WEBVTT - P&L: Be Skeptical of Eco Sentiment Data Before U.S. Election 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.560 you and your money, whether you're at the grocery store 0:00:16.800 --> 0:00:19.960 or the trading floor. Find the Bloomberg P L Podcast 0:00:20.000 --> 0:00:30.600 on iTunes, SoundCloud and at Bloomberg dot com. All right, now, 0:00:30.680 --> 0:00:32.600 someone that's going to make a smarter about the US 0:00:32.680 --> 0:00:38.120 economy is Elena Shueteva, senior US economist to for Bloomberg Intelligence. 0:00:38.640 --> 0:00:41.920 And well, okay, you can. It's always great to have you, Elena. 0:00:42.000 --> 0:00:45.720 You know you're you're a little self deprecating yours. Yes, 0:00:45.800 --> 0:00:48.280 so let's talk about what it sounds like. You're not leaving, 0:00:48.280 --> 0:00:50.880 are you alright? Because all right, tell me what happened. 0:00:50.920 --> 0:00:54.520 GDP two point nine print estimate was for two point 0:00:54.640 --> 0:00:59.240 five big deal. Oh, these numbers are very encouraging in 0:00:59.240 --> 0:01:03.600 a sense that they do a highlight that growth has 0:01:03.680 --> 0:01:06.160 rebounded in the second half of the year. So in 0:01:06.160 --> 0:01:09.880 that respect, it's it's very positive, but as always, you 0:01:09.920 --> 0:01:13.399 need to look at the details, and the details to 0:01:13.640 --> 0:01:18.240 us seem to be a little bit less encouraging. Although, um, 0:01:18.280 --> 0:01:20.440 you know, the bottom line from the report, let me 0:01:20.480 --> 0:01:24.200 just say that is that will provide comfort for the 0:01:24.240 --> 0:01:28.440 FIT to raise rates in December, but the underlying details 0:01:28.560 --> 0:01:32.920 might not necessarily mean that they will continue at a 0:01:33.920 --> 0:01:37.399 very rapid pace in the next year, So they might 0:01:37.440 --> 0:01:41.240 have to continue only on a gradual pace next year. 0:01:42.640 --> 0:01:44.959 The channet yell and send you an email. I mean 0:01:44.959 --> 0:01:50.920 that sounds earlier this year, right, we were talking about December. Correct, Well, 0:01:50.960 --> 0:01:53.080 let's let's take into some of those details that are 0:01:53.080 --> 0:01:56.440 giving people comfort that the federal move for not too quickly. 0:01:56.640 --> 0:01:59.400 What are you looking at? So the details of the 0:01:59.480 --> 0:02:05.320 reports showed considerable deceleration in consumer spending, which could be discouraging, 0:02:05.360 --> 0:02:08.760 could be encouraging. So it is discouraging because this is 0:02:08.800 --> 0:02:11.040 the biggest part of the economy and that is slowing 0:02:11.040 --> 0:02:15.520 down considerably. On the other hand, that means less dependence 0:02:15.720 --> 0:02:20.520 on consumer spending alone and some acceleration in other sectors 0:02:20.560 --> 0:02:23.639 of the economy. So diversification is always good, right. So 0:02:24.280 --> 0:02:27.720 but uh, you know, if you look at the details, 0:02:27.760 --> 0:02:31.080 for example, you see that the inventories at its sixty 0:02:31.120 --> 0:02:34.440 one basis points to growth in the third quarter, and 0:02:34.520 --> 0:02:37.680 the net exports at it eighties three basis points, so 0:02:37.960 --> 0:02:42.239 together they account for half of that growth rate that 0:02:42.320 --> 0:02:44.519 we saw in the third quarter. But it's not good. 0:02:44.560 --> 0:02:46.480 Don't we want to be exporting more? And don't we 0:02:46.560 --> 0:02:51.040 want to These numbers could be very volatile, and uh, 0:02:51.240 --> 0:02:54.320 you really need to see several quarters of growth to 0:02:54.720 --> 0:02:58.640 UM actually to see this is a sustainable kind of 0:02:58.680 --> 0:03:03.040 growth in these sectors. Exports net exports could be distorted 0:03:03.080 --> 0:03:07.640 by the engine UM shipping company bankruptcy, so that could 0:03:07.639 --> 0:03:11.120 be something going on there and it might not be sustainable. 