WEBVTT - Red Sea, Markets, and Media 0:00:00.120 --> 0:00:04.360 Bloomberg is now on your dashboard with Apple CarPlay and 0:00:04.360 --> 0:00:08.160 Android Auto. It gives you access to every Bloomberg podcast, 0:00:08.280 --> 0:00:11.560 live audio feeds from Bloomberg Radio, print stories from Bloomberg 0:00:11.640 --> 0:00:14.920 News in audio form, and the latest headlines of the 0:00:14.920 --> 0:00:18.600 click of a button with Bloomberg News. Now it's free 0:00:18.680 --> 0:00:21.439 with the latest version of the Bloomberg Business App. That's 0:00:21.680 --> 0:00:24.400 the Bloomberg Business App. Get it on your phone in 0:00:24.440 --> 0:00:27.760 the Apple App Store or on Google Play. Just download 0:00:27.800 --> 0:00:30.560 the app, connect your phone to your car and get started. 0:00:30.960 --> 0:00:34.400 And it's all presented by our sponsor, Interactive Brokers. 0:00:35.400 --> 0:00:38.600 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:38.640 --> 0:00:39.800 my co host Matt Miller. 0:00:40.200 --> 0:00:44.279 Every business day we bring you interviews from CEOs, market pros, 0:00:44.320 --> 0:00:48.160 and Bloomberg experts, along with essential market moven News. 0:00:48.720 --> 0:00:51.839 I'm the Bloomberg Markets podcast called Apple Podcasts or wherever 0:00:51.960 --> 0:00:55.080 you listen to podcasts, and at Bloomberg dot Com Slash podcast. 0:00:55.560 --> 0:00:57.080 I think we need to go over to the Red 0:00:57.120 --> 0:01:00.280 Seat at the latest reporting on tensions in the Red 0:01:00.280 --> 0:01:03.320 Sea and its impact on the global oil. Brendan Murray 0:01:03.360 --> 0:01:07.400 joins us here Bloomberg News reporter out of London, Brendan, 0:01:07.600 --> 0:01:11.600 I'm seeing an article on the Bloomberg Colonel Bloomberg news hop. 0:01:11.680 --> 0:01:15.399 ULG Lloyd, a big, big global shipper. They're continuing to 0:01:15.440 --> 0:01:18.720 reroute their ships away from the Red Sea. 0:01:18.760 --> 0:01:22.520 What's the latest right, Well, there still seems to be 0:01:22.959 --> 0:01:26.520 the risk of attacks sailing through the Red Sea. The 0:01:26.600 --> 0:01:31.800 latest was an MSc ship that was attacked yesterday. So 0:01:31.840 --> 0:01:35.120 hapag Lloyd is taking the stance that we're still going 0:01:35.200 --> 0:01:38.200 to divert around Africa. These that would not take the 0:01:38.240 --> 0:01:41.720 shortcut through the Suez Canal, seeing too much risk of 0:01:41.800 --> 0:01:45.119 doing so. These ships are carrying anywhere from a half 0:01:45.200 --> 0:01:47.800 a billion dollars to a couple of billion dollars in cargo, 0:01:48.280 --> 0:01:50.440 not to mention the you know, the serious risks to 0:01:50.480 --> 0:01:51.000 their crews. 0:01:51.080 --> 0:01:52.760 So many of these big. 0:01:52.880 --> 0:01:56.160 Shipping companies are saying it's still too risky to take 0:01:56.200 --> 0:01:59.280 the chance. So they're they're making that extra twenty five 0:01:59.320 --> 0:02:03.680 percent a journey that's twenty five percent longer than it 0:02:03.800 --> 0:02:06.960 otherwise would be. They're still continuing to make that decision 0:02:07.000 --> 0:02:08.960 and the number of ships that are diverting is still. 0:02:08.840 --> 0:02:12.160 Rising well and Brendan, this is despite the US's efforts 0:02:12.200 --> 0:02:14.880 through a maritime task force to make sure that merchant 0:02:14.960 --> 0:02:18.520 vessels are protected, that any drones potentially shot down by 0:02:18.840 --> 0:02:21.480 or sent by the Hoothies would be shot down. So 0:02:21.639 --> 0:02:24.480 is anyone feeling protected enough to go through the Red 0:02:24.520 --> 0:02:26.520 Seat right now? Is there any real activity? 0:02:27.480 --> 0:02:27.960 Well heard? 