WEBVTT - Markets, Ukraine, Retail, And The Fed (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:23.800 at Bloomberg dot com slash podcast. Looking at the Bloomberg 0:00:24.640 --> 0:00:27.200 let me call this here the Bloomberg US corporate total 0:00:27.280 --> 0:00:31.760 return value year to date minus twelve point five per cent. 0:00:31.920 --> 0:00:35.040 Haven't seen those types of performance numbers? A lot of 0:00:35.040 --> 0:00:37.640 these credit folks taught me, Like ever, so what do 0:00:37.640 --> 0:00:39.880 you do for the second half after that brutal first half? 0:00:40.240 --> 0:00:43.320 Natalie Trevithick, head of investment grade credit Strategy Paid and Regal, 0:00:43.400 --> 0:00:46.320 joins us. Natalie, I'm sure you and you're good folks 0:00:46.320 --> 0:00:49.720 at Paid in the Regal again had experienced what was, 0:00:49.880 --> 0:00:52.360 you know, a brutal first half of the year. Put 0:00:52.360 --> 0:00:54.600 that in perspective for us and and kind of how 0:00:54.640 --> 0:00:58.840 you're thinking about the second half. Sure, it was the 0:00:59.000 --> 0:01:01.520 very shocking first up as we had to underlying interest 0:01:01.560 --> 0:01:04.200 rates move up several percent as well extreads wide and 0:01:04.240 --> 0:01:07.720 by around fifty basis point, producing those first half negative 0:01:07.760 --> 0:01:11.000 total returns who are actually closer to negative fourteen and 0:01:11.120 --> 0:01:13.760 a half percent. As of the first half end of 0:01:13.880 --> 0:01:18.360 June thirte we've actually seen a recovery with total positive 0:01:18.360 --> 0:01:21.240 returns of two point two percent on that Bloomberg Corporate 0:01:21.240 --> 0:01:24.440 indexed UH month to date. So what that means is 0:01:24.520 --> 0:01:27.360 yield are now much higher levels. The index is yielding 0:01:27.360 --> 0:01:29.760 four and a half percent. You couldn't even get four 0:01:29.800 --> 0:01:31.559 and a half percent on the law to high yield 0:01:31.560 --> 0:01:33.600 bonds a year ago. So we think on a go 0:01:33.720 --> 0:01:36.280 for basis is a pretty attractive time to be answering 0:01:36.319 --> 0:01:39.240 credits at these much higher all in meals. Is there 0:01:39.240 --> 0:01:41.680 any concern um that if we go into a deep 0:01:41.680 --> 0:01:45.200 percession some of those investment grade credits become do you 0:01:45.200 --> 0:01:49.680 call them fallen angels? Fallen angels? Right, yeah, potentially, But 0:01:49.760 --> 0:01:52.160 companies are going to do whatever they can to maintain 0:01:52.200 --> 0:01:54.840 their investment grade credit ratings. So they may not mind 0:01:54.880 --> 0:01:57.520 following safe from single aid to triple B, but they're 0:01:57.520 --> 0:02:00.320 going to protect themselves from going from triple B down 0:02:00.320 --> 0:02:02.760 to a double be high yield status. And the good 0:02:02.840 --> 0:02:04.800 thing is over the past couple of years where we've 0:02:04.800 --> 0:02:08.520 had very cheap financing since the pandemic. A lot of 0:02:08.520 --> 0:02:11.560 companies took advantage of that to prefund their maturities and 0:02:11.639 --> 0:02:15.560 extend their that profile. So there's no looming maturity wall coming, 0:02:15.880 --> 0:02:17.400 so we don't think there is going to be a 0:02:17.440 --> 0:02:21.160 big wave of downgrades. Natalie, I gotta ask, because it's 0:02:21.160 --> 0:02:23.280 in your notes, why do you refer to these markets 0:02:23.320 --> 0:02:27.720 as Katie Perry markets. You know, they're hot when they're cold, 0:02:27.760 --> 0:02:29.560 they're up and there, down there, yes and there, no. 0:02:29.840 --> 0:02:32.680 You know, it's like each thing you's walk in and 0:02:32.720 --> 0:02:35.320 you don't know what to expect. It's been a pretty 0:02:35.400 --> 0:02:38.680 volatile relationship every day, so you don't know what you're getting. 