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Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.

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Speaker 1: Along with my co host Lisa Brahma Waits. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. Oil prices in a free fall

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Speaker 1: today after over the weekend, negotiations between Russia and Saudi

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Speaker 1: Arabia as well as the rest of the OPEC allies

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Speaker 1: broke down completely, and to quote Julian Lee, who is

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Speaker 1: a Bloomberg opinion columnist and Bloomberg oil strategist, in a

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Speaker 1: column over the weekend, he wrote, this is developing into

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Speaker 1: a game wool blink first between two contestants who have

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Speaker 1: cut off their eyelids. The key question what can make

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Speaker 1: them come together and actually end this price war that

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Speaker 1: is ravaging oil prices. Ellen Wald is deeply familiar with

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Speaker 1: Mohammed bin Selman of Saudi Arabia as well as entire

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Speaker 1: oil complex, and she joins us Now ellen Wald, president

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Speaker 1: of Transversal Consulting, a Bloomberg Opinion contributor and friend of

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Speaker 1: the show, Ellen, so glad to have you here. Can

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Speaker 1: you give us a sense of what it will take

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Speaker 1: to bring Saudi Arabia and Russia back to the table

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Speaker 1: to come to some kind of agreement and stave off

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Speaker 1: some of these declines. I'm not sure that there is

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Speaker 1: a real possibility at this point to bring them back

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Speaker 1: to the table, because what you're looking at our two

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Speaker 1: powers to oil powers that have fundamentally different strategies and

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Speaker 1: different goals. Here, Russia's goal is Russia. Frankly, Russia is

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Speaker 1: looking out for number one. It's looking out for Russia.

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Speaker 1: And then you have Saudi Arabia, which, in addition to

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Speaker 1: having its own interests at heart, also cares about OPEQ

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Speaker 1: and it cares about its political power within OPEC. That's

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Speaker 1: not something that Russia really cares for. And so Saudi

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Speaker 1: Arabia is saying, look, we said basically at this OPEC meeting,

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Speaker 1: we see a crisis in demand, we need to cut

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Speaker 1: oil production. We're going to do our part, but we

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Speaker 1: need you to also do your part. We're not going

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Speaker 1: it alone anymore. Because back in December, we essentially saw

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Speaker 1: Saudi Arabia saying, let's all cut, but we're going to

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Speaker 1: cut so much more as an incentive. And Russia is

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Speaker 1: looking at this saying, why should we cut when we

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Speaker 1: can get the saudiast to do it, And the Saudias said, no,

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Speaker 1: we're not going to do that this time. And now

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Speaker 1: you've got a price war and a production war with

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Speaker 1: a variance or now come for Saudi Arabia said, Abybia

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Speaker 1: can win the production war, they've got more spare capacity.

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Speaker 1: But is there really a winner in a production war

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Speaker 1: where you can't find buyers for that oil? And that's

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Speaker 1: really the question. Yeah, And that's kind of where I

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Speaker 1: wanted to go. I mean, I get Russia may have

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Speaker 1: different agenda, may have a different agenda than Opeque in

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Speaker 1: Saudi Arabia, but they don't benefit from this plunging oil price.

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Speaker 1: So what's kind of there? How much pain can they

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Speaker 1: really take? Do you think? Well? Right now they've said

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Speaker 1: that they can take Hayne for six to ten years,

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Speaker 1: that they're willing to accept prices between you and thirty

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Speaker 1: dollars a barrel, which, by the way, they're not really

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Speaker 1: making money at that price point, whereas Saudi Arabia can

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Speaker 1: make money, But they're saying, look, we've got a hundred

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Speaker 1: and fifty billion dollar UH Sovereign Wealth Fund, and we're

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Speaker 1: willing to sell those assets to fund our budget for

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Speaker 1: six to ten years. So whereas on Saudi Arabia side,

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Speaker 1: they can pump oil for two dollars and eighty cents,

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Speaker 1: so if they're selling it at twenty five dollars a barrel,

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Speaker 1: they're still making a profit, whereas Russian companies might not

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Speaker 1: necessarily be making a profit. But is Saudi Arabia really

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Speaker 1: willing to deploy other funds to stave off budgetary issues?

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Speaker 1: And that's a totally different question, and it's not clear

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Speaker 1: that Saudi Arabia is prepared with its sovereign Wealth fund

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Speaker 1: to do the same kind of thing that Russia is.

