Hatfield: ‘Hard to Underestimate’ U.S. Energy Advantage, See 2-3 Fed Cuts

0:00Let's talk about some of this joining us now. I'm very pleased to say is J Hatfield CEO and CIO infrastructure capital advisers J always nice to have you on the program. So you still think three cuts this year. What underpins that thesis? So it's great to be back. Well, of course that is based on the our assumption that within a month, which by the way is an eternity from a trading perspective, we will get some clarity, at least on a plan to reopen the straight of one news. I would just emphasize though that I do think that that optimism is appropriate for the US, but not really Europe. And this really damn I think it's really the reason why the market so resilient US market is it what happened overnight was the facilities in Qatar were heavily damaged and they're saying it could take five years for that to be restored.

1:00Well, that's not a problem for us. We have way too much natural gas here. It's great for shinier, by the way, which is next quarter. Good for our natural gas companies, but does not cause inflation in the US and it absolutely does in Europe. It's going to take a long time to rebuild those facilities. So as soon as we get lower oil prices and you notice our oil prices are staying pretty stable. We'll get lower gasoline prices and then that should clear the way for the Fed to cut. To at least in two or three times would be is our current estimate. Okay, so I mean the market seem to be thinking that the US is in better shape here as you clearly point out, but for now we have not managed to hold the 200 day. We've broken through 66 right now. I'm just wondering do you stand by your 8,000 call and that target on the S&P 500 and what anchors that bullish call? Well, of course, as I already said, it's conditioned on reopening straight. So we would come up with new targets.

2:04We would be more conservative. It doesn't reopen, but it's hard to underestimate how powerful this advantage is that the US has. So our natural gas is $3 an MCF for now is trading at almost 24 in Europe. So that's eight times in natural gas strides, electricity prices. So this is a huge advantage for all US industries, not all, but almost all. So definitely food manufacturing because it uses fertilizer, fertilizer, chemicals, LNG exports. So the US economy is way more resilient than the rest of the world and not subject to the inflation pressures of natural gas. So that can't be under emphasized. But to be clear, we would come up with new targets. If somebody said, okay, we're just not going to say the president said we're not going to reopen the straight of our moves and oil prices go to 140. We would redo our targets. They wouldn't be that bad for the US though because it's just a gasoline price impact and not a natural gas electricity impact.

3:11Okay, so obviously energy has been the hedge in some of this. I'm just wondering, you know, you talk about some of the AI fears being overblown. And wondering what your take on tech is in all of this because I mean, there's been the point that's been made about the fact that this has a low exposure to oil shocks. And there's a big question mark over why tech has struggled to rally in an environment like this? Can you explain that? Yeah, so there was a normal rotation tech kind of strangely since the pandemic has acted as a safe haven hedge. And that stopped when the Fed became clear they were going into a cutting cycle. You get this massive rotation into defensive stocks like Walmart and out of tech. And then it got even worse because you had these short these disease about tech. And then the war started. I thought I would argue techs on a least baited just a basis being pretty resilient, but nobody's going to go plow and and buy stocks.

4:14But we do think that trade's gotten over done Walmart and Amazon being the poster child. And arguably Walmart's four times the valuation of Amazon. We think those stocks will work, but we'd be cautious till we get to mid April or we get at least we get clarity on the opening of the street of our moves. Because those are high beta stocks, even though we think they'll start acting defensively. So far they're getting caught up in most of the selloffs. You know it's interesting a lot of what you're saying is predicated on just how long this drags out for. And I know I've been listening to a number of you know money managers who have said because of just the big unknown and the question mark. And I think that was very clear in Powell's press conference. I mean just so much uncertainty and not wanting to over react to some of the questions that he was asked. A lot of the focus has been on other parts of the market like private credit for instance. And that obviously is backed up by a lot of the data that we're seeing, the metrics that we can, the tangible evidence of what is going on there.

5:15I'm just wondering you know elsewhere what are you seeing as far as you know what is what is driving the decision making right now for these markets. I wouldn't under emphasize the fact that the US market is acting extremely well. So it's down half as much as Europe. So I would actually say it's bullish that we are at least for now holding the 6600 200 day moving average. So that does actually argue and validate our 8000 target. And we do think that these short short these disease that normally do develop in March and we're out of herding season are all over done. And we like to use numbers. So with regard to private credit, we think the full cycle default rate six worst case law defaults are 10. The markets price in about 30 in terms of the stock stocks. So we actually think that these short pieces of creative opportunities we wouldn't dive in right now.

6:15Right now we would argue for being defensive, being in energy infrastructure like the companies we hold in AMCA like LNG and energy transfer. But when we get closer to mid April get toxic and behind us get into earning season hopefully some clarity on the street. We do think you know Tet will start working. These stocks have been way oversold on the private credit side. But just to be it is a strange point in time right now. So we're not saying go buy those today, but when we get clarity, we think those are massively undervalued. Markets looking for a lot of clarity right now. Jay really appreciate it. Thank you so much for joining us today. That is Jay Hatfield, their CEO and CIO infrastructure capital advisors.