1 00:00:02,520 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:10,800 --> 00:00:13,520 Speaker 2: Thanks for joining us on this special holiday edition of 3 00:00:13,600 --> 00:00:17,800 Speaker 2: Bloomberg Daybreak. US markets are closed for President's Day. I'm 4 00:00:17,840 --> 00:00:20,120 Speaker 2: Nathan Hager, and coming up this hour, we will get 5 00:00:20,160 --> 00:00:22,759 Speaker 2: a read on the energy market after a winter that 6 00:00:22,800 --> 00:00:25,840 Speaker 2: has seen wild swings in the weather, and on trade. 7 00:00:26,079 --> 00:00:28,120 Speaker 2: Plus we'll look ahead to one of the biggest earning 8 00:00:28,240 --> 00:00:31,080 Speaker 2: stories of the week as Walmart gets set to report 9 00:00:31,240 --> 00:00:34,120 Speaker 2: results from the holiday quarter. First, though, we want to 10 00:00:34,120 --> 00:00:37,040 Speaker 2: take a look at the broader investment landscape how it 11 00:00:37,080 --> 00:00:40,199 Speaker 2: may be changing with a new president in office. I 12 00:00:40,280 --> 00:00:41,920 Speaker 2: think it's pretty safe to say it was a pretty 13 00:00:41,960 --> 00:00:45,400 Speaker 2: tough environment as far as regulation goes when Gary Gensler 14 00:00:45,520 --> 00:00:48,120 Speaker 2: was head of the Securities and Exchange Commission under then 15 00:00:48,200 --> 00:00:52,080 Speaker 2: President Joe Biden. Now with a new SEC chief on 16 00:00:52,159 --> 00:00:55,960 Speaker 2: the way under current President Donald Trump, are things starting 17 00:00:56,000 --> 00:00:59,440 Speaker 2: to change for investors? Let's get some answers on this. 18 00:00:59,600 --> 00:01:03,560 Speaker 2: Joining us on this holiday is Eric Balchunis, ETF, analyst 19 00:01:03,640 --> 00:01:06,800 Speaker 2: for Bloomberg Intelligence. Thanks so much for being with us 20 00:01:06,920 --> 00:01:09,280 Speaker 2: on the holiday. Eric, and I know we've got a 21 00:01:09,280 --> 00:01:13,800 Speaker 2: lot of acting commissioners acting chiefs on the way as well, 22 00:01:13,959 --> 00:01:16,960 Speaker 2: But are things starting to change now as far as 23 00:01:17,440 --> 00:01:19,480 Speaker 2: where things sit in your world and ETFs. 24 00:01:19,760 --> 00:01:19,880 Speaker 3: Uh. 25 00:01:20,000 --> 00:01:23,039 Speaker 1: Yeah, There's been a couple of small things that we've seen, 26 00:01:23,080 --> 00:01:25,320 Speaker 1: nothing major, But I think one of the big things 27 00:01:25,360 --> 00:01:27,680 Speaker 1: is esther purse, which she was a commissioner. She is 28 00:01:27,680 --> 00:01:29,840 Speaker 1: a commissioner, and she was in the minority during the 29 00:01:29,880 --> 00:01:32,880 Speaker 1: Gensler era and she had a lot of opposing opinions 30 00:01:32,920 --> 00:01:35,679 Speaker 1: that she would write about. And now she's working one 31 00:01:35,680 --> 00:01:37,880 Speaker 1: of the two commissioners of the Act, is helping the 32 00:01:37,920 --> 00:01:42,280 Speaker 1: acting commissioner. And some of the things we've seen, for example, 33 00:01:42,560 --> 00:01:46,240 Speaker 1: they approved options on some precious metals ets that have 34 00:01:46,240 --> 00:01:49,040 Speaker 1: been waiting ten years. It's a minor thing, but it 35 00:01:49,120 --> 00:01:51,560 Speaker 1: just shows I think she just wants to get stuff 36 00:01:51,600 --> 00:01:53,640 Speaker 1: out the door in the end. You know, she was 37 00:01:53,760 --> 00:01:58,320 Speaker 1: very big on the SEC being a merit based regulator meeting. 38 00:01:58,880 --> 00:02:01,240 Speaker 1: You just want to get the disclose out and then 39 00:02:01,320 --> 00:02:05,000 Speaker 1: let the consumers pick. You don't want to play nanny 40 00:02:05,040 --> 00:02:06,680 Speaker 1: too much in sort of saying. 41 00:02:06,640 --> 00:02:07,920 Speaker 3: This is bad, this is good. 42 00:02:08,400 --> 00:02:10,040 Speaker 1: So I think what you're going to see is just, 43 00:02:10,160 --> 00:02:12,120 Speaker 1: you know, a little bit of Pandora's box opening up 44 00:02:12,120 --> 00:02:14,560 Speaker 1: with products and I think some will be really good 45 00:02:14,600 --> 00:02:16,680 Speaker 1: and successful. Some are going to be a little wild 46 00:02:16,680 --> 00:02:19,320 Speaker 1: and we'll cause some head scratching maybe, but this is 47 00:02:19,360 --> 00:02:22,120 Speaker 1: the ETF industry always pushes the envelope, and they're just 48 00:02:22,160 --> 00:02:23,880 Speaker 1: gonna be able to push a little further. I think 49 00:02:24,360 --> 00:02:27,200 Speaker 1: under this SEC chair, who hasn't been confirmed yet, but 50 00:02:27,240 --> 00:02:32,640 Speaker 1: assuming he is Atkins, he'd be working obviously with Hester Purse. 51 00:02:32,919 --> 00:02:34,799 Speaker 1: And the other thing they did was they moved a 52 00:02:34,840 --> 00:02:37,440 Speaker 1: bunch of people who were on a crypto fraud. They 53 00:02:37,480 --> 00:02:40,480 Speaker 1: moved some people out of that team, and that again 54 00:02:40,639 --> 00:02:43,200 Speaker 1: was another sign that in terms of the crypto, which 55 00:02:43,240 --> 00:02:45,040 Speaker 1: was I think Gensler is like you know, he was 56 00:02:45,120 --> 00:02:47,359 Speaker 1: both known for being tough on that. It's going to 57 00:02:47,440 --> 00:02:50,960 Speaker 1: be more lenient for sure. I would look for a 58 00:02:51,040 --> 00:02:55,680 Speaker 1: ton of new coins and tokens to be etfised, and 59 00:02:55,720 --> 00:02:58,480 Speaker 1: I would look for the industry also to push the 60 00:02:58,560 --> 00:03:02,360 Speaker 1: envelope and some other things like share classes and maybe 61 00:03:02,360 --> 00:03:05,440 Speaker 1: even some things like trying to put private equity and 62 00:03:05,520 --> 00:03:07,040 Speaker 1: private credit into ETFs. 63 00:03:07,480 --> 00:03:10,200 Speaker 3: Knowing they have a more liberal regulator. 64 00:03:10,240 --> 00:03:12,520 Speaker 1: I mean, the regulator is more conservative, but I'd say 65 00:03:12,520 --> 00:03:14,359 Speaker 1: they're more liberal in terms of what they'll approve. 66 00:03:14,800 --> 00:03:17,839 Speaker 2: Well, let's dig into those broad strokes just a little bit. 67 00:03:18,040 --> 00:03:22,960 Speaker 2: What kinds of products are you looking forward to that 68 00:03:23,120 --> 00:03:26,000 Speaker 2: could find some success among investors. 69 00:03:26,360 --> 00:03:30,440 Speaker 1: Yeah, so I think the first two are ets tracking 70 00:03:30,560 --> 00:03:35,800 Speaker 1: Solana and XRP, which are two different networks. They're cryptocurrencies, 71 00:03:36,440 --> 00:03:40,360 Speaker 1: and those two in particular have been the industry has 72 00:03:40,400 --> 00:03:43,480 Speaker 1: been trying to get those approved for like five years. 73 00:03:43,720 --> 00:03:46,760 Speaker 1: And even though Gary Gensler approved Bitcoin and ether, he 74 00:03:47,120 --> 00:03:50,440 Speaker 1: basically said everything outside of that is a security and 75 00:03:50,480 --> 00:03:54,040 Speaker 1: therefore it cannot be put into an ETF under the 76 00:03:54,120 --> 00:03:58,200 Speaker 1: thirty three Act. And they even called XRP and Solana 77 00:03:58,280 --> 00:04:02,040 Speaker 1: securities in lawsuits. And so the fact that the Salana 78 00:04:02,080 --> 00:04:04,760 Speaker 1: ETF was acknowledged recently there was a new filing. They 79 00:04:04,760 --> 00:04:07,880 Speaker 1: got acknowledged. They never acknowledged one of the pasts. Acknowledged 80 00:04:07,880 --> 00:04:09,840 Speaker 1: just means the sec is like, Okay, we know you filed. 81 00:04:09,840 --> 00:04:11,520 Speaker 1: We're going to let people comment on it. It's part 82 00:04:11,520 --> 00:04:13,560 Speaker 1: of the normal process. In the past, when someone tried 83 00:04:13,560 --> 00:04:16,839 Speaker 1: to follow Solana or XRP ETF, they would literally call 84 00:04:16,880 --> 00:04:19,359 Speaker 1: the issuer and say get this out of here. It 85 00:04:19,360 --> 00:04:22,320 Speaker 1: wouldn't even last three days. But this they've been filed 86 00:04:22,320 --> 00:04:26,200 Speaker 1: now for two weeks. They've been acknowledged they're moving along 87 00:04:26,320 --> 00:04:28,840 Speaker 1: the normal past. Doesn't mean to be approved, but it's 88 00:04:28,839 --> 00:04:31,799 Speaker 1: a good sign. That probably indicates that they may actually 89 00:04:31,839 --> 00:04:35,200 Speaker 1: rescind some of the lawsuits, because it would be weird 90 00:04:35,240 --> 00:04:37,840 Speaker 1: for them to approve these while having a lawsuit and 91 00:04:37,880 --> 00:04:41,359 Speaker 1: saying and writing that these are securities. So that's something 92 00:04:41,400 --> 00:04:43,680 Speaker 1: to watch right there. And if Solana and XRP are 93 00:04:43,680 --> 00:04:46,080 Speaker 1: put into ETF form, they have I think a decent 94 00:04:46,120 --> 00:04:48,880 Speaker 1: chance to get some assets. Now, once you get out 95 00:04:48,880 --> 00:04:50,600 Speaker 1: of there, you're going to get into some weird stuff 96 00:04:50,680 --> 00:04:55,279 Speaker 1: like dose coin, Polka Dot bonk. They even filed for 97 00:04:55,320 --> 00:04:58,559 Speaker 1: a trump Coin ETF, a Milania ETF, and a double 98 00:04:58,640 --> 00:05:03,520 Speaker 1: leveraged Malania. So here's the thing though, even if all 99 00:05:03,560 --> 00:05:06,479 Speaker 1: that gets out, most of it will just live in oblivion. 