WEBVTT - Surveillance: Inflation Trades with Golub (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.160 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.560 To find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot 0:00:23.560 --> 0:00:30.080 Com and of course on the Bloomberg terminal right now. 0:00:30.080 --> 0:00:33.599 And this is critically important with hindsight to look back 0:00:33.640 --> 0:00:37.560 at somebody who nailed the last great moment of the bullmarket. 0:00:37.640 --> 0:00:40.720 John Gollob and Credit Sweets had the courage to come 0:00:40.720 --> 0:00:43.480 out with a Barbell strategy which was blah blah blah 0:00:43.560 --> 0:00:46.720 blah blah and don't give up on a big text. 0:00:47.280 --> 0:00:50.480 He was a genius. The genius joins us this morning. 0:00:50.560 --> 0:00:53.920 John Gollob is head of US equity Strategy and quantitative 0:00:53.920 --> 0:00:57.960 research for Credit at Sweets. Now, what John, you know, 0:00:58.000 --> 0:01:00.960 if I if I have Amazon, Apple, what ever, and 0:01:01.000 --> 0:01:04.720 I'm gonna hold them, what is the prescription to recover? 0:01:06.040 --> 0:01:08.840 You know, Tom, we actually think that in a high 0:01:08.920 --> 0:01:13.440 inflation environment that tech just doesn't do as well. So 0:01:13.840 --> 0:01:17.479 it's interesting we we've been table pounding on tech throughout 0:01:17.600 --> 0:01:19.840 the last couple of years, but as we rolled into 0:01:19.920 --> 0:01:22.760 this year, we didn't say short that we said basically 0:01:22.800 --> 0:01:25.880 good of neutral, because as long as the cycle continues 0:01:25.920 --> 0:01:29.520 to be inflationary, they just struggle a little bit more. 0:01:30.040 --> 0:01:32.240 And what we actually see, and we've done a whole 0:01:32.240 --> 0:01:35.640 bunch of qualt work around this, is that when inflation 0:01:35.760 --> 0:01:38.959 is high and stubbornly high, you actually want to be 0:01:39.080 --> 0:01:43.240 in stuff that's more cyclical beneficiaries of this, so energy stocks, 0:01:43.319 --> 0:01:45.520 material stocks and the like. Not because these are the 0:01:45.600 --> 0:01:48.680 best stocks forever, but they're the best stocks for the moment. 0:01:49.200 --> 0:01:55.560 Will those tech stocks continue to have revenue growth? Um? Yeah, 0:01:55.640 --> 0:01:57.760 But if you take a look like in the last 0:01:58.200 --> 0:02:02.240 let's say the most recent earnings sea season, tech names, um, 0:02:02.280 --> 0:02:05.880 you know grew about seven percent, but those cyclical groups 0:02:05.880 --> 0:02:09.799 grew something like thirty or forty because they just they 0:02:09.880 --> 0:02:13.840 just did better. They have more operating leverage, more physical infrastructure, 0:02:13.840 --> 0:02:16.840 in in in the kind of old economy cyclicals, and 0:02:16.880 --> 0:02:18.760 therefore they have more upset. And if you look at 0:02:18.760 --> 0:02:23.359 this earning season, those tech companies were, you know, the well, 0:02:23.400 --> 0:02:27.119 the megacap tech companies were pretty lack luster. So it's 0:02:27.160 --> 0:02:30.760 not just a sentiment issue. They're they're having a harder time. 0:02:30.800 --> 0:02:35.320 But but also they went into the year very expensive. 0:02:35.400 --> 0:02:38.160 That run that we were predicting in Tech played out 0:02:38.160 --> 0:02:40.399 beautifully and sometimes you have to know when it's time 0:02:40.480 --> 0:02:42.760 to take your foot off the battle, which is what 0:02:42.800 --> 0:02:45.120 we did on Tech earlier this year. How do retail 0:02:45.160 --> 0:02:49.680 earnings fit into your thesis? Well, you know, um, Lisa, 0:02:50.480 --> 0:02:55.040 the I think that everybody, starting really last Friday, thought 0:02:55.160 --> 0:02:58.200 that the worst was behind us. And then with you know, 0:02:58.280 --> 0:03:01.120 Walmart and Target News, people felt like they got kicked 0:03:01.120 --> 0:03:04.080 in the stomach that maybe the consumers rolling over and 0:03:04.120 --> 0:03:06.880 companies are gonna have margin problems. And then if you 0:03:06.919 --> 