0:02:28.000 --> 0:02:30.079 We had a statement also from Marisk, which is the 0:02:30.160 --> 0:02:34.320 number two global container shipping line, that said they're preparing 0:02:35.120 --> 0:02:39.480 to resume sailing across the Red Sea as soon as 0:02:39.520 --> 0:02:43.400 it's appropriate. Now when that is, we don't know, but 0:02:43.520 --> 0:02:48.840 at least they're sounding like they're willing to take that 0:02:49.240 --> 0:02:51.560 to take that trip as soon as they can get 0:02:51.600 --> 0:02:55.280 assurances that their ships will be secure. That was a 0:02:55.360 --> 0:02:58.600 turnaround from a week ago when they said they were 0:02:58.680 --> 0:03:02.320 calling on the US, in the UK and other countries 0:03:02.400 --> 0:03:06.160 to provide more protection. So we're seeing sort of incremental 0:03:06.200 --> 0:03:09.800 steps back toward the direction of sailing through the Suez again, 0:03:10.120 --> 0:03:13.440 but still it's not happening on any large scale. 0:03:14.080 --> 0:03:17.600 I see Brendan from some Bloomberg Intelligence research that spot 0:03:17.720 --> 0:03:21.079 rates for container shipping have jumped twenty six percent over 0:03:21.120 --> 0:03:25.359 the past few weeks. Who pays that higher cost, Well, 0:03:25.400 --> 0:03:26.359 that the cargo. 0:03:26.120 --> 0:03:27.160 Owners pay that cost. 0:03:27.280 --> 0:03:31.040 These get added on and surcharges and other sort of 0:03:31.120 --> 0:03:38.200 incremental costs that the shipping lines charge them. Ultimately, the 0:03:38.320 --> 0:03:43.640 customers of transport services pay those and they in turn 0:03:43.760 --> 0:03:46.560 past those two consumers in one way or the other eventually. 0:03:47.000 --> 0:03:51.280 So twenty six percent increase is not an enormous spike 0:03:51.400 --> 0:03:55.200 higher when you look at shipping rates have plunged seventy 0:03:55.240 --> 0:03:59.080 five percent this year, but it's still a turnaround from 0:03:59.160 --> 0:04:02.400 the steady erod of freight rates that we've seen throughout 0:04:02.440 --> 0:04:05.040 the year, and one that the shipping companies frankly would welcome. 0:04:05.320 --> 0:04:08.400 They can't really make money at rates the way they 0:04:08.440 --> 0:04:11.080 were three weeks ago, but now they're kind of back 0:04:11.160 --> 0:04:12.760 in the profit making zone. 0:04:13.120 --> 0:04:16.600 So Brendan, obviously there's a cost calculation here in terms 0:04:16.640 --> 0:04:20.040 of what the impact of this waterway, which is so 0:04:20.200 --> 0:04:22.880 crucial in terms of maritrine trade being blocked, is. But 0:04:22.960 --> 0:04:25.000 it also to your point you were making earlier about 0:04:25.000 --> 0:04:27.400 the time it takes to go around the coast of 0:04:27.440 --> 0:04:31.080 Africa instead, is about time, especially when we think about 0:04:31.080 --> 0:04:34.680 how supply chains were so snarled back during the heart 0:04:34.800 --> 0:04:37.080 of COVID days, are we going to see any of 0:04:37.200 --> 0:04:39.520 that backups and ports as all of these ships are 0:04:39.560 --> 0:04:42.600 taking longer to arrive at their destinations or is it 0:04:42.760 --> 0:04:45.200 likely to be a bit smoother than we experienced a 0:04:45.240 --> 0:04:45.840 few years ago. 0:04:46.920 --> 0:04:49.000 Well, it all depends on how long this lasts. I mean, 0:04:49.360 --> 0:04:52.719 we're seeing hundreds and hundreds of ships diverting. Now those 0:04:52.760 --> 0:04:54.520 are all going to be late in their ports of 0:04:54.600 --> 0:04:57.560 the original ports of destination. All that cargo is going 0:04:57.600 --> 0:05:01.800 to have to be rerouted new schedules for for delivery 0:05:01.880 --> 0:05:05.120 and pick up with trucks and trains, and so we'll 0:05:05.120 --> 0:05:08.720 see an initial jolt to supply chains. But in truth, 0:05:09.000 --> 0:05:12.320 supply chains have been pretty resilient. They and absorbed a 0:05:12.400 --> 0:05:15.720 lot of these, even the biggest shocks. So we'll we'll 0:05:15.760 --> 0:05:20.000 see some initial initial disruptions uh in the in the 0:05:20.080 --> 0:05:23.760 coming weeks, and if it gets resolved and shipping continues 0:05:23.800 --> 0:05:27.160 through the Suez Canal, the likelihood is this won't leave 0:05:27.200 --> 0:05:30.800 a huge, huge dent on the on the global economy 0:05:30.880 --> 0:05:33.880 or global trade more broadly, But initially it's going to 0:05:33.920 --> 0:05:37.360 be painful, especially come January, when one of the peak 0:05:37.440 --> 0:05:40.360 shipping seasons of the year happens as retailers look to 0:05:40.400 --> 0:05:41.560 restock after the holidays. 