Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg
Speaker 1: dot Com, and of course, on the Bloomberg Terminal. Let's
Speaker 1: get right to a Dr Andrew Pekosh has been joining
Speaker 1: us for years. It feels like actually it may just
Speaker 1: be almost years as we deal with this pandemic for
Speaker 1: a second year, his professor and viroologists at Johns Hopkins University,
Speaker 1: Bloomberg School of Public Health. We are so lucky to
Speaker 1: have you here, Dr Pakosh, on the morning where everyone
Speaker 1: is all concerned about the virus once again. What's your
Speaker 1: view into how serious this particular variant is. Well, let
Speaker 1: me first start by saying all the credit goes to
Speaker 1: South African scientists and scientists across Europe for not only
Speaker 1: detecting this, but using social media in a good way
Speaker 1: to spread all the information that they have about this.
Speaker 1: We criticize social media a lot about misinformation. This is
Speaker 1: an example of how good it can be when it
Speaker 1: comes to spreading the right information. We know that just
Speaker 1: before Thanksgiving it became obvious that there was in South
Speaker 1: Africa a new variant that had an abnormally high number
Speaker 1: of mutations across its gene but in particular in the
Speaker 1: spike protein, which is the target for the vaccines that
Speaker 1: are being distributed globally. Now, Um, what happened recently is
Speaker 1: that the South African public health officials realized that one
Speaker 1: of their PCR tests could actually serve as a surrogate
Speaker 1: for this variant. And if you use that data, it
Speaker 1: seems like this five to nine variant is increasing at
Speaker 1: an incredibly fast pace across areas of South Africa and
Speaker 1: multiple provinces of South Africa. So that was the real
Speaker 1: significant piece that caused us to get on everybody's radar screen.
Speaker 1: Do we even send of how much it evades the
Speaker 1: natural immunity conferred by prior infection or by some vaccine,
Speaker 1: just theoretically from looking at the sequence and you could
Speaker 1: probably see it right behind me on my desktop here. Um,
Speaker 1: it has a number of mutations which have been predicted
Speaker 1: to evade antibody responses. Now it has a few that
Speaker 1: are conserved, so this won't be a case of something
Speaker 1: that's completely able to evade the vaccine induced immunity, but
Speaker 1: it has more than other variants that we've seen so far,
Speaker 1: which again on paper, is what is concerning to us
Speaker 1: and the good morning to you. We're just getting some
Speaker 1: lines coming through from from beyond Seck, who of course
Speaker 1: have been working with fins around that vaccine much used
Speaker 1: around the world. They're just giving us some time scales
Speaker 1: around what they're going to do next, and I think
Speaker 1: this is interesting. They expect data from lab tests on
Speaker 1: the new varias in two weeks that it depending on
Speaker 1: that lab data may require vaccine adjustments. That gives us
Speaker 1: a sense that will we will know then in the
Speaker 1: next couple of weeks or into the time just how
Speaker 1: well in a lab environment the Fiser vaccine will stand
Speaker 1: up to this. Then the real world will be another thing. Absolutely,
Speaker 1: And that sounds like about the right timeline. As I
Speaker 1: just mentioned the sequences on my desk right now, emails
Speaker 1: have gone out to try to get my laboratory group
Speaker 1: together to try to prepare to do some of these tests.
Speaker 1: I'm actually here in the office today doing some of
Speaker 1: these antibody tests against other variants that we have in
Speaker 1: the laboratory, So that sounds like the right time frame.
Speaker 1: I think in terms of the general public, what this
Speaker 1: serves as an example of is now is the time
Speaker 1: to actually go out and do something proactive. If you
Speaker 1: haven't gotten your booster, go get your booster. If you
Speaker 1: haven't gotten your vaccine, go get your vaccine. Because by
Speaker 1: the time this variant becomes a global threat, if it does,
Speaker 1: um now is the time to act to try to
Speaker 1: do something to help curve the impact of this variant.