0:03:10.040 actually look, you know, we had a lot of companies 0:03:10.080 --> 0:03:11.920 like you know, t J Max and Home Depo and 0:03:11.960 --> 0:03:14.760 Lows and they did fine that they had beats in 0:03:14.840 --> 0:03:18.720 the high single digits. It was really a couple of 0:03:18.720 --> 0:03:21.360 these prominent names like Home Depot Lows at hard time, 0:03:21.800 --> 0:03:24.400 and a lot of those were really what I would 0:03:24.400 --> 0:03:28.000 call is a mix issue. People were buying groceries, but 0:03:28.080 --> 0:03:31.480 they didn't want to buy furniture and TV sets and 0:03:31.480 --> 0:03:35.120 and in many cases these were really merchandising problems. They 0:03:35.120 --> 0:03:38.000 were kind of the wrong products as people are rotating 0:03:38.440 --> 0:03:43.240 towards um experiences and restaurants and hotels and getting back out. 0:03:43.520 --> 0:03:47.760 So I'm not sure that we should be over extrapolating 0:03:48.080 --> 0:03:50.320 some of the bad news from those retails, but I 0:03:50.320 --> 0:03:53.200 will tell you it surely shook the market in the 0:03:53.200 --> 0:03:55.440 middle part of this week. So that's the glass half 0:03:55.440 --> 0:03:58.760 full view of these retail earnings that basically it is 0:03:58.840 --> 0:04:01.960 a mixed issue, not a consumer health issue. And some 0:04:02.000 --> 0:04:04.160 people would agree with you, Jonathan, But doesn't that give 0:04:04.160 --> 0:04:06.320 you a sense that the FED is going to raise 0:04:06.440 --> 0:04:08.880 rates all the more so to try to stave off 0:04:08.920 --> 0:04:11.680 some of the inflationary pressure because the consumer still has 0:04:11.760 --> 0:04:15.400 momentum and that presents a valuation problem for stocks. As 0:04:15.440 --> 0:04:17.640 we were hearing from Sevita Supermannia in a Bank of 0:04:17.640 --> 0:04:20.760 America earlier this morning. Yeah, I'm not sure that the 0:04:20.800 --> 0:04:25.359 FED responds to the retail earnings that but but I 0:04:25.360 --> 0:04:29.640 mean generally, but the trend. But listen, wage inflation is 0:04:29.760 --> 0:04:32.080 really high. When when when a year ago, when we 0:04:32.160 --> 0:04:35.920 when we had three percent inflation, people were saying, is 0:04:35.960 --> 0:04:38.560 oh that speaking, there's no way to get to four percent? 0:04:39.000 --> 0:04:41.400 And now we're we're over eight. So the Fed, I 0:04:41.440 --> 0:04:43.679 don't want to say there at autopilot for a little while, 0:04:43.920 --> 0:04:46.320 but they're gonna have to push rates, you know, at 0:04:46.440 --> 0:04:49.279 least a three percent, which is what the markets discounting. 0:04:49.680 --> 0:04:51.440 And my view is by the end of next year 0:04:51.480 --> 0:04:54.719 we maybe closing to four percent on on FED funds 0:04:54.720 --> 0:04:57.359 if if they need to, you know, really hold on 0:04:57.360 --> 0:05:01.040 a second, Jonathan, in all honesty, then how canst keep rallying? 0:05:01.279 --> 0:05:03.640 How can you get to near five thousand and by 0:05:03.640 --> 0:05:05.680 the end of the year on the SMP if you 0:05:05.720 --> 0:05:09.120 get three or four percent fund funds rate? Well, I mean, 0:05:09.240 --> 0:05:13.200 the most important thing is corporate profits are holding up 0:05:13.360 --> 0:05:15.520 really well on and so take a look at this 0:05:15.520 --> 0:05:20.440 this earning season. Revenues are running on the SMP four percent. 0:05:20.560 --> 0:05:23.880 This quarter, earnings are up twelve, so the margin pressure 0:05:24.360 --> 0:05:27.880 is tiny. But we had this really weird thing going 0:05:27.960 --> 0:05:31.000 on with the banks with reserve releases, and if you 0:05:31.080 --> 0:05:35.880 took that out, the revenues were and the EPs was twenty. 