1
00:00:00,120 --> 00:00:08,640
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

2
00:00:11,640 --> 00:00:15,440
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

3
00:00:15,480 --> 00:00:18,680
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

4
00:00:18,720 --> 00:00:22,280
Speaker 2: for insight from the best in markets, economics, and geopolitics

5
00:00:22,400 --> 00:00:24,920
Speaker 2: from our global headquarters in New York City. We are

6
00:00:24,920 --> 00:00:27,680
Speaker 2: live on Bloomberg Television weekday mornings from six to nine

7
00:00:27,720 --> 00:00:31,280
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

8
00:00:31,320 --> 00:00:33,960
Speaker 2: anywhere else you listen, and as always on the Bloomberg

9
00:00:34,040 --> 00:00:35,880
Speaker 2: Terminal and the Bloomberg Business App.

10
00:00:36,440 --> 00:00:38,760
Speaker 3: Bob Dole of cross Mark is cautious heading into the

11
00:00:38,800 --> 00:00:41,640
Speaker 3: new year, saying Risk Act returns are likely to be

12
00:00:41,760 --> 00:00:44,760
Speaker 3: lower in twenty twenty five after very strong returns in

13
00:00:44,800 --> 00:00:48,800
Speaker 3: twenty twenty four. US equities are increasingly vulnerable to corrections

14
00:00:49,040 --> 00:00:52,880
Speaker 3: given elevated valuations and earnings expectations. Bob, I am so

15
00:00:53,000 --> 00:00:55,160
Speaker 3: pleased to say joins us now. Bob, do you think

16
00:00:55,160 --> 00:00:58,520
Speaker 3: that yesterday was indicative of some of the perilousness if

17
00:00:58,520 --> 00:01:01,920
Speaker 3: you can say that, of such high valuations at a

18
00:01:01,920 --> 00:01:03,120
Speaker 3: time of great uncertainty?

19
00:01:03,800 --> 00:01:06,600
Speaker 4: Absolutely, Lisa, these evaluations are up there. When I look

20
00:01:06,600 --> 00:01:08,959
Speaker 4: at my screen and I see, you know, twenty five

21
00:01:09,080 --> 00:01:12,080
Speaker 4: times trailing and twenty three forward. I say, I guess

22
00:01:12,160 --> 00:01:15,040
Speaker 4: the world's perfect, and it would have to be to

23
00:01:15,160 --> 00:01:18,240
Speaker 4: justify those valuations. And you've all just discussed the world

24
00:01:18,280 --> 00:01:23,520
Speaker 4: isn't exactly perfect. Expectations are high for the economy, expectations

25
00:01:23,520 --> 00:01:26,600
Speaker 4: are high for what the Trump administration can do, and

26
00:01:27,200 --> 00:01:31,280
Speaker 4: those good news items must come in to sustain these levels.

27
00:01:31,360 --> 00:01:33,680
Speaker 3: That said, you're not exactly a raging bear. I mean

28
00:01:33,720 --> 00:01:36,520
Speaker 3: I was looking, and you still expect sex to outperform bonds.

29
00:01:36,720 --> 00:01:38,920
Speaker 3: You still see gains incoming.

30
00:01:39,040 --> 00:01:41,560
Speaker 1: So how do you nuance a message.

31
00:01:41,400 --> 00:01:45,240
Speaker 3: Of caution without necessarily pulling back in any capacity to

32
00:01:45,400 --> 00:01:48,200
Speaker 3: time where other people are saying we're just beginning some

33
00:01:48,240 --> 00:01:51,520
Speaker 3: sort of AI revolution in US equity markets.

34
00:01:52,160 --> 00:01:54,919
Speaker 4: Yeah, so I wouldn't go to one hundred percent cash.

35
00:01:55,000 --> 00:01:56,920
Speaker 4: But if I've made a lot of money and I'm

36
00:01:56,920 --> 00:01:59,720
Speaker 4: fully invested and was tempted to take a little money

37
00:01:59,760 --> 00:02:02,440
Speaker 4: off the table, I think that's okay. I'm fully invested.

38
00:02:02,880 --> 00:02:05,720
Speaker 4: I've just been moving a little bit more toward neutral.

39
00:02:05,760 --> 00:02:09,679
Speaker 4: For example, my biggest overweight thankfully has been financials. I'm

40
00:02:09,720 --> 00:02:14,280
Speaker 4: trimming them. My biggest underweight, thankfully has been healthcare. I'm

41
00:02:14,280 --> 00:02:17,840
Speaker 4: doing some bottom fishing there, just moving a little more neutral.

42
00:02:18,240 --> 00:02:21,680
Speaker 4: Uncertain about where we head in the new year. Is

43
00:02:21,680 --> 00:02:25,720
Speaker 4: a Trump administration going to pound the table on cost

44
00:02:25,760 --> 00:02:27,800
Speaker 4: cutting and text cuts or is it going to be

45
00:02:27,840 --> 00:02:32,519
Speaker 4: more about deportation and tariffs. They're going to give very

46
00:02:32,520 --> 00:02:34,120
Speaker 4: different answers to the stop market.

47
00:02:34,400 --> 00:02:37,760
Speaker 5: Well, Bob, you know that politics are ordinarily a second

48
00:02:37,760 --> 00:02:40,400
Speaker 5: concern for markets, but they're likely to inject volatilely of

49
00:02:40,440 --> 00:02:42,519
Speaker 5: the course of the coming year. Do you actually move

50
00:02:42,600 --> 00:02:45,520
Speaker 5: politics to being the first order of business when it

51
00:02:45,520 --> 00:02:47,600
Speaker 5: comes to the concern for markets in twenty twenty five?

