Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each
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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. This is a
Speaker 2: view on Wall Street this morning, Keith Thurner of Truist, writing,
Speaker 2: the weight of the evidence continues to suggest that the
Speaker 2: bullmarket deserves the benefit of the doubt, and we would
Speaker 2: view weakness as an opportunity. Keith joins us now for more. Keith,
Speaker 2: Welcome to the program. I've got two wives. Why do
Speaker 2: you believe the bullmarket deserves the benefit of the doubt.
Speaker 2: Why do you think that a weakness is an opportunity?
Speaker 3: Yeah?
Speaker 4: Well, great to be with you all. Well, the first
Speaker 4: thing is, I think the bullmarket has earned it. This
Speaker 4: bullmarket has been battle tested through a series of shocks
Speaker 4: from high inflation to fast paced interest rates, and each
Speaker 4: time these companies have adapted and we're seeing profit margins
Speaker 4: continue to expand, and we're seeing ford earning estimates at
Speaker 4: new highs, not only in the SMP, but also by
Speaker 4: the by midcaps, small caps, and even emerging markets as well.
Speaker 4: So I don't want to be Polyannis either, Jonathan. I
Speaker 4: think there is someone serting to We just had, you know,
Speaker 4: a nice rally off the low, so it would be
Speaker 4: perfectly normal to see some backing and filling after this.
Speaker 4: But the last point is we also know. I think
Speaker 4: there's so much focus on Iran and the situation there,
Speaker 4: which is important, but let's not lose sight of the
Speaker 4: dominant theme of this bull market, which you all talked about,
Speaker 4: is AI and tech, and that story is likely not changing.
Speaker 4: In some ways, it looks like it's actually accelerated.
Speaker 2: Okay, sixteen days Lisa mentioned it, sixteen days of gains
Speaker 2: for the Philadelphia Semi Conductor Index, a powerful rally. One
Speaker 2: of the best months we've seen, by the way, and
Speaker 2: about twenty five is for that particular index. Keith, when
Speaker 2: you look at those moves, and when I look at
Speaker 2: where we bottomed. Do you think we still underappreciate the
Speaker 2: relationship between this rally and say mythos and anthropic and
Speaker 2: perhaps we're looking too much towards the escalation and what's
Speaker 2: been developing in the Middle East.
Speaker 4: Yeah, I do, And you know we were when we
Speaker 4: were selling off in masks, we were highlighting the technology
Speaker 4: that you know, the valuations got to a twenty pe,
Speaker 4: which was lower than the terror shock of last year,
Speaker 4: and the premium relatives of the markets shrunk to the
Speaker 4: lowest level in over a decade.
Speaker 3: And one thing we just looked at, Johathan, I thought
Speaker 3: it was really interested.
Speaker 4: We looked at the peak to trough change in the
Speaker 4: valuation or the compression of the valuation for the tech sector.
Speaker 3: You know, over the last several months it was thirty
Speaker 3: seven percent. We went from a thirty two pe to
Speaker 3: our twenty.
Speaker 4: When we look back to this decade, that's the most
Speaker 4: severe compression we've seen out of any of the pullbacks,
Speaker 4: more than COVID, more than the terror shock. And you
Speaker 4: can argue that there was actually more usertanty in some
Speaker 4: of these other areas as well. So I think we've
Speaker 4: reset pretty well. Is momentum by far as the strongest
Speaker 4: in the market. The forward earning estimates are being revised
Speaker 4: higher over the last three months by almost twenty percent.
Speaker 4: That's about double vSMP, So I think all in all,
Speaker 4: kind of this tech story moved to the back burner.
Speaker 3: Now it's moving.
Speaker 4: Towards the front, the forefront again and again after this
Speaker 4: big move, are we going to be able?
Speaker 3: Are we going to pull back a little bit? Maybe?
Speaker 3: But the last point on.
Speaker 4: Tech is it just it just moved above the October high.
Speaker 4: So since the October high, we're up point point two percent.
Speaker 4: So ultimately I think this bull market and tech has
Speaker 4: further to go.
Speaker 1: We're in tech though, Keith, and this is a big
Speaker 1: question mark underpinning this rally, given the fact that right
Speaker 1: now the picks and shovels of tech seem to be rallying.
