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 --> 00:00:22,080 Speaker 1: at Bloomberg dot com slash podcast. Let's get to another 7 00:00:22,200 --> 00:00:25,279 Speaker 1: name reporting numbers, A T and T mob Bell. The 8 00:00:25,360 --> 00:00:27,600 Speaker 1: numbers I kind of thought were okay, maybe a little 9 00:00:27,600 --> 00:00:30,600 Speaker 1: disappointed about the stocks up six point two per cent. 10 00:00:30,680 --> 00:00:33,479 Speaker 1: So let's break down what's going on with Big T 11 00:00:34,560 --> 00:00:36,440 Speaker 1: buying some telephone? Is what we used to say on 12 00:00:36,479 --> 00:00:40,080 Speaker 1: the trading desk, shares a telephone for sale and you 13 00:00:40,120 --> 00:00:43,199 Speaker 1: know T. Yeah, John Butler, he's he knows back, he 14 00:00:43,240 --> 00:00:45,360 Speaker 1: goes back that far. John talks to us about A 15 00:00:45,440 --> 00:00:47,600 Speaker 1: T and T. What did they report and kind of 16 00:00:47,600 --> 00:00:51,680 Speaker 1: how did you and in the market take their numbers? So, Paul, 17 00:00:51,720 --> 00:00:55,320 Speaker 1: I think you, I think you characterized it correctly. The 18 00:00:55,520 --> 00:00:59,680 Speaker 1: numbers for the quarter largely in line. It's all about 19 00:01:01,120 --> 00:01:05,440 Speaker 1: is coming right the streets, very forward looking, and I 20 00:01:05,480 --> 00:01:10,880 Speaker 1: thought management's tone on the coming year and beyond was confident. 21 00:01:11,080 --> 00:01:13,560 Speaker 1: You know, they very they do a very good job 22 00:01:13,680 --> 00:01:18,600 Speaker 1: of sort of managing the narrative. A T and T 23 00:01:18,880 --> 00:01:23,800 Speaker 1: right now is transitioning to you know, a connectivity company. 24 00:01:23,880 --> 00:01:28,840 Speaker 1: They're moving beyond that, you know, media and telecom conglomerate. 25 00:01:29,319 --> 00:01:33,040 Speaker 1: They've sold off Warner Media in April of last year, 26 00:01:33,120 --> 00:01:37,200 Speaker 1: and they're and they're moving forward, I think ahead into 27 00:01:37,560 --> 00:01:40,399 Speaker 1: pushing into fiber and five G and they're doing you know, 28 00:01:40,480 --> 00:01:43,160 Speaker 1: it's steady as she goes. They're really doing a very 29 00:01:43,160 --> 00:01:46,800 Speaker 1: good job there of building out that fiber network and 30 00:01:46,920 --> 00:01:51,160 Speaker 1: standing up news spent spectrum for five G and again 31 00:01:51,280 --> 00:01:55,520 Speaker 1: management's tone around the whole project, if you will, was 32 00:01:55,640 --> 00:01:58,960 Speaker 1: very confident. Well, what does that mean for the share 33 00:01:59,000 --> 00:02:03,200 Speaker 1: price here? Because AT and T has consistently actually outperformed 34 00:02:03,480 --> 00:02:05,880 Speaker 1: some of its peers here Hoizon T Mobile as well. 35 00:02:05,880 --> 00:02:07,760 Speaker 1: What are we looking at when it comes to the 36 00:02:07,800 --> 00:02:12,760 Speaker 1: future of the share price. So I can't really speak 37 00:02:12,840 --> 00:02:17,200 Speaker 1: specifically to the price action, but I can talk about sentiment. 38 00:02:17,560 --> 00:02:20,840 Speaker 1: So if you wind back the clock even six months, 39 00:02:20,919 --> 00:02:24,640 Speaker 1: I seem I think people were very worried about the 40 00:02:24,760 --> 00:02:28,280 Speaker 1: cash flow outlooking can they cover the dividend and can 41 00:02:28,320 --> 00:02:31,600 Speaker 1: they really pull off this fiber build out at a 42 00:02:31,639 --> 00:02:35,400 Speaker 1: time when the overall broadband market is maturing, just like 43 00:02:35,480 --> 00:02:39,080 Speaker 1: wireless did a couple of years ago. And I think 44 00:02:39,080 --> 00:02:41,640 Speaker 1: the answer to all that is yes, you know, they're 45 00:02:41,680 --> 00:02:46,079 Speaker 1: beginning to execute well. The visibility on that on that 46 00:02:46,120 --> 00:02:50,120 Speaker 1: build out, and their prospects in that market have improved, 47 00:02:50,280 --> 00:02:54,680 Speaker 1: and so overall we're seeing a shift in sentiment from 48 00:02:54,919 --> 00:02:59,800 Speaker 1: negative to wow. I think this actually is becoming a good, 49 00:03:00,840 --> 00:03:05,960 Speaker 1: you know, stable story with um you know, the on 50 00:03:06,080 --> 00:03:08,959 Speaker 1: the call, management said, look, we feel we're going to 51 00:03:09,080 --> 00:03:12,440 Speaker 1: generate more than enough cash flow to cover the dividends. 52 00:03:12,440 --> 00:03:18,560 Speaker 1: So anyone holding the stock for for the income, I 53 00:03:18,600 --> 00:03:21,040 Speaker 1: think is going to feel better coming out of this call. 54 00:03:21,840 --> 00:03:24,320 Speaker 1: So John, and it's you know, if you're a long 55 00:03:24,320 --> 00:03:26,919 Speaker 1: time a T T shareholder, you've just been whipsawed. Here. 56 00:03:26,960 --> 00:03:29,800 Speaker 1: You were, you know, kind of a tired old telephone 57 00:03:29,840 --> 00:03:33,320 Speaker 1: company getting into wireless, and then boy they did this 58 00:03:33,360 --> 00:03:35,160 Speaker 1: one a D and got to loaded up in the 59 00:03:35,200 --> 00:03:38,040 Speaker 1: media business with Direct TV and then Time Warner, and 60 00:03:38,080 --> 00:03:41,680 Speaker 1: they you know, almost as quickly unloaded those businesses. So 61 00:03:41,880 --> 00:03:44,720 Speaker 1: if I buy a T and T today, what am 62 00:03:44,760 --> 00:03:47,600 Speaker 1: I buying and what am I hanging my hat on? 63 00:03:49,120 --> 00:03:53,240 Speaker 1: I think you're hanging the hat on the dividend partly, 64 00:03:54,240 --> 00:03:57,920 Speaker 1: and you're hanging your hat on them getting into the 65 00:03:57,960 --> 00:04:02,520 Speaker 1: broadband business, but doing well in that business, taking share 66 00:04:02,560 --> 00:04:06,400 Speaker 1: in that business. You know, I think CEO John Stankey 67 00:04:06,680 --> 00:04:10,080 Speaker 1: nailed it when he said, you know, ultimately data finds 68 00:04:10,120 --> 00:04:13,760 Speaker 1: its way to fiber. And you know, with the growth 69 00:04:13,760 --> 00:04:16,600 Speaker 1: in data coming out of five G right with with 70 00:04:17,200 --> 00:04:21,240 Speaker 1: video streaming in particular, you need a lot of capacity 71 00:04:21,320 --> 00:04:24,760 Speaker 1: to support that traffic flow. And I think fiber is 72 00:04:24,800 --> 00:04:29,440 Speaker 1: the right answer for that. And uh, you know, the 73 00:04:29,520 --> 00:04:34,280 Speaker 1: cable companies are all scrambling to upgrade their networks, which 74 00:04:34,279 --> 00:04:38,160 Speaker 1: are mostly coaxial cable, and so I think a T 75 00:04:38,360 --> 00:04:42,359 Speaker 1: and T has an inherent advantage with fiber. They see 76 00:04:42,400 --> 00:04:45,760 Speaker 1: that and they're kind of pressing their bet there. Not 77 00:04:45,920 --> 00:04:49,160 Speaker 1: only are they building the fiber in region and hitting 78 00:04:49,240 --> 00:04:53,479 Speaker 1: their targets there UM, but they're building out a region now. 79 00:04:53,520 --> 00:04:57,520 Speaker 1: They partnered with UM with black Stones to begin to 80 00:04:57,560 --> 00:05:01,799 Speaker 1: build fiber outside the network. So or there could be upside, 81 00:05:01,839 --> 00:05:04,760 Speaker 1: if you will, to this broadband bed. And I think 82 00:05:04,880 --> 00:05:07,359 Speaker 1: that's what you're hanging your hat on that and the 83 00:05:07,440 --> 00:05:10,920 Speaker 1: dividends story, So is this something is the R word, 84 00:05:11,160 --> 00:05:13,640 Speaker 1: the recession word, something that a T and T really 85 00:05:13,640 --> 00:05:15,560 Speaker 1: has to worry about here when we're talking about this 86 00:05:15,640 --> 00:05:19,720 Speaker 1: kind of build out. You know, it's moving around the 87 00:05:20,560 --> 00:05:24,559 Speaker 1: numbers modestly, I would say this year. But I think 88 00:05:25,360 --> 00:05:28,960 Speaker 1: the investment community, based on where a sentiment is around 89 00:05:29,000 --> 00:05:33,000 Speaker 1: these names, appears to be looking beyond any recession this year. 90 00:05:33,920 --> 00:05:39,800 Speaker 1: And um and I say that because Verizon reported a 91 00:05:39,880 --> 00:05:44,400 Speaker 1: choppier quarter and a choppier outlook yesterday, and yet the 92 00:05:44,440 --> 00:05:48,560 Speaker 1: investment community seemed to be looking beyond all that. So 93 00:05:48,920 --> 00:05:52,240 Speaker 1: you know, yes, telecom is a g d P plus business, 94 00:05:52,279 --> 00:05:56,040 Speaker 1: so if you move into recession, it can crimp growth. 95 00:05:56,200 --> 00:06:01,440 Speaker 1: But um, again, managements com men surround it, we're like, look, 96 00:06:01,560 --> 00:06:05,000 Speaker 1: you know, we're looking at the economy and we're seeing 97 00:06:05,000 --> 00:06:09,400 Speaker 1: a relatively stable economic environment right now. We're not seeing 98 00:06:09,440 --> 00:06:14,479 Speaker 1: that down draft that everyone's bracing for. And they did say, look, 99 00:06:14,720 --> 00:06:17,200 Speaker 1: things can change and there right on that things can 100 00:06:17,279 --> 00:06:20,919 Speaker 1: change on a dime. But I'm sort of in alignment 101 00:06:20,960 --> 00:06:24,200 Speaker 1: with what they're seeing. Based on what I'm hearing from companies, 102 00:06:24,240 --> 00:06:29,080 Speaker 1: I'm seeing modest softness emerged, but not not anything I've 103 00:06:29,120 --> 00:06:33,000 Speaker 1: seen with recessions past. All Right, John, great stuff. Always 104 00:06:33,000 --> 00:06:36,920 Speaker 1: appreciate getting your perspective. You've seen a bunch of cycles 105 00:06:37,000 --> 00:06:39,760 Speaker 1: over the years. We appreciate getting you perspective. John Butler, 106 00:06:39,760 --> 00:06:43,440 Speaker 1: he's a senior analyst covering telecoms for a Bloomberg Intelligence. 