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Speaker 1: Ellen it doesn't sound like there's an easy resolution to this,

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Speaker 1: then yeah, I don't. I don't see an easy resolution.

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Speaker 1: I think that that if they got to other and

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Speaker 1: they started talking, that tensions would definitely calm down. And

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Speaker 1: I do think that there is um continued communication between

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Speaker 1: the two. You've got a Russian oil ministry, Russian energy

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Speaker 1: ministry that wants to still sell Saudi Arabia nuclear technology

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Speaker 1: and liquefied natural gas. So it's not like all communication

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Speaker 1: is suddenly cut. This isn't, you know, the Cold War

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Speaker 1: between Saudi Arabia and Russia. But um, it's not going

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Speaker 1: to be resolved tomorrow, well but for sure. But so

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Speaker 1: let's let's just sort of extrapolate out if this is

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Speaker 1: a prolonged issue tension locking of heads here over what

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Speaker 1: production ought to be, what is going to be the

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Speaker 1: consequence for the entire oil complex, in particular the shale

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Speaker 1: patch which we're seeing right now getting crushed in the

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Speaker 1: high old bond market. To also the oil majors, which

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Speaker 1: shares have actually been just absolutely devastated today. Yeah, they're

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Speaker 1: they're going to have a tough time. I don't think

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Speaker 1: that it's a death knell for the shale oil patch

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Speaker 1: because the assets are still there and they're still going

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Speaker 1: to be valuable, and so you are, you're going to

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Speaker 1: have people getting crushed. But you will see war consolidation,

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Speaker 1: You'll see you know, the players that can the oil

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Speaker 1: majors taking on, you know, buying up well producing good

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Speaker 1: producing assets. Um, it won't be fun there and the

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Speaker 1: area is definitely going to experience an economic contraction. But

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Speaker 1: you can't kill the assets. They're still there. However, places

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Speaker 1: like Venezuela and Iran that are really on the brink

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Speaker 1: are going to have a very hard time of it,

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Speaker 1: particularly because Russia has played such a big role in

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Speaker 1: kind of keeping Venezuela limping along. Ellen, Well, thank you

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Speaker 1: so much for joining us. Ellen wall is a president

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Speaker 1: of Transversal Consulting. She's also Bloomberg Opinion contributor, and we

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Speaker 1: always appreciate her commentary and thoughts on the global energy

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Speaker 1: markets with her great experience. Well, with markets in free

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Speaker 1: fall this morning, some might be tempted in the equity

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Speaker 1: markets maybe dip their toe, try to find some value.

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Speaker 1: Some are going to say, I'm not getting anywhere near

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Speaker 1: this freight train right here. Let's get an informed opinion

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Speaker 1: from Gina Martin Adam. She's a senior equity strategist for

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Speaker 1: Bloomberg Intelligence. She joins us here on our Bloomberg Interactive

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Speaker 1: Broker Studio. So, Gina, what do you make of not

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Speaker 1: just today, but maybe the last ten or you know,

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Speaker 1: days or two weeks? Uh, this market activity we've seen

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Speaker 1: in equities? Yeah, you know, I think the market started

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Speaker 1: off at an overbought condition. You have to consider that

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Speaker 1: as the starting point, we were overbought, we were likely overconfident.

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Speaker 1: Valuations were well above our modeled estimates for where fair

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Speaker 1: value was then. So we started to see that deflation

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Speaker 1: with the coronavirus concerns and as those spread around the world.

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Speaker 1: Obviously that created a tremendous amount of technical weakness in

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Speaker 1: the markets, but did start to create some fundamental value

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Speaker 1: at the very least. Now you've got the destabilizing effect

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Speaker 1: to oil prices adding onto the pressure, so it's almost

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Speaker 1: like this pile on effect that the equity market is experiencing.

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Speaker 1: You know, My sense is you don't normally get a

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Speaker 1: five to seven percent decline in a single day on stocks,

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Speaker 1: and usually those are representative of pretty significant panic lows.

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Speaker 1: But you can't eliminate the possibility that there's further downside

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Speaker 1: from here, because you're trying to predict human behavior and

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Speaker 1: risk tolerance, and that's just impossible to do. I think

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Speaker 1: a lot of this for investors is going to depend

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Speaker 1: upon your time horizon. If you're thinking, you know, I

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Speaker 1: gotta be up, and I've got to be up in

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Speaker 1: the next two weeks, your time horizon is probably too short.

