EA Forum podcast with PIMCO's Greg Sharenow: Alpha returns

This transcript has been automatically generated and may contain errors or inaccuracies. It is provided for reference only and should not be considered a fully accurate record of the conversation.

Amrita

Welcome everyone back to EA Forum. I am super thrilled. It's a very, very dear and old friend of mine, Greg Schiano, who's joined me from Pimco. Greg and I have known each other for, I think, way more than ten years. So I cannot thank you enough, Greg, that you've decided to come and talk to me.

And this is, you know, it's a brand new thing we've started, like you and I talked, and I'm hoping that you and I can talk more frequently than just once. Because I know you have a lot to offer. You come and you have a very privileged seat. Given you are at Pimco, you look at things in asset classes from a very different lens to a lot of the regular client base, which sometimes tend to be very short term traders and not looking necessarily at all asset classes.

So, yeah, very warm welcome.

Greg

Thank you for having me. And Amrita, I have to say, you guys have done an amazing job building Energy Aspects up. I remember when you took the first step and leap and really done amazing job. So I'm thrilled where you are today, and I'm thrilled to be part of this conversation. And I love the fact that you are Jeff Currie, my first boss on.

So we, I feel like I'm honoured to be in that thread.

Amrita

Oh, yeah, absolutely. I think I told you, I said I'm going to get Greg on. He's like, oh, Greg's going to come on board. So he's, you know, equally excited. So no, let's get started. I think there's a lot to talk about. Obviously there's US elections, but I think I'll come on to that in a second.

For me, I am struggling with certain things. I want to get your perspective on that. I can't remember the last time that oil, or energy as a whole, was this hated, if I may use that phrase. Nobody's excited about it. Even oil traders. And for good reason. You've had OPEC manage to the downside, you've had a lot of intervention from the US government on the upside, but even in the energy equity space, not really a lot of enthusiasm around this sector. And this is even with a lot of the transition talk dying down. Do you get the same sense when you're speaking with—you have a much more varied network and different group of clients that you're speaking with? What's the sense you're getting and your take on this?

Greg

Well, in many respects, I think from a broader non-commodity trader orbit, some stability in oil prices has been welcomed. The strains of prices going meaningfully higher have a lot of ripple effects and a lot of headwinds for the economy and create uncertainty around potential policy. I think some stability after 2020, 2022 is, truly, honestly welcomed.

And I think the opportunity then to have some rational conversations about other risks that come up, you know, we're able to focus on inflation without focusing on what exactly is happening tomorrow in oil, when people are able to focus more on portfolio construction and longer term thoughts while things are almost, I would say in the oil market at least, calmer now. It hasn't been calm across the commodity spectrum. Look at cocoa prices. Look at agriculture prices. There's a lot of opportunities and a lot of interesting things. Oil is not front and centre today. And that's okay.

One thing that I also have noted is that the sensitivity is very different in the US from abroad. Our client base who are international had experienced an inflation shock that they hadn't experienced in the last couple of decades because it made a big distinction from prior ones in that it didn't have the organic emerging market growth associated with the higher inflation environments, which would have insulated the economies, helped their capital markets. They just got the inflation shock without the growth, they have the weak currencies. And that client base is the one that's probably more engaged on oil today than they may have been five years ago at a similar price, because for them, they experienced something where their portfolios weren't really resilient in the ways in which they had maybe prior thought they would be.

Now, from a commodity investor standpoint, if we're at $80 and the market remains in the macro data form that it is, a commodity index investor is actually really happy. It's almost like back to the 90s, you're allowed to be really dull and actually generate a good return for investors if the carry is positive. For the investors who are thinking about their long term portfolio constructions, owning something like oil with a positive carry as an insurance to a potential either geopolitical event or an inflationary cycle becomes a lot more compelling.

So in the US, I totally agree. It's been disinterest and if anything more relief. But internationally, we're seeing a lot more interest than we've had in the last.

