1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:22,160 Speaker 1: at Bloomberg dot com slash podcast. All right, here's the 7 00:00:22,440 --> 00:00:26,400 Speaker 1: here's the latest across the Bloomberg terminal. Musk says no 8 00:00:26,480 --> 00:00:29,800 Speaker 1: one wants top job, but some people have piped up. 9 00:00:29,840 --> 00:00:32,200 Speaker 1: I mean, it just gets crazier by the day. He's 10 00:00:32,240 --> 00:00:35,000 Speaker 1: got a you know, a survey out there, Critty saying, 11 00:00:35,200 --> 00:00:36,680 Speaker 1: you know, if you want me to step down, I'll 12 00:00:36,720 --> 00:00:39,480 Speaker 1: step down, and of the respondent says, yeah, you should 13 00:00:39,479 --> 00:00:42,599 Speaker 1: step down. So that's news. Then my question is who 14 00:00:42,640 --> 00:00:44,600 Speaker 1: wants the job? So we come back to the story 15 00:00:44,680 --> 00:00:47,840 Speaker 1: because this story just keeps giving Man deep Seeing, senior 16 00:00:47,880 --> 00:00:51,280 Speaker 1: technology analyst for Bloomberg Intelligence, and Dan Ives, senior equity 17 00:00:51,280 --> 00:00:54,080 Speaker 1: analyst at Wedbush Securities and join us here. Uh. Dan, 18 00:00:54,160 --> 00:00:57,000 Speaker 1: I hate to kind of keep bringing this up because again, 19 00:00:57,080 --> 00:00:59,639 Speaker 1: but you know, you've been one of the biggest supporters 20 00:00:59,680 --> 00:01:03,480 Speaker 1: of this name of electric vehicles, really educating investors over 21 00:01:03,480 --> 00:01:05,560 Speaker 1: the last you know, five six, seven years about the 22 00:01:05,600 --> 00:01:09,760 Speaker 1: e V market, the potential, the upside here, but the 23 00:01:09,800 --> 00:01:13,560 Speaker 1: fundamental calls being overwhelmed by the Elon Musk call any 24 00:01:14,000 --> 00:01:17,000 Speaker 1: kind of how do you view the lasts worth of news? 25 00:01:17,120 --> 00:01:19,880 Speaker 1: Just more the same? I guess yeah, look good. I 26 00:01:19,959 --> 00:01:23,200 Speaker 1: think it's been a twilight soon because I'd say about 27 00:01:24,800 --> 00:01:27,720 Speaker 1: of the sell off that we're seeing in Tessa is 28 00:01:27,760 --> 00:01:30,880 Speaker 1: Twitter driven. I mean, and it would be a step 29 00:01:30,880 --> 00:01:33,440 Speaker 1: in the right direction clearly from Musk to give up 30 00:01:33,480 --> 00:01:36,400 Speaker 1: the reins is CEO of Twitter. But look, this is 31 00:01:36,600 --> 00:01:40,200 Speaker 1: a forty four billion dollar nightmare that you know, just 32 00:01:40,240 --> 00:01:43,160 Speaker 1: continues to increase. I think it's black eye from Musk, 33 00:01:43,160 --> 00:01:46,720 Speaker 1: a black eye for Tesla. Mandy. Talk to us a 34 00:01:46,720 --> 00:01:49,800 Speaker 1: little bit about this now private business here. Is there 35 00:01:49,840 --> 00:01:51,800 Speaker 1: any sort of recovery? I think the last time we 36 00:01:51,800 --> 00:01:53,280 Speaker 1: had you on, I want to say, last week, you 37 00:01:53,320 --> 00:01:56,520 Speaker 1: said that if this was a publicly traded stock still 38 00:01:56,640 --> 00:01:58,800 Speaker 1: Twitter would be worth less than ten dollars a share, 39 00:01:58,840 --> 00:02:03,240 Speaker 1: which incredible, And again Ellen bought and I think he 40 00:02:03,280 --> 00:02:05,640 Speaker 1: still looking for new investors, by the way, who are 41 00:02:05,640 --> 00:02:07,760 Speaker 1: still looking at the same amount. But man, deep is 42 00:02:07,760 --> 00:02:12,200 Speaker 1: there any sort of scenario here where Twitter's valuation is 43 00:02:12,560 --> 00:02:16,680 Speaker 1: re upt well, So clearly now he's talking about a 44 00:02:16,760 --> 00:02:20,799 Speaker 1: management change and bringing in someone else than him to 45 00:02:20,919 --> 00:02:24,359 Speaker 1: run the company, and I think it will be positive 46 00:02:24,840 --> 00:02:27,480 Speaker 1: depending on who he gets. Look if you get somebody 47 00:02:27,520 --> 00:02:31,040 Speaker 1: like Cheryl Sandberg, that's a big you know, uh moment 48 00:02:31,160 --> 00:02:34,400 Speaker 1: for the company, even if this thing takes a long 49 00:02:34,520 --> 00:02:38,840 Speaker 1: time to turn around. But I think somebody with credentials 50 00:02:39,080 --> 00:02:41,680 Speaker 1: is going to make a big deal in terms of, 51 00:02:41,800 --> 00:02:44,320 Speaker 1: you know, what could happen to Twitter going forward. But 52 00:02:45,120 --> 00:02:49,480 Speaker 1: we know right now the company is bleeding advertisers, the 53 00:02:49,560 --> 00:02:54,480 Speaker 1: employee morale is low, it's struggling with regulators. So clearly 54 00:02:54,520 --> 00:02:56,880 Speaker 1: a lot is going wrong with the company right now. 55 00:02:57,120 --> 00:02:59,680 Speaker 1: So you need somebody who can study the ship, somebody 56 00:02:59,720 --> 00:03:01,880 Speaker 1: who has good credentials, and I think that could make 57 00:03:01,919 --> 00:03:05,079 Speaker 1: a difference here. So, Dan, you mentioned that in your opinion, 58 00:03:05,160 --> 00:03:08,079 Speaker 1: you know, maybe the decline in Tesla stock is due 59 00:03:08,080 --> 00:03:10,200 Speaker 1: to Twitter. So one of the questions I have, and 60 00:03:10,200 --> 00:03:13,000 Speaker 1: you've covered this company's systems inception, can you give us 61 00:03:13,000 --> 00:03:16,679 Speaker 1: a sense of isn't really Elon Musk? How critical is 62 00:03:16,720 --> 00:03:20,040 Speaker 1: Elon Musk to the day to day management of Tesla 63 00:03:20,240 --> 00:03:24,839 Speaker 1: to the strategic direction of Tesla. Is there a deep bench, there, 64 00:03:24,919 --> 00:03:28,280 Speaker 1: is there a management team there? Book Musk is the 65 00:03:28,320 --> 00:03:30,799 Speaker 1: hearts and rungs of the Tesla story. And I mean 66 00:03:30,800 --> 00:03:34,080 Speaker 1: you'd have to go back maybe two jobs with Apple 67 00:03:34,200 --> 00:03:38,200 Speaker 1: and Jack Wells g E for any sort of comparisons. 68 00:03:38,200 --> 00:03:40,320 Speaker 1: I mean, look, I think that's the issue is that 69 00:03:40,480 --> 00:03:42,920 Speaker 1: his attention has really been to focus more on Twitter 70 00:03:43,400 --> 00:03:47,600 Speaker 1: and the perception perceptions, reality is that Tessa needs him 71 00:03:47,640 --> 00:03:50,520 Speaker 1: more than they ever have and and and that's sort 72 00:03:50,520 --> 00:03:54,600 Speaker 1: of the frustration here is that the Twitter spider Web 73 00:03:55,160 --> 00:03:59,480 Speaker 1: has just been a disaster for Tesla holders. And it's 74 00:03:59,480 --> 00:04:02,720 Speaker 1: also have taken attention from much from his golden child 75 00:04:02,840 --> 00:04:06,480 Speaker 1: Tessa to what's really a quick fan situation when it 76 00:04:06,520 --> 00:04:10,200 Speaker 1: comes to Twitter. And and Dan, just do you have 77 00:04:10,240 --> 00:04:14,160 Speaker 1: any sense, again having followed this company since this inception 78 00:04:15,160 --> 00:04:18,280 Speaker 1: the board, is there any chance that this board can 79 00:04:18,400 --> 00:04:22,880 Speaker 1: have any influence on this overall situation specifically kind of 80 00:04:22,920 --> 00:04:27,320 Speaker 1: dealing with elon Musk. Look, I think ultimately Musk, you know, 81 00:04:27,400 --> 00:04:30,360 Speaker 1: when he speaks, others listen in terms of you know, 82 00:04:30,480 --> 00:04:34,080 Speaker 1: the board situation means, I think there could be you know, 83 00:04:34,360 --> 00:04:38,080 Speaker 1: definitely more pressure from the board or at the end 84 00:04:38,120 --> 00:04:40,240 Speaker 1: of the day, I mean, must continues to go to 85 00:04:40,279 --> 00:04:42,520 Speaker 1: the beat of a different drum and he's not really 86 00:04:42,520 --> 00:04:45,200 Speaker 1: going to listen to anyone. I do think here the 87 00:04:45,320 --> 00:04:47,880 Speaker 1: writings in the wall, I feel like he did start 88 00:04:47,920 --> 00:04:51,200 Speaker 1: to understand that he's not gonna be able to turn 89 00:04:51,200 --> 00:04:54,159 Speaker 1: around Twitter himself to some extent. Actually, it's made it worse, 90 00:04:54,560 --> 00:04:56,640 Speaker 1: you know, since Wad October, and that's been part of 91 00:04:56,640 --> 00:05:00,479 Speaker 1: the overhang on Tesla because with the big this issue 92 00:05:00,520 --> 00:05:04,520 Speaker 1: pause that he's using Tesla as his own personal ATM 93 00:05:04,520 --> 00:05:08,040 Speaker 1: machine to fund Twitter. Well, what kind of upside does 94 00:05:08,040 --> 00:05:10,839 Speaker 1: that then mean for Tesla shares? Specifically, if you say 95 00:05:10,880 --> 00:05:15,320 Speaker 1: that this split attention is then reverted right back to 96 00:05:15,320 --> 00:05:19,840 Speaker 1: to Tesla, what kind of stock performance could we expect? Well, 97 00:05:19,880 --> 00:05:22,600 Speaker 1: I think then the whole storage change is because they 98 00:05:22,680 --> 00:05:26,840 Speaker 1: navigate the China headwinds even or a session, I still 99 00:05:26,880 --> 00:05:30,000 Speaker 1: think they could because of two million vehicles sold in 100 00:05:30,080 --> 00:05:34,120 Speaker 1: two thousand twenty three, and then the transformation story, which 101 00:05:34,200 --> 00:05:37,640 Speaker 1: is taking a major hiccup during this period, continues on. 102 00:05:37,839 --> 00:05:39,920 Speaker 1: Then I think you could be looking, you know, and 103 00:05:40,240 --> 00:05:42,479 Speaker 1: what I believe is this doctor could be much higher 104 00:05:42,480 --> 00:05:44,839 Speaker 1: from here. You know two in the fifty hour is 105 00:05:44,880 --> 00:05:47,960 Speaker 1: our price target. But in the near term, I mean, 106 00:05:48,120 --> 00:05:52,120 Speaker 1: this is the black cloud you know over the Tesla 107 00:05:52,240 --> 00:05:56,000 Speaker 1: story that needs to clear and it's really self inflicted 108 00:05:56,040 --> 00:05:58,080 Speaker 1: from must that's going to go down and still is 109 00:05:58,560 --> 00:06:02,599 Speaker 1: we'd is probably most over the attack acquisition issuing men 110 00:06:02,640 --> 00:06:05,160 Speaker 1: deep Um, you know I'm looking at again the news 111 00:06:05,160 --> 00:06:07,560 Speaker 1: today is you know the poll that Ellen put out 112 00:06:07,640 --> 00:06:12,120 Speaker 1: and his users voting that he should step down. In reality, 113 00:06:12,360 --> 00:06:14,600 Speaker 1: I mean, you know the business, you know the players here. 114 00:06:15,120 --> 00:06:17,839 Speaker 1: I can't imagine someone with the chops of like a 115 00:06:17,880 --> 00:06:22,480 Speaker 1: Sheryl Sandberg coming into this role given the ownership structure. 