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Speaker 1: To have a whole lot of confidence. If your time

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Speaker 1: horizon is the next fifteen years, I want to look

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Speaker 1: for some value for a fifteen year time horizon. Then

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Speaker 1: you've got to start thinking about sharpening your pencils and

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Speaker 1: finding some ideas in the equity market because true value

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Speaker 1: has been unlocked here. Um when we look at things

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Speaker 1: like the oil price impact, for instance, on fundamentals, the

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Speaker 1: energy sector is three percent of the market cap of

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Speaker 1: the SMP five hundred. Now, so a falling oil price

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Speaker 1: is not particularly detrimental detrimental to the earnings outlook, unless

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Speaker 1: it's accompanied by, you know, a snowball effect of serious

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Speaker 1: economic recession emerging, big declines in new orders, growth, employment

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Speaker 1: conditions deteriorating significantly. Those are the things that you want

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Speaker 1: to look at. And if that's the case, then you

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Speaker 1: want to start to price recession. I do say, to

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Speaker 1: price recession, We've probably got quite a bit of downside

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Speaker 1: risk still to come, you know, will we have recession

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Speaker 1: or not? As still a toss up? Well, that's that's

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Speaker 1: exactly where I wanted to go. What would it look

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Speaker 1: like for us to price in recession? How much worse

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Speaker 1: would it get? Yeah, So our view is to price recession,

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Speaker 1: we probably have to go to around sixty five. That's

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Speaker 1: taking an assumption of where the fair value multiple is

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Speaker 1: considering where interest rates are, and we all know that

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Speaker 1: interest rates are extremely accommodative for equity and valuations right now,

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Speaker 1: but also your average recessionary decline in EPs, which is

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Speaker 1: about on earnings. To get to combine those two models,

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Speaker 1: and you get a downside risk for the s P

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Speaker 1: five all the way down to which is a bit

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Speaker 1: more than your average recessionary decline. It's a more than

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Speaker 1: decline in stocks from peach trough. We're tritting with Gina

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Speaker 1: Martin Adams and Bloomberg Intelligence. We have the SMP down

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Speaker 1: one seventy, that's five point seven percent, the Dow off

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Speaker 1: about fifteen hundred points here. So Gina, let's talk technical levels.

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Speaker 1: As I know you like to look at charts as

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Speaker 1: well as the fundamentals here. Where are we kind of

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Speaker 1: broad market in terms of support levels and that that

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Speaker 1: kind of thing. Well, we busted through the retracement level,

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Speaker 1: which you know we had been watching that pretty carefully.

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Speaker 1: That's right around sixty on the SMP five hundred. That's

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Speaker 1: where we found stabilization to Fridays ago on that major

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Speaker 1: capitulation low. Um. We certainly didn't even test it last Friday,

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Speaker 1: even though our closing low on Friday was pretty weak.

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Speaker 1: So at this point, I think hundred is serving as

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Speaker 1: some sort of round number resistance. It happens to mark

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Speaker 1: a low from several low points over the course of

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Speaker 1: the last year as well. Then you've got to get

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Speaker 1: all the way back into the correction, and which really

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Speaker 1: is dicey technicals, right, I mean, there's just very few

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Speaker 1: consistent levels to lean on back in that correction I'm

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Speaker 1: looking at right now as the level to watch on

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Speaker 1: the index. How concerned are you about a panic among

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Speaker 1: retail investors as they start to see some of the

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Speaker 1: headlines and here some of the rhetoric out of Wall

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Speaker 1: Street today. Yeah, you know, it's really interesting. Our et

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Speaker 1: F team has actually done a lot of analysis on this,

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Speaker 1: and the retail investor is the sort of one solid

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Speaker 1: leg that's been in the equity market even in August.

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Speaker 1: Remember all the panic activity in the equity market that

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Speaker 1: we experienced in August. We had a couple of three

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Speaker 1: percent down days in the midst of only a five

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Speaker 1: percent correction. It was very odd very similarly this time around.