Amrita

It's I think, very, very interesting point to make because I think that's almost the thing. The traders are the ones that are upset because you've killed volatility to an extent. Vol has been the issue. But if you're an investor, as long as you have a positive carry that's great. And that's kind of what you want.

But do you face the same kind of challenges on the vol side in terms of—and how are people looking at it from your, when you talk to your clients?

Greg

To be honest, I think from an alpha standpoint or from a risk taking standpoint, there's been amazing opportunities in being short vol. If you do have a view, you don't have to just be long. But there's a large number of investors who, for various reasons, whether it be disposition or whether it be from risk limits, are always needing to be a long vol trader to express a directional view.

But if you're not constrained that way, actually having a low vol environment is an opportunity set in and of itself. Now, I do think locally, when I look at the skew being on the lower end of the last 15 years, when I look at the vol levels being on the lower end of 15 years, I think short vol may have a problem, but probably not from a price. I think the bigger issue is if there's a big macro risk-off event and the curve structure weakens, that might actually be a mispricing today. But overall, being in a low vol environment is not necessarily great for a certain group of investors or a certain group of traders. For others who are looking at systematic risk premium, for example, it's great. That's why you do many of these different kind of strategies so that you can take advantage of them.

Amrita

And are you seeing kind of new groups of investors getting interested in the energy space, like across the board—could be oil, could be gas, could be any type of exposure—or is it still the more traditional kind of people who've always been interested in this space? Pension funds have kind of come and gone and there's been obviously some other asset allocators who've shrunk their commodity portfolio. Now there's a little bit more, but have you seen much change in that space internationally?

Greg

For sure. There's way more interest than before. It's episodic for my whole career. I've done this now 25 years, and there are times where there's more interest and there's times where there's less. Usually the greater amount of interest follows prices, and then there's a disinterest when it comes down. I do think, though, this inflationary episode has created a certain group of investors that previously were not, as I mentioned before, and now genuinely are.

But when I think about a broader set, one of the conversations we're having here is: how do you think about the energy transition and opportunities primarily on the private lending side or the private equity side, rather than necessarily tradable commodity markets? But the conversations do overlap. If you're going to have a view on the energy transition, there's a critical amount of supply that you would have to build into your forecast that will have to then pair with AI growth and other sort of demand-centric growth in the power side that then feeds back into your natural gas outlook—they're very much interrelated.

But I think from the standpoint of where our investors, real money asset allocators, are focused on is: is there an opportunity to deploy capital? We've seen a massive amount of capital raises in the last few years. It's starting to slow down, a natural evolution. There's a lot of excitement, of course, and a lot of funds are launched, a lot of capital is raised, and now they have to figure out how to deploy it all and deploy it all successfully, which—the deep irony is solar equity. See, we were up 300%. While the S&P was up 50% under the Biden presidency, solar equities are down 50%, while the S&P is up 50%. It's hard to get these likes. I know we're going to talk about elections later. But I'm just saying the cycles here can be counterintuitive or a lot of things get priced in super early and then lose interest.

But I think on the private energy transition side, there is a lot of need for capital. There's a lot of clients who are looking to deploy capital in things that might help them decarbonise their portfolio over time, to where they can compete for returns with other asset classes and with other investment opportunities. It will still attract a lot. And that's kind of why we're focused on it. We're seeing more opportunities to invest, but we're also engaged with a lot more clients who are looking for those opportunities.

Amrita

Yeah, I think you do it well. Since you talked about US elections, we might as well talk about it. Let's look—to be clear, we're recording this on the 19th of July. And as of right now, it is still President Biden on the Democratic ticket. So again, we don't need to go into any of that.

But like I was saying, I just got back from New York and it was quite amazing how conversations with macro funds and hedge funds, just generally financials, very quickly went from, oh, WTI is overpriced, as in the backwardation given where margins are, to just talking about what would a Trump presidency mean for energy markets as a whole—could be energy transition, like you were saying, a lot of the energy equities were brought up. It was about tariffs and how bad that could be for global growth and so on. Do you see things mispriced? I was taken aback, I'll tell you honestly, by how bearish the financial community is right now.