52
00:02:48,200 --> 00:02:50,840
Speaker 4: Well, only its effect on the economy. The economy and

53
00:02:50,880 --> 00:02:54,080
Speaker 4: earning has always come first in my view, but politics,

54
00:02:54,639 --> 00:02:58,600
Speaker 4: particularly in this environment, have a more than normal impact

55
00:02:58,680 --> 00:02:59,600
Speaker 4: on those profits.

56
00:03:00,160 --> 00:03:02,280
Speaker 5: So when it comes to things like pulling back you

57
00:03:02,320 --> 00:03:04,560
Speaker 5: say on financials, a lot of analysts that have been

58
00:03:04,560 --> 00:03:07,519
Speaker 5: coming on our program say that actually they are overweight

59
00:03:07,560 --> 00:03:09,560
Speaker 5: because they're looking at the potential M and A activity,

60
00:03:09,639 --> 00:03:13,000
Speaker 5: looking at the deregulation that Trump might usher in, given

61
00:03:13,040 --> 00:03:15,360
Speaker 5: the fact that he did so in Trump one point zero,

62
00:03:15,400 --> 00:03:17,360
Speaker 5: and he keeps talking about it. So why at this

63
00:03:17,480 --> 00:03:20,480
Speaker 5: moment would you pull back on something as specific as financials.

64
00:03:21,160 --> 00:03:23,720
Speaker 4: So it's still my largest overweight. So I still love

65
00:03:23,760 --> 00:03:25,840
Speaker 4: the stocks, but I don't want to be a pig.

66
00:03:25,919 --> 00:03:29,120
Speaker 4: So I'm taking some money off the table, recognizing the

67
00:03:29,200 --> 00:03:32,840
Speaker 4: valuations have moved up some and you trees don't necessarily

68
00:03:32,919 --> 00:03:34,760
Speaker 4: go to the sky or go there in a straight

69
00:03:34,800 --> 00:03:36,960
Speaker 4: line as it were, So just taking a little money

70
00:03:37,000 --> 00:03:39,640
Speaker 4: off the table. If I'm not overweight financials, I would

71
00:03:39,680 --> 00:03:40,040
Speaker 4: get there.

72
00:03:41,120 --> 00:03:43,800
Speaker 6: Giving your concern about the US economy and valuations, are

73
00:03:43,840 --> 00:03:47,280
Speaker 6: you finding opportunities either in stocks that focus more globally

74
00:03:47,400 --> 00:03:49,800
Speaker 6: or in global stocks or are you kind of very

75
00:03:49,800 --> 00:03:51,320
Speaker 6: focused just on the US here?

76
00:03:52,240 --> 00:03:55,080
Speaker 4: My mandate is all US, but there are some interesting

77
00:03:55,160 --> 00:03:59,920
Speaker 4: things overseas, notwithstanding difficult environment that we see for earning

78
00:04:00,800 --> 00:04:05,000
Speaker 4: over there. I would say back to core portfolio, you

79
00:04:05,080 --> 00:04:09,000
Speaker 4: want to focus on companies with high earnings predictability, Peter,

80
00:04:09,080 --> 00:04:13,520
Speaker 4: in my view, high earnings persistence, strong free cash flow,

81
00:04:14,200 --> 00:04:17,080
Speaker 4: dive it in stocks, dividend growth stocks. I think we'll

82
00:04:17,080 --> 00:04:18,400
Speaker 4: do even better next year.

83
00:04:19,160 --> 00:04:21,279
Speaker 6: Great, So you're going to focus on the dividend sector

84
00:04:21,440 --> 00:04:23,800
Speaker 6: for next year dived end growth.

85
00:04:23,760 --> 00:04:26,080
Speaker 4: Yes, that's awesome.

86
00:04:26,120 --> 00:04:28,200
Speaker 6: Any other kind of outliers that you have out there

87
00:04:28,240 --> 00:04:30,800
Speaker 6: that maybe aren't top of mind for everyone, that you

88
00:04:30,800 --> 00:04:33,039
Speaker 6: think could be a really interesting opportunity.

89
00:04:33,120 --> 00:04:35,680
Speaker 4: Yeah, so I come back to the I'll call it quality,

90
00:04:35,720 --> 00:04:39,080
Speaker 4: although it's not exactly quality. That earnings, persistence, and the

91
00:04:39,120 --> 00:04:42,320
Speaker 4: free cash flow. Those stocks have done just fine on

92
00:04:42,400 --> 00:04:44,840
Speaker 4: the way up in this market, and I think when

93
00:04:44,839 --> 00:04:47,640
Speaker 4: we get the inevitable pullback, I think those stocks will

94
00:04:47,640 --> 00:04:50,640
Speaker 4: go down less than the market, showing some relative outperformance.

95
00:04:50,720 --> 00:04:52,920
Speaker 3: I'm wondering if you see any signal from what we

96
00:04:53,000 --> 00:04:57,159
Speaker 3: got from Oracle yesterday. Oracle had really high expectations, shares

97
00:04:57,200 --> 00:05:00,159
Speaker 3: had been flying high. They came out basically in line.

