Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.
Speaker 1: Along with my co host Lisa Brahma Waits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Oil prices in a free fall
Speaker 1: today after over the weekend, negotiations between Russia and Saudi
Speaker 1: Arabia as well as the rest of the OPEC allies
Speaker 1: broke down completely, and to quote Julian Lee, who is
Speaker 1: a Bloomberg opinion columnist and Bloomberg oil strategist, in a
Speaker 1: column over the weekend, he wrote, this is developing into
Speaker 1: a game wool blink first between two contestants who have
Speaker 1: cut off their eyelids. The key question what can make
Speaker 1: them come together and actually end this price war that
Speaker 1: is ravaging oil prices. Ellen Wald is deeply familiar with
Speaker 1: Mohammed bin Selman of Saudi Arabia as well as entire
Speaker 1: oil complex, and she joins us Now ellen Wald, president
Speaker 1: of Transversal Consulting, a Bloomberg Opinion contributor and friend of
Speaker 1: the show, Ellen, so glad to have you here. Can
Speaker 1: you give us a sense of what it will take
Speaker 1: to bring Saudi Arabia and Russia back to the table
Speaker 1: to come to some kind of agreement and stave off
Speaker 1: some of these declines. I'm not sure that there is
Speaker 1: a real possibility at this point to bring them back
Speaker 1: to the table, because what you're looking at our two
Speaker 1: powers to oil powers that have fundamentally different strategies and
Speaker 1: different goals. Here, Russia's goal is Russia. Frankly, Russia is
Speaker 1: looking out for number one. It's looking out for Russia.
Speaker 1: And then you have Saudi Arabia, which, in addition to
Speaker 1: having its own interests at heart, also cares about OPEQ
Speaker 1: and it cares about its political power within OPEC. That's
Speaker 1: not something that Russia really cares for. And so Saudi
Speaker 1: Arabia is saying, look, we said basically at this OPEC meeting,
Speaker 1: we see a crisis in demand, we need to cut
Speaker 1: oil production. We're going to do our part, but we
Speaker 1: need you to also do your part. We're not going
Speaker 1: it alone anymore. Because back in December, we essentially saw
Speaker 1: Saudi Arabia saying, let's all cut, but we're going to
Speaker 1: cut so much more as an incentive. And Russia is
Speaker 1: looking at this saying, why should we cut when we
Speaker 1: can get the saudiast to do it, And the Saudias said, no,
Speaker 1: we're not going to do that this time. And now
Speaker 1: you've got a price war and a production war with
Speaker 1: a variance or now come for Saudi Arabia said, Abybia
Speaker 1: can win the production war, they've got more spare capacity.
Speaker 1: But is there really a winner in a production war
Speaker 1: where you can't find buyers for that oil? And that's
Speaker 1: really the question. Yeah, And that's kind of where I
Speaker 1: wanted to go. I mean, I get Russia may have
Speaker 1: different agenda, may have a different agenda than Opeque in
Speaker 1: Saudi Arabia, but they don't benefit from this plunging oil price.
Speaker 1: So what's kind of there? How much pain can they
Speaker 1: really take? Do you think? Well? Right now they've said
Speaker 1: that they can take Hayne for six to ten years,
Speaker 1: that they're willing to accept prices between you and thirty
Speaker 1: dollars a barrel, which, by the way, they're not really
Speaker 1: making money at that price point, whereas Saudi Arabia can
Speaker 1: make money, But they're saying, look, we've got a hundred
Speaker 1: and fifty billion dollar UH Sovereign Wealth Fund, and we're
Speaker 1: willing to sell those assets to fund our budget for
Speaker 1: six to ten years. So whereas on Saudi Arabia side,
Speaker 1: they can pump oil for two dollars and eighty cents,
Speaker 1: so if they're selling it at twenty five dollars a barrel,
Speaker 1: they're still making a profit, whereas Russian companies might not
Speaker 1: necessarily be making a profit. But is Saudi Arabia really
Speaker 1: willing to deploy other funds to stave off budgetary issues?
