May 10, 2021 • 25 mins
Founder and CEO of Infrastructure Capital Management, Jay Hatfield, discusses the effects of the Colonial Pipeline shutdown. Will Rhind, CEO of GraniteShares, discusses demand for commodities. Forge CEO, Kelly Rodriques talks SPACs, and how they've affected trading in private markets. George Bailey, Portfolio Manager: Investment Grade Credit at Aviva Investors, talks new issuance, and gives his outlook for credit markets. Hosted by Paul Sweeney and Matt Miller.
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Speaker 1 (00:00):
Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
my co host Matt Miller. Every business day we bring
you interviews from CEOs, market pros, and Bloomberg experts, along
with essential market moving news. Find the Bloomberg Markets Podcast
on Apple Podcasts or wherever you listen to podcasts, and
at Bloomberg dot com slash podcast. Well, a lot of
(00:21):
commodity strategies are telling folks, particularly on the East Coast,
to get ready to pay more for gas. And it's
not just because we're going into the summer driving season.
It's because we're gonna have a supply problem. Here. Colonial
pipeline shut down and that uh pipeline supplies most of
the East Coast, and let's get the latest on that.
We're uh pleased to have Jay Hatfield. He's a founder
(00:43):
and CEO of Infrastructure Capital Management. Jay, thanks so much
for joining us here. And again, you look at the
map of the Colonial pipeline and boy, it just goes
right up the Eastern seaboard, suggesting that the folks you
know on the East Coast are really gonna have some
supply issues. What do you how do you think this
is going to develop great, well, thanks for having me on. Well,
(01:05):
one thing that's important to note about UM products pipelines
is that they can be transported using surface transportation. It's
in other words, barges, UM rail and truck, So we
would we were expecting a fairly muted response, which is
(01:25):
what we're getting so far. So in fact, if you
want to look on the terminal cr c K, you're
only seeing about a thirty five cent increase in the
gasoline crack to New York Harbor, which makes sense because
of course that can be supplied by European refineries, where
(01:46):
what we just block us through the crack spread? What
is that? So it's just it's the profitability of refining
oil into UM gasoline in this in this case, and
so what we're not seeing on their screens oils a
little bit weak, and and our bob or the your
carber's moving up just a tiny bit. But what you
(02:07):
can't see on the screens is areas that UM are
less liquid and there's no trading, but for instance in
Tennessee and landlocked southeastern states, So there you're likely to
get some increase, but it's going to be kepped just
by shipping or transportation cost. So other than maybe a
few cases of hoarding, we don't expect any significant shortages.
(02:31):
But I think it does point out the vulnerability and
of the energy infrastructure, and in particular UM. More sensitive
systems are obviously electricity and to a lesser degree, natural gas,
which is what you saw in superstone Urie, where when
you have the electric market goes out, it tends to
(02:52):
shut down other things like natural gas production, whereas refined
products like as I mentioned, can be shipped using alternative methods. Jay,
what do you think the issue here is, I mean,
do you have any sense for the duration of the
shutdown and is there a point where it really does
(03:14):
become a supply problem? Well, it's it's the key issue
is UM safety. So it's the extent that the hack
gets into operational software and you have explosive fuels. It's
not like just bringing up a regular computer system. So
it's not exactly clear how long it could go. But
(03:36):
again it's other than some potential for hoarding, it shouldn't
be like when the refinery shut down in a hurricane,
we have an actual supply problem. It's just a logistics issue.
So it kind of it caps the the potential shortage
by the fact that you can just move the product
(03:57):
from different refineries, either in the West or overseas, so
we don't really see this as kept a catastrophe, just
perha some localized shortages. I've been trying to figure out
all day in terms of the nature of the commodities market,
why can't we price in um something like a demand
shock or a production squeeze ahead of the forecast x
(04:20):
anti so to speak. It doesn't seem like, you know,
if we all knew oil was going to be at
eight by the end of the year, why wouldn't it
go to eighty now? Well, and what app tends to
happened with the commodity markets is they develop momentum, either
downward or upward momentum. We saw the downward momentum last
(04:41):
year and we had negative forty oil. So usually they
tend tend to build and they're not going to really
have that um spike until we really see the demand. Specifically,
what we're watching is Europe. So Europe is about a
month find the US in terms of vaccinations, so we're
(05:03):
really predicting global travel getton if they do catch up
as we're expecting, and just the nature of commodity markets.
They don't, they don't. They're not really good at anticipation,
so it'll sort of happen when it happens. J, real quick,
thirty seconds kind of what's your call for oil here?