0:05:35.960 --> 0:05:39.240 So the earnings are super powerful and stocks are cheap 0:05:39.279 --> 0:05:41.520 at this boy, John, John, John, that is the most 0:05:41.560 --> 0:05:45.440 intelligent thing I've heard this week on equity optimism. That 0:05:45.600 --> 0:05:50.359 differential equation is linked at the hip with nominal g 0:05:50.520 --> 0:05:53.719 d P and the decline. Are you suggesting within all 0:05:53.720 --> 0:05:57.320 the credit suites work that the great miss here is 0:05:57.320 --> 0:06:03.160 at nominal GDP will sustain longer, which will allow companies 0:06:03.200 --> 0:06:07.840 to adapt into the gloom Lisa just mentioned Tom, I 0:06:07.880 --> 0:06:11.080 think that is the only story. I mean, my favorite 0:06:11.200 --> 0:06:13.520 that The one screen that I look at the most 0:06:13.520 --> 0:06:16.880 of my Bloomberg terminal is e c f C. What 0:06:17.200 --> 0:06:21.320 where is the consensus view on what the economy is 0:06:21.360 --> 0:06:23.719 going to do over the next quarter and year and 0:06:23.760 --> 0:06:26.360 two years. And what it tells you is that nominal 0:06:26.440 --> 0:06:31.200 GDP this year should run nine percent. I mean normal 0:06:31.440 --> 0:06:34.400 is three and a half. For all of those folks 0:06:34.440 --> 0:06:39.159 who say, oh, we're going into recession, economists all over 0:06:39.200 --> 0:06:42.520 are basically saying this is a recoring economy. You know, 0:06:42.520 --> 0:06:46.200 I'm gonna tear up here. John Golub, John Farrow. John 0:06:46.240 --> 0:06:50.480 Golub is really drunk the kool a did credit Suiteze Donaldson, Lufkin, Jenrette. 0:06:50.640 --> 0:06:52.760 He's on the edge of Tom Galvin here with a 0:06:52.800 --> 0:06:56.080 sales centric view. I'm gonna try and beat polite hair 0:06:56.640 --> 0:07:00.880 um a c FC Okay, John, has that ever been 0:07:00.920 --> 0:07:06.080 a leading indicator for anything? Well, I mean, you know, Jonathan, 0:07:06.120 --> 0:07:10.480 you have to use some framework to say directionally, where 0:07:10.480 --> 0:07:14.400 do we think that the economy is going. So if 0:07:14.440 --> 0:07:17.400 you're looking at you know, where inflation is going. You 0:07:17.400 --> 0:07:19.640 can look at the tips market. If you're looking where 0:07:19.680 --> 0:07:23.120 GDP is, it's not there's no tradeable instrument on your Bloomberg. 0:07:23.200 --> 0:07:25.840 You have no choice but to use either your own 0:07:25.840 --> 0:07:29.040 house economists and and and our continentst guys are also 0:07:29.080 --> 0:07:31.800 pretty bullish. But but or you can just say where's 0:07:31.920 --> 0:07:36.120 where's the whole gang? Thinking that that that the the 0:07:36.160 --> 0:07:38.880 growth is gonna be and and that's what you find 0:07:38.920 --> 0:07:40.600 on the terminal. And not only can you do it, 0:07:40.680 --> 0:07:42.640 but I can see it by firm, so I can 0:07:42.680 --> 0:07:44.760 say what are the biggest shops? What are the people 0:07:44.760 --> 0:07:46.720 at the FED think it's gonna be. They're all in 0:07:46.760 --> 0:07:51.400 the same direction, which is the underlying economic growth measurement 0:07:51.440 --> 0:07:55.119 in nominal dollars, that's including inflation is gonna be really 0:07:55.120 --> 0:07:57.360 strong this year and here's the most important thing, and 0:07:57.400 --> 0:08:00.480 really strong next year as well. That's that's not you know, 0:08:00.560 --> 0:08:03.440 that's that's that's that Haro that it's just the FED 0:08:03.520 --> 0:08:05.800 full cost John, When did the FED a full cost 0:08:05.800 --> 0:08:09.480 of recession? It's just not well they do it with 0:08:09.640 --> 0:08:11.680 they do it about a year with a year delay. 0:08:11.880 --> 0:08:13.880 You know there there, they do it after the fact. 0:08:13.920 --> 0:08:17.280 But but listen, I get that, But you have to 0:08:17.400 --> 0:08:20.240 use some framework saying where do you think the world 0:08:20.320 --> 0:08:22.040 is going? And if you ask me what the most 0:08:22.040 --> 0:08:26.040 important issue is on inflation and growth. We have an 0:08:26.040 --> 0:08:29.920 incredibly tight labor market, which is leaving the consumer really 0:08:30.000 --> 0:08:34.079 confident in their ability to find work, and that leads 0:08:34.120 --> 0:08:36.920 people to be willing to go out and over extend 0:08:36.920 --> 0:08:39.600 themselves on credit. And it also means that you have 0:08:39.880 --> 0:08:43.000 high wage inflation. You add those two things together, it's 0:08:43.000 --> 0:08:46.200 all about the labor market. And and that's my take. 0:08:46.320 --> 0:08:49.400 Independent of what you have on that, that forecasting is great. 