0:03:11.639 --> 0:03:17.040 Inventories is another wild card. We were talking about considerable 0:03:17.400 --> 0:03:21.640 pickup in stockpiles and uh, you know this seems to 0:03:21.680 --> 0:03:26.440 be UM not happening that inventories are going to contribute 0:03:26.960 --> 0:03:30.040 uh quite a lot going forward, so to me it 0:03:30.040 --> 0:03:34.920 seems unsustainable. So but overall for the year as a whole, 0:03:35.440 --> 0:03:38.240 h GDP needs to grow only by one point nine 0:03:38.320 --> 0:03:41.560 percent in the fourth quarter to reach the fat target 0:03:41.600 --> 0:03:44.360 of one eight percent for for the years a whole, 0:03:44.560 --> 0:03:48.280 So that seems to be attainable. Helena. We got new 0:03:48.320 --> 0:03:51.880 home sales this week, we got durable goods orders, jobless claims, now, 0:03:51.920 --> 0:03:55.320 we got the g DP print is this up or 0:03:55.360 --> 0:03:57.840 down week for the for the land of the economy. 0:03:58.000 --> 0:04:01.320 So let me think it's always a always a mix. 0:04:01.600 --> 0:04:05.000 We can say that everything's going along, everything is going 0:04:05.120 --> 0:04:10.280 on chug chugging along just fine. And next week we're 0:04:10.280 --> 0:04:14.240 going to get the payrolls report correct on Friday. Yes, 0:04:14.440 --> 0:04:16.840 a big deal, not a big deal. But we care 0:04:17.040 --> 0:04:20.440 as long as the paces within the kind of the 0:04:20.520 --> 0:04:24.840 same kind of range, it doesn't need to accelerate from here, 0:04:25.480 --> 0:04:28.280 that's going to be fine. You know one fifty is 0:04:28.320 --> 0:04:30.400 still fine. And you think that the market has already 0:04:30.440 --> 0:04:33.200 baked in twenty five basis points that bonds, for example, 0:04:33.240 --> 0:04:35.200 I was surprised. I was talking with Lisa earlier today 0:04:35.240 --> 0:04:38.159 when we got the two point nine g d P report. 0:04:38.400 --> 0:04:40.640 I was surprised that the bond market did not sell off. 0:04:40.680 --> 0:04:42.719 We were talking about the same thing on the desk 0:04:42.760 --> 0:04:46.920 actually earlier this morning. Um, well, as long as the 0:04:47.000 --> 0:04:54.520 probability on the weird right uh days above. Yes, but 0:04:54.600 --> 0:04:56.200 I do think, I mean, we got the University of 0:04:56.200 --> 0:05:00.720 Michigan survey of consumer confidence in this inflation expectation again 0:05:00.880 --> 0:05:06.200 we're back at that new low. Yes, but I tend 0:05:06.240 --> 0:05:09.359 to be very skeptical of the survey data ahead of 0:05:09.360 --> 0:05:12.760 the election. Okay, so any survey data ahead of the election, 0:05:13.040 --> 0:05:18.360 you might want to wait until sentiment could be very 0:05:18.440 --> 0:05:22.720 much distorted. Listen to the rhetoric that we're hearing Pale exactly. 0:05:22.880 --> 0:05:26.680 So it's it's really like it happened before, Like the 0:05:26.720 --> 0:05:32.040 Michigan survey was distorted during the dead ceiling crisis back 0:05:32.040 --> 0:05:35.040 in two thousand and eleven, and so what nothing happened 0:05:35.040 --> 0:05:37.760 to consumer spending, So you have to be very careful 0:05:37.800 --> 0:05:43.839 with sentiment numbers, both consumer and company sentiment. Elena Shugliatieva, 0:05:43.960 --> 0:05:46.600 thank you so much for being with a senior US 0:05:46.680 --> 0:05:51.280 economist for Bloomberg Intelligence breaking down at the GDP report 0:05:51.360 --> 0:05:54.279 and why the bond market just doesn't seem to be 0:05:54.360 --> 0:05:57.000 responding right now A tenure U S Treasury is pretty 0:05:57.080 --> 0:06:15.640 much flat at one point eight five percent. This all right, 0:06:15.720 --> 0:06:19.240 let's solve the quandary of oil and the price of oil. 0:06:19.440 --> 0:06:22.919 Joining us is our expert, yes, Vincent Piazza. He is 0:06:23.000 --> 0:06:27.200 the senior US oil and Gas analyst four Bloomberg Intelligence. 0:06:27.200 --> 0:06:30.000 Always a pleasure to see you. Thank you. I was 0:06:30.040 --> 0:06:32.320 looking at X on today stock is down more than 0:06:32.400 --> 0:06:34.680 one percent. I was looking at Chevron stock is up 0:06:34.680 --> 0:06:37.480 more than three percent. What's going on between these two companies. So, 0:06:37.520 --> 0:06:41.839 I think the broad narrative today is that output growth 0:06:42.080 --> 0:06:45.560 continues to be a challenge for both UM and today 0:06:45.600 --> 0:06:48.599 it seems output growth is more of a challenge for 0:06:48.800 --> 0:06:51.680 x On relative to Chevron. With the broader takeaway, the 0:06:51.680 --> 0:06:55.120 broader narrative is output growth continues to be a challenge. 