We've got a w T I crewed here at sixty
(05:23):
dollars fifty cents. Where do you think it is your
end um? We think that it'll trade in the seventy
eight dollar range with the potential for a superspike. And
the real reason behind that is um where we're calling
OPEC plus plus, which is constraint of the U S producers,
mostly due to the capital markets. So we think that
(05:43):
will drive prices higher than they've been since two thousand fourteen,
because ever since two thousand fourteen, the US has been
the swing producer. But now the companies have moved to
being more value type stocks, so they're not going to
ramp up production, which gives us chance for prices to
of higher. With if there is a supply disruption, not
(06:03):
so much just a transportation disruption, we could see, you know,
a possibility of a superspike, particularly during the summer. All right, Jay,
thanks so much for joining us. J Hatfield there, CEO
and founder of Infrastructure Capital Management. Let's get over right
now to Will Ride. He's the founder and CEO of
(06:25):
Grant Shares. They have over one and a half billion
dollars of assets under management. At the end of last
year they had that, and I'm sure they've been adding
to them. Will. Um. It's it's a fairly striking move
that I'm looking at right now in oil because, um,
you know the latest stories all say oil climbs with
gasolinea's cyber attack knocks out US pipeline. We know that
(06:49):
was the hot story of the of the weekend. But
now all of a sudden, I see Brent crude and
nim x w T I just coming down hard. I
mean the move is over a dollar in brand in
the last half hour along what's going on? Yeah, morning, UM.
I wouldn't make too much of the use of short
(07:09):
term moved this morning, because obviously we had a big
move over the last few days. More broadly, you know
this year. Um, but I think we could be reacting
a little bit in terms of an over shoot over
the news of the pipeline attack. Um, that we saw
you heading into into the weekend. Alright, So well, I'm
(07:30):
looking at my on my Bloomberg terminal g l CEO
Global commodity prices UM. I'm seeing twenty thirty increases when
I look at ENTER on a year to date basis,
increases when I look at energy, metals, agricultural. What are
we seeing here? Is this simply, you know, just the
bounce back play or is this something more structural in
(07:52):
commodities going forward? Yeah, I mean I think it's more structural.
I think that this is a new supercycle UM that
has started UM but is now in sort of full
blown mode here. Uh. And and the reason's kind of
twofold that there's no doubt that there are some bounce
(08:12):
back plays kind of going on here. I mean, clearly,
we had, you know, a hugely depressed situation last year
for commodity demand UM that is obviously coming back as
the world returns to somewhat of a normal mode, but
mobility basically increasing. And so we have a record highs
now and copper, we have iron ore highs, we have
(08:36):
steel prices on the rise at the all the energy
complex rising as well, and and that that's understandable because
that is the same theme as we're seeing with some
of the pandemic equity stocks that were badly affected last year.
But I think what's less talked about is, in my
mind the kind of the the bigger picture here, and
(08:56):
that is that there's been woful underinvestment in the commodities
sector for many, many years, and that's because of depressed
prices UM since the last peak of the last supercycle,
you know, around two thousand and eight. So with this
under investment, this under investment is now colliding with this
huge surgeon demand, causing in my mind, a new supercycle.
(09:21):
I think if the supercycle is not going to affect
all commodities uniformly UM, but as we transition as a
world to a green energy infrastructure, we're moving away from
hydrocarbons and we're moving to a green energy, sustainable future
that is creating and will create supercycle in many commodities
UM that are stands benefit most from this energy transition. Well,
(09:45):
I mean, it's not hard to to to believe that.
And frankly, we were hearing I've heard similar things from
others in the market. I was talking to Jeff Curry
to day from Goldman sachs Um and I think he
would agree what I don't really get is why, what's it?
What is it about the commodity market that means you
can't price in a demand shock and that kind of
under investment x anti Why why can't UM investors really
(10:09):
get ahead of these things? You know? Very early? Well,
I think that investors can get ahead of it. I mean,
it's it's one of these things where you know, right now,
you have in my mind a very um you know,
interesting phenomenal where commodities are out casting equities. So when
you have commodities outperforming stocks, that's typically, at least historically,
(10:34):
that's a harbinger of you know, higher inflation. That's not
necessarily good news for stocks. UM. We've add an environment
where commodities of underperformed equities for pretty much since the
last to the peak of two thousand and eight peak. UM.
So in my mind, this is, you know, something that
is real m for and a lot of investors hold
(10:56):
commodities strategically in the portfolio anyway for diversify reasons UM,
and so in this particular environment, I think people are
moving into commodities in a way that I certainly haven't
seen for a number of years to try and hedge
themselves against these inflationary risks that we're seeing. Will Ryan,
thank you so much for joining us. We always appreciate
(11:17):
getting your thoughts. Will Ryan. He's a founder and CEO
of Grantit Shares, giving us thoughts here about commodities. You know, again,
the question for a lot of folks is, uh, you know,
is this transitory? Are we seeing some of these gains
in commodity prices and therefore inflation as something that the
Photo Reserve would like to argue our transitory issues maybe
(11:37):
you know, going to the base effect where you're going
off a very very easy comps. Or is there something
more to this in terms of maybe as Will was
suggesting a supercycle in commodity prices which may bring some
troubling inflation back into the economy. So investors across our
border certainly paying attention to the commodity markets. Now, let's
(11:59):
talk about getting access to private companies. There is a
trading platform called Forge that allows investors to access private
markets UH and allows shareholders and investors in privately held
firms to liquidated a portion of their shares ahead of
I P O S or you know, spack um combinations.
