WEBVTT - Oil, Banks, ECB, Consumers, and Ned Lamont (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moven news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.680 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:20.760 --> 0:00:23.200 All right, let's talk about the global energy space. I'm 0:00:23.200 --> 0:00:25.640 looking at WTI coude oil a little bit higher today, 0:00:25.880 --> 0:00:28.080 about six to nine dollars about. There's a lot going 0:00:28.120 --> 0:00:30.120 on there. We got some deals going on there. We 0:00:30.200 --> 0:00:33.159 got Netherlands closing a gas field when there rushes at 0:00:33.159 --> 0:00:34.800 a war with Ukraine. I have no idea what's going on. 0:00:34.960 --> 0:00:38.800 Scott Levine does, and Fernando vli He also does. They 0:00:38.840 --> 0:00:42.720 both cover the energy space for Bloomberg Intelligence. Fernando joins 0:00:42.760 --> 0:00:44.960 us via Zoom and Scott Levine is here in our 0:00:44.960 --> 0:00:47.919 Bloomberg Interactive Brokers studio. So Scott, let's start with you here. 0:00:47.920 --> 0:00:51.480 We've got an m and a deal in the energy space, 0:00:51.520 --> 0:00:55.760 in the shale space. Talk to us about what's happening today, Yes. 0:00:55.560 --> 0:01:00.400 Paul, So basically what we have is Patterson Uti, which 0:01:00.440 --> 0:01:04.920 is the number two land driller in the US buying 0:01:05.440 --> 0:01:08.479 or merging with you look at it a company called 0:01:09.080 --> 0:01:12.959 Next Tier oil Field Solutions, which is a top four 0:01:13.000 --> 0:01:18.600 player in pressure pumping. And you know, basically Patterson has 0:01:18.600 --> 0:01:24.000 been rumored to be disinterested in fracking over the years 0:01:23.200 --> 0:01:27.399 and will effectively be the number two player in both 0:01:27.480 --> 0:01:31.640 spaces and really the only major player in both fracking 0:01:32.080 --> 0:01:35.320 and pressure pumping. So this is probably the largest deal 0:01:35.360 --> 0:01:40.720 that we've seen since twenty twenty, and you know, raises 0:01:40.760 --> 0:01:44.160 a lot of interesting questions about what we're looking at 0:01:44.600 --> 0:01:47.960 in a potentially slowing shale market. 0:01:48.240 --> 0:01:51.080 Fernando, I want to bring you into this conversation. What's 0:01:51.120 --> 0:01:53.800 your take on oil demand growth moving forward? 0:01:55.440 --> 0:01:58.720 Well, I think there are two paradigms. The short term, 0:01:58.760 --> 0:02:01.440 where you know, as aviate I was saying about interest 0:02:01.520 --> 0:02:05.920 rates and impacting demand that ultimately will translate into lower 0:02:06.080 --> 0:02:10.440 oil them in because of lower consumption. Oil still used 0:02:10.919 --> 0:02:14.880 in the majority of our transportation, especially for industrials and 0:02:14.960 --> 0:02:16.080 for all of our retails. 0:02:16.160 --> 0:02:17.040 So if that. 0:02:17.280 --> 0:02:20.520 Is at a lower level because of higher interest rates globally, 0:02:20.880 --> 0:02:24.160 then oil demand should also falter. But then in the 0:02:24.240 --> 0:02:26.959 longer term. You know, we saw the E I E 0:02:27.160 --> 0:02:31.160 I should say, coming out with their prediction that peak 0:02:31.160 --> 0:02:33.160 oil demand is within the decade. 0:02:33.320 --> 0:02:34.680 We're a little slower on that. 0:02:34.800 --> 0:02:37.360 We think there's still a lot of hurdles to clear 0:02:37.480 --> 0:02:41.239 before we can start weaning off of oil. You know, 0:02:41.560 --> 0:02:44.520 as a reminder of five billion people in the emergent 0:02:44.560 --> 0:02:50.239 market still consume a very small amount of still consume 0:02:50.280 --> 0:02:54.000 a very small amount of energy, and oil will be 0:02:54.080 --> 0:02:57.560 critical in improving their standard of living and continuing to grow. 0:02:58.000 --> 0:03:00.560 Hey, Scott, when we see an m and a deal 0:03:00.639 --> 0:03:03.200 of this size and this magnitude in the shale space, 0:03:03.240 --> 0:03:04.960 what does it tell you about kind of where we 0:03:05.000 --> 0:03:07.360 are in the cycle, where the next several years of 0:03:08.280 --> 0:03:11.080 the shale business looks like because it's been such a 0:03:11.120 --> 0:03:13.720 growth area for domestic US energy. 0:03:14.000 --> 0:03:17.920 Yeah, no, I think it clearly suggests that we're heading 0:03:17.919 --> 0:03:20.960 in the wrong direction here. Really, the rig coount has 0:03:21.120 --> 0:03:25.480 fallen close to ten percent this year. I think the 0:03:26.040 --> 0:03:30.760 messaging initially was that it was due almost entirely to 0:03:31.240 --> 0:03:35.440 pull back in natural gas drilling resulting from the collapse 0:03:36.240 --> 0:03:40.960 seventy five percent collapse in Henry hub prices. You know, 0:03:41.000 --> 0:03:43.880 the messaging was that we'd see a strengthen the oil 0:03:44.080 --> 0:03:46.800 side compensating for the weakness and the gas side, but 0:03:46.840 --> 0:03:48.880 we've yet to see that in the rig counts. Recounts 0:03:48.880 --> 0:03:53.320 have gone down by almost fifty rigs in the last 0:03:53.440 --> 0:03:57.880 month or so, and so the appeal here, you know, 0:03:58.280 --> 0:03:59.880 more than anything else, seems to be the two hundred 0:03:59.880 --> 0:04:04.400 mill and synergies that Patterson will realize on this deal. 0:04:04.440 --> 0:04:07.680 And so while seventy dollars oil is not the worst 0:04:07.720 --> 0:04:10.480 thing in the world for the industry, given some of 0:04:10.520 --> 0:04:15.080 the broader macro concerns that are out there, this suggests 0:04:15.120 --> 0:04:17.680 to me that we're heading through a slow patch at 0:04:17.720 --> 0:04:20.560 a minimum, and that you know, this is more of 0:04:20.600 --> 0:04:22.880 a defensive deal than an offensive one. 0:04:23.240 --> 0:04:25.640 Do you have a particular target, Scott when it comes 0:04:25.680 --> 0:04:28.440 to if you're looking at US CREUD prices versus BRIN 0:04:29.200 --> 0:04:31.240 at year end versus what those could be at the 0:04:31.279 --> 0:04:32.200 end of twenty twenty four. 0:04:32.839 --> 0:04:36.120 Yeah, No, I think the expectation, you know, would be 0:04:36.240 --> 0:04:39.760 that we're about at and Fernando probably can elaborate on 0:04:39.800 --> 0:04:43.039 this a little bit more as well on the oil side, 0:04:43.040 --> 0:04:47.640 that maybe we're looking at stability, maybe some slight improvement potentially, 0:04:47.720 --> 0:04:50.560 but I can definitely say that what we've seen so 0:04:50.720 --> 0:04:54.120 far this year in the US has been weaker than 0:04:54.160 --> 0:04:57.040 we would have expected, and I think anybody would have expected. 0:04:58.040 --> 0:04:59.919 And you know, I would turn it over to Fernando, 0:05:00.279 --> 0:05:03.000 you know, to elaborate further on oil price. 0:05:02.760 --> 0:05:05.280 Specific Yeah, Fernando, what are your thoughts as far as 0:05:05.320 --> 0:05:08.080 the trajectory when you're looking at US versus Brent? 0:05:09.720 --> 0:05:11.960 And we think, you know, you can't fight the FED 0:05:12.440 --> 0:05:16.760 right now. And we we along with Mike mcglowane, we 0:05:16.760 --> 0:05:19.200 have talked a lot about how we think it's lower 0:05:19.279 --> 0:05:22.240 at first, because the demand side of the equation is 0:05:22.279 --> 0:05:26.360 going to be the most important. We think opex cuts 0:05:26.480 --> 0:05:30.240 are lowering the supply of Brent. That's widened the differential 0:05:30.320 --> 0:05:33.360 between WTI and Brent. And then now we've had a 0:05:33.440 --> 0:05:36.520 small amount of acquisitions in the strategic Patrol and reserve 0:05:36.880 --> 0:05:40.520 boosting that wt I demand a little bit, So that's 0:05:40.600 --> 0:05:43.400 widened that gap, and we think we could go above 0:05:43.480 --> 0:05:47.599 five dollars a barrow, maybe five point fifty in the 0:05:47.720 --> 0:05:51.039 discount between WTI and Brent for the remainder of the year. 0:05:52.600 --> 0:05:55.440 Hey, hey, Fernando, I see in a news here that 0:05:56.400 --> 0:05:59.719 our good friends in Holland are closing Europe's biggest gas field. 0:06:00.240 --> 0:06:02.279 What's going on there? Don't they know? There's war in 0:06:02.440 --> 0:06:06.320 Ukraine and gases short? I mean, what's going on there? 0:06:07.520 --> 0:06:07.839 They do? 0:06:08.240 --> 0:06:11.440 It's long been planning a plan to close the Groningen field, 0:06:11.440 --> 0:06:14.360 as you said, the Europe's largest field, because of earth 0:06:14.480 --> 0:06:19.039 tremors in the Netherlands. They actually were supposed to close 0:06:19.120 --> 0:06:22.239 last year and they've extended it because of the war. 0:06:22.520 --> 0:06:25.599 But now with the inventory is refilled, they feel more 0:06:25.640 --> 0:06:29.880 comfortable closing that closing that field, you know, it's probably 0:06:29.920 --> 0:06:34.599 not the greatest decision from an energy security standpoint. Perhaps 0:06:34.600 --> 0:06:37.160 a little bit of security again false sense of security 0:06:37.200 --> 0:06:40.280 because we had such a mild winter this past year, 0:06:41.240 --> 0:06:46.279 and it definitely makes Europe lean more on USLNG imports. 0:06:46.760 --> 0:06:48.520 Hey Scott, just real quick thirty seconds. Are we going 0:06:48.560 --> 0:06:51.000 to see more emine activity and kind of your space 0:06:51.040 --> 0:06:51.960 the energy space? 0:06:52.200 --> 0:06:52.400 Yeah? 0:06:52.480 --> 0:06:55.800 Now for services, I think we may see some more activity, 0:06:55.880 --> 0:06:59.240 particularly in the US. All you know, this is again 0:06:59.279 --> 0:07:02.359 the first survey, This is deal that we've seen in 0:07:02.440 --> 0:07:05.240 recent memory of a public to public as opposed to 0:07:05.240 --> 0:07:07.480 the EMP space where has put a ton of deal making. 0:07:07.720 --> 0:07:11.920 So particularly if the outlook continues to deteriorate and rigganfraccounts 0:07:11.960 --> 0:07:14.080 move lower, I think you could look for an increase 0:07:14.440 --> 0:07:15.720 an M and A activity from here. 0:07:15.800 --> 0:07:17.360 All right, guys, thanks so much for joining us. Love 0:07:17.400 --> 0:07:20.680 getting that roundtable on global energy. We've got some M 0:07:20.680 --> 0:07:23.000 and A going on there in the services side in 0:07:23.040 --> 0:07:26.720 the US, and we've of course got the global supply 0:07:26.720 --> 0:07:30.080 and demand for energy. Scott Levine and Fernando Valle, both 0:07:30.160 --> 0:07:34.360 senior analysts covering the energy space for Bloomberg Intelligence, joining 0:07:34.400 --> 0:07:36.040 us here, so we appreciate getting their thoughts. 0:07:37.160 --> 0:07:38.360 You're listening to the team. 0:07:38.720 --> 0:07:41.800 Ken's a our live program Bloomberg Markets weekdays at ten 0:07:41.840 --> 0:07:42.920 am Eastern. 0:07:42.680 --> 0:07:45.680 On Bloomberg dot Com, the iHeartRadio. 0:07:45.000 --> 0:07:47.800 App, and the Bloomberg Business App, or listen on demand 0:07:47.800 --> 0:07:49.560 wherever you get your podcasts. 0:07:51.440 --> 0:07:53.800 Jess Man, Paul Sweene here in the Bloomberg Interactor Brokers 0:07:53.840 --> 0:07:55.400 a studio, want to get right for our next guest, 0:07:55.440 --> 0:07:57.760 Eric Lynch. He's a managing director part of the investment 0:07:57.760 --> 0:08:00.880 committee at Sharf Investments are based out there in the 0:08:00.880 --> 0:08:04.520 West Coast in the Bay Area. Eric Joins is live 0:08:04.560 --> 0:08:06.880 here on a Bloomberg and Active Brookers studio, Eric, thanks 0:08:06.920 --> 0:08:10.080 so much for joining us here, boy, twenty four hours. 0:08:10.080 --> 0:08:12.200 We've had a lot of ego data, a lot of 0:08:12.800 --> 0:08:15.680 central banks to Federal Reserve yesterday, the ECB today, they're 0:08:15.720 --> 0:08:19.000 both talking tough here. How do you guys in Shriff 0:08:19.040 --> 0:08:21.080 Investments put it all together and think about what you 0:08:21.120 --> 0:08:22.080 want to do for your clients. 0:08:22.440 --> 0:08:25.280 Yeah, it's a great question. Thanks for having me, Paul. 0:08:25.440 --> 0:08:28.120 You know, I think this is a great reminder that 0:08:28.400 --> 0:08:31.640 as investors, it's important to remember to follow this signal, 0:08:31.680 --> 0:08:35.160 not the noise, and signals earnings. Right, we're already in 0:08:35.200 --> 0:08:40.400 a three quarter kind of tracking earnings recession. And so 0:08:40.520 --> 0:08:42.240 even if the FED is going to go higher for 0:08:42.280 --> 0:08:45.280 longer interest rates, and I think FED made it quite 0:08:45.280 --> 0:08:47.600 I think the FED made it quite clear yesterday that 0:08:47.640 --> 0:08:49.920 they will slow things down. So we think earnings are 0:08:50.000 --> 0:08:53.439 going to be restricted going forward. So, you know, I 0:08:53.480 --> 0:08:55.560 think it's time for an earnings playbook, if you will. 0:08:55.840 --> 0:08:58.320 So I'm glad you brought that up, because especially if 0:08:58.320 --> 0:09:00.520 you looked at the S and P five hundred last 0:09:00.640 --> 0:09:05.600 year excluding earnings, or the energy sector in particular, when 0:09:05.640 --> 0:09:07.880 you were looking at that, the Arenas recession actually began 0:09:07.880 --> 0:09:09.480 in the second quarter of last year, So you kind 0:09:09.520 --> 0:09:11.600 of the flip side of that, where energy sort of 0:09:11.720 --> 0:09:15.240 masking some of the brighter times that other industries are 0:09:15.280 --> 0:09:17.960 seeing there. So even when you were looking at that, 0:09:18.160 --> 0:09:20.840 there's an expectation when you're excluding energy that we're going 0:09:20.880 --> 0:09:24.520 to see double digit growth again for those other sectors. 0:09:24.720 --> 0:09:27.160 Where are you in particular when it comes to some 0:09:27.200 --> 0:09:29.800 of these sectors looking that sees more bright spots? 0:09:30.120 --> 0:09:32.880 Yeah, no, good question. I think there's three ways to 0:09:33.000 --> 0:09:36.880 kind of play this. One is to play this transition 0:09:37.520 --> 0:09:42.120 of spending consumption from goods to services, right. I think 0:09:42.120 --> 0:09:44.640 it's really interesting that investors are still a little slow 0:09:44.640 --> 0:09:47.960 to the draw on this. Last month flash PMI came 0:09:48.000 --> 0:09:52.640 out for services and manufacturing, and services blew it away. 0:09:53.040 --> 0:09:56.839 Manufacturing was in a contraction, so as a leading indicator, 0:09:57.400 --> 0:10:00.160 we're seeing that also on the ground level, right with 0:10:01.160 --> 0:10:04.720 travel companies blowing away earnings and then meanwhile home depot 0:10:04.800 --> 0:10:09.040 target goods companies reducing guidance. So this kind of revenge travel, 0:10:09.120 --> 0:10:14.480 revenge servicing, elective surgeries. You saw the medical loss ratios 0:10:14.520 --> 0:10:18.760 increasing for the insurance under riders yesterday because the older 0:10:18.800 --> 0:10:22.199 folks are having revenge surgeries. And so that's a way 0:10:22.240 --> 0:10:25.800 to get some writings growth for sure. Another way is 0:10:26.160 --> 0:10:28.960 I think just stick to defensive companies with low GDP correlation. 0:10:29.720 --> 0:10:32.920 The average lag between a recession and when the FED 0:10:33.000 --> 0:10:36.760 pauses since nineteen eighty nine four instrate cycles has been 0:10:36.800 --> 0:10:39.760 one year, and so I think it's a little premature 0:10:39.840 --> 0:10:43.000 to bake in forecast for a big earnings ramp going forward. 0:10:43.400 --> 0:10:44.719 And so I think it's still time to be kind 0:10:44.720 --> 0:10:45.480 of defensive. 0:10:45.720 --> 0:10:49.600 Interesting because then your recession take would be you're expecting 0:10:49.640 --> 0:10:51.960 one to happen later this year. 0:10:52.080 --> 0:10:53.920 It's hard to say. I think it's a full zerrand 0:10:54.000 --> 0:10:56.480 to time it, as we've all been reminded this year, 0:10:56.640 --> 0:10:59.480 right as we've been constantly looking around the corner for 0:10:59.520 --> 0:11:00.880 this recession to occur. 