for some early morning insight.
Let's be joined by thomas Hayes chairman and managing member of Great Hill Capital
thomas. Great to have you on this morning.
A host of companies to start with the geopolitical situation in Russia. Right.
A host of companies including Apple HP
Universal are all halting services in Russia.
Could you give us some insight in terms of
how this exodus could impact us investors and,
and what should one kind of focus on
in order to navigate this geopolitical uncertainty?
Yeah, well, Alicia, thank thanks for having me back.
There's an old saying to never bet on the
end of the world because even if you're right,
it will be hard to collect your, your payout.
Uh,
so I think what you're seeing here with the
pull out of these companies from Russia is the
right thing to do is to inflict as much
punishment as possible until there's a negotiated settlement.
And as we look at the market generally,
We're seeing people positioned for the end of the world.
You know, you look at sentiment Alicia.
Uh, the Ai sentiment survey results,
only 23% of retail investors are bullish right now.
Yesterday, the CNN fear and greed index got down to 17.
These are levels usually found near bottoms,
near inflection points near recoveries.
The National Association of Active Investment Managers showed
just 44% equity exposure among active managers.
That's near two year lows.
So as things tend to work out,
managers are going to have to chase up if
we see strength in the market moving forward.
And then lastly, the 10 day moving average of the put call equity ratio,
meaning people buying insurance
is at the highest level since 2020 in the midst of the pandemic.
So there's a lot of fear in the market right now.
There's a lot of positioning for bad things, high short interest on the S. P. Y.
A lot of put purchasing, but the time to buy insurance Alicia
is before the house is on fire, not when, when there's already a fire.
And I think we're probably closer to a resolution in coming
weeks or at least for the market some stability in the market
than than we were in in recent weeks.
So,
so we think there's opportunities to actually look for bargains in
this type of environment in the next coming days and weeks,
Not to mention the vix, I'm looking at it right now, that's up around 33
a half um the highest that I've seen it so far.
Um Also we gotta talk about the airline
industry because that's one that I've kind of focused
on a little bit as it relates to kind of the uncertainty between Russia and Ukraine.
Um, Delta United, they're down by about 5% in the last four weeks.
As investors obviously concerned
rising fuel prices
and the question around whether that deters actual travel.
I also think there is a kind of a rumbling of
will tourists actually kind of be deterred from the region right
at a time where, you know,
we were expecting kind of a robust kind of comeback for international travel.
Just given all of the uncertainty there
with that context,
What's your outlook on leisure in the travel sector and what's your take
on oil and gas prices in the industry in the near term?
Yeah, I don't think this is going to deter travel at all.
If you, if you saw on target earnings, they mentioned their two biggest sellers,
our suitcases and bathing suits.
So people certainly want to get to travel. If you look at the T. S.
A pass through numbers in recent weeks, they're approaching
2019 levels.
That's before business travel even comes back in a material way As for oil prices,
the oil markets in backwardation,
which implies that the price should come down after the short term spike.
You also have an Iran deal in the works and Iran nuclear deal,
which will put a million to 1.8 million barrels per day
back on the market before the end of the year.
If they can get that resolved.
You saw Opec this morning, continue with their,
their upward productive Production plan.
So, I think a lot of things are in place.
This is a short term acute crisis in terms of oil,
but generally for airlines that are down and travel and leisure
that are down in the short term on this noise,
it may represent an opportunity if you're looking out 12-24 months.
I think when you look at the Delta Airlines,
United Airlines buying some of these on the weakness
could certainly be an opportunity moving forward.
Even the Norwegian cruise lines, they're,
they're kind of best in class in terms of their balance sheet, etcetera.
That could represent an opportunity because there's gonna be
some revenge travel coming up and I think people
are gonna be buying more bathing suits and more
suitcases from Target in coming months for sure,
fair enough.
Um you know, I mentioned Fed chair jerome Powell, his testimony beginning today
in the house and then of course tomorrow in the Senate
he's expected obviously to discuss kind of balancing the Russian
Ukraine conflict amid kind of this record high inflation.
What the Fed could or can't do in terms of
kind of getting that inflation under control from his,
his kind of you know, speech today in his testimony.
What are you expecting?
What are you wanting to hear in terms of leaning insight,
I would imagine into the interest rate environment they were walking into,
you know, starting this month.
Yeah, well Alicia,
the most important thing is the yield curve has been flattening since last summer.
The difference between the two year treasury yield and
the 10 year Treasury yield is about 38 basis
points right now we need to avoid that getting
to zero because zero that's called an inversion.
All recessions are preceded by an inversion and we
don't want that because that chokes off credit.
So what he acknowledged first off,
he did say that he still expects inflation to
come down if you look at five year breakevens
there at 3 20 which is in line with expectations since the 19 twenties.
So it's not out of control rather than focusing on the short term inflation prints,
we need to focus on expectations if expectations accelerate,
that's a problem because that's going to affect consumer behavior so far.
They've remained subdued.
He says that he expects the supply chain
to moderate and he expects moderate moderating demand
because the fiscal stimulus has worn off and
the monetary accommodation is coming to an end.
So he's he's still sticking with that. But
What do we expect? We expect him to go ahead with the 25 basis points.
There was expectation that maybe he would do 50
basis points before the Russia Ukraine geopolitical risk.
He's backed off on that. We think we'll see 25 basis points in March.
But he also mentioned that he wants to
do balance sheet reduction and this is critical
they had in their minutes talked about starting with mortgage backed securities.
They should start with the long duration treasuries
because if they can sell those on the market
and create some supply,
that could push the 10 year yield up a little bit
relative to the two year yield and re steepen the curve,
which would incentivize more lending from the banks.
And it could extend the business cycle another few years.
So I think that people are a little worried about them reducing the balance sheet.
But I think if they do it properly that will re steepen the curve and that will be very,
very positive for credit flow, very, very positive for the economy.
And he said as much they're going to remain nimble,
not fixed to some predefined plan like they've done in the past,
which didn't work out so well in December 2018.
So I think they're going to be data dependent and that's very good to hear.
So I have to let you go here just want to get
your thoughts on kind of the headline with ford out today,
right Ford is splitting its E.
V. And combustion
um kind of divisions into separate businesses
within the overall kind of ford umbrella.
This of course comes the same week that
we heard Chevron's acquisition of renewable energy group.
Um, you know, for $3.1 billion what do you make
of the investments and focus towards clean energy
amid a time? Obviously when oil prices are high and we are clearly dependent
um, and, and just made aware of just how dependent we are
in oil and energy.
Well, it's positive.
It's innovation, everyone wants to move in the green direction,
but we need to be responsible at the same time and keep our domestic production
of fossil fuels going so that we can bridge that transition without price shocks,
without supply shocks
and without being dependent on actors in the world
that are doing things that are harmful to humanity.
So I think that we can do it both.
We can continue to move in the green direction with electrified cars, etcetera.
But at the same time we do need to
give greater latitude for domestic companies to drill.
So we no longer have this
dependence on foreign oil which we had we had overcome in recent years.
And and of late
uh,
there there have been some constraints that I think it
opened up would be the best of both worlds move
aggressively in the green direction and at the same time
not be dependent on anyone for fuels or or dependency.
All right, thank you so much for your insight thomas Hayes,
chairman and managing member of Great Hill Capital.