116 00:06:23,440 --> 00:06:25,520 Speaker 1: How do you think this might maybe plays after just 117 00:06:25,600 --> 00:06:30,960 Speaker 1: a Twitter management Twitter business perspective. Yes, so look, I 118 00:06:31,320 --> 00:06:34,680 Speaker 1: think Elon Musk is surrounded by a lot of people 119 00:06:34,880 --> 00:06:37,920 Speaker 1: who know how to run this business, so I think 120 00:06:37,960 --> 00:06:42,240 Speaker 1: he's gonna get external help. The key question remains how 121 00:06:42,279 --> 00:06:45,320 Speaker 1: much independence this new person can get in terms of 122 00:06:45,400 --> 00:06:49,279 Speaker 1: running the company. And look, online advertising, even though it's 123 00:06:49,320 --> 00:06:53,320 Speaker 1: a secular growth market, the growth seems to be slowing, 124 00:06:53,360 --> 00:06:57,080 Speaker 1: so we're not talking about you know, plus growth anymore 125 00:06:57,080 --> 00:06:59,680 Speaker 1: in online ads. This is more of you know, low 126 00:06:59,720 --> 00:07:03,279 Speaker 1: te means after we are you know, through this cyclical downturn. 127 00:07:03,720 --> 00:07:06,240 Speaker 1: That's a kind of growth, and it's getting competitive. I 128 00:07:06,240 --> 00:07:09,160 Speaker 1: mean you see likes of Netflix and you know Disney 129 00:07:09,160 --> 00:07:13,520 Speaker 1: Plus getting into online at So Twitter as a company, 130 00:07:13,760 --> 00:07:16,640 Speaker 1: to my mind is sort of mature stage, you know, 131 00:07:16,960 --> 00:07:20,400 Speaker 1: use the growth is uh sort of slowing down ads 132 00:07:20,480 --> 00:07:24,240 Speaker 1: that we know they're having issues and it's not easy 133 00:07:24,320 --> 00:07:27,600 Speaker 1: to revive Twitter and make it, you know, a growth 134 00:07:27,640 --> 00:07:30,680 Speaker 1: company again. And that's why I think the choices are narrow. 135 00:07:30,760 --> 00:07:34,440 Speaker 1: But look, Elon Musk is surrounded by people who can 136 00:07:34,520 --> 00:07:37,840 Speaker 1: run this company for sure. But what does that that 137 00:07:38,000 --> 00:07:40,840 Speaker 1: mean in terms of things like the margin loans for example, 138 00:07:40,880 --> 00:07:43,800 Speaker 1: what is the likelihood that some of that debt can 139 00:07:44,200 --> 00:07:48,080 Speaker 1: actually be exchanged and then um, I don't want to 140 00:07:48,080 --> 00:07:52,640 Speaker 1: say advertised, but actually gain interest for shareholders that aren't 141 00:07:52,640 --> 00:07:55,960 Speaker 1: the biggest banks to actually grab them. What do you think? Yeah, 142 00:07:56,000 --> 00:07:58,200 Speaker 1: So that that's where you know, it's a good thing 143 00:07:58,280 --> 00:08:01,320 Speaker 1: that the company is private and right now they just 144 00:08:01,400 --> 00:08:04,520 Speaker 1: have to manage the death situation, make sure they pay 145 00:08:04,520 --> 00:08:07,720 Speaker 1: off the interests, and manage the margin loan situation. But 146 00:08:08,080 --> 00:08:10,800 Speaker 1: they have that kind of balance sheet and even though 147 00:08:11,200 --> 00:08:13,560 Speaker 1: must may have to sell more stock. He can manage 148 00:08:13,600 --> 00:08:17,280 Speaker 1: the situation. The question is is there a viable business 149 00:08:17,360 --> 00:08:19,840 Speaker 1: that he can Uh, you know, at some point I 150 00:08:19,960 --> 00:08:22,040 Speaker 1: p O again and and get out of this thing. 151 00:08:22,160 --> 00:08:25,880 Speaker 1: But the way it's being run right now clearly uh 152 00:08:26,000 --> 00:08:28,760 Speaker 1: you know it's in decline and uh, we're not even 153 00:08:28,800 --> 00:08:32,400 Speaker 1: thinking about when Twitter may go public again. Dan, just 154 00:08:32,400 --> 00:08:36,959 Speaker 1: stepping back from the Elon factor, what's the what's your 155 00:08:37,000 --> 00:08:39,679 Speaker 1: call for Tesla as it relates to just competition with 156 00:08:39,720 --> 00:08:43,760 Speaker 1: all the big auto manufacturers globally in two seeming to 157 00:08:43,840 --> 00:08:46,840 Speaker 1: go all in on evs. How do you think TESTA 158 00:08:46,920 --> 00:08:51,320 Speaker 1: positions itself? Okay, I think Tesla is in a position 159 00:08:51,360 --> 00:08:54,080 Speaker 1: of strength, but new doubt the three one three areas 160 00:08:54,080 --> 00:08:56,120 Speaker 1: where there is going to be a major beneficiary. You 161 00:08:56,160 --> 00:08:59,760 Speaker 1: look with Mary doing the GM and Farowly for their 162 00:09:00,000 --> 00:09:02,719 Speaker 1: into benefiting the plan as well as others from the 163 00:09:02,960 --> 00:09:05,800 Speaker 1: ABU machities and and everyone else. Because this is not 164 00:09:05,920 --> 00:09:09,240 Speaker 1: a zero from game and you're really getting into a 165 00:09:09,320 --> 00:09:11,640 Speaker 1: combing an inflection year for e d S and two 166 00:09:11,679 --> 00:09:14,400 Speaker 1: thousand and twenty three. But right now, in terms of 167 00:09:14,400 --> 00:09:18,280 Speaker 1: what's happening with Musk, there's been popping of the Champagne 168 00:09:18,280 --> 00:09:20,959 Speaker 1: in Detroit as they watched this because it's the best ever. 169 00:09:21,040 --> 00:09:25,560 Speaker 1: Hap alright, great stuff. We appreciate getting the the updates, 170 00:09:25,559 --> 00:09:28,520 Speaker 1: seems like on this never ending story. Dan ives's the 171 00:09:28,559 --> 00:09:32,559 Speaker 1: senior analysts UH covering all things technology for what Bush Securities, 172 00:09:32,800 --> 00:09:34,520 Speaker 1: And again it just to put it in context, and 173 00:09:34,640 --> 00:09:38,360 Speaker 1: it's been a super supporter of UH, you know, the 174 00:09:38,400 --> 00:09:41,800 Speaker 1: electric vehicle business and Tesla from the beginnings, done such 175 00:09:41,840 --> 00:09:44,880 Speaker 1: a great job educating Wall Street UH and his investing 176 00:09:44,880 --> 00:09:48,600 Speaker 1: clients about, you know, this whole new business. But now 177 00:09:48,640 --> 00:09:52,199 Speaker 1: obviously shareholders of of Tesla and supporters of the stock 178 00:09:52,240 --> 00:09:54,760 Speaker 1: have to deal with kind of this issue with Elon 179 00:09:54,840 --> 00:09:57,640 Speaker 1: Musk and the ownership of Twitter and the impact that's 180 00:09:57,679 --> 00:10:00,959 Speaker 1: having on Tesla. So tough time for those sharehold Mandeep 181 00:10:00,960 --> 00:10:03,920 Speaker 1: Sein covers all things technology for Bloomberg Intelligence. He joins 182 00:10:04,000 --> 00:10:05,439 Speaker 1: us as well, so we'll have to get those two 183 00:10:05,440 --> 00:10:07,839 Speaker 1: folks together created just give us a sense of the 184 00:10:08,200 --> 00:10:11,520 Speaker 1: business of Twitter the business of Tesla as they both 185 00:10:11,559 --> 00:10:18,400 Speaker 1: try to negotiate ownership by Elon Musk. I don't know 186 00:10:18,400 --> 00:10:22,199 Speaker 1: about the rest of We've gone'm putting in the rear view. 187 00:10:22,200 --> 00:10:26,040 Speaker 1: I'm looking forward to three. It's got to be better. Right. Uh, 188 00:10:26,200 --> 00:10:27,800 Speaker 1: let's check in with some people who kind of do 189 00:10:27,840 --> 00:10:30,480 Speaker 1: this stuff for living. Gina Martin Adams, chief equity analystm 190 00:10:30,480 --> 00:10:36,400 Speaker 1: Bloomberg Intelligence, and Cameron christ macro strategists with Bloomberg News. So, Gina, 191 00:10:36,640 --> 00:10:39,040 Speaker 1: let's start with you here. My sixty or forty portfolio 192 00:10:39,160 --> 00:10:44,120 Speaker 1: got slammed around all year, equities down, bonds down. How 193 00:10:44,160 --> 00:10:48,560 Speaker 1: should I which my expectations? Yeah, I think it's a 194 00:10:48,640 --> 00:10:51,040 Speaker 1: It's a great question, certainly, and something everyone is thinking 195 00:10:51,040 --> 00:10:53,640 Speaker 1: about at this point in time. You know, our expectations 196 00:10:53,679 --> 00:10:56,800 Speaker 