0:02:39.000 --> 0:02:41.920 A lot of time seems to be the opposite, despite 0:02:41.960 --> 0:02:44.640 you know, expecting the FED to hikes seventy five basis 0:02:44.680 --> 0:02:48.040 points tomorrow, we're seeing rates rally today with a ten 0:02:48.120 --> 0:02:51.079 year down to two point seven five percent, twenty five 0:02:51.120 --> 0:02:54.079 basis points in burden with the two year. So what 0:02:54.120 --> 0:02:57.280 do you expect from the Fed? I mean tomorrow seventy 0:02:57.360 --> 0:03:00.120 five basis points. I'm going to assume it's just locked in. 0:03:00.240 --> 0:03:04.360 But what about the path forward? Yeah, the path forward 0:03:04.440 --> 0:03:06.760 I think we're expecting it to continue to be aggressive, 0:03:06.800 --> 0:03:10.200 with potentially another seventy in September, but the data is 0:03:10.240 --> 0:03:12.720 coming in much cooler the past few days. Just the 0:03:12.840 --> 0:03:15.680 Walmart profit warning, We're thinking the Fed may want to 0:03:15.720 --> 0:03:18.960 talk back some of those uh rate hikes which have 0:03:19.200 --> 0:03:22.480 already been priced into the market. Now, I mean, what 0:03:22.520 --> 0:03:24.880 are some of the sectors. I mean again, given that 0:03:24.960 --> 0:03:28.919 really uh, you know, terrible first half of the year, 0:03:29.000 --> 0:03:31.560 what are some of the sectors to the extent that 0:03:31.760 --> 0:03:34.840 your pm is want to dip their toe in some 0:03:34.960 --> 0:03:37.880 of these investment grade credit areas. What are some of 0:03:37.880 --> 0:03:41.160 the sectors that you're suggesting they look at. Yeah, we 0:03:41.240 --> 0:03:43.960 like some of the more defensive sectors right now. That's 0:03:43.960 --> 0:03:48.120 going to be utilities, Healthcare still doing quite well. We 0:03:48.240 --> 0:03:51.480 like the higher quality technology. Even though these higher rates, 0:03:51.520 --> 0:03:53.640 you know, are really hitting some of these tech companies 0:03:53.680 --> 0:03:57.000 earnings from a credit stand appoint these companies still have 0:03:57.160 --> 0:04:00.320 very very solid balance sheets intended and tend to trade 0:04:00.320 --> 0:04:02.920 at tight spread, so we don't expect them to widen 0:04:02.960 --> 0:04:06.000 as much as some of the more consumer driven sector. 0:04:06.200 --> 0:04:08.560 Some of the retailers were a little bit more cautious 0:04:08.600 --> 0:04:11.960 on We continue to like the energy sector, but it's 0:04:12.040 --> 0:04:14.120 office peaks and we don't think it offers as much 0:04:14.200 --> 0:04:17.040 value on to go forward DASA thanks of all to 0:04:17.200 --> 0:04:20.400 issue forty five billions over the past couple of weeks, 0:04:20.400 --> 0:04:23.800 and we're seeing definite pressure on that sector. Um So, 0:04:23.839 --> 0:04:25.880 While we like the US banks, we just think they're 0:04:25.880 --> 0:04:29.080 gonna be pretty volatile and to go forward data, but 0:04:29.839 --> 0:04:33.560 um SO, bottom line is after the horrible first half, 0:04:33.760 --> 0:04:36.080 now that yields are much higher, and the fact that 0:04:36.120 --> 0:04:39.840 you don't expect many defaults, you like investment grade credits 0:04:40.240 --> 0:04:49.800 um now despite the potential headwinds of recession, European crisis, etcetera. Yeah, 0:04:49.839 --> 0:04:51.719 we think it could be a good entry point, but 0:04:51.800 --> 0:04:54.120 we particularly like the front end of the curve. So 0:04:54.240 --> 0:04:57.120 more looking at the Bloomberg one to five year corporate 0:04:57.120 --> 0:04:59.560 index because still you're yielding over four percent and you 0:04:59.560 --> 0:05:01.880 don't go that much more for extending out to one 0:05:01.920 --> 0:05:04.320 to thirty year credit and then you're taking on all 0:05:04.400 --> 0:05:07.800 the spread duration list. If you keep your portfolio pretty short, 0:05:07.839 --> 0:05:09.640 you know, in that one to five year area, we 0:05:09.680 --> 0:05:12.800 think you're poised to get positive total returns, even though 0:05:12.800 --> 0:05:14.640 you may weather some you know, months and months and 0:05:14.720 --> 0:05:18.880 day to day volatility in pricing. Natalie Matt asked about, 0:05:18.960 --> 0:05:22.680 you know, investment grade bonds being you know, downgraded to 0:05:22.760 --> 0:05:24.640 junk does