WEBVTT - Markets, Semiconductors, And Oil Prices 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 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:23.360 at Bloomberg dot com slash podcast. I promised you Phil Orlando, 0:00:23.400 --> 0:00:25.239 and we will bring you Phil Orlando. He's the chief 0:00:25.239 --> 0:00:28.640 equity market strategist and ahead of client portfolio management at 0:00:28.680 --> 0:00:35.519 Federated Hermes. And what an insane weekend, Phil Um. You know, 0:00:35.840 --> 0:00:39.720 do you have to look at at the playbook, rip 0:00:39.760 --> 0:00:41.519 it up, throw it away, right up a new one 0:00:41.560 --> 0:00:46.200 when you see this kind of volatility and commodities, well, 0:00:46.280 --> 0:00:48.519 for for sure. First of all, Matt, thank you very 0:00:48.600 --> 0:00:52.240 much for having me back on um. You know, we 0:00:52.240 --> 0:00:55.280 we had this longer term view going back. I guess 0:00:55.280 --> 0:00:57.440 a year and a half ago that oil at thirty 0:00:57.520 --> 0:01:01.120 or thirty five dollars a barrel was low and was 0:01:01.160 --> 0:01:04.800 probably gonna work higher. But we we've just seen a 0:01:04.880 --> 0:01:08.160 forty five percent increase in two weeks, going from ninety 0:01:08.200 --> 0:01:10.800 dollars a barrel to a hundred and thirty dollars a barrel, 0:01:11.319 --> 0:01:16.319 you know earlier today, I mean that's insane, um and um. 0:01:16.440 --> 0:01:21.440 The implication on inflation data, I think it is something 0:01:21.480 --> 0:01:23.640 that that we're sort of focused on. So we're going 0:01:23.720 --> 0:01:26.679 to get an update on the consumer price index later 0:01:26.800 --> 0:01:30.679 this week. So the consumer price index in January was 0:01:30.760 --> 0:01:33.399 up seven and a half percent. That's a forty year high. 0:01:33.560 --> 0:01:36.039 That number is expected to go to seven point nine 0:01:36.080 --> 0:01:38.760 percent in February, but none of that is going to 0:01:38.880 --> 0:01:42.040 reflect this forty five percent spike we just saw an 0:01:42.120 --> 0:01:45.000 energy So as bad as the inflation data is today 0:01:45.640 --> 0:01:47.280 and as bad as it's going to be when we 0:01:47.319 --> 0:01:50.600 see this update a couple of days, you know, March April, 0:01:51.040 --> 0:01:53.920 those numbers are going higher because we don't have an 0:01:53.920 --> 0:01:57.680 answer to what's going on right now. I'm wondering if Phil, 0:01:57.800 --> 0:01:59.800 you know, if you look at the year ahead, how 0:02:00.040 --> 0:02:03.280 ad kind of get for the everyday consumer feeling these 0:02:03.280 --> 0:02:05.960 price increases. I'm looking at a note from David Kelly 0:02:06.000 --> 0:02:08.440 over at JP Morgan, and he says, if oil prices 0:02:08.480 --> 0:02:11.119 stay at a barrel for the rest of the year, 0:02:11.680 --> 0:02:14.959 gasoline will average close to four twenty for the year, 0:02:15.320 --> 0:02:21.040 adding more than a thousand dollars. Sweet goodness. But you know, Phil, 0:02:21.080 --> 0:02:23.440 I'm wondering, you know, if you are just kind of 0:02:23.440 --> 0:02:28.640 the everyday person in the US, how is this impacting you. 0:02:29.800 --> 0:02:33.080 It's impacting you significantly. My wife and I put gas 0:02:33.080 --> 0:02:36.120 in the car yesterday and it dawned on us that 0:02:36.120 --> 0:02:38.800 that and we bought, you know, at a cheap gas station. 