1: are the equity market side of the equation anyway, will 197 00:10:56,800 --> 00:10:59,760 Speaker 1: be a touch better, but maybe not back to the 198 00:11:00,120 --> 00:11:02,800 Speaker 1: double digit average annual gains that we became accustomed to 199 00:11:02,840 --> 00:11:05,360 Speaker 1: in the in the last cycle. So our expectation is 200 00:11:05,920 --> 00:11:08,280 Speaker 1: a little bit more moderate for the next cycle. We 201 00:11:08,440 --> 00:11:12,120 Speaker 1: see the likelihood for higher for longer interest rates, higher 202 00:11:12,120 --> 00:11:16,760 Speaker 1: for longer inflation, pressuring valuations, and earnings growth alike. So 203 00:11:16,880 --> 00:11:19,520 Speaker 1: our average anual return expectation for the next three years 204 00:11:19,520 --> 00:11:23,040 Speaker 1: is somewhere between five and seven as opposed to the 205 00:11:23,920 --> 00:11:25,839 Speaker 1: average anual growth that you were that you got out 206 00:11:25,840 --> 00:11:30,960 Speaker 1: of stocks following the Great Financial Crisis. Well, Cameron hop 207 00:11:31,000 --> 00:11:33,640 Speaker 1: on in here. You wrote a column today and I 208 00:11:33,679 --> 00:11:36,040 Speaker 1: love the title of your your Macroman column saying it's 209 00:11:36,080 --> 00:11:39,199 Speaker 1: kind of funny how no one wants crash protection. Talk 210 00:11:39,240 --> 00:11:40,960 Speaker 1: to us a little bit about the hedging picture. Are 211 00:11:40,960 --> 00:11:46,079 Speaker 1: people just going into cold? I wouldn't say that. I 212 00:11:46,160 --> 00:11:51,160 Speaker 1: mean there are a number of uh peculiarities of the 213 00:11:51,559 --> 00:11:54,800 Speaker 1: option market. UM. One is that there's a very large 214 00:11:54,800 --> 00:11:59,839 Speaker 1: stray that happened every quarter UH where the institution is 215 00:12:00,000 --> 00:12:02,640 Speaker 1: all buys a slightly out of the money UH put 216 00:12:02,679 --> 00:12:05,439 Speaker 1: on the SMP and sells a put that's quite a 217 00:12:05,480 --> 00:12:08,840 Speaker 1: bit further out of the money, and that that probably 218 00:12:08,880 --> 00:12:13,800 Speaker 1: with some other flow dynamics, may have reduced the relative 219 00:12:13,880 --> 00:12:18,000 Speaker 1: ball premium that people put on very low delta options UM. 220 00:12:18,040 --> 00:12:22,440 Speaker 1: And the other thing is that quite unusually, the average 221 00:12:22,440 --> 00:12:26,400 Speaker 1: winning day in two has been a lot bigger than 222 00:12:26,440 --> 00:12:29,120 Speaker 1: the average losing day. I mean, you normally think about 223 00:12:29,480 --> 00:12:31,960 Speaker 1: the equity market sort of riding the escalator up and 224 00:12:31,960 --> 00:12:35,240 Speaker 1: then following down the elevator shaft. But it's it's been 225 00:12:35,320 --> 00:12:38,920 Speaker 1: quite quite contrary UM this year, where the average winning 226 00:12:39,000 --> 00:12:42,160 Speaker 1: days about twenty bases points bigger than the average than 227 00:12:42,200 --> 00:12:46,560 Speaker 1: the average losing day, which suggests that, uh, you know, 228 00:12:46,920 --> 00:12:50,800 Speaker 1: we we are not experiencing the sort of discontinuous moves 229 00:12:50,800 --> 00:12:53,440 Speaker 1: that would that would to the downside, that would normally 230 00:12:53,480 --> 00:12:56,560 Speaker 1: lead lead people to sort of really scramble for crash protection. 231 00:12:57,480 --> 00:12:59,120 Speaker 1: A you know, one of the risks out there, at 232 00:12:59,160 --> 00:13:02,559 Speaker 1: least in my mind, is still maybe some earnings risk. 233 00:13:02,600 --> 00:13:04,240 Speaker 1: And I look at the Bloomberg terminal for the SMP 234 00:13:05,559 --> 00:13:08,280 Speaker 1: for next year, like two four bucks up about five. 235 00:13:09,120 --> 00:13:12,120 Speaker 1: We had Doug cass On from C Breeze Partners early 236 00:13:12,360 --> 00:13:15,199 Speaker 1: in earlier on today he said, no, way, think about 237 00:13:15,240 --> 00:13:19,720 Speaker 1: two hundred for earnings. What how are you thinking about 238 00:13:19,760 --> 00:13:23,280 Speaker 1: earnings in twenty three. Yeah, we also have an earnings 239 00:13:23,280 --> 00:13:25,400 Speaker 1: decline baked into our model, our fair value model, so 240 00:13:25,440 --> 00:13:28,280 Speaker 1: as you get a small single digit drop in earnings growth, 241 00:13:28,320 --> 00:13:31,000 Speaker 1: I think the really interesting thing about this particular cycle 242 00:13:31,080 --> 00:13:33,160 Speaker 1: is that most of the SMP five hundred has already 243 00:13:33,240 --> 00:13:37,440 Speaker 1: entered in earnings recession. When you exclude energy from the equation. 244 00:13:37,520 --> 00:13:39,920 Speaker 1: The index earning stream actually peaked all the way back 245 00:13:39,920 --> 00:13:43,720 Speaker 1: at the end of and most sectors showed a decline 246 00:13:43,720 --> 00:13:46,480 Speaker 1: in earnings throughout this year. So you've got a lot 247 00:13:46,480 --> 00:13:50,320 Speaker 1: of moving parts to contend with going into three. Certainly 248 00:13:50,360 --> 00:13:53,160 Speaker 1: the energy sector will weigh heavily on the earning stream 249 00:13:53,160 --> 00:13:56,160 Speaker 1: for the SMP five hundred going into three, because we've 250 00:13:56,160 --> 00:13:59,520 Speaker 1: seen some deterioration in oil prices over the second half 251 00:13:59,559 --> 00:14:02,560 Speaker 1: of this er, and the really strong sort of operating 252 00:14:02,559 --> 00:14:06,200 Speaker 1: margin expansion that these companies enjoyed in twenty two will 253 00:14:06,240 --> 00:14:10,000 Speaker 1: fade into three. That will likely be the biggest drag. 254 00:14:10,520 --> 00:14:12,680 Speaker 1: But on the other end of the spectrum, financials have 255 00:14:12,720 --> 00:14:15,480 Speaker 1: already been in a pretty significant earnings recession this year 256 00:14:16,000 --> 00:14:18,840 Speaker 1: that should ease in three as long as we move 257 00:14:19,000 --> 00:14:22,680 Speaker 1: past this m most negative point of spread in the 258 00:14:22,760 --> 00:14:26,040 Speaker 1: yield curve occurring currently. As long as the yield curve 259 00:14:26,080 --> 00:14:29,560 Speaker 1: becomes slightly less negative in spread, we should see better 260 00:14:29,600 --> 00:14:33,720 Speaker 1: earnings growth for the financial sector. Consumer sectors also have 261 00:14:33,880 --> 00:14:37,600 Speaker 1: been heavily have experienced this heavy weight of compressing operating 262 00:14:37,640 --> 00:14:42,200 Speaker 1: margins because of high input costs. That should ease into 263 00:14:42,800 --> 00:14:45,720 Speaker 1: three as well. So I think the story for twenty 264 00:14:45,760 --> 00:14:47,960 Speaker 1: three on the earnings and the earning stream is really 265 00:14:48,000 --> 00:14:52,160 Speaker 1: just a lot of moving parts. Overall, certainly a decline, 266 00:14:52,560 --> 00:14:55,560 Speaker 1: but our work would suggest this looks nothing like the 267 00:14:55,600 --> 00:14:58,480 Speaker 1: two thousand and eight two thousand nine earnings recession or 268 00:14:58,520 --> 00:15:00,920 Speaker 1: the two thousand one earning stres And it's a really 269 00:15:01,000 --> 00:15:05,400 Speaker 1: unique experience, mostly because of the fact that we're only 270 00:15:05,440 --> 00:15:09,560 Speaker 1: two years out of the pandemic recession and we're still 271 00:15:09,680 --> 00:15:12,880 Speaker 1: contending with a lot of moving parts on the earning stream. 272 00:15:12,920 --> 00:15:15,840 Speaker 1: It's interesting that you say that, Gina, Mike Wilsonever Morgan 273 00:15:15,880 --> 00:15:19,080 Speaker 1: Stanley makes the exact opposite argument. He also says his advice, 274 00:15:19,120 --> 00:15:21,480 Speaker 1: don't assume the market is pricing this kind of outcome 275 00:15:21,760 --> 00:15:24,440 Speaker 1: until it actually happens, which cam brings me to you, 276 00:15:24,840 --> 00:15:29,640 Speaker 1: what exactly is the carnage of the stock market pricing 277 00:15:29,640 --> 00:15:35,600 Speaker 1: in Uh, Well, you could argue, uh, it's priced in 278 00:15:35,760 --> 00:15:38,320 Speaker 1: higher interest rates, but it has you know, has yet 279 00:15:38,360 --> 00:15:42,800 Speaker 1: to price in a significant deterioration in the in the 280 00:15:42,840 --> 00:15:48,080 Speaker 1: economic environment. Um. You know, I think the earnings prospects 281 00:15:48,080 --> 00:15:52,000 Speaker 1: for next year are going to be pretty heavily dependent 282 00:15:52,520 --> 00:15:54,640 Speaker 1: not on what's happened in the past, but also what 283 00:15:54,720 --> 00:15:57,120 Speaker 1: happened in the future. And the fact is is that, well, 284 00:15:57,160 --> 00:16:00,080 Speaker 1: we did have two quarters of slightly negative grow with 285 00:16:00,080 --> 00:16:01,680 Speaker 1: in the first half of this year. That was largely 286 00:16:01,680 --> 00:16:05,480 Speaker 1: a function of exports and inventory adjustments rather than underlying 287 00:16:05,480 --> 00:16:11,560 Speaker 1: domestic demand. If we see a deterioration and underlying domestic demand, 288 00:16:11,600 --> 00:16:16,480 Speaker 1: which does seem relatively reasonable given that policy is going 289 00:16:16,520 --> 00:16:19,400 