Speaker 1: So it just serves as a reminder we have tools,
Speaker 1: we have to use them affect efficiently, and if you
Speaker 1: haven't been vaccinated, now's the time to get it. If
Speaker 1: you haven't got your booster, and now's the time to
Speaker 1: get it to really give you the best tools to
Speaker 1: fight off this variant. And I think, what do you
Speaker 1: take away as a sort of big learning from the
Speaker 1: way that this this variant has emerged and maybe out
Speaker 1: there in various parts of the world. We know it's
Speaker 1: in Southern Africa, of course, we know it's in Hong Kong,
Speaker 1: and we know it's in Israel, and you know it
Speaker 1: could be elsewhere as well. We don't know yet. The
Speaker 1: UK has said it's not here in the UK, but
Speaker 1: we'll wait to hear from lots of places. What do
Speaker 1: you take away, is this all about making sure that
Speaker 1: we get better distribution of vaccines globally, because that sounds
Speaker 1: an appealing argument to make, and you can definitely see
Speaker 1: the humanitarian reasons behind that. But in South Africa, our
Speaker 1: reporting suggests that they don't have full vaccination, but it's
Speaker 1: not to do with a lack of vaccine. It's a
Speaker 1: lack of the right information getting to the right people
Speaker 1: to persuade them to go get the vaccine. Absolutely, he
Speaker 1: had some important points there. I think first it starts
Speaker 1: with testing. Good testing, couple with sequencing allows for the
Speaker 1: detection these variants early, and that helps us prepare for
Speaker 1: these variants. And then to it informs the current public
Speaker 1: health interventions. As I mentioned, getting yourself vaccinated is the
Speaker 1: first thing that you can do right now. It may
Speaker 1: be that we need to reformulative vaccine if this virus
Speaker 1: does become dominant in the world. That can be done.
Speaker 1: We have anti virals on our way that can be
Speaker 1: utilized effectively. But we have to think about these things
Speaker 1: as layered approaches to protect us from COVID nineteen. None
Speaker 1: of them are effective, but combined approaches allow us to
Speaker 1: minimize the severity of this disease. And again, this variant
Speaker 1: is going to be another test if it doesn't work globally,
Speaker 1: of how well we can do the things that we've
Speaker 1: already learned can turn the tied on COVID nineteen cases. Well,
Speaker 1: Dr peck gosh. Less than twenty four hours ago before
Speaker 1: this news rocked the world, families were getting together all
Speaker 1: across the US for Thanksgiving dinner. Do you worry about
Speaker 1: a holiday surge akin to last year? Well, across the US, Actually,
Speaker 1: we're starting to see signals of a surge even before
Speaker 1: people traveled for Thanksgiving, and that's even be four. We
Speaker 1: have to worry about this five to nine variant. So
Speaker 1: the data from the U S alone is telling us
Speaker 1: that case numbers are going up, that going up in
Speaker 1: regionally very distinct manners. But in some places they are
Speaker 1: causing um significance train in our public health, on our
Speaker 1: hospital infrastructure already. So even without this variant being a
Speaker 1: concern for us, the US cases, we're not doing enough
Speaker 1: to really limit these cases. And I am concerned that
Speaker 1: we're going to see another surge of in this case
Speaker 1: delta here in the US after the Thanksgiving holidays. All right,
Speaker 1: Andrew Packash of Johns Hopkins, thank you so much for
Speaker 1: being with us, especially with the idea that you have
Speaker 1: rushed to the office to start doing some of these
Speaker 1: lab tests yourself in order to get ahead of this
Speaker 1: emergent virus. How much do travel curbs really change the
Speaker 1: backdrop the supply demand dynamic on ritacent founder and director
Speaker 1: of Research and Energy Aspects joining us now, I'm rida,
Speaker 1: Happy Thanksgiving. Thank you for being with us. What's your
Speaker 1: sense of how much of a game change the potential
Speaker 1: entrant of the South African variant could be? Well? Happy
Speaker 1: Thanksgiving to all of you. Um look, I think this
Speaker 1: is a huge overreaction in terms of the market. The
Speaker 1: market is fearing the worst the calculations we've done so far.