0:05:42.040 --> 0:05:46.120 Brendan Ultimately, who decides when it is safe to transit 0:05:46.200 --> 0:05:47.800 the Red Sea is that the US Navy is the 0:05:47.839 --> 0:05:50.000 shipping companies themselves who decides. 0:05:51.080 --> 0:05:54.240 Well, it sounds like the shipping companies themselves are making 0:05:54.320 --> 0:05:57.839 this decision based based in large part on the signals 0:05:57.839 --> 0:06:00.359 they're getting from the forces in the area. 0:06:00.839 --> 0:06:00.919 Uh. 0:06:01.320 --> 0:06:05.680 It's there are a few containerships going through. Uh and 0:06:06.040 --> 0:06:08.120 you know, as we saw yesterday with the MSc ship 0:06:08.200 --> 0:06:10.160 that you know, they're they're getting attacked by drones and 0:06:10.279 --> 0:06:14.279 rockets and other things. Uh So the shipping companies, though, 0:06:14.360 --> 0:06:17.599 are taking their queue from their insurance companies that are saying, look, 0:06:17.640 --> 0:06:20.240 it's it's it's too it's too costly for us, it's 0:06:20.279 --> 0:06:22.280 going to be too We're going to raise your premium 0:06:22.320 --> 0:06:24.279 if you want to do that. So it's a there's 0:06:24.279 --> 0:06:28.200 a trade off that they're that they're weighing, and ultimately, uh, 0:06:28.440 --> 0:06:31.240 you know, higher higher insurance costs will will sort of 0:06:31.320 --> 0:06:32.640 dictate some of those decisions. 0:06:33.000 --> 0:06:33.360 All right. 0:06:33.400 --> 0:06:35.599 Brendan Murray, thanks so much for joining us from London. 0:06:35.680 --> 0:06:38.320 He is our trades are here at Bloomberg. I love 0:06:38.360 --> 0:06:41.480 this art. Those are the best titles in the building. 0:06:42.920 --> 0:06:46.720 You're listening to the team kenjer Live program Bloomberg Markets 0:06:46.800 --> 0:06:49.840 weekdays at ten am Eastern on Bloomberg dot com, the 0:06:49.960 --> 0:06:53.080 iHeartRadio app and the Bloomberg Business app, or listen on 0:06:53.160 --> 0:06:55.120 demand wherever you get your podcasts. 0:06:56.880 --> 0:06:59.560 Another good title though is executive editor, and I'm pleased 0:06:59.560 --> 0:07:02.120 to say our your executive editor for Energy in Commodities. 0:07:02.200 --> 0:07:04.760 Will Kennedy is joining us now also from London, to 0:07:04.839 --> 0:07:08.320 talk through how this is translating into oil markets. It's 0:07:08.360 --> 0:07:11.640 actually interesting, Will, You had oil closing at the highest 0:07:11.720 --> 0:07:14.040 level in about a month yesterday, coming off those levels 0:07:14.080 --> 0:07:16.200 a touch today, we're now at eighty dollars and sixty 0:07:16.280 --> 0:07:19.560 five cents for a barrel of Brent crude. Should we 0:07:19.680 --> 0:07:22.760 be expecting this to resonate more with the oil market 0:07:22.920 --> 0:07:24.960 or traders just expecting that this is going to be 0:07:25.000 --> 0:07:28.520 a very short term impact that ultimately doesn't fundamentally change 0:07:28.560 --> 0:07:29.320 anything that much. 0:07:31.040 --> 0:07:33.680 Good morning, Katy. I think it has had an impact, 0:07:33.800 --> 0:07:36.240 to be honest. Oil prices are high where they were. 0:07:36.640 --> 0:07:40.080 They fallen really quite sharply early in December, and they've 0:07:40.240 --> 0:07:45.400 rallied against this news. In the Red Sea. Let's still 0:07:45.520 --> 0:07:48.640 below where they were at the beginning of the four 0:07:49.240 --> 0:07:51.120 when they were close to one hundred dollars, but they 0:07:51.200 --> 0:07:53.240 have run it. I think it does make people nervous. 