Speaker 1: to get more restrictive over the course of the year. 290 00:16:19,440 --> 00:16:23,120 Speaker 1: If we look at the real FED funds, right, Uh, 291 00:16:23,240 --> 00:16:27,000 Speaker 1: then it does seem plausible to suggest that there could 292 00:16:27,000 --> 00:16:32,360 Speaker 1: be some significant down moves in in earnings relative to expectations. Still, 293 00:16:32,400 --> 00:16:35,040 Speaker 1: and and let's FACTI if we if we have SMP 294 00:16:35,120 --> 00:16:38,280 Speaker 1: earnings of two bucks, uh, and you slap of fifteen 295 00:16:38,440 --> 00:16:41,760 Speaker 1: or sixteen p on not you get uh, you know, 296 00:16:41,880 --> 00:16:44,160 Speaker 1: you get the SMP at three thousand or thirty two hundred, 297 00:16:44,360 --> 00:16:46,640 Speaker 1: which is a long way from where we are now. 298 00:16:47,480 --> 00:16:49,440 Speaker 1: I don't want to We're not We're not. We're not 299 00:16:49,480 --> 00:16:51,960 Speaker 1: in a job to be fun, to have fun. I mean, 300 00:16:52,000 --> 00:16:55,520 Speaker 1: that's not fun on the job. You know. Two, I 301 00:16:55,520 --> 00:16:59,000 Speaker 1: thought I took my my pain there, Gina, Are there 302 00:17:00,080 --> 00:17:02,800 Speaker 1: I don't know? Are there some sectors? I mean, if 303 00:17:02,840 --> 00:17:04,080 Speaker 1: I want to go out on the risk curve and 304 00:17:04,119 --> 00:17:06,159 Speaker 1: the equity space, are there some sectors I should be 305 00:17:06,720 --> 00:17:09,399 Speaker 1: focusing on here? Do you think? Yeah? You know, our 306 00:17:09,440 --> 00:17:12,400 Speaker 1: work would suggest actually you start to wiggle your way 307 00:17:12,480 --> 00:17:15,040 Speaker 1: into some of the early cycle sectors at this stage 308 00:17:15,040 --> 00:17:17,159 Speaker 1: in the market. We run a fair value model for 309 00:17:17,160 --> 00:17:19,320 Speaker 1: the S and P five hundred and as of our 310 00:17:19,400 --> 00:17:22,040 Speaker 1: October laws and the index that would suggest we not 311 00:17:22,119 --> 00:17:24,320 Speaker 1: only priced something close to four and a half percent 312 00:17:24,359 --> 00:17:26,800 Speaker 1: FED funds, but we also priced at double digit decline 313 00:17:26,840 --> 00:17:29,399 Speaker 1: and earnings growth coming in the next year. So and 314 00:17:29,520 --> 00:17:31,080 Speaker 1: my work would say that we've done gone a long 315 00:17:31,119 --> 00:17:34,400 Speaker 1: way to pricing that earnings recession, provided that the FED 316 00:17:34,440 --> 00:17:37,199 Speaker 1: does eventually stop raising interest rates. But there is there 317 00:17:37,200 --> 00:17:39,879 Speaker 1: are a lot of question marks in the outlook um. 318 00:17:39,920 --> 00:17:42,159 Speaker 1: As I mentioned, I don't see two this as a 319 00:17:42,160 --> 00:17:45,239 Speaker 1: two thousand ninth scenario, mostly because financials, which is one 320 00:17:45,280 --> 00:17:48,680 Speaker 1: of those early cycle sectors that I mentioned the leverage scenario, 321 00:17:48,720 --> 00:17:50,560 Speaker 1: and financial doesn't look at all like two thousand and 322 00:17:50,720 --> 00:17:52,960 Speaker 1: two thousand nine. We've got half the overall leverage and 323 00:17:53,000 --> 00:17:56,040 Speaker 1: the public financial sector that we had at that point 324 00:17:56,080 --> 00:17:57,840 Speaker 1: in time, despite the fact that the economy is a 325 00:17:57,840 --> 00:18:01,000 Speaker 1: whole lot bigger. So financial else to us, looks like 326 00:18:01,040 --> 00:18:04,040 Speaker 1: an area of opportunity along with something like a consumer 327 00:18:04,440 --> 00:18:07,720 Speaker 1: some of the consumer names that have been inordinately beaten 328 00:18:07,760 --> 00:18:11,680 Speaker 1: down over the course of this year, anticipating again that 329 00:18:11,760 --> 00:18:16,000 Speaker 1: decline and demand coming into three. So I would say 330 00:18:16,000 --> 00:18:19,400 Speaker 1: you start to leg in to some of the cyclical space, 331 00:18:19,480 --> 00:18:23,600 Speaker 1: cyclical space into There's no rush to do so, because 332 00:18:23,640 --> 00:18:26,760 Speaker 1: we do space negative estimate revision pressure for the index 333 00:18:26,800 --> 00:18:29,160 Speaker 1: at large. But if you look at where the valuation 334 00:18:29,200 --> 00:18:32,879 Speaker 1: opportunities are, they are in those early cyclical sectors. The 335 00:18:32,960 --> 00:18:35,080 Speaker 1: bloated part of the market is still a problem. The 336 00:18:35,119 --> 00:18:38,280 Speaker 1: bloated part of the market is that large cap growth 337 00:18:38,320 --> 00:18:43,119 Speaker 1: space that became inordinately excessively valued in the pandemic, and 338 00:18:43,160 --> 00:18:47,400 Speaker 1: we're still, you know, recovering from that addiction we had 339 00:18:47,440 --> 00:18:49,760 Speaker 1: to large cap growth and that will probably continue to 340 00:18:49,800 --> 00:18:52,199 Speaker 1: be a drag. That's too big man. I made my 341 00:18:52,200 --> 00:18:54,040 Speaker 1: bread and butter and that space, like a lot of 342 00:18:54,080 --> 00:18:57,320 Speaker 1: other people kind of playing on the big tech names 343 00:18:57,359 --> 00:19:00,359 Speaker 1: and the big consumer cyclical kind of stuff. So so 344 00:19:00,400 --> 00:19:01,800 Speaker 1: we'll have to see how that plays out. Right. Gina 345 00:19:01,800 --> 00:19:04,879 Speaker 1: Martin items great stuff has always chief equity analysts with 346 00:19:04,880 --> 00:19:10,000 Speaker 1: Bloomberg Intelligence and Camera Christ macro strategist with the colmdown 347 00:19:10,040 --> 00:19:14,000 Speaker 1: call of the morning. I mean two on SMP earnings, 348 00:19:14,000 --> 00:19:16,679 Speaker 1: you put a fifteen sixteen multiple on that. That's some 349 00:19:16,800 --> 00:19:23,879 Speaker 1: pretty decent downside for the SMP. C Suite Conversation today. 350 00:19:24,440 --> 00:19:27,399 Speaker 1: Today we're joined by John Carter, All, CEO of en 351 00:19:27,520 --> 00:19:32,359 Speaker 1: Dava that is a London, England based company. The A 352 00:19:32,520 --> 00:19:34,359 Speaker 1: d R S trade here on the New York Socker Strange. 353 00:19:34,560 --> 00:19:38,640 Speaker 1: U D A v A is your ticker. John, Thanks 354 00:19:38,680 --> 00:19:41,399 Speaker 1: so much for joining us here, UH technology company, I 355 00:19:41,480 --> 00:19:44,080 Speaker 1: T services company. Tell us about what you guys are 356 00:19:44,119 --> 00:19:49,479 Speaker 1: doing at Endava. Sure, and thanks for having me on 357 00:19:49,520 --> 00:19:54,240 Speaker 1: and I appreciate it. Um So in Dava drives technology 358 00:19:54,320 --> 00:19:58,320 Speaker 1: change for our customers, so we focus on the technology 359 00:19:58,359 --> 00:20:02,080 Speaker 1: waves that are rolling through chosen industries that we focus on. 360 00:20:02,880 --> 00:20:07,480 Speaker 1: Um and developed the expertise to drive fundamental change for 361 00:20:07,560 --> 00:20:11,800 Speaker 1: our customers, so things like autonomous vehicles and how that 362 00:20:12,040 --> 00:20:19,520 Speaker 1: is affecting mobility. Even today, business practices are adjusting using 363 00:20:19,560 --> 00:20:23,520 Speaker 1: technology to you know, all of the change that's going 364 00:20:23,520 --> 00:20:26,680 Speaker 1: to come. Has autonomous vehicles hit the market and there 365 00:20:26,680 --> 00:20:30,720 Speaker 1: are many different technologies across many industries where we're helping 366 00:20:30,760 --> 00:20:35,160 Speaker 1: clients go through those adjustments. One of the big themes 367 00:20:35,320 --> 00:20:37,840 Speaker 1: for obviously companies globally right now is that there is 368 00:20:37,880 --> 00:20:41,399 Speaker 1: going to be a massive slowdown. We were just talking 369 00:20:41,440 --> 00:20:44,600 Speaker 1: in our last segment about it really hitting the profits 370 00:20:44,600 --> 00:20:46,280 Speaker 1: in the bottom line of a lot of these companies. 371 00:20:46,320 --> 00:20:51,280 Speaker 1: Are you seeing the same for your business? So at 372 00:20:51,320 --> 00:20:56,959 Speaker 1: the moment, our guidance looking forward is for good solid growth. 373 00:20:57,119 --> 00:21:01,560 Speaker 1: So we've guided on a constant currency basis of tween 374 00:21:01,600 --> 00:21:06,240 Speaker 1: twenty three and for our fiscal year which runs to 375 00:21:06,280 --> 00:21:09,640 Speaker 1: the end of June. UM and at the moment we're 376 00:21:09,640 --> 00:21:16,600 Speaker 1: seeing good strong demand supporting that. Um so um. You know, 377 00:21:16,760 --> 00:21:21,560 Speaker 1: our rationale is that clients are still investing in the 378 00:21:21,600 --> 00:21:27,879 Speaker 1: areas of deep fundamental change UM that a driving step 379 00:21:27,960 --> 00:21:31,160 Speaker 1: change shifts in their industries and feeling that they can't 380 00:21:31,160 --> 00:21:36,080 Speaker 1: step back from it. There's maybe a little bit of review, 381 00:21:36,880 --> 00:21:40,760 Speaker 1: extra review around should we be spending the money, but 382 00:21:40,960 --> 00:21:44,040 Speaker 1: largely we're seeing it come through. So John, give us 383 00:21:44,040 --> 00:21:47,040 Speaker 1: a sense of maybe who are a typical customer of 384 00:21:47,080 --> 00:21:48,760 Speaker 1: years or what are some of the verticals that you 385 00:21:48,800 --> 00:21:51,880 Speaker 1: guys really focus on in kind of what are what's 386 00:21:51,960 --> 00:21:56,920 Speaker 1: your software do for those clients? Sure, um, so we're 387 00:21:57,040 --> 00:22:00,920 Speaker 1: we're writing the spoke software for clients you seem sort 388 00:22:00,920 --> 00:22:05,480 Speaker 1: of the technologies that are out there already touched on mobility. 