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Mike McLoone, Senior commodity strategist, Bloomberg Intelligence. Mike, this is such an unknown scenario here as to how the warn Iran will play out in.
The coming days and weeks.
We could wake up tomorrow and President Trump, for whatever reason, decides to claim victory and bring everybody home here. If that were to happen, how do you think energy prices would ebb here and pull back when they get back to pre war levels?
Would it take? How quickly would it happen?
Or are we at maybe a little bit higher levels here just given the damage that's been done and maybe the tension level that still remain.
I think the crude oil peak so far this year near one hundred and twenty dollars a barrel in WTI Paul will go down in history similar to one forty seven in two thousand and eight and one thirty in twenty twenty two. Right now on the week WTI crude oil is down almost four percent, and part of that is it's switching contracts. It's gone from the April to the May. You go out to December, it's down the seventy eight dollars of barrow.
Why is December is important. It's going to be front month right before the midterms. So the scenario you mentioned, I think is very unlikely.
Right now, we're at the stage of trying to produce capitulation from Iran where they have no more ability to create offensive issues in the golf.
It's happening.
The key thing I think people are under estimating is there's some significant forces there, not only US President Trump. US military is really military, but also is really military intelligence. When people talk about boots on the ground, they're there.
I just things I've read. So I'm pretty sure the crude oil market's already saying this weekend, if we wake up Monday morning, there's so any major incidents of you know, we see burning tankers, crudell is going to have a problem and continue to go lower.
Hey, Mike, the US, other countries, they're taking steps to tame prices. Right we're talking about the release of strategic reserves. From your history following this and tracking this market is would this I mean, is this just a band aid?
To put it that way, I think that's a good way to describe it.
The first thing I thought of when I heard that is it's a sign that yes, oops, we made a mistake the hormones.
The strait is closed now.
That is enduring for now, but it just means they're going to pound harder and harder and harder on this offensive capability of Iran. I think that's what's happening now. They're bringing in more and more and more offensive capabilities that just stop it enough.
They can't. That's a major failure.
But right now we're seeing the markets starting saying, yeah, a lot of these attacks are slowing down. The worst is probably over, and a key indicator that is collapsing gold.
I think it's looking forward to a safer world.
What are the future markets telling us Mike today about the oil market.
There's a major burden to go higher.
Like I mentioned, if you go every future contract is in backgradation, which means is lower.
So I'm focusing on the US.
Why the US is the largest energy producer and a net exporterer it's the one that matters. That's what's shifted from the last ten twenty years, and US is a complete upper hand. But we're also seeing the price of gasoline went to four dollars a gallon. Remember what happened in two thousand and eight. When that happened, it accelerates recession. So we're seeing right now as a global energy crisis ticking over. The straight of har Moose might be somewhat
safe within a few days. It's already getting safeer and Crudell's anticipating. And what I point out is now we're seeing collapsing in dustrial metals, which I think that's a sign that this is a global recessionary trajectory on the back of the spike and the shock of the straight being closed.
Hey, Mike, we have about thirty seconds left. So you mentioned golds. I want you to kind of expand on that a little bit. I mean, it's seen of this haven heading for the biggest weekly loss in Sea. I mean, what does gold see kind of moving forward?
Gold predicted this, It went up too much last year.
It warned us something might be happened.
So by the rumor sell effect, the significance is gold was a store value, but right now, at almost two point four times the volatility of the S and B five hundred, it's now a speculative risk asset in the late days of a bear mark.
And I think it's more like a go down to four thousand dollars and announce.
All right, Micha maclohan, thank you so much. We appreciate that.
Mike mcloon, he is the senior commodity strategist for Bloomberg Intelligence. He's spaced down there in Miami Beach, Florida, and if you care about that part of the world, Sonny and eighty, as far as the I can see, Mike McLoone the smartest guy in the room, no doubt.
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Welcome Cole Smeat into our studio.
Cole Smith is the CEO and portfolio manager Smeat Capital Manager based out there in Phoenix. Your summer has already started in Phoenix, Right, I've seen some crazy temperatures it has.
In fact, I need to invite both of you to come out breakfast with us like Tom Keane did a few weeks ago here yep, before he went off to his you know, San Francisco Giants spring training game LA that afternoon.
So that's an open welcome, by the way, one hundred percent.