0:08:49.559 --> 0:08:52.280 Define both John is gonna catch up buddy as always, 0:08:52.320 --> 0:09:02.200 Johnathan of the Credit swas right now in an important conversation, 0:09:02.280 --> 0:09:04.839 and I will go to John Pharaoh here in a moment. 0:09:04.880 --> 0:09:07.040 But I want to slip in one question with the 0:09:07.120 --> 0:09:12.199 United Kingdoms Secretary of State for Business, Energy and Industrial Strategy, 0:09:12.640 --> 0:09:15.000 he John and the rest of the nation enjoying a 0:09:15.120 --> 0:09:19.280 nine percent inflation. Kasi Carton is with us. He's celebrating 0:09:19.320 --> 0:09:24.520 Liverpool's European dominance and more than anything understands the gridlock 0:09:24.720 --> 0:09:29.080 of British politics. Author a decade ago of gridlock nation. 0:09:29.440 --> 0:09:32.640 What's the level of gridlock right now, Minister, in terms 0:09:32.679 --> 0:09:38.120 of dealing with nine percent inflation? Well, it's a huge challenge, Tom, 0:09:38.160 --> 0:09:41.640 and you will know that it's a global challenge. We 0:09:41.760 --> 0:09:45.840 had a pandemic, we had lockdowns right across the world, 0:09:46.440 --> 0:09:50.960 we had a huge surgeon demand when those lockdowns were eased, 0:09:51.400 --> 0:09:56.240 and now we've got this unprecedented situation in Ukraine, first 0:09:56.280 --> 0:09:59.439 time in seventy years, seventy five years that we're seeing 0:09:59.480 --> 0:10:03.800 an actual war in Europe. So these are unprecedented times 0:10:04.120 --> 0:10:09.000 and the British government has very much decided to help consumers, 0:10:09.040 --> 0:10:13.319 help people in the UK. We had a good announcement 0:10:13.320 --> 0:10:16.000 from the Chancellor in February about the kind of help 0:10:16.600 --> 0:10:19.200 that he was willing to give, and he and the 0:10:19.200 --> 0:10:21.840 Prime Minister have said that they are looking to help 0:10:21.880 --> 0:10:24.720 people more. Let's talk about that and whether situation the 0:10:24.840 --> 0:10:27.320 consumer the people of the UK feeling that right now. 0:10:27.320 --> 0:10:30.839 Because he wrote a letter recently two petrol retailers about 0:10:30.920 --> 0:10:33.920 the concerns that the Chancellor's five fuel duty cup wasn't 0:10:33.920 --> 0:10:37.200 being passed on in any visible or meaningful way. What's 0:10:37.240 --> 0:10:40.839 the response been, Well, we're looking at that still. I mean, 0:10:40.880 --> 0:10:46.079 I think it's very wrong of Petrol the four courts 0:10:46.720 --> 0:10:49.880 not to pass on the reduction um and I think, 0:10:49.960 --> 0:10:52.520 you know, we we're seeing that there's some behavior change, 0:10:52.520 --> 0:10:54.000 but they could There's a lot more they could do 0:10:54.440 --> 0:10:57.120 and I'm very keen that they actually help out. You're 0:10:57.160 --> 0:10:59.959 against the windfall tax, why is there? I've been always 0:11:00.040 --> 0:11:03.320 against wind full tax. I think there arbitrary. I think 0:11:03.320 --> 0:11:06.400 they discourage investment. And when you look at the companies 0:11:06.440 --> 0:11:11.200 that invest in the North Sea, you know it's a 0:11:11.280 --> 0:11:14.080 very cyclical business. So when they make money, they tend 0:11:14.080 --> 0:11:16.240 to make a lot of money, and then when they lose, 0:11:16.920 --> 0:11:20.000 they make big losses and they're not they're not supported 0:11:20.000 --> 0:11:22.360 when they do make those losses. You've talked about investment 0:11:22.360 --> 0:11:24.800 in the UK and you're worried that it would deter investment, 0:11:24.840 --> 0:11:27.360 but not learning of tre P said to The Times 0:11:27.360 --> 0:11:29.720 earlier this month. He was asked basically whether he change 0:11:29.720 --> 0:11:32.600 any spending plans because of a windfall tax, and he said, quote, 0:11:32.960 --> 0:11:35.720 there are none that we wouldn't do. Isn't