Regardless of seasonality. Our view isn't particularly bullish this year. That's fine. It's a rangebound market. But it's a seasonally strong period. But it was extremely bearish, not just about "oh, we're not drawing stocks," but to the point where it's definitely going to be a Trump presidency. And that's also going to be bearish.

And I was like, but there is going to be a loss of Iranian oil. And there was no focus on it. It was all about how tariffs are going to be the key driver. And apparently his team have held closed-door conversations with hedge funds and have said, we're going to drive WTI to $40. And I'm a bit like, well, that's inconsistent with unleashing a lot of US energy.

So I don't know. You are much more at the heart of it, given you are in the US. Where do you see things mispriced?

Well, to be honest, I'd be happy to be in London right now and avoid export markets if I could climb under a rock. We've had a year worth of election news in potentially a week. And certainly if there's a change at the top of the Democrat ticket, it will be historic, of many proportions.

I think there's a lot of conversations within that we can have, to be honest, because I think we haven't talked about the implications of some of the Supreme Court rulings as well. That wasn't in the question. And that's almost just as impactful as a potentially a Trump presidency would be. Now, we certainly think that there's inflationary impacts from the tariffs, but also potentially over migration. Part of the US exceptionalism has been supported by migration. And certainly we have the dark politicians that are being talked about—that's a negative for the labour force. So we think there actually is genuine risk that one needs to think about in terms of shaping their overall economic outlook.

But the underpinnings to this is that there's wider uncertainty bands than we would have in any other investing year, because both—either political party wins—could have a pretty meaningful implication for actual policy. In addition to that, one of the things that makes it hard is that you have to understand the reaction of other international players to any changes in US policy so that the potential series of outcomes are really, really wide.

Now, when we look at US production, for example, our view is it's going to be determined by price more than anything else. And policy—production in the fastest growth has been under Biden, and in an Obama camp is meaningfully lower. If you look at who changed the export restrictions, it was Obama. The narrative—no one built Keystone XL. There's a lot of fundamentals that will be driving the outlook that may not be simply just at the top of the ticket in policy. Now, I don't know exactly how the policy with regards to Iran will evolve, in part because the relationships between Saudi and Iran have evolved since that period of time. So the desire input that they may get from more of the Middle East might be different than it was prior.

And similarly, how does a negotiated or forced negotiation in Ukraine impact energy supplies when a lot of Russian supplies are still going to market? I don't think it changes Europe's view, so I'm not sure that there is a clear and obvious opportunity in the oil market itself. I do think, going back to what I said before, if you are concerned about a negative economic price shock to oil, the low delta puts or Savalas is not pricing that at all.

So for now, the tight crude market has managed to keep any of those bearish outcomes from being priced. And I think that is an opportunity. Now we can talk more about energy transition. We spent a lot of time on understanding what parts of the IRA are on solid ground and what parts might be revised, particularly because when the tax cut conversations really start accelerating in 2025 or the extension thereof, there's going to need to be needs to pay for. And those pay-fors are going to, in my mind, confirm a lot of things that aren't being spent, like, for example, the Department of Energy loan program—any capital that's not out the door would be vulnerable.

Now, just to be clear, I don't want to make forecasts on exactly what everything seems. But things that would be on our mind on the table—the electric vehicle tax credits, another prime example. Trump has clearly shown a dislike for wind. I'm not sure that alone changes the global wind market, but I would think certainly it has a negative risk to potential higher wind investment, particularly offshore, given his very deep-seated dislike for that. And I think that could spill over. While it could impact the solar impact meaningfully less, given the support, there could be implications for hydrogen.