98
00:05:00,279 --> 00:05:01,919
Speaker 3: I mean, I was looking through the numbers looking for

99
00:05:01,960 --> 00:05:04,240
Speaker 3: some kind of catastrophe to really justify the fact that

100
00:05:04,279 --> 00:05:07,000
Speaker 3: their shares were down more than eight percent. Couldn't really

101
00:05:07,040 --> 00:05:10,280
Speaker 3: find it, but it really highlighted those high valuations. How

102
00:05:10,360 --> 00:05:13,440
Speaker 3: vulnerable are some of these companies, particularly in the tech space,

103
00:05:13,520 --> 00:05:15,480
Speaker 3: to disappointments when it comes to earnings.

104
00:05:16,040 --> 00:05:18,359
Speaker 4: Great point, I think you read it well. That is

105
00:05:18,400 --> 00:05:21,520
Speaker 4: to say, the earnings were okay. They weren't great, but

106
00:05:21,560 --> 00:05:23,640
Speaker 4: they were okay. And then you see the stock doing

107
00:05:23,640 --> 00:05:26,280
Speaker 4: what it did. You say, what am I missing? It's

108
00:05:26,440 --> 00:05:30,880
Speaker 4: expectations are just very high in too many places. And

109
00:05:30,960 --> 00:05:34,400
Speaker 4: I repeat at a multiple in the low twenties, things

110
00:05:34,440 --> 00:05:37,640
Speaker 4: better nearly perfect, and the world's articles earnings were not perfect,

111
00:05:37,720 --> 00:05:39,520
Speaker 4: they were just okay.

112
00:05:39,360 --> 00:05:40,560
Speaker 1: I'm looking right now.

113
00:05:40,600 --> 00:05:44,080
Speaker 3: We just got at FIB small business optimism, and you know,

114
00:05:44,120 --> 00:05:47,200
Speaker 3: some of these peripheral reads shed some light on how

115
00:05:47,279 --> 00:05:48,919
Speaker 3: much the mood has changed, and you can make the

116
00:05:49,000 --> 00:05:51,480
Speaker 3: argument maybe this is just because of the election and

117
00:05:51,880 --> 00:05:56,479
Speaker 3: some sort of optimism in terms of regulatory pullback. Nonetheless,

118
00:05:56,560 --> 00:05:58,800
Speaker 3: you saw a surge to the highest level going back

119
00:05:58,800 --> 00:06:01,640
Speaker 3: to twenty twenty one. You see the biggest jump in

120
00:06:01,680 --> 00:06:04,279
Speaker 3: this optimism going back to nineteen eighty at a time

121
00:06:04,320 --> 00:06:07,200
Speaker 3: where you've seen surprise after surprise to the upside. I

122
00:06:07,279 --> 00:06:08,920
Speaker 3: just wonder how much of a risk there is that

123
00:06:09,040 --> 00:06:11,240
Speaker 3: we are underestimating how much strength there is in the

124
00:06:11,279 --> 00:06:14,560
Speaker 3: economy and what that means for inflation, on yields and

125
00:06:14,600 --> 00:06:15,560
Speaker 3: the Fed's path ahead.

126
00:06:16,800 --> 00:06:19,320
Speaker 4: Lisa, I think you nailed it there with that set

127
00:06:19,320 --> 00:06:23,080
Speaker 4: of questions. Look, stocks have moved up a lot to

128
00:06:23,240 --> 00:06:27,160
Speaker 4: discount that good news that supposedly is coming, and that's

129
00:06:27,240 --> 00:06:29,880
Speaker 4: why you see sentiment on the stock market and the

130
00:06:29,880 --> 00:06:32,839
Speaker 4: conference board percentage of Americans who think stocks are going

131
00:06:32,920 --> 00:06:35,599
Speaker 4: to be higher twelve months from now all time high.

132
00:06:35,880 --> 00:06:38,320
Speaker 4: That's generally not a time to pound the table. And

133
00:06:38,360 --> 00:06:41,920
Speaker 4: you may make another good point inflation. Inflation is not

134
00:06:42,040 --> 00:06:44,960
Speaker 4: going to two percent as the Fed wants in my judgment,

135
00:06:45,040 --> 00:06:49,240
Speaker 4: without a recession. In fact, it's stubborn. It's likely to

136
00:06:49,240 --> 00:06:51,200
Speaker 4: move up a little bit more. You talked there earlier

137
00:06:51,200 --> 00:06:54,719
Speaker 4: on about the three handle for the CPI. That's nowhere

138
00:06:54,720 --> 00:06:56,200
Speaker 4: close to too, if you will.

139
00:06:56,400 --> 00:06:59,000
Speaker 3: Yeah, and this is really a reason why maybe the

140
00:06:59,040 --> 00:07:01,760
Speaker 3: bond market holds the key keys to just how much

141
00:07:01,920 --> 00:07:04,640
Speaker 3: legroom this market has. Bob Doll of Crossmark, thank you

142
00:07:04,680 --> 00:07:16,960
Speaker 3: so much as always for being with us. Talking about

143
00:07:16,960 --> 00:07:19,920
Speaker 3: Saudi Arabia and turning to commodities, oil pairing back recent

144
00:07:19,920 --> 00:07:22,600
Speaker 3: gains following the fall of Syrian President Bashar al Assades

145
00:07:23,240 --> 00:07:26,800
Speaker 3: and ahead of OPEC's year end conference, Ellen Wald of

146
00:07:26,800 --> 00:07:30,200
Speaker 3: the Atlantic Council, also author of Saudi Inc, Writing the