Speaker 1: With all the borders closed globally, we are talking about
Speaker 1: just fifteen one five thousand barrels per day of lost
Speaker 1: jet fueld demand. Um sure Europe could potentially kind of
Speaker 1: come up with a bigger kind of blanket ban uh
Speaker 1: for travel to South Africa. Even then, you are talking
Speaker 1: about a few like ten twenty thod barrels per day
Speaker 1: of jet fueld demand. The big roots the trans Atlantic
Speaker 1: that remains open, that's kind of the biggest driver for
Speaker 1: a lot of that jet travel, and Asia still reopening,
Speaker 1: um hasn't really kind of we haven't seen that startups,
Speaker 1: say between long haul flights between Asia and the pasts
Speaker 1: of the world, so that's not going to get severe
Speaker 1: affected to begin with. But look, this is the market
Speaker 1: pricing in the worst possible scenarios. Where should oil be
Speaker 1: if this is a blip, if this is something that
Speaker 1: is grasp a ball and conquered, conquerable. Excuse me, yeah,
Speaker 1: I mean, of course there are lots of fis. But
Speaker 1: like you said, if if it turns out that the
Speaker 1: vaccines are perfectly effective against this new variant, prices should
Speaker 1: be about eighty dollars um. You know, the SPR really
Speaker 1: showed us. We've we've had sixty five million barrels of
Speaker 1: global SPR release outside of China and prices rarely two dollars.
Speaker 1: Compared that to when we had Libyan outage sixty million
Speaker 1: barrels of SPR, when prices went down ten dollars. It
Speaker 1: tells you how strong the market is right now, how
Speaker 1: low stocks are. We've got the Open Plus meeting coming up.
Speaker 1: If this, if these concerns around demand persist um, it
Speaker 1: is likely that the group is going to consider pausing
Speaker 1: output increases anyway, so that roots of floor under prices.
Speaker 1: But fundamentally we should be above eighty dollars unless demand
Speaker 1: really takes a hit. So does this So so amry
Speaker 1: to just expanding on that. This is the market moves
Speaker 1: we're seeing here, and the risks to oil demand demonstrated
Speaker 1: by the by the threat at least of this virus variants.
Speaker 1: That plays into the opaque argument that there are risks
Speaker 1: of oversupply for parts of twenty two. Does it absolutely?
Speaker 1: And this is why your PEG plus have been cautious.
Speaker 1: This is why your PEC plus have been very clearly
Speaker 1: only increasing production by four hundred thousand barrels for their quarters,
Speaker 1: by four hundred thousand barrels per day, even though the
Speaker 1: White House and other consumers have been calling for a
Speaker 1: bigger increase in production. They've been talking about the winter,
Speaker 1: they've been talking about look there could be potential mobility restrictions,
Speaker 1: and their own numbers show really big stock bills. Now,
Speaker 1: of course, you've had the SPR release which balloons their
Speaker 1: Q one stock bills further to about three three million barrels.
Speaker 1: But now these are way higher than our numbers. But
Speaker 1: this is why all PEG plus have been cautious, and
Speaker 1: I think today's move justifies their actions so far and
Speaker 1: does call into question why the White House and other
Speaker 1: consumers released spr going into a season which is bound
Speaker 1: to have uncertainties around demand as we're thinking about things
Speaker 1: that could influence demand. I just want to draw your
Speaker 1: attention tow lines from at the e c B S
Speaker 1: Louis de Gwyndall saying deceleration sorry, saying that euros On
Speaker 1: economy has lost some dynamism in the fourth quarter and
Speaker 1: the deceleration is due to supply bottlenecks and energy costs.
Speaker 1: Is there any sense, then, emory to that there's demand
Speaker 1: destruction has been taking place at these levels above eighty
Speaker 1: dollars of arrel so I would say, particularly for Europe,
Speaker 1: it's been higher gas prices more than oil prices that
Speaker 1: have had a big impact on industry. You have seen
Speaker 1: industrial demand being cut back, so I think that's where
Speaker 1: some of the comments are coming from. For sure, Look,
Speaker 1: the biggest risk to next year is going to be
Speaker 1: around the supply chain issues and high energy prices. In
Speaker 1: terms of the downside risk, we still think in terms
Speaker 1: of GDP growth or economic growth slowing down. That's more story.