Now, there could be some ironic ones, depending on how they treat the usage of RECs and whether or not the decision to have to match green hydrogen to green power hour for hour could actually, ironically, potentially be a hindrance. So a Trump presidency could be good for blue hydrogen or green hydrogen plus RECs.

And then that creates a weird budgeting problem because that would then mean greater budgeting support from the—was it 45Q, I believe. That could end up creating some pushback in terms of pay-fors. I think there's going to be a lot of potential supports from the IRA that aren't going to negatively impact domestic manufacturing industries today, but could stymie some further growth that you would get in alternative energy, which by itself is positive for thermal energy. It's probably—and this is not overwhelmingly priced in, in our review—positive for carbon. Because if you're going to reduce electric vehicles, you know, sustain. And certainly in California where transportation is included in the cap and trade, which is what Europe is trying to do in the long run for the Trump presidency, one impact that, you know, and you're going to have more thermal and less renewable, certainly offshore wind support, that probably means more emissions over a longer period of time now.

Amrita

Oh yeah. Yeah, yeah.

Greg

One last thing—in 2025, and we've been asking questions and it's not really a hot topic today, but we have seen three different Republican senators put forth a carbon border adjustment mechanism legislation in the last year or two. We've asked former Trump administration and some Republican leadership and the more conservative and on the fiscal balance, and they've actually been surprised that there is some support at all.

If anything, no opposition or no meaningful opposition. If you think about it, we like tariffs. You can package it with "we like green tariffs." All of a sudden you have a carbon-ish border tax. Now how it gets implemented will be important because that will carve out things like oil imports. That is something that is a direct inflation. Maybe they would want to do that. But overall, I think that could actually be also supportive for carbon markets in the United States in the evolution.

Amrita

Yeah. I mean you raise a couple of very, very interesting points. But first things first, right. Given I completely agree, like, for me it's like, how can you be so overwhelmingly sure it's going to be bearish or bullish for that matter? To your point, it's just going to be a huge amount of uncertainty. So given that outlook, would you actually say—and you did say that it's kind of mispriced—but would you actually think that people might go long vol into the year and into the year end rather?

Greg

I don't know what other people are going to do. I think it's hard to forecast many things right now, but other people's behaviour is really kind of—I think that I can't forecast. The news well alone demonstrates just how interesting humans can be. But I certainly think that when you get closer, if the election is tight, you could end up seeing it being a higher vol environment than we currently are in.

But, percent owning vol for that in my mind is, historically, been a tough thing to time. But if you are really bearish, I do think vol—if conditional on one side of the ledger being demonstrable, I think that is a mispricing as I mentioned before.

Amrita

Yeah, no, 100%.

Greg

Put skew is so low and the vols are so low—means puts out, you know, pretty surprisingly low narrative.

Amrita

And I think the other thing you are clearly hinting at—and our view very much is very similar—is it's almost long term carbon prices are too cheap.

Greg

Certainly we have gone in and part of the arc is constantly evolving of the energy transition and sort of public policy towards it. But when you get to a point where there's less support for carbon reduction, you effectively have to have more emissions controlling for same amount of GDP and global growth. That inherently makes the challenge for any program that has a fixed amount of carbon allowances supply, whether it be legislated or by other policy, inherently more constrained.

In terms of this line of demand, it just becomes—it starts tilting the ledger one way. I don't think that's really entered into the dialogue. When I start even just looking at things like AI, and there's many forecasts out there right now—I think the IEA put out one today as well—are we looking at just like in some of the western region states or the US, your last 15 years, your power demand growth in mode of like 25 to 30 basis points per annum? That's pretty small relative to GDP, noting that demand side measure is noting the efficiency gains. But our outlook, and we're triangulating across a number of different consultants and a number of different forecasters, are looking at like one and a half to maybe two and a quarter power demand growth over the next ten years per annum. That is a very big change.

Long dated power markets had tried to re-rate and reflect some of this, but carbon didn't. I think that's pretty strange, particularly if you do think you enter into a world where there's less support for energy transition related investment from governments.