147
00:07:30,240 --> 00:07:33,120
Speaker 3: oil market does not seem phased by these events. Prices

148
00:07:33,160 --> 00:07:35,560
Speaker 3: climbed one percent and trading on Monday, and the market

149
00:07:35,640 --> 00:07:38,760
Speaker 3: is still more concerned about the tepid economic growth outlook

150
00:07:38,760 --> 00:07:41,640
Speaker 3: and supply growth forecasts for twenty twenty five that could

151
00:07:41,720 --> 00:07:45,400
Speaker 3: put the market into oversupply. Ellen joins us Now and Ellen,

152
00:07:45,600 --> 00:07:48,040
Speaker 3: I want to start with your experience covering the royal

153
00:07:48,120 --> 00:07:51,560
Speaker 3: family in Saudi Arabia and your intensive knowledge of the

154
00:07:51,600 --> 00:07:53,560
Speaker 3: country that a lot of people are saying has to

155
00:07:53,560 --> 00:07:56,040
Speaker 3: be the main operator in this event. What do you

156
00:07:56,120 --> 00:07:58,920
Speaker 3: think their mindset is seeing the fall of Syria and

157
00:07:58,960 --> 00:08:01,680
Speaker 3: what their role is in trying to impose some sort

158
00:08:01,680 --> 00:08:04,360
Speaker 3: of new order in a key stronghold in the Middle East.

159
00:08:05,400 --> 00:08:08,920
Speaker 7: That's a great question, and I think that Saudi intervention

160
00:08:09,240 --> 00:08:12,960
Speaker 7: and Saudi involvement at this point could really play a

161
00:08:13,040 --> 00:08:16,480
Speaker 7: key role in the future of what Syria looks like

162
00:08:16,560 --> 00:08:20,840
Speaker 7: and also whether this instability spreads to other areas of

163
00:08:20,880 --> 00:08:21,360
Speaker 7: the region.

164
00:08:21,440 --> 00:08:23,920
Speaker 1: I think that the Saudis wants stability.

165
00:08:24,560 --> 00:08:27,960
Speaker 7: Ashar al Asad was a very stabilizing force until he

166
00:08:28,120 --> 00:08:32,880
Speaker 7: wasn't and now that he's gone, the potential for a

167
00:08:32,960 --> 00:08:38,720
Speaker 7: real failed state and potential for more insurgencies to take

168
00:08:38,800 --> 00:08:41,400
Speaker 7: root is very very high, and the Saudis want to

169
00:08:41,440 --> 00:08:41,920
Speaker 7: prevent that.

170
00:08:42,360 --> 00:08:45,760
Speaker 1: They want a stable rule over all.

171
00:08:45,640 --> 00:08:49,120
Speaker 7: Of Syria, and so they really have a potential right

172
00:08:49,160 --> 00:08:52,840
Speaker 7: now to both influence the development of whatever new government

173
00:08:52,920 --> 00:08:54,679
Speaker 7: or power comes in, but.

174
00:08:54,760 --> 00:08:57,280
Speaker 1: Also to influence.

175
00:08:56,840 --> 00:09:00,400
Speaker 7: How well that regime is able to hold on to power.

176
00:09:00,800 --> 00:09:03,960
Speaker 7: And I think that oil and fuel is very very

177
00:09:03,960 --> 00:09:07,200
Speaker 7: critical at this juncture, because even though Syria has the

178
00:09:07,240 --> 00:09:10,720
Speaker 7: oil and gas supplies that it needs to supply its

179
00:09:10,800 --> 00:09:13,319
Speaker 7: own demand, it's not going to be able to get

180
00:09:13,320 --> 00:09:17,439
Speaker 7: them up and running in time to stabilize.

181
00:09:16,760 --> 00:09:20,120
Speaker 1: Their their hold on power. And so essentially a Seria

182
00:09:20,160 --> 00:09:22,280
Speaker 1: has been dependent on Iranian.

183
00:09:21,840 --> 00:09:24,920
Speaker 7: Fuel, uh And and Russia and these other kind of

184
00:09:24,960 --> 00:09:27,960
Speaker 7: pariah nations for a very long time, and Iran is

185
00:09:27,960 --> 00:09:31,240
Speaker 7: clearly not interested in supplying that fuel. We saw this

186
00:09:31,360 --> 00:09:35,120
Speaker 7: very dramatic tanker turnaround right in the middle as soon

187
00:09:35,120 --> 00:09:38,080
Speaker 7: as the uh Asad regime fell.

188
00:09:38,160 --> 00:09:40,160
Speaker 1: And so if Saudi Arabia and other.

189
00:09:40,280 --> 00:09:44,000
Speaker 7: Gulf countries with kind of stable monarchies can step in

190
00:09:44,080 --> 00:09:46,679
Speaker 7: and help provide them with the electricity, the.

191
00:09:46,679 --> 00:09:50,120
Speaker 1: Fuel and aid uh you know, to start to rebuild

192
00:09:50,120 --> 00:09:52,719
Speaker 1: and start to consolidate their hold on power, then they

193
00:09:52,720 --> 00:09:53,720
Speaker 1: could prove to be.

194
00:09:53,720 --> 00:09:57,960
Speaker 7: A very stabilizing force in Syria and in the rebuilding

195
00:09:58,080 --> 00:10:00,160
Speaker 7: of whatever is to come. And so I I do

196
00:10:00,240 --> 00:10:04,600
Speaker 7: think there is an important opportunity for the Saudis along

197
00:10:04,640 --> 00:10:08,800
Speaker 7: with others in the Gulf to really influence the future

198
00:10:09,120 --> 00:10:10,280
Speaker 7: trajectory of Syria.