Speaker 1: But you can't ignore the fact that those are your
Speaker 1: kind of real bottlenecks going on right now. But regardless,
Speaker 1: there's so much bent up demand across the world. In
Speaker 1: Asia is just opening up, so there is a lot
Speaker 1: more upside to demand. As long as, again, this variant
Speaker 1: doesn't prove to be completely it just proves to be
Speaker 1: the fact that you can't use the existing vaccines against it,
Speaker 1: then that's a different story. But otherwise demand still has
Speaker 1: more upside. And Marina, something that's got lost amid all
Speaker 1: the talk of this variant and that spr released that
Speaker 1: was coordinated by many countries is the fact that they're
Speaker 1: still talking about an Iranian nuclear deal and actually Iran
Speaker 1: is attending a meeting in Vienna on Monday to talk
Speaker 1: about it. And we understand from a phone call they
Speaker 1: had with the EU earlier today that they say a
Speaker 1: quicker turn is possible if sanctions are lifted. If that happens,
Speaker 1: what is the impact of that arounding crewed coming back
Speaker 1: onto the market. Look, you if if it's a big
Speaker 1: if I'll come into that second, you're going to get
Speaker 1: a big pull back rightly. It's it could be ten
Speaker 1: even fifteen dollars lower. But I will really stress this,
Speaker 1: Iran has been dragging its feet for a very long time.
Speaker 1: This is no longer just about the j C p
Speaker 1: o A. We absolutely don't think you're going to get
Speaker 1: a quick resolution. It's going to probably drag on for months,
Speaker 1: and we don't think Iranian barrels come back to September
Speaker 1: two with with the whole process of sanctions lifting and um.
Speaker 1: And the reason I said it's going to be a
Speaker 1: big drop like ten fifteen dollars potentially is because Iran
Speaker 1: has about sixty seventy million barrels of oil just sitting
Speaker 1: there in tankers, and you know that can come out
Speaker 1: to the market very quickly. So I can see crude
Speaker 1: in the sixties. But of course they no PEC plus
Speaker 1: will act as well I would expect them to. But
Speaker 1: but equally, you know this isn't an Irun that's ready
Speaker 1: to do a deal overnight. Yes, there will be a
Speaker 1: lot of headlines going into r and around this, but
Speaker 1: the demands that they have are very, very difficult for
Speaker 1: Europe or particularly the US to meet. Yeah, I read
Speaker 1: that's funny that you said that, because my next question
Speaker 1: was going to be, doesn't even matter if OPEC plus
Speaker 1: can just come in and counteract That is that just
Speaker 1: going to be permanently true in the oil market, that
Speaker 1: the only actual factor that matters is the policy of
Speaker 1: OPEC plus. Well, the irony that it's great you're asking
Speaker 1: you the question because you know so many people analysts
Speaker 1: have kind of ruled or they've just said OPEC plus
Speaker 1: don't matter anymore, and um, they've kind of ruled out
Speaker 1: their importance in the market. But I think you're exactly
Speaker 1: right OPEC plus and particularly the alliance between South Arabian Russia. Uh,
Speaker 1: it's it's shown how they have stabilized the market, and
Speaker 1: I think that alliance is going to continue. Of course,
Speaker 1: the current deal only goes on till the end of
Speaker 1: the next year, but there will be cooperation and some
Speaker 1: form of market management, depending of course, on the situation.
Speaker 1: I think the market continues to tighten from here into
Speaker 1: twenty three. They will continue to bring back production and
Speaker 1: the market is going to need it. We just don't
Speaker 1: have production anywhere else. But there will be cooperation between
Speaker 1: this these countries for the foreseeable future. Yes, we're speaking
Speaker 1: with the rediscent of energy aspects. You said at the
Speaker 1: outside of the conversation that you think that this is
Speaker 1: a huge overreaction to what we heard out of South Africa.
Speaker 1: How much of a buying opportunity is this, especially considering
Speaker 1: the fact that people do shift their minds are knee
Speaker 1: jerk reactions and policymakers in Europe, in the United States,
Speaker 1: in Asia want to see the price go lower. Yeah,
Speaker 1: I mean this is this is great, right. I think
Speaker 1: from the policy maker's point of view, this is this
Speaker 1: is what they'd hoped for after the spr but they
Speaker 1: got it because of the variant, so ultimately they still
Speaker 1: got what they wanted. But I think the very fact
Speaker 1: that is Thanksgiving and liquidity is law is exacerbating the
Speaker 1: price move. I think in a normal trading environment we
Speaker 1: probably wouldn't have gone down as much because there would
Speaker 1: be some buias here. Right now, it's the fear that's
Speaker 1: driving prices, and I wouldn't necessarily get in the way, right,
Speaker 1: It's like catching a falling knife. Um. But I think
Speaker 1: once we get a bit more clarity around this, variant
Speaker 1: and it's not just mere speculation. I think that's when
Speaker 1: it becomes a buying opportunity, But that could very well
Speaker 1: be that that's early next week or maybe even mid
Speaker 1: next week, because you do need that clarity first. Emucent
Speaker 1: of energy aspects, thank you so much. Yea. So, how
Speaker 1: much of what we're seeing right now is true risk
Speaker 1: off and is a reassessment of the global growth picture?