0:06:55.560 --> 0:06:59.440 The cap X decline with the spending decline that we've 0:06:59.480 --> 0:07:02.560 seen since the price decline from a couple of years ago, 0:07:02.839 --> 0:07:07.920 is impacting the ability for resource capture. So lower output, Yes, 0:07:07.960 --> 0:07:11.120 spending is down, but the the ability to book the 0:07:11.160 --> 0:07:16.200 resource UH is challenging as well. The tailwind that refining 0:07:16.440 --> 0:07:20.080 was during the price decline has now become a headwind. 0:07:20.160 --> 0:07:24.920 So the outsized gains, the over earning from the refining business, 0:07:24.960 --> 0:07:28.520 the downstream business, the chemical business now becomes more of 0:07:28.680 --> 0:07:32.800 a tail wind for both entities. Now, Exxon did say 0:07:32.880 --> 0:07:36.120 that because of these lower prices UH, it may have 0:07:36.240 --> 0:07:39.800 to take a look at impairing some of these reserves 0:07:39.840 --> 0:07:42.680 in North America to the tune of roughly eighteen or 0:07:42.680 --> 0:07:47.760 t UM and that is a headwind for them. For Chevron, 0:07:48.160 --> 0:07:53.880 UM sentiment coming into the quarter was somewhat murky. Uh. 0:07:54.000 --> 0:07:58.600 They came out with a modest uh level of output 0:07:58.840 --> 0:08:02.960 UM year over year, and they did provide guidance for 0:08:03.120 --> 0:08:07.360 December output. So for four Q output slightly higher relative 0:08:07.480 --> 0:08:12.720 to three Q UH so UM modestly more positive for Chevron, 0:08:13.040 --> 0:08:17.760 less less so for Exxon. But remember what these businesses are, right, 0:08:17.800 --> 0:08:22.880 they are integrated networks. Uh So they are more defensive. 0:08:23.200 --> 0:08:28.280 They are lower beta equities because of this, less volatile 0:08:28.400 --> 0:08:33.719 earnings and cash flow stream. So during a price recovery, 0:08:33.880 --> 0:08:38.720 you want leverage to the upstream, the more direct exposure 0:08:38.840 --> 0:08:43.480 to the price recovery, and not these integrated platforms where 0:08:43.480 --> 0:08:47.400 they're downstream the chemicals and refining business tends to offset 0:08:47.440 --> 0:08:51.120 any benefit from a higher price in the upstream piece. 0:08:51.160 --> 0:08:53.400 So I want to go back to Chevron. I mean, 0:08:53.400 --> 0:08:56.679 they've posted their first profit in a year and seem 0:08:56.760 --> 0:08:59.080 to be more upbeat, and their shares are up almost 0:08:59.720 --> 0:09:02.760 first is fourteen percent less than that thirteen percent gain 0:09:03.520 --> 0:09:07.520 year to date for Exxon. What's Chevron doing to gain 0:09:07.679 --> 0:09:11.280 investors confidence more than at least Exon. Well, I think 0:09:11.280 --> 0:09:14.880 it's it's relative sentiment as well, right, So coming into 0:09:14.880 --> 0:09:18.400 the year better sentiment for Exxon relative to Chevron, and 0:09:18.480 --> 0:09:22.480 Chevron is outperforming that lower sentiment, right, so under promise 0:09:22.760 --> 0:09:25.880 over deliver in a sense. And for Chevron this quarter 0:09:25.920 --> 0:09:30.400 you had some issues with uh some downtime and Nigeria unrest, 0:09:30.440 --> 0:09:34.920 so that hurt volume as well. UM. For Exxon, the 0:09:35.080 --> 0:09:39.880 one uh, the one item this quarter that probably has 0:09:40.120 --> 0:09:43.959 longer near term effects is this issue of the reserve bookings, 0:09:43.960 --> 0:09:47.360 any potential impairments um come the close of the year. Okay, 0:09:47.400 --> 0:09:50.959 So taking a bigger step back, X and Chevron, they 0:09:51.000 --> 0:09:54.679 both delivered their earnings. Uh. Do they give a better 0:09:54.760 --> 0:09:58.079 sense of what they expect as far as oil prices 0:09:58.120 --> 0:10:01.120 in the year ahead. Well, I think everyone