107 00:06:43,480 --> 00:06:49,680 Speaker 1: He's based in our lovely Princeton, New Jersey offices. All Right, 108 00:06:49,720 --> 00:06:52,839 Speaker 1: I'm an equity guy. I just tell a story forecast 109 00:06:52,880 --> 00:06:55,360 Speaker 1: and earnings. I slap a multiple onnament and my job's done. 110 00:06:55,360 --> 00:06:57,680 Speaker 1: I go on. But the fixed income folks, that's a 111 00:06:57,680 --> 00:07:01,800 Speaker 1: whole another game. They have to dive deep. But boy, 112 00:07:01,839 --> 00:07:04,640 Speaker 1: they had a brutal year last year. I mean, returns 113 00:07:04,640 --> 00:07:07,240 Speaker 1: that they've never seen before. So let's figure out where 114 00:07:07,240 --> 00:07:09,520 Speaker 1: we are now, what do we do going forward? Uh? 115 00:07:09,520 --> 00:07:12,080 Speaker 1: And for that, we're fortunate to have Stephen oh in 116 00:07:12,240 --> 00:07:15,040 Speaker 1: the Bloomberg Interactive Broker studio. He's not mailing it in 117 00:07:15,080 --> 00:07:17,160 Speaker 1: from l A. He's here in New York. And why 118 00:07:17,160 --> 00:07:19,400 Speaker 1: wouldn't he be. It's the world's capital. Uh. He's a 119 00:07:19,400 --> 00:07:22,200 Speaker 1: global head of Fixingcome for Prime Bridge Investment. Steven, thanks 120 00:07:22,240 --> 00:07:24,920 Speaker 1: much for joining us here today. When you look back 121 00:07:24,960 --> 00:07:30,000 Speaker 1: on two now you have some perspective what happened well 122 00:07:30,200 --> 00:07:33,160 Speaker 1: on the one hand, I think it was largely anticipated 123 00:07:33,280 --> 00:07:36,440 Speaker 1: that the FED would start to normalize policy going forward. 124 00:07:36,720 --> 00:07:39,440 Speaker 1: I think what was the unexpected portion was really the 125 00:07:39,560 --> 00:07:43,360 Speaker 1: strengthen the resistance of inflation, which forced the FED and 126 00:07:43,440 --> 00:07:46,760 Speaker 1: other central banks to be much more aggressive in their 127 00:07:46,800 --> 00:07:50,800 Speaker 1: actions in order to rein in future inflationary pressures. And 128 00:07:50,840 --> 00:07:53,480 Speaker 1: so we're at a turning point right now. But we 129 00:07:53,560 --> 00:07:59,520 Speaker 1: always said that entering that fixed income was largely unattractive 130 00:07:59,720 --> 00:08:02,760 Speaker 1: give the fact that duration was extended. Fields were very 131 00:08:02,800 --> 00:08:06,200 Speaker 1: low and there just wasn't much upside, and we were 132 00:08:06,240 --> 00:08:10,400 Speaker 1: recommending that fixing come be reduced in portfolios. But we 133 00:08:10,560 --> 00:08:14,360 Speaker 1: finally have some yield in fixing come, which is providing 134 00:08:14,360 --> 00:08:17,120 Speaker 1: a new opportunity. Stephen, do you care at all about 135 00:08:17,120 --> 00:08:20,120 Speaker 1: the debt ceiling? You know, I think it's very important 136 00:08:20,120 --> 00:08:22,000 Speaker 1: and something that we need to pay attention to. But 137 00:08:22,040 --> 00:08:25,240 Speaker 1: it's a repeat process, right, and so we seem like 138 00:08:25,240 --> 00:08:27,920 Speaker 1: we're always here At some point. It would be great 139 00:08:27,960 --> 00:08:31,360 Speaker 1: to get a resolution which is quasi permanent in nature. 140 00:08:31,880 --> 00:08:34,520 Speaker 1: But I think from the period when we had a 141 00:08:34,559 --> 00:08:38,520 Speaker 1: semi mini crisis back in with the issue, we've sort 142 00:08:38,520 --> 00:08:41,800 Speaker 1: of navigated from there with the market largely ignoring the 143 00:08:41,840 --> 00:08:45,640 Speaker 1: worst case outcomes where any type of a theoretical default 144 00:08:45,640 --> 00:08:48,640 Speaker 1: would be short lived in nature. So that's seems to 145 00:08:48,679 --> 00:08:51,319 Speaker 1: be the consensus on on Wall Street and around the world. 146 00:08:51,320 --> 00:08:53,720 Speaker 1: But I'm curious, though, in that worst case scenario, do 147 00:08:53,840 --> 00:08:58,120 Speaker 1: we then see the treasury market have a much bigger 148 00:08:59,440 --> 00:09:04,600 Speaker 1: dislocated nation than perhaps in the team saga that you 149 00:09:04,640 --> 00:09:07,720 Speaker 1: are referencing. Simply because we are now in a tightening 150 00:09:07,720 --> 00:09:10,319 Speaker 1: era as opposed to an easy era, I would say 151 00:09:10,320 --> 00:09:13,080 Speaker 1: a combination of factors could result in higher levels of 152 00:09:13,120 --> 00:09:16,600 Speaker 1: treasury volatility. It's not only that component that you alluded 153 00:09:16,640 --> 00:09:19,480 Speaker 1: to where we are in a tightening era, but volatility 154 00:09:19,520 --> 00:09:24,880 Speaker 1: has risen significantly as the buyer basis diminished overall, and 155 00:09:25,200 --> 00:09:27,720 Speaker 1: we've seen that even without any of the issues over 156 00:09:27,760 --> 00:09:30,480 Speaker 1: the course of the past year. But again, any type 157 00:09:30,520 --> 00:09:34,400 Speaker 1: of volatility that results in yields spiking up would be 158 00:09:34,480 --> 00:09:37,120 Speaker 1: more of a buying opportunity because it's hard to see 159 00:09:37,120 --> 00:09:40,240 Speaker 1: a scenario where that last or any period of time. 160 00:09:40,679 --> 00:09:43,400 Speaker 1: All Right, you're fixing the guys. You blew it in two, 161 00:09:43,480 --> 00:09:47,040 Speaker 1: here's your chance to redeem yourself in three. What do 162 00:09:47,080 --> 00:09:50,480 Speaker 1: we do now? Well, I'm not expecting fixed income to 163 00:09:50,520 --> 00:09:53,439 Speaker 1: produce tremendous returns in a rebound. We're not going to 164 00:09:53,520 --> 00:09:56,240 Speaker 1: go back to ultra low rates. In fact, we're probably 165 00:09:56,280 --> 00:09:58,160 Speaker 1: out of consensus from the market that we do not 166 00:09:58,240 --> 00:10:01,000 Speaker 1: believe that the Fed will cut rates later this year uh, 167 00:10:01,040 --> 00:10:03,280 Speaker 1: and the market is pricing that in. So the way 168 00:10:03,320 --> 00:10:06,320 Speaker 1: we look at fixed income outcomes for this year is 169 00:10:06,360 --> 00:10:09,400 Speaker 1: that because yields have peaked last year, we don't see 170 00:10:09,400 --> 00:10:11,480 Speaker 1: the risking fixed income, but we see more of a 171 00:10:11,480 --> 00:10:14,120 Speaker 1: coupon clipping from here on out, and most of the 172 00:10:14,200 --> 00:10:16,840 Speaker 1: price action that may have been anticipated has already played 173 00:10:16,840 --> 00:10:19,000 Speaker 1: out in the first three weeks of the year. So 174 00:10:19,160 --> 00:10:21,160 Speaker 1: if you are at a consensus then from the market, 175 00:10:21,160 --> 00:10:24,000 Speaker 1: does that then mean that you are selling the front 176 00:10:24,080 --> 00:10:27,480 Speaker 1: end of the curve? Blooming Intelligence, Chief Rate Strategy Ira Jersey, 177 00:10:27,520 --> 00:10:29,600 Speaker 1: He says, look, yield are so low on the front 178 00:10:29,679 --> 00:10:32,480 Speaker 1: end simply because of those FED cuts being priced in. 179 00:10:32,600 --> 00:10:34,839 Speaker 1: Is that the trade you'd make? Well, we think it. 180 00:10:34,920 --> 00:10:38,400 Speaker 1: Barbell strategy makes sense because if you look at the steepness, 181 00:10:38,679 --> 00:10:40,360 Speaker 1: you know, being in T bills is not a bad 182 00:10:40,360 --> 00:10:43,240 Speaker 1: place to be right now and rolling that over because 183 00:10:43,280 --> 00:10:44,960 Speaker 1: we do think it will hold up and the yields 184 00:10:44,960 --> 00:10:47,640 Speaker 1: that you're getting our superior rather than selling the front. 185 00:10:47,679 --> 00:10:50,079 Speaker 1: Then the curve. We like the approach of owning ultra 186 00:10:50,160 --> 00:10:52,120 Speaker 1: short and then owning about the twenty year part of 187 00:10:52,160 --> 00:10:54,400 Speaker 1: the curve in the Barbell approach, where that's going to 188 00:10:54,480 --> 00:10:57,400 Speaker 1: be more reflective of a longer term normalized yield curve. 189 00:10:57,520 --> 00:11:00,440 Speaker 1: That's a very wide range. It is what you're but 190 00:11:00,559 --> 00:11:02,560 Speaker 1: you want to set your duration target. But that's where 191 00:11:02,600 --> 00:11:05,040 Speaker 1: we see the two ends of the value. Interesting all right. 