0:02:39.120 --> 0:02:41.120 Place of gas has gone up fifty cents in the 0:02:41.120 --> 0:02:44.680 New York area in the last week or two. Um. 0:02:45.040 --> 0:02:48.120 You look at and Dr Kelly, I think is one 0:02:48.160 --> 0:02:50.400 of the most brilliant economists in the game today. So 0:02:50.440 --> 0:02:52.880 I'm not going to disagree with anything that David said. 0:02:53.400 --> 0:02:55.960 But we've done some analysis on this too, and every 0:02:56.040 --> 0:03:00.520 one penny change at the pump impacts consumers spending by 0:03:00.560 --> 0:03:04.400 about one point two billion dollars. Well, we've just doubled 0:03:04.440 --> 0:03:07.320 the price of gasoline over the last year or so. 0:03:07.400 --> 0:03:10.600 We've gone from two dollars eleven cents, we're now up 0:03:10.600 --> 0:03:13.760 to what you say, four dollars and twenty cents. That 0:03:13.760 --> 0:03:18.280 that's going to take a significant amount of firepower out 0:03:18.360 --> 0:03:22.560 of the consumer. We've already seen confidence levels go down 0:03:22.600 --> 0:03:25.920 to eleven year lows with the Michigan Sentiment. We've already 0:03:25.919 --> 0:03:29.680 seen the savings rate come down to an eight year 0:03:29.760 --> 0:03:33.760 low of six six point four percent. UM, that's going 0:03:33.800 --> 0:03:36.960 to start to have a deletarious impact in our view 0:03:37.240 --> 0:03:41.600 on UH, consumption, economic growth and and UH. And I'm 0:03:41.640 --> 0:03:45.080 not sure that we can fully appreciate right now because 0:03:45.200 --> 0:03:48.040 this thing is sort of exploding right in front of us. 0:03:48.440 --> 0:03:50.960 But you know, we took our GDP estimate for the 0:03:51.000 --> 0:03:54.440 first quarter down at our macro policy meeting last week. 0:03:54.480 --> 0:03:56.720 I'm sure a lot of other firms are doing the 0:03:56.760 --> 0:03:59.840 same thing. Um, you've got to reflect the fact that 0:04:00.160 --> 0:04:03.920 we have done a poor job managing the situation. Energy 0:04:03.960 --> 0:04:07.119 prices are up, inflations up, and that's can impact economic 0:04:07.240 --> 0:04:10.600 rowth well. And of course there's a war, right UM, 0:04:10.840 --> 0:04:15.960 that that changes everything. We had some incredible tail winds though. UM. 0:04:16.000 --> 0:04:20.480 Matt Winkler came out with a column today talking about, Yes, UM, 0:04:20.600 --> 0:04:24.760 consumers outlook is poor, but CEOs outlook is incredibly strong. 0:04:24.839 --> 0:04:29.960 The Business Roundtable had their quarterly Economic Outlook Index at 0:04:29.960 --> 0:04:32.159 an all time high at the end of last year. 0:04:32.200 --> 0:04:34.320 If you look at the first quarter earning season, three 0:04:34.400 --> 0:04:37.320 hundred companies in the SMP five hundred say they're gonna 0:04:37.400 --> 0:04:39.920 hire more people this year than at any point during 0:04:39.920 --> 0:04:45.679 the past three decades. UM, So capex plans are off 0:04:45.720 --> 0:04:49.560 the charts. I mean, corporate America is still so strong. 0:04:50.480 --> 0:04:56.080 Does this, um, you know, volatility due to war reflect 0:04:56.240 --> 0:04:59.839 or or give you some kind of buying opportunity. So, 0:05:00.279 --> 0:05:02.920 met you said something very interesting, which was that the 0:05:02.960 --> 0:05:05.880 CEO meeting was was was held at the end of 0:05:05.960 --> 0:05:09.360 last year. And if you look at the job's data 0:05:09.400 --> 0:05:11.479 we've seen and we just got an update on Friday, 0:05:11.600 --> 0:05:14.360 the labor market is very strong. You know, we've been 0:05:14.400 --> 0:05:18.200 averaging what five six seven hundred thousand highers a month 0:05:19.080 --> 0:05:21.119 over the last six months or so. So the labor 0:05:21.200 --> 0:05:25.280 markets not the problem. Manufacturing is very strong. UM. We're 0:05:25.400 --> 0:05:29.000 we've got inventory or stocking going on. Uh. There there's 0:05:29.040 --> 0:05:33.080 a significant deficit that manufacturers are trying to fill that 0:05:33.200 --> 0:05:36.080 part of the market strong. What what we were talking 0:05:36.120 --> 0:05:41.119 about a few minutes ago was the consumer that UM, 0:05:41.160 --> 0:05:43.440 putting food on the table, putting gas in your car, 0:05:43.560 --> 0:05:48.160 heating your home uh is costing a lot more today 0:05:48.200 --> 0:05:51.440 than it was a year ago. And and that's going 0:05:51.480 --> 0:05:55.000 to begin to have a negative impact on the consumer. 