Speaker 1: And how much is thin liquidity with everybody still in
Speaker 1: their Thanksgiving commas. David Riley joining US blue Way Asset Management,
Speaker 1: chief investment strategist. I do wonder, David, what you make
Speaker 1: of today's move. Well, I think the move is reflecting
Speaker 1: the we viewed the pandemic, The market viewed the pandemic
Speaker 1: and COVID essentially in the rearview mirror, and I think
Speaker 1: what you know, this unwelcome news has done. It's kind
Speaker 1: of challenged that assumption. I mean, the assumption was that
Speaker 1: we'd go from a pandemic to endemic where we kind
Speaker 1: of learned to live with co of it. The macro
Speaker 1: and market impact is pretty limited and diminishing over time,
Speaker 1: and something we get this news, which maybe it's a
Speaker 1: much more infectious varying maybe heaven forbid, Um it is uh,
Speaker 1: you know, less effectively dealt with in terms of vaccines,
Speaker 1: and that would you know that clearly increases the kind
Speaker 1: of left tail risk of a much bigger sort of
Speaker 1: impact on global growth and macro. But the reality is
Speaker 1: is that we actually don't know. And I think the market,
Speaker 1: because of the low liquidity and we're coming into year end, um,
Speaker 1: it's kind of you know, reacting as if, um, you
Speaker 1: know this, this is an arguably greater risk and we
Speaker 1: can really kind of price at this point in time
Speaker 1: because we simply don't know. David, the movement bonds really
Speaker 1: gets my attention. Bonds should not be this volatile, especially
Speaker 1: with the Fed still putting their thumb on the scales here.
Speaker 1: But we see actually the implied volatility and treasury yield
Speaker 1: surging to the most it's March, and that was of
Speaker 1: us when everything was falling out of bed. We have
Speaker 1: seen the idea of a complete retracement of rate hikes
Speaker 1: next year. Does this make sense to you? Well, I mean,
Speaker 1: I think the reality is is that we've seen a
Speaker 1: lot of volatility now for some time, particularly in short
Speaker 1: term interest rate UH markets and and that's because we
Speaker 1: are an inflection point in terms of global monetary policy
Speaker 1: and most importantly in terms of the FED. I mean
Speaker 1: it's you know, you write, Lisa, the moves today are
Speaker 1: very large, and yesterday the market was effectively pricing I
Speaker 1: think something like a sixty chance that the FED was
Speaker 1: going to announce an acceleration of its tapering of on
Speaker 1: purchases at the meeting in December and then actually start
Speaker 1: hiking rates quite you know, probably in in in mayo
Speaker 1: June with free rate hikes in the course of two
Speaker 1: the you know, today's action is kind of taking at
Speaker 1: least one of those hikes out. And I think this
Speaker 1: is one of the dilemmas that now that the FED
Speaker 1: is facing, because it's allowed itself to get behind the
Speaker 1: inflation curve, is caught between a rock and a hard place.
Speaker 1: You know, it needs to start tightening policy given where
Speaker 1: inflation is and and those inflation pressures that are boardening now.
Speaker 1: And I think actually bred the speaking the outlem, the
Speaker 1: global the U S economy is pretty pretty strong. But now,
Speaker 1: you know, has this added potential uncertainty as to what's
Speaker 1: going to happen with the COVID and the pandemic and
Speaker 1: one of the global implications of that as well. And
Speaker 1: let me ask you about an extended excension of that
Speaker 1: topic then, David, and that is the banking sector. We're seeing.