Amrita

Yeah. I mean, it's funny you talked about the AI, because that was going to be my third thing because in terms of kind of mispricing, you've talked about vol, talked about carbon. Personally, for me, I kind of think power is probably one of those places. And I know you said long term power is trying to reprice. But we're seeing this more and more.

I think it's very well talked about in the US that there's going to be all these data centres, there's going to be a lot of this power demand. But I think we are seeing this globally. Look at the Middle East. Obviously it's going through a very, very unfortunate heat wave right now. It is extremely hot there.

And it's been boosting all sorts of energy demand. But I was talking to a few government officials there and like UAE, for instance, has just brought in this massive data centre. I think Saudi is pitching for this as well. And I do wonder, as you know, I mean, I always say this about ourselves as forecasters, we have to be humble enough to be like, look, we barely get some of these big things right. Like what's going to be the next big thing? And power demand for AI has just been one of those things that's kind of come out of almost nowhere. Do you get the sense, like, are investors talking about it and getting interested? But do you also get the sense that governments around the world are really, not even not qualified, but they are really underappreciating what this could do for their grids, for what it could do for global power demand? I mean, this is not about oil. This is just about overall thermal or any form of energy. I just think overall energy demand forecasting long term is probably getting massively underestimated right now.

Greg

So I do think there are many places where they are thinking critically about it, particularly the energy story. The data companies, the technology companies are building are certainly thinking about this. But if you look at Japan, I think it's a major tailwind for why our forecast for nuclear restarts and our expectation for them are going meaningfully higher.

We just had someone talking to some of the regulators there and their forecasts are for pretty meaningful increase in demand relative to the past and past forecasts and as a result, are much more aggressive, even talking about additional nuclear investments and looking at SMR investments. So there's a lot of—these data centres are going to start finding places where there is either methane to compute or some other sort of trapped energy.

So I think there will be some efficiencies and some planning. There are definitely utilities considering: do we need to have a multi-tier tariff structure to reflect the fact that the infrastructure bill required to meet that is higher? On the Middle East specifically, if there's any place I almost would want to bet that they get it right, it's a lot of those countries because they have the resources, they have the geography in terms of solar, certainly they're making investments in the UAE for nuclear and looking at investments in other nuclear plants abroad.

But I think that's one place where probably the energy transition might actually be done the best.

Amrita

Ironic. Yes.

Greg

I completely—and they have the resources and they have the desire to be more balanced, to also have a forward-looking image, but also the practicality of the industries that they can bring in if they do that right is something that I think is more appreciated than it is elsewhere. I think the more central planning nature makes it a little bit easier.

But if you start looking in places like China, how are they going to grow all the energy transition if the data centre growth could be meaningful? I think it's going to be somewhat challenging. So I do think in a place like that, you could expect higher thermal demand and geothermal demand in other places that are already struggling just to meet baseline growth with existing.

Amrita

Yeah. No, I mean, the Middle East thing, I really will echo and I think part of the Middle East gripe with the West is almost that the West talks about it, the Middle East is almost doing it better than the West, but doesn't get the credit for it. That's kind of always been my sense from talking to them about energy transition.

But look, you've mentioned China. I mean, this is almost as if we've planned this, but that was very much—we can't not talk about China, right? China's demand this year, at least for energy and oil specifically, has been really, really weak. Some of the data prints are mirroring Covid or probably even worse than Covid. There's a lot of head scratching going on. They are doing a lot on energy transition. I think they are also far, far ahead than the West in many ways. But there's something going on there. I know you obviously deal with a lot of, whether it be investors and just generally China overall. What is your take on China? Should we be worried? Should we be worried that there's a structural problem, finally, that people have been talking about for years, finally here? How do you see China as a whole—Chinese oil demand and just overall the energy sector there?