We are we already We're gonna think we're gonna hit a hundred degree temperature this next week, earliest we've seen for a while.
That being said, as I walk around to Cole New York, Yep, I'm not exactly sad about that. So it's back for ski season, but it is what it is.
It is, and it's a dry heat. Col what's the conversation you're having with your clients these days? The last three weeks have kind of thrown that Black Swan event out there, and I'm sure it's got a lot of volatility into the marketplaces. Probably your phones might be bringing a little bit more than usual. What's the message you're bringing to your clients?
Yeah, so here's what I would say.
You know, you were just mentioning the timeline of what's going on in this conflict. Let's just go back to nineteen seventy three Yam Kapor War lasted thirty days, and yet the effects of it were seen throughout the rest of the decade.
So I say that because I.
Think that the idea was this is going to be like venny aka Venezuela.
We're going to come in. It's gonna be strategic, super surgical.
This has been everything but that, okay, And therefore what we're in is a longer term conflict. And what are we seeing. We are seeing longer term problems arise.
Okay, you're Calleague in Dubai.
If they go out to the spot market and oil right now, they're not going to see that price on Brent. They're looking at one seventy the highest price ever paid in the history of the world. Yep.
Okay.
And so I point that out because just think of what. Let's go back one year ago. We're sitting there staring at the tariff tantrum. We're watching economic cyclicality get bludgeoned. OPEC plus is increasing supply. It's going to be a nightmare for the oil business because we might have a recession YadA, YadA, YadA. And here we are less than twelve months later, and that seems to be a place to be. And guess where investors are not. They do not own the energy assets to quote the money python.
The energy business started off as tis merely a flesh wound at three percent, and now investors are having to ask the question, what should I be doing? What am I doing differently? But here's what's weird. Markets are very slow to.
Adapt to this. I mean, the first week the oil stocks didn't even go up.
Okay, you wake up two. Week two there's a marginal bid. Week three, there's more of a bid. This looks like it's going to just continue on. But the former trade, the former great glorious mania in America, the AI Campex hyper scaling game that year is over.
Well, all that said, I mean, where are their opportunities? Where's their value?
Yeah, you know, if you want to beat Bobby Fisher, you got to play him in any game. But chess, Okay, chess in the American stock market is big cap tech. You can't play that game.
Okay. Go look at all the quality.
Growth manager that hid out in the SaaS businesses the last couple of years, thinking that that's the way they'll beat the game of chess and they found out they are actually playing chess. Been pretty nightmare in the last six months. So I say that because ultimately, you know, we have found to be more attractive in economic cyclical businesses. So like think of housing mall rates. We're in a world today. We're in nineteen seventy three, we did not
have energy security. We are the largest oil producing nation in the world. We have this neighbor to the north that we have a lot of security with, who's a large oil producing nation as well. We look at the tars, the oil stands in Canada. Our largest holding across our book is Sonovas. Okay, Sonovas is a thirty plus year asset. You know, they bought out Meg last year. It's a great business to own. We think it's very attractive price.
But what's going on right now is if you look at the returns on invested capital accruing per day at these prices, these oil companies are producing higher returns on capital than SaaS businesses, then software businesses, then all the
asset light players in the world. So what's perverse is why are some of the most capital intensive businesses in the world producing the highest returns on capital, and yet investors are still treating the asset light businesses like they're producing great returns, even though, like I just said, we know that in this cap X game, the cash returns are declining rapidly in these hyperscalers.
Aside from energy, which you guys have a couple of names including APA in this so novas you mentioned, yep, we're else what other sector may be screens wall for you.
Guys these days, Yeah, the banking world looks attractive because people are overplaying fears. Okay, I don't doubt for one second that institutions and a bunch of ultra high net worth people bought some assets they shouldn't have in places like private credit and other alternatives. That is a totally plausible theory. The idea that that is the average American and the average American household if you go look, if you go look at the Federal reserves reports on household
net worth equity is a percentage of household assets. Is the highest I ever been right now, fifty four percent. Okay. Now, what's more normal is real estate is bigger in that because your home is typically your largest asset, and that's
very typical for most Americans to retire. We're at a point where stocks have become bigger than real estate, and ultimately, what it means is we're probably in an era where your home out punches your stocks and the problems of these products that we're sold to institutions and high network folks, you know, the private credit type stuff that is going to be contained in wealthy and institutional arenas. But the
average American doesn't take risk in that. And so the idea that there's some massive spill over the economy and therefore banking is can be really terrible.
