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Cold Front on Oil Prices?

Tony Nash is back in the Morning Run, hosted by BFM 89.9, as he points out the crude oil price and how long to expect the rally, considering factors like weather, demand, and supply. Tony also mentioned about a potential pullback and snap and how you can better be prepared for it. Should you continue buying tech stocks or move elsewhere? Also, they discussed crops and where the prices are going this year.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/cold-front-on-oil-prices on February 18, 2021.

 

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BFM Description

 

Tony Nash from Complete Intelligence, from freezing Texas, shares with us the current supply constraints in the US impacting oil prices in the short- and medium-term.

 

Produced by: Mike Gong

 

Presented by: Philip See, Wong Shou Ning

 

 

Show Notes

 

WSN: For some color on where global markets are heading, we have in the line with us Tony Nash, CEO of Complete Intelligence. Tony, are you freezing out there in Texas?

 

TN: Yes, we are. We haven’t had it this cold air for decades. So it’s it’s been a really interesting week.

 

WSN: That has had an impact on oil prices. Bloomberg showing Brent crude at $64 per barrel, WTI at $61 per barrel. So how badly impacted our energy markets at the moment? Where do you think oil prices are going?

 

TN: A lot of this is very short term. What you’re not seeing that the traders really pay attention to right now is that a lot of refineries are closed because of weather and they’re starting to close for annual maintenance. There’s this presumption that there’s a demand pull, which we’re not really seeing from anywhere in the world right now, and that the winter storm issues will pull energy prices. But again, the fact is the refineries that would take this stuff are closed. We expect this to be short lived. This is an extension of a crude price rally that we saw that we expected to come in Jan, it’s lasted into February and we really don’t expect this to have a lot of legs to it.

 

PS: What do you think the outlook looks like then for the mid-term like quarter to quarter three?

 

TN: We would see 10 to 20 percent off of this price? We don’t necessarily think that this is a sustainable level short of some sort of supply cuts. But the weather in Texas, for example, we’re going to be kind of in normal weather ranges in two days. What we’ve seen this week and the close down, as we’ve seen this week, it’ll take people a couple of days, maybe a week at most to get things back on line. So this perceived supply shortage will be back on line fairly soon.

 

WSN: How about yields on U.S. 10 year bonds? Because they’ve hit a new high one year high. What what is that trying to tell this? What a market try to tell us?

 

TN: U.S. is trying to raise money and they’re willing to pay more for it. I think that is is really it. I think there is a growing fear that equity markets are as high as they’ll get. We’ve started to see more of that tension come in into chatter over the last few days. People are willing to pay to get out of markets, to park their money in debt.

 

So I’m sure it helps the U.S. as they’re raising more money for stimulus and for operations. But as we creep up to four thousand, that is just unimaginable for a lot of people. And it’s not as if we are doing better as an economy than we were in 2019 or the first quarter of 2020. This is built on stimulus, as we’ve talked about before. It’s built on central bank activity.

 

And you can only stretch that so far before things have to snap. We’ll see some of these things that are at double and triple and quadruple kind of the standard multiples. And P is the only way to measure this stuff. But we’ll see things that are really, really stretched, snap into a more reasonable region. But it’ll happen any time tomorrow, three weeks from now, a month from now, whatever. It’ll just happen. It’ll happen any time. And it’s best to be prepared for it.

 

PS: So are you expecting some pullback eventually? Right. What is the tipping point where investors will essentially do that exodus or flock to U.S. Treasuries then?

 

TN: One of the tipping points is going to be the resolution of stimulus. I’ve been saying for weeks that stimulus will not be what the administration wants it to be. There are such high expectations put on that stimulus right now and they’re not going to get it. They’ll get a lot of it, but they’re not going to get all of it. Expectations are sky high. And when it doesn’t hit, I think that will be one of the catalysts.

 

But there are other things like when the crude price starts to fall because this supply constraint isn’t there anymore. These sorts of things, these things add up and then they snowball and and then you start to see markets really, really take a dove. We’re not necessarily calling for a 2008 generational type of decline in markets. It’s just a bit of a pullback so that people can just say, “OK, wait a minute, let’s check, take stock how businesses are doing. Take a look at our investments and our allocation and then reallocate.” That’s really what it’s about.

 

WSN: Where would you relocate to and what are the safe haven assets? Because almost every asset class on a year to date basis is up. Right. And maybe except for Google, which is down six percent on the year today.

 

TN: What you’re likely going to see is a pretty serious rotation out of technology where people have focused on because of the work from home activities. This may not be immediate, but I think you’ll see a rotation out of a lot of the work from home stuff as people start real life again and you’ll see people move into. This is not really my the basis of our outlook. But you may see more of a regional move into things like tourism.

 

These things have just taken real hits. A lot of them have had speculative rises, some of the cruise lines. But some of them are still way down. All of this depends on gradual normalization. But I can tell you, Americans are really tired of being locked in, really tired of not socializing. And some of these things are going to have to start up again.

 

PS: What about not all out commodities then, like agriculture and precious metals?

 

TN: We had some real pressure. And part of the reason of that pressure was because there was a perception that a lot of the Chinese corn crop didn’t come in last year. But a lot of the drought was outside of that zone. Some of that pressure was alleviated.

 

But still, we’re seeing some pressure on wheat right now in the U.S. It really all depends on how much the current cold snap impacts the output later in the year or the ability to plant. Right now it’s not terrible.

 

Until we start seeing real demand come back in entertaining and in consumption and these sorts of things, we’re not going to see a major demand pull on food because people are already buying their standard cook at home type of things right now as they’ve rebuilt their behaviors over the last year. We’ll see that change. But unless we see a drought or unless we see an issue in a high consumption part of the world, we’re not necessarily going to see a boom in those places.

 

WSN: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his views on global markets and saying that, hey, oil prices are going to come under pressure probably in the next two to three months, because this is not really driven by real demand, is just probably weather patterns which are going to normalize anyway in Texas in a few days.

 

PS: He also made a point about oil, where this, I think, a slight surge in prices is actually a short term because supply is going to get back on quite soon.

 

WSN: Yeah, but other interesting news is actually the ongoing saga of big tech versus Australia, because it looks like Facebook has defied Australia’s push to make big pay for news by banning the sharing of content on its platform in the country. And this is the most far reaching restriction is ever placed on any publisher in any part of the world.

 

PS: So the extreme step to remove Australian news came as Google separately struck a global deal with Rupert Murdoch’s News Corp diffusing a long running dispute between the two companies. The dramatically different approaches could mark a pivotal moment for the media industry, which had hoped Australia’s tough regulatory approach would help reset its terms of trade with Google and Facebook worldwide.