(12:20):
Kelley Rodriguez joins us the CEO of Forge, Kelly, tell
us about your company, your platform and UM what kind
of growth you've seen in in this year of so
much activity. Yeah, sure, thank you guys for having me
on UM. This has been a very big year post
(12:41):
peak of the pandemic. We've seen the numbers expand dramatically.
We reported that we've just concluded the third record quarter
in a row in terms of liquidity and volume on
on Forge. I think we have also seen recently that
we closed the acquisition of our large as competitor, shares Post,
(13:01):
and that created really a central ecosystem player and Forge
for anybody that wants to buy or sell UM, that
wants data or who wants to custody their assets. So
we're really trying to create something for the broad market,
all right. Kelly talked to us about spacks. That's you know,
I've been in the investment business for over thirty years
(13:22):
and SPACs is the growth of SPACs over the past
twelve eight months has really got my attention. It's just exploded.
It's always kind of been out there, but it's just
really exploded over the last twelve months or so. How
has that impacted the liquidity event for a lot of
investors who might have typically used your platform to sell
stock and get some liquidity. Well, so two things. Interestingly,
(13:43):
the spacts are creating additional liquidity on Forge. So if
the company has announced such as Pioneer UH, you can
find buy and sell that spacking company before it's despact
on Ford. So it is bringing a hole another level
of liquidity for companies that aren't as big as the
(14:04):
previous sort of trend in pre i p O unicorns.
You know, if you take a look at the companies
that have been going public through direct listings or through
a conventional light PIO the last couple of years, these
companies are between nine and a hundred billion dollar valuation
companies in the private markets about six and twenty unicorns.
But the SPACs are coming out and filling a market
(14:25):
interest in the sort of low single digit billions, and
so really it just looks like UM an alternative form
of going public. I do think there's been a lot
of hype around this to last year, and you're gonna
start to see it settled down and more of a
move to quality. Would have been the most popular shares
traded on your platform, I mean pre I p O
(14:46):
you know private companies that I guess employees um have
have shares in and need liquidity, so they put them
out there. What do you where do you see the
most action? I mean, we have about four hundred companies
that have trade there on the platform, But the most
action isn't a company that's a large cap private that's
going to be public in the next day. So I
(15:08):
think Talentier back in Q three we did about five
hundred million dollars of Palenteer volume alone a sauna. Uh,
if you look at any of the companies that have
gone out Airbnb, just before they go, everybody wants a
piece of that that pre I p O company because
they know what's gonna be liquid it's just a matter
(15:29):
of the next sort of six ninety days to get
through their process. Ll give us a sense of how
the VC and private equity world has, you know, kind
of evolved over the past fourteen months as we dealt
with this pandemic, because ultimately, you know, those investors come
to you to get liquidity. What have you seen in
terms of you know, kind of that that VC market. Well,
(15:51):
I'm glad you're asking that question. We brought something to
market a little bit earlier last quarter that was called
Forge Company Solutions, and this really is meant to primarily
serve and put the control back into the company and
the vcs that backed them around how they're raising primary
(16:11):
or secondary capital. And this is a really important thing
because these companies are now staying private for so long
the employee basis and the venture capital funds who have
seven to ten year lives are extending beyond the life
of their funds and beyond the vesting schedule of their employees.
So they need liquidity. They need capital, uh, to last
(16:35):
and to go ten to fifteen years. I think Palanteer
was a fifteen to seventeen year old company when it
finally went. So they're embracing this because look, it's an
employee benefit. You're gonna work for a company for ten
years privately, and you need liquidity to pay for a
house or send your kids to college. I think Forge
is the platform that puts that company in that DC
in control to manage that. So, um, when you look
(17:01):
at the public markets, Um, what difference do you think
of Forge makes in terms of the way the public
markets then evolve. Well, it's interesting, there's some definite blurring
of the lines in the last few years of a
company can stay private longer and raise the kind of
capital that you're seeing now happening. You're sitting rounds in
(17:23):
the several hundred million rounds that are the size of
what an I t O used to look like ten
fifteen years ago. A company can stay private longer and
really set a different path in terms of strategic investing
longer term value. And so the dynamic of being public
really creates a different shorter term quarterly dynamic around the
(17:46):
shareholding UH and the objectives of the company. And many
managers and CEOs of private companies, myself included, want to
have the ability to invest long term, and if you've
got capital available to you in the private markets, you're
gonna stay private longer. Kelly Rodriguez, thank you so much
for joining us. We always appreciate chattingthew Kelly Rodriguez, he's
(18:07):
a CEO of FOURD You giving a sense of how
you know, in private investors are looking for liquidity, and
some of these venture backed and private equity backed firms,
as they wait longer and longer to go public, they're
able to trade their shares or private chairs on the
private market and Forge does that. This is Bloomberg. Now
(18:30):
I want to bring in George Bailey right now. He's
a portfolio manager of I G Credit at Aviva Investors.
And George, let's let's start just by talking about the issuance.
It's been insane. I think I read a little bit
earlier that issuance at this point in the year is
the second highest we've seen it since two thousand ten.