it? How often does it happen with a 0:05:25.120 --> 0:05:28.400 junk borrower gets upgraded to investment grade and then it's 0:05:28.400 --> 0:05:31.799 maybe it's something you can look at. Yeah, that's actually 0:05:31.960 --> 0:05:34.880 pretty frequent. We've had. We expect actually a few hundred 0:05:34.880 --> 0:05:38.160 billions to be upgraded from high yield to i G. 0:05:38.400 --> 0:05:42.000 We're already seeing it in some issuers here to day. Uh, 0:05:42.120 --> 0:05:45.479 you know, we saw Freeport, we saw Toll Brothers e QT. 0:05:45.720 --> 0:05:48.520 So we're seeing more upgrades from some of those names 0:05:48.640 --> 0:05:52.520 which were downgraded during the pandemic. Also on the horizon, 0:05:52.600 --> 0:05:54.880 a score that's probably not gonna get upgraded back to 0:05:54.920 --> 0:05:57.719 i G until two thousand and twenty four, and Occidental 0:05:57.760 --> 0:06:01.440 Petroleum is another one we're watching. It's interesting Ford being 0:06:01.520 --> 0:06:04.440 upgraded back into investment grade. That would be a notable 0:06:04.880 --> 0:06:07.600 move in the credit markets. Natalie trevith Iik thanks so 0:06:07.680 --> 0:06:11.080 much for joining us head of investment grade credit strategy 0:06:11.800 --> 0:06:18.919 at Peyton and Regal Red headline crossing the Bloomberg Terminal. 0:06:19.040 --> 0:06:23.239 European gas prices rise above two hundred euros per mega 0:06:23.279 --> 0:06:26.200 watt for the first time since March nine, and that 0:06:26.360 --> 0:06:29.880 is due in part to the ongoing war in Ukraine, 0:06:29.880 --> 0:06:32.920 which is a good segue to our next guest. Valentine 0:06:33.160 --> 0:06:37.280 now Yuchenko, member of the Ukrainian Parliament and ex head 0:06:37.320 --> 0:06:40.400 of the Security Service of Ukraine, joins us. Mr Noliachenko, 0:06:40.480 --> 0:06:43.360 thank you so much for joining us here. I would 0:06:43.400 --> 0:06:46.160 love to just get you know, kind of your quick overview. 0:06:46.200 --> 0:06:51.000 Awhere we are today, where you are today as a 0:06:51.040 --> 0:06:54.799 country in your ongoing war with Russia. What's the latest? 0:06:57.200 --> 0:06:59.080 Thank you the Lisa, but Dona to be with you 0:06:59.360 --> 0:07:02.120 with the all the US. So from Ukraine. News are 0:07:02.160 --> 0:07:05.760 still bad, still about war and this night and early 0:07:05.839 --> 0:07:09.400 morning south of Ukraine and the Islamic life cities. Again 0:07:09.600 --> 0:07:15.400 we're under the Russian missiles altogether eighteen Russian missiles world 0:07:15.520 --> 0:07:20.160 launched against like peaceful cities of Ukraine in the south, 0:07:20.400 --> 0:07:25.920 against civilians, against supports, so even a civilian infrastructure. As 0:07:25.960 --> 0:07:29.720 from the beginning of this war, Russia is still destroying 0:07:29.800 --> 0:07:35.360 and targeting intentionally these object objects and facilities. So that's 0:07:35.400 --> 0:07:40.280 for us, like today's picture of war which Russia wages 0:07:41.000 --> 0:07:47.640 against Iubraine, what is the latest in terms of your defense? 0:07:48.080 --> 0:07:52.200 How how is the Ukrainian army doing in terms of 0:07:52.280 --> 0:07:58.800 holding the Russian invaders off so far? Much improvements because 0:07:58.920 --> 0:08:03.680 and thanks to the United States, Canada, United Kingdom, European 0:08:03.840 --> 0:08:10.120 Union weaponry supplies. It increased a lot of capabilities of 0:08:10.120 --> 0:08:14.240 our armed forces both in east and south of Ukraine. 