0:11:01.160 --> 0:11:03.160 But where would it be driven by? I mean, I 0:11:03.160 --> 0:11:05.160 would think it have to be consumer spending, but we're 0:11:05.160 --> 0:11:07.880 not necessarily seeing that happen yet. Even retail sales this 0:11:07.920 --> 0:11:09.680 morning came in stronger than expected. 0:11:09.840 --> 0:11:12.480 Yeah, no, they were very strong, and so that's definitely 0:11:12.520 --> 0:11:16.160 the boldcase. I think the baarcase would be, you know, 0:11:16.200 --> 0:11:20.200 I think the operative words in Howe's presser yesterday, where 0:11:20.679 --> 0:11:23.400 people are suffering, right, and I think we need to 0:11:23.400 --> 0:11:26.920 remind ourself that only I think the top ten percent 0:11:27.480 --> 0:11:30.360 of wealth in this country owns eighty percent of stocks. 0:11:30.960 --> 0:11:33.200 And so if you look at the FEDS mandates clearly 0:11:33.200 --> 0:11:37.520 full employment or inflation, we're fully employed. So I think 0:11:37.559 --> 0:11:40.240 power made it clear that price inflation they're going to 0:11:40.280 --> 0:11:42.760 squash it. Historically, to answer your question, the only way 0:11:42.760 --> 0:11:46.640 to do that is to increase you know, unemployment slow 0:11:46.720 --> 0:11:49.920 things down, which obviously creates a slow down in consumption. 0:11:50.400 --> 0:11:57.280 So historically, yeah, employment is what precipitates a recession. And 0:11:57.400 --> 0:12:00.560 really the last general standing are in fact GDP growth 0:12:00.559 --> 0:12:01.120 and employment. 0:12:01.600 --> 0:12:05.200 All right, So in terms of a recession or earning's 0:12:05.280 --> 0:12:09.319 playbook here earnings recession playbook, I kind of feel like 0:12:09.360 --> 0:12:11.840 there still may be some earnings risk left in this market. 0:12:11.880 --> 0:12:13.560 We still get the S and P five hundred. Earnings 0:12:14.120 --> 0:12:16.040 are two hundred and twenty bucks roughly for this year. 0:12:16.080 --> 0:12:18.400 Some people are saying it could be two hundred, maybe 0:12:18.440 --> 0:12:21.360 even below that. So how do you guys think about 0:12:21.520 --> 0:12:24.720 earnings recession and kind of how that influence is kind 0:12:24.760 --> 0:12:25.720 of what stocks you look at. 0:12:26.000 --> 0:12:28.199 Yeah, I think we're still think there's risks to the 0:12:28.280 --> 0:12:30.600 downside to that two twenty five number. As you mentioned, 0:12:31.960 --> 0:12:35.040 you know, the issue there is that baked into that 0:12:35.080 --> 0:12:38.280 consensus is nine percent year via growth for Q four. 0:12:38.760 --> 0:12:41.920 It just seems a little unrealistic. It's possible, for sure, 0:12:42.080 --> 0:12:44.240 to your point, things were hanging in there, consumption wising 0:12:44.320 --> 0:12:47.560 that today's consumer spending numbers where we tell the sales numbers, 0:12:47.600 --> 0:12:51.520 were interesting. But nevertheless, you know, we're a little worried 0:12:51.559 --> 0:12:54.480 about the impact the lagged effect of the monetary tightening, 0:12:54.960 --> 0:12:59.160 the credit tightening specifically, is probably going to in our opinion, 0:12:59.520 --> 0:13:02.520 starts going things down further as year progresses. The other 0:13:02.559 --> 0:13:05.480 thing that I don't think is giving enough play and 0:13:05.640 --> 0:13:10.720 investor kind of discussions is that the net profit margins 0:13:10.720 --> 0:13:14.120 seysm P five hundred are still at all time highs, 0:13:14.600 --> 0:13:18.000 and so there's been a structural increase the last twenty years. 