1 00:00:02,920 --> 00:00:10,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,880 --> 00:00:15,040 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:15,080 --> 00:00:18,079 Speaker 1: Eastern on Apple card playing Android Auto with the Bloomberg 4 00:00:18,120 --> 00:00:21,440 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:23,320 Speaker 1: or watch us live on YouTube. 6 00:00:24,840 --> 00:00:27,520 Speaker 2: So let's get to that consumer confidence data. So overall, 7 00:00:27,560 --> 00:00:29,400 Speaker 2: as Paul and Jahmer talking about, coming in at one 8 00:00:29,400 --> 00:00:33,559 Speaker 2: o six point seven, that is lower than January, and 9 00:00:33,600 --> 00:00:36,400 Speaker 2: it also missed present situation not looking as great either, 10 00:00:36,479 --> 00:00:39,760 Speaker 2: one forty seven point two, the expectation number coming in 11 00:00:39,760 --> 00:00:42,720 Speaker 2: at seventy nine point eight. So Dana Peterson is chief 12 00:00:42,760 --> 00:00:45,640 Speaker 2: economist over at the conference board. She helps to get 13 00:00:45,680 --> 00:00:48,599 Speaker 2: through all this data. Hey Dan, what should my takeaway 14 00:00:48,640 --> 00:00:49,760 Speaker 2: be from these numbers? 15 00:00:50,920 --> 00:00:53,120 Speaker 3: I think the k takeaway is that the numbers are 16 00:00:53,159 --> 00:00:55,840 Speaker 3: still pretty range bound. We haven't seen a breakout in 17 00:00:55,920 --> 00:00:58,840 Speaker 3: confidence to the upside yet. We did see a dip 18 00:00:58,880 --> 00:01:03,680 Speaker 3: in the measure for February, and January was also revised. 19 00:01:03,840 --> 00:01:07,800 Speaker 3: I'm sorry for January, and then December was also revised downward. 20 00:01:07,840 --> 00:01:11,080 Speaker 3: And certainly in this month reading, we saw that both 21 00:01:11,160 --> 00:01:16,960 Speaker 3: expectations and current position. Current conditions were weaker and importantly, 22 00:01:17,000 --> 00:01:21,160 Speaker 3: when we ask consumers about recession, that expectation ticked up 23 00:01:21,200 --> 00:01:24,080 Speaker 3: a little bit after falling pretty steadily for many months. 24 00:01:24,640 --> 00:01:27,119 Speaker 4: So what do we take here, I mean, how when 25 00:01:27,120 --> 00:01:29,959 Speaker 4: we look at this consumer confidence data points, how do 26 00:01:30,000 --> 00:01:30,760 Speaker 4: you guys look at it? 27 00:01:30,840 --> 00:01:35,640 Speaker 5: What's a reasonable time series for you guys? Well, we 28 00:01:35,680 --> 00:01:37,160 Speaker 5: look at it as a whole. 29 00:01:37,200 --> 00:01:39,720 Speaker 3: There's a lot of information in there, and certainly when 30 00:01:39,720 --> 00:01:43,000 Speaker 3: we look at the details, consumers were a little less 31 00:01:43,000 --> 00:01:47,400 Speaker 3: optimistic about employment and business conditions right now. They also 32 00:01:47,480 --> 00:01:52,440 Speaker 3: complained about their finances not being as strong currently. Also 33 00:01:52,560 --> 00:01:56,880 Speaker 3: looking ahead, consumers were pretty unhappy about employment, business and 34 00:01:57,040 --> 00:02:02,040 Speaker 3: income and their financial situations. They're expected financial situations were 35 00:02:02,040 --> 00:02:04,680 Speaker 3: also a little bit worse. So we're still kind of 36 00:02:04,720 --> 00:02:07,360 Speaker 3: just moving back and forth in the data, but I 37 00:02:07,400 --> 00:02:09,640 Speaker 3: think some key things in the write in suggests that 38 00:02:09,680 --> 00:02:13,400 Speaker 3: consumers are a little less concerned about food and energy prices, 39 00:02:14,240 --> 00:02:18,840 Speaker 3: and certainly they are. We're showing that the expectations gauge 40 00:02:18,880 --> 00:02:21,520 Speaker 3: continues to decline, so that's all good news on the 41 00:02:21,520 --> 00:02:25,120 Speaker 3: inflation front, But they are more concerned about jobs going forward, 42 00:02:25,160 --> 00:02:28,120 Speaker 3: and they're also more concerned about the political climate, and 43 00:02:28,160 --> 00:02:31,400 Speaker 3: so we'll be watching not only the inflation gauges, but 44 00:02:31,480 --> 00:02:35,799 Speaker 3: also the jobs gauges within this, because if consumers get 45 00:02:35,800 --> 00:02:39,040 Speaker 3: the whiff that more layoffs are coming, then they'll pull 46 00:02:39,080 --> 00:02:42,480 Speaker 3: back on spending and that'll contribute to slower growth over 47 00:02:42,520 --> 00:02:43,480 Speaker 3: the course of this year. 48 00:02:44,280 --> 00:02:47,160 Speaker 2: What am I still spending on and what have they 49 00:02:47,240 --> 00:02:47,920 Speaker 2: now avoided? 50 00:02:49,520 --> 00:02:53,160 Speaker 3: Well, consumers are definitely still spending on services. We see 51 00:02:53,200 --> 00:02:57,440 Speaker 3: that in retail sales, we see that in the consumer 52 00:02:57,560 --> 00:03:01,320 Speaker 3: spending data that the BEA puts out. But when it 53 00:03:01,360 --> 00:03:03,600 Speaker 3: comes to goods, they are starting to pull back on 54 00:03:03,680 --> 00:03:09,080 Speaker 3: things that require financing, so homes, cars, big ticket appliances, 55 00:03:09,120 --> 00:03:11,480 Speaker 3: and that's because interest rates are high. And indeed, in 56 00:03:11,520 --> 00:03:16,040 Speaker 3: this in today's report, consumers said that they don't expect 57 00:03:16,040 --> 00:03:19,000 Speaker 3: interest rates to continue falling. They think interest rates might 58 00:03:19,040 --> 00:03:21,880 Speaker 3: actually tick up. So that's pretty material when it comes 59 00:03:21,880 --> 00:03:24,840 Speaker 3: to their buying attitudes for goods. But certainly when it 60 00:03:24,880 --> 00:03:27,600 Speaker 3: comes to vacations, we did see a little bit of 61 00:03:27,600 --> 00:03:30,720 Speaker 3: a pullback and expectations about going on vacations. But that's 62 00:03:30,760 --> 00:03:33,320 Speaker 3: just one aspect of services, and we're really going to 63 00:03:33,360 --> 00:03:36,920 Speaker 3: need to see the PCEE data this Friday to see 64 00:03:36,960 --> 00:03:40,960 Speaker 3: about whether services consumption is still pretty robust. 65 00:03:40,640 --> 00:03:41,480 Speaker 5: In the United States. 66 00:03:42,200 --> 00:03:43,880 Speaker 4: Talk to us about the labor market and how that 67 00:03:44,160 --> 00:03:45,480 Speaker 4: impacts consumer confidence. 68 00:03:45,480 --> 00:03:47,440 Speaker 5: I would think that would be a big one, because 69 00:03:47,480 --> 00:03:48,080 Speaker 5: it seems. 70 00:03:47,800 --> 00:03:49,960 Speaker 4: Like everybody who's got a job has a job, and 71 00:03:50,000 --> 00:03:51,880 Speaker 4: wages are going higher, so that's got to be helpful. 72 00:03:53,400 --> 00:03:56,440 Speaker 3: Yes, I mean, when we look at payrolls, we saw 73 00:03:56,800 --> 00:04:03,080 Speaker 3: really shockingly surprisingly strong numbers in January and December, and 74 00:04:03,120 --> 00:04:05,880 Speaker 3: it wasn't just kind of your big three driving things. 75 00:04:05,880 --> 00:04:09,560 Speaker 3: The big three are leisure and hospitality, government, and also 76 00:04:10,440 --> 00:04:13,800 Speaker 3: healthcare and social assistance. You saw gains across the board, 77 00:04:13,840 --> 00:04:16,680 Speaker 3: and you also saw an uptake contemporary employment for the 78 00:04:16,720 --> 00:04:20,960 Speaker 3: first time in a little over a year. So those 79 00:04:21,040 --> 00:04:23,000 Speaker 3: data are pretty good. But we need to continue to 80 00:04:23,040 --> 00:04:28,280 Speaker 3: see improvement in the labor market or in terms of 81 00:04:28,320 --> 00:04:30,920 Speaker 3: the gains being more broadly based, or else we're going 82 00:04:30,960 --> 00:04:33,960 Speaker 3: to see weakness ahead. Indeed, you still do have some 83 00:04:34,120 --> 00:04:37,800 Speaker 3: industries that are letting people go, certainly finance, tech, transportation, 84 00:04:37,880 --> 00:04:41,200 Speaker 3: and warehousing. We don't think that's really going to improve. Also, 85 00:04:41,320 --> 00:04:45,240 Speaker 3: residential constructions probably not can improve until interest rates start 86 00:04:45,320 --> 00:04:48,679 Speaker 3: to fall more materially. So we're definitely watching the labor market. 87 00:04:48,680 --> 00:04:51,520 Speaker 3: We think there will be weakness in the US economy 88 00:04:51,640 --> 00:04:55,840 Speaker 3: slowing down probably around zero percent, between one and zero percent, 89 00:04:56,279 --> 00:04:58,520 Speaker 3: a little bit of an uptake and unemployment rate before 90 00:04:58,520 --> 00:05:00,520 Speaker 3: the end of this year to four point three set, 91 00:05:00,640 --> 00:05:02,800 Speaker 3: but then we'll see things get better towards the end 92 00:05:02,800 --> 00:05:05,240 Speaker 3: of the year. Certainly as a FED as we think 93 00:05:05,279 --> 00:05:08,359 Speaker 3: we'll have begun cutting interest rates, probably starting around June, 94 00:05:08,560 --> 00:05:10,400 Speaker 3: and then we'll cut interest rates further next year. 95 00:05:10,920 --> 00:05:14,640 Speaker 2: So they're looking at sort of prices everyday, prices to 96 00:05:14,680 --> 00:05:16,520 Speaker 2: sort of give them a read on inflation. They're looking 97 00:05:16,560 --> 00:05:19,000 Speaker 2: at their job status to feel good about that. What 98 00:05:19,040 --> 00:05:21,760 Speaker 2: other factors do they wind up looking for? Like, is 99 00:05:21,760 --> 00:05:23,559 Speaker 2: it I'm gonna go buy a car and I don't 100 00:05:23,640 --> 00:05:26,520 Speaker 2: like a five percent interest rate? Is it the mortgage rate? 101 00:05:26,760 --> 00:05:28,960 Speaker 2: Is it the stock market? I know that the stock 102 00:05:29,000 --> 00:05:30,880 Speaker 2: market's not the economy, but we have a four on 103 00:05:30,920 --> 00:05:33,760 Speaker 2: one K probably pretty happy, which what has come through 104 00:05:33,800 --> 00:05:34,520 Speaker 2: in the last year. 105 00:05:36,200 --> 00:05:38,279 Speaker 3: I think consumers looking at all of that, and certainly 106 00:05:38,360 --> 00:05:41,880 Speaker 3: we've seen that consumers have continued to spend, but some 107 00:05:41,960 --> 00:05:45,119 Speaker 3: of that spending is depicit spending. They're using credit cards, 108 00:05:45,120 --> 00:05:47,760 Speaker 3: so that means that you know, their real incomes are 109 00:05:47,760 --> 00:05:50,560 Speaker 3: probably not rising as much and certainly is below the 110 00:05:50,560 --> 00:05:54,200 Speaker 3: real spending that we've seen, and this isn't really sustainable. 