199
00:10:10,320 --> 00:10:12,199
Speaker 5: Well, who do you think is best position to really

200
00:10:12,200 --> 00:10:15,600
Speaker 5: fill that void? Saudi Arabia, Rack kowait Emroadis.

201
00:10:16,760 --> 00:10:20,800
Speaker 7: You know, it's difficult because the political and religious makeup

202
00:10:20,800 --> 00:10:23,080
Speaker 7: of Syria is very different from the Gulf. But I

203
00:10:23,240 --> 00:10:28,160
Speaker 7: think that at this point those sectarian differences matter a

204
00:10:28,200 --> 00:10:31,680
Speaker 7: bit less than really who comes through with the aid

205
00:10:31,880 --> 00:10:36,480
Speaker 7: and with the fuel and the money and the medical supplies.

206
00:10:35,960 --> 00:10:37,760
Speaker 1: And the food that they're going to need.

207
00:10:37,800 --> 00:10:39,959
Speaker 7: And I do think that the Saudis could take a

208
00:10:40,040 --> 00:10:43,400
Speaker 7: leadership role in kind of a coalition effort to supply

209
00:10:43,520 --> 00:10:46,240
Speaker 7: these things and really to do you know, to become

210
00:10:46,280 --> 00:10:47,600
Speaker 7: that stabilizing force.

211
00:10:48,120 --> 00:10:50,240
Speaker 6: Yeah, I'm pulling this back a little bit more domestically.

212
00:10:50,559 --> 00:10:52,800
Speaker 6: How successful do you think, you know, drill baby drill

213
00:10:52,880 --> 00:10:54,640
Speaker 6: will be? Is that something that's going to be effect

214
00:10:54,679 --> 00:10:56,719
Speaker 6: of really ramping up our production? And do you have

215
00:10:56,760 --> 00:10:58,120
Speaker 6: any thoughts on what we should be trying to do

216
00:10:58,160 --> 00:11:00,400
Speaker 6: with the refining industry, which is really kind of been

217
00:11:00,400 --> 00:11:02,280
Speaker 6: stagnant in this country I think for years.

218
00:11:02,840 --> 00:11:05,680
Speaker 7: Yeah, I think I kind of wish the refrain was

219
00:11:05,720 --> 00:11:09,880
Speaker 7: actually refine baby, refine instead of drill, baby drill, Because

220
00:11:09,880 --> 00:11:12,280
Speaker 7: at this point, you know, production in the US is

221
00:11:12,320 --> 00:11:14,840
Speaker 7: at its highest. I mean we're at at like thirteen

222
00:11:14,920 --> 00:11:16,559
Speaker 7: point five million barrels a day.

223
00:11:16,600 --> 00:11:19,400
Speaker 1: We're the largest producer in the world right now. How

224
00:11:19,480 --> 00:11:21,719
Speaker 1: much more do we really need to produce? How much

225
00:11:21,720 --> 00:11:22,679
Speaker 1: more do we really need to.

226
00:11:22,600 --> 00:11:26,080
Speaker 7: Throw into this uh, you know market that's kind of

227
00:11:26,480 --> 00:11:29,440
Speaker 7: verging on over supply. But what we really could do,

228
00:11:29,520 --> 00:11:32,240
Speaker 7: and what I think would really help both the American

229
00:11:32,280 --> 00:11:35,280
Speaker 7: people and you know, our trading partners abroad, would be

230
00:11:35,360 --> 00:11:39,400
Speaker 7: to really take a look at our refining industry.

231
00:11:39,040 --> 00:11:41,600
Speaker 1: To put in some new refineries.

232
00:11:41,600 --> 00:11:44,960
Speaker 7: We've seen refineries closing and shifting to BUYO fuels, which

233
00:11:44,960 --> 00:11:47,080
Speaker 7: aren't really all that profitable or useful.

234
00:11:47,520 --> 00:11:48,000
Speaker 1: We need to.

235
00:11:48,520 --> 00:11:53,280
Speaker 7: Really maybe have some new refineries, and we could really

236
00:11:53,320 --> 00:11:56,480
Speaker 7: I think, keep gasoline prices down and fuel costs down

237
00:11:56,520 --> 00:11:59,520
Speaker 7: that way, as opposed to just producing more oil and

238
00:12:00,120 --> 00:12:03,280
Speaker 7: shipping it abroad, because we can only utilize so much

239
00:12:03,280 --> 00:12:04,520
Speaker 7: of that in the US.

240
00:12:04,840 --> 00:12:06,040
Speaker 1: We can also if we have.

241
00:12:06,080 --> 00:12:08,839
Speaker 7: More gasoline and other fuels, then we can use ship

242
00:12:08,920 --> 00:12:12,440
Speaker 7: that and export that equally. So I do think that

243
00:12:12,520 --> 00:12:15,480
Speaker 7: the really we should change that refrain to refine baby refined.

244
00:12:15,520 --> 00:12:18,160
Speaker 1: It doesn't roll off the tong Quoitas. Well, we don't.

245
00:12:18,280 --> 00:12:20,439
Speaker 5: We don't have a state oil company the way these

246
00:12:20,720 --> 00:12:23,440
Speaker 5: Gulf countries do. And we just heard from Chevron, I

247
00:12:23,480 --> 00:12:25,679
Speaker 5: believe it was last week that said, actually, we care

248
00:12:25,760 --> 00:12:29,400
Speaker 5: more free cash flow more than we care about production growth.