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Speaker 1: The retail investor does not appear to be managed manipulating

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Speaker 1: their portfolio. They're not really giving up the ghost on equity,

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Speaker 1: so they are inherently a source of support, while the

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Speaker 1: institutional investor has been significantly more volatile and more weak

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Speaker 1: over the last couple of corrections. So I am somewhat

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Speaker 1: concerned if we do get that kind of last bastition

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Speaker 1: of stability capitulating on the on the equity rally, it

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Speaker 1: could create a pretty big down draft. But so far

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Speaker 1: that investor seems to be sticking it out. Gina Martin Adams,

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Speaker 1: thank you so much for being with us, always illuminating.

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Speaker 1: Gina Martin Adams, chief equity strategist for us here at

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Speaker 1: Bloomberg Intelligence, insightful to hear about the fact that we're

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Speaker 1: not even pricing in recession yet we have another five

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Speaker 1: percent more to go lower in the S and P

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Speaker 1: before we get to the levels that would price that in.

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Speaker 1: According to Gina Martin Adams, who has been absolutely stending

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Speaker 1: on this consistently throughout Boy On days like today, when

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Speaker 1: you've got risk assets across the board trading off substantially,

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Speaker 1: some say in a panic mode. It is always good

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Speaker 1: to have our good friend Christina Hooper join us give

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Speaker 1: us some perspective here. Christina Hooper's investcos chief Global Market Strategists.

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Speaker 1: She joins us here in our Bloomberg Interactive Broker studio.

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Speaker 1: So Christina, thanks so much for joining. I know it's

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Speaker 1: a busy day for you and dealing with clients. Just

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Speaker 1: help us put into perspective what we've seen, not just

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Speaker 1: in the last week or so, but particularly this morning,

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Speaker 1: with the news over the weekend about oil and the coronavirus. Well,

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Speaker 1: I think of it as a one to punch. UM

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Speaker 1: markets had come under significant pressure as a result of

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Speaker 1: the Corona virus outbreak that spread the concerns about the

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Speaker 1: impact on the economy. And then of course we had

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Speaker 1: events evolved in oil markets such that we now have

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Speaker 1: a supply shock, uh, that disagreement between Russia and the

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Speaker 1: rest of OPEC plus which then led to the Saudias

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Speaker 1: deciding to add to supply. And so this is a

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Speaker 1: scenario where now we're going to see HILD come under

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Speaker 1: We're already seeing high you'ld come under very significant pressure. Um,

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Speaker 1: the energy sector is coming under very significant pressure. And

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Speaker 1: so that is UM really impacting the environment. And I

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Speaker 1: think what in general we're seeing is a lack of

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Speaker 1: confidence in markets because UM, there is UH, there's not

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Speaker 1: a lot of certainty about whether or not we're going

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Speaker 1: to get an appropriate response from governments. To me, this

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Speaker 1: is what is at the heart of this issue, is

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Speaker 1: that what we've seen really since the global financial crisis

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Speaker 1: is strong monetary response and a lackluster fiscal response. And

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Speaker 1: now it's clear that we need a fiscal response. But

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Speaker 1: I think in the memory of the memories of many

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Speaker 1: investors is the fact that TARP narrowly passed UM that UM,

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Speaker 1: we didn't get much in the way a fiscal stimulus,

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Speaker 1: even though that's what we really need to help companies

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Speaker 1: get through UM the next few months. If we don't

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Speaker 1: get to use your words, an appropriate fiscal response within

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Speaker 1: the next few weeks, say even two months, what will

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Speaker 1: the fallout be like, Well, it will elongate UH, an

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Speaker 1: economic downturn. I mean really, at this we're at essentially

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Speaker 1: and decision point where we could go in a variety

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Speaker 1: of different directions, depending upon certainly the lifespan of the

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Speaker 1: outbreak UM, but more importantly the response to it, the

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Speaker 1: health care response, to it um, the fiscal response to it,

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Speaker 1: and the monetary policy response to it. And so my expectation,

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Speaker 1: my hope is that we get enough of a fiscal response,

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Speaker 1: But if we don't, it elongates the downturn um and

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Speaker 1: it in many ways it could worsen that downturn over time.