else. Uh, 0:10:01.200 --> 0:10:04.719 they are perplexed. It's it's a challenging environment out there. Uh. 0:10:04.760 --> 0:10:08.600 The the potential OPEC cuts UM also may impact them 0:10:08.640 --> 0:10:11.320 because they are partners as well, and how much of 0:10:11.360 --> 0:10:14.440 that cut they would have to take on is uncertain. Uh. 0:10:14.679 --> 0:10:19.040 Exxon said that on their call today. So, UM, there 0:10:19.120 --> 0:10:24.160 is as much uncertainty UM that they see as the 0:10:24.160 --> 0:10:27.640 the the upstream player here in the US. UM. And 0:10:27.679 --> 0:10:33.120 so we are in the midst of a younger recovery UM, 0:10:33.160 --> 0:10:36.760 there are still challenges ahead. UM. We're probably oversupplied by 0:10:36.840 --> 0:10:39.600 roughly a million barrels. UM. We need to see that 0:10:40.000 --> 0:10:44.040 sustainable demand growth to sort of truncate those imbalances, but 0:10:44.120 --> 0:10:46.520 that remains to be seen. OPEC. We need to get 0:10:46.559 --> 0:10:49.720 some clarity as to what type of agreement there really is. 0:10:50.160 --> 0:10:52.880 If there is an agreement, UM, and that will give 0:10:52.960 --> 0:10:55.360 us some additional clarity, but that remains a very big 0:10:55.440 --> 0:10:59.719 unknown and that will be the driver, uh for that 0:10:59.760 --> 0:11:02.560 will forge any type of price recovery from from the 0:11:02.640 --> 0:11:06.800 From this point, Vincent Piazza, you are not only just 0:11:06.840 --> 0:11:10.240 an expert in terms of the macro oil stuff, but 0:11:10.440 --> 0:11:14.720 in terms of balance sheet and understanding how companies work. 0:11:15.559 --> 0:11:17.559 Can we just talk for about about a moment of 0:11:17.679 --> 0:11:21.280 free cash flow from these because these are dividend pairs right, 0:11:21.320 --> 0:11:24.960 exactly exactly, And you know we've been through this with BP, 0:11:25.080 --> 0:11:27.520 with that terrible thing in the Gulf of Mexico, the 0:11:27.559 --> 0:11:30.320 a condo. Well, I mean, when you monkey with the 0:11:30.400 --> 0:11:34.000 what you changed rather the dividend, right, that's going to 0:11:34.120 --> 0:11:36.720 change your investor base, right, And that's a very good point. 0:11:36.720 --> 0:11:41.680 We're talking about shareholder engagement, So shareholder engaged engagement is 0:11:41.720 --> 0:11:46.080 through the dividend and is also through shrry purchases. Okay, 0:11:46.160 --> 0:11:49.760 and you fund those sherry purchases and that dividend through 0:11:49.760 --> 0:11:52.200 your free cash flow, and it sometimes you borrow forward 0:11:52.280 --> 0:11:55.920 as well. Now, the dividend yield for Chevron and Exxon 0:11:56.040 --> 0:11:58.760 is three and four percent. The average dividend yield for 0:11:58.800 --> 0:12:02.000 an SMP company is around somewhere around two percent. You're 0:12:02.080 --> 0:12:06.439 owning it for that capital repatriation um and for EXCEN 0:12:06.520 --> 0:12:08.800 they'll throw off somewhere around four or five billion or 0:12:08.840 --> 0:12:13.080 free cash flow this year um. Chevron will still be 0:12:13.120 --> 0:12:15.800 in a negative cash flow, so they're still they are 0:12:16.400 --> 0:12:21.680 borrowing to pay that dividend UM. But in general that 0:12:21.760 --> 0:12:25.880 remains the key that shareholder engagement because these are lower beta, 0:12:26.000 --> 0:12:30.640 less volatile investments relative to the capital appreciation you would 0:12:30.679 --> 0:12:33.439 see from an upstream player. So real quick, I want 0:12:33.440 --> 0:12:35.080 to go back to the idea that XN may have 0:12:35.120 --> 0:12:38.520 to write its reserves off by why haven't they done 0:12:38.520 --> 0:12:41.880 so yet? Well, you do that throughout the you do 0:12:41.960 --> 0:12:44.400 that from year to year. Once you once you have 0:12:44.520 --> 0:12:46.840 a full twelve year period and you're able to take 0:12:46.880 --> 0:12:50.120 the average of those individual twelve months to make that 0:12:50.200 --> 0:12:53.319 final cut off for the for the for for that 0:12:53.559 --> 0:12:55.480 fiscal year period. So in other words, there