

be prepared for stocks to go lower first. When you have a big problem like the coronavirus or the oil price war that took called yesterday, you get very big solutions. So you're starting to hear both the US government and the global government's talking about relief, whether it's on a monetary or fiscal policy. UH science is going to kick in a huge way. They are enormous incentives for companies to find treatment for this. Hospitals are going to start

to do better. So generally happens is when you have a crisis, people straightline the crisis, assume it lasts forever. Uh,

and usually there are solutions along the way. Having said that, I'm sorry, but arguably that's exactly what was being priced into the market this morning before it opened with the rally that we saw, and it's being stifled a bit by news out of CNBC, in particular with the reporting at the White House may not release any details on any kind of fiscal stimulus today as they had said that they would yesterday. I'm just wondering, let's say we don't get a response on the fiscal side. What that Well,

you know, everybody is a media gratification oriented. The reality is whether the government comes out of response today or to come out with a response next week, there will be a response, you know. To is a crisis. The economy is slowing substantially. Uh. The government needs to react. They need to take actions that will protect workers so that if you're sick, you can stay at home and self quarantine yourself and still get paid. Uh. Big problems

will result in big solutions. So whether it's today or it's in a few days, it's gonna happen. And as I said earlier, the key is not to get caught up in the day to day movements of the morn because you're not going to get that relief. You're not gonna have a bell ring that says, okay, it's all clear to buy. You're gonna buy. Things will go lower. But there's a great likelihood if you were to buy some of the names on the list that we gave you, um, that by year end they could be higher. Uh, and

you're getting that dividend along the way. You know. Contrast back to locking in point six for the next ten years, which is just patently absurd. So David, again, if do I think about taking on even maybe a little bit more risk here, I look at maybe the cruise lines or the travel companies that have been hit the hardest here down dramatically, is it time to kind of say, hey, before the coronavirus, these are good businesses and they're likely to return to being good businesses. So we would not

be that bold, um, you know. So in terms of the cruise lines, they have huge capital expenses, and if the ship goes out or they have to cancel cruises, they really do lose money and they can have a cash crunch, so we would avoid things like that. We do think if you have a twenty four month time whererise and they probably will be high or they could

go down. First the flip that is a company like Bookings Holdings dot com UM they booked travel and what they have shown historically is you have a significant UH down turn and bookings during a crisis, but as soon as the health issues are off the front page, people do book in terms of hotels UH and airlines UH. They are still making money during this downturn. They're buying a lot of stock back. So we've looked at it,

we're not ready to act on it. If you really wanted to swing for the fences, we think this is probably one of the more reasonable ways to play it. But it happened also is the financials are getting marked down as if we're in a financial crisis UH, and as a result, you're able to buy businesses that are really not going to be that adversely impacted and are still going to come back really good. So you know

you don't have to play the truck stocks. Well, we think there's so many stocks out there and a lot of them less exposed. I had mentioned Viacom the stocks at nineteen and a half. We think that company could easily be at forty or sixty uh in the next few years. Uh So we'd rather speculate on something like that than you know, go into things that are really being hurt. David, thanks much for your thoughts, and we appreciate you giving us some of those names to maybe

take a look at. Here for those again willing to look through to the other side of this crisis. Here David Kat's, chief investment officer for Matrix Asset Managers based in York and calling us on the phone. We appreciate that. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa Abram Woyd's I'm on

Twitter at Lisa abram Woit's one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio