WEBVTT - Markets, Bonds, Energy, and Earnings (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.080 at Bloomberg dot com slash podcast. Let's get to another 0:00:22.200 --> 0:00:25.279 name reporting numbers, A T and T mob Bell. The 0:00:25.360 --> 0:00:27.600 numbers I kind of thought were okay, maybe a little 0:00:27.600 --> 0:00:30.600 disappointed about the stocks up six point two per cent. 0:00:30.680 --> 0:00:33.479 So let's break down what's going on with Big T 0:00:34.560 --> 0:00:36.440 buying some telephone? Is what we used to say on 0:00:36.479 --> 0:00:40.080 the trading desk, shares a telephone for sale and you 0:00:40.120 --> 0:00:43.199 know T. Yeah, John Butler, he's he knows back, he 0:00:43.240 --> 0:00:45.360 goes back that far. John talks to us about A 0:00:45.440 --> 0:00:47.600 T and T. What did they report and kind of 0:00:47.600 --> 0:00:51.680 how did you and in the market take their numbers? So, Paul, 0:00:51.720 --> 0:00:55.320 I think you, I think you characterized it correctly. The 0:00:55.520 --> 0:00:59.680 numbers for the quarter largely in line. It's all about 0:01:01.120 --> 0:01:05.440 is coming right the streets, very forward looking, and I 0:01:05.480 --> 0:01:10.880 thought management's tone on the coming year and beyond was confident. 0:01:11.080 --> 0:01:13.560 You know, they very they do a very good job 0:01:13.680 --> 0:01:18.600 of sort of managing the narrative. A T and T 0:01:18.880 --> 0:01:23.800 right now is transitioning to you know, a connectivity company. 0:01:23.880 --> 0:01:28.840 They're moving beyond that, you know, media and telecom conglomerate. 0:01:29.319 --> 0:01:33.040 They've sold off Warner Media in April of last year, 0:01:33.120 --> 0:01:37.200 and they're and they're moving forward, I think ahead into 0:01:37.560 --> 0:01:40.399 pushing into fiber and five G and they're doing you know, 0:01:40.480 --> 0:01:43.160 it's steady as she goes. They're really doing a very 0:01:43.160 --> 0:01:46.800 good job there of building out that fiber network and 0:01:46.920 --> 0:01:51.160 standing up news spent spectrum for five G and again 0:01:51.280 --> 0:01:55.520 management's tone around the whole project, if you will, was 0:01:55.640 --> 0:01:58.960 very confident. Well, what does that mean for the share 0:01:59.000 --> 0:02:03.200 price here? Because AT and T has consistently actually outperformed 0:02:03.480 --> 0:02:05.880 some of its peers here Hoizon T Mobile as well. 0:02:05.880 --> 0:02:07.760 What are we looking at when it comes to the 0:02:07.800 --> 0:02:12.760 future of the share price. So I can't really speak 0:02:12.840 --> 0:02:17.200 specifically to the price action, but I can talk about sentiment. 0:02:17.560 --> 0:02:20.840 So if you wind back the clock even six months, 0:02:20.919 --> 0:02:24.640 I seem I think people were very worried about the 0:02:24.760 --> 0:02:28.280 cash flow outlooking can they cover the dividend and can 0:02:28.320 --> 0:02:31.600 they really pull off this fiber build out at a 0:02:31.639 --> 0:02:35.400 time when the overall broadband market is maturing, just like 0:02:35.480 --> 0:02:39.080 wireless did a couple of years ago. And I think 0:02:39.080 --> 0:02:41.640 the answer to all that is yes, you know, they're 0:02:41.680 --> 0:02:46.079 beginning to execute well. The visibility on that on that 0:02:46.120 --> 0:02:50.120 build out, and their prospects in that market have improved, 0:02:50.280 --> 0:02:54.680 and so overall we're seeing a shift in sentiment from 0:02:54.919 --> 0:02:59.800 negative to wow. I think this actually is becoming a good, 0:03:00.840 --> 0:03:05.960 you know, stable story with um you know, the on 0:03:06.080 --> 0:03:08.959 the call, management said, look, we feel we're going to 0:03:09.080 --> 0:03:12.440 generate more than enough cash flow to cover the dividends. 0:03:12.440 --> 0:03:18.560 So anyone holding the stock for for the income, I 0:03:18.600 --> 0:03:21.040 think is going to feel better coming out of this call. 0:03:21.840 --> 0:03:24.320 So John, and it's you know, if you're a long 0:03:24.320 --> 0:03:26.919 time a T T shareholder, you've just been whipsawed. Here. 0:03:26.960 --> 0:03:29.800 You were, you know, kind of a tired old telephone 0:03:29.840 --> 0:03:33.320 company getting into wireless, and then boy they did this 0:03:33.360 --> 0:03:35.160 one a D and got to loaded up in the 0:03:35.200 --> 0:03:38.040 media business with Direct TV and then Time Warner, and 0:03:38.080 --> 0:03:41.680 they you know, almost as quickly unloaded those businesses. So 0:03:41.880 --> 0:03:44.720 if I buy a T and T today, what am 0:03:44.760 --> 0:03:47.600 I buying and what am I hanging my hat on? 0:03:49.120 --> 0:03:53.240 I think you're hanging the hat on the dividend partly, 0:03:54.240 --> 0:03:57.920 and you're hanging your hat on them getting into the 0:03:57.960 --> 0:04:02.520 broadband business, but doing well in that business, taking share 0:04:02.560 --> 0:04:06.400 in that business. You know, I think CEO John Stankey 0:04:06.680 --> 0:04:10.080 nailed it when he said, you know, ultimately data finds 0:04:10.120 --> 0:04:13.760 its way to fiber. And you know, with the growth 0:04:13.760 --> 0:04:16.600 in data coming out of five G right with with 0:04:17.200 --> 0:04:21.240 video streaming in particular, you need a lot of capacity 0:04:21.320 --> 0:04:24.760 to support that traffic flow. And I think fiber is 0:04:24.800 --> 0:04:29.440 the right answer for that. And uh, you know, the 0:04:29.520 --> 0:04:34.280 cable companies are all scrambling to upgrade their networks, which 0:04:34.279 --> 0:04:38.160 are mostly coaxial cable, and so I think a T 0:04:38.360 --> 0:04:42.359 and T has an inherent advantage with fiber. They see 0:04:42.400 --> 0:04:45.760 that and they're kind of pressing their bet there. Not 0:04:45.920 --> 0:04:49.160 only are they building the fiber in region and hitting 0:04:49.240 --> 0:04:53.479 their targets there UM, but they're building out a region now. 0:04:53.520 --> 0:04:57.520 They partnered with UM with black Stones to begin to 0:04:57.560 --> 0:05:01.799 build fiber outside the network. So or there could be upside, 0:05:01.839 --> 0:05:04.760 if you will, to this broadband bed. And I think 0:05:04.880 --> 0:05:07.359 that's what you're hanging your hat on that and the 0:05:07.440 --> 0:05:10.920 dividends story, So is this something is the R word, 0:05:11.160 --> 0:05:13.640 the recession word, something that a T and T really 0:05:13.640 --> 0:05:15.560 has to worry about here when we're talking about this 0:05:15.640 --> 0:05:19.720 kind of build out. You know, it's moving around the 0:05:20.560 --> 0:05:24.559 numbers modestly, I would say this year. But I think 0:05:25.360 --> 0:05:28.960 the investment community, based on where a sentiment is around 0:05:29.000 --> 0:05:33.000 these names, appears to be looking beyond any recession this year. 0:05:33.920 --> 0:05:39.800 And um and I say that because Verizon reported a 0:05:39.880 --> 0:05:44.400 choppier quarter and a choppier outlook yesterday, and yet the 0:05:44.440 --> 0:05:48.560 investment community seemed to be looking beyond all that. So 0:05:48.920 --> 0:05:52.240 you know, yes, telecom is a g d P plus business, 0:05:52.279 --> 0:05:56.040 so if you move into recession, it can crimp growth. 0:05:56.200 --> 0:06:01.440 But um, again, managements com men surround it, we're like, look, 0:06:01.560 --> 0:06:05.000 you know, we're looking at the economy and we're seeing 0:06:05.000 --> 0:06:09.400 a relatively stable economic environment right now. We're not seeing 0:06:09.440 --> 0:06:14.479 that down draft that everyone's bracing for. And they did say, look, 0:06:14.720 --> 0:06:17.200 things can change and there right on that things can 0:06:17.279 --> 0:06:20.919 change on a dime. But I'm sort of in alignment 0:06:20.960 --> 0:06:24.200 with what they're seeing. Based on what I'm hearing from companies, 0:06:24.240 --> 0:06:29.080 I'm seeing modest softness emerged, but not not anything I've 0:06:29.120 --> 0:06:33.000 seen with recessions past. All Right, John, great stuff. Always 0:06:33.000 --> 0:06:36.920 appreciate getting your perspective. You've seen a bunch of cycles 0:06:37.000 --> 0:06:39.760 over the years. We appreciate getting you perspective. John Butler, 0:06:39.760 --> 0:06:43.440 he's a senior analyst covering telecoms for a Bloomberg Intelligence. 0:06:43.480 --> 0:06:49.680 He's based in our lovely Princeton, New Jersey offices. All Right, 0:06:49.720 --> 0:06:52.839 I'm an equity guy. I just tell a story forecast 0:06:52.880 --> 0:06:55.360 and earnings. I slap a multiple onnament and my job's done. 0:06:55.360 --> 0:06:57.680 I go on. But the fixed income folks, that's a 0:06:57.680 --> 0:07:01.800 whole another game. They have to dive deep. But boy, 0:07:01.839 --> 0:07:04.640 they had a brutal year last year. I mean, returns 0:07:04.640 --> 0:07:07.240 that they've never seen before. So let's figure out where 0:07:07.240 --> 0:07:09.520 we are now, what do we do going forward? Uh? 0:07:09.520 --> 0:07:12.080 And for that, we're fortunate to have Stephen oh in 0:07:12.240 --> 0:07:15.040 the Bloomberg Interactive Broker studio. He's not mailing it in 0:07:15.080 --> 0:07:17.160 from l A. He's here in New York. And why 0:07:17.160 --> 0:07:19.400 wouldn't he be. It's the world's capital. Uh. He's a 0:07:19.400 --> 0:07:22.200 global head of Fixingcome for Prime Bridge Investment. Steven, thanks 0:07:22.240 --> 0:07:24.920 much for joining us here today. When you look back 0:07:24.960 --> 0:07:30.000 on two now you have some perspective what happened well 0:07:30.200 --> 0:07:33.160 on the one hand, I think it was largely anticipated 0:07:33.280 --> 0:07:36.440 that the FED would start to normalize policy going forward. 0:07:36.720 --> 0:07:39.440 I think what was the unexpected portion was really the 0:07:39.560 --> 0:07:43.360 strengthen the resistance of inflation, which forced the FED and 0:07:43.440 --> 0:07:46.760 other central banks to be much more aggressive in their 0:07:46.800 --> 0:07:50.800 actions in order to rein in future inflationary pressures. And 0:07:50.840 --> 0:07:53.480 so we're at a turning point right now. But we 0:07:53.560 --> 0:07:59.520 always said that entering that fixed income was largely unattractive 0:07:59.720 --> 0:08:02.760 give the fact that duration was extended. Fields were very 0:08:02.800 --> 0:08:06.200 low and there just wasn't much upside, and we were 0:08:06.240 --> 0:08:10.400 recommending that fixing come be reduced in portfolios. But we 0:08:10.560 --> 0:08:14.360 finally have some yield in fixing come, which is providing 0:08:14.360 --> 0:08:17.120 a new opportunity. Stephen, do you care at all about 0:08:17.120 --> 0:08:20.120 the debt ceiling? You know, I think it's very important 0:08:20.120 --> 0:08:22.000 and something that we need to pay attention to. But 0:08:22.040 --> 0:08:25.240 it's a repeat process, right, and so we seem like 0:08:25.240 --> 0:08:27.920 we're always here At some point. It would be great 0:08:27.960 --> 0:08:31.360 to get a resolution which is quasi permanent in nature. 0:08:31.880 --> 0:08:34.520 But I think from the period when we had a 0:08:34.559 --> 0:08:38.520 semi mini crisis back in with the issue, we've sort 0:08:38.520 --> 0:08:41.800 of navigated from there with the market largely ignoring the 0:08:41.840 --> 0:08:45.640 worst case outcomes where any type of a theoretical default 0:08:45.640 --> 0:08:48.640 would be short lived in nature. So that's seems to 0:08:48.679 --> 0:08:51.319 be the consensus on on Wall Street and around the world. 0:08:51.320 --> 0:08:53.720 But I'm curious, though, in that worst case scenario, do 0:08:53.840 --> 0:08:58.120 we then see the treasury market have a much bigger 0:08:59.440 --> 0:09:04.600 dislocated nation than perhaps in the team saga that you 0:09:04.640 --> 0:09:07.720 are referencing. Simply because we are now in a tightening 0:09:07.720 --> 0:09:10.319 era as opposed to an easy era, I would say 0:09:10.320 --> 0:09:13.080 a combination of factors could result in higher levels of 0:09:13.120 --> 0:09:16.600 treasury volatility. It's not only that component that you alluded 0:09:16.640 --> 0:09:19.480 to where we are in a tightening era, but volatility 0:09:19.520 --> 0:09:24.880 has risen significantly as the buyer basis diminished overall, and 0:09:25.200 --> 0:09:27.720 we've seen that even without any of the issues over 0:09:27.760 --> 0:09:30.480 the course of the past year. But again, any type 0:09:30.520 --> 0:09:34.400 of volatility that results in yields spiking up would be 0:09:34.480 --> 0:09:37.120 more of a buying opportunity because it's hard to see 0:09:37.120 --> 0:09:40.240 a scenario where that last or any period of time. 0:09:40.679 --> 0:09:43.400 All Right, you're fixing the guys. You blew it in two, 0:09:43.480 --> 0:09:47.040 here's your chance to redeem yourself in three. What do 0:09:47.080 --> 0:09:50.480 we do now? Well, I'm not expecting fixed income to 0:09:50.520 --> 0:09:53.439 produce tremendous returns in a rebound. We're not going to 0:09:53.520 --> 0:09:56.240 go back to ultra low rates. In fact, we're probably 0:09:56.280 --> 0:09:58.160 out of consensus from the market that we do not 0:09:58.240 --> 0:10:01.000 believe that the Fed will cut rates later this year uh, 0:10:01.040 --> 0:10:03.280 and the market is pricing that in. So the way 0:10:03.320 --> 0:10:06.320 we look at fixed income outcomes for this year is 0:10:06.360 --> 0:10:09.400 that because yields have peaked last year, we don't see 0:10:09.400 --> 0:10:11.480 the risking fixed income, but we see more of a 0:10:11.480 --> 0:10:14.120 coupon clipping from here on out, and most of the 0:10:14.200 --> 0:10:16.840 price action that may have been anticipated has already played 0:10:16.840 --> 0:10:19.000 out in the first three weeks of the year. So 0:10:19.160 --> 0:10:21.160 if you are at a consensus then from the market, 0:10:21.160 --> 0:10:24.000 does that then mean that you are selling the front 0:10:24.080 --> 0:10:27.480 end of the curve? Blooming Intelligence, Chief Rate Strategy Ira Jersey, 0:10:27.520 --> 0:10:29.600 He says, look, yield are so low on the front 0:10:29.679 --> 0:10:32.480 end simply because of those FED cuts being priced in. 0:10:32.600 --> 0:10:34.839 Is that the trade you'd make? Well, we think it. 0:10:34.920 --> 0:10:38.400 Barbell strategy makes sense because if you look at the steepness, 0:10:38.679 --> 0:10:40.360 you know, being in T bills is not a bad 0:10:40.360 --> 0:10:43.240 place to be right now and rolling that over because 0:10:43.280 --> 0:10:44.960 we do think it will hold up and the yields 0:10:44.960 --> 0:10:47.640 that you're getting our superior rather than selling the front. 0:10:47.679 --> 0:10:50.079 Then the curve. We like the approach of owning ultra 0:10:50.160 --> 0:10:52.120 short and then owning about the twenty year part of 0:10:52.160 --> 0:10:54.400 the curve in the Barbell approach, where that's going to 0:10:54.480 --> 0:10:57.400 be more reflective of a longer term normalized yield curve. 0:10:57.520 --> 0:11:00.440 That's a very wide range. It is what you're but 0:11:00.559 --> 0:11:02.560 you want to set your duration target. But that's where 0:11:02.600 --> 0:11:05.040 we see the two ends of the value. Interesting all right. 0:11:05.080 --> 0:11:07.680 Back in the day, you were a vice president on 0:11:07.840 --> 0:11:10.920 doing some high yield stuff a Bank America Securities, and 0:11:10.920 --> 0:11:12.960 that was the security's arm of Bank America before they 0:11:13.000 --> 0:11:15.920 bought Merrill Lynch in two thousand and eight. What do 0:11:15.920 --> 0:11:17.720 you think about the high yield market here? I mean, 0:11:18.120 --> 0:11:20.640 people tell me I got a recession coming. Do I 0:11:20.800 --> 0:11:23.559 even think about venturing into high yield? Well, high yield 0:11:23.559 --> 0:11:25.960 on surface to yields are very attractive. But from a 0:11:25.960 --> 0:11:28.880 spread standpoint, we always have to think about what is 0:11:28.920 --> 0:11:32.280 the fundamental outlook for both earnings, for defaults and so forth, 0:11:32.400 --> 0:11:35.240 and what is the valuation to reflect that. And right now, 0:11:35.320 --> 0:11:37.800 high yield spreads on the low four hundreds right now, 0:11:37.960 --> 0:11:41.000 it is not reflecting any type of a recessionary outcome. 0:11:41.320 --> 0:11:44.680 So from a tactical standpoint, we are cautious on high 0:11:44.760 --> 0:11:47.680 yield right now. The case where high yield isn't is 0:11:47.679 --> 0:11:50.640 it an attractive part of fixed income credit markets right now, 0:11:50.640 --> 0:11:53.160 because we don't believe it is. The case where high 0:11:53.240 --> 0:11:55.199 yield is that it makes a lot of sense of 0:11:55.280 --> 0:11:58.079 relation to equities as a d risking approach. If you 0:11:58.120 --> 0:12:01.000 can get north of eight percent high yield lot de 0:12:01.160 --> 0:12:05.560 risking from equities, that trade off to us is very attractive. 0:12:05.760 --> 0:12:08.280 But within fixed income we prefer to stay within investment 0:12:08.280 --> 0:12:13.120 grade right now. Let's talk about then, uh, the story 0:12:13.160 --> 0:12:15.160 when it comes to geo political risk as well. If 0:12:15.160 --> 0:12:16.959 you weren't worried about the debt ceiling, are you all 0:12:17.040 --> 0:12:20.559 worried about the bond market? Looking at the war in 0:12:20.720 --> 0:12:24.000 Ukraine as an ongoing issue, that is something that should 0:12:24.040 --> 0:12:28.120 factor into the decisions. The war in Ukraine has impacted 0:12:28.440 --> 0:12:32.040 UH global financial markets, not so much directly, but really 0:12:32.080 --> 0:12:36.320 the residual impact that it's having commodities, energy, certainly within 0:12:36.400 --> 0:12:39.000 Europe overall, although the male winners seems to have participated 0:12:39.040 --> 0:12:42.280 that somewhat. While there is a scenario of sort of 0:12:42.320 --> 0:12:45.680 a severe terror, risk that the war could become a 0:12:45.800 --> 0:12:50.720 catalyst for broader geopolitical tensions and spreading that war, which 0:12:50.760 --> 0:12:53.400 could have a cataclysmic effect. You know, we believe that 0:12:53.440 --> 0:12:56.280 the probability is very low, although we're not political analysts. 0:12:56.320 --> 0:12:59.800 Ironically in some respects from a risk standpoint, as a 0:13:00.000 --> 0:13:03.040 extinct come in a credit manager. There's the other side 0:13:03.040 --> 0:13:05.560 of that risk, from the standpoint that what if there 0:13:05.679 --> 0:13:09.160 is a peaceful resolution and outcome. Again, it's not something 0:13:09.200 --> 0:13:12.400 that we're predicting, but it represents a risk that you 0:13:12.400 --> 0:13:14.760 could have a tremendous rally in the markets, and we 0:13:14.840 --> 0:13:17.360 do not have enough risk within the portfolio. So we 0:13:17.400 --> 0:13:19.800 always think about risk, not only toward one end, but 0:13:20.080 --> 0:13:23.560 what can go wrong relative to our personfolio positioning. Well, 0:13:23.600 --> 0:13:25.760 speaking of portfolio positioning, let's talk a little bit about 0:13:25.800 --> 0:13:27.640 the cross acid moves here, because when you're looking at 0:13:27.640 --> 0:13:30.959 the bond market, I'm curious, so what specific, uh kind 0:13:31.000 --> 0:13:33.880 of leading indicators you're leading market action you're really looking at. 0:13:33.920 --> 0:13:37.000 For example, I will clarify, uh if you went back 0:13:37.040 --> 0:13:39.600 to say, just pulling up the chart on my handy 0:13:39.640 --> 0:13:43.760 dandy Winberg terminal. Right now, going back into early two 0:13:43.760 --> 0:13:45.920 and the war first broke out, you start to see 0:13:45.920 --> 0:13:49.199 oil prices rise, commodity prices rise, and yields rise in tandem. 0:13:49.280 --> 0:13:52.800 So the correlation between bond yields and commodities really quite 0:13:53.040 --> 0:13:55.720 strong and went hand in hand. That correlation has now 0:13:56.559 --> 0:13:59.480 been inversed, and I'm curious if you think that correlation 0:13:59.480 --> 0:14:02.360 will snap or perhaps just get more and more negative. Well, 0:14:02.400 --> 0:14:07.040 we're in markets right now where traditional relationships don't necessarily 0:14:07.080 --> 0:14:10.360 work out because it's really about where central banks are 0:14:10.360 --> 0:14:14.559 heading that's driving markets, and that necessarily does not pretend 0:14:14.640 --> 0:14:18.280 that historical correlations and relationships will work out in the 0:14:18.320 --> 0:14:21.400 same manner overall. So what we focus on, of course 0:14:21.440 --> 