 

WSN: So the moves by Google and Facebook came on the day Australia begin debating laws that would force big online platforms to license news. Now Facebook’s action will have a global impact. Under the provisions, news from Australian publishers will be blocked on the platform for all Facebook users, regardless of where they are based. The Australian government said it will continue to engage with Facebook. Press ahead with legislating the code, Canberra also warned that withdrawing news from Facebook’s platform in Australia could dent its credibility with users.

While this is quite big stuff. Actually, yes.

 

PS: Yes. I mean, Australia wasn’t the first country to, you know, get into this spat. I think you really was in having discussions. And France and Spain already had deals with a lot of with Google and Facebook with respect to media purchase. But it’s a question about publishers.

 

WSN: Yeah, I mean, at the end of the day, right. We do know media companies are suffering. Right. Álex has come under pressure. Subscriber growth has come down. How a media company is going to generate the revenue. So in the past, all these big tech companies, the argument was that they got to earn super normal above what is the what super normal profits without paying the likes of the media companies because they were using these media companies content to their benefit.

 

So some countries like Australia and even if you try to kind of diffuse the situation and have, I suppose maybe in their mind, a fairer playing field. But the Google deal nonetheless, if you look at it, the Google deal with News Corp announced on Wednesday goes beyond the Australian market, extending to Murdoch’s titles such as The Wall Street Journal and The New York Post in the U.S. and The Times and the Sun in the UK. No other news publisher has reached a single deal with Google across multiple countries.

 

Now, critics say the deal would benefit News Corp. rather than the rest of the news industry.

 

PS: Yes, well, we’ve been talking about the price. And since you looking at Google’s valuation, I suspect Google’s to be the winner because they have just really this unique access to this quality content. So. So why not?

 

WSN: Well, they’ve pledged so far to spend one billion over the years on buying news content and reach agreements with publishers in about a dozen countries.

 

But we’ll be watching this space because we do a media outlet.

 

But up next, we’ll be discussing the recently announced national unity blueprint. Stay tuned for that. BFM eighty nine point nine.

 

Thank you for listening to this podcast. To find full great interviews, go to PFM Goodbye or find us on iTunes, BFM eighty nine point nine. That is the station.

 

Categories
Podcasts

Rotating Permanently into Cyclicals

In this Morning Run BFM episode, Tony Nash shares his views where equities are heading now that the 2020 Election has concluded. Will the new administration reverse China policies by Trump? Also, what is the implication to the world exports with a weaker USD and stronger CNY? Lastly on oil: what is its future? Will the rally continue? Does it have enough support?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/rotating-permanently-into-cyclicals on January 7, 2021.

 

❗️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

BFM Description

 

With a blue wave in Georgia, what does this mean for the US economy and equity market? Tony Nash, CEO of Complete Intelligence, tells us that the rotational play is now here to stay while giving us his view on oil prices.

 

Produced by: Mike Gong

 

Presented by: Lyn Mak, Wong Shou Ning

 

 

Show Notes

 

WSN: Joining us on the line for his take on where markets are headed is Tony Nash, CEO of Complete Intelligence. Equity and currency markets were waiting for the Georgia election results, which have just come out. Given that outcome, where the Democrats have won, where do you see U.S. equities heading?

 

TN: We don’t see major upside for U.S. equities without significant short-term intervention by the Fed or by some stimulus or infrastructure package. Given where Congress is, I’m not sure that there would be the ability to get much through Congress so it would have to come from the Fed. It’s possible, but we see more the hard assets like gold and commodities. And then you see crypto currencies rising pretty fast as well. But the risk really with equities is to the downside more than to the upside.

 

WSN: But if we just look at last night’s flows, there was some rotation into cyclicals like banks and small caps with less fund flow into big tech, perhaps over concerns of increased litigation action against them. Do you think this will change into a more long-term kind of rotation?

 

TN: We’ve expected that for some time. That rotation is long overdue. But the Fed have enabled tech and crypto to have a longer run. That rotation has been put off a bit. So if now is the time, great. We would definitely welcome it. We’re just overexposed in certain sectors.

 

WSN: And meanwhile, last night, US 10-year treasuries top two percent. What does that tell us?

 

TN: The U.S. is having a harder time raising money? They need to pay a little bit more to get money. I don’t necessarily think it’s a harbinger of inflation. Although it’s possible with a weaker dollar. I would say higher import prices. Chinese yuan on the run, strengthening. You may have higher import prices, but people have been warning about inflation for years now and we just have not seen it register. I think it just means that that the U.S. Treasury has to pay more to raise money.

 

WSN: And with Biden coming in on January 20th as the next US president, I would like to see a reversal of Trump’s more adversarial policies with China?

 

TN: Biden will be very accommodating to China. I think you’ll see different parts of the House and the Senate not be happy about it. But he’ll be absolutely extremely accommodating. More accommodating than Obama was.

 

WSN: What impact do you think that might have on the U.S. economy? Because in the past there was some shift into more U.S. based manufacturing. Will that then reverse?

 

TN: With the USMCA, the NAFTA number two agreement, I think there’s more incentive for companies to have facilities in the NAFTA zone. China obviously is more expensive and with an appreciating CNY, that makes it more difficult to invest while you get less for your money in China. China is becoming an increasingly hard sell. That has been the case since 2017, 2018. It’s not going to turn back. Until there is a reciprocal and enforceable investment agreement in place with China, I think China is where it is. I don’t think you would see a mad rush of direct investment going to China.

 

WSN: What are your views in terms of where the U.S. dollar is hitting? Because you just mentioned that the Yen is likely to appreciate?

 

TN: It already has. The Chinese officials are becoming a little bit nervous about how strong CNY has become because it’ll put a real damper on their their ability to export. You have the Euro versus CNY weakening. You have the Dollar versus CNY weakening. It’s coming to a point where it could be somewhat problematic for China. So they will push to weaken their currency, maybe not immediately, but say in first quarter. As you see more stability, post Brexit with the new normal Europe. As you see more stability in the US with the new administration, I think you’ll see a bit of relative strengthening of those two currencies versus CNY.

 

WSN: And shifting our attention to one of the commodities: oil. Yesterday, Saudi Arabia’s cutting oil output while Russia is increasing theirs. What’s the rationale for this? And OPEC members then divide it on production quotas?

 

TN: OPEC members may verbally agree to things. Whether or not they comply with that has been a burden for OPEC for decades. So what they all want is more volume export and the prices is the real issue.