100 00:05:06,800 --> 00:05:09,839 Speaker 1: I think you've got think about the precious metals. Gold 101 00:05:09,920 --> 00:05:13,400 Speaker 1: is the stud, Silver's got a good living, platinum, pladium, 102 00:05:14,080 --> 00:05:18,160 Speaker 1: And then once you get to commodities like coffee, nickel, aluminum, 103 00:05:18,320 --> 00:05:20,760 Speaker 1: some ETFs are tried and failed. I think you'll see 104 00:05:20,760 --> 00:05:23,320 Speaker 1: the same thing here. I think Bitcoin will get like 105 00:05:23,480 --> 00:05:26,960 Speaker 1: seventy five percent of the assets, Ether ten percent, and 106 00:05:27,000 --> 00:05:30,080 Speaker 1: then XRP Solana will you know, fight over the other 107 00:05:30,240 --> 00:05:33,200 Speaker 1: eight or nine percent, and then we'll see one wacky 108 00:05:33,240 --> 00:05:35,080 Speaker 1: one get lucky for a minute, and then you know, 109 00:05:35,200 --> 00:05:37,720 Speaker 1: rise and fall. So I think even though we will 110 00:05:37,720 --> 00:05:40,799 Speaker 1: see a ton of stuff approved, most of the assets 111 00:05:40,839 --> 00:05:43,440 Speaker 1: from the big money in America are they're not going 112 00:05:43,480 --> 00:05:46,599 Speaker 1: to go crazy. They're gonna stick to bitcoin as they're 113 00:05:47,040 --> 00:05:49,159 Speaker 1: that's crazy to most people, to be honest. So they're 114 00:05:49,200 --> 00:05:51,440 Speaker 1: gonna stick to bitcoin, and that's where most of. 115 00:05:51,400 --> 00:05:52,039 Speaker 3: The assets will go. 116 00:05:52,120 --> 00:05:55,280 Speaker 1: But look for some really interesting things. And the thing 117 00:05:55,279 --> 00:05:57,880 Speaker 1: about a Trump and Malania coin etf is I was 118 00:05:57,920 --> 00:06:00,640 Speaker 1: that this was going to be interesting, is that these 119 00:06:00,680 --> 00:06:01,480 Speaker 1: are pretty fringe. 120 00:06:01,520 --> 00:06:02,560 Speaker 3: I mean, they just launched. 121 00:06:02,760 --> 00:06:05,440 Speaker 1: It made clear to everybody that the Trump coin was 122 00:06:05,760 --> 00:06:07,960 Speaker 1: you know a lot of even if the crypto people 123 00:06:07,960 --> 00:06:09,560 Speaker 1: didn't like it. It kind of they call it a 124 00:06:09,640 --> 00:06:11,599 Speaker 1: rug pull. You know, you put a meme coin out 125 00:06:11,640 --> 00:06:13,320 Speaker 1: and then all of a sudden, the people who started 126 00:06:13,720 --> 00:06:16,279 Speaker 1: leave and then the people who came in late. 127 00:06:16,080 --> 00:06:17,839 Speaker 3: Hold the bag. It's like, you know, kind of a 128 00:06:17,880 --> 00:06:19,320 Speaker 3: short term Ponzi effect. 129 00:06:19,920 --> 00:06:23,120 Speaker 1: Now that's Trump is the boss of the sec chair, 130 00:06:23,279 --> 00:06:26,320 Speaker 1: so it'd be weird if you didn't approve a coin 131 00:06:26,520 --> 00:06:29,640 Speaker 1: based on his coin, given that he's the boss that. 132 00:06:29,560 --> 00:06:30,000 Speaker 3: Isn't the work. 133 00:06:30,040 --> 00:06:32,239 Speaker 1: It all gets a little It's going to be interesting 134 00:06:32,279 --> 00:06:35,280 Speaker 1: to see how they deal with this, because we do 135 00:06:35,360 --> 00:06:37,240 Speaker 1: think some of the main coins will be approved. But 136 00:06:37,320 --> 00:06:40,800 Speaker 1: once you get to this really outskirtsy meme coin world, 137 00:06:41,240 --> 00:06:41,760 Speaker 1: will the. 138 00:06:41,640 --> 00:06:43,200 Speaker 3: SEC just sort of let it out? 139 00:06:43,880 --> 00:06:46,719 Speaker 1: That's a question we don't quite know, but if I 140 00:06:46,760 --> 00:06:48,880 Speaker 1: had to guess now, I'd lean towards they've probably let 141 00:06:48,880 --> 00:06:52,159 Speaker 1: most stuff out. But for people worried about how this 142 00:06:52,240 --> 00:06:55,000 Speaker 1: will be bad, most of this stuff will be ignored 143 00:06:55,000 --> 00:06:55,680 Speaker 1: by investors. 144 00:06:56,120 --> 00:07:00,200 Speaker 2: Speaking with Eric Balchuna's ETF analysts for Bloomberg Intelligence, Eric, 145 00:07:00,240 --> 00:07:02,520 Speaker 2: if we're expecting these kind of approvals, what are you 146 00:07:02,600 --> 00:07:06,880 Speaker 2: expecting when it when it comes to enforcement of some 147 00:07:06,960 --> 00:07:10,480 Speaker 2: of the potential risks around some of these new products. 148 00:07:11,240 --> 00:07:13,480 Speaker 1: This is where the big debate on what should the 149 00:07:13,520 --> 00:07:17,600 Speaker 1: SEC behold Should it really police the products, invest them 150 00:07:17,600 --> 00:07:20,880 Speaker 1: and say is this really safe for retail? 151 00:07:22,280 --> 00:07:24,240 Speaker 3: It's sort of I guess like the FDA, at. 152 00:07:24,080 --> 00:07:27,400 Speaker 1: Some point, you know, there's a line between what is 153 00:07:27,440 --> 00:07:30,480 Speaker 1: safe versus Hey, let's just disclose all risks and let 154 00:07:30,520 --> 00:07:32,560 Speaker 1: people have a choice and they if they want to, 155 00:07:32,920 --> 00:07:35,960 Speaker 1: you know, you know, if someone wants beat McDonald's every day. 156 00:07:36,840 --> 00:07:39,680 Speaker 1: It's really their choice, even though that's not healthy, and 157 00:07:40,040 --> 00:07:43,800 Speaker 1: you could argue the government should ban McDonald's. But this 158 00:07:43,920 --> 00:07:46,040 Speaker 1: is the same deal. And I think this sec with 159 00:07:46,240 --> 00:07:48,840 Speaker 1: this chair is going to be a little more like, look, 160 00:07:49,040 --> 00:07:51,840 Speaker 1: just let this stuff out, let people choose, but just 161 00:07:52,040 --> 00:07:53,480 Speaker 1: we're going to put a lot of the risks in 162 00:07:53,520 --> 00:07:56,840 Speaker 1: the perspectives. Now nobody reads the perspectives, that's the problem. 163 00:07:57,440 --> 00:07:59,760 Speaker 1: But I think most people if they see a two 164 00:07:59,880 --> 00:08:03,720 Speaker 1: X Smulania ETF, they're probably going to know it's wacky, 165 00:08:03,880 --> 00:08:06,840 Speaker 1: like they're going to know there's some that it's not vanguard. Okay, 166 00:08:08,120 --> 00:08:10,880 Speaker 1: But this whole thing is why we and BI have 167 00:08:10,960 --> 00:08:14,120 Speaker 1: something called the traffic light. It's based on movie ratings. 168 00:08:14,120 --> 00:08:17,120 Speaker 1: I always thought ETSD movie ratings that way, you know, 169 00:08:17,760 --> 00:08:20,920 Speaker 1: if the name sounds innocent, maybe you know, you know, 170 00:08:20,960 --> 00:08:23,080 Speaker 1: if the if the ETF has some stuff you need 171 00:08:23,120 --> 00:08:25,120 Speaker 1: to know about, you know, just sort of like a 172 00:08:25,240 --> 00:08:29,640 Speaker 1: nasty surprise indicator system. And so we would give most 173 00:08:29,680 --> 00:08:32,880 Speaker 1: of these yellow lights. The two X millennia would be 174 00:08:32,880 --> 00:08:36,240 Speaker 1: read because it's leverage. One ex millenni would be yellow 175 00:08:36,280 --> 00:08:38,160 Speaker 1: because its kind of extra volatility, and there's really no 176 00:08:38,200 --> 00:08:40,800 Speaker 1: cash flows backing any of this. It's like just it's 177 00:08:40,840 --> 00:08:43,840 Speaker 1: like a commodity. So I just think that would be 178 00:08:43,880 --> 00:08:46,800 Speaker 1: helpful for investors to have. Like imagine if you went 179 00:08:46,840 --> 00:08:50,120 Speaker 1: on your Schwab account, you pulled up any ticker and 180 00:08:50,160 --> 00:08:53,600 Speaker 1: it said you know, rated g PG, PG thirteen or R. 181 00:08:54,160 --> 00:08:56,079 Speaker 1: You get a very good idea of like, okay, if 182 00:08:56,080 --> 00:08:58,600 Speaker 1: this is our y and here's the three reasons they 183 00:08:58,600 --> 00:09:01,400 Speaker 1: got rated R tag. To me, that would be awesome. 184 00:09:01,480 --> 00:09:03,319 Speaker 1: We try to create this. We did create the system. 185 00:09:03,360 --> 00:09:05,840 Speaker 1: It's on the terminal. But that's I think how you 186 00:09:05,840 --> 00:09:08,720 Speaker 1: should think as an investor if you're looking at this stuff. 187 00:09:09,360 --> 00:09:12,040 Speaker 1: If it sounds wacky, you know, read the fine print. 188 00:09:12,960 --> 00:09:15,000 Speaker 1: If it sounds innocent, like the Vanguard is some P 189 00:09:15,080 --> 00:09:17,720 Speaker 1: five hundred, that probably is. But every now and then 190 00:09:17,720 --> 00:09:20,000 Speaker 1: there are some with innocent names that are a little 191 00:09:20,080 --> 00:09:22,720 Speaker 1: more involved, like the oil ETF. But I think most 192 00:09:22,720 --> 00:09:23,280 Speaker 1: of these are. 193 00:09:23,160 --> 00:09:26,400 Speaker 3: Going to sound wacky, and they are wacky, so but 194 00:09:26,880 --> 00:09:29,920 Speaker 3: always I would read the perspectives if you can. And 195 00:09:29,960 --> 00:09:31,440 Speaker 3: that's what the SEC is going to say. 196 00:09:31,520 --> 00:09:34,080 Speaker 1: Just put all this stuff, all the risks in the documents, 197 00:09:34,400 --> 00:09:37,360 Speaker 1: and that's that's the kind of you know, because they 198 00:09:37,920 --> 00:09:41,360 Speaker 1: want innovation, and they want things to be out there 199 00:09:41,400 --> 00:09:44,240 Speaker 1: for consumers. But there is a point where you can 200 00:09:44,280 --> 00:09:47,080 Speaker 1: put something out that, you know, is somebody could lose 201 00:09:47,120 --> 00:09:49,280 Speaker 1: money on. But I you know, this is again the 202 00:09:49,320 --> 00:09:50,800 Speaker 1: debate on what a regulator should be. 203 00:09:51,679 --> 00:09:51,880 Speaker 4: Eric. 204 00:09:51,920 --> 00:09:54,480 Speaker 2: Now that we do have a new administration in office, 205 00:09:54,520 --> 00:09:59,800 Speaker 2: have you seen some interesting shifts in ETF flows now 206 00:09:59,840 --> 00:10:02,400 Speaker 2: the there's new leadership in the White House. 207 00:10:02,920 --> 00:10:03,840 Speaker 3: Yeah, it's interesting. 208 00:10:04,280 --> 00:10:07,080 Speaker 1: You know, I think ETF investors over the years, you know, 209 00:10:07,160 --> 00:10:08,920 Speaker 1: we wrote a piece saying the S and P five 210 00:10:09,000 --> 00:10:10,560 Speaker 1: hundred doesn't care who. 211 00:10:10,440 --> 00:10:11,160 Speaker 3: The president is. 212 00:10:12,760 --> 00:10:15,520 Speaker 1: It's almost like the US stock market. We call it 213 00:10:15,520 --> 00:10:18,000 Speaker 1: the eighth Wonder of the World because it's just so relentless. 214 00:10:18,880 --> 00:10:22,640 Speaker 1: It's almost like immune to any of this. And I 215 00:10:22,679 --> 00:10:26,160 Speaker 1: think over the years, even if there has been drama 216 00:10:26,280 --> 00:10:29,320 Speaker 1: and maybe a pullback, it goes right back up. And 217 00:10:29,400 --> 00:10:31,920 Speaker 1: so we have seen no change in the flows from 218 00:10:31,960 --> 00:10:36,000 Speaker 1: like last summer into fall, into the winter into this 219 00:10:36,200 --> 00:10:38,880 Speaker 1: twenty twenty five. It's it's basically been a lot of 220 00:10:38,920 --> 00:10:41,640 Speaker 1: people continue to buy what we call beta, the S 221 00:10:41,679 --> 00:10:44,839 Speaker 1: and P five hundred, the bond ETFs, you know, the 222 00:10:44,880 --> 00:10:47,760 Speaker 1: sixty forty people are just continuing to buy now on 223 00:10:47,800 --> 00:10:50,960 Speaker 1: the fringes. There is some stuff that we see moving, like, 224 00:10:51,000 --> 00:10:54,680 Speaker 1: for example, in the bond space, we do see people 225 00:10:54,920 --> 00:10:57,760 Speaker 1: moving towards the shorter end of the curve, more towards 226 00:10:57,840 --> 00:11:00,880 Speaker 1: like a money market type deal, and I think that's 227 00:11:00,880 --> 00:11:05,120 Speaker 1: a little protection. We've seen obviously money go into the 228 00:11:05,120 --> 00:11:08,839 Speaker 1: bitcoin ets and some into gold. There's some thought that 229 00:11:08,840 --> 00:11:13,080 Speaker 1: that is, you know, an inflation hedge. And then the 230 00:11:13,120 --> 00:11:16,840 Speaker 1: stock market. Sometimes we'll see some flow like try to 231 00:11:16,880 --> 00:11:19,439 Speaker 1: bet on small caps having a rebound or. 232 00:11:19,440 --> 00:11:21,960 Speaker 3: Europe, but those are usually short lived. 233 00:11:22,000 --> 00:11:24,800 Speaker 1: So you do sometimes see people trying to bet on 234 00:11:24,840 --> 00:11:27,400 Speaker 1: some kind of a rotation or regime change. 235 00:11:27,920 --> 00:11:29,439 Speaker 3: So again they're on the outskirts. 236 00:11:29,440 --> 00:11:31,960 Speaker 1: We see bets being made, but for the most part, 237 00:11:32,000 --> 00:11:36,120 Speaker 1: the sort of mainstream flow of money continues to buy 238 00:11:36,840 --> 00:11:41,120 Speaker 1: us stocks, you know, at a breakneck pace, and it's 239 00:11:41,160 --> 00:11:43,160 Speaker 1: going to take more than just like a you know, 240 00:11:43,600 --> 00:11:48,040 Speaker 1: a scary tariff headline to get these ETF investors to 241 00:11:48,040 --> 00:11:53,240 Speaker 1: to change direction. And you know, and why would they. 242 00:11:53,240 --> 00:11:56,240 Speaker 1: They've they've almost been conditioned like Pavolovian dogs to just 243 00:11:56,480 --> 00:11:58,360 Speaker 1: keep buying because it's worked out. 244 00:11:58,920 --> 00:11:59,880 Speaker 3: If you've ever read a. 245 00:12:00,000 --> 00:12:02,760 Speaker 1: Scary headline pulled your money out put in cash. 246 00:12:02,800 --> 00:12:05,760 Speaker 3: You're basically filled with a ton of regret. 247 00:12:06,440 --> 00:12:09,520 Speaker 1: And so this is where we're at. Why I think 248 00:12:09,559 --> 00:12:12,200 Speaker 1: that it will take like a black Swan event in 249 00:12:12,240 --> 00:12:15,600 Speaker 1: my opinion, to really see anything shift, something like the 250 00:12:15,640 --> 00:12:19,280 Speaker 1: COVID something we're not not tariffs, you know, not a 251 00:12:19,400 --> 00:12:22,520 Speaker 1: crazy tweet Like it has to be something like really 252 00:12:22,600 --> 00:12:25,760 Speaker 1: major that nobody's even looking at in my opinion, for 253 00:12:26,360 --> 00:12:30,080 Speaker 1: the general blob of money to like stop investing or 254 00:12:30,080 --> 00:12:31,000 Speaker 1: to move out of stocks. 255 00:12:31,240 --> 00:12:33,880 Speaker 2: Really appreciate this. Eric, thanks again for coming on with us. 256 00:12:34,200 --> 00:12:35,120 Speaker 3: You got it anytime. 257 00:12:35,400 --> 00:12:40,040 Speaker 2: That's Eric Baluchunis ETF, analyst for Bloomberg Intelligence, and coming 258 00:12:40,120 --> 00:12:43,000 Speaker 2: up next on the special holiday edition of Bloomberg Daybreak, 259 00:12:43,000 --> 00:12:44,800 Speaker 2: we're going to take a look at the oil market 260 00:12:44,880 --> 00:12:48,280 Speaker 2: how that may be shifting under the new administration. We'll 261 00:12:48,320 --> 00:12:51,600 Speaker 2: be speaking with Stephen Schork, president of the Short Group. 262 00:12:51,960 --> 00:12:54,839 Speaker 2: It's twenty minutes past the hour. I'm Nathan Hager, and 263 00:12:54,920 --> 00:13:03,840 Speaker 2: this is Bloomberg. Welcome back to this special holiday edition 264 00:13:03,920 --> 00:13:07,920 Speaker 2: of Bloomberg Daybreak. US markets are closed for President's Day. 265 00:13:08,160 --> 00:13:10,120 Speaker 2: I'm Nathan Hager, and we want to take a look 266 00:13:10,160 --> 00:13:14,000 Speaker 2: now at the oil market, commodities across the board have 267 00:13:14,120 --> 00:13:17,760 Speaker 2: been rocked with President Trump threatening and in some cases 268 00:13:17,880 --> 00:13:22,480 Speaker 2: imposing tariffs on friend and foe alike. Here to give 269 00:13:22,520 --> 00:13:24,880 Speaker 2: us a sense of the energy outlook as we make 270 00:13:24,960 --> 00:13:28,520 Speaker 2: sense of this new tougher trade policy is Stephen Shork, 271 00:13:28,760 --> 00:13:32,480 Speaker 2: president of the energy analysis firm the Short Group. Thanks 272 00:13:32,520 --> 00:13:35,320 Speaker 2: again for being with us, Steven, And we have seen 273 00:13:35,360 --> 00:13:38,480 Speaker 2: oil prices really take a hit on the tariffs that 274 00:13:38,520 --> 00:13:41,160 Speaker 2: President Trump is already imposed and the threat of more 275 00:13:41,200 --> 00:13:45,000 Speaker 2: to come. How do tougher trade policies affect your outlook 276 00:13:45,040 --> 00:13:45,800 Speaker 2: for the months to come? 277 00:13:46,040 --> 00:13:48,600 Speaker 4: Yeah, absolutely, Nathan. So what I like to do, of course, 278 00:13:48,720 --> 00:13:51,080 Speaker 4: is always look at the market's term structure or its 279 00:13:51,200 --> 00:13:55,120 Speaker 4: forward curve. And with all of the rhetoric and some 280 00:13:55,200 --> 00:13:58,319 Speaker 4: of it has made good on with regard to the tariffs, 281 00:13:58,440 --> 00:14:00,240 Speaker 4: when it comes to oil, we have to think about 282 00:14:00,240 --> 00:14:03,920 Speaker 4: this logically. A lot of this is bluster. The United States, 283 00:14:03,960 --> 00:14:07,800 Speaker 4: and specifically our refineries in the Upper Midwestern the Chicago 284 00:14:07,840 --> 00:14:12,720 Speaker 4: market area, are wholly dependent on importing crude oil from Canada. 285 00:14:13,000 --> 00:14:17,800 Speaker 4: These refiners are geared specifically to refine Canadian heavy crude oil. 286 00:14:18,320 --> 00:14:21,320 Speaker 4: So with regards to the terrifs, when it comes to oil. 287 00:14:22,120 --> 00:14:25,480 Speaker 4: I think it's a bit of brinksmanship so far. I 288 00:14:25,480 --> 00:14:28,960 Speaker 4: think the administration has blinked on that matter, because the 289 00:14:29,040 --> 00:14:31,600 Speaker 4: last thing the administration wants to do, of course, is 290 00:14:32,040 --> 00:14:35,200 Speaker 4: drive up oil prices, which consumers will begin to feel 291 00:14:35,240 --> 00:14:38,760 Speaker 4: immediately at the pump. So that said, when we look 292 00:14:38,800 --> 00:14:41,440 Speaker 4: at the term structure, the market has been fairly stable 293 00:14:42,000 --> 00:14:45,080 Speaker 4: non ex WTI has been ranged bound in between about 294 00:14:45,120 --> 00:14:49,080 Speaker 4: seventy dollars and seventy five dollars a barrel for this quarter, 295 00:14:49,480 --> 00:14:52,680 Speaker 4: which is in perfect agreement with our modeling that we 296 00:14:52,800 --> 00:14:55,520 Speaker 4: came out. We entered this year with oil at about 297 00:14:55,520 --> 00:14:59,240 Speaker 4: sixty nine dollars fifty cents. The midpoint for this quarter 298 00:14:59,320 --> 00:15:01,560 Speaker 4: based on our model is about seventy one dollars and 299 00:15:01,600 --> 00:15:04,240 Speaker 4: sixty cents. And as they said, the market has pretty 300 00:15:04,280 --> 00:15:06,800 Speaker 4: much been ranged bound in between seventy and seventy five. 301 00:15:07,280 --> 00:15:11,320 Speaker 4: Most importantly, a recent survey put out by the Dallas 302 00:15:11,360 --> 00:15:15,520 Speaker 4: Federal Reserve to oil executives in the oil patch down 303 00:15:15,560 --> 00:15:19,160 Speaker 4: in Texas, Oklahoma, Kansas, and so forth, or asked what 304 00:15:19,200 --> 00:15:22,640 Speaker 4: they were planning oil prices based on their capital spending 305 00:15:22,840 --> 00:15:24,680 Speaker 4: and as long as the oil prices hold in that 306 00:15:24,800 --> 00:15:30,320 Speaker 4: seventy seventy five dollars range. Not coincidentally, the industry will 307 00:15:30,360 --> 00:15:33,960 Speaker 4: continue to invest. So from this standpoint, the teriffs the 308 00:15:34,120 --> 00:15:37,120 Speaker 4: talk their rhetoric, Yes, it makes a lot of noise, 309 00:15:37,400 --> 00:15:41,320 Speaker 4: but when you look at the relatively lack of volatility, 310 00:15:41,440 --> 00:15:43,200 Speaker 4: So we're looking at a market when we look at 311 00:15:43,200 --> 00:15:45,840 Speaker 4: whether it's range bound, there's a lack of volatility. The 312 00:15:45,880 --> 00:15:48,400 Speaker 4: market has been relatively stable as far as looking at 313 00:15:48,440 --> 00:15:51,600 Speaker 4: the spreads, the spreads are indicating. That is to say, 314 00:15:51,800 --> 00:15:54,200 Speaker 4: as we look at prices along the forward curve, the 315 00:15:54,320 --> 00:15:58,840 Speaker 4: market is well balanced. No one is clamoring for product. 316 00:15:59,040 --> 00:16:02,440 Speaker 2: So do you see any factor breaking the oil market 317 00:16:02,560 --> 00:16:04,760 Speaker 2: out of this range, and if so, is it going 318 00:16:04,800 --> 00:16:06,320 Speaker 2: to go up or is it going to go down? 319 00:16:07,120 --> 00:16:10,880 Speaker 4: I think the risk is certainly to the downside. Of course, 320 00:16:11,120 --> 00:16:15,520 Speaker 4: the big two geopolitical headlines out there are sanctions and 321 00:16:15,840 --> 00:16:20,200 Speaker 4: a harder stamps on Russian and Iranian oil, and of 322 00:16:20,200 --> 00:16:24,360 Speaker 4: course that is a potential uptick that would propel oil 323 00:16:24,400 --> 00:16:27,640 Speaker 4: prices higher. But again, looking at the forward curve, in 324 00:16:27,680 --> 00:16:30,800 Speaker 4: the turn structure in oil markets all around the world, 325 00:16:31,440 --> 00:16:35,160 Speaker 4: traders are placing a maximum of minimum concern on these 326 00:16:35,200 --> 00:16:38,680 Speaker 4: geopolitical events. So just as we've seen over the past 327 00:16:38,720 --> 00:16:41,760 Speaker 4: two years when more in the Middle East broke out, 328 00:16:42,040 --> 00:16:46,080 Speaker 4: it's less about supply more about demand. So the supply 329 00:16:46,200 --> 00:16:49,000 Speaker 4: issues will always okay, supplies out of the Middle East 330 00:16:49,040 --> 00:16:54,040 Speaker 4: transiting through the Red Sea with all the attacks and shipping, 331 00:16:54,440 --> 00:16:57,480 Speaker 4: that's a supply issue, but it had not impact prices. 332 00:16:57,720 --> 00:17:00,720 Speaker 4: So the concern now is more of global economic growth. 333 00:17:00,960 --> 00:17:02,800 Speaker 4: And when we say that when it comes to oil, 334 00:17:02,880 --> 00:17:05,800 Speaker 4: of course we're talking about China. But we've been waiting 335 00:17:05,800 --> 00:17:08,000 Speaker 4: for bide when it comes to China for the past 336 00:17:08,040 --> 00:17:10,640 Speaker 4: three years with this demand to hit, it has not hit. 337 00:17:10,920 --> 00:17:12,760 Speaker 4: I don't think it's going to hit in this year. 338 00:17:13,080 --> 00:17:15,520 Speaker 4: So certainly, if there is a risk of breaks out 339 00:17:15,560 --> 00:17:18,399 Speaker 4: of that range, Nathan, it is certainly oil prices below 340 00:17:18,480 --> 00:17:21,480 Speaker 4: seventy dollars a barrel rather than oil prices above eighty 341 00:17:21,520 --> 00:17:24,160 Speaker 4: dollars a barrel through the first at least six months 342 00:17:24,160 --> 00:17:24,640 Speaker 4: of this year. 343 00:17:24,920 --> 00:17:28,600 Speaker 2: To your point about waiting for that demand shift to 344 00:17:28,720 --> 00:17:32,000 Speaker 2: change coming out of China, it gets us into the 345 00:17:32,040 --> 00:17:35,639 Speaker 2: next OPEC Plus meeting and the decision on whether to 346 00:17:35,680 --> 00:17:40,200 Speaker 2: continue with the delayed production increases from the oil cartel. 347 00:17:40,240 --> 00:17:42,159 Speaker 2: What's your expectation there. 348 00:17:42,880 --> 00:17:46,360 Speaker 4: Yeah, exactly, so there's speculation, of course, if we're tougher 349 00:17:46,359 --> 00:17:50,600 Speaker 4: on Russia, we're tougher in Iran the other OPEC members, 350 00:17:50,720 --> 00:17:53,919 Speaker 4: primarily the Arab oil producers who don't have a lot 351 00:17:53,960 --> 00:17:56,520 Speaker 4: of love loss with between the Arabs and the Iranians, 352 00:17:56,680 --> 00:18:00,679 Speaker 4: that Saudi Arabia and so forth will increase production. But 353 00:18:01,000 --> 00:18:03,600 Speaker 4: that is just trying to play geopolitics. 354 00:18:03,600 --> 00:18:04,160 Speaker 3: One oh one. 355 00:18:04,640 --> 00:18:06,840 Speaker 4: What we have to look at again is the spread, 356 00:18:06,880 --> 00:18:09,760 Speaker 4: the spread between Brent Dubai, the Dubai spreads, the Middle 357 00:18:09,800 --> 00:18:13,879 Speaker 4: East spreads, and what we're indicating here is once again 358 00:18:14,000 --> 00:18:19,000 Speaker 4: a market that is relatively stable on a global standpoint. 359 00:18:19,359 --> 00:18:22,359 Speaker 4: So once again OPEK is going to look rather than 360 00:18:22,480 --> 00:18:25,159 Speaker 4: look at the potential, they're going to look at what 361 00:18:25,200 --> 00:18:28,680 Speaker 4: the market's telling them. Their analysts are excellent at looking 362 00:18:28,720 --> 00:18:31,639 Speaker 4: at this. So I would suspect there's a fifty to 363 00:18:31,640 --> 00:18:34,840 Speaker 4: fifty chance that they'll they'll maintain the status quo i e. 364 00:18:35,160 --> 00:18:40,600 Speaker 4: They'll kick the production, you know, the quota adherents, they'll 365 00:18:40,880 --> 00:18:43,159 Speaker 4: kick that can down the road until their next meeting 366 00:18:43,400 --> 00:18:46,840 Speaker 4: unless they see something that happens in the spreads. And 367 00:18:47,000 --> 00:18:49,639 Speaker 4: right now that the spreads are telling OPEK, they're telling 368 00:18:49,720 --> 00:18:53,000 Speaker 4: traders that the market is in balance at this point, 369 00:18:53,080 --> 00:18:56,960 Speaker 4: regardless of all these known unknowns of geopolitical events, be 370 00:18:57,080 --> 00:19:03,160 Speaker 4: it Iran Russia, the war between in Gaza between Iran 371 00:19:03,240 --> 00:19:07,399 Speaker 4: and Israel basically, and certainly the situation in Ukraine. So 372 00:19:07,480 --> 00:19:11,119 Speaker 4: until we see something hard tangible to trade on the 373 00:19:11,200 --> 00:19:14,080 Speaker 4: spreads is telling us no OPA will maintain the status quo. 374 00:19:14,480 --> 00:19:17,480 Speaker 2: We're speaking with Stephen Schork, president of the Short Group, 375 00:19:17,640 --> 00:19:22,440 Speaker 2: energy analyst with us on this special edition of Bloomberg Daybreak. 376 00:19:22,600 --> 00:19:24,359 Speaker 2: I know you said we should look past the noise 377 00:19:24,359 --> 00:19:26,520 Speaker 2: when it comes to the oil market, Stephen, but if 378 00:19:26,520 --> 00:19:29,720 Speaker 2: you'll indulge me for a minute, we have heard noise, 379 00:19:29,760 --> 00:19:32,040 Speaker 2: if you want to call it that, from President Trump 380 00:19:32,040 --> 00:19:35,440 Speaker 2: on the campaign trail, now in office saying drill, baby, drill. 