192 00:11:05,080 --> 00:11:07,680 Speaker 1: Back in the day, you were a vice president on 193 00:11:07,840 --> 00:11:10,920 Speaker 1: doing some high yield stuff a Bank America Securities, and 194 00:11:10,920 --> 00:11:12,960 Speaker 1: that was the security's arm of Bank America before they 195 00:11:13,000 --> 00:11:15,920 Speaker 1: bought Merrill Lynch in two thousand and eight. What do 196 00:11:15,920 --> 00:11:17,720 Speaker 1: you think about the high yield market here? I mean, 197 00:11:18,120 --> 00:11:20,640 Speaker 1: people tell me I got a recession coming. Do I 198 00:11:20,800 --> 00:11:23,559 Speaker 1: even think about venturing into high yield? Well, high yield 199 00:11:23,559 --> 00:11:25,960 Speaker 1: on surface to yields are very attractive. But from a 200 00:11:25,960 --> 00:11:28,880 Speaker 1: spread standpoint, we always have to think about what is 201 00:11:28,920 --> 00:11:32,280 Speaker 1: the fundamental outlook for both earnings, for defaults and so forth, 202 00:11:32,400 --> 00:11:35,240 Speaker 1: and what is the valuation to reflect that. And right now, 203 00:11:35,320 --> 00:11:37,800 Speaker 1: high yield spreads on the low four hundreds right now, 204 00:11:37,960 --> 00:11:41,000 Speaker 1: it is not reflecting any type of a recessionary outcome. 205 00:11:41,320 --> 00:11:44,680 Speaker 1: So from a tactical standpoint, we are cautious on high 206 00:11:44,760 --> 00:11:47,680 Speaker 1: yield right now. The case where high yield isn't is 207 00:11:47,679 --> 00:11:50,640 Speaker 1: it an attractive part of fixed income credit markets right now, 208 00:11:50,640 --> 00:11:53,160 Speaker 1: because we don't believe it is. The case where high 209 00:11:53,240 --> 00:11:55,199 Speaker 1: yield is that it makes a lot of sense of 210 00:11:55,280 --> 00:11:58,079 Speaker 1: relation to equities as a d risking approach. If you 211 00:11:58,120 --> 00:12:01,000 Speaker 1: can get north of eight percent high yield lot de 212 00:12:01,160 --> 00:12:05,560 Speaker 1: risking from equities, that trade off to us is very attractive. 213 00:12:05,760 --> 00:12:08,280 Speaker 1: But within fixed income we prefer to stay within investment 214 00:12:08,280 --> 00:12:13,120 Speaker 1: grade right now. Let's talk about then, uh, the story 215 00:12:13,160 --> 00:12:15,160 Speaker 1: when it comes to geo political risk as well. If 216 00:12:15,160 --> 00:12:16,959 Speaker 1: you weren't worried about the debt ceiling, are you all 217 00:12:17,040 --> 00:12:20,559 Speaker 1: worried about the bond market? Looking at the war in 218 00:12:20,720 --> 00:12:24,000 Speaker 1: Ukraine as an ongoing issue, that is something that should 219 00:12:24,040 --> 00:12:28,120 Speaker 1: factor into the decisions. The war in Ukraine has impacted 220 00:12:28,440 --> 00:12:32,040 Speaker 1: UH global financial markets, not so much directly, but really 221 00:12:32,080 --> 00:12:36,320 Speaker 1: the residual impact that it's having commodities, energy, certainly within 222 00:12:36,400 --> 00:12:39,000 Speaker 1: Europe overall, although the male winners seems to have participated 223 00:12:39,040 --> 00:12:42,280 Speaker 1: that somewhat. While there is a scenario of sort of 224 00:12:42,320 --> 00:12:45,680 Speaker 1: a severe terror, risk that the war could become a 225 00:12:45,800 --> 00:12:50,720 Speaker 1: catalyst for broader geopolitical tensions and spreading that war, which 226 00:12:50,760 --> 00:12:53,400 Speaker 1: could have a cataclysmic effect. You know, we believe that 227 00:12:53,440 --> 00:12:56,280 Speaker 1: the probability is very low, although we're not political analysts. 228 00:12:56,320 --> 00:12:59,800 Speaker 1: Ironically in some respects from a risk standpoint, as a 229 00:13:00,000 --> 00:13:03,040 Speaker 1: extinct come in a credit manager. There's the other side 230 00:13:03,040 --> 00:13:05,560 Speaker 1: of that risk, from the standpoint that what if there 231 00:13:05,679 --> 00:13:09,160 Speaker 1: is a peaceful resolution and outcome. Again, it's not something 232 00:13:09,200 --> 00:13:12,400 Speaker 1: that we're predicting, but it represents a risk that you 233 00:13:12,400 --> 00:13:14,760 Speaker 1: could have a tremendous rally in the markets, and we 234 00:13:14,840 --> 00:13:17,360 Speaker 1: do not have enough risk within the portfolio. So we 235 00:13:17,400 --> 00:13:19,800 Speaker 1: always think about risk, not only toward one end, but 236 00:13:20,080 --> 00:13:23,560 Speaker 1: what can go wrong relative to our personfolio positioning. Well, 237 00:13:23,600 --> 00:13:25,760 Speaker 1: speaking of portfolio positioning, let's talk a little bit about 238 00:13:25,800 --> 00:13:27,640 Speaker 1: the cross acid moves here, because when you're looking at 239 00:13:27,640 --> 00:13:30,959 Speaker 1: the bond market, I'm curious, so what specific, uh kind 240 00:13:31,000 --> 00:13:33,880 Speaker 1: of leading indicators you're leading market action you're really looking at. 241 00:13:33,920 --> 00:13:37,000 Speaker 1: For example, I will clarify, uh if you went back 242 00:13:37,040 --> 00:13:39,600 Speaker 1: to say, just pulling up the chart on my handy 243 00:13:39,640 --> 00:13:43,760 Speaker 1: dandy Winberg terminal. Right now, going back into early two 244 00:13:43,760 --> 00:13:45,920 Speaker 1: and the war first broke out, you start to see 245 00:13:45,920 --> 00:13:49,199 Speaker 1: oil prices rise, commodity prices rise, and yields rise in tandem. 246 00:13:49,280 --> 00:13:52,800 Speaker 1: So the correlation between bond yields and commodities really quite 247 00:13:53,040 --> 00:13:55,720 Speaker 1: strong and went hand in hand. That correlation has now 248 00:13:56,559 --> 00:13:59,480 Speaker 1: been inversed, and I'm curious if you think that correlation 249 00:13:59,480 --> 00:14:02,360 Speaker 1: will snap or perhaps just get more and more negative. Well, 250 00:14:02,400 --> 00:14:07,040 Speaker 1: we're in markets right now where traditional relationships don't necessarily 251 00:14:07,080 --> 00:14:10,360 Speaker 1: work out because it's really about where central banks are 252 00:14:10,360 --> 00:14:14,559 Speaker 1: heading that's driving markets, and that necessarily does not pretend 253 00:14:14,640 --> 00:14:18,280 Speaker 1: that historical correlations and relationships will work out in the 254 00:14:18,320 --> 00:14:21,400 Speaker 1: same manner overall. So what we focus on, of course 255 00:14:21,440 --> 00:14:24,160 Speaker 1: are all of the leading indicator of economics, but we 256 00:14:24,280 --> 00:14:27,400 Speaker 1: also are very cautious about where do we think policy 257 00:14:27,400 --> 00:14:30,920 Speaker 1: path is going to go, and again, what our markets reflecting, 258 00:14:30,920 --> 00:14:33,200 Speaker 1: and do we have a view that differs in any 259 00:14:33,200 --> 00:14:36,040 Speaker 1: way from the market, and that what really frames our 260 00:14:36,080 --> 00:14:41,840 Speaker 1: positioning overall. But there's clearly indications right now of a 261 00:14:41,960 --> 00:14:45,160 Speaker 1: soft landing or a perfect lie pass scenario that the 262 00:14:45,160 --> 00:14:48,280 Speaker 1: FED is supposed to engineer. We don't believe that that 263 00:14:48,280 --> 00:14:51,280 Speaker 1: would necessarily be the case, and so that creates more 264 00:14:51,320 --> 00:14:54,400 Speaker 1: caution in how we're positioning relative to what the market view. 265 00:14:54,480 --> 00:14:56,880 Speaker 1: Maybe Okay, so I get to feel that maybe you're 266 00:14:56,880 --> 00:15:01,000 Speaker 1: a little bit more cautious than the average fixed income manager. 267 00:15:01,520 --> 00:15:05,680 Speaker 1: That being said, where are you if you had capital 268 00:15:05,760 --> 00:15:08,480 Speaker 1: allocate today? Where would you go? The areas that we 269 00:15:08,520 --> 00:15:11,960 Speaker 1: are being cautious of our incredit markets that in our 270 00:15:12,040 --> 00:15:15,240 Speaker 1: your trading type to a mild recessionary type of scenario, 271 00:15:15,400 --> 00:15:17,400 Speaker 1: and those are going to be developed market fixed income. 272 00:15:17,720 --> 00:15:21,960 Speaker 1: The area where fundamentals are improving is in Asia, credit 273 00:15:22,040 --> 00:15:25,040 Speaker 1: in China in particular with the reopening, and so where 274 00:15:25,080 --> 00:15:28,720 Speaker 1: we see the fundamental opportunity is really more so in 275 00:15:28,840 --> 00:15:32,560 Speaker 1: emerging market credit opportunities right now, and so it may 276 00:15:32,600 --> 00:15:35,520 Speaker 1: be a little bit early or late, depending on your 277 00:15:35,600 --> 00:15:38,280 Speaker 1: view of China property and so forth. But we think 278 00:15:38,320 --> 00:15:42,200 Speaker 1: that gliding the portfolio more towards emerging market in the 279 00:15:42,280 --> 00:15:46,040 Speaker 1: coming year, based on the differential and fundamentals h makes 280 00:15:46,080 --> 00:15:48,280 Speaker 1: a lot more sense this year. We've heard that. And 281 00:15:48,360 --> 00:15:51,200 Speaker 1: my concern, not just about thir thirty seconds, is isn't 282 00:15:51,200 --> 00:15:54,440 Speaker 1: there recession risk outside of the US more pronounced than 283 00:15:54,520 --> 00:15:57,320 Speaker 1: here from a lot of emerging markets. I think it 284 00:15:57,360 --> 00:15:59,800 Speaker 1: depends on how you define recession. There is certainly a 285 00:16:00,000 --> 00:16:03,400 Speaker 1: correlation of what happens with developed markets versus emerging markets. 286 00:16:03,600 --> 00:16:07,280 Speaker 1: The other component that support of the fundamentals in emerging markets, 287 00:16:07,320 --> 00:16:09,920 Speaker 1: although there's certainly flashpoints and we're seeing some of the 288 00:16:09,960 --> 00:16:13,160 Speaker 1: political risk and latdown so forth, is the fact that 289 00:16:13,200 --> 00:16:16,600 Speaker 1: the dollar strength, which was an inhibitor and a headwind 290 00:16:16,600 --> 00:16:19,840 Speaker 1: to emerging markets. We don't necessarily believe that the dollar 291 00:16:19,880 --> 00:16:23,440 Speaker 1: will weaken significantly, but the headwinds of strengthening is abating, 292 00:16:23,480 --> 00:16:26,440 Speaker 1: and we don't expect that to re emerge great points. 