 

So I think there’s an intention to present mixed messages so that there’s uncertainty in the market so that we see Brent price that’s sustainably above 50 dollars. That is is good for OPEC. That’s good for some of the producers like Malaysia and Texas where I live. I think consumers, we don’t necessarily to expect to see a sustainably strong oil price because we don’t necessarily expect to see a dramatic recovery in 2021. But we don’t expect to see a dramatic recovery that would spike oil prices up to 70, 80 dollars.

 

WSN: Do you expect oil prices to be where it is, which is currently around 50 U.S. dollars per barrel for WTI?

 

TN: For six plus months, we’ve expected a spike in January. And we’ve been telling people since July, August that we would see a spike in oil prices in January. And this is exactly what our artificial intelligence platform has told us for quite a long time. So we’re seeing what we’ve expected. We’ve also expected a fall going into February. Like I said, this is great. This is very much in line with what we thought would happen. But we expect there to be some downside to this and downward pressure within the next 30 to 60 days.

 

WSN: All right. Thank you for your time. That was Tony Nesh, CEO of Complete Intelligence, giving us his views on where markets are heading. And it seems like it’s not surprising that there’s a bit of a market correction or at least a market rotational flow out of tech, which valuations have kind of hit all time high and some rotation into the cyclicals like banks and small caps. But I think his views on oil are pretty interesting that it’s you know, we are going to see maybe a bit of downside from here.

 

What will he take? Reasoning?

 

LM: I think his comments about particularly what we can expect out of a Biden administration were quite interesting because commentators now kind of are kind of split over how they believe Joe Biden will kind of stack up compared to Barack Obama once he is inaugurated as president of the U.S. And the idea of Joe Biden being more accommodating than Obama, particularly with Trump also still continuing his crackdowns on China. It’s almost enough to give you whiplash, isn’t it? Because once January 20 is rolls around, how much of Trump’s measures will be rolled back?

 

I mean, only recently he’s just signed an executive order as well, banning several Chinese payment apps over security concerns. So this affects eight payment apps and it’s supposed to take an IT take effect in 45 days after Trump has left office.

 

WSN: Yeah, and what’s interesting is these eight p.m. apps are very well known to include the likes of ADP, Tencent, Cucu and even WeChat P now in the executive order, said that these apps captures swaths of information, including sensitive, personally identifiable information and private information. Now, how much of this an impact will have is unclear, since it’s understood that the usage of these apps outside of China remains limited. For example, the ALP has roughly one billion users, but they are mostly in China.

 

However, it does have deals with merchants in the U.S. such as Walgreens, and claims to work with more than two hundred and fifty overseas partners. Now, separately, the New York Stock Exchange has made another U-turn on its earlier U-turn to delist three Chinese telecom companies, which be. Going round and round and round, yeah, it’s like a mini roundabout now, so and these three companies are China Mobile, China Telecom and China Unicom.

 

LM: So the NYSE first announced that it would delist the companies on New Year’s Eve before changing course four days later. And the delisting complies with Trump’s executive order banning investment in Chinese companies with purported ties to the military. So the exchange said its latest decision is based on new specific guidance received on Tuesday provided by the Treasury Department. Treasury Secretary Steve Mnuchin reportedly called the NYSE president, Stacie Cunningham, to voice his displeasure with the decision to allow these three companies to remain on the big board.

 

WSN: Well, I think this story will just get the plot will get thicker and thicker, and whether the roundabout will get bigger and bigger, we’ll just have to find out. But up next, we ask the question, what can you do to attract more foreign direct investment for us? Ross, the senior economist with Mark, will be joining us for that discussion. Stay tuned for that BFM eighty nine point nine.

 

Categories
Podcasts

IPO Season Has US Investors Agog, Again

Tony Nash is back in the BFM podcast to break down what´s happening in the US Market with IPOs like Doordash and AirBNB selling at a higher price than expected. What´s up with the tech stocks? It´s obviously IPO season, and what should investors do. Should they buy? Also discussed is the current oil price rally to the high 40s. What is the expectation or forecast for oil in the last month of 2020 and the first quarter of 2021 for oil?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/ipo-season-has-us-investors-agog-again on December 10, 2020.

 

 

BFM Description

 

Produced by: Mike Gong

 

Presented by: Khoo Hsu Chuang, Wong Shou Ning

 

It’s IPO season again in America and Doordash is first out the, well, door with a pop and wallop, while Airbnb is next, also with a higher price range, like Doordash. Which of the debutantes will be a Buy and which a Sell? And whither oil prices?

 

 

Tony Nash, the CEO of Complete Intelligence, discusses.

 

 

Show Notes

 

 

WSN: On global markets, we got to the line with us tonight, the chief executive of Complete Intelligence to break it down for us. Tony, thanks for talking to us. Nasdaq closed in the red after a 10-day rally. What’s your view? Is this just a technical correction?

 

TN: Well, Nasdaq still up 36 percent year to date. Things are still pretty good with tech stocks. But it’s been a lot of retail investors so far this year focused on fang stocks. Part of this decline today may be related to the stimulus talks. There are a number of other things involved, but if there is more stimulus, we may see more investment, especially in tech stocks. If you remember, the tech rally started in Q2 of this year really on people investing via Robin Hood in small increments. There were other institutional and retail investors, but Robin Hood investors really led to a lot of the run ups in these tech stocks.

 

KHC: And I want to pivot this conversation to an IPO, which is closed last night. So Doordash it debuted with an 80 percent jump to close at $189 from an IPO price of 102. Does that make you a buyer?

 

TN: It makes me a wait-and-see-er. Tech stocks have done really well. Stocks like Palantir are up 200 percent or something since their IPO. A lot of people are looking at those as an opportunity, which is quite possible. But tech IPOs tend to settle shortly after. We saw this with Palantir for a few weeks after the IPO. It declined, then it meandered. And then it really only started coming up over the past couple of weeks.

 

Doordash seems to have risen very quickly. I think it’s really on hopes, unfortunately, that a lot of the work-from-home stuff continues. Without work-from-home orders or stay-at-home orders, it’s really hard to see Doordash continuing at these levels. I think with a somewhat normal return or return to normal, people start going out again. Some of the people would at least rather go out than order in.

 

KHC: The other IPO is Airbnb, which is supposed to be priced later today. Is this a name you’re excited about?

 

TN: Sure I am. What’s interesting about Airbnb is it’s been very resilient with Covid. We’ve seen long-term rentals via Airbnb. We’ve seen people travel using Airbnb. When travel starts up again in a big way, they benefit as well. So it’s a really interesting name for me. It depends on what were the prices and where it goes. But on the face of it, it’s a very interesting name.