0:08:14.800 --> 0:08:19.760 And now our armed forces are capable to destroy Russian 0:08:20.880 --> 0:08:26.200 command centers, Russian weaponry at the temporarily occupied territories to 0:08:26.400 --> 0:08:31.480 hit in the response of their attacks on Ukrainians. So 0:08:31.720 --> 0:08:36.040 that's where we are united, and that's where Ukraine feels 0:08:36.760 --> 0:08:42.000 not alone alone against the Russian aggressor. That's, by the way, 0:08:42.200 --> 0:08:47.080 very much inspiring our armed forces, our people here in Ukraine, 0:08:47.240 --> 0:08:50.880 US members of parliament, and I think that's the strategy 0:08:50.920 --> 0:08:56.200 to win the world, to win Russian aggression. What is 0:08:56.200 --> 0:09:00.440 there a belief with in the leadership of Ukraine about 0:09:00.559 --> 0:09:04.520 how this war may play out, what would be an 0:09:04.640 --> 0:09:08.160 end game and then also maybe the timing associated with 0:09:08.400 --> 0:09:13.640 is there any growing consensus. Actually what we see is 0:09:13.720 --> 0:09:19.240 that Russia himself, Kramblin put In, they try to as 0:09:19.320 --> 0:09:25.000 much as they could use their forces efforts even waging 0:09:25.280 --> 0:09:29.760 against war against Europe, to attack not only Ukraine but 0:09:29.880 --> 0:09:34.120 the whole civilized war the world. That's so the Russian 0:09:34.160 --> 0:09:38.520 strategy again to use for instance, energy supplies as a 0:09:38.559 --> 0:09:42.800 weapon as a weapon against not only Ukraine, but European 0:09:42.920 --> 0:09:46.640 Union member states as well. Plus what we see at 0:09:46.640 --> 0:09:51.280 the temporal the occupied territories that Russia intentionally is destroying 0:09:52.280 --> 0:09:58.040 medical facilities, schools, all social infrastructure. That looks like real 0:09:58.160 --> 0:10:04.439 invasion with the very very one target to destroy normal life, 0:10:04.520 --> 0:10:12.000 to inflict terror on civilians, on Ukrainians, and even broader, 0:10:12.679 --> 0:10:17.600 to inflict her terror on the whole Europe. We got 0:10:17.600 --> 0:10:20.240 a headline a couple of I think a couple of 0:10:20.280 --> 0:10:24.880 days ago last week that Russia is preparing elections I 0:10:24.880 --> 0:10:30.760 think September fift um to basically annex parts of the 0:10:30.840 --> 0:10:34.959 down Bass region. Does that to you set a date 0:10:35.040 --> 0:10:40.840 for when the war could possibly end? Actually the date, 0:10:41.080 --> 0:10:44.760 what's a cain about dates? Or Russian's preliminary plans to 0:10:45.160 --> 0:10:50.280 hold so called referendums illegal of course and with no 0:10:50.520 --> 0:10:54.200 voters for June July. Now that it's at the end 0:10:54.280 --> 0:10:59.200 of July, and we hear from our intelligence that again 0:10:59.480 --> 0:11:03.800 again Gremlin NEPs. She has changed plans for August, maybe 0:11:03.840 --> 0:11:09.960 even September. So this old referendum or voting stuff. Russians 0:11:10.040 --> 0:11:13.600 understand very well now that in her song, for instance, 0:11:13.679 --> 0:11:17.920 in South Ukraine or other temporal occupied cities or like 0:11:18.120 --> 0:11:22.480 Mariuple almost destroyed city in the south, or the Nascut 0:11:22.559 --> 0:11:26.120 and Basque region of Ukraine, it's simply impossible even to 0:11:26.760 --> 0:11:29.920 show a picture as the Russian propaganda used to do 0:11:29.960 --> 0:11:33.240 it before in two thousands fourteen. It's impossible to show 0:11:33.320 --> 0:11:36.720 even now the picture of referenda because no people know 0:11:36.920 --> 0:11:41.520 voters guests. Today we've seen from one of Russian TV 0:11:41.600 --> 0:11:46.320 propaganda channel we they have collected up six people in 0:11:46.400 --> 0:11:51.520 her Son to issue for them Russian passports. Six not 0:11:51.640 --> 0:11:54.920 six hundred, not six thousand, but six people all together. 0:11:55.400 --> 0:12:01.160 That how that explains how it looks at the field. Uh, 0:12:01.360 --> 0:12:06.120 the real situation that all of Ukraine, I'm not willing 0:12:06.240 --> 0:12:10.800 to buy any means be under the Russian imperim and 0:12:10.840 --> 0:12:14.840 to live under the Russian founding. What amazes me beyond 0:12:15.720 --> 0:12:21.240 um the staunch defense that Ukraine has put up against 0:12:21.640 --> 0:12:25.839 this Russian invasion is that in many parts of the country, 0:12:26.200 --> 0:12:32.600 UM Ukrainian workers are still trying to produce products, um, 0:12:32.640 --> 0:12:37.160 you know, farmlands, export um things as if it's business 0:12:37.160 --> 0:12:39.920 as usual. I've talked to auto executives who say they're 0:12:39.920 --> 0:12:43.719 still getting you know, um parts and wire harnesses out 0:12:43.760 --> 0:12:46.160 of Ukraine. And of course many much of the world 0:12:46.240 --> 0:12:50.640 is still reliant on Ukrainian grains, especially when it comes 0:12:50.679 --> 0:12:53.600 to wheat and other grains. How are those exports going, 0:12:55.440 --> 0:12:58.720 You're right, absolutely, like I'm confirmed that in South Ukraine 0:12:58.760 --> 0:13:02.559 and Eastern and the harvest is going on this year, 0:13:02.640 --> 0:13:06.680 harvest with a lot of wheat, corn and other products. 