0:14:24.160 are all of the leading indicator of economics, but we 0:14:24.280 --> 0:14:27.400 also are very cautious about where do we think policy 0:14:27.400 --> 0:14:30.920 path is going to go, and again, what our markets reflecting, 0:14:30.920 --> 0:14:33.200 and do we have a view that differs in any 0:14:33.200 --> 0:14:36.040 way from the market, and that what really frames our 0:14:36.080 --> 0:14:41.840 positioning overall. But there's clearly indications right now of a 0:14:41.960 --> 0:14:45.160 soft landing or a perfect lie pass scenario that the 0:14:45.160 --> 0:14:48.280 FED is supposed to engineer. We don't believe that that 0:14:48.280 --> 0:14:51.280 would necessarily be the case, and so that creates more 0:14:51.320 --> 0:14:54.400 caution in how we're positioning relative to what the market view. 0:14:54.480 --> 0:14:56.880 Maybe Okay, so I get to feel that maybe you're 0:14:56.880 --> 0:15:01.000 a little bit more cautious than the average fixed income manager. 0:15:01.520 --> 0:15:05.680 That being said, where are you if you had capital 0:15:05.760 --> 0:15:08.480 allocate today? Where would you go? The areas that we 0:15:08.520 --> 0:15:11.960 are being cautious of our incredit markets that in our 0:15:12.040 --> 0:15:15.240 your trading type to a mild recessionary type of scenario, 0:15:15.400 --> 0:15:17.400 and those are going to be developed market fixed income. 0:15:17.720 --> 0:15:21.960 The area where fundamentals are improving is in Asia, credit 0:15:22.040 --> 0:15:25.040 in China in particular with the reopening, and so where 0:15:25.080 --> 0:15:28.720 we see the fundamental opportunity is really more so in 0:15:28.840 --> 0:15:32.560 emerging market credit opportunities right now, and so it may 0:15:32.600 --> 0:15:35.520 be a little bit early or late, depending on your 0:15:35.600 --> 0:15:38.280 view of China property and so forth. But we think 0:15:38.320 --> 0:15:42.200 that gliding the portfolio more towards emerging market in the 0:15:42.280 --> 0:15:46.040 coming year, based on the differential and fundamentals h makes 0:15:46.080 --> 0:15:48.280 a lot more sense this year. We've heard that. And 0:15:48.360 --> 0:15:51.200 my concern, not just about thir thirty seconds, is isn't 0:15:51.200 --> 0:15:54.440 there recession risk outside of the US more pronounced than 0:15:54.520 --> 0:15:57.320 here from a lot of emerging markets. I think it 0:15:57.360 --> 0:15:59.800 depends on how you define recession. There is certainly a 0:16:00.000 --> 0:16:03.400 correlation of what happens with developed markets versus emerging markets. 0:16:03.600 --> 0:16:07.280 The other component that support of the fundamentals in emerging markets, 0:16:07.320 --> 0:16:09.920 although there's certainly flashpoints and we're seeing some of the 0:16:09.960 --> 0:16:13.160 political risk and latdown so forth, is the fact that 0:16:13.200 --> 0:16:16.600 the dollar strength, which was an inhibitor and a headwind 0:16:16.600 --> 0:16:19.840 to emerging markets. We don't necessarily believe that the dollar 0:16:19.880 --> 0:16:23.440 will weaken significantly, but the headwinds of strengthening is abating, 0:16:23.480 --> 0:16:26.440 and we don't expect that to re emerge great points. 0:16:26.560 --> 0:16:28.600 Really appreciate it, Steven Oh. He's a global head of 0:16:28.600 --> 0:16:31.800 fixed income at pine Bridge Investments. He's based in Los Angeles. 0:16:31.880 --> 0:16:34.560 I'm looking at the office is about halfway between Beverly 0:16:34.640 --> 0:16:38.160 Hills and Santa Monica. If I had to guess center 0:16:38.440 --> 0:16:40.320 it is. It's a good place to live, you know, 0:16:40.400 --> 0:16:43.280 New York Center. But it's not a bad place. A 0:16:43.400 --> 0:16:50.480 good stuff, Steven. We appreciate it. Stopping into our studios here, 0:16:50.640 --> 0:16:52.680 the markets down at one point six percent today. Did 0:16:52.720 --> 0:16:55.280 we focus on the Fed? Do we focus on earnings? 0:16:55.320 --> 0:16:57.640 Do we focus on inflation? Do we focus on recession? 