293 00:16:26,560 --> 00:16:28,600 Speaker 1: Really appreciate it, Steven Oh. He's a global head of 294 00:16:28,600 --> 00:16:31,800 Speaker 1: fixed income at pine Bridge Investments. He's based in Los Angeles. 295 00:16:31,880 --> 00:16:34,560 Speaker 1: I'm looking at the office is about halfway between Beverly 296 00:16:34,640 --> 00:16:38,160 Speaker 1: Hills and Santa Monica. If I had to guess center 297 00:16:38,440 --> 00:16:40,320 Speaker 1: it is. It's a good place to live, you know, 298 00:16:40,400 --> 00:16:43,280 Speaker 1: New York Center. But it's not a bad place. A 299 00:16:43,400 --> 00:16:50,480 Speaker 1: good stuff, Steven. We appreciate it. Stopping into our studios here, 300 00:16:50,640 --> 00:16:52,680 Speaker 1: the markets down at one point six percent today. Did 301 00:16:52,720 --> 00:16:55,280 Speaker 1: we focus on the Fed? Do we focus on earnings? 302 00:16:55,320 --> 00:16:57,640 Speaker 1: Do we focus on inflation? Do we focus on recession? 303 00:16:57,800 --> 00:16:59,880 Speaker 1: I don't know. I buy him when they're low and 304 00:16:59,880 --> 00:17:01,680 Speaker 1: I pelomone they're high. That's what I was told my 305 00:17:01,720 --> 00:17:03,600 Speaker 1: first day of paint Warber on the block trading desk, 306 00:17:03,640 --> 00:17:05,760 Speaker 1: and it's worked so far. But Gina Martin Adams, she 307 00:17:05,760 --> 00:17:08,840 Speaker 1: takes a much more analytical approach. She's a chief equity 308 00:17:08,840 --> 00:17:12,640 Speaker 1: strategist at Bloomberg Intelligence Joint US here in Bloomberg Interactive 309 00:17:12,640 --> 00:17:15,879 Speaker 1: Broker Studio, which we always appreciate. So, Gina, what am 310 00:17:15,920 --> 00:17:18,800 Speaker 1: I focusing on this year in when I think about 311 00:17:18,840 --> 00:17:21,439 Speaker 1: what where these markets are going to go? Well, I 312 00:17:21,480 --> 00:17:25,440 Speaker 1: think the investor base is really focused predominantly on recession 313 00:17:25,560 --> 00:17:28,200 Speaker 1: and what recession really means. If the US is in recession, 314 00:17:28,280 --> 00:17:30,639 Speaker 1: is European recession? Are they? Are? They? Are? Are they not? 315 00:17:30,760 --> 00:17:33,320 Speaker 1: When are they going to fall into recession? You know? 316 00:17:33,440 --> 00:17:37,000 Speaker 1: I think frankly some of this intense focus on recession 317 00:17:37,119 --> 00:17:40,480 Speaker 1: is really just misplaced. Because earnings behave differently in every 318 00:17:40,560 --> 00:17:43,280 Speaker 1: kind of recession. We won't know we're in recession until 319 00:17:43,840 --> 00:17:48,160 Speaker 1: probably when it's nearly over. If the official dating process, 320 00:17:48,320 --> 00:17:52,560 Speaker 1: you know, follows it's normal historical trend. So what I 321 00:17:52,600 --> 00:17:54,960 Speaker 1: think that we should be focused on is not always 322 00:17:54,960 --> 00:17:56,600 Speaker 1: the same as well, we're focused on, And what we 323 00:17:56,640 --> 00:17:58,879 Speaker 1: really should be focused on is the depth and duration 324 00:17:58,920 --> 00:18:02,320 Speaker 1: of this earning cycle. Earnings peaked a year ago, they 325 00:18:02,320 --> 00:18:05,119 Speaker 1: peaked at the end of one. They've contracted on an 326 00:18:05,200 --> 00:18:09,359 Speaker 1: unadjusted basis seven percent so far. The analyst community is 327 00:18:09,359 --> 00:18:13,280 Speaker 1: anticipating a ten peak to trough drop at least will 328 00:18:13,280 --> 00:18:16,520 Speaker 1: probably end up somewhere closer to twelve if our work 329 00:18:17,119 --> 00:18:20,000 Speaker 1: is correct. And that's what's gonna matter. It's timing the 330 00:18:20,119 --> 00:18:21,879 Speaker 1: end of that earning cycle. When are we going to 331 00:18:21,960 --> 00:18:25,720 Speaker 1: start to see improvement. How will the economy impact earnings 332 00:18:25,800 --> 00:18:29,720 Speaker 1: is critically important for sure. Um And then also this 333 00:18:29,920 --> 00:18:32,920 Speaker 1: the show, the show going on in FED policy, right, 334 00:18:33,080 --> 00:18:35,120 Speaker 1: you can't get away from FED policy as a driver 335 00:18:35,200 --> 00:18:37,119 Speaker 1: of valuations. So those are the two things. So if 336 00:18:37,119 --> 00:18:40,280 Speaker 1: I look at the spars looking at the Bloomberg terminal 337 00:18:40,359 --> 00:18:45,240 Speaker 1: like bucks or something, should they be more like two? Yeah? 338 00:18:45,359 --> 00:18:47,480 Speaker 1: So this is an operating earnings number, right, And I 339 00:18:47,480 --> 00:18:50,080 Speaker 1: think the construct is really difficult because when we look 340 00:18:50,080 --> 00:18:52,480 Speaker 1: at the long term historical earnings trend, operating earnings have 341 00:18:52,520 --> 00:18:55,200 Speaker 1: only been around for about thirty years. When you look 342 00:18:55,200 --> 00:18:57,639 Speaker 1: at the long long term, we have to think about 343 00:18:57,720 --> 00:19:02,119 Speaker 1: unadjusted earnings and how adjusted earnings behave during recession on 344 00:19:02,119 --> 00:19:05,120 Speaker 1: an operating earning spasis, I do think we probably see 345 00:19:05,160 --> 00:19:08,440 Speaker 1: about a five percent decline in EPs. But you've got 346 00:19:08,440 --> 00:19:10,880 Speaker 1: to remember companies are sitting on just boatloads of cash. 347 00:19:10,920 --> 00:19:12,760 Speaker 1: They're going to continue to buy back shares, They're going 348 00:19:12,800 --> 00:19:15,879 Speaker 1: to continue to deploy that cash, and that's going to 349 00:19:16,000 --> 00:19:21,080 Speaker 1: make adjusted earnings probably fall less than many people are anticipating, 350 00:19:21,200 --> 00:19:24,520 Speaker 1: or fall less than your traditional recession decline on an 351 00:19:24,720 --> 00:19:27,720 Speaker 1: on an unadjusted basis, though there is some evidence of distress. 352 00:19:27,760 --> 00:19:30,400 Speaker 1: We're seeing it in margin contractions year over year, which 353 00:19:30,400 --> 00:19:34,479 Speaker 1: are anticipated to finally bottom within the first half of 354 00:19:34,480 --> 00:19:37,639 Speaker 1: this year. We're certainly seeing some distress evident in tech, 355 00:19:37,720 --> 00:19:42,840 Speaker 1: particularly relative to expectations which were extremely high for that space. 356 00:19:43,480 --> 00:19:45,440 Speaker 1: So I think you do need to sort of read 357 00:19:45,480 --> 00:19:50,520 Speaker 1: between the lines and really articulate the details, because you 358 00:19:50,560 --> 00:19:54,680 Speaker 1: can get a very confusing picture depending upon what you're following. Well, Gina, 359 00:19:54,800 --> 00:19:57,439 Speaker 1: you sund I think maybe either Monday or Tuesday on 360 00:19:57,560 --> 00:19:59,679 Speaker 1: Limerick surveillance in the morning. Something that really stuck with 361 00:19:59,680 --> 00:20:03,000 Speaker 1: me with was sales are slowing down. Earnings on the 362 00:20:03,040 --> 00:20:05,560 Speaker 1: top line perhaps aren't as much, but the sales is 363 00:20:05,600 --> 00:20:08,480 Speaker 1: really a reflection of the macroeconomics slow down that you're seeing. 364 00:20:08,840 --> 00:20:11,720 Speaker 1: At what point is that really punished more severely by 365 00:20:11,760 --> 00:20:14,439 Speaker 1: the stock market as opposed to the expectation of that 366 00:20:14,560 --> 00:20:17,400 Speaker 1: happening that we really perhaps priced in in the back 367 00:20:17,440 --> 00:20:20,720 Speaker 1: half last year. Yeah, it is. It's an interesting complexity 368 00:20:20,840 --> 00:20:24,560 Speaker 1: right now because sales, remember in two, were held up 369 00:20:24,600 --> 00:20:29,000 Speaker 1: by this idea of inflation. So even though volume sales 370 00:20:29,040 --> 00:20:32,679 Speaker 1: were clearly decelerating throughout two, we had inflating prices, in 371 00:20:32,720 --> 00:20:35,919 Speaker 1: particular in the commodity space, energy and utilities mostly, but 372 00:20:36,040 --> 00:20:40,480 Speaker 1: also you know, some other peripheral commodity segments where sales 373 00:20:40,520 --> 00:20:44,480 Speaker 1: growth was very profoundly positive. And now, for the first 374 00:20:44,480 --> 00:20:46,000 Speaker 1: time in a very long time, in the fourth quarter, 375 00:20:46,080 --> 00:20:47,960 Speaker 1: in any season, it looks like sales growth is going 376 00:20:48,000 --> 00:20:52,240 Speaker 1: to miss expectations. So we are seeing this inflation shift 377 00:20:52,440 --> 00:20:55,400 Speaker 1: play out on the top line. Now, how much does 378 00:20:55,440 --> 00:20:58,200 Speaker 1: that impact bottom line is really interesting to think about 379 00:20:58,280 --> 00:21:02,280 Speaker 1: because so far bottom line is actually beating expectations because 380 00:21:02,400 --> 00:21:06,720 Speaker 1: companies are enjoying the deceleration and commodity prices to produce 381 00:21:06,800 --> 00:21:10,320 Speaker 1: stronger margins than anticipated. And that give and take is 382 00:21:10,359 --> 00:21:13,640 Speaker 1: really important to consider because what happens with energy and utilities. 