Greg

So one of the challenges we have when we talk about oil is that there's many different types of oil. When you start looking at oil demand, there are many components. There's LPG and naphtha that goes into the market. Then there's on-road transport—the diesel and gasoline, of which some of that is being meaningfully displaced by fuels that are sourced outside of the petroleum spectrum.

So we have to think about that side now as being separated—petchem feeds versus refined products. I think you could say that in places like China, while their transportation demand is actually still good, a lot of it is now happening outside of refined crude oil, and a large share of the demand growth is coming from the light end there and the petchem feeds. Now, when you think about oil itself, that gets me concerned. If you think about the value of the barrels, the gross product, or all of a sudden displacing the high value products and, with some lower demand, it's like, sell lower value products. And that's driving growth is like a structural problem.

In China, with the displacement of diesel for LNG, the electrification, the migration to greater efficient modes of transportation that are more energy efficient, you can argue that this is not a recent trend, but a lot of the trend started five, six, seven years ago. I think that is part of the reason when we look at refined product demand in China from crude, it definitely has decelerated.

There are electric vehicles—the fact that they make such inexpensive electric vehicles and are really reasonable at—and you travel a lot, so I'm sure you see Chinese vehicles in places that you'd never seen them before.

Amrita

I think they're great quality, by the way. BYD is—I mean, I would choose it over a Tesla. It's really good.

Greg

Yeah. Well, my cousins in Panama were just like, hey, this is better than a Lexus for half the price. I was pretty amazed. I do think they are going to have an increasing ability to export low-cost electric vehicles, which creates an intellectual disconnect in the US because we want to have electric vehicle leadership in market. That's where the barriers of trade are coming up. But I think in China, you're still going to see the petchem growth. There's still going to be a massive engine, but for refined storage, crude oil products, I think the growth rates have come down. The economic activity is really bifurcated—where you do see growth in some of the electric vehicle manufacturing and alternative energy, investment in the grids to support that from residential. And then I think a lot of consumer-related industries, more service. Ironically, probably one of the reasons gold is so well bid in China—the ARBs onshore finally have gone negative, but they were so positive all the way through the rally to 2400, which is all-time high prices.

I think it's because that is what people are investing in now. Instead of buying and building a home and using it as an asset, they're looking at something like gold. That's not a way in which the real estate market... I think there's some real challenges in balancing that.

Amrita

Yeah. No, I completely got the same sentiment. I was just there a couple of months ago. I've never seen sentiment that bad. It was almost like because their property or their investments have lost so much value. Exactly to your point, they were just literally looking for assets where gold is a classic example. What they felt was safe, just didn't want to have exposure to anything, which after Covid and the property sector—they would call it demise in their words—it's been really challenging. I think that's kind of my worry for the long term anyway. When it comes to economic growth, the world economy has been so reliant on China and China growing, and oil markets for sure.

Greg

But I think the balance of that is the friend-shoring, near-shoring, China-plus strategies or whatever the right nomenclature is. It means that the outlook for Southeast Asian demand actually still is pretty darn robust. Yes, it did source China only, but almost that rebalancing is inherently good. I feel like we've had a gross imbalance for so long in global...

Amrita

Yeah, you're right, 100%.

Greg

So I think there's just—when you look at Indonesia and you look at other countries, I think they're real beneficiaries of that. So yeah, it's always challenging because one can at any time have one narrative that dominates the global. Sometimes that is really the most important thing. If you say Covid was just a narrative, that was a very problematic inclusion, right?

So there are times when something has happened, but a lot of times, China decelerating by itself is not supportive for commodities like it was if they were still growing with the WTO integration. But we're getting real genuine growth and much better fiscal management in other parts of the emerging markets. And they're getting the benefits of it.

Amrita

Now that's a very fair point. Look, I'm conscious of time. You've been very generous with your time. But I do want to ask you a couple of last questions, pick your brain on—what is it? We've talked quite a bit about what you think is mispriced. What about other asset classes? Because obviously you have exposure to all sorts of clients, right? In terms of your investors, what else is on their radar that often, you know, the oil market doesn't even look at? Because often I find the oil markets wearing blinkers.