389 00:22:05,800 --> 00:22:09,760 Speaker 1: Another area is payments, so as you see the shift 390 00:22:09,840 --> 00:22:13,679 Speaker 1: to electronic payments, and frictionless payments and different ways in 391 00:22:13,720 --> 00:22:15,879 Speaker 1: which that can be done real time and so on. 392 00:22:16,760 --> 00:22:22,600 Speaker 1: We're helping clients make that adjustment retail as it's becoming 393 00:22:22,680 --> 00:22:26,080 Speaker 1: more omni channel and adopting some of those friction as payments. 394 00:22:26,080 --> 00:22:29,440 Speaker 1: I was talking about media. You see the shift to 395 00:22:29,640 --> 00:22:33,400 Speaker 1: streaming and just coming over the horizon. You can see 396 00:22:33,520 --> 00:22:38,880 Speaker 1: things like the metaverse coming through AI and wearables transforming 397 00:22:38,920 --> 00:22:44,119 Speaker 1: access that personally relevant healthcare. And then in insurance you 398 00:22:44,119 --> 00:22:48,240 Speaker 1: can see data transforming and personalizing the sorts of products 399 00:22:48,280 --> 00:22:51,080 Speaker 1: that clients want to put out. In insurance, of course 400 00:22:51,080 --> 00:22:54,800 Speaker 1: there's digital banking. The shift there continues to gather an momentum. 401 00:22:54,840 --> 00:22:57,399 Speaker 1: It's got a long way to run and so on. 402 00:22:58,359 --> 00:23:01,720 Speaker 1: It looks like you have a recently announced acquisition of 403 00:23:01,720 --> 00:23:04,000 Speaker 1: a Lexicon in Australia. Talked to us a little bit 404 00:23:04,040 --> 00:23:08,640 Speaker 1: about that business, sure, So you know, one of our 405 00:23:09,280 --> 00:23:14,679 Speaker 1: strategies as a business is to diversify our footprint UM. 406 00:23:14,880 --> 00:23:18,280 Speaker 1: So we do usfy across industries. We started in the 407 00:23:18,280 --> 00:23:24,439 Speaker 1: financial services space UM and then we diversify geographically. So 408 00:23:24,680 --> 00:23:30,440 Speaker 1: Lexicon is target that we settled on in Australia to 409 00:23:30,560 --> 00:23:34,399 Speaker 1: really push what we're doing in the Asia Pacific arena, 410 00:23:34,720 --> 00:23:37,320 Speaker 1: and they work with clients in a similar way to 411 00:23:37,400 --> 00:23:43,120 Speaker 1: the way that we do, accelerating their digital transformation programs. UM. 412 00:23:43,280 --> 00:23:47,520 Speaker 1: They've got employees in Australia and Vietnam, so very much 413 00:23:47,640 --> 00:23:53,120 Speaker 1: fits our model. John, How did your business evolve? How 414 00:23:53,119 --> 00:23:56,720 Speaker 1: has it impacted over the last several years of this pandemic. 415 00:23:57,080 --> 00:24:00,159 Speaker 1: We know that software generally held up as as a 416 00:24:00,200 --> 00:24:02,159 Speaker 1: sector pretty darn well, but it be interested to kind 417 00:24:02,200 --> 00:24:07,560 Speaker 1: of get your view. Yeah, So, I mean, we started 418 00:24:07,560 --> 00:24:11,520 Speaker 1: the business in February two thousand in London, were inentially 419 00:24:11,560 --> 00:24:15,640 Speaker 1: focused on city of London. UM, and you know we've 420 00:24:15,760 --> 00:24:21,640 Speaker 1: we've built up we I Pod in July, just over 421 00:24:21,720 --> 00:24:25,560 Speaker 1: four years ago. Since then we've traveled in size um 422 00:24:25,600 --> 00:24:30,040 Speaker 1: and improved our margins. So that took us through the pandemic. 423 00:24:31,560 --> 00:24:36,640 Speaker 1: The pandemic was a very short, very slight pull back 424 00:24:36,800 --> 00:24:39,560 Speaker 1: maybe two percent right at the beginning of the pandemic, 425 00:24:39,600 --> 00:24:42,040 Speaker 1: where clients like a step back and went, my goodness, 426 00:24:42,119 --> 00:24:47,120 Speaker 1: what's happening here? But then very quickly settled into very 427 00:24:47,119 --> 00:24:51,120 Speaker 1: strong acceleration and when we hit peaks of sixty year 428 00:24:51,160 --> 00:24:57,159 Speaker 1: on year growth as clients were adopting technologies to enable 429 00:24:57,240 --> 00:24:59,920 Speaker 1: them to stay in touch with their clients in stay 430 00:25:00,000 --> 00:25:03,399 Speaker 1: at home environments, et cetera. Delivery being one of the 431 00:25:03,440 --> 00:25:08,000 Speaker 1: big areas of growth. Part volnability space well delivery, and 432 00:25:08,040 --> 00:25:10,399 Speaker 1: I would argue the buying now, pay later types of 433 00:25:10,480 --> 00:25:13,680 Speaker 1: models as well. It's interesting that you kind of talk 434 00:25:13,720 --> 00:25:16,600 Speaker 1: about this evolution of technology. You mentioned the e V space, 435 00:25:16,840 --> 00:25:19,119 Speaker 1: which is really interesting something fort we pay attention to 436 00:25:19,400 --> 00:25:21,680 Speaker 1: quite a bit at Bloomberg, but talked to us a 437 00:25:21,720 --> 00:25:24,480 Speaker 1: little bit about the payment system. It almost feels like 438 00:25:25,080 --> 00:25:30,280 Speaker 1: that's an involving business as well. Yeah, so payments, it's 439 00:25:30,320 --> 00:25:33,560 Speaker 1: been one of our core areas of focus for over 440 00:25:33,640 --> 00:25:38,320 Speaker 1: twenty years, so initially working with the banks and then 441 00:25:38,400 --> 00:25:41,520 Speaker 1: some of the payment providers that got separated out from 442 00:25:41,520 --> 00:25:46,280 Speaker 1: the banks. Increasingly we see payments as being something that 443 00:25:46,359 --> 00:25:51,479 Speaker 1: we're taking to other industries as they're getting to grips 444 00:25:51,520 --> 00:25:58,159 Speaker 1: with how to provide a more seamless, richingless type of 445 00:25:58,200 --> 00:26:03,199 Speaker 1: service to quite as retailers, for instance, they want to 446 00:26:03,240 --> 00:26:07,440 Speaker 1: move to on omni channel in which they're integrating payment solution. 447 00:26:07,560 --> 00:26:09,800 Speaker 1: They want to take a little bit more ownership of 448 00:26:09,880 --> 00:26:13,880 Speaker 1: the buy mow pay later type solutions, and they want 449 00:26:13,920 --> 00:26:16,800 Speaker 1: them to keep their hands on the customer data and 450 00:26:16,880 --> 00:26:22,600 Speaker 1: not see it go down the chain into their payments providers. UM. So, actually, 451 00:26:22,840 --> 00:26:26,679 Speaker 1: you know, the experience we have in other industries is 452 00:26:26,720 --> 00:26:30,200 Speaker 1: becoming part of the value add that our clients seeing 453 00:26:30,400 --> 00:26:35,480 Speaker 1: us bringing that payments experience, or in other spaces, for instance, 454 00:26:37,200 --> 00:26:40,560 Speaker 1: insurance type services might move from being insure a car 455 00:26:41,720 --> 00:26:46,040 Speaker 1: to actually insure a journey. And you know that that 456 00:26:46,160 --> 00:26:49,120 Speaker 1: requires a radical rethink of how you build your products 457 00:26:49,200 --> 00:26:51,399 Speaker 1: and how you relate to the insurance industry. And the 458 00:26:51,520 --> 00:26:54,760 Speaker 1: data helps clients to bridge that gap. All right, John, 459 00:26:54,960 --> 00:26:57,560 Speaker 1: great stuff, appreciate getting a few minutes of your time there. 460 00:26:57,640 --> 00:27:02,359 Speaker 1: John cut Roll, he CEO of and DAVA. That is 461 00:27:02,400 --> 00:27:10,680 Speaker 1: a New York Stock Change listed stock. Let's switch over 462 00:27:10,680 --> 00:27:13,359 Speaker 1: and talk global energy. We've got w t I crude 463 00:27:13,359 --> 00:27:16,240 Speaker 1: oil here pretty much unchanged on the day, seventy four 464 00:27:16,280 --> 00:27:20,000 Speaker 1: dollars thirty one cents a barrel Brent crude just under 465 00:27:20,000 --> 00:27:22,760 Speaker 1: eighty dollars per barrel. You know, you've got to think 466 00:27:22,800 --> 00:27:25,400 Speaker 1: about or when you think about global energy, you gotta 467 00:27:25,400 --> 00:27:29,200 Speaker 1: think about supplying demand and demand big variables always China, 468 00:27:29,280 --> 00:27:32,159 Speaker 1: and I think China is opening up. I don't know 469 00:27:32,240 --> 00:27:34,439 Speaker 1: I guess we'll believe it when we see a Fernando. 470 00:27:34,880 --> 00:27:37,639 Speaker 1: I think it is Fernando Valley used the senior ANALYSTM 471 00:27:37,680 --> 00:27:43,280 Speaker 1: Bloomberg Intelligence cover the global energy space for Bloomberg Intelligence. So, Fernando, 472 00:27:43,359 --> 00:27:46,240 Speaker 1: it appears like you might have some movement in your 473 00:27:46,320 --> 00:27:49,760 Speaker 1: demand models coming from China. How do you guys think 474 00:27:49,800 --> 00:27:53,239 Speaker 1: about it? Oh, well, you're you're right, but I think 475 00:27:53,320 --> 00:27:56,680 Speaker 1: it's actually down first and then up just because similar 476 00:27:56,720 --> 00:27:59,679 Speaker 1: to us, when you reopen at this space, especially with 477 00:27:59,800 --> 00:28:04,680 Speaker 1: more contagious variant variant, you have faster transmission and then 478 00:28:04,880 --> 00:28:09,080 Speaker 1: more sickness and people avoid contact altogether. And you're starting 479 00:28:09,119 --> 00:28:13,080 Speaker 1: to see that in large cities and China. UM. But 480 00:28:13,160 --> 00:28:17,560 Speaker 1: then as you said, uh, as people build naturally immunity 481 00:28:17,600 --> 00:28:20,240 Speaker 1: and they start to readjust to the to the new normal, 482 00:28:20,320 --> 00:28:24,399 Speaker 1: is it were? Uh, then we expect an increase in consumption. 