0:05:55.040 --> 0:05:58.679 And if you look at you know, economic growth, corporate 0:05:58.680 --> 0:06:02.200 earnings growth. UM. The peak of the cycle was the 0:06:02.279 --> 0:06:05.080 second quarter a year ago. We're we're not going into 0:06:05.080 --> 0:06:08.359 a recession tomorrow, but but we are back on a 0:06:08.880 --> 0:06:12.080 you know, a significant glide path to something that's a 0:06:12.120 --> 0:06:14.920 lot slower. All right, Phil, great to get some time 0:06:14.960 --> 0:06:16.960 with you. Thanks so much for joining us. Really appreciate 0:06:17.000 --> 0:06:20.600 your insight. Phil Orlando is the chief equity market strategist 0:06:20.640 --> 0:06:25.080 and the head of client portfolio Management at Federated Hermes Um. 0:06:25.120 --> 0:06:30.279 We do see Hinnali stocks that have bounced backed, or 0:06:30.360 --> 0:06:32.520 we did see stocks that bounced back to some extent 0:06:32.600 --> 0:06:36.080 in Europe. Um, they're now back down in the red. 0:06:36.160 --> 0:06:38.320 The CAT is now off one percent, the Dacks is 0:06:38.400 --> 0:06:40.240 down one and a half percent. Here in the US, 0:06:40.760 --> 0:06:44.560 we're seeing the indexes fall further. Maybe as we heard 0:06:44.560 --> 0:06:48.400 Phil talk um, he seemed a little bit not constructive, 0:06:48.600 --> 0:06:50.320 and maybe that's why the DOWN now is down four 0:06:50.400 --> 0:06:53.359 hundred thirty points, the SMP off one point four percent. 0:06:57.200 --> 0:06:59.800 We're gonna talk to pre Amisser right now, Managing director, 0:07:00.000 --> 0:07:04.360 Global head of Rate Strategy over TV Securities. Pre Um, 0:07:04.400 --> 0:07:07.320 really looking forward to getting your take. What is this 0:07:08.200 --> 0:07:11.000 rising price of oil, you know, the the insane amount 0:07:11.040 --> 0:07:14.080 of I guess uncertainty caused by the war in Ukraine. 0:07:14.120 --> 0:07:18.240 Mean for your outlook, sure, thanks for having me, Matt. 0:07:18.560 --> 0:07:21.960 So you know we're in a stack flationary shock. We're 0:07:22.000 --> 0:07:25.200 living through the shock right now. Plus as you said, uncertainty. 0:07:25.240 --> 0:07:27.960 So the market prices in the risk that this could 0:07:28.000 --> 0:07:30.840 get worse and prices could continue to rise. I don't 0:07:30.880 --> 0:07:35.160 think an overall Russia embargo of the oil is priced in. 0:07:35.440 --> 0:07:37.400 So I do think if there's an announcement that the 0:07:37.520 --> 0:07:41.000 US or globally or or US and you are putting 0:07:41.040 --> 0:07:42.920 forth the s embargo, I think you're going to see 0:07:42.920 --> 0:07:46.720 for the rise and commodity prices. And so the the 0:07:46.840 --> 0:07:50.000 rates market is really struggling right now with pricing in 0:07:50.400 --> 0:07:54.920 higher inflation, but as the stagflation aspect of it as well, 0:07:54.920 --> 0:07:57.760 and which is why real rates are declining. At the 0:07:57.760 --> 0:08:00.600 same time, you have the FED that signal that inflation 0:08:00.680 --> 0:08:02.760 was high before the war and therefore they're going to 0:08:02.800 --> 0:08:05.600 start lift off. So it's all about I think the 0:08:05.720 --> 0:08:07.920 you know, next week's psyche is Priceton and the market 0:08:08.400 --> 0:08:11.760 percent price for it. We've taken fifty basis points off, 0:08:11.840 --> 0:08:14.480 but it's really what's after that. Do you think that 0:08:14.520 --> 0:08:17.760 the FED will start to raise more slowly given all 0:08:17.800 --> 0:08:21.920 of these very serious concerns that are out there about 0:08:21.960 --> 0:08:25.800 the direction of inflation