Um Is this just companies that want to get out
(18:52):
and get some money in the low rate environment? Do
they see it rising soon? Yeah? I think that is
a big pot of I mean, we're twenty seventh cent
behind the place we saw last year, but yeah, you're right,
if you go back to previous years, we're about almost
ahead of the ten pace. So I think that is
(19:13):
a big part of it. If if you're a corporation
and you expect high yields going forward, it makes sense.
Just the issue debt today, especially if you're trying to refinance,
trying to end debt rolling off and an issue longer
term debt, that just makes more sense. George, What do
you make of it when a company like Amazon announces
a bond offering today and we don't know the amount yet,
(19:35):
that's not been disclosed, but you know they've got a
jillion dollars of cash on the bounty. They spew incredible
amounts of free cash flow. They have no real use
for the proceeds. What's it tell you when and Amazon
dot Com comes to your market. We've seen a few
deals this year and even last year actually after the
(19:55):
you know, after the pandemic in sort of April May
sort of time, um where you do see a big
corporations that don't necessarily need to issue debt. They have
the cash on their balance sheet, but they do it because,
like you said, it's just cheap financing for them. Um.
So if they can raise the money via the debt markets,
then it just makes sense and have that cash as
a buffer on the balance sheet. Now no, now that
(20:16):
being said, that is part of what we're looking at.
So when they issue debt and you raise cash in
your balance sheet, it's it's as a credit investor, you're
really asking what are they doing with that cash? Are
they giving it back to the shareholders? Are they engaging
the m and A? So really that is the focus
going forward. What are you doing as a credit investor?
I mean, what what moves can you make right now
(20:38):
with fresh money? Can you can you find value out
there or can you only hope to I guess preserve
your capital. Yeah, evaluation doesn't matter what asset class. Year.
In a moment, it seems evaluations are tough to come by.
There are pockets of investment grade we like, so banking
in particular, they've just got done a lot of supply
(21:00):
and we've got that out of the way, so so
that's nice. And also telecom to so with those big
supply overhangs out the way, we do see value their
further out the curve um. But yeah, also in high
yield aswell. If you look at triple bees, so the
lower part of investment great quality versus say double bees,
the higher quality part of the high yield market, we
(21:20):
do see value there in the front. And where you're
you're picking yield, is it's worth it for a similar
risk profile, similar fundamentals, just dipping down into that high
yield space. George talked to us about credit quality. Here.
We're fourteen months into this pandemic and the economic shock
that it it caused. Are you seeing material deterioration in
certain parts of the portfolio. Not really. The fundamentals are
(21:46):
holding up, and I think that will be the case
going forward, at least over the near future, while the
macro backdrop remains strong. Um So, while we have all
the doubst duo with yelling and power and then just
the macro factors coming through. We have a few prints
coming this week with retail sales and other points. I
think if if the macro back that it should just
(22:06):
stay strong. I don't think we'll see many cracks in
the fundamentals. The other big part of it as well
as the markets will just remain open. I mean what
you've been talking about, their just the amount of supply
we've seen this year. If the markets remain open and
corporations can do that, then that really just keeps the
fundamentals strong. So it's no really cracks to speak of
our moment. And default rates also remain pretty manageable. I
(22:29):
guess visibility is good as long as vaccinations continue to increase, right,
that's got to be the key, the keystone of the
economic recovering. Yeah, and we've seen a lot of credit
strategists points of those sort of data points. Now, it's
not it's not just looking at the fundamentals or corporations.
It's okay, let's look at the vaccine rollout, let's look
(22:52):
at the cases, let's look at hospital beds. Um. So
it's all different data points now, isn't just the fundamentals
of a corporation? All right, George? The FED has signaled
lower for longer, yet there are some inflation pressures. What
are you baking into your base cases to the FEDS moves. Yeah,
(23:13):
We're started to see that come through a bit in
the data, these inflationary pressure pressures. And you only need
to look at the commodity prices over the last six
months or so, they've doubled, two quadrupled in some places.
We've seen that come through there, and then we started
to see it a bit on Friday's non farm payrolls report,
some wage inflation coming through. So yeah, it's definitely a concern.
(23:34):
I think if it stays around sort of the three
percent level where the FED wants to see inflation growth
but not know out of hand, UM, I think that
is good for just global growth, and we could see
yields move a bit higher. Um. But I think we
need to just look at some more data points and
going forward to see if this really is trans transitory
or or whether it could just be more sustained. George,
(23:56):
I wonder you're a cf A. How much harder do
you think it is to get now than when when
Paul took the test? Well, it's much harder back then,
you know, of course, Yeah, we had to go we
had to go walk uphill both ways to get to
the to the testing site. Uh. And aren't they making
it more difficult now? I don't know. I don't know
(24:17):
if they are. Um, it's certainly it's going all digital.