Speaker 1: That's one of the big sectors that's being hit really
Speaker 1: hard here in Europe, and it looks as if US
Speaker 1: banks will also be will also be hit by the
Speaker 1: same thing. And this is to do with that. If
Speaker 1: there's going to be a flatter yield curve and that
Speaker 1: takes us back some months, then in terms of our
Speaker 1: thinking on rate hikes and and that leaves banks in
Speaker 1: a in a stickier situation. Does that make sense to you?
Speaker 1: Do you see some of the selling in in that
Speaker 1: sector as being overdone because there's also concern around what
Speaker 1: for what further variants could do to it. Coconomies in Europe,
Speaker 1: I suppose, But is it really about the Yielker that's
Speaker 1: what's weighing on banks? Well, I think it's a combination
Speaker 1: of the term and I think, you know, if if
Speaker 1: you have concerns around UM a COVID coming back to
Speaker 1: the forefront, if you if you like, rather than being
Speaker 1: in the background UM, then you know, banks are you know,
Speaker 1: a cyclical asset and they're going to get take a hit,
Speaker 1: just as we're seeing some of you know, oil going
Speaker 1: going much lower, um you know, more other sort of
Speaker 1: cyclical assets moving lower. This move to sort of safe havens,
Speaker 1: you know, the preference for sort of you know, stay
Speaker 1: at home stocks, you know, versus the sort of reopening
Speaker 1: um trade. So I think it's kind of consistent with
Speaker 1: what else we're seeing happen in the market. But actually
Speaker 1: I do think it is we've done in the sense
Speaker 1: that you know, we've gone for a very severe stress
Speaker 1: test with the financial sector and with banks in particular,
Speaker 1: as a result of the you know, worse of the
Speaker 1: pandemic in the course or you know earlier this year
Speaker 1: and last year, and they've actually come out actually and
Speaker 1: the guy actually you know, stronger capital buffers, stronger liquidity buffers.
Speaker 1: So this is where I think, as as investors you
Speaker 1: need to you know, stay calm. I wouldn't be doing
Speaker 1: too much in these kind of markets with this kind
Speaker 1: of bit offer spreads. But where you have call convictions,
Speaker 1: and I do actually have a core conviction around banks
Speaker 1: up there, then actually if we see much more of
Speaker 1: a sell off, then I think that's an opportunity if
Speaker 1: you've got some dry powder to actually add to your
Speaker 1: risk position. David, you said investors need to stay calm,
Speaker 1: and a lot of times to stay calm, you need
Speaker 1: to know that you're at least somewhat protected. What do
Speaker 1: you tell investors serves as the best hedge in this
Speaker 1: kind of environment. Well, I think it's it's it's difficult
Speaker 1: to hedge your portfolio against um, you know, a tail risk,
Speaker 1: which would be a very bad um uh, you know,
Speaker 1: very bad outcome. So you know what you have to do.
Speaker 1: I think with the portfolio is that you say, look,
Speaker 1: you know, I'm sticking with my core convictions. If I
Speaker 1: think there's opportunities and the market has over shot, then
Speaker 1: I looked to add to that, but also be disciplined
Speaker 1: in where you have kind of you know, low conviction
Speaker 1: trades that within your portfolio you take the opportunity to
Speaker 1: start reducing your exposure there. And and actually that's something
Speaker 1: we've been doing to be frank going into what we
Speaker 1: thought was going to be quite a volatile year end
Speaker 1: because of these major central bank meetings that we have
Speaker 1: UM in December. But you can't hedge your way from
Speaker 1: the kind of extreme terrorists that we're kind of um,
Speaker 1: you know, scaring the horses right now in terms of markets.
Speaker 1: David Riley of Lubiasa Management, thank you so much for
Speaker 1: coming on our show. When we should be talking about shopping,
Speaker 1: we should be talking about the incredibly strong data, and
Speaker 1: instead we're talking about a new variation. Today is Black Friday.
Speaker 1: We are going to talk about shopping and it is
Speaker 1: olive into the entire picture. Joe Pelban joining us, We
Speaker 1: are so lucky to have you seen your research analyst
Speaker 1: and assistant director of research at Telsey Joe. When we
Speaker 1: look at the shopping scenario, just tying it into the
Speaker 1: news of the morning, how much have we seen a
Speaker 1: return to stores and how much are people now accustomed
Speaker 1: to shopping online? It is safer, it is easier, It
Speaker 1: is the way that people are going. Well. For the
Speaker 1: few stores that were open this morning at five am,
Speaker 1: I think the online was still very prevalent because there
Speaker 1: was not a mad rush to get into the stores. Uh.