383 00:21:14,200 --> 00:21:17,840 Speaker 1: As you know, commodity segments is meaningful for the overall 384 00:21:17,880 --> 00:21:21,359 Speaker 1: headline index, but it also is meaningful for the rest 385 00:21:21,440 --> 00:21:24,359 Speaker 1: of the constituents. And generally, what's great for energy is 386 00:21:24,440 --> 00:21:26,399 Speaker 1: not so good for everybody else, and what's bad for 387 00:21:26,520 --> 00:21:29,040 Speaker 1: energy is great for everybody else. And that dynamic is 388 00:21:29,040 --> 00:21:31,040 Speaker 1: playing out right now. So talk to us about like 389 00:21:31,160 --> 00:21:34,199 Speaker 1: the discounting mechanism that is the stock market. When do 390 00:21:34,280 --> 00:21:37,760 Speaker 1: you think the stock market starts to say, I've seen 391 00:21:37,800 --> 00:21:40,480 Speaker 1: the worst of inflation, I've seen the worst of rate increases, 392 00:21:40,520 --> 00:21:44,920 Speaker 1: I've seen the worst of earnings reductions. I can now 393 00:21:44,960 --> 00:21:48,439 Speaker 1: start discounting some better stuff going forward. What do you 394 00:21:48,480 --> 00:21:52,080 Speaker 1: think that happens. I think it's been happening. I think 395 00:21:52,119 --> 00:21:55,280 Speaker 1: that we got to our point of maximum pessimism back 396 00:21:55,400 --> 00:22:00,639 Speaker 1: in September October, and since that period we've been starting 397 00:22:00,680 --> 00:22:03,200 Speaker 1: to think about, Okay, how much worse can it get? 398 00:22:03,240 --> 00:22:06,879 Speaker 1: How much did we already price? And even more importantly, 399 00:22:07,119 --> 00:22:09,600 Speaker 1: what does the next cycle look like? And that's where 400 00:22:09,600 --> 00:22:13,160 Speaker 1: I think we have this sort of really opaque challenge 401 00:22:13,359 --> 00:22:16,479 Speaker 1: right now, is what is going to look like? Because 402 00:22:16,960 --> 00:22:19,160 Speaker 1: we spent so much time of the last year talking 403 00:22:19,160 --> 00:22:23,280 Speaker 1: about the recession coming. The market has certainly prepared to 404 00:22:23,720 --> 00:22:26,400 Speaker 1: at least a moderate degree for this recession that we've 405 00:22:26,440 --> 00:22:29,600 Speaker 1: all been talking about waiting for, trying to time. What 406 00:22:29,720 --> 00:22:31,600 Speaker 1: I think we're going to continue to struggle with this 407 00:22:31,680 --> 00:22:34,239 Speaker 1: year is what does the recovery look like in an 408 00:22:34,320 --> 00:22:37,800 Speaker 1: environment where the FED probably doesn't backpedal to the normal degree, 409 00:22:37,840 --> 00:22:40,320 Speaker 1: where they don't reduce rates to a lower level than 410 00:22:40,359 --> 00:22:42,800 Speaker 1: they were at the end of the last cycle. That's 411 00:22:42,840 --> 00:22:47,240 Speaker 1: impossible unless they go into negative territory, and so it 412 00:22:47,280 --> 00:22:50,399 Speaker 1: seems also incredibly unlikely given the inflation dynamic and the 413 00:22:50,400 --> 00:22:54,040 Speaker 1: general resilience of demand that we're experiencing. So I think 414 00:22:54,080 --> 00:22:56,359 Speaker 1: that is the challenge. I think that's where the market 415 00:22:56,440 --> 00:22:59,240 Speaker 1: is headed already, and we'll continue to head through. It's 416 00:22:59,280 --> 00:23:04,240 Speaker 1: really pricing that outlook for recovery emerging in. Is there 417 00:23:04,280 --> 00:23:08,760 Speaker 1: a threat here that sell off was overdone by any 418 00:23:08,800 --> 00:23:12,639 Speaker 1: margin if you indeed get a soft landing from the Fed. Yeah, 419 00:23:12,800 --> 00:23:15,399 Speaker 1: it does seem like, you know, at least the market 420 00:23:15,440 --> 00:23:17,680 Speaker 1: seems to think that we overdid it. The market has 421 00:23:17,680 --> 00:23:21,360 Speaker 1: had a very robust recovery from that that mid October low, 422 00:23:21,520 --> 00:23:25,440 Speaker 1: So the market does seem that we overdid our expectations 423 00:23:25,520 --> 00:23:29,080 Speaker 1: on at least the FED and probably the economy. But 424 00:23:29,119 --> 00:23:31,080 Speaker 1: we're going to continue to argue about that creaty, I 425 00:23:31,119 --> 00:23:34,000 Speaker 1: don't I don't think we know for yeah, we're going 426 00:23:34,040 --> 00:23:36,439 Speaker 1: to continue to argue about that for a couple of 427 00:23:36,520 --> 00:23:39,560 Speaker 1: quarters yet, because the FED seems to be pretty committed 428 00:23:39,640 --> 00:23:42,119 Speaker 1: still to maintaining this high rate and yet the market 429 00:23:42,160 --> 00:23:45,080 Speaker 1: is saying, oh, no, no, no, you're going to reduce 430 00:23:45,119 --> 00:23:49,280 Speaker 1: interest rates like you always do in recession. And you know, 431 00:23:50,000 --> 00:23:52,840 Speaker 1: to the market's credit, we haven't lived through that kind 432 00:23:52,880 --> 00:23:56,800 Speaker 1: of environment. Right, For every recession experience going all the 433 00:23:56,840 --> 00:23:59,320 Speaker 1: way back to the nineties, we've seen the FED reduced 434 00:23:59,400 --> 00:24:03,320 Speaker 1: rates two lower levels than they ended in the last cycle. 435 00:24:03,600 --> 00:24:05,480 Speaker 1: This is different, and you know, you hate to say 436 00:24:05,520 --> 00:24:08,240 Speaker 1: that time that this time is different in this business. 437 00:24:08,240 --> 00:24:12,639 Speaker 1: But from a policy perspective, the FED is definitely behaving 438 00:24:12,840 --> 00:24:15,880 Speaker 1: quite differently than they have in recent recessions and we'll 439 00:24:15,880 --> 00:24:18,040 Speaker 1: probably continue to do so, and that's going to continue 440 00:24:18,080 --> 00:24:21,320 Speaker 1: to create friction, to say the least for the equity market. 441 00:24:21,400 --> 00:24:23,600 Speaker 1: All right, good stuff, Gina Martin Adams. He's a chief 442 00:24:23,600 --> 00:24:26,399 Speaker 1: equity strategist for Bloomberg Intelligence. Joining us here live in 443 00:24:26,440 --> 00:24:31,000 Speaker 1: our Bloomberg Interactive Broker Studio. Always love getting Gina's perceptions 444 00:24:31,040 --> 00:24:33,400 Speaker 1: of the market, where we think we are, where we've 445 00:24:33,440 --> 00:24:36,000 Speaker 1: come from, and where we're going, so we appreciate her 446 00:24:36,119 --> 00:24:43,480 Speaker 1: getting some time there. Another earning story in the news 447 00:24:43,520 --> 00:24:45,200 Speaker 1: today Boeing. And this is a name I like the 448 00:24:45,240 --> 00:24:47,879 Speaker 1: follower we're talking to, giant aerospace company, goes to the 449 00:24:47,920 --> 00:24:51,120 Speaker 1: airline business, to travel business, all kinds of stuff. Here 450 00:24:51,359 --> 00:24:53,000 Speaker 1: the numbers, it kind of looked in line to me. 451 00:24:53,040 --> 00:24:55,560 Speaker 1: I know there's another loss, but let's put it in 452 00:24:55,560 --> 00:24:57,720 Speaker 1: perspective here. The stock trading off about two point eight 453 00:24:57,720 --> 00:25:00,560 Speaker 1: percent today is Boeing. It's got a hunter twenty three 454 00:25:00,600 --> 00:25:03,240 Speaker 1: billion dollar market cap, so it's it's a big one. 455 00:25:03,280 --> 00:25:06,760 Speaker 1: George Ferguson, Senior industry analyst at Bloomberg Intelligence. He covers 456 00:25:06,760 --> 00:25:10,879 Speaker 1: the airspace companies as well as the airlines the end customers. George, 457 00:25:10,880 --> 00:25:12,639 Speaker 1: thanks so much for taking the time to join us here. 458 00:25:12,640 --> 00:25:14,760 Speaker 1: I know you're busy talk to us about Boeing here. 459 00:25:15,000 --> 00:25:18,480 Speaker 1: What's your takeaway from what we heard from the folks 460 00:25:18,560 --> 00:25:21,359 Speaker 1: that are based in Point I guess they're Washington now, right, George. 461 00:25:22,000 --> 00:25:24,440 Speaker 1: Actually I think they're based out of yes, sorry Washington, 462 00:25:24,560 --> 00:25:29,000 Speaker 1: d C. Right, Virginia, Virginia. But we know they build 463 00:25:29,000 --> 00:25:31,200 Speaker 1: all those great airplanes. It's still Seattle for me, dude. 464 00:25:31,760 --> 00:25:34,280 Speaker 1: The worst worst decision you ever made was leaving Seattle. 