that good 0:11:35.720 --> 0:11:38.440 news that you can do that? He won't change your 0:11:38.480 --> 0:11:41.480 spending plants. He's telling you, well, it's up to I mean, 0:11:41.520 --> 0:11:44.440 you can speak to Bernard directly yourself. I'm not quite 0:11:44.440 --> 0:11:46.200 sure what he was referring to, but there's no doubt 0:11:46.200 --> 0:11:49.400 that other players in the industry say that any kind 0:11:49.400 --> 0:11:52.400 of wind full tax would deter future investment. I mean, 0:11:52.440 --> 0:11:56.439 that's pretty obvious, um, and they need fiscal certainty. They 0:11:56.440 --> 0:11:59.079 don't want rabbits out of the hat, so they just speach. 0:12:00.559 --> 0:12:02.320 I just wanted to jump in with something the chancellors 0:12:02.320 --> 0:12:05.000 said to the Chancellor said what I want to see 0:12:05.000 --> 0:12:08.160 a significant investment back into the UK economy to support jobs, 0:12:08.520 --> 0:12:11.000 to support energy security, and I want to see that suit. 0:12:11.040 --> 0:12:12.920 If that doesn't happen, then no options are off the 0:12:12.960 --> 0:12:15.120 table now, as you know quality the printent response from 0:12:15.120 --> 0:12:17.080 any chance there is not to take things off the 0:12:17.080 --> 0:12:19.440 table ahead of a plan. But I want your view 0:12:19.480 --> 0:12:22.199 on there. I want some goals. I want to understand 0:12:22.320 --> 0:12:24.600 what kind of investments do you want to see from 0:12:24.640 --> 0:12:27.120 these players and over what time frame, because if we're 0:12:27.120 --> 0:12:28.920 going to wait for these guys, they've got a ten 0:12:29.000 --> 0:12:31.320 year time of writing for their spending plans will be 0:12:31.320 --> 0:12:33.440 out a decade and then we'll say, oh, okay, maybe 0:12:33.440 --> 0:12:35.640 we should have do a win full tax. Now what's 0:12:35.640 --> 0:12:37.839 the time frame how much spending you want to see 0:12:37.920 --> 0:12:40.439 over what time we want to see spending I'm not 0:12:40.440 --> 0:12:42.800 going to quantify, but we want to see actual, real spending. 0:12:42.800 --> 0:12:44.440 And there's evidence that they're doing that. I mean, if 0:12:44.440 --> 0:12:48.240 you look at our program for carbon capture blue hydrogen production, 0:12:48.600 --> 0:12:52.200 both SHELL and BP are directly involved in that in 0:12:52.240 --> 0:12:56.000 the northeast of our country of England, and they can 0:12:56.040 --> 0:13:00.520 see that there is a huge opportunity in terms of investment. 0:13:00.559 --> 0:13:03.520 And that's exactly what the chance of, the kind of investment, 0:13:03.559 --> 0:13:05.560 the chance that wants to see. And as you say, 0:13:05.840 --> 0:13:08.760 the chance is quite right to say all options are 0:13:08.760 --> 0:13:11.560 on the table. Every chancellor I've known since i've been 0:13:11.600 --> 0:13:14.400 an MP has always said that there's no way that 0:13:14.400 --> 0:13:16.760 he's going to take options off the table ahead of 0:13:16.760 --> 0:13:20.319 the budget. Dr Quartine, you enjoy a PhD in economic 0:13:20.440 --> 0:13:24.080 history from a small shop the University of Cambridge. You 0:13:24.120 --> 0:13:26.360 know the history of this and the simple history as 0:13:26.400 --> 0:13:31.160 windfall profit taxes do not work period. It's well documented. 0:13:31.400 --> 0:13:35.520 But as John alludes to, there is a generational trust 0:13:35.880 --> 0:13:40.680 that has been broken between corporate elites and the people. 0:13:41.360 --> 0:13:45.600 How do you guarantee, given the lack of trust, a 0:13:45.840 --> 0:13:51.040 process here that helps the people of the United Kingdom. 0:13:51.080 --> 0:13:53.720 So that's why the Chance that was very clear Tom 0:13:53.800 --> 0:13:57.240 that they have to invest in the UK. We want 0:13:57.240 --> 0:14:00.600 to see their ambitions realized by there. Do you need 0:14:00.600 --> 0:14:04.000 an investrating? Does is it so urgent that it needs 0:14:04.040 --> 0:14:07.840 to be crtified to be in writing? I think I 0:14:07.880 --> 0:14:11.160 think the commitments are already there. I'm not sure that 0:14:11.200 --> 0:14:14.400 we need any kind of legal document or quasi legal document. 