could be 0:12:55.520 --> 0:12:58.040 a lot of realized losses across the industry. Well, we've 0:12:58.080 --> 0:13:00.959 seen this last year as well for the upstream players. UM, 0:13:01.000 --> 0:13:02.880 So this is not a new phenomenon. I think it's 0:13:02.920 --> 0:13:06.400 the size that has some UM concerned. UM and it 0:13:06.480 --> 0:13:09.160 probably has led to some of the under underperformance relative 0:13:09.160 --> 0:13:12.640 to Chevron today. Thank you so much. Got it? Vincive Piazza, 0:13:12.720 --> 0:13:16.680 senior US oil and Gas analyst for Bloomberg Intelligence, breaking 0:13:16.720 --> 0:13:21.000 down the tail of two oil companies of Exxon which 0:13:21.160 --> 0:13:25.400 is losing value of versus Chevron, which is gaining an 0:13:25.400 --> 0:13:29.080 oil certainly being one of the driving factors pim behind 0:13:29.280 --> 0:13:32.960 expectations of inflation going forward, oil sort of hovering around 0:13:33.000 --> 0:13:35.760 forty nine dollars a barrel, still in that fifty two 0:13:36.960 --> 0:13:38.920 dollar barrel range. I don't know what it will take 0:13:39.000 --> 0:13:41.360 for us to break out of this. Perhaps Vincent Piazza 0:13:41.400 --> 0:13:45.000 knows in his his seat, uh, And Lisa bramwoits, I'm 0:13:45.040 --> 0:14:03.520 here with pim Fox. This is Bloomberg. I would like 0:14:03.559 --> 0:14:06.319 to learn more about what to do with money, particularly 0:14:06.440 --> 0:14:09.840 seventy two billion dollars which is how much will Being 0:14:09.880 --> 0:14:14.400 can Trust overseas. And Tony Roth, chi's chief chief investment 0:14:14.480 --> 0:14:18.440 officer at Willman can Trust, is responsible with coming up 0:14:18.480 --> 0:14:21.080 with a strategy. So Tony, I want to start with cash. 0:14:21.520 --> 0:14:25.600 We're hearing a lot about people who are hoarding larger 0:14:25.720 --> 0:14:29.960 stockpiles of cash to capitalize on the market. What it 0:14:30.000 --> 0:14:33.560 turns is that what you're doing now, we we think 0:14:33.600 --> 0:14:35.800 that the market is already turning. Lisa, by the way, 0:14:35.840 --> 0:14:37.640 thanks for having me today to you, and Tim Um 0:14:37.640 --> 0:14:39.720 it's great to speak with you. We think the market 0:14:39.800 --> 0:14:42.120 is actually already in the process of turning, and we 0:14:42.120 --> 0:14:45.160 think that that cash is better put to work today 0:14:45.240 --> 0:14:48.760 unless it's earmark for very short term purposes. We can 0:14:48.800 --> 0:14:51.600 see that, UM, when we look at the global economy, 0:14:51.680 --> 0:14:55.640 looking at oil stability, inflation, stronger dollar change, in the 0:14:55.640 --> 0:14:59.440 commodity supercycle. UM, there's a lot of opportunity in the 0:14:59.480 --> 0:15:01.960 market right now. We're preconstructive, so we'd rather see that 0:15:02.000 --> 0:15:03.960 cash put to work. Where are you putting it to 0:15:03.960 --> 0:15:07.400 work right now? Well, we like emerging markets, UM. So 0:15:07.560 --> 0:15:10.600 I mentioned the commodity supercycle, and if you look at 0:15:10.800 --> 0:15:15.200 UM measures like the CRB raw industrials and decks, for example, 0:15:15.200 --> 0:15:18.640 which moves very closely with the emerging markets UM. It's 0:15:18.640 --> 0:15:21.840 been moving upwards UM since about February, and we think 0:15:21.840 --> 0:15:24.200 the merging markets are going to continue to see UM 0:15:24.280 --> 0:15:27.840 an upward trend. UM credit and equity. Credit and equity 0:15:27.880 --> 0:15:31.240 are just uh, how how exactly you're going about that? Yeah, yeah, 0:15:31.240 --> 0:15:34.560 credit and equity. So UM China for example, has been 0:15:34.560 --> 0:15:37.320 a real underperformer. And when you think about the two 0:15:37.400 --> 0:15:39.120 draw downs that we had in the market over the 0:15:39.160 --> 0:15:44.160 last fifteen months, UM August and then uh January February 0:15:44.200 --> 0:15:46.760 this year, right, really triggered by China. And we think 0:15:46.760 --> 0:15:49.760 that China has really gotten ahead of its problems in 0:15:49.880 --> 0:15:52.000 terms of the credit bubble and in terms