0:13:06.760 --> 0:13:12.800 And our farmers are doing outstandable job. Even Russia's bombarding 0:13:13.000 --> 0:13:18.080 or using artillery, but the farmers continues to actually to 0:13:18.120 --> 0:13:20.520 pick up the harvest and it's not bad this year, 0:13:20.559 --> 0:13:24.360 by the way. So talking about grain experts, of course 0:13:24.440 --> 0:13:27.840 we Ukraine and again Parliament, government, the President of Ukraine, 0:13:27.920 --> 0:13:33.640 we all listening together, united to do whatever is possible 0:13:33.720 --> 0:13:39.640 to restart to resume grains experts from Ukrainian supports. And 0:13:39.760 --> 0:13:44.000 this is up to all together twenty million tones of 0:13:44.160 --> 0:13:48.440 grain ready to be exported to Africa, to other regions 0:13:48.480 --> 0:13:51.480 of the world. Ukraine ready and would and would like 0:13:51.760 --> 0:13:56.760 again to contribute to global food security by supplying as 0:13:56.840 --> 0:14:01.760 much as we can grains, fertilizers and others. All right, Valentine, 0:14:01.800 --> 0:14:04.600 thank you so much for taking the time to share 0:14:04.679 --> 0:14:08.760 the latest from Ukraine. To really appreciate your time. Valentine, 0:14:09.080 --> 0:14:13.520 now Yuchenko, member of the Ukrainian Parliament, getting a fascinating, 0:14:13.679 --> 0:14:17.360 uh real shot what is going on on the ground 0:14:17.960 --> 0:14:25.400 in Ukraine. We appreciate his time. Walmart off eight point 0:14:25.520 --> 0:14:28.080 eight percent today, folks, and that's a real market cap. 0:14:28.120 --> 0:14:30.080 This thing started to day with a three sixty billion 0:14:30.080 --> 0:14:34.280 dollar market cap, so that's real dollars being wiped out. 0:14:34.360 --> 0:14:36.200 Let's check in with put Him Boyle, Senior Animals for 0:14:36.240 --> 0:14:40.360 e Commerce at Leisure, off Price Retail for Bloomberg Intelligence. 0:14:40.360 --> 0:14:42.600 Basically she covers all things retail and she spends her 0:14:42.640 --> 0:14:45.640 life just walking around shopping malls. And that's kind of 0:14:45.640 --> 0:14:48.400 how there is not true. That's what they do. They do. 0:14:48.480 --> 0:14:53.240 They go and they check out, like what traffic and 0:14:53.280 --> 0:14:55.600 all all says you basically go shopping for a living. 0:14:55.680 --> 0:14:59.200 Is that true? Not for a living, but for definitely 0:14:59.480 --> 0:15:04.120 part of my job. Absolutely? All right, So wal tell 0:15:04.160 --> 0:15:06.320 us what's going on with Walmart here? You don't see 0:15:06.360 --> 0:15:08.800 this kind of misery often from Walmart, and now it's 0:15:08.840 --> 0:15:13.080 twice right, Yeah, exactly, Yeah, I think this is just 0:15:13.160 --> 0:15:15.560 showing consumers trading down. If you think about the Walmart 0:15:15.640 --> 0:15:18.600 quirk consumer, it is the low income shopper and they 0:15:18.600 --> 0:15:21.320 are pinched by the inflationary pressures that we have been 0:15:21.360 --> 0:15:24.320 seeing all year. So what you're seeing happen is them 0:15:24.400 --> 0:15:28.640 trade into more essential items like food, which are lower margin, 0:15:29.120 --> 0:15:32.880 and trading often away from more discretionary categories like apparel. 