0:14:14.760 --> 0:14:19.160 But what what they understand is that these new technologies, 0:14:19.840 --> 0:14:24.080 the decarbonization, all of that stuff needs investment and it 0:14:24.080 --> 0:14:26.800 actually creates jobs. And you will also know that we're 0:14:26.880 --> 0:14:30.920 very interested, are very focused on leveling up. That's actually 0:14:31.000 --> 0:14:34.040 giving opportunity to areas of our country in the UK 0:14:34.520 --> 0:14:38.120 which in the last few years few decades have been underinvested. 0:14:38.400 --> 0:14:42.200 And so BP and Shell and others know that our 0:14:42.240 --> 0:14:47.840 commitment to leveling up and our commitment also to decobinization 0:14:48.040 --> 0:14:52.360 mean that business investment needs to happen, and they're very 0:14:52.400 --> 0:14:54.480 aware of that. And they also know, as the Chance 0:14:54.520 --> 0:14:56.920 that said, that if they don't step up to that plate, 0:14:57.720 --> 0:14:59.960 then they could well be subject to win full tax, 0:15:00.040 --> 0:15:03.640 because I think that's a reasonable conversation. Just to final question, sir, 0:15:04.000 --> 0:15:06.720 just on the final point, to understand what people are 0:15:06.720 --> 0:15:08.760 going through right now if they listen to this conversation. 0:15:09.240 --> 0:15:12.240 You've got a company BP engaged in buy backs. I'm 0:15:12.280 --> 0:15:14.520 not here to say that's the wrong thing. They've referred 0:15:14.520 --> 0:15:16.720 to themselves as a cash machine when all prices are 0:15:16.720 --> 0:15:19.520 climate like they are. You've got the CEO who's saying 0:15:19.520 --> 0:15:21.880 he wouldn't change his spending plan if he faced the 0:15:21.880 --> 0:15:24.960 windfall tax, and we've got the government saying we don't 0:15:25.000 --> 0:15:27.640 want to do that. You're saying that, do you understand 0:15:27.640 --> 0:15:30.240 how deeply uncomfortable that might be for people who can't 0:15:30.240 --> 0:15:33.480 pay their energy bills this month. Look, it's really difficult, 0:15:33.520 --> 0:15:37.600 but the investment actually helps people. People have pension plans, 0:15:37.920 --> 0:15:40.720 they have they want to have jobs, they want to 0:15:40.720 --> 0:15:44.560 have energy security. So I can't, as an energy minister say, 0:15:44.760 --> 0:15:47.560 please invest in our energy security of supply. But by 0:15:47.600 --> 0:15:49.560 the way, I'm going to give you a wind full tax. 0:15:49.600 --> 0:15:53.160 That doesn't make sense. In order to protect energy supply, 0:15:53.280 --> 0:15:56.520 we need investment, and in order to have investment, they 0:15:56.560 --> 0:16:00.640 need we need a stable fiscal situation. We can't simply 0:16:00.680 --> 0:16:04.160 just threatened people with will have arbitrary wind full taxes. 0:16:04.240 --> 0:16:07.000 Having said all of that, as you know, the chance 0:16:07.040 --> 0:16:09.360 of the check is responsible for the budget. He's not 0:16:09.440 --> 0:16:11.200 taking any options off the table, and he wouldn't be 0:16:11.200 --> 0:16:12.960 the first chance that did to do it, as you know, 0:16:13.360 --> 0:16:15.720 because we could go back to the conservative chance of 0:16:15.840 --> 0:16:19.440 night one he did something similar. Quasi thank you, right 0:16:19.480 --> 0:16:23.320 to catch up. Thank you, sir Quasi kwat sing the 0:16:23.480 --> 0:16:30.920 UK the Secretary of Energy and Business. It is a 0:16:31.000 --> 0:16:34.240 joy right now on this Friday, as we regroup again 0:16:34.280 --> 0:16:37.040 for meetings with someone who stopped us in Davos a 0:16:37.080 --> 0:16:40.800 couple of years ago. Sevina Supermannian was in Davous with 0:16:40.880 --> 0:16:44.080 her Bank of America holding court on E s G. 0:16:44.360 --> 0:16:49.240 She's had of US equity and quantitative strategy for the bank. Sevina, 0:16:49.320 --> 0:16:52.280 time has marched on E s G. Seems so yesterday's 0:16:52.320 --> 0:16:56.280 story given record call prices as well. How