111 00:05:54,880 --> 00:05:59,080 Speaker 3: So but again, as many consumers are working, they still 112 00:05:59,120 --> 00:06:01,960 Speaker 3: feel confident that they can put expenditures on the credit 113 00:06:02,040 --> 00:06:03,640 Speaker 3: card and they'll be able to pay it off. But 114 00:06:03,680 --> 00:06:05,320 Speaker 3: the thing is that if you fall behind, and we 115 00:06:05,400 --> 00:06:09,840 Speaker 3: are seeing delinquencies rise, the cost of that credit is skyrocketed. 116 00:06:09,839 --> 00:06:13,000 Speaker 3: And indeed, when you look at the amount of interest 117 00:06:13,040 --> 00:06:16,040 Speaker 3: that people are paying in the PCEE data on debt, 118 00:06:16,080 --> 00:06:19,440 Speaker 3: it's skyrocketed along with the amount of consumer credit card 119 00:06:19,520 --> 00:06:21,520 Speaker 3: debt that's piling up. 120 00:06:22,240 --> 00:06:25,200 Speaker 4: In terms of future expectations, the conference board expectations came 121 00:06:25,240 --> 00:06:28,760 Speaker 4: in at seventy nine point eight last month versus last month, 122 00:06:28,839 --> 00:06:31,040 Speaker 4: which was revised down to eighty one point five. 123 00:06:31,560 --> 00:06:33,479 Speaker 5: Where would you like to see that? Where would economists 124 00:06:33,560 --> 00:06:34,680 Speaker 5: like to see that number? 125 00:06:36,560 --> 00:06:38,680 Speaker 3: Well, I mean the thing is that people always say 126 00:06:38,680 --> 00:06:41,839 Speaker 3: economists they are dismal scientists, but really we are optimistic. 127 00:06:41,920 --> 00:06:46,760 Speaker 3: And you know, anything above the eighty threshold signals that 128 00:06:46,800 --> 00:06:49,560 Speaker 3: consumers think the economy is going to continue to expand, 129 00:06:49,600 --> 00:06:52,640 Speaker 3: and that's always a hope among economists. But you know, 130 00:06:52,720 --> 00:06:55,760 Speaker 3: this measure has been over and above eighty over the 131 00:06:55,839 --> 00:06:59,760 Speaker 3: last few months, and certainly the uptick in the percentage 132 00:06:59,760 --> 00:07:02,120 Speaker 3: saying that they think a recession might be on the 133 00:07:02,120 --> 00:07:06,040 Speaker 3: horizon is disconcerting. So we want to continue to watch 134 00:07:06,040 --> 00:07:09,560 Speaker 3: the data and see how consumers feel in line with 135 00:07:09,640 --> 00:07:13,160 Speaker 3: the real data that gets pumped out by the government. 136 00:07:13,240 --> 00:07:17,280 Speaker 3: So certainly we want to see better growth, but we 137 00:07:17,320 --> 00:07:19,680 Speaker 3: see tremendous risks to the downside. 138 00:07:20,000 --> 00:07:22,200 Speaker 4: All Right, Danny, thanks so much for joining us. Dan Peterson, 139 00:07:22,240 --> 00:07:23,880 Speaker 4: chief economist at the Conference Board. 140 00:07:25,440 --> 00:07:29,320 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 141 00:07:29,400 --> 00:07:32,960 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 142 00:07:32,960 --> 00:07:35,720 Speaker 1: Auto with the Bloomberg Business Act. You can also listen 143 00:07:35,840 --> 00:07:38,960 Speaker 1: live on Amazon Alexa from our flagship New York station, 144 00:07:39,320 --> 00:07:42,120 Speaker 1: Just say Alexa playing Bloomberg eleven thirty. 145 00:07:43,360 --> 00:07:44,960 Speaker 5: Let's go to Macy's. 146 00:07:45,080 --> 00:07:47,000 Speaker 2: That's not us now up by three point six percent. 147 00:07:47,200 --> 00:07:50,720 Speaker 2: They're closing about one hundred and fifty namesake stores. Certain 148 00:07:50,760 --> 00:07:54,680 Speaker 2: areas like Blue Mercury did pretty well, which, as I 149 00:07:54,720 --> 00:07:57,240 Speaker 2: keep telling you guys, invest in your face is a thing. 150 00:07:57,640 --> 00:07:59,680 Speaker 5: Okay, I think it's the time has past for John 151 00:07:59,720 --> 00:08:00,920 Speaker 5: and I am no it's next. 152 00:08:01,240 --> 00:08:01,600 Speaker 6: I know. 153 00:08:01,880 --> 00:08:04,360 Speaker 7: I went into one of these stupid stories with my daughter. 154 00:08:04,640 --> 00:08:07,920 Speaker 7: She wanted to whatever, the margins on these things must 155 00:08:07,960 --> 00:08:08,720 Speaker 7: be incredible. 156 00:08:08,840 --> 00:08:10,760 Speaker 5: Yes, I'm like, there was eighty. 157 00:08:10,560 --> 00:08:12,480 Speaker 2: Dollars and they never go on You don't even want 158 00:08:12,480 --> 00:08:14,240 Speaker 2: to know. And I spent on my skincare but they 159 00:08:14,280 --> 00:08:15,960 Speaker 2: never go on sale. You just had to take it. 160 00:08:16,000 --> 00:08:19,160 Speaker 2: And you can see that through Macy's numbers for Bloo Mercury. Anyway, 161 00:08:19,320 --> 00:08:20,920 Speaker 2: Mary Ross Gilbert is going to help me out here 162 00:08:21,000 --> 00:08:24,800 Speaker 2: Bloomberg Intelligence senior equity analysts covering retail. Okay, Mary, what 163 00:08:24,800 --> 00:08:27,040 Speaker 2: did you make of Macy's quarter? And do you invest 164 00:08:27,080 --> 00:08:27,559 Speaker 2: in your face? 165 00:08:30,760 --> 00:08:33,480 Speaker 8: I invest in my face. That's why beauty has been 166 00:08:33,520 --> 00:08:37,840 Speaker 8: the outperformer for almost anyone who announces, including when Dillard's 167 00:08:37,880 --> 00:08:41,360 Speaker 8: came out with their numbers yesterday. So with Macy's for 168 00:08:41,360 --> 00:08:44,640 Speaker 8: the quarter, they beat their estimates on sales and on 169 00:08:44,800 --> 00:08:48,280 Speaker 8: earnings margins, so sort of across the board. But the 170 00:08:48,320 --> 00:08:51,680 Speaker 8: focus really wasn't on how they did in the fourth quarter. 171 00:08:52,080 --> 00:08:55,560 Speaker 8: It's really their new plan that was the big focus. 172 00:08:55,679 --> 00:08:58,960 Speaker 8: The new plan and their guidance for the year. So 173 00:08:59,000 --> 00:09:03,360 Speaker 8: their guidance came in softer than consensus, and I guess 174 00:09:03,400 --> 00:09:06,600 Speaker 8: it's just no surprise just thinking about how department stores 175 00:09:06,600 --> 00:09:09,800 Speaker 8: are under pressure, and we've seen it across the board 176 00:09:09,880 --> 00:09:14,040 Speaker 8: with you know again, Dillard's showed some weakness yesterday. We're 177 00:09:14,080 --> 00:09:17,559 Speaker 8: seeing it with Macy's in their outlook. But Macy's has 178 00:09:17,559 --> 00:09:22,880 Speaker 8: a plan to address the department store model in shuttering 179 00:09:23,000 --> 00:09:25,960 Speaker 8: one hundred and fifty underperforming stores and then they're going 180 00:09:26,000 --> 00:09:28,440 Speaker 8: to invest in the three hundred and fifty remaining and 181 00:09:28,440 --> 00:09:30,319 Speaker 8: those are going to be primarily an A and eight 182 00:09:30,360 --> 00:09:34,400 Speaker 8: plus plus plus malls, and what they're going to do 183 00:09:34,520 --> 00:09:38,360 Speaker 8: is increase the service levels. Beauty has been something they've 184 00:09:38,360 --> 00:09:41,880 Speaker 8: been investing in almost every year and expanding the floor 185 00:09:41,920 --> 00:09:45,480 Speaker 8: space dedicated to beauty. So you'll notice that if you 186 00:09:45,520 --> 00:09:48,320 Speaker 8: walk into Macy's, you'll see that they have expanded the 187 00:09:48,360 --> 00:09:50,640 Speaker 8: space and who knows, they could expand it again this year. 188 00:09:50,679 --> 00:09:53,280 Speaker 8: We've been seeing it for the last five years that 189 00:09:53,280 --> 00:09:57,040 Speaker 8: that space has been expanded. So there's a lot of 190 00:09:57,120 --> 00:10:00,440 Speaker 8: details in what Macy's is doing. It's something they need 191 00:10:00,480 --> 00:10:02,720 Speaker 8: to do. They really need to up their game, and 192 00:10:02,720 --> 00:10:07,880 Speaker 8: that's exactly how they started their presentation, and that includes 193 00:10:08,360 --> 00:10:11,200 Speaker 8: really making the assortments a lot better than they are 194 00:10:11,600 --> 00:10:14,760 Speaker 8: because if you look at the inline store performance at malls, 195 00:10:15,120 --> 00:10:18,280 Speaker 8: they're the ones that are executing, such as the Abercrombi's, 196 00:10:18,280 --> 00:10:20,640 Speaker 8: the Urban outfitters, they're outperforming. 