381 00:19:35,520 --> 00:19:40,119 Speaker 2: He wants to boost energy production in this country. Is 382 00:19:40,119 --> 00:19:42,199 Speaker 2: that something you're thinking about when it comes to the 383 00:19:42,200 --> 00:19:43,080 Speaker 2: outlook for crud? 384 00:19:44,200 --> 00:19:48,320 Speaker 4: Of course, and that really hammers home the point of 385 00:19:48,359 --> 00:19:51,440 Speaker 4: the rhetoric. So yes, the president, we'll want to talk 386 00:19:51,480 --> 00:19:56,720 Speaker 4: about drill, about baby drill, But guess what we are drilling, baby, 387 00:19:56,800 --> 00:20:01,160 Speaker 4: and we are drilling a lot of oil at this point. 388 00:20:01,480 --> 00:20:04,439 Speaker 4: So again i'll reference that the response is to a 389 00:20:04,520 --> 00:20:06,879 Speaker 4: survey to E and T executives put forth by the 390 00:20:06,960 --> 00:20:12,000 Speaker 4: Dallas said, and the response that is, the industry response 391 00:20:12,160 --> 00:20:15,400 Speaker 4: is relatively lukewarm to the idea of drill baby drill. 392 00:20:15,680 --> 00:20:19,000 Speaker 4: Why because we're already drilling more oil than we ever had, 393 00:20:19,280 --> 00:20:21,920 Speaker 4: and we are by far drilling the most oil than 394 00:20:21,960 --> 00:20:24,320 Speaker 4: any country in the world. So there really is a 395 00:20:24,520 --> 00:20:26,639 Speaker 4: lot of neat left on that bone for us to 396 00:20:26,720 --> 00:20:30,320 Speaker 4: drill even more so, according to those responses, you only 397 00:20:30,359 --> 00:20:34,440 Speaker 4: have fourteen percent of the responses come from these executives 398 00:20:34,560 --> 00:20:39,000 Speaker 4: that said they planned to increase capital spending significantly. The 399 00:20:39,040 --> 00:20:43,080 Speaker 4: majority of the executives at these current prices are comfortable 400 00:20:43,119 --> 00:20:46,120 Speaker 4: with drilling at current rates, i e. There is no 401 00:20:46,200 --> 00:20:48,760 Speaker 4: need the market is telling them. They're not getting any 402 00:20:48,760 --> 00:20:52,080 Speaker 4: signal from the market to drill. So yes, President Trump 403 00:20:52,280 --> 00:20:55,960 Speaker 4: or President ex Monacle and the President Tariff will certainly 404 00:20:56,840 --> 00:20:59,480 Speaker 4: beat the drums about drill baby drill, But the bottom 405 00:20:59,560 --> 00:21:01,960 Speaker 4: line is we're already drilling and there's just not that 406 00:21:02,080 --> 00:21:05,439 Speaker 4: much more at this juncture. Given this price a range, 407 00:21:05,480 --> 00:21:07,520 Speaker 4: for us to drill even more, it does not make 408 00:21:07,560 --> 00:21:10,359 Speaker 4: any economic sense for any producer out there. 409 00:21:10,560 --> 00:21:13,399 Speaker 2: We've been talking about the price range for crewe the 410 00:21:13,520 --> 00:21:17,159 Speaker 2: term structure. How does all this feed into where the 411 00:21:17,200 --> 00:21:20,760 Speaker 2: rubber literally meets the road in terms of gas prices 412 00:21:20,800 --> 00:21:23,800 Speaker 2: that we should expect to pay as we head into 413 00:21:23,800 --> 00:21:25,160 Speaker 2: the spring and summer months. 414 00:21:25,680 --> 00:21:29,639 Speaker 4: Yeah, absolutely so. Right now, accordingly surveyed by TRIPLEA, the 415 00:21:29,760 --> 00:21:33,680 Speaker 4: national average is about three fifteen cents a gallon, slightly 416 00:21:33,760 --> 00:21:36,679 Speaker 4: higher three dollars and twenty cents in the metro New 417 00:21:36,720 --> 00:21:41,920 Speaker 4: York City area. But that three fifteen cents is no 418 00:21:42,400 --> 00:21:44,159 Speaker 4: I take that back. That was three thousand and fifteen 419 00:21:44,160 --> 00:21:47,840 Speaker 4: cents today compared to three dollars twenty cents a year ago. 420 00:21:48,000 --> 00:21:52,000 Speaker 4: So so basically we're on parts a year ago adjusted 421 00:21:52,000 --> 00:21:54,960 Speaker 4: for inflation, three and fifty cents, as we can all imagine, 422 00:21:55,359 --> 00:21:59,000 Speaker 4: is a very cheap price. With the oil remaining stable 423 00:21:59,280 --> 00:22:02,840 Speaker 4: a low volume utility, we can maintain that status pro 424 00:22:03,160 --> 00:22:06,400 Speaker 4: But let's keep in mind we are in February. Once 425 00:22:06,440 --> 00:22:09,399 Speaker 4: we get into March April, may we start burning in 426 00:22:09,480 --> 00:22:12,119 Speaker 4: our cars a different type or boiling, I should say, 427 00:22:12,160 --> 00:22:15,520 Speaker 4: a different type of gasoline, a summer grade gasoline which 428 00:22:15,680 --> 00:22:19,560 Speaker 4: is more expensive to blend and market and transport and 429 00:22:19,600 --> 00:22:22,879 Speaker 4: so forth. So we will see a natural increase in 430 00:22:22,920 --> 00:22:26,480 Speaker 4: gasoline prices. Typically that would be about between fifteen and 431 00:22:26,560 --> 00:22:31,159 Speaker 4: twenty cents between winter gasoline and summer gasoline. So, giving 432 00:22:31,480 --> 00:22:34,399 Speaker 4: the current price environment, that range amount of seventy seventy 433 00:22:34,400 --> 00:22:37,320 Speaker 4: five at three thousand and fifteen cents. By the time 434 00:22:37,359 --> 00:22:40,000 Speaker 4: Memorial Day to fourth of July rolls around and we're 435 00:22:40,000 --> 00:22:43,640 Speaker 4: all going out the beach up to the Poconos, gasoline 436 00:22:43,640 --> 00:22:46,840 Speaker 4: prices would naturally at this range b probably three dollars 437 00:22:46,920 --> 00:22:49,399 Speaker 4: and thirty cents. Three dollars and thirty five cents in 438 00:22:49,440 --> 00:22:50,440 Speaker 4: the current environment. 439 00:22:50,720 --> 00:22:54,639 Speaker 2: Okay, Now where the environment is right now, and with 440 00:22:55,160 --> 00:22:59,480 Speaker 2: crude prices in this range, how does that affect the 441 00:22:59,640 --> 00:23:03,520 Speaker 2: energy transition? I mean, we've seen the talk of the 442 00:23:03,920 --> 00:23:07,240 Speaker 2: end of the electric vehicle mandates. There's a new administration 443 00:23:07,400 --> 00:23:11,640 Speaker 2: that is very bullish on crude. Where do you see 444 00:23:11,640 --> 00:23:14,040 Speaker 2: the energy transition going forward? 445 00:23:15,200 --> 00:23:17,920 Speaker 4: Basically where I saw going backwards. I think the whole 446 00:23:18,119 --> 00:23:21,280 Speaker 4: concept of the energy transition it made great, you know, 447 00:23:21,320 --> 00:23:25,159 Speaker 4: it was great for PowerPoint presentations in global economic forms 448 00:23:25,200 --> 00:23:28,720 Speaker 4: and so forth, But the industry understood that demand for 449 00:23:28,800 --> 00:23:32,919 Speaker 4: fossil fuels was not moving anywhere, that fossil fuel demand 450 00:23:32,920 --> 00:23:35,760 Speaker 4: will continue to grow India just came out and said 451 00:23:35,760 --> 00:23:39,160 Speaker 4: they expect fossils field growth to continue until twenty fifty. 452 00:23:39,640 --> 00:23:43,719 Speaker 4: The same goes for China and so forth. So what 453 00:23:43,760 --> 00:23:46,680 Speaker 4: we're seeing now here is more of an economic even 454 00:23:46,720 --> 00:23:52,000 Speaker 4: playing field where these mandates. If there's economically viable for 455 00:23:52,320 --> 00:23:55,480 Speaker 4: full eds or for any of the energy transitions, then 456 00:23:55,520 --> 00:23:58,000 Speaker 4: we wouldn't need the government, that is, wouldn't need to 457 00:23:58,240 --> 00:24:01,600 Speaker 4: underwrite it. So what we're seeing now here is a 458 00:24:01,640 --> 00:24:05,879 Speaker 4: transition that is more of an all inclusive And I 459 00:24:05,880 --> 00:24:11,040 Speaker 4: always go back to President Obama's twenty twelve re election platform, 460 00:24:11,400 --> 00:24:15,280 Speaker 4: where he recognized that there was a need, a growing 461 00:24:15,280 --> 00:24:19,199 Speaker 4: need for renewables, of course, but equally he also and 462 00:24:19,240 --> 00:24:22,040 Speaker 4: I encourage our listeners to go back and reread his 463 00:24:22,119 --> 00:24:25,800 Speaker 4: twenty twelve platform because it also embraced nuclear, it did 464 00:24:25,920 --> 00:24:29,480 Speaker 4: embrace clean coal, it embraced natural gas and fossil fuels. 465 00:24:29,640 --> 00:24:33,159 Speaker 4: So we're going back to this. Any transition is moving 466 00:24:33,160 --> 00:24:36,000 Speaker 4: more from a binary transition, that is to say, I 467 00:24:36,119 --> 00:24:40,840 Speaker 4: have to kill all of my dispatchable energy and now 468 00:24:40,840 --> 00:24:44,439 Speaker 4: I have to have it all replaced by intermittent weather 469 00:24:44,520 --> 00:24:48,520 Speaker 4: related BTUs. We're moving away from that, and we're moving 470 00:24:48,520 --> 00:24:53,160 Speaker 4: more towards an all inclusive policy where renewables, of course 471 00:24:53,240 --> 00:24:56,040 Speaker 4: will play a role in this, but so too will 472 00:24:56,160 --> 00:24:59,600 Speaker 4: natural gas, nuclear energy, and other fossil fuels. And it 473 00:24:59,600 --> 00:25:02,560 Speaker 4: will be in all of the above approach to our 474 00:25:02,680 --> 00:25:05,040 Speaker 4: energy needs going forward for at least the next four years, 475 00:25:05,040 --> 00:25:08,199 Speaker 4: as opposed to the zero sum game where we have 476 00:25:08,280 --> 00:25:11,560 Speaker 4: to kill fossil fuels and we can only use renewables, 477 00:25:11,680 --> 00:25:15,640 Speaker 4: which was always has been known to be untenable. We've 478 00:25:15,760 --> 00:25:19,680 Speaker 4: just we're now seeing the quipout part out loud. 479 00:25:20,280 --> 00:25:22,920 Speaker 2: Really appreciate this, Stephen, thanks again for coming on with us. 480 00:25:23,520 --> 00:25:25,120 Speaker 4: Absolutely always enjoy being back here. 481 00:25:25,520 --> 00:25:29,240 Speaker 2: That's Stephen Schork, president of the Short Group. And straight ahead, 482 00:25:29,240 --> 00:25:32,320 Speaker 2: we'll look ahead to earnings from Walmart this week as 483 00:25:32,359 --> 00:25:36,680 Speaker 2: this special edition of Bloomberg Daybreak continues. It's thirty eight 484 00:25:36,720 --> 00:25:40,840 Speaker 2: minutes past the hour. I'm Nathan Hager, and this is Bloomberg. 485 00:25:47,960 --> 00:25:51,120 Speaker 2: Welcome back to the special holiday edition of Bloomberg Daybreak. 486 00:25:51,200 --> 00:25:54,679 Speaker 2: US markets are closed for Presidents Day. I'm Nathan Hager 487 00:25:54,760 --> 00:25:57,080 Speaker 2: closing out this hour with a look ahead to one 488 00:25:57,119 --> 00:25:59,680 Speaker 2: of the big earning stories of the week coming from 489 00:25:59,680 --> 00:26:03,919 Speaker 2: one of the world's biggest retailers, Walmart reports results from 490 00:26:03,960 --> 00:26:07,560 Speaker 2: the holiday quarter this Thursday. But what can we expect 491 00:26:07,680 --> 00:26:11,720 Speaker 2: from the outlook for this retail giant with so much 492 00:26:11,800 --> 00:26:15,480 Speaker 2: uncertainty around the economy, not to mention trade policy. Here 493 00:26:15,520 --> 00:26:18,680 Speaker 2: with some insights for us is Aroune Sundorum, Senior vice 494 00:26:18,720 --> 00:26:23,040 Speaker 2: president for Equity Research at CFR. Thanks for being with us, Aron. 495 00:26:23,880 --> 00:26:26,320 Speaker 2: We'll look at at the chart right now Walmart stock. 496 00:26:26,920 --> 00:26:30,160 Speaker 2: It's up more than ten percent year to date. Can 497 00:26:30,200 --> 00:26:33,480 Speaker 2: we expect that kind of bowl run to continue when 498 00:26:33,600 --> 00:26:36,000 Speaker 2: the retail giant posts those earnings this week? 499 00:26:36,200 --> 00:26:39,760 Speaker 5: Walmart tends to guide conservatively to start the year, so 500 00:26:40,400 --> 00:26:42,679 Speaker 5: don't be surprised if you do see a softer than 501 00:26:42,760 --> 00:26:47,080 Speaker 5: expected outlook. But I think investors typically look at the 502 00:26:47,119 --> 00:26:50,199 Speaker 5: outlook with the grain of salt because Walmart tends to, 503 00:26:50,280 --> 00:26:52,480 Speaker 5: at least over the last few years, they have raised 504 00:26:52,480 --> 00:26:55,520 Speaker 5: their outlook as the year progresses. So expect to be 505 00:26:55,600 --> 00:26:57,680 Speaker 5: on top of bottom line potentially a weaker than put 506 00:26:57,720 --> 00:26:59,440 Speaker 5: the outlook, But you know, I don't think that should 507 00:26:59,480 --> 00:27:01,240 Speaker 5: send tend the stock that much lower. 508 00:27:01,840 --> 00:27:03,639 Speaker 2: What's going to drive the beat? Do you think? Is 509 00:27:03,640 --> 00:27:06,600 Speaker 2: it just going to be about the bounce that we 510 00:27:06,760 --> 00:27:09,879 Speaker 2: tend to see for retail around the holidays. 511 00:27:10,119 --> 00:27:12,720 Speaker 5: Well, yeah, I mean for Walmart. Yeah, their in their 512 00:27:12,840 --> 00:27:16,000 Speaker 5: US business. Yeah, the strong holiday season should drive a 513 00:27:16,040 --> 00:27:18,399 Speaker 5: beat to the top line when they report a Q 514 00:27:18,480 --> 00:27:21,560 Speaker 5: three result. They even know that back then that early 515 00:27:21,600 --> 00:27:24,199 Speaker 5: results for their holiday season was encouraging, and we do 516 00:27:24,359 --> 00:27:26,879 Speaker 5: know that the overall Hollay season was pretty strong. And 517 00:27:26,880 --> 00:27:29,280 Speaker 5: I think one thing we often overlook with Walmart too 518 00:27:29,320 --> 00:27:31,600 Speaker 5: is that they have a very large international business that 519 00:27:31,640 --> 00:27:33,520 Speaker 5: has been growing in a high single digit percentage range 520 00:27:33,560 --> 00:27:36,720 Speaker 5: over the last few quarters. They're doing well and regions 521 00:27:36,760 --> 00:27:40,400 Speaker 5: like Mexico, China, Canada, all those regions are doing pretty well. 522 00:27:40,680 --> 00:27:43,359 Speaker 5: And then lastly, you know, Walmart also has their club business, 523 00:27:43,400 --> 00:27:46,119 Speaker 5: sam Club, and that's also been performing really well. We 524 00:27:46,119 --> 00:27:48,360 Speaker 5: talk a lot about Costco and how well Costco is doing, 525 00:27:48,400 --> 00:27:50,639 Speaker 5: but sam Club, you know, it seems to be a 526 00:27:50,680 --> 00:27:53,439 Speaker 5: formidable competitor to Costco and it's also growing at a 527 00:27:53,560 --> 00:27:55,320 Speaker 5: mid to high single digit percentage range. 528 00:27:55,520 --> 00:27:58,520 Speaker 2: Interesting to hear you single out China, Canada, and Mexico 529 00:27:58,640 --> 00:28:01,119 Speaker 2: as far as growth drivers in internationally. Those are the 530 00:28:01,160 --> 00:28:04,480 Speaker 2: three countries that have been targets of tariff threats from 531 00:28:05,000 --> 00:28:08,360 Speaker 2: President Trump. How could that affect the outlook if we 532 00:28:08,600 --> 00:28:11,359 Speaker 2: start to see trade uncertainty creeping into these earnings. 533 00:28:12,000 --> 00:28:14,560 Speaker 5: Yeah, so that's that's another reason why I do think 534 00:28:14,600 --> 00:28:18,680 Speaker 5: the outlook could be more conservative than usual. We saw 535 00:28:18,680 --> 00:28:22,760 Speaker 5: that with with Amazon when Amazon reported recently that there 536 00:28:22,840 --> 00:28:25,320 Speaker 5: is more uncertainty this year than than previous years. We 537 00:28:25,400 --> 00:28:29,040 Speaker 5: have potential tariffs, we have inflation that looks like looks 538 00:28:29,040 --> 00:28:32,879 Speaker 5: like it's going to accelerate this year. We still have 539 00:28:32,960 --> 00:28:35,919 Speaker 5: high interest rates and and and all that kind of 540 00:28:35,960 --> 00:28:39,640 Speaker 5: clouds and already pretty cloudy outlook. So I do think 541 00:28:39,680 --> 00:28:42,959 Speaker 5: we'll see, you know, a conservative outlook in that regard. 542 00:28:43,000 --> 00:28:46,640 Speaker 5: But regarding its international businesses, although they're a global company, 543 00:28:46,760 --> 00:28:49,240 Speaker 5: they do have pretty like localized supply chains. A lot 544 00:28:49,240 --> 00:28:53,160 Speaker 5: of what they uh supply and produce and sell, a 545 00:28:53,160 --> 00:28:56,480 Speaker 5: lot of it is located domestically. So yeah, I mean, yeah, 546 00:28:56,480 --> 00:28:59,080 Speaker 5: they're going to face tariff. If there are tariffs, it's 547 00:28:59,160 --> 00:29:01,440 Speaker 5: clearly going to be a win for Walmart. But I 548 00:29:01,520 --> 00:29:03,920 Speaker 5: think they can they'll be able to mitigate that headwin. 549 00:29:04,120 --> 00:29:06,240 Speaker 5: And again, this is not their first rodeo with tariffs. 550 00:29:06,280 --> 00:29:09,080 Speaker 5: Walmart experienced the tariff the trade war with China back 551 00:29:09,080 --> 00:29:12,480 Speaker 5: in twenty eighteen twenty nineteen, So I think generally retailers 552 00:29:12,480 --> 00:29:15,840 Speaker 5: are better prepared for tariffs this time around, So. 553 00:29:15,920 --> 00:29:18,960 Speaker 2: You don't expect to see much of a shift in 554 00:29:19,320 --> 00:29:22,720 Speaker 2: the supply chain flows for Walmart, even if we do 555 00:29:23,040 --> 00:29:28,200 Speaker 2: see even more aggressive tariffs than the President has telegraphed. 556 00:29:28,440 --> 00:29:31,280 Speaker 5: Yeah, so I think from the first trade war with 557 00:29:31,360 --> 00:29:34,520 Speaker 5: China back in twenty eighteen twenty nineteen, since then, all 558 00:29:34,600 --> 00:29:37,760 Speaker 5: retailers have diversified their supply chain a bit more, and 559 00:29:37,880 --> 00:29:40,600 Speaker 5: a lot of them have moved out of China, went 560 00:29:40,640 --> 00:29:44,120 Speaker 5: to regions like you know, Vietnam, Cambodia, India, places like that, 561 00:29:44,480 --> 00:29:47,200 Speaker 5: and so I think generally we're seeing a much more 562 00:29:47,240 --> 00:29:48,680 Speaker 5: diversified supply chain. 563 00:29:48,800 --> 00:29:52,200 Speaker 4: So that does help reduce tariff risks. 564 00:29:52,240 --> 00:29:55,040 Speaker 5: And Walmart US about two thirds of the items of 565 00:29:55,120 --> 00:29:58,840 Speaker 5: cells in the US are made, grown, or assembled domestically 566 00:29:58,840 --> 00:30:00,520 Speaker 5: in the US. That is a lot, I mean a 567 00:30:00,600 --> 00:30:03,040 Speaker 5: large percentage of of their products. So there's only about 568 00:30:03,040 --> 00:30:06,800 Speaker 5: one third of their goods that are imported, and a 569 00:30:06,840 --> 00:30:10,680 Speaker 5: lot of that is in China. So I think because 570 00:30:10,720 --> 00:30:13,600 Speaker 5: Walmart is predominantly a food retailer, I think they're better 571 00:30:13,880 --> 00:30:15,840 Speaker 5: and and a lot of food products are you know, 572 00:30:16,320 --> 00:30:20,440 Speaker 5: domestically produced. I think they face less care risks than 573 00:30:20,720 --> 00:30:22,880 Speaker 5: you know, general merchandise retailers. To retail is like a 574 00:30:22,880 --> 00:30:26,160 Speaker 5: target for example, that UH sell predominantly general merchandise items, 575 00:30:26,200 --> 00:30:28,320 Speaker 5: a lot, a lot more of those goods are imported 576 00:30:28,560 --> 00:30:29,320 Speaker 5: from other countries. 577 00:30:29,480 --> 00:30:32,160 Speaker 2: So it was curious whether we could see something of 578 00:30:32,200 --> 00:30:35,480 Speaker 2: a of a trade impact on food when you think 579 00:30:35,520 --> 00:30:40,239 Speaker 2: about Canada and Mexico being you know, agriculture suppliers to 580 00:30:40,280 --> 00:30:43,800 Speaker 2: some extent into the US. Could could that be a 581 00:30:43,840 --> 00:30:44,880 Speaker 2: headwind for Walmart. 582 00:30:45,240 --> 00:30:49,280 Speaker 5: Yeah, so yeah, there's potential places in food with tariffs especially, 583 00:30:49,280 --> 00:30:52,880 Speaker 5: I think a lot more agricultural commodities, things like fruits 584 00:30:52,920 --> 00:30:56,880 Speaker 5: and vegetables that we often import from, you know, places 585 00:30:56,880 --> 00:31:01,560 Speaker 5: like Canada and Mexico. So yeah, that's an area where 586 00:31:01,880 --> 00:31:04,280 Speaker 5: I mean, we're watching closely and we could we could 587 00:31:04,320 --> 00:31:07,240 Speaker 5: see inflation accelerate in a lot of those fresh categories. 588 00:31:07,320 --> 00:31:10,360 Speaker 5: Ian Walmart's still the leader in price, and I think 589 00:31:10,480 --> 00:31:13,760 Speaker 5: they typically have more levers than others to absorb some 590 00:31:13,800 --> 00:31:16,520 Speaker 5: of these cost increases. But then of the day, there's 591 00:31:16,520 --> 00:31:18,800 Speaker 5: only so much that they can absorb, and anything incremental 592 00:31:18,800 --> 00:31:21,720 Speaker 5: that they can't absorb will likely be passed on, passed on, 593 00:31:21,760 --> 00:31:24,240 Speaker 5: to the consumer. But again, you know, Walmart being the 594 00:31:24,280 --> 00:31:27,080 Speaker 5: value retailer, they tend to have, you know, the lowest 595 00:31:27,080 --> 00:31:29,760 Speaker 5: prices in town. And yeah, that's why I think Walmart 596 00:31:29,800 --> 00:31:33,160 Speaker 5: typically does well in inflationary environments because they can provide 597 00:31:33,160 --> 00:31:35,560 Speaker 5: that value that you know, other retailers, you know, can't 598 00:31:35,600 --> 00:31:36,520 Speaker 5: necessarily do the same. 599 00:31:36,680 --> 00:31:39,560 Speaker 2: We're speaking to Aroun Sundram, Senior vice president for Equity 600 00:31:39,600 --> 00:31:43,560 Speaker 2: Research at CFR looking ahead to those Walmart earnings coming 601 00:31:43,640 --> 00:31:46,720 Speaker 2: up later this week. Ahead of these earnings are and 602 00:31:46,760 --> 00:31:51,640 Speaker 2: we've heard from companies like McDonald's talking about pressures that 603 00:31:51,680 --> 00:31:55,160 Speaker 2: they see on the low end consumer. And we've seen 604 00:31:55,200 --> 00:31:59,000 Speaker 2: this phenomenon lately, as inflation is stayed elevated, a lot 605 00:31:59,000 --> 00:32:02,160 Speaker 2: of higher end consumers have been shopping for value at 606 00:32:02,200 --> 00:32:04,720 Speaker 2: places like Walmart. How do you see that feeding through 607 00:32:04,760 --> 00:32:06,760 Speaker 2: potentially into what we get this way. 608 00:32:07,120 --> 00:32:09,800 Speaker 5: Yeah, that's that's been a theme for the past year 609 00:32:09,880 --> 00:32:11,560 Speaker 5: or two, and I think that's a thing that's going 610 00:32:11,600 --> 00:32:14,480 Speaker 5: to continue in twenty twenty five. Yeah, clearly the lower 611 00:32:14,480 --> 00:32:18,200 Speaker 5: income consumer is feeling a bit more stress right now. 612 00:32:18,240 --> 00:32:21,120 Speaker 5: And you would think that, you know, Walmart, you know, 613 00:32:21,320 --> 00:32:23,040 Speaker 5: you think this would be hurting Walmart. They wouldn't be 614 00:32:23,040 --> 00:32:25,320 Speaker 5: seeing these strong results, but I think they've been able 615 00:32:25,320 --> 00:32:28,760 Speaker 5: to offset that by bringing in incremental middle to upper 616 00:32:28,800 --> 00:32:31,520 Speaker 5: income consumers. And I think one of the reasons they've 617 00:32:31,520 --> 00:32:33,600 Speaker 5: been able to do that is because of the new 618 00:32:33,640 --> 00:32:37,360 Speaker 5: subscription model, Walmart Plus. Walmart Plus is a direct competitor 619 00:32:37,400 --> 00:32:40,800 Speaker 5: to Amazon Prime. You get fast, free delivery on groceries, 620 00:32:40,840 --> 00:32:43,760 Speaker 5: and I think that Walmart Plus business has done really well. 621 00:32:43,920 --> 00:32:47,720 Speaker 5: And they don't disclose the exact number of members that 622 00:32:47,720 --> 00:32:50,600 Speaker 5: are signed up, but from from our channel checks, it 623 00:32:50,840 --> 00:32:53,239 Speaker 5: seems that it's growing at a pretty good rate. I mean, 624 00:32:53,280 --> 00:32:55,520 Speaker 5: even Walmart's e commerce business, it's growing out about twenty 625 00:32:55,520 --> 00:32:58,080 Speaker 5: percent clip year every year. I think a lot of 626 00:32:58,080 --> 00:33:00,600 Speaker 5: that is because they've been able to bring in more 627 00:33:00,600 --> 00:33:03,200 Speaker 5: of those Walmart Plus members in there. And I think 628 00:33:03,320 --> 00:33:06,560 Speaker 5: Walmart Plus is great because that helps also retain those 629 00:33:06,600 --> 00:33:09,960 Speaker 5: higher income households and even even when inflation does come down, 630 00:33:10,120 --> 00:33:11,920 Speaker 5: you know, now you know once you once you lock 631 00:33:11,960 --> 00:33:15,479 Speaker 5: these customers in, you drive more conversion. So that's why 632 00:33:15,520 --> 00:33:17,840 Speaker 5: we're pretty optimistic here because Walmart's always been known for 633 00:33:18,000 --> 00:33:21,200 Speaker 5: a value retailer, but they're actually now being better known 634 00:33:21,240 --> 00:33:23,920 Speaker 5: for convenience that's usually a title that's held with Amazon 635 00:33:23,960 --> 00:33:26,320 Speaker 5: as the leader in convenience, but now Walmart I think 636 00:33:26,360 --> 00:33:29,280 Speaker 5: it's doing better in the convenience factor. And if you 637 00:33:29,320 --> 00:33:33,080 Speaker 5: combine value and convenience, it's a pretty strong proposition for 638 00:33:33,120 --> 00:33:33,880 Speaker 5: the for the consumer. 639 00:33:34,200 --> 00:33:36,400 Speaker 2: Sort of fed into my next question thinking about how 640 00:33:36,400 --> 00:33:40,400 Speaker 2: Walmart stacks up against Amazon with this this kind of 641 00:33:41,120 --> 00:33:47,560 Speaker 2: subscription model, I guess, a consumer loyalty program. You might 642 00:33:47,600 --> 00:33:50,880 Speaker 2: think of Amazon as as sort of a first mover 643 00:33:51,280 --> 00:33:55,920 Speaker 2: with Amazon Prime. Is Walmart chipping away at Amazon Prime 644 00:33:55,960 --> 00:33:56,600 Speaker 2: with its offering? 645 00:33:56,840 --> 00:33:57,040 Speaker 4: Yeah? 646 00:33:57,080 --> 00:33:59,040 Speaker 5: So Walmart, I mean Walmart Plus is is a direct 647 00:33:59,200 --> 00:34:02,440 Speaker 5: It's a dire direct competition against Amazon Prime. But I 648 00:34:02,440 --> 00:34:06,720 Speaker 5: think where Walmart has always had a stronghold is in grocery. 649 00:34:06,960 --> 00:34:09,839 Speaker 5: That's an area where Amazon has struggled over the last 650 00:34:09,840 --> 00:34:13,040 Speaker 5: several years. Amazon bought Whole Food several years ago. 651 00:34:13,120 --> 00:34:13,759 Speaker 3: That business is. 652 00:34:13,719 --> 00:34:18,160 Speaker 5: Doing well, but they're local business or their their own 653 00:34:18,200 --> 00:34:22,480 Speaker 5: business called Amazon Fresh and hasn't performed up to expectations. 