249
00:12:29,400 --> 00:12:31,439
Speaker 5: And they're actually starting to pull back in the Permian.

250
00:12:31,760 --> 00:12:35,280
Speaker 5: So what is the US in total spare capacity?

251
00:12:36,480 --> 00:12:37,360
Speaker 1: That's a great question.

252
00:12:37,400 --> 00:12:39,280
Speaker 7: I don't think that we can really talk about the

253
00:12:39,360 --> 00:12:42,360
Speaker 7: US in terms of spare capacity, because, like you said,

254
00:12:42,360 --> 00:12:45,400
Speaker 7: there's no state run oil company. Every oil company decides

255
00:12:45,400 --> 00:12:48,200
Speaker 7: for themselves. It's in their best interest for a very

256
00:12:48,200 --> 00:12:50,560
Speaker 7: long time. For a long time, in kind of the

257
00:12:50,600 --> 00:12:55,840
Speaker 7: height of the fracking period, we had this kind of

258
00:12:55,840 --> 00:12:59,560
Speaker 7: ethos where everyone had to produced, produce even if they

259
00:12:59,679 --> 00:13:02,880
Speaker 7: weren't even you know, making up their costs simply because

260
00:13:02,920 --> 00:13:03,600
Speaker 7: they had to keep.

261
00:13:03,440 --> 00:13:04,240
Speaker 1: Ahead of payroll.

262
00:13:04,320 --> 00:13:07,280
Speaker 7: And so you could be sure that the push and

263
00:13:07,320 --> 00:13:08,920
Speaker 7: the drive was to increase production.

264
00:13:09,400 --> 00:13:10,480
Speaker 1: Now that's not the case.

265
00:13:10,520 --> 00:13:13,880
Speaker 7: Now that you've got big companies like Chevron, Exxon, uh

266
00:13:13,920 --> 00:13:16,480
Speaker 7: and you know, really consolidating, and there's a lot of

267
00:13:16,480 --> 00:13:19,760
Speaker 7: consolidation in the Permian, you're seeing less of this push

268
00:13:19,800 --> 00:13:22,280
Speaker 7: and more of a sense of Okay, what's a healthy

269
00:13:22,320 --> 00:13:25,080
Speaker 7: growth rate, you know, what's healthy for the company.

270
00:13:25,120 --> 00:13:26,400
Speaker 1: And so I don't think we're going to.

271
00:13:26,400 --> 00:13:29,959
Speaker 7: Necessarily see much more growth or a significant amount of

272
00:13:30,000 --> 00:13:33,400
Speaker 7: growth in terms of oil production. And I do think

273
00:13:33,400 --> 00:13:35,240
Speaker 7: the focus should really be on what do we do

274
00:13:35,280 --> 00:13:37,920
Speaker 7: with this oil and how are we best using it?

275
00:13:37,960 --> 00:13:41,679
Speaker 7: And how can companies maximize uh, you know, their profits

276
00:13:42,080 --> 00:13:44,160
Speaker 7: with the oil that they're already drilling.

277
00:13:44,480 --> 00:13:46,640
Speaker 3: Ellen Wald of the Atlantic Council, thank you so much

278
00:13:46,920 --> 00:13:57,640
Speaker 3: for your time and for your insights, particularly in Saudia Arabia.

279
00:14:00,080 --> 00:14:03,600
Speaker 3: Here's the latest small caps outperforming post election, but Bank

280
00:14:03,600 --> 00:14:07,760
Speaker 3: of America Securities looking for MidCap outperformance twenty twenty five.

281
00:14:08,080 --> 00:14:11,200
Speaker 3: Jill Carey Hall writing, we favor mid over small caps

282
00:14:11,200 --> 00:14:14,160
Speaker 3: for twenty twenty five or cost us on small relative

283
00:14:14,200 --> 00:14:17,400
Speaker 3: to large for now, given small caps have the most

284
00:14:17,520 --> 00:14:21,800
Speaker 3: post election policy risk, refinancing risk has emerged in small

285
00:14:21,840 --> 00:14:24,600
Speaker 3: caps have been stuck in earnings pre share recession.

286
00:14:24,720 --> 00:14:26,480
Speaker 1: Jill, I am very pleased to say joins us now.

287
00:14:26,600 --> 00:14:28,920
Speaker 3: Jill, welcome, Thank you so much for being here. I

288
00:14:28,960 --> 00:14:32,120
Speaker 3: want to start with NFIB small Business Optimism, which came

289
00:14:32,160 --> 00:14:34,840
Speaker 3: out this morning at the highest level going back about

290
00:14:34,880 --> 00:14:38,280
Speaker 3: three years at a time, everyone's convinced that the policy

291
00:14:38,320 --> 00:14:41,440
Speaker 3: mix is going to be auspicious. Why do you push.

292
00:14:41,360 --> 00:14:43,640
Speaker 8: Back, Well, I think, you know, maybe near term we

293
00:14:43,720 --> 00:14:49,720
Speaker 8: do see some further upside given small business optimism, consumer confidence, momentum,

294
00:14:49,760 --> 00:14:52,560
Speaker 8: good seasonality. Usually December is a good time for small caps.