197 00:10:21,559 --> 00:10:23,719 Speaker 4: So Mary I was kind of surprised to see this 198 00:10:23,960 --> 00:10:26,160 Speaker 4: number of stores one p fifty because I kind of 199 00:10:26,200 --> 00:10:31,800 Speaker 4: thought that this decade plus long shrinkage of department store 200 00:10:31,840 --> 00:10:34,960 Speaker 4: footprints across the country by a lot of different companies, 201 00:10:35,920 --> 00:10:38,040 Speaker 4: that was more or less kind of we're done that, 202 00:10:38,280 --> 00:10:40,280 Speaker 4: or we're at near the finish line. So to see 203 00:10:40,280 --> 00:10:43,720 Speaker 4: another big round of closings that kind of surprised me. 204 00:10:43,760 --> 00:10:45,200 Speaker 4: Did it surprise the market at all? Or is this 205 00:10:45,240 --> 00:10:47,880 Speaker 4: something that analyst and investors have been asking for. 206 00:10:49,320 --> 00:10:53,520 Speaker 8: What Macy's had said is we don't need to close 207 00:10:53,559 --> 00:10:57,120 Speaker 8: stores except for the usual stores that you close every year, 208 00:10:57,120 --> 00:11:01,280 Speaker 8: which is maybe less than ten year. But the reason 209 00:11:01,679 --> 00:11:05,280 Speaker 8: that they've decided to close them is because these stores 210 00:11:05,280 --> 00:11:07,880 Speaker 8: were underperforming, but they were still profitable on a four 211 00:11:07,920 --> 00:11:10,679 Speaker 8: wall basis, so historically that their thought was, well, if 212 00:11:10,679 --> 00:11:14,160 Speaker 8: it's still profitable and we're still generating cash, we'll keep 213 00:11:14,200 --> 00:11:17,600 Speaker 8: it open. And this time what they did is they 214 00:11:17,640 --> 00:11:22,120 Speaker 8: took a more holistic approach and said, okay, even though 215 00:11:22,120 --> 00:11:25,320 Speaker 8: it's four wall profitable. We could do a lot better 216 00:11:25,360 --> 00:11:28,560 Speaker 8: with the funds that we could generate closing these stores, 217 00:11:28,640 --> 00:11:31,240 Speaker 8: selling the real estate and redeploying it back into the 218 00:11:31,280 --> 00:11:33,760 Speaker 8: existing store base. And for all the initiatives that they 219 00:11:33,800 --> 00:11:36,880 Speaker 8: have going forward, it makes a lot of sense because 220 00:11:36,960 --> 00:11:42,040 Speaker 8: that space, we really need to rethink the department store model. 221 00:11:42,080 --> 00:11:43,160 Speaker 8: It has to evolve. 222 00:11:44,240 --> 00:11:44,520 Speaker 3: Mary. 223 00:11:45,880 --> 00:11:50,440 Speaker 2: Does this do enough to get activist investors off Macy's back? 224 00:11:52,800 --> 00:11:56,120 Speaker 8: That is a good question. I think it may. I 225 00:11:56,160 --> 00:11:59,120 Speaker 8: think it may. I think board has made it very 226 00:11:59,240 --> 00:12:03,960 Speaker 8: clear that they are supporting this plan. Could they enhance 227 00:12:04,160 --> 00:12:07,719 Speaker 8: the board with additional directors That could be a possibility, 228 00:12:07,760 --> 00:12:11,800 Speaker 8: So learn more about that in the coming months. But 229 00:12:12,200 --> 00:12:15,559 Speaker 8: I think that this plan is it's been decided that 230 00:12:15,600 --> 00:12:18,920 Speaker 8: this is the move forward. And when you think about 231 00:12:18,920 --> 00:12:23,559 Speaker 8: what's happening with the activists, it's usually it usually involves 232 00:12:23,559 --> 00:12:26,840 Speaker 8: the real estate. And what we have seen in past 233 00:12:26,960 --> 00:12:31,720 Speaker 8: transactions is the real estate is usually milked and it 234 00:12:31,760 --> 00:12:35,720 Speaker 8: can be to the detriment of the retail operations, and 235 00:12:35,800 --> 00:12:41,520 Speaker 8: so sometimes it's not always the best move. So they 236 00:12:41,520 --> 00:12:43,160 Speaker 8: do have valuable real estate here. 237 00:12:43,360 --> 00:12:45,520 Speaker 4: Talk to us about that, like a relative performance between 238 00:12:45,520 --> 00:12:48,720 Speaker 4: like a Macy's store and a comparable Bloomingdale store. Is 239 00:12:48,720 --> 00:12:52,000 Speaker 4: the Bloomingdale store maturely more profitable. 240 00:12:52,040 --> 00:12:52,679 Speaker 5: I guess. 241 00:12:54,040 --> 00:12:58,280 Speaker 8: Yes, they don't disclose the profitability on Bloomingdale's versus Macy's, 242 00:12:58,280 --> 00:13:02,520 Speaker 8: but Bloomingdale's outperform, as does blooem Mercury. This year, their 243 00:13:02,520 --> 00:13:05,040 Speaker 8: comp sales were down one point six percent because the 244 00:13:05,080 --> 00:13:09,160 Speaker 8: aspirational luxury consumer is spending less. And we've been, you know, 245 00:13:09,320 --> 00:13:14,160 Speaker 8: hearing about the overall luxury business being impacted, especially after 246 00:13:14,200 --> 00:13:20,080 Speaker 8: we came off the post pandemic spending from stimulus checks 247 00:13:20,080 --> 00:13:25,320 Speaker 8: that really had that aspirational customer going after luxury. So 248 00:13:25,480 --> 00:13:29,319 Speaker 8: now that that's kind of you know, falling back, we're 249 00:13:29,320 --> 00:13:32,640 Speaker 8: seeing more of a normalization. This is something Nordstrom asco slided, 250 00:13:33,080 --> 00:13:35,640 Speaker 8: so their sales were just down one point six percent, 251 00:13:35,720 --> 00:13:39,040 Speaker 8: but they think that could probably stabilize and go higher 252 00:13:39,160 --> 00:13:41,960 Speaker 8: next year. And of course, you know, with the beauty 253 00:13:42,000 --> 00:13:45,360 Speaker 8: side on luxury, you know that's posting positive comp sales, 254 00:13:45,720 --> 00:13:47,880 Speaker 8: So that's that's stronger. 255 00:13:48,120 --> 00:13:51,320 Speaker 2: Yeah, Mary, I was going to ask about then, the inventory. 256 00:13:52,040 --> 00:13:55,200 Speaker 2: Macy's notoriously last year struggled with inventory. The last quarter 257 00:13:55,240 --> 00:13:57,160 Speaker 2: we saw they really got to together. What did we 258 00:13:57,200 --> 00:13:58,719 Speaker 2: learn this quarter about their inventory. 259 00:13:59,559 --> 00:14:02,640 Speaker 8: Yeah, even though inventory was up two percent year every year, 260 00:14:03,240 --> 00:14:08,040 Speaker 8: it's still down over twenty percent versus twenty nineteen. So 261 00:14:08,040 --> 00:14:12,520 Speaker 8: they've really done a great job reducing their inventory and 262 00:14:12,760 --> 00:14:15,680 Speaker 8: that means that they're having less clearance activity. This is 263 00:14:15,720 --> 00:14:19,200 Speaker 8: something that's going to affect their first quarter because last 264 00:14:19,280 --> 00:14:22,600 Speaker 8: year they had more clearance and this year less. So 265 00:14:24,400 --> 00:14:28,160 Speaker 8: they're doing a great job overall. They've just been improving 266 00:14:28,160 --> 00:14:33,640 Speaker 8: their execution with data technology, logistics, and they talked about 267 00:14:33,640 --> 00:14:35,560 Speaker 8: that on the call. They're going to be even employing 268 00:14:35,600 --> 00:14:40,920 Speaker 8: some generative AI. They've already been employing machine learning, so 269 00:14:41,960 --> 00:14:44,040 Speaker 8: you know, we'll see more. And they're going to be 270 00:14:44,040 --> 00:14:47,120 Speaker 8: streamlining operations. We didn't talk about that, but they're going 271 00:14:47,160 --> 00:14:50,960 Speaker 8: to be consolidating some of their facilities, so they've really 272 00:14:51,160 --> 00:14:55,560 Speaker 8: and they've reduced layers within the management structure, so overall 273 00:14:55,720 --> 00:15:01,160 Speaker 8: simplifying the operations. So all of these things could restore 274 00:15:01,640 --> 00:15:03,760 Speaker 8: positive growth in twenty twenty five. 275 00:15:04,760 --> 00:15:07,400 Speaker 4: Mary, who's the retailer out there that you think is 276 00:15:07,440 --> 00:15:09,360 Speaker 4: doing the best job. 277 00:15:11,240 --> 00:15:14,400 Speaker 8: Of all of retail or just within the department store space, just. 278 00:15:14,400 --> 00:15:17,200 Speaker 4: Kind of within your coverage because you cover a broad 279 00:15:17,440 --> 00:15:18,800 Speaker 4: range of the retailers. 280 00:15:19,760 --> 00:15:24,240 Speaker 8: Yeah, so I think that what we're seeing right now 281 00:15:24,400 --> 00:15:27,680 Speaker 8: is some of the inline specialty retailers are doing really well. 282 00:15:27,720 --> 00:15:30,600 Speaker 8: If you look at what Ralph Lauren has done, Ralph 283 00:15:30,680 --> 00:15:35,560 Speaker 8: Lauren is outperforming. But what they did was they sort 284 00:15:35,560 --> 00:15:39,000 Speaker 8: of retrenched the business they do supply to Macy's and 285 00:15:39,080 --> 00:15:43,640 Speaker 8: other department store retailers with their wholesale business. But what 286 00:15:43,680 --> 00:15:46,760 Speaker 8: they did is really focus on DTC direct to consumer. 287 00:15:47,120 --> 00:15:50,320 Speaker 8: This is something other brands have been doing as well. 288 00:15:50,360 --> 00:15:54,200 Speaker 8: But Ralph Lauren cut back on off price, they cut 289 00:15:54,240 --> 00:15:57,880 Speaker 8: back on wholesale, they elevated the product so it's much 290 00:15:57,960 --> 00:16:02,720 Speaker 8: higher quality, and then they've theated the overall consumer and 291 00:16:02,800 --> 00:16:06,760 Speaker 8: so it's much more of a luxury brand now and 292 00:16:06,760 --> 00:16:10,120 Speaker 8: and uh. But but they also do have, you know, 293 00:16:10,320 --> 00:16:14,720 Speaker 8: some aspirational brands in their portfolio like Lauren Ralph Lauren, 294 00:16:14,840 --> 00:16:17,720 Speaker 8: which you'll find at Macy's, and then you'll find Polo 295 00:16:17,800 --> 00:16:22,320 Speaker 8: Ralph Lauren and Double R Ranch in their Bloomingdale's concept 296 00:16:22,400 --> 00:16:25,640 Speaker 8: for example. Hey, Mary, I think Lauren's a good example. 