0:16:57.800 --> 0:16:59.880 I don't know. I buy him when they're low and 0:16:59.880 --> 0:17:01.680 I pelomone they're high. That's what I was told my 0:17:01.720 --> 0:17:03.600 first day of paint Warber on the block trading desk, 0:17:03.640 --> 0:17:05.760 and it's worked so far. But Gina Martin Adams, she 0:17:05.760 --> 0:17:08.840 takes a much more analytical approach. She's a chief equity 0:17:08.840 --> 0:17:12.640 strategist at Bloomberg Intelligence Joint US here in Bloomberg Interactive 0:17:12.640 --> 0:17:15.879 Broker Studio, which we always appreciate. So, Gina, what am 0:17:15.920 --> 0:17:18.800 I focusing on this year in when I think about 0:17:18.840 --> 0:17:21.439 what where these markets are going to go? Well, I 0:17:21.480 --> 0:17:25.440 think the investor base is really focused predominantly on recession 0:17:25.560 --> 0:17:28.200 and what recession really means. If the US is in recession, 0:17:28.280 --> 0:17:30.639 is European recession? Are they? Are? They? Are? Are they not? 0:17:30.760 --> 0:17:33.320 When are they going to fall into recession? You know? 0:17:33.440 --> 0:17:37.000 I think frankly some of this intense focus on recession 0:17:37.119 --> 0:17:40.480 is really just misplaced. Because earnings behave differently in every 0:17:40.560 --> 0:17:43.280 kind of recession. We won't know we're in recession until 0:17:43.840 --> 0:17:48.160 probably when it's nearly over. If the official dating process, 0:17:48.320 --> 0:17:52.560 you know, follows it's normal historical trend. So what I 0:17:52.600 --> 0:17:54.960 think that we should be focused on is not always 0:17:54.960 --> 0:17:56.600 the same as well, we're focused on, And what we 0:17:56.640 --> 0:17:58.879 really should be focused on is the depth and duration 0:17:58.920 --> 0:18:02.320 of this earning cycle. Earnings peaked a year ago, they 0:18:02.320 --> 0:18:05.119 peaked at the end of one. They've contracted on an 0:18:05.200 --> 0:18:09.359 unadjusted basis seven percent so far. The analyst community is 0:18:09.359 --> 0:18:13.280 anticipating a ten peak to trough drop at least will 0:18:13.280 --> 0:18:16.520 probably end up somewhere closer to twelve if our work 0:18:17.119 --> 0:18:20.000 is correct. And that's what's gonna matter. It's timing the 0:18:20.119 --> 0:18:21.879 end of that earning cycle. When are we going to 0:18:21.960 --> 0:18:25.720 start to see improvement. How will the economy impact earnings 0:18:25.800 --> 0:18:29.720 is critically important for sure. Um And then also this 0:18:29.920 --> 0:18:32.920 the show, the show going on in FED policy, right, 0:18:33.080 --> 0:18:35.120 you can't get away from FED policy as a driver 0:18:35.200 --> 0:18:37.119 of valuations. So those are the two things. So if 0:18:37.119 --> 0:18:40.280 I look at the spars looking at the Bloomberg terminal 0:18:40.359 --> 0:18:45.240 like bucks or something, should they be more like two? Yeah? 0:18:45.359 --> 0:18:47.480 So this is an operating earnings number, right, And I 0:18:47.480 --> 0:18:50.080 think the construct is really difficult because when we look 0:18:50.080 --> 0:18:52.480 at the long term historical earnings trend, operating earnings have 0:18:52.520 --> 0:18:55.200 only been around for about thirty years. When you look 0:18:55.200 --> 0:18:57.639 at the long long term, we have to think about 0:18:57.720 --> 0:19:02.119 unadjusted earnings and how adjusted earnings behave during recession on 0:19:02.119 --> 0:19:05.120 an operating earning spasis, I do think we probably see 0:19:05.160 --> 0:19:08.440 about a five percent decline in EPs. But you've got 0:19:08.440 --> 0:19:10.880 to remember companies are sitting on just boatloads of cash. 0:19:10.920 --> 0:19:12.760 They're going to continue to buy back shares, They're going 0:19:12.800 --> 0:19:15.879 to continue to deploy that cash, and that's going to 0:19:16.000 --> 0:19:21.080 make adjusted earnings probably fall less than many people are anticipating, 0:19:21.200 --> 0:19:24.520 or fall less than your traditional recession decline on an 0:19:24.720 --> 0:19:27.720 on an unadjusted basis, though there is some evidence of distress. 