I know that that that that's the big change. So
making changing with the times. George Bailey, thanks so much
for joining us there. George Bailey, he's a portfolio manager
covering the investment grade market for Aviva Investors, getting his
thoughts on these markets here. Credit quality holding in their
fundamentals remain solid. The FED remains on the sideline to
(24:39):
search is four yield. This is Bloomberg. Thanks for listening
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I'm Matt Miller. I'm on Twitter at Matt Miller three
put on boul Sweeney. I'm on Twitter at pt Sweeney
Before the podcast. You can always catch us worldwide at
(25:01):
Bloomberg Radio m
Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
my co host Matt Miller. Every business day we bring
you interviews from CEOs, market pros, and Bloomberg experts, along
with essential market moving news. Find the Bloomberg Markets Podcast
on Apple Podcasts or wherever you listen to podcasts, and
at Bloomberg dot com slash podcast. Well, a lot of
(00:21):
commodity strategies are telling folks, particularly on the East Coast,
to get ready to pay more for gas. And it's
not just because we're going into the summer driving season.
It's because we're gonna have a supply problem. Here. Colonial
pipeline shut down and that uh pipeline supplies most of
the East Coast, and let's get the latest on that.
We're uh pleased to have Jay Hatfield. He's a founder
(00:43):
and CEO of Infrastructure Capital Management. Jay, thanks so much
for joining us here. And again, you look at the
map of the Colonial pipeline and boy, it just goes
right up the Eastern seaboard, suggesting that the folks you
know on the East Coast are really gonna have some
supply issues. What do you how do you think this
is going to develop great, well, thanks for having me on. Well,
(01:05):
one thing that's important to note about UM products pipelines
is that they can be transported using surface transportation. It's
in other words, barges, UM rail and truck, So we
would we were expecting a fairly muted response, which is
(01:25):
what we're getting so far. So in fact, if you
want to look on the terminal cr c K, you're
only seeing about a thirty five cent increase in the
gasoline crack to New York Harbor, which makes sense because
of course that can be supplied by European refineries, where
(01:46):
what we just block us through the crack spread? What
is that? So it's just it's the profitability of refining
oil into UM gasoline in this in this case, and
so what we're not seeing on their screens oils a
little bit weak, and and our bob or the your
carber's moving up just a tiny bit. But what you
(02:07):
can't see on the screens is areas that UM are
less liquid and there's no trading, but for instance in
Tennessee and landlocked southeastern states, So there you're likely to
get some increase, but it's going to be kepped just
by shipping or transportation cost. So other than maybe a
few cases of hoarding, we don't expect any significant shortages.
(02:31):
But I think it does point out the vulnerability and
of the energy infrastructure, and in particular UM. More sensitive
systems are obviously electricity and to a lesser degree, natural gas,
which is what you saw in superstone Urie, where when
you have the electric market goes out, it tends to
(02:52):
shut down other things like natural gas production, whereas refined
products like as I mentioned, can be shipped using alternative methods. Jay,
what do you think the issue here is, I mean,
do you have any sense for the duration of the
shutdown and is there a point where it really does
(03:14):
become a supply problem? Well, it's it's the key issue
is UM safety. So it's the extent that the hack
gets into operational software and you have explosive fuels. It's
not like just bringing up a regular computer system. So
it's not exactly clear how long it could go. But
(03:36):
again it's other than some potential for hoarding, it shouldn't
be like when the refinery shut down in a hurricane,
we have an actual supply problem. It's just a logistics issue.
So it kind of it caps the the potential shortage
by the fact that you can just move the product
(03:57):
from different refineries, either in the West or overseas, so
we don't really see this as kept a catastrophe, just
perha some localized shortages. I've been trying to figure out
all day in terms of the nature of the commodities market,
why can't we price in um something like a demand
shock or a production squeeze ahead of the forecast x
(04:20):
anti so to speak. It doesn't seem like, you know,
if we all knew oil was going to be at
eight by the end of the year, why wouldn't it
go to eighty now? Well, and what app tends to
happened with the commodity markets is they develop momentum, either
downward or upward momentum. We saw the downward momentum last
(04:41):
year and we had negative forty oil. So usually they
tend tend to build and they're not going to really
have that um spike until we really see the demand. Specifically,
what we're watching is Europe. So Europe is about a
month find the US in terms of vaccinations, so we're
(05:03):
really predicting global travel getton if they do catch up
as we're expecting, and just the nature of commodity markets.
They don't, they don't. They're not really good at anticipation,
so it'll sort of happen when it happens. J, real quick,
thirty seconds kind of what's your call for oil here?
We've got a w T I crewed here at sixty
(05:23):
dollars fifty cents. Where do you think it is your
end um? We think that it'll trade in the seventy
eight dollar range with the potential for a superspike. And
the real reason behind that is um where we're calling
OPEC plus plus, which is constraint of the U S producers,
mostly due to the capital markets. So we think that
(05:43):
will drive prices higher than they've been since two thousand fourteen,
because ever since two thousand fourteen, the US has been
the swing producer. But now the companies have moved to
being more value type stocks, so they're not going to
ramp up production, which gives us chance for prices to
of higher. With if there is a supply disruption, not
(06:03):
so much just a transportation disruption, we could see, you know,
a possibility of a superspike, particularly during the summer. All right, Jay,
thanks so much for joining us. J Hatfield there, CEO
and founder of Infrastructure Capital Management. Let's get over right
now to Will Ride. He's the founder and CEO of
(06:25):
Grant Shares. They have over one and a half billion
dollars of assets under management. At the end of last
year they had that, and I'm sure they've been adding
to them. Will. Um. It's it's a fairly striking move
that I'm looking at right now in oil because, um,
you know the latest stories all say oil climbs with
gasolinea's cyber attack knocks out US pipeline. We know that
(06:49):
was the hot story of the of the weekend. But
now all of a sudden, I see Brent crude and
nim x w T I just coming down hard. I
mean the move is over a dollar in brand in
the last half hour along what's going on? Yeah, morning, UM.