 

WSN: Yeah, it really is IPO season, isn’t it, Tony? I mean, what’s driving the liquidity? Is it still a retail market, institutional or a bit of both?

 

TN: A lot of it is retail. The retail investors are looking for the quick upside. People are trying to close out the year with as much juice as they can. I think a lot of the institutions were in very early. They take quick profits and then they just wait and see what happens. But if you look at the distribution, the allocation of some of these recently IPO tech companies, it’s a lot of retail investors.

 

KHC: With virus cases rising in the states, it’s almost certain that the FDA will authorize the emergency use of the vaccine today. So this brings back the question, do you think that the stimulus package that everyone is waiting or expecting, will they still be in the quantum of 908 billion or would it actually be downsized?

 

TN: I think it’ll be around the current level. The problem is, this is something that should have happened two months ago. And you’ve seen over the past two months, the U.S. economy really start to stall and sputter out. The employment picture is looking grimmer. The demand picture is looking a bit grimmer. If the U.S. wanted to keep things moving at the pace it had been in Q3, it really should have happened in late October. But it didn’t for political reasons.

 

And I think it’s really critical for these guys to come out with something before Christmas. The politicians look really stingy, like the real economy doesn’t affect them, which is true. And if they come out with something, they have the likelihood of looking like heroes before Christmas. So this is likely political theater so that they can build up some drama for a last minute agreement before the Christmas holiday.

 

WSN: Sliding over to oil, Tony, with crude inventories starting to build up, can prices break through the fifty dollar resistance level, do you think? And what are the catalysts needed to carry it across the threshold?

 

TN: Yeah, we think they can. So we’ve seen inventories build up. You know, they built up 15 million barrels over the past week, which is quite a lot well ahead of expectations. But, you know, we’ve expected oil to cross the 50 dollar mark in January, late December or in January. When we started saying this a few months ago, people really pushed back on this. We said we saw a spike in January in the crude price. And so we still believe that. NYNEX crude is trading at forty seven dollars right now. So even with the supply glut right now, we’re still seeing a forty seven dollar WTI price. So we think we’ll see high 40s, low 50s by January. Brent, of course, will be slightly higher than that. So we think breaking through fifty dollars is quite likely, especially at the start of Q1.

 

WSN: Hey, Tony, thanks so much for your time with us. Tony Nash, the chief executive of Complete Intelligence. And just to make a couple of remarks. And while we just discussed with him. The higher oil prices go, obviously the better it is for Malaysia because we are generally an oil country. West Texas is at 46, 47 right now is about 49 dollars, definitely, too.

 

He also talked about the Doordash  and how he’s waiting to see Doordash. The numbers are not huge. They’ve only got like five million subscribers and they charged off the food guys 30 percent commissions to just deliver the stuff.

 

WSN: It’s not like they’ve had a choppy fiscal quarterly performance some months at some quarters up, some quarters down. And, you know what is so it’s so frothy. I mean, they nearly double the reference price on IPO day itself, already increased from two bucks, 100 to close 182 crazy, crazy days.

 

KHC: Well, I think, you know, at the end of the day, what is causing this one is that tech seems to be, you know, the darling darling on Wall Street. That’s when the second is that that clearly there still is a lot of cheap money flowing everywhere and nowhere to go.

 

WSN: Yeah, of course. Tony was talking about the Robinho traders, right?

 

KHC: Yeah. So as long as interest rates remain close to zero, I think people are willing to watch. And I used the funds, all investors, you know, regardless of whatever valuation. So it doesn’t really matter what your valuations are anymore. Exactly. So even like for Airbnb, you don´t even talk about earnings, you’re talking about price to sales because there is no earnings.

 

WSN: OK, well, talking about tech Facebook, right. The U.S. Federal Trade Commission in 46 states, 46 states, that’s just fall short of the full 50 complimented America. They’ve all brought antitrust cases against Facebook and accusing the company of using the social media dominance to crush competition. They’re calling for penalties that include a forced breakup and they are accusing Facebook of conducting a years long course of anti-competitive conduct.

 

KHC: Well, in particular, the FTC highlighted the acquisitions of Instagram in 2012 and WhatsApp in 2014 as designed to neutralize any competition, because the argument is that they are a monopoly and they cut off services to squeeze rival developers. So the FTC said it was seeking a permanent injunction in federal court that could potentially require Facebook to unwind its Instagram and WhatsApp acquisitions. Now, if I looked I remember correctly this morning, Facebook closed down, I think, close to two point six percent based on this news. So it doesn’t seem like, you know, markets are really concerned about this. Or maybe the point is any dispute with the government takes forever and ever and ever so maybe for the moment, I think people are just shrugging it off.

Categories
Podcasts

Signs of Broader Recovery

Tony Nash joins BFM 89.9 The Business Station to discuss possible broader recovery. Where are the markets heading? In which direction will U.S. equities likely trade for the rest of the month? How much will that impact the ongoing debate on further fiscal stimulus? And how about the US unemployment data and is China on the recovery path?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/signs-of-broader-recovery on October 1, 2020.


BFM Description

 

US jobs data will be released tomorrow but are we expecting better numbers? Tony Nash, CEO of Complete Intelligence sees a stronger pace of recovery for the US economy with improving macroeconomic data. He however does not expect a recovery in oil prices as demand remains weak while there are no supply shocks.

 

Produced by: Mike Gong

 

Presented by: Wong Shou Ning, Roshan Kanesan

 

Show Notes

 

 

WSN: But the question is where our markets are heading? So to help us answer that question, we have on the line with us Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now the question, in which direction will U.S. equities likely trade for the rest of the month? Is risk aversion making a comeback to financial markets given the political and economic uncertainties?

 

TN: We expected a down month in September and that’s what we got. We’re also looking for a pretty difficult month in October, not quite as far down as September has been. But I think you’re right on the uncertainty side, one of the big unknowns is stimulus coming out of the US government. And obviously that would help move markets in other countries as well.

 

We should know by the end of this week if there will be more stimulus or the magnitude of that stimulus coming out of the U.S. So the real question around whether things will rally or fall is when the US will open up and when other countries will kind of fully open up, not partially open up. We look at, you know, Europe’s doing pretty well actually in opening up. Asia is doing pretty well. The U.S. is still kind of a patchwork.

 

So we won’t really know the near-term direction. But I guess I think over the next month we’re looking at at a bit of a fall.

 

WSN: And meanwhile, the Fed is extending the dividend by that limit with Wall Street banks till 2021. The announcement came out last night. So what does it tell us about the finance sector?