297 00:16:25,920 --> 00:16:28,280 Speaker 2: Mary. We appreciate it, Thank you very much, Mary Ross, 298 00:16:28,280 --> 00:16:31,400 Speaker 2: Gilbert Bloomberg Intelligence and your equity analysts. But my point 299 00:16:31,480 --> 00:16:33,280 Speaker 2: is that like, what if you can get men really 300 00:16:33,280 --> 00:16:34,320 Speaker 2: invested in skincare. 301 00:16:35,320 --> 00:16:37,040 Speaker 6: He's not like makeup on is he? 302 00:16:37,200 --> 00:16:41,640 Speaker 5: No, he's in investing in his face. That's what it is. 303 00:16:41,640 --> 00:16:43,280 Speaker 2: Can you become a certain age Tucker? 304 00:16:43,640 --> 00:16:47,280 Speaker 6: You gotta do that at what age? Well? 305 00:16:47,560 --> 00:16:47,800 Speaker 9: You know? 306 00:16:48,040 --> 00:16:53,560 Speaker 2: Now anyway, intelligence, do you That's not good? 307 00:16:56,080 --> 00:16:59,920 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 308 00:17:00,120 --> 00:17:02,720 Speaker 1: weekdays at ten am Eastern on Affo, card Play, and 309 00:17:02,720 --> 00:17:05,720 Speaker 1: Android Otto with the Bloomberg Business App. Listen on demand 310 00:17:05,800 --> 00:17:09,440 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 311 00:17:11,040 --> 00:17:13,760 Speaker 2: Hes is down three point twenty five percent. It's one 312 00:17:13,760 --> 00:17:15,440 Speaker 2: of the worst performing stocks in the S and P. 313 00:17:15,680 --> 00:17:19,080 Speaker 2: Chevron is also off by two percent. Here's the interesting 314 00:17:19,160 --> 00:17:21,879 Speaker 2: reason why so Chefron had a filing that came out 315 00:17:21,960 --> 00:17:24,359 Speaker 2: late last night that said one of their risks about 316 00:17:24,359 --> 00:17:27,680 Speaker 2: its takeover of Hesse is actually the fact that Exon 317 00:17:27,800 --> 00:17:32,119 Speaker 2: and Sinook, which are partners with Hesse in Guyana, say 318 00:17:32,200 --> 00:17:35,119 Speaker 2: they have the right of first refusal for Hess's portion 319 00:17:35,680 --> 00:17:38,600 Speaker 2: of Guyana, which basically means that Exon and Sinok, which 320 00:17:38,600 --> 00:17:41,560 Speaker 2: is a Chinese oil company, could bust up this merger 321 00:17:41,600 --> 00:17:45,240 Speaker 2: between Chevron and Hess. So for nerds like me. This 322 00:17:45,400 --> 00:17:48,000 Speaker 2: is cool, that's big, this is stuff that's happening. So 323 00:17:48,040 --> 00:17:50,560 Speaker 2: for that I turned to Fernando Vali. He's Bloomberg Intelligence 324 00:17:50,560 --> 00:17:53,320 Speaker 2: senior oil and gas analysts. Fernando, when we think about 325 00:17:53,359 --> 00:17:55,880 Speaker 2: these mergers, we think about ooh, competing bids, we think 326 00:17:55,880 --> 00:17:59,000 Speaker 2: about antitrust, we think about those things. We didn't think 327 00:17:59,000 --> 00:18:00,000 Speaker 2: that this was going to happen. 328 00:18:01,040 --> 00:18:04,240 Speaker 10: Yeah, Typically you don't see preemption rights on corporate takeovers. 329 00:18:04,240 --> 00:18:05,199 Speaker 6: It's very rare. 330 00:18:05,680 --> 00:18:11,120 Speaker 10: You saw it recently when Suncrep acquired Total Energies Canadian subsidiary, 331 00:18:11,119 --> 00:18:14,800 Speaker 10: and there are some preemption rights there on Chronicle Philps 332 00:18:14,840 --> 00:18:18,359 Speaker 10: acquiring fifteen percent of Sermid. But typically you're acquiring the 333 00:18:18,359 --> 00:18:21,919 Speaker 10: whole company and the owner itself doesn't change, just the 334 00:18:21,960 --> 00:18:27,280 Speaker 10: controller of it. So most joint operating agreements don't foresee 335 00:18:27,640 --> 00:18:30,560 Speaker 10: for that to be a preemption right event. 336 00:18:31,480 --> 00:18:33,760 Speaker 4: So what does the contract say here? It's got to 337 00:18:33,760 --> 00:18:36,480 Speaker 4: be cut and dry. If I'm Chevron and I'm buying Hess, 338 00:18:37,119 --> 00:18:39,320 Speaker 4: I have to have a high level of confidence that 339 00:18:39,359 --> 00:18:41,360 Speaker 4: I'm going to get the Hess steak in Guyana. 340 00:18:42,200 --> 00:18:44,840 Speaker 10: Well, all we can do is speculate because it's a 341 00:18:44,880 --> 00:18:49,639 Speaker 10: private agreement. So we're not We are not really privy 342 00:18:49,640 --> 00:18:51,320 Speaker 10: to the details of that contract. 343 00:18:51,680 --> 00:18:53,600 Speaker 6: Has seemed to be very confident. 344 00:18:53,160 --> 00:18:54,840 Speaker 10: That they will be able to push this through and 345 00:18:54,880 --> 00:18:58,200 Speaker 10: there is no preemption rights. I would argue that that 346 00:18:58,359 --> 00:19:01,879 Speaker 10: Guyana is the value the most valuable ascid In has 347 00:19:01,960 --> 00:19:04,400 Speaker 10: his portfolio. I think most people would agree with that. 348 00:19:04,760 --> 00:19:09,200 Speaker 10: And so, as Alex mentioned, if this if Guiana was excluded, 349 00:19:09,400 --> 00:19:14,199 Speaker 10: then likely there's no deal for Chevron anyway, and so 350 00:19:14,840 --> 00:19:19,040 Speaker 10: I doubt that that we'll get clarity in the next 351 00:19:19,040 --> 00:19:21,440 Speaker 10: few days. But has seems to be fairly confident there's 352 00:19:21,520 --> 00:19:22,800 Speaker 10: no preemption rights. 353 00:19:22,520 --> 00:19:23,119 Speaker 6: In this case. 354 00:19:23,359 --> 00:19:25,919 Speaker 2: So why is Chevron doing sorry, why is Exon doing this? 355 00:19:26,880 --> 00:19:29,400 Speaker 6: Well, because it's the second best asset in the. 356 00:19:29,359 --> 00:19:31,120 Speaker 2: World, So why isn't just buy Hess then? 357 00:19:32,600 --> 00:19:34,920 Speaker 10: Because you know, they don't want to buy everything else 358 00:19:34,960 --> 00:19:36,000 Speaker 10: that's included with Hes. 359 00:19:36,040 --> 00:19:37,240 Speaker 6: They want to buy Guiana. 360 00:19:37,320 --> 00:19:39,760 Speaker 2: And so why did't they do this before Chevron got 361 00:19:39,800 --> 00:19:40,240 Speaker 2: into this? 362 00:19:41,960 --> 00:19:45,080 Speaker 10: Probably because Hess wouldn't want to sell just Guiana. And 363 00:19:45,160 --> 00:19:48,840 Speaker 10: now Chevron has laid out the marker, the pricing marker 364 00:19:48,880 --> 00:19:51,520 Speaker 10: for it. And if you can just find a way 365 00:19:51,560 --> 00:19:55,080 Speaker 10: to just get pull out the best asset out, why wouldn't. 366 00:19:54,760 --> 00:19:58,959 Speaker 4: You so this is an exercise for the lawyers here. 367 00:19:59,000 --> 00:20:00,960 Speaker 4: Who's got the better lawyer? I mean, that's what it 368 00:20:00,960 --> 00:20:02,399 Speaker 4: comes down to. Do we have any sense as to 369 00:20:02,960 --> 00:20:04,520 Speaker 4: when we're gonna get some visibility here? 370 00:20:06,000 --> 00:20:09,000 Speaker 10: Probably within the next couple a month or two, I 371 00:20:09,000 --> 00:20:13,320 Speaker 10: would expect some visibility. It does take the dragon tend 372 00:20:13,320 --> 00:20:17,120 Speaker 10: to drag on with Konaco. It took upwards of two 373 00:20:17,160 --> 00:20:21,440 Speaker 10: months to see the actual preemption and then to find 374 00:20:21,480 --> 00:20:23,960 Speaker 10: a new over six months to get a new deal 375 00:20:24,000 --> 00:20:29,160 Speaker 10: between Suncren to Hotel Energies. But I think probably within 376 00:20:29,200 --> 00:20:32,120 Speaker 10: two months we'll get more clarity on this. It's really 377 00:20:32,160 --> 00:20:35,200 Speaker 10: about the contract at this stage. And you know, if 378 00:20:35,200 --> 00:20:39,600 Speaker 10: they were negotiated at a suitable way for Hess and 379 00:20:39,680 --> 00:20:42,440 Speaker 10: Chevron back when the joint operating agreement. 380 00:20:42,040 --> 00:20:44,960 Speaker 2: Was signed, how much of a bummer would this be 381 00:20:45,000 --> 00:20:47,600 Speaker 2: for Mike where that Chevron if this deal collapsed. 382 00:20:48,520 --> 00:20:49,800 Speaker 6: I mean, this would be huge. 383 00:20:49,880 --> 00:20:53,959 Speaker 10: This is, as I said, the second best asset available 384 00:20:54,080 --> 00:20:57,119 Speaker 10: for sale in it and you know, really that's the 385 00:20:57,119 --> 00:20:59,800 Speaker 10: only block that has any production out of Guiana, any 386 00:21:00,119 --> 00:21:04,080 Speaker 10: real potential as it stands. So if they lose out 387 00:21:04,080 --> 00:21:08,720 Speaker 10: on that as a big part of the growth opportunity 388 00:21:08,720 --> 00:21:11,080 Speaker 10: for Chevron and it puts X on a whole new 389 00:21:11,160 --> 00:21:14,280 Speaker 10: level because now they would own upwards to sixty percent 390 00:21:14,320 --> 00:21:17,720 Speaker 10: of that asset and give them a lot of growth 391 00:21:17,720 --> 00:21:21,200 Speaker 10: over the next decade. You know, you don't spend sixty 392 00:21:21,240 --> 00:21:25,120 Speaker 10: billion dollars on hes if you don't think that Kayana 393 00:21:25,200 --> 00:21:28,720 Speaker 10: is a very very attractive development over the next ten 394 00:21:28,760 --> 00:21:29,440 Speaker 10: to fifteen years. 