0:07:53.720 --> 0:07:56.360 It makes people nervous that the conflicts that we're seeing 0:07:56.360 --> 0:08:00.440 in the Middle East could spread. Clearly the huts who 0:08:00.560 --> 0:08:03.520 are responsible for this attacks as sponsored by a rob 0:08:04.520 --> 0:08:06.600 as is the mass in the gards of strips, so 0:08:07.080 --> 0:08:10.880 that wider regional tension remains, and it does make oil 0:08:10.960 --> 0:08:13.240 traders nervous. But I think there are a couple of 0:08:13.280 --> 0:08:16.920 reasons why the reaction perhaps hasn't been stronger. Oral markets 0:08:16.960 --> 0:08:22.680 remain fairly well supplied globally, and a lot of the 0:08:23.160 --> 0:08:30.040 oil coming through the Red Sea is destined for customer. 0:08:30.120 --> 0:08:32.640 Is Russian oil destined Vasia, and it's unlikely the Russian 0:08:32.640 --> 0:08:36.880 oal perhaps would be a target of these attacks, So 0:08:37.440 --> 0:08:41.200 there are reasons why they that people aren't so nervous 0:08:41.200 --> 0:08:45.720 about oil tankers in the Red Sea. And finally, Saudi 0:08:45.760 --> 0:08:50.040 Arabia and its allies of OPEK, especially their moments, retain 0:08:50.160 --> 0:08:54.040 a good amount of spare capacity, which means that if 0:08:54.520 --> 0:08:56.800 the situation were to worse and that there are policy 0:08:56.880 --> 0:08:59.840 responsibles that OPEC could make, And I think that means 0:08:59.880 --> 0:09:03.480 that some of the sting of geopolitics or oil prices 0:09:03.920 --> 0:09:04.920 is removed at the moment. 0:09:05.640 --> 0:09:08.280 Well before this latest flare up in the Red Sea 0:09:08.320 --> 0:09:10.760 oil preces had been trading Lord and WTI crude oil 0:09:10.840 --> 0:09:14.920 was below seventy Where is the market now in terms 0:09:14.920 --> 0:09:18.680 of assessing demand here? It appears that the US economy 0:09:19.360 --> 0:09:22.000 at least may be in for a soft landing. Where's 0:09:22.040 --> 0:09:23.959 the sense of demand over the next three to six 0:09:24.040 --> 0:09:24.600 to twelve months. 0:09:25.200 --> 0:09:27.960 Yeah, I think we should start that conversation ball by 0:09:28.080 --> 0:09:30.640 talking about demand this year, which has been a lot 0:09:30.679 --> 0:09:33.800 stronger than many people expected. It'd be bounded infamily sharply 0:09:33.840 --> 0:09:35.959 in China, as China was the last major economy to 0:09:36.000 --> 0:09:39.240 come out of COVID, It's been very healthy in the 0:09:39.360 --> 0:09:42.400 United States. As you say, the economy continues to do well. 0:09:42.720 --> 0:09:47.640 People continue to drive, and they continue to demand goods 0:09:47.679 --> 0:09:53.080 that are transported by trucks. I think that demand has 0:09:53.120 --> 0:09:56.040 been much stronger than many people expected, and if the 0:09:56.120 --> 0:09:58.839 economy does have that soft landing, there's every reason to 0:09:58.960 --> 0:10:02.120 expect that demand will continue to be fairly strong. It 0:10:02.200 --> 0:10:04.040 might not be as strong as I have been this year, 0:10:04.040 --> 0:10:06.160 because I think that coming out of COVID in China 0:10:06.240 --> 0:10:08.960 effect was particularly strong. We had that really big snapback. 0:10:09.480 --> 0:10:10.880 But you know, we may add more than a million 0:10:10.920 --> 0:10:14.319 pounds a year day next year. That's the sort of 0:10:14.480 --> 0:10:16.520 forecast that you were looking at, And that's a fairly 0:10:16.640 --> 0:10:21.160 healthy increase in demand by historical standards. So the question 0:10:21.320 --> 0:10:24.560 then becomes what happens with supply and is it more 0:10:24.640 --> 0:10:27.160 than matched with supply and that balance. But I think 0:10:27.200 --> 0:10:29.760 you'll like to point out for that as people think 0:10:29.760 --> 0:10:33.040 about the market next year, that strength in demand is 0:10:33.040 --> 0:10:35.280 one of the key questions that they're thinking about. 