Speaker 1: We're seeing the semiconductors, we're seeing the memory chips, we're
Speaker 1: seeing the energy side of things. To eve Vernova with
Speaker 1: respect to some of the way that they're electrifying some
Speaker 1: of the data centers going forward, do you think that
Speaker 1: next week is going to be a gut check in
Speaker 1: terms of how the market responds to additional Kapex plans.
Speaker 3: Likely will be.
Speaker 4: But I also think, you know, as long as these
Speaker 4: earning estimates continue to get revised higher, I think the
Speaker 4: market will be okay if cap X continues to be.
Speaker 3: At a rapid pace.
Speaker 4: I don't think anyone's really expecting much of a pullback
Speaker 4: in CAPEX. But really, what's got the market's attention more
Speaker 4: recently is is a lack of availability for GPUs and
Speaker 4: as we as these models are becoming more powerful, that
Speaker 4: the demand for that will only grow. So listen, I
Speaker 4: don't think we're going to see a big change in
Speaker 4: the CAPEX story. I think in some ways, what we're
Speaker 4: seeing more recently in the power of these models is
Speaker 4: going to validate the expansion of that CAPEX I think
Speaker 4: more interesting and we'll see what we're we gonna hear
Speaker 4: about the employment side, because we're actually starting to see
Speaker 4: a tick up in some of those announcements.
Speaker 3: As far as displacement, how.
Speaker 5: Do you treat that as an investor?
Speaker 1: I mean, I know that from a psychological perspective, that
Speaker 1: has a pretty big hit, and we're seeing that take
Speaker 1: place even in places like China. Some of the anecdotal
Speaker 1: information suggests that there's a real cramp down on employment
Speaker 1: as a result of AI. Is that a good thing
Speaker 1: as an investor because it reduces costs?
Speaker 3: Yeah, you know.
Speaker 4: Longer term it is somewhat circular, because we do need
Speaker 4: people ding to move the economy forward. But I think
Speaker 4: there's different time frames on this, and I think in
Speaker 4: the short term, if you see profit margins continue to
Speaker 4: move up and you're seeing the sales per employee or
Speaker 4: cashflow for per.
Speaker 3: Employee move up, I think ultimately the market will will
Speaker 3: ward that.
Speaker 4: Now, again, there's probably the greatest story to be told
Speaker 4: from an economics store perspective, and we all know that.
Speaker 4: But I think in the near term, the market is
Speaker 4: going to focus on profits.
Speaker 2: Hey, Keiate, that's the focus right now, that's for sure.
Speaker 2: Thank you, sir, Keith Lender. There of trust, stay with us.
Speaker 2: More Bloomberg surveillance coming up after this. Victoria Coach, the
Speaker 2: former deputy National security advisor to President Trump. Right in
Speaker 2: the following they runs to sustained such systematic damage that
Speaker 2: they really can't recover. Time is entirely on the President's side.
Speaker 2: Victoria joins us.
Speaker 3: Now for more.
Speaker 2: Victoria, welcome to the program. We call this at the
Speaker 2: top of the program, our high stakes. Blinking contest is
Speaker 2: around willing to risk regime collapse, and it's the US
Speaker 2: willing to continue to maximize put maximum pressure, certain maximum
Speaker 2: pressure on the Iranians and take the economic consequences that
Speaker 2: the global economy might have to take.
Speaker 5: Well, good morning, Jonathan.
Speaker 6: I have to be careful what I write on my
Speaker 6: x feed because I never know what you're going to
Speaker 6: read back to me.
Speaker 5: But I stand by that. I stand by that comment.
Speaker 6: I think that you know, as we dive deeper into
Speaker 6: what's happening in the Iranian economy.
Speaker 5: And also the other piece.
Speaker 6: Of this is the fact that since they haven't been
Speaker 6: able to get product out of the Gulf since the
Speaker 6: blockade began, they're starting to fill up their storage on
Speaker 6: carg Island, and they're going to wind up at a
Speaker 6: point in a matter of days. They might have a
Speaker 6: week or two weeks, but I think it's a shorter
Speaker 6: period where they're going to have to start thinking about
Speaker 6: capping wells, and that's not a good thing. That could
Speaker 6: really do permanent damage to their oil reserves, and they
Speaker 6: have the second largest oil reserves on the planet. It's
Speaker 6: one of their great strengths that's going to be a
Speaker 6: decision point for them. So I do think that the
Speaker 6: pressure that is building on the Iranians. I mean, they
Speaker 6: have to restart their economy. They need to turn their
Speaker 6: internet back on, their stock market back on, but most
Speaker 6: of all, they need to start being able to get
Speaker 6: product to market. So if that these days go by,
Speaker 6: they're going to have to make that existential decision you
Speaker 6: describe and make a choice between economic collapse and potentially
Speaker 6: preserving the regime.