does the 0:16:56.440 --> 0:17:00.680 shock of these many global risks fold all over into 0:17:00.760 --> 0:17:05.240 moving forward in the stock market? How do you regroup 0:17:05.359 --> 0:17:09.720 now to get ready for two thousand twenty three? Yeah, 0:17:10.040 --> 0:17:13.119 I mean I think that where we are now is 0:17:13.320 --> 0:17:16.800 Tom a tough time for E s G investors because 0:17:16.920 --> 0:17:19.520 the best performing areas of the market are hard to 0:17:19.520 --> 0:17:23.359 bold defense energy. These are two areas that are typically 0:17:23.400 --> 0:17:26.320 excluded from e SG funds. So I think that's been 0:17:26.640 --> 0:17:31.040 hurting these, uh, these types of investors from a market perspective, 0:17:31.160 --> 0:17:34.000 I still think the worst is not behind us. UM. 0:17:34.000 --> 0:17:37.119 We published yesterday that it was sort of a realistic 0:17:37.200 --> 0:17:40.080 worst case floor for the S and P five hundred 0:17:40.119 --> 0:17:44.040 would be about three thousand, thirty two hundred UM. You know, 0:17:44.160 --> 0:17:46.520 here's the thing I think when I talk to clients now, 0:17:46.720 --> 0:17:49.679 folks are asking me, you know, give me any reason 0:17:49.760 --> 0:17:53.160 to be bullish right now? And I think the reasons 0:17:53.200 --> 0:17:55.600 to be bullish are the fact that clients are asking 0:17:55.640 --> 0:17:59.480 that question. There's a pervasive, uh kind of fog of 0:17:59.560 --> 0:18:02.720 negative sentiments out there which would argue that at the 0:18:02.720 --> 0:18:05.520 bad news is priced in. I think what you want 0:18:05.520 --> 0:18:08.080 to buy at this point in the cycle is still 0:18:08.400 --> 0:18:14.520 very late cycle inflation beneficiary. So we're still overweight energy. 0:18:14.600 --> 0:18:18.199 I think energy. You know, to your point about China reopening, 0:18:18.600 --> 0:18:21.280 energy could be Oil could be depressed right now, just 0:18:21.320 --> 0:18:23.720 given the fact that the second largest economy in the 0:18:23.760 --> 0:18:28.560 world is offline um, I think that materials look less 0:18:28.600 --> 0:18:32.399 interesting to US commodities and metals because we are seeing 0:18:32.480 --> 0:18:35.000 some slowing trends in China despite the fact that they 0:18:35.040 --> 0:18:38.040 are trying to you know, stimulate the economy. And we're 0:18:38.080 --> 0:18:42.840 also seeing a shift in demand from finished hard goods 0:18:42.920 --> 0:18:46.680 and you know, big ticket items to services. So under 0:18:46.720 --> 0:18:50.439 that backdrop, it makes sense to continue to go along oil, 0:18:50.600 --> 0:18:53.840 but you know, maybe move off of the raw materials. 0:18:54.040 --> 0:18:57.119 So long agoing far away, a guy named Ken Lewis 0:18:57.200 --> 0:18:59.880 was pillorated Bank of American. I always thought that Ken 0:19:00.119 --> 0:19:03.480 us was brilliant on his Pacific RIM strategy. Bank of 0:19:03.520 --> 0:19:06.600 America didn't go into the Pacific rim or their head 0:19:06.640 --> 0:19:09.440 cut off. They were very measured about it and attempted 0:19:09.480 --> 0:19:12.520 to be responsible. I want to know what you think 0:19:12.600 --> 0:19:16.000 about the bet on Pacific RIM equity is given a 0:19:16.200 --> 0:19:19.400 China reopening. Is it worth playing or do you stay 0:19:19.400 --> 0:19:22.919 in the US? I think you stay in the US. 0:19:23.040 --> 0:19:25.840 I mean, look, you know this this year, we've seen 0:19:25.840 --> 0:19:31.560 a very interesting rewriting of countries based on energy security. 0:19:31.760 --> 0:19:36.280 Countries that can don't need to import oil are probably 0:19:36.560 --> 0:19:40.239 you know, kind of enjoying a unique advantage. And and 0:19:40.280 --> 0:19:43.200 I think that second of all, the US is further 0:19:43.280 --> 0:19:46.400 along in terms of trying to stimulate the economy, trying 0:19:46.400 --> 0:19:49.760 to push up interest rates. We have corporates and consumers 0:19:49.760 --> 0:19:53.840 that are better capitalized. They've you know, basically gotten all 0:19:53.880 --> 0:19:56.439 this money from the FED and the government. So I 0:19:56.480 --> 0:19:59.159 think that when I look at the US relative to 0:19:59.240 --> 0:20:02.600 rest of world, I still think this is a year 0:20:02.760 --> 0:20:04.919 or two where the US is going to continue to 0:20:04.960 --> 0:20:07.520 outperform rest of world. So emerging markets, to me, it 0:20:07.640 --> 0:20:11.480 still looks a little bit uh uh, you know, potentially risky. 