465 00:25:35,800 --> 00:25:38,320 Speaker 1: So yeah, so we um, we saw them, you know, 466 00:25:38,359 --> 00:25:41,280 Speaker 1: bring earnings today and yeah, the markets off, but remember this, 467 00:25:42,000 --> 00:25:44,520 Speaker 1: the stock has seen a lot of rally over um, 468 00:25:44,600 --> 00:25:46,480 Speaker 1: you know, through the fourth quarter at the end of 469 00:25:46,520 --> 00:25:49,240 Speaker 1: the year a bit so um. I don't know that 470 00:25:49,240 --> 00:25:51,879 Speaker 1: I'd get too excited yet. I think, you know what 471 00:25:51,960 --> 00:25:54,320 Speaker 1: I think we've heard so far. They're just a huge 472 00:25:54,600 --> 00:25:57,840 Speaker 1: amount of new details we're getting out of them. But 473 00:25:58,160 --> 00:26:00,119 Speaker 1: you know, I think the bigger thing is that by 474 00:26:00,200 --> 00:26:02,639 Speaker 1: chain is still going to be a problem in three right, 475 00:26:02,640 --> 00:26:05,159 Speaker 1: But I think we all kind of knew that, but 476 00:26:05,240 --> 00:26:08,960 Speaker 1: we were I think maybe hoping we'd hear better discussion 477 00:26:08,960 --> 00:26:12,000 Speaker 1: about how supply chains were turning the corner. And there's 478 00:26:12,119 --> 00:26:15,280 Speaker 1: visibility on that improvement, you know, And so some of 479 00:26:15,320 --> 00:26:17,879 Speaker 1: the some of the guidance for the year, it's like 480 00:26:17,920 --> 00:26:20,480 Speaker 1: on seven thirty seven, right, but they're saying, look, the 481 00:26:20,520 --> 00:26:22,480 Speaker 1: low end of our guidance means we're gonna deliver thirty 482 00:26:22,520 --> 00:26:25,080 Speaker 1: one seven thirty seven's a month throughout the year and 483 00:26:25,640 --> 00:26:27,359 Speaker 1: on the high end means we break to like a 484 00:26:27,480 --> 00:26:30,560 Speaker 1: forty one, you know, maybe sometime in the back half 485 00:26:30,560 --> 00:26:33,040 Speaker 1: of the year. But they don't know because they just 486 00:26:33,119 --> 00:26:36,840 Speaker 1: don't know if they can get supply chain stabilized enough 487 00:26:36,920 --> 00:26:38,879 Speaker 1: to do that. And and that's key to this company, 488 00:26:39,000 --> 00:26:42,080 Speaker 1: right The key to the company is getting commercial airplane 489 00:26:42,320 --> 00:26:47,680 Speaker 1: that division moving profitable um and that really takes that, 490 00:26:47,800 --> 00:26:50,920 Speaker 1: you know, that stabilization in the supply chain, higher rates, 491 00:26:50,960 --> 00:26:54,080 Speaker 1: which absorb the overhead better, you know. So again, I 492 00:26:54,080 --> 00:26:57,040 Speaker 1: think visibility kind of lacking on that, and I think 493 00:26:57,080 --> 00:26:59,800 Speaker 1: the market wants more visibility and that supply chain, hoping 494 00:26:59,840 --> 00:27:01,719 Speaker 1: it would be a better story. We hear the same 495 00:27:01,760 --> 00:27:05,000 Speaker 1: from raytheon yesterday, So I think it's it's you know, 496 00:27:05,320 --> 00:27:08,320 Speaker 1: it's a wait and see on supply chains. George, to 497 00:27:08,400 --> 00:27:12,679 Speaker 1: what extent is that going to prolong the backlog that 498 00:27:12,720 --> 00:27:15,000 Speaker 1: we're seeing for Boeing, Because if correctly, if I'm wrong, 499 00:27:15,040 --> 00:27:17,280 Speaker 1: really the fourth quarter was when they really stepped up 500 00:27:17,320 --> 00:27:20,720 Speaker 1: some of their jet deliveries. What kind of pressure does 501 00:27:20,760 --> 00:27:25,280 Speaker 1: that supply chain issue put on the backlog? Yes, So 502 00:27:25,480 --> 00:27:27,280 Speaker 1: I mean what we one it extends you know, the 503 00:27:27,640 --> 00:27:32,800 Speaker 1: existing backlock of airplanes they've they've sold UM and Bowing 504 00:27:32,800 --> 00:27:33,960 Speaker 1: has a little bit of a catch up to do 505 00:27:34,080 --> 00:27:38,080 Speaker 1: against Airbus still, and I would think they could break 506 00:27:38,119 --> 00:27:40,600 Speaker 1: to m They'll be breaking rates or you know, moving 507 00:27:40,640 --> 00:27:45,199 Speaker 1: to higher rates UM probably easier than Airbus because Airbus 508 00:27:45,240 --> 00:27:48,040 Speaker 1: is at higher levels already. So I don't I don't 509 00:27:48,040 --> 00:27:50,239 Speaker 1: think it hurts the ability to sell airplanes, is what 510 00:27:50,240 --> 00:27:52,560 Speaker 1: I'm sort of getting out. They may even have a 511 00:27:52,600 --> 00:27:55,760 Speaker 1: better they may maybe have a better position to sell 512 00:27:55,800 --> 00:28:00,280 Speaker 1: airplanes than Airbus because I think there's more near term 513 00:28:00,320 --> 00:28:03,879 Speaker 1: delivery spots that you could probably get if you're a customer. 514 00:28:04,640 --> 00:28:06,680 Speaker 1: But again, I think, you know, we all saw kind 515 00:28:06,680 --> 00:28:10,920 Speaker 1: of December deliveries. They were strong, they were they were 516 00:28:11,040 --> 00:28:13,240 Speaker 1: they were really nice, right and they and they led 517 00:28:13,280 --> 00:28:15,680 Speaker 1: to the I think, you know, better than expected results 518 00:28:15,680 --> 00:28:18,520 Speaker 1: in four que and I think the market, you know, 519 00:28:18,520 --> 00:28:20,800 Speaker 1: I thought the story would continue like that and it 520 00:28:20,840 --> 00:28:23,840 Speaker 1: would be more of it today where we're just hearing yep, 521 00:28:24,040 --> 00:28:29,120 Speaker 1: you know, challenges in supply chains. So we're specifically are 522 00:28:29,119 --> 00:28:31,600 Speaker 1: the challenges because I think I'm at the point of 523 00:28:31,720 --> 00:28:34,920 Speaker 1: saying I'm calling bs on the supply chain. Excuse I 524 00:28:34,960 --> 00:28:37,400 Speaker 1: don't care what kind of company you are. So where 525 00:28:37,400 --> 00:28:41,640 Speaker 1: are they seeing it from? In particular the brutal Sweeney call. Yeah, well, 526 00:28:41,680 --> 00:28:44,960 Speaker 1: I mean so you know, engines are one that everyone 527 00:28:45,080 --> 00:28:49,600 Speaker 1: points to. And you know, yesterday Raytheon on their earnings 528 00:28:49,640 --> 00:28:53,920 Speaker 1: called cited castings and forgings. Right, we've heard castings and forgings. 529 00:28:54,200 --> 00:28:57,480 Speaker 1: They were the limited at the at the tail end 530 00:28:57,560 --> 00:29:01,080 Speaker 1: of the last decade when we were breaking direct levels 531 00:29:01,120 --> 00:29:03,800 Speaker 1: of aircraft production for the seven three, seven and h 532 00:29:03,880 --> 00:29:08,760 Speaker 1: V twenty castings and forgings. There is no no no, no, no, no, 533 00:29:08,760 --> 00:29:11,480 Speaker 1: no no no. It's a U it's a US Europe thing. 534 00:29:12,160 --> 00:29:14,720 Speaker 1: But it's very skilled labor, right, And so to the 535 00:29:14,720 --> 00:29:17,440 Speaker 1: extent you lost any of that skilled labor during the 536 00:29:17,440 --> 00:29:19,880 Speaker 1: pandemic and said, hey, we're cutting rate, we don't need 537 00:29:19,880 --> 00:29:23,440 Speaker 1: all you folks. People walked away, retired, whatever, you've got 538 00:29:23,440 --> 00:29:25,479 Speaker 1: to bring new people back in and teach them how 539 00:29:25,520 --> 00:29:28,960 Speaker 1: to do castings and forgings. I wish I knew even 540 00:29:29,000 --> 00:29:30,920 Speaker 1: more about it, and about to go, you know, get 541 00:29:30,960 --> 00:29:32,680 Speaker 1: a job a volunteer to be like an intern in 542 00:29:32,720 --> 00:29:35,320 Speaker 1: the casting and forging the department that the Raytheon to 543 00:29:35,320 --> 00:29:37,920 Speaker 1: figure out more. But we keep hearing that and the 544 00:29:37,920 --> 00:29:40,600 Speaker 1: other and the other truth I think is I think 545 00:29:40,640 --> 00:29:43,640 Speaker 1: the smaller the supplier is and remember the supplier base 546 00:29:44,120 --> 00:29:47,719 Speaker 1: can be quite small for aerospace because volumes in some 547 00:29:47,720 --> 00:29:51,640 Speaker 1: programs just aren't that large. And the smaller the supplier, 548 00:29:52,280 --> 00:29:55,040 Speaker 1: I think, the less visibility, right that sort of the 549 00:29:55,040 --> 00:29:56,840 Speaker 1: following an airbus have they got to really dig deep 550 00:29:56,880 --> 00:30:00,000 Speaker 1: because they're multiple tiers down and those people are having 551 00:30:00,120 --> 00:30:03,600 Speaker 1: problems hiring people still, right because they're not offering the 552 00:30:03,640 --> 00:30:07,400 Speaker 1: best wages. They're not offering the best um uh you know, 553 00:30:07,760 --> 00:30:12,160 Speaker 1: incentive packages. So raytheon Boeing Airbus they can fill their 554 00:30:12,160 --> 00:30:15,240 Speaker 1: factors and people ready to do work. But when you 555 00:30:15,240 --> 00:30:17,800 Speaker 1: get down to those lower tiers, they're still scrapping to 556 00:30:17,840 --> 00:30:20,840 Speaker 1: bring people in it and then train them to do 557 00:30:20,880 --> 00:30:23,960 Speaker 1: the job they got to do, right, So that's a challenge. Well, George, 558 00:30:23,960 --> 00:30:26,960 Speaker 1: when we're talking about Bowing specifically as a company, the 559 00:30:26,960 --> 00:30:29,120 Speaker 1: supply to an issues aside to what extent is it 560 00:30:29,200 --> 00:30:33,800 Speaker 1: turning in away from defense more to in line with 561 00:30:33,920 --> 00:30:36,320 Speaker 1: the airline industry when it comes to exposure in a 562 00:30:36,360 --> 00:30:38,000 Speaker 1: ton when it comes to industry, it feels like in 563 00:30:38,000 --> 00:30:40,360 Speaker 1: the last couple of years it's doing less and less 564 00:30:40,400 --> 00:30:44,280 Speaker 1: with government contracting. Yeah, so I would say, um, what 565 00:30:44,400 --> 00:30:46,080 Speaker 1: we saw at the tail end of the last decade 566 00:30:46,120 --> 00:30:49,160 Speaker 1: was definitely the company was moving more commercial. I think 567 00:30:49,160 --> 00:30:53,360 Speaker 1: commercial the challenge in these businesses, or maybe it's you know, 568 00:30:53,400 --> 00:30:55,880 Speaker 1: it's a it's a benefit, it's a it's a balance er. 569 00:30:56,600 --> 00:30:58,720 Speaker 1: I mean, commercial can take off right there, you know 570 00:30:58,760 --> 00:31:00,800 Speaker 1: what you're get in this situation, and so to speak, 571 00:31:00,880 --> 00:31:04,280 Speaker 1: right where airlines just start to need a lot more airplanes. 