395 00:21:29,480 --> 00:21:30,880 Speaker 2: Yeah, And to your point, it's not like they can 396 00:21:30,920 --> 00:21:33,000 Speaker 2: just like go buy the next asset, right Like, it's 397 00:21:33,040 --> 00:21:35,080 Speaker 2: not like they're buying for areas in the Permian where 398 00:21:35,080 --> 00:21:37,120 Speaker 2: there's a ton of producers where maybe you could look 399 00:21:37,119 --> 00:21:39,920 Speaker 2: at different acres somewhere else. Like this is kind of 400 00:21:39,920 --> 00:21:42,720 Speaker 2: a make or break it moment. If the deal does 401 00:21:42,800 --> 00:21:47,159 Speaker 2: go through, then what's the relationship between chevron Xon and 402 00:21:47,200 --> 00:21:47,960 Speaker 2: Sinook going to be? 403 00:21:48,160 --> 00:21:48,280 Speaker 6: Like? 404 00:21:48,320 --> 00:21:50,760 Speaker 2: Since they all sort of are working in the same 405 00:21:50,840 --> 00:21:51,879 Speaker 2: area working together. 406 00:21:53,080 --> 00:21:54,040 Speaker 6: I mean they work in. 407 00:21:54,080 --> 00:21:56,240 Speaker 10: A lot of projects together and they are in Tangi's 408 00:21:56,280 --> 00:22:00,919 Speaker 10: Chevroyal or in Kazakhstan, they are in reach Stone in Australia. 409 00:22:01,280 --> 00:22:03,840 Speaker 10: They've been partners for a long time and I think 410 00:22:03,840 --> 00:22:06,920 Speaker 10: there's no love lost. There's there's always going to be 411 00:22:06,960 --> 00:22:09,840 Speaker 10: a competition. And if you can exercise your rights, you know, 412 00:22:10,480 --> 00:22:13,439 Speaker 10: fair play to you. Obviously they won't be totally happy 413 00:22:13,480 --> 00:22:16,240 Speaker 10: with it, but I just can't foresee. 414 00:22:17,000 --> 00:22:17,560 Speaker 6: You have to be. 415 00:22:17,480 --> 00:22:20,240 Speaker 10: Fairly sanguine in this industry and you have to move 416 00:22:20,280 --> 00:22:24,160 Speaker 10: on to the next deal, into the next growth possibilities. 417 00:22:24,240 --> 00:22:27,520 Speaker 10: So I'm sure it will be hurtful at first, but 418 00:22:28,320 --> 00:22:30,440 Speaker 10: you've got to find ways to keep working together and 419 00:22:31,560 --> 00:22:32,840 Speaker 10: do best for your shareholders. 420 00:22:32,960 --> 00:22:36,600 Speaker 2: That's awesome. Hurtful, It will be hurtful. Hey, just looking 421 00:22:36,600 --> 00:22:39,439 Speaker 2: at the share price, you know, Hess off over three percent, 422 00:22:39,800 --> 00:22:42,680 Speaker 2: shev one off by two of these legit reactions here. 423 00:22:43,960 --> 00:22:48,280 Speaker 10: Well, I think yes in the aspect that again, it's 424 00:22:48,400 --> 00:22:51,520 Speaker 10: the second best asset after Pioneer, and if there's a 425 00:22:51,680 --> 00:22:57,200 Speaker 10: movement that where excellent consolidates those two best assets, and 426 00:22:57,240 --> 00:23:01,400 Speaker 10: it's really painful for or Chevron, and then for us. 427 00:23:02,040 --> 00:23:05,119 Speaker 10: If you sell just your best asset, you take the 428 00:23:05,160 --> 00:23:08,680 Speaker 10: diamond out of the rest. You know, the rest of 429 00:23:08,680 --> 00:23:10,960 Speaker 10: the portfolio is hard is a much harder sale. 430 00:23:11,800 --> 00:23:15,679 Speaker 4: All I know is if I'm Chevron, I'm turning to 431 00:23:15,720 --> 00:23:19,080 Speaker 4: my lawyers and I'm saying, tell me we're covered here, Yeah, 432 00:23:19,480 --> 00:23:21,240 Speaker 4: I mean, tell me this is not a risk. 433 00:23:22,080 --> 00:23:24,080 Speaker 5: I can't imagine that this is even something that would 434 00:23:24,080 --> 00:23:26,960 Speaker 5: be talked about. Is this something that happens in other deals? 435 00:23:27,680 --> 00:23:30,959 Speaker 10: Well, as I mentioned, it happened with Suncore buying Total 436 00:23:31,080 --> 00:23:34,280 Speaker 10: Energies in Canada. It was a little bit different because 437 00:23:34,960 --> 00:23:38,400 Speaker 10: the Sermont mine was only Conico in Hotel, and Conico 438 00:23:38,880 --> 00:23:43,560 Speaker 10: managed to preempt at. I'll say that Suncore in sun 439 00:23:43,600 --> 00:23:48,040 Speaker 10: Corps release saying that they were caring Totel, they noticed 440 00:23:48,119 --> 00:23:50,320 Speaker 10: right away that that could have been an issue in Sermont, 441 00:23:51,440 --> 00:23:55,240 Speaker 10: so as opposed to Chevron did not say that as 442 00:23:55,280 --> 00:23:56,960 Speaker 10: a risk in their initial. 443 00:23:56,600 --> 00:23:59,800 Speaker 2: Filings, which is interesting too because if you take a 444 00:23:59,840 --> 00:24:01,560 Speaker 2: look with some analyst notes out they also came out 445 00:24:01,560 --> 00:24:04,520 Speaker 2: today it's like, look either way, it'll be fine. Let's 446 00:24:04,560 --> 00:24:06,520 Speaker 2: just say it's going to take a lot longer for 447 00:24:06,560 --> 00:24:09,200 Speaker 2: the deal than to get closed, which makes everything's a 448 00:24:09,240 --> 00:24:13,280 Speaker 2: little more uncertain, the synergies, the development, et cetera. Fernando, 449 00:24:13,320 --> 00:24:14,840 Speaker 2: thanks a lot, Always love talking to you. Great to 450 00:24:14,840 --> 00:24:18,200 Speaker 2: see if under Volley Bloomberg Intelligence Senior analyst for Oil 451 00:24:18,240 --> 00:24:19,600 Speaker 2: and guests, he's like my go to guy. 452 00:24:19,680 --> 00:24:22,840 Speaker 5: Yeah, he knows what's happening global energy. He's our guy Global. 453 00:24:24,359 --> 00:24:28,240 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 454 00:24:28,320 --> 00:24:31,840 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 455 00:24:31,880 --> 00:24:34,639 Speaker 1: Auto with the Bloomberg Business App. You can also listen 456 00:24:34,760 --> 00:24:37,840 Speaker 1: live on Amazon Alexa from our flagship New York station 457 00:24:38,240 --> 00:24:42,040 Speaker 1: Just Say Alexa playing Bloomberg eleven thirty. 458 00:24:42,400 --> 00:24:44,880 Speaker 2: Excellent and Seinook are trying to prevent Chevron from taking 459 00:24:44,880 --> 00:24:46,840 Speaker 2: over hes because of the guy on a asset. They're 460 00:24:46,880 --> 00:24:48,960 Speaker 2: trying to sort of get the rights of first refusal. 461 00:24:49,080 --> 00:24:51,320 Speaker 2: That's interesting. We're seeing a lot of natural gas deals 462 00:24:51,320 --> 00:24:54,600 Speaker 2: getting done. We're also seeing natural gas prices continue to tank, 463 00:24:54,680 --> 00:24:58,040 Speaker 2: like under two dollars mmbtu is really tough for some 464 00:24:58,080 --> 00:24:59,640 Speaker 2: of these producers. So we want to get a broader 465 00:24:59,640 --> 00:25:03,560 Speaker 2: perspect on how to invest. And Haig Sherman is chief 466 00:25:03,560 --> 00:25:07,400 Speaker 2: executive officer and chief investment officer over at Teutonic Holdings Now. 467 00:25:07,960 --> 00:25:10,000 Speaker 2: He is a big deal in the energy space. He 468 00:25:10,040 --> 00:25:14,520 Speaker 2: manages about six point seven billion dollars across all asset classes, 469 00:25:14,560 --> 00:25:16,240 Speaker 2: not just energy, but he was the guy that you 470 00:25:16,359 --> 00:25:20,560 Speaker 2: go to for this kind of energy advice and energy investing. Haig, 471 00:25:20,600 --> 00:25:23,199 Speaker 2: it's great, great, great to have you. Thank you for 472 00:25:23,320 --> 00:25:27,280 Speaker 2: joining us. There's a lot to talk about what is 473 00:25:27,440 --> 00:25:30,800 Speaker 2: foremost on your mind when you think of investing specifically 474 00:25:30,880 --> 00:25:31,760 Speaker 2: in the energy space. 475 00:25:32,920 --> 00:25:36,000 Speaker 9: Well, I think foremost on my mind is really the 476 00:25:36,040 --> 00:25:39,080 Speaker 9: consolidation that's going on in the industry. So if you 477 00:25:39,119 --> 00:25:43,040 Speaker 9: look at both oil and natural gas, you have some 478 00:25:43,240 --> 00:25:47,160 Speaker 9: major transactions that have been inked. You just mentioned one, 479 00:25:47,240 --> 00:25:50,600 Speaker 9: which is the Chevron Hess steal, which is being attacked 480 00:25:50,640 --> 00:25:55,120 Speaker 9: effectively by Exxon based on their right of first refusal 481 00:25:55,200 --> 00:25:58,439 Speaker 9: on the Guyana assets of Hess. But you also have 482 00:25:58,440 --> 00:26:02,920 Speaker 9: a natural gas you have the Chesapeake Southwestern transaction, which 483 00:26:02,960 --> 00:26:06,520 Speaker 9: is severally very interesting. So I really think this is 484 00:26:06,560 --> 00:26:10,040 Speaker 9: the central thesis of energy, which is we want to 485 00:26:10,040 --> 00:26:12,800 Speaker 9: have more scale in the basins in which we operate 486 00:26:13,320 --> 00:26:17,320 Speaker 9: because we're really in the manufacturing business. We're manufacturing molecules, 487 00:26:17,320 --> 00:26:21,639 Speaker 9: so scale, operational efficiency, and inventory matter. 488 00:26:22,520 --> 00:26:24,399 Speaker 5: Hey, I hear you know. I have a lot of 489 00:26:24,560 --> 00:26:25,800 Speaker 5: buddies from my pain Webber day. 490 00:26:25,840 --> 00:26:27,720 Speaker 4: I know you were there, David bratch On, a bunch 491 00:26:27,760 --> 00:26:29,600 Speaker 4: of other guys that were in energy space. 492 00:26:29,720 --> 00:26:32,720 Speaker 5: What I know is from them, EMP was the fun 493 00:26:33,240 --> 00:26:34,560 Speaker 5: sector to cover there for a while. 494 00:26:34,560 --> 00:26:36,760 Speaker 4: But I get the sense that these EMP companies aren't 495 00:26:36,760 --> 00:26:38,159 Speaker 4: doing too much e these days. 496 00:26:38,520 --> 00:26:41,160 Speaker 5: They're just kind of in production. Is that the case 497 00:26:41,160 --> 00:26:41,440 Speaker 5: and why? 498 00:26:41,520 --> 00:26:42,399 Speaker 2: Is that good question? 