Speaker 1: It does seem like people are shopping more online these days,
Speaker 1: and I think that that's going to be the case.
Speaker 1: If you really wanted to get something, you could get
Speaker 1: it in advance. I assume there will be some quite
Speaker 1: a bit of store pick up today. People probably did
Speaker 1: some shopping yesterday online that they want to pick up
Speaker 1: in the stores. But we're hearing that this weekend should
Speaker 1: be a pretty good weekend from a footfall perspective, as
Speaker 1: people do want to actually get back into the stores. Uh,
Speaker 1: you know, I know that the new variant of COVID
Speaker 1: is a little scary. So far, we haven't heard of
Speaker 1: it here in the U, so I don't think it's
Speaker 1: going to impact this weekend per se, but it could
Speaker 1: have an impact as you get deeper into the holiday
Speaker 1: season in terms of the store versus online. So there
Speaker 1: has been a shift also, though not just in where
Speaker 1: people shop, but when they shop. And Black Friday used
Speaker 1: to be the time when everybody would go to the stores.
Speaker 1: But what we're seeing is actually less shopping than previously
Speaker 1: expected online heading into the Black Friday holiday. This isn't
Speaker 1: because people aren't buying a lot of stuff. They are.
Speaker 1: It is because they've spread it out over more time.
Speaker 1: How much is that becoming the new normal? Yeah, we
Speaker 1: think that is the new normal that spread through the
Speaker 1: holiday season, which is why it makes it very difficult
Speaker 1: for analysts like myself to go into a store today
Speaker 1: and then try to make some assessment, Oh, it was
Speaker 1: a good Black Friday, a bad Black Friday so much
Speaker 1: as online, so much was pulled forward earlier, so a
Speaker 1: lot's going to happen after. I do think this year
Speaker 1: the one big difference though, is because the inventory is
Speaker 1: so tight and the supply cha constraints are there, people
Speaker 1: are buying earlier for sure if they want to get
Speaker 1: something well, and to that point, Joe, inventory is really tight.
Speaker 1: There's not necessarily all the goods that people want to
Speaker 1: buy available. So does that mean that you weren't going
Speaker 1: to get your traditional big bargain Black Friday discounts? You know,
Speaker 1: that's a terrific observation because the truth is you're really
Speaker 1: not getting what you've seen in years past. Uh. Last
Speaker 1: year was okay, people a little you know, more more
Speaker 1: focused on on full price. This year, same thing. We're
Speaker 1: seeing a lot more UH pricing closer to the full price,
Speaker 1: so that in other words, the discounts aren't a steep
Speaker 1: We're seeing anywhere twenty for most stores, so I won't
Speaker 1: be deeper. I think I saw some signs on the
Speaker 1: gap today for off, but generally speaking, there weren't many,
Speaker 1: you know, deals to be had that were just screaming
Speaker 1: at you this morning, at least a few stores that
Speaker 1: I saw that you had to rush in to get it. Well.
Speaker 1: You you mentioned gap there, which of course reported results
Speaker 1: earlier this week, and it flagged inventory as a problem
Speaker 1: because of all the supply chain issues that retailers are
Speaker 1: dealing with. Do you expect that some retailers just simply
Speaker 1: will not have the inventory this holiday season? I do
Speaker 1: think that there are some that will be very tight, uh,
Speaker 1: you know, from for the most part, we got through
Speaker 1: this third quarter earning season and the inventory position for
Speaker 1: most retailers was actually pretty good. It was better than
Speaker 1: a lot of us expected, and still not great where
Speaker 1: you'd like it to be heading into the holiday season.
Speaker 1: But there is this fear that there may not be
Speaker 1: that second wave of inventory coming in, so it could
Speaker 1: be pretty tight as you get deeper into the season. Um,
Speaker 1: but I think that we are going to see some
Speaker 1: pressure through through on the inventory, but again it will
Speaker 1: mean prices will be closer to full price as opposed
Speaker 1: to steep discounts. Joe, I'm already running behind. I still
Speaker 1: owe somebody in my family a gift from last holiday
Speaker 1: that still has us not so I'm already in trouble.