0:20:11.640 --> 0:20:14.520 Not to mention that if you look at our economists, 0:20:14.520 --> 0:20:18.240 they're advising down their growth forecasts outside of the US 0:20:18.359 --> 0:20:21.200 much more aggressively than within the US. So I think 0:20:21.240 --> 0:20:25.120 those are all reasons to stay local, stay US focused. 0:20:25.119 --> 0:20:27.959 Even small caps I think could do well in an 0:20:28.080 --> 0:20:31.800 environment where the US economy is potentially you know, going 0:20:31.840 --> 0:20:33.760 to see a little bit of a list of companies 0:20:33.760 --> 0:20:36.320 start spending again. You know, Tom, I just want to say, 0:20:36.359 --> 0:20:39.080 the most surprising thing to me during this earning season 0:20:39.640 --> 0:20:43.080 is that even though all of these companies are guiding 0:20:43.160 --> 0:20:45.959 down and you know, very negative in terms of what 0:20:46.000 --> 0:20:48.879 they're expecting over the next couple of years, they're still 0:20:48.920 --> 0:20:52.080 guiding up on cap X. They're still telling us they're 0:20:52.080 --> 0:20:54.399 going to spend more than we think they're going to spend. 0:20:54.880 --> 0:20:58.240 Capex cycles are generally good for the economy, they're good 0:20:58.240 --> 0:21:00.720 for small caps. Maybe they're negati for the companies that 0:21:00.840 --> 0:21:02.880 have to spend the money. But I think it's interesting 0:21:02.920 --> 0:21:06.240 to see that capex is still a theme that companies 0:21:06.320 --> 0:21:10.800 haven't dialed back. Serveta, this week's staples have been absolutely hammered. 0:21:11.160 --> 0:21:13.480 Retails already struggled. You've been on top of that story. 0:21:13.480 --> 0:21:15.120 I want to want to send from your perspective, whether 0:21:15.160 --> 0:21:17.320 we're confusing two things right now, the difference between how 0:21:17.400 --> 0:21:19.960 much the consumer is spending and how they're spending it. 0:21:20.320 --> 0:21:22.480 There seemed to be a massive focus on just the weakness, 0:21:22.520 --> 0:21:24.800 the signal that you're getting from the retailers that there 0:21:24.840 --> 0:21:27.040 was some weakness out there. Do you think the biggest 0:21:27.080 --> 0:21:29.880 story this week was just a shift in how they're spending, 0:21:30.200 --> 0:21:32.760 not how much they're spending. So I think the big 0:21:32.760 --> 0:21:36.480 shifts are how they're spending and also just you know, labor, 0:21:36.640 --> 0:21:40.040 there's a there's a sort of a really dramatic shift 0:21:40.080 --> 0:21:43.400 in terms of undersupplied to oversupplied that we're hearing from companies, 0:21:43.920 --> 0:21:47.679 and that could actually benefit some of the more labor 0:21:47.720 --> 0:21:52.520 intensive areas of the consumer sector, like supermarkets or you know, 0:21:52.560 --> 0:21:55.000 we haven't seen these companies perform well, but I think 0:21:55.000 --> 0:21:57.439 that where we're where we are seeing a little bit 0:21:57.440 --> 0:22:00.879 of an alleviation is in terms of the the labor supply, 0:22:01.040 --> 0:22:04.439 so that's you know, potentially a positive for margins. We're 0:22:04.560 --> 0:22:08.840 overweight staples for the long haul because our idea is, 0:22:09.280 --> 0:22:12.399 as Ethan Harris, our global economists continues to warn of 0:22:12.600 --> 0:22:17.520 rising recession risks, we think that staples, healthcare, no matter what, 0:22:17.600 --> 0:22:20.040 you still have to take your drugs and you know, 0:22:20.160 --> 0:22:23.119 eat your food. So defensive sectors to us still make 0:22:23.160 --> 0:22:27.240 a lot of sense. In a stipulationary backdrop. The best 0:22:27.280 --> 0:22:33.440