499 00:26:43,080 --> 00:26:46,879 Speaker 9: That's exactly right. So if you look at historically as 500 00:26:46,960 --> 00:26:50,520 Speaker 9: we grew up, especially here in Houston, you know, the 501 00:26:50,600 --> 00:26:53,160 Speaker 9: e was kind of the glamorous part of EMP. I mean, 502 00:26:53,200 --> 00:26:56,159 Speaker 9: you had these great offshore projects. You had, you know, 503 00:26:56,200 --> 00:26:59,320 Speaker 9: these frontier projects, the North Slope, you know, when Russia 504 00:27:00,119 --> 00:27:03,360 Speaker 9: opened up, you had the Cycling Island, you had Kazakhstan, 505 00:27:03,800 --> 00:27:07,600 Speaker 9: kazaksand and you had other projects. And this was really 506 00:27:07,640 --> 00:27:10,399 Speaker 9: the glamorous part of the industry. And our oil and 507 00:27:10,440 --> 00:27:14,480 Speaker 9: gas companies were intrepid. They would invest, but they also 508 00:27:14,480 --> 00:27:18,239 Speaker 9: had a long time horizon. Today, that time horizon is 509 00:27:18,320 --> 00:27:22,879 Speaker 9: much much shorter with the onslaught of renewables. The executive 510 00:27:22,920 --> 00:27:26,280 Speaker 9: teams of these big or these big energy companies are 511 00:27:26,320 --> 00:27:29,960 Speaker 9: more focused on delivering short term investor returns, delivering cash 512 00:27:30,000 --> 00:27:32,920 Speaker 9: back to investors. They don't want to take duration risk. 513 00:27:33,400 --> 00:27:37,800 Speaker 9: So they're really focused on becoming manufacturing businesses with good 514 00:27:37,880 --> 00:27:42,320 Speaker 9: core holdings and good inventories of areas of current operations. 515 00:27:42,720 --> 00:27:47,040 Speaker 2: So how do you invest in that when they're becoming 516 00:27:47,080 --> 00:27:49,600 Speaker 2: a different type it's becoming a different type of industry 517 00:27:49,640 --> 00:27:51,800 Speaker 2: in essence, Well. 518 00:27:51,640 --> 00:27:54,320 Speaker 9: I think you really focus on those that are best 519 00:27:54,320 --> 00:27:57,800 Speaker 9: at at manufacturing the molecules. I think Exxon is an 520 00:27:57,800 --> 00:28:00,639 Speaker 9: excellent and they've really been on this trend or quite 521 00:28:00,640 --> 00:28:04,119 Speaker 9: some time. They had a big twenty nineteen initiative to 522 00:28:04,160 --> 00:28:08,280 Speaker 9: cut costs and really become more efficient. EOG is another 523 00:28:08,400 --> 00:28:11,240 Speaker 9: kind of a mini ex On without the downstream operations 524 00:28:11,840 --> 00:28:16,800 Speaker 9: very efficient. They understand that this is about inventory, unit 525 00:28:16,880 --> 00:28:21,320 Speaker 9: level costs, unit level productivity, and economies of scale so 526 00:28:21,320 --> 00:28:25,040 Speaker 9: that they can deliver the best return possible to their shareholders. 527 00:28:25,680 --> 00:28:25,920 Speaker 5: HEG. 528 00:28:26,080 --> 00:28:29,680 Speaker 4: So you're right there in Houston, you know, the center 529 00:28:29,720 --> 00:28:32,080 Speaker 4: of the US energy business, maybe the global energy business. 530 00:28:32,119 --> 00:28:34,160 Speaker 5: I don't know. Talk to us about renewables. 531 00:28:34,280 --> 00:28:38,640 Speaker 4: How committed to what extent are US energy companies kind 532 00:28:38,680 --> 00:28:40,760 Speaker 4: of committed to renewables Because some of the rhetor coming out, 533 00:28:40,760 --> 00:28:42,800 Speaker 4: I don't know if it's just politicians or others. 534 00:28:43,440 --> 00:28:44,120 Speaker 5: I'm just not sure. 535 00:28:44,120 --> 00:28:46,440 Speaker 4: It seems like it's more commitment out of some of 536 00:28:46,440 --> 00:28:48,320 Speaker 4: the European energy companies. 537 00:28:50,320 --> 00:28:52,200 Speaker 9: I think that's right. I think if you really look 538 00:28:52,240 --> 00:28:56,280 Speaker 9: at the big integrats in the US, there are certain 539 00:28:56,320 --> 00:29:00,800 Speaker 9: areas that they're focused on carbon c questration and other areas. 540 00:29:01,360 --> 00:29:04,600 Speaker 9: But to their credit. They've been focused on what their 541 00:29:04,600 --> 00:29:07,640 Speaker 9: core competency is, which is producing hydrocarbons. And if you 542 00:29:07,720 --> 00:29:11,480 Speaker 9: look at Europe, which you brought up BPS, under a 543 00:29:11,480 --> 00:29:15,880 Speaker 9: lot of pressure now for abandoning hydrocarbons or at least 544 00:29:16,520 --> 00:29:20,440 Speaker 9: deemphasizing hydrocarbons. So I really think that the US energy 545 00:29:20,440 --> 00:29:24,240 Speaker 9: companies got it right. But we have other areas of investment, 546 00:29:24,320 --> 00:29:28,000 Speaker 9: particularly here in Houston and Texas. Texas is a US 547 00:29:28,160 --> 00:29:32,920 Speaker 9: leader in renewables. We have great private equity supported the 548 00:29:32,920 --> 00:29:35,040 Speaker 9: industry here in Houston and throughout the state and really 549 00:29:35,040 --> 00:29:40,240 Speaker 9: throughout the country. So we're getting that built out independent 550 00:29:40,360 --> 00:29:43,480 Speaker 9: of our EMP companies, our energy companies. 551 00:29:44,000 --> 00:29:47,720 Speaker 2: So HeiG as I talk about how to invest, it's 552 00:29:47,720 --> 00:29:49,440 Speaker 2: really going to be private equity, it's government money, and 553 00:29:49,480 --> 00:29:51,560 Speaker 2: it's oil companies. Like those are three buckets that I 554 00:29:51,600 --> 00:29:55,520 Speaker 2: see that invests in the energy transition, not just straight renewables, 555 00:29:55,520 --> 00:29:58,800 Speaker 2: but the energy transition. What in the energy transition do 556 00:29:58,840 --> 00:30:01,520 Speaker 2: you like the best? There's so much money that's going 557 00:30:01,600 --> 00:30:03,360 Speaker 2: to be wasted on stuff that doesn't work. 558 00:30:03,560 --> 00:30:04,240 Speaker 5: What do you like? 559 00:30:05,680 --> 00:30:08,959 Speaker 9: Yeah, It's it's a tough space to navigate right now, 560 00:30:09,080 --> 00:30:12,480 Speaker 9: because if you really look at kind of renewables right 561 00:30:12,560 --> 00:30:15,720 Speaker 9: now and really over the past couple of years. It's 562 00:30:15,760 --> 00:30:18,640 Speaker 9: really like the shell boom I can call it twenty 563 00:30:18,800 --> 00:30:23,320 Speaker 9: thirteen twenty fourteen, two before it crashed, because there's a 564 00:30:23,360 --> 00:30:26,920 Speaker 9: lot of money that's coursing in. You know, prices are inflated, 565 00:30:27,480 --> 00:30:29,560 Speaker 9: so to me, it's really an area that you have 566 00:30:29,640 --> 00:30:31,800 Speaker 9: to be careful in. And that's why I like, you know, 567 00:30:32,560 --> 00:30:37,160 Speaker 9: fossil fuels better at this moment than energy transition, just 568 00:30:37,200 --> 00:30:40,560 Speaker 9: because I think the prices are better. And if you're 569 00:30:40,600 --> 00:30:44,760 Speaker 9: a share or an investor looking for returns, you want 570 00:30:44,760 --> 00:30:46,720 Speaker 9: to go to where you can get the best returns. 571 00:30:46,840 --> 00:30:51,520 Speaker 9: So I've shied away from renewables, really focused on traditional 572 00:30:51,600 --> 00:30:55,680 Speaker 9: fossil fuel energy. But the day will come when those 573 00:30:55,720 --> 00:30:58,400 Speaker 9: will become more investable in my opinion. 574 00:30:59,120 --> 00:31:02,400 Speaker 5: You know, I'm looking at this chart for natural gas. 575 00:31:02,840 --> 00:31:06,800 Speaker 5: What happened? Holy cow, things greater. I thought people like 576 00:31:06,880 --> 00:31:08,040 Speaker 5: natural gas. 577 00:31:09,160 --> 00:31:12,160 Speaker 9: People like natural gas, and conservers like cheap natural gas. 578 00:31:12,240 --> 00:31:15,440 Speaker 9: It's not great for producers, but it really is. It's 579 00:31:15,480 --> 00:31:17,640 Speaker 9: a stunning collapse. I mean, if you look a year 580 00:31:17,640 --> 00:31:20,040 Speaker 9: and a half ago, you're at nine dollars per mcf. 581 00:31:20,400 --> 00:31:23,920 Speaker 9: Today it's a buck eighty or thereabouts, and so it's 582 00:31:23,960 --> 00:31:27,080 Speaker 9: been a stunning collapse. A lot of it's weather driven. 583 00:31:27,680 --> 00:31:29,560 Speaker 9: You had a big L and G facility that was 584 00:31:29,600 --> 00:31:33,480 Speaker 9: offline that really started. It was a catalyst for the 585 00:31:33,520 --> 00:31:38,080 Speaker 9: current downdraft. And right now we can talk about natural 586 00:31:38,080 --> 00:31:40,960 Speaker 9: gas being a global commodity, but right now it's still 587 00:31:41,080 --> 00:31:44,640 Speaker 9: largely a domestic commodity. So we really don't have the 588 00:31:44,680 --> 00:31:47,680 Speaker 9: global support until we start opening up more L and 589 00:31:47,720 --> 00:31:51,080 Speaker 9: G facilities, which'll happen in twenty five and twenty six. 590 00:31:51,720 --> 00:31:53,480 Speaker 9: If you look at the curve in twenty five and 591 00:31:53,520 --> 00:31:56,400 Speaker 9: twenty six, it's more constructive, although it's not great. 592 00:31:57,080 --> 00:31:59,680 Speaker 2: So but to that point, I mean, with natural gas 593 00:31:59,680 --> 00:32:04,000 Speaker 2: prices at this level, are they economic for producers and 594 00:32:04,040 --> 00:32:05,320 Speaker 2: for LG exporters? 