Speaker 1: And that's a totally different question, and it's not clear
Speaker 1: that Saudi Arabia is prepared with its sovereign Wealth fund
Speaker 1: to do the same kind of thing that Russia is.
Speaker 1: Ellen it doesn't sound like there's an easy resolution to this,
Speaker 1: then yeah, I don't. I don't see an easy resolution.
Speaker 1: I think that that if they got to other and
Speaker 1: they started talking, that tensions would definitely calm down. And
Speaker 1: I do think that there is um continued communication between
Speaker 1: the two. You've got a Russian oil ministry, Russian energy
Speaker 1: ministry that wants to still sell Saudi Arabia nuclear technology
Speaker 1: and liquefied natural gas. So it's not like all communication
Speaker 1: is suddenly cut. This isn't, you know, the Cold War
Speaker 1: between Saudi Arabia and Russia. But um, it's not going
Speaker 1: to be resolved tomorrow, well but for sure. But so
Speaker 1: let's let's just sort of extrapolate out if this is
Speaker 1: a prolonged issue tension locking of heads here over what
Speaker 1: production ought to be, what is going to be the
Speaker 1: consequence for the entire oil complex, in particular the shale
Speaker 1: patch which we're seeing right now getting crushed in the
Speaker 1: high old bond market. To also the oil majors, which
Speaker 1: shares have actually been just absolutely devastated today. Yeah, they're
Speaker 1: they're going to have a tough time. I don't think
Speaker 1: that it's a death knell for the shale oil patch
Speaker 1: because the assets are still there and they're still going
Speaker 1: to be valuable, and so you are, you're going to
Speaker 1: have people getting crushed. But you will see war consolidation,
Speaker 1: You'll see you know, the players that can the oil
Speaker 1: majors taking on, you know, buying up well producing good
Speaker 1: producing assets. Um, it won't be fun there and the
Speaker 1: area is definitely going to experience an economic contraction. But
Speaker 1: you can't kill the assets. They're still there. However, places
Speaker 1: like Venezuela and Iran that are really on the brink
Speaker 1: are going to have a very hard time of it,
Speaker 1: particularly because Russia has played such a big role in
Speaker 1: kind of keeping Venezuela limping along. Ellen, Well, thank you
Speaker 1: so much for joining us. Ellen wall is a president
Speaker 1: of Transversal Consulting. She's also Bloomberg Opinion contributor, and we
Speaker 1: always appreciate her commentary and thoughts on the global energy
Speaker 1: markets with her great experience. Well, with markets in free
Speaker 1: fall this morning, some might be tempted in the equity
Speaker 1: markets maybe dip their toe, try to find some value.
Speaker 1: Some are going to say, I'm not getting anywhere near
Speaker 1: this freight train right here. Let's get an informed opinion
Speaker 1: from Gina Martin Adam. She's a senior equity strategist for
Speaker 1: Bloomberg Intelligence. She joins us here on our Bloomberg Interactive
Speaker 1: Broker Studio. So, Gina, what do you make of not
Speaker 1: just today, but maybe the last ten or you know,
Speaker 1: days or two weeks? Uh, this market activity we've seen
Speaker 1: in equities? Yeah, you know, I think the market started
Speaker 1: off at an overbought condition. You have to consider that
Speaker 1: as the starting point, we were overbought, we were likely overconfident.
Speaker 1: Valuations were well above our modeled estimates for where fair
Speaker 1: value was then. So we started to see that deflation
Speaker 1: with the coronavirus concerns and as those spread around the world.
Speaker 1: Obviously that created a tremendous amount of technical weakness in
Speaker 1: the markets, but did start to create some fundamental value
Speaker 1: at the very least. Now you've got the destabilizing effect
Speaker 1: to oil prices adding onto the pressure, so it's almost
Speaker 1: like this pile on effect that the equity market is experiencing.
Speaker 1: You know, My sense is you don't normally get a
Speaker 1: five to seven percent decline in a single day on stocks,
Speaker 1: and usually those are representative of pretty significant panic lows.
Speaker 1: But you can't eliminate the possibility that there's further downside
Speaker 1: from here, because you're trying to predict human behavior and
Speaker 1: risk tolerance, and that's just impossible to do. I think
Speaker 1: a lot of this for investors is going to depend
Speaker 1: upon your time horizon. If you're thinking, you know, I
Speaker 1: gotta be up, and I've got to be up in
Speaker 1: the next two weeks, your time horizon is probably too short.
Speaker 1: To have a whole lot of confidence. If your time
Speaker 1: horizon is the next fifteen years, I want to look
Speaker 1: for some value for a fifteen year time horizon. Then
Speaker 1: you've got to start thinking about sharpening your pencils and
Speaker 1: finding some ideas in the equity market because true value
Speaker 1: has been unlocked here. Um when we look at things
Speaker 1: like the oil price impact, for instance, on fundamentals, the
Speaker 1: energy sector is three percent of the market cap of
Speaker 1: the SMP five hundred. Now, so a falling oil price
Speaker 1: is not particularly detrimental detrimental to the earnings outlook, unless
Speaker 1: it's accompanied by, you know, a snowball effect of serious
Speaker 1: economic recession emerging, big declines in new orders, growth, employment
Speaker 1: conditions deteriorating significantly. Those are the things that you want
Speaker 1: to look at. And if that's the case, then you
Speaker 1: want to start to price recession. I do say, to
Speaker 1: price recession, We've probably got quite a bit of downside
Speaker 1: risk still to come, you know, will we have recession
Speaker 1: or not? As still a toss up? Well, that's that's
Speaker 1: exactly where I wanted to go. What would it look
Speaker 1: like for us to price in recession? How much worse
Speaker 1: would it get? Yeah, So our view is to price recession,
Speaker 1: we probably have to go to around sixty five. That's
Speaker 1: taking an assumption of where the fair value multiple is
Speaker 1: considering where interest rates are, and we all know that
Speaker 1: interest rates are extremely accommodative for equity and valuations right now,
Speaker 1: but also your average recessionary decline in EPs, which is
Speaker 1: about on earnings. To get to combine those two models,
Speaker 1: and you get a downside risk for the s P
Speaker 1: five all the way down to which is a bit
Speaker 1: more than your average recessionary decline. It's a more than
Speaker 1: decline in stocks from peach trough. We're tritting with Gina
Speaker 1: Martin Adams and Bloomberg Intelligence. We have the SMP down
Speaker 1: one seventy, that's five point seven percent, the Dow off
Speaker 1: about fifteen hundred points here. So Gina, let's talk technical levels.
Speaker 1: As I know you like to look at charts as
Speaker 1: well as the fundamentals here. Where are we kind of
Speaker 1: broad market in terms of support levels and that that
Speaker 1: kind of thing. Well, we busted through the retracement level,
Speaker 1: which you know we had been watching that pretty carefully.
Speaker 1: That's right around sixty on the SMP five hundred. That's
Speaker 1: where we found stabilization to Fridays ago on that major
Speaker 1: capitulation low. Um. We certainly didn't even test it last Friday,
Speaker 1: even though our closing low on Friday was pretty weak.
Speaker 1: So at this point, I think hundred is serving as
Speaker 1: some sort of round number resistance. It happens to mark
Speaker 1: a low from several low points over the course of
Speaker 1: the last year as well. Then you've got to get
Speaker 1: all the way back into the correction, and which really
Speaker 1: is dicey technicals, right, I mean, there's just very few
Speaker 1: consistent levels to lean on back in that correction I'm
Speaker 1: looking at right now as the level to watch on
Speaker 1: the index. How concerned are you about a panic among
Speaker 1: retail investors as they start to see some of the
Speaker 1: headlines and here some of the rhetoric out of Wall
Speaker 1: Street today. Yeah, you know, it's really interesting. Our et
Speaker 1: F team has actually done a lot of analysis on this,
Speaker 1: and the retail investor is the sort of one solid
Speaker 1: leg that's been in the equity market even in August.
Speaker 1: Remember all the panic activity in the equity market that
Speaker 1: we experienced in August. We had a couple of three
Speaker 1: percent down days in the midst of only a five
Speaker 1: percent correction. It was very odd very similarly this time around.