0:15:33.320 --> 0:15:36.800 That means that you're going to have lower margins, lower profitability, 0:15:37.120 --> 0:15:39.720 and that's why they're two key profit outlook mail calls 0:15:39.760 --> 0:15:43.120 for thirteen to fourteen present drop in operating income. So 0:15:43.560 --> 0:15:47.760 a concern previously for Walmart was that um, they had 0:15:47.800 --> 0:15:51.560 too much stuff in their warehouses. I guess their whole 0:15:51.560 --> 0:15:55.200 stores are warehouses, but that they have too much inventory 0:15:55.320 --> 0:16:00.000 coming in UM over ordered and not selling enough. Now 0:16:00.000 --> 0:16:04.200 out it seems that's still a problem. But also UM 0:16:04.240 --> 0:16:09.400 consumers who are struggling to afford food and gas are 0:16:09.440 --> 0:16:12.360 spending all their money on that stuff rather than the 0:16:12.440 --> 0:16:15.240 other stuff that Walmart has too much of. Do they 0:16:15.240 --> 0:16:19.000 get that right? Yeah, that's absolutely right. But Remember, as 0:16:19.040 --> 0:16:21.400 they spend money on other stuff, they're not buying that 0:16:21.480 --> 0:16:24.440 apparel that they had too much of anyways, So now 0:16:24.480 --> 0:16:27.360 they have even more apparel to career. So the problem 0:16:27.440 --> 0:16:30.360 hasn't gone away. And it's not a great time in 0:16:30.440 --> 0:16:33.080 retail to have a lot of inventory because in just 0:16:33.200 --> 0:16:35.280 a few months, retailers are going to be getting a 0:16:35.360 --> 0:16:38.000 new holiday merchandise and they need to make room for 0:16:38.040 --> 0:16:43.080 that promotions. This is maybe good news for the FED. Um, 0:16:43.200 --> 0:16:45.000 does that mean that Walmart is going to have to 0:16:45.040 --> 0:16:49.200 start cutting prices on that apparel? Absolutely? I mean they 0:16:49.240 --> 0:16:51.520 have to get rid of that inventory, so prices will 0:16:51.600 --> 0:16:54.160 drop on those items. So they'll have to promote clear 0:16:54.200 --> 0:16:56.600 liquidate however to get them out all right. Put Um, 0:16:56.600 --> 0:16:59.000 I'm not an expert in Walmart, but just as an outsider, 0:16:59.480 --> 0:17:03.120 I put a out of this on management. Management misgauged 0:17:03.560 --> 0:17:08.760 their consumer, mis mismanaged, or misgauged their inventory needs. Is 0:17:08.800 --> 0:17:11.800 that a fairer analysis? I mean yes and no. I 0:17:11.800 --> 0:17:13.800 mean think about where we're coming off of right So 0:17:13.920 --> 0:17:17.600 during the pandemic, we couldn't get the goods here so rightfully, 0:17:17.640 --> 0:17:20.679 So a lot of companies ordered goods in advance because 0:17:20.680 --> 0:17:23.120 they were sitting on ships or the factories weren't able 0:17:23.160 --> 0:17:26.000 to produce them. Now all that inventory has come on 0:17:26.040 --> 0:17:28.800 board and is getting off those ships. So yes, there 0:17:28.880 --> 0:17:32.160 is you know, some of that. But then also um inflation. 0:17:32.440 --> 0:17:34.640 I wouldn't have guessed last year the gas prices would 0:17:34.640 --> 0:17:36.879 be over five dollars a gallon. They were treated a little, 0:17:36.960 --> 0:17:39.080 but you know, no one would have predicted that. So 0:17:39.200 --> 0:17:43.119 some of this is just changing macro um variables that 0:17:43.200 --> 0:17:47.720 you just can't really predict. Are they able, by the way, 0:17:47.760 --> 0:17:51.720 to keep up um margins on the stuff that they 0:17:51.720 --> 0:17:54.439 are selling a lot of where inflation still is a 0:17:54.480 --> 0:17:57.359 problem food and does Walmart sell gas? They must have 0:17:57.400 --> 0:18:02.360 gas stations and costco very few, very few, I see, 0:18:02.400 --> 0:18:05.320 so they have some. But but food margins, are they 0:18:05.359 --> 0:18:07.399 able to keep those high or do they have to 0:18:08.600 --> 0:18:12.919 kind of eat some of those higher costs for their customers. 