0:10:35.880 --> 0:10:38.920 But to your point, will about supply, We've obviously learned 0:10:38.960 --> 0:10:41.400 within the last several weeks that shaled this year in 0:10:41.480 --> 0:10:44.800 the US far exceeded expectations in terms of what they 0:10:44.840 --> 0:10:47.480 were able to produce in twenty twenty three. It's OPEC 0:10:47.559 --> 0:10:50.000 really that has been more restrictive. The saudis really the 0:10:50.080 --> 0:10:53.160 ones leading that is, they would like to keep prices elevated. 0:10:53.240 --> 0:10:56.520 If indeed that demand picture you're painting does come true 0:10:56.600 --> 0:10:58.800 in twenty twenty four and you see an uptick in demand, 0:10:58.840 --> 0:11:02.240 should we expect that OPA is necessarily going to respond 0:11:02.679 --> 0:11:04.640 by putting more out there on the market. Are they 0:11:04.800 --> 0:11:08.280 likely to try to keep things as tight as possible, so. 0:11:08.360 --> 0:11:11.120 They agreed to they agree to cut more in the 0:11:11.240 --> 0:11:13.600 recent meeting in the beginning of December, and the Saudis 0:11:14.040 --> 0:11:17.440 themselves were not contributing to that, but other members agree 0:11:17.480 --> 0:11:20.280 to pair that production or fore go increases that they 0:11:20.320 --> 0:11:22.559 had already agreed in the case of they liked our members. 0:11:22.960 --> 0:11:24.720 I think what that means is that Opek will want 0:11:24.760 --> 0:11:26.079 to say that to see that play out in the 0:11:26.120 --> 0:11:29.160 first quarter. When we last spoke to the Saudi Energy minister, 0:11:29.280 --> 0:11:31.559 he said they were willing to keep those curves in 0:11:31.640 --> 0:11:35.199 place beyond the first quarter to see demand titan. So 0:11:36.080 --> 0:11:38.160 I think when you put that together, they are likely 0:11:38.240 --> 0:11:41.240 to put more oil in the market in the short term. 0:11:42.240 --> 0:11:45.079 They really would like to see these cuts work and 0:11:45.120 --> 0:11:49.360 they would like to see the market tightened, so they 0:11:49.400 --> 0:11:51.360 will be patient to wait for that to happen before 0:11:51.400 --> 0:11:55.440 they before they think about putting many more well back 0:11:55.480 --> 0:11:56.040 into the market. 0:11:56.400 --> 0:11:58.679 Despite some of the at least warmer temperatures here in 0:11:58.720 --> 0:12:01.240 the US, we are in peak heating season. Here will 0:12:01.280 --> 0:12:04.080 goes the sense how things are in Europe turned out 0:12:04.120 --> 0:12:07.760 better than expected last winter. What's the situation for this winter? 0:12:08.760 --> 0:12:11.160 Yeah, we haven't. We've had a bit of cold winter. 0:12:11.240 --> 0:12:13.720 I mean here in the UK it's been an incredibly warm, 0:12:13.800 --> 0:12:17.840 wet and windy winter. And that kind of weather means 0:12:17.920 --> 0:12:21.439 that energy supplies are fairly ample for two reasons. One, 0:12:22.080 --> 0:12:24.400 it doesn't put a huge strain on gas demand because 0:12:24.520 --> 0:12:27.080 people aren't needing it to heat their homes or heating 0:12:27.160 --> 0:12:29.679 all demand. And two, all this wind means that we're 0:12:29.679 --> 0:12:33.120 generating a huge amount of power through wind through the 0:12:33.360 --> 0:12:34.839 you know, I think I looked this morning and the 0:12:34.960 --> 0:12:37.079 UK was producing more than sixty percent of its power 0:12:37.080 --> 0:12:40.640 demand through wind turbines. So you put that together and 0:12:40.760 --> 0:12:43.760 it means that if that weather continues, we should come 0:12:43.800 --> 0:12:46.360 through this winter in fairly good shape. And in fact, 0:12:46.640 --> 0:12:49.680 people are fairly confident this winter wold be too bad. 0:12:49.840 --> 0:12:54.600 There are above average levels of gas supply and as 0:12:54.640 --> 0:12:56.360 we say, we haven't had a big coal slap yet, 0:12:56.400 --> 0:13:01.120 but that could of course change weather is under all right. 