here. Yeah, So I think there 0:08:25.880 --> 0:08:29.000 was a big debate before the war within FED officials 0:08:29.000 --> 0:08:31.640 then in the macro community. Should the FED start with 0:08:31.680 --> 0:08:33.920 a bang and then they have to do less later on, 0:08:34.040 --> 0:08:36.600 or do they go gradual? And you could tell every 0:08:36.640 --> 0:08:39.080 FED official was in one camp or the other at 0:08:39.080 --> 0:08:42.680 the margin the war. Absolutely, we should push more FED 0:08:42.720 --> 0:08:45.560 officials into the gradual camp. I think chare powerless in 0:08:45.640 --> 0:08:47.520 that camp, and so we do think that they start 0:08:47.559 --> 0:08:51.680 with but I think they're likely to continue to raise 0:08:52.200 --> 0:08:55.960 in consecutive twenty five basis point increments till year end. 0:08:56.080 --> 0:08:58.920 We have them going five more times after March to 0:08:59.040 --> 0:09:01.960 get close to the one seventy five WI range, which 0:09:02.000 --> 0:09:04.720 is where you're in the realm of neutral. I didn't 0:09:04.760 --> 0:09:07.280 going above neutral, which I don't think the FED wants 0:09:07.280 --> 0:09:09.960 to communicate. That would be really negative because you've got 0:09:09.960 --> 0:09:14.200 the consumer reeling under higher prices plus restrictive policy. But 0:09:14.400 --> 0:09:17.160 right now we're just moving off to Z and so 0:09:17.240 --> 0:09:19.560 you know, circulation is never fun. But if the economy 0:09:19.559 --> 0:09:22.680 has momentum, which it does this wage inflation, we think 0:09:22.679 --> 0:09:25.200 the consumer will be able to handle gradual piece of 0:09:25.280 --> 0:09:28.320 rate increases as well as of course higher prices. You know, 0:09:28.800 --> 0:09:31.199 I'm looking at the f R A O I A 0:09:31.400 --> 0:09:36.800 spread that sounds wonky, but what really it is, Yes, 0:09:37.040 --> 0:09:39.400 and the reason I'm looking at it is is an 0:09:39.440 --> 0:09:44.439 airport in Germany on the show. Alright, alright, you learn 0:09:44.480 --> 0:09:45.760 something new every day. But the thing is, if you 0:09:45.800 --> 0:09:48.520 look at it, it is really blown out. And what 0:09:48.640 --> 0:09:52.760 it means normally is that there are some stresses underneath 0:09:52.760 --> 0:09:57.400 the financial system that the average person isn't necessarily seeing 0:09:57.520 --> 0:10:00.679 that much. I'm wondering what it says to you and 0:10:00.840 --> 0:10:04.960 overall financial stability. Yeah, you know this. And then when 0:10:04.960 --> 0:10:07.520 you say fray, I actually do think of library right away, 0:10:07.600 --> 0:10:10.240 not the airport. So it is a big deal for 0:10:10.280 --> 0:10:13.760 the rates market. And the last week the frau way 0:10:13.920 --> 0:10:17.760 or the library Ois spread is indicating into bank funding issues, 0:10:17.800 --> 0:10:20.640 and you know that that does tighten financial conditions. This 0:10:20.720 --> 0:10:22.960 was the only topic we were talking about last week. 0:10:23.240 --> 0:10:25.440 Of course, now it's shifted to oil, which is also 0:10:25.520 --> 0:10:28.400 tightening conditions. But what's happening is I think the market's 0:10:28.440 --> 0:10:32.520 nervous that does the war result in the lack of 0:10:32.559 --> 0:10:36.200 availability of funding, in which case, now you've got a 0:10:36.200 --> 0:10:38.679 funding you've already credit issues, and now do you have 0:10:38.720 --> 0:10:42.240 a funding crisis. I would actually now I'm a little 0:10:42.360 --> 0:10:45.240 less worried about the funding side. There's a lot of 0:10:45.360 --> 0:10:49.440 money in the system. Banks have excess reserves, um you know, 0:10:49.480 --> 0:10:52.480 money market funds have not seen massive increases on the 0:10:52.480 --> 0:10:55.440 prime side, which is what we had going into the 0:10:55.520 --> 0:10:58.360 COVID crisis. We just lived through the COVID sort of 0:10:58.440 --> 0:11:01.320 deleveraging EPI, so I don't think there has been more 0:11:01.400 --> 0:11:05.679 leverage built up. So is the cost of funding going up? Absolutely, 0:11:05.760 --> 0:11:08.240 and that's what that library spread is showing you. But 0:11:08.360 --> 0:11:11.280 we've got um, you know, liquority in the system, and 0:11:11.280 --> 0:11:13.960 we've got center bank facilities and they're not getting tapped. 