of its 0:15:52.000 --> 0:15:54.880 management of its currency. So there's a good opportunity I 0:15:54.880 --> 0:15:57.760 think in the Chinese equity market right now, UM and 0:15:57.880 --> 0:16:01.320 more broadly UM Partuity believe with respect of the consumed 0:16:01.440 --> 0:16:04.040 commodity consumers which haven't had as big a rally as 0:16:04.120 --> 0:16:08.200 the commodity producers like Russia and Brazil, etcetera. Tony, I'm 0:16:08.200 --> 0:16:11.080 wondering if you feel that it's a small contradiction that 0:16:11.240 --> 0:16:15.800 Chinese companies are venturing outside of China to acquire assets. 0:16:15.800 --> 0:16:17.760 They seem to want to buy almost everything that is 0:16:17.800 --> 0:16:22.440 not nailed down. And particularly you had the purchase I 0:16:22.480 --> 0:16:28.680 believe of insurance the Waldorf Historic Hotel group, and then 0:16:29.120 --> 0:16:32.560 most recently you've had you know, Chinese investment in the 0:16:32.640 --> 0:16:36.000 United States in a variety of industries, had the Genworth 0:16:36.040 --> 0:16:38.920 Financial deal this week. Absolutely listen to. China has a 0:16:38.960 --> 0:16:40.720 lot of capital, So why would that be wanting to 0:16:40.760 --> 0:16:42.280 go out of the country if it's such a good 0:16:42.360 --> 0:16:44.960 deal to have it in the country. Well, one of 0:16:45.000 --> 0:16:47.600 the things to remembers that the Chinese currency is clearly 0:16:47.720 --> 0:16:52.120 on a trajectory of appreciation. So if you're a Chinese company, right, 0:16:52.360 --> 0:16:58.680 and you can't a choir skills and capabilities UM that 0:16:58.800 --> 0:17:01.720 you can mirror inside China by buying foreign companies UM, 0:17:01.920 --> 0:17:04.320 and you can head your currency exposure and diversify your 0:17:04.359 --> 0:17:06.960 revenue streams. That can make a lot of sense from 0:17:06.960 --> 0:17:11.400 the perspective of the US based investor that's looking for appreciation. Certainly, 0:17:11.720 --> 0:17:13.800 UM to the extent we have the ability to hedge 0:17:13.840 --> 0:17:16.760 currency exposure in China, UM, it's probably how we would 0:17:16.760 --> 0:17:20.560 invest in today's market. Going back to the idea of 0:17:20.760 --> 0:17:24.520 energy prices, and where they are currently. KKR Credit Co 0:17:24.680 --> 0:17:28.920 had nat Zeka spoke with Bloomberg's Eric Shasker yesterday and 0:17:28.960 --> 0:17:31.520 basically said that KKR is selling a lot of its 0:17:31.920 --> 0:17:34.720 distressed debt holdings and a lot of its energy related 0:17:34.760 --> 0:17:40.200 holding salk in gains so far. Why are they wrong? Well, 0:17:40.359 --> 0:17:43.159 if we look at what's happening, the US is now 0:17:43.240 --> 0:17:46.480 the spling energy producer in the world, right, So number one, 0:17:47.320 --> 0:17:51.720 we see a trajectory where we're still um dropping in 0:17:51.960 --> 0:17:55.520 terms of US production. So production is down about eleven 0:17:55.560 --> 0:17:59.080 and a half percent from the peak, and while we've 0:17:59.160 --> 0:18:01.760 seen a little bit of a rebound and recounts, we're 0:18:01.800 --> 0:18:05.399 still massively down around se down from the peak and 0:18:05.440 --> 0:18:08.399 there's a big lag effect. So when we see that 0:18:08.480 --> 0:18:11.560 the fact that US as a swing producer is still 0:18:11.680 --> 0:18:14.159 dropping from a production standpoint, And on top of that, 0:18:14.600 --> 0:18:17.320 we look at the fact that ARAMCO write the big 0:18:17.400 --> 0:18:21.560 spotty UM state Energy Enterprise oil enterprise is gonna have 0:18:21.600 --> 0:18:23.240 an I p O sometime in the next twelve to 0:18:23.320 --> 0:18:26.080 eighteen months, and maybe a very strong incentive keeping the 0:18:26.160 --> 0:18:30.080 oil price upward as well. UM those are all fairly 0:18:30.160 --> 0:18:33.840 strong UM supports for the oil price. On top of that, 0:18:34.240 --> 0:18:36.200 look at the g d P number today, right two 0:18:36.240 --> 0:18:39.200 point nine percent. So we see not just in the 0:18:39.240 --> 0:18:41.680 emerging markets, but even in the US, we see strengthening 