Greg

Well, in our view, there's definitely the prospects for positive returns and diversification in fixed income now is meaningfully better. If you look at real yields as an indication—a little bit recently, but at one point we were at the highest level since pre-GFC. When you're looking at real yields in the 220-ish area, historically that's mapped to a forward 6 to 7% positive return.

So I think there is meaningful rebalancing of portfolios from a very high concentration in equities for a very long time to a more balanced portfolio—like the 60/40s were probably tilted too far away from that. Now almost, we would argue, a 50/50 or 40/60 is something that investors should be contemplating. There's also a lot of interest in investors to smooth volatility of the returns. Sometimes that's just an optical decision. A lot of private real estate is not marked to actual tradable values. They're just marked to some sort of modelled portfolio value. But there's definitely a lot of clients who find that appealing—having a lower vol. That's one of the challenges when you think about clients who want to own commodities, is that it is one of the higher volatility asset classes, of course.

There's definitely an effort to think about portfolio vol diversification. Real assets outside of owning something like commodities can be quite appealing to a number. Now to be clear, those didn't offer a lick of diversification in 2022 and 2023. Commodities were one of the best performing assets—21 and 22—where everything else was bad and the duration of your illiquid real asset portfolio was massive and you had no ability to exit.

Commodity investors who were long had the opportunity to rebalance and be offensive, or they're getting capital calls on existing commitments. We were the liquid diversifying. In many respects, we just had a case study of exactly why you had to own commodities. But at least in the US, there's still that reticence and preference for a private real asset. But real assets are really climbing up the scale of the interest. Also, given the volatility that just happened, it just might be real estate or infrastructure that they find appealing, but they don't provide the liquidity.

Amrita

That's fascinating, genuinely, because the way you framed it exactly is right. I've heard that from a few of the macro guys we speak with as well, that the kind of exposure or the desire to have exposure to real assets, as you said. Is there anything that, I mean, other than, like you said, you want to move to London for the next four months—and you and your family are always welcome here, trust me, so any time—but anything else that you are worried about in terms of, you know, could be portfolio, could be just kind of markets, like, what should we be thinking about that we maybe haven't been thinking?

Greg

Well, one of the big topics of discussion we've had a lot about is whether or not the fiscal balance in the US is going to improve under any new administration. In fact, we think it's...

And as a result, we look at the long-dated markets and think that there's a real chance that whether it be a steepening or there, there could be a repricing higher, in that because there's going to be a growing fiscal deficit that is not being addressed in any serious way. So we do spend a lot of time talking about those imbalances and what what's the outcome and what's the solution to dealing with that.

That's a big topic of conversation that we have. That's a level of uncertainty. If you get into a world where the real credit A is being challenged, that will, in our mind, be negative for risk assets.

Amrita

Oh, yeah, that's true. And global growth.

Greg

Yeah. That's one thing to put out there that we're concerned about. But in terms of commodity markets itself, there's just a lot of opportunity. Even though the headline volatility numbers may not be great, we've seen a lot of volatility in insurance products or whether it be time spreads—there's still a considerable amount. I do think we've seen meaningful growth in nontraditional players doing alpha baskets, packages of different sort of diversification-like strategies. That also means we probably have a good amount of crowding into many of them. I think that creates some extra amount of volatility in the front end of the curve that may not be consistent with what other price action is doing.

So I think there's going to be a lot of opportunities and understanding those implications of the growth and those—lack of a better word—alpha baskets have brought into the market.

Amrita

Fantastic. Well, thank you, Greg, for joining us. That was genuinely super fascinating because, again, you've provided such a rounded view of what investors are really looking for. And yeah, hopefully we can do more of this in the future. So thanks again for coming on.

Greg

Thank you for having me. And nice seeing you.