0:11:14.440 --> 0:11:18.000 So right now, the way things stand, I think there 0:11:18.080 --> 0:11:21.320 is higher cost, but it's still not systemic enough where 0:11:21.320 --> 0:11:23.120 the FED needs to step in or where we have 0:11:23.160 --> 0:11:26.160 to get concerned that somebody doesn't get funding. I think 0:11:26.160 --> 0:11:29.040 the need for funding is lower, but credit risk is 0:11:29.040 --> 0:11:32.080 absolutely getting repriced higher, and that should show up in 0:11:32.280 --> 0:11:35.320 wider front end as well, as you know longer dated 0:11:35.320 --> 0:11:37.760 credit spread, we only have thirty seconds, so ask a 0:11:37.760 --> 0:11:40.719 gigantic question. Um, we were looking at the librar or 0:11:40.760 --> 0:11:43.120 spread last week because of his old and pos are 0:11:43.160 --> 0:11:46.560 and then on I think people kind of dismissed that 0:11:47.280 --> 0:11:50.840 alarmist warning that we got from him on last weekend. 0:11:50.880 --> 0:11:54.840 But then he had a great podcast with Joe Wisenhal 0:11:54.880 --> 0:11:57.600 and Tracy Alloway talking about the dollar as a world 0:11:57.679 --> 0:12:00.680 reserve currency. Is that going to change range due to 0:12:00.760 --> 0:12:06.480 this war? So if we're talking long term, would um, 0:12:06.640 --> 0:12:09.520 you know, people outside the US want an alternative show, 0:12:10.000 --> 0:12:12.480 but is there an alternative? I have to say, like 0:12:12.520 --> 0:12:16.120 the liquidity, the size, the rule of law, certain things 0:12:16.160 --> 0:12:19.040 that work for the dollars a reserve currency, I would 0:12:19.040 --> 0:12:21.960 struggle to find an alternative. So you know it's a 0:12:22.000 --> 0:12:24.800 desire there, yes, but I don't know if the dollar 0:12:24.880 --> 0:12:28.040 will be replaced anytime soon. It's the same question you 0:12:28.040 --> 0:12:30.000 can make with swift and the the reason the dollar 0:12:30.080 --> 0:12:32.760 works that everyone uses it, so there's that network effect. 0:12:33.200 --> 0:12:36.800 So I'm a little less concerned that, you know, lack 0:12:36.880 --> 0:12:39.840 of alternatives will mean that that the dollar actually stays 0:12:40.440 --> 0:12:43.719 a reserve acid. It's a question we're asking renewed now 0:12:43.760 --> 0:12:48.080 that Visa, MasterCard, and MX have all um stopped their 0:12:48.120 --> 0:12:50.880 business in Russia and now everyone on that side of 0:12:50.920 --> 0:12:53.120 the Iron curtain, if I can use that phrases, looking 0:12:53.120 --> 0:12:56.720 for UM is looking for a solution again. Pretty great. 0:12:56.760 --> 0:13:00.680 Talking to your preamisra There, managing director and the global 0:13:00.720 --> 0:13:07.280 head of rate strategy at TV Securities. Everett Milman joins 0:13:07.360 --> 0:13:11.479 US chief market analystic Gainesville Coins to talk about commodities, 0:13:11.600 --> 0:13:15.080 and I guess we'll start specifically, Everett with gold. We 0:13:15.120 --> 0:13:17.160 saw it run up past two thousand dollars for a 0:13:17.200 --> 0:13:22.880 little while today. UM, if Russian bullion is effectively banned 0:13:23.480 --> 0:13:27.000 new gold out of Russia's band, how important is that? 0:13:27.040 --> 0:13:31.360 How important is their production? Well, they are um one 0:13:31.400 --> 0:13:34.080 of the major holders of gold, and they certainly make 0:13:34.200 --> 0:13:37.880 up some large proportion of global demands. But the main 0:13:38.000 --> 0:13:40.400 impact of that move that I would be looking for 0:13:40.600 --> 0:13:45.480 is banning Russian gold from you know, London and access 0:13:45.520 --> 0:13:48.720 to Western trade really does push them into the arms 0:13:48.720 --> 0:13:52.000 of Shanghai. And there are a few other global exchange 0:13:52.120 --> 0:13:56.160 exchanges where Russia could theoretically get its gold to market. 