0:13:18.400 --> 0:13:22.360 It's been it's accounted for over half of ANNUIPS growth, 0:13:22.720 --> 0:13:24.280 and so if you look at that, it was low 0:13:24.320 --> 0:13:28.120 financial expenses, a global arbitrage of labor and supply chains, 0:13:28.160 --> 0:13:32.120 low transportation. All those tailwes are now headwinds. And then 0:13:32.160 --> 0:13:35.560 you had companies passing on price during the pandemic. So 0:13:35.720 --> 0:13:38.120 we topped out at thirteen percent on net profit margins 0:13:38.200 --> 0:13:41.160 during the pandemic. They're down to eleven baked in that 0:13:41.200 --> 0:13:44.120 consensus number for next year is twelve percent, which should 0:13:44.120 --> 0:13:46.880 still be twenty percent higher than the level they were 0:13:46.920 --> 0:13:50.280 before the pandemic. So I think even independent of the economy, 0:13:50.720 --> 0:13:53.760 what you're seeing on a micro level with companies guidance 0:13:53.880 --> 0:13:57.920 is they keep referring to margins margins being kind of 0:13:57.960 --> 0:13:59.200 constricted going forward. 0:13:59.480 --> 0:14:02.000 So I think that that's the real issue as far 0:14:02.040 --> 0:14:04.680 as especially when it comes to margins. Geenamoorton Adams at 0:14:04.679 --> 0:14:06.800 Bloomberg Intelligence was saying, some of the pain may have 0:14:06.840 --> 0:14:10.280 already been passed and potentially troughing in that first quarter 0:14:10.760 --> 0:14:12.920 moving forward. I mean, what are you seeing and what 0:14:12.920 --> 0:14:14.640 are you hearing from your clients on that end? 0:14:15.320 --> 0:14:20.000 Yeah, I mean, just anecdotally, as investment managers managing a portfolio, 0:14:20.320 --> 0:14:24.680 we're still seeing margin kind of compression or discussions with 0:14:24.800 --> 0:14:27.440 our companies that are reporting on Q one, and none 0:14:27.480 --> 0:14:29.920 of them are really saying, hey, you know, it looks 0:14:29.960 --> 0:14:32.680 better at Q two Q three. Even wages. You know, 0:14:32.720 --> 0:14:36.440 if you look at labor as percentage of GDP, it 0:14:36.520 --> 0:14:39.960 really troughed a couple of years ago in terms of 0:14:40.040 --> 0:14:42.440 a fifty year low, and it's still a point or 0:14:42.440 --> 0:14:45.480 two percentage points lower than average. And so you see 0:14:45.520 --> 0:14:48.760 that with the bargaining power of employees with low unemployment. 0:14:49.200 --> 0:14:51.800 So I think, I think this wage pressure is still there, 0:14:52.160 --> 0:14:54.840 and I think therefore that's what sixty percent or something 0:14:54.880 --> 0:14:59.840 of operating expenses. So I don't think we're done. 0:14:59.000 --> 0:15:01.200 All right, Eric, great stuff. I appreciate you stopping by. 0:15:01.360 --> 0:15:01.760 Eric Lynch. 0:15:01.800 --> 0:15:05.000 He's a managing director on the investment community of Sharf. 0:15:05.440 --> 0:15:09.440 Sharf Investments based in Los Gatos, California, also the home 0:15:09.560 --> 0:15:14.240 of Netflix, little stock out there. So neighbors there in 0:15:14.320 --> 0:15:16.520 Los Gatos and kind of in the Bay are very 0:15:16.600 --> 0:15:17.800 very cool area out there. 0:15:17.960 --> 0:15:18.480 Appreciate it. 0:15:18.480 --> 0:15:20.240 Looking at the markets right here, S and P five 0:15:20.320 --> 0:15:23.760 hundred and a half of one percent, the NASDAK, I'm sorry, 0:15:23.800 --> 0:15:26.960 the Nasdaq is up about half and one percent as well. 0:15:27.200 --> 0:15:30.200 SMB five hundred on track for six consecutive days of games. 0:15:30.200 --> 0:15:32.480 It beats longest streak since November twenty twenty one. 0:15:32.600 --> 0:15:34.840 Running out a little bit too, it some of the 0:15:34.880 --> 0:15:36.880 market folks are telling us, which is good news. It's 0:15:36.880 --> 0:15:38.600 not just Apple and Amazon right pushing this. 0:15:38.680 --> 0:15:41.720 Higher you're listening to the tape cans are live program 0:15:41.800 --> 0:15:45.760 Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, 0:15:45.920 --> 0:15:48.120 the tune in app, Bloomberg dot Com, and the. 0:15:48.080 --> 0:15:49.240 Bloomberg Business App. 0:15:49.320 --> 0:15:52.120 You can also listen live on Amazon Alexa from our 0:15:52.160 --> 0:15:58.880 flagship New York station Just Say Alexa playing Bloomberg eleven thirty. 