I wouldn't make too much of the use of short
(07:09):
term moved this morning, because obviously we had a big
move over the last few days. More broadly, you know
this year. Um, but I think we could be reacting
a little bit in terms of an over shoot over
the news of the pipeline attack. Um, that we saw
you heading into into the weekend. Alright, So well, I'm
(07:30):
looking at my on my Bloomberg terminal g l CEO
Global commodity prices UM. I'm seeing twenty thirty increases when
I look at ENTER on a year to date basis,
increases when I look at energy, metals, agricultural. What are
we seeing here? Is this simply, you know, just the
bounce back play or is this something more structural in
(07:52):
commodities going forward? Yeah, I mean I think it's more structural.
I think that this is a new supercycle UM that
has started UM but is now in sort of full
blown mode here. Uh. And and the reason's kind of
twofold that there's no doubt that there are some bounce
(08:12):
back plays kind of going on here. I mean, clearly,
we had, you know, a hugely depressed situation last year
for commodity demand UM that is obviously coming back as
the world returns to somewhat of a normal mode, but
mobility basically increasing. And so we have a record highs
now and copper, we have iron ore highs, we have
(08:36):
steel prices on the rise at the all the energy
complex rising as well, and and that that's understandable because
that is the same theme as we're seeing with some
of the pandemic equity stocks that were badly affected last year.
But I think what's less talked about is, in my
mind the kind of the the bigger picture here, and
(08:56):
that is that there's been woful underinvestment in the commodities
sector for many, many years, and that's because of depressed
prices UM since the last peak of the last supercycle,
you know, around two thousand and eight. So with this
under investment, this under investment is now colliding with this
huge surgeon demand, causing in my mind, a new supercycle.
(09:21):
I think if the supercycle is not going to affect
all commodities uniformly UM, but as we transition as a
world to a green energy infrastructure, we're moving away from
hydrocarbons and we're moving to a green energy, sustainable future
that is creating and will create supercycle in many commodities
UM that are stands benefit most from this energy transition. Well,
(09:45):
I mean, it's not hard to to to believe that.
And frankly, we were hearing I've heard similar things from
others in the market. I was talking to Jeff Curry
to day from Goldman sachs Um and I think he
would agree what I don't really get is why, what's it?
What is it about the commodity market that means you
can't price in a demand shock and that kind of
under investment x anti Why why can't UM investors really
(10:09):
get ahead of these things? You know? Very early? Well,
I think that investors can get ahead of it. I mean,
it's it's one of these things where you know, right now,
you have in my mind a very um you know,
interesting phenomenal where commodities are out casting equities. So when
you have commodities outperforming stocks, that's typically, at least historically,
(10:34):
that's a harbinger of you know, higher inflation. That's not
necessarily good news for stocks. UM. We've add an environment
where commodities of underperformed equities for pretty much since the
last to the peak of two thousand and eight peak. UM.
So in my mind, this is, you know, something that
is real m for and a lot of investors hold
(10:56):
commodities strategically in the portfolio anyway for diversify reasons UM,
and so in this particular environment, I think people are
moving into commodities in a way that I certainly haven't
seen for a number of years to try and hedge
themselves against these inflationary risks that we're seeing. Will Ryan,
thank you so much for joining us. We always appreciate
(11:17):
getting your thoughts. Will Ryan. He's a founder and CEO
of Grantit Shares, giving us thoughts here about commodities. You know, again,
the question for a lot of folks is, uh, you know,
is this transitory? Are we seeing some of these gains
in commodity prices and therefore inflation as something that the
Photo Reserve would like to argue our transitory issues maybe
(11:37):
you know, going to the base effect where you're going
off a very very easy comps. Or is there something
more to this in terms of maybe as Will was
suggesting a supercycle in commodity prices which may bring some
troubling inflation back into the economy. So investors across our
border certainly paying attention to the commodity markets. Now, let's
(11:59):
talk about getting access to private companies. There is a
trading platform called Forge that allows investors to access private
markets UH and allows shareholders and investors in privately held
firms to liquidated a portion of their shares ahead of
I P O S or you know, spack um combinations.
(12:20):
Kelley Rodriguez joins us the CEO of Forge, Kelly, tell
us about your company, your platform and UM what kind
of growth you've seen in in this year of so
much activity. Yeah, sure, thank you guys for having me
on UM. This has been a very big year post
(12:41):
peak of the pandemic. We've seen the numbers expand dramatically.