We just don't see proof to that theory.
How are you talking to your clients and this kind of climate that we're living, mean, well, what kind of questions do they have for you?
Disbelief that the folks that own energy might win the game? I mean disbelief where it's like, gosh, you know. The main thing we've been talking about with investors is like, listen, this is a very concentrated, narrow world, and if the future is unknown, which it always is unknown, are we all playing the wrong game?
Okay?
And ultimately, what's happened the last twelve months is people went from being like I know, I should probably get away from some of this stuff and diversify a way. And if you look at our portfolio, we're a diversifier. Whether you're talking us or not. Us and our portfolio, we just we tend on things that people don't. And now people are actually asking that question for the first time, why should I look at this? Because if this is a longer term problem, maybe I haven't been doing what
I should. But again there we're nowhere near money moving based on that.
Col, thanks so much for coming in here. We appreciate it.
Col Sweeden, he's the CEO of portfolio manager of SMED Capital Management.
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Karon Mannet vice president and Fixed Income Investment Directors. IT federated her as she is a proud Nitly Lion from Penn State University. That's the highlight for me, I think, Karen, let's step back here. How are you kind of rethinking your fixed income strategy here and what does it become a more turbulent world over the last three to four weeks.
Well, good morning and thank you. Definitely more volatility in fixed income markets and to you know, reset that range or put it into context. We entered the conflict at the end of February with yields really at the lower end of that range. As you said, we had pushed down below four percent on that guiding star for US long term fixed income managers, the ten year rate, and I think we entered the conflict a little bit low.
You know, that was a rate that priced in significant movement from the Federal Reserve, likely on the heels of Kevin Warsh being nominated as the new head, and then we got into a more reasonable trading range. But what we saw, particularly yesterday and through this week is a significant reprising of expectations of what the Federal Reserve can do or what they will do at the front end of the curve. So tens pushing a little bit higher, but really that two year rate going even higher than
that and flattening yield curves. So here we see the bond market fighting off its eternal foe inflation. And it's a good time for investors to look more to coupon clipping or income rather than the price appreciation or diversification of the bond market.
Karen, you mentioned the FED, I mean the composition of it continues, of course to be interesting. Is your house view still for one ease this year? Has that changed?
It hasn't changed, well moderated since the beginning of the year. We went into the beginning of the year looking for maybe two cuts, expected maybe one in June than one in September through decem With the behavior of the markets, and some of that is health Lisa, it is a relatively resilient and stable economy. I describe it as equilibrium.
Equilibrium is not necessarily comfortable. But now with inflation coming back in, with the spike in oil prices, extreme sensitivity around the length of this conflict, we are now expecting one and perhaps that would be later in the year. So you hear you hear that hedging in my voice, and in that position, it's a little bit wait and see.
High yield market.
What's your view there?
You have credit concerns there in a high yield market or do you feel like the risk reward.
Is worth it here, I would say the latter, Paul, it's not so much a'll recharacterize it. We're more sensitive to valuation with high yield. Still, we have seen a nice orderly widening of spreads there, but we are not at our target to lift out of the underweight position where we've been. We would like to see spreads closer to four hundred basis points on a pretty stabilized basis point, sorry,
stabilized point, not just a flash in the pan. We are above three hundred, but still waiting to see more value there. The companies are largely doing fine. They would not have the ability to move out of non investment grade to investment grade. The pricing power isn't there, the ability to grow volumes. You know, they can't correct what made them non investment grade. Our analysts there think results
are largely fine to inline. Nothing to make them overly worried, but nothing to make them overly excited that they can, you know, eclipse that non investment grade rating.
Karen, I'm looking through your notes here. You talk about private credit being in the headlines, of course, does it have the characteristics to build toward this systemic crisis that we've been hearing, we don't think so.