0:18:13.240 --> 0:18:16.120 It's it's a mix, really, right. So food inflation had 0:18:16.160 --> 0:18:19.520 been a top concern also earlier this year. Prices are 0:18:19.600 --> 0:18:21.639 retreating a little, like if you look at the cost 0:18:21.680 --> 0:18:24.920 of the it's come down, but um food inflations out 0:18:24.920 --> 0:18:27.679 there and food prices are rising, and that's part of 0:18:27.680 --> 0:18:29.720 the reason that you're seeing that low income shop, I 0:18:29.800 --> 0:18:32.680 feel even more pinched because you're having to pay five 0:18:32.720 --> 0:18:34.760 dollars for a gallon of milk, where last year you 0:18:34.760 --> 0:18:36.600 may have paid for it dollars for that same gallon 0:18:36.640 --> 0:18:39.440 of milk. And so there has been an increase. And 0:18:39.520 --> 0:18:42.040 by the way, a lot of those low income shoppers 0:18:42.080 --> 0:18:46.240 are also Walmart employees, right, are they demanding raises to 0:18:46.280 --> 0:18:50.000 try and keep up with inflation? They have been getting raises, right. 0:18:50.040 --> 0:18:51.920 I think that's the one thing that's been working well 0:18:51.960 --> 0:18:54.480 for the low income consumer is that minimum wage and 0:18:54.560 --> 0:18:57.199 what companies are paying has actually risen. So if you 0:18:57.280 --> 0:19:00.680 think about what Walmart workers are making three to five 0:19:00.760 --> 0:19:04.520 years ago, they're making anywhere from thirty to more than that. 0:19:04.560 --> 0:19:07.000 You can argue, I mean, you walk into any of 0:19:07.040 --> 0:19:10.320 these um stores and they're willing to pay you fifteen 0:19:10.320 --> 0:19:12.840 dollars or more an hour. All right, put him it's 0:19:12.840 --> 0:19:15.399 probably too early to ask. But here we are at 0:19:15.400 --> 0:19:18.439 the end of July. My son California actually goes to 0:19:18.480 --> 0:19:22.000 school like an first week of August at California, so 0:19:22.040 --> 0:19:24.760 it's not too early to talk about back to school. 0:19:24.840 --> 0:19:28.200 And then the dreaded holidays. What is the outlook. I mean, 0:19:28.280 --> 0:19:31.400 if I'm a Walmart any retail executive, I'm not sure 0:19:31.800 --> 0:19:35.080 how to gauge any of that stuff. Yeah, we're back 0:19:35.080 --> 0:19:37.560 to school. In all the retail data that we've seen 0:19:37.640 --> 0:19:40.879 so far indicates that back to school selling had been strong. 0:19:41.160 --> 0:19:43.600 The question is where are they spending Quebec to school? 0:19:43.640 --> 0:19:46.679 Are they spending on apparel? Are they buying their laptops 0:19:46.680 --> 0:19:49.760 and iPhones and just to supplies or are they spending 0:19:49.760 --> 0:19:52.480 on home furnishing for their dorm rooms? So I think 0:19:52.600 --> 0:19:54.720 I think most of them. You'll have to get your supplies. 0:19:54.760 --> 0:19:57.480 You'll need your laptop for school. But where you could 0:19:57.480 --> 0:20:00.119 pull back is on where you're buying your apparel. Do 0:20:00.160 --> 0:20:02.199 you need five pairs of Denom jeans or can you 0:20:02.280 --> 0:20:04.400 do it too? And I think that's where you could 0:20:04.440 --> 0:20:08.960 see some softness as consumers um are challenged with inflation, 0:20:09.160 --> 0:20:11.720 have to make trade offs. Are they Are they doing 0:20:11.720 --> 0:20:14.000 well in their competition with Amazon? I mean, we don't 0:20:14.040 --> 0:20:16.720 have a Walmart around here, but if we did, that 0:20:16.760 --> 0:20:20.720 would be the other place I would shop besides Amazon. Yeah, 0:20:20.760 --> 0:20:23.040 I think I think two different stories here. It really 0:20:23.119 --> 0:20:25.440 you know, we saw the Amazon shares pulled back last 0:20:25.520 --> 0:20:27.960 night after Wall March are coronets say, it's a little 0:20:27.960 --> 0:20:30.800 different at Amazon. Amazon has its own problems, they have 0:20:30.840 --> 0:20:34.080 too much warehousing space, but their customer is very different. 0:20:34.119 --> 0:20:36.400 It's a more affluent customer base. And I don't think 0:20:36.440 --> 0:20:39.200 that customer base is trading down. Yes yet. In fact, 0:20:39.240 --> 0:20:41.520 Amazon had its time Day just a few weeks ago 0:20:42.000 --> 0:20:45.520 and the sales were up nicely and people were out shopping. 