Speaker 5: Victoria.
Speaker 1: Do have confidence that this is a logical kind of
Speaker 1: regime in Iran that the United States is dealing with
Speaker 1: in the matter of financial collapse being enough of a
Speaker 1: threat to really bring them to the table. And I
Speaker 1: ask this because so many people have come on this
Speaker 1: show and said their goal is simply survival.
Speaker 6: Well, I would never call them rational, Alicia. I think
Speaker 6: that they are right now very cornered. You've had the
Speaker 6: decimation of the forty top leaders in the first day
Speaker 6: of this action against them, and so they're still trying
Speaker 6: to recover from that.
Speaker 5: Nobody knows where the supreme leader is.
Speaker 6: He's been Supreme Leader much Tabak Kamani for more than
Speaker 6: a month and he hasn't even published a video greeting
Speaker 6: the Iranian people. You know, famously he was a cardboard
Speaker 6: cutout at the announcement of his appointment, So you know,
Speaker 6: this is not in any way a stable, normal functioning government.
Speaker 6: They also can't communicate their worried that these railays are
Speaker 6: in their cell phones, probably for pretty good reason, and
Speaker 6: so they're passing notes back and forth, and that's part
Speaker 6: of the delay in the negotiations. You know, the president
Speaker 6: wants to make sure he has somebody with the authority
Speaker 6: to make those decisions at the table, and it's not
Speaker 6: clear that person has emerged yet.
Speaker 1: One difficulty, and one reason why a number of strategists
Speaker 1: have been really pessimistic, is they don't see a way,
Speaker 1: a path to an end that leaves the straight of
Speaker 1: removes open free trade and commerce going through that and
Speaker 1: the current regime in place. How do you see this
Speaker 1: playing out in a way that brings the straight up,
Speaker 1: removes back to sort of the free flow of commerce
Speaker 1: that we were familiar with a couple months ago.
Speaker 6: Well, I don't think we're going to return to the
Speaker 6: sort of business as usual in Iran. I don't think
Speaker 6: there's a universe in which the regime can reconstitute itself
Speaker 6: as it was right, I would go back really to
Speaker 6: early December of last year and the kind of control
Speaker 6: it was able to exert over its people.
Speaker 5: And this will be a very fluid period.
Speaker 6: And I know that's that's disruptive and concerning for a
Speaker 6: lot of folks. But at the same time, you know,
Speaker 6: the other thing that's happening to them is they stop
Speaker 6: being able to pay the salaries of their security apparatus,
Speaker 6: the IRGC, the Islamic Islamic Revolutionary Guard Core. That's the
Speaker 6: key to their being able to control the country physically,
Speaker 6: is it's stopped paying it's its people, and their police
Speaker 6: are stopped being paid as well. So that's going to
Speaker 6: create more disruption within Iran as the people of Iran
Speaker 6: realize that what's kept them down, the people who carried
Speaker 6: out that horrible massacre in January, maybe aren't as loyal
Speaker 6: as they were at that time because quite simple, they're
Speaker 6: not being paid. So I agree this is this is
Speaker 6: going to be very fluid. We're going to have something
Speaker 6: different on the other side, and hopefully with the strength
Speaker 6: of the United States, it's that if that weakened entity
Speaker 6: is not able to assemble the same kind of power
Speaker 6: the old government of Iran was. You know, we'll be
Speaker 6: able to establish that control you're talking about over the
Speaker 6: street and ensure the free patch of the passage of
Speaker 6: shipping victory.
Speaker 2: Just to final question, just briefly, if you can, you've
Speaker 2: worked with the President on high profile foreign policy issues.
Speaker 2: There is a comfort in this market right now that
Speaker 2: the President is committed to de escalation. In your mind,
Speaker 2: what would it take to return to hostilities.
Speaker 6: I would take a provocative app action by the Iranians.
Speaker 6: I mean President Trump has wanted that as the last
Speaker 6: resort from the beginning. He has offered diplomacy repeatedly to
Speaker 6: resolve this issue. But if the Iranians make a horrible decision,
Speaker 6: and they don't have a great track record in that
Speaker 6: they generally do make horrible decisions, then I think you'll
Speaker 6: see the reapplication of American.