483 00:28:24,920 --> 00:28:28,520 Speaker 1: UM if we go back to levels that could mean 484 00:28:28,560 --> 00:28:31,400 Speaker 1: as much as six seven hundred thousand barrels a day 485 00:28:31,440 --> 00:28:35,320 Speaker 1: of additional imports to China. The big question then becomes 486 00:28:35,320 --> 00:28:38,640 Speaker 1: how does their economy rebound? Remember, this is a country 487 00:28:38,680 --> 00:28:42,160 Speaker 1: that has very high leverage levels, particularly in their real 488 00:28:42,240 --> 00:28:44,800 Speaker 1: estate segment. That accounts for as much as thirty of 489 00:28:44,880 --> 00:28:50,640 Speaker 1: GDP Fernando. When we're looking at the actual market itself, 490 00:28:50,680 --> 00:28:54,480 Speaker 1: it looks like open interest in crude contracts has just 491 00:28:54,520 --> 00:28:59,000 Speaker 1: completely collapsed. How much of the drop in crude really 492 00:28:59,040 --> 00:29:02,480 Speaker 1: had seventy four seventy four handle on imax? How much 493 00:29:02,520 --> 00:29:06,160 Speaker 1: of that is due to perhaps a lack of faith 494 00:29:06,720 --> 00:29:10,000 Speaker 1: in economic growth as opposed to simply people pulling out 495 00:29:10,000 --> 00:29:13,720 Speaker 1: of these positions. I think you hit the nail on 496 00:29:13,760 --> 00:29:17,440 Speaker 1: the head. I think the lack of trust in economic 497 00:29:17,520 --> 00:29:22,040 Speaker 1: activity lead to traders not wanting to be exposed to 498 00:29:22,080 --> 00:29:26,200 Speaker 1: this market, and they decided to retreat in their positions. UM. 499 00:29:26,280 --> 00:29:29,000 Speaker 1: The volatility has clearly been an issue as well. We've 500 00:29:29,040 --> 00:29:32,120 Speaker 1: had a lot of vlatility over the past three months, 501 00:29:32,160 --> 00:29:35,400 Speaker 1: with the news of will we have a recession, will 502 00:29:35,400 --> 00:29:38,880 Speaker 1: defend pivot, will trying to reopen, will COVID zero become 503 00:29:39,640 --> 00:29:44,120 Speaker 1: the facto rule in China? And as we've approached the 504 00:29:44,280 --> 00:29:46,680 Speaker 1: your end as well, traders are trying to lock in 505 00:29:46,760 --> 00:29:50,840 Speaker 1: gains from the everything that we've seen over the much 506 00:29:50,920 --> 00:29:53,480 Speaker 1: higher prices earlier this year, and I think all of 507 00:29:53,520 --> 00:29:57,760 Speaker 1: that led to a drop in liquidity. UM I had 508 00:29:57,800 --> 00:30:02,240 Speaker 1: as well of governments trying to re fill their their reserves. 509 00:30:02,280 --> 00:30:05,280 Speaker 1: So the US government is, as I see the reporting, 510 00:30:05,800 --> 00:30:08,360 Speaker 1: starting to refill its reserves. How does that play out? 511 00:30:08,400 --> 00:30:12,640 Speaker 1: I don't really remember how this works. Well, technically, they 512 00:30:12,640 --> 00:30:17,840 Speaker 1: will buy crude in either open market or forward contracts UH. 513 00:30:18,280 --> 00:30:21,360 Speaker 1: Currently we've only seen them being out in the market 514 00:30:21,400 --> 00:30:23,760 Speaker 1: for about three million barrels, which is a drop in 515 00:30:23,800 --> 00:30:27,080 Speaker 1: the bucket. We've released well over a d eighty million 516 00:30:27,120 --> 00:30:31,720 Speaker 1: barrels UH since the middle of this year, so it'll 517 00:30:31,760 --> 00:30:35,680 Speaker 1: take some time for that to um lead to a 518 00:30:35,200 --> 00:30:39,400 Speaker 1: recovery in the strategic petroleum reserve. Levels were well below 519 00:30:39,480 --> 00:30:43,880 Speaker 1: the tenure averages for for the the spr UM and 520 00:30:43,920 --> 00:30:47,000 Speaker 1: it will take some time and in all likelihood they 521 00:30:47,000 --> 00:30:49,840 Speaker 1: will space that out so that there isn't a huge 522 00:30:49,880 --> 00:30:52,000 Speaker 1: surge in oil prices. You know, they try to do 523 00:30:52,040 --> 00:30:53,960 Speaker 1: it all at once. It would certainly leads to an 524 00:30:53,960 --> 00:30:57,160 Speaker 1: impact on w t I prices. Well. Fernando talked to 525 00:30:57,200 --> 00:30:59,280 Speaker 1: us about the broader energy picture. Of course, we have 526 00:30:59,320 --> 00:31:01,800 Speaker 1: some headlines coming out the EU this morning. They're agreeing 527 00:31:01,840 --> 00:31:04,680 Speaker 1: to cap gas prices at a hundred and eighty euros 528 00:31:04,720 --> 00:31:09,120 Speaker 1: temporarily just to ease the sky high prices, there is 529 00:31:09,160 --> 00:31:12,480 Speaker 1: there a knock on effect into the other parts of 530 00:31:12,520 --> 00:31:17,760 Speaker 1: the energy market. UM. I think with the YOUU CAPT specifically, 531 00:31:17,760 --> 00:31:21,640 Speaker 1: there are a lot of caveats that to actually being 532 00:31:21,680 --> 00:31:24,840 Speaker 1: an enacted the prices have to be above those levels 533 00:31:24,880 --> 00:31:27,320 Speaker 1: for two weeks, and then they have to be above 534 00:31:27,480 --> 00:31:31,000 Speaker 1: an LERG benchmark for ten days actually on top of 535 00:31:31,040 --> 00:31:33,280 Speaker 1: that in order for that price CAPT to really play out. 536 00:31:33,400 --> 00:31:36,320 Speaker 1: So it remains to be seeing whether that that cap 537 00:31:36,360 --> 00:31:39,800 Speaker 1: will actually come into effect. Um. And if you think 538 00:31:39,840 --> 00:31:42,240 Speaker 1: about how the energy system is set up in Europe 539 00:31:42,240 --> 00:31:46,560 Speaker 1: with renewables, UH, hopefully every two weeks that we would 540 00:31:46,560 --> 00:31:49,320 Speaker 1: have a change and get some new generations. We saw 541 00:31:49,360 --> 00:31:52,440 Speaker 1: with the UK now producing more wind over the past 542 00:31:52,480 --> 00:31:55,320 Speaker 1: two past week than they had in the previous two. 543 00:31:55,800 --> 00:31:57,760 Speaker 1: So I don't think there will be a huge knock 544 00:31:57,800 --> 00:32:01,280 Speaker 1: on effect. If it actually did come into fruition, it 545 00:32:01,400 --> 00:32:06,200 Speaker 1: might actually spark more less competition in Asia and cheaper 546 00:32:06,240 --> 00:32:09,200 Speaker 1: prices for lergy because they U is essentially pricing itself 547 00:32:09,240 --> 00:32:13,120 Speaker 1: out and we're seeing places like Pakistan and India struggling 548 00:32:13,120 --> 00:32:16,760 Speaker 1: to get some of the supplies that they were hoping 549 00:32:16,800 --> 00:32:19,160 Speaker 1: for because the U has drained so much of the 550 00:32:19,280 --> 00:32:23,080 Speaker 1: lergy market. So how about on the supply side here, 551 00:32:23,200 --> 00:32:27,840 Speaker 1: give us just an update a where US production is here? 552 00:32:27,880 --> 00:32:31,000 Speaker 1: Where are we visa V capacity? Do you expect us 553 00:32:31,280 --> 00:32:33,520 Speaker 1: that the U S producers to ramp up at af 554 00:32:33,520 --> 00:32:37,440 Speaker 1: they can? How's the supply look from the US? UH? 555 00:32:37,520 --> 00:32:40,760 Speaker 1: It looks sluggish to say the least. It we're still 556 00:32:40,800 --> 00:32:44,120 Speaker 1: hovering around the low twelve million barrel day levels. Um. 557 00:32:44,280 --> 00:32:47,320 Speaker 1: Remember we picked at thirteen point three UH. And there's 558 00:32:47,360 --> 00:32:50,240 Speaker 1: a combination of issues there. One, as we said before, Paul, 559 00:32:51,400 --> 00:32:55,080 Speaker 1: the inventory the wells, they're not just not the same 560 00:32:55,160 --> 00:32:57,160 Speaker 1: quality as they used to be, so the productivity for 561 00:32:57,240 --> 00:32:59,880 Speaker 1: a well is not as good as it was in priority. 