We reported that we've just concluded the third record quarter
in a row in terms of liquidity and volume on
on Forge. I think we have also seen recently that
we closed the acquisition of our large as competitor, shares Post,
(13:01):
and that created really a central ecosystem player and Forge
for anybody that wants to buy or sell UM, that
wants data or who wants to custody their assets. So
we're really trying to create something for the broad market,
all right. Kelly talked to us about spacks. That's you know,
I've been in the investment business for over thirty years
(13:22):
and SPACs is the growth of SPACs over the past
twelve eight months has really got my attention. It's just exploded.
It's always kind of been out there, but it's just
really exploded over the last twelve months or so. How
has that impacted the liquidity event for a lot of
investors who might have typically used your platform to sell
stock and get some liquidity. Well, so two things. Interestingly,
(13:43):
the spacts are creating additional liquidity on Forge. So if
the company has announced such as Pioneer UH, you can
find buy and sell that spacking company before it's despact
on Ford. So it is bringing a hole another level
of liquidity for companies that aren't as big as the
(14:04):
previous sort of trend in pre i p O unicorns.
You know, if you take a look at the companies
that have been going public through direct listings or through
a conventional light PIO the last couple of years, these
companies are between nine and a hundred billion dollar valuation
companies in the private markets about six and twenty unicorns.
But the SPACs are coming out and filling a market
(14:25):
interest in the sort of low single digit billions, and
so really it just looks like UM an alternative form
of going public. I do think there's been a lot
of hype around this to last year, and you're gonna
start to see it settled down and more of a
move to quality. Would have been the most popular shares
traded on your platform, I mean pre I p O
(14:46):
you know private companies that I guess employees um have
have shares in and need liquidity, so they put them
out there. What do you where do you see the
most action? I mean, we have about four hundred companies
that have trade there on the platform, But the most
action isn't a company that's a large cap private that's
going to be public in the next day. So I
(15:08):
think Talentier back in Q three we did about five
hundred million dollars of Palenteer volume alone a sauna. Uh,
if you look at any of the companies that have
gone out Airbnb, just before they go, everybody wants a
piece of that that pre I p O company because
they know what's gonna be liquid it's just a matter
(15:29):
of the next sort of six ninety days to get
through their process. Ll give us a sense of how
the VC and private equity world has, you know, kind
of evolved over the past fourteen months as we dealt
with this pandemic, because ultimately, you know, those investors come
to you to get liquidity. What have you seen in
terms of you know, kind of that that VC market. Well,
(15:51):
I'm glad you're asking that question. We brought something to
market a little bit earlier last quarter that was called
Forge Company Solutions, and this really is meant to primarily
serve and put the control back into the company and
the vcs that backed them around how they're raising primary
(16:11):
or secondary capital. And this is a really important thing
because these companies are now staying private for so long
the employee basis and the venture capital funds who have
seven to ten year lives are extending beyond the life
of their funds and beyond the vesting schedule of their employees.
So they need liquidity. They need capital, uh, to last
(16:35):
and to go ten to fifteen years. I think Palanteer
was a fifteen to seventeen year old company when it
finally went. So they're embracing this because look, it's an
employee benefit. You're gonna work for a company for ten
years privately, and you need liquidity to pay for a
house or send your kids to college. I think Forge
is the platform that puts that company in that DC
in control to manage that. So, um, when you look
(17:01):
at the public markets, Um, what difference do you think
of Forge makes in terms of the way the public
markets then evolve. Well, it's interesting, there's some definite blurring
of the lines in the last few years of a
company can stay private longer and raise the kind of
capital that you're seeing now happening. You're sitting rounds in
(17:23):
the several hundred million rounds that are the size of
what an I t O used to look like ten
fifteen years ago. A company can stay private longer and
really set a different path in terms of strategic investing
longer term value. And so the dynamic of being public
really creates a different shorter term quarterly dynamic around the
(17:46):
shareholding UH and the objectives of the company. And many
managers and CEOs of private companies, myself included, want to
have the ability to invest long term, and if you've
got capital available to you in the private markets, you're
gonna stay private longer. Kelly Rodriguez, thank you so much
for joining us. We always appreciate chattingthew Kelly Rodriguez, he's
(18:07):
a CEO of FOURD You giving a sense of how
you know, in private investors are looking for liquidity, and
some of these venture backed and private equity backed firms,
as they wait longer and longer to go public, they're
able to trade their shares or private chairs on the
private market and Forge does that. This is Bloomberg. Now
(18:30):
I want to bring in George Bailey right now. He's
a portfolio manager of I G Credit at Aviva Investors.
And George, let's let's start just by talking about the issuance.
It's been insane. I think I read a little bit
earlier that issuance at this point in the year is
the second highest we've seen it since two thousand ten.
Um Is this just companies that want to get out
(18:52):
and get some money in the low rate environment? Do
they see it rising soon? Yeah? I think that is
a big pot of I mean, we're twenty seventh cent
behind the place we saw last year, but yeah, you're right,
if you go back to previous years, we're about almost
ahead of the ten pace. So I think that is
(19:13):
a big part of it. If if you're a corporation
and you expect high yields going forward, it makes sense.