And we took a look at what has caused systemic crisis in the past, and oftentimes, yes, you do see an increase in defaults, and we look at defaults by number and also by dollar amount. But you really need leverage in the system in order to become a systemic event like long term capital management the late eighties or the Great Financial Crisis. But we all know that there's a lot of market value and road between systemic crisis
and optimal markets. And I think what we're really seeing, and as many of your speakers have said over the morning, is a recalibration of liquidity and pricing around liquidity. These are loans to middle market companies that are very necessary, and we're getting a lot of our information from Bloomberg on these private markets and from media. Roger Ferguson wrote a great piece in the Financial Times where you characterize
these loans and how private credit came about. But what happened, as with the success of private credit with the attractive yields, it began to be sold down into retail channels. The retail vehicles provide for greater liquidity or faster liquidity than the tenor of the underlying loans, those are mostly three
to five years. So when you have a liquidity mismatch and then you have something in the headlines that was sold for being attractive and something that you needed to have in the portfolio, and then you're seeing in the headlines that you need to get out, you're just having a mismatch in the vehicle versus the purchaser.
Karen Mike, my.
Good friends on the debt capital markets desks across Wall Street are having a heck of a year here. The supply has been really really heavy. How's the market been receiving this supply.
It's been received extraordinarily well. We went into the year knowing that we would see significant new supply from merger and activity funding, and then that we would also see the hyperscalers coming to the market. They have already done
more than half of their expected supply. But the supply is coming in, and because the yield and the income it's that known variable are attractive, it seems that investors are flocking to investment grade corporate bonds for that known income, that little bit of spread over the US Treasury and enjoying that rather than taking excessive duration risk. So we've seen again a little bit of widening. We've gone out from the high seventies for the investment grade oas until now we're into.
The mid nineties or so.
But we see that as a restoration of value and a time where selection security, selection can begin to matter. So one of our big themes in houses. While we have a top down framework, we are bottom up fundamental reviewers of credit day in, day out. We speak to
discernment and discipline around valuation. Of course we're cognizant of themes, but as we say in health, it wasn't likely that all software companies were great going into the beginning of this year, and it's similarly just as likely that they are not all going to fail just because the tide is turned.
Thanks so much appreciating Arent Man, vice president and fixing them. Investment director for Federator, Hermie Stay with us.
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Rebecca Walser joins us here Presidency of Walser Wealth Management.
Rebecca, thanks so much for joining us here in the studio.
Home.
Crazy times out there, crazy lots of volatility. What are the conversation I'm sure your phone's bringing off the hook from your clients. What's the conversation you're having here?
I mean, we've been big commodity bugs for the lascence twenty twenty pandemic, so I think a lot of people are really concerned about the routing down again of precious metal, specifically gold and silver, and so that's definitely something that we have to explain to them. This is a three part attack on gold. First of all, there's profit taking
because it's you know, obviously done extremely well. Second of all, I think it's a panic selling because you see high volume on GLD ETF and people are really getting up fast. And then also you have a rotation out because now that we don't expect interest rates to potentially be cut or cut as much or as soon, people are looking
for higher yield than maybe a non yielding asset. So it's really a three part attack and we have to just stay the course because nothing fundamentally, actually everything has actually increased the likelihood of price increases in actual precious metals. It's just that they're not going to happen in the short term right now. There's a lot of consternation of moving capital around, but when you look at the private.
Credit situation, the liquidity course isn't that other thing.
I think private credit and liquidity raises are also having an impact on selling off.
And getting out of gold and silver.
So we just have to stay the course and remember that we are not in it for these short term price actions. We're really in it because fundamentally, we believe that we are at the beginning stages of a transition of currency from fiat to stable coin, to the blockchain, and ultimately there's going to be a tether to some kind of hard assets, and we believe metals will be that well.
So that's it has goal become more volatile than equities.
I mean, I wouldn't say more volatile than equities, but certainly this year in twenty twenty six, we've seen the most volatility. We know, it's the worst trading week for it and the six years, So from that perspective, it's we're seeing a lot more volatile than we're seeing to act like a risk on asset, which we're not used to.
So that's why the consternation, that's why we have to explain and just take a breath and remember that, you know, it's really, you know, the wrong move to act emotionally and to remember the fundamentals and the technicals and why we're here in something.
So where are you asking or where you're telling your clients that they should be focusing here?
Is it US equities? Non US equities? Should we be looking at fixed income?
Where's it?
Because there is a lot of cross.
Currents out there.
Yes, absolutely, So where's the area focused for you? Guys?
Well, I think right now the global world has got some major issues, not geopolitical war aside with a RAN. If you look at kretar energy, if you look at the actual damage that has happened until liquefied natural gas production, the straight being closed, you're looking at for the first time, really a three part bifurcation of energy price Asia being really the worst, you know, then Europe being the second worst, and US, of course, being energy independent, we.