Speaker 2: Might Victoria, thank you, always appreciate your time. No doubt
Speaker 2: we'll catch up against the Victoria coach there the Heritage Foundation.
Speaker 2: That's the situation that most people in this market ultimately
Speaker 2: think we will avoid, and certainly want to avoid. Stay
Speaker 2: with us. More Bloomberg surveillance coming up after this. So
Speaker 2: here's the latest this morning, cud climbing for a fourth
Speaker 2: consecutive day, back over one hundred dollars a barrel, with
Speaker 2: the US and Iran seemingly dead. Luck joining us around
Speaker 2: the table, Paul Sanki of Sanky Research, Paul going to
Speaker 2: see you. Have you met Lisa before?
Speaker 1: All right, okay, inside, let's.
Speaker 7: Go on, We'll move on.
Speaker 2: Cool. Before this war started the day before Exxon closed
Speaker 2: it around one fifty. Exon closed yesterday around one fifty.
Speaker 2: Why hasn't this war and this supply hammering that we've
Speaker 2: seen in the last two months, energized the rally in
Speaker 2: energy names.
Speaker 7: Well, the energy names were running hard into this. You know,
Speaker 7: they're the best performing sector of the year to date,
Speaker 7: and that you know, very much reversed. So you had
Speaker 7: tech going down, oil going up, and I think that
Speaker 7: was important because in many ways, the market was adding
Speaker 7: terminal value into the oil. So what they were doing
Speaker 7: is they were buying on the basis that the oil
Speaker 7: age isn't ending, and you know, you had fundamentally more
Speaker 7: long term value. And x x on themselves had come
Speaker 7: out with their long term energy plan in October around
Speaker 7: the time BP capitulated, the IA capitulated on the end
Speaker 7: of the oil age. So Excellon came out and said, actually,
Speaker 7: we think global oil demand's going to be flat through
Speaker 7: twenty fifty. So the market began to think, you know,
Speaker 7: actually these and of course the AI energy requirement, natural
Speaker 7: gas requirement, the market began to buy in in a
Speaker 7: very big way to the idea that the oils were
Speaker 7: fundamentally worth more because they have a much longer outlook
Speaker 7: for their.
Speaker 5: Products, and so that was bullish.
Speaker 7: But of course, when you get into this situation, and
Speaker 7: this is what we're looking at directly today, and I'll
Speaker 7: mention in passing that there's also been some profit warnings
Speaker 7: for Q. One that we saw is to do with
Speaker 7: inventory values changing massively because of the crisis. So you're
Speaker 7: going to have some very big headline losses reported by
Speaker 7: the oils in terms of their working capital in the
Speaker 7: earning season that's coming up right now. But then what
Speaker 7: we saw here is that people are typically unwilling to
Speaker 7: buy into the oils at a peak price. And what
Speaker 7: we've seen at times is the ou price will come
Speaker 7: down and the oils go up, and that's big investors
Speaker 7: wanting to get into oil, but not wanting to buy
Speaker 7: when jet fuels two hundred dollars a barrel. But you
Speaker 7: can see the underlying bid is there.
Speaker 6: Now.
Speaker 7: Of course it gets more complicated because then we had
Speaker 7: this huge tech rally, you know, so people were shoving
Speaker 7: money back into in nvideo or whatever they were. So
Speaker 7: we didn't get part of that bid either. And I'll
Speaker 7: leave it to your geniuses to work out why tech
Speaker 7: was so strong. But I think that the AI theme
Speaker 7: has remained on course, and particularly the AI capex, and
Speaker 7: so there is an argument that the AI themes, I mean,
Speaker 7: all the language from the companies, it is going to
Speaker 7: be vast. It is going to be huge, and people
Speaker 7: wanted to buy back in. But I think over the
Speaker 7: coming months this is going to unctual need to deterirorate badly.
Speaker 7: This situation. It already is, but it's nothing to say
Speaker 7: that it's going to not be deteriorate anything other than
Speaker 7: deteriorrating over the next two months. We're locked into that.
Speaker 7: And so I think the market has you know, it's
Speaker 7: been a great rally, an all time rally by some measures.