0:13:56.280 --> 0:13:59.120 So in some sense, in the short term, yes, it 0:13:59.120 --> 0:14:02.880 it is a negative for Russian gold, but ultimately, in 0:14:02.920 --> 0:14:05.400 the long run it may change some of the kind 0:14:05.400 --> 0:14:09.200 of alliances and um, the trade of gold in the 0:14:09.240 --> 0:14:11.640 east to west. We may see Russia really turned more 0:14:11.679 --> 0:14:14.640 to Beijing into Shanghai for its goal. By the way, 0:14:14.640 --> 0:14:21.280 how how important is gold as a reserve currency store 0:14:21.320 --> 0:14:24.520 of wealth? As we see you know, central banks around 0:14:24.520 --> 0:14:29.920 the world telling a large autonomous nation you can no 0:14:30.000 --> 0:14:32.520 longer have access to the dollars that we were holding 0:14:32.560 --> 0:14:37.160 for you, you know, effectively hitting the green back as 0:14:37.160 --> 0:14:41.600 a world reserve currency pretty hard, right. UM. I think 0:14:41.640 --> 0:14:45.640 it is still crucial, although gold is often overlooked because 0:14:45.640 --> 0:14:48.320 it is seen as his barbarous relic that we no 0:14:48.400 --> 0:14:52.080 longer directly back our money with gold, of course, UM. 0:14:52.120 --> 0:14:54.560 But as you said, central banks around the world hold 0:14:55.080 --> 0:14:58.080 many many tons of gold. UM. And we've been seeing 0:14:58.120 --> 0:15:00.960 that on the COMEX, in the l B m A 0:15:01.520 --> 0:15:04.480 that there have been outflows. There's been quite a bit 0:15:04.520 --> 0:15:07.240 of gold kind of taken out of the over the 0:15:07.280 --> 0:15:11.320 counter trading markets. UM. And that implies that oftentimes there 0:15:11.360 --> 0:15:15.960 are large sovereign buyers behind those moves. So given that, UM, 0:15:16.000 --> 0:15:18.800 not just Russia, but anyone who's willing to do business 0:15:18.880 --> 0:15:22.440 with Russia could be cut off from Western finance and 0:15:22.480 --> 0:15:27.000 from Western banking. That does perhaps highlight gold role in 0:15:27.320 --> 0:15:31.240 the future that it is UM still a zero risk 0:15:31.280 --> 0:15:35.080 asset that has the same characteristics as a reserve currency, 0:15:35.200 --> 0:15:37.680 even though UM I don't believe any of this directly 0:15:37.760 --> 0:15:41.720 threatens the dollar status. All right, Everett, thanks so much 0:15:41.720 --> 0:15:43.680 for joining us every moment in their chief market analyst 0:15:43.720 --> 0:15:46.760 at Gainesville Coins. Hopefully get spent a little bit more 0:15:46.760 --> 0:15:55.320 time with you later. I'm looking at the SMP right now, 0:15:55.360 --> 0:15:57.400 Seale breaking it down by industry group. You gotta look 0:15:57.400 --> 0:16:00.680 at sp X L one or L two or L three. 