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Speaker 1: We can look to China as a model of how

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Speaker 1: to do it right. Um. China actually provided significant stimulus,

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Speaker 1: not just monetary but fiscal. We were hearing from US

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Speaker 1: companies that were saying they were getting subsidized loans from

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Speaker 1: China to continue to pay employees even though they weren't

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Speaker 1: coming to work. That's the kind of thing we need

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Speaker 1: in this environment to really get through because we know

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Speaker 1: that there are a lot of Americans that are very vulnerable,

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Speaker 1: that don't have any significant level of emergency savings. That's

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Speaker 1: not really a concern when things are going well, but

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Speaker 1: it is a concern when things are starting to go

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Speaker 1: poorly and they might actually see hourly wages cut because

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Speaker 1: of all the cancelations that we're seeing, all the change

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Speaker 1: in plans, all the disruption being caused by the outbreak. Essentially,

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Speaker 1: there's a story on the Bloomberg right now that President

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Speaker 1: Trump's aids are actually drafting economic steps to fight the

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Speaker 1: virus fall out, So maybe we'll even get some news

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Speaker 1: on that potentially uh today, So we'll have to see

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Speaker 1: how that plays in. So Christine, as you think about this,

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Speaker 1: what's the correct analysis to do? Is it to kind

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Speaker 1: of look at valuation, try to find names that you know,

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Speaker 1: the business models that you feel are strong, and if

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Speaker 1: you find that you know good valuation points, to maybe

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Speaker 1: put some money to work. Absolutely, I think this is

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Speaker 1: time to be really writing a list and referring to

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Speaker 1: that list as you watch the carnage in markets, because

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Speaker 1: there are a lot of great names that get beaten

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Speaker 1: down in the short run because, as we know, UM,

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Speaker 1: when there's blood in the water, UM, there's just insanity

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Speaker 1: in the minds of investors. And UM stocks might be

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Speaker 1: a voting machine in the short run, but over the

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Speaker 1: longer run they are a weighing machine. And so they're

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Speaker 1: definitely opportunities out there that are being created by a

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Speaker 1: miss pricing of asset classes. I think of this as

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Speaker 1: the real march madness, all right. One question that I

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Speaker 1: have is how easy is it to execute at those prices?

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Speaker 1: In other words, how fluid is a financial system. Right now,

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Speaker 1: we're hearing anecdotally of some difficulties with respect to executing trades. Well,

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Speaker 1: I think that for the most part, what I've heard

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Speaker 1: is that trades have gone through smoothly. I think it

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Speaker 1: depends on the volume, UM. But investors don't need to

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Speaker 1: pile on in all at once. UM. Have a clear

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Speaker 1: head about buying as well as selling. But have that

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Speaker 1: list UM, refer to it and and see the opportunities

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Speaker 1: created by carnage. It's very hard to call a bottom.

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Speaker 1: I know Mark Haines UH famously did that a while

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Speaker 1: back on on this advanced anniversary twelve years ago. UM,

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Speaker 1: but it's very hard to do that. UM. But you

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Speaker 1: know when things are getting oversold, and so you can

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Speaker 1: speak in UH to create entry points. Right now, a

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Speaker 1: lot of the selling action really has stemmed from institutional investors.

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Speaker 1: We haven't seen the mass flight when it comes to retailers.

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Speaker 1: Just real quickly, How concerned are you about that? I'm

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Speaker 1: not too concerned at this point because certainly for those

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Speaker 1: investors that do have that are advised UM, they're likely

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Speaker 1: to maintain exposure. I think that our industry has done

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Speaker 1: a better and better job of really stressing the importance

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Speaker 1: of taking a long term view that for so many,

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Speaker 1: for example, the fourth quarter of two thousand and eighteen

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Speaker 1: was a blip. Now was very disappointed to get those statements,

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Speaker 1: but at the end of the day it was quickly erased.

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Speaker 1: Christina Hooper, wonderful having you here with us. Thank you

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Speaker 1: so much, and fest of luck through this period of

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Speaker 1: Christina Hooper is Investco, Chief Global Market Strategist, joining us

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Speaker 1: here in our interactive broker's studios. Thanks for listening to

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Speaker 1: the Bloomberg P and L podcast. You can subscribe and

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Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform

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Speaker 1: you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.

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Speaker 1: I'm Lisa Abram Woods. I'm on Twitter at Lisa Abram

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Speaker 1: woyds one. Before the podcast, you can always catch us worldwide.

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Speaker 1: I'm Bloomberg Radio.