Speaker 1: But in terms of availability, I mean, is it really
Speaker 1: the sticker prices that you know, the big discounts that
Speaker 1: are going to get people through the door this time around,
Speaker 1: or is it really about the availability, you know? I mean,
Speaker 1: if I knew that a certain store had plenty of
Speaker 1: a thing that's very popular, install might that be the
Speaker 1: thing that this year actually gets me to to to
Speaker 1: show up in person on the doorstep rather than the prices.
Speaker 1: And consumers have shown that they're prepared to pay up
Speaker 1: to the stuff they want, is getting their hands on
Speaker 1: it that's difficult? Yeah. I think that's a great observation
Speaker 1: because you are going to see any people will want
Speaker 1: to get the item that they want, and you know,
Speaker 1: we're seeing that they will go to the store if
Speaker 1: need be to get that item. I don't think it's
Speaker 1: the discount that's going to drive it right now. I
Speaker 1: really do think it is much much more item driven
Speaker 1: that you're going to see people wanting, uh that special
Speaker 1: toy or electronics item and whatever is particularly popular. It
Speaker 1: really has been tough to get and so people will
Speaker 1: go wherever they need to to get it to satisfy
Speaker 1: their that demand. Yeah, and an army tail is falling
Speaker 1: into two camps. Then for you, Joe, that the ones
Speaker 1: that have the pricing power and the ones that operate
Speaker 1: in the field where they really don't. Is that what
Speaker 1: you're seeing. We do believe that, you know, and those
Speaker 1: with the inventory and the pricing power are really likely
Speaker 1: to be the big winners. I mean, Walmart, Target, you know,
Speaker 1: Costco's Amazon. We think those are going to be some
Speaker 1: of the big winners this holiday season, just given that
Speaker 1: they do have inventory, they've got the best pricing, and
Speaker 1: they really have the broad base of of items across
Speaker 1: the categories that people would want to shop for. So
Speaker 1: we're pretty optimistic about those guys hanging in the season. Joe,
Speaker 1: if we do see a resurgence in new cases of COVID,
Speaker 1: I hate that I'm saying this, But if we see
Speaker 1: this new variant actually take hold and start to create
Speaker 1: a prolonged feeling of the pandemic, again, I hate that
Speaker 1: I'm saying this. Do you expect there to be a
Speaker 1: conditional and an additional consolidation among the biggest players here
Speaker 1: because of their supply chain UH power because of their
Speaker 1: ability to negotiate independently with particular suppliers with particular nations.
Speaker 1: We think we're already starting to see it where, you know,
Speaker 1: the market share gains for some of those big Bucks guys,
Speaker 1: the Walmarts and Targets of the world costcos where they
Speaker 1: were able to, you know, get the products that they need.
Speaker 1: They were able to negotiate with their their shipping partners
Speaker 1: and in some cases do it on their own. And
Speaker 1: so I think you're absolutely right that they're getting what
Speaker 1: they need, they're consolidating that inventory. They also have the
Speaker 1: best prices out there, so they can be really competitive
Speaker 1: in this environment. I think it's been really much more
Speaker 1: challenging for some of the smaller retailers to deal with
Speaker 1: this environment and with it. If there is another flare
Speaker 1: up in the pandemic here in the US, UH you know,
Speaker 1: fourth wave or something, I would think we're going to
Speaker 1: see similar type of behaviors. And that's part of why
Speaker 1: we've seen Walmart and Target, even the grocers are holding
Speaker 1: up a lot better than people thought they would have
Speaker 1: at this point. I think that we all thought they
Speaker 1: would have been much bigger reversion to the means, so
Speaker 1: to speak, and it really hasn't been you know, We've
Speaker 1: just elevated the level of sales and we're growing on
Speaker 1: top of that. Joe Felban, thank you so much for
Speaker 1: being with us. This is the Bloomberg Surveillance Podcast. Thanks
Speaker 1: for listening. Join us five weekdays from seven to ten
Speaker 1: am Eastern on Bloomberg Radio and on Bloomberg Television each
Speaker 1: day from six to nine am for insight from the
Speaker 1: best in economics, finance, investment, and international relations. And subscribe
Speaker 1: to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com,
Speaker 1: and of course on the terminal. I'm Tom Keene, and
Speaker 1: this is Bloomberg