0:18:41.680 --> 0:18:44.399 global global activity, which is going to be further aided 0:18:44.440 --> 0:18:48.840 and embedded by what I call step back from monetary insanity. Right, so, 0:18:48.960 --> 0:18:51.800 we've had, you know, a broad practice of monetary insanity 0:18:51.800 --> 0:18:55.000 across the globe. I think that UM, central banks are 0:18:55.000 --> 0:18:56.680 gonna start to step back from that in the next 0:18:56.680 --> 0:19:00.320 twelve months, much more quickly than we've anticipated, and that's 0:19:00.359 --> 0:19:02.800 going to help stabilize the environment as well. Is that 0:19:02.920 --> 0:19:06.000 going to be bullish for commodity stocks? And if so, 0:19:06.520 --> 0:19:09.840 do you want to buy commodity stocks that do business 0:19:09.920 --> 0:19:12.960 around the world like Freeport mcmuran, or do you want 0:19:13.000 --> 0:19:17.479 to focus on domestic players. I do think that UM, 0:19:17.880 --> 0:19:19.879 it's going to be helpful for commodities. I do think 0:19:19.920 --> 0:19:22.800 that we've turned the cycle on commodities. UM it's going 0:19:22.840 --> 0:19:25.359 to be a slow process. UM We're not going to 0:19:25.480 --> 0:19:29.560 see an aggressive growth trajectory for commodities. But I do 0:19:29.680 --> 0:19:33.040 think that materials, for example, in the US, has really 0:19:33.080 --> 0:19:35.480 not done well recently, and I think that there's a 0:19:35.960 --> 0:19:40.960 mean reversion opportunity for commodities, domestic commodity stocks UM, So 0:19:41.080 --> 0:19:42.560 I think that either way to play, it is actually 0:19:42.640 --> 0:19:45.440 going to be UM, whether it be domestic companies or 0:19:46.200 --> 0:19:50.000 UH emerging market companies, etcetera, foreign producers. I think they're 0:19:50.000 --> 0:19:51.880 both going to do fairly well over the next two 0:19:51.880 --> 0:19:53.720 to three years. And again, it only can trust for 0:19:53.800 --> 0:19:56.360 long term investors. So I'm not looking to trade, if 0:19:56.400 --> 0:19:59.080 you will, on the most recent data point, but we're 0:19:59.119 --> 0:20:01.240 looking for the the trend, and we do see this 0:20:01.359 --> 0:20:05.040 trend in the commodity space. So Tony switching asset classes 0:20:05.119 --> 0:20:07.720 taking a look at bonds. If you think that stocks 0:20:07.840 --> 0:20:11.440 are going to do well broadly, is your sense that 0:20:12.119 --> 0:20:15.040 developed market government bonds are going to do badly? And 0:20:15.080 --> 0:20:18.200 if so, how badly? We think they'll do badly on 0:20:18.240 --> 0:20:19.920 a relative basis. So if you think about where to 0:20:20.000 --> 0:20:23.399 look for income, right, we think the dividend in today's environment, right, 0:20:23.520 --> 0:20:26.760 which is right, bonds are still have significantly negative real 0:20:26.840 --> 0:20:29.240 yields and so while we're not that concerned about the 0:20:29.240 --> 0:20:31.280 credit side of the bond market, we are very concerned 0:20:31.280 --> 0:20:33.640 about the rate side, and so we would prefer pick 0:20:33.720 --> 0:20:38.440 up income UM and MLPs dividends UM. To some degree, 0:20:38.440 --> 0:20:40.359 the municipal bond market will always stay a little bit 0:20:40.440 --> 0:20:44.920 underweight there UM today UM relative to our strategic acid allocation. 0:20:45.400 --> 0:20:48.159 But UM we would stay away from UM. You know, 0:20:48.200 --> 0:20:50.880 any kind of duration over five years in today's environment. 0:20:51.200 --> 0:20:54.119 We don't expect to see a complete normalization of the 0:20:54.200 --> 0:20:56.240 rate environment in the next year or two. Right. We 0:20:56.280 --> 0:20:59.080 think that we're going to see clearly a hike now 0:20:59.119 --> 0:21:01.960 in December. I think that's pretty much consensus UM, but 0:21:02.080 --> 0:21:05.200 also two hikes next year. UM. That'll leave us around 0:21:05.680 --> 0:21:10.080 UM once a fee or so on the policy rate UM, 0:21:10.400 --> 0:21:13.080 and it'll leave room for a little bit more rate 0:21:13.400 --> 0:21:15.000 rate hiking. But we're not going to end up at 0:21:15.160 --> 0:21:17.680 a police rate of three percent or so anytime soon. 0:21:18.200 --> 0:21:21.879 So we don't see a huge shift UM in the 0:21:22.000 --> 0:21:24.920 rate environment. UM. That's gonna crush bonds, but we don't 0:21:25.000 --> 0:21:27.640 think that they're particularly attractive with durations over five years. 