 

TN: We’ve been expecting a rotation into financials for some time, and that tells us that if dividends and buybacks are limited, those banks, obviously there’s a risk factor there, meaning that the regulators want those banks to hold on to their cash. But it also means that that the regulators also aren’t sure about when things will be back to normal. So that conservative approach forcing banks to hold on to their liquidity tells us that there’s not a lot of confidence in the next quarter or two. So we’ll really have to see the pace of recovery here in the U.S..

 

WSN: And Tony, just one more question on the U.S. and that’s the job data that’s coming out later today. Right? So there is out on Friday and it’s going to be the last one before elections. Are you expecting a good number? And how much will that impact the ongoing debate on further fiscal stimulus?

 

TN: You know, we do expect it to be a good number, the ADP number was out today and it kind of usually comes before the U.S. government’s non-farm payrolls number. The labor number. It was 750000 jobs added. That was one hundred or more thousand greater than was expected. Now, the U.S. Labor Department typically is higher than ADP. We expect the Department of Labor report on Friday to be about 900,000. So this is really good. Companies are coming back online. They’re employing there are fewer people out of work. That’s good for the recovery.

 

We keep hearing hesitation about the pace of recovery. We’re not sure of the pace. But from an employment perspective and even things like retail sales, the indications are good. So, you know, we’re hoping for the best. And unemployment is telling us that things are moving in the right direction.

 

WSN: And if you look at the recent EPA and EIA inventory reports are telling us that all demand tells us about the oil demand projections for the rest of the year. So what do you think? Do you think recovery’s a long way off?

 

TN: We do, actually. So production is up about 15 percent or so. Demand is still down 20 to 30 percent. So, you know, it’s not a good pricing environment for crude or for petrol. Downward pressure will still remain in those markets. We won’t see, say, Brent, north of 50 for some time. We won’t see WTI north of 45 for some time. There is a possibility we keep hearing we’ve heard for months about the possibility of a supply shock as demand comes back, which would push prices up. We’re just not seeing that at this point. And it’s going to be several months. If that does happen, it’ll be several months before it happens.

 

WSN: And one last question on China. The manufacturing PMI for September came in at 51.5 higher than market forecast. How much should investors consider a place in this figure? Does this number suggest that China is well and truly on the recovery path?

 

TN: I would be really careful of I’m looking at a China PMI. I’m aware of PMI generally, but I’d be I’d be careful of the China PMI. I haven’t believed it well, for years, if it really is ever, partly because it’s a kind of a second derivative of real data. It’s an opinion survey of future expectations and it’s an index of that opinion survey.

 

I know that sounds confusing, but you’re really far away from real data when you’re looking at a PMI number. And with China, the uncertainty and murkiness around Chinese economic data is something to be careful of.

 

So I would say if I’m investing in China, if I’m looking at data in China, the stuff that I’ve always found more important was first-hand information. What’s actually happening on the ground with your vendors, what’s actually happening in cities on the ground?

 

I’m not saying that China is suffering. I’m not saying China’s experience a massive pullback. I’m just not sure about the rate of recovery in China.

 

WSN: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, giving us a somewhat optimistic view of the U.S. economy, saying that all the indicators are that recovery is their unemployment numbers should improve.

Categories
Podcasts

Is The Rally Ending?

Tony Nash joins BFM 89.9 The Business Station for another look at the global markets and to get a sense of whether this is the end of the bull run. Also discussed how September is expected to be a volatile month. Will there be a fiscal stimulus for small businesses? Will banks and other financial institution get the next round of stimulus? And how about the oil prices — where is it going?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/is-the-rally-ending on September 24, 2020.


BFM Description

 

Speculation is rife over whether US lawmakers will be able to come to agreement over a new stimulus package, as deadlines loom. Federal Reserve Chairman Jerome Powell also warned that more stimulus will be needed, and all the uncertainty took its toll on US equities overnight. To get a sense of whether this is the end of the bull run, we speak to Tony Nash, Chief Economist and CEO of Complete Intelligence.

 

Produced by: Mike Gong

 

Presented by: Roshan Kanesan, Lyn Mak, Noelle Lim

 

Show Notes

 

LM: BFM eighty nine point nine. You’re listening to the morning run with Lyn Mak, Roshan Kanesan and Noel Lim, 707 a.m. Thursday, the 24th of September. And in round about 15 minutes, we’re speaking with Paul McManis, chief enterprise business officer at Maxus, to discuss how companies can best adapt to a post covid-19 business environment. But before that, we’re taking a look at the markets.

 

RK: Well, the markets were in the red, actually. The Dow was down two percent. The S&P 500 was down two point four percent, and the Nasdaq was down two point seven percent. How did Asia do?

 

NL: Well, Nikkei index down point zero six percent. The Shanghai Composite was up 22 percent. Hang Seng marginally point one percent of the Cosby eight point zero three percent stay up point seven percent. The FBI. CIA, however, was down one point six percent. And I guess that’s on the back of some very important news at 12:00 p.m. yesterday.

 

RK: Yeah, it’ll be interesting to see how all these markets open today on the back of the US market closing.

 

LM: Absolutely. So for more on international markets this morning, we have Tony Nash’s chief economist and CEO of Complete Intelligence on the line with us this morning. Tony, thank you for joining us. Now, U.S. equities retreated sharply last night as Jerome Powell warned that more stimulus is needed. While it seems more likely that lawmakers will be able to agree to this. Is this the end of the rally and perhaps the reality check that market’s needs?

 

TN: Well, I don’t know if it’s the end of the rally, but I know we had a conversation on August twenty sixth. I think it was when I caution you guys that September would be a really rough month and very volatile. And I think we’re certainly in the middle of that. So how much further will it go? We think it has a little ways to go, but so we don’t necessarily think there’s a huge rally coming. But the caveat to that is stimulus.

 

So if stimulus comes out this week from the U.S. Congress, which there has been a bill going through and there may be some reconciliation in in some of the committees to get some stimulus out, that could help. But I think the Fed I think what what the Fed has said is, you know, they’re out there doing their work. They’re getting loans out to larger companies. But really, fiscal stimulus has to take place for smaller companies until we have that.

 

I think markets are pretty upset.

 

RK: And if we take a look, sorry, OK. And as we take a look at some of the banks like HSBC and others, they’ve taken a bit of a beating from the Vincent report. Will this have a an impact on the rotation of play into the finance sector, do you think?

 

TN: I think it will certainly for those banks that have had issues around laundering money and other things, allegedly. Yeah, I think it’s a big problem because investors don’t want to invest in risk. There’s enough risk in their daily life. But for those banks who aren’t flagged, I think there’s a real opportunity for them. Unfortunately, the sector itself is having difficulties today. But you did see some movement in things like insurance and other things where you do see money moving in and looking at oil prices rising.