595 00:32:06,720 --> 00:32:07,160 Speaker 6: Uh? 596 00:32:07,440 --> 00:32:10,120 Speaker 9: For producers it's it's tough. So I mean a lot 597 00:32:10,200 --> 00:32:12,640 Speaker 9: of them are hedged, and so for example, I think 598 00:32:12,720 --> 00:32:16,320 Speaker 9: chess Peak's forty four percent hedged. Okay, so a lot 599 00:32:16,400 --> 00:32:19,920 Speaker 9: of them are hedged in a higher price environment, so 600 00:32:20,040 --> 00:32:23,120 Speaker 9: they're still getting by. But if you look at really 601 00:32:23,440 --> 00:32:27,280 Speaker 9: what what chest Peak announced last week was we're not 602 00:32:27,400 --> 00:32:30,560 Speaker 9: going to invest is aggressively in the space, and so 603 00:32:31,280 --> 00:32:34,800 Speaker 9: that created a situation where natural gas got a modest bid, 604 00:32:35,200 --> 00:32:38,600 Speaker 9: but all the or all the energy companies in natural 605 00:32:38,640 --> 00:32:42,840 Speaker 9: gas sell their stocks rally. There has to be this 606 00:32:42,840 --> 00:32:47,280 Speaker 9: this sea change within natural gas production where rigs are 607 00:32:47,360 --> 00:32:52,520 Speaker 9: laid down, and that'll happen to a certain extent through consolidation. 608 00:32:52,680 --> 00:32:57,200 Speaker 9: That's why the continued consolidation the industry taking privates out 609 00:32:57,960 --> 00:33:00,880 Speaker 9: because they've been more active with the drill bit. Uh 610 00:33:01,200 --> 00:33:04,479 Speaker 9: and public companies have certainly been more disciplined than private 611 00:33:04,520 --> 00:33:10,400 Speaker 9: companies as it relates to you know, producing our thrilling 612 00:33:10,440 --> 00:33:12,200 Speaker 9: wells Haig. 613 00:33:11,960 --> 00:33:14,080 Speaker 2: Thanks a lot, Really appreciate Hig Sherman. He joins the 614 00:33:14,120 --> 00:33:17,400 Speaker 2: CEO CIO of Tectonic Holdings. He joins us up from Houston. 615 00:33:17,400 --> 00:33:20,760 Speaker 2: In the case of Chesapeake, for example, buying Southwestern, they 616 00:33:20,800 --> 00:33:23,200 Speaker 2: also just are basically leaving the natural gas in the ground. 617 00:33:23,240 --> 00:33:25,400 Speaker 2: But then in a moment's notice, when natural gas prices 618 00:33:25,440 --> 00:33:27,040 Speaker 2: tick up, they're going to go and explore it. So 619 00:33:27,080 --> 00:33:30,080 Speaker 2: they have like the reserves around to do it, they 620 00:33:30,080 --> 00:33:32,200 Speaker 2: have the equipment to do it, they have the know 621 00:33:32,240 --> 00:33:33,800 Speaker 2: how to do it, but not everybody does. 622 00:33:33,880 --> 00:33:35,800 Speaker 5: So we don't like firing oil. 623 00:33:35,840 --> 00:33:38,160 Speaker 4: I understand it's like forty to fifty dollars per barrel 624 00:33:38,240 --> 00:33:39,440 Speaker 4: costs roughly to get it out. 625 00:33:39,280 --> 00:33:40,800 Speaker 5: Of the ground. Do we have it? What's the number 626 00:33:40,840 --> 00:33:42,040 Speaker 5: four neck gas? Do we know? 627 00:33:42,120 --> 00:33:43,280 Speaker 2: You know, I don't actually know. 628 00:33:43,480 --> 00:33:49,040 Speaker 4: I'm wondering about dollars sixty seven, whether it's. 629 00:33:46,560 --> 00:33:49,920 Speaker 2: Like, yeah, I don't know that the hedging question was 630 00:33:49,920 --> 00:33:52,240 Speaker 2: a good one for him. But I also think that 631 00:33:52,280 --> 00:33:55,800 Speaker 2: I've been talking to LNG exporters. Under two bucks is 632 00:33:56,040 --> 00:33:59,240 Speaker 2: really hard. It's really hard to make that export number 633 00:33:59,280 --> 00:34:01,640 Speaker 2: work for them. So I think that's interesting too, particularly 634 00:34:01,640 --> 00:34:05,040 Speaker 2: with the moratorium, et cetera, how that winds up playing out. 635 00:34:06,920 --> 00:34:10,799 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 636 00:34:10,880 --> 00:34:14,440 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 637 00:34:14,440 --> 00:34:17,240 Speaker 1: Auto with the Bloomberg Business Act. You can also listen 638 00:34:17,320 --> 00:34:20,440 Speaker 1: live on Amazon Alexa from our flagship New York station, 639 00:34:20,800 --> 00:34:23,560 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 640 00:34:24,960 --> 00:34:28,640 Speaker 2: Iira Jersey. He is a Bloomberg Intelligence Chief US interest 641 00:34:28,680 --> 00:34:31,360 Speaker 2: rate strategist. So I care because yesterday we made the 642 00:34:31,400 --> 00:34:34,280 Speaker 2: two week the five. We had record corporate bond sales, 643 00:34:34,280 --> 00:34:36,080 Speaker 2: and we had a pretty solid takedown. I mean, there's 644 00:34:36,080 --> 00:34:39,120 Speaker 2: a lot of supply overnight, we had a really strong 645 00:34:39,200 --> 00:34:42,520 Speaker 2: demand for some French issuance. Come on, buyers are there? 646 00:34:43,600 --> 00:34:46,160 Speaker 7: Yeah, I think given where yields are and just the 647 00:34:46,239 --> 00:34:48,319 Speaker 7: idea that you know, we are getting a bunch of 648 00:34:48,320 --> 00:34:50,880 Speaker 7: mixed data that there are some people dipping in their toes. 649 00:34:50,920 --> 00:34:53,520 Speaker 7: And keep in mind, going into the most recent sell off, 650 00:34:53,800 --> 00:34:56,640 Speaker 7: it seemed like the market was positioned a little bit 651 00:34:56,680 --> 00:34:59,000 Speaker 7: on the short side. So if nothing else, you're going 652 00:34:59,040 --> 00:35:01,480 Speaker 7: to wind up seeing contin to see some short covering, 653 00:35:02,080 --> 00:35:04,000 Speaker 7: you know, talking about the auctions, you know, the two 654 00:35:04,040 --> 00:35:06,800 Speaker 7: things that we look at very closely in the auctions 655 00:35:06,840 --> 00:35:10,359 Speaker 7: is that bid to cover ratio if it's if it's 656 00:35:10,400 --> 00:35:13,560 Speaker 7: basically at or near where it has been historically, that's 657 00:35:13,600 --> 00:35:16,799 Speaker 7: actually a pretty good sign because these auction sizes are 658 00:35:16,880 --> 00:35:19,960 Speaker 7: much larger, so that means that you still have bidders 659 00:35:19,960 --> 00:35:21,799 Speaker 7: who don't have to come in a bid. So these 660 00:35:21,800 --> 00:35:24,560 Speaker 7: are bidders that aren't just the primary dealers that are 661 00:35:24,600 --> 00:35:27,000 Speaker 7: coming in and looking to buy some bonds. And you 662 00:35:27,080 --> 00:35:30,200 Speaker 7: saw that a tick up in the bid tocover ratios 663 00:35:30,200 --> 00:35:32,120 Speaker 7: in some of the auctions in the last couple of 664 00:35:32,360 --> 00:35:34,480 Speaker 7: in the last couple of weeks, So that's number one. 665 00:35:34,560 --> 00:35:36,080 Speaker 5: Number two is indirect bidders. 666 00:35:36,239 --> 00:35:39,239 Speaker 7: So indirect bidders are people who go to dealers put 667 00:35:39,280 --> 00:35:42,520 Speaker 7: in their orders and their end users so those are 668 00:35:42,520 --> 00:35:46,880 Speaker 7: hedge funds, pension funds, investment managers at mutual funds and 669 00:35:46,920 --> 00:35:50,120 Speaker 7: the like, and so that is the end user demand 670 00:35:50,200 --> 00:35:52,520 Speaker 7: and the higher that is, the better. So again we 671 00:35:52,560 --> 00:35:54,520 Speaker 7: look at the trends in that. So those are the 672 00:35:54,520 --> 00:35:57,160 Speaker 7: two things. Bid to cover and indirect bidders that those 673 00:35:57,200 --> 00:35:58,279 Speaker 7: are the ones you want to key in on. 674 00:35:58,400 --> 00:36:03,560 Speaker 2: See see I learned something John Tucker cover ratio. 675 00:36:04,480 --> 00:36:06,600 Speaker 5: Those thirty years, He's learned one turn bid the cover. 676 00:36:08,120 --> 00:36:12,200 Speaker 4: All right, So is the market also positioned IR for 677 00:36:12,800 --> 00:36:14,720 Speaker 4: kind of a hot inflation data point on Friday? 678 00:36:15,800 --> 00:36:16,040 Speaker 6: Yeah? 679 00:36:16,160 --> 00:36:18,600 Speaker 7: Yeah, Well, so the data that we're going to get 680 00:36:18,600 --> 00:36:21,640 Speaker 7: this week is the is the PC deflator, and obviously 681 00:36:21,680 --> 00:36:25,400 Speaker 7: that's the FEDS primary gauge that they look at and 682 00:36:25,640 --> 00:36:27,560 Speaker 7: that they want to try and target when they talk 683 00:36:27,560 --> 00:36:31,200 Speaker 7: about inflation. I think that the market is expecting somewhat 684 00:36:31,200 --> 00:36:33,919 Speaker 7: of a better number or higher number than we had 685 00:36:34,440 --> 00:36:35,360 Speaker 7: in the recent trend. 686 00:36:35,360 --> 00:36:36,480 Speaker 6: And it does. 687 00:36:36,440 --> 00:36:41,000 Speaker 7: Broadly follow CPI's there's different weights, but generally speaking, whatever 688 00:36:41,080 --> 00:36:44,839 Speaker 7: CPI does, usually PC does that at least directionally does 689 00:36:44,880 --> 00:36:47,920 Speaker 7: the same thing, maybe higher or lower magnitude, but usually 690 00:36:47,920 --> 00:36:51,719 Speaker 7: the same. So I think investors are currently expecting, you know, 691 00:36:51,800 --> 00:36:54,160 Speaker 7: inflation not to be coming down as quickly as it 692 00:36:54,200 --> 00:36:55,200 Speaker 7: had been last year. 693 00:36:55,680 --> 00:36:57,080 Speaker 5: And that's one of the reasons why we have. 694 00:36:57,000 --> 00:36:59,000 Speaker 7: Ten year yields at four and a quarter percent instead 695 00:36:59,040 --> 00:37:01,160 Speaker 7: of under four right, And then that was one of 696 00:37:01,160 --> 00:37:02,040 Speaker 7: the big reasons. 