0:16:00.160 --> 0:16:00.400 Just men. 0:16:00.440 --> 0:16:02.840 Paul Swene here in the Bloomberg Interactive Brokers a studio. 0:16:02.880 --> 0:16:04.480 Want to get right to our next guest, Eric Lynch. 0:16:04.480 --> 0:16:06.920 He's a managing director, part of the investment community. It's 0:16:06.920 --> 0:16:10.080 Sharf Investments are based out there in the West Coast 0:16:10.160 --> 0:16:13.320 in the Bay Area. Eric Joins is live here in 0:16:13.320 --> 0:16:15.920 on our Bloomberg Active Brokers studio. Eric, thanks so much 0:16:16.120 --> 0:16:19.000 for joining us here. Boy, twenty four hours. We've had 0:16:19.040 --> 0:16:22.080 a lot of EGO data, a lot of Central banks 0:16:22.080 --> 0:16:24.880 to Federal Reserve yesterday, the ECB today. They're both talking 0:16:24.960 --> 0:16:28.280 tough here. How do you guys in Sharf Investments put 0:16:28.320 --> 0:16:29.960 it all together and think about what you want to 0:16:29.960 --> 0:16:30.680 do for your clients. 0:16:31.040 --> 0:16:33.880 Yeah, it's a great question. Thanks for having me, Paul. 0:16:34.040 --> 0:16:36.720 You know, I think this is a great reminder that 0:16:37.040 --> 0:16:40.240 as investors it's important to remember to follow this signal, 0:16:40.280 --> 0:16:43.800 not the noise, and signals earnings. Right, We're already in 0:16:43.840 --> 0:16:49.040 a three quarter kind of tracking earnings recession. And so 0:16:49.160 --> 0:16:50.840 even if the FED is going to go higher for 0:16:50.920 --> 0:16:53.880 longer interest rates, and I think FED made it quite 0:16:53.880 --> 0:16:56.200 I think the FED made it quite clear yesterday that 0:16:56.240 --> 0:16:58.560 they will slow things down. So we think earnings are 0:16:58.600 --> 0:17:01.920 going to be restrict did going forward. So you know, 0:17:02.000 --> 0:17:04.160 I think it's time for an earnings playbook, if you will. 0:17:04.440 --> 0:17:06.919 So I'm glad you brought that up, because, especially if 0:17:06.920 --> 0:17:09.159 you looked at the S and P five hundred last 0:17:09.240 --> 0:17:14.240 year excluding earnings or the energy sector in particular, when 0:17:14.240 --> 0:17:16.480 you were looking at that, the aarians recession actually began 0:17:16.520 --> 0:17:18.120 in the second quarter of last year, so you kind 0:17:18.119 --> 0:17:20.199 of the flip side of that, where energy sort of 0:17:20.359 --> 0:17:23.840 masking some of the brighter times that other industries are 0:17:23.880 --> 0:17:26.600 seeing there. So even when you were looking at that, 0:17:26.760 --> 0:17:29.440 there's an expectation when you're excluding energy that we're going 0:17:29.480 --> 0:17:33.119 to see double digit growth again for those other sectors. 0:17:33.320 --> 0:17:35.800 Where are you in particular when it comes to some 0:17:35.840 --> 0:17:38.400 of these sectors looking that sees more bright spots? 0:17:38.720 --> 0:17:41.480 Yeah, no, good question. I think there's three ways to 0:17:41.600 --> 0:17:45.480 kind of play this. One is to play this transition 0:17:46.119 --> 0:17:50.720 of spending consumption from goods to services, right. I think 0:17:50.720 --> 0:17:53.240 it's really interesting that investors are still a little slow 0:17:53.280 --> 0:17:56.560 to the draw on this last month flash PMI came 0:17:56.600 --> 0:18:00.880 out for services and manufacturing, and you know, services blew 0:18:00.880 --> 0:18:04.600 it away. Manufacturing was in a contraction. So as a 0:18:04.680 --> 0:18:08.160 leading indicator, we're seeing that also on the ground level, 0:18:08.280 --> 0:18:12.640 right with travel companies blowing away earnings and then meanwhile 0:18:12.680 --> 0:18:16.760 home depot target goods companies reducing guidance. So this kind 0:18:16.760 --> 0:18:20.600 of revenge travel, revenge servicing, elective surgeries. You saw the 0:18:21.520 --> 0:18:26.040 medical loss ratios increasing for the insurance under riders yesterday 0:18:26.359 --> 0:18:29.960 because the older folks are having