Speaker 7: But I think this is it's going to come back
Speaker 7: to us. And I think John, another one of your
Speaker 7: expert areas is the tea. You know, what we're looking
Speaker 7: at as the teable and how government finances can really
Speaker 7: handle this total disaster, And it's going to be difficult before.
Speaker 5: We get there.
Speaker 1: Though it's easy for people to say oil prices are
Speaker 1: going to remain structurally higher for the foreseeable future as
Speaker 1: a result of this, regardless of whether it gets resolved
Speaker 1: or not.
Speaker 5: Why is that not enough to.
Speaker 1: Give a boost to some of these oil majors and
Speaker 1: why aren't we seeing them investing capex?
Speaker 7: Yeah, I think that's a good point, and I think
Speaker 7: it becomes a demand destruction case. So what happened? You know,
Speaker 7: we have an almost opposite of COVID effect here. But
Speaker 7: what you saw with COVID is in twenty nineteen world
Speaker 7: all the A one hit a record high, you structurally
Speaker 7: lowered it, and you had just fought your way back
Speaker 7: over six years, five years to be at record highs again.
Speaker 7: Literally in February twenty six you were at all time
Speaker 7: record highs for global oil demand. And I think what
Speaker 7: you'll see out of this crisis is actually a structural
Speaker 7: reduction in oil demand as well as a structural increase
Speaker 7: in the oil price. So I think that's one of
Speaker 7: the reasons why at this Energy forum we were talking
Speaker 7: about this this week in case spant Off, the really
Speaker 7: outstanding CEO of Diamondback, was talking about the fact that
Speaker 7: the future strips at seventy two dollars for next year
Speaker 7: and there's nothing he can do with that. You know,
Speaker 7: he can't sell into it, he can't draw more on it.
Speaker 7: It's really another interesting aspect of this crisis, which is
Speaker 7: the future strip is disincentivizing investment in more oil supply
Speaker 7: in the way that we need it. And so the
Speaker 7: companies aren't changing their cap ex plans. The AI guys
Speaker 7: our Tesla is, but you won't see any in my view,
Speaker 7: you won't see any public oil company make a major
Speaker 7: change to their KapS plan on this Q one Onnes's.
Speaker 2: We've got about a minute left. Yeah, seem to think
Speaker 2: this is going to get very bad, and I just
Speaker 2: want you to spell out why, because there was a
Speaker 2: degree of comfort the people of God that were a
Speaker 2: de escalatory path.
Speaker 7: Well, the comfort comes from the fact that the tank
Speaker 7: has only stopped arriving last week. You know, it's a
Speaker 7: forty day process, and so almost immediately what we've seen
Speaker 7: is this the inventry numbers have now started to get scary,
Speaker 7: and it's just starting. But you're not at the stage
Speaker 7: of just outright crisis pricing. You know, you're not at
Speaker 7: the stage where Americans, American very low share of their
Speaker 7: income goes to gasoline three four. You know, it's eight
Speaker 7: nine in Germany. It's not that big a price. It's
Speaker 7: a sticker shock, but it's not really that huge an
Speaker 7: effect for the average American. Obviously, it's regressive and bad
Speaker 7: for poor people. So I think that the situation here
Speaker 7: gets worse simply because it's guaranteed. You know, normally when
Speaker 7: we're forecasting oil we can be very very wrong for
Speaker 7: extraneous reasons. In this case, we can be sure that
Speaker 7: the next two months is going to be an ongoing
Speaker 7: absolute disaster, even if you open the straits tomorrow, because
Speaker 7: it's just locked in by virtue of tanking tankers, and
Speaker 7: the tankers are all in the wrong places, it probably
Speaker 7: means it's three months. So it's a very bad situation,
Speaker 7: and we're looking at where it's flight chains of breaking.
Speaker 7: We focused on Australia on jet fuel. People are talking
Speaker 7: about solvents in Japan for chip making. Today you know,
Speaker 7: you'll see where the cracks really start to appear. And
Speaker 7: then finally there's another issue, which is emergency invantries. The
Speaker 7: first slug is easy to release, the second slug you're
Speaker 7: going to release it, but you're going to be scared.
Speaker 7: And then there's a question of can you really release
Speaker 7: the third slug. So the emergency invantries are probably lower
Speaker 7: in real actual terms than they appear on your screen,
Speaker 7: and they appear very low.
Speaker 2: And this is quite sober and stuff. Paul sank appreciate
Speaker 2: your time. Thank you, sir, Paul Sank. You there Sanki Research.
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