0:20:45.560 --> 0:20:47.919 They were looking for deals. So I think the focus 0:20:47.960 --> 0:20:51.480 will be deal shopping as we move into even holiday, 0:20:51.600 --> 0:20:57.000 and that's not good news for margins. Uh, luxury, how's 0:20:57.000 --> 0:21:00.480 that doing? Buguri is doing great? I know what end 0:21:00.680 --> 0:21:04.440 the high end consumer is sending. I mean talk about 0:21:04.440 --> 0:21:07.480 the income inequality and the wealth inequality, and it's just 0:21:07.480 --> 0:21:11.320 getting exacerbated by this pandemic, as a lot of folks said, 0:21:11.320 --> 0:21:14.600 and you can see it in the numbers, as they say. 0:21:14.640 --> 0:21:16.040 All right, put him Goyle, thank you so much for 0:21:16.119 --> 0:21:19.800 joining us. Put them Oil covers all things retail for 0:21:19.880 --> 0:21:24.040 Bloomberg Intelligence. And yes, part of her job is walking 0:21:24.080 --> 0:21:26.800 around shopping malls and so particularly like that black we 0:21:26.840 --> 0:21:28.399 had a Walmart around here. Why don't we have a 0:21:28.400 --> 0:21:31.360 Walmart at the Jersey Dude, you guys, get off this island. 0:21:31.640 --> 0:21:34.760 We got cracker barrel too, So you do the Walmart 0:21:34.840 --> 0:21:37.000 and the cracker barrel and that is a big day. 0:21:37.280 --> 0:21:39.040 I might even do that this weekend. Come and think 0:21:39.040 --> 0:21:44.600 of it. Okay, I'm want to talk about small cap 0:21:44.600 --> 0:21:47.160 stocks now because they've been hit harder than the SP 0:21:47.280 --> 0:21:49.360 five hunter. When you look at the Russell two thousand, 0:21:49.680 --> 0:21:52.480 a lot of folks are saying there's opportunity in value stocks. 0:21:52.480 --> 0:21:56.200 There's opportunity and small cap stocks. Brad Evans, he does 0:21:56.240 --> 0:21:58.840 that for a living sup portfolio manager and senior VP 0:21:58.920 --> 0:22:02.600 at heart Land Advisors. Brad, I'd love to get your 0:22:02.680 --> 0:22:05.720 kind of thirty ft overview of kind of how this 0:22:05.880 --> 0:22:07.879 first six seven months of the year have been for 0:22:08.160 --> 0:22:10.840 the world where you live in small caps, value, that 0:22:10.880 --> 0:22:13.240 type of thing, and kind of what's your outlook for 0:22:13.280 --> 0:22:16.560 the remainder of the year heading into next Well, uh, 0:22:16.680 --> 0:22:18.440 Matt and Paul, it's a pleasure to be with with you, guys, 0:22:18.440 --> 0:22:22.080 say thanks again for having me back. Um, I won't 0:22:22.119 --> 0:22:24.600 I won't really regurgitate what everybody knows. Value has had 0:22:24.640 --> 0:22:27.280 a good run in the first half versus growth, and 0:22:27.320 --> 0:22:28.879 that's you know, a carry over from the end of 0:22:28.960 --> 0:22:31.680 last year, and I think you know it's it's there's 0:22:31.680 --> 0:22:34.280 an incredible amount of violatility in the marketplaces we all know. 0:22:34.400 --> 0:22:37.199 And I think you know what makes the current environment 0:22:37.280 --> 0:22:40.960 very unique is you know, every crisis that we've seen 0:22:41.040 --> 0:22:44.919 since is kind of in play today. Um you know, 0:22:44.960 --> 0:22:49.520 the Russian ruble default and the long term capital management crisis, 0:22:48.440 --> 0:22:52.399 of the Asian currency crisis, of the tech bubble, of 0:22:52.440 --> 0:22:57.280 OH one crisis, the global financial crisis, of the housing 0:22:57.280 --> 0:22:59.399 bubble that burst, and oh seven o eight, the pigs 0:22:59.400 --> 0:23:02.320 crisis and a live and and now the COVID black swan. 0:23:02.400 --> 0:23:05.960 Of all those dynamics are actually in play today, which 0:23:06.000 --> 0:23:09.320 makes the current environment particularly tricky when you when you 0:23:09.359 --> 0:23:12.520 overlay it with um an environment where there's just a 0:23:12.520 --> 0:23:15.240 lot of leverage in the system. So this is this 0:23:15.280 --> 0:23:18.600 is an environment that that I think from a small 0:23:18.640 --> 0:23:22.040 cap perspective, you know, should be good for an active 0:23:22.040 --> 0:23:26.080 manager versus passives, and should be good versus for value 0:23:26.160 --> 0:23:28.520 versus growth. But we are in a very very tricky 0:23:29.040 --> 0:23:31.359 environment today where it takes a very surgical approach to 0:23:31.359 --> 0:23:33.160 be able to navigate all the risks that are out there. 0:23:33.960 --> 0:23:36.320