0:13:01.240 --> 0:13:02.400 Well, Kennedy, thank you so much. 0:13:02.440 --> 0:13:02.959 We appreciate it. 0:13:03.000 --> 0:13:03.120 Well. 0:13:03.160 --> 0:13:06.440 Kennedy, Senior Managing editor over there in lundon covering all 0:13:06.520 --> 0:13:07.600 things on the energy front. 0:13:07.920 --> 0:13:11.000 You're listening to the tape Cat's are Live program Bloomberg 0:13:11.080 --> 0:13:14.640 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:13:14.720 --> 0:13:17.920 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:13:18.000 --> 0:13:20.800 You can also listen live on Amazon Alexa from our 0:13:20.840 --> 0:13:25.199 flagship New York station, Just say Alexa, play Bloomberg eleven thirty. 0:13:27.080 --> 0:13:29.880 Really, there is still so much geopolitics a play trade 0:13:30.080 --> 0:13:32.640 to be digesting all of it and it's impact on 0:13:32.679 --> 0:13:33.000 the market. 0:13:33.240 --> 0:13:34.760 Yeah, we are seeing yields move though. We've got the 0:13:34.800 --> 0:13:37.720 ten year treasury off about eight basis points three point 0:13:37.760 --> 0:13:40.839 eight one percent. Boy, it wasn't that long ago we 0:13:40.920 --> 0:13:43.040 had the tenure was trading north of five percent there, 0:13:43.160 --> 0:13:46.040 So big big move in racers saying mortgage rates come down. 0:13:46.280 --> 0:13:49.000 That was important for Kaylee Lions as she's house hunting 0:13:49.040 --> 0:13:51.760 and she liked to see those rates come down even more. 0:13:51.880 --> 0:13:54.880 Let's get a sense of maybe where these markets are going, 0:13:54.920 --> 0:13:56.680 because it's been such a move just over the last 0:13:57.080 --> 0:13:59.160 seven eight nine weeks here, big big moves up in 0:13:59.200 --> 0:14:01.760 the acquity markets, moves down in yields. I'm not sure 0:14:02.400 --> 0:14:04.920 how many people kind of saw that on their Bingo card. 0:14:04.960 --> 0:14:08.000 But Nancy Tangler joins us. She's the CIO of Laffer 0:14:08.200 --> 0:14:12.360 Tangler investments joining us via zoom here. Nancy, boy, this 0:14:12.600 --> 0:14:14.520 move we've had over the last eight nine weeks has 0:14:14.679 --> 0:14:17.000 really been something to marvel at. What do you make 0:14:17.040 --> 0:14:17.199 of it? 0:14:18.520 --> 0:14:23.400 Well, I love the bingo card analogy. I never had 0:14:23.480 --> 0:14:26.320 much luck with that myself, But yeah, I think a 0:14:26.400 --> 0:14:26.840 couple things. 0:14:26.880 --> 0:14:27.080 Paul. 0:14:27.120 --> 0:14:29.240 We wrote a piece on October thirty first that said 0:14:29.320 --> 0:14:32.120 opportunity in every difficulty, And at the beginning of last 0:14:32.160 --> 0:14:35.600 year we wrote a piece that said of this year 0:14:35.880 --> 0:14:39.280 that we thought investors were being way too pessimistic and 0:14:39.440 --> 0:14:41.960 that we expected to see the markets do much better 0:14:42.080 --> 0:14:45.040 than most thought. We don't do market forecasts for the 0:14:45.120 --> 0:14:47.560 year end, but we did say in the October thirty 0:14:47.600 --> 0:14:49.680 one piece we thought we'd see a rally and not 0:14:50.600 --> 0:14:53.480 expecting this much of a rally. To be sure, I 0:14:53.560 --> 0:14:54.440 think you've got a lot. 0:14:54.360 --> 0:14:55.120 Of things going on. 0:14:55.400 --> 0:14:58.120 It's not just the FED, it's you know, the money 0:14:58.160 --> 0:15:01.600 on the sidelines, it's creeping in window dressing. But I 0:15:01.720 --> 0:15:04.520 do think that stocks, if you look at the multiple 0:15:04.960 --> 0:15:07.520 you're at fifteen times fifteen point three times S and 0:15:07.600 --> 0:15:10.760 p X fang with fang you're at seventeen times next 0:15:10.840 --> 0:15:13.920 year's earnings, that that is not super lofty, and I 0:15:14.000 --> 0:15:16.280 think we have the opportunity to move up from here 0:15:16.640 --> 0:15:18.320 with some choppiness in the first quarter. 