654 00:34:22,480 --> 00:34:25,480 Speaker 5: And I think Amazon has really struggled in the grocery arena, 655 00:34:25,560 --> 00:34:29,880 Speaker 5: which is where Walmart has always shined in grocery and perishables. 656 00:34:30,160 --> 00:34:32,239 Speaker 5: So I think a lot of I mean from a 657 00:34:32,440 --> 00:34:35,520 Speaker 5: stat I saw earlier, a large percentage of Walmart Plus 658 00:34:35,560 --> 00:34:38,880 Speaker 5: subscribers are also Amazon Prime suscribers. So people tend to 659 00:34:38,920 --> 00:34:41,960 Speaker 5: have both subscriptions, and they use Walmart Plus for groceries 660 00:34:41,960 --> 00:34:44,440 Speaker 5: and they use Amazon Prime for everything else. And the 661 00:34:44,480 --> 00:34:46,520 Speaker 5: Walmart Plus is a little bit cheaper. It's ninety eight 662 00:34:46,560 --> 00:34:50,160 Speaker 5: dollars per year in the US. Amazon Prime is about 663 00:34:50,160 --> 00:34:52,680 Speaker 5: one hundred and forty dollars per year in the US, 664 00:34:52,680 --> 00:34:54,600 Speaker 5: And I think you get because of the different offerings 665 00:34:54,640 --> 00:34:57,439 Speaker 5: you get, you tend to see consumers sign up for both. 666 00:34:58,320 --> 00:35:01,280 Speaker 2: It's also curious to to get your thoughts on whether 667 00:35:01,680 --> 00:35:05,040 Speaker 2: we could see wage pressures from Walmart coming down the 668 00:35:05,040 --> 00:35:08,160 Speaker 2: linecause I'm thinking about Costco coming out where it's thirty 669 00:35:08,200 --> 00:35:11,600 Speaker 2: dollars an hour wage for workers. There. Is that going 670 00:35:11,680 --> 00:35:15,799 Speaker 2: to put pressure on Sam's Club, the subscription service the 671 00:35:15,800 --> 00:35:16,600 Speaker 2: Walmart offers. 672 00:35:17,360 --> 00:35:21,399 Speaker 5: Yeah, yeah, so I mean wage investments, wage pressures. That's 673 00:35:21,440 --> 00:35:24,880 Speaker 5: been a headlind for several years now. Sam's Club they 674 00:35:24,880 --> 00:35:27,800 Speaker 5: actually just recently announced a wage increase back in September 675 00:35:27,880 --> 00:35:30,480 Speaker 5: of last year, but that's going to be another continued 676 00:35:30,520 --> 00:35:33,160 Speaker 5: trend this year. We'll likely see more wage pressures this year. 677 00:35:34,120 --> 00:35:35,680 Speaker 5: The good news is that, you know, when you have 678 00:35:35,719 --> 00:35:38,760 Speaker 5: a company growing sales, you know, mid to high single digits, 679 00:35:39,400 --> 00:35:41,200 Speaker 5: you can absorb some of those costume increases and it 680 00:35:41,239 --> 00:35:44,440 Speaker 5: doesn't really impact the overall bottom line. But when you 681 00:35:44,440 --> 00:35:47,480 Speaker 5: struggle to grow sales, like some other retailers there are 682 00:35:47,600 --> 00:35:51,439 Speaker 5: right now, it's very difficult to also grow margins because 683 00:35:51,440 --> 00:35:53,799 Speaker 5: of all these added wage pressures. So at the end 684 00:35:53,800 --> 00:35:55,919 Speaker 5: of the day, I'm not overly worried about these wage 685 00:35:55,920 --> 00:35:58,799 Speaker 5: investments as long as Walmart is able to grow their 686 00:35:58,840 --> 00:36:01,840 Speaker 5: sales at amid single distrect percentage range, which we do 687 00:36:01,880 --> 00:36:04,120 Speaker 5: expect will happen in twenty twenty five. 688 00:36:04,560 --> 00:36:07,160 Speaker 2: In terms of Walmart's stock performance, it's hard to see 689 00:36:07,160 --> 00:36:09,960 Speaker 2: a lot of pessimism around the stock, a lot of 690 00:36:10,000 --> 00:36:14,200 Speaker 2: buy ratings on Walmart. Are there risks to that momentum? 691 00:36:14,480 --> 00:36:16,200 Speaker 5: Yeah, I mean, I mean, the number one concern I 692 00:36:16,280 --> 00:36:19,279 Speaker 5: get with investors on Walmart is not anything about the fundamentals. 693 00:36:19,280 --> 00:36:22,239 Speaker 5: It's about how expensive the stock has gotten. From a 694 00:36:22,280 --> 00:36:27,000 Speaker 5: four pe perspective. It's trading nearly forty times. 695 00:36:26,760 --> 00:36:27,960 Speaker 4: Of a forward pe. 696 00:36:28,120 --> 00:36:31,040 Speaker 5: Historically it's traded about twenty five times for p so 697 00:36:31,160 --> 00:36:35,920 Speaker 5: a pretty significant premium. But you know. The one thing 698 00:36:35,920 --> 00:36:38,640 Speaker 5: I'll note is that you know, Walmart shares used to 699 00:36:38,640 --> 00:36:40,200 Speaker 5: be even more expensive back in the day, back in 700 00:36:40,239 --> 00:36:42,920 Speaker 5: the late nineties early two thousands. When they're significantly expanding 701 00:36:42,960 --> 00:36:45,959 Speaker 5: their super center's footprint, the share is traded above forty 702 00:36:46,000 --> 00:36:48,560 Speaker 5: times forward earnings. And I think right now that the 703 00:36:48,600 --> 00:36:51,360 Speaker 5: shares do deserve this this hefty premium because of all 704 00:36:51,440 --> 00:36:54,239 Speaker 5: the things we talked about already, but also they're also 705 00:36:54,280 --> 00:36:57,640 Speaker 5: growing their store footprint right now, they're growing more supercenters 706 00:36:57,719 --> 00:37:00,239 Speaker 5: across the country. They're growing they're also growing SAMs Club 707 00:37:00,239 --> 00:37:02,839 Speaker 5: locations across the country. They're targeting thirty new Sam's Club 708 00:37:02,880 --> 00:37:05,000 Speaker 5: locations across the country. And then last thing, this is 709 00:37:05,000 --> 00:37:07,600 Speaker 5: the most important thing I think, is that Walmart's business 710 00:37:07,640 --> 00:37:10,600 Speaker 5: is diversifying. We talked about Walmart Plus and the subscription 711 00:37:10,640 --> 00:37:13,080 Speaker 5: revenue they're getting from that. They're also generating a lot 712 00:37:13,080 --> 00:37:15,680 Speaker 5: of advertising revenue as they grow out their e commerce market. 713 00:37:15,960 --> 00:37:18,719 Speaker 5: Marketplace in advertising, as you know, is much higher market 714 00:37:18,719 --> 00:37:19,720 Speaker 5: business than selling groceries. 715 00:37:19,719 --> 00:37:20,440 Speaker 4: It's out of a store. 716 00:37:20,760 --> 00:37:23,640 Speaker 5: So as as this advertising business continues to grow, I 717 00:37:23,680 --> 00:37:26,840 Speaker 5: think you can see Walmart's overall margins continue to expand 718 00:37:27,080 --> 00:37:29,040 Speaker 5: and when you have when when you're a retailer generating 719 00:37:29,080 --> 00:37:31,879 Speaker 5: you know, six hundred billion dollars per year and nearly 720 00:37:31,920 --> 00:37:35,760 Speaker 5: seven hundred billion dollars per year in revenues, every percent, 721 00:37:35,800 --> 00:37:39,640 Speaker 5: every basis point of margin translate into into uh into 722 00:37:39,640 --> 00:37:42,480 Speaker 5: a lot of profits. So that's what I'm pretty excited 723 00:37:42,480 --> 00:37:44,520 Speaker 5: about is I think over the next few years, and 724 00:37:44,880 --> 00:37:49,520 Speaker 5: Walmart has many levers to expand margins because of you 725 00:37:49,560 --> 00:37:52,000 Speaker 5: know things we talked about, but because of their subscription revenue, 726 00:37:52,000 --> 00:37:55,080 Speaker 5: their advertising revenue, they're growing their general merchandise sales. They're 727 00:37:55,080 --> 00:37:57,680 Speaker 5: also introducing automation and robotics, and they're in their fulfillment 728 00:37:57,760 --> 00:38:00,000 Speaker 5: centers and all of that they can translate into pretty 729 00:38:00,160 --> 00:38:02,359 Speaker 5: operating marketing expansion over at least I think the next 730 00:38:02,400 --> 00:38:05,920 Speaker 5: three years. And that's why I think the happy premium 731 00:38:05,960 --> 00:38:08,600 Speaker 5: can hold. And I think there's still upside to the 732 00:38:08,640 --> 00:38:09,279 Speaker 5: stock from here. 733 00:38:09,960 --> 00:38:12,640 Speaker 2: Lots to consider as we wait those earnings from Walmart 734 00:38:13,080 --> 00:38:15,719 Speaker 2: due out this Thursday. Thank you for this, Arun, again, 735 00:38:15,760 --> 00:38:16,799 Speaker 2: great having you on with us. 736 00:38:17,239 --> 00:38:17,799 Speaker 4: Yeah, thank you. 737 00:38:18,160 --> 00:38:22,680 Speaker 2: That's Arun Sundram, senior equity research analyst at CFIRA. Want 738 00:38:22,680 --> 00:38:25,239 Speaker 2: to deliver thanks as well to Stephen Shork of the 739 00:38:25,280 --> 00:38:29,080 Speaker 2: Short Group and Eric Balchunis of Bloomberg Intelligence. Thanks to 740 00:38:29,120 --> 00:38:31,399 Speaker 2: you as well for joining us on this special hour 741 00:38:31,400 --> 00:38:34,960 Speaker 2: of Bloomberg day Break for this president. Stay, I'm Nathan Hager. 742 00:38:35,040 --> 00:38:38,680 Speaker 2: Stay with us. Today's top stories and global business headlines 743 00:38:38,719 --> 00:38:40,399 Speaker 2: are coming up right now.