Are a little bit insulated.
But so the bottom line is people are trying to figure out what is this going to be it's going to take some time. I will note that this administration is trying to reduce bank capital requirements and reserve requirements to make things a little bit easier credit That will obviously be good for the rest of two thousand companies.
And so if you look at.
That in the framework of the rest of the world that's not already talking Europe already talking about rate hikes, you know, and all of this inflationary pressure from energy costs. I mean, Europe has got a massive energy crisis that's approaching very quickly. So I'm going to say no on on out going outside of the United States for now, and then we'll see if there's pockets of opportunity that
we can maybe pick up on and dissect. But right now, things are extremely fast moving, very fluid, and we just have to remain calm and remember.
Especially in a time of war.
So we've got the kind of the confluence of all the convergence of all things, Paul, We've got literally, you know, energy crisis, war, blockchain.
Fiat bank reserves. I mean, it's just I mean, could we add anything else?
And I don't even say that, because as soon.
As I say it, something else is going to come into the mix.
But yeah, I mean this is a literally crazy time and so therefore calm, cooler heads will prevail.
And we even talk terrors trade I mean two exactly, that's one thing missing from that. So all this uncertainty that you're talking about, I mean, does it usually scream recession or stagflation? I mean, what's your take with it?
I mean, I definitely do think that there is going to be with the energy crisis alone, with with just going back to catar energy saying three to five years state and fix the one plant that produces seventeen percent of the world's global LNG. I mean, these kinds of things definitely have an impact and will be recessionary and nature job creation and as a positive, right, energy prices going up have some other influationary aspects that help with
some kinds of investments. Right, But overall, this is a time I think we'll look back. You know, you look at the S and P five hundred chart. You can
see dot com, you can see GFC. Will twenty twenty six be the beginning of something new that we can really see a breakout towards a new a new way forward and I do think with you add in there, you know, blockchain and stable coin, which is really under Congress with right with the Clarity Act that we got the Genius Act last year, You've got a lot of changing parts and so this is going to be the beginning of something that is new, I believe.
Yeah, so how are you What is your strategy your advice to your clients as it relates to crypto broadly defined.
Yeah, Well, we do believe crypto is a risk on asset. We haven't had enough of a use case to prove that even through a recession it will do well, like talking specifically bot coin, So definitely see it as risk one. But we do see that stable coin is the future transaction system and so we want to be on the frontier of that. We want to be on the forefront
of that and not be afraid of it. I would say that overall, we're going to look for pockets of picking up a price action on obviously the energy front for sure, we've really kind of moved our portfolio from commodities and specifically precious metals.
More to oil.
Starting October of last year, we pair down and moved over to energy. So we've enjoyed really some nice price action to the upside. But we still truly believe that the system, the global world system, as we move away from FIAT, will be anchored in tether too hard precious assets, precious metals specifically, So we're going to continue to have a gold and silver perspective in our portfolios.
I'm curious what areas will you be looking to when when things sort of calm down.
The calm down is we're going to be I mean, obviously AI everything right, AI disruption. Software as a service obviously has been a really big problem for Shear. Private credit being invested in software, and you know, private credit is really interesting is it's tied into our banking system
in the sense of all of the credit lines. You know, I did an analysis of the top our top you know, six banks and how much credit lines they have outstanding to private credit, which might be drawing down because there's so many redemptions blue alcol pausing redemptions Blackstones b cred basically and the last quarter had an eight percent redemptions, their largest quarterly redemption on record. So we're we're expecting
this volatility. But to that point, on the other end of it, what are the new AI technologies that are going to be kind of pushing aside the old software route. I mean, I don't believe that it's going to happen tomorrow, but it is going to happen eventually.
So the route was over sold.
We didn't need to see that much consternation in the software market. But it is a reality in the future.
So is it.
Sixty months, is it thirty six months? Is it next year? Not sure, it's not tomorrow, It's not probably this year, especially with all of this. This is obviously the world is going to be focused on energy and pricing that and AI will continue to go on. But you know, I do think that anthropic maybe won't be a little to disrupt as much as we as it has been able to do this year.
Very good, Rebecca, thank you so much.
Thanking you.
She's the president, and so you have Walser, welcome management joining us live here in our Bloomberg Interactive Brooke Studio.
So we appreciate that.
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