0:15:18.920 --> 0:15:22.080 I always love Nancy your notes in particular, and I 0:15:22.160 --> 0:15:24.640 think back to sort of the October thirty first note. 0:15:24.680 --> 0:15:27.280 I think back to some of the quotes you use 0:15:27.320 --> 0:15:29.760 in Winston Churchill in particular, you say, a pessimists is 0:15:29.760 --> 0:15:32.360 the difficulty and every opportunity, and optimisty is the opportunity 0:15:32.400 --> 0:15:35.080 and every difficulty. So be the optimist, and I know 0:15:35.160 --> 0:15:37.760 you are one. What are some of the difficulties that 0:15:37.840 --> 0:15:39.840 you're going to be keeping a keen eye on as 0:15:39.960 --> 0:15:41.600 you try and assert some of the optimism. 0:15:42.600 --> 0:15:46.040 Well, I love your Winston Churchill, Caroline, so I quote 0:15:46.080 --> 0:15:47.080 him at every opportunity. 0:15:48.200 --> 0:15:48.400 Yeah. 0:15:48.480 --> 0:15:50.680 So, I think one of the biggest concerns is is 0:15:50.840 --> 0:15:54.120 inflation licks. Now we know that the core number, the 0:15:54.200 --> 0:15:57.200 PCE number, has been coming down, but the sticky inflation 0:15:57.440 --> 0:15:59.760 number at per the Atlanta feed is still very high. 0:16:00.160 --> 0:16:02.280 And if you look at historical numbers back in the 0:16:02.720 --> 0:16:07.360 seventies and period where we had inflation restart, it's pretty 0:16:07.400 --> 0:16:11.120 positively correlated. Now we're at the turning point. So whether 0:16:11.200 --> 0:16:15.400 or not that happens remains to be seen. But I 0:16:15.480 --> 0:16:17.680 think the other thing I'm quite concerned about is the 0:16:17.760 --> 0:16:20.720 Red Sea And if you look at the good news 0:16:20.800 --> 0:16:23.400 in the PMIS, it's that delivery times have come down, 0:16:23.880 --> 0:16:26.080 but they're about to go up if we have to 0:16:26.160 --> 0:16:30.240 continue to go in alternate routes for shipping. So that's 0:16:30.280 --> 0:16:34.320 something on our radar. We're also we're not concerned about earnings. 0:16:34.400 --> 0:16:36.800 We think margins are going to continue to improve. That 0:16:37.000 --> 0:16:39.440 was the good news story in the second half of 0:16:39.520 --> 0:16:42.840 this year, and so we think that continues. Managements have 0:16:42.920 --> 0:16:46.400 done an excellent job because most of them refinanced before 0:16:46.960 --> 0:16:50.680 rates went up, But I haven't been particularly complementary of 0:16:50.760 --> 0:16:52.880 the FED, and they can still screw this up. 0:16:53.480 --> 0:16:57.400 In my view, we are going to go into Red 0:16:57.520 --> 0:16:59.400 Sea in a moment, but I want to go back 0:16:59.400 --> 0:17:01.520 to some of the ex I'm so pleased you bring 0:17:01.600 --> 0:17:04.080 to our technology shows on the odd occasion that we're 0:17:04.160 --> 0:17:06.800 lucky enough to welcome you on NANCI. You are someone 0:17:06.840 --> 0:17:09.439 who you might not think that the Fed's always doing 0:17:09.520 --> 0:17:12.720 that great, but you are pretty focused on certain leadership, 0:17:12.760 --> 0:17:14.919 and you've called out certain tech companies are done particularly 0:17:14.960 --> 0:17:19.159 well in this environment. What of breadth in technology. You've 0:17:19.160 --> 0:17:20.840 been trying to say, Look, it's not just all about 0:17:20.880 --> 0:17:23.040 these seven killer stocks. There are others to be had. 0:17:23.119 --> 0:17:25.240 Do you still believe in that area being able to 0:17:25.320 --> 0:17:26.600 lead US high for twenty twenty four? 0:17:27.320 --> 0:17:30.520 I do, Caroline. The total addressable market for generative AI 0:17:31.200 --> 0:17:36.040 cloud digital transition is enormous. It's in the trillions of dollars, 0:17:36.160 --> 0:17:38.480 and so the question becomes, who are going to be 0:17:38.560 --> 0:17:40.360 the leader or who are going to be the survivors 0:17:40.400 --> 0:17:43.200 and the thrivers in this environment. We