572 00:31:04,280 --> 00:31:08,040 Speaker 1: Global air growth, air travel growth is taking off, and 573 00:31:08,080 --> 00:31:10,760 Speaker 1: they're booking all these orders and the commercial side really 574 00:31:10,800 --> 00:31:14,480 Speaker 1: outweighs defense. The beauty of these companies is usually that 575 00:31:14,640 --> 00:31:18,960 Speaker 1: when that when that commercial cycle goes, you know, goes 576 00:31:19,000 --> 00:31:23,640 Speaker 1: into a relaxation mode, is less less intense. The defense 577 00:31:23,640 --> 00:31:26,000 Speaker 1: helps keep the lights on. It's a very stable business. 578 00:31:26,000 --> 00:31:29,280 Speaker 1: It usually very profitable, good cash flows. So you know, 579 00:31:29,520 --> 00:31:31,560 Speaker 1: we kind of in the beginning of the pandemic we 580 00:31:31,600 --> 00:31:34,520 Speaker 1: saw some of that defense stabilizing a Boeing. But what 581 00:31:34,560 --> 00:31:36,120 Speaker 1: I'd say where they are right now is they I 582 00:31:36,120 --> 00:31:39,280 Speaker 1: don't think they've de emphasized defense at all. I think 583 00:31:39,320 --> 00:31:42,600 Speaker 1: part of that move to Washington was about getting back 584 00:31:42,640 --> 00:31:46,440 Speaker 1: in touch with their defense customers a bit better. They 585 00:31:46,440 --> 00:31:50,440 Speaker 1: have some great products. Case. The tanker is very important 586 00:31:50,480 --> 00:31:55,480 Speaker 1: for US, uh, you know, it's power projection ability. Tankers 587 00:31:55,480 --> 00:31:59,280 Speaker 1: are just hugely important. That the current fleet's fifty years old. Um, 588 00:31:59,640 --> 00:32:02,440 Speaker 1: you know, they've got some great products in there. But 589 00:32:02,560 --> 00:32:05,440 Speaker 1: right now, margins are hurting bad. They bit a bunch 590 00:32:05,440 --> 00:32:08,200 Speaker 1: of projects, um that were fixed cost that they took 591 00:32:08,280 --> 00:32:11,280 Speaker 1: serious losses on. You know, so we're down the down 592 00:32:11,280 --> 00:32:14,000 Speaker 1: in the low single digits on margins in a business 593 00:32:14,040 --> 00:32:17,880 Speaker 1: that should just traditionally should be tennish. But I still 594 00:32:17,920 --> 00:32:21,080 Speaker 1: think the company sees the value of that portfolio. They 595 00:32:21,120 --> 00:32:23,760 Speaker 1: continue to talk about it. But I would expect as 596 00:32:23,800 --> 00:32:26,520 Speaker 1: we get into another commercial upswing, which I think we're 597 00:32:26,560 --> 00:32:30,920 Speaker 1: kind of going to get here, that they commercial Eclipse Defense. 598 00:32:30,920 --> 00:32:33,800 Speaker 1: But I think it's still super important, and it's embedded 599 00:32:33,800 --> 00:32:36,360 Speaker 1: in global services as well, which is a which is 600 00:32:36,400 --> 00:32:38,960 Speaker 1: a nice cash generator. All right, George, great stuff as always. 601 00:32:39,000 --> 00:32:43,080 Speaker 1: George Ferguson, senior Airspace, Defense and Airline analyst for Bloomberg Intelligence, 602 00:32:43,440 --> 00:32:46,160 Speaker 1: former military intelligence officer in the U. S. Army. So 603 00:32:46,160 --> 00:32:49,160 Speaker 1: we thank him for service. Maybe most importantly, he's a 604 00:32:49,200 --> 00:32:53,720 Speaker 1: proud undergraduate of the Penn State University. He's a proud alumni. 605 00:32:53,920 --> 00:32:58,880 Speaker 1: They're talking about Boeing. Uh commercial business got some challenges 606 00:32:58,880 --> 00:33:04,440 Speaker 1: near term, of long term sounds pretty solid. One of 607 00:33:04,480 --> 00:33:08,360 Speaker 1: the few few areas that did well last year, and 608 00:33:08,400 --> 00:33:12,240 Speaker 1: I mean really well, is energy. Um Why did they 609 00:33:12,280 --> 00:33:13,800 Speaker 1: did rip it last year? The question is what do 610 00:33:13,840 --> 00:33:15,800 Speaker 1: we do from here? Like that? I missed that trade, 611 00:33:15,840 --> 00:33:18,040 Speaker 1: like I might have missed a few other trades in 612 00:33:18,080 --> 00:33:20,640 Speaker 1: my career. Ben Cook, he knows all about this stuff. 613 00:33:20,680 --> 00:33:24,520 Speaker 1: He's a portfolio manager at Hennessey Funds. So Ben, again, 614 00:33:24,720 --> 00:33:27,960 Speaker 1: did Sweeney miss the energy trade here? That just ripped 615 00:33:27,960 --> 00:33:32,280 Speaker 1: in two? Yeah? Good morning, Paul, thanks for having me. 616 00:33:32,320 --> 00:33:35,560 Speaker 1: I think three stands to be another good year for energy, 617 00:33:35,640 --> 00:33:40,040 Speaker 1: and you consider continued improvement in the commodity markets UMU, 618 00:33:40,440 --> 00:33:44,760 Speaker 1: continued favorable valuation across much of the hydrocarbon sector, and 619 00:33:44,800 --> 00:33:49,000 Speaker 1: of course the continued allocation of capital back to investors 620 00:33:49,080 --> 00:33:51,840 Speaker 1: and former share repurchases and dividends. All those combined make 621 00:33:51,920 --> 00:33:54,280 Speaker 1: for a pretty attractive investment case. So I think twenty 622 00:33:54,280 --> 00:33:55,800 Speaker 1: three is going to be another good year. I don't 623 00:33:55,840 --> 00:33:58,480 Speaker 1: think you missed out. Are we looking at a hundred 624 00:33:58,480 --> 00:34:03,200 Speaker 1: dollar oil again? In Yeah? It's very likely that we 625 00:34:03,280 --> 00:34:07,800 Speaker 1: see improving commodity fundamentals, including crude oil fundamentals, in the 626 00:34:07,840 --> 00:34:10,320 Speaker 1: coming twelve month period. I think, you know, the reopening 627 00:34:10,320 --> 00:34:13,719 Speaker 1: of China, easing of COVID lockdown policy. As recent as 628 00:34:13,800 --> 00:34:17,640 Speaker 1: the Chinese lunar New Year, we saw rebound and dramatic 629 00:34:17,680 --> 00:34:20,680 Speaker 1: rebound and jet travel and that a bodes well for 630 00:34:21,239 --> 00:34:25,719 Speaker 1: increased consumption across the region and passenger mobility. And I 631 00:34:25,760 --> 00:34:28,439 Speaker 1: think you know, if we continue to see growth there 632 00:34:28,520 --> 00:34:33,080 Speaker 1: and modest GDP growth here, uh, we could very easily 633 00:34:33,080 --> 00:34:35,880 Speaker 1: see oil over a hundred dollars over the next twelve months. 634 00:34:35,880 --> 00:34:40,839 Speaker 1: So Ben, I know, what's worked for energy equity investors 635 00:34:41,480 --> 00:34:45,719 Speaker 1: creditors has been what the energy folks like to call discipline, 636 00:34:46,120 --> 00:34:49,600 Speaker 1: not taking advantage when it's eighty or abound and started 637 00:34:49,640 --> 00:34:51,920 Speaker 1: drilling holes in the ground, which is what I instinctively 638 00:34:51,960 --> 00:34:55,600 Speaker 1: would do. UM talk to us about that. I mean, 639 00:34:56,120 --> 00:34:58,200 Speaker 1: you know, I mean, it seems to me there seems 640 00:34:58,200 --> 00:35:00,920 Speaker 1: to be I don't know if energy shortage, but certainly 641 00:35:00,920 --> 00:35:03,560 Speaker 1: there's a shortage in Europe. But it seems like we 642 00:35:03,600 --> 00:35:06,719 Speaker 1: still need more carbon energy out there in the marketplace 643 00:35:06,760 --> 00:35:11,319 Speaker 1: while we make this transition to um greener energy. But 644 00:35:11,760 --> 00:35:14,800 Speaker 1: I guess there's just no real incentives for the energy 645 00:35:14,840 --> 00:35:17,759 Speaker 1: guys to build a new refinery or or you know, 646 00:35:17,840 --> 00:35:21,040 Speaker 1: kind of drill more wells. Where are we on that 647 00:35:21,200 --> 00:35:26,120 Speaker 1: whole front. Yeah, the whole capital discipline phenomenon really, you know, 648 00:35:26,160 --> 00:35:28,840 Speaker 1: it's been a part of the investment narrative for the 649 00:35:29,120 --> 00:35:31,440 Speaker 1: large cap integrated group for some time, but the E 650 00:35:31,520 --> 00:35:34,760 Speaker 1: and P companies here in the US have really adhered 651 00:35:34,800 --> 00:35:37,880 Speaker 1: to this dramatically over the last eighteen months, close to 652 00:35:37,880 --> 00:35:40,880 Speaker 1: two years. And you know, I think historically the industry 653 00:35:40,960 --> 00:35:44,360 Speaker 1: has ramped spending in a procyclical manner, meaning, you know, 654 00:35:44,400 --> 00:35:48,239 Speaker 1: spending would rise as commodity prices, prices would increase, and 655 00:35:48,360 --> 00:35:51,560 Speaker 1: ultimately as the cycle would turn and commodity prices would 656 00:35:51,600 --> 00:35:53,600 Speaker 1: go lower, many of the companies would be left with 657 00:35:53,719 --> 00:35:57,280 Speaker 1: significant debt and their equity values would come under pressure, 658 00:35:57,800 --> 00:36:02,120 Speaker 1: uh during a downturn. And rather than do that, what 659 00:36:02,160 --> 00:36:05,840 Speaker 1: we've seen recently are these companies have become smarter about 660 00:36:06,200 --> 00:36:10,040 Speaker 1: spending their money. They realize that equity values can rise 661 00:36:10,200 --> 00:36:15,200 Speaker 1: without the expansion and production and development activity, and it's 662 00:36:15,360 --> 00:36:18,080 Speaker 1: it's the return of capital that actually the shareholders are 663 00:36:18,360 --> 00:36:21,759 Speaker 1: rewarding them for and so we see that that persisting. 