295
00:14:52,560 --> 00:14:54,280
Speaker 8: But when you look ahead to twenty twenty five, I

296
00:14:54,320 --> 00:14:56,960
Speaker 8: think even though there is a lot of optimism on

297
00:14:57,120 --> 00:15:01,200
Speaker 8: deregulation and business friendly policy, I do think that will

298
00:15:01,200 --> 00:15:04,760
Speaker 8: certainly help some pockets of US small and mid caps.

299
00:15:04,800 --> 00:15:07,400
Speaker 8: And you know, financials as a sector we're bullish on.

300
00:15:07,520 --> 00:15:09,520
Speaker 8: I think there's a lot to be in there from

301
00:15:09,640 --> 00:15:13,000
Speaker 8: deregulation in terms of costs. But I think for small

302
00:15:13,040 --> 00:15:15,880
Speaker 8: caps overall, you know, you look at the backdrop and

303
00:15:16,200 --> 00:15:19,160
Speaker 8: if we do see some of the policies that could

304
00:15:19,200 --> 00:15:22,360
Speaker 8: be more negative to profits in terms of tariffs and

305
00:15:23,000 --> 00:15:26,480
Speaker 8: immigration policy, small caps are the most labor intensive size segment.

306
00:15:26,520 --> 00:15:29,800
Speaker 8: They would also be hurt the most by tariffs. That's

307
00:15:29,800 --> 00:15:32,720
Speaker 8: at a time when you know we've seen better economic data.

308
00:15:32,760 --> 00:15:35,640
Speaker 8: We've seen with the red sweet multiple rate cuts priced

309
00:15:35,640 --> 00:15:37,920
Speaker 8: out of the market, refinancing risk has come back and

310
00:15:38,000 --> 00:15:40,200
Speaker 8: small caps are still stuck in this earnings recession. They

311
00:15:40,200 --> 00:15:41,280
Speaker 8: haven't been able to get out of.

312
00:15:41,400 --> 00:15:43,840
Speaker 3: A real question here about how much the optimism around

313
00:15:43,880 --> 00:15:45,960
Speaker 3: small caps is tied to some of the policies that

314
00:15:46,040 --> 00:15:49,280
Speaker 3: are expected from the Trump administration, and how much is

315
00:15:49,600 --> 00:15:51,560
Speaker 3: the feat is going to be cutting rates even with

316
00:15:51,840 --> 00:15:54,360
Speaker 3: a growing economy at a time where there's a real

317
00:15:54,440 --> 00:15:58,480
Speaker 3: inward focus on the United States and US exceptionalism that

318
00:15:58,800 --> 00:16:01,280
Speaker 3: would benefit some of these companies disproportionately.

319
00:16:01,920 --> 00:16:03,520
Speaker 8: Well, Look, I think that's going to be a reason

320
00:16:03,560 --> 00:16:06,920
Speaker 8: why this year is going to be about picking stocks

321
00:16:06,920 --> 00:16:09,280
Speaker 8: and picking your spots within the market rather than just

322
00:16:09,360 --> 00:16:12,600
Speaker 8: buying into seas. So I think from an index perspective,

323
00:16:12,640 --> 00:16:15,400
Speaker 8: midcaps do look the best positioned. I mean, they've historically

324
00:16:15,440 --> 00:16:18,440
Speaker 8: actually outperformed in the year following when the Fed first

325
00:16:18,480 --> 00:16:21,200
Speaker 8: started cutting rates, and they have you know, less post

326
00:16:21,240 --> 00:16:24,800
Speaker 8: election policy risk around tariffs and immigration reform. They're the

327
00:16:24,880 --> 00:16:28,920
Speaker 8: least labor intensive size segment. You know, their profits trends

328
00:16:28,960 --> 00:16:31,440
Speaker 8: have been a bit better in terms of revisions next

329
00:16:31,440 --> 00:16:33,680
Speaker 8: twelve months, CPS trends have actually started trending up a

330
00:16:33,720 --> 00:16:36,040
Speaker 8: little bit. For midcaps, they're still coming down and small

331
00:16:36,400 --> 00:16:39,200
Speaker 8: so I think that's where I would focus. But from

332
00:16:39,240 --> 00:16:41,320
Speaker 8: a you know, stock perspective, I think if you can

333
00:16:41,360 --> 00:16:44,600
Speaker 8: focus on areas of small caps that are more economically

334
00:16:44,680 --> 00:16:47,320
Speaker 8: sensitive but don't have as much refinancing risk, you know,

335
00:16:47,360 --> 00:16:50,960
Speaker 8: screening on leverage and those factors, focusing on stocks that

336
00:16:51,000 --> 00:16:54,320
Speaker 8: have positive rather than negative revision since that's the scarce

337
00:16:54,400 --> 00:16:57,760
Speaker 8: resource right now, there's still opportunities in small caps. The

338
00:16:57,880 --> 00:17:00,600
Speaker 8: valuation dispersion is high, there's a lot of both cheap

339
00:17:00,600 --> 00:17:03,960
Speaker 8: and expensive stocks, so you know, still areas for active

340
00:17:04,000 --> 00:17:06,320
Speaker 8: stock selection. At b of ARN, let's cover about a

341
00:17:06,359 --> 00:17:08,239
Speaker 8: thousand small and mid cap stocks, so there's a lot

342
00:17:08,280 --> 00:17:09,440
Speaker 8: of opportunity out there.