Just the issue debt today, especially if you're trying to refinance,
trying to end debt rolling off and an issue longer
term debt, that just makes more sense. George, What do
you make of it when a company like Amazon announces
a bond offering today and we don't know the amount yet,
(19:35):
that's not been disclosed, but you know they've got a
jillion dollars of cash on the bounty. They spew incredible
amounts of free cash flow. They have no real use
for the proceeds. What's it tell you when and Amazon
dot Com comes to your market. We've seen a few
deals this year and even last year actually after the
(19:55):
you know, after the pandemic in sort of April May
sort of time, um where you do see a big
corporations that don't necessarily need to issue debt. They have
the cash on their balance sheet, but they do it because,
like you said, it's just cheap financing for them. Um.
So if they can raise the money via the debt markets,
then it just makes sense and have that cash as
a buffer on the balance sheet. Now no, now that
(20:16):
being said, that is part of what we're looking at.
So when they issue debt and you raise cash in
your balance sheet, it's it's as a credit investor, you're
really asking what are they doing with that cash? Are
they giving it back to the shareholders? Are they engaging
the m and A? So really that is the focus
going forward. What are you doing as a credit investor?
I mean, what what moves can you make right now
(20:38):
with fresh money? Can you can you find value out
there or can you only hope to I guess preserve
your capital. Yeah, evaluation doesn't matter what asset class. Year.
In a moment, it seems evaluations are tough to come by.
There are pockets of investment grade we like, so banking
in particular, they've just got done a lot of supply
(21:00):
and we've got that out of the way, so so
that's nice. And also telecom to so with those big
supply overhangs out the way, we do see value their
further out the curve um. But yeah, also in high
yield aswell. If you look at triple bees, so the
lower part of investment great quality versus say double bees,
the higher quality part of the high yield market, we
(21:20):
do see value there in the front. And where you're
you're picking yield, is it's worth it for a similar
risk profile, similar fundamentals, just dipping down into that high
yield space. George talked to us about credit quality. Here.
We're fourteen months into this pandemic and the economic shock
that it it caused. Are you seeing material deterioration in
certain parts of the portfolio. Not really. The fundamentals are
(21:46):
holding up, and I think that will be the case
going forward, at least over the near future, while the
macro backdrop remains strong. Um So, while we have all
the doubst duo with yelling and power and then just
the macro factors coming through. We have a few prints
coming this week with retail sales and other points. I
think if if the macro back that it should just
(22:06):
stay strong. I don't think we'll see many cracks in
the fundamentals. The other big part of it as well
as the markets will just remain open. I mean what
you've been talking about, their just the amount of supply
we've seen this year. If the markets remain open and
corporations can do that, then that really just keeps the
fundamentals strong. So it's no really cracks to speak of
our moment. And default rates also remain pretty manageable. I
(22:29):
guess visibility is good as long as vaccinations continue to increase, right,
that's got to be the key, the keystone of the
economic recovering. Yeah, and we've seen a lot of credit
strategists points of those sort of data points. Now, it's
not it's not just looking at the fundamentals or corporations.
It's okay, let's look at the vaccine rollout, let's look
(22:52):
at the cases, let's look at hospital beds. Um. So
it's all different data points now, isn't just the fundamentals
of a corporation? All right, George? The FED has signaled
lower for longer, yet there are some inflation pressures. What
are you baking into your base cases to the FEDS moves. Yeah,
(23:13):
We're started to see that come through a bit in
the data, these inflationary pressure pressures. And you only need
to look at the commodity prices over the last six
months or so, they've doubled, two quadrupled in some places.
We've seen that come through there, and then we started
to see it a bit on Friday's non farm payrolls report,
some wage inflation coming through. So yeah, it's definitely a concern.
(23:34):
I think if it stays around sort of the three
percent level where the FED wants to see inflation growth
but not know out of hand, UM, I think that
is good for just global growth, and we could see
yields move a bit higher. Um. But I think we
need to just look at some more data points and
going forward to see if this really is trans transitory
or or whether it could just be more sustained. George,
(23:56):
I wonder you're a cf A. How much harder do
you think it is to get now than when when
Paul took the test? Well, it's much harder back then,
you know, of course, Yeah, we had to go we
had to go walk uphill both ways to get to
the to the testing site. Uh. And aren't they making
it more difficult now? I don't know. I don't know
(24:17):
if they are. Um, it's certainly it's going all digital.
I know that that that that's the big change. So
making changing with the times. George Bailey, thanks so much
for joining us there. George Bailey, he's a portfolio manager
covering the investment grade market for Aviva Investors, getting his
thoughts on these markets here. Credit quality holding in their
fundamentals remain solid. The FED remains on the sideline to
(24:39):
search is four yield. This is Bloomberg. Thanks for listening
to the Bloomberg Markets podcast. You can subscribe and listen
to interviews with Apple Podcasts or whatever podcast platform you prefer.
I'm Matt Miller. I'm on Twitter at Matt Miller three
put on boul Sweeney. I'm on Twitter at pt Sweeney
Before the podcast. You can always catch us worldwide at
(25:01):
Bloomberg Radio m
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