 

NL: U.S. oil inventories are keeping oil prices fairly subdued. Where do you see oil prices heading in the short term?

 

TN: We don’t see a lot of movement. You know, we see WTI in the high 30s, low 40s. We see Brent around the mid 40s. The problem is we just haven’t had that consumption rebound that’s needed to drive oil prices higher. There is a lot of discussion about a supply side issue going into the first half of next year that might push prices higher. I’m not entirely sure that that may happen. But even when we look at things like petrol prices, they’re probably 30 percent off of where they were a year ago.

 

And we really don’t expect that to change for six to 12 months.

 

LM: Thank you very much for speaking with us this morning, Tony. That was Tony Nash, chief economist and CEO of Complete Intelligence

Categories
Podcasts

US economy suffers sharpest contraction in decades

Tony Nash joins the BBC Business Matters to discuss the US economy contraction, Federal government’s cash subsidy, the upcoming US election and Trump’s issue on postal ballots, lithium batteries and electric vehicles, and Eid al-Adha.

 

This podcast first and originally appeared in BBC Business Matters at  https://www.bbc.co.uk/sounds/play/w172x18vhgd3z2p

 

BBC Notes

Official data shows that the world’s biggest economy contracted by 9.5% in three months. That’s worse than at any point since the US government started keeping quarterly records in 1947. We hear from Professor Tara Sinclair, an economist at George Washington University. Black Lives Matter protests have added to a continuing backlash against brands selling skin-whitening creams in South Asia; Nikhil Inamdar reports from Mumbai on an industry under threat. We talk to listener, Elizabeth Pendleton, in Colorado Springs about the unemployment picture in Colorado. The BBC’s Ed Butler reports on the world’s biggest lithium deposit; it’s in Bolivia and is worth billions of dollars to a world scrambling to reduce its reliance on carbon. Plus, we’re joined throughout the programme by Tony Nash, co-founder and Chief Economist at Complete Intelligence in Houston, Texas and from Lahore in Pakistan, Mehmal Safraz, co-founder of The Current PK.

 

Show Notes

 

BBC: Talk about Houston for us.

 

TN: Just on my block, I have 6 houses for sale. If that tells you anything about the oil and gas down turn as a result of COVID, we really are starting to see some action on the real estate side. It is a seasonal thing partly because of summer. But we are the epicenter of epicenter of oil and gas. And the oil and gas went to receptical in May. We’re still seeing the after-shock of that even though we’re back above $40 for WTI and Brent. Something interesting is that I’m speaking recently with somebody from Panama Canal today and they were telling me about the volume in trade and what they’ve seen. They’ve reflected what Samara said and that things kept slowing down until June and then in July, they’ve started to come back. I really thought that April and May was the worst of it, but things kept declining into June, which was really difficult.

 

BBC: And that shipping, of course, is a crucial indicator, because we can track not just what China is doing, what US is doing. We can follow everybody’s trade globally by watching those boats.

 

TN: That’s right. And this is not a market failure. This was governments pulling the plug on economies and we say that personal consumption fell by 25% in the first quarter. But it’s no surprise because nobody can get out of their house because restaurants were closed, etc. On one hand these are shocking numbers, but on the other hand they are not shocking numbers when states and local governments pull hte plug on economies and people cannot get out, then this really isn’t a surprise. To be honest, I’m surprised that more data isn’t as bad or worse than the US because there were harsher lockdowns in a lot of other countries. I don’t understand it on some level.

 

BBC: In Houston, are we rising predictably to debate as the president proposes another idea by tweet?

 

TN: It’s more about his objection to postal ballots than it is about election day because there is a recent study done by CBS News in the US looking at potential fraud around election ballots and they found that something like 3% of them didn’t even arrive to the person and then fraudelent ballots that looked like what they’ve sent out, could have been sent similarly. I think what Trump is doing is trying to get the discussion going about fraud around postal ballots more than moving the election.

 

BBC: Has it always been a relatively tiny minority voting by post apart from those early voting?

 

TN: Well he said, and he said this several times. He doesn’t have an issue with what’s called absentee balloting, which is a slightly different process. But with mass postal balloting, there are several states like Oregon that do mass postal balloting. But fraud in US elections has become a very big concern. In the last election, ballots were found in the back of people’s cars. There was a rental car that was returned with ballots in it. Fraud in US elections has become a very big concern and I think Trump is voicing that concern a lot of people.

 

BBC: In Texas, dig into the nitty gritty of the state level.

 

TN: What ends tomorrow in the US is Americans are getting $600 a week additional from the Federal government on top of the state funds, unemployment funds, that they get, which are lower, like $350 a week. The $600 a week is extraordinary. I know people who don’t even make that much money when they are working fulltime, who are getting $600 a week. But at the local level, the problem is, you have the state and local governments who are closing things down. But it’s actually the Feds who have had to pay more money and it’s a lot of money to help make up for the economic decisions that were made at the state and local level. This is really where, through the whole COVID thing, and I said this many, many times to people, the state and local governments don’t have the resources to pay back for the decisions taht they’ve made. The decisions are made at the lower level. But it’s really only the Fed who has the money to provide this level of income to allow the economy to keep moving forward.

 

TN: Obviously, the environment is a big concern. But I think the payoff is also a big concern. It really all depends on how quickly the battery industry grows. If the payback isn’t there, it’s like looking at the Tarzans in Canada. Relatively expensive way to pull up oil, but oil now is too cheap for the Tarzans to function. If they pull it out in a very expensive way, the question really is not just environmental sustainability but economic sustainability as well.

 

BBC: I take your point on the environment, but compared to some of the alternatives. What I thought I knew in places like the Democratic Republic of Congo had the lithium mines, which is the other resource to be tapped, leading to headlines a couple of years ago in Financial Times, “Congo child labor in you electric car”, makes up that whole sector really problematic.

 

TN: Absolutely. Look, if it’s a better way, it’s great. I mean, the problem then is the supply chains and figuring out how to get it to market, which those are never easy. But if it’s a better way, more humane, then great.

 

BBC: Were you surprised by the little footnote in the report that it’s China that has the downstream value chain sewn up.

 

TN: No, not at all. China has a very high profile electric car program. And really a lot of subsidies for electric vehicles. So that actually doesn’t surprise me at all. It is the largest market.

 

BBC: And this is why the developments happen, right? Because I read recently, I probably get the numbers slightly wrong, but it said there’s a new battery coming that can run something like a million miles over 16 years instead of a couple of hundred thousand miles in 5 years.