Speaker 1: The retail investor does not appear to be managed manipulating
Speaker 1: their portfolio. They're not really giving up the ghost on equity,
Speaker 1: so they are inherently a source of support, while the
Speaker 1: institutional investor has been significantly more volatile and more weak
Speaker 1: over the last couple of corrections. So I am somewhat
Speaker 1: concerned if we do get that kind of last bastition
Speaker 1: of stability capitulating on the on the equity rally, it
Speaker 1: could create a pretty big down draft. But so far
Speaker 1: that investor seems to be sticking it out. Gina Martin Adams,
Speaker 1: thank you so much for being with us, always illuminating.
Speaker 1: Gina Martin Adams, chief equity strategist for us here at
Speaker 1: Bloomberg Intelligence, insightful to hear about the fact that we're
Speaker 1: not even pricing in recession yet we have another five
Speaker 1: percent more to go lower in the S and P
Speaker 1: before we get to the levels that would price that in.
Speaker 1: According to Gina Martin Adams, who has been absolutely stending
Speaker 1: on this consistently throughout Boy On days like today, when
Speaker 1: you've got risk assets across the board trading off substantially,
Speaker 1: some say in a panic mode. It is always good
Speaker 1: to have our good friend Christina Hooper join us give
Speaker 1: us some perspective here. Christina Hooper's investcos chief Global Market Strategists.
Speaker 1: She joins us here in our Bloomberg Interactive Broker studio.
Speaker 1: So Christina, thanks so much for joining. I know it's
Speaker 1: a busy day for you and dealing with clients. Just
Speaker 1: help us put into perspective what we've seen, not just
Speaker 1: in the last week or so, but particularly this morning,
Speaker 1: with the news over the weekend about oil and the coronavirus. Well,
Speaker 1: I think of it as a one to punch. UM
Speaker 1: markets had come under significant pressure as a result of
Speaker 1: the Corona virus outbreak that spread the concerns about the
Speaker 1: impact on the economy. And then of course we had
Speaker 1: events evolved in oil markets such that we now have
Speaker 1: a supply shock, uh, that disagreement between Russia and the
Speaker 1: rest of OPEC plus which then led to the Saudias
Speaker 1: deciding to add to supply. And so this is a
Speaker 1: scenario where now we're going to see HILD come under
Speaker 1: We're already seeing high you'ld come under very significant pressure. Um,
Speaker 1: the energy sector is coming under very significant pressure. And
Speaker 1: so that is UM really impacting the environment. And I
Speaker 1: think what in general we're seeing is a lack of
Speaker 1: confidence in markets because UM, there is UH, there's not
Speaker 1: a lot of certainty about whether or not we're going
Speaker 1: to get an appropriate response from governments. To me, this
Speaker 1: is what is at the heart of this issue, is
Speaker 1: that what we've seen really since the global financial crisis
Speaker 1: is strong monetary response and a lackluster fiscal response. And
Speaker 1: now it's clear that we need a fiscal response. But
Speaker 1: I think in the memory of the memories of many
Speaker 1: investors is the fact that TARP narrowly passed UM that UM,
Speaker 1: we didn't get much in the way a fiscal stimulus,
Speaker 1: even though that's what we really need to help companies
Speaker 1: get through UM the next few months. If we don't
Speaker 1: get to use your words, an appropriate fiscal response within
Speaker 1: the next few weeks, say even two months, what will
Speaker 1: the fallout be like, Well, it will elongate UH, an
Speaker 1: economic downturn. I mean really, at this we're at essentially
Speaker 1: and decision point where we could go in a variety
Speaker 1: of different directions, depending upon certainly the lifespan of the
Speaker 1: outbreak UM, but more importantly the response to it, the
Speaker 1: health care response, to it um, the fiscal response to it,
Speaker 1: and the monetary policy response to it. And so my expectation,
Speaker 1: my hope is that we get enough of a fiscal response,
Speaker 1: But if we don't, it elongates the downturn um and
Speaker 1: it in many ways it could worsen that downturn over time.