562 00:33:00,520 --> 00:33:02,720 Speaker 1: And the second part is just the shortages that we're 563 00:33:02,720 --> 00:33:06,480 Speaker 1: seeing across the supply chain aren't really resolved. The costs 564 00:33:06,600 --> 00:33:10,920 Speaker 1: have risen significantly from steel to Santa labor, and it's 565 00:33:10,920 --> 00:33:13,680 Speaker 1: difficult for them to make a make a return, especially 566 00:33:13,680 --> 00:33:17,000 Speaker 1: at seventy four dollar w c I Fernando talked to 567 00:33:17,040 --> 00:33:19,719 Speaker 1: us a little bit about the SPR release and the 568 00:33:19,720 --> 00:33:22,160 Speaker 1: Biden administrations. Bid I believe there's a headline a couple 569 00:33:22,160 --> 00:33:25,080 Speaker 1: of days ago that in February they were going to 570 00:33:25,160 --> 00:33:28,640 Speaker 1: start looking for bids to buy oil and replenish the 571 00:33:28,680 --> 00:33:31,040 Speaker 1: spr It's I think crime every wrong. I think it 572 00:33:31,080 --> 00:33:33,160 Speaker 1: was like either sixty two or sixty eight or something 573 00:33:33,200 --> 00:33:35,800 Speaker 1: that the which is the price that the Biden administration 574 00:33:35,800 --> 00:33:38,360 Speaker 1: would look to buy into. Talk to us a little 575 00:33:38,360 --> 00:33:42,200 Speaker 1: bit about the effect of that on the market. That 576 00:33:42,240 --> 00:33:44,760 Speaker 1: can have a significant impact, especially when you look at 577 00:33:44,760 --> 00:33:47,280 Speaker 1: the spread between Brenton w t I, which has been 578 00:33:47,720 --> 00:33:52,520 Speaker 1: a support for for US refiners. They especially the ones 579 00:33:52,920 --> 00:33:56,080 Speaker 1: that are landlocked, they tend to make that spread between 580 00:33:56,480 --> 00:33:59,280 Speaker 1: Brenton w t I. That helps their margins. So that 581 00:33:59,320 --> 00:34:02,720 Speaker 1: would be net for those for that group. Um, but 582 00:34:02,880 --> 00:34:05,120 Speaker 1: sixty two to sixty eight, I mean they're probably looking 583 00:34:05,120 --> 00:34:08,200 Speaker 1: at the forward curve and uh, it's just not going 584 00:34:08,239 --> 00:34:10,560 Speaker 1: to be realistic when you actually come into a spot 585 00:34:10,600 --> 00:34:13,759 Speaker 1: market and you're trying to make it the strange actions work, 586 00:34:13,920 --> 00:34:16,360 Speaker 1: especially at that volume. You know, for talking about a 587 00:34:16,440 --> 00:34:19,920 Speaker 1: hundred fifty million barrels of UH to refill back to 588 00:34:19,960 --> 00:34:23,080 Speaker 1: the levels for more UH, they would they would shift 589 00:34:23,080 --> 00:34:26,040 Speaker 1: that curve very quickly if they don't space it out 590 00:34:26,080 --> 00:34:28,680 Speaker 1: over the course of several several months of not a 591 00:34:28,719 --> 00:34:31,600 Speaker 1: couple of a couple of years. Fernando thirty seconds here. 592 00:34:31,680 --> 00:34:34,360 Speaker 1: Just for clarification, did you say that the refining spread 593 00:34:34,400 --> 00:34:38,000 Speaker 1: would then be negative and buy an administration hopped into 594 00:34:38,040 --> 00:34:41,400 Speaker 1: the market. No, this spread between Brent and w C 595 00:34:41,520 --> 00:34:44,200 Speaker 1: I so w is five dollars cheaper than Brent, and 596 00:34:44,960 --> 00:34:48,640 Speaker 1: gasoline and diesel are priced off of Brent. Alright, good stuff. 597 00:34:48,760 --> 00:34:52,960 Speaker 1: Fernando Valley, he covers the global energy space for Bloomberg Intelligence. 598 00:34:52,960 --> 00:34:58,880 Speaker 1: Here looking at the i nd GO function created on 599 00:34:58,920 --> 00:35:01,960 Speaker 1: the Bloomberg terminal gives you all the yeah, the returns 600 00:35:02,200 --> 00:35:05,600 Speaker 1: Bloomberg Index browser. I'm looking at the Bloomberg u S 601 00:35:05,640 --> 00:35:09,680 Speaker 1: Aggricultural Value UH index for the credit for the fixed 602 00:35:09,719 --> 00:35:13,680 Speaker 1: income stuff. Down about eleven point one. That's bad, but 603 00:35:13,719 --> 00:35:15,439 Speaker 1: it was actually a lot worse a few months ago. 604 00:35:15,480 --> 00:35:17,759 Speaker 1: The bonds have been rallying a little bit here, and 605 00:35:18,239 --> 00:35:19,520 Speaker 1: I want to get a sense of kind of what's 606 00:35:19,520 --> 00:35:22,800 Speaker 1: going on out there. So we turned to Liz McCormick, 607 00:35:22,880 --> 00:35:25,799 Speaker 1: chief corresponding Global macro Markets for Bloomberg News. I think 608 00:35:25,840 --> 00:35:29,359 Speaker 1: she's down in our DC studio, which is pretty cool. Liz, 609 00:35:29,360 --> 00:35:31,719 Speaker 1: thanks so much for joining us here. You know, it 610 00:35:31,800 --> 00:35:34,040 Speaker 1: seems like, you know, it's it's not as bad as 611 00:35:34,040 --> 00:35:36,360 Speaker 1: it was earlier in the year for the fixed income space. 612 00:35:36,480 --> 00:35:39,399 Speaker 1: What are you seeing? Yeah, it's amazing And I am 613 00:35:39,440 --> 00:35:42,360 Speaker 1: in our lovely DC office here, um, but yeah, and 614 00:35:42,520 --> 00:35:44,560 Speaker 1: you know, our folks in the corporate finance tea and 615 00:35:44,600 --> 00:35:46,439 Speaker 1: wrote a nice story. And I tell you you see 616 00:35:46,440 --> 00:35:49,920 Speaker 1: it everywhere from either the credit or the sovereign folks. 617 00:35:49,960 --> 00:35:52,600 Speaker 1: It's like they said that the outlooks are all about, oh, 618 00:35:52,640 --> 00:35:54,760 Speaker 1: the year of the bond, the comeback of the bond, 619 00:35:54,920 --> 00:35:57,560 Speaker 1: and it's like you just lay down, how brutal the 620 00:35:57,640 --> 00:36:00,239 Speaker 1: year has been with returns. But the flips out of 621 00:36:00,280 --> 00:36:04,120 Speaker 1: that is it's brought yields higher, right, And people are saying, oh, well, 622 00:36:04,160 --> 00:36:08,640 Speaker 1: maybe we're at peak inflation, you know, maybe stressing. Maybe, 623 00:36:08,719 --> 00:36:10,400 Speaker 1: you know, even though the Fed said is going to 624 00:36:10,520 --> 00:36:13,200 Speaker 1: stay at high rates for a long time, you know, 625 00:36:13,280 --> 00:36:15,960 Speaker 1: maybe at least the uptick is going to stop soon 626 00:36:16,360 --> 00:36:18,319 Speaker 1: and maybe it's a time to lean back into the 627 00:36:18,320 --> 00:36:21,120 Speaker 1: fixed income side. So, like you said, there's folks like 628 00:36:21,280 --> 00:36:25,040 Speaker 1: Vanguard and others saying, you know, investment grade credit looks 629 00:36:25,080 --> 00:36:27,719 Speaker 1: good and you know, maybe it's the time to dip 630 00:36:27,760 --> 00:36:30,920 Speaker 1: back in. And even some on the sovereign sides, like 631 00:36:31,040 --> 00:36:35,799 Speaker 1: you know, treasuries and you know global sovereigns. Liz. There 632 00:36:35,920 --> 00:36:38,480 Speaker 1: is a fun fact that Ira Jersey said to me 633 00:36:38,600 --> 00:36:40,200 Speaker 1: last week, and I've been saying, I think it's like 634 00:36:40,200 --> 00:36:42,480 Speaker 1: the fourth time on the show that I've said it today, 635 00:36:42,560 --> 00:36:44,920 Speaker 1: But he essentially argues that the idea of FED cuts 636 00:36:44,920 --> 00:36:48,360 Speaker 1: being priced in the market is capping yields, especially on 637 00:36:48,400 --> 00:36:50,320 Speaker 1: the front end of the curve for the two year yield. 638 00:36:51,040 --> 00:36:55,000 Speaker 1: Is there a possibility here that rate cuts, or at 639 00:36:55,080 --> 00:36:58,160 Speaker 1: least the possibility of them next year, get pushed out 640 00:36:58,160 --> 00:37:00,360 Speaker 1: of the curve And how quickly could you see some 641 00:37:00,440 --> 00:37:02,439 Speaker 1: sort of shock to the front end of the curve 642 00:37:02,480 --> 00:37:06,239 Speaker 1: if that happens. Well, I have to say and not 643 00:37:06,360 --> 00:37:09,160 Speaker 1: have to say, but I do agree with Ira that, um, 644 00:37:09,200 --> 00:37:11,960 Speaker 1: you know, those cuts being priced in are helping, right, 645 00:37:12,040 --> 00:37:15,399 Speaker 1: especially help and flatten the curve. But I mean, we 646 00:37:15,400 --> 00:37:18,200 Speaker 1: we saw Bill Dudley right on our opinion page today 647 00:37:18,200 --> 00:37:20,560 Speaker 1: that kind of the market may need to listen to 648 00:37:20,600 --> 00:37:23,040 Speaker 1: the FED, and a Jerome pal couldn't have been more 649 00:37:23,080 --> 00:37:26,200 Speaker 1: clear that, like, hey, we're not even thinking about cutting yet. 650 00:37:26,680 --> 00:37:29,280 Speaker 1: So I think there is a lot of risk despite 651 00:37:29,280 --> 00:37:31,560 Speaker 1: everyone saying the year of the bond, which sometimes when 652 00:37:31,560 --> 00:37:34,680 Speaker 1: everyone's saying the same same thing. It almost makes you nervous, right, 653 00:37:34,719 --> 00:37:37,000 Speaker 1: there's a you know, risking things go the other way. 654 00:37:37,200 --> 00:37:39,920 Speaker 1: But I think you're right there there's about fifty basis 655 00:37:39,920 --> 00:37:42,799 Speaker 1: points of cuts priced in by the end of three. 