343
00:17:10,200 --> 00:17:12,959
Speaker 9: Jill, I feel like the refine answering risk is a

344
00:17:13,000 --> 00:17:16,119
Speaker 9: reflection of a long term structural trend from the last

345
00:17:16,160 --> 00:17:19,360
Speaker 9: ten years where private markets have picked off so many

346
00:17:19,480 --> 00:17:22,159
Speaker 9: quality small assets. So what you're left with in the

347
00:17:22,200 --> 00:17:26,200
Speaker 9: public markets and small are these more levered, lower quality names.

348
00:17:26,240 --> 00:17:29,440
Speaker 9: I think looking forward over the next big structural trend

349
00:17:29,480 --> 00:17:32,720
Speaker 9: over this coming decade, obviously AI is going to impact

350
00:17:32,760 --> 00:17:35,919
Speaker 9: big companies, but it also feels like small caps or

351
00:17:35,920 --> 00:17:40,000
Speaker 9: small business models could get disintermediated. So it feels like

352
00:17:40,040 --> 00:17:42,160
Speaker 9: there's some left tail risks there that I don't think

353
00:17:42,160 --> 00:17:44,359
Speaker 9: a lot of people talk about. Is that something that

354
00:17:44,400 --> 00:17:45,440
Speaker 9: your team is thinking about.

355
00:17:45,680 --> 00:17:48,440
Speaker 8: Yeah, I mean, I think that's the barcase we hear

356
00:17:48,480 --> 00:17:51,760
Speaker 8: on small caps, the demise of small caps, that small

357
00:17:51,760 --> 00:17:55,600
Speaker 8: caps have just morphed into these low quality zombie companies.

358
00:17:55,640 --> 00:17:58,800
Speaker 8: There's no good companies left. I think there are obviously

359
00:17:58,840 --> 00:18:01,160
Speaker 8: some aspects to that that are true. I think we're

360
00:18:01,280 --> 00:18:03,720
Speaker 8: past peak low quality. Is the good news because when

361
00:18:03,720 --> 00:18:06,600
Speaker 8: we had the IPO boom in twenty twenty, twenty twenty one,

362
00:18:06,720 --> 00:18:09,439
Speaker 8: all these non profitable companies joined the index. Some of

363
00:18:09,480 --> 00:18:11,919
Speaker 8: the rebalances in the Russell have have taken some of

364
00:18:11,960 --> 00:18:16,880
Speaker 8: that out companies. Some companies have started to return to profitability.

365
00:18:16,600 --> 00:18:19,800
Speaker 8: So we're past maybe peak low quality. But I do

366
00:18:19,840 --> 00:18:22,360
Speaker 8: think that when you look at metrics like leverage has

367
00:18:22,359 --> 00:18:25,760
Speaker 8: increased over time, when you look at the quality the index,

368
00:18:25,800 --> 00:18:28,480
Speaker 8: the proportion of non earners there are, the long term

369
00:18:28,480 --> 00:18:30,560
Speaker 8: growth rate of small caps, there aren't as many high

370
00:18:30,560 --> 00:18:32,640
Speaker 8: growth stocks as there used to be, and then companies

371
00:18:32,640 --> 00:18:36,119
Speaker 8: are staying private longer, ipoing it at bigger market caps.

372
00:18:36,160 --> 00:18:38,080
Speaker 8: So there has been a shift in the index, and

373
00:18:38,080 --> 00:18:40,199
Speaker 8: that's one reason why we think the equity risk premium

374
00:18:40,240 --> 00:18:42,439
Speaker 8: for small caps, even though it's now gone below average,

375
00:18:42,440 --> 00:18:44,960
Speaker 8: may not go back to the averages that we saw

376
00:18:44,960 --> 00:18:47,719
Speaker 8: in the eighties and nineties. So, you know, I do

377
00:18:47,840 --> 00:18:50,439
Speaker 8: still think that there are positive longer term themes for

378
00:18:50,520 --> 00:18:53,200
Speaker 8: domestic smid caps, Like if we see a cap X cycle,

379
00:18:53,240 --> 00:18:56,080
Speaker 8: if we see restoring continue in the US, that should

380
00:18:56,080 --> 00:18:58,840
Speaker 8: definitely benefit pockets of the size segment. And just given

381
00:18:58,880 --> 00:19:02,119
Speaker 8: that it is so his historically cheap versus large caps,

382
00:19:02,200 --> 00:19:04,080
Speaker 8: you know, that should argue that you could potentially see

383
00:19:04,119 --> 00:19:07,200
Speaker 8: better price returns over the next decade. But ner term,

384
00:19:07,240 --> 00:19:09,960
Speaker 8: we'd still be cautious given the profits environment.

385
00:19:10,160 --> 00:19:13,120
Speaker 3: Jill Carey Hall really fascinating. Thank you so much, Jill

386
00:19:13,160 --> 00:19:15,000
Speaker 3: Kerry Hall of Bank for America's Securities.

387
00:19:15,840 --> 00:19:19,399
Speaker 2: This is the Bloomberg Surveillance podcast, bringing you the best

388
00:19:19,400 --> 00:19:22,480
Speaker 2: in markets, economics, an gio politics. You can watch the

389
00:19:22,480 --> 00:19:25,520
Speaker 2: show live on Bloomberg TV weekday mornings from six am

390
00:19:25,640 --> 00:19:28,800
Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple,

391
00:19:29,080 --> 00:19:31,919
Speaker 2: Spotify or anywhere else you listen, and as always on

392
00:19:31,960 --> 00:19:34,440
Speaker 2: the Bloomberg Terminal and the Bloomberg Business app.