0:21:28.119 --> 0:21:32.240 Tony Roth, thank you, Chief investment officer, Wilmington's Trust, managing 0:21:32.359 --> 0:21:36.680 seventy two billion dollars. I'm pim Fox along with Lisa Abramowitz. 0:21:36.880 --> 0:21:53.000 This is Bloomberg. Well, it's not hard to imagine what 0:21:53.200 --> 0:21:56.840 happens when you're in a business that is competing on 0:21:57.119 --> 0:22:00.440 price and is also looking at record infant tory in 0:22:00.560 --> 0:22:03.119 some cases, I want to bring in Mike Jackson. He 0:22:03.240 --> 0:22:07.000 is the chief executive of Auto Nation. He joins us now. 0:22:07.200 --> 0:22:10.080 Mike Jackson, thanks very much for being with us, My pleasure. 0:22:10.200 --> 0:22:12.840 Good morning. All right. So, you know, if if I had, 0:22:13.000 --> 0:22:15.760 if I had a way to console you, I would 0:22:15.960 --> 0:22:18.119 because you know, you've been through a little bit of 0:22:18.400 --> 0:22:21.480 a trial by fire here. The stock is down I 0:22:21.560 --> 0:22:24.200 believe about three and a half percent today, it's down 0:22:25.560 --> 0:22:29.480 so far this year. Uh, you're in a tough business 0:22:29.720 --> 0:22:33.000 and you're trying to find new ways to invigorate the 0:22:33.040 --> 0:22:38.600 automobile retail business. You're opening standalone used car outlets. Tell 0:22:38.640 --> 0:22:42.480 me what's going on with the business and how you're surviving. Well. 0:22:42.560 --> 0:22:46.840 We understand that the new vehicle business is cyclical, uh, 0:22:47.200 --> 0:22:51.960 in one of three phases, growth, plateau, and decline. Years ago, 0:22:52.200 --> 0:22:55.000 we said we wanted to have a way to grow 0:22:55.960 --> 0:22:59.879 when this marketplace plateau. So we launched the Auto Nation 0:23:00.560 --> 0:23:03.359 brand from coast to coast. It's been very well accepted 0:23:04.320 --> 0:23:07.400 and trusted by consumers, and we launched the Auto Nation Express, 0:23:07.560 --> 0:23:11.520 our digital capability from which we get of our business today. 0:23:11.840 --> 0:23:15.399 So now we're spanning dramatically into the pre owned and 0:23:16.080 --> 0:23:21.479 UH customer care business, building free center UH, freestanding service 0:23:21.560 --> 0:23:25.000 and sales centers UH within our markets, which will be 0:23:25.560 --> 0:23:28.560 under the brand Auto Nation, and in order to have 0:23:28.680 --> 0:23:32.560 a compelling value story and a good experience for our 0:23:32.680 --> 0:23:36.280 customers in those centers, UH, they will all be one 0:23:36.400 --> 0:23:39.639 price on the pre owned vehicles, and we will launch 0:23:39.680 --> 0:23:44.440 Auto Nation parts and accessories in these centers and also 0:23:44.600 --> 0:23:48.760 offer those parts and accessories in our franchise business. So 0:23:49.960 --> 0:23:52.240 as I look at it now, we're the largest retailer 0:23:52.320 --> 0:23:55.600 of premium luxury vehicles in the US, with almost a 0:23:55.760 --> 0:24:01.600 hundred premium luxury franchises including Mercedes, Ben's, BMW, Porsche across America. 0:24:01.720 --> 0:24:06.080 We have a very large franchise volume business, and now 0:24:06.240 --> 0:24:10.320 we will have freestanding pre owned sales and service centers 0:24:10.560 --> 0:24:12.640 across our footprint. You know, we were talking to Bob 0:24:12.720 --> 0:24:16.120 Shanks yesterday UH CFO of Ford, and he was talking 0:24:16.200 --> 0:24:20.920 about how the cycle is maturing. UM. From your perspective, 0:24:20.960 --> 0:24:24.000 you talk about plateau ng in the auto industry, what's 0:24:24.040 --> 0:24:26.840 the risk and how can you measure it? Of a 0:24:26.880 --> 0:24:31.920 potential significant downturn in auto values and in appetite for 0:24:32.000 --> 0:24:36.639 new for new vehicles. So once the industry enters the 0:24:36.680 --> 0:24:39.720