0:16:01.000 --> 0:16:02.440 It's kind of a pain. You don't do that with 0:16:02.480 --> 0:16:05.560 the toxics D but I'll look at it level one. 0:16:05.680 --> 0:16:08.680 I'm trying to see how chips have done. I guess 0:16:08.840 --> 0:16:10.760 you've got to break it down to infotech. I suppose 0:16:10.760 --> 0:16:12.960 I could just look at the Socks Index, right is 0:16:13.000 --> 0:16:17.440 that the Philly Socks Index to see UM how chips 0:16:17.440 --> 0:16:19.880 have done in terms of semiconductors. Or I could look 0:16:19.880 --> 0:16:22.880 at the eye shares e t F to see how 0:16:22.920 --> 0:16:26.080 they've done year to date. Because we've been talking about 0:16:26.160 --> 0:16:29.960 the supply chain problem and chip shortage for so long, UM, 0:16:30.160 --> 0:16:34.400 but the industry has lost a lot of market cap 0:16:34.800 --> 0:16:37.440 since two began. Let's bring in Lincoln Clark to talk 0:16:37.480 --> 0:16:40.400 about what's going on and why. He's a partner of KPMG, 0:16:40.560 --> 0:16:44.560 but he's also the global leader of their semiconductor practice. Lincoln, 0:16:44.560 --> 0:16:48.240 thanks so much for joining us. UM. How is the 0:16:48.280 --> 0:16:52.000 semi conductor industry faring right now? There's such as we 0:16:52.040 --> 0:16:56.840 all have discovered, such a crucial part of the manufacturing 0:16:56.880 --> 0:17:01.400 process for almost everything that we buy in you is UM, 0:17:01.400 --> 0:17:05.080 but they haven't been rallying this year. Good morning, Matt, 0:17:05.160 --> 0:17:08.600 thank you for making some time. And uh yeah, the 0:17:08.640 --> 0:17:11.159 semi conductor industry, you're right if you you were talking 0:17:11.200 --> 0:17:14.320 about the socks tracker, they're certainly some market cap has 0:17:14.359 --> 0:17:17.960 been taken out of it. But we undertook a survey 0:17:18.000 --> 0:17:22.080 of semiconductor executives in the fourth quarter so October November 0:17:22.160 --> 0:17:26.320 last year, looking out to two, and the confidence that 0:17:26.600 --> 0:17:29.480 is at an all time high. UM. You know, we're 0:17:29.520 --> 0:17:33.119 focused on not just revenue growth, but capex, head count, 0:17:33.240 --> 0:17:37.160 R and D and profitability. So notwithstanding the market cap 0:17:37.240 --> 0:17:40.640 changes that you're referring to, their the executives themselves are 0:17:40.760 --> 0:17:43.479 very very positive this. This is a great point and 0:17:43.560 --> 0:17:46.040 I don't know if you've seen it, Yeah, but Matt Winkler, 0:17:46.119 --> 0:17:49.680 or Editor in Chief emeritus, wrote an opinion piece this 0:17:49.720 --> 0:17:56.800 morning about um C suite confidence. Basically, then the CEOs 0:17:56.880 --> 0:17:59.639 of companies, not just in semi inductors, but across the 0:17:59.760 --> 0:18:04.200 SMP five D are really optimistic for future growth, really 0:18:04.200 --> 0:18:09.320 optimistic for profits, adding more employees than they have at 0:18:09.400 --> 0:18:13.920 any time over the last decade. UM is the semiconductor 0:18:13.960 --> 0:18:16.840 industry ramping up um the same way. I mean, we've 0:18:16.840 --> 0:18:19.719 seen so many Capex reports in terms of investment. Are 0:18:19.720 --> 0:18:24.680 they hiring people? Are they bringing production back home? Well, 0:18:24.800 --> 0:18:28.280 the we've been doing this confidence index for seventeen years 0:18:28.320 --> 0:18:31.080 with the Global Semi Conductor Alliance, and the confidence that 0:18:31.119 --> 0:18:34.320 they exhibited in twenty two was the highest it's been. 0:18:34.760 --> 0:18:38.240 If you think about the drivers that are behind the 0:18:38.320 --> 0:18:41.119 semi conductor, as you mentioned, it's become very visible to 0:18:41.160 --> 0:18:44.639 everybody that semi conductors are in pretty much everything that 0:18:44.760 --> 0:18:48.960 might impact our work life, personal life. But the drivers 0:18:48.960 --> 0:18:50.920 of that. You know a lot of businesses are going 0:18:50.920 --> 0:18:53.680 from work from home to now a hybrid of work 0:18:53.680 --> 0:18:57.280 from office and home. That's gonna you know, drive demand 0:18:57.400 --> 0:19:02.520 for relooking at the office, infrastructure, cloud and digitization continues. 