 

TN: Yeah. But people will get bored by their car by then. People want to sell their car after a couple hundred thousand miles. If it can change hands multiple times, great.

 

BBC: This is something not widely celebrated in the US, but certainly a lot of Muslims in the US will bring this extremely to heart today.

 

TN: Absolutely. And Houston is the most diverse city in the US, so we’ve got a very large Moslem population in Houston. I have friends in Austin who are celebrating, so it’s definitely all around here.

Categories
Podcasts

Message to Fed: More sugar please!

Tony joins BFM for another discussion on the US markets, this time, sending a message to Fed on what needs to be done. What he thinks will Powell do next and why is the Fed buying a lot of ETFs. Plus, a side topic on oil as Saudi called for a larger production cut.

 

Produced by: Michael Gong

 

Presented by: Roshan Kanesan, Noelle Lim, Khoo Hsu Chuang

 

This podcast is originally published by BFM 89.9: The Business Station.

 

 

Podcast Notes

 

BFM: The Fed chair, Jerome Powell, painted a rather negative view of the economy unless fiscal and monetary policymakers rise to the challenge. But what’s left in the toolbox, though?

 

TN: There’s quite a lot left, actually. We’ve seen a few trillion dollars spent. What we need to make sure is that that money actually gets out to businesses. So offering lower rates, nobody is really in a mood to borrow unless it’s forgivable. With the mandatory closing of a lot of small and mid-sized businesses, it’s really putting their revenue models in peril. Actually helping those businesses with cash to substitute for revenue, since this was a government shutdown, is really all they can do. But I think the next path is looking to medium-term spending programs like infrastructure. A number of these things that can go from direct cash payments to earned cash so that we can have a more viable economy again.

 

BFM: Could you elaborate more on some of the fiscal measures that you’re talking about?

 

TN: For small and mid-sized businesses, we’ve had things like the PPP, the Paycheck Protection Program. What that does is it gives about two and a half months’ worth of expenses to companies so that they can retain their staff and pay for their rent during the downtime. But what’s happened is not a lot of companies have been approved. Of those who’ve been approved, not all have gotten their money, a number of them are still waiting.

 

For small companies, they run on cash flow. They don’t have three to six months of cash sitting in the bank normally. So while they wait, they’re going bankrupt. They’re having to fire people. At the same time, we’re starting to see more and more large companies announce layoffs over the past two weeks. And so we’ve seen the devastation of a lot of small and mid-sized companies in the US. We’re starting to see that bleed into large corporate layoffs.

 

Those large companies want to see the expenses associated with those layoffs put into Q2. As we go through Q2, we’re expected to see more and more corporate layoffs, so that all those companies can pack them into their earnings reports for Q2.

 

BFM: The correction of the last couple of days, the American share market has been a bit of a test, up 30% since the March lows. A lot of billionaire investors like Stan Druckenmiller and Appaloosa management’s David Tepper say that stocks have been the most overvalued for a number of decades. What does that do for your thinking by way of your portfolio? Are you taking some money off the table? Are you getting more cautious? What are you going to do?

 

TN: The only thing we can really guarantee right now is volatility. And what is happening is they’re trying to find a new pricing level. Until we’ve found that new pricing level, really anything can happen.

 

What we’re entering right now is a phase where people are realizing that states may stay closed longer than many expected. I actually think you’re going to get a lot of push back from citizens in the U.S. Los Angeles just announced they are going to stay closed for three more months. You’re going to see a lot of unrest there. People are really pushing back because their hopes and dreams of decades of these small and mid-sized businesses are just being devastated as local officials make these decisions. I feel in the next few weeks, we’re going to see more and more people pushing back on those orders because they need to get back to work. They’ve got to run their companies. They’ve got to make some money.

 

BFM: That’s right. But this is an ongoing chasm between what’s happening on Wall Street, which is essentially a rally and Main Street, which is dying. People are divided over whether the policy response will be to get into the Fed buying equity market instruments on top of the junk ETFs and all the backstopping of the bond market. What’s your stance and what Jerome Powell is going to do next?

 

TN: They can do that. It’s certainly within their remit to lend money. The ETFs are kind of an indirect way to lend money. It’s radical, but it’s not beyond their capability. Where it looks like the Fed is going is with yield curve control. That means they’re likely to target a rate for the 10-year Treasury, and then they will spend almost unlimited cash to make sure that the rates stay there.

 

If the Treasury yield curve rises too much and people stop taking out long-term loans for infrastructure projects or for other things, if that rises too much, the Fed will push that yield curve down, let’s say, to a half percent rate so that people can borrow over long terms for cheaper. That’s the way for the Fed to encourage investing. That’s not a direct government fiscal policy, but it’s a way to get the private sector to spend cash. This is really for the larger, private sector companies. It’s a signal to me that the federal government itself is preparing itself to spend a lot more money in terms of fiscal policy, and also encourage the private sector to spend a lot more money on these long-term projects.

 

BFM: That is a theoretical concept, which hasn’t proved right in the last 10 years, because what corporations have done is that instead use that easy money to buy back shares and to return dividends to shareholders, not to invest for the long term. So that’s to be the problem.

 

TN: Well, either way, shareholders win, right? Either way, cash is spent or they get it in their return. U.S. equity markets are broadly held among most working Americans. So on some level, if that is done through share buybacks, it will help a broad base of shareholders through those equity prices. Share buybacks sound morally questionable, but either way that money is spent, it helps the broad economy.

 

BFM: So the U.S. Fed is now buying junk bonds, why ETF for the first time. Why these instruments? What’s the significance of it?

 

TN: They can’t invest directly in equities. Some of this stuff is a signal that they want to do more in debt markets. They’re too big to help out small companies. They’ve put together this main street lending program as a way to lend to, quote, unquote, small companies. But those small companies are actually pretty big. Most of the corporate entities in the U.S. are actually pretty small. The Fed is trying to alleviate the market of certain risk assets. I believe and hope that banks will lend to small and medium-sized companies. They’re trying to take the risk out of the market and off the balance sheets of banks so that those banks will invest more directly in actual operating companies that need the money and not necessarily the risky, junk bond companies.

 

BFM: A little bit on oil. Saudi Arabia has called for larger production cuts. Will the whole OPEC plus community back them? Should we expect some pushback? And what does this look like for oil prices?

 

TN: I don’t think you’re going to get a lot of pushback. We have about three months of crude supply overhang right now. Given that economies are locked down, there’s really no way to burn that off. So the only way to get prices back up to a sustainable level is really to cut off supply. Until the largest producers really slow down their production, and we can burn off some of that supply overhang, we’re not going to see prices rise much.