Speaker 1: We can look to China as a model of how
Speaker 1: to do it right. Um. China actually provided significant stimulus,
Speaker 1: not just monetary but fiscal. We were hearing from US
Speaker 1: companies that were saying they were getting subsidized loans from
Speaker 1: China to continue to pay employees even though they weren't
Speaker 1: coming to work. That's the kind of thing we need
Speaker 1: in this environment to really get through because we know
Speaker 1: that there are a lot of Americans that are very vulnerable,
Speaker 1: that don't have any significant level of emergency savings. That's
Speaker 1: not really a concern when things are going well, but
Speaker 1: it is a concern when things are starting to go
Speaker 1: poorly and they might actually see hourly wages cut because
Speaker 1: of all the cancelations that we're seeing, all the change
Speaker 1: in plans, all the disruption being caused by the outbreak. Essentially,
Speaker 1: there's a story on the Bloomberg right now that President
Speaker 1: Trump's aids are actually drafting economic steps to fight the
Speaker 1: virus fall out, So maybe we'll even get some news
Speaker 1: on that potentially uh today, So we'll have to see
Speaker 1: how that plays in. So Christine, as you think about this,
Speaker 1: what's the correct analysis to do? Is it to kind
Speaker 1: of look at valuation, try to find names that you know,
Speaker 1: the business models that you feel are strong, and if
Speaker 1: you find that you know good valuation points, to maybe
Speaker 1: put some money to work. Absolutely, I think this is
Speaker 1: time to be really writing a list and referring to
Speaker 1: that list as you watch the carnage in markets, because
Speaker 1: there are a lot of great names that get beaten
Speaker 1: down in the short run because, as we know, UM,
Speaker 1: when there's blood in the water, UM, there's just insanity
Speaker 1: in the minds of investors. And UM stocks might be
Speaker 1: a voting machine in the short run, but over the
Speaker 1: longer run they are a weighing machine. And so they're
Speaker 1: definitely opportunities out there that are being created by a
Speaker 1: miss pricing of asset classes. I think of this as
Speaker 1: the real march madness, all right. One question that I
Speaker 1: have is how easy is it to execute at those prices?
Speaker 1: In other words, how fluid is a financial system. Right now,
Speaker 1: we're hearing anecdotally of some difficulties with respect to executing trades. Well,
Speaker 1: I think that for the most part, what I've heard
Speaker 1: is that trades have gone through smoothly. I think it
Speaker 1: depends on the volume, UM. But investors don't need to
Speaker 1: pile on in all at once. UM. Have a clear
Speaker 1: head about buying as well as selling. But have that
Speaker 1: list UM, refer to it and and see the opportunities
Speaker 1: created by carnage. It's very hard to call a bottom.
Speaker 1: I know Mark Haines UH famously did that a while
Speaker 1: back on on this advanced anniversary twelve years ago. UM,
Speaker 1: but it's very hard to do that. UM. But you
Speaker 1: know when things are getting oversold, and so you can
Speaker 1: speak in UH to create entry points. Right now, a
Speaker 1: lot of the selling action really has stemmed from institutional investors.
Speaker 1: We haven't seen the mass flight when it comes to retailers.
Speaker 1: Just real quickly, How concerned are you about that? I'm
Speaker 1: not too concerned at this point because certainly for those
Speaker 1: investors that do have that are advised UM, they're likely
Speaker 1: to maintain exposure. I think that our industry has done
Speaker 1: a better and better job of really stressing the importance
Speaker 1: of taking a long term view that for so many,
Speaker 1: for example, the fourth quarter of two thousand and eighteen
Speaker 1: was a blip. Now was very disappointed to get those statements,
Speaker 1: but at the end of the day it was quickly erased.
Speaker 1: Christina Hooper, wonderful having you here with us. Thank you
Speaker 1: so much, and fest of luck through this period of
Speaker 1: Christina Hooper is Investco, Chief Global Market Strategist, joining us
Speaker 1: here in our interactive broker's studios. Thanks for listening to
Speaker 1: the Bloomberg P and L podcast. You can subscribe and
Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform
Speaker 1: you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
Speaker 1: I'm Lisa Abram Woods. I'm on Twitter at Lisa Abram
Speaker 1: woyds one. Before the podcast, you can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.