0:19:02.720 --> 0:19:05.480 And then you know automotive, which has become i think 0:19:05.560 --> 0:19:08.640 very visible and industrial. You know, they still have a 0:19:08.720 --> 0:19:12.640 desperately seeking semi conductor's mentality, I think. And then you 0:19:12.680 --> 0:19:16.240 have your you know, wireless vi G and gaming that continues. 0:19:16.520 --> 0:19:19.120 Profitability I think is going to be a little bit 0:19:19.119 --> 0:19:23.560 more stressed this year. As um Our survey would say that, 0:19:23.600 --> 0:19:26.080 you know, thirty four percent of our executives think their 0:19:26.119 --> 0:19:30.520 revenue is growing to grow over but you know, nearly 0:19:30.560 --> 0:19:33.879 seventy say that they think the profitability might only grow 0:19:33.960 --> 0:19:36.199 in the sort of want to ten percent. So some 0:19:36.280 --> 0:19:40.879 of the costs of production, logistics, transportation, you know, that's 0:19:41.080 --> 0:19:43.640 playing through a little bit on profitability. But top line, 0:19:43.960 --> 0:19:47.280 very very confident, high growth. I mean, how does this 0:19:47.520 --> 0:19:52.520 global geopolitical story really play into things here? It just 0:19:52.560 --> 0:19:55.679 sounds like a lot of these executives are speaking, um, 0:19:55.720 --> 0:20:01.000 you know, before Russia's invasion of Ukraine. Yeah, its Sonali, 0:20:01.119 --> 0:20:04.840 thank you. I mean, the you know, the pandemic and 0:20:04.920 --> 0:20:10.600 some of the geopolitical um pieces of the semiconductor industry 0:20:10.640 --> 0:20:12.480 had you been going on for a period of time. 0:20:12.520 --> 0:20:15.800 So I think executives have had that in the back 0:20:15.840 --> 0:20:18.840 of the mind as the setting strategy. Clearly, the you know, 0:20:18.880 --> 0:20:21.240 the situation of the last two or two and off 0:20:21.280 --> 0:20:24.080 weeks or so here just creates and continues to create 0:20:24.200 --> 0:20:28.359 more uncertainty, just just going to exacerbate the supply chain 0:20:28.440 --> 0:20:31.879 issues that the semiconductor and many industry other industries to 0:20:31.880 --> 0:20:34.119 be fair or going to face. Having said that, Lincoln, 0:20:34.119 --> 0:20:38.399 how important is how important are Russia and Ukraine to 0:20:38.720 --> 0:20:45.880 semiconductor production? I mean, um, do they supply you know, wafers, silicon, 0:20:46.000 --> 0:20:50.280 anything that you need. Russia doesn't have any substantial or 0:20:50.400 --> 0:20:54.399 Ukraine any substantial leading edge wafer capacity. Um. You know 0:20:54.480 --> 0:20:57.320 there are some core elements though that you know, filter 0:20:57.400 --> 0:21:00.320 into semic production and you've probably seen some just qushing 0:21:00.359 --> 0:21:07.320 around palladium for example. But said, yes, that's reacting a 0:21:07.400 --> 0:21:11.880 little bit. Um, So if if a semi conductor company, 0:21:11.960 --> 0:21:15.480 you know, I had that supplier in that neighborhood as 0:21:15.520 --> 0:21:18.600 a you know the first source, obviously you know the 0:21:18.800 --> 0:21:21.159 second and said sources. But I think we'll be driving 0:21:21.200 --> 0:21:25.280 a lot of proteoma activity right now. Lincoln, great to 0:21:25.320 --> 0:21:27.320 get some time with you. Thanks so much for joining 0:21:27.400 --> 0:21:29.760 us on such an important issue. Lincoln Clark is a 0:21:29.800 --> 0:21:34.840 partner at KPMG. He is also KPMG's global leader of 0:21:34.960 --> 0:21:40.919 the Semiconductor practice. Thanks for listening to the Bloomberg Markets podcast. 0:21:41.320 --> 0:21:44.520 You can subscribe and listen to interviews with Apple Podcasts 0:21:44.680 --> 0:21:48.560 or whatever podcast platform you prefer. I'm Matt Miller. I'm 0:21:48.600 --> 0:21:52.800 on Twitter at Matt Miller, vree on Fall Sweeney I'm 0:21:52.800 --> 0:21:55.439 on Twitter at pt Sweeney. Before the podcast, you can 0:21:55.480 --> 0:21:57.680 always catch us worldwide at Bloomberg Radio.