 

Demand’s not necessarily coming about quickly. It’s going to be gradual. As demand gradually accelerates and supply declines gradually, hopefully, we’ll meet in the middle somewhere and get a price that’s a little bit more livable for oil producers globally.

 

 

Categories
QuickHit Visual (Videos)

QuickHit: Oil companies will either shut-in or cut back, layoffs not done yet

We continue discussing oil companies this week with Tracy Shuchart, who is a portfolio manager and considered as one of the leading experts on crude trading. Tony Nash asked who is trading oil these days, why the oil went negative, and when can we see a bit of recovery for the industry? Most importantly, will layoffs continue, and at what pace?

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: Hi everyone. This is Tony with Complete Intelligence. We’re here doing a QuickHit, which is one of our quick discussions. Today, we are talking with Tracy Shuchart, who is a portfolio manager with a private equity fund and she is one of the foremost experts on crude trading. We’ve had a number of conversations with her already, and we’re really lucky to get a little bit of her time today.

 

Tracy, just a few days ago, I was talking with Vandana Hari, who was formerly a Research Scholar at Platts and knows everything about energy. She was telling me that there are three to four months of crude oil supply, and that’s the imbalance that we have in markets right now. That’s why we see WTI at less than 20 and these really difficult price hurdles for people to get over. Can you tell us who’s trading crude oil right now? Is it mom and pops? Is it professionals? What does that look like? And also, what will have to happen for those prices to rise, generally?

 

 

TS: Right. Right now, the USO had to get on the prep-month contracts.  

 

TN: Sorry, just to clarify for people who aren’t trading ETF’s. USO is a broadly traded energy ETF, and they’ve had a lot of problems with the structure of the futures that they trade. So they’ve had to push back the futures that they trade from the front month, which is the nearest month that’s traded to further back in a channel in hopes that the value of crude oil in the further of months trades higher than the current one. So they’ve done a lot of reconfiguration over the last few weeks. So sorry. I just wanted to explain that.

 

 

TS: That’s okay. They’re out of the front month. Bank of China just had a big problem when oil prices went negative. They had a lot of money in the front months. They’re out.

 

Most retail brokers are not allowing regular retail to be traded in the front couple months actually. All that you have trading front months are the big funds, anybody who’s been hedging and then maybe a bank or two. But it’s definitely not retail that’s in there, and there are a lot of big players now that are not in there.

 

When we get towards expiration, the problem is that most of the funds are pretty short and most of the hedgers are pretty short, and the banks are on the opposite side of that trade. But when we come to expiration, what I’m worried

about again is we’re going to have a no-bid scenario. We’re going to have that vacuum once again. You’re not going to have any natural buyers there.

 

 

TN: Okay. So the WTI traded in the US goes negative, but the WTI traded in London on the ICE doesn’t go negative.

 

 

TS: They just decided not to let that contract go negative. The difference between the contracts is the CME Group contract is physically deliverable, right? And ICE contract is a cash-settled contract. So they’re not going negative, but CME allowed this contract to go negative.

 

And they actually put out a notice about five days before that they were going to start letting some contracts go negative. This wasn’t a total surprise, as soon as I saw that, I thought it was going to go negative.

 

 

TN: Both you and I have told stories about how we had friends who wanted to trade. Like I had a couple of friends who wanted to triple long Crude ETF a week and a half before it went negative, and I said, “please, please don’t do that.” So grateful that neither of them did that because it could have been terrible.

 

So how do we clear this? We’ve got three-four months of oil just sitting around?

 

 

TS: If you talk to most of the big trading houses in Switzerland like Vitol, Trafigura, etc., basically their base case scenario, and they’re physical traders, their BEST scenario is it’ll be September before we get some sort of hints of a balance left.

 

So what is going to happen? There are either two things. We’re going to fill up storage, and then producers literally won’t have to shut it. There’s nowhere to put it, so they literally have to do what I call forced shut-ins. If you don’t want to shut-in, the market is going to force you to do that. That scenario is going to happen. Or we’re going to get a scenario where people decide to voluntarily cut back. Just look at the backend like CLR, Continental Resources just did that. They shut in about 30 percent of their production on the back end, and I think there’s about thirty-five to forty percent now that’s shut-in. And there are some other basins where that’s happening as well, in the Permian, etc.

 

 

TN: So that’s mostly people in the field they’ll probably let go. Will we see people at headquarters? Those CEOs or only those workers in the field?

 

 

TS: I think you’re going to see a broad range of layoffs. It’s already happening. You’ve already seen companies lay off a bunch of people… Halliburton’s laid off. Everybody’s laying off people. And they’re not just laying off field workers as they’re shutting rigs down, they’re cutting back on their office help, too.

 

And with the shutdown, it’s even more worrisome because maybe they figure out that, “we definitely don’t need this many people,” and all these people working remotely.

 

I don’t think that the layoffs are done yet. We’ve only had a couple of months of low oil prices. If this continues for another 3-4 months, we’re definitely in trouble.

 

 

TN: So is this time different? I mean if we were to stop today, and let’s say things come back to 30 bucks tomorrow, which they won’t. But if it stopped today, would the oil and gas industry look at this go, “Thank God we dodged that bullet, again?” Do they just go back to normal like nothing happened? Or if it were to stop today, would they say “Gosh, we really need to kind of reform who we are. Focus on productivity and become a modern business?” How long does it take for them to really make those realizations?

 

 

TS: I think what’s going to have to happen, which may not happen, is the money runs out, right?

 

So first, you had to ride the shale boom. All these banks throwing money on it. After 2016, things were easing up. So private equity guys got in there, and they threw a bunch of money at it. Basically, these guys are going to keep doing what they’re doing as long as they have a source of equity and a source of capital thrown at them all the time. As soon as that dries up, then they’ll be forced to delete and go out of business. We’re already seeing that happen. We’ve had over 200 bankruptcies just in the last four years alone, and this year we’re starting high. So they’re either going to go out of business — Chapter 7s, not 11s. And the thing is that with the big guys, like Chevron and Exxon that just entered into the Permian, they’re just waiting to chomp on some stranded assets.

 

So again, what it’s going to take is the money’s got to dry up or they go out of business. That’s the only way I really see them changing.

 

 

TN: Yeah and we’re just at the beginning, which is really hard to take because it’s tough. So Tracy I’d love to talk for a long, long time, you know that. But we’ve got to keep these short, so thanks so much for your time. I really appreciate your insights. We’ll come back to you again in another couple of weeks just to see where things are. I’m hoping things change. But I’m not certain that they will. So, we’ll be back in a couple of weeks and just see how things are.

 

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