0:19:27.760 --> 0:19:30.400 We're seeing it in margin contractions year over year, which 0:19:30.400 --> 0:19:34.479 are anticipated to finally bottom within the first half of 0:19:34.480 --> 0:19:37.639 this year. We're certainly seeing some distress evident in tech, 0:19:37.720 --> 0:19:42.840 particularly relative to expectations which were extremely high for that space. 0:19:43.480 --> 0:19:45.440 So I think you do need to sort of read 0:19:45.480 --> 0:19:50.520 between the lines and really articulate the details, because you 0:19:50.560 --> 0:19:54.680 can get a very confusing picture depending upon what you're following. Well, Gina, 0:19:54.800 --> 0:19:57.439 you sund I think maybe either Monday or Tuesday on 0:19:57.560 --> 0:19:59.679 Limerick surveillance in the morning. Something that really stuck with 0:19:59.680 --> 0:20:03.000 me with was sales are slowing down. Earnings on the 0:20:03.040 --> 0:20:05.560 top line perhaps aren't as much, but the sales is 0:20:05.600 --> 0:20:08.480 really a reflection of the macroeconomics slow down that you're seeing. 0:20:08.840 --> 0:20:11.720 At what point is that really punished more severely by 0:20:11.760 --> 0:20:14.439 the stock market as opposed to the expectation of that 0:20:14.560 --> 0:20:17.400 happening that we really perhaps priced in in the back 0:20:17.440 --> 0:20:20.720 half last year. Yeah, it is. It's an interesting complexity 0:20:20.840 --> 0:20:24.560 right now because sales, remember in two, were held up 0:20:24.600 --> 0:20:29.000 by this idea of inflation. So even though volume sales 0:20:29.040 --> 0:20:32.679 were clearly decelerating throughout two, we had inflating prices, in 0:20:32.720 --> 0:20:35.919 particular in the commodity space, energy and utilities mostly, but 0:20:36.040 --> 0:20:40.480 also you know, some other peripheral commodity segments where sales 0:20:40.520 --> 0:20:44.480 growth was very profoundly positive. And now, for the first 0:20:44.480 --> 0:20:46.000 time in a very long time, in the fourth quarter, 0:20:46.080 --> 0:20:47.960 in any season, it looks like sales growth is going 0:20:48.000 --> 0:20:52.240 to miss expectations. So we are seeing this inflation shift 0:20:52.440 --> 0:20:55.400 play out on the top line. Now, how much does 0:20:55.440 --> 0:20:58.200 that impact bottom line is really interesting to think about 0:20:58.280 --> 0:21:02.280 because so far bottom line is actually beating expectations because 0:21:02.400 --> 0:21:06.720 companies are enjoying the deceleration and commodity prices to produce 0:21:06.800 --> 0:21:10.320 stronger margins than anticipated. And that give and take is 0:21:10.359 --> 0:21:13.640 really important to consider because what happens with energy and utilities. 0:21:14.200 --> 0:21:17.840 As you know, commodity segments is meaningful for the overall 0:21:17.880 --> 0:21:21.359 headline index, but it also is meaningful for the rest 0:21:21.440 --> 0:21:24.359 of the constituents. And generally, what's great for energy is 0:21:24.440 --> 0:21:26.399 not so good for everybody else, and what's bad for 0:21:26.520 --> 0:21:29.040 energy is great for everybody else. And that dynamic is 0:21:29.040 --> 0:21:31.040 playing out right now. So talk to us about like 0:21:31.160 --> 0:21:34.199 the discounting mechanism that is the stock market. When do 0:21:34.280 --> 0:21:37.760 you think the stock market starts to say, I've seen 0:21:37.800 --> 0:21:40.480 the worst of inflation, I've seen the worst of rate increases, 0:21:40.520 --> 0:21:44.920 I've seen the worst of earnings reductions. I can now 0:21:44.960 --> 0:21:48.439 start discounting some better stuff going forward. What do you 0:21:48.480 --> 0:21:52.080 think that happens. I think it's been happening. I think 0:21:52.119 --> 0:21:55.280 that we got to our point of maximum pessimism back 0:21:55.400 --> 0:22:00.639 in September October, and since that period we've been starting 0:22:00.680 --> 0:22:03.200 to think about, Okay, how much worse can it get? 0:22:03.240 --> 0:22:06.879 How much did we already price? And even more importantly, 0:22:07.119 --> 0:22:09.600 what does the next cycle look like? And that's where 0:22:09.600 --> 0:22:13.160 I think we have this sort of really opaque challenge 0:22:13.359 --> 0:22:16.479