00:00We got to start with the, I keep calling it the backdrop to the trade, but that's what it is.
00:04And it's high energy prices.
00:05And it does seem like traders are looking beyond the war, yet it's hard for a lot of people to
00:11say there is a clear end to this.
00:13How are you looking at that?
00:14Thanks for having me on, Tim and Carol.
00:16Well, we do a ton of research on energy.
00:19I founded an energy company, and our first ETF, AMZA, is a pipeline company.
00:24So we have a global supply and demand model.
00:27And so the way we framed it is there's a good rule of thumb that works extraordinarily well, which is
00:32every million barrels of lost capacity is $5.
00:38So if you frame it that way, if the trade was shut down forever, then the oil price would be
00:44about $140 a barrel.
00:46Because, you know, there's elasticities of demand or sensitivity and supply.
00:52And, you know, we started out roughly at $60.
00:54And so our point since the beginning of the war is that 100 is probably going to be an inflection
00:59point.
01:00Because there's almost 100% certainty at some point the strait will reopen.
01:05You essentially have every country in the world who wants to have it open.
01:10Now Iran.
01:11So we think that's a good strategy to blockade.
01:14Probably not Russia, but that's not that important.
01:16So what we always try to do is look longer term.
01:20So at some point the strait's going to be open.
01:23And so we're bullish long term.
01:24And we were bullish in mid-March because there's a cycle of fear and greed.
01:31So greed occurs during earnings season, like now.
01:34And fear occurs when there's no earnings and you have hedge funds and other momentum investors typically overshorting stocks, like
01:43KKR, for instance, in our opinion.
01:46And a lot of the tech companies.
01:48So that's why we all have jobs, is that you have these inefficiencies in the markets.
01:53So you're saying, though, longer term, you assume, and you assume this year, that the strait will reopen.
02:00And probably sooner rather than later, in your view.
02:02Because it is, Iran is feeling the pressure, the price.
02:06And even though we had an earlier guest who said they're used to an economy that's just decimated and having
02:13problems.
02:14And so maybe their threshold for pain is greater.
02:17There's a reality that they need the strait open.
02:20Absolutely.
02:21And the other Middle Eastern countries do.
02:24Pakistan, once it opened, they're mediating.
02:26So we just try to stick to the most likely case and not all these outlier cases like, oh, the
02:31strait never reopens and we'll sell all of our stocks.
02:34And then you miss out on big rallies.
02:36I think the concern for some people is the strait opens, but Iran continues enriching uranium.
02:41And the U.S. and Israel don't want to see that happen.
02:44Right.
02:45So then you're sort of back to this, what you had before the war, yet the leadership in Iran has
02:53been decapitated by whatever measure you want to use.
02:57And that economy has been severely destroyed.
03:02And you have a military operation that has cost the U.S. untold hundreds of billions of dollars, tens of
03:08billions of dollars at this point.
03:09Well, the way we see it unfolding is we do think it's a good strategy to blockade the strait.
03:15So we actually went long the futures when they were off 70 handles over the weekend.
03:19I think it was last weekend or the weekend before.
03:22But if that doesn't work, we think that the strait will be reopened by force, possibly using ground troops.
03:29Really?
03:29So that there isn't going to be a case where the uranium still stays there that will destroy their energy
03:35infrastructure, use ground troops, and just open it up.
03:37So it escalates.
03:38Right.
03:39Before it ends.
03:39Yeah, so that would be a negative inflection for the market.
03:42We kind of saw that yesterday.
03:44How negative, though, and how long does it last?
03:47Because of this target and the fundamentals which we can get into, we think it'll be a pretty shallow dip
03:52like it really was.
03:53Like, actually, March's activity in the stock market was super bullish because that's the best you can do for a
04:00sell-off, in the U.S., at least.
04:03Then that means that we're probably going to go higher when things settle down.
04:06So that's why you're holding to that 8,000 target.
04:08Well, actually, you know, it's valuable to come on and do appearances because I don't really always love doing appearances,
04:15so I try to have good data.
04:17So I use this thing.
04:19I don't know if you're aware of it, but it's called the Bloomberg Terminal, and you can get consensus.
04:23Know it well and love it well.
04:24Yeah, and so, and it's sort of definitive because people like me use it, so, and there's a great function,
04:31SPX Index EEO Go, and I set it to annual, and I said, oh, my God.
04:37I mean, of course, we should do this more often.
04:39We based our 8,000 target on 350, and it's now 375, and you can even click on it.
04:46I'm doing that now, and you get this fabulous chart of what happened, and you see the, I guess it's
04:54the yellow line.
04:55No, it's the purple line.
04:57It just took off like a rocket.
04:59And so, actually, my 8,000 target is conservative based on our assumptions about interest rates.
05:06So at 375, if we get there, we're far away, we would be, our target would go up to 8
05:12,600.