664 00:36:22,080 --> 00:36:23,759 Speaker 1: I'd say the other part of it, too, is just 665 00:36:23,800 --> 00:36:29,160 Speaker 1: the uncertainty associated with government policy. The regulations typically come 666 00:36:29,200 --> 00:36:31,719 Speaker 1: in the form of a character stick, and here in 667 00:36:31,760 --> 00:36:33,960 Speaker 1: the US, over the last several years we've we've had 668 00:36:34,040 --> 00:36:36,560 Speaker 1: more of a stick as opposed to accarrot with the 669 00:36:36,600 --> 00:36:39,279 Speaker 1: traditional hydrocarbon sector. So it's been a combination of a 670 00:36:39,280 --> 00:36:42,719 Speaker 1: couple of things. But Fay capital discipline is all well 671 00:36:42,760 --> 00:36:45,080 Speaker 1: and good, and of course the stick coming from Washington 672 00:36:45,160 --> 00:36:47,440 Speaker 1: as well. But I'm curious how much of this was 673 00:36:47,480 --> 00:36:50,200 Speaker 1: simply a function of what Paul doesn't like to talk 674 00:36:50,200 --> 00:36:53,360 Speaker 1: about supply chain issues. Um, but when it comes to 675 00:36:53,719 --> 00:36:57,520 Speaker 1: some of these oil companies, were they being capitally disciplined 676 00:36:57,600 --> 00:37:00,000 Speaker 1: or were they being restrained by some of the supply 677 00:37:00,040 --> 00:37:03,480 Speaker 1: lighting issue that they have or both? Yeah, I think 678 00:37:03,520 --> 00:37:06,080 Speaker 1: to a degree there have been some supply chain issues 679 00:37:06,080 --> 00:37:08,640 Speaker 1: when you talk about the oil field service industry. Certainly 680 00:37:09,120 --> 00:37:13,160 Speaker 1: capital equipment is a necessity in terms of being able 681 00:37:13,239 --> 00:37:17,320 Speaker 1: to employ the machinery that goes to work, to to drill, 682 00:37:17,480 --> 00:37:22,040 Speaker 1: to to develop frac, etcetera, ultimately expand the capacity. So 683 00:37:22,040 --> 00:37:24,520 Speaker 1: there was some of that. I don't feel as though 684 00:37:24,560 --> 00:37:29,840 Speaker 1: the industry is dealing with dramatic challenge associated with supply 685 00:37:30,000 --> 00:37:33,000 Speaker 1: chain issues today. I think the more pressing issue for 686 00:37:33,040 --> 00:37:35,760 Speaker 1: the upstream sector here in the United States and maybe 687 00:37:35,760 --> 00:37:39,560 Speaker 1: to a lesser extent abroad, is the lack of availability 688 00:37:39,800 --> 00:37:43,480 Speaker 1: of of of workers. UM. You know, whether it's you know, 689 00:37:43,719 --> 00:37:47,880 Speaker 1: driving trucks to handle water or uh, you know, operating 690 00:37:48,160 --> 00:37:53,040 Speaker 1: frack machinery. Uh, there is a shortage of available of workers, 691 00:37:53,440 --> 00:37:56,359 Speaker 1: skilled workers to to put to work in in the 692 00:37:56,480 --> 00:37:59,520 Speaker 1: oil field service business and in the integrated and the 693 00:37:59,640 --> 00:38:02,319 Speaker 1: mp UH sectors as well. So that that's a real 694 00:38:02,400 --> 00:38:05,919 Speaker 1: challenge the industry is going to have to contend with it. Ben, 695 00:38:06,760 --> 00:38:09,839 Speaker 1: what does China reopening mean for the energy space both 696 00:38:09,880 --> 00:38:13,480 Speaker 1: from a supply and demand perspective, It would seem to 697 00:38:13,480 --> 00:38:16,600 Speaker 1: me would be positive on the net. Yeah, there's no 698 00:38:16,719 --> 00:38:19,279 Speaker 1: question the reopening of China is a positive on on 699 00:38:19,360 --> 00:38:22,720 Speaker 1: a net net basis. UH. In terms of incremental growth, 700 00:38:22,760 --> 00:38:27,160 Speaker 1: Southeast Asian demand is is the largest component of the 701 00:38:27,200 --> 00:38:31,600 Speaker 1: expansion in the world's growing appetite for crude oil demand. 702 00:38:31,600 --> 00:38:34,719 Speaker 1: And you know it's it's um when you think about 703 00:38:34,760 --> 00:38:39,480 Speaker 1: transportation that the jet fuel demand, the passenger mobility associated 704 00:38:39,480 --> 00:38:43,880 Speaker 1: with rail and cars. There's no question that that's going 705 00:38:43,920 --> 00:38:46,480 Speaker 1: to going to create a major tail win for demand 706 00:38:46,520 --> 00:38:49,640 Speaker 1: going forward. And it's not just China, it's neighboring countries 707 00:38:49,680 --> 00:38:53,320 Speaker 1: as well. Um, there's a significant appetite. I think the 708 00:38:53,320 --> 00:38:56,520 Speaker 1: the i e. A recently published some forecasts of significant 709 00:38:56,560 --> 00:39:00,799 Speaker 1: growth in on the back of Chinese demand. You know, 710 00:39:01,040 --> 00:39:04,560 Speaker 1: in terms of our view, we expect global demand growth 711 00:39:04,560 --> 00:39:05,799 Speaker 1: on the order of two to two and a half 712 00:39:05,840 --> 00:39:09,719 Speaker 1: million barrels this year, partly on on base effects associated 713 00:39:09,719 --> 00:39:12,239 Speaker 1: with slowdown in China last year. But that's a meaningful 714 00:39:12,360 --> 00:39:18,040 Speaker 1: incremental uh, you know, incremental growth amount of crude oil 715 00:39:18,080 --> 00:39:20,760 Speaker 1: demand that should come this year and end up again 716 00:39:20,880 --> 00:39:24,719 Speaker 1: provide a tail win to pricing. And again on the 717 00:39:24,719 --> 00:39:28,840 Speaker 1: supply side, you know, capital discipline here a very steady 718 00:39:28,880 --> 00:39:34,120 Speaker 1: opeque uh supply policy. I think the combination of those factors, 719 00:39:34,280 --> 00:39:36,680 Speaker 1: you know, could easily send prices over a hundred dollars 720 00:39:36,680 --> 00:39:40,080 Speaker 1: as we as we just discussed ben can the world 721 00:39:40,120 --> 00:39:42,920 Speaker 1: live without Russian crude in In the long term we 722 00:39:42,960 --> 00:39:46,879 Speaker 1: seem to be doing okay now, but long term, yeah, 723 00:39:47,040 --> 00:39:50,600 Speaker 1: longer term rush is a major supplier to the global market. 724 00:39:51,200 --> 00:39:54,480 Speaker 1: Producing roughly ten eleven million barrels a day. You know, 725 00:39:54,600 --> 00:39:58,160 Speaker 1: whether it's price caps or embargoes or sanctions, that industry 726 00:39:58,320 --> 00:40:00,800 Speaker 1: is going to face some challenges. In the world experienced 727 00:40:00,800 --> 00:40:03,919 Speaker 1: supply disruption, There's no no doubt about that. We would 728 00:40:03,960 --> 00:40:07,760 Speaker 1: anticipate over the coming years that as embargoes and sanctions 729 00:40:07,800 --> 00:40:10,719 Speaker 1: kick in, that capacity will will begin to shrink in 730 00:40:10,719 --> 00:40:14,400 Speaker 1: that country and it will diminish. In the meantime. UM 731 00:40:15,239 --> 00:40:18,480 Speaker 1: supplies coming from Russia are making their way to India 732 00:40:18,560 --> 00:40:22,680 Speaker 1: and China. Um. You know that that's important volume that 733 00:40:22,880 --> 00:40:26,360 Speaker 1: you know, without those supplies, prices would be much much higher. 734 00:40:26,840 --> 00:40:29,160 Speaker 1: So on a on a short term basis, we still 735 00:40:29,160 --> 00:40:31,799 Speaker 1: need to live with Russian crude, and even on a 736 00:40:31,840 --> 00:40:34,960 Speaker 1: longer term basis, it's hard to envision the scenario, a 737 00:40:35,000 --> 00:40:38,080 Speaker 1: global supply picture without Russian crude. It's just kind of 738 00:40:38,080 --> 00:40:41,080 Speaker 1: the dumb question today. Is China a net importer or 739 00:40:41,120 --> 00:40:46,360 Speaker 1: exporter of oil? They are a net importer? Uh, significant 740 00:40:46,360 --> 00:40:49,040 Speaker 1: net importerer? Yes, they are the Middle East? Uh? And 741 00:40:49,480 --> 00:40:52,480 Speaker 1: what a Russia's best clients got you? Okay, interesting to 742 00:40:52,520 --> 00:40:55,399 Speaker 1: see how that reopening plays in this marketplace. Ben Cook, 743 00:40:55,640 --> 00:40:58,600 Speaker 1: He's portfolio manager at Hennessey Funds. Over the Hennessey Funds, 744 00:40:58,600 --> 00:41:03,359 Speaker 1: he manages Hennessy Energy Transition Fund and Hennessey Midstream Fund, 745 00:41:03,440 --> 00:41:06,400 Speaker 1: so kind of in the UH, you know, the old energy, 746 00:41:06,480 --> 00:41:09,359 Speaker 1: the new energy. They invest in both. So it's great 747 00:41:09,360 --> 00:41:12,800 Speaker 1: to get bens perspective on all things energy. Talking about 748 00:41:12,800 --> 00:41:15,360 Speaker 1: maybe another move back to a hundred dollar oil w 749 00:41:15,400 --> 00:41:18,120 Speaker 1: T A crude oil right here is eighty dollars cents 750 00:41:18,880 --> 00:41:20,839 Speaker 1: a barrel, a little bit off the lows we saw 751 00:41:20,880 --> 00:41:25,759 Speaker 1: recently when't got down to about seventy dollars about Thanks 752 00:41:25,800 --> 00:41:29,239 Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe 753 00:41:29,280 --> 00:41:33,040 Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast 754 00:41:33,040 --> 00:41:36,600 Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at 755 00:41:36,640 --> 00:41:40,240 Speaker 1: Matt Miller three. Put on false Sweeney I'm on Twitter 756 00:41:40,320 --> 00:41:43,160 Speaker 1: at pt Sweeney Before the podcast. You can always catch 757 00:41:43,239 --> 00:41:45,000 Speaker 1: us worldwide at Bloomberg Radio