still think you 0:17:43.240 --> 0:17:44.879 want to own a couple of the fang names, but 0:17:45.000 --> 0:17:48.520 there are much broader places to be focused on some 0:17:48.840 --> 0:17:51.719 old economy tech like Oracle. I don't know, I call 0:17:51.800 --> 0:17:56.160 Broadcom the poor man's Nvidia. That that is one place 0:17:56.200 --> 0:17:58.320 that we think still has plenty of room to run. 0:17:58.920 --> 0:18:01.120 We've started looking at you new names, which you can't 0:18:01.160 --> 0:18:03.000 talk about because we're in the process of buying them, 0:18:03.040 --> 0:18:06.200 but I shortly talk about them. And I think you 0:18:06.280 --> 0:18:09.520 want to remain overweight this group, but we are also 0:18:09.680 --> 0:18:12.879 overweight industrials. And our big move at the end in 0:18:12.960 --> 0:18:14.680 the fall of twenty twenty two was to add to 0:18:14.720 --> 0:18:18.080 consumer discretionary in tech, and those two have been two 0:18:18.160 --> 0:18:20.879 of the three best performing sectors this year. I think 0:18:20.960 --> 0:18:23.680 there's still opportunities in consumer discretionary as well. 0:18:24.280 --> 0:18:25.840 Well, that's kind of where I wanted to go, Nancy, 0:18:25.960 --> 0:18:28.119 because it may surprise you to find out that I 0:18:28.600 --> 0:18:32.320 am not long that magnificent socks seven stocks in twenty 0:18:32.400 --> 0:18:33.840 twenty three. So what do I do in twenty four. 0:18:33.920 --> 0:18:37.240 Do I try to chase those names a big tech 0:18:37.440 --> 0:18:39.400 growth or do I, I don't know, try to find 0:18:39.440 --> 0:18:40.360 some value somewhere else. 0:18:41.280 --> 0:18:42.919 Well, Paul, you know what's so interesting is that if 0:18:42.960 --> 0:18:45.560 you look at the valuations compared to the nineties, and 0:18:45.600 --> 0:18:47.200 I think when I was on with you last Caroline, 0:18:47.200 --> 0:18:51.119 I talked about that this market is an analog or 0:18:51.200 --> 0:18:53.639 the nineties is an analog to this market. A lot 0:18:53.720 --> 0:18:56.840 of similarities in terms of inflation, high rates and inverted 0:18:56.920 --> 0:19:00.920 yield curve, of soft landing a war, and those valuations. 0:19:01.000 --> 0:19:02.840 I mean, all you have to do is look at Microsoft. 0:19:02.920 --> 0:19:05.159 It was training at the end of the nineties at 0:19:05.320 --> 0:19:09.040 fifty plus times peak earnings and it's currently at somewhere 0:19:09.040 --> 0:19:11.439 between twenty eight and thirty times forward earnings. These are 0:19:11.480 --> 0:19:13.840 not peak earnings for the company. So I think there 0:19:14.040 --> 0:19:17.440 are spots like I'm less enamored though I know people 0:19:17.560 --> 0:19:20.159 love Meta. It's not one of our top picks, But 0:19:20.359 --> 0:19:24.160 would I continue to add to Microsoft here or Amazon 0:19:24.480 --> 0:19:26.520 is a name that we think is probably our top 0:19:26.600 --> 0:19:29.280 pick in that space for next year. Yeah, I think 0:19:29.320 --> 0:19:32.000 you use weakness and you just be disciplined. You don't 0:19:32.400 --> 0:19:34.480 chase any of them. The last thing I'll say is, 0:19:34.520 --> 0:19:37.800 if you look at Nvidia on a forward multiple basis, 0:19:38.040 --> 0:19:42.000 it's pretty cheap compared to what you might think since 0:19:42.040 --> 0:19:44.480 the stock has doubled. It's in the the mid twenty 0:19:44.560 --> 0:19:47.520 five range. So I think those are all names that 0:19:47.600 --> 0:19:51.800 you can use as opportunistically to round out holdings. Don't 0:19:51.880 --> 0:19:55.000 chase anything because the market will pull back. We'll get 0:19:55.000 --> 0:19:58.000 a correction, and that's when you step in and buy 0:19:58.119 --> 0:19:59.399 with you know, both hands. 0:20:00.160 --> 0:20:01.879 Correction, Nancy, to the extent we want to buy with 0:20:01.960 --> 0:20:03.600 both hands at some point this year. Will it be 0:20:03.680 --> 0:20:05.600