697 00:37:01,800 --> 00:37:04,080 Speaker 2: For that, and then hence like the short positioning and 698 00:37:04,080 --> 00:37:05,880 Speaker 2: then now the short covering. So are we going to 699 00:37:05,960 --> 00:37:08,800 Speaker 2: come in more clean in terms of positioning for the PC. 700 00:37:10,120 --> 00:37:12,319 Speaker 7: Yeah, it seems that way that I still think that 701 00:37:12,360 --> 00:37:14,200 Speaker 7: people are leaning at least a little bit on the 702 00:37:14,239 --> 00:37:16,520 Speaker 7: short side. There were a lot of people who were 703 00:37:16,800 --> 00:37:18,759 Speaker 7: long the front end of the curve and short the 704 00:37:18,760 --> 00:37:22,719 Speaker 7: long end, so you had people in what we call 705 00:37:22,840 --> 00:37:25,200 Speaker 7: yield curve steepeners, so people who thought that short term 706 00:37:25,200 --> 00:37:28,480 Speaker 7: interistrates are going to go down more quickly. That's really 707 00:37:28,520 --> 00:37:30,839 Speaker 7: been the big unwind. It's been the unwind of this 708 00:37:31,600 --> 00:37:35,279 Speaker 7: of this curve trade that has driven things significantly. So 709 00:37:35,560 --> 00:37:37,160 Speaker 7: you know, we talk about ten year yield at four 710 00:37:37,200 --> 00:37:39,200 Speaker 7: and a quarter percent, Look what the two year yield 711 00:37:39,320 --> 00:37:39,560 Speaker 7: is done? 712 00:37:39,640 --> 00:37:39,759 Speaker 6: Right? 713 00:37:39,760 --> 00:37:41,359 Speaker 7: You have it all the way from just over four 714 00:37:41,400 --> 00:37:44,319 Speaker 7: percent all the way up to four seventy, which which 715 00:37:44,480 --> 00:37:48,000 Speaker 7: implies that the market's thinking the Fed's only going to 716 00:37:48,080 --> 00:37:50,600 Speaker 7: cut six times over the next eighteen months or so. 717 00:37:50,600 --> 00:37:53,799 Speaker 7: So that's pretty impressive that we've you know, come back 718 00:37:53,840 --> 00:37:57,319 Speaker 7: and basically priced out two full rate cuts over the 719 00:37:57,320 --> 00:37:59,040 Speaker 7: next year and a half. And I think that that's 720 00:37:59,040 --> 00:38:03,160 Speaker 7: a very telling telling positioning shift that we've had in 721 00:38:03,239 --> 00:38:05,279 Speaker 7: terms of the curve. So I think, yes, people are 722 00:38:05,360 --> 00:38:08,720 Speaker 7: leaning short, but also curve positioning is probably much cleaner 723 00:38:08,760 --> 00:38:10,680 Speaker 7: now than it was before, which is the reason you 724 00:38:10,719 --> 00:38:13,720 Speaker 7: saw a semi decent two year auction yesterday. 725 00:38:14,200 --> 00:38:16,319 Speaker 4: So the ten year treasury IRA is about four point 726 00:38:16,360 --> 00:38:19,560 Speaker 4: two eight percent today, where do you think this is 727 00:38:19,640 --> 00:38:20,680 Speaker 4: towards your end? 728 00:38:22,040 --> 00:38:23,840 Speaker 7: So year end, we still think that we're going to 729 00:38:23,840 --> 00:38:26,799 Speaker 7: see a pretty significant rally in the treasury market, So 730 00:38:26,840 --> 00:38:29,759 Speaker 7: that means that that means price up, yields down, and 731 00:38:30,680 --> 00:38:32,440 Speaker 7: so we do think that we're going to see you know, 732 00:38:32,480 --> 00:38:36,239 Speaker 7: somewhere south of three and a half percent over the 733 00:38:36,280 --> 00:38:38,400 Speaker 7: next over the next nine months or so, And the 734 00:38:38,440 --> 00:38:40,719 Speaker 7: primary reason for that is that over time, we do 735 00:38:40,760 --> 00:38:42,799 Speaker 7: think that the economy is going to slow. You are 736 00:38:42,840 --> 00:38:46,480 Speaker 7: going to get you know, rate hikes ray cuts, excuse me, 737 00:38:47,120 --> 00:38:50,000 Speaker 7: price into the market with and the Federal Reserve actually 738 00:38:50,040 --> 00:38:53,400 Speaker 7: acting on that doesn't seem like it now, but over 739 00:38:53,440 --> 00:38:55,960 Speaker 7: the course of the of the year, there are some 740 00:38:56,040 --> 00:38:59,040 Speaker 7: cracks in the economy. They just haven't manifested themselves yet 741 00:38:59,239 --> 00:39:01,399 Speaker 7: in some of the hard data. But you look at 742 00:39:01,520 --> 00:39:03,640 Speaker 7: even the consumer confidence numbers that we just got a 743 00:39:03,680 --> 00:39:06,480 Speaker 7: couple of minutes ago, and that was a pretty big downshift, 744 00:39:06,600 --> 00:39:09,520 Speaker 7: both in the current expectations and the headline number. So 745 00:39:10,480 --> 00:39:13,000 Speaker 7: and that doesn't mean that people are going to stop 746 00:39:13,000 --> 00:39:16,000 Speaker 7: spending tomorrow, but it does suggest that if we continue 747 00:39:16,040 --> 00:39:19,520 Speaker 7: to have, you know, slightly better or higher inflation prints, 748 00:39:19,560 --> 00:39:21,640 Speaker 7: and you have people who are worried about the political angs, 749 00:39:21,760 --> 00:39:24,400 Speaker 7: and you also don't have people getting the raises that 750 00:39:24,440 --> 00:39:26,600 Speaker 7: they were getting over the last couple of years, that 751 00:39:26,719 --> 00:39:29,200 Speaker 7: all of those things can contribute to a slowdown and spending, 752 00:39:29,480 --> 00:39:33,000 Speaker 7: lower inflation, and therefore interest rate cuts. And that's why 753 00:39:33,239 --> 00:39:35,960 Speaker 7: long term treasure yields could rally a bit by the 754 00:39:36,040 --> 00:39:36,520 Speaker 7: end of the year. 755 00:39:36,600 --> 00:39:39,680 Speaker 2: So I'm looking at a chart not normalized of the 756 00:39:39,719 --> 00:39:41,960 Speaker 2: two year yield and the SMP and I know you're 757 00:39:41,960 --> 00:39:44,279 Speaker 2: the bond guy, but the peak that we saw in 758 00:39:44,360 --> 00:39:47,560 Speaker 2: yields for the two year back in what October mark 759 00:39:47,640 --> 00:39:50,080 Speaker 2: sort of the interim bottom for the SMP and sort 760 00:39:50,120 --> 00:39:52,920 Speaker 2: of ignited that bull run that we've seen since then, 761 00:39:52,960 --> 00:39:55,040 Speaker 2: where the SMP is up, you know, twenty three percent. 762 00:39:55,360 --> 00:39:58,040 Speaker 2: If we keep grinding higher here on yields, like at 763 00:39:58,080 --> 00:40:01,560 Speaker 2: some point, that's got to one denting the equity market. 764 00:40:01,640 --> 00:40:01,719 Speaker 10: No. 765 00:40:02,920 --> 00:40:05,080 Speaker 7: Yeah, I would think that the way that risk assets 766 00:40:05,120 --> 00:40:08,040 Speaker 7: have been acting recently is that if the Federal Reserve 767 00:40:08,160 --> 00:40:13,160 Speaker 7: is not cutting interest rates, then valuations are much too high. 768 00:40:13,239 --> 00:40:13,399 Speaker 6: Right. 769 00:40:13,480 --> 00:40:16,160 Speaker 7: So that's what you saw back September October when you 770 00:40:16,200 --> 00:40:20,960 Speaker 7: wound up having us actually pricing in the potential and 771 00:40:21,080 --> 00:40:23,960 Speaker 7: serious potential of hikes this year or over the course 772 00:40:24,000 --> 00:40:26,600 Speaker 7: of the eighteen months following that, and that I think 773 00:40:26,719 --> 00:40:30,839 Speaker 7: was really driving some of the equity valuations. 774 00:40:30,440 --> 00:40:31,320 Speaker 6: And the fall thereof. 775 00:40:31,760 --> 00:40:34,399 Speaker 7: I think the question is now, and this is where 776 00:40:34,400 --> 00:40:37,080 Speaker 7: the uncertainty about what's going on in the economy really 777 00:40:37,280 --> 00:40:41,040 Speaker 7: comes into play into how you position your portfolios. Is 778 00:40:41,040 --> 00:40:44,520 Speaker 7: that if the economy is good, and that's the reason 779 00:40:44,560 --> 00:40:47,919 Speaker 7: why we have interest rates that are relatively high, that's 780 00:40:47,920 --> 00:40:50,880 Speaker 7: not necessarily bad for equities. It doesn't mean that equity 781 00:40:50,880 --> 00:40:53,399 Speaker 7: markets necessarily can go up or need to go up, 782 00:40:53,560 --> 00:40:56,320 Speaker 7: but it doesn't necessarily mean that they need to fall either, 783 00:40:56,360 --> 00:40:59,000 Speaker 7: because if you continue to have good top line growth, 784 00:40:59,200 --> 00:41:01,600 Speaker 7: you can hold your prob fit ability where it is. Then, 785 00:41:02,160 --> 00:41:05,120 Speaker 7: you know, then it becomes a valuation story, not a 786 00:41:05,400 --> 00:41:10,080 Speaker 7: fundamental story for I think companies more broadly so, I 787 00:41:10,080 --> 00:41:13,440 Speaker 7: think interest rates are You know, there will be shifts 788 00:41:13,440 --> 00:41:16,240 Speaker 7: in how the market and how the different markets react 789 00:41:16,280 --> 00:41:19,120 Speaker 7: to each other, where that negative correlation you saw back 790 00:41:19,120 --> 00:41:23,000 Speaker 7: in October might actually turn positive and be positive over 791 00:41:23,040 --> 00:41:24,680 Speaker 7: the next six to nine months. 792 00:41:24,920 --> 00:41:26,640 Speaker 5: All right, Ira, thank you so much. We appreciate that. 793 00:41:26,640 --> 00:41:30,560 Speaker 4: Our Jersey chief US interest rate strategist, Bloomberg Intelligence, dialing 794 00:41:30,560 --> 00:41:31,920 Speaker 4: in from our Princeton studio. 795 00:41:32,200 --> 00:41:36,680 Speaker 1: This is the Bloomberg Intelligence podcast, available on Apples, Spotify, 796 00:41:36,880 --> 00:41:40,080 Speaker 1: and anywhere else you get your podcasts. Listen live each 797 00:41:40,120 --> 00:41:43,480 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot Com, 798 00:41:43,600 --> 00:41:47,000 Speaker 1: the iHeart Radio app, tune In, and the Bloomberg Business app. 799 00:41:47,120 --> 00:41:50,239 Speaker 1: You can also watch us live every weekday on YouTube 800 00:41:50,360 --> 00:41:52,200 Speaker 1: and always on the Bloomberg terminal