revenge surgeries, and so 0:18:30.359 --> 0:18:33.600 that's the way to get some writings growth for sure. 0:18:33.640 --> 0:18:36.360 Another way is I think just stick to defensive companies 0:18:36.359 --> 0:18:40.760 with low GDP correlation. The average lag between a recession 0:18:40.920 --> 0:18:43.439 and when the Fed pauses since nineteen eighty nine four 0:18:43.480 --> 0:18:47.119 interest rate cycles has been one year, and so I 0:18:47.160 --> 0:18:50.080 think it's a little premature to bake in forecasts for 0:18:50.119 --> 0:18:52.400 a big earnings ramp going forward, and so I think 0:18:52.400 --> 0:18:54.119 it's still time to be kind of defensive. 0:18:54.320 --> 0:18:58.240 Interesting because then your recession take would be you're expecting 0:18:58.240 --> 0:19:00.560 one to happen later this year. 0:19:00.680 --> 0:19:02.480 It's hard to say. I think it's a full Zerran 0:19:02.600 --> 0:19:05.480 to time it, as we've all been reminded this year, right, 0:19:06.080 --> 0:19:08.320 as we've been constantly looking around the corner for this 0:19:08.640 --> 0:19:09.520 recession to occur. 0:19:09.760 --> 0:19:11.720 But where would it be driven by? I mean, I 0:19:11.760 --> 0:19:13.760 would think it have to be consumer spending, but we're 0:19:13.800 --> 0:19:16.480 not necessarily seeing that happen yet. Even retail sales this 0:19:16.560 --> 0:19:18.280 morning came in stronger than expected. 0:19:18.440 --> 0:19:21.080 Yeah, no, they were very strong, and so that's definitely 0:19:21.119 --> 0:19:24.760 the boldcase. I think the baarcase would be. You know, 0:19:24.800 --> 0:19:28.800 I think the operative words in Pale's presser yesterday where 0:19:29.280 --> 0:19:32.000 people are suffering, right, and I think we need to 0:19:32.000 --> 0:19:35.560 remind ourselves that only I think the top ten percent 0:19:36.080 --> 0:19:38.960 of wealth in this country owns eighty percent of stocks. 0:19:39.560 --> 0:19:41.800 And so if you look at the FEDS mandates clearly 0:19:41.800 --> 0:19:46.120 full employment or inflation, we're fully employed. So I think 0:19:46.160 --> 0:19:48.840 power made it clear that price inflation they're going to 0:19:48.880 --> 0:19:51.200 squash it. And historically, to answer your question, the only 0:19:51.200 --> 0:19:54.520 way to do that is to increase, you know, unemployment 0:19:54.960 --> 0:19:58.560 slow things down, which obviously creates a slow down in consumption. 0:19:59.000 --> 0:20:05.879 So historically, yeah, employment is what precipitates a recession, and 0:20:06.000 --> 0:20:09.200 really the last general standing are in fact GDP growth 0:20:09.200 --> 0:20:09.720 and employment. 0:20:10.200 --> 0:20:13.840 All right, So in terms of a recession or earnings 0:20:13.880 --> 0:20:17.960 playbook here earnings recession playbook, I kind of feel like 0:20:18.000 --> 0:20:20.440 there still may be some earnings risk left in this market. 0:20:20.480 --> 0:20:22.200 We still get the S and P five hundred earnings 0:20:22.720 --> 0:20:24.639 are two hundred and twenty bucks roughly for this year. 0:20:24.680 --> 0:20:27.040 Some people are saying it could be two hundred, maybe 0:20:27.040 --> 0:20:30.000 even below that. So how do you guys think about 0:20:30.160 --> 0:20:33.359 earnings recession and kind of how that influence is kind 0:20:33.359 --> 0:20:34.320 of what stocks you look at. 0:20:34.600 --> 0:20:36.840 Yeah, I think we're still thinking there's risks to the 0:20:36.880 --> 0:20:39.199 downside to that two twenty five number. As you mentioned, 0:20:40.560 --> 0:20:43.639 you know, the issue there is that baked into that 0:20:43.680 --> 0:20:46.920 consensus is nine percent year of VIA growth for Q four. 0:20:47.400 --> 0:20:50.560 It just seems a little unrealistic. It's possible, for sure, 0:20:50.720 --> 0:20:52.840 to your point, things were hanging in there, consumption wising 0:20:52.920 --> 0:20:55.880 that today's consumer spending numbers where we tell the sales 0:20:55.920 --> 0:20:59.800