656 00:37:42,800 --> 00:37:45,680 Speaker 1: And if you know, we go meeting by meeting by meeting, 657 00:37:45,719 --> 00:37:48,520 Speaker 1: and the Fed keeps leaving it there and signaling, you know, 658 00:37:48,600 --> 00:37:51,759 Speaker 1: no cuts to the next year, the market will eventually 659 00:37:51,800 --> 00:37:53,759 Speaker 1: come in line. And I think you're right. You know 660 00:37:53,840 --> 00:37:56,200 Speaker 1: that that means maybe then the two year you'll has 661 00:37:56,239 --> 00:37:59,320 Speaker 1: more room to go upside. So there are some firms 662 00:37:59,320 --> 00:38:02,960 Speaker 1: like you've probably seeing black Rock is warning like sovereign dead. 663 00:38:03,120 --> 00:38:04,840 Speaker 1: You know, there's a lot of risks. Inflation could be 664 00:38:04,880 --> 00:38:07,400 Speaker 1: sticky in the FED stays high long and and in 665 00:38:07,400 --> 00:38:10,120 Speaker 1: that world, like you said, creedy two year yields could 666 00:38:10,120 --> 00:38:13,399 Speaker 1: go higher. And Liz, I mean a lot of folks 667 00:38:13,480 --> 00:38:16,279 Speaker 1: obviously talking about a recession in three. Are we seeing 668 00:38:16,280 --> 00:38:19,640 Speaker 1: any signs of that concern? And maybe the high yield 669 00:38:19,680 --> 00:38:22,520 Speaker 1: market at all, maybe some of the lower end. Well 670 00:38:22,560 --> 00:38:26,879 Speaker 1: I do hear from folks and you're seeing their reports 671 00:38:26,960 --> 00:38:29,800 Speaker 1: and and this, you know, nice story today is talking 672 00:38:29,840 --> 00:38:32,440 Speaker 1: about you know, when when things get bad and you 673 00:38:32,480 --> 00:38:35,840 Speaker 1: have a recession, it's you know, defaults you're worried about 674 00:38:35,960 --> 00:38:38,440 Speaker 1: and some high yield risks. So I think, you know 675 00:38:38,480 --> 00:38:41,120 Speaker 1: a lot of them leaning into the market are saying, 676 00:38:41,160 --> 00:38:44,720 Speaker 1: be selective into the debt markets. Let's go with the safer, 677 00:38:45,000 --> 00:38:48,200 Speaker 1: you know, like the investment grade, which investment grade like 678 00:38:48,239 --> 00:38:50,879 Speaker 1: treasury has got really walloped the most because a lot 679 00:38:50,920 --> 00:38:53,759 Speaker 1: of the bond yield as we've known for the last year, 680 00:38:53,800 --> 00:38:56,040 Speaker 1: the pain in the bond market has been just pure 681 00:38:56,160 --> 00:38:59,440 Speaker 1: call it duration risks fed just jamming up rates by 682 00:38:59,480 --> 00:39:02,799 Speaker 1: over four on your basis points, push yields and you know, 683 00:39:02,880 --> 00:39:05,080 Speaker 1: not to get too wonky, but you're getting more of 684 00:39:05,120 --> 00:39:09,319 Speaker 1: a plur pure rake play and investment grade credit, and 685 00:39:09,400 --> 00:39:11,640 Speaker 1: of course in sovereigns because it's not you know, there's 686 00:39:11,680 --> 00:39:13,799 Speaker 1: not as much risk of defaults, but high yields and 687 00:39:13,840 --> 00:39:16,520 Speaker 1: things like that. Um, you know, I was listening on 688 00:39:16,920 --> 00:39:19,160 Speaker 1: the radio for with you guys this morning. I forget 689 00:39:19,160 --> 00:39:21,040 Speaker 1: it was chatting with him, but Dennis Gartman was on 690 00:39:21,120 --> 00:39:23,759 Speaker 1: and he was pretty negative on things, saying, you know, 691 00:39:23,800 --> 00:39:26,960 Speaker 1: recession coming fed to stay high, and that's when you 692 00:39:27,480 --> 00:39:29,560 Speaker 1: you worry, is they're going to start to be more 693 00:39:29,680 --> 00:39:34,040 Speaker 1: default and you know, these lesser grade companies not doing 694 00:39:34,080 --> 00:39:36,840 Speaker 1: well or having trouble rolling over debt now that yields 695 00:39:36,840 --> 00:39:39,600 Speaker 1: are higher. It's interesting that you mentioned defaults because it 696 00:39:39,640 --> 00:39:42,759 Speaker 1: almost feels like at the moment, the consensus here is 697 00:39:42,800 --> 00:39:44,600 Speaker 1: that if there is a shallow recession, the risk of 698 00:39:44,800 --> 00:39:48,399 Speaker 1: fallen angels, for example, is very, very low. But let's 699 00:39:48,440 --> 00:39:50,640 Speaker 1: let's talk a little bit about bond volatility here, because 700 00:39:50,680 --> 00:39:52,680 Speaker 1: if you look at the move index, you are starting 701 00:39:52,680 --> 00:39:54,960 Speaker 1: to see it kind of stagnate a little bit. When 702 00:39:55,000 --> 00:39:57,680 Speaker 1: it comes to volatility, it's extremely high and it's kind 703 00:39:57,680 --> 00:40:01,640 Speaker 1: of staying at those high levels. Why if the Federal 704 00:40:01,719 --> 00:40:06,160 Speaker 1: Reserve has been nothing but clear about their strategy moving forward, Well, 705 00:40:06,520 --> 00:40:08,600 Speaker 1: that I will admit a bit of a head scratcher, 706 00:40:08,680 --> 00:40:11,200 Speaker 1: because you you know, there's been a few FED meetings 707 00:40:11,200 --> 00:40:13,160 Speaker 1: that you know, we kind of said, oh, Jerome Power 708 00:40:13,239 --> 00:40:15,640 Speaker 1: maybe had a little trouble with communication this time. He 709 00:40:15,680 --> 00:40:18,640 Speaker 1: seemed to have his notes in line. And you're right, 710 00:40:18,719 --> 00:40:22,839 Speaker 1: volatility has come off, but it's still historically high. And 711 00:40:22,920 --> 00:40:25,520 Speaker 1: I think kind of getting to what Paul was asking 712 00:40:25,600 --> 00:40:28,799 Speaker 1: is that, you know, even though people are saying, hey, 713 00:40:28,960 --> 00:40:31,880 Speaker 1: maybe the debt marks will do better next year, maybe 714 00:40:32,000 --> 00:40:35,799 Speaker 1: inflation is peaked. There's a lot of maybes, right, So 715 00:40:35,840 --> 00:40:40,360 Speaker 1: I think there's enough risk out there, um that people 716 00:40:40,440 --> 00:40:43,040 Speaker 1: aren't you know, there is some volatility selling you you 717 00:40:43,080 --> 00:40:45,640 Speaker 1: know here here you know that going on, but not 718 00:40:45,800 --> 00:40:48,680 Speaker 1: in screaming because that I don't know. It's just especially 719 00:40:48,680 --> 00:40:51,160 Speaker 1: if you've had such bad losses, you've got to be careful, 720 00:40:51,200 --> 00:40:53,799 Speaker 1: I think. And so people you do still hear people 721 00:40:53,840 --> 00:40:57,719 Speaker 1: saying I'm holding powder dry keeping cash. Um. And I 722 00:40:57,800 --> 00:40:59,960 Speaker 1: just don't think people are going to think bond volatile 723 00:41:00,160 --> 00:41:03,120 Speaker 1: it is over until we kind of see the whites 724 00:41:03,160 --> 00:41:06,040 Speaker 1: of the eyes, you know, whatever that number is, CPI 725 00:41:06,120 --> 00:41:09,120 Speaker 1: gets down to four percent, that people really trust that 726 00:41:09,200 --> 00:41:12,640 Speaker 1: inflation is in this falling trend. And we're still just 727 00:41:12,680 --> 00:41:15,400 Speaker 1: looking at the twos and tens liz um still about 728 00:41:15,400 --> 00:41:19,839 Speaker 1: sixty five basis points of inversion there. Um, How are 729 00:41:19,840 --> 00:41:22,359 Speaker 1: people thinking about an inverted yield curve. I'm just an 730 00:41:22,360 --> 00:41:24,239 Speaker 1: equity guy, but I've been told if you get an 731 00:41:24,280 --> 00:41:26,480 Speaker 1: inverted yield curve, that means a recession. But we've been 732 00:41:26,600 --> 00:41:29,000 Speaker 1: inverted for a long time. It seems like, yeah, we've 733 00:41:29,000 --> 00:41:34,320 Speaker 1: been inverted for a long time. Um. But you know, like, um, Campbell. 734 00:41:34,360 --> 00:41:36,919 Speaker 1: Harvey would say, who's now a duke? Who's the one? 735 00:41:36,960 --> 00:41:40,560 Speaker 1: Who's who? Really? Who found that? You know, that relationship 736 00:41:40,600 --> 00:41:42,719 Speaker 1: between the shape of the curve and recessions. And he 737 00:41:43,040 --> 00:41:46,080 Speaker 1: always reminds me Lizzen has never failed me, you know, 738 00:41:46,239 --> 00:41:48,560 Speaker 1: and you know, I'm like, I know, I know. So 739 00:41:48,719 --> 00:41:50,839 Speaker 1: we've had like he likes to look at the three 740 00:41:50,880 --> 00:41:53,800 Speaker 1: month tenure and that's inverted for a while now too, 741 00:41:54,239 --> 00:41:56,759 Speaker 1: So I would have to lean with him and say, 742 00:41:57,120 --> 00:41:59,160 Speaker 1: I'm hard pressed to think it's going to be like 743 00:41:59,239 --> 00:42:01,800 Speaker 1: this time is differ. We don't get a recession, of course, 744 00:42:01,960 --> 00:42:05,200 Speaker 1: I don't know if it's mild or strong. His thesis 745 00:42:05,239 --> 00:42:08,359 Speaker 1: doesn't get to that, but um, I do think you know, 746 00:42:08,480 --> 00:42:10,439 Speaker 1: the Eel curve has been inverted for a long time, 747 00:42:10,480 --> 00:42:12,640 Speaker 1: and you know, you hear people saying you've probably talked 748 00:42:12,680 --> 00:42:14,960 Speaker 1: about it. You know, we could see two stents go 749 00:42:15,040 --> 00:42:17,480 Speaker 1: to minus a hundred basis points, you know, we all 750 00:42:17,640 --> 00:42:19,719 Speaker 1: you know, we were at minus eighty five on the 751 00:42:19,760 --> 00:42:23,440 Speaker 1: inversion a bit ago. So maybe it runs further and 752 00:42:23,520 --> 00:42:26,040 Speaker 1: it takes longer, but it has a pretty good track 753 00:42:26,120 --> 00:42:30,880 Speaker 1: record of foreshadowing economic downturn. Alright, great stuff as always 754 00:42:30,960 --> 00:42:33,320 Speaker 1: Liz really appreciate getting some of your time. Liz McCormick. 755 00:42:33,560 --> 00:42:37,560 Speaker 1: She's the chief corresponding covering global macro markets for Bloomberg News, 756 00:42:38,000 --> 00:42:42,479 Speaker 1: reporting from our Washington, d C. Studios, which are pretty 757 00:42:42,480 --> 00:42:48,200 Speaker 1: awesome down there in the nation's capital. Thanks for listening 758 00:42:48,200 --> 00:42:51,680 Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen 759 00:42:51,719 --> 00:42:56,000 Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer. 760 00:42:56,400 --> 00:43:00,359 Speaker 1: I'm Matt Miller, I'm on Twitter at Matt Miller three, 761 00:43:00,800 --> 00:43:03,240 Speaker 1: and I'm fall Sweeney. I'm on Twitter at pt Sweeney 762 00:43:03,320 --> 00:43:05,960 Speaker 1: Before the podcast. You can always catch us worldwide at 763 00:43:06,000 --> 00:43:06,759 Speaker 1: Bloomberg Radio