05:13So we think 8,000 is easy now, even at today's rates, and so it's critical to stay on top,
05:19and we do believe in consensus.
05:21We don't, we're not like a lot of strategies to say, oh, well, we're bearish on earnings, and we're going
05:25to haircut it.
05:26Like, that's the consensus.
05:27It's on the terminal, so everybody's looking at it.
05:30So, to be fair, it's earnings, it's fundamentally based.
05:33You're just looking at what the companies are doing, and as long as they are hitting these numbers, like, you
05:37can fundamentally trade on them.
05:39I mean, they're giving us kind of, when they give us an update, they're telling us how they feel and
05:43how they're doing against this macro war backdrop.
05:47Absolutely, and that's why I said be focused on the long term, because those numbers are not only not going
05:52down, they're actually going up.
05:53So why should you sell your stocks, because of the problems in the Middle East?
05:57Go ahead.
05:57Well, I just have, I think.
05:58Because I want to talk names.
05:59Okay, we'll talk names and just, I just, I think people would be listening to this or watching this, and
06:03they're saying, wait a second, what about those higher energy prices flowing through and affecting earnings?
06:07Because it affects the top line if customers are paying more at the gas pump, and it affects the bottom
06:13line if these companies have to, their inputs are more expensive.
06:17Well, that would be a disaster if we're in Europe or Asia.
06:20But in the U.S., the energy prices have come down to only be 3% of consumer spending, and
06:26we have free natural gas.
06:28I mean, I'm exaggerating, but it's nearly free natural gas.
06:30Yeah, you were looking, Carol was looking at a chart earlier today.
06:33Yeah, they actually go down when oil prices are higher, because it's a waste product of drilling for oil.
06:37It's a byproduct, right?
06:37Right, and so it goes down, and that's the biggest advantage you could ever possibly create.
06:43This is why the notion that the U.S. has lost its exceptionalism is ridiculous, because you can't change history.
06:50We have all those hydrocarbons that came from the Inland Sea that used to be there.
06:54It's not the 70s, and we're in the oil lines, because we're so dependent on oil outside the United States.
07:00And one thing that almost nobody ever talks about, we had wage and price controls on the entire 70s, which
07:06was, I didn't even realize until recently, even though I was alive.
07:09But that was a disaster.
07:10Our production plummeted during the 70s, so we obviously don't have that, so we have production.
07:18That's why it's only $5 per million, because we're going to produce more in the U.S.
07:22So listen, we only have about three minutes left here.
07:24So you do like, speaking of the energy sector, you like Chenier, ticker LNG.
07:29It's up about 32% year-to-date.
07:31It's going to report the first week of May.
07:33Why that name in particular?
07:34Well, MLPs and infrastructure energy infrastructure and pipelines are interesting, because people kind of hate them.
07:43Like, they never go up.
07:44They haven't gone up for two years.
07:45So you could say, oh, I don't want to go into these mode trades, if we're correct about a war
07:50ending.
07:51But they're trading at really reasonable multiples.
07:54And they're going to benefit long-term, because actually the destruction of capacity is long-term in the Middle East.
08:03So they have a great situation where everybody wants to source their natural gas now from the U.S.
08:08So they have a long-term advantage.
08:10So a good value stock, it'll come down when the war ends, but it's a great long-term investment.
08:15You mentioned KKR earlier, so I want to give some time on your view on KKR, which is down 16
08:20% this year.
08:21There's some concerns when it comes to credit, when it comes to private equity.
08:24And the firm has said that they've got limited exposure to private credit, but they have, you know,
08:29limited some of their cap withdrawals on one of their asset-based finance funds, because redemptions were above that.
08:35Well, what happens in the market, and again, this is why we have jobs, is that people say, oh, alternative
08:42asset managers,
08:42they create a basket, and they just short them every day, and KKR's in the basket.
08:46But they don't do any work and say, private credit's 15%, and it's probably the best or one of the
08:54two best financial services brands in the world.
08:58And that's important, because they're going in and pitching to CalPERS.
09:02And, you know, we could go pitch CalPERS on managing their money for 100 years and never get any money.
09:09So there's only a few companies like that.
09:11So why should that trade at 10 times earnings?
09:13It's rallied, like, you know, that's off the lows.
09:15But that should be a 2030 multiple company, because they raised $23 billion last month during a terrible month.
09:23So that company's not going away.
09:25They have permanent capital, and they have limited exposure.
09:28So we prefer that company to ones like Apollo that do have a lot of exposure to private credit.
09:33I hate to do this, but we're going to do it.
09:3430 seconds on Amazon, because you have said it is the poster child for the rotation being overdone.
09:39It does report next Wednesday, and it's up about 9% year-to-date, just quickly.
09:43So quickly, Walmart trades at 43 times.
09:46Amazon at 22 times.
09:48Amazon grows over 20.
09:51And so you have a peg ratio of 4 versus 1.
09:53I'll pick the peg ratio of 1.
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